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spk04: This milestone is a testament to the dedication of our team in driving positive change and the resilience and adaptability of our business segments. We are building the foundation of an important regulated product company with international potential that does not have a close peer in Canada. We are finding attractive opportunities for operational improvement in an industry where capital is scarce and many competitors are starved for liquidity amidst price compression, driven by persistent oversupply and over-licensing. Our goals are a far climb from where we stand today. We still have a lot of work to do, but we are making tremendous progress against a challenging macro backdrop. Although much of our regulated product business has shown recession resistance, we take nothing for granted given the likely duration of the current rate environment and are aggressively seeking efficiencies to improve profitability. S&DL has equipped itself with the flexibility to navigate market uncertainties and preserve our growth trajectory. Our platform structure creates strategic optionality, and our debt-free balance sheet helps us focus on delighting consumers without the burden of material cash interest obligations. Tank will provide further color on the liquor retail segment, but I wanted to highlight some key initiatives that we have recently undertaken. We recently finalized the structure of our liquor retail data program, and we expect to see results in the first quarter of 2024. Its launch is expected to strengthen our supplier partnerships, enhance revenue, and contribute to margin expansion within our liquor retail segment. In the third quarter of 2023, S&DL's cannabis retail segment demonstrated substantial growth and operational progress. Net revenue saw a 14% increase compared to Q3 2022, marking a record for the segment since the company's diversification into cannabis retail in 2021. Enhancements to our proprietary data licensing program significantly contributed to this success, with revenues climbing to $4 million in the third quarter, a significant increase over the previous year's $1.4 million, and up 50% from the preceding quarter. We are committed to refining our cannabis retail operations, enhancing partnerships, and delivering superior products to consumers. This strategy includes expansion into markets where our presence is currently limited to reinforce S&DL's position as a leading cannabis retailer in Canada. We've taken significant strides in our cannabis operations segment to streamline operations and reduce costs. The rationalization of our facility footprint and procurement processes sets the stage for significant financial improvements and further demonstrates our commitment to operational excellence. Our President, Tyler, will provide further details on our cannabis operations shortly. As of the end of Q3 2023, S&DL's financial position in Canadian dollars included $785 million in unrestricted cash, marketable securities, and long-term investments. Our robust liquidity profile stands in contrast to our current market capitalization of approximately $500 million, a figure that we believe does not fully reflect the intrinsic value of our enterprise. Said another way, the market is currently ascribing a materially negative value to our expanding operating segments. These segments are positioned with the potential to yield more than $1 billion in annual revenue underscoring our perspective that S&DL remains undervalued in the marketplace. In a climate where managing costs is more crucial than ever, our ability to streamline our investment portfolio by divesting of equity securities and certain credit exposures is integral to our strategy. As of the close of Q3 2023, S&DL had deployed capital into credit investments with a carrying value of $583.2 million. The lion's share of this value, approximately $550.5 million, has been committed to the Sunstream Bancorp joint venture. Sunstream is a joint venture sponsored by S&DL and has directed the formation of Sunstream USA with the aim of restructuring certain Sunstream-controlled loans. This development is poised to create a dedicated U.S. platform designed to attract independent third-party investors offering independent management and governance. Most importantly, the structure of Sunstream USA is set to undergo review by NASDAQ, aligning with all US compliance and governance standards. Since acquiring Valens in January of 2023, the company has realized approximately $22 million in annualized savings, exceeding our initial target of 10 million. In 2023 alone, we achieved cost savings of approximately $18 million. These savings have largely been driven by reduction in SG&A expenses, supply chain consolidation, and enhanced operational efficiencies. Looking ahead to 2024, we anticipate that run rate synergies will surpass $40 million annually, with expected proceeds from asset sales potentially contributing more than $9 million in additional cash proceeds. Investors may not realize that as we start 2024, None of the assets that S&DL held just over three years ago following its deep financial restructuring and flirtation with CCAA will be in operation. S&DL's leadership has driven a 100% complete transformation of a business that continues to evolve and change. This is not the team to underestimate. S&DL's performance metrics from the third quarter provide a clear affirmation of our strategy. Our confidence is increasing. and we are building a culture focused on accountability and performance. Our commitment to the consistent delivery of well-priced, high-quality products and superior retail experiences has never been stronger. We are excited to continue to update investors on our performance as we work to deliver strong, fundamental, unadjusted results. Once again, I thank you for your continued support of SMDL. I will pass the call to Alberto to provide further details on our financial results.
