SNDL Inc

F:VY4

Earnings Call Analysis

SNDL Records Growth, Expands U.S. Cannabis Exposure

For SNDL, 2023 was a breakthrough year, boasting record revenues of $909 million, a 28% increase, and gross profits of $190 million, a jump of 36%. They exited high-cost cultivation for cost-saving procurement and integrated Valens to achieve $22 million in annual cost savings. SNDL diversified with both liquor and cannabis retail, preparing for increased efficiency and expansion into B2B and international markets in 2024. U.S. cannabis investment through Sunstream Bancorp is notable, with SNDL being the lone Canadian producer with this level of U.S. exposure. A debt-free $767 million cash position starkly contrasts a market cap of approx $530 million. Q4 showed a 3% (8% adjusted) revenue growth to $249 million and the second consecutive quarter of positive free cash flow.

Solidifying Market Position with Consistent Revenue Growth

In a year marked by schisms and shifts, a company has spearheaded its way to a commendable 3% uptick in net quarterly revenue, clocking in at $249 million. While this increment mirrors modesty at first glance, a deeper delve reveals an adjusted climb of 8%, excluding a recent accounting amendment. The company's fiscal finesse shines through in its gross profit, which for the quarter, towered to a new zenith of $57 million or 23% of sales—a noteworthy leap from the preceding year's $44 million and articulate testament to the effectiveness of its supply chain enhancement endeavors.

Year-Over-Year Triumphs: Historic Revenue and Gross Profits

The annual panorama depicts a series of fiscal victories, with net revenue soaring to an all-time high of $909 million—an impressive 28% enhancement over the previous year's $712 million. Gross profit didn't lag, registering at $190 million or 21% of sales, and eclipsing the prior year by 36%. These historic highs are emblematic of the pivotal strides made in cost management and operational efficiency.

Cash Flow Positive: A Testament to Financial Health

A pivotal financial milestone was the fruition of positive free cash flow in the latter half of the year, amassing to $17.7 million. This buoyancy reflects a profound turnaround from a negative cash flow and showcases the company's adeptness in nurturing growth while prudently managing capital.

Striving for Profitablity: Operating Income and EBITDA Improvements

Despite an operating income loss, which includes substantial restructuring and asset impairment charges, there's a silver lining—a 53% improvement over the previous year's loss. Complementing this ray of hope is an adjusted EBITDA that witnessed a paradigm shift to a $29 million profit from a previous loss, underscoring the company's unwavering pursuit of operational excellence and streamlined processes.

Cannabis Retail Segment: Accelerating Revenue and Expanding Margins

The cannabis retail segment painted a flourishing picture with a 10% surge in net quarterly revenue and a 2% increase in same-store sales. The yearly view is even more dazzling, with a 41% revenue explosion and gross profit soaring by an astonishing 56%, mirroring the success of margin expansion initiatives.

Investments and Equity: A Robust Portfolio Demonstrating Vast Improvement

A sagacious deployment of capital into credit investments, to the tune of $572 million, and a strategic equity position in the SunStream joint venture have culminated in a lucrative operating income. This prudent financial positioning is further bolstered by a hearty $766 million in unrestricted cash and investments, shining a light on the company's robust balance sheet, devoid of debt, and its laser focus on shareholder value.

Liquor Retail Segment: Sustained Stability and Margin Expansion

SNDL's liquor retail segment has cemented itself as a dependable source of revenue with a significant 25% year-over-year growth. The segment's gross profit too has kept pace, elevating by 29%, thanks to an unwavering commitment to expanding private label offerings and ensuring a customer-centric approach to sales.

Embracing Change: Diversified Growth and Digital Expansion

By transitioning from traditional retail models towards digital and e-commerce strategies, the company is not only setting the stage for substantial cost savings but also carving out new, engaging ways to cater to a contemporary consumer base. This pivot towards modernization is strategic and indicative of the company's agility in adapting to the changing retail landscape.

Cannabis Operations: Fortification Today for Tomorrow's Profitability

In a year dedicated to foundational restructuring, the cannabis operations segment beams with potential, reflecting a double-digit 96% leap in net revenue. The segment owes its upward trajectory to the successful navigation of strategic acquisitions and a determined recalibration of its product and facility ecosystems.

