Canada’s fifth largest publicly traded cannabis company by market cap, Alberta-based SNDL Inc. (formerly Sundial Growers Inc.) announced Feb. 13 it had initiated cost-saving measures that include laying off roughly 85 employees.
Company executives called the changes to operations a “rightsizing of cannabis cultivation” at their Olds, Alberta, facility. The rightsizing will allow SNDL to focus its efforts on premium products and brands, according to a company press release.
“We have made the difficult decision to materially reduce staffing and activity levels in Olds, Alberta, in order to improve the efficiency of our operations as one of Canada’s largest adult-use cannabis manufacturers,” CEO Zach George said in the release. “With the Olds facility already in operation when I joined SNDL, I am proud of the cultivation capabilities and high-quality flower that our teams have developed and produced. We estimate that more than 1 billion grams of flower are sitting in Canadian vaults today.”
George pointed to an oversupply of high-quality flower being sold “well below” the marginal cost of production in Canada’s market as one of the factors in the company’s downsizing decision.
Average bulk wholesale flower prices have continued to drop significantly since the beginning of 2021, according to trading platform Canadian Cannabis Exchange (CCX). The average price per pound for bulk wholesale flower in 2022 was roughly CA$481, representing more than a 40% decrease from the roughly CA$816 average price per pound in 2021, according to CCX’s pricing reports.
“As major vertically integrated players lose market share, the market is becoming more fragmented, which is driving an increase in bulk wholesale trade,” according to the CCX 2021 report.
Specifically in Alberta, Canada’s fourth largest province of roughly 4.3 million people, licensed cannabis retailers are projected to record roughly CA$800 million in sales for 2022 based on Statistics Canada data through November. That represents approximately 10% year-over-year growth—a major leveling off from the 25% growth experienced in 2021 and 125% growth in 2020.
While the Canadian cannabis industry continued to grow as a whole in 2022, the days of triple-digit retail growth are in the rear-view mirror, Headset data analyst Mitchell Laferla recently told Cannabis Business Times. A cannabis analytics and research company, Headset tracks data for the Ontario, Alberta, British Columbia and Saskatchewan markets within Canada.
“As markets mature, it is typical for growth trends to slow down,” he said. “Initially, a brand new market usually sees explosive growth as players rush to get into a market; however, after a few years, the dust settles as the initial push converges on sustainable demand.”
According to SNDL officials, the company’s August 2022 acquisition agreement with The Valens Company Inc., which included a total consideration of approximately $138 million at the time, has accelerated the need to optimize and rationalize SNDL’s manufacturing and operational footprint to better address market saturation and oversupply.
“Using available and existing biomass, we will be better equipped to leverage the current pricing environment to materially improve our cost of goods sold and margins,” George said in the release. “We are taking a proactive approach with our cultivation and manufacturing strategy to evolve with the market while continuing to deliver exceptional products across a variety of product and price segments.”
Overall, SNDL’s larger cost-savings program is expected to deliver close to $9 million in savings across labor and operational costs, according to the company. Company officials expect to report record net revenue and net cash provided by operating activities for the fourth quarter of 2022. Those results will be finalized and announced near the end of March 2023.
Through their integration and rationalization efforts, SNDL executives are assessing all assets and will continue to make decisions based on sustainable profitability, according to the release.