Q2 2021 Sundial Growers Inc Earnings Call
[music].
Good morning, and wildfire sundial growers second quarter 2021 financial results conference call.
As a reminder, all participants are in listen only mode and the conference is being recorded after the presentation. There will be an opportunity to ask questions to join the question queue. You May Press Star then one on your telephone keypad should you need assistance during the conference call you may signal, an operator by pressing star.
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Yesterday afternoon sundial issued a press release announcing their financial results for the second quarter ended June 30th 2021.
This press release is available on the company's website at F. N D. L group Dot com and filed on Edgar and SEDAR as well presenting on this morning's call. We have Zach George Chief Executive Officer, Jim T O.
Our Chief Financial Officer, and Andrew <unk>, President and Chief operating Officer before we start I would like to remind investors that certain matters discussed in today's conference call or answers that may be given to questions could constitute forward looking statements actual results could differ materially from those anti.
The patent risk factors that could affect results are detailed in the company's financial reports and other public filings that are made available on SEDAR and Edgar.
Additionally, all financial figures mentioned are in Canadian dollars unless otherwise indicated.
I'd also like to note that we are conducting the call today from our respective remote locations as such there may be brief delays crosstalk or minor technical issues. During this call. We thank you in advance for your patience and understanding we will now make prepared remarks, and then we'll move on to a question and answer.
The recession.
I would now like to turn the call over to Zach George.
Good morning, and thank you everyone for joining us on our second quarter 2021 earnings call.
First half of 2021 has been a transitional period for sundial and following on our aggressive restructuring in 2020, we've been able to rapidly reshape our business model to focus on our two pillar strategy that we believe will position our shareholders for future success.
The first pillar consists of our core cannabis operations, where we are leveraging our strong financial position to align operations with what we expect to be a healthier and more profitable Canadian cannabis market in coming years.
With the post quarter acquisition of inner spirit, which we will refer to moving forward a spirit leaf and keeping with the recognition of the brand and the retail marketplace sundial is now vertically integrated.
The acquisition of sphere leaf enables somehow to directly manage an influence all aspects of production distribution and sales channels, which we believe will result in increased sales and profitability. Most importantly, the <unk> acquisition demonstrates our commitment to owning the relationship with the consumer.
As we remain focused and committed to our cultivation and processing activities, our upstream cultivation results within our indoor modular facility continued to improve amidst the intentional curtailment of activity in response to market conditions.
I am excited to highlight that we continue to improve our cultivation results and have achieved our strongest Harvard harvest outcomes in May and June of 2021, with THC potency consistently above 20%.
We continue to invest time and effort into our expanded library of streams.
Yielded average ghd potency in the mid 20% range during the research and development phase and commercialization of these strategies is expected to occur in early 2022.
The second pillar of our business is our investment operations, where we're putting our liquidity position to work by strategically providing our investors with exposure to the rapidly growing global cannabis industry much of our capital exposure to date has been committed to our joint venture Sunscreen Bancorp. The sunscreen Bancorp team is focused on deploying capital within the Cana.
This sector on an attractive risk adjusted basis and is exploring a broad spectrum opportunity within the financial sector.
<unk> investments in cannabis related credit facilities, and the Sun stream joint venture totaled $253 million as of June 32021.
These investments generated interest and fee income of $7.1 million for the quarter compared to $2.8 million in the previous quarter and are tracking an annualized rate of return of approximately 13%.
Our balance sheet remains strong and we remain debt free.
We have a total capital base, including liquid securities loan assets and unrestricted cash of more than $1.2 billion.
So now expects to benefit from a growing interest income stream as more of our capital is deployed and the resulting cash flow is materially buffered or pre profit core cannabis operations to date we.
We've also made a small number of select equity investments in businesses that we believe can enhance our upstream and downstream capabilities.
Our second quarter performance continued to be impacted by retrenchment in our cultivation activities and our refusal to for suboptimal product into the market.
As we mentioned in the past quarter sundial has no interest in pursuing unprofitable revenue growth and we are unwilling to seek a maintenance of market share at all costs.
