Superior Court of Justice (Commercial List)

Counsel/Endorsement Slip

Court File No.: CV-25-00739458-00CL
Date: March 28, 2025
No. on List: 2
Title of Proceeding: The Cannabist Company Holdings (Canada) Inc. / 16834434 Canada Inc. v. Murchinson Ltd.
Before: Justice J. Dietrich

Participant Information

For Plaintiff, Applicant

• Philip Yang
  The Cannabist Company Holdings (Canada) Inc. / 16834434 Canada Inc.
  pyang@stikeman.com

• Brittney Ketwaroo
  bketwaroo@stikeman.com

• Lee Nicholson
  leenicholson@stikeman.com

For Defendant, Respondent

• Joseph Groia
  Murchinson Ltd.
  jgroia@groiaco.com

For Other, Self-Represented

• Brendan O’Neill
  Goodmans LLP – Counsel for the Ad Hoc Group of Senior Noteholders
  boneill@goodmans.ca

• Brad Wiffen
  bwiffen@goodmans.ca

• Peter Ruby
  pruby@goodmans.ca

Endorsement of Justice J. Dietrich

Introduction

[1] The Applicants, The Cannabist Company Holdings (Canada) Inc. (“The Cannabist Canada Company”) and 16834434 Canada Inc. (“168Co” and together with The Cannabist Canada Company, the “Applicants”) have brought this application (the “Arrangement Application”) pursuant to s. 192 of the Canada Business Corporations Act, RSC 1985 c. C-44 (the “CBCA”), for approval of a plan of arrangement (the “Arrangement”).

[2] Terms not otherwise defined herein have the meaning provided to them in the factum of the Applicants filed on this motion.

[3] Today, the Applicants seek relief under s. 192(4) of the CBCA for advice and directions from this Court by way of an interim order (the “Interim Order”) which would direct the Applicants to hold a meeting of Senior Noteholders on April 29, 2025 to consider and vote on the Arrangement Resolution for approval of the Arrangement. The Interim Order sought today also deals with the necessary notice and other mechanical requirements for the meeting as well as the classification of the Senior Noteholders into one class for voting purposes. The Interim Order sought also contains a limited stay of proceedings.

[4] Murchinson Ltd. (collectively with funds it advises, “Murchinson”) holds certain of the Senior Notes as outlined below. Murchinson seeks a deferral of the relief sought by the Applicants today in respect of the classification of the Senior Notes for voting purposes. Murchinson asks that a final determination on the classification issue be deferred to the Final Order hearing. The concern with this requested deferral is that it would lead to increased uncertainty and potentially wasted expense as the Applicants proceed down the path to the meeting of Senior Noteholders and a Final Order hearing.

[5] Motions for Interim Orders in respect of CBCA plans of arrangement are procedural orders “to set the wheels in motion for the application process relating to the arrangement and to establish the parameters for the holding of shareholder meetings to consider approval of the arrangement in accordance with the statute” (see Re First Marathon, 1999 CarswellOnt 2295 (Ont. S.C.J. - Comm List) [First Marathon] at para 9). Matters of fairness and reasonableness of the plan are to be determined at the Final Order hearing.

[6] To ensure that Murchinson has the information necessary to make fulsome submissions regarding the vote as it relates to fairness at the Final Order hearing, the Applicants have agreed to ensure that the vote of the Senior Noteholders is recorded separately for each of the 2025 Notes, the 2026 Notes and the 2027 Notes.

[7] Murchinson has also commenced an application against the Applicants and The Cannabist Company Holdings Inc. seeking, among other things, relief under the oppression remedy under section 241 of the CBCA (the “Oppression Application”). Murchinson seeks to have the Oppression Application heard at the same place and time as the Arrangement Application. The Applicants agree with this request.

Background

The Cannabist Group

[8] The Cannabist Group operates a fully integrated cannabis business—including cultivation, manufacturing, and retail—across 12 states in the United States where medical or adult-use cannabis is legally permitted.

[9] The Cannabist Canada Company is incorporated pursuant to the CBCA, having its registered office in Toronto, Ontario, Canada. The Cannabist Canada Company is a direct, wholly-owned subsidiary of The Cannabist Company. The Cannabist Canada Company is a co-issuer of the Senior Notes.

