Reddit’s favorite marijuana stock Sundial Growers (NASDAQ: SNDL) announced last week it will buy Canadian liquor retailer Alcanna Inc. for roughly $346 million.

Apart from Alcanna's longstanding liquor business with trailing 12-month free cash flow of $16.4 million on a built-out retail platform, the acquisition brings Sundial enhanced exposure with an investment in Nova Cannabis Inc. (TSE: NOVC), a publicly listed, pure-play cannabis retail operator in which Alcanna holds an approximately 63% equity interest.

Sundial’s chief executive officer and director Zachary George revealed other company’s plans and expectations and discussed the industry and its regulations at this week’s Benzinga Cannabis Capital Conference, happening Oct. 14-15 in New York City at the Marriott Marquis Hotel.

He was interviewed by Jelani Gibson, content lead for NJ Cannabis Insider at NJ Advance Media.

Operational Challenges

George first talked about the challenging times the company had when he took the role of CEO in February 2020. While the company’s cultivation results were poor, Sundial was spending too much capital, burning roughly $15 million a month, with peak debt of around $250 million, he said.

The company was facing two realities at the time, George said: One, “If we didn’t have a successful recreational business in Canada we likely didn’t have a business," two, the company needed restructuring.

By a series of restricting moves like large asset sales, exiting six countries and letting go more than 500 employees, Sundial managed to retire all of its debt and refocus the business model, the CEO said.

“We're looking to really be a partner to the industry and not just compete with the next LP beside us,” George said, adding that the second pillar of the company’s model is concentrated on finding out where economic returns are being earned in the cannabis space.

The Canadian Vs. American Cannabis Market

George believes that the Canadian cannabis industry will form some version of an oligopoly, with several large and a number of very important smaller players in the space, he told the Benzinga conference.

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“I would say that the regulatory framework in Canada is quite challenging and dysfunctional,” the CEO said, highlighting issues such as excise taxes that he said are burdensome, different regulations from province to province, rules around how many retail doors you can own or manage and permissible levels of vertical integration, and nonsensical product level restrictions.

He called for "some common-sense reform" in Canada.

When it comes to America, George said it has a clear, massive total addressable market with many opportunities, but also a lack of capital, an issue many people assume federal legalization would resolve.

What are we going to see in case of federal legalization is the wrong companies getting capitalized and too much competition, the CEO said.

“It’s highly likely that some of the same mistakes we've seen in Canada will actually be made in the U.S. as well.”

CEO Excited About Sundial’s Future

When it comes to the company, George revealed that Sundial is thrilled about the two pillars of its business and about the recent transaction with Alcanna, which should be closed before the end of the year.

“We'd love to see our credit portfolio grow from over $300 million today to north [$500 million] in the coming months,” George concluded.

Photo: Courtesy of Rick Proctor on Unsplash.

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