SNDL agrees to deal for four NOVA-operated Value Buds in BC

Tue, Apr 2

SNDL Inc. has agreed to assign its rights to own or operate four Dutch Love stores to Nova Cannabis Inc.

The move will give Nova a footprint in BC’s retail cannabis space. Nova currently owns and/or operates 96 locations across Alberta, Ontario, and Saskatchewan, primarily under its “Value Buds” banner.

SNDL is the largest private-sector liquor and cannabis retailer in Canada, with retail cannabis banners like Value Buds, Spiritleaf, and Firesale Cannabis. SNDL is also a licensed cannabis producer and one of the largest vertically integrated cannabis companies in Canada. SNDL also produces a private label product for Value Buds.

In November 2023, SNDL and Nova Cannabis announced their mutual decision to terminate the two companies’ implementation agreement from December 20, 2022, which would have, in part, seen SNDL vending into Nova’s retail network under the Value Buds, Spiritleaf and Superette banners located in Ontario and Alberta. The pair of companies had previously attributed several delays in the implementation of that agreement to the continued review by one provincial regulator.

“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, in a press release about the most recent announcement. 

“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 British Columbia and highlights the benefit of SNDL’s M&A pipeline.”

As part of the assignment, Nova will issue to SNDL $8.179 million of Nova shares based on the 20-day VWAP of the Nova shares on March 28, 2024, subject to customary closing conditions.

The deal is expected to close by the end of April 2024. Adding the four Dutch Love Stores should bring Nova’s total store count to 100 and SNDL’s direct and indirect cannabis store count across all retail banners to 190. 

SNDL has also extended the maturity date of the $15 million revolving credit facility with Nova for an additional 24 months, to March 31, 2026, and has amended the revolving credit facility to remove SNDL’s right to demand repayment prior to the maturity date, subject to certain conditions.

“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.”

In late 2022, Nova and SNDL had a tentative agreement that would have seen SNDL hand over control of 26 cannabis stores it owned under the Spiritleaf and Superette banners located in Ontario and Alberta. SNDL would also get exclusive access to Nova’s intellectual property, such as sales data, from its Value Buds retail brand.

The two companies have been repeatedly extending the closing of that partnership due to what they say is a review by one provincial regulator. The most recent extension is to November 30, 2023.

SNDL became Nova’s majority shareholder when it acquired Alcanna in 2022, Nova’s largest shareholder at the time. Similarly, High Tide, another sizeable retail cannabis business in Canada with more than 150 Canna Cabana locations across the country, reported sales from its own “Cabanalytics business data and insights platform” increased to $6.5 million in the third fiscal quarter of 2023 from $5.5 million during the same period in 2022.

Nova reported its first year of net revenue in 2023 as part of their most recent annual report. Revenue from Nova’s “proprietary data licensing arrangements” was $12.4 million for 2023, which was an increase of 125% from $5.5 million in 2022.

In its most recent annual report, SNDL reported an operating income loss of $112 million for its cannabis operations and net earnings of $4.9 million for its retail cannabis operations in 2023.

Countering its overall losses on its cannabis operations side, SNDL attributes its record results in revenue, gross profit, and cash flow within its retail cannabis segment in part to its own data program.

Despite these losses, SNDL says it is well positioned in 2024 given its recent acquisition of The Valens Company Inc., the closing of its facility in Olds, Alberta, and the transition of its remaining cultivation activities to Atholville, New Brunswick, and manufacturing and processing activities in Kelowna, British Columbia.

British Columbia currently has a cap that allows a company to operate no more than eight cannabis stores, although the province has been discussing raising that limit.