SNDL Inc. (SNDL) Earnings Call Transcript & Summary

Ladies and gentlemen, welcome to the Annual and Special Meeting of the Common Shareholders of Sundial Growers Inc. My name is Greg Mills. I am the Chairman of the Board and Director of Sundial. This year, due to the continued public health impacts of the COVID-19 pandemic, Sundial has opted for a virtual-only meeting in order to mitigate the health and safety risk to the community, employees, shareholders, directors and other stakeholders. In the event of a technical disruption, the persons present are entitled to vote at this meeting shall choose one of their members to act as an alternative chair for the meeting. Before we begin with the formal business portion of the meeting, I will provide some comments on voting and questions at today's meeting. In making the decision to hold a virtual meeting, it was paramount to ensure that shareholder rights were protected. We have ensured that this meeting offers shareholders the same opportunities to participate as in past in-person meetings. Voting during this meeting can only be done through our virtual voting platform on the webcast. Only registered shareholders who held shares in their name as of June 21, 2022, the record date of this meeting, or their validly appointed proxy holders are entitled to vote at the meeting. We will conduct the votes on the matters before us by a poll. On a poll, every shareholder entitled to vote on the matter has 1 vote in respect of each share entitled to be voted on the matter and held by that shareholder. Proxy votes received prior to the meeting have already been counted. The poll will be open for all resolutions at the same time. This will allow you to choose to vote on each resolution immediately or to wait until conclusion of discussion on each resolution prior to casting your vote. I also welcome all guests who are not registered shareholders or who are holding proxies of registered shareholders. As a reminder, as with an in-person meeting, only registered shareholders and duly appointed proxy holders are able to vote or ask questions. Shareholders can submit questions at any time during the meeting. There will be opportunities for shareholders to ask questions specific to each resolution on the webcast. If you have a question, please click the Ask the Question tab at the top right of the webcast page. Please read the instructions in the text box before submitting your question. In particular, we ask that you identify whether your question relates to a motion being considered as part of the formal business of this meeting, or whether it is of a more general nature. We will address questions that directly relate to a particular motion at the appropriate time of the meeting. If a question is personal in nature, we will follow-up with you individually after the meeting. Once you have finished typing out your...

Greg, we seem to have lost you. All right. We are on the standby slide because we seem to have lost Greg. We can tell now -- so Greg, if you want to come back -- yes, left the meeting. Does anybody has a phone number to try to reach, Greg or...

Can someone else run the meeting for Greg? Or should we wait for Greg?

Zach is calling in. So let's wait for that.

Are we able to nominate new Chair without Greg?

Okay. He is trying to get in. May not be able to. So where are we in the script?

We are on second page at the bottom. Once you have finished typing out your question, click the submit button and then my name. So that's where we're at in script.

Okay.

Could Zach take over the meeting, if Greg can't get on.

Yes, he -- I believe he should be able to because Zach is the second alternate on the proxy as well. And I believe the script did mention that due to technical difficulties, someone else will step in.

Okay.

Let's go ahead. I'll take over.

Okay. All right. So we'll come back in 10, 9, 8, 7, 6, 5, 4...

Apologies for that break, everyone, we're having some technical difficulties, and we've actually lost Mr. Mills. So let me pick this up. This is Zachary George, Chief Executive Officer of Sundial, and we'll get through the formal part of the meeting and get to Q&A. So as Greg was saying, once you have finished typing out your question, click the submit button. Sophie Pilon, our Director of Communications, will receive the questions and at the appropriate time, we'll read them out in order for everyone to be aware of the question being dealt with. Any proposed amendments or objections to a motion will need to be submitted as questions. All proposed amendments or objections will be addressed during the meeting, provided they are submitted during the period when polls are open. With respect to questions other than proposed amendments or objections, the Chair will address the question as appropriate. If we have a number of questions that are the same or very similar in topic, we will paraphrase, and group the questions and mention that we've received similar questions. During the general Q&A session, after my remarks, we will endeavor to address general questions from our registered shareholders or duly appointed proxy holders that are not specific to a resolution. However, please note that due to time constraints, we may not be able to address all questions today. The polls are now open on all resolutions. Voting can be completed at any time from now until the end of formal business of the meeting. Thank you to those of you who have already voted. If you have already voted in advance of the meeting and do not wish to change your vote, then you do not need to do anything. For those who have not yet voted, we encourage you to vote now. Once discussion on all items of business has concluded, I will give you some time to change your votes or enter them if you have not yet voted, and then we'll declare voting closed on all resolutions. The Annual and Special Meeting will now come to order. Sundial's Controller, Adeline Martin, will act as Secretary of the meeting and representatives from Odyssey Trust Company will act as scrutineer of the meeting. In order that the meeting covers all of the business for which it was convened within a reasonable period of time for each motion brought today, Sophie Pilon will be deemed to have made the motion, and Cam Sebastian will be deemed to have seconded the motion. The notice calling this meeting as well as the information circular of Sundial dated June 21, 2022, containing the details of the matters to be put before this meeting the forms of proxy and form of letter of transmittal were sent to each shareholder of record and entitled to vote at this meeting as of June 21, 2022. I now ask the secretary to confirm this.

