SNDL - Earnings call transcript Q1 2021

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Operator

Good morning and welcome to Sundial Growers' First Quarter 2021 Financial Results Conference Call.

As a reminder, all participants are in listen-only mode and the conference is being recorded. After the presentation, there will be an opportunity to ask questions. [Operator instructions] Yesterday afternoon, Sundial issued a press release announcing their financial results for the first quarter ended March 31, 2021. This press release is available on the company's website at sndlgroup.com and filed on EDGAR and SEDAR as well. call Chief Zach Stordeur, Financial Chief Officer. morning's Officer; Chief President this Operating Keough, Jim Officer; on we George, have Executive and Presenting and Andrew

financial certain would and answers anticipated. or may Risk and from affect made Actual be reports could could remind Before results conference questions that like results to factors in forward-looking on start, in today's available that filings I EDGAR. investors we the public are those that that constitute matters given could discussed call materially company's to other detailed statements. differ are SEDAR

Additionally, to figures are note unless respective call dollars like are all we our financial the conducting in indicated. Canadian that today also mentioned locations. I'd from otherwise remote

be during delays, technical in may minor and you thank brief this We for or issues your advance patience understanding. crosstalk As such, call. there

and now turn question-and-answer now I make would prepared will to We George. we'll over remarks the to move session. call Zach to on like then the

Zach George

Good earnings call. you morning, XXXX first for on our everyone joining quarter us and thank

We believe the tunnel year vaccines full global That continues are we proliferating Unfortunately, COVID-XX country is light there's Canadians into significantly the third force. a are affect more pandemic. to in as the across and said, this end the now of at that than wave world. currently as the

to as and has an employees we protection operations. the and are sales, which to opportunity. our so to our continue remain not same essential our us committed We negative of impact small the employees. consumers, to disruption remains consumers of many medium-sized to and priority while to provider, store safety service top customers procedures and businesses ensure and operate had orders the on Our designated be the serve health enabled the while had retail stay-at-home Despite stringent have closures to have grateful and minimizing

result reflects EBITDA. deployment practices attractive deployment the pleased immature our capital from and operational capital an the focus to enable Sundial opportunities both of the changing shares common results to teams we announce opportunities, to from cannabis with industry. organization focus entered of to Inner agreement continued of public cultivation network. improvements Spirit which continues a across the targeting This first-ever diverse of we Sundial's acquire a investments all we positive retail quarter platform to and last our the in on Since And efforts and more of while structure cannabis are across on have We adjusted outstanding and capital a Sundial rapidly become an December Spiritleaf improvement continued build the will number stronger Holdings and company. companies. made of into issued week cannabis

has internal and We evolved with with record include track third-party our partnership are pleased our capital. which program with started to a investment

more into end gains realized deployed While million marketable base approximately securities, debt-free an quarter, investment priorities capital see These in income generated continue total Today XX% CAD of have loan deployed had a cash board approximately this a investments strategic XX capital several remains has robust additional of company and several and and on Sundial X including to sits we made Maximizing we unrestricted than of in first CAD million key management on M&A opportunities. including unrealized significant of investments fees and corporate investments. unrestricted and this the stewardship balance of XXXX, for At team. are assets cannabis-related XX.X of cash. our and liquid XX.X and pipeline returns quarter balance securities. past the CAD billion. our million interest the

of QX. realized that are of greater absolute in gains unrealized As see that and today's we than QX call,

may the change and However, much end quarter. market the second of of this prior exposure to to risk is subject

In of the industry Grassland its terms results Revenue the restrictions inventory monetization cultivation seasonality cultivation to brand across processing and the of declines remains sales and outcomes. and Sundial's activities continued improvement our and across growth segment, and the cannabis quarter driven COVID-XX of its of were discount operations, focused in committed Sundial by the first slower Canada.

in in largely demand and margin undertaken gross in levels negative capital items Our to utility reductions attributable optimize QX align Grasslands an price spike to aggressive in our addition with inventory to maintenance products February. was pricing on unanticipated to

the revenue combination limiting are of Moving of unprofitable the We believe over majority health products as We oversupply, we and the toward in forward, seek Canadian the branded interest at continued a sustainable. several share view the the years. and evolution that in market has offering rationalization regulatory attractive of no of be in product in a to economics differentiation we unwilling addition moves markets and Sundial the this discount as greater we during XXXX. industry welcome the neither maintenance all will growth lack will at many dysfunction pursuing reckoning where nor operating levels recreational the regulatory of costs. industry to next reckoning create for

