SNDL 6-K, filed Nov 12, 2021, 0001564590-21-056387

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 November 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: November 11, 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 Nine Months Ended September 30, 2021 and 2020
99.2		Management’s Discussion and Analysis for the Three and Nine Months Ended September 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_7.htm

EXHIBIT 99.1

Sundial Growers Inc.

Condensed Consolidated Interim Financial Statements

For the three and nine months ended September 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		629,142		60,376
Restricted cash	7	33,063		5,333
Marketable securities	8	119,642		—
Accounts receivable	9	12,622		15,898
Biological assets	10	2,880		3,531
Inventory	11	36,093		25,613
Prepaid expenses and deposits		5,358		4,622
Investments	15	3,045		—
Assets held for sale		2,998		2,998
Net investment in subleases	13	3,084		—
		847,927		118,371
Non-current assets
Long-term deposits		7,981		2,633
Property, plant and equipment	12	61,165		116,928
Net investment in subleases	13	16,087		—
Intangible assets	14	62,850		5,063
Investments	15	62,509		51,876
Equity-accounted investees	16	330,279		—
Goodwill	4	65,573		—
Total assets		1,454,371		294,871

Liabilities
Current liabilities
Accounts payable and accrued liabilities		28,842		23,308
Current portion of lease obligations	18	4,328		409
Derivative warrants	17	29,900		428
		63,070		24,145
Non-current liabilities
Lease obligations	18	20,205		1,031
Financial guarantee liability	18	337		—
Total liabilities		83,612		25,176

Shareholders’ equity
Share capital	19(b)	2,032,007		762,046
Warrants	19(c)	7,735		6,138
Contributed surplus		62,258		59,344
Contingent consideration		2,279		2,279
Accumulated deficit^(1)^		(733,520	)	(558,128	)
Total shareholders’ equity		1,370,759		271,679
Non-controlling interest^(1)^		—		(1,984	)
Total liabilities and shareholders’ equity		1,454,371		294,871
(1)	Recast – refer to note 16(b).
---	---

Commitments (note 29)

Subsequent events (note 30)

See accompanying notes to the condensed consolidated interim financial statements.

Sundial Growers Inc.

Condensed Consolidated Interim Statement of Income (Loss) and Comprehensive Income (Loss)

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

		Three months ended<br><br><br>September 30						Nine months ended<br><br><br>September 30
	Note	2021			2020			2021			2020
Gross revenue	21		17,162			15,525			41,649			56,456
Excise taxes			2,795			2,660			8,240			9,391
Net revenue			14,367			12,865			33,409			47,065
Cost of sales	11		11,704			10,259			32,683			41,102
Inventory obsolescence	11		3,871			19,897			7,276			37,638
Gross margin before fair value adjustments			(1,208	)		(17,291	)		(6,550	)		(31,675	)
Change in fair value of biological assets	10		2,975			194			2,550			4,853
Change in fair value realized through inventory	11		15			(2,447	)		(491	)		(18,352	)
Gross margin			1,782			(19,544	)		(4,491	)		(45,174	)

Interest and fee revenue	22		3,309			—			9,502			—
Investment loss	22		(18,008	)		—			(2,746	)		—
Share of profit of equity-accounted investees	16		9,918			—			13,642			—

General and administrative			9,552			7,158			26,731			25,501
Sales and marketing			1,277			1,117			3,542			3,427
Research and development			714			35			1,707			378
Depreciation and amortization	12,14		2,385			1,480			4,374			3,414
Share-based compensation	20		1,869			3,118			9,864			7,065
Restructuring costs			—			1,108			—			6,190
Asset impairment	12		—			60,000			60,000			65,659
Government subsidies	23		—			(4,081	)		(2,180	)		(4,081	)
Loss from operations			(18,796	)		(89,479	)		(88,131	)		(152,727	)

Transaction costs			(5,276	)		(364	)		(9,729	)		(2,762	)
Finance costs, net	24		(135	)		8,140			(226	)		1,156
Change in estimate of fair value of derivative warrants	17		24,100			10,057			(86,034	)		10,468
Foreign exchange gain (loss)			1,360			249			712			1,204
Gain (loss) on disposition of PP&E			—			—			(139	)		488
Other expenses	16(b)		—			—			(1,932	)		—
Income (loss) before income tax			1,253			(71,397	)		(185,479	)		(142,173	)
Income tax recovery	4		10,058			—			10,058			—
Net income (loss) from continuing operations			11,311			(71,397	)		(175,421	)		(142,173	)
Net loss from discontinued operations	5		—			—			—			(33,627	)
Net income (loss)			11,311			(71,397	)		(175,421	)		(175,800	)

Gain on translation of foreign operations			—			—			—			600
Comprehensive income (loss)			11,311			(71,397	)		(175,421	)		(175,200	)

Net income (loss) from continuing operations attributable to:
Sundial Growers Inc.			11,311			(71,386	)		(175,392	)		(141,997	)
Non-controlling interest			—			(11	)		(29	)		(176	)
			11,311			(71,397	)		(175,421	)		(142,173	)
Net income (loss) attributable to:
Sundial Growers Inc.			11,311			(71,386	)		(175,392	)		(175,624	)
Non-controlling interest	16(b)		—			(11	)		(29	)		(176	)
			11,311			(71,397	)		(175,421	)		(175,800	)
Comprehensive income (loss) attributable to:
Sundial Growers Inc.			11,311			(71,386	)		(175,392	)		(175,024	)
Non-controlling interest			—			(11	)		(29	)		(176	)
			11,311			(71,397	)		(175,421	)		(175,200	)
Net income (loss) per common share attributable to Sundial Growers Inc.
Basic	25	$	0.006		$	(0.53	)	$	(0.10	)	$	(1.51	)
Diluted	25	$	0.005		$	(0.53	)	$	(0.10	)	$	(1.51	)

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		—		—		—		—	(175,392	)	(29	)	(175,421	)
Loss of control of subsidiary	16(b)	—		—		—		—	—		2,013		2,013
Share issuances	19(b)	977,425		—		—		—	—		—		977,425
Share issuance costs	19(b)	(16,302	)	—		—		—	—		—		(16,302	)
Derivative warrants exercised	17	277,136		—		—		—	—		—		277,136
Acquisition	4	26,216		1,771		—		—	—		—		27,987
Convertible debenture settlement	4	2,671		—		—		—	—		—		2,671
Warrants exercised	19(c)	174		(174	)	—		—	—		—		—
Share-based compensation	20	8		—		10,477		—	—		—		10,485
Employee awards exercised		2,633		—		(2,432	)	—	—		—		201
Modification of equity-settled plan	20(d)	—		—		(5,131	)	—	—		—		(5,131	)
Balance at September 30, 2021		2,032,007		7,735		62,258		2,279	(733,520	)	—		1,370,759

Balance at June 30, 2021		2,003,013		6,138		64,901		2,279	(744,831	)	—		1,331,500
Net income (loss)		—		—		—		—	11,311		—		11,311
Share issuance costs	19(b)	(69	)	—		—		—	—		—		(69	)
Acquisition	4	26,216		1,771		—		—	—		—		27,987
Convertible debenture settlement	4	2,671		—		—		—	—		—		2,671
Warrants exercised	19(c)	174		(174	)	—		—	—		—		—
Share-based compensation	20	2		—		2,488		—	—		—		2,490
Modification of equity-settled plan	20(d)	—		—		(5,131	)	—	—		—		(5,131	)
Balance at September 30, 2021		2,032,007		7,735		62,258		2,279	(733,520	)	—		1,370,759
(1)	Recast – refer to note 16(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		—		—		—	—	(175,624	)	—		(176	)	(175,800	)
Other comprehensive income		—		—		—	—	—		600		—		600
Share issuances		15,232		—		—	—	—		—		—		15,232
Share issuance costs		(1,818	)	—		—	—	—		—		—		(1,818	)
Convertible debt - conversions		11,912		—		—	—	—		—		—		11,912
Derivative warrants exercised		8,087		—		—	—	—		—		—		8,087
Warrants expired		—		(2,229	)	2,229	—	—		—		—		—
Dispositions	5	(38,447	)	—		—	—	35,456		(7,466	)	—		(10,457	)
Share-based compensation	5,17	51		—		6,188	—	—		—		—		6,239
Balance at September 30, 2020		504,671		25,602		38,609	2,279	(500,506	)	—		4,538		75,193

Balance at June 30, 2020		471,868		27,831		33,262	2,279	(429,120	)	—		4,549		110,669
Net loss		—		—		—	—	(71,386	)	—		(11	)	(71,397	)
Share issuances		14,622		—		—	—	—		—		—		14,622
Share issuance costs		(1,818	)	—		—	—	—		—		—		(1,818	)
Convertible debt - conversions		11,912		—		—	—	—		—		—		11,912
Derivative warrants exercised		8,087		—		—	—	—		—		—		8,087
Warrants expired		—		(2,229	)	2,229	—	—		—		—		—
Share-based compensation	17	—		—		3,118	—	—		—		—		3,118
Balance at September 30, 2020		504,671		25,602		38,609	2,279	(500,506	)	—		4,538		75,193

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>September 30						Nine months ended<br><br><br>September 30
	Note	2021			2020			2021			2020
Cash provided by (used in):
Operating activities
Net income (loss) from continuing operations for the period			11,311			(71,397	)		(175,421	)		(142,173	)
Items not involving cash:
Income tax recovery			(10,058	)		—			(10,058	)		—
Change in fair value of biological assets			(2,975	)		(194	)		(2,550	)		(4,853	)
Share-based compensation	20		1,869			3,118			9,864			7,065
Depreciation and amortization	12,14		3,427			3,127			8,198			8,996
(Gain) loss on disposition of PP&E			—			—			139			(488	)
Inventory obsolescence	11		3,871			19,897			7,276			37,638
Finance costs	24		134			(9,501	)		186			(7,685	)
Change in estimate of fair value of derivative warrants	17		(24,100	)		(10,057	)		86,034			(10,468	)
Unrealized foreign exchange (gain) loss			(2,071	)		(243	)		(62	)		(1,429	)
Restructuring costs			—			—			—			448
Asset impairment	12		—			60,000			60,000			65,659
Share of profit of equity-accounted investees	16(a)		(9,918	)		—			(13,642	)		—
Other expenses	16(b)		—			—			1,864			—
Gain on disposition of marketable securities	8,22		(5,988	)		—			(18,218	)		—
Unrealized (gain) loss on marketable securities	8		23,996			—			20,964			—
Additions to marketable securities	8		(45,751	)		—			(152,084	)		—
Proceeds from disposal of marketable securities	8		5,520			—			29,696			—
Change in non-cash working capital			(5,427	)		(14,807	)		(13,094	)		(2,783	)
Net cash used in operating activities from continuing operations			(56,160	)		(20,057	)		(160,908	)		(50,073	)
Net cash provided by operating activities from discontinued operations	5		—			—			—			4,820
Net cash used in operating activities			(56,160	)		(20,057	)		(160,908	)		(45,253	)
Investing activities
Additions to property, plant and equipment	12		(1,127	)		(1,076	)		(2,991	)		(2,869	)
Additions to intangible assets	14		—			(138	)		—			(138	)
Additions to investments	15		—			—			(13,560	)		—
Additions to equity-accounted investees	16(b)		(135,252	)		—			(323,127	)		—
Distributions from equity-accounted investees	16(b)		6,490						6,490
Proceeds from disposal of PP&E	12		79			6			194			2,109
Acquisition	4		(83,552	)		—			(83,552	)		—
Change in non-cash working capital			(544	)		(531	)		(507	)		(11,221	)
Net cash used in investing activities from continuing operations			(213,906	)		(1,739	)		(417,053	)		(12,119	)
Net cash used in investing activities from discontinued operations	5		—			—			—			(6,617	)
Net cash used in investing activities			(213,906	)		(1,739	)		(417,053	)		(18,736	)
Financing activities
Proceeds from convertible notes, net of costs			—			(167	)		—			18,462
Change in restricted cash	7		19,386			—			(27,730	)		10,497
Repayment of Syndicated Credit Agreement			—			(1,931	)		—			(12,593	)
Payments on lease obligations, net	18		(365	)		(93	)		(610	)		(312	)
Proceeds from issuance of shares and registered offerings, net of costs	19(b)		(69	)		24,588			1,062,379			24,588
Proceeds from exercise of derivative warrants	17		—			—			119,318			—
Proceeds from exercise of employee warrants	20		—			—			201			—
Convertible debenture settlement	4		(9,354	)		—			(9,354	)		—
Exercise of warrants	19(c)		(221	)		—			(221	)		—
Change in non-cash working capital			2,406			(952	)		2,788			(1,595	)
Net cash provided by financing activities from continuing operations			11,783			21,445			1,146,771			39,047
Net cash used in financing activities from discontinued operations	5		—			—			—			(639	)
Net cash provided by financing activities			11,783			21,445			1,146,771			38,408
Effect of exchange rate changes on cash held in foreign currency			2,007			(234	)		(44	)		1,288
Change in cash and cash equivalents			(256,276	)		(585	)		568,766			(24,293	)
Cash and cash equivalents, beginning of period			885,418			21,629			60,376			45,337
Cash and cash equivalents, end of period			629,142			21,044			629,142			21,044

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 nine months ended September 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, the operation and support of wholly owned and franchise retail cannabis stores in Canadian jurisdictions where the private sale of recreational cannabis is permitted 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 16(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 strategic portfolio investments in debt and equity securities.