<unk> been focused on restructuring our cultivation activities, which has included changes to our processes as well as workforce and other cost reductions.
This has allowed us to continuously improve our cultivation outcomes and remained focused on best practices to deliver great results in potency yield and turbines as mentioned previously.
We are committed to excellence in cultivation, and our modular indoor facility and our brand promise to consumers is fundamental to our strategy. We are focused not only on effecting change in the challenging and unstable Canadian cannabis industry landscape today, but our chartering the characteristics of a dominant and profitable business model in a more healthy and stable environment that we.
To evolve to within the next three years following necessary regulatory reform industry consolidation and a greater balance between supply and demand.
We remain focused on continuous improvement in our quest to delight consumers.
Thank you all and I'll now pass the call to Jim for commentary on our financial results.
Thank you Zach and good morning to all who are listening in.
Like to remind everyone that all amounts that I mentioned this morning are denominated in Canadian dollars unless otherwise stated.
As Jack discussed the first half of 2021 was a transitional period for Sundar, where we've raised and deployed significant amounts of strategic capital and realigned our business into two segments for operational and reporting purposes cannabis operations and investment operations.
I'll start with our cannabis operations results and adjusted EBITDA.
In the second quarter of 2021, adjusted EBITDA from continuing operations was a loss of zero point $2 million.
<unk> to earnings of $3.3 million in the prior quarter <expletive>.
Decrease in adjusted EBITDA was primarily due to the following factors lower realized gains on marketable securities increased S. M. G&A associated with the cost of $2.4 million shareholders of record for sundial as AGM.
And lower average sales prices.
This was offset by improved cost of goods sold per Gram.
Pairing first half year over year results. We're pleased that adjusted EBITDA from continuing operations was $3.1 million year to date compared to a loss of $15.5 million for the six months ended June 30th 2020.
<unk> $18.7 million dollar increase was due primarily to the following.
Revenue from investments interest and fees, including the Sun stream joint venture of $22.1 million.
Offset by reduced adjusted gross margin on cannabis operations of $5.3 million from the combined effects of lower sales volume lower prices and reduced cost of goods sold per gram.
Net revenue from branded cannabis products increased slightly in the second second quarter to seven three from $7.2 million in the previous quarter, despite provision provincial boards, reducing inventory levels challenging retail market conditions and continued price compression across the industry.
These market dynamics impacted all of sundial formats and brands in the second quarter.
Revenue from license producer sales was $1.9 million in the second quarter compared to $2.7 million in the first quarter.
Average gross selling price per gram equivalent of branded products net of provisions was $3.19 per gram in the second quarter of 2021 compared to $3.15 per gram in the prior quarter. Despite continued price compression and a consumer shift to value products seen across the industry.
General and administrative expenses were about 42% higher at $10.1 million compared to $7.1 million in Q1.
This increase was primarily due to mailing and distribution costs related to conducting our AGM for approximately $2.4 million individuals sundial shareholders.
In Q2, 2021 sales and marketing expenses increased by 37% to $1.3 million from 950000 for the previous quarter.
Sundahl continues to follow cost discipline, specifically when it comes to brand development and promotion expenses. However, we have resumed targeted sales and marketing investments on certain of our strains and formats.
Adjusted gross margin before inventory impairment and fair value adjustments for the three months ended June 32021 was negative zero point $4 million.
Compared to negative $1.6 million for the previous quarter. As a result of sundial is ongoing focus on cost optimization and offering the most competitive and profitable strains and brands to it.
Customers.
<unk>, a backdrop of industry wide price compression and higher comparative operating costs associated with our premium facility.
Total capital expenditures in the second quarter of 2021 were $1.6 million compared to an immaterial amount in the first quarter, we had budgeted $5.7 million in capital expenditures for full year 2021 related to processing automation minor facility improvements and maintenance capital.
<unk> net loss in the second quarter of 2021 was $52.3 million.
Compared to a net loss of $134.4 million in the previous quarter.