spk07: Thank you, Zach. I want 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-GAAP and non-IFRS measures. For definitions of these measures, please refer to S&DL's Management Discussion and Analysis document. As we dive into our financials, it is great to report that for the first time in our history, we have reached positive free cash flow in the quarter. To be precise, in Q3 2023, we achieved 16.5 million of positive free cash flow, compared to negative 67.1 million in Q3 2022. Our cash flow from operations grew 27.5 million in Q3 2023. up from 8.6 million in Q3 2022. Achieving this cash flow milestone is a clear indicator of our operational improvement and reinforces the focus on our strategic initiatives as a path to deliver on much higher ambition in the future. Our unrestricted cash balance tells a similar story of growth, from 185.5 million at June 30, 2023, to 202 million at September 30, 2023. This increase speaks volumes about our targeted efforts to optimize operational efficiency, particularly working capital. Revenue growth remains steady, registering at $237.6 million for this quarter, a 3.1% increase from Q3 2022. Our reported gross margin reveals a slight decrease to $48.6 million in Q3 2023, down 3.4% from the same period last year. While we're seeing operational improvements, the reported growth margin has been impacted this last quarter by non-cast inventory impairment charges, to a large extent triggered by our efforts to simplify our portfolio and operations. For perspective, if we were to exclude the impact of inventory impairments and obsolescence charges in Q3 2023 and Q3 2022, our growth margin will have grown over 20% year-on-year. In terms of adjusted EBITDA, we achieved $16.1 million for the quarter, slightly down from the Q3 2022 results of $18.3 million. A better growth profit in 2023 has been offset by higher sales and marketing and G&A expenses in 2023 and higher investment segment income in 2022. I will let Tange and Tyler provide more details on the Q3 23 results for the liquor retail and cannabis operation segments, but I would like to comment about the results for our cannabis retail segment. Revenues for the segment have reached 75.5 million, which is 14.1% growth from Q3 2022. This record high revenue for the cannabis retail segment was supported by a healthy increase in same-store sales of 3.9% year-over-year across all banners, as well as opening of new stores. Growth marketing reached $20 million in Q3 2023, a 38% growth versus the same period last year. As a percentage of net revenue, gross margin expanded from 21.9% in Q3 2022 to 26.5% in Q3 2023, an improvement of 4.6 percentage points driven by continuous efficiency improvements and expansion of our proprietary data licensing program. This data program delivered revenue for the third quarter of 2023 of $4 million, compared to $1.4 million in the third quarter of 2022. This represents an increase of 54% versus the second quarter of 2023, showcasing the success of the programs optimization introduced earlier in the year. Finally, looking at our investments and equity positions in Q3 2023. At the end of the third quarter of 2023, the company had deployed capital into cannabis-related credit investments with a carrying value of $583 million. including 550.5 million through the Sunstream joint venture. The revenue generated by our investment portfolio in the third quarter stands at 10 million. This is mainly attributed to interest and fee revenues of 3.3 million, in addition to a 6.6 million increase in the estimated fair value of our U.S. credit investments. The company's financial health is a struggle. supported by $785 million in unrestricted cash, marketable securities, and investments, leading to a net book value of $1.3 billion. It is also important to highlight that we have not raised any cash through share offerings since June 2021, and to date, the company has no debt. SMDL's Board of Directors approved extending the company's share reportage program to November 20, 2024. The company's share repurchase programs continue to be available to lower our outstanding share flow. Management will continue to assess opportunities to utilize the program to the extent we believe it is in the best interest of our shareholders. For the three months ended September 30, 2023, the company did not purchase common shares for cancellation. We also remain deeply committed to regulatory diligence and compliance. Our dedication to paying excise taxes on time reflects our strong focus on responsible business practices. So far this year, we have already paid $35.6 million in excise taxes. Since the company's inception, we have paid a total of $80 million. Even though these high taxation levels create obvious challenges in the cannabis sector, we believe that meeting our financial obligations is essential for responsible business conduct and positive impact in communities we are part of. In summary, our results this quarter represent another solid step towards the execution of our business strategy, our culture of financial rigor and continuous improvement, as well as the relentless passion and dedication of our nearly 3,000 employees. While we're pleased with the progress we have made, we're setting our target on much bigger goals, as we're working on several initiatives to generate additional growth, further solidify our operational efficiency, and improve our financial rigor. I'm confident that through these initiatives and the determination of our organization, our future is bright. I will now pass the call to Tank to provide an update on our liquor retail results. Thank you, Alberto.