Mr. Chair, I have before me a true copy of the notice of meeting, together with the statutory declaration from Odyssey Trust Company as to the mailing of the notice of meeting, information circular, forms of proxy and form of letter of transmittal. The declaration indicates that all documents were mailed within the time periods required by the bylaws of Sundial and by applicable Canadian corporate and securities laws.

Proof of service has been duly filed, and I direct that copies of the notice and statutory declaration be kept by the secretary with the meeting -- the minutes of this meeting. The current bylaws of Sundial provide that a quorum for any meeting is 2 persons present in person or by proxy, holding or representing not less than 25% of the outstanding shares of Sundial entitled to vote at the meeting. Quorum was not reached at the meeting originally scheduled for Thursday, June 21, 2022. That meeting was adjourned until today. Under Sundial's bylaws and the interim order granted by the Court of Queen's Bench of Alberta in respect of the arrangement to be considered at this meeting, those shareholders present today, in person or by proxy, constitute a quorum. I therefore declare that for the purposes of this meeting, a quorum is present and this meeting is duly called and properly constituted for the transaction of business. I direct that a copy of the scrutineers' report be kept by the secretary with the minutes of this meeting. Management wants to thank all shareholders that voted on the matters before us today. At this meeting, we will first receive the audited consolidated financial statements of the corporation for the year ended December 31, 2021, together with the orders report thereon. No vote by shareholders is required or proposed with respect to the financial statements. Following the receipt of the financial statements, we will move on to discussing -- the discussion of ordinary resolution matters, those matters being; one, the fixing of the number of directors to be elected; two, the election of directors; and three, the appointment of auditors. Shareholders will then discuss and vote on the special resolution matters, those matters being; one, the name change of the corporation from Sundial Grower Inc. to SNDL Inc.; two, the consolidation of the issued and outstanding common shares at a ratio to be determined by the Board, which I will refer to as a share consolidation during this meeting; and three, the arrangement involving Sundial, Alcanna Inc, and the shareholders under section 193 of the Business Corporations Act of Alberta to become effective at a date to be determined by the Board, which I will refer to as the arrangement during this meeting. We will now proceed with the formal business of the meeting. Details of the matters to be dealt with today have been given in the management information circular dated June 21, 2022, a copy of which has been sent to each shareholder of record as of June 21, 2022. And any reference I make to an information from circular means that management information circular. The first item of business is the presentation of the audited consolidated financial statements of the corporation for the year ended December 31, 2021, together with the auditor's report thereon. No vote is required with respect to this matter. But if you have any questions, I will be pleased to direct you to SNDL's financial team after the formal portion of this meeting. The next item of business is the election of directors for Sundial for the ensuing year. We will now prepare to discuss and vote on the motion that the number of directors to be elected at the meeting for the ensuing year or otherwise as authorized by the shareholders of the corporation be and is hereby fixed at 5. I will now ask the secretary to please advise if any questions specific to this motion were submitted?

No questions specific to this motion have been submitted.

Thank you. As there have been no questions and unless we receive any objections otherwise, we will proceed with the vote. Please record your vote now, remembering that if you have already voted in advance and do not wish to change your vote, no further action is required. [Voting]

We will now proceed with the election of directors. The corporation has nominated Bryan Pinney, Lori Ell, Greg Mills, Gregory Turnbull, and Zach George to serve as directors of Sundial. We will now prepare to discuss and vote on the motion to elect the nominees as directors of the corporation to hold office until the next election of directors or until their successors are appointed. I will now ask the secretary to please advise if any questions specific to this motion were submitted.

