Q1 2024 SNDL Inc Earnings Call

May 9, 2024

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Operator: Good morning, and welcome to SNDL's first quarter 2024 financial results conference call. This morning, SNDL issued a press release announcing their financial results for the year-end and fourth quarter ended on March 31st, 2024. This press release is available on the company's website at www.sndl.com and filed on Edgar and Sedar as well. The webcast replay of the conference call will also be available on the SNDL.com website. SNDL has also posted a supplemental investor presentation in addition to the conference call presentation, which we will be reviewing today on its sndl.com website.

Good morning, and welcome to the <unk> first quarter 2024 financial results Conference call.

Operator: This morning, <unk> issued a press release announcing their financial results for the year end and fourth quarter ended on March 31st 2024.

Operator: This press release is available on the company's website at F. N D L Dot com and filed on Edgar and set so that as well.

Operator: The webcast replay of the conference call will be also available on the S. N D L Dot com website Ashland.

Operator: <unk> has also posted a supplemental investor presentation. In addition to the conference call presentation, we'll be reviewing today honest F N D L Dot com website.

Operator: Presenting on this morning's call are Zach George, Chief Executive Officer, and Alberto Peredero, Chief Financial 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 should constitute forward-looking statements. Actual results could differ materially from those anticipated. 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.

Speaker Change: Presenting on this morning's call, we have Zach George Chief Executive Officer, and Alberto <unk>, Chief Financial Officer, before we start I would like to remind investors that certain matters discussed in today's conference call or answers that maybe given to questions should constitute forward looking statements actual results.

Operator: Else could differ materially from those anticipated 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 I Canadian dollars unless otherwise indicated.

Operator: We will we will now make prepared remarks, and then we'll move to an analyst questions I would now like to turn the call over to Zach George. Please go ahead.

Operator: Additionally, all financial figures mentioned are in Canadian dollars unless otherwise indicated. We will now make prepared remarks, and then we'll move on to analyst questions. I would now like to turn the call over to Zach George. Please go ahead.

Zachary Ryan George: Good morning, everyone. Thank you for joining us for our first quarter 2024 financial and operational results conference call. We are pleased with our performance in the first quarter of 2024, which reflects a positive trajectory for S&BL. The improvement and profitability across all of our operating segments is undeniable, building on a multi-year trend that includes improved revenue in eight of our last nine quarters. We are just beginning to inflect at scale, and our focus is on generating results that showcase the benefits of our diversified strategy, a series of acquisitions, and modest organic growth.

Zachary Ryan George: Good morning, everyone. Thank you for joining us for our first quarter 2024 financial and operational results conference call.

Zachary Ryan George: Revenue growth in our liquor retail segment includes the expansion of our private label program and the initial launch of our commercial data office. In cannabis retail, we saw a strong cash flow in the quarter and recently announced further enhancements to our retail network with an expansion into British Columbia. In our cannabis operations segment, we posted record unadjusted results. In fact, we are pleased to report both positive gross profit and operating income in our cannabis operations segment for the first time since the company's inception. This result validates the acquisition of balance and the decision to exit non-competitive cultivation exposure.

Zachary Ryan George: We are pleased with our performance in the first quarter of 2024.

Zachary Ryan George: The positive trajectory for us.

Zachary Ryan George: The improvement in profitability across all of our operating segments.

Zachary Ryan George: Building on a multiyear trend that includes improved revenue eight of our last nine quarters.

Zachary Ryan George: We are just beginning to inflect at scale and our focus on generating results that showcase the benefits of our diversified strategy.

Zachary Ryan George: Series of acquisition and modest organic growth.

Zachary Ryan George: Revenue growth in our liquor retail segment includes the expansion of our private label program and the <unk>.

Zachary Ryan George: Initial launch of our commercial data offerings.

Zachary Ryan George: And cannabis retail we saw a strong cash flow in the quarter and recently announced further enhancements to our retail network with an expansion into British Columbia.

Zachary Ryan George: And our Canada Operation segment, we posted record unadjusted results. In fact, we are pleased to report both positive gross profit and operating income in our Kansas Operation segment for the first time since the company's inception.

Zachary Ryan George: This result, validates the acquisition of balance and the decision to exit noncompetitive cultivation exposure.

Zachary Ryan George: The successful integration of Valens over the last 15 months has been crucial to our progress, and we are just starting to see the benefits of increased capacity utilization driven by the optionality of our platform and our approach to capital allocation. We believe that the future of the cannabis industry in Canada includes stabilized profits for the strongest licensed producers and manufacturers of products. Looking ahead, we are well positioned to further expand our retail network and enhance product distribution across Canada.

Zachary Ryan George: The successful integration of balance over the last 15 months has been crucial to our progress and we are just starting to see the benefits of increased capacity utilization driven by the optionality of our platform and our approach to capital allocation.

Zachary Ryan George: We believe that the future of the candidates industry in Canada includes stabilized profits for the strongest license producers and manufacturers of products.

Zachary Ryan George: Looking ahead, we are well positioned to further expand our retail network and enhanced product distribution across Canada.

Zachary Ryan George: We anticipate continued market consolidation, and we are prepared to capitalize on select opportunities to strengthen our market presence. Sundial is optimistic about the slow tide of global regulatory reforms that create distinct opportunities in emerging markets such as Germany and Florida, where we have cannabis enterprise exposure. You're even seeing rational regulatory reform in more mature, saturated markets like Alberta, Canada.

Zachary Ryan George: We anticipate continued market consolidation and we are prepared to capitalize on select opportunities to strengthen our market presence.

Zachary Ryan George: F N b L and optimistic about the slow tide of global regulatory reforms that create distinct opportunities in emerging markets such as Germany.

Zachary Ryan George: And Florida.

Zachary Ryan George: We have candidates enterprise exposure.

Zachary Ryan George: We're even seeing rational regulatory reform and more mature saturated markets like Alberta, Canada life.

Zachary Ryan George: Last week's exciting disclosure that the U.S. Drug Enforcement Agency will reschedule cannabis as a Schedule III controlled substance promises to improve the credit profile and free cash flow potential of U.S. cannabis operators with a material improvement in permissible tax deductions. This change improves the risk profile of our entire Sunstream portfolio, which has been written down over time to approximately $560 million, including positions that will be equitized in a structured manner compliant with NASDAQ requirements.

Zachary Ryan George: Last week exciting distorted in the U S driving enforcement agency or reschedule candidates as a schedule III control substance promises to improve the credit profile and free cash flow potential of U S cannabis operators with the material improvement permissible tax deductions.

Zachary Ryan George: This change improves the risk profile of our entire <unk> portfolio, which has been written down over time to approximately $560 million.

Zachary Ryan George: Including positions that will be advertised in a structured manner compliant with Nasdaq requirements.

Zachary Ryan George: Two days after it was reported that the DEA would move to reclassify cannabis, SNDL announced the completion of Nasdaq's review of its Sunstream USA structure, marking a significant milestone. The completion of this review creates a pathway to equitize U.S. credits currently under restructuring, positioning S&DL to become a leading global cannabis company. Based on first-quarter 2024 revenue, if SNDL were to exercise its conversion rights upon U.S. federal legalization, S&DL's North American operations on a Sunstream USA pro forma inclusive outlook would potentially rank S&DL as a top five MSO in North America.

Zachary Ryan George: Two days after it was reported that the DEA would move to reclassify candidates.

Zachary Ryan George: <unk> announced the completion of Nasdaq's view of its something USA structure, marking a significant milestone.

Zachary Ryan George: Completion of this review creates a pathway to advertise U S credits currently under restructuring positioning <unk> to become a leading global cannabis company.

