Alberta-based cannabis producer Sundial Growers announced a major shakeup of its executive team this week, the latest indication of mounting trouble within the newly legalized industry.
Alberta-based cannabis producer Sundial Growers announced a major shakeup of its executive team this week, the latest indication of mounting trouble within the recently legalized industry.
In a news release Thursday, Sundial — a large-scale licensed producer which operates its main production facility out of Olds, with a secondary facility in Rocky View County — announced the immediate resignation of CEO Torsten Kuenzlen and COO Brian Harriman. In addition, the company said Ted Hellard (former co-owner of the Calgary Stampeders) has stepped down as executive chairman, though he will continue to serve on Sundial’s board.
Zach George, a member of Sundial’s board, will take the helm as CEO while Andrew Stordeur, currently president of Sundial’s Canadian operations, will take on the COO position.
A Sundial spokesperson did not respond to interview requests, however, last week, the company announced it would be laying off “less than 10 per cent” of its work force due to market conditions and regulatory hurdles that have plagued the Canadian cannabis sector in the 15 months since legalization. The company is also implementing a series of other cost-cutting and efficiency initiatives in an effort to realize annualized cost savings of approximately $10 to $15 million for fiscal 2020, according to the release.
Sundial, which went public in summer 2019, has since seen its share price crater by nearly 90 per cent and is now trading at $1.20 USD. It reported a net loss of $12.4 million in the third quarter of 2019.
In a note to clients, CIBC analyst John Zamparo said further downside for Sundial is “inevitable.”
“Sundial’s estimated $200MM net debt burden (forecast as at Q1/20) combined with no visibility to profitability likely signal a difficult path forward,” Zamparo wrote.
Sundial is not alone in its struggles — there have been management shakeups at a number of Canadian cannabis companies in the last month and two companies, Ontario-based Wayland Group Corp and Vancouver-based DionyMed Brands Inc., have already filed for creditor protection.
Rishi Malkani, partner at Deloitte Canada and a cannabis industry expert, said there will likely be more turmoil to come.
“A lot of companies at their current rates are going to run out of cash within the next six to 12 months,” Malkani said in an interview. “There will be successful operators and unsuccessful ones, and now that the capital markets aren’t as hospitable as they have been in the last couple of years, it’s going to take those with focused management, focused strategy and a good operating team to show profitability.”
Malkani said the rocky road encountered by the cannabis industry thus far is not totally surprising, given the sector is trying to scale up from nothing.
“We’re still in the first or second inning,” he said. “It’s to be expected things aren’t going to ramp up immediately.”
But industry spokesperson John Carle, executive director of the Alberta Cannabis Council, said government and regulatory hurdles are responsible for much of the current difficulties. The slow rollout of cannabis stores in other parts of the country, such as Ontario, has limited cannabis producers’ ability to get their product onto shelves. In addition, Health Canada’s approval of edibles processors has been slower than expected, leading to supply shortages at retailers.
The provincial government has also delayed the addition of cannabis vape cartridges into the Alberta market pending a review of their safety, and Carle said the 24.3 per cent provincial excise tax on cannabis sold in Alberta means the licensed industry is struggling to compete with the black market.
“There’s a lot of disappointment that a lot of these policies that have been made are so very damaging to such a fledgling industry,” Carle said. “I think 2020 is going to be a year of market corrections for the cannabis sector. The industry will survive; it’s just going to be a bumpy couple of months.”
A current employee headcount for Sundial Growers could not be obtained Friday, but last March, the company said its work force was expected to expand to 900 people by the end of 2019, which would make it the largest employer in the town of Olds.
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