It’s a bombshell recording between former iAnthus Capital Holdings Inc. (OTC: ITHUF) Hadley Ford and an unidentified investor that has been leaked to the internet. A transcript was published online in which Ford candidly discusses the company’s dealings with its lenders Gotham Green Partners and Oasis Management. Green Market Report reached out to both companies for comment but has yet to receive a response. The most explosive exchange alleges that the lenders conspired to wipe out the unsuspecting shareholders. The stock was plunging another 30% to lately sell at 29 cents as it has also found itself mired in a lawsuit with MPX NJ, a class-action lawsuit, and a fight over the company’s recapitalization or bankruptcy plan.

Well, How Did We Get Here?

At the beginning of 2020, iAnthus was looking like it would become one of the top MSO’s (multi-state operators) in the business, and then the company unraveled in spectacular fashion. In 2019, iAnthus was delivering solid earnings, making acquisitions, and getting capital from Gotham Green Partners (GGP). It closed on its huge $835 million acquisition of MPX Bioceuticals, whose COO was Beth Stavola. The company also acquired Stavol’s CBD For Life brand and made her a board member. In January of 2020, the company completed its commitment to Stavola of $11 million. This raised eyebrows at the time as many believed the company should have restructured the payment or that Stavola as a board member and Chief Strategy Officer should have made it easier for the company to repay her. In hindsight, she was smart to get her money quickly before the company fell apart. Ford’s opinion of these actions are discussed on the call.

In April 2020, Ford abruptly resigned from the company after an investigation by the board’s special committee. The company’s President and Co-founder Randy Maslow was appointed as the interim CEO. The company formed a special committee to look into allegations made in an online media report that Hadley had misused company funds for his own benefit and that there was a conflict of interest. The committee determined that two of the allegations were substantiated and recommended further action.

According to a company statement, the Special Committee determined that Ford entered into two undisclosed loans (one loan for $100,000 with a related-party and the other for $60,000 with a non-arm’s length party) and those loans created a potential or apparent conflict and should have been disclosed to the board in a timely way. On The alleged call, Ford says he believed Stavola leaked the loan information because she wanted to become CEO of the company.

Stavola at the time said, “I look forward to working closely with Randy as interim CEO and the Special Committee as the Company explores strategic alternatives.” iAnthus initiated a Strategic Alternatives Review Process and has hired Canaccord Genuity Corp. as its financial advisor.

Recapitalization To Avoid Bankruptcy

In August 2020, iAnthus reported a staggering net loss of $237.3 million, which included a $199.4 million impairment loss. While the revenue rose 12% sequentially to $30.4 million, the net losses and defaulting on debt payments have overshadowed any good news. iAnthus said in its earnings statement that it did not make interest payments due on its Secured Notes and Unsecured Debentures due on March 31, 2020. “This non-payment of interest triggered an event of default with respect to these components of the Company’s long-term debt, consisting of principal amounts at face value of $97.5 million and $60.0 million and accrued interest amounts at March 31, 2020, of $3.2 million and $1.2 million on the Secured Notes and Unsecured Debentures, respectively.”

The company had an accumulated deficit of $622 million according to the filing. On July 10, the company entered into a Restructuring Support Agreement with some of its lenders. “If the Recapitalization Transaction is completed through CCAA Proceedings, then the Existing Shareholders (defined as the existing holders of Common Shares) will not receive a recovery.” In other words, the shareholders lose everything.

MPX NJ

In addition to the Recapitalization plan, Stavola left the company. Since that time, Stavola has filed a lawsuit against iAnthus regarding MPX NJ.  In late 2020, MPX NJ sued iAnthus Capital Management and its New Jersey subsidiary. MPX is saying that iAnthus is improperly going after the operation of the Pleasantville Alternative Treatment Center by trying to negotiate with regulators. The judge ruled against iAnthus according to a story on NJ.com. The two companies have a shared lease for the dispensary, but MPX NJ is insisting that it is the company that was awarded the permit in 2018 and that the master services agreement that iAnthus cites as its authority, has not been approved by the New Jersey State of Health. iAnthus disputes the allegations of the Complaint and disputes that it ever engaged in the conduct that was the subject of the temporary restraints in the first place.

Oasis Management Debt

In addition to the money invested by GGP, Oasis Management stepped in with $25 million. In March 2020, Oasis began to complain publicly that iAnthus was in breach of the terms. This topic is discussed in detail on the call transcript with regards to Alex Shoghi, the contact at Oasis. Ford is quoted in the published transcript, which hasn’t been verified as saying:

So then we get to June of 2019 and I get this phone call from, uh, Alex Shoghi at Oasis saying, Oh, you’re in violation of your maintenance covenants. I’m like, what are you talking about? Well, the stock price is so low. Um, you know, you violated the maintenance component, so there are no maintenance covenants of the deal. Uh, there’s only a current test. And he said, nah, that’s not the way I read it. I don’t care how you read it. You and I negotiated the deal. We both know there’s no maintenance covenant. Like it’s not in any of my notes. It’s not in any of the language and any of the usual things. So yeah, he tried to stick us up for some better economics, but he had his lawyers involved and there wasn’t a maintenance covenant. So he went away.

