EXHIBIT 99.1
Sundial Growers Inc.
Condensed Consolidated Interim Financial Statements
For the three and six months ended June 30, 2021
(Unaudited – expressed in thousands of Canadian dollars)
Sundial Growers Inc.
Condensed Consolidated Interim Statement of Financial Position
(Unaudited - expressed in thousands of Canadian dollars)
As at | Note | June 30, 2021 |
| December 31, 2020 (1) |
| ||
|
|
|
|
|
|
|
|
Assets |
|
|
|
|
|
|
|
Current Assets |
|
|
|
|
|
|
|
Cash and cash equivalents |
|
| 885,418 |
|
| 60,376 |
|
Restricted cash | 6 |
| 52,449 |
|
| 5,333 |
|
Marketable securities | 7 |
| 97,419 |
|
| — |
|
Accounts receivable | 8 |
| 8,853 |
|
| 15,898 |
|
Biological assets | 9 |
| 2,341 |
|
| 3,531 |
|
Inventory | 10 |
| 35,194 |
|
| 25,613 |
|
Prepaid expenses and deposits |
|
| 3,202 |
|
| 4,622 |
|
Investments | 13 |
| 3,049 |
|
| — |
|
Assets held for sale |
|
| 2,998 |
|
| 2,998 |
|
|
|
| 1,090,923 |
|
| 118,371 |
|
Non-current assets |
|
|
|
|
|
|
|
Long-term deposits |
|
| 7,981 |
|
| 2,633 |
|
Property, plant and equipment | 11 |
| 53,409 |
|
| 116,928 |
|
Intangible assets | 12 |
| 4,886 |
|
| 5,063 |
|
Investments | 13 |
| 62,480 |
|
| 51,876 |
|
Equity-accounted investees | 14 |
| 191,599 |
|
| — |
|
Total assets |
|
| 1,411,278 |
|
| 294,871 |
|
|
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
|
|
Current liabilities |
|
|
|
|
|
|
|
Accounts payable and accrued liabilities |
|
| 24,559 |
|
| 23,308 |
|
Current portion of lease obligations |
|
| 415 |
|
| 409 |
|
Derivative warrants | 15 |
| 54,000 |
|
| 428 |
|
|
|
| 78,974 |
|
| 24,145 |
|
Non-current liabilities |
|
|
|
|
|
|
|
Lease obligations |
|
| 804 |
|
| 1,031 |
|
Total liabilities |
|
| 79,778 |
|
| 25,176 |
|
|
|
|
|
|
|
|
|
Shareholders’ equity |
|
|
|
|
|
|
|
Share capital | 16(b) |
| 2,003,013 |
|
| 762,046 |
|
Warrants | 16(c) |
| 6,138 |
|
| 6,138 |
|
Contributed surplus |
|
| 64,901 |
|
| 59,344 |
|
Contingent consideration |
|
| 2,279 |
|
| 2,279 |
|
Accumulated deficit (1) |
|
| (744,831 | ) |
| (558,128 | ) |
Total shareholders’ equity |
|
| 1,331,500 |
|
| 271,679 |
|
Non-controlling interest (1) |
|
| — |
|
| (1,984 | ) |
Total liabilities and shareholders’ equity |
|
| 1,411,278 |
|
| 294,871 |
|
(1) | Recast – refer to note 14(b). |
Commitments (note 26)
Subsequent events (note 27)
See accompanying notes to the condensed consolidated interim financial statements.
1
Sundial Growers Inc.
Condensed Consolidated Interim Statement of Loss and Comprehensive Loss
(Unaudited - expressed in thousands of Canadian dollars, except per share amounts)
|
|
|
| Three months ended June 30 |
|
| Six months ended June 30 |
| ||||||||||
|
| Note |
| 2021 |
|
| 2020 |
|
| 2021 |
|
| 2020 |
| ||||
Gross revenue |
| 18 |
|
| 12,739 |
|
|
| 24,341 |
|
|
| 24,487 |
|
|
| 40,931 |
|
Excise taxes |
|
|
|
| 3,588 |
|
|
| 4,147 |
|
|
| 5,445 |
|
|
| 6,731 |
|
Net revenue |
|
|
|
| 9,151 |
|
|
| 20,194 |
|
|
| 19,042 |
|
|
| 34,200 |
|
Cost of sales |
| 10 |
|
| 9,534 |
|
|
| 17,336 |
|
|
| 20,979 |
|
|
| 30,843 |
|
Inventory obsolescence |
| 10 |
|
| 1,651 |
|
|
| 10,026 |
|
|
| 3,405 |
|
|
| 17,741 |
|
Gross margin before fair value adjustments |
|
|
|
| (2,034 | ) |
|
| (7,168 | ) |
|
| (5,342 | ) |
|
| (14,384 | ) |
Change in fair value of biological assets |
| 9 |
|
| (331 | ) |
|
| (1,756 | ) |
|
| (425 | ) |
|
| 4,659 |
|
Change in fair value realized through inventory |
| 10 |
|
| (456 | ) |
|
| (6,213 | ) |
|
| (506 | ) |
|
| (15,905 | ) |
Gross margin |
|
|
|
| (2,821 | ) |
|
| (15,137 | ) |
|
| (6,273 | ) |
|
| (25,630 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest and fee revenue |
| 19 |
|
| 3,344 |
|
|
| — |
|
|
| 6,193 |
|
|
| — |
|
Investment revenue |
| 19 |
|
| 2,362 |
|
|
| — |
|
|
| 15,262 |
|
|
| — |
|
Share of profit of equity-accounted investees |
| 14 |
|
| 3,724 |
|
|
| — |
|
|
| 3,724 |
|
|
| — |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General and administrative |
|
|
|
| 10,086 |
|
|
| 7,735 |
|
|
| 17,179 |
|
|
| 18,343 |
|
Sales and marketing |
|
|
|
| 1,315 |
|
|
| 518 |
|
|
| 2,265 |
|
|
| 2,310 |
|
Research and development |
|
|
|
| 758 |
|
|
| 36 |
|
|
| 993 |
|
|
| 343 |
|
Depreciation and amortization |
| 11,12 |
|
| 931 |
|
|
| 1,277 |
|
|
| 1,989 |
|
|
| 1,934 |
|
Share-based compensation |
| 17 |
|
| 4,539 |
|
|
| 3,152 |
|
|
| 7,995 |
|
|
| 3,947 |
|
Restructuring costs |
|
|
|
| — |
|
|
| 2,363 |
|
|
| — |
|
|
| 5,082 |
|
Asset impairment |
| 11 |
|
| 60,000 |
|
|
| — |
|
|
| 60,000 |
|
|
| 5,659 |
|
Government subsidies |
| 20 |
|
| — |
|
|
| — |
|
|
| (2,180 | ) |
|
| — |
|
Income (loss) from operations |
|
|
|
| (71,020 | ) |
|
| (30,218 | ) |
|
| (69,335 | ) |
|
| (63,248 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transaction costs |
|
|
|
| (805 | ) |
|
| (1,297 | ) |
|
| (4,453 | ) |
|
| (2,398 | ) |
Finance costs |
| 21 |
|
| (40 | ) |
|
| (1,002 | ) |
|
| (91 | ) |
|
| (6,984 | ) |
Change in estimate of fair value of derivative warrants |
| 15 |
|
| 19,810 |
|
|
| 411 |
|
|
| (110,134 | ) |
|
| 411 |
|
Foreign exchange gain (loss) |
|
|
|
| (208 | ) |
|
| (599 | ) |
|
| (648 | ) |
|
| 955 |
|
Gain (loss) on disposition of PP&E |
|
|
|
| (22 | ) |
|
| (122 | ) |
|
| (139 | ) |
|
| 488 |
|
Other expenses |
| 14(b) |
|
| (2 | ) |
|
| — |
|
|
| (1,932 | ) |
|
| — |
|
Loss before income tax |
|
|
|
| (52,287 | ) |
|
| (32,827 | ) |
|
| (186,732 | ) |
|
| (70,776 | ) |
Net loss from continuing operations |
|
|
|
| (52,287 | ) |
|
| (32,827 | ) |
|
| (186,732 | ) |
|
| (70,776 | ) |
Net loss from discontinued operations |
| 4 |
|
| — |
|
|
| (27,593 | ) |
|
| — |
|
|
| (33,627 | ) |
Net loss |
|
|
|
| (52,287 | ) |
|
| (60,420 | ) |
|
| (186,732 | ) |
|
| (104,403 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain on translation of foreign operations |
|
|
|
| — |
|
|
| (1,093 | ) |
|
| — |
|
|
| 600 |
|
Comprehensive loss |
|
|
|
| (52,287 | ) |
|
| (61,513 | ) |
|
| (186,732 | ) |
|
| (103,803 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss from continuing operations attributable to: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sundial Growers Inc. |
|
|
|
| (52,287 | ) |
|
| (32,750 | ) |
|
| (186,703 | ) |
|
| (70,611 | ) |
Non-controlling interest |
|
|
|
| — |
|
|
| (77 | ) |
|
| (29 | ) |
|
| (165 | ) |
|
|
|
|
| (52,287 | ) |
|
| (32,827 | ) |
|
| (186,732 | ) |
|
| (70,776 | ) |
Net loss attributable to: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sundial Growers Inc. |
|
|
|
| (52,287 | ) |
|
| (60,343 | ) |
|
| (186,703 | ) |
|
| (104,238 | ) |
Non-controlling interest |
|
|
|
| — |
|
|
| (77 | ) |
|
| (29 | ) |
|
| (165 | ) |
|
|
|
|
| (52,287 | ) |
|
| (60,420 | ) |
|
| (186,732 | ) |
|
| (104,403 | ) |
Comprehensive loss attributable to: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sundial Growers Inc. |
|
|
|
| (52,287 | ) |
|
| (61,436 | ) |
|
| (186,703 | ) |
|
| (103,638 | ) |
Non-controlling interest |
|
|
|
| — |
|
|
| (77 | ) |
|
| (29 | ) |
|
| (165 | ) |
|
|
|
|
| (52,287 | ) |
|
| (61,513 | ) |
|
| (186,732 | ) |
|
| (103,803 | ) |
Net loss per common share attributable to Sundial Growers Inc. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted |
| 22 |
| $ | (0.03 | ) |
| $ | (0.57 | ) |
| $ | (0.11 | ) |
| $ | (0.97 | ) |
See accompanying notes to the condensed consolidated interim financial statements.
2
Sundial Growers Inc.
