Q3 2020 Sundial Growers Inc Earnings Call
No Robert Brothers.
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Good morning, and welcome to sundial growers third quarter 2020 financial results comp.
Conference call.
Yesterday afternoon sundial issued a press release announcing their financial results for the third quarter ended September Thirtyth 2020. This press release is available on the company's web site at <unk> S. N D L group Dot com.
And filed on Edgar and SEDAR as well.
Presenting on this morning's call, we have that George Chief Executive Officer, Jim Keogh, Chief Financial Officer, and Andrew Studer, President and Chief operating Officer.
Before we start I would like to remind investors that certain matters discussed in todays conference call or answers that maybe given to questions.
Could constitute forward looking statements actual results could differ materially from those anticipated.
Risk factors that could affect results are detailed in the company's financial reports and other public filings that are made available on SEDAR and Edgar.
Additionally, all financial figures mentioned are in Canadian dollars unless.
Hawaii indicated.
I'd also like to note that we are conducting the call today from our respective remote locations as such there may be brief delays cross shop or minor technical issues. During this call. We thank you in advance for your patience and understanding.
I'll now make prepared remarks, and then we'll move on to the question and answers.
Other than I would now like to turn the call over to South George.
Thank you everyone for joining us on our third quarter Twentytwenty earnings call.
As the COVID-19 pandemic continues to affect global markets and people around the world. We hope that everyone is staying safe during this unprecedented.
Excellent and time, helping.
Health and safety continues to be a priority of sundial, we remain committed to stringent procedures to ensure the protection of our employees and consumers, while minimizing disruption to our operations to date. So now has not experienced any material disruptions related to covered 90.
As we enter the last month of 2020 and plan for the future. Some context and perspective may be helpful to Canadian cannabis industry is complex and still in its infancy. We're just two years into legalization.
And sundial is about 22 months into commercial operations much of our competition is.
Multi year head start on so I'm not in a short timeframe, we've been able to connect with consumers captured meaningful market share and quickly become competitive in a rapidly evolving marketplace.
Following the change in our management team and subsequent financial restructuring, we have drastically improved our operating practices targets.
Adam it's sustainable cost structure, and a simplified more focused business model.
We entered 2020 optimistic projections and the severely challenged capital structure, we have since taken aggressive steps to de risk our balance sheet.
Through a combination of cash repayments.
Asset sales and debt for equity.
He swaps a total of $100 million in total debt has been eliminated on a year to date basis.
We have also reduced annualized cash debt service obligations by approximately 31 million.
In addition, we currently have approximately $60 million in cash on hand.
An access to care.
We're getting a little if required.
Restructuring has required significant dilution, but we are well funded through 2021.
We expect the current rate of dilution to decline into Q1 2021 as the last of our convertible debt is extinguished.
Under current operating conditions, we do not require additional capital.
<unk> in the near term unless we engage in a material strategic transaction.
Well I will not comment on the process itself. Our previously announced strategic review is active and continues to be a focus.
Turning to our third quarter results, we experienced a decline in revenue partially due to our transition.
Mission away from wholesale transactions. However, we are pleased with the progress we've made in terms of operating discipline and cost initiatives. We've also adjusted our inventory levels to better align our supply with expected demand.
And if taken related impairment charges in doing so so now has repositioned itself to better.
To capitalize on the current market environment. These initiatives will be discussed in more detail by Jim momentarily.
Why did our revenue decline this quarter there.
There are several reasons.
First Canadian cannabis consumer preferences are evolving but are currently biased towards high THC potency.
We have had to rapidly adapt our cultivation processes to meet those demands over the last six months.
However, the potency results this past quarter did not meet our standards for some bells brands on a consistent basis.
Another marginal factor was de stocking at the provincial board level as inventory management.
The practices evolve.
A third driver was our underestimation of weeks on hand inventory on certain skews with select customers, which resulted in smaller reorders in the quarter as we continue to move through our inventory depletion.
Fortunately the modular nature of our facility provides.
As with all the ability to rapidly adapt to evolving market conditions, and we continue to be agile in our response.
The scale and modular room design of sundial his cultivation facility make it one of the best in Canada. Since inception, we have compiled a broad spectrum of cultivation statistics, including more than 600 harp.
Thats, including 243 in 2020 and 52 in the third quarter alone.
Sundial has leverages data analytics capabilities to focus on key improvement areas I am proud to say that just last month in October we generated the highest average potency results in some dollars inception.
