Canadian cannabis retailers High Tide Inc. and Meta Growth Corp. announced plans to merge on Friday, a move that would create the country's largest pot shop network amid increased spending for recreational marijuana.
The two companies said in a statement Friday that the combined retailer will have 63 licensed cannabis stores across Canada with plans to double that in a year. The companies expect the deal to result in operational savings of about $8 million to $9 million and is expected to result in the company reporting postive adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA).
High Tide chief executive officer Raj Grover told BNN Bloomberg in a phone interview that the deal will help the retailer penetrate the Ontario market after exhausting its options in Alberta.
"The growth prospects are very limited in Ontario right now, but this deal will give us 10 stores until Ontario gets its act together," Grover said.
He added that the deal will provide the combined retailer with about $21 million in cash, a small but sizable amount of capital in the current “ridiculous” financing conditions.
"That will help differentiate us from our competition," Grover said.
Meta Growth shareholders will receive 0.824 of a common share of High Tide for each of their existing Meta shares, which represents a 14 per cent premium based on the 10-day volume-weighted average price, the companies said in a statement. Meta shareholders will own about 45 per cent of the combined entity.
There are more than 1,000 cannabis retailers across Canada that have opened their doors since recreational pot was legalized in October, 2018. Since then, monthly cannabis sales have steadily increased and reached a new high in June with $201 million spent on legal pot, according to Statistics Canada retail data.
Retailers have been stymied by several obstacles in expanding their businesses across Canada due to a patchwork of provincial laws and regulatory hurdles. For example, some retailers in Alberta had to close their doors due to a high level of competition in the province, while others in Ontario have been frustrated by the province’s slow pace in authorizing legal retail outlets to open. As well, retailers have to continually compete with the illicit market, which has operated relatively unfettered across the country despite legalization.
"[Ontario] is a tough area to do business in," Grover said. "RIght now, the entire retail industry is focused in Ontario."
Other major cannabis retailers have sought alternative ways to attract customers. Fire & Flower Holdings Inc., for example, tied up with convenience store giant Alimentation Couche-Tard Inc. to co-locate some pot stores next to its Circle K outlets in Alberta. The move may help to combat the illicit cannabis market by making the sale of legal cannabis more accessible and convenient for consumers.