Net earnings in the second quarter of 2021 were negatively impacted by a $60 million long lived asset impairment charged on the old facility.
The company determined that indicators of impairment existed during the six months ended June 32021.
When utilization of capacity in the facility was curtailed to align cannabis production with current demand estimates.
Excluding this noncash impairment provision. So now would have had net income of $7.7 million for the quarter.
Let's review, our liquidity and capital structure during the quarter.
Closed the second quarter of 2021 with $885 million of unrestricted cash on hand, and as of August nine 2021. The company had an unrestricted cash balance of approximately $760 million. In addition to restricted cash long term investments and marketable securities at a market value of 447.
For a total of $1.2 billion when combined.
Outstanding share Count was 2.03 billion at the end of Q2 and sits at 2.06 billion today.
During the second quarter of 2021, sundial issued $252.9 million common shares pursuant to at the market equity or ATM programs and warrant exercises for total proceeds of $327.4 million or an average price of $1.30 Canadian per share.
Company's ATM facility has been inactive for 49 days prior to yesterday's news release.
Subsequent to quarter end sundial issued an additional $26.9 million shares related to the spirit leaf acquisition and settlement of related spirit leaf debt.
As of today the company remains debt free.
Asset value per share at June 32021, including cash loans marketable securities in the old facility at net book value was approximately 1.3 dollars 4 billion or <unk> 66 per share.
Now, let's turn our focus to our investment operations.
As mentioned earlier sundial as investment income has been classified as income from operations of sundial intends to continue to deploy significant capital targeting a portfolio of attractive risk return opportunities in the cannabis industry in debt equity and hybrid investments.
Sunday will continue to strategically deploy its capital throughout the second quarter and subsequent to quarter end.
Summarized our deployment of capital in our investments segment to date.
Through the end of the second quarter. The company had funded several cannabis related debt and equity investments totaling $354.5 million, including $187.6 million to the Sun stream joint venture.
These investments generated $9.4 million and investment revenue in the second quarter, including interest fees and realized and unrealized gains on marketable securities.
July seven 2021, the company announced that it had increased its commitment to the Sun stream joint venture to $538 million from the previously announced commitment.
In the second quarter, the company's portfolio of credit related investments generated an annualized rate of return of approximately 13%.
Sundar continues to strategically deploy capital with a focus on maximizing cash flows and shareholder value.
For example on May four 2021, Sandell announced that it acquired 10, 1% of the issued and outstanding common shares of the balanced company.
Now I would like to invite under stored or president and COO Sundar to provide remarks related to cannabis operations.
Thank you Jim.
Throughout the first half of this year, our top priority within cannabis operations has been on improving our cultivation consistency with our focus on the premium Inhalable segment.
While progress has been substantial we continue to see tremendous opportunity for increased improvements with our facility operations for the balance of 2020.
Let me review some of the progress we have made over the second quarter of 2021.
So now its commitment to cultivation excellence and our small batch at scale approach has been developed around three pillars of focus people process and plants.
In terms of people.
We continue to configure our supply and operations teams to adapt to the industry dynamics, we recently implemented a new pod structure inside of our old facility to increase efficiency and effectiveness.
All functions.
One of the primary objectives of our supply chain moving forward will remain on driving simplified SKU assortment with a focus on core inhalable offerings.
Year to date, we have taken a different approach on product innovation versus our industry peers as we have simplified our skus nationally by 65%.
We are excited about our revised innovation pipeline for the balance of the year and remained focused on margin accretive offerings that supplement our existing core portfolio.
Our second cultivation pillar is around process.
We have implemented several improvements inside of our <unk>, primarily focused on room environment plant maintenance in <unk>.
In Q2, we achieved the company's strongest cultivation results in May and June of 2021, with an average THC potency greater than 20% and yields above target.
These products will be available to consumers in Q3.2021.
We have completed commissioning lunar new fully automated pre well machine, which has allowed us to double our annual production capacity, while significantly reducing cost.
Current capacity sits at 14000 units per shift with further opportunity to increase overtime.
