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Operator: Good morning. And welcome to SNDL’s Second Quarter 2023 Financial Results Conference Call. This morning, SNDL issued a press release announcing their financial results for the second quarter ended on June 30th, 2023. This press release is available on the company’s website at sndl.com and filed on EDGAR and SEDAR as well. The webcast replay of the conference call will also be available on sndlgroup.com website. SNDL has also posted a supplemental investor presentation on its website. Presenting on this morning’s call, we have Zach George, Chief Executive Officer; Alberto Paredero, Chief Financial Officer; Tank Vander, President, Liquor Retail; and Tyler Robson, President Cannabis. 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 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 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.

Zach George: Hi, everyone. And thank you for joining us on our second quarter 2023 earnings call. SNDL’s growth over the past two years is nothing short of incredible. Our journey from less than $10 million in net revenue and negative gross margin in Q2 2021 to a potential $1 billion in annual revenue with continued gross margin growth in 2023, serves as a testament to our commitment to becoming a leader in Canadian regulated products. We have achieved significant milestones and are witnessing the tangible results of our diversification strategy. We achieved an all-time high for net revenue for the second quarter of 2023 with $244.5 million, driven by our strategic initiatives and operational improvements. Our focused efforts to enhance gross margin are yielding significant results with record gross margin of $52 million, representing a 20% year-over-year increase.

Having navigated a virtual zero profit environment in Canadian cannabis and even flirting with insolvency in 2020, we now believe that SNDL has the requisite scale and platform optionality to create shareholder value. While the hard work of our teams is beginning to yield improved operating results, we still have significant work ahead. We are internally focused on driving greater efficiencies and taking advantage of our competitive position in Canada with both upstream and downstream regulated product capabilities. We are simplifying operations across all business segments with an unwavering focus on reaching profitability in 2024. The deliberate diversification of our business was a strategic and essential move, driven by prevailing market realities, by diversified mining operations, we have fortified our position and reduced exposure to certain risks, allowing us to navigate the extreme uncertainty of the cannabis industry more effectively.

This intentional approach has been instrumental and positioning SNDL for continued growth and success in an ever evolving landscape that continues to lay ways to many of our competitors. In our Liquor Retail segment, we look forward to expanding our digital footprint by launching an e-commerce platform for our Wine and Beyond banner in the coming weeks. We believe that we can further optimize the profitability of our Liquor Retail segment and are focused on margin accretive opportunities including the monetization of data. While results for the segment last year in 2022 were a function of sales moderation following the emergence of the post-COVID environment where consumers were eager to get out of the house and returned to on-premise consumption of alcoholic beverages.

In 2023, we are seeing the impact of inflationary headwinds, pushing the consumer back to off-premise consumption, seeking greater value for the dollars. This dynamic is benefiting our convenience and discount oriented banners and driving positive same store sales for our broader liquor retail portfolio. The Canadian consumer faces very unique challenges, which include a residential mortgage market structure that is very different than the US and a COVID-19 pandemic labor market recovery that has largely been driven by public sector and government jobs. Although much of our regulated products business is considered to be recession resistant, the duration of the current rate environment is certain to add more pressure to consumers, and we are closely monitoring risks and signs of health.

In Cannabis Retail, our data licensing program has been instrumental in driving improved profitability and forging stronger supplier relationships. We are now looking to enhance consumer engagement by introducing a new loyalty program, further solidifying our market position. In July, we announced an extension of the outside date for the closing of the intended strategic transaction between SNDL and Nova. While all other provincial approvals have been received, the continued review by one provincial regulator has resulted in a further delay. Unfortunately, we cannot control the timeliness or responsiveness of Canadian regulators. As publicly stated, we anticipate being able to close this transaction on or before August 25 of 2023. But this remains subject to the receipt of this last remaining provincial regulatory approval.

Our goal remains to establish a dominant multi banner cannabis retailer with a national presence. We continue to explore opportunities for organic growth while considering mergers and acquisitions to further strengthen our position in the market. Nova’s Q2 results announced last week included positive earnings per share and free cash flow, a true rarity in Canadian cannabis. This further reinforces our conviction that we can achieve long-term success by focusing on value and convenience. In our Cannabis Operations, we have implemented aggressive cost cutting measures, streamlined manufacturing operations, and reduce our reliance on high cost cultivation. Throughout this process, we have successfully maintained cannabis sales momentum, and are actively exploring B2B and international opportunities paving the way for future growth.

