SNDL Inc. (SNDL) Q3 2022 Earnings Name Transcript

SNDL Inc. (SNDL 0.77%)
Q3 2022 Earnings Name
Nov 14, 2022, 10:30 a.m. ET

Contents:

• Ready Remarks
• Questions and Solutions
• Name Individuals

Ready Remarks:

Operator

Good morning and welcome to SNDL’s third quarter 2022 monetary outcomes convention name. SNDL issued a press launch this morning saying their monetary outcomes for the third quarter ended on September thirtieth, 2022. This press launch is out there on the corporate’s web site at sndl.com and filed on EDGAR and SEDAR as effectively. The webcast replay of the convention name will even be obtainable later at this time on the sndl.com web site.

SNDL has additionally posted a supplemental investor presentation discovered on the sndl.com web site. Presenting on this morning’s name, now we have Zach George, chief government officer; Jim Keough, chief monetary officer; Tank Vander, president of liquor retail; and Andrew Stordeur, president and chief working officer. Earlier than we begin, I want to remind traders that sure issues mentioned in at this time’s convention name or solutions that could be given to questions might represent forward-looking statements. Precise outcomes might differ materially from these anticipated.

Danger elements that would have an effect on outcomes are detailed within the firm’s monetary reviews and different public filings which might be made obtainable on SEDAR and EDGAR. Moreover, all monetary figures talked about are in Canadian {dollars} until in any other case indicated. We’ll now make ready remarks, after which we’ll transfer to analyst questions. I’d now like to show the decision over to Zach George.

Zach George — Chief Government Officer

Good morning, everybody, and welcome to SNDL’s third quarter 2022 convention name. Q3 proved to be one other encouraging quarter for our firm. Our concentrate on operational execution and sustainable profitability has enabled us to ship file income and working money movement this previous quarter. I’ve spent nearly three years overtly discussing the challenges going through our firm and the hashish trade.

And for the primary time, I see opposite indicators suggesting that the Canadian trade is nearing a trough, warranting a extra bullish stance. Regardless of the imperfect rollout of the Canadian authorized hashish market, an enormous oversupply of licenses and merchandise, and continued pricing erosion, there are causes for optimism at SNDL. In a way, issues within the Canadian hashish trade are so unhealthy that they are good. We’re seeing an unrelenting oversupply of flower inventories and an acceleration of chapter filings amongst friends.

Our group continues to work exhausting day by day to show trade headwinds into tailwinds for our customers and traders as we drive towards improved outcomes. Our liquor retail enterprise continues to succeed in a normalized run fee following the return of on-premise consumption post-COVID, and we anticipate seasonally sturdy ends in This fall. This phase has supplied working money movement that has had a stabilizing impact on our consolidated outcomes, and we’re pursuing new initiatives that we imagine will drive additional accretion. Notably, we’re within the early phases of growing throughout phase loyalty program and intend to supply point-of-sale analytics as a service in each hashish and liquor in 2023.

Our sturdy enterprise know-how group is a differentiating issue for SNDL, and we’re excited to unlock the group’s capabilities. Scale is mission-critical to our success. The baseline prices of operating a CPG-oriented firm with a Nasdaq itemizing, excessive director and officer insurance coverage charges, inside and exterior SOX compliance prices, and the business prices of finest practices in CPG put lots of our friends ready the place they’re incapable of delivering sustainable income above the prices related to managing this infrastructure. This dynamic will drive additional trade consolidation, and we imagine our vertically built-in hashish enterprise offers us the benefits required to be a powerful member of a future oligopoly in Canada.

It’s price contextualizing the expansion that the SNDL group has constructed this previous 12 months. We’ve got grown our income at a staggering fee of greater than 1,500% on a year-over-year foundation. We now handle greater than 350 liquor and hashish shops, making us the biggest personal market liquor and hashish distributor in Canada. SNDL’s retail technique relies on its high quality retailer areas, wide selection of merchandise, and differentiated retail experiences.

