SNDL Inc. — 2019 Annual Filing Summary
Business context and reporting period. Sundial Growers Inc. (Nasdaq: SNDL) filed an annual report on Form 20-F for the fiscal year ended December 31, 2019; this is not a standalone fourth-quarter report. The company produces and sells cannabis in Canada and ornamental flowers and herbs in the U.K. Financial statements are audited and prepared under IFRS, with amounts below in Canadian dollars. The comparative 2018 period covers only ten months, so year-over-year comparisons are not like-for-like.
Key financial metrics
| Metric | FY 2019 | Comparison / context |
|---|---|---|
| Gross revenue | $79.2 million | 2018 reported no revenue |
| Net revenue | $75.9 million | After $3.4 million of excise taxes |
| Gross margin | $39.8 million | Includes a $20.0 million net favorable biological-asset fair-value adjustment; gross margin before fair-value adjustments was $19.7 million, or about 26% of net revenue |
| Net loss | $271.6 million | Versus $56.5 million for the ten months ended December 31, 2018; loss per share was $3.17 versus $0.82 |
| Operating cash flow | $(112.7) million | Versus $(25.8) million in the 2018 ten-month period |
| Investing cash flow | $(213.1) million | Included $138.1 million of property and equipment additions and $77.0 million cash consideration for Bridge Farm |
| Financing cash flow | $358.3 million | Included equity, debt and convertible-note financing |
| Cash and restricted cash | $45.3 million cash; $15.8 million restricted | At December 31, 2019 |
| Total assets / liabilities | $510.0 million / $288.8 million | Shareholders’ equity was $216.5 million |
| Debt | $177.9 million carrying value, all current | Face principal included $84 million under the syndicated facility and $115 million under the term debt facility; classification followed a covenant breach and cross-acceleration |
Material changes and unusual items
- Revenue was primarily Canadian cannabis sales: $66.9 million, including $53.5 million to licensed producers and $13.4 million to provincial boards. U.K. ornamental-flower revenue was $12.3 million. The five largest customers accounted for 81% of revenue.
- Net loss increased substantially. Significant items included a $100.3 million non-cash goodwill impairment related to Bridge Farm’s U.K. CBD business, a $60.3 million loss on a financial obligation, $39.5 million of share-based compensation, and an $18.6 million loss from revaluing contingent consideration.
- Bridge Farm was acquired in July 2019. Sundial recorded $12.3 million of revenue and a $124.5 million net loss from its operations after acquisition, including the goodwill impairment. The company later began a strategic review that included a possible sale.
- Capital spending expanded the Olds facility and funded Bridge Farm construction. Merritt construction was deferred, and management said it would limit spending mainly to essential completion work at Olds and Clay Lake Phase 2, subject to liquidity.
Liquidity, outlook, risks and contingencies
- Going concern and debt covenants: The auditor highlighted substantial doubt about Sundial’s ability to continue as a going concern. The company breached its December 31, 2019 interest-coverage covenant; the syndicated and term debt were consequently classified as current. Subsequent lender waivers were obtained, but required a Bridge Farm sale agreement and financing-strategy term sheets by April 15, 2020. Sundial anticipated further covenant non-compliance at March 31, 2020 and said it needed additional financing to meet obligations and fund losses.
- Liquidity: Management expected available cash and financing to be insufficient for the next 12 months. The filing reports current assets of $172.6 million and current liabilities of $269.2 million, a deficit of approximately $96.6 million. On March 30, 2020, $10 million previously required as an interest reserve was applied to reduce syndicated debt; term lenders deferred at least $1.2 million of a $2.8 million interest payment.
- Operating conditions: Management cited Canadian cannabis oversupply, distribution bottlenecks, pricing pressure and slower-than-expected retail-store growth. Cost and asset optimization measures were underway, with savings expected to begin in the first quarter of 2020, but the company cautioned that expected savings might not be achieved.
- COVID-19 and regulatory exposure: The filing said pandemic-related disruption could affect financing, production, suppliers, retail channels and demand. Bridge Farm planned reduced operations from April 2020 after an employee tested positive. Operations also depend on maintaining regulatory licences and obtaining approvals; U.K. CBD sales faced novel-food authorization uncertainty.
- Legal matters: Disclosed matters included IPO securities class actions, a Quebec supply-agreement dispute with a $1.5 million reserve, a $1.7 million settlement for non-delivery under another supply agreement, and a former employee claim for which Sundial recorded a $0.3 million reserve.
- Controls: Management and the auditor identified a material weakness in internal control over financial reporting concerning segregation and independent review of journal entries. Management was implementing remediation and expected to address it during 2020.
- Guidance: The filing does not provide a clear quantified revenue, earnings or cash-flow forecast. It describes operational plans and cost initiatives, but emphasizes financing, covenant, market and execution uncertainties.
Important facts for investors to verify
- Whether Sundial met the lender-waiver conditions, secured further covenant relief and obtained adequate financing after the filing date.
- The outcome and proceeds of the proposed Bridge Farm sale, and whether any sale would resolve debt or liquidity pressures.
- Subsequent cash burn, operating cash flow, inventory levels, sales mix, pricing and customer concentration—particularly sales to licensed producers.
- Whether cost reductions and facility optimization improved margins without impairing production or licensed capacity.
- Developments in the disclosed litigation and the remediation and testing of financial-reporting controls.