Alcohol Sales Pump Up SNDL Profits, Nova Adds Margins

Despite revenue gains, company recorded a net loss of C$100M.

SNDL Inc. (Nasdaq: SNDL) was up 2% on Monday after the Canadian giant posted record revenues, driven by its liquor retail sales despite seeing nearly C$100 million in losses.

The company reported its financial and operational results for the third quarter ending Sept. 30.

SNDL posted record net revenue for the third quarter of 2022 of C$230.5 million, versus C$223.7 million in the second quarter of 2022 and C$14.4 million in the third quarter of 2021, representing a 3% increase sequentially and 1,501% increase year-over-year. The results beat Yahoo Finance’s average analysts’ estimate of $171.9 million.

Segment net revenue included:

    • Liquor retail, C$152.5 million
    • Cannabis retail, C$66.2 million
    • Cannabis operations, C$11.8 million

Net loss was C$98.8 million for the third quarter, substantially due to noncash charges for impairments of C$86.5 million and changes in estimate of fair value of derivative warrants of C$8.5 million. Net loss in the second quarter was C$73.3 million net loss, while the third quarter of 2021 posted a profit of C$16.7 million.

In a statement, CEO Zach George attributed the revenue gains to “operational execution and sustainable profitability.”

“Our regulated products platform has shown resiliency in the face of stiff industry and macroeconomic headwinds, and our vertically integrated cannabis business is in the early stages of providing the scale and results that we believe are required for SNDL to be a strong member of a future oligopoly in Canada,” George said.

The CEO said that the company’s integration work and cost control initiatives will continue into 2023, focusing on “opportunities related to the Alcanna assets and look to close the proposed acquisition of Valens in the first quarter of 2023.”

SNDL said that the third quarter results do not include financials from the March Alcanna Inc. acquisition yet.

The company in August snapped up The Valens Company in a deal valued at C$138 million, “creating a leading vertically integrated entity with pro forma revenue among the highest of all Canadian licensed producers.” SNDL expects the acquisition to close in the first quarter of 2023, subject to shareholder approval and customary closing conditions.

SNDL’s cannabis retail segment raked in C$66.2 million over the quarter, a 985% rise versus C$6.1 million in the same period last year. The Nova Cannabis Inc. acquisition and Value Buds sales were the material driver of the increase with C$58.9 million of revenue during the quarter.

Gross margins in the segment were C$14.5 million, or 22% of sales, versus C$3.7 million in the third quarter last year. SNDL lent the rise in margins to Value Buds’ new locations and aggressive pricing strategy.

The company had record net cash from operating activities of C$8.6 million in the third quarter, versus a loss of C$17.9 million in the previous quarter and a loss of C$56.2 million in the third quarter last year.

Adjusted EBITDA was C$18.3 million, up 169% from the second quarter of 2022 and up 74% from the third quarter last year.

The company said that overall gross margins improved to C$50.3 million, “a record since SNDL’s inception,” up 17% from the previous reporting period and up 2,723% from the third quarter last year.

SNDL also reported that it had C$988 million of cash, marketable securities and long-term investments, as well as no outstanding debt. The company said it had an unrestricted cash balance of C$278 million as of Nov. 11 and a total of 236 million shares outstanding. It said it has not raised cash through share offerings since June of last year.

Ethanol Gains

SNDL, which also happens to be Canada’s largest private sector liquor retailer, found reprieve from its liquor sales during the quarter.

The company currently has 169 locations under its three retail banners: Wine and Beyond, Liquor Depot, and Ace Liquor.

Gross revenue from the alcohol brands was $152.5 million during the quarter, an increase of 1% versus the third quarter of 2021 despite Alberta’s off-premise liquor retail volume being down this past quarter compared to same period last year.

Gross margin in the segment held steady at 23% through an effective pricing and product mix strategy, according to the company.

Adam Jackson

Adam Jackson covers the cannabis industry for The Green Market Report. He previously covered the Missouri statehouse for The Columbia Missourian and freelanced for The Missouri Independent. He most recently covered retail, restaurants, and other consumer companies for Bloomberg Business News. You can find him on Twitter @adam_sjackson and email him at adam.jackson@crain.com.


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