Through a comprehensive review of our sundial portfolio, we launched three new Palmetto cultivars in the second quarter of 2021 and shipped approximately 9300 cases across the country.
The initial consumer feedback on all three streams has been positive.
During Q2.2021 sundial also launched two concentrate products to the province of Quebec.
<unk> and then into cash.
Our third cultivation pillar is around plans.
I am very proud of our team inside of our olds facility as they have been working hard over the past year on fully revamping our genetic R&D capability.
Early results from this work are promising, particularly around potency turpin profiles plant yield.
We entered the commercial flowering stage for 13, new cultivars in the second quarter of 2021.
Some of which are exclusive to sundial.
Preliminary outcomes from these new cultivars provider results, averaging higher than 22% THC and greater than 2% on Turkey.
These cultivars are expected to be harvested in Q3, 2021 and selective for limited release by yearend.
Subsequent to the second quarter Sunday has begun final packaging and is expected to launch a 28 Gram la <unk> format part of the top leaf brand in select provinces.
We believe a large format premium offering in flower will provide consumers the choice and quality as expected from our top leaf brand.
Which is hanging dry slow cured individually inspected hand, Mandy cured and hand bottled for a differentiated experience.
I'd like to turn our attention to <unk> acquisition of spirit leaf.
Squarely who has done a tremendous job in growing the banner network to over 100 locations.
We believe an optimal assortment of top selling products, coupled with a consistent premium shopping experience will continue to differentiate the scrutiny store network or.
Our integration work continues to progress as we look to unlock further growth opportunities and strong partnerships with our franchisee leaders across the country.
We will also be launching the spirit lease franchisee advisory council to engage our franchisees and to obtain feedback and collaboration on strategic initiatives to drive the continued growth and success of the spirit banner.
Our balance sheet strength allows us to position ourselves for the normalization of market conditions that is expected to evolve over the next few years without pursuing a short term market share and unsustainable margins in all cost approach.
We remain focused and have momentum around our cultivation excellent aspirations.
While we need to balance cost and return we continue to invest in capability improvement inside our cannabis operations as a key enabler to unlocking value for our consumers and customers across the country.
With that I'd like to turn the call back to Zach for closing remarks.
Thank you again for joining US today. This is an exciting time to be in the cannabis space. We remain very optimistic as we continue to execute against our strategy.
I hope that you and your families remain safe and healthy and I had an opportunity to enjoy the summer season.
We look forward to updating you on further progress with sunbelt mix as the year progresses, I will now turn it back over to the operator for the question period.
Thank you we will now begin the question and answer session.
Joining the question queue you May Press Star then one on your telephone keypad.
<unk> been acknowledging your request if you are using a speakerphone. Please pick up your handset before pressing any keys to withdraw. Your question. Please press Star then two if you are participating online you can submit a question using the ask a question tab on your screen, we will pause for a moment as callers join the queue.
The first question comes from Kelly Chen with BMO capital markets. Please go ahead.
Thanks, Good morning.
First question.
I wanted to go back to the increase in your commitment to <unk>.
Stream pretty meaningful increase in new capital commitments.
Would you mind us elaborate a bit more I mean, what are you seeing I guess in the pipeline that prompted you to raise the commitment for meaningfully.
Hey, Tammy Thanks, a lot for the question.
So yes.
This market has been evolving very quickly and we actually see.
A target pipeline well north of $1 billion.
In front of Us of course, no certainty that we can execute.
And close on that quantum of transactions.
But our increased commitment is very much in line with the expanded opportunities that we see in front of us.
And the pipeline of well north of $1 billion I presume that wouldn't just be in Canada anymore is that correct or are you broadening out beyond Canada sandys opportunity.
That's right Tammy that wouldn't just be in Canada, there are international.
Credit and other opportunities that we're seeing.
Got it okay, and just a follow up.
Any additional color you can provide on how we should think about the potential uplift.
Branded sales trajectory in Q3, and then Q4 with the Dod cultivars dotcom youre launching.