The impressive 80% increase in year-over-year revenue in our cannabis operation segment validates our strategic decision to acquire Valens. The acquisition has proven instrumental to the growth of our cannabis business by leveraging its manufacturing capabilities, low cost procurement strategies and capitalizing on cannabis 2.0 product opportunities. We have also streamlined our Investment portfolio by divesting from equity securities and certain credit exposures. At the end of Q2, 2023. SNDL held $754 million in unrestricted cash, marketable securities, and long-term investments. This value compares to a current market cap of approximately $560 million Canadian and this is before any consideration for the value of our growing operating segments that we believe have the potential to generate more than $1 billion in annual revenue.

At the end of the second quarter of 2023, SunStream’s credit portfolio comprised six investments, with a carrying value of approximately $533 million, including Jushi Holdings, SKYMINT Brands, Ascend Wellness Holdings, Parallel, Columbia Care and AFC Gamma. The AFC Gamma investment was monetized above carrying value in July of 2023. SunStream is actively implementing a stock exchange compliance structure to facilitate participation in US cannabis companies. In connection, SunStream is exploring the restructuring and transfer of certain credit interests in SKYMINT and Parallel to a new us holding entity on SunStream USA. The SunStream USA structure is expected to allow SNDL to participate in SunStream assets, while complying with all US and federal state laws.

This SunStream USA structure is anticipated to include the issuance of securities upon the equitization of specific credit instruments held by SunStream. In turn, would hold non-voting shares in SunStream USA with the right to exchange such shares into common shares in the future if certain conditions are met. As such, the SunStream USA structure is expected to allow SNDL to participate in SunStream assets through a revamped capital structure. The proposed SunStream USA structure will be reviewed by NASDAQ as the relevant listing authority for SNDL prior to its execution. SNDL anticipates providing further details on progress with the SKYMINT and Parallel restructuring initiatives in the third quarter of 2023. Looking at our integration initiatives, we have achieved $18.2 million in annualized cost savings since the Valens acquisition in January of 2023, surpassing our original $10 million cost savings target.

These savings are largely attributed to SG&A and public company costs, supply chain consolidation and operational efficiencies. With this progress, we are confidently moving towards exceeding $30 million in annualized cost savings by 2024. The second quarter results included several cost items related to our cannabis integration projects. Our work continues as our leaders take necessary actions to ensure a lean and agile organizational structure, positioning SNDL for future success. We anticipate that our Canadian retail network will grow at a modest pace, while our internal efforts on optimization are already yielding significant tangible results. These results are encouraging as we focus on delivering improved performance in the second half of 2023 and maximizing value for shareholders.

Before we dive into our financial results in more depth, I’m excited to introduce you to our new Chief Financial Officer, Alberto Paredero. Alberto brings a wealth of experience and a strong track record in corporate finance, with more than 25 years of management experience in the consumer goods and pharmaceutical industries. He has held senior management roles for companies such Mondelez International, Novartis, Newell Brands and Procter & Gamble Company, bringing extensive experience in public company reporting, mergers and acquisitions, internal controls and general financial and operational management We are confident that his expertise and strategic vision will continue to drive our company’s growth and success. I’ll now pass the call to Alberto for a review of our Q2 2023 financial results.

Alberto Paredero: Thank you, Zach. I’m thrilled to be part of the SNDL team as I see huge potential to drive growth and create shareholder value. The team is passionate and united by a common goal of achieving positive free cash flow in 2024. SNDL is in a strong financial position which gives us room to plan long term and seek out opportunities to grow sustainably. I believe we’re in a great position to make a big impact in the industry and create lasting value for everybody involved. Since I joined in July 2023, I have noticed a few areas which will enhance our efficiency and ability to achieve long-term profitability. Here are a couple of things we have been focusing on. Firstly, our primary focus will be in simplifying and improving processes that are often manual and fragmented.

By doing so we should be able to work more efficiently and free up time and resources to focus on accelerating our growth. We are determined to strengthen our financial depth by sharpening our capital allocation strategies. This will help us improve both the quality and speed of decision making. And with that our ability to create value for our shareholders. Now moving on to our Q2 2023 results, I would like to remind you all that amounts discussed today are denominated in Canadian dollars unless otherwise stated. Please note that certain amounts referred to on this call are non-IFRS measures. For the definitions of these measures, please refer to SNDL’s Management Discussion and Analysis document. Let us start by going over our key financial and operational highlights for the second quarter of 2023.