Earnings Call Transcript 2023-Q4

[Operator]

Good morning, and welcome to SNDL's Year-end and Fourth Quarter 2023 Financial Results Conference Call. This morning, SNDL issued a press release announcing their financial results for the year-end and fourth quarter ended on December 31, 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 the sndl.com website. SNDL has also posted a supplementary investor presentation along with the shareholder letter from Chief Executive Officer, Zach George at sndl.com website. Presenting on this morning's call, we have Zach George, Chief Executive Officer; Alberto Vadera, 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. Please go ahead.

[Zachary George, executive]

Good morning, everyone, and thank you for joining us on our full year and fourth quarter 2023 earnings call. 2023 was a transformational year for SNDL marked by several financial milestones, including record revenue and gross profit. The year began with remarkable year-over-year revenue growth of almost 1,000% in Q1 of 2023, which was then followed by positive free cash flow generation of $18 million in the second half of the year.

2023 net revenue reached a record $909 million, a 28% increase from the previous year, while gross profit surged to a record $190 million, up 36% from the prior year. SNDL's team has worked to build a scaled and diversified platform that we believe will be the basis for the creation of sustainable shareholder value. Our operations include award-winning liquor and cannabis retail banners broad manufacturing capabilities and a uniquely positioned nonconsolidated exposure to U.S. cannabis operators with a fair value of more than $0.5 billion.

We are also in the process of monetizing a number of real estate and credit assets that will continue to feed and strengthen our industry-leading balance sheet. The acquisition of Valens in January of 2023 was a key tactical move for SNDL enhancing our upstream capabilities in Canadian cannabis.

We now have manufacturing capabilities across all major product categories and continue to drive automation and labor efficiencies. We have exited exposure to high-cost owned cultivation and leaned into procurement opportunities. Integrating Valen's operations into our infrastructure has led to significant synergies, resulting in approximately $22 million in annualized cost savings.

These savings stem from better capacity utilization and various cost reduction initiatives, including the optimization of our cultivation footprint. Our progress is reflected in the steady sequential improvement of our gross profit over the year. We expect our cannabis operations segment to deliver additional operating efficiencies in 2024 and are excited by growth opportunities in B2B and international markets.

We've continued to build upon the stable foundation of our liquor retail segment with a focus on margin enhancement. We've achieved this through the launch of our data program, the refinement of inventory management practices and growth in private label offerings. These initiatives have been pivotal in optimizing our operations within this segment.

We also reached record results in revenue, gross profit and cash flow within our cannabis retail segment. The increase showcases the company's efforts in continued margin expansion initiatives and data program enhancements. In 2023, we streamlined our investment portfolio by divesting from equity securities and certain credit exposures.

As of year-end, the company held a portfolio of cannabis-related investments with a carrying value of $572 million, including $538 million to Sun stream. SNDL's joint venture, Sunstream Bancorp, launched Sunstream USA Group in the third quarter. This new entity is designed to hold the post reorganized equity of Skymint in parallel which include licenses in Florida, Michigan, Massachusetts and Texas. It is structured to exclude voting or operational control, enabling SNDL to preserve its NASDAQ listing until further regulatory reform allows for the consolidation of these exposures.

The establishment of Sunstream-USA Group represents a compliant arm's length expansion, ensuring that SNDL does not engage in plant-touching activities while participating in a multistate cannabis platform. The restructuring of [ Skymint ] and Parallel result in simplified capital structures, the elimination of certain material liabilities and improved competitive positioning.

The closing of these transactions will provide Suntream USA Group with the optionality to access third-party investors, engage in industry consolidation through mergers and acquisitions and gain critical consumer insights. The structure of Sunstream USA Group is being reviewed by NASDAQ to align with all U.S. compliance and governance standards.

While many Canadian operators make promotional statements regarding future U.S. dominance, SNDL is the only Canadian license producer with cannabis enterprise exposure in the U.S. at this scale. We look forward to updating shareholders on these developments in the near future. As mentioned in my shareholder letter, which can be found on our website, SNDL maintains a debt-free balance sheet with a market capitalization of around $530 million well below our cash and credit investments valued at $767 million and without any consideration for our operating segments, which continue to show both revenue growth and margin improvement.

We believe that the company's recent market valuation does not reflect SNDL's intrinsic value and that the valuation gap is so significant that investors purchasing shares today could potentially be acquiring substantial asset value at a low or even negative cost on an implied basis. Considering the broader Canadian cannabis industry context, and the CRA's garnishments to combat an estimated $300 million in unpaid excise taxes, SNDL's financial health places us in an enviable position with our debt-free, cash-rich balance sheet with no tax arrears we expect to benefit from the financial instability of peers who will struggle to consistently deliver product to provincial boards and end markets on a profitable basis.