we results more and details, shareholders. We we have established Andrew have made will progress but still provide for in do with the Sundial goals and core our achieve work to have cultivation operations our that our to

to consumers move entirely, outcomes. indoor our cultivation our But with brand to due facility modular our consistent from continue to promise the cultivation of to fundamental not our our to cultivation some deliver peers in Canadian have away and partially inability commitment we is see wavered strategy. to or We

to market continue maintain keeping focus our We to and on our safe employees demands. adjusting

our half us and and performance positioned beyond. position, excited focus in financial on have and second unique results. Thank financial positioning. am of I now Jim Our cultivation about for our Sundial's competitive I future all. to the improved XXXX pass for on facility commentary it premium you inhalables strong will

Jim Keough

morning are morning otherwise to denominated this are mentioned in. remind in listening unless who and everyone would Canadian that Zach good amounts dollars, Thanks, all to I I that all stated. like

improvements the of QX, review the that that start during liquidity hand. and CADXX Let's CADXXX a in end the million our on structure capital cash We achieved number the we've was of By quarter. with XXXX opened million. And investments with of of of a to X of approximately were marketable of cash addition billion company when market as CADXXX CADXXX had balance million CADX.XX securities an value total May million, in at unrestricted in combined. XXXX,

count share the outstanding end was billion CADX.XX QX at at sits Our CADX.XX billion and today. of

million total program of shares proceeds million. XX through its equity company During direct million quarter of the to issued issued Subsequent at-the-market registered quarter-end, of and million. exercises Sundial offerings for XXXX the warrant total XXX CADXXX CADXX.X shares common proceeds the first programs, to for at-the-market equity pursuant

cannabis and a a quarter have the company of and the segments portion the first for being was period had investments. reporting Sundial end cannabis-related capital several of raised One transitional operations two business into XXXX the The into for million. investments, purposes. and totaling of we of realigned being By other the deployed our first XXXX, operational quarter CADXX

During of industry million is from provide revenue portfolio of reflecting continue targeting our third deploy and cannabis realized of QX, and to to to capital, classified to million the in hybrid new loans exposure debt in CADX.X operations, the income to parties as attractive segmentation the enhanced we a intend revenue equity opportunities risk-return operations from marketable in significant being CADXX.X interest instruments. company realized securities. and and from investments gains This fee in unrealized

during all value in the the the loss XXXX million loss our this There these that loss no from attached March million, valuation previous the Net the warrants exercised quarter. explain each three fair impact in until Now, ended changes warrants sheet. the or reporting on net a quarter resulting required for under be of of net cash amounts cash compared let adjustments net was to adjustments. on warrants me payment arose for the fair CADXXX months million detail. the the offerings value were XX, non-cash our derivative direct derivative IFRS quarter that will are with share Effectively, the These loss from more CADXXX.X amount from of will to is two that CADXX.X are expired. balance There for fluctuate disclosed price ever was no quarter. issued

of this value conditions a fair a revaluation as are sheet For on of non-cash Sundial derivative decrease statement internationally. by and our be capital which and our gain warrants, estimates amount. in balance into a on same strategically to strategic was to edibles. on There as of Indiva opportunities to Canadian shown the liability XXXX, done SAF deploy outstanding date, capital of in CADXX million our investments XX, throughout that with clarity, cannabis-related continued the would investment if the focused would the approximately May income summarize its our million. in management of using market CADXX first a and segment We entered partnership Sundial capital deployment To invested Canada quarter-end. cannabis Ltd., Group, quarter producer the subsequent

approximately venture with Company third-party a partners. developer special agreement, shares that manufacturer Valens Spirit and into and commitment of addition commitments and CADXXX and an Spiritleaf for a first including the outstanding to CADXXX outstanding the Sundial all Sundial, cannabis CADXXX from The in by acquire opportunity Inner Inc. just the Sundial which the cash joint common issued mandate it the also end-to-end acquired consideration approximately network is XX% cannabinoid-based research-driven, common entered limited pursuant Holdings million. announced of fund products. of an will shares of of over arrangement of million, million Valens company the initial of vertically innovative retail of issued total is of integrated, to

our was cannabis-related EBITDA adjusted million to X.X XXXX, CADX.X income results, adjusted the investments. EBITDA increase from company's adjusted Now focus its in prior mainly The compared quarter. the turn of Sundial significant in to CAD with of starting loss due operating investment an recorded and realized to million strategic let's first-ever portfolio gains the EBITDA. QX