Condensed Consolidated Interim Statement of Changes in Shareholders’ Equity
(Unaudited - expressed in thousands of Canadian dollars)
| Note | Share capital |
| Warrants |
| Contributed surplus |
| Contingent consideration |
| Accumulated deficit (1) |
| Accumulated other comprehensive income |
| Non- controlling interest (1) |
| Total equity |
| ||||||||
Balance at December 31, 2020 (1) |
|
| 762,046 |
|
| 6,138 |
|
| 59,344 |
|
| 2,279 |
|
| (558,128 | ) |
| — |
|
| (1,984 | ) |
| 269,695 |
|
Net loss |
|
| — |
|
| — |
|
| — |
|
| — |
|
| (186,703 | ) |
| — |
|
| (29 | ) |
| (186,732 | ) |
Loss of control of subsidiary | 14(b) |
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 2,013 |
|
| 2,013 |
|
Share issuances | 16(b) |
| 977,425 |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 977,425 |
|
Share issuance costs | 16(b) |
| (16,233 | ) |
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| (16,233 | ) |
Derivative warrants exercised | 15 |
| 277,136 |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 277,136 |
|
Share-based compensation | 17 |
| 6 |
|
| — |
|
| 7,989 |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 7,995 |
|
Employee awards exercised |
|
| 2,633 |
|
| — |
|
| (2,432 | ) |
| — |
|
| — |
|
| — |
|
| — |
|
| 201 |
|
Balance at June 30, 2021 |
|
| 2,003,013 |
|
| 6,138 |
|
| 64,901 |
|
| 2,279 |
|
| (744,831 | ) |
| — |
|
| — |
|
| 1,331,500 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at March 31, 2021 |
|
| 1,675,595 |
|
| 6,138 |
|
| 60,370 |
|
| 2,279 |
|
| (692,544 | ) |
| — |
|
| — |
|
| 1,051,838 |
|
Net loss |
|
| — |
|
| — |
|
| — |
|
| — |
|
| (52,287 | ) |
| — |
|
| — |
|
| (52,287 | ) |
Share issuances | 16(b) |
| 330,110 |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 330,110 |
|
Share issuance costs | 16(b) |
| (2,750 | ) |
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| (2,750 | ) |
Share-based compensation | 17 |
| 5 |
|
| — |
|
| 4,534 |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 4,539 |
|
Employee awards exercised |
|
| 53 |
|
| — |
|
| (3 | ) |
| — |
|
| — |
|
| — |
|
| — |
|
| 50 |
|
Balance at June 30, 2021 |
|
| 2,003,013 |
|
| 6,138 |
|
| 64,901 |
|
| 2,279 |
|
| (744,831 | ) |
| — |
|
| — |
|
| 1,331,500 |
|
(1) | Recast – refer to note 14(b). |
3
Sundial Growers Inc.
Condensed Consolidated Interim Statement of Changes in Shareholders’ Equity
(Unaudited - expressed in thousands of Canadian dollars)
| Note | Share capital |
| Warrants |
| Contributed surplus |
| Contingent consideration |
| Accumulated deficit |
| Accumulated other comprehensive income |
| Non- controlling interest |
| Total equity |
| ||||||||
Balance at December 31, 2019 |
|
| 509,654 |
|
| 27,831 |
|
| 30,192 |
|
| 2,279 |
|
| (360,338 | ) |
| 6,866 |
|
| 4,714 |
|
| 221,198 |
|
Net loss |
|
| — |
|
| — |
|
| — |
|
| — |
|
| (104,238 | ) |
| — |
|
| (165 | ) |
| (104,403 | ) |
Other comprehensive income |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 600 |
|
| — |
|
| 600 |
|
Share issuances |
|
| 610 |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 610 |
|
Dispositions | 4 |
| (38,447 | ) |
| — |
|
| — |
|
| — |
|
| 35,456 |
|
| (7,466 | ) |
| — |
|
| (10,457 | ) |
Share-based compensation | 17 |
| 51 |
|
| — |
|
| 3,070 |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 3,121 |
|
Balance at June 30, 2020 |
|
| 471,868 |
|
| 27,831 |
|
| 33,262 |
|
| 2,279 |
|
| (429,120 | ) |
| — |
|
| 4,549 |
|
| 110,669 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at March 31, 2020 |
|
| 510,314 |
|
| 27,831 |
|
| 31,378 |
|
| 2,279 |
|
| (404,233 | ) |
| 8,559 |
|
| 4,626 |
|
| 180,754 |
|
Net loss |
|
| — |
|
| — |
|
| — |
|
| — |
|
| (60,343 | ) |
| — |
|
| (77 | ) |
| (60,420 | ) |
Other comprehensive loss |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| (1,093 | ) |
| — |
|
| (1,093 | ) |
Dispositions | 4 |
| (38,447 | ) |
| — |
|
| — |
|
| — |
|
| 35,456 |
|
| (7,466 | ) |
| — |
|
| (10,457 | ) |
Share-based compensation | 17 |
| 1 |
|
| — |
|
| 1,884 |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 1,885 |
|
Balance at June 30, 2020 |
|
| 471,868 |
|
| 27,831 |
|
| 33,262 |
|
| 2,279 |
|
| (429,120 | ) |
| — |
|
| 4,549 |
|
| 110,669 |
|
See accompanying notes to the condensed consolidated interim financial statements.
4
Sundial Growers Inc.
Condensed Consolidated Interim Statement of Cash Flows
(Unaudited - expressed in thousands of Canadian dollars)
|
|
|
| Three months ended June 30 |
|
| Six months ended June 30 |
| ||||||||||
|
| Note |
| 2021 |
|
| 2020 |
|
| 2021 |
|
| 2020 |
| ||||
Cash provided by (used in): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss from continuing operations for the period |
|
|
|
| (52,287 | ) |
|
| (32,827 | ) |
|
| (186,732 | ) |
|
| (70,776 | ) |
Items not involving cash: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in fair value of biological assets |
|
|
|
| 331 |
|
|
| 1,756 |
|
|
| 425 |
|
|
| (4,659 | ) |
Share-based compensation |
| 17 |
|
| 4,539 |
|
|
| 3,152 |
|
|
| 7,995 |
|
|
| 3,947 |
|
Depreciation and amortization |
| 11,12 |
|
| 2,364 |
|
|
| 2,946 |
|
|
| 4,771 |
|
|
| 5,869 |
|
(Gain) loss on disposition of PP&E |
|
|
|
| 22 |
|
|
| 122 |
|
|
| 139 |
|
|
| (488 | ) |
Inventory obsolescence |
| 10 |
|
| 1,651 |
|
|
| 10,026 |
|
|
| 3,405 |
|
|
| 17,741 |
|
Finance costs |
| 21 |
|
| 29 |
|
|
| (100 | ) |
|
| 52 |
|
|
| 1,816 |
|
Change in estimate of fair value of derivative warrants |
| 15 |
|
| (19,810 | ) |
|
| (411 | ) |
|
| 110,134 |
|
|
| (411 | ) |
Unrealized foreign exchange (gain) loss |
|
|
|
| 104 |
|
|
| 583 |
|
|
| 2,009 |
|
|
| (1,186 | ) |
Restructuring costs |
|
|
|
| — |
|
|
| 448 |
|
|
| — |
|
|
| 448 |
|
Asset impairment |
| 11 |
|
| 60,000 |
|
|
| — |
|
|
| 60,000 |
|
|
| 5,659 |
|
Share of profit of equity-accounted investees |
| 14(a) |
|
| (3,724 | ) |
|
| — |
|
|
| (3,724 | ) |
|
| — |
|
Other expenses |
| 14(b) |
|
| 2 |
|
|
| — |
|
|
| 1,864 |
|
|
| — |
|
Gain on disposition of marketable securities |
| 7,19 |
|
| (4,211 | ) |
|
| — |
|
|
| (12,230 | ) |
|
| — |
|
Unrealized (gain) loss on marketable securities |
| 7 |
|
| 1,849 |
|
|
| — |
|
|
| (3,032 | ) |
|
| — |
|
Additions to marketable securities |
| 7 |
|
| (69,593 | ) |
|
| — |
|
|
| (106,333 | ) |
|
| — |
|
Proceeds from disposal of marketable securities |
| 7 |
|
| 8,118 |
|
|
| — |
|
|
| 24,176 |
|
|
| — |
|
Change in non-cash working capital |
|
|
|
| 234 |
|
|
| 1,799 |
|
|
| (7,667 | ) |
|
| 12,024 |
|
Net cash used in operating activities from continuing operations |
|
|
|
| (70,382 | ) |
|
| (12,506 | ) |
|
| (104,748 | ) |
|
| (30,016 | ) |
Net cash provided by operating activities from discontinued operations |
| 4 |
|
| — |
|
|
| 756 |
|
|
| — |
|
|
| 4,820 |
|
Net cash used in operating activities |
|
|
|
| (70,382 | ) |
|
| (11,750 | ) |
|
| (104,748 | ) |
|
| (25,196 | ) |
Investing activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additions to property, plant and equipment |
| 11 |
|
| (1,745 | ) |
|
| (117 | ) |
|
| (1,864 | ) |
|
| (1,793 | ) |
Additions to investments |
| 13 |
|
| (3,000 | ) |
|
| — |
|
|
| (13,560 | ) |
|
| — |
|
Additions to equity-accounted investees |
| 14(b) |
|
| (187,875 | ) |
|
| — |
|
|
| (187,875 | ) |
|
| — |
|
Proceeds from disposal of PP&E |
| 11 |
|
| 55 |
|
|
| 3 |
|
|
| 115 |
|
|
| 2,103 |
|
Change in non-cash working capital |
|
|
|
| 277 |
|
|
| (2,629 | ) |
|
| 37 |
|
|
| (10,690 | ) |
Net cash used in investing activities from continuing operations |
|
|
|
| (192,288 | ) |
|
| (2,743 | ) |
|
| (203,147 | ) |
|
| (10,380 | ) |
Net cash used in investing activities from discontinued operations |
| 4 |
|
| — |
|
|
| (1,671 | ) |
|
| — |
|
|
| (6,617 | ) |
Net cash used in investing activities |
|
|
|
| (192,288 | ) |
|
| (4,414 | ) |
|
| (203,147 | ) |
|
| (16,997 | ) |
Financing activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from convertible notes, net of costs |
|
|
|
| — |
|
|
| 18,629 |
|
|
| — |
|
|
| 18,629 |
|
Change in restricted cash |
| 6 |
|
| (52,349 | ) |
|
| 2 |
|
|
| (47,116 | ) |
|
| 10,497 |
|
Repayment of Syndicated Credit Agreement |
|
|
|
| — |
|
|
| (662 | ) |
|
| — |
|
|
| (10,662 | ) |
Payments on lease obligations |
|
|
|
| (122 | ) |
|
| (100 | ) |
|
| (245 | ) |
|
| (219 | ) |
Proceeds from issuance of shares and registered offerings, net of costs |
| 16(b) |
|
| 327,360 |
|
|
| — |
|
|
| 1,062,448 |
|
|
| — |
|
Proceeds from exercise of derivative warrants |
| 15 |
|
| — |
|
|
| — |
|
|
| 119,318 |
|
|
| — |
|
Proceeds from exercise of employee warrants |
| 17 |
|
| 50 |
|
|
| — |
|
|
| 201 |
|
|
| — |
|
Change in non-cash working capital |
|
|
|
| (197 | ) |
|
| (436 | ) |
|
| 382 |
|
|
| (643 | ) |
Net cash provided by financing activities from continuing operations |
|
|
|
| 274,742 |
|
|
| 17,433 |
|
|
| 1,134,988 |
|
|
| 17,602 |
|
Net cash used in financing activities from discontinued operations |
| 4 |
|
| — |
|
|
| (761 | ) |
|
| — |
|
|
| (639 | ) |
Net cash provided by financing activities |
|
|
|
| 274,742 |
|
|
| 16,672 |
|
|
| 1,134,988 |
|
|
| 16,963 |
|
Effect of exchange rate changes on cash held in foreign currency |
|
|
|
| (99 | ) |
|
| (36 | ) |
|
| (2,051 | ) |
|
| 1,522 |
|
Change in cash and cash equivalents |
|
|
|
| 11,973 |
|
|
| 472 |
|
|
| 825,042 |
|
|
| (23,708 | ) |
Cash and cash equivalents, beginning of period |
|
|
|
| 873,445 |
|
|
| 21,157 |
|
|
| 60,376 |
|
|
| 45,337 |
|
Cash and cash equivalents, end of period |
|
|
|
| 885,418 |
|
|
| 21,629 |
|
|
| 885,418 |
|
|
| 21,629 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash interest paid |
|
|
|
| — |
|
|
| 2,655 |
|
|
| — |
|
|
| 3,850 |
|
See accompanying notes to the condensed consolidated interim financial statements.
