Sundial Growers Sold Bad Pot to Zenabis, Here’s What You Need to Know

While August hasn’t been quite as tumultuous a month as July, it’s still bringing a fair share of bad press to the cannabis sector. Today Rich discusses some breaking news that likely won’t sit well with investors in Sundial Growers Inc. (NASDAQ:SNDL).

According to Market Watch, Zenabis Global Inc. (TSX:ZENA) (OTCPK:ZBISF) recently returned a half ton of pot that it purchased from Sundial Growers. This is because the cannabis contained “visible mold, parts of rubber gloves, and other non-cannabis material.”

The sale—worth approximately $2.5 million CAD had it gone through—was supposed to account for 10 percent of Sundial’s total cannabis sales for Q2.

“I smell a lawsuit coming,” says Rich.

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Sundial Growers Didn’t Disclose that It Sold Bad Weed

The news about the cannabis being returned did not come from Sundial. Though the company mentioned certain risks around inventory spoilage for its IPO, it made no specific reference. Neither did the company mention the loss of revenue in its Q2 fiscal report, released on Wednesday.

Instead, Zenabis mentioned in its recent financial statements—which Rich has already broken down for his community—a modest shortfall in sales. The company expected to make cannabis revenue between $10,000,000 to $12,000,000, but only made $7,251,860 in the last quarter.

Among the factors Zenabis cited as the cause of the shortfall was the fact that “certain third-party producers failed to supply saleable cannabis in line with contractual obligations.” This led the company to return or reject a total of 554 kg of cannabis.

While Zenabis never named the third party, Market Watch says Sundial Growers was identified as the seller of the bad cannabis by “people familiar with the matter.”

Bad Timing for Sundial

This news comes at an unfortunate time for Sundial, as the company went public less than three weeks ago. On August 1, the Alberta-based cannabis company’s IPO brought in $143 million and was valued at around $1 billion.

Addressing Sundial Growers directly, Rich says, “If you want to compete, I would suggest trying to grow some cannabis with no mold … because that is just beyond terrible business.”

What do you think? Does news like this spell the beginning of the end for Sundial? If you’ve got a hot take, we want to hear about it in the comment section.

Full video transcript below.

