SNDL Inc. (formerly Sundial Growers Inc.) — FY2021 Form 20-F
Reporting period: Fiscal year ended December 31, 2021; this is an annual report, not a standalone fourth-quarter report. Financial statements are audited and prepared under IFRS in Canadian dollars (CAD), unless stated otherwise. The company operated cannabis production, cannabis retail and investment businesses.
Key financial metrics
| Metric (CAD millions, except per-share data) | FY2021 | FY2020 |
|---|---|---|
| Gross revenue | 67.3 | 73.3 |
| Net revenue, after excise taxes | 56.1 | 60.9 |
| Gross margin | (7.0) | (49.9) |
| Loss from operations | (132.1) | (185.4) |
| Loss before income tax | (232.5) | (206.3) |
| Net loss | (230.2) | (239.9) |
| Basic and diluted loss per share | (CAD$0.12) | (CAD$1.07) |
| Cash used in operating activities | (155.4) | (57.5) |
| Cash used in investing activities | (496.3) | (70.9) |
| Cash provided by financing activities | 1,149.6 | 142.7 |
At year-end, cash and cash equivalents were CAD$558.3 million (versus CAD$60.4 million); restricted cash was CAD$27.0 million. Total assets were CAD$1,424.3 million, total liabilities CAD$98.1 million, and shareholders’ equity CAD$1,325.9 million. Liabilities included CAD$33.5 million of lease obligations; the balance sheet reported no conventional long-term debt at December 31, 2021. Minimum lease payments totalled CAD$38.5 million.
- Revenue and margins: Cannabis revenue fell to CAD$51.2 million from CAD$73.3 million. Retail revenue contributed CAD$16.1 million, following the July 2021 Inner Spirit acquisition. Gross margin improved substantially but remained negative; inventory obsolescence expense was CAD$17.0 million, compared with CAD$45.9 million in 2020.
- Cash flow and funding: Operating cash outflow increased. Financing inflows were driven largely by equity issuance: net proceeds from share issuances and registered offerings were CAD$1,062.3 million, alongside CAD$119.3 million from derivative-warrant exercises. Investing outflows included CAD$395.6 million contributed to SunStream and CAD$82.8 million for the Inner Spirit acquisition.
- Investments: The 50/50 SunStream joint venture was carried at CAD$412.9 million and contributed CAD$32.9 million of equity-accounted profit. Marketable securities were CAD$83.7 million at year-end; the investment line recorded a net loss of CAD$44.5 million, including CAD$64.7 million of unrealized losses and CAD$20.2 million of realized gains.
Material changes versus the prior period
- Net revenue declined 7.9%; cannabis revenue decreased, while newly consolidated retail operations added revenue from July 20, 2021.
- Net loss narrowed from CAD$239.9 million to CAD$230.2 million, although the continuing-operations pre-tax loss widened from CAD$206.3 million to CAD$232.5 million. The 2020 net loss included CAD$33.6 million from discontinued Bridge Farm operations.
- The company recorded a CAD$60.0 million impairment of its Olds facility cash-generating unit in 2021, following CAD$79.2 million of asset impairment in 2020. The 2021 impairment test used a 25% discount rate; management reported that a one-percentage-point increase would add about CAD$7.3 million to the impairment.
- Share count rose from 918.8 million to 2,060.4 million during 2021, reflecting substantial equity issuance and warrant exercises. The company ended the year with 2,060,408,357 shares outstanding.
- Comparative 2020 balance-sheet and attribution information was recast for the allocation of Pathway impairment to non-controlling interests. The recast changed the presentation of 2020 loss attributable to SNDL and loss per share, but not total 2020 net loss.
Outlook, risks and unusual items
- The filing provides no clear quantified revenue, earnings or cash-flow guidance. Management stated that cash resources and its ability to manage cash flow were expected to fund operating expenses and planned activity for at least the following 12 months, while cautioning that additional capital could be needed.
- Management was aligning production with demand, pursuing cost and operational optimization, and had suspended construction of the Merritt facility while pursuing its sale. Olds capacity was 71 million grams, with 28 million grams utilized at year-end. No facility expansion was planned at that time.
- Material risks include continuing losses and negative operating cash flow; cannabis market oversupply, pricing pressure and competition from illicit sellers; reliance on provincial buyers and customer concentration (the top five cannabis-segment customers represented 78% of segment revenue); licensing and regulatory uncertainty; and crop, supplier and product-quality risks.
- SunStream’s U.S. cannabis-related lending creates legal and regulatory exposure because cannabis remains illegal under U.S. federal law. Its investment valuations depend on significant estimates. SNDL had committed CAD$538.0 million to SunStream and contributed CAD$395.6 million by year-end; a further CAD$70.3 million was contributed after year-end.
- Accounting and valuation items were significant: the company recorded a CAD$77.8 million expense from changes in the estimated fair value of derivative warrants and had CAD$21.7 million of warrant liabilities at year-end. The warrant liability is non-cash and, if exercised, is settled in shares.
- Internal controls: Management and KPMG identified material weaknesses in financial reporting controls, including inadequate accounting and IT staffing, risk assessment, IT access controls and segregation of duties. KPMG issued an adverse opinion on internal control over financial reporting, while giving an unqualified opinion on the financial statements. Management planned remediation during 2022; corrected material misstatements had been identified during the reporting process.
- Contingencies: The company recorded reserves of CAD$8.9 million for a proposed settlement of a federal IPO securities action, subject to court approval, CAD$2.6 million for a Quebec supply-contract lawsuit, and CAD$0.15 million for a former employee claim. It also accrued CAD$2.5 million in supply-agreement penalties. Other claims and proceedings could have uncertain outcomes.
- Post-year-end developments: The Alcanna acquisition closed March 31, 2022, for CAD$54.3 million in cash and 320.6 million SNDL shares; purchase-price allocation was not finalized in the filing. Nasdaq extended the deadline to regain the US$1 minimum bid-price requirement to August 8, 2022. KPMG notified the company it would not stand for reappointment as 2022 auditor.
Important facts for investors to verify
- Review the full FY2021 MD&A for segment performance, liquidity assumptions, contractual commitments and any management outlook; this filing points to an attached MD&A, but its full text is not included in the supplied filing extract.
- Assess the sustainability and cash realization of SunStream returns, the valuation assumptions behind its CAD$412.9 million carrying value, and the U.S. federal cannabis-law exposure.
- Track remediation of the material weaknesses and the appointment and transition of a new auditor.
- Confirm court approval and final payment of the IPO-action settlement, and monitor the Quebec supply dispute and other claims.
- Evaluate the dilution and integration effects of the Alcanna acquisition, the expanded share count, and the company’s progress toward Nasdaq’s minimum bid-price requirement.