Our steadfast consumer-centric approach and unwavering commitment to quality and regulated products remain the bedrock of our strategy. Our demonstrated success with both mergers and acquisitions and organic growth has laid the foundation for our team to build momentum and strive for excellence in execution.

Looking ahead to 2024, we are well positioned for expansion utilizing the extensive scale of our platform to drive sustained value creation for our shareholders. We are focused on realizing efficiencies and margin expansion across our segments with quality of consumer experience at the forefront of our endeavors.

Finally, I want to express my gratitude to the entire SNDL team for their dedication in 2023. The outstanding results we achieved are a testament to your hard work and commitment to our vision. To our investors, this is a team that wants to win. We have significant work ahead, but the undeniable improvement in our results is driving conviction in our ability to push harder as we aggressively pursue our performance goals and outcomes.

I will now pass the call to Alberto to provide more information on our financial results.

[Alberto Paredero-Quiros, executive]

Thank you, Zach. I want to remind you all that amounts discussed today are denominated in Canadian dollars, unless otherwise stated. Certain amounts referred to on this call are non-GAAP and non-IFRS measures. For definitions of these measures, please refer to us in the health management discussion and analysis document.

Since joining SNDL team in July, I have some significant progress, not just in terms of our financials, but for our organization as a whole. We have navigated the challenges of the regulated products industry and made a strong improvement in how we operate and how we manage our finances. Our focus has been on strengthening the balance sheet, enhancing cash flow generation and driving profitable growth. Through several strategic initiatives on disciplined financial and operational management, while improving our cost structure and sharpening our capital allocation.

Not only have we redesigned our operating governance and financial planning processes. We have also realigned the finance structures and attractive key talent to drive value creation while increasing the efficiency of our back office. It is exciting to see how these changes are already having positive impact in 2024.

Now let's dive into our consolidated financial performance for Q4 2023. Our net revenue reached $249 million or 3% growth from $240 million in the same quarter last year. This includes a revenue elimination entry of $12 million that we introduced as of the third quarter of 2023. Without this adjustment, our net revenue growth in the fourth quarter would have been 8%.

I am particularly proud to highlight our gross profit for the quarter, which sets a new record of $57 million or 23% of sales. This compares to $44 million in Q4 2022. This significant improvement is a testament to our supply chain optimization efforts, including the strategic decision to close our Olds, Alberta Cultivation facility announced in October.

[ Case ] in cash and cash equivalents was negative $7 million compared to a negative $12 million in the fourth quarter of 2022, a 42% improvement. We achieved a positive free cash flow of $1.4 million in the quarter, so case in the effective cash management despite the useful increase in working capital associated with the holiday season. This reflects our second consecutive quarter of positive free cash flow in 2023.

Our operating income saw a loss of $85 million, which includes $29 million of restructuring costs and restructuring related asset write-offs and also $29 million of goodwill impairments. This is a 45% improvement over the $155 million loss we reported in the fourth quarter of 2022. Lastly, our adjusted EBITDA was a positive $3.5 million, 147% improvement from the loss reported in the last quarter of 2022. This improvement is a clear indicator of our commitment to streamlining operations and enhancing our financial health.

Turning to our annual performance. I'm pleased to report several record achievements in 2023. Our net revenue reached an all-time high of $909 million, up 28% from $712 million in 2022. Gross profit for the year also is a new record at $190 million or 21% of our sales. This is a significant increase of 36% compared to the $140 million or 20% of sales were reported last year. This is a testament to what we improved cost management and operational efficiency.

Change in cash and cash equivalents was negative $84.5 million in 2023 compared to a negative EUR 279 million, 7% year-over improvement. A highlight for the year was achieving positive free cash flow in the third and fourth quarters, totaling $17.7 million. This includes an impressive $16.3 million in the third quarter and $1.4 million in the fourth quarter and as mentioned earlier, demonstrating our ability to generate cash while continuing to invest in growth.

Our operating income sold a loss of $163 million for the year, which includes restructuring charges of $20 million and asset impairments of $55 million as we're streamlining our operations to enable future profitable growth. Despite this, we have seen a remarkable 53% improvement from the previous year's loss of $348 million.

