SNDL Inc (SNDL) 6-K, filed Aug 12, 2021

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

Form 6-K

REPORT OF FOREIGN PRIVATE ISSUER

PURSUANT TO RULE 13a-16 OR 15d-16 OF THE

SECURITIES EXCHANGE ACT OF 1934

For the month of August 2021

Commission File Number 001-39005

SUNDIAL GROWERS INC.

(Registrant’s name)

#300, 919 - 11 Avenue SW

Calgary, AB T2R 1P3

Tel.: (403) 948-5227

(Address of principal executive offices)

Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F:

Form 20-F ☒ Form 40-F ☐

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1): ☐

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7): ☐

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	SUNDIAL GROWERS INC.
Date: August 12, 2021	By:	/s/ Zach George
	Name:	Zach George
	Title:	Chief Executive Officer and Director

EXHIBIT

Exhibit	Description of Exhibit
99.1	Condensed Consolidated Interim Financial Statements for the Three and Six Months Ended June 30, 2021 and 2020
99.2	Management’s Discussion and Analysis for the Three and Six Months Ended June 30, 2021 and 2020
99.3	Form 52-109F2 Certificate of Interim Filings by CEO (pursuant to Canadian regulations)
99.4	Form 52-109F2 Certificate of Interim Filings by CFO (pursuant to Canadian regulations)

sndl-ex991_9.htm

EXHIBIT 99.1

Sundial Growers Inc.

Condensed Consolidated Interim Financial Statements

For the three and six months ended June 30, 2021

(Unaudited – expressed in thousands of Canadian dollars)

Sundial Growers Inc.

Condensed Consolidated Interim Statement of Financial Position

(Unaudited - expressed in thousands of Canadian dollars)

As at	Note
Assets
Current Assets
Cash and cash equivalents		885,418		60,376
Restricted cash	6	52,449		5,333
Marketable securities	7	97,419		—
Accounts receivable	8	8,853		15,898
Biological assets	9	2,341		3,531
Inventory	10	35,194		25,613
Prepaid expenses and deposits		3,202		4,622
Investments	13	3,049		—
Assets held for sale		2,998		2,998
		1,090,923		118,371
Non-current assets
Long-term deposits		7,981		2,633
Property, plant and equipment	11	53,409		116,928
Intangible assets	12	4,886		5,063
Investments	13	62,480		51,876
Equity-accounted investees	14	191,599		—
Total assets		1,411,278		294,871
Liabilities
Current liabilities
Accounts payable and accrued liabilities		24,559		23,308
Current portion of lease obligations		415		409
Derivative warrants	15	54,000		428
		78,974		24,145
Non-current liabilities
Lease obligations		804		1,031
Total liabilities		79,778		25,176
Shareholders’ equity
Share capital	16(b)	2,003,013		762,046
Warrants	16(c)	6,138		6,138
Contributed surplus		64,901		59,344
Contingent consideration		2,279		2,279
Accumulated deficit^(1)^		(744,831	)	(558,128	)
Total shareholders’ equity		1,331,500		271,679
Non-controlling interest^(1)^		—		(1,984	)
Total liabilities and shareholders’ equity		1,411,278		294,871
(1)	Recast – refer to note 14(b).
---	---

Commitments (note 26)

Subsequent events (note 27)

See accompanying notes to the condensed consolidated interim financial statements.

Sundial Growers Inc.

Condensed Consolidated Interim Statement of Loss and Comprehensive Loss

(Unaudited - expressed in thousands of Canadian dollars, except per share amounts)

		Three months ended<br><br><br>June 30						Six months ended<br><br><br>June 30
	Note	2021			2020			2021			2020
Gross revenue	18		12,739			24,341			24,487			40,931
Excise taxes			3,588			4,147			5,445			6,731
Net revenue			9,151			20,194			19,042			34,200
Cost of sales	10		9,534			17,336			20,979			30,843
Inventory obsolescence	10		1,651			10,026			3,405			17,741
Gross margin before fair value adjustments			(2,034	)		(7,168	)		(5,342	)		(14,384	)
Change in fair value of biological assets	9		(331	)		(1,756	)		(425	)		4,659
Change in fair value realized through inventory	10		(456	)		(6,213	)		(506	)		(15,905	)
Gross margin			(2,821	)		(15,137	)		(6,273	)		(25,630	)
Interest and fee revenue	19		3,344			—			6,193			—
Investment revenue	19		2,362			—			15,262			—
Share of profit of equity-accounted investees	14		3,724			—			3,724			—
General and administrative			10,086			7,735			17,179			18,343
Sales and marketing			1,315			518			2,265			2,310
Research and development			758			36			993			343
Depreciation and amortization	11,12		931			1,277			1,989			1,934
Share-based compensation	17		4,539			3,152			7,995			3,947
Restructuring costs			—			2,363			—			5,082
Asset impairment	11		60,000			—			60,000			5,659
Government subsidies	20		—			—			(2,180	)		—
Income (loss) from operations			(71,020	)		(30,218	)		(69,335	)		(63,248	)
Transaction costs			(805	)		(1,297	)		(4,453	)		(2,398	)
Finance costs	21		(40	)		(1,002	)		(91	)		(6,984	)
Change in estimate of fair value of derivative warrants	15		19,810			411			(110,134	)		411
Foreign exchange gain (loss)			(208	)		(599	)		(648	)		955
Gain (loss) on disposition of PP&E			(22	)		(122	)		(139	)		488
Other expenses	14(b)		(2	)		—			(1,932	)		—
Loss before income tax			(52,287	)		(32,827	)		(186,732	)		(70,776	)
Net loss from continuing operations			(52,287	)		(32,827	)		(186,732	)		(70,776	)
Net loss from discontinued operations	4		—			(27,593	)		—			(33,627	)
Net loss			(52,287	)		(60,420	)		(186,732	)		(104,403	)
Gain on translation of foreign operations			—			(1,093	)		—			600
Comprehensive loss			(52,287	)		(61,513	)		(186,732	)		(103,803	)
Net loss from continuing operations attributable to:
Sundial Growers Inc.			(52,287	)		(32,750	)		(186,703	)		(70,611	)
Non-controlling interest			—			(77	)		(29	)		(165	)
			(52,287	)		(32,827	)		(186,732	)		(70,776	)
Net loss attributable to:
Sundial Growers Inc.			(52,287	)		(60,343	)		(186,703	)		(104,238	)
Non-controlling interest			—			(77	)		(29	)		(165	)
			(52,287	)		(60,420	)		(186,732	)		(104,403	)
Comprehensive loss attributable to:
Sundial Growers Inc.			(52,287	)		(61,436	)		(186,703	)		(103,638	)
Non-controlling interest			—			(77	)		(29	)		(165	)
			(52,287	)		(61,513	)		(186,732	)		(103,803	)
Net loss per common share attributable to Sundial Growers Inc.
Basic and diluted	22	$	(0.03	)	$	(0.57	)	$	(0.11	)	$	(0.97	)

See accompanying notes to the condensed consolidated interim financial statements.

Sundial Growers Inc.

Condensed Consolidated Interim Statement of Changes in Shareholders’ Equity

(Unaudited - expressed in thousands of Canadian dollars)

	Note
Balance at December 31, 2020^(1)^		762,046		6,138	59,344		2,279	(558,128	)	—	(1,984	)	269,695
Net loss		—		—	—		—	(186,703	)	—	(29	)	(186,732	)
Loss of control of subsidiary	14(b)	—		—	—		—	—		—	2,013		2,013
Share issuances	16(b)	977,425		—	—		—	—		—	—		977,425
Share issuance costs	16(b)	(16,233	)	—	—		—	—		—	—		(16,233	)
Derivative warrants exercised	15	277,136		—	—		—	—		—	—		277,136
Share-based compensation	17	6		—	7,989		—	—		—	—		7,995
Employee awards exercised		2,633		—	(2,432	)	—	—		—	—		201
Balance at June 30, 2021		2,003,013		6,138	64,901		2,279	(744,831	)	—	—		1,331,500
Balance at March 31, 2021		1,675,595		6,138	60,370		2,279	(692,544	)	—	—		1,051,838
Net loss		—		—	—		—	(52,287	)	—	—		(52,287	)
Share issuances	16(b)	330,110		—	—		—	—		—	—		330,110
Share issuance costs	16(b)	(2,750	)	—	—		—	—		—	—		(2,750	)
Share-based compensation	17	5		—	4,534		—	—		—	—		4,539
Employee awards exercised		53		—	(3	)	—	—		—	—		50
Balance at June 30, 2021		2,003,013		6,138	64,901		2,279	(744,831	)	—	—		1,331,500
(1)	Recast – refer to note 14(b).
---	---

Sundial Growers Inc.

Condensed Consolidated Interim Statement of Changes in Shareholders’ Equity

(Unaudited - expressed in thousands of Canadian dollars)

	Note
Balance at December 31, 2019		509,654		27,831	30,192	2,279	(360,338	)	6,866		4,714		221,198
Net loss		—		—	—	—	(104,238	)	—		(165	)	(104,403	)
Other comprehensive income		—		—	—	—	—		600		—		600
Share issuances		610		—	—	—	—		—		—		610
Dispositions	4	(38,447	)	—	—	—	35,456		(7,466	)	—		(10,457	)
Share-based compensation	17	51		—	3,070	—	—		—		—		3,121
Balance at June 30, 2020		471,868		27,831	33,262	2,279	(429,120	)	—		4,549		110,669
Balance at March 31, 2020		510,314		27,831	31,378	2,279	(404,233	)	8,559		4,626		180,754
Net loss		—		—	—	—	(60,343	)	—		(77	)	(60,420	)
Other comprehensive loss		—		—	—	—	—		(1,093	)	—		(1,093	)
Dispositions	4	(38,447	)	—	—	—	35,456		(7,466	)	—		(10,457	)
Share-based compensation	17	1		—	1,884	—	—		—		—		1,885
Balance at June 30, 2020		471,868		27,831	33,262	2,279	(429,120	)	—		4,549		110,669

See accompanying notes to the condensed consolidated interim financial statements.

Sundial Growers Inc.

Condensed Consolidated Interim Statement of Cash Flows

(Unaudited - expressed in thousands of Canadian dollars)

		Three months ended<br><br><br>June 30						Six months ended<br><br><br>June 30
	Note	2021			2020			2021			2020
Cash provided by (used in):
Operating activities
Net loss from continuing operations for the period			(52,287	)		(32,827	)		(186,732	)		(70,776	)
Items not involving cash:
Change in fair value of biological assets			331			1,756			425			(4,659	)
Share-based compensation	17		4,539			3,152			7,995			3,947
Depreciation and amortization	11,12		2,364			2,946			4,771			5,869
(Gain) loss on disposition of PP&E			22			122			139			(488	)
Inventory obsolescence	10		1,651			10,026			3,405			17,741
Finance costs	21		29			(100	)		52			1,816
Change in estimate of fair value of derivative warrants	15		(19,810	)		(411	)		110,134			(411	)
Unrealized foreign exchange (gain) loss			104			583			2,009			(1,186	)
Restructuring costs			—			448			—			448
Asset impairment	11		60,000			—			60,000			5,659
Share of profit of equity-accounted investees	14(a)		(3,724	)		—			(3,724	)		—
Other expenses	14(b)		2			—			1,864			—
Gain on disposition of marketable securities	7,19		(4,211	)		—			(12,230	)		—
Unrealized (gain) loss on marketable securities	7		1,849			—			(3,032	)		—
Additions to marketable securities	7		(69,593	)		—			(106,333	)		—
Proceeds from disposal of marketable securities	7		8,118			—			24,176			—
Change in non-cash working capital			234			1,799			(7,667	)		12,024
Net cash used in operating activities from continuing operations			(70,382	)		(12,506	)		(104,748	)		(30,016	)
Net cash provided by operating activities from discontinued operations	4		—			756			—			4,820
Net cash used in operating activities			(70,382	)		(11,750	)		(104,748	)		(25,196	)
Investing activities
Additions to property, plant and equipment	11		(1,745	)		(117	)		(1,864	)		(1,793	)
Additions to investments	13		(3,000	)		—			(13,560	)		—
Additions to equity-accounted investees	14(b)		(187,875	)		—			(187,875	)		—
Proceeds from disposal of PP&E	11		55			3			115			2,103
Change in non-cash working capital			277			(2,629	)		37			(10,690	)
Net cash used in investing activities from continuing operations			(192,288	)		(2,743	)		(203,147	)		(10,380	)
Net cash used in investing activities from discontinued operations	4		—			(1,671	)		—			(6,617	)
Net cash used in investing activities			(192,288	)		(4,414	)		(203,147	)		(16,997	)
Financing activities
Proceeds from convertible notes, net of costs			—			18,629			—			18,629
Change in restricted cash	6		(52,349	)		2			(47,116	)		10,497
Repayment of Syndicated Credit Agreement			—			(662	)		—			(10,662	)
Payments on lease obligations			(122	)		(100	)		(245	)		(219	)
Proceeds from issuance of shares and registered offerings, net of costs	16(b)		327,360			—			1,062,448			—
Proceeds from exercise of derivative warrants	15		—			—			119,318			—
Proceeds from exercise of employee warrants	17		50			—			201			—
Change in non-cash working capital			(197	)		(436	)		382			(643	)
Net cash provided by financing activities from continuing operations			274,742			17,433			1,134,988			17,602
Net cash used in financing activities from discontinued operations	4		—			(761	)		—			(639	)
Net cash provided by financing activities			274,742			16,672			1,134,988			16,963
Effect of exchange rate changes on cash held in foreign currency			(99	)		(36	)		(2,051	)		1,522
Change in cash and cash equivalents			11,973			472			825,042			(23,708	)
Cash and cash equivalents, beginning of period			873,445			21,157			60,376			45,337
Cash and cash equivalents, end of period			885,418			21,629			885,418			21,629
Cash interest paid			—			2,655			—			3,850

See accompanying notes to the condensed consolidated interim financial statements.

Sundial Growers Inc.

Notes to the Condensed Consolidated Interim Financial Statements

For the three and six months ended June 30, 2021

(Unaudited, expressed in thousands of Canadian dollars, except where otherwise noted)

1.	Description of business

Sundial Growers Inc. (“Sundial” or the “Company”) was incorporated under the Business Corporations Act (Alberta) on August 19, 2006.

The Company’s head office is located at 300, 919 11th Avenue SW, Calgary, Alberta, Canada.

The principal activities of the Company are the production, distribution and sale of cannabis in Canada pursuant to the Cannabis Act and the deployment of capital to investment opportunities. The Cannabis Act regulates the production, distribution, and possession of cannabis for both medical and adult recreational access in Canada.

Sundial and its subsidiaries currently operate solely in Canada. Through its joint venture SunStream Bancorp Inc. (note 14(a)), the Company also provides growth capital and a strategic support platform that pursues indirect investment opportunities in the global cannabis sector, where lawful, as well as other investment opportunities. The Company also makes portfolio investments in debt and equity securities where deemed strategic.

The Company’s common shares trade on the Nasdaq Capital Market (“Nasdaq”) under the ticker symbol “SNDL”.

COVID-19

The global impact of COVID-19 has contributed to a great deal of uncertainty as to the health of the global economy. The Company has implemented several new pandemic-related procedures and protocols at its facilities, including enhanced screening measures, enhanced cleaning and sanitation processes and frequency, encouraging social distancing measures and directing employees to work from home if possible. The Company believes that it can maintain safe operations with these pandemic-related procedures and protocols in place.

COVID-19 has not had a material impact on the Company’s business to date, however, any potential future impact that COVID-19 could have on the Company’s business or financial results cannot be reasonably estimated at this time. However, any shutdowns requested or mandated by government authorities in response to the outbreak of COVID-19 that may affect the Company, its suppliers, distribution channels or customers may have a material impact to the Company’s planned operations.

2.	Basis of presentation
a)	Statement of compliance
---	---

The condensed consolidated interim financial statements have been prepared in accordance with International Accounting Standard 34 – Interim Financial Reporting as issued by the International Accounting Standards Board (“IASB”) and interpretations of the International Financial Reporting Interpretations Committee (“IFRIC”). The condensed consolidated interim financial statements were prepared using the same accounting policies and methods as those disclosed in the audited consolidated financial statements for the year ended December 31, 2020, except as described in note 3. The condensed consolidated interim financial statements should be read in conjunction with the audited consolidated financial statements for the Company for the year ended December 31, 2020 which have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the IASB.

These condensed consolidated interim financial statements were approved and authorized for issue by the Board of Directors (“Board”) on August 12, 2021.

b)	Basis of measurement

These condensed consolidated interim financial statements have been prepared on a historical cost basis, except for biological assets and certain financial instruments (note 23(a)) which are measured at fair value with changes in fair value recorded in earnings.

Sundial Growers Inc.

Notes to the Condensed Consolidated Interim Financial Statements

For the three and six months ended June 30, 2021

(Unaudited, expressed in thousands of Canadian dollars, except where otherwise noted)

c)	Functional and presentation currency

These condensed consolidated interim financial statements are presented in Canadian dollars, which is the functional and presentation currency of the Company and its Canadian based subsidiaries.

d)	Basis of consolidation

Subsidiaries are entities controlled by the Company. Control exists when the Company has the power, directly and indirectly, to govern the financial and operating policies of an entity and be exposed to the variable returns from its activities. The financial statements of subsidiaries are included in these condensed consolidated interim financial statements from the date that control commences until the date that control ceases.

Subsidiaries	Jurisdiction of incorporation
Sprout Technologies Inc.	Alberta, Canada	100	%
KamCan Products Inc.	British Columbia, Canada	100	%
2011296 Alberta Inc.	Alberta, Canada	100	%
Sundial Deutschland GmbH	Germany	100	%
Sundial Portugal, Unipessoal LDA	Portugal	100	%
2657408 Ontario Inc.	Ontario, Canada	100	%
NGBA-BC Holdings Ltd.	British Columbia, Canada	100	%
Sundial Insurance (Bermuda) Ltd.	Bermuda	100	%
3.	Significant accounting policies
---	---

The accounting policies, critical accounting judgements and significant estimates used in the preparation of the Company’s audited consolidated financial statements for the year ended December 31, 2020 have been applied in the preparation of these condensed consolidated interim financial statements except as described below.

Loss of control

When the Company loses control over a subsidiary, it derecognizes the assets and liabilities of the subsidiary, and any related non-controlling interest and other components of equity. Any resulting gain or loss is recognized in profit or loss. Any interest retained in the former subsidiary is measured at fair value when control is lost.