Yes, so I'll hand, it to Andrew to give a little bit more color, but obviously, we don't give forward guidance at this point in time, given the general lack of visibility in the industry.
But I'll, let Andrew share share a bit about our excitement around quota bars and so our conversion.
Thanks, Zack and thanks, Jamie for the question. So yes, we're very excited very optimistic around what we've got in the market currently and I think.
The three that.
We're seeing very good traction on.
Some of the highest velocity sales that we put in the market, particularly around la <unk>, which is on our top rebrand rami.
Romulan and platinum cookies under our Palmetto brands.
We're continuing to see that that move in all markets that we have those products launch I did also mention that we're.
We're in the commercial flowering stage of 13, new genetics that we have been working hard on over the past year.
And we're going to be harvesting those in quarter, three and depending on those results, we'll look to potentially put some salt small batch in the select provinces this year, but.
As we noted in the opening remarks, we'll scale most of those that we decided to bring the market in the early part of 2022, and we're very excited and optimistic about that so exciting kind of news coming on that front for cultivation to mature.
Okay, great. Thank you.
The next question comes from Vivien <unk> with Cowen. Please go ahead.
Hi, good morning, Thank you.
In terms of the new cultivars that you have.
Hitting the marketplace in <unk> 'twenty. One can you just talk about the wholesale commitments that you've already received around that product as it is it is accounted for.
Do you feel assured that youre going to App.
Shelf space to sell that.
Hey, Vivien, it's Andrew Thanks, Thanks for the questions just so unclear regarding the current ones. We have in the market are the ones I referenced as far as the 13 new genetics.
The new genetics thanks, Okay.
Okay perfect yeah. So.
Actually we have been communicating with the customers around kind of our R&D plan.
And part of our R&D plan going back a year ago was really around water consumers looking for an outlet input it from our research as well as kind of the feedback from our customers.
What I can say is we once we harvest. These you obviously you've got to go through the process and look at the results and make sure they meet the spec that.
We're requiring to launch but this currently is not in our plan year to go as far as our revenue.
In Mexico so.
We look at that as potential upside and we certainly have gray.
Great feedback and a customer commitments.
From the board that we have presented into the retailers we have presented on these.
So yeah. It is it is something that we would have incremental to the plan year to go.
And that we're just going to have to wait for those results as they come down this quarter.
Understood and then similar question on the pre roll given that you have the new manufacturing equipment in place.
We are confident that there is appetite in the marketplace for for more pre owned capacity.
Yes look.
I think it's a great question I would view, our commissioning of the new equipment and the automation that we brought into the facility over the last six months has been substantial it starts at a pretty simple view from our end that better sales requires better cannabis and that's inclusive of all the formats you've put in there so.
We look at things like potency and quality improvements and good yields per square foot and sellable product in Cogs or <unk>.
Success factors, but got certainty to answer your question pre roll continues to be a segment that continuing to grow we're growing with that segment to meet obviously got some new cultivars that we're putting in the market and the.
The corresponding consumer customer feedback has been really good on that so so we're well positioned Vivian.
On meeting that demand as our pre roll and as this segment continues to grow.
Yes.
Understood. Thank you very much.
The next question comes from Federico Gomez with <unk> capital markets. Please go ahead.
Alright. Thank you good morning, guys.
Just wanted to touch selling by retail market.
No we are seeing many stores opening in Canada.
There's a lot of pressure coming especially from the value segment in retail so could you give us some color in your strategy. There. How do you think that May factor sales and margins in this spirit <unk> network and how do you plan to compete there. Thanks.
Yeah.
Yes, maybe I'll tackle that first thanks for the thanks very much for the question.
Look there's no question that the retail landscape is highly competitive and we actually expect a significant amount of attrition in this space. So not not all operators are going to be successful here I think on one of our previous calls we talked about.
Hitting a saturation point in retail and so.
We think about the premium in store experience and connection point with the consumer which is really exciting to us and the phenomenal platform that spirit leaf is built out.
Along with financial stability as being key ingredients to success.
You combine that with best in class technology capabilities, we think we'll be in a great position to not just weather the storm, but also be successful we are.