We additionally personal and function Canada’s largest indoor purpose-built hashish cultivation and processing facility, with a various model portfolio starting from worth to premium. Our hashish retail and hashish operations are key enablers in SNDL’s vertical integration technique. With the size of information and insights generated via our retail community, we’re capable of constantly tailor our innovation technique to play in high-velocity product segments, in addition to white areas within the trade, with the intention to delight customers. Our integration work and cost-control initiatives will proceed into 2023 as we stay targeted on alternatives associated to Alcanna and the lately acquired property of Zenabis and anticipate to shut the proposed acquisition of Valens in January of 2023.

With Valens, SNDL goals to be a number one Canadian producer, with broad hashish product capabilities, sturdy optionality associated to low-cost procurement, and best-in-class innovation potential. The acquisition enhances our positioning by combining a various model portfolio and intensive retail footprint, low-cost biomass sourcing, premium indoor cultivation, and manufacturing services. As one of many largest purchasers of biomass within the nation, we anticipate the professional forma firm to benefit from the present market oversupply, which can improve margins and supply desperately wanted working capital to sure trade members. SNDL is effectively on its approach to turning into one among Canada’s largest adult-use hashish producers and retailers.

And with our retail insights and monetary power, SNDL ought to have the ability to adapt rapidly to rising and evolving client traits. On the firm’s inception, prior management prudently targeted on inhalable codecs which have made up greater than 80% of gross sales within the trade. That stated, market dynamics change rapidly in hashish, and Valens supplies elevated capabilities with a full suite of hashish merchandise, together with ingestibles and drinks. SNDL will even have the best professional forma of Canadian hashish income on a final fiscal quarter annualized foundation as soon as we full this acquisition.

We don’t intend to take part within the knife battle that’s ongoing between Canadian hashish corporations. We search to be a associate to the trade, selling finest practices, accountable consumption, and sustainability. By way of our funding phase, to the third quarter of 2022, SNDL had deployed capital to a number of cannabis-related investments with an IFRS honest market worth of roughly 678 million, together with 527 million to the SunStream Bancorp three way partnership. This JV has credit score publicity to a handful of operators, together with Jushi, SKYMINT, Ascend, Parallel, Columbia Care, and AFC Gamma.

Within the subsequent few weeks, we anticipate to offer traders and stakeholders with extra readability about our SunStream portfolio actions. Whereas our aim is to generate enticing returns as a strategic capital associate for these debtors, in sure instances, we may even see defaults or different restructurings create a possibility for SNDL to realize a significant working footprint in a single or multistate format. Our transformation is way from full, however with an enhancing portfolio, price self-discipline, and continued natural and acquisitive development, we’re well-positioned to succeed in our aims, together with the technology of sustainable free money movement and long-term shareholder worth. I’m privileged to serve passionate professionals, together with greater than 2,500 workers, who constantly work to remodel our enterprise and delight customers every day.

Our vertically built-in mannequin, devoted group, best-in-class steadiness sheet, and scale are aggressive benefits we have constructed for the specific objective of giving ourselves the flexibleness to succeed underneath a number of financial and regulatory eventualities. And these are the benefits that can lead us in our subsequent leg of development. Thanks, and I am going to cross the decision to Jim for feedback on our monetary outcomes.

Jim Keough — Chief Monetary Officer

Thanks, Zach, and good morning, everybody. I would prefer to remind you that each one quantities mentioned at this time are denominated in Canadian {dollars} until in any other case acknowledged, all comparative outcomes for the third quarter of 2021 exclude the following acquisition of Alcanna Inc., which closed on March thirty first, 2022. Sure quantities that I’ll check with on this name are non-IFRS GAAP measures. Please check with SNDL’s administration’s dialogue and evaluation for the definitions of those measures.

Earlier than I am going into larger element of SNDL’s monetary outcomes underneath every of our 4 working segments being liquor retail, hashish retail, hashish operations, and investments, I’ll start with our consolidated monetary highlights. It is a pleasure to announce that SNDL achieved file internet income for the third quarter of 2022 of $230 million, in comparison with $223 million within the second quarter of 2022 and $14 million within the third quarter of 2021. This represents a 3% improve sequentially and a rise of over 1,500% 12 months over 12 months. SNDL additionally achieved an adjusted EBITDA of 18 million for Q3 2022, up 169% from Q2 2022 and up 74% from Q3 2021.

