[SNDL Q&A] Will the lack of profitability be a problem for SNDL?
Key Takeaway:
• Sundial Growers CEO Zach George noted that the company faced headwinds in its last two quarters from the repositioning of its cultivation operations.
• Sundial Growers is going to continue to stay focused on the premium segment, the core segment.
• Sundial Growers plans to have some innovation in the vape segments on the hydrocarbon side to provide further differentiation, which drives better value for consumers and be accretive to their margin mix.
• Sundial Growers CEO Zach George noted that the company faced headwinds in its last two quarters from the repositioning of its cultivation operations.
• Sundial Growers is going to continue to stay focused on the premium segment, the core segment.
• Sundial Growers plans to have some innovation in the vape segments on the hydrocarbon side to provide further differentiation, which drives better value for consumers and be accretive to their margin mix.
$SNDL Inc(SNDL.US$ reported net cannabis revenue of 13.9 million in Canadian dollars in the fourth quarter, up 8% quarter over quarter but down more than 5% year over year. This result topped the average analyst's revenue estimate of CA$12.1 million. The company's transition from wholesale to branded retail sales achieved incremental improvement in the fourth quarter, compared to the third quarter. The company said that it harvested its highest-potency cannabis flower ever in February. That could bode well for Sundial's market positioning of its retail cannabis products. Come and see what happened in the Q4 2020 earnings call! ![]()
![[SNDL Q&A] Will the lack of profitability be a problem for SNDL?](https://ussnsimg.moomoo.com/1616160134874-600003-android-org.jpg/bigmoo)
This article is a script from the Q&A session of Sundial Growers's earnings call on March 18. In order to facilitate reading, we have made appropriate cuts. If you want to know more details, you can click the link provided below to re-watch the earnings call.
Q: Why the ongoing writedowns, what are they a result of? Is it just ongoing market pricing changes and resulting in you taking continued writedowns?
A: First, we see this historic performance as unacceptable. And with the change in consumer preferences and this potency-chasing behavior that we've witnessed, by the end of the year, a product that even at 20% potency would be less liquid and be very difficult to move through retail. So we've been making aggressive changes to improve outcomes and ensure that we're delivering and delighting consumers. And that has led to us having certain product that needed to be impaired from an accounting perspective to the extent that our terpene profiles and potency on-average harvest increase as they have, those writedowns should diminish substantially. You also have pricing impacting that dynamic as a lever. And as you well know, the value segment is really on its way to effectively sort of blocking out the sun in the space, north of 50% of the industry in Canada is in the buy segment. And we continue on a weekly basis to see prices dropping.
A: First, we see this historic performance as unacceptable. And with the change in consumer preferences and this potency-chasing behavior that we've witnessed, by the end of the year, a product that even at 20% potency would be less liquid and be very difficult to move through retail. So we've been making aggressive changes to improve outcomes and ensure that we're delivering and delighting consumers. And that has led to us having certain product that needed to be impaired from an accounting perspective to the extent that our terpene profiles and potency on-average harvest increase as they have, those writedowns should diminish substantially. You also have pricing impacting that dynamic as a lever. And as you well know, the value segment is really on its way to effectively sort of blocking out the sun in the space, north of 50% of the industry in Canada is in the buy segment. And we continue on a weekly basis to see prices dropping.
Q: How much longer do you need to continue to kind of -- that your cultivation practices dial in that data-driven approach to actually really scale your revenues?
A: Our focus in 2020 was to make that transition to branded sales versus wholesale. We -- 75% of our total revenue mix was in branded versus just 20% in 2019. Not all revenue is created equally. If I was to kind of point you in a direction around how we're thinking about it, is our branded product sales grew exponentially, actually by 410% when you think about 2019 versus 2020. That's solid. And we're seeing the benefits of that from penetrating the market. Not all revenue is created equally. So we've got to be really mindful of not getting into that rat race when it comes to price compression and contributing to the consistent price deflation that we're seeing. So we're going to continue to stay focused on the premium segment, the core segment. We've also significantly invested in our in-house sales breadth of coverage. Foundational to that is cultivation excellence, and we feel pretty confident about that.
