Sundial Archives - Green Market Report

Debra BorchardtOctober 8, 2021
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4min7120

After the market closed on Thursday, Sundial Growers Inc. (NASDAQ: SNDL) said it was going to buy Alcanna for approximately $346 million. Alcanna (OTC: LQSIF) is one of Canada’s largest liquor retailers, operating 171 locations predominantly in Alberta under its three retail brands “Wine and Beyond”, “Liquor Depot” and “Ace Liquor”. Sundial said it is estimated that the transaction will deliver more than $15 million of additional EBITDA on an annual run-rate basis through synergies and other strategic initiatives.

In addition to that, Alcanna’s strategic partner, who owns roughly 63% of the company, Nova Cannabis Inc. (TSX: NOVC), is one of Canada’s largest cannabis retailers offering a wide range of high-quality cannabis products at value prices. Nova currently operates 62 stores across AlbertaSaskatchewan and Ontario primarily under the “Value Buds” and “Nova Cannabis” banners.

“This made-in-Alberta transaction allows Sundial to further its mission to own the customer relationship and deliver sustainable value to shareholders,” said Zach George, Chief Executive Officer of Sundial. “Alcanna’s value-focused model in liquor retailing has created market stability and we believe that the replication of this playbook in cannabis has strong potential to drive a similar result. We intend to position all of our retail exposure for profitability and strive to work with Canadian licensed producers in order to delight consumers with quality cannabis products.”

Part of the desire to buy Alcanna was the company’s stable cash generation that provides trailing twelve months of free cash flow of $16.4 million on a built-out retail platform. Another reason to buy Alcanna was the Nova store count.  Sundial noted that the combined company would make them a cannabis retail market leader with more than 170 locations. The company said in a statement that the network strengthens its position as a partner to the industry and represents a critical route to market for Canadian licensed producers.

“We believe this agreement is a testament to the value created by everyone at Alcanna and will be beneficial to all of our stakeholders,” said James Burns, Vice Chair and Chief Executive Officer of Alcanna. “We have been successful at achieving customer loyalty, and operating at levels of efficiency that are industry-leading and Sundial will provide great opportunities as a larger and significantly more liquid company. We look forward to working with Sundial to complete this transaction.”

In 2020, Aurora Cannabis sold its shares of Alcanna for C$27.6 million or C$3 per share, a big drop from the original investment of C$138 million. Alcanna shares are currently trading at C$8 a share.


Debra BorchardtOctober 5, 2021
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Last week, Sundial Growers (OTC: SNDL) enjoyed some success in the courtroom when a case brought against the company by investors was dismissed. In May 2020, several investors had charged that Sundial made claims in investor presentations that weren’t true. However, U.S. District Judge Andrew L. Carter Jr. said that the various statements made in the presentations were either protected, forward-looking statements or weren’t all that misleading at the time the statements were made.

The issue stems back to 2018 when Sundial tried to raise $50 million in order to buy an agricultural company based in the UK called Bridge Farm. According to the court filing, the January Investor Presentation said that Bridge Farm had a hemp license that would allow for cultivation, processing, and export of finished products from the UK. It went on to say that Bridge Farm would “provide a platform for scalable growth with only ~C$20 mm in incremental Capex needed to facilitate CBD production and extraction” and that the “[o]peration enables us to produce and distribute at scale almost immediately and more quickly than competitors.” At the time, Sundial said it expected Bridge Farm to generate C$256 million in revenue and C$115 million of EBITDA in 2020.

Bridge Farm Plans

Then Sundial upped the fundraise and said it wanted $70 million versus the original $50 million. The investors say they ponied up $7 million in the pre-IPO round based on the projections of the Bridge Farm acquisition. In 2019, Sundial filed to go public and stated in Form F-1 that Bridge Farm’s hemp license would expire in December 2021. In August 2019, the company went public pricing its shares at $13 and netting $134 million. The investors were unable to sell their shares for the next six months.