Featured image: DepositPhotos © Premium_shots

Full Video Transcript

00:00

hi guys how you doing this is rich from
00:03
rich TV live and I have some news that
00:05
oh I don’t know how to feel about it I
00:09
don’t know if I like it I know I don’t
00:11
like it and I’m kind of disturbed by it
00:14
to be quite honest with you and I’m
00:16
gonna break it down for you right now
00:17
because it’s breaking news it’s all over
00:19
Bloomberg it was shared by gee in our
00:22
group chat Thank You G for sharing this
00:24
information
00:25
I really appreciate it this is the power
00:27
of the community we get to know
00:28
everything first and I wasn’t even aware
00:31
of this news until it was brought to my
00:32
attention and my goodness am i shocked
00:35
no because I read that Zen abyss mmm-hmm
00:40
had an issue with some cannabis they
00:43
purchased that was bad I had no clue it
00:46
was from this company these guys are a
00:48
huge company and it all just came out
00:50
today and it looks really bad on sundial
00:54
growers let’s get into it so partner
00:57
company discloses returning pot with
00:59
mold and rubber bits sources say the
01:02
weed came from sundial so on reading Zen
01:05
abysus financials and they had a
01:07
shortfall they anticipated making 10 to
01:10
12 million in sales from cannabis sales
01:13
they only made 7 million and they talked
01:16
about the reason why was they had to
01:19
return some cannabis let’s get into it
01:21
we finally found out who that company
01:24
was and what happened today and let’s
01:28
break it down the newest cannabis
01:30
company on Wall Street sundial growers
01:31
Inc snd Ella
01:35
ha the newest billion-dollar IPO the
01:39
next big thing that everybody gets
01:40
excited about can’t even grow
01:43
wheat like what is going on in this
01:46
world these people are a brand new IPO
01:49
they’re a billion dollar company
01:51
apparently and they can’t even grow weed
01:55
what a joke unbelievable the newest
01:59
cannabis company on Wall Street sundial
02:00
growers Inc sold half a ton of pot that
02:03
was returned by corporate buyer Zen
02:06
abyss global Inc this hurt zine abyss
02:09
folks because it can’t
02:11
visible mold sundial why you selling
02:17
Xena mold parts of rubber gloves you
02:21
sold them weed with mold and parts of
02:25
rubber gloves what and other non
02:30
cannabis material I say pardon according
02:35
to people familiar with the matter the
02:37
attempted sale would have been
02:39
equivalent to 10% of sundials SN DL on
02:43
the Nasdaq which is currently down
02:44
surprise surprise
02:45
total second quarter cannabis sales of
02:48
five metric tons the batch of cannabis
02:52
would be worth roughly 2.5 million
02:54
Canadian 1.9 million u.s. assuming a
02:59
price of $5 per gram sundale has not
03:02
disclosed that a shipment has been
03:04
returned
03:05
why sundial why are you hiding a
03:08
spokeswoman for the company didn’t
03:10
return requests for comment
03:13
so you’d rather get you rather everyone
03:17
found out through rich TV live you think
03:19
that’s a good idea sundial sundial
03:22
announced earnings Wednesday morning but
03:24
they didn’t announce that they had mold
03:27
in their shipment they did announce that
03:29
they had rubber gloves in their shipment
03:31
like what kind of joke is this is this a
03:35
joke like like even the smallest street
03:39
growers don’t make these mistakes and
03:42
this is the newest most exciting IPO on
03:45
the nasdaq billion dollar company and
03:48
they’re selling mold with weed with
03:52
rubber gloves pieces of rubber gloves in
03:55
it like what oh my goodness what a joke
04:00
in its own June quarter report the same
04:04
morning Canadian cannabis companies
04:07
enemas global xena which at the time of
04:10
this article was up seven point six nine
04:12
percent disclosed that it had returned
04:14
half a ton of pot and terminated its
04:17
agreement to buy weed from a third party
04:20
that it did not name see this is why I
04:22
love Zenith
04:23
has class Zenon quietly mentioned that
04:27
they returned the pot and they had an
04:29
issue I broke down their financials
04:31
yesterday I told him about this issue I
04:33
broke this down and told you guys they
04:35
had an issue
04:36
Zen abyss was very honest about their
04:39
issue they didn’t hide it but they have
04:41
class they never mentioned sundials name
04:43
now two days later it’s all over market
04:48
watch and it’s on rich TV live so
04:50
sundial don’t you think it would have
04:52
been a good idea to address this
04:53
yourself before it got plastered all
04:56
over market watch all over bloomberg all
04:59
over rich TV live which we’re in sixty
05:02
countries by the way so I don’t know if
05:04
this was the smartest way for you to
05:05
handle it sundial sundial raised a
05:08
hundred okay sorry people familiar with
05:13
the matters say that the party was
05:15
sundial and Zen abyss returned to
05:17
cannabis because the plot was a poor
05:19
quality and contained bits of rubber
05:22
among other issues whoa that’s pretty
05:28
brutal sundial raised one hundred and
05:31
forty three million and went public on
05:32
