Zach George Archives - Green Market Report

Adam JacksonDecember 21, 2022


SNDL (Nasdaq: SNDL) and Nova Cannabis (OTCQB: NVACF) have fashioned new terms for their existing relationship as the two look to grab more market share in a consolidating Canada.

In a statement, SNDL said that the new arrangement would create a “well-capitalized cannabis retail platform in Canada under a vertical integration model with SNDL’s upstream capabilities.”

“With this strategic partnership, Nova will be well positioned to thrive and focus on growth and profitability in the coming years through this world-class cannabis retail platform,” said SNDL CEO Zach George. “SNDL will continue to support and sponsor Nova in a compliant manner while leveraging our capital base and retail M&A pipeline to improve Nova’s trading liquidity and future growth.”

When the deal’s sown up, Nova will receive retail contribution and corporate service from SNDL, as well as debt restructuring that includes a C$15 million revolving credit facility that SNDL will wipe.

The injection, which is expected to be fully drawn at the time of the closing of the transaction, will immediately provide Nova with additional liquidity to the tune of C$5.5 million.

The deal also provides for a return of equity, with around 14.3 million shares of Nova held by SNDL’s holdings scheduled to be returned to Nova’s treasury for cancellation.

SNDL said it plans to reduce its equity ownership in Nova to below 20% through a capital distribution of Nova Shares owned by SNDL to its shareholders, increasing liquidity.

Additionally, SNDL will receive intellectual property rights as consideration to Nova’s fast-growing Value Buds banner of 88 stores and the license to grant Nova to operate the Value Buds, Spiritleaf and Superette banners.

The two became tethered when SNDL in March spent C$320 million to snap up Nova’s majority shareholder, Alcanna. Then-Nova CEO touted SNDL’s ability to provide infrastructure and financial resources to its value-based model to drive scale and expansion.

The company said it partnered with SNDL for Value Buds’ private label strategy with goals to remain aggressive with its pricing strategy for the two’s white label venture in order to capture further market share in Canada.

In last month’s earnings release, Nova stated that it wants to “disrupt and strengthen the cannabis retail market by promoting a wide range of cannabis products at everyday best-value prices, while encouraging greater migration from the illicit cannabis market.”

Nova said its starting to raise pricing across all categories in Alberta to test elasticity and understand consumer buying trends and expects higher margin results in the fourth quarter. It also expects to add three more stores in Alberta and Ontario in the remainder of this year and early next.

Anne Fitzgerald, lead independent director of Nova, said that the deal “provides Nova with a unique opportunity to further transform the cannabis retail market in Canada and enhance its business in a material way to the benefit of all our shareholders.”

“A special committee of independent directors of Nova has completed an extensive due diligence process including the advice of independent financial advisors and has concluded that the transaction is fair from a financial point of view to Nova shareholders. The support of SNDL, both operationally and financially, allows Nova to remain laser-focused on growth and profitability.”

Adam JacksonAugust 15, 2022


SNDL Inc. (NASDAQ: SNDL)  posted positive results as the company reaps record revenue from this year’s M&A bets. The Canadian vice operator — formerly known as Sundial Growers Inc. — delivered its second-quarter results ending June 30, 2022.

SNDL reported approximately $223.7 million in total revenue during the period, a 2,344% gain versus the same period last year; well over the Yahoo Finance Average analyst estimate for revenues of $162.6 million.

This comes after the company in March acquired a 63% majority stake in Nova — making SNDL the largest private sector cannabis and liquor retailer in Canada.

The company also reported a second-quarter net loss of $74 million versus a net loss of $52.3 million in the same period last year. The earnings were for a loss of $0.31 cents per share, according to SEDAR filings, versus an earnings loss of $0.23 cents a share during the same time last year.

“The SNDL team’s dedication and perseverance have enabled us to make significant progress on our journey to becoming Canada’s largest private sector distributor of both liquor and cannabis,” said CEO Zach George. “We believe our unique asset base and balance sheet strength represent competitive advantages that we are determined to leverage for the benefit of our stakeholders.”

The increased loss of $21.7 million sequentially was due to investment losses ($37.4 million), the share of loss of equity-accounted investees ($41.7 million), higher general and administrative expenses ($30.2 million), depreciation and amortization ($7.9 million) as well as finance costs ($26.5 million) — partially offset by an increase in gross margin ($45.8 million), lower asset impairment ($58.2 million), lower transaction costs ($8.7 million) and a positive change in fair value of derivative warrant liabilities ($3.8 million).