our higher X.X X% gram net market operations and across the revenue. moving used spending compared levels, industry conditions X.X a provided this well investment a XX.X other improvements to investment Sundial's the was capital, CAD Average previous revenue legal from we've products cash per million quarter were cash marketing million realignment X.X and and of quarter, prior the consumer In and to quarter, of operations QX, retail the discussed, to first for XX% QX was the price investment of CAD equivalent to working build-out reflecting direct previous In team. as CAD CAD the inventory model. first forward. gram positive CAD continued product sales impacted Net million in branded the CAD revenue flow compared of before the in quarter. X.X compression CAD compression provisions General boards quarter. fees million and Sundial's the X.X due gram XX.X discipline million, per first and As previous were In X.XX the price CAD of core expenses of the In cannabis to reflect to including administrative cannabis related price provincial value products. for be as XXXX, sales operating CAD million our million X.XX expenses CAD shift from changes quarter, compared declined at refinement XXX,XXX the and negatively will at seasonality about company Sales from by per seen operations. from quarter, part quarter in reducing and portfolio. previous in industry in the selling gross reflecting segment by to

additional improvements marketing before improve quarter. teams cost optimization primarily not key to from market for accretive We be related and priced X.X expenditures Total year more despite products. our and capital facility gross margins in operations. This have cannabis budgeted have increased and negative fair due in million XXXX first the have and is in adjustments CAD and cultivation CAD to investment improved was initiatives, sales minor capital. to impairment X.X to members. value for trends margin for work margin our was CAD improvements processing price and our million added commitments SKUs focus capital on compared million, our strains X.X inventory maintenance material, team previous quarter outcomes both but XXXX and to expenditures of automation, value There to full done were the we Adjusted

President Stordeur, related Andrew Sundial invite provide to cannabis operations. remarks to like would of I COO and to Now

Andrew Stordeur

you, Thank Jim.

our through industry Sundial's key inhalables price cultivation excellence volatility continue price to to of dynamics high will segments strategy. portfolio not in ability discount see the continued to remain quality the are and we deliver assets. compression, our The commitment a sustainable Sundial's for component of As of

supply management, revenue and Moving to simplify on we chain our to forward, our focus further strategic will and our margin while products. product improving continuing mix portfolio

excellence there Sundial's over the pillars in developed progress quarter commitment is improvements of of still of plants. The for first process been the we to course cultivation While people, focus: XXXX. areas, made and room three those have around has

start me of allow one, teams more our We supply let we the organization will nimble that Now believe quarter at with our operations make the and Olds our industry. teams decisions and streamlined people. nature a more become informed to dynamic restructured facility. In given more

We concentrate with brand. Grow hydrocarbon at the be adding leadership under the SKUs XXXX Leaf We we'll Leaf Olds of launched and and also concentrate more beginning product than Top launch to offerings to signed We of new sustainable Stigma innovations have first capability recently invested We than develop partnership three cultivation a our year. in the this went at XX brands. develop Top the to more XXX of XXXX at less in additional beginning SKUs Grasslands under engineer SKUs our facility quarter program. from a

Our be of and innovation months. pipeline XXXX for is several products launching the the next new in focused balance we'll few

and Our second is pillar Sundial around process. cultivation access data harvests insights. since over has inception, XXX With tremendous to cultivation

playbook, since the in currently facility's harvested process has initial LA entire flower excess since quarter In The to our further cultivation Leaf's with drive allow is in us velocity of Top Olds the team will strong consistency. revamping Sundial Cake potency THC. potency which Our one, of highest Kush XX% lots producing product launch. seen inception its genetics

cultivation potency pillar plants. around And our average our is year-over-year. increased finally, by have third XX% approximately We results

new invest the of continue of genetics, higher laboratory first profiles cultivars these in received look above-average our We quarter we'll of a library of for in developing fourth combination potency, and and We more to that robust extended to a launch terpene achieve prioritize XXXX. yield. results library our and

brand sales. still Our focus on is

cultivation divest Sundial feel to in as licensed However, that practices. we other our million first have our continuous trend costs. market of quarter in an were $X reducing the sales well In and the million by is focus We average wholesale from month underpinned of production XXXX, advantage producers increasing seen opportunities cultivation per positioned an $XX to costs per XXXX. first These on are of month of quarter pillars BXB reduced take opportunities. these from

XXXX numbers top-line year QX, versus Our regressed and over year.

costs. activation will are unwilling pursue grow enable at win investment through As unprofitable revenue new direct and growth team our Sundial We our Zach by on customer our market earlier, not education improving us product mentioned and share consumers will into to the we with by to both all portfolio. acquisition, distribution believe, increasing and products brand sales accelerating of our customers

