After a brief hiatus, it’s time to get back at it.

While we recorded a new podcast over the weekend, I found myself needing a few days off. The cannabis sector has been becoming increasingly complex financially, particularly in the US. GoBlue’s mentioned a few nuances between the credit landscapes in the US versus Canada, and these nuances will likely result in big differences between how distressed companies ‘reorganize’ or otherwise deal with creditors. In the case of optionality, the US presents some serious differences in super/compressed share structures, along with more complex interactions of dilution and corporate control.

‘iAnthus The Mute’ has now finally spoken. Not with financials of course – readers will know those have been off the table for awhile. But what does CEO Randy Maslow do when creditors make a margin call, and his corporate pockets are empty?

From a valuation standpoint, it’s becoming more challenging for me to disarticulate these financings as some of the components are now beginning to contain exotic options. And $iAN’s latest press release – while not containing explicit exotics – is now in totality…….an ‘exotic’.

[NB: As an aside, regarding exotic options….if you come across a ‘look-back’ – or a flavour of a ‘burst’ option like this example – run far, and run very fast. The link included in the previous sentence should be approached with caution and numerous caveats. It opens right into a world of everything wrong for the average retail sort….and pretty much everyone else in the world too. Much of the subject matter can easily be seen as being part voodoo, part witch-craft….mostly ‘Beat Wall Street at Their Own Game’ kind of crap. Mostly, it’s simply carny bunk selling you a worthless stuffed toy for a ton more than it cost. I include it to increase the reader’s awareness that this shit exists. It can sound credible to the uninformed. Sometimes, just like technical trading – which algorithms are often driven by – price behaviour can follow patterns. And this means that when an observed Fibonacci retracement occurs, one cannot tell whether natural market behaviour caused it, or whether existing trade positions and algorithms caused the event to occur. Often, price moves are driven solely by positions being taken or unwound in very complex transactions done by people whose financial exposures are completely unknown. If you’re thinking about trading with technicals or exotics, I strongly recommend you learn game theory and head to Vegas. Seriously. Your odds will be better, and they’ll be known in advance.]

And that brings us what CEO Maslow did in iAnthus’ latest release – which – demands a phlanx of analysts and a Fugaku to unwind. Fortunately I have people to draw upon if I need help, but admittedly, I don’t have a Fugaku.

High level overview:

Secured Debenture holders are taking a massive haircut on all sides

• The Secured Debentures (as defined below), after the completion of the Recapitalization Transaction, will be amended to (i) reduce the principal balance from $97.5 million, plus accrued and unpaid interest and fees, to $85 million, (ii) reduce the interest rate by 5% per annum; (iii) eliminate cash pay interest; (iv) extend the original maturity date by over four years and (v) remove the conversion feature;

Unsecured debenture holders, too bad so sad:

• The $60 million principal amount of Unsecured Debentures (as defined below), plus accrued and unpaid interest and fees, will be exchanged and no longer be outstanding;

Here’s some paper for them both, just for being them:

• The Company will issue an aggregate of $20 million of Preferred Equity to the Secured Lenders ($5 million) and Unsecured Debentureholders ($15 million) with a maturity date of five years and no cash pay dividends (or other form of consideration on substantially similar economic terms);

If neither of them plays ball, well, they’ll get what they get: it’ll be the hard way through CCAA proceedings.

BTW, management’s gotta make a living:

• All existing options and warrants of the Company will be cancelled upon completion of the Recapitalization Transaction, and the Company anticipates allocating an amount of equity to be made available for management, employee, and director incentives;

And, ultimately, we find out that the lowly existing shareholders – are taking the biggest haircut of all. A ‘full body shave’ is more accurate:

• If the Recapitalization Transaction is implemented pursuant to the Arrangement Proceedings, upon closing of the Recapitalization Transaction, the Secured Lenders and the Unsecured Debentureholders are expected to hold an aggregate of 97.25% of the Common Shares then outstanding and the Existing Shareholders will collectively own 2.75% of the then outstanding Common Shares. However, if the Recapitalization Transaction is implemented pursuant to the CCAA Proceedings, upon consummation of the Recapitalization Transaction, the Secured Lenders and the Unsecured Debentureholders are expected to hold all of the Common Shares then outstanding and the Existing Shareholders would not receive any recovery.

Ok. The full release isn’t up on Sedar yet. I winced while typing in the search phrase looking for it.

Given $iAN’s past, the Sedar post could take awhile. In any event….the capstone is that this is a surrogate bankruptcy. GoBlue points out that because of the lack of $iAN to access the US Chapter 11 provisions (and that most lenders are private), this mess is the result. Should it have been in this case, the assets probably would have been liquidated, and life would move on.

I suspect this is another time buy – it’s all the company has done since they first set expectations. And ‘Best in Class’ expectations they were. But instead of $iAN buying time, now it’s the creditors.

Lots to unpack, but at the bottom of it, it can be confirmed (rather than suspected) that $iAN is a zombie. Look for quality assets (if there is some) to get cut off the corpse through time, and for this thing to lumber on for awhile until it finds another zombie with which to walk with while in search of the living.

Catch up on our latest podcast (coming in the next day or so), where we talk about how funds are becoming more tightly aligned with distressed assets, and how creditors are changing underlying equities into personal trading vehicles. The $iAN transaction is nothing more than that in my eyes. In the case of C21 Investments, there hasn’t been enough of a cash infusion nor full enough change in the capital structure to claim its’ gone ‘full zombie’. Yet.

In the case of $iAN, the transformation is complete. Watch for some funky price moves go forward, but in terms of safety of your investing (or even trading dollars), I strongly suggest the reader find a shopping mall to hunker into and avoid this thing and any others it collects along the way at all cost.

The preceding is the opinion of the author, and is in no way intended to be a recommendation to buy or sell any security or derivative. The author holds no position in $iAN.