sndl-6k_20210511.htm

Three months ended

March 31

Investment revenue

Realized gains

Unrealized gains

0001564590-21-026655.txt : 20210512 0001564590-21-026655.hdr.sgml : 20210512 20210511180621 ACCESSION NUMBER: 0001564590-21-026655 CONFORMED SUBMISSION TYPE: 6-K PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 20210511 FILED AS OF DATE: 20210512 DATE AS OF CHANGE: 20210511 FILER: COMPANY DATA: COMPANY CONFORMED NAME: Sundial Growers Inc. CENTRAL INDEX KEY: 0001766600 STANDARD INDUSTRIAL CLASSIFICATION: MEDICINAL CHEMICALS & BOTANICAL PRODUCTS [2833] IRS NUMBER: 000000000 STATE OF INCORPORATION: A0 FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 6-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-39005 FILM NUMBER: 21912779 BUSINESS ADDRESS: STREET 1: 919 11 AVENUE SW STREET 2: SUITE 200 CITY: CALGARY STATE: A0 ZIP: T2R1P3 BUSINESS PHONE: 14039485227 MAIL ADDRESS: STREET 1: 919 11 AVENUE SW STREET 2: SUITE 200 CITY: CALGARY STATE: A0 ZIP: T2R1P3 6-K 1 sndl-6k_20210511.htm 6-K sndl-6k_20210511.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

Form 6-K

REPORT OF FOREIGN PRIVATE ISSUER

PURSUANT TO RULE 13a-16 OR 15d-16 OF THE

SECURITIES EXCHANGE ACT OF 1934

For the month of May 2021

Commission File Number 001-39005

SUNDIAL GROWERS INC.

(Registrant’s name)

#300, 919 - 11 Avenue SW

Calgary, AB T2R 1P3

Tel.: (403) 948-5227

(Address of principal executive offices)

Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F:

Form 20-F ☒ Form 40-F ☐

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1): ☐

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7): ☐

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	SUNDIAL GROWERS INC.
Date: May 11, 2021	By:	/s/ Zach George
	Name:	Zach George
	Title:	Chief Executive Officer and Director

EXHIBIT

Exhibit		Description of Exhibit
99.1		Condensed Consolidated Interim Financial Statements for the Three Months Ended March 31, 2021 and 2020
99.2		Management’s Discussion and Analysis for the Three Months Ended March 31, 2021 and 2020
99.3		Form 52-109F2 Certificate of Interim Filings by CEO (pursuant to Canadian regulations)
99.4		Form 52-109F2 Certificate of Interim Filings by CFO (pursuant to Canadian regulations)

EX-99.1 2 sndl-ex991_8.htm EX-99.1 sndl-ex991_8.htm

EXHIBIT 99.1

Sundial Growers Inc.

Condensed Consolidated Interim Financial Statements

For the three months ended March 31, 2021

(Unaudited – expressed in thousands of Canadian dollars)

Sundial Growers Inc.

Condensed Consolidated Interim Statement of Financial Position

(Unaudited - expressed in thousands of Canadian dollars)

As at	Note	March 31, 2021			December 31, 2020⁽¹⁾

Assets
Current Assets
Cash and cash equivalents			873,445			60,376
Restricted cash			100			5,333
Marketable securities	6		33,582			—
Accounts receivable	7		9,350			15,898
Biological assets	8		2,835			3,531
Inventory	9		32,837			25,613
Prepaid expenses and deposits			5,097			4,622
Assets held for sale			2,998			2,998
			960,244			118,371
Non-current assets
Long-term deposits			7,981			2,633
Property, plant and equipment	10		114,039			116,928
Intangible assets	11		4,974			5,063
Investments	12		62,451			51,876
Total assets			1,149,689			294,871

Liabilities
Current liabilities
Accounts payable and accrued liabilities			22,701			23,308
Current portion of lease obligations			416			409
Derivative warrants	13		73,810			428
			96,927			24,145
Non-current liabilities
Lease obligations			924			1,031
Total liabilities			97,851			25,176

Shareholders’ equity
Share capital	14(b)		1,675,595			762,046
Warrants	14(c)		6,138			6,138
Contributed surplus			60,370			59,344
Contingent consideration			2,279			2,279
Accumulated deficit⁽¹⁾			(692,544	)		(558,128	)
Total shareholders’ equity			1,051,838			271,679
Non-controlling interest⁽¹⁾			—			(1,984	)
Total liabilities and shareholders’ equity			1,149,689			294,871

(1)	Recast – refer to note 12.

Commitments (note 24)

Subsequent events (note 25)

See accompanying notes to the condensed consolidated interim financial statements.

Sundial Growers Inc.

Condensed Consolidated Interim Statement of Loss and Comprehensive Loss

(Unaudited - expressed in thousands of Canadian dollars, except per share amounts)

		Three months ended March 31
	Note	2021			2020
Gross revenue	16		11,748			16,590
Excise taxes			1,857			2,584
Net revenue			9,891			14,006
Cost of sales	9		11,445			13,507
Inventory obsolescence	9		1,754			7,715
Gross margin before fair value adjustments			(3,308	)		(7,216	)
Change in fair value of biological assets	8		(94	)		6,415
Change in fair value realized through inventory	9		(50	)		(9,692	)
Gross margin			(3,452	)		(10,493	)

Interest and fee revenue	17		2,849			—
Investment revenue	17		12,900			—

General and administrative			7,093			10,608
Sales and marketing			950			1,792
Research and development			235			307
Depreciation and amortization	10,11		1,058			657
Share-based compensation	15		3,456			795
Restructuring costs			—			2,719
Asset impairment			—			5,659
Government subsidies	18		(2,180	)		—
Income (loss) from operations			1,685			(33,030	)

Transaction costs			(3,648	)		(1,101	)
Finance costs	19		(51	)		(5,982	)
Change in estimate of fair value of derivative warrants	13		(129,944	)		—
Foreign exchange gain (loss)			(440	)		1,554
Gain (loss) on disposition of PP&E			(117	)		610
Other expenses	12		(1,930	)		—
Loss before income tax			(134,445	)		(37,949	)
Net loss from continuing operations			(134,445	)		(37,949	)
Net loss from discontinued operations	4		—			(6,034	)
Net loss			(134,445	)		(43,983	)

Gain on translation of foreign operations			—			1,693
Comprehensive loss			(134,445	)		(42,290	)

Net loss from continuing operations attributable to:
Sundial Growers Inc.			(134,416	)		(37,861	)
Non-controlling interest			(29	)		(88	)
			(134,445	)		(37,949	)
Net loss attributable to:
Sundial Growers Inc.			(134,416	)		(43,895	)
Non-controlling interest			(29	)		(88	)
			(134,445	)		(43,983	)
Comprehensive loss attributable to:
Sundial Growers Inc.			(134,416	)		(42,202	)
Non-controlling interest			(29	)		(88	)
			(134,445	)		(42,290	)
Net loss per common share attributable to Sundial Growers Inc.
Basic and diluted	20	$	(0.09	)	$	(0.41	)

See accompanying notes to the condensed consolidated interim financial statements.

Sundial Growers Inc.

Condensed Consolidated Interim Statement of Changes in Shareholders’ Equity

(Unaudited - expressed in thousands of Canadian dollars)

	Note	Share capital			Warrants		Contributed surplus			Contingent consideration		Accumulated deficit⁽¹⁾			Accumulated other comprehensive income		Non- controlling interest⁽¹⁾			Total equity
Balance at December 31, 2020⁽¹⁾			762,046			6,138		59,344			2,279		(558,128	)		—		(1,984	)		269,695
Net loss			—			—		—			—		(134,416	)		—		(29	)		(134,445	)
Loss of control of subsidiary	12		—			—		—			—		—			—		2,013			2,013
Share issuances	14(b)		647,315			—		—			—		—			—		—			647,315
Share issuance costs	14(b)		(13,483	)		—		—			—		—			—		—			(13,483	)
Derivative warrants exercised	13		277,136			—		—			—		—			—		—			277,136
Share-based compensation	15		1			—		3,455			—		—			—		—			3,456
Employee awards exercised			2,580			—		(2,429	)		—		—			—		—			151
Balance at March 31, 2021			1,675,595			6,138		60,370			2,279		(692,544	)		—		—			1,051,838

(1)	Recast – refer to note 12.

	Note	Share capital		Warrants		Contributed surplus		Contingent consideration		Accumulated deficit			Accumulated other comprehensive income		Non- controlling interest			Total equity
Balance at December 31, 2019			509,654		27,831		30,192		2,279		(360,338	)		6,866		4,714			221,198
Net loss			—		—		—		—		(43,895	)		—		(88	)		(43,983	)
Other comprehensive income			—		—		—		—		—			1,693		—			1,693
Share issuances			610		—		—		—		—			—		—			610
Share-based compensation	15		50		—		1,186		—		—			—		—			1,236
Balance at March 31, 2020			510,314		27,831		31,378		2,279		(404,233	)		8,559		4,626			180,754

See accompanying notes to the condensed consolidated interim financial statements.

Sundial Growers Inc.

Condensed Consolidated Interim Statement of Cash Flows

(Unaudited - expressed in thousands of Canadian dollars)

		Three months ended March 31
	Note	2021			2020
Cash provided by (used in):
Operating activities
Net loss from continuing operations for the period			(134,445	)		(37,949	)
Items not involving cash:
Change in fair value of biological assets			94			(6,415	)
Share-based compensation	15		3,456			795
Depreciation and amortization	10,11		2,407			2,923
(Gain) loss on disposition of PP&E			117			(610	)
Inventory obsolescence	9		1,754			7,715
Finance costs	19		23			1,916
Change in estimate of fair value of derivative warrants	13		129,944			—
Unrealized foreign exchange (gain) loss			1,905			(1,769	)
Asset impairment			—			5,659
Other expenses	12		1,862			—
Gain on disposition of marketable securities	6,17		(8,019	)		—
Unrealized gain on marketable securities	6		(4,881	)		—
Additions to marketable securities	6		(36,740	)		—
Proceeds from disposal of marketable securities	6		16,058			—
Change in non-cash working capital			(7,901	)		10,225
Net cash used in operating activities from continuing operations			(34,366	)		(17,510	)
Net cash provided by operating activities from discontinued operations	4		—			4,064
Net cash used in operating activities			(34,366	)		(13,446	)
Investing activities
Additions to property, plant and equipment	10		(119	)		(1,676	)
Additions to investments	12		(10,560	)		—
Proceeds from disposal of PP&E	10		60			2,100
Change in non-cash working capital			(240	)		(8,061	)
Net cash used in investing activities from continuing operations			(10,859	)		(7,637	)
Net cash used in investing activities from discontinued operations	4		—			(4,946	)
Net cash used in investing activities			(10,859	)		(12,583	)
Financing activities
Change in restricted cash			5,233			10,495
Repayment of Syndicated Credit Agreement			—			(10,000	)
Payments on lease obligations			(123	)		(119	)
Proceeds from issuance of shares and registered offerings, net of costs	14(b)		735,088			—
Proceeds from exercise of derivative warrants	13		119,318			—
Proceeds from exercise of employee warrants	15		151			—
Change in non-cash working capital			579			(207	)
Net cash provided by financing activities from continuing operations			860,246			169
Net cash used in financing activities from discontinued operations	4		—			122
Net cash provided by financing activities			860,246			291
Effect of exchange rate changes on cash held in foreign currency			(1,952	)		1,558
Change in cash and cash equivalents			813,069			(24,180	)
Cash and cash equivalents, beginning of period			60,376			45,337
Cash and cash equivalents, end of period			873,445			21,157

Cash interest paid			—			1,195

See accompanying notes to the condensed consolidated interim financial statements.

Sundial Growers Inc.

Notes to the Condensed Consolidated Interim Financial Statements

For the three months ended March 31, 2021

(Unaudited, expressed in thousands of Canadian dollars, except where otherwise noted)

1.	Description of business

Sundial Growers Inc. (“Sundial” or the “Company”) was incorporated under the Business Corporations Act (Alberta) on August 19, 2006.

The Company’s head office is located at 300, 919 11th Avenue SW, Calgary, Alberta, Canada.

The principal activities of the Company are the production, distribution and sale of cannabis in Canada pursuant to the Cannabis Act and the deployment of capital to investment opportunities. The Cannabis Act regulates the production, distribution, and possession of cannabis for both medical and adult recreational access in Canada.

Sundial and its subsidiaries currently operate solely in Canada. Through its joint venture SunStream Bancorp Inc. (note 25) the Company also provides growth capital and a strategic support platform that pursues indirect investment opportunities in the global cannabis sector, where lawful as well as other investment opportunities. The Company also makes portfolio investments in debt and equity securities where deemed strategic.

The Company’s common shares trade on the Nasdaq Capital Market (“Nasdaq”) under the ticker symbol “SNDL”.

COVID-19

The global impact of COVID-19 has contributed to a great deal of uncertainty as to the health of the global economy. The Company has implemented several new pandemic-related procedures and protocols at its facilities, including enhanced screening measures, enhanced cleaning and sanitation processes and frequency, encouraging social distancing measures and directing employees to work from home if possible. The Company believes that it can maintain safe operations with these pandemic-related procedures and protocols in place.

The potential impact that COVID-19 will have on the Company’s business or financial results cannot be reasonably estimated at this time. However, any shutdowns requested or mandated by government authorities in response to the outbreak of COVID-19 that may affect the Company, its suppliers, distribution channels or customers may have a material impact to the Company’s planned operations.

2.	Basis of presentation

Statement of compliance

The condensed consolidated interim financial statements have been prepared in accordance with International Accounting Standard 34 – Interim Financial Reporting as issued by the International Accounting Standards Board (“IASB”) and interpretations of the International Financial Reporting Interpretations Committee (“IFRIC”). The condensed consolidated interim financial statements were prepared using the same accounting policies and methods as those disclosed in the audited consolidated financial statements for the year ended December 31, 2020, except as described in note 3. The condensed consolidated interim financial statements should be read in conjunction with the audited consolidated financial statements for the Company for the year ended December 31, 2020 which have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the IASB.

These condensed consolidated interim financial statements were approved and authorized for issue by the Board of Directors (“Board”) on May 11, 2021.

Basis of measurement

These condensed consolidated interim financial statements have been prepared on a historical cost basis, except for biological assets and certain financial instruments which are measured at fair value with changes in fair value recorded in earnings.

Functional and presentation currency

These condensed consolidated interim financial statements are presented in Canadian dollars, which is the functional and presentation currency of the Company and its Canadian based subsidiaries.

Sundial Growers Inc.

Notes to the Condensed Consolidated Interim Financial Statements

For the three months ended March 31, 2021

(Unaudited, expressed in thousands of Canadian dollars, except where otherwise noted)

Basis of consolidation

Subsidiaries are entities controlled by the Company. Control exists when the Company has the power, directly and indirectly, to govern the financial and operating policies of an entity and be exposed to the variable returns from its activities. The financial statements of subsidiaries are included in these condensed consolidated interim financial statements from the date that control commences until the date that control ceases.

