- Sundial Growers Inc. (Nasdaq: SNDL) recently announced that it has closed the acquisition of a special purpose vehicle. These are the details.
Sundial Growers Inc. (Nasdaq: SNDL) recently announced that it has closed the acquisition of a special purpose vehicle. The consideration for the special purpose vehicle (totaling CAD $58.9 million in cash) was funded from Sundial’s available cash reserves – which totaled CAD $110 million immediately prior to the closing of the Investment. All amounts are denominated in Canadian dollars unless otherwise noted.
The special purpose vehicle owns CAD $58.9 million of the aggregate principal amount of senior secured debt (senior loan) of Zenabis Investments Ltd., a subsidiary of Zenabis Global. The senior loan bears interest at a rate of 14% per annum and has a maturity date of March 31, 2025, with principal repayments under certain circumstances over time including CAD $7 million payable on December 31, 2020. The senior loan is secured by the assets of Zenabis and its subsidiaries and is guaranteed by Zenabis Global. In aggregate the assets represent all the cannabis-related assets of Zenabis.
Pursuant to the terms of the senior loan, Zenabis will also pay Sundial a royalty based on quarterly sales revenue from its medical, recreational, and wholesale cannabis lines net of value-added or sales taxes (Net Cannabis Revenue) – which will be payable each fiscal quarter as follows:
1.) 3.5% of Net Cannabis Revenue where Net Cannabis Revenue does not exceed CAD $25 million
2.) 3% of Net Cannabis Revenue where Net Cannabis Revenue exceeds CAD $25 million but not CAD $30 million
3.) 2.5% of Net Cannabis Revenue where Net Cannabis Revenue exceeds CAD $30 million but not CAD $37.5 million
4.) 2% of Net Cannabis Revenue where Net Cannabis Revenue exceeds CAD $37.5 million.
The royalty is payable for 32 fiscal quarters and is payable for quarters in which Zenabis accomplishes certain Net Cannabis Revenue targets and maintains certain debt service ratios. If the targets are not met, then the royalty is not payable for the applicable fiscal quarter, but the term of the royalty is extended to another fiscal quarter. Sundial currently has an unrestricted cash balance of approximately CAD $51 million following the investment and approximately 919 million common shares outstanding.
Sundial is known as being a licensed producer that crafts cannabis using state-of-the-art indoor facilities. And the company’s ‘craft-at-scale’ modular growing approach, genetics technology, and experienced master growers set the company apart. And the company’s Canadian operations cultivate small-batch cannabis using an individualized “room” approach with 448,000 square feet of total space. And Sundial’s brand portfolio includes Top Leaf, Sundial Cannabis, Palmetto, and Grasslands.
Disclosure: I have a small SNDL position in my stock portfolio