Interests in equity-accounted investees

The Company’s interest in equity-accounted investees comprise interests in an associate and a joint venture.

Associates are those entities in which the Company has significant influence, but not control or joint control, over the financial and operating policies. A joint venture is an arrangement in which the Company has joint control, whereby the Company has rights to the net assets of the arrangement, rather than rights to assets and obligations for its liabilities.

Interests in associates and joint ventures are accounted for using the equity method. They are initially recognized at cost, which includes transaction costs. Subsequent to initial recognition, the consolidated financial statements include the Company’s share of the profit or loss and OCI of equity-accounted investees, until the date on which significant influence or joint control ceases.

Captive Insurance

The Company has secured insurance coverage for its directors and officers through two separate captive insurance structures.

The first structure is a captive cell program entered into with a registered insurer for the purpose of holding and managing the Company’s coverage funds through a separate cell account (“Cell Captive”). The Company applies IFRS

Sundial Growers Inc.

Notes to the Condensed Consolidated Interim Financial Statements

For the three and six months ended June 30, 2021

(Unaudited, expressed in thousands of Canadian dollars, except where otherwise noted)

10 Consolidated Financial Statements in its assessment of control as it relates to the Cell Captive. The Company’s accounting policy is to consolidate the Cell Captive. The Cell Captive funds are held as cash and may be invested according to the Company’s treasury policy. The funds are disclosed as restricted cash as the Cell Captive must be fully funded at all times. The Company will recognize any gains or losses from fair market value adjustments, interest and/or foreign exchange in the Statement of Loss and Comprehensive Loss.

The second structure is a wholly owned subsidiary, Sundial Insurance (Bermuda) Ltd. (“SIBL”), incorporated to provide separate and additional coverage. The Company applies IFRS 10 Consolidated Financial Statements in its assessment of control as it relates to SIBL. The Company’s accounting policy is to consolidate SIBL. The funds are disclosed as restricted cash as the funds were required for initial capitalization of the entity and there is a requirement to maintain minimum capital and surplus in accordance with industry regulations.

4.	Discontinued operations

On May 15, 2020, the Company entered into an agreement to sell all of the outstanding shares of Project Seed Topco (“Bridge Farm”) which closed on June 5, 2020.

The comparative statement of loss and comprehensive loss and statement of cash flows has been re-presented to show the discontinued operation separately from continuing operations.

Results of discontinued operations

	Three months ended<br><br><br>June 30					Six months ended<br><br><br>June 30
	2021		2020^(1)^			2021		2020^(2)^
Gross revenue		—		13,108			—		22,139
Net revenue		—		13,108			—		22,139
Cost of sales		—		8,651			—		15,633
Gross margin before fair value adjustments		—		4,457			—		6,506
Change in fair value of biological assets		—		396			—		1,064
Change in fair value realized through inventory		—		(1,122	)		—		(1,122	)
Gross margin		—		3,731			—		6,448
General and administrative		—		4,800			—		8,585
Sales and marketing		—		930			—		1,418
Depreciation and amortization		—		1,162			—		2,752
Foreign exchange		—		(667	)		—		1,057
Share-based compensation		—		(1,267	)		—		(826	)
Loss from operations		—		(1,227	)		—		(6,538	)
Finance costs		—		(9,891	)		—		(10,083	)
Loss on contingent consideration		—		(1,491	)		—		(2,252	)
Loss on disposition of Bridge Farm		—		(14,979	)		—		(14,979	)
Loss before income tax		—		(27,588	)		—		(33,852	)
Income tax recovery		—		(5	)		—		225
Net loss^(3)^		—		(27,593	)		—		(33,627	)
(1)	Period April 1, 2020, to June 5, 2020
---	---
(2)	Period January 1, 2020, to June 5, 2020
---	---
(3)	Net loss from the discontinued operations is attributable entirely to the owners of the Company.
---	---

Sundial Growers Inc.

Notes to the Condensed Consolidated Interim Financial Statements

For the three and six months ended June 30, 2021

(Unaudited, expressed in thousands of Canadian dollars, except where otherwise noted)

Effect of disposal on the financial position of the company

Cash and cash equivalents	2,963
Accounts receivable	15,641
Biological assets	2,831
Inventory	787
Property, plant and equipment	88,698
Goodwill	11,345
Intangible assets	23,884
Accounts payable and accrued liabilities	(22,792	)
Lease obligation	(14,894	)
Deferred tax liability	(3,115	)
Accumulated other comprehensive income	(7,466	)
Net assets and liabilities	97,882
Consideration received
Term Debt Facility	45,000
Contingent consideration liability	34,912
Cancellation of common shares	2,991
Total consideration	82,903
Loss on disposition	(14,979	)
5.	Segment information
---	---

Late in the fourth quarter of 2020 the Company began the deployment of capital toward strategic investments. The Company developed an internal capital program to evaluate these and potential future investments, which the Company viewed as a new and separate business line from its cannabis operations.

Based on the allocation of the Company’s resources by the chief operating decision maker and the information used to analyze the performance of the business, the Company concluded that beginning in Q1 2021, it had two operating segments: cannabis and investments. For the three and six months ended June 30, 2020, there was only one reportable segment and therefore no comparative segment information.

The Company’s reportable segments are organized by business line and are comprised of two reportable operating segments: cannabis operations and investment operations. Cannabis operations include the cultivation, distribution and sale of cannabis for the adult-use market and medical markets in Canada. Investment operations include the deployment of capital to investment opportunities. Certain overhead expenses not directly attributable to either the cannabis operations segment or investment operations segment are reported in a third segment referred to as “Corporate”.

Sundial Growers Inc.

Notes to the Condensed Consolidated Interim Financial Statements

For the three and six months ended June 30, 2021

(Unaudited, expressed in thousands of Canadian dollars, except where otherwise noted)

	Cannabis			Investments
As at June 30, 2021
Total assets		274,091			1,134,189	2,998		1,411,278
Six months ended June 30, 2021
Net revenue		19,042			21,455	—		40,497
Gross margin		(6,273	)		21,455	—		15,182
Share of profit of equity-accounted investees		—			3,724	—		3,724
Depreciation and amortization		1,782			—	207		1,989
Earnings (loss) before tax		(84,623	)		23,351	(125,460	)	(186,732	)
Three months ended June 30, 2021
Net revenue		9,151			5,706	—		14,857
Gross margin		(2,821	)		5,706	—		2,885
Share of profit of equity-accounted investees		—			3,724	—		3,724
Depreciation and amortization		828			—	103		931
Earnings (loss) before tax		(75,451	)		9,051	14,113		(52,287	)
6.	Restricted cash
---	---
As at	June 30, 2021		December 31, 2020
---	---	---	---	---
Letters of credit		—		5,333
Securities collateral		36,224		—
Captive insurance		16,225		—
		52,449		5,333

Securities collateral is comprised of a cash balance to satisfy margin requirements on the Company’s option trading position.

The Company has secured insurance coverage for its directors and officers through two separate captive insurance structures. The first structure is a captive cell program entered into with a registered insurer for the purpose of holding and managing the Company’s coverage funds through a separate cell account (“Cell Captive”). The cell account was funded with $12.1 million and is required to be fully funded at all times. The second structure is a wholly incorporated subsidiary, Sundial Insurance (Bermuda) Ltd., which was incorporated to provide separate and additional coverage and initially funded with $4.1 million.

7.	Marketable securities
As at	June 30, 2021			December 31, 2020
---	---	---	---	---	---
Balance, beginning of year		—			—
Additions		106,333			—
Dispositions		(11,946	)		—
Change in fair value recognized in profit or loss		3,032			—
Balance, end of period		97,419			—

During the six months ended June 30, 2021, proceeds of $24.2 million were received for dispositions of marketable securities and a gain on disposition of $12.2 million was recognized (note 19).

Marketable securities have been designated as Fair Value Through Profit or Loss (“FVTPL”) (note 23).

Sundial Growers Inc.

Notes to the Condensed Consolidated Interim Financial Statements

For the three and six months ended June 30, 2021

(Unaudited, expressed in thousands of Canadian dollars, except where otherwise noted)

The components of marketable securities are as follows:

As at	June 30, 2021			December 31, 2020
Equity securities		98,703			—
Put and call options		(1,284	)		—
		97,419			—
8.	Accounts receivable
---	---
As at	June 30, 2021		December 31, 2020
---	---	---	---	---
Trade receivables		8,351		15,786
Other receivables		502		112
		8,853		15,898

The Company has calculated expected credit losses (“ECLs”) based on lifetime expected credit losses, taking into consideration historical credit loss experience and financial factors specific to the debtors and general economic conditions. Refer to note 23 for credit risk disclosures.

9.	Biological assets

The Company’s biological assets consist of cannabis plants in various stages of vegetation, including plants which have not been harvested. The change in carrying value of biological assets are as follows:

As at
Balance, beginning of year	3,531		14,309
Increase in biological assets due to capitalized costs	13,373		39,957
Net change in fair value of biological assets	(425	)	6,496
Transferred to inventory upon harvest	(14,138	)	(54,388	)
Disposition of Bridge Farm (note 4)	—		(2,831	)
Foreign currency translation	—		(12	)
Balance, end of period	2,341		3,531

Biological assets are valued in accordance with IAS 41 and are presented at their fair value less costs to sell up to the point of harvest. This is determined using a model which estimates the expected harvest yield in grams for plants currently being cultivated, and then adjusts that amount for the expected selling price less costs to produce and sell per gram.

The fair value measurements for biological assets have been categorized as Level 3 fair values based on the inputs to the valuation technique used. The Company’s method of accounting for biological assets attributes value accretion on a straight-line basis throughout the life of the biological asset from initial cloning to the point of harvest.

Management believes the most significant unobservable inputs and their impact on fair value of biological assets are as follows:

Assumption	Input				Effect of 10% change (000s)
			December 31<br><br><br>2020		June 30<br>2021	December 31<br><br><br>2020
Yield per square foot of growing space^(1)^	Grams	56		45			347
Average net selling price^(2)^	/gram	4.26		5.13			1,022
After harvest cost to complete and sell	/gram	0.87		1.32			291

All values are in US Dollars.

(1)	Varies by strain; obtained through historical growing results or grower estimate if historical results are not available.
(2)	Varies by strain and sales market; obtained through average selling prices or estimated future selling prices if historical results are not available.
---	---

Sundial Growers Inc.

Notes to the Condensed Consolidated Interim Financial Statements

For the three and six months ended June 30, 2021

(Unaudited, expressed in thousands of Canadian dollars, except where otherwise noted)

These estimates are subject to volatility in market prices and several uncontrollable factors, which could significantly affect the fair value of biological assets in future periods.

The Company estimates the harvest yields for cannabis at various stages of growth. As at June 30, 2021, it is estimated that the Company’s biological assets will yield approximately 3,482 kilograms (December 31, 2020 – 5,507 kilograms) of dry cannabis when harvested. During the six months ended June 30, 2021, the Company harvested 11,628 kilograms of dry cannabis (six months ended June 30, 2020 – 16,266 kilograms).

The Company’s estimates are, by their nature, subject to change and differences from the anticipated yield will be reflected in the net change in fair value of biological assets in future periods.

10.	Inventory
As at	June 30, 2021		December 31, 2020
---	---	---	---	---
Cannabis		28,982		20,358
Cannabis supplies and consumables		6,212		5,255
		35,194		25,613

During the three and six months ended June 30, 2021, inventories of $9.5 million and $21.0 million were recognized as an expense (three and six months ended June 30, 2020 - $17.3 million and $30.8 million). During the three and six months ended June 30, 2021, the Company recognized inventory write downs of $1.6 million and $3.3 million (three and six months ended June 30, 2020 - $13.4 million and $27.7 million), of which $1.7 million and $3.4 million (three and six months ended June 30, 2020 - $10.0 million and $17.7 million) was recognized as an excess and obsolete inventory provision, and $0.1 million and negative $0.1 million (three and six months ended June 30, 2020 - $3.4 million and $10.0 million) was included in the change in fair value realized through inventory as the fair value component of the excess and obsolete inventory provision.

11.	Property, plant and equipment
	Land and<br><br><br>buildings		Production facilities			Equipment			Right of<br><br><br>use assets			Construction<br><br><br>in progress<br><br><br>(“CIP”)			Total
---	---	---	---	---	---	---	---	---	---	---	---	---	---	---	---	---	---
Cost
Balance at December 31, 2020		8,640		152,937			28,894			1,894			8,819			201,184
Additions		—		(263	)		1,403			—			211			1,351
Dispositions		—		(24	)		(67	)		(165	)		(177	)		(433	)
Balance at June 30, 2021		8,640		152,650			30,230			1,729			8,853			202,102
Accumulated amortization and impairment
Balance at December 31, 2020		—		69,364			8,500			571			5,821			84,256
Depreciation		—		1,853			2,534			207			—			4,594
Impairment		—		60,000			—			—			—			60,000
Dispositions		—		—			(10	)		(147	)		—			(157	)
Balance at June 30, 2021		—		131,217			11,024			631			5,821			148,693
Net book value
Balance at December 31, 2020		8,640		83,573			20,394			1,323			2,998			116,928
Balance at June 30, 2021		8,640		21,433			19,206			1,098			3,032			53,409

Sundial Growers Inc.

Notes to the Condensed Consolidated Interim Financial Statements

For the three and six months ended June 30, 2021

(Unaudited, expressed in thousands of Canadian dollars, except where otherwise noted)

During the six months ended June 30, 2021, depreciation expense of $2.8 million was capitalized to biological assets and inventory (six months ended June 30, 2020 – $3.9 million).

During the six months ended June 30, 2021, the credit to additions relates to the recovery of construction holdbacks.

Due to curtailment in the utilization of the capacity in the Company’s Olds facility to align cannabis production with current demand estimates, the Company has determined that indicators of impairment existed at June 30, 2021. The impairment test for the Company’s Olds CGU used a value in use approach based on internal cash flow estimates at June 30, 2021, and a discount rate of 25%. The discount rate was estimated based on the Company’s weighted average cost of capital, adjusted for risks specific to the CGU. The estimated cash flows were based on a 5-year model taking into account the overall forecasted Canadian cannabis industry market size and the Company’s forecasted market share. A terminal value thereafter was applied. Based on the analysis, the Company determined there was an impairment of the Company’s Olds CGU of $60.0 million for the three and six months ended June 30, 2021 (2020 – nil), as the estimated recoverable amount for this CGU was lower than the respective carrying amount. The estimated value in use for the Company’s Olds CGU was sensitive to an increase in the discount rate. An increase to the discount rate by 1% would increase impairment by approximately $7.3 million.

12.	Intangible assets
	Brands and trademarks		Patents		Total
---	---	---	---	---	---	---
Cost
Balance at December 31, 2020 and June 30, 2021		5,445		13,551		18,996
Accumulated amortization and impairment
Balance at December 31, 2020		382		13,551		13,933
Depreciation		177		—		177
Balance at June 30, 2021		559		13,551		14,110
Net book value
Balance at December 31, 2020		5,063		—		5,063
Balance at June 30, 2021		4,886		—		4,886

Brands and trademarks consist of intellectual property purchased from Sun 8 Holdings Inc. with a useful life of 15 years and other intellectual property with a useful life of 12 years.

13.	Investments
As at	June 30, 2021		December 31, 2020
---	---	---	---	---
Investments at amortized cost (A)		13,653		—
Investments at FVTPL (B)		51,876		51,876
		65,529		51,876
Current portion		3,049		—
Long-term		62,480		51,876
A)	INvestments at amortized cost
---	---

Sundial Growers Inc.

Notes to the Condensed Consolidated Interim Financial Statements

For the three and six months ended June 30, 2021

(Unaudited, expressed in thousands of Canadian dollars, except where otherwise noted)

million common shares of Indiva at a price of $0.44 per common share, for gross proceeds of $11 million, and a non-revolving secured term loan to Indiva in the principal amount of $11 million (the “Term Loan”). The Term Loan bears interest at a rate of 9% per annum and has a maturity date of February 23, 2024.

The Term Loan has been designated as measured at amortized cost (note 23). The common shares are measured at Fair Value Through Profit or Loss (“FVTPL”) and are included in marketable securities (note 7).

On April 26, 2021, the Company closed a $3.0 million convertible debenture with a private company with a maturity date of October 26, 2021, and an interest rate of 9% per annum. The Company has the right, but not the obligation, to convert all or any portion of the outstanding principal into common shares at a price equal to a conversion formula until the maturity date. The convertible debenture has been designated as measured at amortized cost (note 23).

B)	Investments at fvtpl

The Company owns a special purpose vehicle (the “Zenabis Investment”) that owns $51.9 million of aggregate principal amount of senior secured debt of Zenabis Investments Ltd. (the “Zenabis Senior Loan”) of Zenabis Investments Ltd. (“Zenabis”). The Zenabis Senior Loan bears interest at a rate of 14% per annum and has a maturity date of March 31, 2025. Pursuant to the terms of the Zenabis Senior Loan, Zenabis will also pay the Company a royalty based on quarterly sales revenue from its medical, recreational and wholesale cannabis lines net of value added or sales taxes. The royalty is payable for 32 fiscal quarters and is payable for quarters in which Zenabis accomplishes certain sales revenue targets.

The Company is in negotiations with Zenabis for the repayment and termination of the Zenabis Senior Loan. Zenabis has filed a petition with the Supreme Court of British Columbia to determine the value of the royalty.

The Zenabis Investment has been designated as FVTPL (note 23). There has been no change in fair value as there has not been a significant change in market interest rates or Zenabis’ credit risk and as of August 12, 2021, all required payments have been made in respect of the Zenabis Senior Loan.

14.	Equity-accounted investees
As at	June 30, 2021		December 31, 2020
---	---	---	---	---
Interest in joint venture (A)		191,599		—
Interest in associate (B)		—		—
		191,599		—
A)	Interest in joint venture
---	---

On March 15, 2021, the Company and SAF Group announced they had entered into an agreement to form a 50/50 joint venture through a new corporation, SunStream Bancorp Inc. (“SunStream”). SunStream is a private company focused on cannabis-related verticals, seeking both Canadian and international opportunities and investments.

SunStream is structured as a separate vehicle and the Company has a residual interest in the net assets of SunStream. Accordingly, the Company has classified its interest in SunStream as a joint venture.