Also in August, the case says that during an investor call Tamy Chen from BMO (one of Sundial’s IPO bankers) said “I know that there’s a couple of licenses, you’re waiting for before you can start really converting and growing hemp at Bridge Farm’s facilities.” BMO then issued a note stating that “Bridge Farm requires key licenses and we expect there will be a natural ramp and learning curve associated with the conversion of Bridge Farm’s greenhouses from growing herbs and ornamental flowers to growing hemp.” The lawsuit  also stated that BMO wrote, “That there was no indication as to if, or when, Bridge Farm would receive the necessary licenses to extract CBD and/or to make over-the-counter CBD products.”

Then during its fourth-quarter earnings call for 2019, Sundial reported that its net loss for that quarter was C$145.1 million which was “primarily due to the impact of a non-cash  impairment charge of $100.3 million related to the goodwill recorded upon the acquisition of Bridge Farm.” The Plaintiffs alleged that Sundial’s accountants determined that “(i) the goodwill the Company had attributed to the purchase price for Bridge Farm . . . was grossly inflated . . . and/or (ii) Bridge Farm’s ability to generate cash flows deteriorated such that the fair value of Bridge Farm’s goodwill dipped below its book value.” Not long after Sundial said its core management team was leaving the company and the stock continued to slide on negative news.

By March 2020, Sundial said it was selling the Bridge Farm property and in April 2020, the stock had slid from its offering price of $13 to just fifty cents. The investors believed that Sundial wasn’t being truthful when telling them about the Bridge Farm’s hemp licenses. They allege that Sundial used the Bridge Farm acquisition as a reason for people to invest in the company, but knew all along that it didn’t have the hemp licenses it said it had.

Judge Disagrees 

However, Judge Carter said the investors didn’t demonstrate that Sundial didn’t believe the claims it had made in the presentations. The court order stated, “Corporate officials need
not be clairvoyant; they are only responsible for revealing those material facts reasonably available to them.” It went on to say, “The Second Circuit has repeatedly stated that plaintiffs must do more than simply assert that a statement is false—“they must demonstrate with specificity why and how that is so.” The judge also pointed out that the company was covered by saying the claims about Bridge Farm were forward-looking statements, which were accompanied by cautionary language about risk.

The Judge said that the plaintiffs hadn’t proved that Sundial knew the statements were false.

The investment companies behind the complaint are SUN, A Series of E Squared Investment Fund LLC; E-Squared Capital Fund LP; S.H.N Financial Investments Ltd.; Flamingo Drive M&M LLC; and Stable Road Capital LLC.

Current Day Sundial

Sundial shares were lately trading at roughly 64 cents per share. In January, the company priced an offering in which it would receive approximately $100 million. The company said it planned to use the money for possible acquisitions of, or investments in, equipment, facilities, assets, equity or debt of other businesses, products or technologies and for working capital and general corporate purposes. The additional issuance of shares wasn’t viewed favorably by the market and the price of shares dropped. The company now has a whopping two billion outstanding shares

In August the company reported that its total net revenue for the quarter ending in June was just $18.6 million,  while the net loss was $52.3 million. “Following Sundial’s restructuring in 2020, we have been able to rapidly reshape the business model to focus on a two-pillar strategy that we believe will position our shareholders for future success,” said Zach George, Chief Executive Officer of Sundial. 

He went on to say, “Our second-quarter performance continued to be impacted by the liquidation of discounted inventory and our refusal to push sub-optimal product into the market. We have undertaken a significant retrenchment in our cultivation activities, which has included changes to our cultivation processes as well as workforce and other cost reductions. We have seen continuous improvement in our cultivation outcomes as we remain focused on best practices to deliver strong results in potency, yield and terpenes. In the last two months of the quarter, we experienced the highest successive average potency at harvest since operations began at Olds.”

