SNDL Inc. — FY2022 Form 20-F
Reporting period: Fiscal year ended December 31, 2022. This is an annual report, not a standalone fourth-quarter filing; the supplied filing text does not provide separate Q4 results. Financial statements are audited and prepared under IFRS. Amounts below are in Canadian dollars unless indicated otherwise.
Business context
SNDL operates liquor retail, cannabis retail, cannabis production and investment businesses. FY2022 included Alcanna from March 31, 2022 and Zenabis from November 1, 2022; therefore, the substantial year-over-year revenue increase chiefly reflects acquisitions and a broader reporting perimeter, not solely organic growth. SNDL held approximately 63% of Nova Cannabis and accounted for it as a controlled subsidiary.
Key financial metrics
| Metric | FY2022 | FY2021 |
|---|---|---|
| Gross revenue | $729.7 million | $67.3 million |
| Net revenue, after excise taxes | $712.2 million | $56.1 million |
| Gross margin | $140.4 million; 19.7% of net revenue | $(9.0) million; negative |
| Loss before income tax | $(379.8) million | $(234.7) million |
| Net loss | $(372.4) million | $(226.8) million |
| Net loss attributable to SNDL owners; loss per share | $(335.1) million; $(1.46) | $(227.0) million; $(1.22) |
| Cash used in operating activities | $(6.7) million | $(155.8) million |
| Cash and cash equivalents at year-end | $279.6 million | $558.3 million |
| Total assets / total liabilities | $1,559.4 million / $231.7 million | $1,427.7 million / $98.1 million |
Gross revenue included $17.5 million of excise taxes. Current assets were $501.5 million and current liabilities were $89.4 million at year-end, including $19.3 million of restricted cash. The company reported no long-term debt on the balance sheet at December 31, 2022, but lease liabilities were $169.8 million ($30.2 million current and $139.6 million non-current); undiscounted minimum lease payments were $200.6 million. Shareholders’ equity was $1,306.5 million, and accumulated deficit was $1,092.0 million.
Investing activities used $230.2 million and financing activities used $41.8 million in FY2022. Cash declined by $278.7 million over the year. The comparatively modest operating cash outflow versus the large accounting loss reflected substantial non-cash charges, including impairments and investment losses.
Material changes versus the prior comparable period
- Revenue expanded following the Alcanna acquisition: liquor retail contributed $462.2 million of FY2022 net revenue, cannabis retail $205.6 million and cannabis operations $44.4 million. FY2021 had no liquor retail segment and included only partial-year Inner Spirit results.
- Gross margin improved from a loss of $9.0 million to income of $140.4 million, but the overall net loss worsened by $145.6 million. FY2022 included $196.0 million of asset impairment, compared with $60.0 million in FY2021.
- Investment results deteriorated: SNDL recorded a $65.2 million investment loss and a $43.0 million share of loss from equity-accounted investees, versus losses of $44.5 million and a share of profit of $32.9 million, respectively, in FY2021. The $519.3 million carrying value of the SunStream joint venture was a substantial part of year-end assets.
- Cash and cash equivalents fell by $278.7 million. The balance sheet also reflected a marked increase in leases, primarily associated with acquired retail operations.
- SNDL repurchased and cancelled approximately 4.3 million shares during 2022 for a reported total cost of $13.3 million. A 1-for-10 share consolidation took effect in July 2022.
Outlook, commentary, risks and unusual items
- Guidance and liquidity: The filing provides no numeric revenue or earnings guidance. Management stated it believed existing capital resources and cash-flow and working-capital management would meet operating, maintenance and development needs for at least the next 12 months, while cautioning that additional capital might be needed.
- Cost actions: In February 2023, SNDL reduced headcount at its Olds facility by approximately 85 employees as part of a phased savings program expected to deliver close to $9 million of labour and operating-cost savings for the remainder of 2023. Savings are estimates and may not be achieved on schedule or in full.
- Impairments and valuations: The company recorded major cannabis retail goodwill and intangible-asset impairments amid market oversaturation, as well as impairment charges relating to certain retail assets and idle equipment. Fair values for significant investment assets and the SunStream portfolio depend on estimates and assumptions; the auditor identified these valuations and goodwill impairment as critical audit matters.
- Internal controls: Management and the auditor identified a material weakness in IT general controls over access to systems and data, program changes and monitoring. The auditor issued an adverse opinion on internal control over financial reporting, although it issued an unqualified opinion on the FY2022 financial statements. The company said it was pursuing remediation during 2023; the weakness did not result in a material misstatement identified in the FY2022 statements.
- Acquisitions and contingencies: Valens acquisition closed in January 2023, after year-end; Green Roads, a Valens subsidiary, filed for U.S. bankruptcy in March 2023, and SNDL provided it a US$1.75 million debtor-in-possession facility. Superette assets were acquired in February 2023. A Quebec cannabis-supply dispute had a $2.6 million reserve and trial scheduled for October 2024; a former employee claim exceeding $856,000 had a $560,000 reserve. The filing also reports $2.5 million of accrued supply-contract penalties.
- Principal business risks: SNDL cites continuing cannabis-market oversupply and price competition, substantial customer concentration (the top five cannabis operations customers represented 87% of that segment’s FY2022 revenue), dependence on provincial buyers without minimum purchase commitments, regulatory and licence renewal requirements, and risks associated with SunStream’s U.S. cannabis exposure while cannabis remains illegal under U.S. federal law. Other risks include acquisition integration, liquor-market conditions, litigation, crop and supply disruptions, and access to capital.
Investor verification priorities
- Review the full MD&A and notes for segment-level trends, acquisition-related contributions, underlying margins and the basis of management’s liquidity assessment.
- Verify the composition, valuation assumptions, credit quality and recoverability of SunStream and other investments, including the FY2022 losses and subsequent developments.
- Track remediation and independent testing of the IT-control material weakness, and assess whether it is resolved in later filings.
- Assess the size, timing and integration costs of Valens, Superette and other subsequent acquisitions, including the Green Roads bankruptcy exposure.
- Monitor cannabis customer concentration, provincial supply orders and returns, impairment risks, lease commitments, and the status and potential cost of legal claims.