AB, Dec. 20, 2022 /CNW/ - SNDL
Inc. (Nasdaq: SNDL) ("SNDL" or the "Company") and
Nova Cannabis Inc. (TSX: NOVC) ("Nova") are pleased to
announce that they have entered into an agreement (the
"Agreement" to implement a strategic partnership (the
"Transaction") creating a well-capitalized cannabis retail
platform in Canada under a
vertical integration model with SNDL's upstream capabilities.
All financial information in this press release is reported in
Canadian dollars unless otherwise indicated.
This news release constitutes a "designated news release" for
the purposes of Nova's prospectus supplement dated July 22, 2022, to its short form base shelf
prospectus dated June 27, 2022.
Pursuant to the Transaction, Nova will receive from SNDL:
- Retail contribution: SNDL will vend into Nova's cannabis
retail business its existing 26 cannabis retail stores under the
Spiritleaf and Superette banners located in Ontario and Alberta. Nova will also have a right of first
refusal on SNDL's Canadian cannabis retail pipeline.
- Corporate services: The existing management and
administrative services agreement between SNDL's subsidiary,
Alcanna Inc., and Nova is being amended and restated to refresh and
maintain the arrangement with SNDL. For the first three years
following this amendment and restatement, no fee shall be payable
by Nova under the management and administrative services agreement.
Following the three-year fee holiday, Nova will benefit from a
low-cost annual fee of $2 million
thereafter, which is materially lower than the cost of building and
operating the infrastructure were Nova required to manage those
- Debt restructuring: A $15
million revolving credit facility is to be eliminated by
SNDL, which is expected to be fully drawn at the time of the
closing of the Transaction. This will immediately provide Nova with
additional liquidity of approximately $5.5
million from drawing the undrawn amount ahead of closing.
Further, SNDL will advance a new credit facility of $15 million at a rate of Canadian prime plus
2.75% with a $10 million "accordion"
feature to become available under certain conditions.
- Return of equity: Approximately 14.3 million common
shares of Nova ("Nova Shares") held by SNDL's holdings will
be returned to Nova's treasury for cancellation. The parties
allocated a value of $7.5 million to
the cancellation of Nova Shares with the number of shares
calculated based on a price of $0.526, which was the 20-day volume weighted
average price of the Nova Shares on the Toronto Stock Exchange
("TSX") ending December 16, 2022, and
represents an approximate 19% discount to the close of December 19, 2022.
- Increased Liquidity: SNDL plans to reduce its equity
ownership in Nova to below 20% through a capital distribution of
Nova Shares owned by SNDL to SNDL shareholders. This will enable
Nova to scale its operations with direct ownership of cannabis
retail stores in Ontario and
As consideration, SNDL will receive:
- Strategic partnership: The intellectual property rights
to Nova's fast-growing and disruptive Value Buds banner of 88
stores and the license to grant Nova to operate the Value Buds,
Spiritleaf and Superette banners.
- License Agreement: Nova and SNDL will enter into an
agreement pursuant to which Nova will utilize SNDL's brands'
intellectual property and other intangible property in exchange for
a license fee at a rate of 5.0% to 15.0% of gross profits on each
store commencing one year after the Transaction. Upon closing of
the Transaction, the license fee will be calculated based on gross
profits from the 114 existing locations of the pro forma
- Creates sustainable regulated retail network in Canada: The Agreement provides a
low-cost operating platform for Nova, driven by SNDL's scale across
cannabis and alcohol. Nova will benefit from SG&A savings in
the first three years of the strategic partnership through the
shared services with SNDL, and will continue to benefit thereafter
through an SNDL subsidized low-cost operating structure allowing
Nova to enhance its discount and market share capture
- Accretive return of equity and bolstered trading
liquidity: A 25% reduction in Nova share count supports a
strong re-rate opportunity concurrent with anticipated trading
liquidity improvement from SNDL's share capital distribution.
- Balance sheet strength to fund growth: Nova's
financial position will be significantly strengthened on a
non-dilutive basis through the elimination of debt and immediate
injection of additional liquidity.
