sndl-ex991

As at	Note	September 30, 2020			December 31, 2019

Assets
Current Assets
Cash and cash equivalents			21,044			45,337
Restricted cash			5,330			15,827
Accounts receivable	5		14,449			27,638
Biological assets	6		4,492			14,309
Inventory	7		31,672			59,942
Prepaid expenses and deposits			7,260			9,564
Assets held for sale	8		2,998			—
			87,245			172,617
Non-current assets
Long-term deposits			1,800			—
Property, plant and equipment	8		119,777			281,984
Intangible assets	9		18,182			43,995
Goodwill	10		—			11,440
Total assets			227,004			510,036

Liabilities
Current liabilities
Accounts payable and accrued liabilities			26,388			58,110
Current portion of long-term debt	11		71,063			177,913
Current portion of lease obligations	12		405			722
Derivative warrant liabilities	14		4,411			—
Contingent consideration	15		—			32,501
			102,267			269,246
Non-current liabilities
Long-term debt	11		—			—
Lease obligations	12		1,136			16,227
Convertible notes	13		48,408			—
Deferred tax liability			—			3,365
Total liabilities			151,811			288,838

Shareholders’ equity
Share capital	16(b)		504,671			509,654
Warrants	16(c)		25,602			27,831
Contributed surplus			38,609			30,192
Contingent consideration			2,279			2,279
Accumulated deficit			(500,506	)		(360,338	)
Accumulated other comprehensive income			—			6,866
Total shareholders’ equity			70,655			216,484
Non-controlling interest			4,538			4,714
Total liabilities and shareholders’ equity			227,004			510,036

See accompanying notes to the condensed consolidated interim financial statements.

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

		Three months ended September 30						Nine months ended September 30
	Note	2020			2019			2020			2019
Gross revenue	18		15,525			28,690			56,456			50,665
Excise taxes			2,660			669			9,391			1,846
Net revenue			12,865			28,021			47,065			48,819
Cost of sales	7		10,259			20,250			41,102			31,462
Inventory obsolescence	7		19,897			—			37,638			—
Gross margin before fair value adjustments			(17,291	)		7,771			(31,675	)		17,357
Change in fair value of biological assets			194			11,675			4,853			24,541
Change in fair value realized through inventory	7		(2,447	)		(5,875	)		(18,352	)		(7,564	)
Gross margin			(19,544	)		13,571			(45,174	)		34,334

General and administrative			7,158			12,415			25,501			23,860
Sales and marketing			1,117			2,056			3,427			4,801
Research and development			35			196			378			2,047
Depreciation and amortization	8,9		1,480			143			3,414			411
Foreign exchange loss (gain)			(249	)		190			(1,204	)		136
Share-based compensation	17		3,118			7,991			7,065			34,145
Restructuring costs			1,108			—			6,190			—
Asset impairment	8		60,000			—			65,659			162
Government subsidies	19		(4,081	)		—			(4,081	)		—
Loss from operations			(89,230	)		(9,420	)		(151,523	)		(31,228	)

Transaction costs			(364	)		(6,315	)		(2,762	)		(6,315	)
Finance income (costs)	20		18,197			(10,150	)		11,624			(20,293	)
Loss on financial obligation			—			(59,583	)		—			(60,308	)
(Loss) gain on disposition of PP&E			—			(19	)		488			(4	)
Loss before income tax			(71,397	)		(85,487	)		(142,173	)		(118,148	)
Income tax recovery			—			—			—			3,609
Net loss from continuing operations			(71,397	)		(85,487	)		(142,173	)		(114,539	)
Net loss from discontinued operations	4		—			(12,004	)		(33,627	)		(12,004	)
Net loss			(71,397	)		(97,491	)		(175,800	)		(126,543	)

(Loss) gain on translation of foreign operations			—			(3,869	)		600			(3,869	)
Comprehensive loss			(71,397	)		(101,360	)		(175,200	)		(130,412	)

Net loss from continuing operations attributable to:
Sundial Growers Inc.			(71,386	)		(85,448	)		(141,997	)		(114,472	)
Non-controlling interest			(11	)		(39	)		(176	)		(67	)
			(71,397	)		(85,487	)		(142,173	)		(114,539	)
Net loss attributable to:
Sundial Growers Inc.			(71,386	)		(97,452	)		(175,624	)		(126,476	)
Non-controlling interest			(11	)		(39	)		(176	)		(67	)
			(71,397	)		(97,491	)		(175,800	)		(126,543	)
Comprehensive loss attributable to:
Sundial Growers Inc.			(71,386	)		(101,321	)		(175,024	)		(130,345	)
Non-controlling interest			(11	)		(39	)		(176	)		(67	)
			(71,397	)		(101,360	)		(175,200	)		(130,412	)
Net loss per common share attributable to Sundial Growers Inc.
Basic and diluted	21	$	(0.53	)	$	(1.06	)	$	(1.51	)	$	(1.61	)

See accompanying notes to the condensed consolidated interim financial statements.

	Note	Share capital			Warrants			Contributed surplus		Contingent consideration		Accumulated deficit			Accumulated other comprehensive income			Non- controlling interest			Total equity
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	16(b)		15,232			—			—		—		—			—			—			15,232
Share issuance costs			(1,818	)		—			—		—		—			—			—			(1,818	)
Convertible debt - conversions	13		11,912			—			—		—		—			—			—			11,912
Derivative warrants exercised	14		8,087			—			—		—		—			—			—			8,087
Warrants expired	16(c)		—			(2,229	)		2,229		—		—			—			—			—
Dispositions	4		(38,447	)		—			—		—		35,456			(7,466	)		—			(10,457	)
Share-based compensation	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	16(b)		14,622			—			—		—		—			—			—			14,622
Share issuance costs			(1,818	)		—			—		—		—			—			—			(1,818	)
Convertible debt - conversions	13		11,912			—			—		—		—			—			—			11,912
Derivative warrants exercised	14		8,087			—			—		—		—			—			—			8,087
Warrants expired	16(c)		—			(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

	Note	Share capital			Warrants			Contributed surplus			Convertible notes – equity component			Contingent consideration		Accumulated deficit			Accumulated other comprehensive income			Non- controlling interest			Total equity
Balance at December 31, 2018			65,133			3,108			9,493			3,232			—		(88,874	)		—			—			(7,908	)
Net loss			—			—			—			—			—		(126,476	)		—			(67	)		(126,543	)
Other comprehensive income			—			—			—			—			—		—			(3,869	)		—			(3,869	)
Share issuances	16(b)		197,789			—			—			—			—		—			—			—			197,789
Shares issued to related parties			63,460			5,833			—			—			—		—			—			—			69,293
Share issuance costs	16(b)		(12,499	)		—			—			—			—		—			—			—			(12,499	)
Business acquisitions			39,849			—			—			—			2,279		—			—			4,879			47,007
Convertible debt - conversions			100,994			3,052			—			(1,348	)		—		—			—			—			102,698
Warrants reclassified from liability			—			16,091			—			—			—		—			—			—			16,091
Warrants exercised	16(c)		21,791			(3,831	)		—			—			—		—			—			—			17,960
Share-based compensation	17		2,320			—			32,232			—			—		—			—			—			34,552
Employee warrants exercised	17		17,156			—			(15,911	)		—			—		—			—			—			1,245
Balance at September 30, 2019			495,993			24,253			25,814			1,884			2,279		(215,350	)		(3,869	)		4,812			335,816

