Sundial(SNDL) - 2022 Q4 - Annual Report

Financial Performance and Investments - Capital expenditures in 2020 totaled $4.4 million, primarily for the construction and development of the second phase of the Clay Lake facility[254]. - The Company has a total capital expenditure of $186.5 million as of December 31, 2022, with production capacities of 71 million grams for indoor cultivation in Alberta and 46 million grams in New Brunswick[385]. - The Company reported a share of loss of equity-accounted investees amounting to $43.0 million for the year ended December 31, 2022[319]. - The Company’s investment policy aims to protect or enhance funds flow and shareholder value while managing risks[328]. - The Company’s investment activities are focused on attaining a rate of return while preserving capital[329]. Market Presence and Operations - The company operates 105 corporate-owned and franchised Spiritleaf retail cannabis stores across five provinces in Canada[276]. - The company has established supply agreements with ten Canadian provinces, covering 98% of the national adult-use cannabis industry[296]. - The company operates 63% ownership in Nova Cannabis Inc., which includes multiple subsidiaries in Alberta, indicating a significant market presence[384]. - The company’s retail operations include corporate-owned and franchised Spiritleaf stores, typically aiming for a lease term of five years with renewal options[386]. - The company utilizes data from over 70 operating locations to identify ideal retail locations, leveraging its real estate development team and custom mapping software[387]. Competition and Market Dynamics - The cannabis retail market is highly competitive, with significant competition from vertically integrated companies and the illegal market[284]. - The company anticipates increased competition as the retail cannabis industry matures and consolidates[292]. - The Company is facing increased competition from both legal and illicit cannabis markets, impacting market share[306][307]. Regulatory Environment - The Cannabis Act, effective October 17, 2018, regulates the production, distribution, and sale of cannabis for adult use in Canada[359]. - The Cannabis Regulations establish six classes of licenses, including cultivation and processing, with differing rules based on public health and safety risks[365]. - The Cannabis Regulations impose specific THC limits and packaging requirements for edible cannabis, extracts, and topicals, affecting product development strategies[376][377]. - The company is in compliance with the Cannabis Act and related regulations, except for pending security clearance for certain executive officers[382]. - Each province and territory in Canada has established a minimum age for adult-use cannabis consumption, impacting market access strategies[380]. Supply Chain and Product Development - The Company has a significant reliance on supply contracts with Canadian provinces, which are critical for current revenues[311]. - The company began exporting dried cannabis flower products to Israel in 2022 and medical cannabis products to Australia in 2023[261]. - The company is expanding its brand portfolio with new products under existing brands like Top Leaf and Sundial Cannabis[298]. - The company’s processing licenses require amendments for producing new cannabis products, which may affect product launch timelines[374]. Liquor Retail Operations - The liquor retail operations include convenience-focused liquor stores and large-format stores, with product selection ranging from 1,000 to over 10,000 items[265]. - The company focuses on urban centers for its liquor retail operations, believing they provide better revenue opportunities[268]. - In British Columbia, the number of private industry stores has remained stable at approximately 871 since the moratorium on new retail liquor store licenses was extended indefinitely in 2007[348]. - Privately-owned retail liquor stores in British Columbia can set their own prices, subject to minimum prices established by the BCLDB[349]. - The BCLDB offers month-long LTOs and three-month temporary price reductions, with the company aiming to purchase larger volumes at discounted prices[356]. Cultivation and Production - The Company has approximately 448,000 square feet of cultivation space in Olds and 380,000 square feet in Atholville[299]. - The Company utilizes a modular grow room approach, allowing for multiple harvests per day and higher yields[300]. - The wholesale price for products shipped from CLS' warehouse requires a minimum order of 25 cases, with additional charges based on delivery schedule and number of cases ordered[342]. - A "postage stamp" delivery system applies, meaning delivery charges per case are uniform across Alberta regardless of location[343].