Finally, our adjusted EBITDA from continuing operations increased to $29 million in 2023 a significant improvement from a loss of $16 million in 2022. I will let [indiscernible] Tyler provide more details on the Q4 and year-end 2020 results for the liquor retail and cannabis operations segments but I would like to comment on the results for our cannabis retail segment.

Cannabis retail revenue includes operations of Nova retail stores for the period of March 31, 2022 to December 31, 2022. In Q4 2023, our cannabis retail segment witnessed a 10% increase in net revenue, written $75 million compared to $68 million in the same quarter of the previous year. And same-store sales increased by 2%. Gross profit was $20 million or 27% of sales, making a 27% increase from the previous year. Our proprietary data licensing program generated $4.2 million in Q4 2023.

For the year-end for our [ Cataby ] Retail segment, we achieved a record net revenue of $290 million, making a significant 41% increase from the $206 million reported in 2022. Equal in North Ward Sea is the record gross profit from this segment, which reached $74 million or 25% of sales in 2022. This represents a substantial 56% year-over-year increase from $47 million or 23% of sales in 2022. These figures highlight our successful margin expansion initiatives and operational efficiencies.

Additionally, our proprietary data licensing program generated $12.3 million in revenue in 2020, up 193% from $4.2 million in 2022. Finally, looking at our investments and equity positions in the year -- as of the end of 2023, the company has deployed capital into cannabis-related credit investments with current value of $572 million, including [ $53 ] million through the SunStream joint venture. In 2023, our investment portfolio generated a positive operating income of $12 million, a significant improvement from the $91 million loss in the previous year.

Despite a minor decrease in interest and fee revenue to $14 million from $17 million, our equity accounted in test is shown a notable recovery. contributed $6.8 million in profits compared to $43 million loss in 2022. The company financial health is strong supported by $766 million in unrestricted cash, marketable securities and investments, leading to a net book value of $1.2 billion. It is also important to highlight that we have not raised any costs through the share offering since June 2021.

And to date, the company has no debt.

SNDL's Board of Directors approved extending the company's share repurchase program to November 20, 2024. The company's share repurchase program continues to be available to lower the outstanding share float. 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 3 months ended December 31, 2023, the company did not purchase common shares for cancellation.

Our results this year represent another solid step towards executing our business strategy, our culture of financial rigor and continuous improvement and the hard work and dedication of our employees. Looking ahead, we're committed to continue on our path of fiscal responsibility and strategic growth.

Our goals are clear: to deliver value to our shareholders to invest in innovation and growth opportunities and to strengthen our market position. I will now pass the talk to [indiscernible] to provide an update on our liquor retail results.

[Unknown Executive]

Thank you, Alberto, and thank you all for joining today. Our liquor retail segment remains a steady revenue driver, providing opportunities for increased margins in SNDL's regulated products business. Margin expansion remains a crucial focus as consumer patterns shift in liquor retail. This ensures ongoing growth for our liquor banners while consistently delivering exceptional customer experiences.

Looking at full year revenue for 2023, liquor retail contributed $579 million to our cumulative revenue. This represents a growth of 25% and year-over-year from $462 million. Revenue comparisons for liquor retail in 2022 include operations from March 31 to December 31, 2022, following the acquisition of [ Alcanna. ] In Q4 2023, revenue remained steady at $159 million, stable from Q4 2022 and increasing from $152 million in the preceding quarter.

As of December 31, 2023, our store count remained stable with 170 total stores comprised of 12 Wine and beyond, 20 Liquor Depot and 138 ACE liquor discounter locations. The impact of Wine & Beyond banner and new market is highlighted by the success of our Corona Delaware location, which has seen a 20% increase in revenue year-over-year.

Additionally, the Dilbert location has seen its margin increase 17% from the year prior. We look forward to opening a new Wine and Beyond location in Airdrie, Alberta, in early Q2 2024, building on the success of this banner. Gross profit for 2023 amounted to $137 million, representing approximately 24% of sales, up 29% from year prior.

For the fourth quarter, gross profit increased to $38 million or 24% of sales from $37 million in Q4 2022 and up 3% from Q3 2023. These increases are driven by seasonality, procurement productivity and a continued focus on expanding and enhancing our private label offerings, which is a key driver in total margin expansion.

Private label sales increased by approximately 28% in 2023, now representing 11% of total sales across all banners an increase of 2% from the year prior. In Q4 2023, gross profit for private label increased 19% from Q4 2022 and 20% sequentially. As a key growth tactic, we are continually developing our private label program to boost margins while maintaining the diverse selection our customers know and love.