Balance at June 30, 2019			111,605			—			19,407			3,232			2,279		(117,898	)		—			4,851			23,476
Net loss			—			—			—			—			—		(97,452	)		—			(39	)		(97,491	)
Other comprehensive loss			—			—			—			—			—		—			(3,869	)		—			(3,869	)
Share issuances	16(b)		190,797			—			—			—			—		—			—			—			190,797
Issued to related parties			63,460			5,833			—			—			—		—			—			—			69,293
Share issuance costs			(12,498	)		—			—			—			—		—			—			—			(12,498	)
Business acquisitions			37,248			—			—			—			—		—			—			—			37,248
Convertible debt - conversions			100,994			3,052			—			(1,348	)		—		—			—			—			102,698
Warrants reclassified from liability			—			16,091			—			—			—		—			—			—			16,091
Warrants exercised	16(c)		2,228			(723	)		—			—			—		—			—			—			1,505
Share-based compensation	17		1,738			—			6,660			—			—		—			—			—			8,398
Employee warrants exercised	17		421			—			(253	)		—			—		—			—			—			168
Balance at September 30, 2019			495,993			24,253			25,814			1,884			2,279		(215,350	)		(3,869	)		4,812			335,816

See accompanying notes to the condensed consolidated interim financial statements.

		Three months ended September 30						Nine months ended September 30
	Note	2020			2019			2020			2019
Cash provided by (used in):
Operating activities
Net loss from continuing operations for the period			(71,397	)		(85,487	)		(142,173	)		(114,539	)
Items not involving cash:
Income tax recovery			—			—			—			(3,609	)
Change in fair value of biological assets			(194	)		(11,675	)		(4,853	)		(24,541	)
Share-based compensation	17		3,118			7,991			7,065			34,145
Depreciation and amortization	8,9		3,127			1,815			8,996			4,328
Loss (gain) on disposition of PP&E			—			19			(488	)		4
Inventory obsolescence	7		19,897			—			37,638			—
Transaction costs			—			1,279			—			1,279
Finance (income) costs	20		(19,558	)		6,407			(18,153	)		9,200
Loss on financial obligation			—			59,583			—			60,308
Unrealized foreign exchange loss (gain)			(243	)		229			(1,429	)		(193	)
Restructuring costs			—			—			448			—
Asset impairment	8		60,000			—			65,659			162
Change in non-cash working capital			(14,807	)		(9,528	)		(2,783	)		(24,377	)
Net cash used in operating activities from continuing operations			(20,057	)		(29,367	)		(50,073	)		(57,833	)
Net cash provided by operating activities from discontinued operations	4		—			978			4,820			978
Net cash used in operating activities			(20,057	)		(28,389	)		(45,253	)		(56,855	)
Investing activities
Additions to property, plant and equipment	8		(1,076	)		(27,334	)		(2,869	)		(91,371	)
Additions to intangible assets	9		(138	)		—			(138	)		—
Proceeds from disposal of PP&E	8		6			11			2,109			25
Acquisition of Bridge Farm	4		—			(77,023	)		—			(77,023	)
Change in non-cash working capital			(531	)		(3,007	)		(11,221	)		9,867
Net cash used in investing activities from continuing operations			(1,739	)		(107,353	)		(12,119	)		(158,502	)
Net cash used in investing activities from discontinued operations	4		—			(21,205	)		(6,617	)		(21,205	)
Net cash used in investing activities			(1,739	)		(128,558	)		(18,736	)		(179,707	)
Financing activities
Proceeds from convertible notes, net of costs	13		(167	)		(678	)		18,462			90,373
Change in restricted cash			—			93,724			10,497			(10,000	)
(Repayment) proceeds from Syndicated Credit Agreement, net of costs	11(a)		(1,931	)		82,968			(12,593	)		82,968
Payments on lease obligations	12		(93	)		(56	)		(312	)		(147	)
Proceeds from issuance of shares, net of costs	16(b)		24,588			177,019			24,588			177,474
Proceeds from Term Debt Facility, net of costs			—			143			—			105,539
Repayment of other debt instruments			—			(79,825	)		—			(88,296	)
Proceeds from exercise of equity classified warrants	16(c)		—			1,505			—			17,960
Proceeds from exercise of employee warrants	17		—			168			—			1,245
Settlement of financial obligation			—			(9,500	)		—			(9,500	)
Change in non-cash working capital			(952	)		(1,847	)		(1,595	)		(67	)
Net cash provided by financing activities from continuing operations			21,445			263,621			39,047			367,549
Net cash used in financing activities from discontinued operations	4		—			(244	)		(639	)		(244	)
Net cash provided by financing activities			21,445			263,377			38,408			367,305
Effect of exchange rate changes on cash held in foreign currency			(234	)		(1,392	)		1,288			(1,392	)
Impact of foreign currency translation from discontinued operations	4		—			(1,667	)		—			(1,667	)
Change in cash and cash equivalents			(585	)		103,371			(24,293	)		127,684
Cash and cash equivalents, beginning of period			21,629			38,434			45,337			14,121
Cash and cash equivalents, end of period			21,044			141,805			21,044			141,805

Cash interest paid			1,025			3,688			4,875			7,648

See accompanying notes to the condensed consolidated interim financial statements.

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

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. The production, distribution and sale of cannabis was regulated by the Access to Cannabis for Medical Purposes Regulations (“ACMPR”) in Canada, up to and including October 16, 2018. On October 17, 2018, the ACMPR was superseded by the Cannabis Act which regulates the production, distribution, and possession of cannabis for both medical and adult recreational access in Canada.

On August 1, 2019, the Company’s common shares began trading on the Nasdaq Global Select Market (“Nasdaq”) under the ticker symbol “SNDL”.

Sundial does not engage in any U.S. cannabis-related activities as defined in Canadian Securities Administrators Staff Notice 51-352.

These condensed consolidated interim financial statements have been prepared on a going concern basis, which assumes that the Company will be able to realize its assets and discharge its liabilities in the normal course of business. The Company is an early-stage company, has accumulated significant losses and was in non-compliance with its loan covenants (note 11a) as at December 31, 2019 and March 31, 2020. Furthermore, the Company and certain of its subsidiaries have a limited operating history and a history of negative cash flows from operating activities.

The Company has a Producer’s License at each of its two Canadian facilities, a license to sell live plants to other licensed producers and its standard processing and sales license from Health Canada. The Company has maintained compliance with all Health Canada’s requirements under these licenses.

The ability of the Company to continue as a going concern depends on the Company maintaining such licenses, the continued support of its lenders, its ability to achieve profitable operations and its ability to raise additional financing to fund current and future operating and investing activities. There is no assurance that the Company will be able to accomplish any of the foregoing objectives.

On May 14, 2020, the Company obtained a waiver under the Syndicated Credit Agreement for the December 31, 2019 interest coverage ratio covenant breach.

