Inside One Cannabis Company's Aggressive Loan-To-Own Strategy To Control Distressed Industry Players

SNDL Inc SNDL, a prominent player in the cannabis industry, has been making headlines with its aggressive loan-to-own strategy. As explained in a recent newsletter from Viridian Capital Advisors, this approach involves acquiring secured debt from cannabis companies, pressuring them into bankruptcy and then using their debt holdings to bid for ownership of these companies’ assets. This method has allowed SNDL to expand its influence and control within the industry, leveraging both its lending arm and operational expertise to take over distressed businesses.

Recent Moves With Delta 9

On May 24, 2024, Delta 9 Cannabis revealed that it had received a demand letter from SNDL for the repayment of its 10% Senior Secured second lien convertible debentures, amounting to approximately $10 million. Delta 9 responded by stating that it was not in payment default on the notes, although the issue of potential covenant violations remained open. In response, Delta 9 promptly formed a committee of its Board to review “strategic alternatives.”

The situation escalated on July 5, 2024, when SNDL announced that it had acquired $20.7 million of Delta 9's First Priority secured debt from Connect First and Servus Credit. This acquisition granted SNDL a first priority secured interest in nearly all of Delta 9's assets, significantly increasing its leverage over the company.

Read also: Cannabis Giant SNDL Is Taking Care Of Other Companies’ Debts, Expects To Acquire Shares Of Canadian Cannabis Edibles Producer

SNDL’s actions with Delta 9 reflect its broader strategy of leveraging creditor status to gain ownership of distressed companies’ assets. This tactic has been previously employed with success in cases such as Skymint and Parallel. SNDL is also positioned as the stalking horse bidder for Indiva Ltd., proving its commitment to this aggressive expansion approach.

A Unique Position In The Market

SNDL is uniquely positioned to effectively execute its loan-to-own strategy. With a robust lending arm, it can make direct loans and purchase debt from other creditors. Its operational arm is staffed with experts who excel at managing acquired companies. Additionally, SNDL has established a U.S. holding company, similar to Canopy U.S., to handle or sell U.S. assets, giving it a distinctive edge in the cannabis industry.

What sets SNDL apart is its unique ability to both finance and operate distressed companies, a strategy not commonly seen among its peers. This dual capability allows SNDL to transform debt into tangible assets and operational control, making it a formidable player in the market.

SNDL's recent maneuvers with Delta 9 underscore its aggressive and strategic approach to expanding its presence in the cannabis industry. By leveraging its financial and operational strengths, SNDL is well-positioned to continue growing through the acquisition of distressed assets, reinforcing its status as a dominant force in the market.

This content was partially produced with the help of AI tools and was reviewed and published by Benzinga editors.

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