Looking to additional growth opportunities. We have officially launched proprietary data agreements for our liquor retail segment and revenue will be reported in the first quarter of 2024. The Leveraging insight from our cannabis retail segment, we are now able to capitalize on our customer insights to improve vendor relations and the end-to-end customer experience creating accretive revenue and margin growth initiatives with no associated cost of sales.

We continue to focus on expanding our reach and accessibility specifically through digital and e-commerce avenues. Piloting new advertising opportunities, we aim to broaden our digital reach while reducing our environmental footprint. Moving away from traditional print methods is expected to deliver significant cost savings while creating new opportunities to engage our consumer base.

Our achievements in 2023 underscore our sharp focus on fundamentals and margin expansion, positioning our business to adapt to changing market conditions. This sets the stage for sustained top line growth throughout 2024. Thank you. And I will now pass the call over to Tyler Robson to cover our cannabis operations segment.

[Tyler Robson, executive]

Thank you, Tank. Reflecting on my first full calendar year with SNDL, I'm incredibly proud of the team's achievement and confident in our strategic direction moving forward. 2023 was a building year. We had to dismantle the house and fortify our foundation to support the future of SNDL.

We reorganized our facility footprint, streamline our product portfolio, optimize our processes with a sharp focus on quality in [indiscernible] We changed the fundamentals of our business, aiming for near-term profitability for our cannabis operations segment. This set the stage for a strong 2024, and we have already seen preliminary indicators of our future success. Net revenue for 2023 was $87 million. The growth represents a 96% increase from the year prior, supported by prevention or revenue increasing by 102% and wholesale revenue by 391%.

Net revenue for the fourth quarter of 2023 was $26 million, up 112% from $12 million in Q4 2022 and 24% sequentially. This revenue increase highlights the impact of our strategic initiatives, including the acquisitions of Valens Zena and improving the sales performance across our portfolio. In Q4 2023, we saw an improvement in gross profit to negative $1 million from negative $9 million in the same quarter of the previous year, marking an 88% improvement. This significant enhancement in gross profit primarily resulted in the decision to close old Alberta facility and move away from high-cost cultivation.

We still have room for improvement, but we have established substantial competitive advantages over the past year. We have better aligned our operations to manage the fluctuating market, addressing inventory and cost challenges that obstalled our gross margin growth in previous years. We have rationalized our portfolio and shifted over our cultivation efforts to better meet consumer demand, emphasizing the quality, potency and consistency.

SNDL has adopted a fewer, bigger, better [ friction ] resulting in the reduction of our total SKU count from 3.27% to 125, sharpening our focus on key consumer categories. Our improvements in innovation are apparent in record depletion rates and increased acceptance of new SKUs by the provincial board. We have cleared a path to win in the key categories of base flower pre-roll through improved hardware, increased potency and to ensure consistent and exacting quality standards. After the quarter end, we revoked our cultivation license from the old facility. Following the transition of all cultivation activities to Aptevo Bronto in October 2022.

The significantly reduced overhead costs, coupled with the promising cultivation yield position us to further capitalize on revenue and margin growth in the coming quarters. After a tactical and transformative year, we are seeing our expected results and a strength in path forward for our cannabis operations segment.

We remain diligent on quality, financial prudence, and process innovation to continue to deliver long-term value for all of our shareholders and our consumers. Thank you. And I will now pass the call back to Zach for closing

[Zachary George, executive]

We are proud of our milestones this year and remain focused on sustained profitability. We are determined to continue this upward trajectory and the team is committed to driving shareholder value and excellent all aspects of our operations. Thank you for your attention this morning.

We look forward to providing additional material updates on our initiatives and presenting our Q1 2024 results in the next 45 days. I will now pass the call back for analyst questions. Thank you.

[Operator]

Thank you. We will now begin the analyst question-and-answer session.

[Operator Instructions]

The first question comes from Frederico Gomes with ATB Capital Markets.

[Frederico Yokota Gomes, analyst]

Zach, in your shareholder letter, you mentioned how tracking your valuation is, and you said that either the management team is going to close the valuation gap or market forces will -- so could you just expand a little bit on that in terms of the alternatives you have or are evaluating to try to close that gap? And also why you'd be more aggressive with buybacks this quarter.