On June 5, 2020, the Company entered into an amended and restated credit agreement (note 11a), executed a refinancing transaction under its Term Debt Facility (note 11b), executed an intercreditor agreement and closed the sale of Bridge Farm (note 4). The amended and restated credit agreement includes a waiver for the Company’s March 31, 2020 covenant non-compliance, elimination of financial covenants other than a minimum cash balance covenant of $2.5 million until December 31, 2020 or later and a covenant requiring the Company to raise capital of US$10 million by December 1, 2020 (which was satisfied as a result of the August 2020 Offering (note 16b)). Principal repayments of $2.1 million per quarter have been rescheduled to commence on September 30, 2020 and were paid on that date. Additionally, based on the Company’s most recent financial projections, management is forecasting that the Company will be in violation of the Syndicated Credit Agreement senior funded debt to EBITDA covenant at December 31, 2020 (note 11a).

The Company plans to access the capital markets to raise additional liquidity. The Company has filed a registration statement for a mixed shelf prospectus allowing it to issue common shares in an amount up to US$100 million at its discretion and established the at-the-market equity program (the “ATM Program”) covering issuances of up to US$50 million. The Company has raised gross proceeds of US$20.0 million through the August 2020 Offering and subsequent to September 30, 2020, the Company has raised gross proceeds of US$35.5 million from sales under the ATM Program

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

(note 16b). There can be no guarantee that the Company will be able to raise additional capital on terms acceptable to it or at all. Any delay or failure to complete any additional financing would have a significant negative impact on the Company’s business, results of operations and financial condition, and the Company may be forced to curtail or cease operations or seek relief under the applicable bankruptcy or insolvency laws.

These events, combined with the accumulated losses to date, indicate the existence of a material uncertainty that casts substantial doubt on the Company’s ability to continue as a going concern. These condensed consolidated interim financial statements do not give effect to adjustments that would be necessary to the carrying values and classifications of assets and liabilities should the Company be unable to continue as a going concern.

The global impact of COVID-19 has resulted in significant declines in global stock markets and has contributed to a great deal of uncertainty as to the health of the global economy over the next 12 to 18 months. The Company has implemented several new pandemic-related procedures and protocols at its facilities, including enhanced screening measures, enhanced cleaning and sanitation processes and frequency, encouraging social distancing measures and directing employees to work from home if possible. The Company believes that it can maintain safe operations with these pandemic-related procedures and protocols in place.

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

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, 2019, 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, 2019 which have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the IASB.

The condensed consolidated interim financial statements have been prepared on a going concern basis (note 1), based on Management’s assessment that the Company will be able to realize its assets and discharge its liabilities in the normal course of business. These condensed consolidated interim financial statements do not give effect to adjustments that would be necessary to the carrying values and classifications of assets and liabilities should the Company be unable to continue as a going concern.

These condensed consolidated interim financial statements were approved and authorized for issue by the Board of Directors (“Board”) on November 11, 2020.

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

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

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. Subsidiaries incorporated in the jurisdiction of England and Wales use the Great Britain Pound as its functional currency (note 4). Sundial Deutschland GmbH and Sundial Portugal, Unipessoal LDA use the European Euro as their functional currency. Transactions in currencies other than the functional currency are translated at the rate prevailing at the date of transaction. Monetary assets and liabilities that are denominated in foreign currencies are translated at the rate prevailing at each reporting date. Income and expense amounts are translated at the dates of the transactions.

In preparing the Company’s consolidated financial statements, the financial statements of foreign subsidiaries are translated into Canadian dollars, the functional and reporting currency of the Company. The assets and liabilities of foreign subsidiaries that do not have a functional currency of Canadian dollars, are translated into Canadian dollars using exchange rates at the reporting date. Revenues and expenses of foreign operations are translated into Canadian dollars using foreign exchange rates that approximate those on the date of the underlying transactions. Foreign exchange differences from the translation of foreign subsidiaries into Canadian dollars are recognized in Other Comprehensive Income.

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.

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, 2019 have been applied in the preparation of these condensed consolidated interim financial statements except as described below.

Government grants are recognized when there is reasonable assurance that the grant will be received, and all attached conditions will be complied with. If a grant is received but reasonable assurance and compliance with conditions is not achieved, the grant is recognized as a deferred liability until such conditions are fulfilled. When the grant relates to an expense item in nature, it is recognized as “government subsidies” in profit or loss on a systematic basis in the period in which the costs are incurred.

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

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. Bridge Farm was acquired to expand the Company’s business to cannabidiol (“CBD”) extraction and production, subject to certain regulatory, licensing and other restrictions, to launch CBD sales in the United Kingdom. At December 31, 2019, the Company recorded a goodwill impairment based on significant delays and uncertainties in the licensing and regulatory framework in the United Kingdom. As part of the negotiations with the Company’s senior lenders regarding a December 31, 2019 covenant breach and restructuring of its credit agreements, the Company was required to enter into a definitive sale and purchase agreement related to the sale of Bridge Farm.

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 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 (note 15), and (iii) the cancellation of approximately 2.7 million Sundial common shares (value of $3.0 million), 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 Company’s entire Ornamental Flower segment located in the United Kingdom. The Ornamental Flower segment was not previously classified as held-for-sale or as a discontinued operation as it was not highly probable that the carrying amount of the disposal group would be recovered through a sale transaction rather than through continuing use. The comparative statement of loss and comprehensive loss and statement of cash flows has been re-presented to show the discontinued operation separately from continuing operations. With the disposition of the Ornamental Flower segment, the Company no longer has multiple segments. Accordingly, the Cannabis operations in Canada comprise the entire operations of the Company.

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

	Three months ended September 30					Nine months ended September 30
	2020		2019 ⁽¹⁾			2020 ⁽²⁾			2019 ⁽¹⁾
Gross revenue		—		5,491			22,139			5,491
Net revenue		—		5,491			22,139			5,491
Cost of sales		—		4,572			15,633			4,572
Gross margin before fair value adjustments		—		919			6,506			919
Change in fair value of biological assets		—		181			1,064			181
Change in fair value realized through inventory		—		—			(1,122	)		—
Gross margin		—		1,100			6,448			1,100

General and administrative		—		2,162			8,585			2,162
Sales and marketing		—		411			1,418			411
Depreciation and amortization		—		1,135			2,752			1,135
Foreign exchange loss		—		—			1,057			—
Share-based compensation		—		407			(826	)		407
Loss from operations		—		(3,015	)		(6,538	)		(3,015	)

Transaction costs		—		(1,436	)		—			(1,436	)
Finance costs		—		(2,408	)		(10,083	)		(2,408	)
Loss on contingent consideration		—		(5,835	)		(2,252	)		(5,835	)
Gain on investment		—		165			—			165
Gain (loss) on disposition of PP&E		—		13			—			13
Loss on disposition of Bridge Farm		—		—			(14,979	)		—
Loss before income tax		—		(12,516	)		(33,852	)		(12,516	)
Income tax recovery		—		512			225			512
Net loss ⁽³⁾		—		(12,004	)		(33,627	)		(12,004	)

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

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. The Company has evaluated the potential impact of COVID-19 on the collection of its trade receivables and concluded that it does not currently have a material impact. Refer to note 22 for credit risk disclosures.

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:

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

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 sell per gram.

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

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

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, 2020, it is estimated that the Company’s biological assets will yield approximately 6,091 kilograms (December 31, 2019 – 10,455 kilograms) of dry cannabis when harvested. During the nine months ended September 30, 2020, the Company harvested 22,396 kilograms of dry cannabis (nine months ended September 30, 2019 – 23,115 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.