spk06: Our liquor retail results this quarter reflect our successful margin growth initiatives, which are not only delivering their intended results, but also guiding our strategy for future innovations and expansions. Our retail footprint remains stable with 170 locations primarily in Alberta and one store in British Columbia. Same store sales have remained steady year over year across all liquor banners. We are in the process of finalizing a new Wine and Beyond store in Airdrie, Alberta, which is located in one of Alberta's fastest growing municipalities. This new store is projected to generate approximately $7.6 million in analyzed sales in the first year, emphasizing the success of the Banner's destination shopping approach. It is scheduled to open in the first quarter of 2024. Despite economic headwinds, our quarterly revenues stood strong at $152 million with stable basket value and customer count, despite a downturn in national retail spending. In response to consumer spending trends and macroeconomic factors, we continue to optimize our operations to ensure we are meeting the needs of our customers by prioritizing value, quality, and digital experiences. This approach has not only maintained our stability, but also driven growth in key metrics, which is reflected in our year-over-year and sequential margin growth. Our gross margin reached 37.3 million, representing 24.5% of our sales in Q3 2023. This is a meaningful improvement compared to Q3 2022, where gross margin was 35.6 million, or 23.3% of sales. The 4.8% gross margin growth is mainly driven by procurement productivity product mix management initiatives, and the success of our private label program. Private label sales, a significant driver of gross margin growth, increased 33% compared to Q3 2022 and 7% sequentially. Private label as a percentage of sales increased from 7.3% of sales to 9.7% from the comparative period in the year prior. representing growth of over 3.5 million. To further capitalize on the success of our private label program, we are currently developing a private label for wine with plans to launch in the first quarter of 2024. Our private label will feature various wine varietals from different regions, showcasing notable winemakers at accessible prices. This initiative is designed to build on our margin growth strategies and continue to drive differentiation through SNDL's liquor retail banners. Looking to new initiatives, we are pleased to announce we have built out the framework for our proprietary data licensing program. We anticipate reporting initial revenue in Q1 2024 and scaling this program through the upcoming year. This will not only support all our stakeholders, but also boost our efforts to increase profits. In September, SNDL launched an e-commerce platform for its liquor retail banner, Wine and Beyond. The company observed 121% increase in the average online basket spent compared to in-store purchases during the initial four weeks post-launch. highlighting the significant past and growth opportunity through e-commerce. The current site supports click and collect. However, we are currently looking into different options to enhance customer conversion and accessibility. We anticipate strong results in the seasonally busy Q4 and look forward to observing how the e-commerce platform further drives sales during this key period. We remain committed to achieving continuous and incremental growth throughout 2023. Our focus remains on expanding our customer reach and exceptional product offerings to ensure we created tailored in-store and digital experiences. Thank you, and I will now turn the call over to Tyler to cover our cannabis operations segment.