Our money movement supplied by working actions was 8.6 million within the third quarter of 2022, in comparison with money utilized in working actions of 17.9 million within the second quarter of 2022 and money utilized in working actions of 56 million within the third quarter of 2021. Our gross margin grew to 50 million in Q3 2022, a file since SNDL’s inception, up 17% from Q2 2022 and a rise of over 2,700% from Q3 2021. Basic and administrative bills for the three months ended September thirtieth, 2022 have been $45 million, in comparison with 9 million for the three months ended September thirtieth, 2021. The rise of 35 million was primarily due to will increase in salaries and wages, in addition to workplace and common bills from the Alcanna and Interior Spirit acquisitions, with SNDL now using greater than 2,500 personnel throughout all segments.

Web loss for the three months ended September thirtieth, 2022 was 98.8 million, in comparison with internet earnings of 16.7 million for the three months ended September thirtieth, 2021. This improve in internet lack of 115 million was largely as a consequence of increased G&A bills, about 35 million; depreciation and amortization, 7 million; asset impairment of intangibles and goodwill from the Interior Spirit acquisition, 86 million; finance prices of 8.3 million; and alter in honest worth of by-product warrants of 32 million, all partially offset by a rise in gross margin of 48 million, decrease funding losses of 12.5 million, and transaction prices of 4.9 million. As of September thirtieth, 2022, SNDL has $988 million of money, marketable securities, and long-term investments, and no excellent debt. I am going to now evaluate the outcomes for our liquor retail phase.

SNDL at the moment operates 169 areas, predominantly in Alberta, underneath its three retail banners: Wine and Past, Liquor Depot, and Ace Liquor. Gross income for liquor retail gross sales for the three banners mixed was 152 million for the third quarter of 2022, a rise of 4% in comparison with the third quarter of 2021, regardless of Alberta’s off-premise liquor retail volumes gross sales being down this previous quarter in comparison with the identical interval final 12 months. Gross margin was $35 million, or 23% of gross sales in Q3 2022, in comparison with 33 million in Q3 2021. We proceed to keep up the margin 12 months over 12 months via a pricing and product combine technique in Q3 2022.

Let’s take a more in-depth take a look at our hashish retail outcomes subsequent. We at the moment personal and/or function 183 areas underneath two retail banners: Spiritleaf and Worth Buds. Gross income for the 2 banners mixed within the third quarter of 2022 was $66 million, in comparison with 6.1 million within the third quarter of 2021, a 985% improve. Worth Buds’ gross sales have been the fabric driver of the rise with 58 million of income throughout Q3 2022.

Our gross margin for Q3 2022 was 14.5 million, or 22% of gross sales, in comparison with 3.7 million in Q3 of 2021. And that is primarily as a consequence of Worth Buds’ new areas and aggressive pricing technique. I am going to now flip to SNDL’s hashish operations outcomes. Gross income from the hashish operations phase for the third quarter of 2022 was 16.5 million, in comparison with 15.4 million, a 7% improve over the second quarter of 2022; and in comparison with 11 million within the third quarter of 2021, a 49% year-over-year improve.

We’re happy to announce that we achieved a file gross margin within the third quarter of 2022 of 0.2 million in comparison with adverse 1.9 million for the three months ended September 30, 2021, and adverse 4.3 million for the prior quarter. The numerous enchancment was primarily a results of a 2.3 million reversal of stock impairment in Q3 2022, which demonstrates SNDL’s progress in implementing provide chain excellence. Subsequent, I am going to evaluate our funding operations. As of the top of Q3 2022, SNDL’s cannabis-related investments had a carrying worth of 677 million, together with 526 million within the SunStream Bancorp Inc.

three way partnership. For Q3 2022, the funding portfolio generated curiosity and price income of 4.3 million, in comparison with 3.3 million in Q3 2021. Our share of revenue of fairness accounted investees generated from investments by SunStream was 9.2 million, in comparison with 9.9 million in Q3 2021; and funding lack of 5.5 million, as in comparison with a lack of 18 million in Q3 2021 on marketable securities, which incorporates unrealized losses on publicly disclosed strategic investments in Village Farms Worldwide, Inc. and the Valens Firm Inc.

