Sundial (SNDL) is a company with a dual approach; on the one hand, it focuses on cannabis growing but the other half of its remit is dedicated to using its ample capital for investment purposes. While the company has been struggling in its endeavors of the former, it is proving more adept at the latter.

Sundial’s latest move positions it to be Canada’s largest cannabis retailer after the company announced that it is acquiring Alcanna in an all-stock deal worth ~C$346 million. The transaction is expected to be completed in December 2021 or FY22’s first quarter.

As an operator of 171 stores across three retail brands (Ace Liquor Discounter, Liquor Depot, and Wine and Beyond), Alcanna is Canada’s biggest private liquor retailer. But in addition to its drinks business, Alcanna holds a 63% stake in Nova Cannabis Inc, an Edmonton-based cannabis retailer with ownership of 62 dispensaries in Alberta, Ontario and Saskatchewan. Nova has been pivoting toward the value-focused cannabis category, a segment with low penetration rates amongst retailers but which continues to claim a 70%+ cut of the branded product market.

“In our view,” said Canaccord’s Shaan Mir, “This transaction is a step in the right direction for Sundial as it provides the company with an established alcohol retail chain, with free cash flow of ~C$16.4M on a TTM basis, while simultaneously creating the largest cannabis retailer in the country at 170 locations active today.”

The combined retail platform, says the analyst, provides an opportunity to “leverage consumer insights data,” which can then be “relayed” into Sundial’s branded products’ R&D efforts.

The Nova retail chain will also provide another outlet for Sundial brands, the result of which should be “higher end-user sales” for its products.

Lastly, Mir sees the deal as an opportunity for Sundial to “leverage Alcanna’s retail operational know-how in its Spiritleaf and Value Buds’ banners.”

On the back of the announcement, Mir has made some tweaks to his Sundial model which results in a new price target – up from $0.75 to $0.8, suggesting upside of 21% from current levels. The analyst’s Hold rating stays as is for now. (To watch Mir’s track record, click here)

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Sundial currently has a low profile on Wall Street, as Mir’s review is the only one offered during the past 3 months. (See SNDL stock analysis)

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Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.

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