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Sundial Growers Completes Acquisition of Alcanna

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Sundial is now the largest private sector cannabis and liquor retailer in Canada.

Sundial Growers Inc. 

Mar 31, 2022, 07:00 ET

Pursuant to the Transaction, former holders of Alcanna Shares ("Alcanna Shareholders") are entitled to receive (i) 8.85 Sundial Shares and (ii) $1.50 in cash for each Alcanna Share (collectively, the "Consideration"). Following the Transaction, there are approximately 2.4 billion Sundial Shares outstanding with existing Sundial shareholders holding approximately 86.6% of such Sundial Shares and former Alcanna Shareholders holding approximately 13.4% of such Sundial Shares.

Alcanna is one of the largest private-sector retailers of alcohol in North America and the largest in Canada by number of stores – operating locations in Alberta and British Columbia. Alcanna's majority-owned subsidiary, Nova Cannabis Inc. (TSX: NOVC) ("Nova"), also owns or operates a total of 78 cannabis retail stores in Alberta, Saskatchewan and Ontario.

Transaction Highlights:
  • Improved cash flow profile with expansion into liquor retail: As a result of the Transaction, Sundial has become Canada's largest private sector liquor retailer, operating 171 locations predominantly in Alberta under its three retail banners "Wine and Beyond", "Liquor Depot" and "Ace Liquor". The Company's management believes that the liquor segment will add sustainable cash flow from operations and stable adjusted EBITDA[1] generation to Sundial's business. Alcanna's established liquor segment generated cash provided by operating activities before working capital changes of $25.0 million, which net of cash used by cannabis operations of $6.7 million resulted in a consolidated total of $18.3 million for the twelve months ended December 31, 2021.
  • Improved revenue profile with the largest private cannabis retail network in Canada: Nova, Alcanna's majority-owned subsidiary, currently owns or operates a total of 78 cannabis retail stores across Alberta, Saskatchewan, and Ontario under the "Value Buds" banner. Combined with Sundial's Spiritleaf retail operations, Sundial now owns or operates Canada's largest cannabis retail network with more than 180 locations.
  • Increased optionality with majority ownership of Nova, a publicly listed, pure-play private cannabis retail operator: As a result of the Transaction, Sundial now also holds an approximately 63% equity interest in Nova, one of Canada's largest private cannabis retailers offering a wide range of high-quality cannabis products at value prices. Sundial will continue to provide capital and management services to Nova, as was done by Alcanna, with the aim of enhancing its position as a focused, dominant, publicly-listed Canadian cannabis retail platform, including by potentially acquiring third-party banners. Sundial's board of directors (the "Board") will periodically evaluate all options with regard to Sundial's stake in Nova, including the potential to consolidate Sundial's existing retail cannabis exposure or dividend a portion of Sundial's Nova shares to Sundial shareholders. Based on available data, we believe all of Nova's Value Buds stores in Ontario continue to gain market share over neighbouring competitors.
  • Synergies from a larger retail operation: The robust retail infrastructure and corporate support function at Alcanna is expected to generate synergies with Sundial's corporate-owned Spiritleaf retail operations as well as its franchise partners. It is estimated that these synergies will be approximately $15 million in additional adjusted EBITDA on an annual run-rate basis through cost savings, revenue optimization and other strategic initiatives.
  • Strengthened leadership team: The new combined company will be led by current Sundial Chief Executive Officer, Zach George, with the support of an expanded senior leadership team.

1 Adjusted EBITDA is a non-IFRS financial measure. Further details on these measures are included in the "Non-IFRS Measures" section of this news release.

"This is an exciting day for Sundial as we become a stronger and more capable regulated products platform.  We are developing a business model that has never existed at this scale in Canada, and are committed to continuously improving our business while delighting consumers," said Zach George, Chief Executive Officer of Sundial. "We look forward to working closely with the team at Alcanna and applaud James Burns' leadership in repositioning Alcanna's business and helping to develop Alcanna and Nova into first-class retail enterprises over the last several years. While the Alcanna transaction initially appears to be a step towards diversification and vertical integration, we expect to bring focus and specialization to the model as the cannabis industry evolves, including, for example, through potential spinoffs and consolidation of synergistic assets into pure-play businesses. I want to thank and congratulate everyone involved for their dedication and hard work in bringing this transaction to a successful conclusion. This is truly one of the most significant developments in the history of our two companies. The Sundial team is humbled by the opportunity to embrace the challenges that lie ahead and remains committed to delivering sustainable value to shareholders."

The Alcanna Shares are expected to be delisted from the Toronto Stock Exchange on or before April 4, 2022. It is expected that Alcanna will submit an application to cease to be a reporting issuer and to otherwise terminate its public company reporting requirements as soon as possible after delisting.

Alcanna Shareholders whose Alcanna Shares are held by a broker, agent or other intermediary should contact their broker or agent in respect of the exchange of their Alcanna Shares pursuant to the Transaction. Registered holders of Alcanna Shares must deposit their certificates with a duly completed amended and restated letter of transmittal in order to receive their Consideration pursuant to the Transaction, all as set forth in the management information circular and proxy statement of Alcanna dated November 9, 2021, as amended by the press release of Alcanna dated December 13, 2021 and the material change report of Alcanna dated January 6, 2022 (collectively, the "Circular"), copies of which have been filed on SEDAR at and are available on Alcanna's website at . Certificates formerly representing Alcanna Shares now represent only the right to receive the Consideration to which the holders thereof are entitled pursuant to the Transaction.


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