Reported Late Monday April 3, SNDL And Nova Cannabis Announce An Amendment To The Previously Announced Transformational Strategic Partnership;

This news release constitutes a "designated news release" for the purposes of the prospectus supplement of Nova Cannabis Inc. dated July 22, 2022, to its short form base shelf prospectus dated June 27, 2022.

EDMONTON, AB, April 3, 2023 /CNW/ – Nova Cannabis Inc. (TSX:NOVC) ("Nova" or the "Company") announced today that the Company and SNDL Inc. (NASDAQ:SNDL) ("SNDL" and together with Nova, the "Parties") have entered into an agreement to amend (the "Amendment") the implementation agreement entered into on December 20, 2022 (as amended, the "Implementation Agreement"). Pursuant to the Implementation Agreement, the Parties have agreed to implement a strategic partnership to create a well-capitalized cannabis retail platform in Canada (the "Transaction"). The Amendment contemplates, among other things: (i) increasing the number of cannabis retail stores Nova will acquire (and that will be subject to the strategic partnership) from 25 to 31 (collectively, the "Acquired Stores", and such added stores being the "Additional Stores"); and (ii) decreasing the number of common shares in the capital of Nova ("Nova Shares") to be surrendered by SNDL for cancellation to approximately 2.01 million from approximately 14.3 million. The Additional Stores consist of prime real estate located primarily in Toronto and Vancouver and currently generate approximately $2.4 million of annualized in-store EBITDA. The 31 Acquired Stores include 12 in Alberta, 11 in Ontario, three in British Columbia, three in Saskatchewan and two in Manitoba. In connection with the Amendment, SNDL has agreed to increase the number of Nova Shares to be distributed pursuant to a capital distribution of Nova Shares owned by SNDL to holders ("SNDL Shareholders") of common shares of SNDL (the "SNDL Share Distribution") by a corresponding amount such that, upon completion of the Transaction, SNDL will hold approximately (and no more than) 19.9% of the issued and outstanding Nova Shares. As a result of SNDL's ownership in the Nova Shares being reduced below 20%, Nova will be permitted to directly own and operate cannabis retail stores in Ontario and British Columbia, in accordance with applicable laws.

"This amendment reflects the strong commitment and shared vision of SNDL and Nova to build a long-lasting and mutually beneficial partnership and further transform the cannabis retail market in Canada," said Anne Fitzgerald, lead independent director of Nova. "Together, we will build on our disruptive cannabis retail platform and deliver exceptional customer experiences by leveraging our unique strengths and expertise. This partnership demonstrates our unwavering commitment to driving growth and value for our stakeholders."

In addition to the foregoing, the Amendment provides for, among other things, an agreement from SNDL not to demand repayment of, or take any action relating to, any amounts drawn by Nova on the existing credit facility between Nova and SNDL prior to June 30, 2023, except in connection with circumstances or the occurrence of one or more events that would reasonably be expected to have, individually or in the aggregate, a material adverse effect on the Company.

Transaction Summary

The completion of the Transaction will result in, among other things, the following:

• Retail Contribution—SNDL will vend into Nova's cannabis retail business thirty-one (31) existing cannabis retail stores, primarily operating under the "Spiritleaf" and "Superette" banners, located in Alberta, Saskatchewan, Manitoba, British Columbia and Ontario. 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 Nova and SNDL will be amended and restated to refresh and maintain the arrangement with SNDL in accordance with applicable law (the "Amended and Restated Management and Administrative Services Agreement"). For the first three years following closing the Transaction, no fee shall be payable by Nova under the Amended and Restated Management and Administrative Services Agreement. Following the three year service fee holiday, Nova will benefit from a low-cost annual fee of $2.0 million thereafter, which is materially lower than the cost of building and operating the infrastructure necessary for Nova to manage those services in-house. Nova incurred $1.25 million in expenses in 2022 related to the existing Management and Administrative Services Agreement.
• Debt Restructuring—A $15.0 million revolving credit facility between Nova and SNDL is to be eliminated by way of capital contribution by SNDL, which is expected to be fully drawn by Nova at the time of closing the Transaction. This will immediately provide Nova with additional liquidity of approximately $3.9 million from drawing the undrawn amount ahead of closing. Further, SNDL will advance a new revolving credit facility of $15.0 million at an interest rate of Canadian prime plus 2.75%, with a $10.0 million accordion feature which becomes available under certain conditions.
• Return of Equity—2,009,622 Nova Shares held by SNDL will be returned to Nova's treasury for cancellation. The parties allocated a value of approximately $1.6 million to the cancellation of Nova Shares with the number of shares calculated based on a price of $0.7966, which was the 5-day volume weighted average price of the Nova Shares on the TSX ending March 23, 2023 (being the date the Parties reached an agreement in principle to amend the Implementation Agreement).
• Increased Liquidity—SNDL plans to further reduce its equity ownership in Nova by completing the SNDL Share Distribution, following which it is anticipated that SNDL and its affiliates will collectively legally and beneficially own and control approximately (and no more than) 19.9% of the issued and outstanding Nova Shares.
• Transfer of Intellectual Property—Nova will transfer its intellectual property related to the "Value Buds" trademarks and the rights therein (the "Nova Transferred Intellectual Property") to SNDL.
• Strategic Partnership Agreement and Store Level License Agreements—Nova and SNDL will enter into a strategic partnership agreement and related store level license agreements for each of the "Value Buds", "Spiritleaf" and "Superette" banners (and such other banners as the Parties may choose to operate cannabis stores under from time to time), pursuant to which the Parties will implement certain strategic operational initiatives, including Nova's utilization of SNDL's cannabis retail banner intellectual property and other intangible property (including the Nova Transferred Intellectual Property) in exchange for payment to SNDL of an annual license fee at a rate of 5.0% to 15.0% of Nova's gross profits from each of its cannabis retail stores, commencing one year after closing the Transaction (the "License Fee Holiday"). No license fees shall be payable by Nova to SNDL in respect of the first three months of operation in respect of any new cannabis store opened by Nova under an SNDL banner after the expiry of the License Fee Holiday.
• Nova Board Nomination Rights—Nova will grant SNDL certain nomination rights to the Nova Board pursuant to an amended and restated investor rights agreement (the "Amended and Restated Investor Rights Agreement"). Pursuant to the Amended and Restated Investor Rights Agreement, SNDL will be entitled to nominate two directors to the Nova Board for so long as both: (i) SNDL's equity ownership in Nova is greater than 5%; and (ii) the strategic partnership with Nova remains in effect; and SNDL will be entitled to nominate one director to the Nova Board for so long as only one of the foregoing conditions is satisfied.