Subsidiaries	Jurisdiction of incorporation	Percentage ownership
Sprout Technologies Inc.	Alberta, Canada		100	%
KamCan Products Inc.	British Columbia, Canada		100	%
2011296 Alberta Inc.	Alberta, Canada		100	%
Sundial Deutschland GmbH	Germany		100	%
Sundial Portugal, Unipessoal LDA	Portugal		100	%
2657408 Ontario Inc.	Ontario, Canada		100	%
NGBA-BC Holdings Ltd.	British Columbia, Canada		100	%
Sundial Insurance (Bermuda) Ltd.	Bermuda		100	%

3.	Significant accounting policies

The accounting policies, critical accounting judgements and significant estimates used in the preparation of the Company’s audited consolidated financial statements for the year ended December 31, 2020 have been applied in the preparation of these condensed consolidated interim financial statements except as described below.

Loss of control

When the Company loses control over a subsidiary, it derecognizes the assets and liabilities of the subsidiary, and any related non-controlling interest and other components of equity. Any resulting gain or loss is recognized in profit or loss. Any interest retained in the former subsidiary is measured at fair value when control is lost.

Interests in equity-accounted investees

The Company’s interest in equity-accounted investees is comprised of an interest in an associate.

Associates are those entities in which the Company has significant influence, but not control or joint control, over the financial and operating policies.

Interests in associates are accounted for using the equity method. They are initially recognized at cost, which includes transaction costs. Subsequent to initial recognition, the consolidated financial statements include the Company’s share of the profit or loss and OCI of equity-accounted investees, until the date on which significant influence or joint control ceases.

4.	Discontinued operations

On May 15, 2020, the Company entered into an agreement to sell all of the outstanding shares of Project Seed Topco (“Bridge Farm”) which closed on June 5, 2020.

The comparative statement of loss and comprehensive loss and statement of cash flows has been re-presented to show the discontinued operation separately from continuing operations.

Sundial Growers Inc.

Notes to the Condensed Consolidated Interim Financial Statements

For the three months ended March 31, 2021

(Unaudited, expressed in thousands of Canadian dollars, except where otherwise noted)

Results of discontinued operations

	Three months ended March 31
	2021		2020
Gross revenue		—		9,031
Net revenue		—		9,031
Cost of sales		—		6,982
Gross margin before fair value adjustments		—		2,049
Change in fair value of biological assets		—		668
Gross margin		—		2,717

General and administrative		—		3,785
Sales and marketing		—		488
Depreciation and amortization		—		1,590
Foreign exchange		—		1,724
Share-based compensation		—		441
Loss from operations		—		(5,311	)

Finance costs		—		(192	)
Loss on contingent consideration		—		(761	)
Loss before income tax		—		(6,264	)
Income tax recovery		—		230
Net loss⁽¹⁾		—		(6,034	)

(1)

Net loss from the discontinued operations is attributable entirely to the owners of the Company.

5.	Segment information

Late in the fourth quarter of 2020 the Company began the deployment of capital toward strategic investments. The Company developed an internal capital program to evaluate these and potential future investments, which the Company viewed as a new and separate business line from its cannabis operations.

Based on the allocation of the Company’s resources by the chief operating decision maker and the information used to analyze the performance of the business, the Company concluded that beginning in Q1 2021, it had two operating segments: cannabis and investments. For the three months ended March 31, 2020, there was only one reportable segment and therefore no comparative segment information.

The Company’s reportable segments are organized by business line and are comprised of two reportable operating segments: cannabis operations and investment operations. Cannabis operations include the cultivation, distribution and sale of cannabis for the adult-use market and medical markets in Canada. Investment operations include the deployment of capital to investment opportunities. Certain overhead expenses not directly attributable to either the cannabis operations segment or investment operations segment are reported in a third segment referred to as “Corporate”.

As at March 31, 2021	Cannabis			Investments		Corporate			Total
Total assets		319,213			827,476		3,000			1,149,689
Three months ended March 31, 2021
Net revenue		9,891			15,749		—			25,640
Depreciation and amortization		954			—		104			1,058
Gross margin		(3,452	)		15,749		—			12,297
Earnings (loss) before tax		(9,172	)		14,300		(139,573	)		(134,445	)

Sundial Growers Inc.

Notes to the Condensed Consolidated Interim Financial Statements

For the three months ended March 31, 2021

(Unaudited, expressed in thousands of Canadian dollars, except where otherwise noted)

6.	Marketable securities

As at	March 31, 2021			December 31, 2020
Balance, beginning of year		—			—
Additions		36,740			—
Dispositions		(8,039	)		—
Change in fair value recognized in profit or loss		4,881			—
Balance, end of period		33,582			—

During the three months ended March 31, 2021, proceeds of $16.1 million were received for dispositions of marketable securities and a gain on disposition of $8.0 million was recognized (note 17).

Marketable securities have been designated as Fair Value Through Profit or Loss (“FVTPL”) (note 21).

7.	Accounts receivable

As at	March 31, 2021		December 31, 2020
Trade receivables		8,502		15,786
Other receivables		848		112
		9,350		15,898

The Company has calculated expected credit losses (“ECLs”) based on lifetime expected credit losses, taking into consideration historical credit loss experience and financial factors specific to the debtors and general economic conditions. Refer to note 21 for credit risk disclosures.

8.	Biological assets

The Company’s biological assets consist of cannabis plants in various stages of vegetation, including plants which have not been harvested. The change in carrying value of biological assets are as follows:

As at	March 31, 2021			December 31, 2020
Balance, beginning of year		3,531			14,309
Increase in biological assets due to capitalized costs		6,992			39,957
Net change in fair value of biological assets		(94	)		6,496
Transferred to inventory upon harvest		(7,594	)		(54,388	)
Disposition of Bridge Farm (note 4)		—			(2,831	)
Foreign currency translation		—			(12	)
Balance, end of period		2,835			3,531

Biological assets are valued in accordance with IAS 41 and are presented at their fair value less costs to sell up to the point of harvest. This is determined using a model which estimates the expected harvest yield in grams for plants currently being cultivated, and then adjusts that amount for the expected selling price less costs to produce and sell per gram.

The fair value measurements for biological assets have been categorized as Level 3 fair values based on the inputs to the valuation technique used. The Company’s method of accounting for biological assets attributes value accretion on a straight-line basis throughout the life of the biological asset from initial cloning to the point of harvest.

Sundial Growers Inc.

Notes to the Condensed Consolidated Interim Financial Statements

For the three months ended March 31, 2021

(Unaudited, expressed in thousands of Canadian dollars, except where otherwise noted)

Management believes the most significant unobservable inputs and their impact on fair value of biological assets are as follows:

Assumption	Input	Weighted average input				Effect of 10% change ($000s)
		March 31 2021		December 31 2020		March 31 2021		December 31 2020
Yield per square foot of growing space⁽¹⁾	Grams		43		45		277		347
Average net selling price⁽²⁾	$/gram		4.83		5.13		835		1,022
After harvest cost to complete and sell	$/gram		1.39		1.32		240		291

(1)

Varies by strain; obtained through historical growing results or grower estimate if historical results are not available.

(2)

Varies by strain and sales market; obtained through average selling prices or estimated future selling prices if historical results are not available.

These estimates are subject to volatility in market prices and several uncontrollable factors, which could significantly affect the fair value of biological assets in future periods.

The Company estimates the harvest yields for cannabis at various stages of growth. As at March 31, 2021, it is estimated that the Company’s biological assets will yield approximately 5,189 kilograms (December 31, 2020 – 5,507 kilograms) of dry cannabis when harvested. During the three months ended March 31, 2021, the Company harvested 5,387 kilograms of dry cannabis (three months ended March 31, 2020 – 10,254 kilograms).

The Company’s estimates are, by their nature, subject to change and differences from the anticipated yield will be reflected in the net change in fair value of biological assets in future periods.

Inventory

As at	March 31, 2021		December 31, 2020
Harvested cannabis		27,979		20,358
Cannabis supplies and consumables		4,858		5,255
		32,837		25,613

During the three months ended March 31, 2021, inventories of $11.4 million were recognized as an expense (three months ended March 31, 2020 - $13.5 million). During the three months ended March 31, 2021, the Company recognized inventory write downs of $1.8 million (three months ended March 31, 2020 - $14.4 million), of which $1.8 million (three months ended March 31, 2020 - $7.7 million) was recognized as an excess and obsolete inventory provision, and $0.0 million (three months ended March 31, 2020 - $6.7 million) was included in the change in fair value realized through inventory as the fair value component of the excess and obsolete inventory provision.

Sundial Growers Inc.

Notes to the Condensed Consolidated Interim Financial Statements

For the three months ended March 31, 2021

(Unaudited, expressed in thousands of Canadian dollars, except where otherwise noted)

10.	Property, plant and equipment

	Land and buildings		Production facilities			Equipment			Right of use assets			Construction in progress (“CIP”)			Total
Cost
Balance at December 31, 2020		8,640		152,937			28,894			1,894			8,819			201,184
Additions		—		(263	)		(131	)		—			—			(394	)
Dispositions		—		—			—			(128	)		(177	)		(305	)
Balance at March 31, 2021		8,640		152,674			28,763			1,766			8,642			200,485

Accumulated amortization and impairment
Balance at December 31, 2020		—		69,364			8,500			571			5,821			84,256
Depreciation		—		928			1,286			104			—			2,318
Dispositions		—		—			—			(128	)		—			(128	)
Balance at March 31, 2021		—		70,292			9,786			547			5,821			86,446

Net book value
Balance at December 31, 2020		8,640		83,573			20,394			1,323			2,998			116,928
Balance at March 31, 2021		8,640		82,382			18,977			1,219			2,821			114,039

During the three months ended March 31, 2021, depreciation expense of $1.3 million was capitalized to biological assets and inventory (three months ended March 31, 2020 – $2.3 million).

During the three months ended March 31, 2021, the credit to additions relates to the recovery of construction holdbacks and a grant receivable.

11.	Intangible assets

	Brands and trademarks		Patents		Total
Cost
Balance at December 31, 2020 and March 31, 2021		5,445		13,551		18,996

Accumulated amortization and impairment
Balance at December 31, 2020		382		13,551		13,933
Depreciation		89		—		89
Balance at March 31, 2021		471		13,551		14,022

Net book value
Balance at December 31, 2020		5,063		—		5,063
Balance at March 31, 2021		4,974		—		4,974

Brands and trademarks consist of intellectual property purchased from Sun 8 Holdings Inc. with a useful life of 15 years and other intellectual property with a useful life of 12 years.

Sundial Growers Inc.

Notes to the Condensed Consolidated Interim Financial Statements

For the three months ended March 31, 2021

(Unaudited, expressed in thousands of Canadian dollars, except where otherwise noted)

12.	Investments

As at	March 31, 2021		December 31, 2020
Investments at amortized cost (A)		10,573		—
Investments at FVTPL (B)		51,876		51,876
Equity-accounted investees (C)		2		—
		62,451		51,876

INvestments at amortized cost

On February 16, 2021, the Company announced a $22 million strategic investment (the “Indiva Investment”) in Indiva Limited (“Indiva”). Indiva is a leading Canadian producer of cannabis edibles. The Indiva Investment closed on February 23, 2021. The Indiva Investment was completed in the form of a brokered private placement of 25 million common shares of Indiva at a price of $0.44 per common share, for gross proceeds of $11 million, and a non-revolving term loan to Indiva in the principal amount of $11 million (the “Term Loan”). The Term Loan bears interest at a rate of 9% per annum and has a maturity date of February 23, 2024.

The Term Loan has been designated as measured at amortized cost (note 21). The common shares are measured at Fair Value Through Profit or Loss (“FVTPL”) and are included in marketable securities (note 6).

Investments at fvtpl

The Company owns a special purpose vehicle (the “Zenabis Investment”) that owns $51.9 million of aggregate principal amount of senior secured debt of Zenabis Investments Ltd. (the “Zenabis Senior Loan”) of Zenabis Investments Ltd. (“Zenabis”). The Zenabis Senior Loan bears interest at a rate of 14% per annum and has a maturity date of March 31, 2025. Pursuant to the terms of the Zenabis Senior Loan, Zenabis will also pay the Company a royalty based on quarterly sales revenue from its medical, recreational and wholesale cannabis lines net of value added or sales taxes. The royalty is payable for 32 fiscal quarters and is payable for quarters in which Zenabis accomplishes certain sales revenue targets.

The Company is in negotiations with Zenabis for the repayment and termination of the Zenabis Senior Loan. Zenabis has filed a petition with the Supreme Court of British Columbia for a determination of the amount required to repay and terminate the royalty.

The Zenabis Investment has been designated as FVTPL (note 21). There has been no change in the fair value as the fair value is the remaining principal and interest of the Zenabis Senior Loan and as of May 11, 2021, all required payments have been made in respect of the Zenabis Senior Loan.

Equity-accounted investees

Interest in associate

On March 23, 2021, the Company’s equity interest in its subsidiary, Pathway RX Inc. (“Pathway”), decreased from 50% to 25%, resulting in a loss of control. The Company decreased its equity interest in connection with amending the license agreement that provides for use of Pathway’s intellectual property. Pathway is a private company focused on developing cannabis-based pharmaceutical drugs to treat symptoms associated with a wide range of medical conditions.

As a result of the loss of control, the Company has de-recognized the assets and liabilities of Pathway, and the non-controlling interest arising upon the acquisition of Pathway. A loss on loss of control of $1.9 million was recognized during the three months ended March 31, 2021. The fair value of the Company’s remaining investment in Pathway was determined to be nil as the Company had fully impaired the intangible asset, which consisted of intellectual property, during the year ended December 31, 2020 as describe above, and there are no other assets that would give rise to a measured fair value amount attributable to the remaining 25% interest.

Sundial Growers Inc.

Notes to the Condensed Consolidated Interim Financial Statements

For the three months ended March 31, 2021

(Unaudited, expressed in thousands of Canadian dollars, except where otherwise noted)

Adjustment to comparative information

During Q4 2020, and as disclosed in the annual consolidated financial statements of the Company as at and for the year ended December 31, 2020, the Company recognized an impairment of $12.9 million on the intangible assets held within Pathway. During the preparation of the Q1 2021 interim financial statements the Company determined that the allocable amount of this impairment was not attributed to the non-controlling interest. The comparative December 31, 2020 statement of financial position has been recast to attribute 50% of the impairment of intangible assets recorded to non-controlling interest as the related intangible assets related entirely to Pathway, the Company’s 50% owned subsidiary.

The recast of the statement of financial position as at December 2020 resulted in a reduction in non-controlling interest of $6.4 million from the previously reported amount of $4.4 million to the recast amount of negative $2.0 million, and a decrease in accumulated deficit of $6.4 million from the previously reported amount of $564.5 million to the recast amount of $558.1 million and a decrease in loss per share attributable to the Company of $0.03 from the previously reported amount of $1.10 to the recast amount of $1.07,

This recast has no effect on the consolidated 2020 annual net loss or comprehensive loss nor on any previously issued interim financial statements of the Company. The effect of this recast on the Company’s annual results for 2020 is a decrease to the presentation of the net loss attributable to the Company of $6.4 million from the previously reported amount of $206.0 million to the recast amount of $199.6 million, and an increase in the presentation of the net loss attributable to non-controlling interest of $6.4 million from the previously reported amount of $0.3 million to the recast amount of $6.7 million.