Sundial did acquire the Inner Spirit and the Spiritleaf retail network on July 20, 2021. The company said in a statement, “Adding Canada’s largest cannabis retail store network will enable Sundial to reach consumers through an entirely new channel, generate a deeper understanding of consumer buying trends, and provide depth of data to enhance decision making around product and distribution strategies. System-wide retail sales through Spiritleaf stores reached $124 million on a trailing 12-month basis to March 31, 2021, the last reported period prior to acquisition. In July 2021, the retail network achieved its highest ever one-day and monthly sales since inception. Through the acquisition of a retail segment, Sundial now has direct access to more comprehensive customer data and expects revenue increases to be generated by the integration of our distribution channels commencing in the third quarter of 2021.”

 

 

 


Debra BorchardtMay 5, 2021
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Sundial Growers Inc. (NASDAQ: SNDL)  is buying Inner Spirit Holdings Ltd. (CSE: ISH) (OTCQB: INSHF) in a deal valued at approximately $131 million. Inner Spirit is better known as the retailer and franchisor of Spiritleaf recreational cannabis stores across Canada. The Spiritleaf network includes 86 franchised and corporate-owned locations, all operated with an entrepreneurial spirit and with the goal of creating deep and lasting ties within local communities. The deal is expected to close in the third quarter of 2021.

Spiritleaf’s franchised and corporate stores have served 2.3 million guests in 2020. The retail brand has earned a reputation as a knowledgeable and trusted source of recreational cannabis while offering a premium consumer experience. Spiritleaf opened its 86 th store on April 28, 2021, in Edmonton, Alberta, and is projected to exceed the 100-store milestone in the summer of 2021.

“Sundial is the ideal company to acquire Inner Spirit and support the future development of the Spiritleaf retail cannabis brand,” said Darren Bondar, Founder, President and Chief Executive Officer of Inner Spirit. “The Sundial team has shown a strong commitment to our management team, franchise partners, and employees as well as our growth ambitions. The combination will enable us to further expand our position as the country’s leading retail cannabis brand for customers and communities and will open up new market opportunities to us. We’re also very pleased Inner Spirit shareholders will be able to participate in our future success through an ongoing equity ownership.”

Sundial made noise in January when the company priced an offering in which it would receive approximately $100 million. At the time, the company said it planned on using the money for possible acquisitions of, or investments in, equipment, facilities, assets, equity or debt of other businesses, products or technologies and for working capital and general corporate purposes. In November, Sundial reported that its third-quarter revenue fell 36% to just $15.5 million. The company also delivered a whopping net loss of $71.4 million. This was almost double the net loss of $32.8 million for the three months ending June 30, 2020. 

Deal Terms

Inner Spirit’s shareholders will receive, for each Inner Spirit common share held, (i) $0.30 in cash and (ii) 0.0835 of a Sundial common share (representing $0.09 per Inner Spirit common share based on the 10-day volume-weighted average price of Sundial common shares on the Nasdaq Capital Market), for total consideration of $0.39 per Inner Spirit common share. The purchase price of $0.39 per Inner Spirit common share represents a premium of 54.8% to the 10-day VWAP of Inner Spirit common shares on the Canadian Securities Exchange (the “CSE”) and a premium of 62.5% to the closing price of Inner Spirit common shares on the CSE on May 4, 2021.

“Sundial becomes a stronger and more diverse cannabis company by acquiring Inner Spirit and the Spiritleaf retail store network,” said Zach George, Chief Executive Officer of Sundial. “Inner Spirit has successfully created a franchise-based retail network that has grown from coast to coast and offers a differentiated and premium in-store experience to consumers. Our shared Albertan roots and commitment to data-driven consumer insights make for an ideal partnership. Sundial’s capital base will enable us to support continued expansion and deepen the capabilities of the Spiritleaf retail brand.”

The company said the deal is expected to provide modest synergies and economies of scale due to the different business models of Sundial and Inner Spirit.