We achieved our record net revenue of $245 million, which is a 9% increase compared to the same period in 2022, this shows how our strategic plans and operational improvements are paying off, driving both financial and operational improvements. Our gross margin hit an all-time high of $52 million for the quarter. This increase is driven by several factors, mainly our revenue growth, product mix improvements, database and productivity improvements. Our adjusted EBITDA reached the positive $2.2 million in the quarter, which is a strong improvement compared to the $26 million losses in the second quarter of 2022. All our operating segments are contributing to this improvement, as well as the synergies realized through the company’s vertical integration strategies.

We’ve been running our operations more efficiently with $8.8 million in cash used in our operating activities. This marked a 51% improvement compared to the same quarter of last year. We have a strong financial position with $754 million in cash, marketable securities and long-term investments. As of August 11, 2023, we have $202 million in unrestricted cash. I will also like to note that we haven’t raised cash through share offering since June 2021, which reflects our careful approach to managing our finances. We’re also focused on streamlining our investment and capital deployment strategies. SNDL’s financial achievements and sensible approach to cash management reflects our dedication to sustainable growth and delivering long term value to our shareholders.

I will let Tank and Tyler provide more details on the Q2 2023 results for the liquor result and cannabis operation segments. But I would like to turn all our attention to the results for our Cannabis Retail segment. Net revenue for this segment reached $72 million in the quarter representing a 13% increase year-over-year and setting a record since SNDL diversified into cannabis retail. We have demonstrated our dedication to continued margin expansion initiatives with gross margin return nearly $18 million or 24.7% of sales, a strong 28% increase compared to Q2 2022. In the first half of 2023, SNDL practically optimized its proprietorial data licensing program for the cannabis retail segment. This margin expansion opportunity generated revenue of $2.7 million in this quarter, compared to the $1.3 million in Q2 of 2022 or 80% growth compared to Q1 of 2023.

Leveraging the volume of Nova’s retail location and our access to high quality analytics, we’re in a good position to deliver continuous successful outcomes for our partners while driving top line of margin growth. Finally, looking at our Investments and Liquidity results in Q2 2023. SNDL invested capital in a portfolio of cannabis related ventures with a current value of $569 million. Out of these $532.8 million was invested through the SunStream joint venture. The investment portfolio resulted in a net loss of $1.5 million primarily driven by an investment loss on marketable securities of $3.8 million more than offsetting our interest revenue. In fact, as part of our efforts to streamline business operations during the second quarter SNDL made a strategic decision to divest certain cannabis related investments, leading to the realization of these losses.

We are carefully considering our options for the share repurchase program. We see ourselves as responsible stewards of capital, aiming to make the best decisions for our shareholders and the long-term success of our organization. Our top priorities guiding the company towards profitability, while protecting our capital. We will provide further details on the share repurchase program in the coming weeks. We’re deeply committed to regulatory due diligence and compliance. Our dedication to pay an excise tax on time reflects our strong focus on responsible business practices. As of 2023, we have already paid $23.4 million in excise taxes and since the company’s inception, we have paid a total of $67.8 million. Even though in fact excise taxes pose challenges in the cannabis sector.

We believe that meeting our financial obligations is essential for responsible business conduct and positive impact in the communities we’re part of. Our standardization and cost control, operational excellence, and continuous improvement will continue to fuel a lasting and profitable growth for our company and the shareholders. I truly believe that SNDL has what it takes to come out on top. And I’m very excited to be part of this team and contributing to its success. I will not pass the call to Tank to provide an update on the Liquor Retail results.

Tank Vander: Good morning, everyone. Thank you for joining today. Q2 2023 has been a positive quarter for SNDL. And I’m pleased to report the significant contributions of liquor retail to record revenue growth and increased gross margin. Through this quarter, our efforts have been focused on driving improvements and margin growth and the results reflect significant strides in achieving our strategic goals. SNDL’s Liquor Retail segment currently operates around 170 locations predominantly in Alberta under our three retail banners, Wide and Beyond, Liquor Depot and Ace Liquor. SNDL’s liquor banners market share in Alberta was approximately 18% in the second quarter of 2023. In Q2, we open one additional location under the Ace Liquor banner in Calgary, Alberta.

Net revenue for liquor retail sales for the three banners combined was $152 million for Q2 2023, an increase of 2.1% compared to Q2 of 2022 and 31% from Q1 of 2023. While Wine and Beyond is integral to driving our overall profit growth through its expansive selection and destination shopping approach. Our value and convenience banners, Ace Liquor and Liquor Depot continue to be the backbone of our operations, accounting for 76% of this quarter’s total revenue. Our convenience banners are well positioned to capitalize on transactional shoppers, which is a key driver in maintaining our total revenue growth and market share in the competitive liquor retail environment. For our combined liquor banners, the average annualized per store revenue is $3.6 million, which we believe to be well above industry average and emphasizes our diligent focus on tailored retail experiences and expansive best value product selection.