13.	Derivative warrants

	March 31, 2021
Balance, beginning of year		428
Series A and Series B Warrants - fair value on issuance^(a)		62,680
Additional Series A and Series B Warrants - fair value on issuance^(b)		38,576
New Warrants - fair value on issuance^(c)		106,531
Change in fair value recognized in profit or loss		23,413
Converted to common shares		(157,818	)
Balance, end of period		73,810

The carrying amount is an estimate of the fair value of the derivative warrants and is presented as a current liability. The Company has no cash obligation with respect to the derivative warrants, rather it will deliver common shares if and when warrants are exercised.

(a)

Series A and B Warrants

On February 2, 2021, the Company issued 100.0 million series A units (the “Series A Units”), each consisting of one common share and one-half series A warrant (collectively, the “Series A Warrants”) to purchase one common share and 33.3 million series B units (the “Series B Units”), each consisting of one pre-funded series B warrant (the “Series B Warrants”) to purchase one common share and one-half Series A Warrant to purchase one common share (collectively, the “January 2021 Units Offering”). Each Series A Unit was sold at a price of US$0.75 per unit and each Series B Unit was sold at a price of US$0.75 per unit, less US$0.0001 per unit. Gross proceeds from this offering were US$100.0 million. The Series A Warrants and Series B Warrants were exercisable immediately and had a term of five years commencing on the date of issuance. The exercise price of the Series A Warrants was US$0.80 per common share and the exercise price of the Series B Warrants was US$0.0001 per common share.

On February 2, 2021, the entire 33.3 million Series B Warrants were exercised resulting in the issuance of 33.3 million common shares.

On February 10, 2021, 3.3 million Series A Warrants were exercised at a weighted average exercise price of US$0.80 per warrant resulting in the issuance of 3.3 million common shares and gross proceeds to the Company of US$2.7 million.

Sundial Growers Inc.

Notes to the Condensed Consolidated Interim Financial Statements

For the three months ended March 31, 2021

(Unaudited, expressed in thousands of Canadian dollars, except where otherwise noted)

On February 22, 2021, the remaining 63.3 million Series A Warrants were exercised at a weighted average exercise price of US$0.80 per warrant resulting in the issuance of 63.3 million common shares and gross proceeds to the Company of US$50.7 million. In connection with this exercise, the New Warrants were granted (refer to C below).

(b)

Additional series A and B warrants

On February 4, 2021, the Company issued 60.5 million additional series A units (the “Additional Series A Units”), each consisting of one common share and one-half additional series A warrant (collectively, the “Additional Series A Warrants”) to purchase one common share and 14.0 million additional series B units (the “Additional Series B Units”), each consisting of one pre-funded additional series B warrant (the “Additional Series B Warrants”) to purchase one common share and one-half Additional Series A Warrant to purchase one common share, (collectively, the “February 2021 Units Offering”). Each Additional Series A Unit was sold at a price of US$1.00 per unit and each Additional Series B Unit was sold at a price of US$1.00 per unit, less US$0.0001 per unit. Gross proceeds from this offering were US$74.5 million. The Additional Series A Warrants and Additional Series B Warrants were exercisable immediately and had a term of five years commencing on the date of issuance. The exercise price of the Additional Series A Warrants was US$1.10 per common share and the exercise price of the Additional Series B Warrants was US$0.0001 per common share.

On February 4, 2021, the entire 14.0 million Additional Series B Warrants were exercised resulting in the issuance of 14.0 million common shares.

On February 10, 2021, 2.3 million Additional Series A Warrants were exercised at a weighted average exercise price of US$1.10 per warrant resulting in the issuance of 2.3 million common shares and gross proceeds to the Company of US$2.5 million.

On February 22, 2021, the remaining 35.0 million Additional Series A Warrants were exercised at a weighted average exercise price of US$1.10 per warrant resulting in the issuance of 35.0 million common shares and gross proceeds to the Company of US$38.5 million. In connection with this exercise, the New Warrants were granted (refer to C below).

(c)

new warrants

On February 22, 2021, (i) the remaining 63.3 million Series A Warrants were exercised at a weighted average exercise price of US$0.80 per warrant resulting in the issuance of 63.3 million common shares and gross proceeds to the Company of US$50.7 million and (ii) the remaining 35.0 million Additional Series A Warrants were exercised at a weighted average exercise price of US$1.10 per warrant resulting in the issuance of 35.0 million common shares and gross proceeds to the Company of US$38.5 million. In connection with this exercise, the Company issued 98.3 million new warrants to the holders of the Series A Warrants and Additional Series A Warrants (the “New Warrants”), each entitling the holder to purchase one common share at an exercise price of US$1.50, subject to customary anti-dilution adjustments. The Company has granted the holders the right to have the common shares issuable upon exercise of the New Warrants registered pursuant to a registration statement filed with the SEC. Such registration statement was filed with the SEC on March 3, 2021. The New Warrants are immediately exercisable and have a term of 42 months from March 18, 2021, which is the effective date of the registration statement.

(d)

Agent warrants

During the three months ended March 31, 2021, the entire 1.08 million Agent Warrants were exercised. 540,000 Agent Warrants were exercised at a weighted average exercise price of US$1.00 per warrant resulting in the issuance of 356,949 common shares. There were no gross proceeds to the Company as the exercise was cashless. The other 540,000 Agent Warrants were exercised at a weighted average exercise price of US$1.00 per warrant resulting in the issuance of 540,000 common shares and gross proceeds to the Company of US$0.5 million.

Sundial Growers Inc.

Notes to the Condensed Consolidated Interim Financial Statements

For the three months ended March 31, 2021

(Unaudited, expressed in thousands of Canadian dollars, except where otherwise noted)

The following table summarizes outstanding derivative warrants as at March 31, 2021:

	Exercise price (USD)		Number of warrants		Weighted average contractual life
August 2020 Offering - Series A Warrants ⁽¹⁾		0.1766		500,000		4.4
Unsecured Convertible Notes Warrants ⁽¹⁾		0.1766		500,000		2.8
New Warrants		1.50		98,333,334		3.4
				99,333,334		3.4

(1)

The conversion or exercise price, as applicable, is subject to full ratchet antidilution protection upon any subsequent transaction at a price lower than the price then in effect and standard adjustments in the event of any share split, share dividend, share combination, recapitalization or other similar transaction. If the Company issues, sells or enters into any agreement to issue or sell, any variable rate securities, the investors have the additional right to substitute the variable price (or formula) of such securities for the conversion or exercise price, as applicable.

14.	Share capital and warrants

(a)

Authorized

The authorized capital of the Company consists of an unlimited number of voting common shares and preferred shares with no par value.

(b)

Issued and outstanding

		March 31, 2021					December 31, 2020
	Note	Number of Shares		Carrying Amount			Number of Shares			Carrying Amount
Balance, beginning of year			918,844,133		762,046			107,180,423			509,654
Share issuances			703,997,708		647,315			337,696,867			176,931
Share issuance costs			—		(13,483	)		—			(5,593	)
Disposition of Bridge Farm	4		—		—			(2,716,271	)		(38,447	)
Convertible debt - conversions			—		—			373,371,318			63,002
Derivative warrants exercised	13		152,146,950		277,136			102,836,429			55,912
Employee awards exercised	15(c)		1,036,000		2,581			475,367			587
Balance, end of period			1,776,024,791		1,675,595			918,844,133			762,046

At-the-Market Offering Program

2021 Registered Offerings

In connection with the January 2021 Units Offering, the Company issued 100.0 million common shares (note 13a) and in connection with the February 2021 Units Offering, the Company issued 60.5 million common shares (note 13b).

(c)

Common share purchase warrants

	Number of Warrants			Carrying Amount
Balance at December 31, 2020 and March 31, 2021		1,024,000			6,138

Sundial Growers Inc.

Notes to the Condensed Consolidated Interim Financial Statements

For the three months ended March 31, 2021

(Unaudited, expressed in thousands of Canadian dollars, except where otherwise noted)

The following table summarizes outstanding warrants as at March 31, 2021:

	Warrants outstanding and exercisable
Issued in relation to	Weighted average exercise price		Number of warrants		Weighted average contractual life (years)
Acquisition of financial obligation		15.94		480,000		1.3
Financial services		4.60		544,000		8.3
		9.91		1,024,000		5.0

15.	Share-based compensation

The Company has a number of equity-settled share-based compensation plans which include simple and performance warrants, stock options, restricted share units (“RSUs”) and deferred share units (“DSUs”). Further detail on each of these plans is outlined below. Subsequent to the Company’s initial public offering, the Company established the stock option, RSU and DSU plans to replace the granting of simple warrants and performance warrants.

The components of share-based compensation expense are as follows:

	Three months ended March 31
	2021		2020
Simple warrants^(a)		597		282
Performance warrants^(a)		—		(42	)
Stock options^(b)		70		137
Restricted share units^(c)		1,644		256
Deferred share units^(c)		1,145		162
		3,456		795

Simple and performance warrants

The Company issued simple warrants and performance warrants to employees, directors and others at the discretion of the Board. Simple and performance warrants granted generally vest annually in thirds over a three-year period and simple warrants expire five years after the grant date.

The following table summarizes changes the simple and performance warrants during the three months ended March 31, 2021:

	Simple warrants outstanding			Weighted average exercise price		Performance warrants outstanding			Weighted average exercise price
Balance at December 31, 2020		3,424,600		$	4.41		1,672,000		$	4.19
Forfeited		(134,400	)		8.24		(59,200	)		7.75
Exercised		(120,000	)		0.94		(40,000	)		0.94
Balance at March 31, 2021		3,170,200		$	4.38		1,572,800		$	4.14

Sundial Growers Inc.

Notes to the Condensed Consolidated Interim Financial Statements

For the three months ended March 31, 2021

(Unaudited, expressed in thousands of Canadian dollars, except where otherwise noted)

The following table summarizes outstanding simple and performance warrants as at March 31, 2021:

	Warrants outstanding						Warrants exercisable
Range of exercise prices	Number of warrants		Weighted average exercise price		Weighted average contractual life (years)		Number of warrants		Weighted average exercise price		Weighted average contractual life (years)
Simple warrants
$0.63 - $0.94		889,400		0.72		2.97		889,400		0.72		2.97
$1.25 - $1.88		400,000		1.56		3.34		400,000		1.56		3.34
$2.97 - $4.53		511,200		3.05		3.39		439,200		3.01		3.29
$6.25 - $9.38		1,225,600		6.31		5.47		262,400		6.48		5.40
$12.50 - $37.50		144,000		23.19		6.19		30,400		16.77		4.78
		3,170,200	$	4.38		4.19		2,021,400	$	2.37		3.45
Performance warrants
$0.63 - $0.94		458,667		0.68	n/a			330,667		0.70	n/a
$1.25 - $1.88		282,133		1.42	n/a			247,467		1.40	n/a
$2.97 - $4.53		584,000		3.14	n/a			397,333		3.10	n/a
$6.25 - $9.38		144,533		7.32	n/a			38,400		6.25	n/a
$12.50 - $37.50		103,467		28.22	n/a			—		—	n/a
		1,572,800	$	4.14	n/a			1,013,867	$	2.02	n/a

Stock options

The Company issues stock options to employees and others at the discretion of the Board. Stock options granted generally vest annually in thirds over a three-year period and expire ten years after the grant date.

The following table summarizes changes in stock options during the three months ended March 31, 2021:

	Stock options outstanding			Weighted average exercise price
Balance at December 31, 2020		720,600		$	1.82
Forfeited		(75,000	)		1.15
Balance at March 31, 2021		645,600		$	1.90

The following table summarizes outstanding stock options as at March 31, 2021:

	Stock options outstanding				Stock options exercisable
Exercise prices	Number of options		Weighted average contractual life (years)		Number of options		Weighted average contractual life (years)
$1.15		325,000		9.16		—		—
$1.19		81,600		9.24		81,600		9.24
$3.15		239,000		8.44		77,417		8.39
		645,600		8.90		159,017		8.83

Sundial Growers Inc.

Notes to the Condensed Consolidated Interim Financial Statements

For the three months ended March 31, 2021

(Unaudited, expressed in thousands of Canadian dollars, except where otherwise noted)

Restricted and deferred share units

RSUs are granted to employees and the vesting requirements and maximum term are at the discretion of the Board. DSUs are granted to directors and generally vest in equal quarterly instalments over one year. RSUs and DSUs are exchangeable for an equal number of common shares.

The following table summarizes changes in RSUs and DSUs during the three months ended March 31, 2021:

	RSUs outstanding			DSUs outstanding
Balance at December 31, 2020		1,656,916			3,323,263
Granted		12,312,900			1,467,026
Forfeited		(343,634	)		—
Exercised		(3,800	)		—
Balance at March 31, 2021		13,622,382			4,790,289

16.	Cannabis Revenue

Cannabis revenue is solely from contracts with customers and is comprised of sales to Provincial boards that sell cannabis through their respective distribution models, sales to licensed producers for further processing, and sales to medical customers.

	Three months ended March 31
	2021		2020
Provincial boards		9,042		10,200
Medical		2		16
Licensed producers		2,704		6,374
Gross revenue⁽¹⁾		11,748		16,590

(1)

The Company had four major customers each with revenue in excess of 10% of total cannabis revenue. Sales to major customers totaled $8.1 million for the three months ended March 31, 2021 (three months ended March 31, 2020 – three major customers with total sales of $12.0 million). Only one major customer had sales exceeding 10% of total cannabis revenue for both periods.

The following table disaggregates revenue by form for the periods noted:

	Three months ended March 31
	2021		2020
Revenue from dried flower		9,716		11,724
Revenue from vapes		1,413		4,349
Revenue from oil		181		517
Revenue from edibles and concentrates		438		—
Gross revenue		11,748		16,590

Sundial Growers Inc.

Notes to the Condensed Consolidated Interim Financial Statements

For the three months ended March 31, 2021

(Unaudited, expressed in thousands of Canadian dollars, except where otherwise noted)

17.	Investment revenue

	Three months ended March 31
	2021		2020
Interest revenue from investments at amortized cost		113		—
Interest and fee revenue from investments at FVTPL		2,182		—
Interest revenue from cash		554		—
		2,849		—

18.	Government subsidies

In March 2020, the federal government launched the Canadian Emergency Wage Subsidy (“CEWS”) to help businesses impacted by the COVID-19 pandemic keep and rehire employees. The CEWS delivered a 75 percent wage subsidy to eligible employers for an initial period of 12 weeks, from March 15, 2020 to July 4, 2020. Eligibility was based on meeting a minimum requirement for decreased revenue. The CEWS was extended to November 21, 2020 and amended to change the eligibility requirements from meeting a certain threshold to being variable based on how much an employer’s revenue decreased. The CEWS has further been extended to June 2021 and includes changes to the rates and the top-up calculation.

The Company became eligible for the CEWS based on decreases in revenue and has received the subsidy for certain periods. The subsidy of $2.1 million has been recognized in the condensed consolidated interim statement of loss and comprehensive loss. There are no unfulfilled conditions or contingencies attached to the CEWS.

