Sundial Growers surges 15% after cannabis distributor enters liquor business with $346 million acquisition of Alcanna

• Sundial Growers stock jumped as much as 15% on Friday after agreeing to acquire Alcanna for $346 million.
• The acquisition will catapult Sundial into the liquor business with Alcanna's 171 retail locations.
• Sundial says the merger will improve its cash flow profile and create retail operating synergies.
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Sundial Growers stock jumped as much as 15% on Friday after the cannabis distributor said it agreed to acquire Alcanna for $346 million in an all-stock transaction.

Alcanna is a Canadian liquor retailer with 171 locations throughout the country. The company also owns a majority 63% stake in Nova Cannabis, a publicly traded company that runs 62 cannabis retail locations across Alberta, Saskatchewan and Ontario.

Under the terms of the merger, for every one share of Alcanna, shareholders will receive 10.69 shares of Sundial. That represents a share price of $9.12 for Alcanna, which is a 39% premium to the 10-day volume-weighted average price of the company. The merger is still subject to approval by shareholders of both companies.

The deal has so far been viewed as favorable among investors, as shares of both Sundial and Alcanna moved higher in Friday's trading session. Typically only the company being acquired sees a higher stock price, while investors sell stock of the acquirer due to integration and strategic rationale concerns.

According to Sundial, the deal will help improve its cash flow profile via Alcanna's mature liquor business, which generated $16.4 million in cash flow over the past year.

"Alcanna's value-focused model in liquor retailing has created market stability and we believe that the replication of this playbook in cannabis has strong potential to drive a similar result," Sundial CEO Zach George said. Sundial also expects to realize an additional $15 million in EBITDA through retail operation synergies and other strategic initiatives.

Sundial grows, produces, and distributes various cannabis products to a network of dispensaries throughout Canada. The company says combined with Nova's retail footprint, Sundial will reach more than 170 cannabis retail locations in Canada, making it a retail market leader.