Same store sales increased 1.7% across all liquor banners with Liquor Depot and Ace Liquor seen 5.6% and 2.8% growth in same store sales increases respectively. While total customer spending remains stable. We are seeing an increase in customer count year-over-year with 2.3% increase from the same period in the year prior. Gross margin in Liquor Retail segment was $35.4 million or 23.3% of sales in Q2 2023 compared to $33.5 million or 22.6% of sales in Q2, 2022. After quarter end, we saw a record margin in July of 24.3%. We are exploring various strategies to increase total gross margin growth, including inventory controls, price optimization, agile procurement strategies and an increased focus on customer retention and engagement which we will be able to report more on in the upcoming quarters.

Improved inventory and procurement strategies are producing strong preliminary results. While we are focused on expanding margin opportunity, this is not at the expense of our value offerings. Beer and ready to drink beverage formats continue to be one of our largest customer drivers, and we remain competitive in place to drive velocity in these key categories. Volume continues to be tactically balanced with margin to ensure our offerings remain competitive and match the current economic climate and in line with consumer preferences. Preferred label sales increased 28% compared to the same period in the year prior and 22% compared to Q1 of 2023. We have added additional value offerings in our preferred label line to ensure we are meeting the very needs offer consumers and responding effectively to the current market conditions.

As part of our strategic objectives, SNDL aims to deploy key technology platforms and digital experiences to enhance our operations and customer engagement opportunities. As a result, I’m excited to announce that SNDL will launch an e-commerce platform for Wine and Beyond, which presents significant opportunities to drive credit revenues. It provides the company with a scalable and adaptable platform to expand our market presence, increase customer engagement and capitalize on the growing trend of online shopping for liquor and related products. The launch date is scheduled for third quarter of 2023. Through the second half of the year, we will continue to implement strategies that focus on margin growth and customer reach. We intend to maximize profitability and cash flow to the liquor segment.

And I anticipate reporting strong third and fourth quarters. I will now pass the call to Tyler Robson to expand on our Cannabis Operations segment.

Tyler Robson : Thank you, Tank. And good morning to everyone. Our Cannabis segment has demonstrated strong progress for the fiscal period driven by an enhanced focus on leveraging our vertical integration capabilities and expanding our own retail market share. Throughout the quarter, we have optimized our manufacturing, processing and cultivation activities and introduced new efficiencies in our supply chain to achieve significant cost savings. SNDL’s Cannabis platform is critical to our vertical integration strategy. The segment will continue to drive market share growth by increasing our top line revenue, improving costs and gross margin, optimizing our existing and future inventory. Our strategic initiatives in the Cannabis segment are producing strong preliminary results.

Our revenue for the quarter was $21 million, an 80% increase compared to Q2 2022 and a 9% increase compared to Q1 2023. Our margin growth continues to show solid signs of improvement. Gross margin was negative $1.2 million for the period, compared to negative $4.3 million in Q2 2022 and a negative $9.5 million in Q1 2023. The improved results showcase our focus on strengthening margins through increased product distribution and simplifying the Cannabis segments. In the first half of 2023, SNDL implemented aggressive cost cutting measures and improve manufacturing productivity. This key initiative involves right sizing cannabis cultivation in Olds, Alberta, do focus on producing premium products. We have also successfully consolidated most of the manufacturing activities to our Kelowna facilities.

Following the transition, the team has been diligently concentrating on increasing both cultivation yield and potency. We are seeing strong initial results as cultivation yields are approaching 100 grams per square foot at our Alberta facility. Additionally, our operation in Olds have achieved a substantial increase of nearly 30% in their cultivation yields compared to the previous quarter. Following the Valens acquisition, we conducted a thorough evaluation of our portfolio with a focus on higher margin brands and products. The evaluation was guided by SNDL’s vertical integration capabilities enabled us to make a data driven decision about our product portfolio. This initiative will help to enhance our overall market positioning and product offerings.

We have started to make some decisions on the portfolio and we will see the results in the back half of the year. Market share and owned retail continues to scale to the company’s vertical integration strategy. Driving increased owned retail share is a key focus for our company and a meaningful contributor to our overall margin and profit growth. In addition, SNDL partner with ColdHaus Direct in May of 2023 to manage the company’s in market sales and logistics execution for its branded cannabis product. ColdHaus supports the business with our distribution of non-owned retail across the country by focusing on expanding our innovation listings, driving our core assortment, education and engagement, and collecting competitive data and retail insights.