At September 30, 2020, the Company held 11,877 kilograms of harvested cannabis (December 31, 2019 – 8,380 kilograms) in inventory. During the three and nine months ended September 30, 2020, inventories of $10.3 million and $41.1 million were recognized as an expense (three and nine months ended September 30, 2019 - $20.3 million and $31.5 million). Included in inventories expensed for the three and nine months ended September 30, 2020 is an

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

excess and obsolete inventory provision of 19.9 million and $37.6 million. Included in change in fair value realized through inventory is the fair value component of the excess and obsolete inventory provision for the three and nine months ended September 30, 2020 of 1.0 million and $11.0 million.

	Land and buildings			Production facilities			Equipment			Right of use assets			Construction in progress (“CIP”)			Total
Cost
Balance at December 31, 2019		26,606			166,442			24,021			16,509			58,031			291,609
Additions		8			158			2,786			780			4,319			8,051
Transfers from CIP		507			5,720			2,287			—			(8,514	)		—
Reclassification to assets held for sale		(1,547	)		—			—			—			(1,451	)		(2,998	)
Dispositions		(499	)		(162	)		(50	)		(825	)		(991	)		(2,527	)
Disposition of Bridge Farm (note 4)		(16,300	)		(21,587	)		(249	)		(14,431	)		(39,734	)		(92,301	)
Foreign currency translation		(137	)		(181	)		(1	)		(122	)		(347	)		(788	)
Balance at September 30, 2020		8,638			150,390			28,794			1,911			11,313			201,046

Accumulated amortization and impairment
Balance at December 31, 2019		3			5,400			3,697			363			162			9,625
Depreciation		475			5,342			3,532			531			—			9,880
Impairment		—			60,000			—			—			5,659			65,659
Dispositions		—			(37	)		(44	)		(176	)		—			(257	)
Disposition of Bridge Farm (note 4)		(473	)		(2,879	)		—			(251	)		—			(3,603	)
Foreign currency translation		(5	)		(27	)		—			(3	)		—			(35	)
Balance at September 30, 2020		—			67,799			7,185			464			5,821			81,269

Net book value
Balance at December 31, 2019		26,603			161,042			20,324			16,146			57,869			281,984
Balance at September 30, 2020		8,638			82,591			21,609			1,447			5,492			119,777

During the nine months ended September 30, 2020, no salaries and benefits were capitalized. During the nine months ended September 30, 2019 – $0.3 million in salaries and benefits was capitalized, including $0.3 million associated with construction in progress. In addition, no interest associated with construction in progress was capitalized during the nine months ended September 30, 2020 (nine months ended September 30, 2019 – $1.3 million). Construction in progress relates to the construction of production facilities and related infrastructure.

During the nine months ended September 30, 2020, the Company signed a purchase and sale agreement to sell certain non-core assets within the Cannabis segment, consisting of land, building and equipment, located in Kamloops, British Columbia, for gross cash proceeds of $2.1 million. The sale closed on March 27, 2020.

During the nine months ended September 30, 2020, the Company determined that indicators of impairment existed with respect to the Company’s B.C. cash generating unit (“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

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

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. The recoverable amount of these assets was further reduced to $2.9 million due to the Company receiving utility deposits back resulting from the deferral of the facility. Management is committed to a plan to sell the Merritt facility and the asset is available for immediate sale, resulting in the reclassification to assets held for sale on the consolidated statement of financial position.

Due to decreasing estimates for the size of the potential Canadian cannabis market, the Company has curtailed the number of flowering rooms being used for cultivation at its Olds facility. In addition, the carrying amount of the Company’s total net assets significantly exceeded the Company’s market capitalization. In light of these circumstances, the Company has determined that indicators of impairment existed at September 30, 2020.

The impairment test for the Company’s Alberta CGU used a value in use approach based on internal cash flow estimates at September 30, 2020 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 in account forecasted Canadian cannabis industry activity market size and Sundial’s forecasted market share. A terminal value thereafter was applied. Based on the analysis, the Company determined there was an impairment of the Company’s Alberta CGU of $60.0 million for the three and nine months ended September 30, 2020 (2019 - nil), as the estimated recoverable amount for this CGU was lower than the respective carrying amount. The estimated value in use for the Company’s Alberta CGU was sensitive to an increase in the discount rate. An increase to the discount rate by 1% would increase impairment by approximately $9.2 million.

	Brands and trademarks			Patents		Customer relationships			Other			Total
Cost
Balance at December 31, 2019		8,386			13,551		19,578			3,778			45,293
Additions		138			—		—			—			138
Disposition of Bridge Farm (note 4)		(3,066	)		—		(19,415	)		(3,747	)		(26,228	)
Foreign currency translation		(25	)		—		(163	)		(31	)		(219	)
Balance at September 30, 2020		5,433			13,551		—			—			18,984

Accumulated amortization
Balance at December 31, 2019		131			—		976			191			1,298
Depreciation		353			508		842			165			1,868
Disposition of Bridge Farm (note 4)		(190	)		—		(1,801	)		(353	)		(2,344	)
Foreign currency translation		—			—		(17	)		(3	)		(20	)
Balance at September 30, 2020		294			508		—			—			802

Net book value
Balance at December 31, 2019		8,255			13,551		18,602			3,587			43,995
Balance at September 30, 2020		5,139			13,043		—			—			18,182

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

Patents consist of intellectual property acquired through the acquisition of Pathway Rx Inc. consisting of proprietary rights to certain technology, copyrights and trademarks with a useful life of 20 years.

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

Brands and trademarks consisting of intellectual property acquired as part of the Bridge Farm acquisition, customer relationships and other intangible assets consisting of non-compete clauses and energy credits were disposed of as part of the sale of Bridge Farm (note 4).

At December 31, 2019, goodwill was comprised of the goodwill in the Bridge Farm nursery business (flowers, plants and herbs) which was disposed of as part of the sale of Bridge Farm (note 4).

At December 31, 2019, the Syndicated Credit Agreement, as written, contained certain financial covenants to maintain:

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

At December 31, 2019, the Company was not in compliance with the interest coverage ratio covenant under its Syndicated Credit Agreement, which caused a cross-default under the Term Debt Facility. As a result, as at December 31, 2019, the full principal amount of the Syndicated Credit Agreement and the Term Debt Facility were classified as current liabilities on the Company’s consolidated statement of financial position. The Company obtained a waiver under the Syndicated Credit Agreement for the December 31, 2019 interest coverage ratio covenant breach and a waiver for any corresponding breaches of the Term Debt Facility. Under the terms of the waivers, the Company agreed that on or before April 15, 2020 it would (i) enter into a definitive purchase agreement related to the sale of Bridge Farm and (ii) enter into term sheets with the each of the respective lenders under the Syndicated Credit Agreement and Term Debt Facility setting out a financing strategy for the Company. On April 15, 2020, the Company and its senior lenders agreed to amend the terms of the waiver by extending the date required to enter into a definitive purchase agreement related to the sale of Bridge Farm to April 30, 2020, and on May 1, 2020, the date was extended to May 11, 2020. On May 12, 2020, the Company announced that the previously extended waiver expired, however, on May 14, 2020, the Company obtained a new waiver for the December 31, 2019 covenant breach as described below.

At March 31, 2020, the Company was not in compliance with the senior funded debt to EBITDA ratio covenant under its Syndicated Credit Agreement, which caused a cross-default under the Term Debt Facility. As a result, as at March 31, 2020, the full principal amount of the Syndicated Credit Agreement and the Term Debt Facility continued to be classified as current liabilities on the Company’s consolidated statement of financial position.