Zachary Ryan George: Just on the first quarter of 2020 for revenue is SMB all were to exercise its conversion rights upon U S federal legalization.

Zachary Ryan George: <unk> North American operations on a sun stream USA pro forma inclusive of outlook with potentially rank SMB L. As a top five MSR on a north American basis.

Zachary Ryan George: SNDL remains steadfast in its commitment to driving long-term, stabilized profitability. Following our first ever consecutive quarters of positive free cash flow in 2023, our goal for 2024 is clear. We aim to generate positive free cash flow for the aggregate calendar year. First quarter results exceeded our expectations, despite seasonality. This outcome is encouraging, and we remain confident in our path to improvement this year. Our goal is to set new all-time records for the S&DL team and achieve success in our mission to bring people together through exceptional products and experiences. I will now pass the call to Alberto for a deeper dive into our financial results for Q1 2024.

Zachary Ryan George: F N B L remains steadfast in its commitment to driving long term stabilized profitability.

Alberto: Our first ever consecutive quarters of positive free cash flow in 2023.

Alberto: Our goal for 2024 is clear we aim to generate positive free cash flow for the aggregate calendar year.

Alberto: First quarter results exceeded our expectations despite seasonal weakness.

Alberto: This outcome is encouraging and we remain confident in our path to improvement this year.

Alberto: Our goals and why new all time records for the SMB Elle teen and success in our mission to bring people together through exceptional products and experiences.

Zachary Ryan George: I will now pass the call to Alberto for a deeper dive into our financial results for Q1 2024.

Alberto: Thank you Zack.

Alberto Paredero: I want to remind you all that amounts discussed today are denominated in Canadian dollars unless otherwise stated. Additionally, certain amounts referred to on this call are non-GAAP and non-IFRS measures. For definitions of these measures, please refer to SNDL's Management Discussion and Analysis documents.

Alberto: I want to remind you all that amounts discussed today are denominated in Canadian dollars unless otherwise stated.

Alberto Paredero: Circle amounts referred to on this call are non-GAAP are non <unk> measures.

Alberto Paredero: Or is that pretty soon some of these measures. Please refer to SMB management discussion and analysis.

Alberto Paredero: Okay.

Alberto Paredero: Looking at our Q1 2024 financial highlights, there are good reflections of our three strategic priorities, growth, profitability, and people. Net revenue in the first quarter of 2024 reached 197.8 million, or 4% growth year-over-year. Growth was driven by our cannabis retail and operations sector, which posted a combined 9% growth while liquor remained dead. Gross profit of 50.4 million represents a 55% growth year after year, and an impressive 850 basis points of girls margin improvement, mainly driven by productivity improvements and other profitability initiatives that we'll be outlining later in this presentation.

Alberto Paredero: Looking at our Q1 2024 financial highlights that are good reflection of our three strategic priorities.

Alberto Paredero: Profitability on people.

Alberto Paredero: Net revenue in the first quarter of 'twenty, 'twenty, four reached $197 8 million or 4% growth year over year.

Alberto Paredero: Growth was driven by our cannabis retail on operational segments.

Alberto Paredero: It's all still a combined 9% growth one b curve remained steady.

Alberto Paredero: Gross profit of $50 4 million represents a 55% growth year over year.

Alberto Paredero: And an impressive 850 basis points of gross margin improvement.

Alberto Paredero: Mainly driven by productivity improvements and other profitability initiatives that we will be outlining later in this presentation.

Alberto Paredero: Yeah.

Alberto Paredero: This gross margin improvement, coupled with increases in our investment income and a reduction in corporate overheads, led to significant improvements in adjusted operating income and free cash flow of 85% and 89%, respectively. These two metrics were close to breaking even in the quarter, despite the anticipated seasonality.

Alberto Paredero: This gross margin improvement coupled with increases in our investment income and a reduction in corporate overheads led to significant improvements in adjusted operating income on free cash flow of 85% and 89% respectively.

Alberto Paredero: These two metrics were close to breakeven in the quarter, despite the anticipated seasonality.

Alberto Paredero: As you may have noticed, we have evolved the financial KPIs we're focusing on. We believe that focusing on operating income and free cash flow is a much better and more transparent way to monitor the financial performance of our business in contrast with other metrics like adjusted EBITDA or adjusted free cash. For clarity, note that we only adjust operating income for restructuring, restructuring-related write-offs, and intangible assets in turn.

Alberto Paredero: As you may have noticed we have evolved the financial Kpis were focused in all we believe that focusing on operating income and free cash flow is a much better and more transparent way to monitor the financial performance of our business. In contrast, with all the metrics like adjusted EBITDA or adjusted free cash flow.

Alberto Paredero: For clarity not all we only adjusted operating income for restructuring restructuring related write offs and intangible asset impairments.

Alberto Paredero: Moving into the quarterly historical tracking of main financial Kpis, we see the improvement Q1, 'twenty 'twenty four represents particularly in terms of profitability and free cash flow generation.

Alberto Paredero: Moving into the quarterly historical tracking of the main financial KPIs, we see an improvement in Q1 2024 representation, particularly in terms of profitability and free cash flow generation. When we look specifically at free cash flow, we can see clearly that the first half of the year tends to be lower than the second, driven by revenue facing and working capital building. In this context, it's encouraging to see that Q1 2024 is so close to breakeven and a significant improvement year over year.

Alberto Paredero: When we look at specifically our free cash flow, we can see clearly that the first half of the year tends to be lower than the second half.

Alberto Paredero: Driven by revenue facing on working capital.

Alberto Paredero: In this context it is encouraging to see the Q1 2024, if you're so close to breakeven and a significant improvement in year over year.

Alberto Paredero: We will look at each segment in a few minutes, but it's good to see how each of them is contributing to our growth and profitability priorities. Starting with net revenue, it's second biggest contributor to our growth, particularly our cannabis retail and cannabis operations sectors. The small negative $0.6 million in the corporate segment is related to revenue elimination for the cannabis operation sales into our home retail. This amount is growing, and so is the amount of revenue. In terms of profit, all segments are contributing to growth. The cannabis operation segment is showing a significant 12.8 million improvement as a result of our productivity initiative. This is clearly one of the key highlights.

Alberto Paredero: We will look at each segment in a few minutes, but it's good to see how each of them is contributing to our growth and profitability priorities.

Alberto Paredero: Starting with net revenue in segment contributed to our growth, particularly our Canada retail and calories operation segments.

Alberto Paredero: The small make us the zero point $6 million in the corporate segment is related to the revenue elimination for the kind of it's operational sells into our own retail.

Alberto Paredero: Of this amount is growing.

Alberto Paredero: The amount of the revenue in the nation.

Alberto Paredero: In terms of gross profit all segments are contributing to growth. The categories operations segment is showing a significant $12 8 million improvement as a result of our productivity initiatives.

Alberto Paredero: This is clearly one of the key highlights in the quarter.

Alberto Paredero: I would also like to point out the gross profit growth from our retail segments, which are also seeing good improvement in margin as our profit stability priority is embedded across the entire organization. Moving to Adjusted Operating Income, we see how three quarters of this improvement, or 19.1 million, are driven by the cannabis operation sector. Licorito is also contributing with $4.1 million improvement, as well as our investment segment with $4.3 million. In fact, our investment segment posted an operating income of 13.1 million in the quarter, mainly driven by improved validations from our Sunstream Fund.

Alberto Paredero: I would also like to point out the gross profit dropped from our retail segments, which are also seeing good improvement in margin as our profitability priority is embedded across the entire organization.

Alberto Paredero: Moving to adjusted operating income, we'll see how three quarters of improvement or $19 1 million are driven by the accountants operation segment.

