SNDL And Nova Cannabis Team Up To Transform The Cannabis Retail Market In Canada

SNDL Inc. SNDL and Nova Cannabis Inc. NVACF NOVC have entered into an agreement to implement a strategic partnership creating a well-capitalized cannabis retail platform in Canada under a vertical integration model with SNDL's upstream capabilities.

Transaction Summary

Pursuant to the transaction, Nova will receive from SNDL:

• Retail contribution: SNDL will vend into Nova's cannabis retail business its existing 26 cannabis retail stores under the Spiritleaf and Superette banners located in Ontario and Alberta. Nova will also have a right of first refusal on SNDL's Canadian cannabis retail pipeline.

• Corporate services: The existing management and administrative services agreement between SNDL's subsidiary, Alcanna Inc., and Nova is being amended and restated to refresh and maintain the arrangement with SNDL. For the first three years following this amendment and restatement, no fee shall be payable by Nova under the management and administrative services agreement. Following the three-year fee holiday, Nova will benefit from a low-cost annual fee of CA$2 million ($1.47 million) thereafter, which is materially lower than the cost of building and operating the infrastructure were Nova required to manage those services in-house.

• Debt restructuring: A CA$15 million revolving credit facility is to be eliminated by SNDL, which is expected to be fully drawn at the time of the closing of the transaction. This will immediately provide Nova with additional liquidity of approximately CA$5.5 million from drawing the undrawn amount ahead of closing. Further, SNDL will advance a new credit facility of CA$15 million at a rate of Canadian prime plus 2.75% with a CA$10 million "accordion" feature to become available under certain conditions.

• Return of equity: Approximately 14.3 million common shares of Nova held by SNDL's holdings will be returned to Nova's treasury for cancellation. The parties allocated a value of CA$7.5 million to the cancellation of Nova shares with the number of shares calculated based on a price of CA$0.526, which was the 20-day volume weighted average price of the Nova shares on the Toronto Stock Exchange ending December 16, 2022, and represents an approximate 19% discount to the close of December 19, 2022.

• Increased Liquidity: SNDL plans to reduce its equity ownership in Nova to below 20% through a capital distribution of Nova shares owned by SNDL to SNDL shareholders. This will enable Nova to scale its operations with direct ownership of cannabis retail stores in Ontario and British Columbia.

As consideration, SNDL will receive:

• Strategic partnership: The intellectual property rights to Nova's Value Buds banner of 88 stores and the license to grant Nova to operate the Value Buds, Spiritleaf and Superette banners.

• License Agreement: Nova and SNDL will enter into an agreement pursuant to which Nova will utilize SNDL's brands' intellectual property and other intangible property in exchange for a license fee at a rate of 5.0% to 15.0% of gross profits on each store commencing one year after the transaction. Upon closing of the transaction, the license fee will be calculated based on gross profits from the 114 existing locations of the pro forma Nova platform.

Transaction Details

The implementation of the transaction is subject to the satisfaction of a number of conditions, including, among other things, the approval of the Toronto Stock Exchange, and minority shareholder approval of the Transaction in accordance with Multilateral Instrument 61-101 – Protection of minority shareholders in special transactions ("MI 61-101"). The transaction is expected to be completed in May 2023.

All directors and executive officers of Nova have entered into voting support agreements with SNDL pursuant to which, among other things, the parties have agreed to vote their Nova shares in favor of the transaction.

Related Party Transaction

SNDL is considered a "related party" of Nova, and the transaction constitutes a "related party transaction", as such terms are defined in MI 61-101. Nova is relying on an exemption from the formal valuation requirements of MI 61-101 in compliance with the financial hardship exemption.

Nova intends to obtain the minority shareholder approval at an annual and special meeting of the Nova shareholders expected to be convened in May 2023.

Nova Board Approval

Nova's board of directors has unanimously approved the transaction after receiving the unanimous recommendation of a special committee of Nova's independent directors. Nova's board of directors has unanimously resolved to recommend that the shareholders of Nova vote in favor of the transaction.

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