Expect significant consolidation.
And actually quite a bit of bloodshed in the retail segment in Canada.
And so we're excited to be competing.
Okay.
Okay. That's helpful and then just.
Maybe if you could talk about there in terms of the mix of owned stores versus print Tiger.
How do you see that mix evolving and what the strategy there for your expansion and also if you could maybe.
Describe what's the value proposition. Therefore franchisee that you guys said what are the main advantages that <unk> offers for a retailer to consider becoming a franchisee. Thank you.
Sure.
As part of that question to Andrew.
We're not going to specifically guide to a mix or split between corporate and franchise locations.
It's worth noting that we're also open minded when it comes to managing multi banner retail.
Sure.
But in terms of the value proposition and the brand attributes.
Andrew you want to shed a little light with your perspective.
Yes, I think you know.
We view this as obviously a great opportunity to ensure that the sundial portfolio is well positioned inside the spirit Lake network, but we're also we're going to be really partnering well with our franchisees and I think I mentioned that in my comments with regards to the franchisee Advisory Council.
These operators they have been doing this for a while now they understand what works and we're going to we're going to leverage some of the research and the data.
The actual insights that we have to make sure that we've got the right portfolio and that doesn't mean <unk>.
500, 600 F Skus the creditor rule does not discriminate in cannabis. So I think that's the value proposition, we're going to bring its certainly listen first.
Understand what's working what's not working the answers are there at the franchisee.
Partners and I think we can add a ton of value as we have a different path that we can we're certainly looking at some of the brands that are out there we want to make sure. We have the right assortment to place and of course, we're going to make sure that we can augment that accordingly with the sunbelt portfolio because we do think we've got a great.
In our assortment as well to supplement what consumers are looking for.
That's helpful. Thank you.
Yes.
The next question comes from Sean <unk> with Canaccord. Please go ahead.
Hi, Good morning, and thank you for taking my question.
First one I just wanted to touch on the revenue line here, specifically as it relates to excise taxes and the spread between gross and net revenue in the quarter.
I was hoping you could help us understand some of the underlying components and the moving parts that went into that calculation, especially.
As we look at how the excise tax really resulted in a sequential decline in the net revenue while the gross revenue was up 8%.
Yes, Sean. This is this is Jim let me let me just take that one and is it really just relates around the mix between.
<unk> branded sales and LP sales and LP.
<unk> sales clearly don't have the excise tax attached to them and so it's just a function of of of that shift and.
And an increase quarter over quarter to two more branded product in Q2 over Q1.
Okay. Thank you.
And my my second question.
So on base, that's been a core part of the inhalable strategy for sundial, and so I wanted to touch on that a bit.
Now the second quarter, our base are trying some weakness in the product mix and you'd previously noted that that was a result of some increased competition in the segment I was just wondering what your views are on your ability to attack and drive sales in that segment.
<unk> plans to recapture some of that momentum.
It would be through product innovation or increased marketing.
Whatever it may be.
So what's your tax strategy here and what do you think are the catalyst needed to see those deep sales start progressing once again.
Thank you that's that's it for my questions.
Okay.
Hi, it's Andrew. Thank you. Thank you for the question I think it's a good one in regards to kind of what we're seeing in the segment and obviously our service strategy first our focus is on premium available base has been a big part of that strategy from day one.
We were one of the first to launch and obviously you mentioned increased competition that's come into the segment.
Has been aggressive.
Maybe just double click on that a little bit when you think about looking at the mix components inside of Babes, we have broad spectrum, it's kind of the anchor that we decided to go to the market with the lion's share of what we're seeing in the bait segment is really distillate flavor distillate to be specific.
And we're monitoring that accordingly, obviously health, Canada has got a consultation out with regards to how that's going to be viewed moving forward. So we're very aware that the potential regulations could change over time, and that's going to impact distillate flavor distillate to be specifically as far as the relevancy goes on that front. However.
All that to say I think a couple of things that we're focused on with regards to continuing to build awareness on our great portfolio of <unk> offerings.