[Zachary George, executive]

Thanks for the question. So just taking that in reverse order, due to earnings cadence and strategic activity, we've actually been in a blackout for quite a while. That blackout gets lifted into the end of March here. So we do have the option to repurchase shares at these levels.

In terms of the reference to closing the valuation gap, we're focused on fundamentals, first and foremost. And as we've been speaking for the last 2 years about our journey to sustainable free cash flow, we do believe that, that's the key to bringing in incremental investors getting institutions to take a look at our business model and ultimately result in much higher implied values than what we're seeing today.

In terms of other alternatives, I think that, that's somewhat self-explanatory. There are a whole host of options. You've got a multisegment business model. You have a debt-free entity that is cash rich. And so there are a number of opportunities for a variety of different transactions that could be looked at in order to unlock value.

[Frederico Yokota Gomes, analyst]

I guess my second question is on the competitive environment in Canada, specifically on your cannabis operations. There obviously have been reports about the CRA cracking down on delayed excise taxes. I'm just curious, are you seeing any meaningful improvement in competition here this year? And I guess from a supply and demand standpoint, do you think that the Canadian market is looking better at this point or still oversupplied.

[Zachary George, executive]

It's a great question. I would say that we can safely say that Canada remains very well supplied. Certainly, recent actions and the garnishment effects that we're seeing in just their early stages are going to have an impact on product availability and the number of licenses ultimately that are out there in Canada. But it's still early days.

You've seen a few companies disclose events or move into restructurings as a result of excess liabilities. But we believe there's quite a large iceberg underneath the water. And so the concentration of these excise arrears are unclear at this time. So we expect a greater impact -- but this is an important part of sort of balance being brought back to the Canadian industry, and it's certainly going to take some time, but that process is absolutely underway.

[Operator]

The next question comes from Johan Kang with Canaccord Genuity.

[Unknown Analyst]

This is Aaron King on behalf of Motorola. Just wanted to ask about the adjusted EBITDA margin this quarter came in about 1.4%. There was a sequential decline about 5.5%. Could you comment on the drivers behind this the third slide quarter-over-quarter. Thank you.

[Unknown Executive]

Yes. Thank you for the question. The main driver was actually a cane in valuation in our Sunstream investment related to an increased contribution from our company.

We have to remember we're valuing this SunStream investment particularly right now for [ Palmas ] came in on the basis of the future cash flow generation. So any short-term changes to investments or collections have short-term impact in those valuations. But the underlying cash flow expectations that we have from these businesses in the future remain steady.

So I would say it's purely the way our accounting works but that's the main driver. It's actually an $8 million loss that we recorded in the fourth quarter according to that.

[Unknown Analyst]

And if I could just ask a follow-up on I think you, you guys already touched upon this during Federico's question, but have you guys taken the recent regulatory changes that have been proposed in the Canadian cannabis environment -- whether it's the recommendation coming out of the committee in terms of adjusting the excess tax structure.

Sorry, and the elimination of provincial stamps, along with we're hearing some news about potential retailer and license reduced partnerships being used or being recommended. So I guess my question is how have you guys been taking this news has this kind of impacted any of your future expectations going forward?

[Zachary George, executive]

Thank you. It's a great question. There were a number of questions in there. Look, in terms of excise reform, I would -- we would reiterate the view that this is going to take quite a bit of time. No one is coming to save us as participants in this industry.

And so we don't actually expect excise reform to impact the fundamentals of Canadian operators in the near term. That's probably a multiyear path. There are -- there is room for optimism. We are seeing common sense reform, move across a number of provinces and the federal government. So whether that's some loosening of rules around marketing, a clearer path and understanding of the allowable relationships between retail license holders and increase in license caps, changes to allowable product formats.

There are a number of initiatives that are going to drive efficiencies and improvement and ultimately improve the consumer experience that are undeniable positives -- but we expect a pretty slow pace of change on some of the larger items such as excise reform.

[Operator]

The next question comes from Pablo Zuanic with anik & Associates.

[Unknown Analyst]

Zach, regarding Sandstream portfolio, maybe I lost -- I missed it in the presentation, but I think the fair value, it is $551 million. I don't if you can comment about the outstanding principle -- and it's 5 credits, how much of that is parallel and mint. And if you can remind us what is the rest. I think in the past, you've given some color on that. but it'd be nice to know of the principle, how much is being equitized and how much is still outstanding, if you can give some color there.