5
Sundial Growers Inc.
Notes to the Condensed Consolidated Interim Financial Statements
For the three and six months ended June 30, 2021
(Unaudited, expressed in thousands of Canadian dollars, except where otherwise noted)
1. | Description of business |
Sundial Growers Inc. (“Sundial” or the “Company”) was incorporated under the Business Corporations Act (Alberta) on August 19, 2006.
The Company’s head office is located at 300, 919 11th Avenue SW, Calgary, Alberta, Canada.
The principal activities of the Company are the production, distribution and sale of cannabis in Canada pursuant to the Cannabis Act and the deployment of capital to investment opportunities. The Cannabis Act regulates the production, distribution, and possession of cannabis for both medical and adult recreational access in Canada.
Sundial and its subsidiaries currently operate solely in Canada. Through its joint venture SunStream Bancorp Inc. (note 14(a)), the Company also provides growth capital and a strategic support platform that pursues indirect investment opportunities in the global cannabis sector, where lawful, as well as other investment opportunities. The Company also makes portfolio investments in debt and equity securities where deemed strategic.
The Company’s common shares trade on the Nasdaq Capital Market (“Nasdaq”) under the ticker symbol “SNDL”.
COVID-19
The global impact of COVID-19 has contributed to a great deal of uncertainty as to the health of the global economy. The Company has implemented several new pandemic-related procedures and protocols at its facilities, including enhanced screening measures, enhanced cleaning and sanitation processes and frequency, encouraging social distancing measures and directing employees to work from home if possible. The Company believes that it can maintain safe operations with these pandemic-related procedures and protocols in place.
COVID-19 has not had a material impact on the Company’s business to date, however, any potential future impact that COVID-19 could have on the Company’s business or financial results cannot be reasonably estimated at this time. However, any shutdowns requested or mandated by government authorities in response to the outbreak of COVID-19 that may affect the Company, its suppliers, distribution channels or customers may have a material impact to the Company’s planned operations.
2. | Basis of presentation |
| a) | Statement of compliance |
The condensed consolidated interim financial statements have been prepared in accordance with International Accounting Standard 34 – Interim Financial Reporting as issued by the International Accounting Standards Board (“IASB”) and interpretations of the International Financial Reporting Interpretations Committee (“IFRIC”). The condensed consolidated interim financial statements were prepared using the same accounting policies and methods as those disclosed in the audited consolidated financial statements for the year ended December 31, 2020, except as described in note 3. The condensed consolidated interim financial statements should be read in conjunction with the audited consolidated financial statements for the Company for the year ended December 31, 2020 which have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the IASB.
These condensed consolidated interim financial statements were approved and authorized for issue by the Board of Directors (“Board”) on August 12, 2021.
| b) | Basis of measurement |
These condensed consolidated interim financial statements have been prepared on a historical cost basis, except for biological assets and certain financial instruments (note 23(a)) which are measured at fair value with changes in fair value recorded in earnings.
6
Sundial Growers Inc.
Notes to the Condensed Consolidated Interim Financial Statements
For the three and six months ended June 30, 2021
(Unaudited, expressed in thousands of Canadian dollars, except where otherwise noted)
| c) | Functional and presentation currency |
These condensed consolidated interim financial statements are presented in Canadian dollars, which is the functional and presentation currency of the Company and its Canadian based subsidiaries.
| d) | Basis of consolidation |
Subsidiaries are entities controlled by the Company. Control exists when the Company has the power, directly and indirectly, to govern the financial and operating policies of an entity and be exposed to the variable returns from its activities. The financial statements of subsidiaries are included in these condensed consolidated interim financial statements from the date that control commences until the date that control ceases.
Subsidiaries | Jurisdiction of incorporation | Percentage ownership |
| |
Sprout Technologies Inc. | Alberta, Canada |
| 100 | % |
KamCan Products Inc. | British Columbia, Canada |
| 100 | % |
2011296 Alberta Inc. | Alberta, Canada |
| 100 | % |
Sundial Deutschland GmbH | Germany |
| 100 | % |
Sundial Portugal, Unipessoal LDA | Portugal |
| 100 | % |
2657408 Ontario Inc. | Ontario, Canada |
| 100 | % |
NGBA-BC Holdings Ltd. | British Columbia, Canada |
| 100 | % |
Sundial Insurance (Bermuda) Ltd. | Bermuda |
| 100 | % |
3. | Significant accounting policies |
The accounting policies, critical accounting judgements and significant estimates used in the preparation of the Company’s audited consolidated financial statements for the year ended December 31, 2020 have been applied in the preparation of these condensed consolidated interim financial statements except as described below.
Loss of control
When the Company loses control over a subsidiary, it derecognizes the assets and liabilities of the subsidiary, and any related non-controlling interest and other components of equity. Any resulting gain or loss is recognized in profit or loss. Any interest retained in the former subsidiary is measured at fair value when control is lost.
Interests in equity-accounted investees
The Company’s interest in equity-accounted investees comprise interests in an associate and a joint venture.
Associates are those entities in which the Company has significant influence, but not control or joint control, over the financial and operating policies. A joint venture is an arrangement in which the Company has joint control, whereby the Company has rights to the net assets of the arrangement, rather than rights to assets and obligations for its liabilities.
Interests in associates and joint ventures are accounted for using the equity method. They are initially recognized at cost, which includes transaction costs. Subsequent to initial recognition, the consolidated financial statements include the Company’s share of the profit or loss and OCI of equity-accounted investees, until the date on which significant influence or joint control ceases.
Captive Insurance
The Company has secured insurance coverage for its directors and officers through two separate captive insurance structures.
The first structure is a captive cell program entered into with a registered insurer for the purpose of holding and managing the Company’s coverage funds through a separate cell account (“Cell Captive”). The Company applies IFRS
7
Sundial Growers Inc.
Notes to the Condensed Consolidated Interim Financial Statements
For the three and six months ended June 30, 2021
(Unaudited, expressed in thousands of Canadian dollars, except where otherwise noted)
10 Consolidated Financial Statements in its assessment of control as it relates to the Cell Captive. The Company’s accounting policy is to consolidate the Cell Captive. The Cell Captive funds are held as cash and may be invested according to the Company’s treasury policy. The funds are disclosed as restricted cash as the Cell Captive must be fully funded at all times. The Company will recognize any gains or losses from fair market value adjustments, interest and/or foreign exchange in the Statement of Loss and Comprehensive Loss.
The second structure is a wholly owned subsidiary, Sundial Insurance (Bermuda) Ltd. (“SIBL”), incorporated to provide separate and additional coverage. The Company applies IFRS 10 Consolidated Financial Statements in its assessment of control as it relates to SIBL. The Company’s accounting policy is to consolidate SIBL. The funds are disclosed as restricted cash as the funds were required for initial capitalization of the entity and there is a requirement to maintain minimum capital and surplus in accordance with industry regulations.
4. | Discontinued operations |
On May 15, 2020, the Company entered into an agreement to sell all of the outstanding shares of Project Seed Topco (“Bridge Farm”) which closed on June 5, 2020.
The comparative statement of loss and comprehensive loss and statement of cash flows has been re-presented to show the discontinued operation separately from continuing operations.
Results of discontinued operations
|
| Three months ended June 30 |
|
| Six months ended June 30 |
| ||||||||||
| 2021 |
|
| 2020 (1) |
|
| 2021 |
|
| 2020 (2) |
| |||||
Gross revenue |
|
| — |
|
|
| 13,108 |
|
|
| — |
|
|
| 22,139 |
|
Net revenue |
|
| — |
|
|
| 13,108 |
|
|
| — |
|
|
| 22,139 |
|
Cost of sales |
|
| — |
|
|
| 8,651 |
|
|
| — |
|
|
| 15,633 |
|
Gross margin before fair value adjustments |
|
| — |
|
|
| 4,457 |
|
|
| — |
|
|
| 6,506 |
|
Change in fair value of biological assets |
|
| — |
|
|
| 396 |
|
|
| — |
|
|
| 1,064 |
|
Change in fair value realized through inventory |
|
| — |
|
|
| (1,122 | ) |
|
| — |
|
|
| (1,122 | ) |
Gross margin |
|
| — |
|
|
| 3,731 |
|
|
| — |
|
|
| 6,448 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General and administrative |
|
| — |
|
|
| 4,800 |
|
|
| — |
|
|
| 8,585 |
|
Sales and marketing |
|
| — |
|
|
| 930 |
|
|
| — |
|
|
| 1,418 |
|
Depreciation and amortization |
|
| — |
|
|
| 1,162 |
|
|
| — |
|
|
| 2,752 |
|
Foreign exchange |
|
| — |
|
|
| (667 | ) |
|
| — |
|
|
| 1,057 |
|
Share-based compensation |
|
| — |
|
|
| (1,267 | ) |
|
| — |
|
|
| (826 | ) |
Loss from operations |
|
| — |
|
|
| (1,227 | ) |
|
| — |
|
|
| (6,538 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Finance costs |
|
| — |
|
|
| (9,891 | ) |
|
| — |
|
|
| (10,083 | ) |
Loss on contingent consideration |
|
| — |
|
|
| (1,491 | ) |
|
| — |
|
|
| (2,252 | ) |
Loss on disposition of Bridge Farm |
|
| — |
|
|
| (14,979 | ) |
|
| — |
|
|
| (14,979 | ) |
Loss before income tax |
|
| — |
|
|
| (27,588 | ) |
|
| — |
|
|
| (33,852 | ) |
Income tax recovery |
|
| — |
|
|
| (5 | ) |
|
| — |
|
|
| 225 |
|
Net loss (3) |
|
| — |
|
|
| (27,593 | ) |
|
| — |
|
|
| (33,627 | ) |
| (1) | Period April 1, 2020, to June 5, 2020 |
| (2) | Period January 1, 2020, to June 5, 2020 |
| (3) | Net loss from the discontinued operations is attributable entirely to the owners of the Company. |
8
Sundial Growers Inc.
Notes to the Condensed Consolidated Interim Financial Statements
For the three and six months ended June 30, 2021
(Unaudited, expressed in thousands of Canadian dollars, except where otherwise noted)
|
Effect of disposal on the financial position of the company
|
|
|
|
|
Cash and cash equivalents |
|
| 2,963 |
|
Accounts receivable |
|
| 15,641 |
|
Biological assets |
|
| 2,831 |
|
Inventory |
|
| 787 |
|
Property, plant and equipment |
|
| 88,698 |
|
Goodwill |
|
| 11,345 |
|
Intangible assets |
|
| 23,884 |
|
Accounts payable and accrued liabilities |
|
| (22,792 | ) |
Lease obligation |
|
| (14,894 | ) |
Deferred tax liability |
|
| (3,115 | ) |
Accumulated other comprehensive income |
|
| (7,466 | ) |
Net assets and liabilities |
|
| 97,882 |
|
|
|
|
|
|
Consideration received |
|
|
|
|
Term Debt Facility |
|
| 45,000 |
|
Contingent consideration liability |
|
| 34,912 |
|
Cancellation of common shares |
|
| 2,991 |
|
Total consideration |
|
| 82,903 |
|
|
|
|
|
|
Loss on disposition |
|
| (14,979 | ) |
5. | Segment information |
Late in the fourth quarter of 2020 the Company began the deployment of capital toward strategic investments. The Company developed an internal capital program to evaluate these and potential future investments, which the Company viewed as a new and separate business line from its cannabis operations.
Based on the allocation of the Company’s resources by the chief operating decision maker and the information used to analyze the performance of the business, the Company concluded that beginning in Q1 2021, it had two operating segments: cannabis and investments. For the three and six months ended June 30, 2020, there was only one reportable segment and therefore no comparative segment information.
