Varcoe: Firm rides cannabis rollercoaster as sector bears reckoning

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A cannabis producer and expanding retailer.

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Canada’s largest private liquor store owner.

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meme stock.

Calgary-based SNDL Inc. was known as Sundial Growers until it changed its name last month.

But such a simplistic explanation is not the same as the company as a whole, the wild journey it has taken with the Canadian cannabis sector since the sale of cannabis was legalized almost four years ago, and the industry as a whole now. We do not perceive change.

“They’ve had a really fascinating[time]from being one of Canada’s emerging licensed producers to getting caught up in the memestock phenomenon. And they’ve had an incredible time managing the moment. We have witnessed the success of the.” National Cannabis Working Group of the Canadian Chamber of Commerce.

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“The Sundial is the epitome of a roller coaster: a descent, a unique ascent, a transition to come.”

Earlier this week, SNDL announced the latest in a series of deals, acquiring Kelowna-based cannabis extraction and distribution company Valens Co. for a deal worth $138 million.

The combined company will have 550,000 square feet of growing and manufacturing space nationwide, in addition to SNDL’s existing chain of cannabis retailers and liquor store network.

SNDL CEO Zach George said the company is pursuing a vertical integration strategy, operating cannabis production facilities and expanding its retail footprint.

In May 2021, Sundial announced that it would acquire Inner Spirit Holdings and its Spiritleaf retail network for approximately $131 million.

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Last October, it announced that it had acquired Edmonton-based liquor and cannabis retailer Alcanna Inc. for $320 million. The deal included Nova Cannabis Inc., a majority-owned subsidiary of Alcanna, and its Value Buds store fleet.

Today, SNDL is the nation’s largest liquor retailer, with 170 stores in British Columbia and Alberta and a 17.6% market share in the provinces. We operate our stores under the banner of Wine and Beyond, Liquor Depot and Ace Liquor.

Pictured is Spirit Leaf storefront in Calgary on Thursday, August 25, 2022. Darren McCowick/Postmedia
Pictured is Spirit Leaf storefront in Calgary on Thursday, August 25, 2022. Darren McCowick/Postmedia Darren Makowichuk/Postmedia

It is also Canada’s largest private cannabis retailer with 185 locations from BC to Ontario. SNDL has a total of more than 2,500 employees, 270 of whom are based in Calgary headquarters and his Alcanna office in Edmonton.

“You really need scale to run a sustainably profitable business, so vertical integration required more retail exposure,” George said in an interview. increase.

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“Sixteen months ago, we had no retail exposure at all. We are now a major retailer of regulated products in Canada.”

The road to get here has not been easy.

As the CEO wrote in a letter to shareholders earlier this year, Sundial was “on the brink of failure, explored the abyss and recovered.”

Back in the fall of 2018, Sundial made headlines in Alberta when it opened a large flagship production facility in the town of Olds. As the Canadian cannabis industry expands, Sundial listed on the Nasdaq exchange in August 2019 at $13 per share.

Since then, Sundial and the broader cannabis sector have faced serious growing pains of overproduction, too many stores and enough sales.

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Shortly before the pandemic hit, Sundial announced the resignation of former CEO Torsten Kuenzlen and was replaced by George. The stock price hovered around $1.20.

Sundial laid off workers and later said hundreds of them had left the business.

“The company has undergone a serious and painful restructuring in 2020,” George said this week.

“We had peak debt of about half a billion dollars at double-digit costs. We were trying to do business in half a dozen countries. was not on target.”

I had to turn around.

In late 2020, something else was unfolding that would change the trajectory of Sundial. Individual investors have started to turn their attention to stocks through online forums.

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The Canadian company “started to get so much attention on social media that it effectively became a meme stock,” said George.

“It ended up being the highest trading name on the Nasdaq for three days from the end of 2020 to the beginning of 2021…the highest trading volume day exceeded 3 billion shares in a single day.”

Its growing popularity among retail investors has turned it into a meme stock (similar to the hoopla surrounding the GameStop deal), which Investopedia describes as “stocks in companies that have gained a cult-like following online and through social media platforms. ” is clearly defined. “

In the first quarter of 2021, Sundial traded 34 billion shares on the Nasdaq.

“Our sales volume and its liquidity, and the attention largely due to the rise of this new generation of retail investors, have allowed us to repair our balance sheet and raise approximately $1.2 billion.

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Liquor Depot taken in Calgary on Thursday, August 25, 2022.
Liquor Depot taken in Calgary on Thursday, August 25, 2022. Darren Makowichuk/Postmedia

“There are positives and negatives. You know, we asked ourselves: Why did this happen to us? We didn’t ask for this attention. But we certainly took advantage of it…

“Private investors have played an important role in the survival of SNDL.”

By December 2020, the company announced it had completed financial restructuring and became debt-free. It cites a series of moves such as selling assets, raising capital, completing debt-equity swaps, and repaying cash.

It has also been a difficult road for investors and operators in the Canadian sector since the legalization of cannabis sales began in October 2018.

Canadian cannabis sales were expected to grow 22% to $1.1 billion in the second quarter from the same period last year, according to an ATB Capital Markets report by analyst Frederico Gomez. points out that it is slowing down.

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Annual sales of recreational cannabis in Canada will reach $4.6 billion this year, expanding to more than $11 billion over the decade, he predicted, down from previous projections.

“Your market is very unsustainable from an economic standpoint. No one is really making money,” Gomez said in an interview.

“There will be a significant amount of industry consolidation,” he added.Nalist Shaan Mir of Canaccord Genuity.

Brad Polos, a cannabis business expert and lecturer at Toronto Metropolitan University’s Ted Rogers School of Management, said two key segments in the field, licensed growers and retailers, will be big in the future. He says he has issues.

Overcapacity was built up in the industry, he said, highlighted by producers destroying a record amount of unsold product last year. At the same time, states with private retailers are seeing overbuilt sectors.

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Alberta alone has 761 cannabis retailers operating statewide.

“Before legalization, there was a lot of capital in the industry that was often wasted,” says Poulos.

“So much money has been raised that companies are taking a long time to disappear. will have an industry of

Sundial changed its name in July and said the change reflected a new operating model. Shares of SNDL closed at $2.96 on Thursday.

From April to June, SNDL’s revenue jumped to $224 million, up from $9 million a year earlier, but lost $74 million in the quarter.

After a series of ups and downs for the cannabis sector in Canada and for the company, tough lessons have been learned and more changes await, Mison said.

“Sundial is a great example of the evolving landscape experienced by cannabis in Canada,” he concluded.

“What I thought I knew at the beginning, two years later, I didn’t know.”

Chris Varcoe is a columnist for the Calgary Herald.

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Varcoe: Firm rides cannabis rollercoaster as sector bears reckoning

Source link Varcoe: Firm rides cannabis rollercoaster as sector bears reckoning

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