The talk of cannabis industry media late last week centered around the lay-offs at Calgary-based cultivator Sundial Growers (NASDAQ:SNDL). The company did not post an official press release about the staff reduction but told Global News’ Kayden Small that “less than 10%” of its staff had been given their walking papers. Sundial’s corporate webpage proudly claims that the company has “700+ employees,” but it’s unclear if that total had been adjusted to reflect the layoffs. The licensed producer’s “careers” page listed a regional sales manager job in Toronto and a territory manager job in Saskatoon.
Sundial declined to tell Global how many individuals had been affected by the layoffs, preferring to let Maurizio Terrigno of the Canadian Cannabis Chamber do the talking. Terringo, who is also the CEO of Cannabis Capital Inc., a cannabis import and export brokerage and consulting firm, had a great deal to say about the numerous structural causes of these layoffs which, like so many problems, start with money.
“Money to promote and activate new funding in this industry has effectively stopped,” Terringo told Global News. “Institutional lending has ground to zero.”
Sundial financed the build and roll-out that they’ve done to date with a total of $495 million in equity financing, including a $143 million in financing at the time of their IPO. They also borrowed $253 million in the form of various credit facilities and term loans and issued $25 million in convertible debt instruments in 2019.
To date, all of that financing has bought and built Sundial a 288,000 square foot facility in Olds, AB, presently being expanded, a 31,000 square foot R&D facility in Rocky View, Alberta, plans for a 35,000 square foot extraction facility in Merrit, BC, and a 1 million+ square-foot facility in the UK, where cannabis is not yet legal.
At the end of September 2019, Sundial carried $176 million in total debt, not counting the convertibles, offset by $152 million in total cash. The company booked $48.8 million in revenue from cannabis in the 9 month period ending September 30, at a cost of $31 million, to create a 35% gross margin, and a $126.4 million net loss – $56 million of which was a net loss from operations.
Sundial was the 4th largest producer in Canada over that nine-month period in terms of volume, selling 13 million grams of cannabis in total. It’s not clear from Sundial’s filings whether or not those sales totals account for the return of a bulk shipment that Sundial had made to Zennabis Global as reported by Marketwatch’s Max Cherney this past August. According to Marketwatch, the half-ton batch failed to live up to the receiver’s quality control standards, for containing “visible mold, parts of rubber gloves and other non-cannabis material.” A class-action lawsuit was filed by investors in October, alleging that Sundial failed to disclose the product return.
According to Cherney, most of Sundial’s sales were made in bulk to other producers at the time, but there is presently a clear effort to market Sundial bud directly to consumers. Both Sundial proper and brand property “TopLeaf” had booths at this month’s Lift & Co. show aimed at appealing to end-users.
Terringo offered a multi-faceted explanation for why giant LPs like Sundial haven’t yet managed to use the money they’ve raised to create businesses capable of raising more money. One problem, he says, is a monoculture on store shelves.
“If you walk into your local cannabis retail store, you’re still only buying Pepsi and Coke. There is literally no variety in this market and the limited variety is scooped up too quickly.”
Maurizio Terrigno, Canadian Cannabis Chamber
Terringo would like us to consider that LPs have fallen victim to an unfair business landscape.
“Here we are in the retail market producing or trying to produce a high-quality product where we’re heavily taxed, heavily legislated with a talent pool that is very limited,”
Maurizio Terrigno, Canadian Cannabis Chamber
It’s unclear how that limited talent pool reconciles with the Sundial layoffs that started Mr. Terrino’s soliloquy to the press.
Increasingly, there is an accord between all industry observers and participants that government-sanctioned cannabis offerings are not of the type of quality or volume that sustains businesses. The disagreements mostly have to do with how to remedy it. Terringo is inclined to see unlicensed growers as a threat to the larger LPs and makes a tacit request that government resources be used to stifle the only present source of the variety he says retailers need to compete.
“The black market has no repercussions, no enforcement, and yet it is allowed to flourish.”