Parallel Traders Pull Again Curtain On Debt Defaults

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The most recent paperwork within the privately-owned Parallel Hashish (previously Surterra Wellness) lawsuit lay naked the problems surrounding the corporate’s debt and its incapacity to pay these money owed inflicting defaults.

The courtroom paperwork filed on Friday define a plan by Parallel’s then CEO Beau Wrigley and his household fund referred to as the PE Fund to create a brand new stage of debt that might leap forward of the Senior debt holders (a few of whom are submitting the lawsuit). That cash would then pay the debt owed and keep away from default. Nonetheless, there have been many issues with the plan and people points are outlined within the newest grievance. 

To set the stage, buyers that purchase debt in an organization are additionally ranked so as of precedence in case the corporate runs into hassle. Within the case of Parallel, Senior noteholders come first, adopted by Junior noteholders – there are not any widespread shareholders because the firm continues to be non-public. Had it develop into a public firm these shareholders could be the final within the line to gather any cash.

Tremendous Senior Debt

The buyers within the case, John and Ultima Morgan, TGHI II LLC, Prime Abroad Investments and Enterprises Ltd., and Techview Investments Ltd. complain that in 2021 whereas Wrigley was making ready the corporate to go public with a Particular Function Acquisition Corp. referred to as Ceres Acquisition Corp., it was truly having hassle paying its money owed. The grievance says, “Wrigley didn’t want to reveal that the Firm had missed its projections so badly that it couldn’t pay a debt Wrigley had simply secretly negotiated a couple of months earlier. This want for secrecy was exacerbated as a result of Wrigley was concurrently planning to refinance [redacted] of different debt, all of the whereas making an attempt to shut a SPAC transaction so he may entry the general public markets to money out his controlling inventory curiosity.”

The buyers declare that Wrigley needed to create a brand new tranche of Tremendous Senior Notes to be senior to their first-lien Senior Notes. The identical collateral backing their funding would now be used to again the brand new debt. The buyers say they didn’t give their approval to be pushed again down the road of repayments and that their approval was required. In addition they say that the Collateral Paperwork would must be modified and that the present debt holders have covenants that state no extra debt may be incurred. Primarily saying the corporate couldn’t create the Tremendous Senior debt. 

Whereas the quantity of debt that Parallel was saddled with is persistently redacted, there are a few footnotes that present “$18 million was owed to the previous proprietor (R. Jake) Bergmann as a part of a confidential settlement the corporate couldn’t afford. There may be as much as $107 million of consideration owed for the corporate’s acquisition of an organization often known as Windy Metropolis.” The grievance additionally says that Parallel borrowed cash from the PE Fund in June 2021 to repay Bergmann. 

In 2019, Surterra did say it had raised $300 million in non-public capital, and final 12 months Forbes reported that the corporate had $348 million in debt. 

Junior Be aware Default

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The case states that Parallel did not make its funds for the Junior debt in September 2021. The buyers say they weren’t notified of the default throughout the required 5 days. They counsel they didn’t be taught of the state of affairs till a name on November 15, 2021, and that PE Fund claimed to have additionally simply realized of the default in that decision. Nonetheless, the grievance alleges that the machinations by PE Fund throughout the summer time (when it tried to create the Tremendous Senior debt) confirmed that it knew it was in hassle which was why it was making an attempt to create new sources of debt. The case alleges eight defaults occurred throughout Wrigley’s tenure on the firm, together with the default brought on by PE Fund within the June 2021 Transaction. Wrigley resigned shortly after the November name. 

GH Notes

Along with the hoped-for Tremendous Senior Notes, Parallel issued a collection of convertible promissory notes (the “GH Notes”) between January and Might of 2021 to a Wrigley-controlled funding automobile—Inexperienced Well being Endeavors. The buyers say the corporate didn’t conduct any arm’s size negotiation for the financing phrases of the GH Notes, nor did the corporate discover some other financing choices out there. “Moreover, upon info and perception, the GH Notes had been issued in January 2021 however weren’t permitted by the disinterested administrators and shareholders.” The grievance went on to say, “Wrigley’s personal worker, James “Jay” Holmes, negotiated the phrases of the GH Notes on behalf of Inexperienced Well being Endeavors whereas concurrently sitting on the board and serving as an officer of the Firm, in each roles reporting on to Wrigley as his boss.” The buyers additionally allege that the GH Notes ought to by no means have been issued as a result of it violated the settlement to the unique noteholders that the corporate wouldn’t incur any extra debt.

The Scheme

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In sum, if the corporate went beneath, the holders of the Tremendous Senior Notes would have pushed the opposite lenders out of the best way and been capable of take over the corporate. “In that sense, the Scheme is a paradigmatic “loan-to-own” scheme developed by a company insider—who is just not solely the most important present secured creditor, but additionally the controlling shareholder—to take the Firm at a hearth sale, whereas leaving all harmless third events holding the bag with none recourse.” 

Parallel’s Licenses

Regardless of the lack to pay its debt or shut the SPAC transaction to go public, the corporate continues to function in a number of states. Despite the fact that a few of this info is redacted within the courtroom paperwork, in keeping with Cannabiz Media, Surterra/Parallel has 44 energetic licenses in Florida, three licenses in Pennsylvania beneath the Goodblend title, and one Goodblend license in Texas. It has 11 energetic licenses beneath the NETA (New England Remedy Entry)  title in Massachusetts. It has 9 energetic licenses in Nevada beneath the names Parallel Manufacturers, Cookies and D.H. Aldebaran. 

9 license purposes in Pennsylvania had been denied, together with one denial in New Jersey and two denials in Georgia.

Illinois Deal Is Off

Curaleaf (OTC: CURLF) agreed to purchase Grassroots in Illinois and together with that deal, the corporate famous three Illinois medical dispensary licenses and 6 adult-use dispensary licenses owned by former associates of Grassroots (the “Illinois Property”) had been bought to Parallel in April 2021. The transaction although is topic to regulatory approval, which it doesn’t seem to have obtained. In a securities submitting by Curaleaf, it wrote “Underneath the phrases of the transaction, the acquisition value for the Illinois asset consists of a $100,000 base value to be paid $60,000 in money and $40,000 in Parallel inventory, plus earnouts of as much as a further $55,000 payable by means of 2023. The Firm has obtained from Parallel a $10,000 deposit, which is refundable beneath restricted circumstances and might be utilized to the bottom buy value for the Illinois Property at closing.”

On February 25, 2022, Curaleaf wrote in its annual report that it had “obtained correspondence from Parallel’s attorneys indicating that it’s going to not be ready to finish the acquisition of the Illinois Property as a consequence of lack of financing and looking for to terminate its settlement to buy the Illinois Property. The Firm has asserted that Parallel’s actions have constituted materials breaches of its settlement with Parallel and is exploring its choices.”



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