Despite the achievements we have seen this quarter, there are still untapped opportunities in certain regions, particularly in British Columbia and Quebec. We are actively exploring strategies to capitalize on these opportunities. We maintained our B2B segment and continue to provide products and services to most major Canadian licensed producers. We remain confident in our ability to drive revenue growth in this segment by leveraging our production and distribution capabilities. As noted in Q1 2023, we are exploring growth within the B2B partnerships internationally, we have been investing in process improvements and testing capabilities to meet the high standards of our global partners, and have acquired new strength to better fit their evolving demands.

We are excited about the potential for growth in this segment, and are committed to delivering high quality products and deliver long term mutually beneficial partners. The team’s efforts in the past few quarters are impressive, but we know there’s still a lot of work to be done to achieve profitability in the segment and further solidify our long term success. We are simplifying our segment and focusing on fundamentals and innovation. And our tactics are aimed at near term improvements to drive long term growth and profitability. The heavy lift of moving manufacturing to Kelowna and reducing our reliance on high cost cultivation did impact some of our results in Q2. But we are confident these decisions will produce strong outcomes in the coming quarters.

We remain agile and hyper focused on executing further optimizations in the cannabis segment, including margin expansion and continued revenue growth. Our team demonstrates discipline and a sharp emphasis on delivering exceptional customer value. We are focused on building long lasting industry relationships, while keeping the consumer experience top of mind. I look forward to celebrating more wins with the team and delivering long term shareholder value. Thank you. I will now pass the call back to Zach for closing remarks.

Zach George: I am proud of the milestones our team realized this past quarter. While knowing that there’s still much work to be done to reach your objective of free cash flow for the 2024 calendar year. We are determined to continue our upward trajectory and remain fully committed to driving profitability, shareholder value, and excellence in all aspects of our operations. I want to thank my colleagues for their relentless efforts on this challenging path and our stakeholders and commercial partners for their patience, trust and support. We look forward to updating you on our progress in the near future. Thank you.

Operator: [Operator Instructions] The first question comes from Frederico Gomes with ATB Capital Markets.

Frederico Gomes: Good morning. Thanks for taking my questions. Just my first question just on your liquor retail segment and the margins there. Just curious as you work through this initiative, you saw a good improvement this quarter. You mentioned that you reached record margins in July. So you expect that to sort of continue through Q3 and Q4? And then on the launch of the e-commerce for Wine and Beyond, what sort of things that would you expect it to have on the margin side as well. Thank you.

Zach George: Thanks, Fred, and good morning to you as well. I’ll pass the second part of that question to Tank to discuss e-commerce. But we are — so we are not giving forward guidance but your deduction is correct. And we are cautiously quite excited about the environment we’re in right now. Although there is certainly cross win that we are monitoring closely so we do expect over the intermediate term to be able to maintain and improve on this margin profile. Tank, you want to speak a bit about the launch of e- commerce and what that can mean for the business.

Tank Vander: Good morning, Fred. And we will be launching e-commerce this quarter. And the impact like we are in the environment where everything is going to online from everything retail is going online and we are hoping to capitalize on this as we see a huge to impact off skip on retail business, which would translate into definitely better margins and higher volumes on our Wine and Beyond side business

Frederico Gomes: Thank you, on your cannabis operations, I guess, the [inaudible] there continues to be sort of below the other segments. And I know you’re working on cost efficiencies. I’m just curious, just given the environment here in Canada with no LPs and being very fragmented still, how much of the profitability in that segment you think is within your control, and just relies on cost cutting and how much you would have to see in terms of changes in the macroenvironment to really to reach profitability in that segment? Thank you.

Zach George: Thanks Fred. I’ll have Tyler comment a bit more. But as we’ve said, historically, we are not waiting for someone to come save us in cannabis. And we’re building a model of focus on high quality, low cost production in key product segments. And what you’re seeing right now really is reflective of the transition that we’ve made, post the acquisition of Valens where we’ve moved and relocated Olds processing and manufacturing activities to Kelowna. So as we had guided to, we always expected to be quite messy. And you’ll see some of that noise in Q3 as well. But we believe that we are radically changing the cost structure to be more competitive in cannabis. Tyler, maybe you can provide some more color on our competitiveness?

Tyler Robson : Yes, happy to. But I think you hit the nail on the head, no one is coming to help. And we fully expected be able to be profitable in the current landscape of what we’re effectively trying to do. And I do think a lot of it is in our own control. At the end of the day, we’re all playing in the same environment. But we’ve done a lot of work. And there’s still more to do, but I fully expect to be profitable, as is. But yes, I think it’s all safe now.