[10] 168Co is incorporated pursuant to the CBCA, having its registered office in Toronto, Ontario, Canada. 168Co is a direct, wholly owned subsidiary of The Cannabist Company. 168Co does not have any liabilities. 168Co is contemplated to be amalgamated with The Cannabist Canada Company upon implementation of the Plan.

[11] The Cannabist Company is the parent company of The Cannabist Canada Company, 168Co and various U.S.-based subsidiaries. The Cannabist Company is incorporated pursuant to the Business Corporations Act (British Columbia). The Cannabist Company is a public company. The CBST Common Shares are listed for trading under the ticker symbol “CBST” on CBOE.

[12] The Cannabist Group’s operations are conducted through 20 U.S.-based subsidiaries. These U.S.-based subsidiaries own or manage interests in several state-licensed medical and/or adult use marijuana businesses in California, Colorado, Delaware, Illinois, Maryland, Massachusetts, New Jersey, New York, Ohio, Pennsylvania, Virginia, and West Virginia.

The Cannabist Group Capital Structure

[13] The Cannabist Group indebtedness consists primarily of approximately $270 million of Senior Notes issued pursuant to the Existing Indenture. The Senior Notes are summarized in the below table:

Notes	Approximate Amount	Maturity Date	Interest Rate	Security
2025 Notes	$59.5 million	June 29, 2025	6.0%	First lien shared pari passu between all Secured Notes
2026 Notes	$185 million	February 3, 2026	9.5%	First lien shared pari passu between all Secured Notes
2027 Notes	$25.5 million	March 19, 2027	9.0%	First lien shared pari passu between all Secured Notes

[14] Pursuant to the Existing Indenture, all Senior Notes that are outstanding at any time rank pari passu and are equally and rateably secured with all other outstanding Senior Notes, with the same right, lien, and entitlement with respect to all of the same collateral without preference, priority, or distinction between the Senior Notes on account of the date or dates or the actual time or times of the issuance or maturity of the Senior Notes.

[15] Pursuant to the Existing Indenture, the non-payment of principal of one series of Senior Notes (for the 2026 Notes in an amount exceeding $50 million) gives rise to cross-defaults under other series of notes and, subject to certain limited conditions, all Senior Notes may be accelerated. Further, upon an insolvency proceeding, all Senior Notes are accelerated. Any money collected by the Indenture Trustee exercising rights and remedies under the Existing Indenture is paid “rateably and proportionately” between all holders of Senior Notes.

Events Leading to the Arrangement

[16] The market price of the CBST Common Shares decreased by approximately 50%, from $0.21 on November 1, 2024, to $0.10 on November 11, 2024. The Applicants are of the view that this market price drop corresponded to a decrease experienced by other industry participants as a result of a Florida Ballot Measure failing to pass which would have legalized recreational cannabis use for adults in Florida. The cannabis market sell-off also had a direct negative impact on the Company’s liquidity outlook.

[17] To address the challenging operating environment and its liquidity challenges, the Cannabist Group states that it has made several structural changes to their operations with a focus on simplification across its business. Throughout 2024 and continuing in 2025, the Company (a) divested and closed underperforming assets; (b) restructured and grew its wholesale business; (c) reduced overall headcount by more than 20%; (d) implemented enhanced purchasing and pricing procedures; and (e) simplified its product selection.

[18] As well, since August 2023, the Cannabist Group states that it has been focused on maintaining stability of its business operations and proactively exploring strategic options to manage its balance sheet and improve liquidity. As part of these strategic efforts, between August 2023 to mid-2024, the Cannabist Group undertook various transactions, including, among other things: (a) raised $25,000,000 of equity financing; (b) entered into two exchange transactions in respect of the 2025 Notes and senior secured notes due May 2024; (c) raised new money through the 2027 Notes; (d) divested of non-core businesses; and (e) engaged a nationally recognised investment bank in May 2024 to explore a further debt or equity financing to add additional liquidity to the balance sheet.

[19] In June 2024, The Cannabist Company engaged Moelis as financial advisor and the Company’s legal advisor, Stikeman, to explore options to shore up liquidity to make the required interest payment and improve its balance sheet.

[20] Ultimately, after evaluating the options available to the Cannabist Group, the Special Committee and the Board determined that the Eastern Virginia and Arizona Divesture to Verano described in the Hart Affidavit was in the best interests of the Company. The Eastern Virginia and Arizona Divesture allowed the Company to make the interest payment on the 2026 Notes of $8,797,500 due on August 3, 2024 and was expected to assist with the Company’s liquidity throughout 2025. However, the value of the Verano Shares issued as part of the transaction fell significantly following the failure of the Florida Ballot Measure and the transaction failed to serve as a long-term solution to the Company’s liquidity issues.

