Sundial Buys SPV for $58.9M in Cash

Sundial Growers has paid $58.9 million in cash to acquire a special purpose vehicle (SPV) owning $58.9 million of senior secured debt of Zenabis Investments Ltd. Following the investment, Sundial now has an unrestricted cash balance of approximately $51 million and about 919 million common shares outstanding.

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Sundial’s (SNDL) brand portfolio includes Top Leaf, Sundial Cannabis, Palmetto and Grasslands, with the company using state-of-the-art indoor facilities to produce quality cannabis products and create exceptional consumer and customer experiences.

The Senior Loan that Sundial has acquired through the SPV expires on March 31, 2025 and bears interest at a rate of 14% per annum. The loan is guaranteed by Zenabis’ parent company, Zenabis Global, and secured by the assets of Zenabis and its subsidiaries.

The agreement also stipulates that Zenabis will pay Sundial royalties based on quarterly sales revenue from its medical, recreational and wholesale cannabis lines. The royalties will be between 2% and 3.5% and are dependent on the amount of quarterly revenue that Zenabis is able to generate.

Royalties will continue for 32 fiscal quarters and are conditional on certain criteria being met by Zenabis, which include the maintenance of certain debt ratios and the achievement of revenue targets as set out in the agreement.

Failure to meet these conditions will result in no royalties being paid for that quarter, and the term of the royalty being extended another fiscal quarter. (See SNDL stock analysis on TipRanks)

Canaccord Genuity analyst Matt Bottomley initiated a Hold rating on Sundial stock last month and set a price target of $0.3, which implies downside potential of around 35%.

Bottomley’s outlook stems from uncertainties around Sundial’s capital position and cost structure potentially straining its resources as it continues to scale its operation. He sees Sundial’s largest immediate opportunity in the domestic adult-use space and believes that “this refocus will be favorable for the company’s market share over time.”

Overall, consensus among analysts is a Moderate Sell based on 1 Hold and 1 Sell. The average price target of $0.25 implies downside potential of around 46% over the next 12 months.

Sundial’s shares have lost almost 85% in value since the beginning of the year.