TERM LOAN |
12 Months Ended |
|---|---|
Dec. 31, 2023 | |
| Debt Disclosure [Abstract] | |
| TERM LOAN | TERM LOAN Credit Agreement
On January 24, 2023 (the "Term Loan Date"), the Company entered into a Loan and Security Agreement, by and among the Company, subsidiaries of the Company from time to time party thereto (collectively with the Company, the “CA Borrowers”), lenders from time to time party thereto (the “CA Lenders”), and Chicago Atlantic Admin, LLC (“Chicago Atlantic”), as administrative agent for the Lenders (the "CA Credit Agreement").
Proceeds from the CA Credit Agreement were designated to complete the build-out of a new cultivation and processing facility in Illinois, complete the build-out of a new processing kitchen in Missouri, expand existing cultivation and processing facilities in Massachusetts and Maryland, fund certain capital expenditures, and repay in full the Kind Notes incurred in connection with the Kind Acquisition, which repayment occurred on January 24, 2023 (see Note 13). The remaining balance, if any, was expected to be used to fund acquisitions.
Principal, Security, Interest and Prepayments
The CA Credit Agreement provided for $35.0 million in principal borrowings at the CA Borrowers’ option in the aggregate and further provided the CA Borrowers with the right, subject to customary conditions, to request an additional incremental term loan in the aggregate principal amount of up to $30.0 million, provided that the CA Lenders elected to fund such incremental term loan. $30.0 million of loan principal was funded at the initial closing (the "Term Loan"), which amount was reduced by an original issuance discount of $0.9 million (the "CA Original Issuance Discount"). The Company had the option, during the six-month period following the initial closing, to draw down an additional $5.0 million, which it did not elect to do. The loan required scheduled amortization payments of 1.0% of the principal amount outstanding under the CA Credit Agreement per month commencing in May 2023, and the remaining principal balance was due in full on January 24, 2026, subject to extension to January 24, 2028 under certain circumstances.
The CA Credit Agreement provided the CA Borrowers with the right, subject to specified limitations, to incur (a) seller provided debt in connection with future acquisitions, (b) additional mortgage financing from third-party lenders secured by real estate currently owned and acquired after the closing date, and (c) additional debt in connection with equipment leasing transactions.
The obligations under the CA Credit Agreement were secured by substantially all of the assets of the CA Borrowers, excluding specified parcels of real estate and other customary exclusions.
The CA Credit Agreement provided for a floating annual interest rate equal to the prime rate then in effect plus 5.75%, which rate could be increased by 3.00% upon an event of default or 7.50% upon a material event of default as provided in the CA Credit Agreement.
At any time, the Company could voluntarily prepay amounts due under the facility in $5.0 million increments, subject to a three-percent prepayment premium and, during the first 20-months of the term, a “make-whole” payment.
Representations, Warranties, Events of Default and Certain Covenants
The CA Credit Agreement included customary representations and warranties and customary events of default, including, without limitation, payment defaults, breaches of representations and warranties, covenant defaults, cross-defaults to material indebtedness, and events of bankruptcy and insolvency.
The CA Credit Agreement also included customary negative covenants limiting the CA Borrowers’ ability to incur additional indebtedness and grant liens that were otherwise not permitted, among others. Additionally, the CA Credit Agreement required the CA Borrowers to meet certain financial tests. The Company was in compliance with the CA Credit Agreement covenants at all times while the Term Loan was outstanding.
Warrant Issuance
The CA Credit Agreement provided for 30% warrant coverage against amounts funded under the facility, priced at a 20% premium to the trailing 20-day average price on the closing date of each such funding. At the initial closing, upon funding of the initial $30.0 million under the facility, the Company issued to the CA Lenders an aggregate of 19,148,936 warrants
to purchase shares of the Company’s common stock at $0.47 per share, exercisable for a five-year period following issuance.
The Company recorded the warrants at present value of $5.5 million as a component of Additional paid-in capital on the consolidated balance sheet as of January 24, 2023, and discounted the Term Loan amount by $5.5 million (the "CA Warrant Discount"). The Company was amortizing the CA Warrant Discount to interest expense over the term of the CA Credit Agreement.
Prepaid Debt Issuance Costs
The Company incurred $1.8 million of third party costs (i.e., legal fees, referral fees, etc.) in connection with the Term Loan that were recorded as a discount to the Term Loan (the "CA Third-Party Costs Discount"). The Company was amortizing the CA Third-Party Costs Discount to interest expense over the term of the CA Credit Agreement.
Repayment and Retirement of Term Loan
On November 16, 2023 (the "Payoff Date"), the Company repaid and retired the Term Loan (the "Term Loan Payoff") using proceeds from a new $58.7 million loan entered into on the same day (see Note 13). The Term Loan Payoff amount totaled $32.7 million, comprised of $28.5 million for the outstanding principal, $3.7 million for the make-whole payment, $0.2 million for accrued unpaid interest and $0.3 million for transaction-related fees.
The Company recognized a loss of $10.2 million in connection with the Term Loan Payoff, which is the primary component of Loss on extinguishment of debt in the consolidated statement of operations for the year ended December 31, 2023.
Interest Amortization
The Company recorded $2.1 million of aggregate interest amortization from the Term Loan Date to the Payoff Date related to the CA Original Issuance Discount, CA Warrant Discount and CA Third Party Costs Discount.
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