the Nasdaq August first with a valuation
05:35
of roughly 1 billion dollars and they
05:39
can’t even grow pot the company included
05:42
a number of risks around inventory
05:45
spoilage in its IPO filings but did not
05:49
include a reference to a half a ton of
05:51
returned cannabis sundial did not
05:54
mention the half ton return during a
05:57
Roadshow presentation in Toronto
06:00
I smell a lawsuit coming folks according
06:04
to one investor who heard the pitch in
06:06
the IPO filing and its quarterly
06:09
earnings filing with the Securities and
06:11
Exchange Commission the company
06:14
disclosed about 3.3 million in penalties
06:17
for not delivering cannabis as promised
06:20
to partners those contingencies were
06:23
from 2018 so apparently they’ve had a
06:27
lot of problems for quite some time now
06:30
sundial said in its IPO documents that
06:34
the majority of its sales are
06:36
our two other licensed producers in
06:38
Canada the company disclosed that it
06:40
hopes that this decrease the percentage
06:42
of its business that is based on sales
06:45
to potential rivals through 2019 and
06:48
make it a minority of sales in the
06:51
future as it looks to compete in the
06:53
market for premium cannabis so if you
06:57
want to compete I would suggest trying
06:59
to grow some cannabis with no mold I
07:01
would also suggest making sure that
07:03
there is no pieces of rubber gloves in
07:05
your cannabis that you’re selling
07:07
because that is just beyond terrible
07:11
business beyond brutal embarrassing
07:15
pathetic business I don’t understand how
07:20
you even consider yourself a real
07:21
business when you’re operating like this
07:24
I am mind boggled that this is happening
07:27
in 2019 mind boggled that we are going
07:32
into 2020 companies are going public on
07:35
the Nasdaq with a billion dollar
07:37
evaluation and they can’t even grow pot
07:40
without mold now if you grow it with
07:42
mold that’s one thing why would you try
07:44
to sell it why would you try to sell it
07:49
like that’s just beyond me I I’m almost
07:53
at a loss of word words almost sundial
07:57
shares have struggled at the open market
07:59
falling more than 30 percent from the
08:01
IPO surprise surprise
08:03
price on the first day of trading after
08:05
reporting second quarter sales Wednesday
08:08
morning the stock increased 6.6 percent
08:10
in the following session its first daily
08:14
gain in more than a week shares which
08:16
sold for 13 in the IPO closed at 11:08
08:19
on Thursday when asked about the
08:24
shipment of pot wins the Evening Sun
08:26
Dial growers corporate communications
08:28
manager Sophie peel on said in an email
08:31
this is this I do not agree with
08:36
she’s just straight-up lying here okay
08:40
now listen sundial if you guys are
08:41
watching I have nothing against you guys
08:43
I just break the news and I just report
08:45
the news but guys why do you gotta lie
08:48
like this is just
08:50
outright lying now and realize that this
08:53
is your public company a you can’t pull
08:55
these moves because it goes all over the
08:57
press look at what happened here she
09:00
said in an email I’m not really sure
09:02
what you were referring to oh so you
09:05
didn’t know about the mold in the
09:07
cannabis that was returned by Xena Bess
09:09
the 2.5 million dollars of cannabis that
09:11
was returned and the contract that was
09:13
dropped you didn’t know liar liar liar
09:20
pants on fire you are a liar
09:24
Sophie P lon you are a liar I like sorry
09:29
to be so blunt but you are a
09:31
liar I’m not really sure what you are
09:34
referring to what and you’re the
09:41
corporate communications manager maybe
09:44
the company needs to communicate with
09:47
their corporate communications manager
09:48
and let them know what they’re up to
09:52
considering this is right on the front
09:54
page of Market Watch right on the front
09:57
page of Bloomberg maybe you know now
10:00
Sophie maybe you know now the company
10:05
did not respond to multiple follow-up
10:07
attempts over the next two days hiding
10:12
why are you hiding you know your public
10:15
right you can’t just hide like what the
10:19
is wrong with people like and am I
10:22
in the twilight zone
10:24
acquiring high quality weed has been a
10:26
problem for the cannabis sector since
10:28
Canada legalized recreational marijuana
10:30
as licensed producers have sought to
10:33
meet demand and buy marijuana that they
10:35
do not grow BMO Capital Markets analyst
10:38
Tammy Chen wrote in June that the bank
10:41
had heard several anecdotes across the
10:44
sector about dated dried flower deemed
10:48
as not competitive for the recreational
10:50
market under certain qualitative
10:53
criteria examples of such criteria
10:56
include low potency terpenes compounds
11:01
that generate odors
11:03
small bud size and inconsistent color
11:05
which is why the private sector is
11:07
flourishing Chen wrote low potency
11:11
flower could also be unsuitable for
11:13
extraction Sun Dial is in Calgary
11:16
Alberta based wheat producer and as
11:19
operations in Canada selling
11:21
recreational pot it also has operations
11:23