The Company’s reportable segments are organized by business line and are comprised of two reportable operating segments: cannabis operations and investment operations. Cannabis operations include the cultivation, distribution and sale of cannabis for the adult-use market and medical markets in Canada. Investment operations include the deployment of capital to investment opportunities. Certain overhead expenses not directly attributable to either the cannabis operations segment or investment operations segment are reported in a third segment referred to as “Corporate”.
9
Sundial Growers Inc.
Notes to the Condensed Consolidated Interim Financial Statements
For the three and six months ended June 30, 2021
(Unaudited, expressed in thousands of Canadian dollars, except where otherwise noted)
|
| Cannabis |
|
| Investments |
|
| Corporate |
|
| Total |
| ||||
As at June 30, 2021 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
| 274,091 |
|
|
| 1,134,189 |
|
|
| 2,998 |
|
|
| 1,411,278 |
|
Six months ended June 30, 2021 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenue |
|
| 19,042 |
|
|
| 21,455 |
|
|
| — |
|
|
| 40,497 |
|
Gross margin |
|
| (6,273 | ) |
|
| 21,455 |
|
|
| — |
|
|
| 15,182 |
|
Share of profit of equity-accounted investees |
|
| — |
|
|
| 3,724 |
|
|
| — |
|
|
| 3,724 |
|
Depreciation and amortization |
|
| 1,782 |
|
|
| — |
|
|
| 207 |
|
|
| 1,989 |
|
Earnings (loss) before tax |
|
| (84,623 | ) |
|
| 23,351 |
|
|
| (125,460 | ) |
|
| (186,732 | ) |
Three months ended June 30, 2021 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenue |
|
| 9,151 |
|
|
| 5,706 |
|
|
| — |
|
|
| 14,857 |
|
Gross margin |
|
| (2,821 | ) |
|
| 5,706 |
|
|
| — |
|
|
| 2,885 |
|
Share of profit of equity-accounted investees |
|
| — |
|
|
| 3,724 |
|
|
| — |
|
|
| 3,724 |
|
Depreciation and amortization |
|
| 828 |
|
|
| — |
|
|
| 103 |
|
|
| 931 |
|
Earnings (loss) before tax |
|
| (75,451 | ) |
|
| 9,051 |
|
|
| 14,113 |
|
|
| (52,287 | ) |
6. | Restricted cash |
As at | June 30, 2021 |
| December 31, 2020 |
| ||
Letters of credit |
| — |
|
| 5,333 |
|
Securities collateral |
| 36,224 |
|
| — |
|
Captive insurance |
| 16,225 |
|
| — |
|
|
| 52,449 |
|
| 5,333 |
|
Securities collateral is comprised of a cash balance to satisfy margin requirements on the Company’s option trading position.
The Company has secured insurance coverage for its directors and officers through two separate captive insurance structures. The first structure is a captive cell program entered into with a registered insurer for the purpose of holding and managing the Company’s coverage funds through a separate cell account (“Cell Captive”). The cell account was funded with $12.1 million and is required to be fully funded at all times. The second structure is a wholly incorporated subsidiary, Sundial Insurance (Bermuda) Ltd., which was incorporated to provide separate and additional coverage and initially funded with $4.1 million.
7. | Marketable securities |
As at | June 30, 2021 |
| December 31, 2020 |
| ||
Balance, beginning of year |
| — |
|
| — |
|
Additions |
| 106,333 |
|
| — |
|
Dispositions |
| (11,946 | ) |
| — |
|
Change in fair value recognized in profit or loss |
| 3,032 |
|
| — |
|
Balance, end of period |
| 97,419 |
|
| — |
|
During the six months ended June 30, 2021, proceeds of $24.2 million were received for dispositions of marketable securities and a gain on disposition of $12.2 million was recognized (note 19).
Marketable securities have been designated as Fair Value Through Profit or Loss (“FVTPL”) (note 23).
10
Sundial Growers Inc.
Notes to the Condensed Consolidated Interim Financial Statements
For the three and six months ended June 30, 2021
(Unaudited, expressed in thousands of Canadian dollars, except where otherwise noted)
The components of marketable securities are as follows:
As at | June 30, 2021 |
| December 31, 2020 |
| ||
Equity securities |
| 98,703 |
|
| — |
|
Put and call options |
| (1,284 | ) |
| — |
|
|
| 97,419 |
|
| — |
|
8. | Accounts receivable |
As at | June 30, 2021 |
| December 31, 2020 |
| ||
Trade receivables |
| 8,351 |
|
| 15,786 |
|
Other receivables |
| 502 |
|
| 112 |
|
|
| 8,853 |
|
| 15,898 |
|
The Company has calculated expected credit losses (“ECLs”) based on lifetime expected credit losses, taking into consideration historical credit loss experience and financial factors specific to the debtors and general economic conditions. Refer to note 23 for credit risk disclosures.
9. | Biological assets |
The Company’s biological assets consist of cannabis plants in various stages of vegetation, including plants which have not been harvested. The change in carrying value of biological assets are as follows:
As at | June 30, 2021 |
| December 31, 2020 |
| ||
Balance, beginning of year |
| 3,531 |
|
| 14,309 |
|
Increase in biological assets due to capitalized costs |
| 13,373 |
|
| 39,957 |
|
Net change in fair value of biological assets |
| (425 | ) |
| 6,496 |
|
Transferred to inventory upon harvest |
| (14,138 | ) |
| (54,388 | ) |
Disposition of Bridge Farm (note 4) |
| — |
|
| (2,831 | ) |
Foreign currency translation |
| — |
|
| (12 | ) |
Balance, end of period |
| 2,341 |
|
| 3,531 |
|
Biological assets are valued in accordance with IAS 41 and are presented at their fair value less costs to sell up to the point of harvest. This is determined using a model which estimates the expected harvest yield in grams for plants currently being cultivated, and then adjusts that amount for the expected selling price less costs to produce and sell per gram.
The fair value measurements for biological assets have been categorized as Level 3 fair values based on the inputs to the valuation technique used. The Company’s method of accounting for biological assets attributes value accretion on a straight-line basis throughout the life of the biological asset from initial cloning to the point of harvest.
Management believes the most significant unobservable inputs and their impact on fair value of biological assets are as follows:
Assumption | Input | Weighted average input |
| Effect of 10% change ($000s) |
| ||||||||
|
| June 30 2021 |
| December 31 2020 |
| June 30 2021 |
| December 31 2020 |
| ||||
Yield per square foot of growing space (1) | Grams |
| 56 |
|
| 45 |
|
| 228 |
|
| 347 |
|
Average net selling price (2) | $/gram |
| 4.26 |
|
| 5.13 |
|
| 629 |
|
| 1,022 |
|
After harvest cost to complete and sell | $/gram |
| 0.87 |
|
| 1.32 |
|
| 97 |
|
| 291 |
|
| (1) | Varies by strain; obtained through historical growing results or grower estimate if historical results are not available. |
| (2) | Varies by strain and sales market; obtained through average selling prices or estimated future selling prices if historical results are not available. |
11
Sundial Growers Inc.
Notes to the Condensed Consolidated Interim Financial Statements
For the three and six months ended June 30, 2021
(Unaudited, expressed in thousands of Canadian dollars, except where otherwise noted)
|
These estimates are subject to volatility in market prices and several uncontrollable factors, which could significantly affect the fair value of biological assets in future periods.
The Company estimates the harvest yields for cannabis at various stages of growth. As at June 30, 2021, it is estimated that the Company’s biological assets will yield approximately 3,482 kilograms (December 31, 2020 – 5,507 kilograms) of dry cannabis when harvested. During the six months ended June 30, 2021, the Company harvested 11,628 kilograms of dry cannabis (six months ended June 30, 2020 – 16,266 kilograms).
The Company’s estimates are, by their nature, subject to change and differences from the anticipated yield will be reflected in the net change in fair value of biological assets in future periods.
10. | Inventory |
As at | June 30, 2021 |
| December 31, 2020 |
| ||
Cannabis |
| 28,982 |
|
| 20,358 |
|
Cannabis supplies and consumables |
| 6,212 |
|
| 5,255 |
|
|
| 35,194 |
|
| 25,613 |
|
During the three and six months ended June 30, 2021, inventories of $9.5 million and $21.0 million were recognized as an expense (three and six months ended June 30, 2020 - $17.3 million and $30.8 million). During the three and six months ended June 30, 2021, the Company recognized inventory write downs of $1.6 million and $3.3 million (three and six months ended June 30, 2020 - $13.4 million and $27.7 million), of which $1.7 million and $3.4 million (three and six months ended June 30, 2020 - $10.0 million and $17.7 million) was recognized as an excess and obsolete inventory provision, and $0.1 million and negative $0.1 million (three and six months ended June 30, 2020 - $3.4 million and $10.0 million) was included in the change in fair value realized through inventory as the fair value component of the excess and obsolete inventory provision.
11. | Property, plant and equipment |
| Land and buildings |
| Production facilities |
| Equipment |
| Right of use assets |
| Construction in progress (“CIP”) |
| Total |
| ||||||
Cost |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2020 |
| 8,640 |
|
| 152,937 |
|
| 28,894 |
|
| 1,894 |
|
| 8,819 |
|
| 201,184 |
|
Additions |
| — |
|
| (263 | ) |
| 1,403 |
|
| — |
|
| 211 |
|
| 1,351 |
|
Dispositions |
| — |
|
| (24 | ) |
| (67 | ) |
| (165 | ) |
| (177 | ) |
| (433 | ) |
Balance at June 30, 2021 |
| 8,640 |
|
| 152,650 |
|
| 30,230 |
|
| 1,729 |
|
| 8,853 |
|
| 202,102 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated amortization and impairment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2020 |
| — |
|
| 69,364 |
|
| 8,500 |
|
| 571 |
|
| 5,821 |
|
| 84,256 |
|
Depreciation |
| — |
|
| 1,853 |
|
| 2,534 |
|
| 207 |
|
| — |
|
| 4,594 |
|
Impairment |
| — |
|
| 60,000 |
|
| — |
|
| — |
|
| — |
|
| 60,000 |
|
Dispositions |
| — |
|
| — |
|
| (10 | ) |
| (147 | ) |
| — |
|
| (157 | ) |
Balance at June 30, 2021 |
| — |
|
| 131,217 |
|
| 11,024 |
|
| 631 |
|
| 5,821 |
|
| 148,693 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net book value |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2020 |
| 8,640 |
|
| 83,573 |
|
| 20,394 |
|
| 1,323 |
|
| 2,998 |
|
| 116,928 |
|
Balance at June 30, 2021 |
| 8,640 |
|
| 21,433 |
|
| 19,206 |
|
| 1,098 |
|
| 3,032 |
|
| 53,409 |
|
12
Sundial Growers Inc.
Notes to the Condensed Consolidated Interim Financial Statements
For the three and six months ended June 30, 2021
(Unaudited, expressed in thousands of Canadian dollars, except where otherwise noted)
During the six months ended June 30, 2021, depreciation expense of $2.8 million was capitalized to biological assets and inventory (six months ended June 30, 2020 – $3.9 million).
During the six months ended June 30, 2021, the credit to additions relates to the recovery of construction holdbacks.
