I wrote a few weeks ago about the problem of executing a loan-to-own strategy in non-hemp cannabis, mainly due to the lack of access to US Bankruptcy Courts. (link) One of the ideal goals of loan-to-own is to wipe out the existing equity (or, at least, reduce it into a hope certificate). Without bankruptcy, companies are left with out-of-court restructuring, which is certainly possible, but hairier.

Aphria, Inc. accomplished something of the sort last week (to a limited extent) by agreeing to repurchase some of its outstanding debt with shares and cash for a significant discount relative to face (the principal amount of the debt). (link) Granted, Aphria, Inc. is a Canadian licensed producer, so it does not have the same lack of access to bankruptcy as US operators, but the approach is the same – exchange debt for equity to delever and potentially reduce risk.

Of course, a number of things come into play when a company exchanges debt for equity – tax (e.g., cancellation of indebtedness income), securities laws, exchange rules, existing shareholder rights, state and local regulations. Above all, the economics need to work. Done right, the trade has the potential to be a win-win strategy, with everyone ideally benefitting from a cleaner balance sheet to retool for the future of non-hemp cannabis.