And we're certainly looking at larger formats, particularly in one gram.
We think thats going to.
Continue as far as consumer preference goes on that sizing.
And we're also going to be launching in the back half of this year under the top leaf brand some innovation with regard to the lab resin.
We think Thats also another great differentiator, we've mentioned on previous calls and we're excited to do that and I think that's going to create the right awareness that top leaf is here to stay when it comes to premium inhalable.
And we'll continue to focus on that side of it as well too so fully holistic approach on it certainly been pressured certainty by competition, but we've got some.
Some opportunities in the future here to go that are going to really add some relevance to their breasts.
Thank you Andrew and that's it for my question Congrats on the quarter once again.
Once again, if you have a question. Please press Star then one.
Next question comes from Pablo <unk> with Cantor Fitzgerald. Please go ahead.
Good morning.
When I look at your company.
I appreciate all the efforts youre, making on the economy side, but do you still how long you're about my math about listen to pursue market share at an unbranded direct right.
Once you have those one 2 billion there on the balance sheet that you talked about so I just wonder how you deploy that capital going forward.
Creates value than necessarily going from 2% to 2% market share in brick so if I'm right about what I'm, saying and I have to say you know a common here you've been very disciplined on what how you're using that cash range of England has been $350 million in the CBD brands like some of your peers, but.
But I guess my first question would be.
How do you decide when you are making minority equity investments, whether it is done through sundial or through sound stream.
Because I mean.
I mean, it sounds to me, it's not just lending write this also take with you and hybrid. It is can you comment on that first please.
Hey, Pablo Thanks for the question and happy happy to clarify so the vast majority of the focus for Sun stream right now and this is really driven by the robust opportunities that we see is really focused around credit structured credit and some hybrid instrument opportunities.
So when youre thinking about minority investments, specifically I would say that it's a very small part of what we're.
What we're focused on.
And you're never going to see more than a small handful of names, where we have minority equity positions generally speaking, we don't see that as an area, where the best risk adjusted returns would be.
Very focused internally.
And we believe that the credit opportunity in cannabis is quite large and very attractive so.
When it comes to minority equity investments those would typically be done off the sundial balance sheet and not through our joint venture relationship in sunscreen Bancorp hope that helps.
That's helpful, but just to follow up on that when you talk about structured credit and hybrid I suppose or that may include warrants or converge that eventually could be converted into equity right.
Am I right about that.
Youre potentially correct, but that doesn't necessarily mean that we would end up owning the underlying equity or a structured means of.
Earning that return receiving cash.
Lot of different ways that those economics can accrue to a lender or an investor.
Okay. Thank you on the very last one.
Again, you have been very disciplined in my opinion, but the industry is consolidating.
Some of your peers are making a lot of acquisitions, so you're going to wait too long I would say right. So so he should about.
Growing more in Canada.
About investments overseas Latin America, Europe can you just remind us about that on the equity side because I. Appreciate again, just kind of a that has potential.
One 2 billion.
Yes, you're going to roll into kind of equity investments.
That's a great question Pablo yes, so just for perspective in terms of that total capital balance do.
Do we expect it to.
To be entirely or the vast majority would be deployed in Canada, no not necessarily but we are highly focused on the Canadian market.
And working on better understanding the evolution of the sector Youll notice that many of our peers will direct investor attention away from Canada.
Focused on Europe focused on the us bigger markets, we're going to take advantage of opportunities and that will largely be expressed through capital. That's deployed through sunscreen Bancorp when it comes to international markets, but we are laser focused on understanding.
Where we're going in terms of consolidation.
Attrition in business failure, and also common sense regulatory reform, which we're starting to see and it's a key part of the equation as well.
Great. Thank you.
This concludes the question and answer session I would like to turn the conference back over to Zach George <unk> for any closing remarks.
Thanks to everyone for joining us today, we appreciate your time be safe.
This concludes today's conference call you may disconnect. Your lines. Thank you for participating and have a pleasant day.
Yeah.
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Yeah.
Yeah.
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