Due to curtailment in the utilization of the capacity in the Company’s Olds facility to align cannabis production with current demand estimates, the Company has determined that indicators of impairment existed at June 30, 2021. The impairment test for the Company’s Olds CGU used a value in use approach based on internal cash flow estimates at June 30, 2021, and a discount rate of 25%. The discount rate was estimated based on the Company’s weighted average cost of capital, adjusted for risks specific to the CGU. The estimated cash flows were based on a 5-year model taking into account the overall forecasted Canadian cannabis industry market size and the Company’s forecasted market share. A terminal value thereafter was applied. Based on the analysis, the Company determined there was an impairment of the Company’s Olds CGU of $60.0 million for the three and six months ended June 30, 2021 (2020 – nil), as the estimated recoverable amount for this CGU was lower than the respective carrying amount. The estimated value in use for the Company’s Olds CGU was sensitive to an increase in the discount rate. An increase to the discount rate by 1% would increase impairment by approximately $7.3 million.
12. | Intangible assets |
| Brands and trademarks |
| Patents |
| Total |
| |||
Cost |
|
|
|
|
|
|
|
|
|
Balance at December 31, 2020 and June 30, 2021 |
| 5,445 |
|
| 13,551 |
|
| 18,996 |
|
|
|
|
|
|
|
|
|
|
|
Accumulated amortization and impairment |
|
|
|
|
|
|
|
|
|
Balance at December 31, 2020 |
| 382 |
|
| 13,551 |
|
| 13,933 |
|
Depreciation |
| 177 |
|
| — |
|
| 177 |
|
Balance at June 30, 2021 |
| 559 |
|
| 13,551 |
|
| 14,110 |
|
|
|
|
|
|
|
|
|
|
|
Net book value |
|
|
|
|
|
|
|
|
|
Balance at December 31, 2020 |
| 5,063 |
|
| — |
|
| 5,063 |
|
Balance at June 30, 2021 |
| 4,886 |
|
| — |
|
| 4,886 |
|
Brands and trademarks consist of intellectual property purchased from Sun 8 Holdings Inc. with a useful life of 15 years and other intellectual property with a useful life of 12 years.
13. | Investments |
As at | June 30, 2021 |
| December 31, 2020 |
| ||
Investments at amortized cost (A) |
| 13,653 |
|
| — |
|
Investments at FVTPL (B) |
| 51,876 |
|
| 51,876 |
|
|
| 65,529 |
|
| 51,876 |
|
|
|
|
|
|
|
|
Current portion |
| 3,049 |
|
| — |
|
Long-term |
| 62,480 |
|
| 51,876 |
|
| A) | INvestments at amortized cost |
On February 16, 2021, the Company announced a $22 million strategic investment (the “Indiva Investment”) in Indiva Limited (“Indiva”). Indiva is a leading Canadian producer of cannabis edibles. The Indiva Investment closed on February 23, 2021. The Indiva Investment was completed in the form of a brokered private placement of 25
13
Sundial Growers Inc.
Notes to the Condensed Consolidated Interim Financial Statements
For the three and six months ended June 30, 2021
(Unaudited, expressed in thousands of Canadian dollars, except where otherwise noted)
million common shares of Indiva at a price of $0.44 per common share, for gross proceeds of $11 million, and a non-revolving secured term loan to Indiva in the principal amount of $11 million (the “Term Loan”). The Term Loan bears interest at a rate of 9% per annum and has a maturity date of February 23, 2024.
The Term Loan has been designated as measured at amortized cost (note 23). The common shares are measured at Fair Value Through Profit or Loss (“FVTPL”) and are included in marketable securities (note 7).
On April 26, 2021, the Company closed a $3.0 million convertible debenture with a private company with a maturity date of October 26, 2021, and an interest rate of 9% per annum. The Company has the right, but not the obligation, to convert all or any portion of the outstanding principal into common shares at a price equal to a conversion formula until the maturity date. The convertible debenture has been designated as measured at amortized cost (note 23).
| B) | Investments at fvtpl |
The Company owns a special purpose vehicle (the “Zenabis Investment”) that owns $51.9 million of aggregate principal amount of senior secured debt of Zenabis Investments Ltd. (the “Zenabis Senior Loan”) of Zenabis Investments Ltd. (“Zenabis”). The Zenabis Senior Loan bears interest at a rate of 14% per annum and has a maturity date of March 31, 2025. Pursuant to the terms of the Zenabis Senior Loan, Zenabis will also pay the Company a royalty based on quarterly sales revenue from its medical, recreational and wholesale cannabis lines net of value added or sales taxes. The royalty is payable for 32 fiscal quarters and is payable for quarters in which Zenabis accomplishes certain sales revenue targets.
The Company is in negotiations with Zenabis for the repayment and termination of the Zenabis Senior Loan. Zenabis has filed a petition with the Supreme Court of British Columbia to determine the value of the royalty.
The Zenabis Investment has been designated as FVTPL (note 23). There has been no change in fair value as there has not been a significant change in market interest rates or Zenabis’ credit risk and as of August 12, 2021, all required payments have been made in respect of the Zenabis Senior Loan.
14. | Equity-accounted investees |
As at | June 30, 2021 |
| December 31, 2020 |
| ||
Interest in joint venture (A) |
| 191,599 |
|
| — |
|
Interest in associate (B) |
| — |
|
| — |
|
|
| 191,599 |
|
| — |
|
| A) | Interest in joint venture |
On March 15, 2021, the Company and SAF Group announced they had entered into an agreement to form a 50/50 joint venture through a new corporation, SunStream Bancorp Inc. (“SunStream”). SunStream is a private company focused on cannabis-related verticals, seeking both Canadian and international opportunities and investments.
SunStream is structured as a separate vehicle and the Company has a residual interest in the net assets of SunStream. Accordingly, the Company has classified its interest in SunStream as a joint venture.
The following table summarizes the carrying amount of the interest in joint venture:
|
| Carrying amount |
| |
Balance at December 31, 2020 |
|
| — |
|
Capital contributions |
|
| 187,575 |
|
Acquisition costs |
|
| 300 |
|
Share of net earnings (loss) |
|
| 3,724 |
|
Balance at June 30, 2021 |
|
| 191,599 |
|
14
Sundial Growers Inc.
Notes to the Condensed Consolidated Interim Financial Statements
For the three and six months ended June 30, 2021
(Unaudited, expressed in thousands of Canadian dollars, except where otherwise noted)
| B) | Interest in associate |
On March 23, 2021, the Company’s equity interest in its subsidiary, Pathway RX Inc. (“Pathway”), decreased from 50% to 25%, resulting in a loss of control. The Company decreased its equity interest in connection with amending the license agreement that provides for use of Pathway’s intellectual property. Pathway is a private company focused on developing cannabis-based pharmaceutical drugs to treat symptoms associated with a wide range of medical conditions.
As a result of the loss of control, the Company has de-recognized the assets and liabilities of Pathway, and the non-controlling interest arising upon the acquisition of Pathway. A loss on loss of control of $1.9 million was recognized during the three months ended March 31, 2021. The fair value of the Company’s remaining investment in Pathway was determined to be nil as the Company had fully impaired the intangible asset, which consisted of intellectual property, during the year ended December 31, 2020 as described above, and there are no other assets that would give rise to a measured fair value amount attributable to the remaining 25% interest.
Adjustment to comparative information
During Q4 2020, and as disclosed in the annual consolidated financial statements of the Company as at and for the year ended December 31, 2020, the Company recognized an impairment of $12.9 million on the intangible assets held within Pathway. During the preparation of the Q1 2021 interim consolidated financial statements the Company determined that the allocable amount of this impairment was not attributed to the non-controlling interest. The comparative December 31, 2020, consolidated statement of financial position has been recast to attribute 50% of the impairment of intangible assets recorded to the non-controlling interest as the related intangible assets related entirely to Pathway, the Company’s 50% owned subsidiary.
The recast of the consolidated statement of financial position as at December 2020 resulted in a reduction in non-controlling interest of $6.4 million from the previously reported amount of $4.4 million to the recast amount of negative $2.0 million, and a decrease in accumulated deficit of $6.4 million from the previously reported amount of $564.5 million to the recast amount of $558.1 million and a decrease in loss per share attributable to the Company of $0.03 from the previously reported amount of $1.10 to the recast amount of $1.07.
This recast has no effect on the consolidated 2020 annual net loss or comprehensive loss nor on any previously issued interim consolidated financial statements of the Company. The effect of this recast on the Company’s annual results for 2020 is a decrease to the presentation of the net loss attributable to the Company of $6.4 million from the previously reported amount of $206.0 million to the recast amount of $199.6 million, and an increase in the presentation of the net loss attributable to non-controlling interest of $6.4 million from the previously reported amount of $0.3 million to the recast amount of $6.7 million.
15. | Derivative warrants |
|
| June 30, 2021 |
| |
Balance, beginning of year |
|
| 428 |
|
Series A and Series B Warrants - fair value on issuance (a) |
|
| 62,680 |
|
Additional Series A and Series B Warrants - fair value on issuance (b) |
|
| 38,576 |
|
New Warrants - fair value on issuance (c) |
|
| 106,531 |
|
Change in fair value recognized in profit or loss |
|
| 3,603 |
|
Converted to common shares |
|
| (157,818 | ) |
Balance, end of period |
|
| 54,000 |
|
The carrying amount is an estimate of the fair value of the derivative warrants and is presented as a current liability. The Company has no cash obligation with respect to the derivative warrants, rather it will deliver common shares if and when warrants are exercised.
15
Sundial Growers Inc.
Notes to the Condensed Consolidated Interim Financial Statements
For the three and six months ended June 30, 2021
(Unaudited, expressed in thousands of Canadian dollars, except where otherwise noted)
| (a) | Series A and B Warrants |
On February 2, 2021, the Company issued 100.0 million series A units (the “Series A Units”), each consisting of one common share and one-half series A warrant (collectively, the “Series A Warrants”) to purchase one common share and 33.3 million series B units (the “Series B Units”), each consisting of one pre-funded series B warrant (the “Series B Warrants”) to purchase one common share and one-half Series A Warrant to purchase one common share (collectively, the “January 2021 Units Offering”). Each Series A Unit was sold at a price of US$0.75 per unit and each Series B Unit was sold at a price of US$0.75 per unit, less US$0.0001 per unit. Gross proceeds from this offering were US$100.0 million. The Series A Warrants and Series B Warrants were exercisable immediately and had a term of five years commencing on the date of issuance. The exercise price of the Series A Warrants was US$0.80 per common share and the exercise price of the Series B Warrants was US$0.0001 per common share.
On February 2, 2021, the entire 33.3 million Series B Warrants were exercised resulting in the issuance of 33.3 million common shares.
On February 10, 2021, 3.3 million Series A Warrants were exercised at a weighted average exercise price of US$0.80 per warrant resulting in the issuance of 3.3 million common shares and gross proceeds to the Company of US$2.7 million.
On February 22, 2021, the remaining 63.3 million Series A Warrants were exercised at a weighted average exercise price of US$0.80 per warrant resulting in the issuance of 63.3 million common shares and gross proceeds to the Company of US$50.7 million. In connection with this exercise, the New Warrants were granted (refer to C below).
| (b) | Additional series A and B warrants |
On February 4, 2021, the Company issued 60.5 million additional series A units (the “Additional Series A Units”), each consisting of one common share and one-half additional series A warrant (collectively, the “Additional Series A Warrants”) to purchase one common share and 14.0 million additional series B units (the “Additional Series B Units”), each consisting of one pre-funded additional series B warrant (the “Additional Series B Warrants”) to purchase one common share and one-half Additional Series A Warrant to purchase one common share, (collectively, the “February 2021 Units Offering”). Each Additional Series A Unit was sold at a price of US$1.00 per unit and each Additional Series B Unit was sold at a price of US$1.00 per unit, less US$0.0001 per unit. Gross proceeds from this offering were US$74.5 million. The Additional Series A Warrants and Additional Series B Warrants were exercisable immediately and had a term of five years commencing on the date of issuance. The exercise price of the Additional Series A Warrants was US$1.10 per common share and the exercise price of the Additional Series B Warrants was US$0.0001 per common share.
