Sundial Growers (NASDAQ: SNDL) this evening reported its third quarter 2020 financial results, posting revenues of $12.9 million, a 36.3% decline from the $20.2 million in revenues reported in the second quarter. The company posted a net loss of $71.4 million during the quarter, the result of significant write downs.
The poor revenue performance demonstrated by the company over the course of the quarter was blamed on a “transition to branded sales.” Branded sales accounted for 77% of total cannabis sales, up from 69% in the prior quarter. This transition appears to be going rather poorly however, with branded sales declining from $14.0 million to $9.9 million in the third quarter, a decline of 29%.
Furthermore, the company overall sold 5,819 kilograms of cannabis in the quarter, down only 3% from the 5,997 kilograms sold in the second quarter – demonstrating that Sundial appears to be selling more cannabis on a wholesale basis overall, just at significantly reduced price points. Notably, unbranded cannabis saw its pricing crater in Q3, with the price per gram falling from $2.22 to that of $0.84.
With cost of sales pegged at $10.3 million and inventory write offs of $19.9 million, Sundial reported an overall gross margin before fair value adjustments of negative $17.3 million. Notably, write downs on inventory in the quarter were significantly higher than even gross revenues.
The company meanwhile saw operating expenses total out at approximately $69.7 million. Expenses largely consisted of a $60.0 million asset impairment, along with general and administrative expenses of $7.2 million, share based compensation of $3.1 million and sales and marketing of $1.1 million.
The asset impairment taken by the company is attributable to its Alberta operations. Following an impairment test, it was determined by the company that the recoverable amount for the asset was far lower than the value being carried on the company’s books, therefore the $60.0 million impairment charge was warranted.
The company also received a government subsidy in the amount of $4.1 million.
Sundial however managed to book a $18.2 million line item under its other income, which comes from finance income. The figure is largely a result of the company seeing its share price sink, resulting in a gain on certain derivative liabilities. Overall, a loss of $71.4 million was recorded over the three month period.
Looking to the balance sheet, Sundial’s cash position was relatively unchanged, with it falling from $21.6 million to that of $21.0 million. This was largely a function of the company raising $24.5 million in net proceeds from the issuances of shares however, with financing activities overall bringing in $21.4 million during the quarter – signaling that Sundial is in trouble if it doesn’t manage to raise further funds. Net cash used in operating activities over the three month period totaled $20.1 million.
Accounts receivable during the quarter climbed from $9.4 million to $14.4 million, while prepaids also climbed from $5.2 million to $7.3 million. Inventory meanwhile fell from $55.6 million to $31.7 million, a function of the significant write offs addressed earlier. Total current assets overall declined from $100.3 million to $87.2 million.
Moving to the other side of the balance sheet, accounts payable declined from $36.7 million to $26.4 million, a figure that remains above the current cash balance despite a significant decline quarter over quarter. Current portion of long term debt meanwhile jumped from $8.4 million to $71.1 million. Despite a reworked credit agreement, the company is anticipating that it will not meet covenants of the debt that are to be met by December 31, 2020. Derivative warrant liabilities meanwhile fell from $10.8 million to $4.4 million. Current liabilities overall climbed from $56.1 million to $102.3 million.
Sundial Growers last traded at $0.39 on the Nasdaq.
Information for this briefing was found via Sedar and Sundial Growers. The author has no securities or affiliations related to this organization. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.