Frederico Gomes: Thank you, Tyler. And then just last question here, just on your cash flow goal for 2024. Which segments would you say you expect to be the maybe the largest contributor to that cash flow goal, which one do you think it’s going to be more material?

Zach George: Sure, I think, Fred, when you look at the historical profile of our various segments, the answer on an operational cash flow basis is quite clear, in terms of the potential for liquor to be a very strong contributing segment. But we are focused on strong and positive cash flow from all of our segments in 2024. And when you combine that with leverage from a leaner and more effective shared services structure, what you’re seeing is the benefits of both growth and an aggressive approach on costs at the same time, which is very, very difficult to execute. But we’re actually managing to do that today.

Operator: The next question comes from Matt Bottomley with Canaccord Genuity.

Unidentified Analyst : Hi, this is Galen King on for Matt Bottomly. Thanks for the question. I just wanted to touch upon the cannabis segments and margins. Just a little more, in terms of your goal to generate positive free cash flow from all operating segments by 2024. So the cannabis cultivation segment generated negative gross margins this quarter, although showing substantial improvements from the last quarter, and understanding that the consolidation of the Olds, Alberta facility happened in the first half of the year. I just wanted to ask about if you guys have any additional cost saving measures that you have in place in order to make this goal achievable by fiscal ‘24. And what we could expect in terms of margin expansion under this segment going forward for the rest of the fiscal ‘23? Thanks.

Zach George: Sure, I think maybe the best way to answer this is, Tyler, can you just provide a little bit of color on supply chain initiatives and SKU rationalization that is improving the focus of our teams and margin profile for our operations?

Tyler Robson : Yes, happy to. So since I joined SNDL in January, we’ve effectively turned the cultivation facilities on their heads. And we’re seeing massive improvement in not only potency but yield. And I think with the kind of strategies that tend to get the fewer bigger, better with the SKU rationalization or I’ll call it a SKU optimization. We can go deeper. So as far as the cannabis segment, I think it’s about having the right footprint and then utilizing not only our low cost biomass procurement, really driving that premium segment out of Olds so I don’t think we’re going to get any forward guidance as to what’s going to come as far as margin. But we do expect margin to continue to improve as we optimize the entire portfolio. And now with basically, momentum we’re getting, I do see light at the end of the tunnel.

Operator: The next question comes from Pablo Zuanic with Zuanic and Associates.

Pablo Zuanic: Good morning, Zach. Congratulations on the plans with SunStream USA. I mean, can I ask two questions there? One, when it comes to SKYMINT and Parallel the way I understand that, based on what you said, is that you’re going to equitize your debt holdings, right. So what happens to the other debt holders there? I mean, both companies, I believe our other creditors, I suppose you have seniority. But if you’re going to give some more color there. And then the second question, which is related to this, Canopy USA, Canopy growth had to backtrack on their plans for the kind cannabis USA structure to comply with NASDAQ. Why do you think your case will be different, and NASDAQ will approve it? Thanks.

Zach George: Good morning, Pablo. And thank you for the questions. So I just want to be clear about the timing around expected disclosures here with regards to SKYMINT and Parallel. And this is not a punt, this is just a reality of what is certain right now what is known. They’re going through two very different processes. And so SKYMINT and mission, you’re seeing a receivership process which resulted in an auction which was completed, but for that transaction to occur. There’s a subsequent court date in early September, where a ruling is required. And so that transaction has not closed, there is no certainty until that court date. And with Parallel, you’ve got licenses in multiple states, and a much more complicated capital structure, which requires an agreement between stakeholders to get to a resolution in terms of the restructuring, and it’s expected to be taken through a foreclosure process.

So as to your question as to what is going to happen with other stakeholders, we are going to be able to provide a greater detail and clarity in terms of what the pro forma and go forward capital structures for those businesses will be. We do not have certainty at this time. And so we’re not going to be able to give you the detail, you’re looking and for and answer that question. As we mentioned, in the press release, we do expect to give more guidance in, within the quarter on these positions. And then as to the second part of your question, you’re referencing Canopy, I do not want to address and can’t because we’re, we don’t have knowledge of the conversations between Canopy and various regulators. So don’t want to go there. But what I would say is, what you’re seeing is a dynamic where one of the issues that’s being debated and looked at differently from various exchanges.

