Darren Karasiuk Archives - Green Market Report

Adam JacksonDecember 21, 2022


SNDL (Nasdaq: SNDL) and Nova Cannabis (OTCQB: NVACF) have fashioned new terms for their existing relationship as the two look to grab more market share in a consolidating Canada.

In a statement, SNDL said that the new arrangement would create a “well-capitalized cannabis retail platform in Canada under a vertical integration model with SNDL’s upstream capabilities.”

“With this strategic partnership, Nova will be well positioned to thrive and focus on growth and profitability in the coming years through this world-class cannabis retail platform,” said SNDL CEO Zach George. “SNDL will continue to support and sponsor Nova in a compliant manner while leveraging our capital base and retail M&A pipeline to improve Nova’s trading liquidity and future growth.”

When the deal’s sown up, Nova will receive retail contribution and corporate service from SNDL, as well as debt restructuring that includes a C$15 million revolving credit facility that SNDL will wipe.

The injection, which is expected to be fully drawn at the time of the closing of the transaction, will immediately provide Nova with additional liquidity to the tune of C$5.5 million.

The deal also provides for a return of equity, with around 14.3 million shares of Nova held by SNDL’s holdings scheduled to be returned to Nova’s treasury for cancellation.

SNDL said it plans to reduce its equity ownership in Nova to below 20% through a capital distribution of Nova Shares owned by SNDL to its shareholders, increasing liquidity.

Additionally, SNDL will receive intellectual property rights as consideration to Nova’s fast-growing Value Buds banner of 88 stores and the license to grant Nova to operate the Value Buds, Spiritleaf and Superette banners.

The two became tethered when SNDL in March spent C$320 million to snap up Nova’s majority shareholder, Alcanna. Then-Nova CEO touted SNDL’s ability to provide infrastructure and financial resources to its value-based model to drive scale and expansion.

The company said it partnered with SNDL for Value Buds’ private label strategy with goals to remain aggressive with its pricing strategy for the two’s white label venture in order to capture further market share in Canada.

In last month’s earnings release, Nova stated that it wants to “disrupt and strengthen the cannabis retail market by promoting a wide range of cannabis products at everyday best-value prices, while encouraging greater migration from the illicit cannabis market.”

Nova said its starting to raise pricing across all categories in Alberta to test elasticity and understand consumer buying trends and expects higher margin results in the fourth quarter. It also expects to add three more stores in Alberta and Ontario in the remainder of this year and early next.

Anne Fitzgerald, lead independent director of Nova, said that the deal “provides Nova with a unique opportunity to further transform the cannabis retail market in Canada and enhance its business in a material way to the benefit of all our shareholders.”

“A special committee of independent directors of Nova has completed an extensive due diligence process including the advice of independent financial advisors and has concluded that the transaction is fair from a financial point of view to Nova shareholders. The support of SNDL, both operationally and financially, allows Nova to remain laser-focused on growth and profitability.”

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