On February 4, 2021, the entire 14.0 million Additional Series B Warrants were exercised resulting in the issuance of 14.0 million common shares.
On February 10, 2021, 2.3 million Additional Series A Warrants were exercised at a weighted average exercise price of US$1.10 per warrant resulting in the issuance of 2.3 million common shares and gross proceeds to the Company of US$2.5 million.
On February 22, 2021, the remaining 35.0 million Additional Series A Warrants were exercised at a weighted average exercise price of US$1.10 per warrant resulting in the issuance of 35.0 million common shares and gross proceeds to the Company of US$38.5 million. In connection with this exercise, the New Warrants were granted (refer to C below).
| (c) | new warrants |
On February 22, 2021, (i) the remaining 63.3 million Series A Warrants were exercised at a weighted average exercise price of US$0.80 per warrant resulting in the issuance of 63.3 million common shares and gross proceeds to the Company of US$50.7 million and (ii) the remaining 35.0 million Additional Series A Warrants were exercised at a weighted average exercise price of US$1.10 per warrant resulting in the issuance of 35.0 million common shares and gross proceeds to the Company of US$38.5 million. In connection with this exercise, the Company
16
Sundial Growers Inc.
Notes to the Condensed Consolidated Interim Financial Statements
For the three and six months ended June 30, 2021
(Unaudited, expressed in thousands of Canadian dollars, except where otherwise noted)
issued 98.3 million new warrants to the holders of the Series A Warrants and Additional Series A Warrants (the “New Warrants”), each entitling the holder to purchase one common share at an exercise price of US$1.50, subject to customary anti-dilution adjustments. The Company has granted the holders the right to have the common shares issuable upon exercise of the New Warrants registered pursuant to a registration statement filed with the SEC. Such registration statement was filed with the SEC on March 3, 2021. The New Warrants are immediately exercisable and have a term of 42 months from March 18, 2021, which is the effective date of the registration statement.
| (d) | Agent warrants |
During the six months ended June 30, 2021, the entire 1.08 million Agent Warrants were exercised. 540,000 Agent Warrants were exercised at a weighted average exercise price of US$1.00 per warrant resulting in the issuance of 356,949 common shares. There were no gross proceeds to the Company as the exercise was cashless. The other 540,000 Agent Warrants were exercised at a weighted average exercise price of US$1.00 per warrant resulting in the issuance of 540,000 common shares and gross proceeds to the Company of US$0.5 million.
The following table summarizes outstanding derivative warrants as at June 30, 2021:
| Exercise price (USD) |
| Number of warrants |
| Weighted average contractual life |
| |||
August 2020 Offering - Series A Warrants (1) |
| 0.1766 |
|
| 500,000 |
|
| 4.1 |
|
Unsecured Convertible Notes Warrants (1) |
| 0.1766 |
|
| 500,000 |
|
| 2.5 |
|
New Warrants |
| 1.50 |
|
| 98,333,334 |
|
| 3.1 |
|
|
|
|
|
| 99,333,334 |
|
| 3.1 |
|
| (1) | The conversion or exercise price, as applicable, is subject to full ratchet antidilution protection upon any subsequent transaction at a price lower than the price then in effect and standard adjustments in the event of any share split, share dividend, share combination, recapitalization or other similar transaction. If the Company issues, sells or enters into any agreement to issue or sell, any variable rate securities, the investors have the additional right to substitute the variable price (or formula) of such securities for the conversion or exercise price, as applicable. |
16. | Share capital and warrants |
| (a) | Authorized |
The authorized capital of the Company consists of an unlimited number of voting common shares and preferred shares with no par value.
| (b) | Issued and outstanding |
|
| June 30, 2021 |
| December 31, 2020 |
| ||||||||
| Note | Number of Shares |
| Carrying Amount |
| Number of Shares |
| Carrying Amount |
| ||||
Balance, beginning of year |
|
| 918,844,133 |
|
| 762,046 |
|
| 107,180,423 |
|
| 509,654 |
|
Share issuances |
|
| 956,806,648 |
|
| 977,425 |
|
| 337,696,867 |
|
| 176,931 |
|
Share issuance costs |
|
| — |
|
| (16,233 | ) |
| — |
|
| (5,593 | ) |
Disposition of Bridge Farm | 4 |
| — |
|
| — |
|
| (2,716,271 | ) |
| (38,447 | ) |
Convertible debt - conversions |
|
| — |
|
| — |
|
| 373,371,318 |
|
| 63,002 |
|
Derivative warrants exercised | 15 |
| 152,146,950 |
|
| 277,136 |
|
| 102,836,429 |
|
| 55,912 |
|
Employee awards exercised | 17(c) |
| 1,083,084 |
|
| 2,639 |
|
| 475,367 |
|
| 587 |
|
Balance, end of period |
|
| 2,028,880,815 |
|
| 2,003,013 |
|
| 918,844,133 |
|
| 762,046 |
|
17
Sundial Growers Inc.
Notes to the Condensed Consolidated Interim Financial Statements
For the three and six months ended June 30, 2021
(Unaudited, expressed in thousands of Canadian dollars, except where otherwise noted)
At-the-Market Offering Program
During the six months ended June 30, 2021, the Company issued 796.3 million common shares at a weighted average exercise price of US$0.8597 for gross proceeds of $855.2 million (US$684.6 million) through its ATM programs.
2021 Registered Offerings
In connection with the January 2021 Units Offering, the Company issued 100.0 million common shares (note 15a) and in connection with the February 2021 Units Offering, the Company issued 60.5 million common shares (note 15b).
| (c) | Common share purchase warrants |
| Number of Warrants |
| Carrying Amount |
| ||
Balance at December 31, 2020 and June 30, 2021 |
| 1,024,000 |
|
| 6,138 |
|
The following table summarizes outstanding warrants as at June 30, 2021:
| Warrants outstanding and exercisable |
| |||||||
Weighted average exercise price |
| Number of warrants |
| Weighted average contractual life (years) |
| ||||
Acquisition of financial obligation |
| 15.94 |
|
| 480,000 |
|
| 1.0 |
|
Financial services |
| 4.60 |
|
| 544,000 |
|
| 8.1 |
|
|
| 9.91 |
|
| 1,024,000 |
|
| 4.8 |
|
17. | Share-based compensation |
The Company has a number of equity-settled share-based compensation plans which include simple and performance warrants, stock options, restricted share units (“RSUs”) and deferred share units (“DSUs”). Further detail on each of these plans is outlined below. Subsequent to the Company’s initial public offering, the Company established the stock option, RSU and DSU plans to replace the granting of simple warrants and performance warrants.
The components of share-based compensation expense are as follows:
| Three months ended June 30 |
| Six months ended June 30 |
| ||||||||
2021 |
| 2020 |
| 2021 |
| 2020 |
| |||||
Simple warrants (a) |
| 1,033 |
|
| 1,492 |
|
| 1,630 |
|
| 1,774 |
|
Performance warrants (a) |
| — |
|
| — |
|
| — |
|
| (42 | ) |
Stock options (b) |
| (147 | ) |
| 185 |
|
| (77 | ) |
| 322 |
|
Restricted share units (c) |
| 1,787 |
|
| 429 |
|
| 3,431 |
|
| 685 |
|
Deferred share units (c) |
| 1,866 |
|
| 1,046 |
|
| 3,011 |
|
| 1,208 |
|
|
| 4,539 |
|
| 3,152 |
|
| 7,995 |
|
| 3,947 |
|
| a) | Simple and performance warrants |
The Company issued simple warrants and performance warrants to employees, directors and others at the discretion of the Board. Simple and performance warrants granted generally vest annually in thirds over a three-year period and simple warrants expire five years after the grant date.
18
Sundial Growers Inc.
Notes to the Condensed Consolidated Interim Financial Statements
For the three and six months ended June 30, 2021
(Unaudited, expressed in thousands of Canadian dollars, except where otherwise noted)
The following table summarizes changes the simple and performance warrants during the six months ended June 30, 2021:
|
| Simple warrants outstanding |
|
| Weighted average exercise price |
|
| Performance warrants outstanding |
|
| Weighted average exercise price |
| ||||
Balance at December 31, 2020 |
|
| 3,424,600 |
|
| $ | 4.41 |
|
|
| 1,672,000 |
|
| $ | 4.19 |
|
Forfeited |
|
| (139,200 | ) |
|
| 8.39 |
|
|
| (72,000 | ) |
|
| 11.37 |
|
Exercised |
|
| (120,000 | ) |
|
| 0.94 |
|
|
| (80,000 | ) |
|
| 0.94 |
|
Expired |
|
| (1,600 | ) |
|
| 15.52 |
|
|
| — |
|
|
| 0.00 |
|
Balance at June 30, 2021 |
|
| 3,163,800 |
|
| $ | 4.36 |
|
|
| 1,520,000 |
|
| $ | 4.01 |
|
The following table summarizes outstanding simple and performance warrants as at June 30, 2021:
|
| Warrants outstanding |
|
| Warrants exercisable |
| ||||||||||||||||||
Range of exercise prices |
| Number of warrants |
|
| Weighted average exercise price |
|
| Weighted average contractual life (years) |
|
| Number of warrants |
|
| Weighted average exercise price |
|
| Weighted average contractual life (years) |
| ||||||
Simple warrants |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$0.63 - $0.94 |
|
| 889,400 |
|
|
| 0.72 |
|
|
| 2.72 |
|
|
| 889,400 |
|
|
| 0.72 |
|
|
| 2.72 |
|
$1.25 - $1.88 |
|
| 400,000 |
|
|
| 1.56 |
|
|
| 3.09 |
|
|
| 400,000 |
|
|
| 1.56 |
|
|
| 3.09 |
|
$2.97 - $4.53 |
|
| 511,200 |
|
|
| 3.05 |
|
|
| 3.14 |
|
|
| 439,200 |
|
|
| 3.01 |
|
|
| 3.04 |
|
$6.25 - $9.38 |
|
| 1,225,600 |
|
|
| 6.31 |
|
|
| 5.22 |
|
|
| 262,400 |
|
|
| 6.48 |
|
|
| 5.15 |
|
$12.50 - $37.50 |
|
| 137,600 |
|
|
| 23.65 |
|
|
| 5.98 |
|
|
| 40,000 |
|
|
| 15.86 |
|
|
| 4.46 |
|
|
|
| 3,163,800 |
|
| $ | 4.36 |
|
|
| 3.94 |
|
|
| 2,031,000 |
|
| $ | 2.42 |
|
|
| 3.21 |
|
Performance warrants |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$0.63 - $0.94 |
|
| 458,667 |
|
|
| 0.68 |
|
| n/a |
|
|
| 330,667 |
|
|
| 0.70 |
|
| n/a |
| ||
$1.25 - $1.88 |
|
| 242,133 |
|
|
| 1.45 |
|
| n/a |
|
|
| 207,467 |
|
|
| 1.43 |
|
| n/a |
| ||
$2.97 - $4.53 |
|
| 584,000 |
|
|
| 3.14 |
|
| n/a |
|
|
| 397,333 |
|
|
| 3.10 |
|
| n/a |
| ||
$6.25 - $9.38 |
|
| 144,533 |
|
|
| 7.23 |
|
| n/a |
|
|
| 38,400 |
|
|
| 6.25 |
|
| n/a |
| ||
$12.50 - $37.50 |
|
| 90,667 |
|
|
| 28.24 |
|
| n/a |
|
|
| — |
|
|
| — |
|
| n/a |
| ||
|
|
| 1,520,000 |
|
| $ | 4.01 |
|
| n/a |
|
|
| 973,867 |
|
| $ | 2.05 |
|
| n/a |
|
| b) | Stock options |
The Company issues stock options to employees and others at the discretion of the Board. Stock options granted generally vest annually in thirds over a three-year period and expire ten years after the grant date.
