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.
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.”
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