No questions specific to this motion have been submitted.

Thank you. As there are no questions and unless we receive any objections otherwise, we will proceed with the vote. Please record your vote now, remembering that if you have already voted in advance and do not wish to change your vote, no further action is required. [Voting]

The next item of business is the appointment of the auditors for the ensuing year. As previously disclosed, KPMG LLP will cease to be an auditor of the corporation at this meeting, and the Board has accepted the appointment of Marcum LLP, independent registered public accountants, as the auditor of the corporation. We will now prepare to discuss and vote on the motion that Marcum LLP be appointed as the auditor of Sundial to serve until the close of the next annual meeting at a remuneration to be fixed by the directors. I will now ask the secretary to please advise if any questions specific to this motion were submitted.

Mr. Chair, no questions specific to this motion have been submitted.

Thank you. As there are no questions, and unless we receive any objections otherwise, we will proceed with the vote. Please record your vote now, remembering that if you've already voted in advance and don't wish to change your vote, no further action is required. [Voting]

The next item of business is to consider the name change resolution set out on Page 16 of the information circular, authorizing the corporation to amend its articles pursuant to subsection 173, subsection 1A of the Business Corporations Act of Alberta, to change its name from Sundial Growers Inc. to Sundial -- SNDL, Inc. In order to be adopted, the special resolution must be approved by not less than 66% and 2/3 percent of the votes cast at the meeting by shareholders present virtually at the meeting or represented by proxy. We will now prepare to discuss and vote on the motion that the special resolution on the name change be approved. I will now ask the secretary to please advise if any questions specific to this motion were submitted.

Mr. Chair, no questions specific to this motion have been submitted.

Thank you. As there have been no questions and unless we receive any objections otherwise, we will proceed with the vote. Please record your vote now, remembering that if you have already voted in advance and do not wish to change your vote, no further action is required. [Voting]

The next item of business is to consider, and if thought fit, to pass a special resolution form set out in Appendix L of the information circular, authorizing an amendment to the articles of Sundial to authorize the Board to effect at such time as the Board deems appropriate, but in any event, no later than 1 year after the date on which the shareholders have approved this resolution, a share consolidation of all of the issued and outstanding common shares of Sundial. The share consolidation shall be at a ratio to be determined by the Board in its sole discretion. Provided it is within the range of 1 post-consolidation common share for every 10 to 25 pre-consolidation common shares. It will also be subject to the discretion of the Board to decide not to proceed with the share consolidation. The board is of the opinion that it may be in the best interest of the corporation and shareholders to consolidate the common shares in order to both maintain Sundial's NASDAQ listing and enhance the marketability of common shares given that an increase in the price of per common share could increase the interest of institutional and other investors with policies that prohibit them from purchasing stock below a minimum price. In order to be adopted, this special resolution must be approved by not less than 66 and 2/3 percent of the votes cast at the meeting by shareholders present virtually at the meeting or represented by proxy. The Board has determined that the share consolidation is in the best interest of the corporation and recommends that shareholders vote for this resolution. We will now prepare to discuss and vote on the motion that the special resolution on the share consolidation be approved as set forth in Appendix L of the information circular. I will now ask the secretary to please advise if any questions specific to this motion were submitted.

Mr. Chair, no questions specific to this motion have been submitted.

Thank you. As there have been no comments or questions, and unless we receive any objections otherwise, we will proceed with the vote. Please record your vote now, remembering that if you have already voted in advance and do not wish to change your vote, no further action is required. [Voting]

The final item of business is to consider, and if thought fit, to pass the special resolution in the form set out in Appendix F of the information circular, approving a plan of arrangement involving Sundial, Alcanna Inc, and the shareholders of the Sundial under Section 193 of the Business Corporations Act of Alberta and to authorize the Board to implement at such time as the Board considers it to be in the best interest of the corporation, but in any event, no later than 1 year after the date on which the shareholders approve the special resolution, such an arrangement. It will also be subject to the discretion of the Board to amend, modify, supplement or terminate the arrangement or to decide not to proceed with the arrangement. The Board believes that the arrangement becoming effective at a date in the future to be determined by the Board will allow it to implement the arrangement when it considers such arrangement to be in the best interest of the corporation and the shareholders. In order to be adopted, the special resolution must be approved by not less than 66 and 2/3 percent of the votes cast at the meeting by shareholders present virtually at the meeting or represented by proxy. The Board has determined that the arrangement is in the best interest of the corporation and recommends that shareholders vote for this resolution. We will now prepare to discuss and vote on the motion that the special resolution on the arrangement be approved as set forth in Appendix F of the information circular. I will now ask the secretary to please advise if any questions specific to this motion were submitted.