On May 14, 2020, the Company obtained a waiver under the Syndicated Credit Agreement for the December 31, 2019 interest coverage ratio covenant breach, the March 31, 2020 senior funded debt to EBITDA ratio covenant breach and any corresponding breaches of the Term Debt Facility. Under the terms of the waivers, the Company agreed that on or before June 1, 2020 it would (i) execute an amended and restated credit agreement under its Syndicated Facility, (ii) execute a refinancing transaction under its Term Debt Facility, (iii) execute an intercreditor agreement, and (iv) close the sale of Bridge Farm.

On June 1, 2020, the Company’s senior lenders amended the terms of the May 14, 2020 waivers and agreements extending the required completion of defined milestones to June 5, 2020.

On June 5, 2020, the Company entered into an amended and restated credit agreement, executed a refinancing transaction under its Term Debt Facility (note 11b), executed an intercreditor agreement and closed the sale of Bridge Farm (note 4). The amended and restated credit agreement includes a waiver for the Company’s March 31, 2020 covenant non-compliance, elimination of financial covenants other than a minimum cash balance covenant of $2.5 million until December 31, 2020 or later and a covenant requiring the Company to raise capital of US$10 million by December 1, 2020 (which was satisfied as a result of the August 2020 Offering (note 16b)). Additionally, principal repayments of $2.1 million per quarter have been rescheduled to commence on September 30, 2020 and were paid on that date.

At September 30, 2020, the Syndicated Credit Agreement contained certain financial covenants to maintain:

At September 30, 2020, the Company was in compliance with all financial covenants under the Syndicated Credit Agreement. Additionally, based on the Company’s most recent financial projections, management is forecasting that the Company will be in violation of the Syndicated Credit Agreement senior funded debt to EBITDA covenant at December 31, 2020.

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

At December 31, 2019, the Company was subject to three financial covenants under this facility, so long as the principal amount owing under the Term Debt Facility was greater than $75 million.

On June 5, 2020, the Company entered into a restructuring and novation agreement (the “Restructuring and Novation Agreement”) and a securities restructuring agreement (the “Securities Restructuring Agreement”) whereby $45.0 million of principal from the Term Debt Facility was assigned to the Bridge Farm Purchaser and the remaining $73.2 million of principal plus accrued interest was extinguished and replaced with $73.2 million senior second lien convertible notes of the Company (note 13a).

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

On June 5, 2020, in connection with the Restructuring and Novation Agreement, the Company entered into the Securities Restructuring Agreement, pursuant to which the $73.2 million balance of the Term Debt Facility was extinguished and replaced with a $73.2 million senior second lien convertible note (the “Secured Convertible Note”), convertible into common shares at an initial conversion price of US$1.00 per common share. The Company also issued common share purchase warrants to acquire up to 17.5 million common shares at an initial exercise price of US$1.00 per warrant and common share purchase warrants to acquire up to 17.5 million common shares at an initial exercise price of US$1.20 per warrant (the “Secured Convertible Note Warrants”) (note 14a).

The Secured Convertible Note matures on June 5, 2022 and does not bear interest, except upon the occurrence of defined triggering events. The Secured Convertible Note is secured by a second priority lien on the assets and property of the Company.

The Secured Convertible Note can be converted into common shares at any time after the earlier of the date upon which the indebtedness under the Unsecured Convertible Notes is less than US$3.0 million (note 14b) and February 1, 2021. On September 30, 2020, the indebtedness under the Unsecured Convertible Notes was less than US$3.0 million and the Company subsequently filed a registration statement which allows the holders to offer and sell the common shares issuable upon conversion or exercise of the Secured Convertible Note and Secured Convertible Note Warrants. The registration statement was declared effective by the U.S. Securities and Exchange Commission (the “SEC”) on October 22, 2020.

Beginning on October 22, 2020, up to $10 million of principal of the Secured Convertible Note can be converted into common shares per month at an alternate conversion price equal to the lower of (i) the applicable conversion price in effect on such conversion date, and (ii) the greater of (a) US$0.1624 and (b) 92% of the volume weighted average price of the Company’s common shares during the eight consecutive trading day period ending and including the date of delivery of the conversion notice. The Secured Convertible Note and related warrants do not permit the holder to have beneficial ownership of the outstanding common shares in excess of 9.99%.

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.

The Secured Convertible Note has been designated as Fair Value Through Profit or Loss (“FVTPL”) (note 22).

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

As a result of the August 2020 Offering, the conversion price for the Secured Convertible Note was adjusted to US$0.8474 per common share. As of November 9, 2020, as a result of sales under the ATM Program, the conversion price of the Secured Convertible Note was adjusted to US$0.6560 per common share. The foregoing conversion price may be further adjusted as the result of future sales under the ATM Program or other offerings, if any.

Subsequent to September 30, 2020, $18.3 million aggregate principal of the Secured Convertible Note was converted into common shares at a weighted average conversion price of $0.2122 resulting in the issuance of 86.0 million common shares. As of November 9, 2020, $55.0 million aggregate principal amount of Secured Convertible Note remained outstanding.

On June 5, 2020, in connection with the debt restructuring transactions, the Company entered into a securities purchase agreement providing for the sale of a new series of unsecured senior subordinated convertible notes (the “Unsecured Convertible Notes”) in the aggregate principal amount of US$18.0 million, convertible into common shares at any time at the option of the holder at an initial conversion price of US$1.00, and common share purchase warrants to acquire up to 14.5 million common shares at an initial exercise price of US$0.9338 per common share (the “Unsecured Convertible Notes Warrants”) (note 14b). In connection with the securities purchase agreement, placement agents for the offering were issued common share purchase warrants to acquire up to 1,080,000 common shares at an initial exercise price of US$1.00 per common share (the “Agent Warrants”) (note 14c).

The Unsecured Convertible Notes mature on June 5, 2022 and do not bear interest, except upon the occurrence of defined triggering events.

The Unsecured Convertible Notes can be converted into common shares at any time. The terms of the Unsecured Convertible Notes were amended in August 2020 to allow the entire principal amount to be converted into common shares at an alternate conversion price equal to the lower of (i) the applicable conversion price in effect on such conversion date, and (ii) the greater of (a) US$0.1624 and (b) 88% of the lowest volume weighted average price of the Company’s common shares during the five consecutive trading day period ending and including the date of delivery of the conversion notice. The Unsecured Convertible Notes and related warrants do not permit the holder to have beneficial ownership of the outstanding common shares in excess of 9.99%.

As a result of the August 2020 Offering, the conversion price for the Unsecured Convertible Notes was adjusted to US$0.8474 per common share. As of November 9, 2020, as a result of sales under the ATM Program, the conversion price of the Unsecured Convertible Notes was adjusted to US$0.6560 per common share. The foregoing conversion price may be further adjusted as the result of future sales under the ATM Program or other offerings, if any.

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

During the period July 16, 2020 to September 30, 2020, US$15.6 million aggregate principal was converted into common shares at a weighted average exercise price of US$0.2516 resulting in the issuance of 62.0 million common shares (note 16b). At September 30, 2020, US$2.4 million aggregate principal amount of Unsecured Convertible Notes remained outstanding.