[21] Following negotiations with certain noteholders comprising the Ad Hoc Group in late 2024 and early 2025, on February 27, 2025, the Company entered into the Support Agreement with the Supporting Noteholders. The Supporting Noteholders represent approximately 71% of the Senior Notes.

Overview of the Arrangement

[22] The CBCA Restructuring Transaction contemplates a series of steps pursuant to the Arrangement that are designed to lead to the extension of the Senior Notes until December 31, 2028 (subject to extension in certain circumstances). As an overview, pursuant to the Arrangement, among other things each holder of 2025 Notes and 2026 Notes will exchange their Senior Notes for (i) new senior notes (the “New Senior Notes”) co-issued by The Cannabist Canada Company and The Cannabist Company with equal principal amount, and (ii) its pro rata amount of 118,209,105 of New CBST Common Shares. As well, each holder of 2027 Notes will elect to exchange their 2027 Notes for either the same consideration as the 2025 Notes and 2026 Notes or new convertible senior notes issued by The Cannabist Canada Company and The Cannabist Company (the “New Convertible Notes”, and together with the New Senior Notes, the “New Notes”) for equal principal amount.

[23] On closing of the CBCA Restructuring Transaction, Early Supporting Noteholders who receive New Senior Notes will also receive their pro-rata share of a $1,500,000 Early Consent Consideration. Existing CBST Shareholders will be issued the Anti-Dilutive Warrants. The Cannabist Canada Company will be amalgamated with 168Co.

Position of Murchinson

[24] Murchinson holds approximately $20 million of the 2025 Notes and $6.25 million of the 2027 Notes. Murchinson filed a responding record including an affidavit of Paul Zogala affirmed on March 26, 2025 in response to the Arrangement Application. As noted above, Murchinson has also commenced the Oppression Application.

[25] Most of the concerns raised by Murchinson are in respect of the fairness of the Arrangement (which is not before me today) or are to be addressed in the Oppression Application.

[26] Murchinson also, as discussed below, objects to the classification of Senior Notes in one class for purposes of the Interim Order.

Issues

[27] There are two issues to be decided today. First, should an interim order under s. 192 of the CBCA be granted? Second, is the classification proposed by the Applicants appropriate?

Analysis

The Granting of an Interim Order

[28] The purpose of an interim order such as the one requested is, as noted above, procedural.

[29] The Court at the interim order stage is not required to inquire whether a particular plan is fair and reasonable: see 45133541 Canada Inc., Re, 2009 QCCS 6440 (“Abitibi”) at para 52. It is enough that it be satisfied that there is sufficient indication of fairness to warrant the matter proceeding to a vote and fairness hearing. That the purpose of the Court on an interim motion is not to assess the fairness of the plan of arrangement but simply to set the terms of service and the terms on which the meeting to approve the plan of arrangement will be held; see Re Canopy Rivers Inc., 2021 ONSC 355 at para 4.

[30] As set out in paras 47-49 of 8440522 Canada Inc., Re, 2013 ONSC 2509 (Mobilicity), in assessing whether to approve an Interim Order under s.192 of the CBCA, an applicant must demonstrate that it:

1. is acting in good faith in putting the proposed plan forward; and
2. satisfies the applicable statutory requirements being:
   (i) the proposed arrangement constitutes an "arrangement" as defined under s.192(1) of the CBCA;
   (ii) the applicant is not "insolvent" as defined in ss. 192(2)(a) and (b) of the CBCA;
   (iii) it is not "practicable" for the applicant to effect a fundamental change in the nature of the proposed plan of arrangement under any other provision of the CBCA; and
   (iv) the applicant gave notice of the application to the Director appointed under s.260 of the CBCA.

[31] There is no reason to believe that the Arrangement is not being put forward in good faith. The Arrangement is proposed by the Applicants to further a valid business purpose, namely, to proactively address the pending maturity of the 2025 Notes (and corresponding cross-defaults of the other Senior Notes) and extend the maturity until December 31, 2028. This is particularly important given the Applicants’ evidence that there is a liquidity shortfall such that it is not expected the Company could repay the 2025 Notes at their upcoming maturity.