The following table summarizes the carrying amount of the interest in joint venture:

	Carrying amount
Balance at December 31, 2020		—
Capital contributions		187,575
Acquisition costs		300
Share of net earnings (loss)		3,724
Balance at June 30, 2021		191,599

Sundial Growers Inc.

Notes to the Condensed Consolidated Interim Financial Statements

For the three and six months ended June 30, 2021

(Unaudited, expressed in thousands of Canadian dollars, except where otherwise noted)

B)	Interest in associate

On March 23, 2021, the Company’s equity interest in its subsidiary, Pathway RX Inc. (“Pathway”), decreased from 50% to 25%, resulting in a loss of control. The Company decreased its equity interest in connection with amending the license agreement that provides for use of Pathway’s intellectual property. Pathway is a private company focused on developing cannabis-based pharmaceutical drugs to treat symptoms associated with a wide range of medical conditions.

As a result of the loss of control, the Company has de-recognized the assets and liabilities of Pathway, and the non-controlling interest arising upon the acquisition of Pathway. A loss on loss of control of $1.9 million was recognized during the three months ended March 31, 2021. The fair value of the Company’s remaining investment in Pathway was determined to be nil as the Company had fully impaired the intangible asset, which consisted of intellectual property, during the year ended December 31, 2020 as described above, and there are no other assets that would give rise to a measured fair value amount attributable to the remaining 25% interest.

Adjustment to comparative information

During Q4 2020, and as disclosed in the annual consolidated financial statements of the Company as at and for the year ended December 31, 2020, the Company recognized an impairment of $12.9 million on the intangible assets held within Pathway. During the preparation of the Q1 2021 interim consolidated financial statements the Company determined that the allocable amount of this impairment was not attributed to the non-controlling interest. The comparative December 31, 2020, consolidated statement of financial position has been recast to attribute 50% of the impairment of intangible assets recorded to the non-controlling interest as the related intangible assets related entirely to Pathway, the Company’s 50% owned subsidiary.

The recast of the consolidated statement of financial position as at December 2020 resulted in a reduction in non-controlling interest of $6.4 million from the previously reported amount of $4.4 million to the recast amount of negative $2.0 million, and a decrease in accumulated deficit of $6.4 million from the previously reported amount of $564.5 million to the recast amount of $558.1 million and a decrease in loss per share attributable to the Company of $0.03 from the previously reported amount of $1.10 to the recast amount of $1.07.

This recast has no effect on the consolidated 2020 annual net loss or comprehensive loss nor on any previously issued interim consolidated financial statements of the Company. The effect of this recast on the Company’s annual results for 2020 is a decrease to the presentation of the net loss attributable to the Company of $6.4 million from the previously reported amount of $206.0 million to the recast amount of $199.6 million, and an increase in the presentation of the net loss attributable to non-controlling interest of $6.4 million from the previously reported amount of $0.3 million to the recast amount of $6.7 million.

15.	Derivative warrants
	June 30, 2021
---	---	---	---
Balance, beginning of year		428
Series A and Series B Warrants - fair value on issuance^(a)^		62,680
Additional Series A and Series B Warrants - fair value on issuance^(b)^		38,576
New Warrants - fair value on issuance^(c)^		106,531
Change in fair value recognized in profit or loss		3,603
Converted to common shares		(157,818	)
Balance, end of period		54,000

The carrying amount is an estimate of the fair value of the derivative warrants and is presented as a current liability. The Company has no cash obligation with respect to the derivative warrants, rather it will deliver common shares if and when warrants are exercised.

Sundial Growers Inc.

Notes to the Condensed Consolidated Interim Financial Statements

For the three and six months ended June 30, 2021

(Unaudited, expressed in thousands of Canadian dollars, except where otherwise noted)

(a)	Series A and B Warrants

On February 2, 2021, the Company issued 100.0 million series A units (the “Series A Units”), each consisting of one common share and one-half series A warrant (collectively, the “Series A Warrants”) to purchase one common share and 33.3 million series B units (the “Series B Units”), each consisting of one pre-funded series B warrant (the “Series B Warrants”) to purchase one common share and one-half Series A Warrant to purchase one common share (collectively, the “January 2021 Units Offering”). Each Series A Unit was sold at a price of US$0.75 per unit and each Series B Unit was sold at a price of US$0.75 per unit, less US$0.0001 per unit. Gross proceeds from this offering were US$100.0 million. The Series A Warrants and Series B Warrants were exercisable immediately and had a term of five years commencing on the date of issuance. The exercise price of the Series A Warrants was US$0.80 per common share and the exercise price of the Series B Warrants was US$0.0001 per common share.

On February 2, 2021, the entire 33.3 million Series B Warrants were exercised resulting in the issuance of 33.3 million common shares.

On February 10, 2021, 3.3 million Series A Warrants were exercised at a weighted average exercise price of US$0.80 per warrant resulting in the issuance of 3.3 million common shares and gross proceeds to the Company of US$2.7 million.

On February 22, 2021, the remaining 63.3 million Series A Warrants were exercised at a weighted average exercise price of US$0.80 per warrant resulting in the issuance of 63.3 million common shares and gross proceeds to the Company of US$50.7 million. In connection with this exercise, the New Warrants were granted (refer to C below).

(b)	Additional series A and B warrants

On February 4, 2021, the Company issued 60.5 million additional series A units (the “Additional Series A Units”), each consisting of one common share and one-half additional series A warrant (collectively, the “Additional Series A Warrants”) to purchase one common share and 14.0 million additional series B units (the “Additional Series B Units”), each consisting of one pre-funded additional series B warrant (the “Additional Series B Warrants”) to purchase one common share and one-half Additional Series A Warrant to purchase one common share, (collectively, the “February 2021 Units Offering”). Each Additional Series A Unit was sold at a price of US$1.00 per unit and each Additional Series B Unit was sold at a price of US$1.00 per unit, less US$0.0001 per unit. Gross proceeds from this offering were US$74.5 million. The Additional Series A Warrants and Additional Series B Warrants were exercisable immediately and had a term of five years commencing on the date of issuance. The exercise price of the Additional Series A Warrants was US$1.10 per common share and the exercise price of the Additional Series B Warrants was US$0.0001 per common share.

On February 4, 2021, the entire 14.0 million Additional Series B Warrants were exercised resulting in the issuance of 14.0 million common shares.

On February 10, 2021, 2.3 million Additional Series A Warrants were exercised at a weighted average exercise price of US$1.10 per warrant resulting in the issuance of 2.3 million common shares and gross proceeds to the Company of US$2.5 million.

On February 22, 2021, the remaining 35.0 million Additional Series A Warrants were exercised at a weighted average exercise price of US$1.10 per warrant resulting in the issuance of 35.0 million common shares and gross proceeds to the Company of US$38.5 million. In connection with this exercise, the New Warrants were granted (refer to C below).

(c)	new warrants

Sundial Growers Inc.

Notes to the Condensed Consolidated Interim Financial Statements

For the three and six months ended June 30, 2021

(Unaudited, expressed in thousands of Canadian dollars, except where otherwise noted)

issued 98.3 million new warrants to the holders of the Series A Warrants and Additional Series A Warrants (the “New Warrants”), each entitling the holder to purchase one common share at an exercise price of US$1.50, subject to customary anti-dilution adjustments. The Company has granted the holders the right to have the common shares issuable upon exercise of the New Warrants registered pursuant to a registration statement filed with the SEC. Such registration statement was filed with the SEC on March 3, 2021. The New Warrants are immediately exercisable and have a term of 42 months from March 18, 2021, which is the effective date of the registration statement.

(d)	Agent warrants

During the six months ended June 30, 2021, the entire 1.08 million Agent Warrants were exercised. 540,000 Agent Warrants were exercised at a weighted average exercise price of US$1.00 per warrant resulting in the issuance of 356,949 common shares. There were no gross proceeds to the Company as the exercise was cashless. The other 540,000 Agent Warrants were exercised at a weighted average exercise price of US$1.00 per warrant resulting in the issuance of 540,000 common shares and gross proceeds to the Company of US$0.5 million.

The following table summarizes outstanding derivative warrants as at June 30, 2021:


August 2020 Offering - Series A Warrants ^(1)^	500,000	4.1
Unsecured Convertible Notes Warrants ^(1)^	500,000	2.5
New Warrants	98,333,334	3.1
	99,333,334	3.1

All values are in US Dollars.

(1)	The conversion or exercise price, as applicable, is subject to full ratchet antidilution protection upon any subsequent transaction at a price lower than the price then in effect and standard adjustments in the event of any share split, share dividend, share combination, recapitalization or other similar transaction. If the Company issues, sells or enters into any agreement to issue or sell, any variable rate securities, the investors have the additional right to substitute the variable price (or formula) of such securities for the conversion or exercise price, as applicable.
16.	Share capital and warrants
---	---
(a)	Authorized
---	---

The authorized capital of the Company consists of an unlimited number of voting common shares and preferred shares with no par value.

(b)	Issued and outstanding
		June 30, 2021					December 31, 2020
---	---	---	---	---	---	---	---	---	---	---	---	---
	Note	Number of<br><br><br>Shares		Carrying<br><br><br>Amount			Number of<br><br><br>Shares			Carrying<br><br><br>Amount
Balance, beginning of year			918,844,133		762,046			107,180,423			509,654
Share issuances			956,806,648		977,425			337,696,867			176,931
Share issuance costs			—		(16,233	)		—			(5,593	)
Disposition of Bridge Farm	4		—		—			(2,716,271	)		(38,447	)
Convertible debt - conversions			—		—			373,371,318			63,002
Derivative warrants exercised	15		152,146,950		277,136			102,836,429			55,912
Employee awards exercised	17(c)		1,083,084		2,639			475,367			587
Balance, end of period			2,028,880,815		2,003,013			918,844,133			762,046

Sundial Growers Inc.

Notes to the Condensed Consolidated Interim Financial Statements

For the three and six months ended June 30, 2021

(Unaudited, expressed in thousands of Canadian dollars, except where otherwise noted)

At-the-Market Offering Program

2021 Registered Offerings

In connection with the January 2021 Units Offering, the Company issued 100.0 million common shares (note 15a) and in connection with the February 2021 Units Offering, the Company issued 60.5 million common shares (note 15b).

(c)	Common share purchase warrants
	Number of Warrants		Carrying Amount
---	---	---	---	---
Balance at December 31, 2020 and June 30, 2021		1,024,000		6,138

The following table summarizes outstanding warrants as at June 30, 2021:

	Warrants outstanding and exercisable
Issued in relation to	Weighted average exercise price		Number of warrants		Weighted average<br><br><br>contractual life (years)
Acquisition of financial obligation		15.94		480,000		1.0
Financial services		4.60		544,000		8.1
		9.91		1,024,000		4.8
17.	Share-based compensation
---	---

The Company has a number of equity-settled share-based compensation plans which include simple and performance warrants, stock options, restricted share units (“RSUs”) and deferred share units (“DSUs”). Further detail on each of these plans is outlined below. Subsequent to the Company’s initial public offering, the Company established the stock option, RSU and DSU plans to replace the granting of simple warrants and performance warrants.

The components of share-based compensation expense are as follows:

	Three months ended<br><br><br>June 30					Six months ended<br><br><br>June 30
	2021			2020		2021			2020
Simple warrants^(a)^		1,033			1,492		1,630			1,774
Performance warrants^(a)^		—			—		—			(42	)
Stock options^(b)^		(147	)		185		(77	)		322
Restricted share units^(c)^		1,787			429		3,431			685
Deferred share units^(c)^		1,866			1,046		3,011			1,208
		4,539			3,152		7,995			3,947
a)	Simple and performance warrants
---	---

The Company issued simple warrants and performance warrants to employees, directors and others at the discretion of the Board. Simple and performance warrants granted generally vest annually in thirds over a three-year period and simple warrants expire five years after the grant date.

Sundial Growers Inc.

Notes to the Condensed Consolidated Interim Financial Statements

For the three and six months ended June 30, 2021

(Unaudited, expressed in thousands of Canadian dollars, except where otherwise noted)

The following table summarizes changes the simple and performance warrants during the six months ended June 30, 2021:

			Weighted<br><br><br>average<br><br><br>exercise price				Weighted<br><br><br>average<br><br><br>exercise price
Balance at December 31, 2020	3,424,600		$	4.41	1,672,000		$	4.19
Forfeited	(139,200	)		8.39	(72,000	)		11.37
Exercised	(120,000	)		0.94	(80,000	)		0.94
Expired	(1,600	)		15.52	—			0.00
Balance at June 30, 2021	3,163,800		$	4.36	1,520,000		$	4.01

The following table summarizes outstanding simple and performance warrants as at June 30, 2021:

						Warrants exercisable
Range of exercise prices		Weighted<br><br><br>average<br><br><br>exercise<br><br><br>price		Weighted<br><br><br>average<br><br><br>contractual<br><br><br>life (years)		Number of<br><br><br>warrants		Weighted<br><br><br>average<br><br><br>exercise<br><br><br>price		Weighted<br><br><br>average<br><br><br>contractual<br><br><br>life (years)
Simple warrants
0.63 - 0.94	889,400		0.72		2.72		889,400		0.72		2.72
1.25 - 1.88	400,000		1.56		3.09		400,000		1.56		3.09
2.97 - 4.53	511,200		3.05		3.14		439,200		3.01		3.04
6.25 - 9.38	1,225,600		6.31		5.22		262,400		6.48		5.15
12.50 - 37.50	137,600		23.65		5.98		40,000		15.86		4.46
	3,163,800	$	4.36		3.94		2,031,000	$	2.42		3.21
Performance warrants
0.63 - 0.94	458,667		0.68	n/a			330,667		0.70	n/a
1.25 - 1.88	242,133		1.45	n/a			207,467		1.43	n/a
2.97 - 4.53	584,000		3.14	n/a			397,333		3.10	n/a
6.25 - 9.38	144,533		7.23	n/a			38,400		6.25	n/a
12.50 - 37.50	90,667		28.24	n/a			—		—	n/a
	1,520,000	$	4.01	n/a			973,867	$	2.05	n/a

All values are in US Dollars.

b)	Stock options

The Company issues stock options to employees and others at the discretion of the Board. Stock options granted generally vest annually in thirds over a three-year period and expire ten years after the grant date.

The following table summarizes changes in stock options during the six months ended June 30, 2021:

			Weighted<br><br><br>average<br><br><br>exercise price
Balance at December 31, 2020	720,600		$	1.82
Forfeited	(275,000	)		2.60
Expired	(1,000	)		3.15
Balance at June 30, 2021	444,600		$	1.33

Sundial Growers Inc.

Notes to the Condensed Consolidated Interim Financial Statements

For the three and six months ended June 30, 2021

(Unaudited, expressed in thousands of Canadian dollars, except where otherwise noted)

The following table summarizes outstanding stock options as at June 30, 2021:

				Stock options exercisable
Exercise prices		Weighted<br><br><br>average<br><br><br>contractual<br><br><br>life (years)		Number of<br><br><br>options		Weighted<br><br><br>average<br><br><br>contractual<br><br><br>life (years)
1.15	325,000		8.91		108,332		8.91
1.19	81,600		8.99		81,600		8.99
3.15	38,000		6.86		13,750		5.87
	444,600		8.75		203,682		8.74

All values are in US Dollars.

c)	Restricted and deferred share units

RSUs are granted to employees and the vesting requirements and maximum term are at the discretion of the Board. DSUs are granted to directors and generally vest in equal quarterly instalments over one year. RSUs and DSUs are exchangeable for an equal number of common shares.

The following table summarizes changes in RSUs and DSUs during the six months ended June 30, 2021:

	RSUs<br><br><br>outstanding
Balance at December 31, 2020		1,656,916		3,323,263
Granted		12,313,300		1,709,852
Forfeited		(986,528	)	—
Exercised		(9,184	)	—
Balance at June 30, 2021		12,974,504		5,033,115
18.	Cannabis Revenue
---	---

Cannabis revenue is solely from contracts with customers and is comprised of sales to Provincial boards that sell cannabis through their respective distribution models, sales to licensed producers for further processing, and sales to medical customers.

	Three months ended<br><br><br>June 30				Six months ended<br><br><br>June 30
	2021		2020		2021		2020
Provincial boards		10,888		18,133		19,930		28,333
Medical		1		5		3		21
Licensed producers		1,850		6,203		4,554		12,577
Gross revenue^(1)^		12,739		24,341		24,487		40,931
(1)	The Company had three major customers each with revenue in excess of 10% of total cannabis revenue. Sales to major customers totaled $13.1 million for the six months ended June 30, 2021 (six months ended June 30, 2020 – four major customers with total sales of $26.4 million). Only one major customer had sales exceeding 10% of total cannabis revenue for both periods.
---	---

Sundial Growers Inc.

Notes to the Condensed Consolidated Interim Financial Statements

For the three and six months ended June 30, 2021

(Unaudited, expressed in thousands of Canadian dollars, except where otherwise noted)

The following table disaggregates revenue by form for the periods noted:

	Three months ended<br><br><br>June 30				Six months ended<br><br><br>June 30
	2021		2020		2021		2020
Revenue from dried flower		9,774		16,090		19,490		27,814
Revenue from vapes		1,284		6,259		2,697		10,608
Revenue from oil		1,410		1,992		1,591		2,509
Revenue from edibles and concentrates		271		—		709		—
Gross revenue		12,739		24,341		24,487		40,931
19.	Investment revenue
---	---
	Three months ended<br><br><br>June 30				Six months ended<br><br><br>June 30
---	---	---	---	---	---	---	---	---
	2021		2020		2021		2020
Interest and fee revenue
Interest revenue from investments at amortized cost		328		—		441		—
Interest and fee revenue from investments at FVTPL		2,100		—		4,282		—
Interest revenue from cash		916		—		1,470		—
		3,344		—		6,193		—
	Three months ended<br><br><br>June 30					Six months ended<br><br><br>June 30
---	---	---	---	---	---	---	---	---	---
	2021			2020		2021		2020
Investment revenue
Realized gains		4,211			—		12,230		—
Unrealized gains (losses)		(1,849	)		—		3,032		—
		2,362			—		15,262		—
20.	Government subsidies
---	---

In March 2020, the federal government launched the Canadian Emergency Wage Subsidy (“CEWS”) to help businesses impacted by the COVID-19 pandemic keep and rehire employees. The CEWS delivered a 75 percent wage subsidy to eligible employers for an initial period of 12 weeks, from March 15, 2020 to July 4, 2020. Eligibility was based on meeting a minimum requirement for decreased revenue. The CEWS was extended to November 21, 2020 and amended to change the eligibility requirements from meeting a certain threshold to being variable based on how much an employer’s revenue decreased. The CEWS has further been extended to June 2021 and includes changes to the rates and the top-up calculation.