Subsequent to September 30, 2020, an additional US$2.4 million aggregate principal of Unsecured Convertible Notes was converted into common shares at a weighted average exercise price of US0.1631 resulting in the issuance of 14.7 million common shares. As of November 9, 2020, US$16.0 thousand aggregate principal amount of Unsecured Convertible Notes remained outstanding.

The Secured Convertible Note Warrants were issued on June 5, 2020 and expire 36 months from the date of issuance. The Secured Convertible Note Warrants can be converted into common shares at any time after the earlier of the date upon which the indebtedness under the Unsecured Convertible Notes is less than US$3.0 million and February 1, 2021. On September 30, 2020, the indebtedness under the Unsecured Convertible Notes was less than US$3.0 million and the Company subsequently filed an F-3 registration statement with a date of effectiveness of October 22, 2020. In certain circumstances, the Secured Convertible Note Warrants are subject to forced exercise provisions whereby the Company can force exercise should the volume weighted average price of the Company’s common shares exceed US$2.00.

As a result of the August 2020 Offering, the conversion price for the Secured Convertible Note Warrants was adjusted to US$0.3955 per common share. As of November 9, 2020, as a result of sales under the ATM Program, the exercise price of the Secured Convertible Note Warrants was adjusted to US$0.1766 per common share. The foregoing exercise price may be further adjusted as the result of future sales under the ATM Program or other offerings, if any.

The Unsecured Convertible Notes Warrants were issued on June 5, 2020, are immediately exercisable, and expire 42 months from the date that the underlying common shares become freely tradeable, which was July 16, 2020. In certain circumstances, the Unsecured Convertible Notes Warrants are subject to forced exercise provisions whereby the Company can force exercise should the volume weighted average price of the Company’s common shares exceed US$2.8014.

As a result of the August 2020 Offering, the conversion price for the Unsecured Convertible Notes Warrants was adjusted to US$0.3955 per common share. As of November 9, 2020, as a result of sales under the ATM Program, the exercise price of the Unsecured Convertible Notes Warrants was adjusted to US$0.1766 per common share. The foregoing exercise price may be further adjusted as the result of future sales under the ATM Program or other offerings, if any.

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

As a result of the At-the-Market Offering Program, the foregoing conversion and exercise prices will be subject to further adjustment.

Subsequent to September 30, 2020, 4.8 million Unsecured Convertible Notes Warrants were exercised at a weighted average exercise price of US$0.1766 per warrant resulting in the issuance of 4.8 million common shares and gross proceeds to the Company of US$0.9 million. As of November 9, 2020, 9.6 million Unsecured Convertible Notes Warrants remained outstanding.

The Agent Warrants were issued on June 5, 2020, are immediately exercisable, and expire on June 5, 2025. The Agent Warrants do not permit the holder to have beneficial ownership of the outstanding common shares in excess of 4.99%.

On August 18, 2020, in connection with the August 2020 Offering, the Company issued 40.1 million Series A Warrants and 14.3 million Series B Warrants (note 16b). The Series A Warrants and Series B Warrants are exercisable immediately and have a term of five years commencing on the date of issuance. The exercise price of the Series A Warrants are US$0.75 per common share and the exercise price of the Series B Warrants are US$0.0001 per common share.

On August 19, 2020, 9.2 million Series B Warrants were converted into common shares and on August 20, 2020, the remaining 5.1 million Series B Warrants were converted into common shares (note 16b).

As of November 9, 2020, as a result of sales under the ATM Program, the exercise price of the Series A Warrants was adjusted to US$0.1766 per common share. The exercise price of the Series A Warrants may be further adjusted as the result of future sales under the ATM Program or other offerings, if any.

Subsequent to September 30, 2020, 3.0 million Series A Warrants were exercised at a weighted average exercise price of US$0.1766 per warrant resulting in the issuance of 3.0 million common shares and gross proceeds to the Company of US$0.5 million. As of November 9, 2020, 37.1 million Series A Warrants remained outstanding.

The following table summarizes outstanding derivative warrants as at September 30, 2020:

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

Contingent consideration was comprised of the fair value of the incremental shares potentially issuable in connection with the acquisition of Bridge Farm and the fair value of earn-out payments owed to the sellers of Bridge Farm.

At June 5, 2020, the fair value of the incremental shares was $34.6 million and the fair value of the earn out shares was $0.3 million. On June 5, 2020, the total contingent consideration of $34.9 million was assumed by the Bridge Farm Purchaser as part of the consideration for the Bridge Farm Disposition (note 4).

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

		September 30, 2020						December 31, 2019
	Note	Number of Shares			Carrying Amount			Number of Shares		Carrying Amount
Balance, beginning of year			107,180,423			509,654			68,648,984		65,133
Initial public offering			—			—			11,000,000		189,518
Shares issued for assets			—			—			797,952		6,537
Share issuances	14,15		25,978,022			15,232			394,926		2,323
Shares issued to related parties			—			—			3,730,963		63,460
Share issuance costs			—			(1,818	)		—		(12,770	)
Business acquisitions			—			—			2,696,800		39,849
Disposition of Bridge Farm	4		(2,716,271	)		(38,447	)		—		—
Convertible debt - conversions	13		61,976,599			11,912			13,108,676		113,526
Derivative warrants exercised	14		14,280,000			8,087			—		—
Warrants exercised			—			—			4,551,082		21,882
Shares issued for services			—			—			164,080		2,320
RSUs exercised	17(c)		15,156			51			57,960		195
Employee warrants exercised			—			—			2,029,000		17,681
Balance, end of period			206,713,929			504,671			107,180,423		509,654

On August 18, 2020, the Company issued 25.8 million Series A Units (the “Series A Units”), each consisting of one common share and one Series A Warrant (collectively, the “Series A Warrants”) (note 14d) to purchase one common share and 14.3 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 Series A Warrant to purchase one common share (note 14d). Each Series A Unit was sold at a price of US$0.50 per unit and each Series B Unit was

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

sold at a price of US$0.50 per unit, less US$0.0001 per unit. Gross proceeds from this offering were US$20 million. The Series A Warrants and Series B Warrants were exercisable immediately and have a term of five years commencing on the date of issuance. The exercise price of the Series A Warrants was US$0.75 per common share and the exercise price of the Series B Warrants was US$0.0001 per common share.

On August 19, 2020, 9.2 million Series B Warrants were converted into common shares and on August 20, 2020, the remaining 5.1 million Series B Warrants were converted into common shares.

On August 13, 2020, the Company entered into an equity distribution agreement to establish the ATM Program which allows the Company to offer and sell common shares having an aggregate offering price of up to US$50 million.

No sales were made under the ATM Program prior to September 30, 2020. During the period from October 1, 2020 to November 9, 2020, the Company issued 121.9 million common shares at a weighted average exercise price of US$0.2910 for gross proceeds of $46.3 million.

The following table summarizes outstanding equity classified warrants as at September 30, 2020:

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

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

In determining the amount of share-based compensation, the Company used the Black-Scholes option pricing model to estimate the fair value of units granted during the nine months ended September 30, 2020 and year ended December 31, 2019 through the application of the following assumptions:

Volatility was estimated by using the historical volatility of peer companies that the Company considers comparable, which have trading and volatility history. The expected life in years represents the period of time that the units granted are expected to be outstanding. The risk-free rate was based on Government of Canada bond rates of comparable duration.

