Here’s Why Sundial Growers Stock Jumped 12% Today

Sundial Growers (SNDL) shares increased by more than 12% today as of the time of this writing. The Canadian cannabis company announced that it has submitted a “stalking horse bid” to acquire Hexo (HEXO) subsidiary Zenabis Global. The sum for the acquisition remains undisclosed.

What does this mean?

Hexo acquired Zenabis last year for $235 million CAD. However, Sundial had loaned Zenabis CA$58.9 million in December 2020, which remains outstanding.

Zenabis filed for creditor protection last week under Canada’s Companies’ Creditors Arrangement Act (CCAA). This is equivalent to a U.S. company filing for a Chapter 9 bankruptcy in order to restructure operations and continue in business.

As part of this creditor protection process, Sundial claims to have offered to buy Zenabis’ “380,000 square foot indoor growing facility located in Atholville, New Brunswick” and a “decommissioned 255,000 square foot indoor facility in Stellarton, Nova Scotia.”

These were both used by Zenabis for cannabis packaging and processing.

Sundial did not disclose how much it offered to pay for those assets, and the bankruptcy court has not yet approved the bid. Sundial has simply suggested a floor price which will compete against other bidders’ offers.

What now?

If no bidders appear, there is a chance that Sundial will acquire Zenabis, taking it away from Hexo.

Zenabis generated about CA$11.1 million in sales this previous quarter. This could potentially result in Sundial growing its annual sales by over 75% if it came to acquire Zenabis.

While Hexo might not let that happen. It’ll probably offer more money to save its subsidiary from being taken away. However, Sundial investors seem willing to bet that this will work out in the company’s favor, hence the stock increase.