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 with increased frequency, encouraging social distancing measures and directing employees to work from home if possible. At a retail store level, the Company has implemented enhanced in-store procedures including increased frequency of cleaning, installing safety shields and reducing paper materials. The Company has also adapted its business model by moving toward online sales platforms that enable customers to order products online for fast pickup and payment in store. The Company believes that it can maintain safe operations with these pandemic-related procedures and protocols in place.

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 November 11, 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 26(a)) which are measured at fair value with changes in fair value recorded in earnings.

	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.

Sundial Growers Inc.

Notes to the Condensed Consolidated Interim Financial Statements

For the three and nine months ended September 30, 2021

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

	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
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	%
Inner Spirit Holdings Ltd.	Alberta, Canada	100	%
Spirit Leaf Inc.	Alberta, Canada	100	%
Spirit Leaf Corporate Inc.	Alberta, Canada	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 other comprehensive income (“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 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

Sundial Growers Inc.

Notes to the Condensed Consolidated Interim Financial Statements

For the three and nine months ended September 30, 2021

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

will recognize any gains or losses from fair market value adjustments, interest and/or foreign exchange in the statement of income (loss) and comprehensive income (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.

Leases

As a lessor

When the Company acts as a lessor, it determines at lease inception whether each lease is a finance lease or an operating lease. To classify each lease, the Company makes an overall assessment of whether the lease transfers substantially all of the risks and rewards incidental to ownership of the underlying asset. If this is the case, then the lease is a finance lease; if not, then it is an operating lease. Under a finance lease, the Company recognizes a receivable at an amount equal to the net investment in the lease which is the present value of the aggregate of lease payments receivable by the lessor. Under an operating lease, the Company recognizes lease payments received as income on a straight-line basis over the lease term. When the Company is an intermediate lessor, it accounts for its interests in the head lease and the sub-lease separately. It assesses the lease classification of a sub-lease with reference to the right-of-use asset arising from the head lease, not with reference to the underlying asset.

revenue

Retail revenue

Retail revenue consists of sales through the corporate stores and e-commerce operations. Revenue at corporate stores is recognized at point of sale when the customer takes control of the goods or service and is measured at the amount of consideration to which the Company expects to be entitled to, net of estimated returns, sales incentives and franchise fee reductions. The Company considers its performance obligations to be satisfied at point of sale. The Company’s goods and services are generally capable of being distinct and are accounted for as a separate performance obligation. Sales through e-commerce operations are recognized when the customer takes control of the goods or services upon delivery and is measured at the amount of consideration to which the Company expects to be entitled to, net of estimated returns, sales incentives and franchise fee reductions.

It is the Company’s policy to sell merchandise with a limited right to return. Returns are only provided through exchanges or the issuance of a gift certificate.

Franchise revenue

Franchise fees are recognized at a point in time when the Company satisfies its performance obligations which is determined to be when the franchise begins operations. Performance obligations include site selection, lease assistance and training. Initial franchise fees are allocated to the performance obligations based on the estimated standalone selling prices. Funds received in advance of a franchise starting operations are recorded as franchise fee deposits.

Ongoing royalty and advertisement fees, which are determined on a formula basis in accordance with the terms of the relevant franchise agreement, based on monthly revenues of the franchisees, are recognized as revenue when the contractual performance obligations have been achieved or other service-related performance obligations have been completed. The performance obligations relate to providing support to the franchise partners and being stewards of the Spiritleaf brand. While the franchisees are operating under the name Spiritleaf, they are utilizing the Spiritleaf trademark, thereby, the Company has performed its obligations to recognize the revenue, as per the franchise agreements.

Other revenue

Millwork revenue is defined as the proceeds and receivables related to the sale of millwork, which includes store fixtures. Millwork revenue is recognized at a point in time when a contractual exchange agreement has been entered into, and the performance obligation is considered to have been met when the millwork has been delivered to the franchise partner.

Sundial Growers Inc.

Notes to the Condensed Consolidated Interim Financial Statements

For the three and nine months ended September 30, 2021

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

Supply revenue represents revenues earned from the sales of custom Spiritleaf accessories to franchise locations. The Spiritleaf accessory revenue is earned when the goods are paid for and shipped.

Retail inventory

Inventory is valued at Company owned stores at the lower of cost and net realizable value. Net realizable value is the estimated selling price in the ordinary course of business, less estimated costs of selling the final product. Cost is determined by the weighted average method and comprises direct purchase costs. Inventory is written down to its net realizable value when the cost of inventory is estimated to be unrecoverable due to obsolescence, damage or declining selling prices. The Company makes estimates related to obsolescence, future selling prices, seasonality, customer behavior and fluctuations in inventory levels.

4.	Business acquisition

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 acquired 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), (ii) an aggregate 24.4 million Sundial common shares valued at $26.2 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) and (iii) contingent consideration valued at $1.2 million representing the fair value of Inner Spirit warrants.

The Company has engaged independent valuation experts to assist in determining the fair value of certain assets acquired and liabilities assumed. The purchase price allocation and the amount of deferred income taxes arising on their recognition is not final as the Company is continuing to obtain and verify information required to determine the fair value of certain assets and liabilities. The Company expects to finalize the amounts recognized as it obtains the information necessary to complete the analysis prior to the end of the fiscal year.

The preliminary value on July 20, 2021, that was allocated to the purchase price was as follows:


Cash			92,583
Issuance of common shares			26,216
Contingent consideration			1,150
			119,949

Sundial Growers Inc.

Notes to the Condensed Consolidated Interim Financial Statements

For the three and nine months ended September 30, 2021

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

The preliminary purchase price was allocated as follows:


Cash	9,031
Accounts receivable	3,506
Prepaid expenses and deposits	670
Inventory	2,225
Property, plant and equipment	8,879
Intangible assets	59,220
Net investment in subleases	18,909
Goodwill	65,573
Accounts payable and accrued liabilities	(2,361	)
Convertible debentures	(12,025	)
Lease liabilities	(23,283	)
Financial guarantee liability	(337	)
Deferred tax liability	(10,058	)
	119,949

On August 4, 2021, the Company settled the convertible debenture liability through the issuance of 2.5 million common shares valued at $2.7 million and a cash payment of $9.3 million. Due to the change of control from the Transaction, debenture holders were entitled to receive Sundial common shares and a cash payment based on a prescribed formula.

The fair value of the Inner Spirit warrants has been estimated as $1.2 million and is made up of the following components:

	(i)	Equity component of $1.8 million
	(ii)	Liability component of $0.3 million
---	---	---
	(iii)	Asset component of $0.9 million
---	---	---

The warrant holders are entitled to the Transaction consideration of $0.30 cash for each Inner Spirit warrant and 0.0835 Sundial shares per warrant upon exercise. The warrants have exercises prices ranging from $0.10 to $0.35 and the cash payment will be settled on a net basis for the warrant holders. The warrants with exercise prices less than $0.30 will receive cash from Sundial upon exercise for the difference between the $0.30 consideration and the exercise price, and the warrants with exercise prices greater than $0.30 will owe a cash payment to Sundial upon exercise for the difference between the $0.30 consideration and the exercise price.

Subsequent to recording the purchase price allocation, the deferred tax liability was adjusted to nil with the offsetting adjustment to income tax recovery on the basis that both the Company and Inner Spirit are subject to income tax under the same taxation authority.

The condensed consolidated interim financial statements incorporate the operations of Inner Spirit commencing July 20, 2021. During the period July 20, 2021, to September 30, 2021, the Company recorded revenues of $6.1 million and a net loss of $0.8 million. Had the acquisition closed on January 1, 2021, management estimates that for the period January 1, 2021, to July 19, 2021, revenue would have increased by $14.9 million and net earnings would have increased by $4.2 million. In determining these amounts, management assumes the fair values on the date of acquisition would have been the same as if the acquisition had occurred on January 1, 2021.

5.	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 income (loss) and comprehensive income (loss) and statement of cash flows has been presented to show the discontinued operation separately from continuing operations.

Sundial Growers Inc.

Notes to the Condensed Consolidated Interim Financial Statements

For the three and nine months ended September 30, 2021

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

Results of discontinued operations

		Three months ended<br><br><br>September 30				Nine months ended<br><br><br>September 30
		2021		2020		2021		2020^(1)^
Gross revenue			—		—		—		22,139
Net revenue			—		—		—		22,139
Cost of sales			—		—		—		15,633
Gross margin before fair value adjustments			—		—		—		6,506
Change in fair value of biological assets			—		—		—		1,064
Change in fair value realized through inventory			—		—		—		(1,122	)
Gross margin			—		—		—		6,448

General and administrative			—		—		—		8,585
Sales and marketing			—		—		—		1,418
Depreciation and amortization			—		—		—		2,752
Foreign exchange			—		—		—		1,057
Share-based compensation			—		—		—		(826	)
Loss from operations			—		—		—		(6,538	)

Finance costs			—		—		—		(10,083	)
Loss on contingent consideration			—		—		—		(2,252	)
Loss on disposition of Bridge Farm			—		—		—		(14,979	)
Loss before income tax			—		—		—		(33,852	)
Income tax recovery			—		—		—		225
Net loss^(2)^			—		—		—		(33,627	)
	(1)	Period January 1, 2020, to June 5, 2020
---	---	---
	(2)	Net loss from the discontinued operations is attributable entirely to the owners of the Company.
---	---	---

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	)

Sundial Growers Inc.

Notes to the Condensed Consolidated Interim Financial Statements

For the three and nine months ended September 30, 2021

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

6.	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 is 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. The acquisition of Inner Spirit (note 4) has led to a third operating segment: retail. For the three and nine months ended September 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 three reportable operating segments: cannabis operations, retail operations and investment operations. Cannabis operations include the cultivation, distribution and sale of cannabis for the adult-use market and medical markets in Canada. Retail operations include the private sale of recreational cannabis through wholly owned and franchise retail cannabis stores. Investment operations include the deployment of capital to investment opportunities. Certain overhead expenses not directly attributable to any operating segment are reported as “Corporate”.