And you’re now seeing both [inaudible] look to uplift on the TSX, one of the hot button issues has been the consolidation of financials. And so that’s — that was clearly a public push that several entities, including Canopy we’re making. We’re not trying to draw battle lines around the consolidation of financials, we think that this will evolve over time, and we take our regulatory obligations very, very seriously. So we’re working with various regulators on a number of compliance structures to enable us to run the business and manage our exposures. And so we have a credit portfolio that’s owned through a joint venture called SunStream today, and it will change character as and when these credits are potentially equitized. But I wouldn’t compare our path necessarily to others.

There are a bunch of different I would say trailblazing activities going on here in different corners of the industry. And our path is slightly different

Pablo Zuanic: Thank you. That’s very good color. Look, and if I just on the retail side cannabis, so Nova, okay, the outside date has been extended. What color can you give in terms of the plans there? Like, at some points do you compare the franchisees to company owned stores under the Nova banner that would — that make sense in terms of capital allocation? And at what point once you own 100% to the entity do you spin it off to SNDL shareholders, just remind us of what the plans are there. Thank you.

Zach George : Sure, thanks, Pablo. So, we’ve gone over this in detail. And there’s also some materials available for investors on our website. But yes, you point out one avenue for growth, when you look at the mixed bag, sort of corporate and franchise model that we are managing. In certain cases, a franchise partner may have an interest in owning a stake in the broader business and not just having their equity exposure combined to their individual location and business. So that’s something at the margin that we’ll look at. We also have, as you’re aware, pulled a few retail licenses out of [inaudible] with very small banners that will likely be converted over time. And so we do believe that having a focus on a small number of banners is the right way to go in terms of how we’re going to allocate resources and focus on building brands.

But we’re also seeing a number of both distressed individual and portfolio sales in the marketplace that we’ll be looking for, while being very disciplined in terms of the cost of capital that both SDNL and Nova are seeing in the market today, which is — which would make those transactions quite difficult.

Pablo Zuanic: Thank you. And one very last one in the press release, there is something about, I am reading here prioritizing the opportunity to return capital to our shareholders. I mean, are you talking about some large one time dividend that could be paid back to shareholders or share buybacks as a way to just inclusively improve the localization here? Thank you.

Zach George: Yes, so Pablo, if you trace back our capital raising activities, this company was able to raise equity capital in real size, at some point is an evaluation of its highest 15x revenue. As you can see, today, we’re trading at roughly a 0.5x revenue. So when we look at our capital exposure, we’re looking at all means of driving accretion for the business. And so some of that could come through organic or acquisitive growth. But also, we view our equity as far too cheap at these levels. And so we’d look to potentially return capital through the repurchase of equity over time. We’re also in connects with your last question, anticipating potential to dividend Nova equity to SNDL holders as well, which we’ve mentioned. But we are still waiting to resolve this process with final regulator and get approval for our transaction

Operator: The next question comes from Andrew Partheniou with Stifel.

Andrew Partheniou: Hi, good morning. Thanks for taking my question. Maybe just starting off at perhaps a little bit more of a high level here, you’ve got an interesting perspective on the consumer given your cannabis and liquor retail businesses. Could you talk about any trends that you’re seeing from the consumers perspective, I think you mentioned a little bit in the prepared remarks about some pressure. But it does seem interesting that Liquor Depot and Ace Liquor are seeing some pretty good same store sales growth. While your preferred label liquor sales are also picking up steam.

Zach George: Yes, so what I would say and that you’re seeing is not just in Canada, not just the Canadian cannabis, but also in several markets in the US. But as these markets mature, and given the current point in the cycle that we’re at, with the consumer facing a number of headwinds, we are seeing back size under some modest pressure, I would say, we’ve seen a decline in the low single digits. But we’ve also seen an increase in frequency from our core consumer. So you’re seeing the number of trips increase in individual purchases for those trips decreased modestly. And I’ll let Tank speak to some of the dynamics we’re seeing across our banners and product mix in liquor, which is very interesting.

Tank Vander: Thanks Zach. There’s — on the improvement on our convenient side of the business is what we are seeing lately is consumers are now back to off-premise, again, just because of high cost of inflation and whatnot. And what we are focusing on our private label is we are committed to provide more value products in our private label offerings so that we can help consumers out in this higher inflationary environment. But overall, the trend we’re seeing is there’s still a lot of premiumization in urban centers, but more emphasis on value in our rural markets. Thank you.

Andrew Partheniou: Thanks for that. And just a follow up to that. Could you remind us what kind of margin profile does your preferred label have on the liquor segments? And how can that look going forward?