Alberto Paredero: Lethal repo is also contributing with $4 1 million in Poland as well as our investment segment with $4 3 million in Brooklyn.

Alberto Paredero: In fact, our investments segment posted an operating income of $13 1 million in the quarter, mainly driven by improved valuations from our fund.

Alberto Paredero: Cannabis retail, while delivering negative $1 million of operating income in the first quarter, is $1 million lower than Q1 2023, driven by a $2.5 million fixed asset impairment charge recorded in Q1 2024. Pre-cash flow also saw a significant improvement in Q1 2024 versus the same period of 2023, as a result of our improvement in profitability, but also a more disciplined approach to work in capital management. We believe it is important to understand the drivers of free cash flow in the first quarter, and in doing so, we need to put it in the context of our business seasonality.

Alberto Paredero: Canada is worried though while delivering negative 1 million of operating income in the first quarter is 1 million lower than Q1, and 23, driven by a $2 5 million fixed asset impairment charges recorded in Q1 before.

Alberto Paredero: Yeah.

Alberto Paredero: Free cash flow also saw significant improvement in Q1 2024 versus the same period of 2023.

Alberto Paredero: As a result of our improvement in profitability, but also a more disciplined approach to working capital management.

Alberto Paredero: We believe it is important to understand the drivers of free cash flow in the first quarter.

Alberto Paredero: And in doing so we need to put it in the context of our business seasonality.

Alberto Paredero: Coming out of Boston people reported free cash flow in the second half of 2023 the first quarter of 'twenty 'twenty four and so some of it could be free cash flow of $6 4 million.

Alberto Paredero: Coming out of positive reported free cash flow in the second half of 2023, the first quarter of 2024 shows a negative free cash flow of $6.4 million. We're encouraged by that result, which is ahead of our initial expectations for the quarter, as we know that it was impacted by both revenue and inventory seasonality. As you can see in the middle of the chart on slide seven, the first quarter always has by far the lowest level of sales in the year, which obviously has an impact on the level of profitability for this quarter.

Alberto Paredero: We're encouraged by that result, which is ahead of our initial expectations for the quarter as we know that it was impacted by both revenue on inventories is not.

Alberto Paredero: As you can see in the middle of a chart in the slide seven the first quarter always has by far the lowest level of sales in the year with.

Alberto Paredero: Which obviously has an impact in the level of profitability for this quarter.

Alberto Paredero: At the same time, as we can see on the right-hand side of the page, we have historically seen retail inventory build-up in the first half of the year, particularly in the first quarter, following a reduction in the second.

Alberto Paredero: At the same time of what can see in the right hand side of the page we have historically seen retail inventory buildup in the first half of the year, particularly in the first quarter following a reduction in the second half.

Alberto Paredero: 2024 is no exception, although we have limited this inventory bill to only $5.8 million, a much smaller amount than in previous years. Within the pillar of profitability and financial discipline, one of our main goals for 2024 is to demonstrate our ability to deliver positive free cash flow during the year. The first quarter results give us confidence we are on the right path. Looking into the first quarter results for the three operating segments, I would like to start with liquor retail. Net revenue in the first quarter of 2024 was $116 million, stable versus the same period of 2023.

Alberto Paredero: In 2004 is no exception, although we have limited this inventory build to only $5 8 million a much smaller amount than in previous years.

Alberto Paredero: Within the pillar of profitability and financial discipline.

Alberto Paredero: One of our main goals for 'twenty 'twenty four is to demonstrate our ability to deliver positive free cash flow in the year.

Alberto Paredero: The first quarter results gives us confidence we are on the right path.

Alberto Paredero: Looking into the first quarter results for the three operating segments I would like to start with legal retail.

Alberto Paredero: Net revenue in the first quarter of 2024 was 116 million stable versus the same period of 2023.

Alberto Paredero: This is a good result considering the headwinds the liquor industry is facing, with many of our competitors and manufacturers seeing revenue decline. I would like to highlight the profitability improvement of this segment. Growth margin reached 25% in Q1 2024, a 220 basis point improvement compared to Q1 2023. This was achieved through multiple initiatives, including a 29% growth of our margin-accretive private label, procurement productivity, and data sales monitoring. As a result, this segment of our income delivered a positive $2.2 million, and over 4 million improved members in the same quarter of 2023.

Alberto Paredero: This is a good result, considering the headwinds the liquor industry is facing.

Alberto Paredero: With many of our competitors some of them factor has seen revenue declines.

Alberto Paredero: I would like to highlight the profitability improvement of this segment gross monitoring rates, 25% in Q1 of two.

Alberto Paredero: 220 basis point improvement as compared to Q1.

Alberto Paredero: This was achieved through multiple initiatives, including a 29% growth of our margin accretive private label procurement productivity and data sales monetization.

Alberto Paredero: As a result, this segment's operating income delivered a positive $2 2 million.

Alberto Paredero: $4 million improvement versus the same quarter of 2023.

Alberto Paredero: Moving into cannabis retail, we saw net revenue in Q1 2024 of $71.3 million, which is a 6% increase versus Q1 2023, mainly driven by double-digit growth in Ontario, as well as the expansion of our data transfer business. Data sales are the main factor contributing to the 230 basis points of gross margin improvement for this segment, enabling 17% gross profit growth compared to Q1 2023. Operating income was negative $1 million, impacted by a $2.5 million fixed-asset write-off, as previously mentioned.

Alberto Paredero: Moving to Canada retail we saw net revenue in Q1 2024 of $71 3 million, which is a 6% increase versus Q1.

Alberto Paredero: Mainly driven by double digit growth in Ontario, as well as the expansion of our data science programs.

Alberto Paredero: Data sell side the main factor contributing to the 230 basis points of gross margin improvement for this segment, enabling up 17% gross profit growth compared to Q1 important thing.

Alberto Paredero: Operating income was negative 1 million impacted by a $2 5 million fixed asset write off as previously mentioned.

Alberto Paredero: Yeah.

Alberto Paredero: Finally, looking at our cannabis operation segment, this is where we see the largest and most significant improvements, both in terms of growth and profitability. In the first quarter of 2024, this segment delivered a net readiness of 22.4 million, a 17% increase compared to Q1 2023. The highlight of this segment is clearly the improvement in profitability, driven by an extensive productivity program, including the savings from the rationalization of our cultivation footprint. The segment posted a positive profit of 3.2 million, an improvement of 12.7 million compared to Q1 2026.

Alberto Paredero: Finally, looking at our kind of its operations segment. This is where we see the largest and most noticeable improvements both in terms of growth and profitability.

Alberto Paredero: In the first quarter of 2020 for this segment delivered med readiness of $22 4, million% to 17% increase compared to Q1 2023.

Alberto Paredero: Yeah.

Alberto Paredero: The highlight of this segment is clearly the improvement in profitability.

Alberto Paredero: Driven by an extensive productivity program, including the savings from the rest of it is based on the Oracle duration footprint. The segments posted positive gross profit of $3 2 million an.

Alberto Paredero: An improvement of $12 7 million compared to Q1 2023.

Alberto Paredero: As a result, the gross margin of the segment improved from a negative 53% in Q1 2023 to a positive 14.4% in Q1 2024, and adjusted operating income was a positive $1.1 million, compared to a loss of $18 million in the prior year. In summary, a very strong quarter with continuous revenue growth, record growth in margin, and a significant improvement in profitability and free cash. We have an ambitious agenda in front of us to continue driving growth, improve profitability, and leverage what we believe is our biggest asset, our future.

Alberto Paredero: As a result, the gross margin for the segment improved from a negative <unk> <unk> in Q1 2023, while also the 14, 4% in Q1.

