Alcanna Inc. said Monday it is spinning off its cannabis retailer division and merging it with YSS Corp. in an all-stock deal that would value the combined company at about $130 million. 

The new company is expected to be renamed Nova Cannabis Inc. and will rebrand most of its retail footprint to Value Buds, a move that acknowledges the growing demand for cheaper cannabis in the Canadian recreational market. 

"This new offering, new Nova Cannabis, is really laser-focused on a segment of the marketplace that's proven to exist -- and that's the value-conscious consumer," said Darren Karasiuk, who will be the chief executive officer of the combined company and is a former chief commercial officer for Aurora Cannabis  Inc., in a broadcast interview. 

The deal, which is expected to close in March, will see Alcanna own 82.5 per cent of the new company, while YSS will have a 17.5 per cent ownership stake. The new company will look to uplist to the Toronto Stock Exchange once the deal closes, the companies said. 

A $25-million equity financing is also planned for the new company, which would result in Alcanna's ownership stake dropping to 69.2 per cent and YSS’s stake falling to 14.7 per cent once it closes, according to Eight Capital. 

The combined Nova Cannabis will operate 53 stores in Alberta, Saskatchewan, and Ontario, with another nine locations under construction.

"When you think back to the early days of legalization, it's a brand new industry and people really didn't know where it was actually going to go," Karasiuk said. "There was a lot of froth in terms of people wanting to build out the Apple store of cannabis retailing, things that are clad in marble and the like in high-rent districts. There's been a reluctance to focus on where the customer actually is." 

Canada's cannabis retail market has experienced a wave of consolidation in recent months. High Tide Inc. acquired rival Meta Growth Corp. in August to create the country's biggest retailer, while Fire & Flower Holdings Corp. bought Toronto-based Friendly Stranger Holdings Corp. in November. 

Cannabis Canada is BNN Bloomberg’s in-depth series exploring the ongoing growth of the Canadian recreational cannabis industry. Read more here and subscribe to our Cannabis Canada newsletter to have the latest news delivered directly to your inbox every week.

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