The Company became eligible for the CEWS based on decreases in revenue and received the subsidy during the first quarter of 2021. The subsidy of $2.1 million has been recognized in the condensed consolidated interim statement of loss and comprehensive loss. There are no unfulfilled conditions or contingencies attached to the CEWS.

Sundial Growers Inc.

Notes to the Condensed Consolidated Interim Financial Statements

For the three and six months ended June 30, 2021

(Unaudited, expressed in thousands of Canadian dollars, except where otherwise noted)

21.	Finance costs
	Three months ended<br><br><br>June 30					Six months ended<br><br><br>June 30
---	---	---	---	---	---	---	---	---	---	---
	2021		2020			2021		2020
Cash finance expense
Interest on Syndicated Credit Agreement		—		1,057			—		2,254
Interest on Term Debt Facility		—		133			—		2,936
Other finance costs		11		(54	)		39		140
		11		1,136			39		5,330
Non-cash finance expense (income)
Accretion		—		88			—		1,622
Amortization of debt issue costs		—		367			—		723
Change in fair value of convertible notes		—		(489	)		—		(489	)
Other		29		(66	)		52		(40	)
		29		(100	)		52		1,816
Interest income		—		(34	)		—		(162	)
		40		1,002			91		6,984
22.	Loss per share
---	---
	Three months ended<br><br><br>June 30						Six months ended<br><br><br>June 30
---	---	---	---	---	---	---	---	---	---	---	---	---
	2021			2020			2021			2020
Weighted average shares outstanding (000s)
Basic and dilutive ^(1)^		1,886,932			106,607			1,664,500			106,963
Continuing operations
Net loss attributable to Sundial Growers Inc.		(52,287	)		(32,750	)		(186,703	)		(70,611	)
Per share - basic and diluted	$	(0.03	)	$	(0.31	)	$	(0.11	)	$	(0.66	)
Discontinued operations
Net loss attributable to Sundial Growers Inc.		—			(27,593	)		—			(33,627	)
Per share - basic and diluted	$	—		$	(0.26	)	$	—		$	(0.31	)
Net loss attributable to Sundial Growers Inc.		(52,287	)		(60,343	)		(186,703	)		(104,238	)
Per share - basic and diluted	$	(0.03	)	$	(0.57	)	$	(0.11	)	$	(0.97	)
(1)	For the six months ended June 30, 2021, there were 1.0 million equity classified warrants exercisable, 90.6 million derivative warrants exercisable, 2.0 million simple warrants exercisable and 1.0 million performance warrants exercisable that were excluded from the calculation as the impact was anti-dilutive (six months ended June 30, 2020 – 6.2 million warrants, 5.4 million simple warrants and 3.7 million performance warrants).
---	---
23.	Financial instruments
---	---

The financial instruments recognized on the consolidated statement of financial position are comprised of cash and cash equivalents, restricted cash, marketable securities, accounts receivable, investments, accounts payable and accrued liabilities and derivative warrants.

a)	Fair value

The carrying value of cash and cash equivalents, restricted cash, accounts receivable and accounts payable and accrued liabilities approximate their fair value due to the short-term nature of the instruments. The carrying value

Sundial Growers Inc.

Notes to the Condensed Consolidated Interim Financial Statements

For the three and six months ended June 30, 2021

(Unaudited, expressed in thousands of Canadian dollars, except where otherwise noted)

of investments at amortized cost approximate their fair value as the fixed interest rates approximate market rates for comparable transactions.

Fair value measurements of marketable securities, investments at FVTPL and derivative warrants are as follows:

			Fair value measurements using
June 30, 2021	Carrying<br><br><br>amount		Level 1		Level 2		Level 3
Recurring measurements:
Financial assets
Marketable securities		97,419		97,419		—		—
Investments at FVTPL		51,876		—		—		51,876
Financial liabilities
Derivative warrants^(1)^		54,000		—		—		54,000
			Fair value measurements using
December 31, 2020	Carrying<br><br><br>amount		Level 1		Level 2		Level 3
Recurring measurements:
Financial assets
Investments		51,876		—		—		51,876
Financial liabilities
Derivative warrants^(1)^		428		—		—		428
(1)	The carrying amount is an estimate of the fair value of the derivative warrants and is presented as a current liability. The Company has no cash obligation with respect to the derivative warrants, rather it will deliver common shares if and when warrants are exercised.
---	---

Level 1 – unadjusted quoted prices in active markets for identical assets or liabilities. An active market for an asset or liability is a market in which transactions for the asset or liability occur with sufficient frequency and volume to provide pricing information on an ongoing basis.

Marketable securities are designated as FVTPL. The fair value of marketable securities is re-measured each reporting period with changes in fair value recognized in the consolidated statement of loss and comprehensive loss. The fair value of marketable securities is estimated by using current quoted prices in active markets for identical assets.

Level 2 – quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

As at June 30, 2021, the Company did not have any financial instruments measured at Level 2 fair value.

Level 3 – unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

The investment designated as FVTPL is re-measured each reporting period with changes in the fair value recognized in the consolidated statement of loss and comprehensive loss within finance costs. The fair value of the outstanding principal and interest approximates the carrying value of the investment. The fair value for the royalty is estimated to be nil as the value is currently being disputed.

Derivative warrants are designated as FVTPL. The fair value of derivative warrants is re-measured each reporting period with changes in fair value recognized in the consolidated statement of loss and comprehensive loss within finance costs. The fair value of derivative warrants is estimated by using a valuation model. Assumptions used in these calculations include volatility, discount rate and various probability factors.

Sundial Growers Inc.

Notes to the Condensed Consolidated Interim Financial Statements

For the three and six months ended June 30, 2021

(Unaudited, expressed in thousands of Canadian dollars, except where otherwise noted)

There were no transfers between Levels 1, 2 and 3 inputs during the period.

b)	Credit risk management

Credit risk is the risk of financial loss if the counterparty to a financial transaction fails to meet its obligations. The Company manages risk over its accounts receivable by issuing credit only to credit worthy counterparties. The Company limits its exposure to credit risk over its investments by ensuring the agreements governing the investments are secured in the event of counterparty default. The Company considers financial instruments to have low credit risk when its credit risk rating is equivalent to investment grade. The Company assumes that the credit risk on a financial asset has increased significantly if it is outstanding past the contractual payment terms. The Company considers a financial asset to be in default when the debtor is unlikely to pay its credit obligations to the Company.

The Company applies the simplified approach under IFRS 9 and has calculated expected credit losses (“ECLs”) based on lifetime expected credit losses, taking into consideration historical credit loss experience and financial factors specific to the debtors and general economic conditions.

Impairment losses on accounts receivable recognized in profit or loss were as follows:

As at
Impairment loss (reversal) on trade receivables	7		(506	)
Impairment loss (reversal) on other receivables	(44	)	(126	)
	(37	)	(632	)

The movement in the allowance for impairment in respect of accounts receivable during the six months ended June 30, 2021 was as follows:


Balance, beginning of year	120		752
Net remeasurement of impairment loss allowance	(37	)	(632	)
Balance, end of period	83		120

The Company has evaluated the credit risk of its investments, taking into consideration historical credit loss experience, financial factors specific to the debtors and general economic conditions, and determined the expected credit loss to be nil.

The maximum amount of the Company’s credit risk exposure is the carrying amounts of cash and cash equivalents, accounts receivable and investments. The Company attempts to mitigate such exposure to its cash by investing only in financial institutions with investment grade credit ratings or secured investments.

c)	Market risk management

Market risk is the risk that changes in market prices will affect the Company’s income or value of its holdings of financial instruments. The Company is exposed to market risk in that changes in market prices will cause fluctuations in the fair value of its marketable securities. The fair value of marketable securities is based on quoted market prices as the Company’s marketable securities are shares held of publicly traded entities and put and call options.

At June 30, 2021, a 10% change in the market prices would change the fair value of marketable securities by approximately $9.7 million.

Sundial Growers Inc.

Notes to the Condensed Consolidated Interim Financial Statements

For the three and six months ended June 30, 2021

(Unaudited, expressed in thousands of Canadian dollars, except where otherwise noted)

The Company had the following risk management contracts relating to marketable securities outstanding as at June 30, 2021:

As at June 30, 2021	Quantity		Expiry
Sold put options		27,000	Jul 16, 2021	1,364	683
Sold put options		2,000	Aug 20, 2021	162	211
Sold call options		11,000	Jul 16, 2021	440	390
		40,000		1,966	1,284
24.	Related party transactions
---	---
a)	Loan receivable agreements
---	---

At December 31, 2020, the Company had advanced $139 thousand under employee loan agreements. The terms were non-interest bearing and secured by shareholdings in the Company. The loans were repayable in full upon the departure of an employee from employment, a change in control of the Company or sale of the Company. During the six months ended June 30, 2021, the full $139 thousand loan balance was settled. At June 30, 2021, the outstanding loan balance was nil.

b)	Related party transactions and balances
	Transactions				Balance outstanding
---	---	---	---	---	---	---	---	---	---
	Six months ended<br><br><br>June 30		Six months ended<br><br><br>June 30		June 30		December 31
	2021		2020		2021		2020
Marketing, brand research and development^(a)^		—		1,144		—		—
Legal services^(b)^		—		1,677		—		(510	)
		—		2,821		—		(510	)
(a)	A former member of the Board of Directors controlled a company that provides marketing, brand research and development services.
---	---
(b)	A member of the Board of Directors was a partner at a law firm prior to his departure which provides legal services to the Company.
---	---

All transactions were conducted at the exchange amount agreed to with the related parties.

25.	Capital management

The Company defines its capital as its shareholders’ equity and debt. Except as otherwise disclosed in these condensed consolidated interim financial statements, there are no restrictions on the Company’s capital. The Company’s objectives with respect to the management of capital are to:

•	Maintain financial flexibility in order to preserve its ability to meet financial obligations;
•	Deploy capital to provide an appropriate investment return to its shareholders; and,
---	---
•	Maintain a capital structure that allows various financing alternatives to the Company as required.
---	---

Sundial Growers Inc.

Notes to the Condensed Consolidated Interim Financial Statements

For the three and six months ended June 30, 2021

(Unaudited, expressed in thousands of Canadian dollars, except where otherwise noted)

26.	Commitments and contingencies

The following table summarizes contractual commitments at June 30, 2021:

	Less than<br><br><br>one year
Accounts payable and accrued liabilities		24,559	—	—	—	24,559
Lease obligations		481	726	134	—	1,341
Balance, end of period		25,040	726	134	—	25,900
(a)	Commitments
---	---

The Company has entered into certain supply agreements to provide dried cannabis and cannabis products to third parties. The contracts require the provision of various amounts of dried cannabis on or before certain dates. Should the Company not deliver the product in the agreed timeframe, financial penalties apply which may be paid either in product in-kind or cash. Under these agreements, the Company has accrued financial penalties payable as at June 30, 2021 of $1.5 million (December 31, 2019 - $1.5 million).

(b)	Contingencies

From time to time, the Company is involved in various claims and legal actions which occurred in the ordinary course of operations, the losses from which, if any, are not anticipated to be material to the financial statements.

On May 7, 2020, the Company and certain of its current and former directors and officers were named as defendants in a lawsuit, captioned SUN, a Series of E Squared Investment Fund, LLC et al. v. Sundial Growers Inc. et al., Case No. 1:20-cv-03579. The complaint asserts claims for alleged violations of U.S. federal securities laws, including Sections 12(a)(2) and 15 of the Securities Act of 1933 and Section 10(b) the Securities Exchange Act of 1934, as well as claims for breach of contract, breach of fiduciary duty, fraud in the inducement and negligent misrepresentation. Among other things, the complaint alleges that the Company made misrepresentations regarding the licensing and ability of Bridge Farm to export hemp and CBD to Europe, as well as regarding the quality of the Company’s cannabis and a return by one of the Company’s customers.

The Company can provide no assurance as to the outcome of these proceedings or any other litigation matter in which the Company is a party. In particular, securities class action lawsuits are typically costly to defend, and divert the attention of management and other resources from operations and, accordingly, even if resolved in Sundial’s favor, could have a material adverse effect on the business, financial condition, results of operations and liquidity and may force the Company to reduce or cease operations or seek relief under the applicable bankruptcy or insolvency laws.

27.	Subsequent events

Acquisition of Inner Spirit Holdings and Spiritleaf Retail Cannabis Network

On May 5, 2021, the Company and Inner Spirit Holdings Ltd. (“Inner Spirit”) announced that they had entered into an arrangement agreement pursuant to which the Company will acquire all of the issued and outstanding common shares of Inner Spirit (the “Transaction”). The Transaction closed on July 20, 2021. Inner Spirit is a retailer and franchisor of Spiritleaf recreational cannabis stores across Canada, with a network that includes more than 100 franchised and corporate-owned locations.

The Transaction consideration was comprised of (i) an aggregate $92.6 million cash ($0.30 in cash for each Inner Spirit common share), and (ii) an aggregate 24.4 million Sundial common shares valued at $19.8 million based on the fair value of each common share of the Company on the closing date (0.0835 of a Sundial common share for each Inner Spirit common share).

Sundial Growers Inc.

Notes to the Condensed Consolidated Interim Financial Statements

For the three and six months ended June 30, 2021

(Unaudited, expressed in thousands of Canadian dollars, except where otherwise noted)

On August 4, 2021, the Company issued 2.5 million common shares related to the settlement of Inner Spirit debt.

The Company will complete a preliminary purchase price allocation in Q3 and plans to finalize the allocation of the purchase price and the accounting for the Transaction by the end of the current fiscal year.

Strategic capital partnership

On July 7, 2021, the Company announced that it had increased its commitment to SunStream (note 14(a)) to $538 million from the previously announced commitment of $188 million.

sndl-ex992_6.htm

EXHIBIT 99.2

Sundial Growers Inc.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

For the three and six months ended June 30, 2021

Management’s Discussion and Analysis

This Management’s Discussion and Analysis (“MD&A”) of the financial condition and performance of Sundial Growers Inc. (“Sundial” or the “Company”) for the three and six months ended June 30, 2021 is dated August 12, 2021. This MD&A should be read in conjunction with the Company’s condensed consolidated interim financial statements and the notes thereto for the three and six months ended June 30, 2021 and the audited consolidated financial statements and notes thereto for the year ended December 31, 2020 (the “Audited Financial Statements”) and the risks identified under “Risk Factors” below and in the Company’s Annual Report on Form 20-F for the year ended December 31, 2020 (the “Annual Report”). This MD&A has been prepared in accordance with National Instrument 51-102 - Continuous Disclosure Obligations as issued by the Canadian Securities Administrators and is presented in thousands of Canadian dollars, except where otherwise indicated.

MD&A – Table of Contents

COMPANY OVERVIEW	2
RECENT DEVELOPMENTS	2
OTHER DEVELOPMENTS	3
OPERATIONAL AND FINANCIAL HIGHLIGHTS	6
CONSOLIDATED RESULTS	6
CANNABIS OPERATIONS SEGMENT RESULTS	11
INVESTMENT OPERATIONS SEGMENT RESULTS	16
DISCONTINUED OPERATIONS – ORNAMENTAL FLOWERS	16
SELECTED QUARTERLY INFORMATION	17
LIQUIDITY AND CAPITAL RESOURCES	18
CONTRACTUAL COMMITMENTS AND CONTINGENCIES	21
NON-IFRS MEASURES	22
RELATED PARTIES	23
OFF BALANCE SHEET ARRANGEMENTS	23
CRITICAL ACCOUNTING POLICIES AND ESTIMATES	23
NEW ACCOUNTING PRONOUNCEMENTS	24
RISK FACTORS	24
DISCLOSURE CONTROLS AND PROCEDURES	24
INTERNAL CONTROLS OVER FINANCIAL REPORTING	24
ABBREVIATIONS	26
ADVISORY	26
ADDITIONAL INFORMATION	27

COMPANY OVERVIEW

Sundial (“SNDL”, “Sundial” or the “Company”) is a licensed producer that grows cannabis using state-of-the-art indoor facilities. Sundial was incorporated under the Business Corporations Act (Alberta) on August 19, 2006. The Company’s common shares are listed under the symbol “SNDL” on the NASDAQ Capital Market (“Nasdaq”).

Sundial is headquartered in Calgary, Alberta, with operations in Olds, Alberta, and Rocky View County, Alberta.

Sundial currently produces and markets cannabis products for the Canadian adult-use market. Sundial’s purpose-built indoor modular grow rooms create consistent, highly controlled cultivation environments and are the foundation of the Company’s production of high-quality, strain-specific cannabis products. Sundial’s operations cultivate cannabis using an individualized “room” approach, in approximately 448,000 square feet of total space. The Company has established supply agreements with nine Canadian provinces and has a distribution network that covers 98% of the national recreational industry.

The Company’s primary focus has been on producing and distributing premium inhalable products and brands. Upon receiving a licence from Health Canada to sell cannabis oil products, the Company began the sale and distribution of cannabis vape products in December 2019. The Company is currently marketing its adult-use products under its Top Leaf (Premium), Sundial Cannabis (Premium Core), Palmetto (Core) and Grasslands (Value) brands and intends to introduce new products under these brands as it expands its brand portfolio.

In July 2019, the Company acquired Project Seed Topco (“Bridge Farm”) and its wholly owned subsidiaries, a grower of ornamental plants and herbs in the United Kingdom with the intent to transition Bridge Farm’s facilities to the cultivation, processing and distribution of cannabidiol (“CBD”) products. On June 5, 2020, the Company completed the Bridge Farm Disposition as described under “Discontinued Operations – Ornamental Flowers”.

Sundial and its subsidiaries currently operate solely in Canada. Through its joint venture, SunStream Bancorp Inc. (“SunStream”), the Company also provides growth capital and a strategic support platform that pursues indirect investment opportunities in the global cannabis sector, where lawful, as well as other investment opportunities. The Company also makes portfolio investments in debt and equity securities where deemed strategic.

Sundial’s overall strategy is to build sustainable, long-term shareholder value by reducing leverage, improving liquidity and cost of capital while optimizing the capacity and capabilities of its production facilities in the creation of a consumer-centric brand and product portfolio. Sundial’s investment operations seek to deploy strategic capital through direct and indirect investments and partnerships throughout the global cannabis industry.