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 expire five years after the grant date.

The following table summarizes changes in the simple and performance warrants during the nine months ended September 30, 2020:

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

The following table summarizes outstanding simple and performance warrants as at September 30, 2020:

	Warrants outstanding						Warrants exercisable
Range of exercise prices	Number of warrants		Weighted average exercise price		Weighted average contractual life (years)		Number of warrants		Weighted average exercise price		Weighted average contractual life (years)
Simple warrants
$0.63 - $0.94		3,619,000		0.68		3.55		3,619,000		0.68		3.55
$1.25 - $1.88		560,000		1.50		3.80		560,000		1.50		3.80
$2.97 - $4.53		1,028,000		3.18		3.83		884,000		3.11		3.61
$6.25 - $9.38		2,140,800		6.33		5.17		614,400		6.53		5.13
$12.50 - $37.50		220,800		21.10		6.82		25,600		21.08		6.14
		7,568,600	$	3.27		4.16		5,703,000	$	1.86		3.77
Performance warrants
$0.63 - $0.94		2,901,817		0.64	n/a			2,747,148		0.64	n/a
$1.25 - $1.88		478,933		1.49	n/a			418,134		1.46	n/a
$2.97 - $4.53		717,333		3.10	n/a			490,666		3.08	n/a
$6.25 - $9.38		150,933		7.32	n/a			38,400		6.25	n/a
$12.50 - $37.50		116,266		27.52	n/a			—		—	n/a
		4,365,282	$	2.08	n/a			3,694,348	$	1.11	n/a

During the nine months ended September 30, 2020, the Company did not grant any simple or performance warrants (nine months ended September 30, 2019 – 4,795,200 simple warrants granted with an average exercise price of $6.32 and 723,200 performance warrants granted with an average exercise price of $12.23).

During the nine months ended September 30, 2020, nil simple warrants were exercised (nine months ended September 30, 2019 – 214,400 simple warrants at a weighted average price of $0.91) and nil performance warrants were exercised (nine months ended September 30, 2019 – 1,652,800 performance warrants at a weighted average price of $0.63).

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 the stock options during the nine months ended September 30, 2020:

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

The following table summarizes outstanding stock options as at September 30, 2020:

RSUs are granted to employees and the vesting requirements and maximum term are at the discretion of the Board. DSUs are granted to directors on a quarterly basis and generally vest immediately. RSUs and DSUs are exchangeable for an equal number of common shares.

The following table summarizes changes in the RSUs and DSUs during the nine months ended September 30, 2020:

The Company’s revenue is solely from contracts with customers and is comprised of revenue from the sale of cannabis. Cannabis revenue 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.

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

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. A proposal has been made to continue the CEWS until June 2021, including possible changes to the rates and the top-up calculation.

The Company became eligible for the CEWS based on decreases in revenue during the three months ended June 30, 2020 and has received the subsidy for the periods June 6 to July 4, 2020, July 5 to August 1, 2020, August 2 to August 29, 2020 and August 30 to September 26, 2020. The subsidy has been recognized in the condensed consolidated interim statement of loss and comprehensive loss. There are no unfulfilled conditions or contingencies attached to the CEWS.

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

	Three months ended September 30						Nine months ended September 30
	2020			2019			2020			2019
Cash finance expense
Interest on Syndicated Credit Agreement		1,025			454			3,279			454
Interest on Credit Facilities		—			486			—			1,818
Interest on Term Debt Facility		—			1,667			2,936			1,759
Interest on Senior Convertible Notes		—			3			—			375
Interest on Convertible Notes		—			691			—			2,442
Interest on other debt		—			(9	)		—			1,526
Other finance costs		355			451			495			3,999
		1,380			3,743			6,710			12,373
Non-cash finance expense (income)
Accretion		—			2,379			1,622			4,632
Amortization of debt issue costs		223			476			946			1,016
Change in fair value of convertible notes (note 13)		(9,742	)		—			(10,231	)		—
Change in fair value of derivative warrant liabilities (note 14)		(10,057	)		—			(10,468	)		—
Interest on Senior Convertible Notes		—			1,903			—			1,903
Loss on derivative liabilities		—			1,649			—			1,649
Other		18			—			(22	)		—
		(19,558	)		6,407			(18,153	)		9,200
Less: interest capitalized relating to CIP (note 8)		—			—			—			(1,280	)
Interest income		(19	)		—			(181	)		—
		(18,197	)		10,150			(11,624	)		20,293

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

The financial instruments recognized on the consolidated statement of financial position are comprised of cash and cash equivalents, restricted cash, accounts receivable, accounts payable and accrued liabilities, long-term debt, convertible notes, derivative warrant liabilities and contingent consideration

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

Fair value measurements of long-term debt, convertible notes, derivative warrant liabilities and contingent consideration are as follows:

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.

As at September 30, 2020, the Company did not have any financial instruments measured at Level 1 fair value.

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.

The fair value of long-term debt approximates it carrying value as it bears a floating rate of interest (Syndicated Credit Agreement) and interest at a fixed rate of 9.75% which approximates a market rate for comparable transactions (Term Debt Facility).

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.

Convertible notes are designated as Fair Value Through Profit or Loss (“FVTPL”). The fair value of convertible notes is re-measured each reporting period with changes in fair value recognized in the consolidated statement of loss within finance income (costs). The fair value of convertible notes is estimated by using

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

valuation model that takes into account all of the features of the convertible notes. Assumptions used in these calculations include expected future share price, volatility, discount rate and various probability factors.

At September 30, 2020, a 10% change in the material assumptions would change the fair value of convertible notes by approximately $4.8 million.

Derivative warrant liabilities are designated as FVTPL. The fair value of derivative warrant liabilities is re-measured each reporting period with changes in fair value recognized in the consolidated statement of loss within finance income (costs). The fair value of derivative warrant liabilities is estimated by using a 50% weighting of two different valuation models. Assumptions used in these calculations include expected future share price, volatility, discount rate and various probability factors.

At September 30, 2020, a 10% change in the material assumptions would change the fair value of derivative warrant liabilities by approximately $0.6 million.

Contingent consideration classified as liabilities was part of the consideration paid for Bridge Farm and was a Level 3 financial liability that was re-measured each reporting period. Contingent consideration was estimated by discounting to present value the probability-weighted contingent payments expected to be made. Assumptions used in these calculations included expected future share price, discount rate and various probability factors.

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 considers financial instruments to have low credit risk when its credit risk rating is equivalent to investment grade. The Company assumes that the credit risk on a financial asset has increased significantly if it is outstanding past the contractual payment terms. The Company considers a financial asset to be in default when the debtor is unlikely to pay its credit obligations to the Company.

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

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

The movement in the allowance for impairment in respect of accounts receivable during the nine months ended September 30, 2020 was as follows:

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

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

The Company has entered into separate shareholder loan agreements with two (December 31, 2019 – two) employees of the Company. The loans bear interest at rates ranging from 0-1.5% per annum and are secured by each employee’s shareholdings in the Company. The loans are each repayable in full upon the departure of an individual employee from employment, a change in control of the Company or sale of the Company. As at September 30, 2020, $0.2 million (December 31, 2019 - $0.2 million), had been advanced under these loan agreements.

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

The Company defines its capital as its shareholder’s 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:

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

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, 2020 of $1.5 million (December 31, 2019 - $1.5 million).

