SNDL Inc. (formerly Sundial Growers Inc.) — FY 2020 Form 20-F
Reporting period: Fiscal year ended December 31, 2020; filed March 17, 2021. The filing presents annual results, not standalone fourth-quarter results. Financial statements are prepared under IFRS and reported in Canadian dollars (C$), unless noted otherwise. Amounts below are in C$ millions unless specified.
Business context
Sundial was a Canadian cannabis producer focused on adult-use products, including flower, pre-rolls and vapes. Its Canadian operations became the company’s sole operating segment after the June 2020 sale of Bridge Farm, its UK ornamental-flower business. Sundial reported cultivation operations at its Olds and Rocky View, Alberta facilities and supply agreements covering nine Canadian provinces.
Financial performance and position
| Metric | FY 2020 | FY 2019 |
|---|---|---|
| Gross revenue | C$73.3m | C$66.9m |
| Excise taxes | C$12.4m | C$3.4m |
| Net revenue | C$60.9m | C$63.6m |
| Gross margin | (C$49.9m) | C$36.5m |
| Loss from operations | (C$185.4m) | (C$52.4m) |
| Net loss from continuing operations | (C$206.3m) | (C$142.7m) |
| Net loss, including discontinued operations | (C$239.9m) | (C$271.6m) |
| Net cash used in operating activities | (C$57.5m) | (C$112.7m) |
- Revenue mix: Provincial boards contributed C$55.3m of gross revenue, versus C$13.4m in 2019; licensed-producer sales fell to C$18.0m from C$53.5m. Vape revenue rose to C$18.4m from C$0.5m, while dried-flower revenue declined to C$51.4m from C$58.2m.
- Margin pressure and unusual charges: The C$49.9m gross loss included C$45.9m of inventory obsolescence expense and C$18.6m of fair-value losses realized through inventory, partly offset by biological-asset fair-value gains. Total inventory write-downs were C$56.9m.
- Other significant charges: Asset impairment was C$79.2m, including C$60.0m for the Alberta cash-generating unit, C$12.9m for Pathway Rx intellectual property and C$5.7m related to Merritt. Restructuring costs were C$6.5m. The filing reports C$33.6m of loss from discontinued operations in 2020, including a C$15.0m loss on the Bridge Farm disposition.
- Cash flow: Continuing operations used C$62.3m of operating cash; discontinued operations provided C$4.8m. Investing activities used C$70.9m, including C$51.9m for the Zenabis investment; financing activities provided C$142.7m, mainly from share issuance and other financing transactions.
- Liquidity and balance sheet: Year-end cash and cash equivalents were C$60.4m, with restricted cash of C$5.3m. Current assets were C$118.4m and current liabilities C$24.1m. Total assets were C$294.9m, total liabilities C$25.2m and shareholders’ equity C$265.2m. Long-term debt was nil at year-end; lease obligations were C$1.4m.
- Investment exposure: The Zenabis senior secured loan had C$51.9m outstanding at year-end, carried 14% interest and had a March 2025 maturity. Sundial had issued a notice of default over disputed non-principal matters; Zenabis disputed the notice.
- Shares: 918.8m common shares were outstanding at December 31, 2020. The filing reports 1.66bn outstanding as of March 17, 2021, following substantial subsequent equity issuance.
Changes versus the prior year
- Gross revenue increased about 10%, but net revenue declined about 4%, reflecting a sharp increase in excise taxes. The sales mix shifted substantially from licensed producers toward provincial boards.
- Gross margin moved from C$36.5m positive to a C$49.9m loss, principally reflecting inventory obsolescence and fair-value effects. The operating loss widened to C$185.4m from C$52.4m.
- Total net loss narrowed to C$239.9m from C$271.6m, largely because the prior year included larger Bridge Farm-related discontinued-operation losses. Continuing-operations net loss, however, worsened to C$206.3m from C$142.7m.
- Operating cash outflow improved to C$57.5m from C$112.7m. Year-end cash rose to C$60.4m from C$45.3m, supported by financing proceeds; the company also repaid its syndicated credit facility in December.
- Capital expenditure fell substantially: the filing reports C$2.3m at Olds in 2020 versus C$138.1m in 2019. Merritt construction was suspended pending improved demand, and the company classified the facility as held for sale.
Outlook, risks and contingencies
- Management stated that available capital, cash-flow management and working-capital measures were expected to fund operating needs for at least the next 12 months, while cautioning that future capital could still be required. No specific revenue, earnings or production guidance is provided in the supplied filing text.
- Management described Canadian cannabis oversupply as continuing into 2021, with discounting and promotional pricing potentially pressuring prices, margins and brand value. The company was implementing cost and asset optimization measures; savings and timing were uncertain.
- The filing said COVID-19 had not materially affected Sundial’s business or operations to date, but warned of possible disruption to employees, suppliers, distribution, licensing and consumer demand.
- A material weakness in internal control over financial reporting remained at year-end: insufficient segregation of duties for journal-entry review and approval. Compensating controls had been added, but remediation was not complete; management expected completion by December 31, 2021. The auditor gave an unqualified opinion on the financial statements but did not opine on internal-control effectiveness.
- Legal matters included a pending federal IPO securities action, another securities-related lawsuit, a Quebec supply-contract dispute with a C$1.6m reserve, and a former employee claim with a C$0.15m reserve. Supply-contract penalties accrued were C$1.5m.
- Key business risks include customer concentration (top five customers represented 69% of 2020 revenue), reliance on provincial buyers without minimum purchase commitments, licensing and renewal requirements, competition from illicit sellers, agricultural and product-quality risks, and potential dilution from further equity and warrant issuance.
- After year-end, the company completed US$100.0m and US$74.5m unit offerings, made a C$22m Indiva investment and announced a joint venture with an initial C$100m Sundial commitment. These transactions are subsequent events, not FY 2020 operating results.
Important facts for investors to verify
- Review the full FY 2020 MD&A and audited notes for cash-flow detail, financing terms, debt covenants and management’s liquidity assumptions; this filing text refers to a separate MD&A exhibit for some disclosures.
- Assess the size, sell-through and recoverability of inventory after the C$56.9m write-down, and whether production capacity and pricing are aligned with market demand.
- Track remediation of the journal-entry control weakness and any subsequent control findings or financial restatements.
- Verify the status and recoverability of the Zenabis loan, related default dispute and royalty rights, as well as the financial exposure from other investments and legal proceedings.
- Reconcile post-year-end share issuance, warrants and other equity awards to assess dilution and the resulting cash available for operations and investment commitments.