Heritage Cannabis Holdings Inc. s. 144

August 27, 2024

Order

Headnote

National Policy 11-207 Failure-to-File Cease Trade Orders and Revocations in Multiple Jurisdictions -- application for partial revocation of failure-to-file cease trade order -- issuer cease traded due to failure to file with the Commission interim financial statements, related management's discussion and analysis and related certifications -- issuer has applied for a partial revocation of the cease trade order to permit trades of securities of the issuer in connection with a court-approved transaction under the Companies' Creditors Arrangement Act -- partial revocation granted subject to conditions.

Applicable Legislative Provisions

Securities Act, R.S.O. 1990, c. S.5, as am., s. 144.

National Policy 11-207 Failure-to-File Cease Trade Orders and Revocations in Multiple Jurisdictions.

IN THE MATTER OF
THE SECURITIES ACT, R.S.O. 1990, c. S.5,
AS AMENDED
(the Act)

AND

IN THE MATTER OF
HERITAGE CANNABIS HOLDINGS CORP.

ORDER
(Section 144)

BACKGROUND

1. Heritage Cannabis Holdings Corp. (the Issuer) is subject to a failure-to-file cease trade order (the FFCTO) issued by the Ontario Securities Commission (the Principal Regulator) on April 8, 2024.

2. The Issuer has applied to the Principal Regulator pursuant to section 144 of the Securities Act (Ontario) for a partial revocation order of the FFCTO.

INTERPRETATION

3. Terms defined in National Instrument 14-101 Definitions or National Policy 11-207 Failure-to-File Cease Trade Orders and Revocations in Multiple Jurisdictions have the same meaning if used in this order, unless otherwise defined.

