Sundial(SNDL) - 2022 Q3 - Quarterly Report

Consolidated Financial Statements This section presents Alcanna Inc.'s comprehensive financial position, performance, and cash flows for the fiscal years 2021 and 2020, along with detailed explanatory notes Management's Responsibility and Auditor's Report Management affirms responsibility for IFRS financial statements, while PwC issued an unqualified opinion based on US GAAS - Management affirms its responsibility for the preparation and fair presentation of the financial statements under IFRS[3] - The independent auditor, PricewaterhouseCoopers LLP, issued an unqualified (clean) opinion, confirming fair presentation in accordance with IFRS[11] - The audit was conducted in accordance with US GAAS[12] Core Financial Statements This section presents Alcanna Inc.'s consolidated Statements of Financial Position, Changes in Equity, Profit and Loss, Comprehensive Income, and Cash Flows for 2021 and 2020 Consolidated Statements of Financial Position Total assets decreased to $454.6 million in 2021, while total liabilities significantly reduced to $260.7 million, leading to an increase in shareholders' equity to $193.9 million Consolidated Statements of Financial Position Highlights (in thousands of CAD) | Financial Position | Dec 31, 2021 ($) | Dec 31, 2020 ($) | | :--- | :--- | :--- | | Total Current Assets | 144,464 | 199,252 | | Total Assets | 454,593 | 487,316 | | Total Current Liabilities | 43,137 | 62,417 | | Long-term debt | — | 75,883 | | Total Liabilities | 260,673 | 357,601 | | Total Shareholders' Equity | 193,920 | 129,715 | Consolidated Statements of Changes in Equity Total equity increased by $64.2 million to $193.9 million in 2021, driven by net earnings, a business combination, and subsidiary share issuance, partially offset by share repurchases Changes in Total Equity (in thousands of CAD) | Description | 2021 ($) | 2020 ($) | | :--- | :--- | :--- | | Opening Balance | 129,715 | 74,717 | | Net earnings (loss) for the year | 31,867 | 68,141 | | Business combination | 22,950 | — | | Issuance of common shares by subsidiaries | 38,247 | — | | Repurchase of common shares | (30,993) | — | | Ending Balance | 193,920 | 129,715 | Consolidated Statements of Profit and Loss Net earnings decreased to $31.9 million in 2021, primarily due to a $28.1 million net loss from continuing operations, despite strong earnings from discontinued operations Consolidated Profit and Loss Highlights (in thousands of CAD) | Metric | 2021 ($) | 2020 ($) | | :--- | :--- | :--- | | Sales | 726,272 | 680,291 | | Gross Margin | 158,287 | 158,057 | | Operating (Loss) Profit | (3,296) | 22,648 | | Net (Loss) Earnings from Continuing Operations | (28,060) | 9,711 | | Net Earnings from Discontinued Operations | 59,927 | 58,430 | | Net Earnings for the Year | 31,867 | 68,141 | Earnings Per Share (EPS) Attributable to Equity Shareholders | EPS Metric | 2021 ($) | 2020 ($) | | :--- | :--- | :--- | | Basic EPS from Continuing Operations | (0.57) | 0.25 | | Diluted EPS from Continuing Operations | (0.57) | 0.24 | | Basic EPS (Total) | 1.02 | 1.72 | | Diluted EPS (Total) | 1.02 | 1.69 | Consolidated Statements of Comprehensive Income and Loss Comprehensive income for 2021 was $31.9 million, a decrease from $68.6 million in 2020, with discontinued operations being the primary driver in both periods Comprehensive Income (Loss) Highlights (in thousands of CAD) | Metric | 2021 ($) | 2020 ($) | | :--- | :--- | :--- | | Net Earnings for the Year | 31,867 | 68,141 | | Other Comprehensive Income | — | 464 | | Comprehensive Income for the Year | 31,867 | 68,605 | | Attributable to Continuing Operations | (28,060) | 9,711 | | Attributable to Discontinued Operations | 59,927 | 58,894 | Consolidated Statements of Cash Flows Net cash decreased by $18.2 million in 2021, a reversal from 2020, due to reduced operating cash flow and significant cash used in financing activities Consolidated Cash Flow Highlights (in thousands of CAD) | Cash Flow Activity | 2021 ($) | 2020 ($) | | :--- | :--- | :--- | | Operating Activities | 6,382 | 47,338 | | Investing Activities | 65,063 | 34,132 | | Financing Activities | (89,610) | (31,958) | | (Decrease) Increase in Cash | (18,165) | 49,108 | | Cash - Beginning of Year | 60,973 | 11,865 | | Cash - End of Year | 42,808 | 60,973 | Notes to the Consolidated Financial Statements This section provides detailed explanations of the core financial statements, covering business nature, accounting policies, key events, and segment performance Note 1: Nature of the business Alcanna Inc. primarily operates 170 liquor stores in Alberta and holds a 63% stake in Nova Cannabis, which operates 74 cannabis stores - The company's principal activities are Liquor Operations and Cannabis Operations through