To achieve this, Sundial will continue to focus on:

•	Meeting evolving consumer preferences by being a consumer-centric organization.
•	Delivering industry-leading, best-in-class brands and products with a focus on inhalables.
---	---
•	Driving quality in all aspects of our operation and being positioned to deliver products that consumers want when they want them.
---	---
•	Improving cost discipline and maintaining a variable cost structure to adapt to industry dynamics.
---	---
•	Strategically deploying capital with a focus on maximizing cash flows and shareholder value.
---	---

RECENT DEVELOPMENTS

Acquisition of Inner SPirit Holdings and Spiritleaf Retail Cannabis Network

Spiritleaf recreational cannabis stores across Canada, with a network that includes more than 100 franchised and corporate-owned locations.

The Transaction consideration was comprised of (i) an aggregate $92.6 million cash ($0.30 in cash for each Inner Spirit common share), and (ii) an aggregate 24.4 million Sundial common shares value at $19.8 million based on the fair value of each common share of the Company on the closing date (0.0835 of a Sundial common share for each Inner Spirit common share).

On August 4, 2021, the Company issued 2.5 million common shares related to the settlement of Inner Spirit debt.

The Company plans to finalize the allocation of the purchase price and the accounting for the Transaction by the end of the current fiscal year.

capital Activities

During the six months ended June 30, 2021, the Company issued 796.3 million common shares at a weighted average exercise price of US$0.8597 for gross proceeds of $855.2 million (US$684.6 million) through its at-the-market (“ATM”) programs. The Company also completed two registered direct offerings for gross proceeds of $223.4 million and received gross proceeds of $118.6 million from the exercise of warrants issued in connection with those registered direct offerings (see “Other Developments – Registered Direct Offerings” for more information). At June 30, 2021, the Company had an unrestricted cash balance of $885.4 million.

The capital raised has funded the deployment of capital toward strategic investments. The Company developed an internal capital program to evaluate these and potential future investments, which the Company viewed as a new and separate business line from its cannabis operations.

See “Financial Results – Consolidated” for more information.

At June 30, 2021, the Company had deployed a portion of the capital raised in several cannabis-related investments, totaling $163.0 million. These investments generated $21.5 million in interest and fee revenue and realized and unrealized gains in the first half of 2021. In addition, the Company deployed $188 million in SunStream and has recognized $3.7 million in net profit from its investments in SunStream.

The Company continues to strategically deploy capital with a focus on maximizing cash flows and shareholder value.

STRATEGIC CAPITAL PARTNERSHIP

On March 15, 2021, the Company and SAF Group (“SAF”) announced they had entered into an agreement to form a 50/50 joint venture through a new corporation, SunStream Bancorp Inc. SunStream is a private company focused on cannabis-related verticals, seeking both Canadian and international opportunities and investments.

On July 7, 2021, the Company announced that it had increased its commitment to SunStream to $538 million from the previously announced commitment of $188 million.

See “Investment Results – Share of profit of equity-accounted investees” for more information.

OTHER DEVELOPMENTS

Registered direct offerings

Warrants and Series B Warrants were exercisable immediately and had a term of five years commencing on the date of issuance. The exercise price of the Series A Warrants was US$0.80 per common share and the exercise price of the Series B Warrants was US$0.0001 per common share.

On February 2, 2021, the entire 33.3 million Series B Warrants were exercised resulting in the issuance of 33.3 million common shares.

On February 4, 2021, the Company issued 60.5 million additional Series A units (the “Additional Series A Units”), each consisting of one common share and one-half additional series A warrant (collectively, the “Additional Series A Warrants”) to purchase one common share and 14.0 million additional series B units (the “Additional Series B Units”), each consisting of one pre-funded additional series B warrant (the “Additional Series B Warrants”) to purchase one common share and one-half Additional Series A Warrant to purchase one common share, (collectively, the “February 2021 Units Offering”). Each Additional Series A Unit was sold at a price of US$1.00 per unit and each Additional Series B Unit was sold at a price of US$1.00 per unit, less US$0.0001 per unit. Gross proceeds from this offering were US$74.5 million. The Additional Series A Warrants and Additional Series B Warrants were exercisable immediately and had a term of five years commencing on the date of issuance. The exercise price of the Additional Series A Warrants was US$1.10 per common share and the exercise price of the Additional Series B Warrants was US$0.0001 per common share.

On February 4, 2021, the entire 14.0 million Additional Series B Warrants were exercised resulting in the issuance of 14.0 million common shares.

On February 22, 2021, (i) the remaining 63.3 million Series A Warrants were exercised at a weighted average exercise price of US$0.80 per warrant resulting in the issuance of 63.3 million common shares and gross proceeds to the Company of US$50.7 million and (ii) the remaining 35.0 million Additional Series A Warrants were exercised at a weighted average exercise price of US$1.10 per warrant resulting in the issuance of 35.0 million common shares and gross proceeds to the Company of US$38.5 million. In connection with this exercise, the Company issued 98.3 million new warrants (the “New Warrants”), each entitling the holder to purchase one common share at an exercise price of US$1.50, subject to customary anti-dilution adjustments. The Company has granted the holders rights to have the common shares issuable upon exercise of the New Warrants registered pursuant to a registration statement filed with the SEC. Such registration statement was filed with the SEC on March 3, 2021. The New Warrants are immediately exercisable and have a term of 42 months from March 18, 2021, which is the effective date of the registration statement.

Indiva investment

On February 16, 2021, the Company announced a $22 million strategic investment (the “Indiva Investment”) in Indiva Limited (“Indiva”). Indiva is a leading Canadian producer of cannabis edibles. The Indiva Investment closed on February 23, 2021. The Indiva Investment was completed in the form of a brokered private placement of 25 million common shares of Indiva at a price of $0.44 per common share, for gross proceeds of $11 million, and a non-revolving term loan to Indiva in the principal amount of $11 million (the “Term Loan”). The Term Loan bears interest at a rate of 9% per annum and has a maturity date of February 23, 2024.

Reduction in pathway ownership

COVID-19

The Company is monitoring daily developments in the COVID-19 pandemic and actions taken by the government authorities in response thereto. As the safety of employees, communities and family is a priority for the Company, it will continue to commit to all current safety protocols in place, which include mandatory mask wearing, physical distancing,

enhanced cleaning and sanitation processes and frequency, and enhanced screening measures prior to allowing employees and visitors into the facilities. The Company believes that it can maintain safe operations with these pandemic-related procedures and protocols in place.

NASDAQ MINIMUM BID REQUIREMENT

On August 9, 2021, the Company was notified by the Nasdaq Listing Qualifications Department that the closing bid price of the Company’s common shares for the 30 consecutive business day period from June 25, 2021, to August 6, 2021 did not meet the minimum bid price of $1.00 per share requirement, as set forth in Nasdaq Listing Rule 5550(a)(2) (the “Minimum Bid Requirement”). The notice has no immediate effect on the trading of the Company’s common shares on the Nasdaq.

Pursuant to the Nasdaq Listing Rules, the Company has been provided with a compliance period of 180 calendar days from the date of notification in which to regain compliance with the Minimum Bid Requirement. As a result, the Company has until February 7, 2022, to regain compliance with the Minimum Bid Requirement. If at any time prior to February 7, 2022, the closing bid price of the Company’s common stock is at least $1.00 for a minimum of ten consecutive business days, the Company will be considered by Nasdaq to have regained compliance with the Minimum Bid Requirement.

Additionally, if the Company does not regain compliance with the Minimum Bid Requirement by February 7, 2022, the Company may be eligible for an additional period of 180 days during which to achieve compliance, provided that the Company otherwise meets the continued listing requirement for market value of publicly held shares and all other initial listing standards for The Nasdaq Capital Market, with the exception of the Minimum Bid Requirement, and provides written notice to Nasdaq of the Company’s intention to remedy the non-compliance during this second compliance period, by effecting a reverse stock split if necessary. Nasdaq has the right not to grant the additional cure period if it appears to it that the Company will not be able to cure the deficiency or is not otherwise eligible.

The Company will actively monitor its closing bid price during the compliance period and intends to take appropriate measures to remedy the deficiency and regain compliance with the Minimum Bid Requirement.

OPERATIONAL AND FINANCIAL HIGHLIGHTS

The following table summarizes selected operational and financial information of the Company for the periods noted.

($000s, except as indicated)	Q2 2021
Financial
Gross cannabis revenue		12,739		24,341		(11,602	)	-48	%
Net cannabis revenue		9,151		20,194		(11,043	)	-55	%
Cost of sales		9,534		17,336		(7,802	)	-45	%
Gross margin before fair value adjustments^(1)(2)^		(2,034	)	(7,168	)	5,134		72	%
Gross margin before fair value adjustments %		-22	%	-35	%			37	%
Interest and fee revenue		3,344		—		3,344		100	%
Investment revenue		2,362		—		2,362		100	%
Loss from operations		(71,020	)	(30,218	)	(40,802	)	-135	%
Net loss from continuing operations^(3)^		(52,287	)	(32,750	)	(19,537	)	-60	%
Per share, basic and diluted^(3)^		(0.03	)	(0.31	)	0.28		90	%
Net loss from discontinued operations^(3)^		—		(27,593	)	27,593		-100	%
Per share, basic and diluted^(3)^		—		(0.26	)	0.26		-100	%
Net loss^(3)^		(52,287	)	(60,343	)	8,056		13	%
Per share, basic and diluted^(3)^		(0.03	)	(0.57	)	0.54		95	%
Adjusted EBITDA from continuing operations^(2)^		(205	)	(3,898	)	3,693		95	%
Statement of Financial Position
Cash and cash equivalents		885,418		21,629		863,789		3994	%
Biological assets		2,341		3,047		(706	)	-23	%
Inventory		35,194		55,633		(20,439	)	-37	%
Property, plant and equipment		53,409		18,302		35,107		192	%
Total assets		1,411,278		302,562		1,108,716		366	%
Operational
Kilogram equivalents sold		5,412		5,997		(585	)	-10	%
Average gross selling price per gram ^(4)^		2.35		4.06		(1.71	)	-42	%
Average net selling price per gram ^(5)^		1.69		3.37		(1.68	)	-50	%
(1)	Includes inventory obsolescence and impairment of $1.7 million for the three months ended June 30, 2021, and $10.0 million for three months ended June 30, 2020.
---	---
(2)	Adjusted EBITDA from continuing operations and gross margin before fair value adjustments do not have standardized meaning prescribed by IFRS and therefore may not be comparable to similar measures used by other companies. The non-IFRS measure of gross margin before fair value adjustments is discussed further in the “NON-IFRS MEASURES” section of this MD&A. The non-IFRS measure of adjusted EBITDA from continuing operations is reconciled to net loss in accordance with IFRS in the “NON-IFRS MEASURES” section of this MD&A and discussed further in the “ADVISORY” section of this MD&A.
---	---
(3)	Net loss from continuing operations, net loss from discontinued operations, net loss and related per share amounts are attributable to owners of the Company.
---	---
(4)	Net of payment discounts with respect to sales under Sundial’s supply agreements with Canadian provincial regulatory authorities.
---	---
(5)	Net of excise tax.
---	---

CONSOLIDATED RESULTS

Operating segments

($000s)
As at June 30, 2021
Total assets	274,091		1,134,189	2,998		1,411,278
Six months ended June 30, 2021
Net revenue	19,042		21,455	—		40,497
Gross margin	(6,273	)	21,455	—		15,182
Share of profit of equity-accounted investees	—		3,724	—		3,724
Depreciation and amortization	1,782		—	207		1,989
Earnings (loss) before tax	(84,623	)	23,351	(125,460	)	(186,732	)
Three months ended June 30, 2021
Net revenue	9,151		5,706	—		14,857
Gross margin	(2,821	)	5,706	—		2,885
Share of profit of equity-accounted investees	—		3,724	—		3,724
Depreciation and amortization	828		—	103		931
Earnings (loss) before tax	(75,451	)	9,051	14,113		(52,287	)

General and administrative

	Three months ended<br><br><br>June 30				Six months ended<br><br><br>June 30
($000s)	2021		2020		2021		2020
Salaries and wages		4,015		2,366		7,949		6,639
Consulting fees		289		450		626		1,563
Office and general		3,374		2,958		4,693		5,852
Professional fees		1,355		765		2,237		2,301
Director compensation		87		80		175		190
Other		966		1,116		1,499		1,798
		10,086		7,735		17,179		18,343

General and administrative expenses for the three months ended June 30, 2021 were $10.1 million compared to $7.7 million for the three months ended June 30, 2020. The increase of $2.4 million was mainly due to increases in salaries and wages, office and general and professional fees.

General and administrative expenses for the six months ended June 30, 2021 were $17.2 million compared to $18.3 million for the six months ended June 30, 2020. The decrease of $1.1 million was mainly due to decreases in consulting fees and office and general, partially offset by an increase in salaries and wages.

Share-based compensation

	Three months ended<br><br><br>June 30					Six months ended<br><br><br>June 30
($000s)	2021			2020		2021			2020
Simple warrants		1,033			1,492		1,630			1,774
Performance warrants		—			—		—			(42	)
Stock options		(147	)		185		(77	)		322
Restricted share units		1,787			429		3,431			685
Deferred share units		1,866			1,046		3,011			1,208
		4,539			3,152		7,995			3,947

Share-based compensation expense includes the expense related to the issuance of simple and performance warrants, stock options, restricted share units (“RSUs”) and deferred share units (“DSUs”) to employees, directors, and others at the discretion of the Company’s Board.

The fair value of the Company’s shares is based on public trading data. The estimated fair value of the Company’s common shares at the time of grant is used to determine the associated share-based compensation expense. The Company determines the amount of share-based compensation expense by utilizing the Black-Scholes pricing model with inputs based on the terms of the award, including the strike price, and other estimates and assumptions, including the expected life of the award, the volatility of the underlying share price, the risk-free rate of return and the estimated rate of forfeiture of the awards granted.

Share-based compensation expense for the three months ended June 30, 2021 was $4.5 million compared to $3.2 million for the three months ended June 30, 2020. The increase of $1.3 million was due to an increase in the number of RSUs and DSUs granted in the prior quarter. Share-based compensation expense for the three months ended June 30, 2021 included the issuance of 400 RSUs and 242,826 DSUs. Share-based compensation expense for the three months ended June 30, 2020 included the issuance of 1,982,953 RSUs, 1,257,369 DSUs and 481,600 stock options at an average exercise price of $1.16.

Share-based compensation expense for the six months ended June 30, 2021 was $8.0 million compared to $3.9 million for the six months ended June 30, 2020. The increase of $4.1 million was due to an increase in the number of RSUs and DSUs granted. Share-based compensation expense for the six months ended June 30, 2021 included the issuance of 12,313,300 RSUs and 1,709,852 DSUs under the Company’s long-term incentive programs designed to align employee and director compensation with Company performance on a Company-wide basis. Share-based compensation expense for the six months ended June 30, 2020 included the issuance of 2,998,913 RSUs, 1,289,901 DSUs and 481,600 stock options at an average exercise price of $1.16.

Transaction costs

	Three months ended<br><br><br>June 30				Six months ended<br><br><br>June 30
($000s)	2021		2020		2021		2020
Transaction costs		805		1,297		4,453		2,398

Transaction costs for the three months ended June 30, 2021, were $0.8 million compared to $1.3 million for the three months ended June 30, 2020. Transaction costs for the six months ended June 30, 2021 were $4.5 million compared to $2.4 million for the six months ended June 30, 2020. Transaction costs include costs associated with the registered offerings, legal costs and various financing initiatives.

Finance costs

	Three months ended<br><br><br>June 30					Six months ended<br><br><br>June 30
($000s)	2021		2020			2021		2020
Cash finance expense
Interest on Term Debt Facility		—		133			—		2,936
Interest on Syndicated Credit Agreement		—		1,057			—		2,254
Other finance costs		11		(54	)		39		140
		11		1,136			39		5,330
Non-cash finance expense
Accretion		—		88			—		1,622
Amortization of debt issue costs		—		367			—		723
Change in fair value of convertible notes		—		(489	)		—		(489	)
Other		29		(66	)		52		(40	)
		29		(100	)		52		1,816
Interest income		—		(34	)		—		(162	)
		40		1,002			91		6,984

Finance costs include interest expense related to lease obligations and certain other expenses. Finance costs in the prior year included interest on the Company’s indebtedness, accretion expense and amortization of debt issue costs associated with the Company’s indebtedness, change in fair value of convertible notes and certain other expenses.

Finance costs for the three months ended June 30, 2021 were $0.1 million compared to $1.0 million for the three months ended June 30, 2020. The decrease in costs of $0.9 million was due to decreases in interest expense, accretion and amortization of debt issue costs due to the extinguishment and settlement of the Company’s long-term debt.

Finance costs for the six months ended June 30, 2021 were $0.1 million compared to $7.0 million for the six months ended June 30, 2020. The decrease in costs of $6.9 million was due to decreases in interest expense, accretion and amortization of debt issue costs due to the extinguishment and settlement of the Company’s long-term debt.

Change in estimate of fair value of derivative warrants

	Three months ended<br><br><br>June 30						Six months ended<br><br><br>June 30
($000s)	2021			2020			2021		2020
Change in estimate of fair value of derivative warrants		(19,810	)		(411	)		110,134		(411	)

Change in estimate of fair value of derivative warrants for the three months ended June 30, 2021 was a recovery of $19.8 million compared to a recovery of $0.4 million for the three months ended June 30, 2020. Change in estimate of fair value of derivative warrants for the six months ended June 30, 2021 was an expense of $110.1 million compared to a recovery of $0.4 million for the six months ended June 30, 2020 reflecting the fair value of derivative warrants issued and partially converted.

The carrying amount is an estimate of the fair value of the derivative warrants and is presented as a current liability, pursuant to IFRS requirements due to the warrant exercise prices being denominated in United States dollars. Refer to note 23 in the condensed consolidated interim financial statements for valuation methodology. The Company has no cash obligation with respect to the derivative warrants, rather it will deliver common shares if and when warrants are exercised.