in the United Kingdom where it acquired
11:25
Bridge farm group a company that has a
11:28
history of growing plants such as herbs
11:31
microgreens and plants commonly used for
11:35
indoor and outdoor decoration ok this is
11:37
what I’m gonna do I don’t have create
11:39
enemies I got nothing against sundial
11:41
growers I just don’t like lying and
11:43
because I’m an investor in Zen abyss and
11:45
this hurt my investment I’m gonna give
11:48
sundial growers a chance sundial growers
11:51
if you would like to respond I would
11:53
love to have you on our show absolutely
11:55
free love to get on our show to respond
11:58
to these accusations I love to know if
12:01
there’s a different side to this story I
12:03
love to know if this is not true I love
12:06
to know how your guys are gonna fix this
12:08
if this is true love to get you on our
12:11
show 21 thousand subscribers over 65
12:14
thousand followers worldwide over 60
12:17
countries watching rich to be live close
12:19
to 3 million views on YouTube alone I
12:21
would love to speak to sundial growers
12:24
or representative I apologize if I got a
12:28
little bit hostile but I’m a little bit
12:31
angry because this affected the bottom
12:33
line of Zen abyss and it affected my
12:36
investment it infected our entire
12:38
communities investments and Zen abyss
12:41
got hurt by this because 2.5 million of
12:45
cannabis was supposed to be sold which
12:49
would have put them right in line with
12:50
their estimates because they had to
12:53
cancel this sale of this weed and they
12:56
were unable to sell that additional 2.5
12:59
million of cannabis they were unable to
13:01
hit their estimate of 10 million in
13:03
sales
13:04
so it wasn’t Xena bise’s fault which
13:07
makes me like Zen abyss even more but it
13:10
makes me really concerned about sundial
13:13
growers sundial growers reported second
13:16
quarter net losses of twelve point four
13:18
million or sixteen cents a share on net
13:21
revenue of nineteen point three million
13:24
which is funny because n abyss reported
13:27
twenty five million in revenue and they
13:28
trade out a dollar and sundial who
13:31
screwed xanadus trying to sell the mold
13:35
and trying to sell them weed with gloves
13:38
in it never heard of that before in my
13:40
life he’s trading at eleven dollars or
13:43
maybe ten dollars right now and they did
13:47
less sales than Zen abyss and they
13:49
couldn’t even deliver to Zen abyss but
13:51
yet they’re trading ten times higher
13:54
what does that tell you
13:57
Zen abyss reported quarter net losses of
14:01
eighteen point five million or nine
14:03
cents a share on net revenues of twenty
14:06
five million I don’t know if that
14:08
eighteen point five million is correct I
14:10
got a look at that again because I saw
14:12
losses I guess it was gross losses maybe
14:15
not net losses but gross losses maybe it
14:17
was net loss I don’t know I thought I
14:19
saw eight million in losses eighteen
14:22
point five seems high I don’t know if
14:23
this is wrong I need to look at that
14:24
again
14:25
Canadian shares of Zen abyss have fallen
14:27
roughly seventy two percent this year
14:29
and the company is now worth less than
14:31
three hundred million even though it’s
14:35
making more than a company that’s valued
14:36
at a billion kind of funny Zen abyss was
14:39
worth nearly 1 billion when it debuted
14:43
on the TSX Venture Exchange in January
14:46
but has faced issues which short sellers
14:48
which has led to it recent strike with
14:52
two recently strike a supply deal with
14:55
other licensed producer tilray which was
14:59
a thirty million dollar deal to buy
15:01
cannabis from and products from Zen
15:04
abyss so that Zen abyss wouldn’t have to
15:06
go and dilute their stock further to
15:09
raise capital to be able to convert
15:11
their greenhouses for plants and
15:15
vegetables into cannabis so they did
15:18
that instead of attempting a capital
15:20
raise which I really liked had to bring
15:22
this news to you guys love to know what
15:24
you guys think I’m a little bit
15:26
disgusted I think I just threw up in my
15:27
mouth a little bit
15:29
this is kind of good news resent abyss
15:31
because it shows me why Zen abyss didn’t
15:34
meet their financial requirements that
15:37
they said they would and forecasts but
15:40
at the same time it’s not good for Zen
15:42
abyss and it’s definitely not good for a
15:44
sundial so love to know what you guys
15:46
think if you liked this video smash the
15:48
like button share the video everywhere
15:49
comment down below and remember if I win
15:52
and you win we all win visit rich TV
15:56
live don’t forget to subscribe click the
15:57
like down below and comment on the show
15:59
because all we do is bring you winners
16:00
winner winner chicken dinner
16:02
sorry guys I can’t go through all your
16:04
messages right now I just want to drop
16:06
this news
16:06
let it go viral I’m out but I’ll be back
16:09
I got more news about Zen abyss coming
16:12
soon which is very good news stay tuned
16:15
is your boy rich rich do you live if you
16:17
ain’t winning you ain’t watching it’s
16:19
true and we out peace