SNDL Targets U.S. Cannabis Assets for Growth

The TDR Three Key Takeaways regarding SNDL and U.S. Cannabis Assets:

1. SNDL acquires major U.S. cannabis assets to prepare for federal legalization.
2. CEO Zach George highlights SNDL’s proactive investment strategy.
3. Legal challenges complicate SNDL’s acquisition of U.S. cannabis assets.

SNDL Inc. (NASDAQ: SNDL), through its SunStream USA Group, is acquiring majority equity positions in various U.S. cannabis assets, including Michigan-based Skymint and multi-state operator Parallel. This follows a positive review for compliance with Nasdaq listing rules. These acquisitions prepare SNDL for potential U.S. federal legalization of cannabis, shifting from a creditor to an owner role, and expanding its presence in significant U.S. states with growing cannabis markets.

The decision by SNDL to acquire these cannabis assets through SunStream reflects a strategy to capitalize on the regulatory-changing U.S. cannabis sector. SNDL’s CEO Zach George highlighted the importance of this initiative, stating, “This initiative creates attractive optionality for SNDL upon federal legalization to deploy additional investment capital into the SunStream USA Group structure, improving the return potential of attractive U.S. cannabis assets in growing markets.” This statement underscores the company’s proactive approach to strengthening its market position by investing in areas with high growth potential.

SunStream, a joint venture originally created to leverage investment opportunities in the cannabis sector, plays a critical role in these transactions. It offers SNDL not only a foothold in the U.S. market but also an enhanced capacity to manage and scale its investments in anticipation of legislative changes. The acquisition of Skymint and Parallel positions SNDL to benefit from established operational frameworks and market penetration in states like Michigan, known for its progressive medical cannabis programs.

The situation involving Skymint has been notably complex due to legal challenges from another company, 3Fifteen Cannabis. In 2021, 3Fifteen agreed to be acquired by Skymint for $78 million, but the deal fell apart the following year amidst Skymint’s financial difficulties and a subsequent receivership process. 3Fifteen and its investor Merida Capital contested a 2022 judicial decision that rejected their efforts to cancel the acquisition and reclaim 3Fifteen’s assets, arguing that Skymint had failed to fully compensate them before encountering financial troubles. A court provisionally halted Skymint’s receivership in December, pending the outcome of 3Fifteen’s appeal, with Merida accusing SunStream of attempting to inappropriately seize 3Fifteen’s assets through Skymint’s receivership.

Further complicating SNDL’s and U.S. SunStream’s situation is another legal battle from an investor in Parallel, who alleges a similar strategy of burdening the company with unmanageable debt to facilitate a takeover via receivership. Despite these challenges, SNDL predicts that the combined assets of Parallel and Skymint could propel SunStream USA into the ranks of the top ten multi-state operators by 2024, potentially reaching over 60 million consumers across five states and generating about $5 billion in total market sales.

SNDL’s investment portfolio includes stakes in several prominent cannabis firms: Jushi Holdings, Skymint Brands, Ascend Wellness Holdings, Surterra Holdings (Parallel), and The Cannabist Co. As the cannabis industry continues to evolve, SNDL’s approach offers insights into the broader trends of strategic acquisitions and the importance of readiness for regulatory changes. Want to keep up to date with all of TDR’s research and news, subscribe to our daily Baked In newsletter.