Sundial Archives - Green Market Report

Debra BorchardtMay 5, 2021
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5min13970

Sundial Growers Inc. (NASDAQ: SNDL)  is buying Inner Spirit Holdings Ltd. (CSE: ISH) (OTCQB: INSHF) in a deal valued at approximately $131 million. Inner Spirit is better known as the retailer and franchisor of Spiritleaf recreational cannabis stores across Canada. The Spiritleaf network includes 86 franchised and corporate-owned locations, all operated with an entrepreneurial spirit and with the goal of creating deep and lasting ties within local communities. The deal is expected to close in the third quarter of 2021.

Spiritleaf’s franchised and corporate stores have served 2.3 million guests in 2020. The retail brand has earned a reputation as a knowledgeable and trusted source of recreational cannabis while offering a premium consumer experience. Spiritleaf opened its 86 th store on April 28, 2021, in Edmonton, Alberta, and is projected to exceed the 100-store milestone in the summer of 2021.

“Sundial is the ideal company to acquire Inner Spirit and support the future development of the Spiritleaf retail cannabis brand,” said Darren Bondar, Founder, President and Chief Executive Officer of Inner Spirit. “The Sundial team has shown a strong commitment to our management team, franchise partners, and employees as well as our growth ambitions. The combination will enable us to further expand our position as the country’s leading retail cannabis brand for customers and communities and will open up new market opportunities to us. We’re also very pleased Inner Spirit shareholders will be able to participate in our future success through an ongoing equity ownership.”

Sundial made noise in January when the company priced an offering in which it would receive approximately $100 million. At the time, the company said it planned on using the money for possible acquisitions of, or investments in, equipment, facilities, assets, equity or debt of other businesses, products or technologies and for working capital and general corporate purposes. In November, Sundial reported that its third-quarter revenue fell 36% to just $15.5 million. The company also delivered a whopping net loss of $71.4 million. This was almost double the net loss of $32.8 million for the three months ending June 30, 2020. 

Deal Terms

Inner Spirit’s shareholders will receive, for each Inner Spirit common share held, (i) $0.30 in cash and (ii) 0.0835 of a Sundial common share (representing $0.09 per Inner Spirit common share based on the 10-day volume-weighted average price of Sundial common shares on the Nasdaq Capital Market), for total consideration of $0.39 per Inner Spirit common share. The purchase price of $0.39 per Inner Spirit common share represents a premium of 54.8% to the 10-day VWAP of Inner Spirit common shares on the Canadian Securities Exchange (the “CSE”) and a premium of 62.5% to the closing price of Inner Spirit common shares on the CSE on May 4, 2021.

“Sundial becomes a stronger and more diverse cannabis company by acquiring Inner Spirit and the Spiritleaf retail store network,” said Zach George, Chief Executive Officer of Sundial. “Inner Spirit has successfully created a franchise-based retail network that has grown from coast to coast and offers a differentiated and premium in-store experience to consumers. Our shared Albertan roots and commitment to data-driven consumer insights make for an ideal partnership. Sundial’s capital base will enable us to support continued expansion and deepen the capabilities of the Spiritleaf retail brand.”

The company said the deal is expected to provide modest synergies and economies of scale due to the different business models of Sundial and Inner Spirit.

 


Debra BorchardtJanuary 29, 2021
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7min9450

Sundial Growers Inc. (Nasdaq: SNDL) has priced an offering in which the company will receive approximately $100 million. The underwritten offering is expected to close on February 2. The company said it plans to use the money for possible acquisitions of, or investments in, equipment, facilities, assets, equity or debt of other businesses, products or technologies and for working capital and general corporate purposes. the stock was dropping over 3% in early trading to lately sell near 79 cents.

Falling Revenue, Rising Losses

In November, Sundial reported that its third-quarter revenue fell 36% to just $15.5 million. The company also delivered a whopping net loss of $71.4 million. This was almost double the a net loss of $32.8 million for the three months ending June 30, 2020. 

At the time Zach George, Sundial’s CEO said, “While our third-quarter revenue decreased, we are pleased with the demonstrated improvement in operating discipline, successful cost optimization initiatives and a material reduction of our debt. Following the announcement of our financial restructuring in June of this year, we have accelerated improvements in our operating practices targeting a sustainable cost structure and a simplified business model that will better enable us to focus on delighting consumers.”

He went on to say, “Having entered 2020 with a challenged capital structure, and a disparate business model, our team has moved aggressively to focus our operations and product portfolio to get the very best from our high-quality people and assets.”
Early in December, the company announced it had prepaid $50 million of the outstanding principal under its senior secured non-revolving term credit facility to further improve its balance sheet. Then Sundial said it had prepaid the remaining outstanding principal under its senior secured non-revolving term credit facility of $21.9 million and said it had no debt outstanding.
Zenabis Acquisition
The company has been after Zenabis since the end of December when Sundial said it had made a strategic investment in Zenabis’ senior lender, which Zenabis said was an attempt to coerce Zenabis into being acquired by Sundial. In a statement, Zenabis said, “Prior to Sundial’s acquisition of the Senior Lender, the company had been in late-stage discussions with the Senior Lender relating to the extension of its obligation to repay $7 million of the principal amount of debt on December 31, 2020. Contrary to the discussions with the Senior Lender prior to the point at which it was acquired by Sundial, the Senior Lender substituted the soon to be consummated extension with a demand that the $7 million principal repayment be made on December 31, 2020, accompanied by a forbearance agreement.” Zenabis also said that the forbearance agreement required it to enter into exclusivity arrangements with the Senior Lender in relation to any sale of the company and also required Zenabis to accept significant potential financial penalties in excess of the outstanding balance of the debt owed to the Senior Lender.

On December 31, 2020, Zenabis entered into a letter agreement to sell $7 million of dried cannabis to another major Canadian licensed producer of cannabis and used that money to make the $7 million loan payment. Zenabis said that after making the payment it was alleged that there were a variety of defaults under the terms of the amended and restated debenture dated June 28, 2020.

The company said that none of the alleged defaults are for failure to make payments of principal or interest. In Zenabis’ statement, “The company believes the Senior Lender’s allegations to be spurious and without merit and intends to vigorously defend against what it considers to be an ill-disguised attempt to circumvent a fair and competitive process to acquire the company by improperly foreclosing the equity of the company or compelling Zenabis to enter into a transaction with Sundial.”

Offering Details

The offering consists of 100,000,000 Series A Units, each consisting of one common share and one-half Series A Warrant to purchase one common share and 33,333,334 Series B Units , each consisting of one pre-funded Series B Warrant (together with the Series A Warrants, the “Warrants”) to purchase one common share and one-half Series A Warrant to purchase one common share. Each Series A Unit will be sold at a price of US$0.75 per Series A Unit and each Series B Unit will be sold at a price of US$0.75 per Series B Unit, minus US$0.0001 , and the remaining exercise price of each Series B Warrant will equal US$0.0001 per common share. Sundial’s gross proceeds from this offering are expected to be approximately US$100 million, before deducting underwriting discounts and estimated offering expenses. All of the securities in the offering are being sold by Sundial. The Warrants will be exercisable immediately after issuance and have a term of five years commencing on the date of issuance. The exercise price of the Series A Warrants will be US$0.80 per common share. The offering is expected to close on February 2, 2021


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