 


Debra BorchardtJanuary 29, 2021
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Sundial Growers Inc. (Nasdaq: SNDL) has priced an offering in which the company will receive approximately $100 million. The underwritten offering is expected to close on February 2. The company said it plans to use the money for possible acquisitions of, or investments in, equipment, facilities, assets, equity or debt of other businesses, products or technologies and for working capital and general corporate purposes. the stock was dropping over 3% in early trading to lately sell near 79 cents.

Falling Revenue, Rising Losses

In November, Sundial reported that its third-quarter revenue fell 36% to just $15.5 million. The company also delivered a whopping net loss of $71.4 million. This was almost double the a net loss of $32.8 million for the three months ending June 30, 2020. 

At the time Zach George, Sundial’s CEO said, “While our third-quarter revenue decreased, we are pleased with the demonstrated improvement in operating discipline, successful cost optimization initiatives and a material reduction of our debt. Following the announcement of our financial restructuring in June of this year, we have accelerated improvements in our operating practices targeting a sustainable cost structure and a simplified business model that will better enable us to focus on delighting consumers.”

He went on to say, “Having entered 2020 with a challenged capital structure, and a disparate business model, our team has moved aggressively to focus our operations and product portfolio to get the very best from our high-quality people and assets.”
Early in December, the company announced it had prepaid $50 million of the outstanding principal under its senior secured non-revolving term credit facility to further improve its balance sheet. Then Sundial said it had prepaid the remaining outstanding principal under its senior secured non-revolving term credit facility of $21.9 million and said it had no debt outstanding.
Zenabis Acquisition
The company has been after Zenabis since the end of December when Sundial said it had made a strategic investment in Zenabis’ senior lender, which Zenabis said was an attempt to coerce Zenabis into being acquired by Sundial. In a statement, Zenabis said, “Prior to Sundial’s acquisition of the Senior Lender, the company had been in late-stage discussions with the Senior Lender relating to the extension of its obligation to repay $7 million of the principal amount of debt on December 31, 2020. Contrary to the discussions with the Senior Lender prior to the point at which it was acquired by Sundial, the Senior Lender substituted the soon to be consummated extension with a demand that the $7 million principal repayment be made on December 31, 2020, accompanied by a forbearance agreement.” Zenabis also said that the forbearance agreement required it to enter into exclusivity arrangements with the Senior Lender in relation to any sale of the company and also required Zenabis to accept significant potential financial penalties in excess of the outstanding balance of the debt owed to the Senior Lender.

On December 31, 2020, Zenabis entered into a letter agreement to sell $7 million of dried cannabis to another major Canadian licensed producer of cannabis and used that money to make the $7 million loan payment. Zenabis said that after making the payment it was alleged that there were a variety of defaults under the terms of the amended and restated debenture dated June 28, 2020.

The company said that none of the alleged defaults are for failure to make payments of principal or interest. In Zenabis’ statement, “The company believes the Senior Lender’s allegations to be spurious and without merit and intends to vigorously defend against what it considers to be an ill-disguised attempt to circumvent a fair and competitive process to acquire the company by improperly foreclosing the equity of the company or compelling Zenabis to enter into a transaction with Sundial.”

Offering Details

The offering consists of 100,000,000 Series A Units, each consisting of one common share and one-half Series A Warrant to purchase one common share and 33,333,334 Series B Units , each consisting of one pre-funded Series B Warrant (together with the Series A Warrants, the “Warrants”) to purchase one common share and one-half Series A Warrant to purchase one common share. Each Series A Unit will be sold at a price of US$0.75 per Series A Unit and each Series B Unit will be sold at a price of US$0.75 per Series B Unit, minus US$0.0001 , and the remaining exercise price of each Series B Warrant will equal US$0.0001 per common share. Sundial’s gross proceeds from this offering are expected to be approximately US$100 million, before deducting underwriting discounts and estimated offering expenses. All of the securities in the offering are being sold by Sundial. The Warrants will be exercisable immediately after issuance and have a term of five years commencing on the date of issuance. The exercise price of the Series A Warrants will be US$0.80 per common share. The offering is expected to close on February 2, 2021


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