[Zachary George, executive]

Yes. Thank you, Pablo, and good to hear from you. So we haven't given delineation on individual credits. You're correct that of the 5, we have 3 performing credits in the portfolio. to are in the process of being equitized because those capital structures need to be solidified in the restructuring itself and the fact that we are right in the midst of a review with NASDAQ.

We're going to hold off on commenting on the scale and individual valuation of equitized credits that we expect to occur in the near term. And when we do move forward and the NASDAQ review is completed, we expect to give significantly more transparency on the state of play with those entities, the structure and the initial valuation.

[Unknown Analyst]

And then in terms of SunStream U.S.A., the new company you're setting up, is the only thing pending the NASDAQ issue? Or is there any type of litigation still going on? I mean the trade press has had comments on the matter, especially around Skymint and I think in parallel, but just some color would be helpful there. Is it all done and completed and is now a matter of the NASDAQ issue? Or is there still anything outstanding

[Zachary George, executive]

Yes. In terms of outstanding matters, the key issue for us to close is this final hurdle with the NASDAQ. There are, as you point to, there are lingering litigation issues involved in these restructurings, frustrated stakeholders pursuing different outcomes and taking action against various stakeholders, sometimes legacy stakeholders and sometimes existing creditors, which would include our Sunstream group.

So those are ongoing, and we're not going to get into too much detail about current litigation, but we don't believe that this is going to hold up our time line, any further.

[Unknown Analyst]

Understood. And then if I can just add one more. I mean, obviously, Florida, we are all waiting for April 1, right? You happen to Supreme Court there. There could be a scramble for expansion capital investments is [ Surterra ] to some extent or parallel how strong for the time being until this whole deal closes? Or can you help them in any way to expand if they were to make sense.

[Zachary George, executive]

I would not describe either Skymint or Parallel as being hamstrung. The existing management teams are aggressively working to rightsize their business. There's been significant improvement in their cost structures over the last 2 years. They have -- they're very much living in reality and the improvement in those -- in the performance of those businesses has been material.

Again, we're -- we don't have those positions consolidated. And so we're excited about being able to provide detailed supplemental information as we complete these restructurings.

[Unknown Analyst]

If you mind I mean, I don't know if there's more people in the queue, but I'll have a couple of more. So regarding the other 3 credits on Sunstream -- and I know you can't say much there. But on the JV [ Sandstrom ] Bancorp. Once you set up SunStream U.S.A. and you have all these very attractive assets in Florida, Michigan and other places, you become an attractive partner to a number of people, right?

So I know it's a bit hypothetical, but the 3 other credits even though they may be performing, they could still become part of the ecosystem, right? I'm saying you go even equitize it means that were to make sense that you can negotiate that. Can you make any general comments on that? Or that's just out of a question.

[Zachary George, executive]

No, it's an astute observation. There are a number of opportunities for further consolidation in the U.S. We have been approached by a handful of parties that are very interested in gaining greater efficiencies and scale and consolidating the U.S. landscape.

Those parties may be part of the existing credit book, but there's also a number that are outside of that group as well. So there are a number of broader discussions that get had from time to time. If something material were to arise, it would certainly be disclosed. And until then, we're really focused internally on improving performance within our platform, but do expect at the margin that consolidation and M&A opportunities will arise over the next 12 to 24 months.

[Unknown Analyst]

And very last one, I mean, obviously, there's a lot of focus on the U.S., but this Friday, we may have some good positive news out of Germany with the [ Bundesrat ] decision. When people are asking about Canadian companies and exposure they had to go till we talk about Aurora and others, of course, and [indiscernible] continues to make inroads there. What can we say about SNDL in terms of their current position in front of European opportunities or the plans that you may have -- that's all.

[Zachary George, executive]

I'm going to have Tyler just comment on the current state of play in international and related opportunities.

[Tyler Robson, executive]

Yes, happy to. Look, we've been spending a lot of time evaluating international markets. Obviously, Germany is one of the biggest pockets countries over there. there's a ton of opportunity. So we're anxiously awaiting the final news for medical version and what that landscape looks like. We will be headed to ICBC to not only meet a few individuals but get a better lay of land.

But you'll kind of see us focus on a few ones over there like Germany. So we'll fit at that for now, but you'll definitely see some opportunities or some foresight into that market once legislation fully rolled out.

[Operator]

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

[Zachary George, executive]

Thank you to everyone for joining us this morning. We look forward on updating you on our progress in the near future. Have a great day.

[Operator]

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