FOR IMMEDIATE RELEASE
CALGARY, AB (April 27, 2022) — Sundial Growers Inc. (NASDAQ: SNDL) (“Sundial” or the “Company”) reported its financial and operational results for the full year and fourth quarter ended December 31, 2021. All financial information in this press release is reported in millions of Canadian dollars and represents results from continuing operations unless otherwise indicated.
The Company will hold a conference call and webcast at 10:30 a.m. EDT (8:30 a.m. MDT) on Thursday, April 28, 2022. Please see the dial-in details within the release and additional details on Sundial’s website at www.sndlgroup.com.
This press release is intended to be read in conjunction with the Company’s Financial Statements and Notes for the period and the accompanying Management’s Discussion and Analysis (“MD&A”). These reports are available under the Company’s profile on SEDAR at www.sedar.com along with the Company’s Form 20-F, which have also been filed on EDGAR at www.sec.gov/edgar.shtml.
Sundial has also posted a supplemental investor presentation on its website and a Letter to Shareholders from Sundial’s CEO, Zach George. Both can be found at https://sndlgroup.com/investors.
Net revenue for 2021 of \$56.1 million, a decrease of 8% over the previous year. Net revenue for the fourth quarter of 2021 was \$22.7 million, an increase of 63% over the fourth quarter of 2020.
Cannabis Cultivation and Production: Net revenue for the cultivation and production of cannabis of \$40.0 million for 2021. Net revenue for the fourth quarter was \$12.8 million, an increase of 56% over the third quarter of 2021.
Cannabis Retail: Net revenue for cannabis retail was \$16.1 million from the date of acquisition of Inner Spirit Holdings Ltd. on July 20, 2021. Net revenue for the fourth quarter was \$10.0 million.
Gross margin improvement to a loss of \$7.0 million for 2021, compared to a loss of \$49.9 million in the previous year, due to a lower inventory impairment provision and a more favorable sales mix of higher-margin products. Gross margin loss of \$2.5 million for the fourth quarter of 2021, compared to a loss of \$4.7 million in the fourth quarter of 2020.
Net loss from continuing operations of \$230.2 million for the full year 2021 compared to \$206.3 million loss in the previous year. The 2021 net loss from continuing operations includes \$182.3 million of non-cash items, including asset impairment (\$60 million), unrealized losses on investments in marketable securities (\$44.5 million), and fair value charges on derivative warrants (\$77.8 million). Net loss from continuing operations of \$54.8 million for the fourth quarter of 2021, compared to a loss of \$64.1 million in the fourth quarter of 2020.
Record Adjusted EBITDA from continuing operations of \$32.1 million for the full year 2021, compared to an Adjusted EBITDA loss of \$25.6 million in the previous year. Adjusted EBITDA of \$18.4 million for the fourth quarter of 2021, compared to an Adjusted EBITDA loss of \$5.6 million in the fourth quarter of 2020.
\$1.1 billion of cash, marketable securities, and long-term investments, \$558.3 million of unrestricted cash and no outstanding debt at December 31, 2021. \$377.7 million of unrestricted cash and no outstanding debt at April 25, 2022.
2021 investment and fee revenue of \$13.1 million, \$32.9 million in share of profit from equity accounted investees and net unrealized losses on marketable securities of \$44.5 million, driven primarily by declines in the share prices of Sundial’s investments in Village Farms International, Inc. and The Valens Company Inc.
Acquired Inner Spirit Holdings Ltd. (“Inner Spirit” or “Spiritleaf” and the Spiritleaf retail network) on July 20, 2021, and Alcanna Inc. (“Alcanna”) on March 31, 2022, creating the largest private sector cannabis and liquor retail network in Canada.