Adjusted EBITDA across segments was a loss of $25.9 million for the quarter, versus a loss of $200,000 in the same period last year, driven primarily by the Sunstream equity pickup of a $38M loss.

The company also added that the adjusted EBITDA loss was primarily due to its recent reverse stock split — which it needed to continue listing its shares on the Nasdaq — as well as an increase in general and administrative expenses due to the inclusion of Alcanna and Spiritleaf as well as a decrease in realized gain on marketable securities. The decrease was partially offset by an increase in gross margin including Alcanna and Spiritleaf, it said.

Cannabis Segments

For its cannabis retail sector, the company included Nova’s Value Buds sales totaling $63.5 million versus $7.5 million in the first quarter of 2022, a 746% increase. Value Buds sales were the material driver of the increase with $56.3 million of revenue.

Gross revenue from the cannabis cultivation and production segment for the second quarter of 2022 was $15.4 million versus $11.3 million in the previous quarter, a 36% sequential improvement and a 21% year-over-year improvement.

SNDL reported an $8 million net loss for the segment during the second quarter versus a $75.4 million loss in the second quarter last year.

Adjusted EBITDA in the cannabis cultivation and production segment was $3.4 million versus a loss of $11.0 million in the same period last year.

This represents SNDL’s first positive adjusted EBITDA quarter in the cannabis cultivation and production segment, the company said, adding “The significant improvement in Adjusted EBITDA can be attributed to higher sales volumes, improved margin on an adjusted basis, reductions to SMG&A, and greater discipline over inventory management driving a reduction in price discounts for provincial board sales during the first half of 2022.”

“We are seeing market share gains through our retail network and this quarter our cannabis operations generated positive adjusted EBITDA for the first time in the Company’s history,” George said. “We continue to strengthen and transform our business while benefitting from vertical integration across our business segments under a shared services model with integration work expected to impact results over the next two quarters.”

Newly-Acquired Liquor Vertical

Gross revenue from liquor retail sales for the three banners — “Wine and Beyond”, “Liquor Depot” and “Ace Liquor”  — combined was $148.6 million for the second quarter.

SNDL said the gross margin in the liquor retail segment was $33.5 million, or 22.6% of sales.

On the liquor side, the company said it stabilized its margin through a pricing and mix strategy in the second quarter — despite fluctuations in sales due to market conditions and retail competition.

While customer count is down by 5% year-to-date, largely due to a return to on-premises consumption in a post COVID-19 environment, the average basket size is up 2%. SNDL said it sees larger basket sizes at their Wine & Beyond locations, where consumers come for the experiential, destination shopping approach to liquor retail.

SNDL’s liquor banners’ market share in Alberta was 17.6% in the second quarter of 2022, with Wine & Beyond representing 2.9% with only 11 stores, “showcasing the continued and increasing popularity of the banner.” SNDL is exploring opportunities to expand the Wine & Beyond store footprint in Alberta, British Columbia, and Saskatchewan.

“Moving forward, the company will seek to optimize profitability and cash flow for the liquor retail segment by focusing on cost discipline, margin accretive products, monetizing intellectual property, and leveraging its retail footprint to develop an e-commerce platform,” it said.

Looking Ahead

Revenue from the investments segment for the second quarter was a loss of $35.1 million, versus $2.4 million in the second quarter last year. The company said the decrease was primarily due to “accounting fair value adjustments reflecting an increase in the assumed risk-free rate and the deterioration in overall cannabis credit market conditions.”

The company also said it possesses an unrestricted cash balance of $363 million and $334.9 million, respectively, and a total of 238 million post-consolidation shares outstanding as of August 11, 2022.

SNDL said it remains focused on “building long-term shareholder value through vertical integration, the accretive deployment of cash resources, the expansion of its retail distribution network, the further streamlining of the company’s operating structure as well as the enhanced offering of high-quality brands.”

“Despite our encouraging results, we know there is still room for improvement, and we remain humbled by the opportunity before us,” George said. “SNDL represents an opportunity for investors to gain exposure to North American regulated products in a manner that does not exist with any other public company today. We will continue to prioritize free cash flow generation with a focus on strengthening our distribution platform and using our credit portfolios to turn industry headwinds into long-term opportunities.”

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