After piling up losses last year, Sundial Growers Inc. (Nasdaq: SNDL) is buying Canadian cannabis retailer Inner Spirit Holdings Ltd. (CSE: ISH) (OTCQB: INSHF) for $131 million in cash and stock.
On Wednesday, the Calgary-based companies said the transaction will include all 86 Spiritleaf pot shops that Inner Spirit owns and franchises.
Under the deal’s terms, Inner Spirit investors will receive roughly 39 cents in compensation per share, including $0.30 in cash and 0.0835 of a Sundial common share.
The offer amounts to a 62.5 per cent premium based on Inner Spirit’s closing share price on Tuesday.
The deal comes on the heals of Sundial announcing Tuesday that it bought a 10 per cent stake in The Valens Co. (TSX: VLNS), a pot extraction and distribution company.
“Sundial becomes a stronger and more diverse cannabis company by acquiring Inner Spirit and the Spiritleaf retail store network,” Sundial CEO Zach George said in a statement. “Sundial’s capital base will enable us to support continued expansion and deepen the capabilities of the Spiritleaf retail brand.”
@sundialcannabis to Acquire Inner Spirit Holdings and Spiritleaf Retail Cannabis Network. To read more, click below. #RetailNews #IndustryNews #Spiritleaf #Trailblazer #PressRelease https://t.co/JH3IL1clgJ
— Inner Spirit Holdings (@InnerSpiritCA) May 5, 2021
Inner Spirit operates its retail brand Spiritleaf in Alberta, British Columbia, Newfoundland, Ontario and Saskatchewan.
As of Dec. 31, Inner Spirit said it had 18 corporate stores and 63 franchise locations open for business.
Read more: Inner Spirit leads cutthroat Canadian cannabis retail sector with 70 stores
The company posted total revenue of $26.8 million in 2020, including $4.2 million in royalties and $510,000 in franchise fees.
Inner Spirit takes a $25,000 upfront franchise fee and a 5-per-cent royalty fee on gross sales, according to the company’s regulatory filings.
The company also collects another 1 per cent of gross sales from its franchisees that goes into Spiritleaf’s advertising fund.
Across its retail network, Inner Spirit recorded total retail sales of $105.3 million last year.
By comparison, major pot retailer Fire & Flower Holdings Corp. (TSX: FAF) (OTCQX: FFLWF) posted total revenue of $128.1 million.
Fire & Flower operates 80 cannabis stores in four provinces and the Yukon territory.
Only rival High Tide Inc. (TSXV: HITI) (OTCQB: HITIF) has a larger retail footprint in Canada, after recently opening its 85th store.
Sundial’s net revenue was $60.9 million in 2020. But the company recorded a net loss last year of $206.3 million, after posting a loss of $142.7 million in 2019.
The company expects the deal to close early in the third quarter of this year.
Shares of Sundial fell 1.3 per cent Wednesday to US$0.78 on the Nasdaq.
Top image via Spiritleaf