Net loss from continuing operations

	Three months ended<br><br><br>June 30						Six months ended<br><br><br>June 30
($000s)	2021			2020			2021			2020
Net loss from continuing operations		(52,287	)		(32,827	)		(186,732	)		(70,776	)

Net loss for the three months ended June 30, 2021 was $52.3 million compared to a net loss of $32.8 million for three months ended June 30, 2020. The increase of $19.5 million was due to lower net revenue, higher general and administrative expenses, higher share-based compensation expense and an asset impairment, partially offset by lower cost of sales, lower inventory obsolescence provision, change in fair value of biological assets, change in fair value realized through inventory, interest and fee revenue, investment revenue, share of profit of equity-accounted investees, no restructuring costs in the current period and change in fair value of derivative warrant liabilities.

Net loss for the six months ended June 30, 2021 was $186.7 million compared to a net loss of $70.8 million for six months ended June 30, 2020. The increased loss of $115.9 million was due to lower net revenue, change in fair value of biological assets, higher share-based compensation expense, higher asset impairment, higher transaction costs and change in fair value of derivative warrants, partially offset by lower cost of sales, lower inventory obsolescence provision, change in fair value realized through inventory, interest and fee revenue, investment revenue, share of profit of equity-accounted investees, lower general and administrative expenses, no restructuring costs in the current period, and lower finance costs.

Adjusted EBITDA from continuing operations

	Three months ended<br><br><br>June 30						Six months ended<br><br><br>June 30
($000s)	2021			2020			2021		2020
Adjusted EBITDA from continuing operations^(1)^		(205	)		(3,898	)		3,122		(15,541	)
(1)	The non-IFRS measure of adjusted EBITDA is reconciled to net loss in accordance with IFRS in the “NON-IFRS MEASURES” section of this MD&A and discussed further in the “ADVISORY” section of this MD&A.
---	---

Adjusted EBITDA from continuing operations does not have standardized meaning prescribed by IFRS and therefore may not be comparable to similar measures used by other companies.

Adjusted EBITDA from continuing operations was a loss of $0.2 million for the three months ended June 30, 2021 compared to a loss of $3.9 million for the three months ended June 30, 2020. The decreased loss was due to the following:

•	Decrease in cost of sales due to decreases in kilogram equivalents sold and per gram costs;
•	Investment revenue;
---	---
•	Interest and fee revenue; and
---	---
•	Share of profit of equity-accounted investees.
---	---

The decrease was partially offset by:

•	Decrease in net revenue due to decreases in kilogram equivalents sold and sales prices;
•	Increase in general and administrative expenses due to higher salaries and wages, office and general and professional fees; and
---	---
•	Increase in sales and marketing expenses due to an increase in general marketing activities.
---	---

Adjusted EBITDA from continuing operations was $3.1 million for the six months ended June 30, 2021 compared to a loss of $15.5 million for the six months ended June 30, 2020. The increase was due to the following:

•	Decrease in cost of sales due to decreases in kilogram equivalents sold and per gram costs;
•	Decrease in general and administrative expenses due to lower consulting fees and office and general;
---	---
•	Investment revenue;
---	---
•	Interest and fee revenue; and
---	---
•	Share of profit of equity-accounted investees.
---	---

The increase was partially offset by:

•	a decrease in net revenue due to decreases in kilogram equivalents sold and sales prices.

CANNABIS OPERATIONS SEGMENT RESULTS

Kilogram equivalents sold

	Three months ended<br><br><br>June 30				Six months ended<br><br><br>June 30
	2021		2020		2021		2020
Provincial boards		3,412		3,198		6,286		5,195
Medical		1		—		1		4
Licensed producers		1,999		2,799		3,114		5,235
Total kilogram equivalents sold		5,412		5,997		9,401		10,434

For the three months ended June 30, 2021, the Company sold 5,412 kilogram equivalents of cannabis compared to 5,997 kilogram equivalents for the three months ended June 30, 2020. The decrease of 585 kilogram equivalents sold was due to a decrease in kilogram equivalents sold to other licensed producers (“LPs”), partially offset by an increase in kilogram equivalents sold to provincial boards. The Company’s sales growth strategy is to continue targeting branded sales to provincial boards.

For the six months ended June 30, 2021, the Company sold 9,401 kilogram equivalents of cannabis compared to 10,434 kilogram equivalents for the six months ended June 30, 2020. The decrease of 1,033 kilogram equivalents sold was due to a decrease in kilogram equivalents sold to other LPs, partially offset by an increase in kilogram equivalents sold to provincial boards. The Company’s sales growth strategy is to continue targeting branded sales to provincial boards.

Selling price

	Three months ended<br><br><br>June 30						Six months ended<br><br><br>June 30
($/gram equivalent)	2021			2020			2021			2020
Provincial boards	$	3.19		$	5.67		$	3.17		$	5.45
Medical	$	1.81		$	—		$	3.68		$	5.25
Licensed producers	$	0.93		$	2.22		$	1.46		$	2.40
Average gross selling price	$	2.35		$	4.06		$	2.60		$	3.92
Excise taxes	$	(0.66	)	$	(0.69	)	$	(0.58	)	$	(0.65	)
Average net selling price	$	1.69		$	3.37		$	2.03		$	3.28

For the three months ended June 30, 2021, the average net selling price was $1.69 per gram equivalent compared to $3.37 for the three months ended June 30, 2020. The decrease of $1.68 per gram equivalent was mainly due to lower prices for provincial board sales and lower prices for sales to other LPs. Sales prices have decreased due to continued growth of the discount segment and a lack of available quality product.

For the six months ended June 30, 2021, the average net selling price was $2.03 per gram equivalent compared to $3.28 for the six months ended June 30, 2020. The decrease of $1.25 per gram equivalent was mainly due to lower prices for provincial board sales and lower prices for sales to other LPs. Sales prices have decreased due to continued growth of the discount segment and a lack of available quality product.

The principal drivers of the Company’s realized prices are the formats of the products sold (currently both bulk and packaged flower, inhalables and accessories, trim, bulk extracted oil, edibles and concentrates) and the channels in which products are sold (principally Canadian provincial boards and LPs).

Excise taxes are the federal excise duties and additional provincial or territorial duties payable on adult-use cannabis products. Excise taxes for the six months ended June 30, 2021 and 2020 are only calculated based on adult-use end-consumer packaged cannabis sales.

Revenue

Revenue by form

	Three months ended<br><br><br>June 30				Six months ended<br><br><br>June 30
($000s)	2021		2020		2021		2020
Revenue from dried flower		9,774		16,090		19,490		27,814
Revenue from vapes		1,284		6,259		2,697		10,608
Revenue from oil		1,410		1,992		1,591		2,509
Revenue from edibles and concentrates		271		—		709		—
Gross revenue		12,739		24,341		24,487		40,931

Revenue by channel

	Three months ended<br><br><br>June 30						Six months ended<br><br><br>June 30
($000s, except as indicated)	2021			2020			2021			2020
Provincial boards		10,888			18,133			19,930			28,333
Medical		1			5			3			21
Licensed producers		1,850			6,203			4,554			12,577
Gross revenue		12,739			24,341			24,487			40,931
Excise taxes		(3,588	)		(4,147	)		(5,445	)		(6,731	)
Net revenue		9,151			20,194			19,042			34,200
Gross revenue per gram sold	$	2.35		$	4.06		$	2.60		$	3.92
Net revenue per gram sold	$	1.69		$	3.37		$	2.03		$	3.28

The Company’s revenue comprises bulk and packaged sales under the Cannabis Act pursuant to its supply agreements with Canadian provincial regulatory authorities and to other LPs. The Company’s sales growth strategy is to continue targeting branded sales to provincial boards.

Gross revenue for the three months ended June 30, 2021 was $12.7 million compared to $24.3 million for the three months ended June 30, 2020. The decrease of $11.6 million was due to a decrease in selling prices and a decrease in kilogram equivalents sold. Provincial board revenue decreased by $7.2 million due to a decrease in selling prices, partially offset by a minor increase in kilogram equivalents sold. LP revenue decreased by $4.3 million due to a decrease in kilogram equivalents sold and a decrease in selling prices.

Gross revenue for the six months ended June 30, 2021 was $24.5 million compared to $40.9 million for the six months ended June 30, 2020. The decrease of $16.4 million was due to a decrease in selling prices and a decrease in kilogram equivalents sold. Provincial board revenue decreased by $8.4 million due to a decrease in selling prices, partially offset by an increase in kilogram equivalents sold. LP revenue decreased by $8.0 million due to a decrease in kilogram equivalents sold and a decrease in selling prices.

Excise taxes are the federal excise duties and additional provincial or territorial duties payable on adult-use cannabis products at the time such product is shipped from the production facility in its final consumer-facing packaging. Federal duties on adult-use cannabis products are calculated as the greater of (i) $0.25 per gram of flowering material, (ii) $0.75 per gram of non-flowering material or $0.25 per viable seed or seedling and (iii) 2.5% of the dutiable amount as calculated in accordance with the Excise Act, 2001. The rates of provincial or territorial duties vary.

Excise taxes for the three months ended June 30, 2021 were $3.6 million compared to $4.1 million for the three months ended June 30, 2020. The decrease of $0.5 million was due to a decrease in sales to provincial boards from the comparative period.

Excise taxes for the six months ended June 30, 2021 were $5.4 million compared to $6.7 million for the six months ended June 30, 2020. The decrease of $1.3 million was due to a decrease in sales to provincial boards from the comparative period. No excise taxes are payable on sales to other LPs.

Cost of sales

	Three months ended<br><br><br>June 30				Six months ended<br><br><br>June 30
($000s, except as indicated)	2021		2020		2021		2020
Cost of sales		9,534		17,336		20,979		30,843
Cost of sales per gram sold	$	1.76	$	2.89	$	2.23	$	2.96

Cost of sales includes three main categories: pre-harvest, post-harvest and shipment and fulfillment costs. These costs are incurred in respect of cultivating, harvesting, processing and packaging cannabis products. Pre-harvest costs include all direct and indirect costs incurred between initial recognition and the point of harvest, including labour-related costs, grow consumables, materials, utilities, facilities costs and depreciation related to production facilities. Post-harvest costs include all direct and indirect costs incurred subsequent to the point of harvest, including labour-related costs, consumables, materials, utilities and facilities costs. Shipment and fulfillment costs include packaging, transportation, quality control and testing costs.

Cost of sales for the three months ended June 30, 2021 were $9.5 million compared to $17.3 million for the three months ended June 30, 2020. The decrease of $7.8 million was due to a decrease in kilogram equivalents sold compared to the prior period and a decrease in the cost of sales per gram sold compared to the prior period. Cost of sales per gram sold for the three months ended June 30, 2021 were $1.76 compared to $2.89 for the three months ended June 30, 2020. The decrease of $1.13 was due to lower per gram costs across all product formats and reflects the Company’s focus on cost optimization and offering the most competitive and profitable strains and brands to customers.

Cost of sales for the six months ended June 30, 2021 were $21.0 million compared to $30.8 million for the six months ended June 30, 2020. The decrease of $9.8 million was due to a decrease in kilogram equivalents sold compared to the prior period and a decrease in the cost of sales per gram sold compared to the prior period. Cost of sales per gram sold for the six months ended June 30, 2021 were $2.23 compared to $2.96 for the six months ended June 30, 2020. The decrease of $0.73 per gram sold was due to lower per gram costs across all product formats and reflects the Company’s focus on cost optimization and offering the most competitive and profitable strains and brands to customers.

Gross margin

	Three months ended<br><br><br>June 30						Six months ended<br><br><br>June 30
($000s)	2021			2020			2021			2020
Net revenue		9,151			20,194			19,042			34,200
Cost of sales		9,534			17,336			20,979			30,843
Inventory obsolescence and impairment		1,651			10,026			3,405			17,741
Gross margin before fair value adjustments ^(1)^		(2,034	)		(7,168	)		(5,342	)		(14,384	)
Change in fair value of biological assets		(331	)		(1,756	)		(425	)		4,659
Change in fair value realized through inventory		(456	)		(6,213	)		(506	)		(15,905	)
Gross margin		(2,821	)		(15,137	)		(6,273	)		(25,630	)
(1)	Gross margin before fair value adjustments does not have a standardized meaning prescribed by IFRS and therefore may not be comparable to similar measures used by other companies. The non-IFRS measure of gross margin before fair value adjustments is discussed further in the “ADVISORY” section of this MD&A.
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Gross margin before fair value adjustments

Gross margin before fair value adjustments is defined as net revenue less cost of sales and inventory obsolescence and impairment before adjusting for the non-cash changes in the fair value adjustments on the sale of inventory and the growth of biological assets.

Gross margin before fair value adjustments for the three months ended June 30, 2021 was negative $2.0 million compared to negative $7.2 million for the three months ended June 30, 2020. The increase of $5.2 million was mainly due to lower cost of sales relating to lower sales volumes and costs per gram sold and a lower inventory obsolescence provision compared to the prior period, partially offset by lower net revenue. The inventory obsolescence provision was applied primarily to bulk flower, shake and concentrates due to price compression in the market, as well as certain packaging

inventory. The inventory obsolescence provision in the comparative period was applied primarily to bulk shake and slow-moving bulk oil inventory due to a lack of market demand.

Gross margin before fair value adjustments for the six months ended June 30, 2021 was negative $5.3 million compared to negative $14.4 million for the six months ended June 30, 2020. The increase of $9.1 million was mainly due to lower cost of sales relating to lower sales volumes and costs per gram sold and a lower inventory obsolescence provision compared to the prior period, partially offset by lower net revenue. The inventory obsolescence provision was applied primarily to concentrates, bulk flower and shake due to price compression in the market, as well as certain packaging inventory. The inventory obsolescence provision in the comparative period was applied primarily to bulk shake and slow-moving bulk oil inventory due to a lack of market demand.

The total inventory obsolescence and impairment recognized during the six months ended June 30, 2021 was $3.3 million, with $3.4 million relating to cost of sales and negative $0.1 million relating to the change in fair value realized through inventory. The total inventory obsolescence and impairment recognized during the six months ended June 30, 2020 was $27.7 million, with $17.7 million relating to cost of sales and $10.0 million relating to the change in fair value realized through inventory.

Change in fair value of biological assets

Change in fair value of biological assets for the three months ended June 30, 2021 was a decrease of $0.3 million compared to a decrease of $1.8 million for the three months ended June 30, 2020. The decrease in the current period relates to decreases in the expected number of plants and a decrease in the expected selling price less costs to sell per gram, partially offset by an increase in the weighted average maturity of the stage of growth. The decrease in the comparative period relates to a decrease in the expected number of plants and minor decreases in the expected selling price less costs to sell per gram and weighted average maturity of the stage of growth.

Change in fair value of biological assets for the six months ended June 30, 2021 was a decrease of $0.4 million compared to an increase of $4.7 million for the six months ended June 30, 2020. The decrease in the current period relates to decreases in the expected number of plants and expected selling price less costs to sell per gram, partially offset by an increase in the weighted average maturity of the stage of growth. The increase in the comparative period relates to an increase in the expected selling price less costs to sell per gram, partially offset by a decrease in the expected number of plants and a decrease in the weighted average maturity of the stage of growth.

Biological assets consist of cannabis plants in various stages of vegetation, including clones, which have not been harvested. Net unrealized changes in fair value of biological assets less cost to sell during the period are included in the results of operations for the related period. Biological assets are presented at their fair values less costs to sell up to the point of harvest. The fair values are determined using a model which estimates the expected harvest yield in grams for plants currently being cultivated, and then adjusted for the amount for the expected selling price less costs to sell per gram.

Change in fair value realized through inventory

	Three months ended<br><br><br>June 30						Six months ended<br><br><br>June 30
($000s)	2021			2020			2021			2020
Change in fair value realized through inventory sold		(593	)		(2,849	)		(643	)		(5,882	)
Change in fair value recognized through inventory obsolescence provision		137			(3,364	)		137			(10,023	)
Change in fair value realized through inventory		(456	)		(6,213	)		(506	)		(15,905	)

The change in fair value realized through inventory for the three months ended June 30, 2021 was a decrease of $0.5 million compared to a decrease of $6.2 million for the three months ended June 30, 2020. The increase of $5.7 million was due to the fair value component of the excess and obsolete inventory provision and the reversal of prior period increases in fair value of biological assets as they are transferred to inventory and sold.

The change in fair value realized through inventory for the six months ended June 30, 2021 was a decrease of $0.5 million compared to a decrease of $15.9 million for the six months ended June 30, 2020. The increase of $15.4 million was due

to the fair value component of the excess and obsolete inventory provision in the comparative period and the reversal of prior period increases in fair value of biological assets as they are transferred to inventory and sold.

Change in fair value realized through inventory comprises fair value adjustments associated with the cost of inventory when such inventory is sold. Inventories are carried at the lower of cost and net realizable value. When sold, the cost of inventory is recorded as cost of sales, while fair value adjustments are recorded as change in fair value realized through inventory.

Sales and marketing

	Three months ended<br><br><br>June 30				Six months ended<br><br><br>June 30
($000s)	2021		2020		2021		2020
Sales and marketing		1,315		518		2,265		2,310

Sales and marketing expenses consist of brand development and promotion expenses, marketing personnel and related costs.

Sales and marketing expenses for the three months ended June 30, 2021 were $1.3 million compared to $0.5 million for the three months ended June 30, 2020. The increase of $0.8 million was mainly due to an increase in general marketing expenses, partially offset by a decrease in marketing events expenses.

Sales and marketing expenses for the six months ended June 30, 2021 were $2.3 million compared to $2.3 million for the six months ended June 30, 2020.

Restructuring costs

	Three months ended<br><br><br>June 30				Six months ended<br><br><br>June 30
($000s)	2021		2020		2021		2020
Restructuring costs		—		2,363		—		5,082

Restructuring costs of $2.4 million and $5.1 million for the three and six months ended June 30, 2020 represent severance costs relating to the workforce reductions, legal, professional and consulting fees that relate directly to the restructuring and finance costs associated with the amendment and extinguishment of long-term debt.

Asset impairment

	Three months ended<br><br><br>June 30				Six months ended<br><br><br>June 30
($000s)	2021		2020		2021		2020
Asset impairment		60,000		—		60,000		5,659

The Company determined that indicators of impairment existed during the six months ended June 30, 2021, with respect to the Company’s Olds cash generating unit (“CGU”) as a result of curtailment in the utilization of the capacity in the Company’s Olds facility to align cannabis production with current demand estimates. A test for impairment was performed at the CGU level by comparing the estimated recoverable amount to the carrying values of the assets. The estimated recoverable amount of the assets was determined to be their value in use and an impairment of $60.0 million was recorded to write down the assets to their estimated recoverable amount.

