SNDL Acquires Cannabis Grower Zenabis Global: More To Come

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Discusses the latest transaction and other recent acquisitions by SNDL in recent months

SNDL (NASDAQ:SNDL) today announced to investors that they had successfully acquired the Zenabis (TSE:ZENA) business as per an approval order from the Québec Superior Court.

The latest transaction is just one of many occurring in recent months as part of the Cannabis industry consolidation following its initial peak and saturation which drove flower prices and profit margins lower for producers in recent years.

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SNDL's Bid Agreement To Acquire Zenabis

SNDL initially announced that they had entered into a bid agreement to investors back in June and the process has taken several months to complete. The bid and agreement relates back to a SPAC acquisition SNDL made back in December 2020 where they acquired almost CAD$60 million in senior secured debt.

As part of the acquisition, SNDL will obtain a 380,000 square-foot indoor growing facility in Atholville, New Brunswick which has EU GMP certification and is Zenabis’s core asset. The facility has an annual dried flower production capacity of 46,000 kilograms and extraction capacity of 15,000 kilograms per anum. 

The deal will also include a non-core asset of a 255,000 square foot industrial facility in Stellarton, Nova Scotia which is currently under non-binding discussions of sale by SNDL.

As part of the transaction, SNDL acquired more than 22 million grams of cannabis inventory which will reduce near-term cultivation requirements and will be sold through wholesale transactions, via international export, branded product sales and through retail store sales.

The Zenabis transaction is only one of several recent acquisitions by SNDL. 

At the end of August, SNDL announced another bid agreement to acquire Suprette Inc’s assets under the Creditors Arrangement Act of Canada. The transaction, if successful, will provide the rights to six retail locations within Toronto and Ottawa and will provide IP rights to sell certain white-label products under the Superette brand.

Also during August, SNDL told investors that it would be acquiring Canadian cannabis producer, ‘The Valens Company’ (CA:VLNS) in an all stock transaction. SNDL offered VLNS shareholders 0.334 SNDL shares per VLNS share held. The Valens board unanimously approved the transaction.

SNDL’s shares over 2022 have suffered strong declines as industry-wide headwinds plagued the North American Cannabis sector. The stock is trading -61% lower over the year and now has a market capitalisation marginally below $600 million.

Despite the weakening share price, management continues to take advantage of the circumstances in order to strengthen the group and build a growing brand as they work towards generating almost $1 billion in revenue during 2023. 

At Canaccord Genuity, analyst Shaan Mir became more bullish on the stock recently and upgraded his recommendation to ‘speculative buy’ from ‘hold’ following the company’s last result. 

Mir noted at the time the company was trading with a market cap that was the same size as cash balance levels which provided the company with flexibility to fund further M&A or pursue other balance sheet strengthening activities. Mir lowered his target price from $5 to $4.25 on revised discount rates used in the forecasting.

On average SNDL has a consensus ‘overweight’ rating and average $4 target price across the street.

Fintel’s platform analysis of the underlying options market for SNDL suggests that investors have remained bullish during the last 6 months. This has been explained by the put/call ratio staying at a ratio slightly above 0 between 0.10-0.15. 

The put/call ratio is determined by analysing all put and call interest in the market for a stock over time with values towards 0 indicating stronger bullish sentiment as it means call open interest carries greater weight than interest. 

SNDL has risen 11 ranks in popularity this week and is currently the 72nd most held security by retail investors that have linked their portfolio for free with the Fintel platform.

Article by Ben Ward, Fintel