“2021 was a transformational year for Sundial. We increased the sustainability of our business model, establishing a strong balance sheet, positive Adjusted EBITDA results, and significant improvements in gross margin,” said Zach George, Chief Executive Officer of Sundial. “We continue to focus on improvements to our supply chain and manufacturing processes, against a competitive and challenging operating environment in Canada. Sundial is working to become a leading regulated product platform through leveraging consumer insights and innovation to deliver best-in-class products. We are beginning to see positive momentum across all of our key operating segments and remain committed to our goal of becoming free cash flow positive within the 2022 calendar year.”
| OPERATING SEGMENTS | ---------Cann | abis--------- | |||
|---|---|---|---|---|---|
| Cultivation | |||||
| and | |||||
| (\$000s) | Production | Retail | Investment | Corporate | Total |
| As at December 31, 2021 | |||||
| Total assets | 147,887 | 153,624 | 1,093,596 | 29,155 | 1,424,262 |
| Year ended December 31, 2021 | |||||
| Net revenue | 40,037 | 16,091 | — | — | 56,128 |
| Gross margin | (15,499) | 8,509 | — | — | (6,990) |
| Interest and fee revenue | — | — | 13,149 | — | 13,149 |
| Gain (loss) on marketable securities | — | — | (44,501) | — | (44,501) |
| Share of profit of equity-accounted investees | — | — | 32,913 | — | 32,913 |
| Depreciation and amortization | 3,108 | 721 | — | 897 | 4,726 |
| Earnings (loss) before tax | (117,990) | 1,835 | (5,837) | (110,461) | (232,453) |
| Three months ended December 31, 2021 | |||||
| Net revenue | 12,768 | 9,951 | — | — | 22,719 |
| Gross margin | (7,350) | 4,851 | — | — | (2,499) |
| Interest and fee revenue | — | — | 3,647 | — | 3,647 |
| Gain (loss) on marketable securities | — | — | (41,755) | — | (41,755) |
| Share of profit of equity-accounted investees | — | — | 19,271 | — | 19,271 |
| Depreciation and amortization | 666 | (742) | — | 428 | 352 |
| Earnings (loss) before tax | (23,190) | 2,311 | (23,176) | (2,919) | (46,974) |
The Company’s Cannabis operations comprise two segments: cannabis cultivation and production, and cannabis retail.
Sundial remains focused and committed to optimizing its cultivation and processing activities.
Net revenue from cultivation and production operations for the year ended December 31, 2021, was \$40.0 million compared to \$60.9 million the previous year, reflecting oversupply, price compression, and the Company’s comprehensive portfolio review and SKU rationalization. For the fourth quarter of 2021, net revenue from cultivation and production operations was \$12.8 million compared to \$13.9 million in the prior year. Wholesale sales to licensed producers were also reduced in 2021 to \$9.8 million from \$18.0 million in 2020 as the Company concentrated its sales efforts on retail sales.
For the year ended December 31, 2021, the average net selling price was \$2.22 per gram equivalent compared to \$2.59 for the year ended December 31, 2020. The decrease of \$0.37 per gram equivalent was mainly due to lower prices for provincial board sales, partially offset by slightly higher prices for sales to other licensed producers and higher prices for a small amount of medical sales. Provincial board sales prices have decreased due to the continued growth of the discount segment and undersupply of available quality products. For the fourth quarter of 2021, the average net selling price was \$2.45, an increase of 28% from the previous year mainly due to the rise in prices for sales to other licensed producers and reduced inventory monetization transactions, partially offset by lower prices for provincial board sales.
In the full-year 2021, gross revenue from Sundial’s formats was:
| Year ended | ||
|---|---|---|
| December 31 | ||
| (\$000s) | 2021 | 2020 |
| Revenue from dried flower | 39,572 | 51,424 |
| Revenue from vapes | 4,743 | 18,447 |
| Revenue from oil | 1,665 | 3,145 |
| Revenue from edibles and concentrates | 2,555 | 305 |
| Revenue from services | 2,653 | — |
| Gross revenue | 51,188 | 73,321 |
Gross margin for the year ended December 31, 2021, was negative \$15.5 million compared to negative \$49.9 million for the year ended December 31, 2020. The increase of \$34.4 million was due to a lower inventory impairment provision compared to the prior period as well as Sundial’s ongoing focus on cost optimization, reduction of harvested inventory subject to potential impairment, and offering the most competitive and profitable strains and brands to its customers against the backdrop of industry-wide price compression and high relative operating costs at our state-of-the-art facility. This demonstrates substantial progress towards the Company’s goal of sustainable positive gross margins that is critical to Sundial’s success.