Mr. Chair, no questions specific to this motion have been submitted.

Thank you. As there have been no questions, and unless we receive any objections otherwise, we will proceed with the vote. Please record your vote now, remembering that if you have already voted in advance and do not wish to change your vote, no further action is required. [Voting]

Are there any other matters to be properly brought before the meeting? There being no other business, we will proceed to close the polls. For those of you who have not voted on all the resolutions, please do so now. [Voting]

Standard time and I'll close the poll the polls to all resolutions [indiscernible] at 8:24 Mountain Standard Time to allow online viewers to catch up. I now declare the polls to be formally closed. I now ask the secretary to provide the preliminary results of the voting.

Thank you, Mr. Chairman. I have received confirmation from the scrutineer that, the motion to fix the number of directors at 5 until the next annual meeting of Sundial has been approved; each of the 5 directors nominated by the Board has been elected; the motion to appoint Marcum LLP as the auditors of Sundial has been approved; the special resolution approving the name change of the corporation to SNDL Inc. has been approved; the special resolution approving the share consolidation has been approved; and the special resolution approving the arrangement has been approved.

Thank you. I declare each of the resolutions considered at today's meeting in respect of those matters as carried. The exact numbers of votes cast in respect of each matter will be filed on EDGAR and SEDAR and made available on our website. Thank you again to all shareholders and proxy holders for your attendance today. As there is no further business to be brought before the meeting, I declare the formal portion of the meeting concluded. If we will now turn to the question-and-answer period of the meeting, for which we have allowed 15 minutes. I will now ask our moderator, Sophie Pilon to please advise if any questions have been submitted and to please read the first question so that either myself or our Chair can respond.

A question here, what will the share split be 25:1 or 10:1?

Thanks for that question, Sophie. So the exact ratio is going to be determined by the Board, and we expect to make a public announcement in the near future.

Thank you. Another question, when do you anticipate share consolidation to occur?

We've previously disclosed the various deadlines that have been imposed by NASDAQ as we have not met the minimum bid requirements. And so that's really the driver for consideration on timing, and we expect to update our shareholder base in the near future as to the timing of any reverse split as well as the ratio.

Thank you. Next question, will the share buyback still be happening?

Thanks, Sophie. So the Board is committed to returning capital in an accretive manner. We have already commenced our repurchase of shares. Shareholders need to be aware of the blackout periods that are customary in terms of the timing of repurchases relative to periods where earnings are about to be announced or in other cases where material nonpublic information can restrict the activity of a corporation in buying back its equity. So we are about to report Q2 in the next 2 weeks, and we're currently in a blackout period, and we will look to opportunistically return capital to shareholders thereafter. The shares that we've repurchased and the quantum and price of those shares has all been reported publicly and is available to all shareholders.

Thank you. Next question, any plans to file a NASDAQ extension appeal to tentatively avoid the consolidation?

we have a very close and strong working relationship with NASDAQ. And we are, as mentioned several times publicly, committed to maintaining that listing. We have heard a lot of public commentary around extensions. We are out of extensions based on the existing requirements of NASDAQ. There are some circumstances in which additional time can be granted. But what was important for this meeting is we really don't want to somehow play chicken with that timing and risk our listing entirely just to avoid a reverse split in the near term. So we now have the option of -- and the support from shareholders to execute a share consolidation and also engage with the NASDAQ to make sure that our listing is protected and that we have adequate time to affect any changes required.

Thank you. So if the share price reaches above $1 for 10 days preconsolidation to coincide with NASDAQ guidelines, will the reverse split still occur?

So if -- I think the question is, if we meet the minimum bid requirements, and our shares trade above $1 for the requisite 10 days, would we still need a reverse split? And the answer to that is, no.

