Canada’s SNDL shifts retail strategy in deal with Nova Cannabis

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Canadian company SNDL is reducing its direct exposure to marijuana retail in a multifaceted deal involving Nova Cannabis.

SNDL, formerly known as Sundial Growers, is currently a majority owner of the Edmonton, Alberta-based retail chain.

Under terms of the deal, SNDL will give Nova 26 cannabis retail stores under the Spirtleaf and Superette banners, all in Alberta and Ontario.

“Nova will also have a right of first refusal on (SNDL’s) Canadian cannabis retail pipeline,” Calgary, Alberta-headquartered SNDL noted in a Tuesday night news release.

SNDL will maintain its management and administrative services deal with Nova, amending the deal so the latter pays no fee for three years and a 2 million Canadian dollar ($1.5 million) annual fee after that.

Also under the deal, SNDL will eliminate a CA$15 million revolving credit facility after Nova draws the remaining CA$5.5 million.

It will be replaced by a new CA$15 million credit facility, with a $10 million accordion “available under certain conditions.”

SNDL will also return roughly 14.3 million Nova shares, worth about CA$7.5 million, to Nova for cancellation.

Finally, SNDL will cut its ownership of Nova to less than 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 British Columbia,” according to the release.

In exchange, SNDL will receive the intellectual property rights to Nova’s 88-store Value Buds cannabis retail banner and will license Nova to operate Value Buds, Spiritleaf and Superette stores.

In exchange for SNDL’s intellectual property and “other intangible property,” Nova will pay a licensing fee of 5% to 15% of gross profits of each store, starting one year after the deal closes.

The deal, subject to stock exchange and shareholder approvals, is expected to close in May 2023.

SNDL said the deal would strengthen its “command of the fastest-growing retail shelf space in Canada while de-risking store-level profitability on (the company’s) financials.”

SNDL became Nova’s majority shareholder when it acquired Nova’s largest shareholder Alcanna in a deal that closed earlier this year.

SNDL acquired Inner Spirit and its Spiritleaf cannabis retail franchise business in 2021 and then acquired assets of retailer Superette this year after Superette filed for creditor protection.