The Company’s retail network creates an opportunity to own the relationship with cannabis consumers and showcase both Sundial’s branded products and the best offerings from other Canadian licensed producers.
Gross retail revenue from July 20, 2021, to December 31, 2021, was \$16.1 million. Cannabis retail revenue comprised \$10.2 million of retail cannabis sales to consumers at corporate-owned Spiritleaf retail cannabis stores, \$4.3 million of franchise revenue, representing royalty revenue, advertising revenue and franchise fees and \$1.6 million of other revenues, such as supply and accessories. Gross revenue for the three months ended December 31, 2021, was \$10.0 million, comprised of retail, franchise, and other revenue.
System-wide retail sales[^1] were \$74.9 million from July 20, 2021, to December 31, 2021, and \$41.4 million for the fourth quarter. System-wide retail sales represent the aggregate revenue earned by franchised Spiritleaf retail cannabis stores and corporate-owned Spiritleaf retail cannabis stores and do not represent revenues that accrue to the Company. The Company receives all revenues from corporate-owned Spiritleaf retail cannabis stores and royalties and advertising fees in respect of the franchised Spiritleaf retail cannabis store revenue.
[^1]: System-wide retail sales is a specified financial measure. For more details, see the "Specified Financial Measures" section below.
Sundial’s investment income is classified as income from operations, as investment activities are integral to the Company’s operations.
Revenue from investments in the fourth quarter of 2021 was negative \$18.8 million, including unrealized losses on marketable securities of \$43.8 million, due to fluctuations in share prices from our portfolio of equity cannabis-related investments.
| Three months ended | Year ended | |||
|---|---|---|---|---|
| December 31 | December 31 | |||
| (\$000s) | 2021 | 2020 | 2021 | 2020 |
| Interest and fee revenue | ||||
| Interest revenue from investments at amortized cost | 861 | — | 1,654 | — |
| Interest and fee revenue from investments at Fair Value Through Profit or Loss | 2,116 | — | 8,514 | — |
| Interest revenue from cash | 670 | — | 2,981 | — |
| 3,647 | — | 13,149 | — | |
| Investment revenue | ||||
| Realized gains | 1,995 | — | 20,213 | — |
| Unrealized losses | (43,750) | — | (64,714) | — |
| (41,755) | — | (44,501) | — | |
| Revenue from direct investments | (38,108) | — | (31,352) | — |
| Share of profit of equity-accounted investees | 19,271 | — | 32,913 | — |
| Total investment activities | (18,837) | — | 1,561 | — |
General and administrative expenses for the year ended December 31, 2021, were \$38.4 million compared to \$32.0 million for the year ended December 31, 2020. The increase of \$6.4 million was mainly due to increases in salaries and wages due to the Inner Spirit acquisition. General and administrative expenses for the three months ended December 31, 2021, were \$11.6 million compared to \$6.5 million for the three months ended December 31, 2020.
Sales and marketing expenses for the year ended December 31, 2021, were \$5.0 million compared to \$5.7 million for the year ended December 31, 2020. For the fourth quarter of 2021, sales and marketing expenses were \$1.5 million compared to \$2.3 million in the previous fourth quarter.
Net loss from continuing operations for the year ended December 31, 2021, was \$230.2 million compared to a net loss from continuing operations of \$206.3 million for the year ended December 31, 2020. The 2021 net loss includes a \$60 million non-recurring, non-cash impairment charge on the Olds facility, a \$77.8 million non-cash charge for change in estimate of fair value of derivative warrants and a \$17.0 million charge for inventory impairment.
Adjusted EBITDA from continuing operations was \$32.1 million for the year ended December 31, 2021, compared to a loss of \$25.6 million for the year ended December 31, 2020. The increase was due to the following:
- Inclusion of interest and fee revenue
- Inclusion of share of profit of equity-accounted investees and
- Decrease in cost of sales.