Alberto Paredero: And adjusted operating income was a positive $1 1 million compared to a loss of $18 million in the prior year.

Alberto Paredero: In summary, a very strong quarter with continued revenue growth record gross margin and a significant improvement in profitability and free cash flow.

Alberto Paredero: We have an ambitious agenda in front of us to continue driving growth improved profitability and leverage what we lead with our biggest asset our people.

Alberto Paredero: The first quarter of 2024 has been encouraging for our team, knowing we're on the right path. Let's also keep in mind that on March 31st, 2024, the company had $189 million of unrestricted cash, and an additional $594 million in marketable securities and investments and no outstanding debt. With this, I would like to pass the mic back to Zach to share a few more operational highlights for the quarter.

Alberto Paredero: The first quarter of 2024 has been encouraging for our team knowing we're in the right path.

Zach: Let's also keep in mind that our March 31, one for the company had $189 million unless strictly gas.

Zach: An additional 594 million in marketable securities and investments and no outstanding debt.

Zach: With this I would like to pass the mic back to <unk> to share a few more operational highlights for the quarter.

Zach: Thank you Alberto as.

Zachary Ryan George: As we continue today's discussion, I want to reflect on the strategic priorities we set at the end of last year. We structured our approach around three core pillars, growth, profitability, and people. Each of these pillars is fundamental to our long-term success. As Alberto mentioned, we have clearly defined strategies within each to guide our actions and decisions.

Zach: As we continue todays discussion I want to reflect on our strategic priorities. We set at the end of last year.

Zachary Ryan George: We structured our approach around three core pillars growth profitability and people.

Zachary Ryan George: Each of these pillars is fundamental to our long term success.

Zachary Ryan George: As Alberto mentioned, we have clear defined strategies within each to guide our actions and decisions.

Zachary Ryan George: Starting with growth our aim is to drive sustainable growth within our core market segments.

Zachary Ryan George: Starting with growth, our aim is to drive sustainable growth within our core market segment. In the first quarter of 2024, we implemented several key strategies to enhance our market reach and deepen our operational capability. During the first quarter, we opened a new Spirit League store in the coveted resort community of Whistler, B.C., and added a new Wine & Beyond store in Airdrie, one of the fastest growing communities in Alberta.

Zachary Ryan George: In the first quarter of 2024, we've implemented several key strategies to enhance our market reach and deepen our operational capabilities.

Zachary Ryan George: Through the first quarter, we opened a new spirit leaves store in the coveted resort community. It was sort of BC and added a new one beyond store and air group one of the fastest growing companies in Alberta.

Zachary Ryan George: As mentioned earlier, we also expect to expand our presence in the B.C. market through NOVA's acquisition of Dutch Log Retail. We grew our liquor private label program by adding new offerings specifically in the value category, and we continue to expand our innovations within our cannabis operations segment, and we'll be introducing approximately 30 new SKUs in the coming weeks. Moving on to profitability, our objective is clear, to achieve positive free cash flow for the aggregate 2024 calendar year.

Zachary Ryan George: As mentioned earlier, we are.

Zachary Ryan George: Also expect to expand our presence in the BC market through <unk> acquisition of <unk> retail locations. We grew our liquor private label program by adding new offerings, specifically in the value segment and.

Zachary Ryan George: And we continue to expand our innovations within our Kansas Operation segment and will be introducing approximately 30, new skus in the coming weeks.

Zachary Ryan George: Moving onto profitability. Our objective is clear to achieve positive free cash flow for the aggregate 2024 calendar year.

Zachary Ryan George: We have focused on optimizing our operations and reducing unnecessary expenditures and have established procurement efficiencies of approximately $10 million. We are currently in the midst of a strategic planning exercise that is expected to drive a further material reduction in corporate expenses. Through the closure of our facility in Olds, we achieved approximately $3 million in cost savings.

Zachary Ryan George: We are focused on optimizing our operations and reducing unnecessary expenditures and have established procurement efficiencies of approximately $10 million.

Zachary Ryan George: We are currently in the midst of our strategic planning exercise is expected to drive a further material reduction in corporate expenses.

Zachary Ryan George: Due to the closure of our facility in Oleds, we've achieved approximately $3 million in cost savings.

Zachary Ryan George: We've also generated approximately $4 million in data licensing revenue this past quarter, both from our liquor and cannabis retail segments. We've made substantial progress in monitoring business performance and driving a culture of accountability. Looking forward, we are conducting a rigorous strategic planning exercise aimed at developing conviction around core competencies and capital priorities, as well as a further reduction in operating costs. We believe these actions will significantly improve our financial performance in the second half of the year. Lastly, our people pillar is about fostering a performance culture and developing talent across our organization. This quarter, we launched several initiatives aimed at enhancing employee engagement and alignment. These include investment and retention, and succession planning.

Zachary Ryan George: We've also generated approximately $4 million in data licensing revenue this past quarter, both from a liquor and cannabis retail segments.

Zachary Ryan George: We've made substantial progress in monitoring business performance and driving a culture of accountability looks.

Zachary Ryan George: Looking forward, we are conducting a rigorous strategic planning exercise aimed at developing conviction around our core competencies and capital priorities as well as a further reduction of operating expenses. We believe these actions will significantly improve our financial performance in the second half of the year.

Zachary Ryan George: Lastly, our people pillar is about fostering performance culture and developing talent across our organization.

Zachary Ryan George: This quarter, we launched several initiatives aimed at enhancing employee engagement.

Zachary Ryan George: These include investment in retention and succession plan.

Zachary Ryan George: We've rolled out our strategic priorities and core behaviors across the organization, ensuring unity. We've also launched a community engagement framework focused on mental and physical well-being. Our strategic priorities are not merely aspirations; they're actionable paths that we're pursuing with vigor. The progress we've made in the first quarter is a testament to our commitment to these goals. I am confident in our team's ability to maintain this momentum, and I look forward to sharing more about our achievements as the year progresses.

Zachary Ryan George: We have rolled out our strategic priorities and core behaviors across the organization ensuring unity.

Zachary Ryan George: We will also launch a community engagement framework focused on mental and physical well being.

Zachary Ryan George: Our strategic priorities are not merely aspirations there are actionable paths that we're pursuing with vigor.

Zachary Ryan George: The progress we've made in the first quarter is a testament to our commitment to these goals.

Zachary Ryan George: I am confident in our team's ability to maintain this momentum and I look forward to sharing more about our achievements as the year progresses.

Zachary Ryan George: We're excited about what lies ahead and are confident in our ability to deliver value to our investors and partners. Thank you for your continued support and belief in SNDL. I will now pass the call back to the operator for animal questions.

Zachary Ryan George: We are excited about what lies ahead and are confident in our ability to deliver value to our investors and partners.

Zachary Ryan George: For your continued support and belief in SDL.

Zachary Ryan George: I will now pass the call back to the operator for analyst questions.

Operator: We will now begin the analyst question and answer session. To join the question queue, you may press star and one on your telephone keypad. You will hear a tone 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 and then two. One moment for the first question, please. The first question comes from the line of Frederico Gomes with ATB Capital Markets. Please go ahead.

Speaker Change: We will now begin the analyst question and answer session.

Frederico Yokota Choucair Gomes: She joined the question queue, you May press Star and one on your telephone keypad, you will hear a tone acknowledging your request if youre using a speakerphone. Please pick up your handset before pressing any keys to withdraw your question. Please press star and then two.

Frederico Yokota Choucair Gomes: One moment for the first question please.

Frederico Yokota Choucair Gomes: The first question comes from the line of Federico Gourmet said with ATB capital markets. Please go ahead.