Lastly, let’s focus on actions that affected SNDL shares. Efficient July twenty fifth, 2022, SNDL’s widespread shares have been consolidated on a one-share-for-each-10-shares excellent foundation. As of September thirtieth, 2022 and November 11, 2022, SNDL had an unrestricted money steadiness of 291 million and 361 million, respectively, and a complete of 236 million post-consolidation shares excellent as of November eleventh, 2022. For the 9 months ended September thirtieth, 2022, SNDL bought and endorsed 1.7 million widespread shares at a weighted common worth of $3.61 Canadian or $2.75 U.S.

per widespread share for a complete price of $6.1 million. The share repurchase program was scheduled to run out on November nineteenth, 2022. On November eleventh, 2022, the SNDL board authorized extension of this program by an extra 12 months. I’d now like to ask Tank Vander, president of liquor retail, to offer additional remarks on our liquor retail phase.

Tank Vander — President, Liquor Retail

Thanks, Jim, and good morning, everybody. I want to begin by saying I am pleased with the liquor retail group’s continued concentrate on operational efficiency and dedication to delivering an distinctive retail expertise for our clients. The liquor phase strengthens SNDL’s capacity to personal the client relationship and form the retail expertise, and our constructive outcomes illustrate that functionality. Our third quarter outcomes function gross sales of 152.5 million, a 4.5% improve from the third quarter of 2021 and a 5% improve from the second quarter of 2022.

This consequence was achieved regardless of the lower in off-premise gross sales throughout the trade this previous quarter as a consequence of clients returning to a traditional routine after the COVID-19 restrictions have been lifted. The adjusted EBITDA for the liquor retail phase elevated by 198% within the third quarter of 2022 in comparison with the earlier 12 months, from $4.6 million to $13.7 million. Gross margin within the liquor retail phase was 35.6 million, or 23% of gross sales within the third quarter of 2022, in comparison with 33.6 million within the third quarter of 2021, a rise of 5.7%. Whereas the yearly gross margin development is constructive and now we have maintained it sequentially, central procurement groups rigorously deliberate shopping for on limited-time affords to extend margin.

We continued to remain aggressive with pricing, particularly with our low cost banners akin to Ace Liquor, and seize additional market share with an important number of worth merchandise for our clients. SNDL is leveraging the size, retailer footprint, and warehousing infrastructure to allow strategic shopping for choices that drive margin and aggressive pricing. One in every of our liquid retail methods to realize present gross margin outcomes stays with our most popular label gross sales. Most popular label gross sales have been 10.7 million within the third quarter of 2022, a rise of roughly 1 million in comparison with the third quarter of 2021.

Our liquor retail phase mannequin was constructed on the premise of operational efficiencies to offer as a lot worth to our clients whereas guaranteeing sustainable profitability. Regardless of wage will increase, we’re capable of scale back our payroll prices by 3% in comparison with the earlier quarter. We additionally lowered our working bills for the liquor enterprise by roughly 6% within the third quarter of 2022 in comparison with the earlier quarter, from $6 million to $5.7 million. Our diligent concentrate on price efficiencies permits us to supply aggressive pricing to our group, resulting in steady income development.

Our buyer depend for all our banners is up by 1% 12 months over 12 months, and the common basket worth is up 3% regardless of inflation pressures. We see bigger basket sizes at our Wine and Past areas, the place customers come for the intensive choices and experiential method to liquor retail. We at the moment have 11 Wine and Past areas in Alberta and one location in Kelowna, British Columbia. In Alberta, Wine and Past shops account for roughly 3% of the market share within the province in contrast in step with the earlier quarter, proving the success of the vacation spot buying idea.

Our third quarter gross sales outcomes for Wine and Past have been $33.8 million, a 43% improve from the third quarter of 2021. The rise was primarily as a consequence of our 4 extra shops open this previous 12 months. We’re very proud to announce that Wine and Past celebrated its Tenth-year anniversary this previous September. We commemorated this milestone with our group by operating a 10-week-long celebration that included native beer partnerships, unique single-barrel releases, thrilling tasting occasions, and varied in-store promotions.

