SNDL Announces Agreement to Acquire The Valens Company to Create Leading Vertically Integrated Cannabis Platform

SNDL Inc. and The Valens Company Inc. are pleased to announce that they have entered into an arrangement agreement to combine their businesses and create a leading vertically integrated cannabis platform. Pursuant to the terms of the Agreement, SNDL will acquire all of the issued and outstanding common shares of Valens other than those owned by SNDL and its subsidiaries, by way of a statutory plan of arrangement. All financial information in this press release is reported in Canadian dollars unless otherwise indicated.

Under the terms of the Agreement, Valens’ shareholders will receive, for each Valens Share, 0.3334 of a common share of SNDL (the “Offer Exchange Ratio”). Based on the August 19, 2022 close of the SNDL shares on the Nasdaq Capital Market exchange (the “Nasdaq”), the consideration represents an implied value of $1.26 per Valens Share (the “Implied Offer Price”), for total consideration of approximately $138 million. The Implied Offer Price represents a premium of 10% based on a trailing 30-day volume-weighted average price (“VWAP”) of the Valens Shares, on the Toronto Stock Exchange (the “TSX”) up to August 19, 2022. For more information on the announcement, an investor presentation can be found at www.sndl.com and www.thevalenscompany.com.

With 555,500 square feet of cultivation and manufacturing space and 185 cannabis stores under the Spiritleaf and Value Buds banners, the combined company will offer a complete portfolio of branded products to consumers in Canada through its own supply and distribution channels. With approximately $314 million1 in net cash and no debt, SNDL will continue to have one of the strongest balance sheets in the North American regulated cannabis industry. SNDL will also have the highest pro forma Canadian cannabis revenue on a last fiscal quarter annualized basis. The combined company will operate as SNDL Inc., and Valens shareholders will own approximately 9.5% of the pro forma entity.

Key Transaction Highlights
Creates a dominant vertically integrated entity in Canada: Through the combination of a diverse portfolio of brands, an extensive retail footprint, low-cost biomass sourcing, premium indoor cultivation and low-cost manufacturing facilities, SNDL will become one of the largest adult-use cannabis manufacturers and retailers. With its retail insight and financial strength, SNDL will be able to adapt quickly to emerging consumer trends.
Enhances branded product offering with low-cost in-house manufacturing capabilities: By integrating Valens’ product suite into its portfolio, SNDL will increase its overall cannabis market share to 4.5% and its 2.0 product formats market share to 5.2%, becoming a top 10 player in both categories. As a result of Valens’ low-cost platform, SNDL will enhance its own product line while offering pricing flexibility to retail partners.

Increases optionality on biomass by pairing premium cultivation with low-cost procurement: Combining SNDL’s high-quality cannabis cultivation operations with Valens’ low-cost biomass procurement capabilities will enhance SNDL’s ability to offer a wide range of customized innovative products to meet its consumer’s desires.

Synergies through cost rationalization and operational efficiencies: The combination of SNDL and Valens is expected to deliver more than $10 million of annual cost synergies. Together with incremental revenues from greater distribution of Valens products, it is estimated that the Transaction will deliver upwards of $15 million of additional EBITDA on an annual run-rate basis through synergies and other strategic initiatives.

Valens shareholders to participate in and help create the future of SNDL: Valens shareholders are to receive SNDL common shares in an all-stock transaction. Beyond improved liquidity and better access to a large retail footprint, SNDL’s balance sheet strength provides a unique opportunity for Valens shareholders to participate in the creation of a leading vertically integrated Canadian cannabis company.

“This powerful combination will result in the creation of a dominant vertically integrated company, exceptionally well-suited to weather the current cannabis environment and become a leader in the Canadian regulated products sector,” said Zach George, Chief Executive Officer of SNDL. “SNDL’s existing consumer packaged cannabis business will be transformed by Valens’ high-quality extraction, processing, and manufacturing capabilities and aligns well with our strategic vision to delight consumers with a full range of quality cannabis products and experiences. Our companies have been commercial partners since Canadian legalization. I am excited by the strong cultural fit between our teams and humbled by the opportunity to work with Valens’ passionate and innovative leadership.”

“We are thrilled to bring together two best-in-class cannabis companies that have extremely complementary assets to create a true market leader. Valens is one of the fastest growing branded cannabis companies in Canada with a focus on innovation and investing in low-cost automated manufacturing assets,” said Tyler Robson, Chief Executive Officer of The Valens Company. “With SNDL’s exceptional balance sheet and largest cannabis retail network in Canada we look forward to taking Valens’ brands to new heights and unlocking 2.0 products for the SNDL platform. We believe the pro forma company provides investors with attractive exposure not only to the highest revenue generating cannabis company in Canada trading well under its tangible book value but also a dominant platform that can become a global leader in cannabis.”

Valens’ secured non-revolving term loan (the “Term Loan”) has been refinanced and upsized with an additional $14.3 million of incremental capital, thereby increasing the principal amount of the Term Loan to $60 million.

Transaction Details
The Transaction will be carried out by way of a court-approved plan of arrangement under the Canada Business Corporations Act, pursuant to which SNDL will acquire all of the issued and outstanding Valens Shares, other than those owned by SNDL and its subsidiaries. The implementation of the Transaction will be subject to the approval of at least two-thirds of the Valens Shares entitled to be voted by Valens shareholders and the approval of a simple majority of the Valens Shares entitled to be voted by Valens shareholders, other than Valens shareholders required to be excluded under applicable laws, at a special meeting expected to be convened by Valens by the end of November 2022 (the “Meeting”), and the receipt of applicable orders from the Ontario Superior Court of Justice and applicable regulatory approvals, including under the Competition Act (Canada) and the applicable provincial liquor and cannabis regulators. The Agreement provides for, among other things, customary support and non-solicitation covenants from Valens, including customary “fiduciary out” provisions that allow Valens to accept a superior proposal in certain circumstances and a five-business day “right to match period” in favour of SNDL. The Agreement also provides for the payment of a termination fee of $8 million payable to SNDL by Valens in the event the Transaction is terminated in certain specified circumstances. The transaction is expected to close during January 2023.

All directors and executive officers of Valens have entered into voting support agreements with SNDL pursuant to which, among other things, the parties have agreed to vote their Valens Shares in favour of the Transaction.

A full description of the Transaction will be set forth in the management information circular of Valens, which will be mailed to Valens shareholders in connection with the Meeting, and filed on the System for Electronic Document Analysis and Retrieval (SEDAR) under Valens profile at www.sedar.com and the Company’s Form 6-K, which will be furnished on EDGAR (www.sec.gov/edgar.shtml).

Valens Board Approval
Valens’ board of directors has unanimously approved the Transaction after receiving the unanimous recommendation of a special committee of Valens directors (the “Special Committee”). Valens’ board of directors has unanimously resolved to recommend that the shareholders of Valens vote in favour of the Transaction.

Cormark Securities Inc. has provided a fairness opinion to the Special Committee of Valens that, subject to the assumptions, limitations and qualifications set out in such fairness opinion, the consideration to be received by Valens shareholders pursuant to the Transaction is fair from a financial point of view to Valens’ shareholders.

Advisors
ATB Capital Markets Inc. is acting as a financial advisor to SNDL. McCarthy Tétrault LLP is acting as legal counsel to SNDL.

Cormark Securities Inc. is acting as financial advisor and Stikeman Elliott LLP is acting as legal counsel to Valens.