SNDL and Nova Cannabis Announce Assignment of Dutch Love Stores to Nova Cannabis and Extension of Credit Facility
- Assignment agreement between SNDL and Nova for the transfer of four Dutch Love stores.
- Nova to issue $8.179 million worth of shares to SNDL based on the 20-day VWAP of Nova shares.
- Transaction subject to TSX approval, court approval, and other regulatory approvals, expected to close by April 2024.
- Addition of Dutch Love Stores to increase Nova's store count to 100 and SNDL's total cannabis store count to 190.
- Extension of SNDL's Revolving Credit Facility with Nova for an additional 24 months.
- Amendment to Revolving Credit Facility to remove SNDL's right to demand repayment prior to the maturity date.
- None.
Insights
The strategic move by SNDL Inc. to assign rights of four Dutch Love stores to Nova Cannabis Inc. signals a significant shift in the retail landscape of the cannabis industry in British Columbia. The transaction not only increases Nova's store count to a milestone of 100 but also consolidates SNDL's influence in the market with a total of 190 stores under its umbrella. This expansion is indicative of the growing competitiveness and maturity of the cannabis retail sector.
From a market research perspective, the issuance of $8.179 million of Nova shares to SNDL as part of the agreement reflects a valuation strategy based on the 20-day VWAP, which is commonly used to ensure a fair exchange rate based on recent trading history. This move could potentially be seen as a vote of confidence in Nova's market position and future growth prospects. The extension and amendment of the revolving credit facility further demonstrate SNDL's commitment to supporting Nova's financial stability and operational expansion.
Investors should note that the success of such expansions could lead to increased market share and revenue growth for Nova, while also providing SNDL with a diversified income stream through its equity stake. However, the success of this strategy will depend on the effective integration of the new stores and the companies' ability to capitalize on economies of scale and increased bargaining power with suppliers.
The financial implications of SNDL's assignment of the Dutch Love stores to Nova and the extended credit facility are multifaceted. The deal structure, which includes the issuance of shares and the extension of a credit facility, allows SNDL to maintain a vested interest in Nova's success without immediate cash outlay, aligning both companies' interests.
For investors, the key factors to consider include the impact on Nova's earnings per share (EPS) due to the dilution of existing shares. The issuance of shares may also affect Nova's stock price in the short term as the market absorbs the new equity. Furthermore, the extended credit facility's terms, notably the removal of SNDL's right to demand early repayment, provide Nova with a more predictable capital structure and may reduce financial risk.
However, it is essential to monitor how the additional stores contribute to Nova's operational cash flow and whether the anticipated synergies translate into financial performance. The transaction's success will also hinge on regulatory approvals, including the TSX's listing of the new shares, which could introduce delays or additional scrutiny.
The assignment of the Dutch Love stores from SNDL to Nova involves a complex legal arrangement that requires the navigation of various regulatory approvals. The mention of court approval and TSX listing approval for the Nova shares to be issued indicates that the deal is subject to legal due diligence and compliance with securities regulations.
Investors should be aware of the legal risks associated with such transactions, including potential delays in obtaining regulatory approvals or conditions imposed by the regulatory bodies that could affect the final terms of the deal. The legal framework governing cannabis retail operations is also subject to change, which could impact the future operations of the acquired stores.
The role of legal counsel from firms like McCarthy Tétrault LLP and Bennett Jones LLP is critical in ensuring that the transaction adheres to all legal requirements and in mitigating any associated risks. Their involvement provides a level of assurance to stakeholders regarding the legal soundness of the transaction.
This news release constitutes a "designated news release" for the purposes of the prospectus supplement of Nova Cannabis Inc. dated July 22, 2022, to its short form base shelf prospectus dated June 27, 2022.
"SNDL remains committed to strengthening Nova's retail position and the sustainability of its capital structure, as underscored by the extension of the credit facility," said Zach George, CEO of SNDL. "The assignment of four well-located cannabis retail stores to be owned or operated by Nova creates an opportunity for Nova to open its first Value Buds branded locations in
Pursuant to the Assignment, Nova shall issue to SNDL
SNDL has also extended the maturity date of the
"The updates announced further solidify SNDL's continued support of Nova's growth trajectory," said Anne Fitzgerald, lead independent director of Nova. "We will continue to collaboratively pursue avenues that support Nova's expansion and optionality with our partners at SNDL."
McCarthy Tétrault LLP is acting as legal counsel to SNDL. Bennett Jones LLP is acting as legal counsel to Nova.
SNDL is a public company whose shares are traded on the Nasdaq under the symbol "SNDL." SNDL is the largest private-sector liquor and cannabis retailer in
For more information on SNDL, please go to www.sndl.com.
Nova Cannabis Inc. (TSX: NOVC) is one of
Additional information about Nova Cannabis Inc. is available at www.sedarplus.ca and Nova's website at www.novacannabis.ca.
Forward-Looking Information Cautionary Statement
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", "expect", "project", "to be", "believe", "anticipate" 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 (among other things) the receipt of TSX approval of the issuance of Nova common shares as consideration for the Dutch Love Stores, the anticipated closing date of the Assignment, and the anticipated number of cannabis retail stores owned and/or operated by Nova and SNDL upon closing of the Assignment. 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 identification by SNDL and Nova of opportunities that they each view as being in the best interests of their respective shareholders and their ability to satisfy the closing conditions contained in the Assignment. 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 any 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: risks associated with general economic conditions; adverse industry events; 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.
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SOURCE SNDL Inc.
FAQ
What is the Assignment agreement between SNDL and Nova about?
How much will Nova issue in shares to SNDL as part of the agreement?
When is the expected closing date for the transaction?
How many stores will Nova have after the addition of Dutch Love Stores?
What is the total expected cannabis store count for SNDL after the transaction?