As by Sundial's right key moving driving at markets quarter. a segments premium priority in frequency the which to market increased in the of retail and on improves and team SKUs a customer distribution assortment X on result, salespeople our increasing first Quarter to increased level, core dedicated and forward. enabler significantly across be XX XX% we focus will organization the the store key our breadth the in coverage new an added share our several With

encouraged still remarks. While cannabis call do the to that work in to operations operation closing we with a segment for Zach Quarter have sustainably with we cultivation at progress profitable to the like made for turn excellence on back our driving core. I'd With are X,

Zach George

work their for now trust over and question for operator efforts period. success. for team and as for safe. customers it to thank position their today you will turn our the for their joining I Thank stay I to our back us please shareholders continued support for we Sundial our the

Operator

from [Operator Please go Chen Tamy ahead. question Capital you. comes BMO of Thank Markets. first Our instructions]

Tamy Chen

Thanks. Good morning everyone.

bit know into stores marketing Sundial to team explain rationale the could better Spirit, the acquisition penetration if a the why products? could the of engage you some know corporate a of your more on if have you retail. and with on bit ask, acquiring elaborate you to of you network for this of thinking franchise Is increase Just to wanted more I Inner First, stores? it

Zach George

Good to on question Hi now. question. the this Tamy. actually for we're Thanks morning. going for Unfortunately, punt

to early the we And and in be be at more time. that happy we'd a of of number We conditions close time transaction are very which detailed to much give QX. close we'll to update providing a satisfying as the closer is fulsome a answer said

Tamy Chen

to if been Okay. can here. Fair enough. market happening pivot Then what's we the in rec

Canada. So, noticing comments you know sustained this in you're decline sort in the press flower release and in talking then in about of price

view drive you're how off, which in think naturally wanted about might continue? is first to to know your products? trying price sustaining? I long overarching as So, with come higher sales How why you Thanks. more And ask do you think dynamic do would this point you this higher-margin it

Andrew Stordeur

Tamy, moving we've as Hey think the for question. well. I of first year know continues price Yeah, it's into Thanks think Andrew the and that and you seen compression I here. as foremost year this last

as go think while. we're monetizing across all lot with an So driven timelines I that going a for that's far to levels industry be in I inventory position as and inventory largely think high by And licensed provinces as of that a really that producers. on

have going market revenue That's our the know I it's given a we're for the and direction. you a the going you of to, segment. chase that So a and ability But share the take this we're is, move to thing core to mentioned that stay on in we to know know bit chase see here not consumer time. as important little product pretty position not you the while. right you premium discount is And optimistic category in segments that think for you know

consumers for know is taking the one we on to really key stated markets out industry opening dynamic. discount you have that's healthy Sundial. to pulling not And you strong. get and that that you going be some I market the industry and the to really certainly lead know investment to tell foolhardy And that's markets going Leaf you we're be And share. offerings focus and Certainly, we're good a Sundial. for focused our actions the focused discount to can We in as frontline thing that's Our think to driving of segment. you to on. balance of hear I products comments know And sales on thing want make that. sheet selective key our we team's renting the They're And we want on that And that. have. for continue is really a I the extremely ability in on where mentioned think good premium we're customers decisions talking Top to about and the I hear know certainly want think on. a going

So with for a we're no is established question pretty segment this we're while the little consistent a other to in bit you that in CPG. categories going longer move more know but optimistic

Tamy Chen

Got it. you. Thank

Operator

of Our from Capital question Please Kideckel David comes next Markets. ahead. ATB go

David Kideckel

morning. companies. We Good with strategy of can a you and -- to maybe acquiring versus Spirit but back you I know stake I know in the is you Congratulations questions. go process in overarching strategy here? mean to you what understand note Zach here specifically, your a acquisition the team the on quarter. my stake acquisitions a other Hi. taking little in to are Holdings Inner Inner mention taking us that help want Spirit Thanks taking the now. for bit Not companies

your -- remarks the balanced There's also prepared on on company. mentioned you Indiva. think I

So there, strategy it just on decide to to a what strategy be for in or of here? combination certain Thanks. any how or helpful. proceed, would companies looking certain you're overarching metrics there are both, the is commentary Is the

Zach George

David and thanks the question. morning Good for Sure.