The following table summarizes changes in stock options during the six months ended June 30, 2021:
|
| Stock options outstanding |
|
| Weighted average exercise price |
| ||
Balance at December 31, 2020 |
|
| 720,600 |
|
| $ | 1.82 |
|
Forfeited |
|
| (275,000 | ) |
|
| 2.60 |
|
Expired |
|
| (1,000 | ) |
|
| 3.15 |
|
Balance at June 30, 2021 |
|
| 444,600 |
|
| $ | 1.33 |
|
19
Sundial Growers Inc.
Notes to the Condensed Consolidated Interim Financial Statements
For the three and six months ended June 30, 2021
(Unaudited, expressed in thousands of Canadian dollars, except where otherwise noted)
The following table summarizes outstanding stock options as at June 30, 2021:
|
| Stock options outstanding |
|
| Stock options exercisable |
| ||||||||||
Exercise prices |
| Number of options |
|
| Weighted average contractual life (years) |
|
| Number of options |
|
| Weighted average contractual life (years) |
| ||||
$1.15 |
|
| 325,000 |
|
|
| 8.91 |
|
|
| 108,332 |
|
|
| 8.91 |
|
$1.19 |
|
| 81,600 |
|
|
| 8.99 |
|
|
| 81,600 |
|
|
| 8.99 |
|
$3.15 |
|
| 38,000 |
|
|
| 6.86 |
|
|
| 13,750 |
|
|
| 5.87 |
|
|
|
| 444,600 |
|
|
| 8.75 |
|
|
| 203,682 |
|
|
| 8.74 |
|
| c) | Restricted and deferred share units |
RSUs are granted to employees and the vesting requirements and maximum term are at the discretion of the Board. DSUs are granted to directors and generally vest in equal quarterly instalments over one year. RSUs and DSUs are exchangeable for an equal number of common shares.
The following table summarizes changes in RSUs and DSUs during the six months ended June 30, 2021:
|
| RSUs outstanding |
|
| DSUs outstanding |
| ||
Balance at December 31, 2020 |
|
| 1,656,916 |
|
|
| 3,323,263 |
|
Granted |
|
| 12,313,300 |
|
|
| 1,709,852 |
|
Forfeited |
|
| (986,528 | ) |
|
| — |
|
Exercised |
|
| (9,184 | ) |
|
| — |
|
Balance at June 30, 2021 |
|
| 12,974,504 |
|
|
| 5,033,115 |
|
18. | Cannabis Revenue |
Cannabis revenue is solely from contracts with customers and is comprised of sales to Provincial boards that sell cannabis through their respective distribution models, sales to licensed producers for further processing, and sales to medical customers.
| Three months ended June 30 |
| Six months ended June 30 |
| ||||||||
| 2021 |
| 2020 |
| 2021 |
| 2020 |
| ||||
Provincial boards |
| 10,888 |
|
| 18,133 |
|
| 19,930 |
|
| 28,333 |
|
Medical |
| 1 |
|
| 5 |
|
| 3 |
|
| 21 |
|
Licensed producers |
| 1,850 |
|
| 6,203 |
|
| 4,554 |
|
| 12,577 |
|
Gross revenue (1) |
| 12,739 |
|
| 24,341 |
|
| 24,487 |
|
| 40,931 |
|
| (1) | The Company had three major customers each with revenue in excess of 10% of total cannabis revenue. Sales to major customers totaled $13.1 million for the six months ended June 30, 2021 (six months ended June 30, 2020 – four major customers with total sales of $26.4 million). Only one major customer had sales exceeding 10% of total cannabis revenue for both periods. |
20
Sundial Growers Inc.
Notes to the Condensed Consolidated Interim Financial Statements
For the three and six months ended June 30, 2021
(Unaudited, expressed in thousands of Canadian dollars, except where otherwise noted)
The following table disaggregates revenue by form for the periods noted:
| Three months ended June 30 |
| Six months ended June 30 |
| ||||||||
| 2021 |
| 2020 |
| 2021 |
| 2020 |
| ||||
Revenue from dried flower |
| 9,774 |
|
| 16,090 |
|
| 19,490 |
|
| 27,814 |
|
Revenue from vapes |
| 1,284 |
|
| 6,259 |
|
| 2,697 |
|
| 10,608 |
|
Revenue from oil |
| 1,410 |
|
| 1,992 |
|
| 1,591 |
|
| 2,509 |
|
Revenue from edibles and concentrates |
| 271 |
|
| — |
|
| 709 |
|
| — |
|
Gross revenue |
| 12,739 |
|
| 24,341 |
|
| 24,487 |
|
| 40,931 |
|
19. | Investment revenue |
| Three months ended June 30 |
| Six months ended June 30 |
| ||||||||
| 2021 |
| 2020 |
| 2021 |
| 2020 |
| ||||
Interest and fee revenue |
|
|
|
|
|
|
|
|
|
|
|
|
Interest revenue from investments at amortized cost |
| 328 |
|
| — |
|
| 441 |
|
| — |
|
Interest and fee revenue from investments at FVTPL |
| 2,100 |
|
| — |
|
| 4,282 |
|
| — |
|
Interest revenue from cash |
| 916 |
|
| — |
|
| 1,470 |
|
| — |
|
|
| 3,344 |
|
| — |
|
| 6,193 |
|
| — |
|
| Three months ended June 30 |
| Six months ended June 30 |
| ||||||||
| 2021 |
| 2020 |
| 2021 |
| 2020 |
| ||||
Investment revenue |
|
|
|
|
|
|
|
|
|
|
|
|
Realized gains |
| 4,211 |
|
| — |
|
| 12,230 |
|
| — |
|
Unrealized gains (losses) |
| (1,849 | ) |
| — |
|
| 3,032 |
|
| — |
|
|
| 2,362 |
|
| — |
|
| 15,262 |
|
| — |
|
20. | Government subsidies |
In March 2020, the federal government launched the Canadian Emergency Wage Subsidy (“CEWS”) to help businesses impacted by the COVID-19 pandemic keep and rehire employees. The CEWS delivered a 75 percent wage subsidy to eligible employers for an initial period of 12 weeks, from March 15, 2020 to July 4, 2020. Eligibility was based on meeting a minimum requirement for decreased revenue. The CEWS was extended to November 21, 2020 and amended to change the eligibility requirements from meeting a certain threshold to being variable based on how much an employer’s revenue decreased. The CEWS has further been extended to June 2021 and includes changes to the rates and the top-up calculation.
The Company became eligible for the CEWS based on decreases in revenue and received the subsidy during the first quarter of 2021. The subsidy of $2.1 million has been recognized in the condensed consolidated interim statement of loss and comprehensive loss. There are no unfulfilled conditions or contingencies attached to the CEWS.
21
Sundial Growers Inc.
Notes to the Condensed Consolidated Interim Financial Statements
For the three and six months ended June 30, 2021
(Unaudited, expressed in thousands of Canadian dollars, except where otherwise noted)
21. | Finance costs |
| Three months ended June 30 |
| Six months ended June 30 |
| ||||||||
| 2021 |
| 2020 |
| 2021 |
| 2020 |
| ||||
Cash finance expense |
|
|
|
|
|
|
|
|
|
|
|
|
Interest on Syndicated Credit Agreement |
| — |
|
| 1,057 |
|
| — |
|
| 2,254 |
|
Interest on Term Debt Facility |
| — |
|
| 133 |
|
| — |
|
| 2,936 |
|
Other finance costs |
| 11 |
|
| (54 | ) |
| 39 |
|
| 140 |
|
|
| 11 |
|
| 1,136 |
|
| 39 |
|
| 5,330 |
|
Non-cash finance expense (income) |
|
|
|
|
|
|
|
|
|
|
|
|
Accretion |
| — |
|
| 88 |
|
| — |
|
| 1,622 |
|
Amortization of debt issue costs |
| — |
|
| 367 |
|
| — |
|
| 723 |
|
Change in fair value of convertible notes |
| — |
|
| (489 | ) |
| — |
|
| (489 | ) |
Other |
| 29 |
|
| (66 | ) |
| 52 |
|
| (40 | ) |
|
| 29 |
|
| (100 | ) |
| 52 |
|
| 1,816 |
|
Interest income |
| — |
|
| (34 | ) |
| — |
|
| (162 | ) |
|
| 40 |
|
| 1,002 |
|
| 91 |
|
| 6,984 |
|
22. | Loss per share |
|
| Three months ended June 30 |
|
| Six months ended June 30 |
| ||||||||||
|
| 2021 |
|
| 2020 |
|
| 2021 |
|
| 2020 |
| ||||
Weighted average shares outstanding (000s) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and dilutive (1) |
|
| 1,886,932 |
|
|
| 106,607 |
|
|
| 1,664,500 |
|
|
| 106,963 |
|
Continuing operations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss attributable to Sundial Growers Inc. |
|
| (52,287 | ) |
|
| (32,750 | ) |
|
| (186,703 | ) |
|
| (70,611 | ) |
Per share - basic and diluted |
| $ | (0.03 | ) |
| $ | (0.31 | ) |
| $ | (0.11 | ) |
| $ | (0.66 | ) |
Discontinued operations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss attributable to Sundial Growers Inc. |
|
| — |
|
|
| (27,593 | ) |
|
| — |
|
|
| (33,627 | ) |
Per share - basic and diluted |
| $ | — |
|
| $ | (0.26 | ) |
| $ | — |
|
| $ | (0.31 | ) |
Net loss attributable to Sundial Growers Inc. |
|
| (52,287 | ) |
|
| (60,343 | ) |
|
| (186,703 | ) |
|
| (104,238 | ) |
Per share - basic and diluted |
| $ | (0.03 | ) |
| $ | (0.57 | ) |
| $ | (0.11 | ) |
| $ | (0.97 | ) |
| (1) | For the six months ended June 30, 2021, there were 1.0 million equity classified warrants exercisable, 90.6 million derivative warrants exercisable, 2.0 million simple warrants exercisable and 1.0 million performance warrants exercisable that were excluded from the calculation as the impact was anti-dilutive (six months ended June 30, 2020 – 6.2 million warrants, 5.4 million simple warrants and 3.7 million performance warrants). |
23. | Financial instruments |
The financial instruments recognized on the consolidated statement of financial position are comprised of cash and cash equivalents, restricted cash, marketable securities, accounts receivable, investments, accounts payable and accrued liabilities and derivative warrants.
| a) | Fair value |
The carrying value of cash and cash equivalents, restricted cash, accounts receivable and accounts payable and accrued liabilities approximate their fair value due to the short-term nature of the instruments. The carrying value
22
Sundial Growers Inc.
Notes to the Condensed Consolidated Interim Financial Statements
For the three and six months ended June 30, 2021
(Unaudited, expressed in thousands of Canadian dollars, except where otherwise noted)
of investments at amortized cost approximate their fair value as the fixed interest rates approximate market rates for comparable transactions.