19.	Finance costs

	Three months ended March 31
	2021		2020
Cash finance expense
Interest on Syndicated Credit Agreement		—		1,197
Interest on Term Debt Facility		—		2,803
Other finance costs		28		194
		28		4,194
Non-cash finance expense (income)
Accretion		—		1,534
Amortization of debt issue costs		—		356
Other		23		26
		23		1,916
Interest income		—		(128	)
		51		5,982

Sundial Growers Inc.

Notes to the Condensed Consolidated Interim Financial Statements

For the three months ended March 31, 2021

(Unaudited, expressed in thousands of Canadian dollars, except where otherwise noted)

20.	Loss per share

	Three months ended March 31
	2021			2020
Weighted average shares outstanding (000s)
Basic and dilutive ⁽¹⁾		1,439,597			107,320
Continuing operations
Net loss attributable to Sundial Growers Inc.		(134,416	)		(37,861	)
Per share - basic and diluted	$	(0.09	)	$	(0.35	)
Discontinued operations
Net loss attributable to Sundial Growers Inc.		—			(6,034	)
Per share - basic and diluted	$	—		$	(0.06	)
Net loss attributable to Sundial Growers Inc.		(134,416	)		(43,895	)
Per share - basic and diluted	$	(0.09	)	$	(0.41	)

(1)

For the three months ended March 31, 2021, there were 1.0 million equity classified warrants exercisable, 90.6 million derivative warrants exercisable, 2.0 million simple warrants exercisable and 1.0 million performance warrants exercisable that were excluded from the calculation as the impact was anti-dilutive (three months ended March 31, 2020 – 6.2 million warrants, 5.4 million simple warrants and 4.5 million performance warrants).

21.	Financial instruments

The financial instruments recognized on the consolidated statement of financial position are comprised of cash and cash equivalents, restricted cash, marketable securities, accounts receivable, Investments, accounts payable and accrued liabilities and derivative warrants.

Fair value

The carrying value of cash and cash equivalents, restricted cash, accounts receivable and accounts payable and accrued liabilities approximate the fair value of the respective assets and liabilities due to the short-term nature of those instruments.

Fair value measurements of marketable securities and derivative warrants are as follows:

			Fair value measurements using
March 31, 2021	Carrying amount		Level 1		Level 2		Level 3
Recurring measurements:
Financial assets
Marketable securities		33,582		33,582		—		—
Investments		51,876		—		—		51,876
Financial liabilities
Derivative warrants⁽¹⁾		73,810		—		—		73,810

			Fair value measurements using
December 31, 2020	Carrying amount		Level 1		Level 2		Level 3
Recurring measurements:
Financial assets
Investments		51,876		—		—		51,876
Financial liabilities
Derivative warrants⁽¹⁾		428		—		—		428

Sundial Growers Inc.

Notes to the Condensed Consolidated Interim Financial Statements

For the three months ended March 31, 2021

(Unaudited, expressed in thousands of Canadian dollars, except where otherwise noted)

(1)

Level 1 – unadjusted quoted prices in active markets for identical assets or liabilities. An active market for an asset or liability is a market in which transactions for the asset or liability occur with sufficient frequency and volume to provide pricing information on an ongoing basis.

Marketable securities are designated as FVTPL. The fair value of marketable securities is re-measured each reporting period with changes in fair value recognized in the consolidated statement of loss. The fair value of marketable securities is estimated by using current quoted prices in active markets for identical assets.

Level 2 – quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

As at March 31, 2021, the Company did not have any financial instruments measured at Level 2 fair value.

Level 3 – unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

The other investment designated as FVTPL is re-measured each reporting period with changes in the fair value recognized in the consolidated statement of loss within finance costs. The fair value approximates the carrying value of the loan principal. The fair value for the royalty is estimated to be nil as the value is currently being disputed.

Derivative warrants are designated as FVTPL. The fair value of derivative warrants is re-measured each reporting period with changes in fair value recognized in the consolidated statement of loss within finance costs. The fair value of derivative warrants is estimated by using a valuation model. Assumptions used in these calculations include volatility, discount rate and various probability factors.

At March 31, 2021, a 10% increase in the material assumptions would change the fair value of derivative warrants by approximately $3.6 million, and a 10% decrease in the material assumptions would change the fair value of derivative warrants by approximately $5.2 million.

There were no transfers between Levels 1, 2 and 3 inputs during the period.

Credit risk management

Credit risk is the risk of financial loss if the counterparty to a financial transaction fails to meet its obligations. The Company manages risk over its accounts receivable by issuing credit only to credit worthy counterparties. The Company limits its exposure to credit risk over its investments by ensuring the agreements governing the investments are secured in the event of counterparty default. The Company considers financial instruments to have low credit risk when its credit risk rating is equivalent to investment grade. The Company assumes that the credit risk on a financial asset has increased significantly if it is outstanding past the contractual payment terms. The Company considers a financial asset to be in default when the debtor is unlikely to pay its credit obligations to the Company.

The Company applies the simplified approach under IFRS 9 and has calculated expected credit losses (“ECLs”) based on lifetime expected credit losses, taking into consideration historical credit loss experience and financial factors specific to the debtors and general economic conditions.

Impairment losses on accounts receivable recognized in profit or loss were as follows:

As at	March 31, 2021		December 31, 2020
Impairment loss (reversal) on trade receivables		—		(506	)
Impairment loss (reversal) on other receivables		—		(126	)
		—		(632	)

Sundial Growers Inc.

Notes to the Condensed Consolidated Interim Financial Statements

For the three months ended March 31, 2021

(Unaudited, expressed in thousands of Canadian dollars, except where otherwise noted)

The movement in the allowance for impairment in respect of accounts receivable during the three months ended March 31, 2021 was as follows:

	March 31, 2021		December 31, 2020
Balance, beginning of year		120		752
Amounts written off		—		—
Net remeasurement of impairment loss allowance		—		(632	)
Balance, end of period		120		120

The Company has evaluated the credit risk of its investments, taking into consideration historical credit loss experience, financial factors specific to the debtors and general economic conditions, and determined the expected credit loss to be nil.

The maximum amount of the Company’s credit risk exposure is the carrying amounts of cash and cash equivalents, accounts receivable and investments. The Company attempts to mitigate such exposure to its cash by investing only in financial institutions with investment grade credit ratings or secured investments.

Market risk management

Market risk is the risk that changes in market prices will affect the Company’s income or value of its holdings of financial instruments. The Company is exposed to market risk in that changes in market prices will cause fluctuations in the fair value of its marketable securities. The fair value of marketable securities are based on quoted market prices as the Company’s marketable securities are shares held of publicly traded entities.

At March 31, 2021, a 10% change in the market prices would change the fair value of marketable securities by approximately $3.4 million.

22.	Related party transactions

Loan receivable agreements

At December 31, 2020, the Company had advanced $139 thousand under employee loan agreements. During the three months ended March 31, 2021, $89 thousand of the loan balance was settled. At March 31, 2021, the outstanding loan balance was $50 thousand. The terms are non-interest bearing and secured by shareholdings in the Company. The loan is repayable in full upon the departure of an employee from employment, a change in control of the Company or sale of the Company.

Related party transactions and balances

	Transactions				Balance outstanding
	Three months ended March 31		Three months ended March 31		March 31		December 31
	2021		2020		2021		2020
Marketing, brand research and development^(a)		—		945		—		—
Legal services^(b)		—		279		—		(510	)
		—		1,224		—		(510	)

(a)

A former member of the Board of Directors controls a company that provides marketing, brand research and development services.

(b)

A member of the Board of Directors was a partner at a law firm prior to his departure which provides legal services to the Company.

All transactions were conducted at the exchange amount agreed to with the related parties.

Sundial Growers Inc.

Notes to the Condensed Consolidated Interim Financial Statements

For the three months ended March 31, 2021

(Unaudited, expressed in thousands of Canadian dollars, except where otherwise noted)

23.	Capital management

The Company defines its capital as its shareholder’s equity and debt. Except as otherwise disclosed in these condensed consolidated interim financial statements, there are no restrictions on the Company’s capital. The Company’s objectives with respect to the management of capital are to:

•

Maintain financial flexibility in order to preserve its ability to meet financial obligations;

•

Deploy capital to provide an appropriate investment return to its shareholders; and,

•

Maintain a capital structure that allows various financing alternatives to the Company as required.

24.	Commitments and contingencies

The following table summarizes contractual commitments at March 31, 2021:

	Less than one year		One to three years		Three to five years		Thereafter		Total
Accounts payable and accrued liabilities		22,701		—		—		—		22,701
Lease obligations		490		817		177		—		1,484
Balance, end of period		23,191		817		177		—		24,185

(a)

Commitments

The Company has entered into certain supply agreements to provide dried cannabis and cannabis products to third parties. The contracts require the provision of various amounts of dried cannabis on or before certain dates. Should the Company not deliver the product in the agreed timeframe, financial penalties apply which may be paid either in product in-kind or cash. Under these agreements, the Company has accrued financial penalties payable as at March 31, 2021 of $1.5 million (December 31, 2019 - $1.5 million).

(b)

Contingencies

From time to time, the Company is involved in various claims and legal actions which occurred in the ordinary course of operations, the losses from which, if any, are not anticipated to be material to the financial statements.

25.	Subsequent events

At-the-Market Offering Program

Subsequent to March 31, 2021, the Company issued 84.6 million common shares at a weighted average exercise price of US$0.9268 for gross proceeds of $97.7 million (US$78.4 million) through its ATM programs.

Strategic capital partnership

On March 15, 2021, the Company and SAF Group (“SAF”) announced they had entered into an agreement to form a 50/50 joint venture (the “Joint Venture”) through a new corporation, SunStream Bancorp Inc. (“SunStream”).

The Joint Venture will focus on cannabis-related verticals, seeking both Canadian and international opportunities and investments. The Joint Venture’s first mandate is the formation of a special opportunities fund with commitments from third party limited partners alongside an initial commitment from Sundial of $100 million.

On April 23, 2021, the Company announced that it had increased its commitment to SunStream to $188 million from the previously announced commitment of $100 million.

Sundial Growers Inc.

Notes to the Condensed Consolidated Interim Financial Statements

For the three months ended March 31, 2021

(Unaudited, expressed in thousands of Canadian dollars, except where otherwise noted)

Acquisition of Inner Spirit Holdings and Spiritleaf Retail Cannabis Network

On May 5, 2021, the Company and Inner Spirit Holdings Ltd. (“Inner Spirit”) announced that they had entered into an arrangement agreement (the “Agreement”) pursuant to which the Company will acquire all of the issued and outstanding common shares of Inner Spirit for total consideration of approximately $131 million (the “Transaction”).

Under the terms of the Agreement, Inner Spirit’s shareholders will receive, for each Inner Spirit common share held, (i) $0.30 in cash and (ii) 0.0835 of a Sundial common share (representing $0.09 per Inner Spirit common share based on the 10-day volume-weighted average price (“VWAP”) of Sundial common shares on the Nasdaq Capital Market), for total consideration of $0.39 per Inner Spirit common share. The Transaction has been unanimously approved by the Boards of Directors of Sundial and Inner Spirit and is expected to close early in the third quarter of 2021.

Inner Spirit is a retailer and franchisor of Spiritleaf recreational cannabis stores across Canada, with a network that includes 86 franchised and corporate-owned locations.

Valens Marketable securities

On May 4, 2021, the Company announced that it had acquired more than 10% of the issued outstanding common shares of The Valens Company Inc. (“Valens”). Valens operates in the cannabis industry and is focused on extraction and manufacturing of cannabinoid-based products.

EX-99.2 3 sndl-ex992_13.htm EX-99.2 sndl-ex992_13.htm

EXHIBIT 99.2

Sundial Growers Inc.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

For the three months ended March 31, 2021

Management’s Discussion and Analysis

This Management’s Discussion and Analysis (“MD&A”) of the financial condition and performance of Sundial Growers Inc. (“Sundial” or the “Company”) for the three months ended March 31, 2021 is dated May 11, 2021. This MD&A should be read in conjunction with the Company’s condensed consolidated interim financial statements and the notes thereto for the three months ended March 31, 2021 and the audited consolidated financial statements and notes thereto for the year ended December 31, 2020 (the “Audited Financial Statements”) and the risks identified under “Risk Factors” below and in the Company’s Annual Report on Form 20-F for the year ended December 31, 2020 (the “Annual Report”). This MD&A has been prepared in accordance with National Instrument 51-102 - Continuous Disclosure Obligations as issued by the Canadian Securities Administrators and is presented in thousands of Canadian dollars, except where otherwise indicated.

MD&A – Table of Contents


COMPANY OVERVIEW	2
RECENT DEVELOPMENTS	2
OTHER DEVELOPMENTS	4
OPERATIONAL AND FINANCIAL HIGHLIGHTS	6
OPERATIONAL RESULTS - CANNABIS	7
FINANCIAL RESULTS - CONSOLIDATED	7
FINANCIAL RESULTS - CANNABIS	8
FINANCIAL RESULTS - INVESTMENTS	11
OTHER FINANCIAL RESULTS - CONSOLIDATED	12
DISCONTINUED OPERATIONS – ORNAMENTAL FLOWERS	14
SELECTED QUARTERLY INFORMATION	15
LIQUIDITY AND CAPITAL RESOURCES	16
CONTRACTUAL COMMITMENTS AND CONTINGENCIES	18
NON-IFRS MEASURES	19
RELATED PARTIES	20
OFF BALANCE SHEET ARRANGEMENTS	21
CRITICAL ACCOUNTING POLICIES AND ESTIMATES	21
NEW ACCOUNTING PRONOUNCEMENTS	22
RISK FACTORS	22
DISCLOSURE CONTROLS AND PROCEDURES	22
INTERNAL CONTROLS OVER FINANCIAL REPORTING	22
ABBREVIATIONS	23
ADVISORY	24
ADDITIONAL INFORMATION	25


	1

COMPANY OVERVIEW

Sundial (“SNDL”, “Sundial” or the “Company”) is a licensed producer that grows cannabis using state-of-the-art indoor facilities. Sundial was incorporated under the Business Corporations Act (Alberta) on August 19, 2006. The Company’s common shares are listed under the symbol “SNDL” on the NASDAQ Capital Market (“Nasdaq”).

Sundial is headquartered in Calgary, Alberta, with operations in Olds, Alberta, and Rocky View County, Alberta.

Sundial currently produces and markets cannabis products for the Canadian adult-use market. Sundial’s purpose-built indoor modular grow rooms create consistent, highly controlled cultivation environments and are the foundation of the Company’s production of high-quality, strain-specific cannabis products. Sundial’s operations cultivate cannabis using an individualized “room” approach, in approximately 448,000 square feet of total space. The Company has established supply agreements with nine Canadian provinces and has a distribution network that covers 98% of the national recreational industry.

The Company’s primary focus has been on producing and distributing premium inhalable products and brands (flower, pre-rolls and vapes). Upon receiving a licence from Health Canada to sell cannabis oil products, the Company began the sale and distribution of cannabis vape products in December 2019. The Company is currently marketing its adult-use products under its Top Leaf (Premium), Sundial Cannabis (Premium Core), Palmetto (Core) and Grasslands (Value) brands and intends to introduce new products under these brands as it expands its brand portfolio.

