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SNDL, Nova Cannabis enter pact to create Canadian cannabis retail platform
The Fly

SNDL, Nova Cannabis enter pact to create Canadian cannabis retail platform

SNDL and Nova Cannabis announced that they have entered into an agreement creating a well-capitalized cannabis retail platform in Canada under a vertical integration model with SNDL‘s upstream capabilities. 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. 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 C$2M thereafter, which is materially lower than the cost of building and operating the infrastructure were Nova required to manage those services in-house. 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. 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 Nova platform. 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, 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 favor 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 in favor of the transaction.

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