with deployment commentary think capital in is I line strategy very look, So from on quarter. last the our much

we higher in in classic looking do off have a of One are be position to at ability that to and we look which main out also Canadian the of our consolidation manner the space then risk-reward. and in certain market. or partnerships So of at in capital typically, we a are And sheet returns terms structure on Canada opportunities, through our the attractive structure. two consolidator we've an in opportunities a balance way done ourselves can in this many consolidate earn really in we own just its modest M&A, material see up cost to see investment take a we and where opportunity well cases from the equity-like asymmetric And really what where perspectives.

perceive the when not look businesses, So is landscape. every to small stand of company a certain But the Canada. perspective business the in certainly at of from what see we out strong theme really common apply few in future you in terms from some role that really our equity a our stakes there and capabilities or model model the that perspectives of in differentiated taken a are Canadian you would that we've as

a So will continue know us number trying There to transactions discussions with why wide-ranging we that are evolve time, make capital are toward many reasons never -- lot of get see to instances. we smart of completed. a we we these slowly a M&A in recycle for that over walk in shareholders. Sundial are transactions the sense But think likely think industry and parties have you you'll number of

David Kideckel

with Zach. that you would Understood. agree And Thanks color. I for

differentiated For one model. lucrative very like is looks what in business know you this a potentially

to mentioned, is that purposes your Andrew two said one your have Shifting and I think models mentioned segments and operating within is business model. cannabis the two the back to you the investment your strategic think both with cannabis right you potential number include segment. well you So unprofitable of here, stop I share as your you both Zach number know business reporting or Jim cannabis

with business cannabis. market when of you challenges lucrative all the know could potentially that more the seeing why companies And we're be you making dollars bother there you're cannabis? far over and the much investments from where a the your the as have billion wondering balance now with and in just with side so So sheet I'm potential in fact into is investment your

trouble words effort? So Thanks. worth the this is in all other

Zach George

to me as mentioned is as of of Andrew. I'll it and number away are what we I pass then a number just think effectively But David, from moving Let we're peers as well a answer our seeing you cultivation. know

we have what facility. a believe We world-class is

our as business learned really that this the facility and to of commodity within improved day. cultivation do a we've operate see practices at we've reached We end As results. the refine

we're And more I robust And pulled market effectively got this cultivation out leading. down all on consistent a to take number it's very, outcomes. you're comes need triple back some so that players been to charge to think really plant strong really of flower and And the cultivation outcomes down narrower, but see -- and that cultivation, a to that to Andrew's low-cost see think industry embracing. you're very really contrarian get What a have that's perspective it going have premium We is very going wholesale and structures. one manner usable we're that the very comes to you've I in segment to that of attack small as matter the system, evolves. trying a more

Andrew Stordeur

mainly David, think were cannabis. know Look, I'll the add on inhalable inside obviously I of we to largest that's just you pretty segment that. and focused

is Our win on predicated to really that right in cultivation.

done possible there facility there enable micro And mentioned, growers that's business have they're making hold. mentioned, side do and but as Zach and nobody's really about really some the And out that look predictive, we scale take to small-budget and doing If really our possible. strategy that all is really of small as right? a this fabulous it really, as as that Now, mandate, Zach we as well this scale. job are will boring at it as

cultivation we're scale able value. quite shareholders' nobody to really do consistency globally, focus that do industry and a actually we frankly, the we doing that to on our win When and really to our our going ability what that's a of significant that, is in impact when kind drive have on. it's we drive So to at that when right that's

David Kideckel

can then if one Thank I about both, helpful. guys quick one very And That's to just Okay. were here. what you. talking related you squeeze

JV potentially Group stack. and we commentary your internal the to here of be spin to then more one opportunities? about queue. and to businesses potential opportunities going on own should within or I'm hop build a previous to respect with SAF external Just thinking the there into into with Thanks Is the from out back these stack, as and your your

Zach George

Sure, David.

vehicles should yes, about oriented those thinking external So, opportunities. as to today pursue you be

spinning America. surely stabilized could a point a think pure three to and discussion have extent that segments that as out a on have very Your would a be play years important scale two we we that the markets business there or this just the look we of We're out, positioning more further early development in in the not North as stages about certainly we're platform, yet. it's We're the of the at down but thinking something road. better

see days. with to XX the as market look any And in the partnership Given today, internal that raising qualifying we're engaged any you're funds updates on we an our to expect with SAF, the stack likely XX the of structure, in to third-party related to at going as stack our the update next the a stack assets constraints the not well transaction. as of provide

David Kideckel

the much on quarter. Thanks Okay. congrats very and

Operator

next Please comes Pablo Zuanic Our question go of from Fitzgerald. Cantor ahead.