REPRESENTATIONS

4. This decision is based on the following facts represented by the Issuer:

(a) The Issuer was incorporated under the Business Corporations Act (Ontario) on November 4, 2019, as Umbral Energy Corp. and later changed its corporate name to Heritage Cannabis Holdings Corp. on April 10, 2023.
(b) The Issuer is a reporting issuer in each of Alberta, British Columbia, New Brunswick, Nova Scotia and Ontario.
(c) The Issuer's registered and head office is located at 1 First Canadian Place, Suite 1600, 100 King Street West, Toronto, Ontario, M5X 1G5, Canada.
(d) The Issuer is focused on extraction and creation of cannabis extract and extract-derivative brands for adult use, and cannabis-based medical solutions.
(e) The authorized capital of the Issuer consists of an unlimited number of common shares (the Common Shares). As at the date hereof, there are approximately 1,058,739,220 Common Shares issued and outstanding. The Issuer has no other outstanding securities (including debt securities).
(f) The Common Shares are currently listed and halted for trading on the Canadian Securities Exchange (the CSE) under the symbol "CANN", as well as on the OTC Pink in the United States under the symbol "HERTF". The Issuer intends to delist the Common Shares from the CSE and OTC Pink and apply for a full revocation of the FFCTO following completion of the Transaction (as hereinafter defined).
(g) The FFCTO was issued as a result of the Issuer's failure to file the following continuous disclosure materials as required by applicable Canadian securities laws:
(i) interim financial statements for the three month period ended January 31, 2024;
(ii) management's discussion and analysis relating to the interim financial statements for the three month period ended January 31, 2024; and
(iii) certification of the foregoing filings as required by National Instrument 52-109 Certification of Disclosure in Issuers' Annual and Interim Filings (collectively, the Unfiled Documents).
(h) In addition to the Unfiled Documents, the Issuer has also not filed the following documents:
(i) interim financial statements for the six month period ended April 30, 2024;
(ii) management's discussion and analysis relating to the interim financial statements for the six month period ended April 30, 2024;
(iii) certification of the foregoing filings as required by National Instrument 52-109 Certification of Disclosure in Issuers' Annual and Interim Filings; and
(iv) except for a certain press release filed by the Issuer on SEDAR+ on April 15, 2024 announcing the commencement of a sale and investment solicitation process under the CCAA Proceedings (as defined below), the appointment of the Monitor (as defined below) and the approval of the Original Stalking Horse Agreement (as defined below), the Issuer has not filed continuous disclosure documents required to be filed by applicable Canadian securities laws since the date of the FFCTO.
(collectively, the Subsequent Unfiled Documents).
(i) In light of ongoing financial difficulties, the Issuer and its subsidiaries filed for creditor protection under the Companies' Creditors Arrangement Act (the CCAA) and received an order (the Initial Order) for creditor protection under the CCAA from the Ontario Superior Court of Justice (Commercial List) (the Court) on April 2, 2024 (the CCAA Proceedings).
(j) Pursuant to the Initial Order, the Court, inter alia, appointed KPMG Inc. as monitor (in such capacity, the Monitor) of the Issuer under the CCAA Proceedings.
(k) On April 10, 2024, the Issuer, Heritage Cannabis West Corporation (Heritage West), Heritage Cannabis East Corporation (Heritage East) BJK Holdings Ltd. (BJK) and HAB Cann Holdings Ltd. (the Purchaser) entered into the stalking horse subscription agreement (the Original Stalking Horse Agreement). The Purchaser is an arm's length party to the Issuer.
(l) On April 11, 2024, the Court granted an order (the SISP Order) authorizing the Monitor to conduct, with the assistance of the Issuer, a sale and investment solicitation process (the SISP) intended to solicit interest in the opportunity for a sale of or investment in all or part of the Issuer's assets and business operations.
(m) On May 10, 2024, the Issuer announced that the bid by the Purchaser, had been designated as the successful bid under the SISP (the Successful Bid) and that in accordance with the SISP Order, the Issuer would seek Court approval of the Successful Bid and authority to consummate the transactions provided for therein.
(n) On June 17, 2024, the Issuer, Heritage West, Heritage East, BJK and the Purchaser entered into an amended and restated stalking horse subscription agreement (the Amended Stalking Horse Agreement).
(o) On June 26, 2024, the Court granted an order under the CCAA (the Approval and Reverse Vesting Order) pursuant to which, inter alia, the Court (i) approved the Amended Stalking Horse Agreement and the transactions contemplated therein (the Transaction), (ii) added 1000921087 Ontario Inc. (Residual Co.) as an applicant to the CCAA Proceedings, (iii) authorized the transfer and vesting of all of the right, title and interest of the Issuer, Heritage West, Heritage East, 333 Jarvis Realty Inc., 5450 Realty Inc., Premium 5 Ltd. and Purefarma Solutions Inc. in certain excluded assets and excluded liabilities to Residual Co., (iv) authorized and directed each of the Issuer, Heritage East and Heritage West, as applicable, to file articles of amendment, (v) authorized and directed the Issuer to issue an aggregate of 100,000,000,000 Common Shares (the Heritage Cannabis Purchased Shares) to the Purchaser, (vi) authorized and directed Heritage West to issue an aggregate of 10,000 Class I Voting Common shares (the Heritage West Purchased Shares) to the Purchaser, (vii) authorized and directed Heritage East to issue an aggregate of 10,000 Class B Common shares (the Heritage East Purchased Shares, and together with the Heritage Cannabis Purchased Shares and Heritage West Purchased Shares, the Purchased Shares) to the Purchaser and (viii) authorized the termination and cancellation of all of the equity interests of each of the Issuer, Heritage West and Heritage East, other than for the Purchased Shares, for no consideration. Pursuant to the Transaction, there will be no funds to be distributed to unsecured creditors as the Transaction is not sufficient to pay the claims of all secured creditors in full, and as such there is no associated claims process.
(p) Pursuant to the Approval and Reverse Vesting Order, having been advised of the provisions of Multilateral Instrument 61-101 Protection of Minority Security Holders in Special Transactions relating to the requirement for "minority" shareholder approval in certain circumstances, the Court ordered that no meeting of shareholders or other holders of equity interests of the Issuer is required to be held in respect of the Transaction.
(q) Pursuant to the Approval and Reverse Vesting Order, following completion of the Transaction, the Monitor, for and on behalf of Residual Co., will file an assignment in bankruptcy pursuant to the Bankruptcy and Insolvency Act (Canada).
(r) Following the completion of the Transaction, HAB will be the sole shareholder of the Issuer.
(s) In connection with carrying out the SISP Order and obtaining the Approval and Reverse Vesting Order, the Issuer has engaged in certain acts in furtherance of trades in the securities of the Issuer, including its entry into the Original Stalking Horse Agreement and the Amended Stalking Horse Agreement (collectively, the Acts), which Acts were taken with the approval of, and under the supervision of, the Court. Under the SISP Order, the Court approved the Original Stalking Horse Agreement "nunc pro tunc", meaning the Court's approval of entering into of the Original Stalking Horse Agreement was retroactive to April 10, 2024. Except for the Acts and the filing of the Unfiled Documents and the Subsequent Unfiled Documents, the Issuer is not in default of any requirements of the FFCTO, the securities legislation of any jurisdiction in which the Issuer is a reporting issuer (the Legislation), or the rules and regulations made pursuant thereto.
(t) Since the issuance of the FFCTO, there have not been any material changes in the business, operations or affairs of the Issuer that have not been disclosed to the public apart from matters relating to the CCAA Proceedings and the Transaction.
(u) All inquiries received from securityholders that the Issuer has received regarding the proposed Transaction have been resolved by the Monitor.
(v) As the Transaction will involve trades in securities of the Issuer, the closing of the Transaction is conditional on the partial revocation of the FFCTO.
(w) The issuance of the Heritage Cannabis Purchased Shares by the Issuer will occur in Ontario.
(x) The Heritage Cannabis Purchased Shares will not be qualified for distribution to the public under any applicable Canadian securities laws and will be subject to restrictions on transfer in Canada.
(y) Following completion of the Transaction, all securities of the Issuer will remain subject to the FFCTO until a full revocation of the FFCTO is granted.
(z) Other than for the Transaction, no further trading in securities of the Issuer will be made by the Issuer unless further relief from the FFCTO is sought by the Issuer or a full revocation of the FFCTO is granted.
(aa) Following completion of the Transaction, the Issuer intends to apply for a full revocation of the FFCTO and a cease to be a reporting issuer order.
(bb) The Issuer's SEDAR+ and SEDI profiles are up to date.