Thank you. How many of the outstanding shareholders are in attendance? And do you expect the reverse split to occur before the roughly 93 million nondilutive warrant expire?

So we've already published the attendance from the meeting on Thursday. We will have fulsome results on a resolution-by-resolution basis with the voting stats observable to all shareholders and the broader public. So that will be available very shortly. But we, as you're well aware, did not achieve a quorum because of a low quarter turnout on Thursday and so had to adjourn and complete the business of the meeting at today's meeting.

How will shareholders be notified prior to the consolidation, by e-mail, mail, how will they know?

As a public company, Sundial discloses publicly all material events, and this would be a material event. So this will be widely disseminated and transmitted by press release. Those investors who have signed up to direct e-mail distribution of press releases, will receive information that way as well.

Would you be able to comment on the Zenabis' assets, and where we are at with those assets?

At a high level, absolutely. So as previously disclosed, there's a CCAA process. Currently, there's a sales process being run, which is a requirement of that process. And we expect an outcome and the determination as to whether we will end up being the owner of those assets sometime in late August or whether they will be transferred to another party with some consideration given for our existing debt obligation?

There are no more questions at this time [indiscernible].

All right, Sophie. I'm going to leave it open for another 2 minutes here since we still have time.

Another question here, are you planning any new acquisitions?

That's a great question. We're not going to comment in detail about M&A activity. We have stated publicly that we didn't believe that Alcanna would be the last acquisition that we made. And particularly with the credit exposure we have in the portfolio, we're going to move through a period where we do start to see realizations. And as mentioned on several occasions publicly, there are companies within the Canadian landscape that we think have very interesting capabilities that will help us refine our offerings and delight consumers and also create opportunities to reduce cost with a broader and more capable platform. So more to come on that.

Will Sundial be considering a dividend for SunStream?

Yes. The Board of Directors will consider all options when it comes to servicing value for shareholders. In the case of SunStream, we were prepared with a registration statement to take the entity public. And as we were preparing to do that, the market rolled over quite aggressively and sentiment reached new lows within the cannabis space. So we saw a number of other fledgling finance vehicles focused on U.S. opportunities within the cannabis landscape start to trade well below their book values. And if we had gone public and that same dynamic had impacted the SunStream vehicle, we would be stuck in terms of our ability to raise capital and further the opportunity set. So we decided to pause and we think that, that was a very prudent decision, just given on how poorly some of these comparable entities have traded. And so what we're looking at before a dividend of SunStream is really a dividend of some of the other equity that we own. So as we've mentioned, we have an interest in having a hand in building a large scale pure-play, multi-banner cannabis retail company. And so the arrangement, as you will see, will enable the Board to, at its discretion, end up dividending on a tax-free basis, the equity, for example, of Nova, that is held. So in order to affect that transaction on a tax-free basis, we needed this resolution to pass, which has passed. And the Board is committed to preserving maximum optionality with regards to that equity going forward. So a number of -- we're working on a number of strats right now that will put us in a position where we can make that decision, but it's a relatively complex exercise. And we're seeing significant consolidation opportunities within the retail landscape in Canada. And some of those opportunities may need to occur prior to a dividend, but that's something that the Board is looking at carefully.

Thank you, Zach. How do you plan to address the Nova ownership? Will SNDL shareholders receive dividends, if disposed off?

I'm not sure I follow the question. Will they receive dividends if our equity position is disposed off? I think that's a self-evident truth. If we didn't own the position, we obviously could not dividend the equity. But again, as referenced in the last question, the Board is actively looking at all options to unlock value with regards to the equity holdings that they have in both Nova and other entities.

Sundial has developed a broad business base compared to its peers, yet Sundial stock trading continues to follow the stock fluctuations of the cannabis company pack. How can Sundial separate itself from this group and trade on its own merits?