SDL operates 169 liquor shops in Alberta. Our liquor banners’ market share in Alberta, the place we predominantly function, was roughly the identical as earlier quarters, with 17.6% within the third quarter of 2022. Market share information is predicated on administration’s estimates utilizing obtainable trade information. Transferring ahead, we’ll proceed to optimize profitability and money movement for the liquor retail phase by specializing in price self-discipline, margin-accretive merchandise, and differentiated most popular label choices.

We’ll leverage SNDL’s intensive stock and retail footprint to allow main e-commerce experiences and touchpoints. Trying to 2023 and future enlargement, our method will probably be calculated and targeted on present market situations. Thanks once more in your time this morning, and I am going to cross it on to Andrew for SNDL’s hashish operations replace.

Andrew Stordeur — President and Chief Working Officer

Thanks, Tank, and thanks all for becoming a member of at this time. That is one other encouraging quarter for our hashish operations, constructing off our constructive momentum in 2022. We’re starting to see the size of our vertical integration technique ship our meant outcomes and maturity of our operations solidify our path to long-term profitability. Coupled with our concentrate on price optimization and enhanced product technique, we’re efficiently executing our 2022 plan.

Our concentrate on cultivation excellence continues to indicate constructive returns as gross income from the hashish operation phase for the third quarter of 2022 was 16.5 million, in comparison with 15.4 million, a 7% improve within the second quarter of 2022; and in comparison with 11 million, a 49% year-over-year improve. SNDL achieved a file gross margin earlier than honest worth changes for the three months ended September thirtieth, 2022 of three.6 million, or 31%, in comparison with adverse 4.9 million for Q3 2021, a rise of 8.6 million or 176%. These substantial enhancements reveal SNDL’s progress in delivering sustainable top-line development via managing our product combine, pricing, and quantity initiatives. I am additionally happy with our continued concentrate on implementing provide chain excellence to drive self-discipline round price optimization regardless of intense worth compression, increased energy prices, and general price inflation.

To additional increase on our product combine technique, now we have elevated our inhalable choices nationally from vape, large-format flower, and each infused and conventional pre-roll codecs to fulfill rising client demand and drive market share in these keystone segments. We proceed to make progress in our cultivation technique, reflecting trade dynamics. Our entry to elevated information and analytics via our vertical integration at retail permits us to focus on white areas and improve our portfolio providing. We’re excited to announce the launch of the Worth Buds’ personal label in partnership with Nova Hashish, which arrived in Alberta in early November and can launch in Ontario early within the first quarter of 2023.

The Worth Buds’ providing focuses particularly on large-format flower and is uniquely curated for the Worth Buds client. The preliminary launch contains 4 SKUs in each 14-gram and 28-gram pack sizes with absolutely compostable packaging. We acknowledge our position in decreasing hashish packaging waste. We’re additionally alternatives for important price financial savings.

I am excited to report on this with extra element within the fourth quarter, however the early sentiment from customers has been very constructive. To additional construct on our large-format choices, underneath the Palmetto model, we launched a number of flower SKUs within the third quarter to fill rising trade demand, together with 14-gram codecs of each our Romulan and OG Kush dried flower. Transferring to pre-rolls, this class, inclusive of infused choices, continues to speed up, representing seven out of 10 of the fastest-growing segments in our personal retail areas. Pre-roll share income and personal retail has elevated by nearly 10% since January 2022.

As such, now we have expanded our Prime Leaf’s Caviar Cone choices with two new taste blends launched within the third quarter. We’re additionally excited to launch our Caviar Cones reserve pack in This fall as a part of our vacation marketing campaign. The Palmetto model will launch a newly infused pre-roll in This fall. This permits us to compete in varied worth factors and pack sizes inside one of many fastest-growing inhalable segments in Canada.

Lastly, to construct on our vertical integration and export methods, SNDL accomplished our first worldwide cargo to Israel within the third quarter of 2022, and thru our acquisition of the Zenabis enterprise, we want to speed up additional worldwide alternatives. Whereas our main focus stays on the Canadian market, worldwide export will show to be a useful enlargement for our cultivation and processing operations. The extra monetizable stock procured from Zenabis and elevated manufacturing capabilities additional allow our provide chain to increase our large-format flower choices to our main retail footprint nationally. In closing, we stay on monitor with our plan, and I am pleased with how our group continues to execute throughout a really difficult time inside the trade.