		Cannabis				Retail
As at September 30, 2021
Total assets			174,578				166,955		1,109,840		2,998		1,454,371
Nine months ended September 30, 2021
Net revenue			27,269				6,140		6,756		—		40,165
Gross margin			(8,149	)			3,658		6,756		—		2,265
Share of profit of equity-accounted investees			—				—		13,642		—		13,642
Depreciation and amortization			2,442				1,463		—		469		4,374
Earnings (loss) before tax			(94,800	)			(476	)	17,339		(107,542	)	(185,479	)
Three months ended September 30, 2021
Net revenue			8,227				6,140		(14,699	)	—		(332	)
Gross margin			(1,876	)			3,658		(14,699	)	—		(12,917	)
Share of profit of equity-accounted investees			—				—		9,918		—		9,918
Depreciation and amortization			660				1,463		—		262		2,385
Earnings (loss) before tax			(10,177	)			(476	)	(6,012	)	17,918		1,253
7.	Restricted cash
---	---
As at	September 30, 2021			December 31, 2020
---	---	---	---	---	---	---
Letters of credit		—			5,333
Securities collateral		13,831			—
Captive insurance		19,232			—
		33,063			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 funded with $7.1 million.

Sundial Growers Inc.

Notes to the Condensed Consolidated Interim Financial Statements

For the three and nine months ended September 30, 2021

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

8.	Marketable securities
As at	September 30, 2021			December 31, 2020
---	---	---	---	---	---	---
Balance, beginning of year		—			—
Additions		152,084			—
Dispositions		(11,478	)		—
Change in fair value recognized in profit or loss		(20,964	)		—
Balance, end of period		119,642			—

During the nine months ended September 30, 2021, proceeds of $29.7 million were received for dispositions of marketable securities and a gain on disposition of $18.2 million was recognized (note 22).

Marketable securities have been designated as Fair Value Through Profit or Loss (“FVTPL”) (note 26).

The components of marketable securities are as follows:

As at	September 30, 2021			December 31, 2020
Equity securities		120,174			—
Put and call options		(532	)		—
		119,642			—
9.	Accounts receivable
---	---
As at	September 30, 2021			December 31, 2020
---	---	---	---	---	---	---
Trade receivables		8,969			15,786
Other receivables		3,653			112
		12,622			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.

10.	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	19,487		39,957
Net change in fair value of biological assets	2,550		6,496
Transferred to inventory upon harvest	(22,688	)	(54,388	)
Disposition of Bridge Farm (note 5)	—		(2,831	)
Foreign currency translation	—		(12	)
Balance, end of period	2,880		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.

Sundial Growers Inc.

Notes to the Condensed Consolidated Interim Financial Statements

For the three and nine months ended September 30, 2021

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

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

Assumption	Input	Weighted average input		Effect of 10% change (000s)
		September 30<br><br><br>2021	December 31<br><br><br>2020	September 30<br>2021	December 31<br><br><br>2020
Yield per square foot of growing space^(1)^	Grams	51	45	282		347
Average net selling price^(2)^	/gram	4.49	5.13	778		1,022
After harvest cost to complete and sell	/gram	1.06	1.32	206		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.
---	---	---

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 September 30, 2021, it is estimated that the Company’s biological assets will yield approximately 5,386 kilograms (December 31, 2020 – 5,507 kilograms) of dry cannabis when harvested. During the nine months ended September 30, 2021, the Company harvested 16,861 kilograms of dry cannabis (nine months ended September 30, 2020 – 22,396 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.

11.	Inventory
As at	September 30, 2021			December 31, 2020
---	---	---	---	---	---	---
Harvested cannabis		28,705			20,358
Cannabis supplies and consumables		5,598			5,255
Retail		1,679			—
Millwork		111			—
		36,093			25,613

During the three and nine months ended September 30, 2021, inventories of $11.7 million and $32.7 million were recognized in cost of sales as an expense (three and nine months ended September 30, 2020 - $10.3 million and $41.1 million). During the three and nine months ended September 30, 2021, the Company recognized inventory write downs of $3.6 million and $6.8 million (three and nine months ended September 30, 2020 - $20.9 million and $48.6 million), of which $3.9 million and $7.3 million (three and nine months ended September 30, 2020 - $19.9 million and $37.6 million) was recognized as an impaired and obsolete inventory provision, and negative $0.3 million and negative $0.5 million (three and nine months ended September 30, 2020 - $1.0 million and $11.0 million) was included in the change in fair value realized through inventory as the fair value component of the impaired and obsolete inventory provision.

Sundial Growers Inc.

Notes to the Condensed Consolidated Interim Financial Statements

For the three and nine months ended September 30, 2021

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

12.	Property, plant and equipment
	Land			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
Acquisition (note 4)		—			3,140			1,628			4,111			—			8,879
Additions		—			(263	)		1,647			—			1,094			2,478
Dispositions		—			(70	)		(100	)		(165	)		(177	)		(512	)
Balance at September 30, 2021		8,640			155,744			32,069			5,840			9,736			212,029

Accumulated amortization and impairment
Balance at December 31, 2020		—			69,364			8,500			571			5,821			84,256
Depreciation		—			2,338			3,958			469			—			6,765
Impairment		—			60,000			—			—			—			60,000
Dispositions		—			—			(10	)		(147	)		—			(157	)
Balance at September 30, 2021		—			131,702			12,448			893			5,821			150,864

Net book value
Balance at December 31, 2020		8,640			83,573			20,394			1,323			2,998			116,928
Balance at September 30, 2021		8,640			24,042			19,621			4,947			3,915			61,165

During the nine months ended September 30, 2021, depreciation expense of $3.8 million was capitalized to biological assets and inventory (nine months ended September 30, 2020 – $5.6 million).

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, there was an impairment of the Company’s Olds CGU of $60.0 million for the three months ended June 30, 2021, 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 the impairment by approximately $7.3 million.

At September 30, 2021, the Company determined that no indicators of impairment existed or indicators that a previous impairment should be reversed, and no impairment test was required.

Sundial Growers Inc.

Notes to the Condensed Consolidated Interim Financial Statements

For the three and nine months ended September 30, 2021

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

13.	Net investment in subleases
	September 30, 2021			December 31, 2020
---	---	---	---	---	---	---
Balance, beginning of year		—			—
Acquisition (note 4)		18,909			—
Additions		550			—
Finance income		493			—
Rents recovered (payments made directly to landlords)		(781	)		—
Balance, end of period		19,171			—

Current portion		3,084			—
Long-term		16,087			—

Net investment in subleases represent leased retail stores that have been subleased to certain franchise partners. These subleases are classified as a financial lease as the sublease terms are for the remaining term of the head lease.

14.	Intangible assets
	Brands and trademarks			Franchise agreements			Patents			Total
---	---	---	---	---	---	---	---	---	---	---	---	---
Cost
Balance at December 31, 2020		5,445			—			13,551			18,996
Acquisition (note 4)		31,750			27,470			—			59,220
Balance at September 30, 2021		37,195			27,470			13,551			78,216

Accumulated amortization and impairment
Balance at December 31, 2020		382			—			13,551			13,933
Depreciation		891			542			—			1,433
Balance at September 30, 2021		1,273			542			13,551			15,366

Net book value
Balance at December 31, 2020		5,063			—			—			5,063
Balance at September 30, 2021		35,922			26,928			—			62,850

Brands and trademarks consist of intellectual property purchased from Sun 8 Holdings Inc. with a useful life of 15 years, other intellectual property with a useful life of 12 years and intellectual property acquired through the acquisition of Inner Spirit consisting of proprietary rights to trademarks with a useful life of 10 years. Franchise agreements consist of intellectual property acquired through the acquisition of Inner Spirit consisting of franchisee relationships with a useful life of 10 years.

15.	Investments
As at	September 30, 2021			December 31, 2020
---	---	---	---	---	---	---
Investments at amortized cost (A)		13,678			—
Investments at FVTPL (B)		51,876			51,876
		65,554			51,876

Current portion		3,045			—
Long-term		62,509			51,876

Sundial Growers Inc.

Notes to the Condensed Consolidated Interim Financial Statements

For the three and nine months ended September 30, 2021

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

	A)	INvestments at amortized cost

On February 16, 2021, the Company announced a $22 million strategic investment (the “Indiva Investment”) in Indiva Limited (“Indiva”). 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 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 26). The common shares are measured at Fair Value Through Profit or Loss (“FVTPL”) and are included in marketable securities (note 8).

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 maturity date was subsequently extended to November 16, 2021. 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 26).

	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”). On June 1, 2021, Zenabis was acquired by HEXO Corp. 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 as Zenabis is in breach of certain covenants. 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 26). 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 November 11, 2021, all required payments have been made in respect of the Zenabis Senior Loan.

16.	Equity-accounted investees
As at	September 30, 2021			December 31, 2020
---	---	---	---	---	---	---
Interest in joint venture (A)		330,279			—
Interest in associate (B)		—			—
		330,279			—
	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 the joint venture:

Sundial Growers Inc.

Notes to the Condensed Consolidated Interim Financial Statements

For the three and nine months ended September 30, 2021

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


Balance at December 31, 2020	—
Capital contributions	323,127
Share of net earnings	13,642
Capital distributions	(6,490	)
Balance at September 30, 2021	330,279

The following table summarizes the financial information of SunStream adjusted for fair value adjustments and differences in accounting policies:

As at	September 30, 2021
Current assets (including cash and cash equivalents: 7.1 million)	18,059
Non-current assets	317,992
Current liabilities	(1,170	)
Non-current liabilities	—
Net assets (liabilities) (100%)	334,881

Nine months ended September 30, 2021
Revenue	14,411
Profit from operations	13,335
Total comprehensive income	13,909

All values are in US Dollars.

	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 below, 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 or on any previously issued interim consolidated financial statements of the Company. The effect of this recast on the Company’s annual results for

Sundial Growers Inc.

Notes to the Condensed Consolidated Interim Financial Statements

For the three and nine months ended September 30, 2021

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

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.

17.	Derivative warrants
		September 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			(20,497	)
Converted to common shares			(157,818	)
Balance, end of period			29,900

The carrying amount is an estimate of the fair value of the derivative warrants and is presented as a current liability. The derivative warrants are classified as a liability due to the Company’s share price being denominated in USD, which creates variability as to the value in CAD when they are exercised. The derivative warrants are recorded as a current liability, however, the Company has no cash obligation with respect to the derivative warrants, rather it will deliver common shares if and when warrants are exercised.

	(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

Sundial Growers Inc.

Notes to the Condensed Consolidated Interim Financial Statements

For the three and nine months ended September 30, 2021

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

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

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 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 nine months ended September 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 conducted on a cashless basis. 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 September 30, 2021:


August 2020 Offering - Series A Warrants ^(1)^	0.1766	500,000	3.9
Unsecured Convertible Notes Warrants ^(1)^	0.1766	500,000	2.3
New Warrants	1.50	98,333,334	2.9
		99,333,334	2.9

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.

Sundial Growers Inc.

Notes to the Condensed Consolidated Interim Financial Statements

For the three and nine months ended September 30, 2021

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

18.	Lease obligations
	September 30, 2021			December 31, 2020
---	---	---	---	---	---	---
Balance, beginning of year		1,440			16,949
Acquisition (note 4)		23,283			—
Liabilities incurred		550			763
Lease payments		(1,391	)		(937	)
Dispositions		(20	)		(735	)
Interest expense		671			416
Disposition of Bridge Farm (note 5)		—			(14,894	)
Foreign currency translation		—			(122	)
Balance, end of period		24,533			1,440

Current portion		4,328			409
Long-term		20,205			1,031

The Company’s minimum lease payments are as follows:


Less than one year	5,728
One to three years	10,427
Three to five years	8,334
Thereafter	14,163
Minimum lease payments	38,652
Amounts representing finance charges	(14,119	)
Net minimum lease payments	24,533

The Company has short-term leases with lease terms of 12 months or less as well as low-value leases. As these costs are incurred, they are recognized as general and administrative expense. These costs were immaterial in 2021.

Financial guarantee liability

For franchise operated locations where the Company provided an indemnity for its franchisees, lease payments are made directly to the landlord by the franchisee, and the obligation to make lease payments would only revert to the Company if a franchisee defaulted on their obligations under the terms of the sub-lease or lease. The Company has made an estimate of expected credit losses in the event of default by the franchisees in making lease payments. This amount is recognized as a financial guarantee liability in the consolidated statement of financial position, and changes in the estimated liability are recognized as a financial guarantee liability expense within finance costs in the consolidated statement of income (loss) and comprehensive income (loss).