spk05: Thank you, Cank. In Q3, we have implemented significant strategic initiatives to strengthen our cannabis segment. This included the centralization of all production, manufacturing, processing and testing activities to Kelowna. Following the quarter's end, we saw the streamlining of all cultivation activities at our facility in Athaville, New Brunswick. We have also completed the bulk of our portfolio rationalization to focus on top performing SKUs and make way for innovation, including 41 new offerings this past quarter. These pivotal maneuvers solidify our position to drive top-line growth and set us on the course to achieve profitability within cannabis operation segments. This quarter, our cannabis segment generated $21 million in net revenue, marking a healthy 77% increase from the same period in 2022. This substantial growth is primarily attributed to the acquisition of balance. Gross margin for the quarter was negative $8.7 million compared to $0.2 million in the third quarter of 2022, largely due to inventory impairment associated with the company's strategic changes at all. This quarter's outcome reflects the impact of our facility footprint reorganization causing material constraints in our adult recreation segment. This was a transitional phase essential for operational and financial efficiency. These vital steps laid the groundwork to achieve positive cash flow and expand margins in the cannabis segment. I'm happy to report the majority of these constraints are now behind us. SNDL expects by optimizing its facility footprint to result in over $10 million in annual savings from its cannabis operations segment through reduced fixed overhead, power costs, and labour efficiency. Moving our cultivation to Appleville has cut our production costs per gram by nearly 80% compared to the old facility, which will materially increase our margin moving forward. The team at AlphaVault has also made immense improvements in both yield and average THC, which we expect to continue those improvements through 2024. With our facility reorganization in place, we are prepared to scale capacity and drive stability in key categories to increase total revenue in forthcoming quarters. Following this heavy lift, we can better focus on product growth. Looking to product innovation. In Q3, S&DL optimized its brand portfolio by streamlining nearly 50% of its total offerings across all brands. This tactical move enables us to be hyper-focused on high-performing SKUs, key consumer categories, and meeting market innovations, focusing on depth versus breadth. The primary goal of the portfolio rationalization is to enhance revenue and margin growth, elevating the profitability of the cannabis operations segment and capturing increased market share. Through a rigorous tightening of our demand planning processes and a substantial increase in production capacity in the coming quarters, we are well positioned to fully leverage our vertical integration platform. Finally, to provide an update on our international and B2B opportunities. Our B2B segment is healthy. We are already exceeding our targets for Q4. We are focused on a fewer, bigger, better approach for our B2B partnerships to ensure we deliver exceptional and consistent quality to our partners. This refined focus empowers us to scale with our most reliable partners while not compromising total outcomes. We are committed to expanding internationally, looking to emerging markets like the UK and Germany, where we see growth opportunities potentially matching or exceeding our domestic B2B opportunities. We are confident that the decisive strategic measures we have implemented will firmly establish our cannabis segment for growth and sustained profitability in the quarter's head. Our streamlined operations in tandem with our robust production capabilities, deep consumer insights, and cost-effective operating platform place SNDL in a strong position to realize our objectives in 2024 and beyond. I will now pass the call back to Zach for closing remarks.
spk04: Reflecting on the past quarter, I want to acknowledge the dedication and effort of my colleagues that has been essential to our progress. We know that considerable work lies ahead as we strive towards realizing sustainable free cash flow and increase shareholder value. Our strong balance sheet and improved operations set us apart in a competitive market, enabling S&DL to focus on long-term strategic growth rather than short-term fixes or aspirational claims. I want to thank our team for their commitment and our shareholders for their trust and support. Thank you.
spk02: We will now begin the analyst question and answer session. To join the question queue, you may press star then 1 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 then 2. We will pause for a moment as callers join the queue. Our first question comes from Frederico Gomez of ATB Capital Markets. Please go ahead.
spk01: Good morning. Thank you for taking my questions. Congrats on the free cash flow generation this quarter. My first question is on your liquor retail segment. So obviously very strong margins in the segment this quarter. And you mentioned sales mix, procurement, the private label program. I'm curious, do you think you have a lot of material i guess efficiency to be achieved from those uh three areas uh going forward you know that could support even higher margins um and then to that point as well on the data licensing program that you're launching next year um what impact could that have in those margins going forward just taking as a base your cannabis retail segment and you know that that seems very substantial so Just curious on the magnitude of that data licensing program for liquor retail. Thank you.
spk04: Good morning, Fred, and thanks for the question. We are really heads down right now in the midst of our 2024 budgeting process. So we're not going to give too much detail on guidance for individual programs. But I would say that when it comes to the liquor segment, we are seeking margin improvement north of 100 basis points. And we'll be able to get more granular on that as we finalize our process and have our 2024 budgets approved by a board.
spk01: Perfect. Thank you. Looking at your, I guess, your U.S. investments and exposure and just thinking about how, you know, have that news about the potential rescheduling of cannabis. So just curious, how does that impact your strategy in that market? Does it change your thesis and your willingness to allocate more capital there?
spk04: That's a great question. In terms of the impact of rescheduling, it will have a material impact on the free cash flow being generated by those entities. But in terms of our willingness to deploy more capital, we've got a lot on our plate right now and we're really focused on ensuring that we're bringing efficiencies and optimizing current operations. We're also cognizant of the cash on our balance sheet, so I would never say never, but we have a lot of work to do in terms of what's on our plate today.
