Merger and acquisition activity remains high in the industry and two major Canadian firms – Sundial Growers and Canopy Growth – have made acquisitions this month.
Sundial Growers has bought Canada’s biggest cannabis retail chain, Inner Spirit Holdings, for CAD131m (USD108.4m).
Once the deal has closed, the Alberta-based firm will join Canopy Growth and Decibel Cannabis in a select group of Canadian cannabis producers that also own major retailers.
“Sundial becomes a stronger and more diverse cannabis company by acquiring Inner Spirit and the Spiritleaf retail store network,” Sundial CEO Zach George said.
Sundial’s products will be listed in Inner Spirit’s 86 stores across Canada, including 27 stores in Ontario, which is the country’s largest cannabis market.
Ontario’s regulations currently limit the number of retail outlets one entity can own to 30, but this is set to increase to 75 in September.
Ontario provincial law permits a franchise model to be implemented in cannabis retail, which gives producers a chance to capture more of the market – an opportunity that Inner Spirit has taken advantage of.
When the transaction closes – which it is expected to do in the early third quarter of 2021 – Sundial will have a 100% stake in Spirit Holdings. Of Spiritleaf’s 86 stores across Canada, 67 are franchise-owned and 19 corporate. In Ontario, 22 Spiritleaf stores are franchised and five corporate-owned.
“Inner Spirit has successfully created a franchise-based retail network that has grown from coast to coast and offers a differentiated and premium in-store experience to consumers,” said George.
“Our shared Albertan roots and commitment to data-driven consumer insights make for an ideal partnership. Sundial’s capital base will enable us to support continued expansion and deepen the capabilities of the Spiritleaf retail brand.”
Meanwhile, Ontario-based cannabis firm Canopy Growth has strengthened its portfolio with the acquisition of Supreme Cannabis and its premium brands, 7Acres and 7Acres Craft Collective, in a deal valued at CAD435m (USD360m).
“As we continue to expand our leading brand portfolio, we’re excited to reach more consumers through Supreme’s premium brands and high-quality products, further solidifying Canopy’s market leadership,” said Canopy’s CEO David Klein.
“Supreme’s deep commitment to superior genetics, top-tier cultivation and strict quality control, paired with Canopy’s leading consumer insights, advanced R&D and innovation capabilities, is expected to create a powerful combination that aligns with our strategic focus to generate growth with premium quality products across key categories.”
Canopy will also benefit from the acquisition of Supreme Cannabis’s scalable hybrid greenhouse cultivation facility in Kincardine, Ontario, which produces premium flower from sought-after strains at low cost. Cost synergies are estimated at approximately CAD30m (USD24.9m) within two years.
This deal follows last month’s acquisition of another premium brand for Canopy – Ontario-based company Ace Valley (AV) Cannabis, which has a strong following of millennial and generation Z consumers.
“The team at Ace Valley has built a premium cannabis brand, with an impressive consumer following and we’re excited to deploy the full distribution power of Canopy Growth to expand the brand to consumers across Canada,” said Rade Kovacevic, president and chief product officer of Canopy Growth.
Ace Valley holds top five and top ten market positions in Ontario across its range of SKUs and complements Canopy Growth’s existing portfolio of premium vapes, pre-roll joints, and gummies.
Canopy Growth expects to unlock revenue growth opportunities and cost synergies and leverage its distribution network to extend the reach of Ace Valley across Canada.
The deal marks a slight diversion from Canopy’s recent strategy, which has focused on strengthening its entry to the US market with its line of CBD-infused beverages, even using a celebrity astrologer to promote the launch of its CBD-infused sparkling water brand Quatreau.
– Lorraine Mullaney CBD-Intel staff
Photo: Gennaro Leonardi