The increase was partially offset by:
- A decrease in net revenue; and
- An increase in general and administrative expenses.
Adjusted EBITDA from continuing operations was \$18.4 million for the three months ended December 31, 2021, compared to a loss of \$5.6 million for the three months ended December 31, 2020. The increase was due to the following:
Inclusion of share of profit of equity-accounted investees.
The increase was partially offset by:
Increase in cost of sales including Spiritleaf; and
Increase in general and administrative expenses.
Sundial remains focused on building long-term shareholder value through the accretive deployment of cash resources, the expansion of our retail distribution network, the further streamlining of our operating structure, and the enhanced offering of high-quality brands.
With the Alcanna acquisition subsequent to year-end, Sundial is now Canada’s leading regulated products platform, with a strong balance sheet and access to capital. The acquisition is expected to enable Sundial to expand its ownership of the consumer relationship while diversifying and stabilizing revenue streams. The acquisition has increased the Company’s cannabis distribution network while enhancing its scale and expertise in retail operations, including liquor. Sundial has commenced and will continue the post-acquisition integration work throughout the remainder of 2022.
Moving forward, the Company will report its financial results under four segments:
Certain specified financial measures in this news release, including adjusted EBITDA from continuing operations and system-wide retail sales are non-IFRS measures. These terms are not defined by IFRS and, therefore, may not be comparable to similar measures provided by other companies. These non-IFRS financial measures should not be considered in isolation or as an alternative for or superior to measures of performance prepared in accordance with IFRS. These measures are presented and described in order to provide shareholders and potential investors with additional measures in understanding the Company’s operating results in the same manner as the management team.
Adjusted EBITDA from continuing operations is a non-IFRS measure which the Company uses to evaluate its operating performance. Adjusted EBITDA from continuing operations provides information to investors, analysts, and others to aid in understanding and evaluating the Company’s operating results in a similar manner to its management team. Adjusted EBITDA from continuing operations is defined as net income (loss) from continuing operations before finance costs, depreciation and amortization, accretion expense, income tax recovery and excluding change in fair value of biological assets, change in fair value realized through inventory, unrealized foreign exchange gains or losses, unrealized gains or losses on marketable securities, change in fair value of derivative warrants, share-based compensation expense, asset impairment, gain or loss on disposal of property, plant and equipment and certain one-time non-operating expenses, as determined by management.
| (\$000s except percentages) | Q4 2021 | Q3 2021 | % Change | Q4 2020 | % Change |
|---|---|---|---|---|---|
| Net income (loss) from continuing operations | (54,761) | 11,311 | 584% | (64,144) | 15% |
| Adjustments | |||||
| Finance costs | 3,530 | 135 | 2515% | 4,974 | -29% |
| Change in estimate of fair value of derivative warrants | (8,200) | (24,100) | 66% | 23,464 | 135% |
| Loss on cancellation of contracts | 5,116 | — | 100% | 2,471 | 107% |
| Depreciation and amortization | 352 | 2,385 | -85% | 1,297 | -73% |
| Income tax recovery | 7,787 | (10,058) | 177% | — | 100% |
| Change in fair value of biological assets | (2,158) | (2,975) | 27% | (579) | -273% |
| Change in fair value realized through inventory | 1,756 | (15) | 11807% | 214 | 721% |
| Unrealized foreign exchange (gain) loss | (1) | (2,071) | 100% | 672 | 100% |
| Unrealized loss on marketable securities | 43,750 | 23,996 | 82% | — | 100% |