spk01: Thank you. And then finally, just the last one for me. The centering with USA structure, is that already being under review by the NASDAQ, or how long do you think that process could take? And then meanwhile, while that's not complete, Does that have any impact on your day-to-day operations, you know, of the parallel and sky linked assets?
spk04: So all of my comments here are going to be subject to review and support by NASDAQ. We've stated publicly that we expect both of these transactions, while the restructuring terms have been completed, there are still a few minor conditions precedent and both license transfer and exchange approvals that are required. So we believe that we'll be able to bring this to resolution sometime in Q1. And we don't expect that process to have any material negative impact in terms of day-to-day operations. Both businesses are being transformed currently, and a lot of progress has been made to improve their operations.
spk01: Thank you very much. I'll call back in the queue. Thanks.
spk02: Our next question comes from Yu-Wan Kang of Canaccord Genuity. Please go ahead.
spk03: Hi, good morning. Thanks for the question. This is Yu-Wan Kang on behalf of Matt Bottomley. I wanted to ask about the $11 million charge under corporate operations under consolidated net revenues. Could you provide more color or granularity behind what was in relation to that $11 million charge in terms of which business operations it was related to and what specific events happened throughout the quarter that led to this? Thanks.
spk04: Alberto, do you want to take this one?
spk07: Yeah, absolutely. Thank you for the question, Dale. So actually, the chart is related to the revenue that we have in our cannabis operations and our cannabis retail, where there is an overlap between the two of them. We just noticed as we were stepping into the third quarter that the size of those revenues increased. being produced in cannabis operations that end up being as well sold in our retail business after they go through the provincial boards was gaining size as well as expanding our business. And as we reached a certain level of materiality, we decided to start eliminating that intercompany, we could call it intercompany, double count of revenue. So this is the first quarter that we're doing that entry. We will continue doing it going forward. And we have provided as well in our financial statements a table that shows by how much would be the amounts that we have adjusted as well for Q1 and Q2 of this year. And as I said, it's purely related to the volumes and the revenue that goes through our cannabis operations segments. that end up being as well sold through our cannabis retail segment after they go through the boards.
spk03: Got it. Thank you. And just to add on to that, same under cannabis operations segment, and it's specifically related to the asset rising initiatives and other operational efficiency initiatives that you guys have been implementing there. Gross margins seem to be continuing to remain in the negative territory up until Q3, But with now all of these initiatives kind of being completed, could we expect these margins to show improvement going forward in Q4 and into 2024?
spk04: Yeah, so you're still seeing the impact of biomass revaluations. And with the rationalization of our cultivation and processing footprint, we're expecting to be in a position to have those reduced materially if not eliminated in 2024. And so we'll still likely see some noise impacts our Q4 results, but we're trying to leave as much of that noise behind in 2023 and are looking forward to presenting a much cleaner view on operations in 2024. Thank you.
spk02: Once again, if you have a question, please press star, then one. Our next question comes from Pablo Zuenick of Zuenick and Associates. Please go ahead.
spk00: Thank you. Good morning, everyone. Just first on the liquor segment, Zach, when you look at, you know, some of your Canadian LP peers, one of them has been very acquisitive in the U.S., right, in terms of buying beer brands and liquor assets. As you continue to build the liquor business, I understand right now it's retail, but now you're going to start producing your own wines, it seems, or buying, I suppose, for the private label. Would buying beer brands or wine brands outside of Canada or in Canada be part of a strategy as you grow that business?
spk04: Good morning, Pablo, and thanks for the question. Look, it's a possibility if we were outside of Canada, given Tidehouse and other regulations that would restrict us from doing so inside of Canada. But we're very focused on owning the consumer and creating strong retail experiences. And so there's nothing on our plate today that would suggest that we're taking a hard look at acquiring liquor brands in the U.S. or abroad.
spk00: Okay, thank you. And then just moving on to cannabis operations, right? You're talking about becoming a major player. Obviously, you have the balance sheet to do so. I don't know if you want to give an update in the need to scale up there via M&A. I couldn't tell from the filings whether you still own the stake in Village Farms. But, you know, outside of VFF, I mean, it just seems to me that you need to scale up, especially if you're talking about trying to become a relevant player in international. Any comments on that?
