Followup on Today's Sol Update Press ReleaseA few thoughts on the recent put out by Sol Global today: https://mjstocktrader.com/sol-global-provides-general-operations-update-for-february-2021/
So, it was good of Sol to acknowledgement both the Verano and Bluma transactions.
On the Verano side, I was having a hard time reconciling their "share count" with the historically reported figures (if anyone has any thoughts that would be great).
According to today's update release, Sol's share count of 25.2MM Verano shares seems a bit light b a little over 10%. Historially, it was reported that Sol supposedly owned ~12.6% of Verano.
After the merger with AltMed, Verano Shareholders were supposed to receive a 77% ownership of the NewCo implying Sol receive 9.7% of NewCo.
Given a $2.8Bn Valuation for Verano @$10/share = 288MM shares outstanding. A 9.7% would be 27.9MM shares?
A couple of possibilities:
a. They sold some shares in the interim period between the last filing and the update.
b. There may be indirect ownership of more shares that are not mentioned in the press release that extends Sol's ownership in Verano beyond the 25.2MM shares on a fully diluted basis.
Thoughts anyone?
In terms of the litigation, its hard to know who is right (i.e., Sol or 1235 Funds).
In the August 31st, 2020 securities filings, the Company stated:
"The Debenture shall be repaid in cash on maturity unless the Verano acquisition has occurred in which case the lender has the right to demand certain shares of Verano or demand certain shares of Harvest Health and Recreation Inc. (“Harvest”) instead of cash."
"Due to termination of the Harvest Deal, the lender lost the right to demand shares of Verano and the debenture will be treated as a straight debt"
In the first statement, it is unclear on the face of it if "the Verano acquisition" refers to a "Harvest" only acquisition or any acquisition.
From the second statement, it is clear that the Company was stating it was only cash.
Here is my estimate on what the potential damage could be from Sol losing the litigation:
1. Sol's debt is about $50MM. When you add in the accrued interest, it was $54,737,277 as of August 31st, 2020.
2. Given that the interest rate is 6% and its been another 4 to 5 months months, let's say the amount in question is ~$56MM.
3. If we use the $10/share Verano share price (as of the private placemen), this would translate into 5.6MM shares in exchange for retiring the debt & accrued interest.
4. If Verano trades to its "median" value of its Peer Group, those Verano shares should be worth ~$30/share. That reflects about an additional loss in value of $100MM in pre-tax value to Sol shareholders. With about 65.43981MM fully diluted shares outstanding (that's my estimate based on their filings, I have seen all sorts of numbers out there), this would translate to a loss of ~$1.5/share to whatever the value of Sol Global would have been otherwise.
Of course, this all depends on the value of Verano, but I wanted to gauge the impact to Sol shareholders (such as myself, if this thing were to go south on the litigation).
In the end, without seeing the actually underlying debt security documents, its hard to see where this will play out, but I think temporarily it may put a damper on the returns we were anticipating, but I am hopeful that the courts will grant Sol the relief it is seeking.
Either way, I still think there is still good value in holding onto the shares (pending the Verano RTO).
Hope that helps in thinking about the litigation.
If you have any other thoughts, feel free to respond (and if I am wrong on any of it, PLEASE let me know).
Thanks and Happy Investing!