They continue to serve evolving consumer preferences sundial has also acquired an expanded library of genetics.
We expect these genetics have a financial impact in early 2021.
Sometimes its commitment to data analysis, and fact based decisions has led to changes in the leadership structure and key personnel in the cold today.
Mission processing and demand planning teams.
Matching supply and demand right down to the skew level is critical this.
This is an area of deep focus for us and there's still much work to be done.
We have taken the time to better understand forecasted demand and to carefully optimize our production and supply chain.
So.
Subsequent to the quarter. We also undertook an initiative to materially rationalized skus across all brands and format. These.
These changes will be vital to accelerating the momentum of improvements in quality potency and cost while building a sustainable organization as we scale.
We exited Q3 with lower costs.
Greater efficiencies and dramatic improvements to our balance sheet. Despite.
Despite underperforming on revenue we reached several key operating milestones.
As we continue to improve our processes.
We are also working to elevate our customer experience, while driving long term growth.
To develop trusted.
Cannabis brands that resonate with consumers. It is critical that we deliver consistent high quality products.
Consumer centric and committed to data driven insights sundial is focused on delighting consumers as preferences evolve in the Canadian cannabis market.
I would now like to turn the call over to our CFO Jim Keogh.
To provide further details on our Q3 financial results.
Thank you Jack and good morning to those listening in.
We'd like to remind everyone that all amounts that I mentioned this morning are denominated in Canadian dollars, unless otherwise stated and that the comparative period, the sequential quarter Q2 of 2020 unless.
Indicate otherwise.
Let's start with a review of our improved liquidity and capital structure.
During the third quarter, we closed a brokered registered offering for gross proceeds of $26.4 million.
And we entered into a 50 million us dollars aftermarket equity program.
Subsequent to quarter end from October one ton.
Yes overnight the company issued a 121.9 million common shares for net proceeds of $45.4 million under this program.
For the year to date through a combination of cash repayments asset dispositions equity and equity linked issuances and debt for equity conversions.
Stendal has greatly improved its over leverage and cash position.
We eliminated $100 million of debt in 2022 November night, with a net debt reduction of $72 million.
We reduced our annualized debt service costs by $31 million through the June 5th restructuring.
We raised gross cash proceeds.
Ads of $93 million since 2000.
We received benefits under the Canada emergency wage subsidy, the queues program of $4.1 million.
We amended and restated our syndicated credit agreement.
And converted our term debt facility to senior second lien convertible notes.
November nine.
Sunday, all had $127 million of indebtedness outstanding down from $199 million at the beginning of the year.
That includes $55 million of aggregate principal amount of senior secured convertible notes.
And $72 million of syndicated bank debt.
We had 439 million common.
Inc. shares outstanding.
And we had an unrestricted cash balance of $60 million.
Well the share issuances and the process of converting debt into equity has resulted in dilution and pressure on the trading price of sunday's common shares it significantly improved the company's balance sheet and financial flexibility.
I wanted to know shareholders have authorized the board of directors subject to required regulatory and stock exchange approvals to consolidate its outstanding common shares to ensure compliance with the NASDAQ continued listing standards.
Which provides access to a broad universe investors access to equity capital and access to trading liquidity.
Further details will be announced at a later date should the company elect to proceed with the share consolidation.
As I've described the third quarter was challenging for Sunday fell from a revenue point of view.
While net revenue declined 36% compared to the previous quarter.
We did continue to achieve success in our focus on establishing branded sales.
Which comprise 77% of total net revenue up 8% from the second quarter.
Cash used from operations, not including changes in noncash working capital financing and investing activities decreased by 63% to $5.3 million for the quarter down from $14.3 million during.
During the previous quarter.
Commitment to cost control is yielding immediate and meaningful results general and administrative expenses were $7.2 million equivalent to 7% lower in the third quarter than the previous quarter.
We reduced our DNA expenses by 42% compared to $12.4 million in the same quarter of 2000.
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Another area of very positive improvement is our combined cultivation and production costs. We've decreased these costs by 19% over the previous quarter to $8.1 million from $10 million and have decreased and by 50% when compared to Q1.
These savings are significant and the team has done.
A tremendous job of bringing greater efficiencies to our cultivation and processing operations and that work continues.
Cash cultivation cost programs sold was reduced to $1.18 the decrease of 12% over the previous quarter.