At September 30, 2021, the Company recognized a financial guarantee liability of $0.3 million (December 31, 2020 - $nil).

19.	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.

Sundial Growers Inc.

Notes to the Condensed Consolidated Interim Financial Statements

For the three and nine months ended September 30, 2021

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

	(b)	Issued and outstanding
		September 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			—			(16,302	)		—			(5,593	)
Acquisition	4		24,431,278			26,216			—			—
Disposition of Bridge Farm	5		—			—			(2,716,271	)		(38,447	)
Convertible debenture settlement	4		2,488,754			2,671			373,371,318			63,002
Derivative warrants exercised	17		152,146,950			277,136			102,836,429			55,912
Warrants exercised	19(c)		191,545			174			—			—
Employee awards exercised^(1)^	20(c)		1,084,384			2,641			475,367			587
Balance, end of period			2,055,993,692			2,032,007			918,844,133			762,046
	(1)	Included in employee awards exercised are 875,000 RSUs that vested and were exercised in December 2020, however, the common shares were not issued until January 2021.
---	---	---

At-the-Market (“ATM”) Offering Program

During the nine months ended September 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 ATM programs.

2021 Registered Offerings

In connection with the January 2021 Units Offering, the Company issued 100.0 million common shares (note 17a) and in connection with the February 2021 Units Offering, the Company issued 60.5 million common shares (note 17b).

	(c)	Common share purchase warrants
	Number of Warrants			Carrying Amount
---	---	---	---	---	---	---
Balance at December 31, 2020		1,024,000			6,138
Acquisition (note 4)		2,097,828			1,771
Warrants exercised		(191,545	)		(174	)
Balance at September 30, 2021		2,930,283			7,735

The following table summarizes outstanding warrants as at September 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		0.8
Financial services		4.60		544,000		7.8
Acquired from Inner Spirit^(1)^		0.34		1,906,283		2.5
		0.75		2,930,283		2.6
	(1)	Inner Spirit warrants are exchangeable for 0.0835 Sundial common shares in accordance with the Transaction consideration (note 4) and have been presented based on the number of Sundial common shares that are issuable.
---	---	---
20.	Share-based compensation
---	---

The Company has a number of 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

Sundial Growers Inc.

Notes to the Condensed Consolidated Interim Financial Statements

For the three and nine months ended September 30, 2021

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

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>September 30					Nine months ended<br><br><br>September 30
	2021			2020		2021			2020
Equity-settled expense
Simple warrants (A)		637			1,611		2,267			3,385
Performance warrants (A)		—			—		—			(42	)
Stock options (B)		32			167		(45	)		489
Restricted share units (C)		1,783			769		5,214			1,454
Cash-settled expense
Deferred share units^(i)^ (D)		(583	)		571		2,428			1,779
		1,869			3,118		9,864			7,065
	(i)	Cash-settled DSUs are accounted for as a liability and are measured at fair value based on the market value of the Company’s common shares at each period end. Fluctuations in the fair value are recognized during the period in which they occur.
---	---	---

Equity-settled plans

	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.

The following table summarizes changes the simple and performance warrants during the nine months ended September 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	(268,800	)		6.04	(204,800	)		5.48
Exercised	(120,000	)		0.94	(80,000	)		1.09
Expired	(41,600	)		3.45	—			0.00
Balance at September 30, 2021	2,994,200		$	4.42	1,387,200		$	4.18

Sundial Growers Inc.

Notes to the Condensed Consolidated Interim Financial Statements

For the three and nine months ended September 30, 2021

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

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

		Warrants outstanding									Warrants exercisable
Range of exercise prices	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)			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			2.46			889,400			0.72			2.46
1.25 - 1.88		400,000			1.56			2.84			400,000			1.56			2.84
2.97 - 4.53		351,200			3.09			3.34			295,200			3.04			3.23
6.25 - 9.38		1,219,200			6.29			4.98			496,000			6.33			4.96
12.50 - 37.50		134,400			23.91			5.78			40,000			19.61			4.30
			2,994,200		$	4.42			3.79			2,120,600		$	2.87			3.26
Performance warrants
0.63 - 0.94		458,667			0.68		n/a				458,667			0.68		n/a
1.25 - 1.88		189,333			1.51		n/a				181,333			1.50		n/a
2.97 - 4.53		504,000			3.16		n/a				504,000			3.16		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
			1,387,200		$	4.18		n/a				1,182,400		$	2.04		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 nine months ended September 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 September 30, 2021	444,600		$	1.33

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

		Stock options outstanding						Stock options exercisable
Exercise prices	Number of<br><br><br>options			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			8.66			108,332			8.66
1.19		81,600			8.74			81,600			8.74
3.15		38,000			6.60			14,750			5.56
			444,600			8.50			204,682			8.47

All values are in US Dollars.

Sundial Growers Inc.

Notes to the Condensed Consolidated Interim Financial Statements

For the three and nine months ended September 30, 2021

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

	c)	Restricted share units

RSUs are granted to employees and the vesting requirements and maximum term are at the discretion of the Board. RSUs are exchangeable for an equal number of common shares.

The following table summarizes changes in RSUs during the nine months ended September 30, 2021:


Balance at December 31, 2020	1,656,916
Granted	12,338,300
Forfeited	(1,313,528	)
Exercised	(9,384	)
Balance at September 30, 2021	12,672,304

Cash-settled plans

	d)	Deferred share units

DSUs are granted to directors and generally vest in equal instalments over one year. The Company intended to settle the DSUs by issuing common shares, however, during the three months ended September 30, 2021, the Company changed its intention to settle the DSUs to making a cash payment to the holder equal to the fair value of the Company’s common shares calculated at the date of such payment. Accordingly, $5.1 million representing the previously recognized fair value of the DSUs, was reclassified from contributed surplus to accounts payable and accrued liabilities during the three months ended September 30, 2021.

As at September 30, 2021, included in accounts payable and accrued liabilities is $4.5 million relating to the fair value of cash-settled DSUs.

The following table summarizes changes in DSUs during the nine months ended September 30, 2021:


Balance at December 31, 2020		3,323,263
Granted		2,054,734
Balance at September 30, 2021		5,377,997
21.	Gross revenue
---	---

Cannabis revenue is derived 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. Retail revenue is derived solely from retail cannabis sales to customers, franchise revenue consisting of royalty, advertising and franchise fee revenue, and other revenue consisting of millwork, supply and accessories revenue.

Sundial Growers Inc.

Notes to the Condensed Consolidated Interim Financial Statements

For the three and nine months ended September 30, 2021

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

	Three months ended<br><br><br>September 30				Nine months ended<br><br><br>September 30
	2021		2020		2021		2020
Cannabis revenue
Provincial boards		10,105		12,552		30,035		40,885
Medical		3		6		6		27
Licensed producers		914		2,967		5,468		15,544
Cannabis revenue^(1)^		11,022		15,525		35,509		56,456
Retail revenue
Retail		3,285		—		3,285		—
Franchise		2,197		—		2,197		—
Other (millwork, supply, accessories)		658		—		658		—
Retail revenue		6,140		—		6,140		—
Gross revenue		17,162		15,525		41,649		56,456
	(1)	The Company had three major customers each with revenue in excess of 10% of total cannabis revenue. Sales to major customers totaled $19.8 million for the nine months ended September 30, 2021 (nine months ended September 30, 2020 – three major customers with total sales of $33.8 million). Two major customer had sales exceeding 10% of total cannabis revenue for both periods.
---	---	---

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

	Three months ended<br><br><br>September 30						Nine months ended<br><br><br>September 30
	2021			2020			2021			2020
Revenue from dried flower		9,273			11,629			28,763			39,443
Revenue from vapes		1,166			3,577			3,863			14,185
Revenue from oil		37			319			1,628			2,828
Revenue from edibles and concentrates		546			—			1,255			—
Gross revenue		11,022			15,525			35,509			56,456
22.	Investment revenue
---	---
	Three months ended<br><br><br>September 30						Nine months ended<br><br><br>September 30
---	---	---	---	---	---	---	---	---	---	---	---	---
	2021			2020			2021			2020
Interest and fee revenue
Interest revenue from investments at amortized cost		352			—			793			—
Interest and fee revenue from investments at FVTPL		2,116			—			6,398			—
Interest revenue from cash		841			—			2,311			—
		3,309			—			9,502			—
	Three months ended<br><br><br>September 30						Nine months ended<br><br><br>September 30
---	---	---	---	---	---	---	---	---	---	---	---	---
	2021			2020			2021			2020
Investment revenue
Realized gains		5,988			—			18,218			—
Unrealized gains (losses)		(23,996	)		—			(20,964	)		—
		(18,008	)		—			(2,746	)		—

Sundial Growers Inc.

Notes to the Condensed Consolidated Interim Financial Statements

For the three and nine months ended September 30, 2021

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

23.	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 was further extended to June 2021 and included changes to the rates and the top-up calculation. The CEWS has further been extended to October 2021 at which point the federal government announced the CEWS will end on October 23, 2021.

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 (2020 - $4.1 million) has been recognized in the condensed consolidated interim statement of income (loss) and comprehensive income (loss). There are no unfulfilled conditions or contingencies attached to the CEWS.

24.	Finance costs
	Three months ended<br><br><br>September 30						Nine months ended<br><br><br>September 30
---	---	---	---	---	---	---	---	---	---	---	---	---
	2021			2020			2021			2020
Cash finance expense
Interest on Syndicated Credit Agreement		—			1,025			—			3,279
Interest on Term Debt Facility		—			—			—			2,936
Other finance costs		1			355			40			495
		1			1,380			40			6,710
Non-cash finance expense (income)
Interest on lease liabilities		627			—			671			—
Accretion		—			—			—			1,622
Amortization of debt issue costs		—			223			—			946
Change in fair value of convertible notes		—			(9,742	)		—			(10,231	)
Other		—			18			8			(22	)
		627			(9,501	)		679			(7,685	)
Interest income		(493	)		(19	)		(493	)		(181	)
		135			(8,140	)		226			(1,156	)

Sundial Growers Inc.

Notes to the Condensed Consolidated Interim Financial Statements

For the three and nine months ended September 30, 2021

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

25.	Income (Loss) per share
		Three months ended<br><br><br>September 30								Nine months ended<br><br><br>September 30
---	---	---	---	---	---	---	---	---	---	---	---	---	---	---	---	---
		2021				2020				2021				2020
Weighted average shares outstanding (000s)
Basic ^(1)^			2,049,589				134,269				1,794,274				116,132
Dilutive effect of RSUs and derivative warrants			7,227				—				—				—
Diluted			2,056,816				134,269				1,794,274				116,132
Continuing operations
Net income (loss) attributable to Sundial Growers Inc.			11,311				(71,386	)			(175,392	)			(141,997	)
Per share - basic		$	0.006			$	(0.53	)		$	(0.10	)		$	(1.22	)
Per share - diluted		$	0.005			$	(0.53	)		$	(0.10	)		$	(1.22	)
Discontinued operations
Net loss attributable to Sundial Growers Inc.			—				—				—				(33,627	)
Per share - basic and diluted		$	—			$	—			$	—			$	(0.29	)
Net income (loss) attributable to Sundial Growers Inc.			11,311				(71,386	)			(175,392	)			(175,624	)
Per share - basic		$	0.006			$	(0.53	)		$	(0.10	)		$	(1.51	)
Per share - diluted		$	0.005			$	(0.53	)		$	(0.10	)		$	(1.51	)
	(1)	For the nine months ended September 30, 2021, there were 2.9 million equity classified warrants exercisable, 90.6 million derivative warrants exercisable, 2.1 million simple warrants exercisable and 1.2 million performance warrants exercisable that were excluded from the calculation as the impact was anti-dilutive (nine months ended September 30, 2020 – 5.1 million warrants, 5.7 million simple warrants and 3.7 million performance warrants).
---	---	---
26.	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, derivative warrants and a financial guarantee liability.