In July 2019, the Company acquired Project Seed Topco (“Bridge Farm”) and its wholly owned subsidiaries, a grower of ornamental plants and herbs in the United Kingdom with the intent to transition Bridge Farm’s facilities to the cultivation, processing and distribution of cannabidiol (“CBD”) products. On June 5, 2020, the Company completed the Bridge Farm Disposition as described under “Discontinued Operations – Ornamental Flowers”.

Sundial and its subsidiaries currently operate solely in Canada. Through its joint venture SunStream Bancorp Inc. the Company also provides growth capital and a strategic support platform that pursues indirect investment opportunities in the global cannabis sector, where lawful as well as other investment opportunities. The Company also makes portfolio investments in debt and equity securities where deemed strategic.

Sundial’s overall strategy is to build sustainable, long-term shareholder value by reducing leverage, improving liquidity and cost of capital while optimizing the capacity and capabilities of its production facilities in the creation of a consumer-centric brand and product portfolio.

To achieve this, Sundial will continue to focus on:

•

Meeting evolving consumer preferences by being a consumer-centric organization.

•

Delivering industry-leading, best-in-class brands and products with a focus on inhalables.

•

Driving quality in all aspects of our operation and being positioned to deliver products that consumers want when they want them.

•

Improving cost discipline and maintaining a variable cost structure to adapt to industry dynamics.

RECENT DEVELOPMENTS

Acquisition of Inner SPirit Holdings and Spiritleaf Retail Cannabis Network

Under the terms of the Agreement, Inner Spirit’s shareholders will receive, for each Inner Spirit common share held, (i) $0.30 in cash and (ii) 0.0835 of a Sundial common share (representing $0.09 per Inner Spirit common share based on the 10-day volume-weighted average price (“VWAP”) of Sundial common shares on the Nasdaq Capital Market), for total consideration of $0.39 per Inner Spirit common share. The purchase price of $0.39 per Inner Spirit common share represents a premium of 54.8% to the 10-day VWAP of Inner Spirit common shares on the Canadian Securities Exchange (the “CSE”) and a premium of 62.5% to the


	2

closing price of Inner Spirit common shares on the CSE on May 4, 2021. The Transaction has been unanimously approved by the Boards of Directors of Sundial and Inner Spirit and is expected to close early in the third quarter of 2021.

Inner Spirit is a retailer and franchisor of Spiritleaf recreational cannabis stores across Canada, with a network that includes 86 franchised and corporate-owned locations.

Valens marketable securities

On May 4, 2021, the Company announced that it had acquired more than 10% of the issued outstanding common shares of The Valens Company Inc. (“Valens”). The Company now owns 16.0 million common shares of Valens, representing approximately 10.1% of the issued and outstanding common shares of Valens at April 14, 2021. The Company acquired the securities for investment purposes. The Company may, depending on market and other conditions, increase or decrease its beneficial ownership in Valens’ securities, whether in transactions over the open market, by privately negotiated arrangements or otherwise, subject to a number of factors, including general market conditions and other available investment and business opportunities.

Strategic alternatives and capital raising

Following a review of its business, Sundial initiated and continues a process to explore strategic alternatives focused on maximizing shareholder value. Sundial’s board of directors (“Board”) has authorized management and its external advisors to consider a broader range of strategic alternatives, including a potential merger or other business combination, investments in other Canadian cannabis companies, including dispensaries and other retail outlets, dispositions of discrete brands and related assets, optimizing its assets, including the potential sale of its Rocky View and Merritt facilities, selling limited quantities of inventory at or below cost and entering into long-term supply agreements with other licensed producers, licensing or other strategic transactions involving the Company, or any combination of the foregoing. Sundial has engaged a financial advisor to assist with these efforts.

There can be no assurance that the exploration of strategic alternatives will result in any transaction or specific course of action. The Company has not set a timetable for the conclusion of its review of strategic alternatives and does not intend to disclose developments with respect to the exploration of strategic alternatives unless and until its Board has approved a specific transaction or course of action or the Company has otherwise determined that further disclosure is appropriate or required by law.

During the three months ended March 31, 2021, the Company issued 543.5 million common shares at a weighted average exercise price of US$0.7617 for gross proceeds of $525.1 million (US$413.9 million) through its ATM programs. The Company also completed two registered offerings for gross proceeds of $223.4 million and received gross proceeds of $118.6 million from the exercise of warrants issued in connection with those registered offerings (see “Other Developments – Registered Offerings” for more information). At March 31, 2021, the Company had an unrestricted cash balance of $873.4 million.

The strategic alternatives and capital raising process has resulted in the deployment of capital toward strategic investments. The Company developed an internal capital program to evaluate these and potential future investments, which the Company viewed as a new and separate business line from its cannabis operations.

See “Financial Results – Consolidated” for more information.

At the end of the first quarter of 2021, the Company had deployed a portion of the capital raised in several cannabis-related investments, totaling $96.0 million. These investments generated $15.1 million in interest and fee revenue and realized and unrealized gains in the first quarter of 2021.

The Company continues to strategically deploy capital with a focus on maximizing cash flows and shareholder value.

•

On April 23, 2021, the Company invested $188 million in Sunstream, a strategic capital partnership (as described below);

•

On May 4, 2021, the Company announced that it had acquired more than 10% of the issued outstanding common shares of Valens; and


	3

•

On May 5, 2021, the Company announced that it had entered into an agreement to acquire all of the issued and outstanding common shares of Inner Spirit.

STRATEGIC CAPITAL PARTNERSHIP

The Joint Venture will leverage a strategic financial and operational partnership to generate asymmetrically enhanced risk-return opportunities in the cannabis industry to provide exposure to a portfolio of attractive debt, equity and hybrid investments. The Joint Venture will focus on cannabis-related verticals, seeking both Canadian and international opportunities and investments. The Joint Venture’s first mandate is the formation of a special opportunities fund with commitments from third party limited partners alongside an initial commitment from Sundial of $188 million (increased from its original commitment of $100 million). The Joint Venture expects to pursue additional potential mandates, including a Canadian SPAC and other investments.

OTHER DEVELOPMENTS

Registered offerings

On February 2, 2021, the entire 33.3 million Series B Warrants were exercised resulting in the issuance of 33.3 million common shares.

On February 4, 2021, the Company issued 60.5 million additional Series A units (the “Additional Series A Units”), each consisting of one common share and one-half additional series A warrant (collectively, the “Additional Series A Warrants”) to purchase one common share and 14.0 million additional series B units (the “Additional Series B Units”), each consisting of one pre-funded additional series B warrant (the “Additional Series B Warrants”) to purchase one common share and one-half Additional Series A Warrant to purchase one common share, (collectively, the “February 2021 Units Offering”). Each Additional Series A Unit was sold at a price of US$1.00 per unit and each Additional Series B Unit was sold at a price of US$1.00 per unit, less US$0.0001 per unit. Gross proceeds from this offering were US$74.5 million. The Additional Series A Warrants and Additional Series B Warrants were exercisable immediately and had a term of five years commencing on the date of issuance. The exercise price of the Additional Series A Warrants was US$1.10 per common share and the exercise price of the Additional Series B Warrants was US$0.0001 per common share.

On February 4, 2021, the entire 14.0 million Additional Series B Warrants were exercised resulting in the issuance of 14.0 million common shares.

On February 22, 2021, (i) the remaining 63.3 million Series A Warrants were exercised at a weighted average exercise price of US$0.80 per warrant resulting in the issuance of 63.3 million common shares and gross proceeds to the Company of US$50.7 million and (ii) the remaining 35.0 million Additional Series A Warrants were exercised at a weighted average exercise price of US$1.10 per warrant resulting in the issuance of 35.0 million common shares and gross proceeds to the Company of US$38.5 million. In connection with this exercise, the Company issued 98.3 million new warrants (the “New Warrants”), each entitling the holder to purchase one common share at an exercise price of US$1.50, subject to customary anti-dilution adjustments. The Company has granted the holders rights to have the common shares issuable upon exercise of the New Warrants registered pursuant to a registration statement filed with the SEC. Such registration statement was filed with the SEC on March 3, 2021. The


	4

New Warrants are immediately exercisable and have a term of 42 months from March 18, 2021, which is the effective date of the registration statement.

Indiva investment

Reduction in pathway ownership

COVID-19

The Company is continually monitoring and responding to the ongoing and evolving COVID-19 pandemic. The Company’s business activities have been declared an essential service by the Alberta Government and the Company remains committed to the health and safety of all personnel and to the safety and continuity of operations.

In response to COVID-19 the Company activated its Emergency Operations Centre team and Incident Command Centre to protect the health and safety of the Company’s workforce and the public, as well as to ensure the continuity of operations. The Company is monitoring daily developments in the COVID-19 pandemic and actions taken by the government authorities in response thereto. In accordance with the guidance of provincial and federal health officials to limit the risk and transmission of COVID-19, the Company has implemented mandatory self-quarantine policies, travel restrictions, enhanced cleaning and sanitation processes and frequency, and encouraging social distancing measures, including directing office staff to work from home if possible.

The Company believes that it can maintain safe operations with these pandemic-related procedures and protocols in place. Additionally, in order to prevent and minimize any potential COVID-19 outbreak at its facilities, the Company has implemented additional measures as part of its pandemic response, including halting all non-essential external visitors to its facilities and enhanced screening measures prior to allowing employees and visitors into the facilities.

In March 2020, the federal government launched the Canadian Emergency Wage Subsidy (“CEWS”) to help businesses impacted by the COVID-19 pandemic retain and rehire employees.

The Company became eligible for the CEWS based on decreases in revenue and has received the subsidy for certain periods.

Subsidies have been recognized in the consolidated statement of loss and comprehensive loss. There are no unfulfilled conditions or contingencies attached to either subsidy.


	5

OPERATIONAL AND FINANCIAL HIGHLIGHTS

The following table summarizes selected operational and financial information of the Company for the periods noted.


($000s, except as indicated)	Q1 2021	Q1 2020	Change	% Change
Financial
Gross cannabis revenue	11,748	16,590	(4,842)	-29%
Net cannabis revenue	9,891	14,006	(4,115)	-29%
Cost of sales	11,445	13,507	(2,062)	-15%
Gross margin before fair value adjustments⁽¹⁾	(3,308)	(7,216)	3,908	54%
Gross margin before fair value adjustments %	-33%	-52%		35%
Interest and fee revenue	2,849	—	2,849	100%
Investment revenue	12,900	—	12,900	100%
Income (loss) from operations	1,685	(33,030)	34,715	105%
Net loss from continuing operations⁽²⁾	(134,416)	(37,861)	(96,555)	-255%
Per share, basic and diluted⁽²⁾	(0.09)	(0.35)	0.26	73%
Net loss from discontinued operations⁽²⁾	—	(6,034)	6,034	-100%
Per share, basic and diluted⁽²⁾	—	(0.06)	0.06	-100%
Net loss⁽²⁾	(134,416)	(43,895)	(90,521)	-206%
Per share, basic and diluted⁽²⁾	(0.09)	(0.41)	0.32	77%
Adjusted EBITDA from continuing operations⁽³⁾	3,327	(11,643)	14,970	129%

Statement of Financial Position
Cash and cash equivalents	873,445	60,376	813,069	1347%
Biological assets	2,835	3,531	(696)	-20%
Inventory	32,837	25,613	7,224	28%
Property, plant and equipment	114,039	116,928	(2,889)	-2%
Total assets	1,149,689	294,871	854,818	290%

Operational
Kilogram equivalents sold	3,989	4,437	(448)	-10%
Average gross selling price per gram⁽⁴⁾	2.95	3.74	(0.79)	-21%
Average net selling price per gram⁽⁵⁾	2.48	3.16	(0.68)	-21%

(1)	Includes inventory obsolescence and impairment of $1.8 million for the three months ended March 31, 2021, and $ 7.7 million for three months ended March 31, 2020.

(2)	Net loss from continuing operations, net loss from discontinued operations, net loss and related per share amounts are attributable to owners of the Company.

(3)

Adjusted EBITDA does not have a standardized meaning prescribed by IFRS and therefore may not be comparable to similar measures used by other companies. The non-IFRS measure of adjusted EBITDA is reconciled to net loss in accordance with IFRS in the “NON-IFRS MEASURES” section of this MD&A and discussed further in the “ADVISORY” section of this MD&A.

(4)	Gross selling price net of excise tax.

(5)	Net of marketing fees, salvage fees and early payment discounts with respect to sales under Sundial’s supply agreements with Canadian provincial regulatory authorities.


	6

OPERATIONAL RESULTS - CANNABIS

Kilogram equivalents sold

	Three months ended March 31
	2021		2020
Provincial boards		2,874		1,997
Medical		—		4
Licensed producers		1,115		2,436
Total kilogram equivalents sold		3,989		4,437

For the three months ended March 31, 2021, the Company sold 3,989 kilogram equivalents of cannabis compared to 4,437 kilogram equivalents for the three months ended March 31, 2020. The decrease of 448 kilogram equivalents sold was due to a decrease in kilogram equivalents sold to other licensed producers (“LPs”), partially offset by an increase in kilogram equivalents sold to provincial boards. The Company’s sales growth strategy is to continue targeting branded sales to provincial boards.

Selling price

	Three months ended March 31
($/gram equivalent)	2021			2020
Provincial boards	$	3.15		$	5.11
Medical	$	7.62		$	4.00
Licensed producers	$	2.43		$	2.62
Average gross selling price	$	2.95		$	3.74
Excise taxes	$	(0.47	)	$	(0.58	)
Average net selling price	$	2.48		$	3.16

For the three months ended March 31, 2021, the average net selling price was $2.48 per gram equivalent compared to $3.16 for the three months ended March 31, 2020. The decrease of $0.68 per gram equivalent was mainly due to lower prices for provincial board sales and slightly lower prices for sales to other LPs. Sales prices have decreased due to slower industry-wide sales and a growing discount segment.

The principal drivers of the Company’s realized prices are the formats of the products sold (currently both bulk and packaged flower, vape cartridges and accessories, trim, bulk extracted oil, edibles and concentrates) and the channels in which products are sold (principally Canadian provincial boards and LPs).

Excise taxes are the federal excise duties and additional provincial or territorial duties payable on adult-use cannabis products. Excise taxes for the three months ended March 31, 2021 and 2020 are only calculated based on adult-use cannabis sales to provincial boards.

FINANCIAL RESULTS - CONSOLIDATED


	7

opportunities. Certain overhead expenses not directly attributable to either the cannabis operations segment or investment operations segment are reported in a third segment referred to as “Corporate”.

As at March 31, 2021 ($000s)	Cannabis			Investments		Corporate			Total
Total assets		319,213			827,476		3,000			1,149,689
Three months ended March 31, 2021
Net revenue		9,891			15,749		—			25,640
Depreciation and amortization		954			—		104			1,058
Gross margin		(3,452	)		15,749		—			12,297
Earnings (loss) before tax		(9,172	)		14,300		(139,573	)		(134,445	)

FINANCIAL RESULTS - CANNABIS

Revenue

Revenue by form

	Three months ended March 31
($000s)	2021		2020
Revenue from dried flower		9,716		11,724
Revenue from vapes		1,413		4,349
Revenue from oil		181		517
Revenue from edibles and concentrates		438		—
Gross revenue		11,748		16,590

Revenue by channel

	Three months ended March 31
($000s, except as indicated)	2021			2020
Provincial boards		9,042			10,200
Medical		2			16
Licensed producers		2,704			6,374
Gross revenue		11,748			16,590
Excise taxes		(1,857	)		(2,584	)
Net revenue		9,891			14,006
Gross revenue per gram sold	$	2.95		$	3.74
Net revenue per gram sold	$	2.48		$	3.16

The Company’s revenue comprises bulk and packaged sales under the Cannabis Act pursuant to its supply agreements with Canadian provincial regulatory authorities and to other LPs. The Company’s sales growth strategy is to continue targeting branded sales to provincial boards.