We are working towards a target cash cost of 69 cents per gram.
The recorded and.
Adjusted EBITDA loss of $4.4 million for the third quarter, which was an increase from $3.9 million in Q2.
Our net loss from continuing operations amounted to $71.4 million, primarily reflecting non cash charges related to fair value adjustments and to inventory and asset impairment provisions.
We recorded an IND.
Inventory impairment provision of $19.9 million on dry counted listen cannabis extracts and.
The property plant and equipment impairment provision of $60 million was recorded on the old facility.
On average our gross selling price per Gram equivalent of branded products remained relatively stable at 553 program in the third quarter of 2000.
20, compared to 567 program in the prior quarter.
Average gross selling prices for unbranded flower in the third quarter was 84 cents per Gram down from 222 program in the previous quarter.
The decrease was due to the monetization of bulk flower and shake inventory at a discounted price.
Our adjusted gross margin before.
Inventory impairment and fair value adjustments for the three months ended September Thirtyth 2020 was 20% compared to 14% for the three months ended June Thirtyth. This.
This 6% increase was mainly due to efficiency gains realized through decreased cost of goods sold and to incremental value added product mix.
As we have discussed previously.
We have fully completed construction of our cultivation facilities in olds and are limiting capital expenditures to essential expenditures and maintenance capital as such we are reviewing alternatives for our planned extraction and processing facilities built for the largest part of our 2020 Capex budget was allocated.
From a maintenance Capex standpoint, we anticipate.
Spending about $500000 per quarter to maintain current capacity.
I will now invite Anderson order, president and COO of sundial to provide some further remarks related to operations.
Thank you Jim.
As mentioned our topline decline this past quarter versus Q2 2020, while we continued to make significant.
Progress on our cost structure.
Let me update you now on some of the progress sunbelt use making.
We continue to be consistent.
When our sales mix strategy as we focus on driving better market penetration with our branded product offering versus relying on the wholesale channel.
Our.
Our Q3 branded net sales increased to 77% versus 69% in Q2 2020.
This keeps us on track to our target for 80% branded and 20% wholesale business mix by year end.
To deliver our craft at scale promise.
We need to continue to develop capability and competency in cultivation.
Over the past 22 months, we have completed one hundreds of harvest, enabling our team to leverage this robust set of cultivation statistics.
And implement action plans to improve our cultivation consistency.
Since implementing these.
The actions we have achieved the highest average potency results in our company's short history.
To further support our cultivation expertise Sundar has acquired and expanded library of genetics that will better serve evolving consumer preferences.
With a specific focus on higher potency products.
We are excited to bring these unique culture of ours to market in 2021.
The company's decision to prioritize larger pack formats and flower during the early stages of COVID-19.
Resulted in a slower than expected ramp in pre roll production.
Demand for Sunday sales pre roll products remained strong.
And as such we've made significant investment in our operations to remove capacity constraints.
The pre roll segment is critical to our inhalable focus and.
And we will be doubling down in 2021 to accelerate our pre roll offerings to meet market demand.
Our national market share increased.
From.
Just 0.6% in Q3 2019.
To 3.3% in Q3 2020.
We have lost market share in the latest 13 weeks as.
As the value segment accelerates nationally aggressively across all formats.
We've recently expanded our Palmetto brand coast to coast.
Yes.
Palmettos dried flower format recently launched in Quebec, and was sold out within two weeks, indicating early resonance with consumers in a rapidly expanding and competitive market.
We significantly increased our investment in our portfolio brands through targeted sales and marketing initiatives.
Including launching a comp.
Hence of holiday campaign that.
That will be in select retailers across the country starting this month.
We've been deliberate in our launch of 2.0 products.
Sundowners innovation pipeline continues to strengthen as we have begun commercial production of our top lead concentrates that will begin to ship in Q4.
We also announced earlier this week that we have entered into a sales and distribution agreements with chocolate.
The health, Canada licensed chocolate tier company focused on offering decadent confections with high quality flavor.
As part of the contractual arrangement sundial in chocolate will launch a cannabis infused confectionery brand.
Offering a selection of chocolate bars drinking chocolates infused sugar.
We expect to scale the collaboration across the country with first product targeting to be in stores ahead of the holiday season in Alberta.
Building, a sustainably profitable business centered around the consumer requires time to develop our brand portfolio.
And thoughtful choices in where and how we invest for future growth.