Tank Vander: So our margin profile is comparatively higher than, on the private label than our overall margins, just because we carefully choose our partners and products from various parts of the world, to bring them in and still be competitive, compared to national brands. But the margins vary based on product and not going to elaborate too much on individual products there.

Andrew Partheniou: No problem, thanks for that. Maybe switching over to the cannabis segments here, you have an interesting vertical integration strategy that’s maybe a bit unique in Canada. Could you talk about where you are in the process? And how much of your shelf space is SNDL products and what kind of targets or timing if there’s any kind of color that you can share that could be helpful? Thanks.

Zach George: Yes, Andrew, having to talk about vertical integration and some of our products success, we’re not going to be giving guidance for regular quotes on share of shelves in own retail, it is an evolving situation. And what I can say is that if you think about the timeline here, the Alcanna acquisition closed in at the end of March of 2022. And at that time, in the Value Buds network, for example, SNDL had virtually nil representation in terms of share of shelf, and today hold the material position. But we’re also trying to be a partner to this industry more managed of opportunities, including co-manufacturing, where our ship — our shelf space based on branded products may be different from what a total picture would look like when you look at some of the work we’re doing for other LPs and building great products for consumers.

And we also look at our broader distribution beyond just our own demand as retail. And so we’re going to be careful as this segment is growing. And we locked down this structure, we’re still finalizing our shared services, infrastructure, for example, to give too much granular detail in terms of shelf space right now.

Andrew Partheniou: All right, and maybe moving over to cost savings. You achieved $18 million of run rate cost savings since Valens closed in January and targeting over $30 million. Maybe a few questions around this as much as you’re able to share here is that is that $18 million, fully realized in Q2? How much of that is comprised in cannabis operations SG&A versus COGS or corporate costs? And what kind — what does that breakdown look like across those three buckets for the remaining cost savings? Thanks.

Zach George: Yes, Andrew, it’s a great question. We can tell you absolutely that $18 million run rate was achieved through both partially through Q1 that was in the mid-January close to the transaction, and then Q2, and it’ll, our work will continue into 2024. We are working through a transition which does not fit cleanly into individual quarters, as you’re well aware. And so we’re still wrestling with some of the fixed costs of our total operational footprint, we reduce variable costs significantly with Tyler’s leadership, but still need to make some key decisions and take action to eliminate some of that fixed cost. And then you’re looking at a transition where inventory levels are declining at a decent clip. So we have a ton of biomass and their product on hand that we’re trying to move to improve our working capital position while simultaneously reducing our cultivation activity to a much smaller footprint and taking advantage of procurement.

So it’s one thing to compare prices in the market for flour procurement, for example, versus our legacy costs per gram in our own cultivation facilities. But we’re — there’s too many moving variables to give you great detail on that right now. But we do expect material benefit and improvement in COGS. And I would say that the cost initiatives that we’re quoting are a direct result of a very detailed plan that was brought together, both with our internal team and an outside consultant, specifically with rationalizing our cannabis operations business. And so there are implications for cannabis retail and certainly for our corporate structure. But we’re predominantly trying to right size the business and take advantage of the innovation and product development and engineering that balance is capable of while also moving away from higher costs cultivation, which is really what our position was when we were solely working with the facility at Olds given the volatility, we’ve seen in Alberta power prices.

Andrew Partheniou: Thanks for that color, and maybe just one last one for me, kind of following on something that you mentioned in this last question, and just on the inventory. Realizing that you might want — you might not want to go into too much detail, but just wondering if you can give any update on how that monetizing of the biomass that you’ve acquired, how’s that going? And just kind of what we should be expecting going forward. Given there’s lots of puts and takes in your inventory line so hard to parse through a one line item that’s on the balance sheet, but any additional colors you can provide is useful. Thanks.

Zach George: Yes, so we can I think we’re going to be able to provide a lot more clarity — you get down to dollars in Q3, but this is an ongoing process right now. I would just remind you that one of the interesting elements of the positions that the balance team had prior to this acquisition was one of the largest procurers and consumers of biomass in the country. And so that puts us in a great position where Tyler and his team have really good visibility and the ability to discover price in really all levels in terms of quality and quantity in the country. So that enables us to really move quickly and decisively when it comes to monetizing inventory. And so I would say that things are going well, still some work to do, but it’s in progress. And we have a pretty tight focus on what we think our realized outcomes are going to be.

Operator: This concludes the question-and- answer session. I would like to turn the conference back over to Zach George for any closing remarks.

Zach George: I’d like to thank everyone for joining the call today. And we look forward to updating you in the near future. Thank you very much.

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