June 20, 2024  ⦿  

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SNDL: The Canadian cannabis underdog has a transformative year

Despite the company’s development into the liquor and beverage industry and record Q4 net revenue, SNDL stock is down 30% YTD.

In its April 24 fourth-quarter and full-year results report, SNDL Inc. (US:SNDL), the vertically integrated cannabis company and liquor retailer, reported record net revenue.

Revenue for the fourth quarter was $240.4 million, up 4% from the third quarter and exceeding 10 times Q4 2021 sales. It produced $712.2 million in revenue for the entire year, which is 1,170% more than in 2021.

However, the net loss was $372.4 million, which was 64.2% more than the $226.8 million loss from 2021. However, at $15.8 million, its adjusted EBITDA loss for the year was 48% less than in 2021.

Despite its declining stock, SNDL’s transformation is still going strong. SNDL is down 72.9% over the last 12 months and 30.4% for the entire year.

In the company’s 2023 shareholder letter, CEO Zach George stated, “We are on the verge of joining a select group of approximately 150 publicly listed Canadian companies that generate more than $1 billion in annual revenue.”

When he went into more detail, he said that the business “started 2022 with first-quarter revenue of $17 million and negative cash flow from operating activities of $26 million and exited the year achieving record net revenue of $240 million and net cash from operations of $29 million in the fourth quarter.”

Undoubtedly, SNDL experienced significant change in 2022 in terms of its operations, finances, and strategy. It is now the largest private operator of booze outlets in the country as well as a modest vertically integrated Canadian cannabis enterprise.

Following the acquisition, SNDL now has four operating segments: cannabis cultivation (114 individually controlled small-batch grow rooms), liquor retail (169 stores in Alberta and British Columbia), and investments (SunStream Bancorp).

The acquisition of Alcanna brought steady revenue and profitability, which helped to stabilize the business’s finances. Its liquor retail division generated $159.7 million in revenue and $17.5 million in adjusted EBITDA during the fourth quarter. In addition, the typical retailer processed 3.6 million transactions in Q4 2022, resulting in annualized revenue of $3.8 million.

SNDL intends to increase the number of sites for its Wine and Beyond brand in 2023 from the current dozen or so. It received two licenses in March to set up shops in Saskatchewan. It anticipates the places

Additionally, it is collaborating with authorities to get permission to eventually sell THC-infused beverages through its network of liquor stores.

Regarding Canadian cannabis retail, its goal is to establish a strong Canadian cannabis retail platform. In order to lower its ownership position in Nova from 63% to less than 20% through the issuance of Nova shares to SNDL stockholders, SNDL is donating its 26 Spiritleaf and Superette outlets in Ontario and Alberta to Nova Cannabis (CA:NOVC).

Because SNDL no longer owns a majority of Nova’s shares, SNDL investors can now own a pure-play cannabis retailer without worrying about regulatory issues.

The Valens Company was acquired by SNDL for $138 million in equity and the assumption of $60 million in debt in January. The company’s overall cannabis market share rises from 1.0% before the deal to 3.8% as a result. Pro forma yearly revenue from SNDL and Valens is greater than $1 billion.

“Our business is now in the perfect position to work with third parties on contract production in the Canadian cannabis sector. George wrote in his shareholder letter, “Our distinct edge rests in our capacity to not only make high-quality products but also to offer distribution solutions to ensure that these products reach consumers successfully. With the acquisition of Valens, the company’s vertical integration strategy was significantly strengthened.

Last but not least, the company is exposed to U.S. multi-state operators (MSOs) thanks to its 50% stake in SunStream Bancorp, a joint venture with Calgary-based alternative credit investor SAF Group, through six SunStream credit portfolio assets worth $519 million.

Funding cannabis enterprises in the United States will probably become even more challenging as a result of Silicon Valley Bank’s bankruptcy as smaller cannabis-friendly banks tighten their lending standards. However, that opens up a lot of possibilities for SunStream.

In terms of its cash, Canadian strategic investments, the SunStream, and other credit investments, SNDL trades at less than half of its net asset worth. Now that SNDL stock is trading at its lowest price in a year, aggressive buyers can purchase it. If 2022 is added, SNDL might no longer be a penny stock.

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