We didn’t have to wait long for Zenabis’ ($ZENA) reaction to Sundial’s ($SNDL) acquisition of most of their debt. And it looks like another company (or two) is in the mix.

This started just before year end, when $SNDL picked up $59MM in $ZENA’s paper. $7MM of it was due December 31st. The secured lender of it demanded payment, and $ZENA did pay……… by selling forward $7MM in weed to someone else – and having payment directed to the lender.

Which, apparently wasn’t enough to satisfy the initial lender after all.

$ZENA then jettisoned Bevo Farms on Monday (their money making horticulture business), and will rent back part of the facility to produce weed. While stated that this was to gird the balance sheet and focus on the ‘core’ business – timing of the horticultural business cashflow has put stress on timing of repayment. I view it analogously to a forced sale.

Today, $ZENA provides an update on where all this is going, and drop the ‘F’ word (forbearance) more than once:

Ostensibly, $ZENA’s declaring ‘bad faith’. They are saying everything was ‘just fine‘ until $SNDL came in and queered the deal.

Whoever that ‘major Canadian licensed producer’ is, they bought the forward and did a solid for $ZENA.

Well, I don’t think it’s much of a stretch to believe that $SNDL and $ZENA were making eyes at each other, and something went wrong. Or perhaps it was going to be wrong anyhow – as previous lender resilience has perhaps finally begun to wane. What is now, is a hostile by $SNDL (the long way round), or, with another interested party looking to ‘merge’ with $ZENA – the one who ponied up $7MM.

There’s not much surprise in any of this to me. The loss of Bevo farms reduces $ZENA to just another LP – and granted – $10MM/q in weed revenue. Whoever that other LP is – it looks like they are in the hunt to buy sales as well. Look to it being a mid-size producer with anemic sales and a relatively decent bank account. There isn’t many.

Break out the popcorn.

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 $ZENA or $SNDL

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