Canadian cannabis retailers to merge, focus on value-conscious consumers

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Alcanna is spinning off its retail cannabis business and combining it with competing retailer YSS Corp. to create one of the largest networks of recreational marijuana stores in Canada, the companies announced Monday.

The deal is the latest in a series of M&As in the cannabis retail space, driven by companies looking to differentiate themselves in an increasingly competitive market in some parts of the country.

Other recent M&A deals include:

  • High Tide’s acquisition of Meta Growth Corp.
  • Fire & Flower’s acquisition of Friendly Stranger.
  • Delta 9 Cannabis’ acquisitions of retail stores.

Alcanna operates about three dozen cannabis stores in Alberta and Ontario, primarily under the Nova Cannabis brand, and YSS operates 16 YSS and Sweet Tree-branded stores in Alberta and Saskatchewan.

The combined company will have 53 retail locations in Alberta, Saskatchewan and Ontario when the deal closes, plus another nine stores under construction.

The discount-focused cannabis retailer will be named Nova Cannabis, according to a news release.

Most of the stores, approximately 80%, will be rebranded as Value Buds and will target value-conscious consumers, which the companies say is an underserved segment accounting for almost three-quarters of the entire legal and illicit recreational cannabis market in Canada.

Canada’s market for value brands has experienced steady growth.

Alcanna board member Darren Karasiuk will lead the new company as CEO and president after resigning from the board.

Karasiuk previously served as chief commercial officer of Aurora Cannabis and general manager of MedReleaf.

Concurrently, Alcanna Cannabis Stores is looking to raise at least 25 million Canadian dollars ($19.5 million) in a brokered private placement.

The net proceeds will be used to fund the new company’s business plan, the release notes.

After the merger and financing are completed, Alcanna shareholders will hold approximately 69.2% of the new company’s shares, while current YSS shareholders will hold 14.7% and new subscribers under the financing deal will hold 16.1%.

The companies say the agreement and the financing imply a value for the business of CA$130 million

Alcanna and YSS have the right to terminate the merger if the financing does not close before Feb. 28, 2021.

The YSS board unanimously approved the deal, which also requires a vote by YSS shareholders.

The financing is expected to close around Feb. 5.

The merger is expected to close around March 1.

Aurora Cannabis previously owned about a quarter of Alcanna, after investing about CA$138 million, but the struggling Canadian producer unloaded its stake last year for a significant loss.

Pending shareholder approval, the new company is expected to apply to list its shares on the Toronto Stock Exchange.