Sundial Reports Second Quarter 2021 Financial and Operational Results

CALGARY, AB, Aug. 12, 2021 /PRNewswire/ – Sundial Growers Inc. (NASDAQ: SNDL) (“Sundial” or the “Company”) reported its financial and operational results for the second quarter ended June 30, 2021. All financial information in this press release is reported in millions of Canadian dollars and represents results from continuing operations, unless otherwise indicated.

The Company plans to hold a conference call and webcast at 8:30 a.m. MT (10:30 a.m. ET) on Friday, August 13, 2021. Please see the dial-in details within the release, as well as additional details on Sundial’s website at www.sndlgroup.com.

SECOND QUARTER 2021 OPERATIONAL AND INVESTMENT HIGHLIGHTS

• Net revenue for the Company’s cannabis segment of $9.2 million. Investment and fee revenue of $5.7 million and Sundial’s share of profit of equity accounted investees of $3.7 million for total net revenue and equity pickup of $18.6 million for the quarter.

• Gross cannabis revenue of $12.7 million, an increase of 8% compared to the previous quarter.

• Net loss of $52.3 million for the second quarter of 2021 compared to $60.4 million in the second quarter of the prior year. Excluding a non-cash provision for impairment on the Olds facility of $60.0 million, net income would have been $7.7 million for the 2021 second quarter.

• Adjusted EBITDA loss of $0.2 million for the second quarter of 2021, compared to an adjusted EBITDA loss of $3.9 million in the second quarter of 2020.

• Gross margin loss and gross margin before fair value adjustments loss from cannabis operations of $2.0 million and $0.4 million, respectively, compared to losses of $3.3 million and $1.6 million, respectively, for the previous quarter.

• $1.3 billion of cash, marketable securities and long-term investments at June 30, 2021 and $1.2 billion at August 9, 2021, with no outstanding debt.

• Fair market value of investments at June 30, 2021 was $354.5 million in cannabis-related credit facilities and marketable securities. Cannabis-related credit facilities of $253.0 million at second quarter end generated interest and fee income of $7.1 million for the quarter compared to $2.8 million in the previous quarter.

• ATM net proceeds for the second quarter of $327.4 million at an average price of $1.30 per share. The Company’s ATM facility has been inactive for 49 days prior to this news release.

• Subsequent to the quarter end, closed the acquisition of Inner Spirit Holdings Ltd. (“Inner Spirit”) and its Spiritleaf retail cannabis store network (“Spiritleaf”), establishing Sundial as one of Canada’s largest vertically integrated cannabis companies.

“Following Sundial’s restructuring in 2020, we have been able to rapidly reshape the business model to focus on a two-pillar strategy that we believe will position our shareholders for future success,” said Zach George, Chief Executive Officer of Sundial. “The first pillar is comprised of our core cannabis operations which are now vertically integrated with the acquisition of the Spiritleaf retail network. Our upstream cultivation results within our indoor modular facility continue to improve amidst the intentional reduction of activity and we are excited about targeted innovation that we plan to introduce later this year. We are focused not only on the challenging and dysfunctional Canadian industry landscape today but are mapping the characteristics of a dominant and stable business model in a healthier environment that we expect within three years, following necessary regulatory reform and industry consolidation. The second pillar is our investment operations where most of our capital exposure is committed to our joint venture, SunStream Bancorp. The SunStream Bancorp team is focused on deploying capital within the cannabis sector on an attractive risk-adjusted basis and is exploring broader opportunities within financial services. Sundial will benefit from a growing, predictable interest income stream as this capital is deployed and the resulting cash flow has materially buffered our pre-profit core cannabis operations to date. We have also made a small number of select equity investments in businesses that we believe can enhance our upstream and downstream capabilities.