Fair value measurements of marketable securities, investments at FVTPL and derivative warrants are as follows:
|
|
|
| Fair value measurements using |
| |||||||
June 30, 2021 | Carrying amount |
| Level 1 |
| Level 2 |
| Level 3 |
| ||||
Recurring measurements: |
|
|
|
|
|
|
|
|
|
|
|
|
Financial assets |
|
|
|
|
|
|
|
|
|
|
|
|
Marketable securities |
| 97,419 |
|
| 97,419 |
|
| — |
|
| — |
|
Investments at FVTPL |
| 51,876 |
|
| — |
|
| — |
|
| 51,876 |
|
Financial liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
Derivative warrants (1) |
| 54,000 |
|
| — |
|
| — |
|
| 54,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Fair value measurements using |
| |||||||
December 31, 2020 | Carrying amount |
| Level 1 |
| Level 2 |
| Level 3 |
| ||||
Recurring measurements: |
|
|
|
|
|
|
|
|
|
|
|
|
Financial assets |
|
|
|
|
|
|
|
|
|
|
|
|
Investments |
| 51,876 |
|
| — |
|
| — |
|
| 51,876 |
|
Financial liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
Derivative warrants (1) |
| 428 |
|
| — |
|
| — |
|
| 428 |
|
| (1) | The carrying amount is an estimate of the fair value of the derivative warrants and is presented as a current liability. The Company has no cash obligation with respect to the derivative warrants, rather it will deliver common shares if and when warrants are exercised. |
Level 1 – unadjusted quoted prices in active markets for identical assets or liabilities. An active market for an asset or liability is a market in which transactions for the asset or liability occur with sufficient frequency and volume to provide pricing information on an ongoing basis.
Marketable securities are designated as FVTPL. The fair value of marketable securities is re-measured each reporting period with changes in fair value recognized in the consolidated statement of loss and comprehensive loss. The fair value of marketable securities is estimated by using current quoted prices in active markets for identical assets.
Level 2 – quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
As at June 30, 2021, the Company did not have any financial instruments measured at Level 2 fair value.
Level 3 – unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.
The investment designated as FVTPL is re-measured each reporting period with changes in the fair value recognized in the consolidated statement of loss and comprehensive loss within finance costs. The fair value of the outstanding principal and interest approximates the carrying value of the investment. The fair value for the royalty is estimated to be nil as the value is currently being disputed.
Derivative warrants are designated as FVTPL. The fair value of derivative warrants is re-measured each reporting period with changes in fair value recognized in the consolidated statement of loss and comprehensive loss within finance costs. The fair value of derivative warrants is estimated by using a valuation model. Assumptions used in these calculations include volatility, discount rate and various probability factors.
23
Sundial Growers Inc.
Notes to the Condensed Consolidated Interim Financial Statements
For the three and six months ended June 30, 2021
(Unaudited, expressed in thousands of Canadian dollars, except where otherwise noted)
There were no transfers between Levels 1, 2 and 3 inputs during the period.
| b) | Credit risk management |
Credit risk is the risk of financial loss if the counterparty to a financial transaction fails to meet its obligations. The Company manages risk over its accounts receivable by issuing credit only to credit worthy counterparties. The Company limits its exposure to credit risk over its investments by ensuring the agreements governing the investments are secured in the event of counterparty default. The Company considers financial instruments to have low credit risk when its credit risk rating is equivalent to investment grade. The Company assumes that the credit risk on a financial asset has increased significantly if it is outstanding past the contractual payment terms. The Company considers a financial asset to be in default when the debtor is unlikely to pay its credit obligations to the Company.
The Company applies the simplified approach under IFRS 9 and has calculated expected credit losses (“ECLs”) based on lifetime expected credit losses, taking into consideration historical credit loss experience and financial factors specific to the debtors and general economic conditions.
Impairment losses on accounts receivable recognized in profit or loss were as follows:
As at | June 30, 2021 |
| December 31, 2020 |
| ||
Impairment loss (reversal) on trade receivables |
| 7 |
|
| (506 | ) |
Impairment loss (reversal) on other receivables |
| (44 | ) |
| (126 | ) |
|
| (37 | ) |
| (632 | ) |
The movement in the allowance for impairment in respect of accounts receivable during the six months ended June 30, 2021 was as follows:
| June 30, 2021 |
| December 31, 2020 |
| ||
Balance, beginning of year |
| 120 |
|
| 752 |
|
Net remeasurement of impairment loss allowance |
| (37 | ) |
| (632 | ) |
Balance, end of period |
| 83 |
|
| 120 |
|
The Company has evaluated the credit risk of its investments, taking into consideration historical credit loss experience, financial factors specific to the debtors and general economic conditions, and determined the expected credit loss to be nil.
The maximum amount of the Company’s credit risk exposure is the carrying amounts of cash and cash equivalents, accounts receivable and investments. The Company attempts to mitigate such exposure to its cash by investing only in financial institutions with investment grade credit ratings or secured investments.
| c) | Market risk management |
Market risk is the risk that changes in market prices will affect the Company’s income or value of its holdings of financial instruments. The Company is exposed to market risk in that changes in market prices will cause fluctuations in the fair value of its marketable securities. The fair value of marketable securities is based on quoted market prices as the Company’s marketable securities are shares held of publicly traded entities and put and call options.
At June 30, 2021, a 10% change in the market prices would change the fair value of marketable securities by approximately $9.7 million.
24
Sundial Growers Inc.
Notes to the Condensed Consolidated Interim Financial Statements
For the three and six months ended June 30, 2021
(Unaudited, expressed in thousands of Canadian dollars, except where otherwise noted)
The Company had the following risk management contracts relating to marketable securities outstanding as at June 30, 2021:
As at June 30, 2021 | Quantity |
| Expiry | Proceeds |
| Fair value |
| |||
Sold put options |
| 27,000 |
| Jul 16, 2021 |
| 1,364 |
|
| 683 |
|
Sold put options |
| 2,000 |
| Aug 20, 2021 |
| 162 |
|
| 211 |
|
Sold call options |
| 11,000 |
| Jul 16, 2021 |
| 440 |
|
| 390 |
|
|
| 40,000 |
|
|
| 1,966 |
|
| 1,284 |
|
24. | Related party transactions |
| a) | Loan receivable agreements |
At December 31, 2020, the Company had advanced $139 thousand under employee loan agreements. The terms were non-interest bearing and secured by shareholdings in the Company. The loans were repayable in full upon the departure of an employee from employment, a change in control of the Company or sale of the Company. During the six months ended June 30, 2021, the full $139 thousand loan balance was settled. At June 30, 2021, the outstanding loan balance was nil.
| b) | Related party transactions and balances |
| Transactions |
| Balance outstanding |
| ||||||||
Six months ended June 30 |
| Six months ended June 30 |
| June 30 |
| December 31 |
| |||||
| 2021 |
| 2020 |
| 2021 |
| 2020 |
| ||||
Marketing, brand research and development (a) |
| — |
|
| 1,144 |
|
| — |
|
| — |
|
Legal services (b) |
| — |
|
| 1,677 |
|
| — |
|
| (510 | ) |
|
| — |
|
| 2,821 |
|
| — |
|
| (510 | ) |
| (a) | A former member of the Board of Directors controlled a company that provides marketing, brand research and development services. |
| (b) | A member of the Board of Directors was a partner at a law firm prior to his departure which provides legal services to the Company. |
All transactions were conducted at the exchange amount agreed to with the related parties.
25. | Capital management |
The Company defines its capital as its shareholders’ equity and debt. Except as otherwise disclosed in these condensed consolidated interim financial statements, there are no restrictions on the Company’s capital. The Company’s objectives with respect to the management of capital are to:
| • | Maintain financial flexibility in order to preserve its ability to meet financial obligations; |
| • | Deploy capital to provide an appropriate investment return to its shareholders; and, |
| • | Maintain a capital structure that allows various financing alternatives to the Company as required. |
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Sundial Growers Inc.
Notes to the Condensed Consolidated Interim Financial Statements
For the three and six months ended June 30, 2021
(Unaudited, expressed in thousands of Canadian dollars, except where otherwise noted)
|
26. | Commitments and contingencies |
The following table summarizes contractual commitments at June 30, 2021:
| Less than one year |
| One to three years |
| Three to five years |
| Thereafter |
| Total |
| |||||
Accounts payable and accrued liabilities |
| 24,559 |
|
| — |
|
| — |
|
| — |
|
| 24,559 |
|
Lease obligations |
| 481 |
|
| 726 |
|
| 134 |
|
| — |
|
| 1,341 |
|
Balance, end of period |
| 25,040 |
|
| 726 |
|
| 134 |
|
| — |
|
| 25,900 |
|
| (a) | Commitments |
The Company has entered into certain supply agreements to provide dried cannabis and cannabis products to third parties. The contracts require the provision of various amounts of dried cannabis on or before certain dates. Should the Company not deliver the product in the agreed timeframe, financial penalties apply which may be paid either in product in-kind or cash. Under these agreements, the Company has accrued financial penalties payable as at June 30, 2021 of $1.5 million (December 31, 2019 - $1.5 million).
| (b) | Contingencies |
From time to time, the Company is involved in various claims and legal actions which occurred in the ordinary course of operations, the losses from which, if any, are not anticipated to be material to the financial statements.
On May 7, 2020, the Company and certain of its current and former directors and officers were named as defendants in a lawsuit, captioned SUN, a Series of E Squared Investment Fund, LLC et al. v. Sundial Growers Inc. et al., Case No. 1:20-cv-03579. The complaint asserts claims for alleged violations of U.S. federal securities laws, including Sections 12(a)(2) and 15 of the Securities Act of 1933 and Section 10(b) the Securities Exchange Act of 1934, as well as claims for breach of contract, breach of fiduciary duty, fraud in the inducement and negligent misrepresentation. Among other things, the complaint alleges that the Company made misrepresentations regarding the licensing and ability of Bridge Farm to export hemp and CBD to Europe, as well as regarding the quality of the Company’s cannabis and a return by one of the Company’s customers.
The Company can provide no assurance as to the outcome of these proceedings or any other litigation matter in which the Company is a party. In particular, securities class action lawsuits are typically costly to defend, and divert the attention of management and other resources from operations and, accordingly, even if resolved in Sundial’s favor, could have a material adverse effect on the business, financial condition, results of operations and liquidity and may force the Company to reduce or cease operations or seek relief under the applicable bankruptcy or insolvency laws.
27. | Subsequent events |
Acquisition of Inner Spirit Holdings and Spiritleaf Retail Cannabis Network
On May 5, 2021, the Company and Inner Spirit Holdings Ltd. (“Inner Spirit”) announced that they had entered into an arrangement agreement pursuant to which the Company will acquire all of the issued and outstanding common shares of Inner Spirit (the “Transaction”). The Transaction closed on July 20, 2021. Inner Spirit is a retailer and franchisor of Spiritleaf recreational cannabis stores across Canada, with a network that includes more than 100 franchised and corporate-owned locations.
The Transaction consideration was comprised of (i) an aggregate $92.6 million cash ($0.30 in cash for each Inner Spirit common share), and (ii) an aggregate 24.4 million Sundial common shares valued at $19.8 million based on the fair value of each common share of the Company on the closing date (0.0835 of a Sundial common share for each Inner Spirit common share).
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Sundial Growers Inc.
Notes to the Condensed Consolidated Interim Financial Statements
For the three and six months ended June 30, 2021
(Unaudited, expressed in thousands of Canadian dollars, except where otherwise noted)
On August 4, 2021, the Company issued 2.5 million common shares related to the settlement of Inner Spirit debt.
The Company will complete a preliminary purchase price allocation in Q3 and plans to finalize the allocation of the purchase price and the accounting for the Transaction by the end of the current fiscal year.
Strategic capital partnership
On July 7, 2021, the Company announced that it had increased its commitment to SunStream (note 14(a)) to $538 million from the previously announced commitment of $188 million.
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