Huge UK deal claimed by troubled US pot grower

NASDAQ-quoted Sundial Growers Inc. (SNDL) says it has acquired UK-based Bridge Farm Group with plans to produce and sell high-quality CBD products globally. The deal was hailed as one of the biggest UK corporate moves outside London in 2019, but a mass of doubts surround it. It may yet prove to be an iconic example of the dangers of allowing US takeovers of UK brands in the cannabis industry.

Sundial is on a list of possibly-insolvent companies, issued last week by the respected Troubled Company Reporter service. And it is subject of a class action lawsuit by shareholders angry that the company failed to declare its most recent marijuana harvest had gone bad. Yet also last week Sundial announced that it has received a licence from Health Canada to sell cannabis oil products.

Sundial says its oil products will be packaged and shipped from its Rocky View, facility, in Alberta Canada, and will be available to consumers in early 2020. Health Canada has made repeated errors in the companies it has licensed since legalisation a year ago.

The Bridge Farm group operates 1.5 million square feet of plant growing in the UK, and planned to expand to 3.5m, including a large proportion of cannabis for which it has yet to receive any licenses. The Sundial deal announcement contained no details of the price paid or whether any money had yet changed hands.

Class action details

The class action lawsuit alleges that Defendants Sundial, “throughout the Class Period made false and/or misleading statements and/or failed to disclose that: (1) Sundial failed to supply saleable cannabis in line with contractual obligations to Zenabis Global Inc.; (2) due to material quality issues, Zenabis had to return or reject a total of 554 kg of cannabis to Sundial, valued at approximately U.S. $1.9 million (C$2.5 million); and (3) as a result, Defendants’ statements about Sundial’s business, operations, and prospects were materially false and misleading and/or lacked a reasonable basis at all.”

Sundial claims to be a craft cannabis brand aiming to Heal, Help and PlayTM. It characterises Sundial Bridge Farm as “a market-leading producer of ornamental plants, flowers and herbs in the United Kingdom which currently operates three growing facilities with 1.5 million sq. ft. and plans to expand to 3.5 million sq. ft. by the end of 2021.”
Using a phased approach, and subject to necessary regulatory approvals, Sundial intends to use parts of Bridge Farm facilities to cultivate hemp and cannabis. The Bridge Farm acquisition was intended to establish Sundial’s presence in Europe and represents an important milestone for its international expansion. “This is a significant acquisition for Sundial, taking us one step closer to our goal of being one of the leading cannabis companies in the world,” said Torsten Kuenzlen, Chief Executive Officer of Sundial. “Bridge Farm’s experienced management team, strong market position and operational excellence made it an ideal acquisition.”

Health Canada license

This license enables Sundial to gain further traction in expanding our innovative product portfolio,’ says Ryan Hellard, Chief Experience Officer of Sundial. ‘Consumers are looking for brands that consistently provide a safe, innovative and high-quality experience, and that’s what our current and future portfolio is designed to deliver.’ Broadening its product offerings, Sundial’s first new product innovation will be an unflavoured CBD 20:1 oil that is part of the brand’s Ease product line. The new oil product, in addition to subsequent oil products from the same line, will address the rapidly emerging consumer trend of CBD usage. The oil sales licence, along with new formats legalized on October 17, 2019, enables Sundial to launch additional product formats including vapes, topicals and teas to be announced soon.