its subsidiary Nova[31] Retail Store Count as of Dec 31, 2021 | Operation | 2021 Stores | 2020 Stores | | :--- | :--- | :--- | | Liquor Stores | 170 | 205 | | Cannabis Stores (Nova) | 74 | 34 | - The company exited the convenience-format retail liquor store business in British Columbia during 2021, classifying these as discontinued operations[34] Note 4: Business combinations Alcanna completed a reverse acquisition of YSS Corp. (Nova Cannabis) in March 2021, recognizing $19.3 million in goodwill and acquiring an approximate 63% interest in Nova - The transaction with YSS Corp. (now Nova Cannabis Inc.) was accounted for as a reverse acquisition, with Alcanna as the accounting acquirer[96] Purchase Price Allocation for Nova Transaction (in thousands of CAD) | Description | Fair Value ($) | | :--- | :--- | | Purchase Consideration | 22,950 | | Fair value of net identifiable assets acquired | 3,680 | | Goodwill | 19,270 | - Following the transaction and a concurrent financing of $40 million, Alcanna's ownership stake in Nova was approximately 63%[105][106] Note 5: Discontinued operations and assets held for sale The company classified its Alaska and British Columbia operations as discontinued, generating net gains of $23.7 million (Alaska, 2020) and $57.3 million (BC, 2021) from their sales - The company sold its Alaska operations in 2020 and its remaining British Columbia convenience-format retail liquor stores in 2021[115][119] Gain on Sale of Discontinued Operations, Net of Tax (in thousands of CAD) | Operation | 2021 Gain ($) | 2020 Gain ($) | | :--- | :--- | :--- | | British Columbia Operations | 57,294 | 15,051 | | Alaska Operations | — | 23,673 | Net Earnings from Discontinued Operations (in thousands of CAD) | Metric | 2021 ($) | 2020 ($) | | :--- | :--- | :--- | | Sales | 20,743 | 163,512 | | Net Earnings | 59,927 | 58,430 | Note 12: Long-term debt Alcanna eliminated its $75.9 million long-term debt by fully redeeming its 4.70% convertible debentures in May 2021, and maintains an undrawn $70.0 million revolving credit facility - The company had no long-term debt as of December 31, 2021, having fully redeemed its 4.70% convertible debentures[151] - On May 4, 2021, the company completed the cash redemption of its outstanding 4.70% Debentures, paying $77.6 million in principal plus accrued interest[161] - The company has a $70.0 million revolving credit facility, with an available borrowing base of $59.0 million as of December 31, 2021[152] Note 16: Share capital Outstanding common shares decreased to 36.2 million in 2021, primarily due to the cancellation of 3.85 million shares under a Substantial Issuer Bid for $30.0 million and further repurchases under an NCIB Movement in Common Shares | Description | Number of Shares () | Value ($) | | :--- | :--- | :--- | | Balance – Dec 31, 2020 | 40,048,887 | 397,181 | | Repurchased – SIB | (3,846,150) | (38,144) | | Repurchased – NCIB | (95,558) | (948) | | Other issuances | 118,964 | 228 | | Balance – Dec 31, 2021 | 36,226,143 | 358,317 | - In May 2021, the company completed a Substantial Issuer Bid, purchasing 3,846,150 common shares for cancellation at $7.80 per share, totaling $30.0 million[178] - The company initiated a Normal Course Issuer Bid in July 2021, repurchasing 95,558 shares by year-end[180][181] Note 28: Operating segments Alcanna operates two segments: Liquor Operations, with $591.9 million in sales and $61.8 million operating profit in 2021, and Cannabis Operations, with $134.4 million in sales but an operating loss of $3.6 million - The company's two reportable segments are Liquor Operations and Cannabis Operations[257] Segment Performance (in thousands of CAD) | 2021 | Liquor Operations ($) | Cannabis Operations ($) | | :--- | :--- | :--- | | Sales to external customers | 591,908 | 134,364 | | Operating profit (loss) before depreciation, etc. | 61,765 | (3,637) | | Profit (loss) before income taxes | 28,417 | (20,614) | | 2020 | Liquor Operations ($) | Cannabis Operations ($) | | Sales to external customers | 616,977 | 63,314 | | Operating profit (loss) before depreciation, etc. | 62,643 | 5,746 | | Profit (loss) before income taxes | 30,627 | (2,073) | Note 29: Subsequent events Alcanna was acquired by Sundial Growers Inc. (SNDL) on March 31, 2022, with shareholders receiving 8.85 SNDL shares and $1.50 cash per share, and Nova established a $20 million ATM equity program - On March 31, 2022, Alcanna was acquired by Sundial Growers Inc. (SNDL) through a plan of arrangement[264] - The consideration for the acquisition was 8.85 SNDL common shares plus $1.50 in cash for each Alcanna common share[263] - In July 2022, the company's 63% owned subsidiary, Nova, established an at-the-market equity program to issue up to $20 million of common shares[265]