ORDER

5. The Principal Regulator is satisfied that a partial revocation order of the FFCTO meets the test set out in the Legislation for the Principal Regulator to make the decision.

6. The decision of the Principal Regulator under the Legislation is that the FFCTO is partially revoked solely to permit the trades in securities of the Issuer (including for greater certainty, acts in furtherance of trades in securities of the Issuer) that are necessary for and are in connection with the Transaction, provided that:

(a) prior to completion of the Transaction, the Purchaser will receive:
(i) a copy of the FFCTO;
(ii) a copy of this order; and
(iii) written notice from the Issuer, to be acknowledge by the Purchaser in writing (the Acknowledgement), that all of the Issuer's securities, including the securities issued in connection with the Transaction, will remain subject to the FFCTO until a full revocation order is granted, the issuance of which is not certain and that the Issuer intends to apply to cease to be a reporting issuer immediately following closing of the Transaction;
(b) the Issuer undertakes to make available a copy of the Acknowledgement to staff of the Principal Regulator upon request; and
(c) this order will terminate on the earlier of:
(i) the completion of the Transaction; and
(ii) 60 days from the date hereof.

DATED this 27th day of August, 2024.

"Marie-France Bourret"
Manager, Corporate Finance
Ontario Securities Commission

OSC File #: 2024/0474