Gross revenue for the three months ended March 31, 2021 was $11.7 million compared to $16.6 million for the three months ended March 31, 2020. The decrease of $4.9 million was due to a decrease in selling prices and a decrease in kilogram equivalents sold. Provincial board revenue decreased by $1.2 million due to a decrease in selling prices, partially offset by an increase in kilogram equivalents sold. LP revenue decreased by $3.7 million mainly due to a decrease in kilogram equivalents sold.

Excise taxes are the federal excise duties and additional provincial or territorial duties payable on adult-use cannabis products at the time such product is shipped from the production facility in its final consumer-facing packaging. Federal duties on adult-use cannabis products are calculated as the greater of (i) $0.25 per gram of flowering material, (ii) $0.75 per gram of non-flowering material or $0.25 per viable seed or seedling and (iii) 2.5% of the dutiable amount as calculated in accordance with the Excise Act, 2001. The rates of provincial or territorial duties vary.


	8

Excise taxes for the three months ended March 31, 2021 were $1.9 million compared to $2.6 million for the three months ended March 31, 2020. The decrease of $0.7 million was due to a decrease in sales to provincial boards from the comparative period. No excise taxes are payable on sales to other LPs.

Cost of sales

	Three months ended March 31
($000s, except as indicated)	2021		2020
Cost of sales		11,445		13,507
Cost of sales per gram sold	$	2.87	$	3.04

Cost of sales includes three main categories: pre-harvest, post-harvest and shipment and fulfillment costs. These costs are incurred in respect of cultivating, harvesting, processing and packaging cannabis products. Pre-harvest costs include all direct and indirect costs incurred between initial recognition and the point of harvest, including labour-related costs, grow consumables, materials, utilities, facilities costs and depreciation related to production facilities. Post-harvest costs include all direct and indirect costs incurred subsequent to the point of harvest, including labour-related costs, consumables, materials, utilities and facilities costs. Shipment and fulfillment costs include packaging, transportation, quality control and testing costs.

Cost of sales for the three months ended March 31, 2021 were $11.4 million compared to $13.5 million for the three months ended March 31, 2020. The decrease of $2.1 million was due to a decrease in kilogram equivalents sold compared to the prior period and a decrease in the cost of sales per gram sold compared to the prior period. Cost of sales per gram sold for the three months ended March 31, 2021 were $2.87 compared to $3.04 for the three months ended March 31, 2020. The decrease of $0.17 per gram sold was mainly due to lower per gram costs relating to dried flower and vapes sold to provincial boards.

Gross margin

	Three months ended March 31
($000s)	2021			2020
Net revenue		9,891			14,006
Cost of sales		11,445			13,507
Inventory obsolescence and impairment		1,754			7,715
Gross margin before fair value adjustments ⁽¹⁾		(3,308	)		(7,216	)
Change in fair value of biological assets		(94	)		6,415
Change in fair value realized through inventory		(50	)		(9,692	)
Gross margin		(3,452	)		(10,493	)

(1)

Gross margin before fair value adjustments does not have a standardized meaning prescribed by IFRS and therefore may not be comparable to similar measures used by other companies. The non-IFRS measure of gross margin before fair value adjustments is discussed further in the “ADVISORY” section of this MD&A.

Gross margin before fair value adjustments

Gross margin before fair value adjustments is defined as net revenue less cost of sales and inventory obsolescence and impairment before adjusting for the non-cash changes in the fair value adjustments on the sale of inventory and the growth of biological assets.

Gross margin before fair value adjustments for the three months ended March 31, 2021 was negative $3.3 million compared to negative $7.2 million for the three months ended March 31, 2020. The increase of $3.9 million was mainly due to lower cost of sales relating to lower sales volumes and costs per gram sold and a lower inventory obsolescence provision compared to the prior period, partially offset by lower net revenue. The inventory obsolescence provision was applied primarily to concentrates due to price compression in the market. The inventory obsolescence provision in the comparative period was applied primarily to bulk shake and slow-moving bulk oil inventory due to a lack of market demand.

The total inventory obsolescence and impairment recognized during the three months ended March 31, 2021 was $1.8 million, with $1.8 million relating to cost of sales and nil relating to the change in fair value realized through inventory. The total inventory obsolescence and impairment recognized during the three months ended March 31, 2020 was $14.4 million, with $7.7 million relating to cost of sales and $6.7 million relating to the change in fair value realized through inventory.


	9

Change in fair value of biological assets

Change in fair value of biological assets for the three months ended March 31, 2021 was a decrease of $0.1 million compared to an increase of $6.4 million for the three months ended March 31, 2020. The decrease in the current period relates to minor decreases in the expected number of plants and weighted average maturity of the stage of growth, partially offset by a minor increase in the expected selling price less costs to sell per gram. The increase in the comparative period relates to an increase in the expected selling price less costs to sell per gram, partially offset by a decrease in the expected number of plants.

Biological assets consist of cannabis plants in various stages of vegetation, including clones, which have not been harvested. Net unrealized changes in fair value of biological assets less cost to sell during the period are included in the results of operations for the related period. Biological assets are presented at their fair values less costs to sell up to the point of harvest. The fair values are determined using a model which estimates the expected harvest yield in grams for plants currently being cultivated, and then adjusted for the amount for the expected selling price less costs to sell per gram.

Change in fair value realized through inventory

	Three months ended March 31
($000s)	2021			2020
Change in fair value realized through inventory sold		(50	)		(3,033	)
Change in fair value recognized through inventory obsolescence provision		—			(6,659	)
Change in fair value realized through inventory		(50	)		(9,692	)

The change in fair value realized through inventory for the three months ended March 31, 2021 was a decrease of $0.1 million compared to a decrease of $9.7 million for the three months ended March 31, 2020. The increase of $9.6 million was due to the fair value component of the excess and obsolete inventory provision in the comparative period and the reversal of prior period increases in fair value of biological assets as they are transferred to inventory and sold.

Change in fair value realized through inventory comprises fair value adjustments associated with the cost of inventory when such inventory is sold. Inventories are carried at the lower of cost and net realizable value. When sold, the cost of inventory is recorded as cost of sales, while fair value adjustments are recorded as change in fair value realized through inventory.

Sales and marketing

Three months ended

March 31

($000s)

2021

2020

Sales and marketing

950

1,792

Sales and marketing expenses consist of brand development and promotion expenses, marketing personnel and related costs.

Sales and marketing expenses for the three months ended March 31, 2021 were $1.0 million compared to $1.8 million for the three months ended March 31, 2020. The decrease of $0.8 million was mainly due to a decrease in general marketing expenses and a decrease in marketing events expenses.

Restructuring costs

Three months ended

March 31

($000s)

2021

2020

Restructuring costs

—

2,719

Restructuring costs of $2.7 million for the three months ended March 31, 2020 represent severance costs relating to the workforce reductions, legal, professional and consulting fees that relate directly to the restructuring.


	10

Asset impairment

Three months ended

March 31

($000s)

2021

2020

Asset impairment

—

5,659

The Company determined that indictors of impairment existed during the three months ended March 31, 2020 with respect to the Company’s British Columbia cash generating unit (“CGU”) as a result of the Company’s disposition of its Kamloops property and decision to suspend further construction and development activities on its Merritt facility due to market conditions and available financing. Approximately $10.0 million had been invested into the Merritt facility which consisted of land and construction in progress. A test for impairment was performed at the CGU level by comparing the estimated recoverable amount to the carrying values of the assets. The estimated recoverable amount of the assets was determined to be their fair value less costs of disposal and an impairment of $5.7 million was recorded to write down the assets to their recoverable amount of $4.2 million.

FINANCIAL RESULTS - INVESTMENTS

Interest and fee revenue

	Three months ended March 31
($000s)	2021		2020
Interest revenue from investments at amortized cost		113		—
Interest and fee revenue from investments at FVTPL		2,182		—
Interest revenue from cash		554		—
		2,849		—

Interest and fee revenue for the three months ended March 31, 2021, was $2.8 million and was generated from cannabis-related investments. The Company continues to strategically deploy capital with a focus on maximizing cash flows and shareholder value.

Investment revenue

	Three months ended March 31
($000s)	2021		2020
Investment revenue
Realized gains		8,019		—
Unrealized gains		4,881		—
		12,900		—

Investment revenue is comprised of realized and unrealized gains on marketable securities. Investment revenue for the three months ended March 31, 2021, was $12.9 million and was generated from cannabis-related marketable securities. The Company continues to strategically deploy capital with a focus on maximizing cash flows and shareholder value.


	11

OTHER FINANCIAL RESULTS - CONSOLIDATED

General and administrative

	Three months ended March 31
($000s)	2021		2020
Salaries and wages		3,934		4,273
Consulting fees		337		1,113
Office and general		1,319		2,894
Professional fees		882		1,536
Director compensation		88		110
Other		533		682
		7,093		10,608

General and administrative expenses for the three months ended March 31, 2021 were $7.1 million compared to $10.6 million for the three months ended March 31, 2020. The decrease of $3.5 million was mainly due to decreases in salaries and wages, consulting fees and professional fees. Throughout the prior year the Company implemented several streamlining and efficiency initiatives which included workforce optimizations.

Share-based compensation

	Three months ended March 31
($000s)	2021		2020
Simple warrants		597		282
Performance warrants		—		(42	)
Stock options		70		137
Restricted share units		1,644		256
Deferred share units		1,145		162
		3,456		795

Share-based compensation expense includes the expense related to the issuance of simple and performance warrants, stock options, restricted share units (“RSUs”) and deferred share units (“DSUs”) to employees, directors, and others at the discretion of the Company’s Board.

The fair value of the Company’s shares is based on public trading data. The estimated fair value of the Company’s common shares at the time of grant is used to determine the associated share-based compensation expense. The Company determines the amount of share-based compensation expense by utilizing the Black-Scholes pricing model with inputs based on the terms of the award, including the strike price, and other estimates and assumptions, including the expected life of the award, the volatility of the underlying share price, the risk-free rate of return and the estimated rate of forfeiture of the awards granted.

Share-based compensation expense for the three months ended March 31, 2021 was $3.5 million compared to $0.8 million for the three months ended March 31, 2020. The increase of $2.7 million was due to an increase in the number of RSUs and DSUs granted. Share-based compensation expense for the three months ended March 31, 2021 included the issuance of 12,312,900 RSUs and 1,467,026 DSUs under the Company’s long-term incentive programs designed to align employee and director compensation with Company performance on a Company-wide basis. Share-based compensation expense for the three months ended March 31, 2020 included the issuance of 1,015,960 RSUs and 32,532 DSUs.

Transaction costs

Three months ended

March 31

($000s)

2021

2020

Transaction costs

3,648

1,101


	12

Transaction costs for the three months ended March 31, 2021 were $3.6 million compared to $1.1 million for the three months ended March 31, 2020. The increase of $2.5 million was due to costs associated with the registered offerings and various financing initiatives.

Finance costs

	Three months ended March 31
($000s)	2021		2020
Cash finance expense
Interest on Term Debt Facility		—		2,803
Interest on Syndicated Credit Agreement		—		1,197
Other finance costs		28		194
		28		4,194
Non-cash finance expense
Accretion		—		1,534
Amortization of debt issue costs		—		356
Other		23		26
		23		1,916
Interest income		—		(128	)
		51		5,982

Finance costs include certain other expenses. Finance costs in the prior year included interest on the Company’s indebtedness, accretion expense associated with the Company’s indebtedness and certain other expenses.

Finance costs for the three months ended March 31, 2021 were $0.1 million compared to $6.0 million for the three months ended March 31, 2020. The decrease in costs of $5.9 million was due to decreases in interest expense and accretion due to the extinguishment and settlement of the Term Debt Facility and Syndicated Credit Agreement.

Change in estimate of fair value of derivative warrants

Three months ended

March 31

($000s)

2021

2020

Change in estimate of fair value of derivative warrants

129,944

—

An expense of $129.9 million was recorded for the three months ended March 31, 2021, reflecting the fair value of derivative warrants issued and partially converted. The carrying amount is an estimate of the fair value of the derivative warrants and is presented as a current liability, pursuant to IFRS requirements due to the warrant exercise prices being denominated in United States dollars. Refer to note 21 in the condensed consolidated interim financial statements for valuation methodology. The Company has no cash obligation with respect to the derivative warrants, rather it will deliver common shares if and when warrants are exercised.

Net loss from continuing operations

Three months ended

March 31

($000s)

2021

2020

Net loss from continuing operations

(134,445

)

(37,949

)

Net loss for the three months ended March 31, 2021 was $134.4 million compared to a net loss of $37.9 million for three months ended March 31, 2020. The increased loss of $96.5 million was due to lower net revenue, change in fair value of biological assets, higher share-based compensation expense, change in fair value of derivative warrants and higher transaction costs, partially offset by lower cost of sales, lower inventory obsolescence provision, change in fair value realized through inventory, lower general and administrative expenses, lower sales and marketing expenses, no restructuring costs, no asset impairments, government subsidies, interest and fee revenue, investment revenue and lower finance costs.


	13

Adjusted EBITDA from continuing operations

Three months ended

March 31

($000s)

2021

2020

Adjusted EBITDA from continuing operations⁽¹⁾

3,327

(11,643

)

(1)	The non-IFRS measure of adjusted EBITDA is reconciled to net loss in accordance with IFRS in the “NON-IFRS MEASURES” section of this MD&A and discussed further in the “ADVISORY” section of this MD&A.

Adjusted EBITDA from continuing operations does not have standardized meaning prescribed by IFRS and therefore may not be comparable to similar measures used by other companies.

Adjusted EBITDA from continuing operations was $3.3 million for the three months ended March 31, 2021 compared to a loss of $11.6 million for the three months ended March 31, 2020. The increase was due to the following:

•

Decrease in cost of sales due to decreases in kilogram equivalents sold and per gram costs;

•

Decrease in general and administrative expenses due to lower salaries and wages, consulting fees and professional fees;

•

Decrease in sales and marketing expenses due to a decrease in general marketing activities;

•

Investment revenue; and

•

Interest and fee revenue.

The increase was partially offset by:

•

a decrease in net revenue due to decreases in kilogram equivalents sold and sales prices.

DISCONTINUED OPERATIONS – ORNAMENTAL FLOWERS

On February 22, 2019, the Company, through its wholly owned subsidiary, Sundial UK Limited, signed a Sale and Purchase Agreement to acquire all the issued and outstanding shares of Project Seed Topco (“Bridge Farm”). The acquisition closed on July 2, 2019.