Ford according to the call contact Adler at GGP to tell him what Shoghi was up to and Adler allegedly said he wouldn’t negotiate with terrorists and they should play hardball with Oasis. They felt that Oasis wanted better terms for his deal and that by threatening to take it public he could tank the stock price. Ford was very concerned according to the call that Shoghi was going to publish what he deemed were lies about the company. As it turned out, Shoghi did go public and the stock price dropped as expected.

The Phone Call

Initially, according to the phone call. GGP wasn’t too happy with Oasis and was on the side of iAnthus. iAnthus was trying to get more investment money from GGP and at first it seemed Adler was on board. GGP was going to invest $20 million, but then delays began to happen and the paperwork looked to be changing in GGP’s favor. Ford started to get concerned and began to look elsewhere to raise money as the $20 million dropped down to $15 million and investors were getting nervous about the Shoghi situation. As all of this is happening, the stock price continues to fall. Then it seems, Adler and GGP began to side with Oasis. Ford says on the alleged call:

 guys, you know, we got an interest payment in a week. You guys have said that you were going to forbear that, or, you know, push that off for us. I haven’t seen any paperwork. I need to get the paperwork. And Alex says, and Jason let’s Alex talk, And Alex says, oh, we’re happy to continue to have a conversation on forbearances but there’s nothing that I ask this to give us that would make them forbear. And then Jason says, I had a thought. More of a Gotahm led action. We’re going to take the company private. I’m like, well, that’s interesting. I said, you know, stocks low enough. Um, and I’ve got some ideas on that. You could, uh, offer a warrant and all these other things, and you could actually make it a very shareholder friendly, uh, going private transaction. You could have guys showing more than 1% roll into it and keep the cash need down. And the stock guys with less than that could get a long day warranted. Um, you know, give some upside when the company comes back public again, and there’s enough juice for everyone to make a lot of money.

And Jason says, well, actually had different concepts are going private. Um, uh, we’re going to take out, we’re going to wipe out the public shareholders and the junior guys, and then we’re going to recharge the management team.

At this point, Ford starts to think about the shareholders.

I’ve got a responsibility to the public shareholders. I agree to likehose the public shareholders and junior guys and enrich myself and Jason’s well, think about it. Don’t send any texts, don’t send any emails. Um, and, um, you know, we’ll talk about it. Um, and I went and spoke with our outside counsel, spoke with my board and they’re like, well, Gotham’s not your friend. And we said, okay, let’s go to the mattresses. You know, we got a lot of people already in the data room booking to, uh, finance this, we’ll hire an outside advisor, which ended up being canaccord to do kind of a strategic review. We will start to hoard cash. We’ll start to lay people off. we’ll stop all our spending. We won’t pay any interest. Um, and we’ll fight these bastrdds and there’s enough assets value here that will emerge successful.

By this time, iAnthus had approached Canaccord Genuity to help with raising money. According to the call, Ford supposedly gave names of wealthy individuals who could invest in the company, but he felt that Canaccord never pursued those options. The other unidentified person on the supposed call complained that Canaccord did receive bids for iAnthus, but never pass those offers along to the company. Had that been pursued, iAnthus shareholder value may have been saved.

More Shareholder Disrespect

The transcript of the supposed call is quite lengthy. While Ford mostly fights for the shareholders, it seems others in the company have no concern for those investors. Ford says at one point:

They’re saying, what’s my liability going forward or saying the board is not going to get rich on a shareholder friendly outcome.

And this:

 So the optimization was never about getting the best deal for the shareholders, although they will claim that, but I know the optimization was around getting something that looked prudent and thoughtful.

In Closing

Again, Green Market Report hasn’t verified the call, although New Cannabis Ventures wrote, ” We were able to confirm with the investor, who was aware that it had been leaked, that the recording is legitimate, though he claimed to have no involvement in sharing the information and had no intention for it to become public.”

With regards to the Recapitalization Plan, there is an appeal with respect to the Supreme Court of British Columbia’s final approval for the plan of arrangement to implement the Recapitalization Transaction, iAnthus confirmed that the appeal is scheduled to be heard on January 26, 2021. The submissions will be held virtually before a three-member panel of the British Columbia Court of Appeal. iAnthus considers the appeal to be without merit and intends to vigorously defend its interest in court.

In March of 2019, the stock traded at roughly $5.67. It is now trading at approximately 31 cents.