	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 of investments at amortized cost approximate their fair value as the fixed interest rates approximate market rates for comparable transactions. The carrying value of the financial guarantee liability is determined based on assessing the timing and amount of expected credit losses.

Sundial Growers Inc.

Notes to the Condensed Consolidated Interim Financial Statements

For the three and nine months ended September 30, 2021

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

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

			Fair value measurements using
September 30, 2021	Carrying<br><br><br>amount		Level 1		Level 2		Level 3
Recurring measurements:
Financial assets
Marketable securities		119,642		119,642		—		—
Investments at FVTPL		51,876		—		—		51,876
Financial liabilities
Derivative warrants^(1)^		29,900		—		—		29,900

			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 income (loss) and comprehensive income (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 September 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 income (loss) and comprehensive income (loss) within finance costs. The fair value of the outstanding principal and interest approximates the original 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 income (loss) and comprehensive income (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.

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

Sundial Growers Inc.

Notes to the Condensed Consolidated Interim Financial Statements

For the three and nine months ended September 30, 2021

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

27.	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 nine months ended September 30, 2021, the full $139 thousand loan balance was settled. At September 30, 2021, the outstanding loan balance was nil.

	b)	Related party transactions and balances
	Transactions						Balance outstanding
---	---	---	---	---	---	---	---	---	---	---	---	---
	Nine months ended<br><br><br>September 30			Nine months ended<br><br><br>September 30			September 30			December 31
	2021			2020			2021			2020
Marketing, brand research and development^(a)^		—			1,144			—			—
Legal services^(b)^		—			1,811			—			(510	)
		—			2,955			—			(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.

28.	Capital management

The Company defines capital as 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 the ability to meet financial obligations;
	•	Deploy capital to provide an appropriate investment return to shareholders; and,
---	---	---
	•	Maintain a capital structure that allows various financing alternatives.
---	---	---
29.	Commitments and contingencies
---	---

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


Accounts payable and accrued liabilities	28,842	—	—	—	28,842
Lease obligations	5,728	10,427	8,334	14,163	38,652
Financial guarantee liability	337	—	—	—	337
Balance, end of period	34,907	10,427	8,334	14,163	67,831

Sundial Growers Inc.

Notes to the Condensed Consolidated Interim Financial Statements

For the three and nine months ended September 30, 2021

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

	(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 September 30, 2021 of $1.5 million (December 31, 2020 - $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.

30.	Subsequent events

Alcanna Inc. Acquisition

On October 7, 2021, the Company announced that it had entered into an arrangement agreement (the “Agreement”) with Alcanna Inc. (“Alcanna”) pursuant to which the Company will acquire all of the issued and outstanding common shares of Alcanna by way of a statutory plan of arrangement for total estimated common share consideration of approximately $346 million (the “Alcanna Transaction”). The Alcanna Transaction is expected to close in the fourth quarter of 2021.

Alcanna is a Canadian liquor retailer, operating predominantly in Alberta under its three retail brands, “Wine and Beyond”, “Liquor Depot” and “Ace Liquor”. Alcanna holds an approximately 63% equity interest in Nova Cannabis Inc. (“Nova”), a Canadian cannabis retailer operating stores across Alberta, Saskatchewan and Ontario.

Indiva Investment

On October 4, 2021, the Company provided an additional $8.5 million principal loan to Indiva and has amended the Term Loan (note 15(a)). The amended Term Loan has an interest rate of 15% per annum and the maturity date of February 23, 2024, has not changed. Accrued and unpaid interest of $0.3 million was added to the outstanding principal balance, bringing the total principal outstanding to $19.8 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 nine months ended September 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 nine months ended September 30, 2021 is dated November 11, 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 nine months ended September 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	3
OTHER DEVELOPMENTS	5
OPERATIONAL AND FINANCIAL HIGHLIGHTS	7
CONSOLIDATED RESULTS	7
CANNABIS OPERATIONS SEGMENT RESULTS	12
RETAIL OPERATIONS SEGMENT RESULTS	18
INVESTMENT OPERATIONS SEGMENT RESULTS	18
DISCONTINUED OPERATIONS – ORNAMENTAL FLOWERS	19
SELECTED QUARTERLY INFORMATION	20
LIQUIDITY AND CAPITAL RESOURCES	21
CONTRACTUAL COMMITMENTS AND CONTINGENCIES	24
NON-IFRS MEASURES	24
RELATED PARTIES	26
OFF BALANCE SHEET ARRANGEMENTS	26
CRITICAL ACCOUNTING POLICIES AND ESTIMATES	26
NEW ACCOUNTING PRONOUNCEMENTS	27
RISK FACTORS	27
DISCLOSURE CONTROLS AND PROCEDURES	27
INTERNAL CONTROLS OVER FINANCIAL REPORTING	27
ABBREVIATIONS	29
ADVISORY	29
ADDITIONAL INFORMATION	30

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.

The principal activities of the Company are the production, distribution and sale of cannabis in Canada pursuant to the Cannabis Act, the operation and ongoing support of wholly owned and franchise retail cannabis stores in Canadian jurisdictions where the private sale of recreational cannabis is permitted 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 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 strategic portfolio investments in debt and equity securities.

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 acquired all of the issued and outstanding common shares of Inner Spirit (the “Inner Spirit Transaction”). The Inner Spirit 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.

Sundial’s overall strategy is to build sustainable, long-term shareholder value by 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 retail operations will continue to build a Canadian retail brand and a network of retail cannabis stores across Canadian jurisdictions where the private distribution of cannabis is legal.

Sundial’s investment operations seek to deploy 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

ALCANNA INC. ACQUISITION

Alcanna is a Canadian liquor retailer, operating predominantly in Alberta under its three retail brands, “Wine and Beyond”, “Liquor Depot” and “Ace Liquor”. Alcanna holds an approximately 63% equity interest in it’s subsidiary Nova Cannabis Inc. (“Nova”), a Canadian cannabis retailer operating corporate owned stores across Alberta, Saskatchewan and Ontario.

INDIVA INVESTMENT

On October 4, 2021, the Company provided an additional $8.5 million principal loan to Indiva Limited (“Indiva”) and has amended the Term Loan. The amended Term Loan has an interest rate of 15% per annum and the maturity date of February 23, 2024, has not changed. Accrued and unpaid interest of $0.3 million was added to the outstanding principal balance, bringing the total principal outstanding to $19.8 million.

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 acquired all of the issued and outstanding common shares of Inner Spirit (the “Inner Spirit Transaction”). The Inner Spirit 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 Inner Spirit Transaction consideration was comprised of (i) an aggregate $92.6 million cash ($0.30 in cash for each Inner Spirit common share), (ii) an aggregate 24.4 million Sundial common shares valued at $26.2 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) and (iii) contingent consideration valued at $1.2 million representing the fair value of Inner Spirit warrants.

The preliminary value on July 20, 2021, that was allocated to the purchase price is as follows:


Cash			92,583
Issuance of common shares			26,216
Contingent consideration			1,150
			119,949

The preliminary purchase price was allocated as follows:


Cash	9,031
Accounts receivable	3,506
Prepaid expenses and deposits	670
Inventory	2,225
Property, plant and equipment	8,879
Intangible assets	59,220
Net investment in subleases	18,909
Goodwill	65,573
Accounts payable and accrued liabilities	(2,361	)
Convertible debentures	(12,025	)
Lease liabilities	(23,283	)
Financial guarantee liability	(337	)
Deferred tax liability	(10,058	)
	119,949

On August 4, 2021, the Company settled the convertible debenture liability through the issuance of 2.5 million common shares valued at $2.7 million and a cash payment of $9.3 million. Due to the change of control from the Inner Spirit Transaction, debenture holders were entitled to receive Sundial common shares and a cash payment based on a prescribed formula.

The fair value of the Inner Spirit warrants has been estimated as $1.2 million and is made up of the following components:

	(i)	Equity component of $1.8 million
	(ii)	Liability component of $0.3 million
---	---	---
	(iii)	Asset component of $0.9 million
---	---	---

capital Activities

During the nine months ended September 30, 2021, the Company issued 796.3 million common shares at a weighted average 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 September 30, 2021, the Company had an unrestricted cash balance of $629.1 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 and retail operations.

See “Financial Results – Consolidated” for more information on operating segments.

At September 30, 2021, the Company had deployed a portion of the capital raised in several cannabis-related investments, totaling $185.2 million. These investments generated $9.5 million in interest and fee revenue, $18.2 million in realized gains and

$21.0 million in unrealized losses during the nine months ended September 30, 2021. In addition, the Company deployed $330 million to SunStream and has recognized $13.6 million in net profit from its investments in SunStream.

The Company continues to 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. As of November 11, 2021, the Company had contributed $383 million to SunStream.

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

OTHER DEVELOPMENTS

Registered direct offerings

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.

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, installation of safety shields in retail outlets 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 US$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 US$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.

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)	Q3 2021			Q3 2020			Change			% Change
Financial
Gross revenue		17,162			15,525			1,637			11	%
Net revenue		14,367			12,865			1,502			12	%
Cost of sales		11,704			10,259			1,445			14	%
Gross margin		1,782			(19,544	)		21,326			109	%
Gross margin %		12	%		-152	%					108	%
Gross margin before fair value adjustments^(1)(2)^		(1,208	)		(17,291	)		16,083			93	%
Gross margin before fair value adjustments %^(2)^		-8	%		-134	%					94	%
Interest and fee revenue		3,309			—			3,309			100	%
Investment revenue		(18,008	)		—			(18,008	)		100	%
Loss from operations		(18,796	)		(89,479	)		70,683			79	%
Net income (loss)^(3)^		11,311			(71,386	)		82,697			116	%
Per share, basic ^(3)^		0.006			(0.53	)		0.54			101	%
Per share, diluted^(3)^		0.005			(0.53	)		0.54			101	%
Adjusted EBITDA from continuing operations^(2)^		10,539			(4,409	)		14,948			339	%

Statement of Financial Position
Cash and cash equivalents		629,142			21,044			608,098			2890	%
Biological assets		2,880			4,492			(1,612	)		-36	%
Inventory		36,093			31,672			4,421			14	%
Property, plant and equipment		61,165			119,777			(58,612	)		-49	%
Total assets		1,454,371			227,004			1,227,367			541	%

Operational
Kilogram equivalents sold		3,416			5,819			(2,403	)		-41	%
Average gross selling price per gram ^(4)^		3.23			2.67			0.56			21	%
Average net selling price per gram ^(5)^		2.41			2.21			0.20			9	%
(1)	Includes inventory obsolescence and impairment of $3.9 million for the three months ended September 30, 2021, and $19.9 million for three months ended September 30, 2020.
---	---
(2)	Adjusted EBITDA from continuing operations, gross margin before fair value adjustments and gross margin before fair value adjustments percentage 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 and gross margin before fair value adjustments percentage are 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 income (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 income (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

and investments. The acquisition of Inner Spirit has led to a third operating segment: retail. For the three and nine months ended September 30, 2020, there was only one reportable segment and therefore no comparative segment information.

(000s)
As at September 30, 2021
Total assets	174,578		166,955		1,109,840		2,998		1,454,371
Nine months ended September 30, 2021
Net revenue	27,269		6,140		6,756		—		40,165
Gross margin	(8,149	)	3,658		6,756		—		2,265
Share of profit of equity-accounted investees	—		—		13,642		—		13,642
Depreciation and amortization	2,442		1,463		—		469		4,374
Earnings (loss) before tax	(94,800	)	(476	)	17,339		(107,542	)	(185,479	)
Three months ended September 30, 2021
Net revenue	8,227		6,140		(14,699	)	—		(332	)
Gross margin	(1,876	)	3,658		(14,699	)	—		(12,917	)
Share of profit of equity-accounted investees	—		—		9,918		—		9,918
Depreciation and amortization	660		1,463		—		262		2,385
Earnings (loss) before tax	(10,177	)	(476	)	(6,012	)	17,918		1,253

All values are in US Dollars.