- Bolstering vertical integration: A strategic partnership
strengthens SNDL's command of the fastest-growing retail shelf
space in Canada while de-risking
store-level profitability on SNDL's financials.
- Immediate free cash flow stream: SNDL will monetize
its cannabis retail investments into stable free cash flow from
license fees on the platform consisting of 114 stores and a
pipeline of future locations. Furthermore, license fees have the
potential to grow alongside Nova's gross margins as the portfolio
- Pure-play retail exposure for SNDL shareholders: A
share capital distribution of Nova Shares provides SNDL
shareholders the optionality of equity exposure to a
well-capitalized Canadian retail platform.
- Compliant retail structure for future scale: With
SNDL's targeted ownership of Nova to below 20%, Nova can fully
leverage SNDL's extensive retail M&A pipeline with
opportunities for direct ownership of retail outlets in
Ontario and British
"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
Zach George, Chief Executive Officer
of SNDL. "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
"The Transaction 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," said Anne Fitzgerald, lead independent director of
Nova. "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
The implementation of the Transaction is subject to the
satisfaction of a number of conditions, including, among other
things, the approval of the Toronto Stock Exchange, and minority
shareholder approval of the Transaction in accordance with
Multilateral Instrument 61-101 – Protection of Minority
Shareholders in Special Transactions ("MI 61-101"), as
more particularly described below, and the receipt of applicable
regulatory approvals, including those of the applicable provincial
cannabis regulators. The Agreement provides for, among other
things, customary support and non-solicitation covenants from Nova,
including customary "fiduciary out" provisions that allow Nova to
accept a superior proposal in certain circumstances and a
five-business day "right to match period" in favour of SNDL. The
Transaction is expected to be completed in May 2023.
All directors and executive officers of Nova have entered into
voting support agreements with SNDL pursuant to which, among other
things, the parties have agreed to vote their Nova Shares (if any)
in favour of the Transaction.
SNDL is considered a "related party" of Nova, and the
Transaction constitutes a "related party transaction", as such
terms are defined in MI 61-101. Nova is relying on an exemption
from the formal valuation requirements of MI 61-101 in compliance
with the financial hardship exemption.
Pursuant to MI 61-101, the Transaction is subject to the
approval of a majority of the votes cast by the holders of Nova
Shares represented in person or by proxy at a duly constituted
meeting of the shareholders of Nova, excluding the votes attaching
to the Nova Shares held by SNDL and its associates and affiliates
(the "Minority Shareholder Approval"). Nova intends to
obtain the Minority Shareholder Approval at an annual and special
meeting of the Nova shareholders expected to be convened in
May 2023 (the "Meeting").
Further particulars of the Transaction will be specified in the
management information circular that will be sent to Nova
shareholders in advance of the Meeting, and filed on the System for
Electronic Document Analysis and Retrieval (SEDAR) under Nova's
profile at www.sedar.com.
Nova Board Approval
Nova's board of directors has unanimously approved the
Transaction after receiving the unanimous recommendation of a
special committee of Nova's independent directors (the "Special
Committee"). Nova's board of directors has unanimously resolved
to recommend that the shareholders of Nova vote in favour of the
Eight Capital has provided a fairness opinion to the Special
Committee of Nova that, subject to the assumptions, limitations and
qualifications set out in such fairness opinion, the consideration
to be received by Nova pursuant to the Transaction is fair from a
financial point of view to Nova.
ATB Capital Markets Inc. is acting as financial advisor to SNDL.
McCarthy Tétrault LLP is acting as legal counsel to SNDL.
Eight Capital is acting as financial advisor to the Special
Committee. Bennett Jones LLP is acting as legal counsel to Nova and
Stikeman Elliott LLP is acting as legal counsel to the Special
ABOUT SNDL INC.
SNDL is a public company whose shares are traded on Nasdaq under
the symbol "SNDL."