While we understand we still have a lot of work to do we remain encouraged on the progress made in Q3 and positioning ourselves for success in future.
With that I'd like to turn the call back to Zach for closing remarks.
Thank you Andrew in.
In conclusion.
Using our team has moved aggressively to focus our operations and product portfolio to get the very best from our high quality people and assets.
I'm proud of the entire team's ability to take decisive action to improve our business while navigating this unprecedented time.
I will now turn the call back to the operator for the question period.
Thank you.
We'll now begin the question and answer session.
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Our first question comes from Tammy Chan of BMO capital markets. Please go ahead.
Hi, Thanks for the question first just wondering if you could quantify you mentioned that this October was sort of the highest average THC that you've achieved.
Could you quantify what that range will.
[noise] [noise] Hey, good morning, Jamie its Andrew here, yes, we'd all be.
She goes to the market dynamics to change it back mentioned pretty aggressively over the last 12 months, but.
No we're seeing product consistently now punch above kind of the 19 behalf the 20% range on all of our cultivars and obviously as we get into the market and we're seeing a significant rate of sale change on stream.
Streams that are.
Above that 20% owned some of that's kind of where we're going.
So that's the range and that's moved over the last 12 months from you know when we started to 15, 16% all the way punching above 20, now so we're feeling pretty good about progress.
Got it okay and.
I also wanted to understand a bit better you called out one of the factors to the sequential sales decline of problem to sort of adjusting their inventory management in ordering I think you know weve heard others mentioned that though it sounded like this adjustment and how they ordered becoming more.
And lower orders, but more frequently what sort of happened a while ago. So I guess I'm still not fully understanding what.
How about sort of impacted your Q3, especially when a when we look at the industry as a whole you know revenue in the third quarter were really increasing which I assume is from the Ontario store openings. So.
Could you just elaborate on that a bit more thank you.
Yes, I'm sorry, so I think couple of things there I think when you look at the timing of kind of when we ramped up.
Some car levels or weeks on hand inventory.
Particular provincial boards in June.
Working I think we went pretty heavy inventory and I think that was specific to western Canada. So I think you know some of that is timing. So we saw you know boards going a little bit heavier in that June timeframe are we.
We've seen adjusted kind of argument planning cadence to really understand kind of how we can manage those part levels better.
I think the provincial boards have done that as well. So it's a work in progress, but I think some of that Q2 number a you know late June impacted us getting off the ground into Q3, which accelerated some of that smaller orders more frequent as you move through that inventory and that weeks of coverage.
What was that was particularly.
Really a western Canada James.
Got it okay. Thank you.
Our next question comes from Vivien Azer of Cowen and company. Please go ahead.
Hi, good morning.
Morning, Thanks for the questions.
My first one has to do with on your shelf space and your outlook for being able to preserve that it strikes me that you know with an inability to fulfill even if they are just smaller at the provincial level plus you know incident cultivation that wasn't coming in.
To your standards from the <unk> perspective, it seems like perhaps the dialogue that you're having with on what the provinces is probably not all that constructive. If you have to you know continue to apologize for Mrs. There. So you know where does yourself state shelf space stand today, and then what is your out.
Look for yourself. Thanks.
Yes, Andrew Thanks for the question Vivian I'm, a I think it's a good one look the shelf things, obviously, a battle and you know we're conscious about we've we've had good market share growth over the latest 52 weeks.
And as I mentioned in the opening we see not a load a little bit over the last 13 weeks. So look what are we doing about it look I think the key thing is as you mentioned.
You will start to cultivation. So we've addressed a lot of those areas.
Typically to ensure we have more consistent kind of high potency quality product get out and our brand formats.
But I think another one for US is we we kind of slowed down our investments really in our portfolio. I think you know in Q3, we saw two times increase on our sales and marketing spend for our brands that's going to help you don't get that benefit in the first month. So when we start to attack the shelf, we start to look away to sale with our retailers and the potential board.
No. They are asking what is the you know the integrated holistic program you got any brands and I think as of Q3, we really started ratchet that up accordingly, So I anticipate we'll see better awareness and better rate of sale coming through that as we improve improve our cultivation.
And I think the only thing that we're doing that I think that Mitch.
Jim This is really good skew optimization begun and I think as we think about the retail shelf when we think about.
Having so many offerings in certain formats and particularly in our case. They we've launched a significant portfolio big products across all provinces.
Some of that cannibalizing, our own shelf space to be quite honest.