General and administrative

		Three months ended<br><br><br>September 30						Nine months ended<br><br><br>September 30
(000s)	2021			2020			2021			2020
Salaries and wages		5,099			3,353			13,048			9,992
Consulting fees		154			273			780			1,836
Office and general		838			1,937			5,531			7,789
Professional fees		2,649			577			4,886			2,878
Director compensation		88			87			263			277
Other		724			931			2,223			2,729
			9,552			7,158			26,731			25,501

All values are in US Dollars.

General and administrative expenses for the three months ended September 30, 2021 were $9.6 million compared to $7.2 million for the three months ended September 30, 2020. The increase of $2.4 million was mainly due to increases in salaries and wages and professional fees, partially offset by lower office and general expenses. The increase in salary and wages was due to the Inner Spirit acquisition. The increase in professional fees was due to increased legal fees, financial consulting fees and accounting service fees primarily associated with investment operations. The decrease in office and general expenses is mostly due to a decrease in insurance expenses.

General and administrative expenses for the nine months ended September 30, 2021 were $26.7 million compared to $25.5 million for the nine months ended September 30, 2020. The increase of $1.2 million was mainly due to increases in salaries and wages and professional fees, partially offset by decreases in consulting fees and office and general expenses. The increase in salaries and wages was due to the Inner Spirit acquisition and increased compensation related to the roll out of a new incentive plan given the improvement in liquidity during the year. The increase in professional fees was largely due to an increase in legal fees and accounting service fees associated with investment operations. The decrease in office and general expenses is mostly due to a decrease in insurance expenses.

Sales and marketing

		Three months ended<br><br><br>September 30								Nine months ended<br><br><br>September 30
(000s)	2021				2020				2021				2020
Sales and marketing		1,277				1,117				3,542				3,427

All values are in US Dollars.

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

Sales and marketing expenses for the three months ended September 30, 2021 were $1.3 million compared to $1.1 million for the three months ended September 30, 2020. The increase of $0.2 million was due to an increase in general marketing expenses.

Sales and marketing expenses for the nine months ended September 30, 2021 of $3.5 million were comparable to $3.4 million for the nine months ended September 30, 2020.

Share-based compensation

		Three months ended<br><br><br>September 30						Nine months ended<br><br><br>September 30
(000s)	2021			2020			2021			2020
Equity-settled expense
Simple warrants		637			1,611			2,267			3,385
Performance warrants		—			—			—			(42	)
Stock options		32			167			(45	)		489
Restricted share units		1,783			769			5,214			1,454
Cash-settled expense
Deferred share units		(583	)		571			2,428			1,779
			1,869			3,118			9,864			7,065

All values are in US Dollars.

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 for equity settled awards 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.

The Company intended to settle DSUs by issuing common shares, however, during the three months ended September 30, 2021, the Company changed its intention to settle DSUs to making a cash payment to the holder equal to the fair value of the Company’s common shares calculated at the date of such payment. Accordingly, $5.1 million representing the previously recognized fair value of the DSUs, was reclassified from contributed surplus to accounts payable and accrued liabilities during the three months ended September 30, 2021. The DSUs will be accounted for as a liability and marked to market at each period end.

Share-based compensation expense for the three months ended September 30, 2021 was $1.9 million compared to $3.1 million for the three months ended September 30, 2020. The decrease of $1.2 million was due to a decrease in the fair value of DSUs resulting from a decrease in the Company’s share price and a decrease in simple warrant expense due to the vesting of past grants, partially offset by an increase in RSU expense due to the increased number of RSUs granted during the year. Share-based compensation expense for the three months ended September 30, 2021 included the issuance of 25,000 RSUs and 344,882 DSUs. Share-based compensation expense for the three months ended September 30, 2020 included the issuance of 900 RSUs and 1,400,352 DSUs.

Share-based compensation expense for the nine months ended September 30, 2021 was $9.9 million compared to $7.1 million for the nine months ended September 30, 2020. The increase of $2.8 million was primarily due to an increase in the number of RSUs and DSUs granted. Share-based compensation expense for the nine months ended September 30, 2021 included the issuance of 12,338,300 RSUs and 2,054,734 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 nine months ended September 30, 2020 included the issuance of 2,999,813 RSUs, 2,690,253 DSUs and 481,600 stock options at an average exercise price of $1.16.

Transaction costs

		Three months ended<br><br><br>September 30								Nine months ended<br><br><br>September 30
(000s)	2021				2020				2021				2020
Transaction costs		5,276				364				9,729				2,762

All values are in US Dollars.

Transaction costs for the three months ended September 30, 2021, were $5.3 million compared to $0.4 million for the three months ended September 30, 2020. Transaction costs in the current period relate to the Inner Spirit acquisition, and legal costs, as compared to legal costs and various financing initiatives in the comparative period.

Transaction costs for the nine months ended September 30, 2021 were $9.7 million compared to $2.8 million for the nine months ended September 30, 2020. Transaction costs include costs associated with the registered offerings, Inner Spirit acquisition, legal costs and various financing initiatives.

Finance costs

		Three months ended<br><br><br>September 30							Nine months ended<br><br><br>September 30
(000s)	2021			2020				2021			2020
Cash finance expense
Interest on Term Debt Facility		—			—				—			2,936
Interest on Syndicated Credit Agreement		—			1,025				—			3,279
Other finance costs		1			355				40			495
			1			1,380				40			6,710
Non-cash finance expense
Interest on lease liabilities		627			—				671			—
Accretion		—			—				—			1,622
Amortization of debt issue costs		—			223				—			946
Change in fair value of convertible notes		—			(9,742	)			—			(10,231	)
Other		—			18				8			(22	)
			627			(9,501	)			679			(7,685	)
Interest income		(493	)		(19	)			(493	)		(181	)
			135			(8,140	)			226			(1,156	)

All values are in US Dollars.

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 September 30, 2021 were $0.1 million compared to income of $8.1 million for the three months ended September 30, 2020. The decrease in income of $8.2 million was due to the change in fair value of convertible notes from the comparative period, partially offset by 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 nine months ended September 30, 2021 were $0.2 million compared to income of $1.2 million for the nine months ended September 30, 2020. The decrease in income of $1.4 million was due to the change in fair value of convertible notes from the comparative period, partially offset by 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>September 30								Nine months ended<br><br><br>September 30
(000s)	2021				2020				2021				2020
Change in estimate of fair value of derivative warrants		(24,100	)			(10,057	)			86,034				(10,468	)

All values are in US Dollars.

Change in estimate of fair value of derivative warrants for the three months ended September 30, 2021 was a recovery of $24.1 million compared to a recovery of $10.1 million for the three months ended September 30, 2020. The increased recovery of $14.0 million was due to a decrease in estimated fair value as well as a higher number of derivative warrants outstanding due to the 98.3 million New Warrants issued as part of the registered direct offerings.

Change in estimate of fair value of derivative warrants for the nine months ended September 30, 2021 was an expense of $86.0 million compared to a recovery of $10.5 million for the nine months ended September 30, 2020 reflecting the fair value of derivative warrants issued and partially converted. The increased expense of $96.5 million was due to the fair value of the 98.3 million New Warrants issued, partially offset by a decrease in fair value from when they were issued to September 30, 2021.

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 26 in the condensed consolidated interim financial statements for valuation methodology. The Company has no cash obligation with respect to the derivative warrants, and its only obligation is to deliver common shares if and when warrants are exercised.

Income tax recovery

		Three months ended<br><br><br>September 30								Nine months ended<br><br><br>September 30
(000s)	2021				2020				2021				2020
Income tax recovery		10,058				—				10,058				—

All values are in US Dollars.

Income tax recovery for the three and nine months ended September 30, 2021, was $10.1 million and was due to the Company’s acquisition of Inner Spirit. Upon acquisition, $10.1 million of the purchase price was allocated to a deferred tax liability. This liability was subsequently adjusted to nil, with a corresponding adjustment of $10.1 million recorded to income tax recovery, on the basis that the Company and Inner Spirit are subject to income tax under the same taxation authority.

Net income (loss) from continuing operations

		Three months ended<br><br><br>September 30								Nine months ended<br><br><br>September 30
(000s)	2021				2020				2021				2020
Net income (loss) from continuing operations		11,311				(71,397	)			(175,421	)			(142,173	)

All values are in US Dollars.

Net income for the three months ended September 30, 2021 was $11.3 million compared to a net loss of $71.4 million for three months ended September 30, 2020. The increase of $82.7 million was largely due to a lower inventory obsolescence provision ($16.4 million), share of profit of equity-accounted investees ($9.9 million), asset impairment in the comparative period ($60.0 million), change in fair value of derivative warrant liabilities ($14.0 million) and income tax recovery ($10.1 million), partially offset by unrealized investment losses ($18.0 million) and finance income ($8.3 million) in the comparative period.

Net loss for the nine months ended September 30, 2021 was $175.4 million compared to a net loss of $142.2 million for nine months ended September 30, 2020. The increased loss of $33.2 million was mostly due to lower net revenue ($13.6 million) and change in fair value of derivative warrant liabilities ($96.5 million), partially offset by lower cost of sales ($8.4 million), lower inventory obsolescence provision ($30.7 million), change in fair value realized through inventory ($17.5 million), interest and fee revenue ($9.5 million), share of profit of equity-accounted investees ($13.6 million) and income tax recovery ($10.1 million).

Adjusted EBITDA from continuing operations

		Three months ended<br><br><br>September 30								Nine months ended<br><br><br>September 30
(000s)	2021				2020				2021				2020
Adjusted EBITDA from continuing operations (1)		10,539				(4,409	)			13,661				(19,950	)

All values are in US Dollars.

(1)	The non-IFRS measure of adjusted EBITDA is reconciled to net income (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 $10.5 million for the three months ended September 30, 2021 compared to a loss of $4.4 million for the three months ended September 30, 2020. The increase was due to the following:

	•	Increase in net revenue including Spiritleaf;
	•	Investment revenue;
---	---	---
	•	Interest and fee revenue; and
---	---	---
	•	Share of profit of equity-accounted investees.
---	---	---

The increase was partially offset by:

	•	Increase in cost of sales including Spiritleaf; and
	•	Increase in general and administrative expenses due to the inclusion of Spiritleaf, higher salaries and wages and professional fees.
---	---	---

Adjusted EBITDA from continuing operations was $13.7 million for the nine months ended September 30, 2021 compared to a loss of $20.0 million for the nine months ended September 30, 2020. The increase was due to the following:

	•	Decrease in cost of sales;
	•	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; and
	•	an increase in general and administrative expenses due to higher salaries and wages and professional fees.
---	---	---

CANNABIS OPERATIONS SEGMENT RESULTS

Kilogram equivalents sold

	Three months ended<br><br><br>September 30				Nine months ended<br><br><br>September 30
	2021		2020		2021		2020
Provincial boards		3,049		2,268		9,335		7,463
Medical		1		—		2		4
Licensed producers		366		3,551		3,480		8,786
Total kilogram equivalents sold		3,416		5,819		12,817		16,253

For the three months ended September 30, 2021, the Company sold 3,416 kilogram equivalents of cannabis compared to 5,819 kilogram equivalents for the three months ended September 30, 2020. The decrease of 2,403 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 nine months ended September 30, 2021, the Company sold 12,817 kilogram equivalents of cannabis compared to 16,253 kilogram equivalents for the nine months ended September 30, 2020. The decrease of 3,436 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>September 30						Nine months ended<br><br><br>September 30
(/gram equivalent)	2021			2020			2021			2020
Provincial boards	$	3.31		$	5.53		$	3.22		$	5.48
Medical	$	5.42		$	—		$	7.35		$	6.75
Licensed producers	$	2.50		$	0.84		$	1.57		$	1.77
Average gross selling price	$	3.23		$	2.67		$	2.77		$	3.47
Excise taxes	$	(0.82	)	$	(0.46	)	$	(0.64	)	$	(0.58	)
Average net selling price	$	2.41		$	2.21		$	2.13		$	2.90

All values are in US Dollars.

