(Bloomberg) — While the marijuana industry awaits potential key regulatory changes that could boost profits, Schwazze is closing in on a restructuring with creditors that will slash the dispensary operator’s debt load and inject it with new money. 

The company will give up some of its more than 60 cannabis shops in return for a $65 million cash injection, according to people familiar with the situation. The senior lenders will take over the properties in a process known as Article 9, a cheaper and faster process than Chapter 11. Bankruptcy isn’t an option for the company because of the lack of federal legislation covering weed. 

Schwazze’s common and preferred shares are expected to be wiped out as part of the restructuring, the people said, asking not to be identified. About $45 million of cash from the deal will be used to refinance the so-called seller notes with the balance used to provide working capital, they added. 

Talks are ongoing and plans could change, said the people. Schwazze didn’t immediately respond to requests for comment. 

The senior secured noteholders will submit a credit bid via an auction process to acquire a select portion of performing properties, with the remaining locations subject to a wind down, the people said.

The company, formally named Medicine Man Technologies Inc., is one of many struggling pot startups that has been hamstrung by intense competition and disappointing progress on federal legislation to legalize cannabis in the US. This comes after President Donald Trump recently said he was considering reclassifying marijuana as a less dangerous drug. Such a reclassification is expected to provide a tax benefit to companies that sell legal, regulated marijuana, potentially boosting profitability.

Schwazze isn’t the only cannabis operator using Article 9, which typically allows secured lenders to foreclose on collateral following a default and then divest the assets without resorting to Chapter 11 protection. AYR Wellness Inc. kicked off such a restructuring in July.

Meanwhile, Schwazze has engaged Oppenheimer & Co. as the financial adviser and Polsinelli as legal counsel for its talks, said the people. A group of the company’s creditors is working with Ducera Partners and Paul Hastings, they added. Chicago Atlantic Group Inc is acting as the collateral agent. 

None of the advisers or creditor representatives named responded to requests for comment.

The company received a default notice in December due to delays in its audited financial reports, according to public disclosures. The company had to switch independent auditors and restate annual results for 2022 and 2023 following the discovery of accounting errors. 

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