| Share-based compensation | 2,443 | 1,869 | 31% | 1,501 | 63% |
| Asset impairment | — | — | 0% | 13,532 | -100% |
| Loss (gain) on disposition of PP&E | (374) | — | 100% | — | 100% |
| Cost of sales non-cash component (1) | 772 | 915 | -16% | 1,632 | -53% |
| Inventory obsolescence | 9,702 | 3,871 | 151% | 8,275 | 17% |
| Restructuring costs | 874 | — | 100% | 280 | 212% |
| Transaction costs (2) | 7,837 | 5,276 | 49% | 825 | 850% |
| Government subsidies | — | — | 0% | (47) | -100% |
| Other expenses | — | — | 0% | — | 0% |
| Adjusted EBITDA from continuing operations | 18,425 | 10,539 | 75% | (5,633) | 427% |
| (1) Cost of sales non-cash component is comprised of depreciation expense | |||||
| (1) Cost of sales non-cash component is comprised of depreciation expense |
| (\$000s except percentages) | YTD 2021 | YTD 2020 | % Change |
|---|---|---|---|
| Net loss from continuing operations | (230,182) | (206,317) | -12% |
| Adjustments | |||
| Finance costs | 3,756 | 3,819 | -2% |
| Change in estimate of fair value of derivative warrants | 77,834 | 12,995 | 499% |
| Loss on cancellation of contracts | 5,116 | 2,471 | 107% |
| Depreciation and amortization | 4,726 | 4,711 | 0% |
| Income tax recovery | (2,271) | — | 100% |
| Change in fair value of biological assets | (4,708) | (5,432) | 13% |
| Change in fair value realized through inventory | 2,247 | 18,566 | -88% |
| Unrealized foreign exchange (gain) loss | (63) | (757) | 92% |
| Unrealized loss on marketable securities | 64,714 | — | 100% |
| Share-based compensation | 12,307 | 8,566 | 44% |
| Asset impairment | 60,000 | 79,191 | -24% |
| Loss (gain) on disposition of PP&E | (235) | (488) | 52% |
| Cost of sales non-cash component (1) | 3,675 | 5,250 | -30% |
| Inventory obsolescence | 16,978 | 45,913 | -63% |
| Restructuring costs | 874 | 6,470 | -86% |
| Transaction costs (2) | 17,566 | 3,587 | 390% |
| Government subsidies | (2,180) | (4,128) | 47% |
| Other expenses | 1,932 | — | 100% |
| Adjusted EBITDA from continuing operations | 32,086 | (25,583 | 225% |
| (1) Cost of sales non-cash component is comprised of depreciation expense | |||
| (2) Transaction costs relate to financing activities |
System-wide retail sales is a non-IFRS measure which the Company uses to evaluate the performance of its retail operations. System-wide retail sales represent the aggregate revenue earned by both franchised and corporate-owned Spiritleaf retail cannabis stores and do not solely represent the retail segment’s revenue. The Company only receives royalties, advertising and franchise fees in respect of franchised Spiritleaf retail cannabis store revenue. The system-wide retail sales measure is useful to management in evaluating brand scale and market penetration and is used by management to assess the financial and operating performance of the Company and the strength of the Company’s market position relative to its competitors.
| Three months ended | Year ended | |||
|---|---|---|---|---|
| December 31 | December 31 | |||
| (\$000s) | 2021 | 2020 | 2021 | 2020 |
| Gross revenue | 9,951 | — | 16,091 | — |
| Less: | ||||
| Franchise revenue | (2,054) | — | (4,251) | — |
| Other revenue | (975) | — | (1,633) | — |
| Add: | ||||
| Franchise store sales (1) | 34,475 | — | 64,739 | — |
| System-wide retail sales(2) | 41,397 | — | 74,946 | — |
[^2]: System-wide retail sales is a specified financial measure.
Sundial will host a conference call and webcast at 10:30 a.m. EDT (8:30 a.m. MDT) on Thursday, April 28, 2022.
WEBCAST ACCESS
To access the live webcast of the call, please visit the following link:
https://services.choruscall.ca/links/sundialgrowers20220428.html
REPLAY
The webcast archive will be available for three months via the link provided above.
A telephone replay will be available for one month. To access the replay dial:
Canada/USA Toll Free: 1-800-319-6413 or International Toll: +1-604-638-9010
When prompted, enter Replay Access Code: 8895#
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