Althea has offloaded its Canadian property for CAD$4.6 million (A$5.32m), a move that will eliminate the company's outstanding debt and improve its balance sheet, according to chief executive Josh Fegan.
The transaction will, however, trigger a $4.3m write-down that is set to affect the company's FY24 financial results.
Fegan said the advantages of converting the asset to cash at this point "far outweigh the statutory impact on paper".
Under the terms disclosed to the ASX, institutional investor Obsidian Global will acquire the Ontario property and immediately lease it back to Althea's recreational arm, Peak Processing Solutions, under an agreement spanning at least 15 years.
Peak will continue to hold all "valuable assets", Fegan said, covering manufacturing and extraction equipment as well as intellectual property.
Althea said the transaction will allow it to retire the CAD$2m loan facility it arranged with Obsidian earlier in the year and put its balance sheet on firmer footing. Net proceeds of A$1.2m will be added to the A$3.6m in cash Althea held as at September 30, the company stated.
The February arrangement with New York-based Obsidian, which saw the firm provide funding through convertible notes, has now been brought to an end. The cash repayment, drawn from the property sale proceeds, will total US$1.23m — US$52,500 above the aggregate face value of those notes, Althea said.
Obsidian will receive 614,057 ordinary shares as part of the overall transaction.
Pointing to "very challenging financial market conditions", Fegan said: "Capital can be scarce and expensive nowadays. The property sale releases a significant amount of cash and enables us to pay out our debt, while returning order to our share structure. In other words, we now have a clean sheet, are cashflow positive and have strong sales growth. In my opinion, this is an excellent time to become an AGH shareholder.
"The write down will impact our FY24 results. However, the company believes the benefits of realising the asset now far outweigh the statutory impact on paper."
The company explained that the write-down reflects the "difference between the sale price and the current carrying value of the building".
Althea originally purchased the property for CAD$2.6m in 2019. Under the leaseback terms, it will pay CAD$524,000 annually for the first five years, with that figure increasing to CAD$576,000 and then CAD$622,000 across the two subsequent five-year renewal periods.
Althea shares rose 5.55% the previous day, with the stock opening this morning at A$0.038c per share.