We're working very collaborative with the retailers and the board to really simplify the SKU mix, we're expecting a lot of that volume that we have in those products right now, even though we're going to take down symbols few offerings to move into our or stay in that brand and I think thats, usually what you see in the SKU optimization exercise.
So it continues to be a big focus for us.
So we increased our distribution.
So the anticipation or via cultivation come back on line investment in sales and marketing all brands now anticipate no we're going to see that continue to be strong, but it but there's some short term work that we need to give anything for sure.
Got it and just to add to that yes I.
I wouldn't say I wouldn't say.
With that though our relationship or conversations with our with our provincial Board partners are not constructive they are absolutely constructive weve certainly gone through growing pains earlier this year.
When we when we were encountering encountering issues with the renewal and extension.
Save our credit facility, we got a significant drop in sales and marketing spend.
Just coming out of that now so you can see that having ramped in the quarter and we expect to see benefits in the in the coming quarters and I would also say that you know whether it's on the l. or other LPG or you're seeing you know you have seen quarter to quarter quite a bit.
The volatility both in terms of market share products that have worked or not where there have been some misses in some some some the coverage the upside as well so.
We think we understand the factors some are self inflicted but we've moved beyond them and found solutions.
So we're pretty excited about the coming quarters.
Got it that's helpful. Thanks, and then my follow up.
Dovetailing off of that so it sounds like the calculus, you guys are making it.
Now hopefully the market share recovers the revenue shows up and we hope that is the driver of operating leverage on <unk> is that kind of the right way to think about it and so then if sales and marketing.
Benefits don't kick in immediately is it fair to assume that the magnitude of your adjusted EBITDA loss in the fourth quarter, probably doesn't improve and perhaps gets a little bit worse.
Yeah look I would say just speaking plainly about the current run.
Run rate, we need to be running at about twice the current size to get to profitability.
We are we have a path to get there there's really two two means of of arriving.
Ah profitability, one through organic growth the others through M&A activity and I think.
As you're aware we're bullish.
I think it's on both pads.
So I wouldn't draw the conclusion that we're going to see EBITDA on necessarily fall at a bad and we think that these investments in sales and marketing are going to benefit our brands and business for many quarters to come and we're looking at this on a slightly longer term basis than just Q4.
Got it thanks very much.
Our next question comes from David could Echo of ATP capital markets. Please go ahead.
Hi, Good morning, Thanks for taking my question. So my first I, just want to dig a little bit deeper into your previous answer.
Answer.
Regarding SKU optimization.
So I'm just trying to understand now as you guys exit wholesale and look to an improved product mix in 20 from branded product to wholesale.
Why why exit wholesale right now when you know revenue from branded products and base in particular have actually gone down.
And then as well.
Associated with that you know given some of the improvements you're trying to make in the market. I mean do you have market research to support for example, even the promote roll market I think a comment was made that youre doubling down on that with the crop cultivation. So do you have that.
Indicators that will tell you actually what consumers are looking for there.
Thank you.
Hey, David It's Andrew.
Just just on me if you can just sorry, just repeat the first one real quick on the on the steel companies just want to make sure I understand the question little bit.
Sure Im just trying to understand on C. optimization.
How your China, you improve that.
Especially in a market with Bayer swear.
That's a key differentiator for you and it's already a very crowded market.
Got it.
Yes couple of things going on.
I think.
We have to simplify our supply chain and I think our retailers and customers are asking for them have limited our unlimited shelf space to kind of.
How is 55 different vape offerings. So I think what we're really trying to do is is obviously the early days we were.
Attempting to monetize as much of the inventory that we have inclusive out with some of the oil.
Put that in case in Torbay portfolio, but I think what we've seen in the data.
As you know we have we had great.
Repeat purchase honor Veight products. So we've got a lot of them and we're seeing kind of that Pareto principle play out with regard to the 80 20 rule on a lot of our sales are coming from a core set of SK use so as opposed to having that you know inflicted upon us by retailers were taking a proactive approach with them.
And certainly the potential boards to really.
Really get the right assortments at store level.
I think when we do that.
We're going to we're going to see that consumer that's really enjoying and part of that brand story with top leave the sundial the palmetto even stay in the brand as we give them a more selective assortments. So we're optimistic that the skew rational.
Inflation is the right call and particularly to your point on data we think its.
Necessary, but we're also seeing it as an opportunity for us longer term thinking congrats a question around the.