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.


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	)

Assumption	Input	Weighted average input				Effect of 10% change ($000s)
		September 30 2020		December 31 2019		September 30 2020		December 31 2019
Yield per square foot of growing space⁽¹⁾	Grams		42		47		443		1,183
Average net selling price⁽²⁾	$/gram		5.30		5.47		1,317		3,021
After harvest cost to complete and sell	$/gram		1.48		2.34		272		267

As at	September 30, 2020		December 31, 2019
Harvested cannabis		22,113		50,403
Cannabis supplies and consumables		9,559		8,808
Ornamental flowers, supplies and consumables (note 4)		—		731
		31,672		59,942

	Interest rate	Maturity	Principal		September 30 2020		December 31 2019
Syndicated Credit Agreement ^(a)
Syndicated facility	Prime + 2.5%	Aug 27, 2021		74,000		71,063		82,910
Operating facility	Prime + 2.5%	Aug 27, 2021		5,330		—		—
Term Debt Facility^(b)
First tranche	9.75%	Jul 27, 2023		115,000		—		95,003
						71,063		177,913

Current portion						71,063		177,913
Long term						—		—

	September 30, 2020
Less than one year		493
One to three years		971
Three to five years		268
Thereafter		—
Minimum lease payments		1,732
Amounts representing finance charges		(191	)
Net minimum lease payments		1,541

Subsidiaries	Jurisdiction of incorporation	Percentage ownership
Sprout Technologies Inc.	Alberta, Canada		100	%
KamCan Products Inc.	British Columbia, Canada		100	%
2011296 Alberta Inc.	Alberta, Canada		100	%
Sundial Deutschland GmbH	Germany		100	%
Sundial Portugal, Unipessoal LDA	Portugal		100	%
Pathway Rx Inc.	Alberta, Canada		50	%
Sundial UK Limited⁽¹⁾	England and Wales		100	%

Net book value
Balance at December 31, 2018	—
Acquisitions through business combinations	107,053
Foreign currency translation	4,692
Impairment	(100,305	)
Balance at December 31, 2019	11,440
Disposition of Bridge Farm (note 4)	(11,345	)
Foreign currency translation	(95	)
Balance at September 30, 2020	—

	September 30, 2020
Balance, beginning of year		—
Secured Convertible Note - Fair Value on issuance^(a)		54,693
Unsecured Convertible Notes - Fair Value on issuance^(b)		16,113
Converted to common shares		(12,079	)
Change in fair value recognized in profit or loss		(10,231	)
Unrealized foreign exchange loss		(88	)
Balance, end of period		48,408

Principal balance	September 30, 2020
Balance, beginning of year		—
Issued		73,227
Balance, end of period		73,227

Principal balance (USD)	September 30, 2020
Balance, beginning of year		—
Issued		18,000
Converted to common shares		(15,594	)
Balance, end of period		2,406

	September 30, 2020
Balance, beginning of year		—
Secured Convertible Note Warrants - Fair Value on issuance^(a)		6,683
Unsecured Convertible Notes Warrants - Fair Value on issuance^(b)		3,961
Agent Warrants - Fair Value on issuance^(c)		504
Series A and Series B Warrants - Fair Value on issuance^(d)		11,784
Converted to common shares		(8,087	)
Change in fair value recognized in profit or loss		(10,468	)
Unrealized foreign exchange loss		34
Balance, end of period		4,411

	Exercise price (USD)⁽¹⁾		Number of warrants		Weighted average contractual life
Series A Warrants		0.75		40,100,000		4.9
Secured Convertible Note Warrants		0.3955		35,000,000		2.7
Unsecured Convertible Notes Warrants		0.3955		14,456,429		3.3
Agent Warrants		1.00		1,080,000		4.7
				90,636,429		1.6

	Number of Warrants			Carrying Amount
Balance at December 31, 2019		6,165,324			27,831
Warrants expired		(1,042,112	)		(2,229	)
Balance at September 30, 2020		5,123,212			25,602

	Warrants outstanding and exercisable
Issued in relation to	Weighted average exercise price		Number of warrants		Weighted average contractual life (years)
12% Convertible notes (USD)	USD 3.75			377,688		0.1
12% Convertible notes (CAD)		4.38		1,812,634		0.0
Acquisition of financial obligation		15.94		480,000		1.8
Term debt financing (60%)		20.76		1,495,665		1.8
Term debt financing (40%)		21.63		957,225		1.8
		13.50		5,123,212		1.1

	September 30, 2020	December 31, 2019
Risk-free interest rate	0.28% - 0.29%	1.41% - 1.88%
Expected life of units (years)	10	2 - 10
Expected annualized volatility	143%	97% - 116%
Expected dividend yield	Nil	Nil
Weighted average Black-Scholes value of each unit	$1.13 - $1.17	$0.67 - $23.55

	Simple warrants outstanding			Weighted average exercise price		Performance warrants outstanding			Weighted average exercise price
Balance at December 31, 2019		9,815,000		$	4.01		5,798,822		$	2.66
Forfeited		(2,246,400	)		6.48		(1,433,540	)		4.42
Balance at September 30, 2020		7,568,600		$	3.27		4,365,282		$	2.08

	Stock options outstanding			Weighted average exercise price
Balance at December 31, 2019		623,850		$	4.33
Granted		481,600			1.16
Forfeited		(384,850	)		4.96
Balance at September 30, 2020		720,600		$	1.82

	Stock options outstanding				Stock options exercisable
Exercise prices	Number of options		Weighted average contractual life (years)		Number of options		Weighted average contractual life (years)
$1.15		400,000		9.66		—		—
$1.19		81,600		9.74		81,600		9.74
$3.15		239,000		8.93		5,000		3.95
		720,600		9.43		86,600		9.41

	RSUs outstanding			DSUs outstanding
Balance at December 31, 2019		48,883			367,924
Granted		2,999,813			2,690,253
Forfeited		(43,813	)		(310,164	)
Exercised		(15,256	)		—
Balance at September 30, 2020		2,989,627			2,748,013

			Fair value measurements using
September 30, 2020	Carrying amount		Level 1		Level 2		Level 3
Recurring measurements:
Financial liabilities
Long-term debt		71,063		—		71,063		—
Convertible notes		48,408		—		—		48,408
Derivative warrant liabilities		4,411		—		—		4,411

			Fair value measurements using
December 31, 2019	Carrying amount		Level 1		Level 2		Level 3
Recurring measurements:
Financial liabilities
Long-term debt		177,913		—		177,913		—
Contingent consideration		32,501		—		—		32,501

	Transactions				Balance outstanding
	Nine months ended September 30		Nine months ended September 30		September 30			December 31
	2020		2019		2020			2019
Marketing, brand research and development^(a)		1,144		2,152		—			(265	)
Legal services^(b)		1,811		2,973		(221	)		(397	)
		2,955		5,125		(221	)		(662	)

	Less than one year		One to three years		Three to five years		Thereafter		Total
Accounts payable and accrued liabilities		26,388		—		—		—		26,388
Syndicated Credit Agreement ⁽¹⁾		71,900		—		—		—		71,900
Convertible notes⁽¹⁾		—		76,436		—		—		76,436
Lease obligations		405		880		256		—		1,541
Balance, end of period		98,693		77,316		256		—		176,265