A: Our focus in 2020 was to make that transition to branded sales versus wholesale. We -- 75% of our total revenue mix was in branded versus just 20% in 2019. Not all revenue is created equally. If I was to kind of point you in a direction around how we're thinking about it, is our branded product sales grew exponentially, actually by 410% when you think about 2019 versus 2020. That's solid. And we're seeing the benefits of that from penetrating the market. Not all revenue is created equally. So we've got to be really mindful of not getting into that rat race when it comes to price compression and contributing to the consistent price deflation that we're seeing. So we're going to continue to stay focused on the premium segment, the core segment. We've also significantly invested in our in-house sales breadth of coverage. Foundational to that is cultivation excellence, and we feel pretty confident about that.
![[SNDL Q&A] Will the lack of profitability be a problem for SNDL?](https://ussnsimg.moomoo.com/1616160134889-600003-android-org.jpg/bigmoo)
Q: Do you expect for the next quarter, is this a similar revenue mix here. Or do you expect, for example, vapes to increase share or decrease for that matter?
A: You're right to say, from a mix standpoint, it is accretive for us. Again, vape is like any other segments we're in. It's facing a lot of new industry players and they're differentiating by price. And I think that's going to create a bit of a headwind for us in regards to how we continue to compete at the prices and the value equation for the consumer. We do have some very exciting innovation that we're looking to launch in 2021 in the vape segments. That will be line primarily with Top Leaf and Sundial, and we're currently in two formats of extraction on that vape, which is ethanol and CO2. Certainly on the hydrocarbon side to provide further differentiation, which should drive better value for consumers and obviously be accretive to our margin mix.
A: You're right to say, from a mix standpoint, it is accretive for us. Again, vape is like any other segments we're in. It's facing a lot of new industry players and they're differentiating by price. And I think that's going to create a bit of a headwind for us in regards to how we continue to compete at the prices and the value equation for the consumer. We do have some very exciting innovation that we're looking to launch in 2021 in the vape segments. That will be line primarily with Top Leaf and Sundial, and we're currently in two formats of extraction on that vape, which is ethanol and CO2. Certainly on the hydrocarbon side to provide further differentiation, which should drive better value for consumers and obviously be accretive to our margin mix.
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Lexy Gomez : no
Lou Blacksail : I feel like I saw this coming. Pulled out before earnings to make sure. This is a long term play, and investors think for future endeavors. There are multiple selling points about why I think this company is a great LT investment. Furthermore, profit isn't everything when a company has idle cash to use to continue to make the business thrive and also thoroughly seeing the core foundation transition through as it transforms its businesses to premium products more in the future and expands business to the U.S even more.
swilki18 : Long term play
jrake : I don't see why people don't understand this industry. The higher your Flower content, the more you make. If you keep your THC level at 25% or higher I think the our company would take off.
I currently need between 27 to 30% to help with my pinched nerve in my back. Please concentrate on potency levels!
Daniel Lang : Sundial is a hold and see play; Because they have money to grow business, they are committed to premium quality, diversification of products, as well as customer satisfaction
. Revenues are up quarter over quarter and they have no debt . Sundial is a good buy [$SNDL Inc (SNDL.US)$] and hold stock $! They have a lot going for future profits to be made. There also remains the questions of IPO???, will someone purchase the business, and would they sell$$$; Sundial Growers Inc is a 
money maker 
and if they IPO anytime soon, they could skyrocket 
considerably 
. If you want to make some money 
buy and hold Sundial , that is, in my informed opinion! 
!
jrake Daniel Lang: I couldn't agree more, and when the US , takes it off on fed level, all of us, that stood behind these companies , will prosper.
HANG IN THERE SUNDIAL INVENTOR'S. It will happen!
oo420show : wonderful