For the three months ended September 30, 2021, the average net selling price was $2.41 per gram equivalent compared to $2.21 for the three months ended September 30, 2020. The increase of $0.20 per gram equivalent was largely due to an increase in prices for sales to other LPs, partially offset by lower prices for provincial board sales. The comparative period included a large quantity bulk sale to an LP resulting in a low price per gram average. Provincial board sales prices have decreased due to continued growth of the discount segment and undersupply of available quality product.

For the nine months ended September 30, 2021, the average net selling price was $2.13 per gram equivalent compared to $2.90 for the nine months ended September 30, 2020. The decrease of $0.77 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 undersupply 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 nine months ended September 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>September 30				Nine months ended<br><br><br>September 30
(000s)	2021		2020		2021		2020
Revenue from dried flower		9,273		11,629		28,763		39,443
Revenue from vapes		1,166		3,577		3,863		14,185
Revenue from oil		37		319		1,628		2,828
Revenue from edibles and concentrates		546		—		1,255		—
Gross revenue		11,022		15,525		35,509		56,456

All values are in US Dollars.

Revenue by channel

		Three months ended<br><br><br>September 30						Nine months ended<br><br><br>September 30
(000s, except as indicated)	2021			2020			2021			2020
Provincial boards		10,105			12,552			30,035			40,885
Medical		3			6			6			27
Licensed producers		914			2,967			5,468			15,544
Gross revenue		11,022			15,525			35,509			56,456
Excise taxes		(2,795	)		(2,660	)		(8,240	)		(9,391	)
Net revenue		8,227			12,865			27,269			47,065
Gross revenue per gram sold	$	3.23		$	2.67		$	2.77		$	3.47
Net revenue per gram sold	$	2.41		$	2.21		$	2.13		$	2.90

All values are in US Dollars.

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 September 30, 2021 was $11.0 million compared to $15.5 million for the three months ended September 30, 2020. The decrease of $4.5 million was due to a decrease in kilogram equivalents sold, partially offset by an increase in selling prices. Provincial board revenue decreased by $2.5 million due to a decrease in selling prices, partially offset by an increase in kilogram equivalents sold. LP revenue decreased by $2.1 million due to a decrease in kilogram equivalents sold, partially offset by an increase in selling prices.

Gross revenue for the nine months ended September 30, 2021 was $35.5 million compared to $56.5 million for the nine months ended September 30, 2020. The decrease of $21.0 million was due to a decrease in selling prices and a decrease in kilogram equivalents sold. Provincial board revenue decreased by $10.9 million due to a decrease in selling prices, partially offset by an increase in kilogram equivalents sold. LP revenue decreased by $10.0 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 September 30, 2021 were $2.8 million compared to $2.7 million for the three months ended September 30, 2020. The increase of $0.1 million was due to an increase in sales to provincial boards from the comparative period.

Excise taxes for the nine months ended September 30, 2021 were $8.2 million compared to $9.4 million for the nine months ended September 30, 2020. The decrease of $1.2 million was due to a shift in product mix from non-flowering material to flowering material which has a lower excise tax rate, even though total kilogram equivalents sold to provincial boards increased compared to the prior period.

Cost of sales

		Three months ended<br><br><br>September 30				Nine months ended<br><br><br>September 30
(000s, except as indicated)	2021		2020		2021		2020
Cost of sales		9,222		10,259		30,201		41,102
Cost of sales per gram sold	$	2.70	$	1.76	$	2.36	$	2.53

All values are in US Dollars.

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 September 30, 2021 were $9.2 million compared to $10.3 million for the three months ended September 30, 2020. The decrease of $1.1 million was due to a decrease in kilogram equivalents sold compared to the prior period, partially offset by an increase in the cost of sales per gram sold compared to the prior period. Cost of sales per gram sold for the three months ended September 30, 2021 were $2.70 compared to $1.76 for the three months ended September 30, 2020. The increase of $0.94 was mostly due to higher per gram costs associated with bulk flower and bulk oil. The comparative period included a large quantity bulk sale to an LP resulting in a low cost of sales per gram sold average.

Cost of sales for the nine months ended September 30, 2021 were $30.2 million compared to $41.1 million for the nine months ended September 30, 2020. The decrease of $10.9 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 nine months ended September 30, 2021 were $2.36 compared to $2.53 for the nine months ended September 30, 2020. The decrease of $0.17 per gram sold was due to lower per gram costs across all branded 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>September 30						Nine months ended<br><br><br>September 30
(000s)	2021			2020			2021			2020
Net revenue		8,227			12,865			27,269			47,065
Cost of sales		9,222			10,259			30,201			41,102
Inventory obsolescence and impairment		3,871			19,897			7,276			37,638
Gross margin before fair value adjustments (1)		(4,866	)		(17,291	)		(10,208	)		(31,675	)
Change in fair value of biological assets		2,975			194			2,550			4,853
Change in fair value realized through inventory		15			(2,447	)		(491	)		(18,352	)
Gross margin		(1,876	)		(19,544	)		(8,149	)		(45,174	)

All values are in US Dollars.

(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.

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 September 30, 2021 was negative $4.9 million compared to negative $17.3 million for the three months ended September 30, 2020. The increase of $12.4 million was due to lower cost of sales relating to lower sales volumes 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 oil, bulk flower and shake due to price compression in the market. The inventory obsolescence provision in the comparative period was applied across all cannabis inventory formats, bulk and packaged, due to a lack of market demand.

Gross margin before fair value adjustments for the nine months ended September 30, 2021 was negative $10.2 million compared to negative $31.7 million for the nine months ended September 30, 2020. The increase of $21.5 million was 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 to oil, 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 across all cannabis inventory formats, bulk and packaged, due to a lack of market demand.

The total inventory obsolescence and impairment recognized during the nine months ended September 30, 2021 was $6.8 million, with $7.3 million relating to cost of sales and negative $0.5 million relating to the change in fair value realized through inventory. The total inventory obsolescence and impairment recognized during the nine months ended September 30, 2020 was $48.6 million, with $37.6 million relating to cost of sales and $11.0 million relating to the change in fair value realized through inventory.

Change in fair value of biological assets

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 of biological assets for the three months ended September 30, 2021 was an increase of $3.0 million compared to an increase of $0.2 million for the three months ended September 30, 2020. The increase in the current period relates to increases in the expected selling price less costs to sell per gram and an increase in the weighted average maturity of the stage of growth, partially offset by a decrease in the expected number of plants. The minor increase in the comparative period relates to an increase in the expected number of plants and an increase in the weighted average maturity of the stage of growth, partially offset by a decrease in the expected selling price less costs to sell per gram.

Change in fair value of biological assets for the nine months ended September 30, 2021 was an increase of $2.6 million compared to an increase of $4.9 million for the nine months ended September 30, 2020. The increase in the current period relates to an

increase in the weighted average maturity of the stage of growth, partially offset by decreases in the expected number of plants and expected selling price less costs to sell per gram. The increase in the comparative period relates to increase in the weighted average maturity of the stage of growth, partially offset by decreases in the expected number of plants and expected selling price less costs to sell per gram.

Change in fair value realized through inventory

		Three months ended<br><br><br>September 30						Nine months ended<br><br><br>September 30
(000s)	2021			2020			2021			2020
Change in fair value realized through inventory sold		(324	)		(1,475	)		(967	)		(7,357	)
Change in fair value recognized through inventory obsolescence provision		339			(972	)		476			(10,995	)
Change in fair value realized through inventory		15			(2,447	)		(491	)		(18,352	)

All values are in US Dollars.

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.

The change in fair value realized through inventory for the three months ended September 30, 2021 was a decrease of $0.0 million compared to a decrease of $2.4 million for the three months ended September 30, 2020. The increase of $2.4 million was due to the fair value component of the excess and obsolete inventory provision and the reversal of smaller prior period changes in fair value of biological assets as they are transferred to inventory and sold.

The change in fair value realized through inventory for the nine months ended September 30, 2021 was a decrease of $0.5 million compared to a decrease of $18.4 million for the nine months ended September 30, 2020. The increase of $17.9 million was due to the fair value component of the excess and obsolete inventory provision in the comparative period and the reversal of smaller prior period changes in fair value of biological assets as they are transferred to inventory and sold.

Restructuring costs

		Three months ended<br><br><br>September 30								Nine months ended<br><br><br>September 30
(000s)	2021				2020				2021				2020
Restructuring costs		—				1,108				—				6,190

All values are in US Dollars.

Restructuring costs of $1.1 million and $6.2 million for the three and nine months ended September 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>September 30								Nine months ended<br><br><br>September 30
(000s)	2021				2020				2021				2020
Asset impairment		—				60,000				60,000				65,659

All values are in US Dollars.

The Company determined that indicators of impairment existed during the nine months ended September 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 June 30, 2021, 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.

At September 30, 2021, the Company determined that no indicators of impairment existed or indicators that a previous impairment should be reversed, and no impairment test was required.

The Company determined that indicators of impairment existed during the nine months ended September 30, 2020, with respect to the Company’s Alberta CGU as a result of decreasing estimates for the size of the potential Canadian cannabis market, the

Company curtailing the number of flowering rooms being used for cultivation at its Olds facility and the carrying value of the Company’s total net assets significantly exceeding the Company’s market capitalization. A test for impairment was performed at September 30, 2020, at the CGU level by comparing the estimated recoverable amount 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 of $103.2 million.

The Company determined that indicators of impairment existed during the nine months ended September 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.

RETAIL OPERATIONS SEGMENT RESULTS

GROSS revenue

		Three months ended<br><br><br>September 30				Nine months ended<br><br><br>September 30
(000s)	2021		2020		2021		2020
Retail		3,285		—		3,285		—
Franchise		2,197		—		2,197		—
Other (millwork, supply, accessories)		658		—		658		—
Gross revenue		6,140		—		6,140		—

All values are in US Dollars.

Gross revenue for the period July 20, 2021, to September 30, 2021, was $6.1 million. Retail revenue is comprised of retail cannabis sales to private customers from company owned stores. Franchise revenue is comprised of royalty revenue, advertising revenue and franchise fees. Prior to opening, Spiritleaf franchised retail cannabis stores purchase millwork (store fixtures) from the Company. Once a franchise Spiritleaf retail cannabis store is open and operating, it purchases supplies and Spiritleaf accessories from the Company to sell to customers.

GROSS MARGIN

		Three months ended<br><br><br>September 30				Nine months ended<br><br><br>September 30
(000s)	2021		2020		2021		2020
Gross revenue		6,140		—		6,140		—
Cost of sales		2,482		—		2,482		—
Gross margin		3,658		—		3,658		—

All values are in US Dollars.

Gross margin for the period July 20 to September 30, 2021, was $3.7 million. Cost of sales for retail operations is comprised of the cost of pre-packaged cannabis.

System-wide retail sales

System-wide retail sales represent the aggregate revenue earned by franchise Spiritleaf retail cannabis stores and Company owned Spiritleaf retail cannabis stores, and do not solely represent the retail segment’s revenue. The Company only receives royalties and advertising fees in respect of the franchise Spiritleaf retail cannabis store revenue forming part of the system-wide retail sales. This measure is useful to management in evaluating brand scale and market penetration and is used by management to assess the financial and operating performance of the Company and the strength of the Company’s market position relative to its competitors.

		Three months ended<br><br><br>September 30				Nine months ended<br><br><br>September 30
(000s)	2021		2020		2021		2020
System-wide retail sales (1)		33,549		—		33,549		—
Less:
Franchise store sales		30,264		—		30,264		—
Add back:
Royalties		1,684		—		1,684		—
Advertising		371		—		371		—
Millwork		212		—		212		—
Franchise fee		142		—		142		—
Supply		446		—		446		—
Gross revenue		6,140		—		6,140		—

All values are in US Dollars.

(1)	System-wide retail sales 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 system-wide retail sales is discussed further in the “ADVISORY” section of this MD&A.

INVESTMENT OPERATIONS SEGMENT RESULTS

Interest and fee revenue

		Three months ended<br><br><br>September 30						Nine months ended<br><br><br>September 30
(000s)	2021			2020			2021			2020
Interest and fee revenue
Interest revenue from investments at amortized cost		352			—			793			—
Interest and fee revenue from investments at Fair Value Through Profit or Loss		2,116			—			6,398			—
Interest revenue from cash		841			—			2,311			—
			3,309			—			9,502			—

All values are in US Dollars.