Frederico Yokota Choucair Gomes: Good morning. Thanks for taking my questions. My first question is just on the international cannabis opportunity. Well, first, I was under the impression that you already had an EU GMP at Athelville. So could you just comment on that? And then, in terms of the international opportunities that you have, how soon can they become more material in terms of your financials? And would you consider any M&A on that front? Thank you.

Frederico Yokota Choucair Gomes: Hi, good morning, Thanks for taking my questions.

Frederico Yokota Choucair Gomes: First question is just on the international cannabis opportunity.

Frederico Yokota Choucair Gomes: Well first I was under the impression that you already had huge M. P. S. At the wheel. So could you just comment on that and then I can.

Frederico Yokota Choucair Gomes: In terms of the international opportunities that you have.

Frederico Yokota Choucair Gomes: How soon can they become more material in terms of your financials and would.

Frederico Yokota Choucair Gomes: Would you consider any M&A on that front. Thank you.

Zachary Ryan George: Good morning, Frederico. Thanks for the question. You're correct. So there were permits in place. Appleville is going through a re-permitting process that we expect to be completed by the end of the summer.

Speaker Change: Good morning Frederico. Thanks for the question you are correct. So there there were permits in place Alphaville is going through a re permitting process that we expect to be completed by the end of the summer and we're not giving specific guidance on the growth of the export opportunity in Europe, but our team is.

Zachary Ryan George: And we're not giving specific guidance on the growth of the export opportunity in Europe, but our team is heavily focused on it. We've received POs recently, and we are looking at a few opportunities where we may deploy capital into the region. But right now, we're really trying to assess the best and highest quality export partners to work with.

Zachary Ryan George: Heavily focused on it we've received.

Zachary Ryan George: Pose recently.

Zachary Ryan George: And we are looking at a few opportunities where we may deploy capital.

Zachary Ryan George: Into the region, but right now we're really trying to assess.

Zachary Ryan George: The the best and highest quality export partners to work with.

Zachary Ryan George: Perfect.

Frederico Yokota Choucair Gomes: And then still within Apple Hill, you mentioned you're ramping up cultivation there. So can you just remind us what the capacity is there and how much you're currently using of that? And then, as well as, you know, as you ramp that up? Thank you.

Zachary Ryan George: And then still within Apple Hill.

Frederico Yokota Choucair Gomes: You mentioned you are renting up cultivation. There. So can you just remind us what's the capacity there and how much you're currently using of that and then as well as you know as you ramp that up.

Frederico Yokota Choucair Gomes: The impact to margins that you expect because you had a pretty good.

Frederico Yokota Choucair Gomes: <unk> expansion this quarter. So do you think that that can continue as you ramp up that production. Thank you.

Zachary Ryan George: Thanks. It's a great question. So, yes, it's operating at less than 25% of capacity today. Our president of cannabis, Tyler Robson, has gone through a thorough reset on operations and SOPs with the cultivation team there. And we're very pleased with early results in terms of where our cash costs of cultivation are sitting. They're competitive. They're marginable, and as we ramp up, we expect those costs to improve. But we're going to do so methodically and slowly to meet market demand.

Speaker Change: Thanks, It's a great great question. So yes, it's a it's operating at less than 25% of capacity today.

Zachary Ryan George: Our president of cannabis Tyler Robson has gone through a thorough.

Zachary Ryan George: Reset on operations in Sop.

Zachary Ryan George: In the in the cultivation team there.

Zachary Ryan George: And we're very pleased with early results in terms of where our cash cost of cultivation are sitting on their competitive they're marginal and as we ramp we expect those cost to improve.

Zachary Ryan George: But we're going to do so methodically and slowly to to meet market demand.

Frederico Yokota Choucair Gomes: And then in terms of your distribution, you mentioned you secured an additional 350 distribution points after quarter end. So could you comment on where, in terms of penetration right now, where you are across different provinces, where do you see the opportunity here? And specifically, in Quebec, do you have any presence there, and if not, is there a plan to enter that market? Thank you.

Zachary Ryan George: And then in terms of your distribution you mentioned you secure an additional 350 basis points after quarter end so.

Frederico Yokota Choucair Gomes: Could you comment on.

Frederico Yokota Choucair Gomes: Nowhere in terms of penetration right now where.

Frederico Yokota Choucair Gomes: Where you are at a trough.

Frederico Yokota Choucair Gomes: Different provinces, where do you see the opportunity here and specifically in Quebec, you have any presence there and if not is that.

Frederico Yokota Choucair Gomes: Our plan to enter that market. Thank you.

Zachary Ryan George: Yeah, so thanks, Frederico. There are a few different elements to that question to unpack there. We have both inside and outside sales resources, as well as data partnerships that assist in driving distribution. However, our total aggregate distribution points are changing largely as a result of the shifts in independent store behavior over time. So, I don't want to give direct guidance on that today, but we do expect improvements that should impact both our top line and... Gross Profits. And then, in terms of the second part of your question, can you just remind me?

Speaker Change: Yeah. So thanks, Patrick there's a few different elements to that question to unpack there.

Zachary Ryan George: We have both inside and outside sales resources.

Zachary Ryan George: As well as.

Zachary Ryan George: Data partnerships that assist in driving distribution.

Zachary Ryan George: Our total aggregate distribution points are changing largely as a result of the shifts in independent store behavior over time, so don't want to give.

Zachary Ryan George: Direct guidance on that today, but we do expect improvements.

Zachary Ryan George: Should impact both our topline and.

Zachary Ryan George: Gross profits.

Speaker Change: And then in terms of.

Zachary Ryan George: The second part of your question can you just remind me.

Frederico Yokota Choucair Gomes: Yes, just if you have any distribution, go back and do it if you plan to.

Speaker Change: Yes, just a if you have any distributions go back and if you plan to.

Zachary Ryan George: Yeah, in terms of provincial-based opportunities, I would say that we are punching below our weight in British Columbia, have a strong presence in Quebec but are looking to improve it, and obviously, Ontario is a key market that we continue to make strides in.

Speaker Change: Yes in terms of in terms of the provincial based opportunities I would say that we are punching below our weight in British Columbia have a strong presence.

Zachary Ryan George: Quebec, but are looking to improve it.

Zachary Ryan George: And obviously, Ontario is a key market that we continue to.

Zachary Ryan George: Make strides.

Frederico Yokota Choucair Gomes: Thank you. I'll hop back in the queue.

Speaker Change: Thank you I'll hop back in the queue.

Operator: The next question comes from the line of Yewon Kang with Canaccord Genuity. Please go ahead.

Speaker Change: The next question comes from the line of.

Yewon Kang: Yeah, one conch.

Yewon Kang: Accord Genuity. Please go ahead.

Yewon Kang: Hi, good morning. This is Yeowon Kang Wong from Matt Bottomley.

Yewon Kang: Hi, Good morning, Okay, I'll turn that finally, thank you for the question for nice to see this screenshot expansion in gross margin profile with improvements coming in from the Kansas Operation.

Yewon Kang: Thank you for the question. It is so nice to see this credential expansion and growth margin profile with improvements coming in from the cannabis operation side of things. In addition to all the items that were mentioned as part of the prepared remarks, I was hoping to get some more color behind this. Now that most of the post-rationalization rationalization is completed in terms of cannabis cultivation footprint, is it fair to assume that this margin profile will at least be steady going forward? Would there be further variables in the future that could impact the cannabis off-margin thing?

Yewon Kang: And in addition to all of the items that was mentioned that's part of the prepared remarks, I was hoping to get some more color behind us.

Yewon Kang: Now that most of the off the rationalization is completed in terms of cannabis cultivation footprint is it fair to assume that that's like a profile or at least be steady going forward.

Speaker Change: Further variables in the future I couldn't pass I can't Undersell smart good. Thanks.