The Company determined that indicators of impairment existed during the six months ended June 30, 2020 with respect to the Company’s British Columbia CGU as a result of the Company’s disposition of its Kamloops property and decision to suspend further construction and development activities on its Merritt facility due to market conditions and available financing. Approximately $10.0 million had been invested into the Merritt facility which consisted of land and construction in progress. A test for impairment was performed at the CGU level by comparing the estimated recoverable amount to the carrying values of the assets. The estimated recoverable amount of the assets was determined to be their fair value less costs of disposal and an impairment of $5.7 million was recorded to write down the assets to their recoverable amount of $4.2 million.

INVESTMENT OPERATIONS SEGMENT RESULTS

Interest and fee revenue

	Three months ended<br><br><br>June 30				Six months ended<br><br><br>June 30
($000s)	2021		2020		2021		2020
Interest and fee revenue
Interest revenue from investments at amortized cost		328		—		441		—
Interest and fee revenue from investments at Fair Value Through Profit or Loss		2,100		—		4,282		—
Interest revenue from cash		916		—		1,470		—
		3,344		—		6,193		—

Interest and fee revenue for the three and six months ended June 30, 2021, was $3.3 million and $6.2 million and was generated from cannabis-related investments. The Company continues to strategically deploy capital with a focus on maximizing cash flows and shareholder value.

Investment revenue

	Three months ended<br><br><br>June 30					Six months ended<br><br><br>June 30
($000s)	2021			2020		2021		2020
Investment revenue
Realized gains		4,211			—		12,230		—
Unrealized gains (losses)		(1,849	)		—		3,032		—
		2,362			—		15,262		—

Investment revenue is comprised of realized and unrealized gains on marketable securities. Investment revenue for the three and six months ended June 30, 2021, was $2.4 million and $15.3 million and was generated from cannabis-related marketable securities. The Company continues to strategically deploy capital with a focus on maximizing cash flows and shareholder value.

Share of profit of equity-accounted investees

	Three months ended<br><br><br>June 30					Six months ended<br><br><br>June 30
($000s)	2021			2020		2021			2020
Revenue		4,094			—		4,094			—
Expenses		(370	)		—		(370	)		—
Net profit		3,724			—		3,724			—

Share of profit of equity-accounted investees is comprised of the Company’s share of the net profit generated from its investments in SunStream, which are comprised of purchases of limited partnership interests in various investment entities. Refer to note 3 in the condensed consolidated interim financial statements for a description of the accounting policy.

During the three and six months ended June 30, 2021, the Company recognized $3.7 million as its share of profit of equity-accounted investees.

DISCONTINUED OPERATIONS – ORNAMENTAL FLOWERS

On February 22, 2019, the Company, through its wholly owned subsidiary, Sundial UK Limited, signed a Sale and Purchase Agreement to acquire all the issued and outstanding shares of Project Seed Topco (“Bridge Farm”). The acquisition closed on July 2, 2019.

On May 15, 2020, the Company entered into an agreement to sell all of the outstanding shares of Bridge Farm to a company affiliated with the former management sellers that were parties to the original acquisition (the “Bridge Farm Purchaser”) in exchange for (i) the assumption by the Bridge Farm Purchaser of $45 million of the total $115 million principal amount outstanding under the Term Debt Facility (thereby reducing the Company’s then outstanding obligations thereunder to $70 million), (ii) the assumption by the Bridge Farm Purchaser of contingent consideration liabilities related to the additional share obligation and remaining earn out obligation under the original Bridge Farm acquisition agreement dated July 2, 2019, and (iii) the cancellation of approximately 2.7 million Sundial common shares, representing all of the shares currently held by the management sellers of Bridge Farm issued in connection with the original acquisition of Bridge Farm by the Company in 2019 (collectively, the “Bridge Farm Disposition”).

The sale of Bridge Farm closed on June 5, 2020. The Bridge Farm operations comprised the entire Ornamental Flower segment that was located in the United Kingdom. The Ornamental Flower segment was not previously classified as held-for-sale or as a discontinued operation. The comparative consolidated statement of loss and comprehensive loss and statement of cash flows in the financial statements for the six months ended June 30, 2020 have been re-presented to show the discontinued operation separately from continuing operations. The Company no longer has an Ornamental Flower segment.

During the six months ended June 30, 2020, the Company recorded revenues of $22.1 million and a net loss of $34.5 million from Bridge Farm, which includes a loss on the disposition of Bridge Farm of $15.0 million.

Capital expenditures with respect to discontinued operations during the six months ended June 30, 2020, consisted of $4.4 million mainly related to construction at Bridge Farm’s Clay Lake facility.

SELECTED QUARTERLY INFORMATION

The following table summarizes selected consolidated operating and financial information of the Company for the preceding eight quarters.

	2021						2020												2019
($000s, except as indicated)	Q2			Q1			Q4 ^(2)^			Q3			Q2			Q1			Q4			Q3
Gross cannabis revenue ^(1)^		12,739			11,748			16,865			15,525			24,341			16,590			16,262			28,690
Gross investment revenue		5,706			15,749			—			—			—			—			—			—
Net loss from continuing operations attributable to owners of the Company		(52,287	)		(134,416	)		(57,622	)		(71,386	)		(32,750	)		(37,861	)		(28,061	)		(85,448	)
Per share, basic and diluted		(0.03	)		(0.09	)		(0.11	)		(0.53	)		(0.31	)		(0.35	)		(0.26	)		(0.93	)
Net loss from discontinued operations attributable to owners of the Company		—			—			—			—			(27,593	)		(6,034	)		(116,927	)		(12,004	)
Per share, basic and diluted		—			—			—			—			(0.26	)		(0.06	)		(1.10	)		(0.13	)
Net loss attributable to owners of the Company		(52,287	)		(134,416	)		(57,622	)		(71,386	)		(60,343	)		(43,895	)		(144,988	)		(97,452	)
Per share, basic and diluted		(0.03	)		(0.09	)		(0.11	)		(0.53	)		(0.57	)		(0.41	)		(1.36	)		(1.06	)
(1)	Gross revenue from continuing operations.
---	---
(2)	Q4 2020 net loss from continuing operations, net loss attributable to owners of the Company and the per share amounts have been recast to attribute 50% of the impairment of intangible assets recorded to non-controlling interest. Refer to note 14 in the condensed consolidated interim financial statements for the three and six months ended June 30, 2021.
---	---

During the eight most recent quarters the following items have had a significant chronological impact on the Company’s results:

•	acquisition of Bridge Farm;
•	terminating the investment and royalty agreement with an entity controlled by the Company’s former executive chairman;
---	---
•	non-cash impairment charge of goodwill relating to Bridge Farm’s CBD cash generating unit;
---	---
•	disposition of Bridge Farm;
---	---
•	issuance and conversion of convertible notes and warrants;
---	---
•	extinguishment and repayment of the Company’s long-term debt;
---	---
•	implementing several streamlining and efficiency initiatives which included workforce optimizations;
---	---
•	issuance of equity securities in various registered offerings;
---	---
•	issuance of common shares under various at-the-market programs;
---	---
•	entering into and acquiring several cannabis-related investments;
---	---
•	investing and disposing of marketable securities;
---	---
•	decreasing ownership in Pathway;
---	---
•	shift to include investment strategy as part of operations;
---	---
•	price discounts and provisions for product returns;
---	---
•	impairment of property, plant and equipment;
---	---
•	provisions for inventory obsolescence; and
---	---
•	investing in SunStream.
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LIQUIDITY AND CAPITAL RESOURCES

($000s)	June 30, 2021		December 31, 2020
Cash and cash equivalents		885,418		60,376

Capital resources are financing resources available to the Company and are defined as the Company’s debt and equity. The Company manages its capital resources with the objective of maximizing shareholder value and sustaining future development of the business. The Company manages its capital structure and adjusts it, based on the funds available to the Company, in order to support the Company’s activities. The Company may adjust capital spending, issue new equity or issue new debt, subject to the availability of commercial terms.

The Company’s primary need for liquidity is to fund investment opportunities, capital expenditures, working capital requirements and for general corporate purposes. The Company’s primary source of liquidity historically has been from funds received from the proceeds of common share issuances and debt financing. The Company’s ability to fund operations and investments and make planned capital expenditures depends on future operating performance and cash flows, as well as the availability of future financing – all of which is subject to prevailing economic conditions and financial, business and other factors.

Management believes its current capital resources and its ability to manage cash flow and working capital levels will be sufficient to satisfy cash requirements associated with funding the Company’s operating expenses to maintain capacity and fund future development activities for at least the next 12 months. However, no assurance can be given that this will be the case or that future sources of capital will not be necessary.

See “Recent Developments – Capital Activities” for more information.

Debt

As at June 30, 2021, the Company was debt free.

Equity

As at June 30, 2021, the Company had the following share capital instruments outstanding:

(000s)	June 30, 2021
Common shares		2,028,881	918,844
Common share purchase warrants^(1)^		1,024	1,024
Simple warrants ^(2)^		3,164	3,425
Performance warrants ^(3)^		1,520	1,672
Stock options^(4)^		445	721
Restricted share units		12,975	1,657
Deferred share units^(5)^		5,033	3,323
(1)	1.0 million warrants were exercisable as at June 30, 2021.
---	---
(2)	2.0 million simple warrants were exercisable as at June 30, 2021.
---	---
(3)	1.0 million performance warrants were exercisable as at June 30, 2021.
---	---
(4)	0.2 million stock options were exercisable as at June 30, 2021.
---	---
(5)	DSUs are only exercisable upon a director’s departure from the Company.
---	---

As at June 30, 2021, the Company had 2.03 billion shares outstanding (December 31, 2020 - 918.8 million shares).

Common shares were issued during the six months ended June 30, 2021 in connection with the following transactions:

•	The Company sold 796.3 million common shares under ATM Programs for gross proceeds of $855.2 million;
•	Issuance of 100.0 million common shares in the January 2021 Units Offering for gross proceeds of $128.0 million;
---	---
•	Exercise of all the Series B Warrants from the January 2021 Units Offering for 33.3 million common shares;
---	---
•	Exercise of all the Series A Warrants from the January 2021 Offering for 66.7 million common shares and gross proceeds of $67.1 million;
---	---
•	Issuance of 60.5 million common shares in the February 2021 Units Offering for gross proceeds of $95.4 million;
---	---
•	Exercise of all the Additional Series B Warrants from the February 2021 Units Offering for 14.0 million common shares; and
---	---
•	Exercise of all the Additional Series A Warrants from the February 2021 Units Offering for 37.3 million common shares and gross proceeds of $51.5 million;
---	---

From July 1, 2021 to August 12, 2021:

•	The Company issued 24.4 million common shares relating to the acquisition of Inner Spirit.
•	The Company issued 2.5 million common shares relating to the settlement of Inner Spirit debt.
---	---

As at August 12, 2021, a total of 2.06 billion common shares were outstanding.

Capital Expenditures

	Three months ended<br><br><br>June 30					Six months ended<br><br><br>June 30
($000s)	2021		2020			2021			2020
Olds facility^(1)^		206		271			(307	)		1,222
Rocky View facility		—		—			—			—
Merritt facility^(2)^		—		(1,241	)		—			(1,241	)
Other		1,539		1,087			1,658			1,812
Total		1,745		117			1,351			1,793
(1)	The credit to the Olds facility relates to the recovery of construction holdbacks and a grant receivable.
---	---
(2)	The credit to the Merritt facility relates to the refund of provincial hydro and utility deposits.
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Cash Flow Summary

	Three months ended<br><br><br>June 30						Six months ended<br><br><br>June 30
($000s)	2021			2020			2021			2020
Cash provided by (used in) continuing operations:
Operating activities		(70,382	)		(12,506	)		(104,748	)		(30,016	)
Investing activities		(192,288	)		(2,743	)		(203,147	)		(10,380	)
Financing activities		274,742			17,433			1,134,988			17,602
Effect of exchange rate changes		(99	)		(36	)		(2,051	)		1,522
Change in cash and cash equivalents		11,973			2,148			825,042			(21,272	)

Cash Flow – Operating Activities

Net cash used in operating activities was $70.4 million for the three months ended June 30, 2021 compared to $12.5 million used in operating activities for the three months ended June 30, 2020. The increase of $57.9 million was due to investing in marketable securities, partially offset by proceeds from the disposition of marketable securities and change

in non-cash working capital. The change in non-cash working capital is comprised of changes in inventory, accounts receivable, prepaid expenses and deposits and accounts payable.

Net cash used in operating activities from continuing operations was $104.7 million for the six months ended June 30, 2021 compared to $30.0 million used in operating activities for the six months ended June 30, 2020. The increase of $74.7 million was due to investing in marketable securities and the change in non-cash working capital, partially offset by a decrease in net loss adjusted for non-cash items and proceeds from the disposition of marketable securities. The change in non-cash working capital is comprised of changes in inventory, accounts receivable, prepaid expenses and deposits and accounts payable.

Cash Flow – Investing Activities

Net cash used in investing activities was $192.3 million for the three months ended June 30, 2021 compared to $2.7 million used in investing activities for the three months ended June 30, 2020. The increase of $189.6 million was mainly due to additions to equity-accounted investees, additions to property, plant and equipment and additions to investments, partially offset by the change in non-cash working capital.

Net cash used in investing activities from continuing operations was $203.1 million for the six months ended June 30, 2021 compared to $10.4 million used in investing activities for the six months ended June 30, 2020. The increase of $192.7 million was mainly due to additions to equity-accounted investees, additions to investments, partially offset by the change in non-cash working capital.

Cash Flow – Financing Activities

Net cash provided by financing activities was $274.7 million for the three months ended June 30, 2021 compared to $17.4 million provided by financing activities for the three months ended June 30, 2020. The increase of $257.3 million was due to proceeds from the issuance of shares partially offset by an increase in restricted cash.

Net cash provided by financing activities from continuing operations was $1.1 billion for the six months ended June 30, 2021 compared to $17.6 million provided by financing activities for the six months ended June 30, 2020. The increase of $1.1 billion was mainly due to proceeds from the issuance of shares, proceeds from registered offerings and proceeds from the exercise of derivative warrants, partially offset by an increase in restricted cash.

Liquidity risks associated with financial instruments

Credit risk

The Company applies the simplified approach under IFRS 9 and has calculated expected credit losses based on lifetime expected credit losses, taking into consideration historical credit loss experience and financial factors specific to the debtors and general economic conditions.

The maximum amount of the Company’s credit risk exposure is the carrying amounts of cash and cash equivalents, accounts receivable, and investments. The Company attempts to mitigate such exposure to its cash and cash equivalents by investing only in financial institutions with investment grade credit ratings or secured investments. The Company manages risk over its accounts receivable by issuing credit only to credit worthy counterparties.

Liquidity risk

Liquidity risk is the risk that the Company cannot meet its financial obligations when due. The Company manages liquidity risk by monitoring operating and growth requirements. The Company prepares forecasts to ensure sufficient liquidity to fulfil obligations and operating plans. Management believes its current capital resources and its ability to manage cash flow and working capital levels will be sufficient to satisfy cash requirements associated with funding the Company’s operating expenses to maintain capacity and fund future development activities for at least the next 12 months.

Market risk

Market risk is the risk that changes in market prices will affect the Company’s income or value of its holdings of financial instruments. The Company is exposed to market risk in that changes in market prices will cause fluctuations in the fair value of its marketable securities. The fair value of marketable securities are based on quoted market prices as the Company’s marketable securities are shares held of publicly traded entities.

CONTRACTUAL COMMITMENTS AND CONTINGENCIES

a)	Commitments

The information presented in the table below reflects managements estimate of the contractual maturities of the Company’s obligations at June 30, 2021.

($000s)	Less than<br><br><br>one year		One to three<br><br><br>years		Three to five<br><br><br>years		Thereafter		Total
Lease obligations		481		726		134		—		1,341

b)	Contingencies

From time to time, the Company may become involved in legal proceedings arising in the ordinary course of our business. Such proceedings, certain of which have been threatened against us, could include commercial litigation related to breach of contract claims brought by our customers, suppliers and contractors, as well as litigation related to termination of certain of our employees. The outcome of any litigation is inherently uncertain. Although we believe we have meritorious defenses against all currently pending and threatened proceedings and intend to vigorously defend all claims if they are brought, unfavorable rulings, judgments or settlement terms could have a material adverse impact on our business and results of operations. See “Item 8. Financial Information – A. Consolidated Statements and Other Financial Information – Legal Proceedings” in the Annual Report.

On May 7, 2020, the Company and certain of its current and former directors and officers were named as defendants in a lawsuit, captioned SUN, a Series of E Squared Investment Fund, LLC et al. v. Sundial Growers Inc. et al., Case No. 1:20-cv-03579. The complaint asserts claims for alleged violations of U.S. federal securities laws, including Sections 12(a)(2) and 15 of the Securities Act of 1933 and Section 10(b) the Securities Exchange Act of 1934, as well as claims for breach of contract, breach of fiduciary duty, fraud in the inducement and negligent misrepresentation. Among other things, the complaint alleges that the company made misrepresentations regarding the licensing and ability of Bridge Farm to export hemp and CBD to Europe, as well as regarding the quality of the Company’s cannabis and a return by one of the Company’s customers.

We can provide no assurance as to the outcome of these proceedings or any other litigation matter in which we are a party. In particular, securities class action lawsuits are typically costly to defend, and divert the attention of management and other resources from operations and, accordingly, even if resolved in our favor, could have a material adverse effect on our business, financial condition, results of operations and liquidity and may force us to reduce or cease operations or seek relief under the applicable bankruptcy or insolvency laws.

NON-IFRS MEASURES

Certain financial measures in this MD&A including adjusted EBITDA from continuing operations and gross margin before fair value adjustments are non-IFRS measures. These terms are not defined by IFRS and, therefore, may not be comparable to similar measures provided by other companies. These non-IFRS financial measures should not be considered in isolation or as an alternative for measures of performance prepared in accordance with IFRS.

Adjusted EBITDA from continuing operations

Adjusted EBITDA from continuing operations is a non-IFRS measure which the Company uses to evaluate its operating performance. Adjusted EBITDA from continuing operations provides information to investors, analysts, and others to aid in understanding and evaluating the Company’s operating results in a similar manner to its management team. Adjusted EBITDA from continuing operations is defined as net income (loss) from continuing operations before finance costs, depreciation and amortization, accretion expense, income tax recovery and excluding change in fair value of biological assets, change in fair value realized through inventory, unrealized foreign exchange gains or losses, share-based compensation expense, asset impairment, gain or loss on disposal of property, plant and equipment and certain one-time non-operating expenses, as determined by management.

