The last year has been challenging for the cannabis sector and Canadian Licensed Producers (LPs) have been especially impacted by the trend.
From closing facilities to laying off employees, Canadian LPs are cutting costs and are executing on strategies to become profitable businesses. During the last year, we have seen increased consolidation in the Canadian cannabis sector and this is a trend that we expect to continue for the foreseeable future.
In mid June, Sundial Growers Inc. (Nasdaq: SNDL) entered into a purchase agreement with Zenabis to form a stalking horse bid to acquire the assets that are owned by Zenabis. The assets in the agreement include:
- A 380,000 square foot indoor cultivation facility in Atholville, New Brunswick with an annual production capacity of approximately 46,000 kgs of dried cannabis and 15,000 kgs of extraction capacity.
- A decommissioned 255,000 sq. ft. indoor facility in Stellarton, Nova Scotia, which was used as a packaging, processing, and value-added cannabis product manufacturing facility.
The facility in Atholville has received EU GMP certification which allows for the company to export cannabis to emerging international markets like Israel, Malta, the United Kingdom, and the EU. We consider this to be an attractive asset and believe the ability to capitalize on international markets will play an important role in how the business continues to grow.
Another attractive aspect of the transaction is related to Zenabis’ joint venture agreement with ZenPharm Limited which is based in Malta. According to the agreement, the joint venture allows for commercial bulk imports into Malta and subsequent exports to the EU and United Kingdom.
Based on due diligence conducted by Sundial, more than $100 million was invested in both the Atholville and Stellarton facilities. Although we are impressed with the state-of-the-art technology that is included in the facility, many Canadian LPs have followed a similar strategy when investing in facilities and believe our readers should be aware of this.