You know that the wholesale.
I think we're still in that plan around 80, 20, so were not fully.
Locking away from the wholesale channel I think its an important part of our business, albeit you know if you look at Q3 2019 versus Q3 2020.
More than 90% of our sales a year ago were in the wholesale channel so to make that move into a branded space and to make that shift were almost 80 20 right now.
That's a pretty big move and we've been consistent on that kind of from from from day, one and 2020. So we're.
We're not walking fully from it. We're just can you really selective a lot and part of that is pricing and in part of it is our desire to make sure that if we have great product that's coming on those brands were putting them in on brand product and grabbing market share and obviously relationships with retailers and consumers.
And last one on pre rolls.
So look I think we I think Jack mentioned, we made some early decisions.
Part of the year on a larger formats, given the cobot situation and really that impacted our pre will capacity. So we've aggressively made some moves.
He's here over the last two.
Two to three months and you see that in our in our in our mix of our portfolio. So.
Q.
Q2 pre rolls represented just over two 2.5% give or take of our mix in Q3 that was a half percent to answer your question on data the segment improved rules.
In Canada is about 16.
So we're under indexed and it certainly has our focus on a premium and halos player pre rolls are big part of that so we have to be better and pre rolls. We got great demand, we have great products in the market.
And you know that's the good thing is going to make sure we can meet production and demand accordingly, and I think.
Our plan moving forward into Q4, and obviously if you get one.
Okay. Thank you that David just had just that just to add there David on the wholesale side you know in terms of as you phrased. It you know moving away from wholesale just just to level set there you know it's always been.
Sunbelt strategy to connect.
Not directly with consumers with branded retail products, but what's happened in the wholesale market is not a function of of Oh.
As of Sunday was decision, making or choices per se. So you've got a market today. If you look at our history. As you know, we we sold tens of millions of dollars of product to top LP.
He's in Canada over time.
That market is in a very different place today than it was 12 months ago, a full stop so Canada is very long cultivation, Canada's very long supply Uh huh.
We believe that this is going to be somewhat cyclical you're going to see that wholesale market evolve overtime.
But it's in a it's.
On a pretty unique spot today, we've seen demand for wholesale transactions at the margin be reduced in the near term quite dramatically. While we've also seen other Lps come in and want to engage in longer term supply agreements and as you well know from covering the space to history.
Sort of the sanctity of these contracts he's extremely poor.
So I think the industry is still evolving and maturing in terms of how to deal with these long term supply agreements many lps about issues, where they signed they signed a wholesale deal. It gets broken it gets retraded and our experience hasn't necessarily been any different.
So it's not the same.
That will be won't be engaged in wholesale in the future.
But it's much less than opportunities as well.
Okay, that's really great color both of you. Thanks. So much my last question here is just going to your Mdna with your debt covenants.
And potential violation by December 2020, which I think is.
It's listed in there so just a couple points on that I mean by our calculations your cash burn for the last quarters, just as about 21 million and then to satisfy the principal payments that you're going to need for these.
The principal repayments of your debt to book is going to need about 6 million a quarter, so and so.
Please do correct me, if I'm wrong on those calculations, but assuming not how.
How confident and comfortable that you guys are moving into the next I guess, you know one to two quarters that you're going to be able.
To satisfy whether these conditions or or just being able to financing the principal repayments of your debt. Thanks.
Yeah, David we don't want to make any forward looking comments here I'll, let ill, let Jim Jim speak to this but what I can tell you is that we have a very close and productive working relationship with the banks instead of making aggressive projections about what's going to happen in the coming months.
I would point to our track record.
Hi, I'm with regard to these matters I think weve raised and gotten access to more capital than many thought we would be able to and also have aggressively started to repair our balance sheet I'm at a pace that has.
It's also surprised many to the to the to the positive so we're very constructive on.
The process, we're laser focused on it it's not something that we're going to wake up to in late December and start to work on so.
I would just point to our track record this year in terms of dealing with these matters.
And that's what gives us confidence that we're going to navigate this successfully.
Understood. Okay. Thanks, very much for the color and congrats.
For the quarter I'll hop back in the queue.
Our next question comes from John Jim borrow of see RBC. Please go ahead.
Thanks, Good morning, I, just want to reconcile the topline performance and dive a little bit deeper there.
The industry is growing quarter over quarter, well into the 20% range that you saw branded sales down I think nearly 30%.