[32] With respect to the statutory requirements, here the proposed Arrangement contemplates an exchange of the Senior Notes for the New Notes and the amalgamation of the Cannabist Canada Company with 168Co. This qualifies as an Arrangement pursuant to s.192(1) of the CBCA.

[33] The evidence is that neither of the Applicants is insolvent within the meaning of s.192(2) of the CBCA. Although the Cannabist Canada Company is a co-issuer of the Senior Notes, when considering the definition of insolvent within the meaning of s. 192(2) of the CBCA, the evidence is that it is currently able to pay its liabilities as they become due and the realizable value of the assets of the Cannabist Group exceed the obligations under the Senior Notes and the Cannabist Group, including Cannabist Canada Company. It may be that for purposes of the Companies’ Creditors Arrangement Act (the “CCAA”), the analysis would be different (as the definition of insolvency is different), but that is not for today.

[34] Further, 168Co has no liabilities and therefore is not insolvent. It is well-settled that only one applicant company is required to be solvent at the interim order stage to meet the solvency test under the CBCA: see Mobilicity at para 53.

[35] As well, it is impractical to proceed other than by way of the Arrangement. The alternative to the Arrangement would increase the complexity of the proposed CBCA Restructuring Transaction because (i) absent the Arrangement, the Cannabist Group would require the consent of 100% of the Senior Noteholders to implement the extension of maturity dates under the Existing Indenture. Given the large number of Senior Noteholders and make up of such Senior Noteholders, the Company does not believe it would be practicable to achieve 100% approval contemplated by the Existing Indenture; and (ii) the proposed final order requested to be granted by the Court in these CBCA proceedings will constitute a basis for exemption from these registration requirements under the United States Securities Act of 1933. Using the exemption will save a significant amount of time and money in connection with the CBCA Restructuring Transaction. These reasons have been accepted as sufficient to satisfy the impracticality requirement in other cases: see RGL Reservoir Management Inc. (Re), 2017 ONSC 7302 at para 38 and Xplore Inc. (Re), 2024 ONSC 4593 at para 75(c).

[36] It should also be noted that the proposed Interim Order contains a limited stay of proceedings to be in effect until the earlier of the time when the Arrangement becomes effective or further order of the Court. The limited stay applies in connection with any default related to the filing of the Arrangement Application, any Cannabist Entity being a party to the Arrangement, any steps taken in connection with the Arrangement, the non-payment of principal due under the Existing Indenture or related cross defaults.

[37] I am satisfied that such a stay is appropriate and is authorized under section 192(4), in that it would operate so as to prevent actions that would adversely impact the business of the Applicants or the pursuit and implementation of the Arrangement. Examples of where such similar relief has been granted are referenced at para 56 of Sherritt International Corporation and 16743714 Canada Inc., et al., 2025 ONSC 1409 (“Sherritt 2025”).

[38] The parties have agreed that the requested stay will not apply to the Oppression Application.

Classification

[39] The principles applicable to the commonality of interest assessment in the context of proceedings under the CCAA are relevant for purposes of assessing voting classifications under the CBCA: see Sherritt 2025 at para 47.

[40] As set out in Re Canadian Airlines Corp. at paras 17 and 18; leave to appeal refused 2000 ABCA 149:

“Generally, creditors should vote as a common class so long as their rights are not so dissimilar as to make it impossible for them to consult together with a view to their common interest.” The Court has summarized the factors to be considered in determining whether creditors share a commonality of interest as follows:

1. Commonality of interest should be viewed on the basis of the non-fragmentation test, not on an identity of interest test.
2. The interests to be considered are the legal interests the creditor holds qua creditor in relationship to the debtor company, prior to and under the plan as well as on liquidation.
3. The commonality of these interests are to be viewed purposively, bearing in mind the object of the CCAA, namely to facilitate reorganizations if at all possible.
4. In placing a broad and purposive interpretation on the CCAA, the court should be careful to resist classification approaches which would potentially jeopardize potentially viable plans.
5. Absent bad faith, the motivations of the creditors to approve or disapprove are irrelevant.
6. The requirement of creditors being able to consult together means being able to assess their legal entitlement as creditors before or after the plan in a similar manner. See Canadian Airlines at paras. 17 and 31, and Re Sherritt International Corporation, 2020 ONSC 5822 (“Sherritt 2020”) at paras. 35-41.