Alberto Paredero: Yeah, thank you, Jim. Sorry, question.

Speaker Change: Yeah. Thank you John for the question, obviously, we have a very strong pipeline of additional productivity initiatives that should be kicking in as we speak and throughout the rest of the year.

Yewon Kang: Actually, we have a very strong pipeline of additional productivity initiatives that should be kicking in as we speak and throughout the rest of the year. So, we are still expecting an improved margin profile in the following quarters. Obviously, the closure of the old facility in Alberta that happened in the fourth quarter of 2023 is already behind us, and it's fully embedded in the numbers in the first quarter. The ramp-up of cultivation capacity in Nashville is underway, so that is going to be one of the elements of an improved margin profile going forward.

Alberto Paredero: So we are still expecting an improved margin profile in the following quarters.

Yewon Kang: Obviously, the closure will be also agility and are very proud of what happened in the fourth quarter of 2023.

Yewon Kang: Somebody behind is fully embedded in the numbers in the first quarter.

Yewon Kang: The ramp up of the equal debate some capacity not fulfill its underway. So that is going to be one of the elements of improved.

Yewon Kang: Margins, both hard work, but we do have as well a long list of productivity initiatives.

Yewon Kang: But we do have, as well, a long list of productivity initiatives, automation initiatives in our 2.0 manufacturing capacity, as well as overhead initiatives for reactions. So, our plan is, as well, to continue seeing continuous margin improvement throughout the year.

Yewon Kang: Automation initiatives.

Yewon Kang: Our two pointed out one of our current capacity.

Yewon Kang: As well as overhead.

Yewon Kang: Initiatives for reactions slow.

Yewon Kang: Our plan is to continue to see throughout the year continuous margin improvement.

Alberto Paredero: Thank you. And just another one for me here.

Speaker Change: Thank you and just another Australia Mi yeah, I just wanted to ask.

Yewon Kang: I just wanted to ask about the dialogue that you guys are potentially having with NASDAQ on the Schedule 3 news coming out of the U.S. I know it was previously telegraphed that you guys would be consolidating the financial results of Sunstream USA assets due to permissibility not being there, but I was wondering if there's been a change in sentiment coming out of the exchange now that the Schedule 3 news has been out for about a week or so. Thanks.

Alberto Paredero: That's essentially having that NASDAQ on their schedule three news coming out of the U S.

Yewon Kang: I know previously telegraphed that you guys will be consolidating the financial results of our French team USA assets, which is I think.

Yewon Kang: We already not being there, but I was wondering if there's been a change in sentiment coming out of exchange now that the federal fake news has been out for about a week or so.

Zachary Ryan George: Just to be clear, you're asking if there is a change to NASAC-related restrictions on the consolidation of or for the accounting of U.S. plant-touching entities post the news on rescheduling? Yes. And the answer to that is no, that has not changed.

Yewon Kang: Just to be clear, you're asking if there is a change to NASDAQ related restrictions on the consolidation of our for the accounting of U S plant touching entities post the news on rescheduling.

Zachary Ryan George: Yes.

Zachary Ryan George: Okay and then the answer to that is no that has not changed and so.

Zachary Ryan George: And so we are working towards the close of the restructurings that are underway in the cases of both Parallel and SkyMint in the U.S. But as those close, and those closings are really waiting on the license transfer for the most part, while everything else is in order.

Zachary Ryan George: We are working towards the close of.

Zachary Ryan George: The restructurings that are underway in the cases of both parallel and Sky man in the U S, but as those close in those closings are really.

Zachary Ryan George: Waiting on license transfer for the most part.

Zachary Ryan George: Everything else is in order and we were pleased to finally have NASDAQ complete its review.

Zachary Ryan George: And we were pleased to finally have NASDAQ complete its review. But we will not be engaging in plant-touching activities in the U.S. under our current structure and have no intention to do so. It's still today a federally legal business in the U.S., and so we will be able to provide some information on value and delineate the capital structures for those entities as the restructurings close. But I would not expect their operating figures to be consolidated into our financials going forward.

Zachary Ryan George: But we.

Zachary Ryan George: We will not be engaging in plant touching activities in the U S under our current structure.

Zachary Ryan George: I have no intention to do so it's still today, a federally illegal business in the U S.

Zachary Ryan George: And so we will be able to provide some information on value and delineate the capital structure. So those entities as the restructuring is closed but I would not expect their operating fit.

Zachary Ryan George: Yours to be consolidated into our financials going forward.

Yewon Kang: Thank you so much. I'll hop back into the queue.

Zachary Ryan George: Okay.

Speaker Change: Thank you so much I'll hop back in ticket.

Yewon Kang: Yeah.

Operator: Our next question comes from the line of Pablo Zuanic with Zuanican Associates. Please go ahead.

Yewon Kang: Our next question comes from the line of Bob <unk> with <unk> Associates. Please go ahead.

Pablo Zuanic: Thank you. Look, I also want to ask you about Sunstream USA, but let me just start with another part first. When you think about the Canadian recreational cannabis market, despite, you know, acquisition of valence, intentional market share, you're still not among the top three. What are the aspirations there, and then how should we think about that over time?

Pablo Zuanic: Thank you Luke I also want to ask you about Sun stream USA, but let me just start with on another part first.

Pablo Zuanic: When you think about the Canadian recreational cannabis market.

Pablo Zuanic: Spike you know acquisition of violence and industrial market share do you still not among the top three.

Pablo Zuanic: What are the aspirations there and then how should we think about that over time.

Zachary Ryan George: Thank you, Pablo. Our aspirations when it comes to the Canadian recreational cannabis market are to be a top five licensed producer and manufacturer of products, full stop. Now, when you look at the trajectory of our business over time, you are right to point out that in certain cases, the combination of legacy S&DL revenue with Valens appears to have had some degree of revenue loss. However, I would point out that the move away from high-cost cultivation and manufacturing was an undeniably positive one for the business.

Speaker Change: Thank you Pablo.

Pablo Zuanic: Our aspirations when it comes to the Canadian recreational cannabis market is to be a top five.

Zachary Ryan George: Licensed producer and manufacturer products full stop now when you look at the trajectory of our business over time, you are right to point out that.

Zachary Ryan George: In certain cases, the combination of legacy <unk> revenue with balance.

Zachary Ryan George: Appears that there has been some degree of revenue loss I would point out that.

Zachary Ryan George: The move away from high cost cultivation and manufacturing was undeniably positive one for the business. We had revenue streams that were unattractive and that you would not want on a stabilized go forward basis. So we are working on profitable growth not growth at any cost and <unk>.

Zachary Ryan George: We had revenue streams that were unattractive and that you would not want on a stabilized go forward basis. So, we are working on profitable growth, not growth at any cost. And you've seen that in the case of some other LPs that are really prioritizing the top line above all else. We would rather be slightly smaller with a more conservative posture means that we can run a more profitable organization.

Zachary Ryan George: <unk> seen that with which in the case of some other Lps that are really prioritizing the topline above all else.

Zachary Ryan George: We'll do that. Right? So we are making progress. You really have to look at the expansion of not just our branded product distribution but also our B2B activities, and our goals should have us kind of a far cry from where we stand today.

Zachary Ryan George: We would rather.

Zachary Ryan George: B.

Zachary Ryan George: It's being slightly smaller with a more conservative posture means that we can run a more profitable organization.

Zachary Ryan George: I'll do that right. So we are making progress.

Zachary Ryan George: We have to look at the expansion of our not just our branded product distribution, but also our <unk> activities.

Zachary Ryan George: And our goals should have us kind of a far cry of where we stand today.