Pablo Zuanic

the in with limited cash there or all a you Thank Can sales period through And need XX% you XX. about do in or, around opportunities, overseas that lower to other in understand, you talk more seem question just chest Two a that US you're do can the the you. that the second to were give what that, So context necessarily, US. the acquiring was in terms about I I than in listing, soluble raised, better improve that questions. suppose points, say, be transition What relative I'm and One, minus as reported M&A, trends? companies of small first do the price you you because going retail assuming wrong, side. necessarily was it. the what underlying opportunities just doing right? have board, to how success say, US very is Can the or good your to companies business, of quarter. reported were listings you are then, morning. maybe well have can businesses elaborate, and describe I'm you And of the about in -- learning well for you're terms but to thinking you related a end the Thank you I'm And businesses recipe but some What right? in more you is if the on number, to that value that provincial high sequentially. can very regarding number? up, improve scale talk the operational premium, the better you war that of, doesn't US? job

Zach George

Sure.

structured THC-related, some over opportunities We through market advantage take and the directly But me that entering core operations. touching question, for ways time for scenario. improve Andrew the or point plan our and Let an speak mix of to various opportunity revenue you're Pablo, challenges correct manner assets in to think current in and to listing us have evolve not that the US, there’s on of first as out that's in distribution set creates regarding can let we're in US. the M&A, our to a environment is peers steps will product invest that evolving or but we that taking NASDAQ

of opportunities lot internationally. a with presented getting are We

the We have and landscape we focused will at to what opportunities. of on of years. be next take are have we very being from three say two very that healthy emerge part and we current advantage will I think in when But committed in Canada those to being dysfunction the successful capital a a vehicles, look and we the

Andrew Stordeur

Hey, I'll Pablo, about two I specific up question. pieces, the Andrew because of and industry the Thanks concept of dealing that happening in the for what the and it's this it around with there some dynamics are doing think Canada then we're what's operations. in here. kind to break there into this was we

with QX kind the industry what's thing in certainly, Let what me to color in and of some regards kind on give we we're seeing you QX happening, headwinds. same saw of

first a saw March, February. in to foremost, in start we a bounce the So January look, with. and We but was industry and back slow industry had down

see. gram, close in much in into make decision, we the the mix, have markets to to some $X And inhalables in and and the we [Indiscernible] Sundial managing point Top with quarter, just what regards away in That's Canada. comes it compete but now segments, when saw what you coverage. that sense. do our That want have don't piece. Nothing And going the belabor like is know used a do have from walking it's to inventory as markets to Western we're discount got segment like, significant. wants think, decisions, at largely to make still and and we drive to in an going segment accelerating the forward, that to better boards discount some profile. really strong and area of premium Leaf. unsustainable Top that's discount tough very provincial drive impacted real we a to said, or moving the And the mean brand they we product strategy a on that's in but weeks the but We're around first on. stated need reducing that's right segment before, and discount And to And better some I we've dynamics, pricing us that's an not segment. their needed mean, We our want I premium as is Leaf. outstanding it's mix that I value lead to to certainly we value, doesn't pricing a particularly pace to

I very, about remain, love about in that, It's will it's not also and next-step touch side on And really it's opening u. very in operation say kind the pillars And that as I'd over for that down that the operations costs year. really upside. follows facility, but years we here. in progress the been the Let plants. past optimizing quickly on me that's taking our around in And to that. the mentioned. important. just mentioned process calendar, and discipline X.X In my while XX-day been a and on And the We've a focused it's order people, three we've fiscal simple. on remarks, cultivation, of window, for doubling really

to that. have the And needed, We're and optimization. corner strains. our parcel new to if don't in the market in chain. the seeing We're all is QX. think want mentioned our you segments. It's we're to genetics SKU that's excited And opposite that's go existing play I around premium about of And coming way. taking the we simplifying that We're especially in part the that. We our some as commercial supply about counterparts of streamlining what well, remarks

on, Hopefully, some have You you provide there. the on in focused side. right to for really that's Pablo. to facility the your I And color what win we're earn operations

Pablo Zuanic

there I consider I'm limited-edition them terms strain third season on. own? And category look now, Thank it strains. strains that's are just the they a -- a you. they that strategies trying to in flower very better that their companies one some or view different and at change right XX% talk then, suppose, find When I business, how different that of many strains, Whereas, to to I But have And would or to just sense. each Can more comes later you then, companies from I all of strategies a do right? one I'll the Thanks. and ask, there's other they on, when this come have And I -- almost diversified maybe the have there are companies what's strain, portfolio may their companies it on. for There I data, make that, if more? the pass just kind are are a right? just XX% helpful. of