[41] Importantly, commonality of interest considers only creditors’ legal entitlements in relation to the company being arranged, and not their broader commercial interests: Canadian Airlines at paras. 19 and 27.

[42] As recognized in Sherritt 2020 at para 40, classification under the CBCA “should be organized in a manner that is consistent with the facilitative purpose of the arrangement provisions under the CBCA. […] Creditors should not be fragmented into groups that would defeat the plan unless there is good reason to do so.”

[43] The Applicants submit that classifying the Senior Noteholders as a single class is appropriate for purposes of voting on the Arrangement Resolution. The Senior Notes are all issued under the same Existing Indenture, all share the same collateral and all rank pari passu with each other.

[44] Murchinson did not dispute that in an insolvency proceeding, all of the Senior Notes would be accelerated and should share the same collateral pari passu with each other.

[45] However, Murchinson argues that the terms of the Existing Indenture provide a contractual entitlement to the holders of the 2025 Notes that if a matter to be addressed at a meeting of noteholders affects the rights of holders of one series of notes in a manner or to an extent different in a material way from that in which the rights of holders of other notes are affected, then a separate meeting of the holders of the 2025 Notes is required.

[46] It is not clear to me that the language of the Existing Indenture applies to meetings under s. 192 of the CBCA, but even assuming it does, counsel for Murchinson acknowledges that it cannot bind the Court at this hearing. Rather, he submits that such contractual entitlement should be taken into account in assessing the commonality of interest for purposes of classification.

[47] I accept that the terms of the Existing Indenture should be taken into account when determining the commonality of interest for classification purposes. However, when taken as a whole, the interests of the holders of the 2025 Notes and the other Senior Notes are almost identical. They share the same security. Even taking into account the provisions of the Existing Indenture which provide for an expectation of separate meetings in certain circumstances, for purposes of classification under s. 192 of the CBCA, there is no reason to believe that it would be impossible for the holders of the 2025 Notes to consult with the other Senior Noteholders (see Sherritt 2020 at para 43).

[48] Murchinson also argues that the holders of the 2027 Notes are to receive different consideration under the Arrangement (in that they have the option of obtaining convertible notes) and this should be also taken into account. I accept that what a creditor is to receive under the plan should be taken into account. However, the option provided to the holders of the 2027 Notes is more appropriately addressed in this case as part of the fairness analysis at the final order stage rather than by creating a separate class of creditors at this point.

[49] I am not convinced that this is a case where the Senior Noteholders should be fragmented into groups. The interest of the noteholders and the CFA lenders (lenders under a Carry Finance Agreement) at issue in Sherritt 2020 was much more divergent than that of the holders of the 2025 Notes as compared to the other Senior Noteholders. In Sherritt 2020, unsecured noteholders and lenders under a Carry Finance Agreement had very different legal relationships with the applicant. Here all of the Senior Notes were issued under the same indenture (with certain supplemental indentures) and share the same security. Given the similarity of legal entitlements among the Senior Noteholders, agreeing to put the 2025 Notes in a separate class would amount to fragmentation as opposed to creating classes of creditors whose interests are legitimately different.

[50] Accordingly, I approve the single class of Senior Noteholders proposed by the Applicants.

[51] However, as discussed during the hearing, the Applicants will ensure that the votes of the Senior Noteholders are recorded by each of the 2025 Notes, 2026 Notes and 2027 Notes so that Murchinson can, if desired, make submissions as to fairness on this issue.

Disposition

[52] For the reasons provided above, the proposed Interim Order, with the revisions as discussed during the hearing, is approved. The only contested aspects of the proposed Interim Order were the issues referred to above. The proposed Interim Order also deals with notice and voting mechanics. It is in a form substantively consistent with the Model Interim Order of the Commercial List issued by this Honourable Court in respect of similar plans of arrangement.

[53] A full day on May 12, 2025, has been scheduled before me to hear not only the request for a final order in this proceeding but also to hear the Oppression Application (Court File CV-25-00739982-00CL). The parties have agreed to work out a schedule leading to May 12, 2025. If there are issues, a case conference before me can be arranged through the Commercial List Office. Given that two applications are proceeding on that day, the Applicants and Murchinson are permitted an extra 10 pages (but only one factum each) for a total of 35 pages.

[54] Order to go in the form signed by me today.

March 28, 2025
J. Dietrich