spk04: Yeah, it's a great question. I think the long-term requirements for SMDL in terms of ownership or contracting to acquire quality reasonably priced biomass is still somewhat up in the air. You see a lot of volatility in the Canadian market. Price compression has made procurement a very attractive opportunity for us. We're certainly committed to eliminating any exposure to high-cost cultivation and may look at other opportunities. We have disclosed that we've exited all of our material equity investments, but we will continue to look at strong, low-cost, high-quality producers for potential opportunities in the future.
spk00: Got it. Thank you. And then just one last one in terms of Sandstream USA. If I hear right, I think you mentioned that Sunstream is sponsored by S&DL, but I mean, obviously S&DL still owns 50% of Sunstream, right? So the question would be, I guess, of the 550.5 million, how many are in assets that you're taking ownership of, right? It's parallel in Skymin, but not all of the portfolio you are equitizing, I suppose. And if you can give some color there, that would be helpful in terms of 550.5. But more important than that, if in the end, you know, when we look at, you know, how Canopy Growth has gone back and forth in terms of their own plans for Canopy USA, if in the end you hit a wall in terms of trying to be NASDAQ listed, equitizing those assets and having them in your books, would you consider just selling them to comply with the NASDAQ rules? Thank you.
spk04: Thanks, Pablo. Obviously, we're we're all working through an environment that is not a seller's market. Okay, so let's just start with that, regardless of the scenario. But in this case, we are highly confident we have very reputable counsel that has worked on these issues with NASDAQ and sought and received approval under similar structures. I just want to remind you and the audience that our Sunstream joint venture is structured such that S&DL, as required, does not engage in any plant-touching activities in the United States, and we are a non-control participant in Sunstream. So think of it as a conventional sort of GPLP, general partner, limited partner arrangement, where both SAF and S&DL are owners of the general partnership. but S&DL is the sole LP in that scenario. And so, we report based on a structure that would be similar to any alternative credit portfolio that you would see in the marketplace. And for that reason, we haven't broken out a ton of detail on individual positions. If you look at the filings that are available in the U.S., you'll see that of that total balance, Again, has also been adjusted for the fair market value where we have written it down. Over half of that balance would be dedicated to positions that are going through requisition processes. And as you aptly point out, we will likely see resolution in the other cases where we have large principal balances that should be coming back to us over the next 24 months. Some of these things are amortizing principal back to us today. So that will be a source of cash for us in the future. And we don't see a scenario where we aren't able to get this done. I would just point to some of the differences between your reference to Canopy. The types of businesses that Canopy is acquiring is very different than the exposure that we have, right? So if you take Diamond and Parallel, for example, these are two businesses One's an SSO, one's an MSO. Both started their lives as vertically integrated operators. So not the same as tackling a product brand or producer in vape or edible categories, which has been a focus for Canopy as well. So the path is one that has been well trodden, and we believe that we will have all the requisite support and consents from regulators, and that would include our exchange, NASDAQ. So again, look forward to wrapping this up and closing in Q1, but we still have some wood to chop and a few more steps to take to close these transactions and finalize support from the NASDAQ.
spk00: Thank you. That's very helpful. Good call there. If I may, I'm going to add one in terms of NOVA. I mean, the outside aid keeps on being extended, but obviously that's more a regulatory issue. I mean, the parties have agreed to do the deal, right? But is this more about, you know, you being plant touching in Canada and now, you know, owning a retail chain? Is that the issue? And how are you going to deal with that? That's the last one. Thank you.
spk04: Pablo, it's a great question. Look, in terms of both parties, our tolerance for further delays is reaching its limits. Anyone who studies this industry or operates within it understands just how frustrating the state-by-state and province-by-province sort of regulatory ground game can be. So we're not going to make additional comments at this time, but we are looking forward to updating investors in the near future.
spk00: Thank you.
spk02: This concludes the question and answer session. I would like to turn the conference back over to Zach George for any closing remarks.
spk04: Thanks to all for attending our third quarter conference call. Look forward to updating you in the future. Thanks.
spk02: This concludes today's conference call. You may disconnect your lines. Thank you for participating and have a pleasant day.
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