On May 15, 2020, the Company entered into an agreement to sell all of the outstanding shares of Bridge Farm to a company affiliated with the former management sellers that were parties to the original acquisition (the “Bridge Farm Purchaser”) in exchange for (i) the assumption by the Bridge Farm Purchaser of $45 million of the total $115 million principal amount outstanding under the Term Debt Facility (thereby reducing the Company’s then outstanding obligations thereunder to $70 million), (ii) the assumption by the Bridge Farm Purchaser of contingent consideration liabilities related to the additional share obligation and remaining earn out obligation under the original Bridge Farm acquisition agreement dated July 2, 2019, and (iii) the cancellation of approximately 2.7 million Sundial common shares, representing all of the shares currently held by the management sellers of Bridge Farm issued in connection with the original acquisition of Bridge Farm by the Company in 2019 (collectively, the “Bridge Farm Disposition”).

The sale of Bridge Farm closed on June 5, 2020. The Bridge Farm operations comprised the entire Ornamental Flower segment that was located in the United Kingdom. The Ornamental Flower segment was not previously classified as held-for-sale or as a discontinued operation. The comparative consolidated statement of loss and comprehensive loss and statement of cash flows in the financial statements for the three months ended March 31, 2020 have been re-presented to show the discontinued operation separately from continuing operations. The Company no longer has an Ornamental Flower segment.

During the three months ended March 31, 2020, the Company recorded revenues of $9.0 million and a net loss of $6.0 million from Bridge Farm.

Capital expenditures with respect to discontinued operations during the three months ended March 31, 2020 consisted of $3.8 million mainly related to construction at Bridge Farm’s Clay Lake facility.

SELECTED QUARTERLY INFORMATION

The following table summarizes selected consolidated operating and financial information of the Company for the preceding eight quarters.


	14

	2021			2020												2019
($000s, except as indicated)	Q1			Q4 ⁽²⁾			Q3			Q2			Q1			Q4			Q3			Q2
Gross cannabis revenue ⁽¹⁾		11,748			16,865			15,525			24,341			16,590			16,262			28,690			20,284
Gross investment revenue		15,749			—			—			—			—			—			—			—
Net loss from continuing operations attributable to owners of the Company		(134,416	)		(57,622	)		(71,386	)		(32,750	)		(37,861	)		(28,061	)		(85,448	)		(12,322	)
Per share, basic and diluted		(0.09	)		(0.11	)		(0.53	)		(0.31	)		(0.35	)		(0.26	)		(0.93	)		(0.16	)
Net loss from discontinued operations attributable to owners of the Company		—			—			—			(27,593	)		(6,034	)		(116,927	)		(12,004	)		—
Per share, basic and diluted		—			—			—			(0.26	)		(0.06	)		(1.10	)		(0.13	)		—
Net loss attributable to owners of the Company		(134,416	)		(57,622	)		(71,386	)		(60,343	)		(43,895	)		(144,988	)		(97,452	)		(12,322	)
Per share, basic and diluted		(0.09	)		(0.11	)		(0.53	)		(0.57	)		(0.41	)		(1.36	)		(1.06	)		(0.16	)

(1)	Gross revenue from continuing operations.

(2)

Q4 2020 net loss from continuing operations, net loss attributable to owners of the Company and the per share amounts have been recast to attribute 50% of the impairment of intangible assets recorded to non-controlling interest. Refer to note 12 in the condensed consolidated interim financial statements for the three months ended March 31, 2021.

During the eight most recent quarters the following items have had a significant chronological impact on the Company’s results:

•	significantly increasing production capacity with the expansions to the Olds facility;

•	increasing the number of cannabis plants and weighted average maturity of their stage of growth;

•	increasing staffing to support growth and expansion initiatives;

•	increasing marketing, promotion and branding activities relating to the commencement of adult-use cannabis;

•	acquisition of Bridge Farm;

•	terminating the investment and royalty agreement;

•	non-cash impairment charge of goodwill relating to Bridge Farm’s CBD cash generating unit;

•	price discounts and provisions for product returns;

•	impairment of property, plant and equipment;

•	provision for inventory obsolescence;

•	disposition of Bridge Farm;

•	issuance of secured convertible note and warrants;

•	issuance of unsecured convertible notes and warrants

•	extinguishment of the Term Debt Facility;

•	implementing several streamlining and efficiency initiatives which included workforce optimizations;

•	issuance of equity securities in the August 2020 offering;

•	conversions of secured convertible note and warrants;

•	conversions of unsecured convertible notes and warrants;

•	issuance of common shares under various ATM programs;

•	acquisition of the Zenabis investment;

•	issuance of equity securities in the 2021 registered offerings and exercise of related warrants;

•	investing and disposing of marketable securities;

•	decreasing ownership in Pathway;

•	shift to include investment strategy as part of operations.


	15

LIQUIDITY AND CAPITAL RESOURCES

($000s)		March 31, 2021				December 31, 2020
Cash and cash equivalents			873,445				60,376

Capital resources are financing resources available to the Company and are defined as the Company’s debt and equity. The Company manages its capital resources with the objective of maximizing shareholder value and sustaining future development of the business. The Company manages its capital structure and adjusts it, based on the funds available to the Company, in order to support the Company’s activities. The Company may adjust capital spending, issue new equity or issue new debt, subject to the availability of commercial terms.

The Company’s primary need for liquidity is to fund investment opportunities, capital expenditures, working capital requirements and for general corporate purposes. The Company’s primary source of liquidity historically has been from funds received from the proceeds of common share issuances and debt financing. The Company’s ability to fund operations and investments and make planned capital expenditures depends on future operating performance and cash flows, as well as the availability of future financing – all of which is subject to prevailing economic conditions and financial, business and other factors.

Management believes its current capital resources and its ability to manage cash flow and working capital levels will be sufficient to satisfy cash requirements associated with funding the Company’s operating expenses to maintain capacity and fund future development activities for at least the next 12 months. However, no assurance can be given that this will be the case or that future sources of capital will not be necessary.

See “Recent Developments – Strategic Alternatives and Capital Raising” for more information.

Debt

As at March 31, 2021, the Company was debt free.

Equity

As at March 31, 2021, the Company had the following share capital instruments outstanding:

(000s)	March 31, 2021		December 31, 2020
Common shares		1,776,025		918,844
Common share purchase warrants⁽¹⁾		1,024		1,024
Simple warrants ⁽²⁾		3,170		3,425
Performance warrants ⁽³⁾		1,573		1,672
Stock options⁽⁴⁾		646		721
Restricted share units		13,622		1,657
Deferred share units⁽⁵⁾		4,790		3,323

(1)	1.0 million warrants were exercisable as at March 31, 2021.

(2)	2.0 million simple warrants were exercisable as at March 31, 2021.

(3)	1.0 million performance warrants were exercisable as at March 31, 2021.

(4)	0.2 million stock options were exercisable as at March 31, 2021.

(5)	DSUs are only exercisable upon a director’s departure from the Company.

As at March 31, 2021, the Company had 1.78 billion shares outstanding (December 31, 2020 - 918.8 million shares).

Common shares were issued during the three months ended March 31, 2021 in connection with the following transactions:

•

The Company sold 543.5 million common shares under ATM Programs for gross proceeds of $525.2 million;

•

Issuance of 100.0 million common shares in the January 2021 Units Offering for gross proceeds of $128.0 million;

•

Exercise of all the Series B Warrants from the January 2021 Units Offering for 33.3 million common shares;

•

Exercise of all the Series A Warrants from the January 2021 Offering for 66.7 million common shares and gross proceeds of $67.1 million;

•

Issuance of 60.5 million common shares in the February 2021 Units Offering for gross proceeds of $95.4 million;

•

Exercise of all the Additional Series B Warrants from the February 2021 Units Offering for 14.0 million common shares; and

•

Exercise of all the Additional Series A Warrants from the February 2021 Units Offering for 37.3 million common shares and gross proceeds of $51.5 million;


	16

From April 1, 2021 to May 11, 2021:

•

The Company sold 84.6 million common shares under ATM Program for gross proceeds of $97.7 million; and

As at May 11, 2021, a total of 1.86 billion common shares were outstanding.

Capital Expenditures

	Three months ended March 31
($000s)	2021			2020
Olds facility⁽¹⁾		(513	)		951
Rocky View facility		—			—
Merritt facility		—			—
Other		119			725
Total		(394	)		1,676

(1)	The credit to the Olds facility relates to the recovery of construction holdbacks and a grant receivable.

Cash Flow Summary

	Three months ended March 31
($000s)	2021			2020
Cash provided by (used in) continuing operations:
Operating activities		(34,366	)		(17,510	)
Investing activities		(10,859	)		(7,637	)
Financing activities		860,246			169
Effect of exchange rate changes		(1,952	)		1,558
Change in cash and cash equivalents		813,069			(23,420	)

Cash Flow – Operating Activities

Net cash used in operating activities from continuing operations was $34.4 million for the three months ended March 31, 2021 compared to $17.5 million used in operating activities for the three months ended March 31, 2020. The increase of $16.9 million was due to investing in marketable securities and the change in non-cash working capital, partially offset by a decrease in net loss adjusted for non-cash items and proceeds from the disposition of marketable securities. The decrease in non-cash working capital is comprised of changes in inventory, accounts receivable, prepaid expenses and deposits and accounts payable.

Cash Flow – Investing Activities

Net cash used in investing activities from continuing operations was $10.9 million for the three months ended March 31, 2021 compared to $7.6 million used in investing activities for the three months ended March 31, 2020. The increase of $3.3 million was mainly due to additions to investments, partially offset by the change in non-cash working capital.

Cash Flow – Financing Activities

Net cash provided by financing activities from continuing operations was $860.2 million for the three months ended March 31, 2021 compared to $0.2 million provided by financing activities for the three months ended March 31, 2020. The increase of $860.0 million was mainly due to proceeds from the issuance of shares, proceeds from registered offerings and proceeds from the exercise of derivative warrants.

Liquidity risks associated with financial instruments

Credit risk


	17

default. The Company considers financial instruments to have low credit risk when its credit risk rating is equivalent to investment grade. The Company assumes that the credit risk on a financial asset has increased significantly if it is outstanding past the contractual payment terms. The Company considers a financial asset to be in default when the debtor is unlikely to pay its credit obligations to the Company.

The Company applies the simplified approach under IFRS 9 and has calculated expected credit losses based on lifetime expected credit losses, taking into consideration historical credit loss experience and financial factors specific to the debtors and general economic conditions.

The maximum amount of the Company’s credit risk exposure is the carrying amounts of cash and cash equivalents, accounts receivable, and investments. The Company attempts to mitigate such exposure to its cash and cash equivalents by investing only in financial institutions with investment grade credit ratings or secured investments. The Company manages risk over its accounts receivable by issuing credit only to credit worthy counterparties.

Liquidity risk

Liquidity risk is the risk that the Company cannot meet its financial obligations when due. The Company manages liquidity risk by monitoring operating and growth requirements. The Company prepares forecasts to ensure sufficient liquidity to fulfil obligations and operating plans. Management believes its current capital resources and its ability to manage cash flow and working capital levels will be sufficient to satisfy cash requirements associated with funding the Company’s operating expenses to maintain capacity and fund future development activities for at least the next 12 months.

Market risk

CONTRACTUAL COMMITMENTS AND CONTINGENCIES

a)	Commitments

The information presented in the table below reflects managements estimate of the contractual maturities of the Company’s obligations at March 31, 2021.

($000s)

Less than

one year

One to three

years

Three to five

years

Thereafter

Total

Lease obligations

490

817

177

—

1,484

b)	Contingencies

From time to time, the Company may become involved in legal proceedings arising in the ordinary course of our business. Such proceedings, certain of which have been threatened against us, could include commercial litigation related to breach of contract claims brought by our customers, suppliers and contractors, as well as litigation related to termination of certain of our employees. The outcome of any litigation is inherently uncertain. Although we believe we have meritorious defenses against all currently pending and threatened proceedings and intend to vigorously defend all claims if they are brought, unfavorable rulings, judgments or settlement terms could have a material adverse impact on our business and results of operations. See “Item 8. Financial Information – A. Consolidated Statements and Other Financial Information – Legal Proceedings” in the Annual Report.


	18

On May 7, 2020, the Company and certain of its current and former directors and officers were named as defendants in a lawsuit, captioned SUN, a Series of E Squared Investment Fund, LLC et al. v. Sundial Growers Inc. et al., Case No. 1:20-cv-03579. The complaint asserts claims for alleged violations of U.S. federal securities laws, including Sections 12(a)(2) and 15 of the Securities Act of 1933 and Section 10(b) the Securities Exchange Act of 1934, as well as claims for breach of contract, breach of fiduciary duty, fraud in the inducement and negligent misrepresentation. Among other things, the complaint alleges that the company made misrepresentations regarding the licensing and ability of Bridge Farm to export hemp and CBD to Europe, as well as regarding the quality of the Company’s cannabis and a return by one of the Company’s customers.

We can provide no assurance as to the outcome of these proceedings or any other litigation matter in which we are a party. In particular, securities class action lawsuits are typically costly to defend, and divert the attention of management and other resources from operations and, accordingly, even if resolved in our favor, could have a material adverse effect on our business, financial condition, results of operations and liquidity and may force us to reduce or cease operations or seek relief under the applicable bankruptcy or insolvency laws.

NON-IFRS MEASURES

Certain financial measures in this MD&A including adjusted EBITDA from continuing operations and gross margin before fair value adjustments are non-IFRS measures. These terms are not defined by IFRS and, therefore, may not be comparable to similar measures provided by other companies. These non-IFRS financial measures should not be considered in isolation or as an alternative for measures of performance prepared in accordance with IFRS.

Adjusted EBITDA from continuing operations

Adjusted EBITDA is a non-IFRS measure which the Company uses to evaluate its operating performance. Generally, adjusted EBITDA is defined as net income (loss) before finance costs, depreciation and amortization, accretion expense, income tax recovery and excluding change in fair value of biological assets, change in fair value realized through inventory, unrealized foreign exchange gains or losses, share-based compensation expense, asset impairment, gain or loss on disposal of property, plant and equipment and certain one-time non-operating expenses, as determined by management.

The following tables reconcile adjusted EBITDA to net loss for the periods noted.

	Three months ended March 31
($000s)	2021			2020
Net loss from continuing operations		(134,445	)		(37,949	)
Adjustments
Finance costs		51			5,982
Change in estimate of fair value of derivative warrants		129,944			—
Depreciation and amortization		1,058			657
Change in fair value of biological assets		94			(6,415	)
Change in fair value realized through inventory		50			9,692
Unrealized foreign exchange gain		1,905			(1,769	)
Unrealized gain on marketable securities		(4,881	)		—
Share-based compensation		3,456			795
Asset impairment		—			5,659
Loss on disposition of PP&E		117			(610	)
Cost of sales non-cash component⁽¹⁾		826			780
Inventory obsolescence		1,754			7,715
Restructuring costs		—			2,719
Transaction costs⁽²⁾		3,648			1,101
Government subsidies		(2,180	)		—
Other expenses		1,930			—
Adjusted EBITDA from continuing operations		3,327			(11,643	)

(1)	Cost of sales non-cash component is comprised of depreciation expense.

(2)	Transaction costs relate to financing activities.