Pablo Zuanic: And then a similar question on your retail arm for cannabis in Canada. I mean, obviously, High Tide continues to make acquisitions. The cap was lifted in Ontario, right?

Speaker Change: Understood and then similar question on your retail arm for economies in Canada, I mean, obviously high tide continues to make acquisitions. The cap was lifted in Ontario, right that creates opportunities for more consolidation.

Pablo Zuanic: That creates opportunities for more consolidation. We see FICA being very aggressive, right? They bought Fire and Flower.

Pablo Zuanic: C C.

Pablo Zuanic: Aggressive ready they bought a fight on flower.

Pablo Zuanic: How should we think about your strategy. There is there still room to do to get back to a transaction with Nova means you do own 62% or we didnt directly right now I'm just trying to understand is that you know steady as it goes or what's the plan there for the expansion.

Pablo Zuanic: You know, how should we think about your strategy there? Is there still room to get back to the transaction with Nova? I mean, you do own 62% of it indirectly right now. I'm just trying to understand, will that, you know, stay as it goes, or what's the plan there for expansion on the retail side in Canada?

Pablo Zuanic: On the retail side and kind of that kind of abuse.

Zachary Ryan George: Yeah, we continue to selectively expand the portfolio. We've tried to be as disciplined as possible.

Pablo Zuanic: We continue to selectively expand our portfolio.

Zachary Ryan George: We've tried to be as disciplined as possible, we've looked at distressed asset sales and portfolios of many shapes and sizes.

Zachary Ryan George: We've looked at distressed asset sales and portfolios of many shapes and sizes. I would say that the analysis has changed a bit as most provincial markets have reached a saturation point. And so the build versus buy balance has sort of flipped, where a lot of the best real estate locations have been taken. And so we're seeing a lift off the bottom in terms of valuations and multiples that are being paid for high-quality retail locations.

Zachary Ryan George: Would say that the.

Zachary Ryan George: The analysis has changed a bit as most provincial markets have reached a saturation point and so the build versus buy.

Zachary Ryan George: Balanced sort of flipped where a lot of the the best real estate locations.

Zachary Ryan George: Have been taken and so we're seeing a lift off the bottom in terms of.

Zachary Ryan George: Valuations and multiples that are being paid for high quality retail locations.

Zachary Ryan George: And we're unwilling to look at bottom quartile assets that, in other cases, competitors are sort of welcoming into their portfolios. So we do have a pipeline. We weren't in Q1, obviously, we did not add a large number of locations, but that doesn't mean that we are standing still. And it's very difficult to have these opportunities fit cleanly into individual quarterly boxes to show sequential 90 day growth rates. So I would expect growth. In terms of capital priorities, further investments in cannabis retail, in addition to select international opportunities, would be top of the list. So more to come there.

Speaker Change: And we are unwilling to to look at.

Zachary Ryan George: Bottom quartile assets that in other cases competitors are sort of welcoming into their portfolio. So we do have a pipeline we were we're not.

Zachary Ryan George: Q1, obviously, we did not add a large number of locations, but that doesn't mean that we are standing still and it's very difficult to have these opportunities fit cleanly into individual quarterly boxes to show.

Zachary Ryan George: Sequential 90 day growth rate. So I would expect growth we have in terms of capital priorities.

Zachary Ryan George: Further investments in cannabis retail in addition to select international opportunities would be top of the list.

Zachary Ryan George: So more to come there.

Pablo Zuanic: But just to begin, in the case of Nova, what's the plan there? I mean, do you hold on to 62%, or do you try to do the transaction again? What can we expect there?

Speaker Change: But just to begin.

Zachary Ryan George: In the case of Nova what's the plan there I mean do you hold onto a six 2% or or do you try to do the transaction again with what's what can we expect there.

Zachary Ryan George: In fact, with the Dutch Love transaction, our stake will actually increase beyond sixty-two percent. We are a strong sponsor of the vehicle and are working to create value for all stakeholders in that instance.

Pablo Zuanic: We actually with the Dutch law transaction, our stake will increase beyond 62%. We are a strong sponsor of the vehicle.

Zachary Ryan George: We're working to create value for all stakeholders in that instance.

Pablo Zuanic: Okay, understood. Look, just moving on to SandStream, and I'll try to keep the questions brief there, but... At present, it's a JV, Sunstream Bank Corp., but you consolidate, I think, all of it, right? Now you said that once you equitize the loans, you will not consolidate the U.S. assets. So I'm just trying to understand what's going to change from a reporting point of view.

Speaker Change: Okay understood.

Zachary Ryan George: Moving onto signs do you want to try to keep it wishes for you there but.

Pablo Zuanic:

Pablo Zuanic: At present.

Pablo Zuanic: But you.

Pablo Zuanic: Saturday Bancorp as you consolidate I think all of it right.

Pablo Zuanic: No you said once you work with I said loans.

Pablo Zuanic: You will not consolidate the USS it so I'm just trying to understand whats going to change from a reporting point of view.

Zachary Ryan George: Right, so Pablo, I think you're very well-researched on both the Sunstream USA structure and also a sort of cousin structure that has been put together in the case of Canopy USA. So the issue is that while those businesses are still federally illegal, we cannot have directors and officers of S&DL as an ASEC-listed company serving in similar roles at those subject companies. And when it comes to credit positions that get equitized, we actually cannot vote that equity, or that would be seen as exercising influence and control over the vehicle. So you have that equity held in a series of structures that are ring-fenced from S&DL where we have an exchangeable share, and that exchange option can be exercised only upon federal legalization.

Speaker Change: Right. So Pablo I think you're very well researched on both the sunscreen USA structure and also.

Zachary Ryan George: Sort of causing structure that has been put together in the case of canopy USA.

Zachary Ryan George: So.

Zachary Ryan George: The issue is that while while those businesses are still federally illegal.

Zachary Ryan George: We cannot have directors and officers of Essen deal as a NASDAQ listed company serving in similar roles at those subject companies and when it comes to credit positions that get <unk>.

Zachary Ryan George: Actually cannot vote that equity or that would be seen as I'm exercising influence or control over the vehicles. So you have that equity held in a series of structures that are ring fenced from SME L.

Zachary Ryan George: We have an exchangeable share.

Zachary Ryan George: Exchange option can be exercised really only upon.

Zachary Ryan George: Federal legalization.

Alberto Paredero: One bill on the accounting from Pablo. So we're not consolidating today the financial statements of those operations from the U.S., and we're not going to plan to consolidate them in the future unless there is legalization as a triggering event. What we do have today, and that will be the same thing that we'll have in the foreseeable future, is that we do recognize the value of the asset from an investment perspective, which, as you see in our financial statements, is $560 million Canadian at the end of the first quarter.

Zachary Ryan George: 101 failed.

Alberto Paredero: Accounting from Pablo So were not consolidated today, the financial statements of both operations from the U S, where northern App planned to consolidate in the future unless there's legalization, but they're getting an event.

Alberto Paredero: What we do have today and that will do the same thing that will happen in the foreseeable future.

Alberto Paredero: Do recognize the value of the assets from an investment perspective.

Alberto Paredero: So we do have the asset, but we do not have the consolidation of the P&L. And Pablo, we understand that there is a desire from investors and analysts to see more delineation in that portfolio. And so as we quickly move towards the close of these restructurings, our intention is to provide a lot more granular detail on the portfolio itself, as well as the pro forma capital structures at close for the restructured entities. And so we're going to, in the coming months, move through a significant shift in transparency when it comes to that portfolio. And that would be great.

Alberto Paredero: <unk> seen in our financial statements.

Alberto Paredero: $560 million Canadian.

Alberto Paredero: At the end on the first quarter.

