SNDL Earnings Preview.
- Completed financial restructuring and eliminated $227 million aggregate principal amount of debt during 2020.
- $60.4 million unrestricted cash on hand at December 31, 2020 and $719 million unrestricted cash on hand at March 15, 2021.
- Gross revenue increased by 10% to $73.3 million in 2020 compared to the prior year.
- Branded net cannabis sales increased to 75% of total cannabis sales in 2020 from 20% in the previous year as Sundial transitioned from wholesale to branded retail sales.
- Net cannabis revenue for the fourth quarter of 2020 was $13.9 million, an increase of 8% over the third quarter of 2020.
- General and administrative costs were reduced by 18% in 2020 as a result of cost reduction initiatives to $32.0 million compared to $38.9 in the previous year.
- Committed $58.9 million in the fourth quarter of 2020 and a further $31.5 million subsequent to year-end in strategic cannabis-related portfolio investments. Generated realized investment income and fees subsequent to year-end of $9.3 million.
“We entered our second year of commercial operations facing a number of internal and external challenges, including operational difficulties, excessive leverage, inadequate cost control, a lack of focus on our core value proposition, and rapidly evolving industry conditions,” said Zach George, Chief Executive Officer of Sundial. “In response, we redefined our strategy and made material changes to position Sundial for improved performance. We successfully restructured the entire organization by repaying all outstanding debt, improving our operating practices, targeting a sustainable cost structure and a simplified business model. Sundial also curtailed production and reduced the size of our workforce in response to market demand. We have raised significant capital, made a number of profitable investments, and continue to evaluate a robust pipeline of strategic opportunities. Capital preservation and corporate stewardship are key priorities for our Board and management team. While our financial strength has improved materially, we still have significant work to do in our core operations to achieve the goals we have established for Sundial and our shareholders. Sundial’s last two quarters have been negatively impacted by the complete repositioning of our cultivation operations as we focused on data-driven best practices to drive quality and potency results that meet evolving consumer preferences. While we are currently seeing many of our Canadian peers move away from cultivation, partially or entirely, due to their inability to deliver consistent cultivation outcomes, Sundial has renewed its commitment to cultivation in our modular indoor facility and views this core competency as an opportunity for differentiation going forward. We are confident that the adjustments made to our cultivation and processing activities better enable us to delight our consumers and customers in the coming year.”
“Sundial’s dedicated team of employees and a corporate culture focused on leveraging consumer insights, innovation and continuous improvement have driven increased gross revenue in a dynamic environment, where the industry has faced a multitude of challenges including an oversupplied cannabis market along with severe price compression and a worldwide pandemic. Sundial’s high-quality cultivation and processing facility combined with our team’s broad consumer packaged goods experience and strong financial position reinforce management’s confidence in our ability to generate continued growth on the path to sustainable profitability.”
FULL YEAR 2020 KEY FINANCIAL METRICS
|Gross Revenue||Net Revenue||Gross Margin (1)||Net Loss||Adj. EBITDA|
|% Change 2019||10||%||-4||%||-46||%||12||%||15||%|
(1) Gross margin before inventory and impairment and fair value adjustments
YEAR END 2020 BUSINESS & OPERATIONAL RESULTS
Capital raised during 2020 and after year-end provides Sundial with substantial financial resources to pursue operational goals and execute on strategic opportunities.
Sundial remains focused and committed to its cultivation and processing activities and continues to implement critical changes to enhance results:
- Sundial continues its emphasis on premium inhalable cannabis. While Sundial expects the industry will continue to see volatility, the Company believes that focusing on cultivation activities and inhalable products provides the best opportunity for long-term, sustainable growth. Sundial made significant progress in 2020 in cultivation and processing activities:
o Increased the number of cases delivered monthly from 12,853 cases in January to 24,847 cases in December 2020.
o Cultivation and production costs were reduced by 75% from $22.4 million in the fourth quarter of 2019 to $5.7 million in the fourth quarter of 2020, compared to a 48% reduction in grams harvested in the comparative quarters, reflecting increased efficiency.
- Sundial has undertaken initiatives to further simplify its supply chain and rationalize its SKU’s across all brands and formats. The Company is taking a proactive approach with customers to limit SKU proliferation and maximize shelf space and rate of sale with an optimized portfolio approach.
- Sundial’s commitment to data and science-based decisions has directed the restructuring of its cultivation practices. These changes have accelerated improvements in quality, potency, yield, and cost as Sundial achieved the highest weighted average potency in its history during the last three months of the year. Sundial continues to make progress and invest in its commitment to cultivation excellence.
- Sundial acquired an expanded library of genetics in 2020 to better serve evolving consumer preferences, cultivate higher potency products and generate better harvest outcomes. The Company expects the new genetics will be in market by Q4 2021.