Andrew Stordeur

Look, on you Pablo portfolio. move core, know Hi more your big focus good your product we're Andrew, to in a in believers earn right. diversification into its question. then, And that right get

can a we're also pipeline. in in six in got process, And know innovation to preference first you forward. with what good time you certainly, we've that business, to drive come moves it make going strain and nine that overtime. cycle genetics U.S. run to But seen given of commercial consumer agri-foods the but you're really a And current have know our And work, and good we we've to So that foremost, more months. established is out markets that to get cycle. that then, R&D takes

my the it's So genetics core our to small-batch part key with that say, of be out folks the issue. that, I laid SKU and play, run the of capability will the there. piece part. last have part would of the scale be we that's And forward. key to in move And right. of optimization a facility process, to get I primarily going focus I but got to mentioned three-pillar Plans kind being a We

asking are Our customers for it.

are I That's on think, think Again, I can we're what the short-term in on cultivation. in focused looking for we consistency here. consumers that. deliver

Pablo Zuanic

Thank it. Got you.

Operator

from comes question next Please Cowen. Our ahead. Azer of go Vivien

Vivien Azer

very Thanks much. Hi.

So Zach, quarter. pivot engaged in that I clean-up portfolio the to back just wanted guys to you the

it can profitable share footing, So you have costs. at it versus move XX%, the now all balance would the orient your of But sheet, over looks grew market system, product the course it inventories I look Grasslands better that you market guys your about like that discount as a toward makes so share sense quarter. at as through you the

reconcile So me can that? you help

Zach George

how Andrew Yeah. QX and let operations I'll Thanks inventories about that's feeding Vivien. talk and into beyond.

Andrew Stordeur

grow us. a I number the when you $XX and for top-line Hey, a think, question. Vivien, absolutely, I think, that's have thanks Yeah, for big as out, million we focus

the sellable to inventory. is, rate the right three And a boards, with inventory inventory got us we're also want that get that weeks the have our provincial to manage obviously of inventory, managing level we way least we've So as we at of focus. months their in trying to given, to best hand, sustainable under inventory proactively And two control. coverage on in can for cultivation industry a quality best dynamic to

that, an where So months needed top-line associated. and we up is and for you our very you it's grow, be, customers level to can that us. drive And on And quality that area we that it's product three it's dynamic. certainly much consistent very a Once to about get certainly ability number want. focus of consumers to, do inventory know to we two which predicated

Vivien Azer

follow-up to hand inventory then, the you just then, guys in that potency the better Presumably, improvements And on guys that, talked you it. is about quality year-to-date. have Got on Andrew. that

about in how think margin? one-off gross gross Thanks. about, the margin go first quarter recovering gross how margin do then, So truly forward? we negative think a Was we the and do

Andrew Stordeur

the is across question. Good not Vivien. certainly gross margin think Thanks entire I portfolio. Yeah. Look the

well at pretty maybe to as I look returns. level. there But and how first to inhalables what point seeing right starts a And able allowances in-stock that compression profile some at But it and is discounts I'll look across a at what then quarter. price pieces as that going the touch that that's and is the large think piece and was store to further margin us, at in ability I'd manage believe please Zach free level the really on industry. it we're I'm proactive add of do if some there's the to on certainly the the is big we provincial obviously Jim drive. had range assortment for in is we're and and a couple want mention We that one so. we because not the to feel saw the

make and to sure want is product we freshest the highest potency So there.

returns saw Zach do So that see through we tighter tighter had I'd to look provincial And and discounts better proactively anything the factors we of We position and one-time I'll some balance into bounce add course my we pass on manage had due inventory, boards last But we'll as in our that's if But And there back that? Jim, and we allowances in in in our managing as were variance have then selective the business. moving But get of you certainly be a their base and you our to to on that. normal that QX margin, to say certainly a inventory we fixed some want it and production manage did point cultivation and largely at their we to cost assortments; some gross anticipate that SKU increased power we year. get February. Olds. we're to that on in tough asset to manage forward. come that more charges get to given

Jim Keough

point Vivien our one. -- this This -- on Yeah. the an is cost utility important

our the actually but effectively impacted down of and we doubled. basically They're February, back January prices now, levels our cultivation spike in to processing painful that month power So costs. a saw was that

Vivien Azer

of the that magnitude incrementality what cost on energy you Can the quantify was?

Jim Keough

was $XXX,XXX. approximately It Yeah.

Vivien Azer

Okay, understood. very Thanks much.