The following table reconciles adjusted EBITDA from continuing operations to net loss from continuing operations for the periods noted.

	Three months ended<br><br><br>June 30						Six months ended<br><br><br>June 30
($000s)	2021			2020			2021			2020
Net loss from continuing operations		(52,287	)		(32,827	)		(186,732	)		(70,776	)
Adjustments
Finance costs		40			1,002			91			6,984
Change in estimate of fair value of derivative warrants		(19,810	)		(411	)		110,134			(411	)
Depreciation and amortization		931			1,277			1,989			1,934
Change in fair value of biological assets		331			1,756			425			(4,659	)
Change in fair value realized through inventory		456			6,213			506			15,905
Unrealized foreign exchange (gain) loss		104			583			2,009			(1,186	)
Unrealized (gain) loss on marketable securities		1,849			—			(3,032	)		—
Share-based compensation		4,539			3,152			7,995			3,947
Asset impairment		60,000			—			60,000			5,659
Loss (gain) on disposition of PP&E		22			122			139			(488	)
Cost of sales non-cash component ^(1)^		1,162			1,549			1,988			2,329
Inventory obsolescence		1,651			10,026			3,405			17,741
Restructuring costs		—			2,363			—			5,082
Transaction costs^(2)^		805			1,297			4,453			2,398
Government subsidies		—			—			(2,180	)		—
Other expenses		2			—			1,932			—
Adjusted EBITDA from continuing operations		(205	)		(3,898	)		3,122			(15,541	)
(1)	Cost of sales non-cash component is comprised of depreciation expense.
---	---
(2)	Transaction costs relate to financing activities.
---	---

Gross margin before fair value adjustments

Gross margin before fair value adjustments is a non-IFRS measure which the Company uses to evaluate its operating performance in the Company’s cannabis operations segment. Gross margin before fair value adjustments provides useful information to investors, analysts and others in understanding and evaluating the Company’s operating results as it removes non-cash fair value metrics. Gross margin before fair value adjustments is defined as gross margin less the non-

cash changes in the fair value adjustments on the sale of inventory and the growth of biological assets. Gross margin before fair value adjustments is comprised of net revenue less cost of sales and inventory obsolescence and impairment.

See “Cannabis Operations Segment Results – Gross Margin” for a table reconciling gross margin before fair value adjustments to gross margin for the periods noted.

RELATED PARTIES

Loan receivable agreements

Related party transactions

	Transactions				Balance outstanding
	Six months ended<br><br><br>June 30		Six months ended<br><br><br>June 30		June 30		December 31
($000s)	2021		2020		2021		2020
Marketing, brand research and development^(a)^		—		1,144		—		—
Legal services^(b)^		—		1,677		—		(510	)
		—		2,821		—		(510	)
(a)	A former member of the Board of Directors controlled a company that provides marketing, brand research and development services.
---	---
(b)	A member of the Board of Directors was a partner at a law firm prior to his departure which provides legal services to the Company.
---	---

All transactions were conducted at the exchange amount agreed to with the related parties.

OFF BALANCE SHEET ARRANGEMENTS

As at June 30, 2021, the Company did not have any off-balance sheet arrangements. The Company has certain operating or rental lease agreements, as disclosed in the Contractual Commitments and Obligations section of this MD&A, which are entered into in the normal course of operations.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

The Company makes assumptions in applying critical accounting estimates that are uncertain at the time the accounting estimate is made and may have a significant effect on the consolidated financial statements. Critical accounting estimates include the classification and recoverable amounts of cash generating units (“CGUs”), value of biological assets and inventory, estimating potential future returns and pricing adjustments on revenue, deferred tax assets, share-based compensation, convertible instruments, financial obligations, acquisitions and fair value of assets acquired and liabilities assumed in a business combination. Critical accounting estimates are based on variable inputs including but not limited to:

•	Demand for cannabis for recreational and medical purposes;
•	Price of cannabis;
---	---
•	Expected sales volumes;
---	---
•	Changes in market discount rates;
---	---
•	Future development and operating costs;
---	---
•	Costs to convert harvested cannabis to finished goods;
---	---
•	Expected yields from cannabis plants;
---	---
•	Potential returns and pricing adjustments;
---	---
•	Interpretation of income tax laws;
---	---
•	Facts and circumstances supporting the likelihood and amount of contingent liabilities; and
---	---
•	Assumptions and methodologies for the valuation of derivative financial instruments.
---	---

Changes in critical accounting estimates can have a significant effect on net income as a result of their impact on revenue, costs of sales, provisions, impairments, losses and income taxes. Changes in critical accounting estimates can have a significant effect on the valuation of biological assets, inventory, property, plant and equipment, provisions, derivative financial instruments and accounts payable.

For a detailed discussion regarding the Company’s critical accounting policies and estimates, refer to the notes to the Audited Financial Statements.

NEW ACCOUNTING PRONOUNCEMENTS

The International Accounting Standards Board (IASB) and the IFRS Interpretations Committee regularly issue new and revised accounting pronouncements which have future effective dates and therefore are not reflected in the Company’s consolidated financial statements. Once adopted, these new and amended pronouncements may have an impact on the Company’s consolidated financial statements. The Company’s analysis of recent accounting pronouncements is included in the notes to the Audited Financial Statements.

RISK FACTORS

For a detailed discussion regarding the Company’s risk factors, refer to “Item 3D – Risk Factors” section of the Annual Report.

DISCLOSURE CONTROLS AND PROCEDURES

The Company has designed disclosure controls and procedures to provide reasonable assurance that: (i) material information relating to the Company is made known to the Company’s Chief Executive Officer and Chief Financial Officer by others, particularly during the period in which the annual and interim filings are being prepared; and (ii) information required to be disclosed by the Company in its annual filings, interim filings or other reports filed or submitted by it under securities legislation is recorded, processed, summarized and reported within the time period specified in securities legislation. Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended), as of December 31, 2020. Based on such evaluation, our principal executive officer and principal financial officer have concluded that our disclosure controls and procedures were not effective as of December 31, 2020, as further described below.

INTERNAL CONTROLS OVER FINANCIAL REPORTING

Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with IFRS as issued by the IASB.

There are inherent limitations in the effectiveness of any system of internal control, including the possibility of human error and overriding of controls. Consequently, an effective internal control system can only provide reasonable, not absolute assurance, with respect to reporting financial information. Further, because of changes in conditions, effectiveness of internal control over financial reporting may vary over time.

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, assessed the effectiveness of our internal control over financial reporting as of December 31, 2020, using the criteria established in the Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). Based on this assessment our management concluded that, as of December 31, 2020, the Company’s internal control over financial reporting was not effective based on criteria stated in Internal Control – Integrated Framework (2013) issued by the COSO, as further described below.

Background

In connection with the audit of the Company’s consolidated financial statements for the fiscal period ended December 31, 2018, management concluded that there were three material weaknesses in the Company’s internal controls over financial reporting. A material weakness is a significant deficiency, or a combination of significant deficiencies, in internal control over financial reporting such that it is reasonably possible that a material misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis. The material weaknesses identified include limited number of finance personnel with appropriate experience and knowledge to address complex accounting matters, lack of management review over the valuation model used for biological assets and financing obligations and lack of segregation of duties due to limited number of employees in the finance department. Similar material weaknesses were identified at Bridge Farm.

During the year end December 31, 2019, the Company implemented a remediation plan including measures necessary to address the underlying causes of these material weaknesses. As at December 31, 2019, the material weaknesses related to the limited number of finance personnel with appropriate experience and knowledge to address complex accounting matters and lack of management review over the valuation model used for biological assets and financing obligations were remediated through the addition of numerous professionally designated accountants to bring additional knowledge and expertise relating to complex accounting matters. These professionally designated accountants are directly involved in the preparation and review of these complex accounting matters. The Company has also engaged external third-party advisors when complex accounting matters arose to ensure treatment of those matters was appropriate. The Company will continue to seek external third-party advice when complex accounting matters arise in the future.

December 31, 2020 update

During the year ended December 31, 2020, certain procedures were implemented to address the prior year material weakness through the addition of compensating controls; however, it was not fully remediated at December 31, 2020, and therefore remained as a material weakness as at December 31, 2020.

2021 Remediation plan

The Company’s remediation plan is ongoing and involves the engagement of external third-party advisors to assist management in evaluating the design and operating effectiveness of internal controls over financial reporting, including identification of business process improvement areas and documenting the future state of significant business processes.

The Company expects the remediation of the remaining material weakness to be complete by December 31, 2021. Remediation may take longer than the Company expects, and its efforts may not prove to be successful in remediating this material weakness. The Company may also identify additional material weaknesses in its internal control over financial reporting in the future. It should be noted that a control system, including the Company’s disclosure and internal controls and procedures, no matter how well conceived, can provide only reasonable, but not absolute assurance that the objectives of the control system will be met, and it should not be expected that the disclosure and internal controls and procedures will prevent all errors or fraud.

ABBREVIATIONS

The following provides a summary of common abbreviations used in this document:

Financial and Business Environment		Measurement
$ or C$	Canadian dollars	G or GM	Gram
IFRS	International Financial Reporting Standards	sq ft	Square feet
MD&A	Management’s Discussion and Analysis
U.K.	United Kingdom
U.S.	United States
US$	United States dollars
£	Great Britain Pounds
CBD	Cannabidiol
THC	Tetrahydrocannabinol

ADVISORY

Forward-Looking Information

This document may contain forward-looking information concerning the Company’s business, operations and financial performance and condition, as well as its plans, objectives and expectations for its business operations and financial performance and condition. Any statements contained herein that are not statements of historical facts may be deemed to be forward-looking statements. In some cases, you can identify forward-looking statements by terminology such as “aim”, “anticipate”, “assume”, “believe”, “contemplate”, “continue”, “could”, “due”, “estimate”, “expect”, “goal”, “intend”, “may”, “objective”, “plan”, “predict”, “potential”, “positioned”, “pioneer”, “seek”, “should”, “target”, “will”, “would”, and other similar expressions that are predictions of or indicate future events and future trends, or the negative of these terms or other comparable technology.

These forward-looking statements are based on current expectations, estimates, forecasts and projections about the Company’s business and the industry in which it operates and management’s beliefs and assumptions and are not guarantees of future performance or development and involve known and unknown risks, uncertainties and other factors that are in some cases beyond its control. As a result, any or all of the forward-looking information in this document may turn out to be inaccurate. Factors that may case actual results to differ materially from current expectations include, among other things, those listed under the heading “Risk Factors” herein and “Item 3D—Risk Factors” section of the Annual Report. Except as required by law, the Company assumes no obligation to update or revise these forward-looking statements for any reason, even if new information becomes available in the future.

This document contains estimates, projections and other information concerning the Company’s industry, business and the markets for its products. Information that is based on estimates, forecasts, projections, market research of similar methodologies is inherently subject to uncertainties, and actual events or circumstances may differ materially from events and circumstances that are assumed in this information. Unless otherwise expressly stated, the Company obtained this industry, business, market and other data from its own internal estimates and research as well as from reports, research surveys, studies and similar data prepared by market research firms and other third parties, industry, medical and general publications, government data and similar sources.

In addition, assumptions and estimates of the Company’s and industry’s future performance are necessarily subject to a high degree of uncertainty and risk due to a variety of factors, including those described in the section “Risk Factors” herein and in “Item 3D—Risk Factors” section of the Annual Report. These and other factors could cause the Company’s future performance to differ materially from the Company’s assumptions and estimates.

Further information regarding the assumptions and risks inherent in the making of forward-looking statements can be found in the Company’s most recently filed Annual Report on Form 20-F, along with the Company’s other public disclosure documents. Copies of the Annual Report and other public disclosure documents are available through the SEDAR website which is available at www.sedar.com

Non-IFRS Measures

Certain financial measures in this MD&A do not have a standardized meaning as prescribed by IFRS including adjusted EBITDA and gross margin before fair value adjustments. As such, these measures are considered non-IFRS financial measures. These terms are not defined by IFRS and, therefore, may not be comparable to similar measures provided by other companies. These non-IFRS financial measures should not be considered in isolation or as an alternative for measures of performance prepared in accordance with IFRS. These measures are presented and described in order to provide shareholders and potential investors with additional measures in understanding the Company’s operating results in the same manner as the management team. The definition and reconciliation of each non-IFRS measure is presented in the “NON-IFRS MEASURES” section of this MD&A.

ADDITIONAL INFORMATION

Additional information relating to the Company can be viewed at www.sedar.com or on the Company’s website at www.sndlgroup.com. The information on or accessible through our website is not part of and is not incorporated by reference into this MD&A, and the inclusion of our website address in this MD&A is only for reference.

27

sndl-ex993_7.htm

EXHIBIT 99.3

Form 52-109F2

Certification of Interim Filings

Full Certificate

I, Zachary George, Chief Executive Officer of Sundial Growers Inc., certify the following:

1.	Review: I have reviewed the interim financial report and interim MD&A (together, the “interim filings”) of Sundial Growers Inc. (the “issuer”) for the interim period ended June 30, 2021.
2.	No misrepresentations: Based on my knowledge, having exercised reasonable diligence, the interim filings do not contain any untrue statement of a material fact or omit to state a material fact required to be stated or that is necessary to make a statement not misleading in light of the circumstances under which it was made, with respect to the period covered by the interim filings.
---	---
3.	Fair presentation: Based on my knowledge, having exercised reasonable diligence, the interim financial report together with the other financial information included in the interim filings fairly present in all material respects the financial condition, financial performance and cash flows of the issuer, as of the date of and for the periods presented in the interim filings.
---	---
4.	Responsibility: The issuer’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (DC&P) and internal control over financial reporting (ICFR), as those terms are defined in National Instrument 52-109 Certification of Disclosure in Issuers’ Annual and Interim Filings, for the issuer.
---	---
5.	Design: Subject to the limitations, if any, described in paragraphs 5.2 and 5.3, the issuer’s other certifying officer and I have, as at the end of the period covered by the interim filings
---	---
(a)	designed DC&P, or caused it to be designed under our supervision, to provide reasonable assurance that
---	---
(i)	material information relating to the issuer is made known to us by others, particularly during the period in which the interim filings are being prepared; and
---	---
(ii)	information required to be disclosed by the issuer in its annual filings, interim filings or other reports filed or submitted by it under securities legislation is recorded, processed, summarized and reported within the time periods specified in securities legislation; and
---	---
(b)	designed ICFR, or caused it to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with the issuer’s GAAP.
---	---
5.1	Control framework: The control framework the issuer’s other certifying officer and I used to design the issuer’s ICFR is “Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO)”.
---	---
5.2	ICFR – material weakness relating to design: The issuer has disclosed in its interim MD&A for each material weakness relating to design existing at the end of the interim period
---	---
(a)	a description of the material weakness;
---	---
(b)	the impact of the material weakness on the issuer’s financial reporting and its ICFR; and
---	---
(c)	the issuer’s current plans, if any, or any actions already undertaken, for remediating the material weakness.
---	---
5.3	Limitation on scope of design: N/A
---	---
6.	Reporting changes in ICFR: The issuer has disclosed in its interim MD&A any change in the issuer’s ICFR that occurred during the period beginning on January 1, 2021 and ended on June 30, 2021 that has materially affected, or is reasonably likely to materially affect, the issuer’s ICFR.
---	---

Date: August 12, 2021

/s/ Zachary George

_______________________

Zachary George

Chief Executive Officer

sndl-ex994_8.htm

EXHIBIT 99.4

Form 52-109F2

Certification of Interim Filings

Full Certificate

I, James Keough, Chief Financial Officer of Sundial Growers Inc., certify the following:

1.	Review: I have reviewed the interim financial report and interim MD&A (together, the “interim filings”) of Sundial Growers Inc. (the “issuer”) for the interim period ended June 30, 2021.
2.	No misrepresentations: Based on my knowledge, having exercised reasonable diligence, the interim filings do not contain any untrue statement of a material fact or omit to state a material fact required to be stated or that is necessary to make a statement not misleading in light of the circumstances under which it was made, with respect to the period covered by the interim filings.
---	---
3.	Fair presentation: Based on my knowledge, having exercised reasonable diligence, the interim financial report together with the other financial information included in the interim filings fairly present in all material respects the financial condition, financial performance and cash flows of the issuer, as of the date of and for the periods presented in the interim filings.
---	---
4.	Responsibility: The issuer’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (DC&P) and internal control over financial reporting (ICFR), as those terms are defined in National Instrument 52-109 Certification of Disclosure in Issuers’ Annual and Interim Filings, for the issuer.
---	---
5.	Design: Subject to the limitations, if any, described in paragraphs 5.2 and 5.3, the issuer’s other certifying officer and I have, as at the end of the period covered by the interim filings
---	---
(a)	designed DC&P, or caused it to be designed under our supervision, to provide reasonable assurance that
---	---
(i)	material information relating to the issuer is made known to us by others, particularly during the period in which the interim filings are being prepared; and
---	---
(ii)	information required to be disclosed by the issuer in its annual filings, interim filings or other reports filed or submitted by it under securities legislation is recorded, processed, summarized and reported within the time periods specified in securities legislation; and
---	---
(b)	designed ICFR, or caused it to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with the issuer’s GAAP.
---	---
5.1	Control framework: The control framework the issuer’s other certifying officer and I used to design the issuer’s ICFR is “Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO)”.
---	---
5.2	ICFR – material weakness relating to design: The issuer has disclosed in its interim MD&A for each material weakness relating to design existing at the end of the interim period
---	---
(a)	a description of the material weakness;
---	---
(b)	the impact of the material weakness on the issuer’s financial reporting and its ICFR; and
---	---
(c)	the issuer’s current plans, if any, or any actions already undertaken, for remediating the material weakness.
---	---
5.3	Limitation on scope of design: N/A
---	---
6.	Reporting changes in ICFR: The issuer has disclosed in its interim MD&A any change in the issuer’s ICFR that occurred during the period beginning on January 1, 2021 and ended on June 30, 2021 that has materially affected, or is reasonably likely to materially affect, the issuer’s ICFR.
---	---

Date: August 12, 2021

/s/ James Keough

_______________________

James Keough

Chief Financial Officer

SNDL Inc 6-K, filed Aug 12, 2021

About this 6-K