AH Aleafia Health Inc

Aleafia Health Inc. (TSX:AH, OTCQB:ALEAF) (“Aleafia” or the “Corporation”) announces today that the Corporation and certain of its Canadian subsidiaries, Emblem Corp., Emblem Cannabis Corporation, Emblem Realty Ltd., Growwise Health Limited, Canabo Medical Corporation, Aleafia Inc., Aleafia Farms Inc., Aleafia Brands Inc., Aleafia Retail Inc., 2672533 Ontario Inc., and 2676063 Ontario Inc. (collectively, the “Aleafia Group”) have been granted an order (the “Initial Order”) from the Ontario Superior Court of Justice (Commercial List) (the “Court”) under the Companies’ Creditors Arrangement Act (the “CCAA”), in order to restructure their business and financial affairs.

On July 14, 2023, Aleafia announced the mutual termination of the binding letter agreement (the “Letter Agreement”) entered into between Red White & Bloom Brands Inc. (“RWB”) and Aleafia on June 6, 2023 in respect of the proposed business combination transaction. In addition, pursuant to an assignment of indebtedness and security dated June 6, 2023, NE SPC II LP assigned to RWB, all indebtedness of Aleafia and certain of its affiliates in connection with the loan agreement made as of December 24, 2021, as amended on March 28, 2022, June 17, 2022, April 26, 2023, May 15, 2023, and May 31, 2023 (the “Aleafia Senior Secured Loan Agreement”). Aleafia is currently in breach of certain covenants under the Aleafia Senior Secured Loan Agreement, RWB has not waived any outstanding breaches and, on July 24, 2023, RWB issued demand letters and notices to enforce security under Section 244 of the Bankruptcy and Insolvency Act (Canada).

In light of, among other things, financial pressures resulting from obligations owing to creditors (including under the Aleafia Senior Secured Loan Agreement), challenging factors impacting the cannabis industry and the termination of the Letter Agreement, and after careful consideration of all available alternatives and consultation with legal and financial advisors, the board of directors of each member of the Aleafia Group determined that it was in the best interest of the Aleafia Group and its stakeholders to seek creditor protection under the CCAA.

The Initial Order provides for, among other things: (i) a stay of proceedings in favour of the Aleafia Group; (ii) the approval of debtor-in-possession financing (“DIP Financing”) in accordance with the DIP Term Sheet (as described below); and (iii) the appointment of KSV Restructuring Inc. as monitor of the Aleafia Group (in such capacity, the “Monitor”). The DIP Loan (as described below) is anticipated to fund the operations of the Aleafia Group in the ordinary course through the duration of the CCAA proceedings.

The stay of proceedings and DIP Financing will provide the Aleafia Group with the time and stability required to consider potential restructuring transactions and maximize the value of its assets for the benefit of its creditors and other stakeholders. This may include the sale of all or substantially all of the business or assets of the Aleafia Group through a court-supervised sale process. In that regard, the Aleafia Group intends to seek Court approval to launch a sale and investment solicitation process for its business and assets (the “SISP”) promptly following the Initial Order. The SISP is expected to be administered by the Monitor, with the assistance of the Aleafia Group. Additional details in respect of the SISP will be disclosed shortly.

In order to fund the CCAA proceedings and other short-term working capital requirements, Aleafia has executed a DIP term sheet with RWB dated as of July 24, 2023 (the “DIP Term Sheet”) pursuant to which RWB has agreed to advance DIP Financing in the amount of $6,600,000 (the “DIP Loan”). The continued availability of the DIP Loan is conditional on, among other things, certain conditions being satisfied, including the Initial Order remaining in effect.

It is anticipated that the Toronto Stock Exchange (“TSX”) will halt trading of the Corporation’s common shares and, as a result of having filed for protection under the CCAA, will place the Corporation under delisting review. There can be no assurance as to the outcome of such review or the continued qualification for listing on the TSX.

Additional information regarding the CCAA proceedings – including all of the Court materials filed in the CCAA proceedings – may be found at the Monitor’s website: https://www.ksvadvisory.com/insolvency-cases/case/aleafia

About Aleafia:

The Corporation is a federally licensed Canadian cannabis company offering cannabis products in Canadian adult-use and medical markets and in select international markets, including Australia and Germany. The Corporation operates a virtual medical cannabis clinic staffed by physicians and nurse practitioners which provide health and wellness services across Canada.

The Corporation owns three licensed cannabis production facilities and operates a strategically located distribution centre all in the province of Ontario, including the largest, outdoor cannabis cultivation facility in Canada. The Corporation produces a diverse portfolio of cannabis and cannabis derivative products including dried flower, pre-roll, milled, vapes, oils, capsules, edibles, sublingual strips and topicals.

Cautionary Statement Regarding Forward-Looking Information

This news release includes certain “forward-looking statements” under applicable Canadian securities legislation that are not historical facts. Forward-looking statements involve risks, uncertainties, and other factors that could cause actual results, performance, prospects, and opportunities to differ materially from those expressed or implied by such forward-looking statements. Forward-looking statements in this news release include, but are not limited to, Aleafia’s objectives and intentions, the availability of DIP Financing, the outcome of the CCAA proceedings and the SISP, and the trading and listing of the Corporation’s common shares on the TSX. Forward-looking statements are necessarily based on a number of estimates and assumptions that, while considered reasonable, are subject to known and unknown risks, uncertainties and other factors which may cause actual results and future events to differ materially from those expressed or implied by such forward-looking statements. Such factors include, but are not limited to: general business, economic and social uncertainties; litigation, legislative, environmental and other judicial, regulatory, political and competitive developments; delay or failure to receive board, shareholder or regulatory approvals; future cannabis pricing; cannabis cultivation yields; costs of inputs; its ability to market products successfully to its anticipated clients; reliance on key personnel and contracted relationships with third parties; the ability to complete any future potential transactions in connection with the SISP in CCAA proceedings and the terms and conditions thereof; the availability of DIP Financing; the application of federal, state, provincial, county and municipal laws; the impact of increasing competition; those additional risks set out in Aleafia’s public documents filed on SEDAR at www.sedar.com, including its annual information form for the financial year ended March 31, 2023; and other matters discussed in this news release related to the CCAA proceedings and the SISP. Although Aleafia believes that the assumptions and factors used in preparing the forward-looking statements are reasonable, undue reliance should not be placed on these statements, which only apply as of the date of this news release, and no assurance can be given that such events will occur in the disclosed time frames or at all. Except where required by law, Aleafia disclaims any intention or obligation to update or revise any forward-looking statement, whether as a result of new information, future events, or otherwise.

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