Interest and fee revenue for the three and nine months ended September 30, 2021, was $3.3 million and $9.5 million and was generated from cannabis-related investments. The Company continues to build its investment portfolio with a focus on maximizing risk-adjusted cash flows and shareholder value.

Investment revenue

		Three months ended<br><br><br>September 30							Nine months ended<br><br><br>September 30
(000s)	2021				2020			2021				2020
Investment revenue
Realized gains		5,988				—			18,218				—
Unrealized gains (losses)		(23,996	)			—			(20,964	)			—
			(18,008	)			—			(2,746	)			—

All values are in US Dollars.

Investment revenue is comprised of realized and unrealized gains on marketable securities. Investment revenue for the three and nine months ended September 30, 2021, was negative $18.0 million and negative $2.7 million respectively and was mostly due to unrealized losses driven by decreasing market prices, partially offset by realized gains on the disposition of marketable securities. The Company continues to strategically deploy capital with a focus on maximizing risk-adjusted cash flows and shareholder value.

Share of profit of equity-accounted investees

		Three months ended<br><br><br>September 30								Nine months ended<br><br><br>September 30
(000s)	2021				2020				2021				2020
Net profit		9,918				—				13,642				—

All values are in US Dollars.

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 nine months ended September 30, 2021, the Company recognized $9.9 million and $13.6 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 income (loss) and comprehensive income (loss) and statement of cash flows in the financial statements for the nine months ended September 30, 2020 have been presented to show the discontinued operation separately from continuing operations. The Company no longer has an Ornamental Flower segment.

During the period January 1, 2020, to June 5, 2020, the Company recorded revenues of $22.1 million from Bridge Farm and a net loss of $33.6 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 period January 1, 2020, to June 5, 2020, consisted of $4.4 million mainly related to the Bridge Farm 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)	Q3			Q2			Q1			Q4 ^(2)^			Q3			Q2			Q1			Q4
Gross revenue ^(1)^		17,162			12,739			11,748			16,865			15,525			24,341			16,590			16,262
Gross investment revenue (loss)		(14,699	)		5,706			15,749			—			—			—			—			—
Net income (loss) from continuing operations attributable to owners of the Company		11,311			(52,287	)		(134,416	)		(57,622	)		(71,386	)		(32,750	)		(37,861	)		(28,061	)
Per share, basic		0.006			(0.03	)		(0.09	)		(0.11	)		(0.53	)		(0.31	)		(0.35	)		(0.26	)
Per share, diluted		0.005			(0.03	)		(0.09	)		(0.11	)		(0.53	)		(0.31	)		(0.35	)		(0.26	)
Net loss from discontinued operations attributable to owners of the Company		—			—			—			—			—			(27,593	)		(6,034	)		(116,927	)
Per share, basic and diluted		—			—			—			—			—			(0.26	)		(0.06	)		(1.10	)
Net loss attributable to owners of the Company		11,311			(52,287	)		(134,416	)		(57,622	)		(71,386	)		(60,343	)		(43,895	)		(144,988	)
Per share, basic		0.006			(0.03	)		(0.09	)		(0.11	)		(0.53	)		(0.57	)		(0.41	)		(1.36	)
Per share, diluted		0.005			(0.03	)		(0.09	)		(0.11	)		(0.53	)		(0.57	)		(0.41	)		(1.36	)
(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 16 in the condensed consolidated interim financial statements for the three and nine months ended September 30, 2021.
---	---

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

•	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;
---	---
•	investing in SunStream; and
---	---
•	acquisition of Inner Spirit.
---	---

LIQUIDITY AND CAPITAL RESOURCES

(000s)	September 30, 2021				December 31, 2020
Cash and cash equivalents		629,142				60,376

All values are in US Dollars.

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 lease obligations have increased significantly due to the Inner Spirit acquisition as both corporate stores and franchise stores have leased retail space. Refer to “Contractual Commitments and

Contingencies – Commitments” for an estimate of the contractual maturities of the Company’s lease obligations. 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 September 30, 2021, the Company was debt free.

Equity

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

(000s)
Common shares		2,055,994	918,844
Common share purchase warrants^(1)^		2,930	1,024
Simple warrants ^(2)^		2,994	3,425
Performance warrants ^(3)^		1,387	1,672
Stock options^(4)^		445	721
Restricted share units		12,672	1,657
(1)	2.9 million warrants were exercisable as at September 30, 2021.
---	---
(2)	2.1 million simple warrants were exercisable as at September 30, 2021.
---	---
(3)	1.2 million performance warrants were exercisable as at September 30, 2021.
---	---
(4)	0.2 million stock options were exercisable as at September 30, 2021.
---	---

As at September 30, 2021, the Company had 2.06 billion shares outstanding (December 31, 2020 - 918.8 million shares).

Common shares were issued during the nine months ended September 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;
---	---	---
	•	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;
---	---	---
	•	The Company issued 24.4 million common shares relating to the acquisition of Inner Spirit; and
---	---	---
	•	The Company issued 2.5 million common shares relating to the settlement of Inner Spirit convertible debentures.
---	---	---

As at November 11, 2021, a total of 2.06 billion common shares were outstanding.

Capital Expenditures

		Three months ended<br><br><br>September 30				Nine months ended<br><br><br>September 30
(000s)	2021		2020		2021		2020
Olds facility		883		1,066		576		2,288
Rocky View facility		—		—		—		—
Merritt facility (1)		—		—		—		(1,241	)
Other		244		10		1,902		1,822
Total		1,127		1,076		2,478		2,869

All values are in US Dollars.

(1)	The credit to the Merritt facility relates to the refund of provincial hydro and utility deposits.

Cash Flow Summary

		Three months ended<br><br><br>September 30						Nine months ended<br><br><br>September 30
(000s)	2021			2020			2021			2020
Cash provided by (used in) continuing operations:
Operating activities		(56,160	)		(20,057	)		(160,908	)		(50,073	)
Investing activities		(213,906	)		(1,739	)		(417,053	)		(12,119	)
Financing activities		11,783			21,445			1,146,771			39,047
Effect of exchange rate changes		2,007			(234	)		(44	)		1,288
Change in cash and cash equivalents		(256,276	)		(585	)		568,766			(21,857	)

All values are in US Dollars.

Cash Flow – Operating Activities

Net cash used in operating activities was $56.2 million for the three months ended September 30, 2021 compared to $20.1 million used in operating activities for the three months ended September 30, 2020. The increase of $36.1 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 $160.9 million for the nine months ended September 30, 2021 compared to $50.1 million used in operating activities for the nine months ended September 30, 2020. The increase of $110.8 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 $213.9 million for the three months ended September 30, 2021 compared to $1.7 million used in investing activities for the three months ended September 30, 2020. The increase of $212.2 million was mainly due to additions to equity-accounted investees and the acquisition of Inner Spirit, partially offset by distributions received from equity-accounted investees.

Net cash used in investing activities from continuing operations was $417.1 million for the nine months ended September 30, 2021 compared to $12.1 million used in investing activities for the nine months ended September 30, 2020. The increase of $405.0 million was primarily due to additions to equity-accounted investees, additions to investments and the acquisition of Inner Spirit, partially offset by distributions received from equity-accounted investees and the change in non-cash working capital.

Cash Flow – Financing Activities

Net cash provided by financing activities was $11.8 million for the three months ended September 30, 2021 compared to $21.4 million provided by financing activities for the three months ended September 30, 2020. The decrease of $9.6 million was due

to proceeds from the issuance of shares in the comparative period and the settlement of convertible debentures, partially offset by the change in restricted cash.

Net cash provided by financing activities from continuing operations was $1.1 billion for the nine months ended September 30, 2021 compared to $39.0 million provided by financing activities for the nine months ended September 30, 2020. The increase of $1.1 billion was largely due to proceeds from the issuance of shares, proceeds from registered offerings and proceeds from the exercise of derivative warrants, partially offset by the change in restricted cash, settlement of convertible debentures and proceeds from convertible notes in the comparative period.

Liquidity risks associated with financial instruments

Credit risk

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 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 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 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 is 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 September 30, 2021.

($000s)
Accounts payable and accrued liabilities	28,842	—	—	—	28,842
Lease obligations	5,728	10,427	8,334	14,163	38,652
Financial guarantee liability	337	—	—	—	337
Total	34,907	10,427	8,334	14,163	67,831

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.

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 income (loss) from continuing operations for the periods noted.

		Three months ended<br><br><br>September 30						Nine months ended<br><br><br>September 30
(000s)	2021			2020			2021			2020
Net income (loss) from continuing operations		11,311			(71,397	)		(175,421	)		(142,173	)
Adjustments
Finance costs		135			(8,139	)		226			(1,155	)
Change in estimate of fair value of derivative warrants		(24,100	)		(10,058	)		86,034			(10,469	)
Depreciation and amortization		2,385			1,480			4,374			3,414
Income tax recovery		(10,058	)		—			(10,058	)		—
Change in fair value of biological assets		(2,975	)		(194	)		(2,550	)		(4,853	)
Change in fair value realized through inventory		(15	)		2,447			491			18,352
Unrealized foreign exchange (gain) loss		(2,071	)		(243	)		(62	)		(1,429	)
Unrealized (gain) loss on marketable securities		23,996			—			20,964			—
Share-based compensation		1,869			3,118			9,864			7,065
Asset impairment		—			60,000			60,000			65,659
Loss (gain) on disposition of PP&E		—			—			139			(488	)
Cost of sales non-cash component (1)		915			1,289			2,903			3,618
Inventory obsolescence		3,871			19,897			7,276			37,638
Restructuring costs		—			1,108			—			6,190
Transaction costs (2)		5,276			364			9,729			2,762
Government subsidies		—			(4,081	)		(2,180	)		(4,081	)
Other expenses		—			—			1,932			—
Adjusted EBITDA from continuing operations		10,539			(4,409	)		13,661			(19,950	)

All values are in US Dollars.

(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.

Gross margin before fair value adjustments percentage is defined as gross margin before fair value adjustments divided by net revenue.

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

System-wide retail sales

System-wide retail sales is a non-IFRS measure which the Company uses to evaluate its operating performance in the Company’s retail operations segment. System-wide retail sales provides useful information to investors, analysts and others in understanding and evaluating the Company’s brand scale and market penetration and is used by management to assess the Company’s market position relative to its competitors. System-wide retail sales is defined as the sum of the revenue reported to the Company by franchisees of Spiritleaf owned retail cannabis stores and by the Company-owned Spiritleaf retail cannabis stores.

See “Retail Operations Segment Results – System-wide retail sales” for a table reconciling system-wide retail sales to gross revenue for the periods noted.

RELATED PARTIES

Loan receivable agreements

Related party transactions

	Transactions				Balance outstanding
	Nine months ended<br><br><br>September 30		Nine months ended<br><br><br>September 30		September 30		December 31
($000s)	2021		2020		2021		2020
Marketing, brand research and development^(a)^		—		1,144		—		—
Legal services^(b)^		—		1,811		—		(510	)
		—		2,955		—		(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 September 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 assets and 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 (the lack of segregation of duties due to limited number of employees in the finance department) 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 is in the process of implementing and testing workflows designed to remediate the lack of segregation of duties in the finance department. 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, gross margin before fair value adjustments, gross margin before fair value adjustments percentage and system-wide retail sales. 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.

	29

sndl-ex993_9.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 September 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 September 30, 2021 that has materially affected, or is reasonably likely to materially affect, the issuer’s ICFR.
---	---

Date: November 11, 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 September 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 September 30, 2021 that has materially affected, or is reasonably likely to materially affect, the issuer’s ICFR.
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Date: November 11, 2021

/s/ James Keough

_______________________

James Keough

Chief Financial Officer

SNDL Inc 6-K, filed Nov 12, 2021

About this 6-K