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“Our second quarter performance continued to be impacted by the liquidation of discounted inventory and our refusal to push sub-optimal product into the market. We have undertaken a significant retrenchment in our cultivation activities, which has included changes to our cultivation processes as well as workforce and other cost reductions. We have seen continuous improvement in our cultivation outcomes as we remain focused on best practices to deliver strong results in potency, yield and terpenes. In the last two months of the quarter, we experienced the highest successive average potency at harvest since operations began at Olds.”

SECOND QUARTER 2021 KEY FINANCIAL METRICS

• Asset value per share at June 30, 2021, including cash, loans, marketable securities and the Olds facility at net book value was approximately $1.34 billion or $0.66 per share.

• Subsequent to quarter end, Sundial issued an additional 26.9 million shares related to the Spiritleaf acquisition and settlement of related Spiritleaf debt.

• As of August 9, 2021, the Company had an unrestricted cash balance of approximately $760 million and total common shares outstanding of 2.06 billion.

INNER SPIRIT ACQUISITION

Sundial completed its acquisition of Inner Spirit and the Spiritleaf retail network on July 20, 2021. Adding Canada’s largest cannabis retail store network will enable Sundial to reach consumers through an entirely new channel, generate a deeper understanding of consumer buying trends, and provide depth of data to enhance decision making around product and distribution strategies. In less than three years, Spiritleaf has sourced, built and opened more than 100 franchised and corporate-owned stores across Canada in British Columbia, Alberta, Saskatchewan, Manitoba, Ontario, and Newfoundland and Labrador. Spiritleaf served 2.3 million guests in 2020 and currently has more than 320,000 members in its Collective customer benefits program. System-wide retail sales¹ through Spiritleaf stores reached $124 million on a trailing 12-month basis to March 31, 2021, the last reported period prior to acquisition. In July 2021, the retail network achieved its highest ever one-day and monthly sales since inception. Through the acquisition of a retail segment, Sundial now has direct access to more comprehensive customer data and expects revenue increases to be generated by the integration of our distribution channels commencing in the third quarter of 2021.

SECOND QUARTER 2021 RESULTS BY SEGMENT

The first half of 2021 was a transitional period for Sundial, and the Company has now structured its business into two operating segments: one being Cannabis operations and the other being Investment operations.

CANNABIS OPERATIONS SEGMENT RESULTS

While the first quarter of 2021 was challenged by industry dynamics and continued price compression, Sundial’s ability to consistently deliver high-quality inhalables continues to be a key component of the Company’s strategy. Net cannabis revenue declines in the second quarter were the result of continued growth of the discount segment and lack of available product to meet consumer needs. Sundial’s commitment to cultivation excellence remains a top priority for its cannabis operations.

• Sundial’s ongoing investments in innovation and cultivation practices yielded the Company’s strongest results in May and June of 2021, with an average THC potency greater than 20%. These products will be available to consumers in Q3 2021.

• The Company continues to invest in its evolving library of strains designed to meet consumer preferences and has entered the commercial flowering stage of 13 new cultivars in the second quarter of 2021, some of which are exclusive to Sundial. The preliminary outcome from these new strains provided results averaging higher than 22% THC. These strains are expected to be harvested in Q3 2021 and released in select provinces by year end.

• The Company is focused on its most profitable and higher margin SKUs, while simplifying its supply chain and rationalizing SKUs across all brands and formats to better align with Sundial’s brand promises. Through a comprehensive review of Sundial’s portfolio, the decision was taken by management to rationalize unproductive SKUs to drive improvements to profitability. Sundial had 100 SKUs at the beginning of 2020 and now producing less than 35 SKUs in line with the proposed SKU rationalization plans.

• Sundial is focusing on meeting consistent results on its four core strains that have proven to meet consumer demands. In the second quarter of 2021, Sundial launched three new Palmetto strains and shipped approximately 9,300 cases across the country. The initial consumer feedback on all three strains has been positive.

• During the second quarter of 2021, Sundial also launched two concentrates products in Quebec – a sativa hash and an indica hash.

• Subsequent to the second quarter, Sundial has begun final packaging and is expected to launch a 28g LA…