But it's clearly not pricing your pricing is well above most of your peers. So I mean, the impact that volume.
Wondering if you could take a shot at quantifying how much of that decline was from not being in stock at retailers.
Versus the cultivation challenges you referenced versus consumers switching to value and maybe away from your premium or mainstream products just any commentary there would be helpful.
Hey, John I don't I don't have the quantifiable kind of out of stocks on hand.
We could follow up on that but.
No I think again coming back to what we saw were seeing a significant rate.
Rate of sale increase some of the data that we're looking at John is you know if you had a top leap brand and its about 20% potency you know we're seeing rate of sale increased 60, 70%.
My first is something that's lower potency so.
As we put that product in the market higher potency being the deciding factor, it's selling out very very quickly so.
It's kind of timing too.
Can we produce that high potency regularly in the Navy hardness and I think Thats, what we mentioned in the opening was there was some inconsistency there.
That led to kind of some of that lower ability to fill the pipeline them at higher potency, but.
But I don't have the quantification around that Mylan stock looks like right now.
Okay, and then the comment in the press release about underestimating inventory count at certain retailers.
Yes sure.
Just wanted to get a better understanding of what the visibility of the company has on that matter is there is there a way you can get data on their side to real time or close to it how often are you talking with these retailers. It just seems.
Seems like you know we're two years into the legalization you take some of these issues would be would be ironed out by now says came as a bit of a supply.
Right, but just understanding that relationship better would be useful thanks.
Yeah look I mean, I think and it's not just the retailers and it's certainly on us to with regards to making sure we have better demand planning to coincide.
To coincide with what consumers are looking for so I think to say that it would.
Seating and the retailers were not looking at that regularly I think it's not accurate I think a lot of what we saw from the provincial boards and what we continue to see from incremental boards, which is pretty consistent language that we've had and I think some of our peers have had is there also figuring out how to manage their weeks and I'm certain that can use so it it's still.
Two years, but I think honestly, it's two years of learning on multiple ends whether that you're a retailer whether that you're a licensed producer or whether your potential board when the distribution. So.
As far as data goes.
This is part of the issue that we have been in cannabis right now there's.
Limited data added provincial.
Level or some of the provincial Borgia working aggressively to provide that so we can make better decisions, making make better decisions on inventory.
And there is data programs right now with some of the retailers that were diving into on a regular basis were looking all of that.
And trying to get a better read on what demand should be and how do we forecast that are so that we can manage.
Inventory and obviously help our retailers make some money.
Okay. That's helpful. Thanks, and then the last question I was on on the value segment.
You mentioned Palmetto in your remarks about how aggressively do sundial wants to compete in the value category and how do you expect your sales in value will.
So compared to the overall industries in the medium or longer term. Thanks.
Yeah. Good. Good question look I think competed the keyword you mentioned there I think we want to compete we have to compete there is obviously a huge amount of consumers playing in that price range and.
We're obviously seeing you know that less than $6 per gram kind of price partition aggressively grow so.
Our our year to date number on grassland should to put it in context, John for US is we're sitting at about 13.5% of our total mix is sitting in grassland that's about right.
In Q3 were about 12.5%, we're right in that range.
We'll see that kind of move as we as we get into Q4, and obviously I think pricing is going to continue to be a key driver. Obviously, so if we can keep that mix kind of in that 15% to 20% range. John I think we're in a exactly where we want to be and when it comes to pricing.
You know our strategy has been and you mentioned that we've.
Weve kept our average sale price on a branded we have one of the strongest pricing structures in Canada. As you mentioned, we're really proud of that so but we're also mindful of the fact that we have to compete so we've made some decisions on pricing and that's inclusive of kind of whole formats and all brands.
And what will compete but we're certainly not going to lead price down I think thats, a really slippery slope and we're seeing some others play that game I think some long term in our view that's not healthy for the category certainly not healthy for our business model and I think that's really why we're focused on that core core plus premium segment and we're seeing good things in that as well, but certainly the acceleration of value.
Has contributed aggressively 15 to 20, where we want to be and Thats, where we are right now.
Okay. That's helpful. That's all for me. Thank you very much.
This concludes the question and answer session I would like to turn the conference back over to Zach for any closing remarks.
We'd like to thank everyone for attending and for the great questions by our analysts look.
Look forward to updating you soon stay say thanks.
This concludes today's conference call you may disconnect. Your lines. Thank you for participating and have a pleasant day.
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