It's a great question, and I agree with the observation. The pace of change at Sundial has been quite rapid, and to some extent, with -- without the right research or institutional following. I think there's still a lot of catch-up work in terms of the broader market, understanding the business model and where we're headed. Certainly, as I referenced before, the sentiment in the cannabis space is extremely negative. In fact, we may be heading right into sort of peak negativity in the very near future here. And in the Canadian environment, you could make the cynical observation that it is a literal 0 profit environment currently as you're seeing so many large and small companies continue to consume cash aggressively, continue to sell costs -- sell products below the cost of production. And so we're seeing a number of distressed scenarios emerge, which will ultimately bring health to the industry. And we believe that, that's going to take another year or 2 to resolve. We are well positioned, given the industry-leading balance sheet and access to liquidity we have. Contrary to some of the public commentary that's been out there, we have no intention in the near term of issuing equity to raise cash. We really want to earn the right to take risk and prove our ability to allocate the capital that we have access to today on our balance sheet. So we are really heads down, still working to optimize our cannabis operations and turn some of the headwinds in the space into tailwinds for our shareholders over the long term and continue to work on the integration of Alcanna, which will take us well into the new year. In terms of some of our initiatives, we have executed on the bulk or the vast majority of the synergies, but still have a lot work to do in terms of integration. And we also need to ensure that we're adequately communicating with our shareholder base and the broader market about the evolution of the model and our goals. So trading on its own merits when the environment is subject to this level of negativity, it's hard to -- it's hard for any one company in the sector like this with exposure to get some non-correlated escape velocity from that. But over time, this industry is going to change dramatically, and we think we're well positioned to compete and be successful in both today and the future state of the industry. And so we have a lot of work to do, both internally and externally when it comes to communicating and ensuring that the broader market understands our business model and our objectives. And our goal is still really free cash flow focused, where we are looking to build a model that generates more cash than it consumes, which is something that almost no companies in the space in North America can say today. So we have our work cut out, and we'll continue to report back to shareholders and invite them to hold us accountable for this.

Thank you. If you raise more capital, will the method be in the form of publicly available nondilutive warrants, or what method will you be looking at to get -- to use -- looking to use to get more capital?

Yes, it's a great question. Look, we don't see warrants as nondilutive. Any instrument that is linked to equity such as the warrant ultimately can have the potential to be dilutive. And again, we're sitting on a very healthy balance sheet, no term debt. The only material liabilities to speak of are in the form of our leased portfolio for the -- over 350 stores we have with our retail platform. And we're committed to having ample liquidity, which we are going to be reporting in a lot more detail in the next 2 weeks with regards to the Q2 June 30 balance sheet. So we have no current plans to issue warrants or issue shares to raise additional cash for our balance sheet because we have sufficient capital currently, and we want to be patient. And as we have recently been buying back equity, we would not -- as long as we are in control of the process, we would not want to issue equity at the same levels, it just doesn't make sense.

Speaking of Q2 2022, there's a few questions about when the earnings will be disclosed.

We're gearing up for the second week of August, and you'll see a release shortly on the exact timing of our earnings and conference call, we look forward to reporting Q2.

Could you discuss a little bit of your integration with Alcanna? Has the finance function been adequately resourced to meet the greater reporting requirements for the vastly increased size of SNDL compared to the prior year?

Yes, that's a great question. We are blessed with the Alcanna acquisition coming with a tremendous amount of [ bench ] strength when it comes to retail operations. And so the finance team there has been laser-focused on a large retail portfolio for -- which has an operating track record of about 1/4 century. So we are merging 2 teams, which were, in some ways, functioning very differently. And in addition to that, the strains and adequate -- and the needed resources to survive a SOX audit and be compliant with some of the stringent regulations we have as an SEC registrant, meaning that we have -- we've needed to high grade the teams generally, and ensure that we're both lean when it comes to our costs, but also have adequate resources and talent in order to run a best-in-class operation and survive the additional constraints of SOX compliance. And so I would say that we've made a lot of progress in that regard, and we'll be continuing to do work, particularly on refinement. And so where I couldn't have said that a year ago, I would say that the resources are adequate, but the entire team organization is committed to improvement on that side on a go-forward basis. Okay. So if we have reached the end of the time, let's give 1 more minute to amass any other questions, and we will wrap it up. Okay. It appears that all the questions have been answered and the time period for question and answers has now expired. I would now ask for a motion to conclude the meeting.

My name is Sophie Pilon. I'm a registered shareholder of Sundial, and I move that the meeting be concluded.

My name is Cam Sebastian. I am a registered shareholder of Sundial, and I second the motion.

I now declare the motion carried and the meeting concluded. I'd like to take this opportunity to thank all of those shareholders who submitted the votes and also thank those who attended today's Annual and Special Meeting of Shareholders. Take care, and have a great day.