- Sundial was under indexed in the pre-roll format and increased production by over 200% in the fourth quarter and into 2021 to meet consumer demand. The Company continues to develop a robust innovation pipeline.
- Sundial commenced the year with an average of 16% OTIF (On Time In Full) metrics and averaged above 90% for the majority of the year.
- Sundial’s cultivation and production costs reduced from $10 million per month to $2 million per month through the year, while the Company increased output of finished product.
GROSS MARGIN BEFORE FAIR VALUE ADJUSTMENTS
Adjusted gross margin before inventory impairment and fair value adjustments for the year ended December 31, 2020 was $9.2 million, compared to $16.8 million for 2019. This decrease in gross margin was mainly due to reduced pricing and a shift to a higher cost product mix. Sundial continues to analyze and adjust its operations for optimal margin accretion.
GROSS SELLING PRICE
Average gross selling price per gram equivalent of branded products was $5.05 per gram in 2020, net of provisions, compared to $6.24 per gram in the prior year as a result of industry wide price compression and a shift to value product. Average gross selling price for unbranded flower of $1.43 per gram reflects the monetization of winterized oil, trim and shake inventory. Sundial anticipates continued downward price pressure throughout the industry in the coming year due to continuing competition and relative oversupply.
Sundial remains focused on delivering premium products with an emphasis on inhalable formats, including flower, pre-rolls, vape cartridges and concentrates. Gross revenue by format is as follows:
- Vape Cartridges: Vape cartridge sales were $18.4 million in the year ended December 31, 2020 compared to $0.5 million in the prior year because of the legalization of cannabis vape cartridges late in 2019.
- Dried Flower: Gross revenue from dried flower sales was $51.4 million in 2020 representing a 12% decrease from the previous year due to a shift of Sundial’s portfolio from wholesale to branded sales and other formats in response to consumer preferences.
- Oil: Gross revenue from oil sales was $3.2 million in the year ended 2020 compared to $8.2 million in 2019.
- Concentrates: The Company continued to diversify its product mix in 2020 and added solventless extracts late in the fourth quarter of 2020. Sundial also entered into a licence agreement with Simply Solventless Concentrates (“SSC”) for the processing and manufacturing of a suite of solventless cannabis concentrates.
- Edibles: Sundial also added edibles to its portfolio in the fourth quarter of 2020, through its sales and distribution agreement with Choklat, an Alberta-based chocolate maker.
Sundial’s portfolio of branded products yielded significant revenue from the retail marketplace in 2020. Net revenue by brands is as follows:
- Top Leaf: Sundial’s premium inhalable brand was launched near the end of 2019, generating just $677,000 in sales that year. In 2020, Top Leaf products generated $16.5 million in net revenue.
- Sundial: As the Company continued to diversify its product mix and shifted its portfolio to include more offerings, the revenue from the Sundial brand increased to $16.5 million in 2020 compared to $8.4 million in 2019.
- Grasslands: In 2020, the Grasslands brand generated net revenue of $6.9 million, compared to $1.1 million in the previous year. The increase in 2020 revenue was due to the value segment becoming a preferred choice for consumers.
- Palmetto: Net revenue from the newly introduced Palmetto brand, launched near the end of 2
- 019 was $3.4 million in 2020, resulting from increased investments to the brand and products.
The Company sold 23,500 kilogram equivalents of cannabis in 2020, a 36% increase over the previous year sales of 17,293 kilogram equivalents.
NET BRANDED SALES
In 2020, the Company continued to focus on increasing its branded sales through brand portfolio penetration coast-to-coast, the addition of new formats and supply chain optimization. Branded net cannabis sales increased to 75% of total cannabis sales in 2020 from 20% in the previous year, representing $55.3 million of sales up from $13.4 million of sales in 2019.
SALES, MARKETING AND GENERAL AND ADMINISTRATIVE EXPENSES
SMG&A costs were reduced by 20% from $47.0 million to $37.8 million in 2020 when compared to the prior year. A reduction in the Company’s workforce in response to market conditions and a focused review of all spending drove this improvement. Targeted spending on marketing costs was increased in the second half of 2020.
Net loss from continuing operations for 2020 was $206.3 million in 2020 compared to $142.7 million in 2019. The 2020 net loss included impairment charges related to inventory ($45.9 million) and asset impairments ($79.1 million) for a total of $125.0 million.
Adjusted EBITDA from cannabis operations was a loss of $25.6 million for 2020 compared to a loss of $30.1 million for the previous year. The decreased loss was primarily due to reduced general and administrative expenses relating to cost reduction initiatives during the year, partially offset by lower net revenue and higher cost of sales.
CWEB Analyst believe that SNDL the stock has enormous potential for short and long term growth and a price target of $8 by end of 2021.