Sundial(SNDL) - 2021 Q2 - Earnings Call Transcript

Financial Data and Key Metrics Changes - In Q2 2021, adjusted EBITDA from continuing operations was a loss of CAD0.2 million compared to earnings of CAD3.3 million in the prior quarter, primarily due to lower realized gains on marketable securities and increased selling, marketing, and administrative expenses [19] - Net revenue from branded cannabis products increased slightly to CAD7.3 million from CAD7.2 million in the previous quarter despite challenging market conditions [21] - The net loss in Q2 2021 was CAD52.3 million compared to a net loss of CAD134.4 million in the previous quarter, impacted by a CAD60 million long-lived asset impairment charge [25] Business Line Data and Key Metrics Changes - The cannabis operations segment saw adjusted EBITDA decrease due to lower sales volume and prices, while investment operations generated CAD7.1 million in interest and fee income, up from CAD2.8 million in the previous quarter [19][13] - Revenue from licensed producer sales was CAD1.9 million in Q2 compared to CAD2.7 million in Q1, with average gross selling price per gram equivalent of branded products at CAD3.19 [22] Market Data and Key Metrics Changes - The retail market in Canada is highly competitive, with significant pressure from the value segment, leading to expectations of attrition among operators [60] - The company noted a consumer shift towards value products, impacting all formats and brands in the second quarter [21] Company Strategy and Development Direction - The company is focusing on a two-pillar strategy: core cannabis operations and investment operations, aiming for vertical integration through the acquisition of SpiritLeaf [8][12] - The company is committed to excellence in cultivation and is restructuring its operations to improve efficiency and profitability, with a focus on premium inhalable products [16][33] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the cannabis market's evolution, anticipating a healthier and more profitable environment in the coming years due to regulatory reform and industry consolidation [16][40] - The company is focused on continuous improvement and is excited about the potential of new cultivars and product offerings expected to launch in Q3 and Q4 2021 [50][40] Other Important Information - The company closed Q2 2021 with CAD885 million of unrestricted cash and a total capital base exceeding CAD1.2 billion [26] - The company has made strategic investments totaling CAD354.5 million in cannabis-related debt and equity investments, with a focus on maximizing cash flows and shareholder value [29][31] Q&A Session Summary Question: Can you elaborate on the increased commitment to SunStream? - Management indicated that the market is evolving quickly, with a target pipeline well north of CAD1 billion, prompting the increased commitment [45] Question: What are the wholesale commitments for new cultivars? - Management confirmed that they have received positive feedback and customer commitments for the new genetics, which are not yet accounted for in revenue projections [53] Question: How does the company plan to compete in the retail market? - Management acknowledged the competitive landscape and expects significant consolidation, emphasizing the importance of a premium in-store experience and the strength of the SpiritLeaf brand [60] Question: What is the strategy for the vape segment? - Management noted that while competition has increased, they are focusing on product innovation and larger formats to recapture momentum in the vape market [68] Question: How does the company decide on minority equity investments? - Management clarified that the focus for SunStream is primarily on credit opportunities, with minority equity investments being a small part of their strategy [78]