Alberto Paredero: So we do have the asset, but we do not have the consolidation of the P&L and Pablo we understand that there is.

Alberto Paredero: A desire from investors.

Alberto Paredero: And analysts to see more delineation that portfolio.

Alberto Paredero: And so as we quickly move towards the close of these restructurings. Our intention is to provide a lot more granular detail on the portfolio itself.

Alberto Paredero: As well as the pro forma capital structures on clothes for the restructured entities.

Alberto Paredero: So we're going to in the coming months moved through a significant shift in transparency when it comes to that portfolio.

Pablo Zuanic: That would be very helpful. Can I just ask, so do you have a line of sight on when the restructuring will close in terms of timing, and does the litigation have to have been all settled for the restructuring to close? Is there any litigation pending?

Pablo Zuanic: So that would be very helpful. Can I just so do you have line of sight on when that restructuring will close initial timing and does the litigation will have to have been old simple for the restructuring to close.

Speaker Change: The litigation pending.

Zachary Ryan George: Yeah, I want to be careful with our statements here. Just to put this in context, Pablo, like in the case of Parallel, the restructuring efforts would have started in early 2022. Okay, so you're looking at a process that, if these companies could have availed themselves of the U.S. federal bankruptcy courts, would have been resolved likely in a period of three to five months, and this has been a two-year slog. You can imagine the friction costs with legal and other items that would correlate with that timeline.

Pablo Zuanic: Yeah.

Speaker Change: I want to be careful with our statements here just to put this in context Pablo like in the case of parallel the restructuring efforts would've started in early 2022.

Zachary Ryan George: Okay.

Zachary Ryan George: So youre looking at a process, which if.

Zachary Ryan George: These companies could have availed themselves of the U S. Federal bankruptcy courts would've been resolved likely in a period of three to five months and this has been a two year slog you can imagine the.

Zachary Ryan George: And so there are a number of issues here that are not in our control. We wish that it was different, but we're really waiting on license transfers. And what we've seen in some states, we've received license transfers well ahead of schedule, and we've been positively surprised, and in others, there's been delay, and it's taken more time. So our expectation right now is to be in a position to close these restructurings end of summer, early fall, but again, we're not completely in control of those timelines.

Zachary Ryan George: The friction cost with legal.

Zachary Ryan George: And other items that would.

Zachary Ryan George: Correlate with that timeline and so there are a number of issues here that are not in our control. We wish we wish that that it was different but I'm really waiting on license transfers and what we've seen in some states. We've received license transfers well ahead of schedule, we've been positives positively surprised and in others.

Zachary Ryan George: There has been delay and it's taken more time. So are our expectation right now is to be in a position to close these restructurings.

Pablo Zuanic: Got it. And the last question, I think on the fourth quarter conference call, in response to my question, you said something like, you know, Parallel in Florida and the other states and Skyment in Michigan were running well, funding their businesses, that despite the financial challenges, things were fine. So I'm just trying to understand once the restructuring is completed, let's say by the third quarter, how do you help those entities to raise capital?

Pablo Zuanic: End of summer early fall, but again, we're not in control I'm completely at those timelines.

Speaker Change: Got it and then the last question I think.

Pablo Zuanic: In the in the fourth quarter conference call.

Pablo Zuanic: To my question, you said something like.

Pablo Zuanic: Parallel in Florida, and the other state government in Michigan, where we're running well with funding their businesses.

Pablo Zuanic: Despite the financial challenges things.

Pablo Zuanic: Fine, but it could make the argument that indicates a parallel they've been stuck at 45 stores for a while in Florida, what their competitors are expanding especially now with the balance coming up so they could be at a disadvantage right. So I'm just trying to understand once the restructuring is completed let's say by the third quarter, how how do you help those entities to raise capital.

Pablo Zuanic: I mean, you cannot fund them directly, but I guess if the restructuring had been finalized, they'd be in a better position to raise capital on their own. But just some color there would be helpful just to understand the outlook of those businesses once the restructuring has been completed.

Pablo Zuanic: I mean, you're going to fund them directly but I guess is the restructuring has been finalized there'd been a bit of a position to raise capital on their own but just some color. There would be helpful. Just understand the outlook of those businesses are ones that restructuring is done that's all thank you.

Zachary Ryan George: That's all. Thank you.

Pablo Zuanic: It's a great question, Pablo, but the statistics and data that's available from the state of Florida specifically are actually quite helpful in this case. And what's remarkable has been, in Sir Tara's case, the ability to maintain share and actually take share in a number of product segments, despite the fact that they have not been aggressive in opening new doors. And so, you know, getting the house in order, so to speak, and improving operations has been the priority of those teams.

Speaker Change: It's a great question, Pablo, but I would I would actually.

Pablo Zuanic: The statistics.

Pablo Zuanic: And data that is available from the state of Florida, specifically is actually quite helpful. In this case and what's remarkable has been in <unk> case, the ability to maintain share and actually take share in a number of product segments. Despite the fact that they have not been aggressive in opening new doors and so.

Pablo Zuanic: Getting the house in order so to speak and improving operations has been the priority of those teams.

Pablo Zuanic: And when it comes to growth capital, which I think you're pointing to, they have the ability to source capital from a number of different parties, including S&DL in the future. And so we expect that there'll be more to come on that front as well. But I wouldn't suggest, just to put this in context, two years ago, Parallel was a business that lost over 100 million bucks. This year, we expect to be on the right side; we expect the entity to be on the right side of free cash flow break even. So you really can't overstate the magnitude of the turnaround that's happened.

Pablo Zuanic: And when it comes to capital.

Pablo Zuanic: Growth capital, which I think you're pointing to.

Pablo Zuanic: They have the ability to source capital from a number of different parties, including <unk> in the future.

Pablo Zuanic: So we expect that there'll be more to come on that front as well, but I wouldn't I wouldn't suggest it.

Pablo Zuanic: So just put this in context two years ago.

Pablo Zuanic: Parallel is a business that lost over 100 million Bucks.

Pablo Zuanic: This year, we expect to be on the right side, we expect the entity would be on the right side of the free cash flow breakeven. So you really can't overstate the magnitude of the turnaround. That's happened is there more work to do yes.

Pablo Zuanic: Is this structure difficult to manage yes.

Zachary Ryan George: Is there more work to do? Yes. Is this structure difficult to manage? Yes. But there is a great opportunity. And to frame it in a negative light, when you're looking at a player that's a top four operator in Florida, I'm not sure how that's a disadvantage in any way.

Pablo Zuanic: But there is a great opportunity and.

Zachary Ryan George: To frame it in a negative light when youre looking at a player.

Zachary Ryan George: Top four operator in Florida, I'm not sure how that's a disadvantage in any way.

Pablo Zuanic: Okay, understood. Thank you very much. Thanks, Pablo.

Pablo Zuanic: Thank you very much.

Speaker Change: Okay understood. Thank you very much.

Speaker Change: Thanks Pablo.

Operator: This concludes the Q&A session. I would like to turn the conference back over to Zach George for any closing comments.

Pablo Zuanic: This concludes the Q&A session I would like to turn the conference back over to Jack <unk> for any closing comments.

Zachary Ryan George: Great. Thank you.

Zachary Ryan George: Thank you everyone for joining us today. We look forward to updating you on our progress in the near future.

Zachary Ryan George: Thanks, everyone for joining us today, we look forward to updating you on our progress in the near future.

Operator: This concludes today's conference call. You may disconnect your lines. Thank you for participating and have a pleasant day.

Speaker Change: This concludes today's conference call you may disconnect. Your lines. Thank you for participating and have a pleasant day.

Operator: Okay.

Operator: Yeah.

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Operator: [music].

Unknown Attendee: Okay.