Sundial Growers Inc. (NASDAQ: SNDL) ended last week on a high note and surged higher after releasing third quarter financial results and announcing plans to repurchase up to C$100 million of outstanding common shares.
C$100 million is a significant share repurchase agreement for any cannabis company and we believe the program implies that the leadership team (c-level executives and the board of directors) considers the business to be undervalued.
Reports Strong Growth on Several Key Metrics
During the quarter, Sundial recorded $11.3 million of net earnings on $14.4 million of revenue from its cannabis divisions. When compared to the prior quarter, revenue for the Canadian Licensed Producer (LP) increased by more than 50%. We attribute the increase to the acquisition of Inner Spirit Holdings, a Canadian cannabis retailer.
Although Sundial recorded substantial revenue growth, the amount of revenue from the cultivation and production of cannabis decreased by 11% on a quarter-over-quarter basis. Going forward, we will monitor how this metric changes and consider it to be a key aspect of the story in future quarters.
Through Inner Spirit Holdings and the Spiritleaf retail network, Sundial generated more than $6 million of cannabis retail revenue and we expect this number to increase in 2022. After the quarter ended, the company announced a transaction to acquire Alcanna, Canada’s largest private liquor retailer with 171 locations. We are bullish on how this vertical of the business has advanced and expect the cannabis retail market to serve as a key growth catalyst.
5 Statistics to be Aware of
We were impressed with some of the statistics that were reported in the third quarter earnings report and have highlighted what we consider to be the 5 most metrics:
- When compared to the same quarter last year, net earnings improved from a $71.4 million loss to a $11.3 million gain. This is a significant improvement and we will monitor how the business performs in future quarters
- Adjusted EBITDA came in at $10.5 million for the quarter, which is a substantial improvement from the $4.4 million adjusted EBITDA loss that was reported in the third quarter of 2020.
- As of November 9th, Sundial reported to have $1.2 billion of cash, marketable securities and long-term investments. The company has $571 million of unrestricted cash and no outstanding debt. We are surprised by the strength of its balance sheet and consider this to be a core pillar of the long-term story.
- During the quarter, Sundial’s average cost per gram sold increased to $3.23 from $2.67. The increase was primarily due to an increase in prices for sales to other Canadian LPs and we find this to be an important metric.
- Sundial continued to execute on a expansion strategy that is centered around on making strategic investments and we consider some of its deals to be transformational. Due to the strength of the balance sheet, we expect the management team to announced additional accretive transactions in 2022.
During the last year, Sundial has traded in a volatile range and we will monitor the trend from here. We believe the C$100 million buyback program raises confidence in the operation and will provide updates on how the story evolves from here.
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