	19

Gross margin before fair value adjustments

Gross margin before fair value adjustments is a non-IFRS measure which the Company uses to evaluate its operating performance. Gross margin before fair value adjustments provides useful information to investors, analysts and others in understanding and evaluating the Company’s operating results as it removes non-cash fair value metrics. Gross margin before fair value adjustments is defined as gross margin less the non-cash changes in the fair value adjustments on the sale of inventory and the growth of biological assets. Gross margin before fair value adjustments is comprised of net revenue less cost of sales and inventory obsolescence and impairment.

RELATED PARTIES

Loan receivable agreements

Related party transactions

	Transactions				Balance outstanding
	Three months ended March 31		Three months ended March 31		March 31		December 31
($000s)	2020		2019		2020		2020
Marketing, brand research and development^(a)		—		945		—		—
Legal services^(b)		—		279		—		(510	)
		—		1,224		—		(510	)

(a)	A former member of the Board of Directors controls a company that provides marketing, brand research and development services.

(b)	A member of the Board of Directors was a partner at a law firm prior to his departure which provides legal services to the Company.

All transactions were conducted at the exchange amount agreed to with the related parties.

OFF BALANCE SHEET ARRANGEMENTS

As at March 31, 2021, the Company did not have any off-balance sheet arrangements. The Company has certain operating or rental lease agreements, as disclosed in the Contractual Commitments and Obligations section of this MD&A, which are entered into in the normal course of operations.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

The Company makes assumptions in applying critical accounting estimates that are uncertain at the time the accounting estimate is made and may have a significant effect on the consolidated financial statements. Critical accounting estimates include the classification and recoverable amounts of cash generating units (“CGUs”), value of biological assets and inventory, estimating potential future returns and pricing adjustments on revenue, deferred tax assets, share-based compensation, convertible instruments, financial obligations, acquisitions and fair value of assets acquired and liabilities assumed in a business combination. Critical accounting estimates are based on variable inputs including but not limited to:

•

Demand for cannabis for recreational and medical purposes;

•

Price of cannabis;

•

Expected sales volumes;

•

Changes in market discount rates;

•

Future development and operating costs;


	20

•

Costs to convert harvested cannabis to finished goods;

•

Expected yields from cannabis plants;

•

Potential returns and pricing adjustments;

•

Interpretation of income tax laws;

•

Facts and circumstances supporting the likelihood and amount of contingent liabilities; and

•

Assumptions and methodologies for the valuation of derivative financial instruments

Changes in critical accounting estimates can have a significant effect on net income as a result of their impact on revenue, costs of sales, provisions, impairments, losses and income taxes. Changes in critical accounting estimates can have a significant effect on the valuation of biological assets, inventory, property, plant and equipment, provisions, derivative financial instruments and accounts payable.

For a detailed discussion regarding the Company’s critical accounting policies and estimates, refer to the notes to the Audited Financial Statements.

NEW ACCOUNTING PRONOUNCEMENTS

The International Accounting Standards Board (IASB) and the IFRS Interpretations Committee regularly issue new and revised accounting pronouncements which have future effective dates and therefore are not reflected in the Company’s consolidated financial statements. Once adopted, these new and amended pronouncements may have an impact on the Company’s consolidated financial statements. The Company’s analysis of recent accounting pronouncements is included in the notes to the Audited Financial Statements.

RISK FACTORS

For a detailed discussion regarding the Company’s risk factors, refer to “Item 3D – Risk Factors” section of the Annual Report.

DISCLOSURE CONTROLS AND PROCEDURES

The Company has designed disclosure controls and procedures to provide reasonable assurance that: (i) material information relating to the Company is made known to the Company’s Chief Executive Officer and Chief Financial Officer by others, particularly during the period in which the annual and interim filings are being prepared; and (ii) information required to be disclosed by the Company in its annual filings, interim filings or other reports filed or submitted by it under securities legislation is recorded, processed, summarized and reported within the time period specified in securities legislation. Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a- 15(e) and 15d- 15(e) under the Securities Exchange Act of 1934, as amended), as of December 31, 2020. Based on such evaluation, our principal executive officer and principal financial officer have concluded that our disclosure controls and procedures were not effective as of December 31, 2020, as further described below.

INTERNAL CONTROLS OVER FINANCIAL REPORTING

Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with IFRS as issued by the IASB.

There are inherent limitations in the effectiveness of any system of internal control, including the possibility of human error and overriding of controls. Consequently, an effective internal control system can only provide reasonable, not absolute assurance, with respect to reporting financial information. Further, because of changes in conditions, effectiveness of internal control over financial reporting may vary over time.

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, assessed the effectiveness of our internal control over financial reporting as of December 31, 2020, using the criteria established in the Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”).


	21

Based on this assessment our management concluded that, as of December 31, 2020, the Company’s internal control over financial reporting was not effective based on criteria stated in Internal Control – Integrated Framework (2013) issued by the COSO, as further described below.

Background

In connection with the audit of the Company’s consolidated financial statements for the fiscal period ended December 31, 2018, management concluded that there were three material weaknesses in the Company’s internal controls over financial reporting. A material weakness is a significant deficiency, or a combination of significant deficiencies, in internal control over financial reporting such that it is reasonably possible that a material misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis. The material weaknesses identified include limited number of finance personnel with appropriate experience and knowledge to address complex accounting matters, lack of management review over the valuation model used for biological assets and financing obligations and lack of segregation of duties due to limited number of employees in the finance department. Similar material weaknesses were identified at Bridge Farm.

During the year end December 31, 2019, the Company implemented a remediation plan including measures necessary to address the underlying causes of these material weaknesses. As at December 31, 2019, the material weaknesses related to the limited number of finance personnel with appropriate experience and knowledge to address complex accounting matters and lack of management review over the valuation model used for biological assets and financing obligations were remediated through the addition of numerous professionally designated accountants to bring additional knowledge and expertise relating to complex accounting matters. These professionally designated accountants are directly involved in the preparation and review of these complex accounting matters. The Company has also engaged external third-party advisors when complex accounting matters arose to ensure treatment of those matters was appropriate. The Company will continue to seek external third-party advice when complex accounting matters arise in the future.

December 31, 2020 update

During the year ended December 31, 2020, certain procedures were implemented to address the prior year material weakness through the addition of compensating controls; however, it was not fully remediated at December 31, 2020, and therefore remained as a material weakness as at December 31, 2020.

2021 Remediation plan

The Company’s remediation plan is ongoing and involves the engagement of external third-party advisors to assist management in evaluating the design and operating effectiveness of internal controls over financial reporting, including identification of business process improvement areas and documenting the future state of significant business processes.

The Company expects the remediation of the remaining material weakness to be complete by December 31, 2021. Remediation may take longer than the Company expects, and its efforts may not prove to be successful in remediating this material weakness. The Company may also identify additional material weaknesses in its internal control over financial reporting in the future. It should be noted that a control system, including the Company’s disclosure and internal controls and procedures, no matter how well conceived, can provide only reasonable, but not absolute assurance that the objectives of the control system will be met, and it should not be expected that the disclosure and internal controls and procedures will prevent all errors or fraud.


	22

ABBREVIATIONS

The following provides a summary of common abbreviations used in this document:


Financial and Business Environment		Measurement
$ or C$	Canadian dollars	G or GM	Gram
IFRS	International Financial Reporting Standards	sq ft	Square feet
MD&A	Management’s Discussion and Analysis
U.K.	United Kingdom
U.S.	United States
US$	United States dollars
£	Great Britain Pounds
CBD	Cannabidiol
THC	Tetrahydrocannabinol

ADVISORY

Forward-Looking Information

This document may contain forward-looking information concerning the Company’s business, operations and financial performance and condition, as well as its plans, objectives and expectations for its business operations and financial performance and condition. Any statements contained herein that are not statements of historical facts may be deemed to be forward-looking statements. In some cases, you can identify forward-looking statements by terminology such as “aim”, “anticipate”, “assume”, “believe”, “contemplate”, “continue”, “could”, “due”, “estimate”, “expect”, “goal”, “intend”, “may”, “objective”, “plan”, “predict”, “potential”, “positioned”, “pioneer”, “seek”, “should”, “target”, “will”, “would”, and other similar expressions that are predictions of or indicate future events and future trends, or the negative of these terms or other comparable technology.

These forward-looking statements are based on current expectations, estimates, forecasts and projections about the Company’s business and the industry in which it operates and management’s beliefs and assumptions and are not guarantees of future performance or development and involve known and unknown risks, uncertainties and other factors that are in some cases beyond its control. As a result, any or all of the forward-looking information in this document may turn out to be inaccurate. Factors that may case actual results to differ materially from current expectations include, among other things, those listed under the heading “Risk Factors” herein and “Item 3D—Risk Factors” section of the Annual Report. Except as required by law, the Company assumes no obligation to update or revise these forward-looking statements for any reason, even if new information becomes available in the future.

This document contains estimates, projections and other information concerning the Company’s industry, business and the markets for its products. Information that is based on estimates, forecasts, projections, market research of similar methodologies is inherently subject to uncertainties, and actual events or circumstances may differ materially from events and circumstances that are assumed in this information. Unless otherwise expressly stated, the Company obtained this industry, business, market and other data from its own internal estimates and research as well as from reports, research surveys, studies and similar data prepared by market research firms and other third parties, industry, medical and general publications, government data and similar sources.

In addition, assumptions and estimates of the Company’s and industry’s future performance are necessarily subject to a high degree of uncertainty and risk due to a variety of factors, including those described in the section “Risk Factors” herein and in “Item 3D—Risk Factors” section of the Annual Report. These and other factors could cause the Company’s future performance to differ materially from the Company’s assumptions and estimates.

Further information regarding the assumptions and risks inherent in the making of forward-looking statements can be found in the Company’s most recently filed Annual Report on Form 20-F, along with the Company’s other public disclosure documents. Copies of the Annual Report and other public disclosure documents are available through the SEDAR website which is available at www.sedar.com


	23

Non-IFRS Measures

Certain financial measures in this MD&A do not have a standardized meaning as prescribed by IFRS including adjusted EBITDA and gross margin before fair value adjustments. As such, these measures are considered non-IFRS financial measures. These terms are not defined by IFRS and, therefore, may not be comparable to similar measures provided by other companies. These non-IFRS financial measures should not be considered in isolation or as an alternative for measures of performance prepared in accordance with IFRS. These measures are presented and described in order to provide shareholders and potential investors with additional measures in understanding the Company’s operating results in the same manner as the management team. The definition and reconciliation of each non-IFRS measure is presented in the “NON-IFRS MEASURES” section of this MD&A.

ADDITIONAL INFORMATION

Additional information relating to the Company can be viewed at www.sedar.com or on the Company’s website at www.sndlgroup.com. The information on or accessible through our website is not part of and is not incorporated by reference into this MD&A, and the inclusion of our website address in this MD&A is only for reference.


	24

EX-99.3 4 sndl-ex993_9.htm 52-109F2 CEO CERT sndl-ex993_9.htm

EXHIBIT 99.3

Form 52-109F2

Certification of Interim Filings

Full Certificate

I, Zachary George, Chief Executive Officer of Sundial Growers Inc., certify the following:

1.	Review: I have reviewed the interim financial report and interim MD&A (together, the “interim filings”) of Sundial Growers Inc. (the “issuer”) for the interim period ended March 31, 2021.

No misrepresentations: Based on my knowledge, having exercised reasonable diligence, the interim filings do not contain any untrue statement of a material fact or omit to state a material fact required to be stated or that is necessary to make a statement not misleading in light of the circumstances under which it was made, with respect to the period covered by the interim filings.

Fair presentation: Based on my knowledge, having exercised reasonable diligence, the interim financial report together with the other financial information included in the interim filings fairly present in all material respects the financial condition, financial performance and cash flows of the issuer, as of the date of and for the periods presented in the interim filings.

Responsibility: The issuer’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (DC&P) and internal control over financial reporting (ICFR), as those terms are defined in National Instrument 52-109 Certification of Disclosure in Issuers’ Annual and Interim Filings, for the issuer.

5.	Design: Subject to the limitations, if any, described in paragraphs 5.2 and 5.3, the issuer’s other certifying officer and I have, as at the end of the period covered by the interim filings

(a)

designed DC&P, or caused it to be designed under our supervision, to provide reasonable assurance that

(i)

material information relating to the issuer is made known to us by others, particularly during the period in which the interim filings are being prepared; and

(ii)

information required to be disclosed by the issuer in its annual filings, interim filings or other reports filed or submitted by it under securities legislation is recorded, processed, summarized and reported within the time periods specified in securities legislation; and

(b)

designed ICFR, or caused it to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with the issuer’s GAAP.

5.1	Control framework: The control framework the issuer’s other certifying officer and I used to design the issuer’s ICFR is “Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO)”.

5.2	ICFR – material weakness relating to design: The issuer has disclosed in its interim MD&A for each material weakness relating to design existing at the end of the interim period

(a)

a description of the material weakness;

(b)

the impact of the material weakness on the issuer’s financial reporting and its ICFR; and

(c)

the issuer’s current plans, if any, or any actions already undertaken, for remediating the material weakness.

5.3	Limitation on scope of design: N/A

6.	Reporting changes in ICFR: The issuer has disclosed in its interim MD&A any change in the issuer’s ICFR that occurred during the period beginning on January 1, 2021 and ended on March 31, 2021 that has materially affected, or is reasonably likely to materially affect, the issuer’s ICFR.

Date: May 11, 2021

/s/ Zachary George

_______________________

Zachary George

Chief Executive Officer

EX-99.4 5 sndl-ex994_7.htm 52-109F2 CFO CERT sndl-ex994_7.htm

EXHIBIT 99.4

Form 52-109F2

Certification of Interim Filings

Full Certificate

I, James Keough, Chief Financial Officer of Sundial Growers Inc., certify the following:

1.	Review: I have reviewed the interim financial report and interim MD&A (together, the “interim filings”) of Sundial Growers Inc. (the “issuer”) for the interim period ended March 31, 2021.

5.	Design: Subject to the limitations, if any, described in paragraphs 5.2 and 5.3, the issuer’s other certifying officer and I have, as at the end of the period covered by the interim filings

(a)

designed DC&P, or caused it to be designed under our supervision, to provide reasonable assurance that

(i)

material information relating to the issuer is made known to us by others, particularly during the period in which the interim filings are being prepared; and

(ii)

(b)

5.1	Control framework: The control framework the issuer’s other certifying officer and I used to design the issuer’s ICFR is “Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO)”.

5.2	ICFR – material weakness relating to design: The issuer has disclosed in its interim MD&A for each material weakness relating to design existing at the end of the interim period

(a)

a description of the material weakness;

(b)

the impact of the material weakness on the issuer’s financial reporting and its ICFR; and

(c)

the issuer’s current plans, if any, or any actions already undertaken, for remediating the material weakness.

5.3	Limitation on scope of design: N/A

6.	Reporting changes in ICFR: The issuer has disclosed in its interim MD&A any change in the issuer’s ICFR that occurred during the period beginning on January 1, 2021 and ended on March 31, 2021 that has materially affected, or is reasonably likely to materially affect, the issuer’s ICFR.

Date: May 11, 2021

/s/ James Keough

_______________________

James Keough

Chief Financial Officer

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