SNDL Buys Valens In C$138 Million Deal

SNDL Inc. formerly known as Sundial (Nasdaq: SNDL) is buying The Valens Company Inc. (TSX: VLNS) (Nasdaq: VLNS) in a deal valued at C$138 million. That’s an implied value of $1.26 per Valens share, which is currently selling at 83 cents per share.. SNDL has secured a non-revolving term loan that has been refinanced and upsized with an additional C$14.3 million of incremental capital, increasing the term loan to C$60 million. There is an $8 million termination fee attached to the transaction and Valens shareholders will own approximately 9.5% of the combined company.

The acquisition will make SNDL one of the largest adult-use cannabis manufacturers and retailers. The combined company will have 555,500 square feet of cultivation and manufacturing space and 185 cannabis stores under the Spiritleaf and Value Buds banners. The new SNDL will offer a complete portfolio of branded products to consumers in Canada through its own supply and distribution channels. 

“This powerful combination will result in the creation of a dominant vertically integrated company, exceptionally well-suited to weather the current cannabis environment and become a leader in the Canadian regulated products sector,” said Zach George, Chief Executive Officer of SNDL. “SNDL’s existing consumer packaged cannabis business will be transformed by Valens’ high-quality extraction, processing, and manufacturing capabilities and aligns well with our strategic vision to delight consumers with a full range of quality cannabis products and experiences. Our companies have been commercial partners since Canadian legalization. I am excited by the strong cultural fit between our teams and humbled by the opportunity to work with Valens’ passionate and innovative leadership.”

 In July, Valens reported its second quarter fiscal year 2022 financial results for the period ending May 31, 2022. The company reported that its net revenue increased 3.5% sequentially to $24.0 million in the second quarter versus $23.2 million in the first. The company said the increase was driven by double-digit growth in both Green Roads and B2B, which was partially offset by a decline in provincial sales. However, Valens also delivered an eye-popping net loss of $160 million for the second quarter versus a net loss of $25 million in the first quarter. Valens said that it recognized an impairment loss on goodwill and intangible assets of $52.9 million and $67.9 million, respectively, for the quarter. Valens also provided revenue & EBITDA estimates for 2023 for a minimum revenue of C$225 million and Adjusted EBITDA margins greater than 10%.

“We are thrilled to bring together two best-in-class cannabis companies that have extremely complementary assets to create a true market leader. Valens is one of the fastest growing branded cannabis companies in Canada with a focus on innovation and investing in low-cost automated manufacturing assets,” said Tyler Robson, Chief Executive Officer of The Valens Company. “With SNDL’s exceptional balance sheet and largest cannabis retail network in Canada we look forward to taking Valens’ brands to new heights and unlocking 2.0 products for the SNDL platform. We believe the pro forma company provides investors with attractive exposure not only to the highest revenue generating cannabis company in Canada trading well under its tangible book value but also a dominant platform that can become a global leader in cannabis.”

Debra Borchardt

Debra Borchardt is the Co-Founder, and Executive Editor of GMR. She has covered the cannabis industry for several years at Forbes, Seeking Alpha and TheStreet. Prior to becoming a financial journalist, Debra was a Vice President at Bear Stearns where she held a Series 7 and Registered Investment Advisor license. Debra has a Master's degree in Business Journalism from New York University.


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