The successful deed of company arrangement set a precedent for future restructurings within the medicinal cannabis cultivation sector, providing valuable insights and lessons for other companies facing similar challenges.
The voluntary administration/deed of company arrangement (DOCA) restructure of Tikun, a medicinal cannabis cultivator, can be considered an industry first. This innovative and unique approach allowed Tikun to successfully navigate a challenging financial situation while preserving its crucial cultivation permits and licenses.
Typically, when a company faces financial distress and enters a voluntary administration, there is a risk of losing essential licenses and permits as part of the restructuring process. However, in the case of Tikun, we managed to structure the transaction through a deed of company arrangement, which enabled the sale of shares and, at the same time, ensured the preservation of its valuable cultivation permits and licenses.
By finding a buyer for the distressed business through the DOCA process, Tikun was able to secure the continuation of its operations in the medicinal cannabis industry without any disruptions caused by the loss of licenses.
This successful outcome set a precedent for future restructurings within the medicinal cannabis cultivation sector, providing valuable insights and lessons for other companies facing similar challenges.
Tikun, established in 2016 was one of Australia’s first medicinal cannabis cultivators. Initially, the company operated out of leasehold premises that had previously been used for rose farming. Over the course of 2016 to 2018, the land and infrastructure were repurposed, and additional facilities and infrastructure were added to meet the requirements for obtaining state and federal licenses related to the possession, cultivation, and harvesting of medicinal cannabis.
During its operation, Tikun had two main product lines: a high-THC oil and a CBD oil. These products were derived from the cannabis plants cultivated on their premises. However, the manufacturing process of the cannabis oil was outsourced to a third party.
After completing the necessary regulatory processes and establishing its manufacturing arrangements, Tikun started distributing its products in 2021. The distribution phase marked the point at which Tikun's medicinal cannabis oils became available to consumers and medical patients in need of these products.
Tikun faced a series of challenges that led to its financial difficulties and eventual closure. The key factors that contributed to Tikun's problems:
Over a 10-month period, several strategies were deployed to secure a successful outcome.
Overall, the successful outcome ensured the continuation of Tikun's operations in the medicinal cannabis industry, preserving the licenses and permits and allowing the business to thrive under new ownership. The creative and strategic approach taken in this transaction set a precedent for future restructurings within the industry.
With its strengthened position and the prospect of further investment from its new owners, Tikun seems to be well-positioned for future growth and success. An impending rebranding exercise represents a pivotal moment for Tikun as it embarks on its future growth plans.
The successful sale transaction and preservation of Tikun's operations through the deed of company arrangement not only secured the continuity of the business but also had significant financial implications. The fact that the client had guaranteed approximately $2.5 million of debt meant that, had the business been shut down without a going concern sale of the property, the client would have faced a loss of over $5 million.
By avoiding a shutdown and achieving a going concern sale, the debt that was guaranteed by the client was paid down through the proceeds of the sale transaction. This outcome significantly mitigated the financial risk and potential losses that would have been incurred had the business not been successfully restructured and sold.
The successful restructure and sale not only preserved the licenses and permits for the medicinal cannabis operations but also provided a positive financial outcome for the client, alleviating the burden of the guaranteed debt and preventing a substantial loss that could have arisen in a worst-case scenario.
This underscores the importance of the creative and strategic approach taken in this complex transaction and the value it brought not only to the company and its stakeholders but also to the client involved.
We would like to extend our thanks and acknowledgement to Taylor David Lawyers who played a pivotal role in the achievement of this outcome.