SNDL Inc. (Nasdaq: SNDL) will wind down its Alberta operations and lay off 85 facility employees, the company announced on Monday.
The Canadian grow giant said that it would be “rightsizing” its cannabis cultivation site in Olds, Alberta, in order to focus on premium products and brands.
In a statement, SNDL said that the Valens Company Inc. deal accelerated the need to optimize and rationalize its manufacturing and operational footprint to better address market saturation and oversupply.
“We have made the difficult decision to materially reduce staffing and activity levels in Olds, Alberta, in order to improve the efficiency of our operations as one of Canada’s largest adult-use cannabis manufacturers,” SNDL CEO Zach George said.
“We estimate that more than 1 billion grams of flower are sitting in Canadian vaults today,” the CEO continued, adding that oversupply and excess capacity have resulted in “high-quality flower being widely available and sold well below the marginal cost of production.”
The company will pivot to combine its cultivation operations with Valens’ available and existing low-cost biomass procurement capabilities.
“We will be better equipped to leverage the current pricing environment to materially improve our cost of goods sold and margins,” George said. “We are taking a proactive approach with our cultivation and manufacturing strategy to evolve with the market while continuing to deliver exceptional products across a variety of product and price segments.”
The company did not specify whether the cuts included contract, part-time, or full-time workers.
The larger phased cost savings program is expected to deliver nearly $9 million in savings in labor and operational costs. Monday’s announcement will help SNDL surpass its previously announced savings target, the company said.
SNDL expects to complete most of this transition within this year’s first quarter, and the cost savings will be immediately accretive to adjusted EBITDA.
The company said that it expects to report record net revenue and net cash when its next earnings report drops at the end of March. However, most of the sales will likely come from its alcohol sales, as SNDL also happens to be Canada’s largest private sector liquor retailer.
The company currently has 169 locations under its three retail banners: Wine and Beyond, Liquor Depot, and Ace Liquor.
To illustrate the point, gross revenue from its cannabis retail and cultivation operations cracked nearly $80 million last quarter, while its alcohol segment made the company $152.5 million during the same time.
SNDL said that customers shouldn’t see changes in the availability and quality of the company’s brands. “Through its integration and rationalization efforts, the company is assessing all assets and will continue to make decisions based on sustainable profitability.”