SNDL is the largest private sector liquor and cannabis retailer
in Canada with retail banners that
include Ace Liquor, Wine and Beyond, Liquor Depot, Value Buds,
and Spiritleaf. SNDL is a licensed cannabis producer that uses
state-of-the-art indoor facilities to supply wholesale and retail
customers under a cannabis brand portfolio
that includes Top Leaf, Sundial Cannabis, Palmetto,
Spiritleaf Selects, Value Buds and Grasslands. SNDL's
investment portfolio seeks to deploy strategic capital through
direct and indirect investments and partnerships throughout the
global cannabis industry.
For more information on SNDL, please go
ABOUT NOVA CANNABIS INC.
Nova Cannabis Inc. (TSX: NOVC) is one of Canada's largest and fastest-growing cannabis
retailers with a goal of disrupting the cannabis retail market by
offering a wide range of high-quality cannabis products at
every-day best value prices. The Company currently owns and/or
operates 88 locations across Alberta, Ontario, and Saskatchewan, primarily under its "Value Buds"
banner. Additional information about Nova Cannabis Inc. is
available at www.sedar.com and the Company's website
This news release contains statements and information that, to
the extent that they are not historical fact, may constitute
"forward-looking information" or "forward-looking statements"
within the meaning of applicable securities legislation
("forward-looking information"). Forward-looking information
is typically, but not always, identified by the use of words such
as "will", "expected", "projected", "to be" and similar words,
including negatives thereof, or other similar expressions
concerning matters that are not historical facts. Forward-looking
information in this news release includes, but is not limited to,
statements regarding: the anticipated timing and date of the
Meeting; the anticipated timing and the completion of the
Transaction; the anticipated benefits, synergies and cost-savings
of the Transaction.
Such forward-looking information is based on various assumptions
and factors that may prove to be incorrect, including, but not
limited to, factors and assumptions with respect to: the
Transaction being completed on the terms and timeline currently
anticipated or at all; all necessary shareholder and regulatory
approvals being obtained on the timelines and in the manner
currently anticipated or at all; and the receipt by Nova and SNDL
of necessary retail cannabis licences, approvals and authorizations
(as applicable) from regulatory authorities, and the timing
Although SNDL and Nova believe that the assumptions and factors
on which such forward-looking information is based are reasonable,
undue reliance should not be placed on the forward-looking
information because neither SNDL nor Nova can give no assurance
that it will prove to be correct or that any of the events
anticipated by such forward-looking information will transpire or
occur, or if any of them do so, what benefits Nova and/or SNDL will
derive therefrom. Actual results could differ materially from those
currently anticipated due to a number of factors and risks
including, but not limited to: the risk that the Transaction is not
completed as anticipated or at all, including the timing thereof,
and if completed, that the benefits thereof will not be as
anticipated; the risk that necessary shareholder or regulatory
approvals are not obtained as anticipated or at all, and the timing
thereof; the risk that the conditions to closing of the Transaction
are not satisfied or waived; risks associated with general economic
conditions; adverse industry events; future legislative, tax and
regulatory developments, including developments that may impact the
closing of the Transaction as anticipated or at all; conditions in
the liquor and cannabis industries; the risk that Nova or SNDL does
not receive any necessary retail cannabis approvals and/or
authorizations or that they are not able to open additional retail
cannabis stores, directly or indirectly, as anticipated or at all;
the ability of management to execute its business strategy,
objectives and plans; the availability of capital to fund the
build-out and opening of additional retail cannabis stores; and the
impact of general economic conditions and the COVID-19 pandemic in
Additional information regarding risks and uncertainties
relating to Nova's business are contained under the heading "Risk
Factors" in Nova's management's discussion and analysis for the
year ended December 31, 2021 dated
March 18, 2022. Additional
information regarding risks and uncertainties relating to SNDL's
business are contained under "Item 3D Risk Factors" in SNDL's
Annual Report on Form 20-F, which was filed with the Securities and
Exchange Commission on April 28,
2022. The forward-looking information included in this news
release is made as of the date of this news release. SNDL and Nova
do not undertake any obligation to publicly update such
forward-looking information to reflect new information, subsequent
events or otherwise, except as required by applicable law.
SOURCE Nova Cannabis Inc.