Operator

of Shaan from Our Genuity. next question comes instructions] Mir Canaccord ahead. [Operator Please go

Shaan Mir

wholesale expect if Where across pricing market a tag of to thank you around if year? seeing also and in you're commentary trend going of it from an the sales on seeing increased question wondering that how of Sundial we could then just some branded first segment as company you. the you in relates is Hi forward? questions. wholesale you markets. And spectrums. the the was I for product release expect My the some the seeing detail What press for does that approach my versus should taking I interest? different that on, the particularly of on side developments balance are Thank resurgence this mix

Andrew Stordeur

That here. Would you it's just the Shaan, cut repeating out take piece My Andrew for of me. question I'll that apologies. and it mind from Hey first there?

Shaan Mir

Yeah sure.

was that part commentary in regarding press sales the wholesale So the was market. of increased on trends just the first on some release the

just spectrum. those it developments product seeing that some as wholesale markets pricing wondering, you're of you if different I'm price in So detail relates particularly a could the to --

Andrew Stordeur

Got it. it. Got

Where of, Thanks. demand it on interesting. kind side Yes, Okay. a BXB, actually full it. really when it's kind XXX of comes seeing of wholesale to

do interest of of is seeing you driving well-positioned certainly You at lot producers simply lot we're and in And divest from advantage know that cultivation. of that's we you can Sundial that a a stated know scale peers know take that. as to our

of seeing in of kind early a saw know of when bit in taper I demand we and little force. know you you know legal a come wholesale went XXXX the kind So know we had days that we're BXB. I off think huge that say on you would And to we full that XXXX Canada you there here back

on cultivation. think would when we're I I of given we're thing same And retail for you to know, side our positive us pricing comes quite that's seeing side in our So small-batch-scale frankly. approach the really say it's the focus market, seeing on the the it what and

the You know monetize XX%. it you you're products a see everybody and starting ability when to to know above THC. you comes And get wants to pretty big know XX% floor there above

just on in. is So the if that And in and of given product that you to that there's get able in the a at range. consistency can't pretty that they maintain we're doing really know, to coming need at high-potency wanting side. we can markets right margins know, seeing very, different to scale get XX% which get again, short above lot the procure they very product larger companies through at supply we're prices healthy that XX%, from But nobody's the that that you really are

pivot just XXXX it color core really think wholesale. in XX% So for another there. what to I a you regards We our us to the that was bit it's of early XX% it's I just mean does made focus think about -- of days. In business it branded -- gives

scaling at right focused side. branded on these you And it to the business conversations. still look the we're wholesale appropriately side, be going know and partnerships the for You our with of on as cultivars us as advantageous the we in makes but sense right we're we have more know

Shaan Mir

the on the costs there. month. the to question is My pivot second in for you cultivation production to color Thank going and talking

noted to versus a the that QX I $X you remember monthly came million month per If $XX costs per quarter the reporting, figure I down down X year. last million month cultivation and production average in believe on that correctly CAD was to million basis. from So

your for commentary then where average sustained cost margins. understanding an there's any and QX get to that why that. of appreciate is. to on relative played a trying how also just I'd front if forward you sort that detailing Thanks. think increase into And level So maybe sequential the

Andrew Stordeur

touch made changes you same want maybe do to Jim, you on C&P? of in that? of Because

Jim Keough

I'm sure. happy to. Yes,

elevated And I costs. mentioned had think as some that. only of he mentioned, think one aspect Zach we I

complete some saw and elevated grow we other did costs accelerated of processes many in we lamps. think other of temporary then were non-recurring replacement accelerated that on a that the some we of basis. I rooms -- aspects had a other that we that in testing we the And

C&P So it's to cost referring clear think about about the think to at some and the you be in also know are course we COGS in that we the total we when talked in as as of the number previous numbers C&P, costs was CAD costs I speak the sitting of about look inventory we terms had now And question. you're of I non-recurring XXX,XXX. that

we all to $X.X our million flowing normalized in of a we'll I to not range through that those -- are statement. expect get the So we'll level month something a of that to more down But income you on of $X know think costs. million C&P

Shaan Mir

it All my color right. Thank the you questions. for for that's and

Operator

This any the closing concludes George for would the session. Zach over to remarks. question-and-answer turn like back conference I to

Zach George

to Thanks, updating to thanks look for everyone safe. in months. you today. joining the coming forward operator We Stay and our call

Operator

conference today's This call. concludes

lines. you and a your participating have may day. You disconnect pleasant for Thank

SNDL (SNDL) 12 May 212021 Q1 Earnings call transcript