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SNDL Inc. (NASDAQ: SNDL)  reported its financial results for the first quarter ending March 31, 2023 in Canadian dollars. The net revenue for the first quarter fell sequentially to $202.5 million versus the fourth quarter revenue of $240.4 million. However, it was a steep increase over last year’s $17.6 million in the first quarter of 2022. SNDL attributed the increase to the acquisitions of Alcanna, Valens and Zenabis. The decrease in revenue in the first quarter of 2023, as compared to the fourth quarter of 2022 was due to seasonality in the Liquor Retail segment, as the fourth quarter is traditionally the strongest and the first quarter is typically the weakest. This was partially offset by an increase in revenue from the Cannabis Operations segment due to the partial quarter contribution of Valens in 2023.

SNDL also trimmed its net losses to $36.1 million in the quarter versus $161.6 million net loss in the fourth quarter of 2022, and a $38.0 million net loss in the first quarter of 2022. The loss for the first quarter was impacted by the seasonal downturn in Liquor Retail sales and inventory and asset impairments of $10 million.

“We are pleased to report progress towards key milestones in all of our operative segments against the backdrop of expected seasonally moderate sales in our retail networks,” said Zach George, Chief Executive Officer of SNDL. “The integration of Valens is proceeding with pace, and we are actively identifying new revenue streams and cost reduction opportunities. The first quarter was impacted by a number of one-time items including $13.5 million to replenish liquor inventory following the seasonal holiday draw in the fourth quarter of 2022, $2.7 million in severance and restructuring costs, and $17.5 million to stabilize Valens and bring overdue accounts payable up to date.”

SNDL told investors that the results for the first quarter include the operating results of The Valens Company subsequent to the acquisition on January 17, 2023, and the results for the first quarter of 2022 include one day of Alcanna operations subsequent to the acquisition closing on March 31, 2022. Through its acquisitions, SNDL  has become one of the largest adult-use cannabis manufacturers and retailers in Canada.

2023 Cannabis Expansion

Gross revenue from the cannabis retail segment for the first quarter of 2023 was $67.4 million, compared to $68.4 million in the fourth quarter of 2022, showing a modest seasonal dip, and up from $7.5 million in the first quarter of 2022. The Nova acquisition and Value Buds sales were the material driver of the increase relative to the first quarter of 2022, with $60.2 million of revenue during the first quarter of 2023.

On May 5, 2023, SNDL proposed a strategic partnership with Nova which was approved by Nova shareholders. The Nova acquisition and Value Buds sales were the material driver of the increase relative to the first quarter of 2022, with $60.2 million of revenue during the first quarter of 2023. In February 2023, SNDL announced the acquisition of five Superette stores in Ontario. In addition to that deal, the company entered into an agreement with Lightbox Enterprises to buy four cannabis retail stores operating under the Dutch Love Cannabis banner. The transaction is anticipated to close by the end of June 2023.

However, all of these moves come at a price. George told investors, “We expect additional restructuring charges to impact the second quarter and the results of our team’s hard work to become clear in late 2023. We are focused on improving all aspects of our business with the objective of generating strong free cash flow. The relocation of all cannabis processing activities to our Kelowna complex will drive improved capacity utilization, and we are aggressively reducing our exposure to higher-cost cultivation as we seek low-cost producer status in all relevant product categories.”

SunStream

Investors have also been waiting for an update on the underperforming assets in the joint venture. SNDL invested $535.9 million through the SunStream Bancorp Inc. joint venture. The investment portfolio generated interest and fee revenue of $4.2 million, share of profit of equity-accounted investees generated from investments by SunStream of $9.5 million, and an investment loss of $5.2 million, on marketable securities, which includes unrealized losses on its publicly disclosed strategic investment in Village Farms International, Inc.

SunStream’s credit portfolio currently consists of six investments: Jushi Holdings, Skymint Brands, Ascend Wellness Holdings, Parallel, Inc., Columbia Care Inc. and AFC Gamma, Inc. Both Skymint and Parallel are in financial trouble, but the company has not written down the values of these investments. SNDL said it “continues to explore the potential monetization or equitization of some of its US senior credits.”

George also alluded to upcoming events related to SunStream in the coming weeks, but didn’t elaborate in the press release.

As at March 31, 2023, and May 12, 2023, the company had unrestricted cash balances of $213.3 million and $189.8 million, respectively.

 

 

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Debra Borchardt, KahliBuds, 420GrowLife