Key Transaction Highlights

The Nova Board believes the Transaction is in the best interests of Nova and the Nova Shareholders for a number of reasons, including, but not limited to, the following:

• Creates Sustainable Regulated Retail Network in Canada—The Transaction provides a low-cost operating platform for Nova, driven by SNDL's scale across the cannabis retail market. Nova will also be re-acquiring ownership of its thirty (30) Ontario cannabis retail stores.
• Accretive Return of Equity and Bolstered Trading Liquidity—A reduction in Nova Share count alongside enhanced cash flow profile from an increased store footprint supports a re-rate opportunity concurrent with anticipated trading liquidity improvement from SNDL completing the SNDL Share Distribution.
• Balance Sheet Strength to Fund Growth—Nova's financial position will be significantly strengthened on a non-dilutive basis through the elimination of debt and immediate injection of additional liquidity.
• Compliant Retail Structure for Future Scale—With SNDL's target to reduce its ownership of Nova to below 20%, Nova can fully leverage SNDL's extensive retail M&A pipeline with opportunities for direct ownership of retail outlets in Ontario and British Columbia, subject to the non-objection of applicable governmental entities.
• Financial Stability—Upon closing the Transaction, Nova will become a national cannabis retailer with over 120 cannabis stores across Alberta, Saskatchewan, Manitoba, British Columbia and Ontario.
• Significant Shareholder Support—All directors and executive officers of Nova have entered into support agreements with SNDL pursuant to which, among other things, the parties have agreed to vote their Nova Shares (if any) in favour of the Transaction.

Board Approval

Nova's independent directors, after receiving the unanimous recommendation of a special committee comprised solely of independent directors (the "Special Committee"), have unanimously approved the Transaction and unanimously resolved to recommend that the holders of Nova Shares ("Nova Shareholders") vote in favour of the Transaction.

Eight Capital has provided a fairness opinion to the Special Committee that, subject to the assumptions, limitations and qualifications set out in such fairness opinion, the consideration to be received by Nova pursuant to the Transaction is fair, from a financial point of view, to Nova.

Closing Conditions

The completion of the Transaction is subject to a number of closing conditions, including: (i) the approval of a resolution to approve the Transaction (the "Transaction Resolution") by not less than a simple majority of the votes cast by Nova Shareholders present or represented by proxy at the Meeting (defined below), after excluding the votes required to be excluded in determining minority approval pursuant to Multilateral Instrument 61-101—Protection of Minority Security Holders in Special Transactions ("MI 61-101") (including the votes attaching to Nova Shares held by SNDL and its affiliates) ("Disinterested Shareholder Approval"); (ii) the receipt of all key regulatory approvals, including from applicable provincial cannabis regulators and the Toronto Stock Exchange ("TSX") pursuant to Section 501(c) of the TSX Company Manual, which requires that the Transaction be approved by the Company's board of directors on the recommendation of the independent directors, and that the Transaction Resolution receive Disinterested Shareholder Approval in accordance with the TSX Company Manual; (iii) SNDL or its nominee having completed the acquisition of the Additional Stores; (iv) the parties having completed the transfer to Nova or its nominee of SNDL's option to purchase all of the issued and outstanding securities of Spirit Leaf Ontario Inc. (the "SLO Option"), and the satisfaction of each condition precedent to the exercise of the SLO Option by Nova; (v) SNDL having completed the SNDL Share Distribution in accordance with the terms of the Implementation Agreement and the plan of arrangement previously approved by the SNDL Shareholders; and (vi) there being no applicable law or action in effect, pending or threatened that would prohibit the consummation of the Transaction or make the consummation of the Transaction illegal (collectively, the "Closing Conditions"). The TSX has conditionally approved the Transaction, subject to Disinterested Shareholder Approval of the Transaction Resolution, and satisfaction of other customary conditions

The Company will hold an annual and special meeting of Nova Shareholders on May 5, 2023 (the "Meeting") to consider, among other things, the Transaction Resolution. Further details relating to the Transaction, including the full text of the Transaction Resolution, will be included in the management information circular and proxy statement to be mailed to Nova Shareholders in connection with the Meeting. Subject to the satisfaction or waiver of all of the Closing Conditions, the Transaction is expected to be completed prior to June 30, 2023.