We’re optimistic concerning the momentum inbuilt 2022 and shutting the 12 months sturdy. Thanks, and I am going to cross it again to Zach for closing remarks.

Zach George — Chief Government Officer

Thanks. General, I’m inspired by the progress we’re making throughout all elements of our enterprise. I am pleased with the way in which our group is executing with objective, confidence, and resilience. Our work is way from full, however SNDL has an incredible alternative to proceed forging the trail ahead for regulated merchandise each in Canada and internationally.

The group is dedicated to constructing a world-class enterprise, and we’re excited concerning the prospects forward. Because of all, and we look ahead to updating you on our progress into the top of 2022.

Questions & Solutions:

Operator

Thanks. We’ll now start the question-and-answer session. [Operator instructions] Our first query comes from Shaan Mir of Canaccord Genuity. Please go forward.

Shaan Mir — Canaccord Genuity — Analyst

Good morning and congrats on the quarter. My first query is on the hashish operation. So, simply primarily based on among the third-party monitoring information we subscribed to, we noticed that September adult-use gross sales had come down barely in your model particularly towards the top of the quarter, and that form of sustained into October. So, I used to be questioning if you happen to might present any — some coloration on the dynamics there.

And extra particularly, what indications do you could have or that you’ve got began to seize a majority of the income synergies anticipated from that Alcanna transaction? Or do you see different methods to leverage that platforms towards increasing your branded gross sales from right here?

Andrew Stordeur — President and Chief Working Officer

Yeah, hey, Shaan. It is Andrew. Thanks for the query. Look, I believe very first thing I would say is we’re on our plan for our personal retail in our vertical integration technique.

So, I believe that is monitoring as we anticipate it to trace. And I’d additionally say, too, like we’re — you understand, as we have acknowledged earlier than, you understand, our focus is not, you understand, driving for short-term market share. As you’ll be able to take a look at our earnings outcomes right here, we have been actually targeted on the margin profile via combine and quantity and pricing. And you’ll see that begin to pay dividends for us as we construct out extra sustainably.

Clearly, market share is vital for us. And a few issues perhaps I am going to point out on that time. I believe — as I acknowledged, we’re on our monitor for our personal retail. We’re among the information that we’re getting via our personal retail, and that is clearly huge.

And among the areas that we’re targeted on, you understand, significantly as I discussed in my feedback, is across the pre-roll choices. And, you understand, I believe that is a giant alternative. We see that phase persevering with to develop each from conventional pre-rolls, in addition to infused. So, you understand, we’re targeted on [Technical difficulty] you understand, we have a reasonably large providing transferring into among the large-format flower.

That has not been one thing that we have had in our portfolio all through the final couple of years. So, we’ll begin to see a few of that play out in This fall. And, you understand, Shaan, as you understand, that is the place primarily nearly all of that quantity is shifting. It is definitely transferring away from that 3.5-gram transferring into large-format flowers.

So, I believe that is additionally some good tailwinds for us as we take into consideration form of the 12 months after which entering into 2023. I do not suppose that is going to cease, significantly given the oversupply out there. And I believe, look, I believe there’s the final part I would say is as we take into consideration, you understand, our latest acquisition of Zenabis and the flexibleness and optionality that gives us on low-cost flower and persevering with to play in that segments because the trade form of figures itself out with pricing, I believe that is a constructive. After which, you understand, as Zach talked about in his feedback, you understand, we’re excited concerning the pending shut, the steadiness and thru that, you understand, that midstream manufacturing aspect, you understand, that is going to additional speed up our capacity to play in these white areas that our present portfolio does not essentially provide.

So, I believe these are some areas there are market share that I believe are actually vital to know the context.

Zach George — Chief Government Officer

So, so as to add to that — simply so as to add, prefer it’s vital to maintain this in context, proper? So, we closed the Alcanna transaction on the finish of March. So, when you consider share of shelf contained in the Nova community, it began at zero. OK? So, this isn’t a light-weight swap. We’re going to — we have moved very, very rigorously on a sustainable foundation and targeted on, you understand, the place financial margin is.

But in addition, we’re attempting to drive the fitting assortment. We’re additionally attempting to optimize the efficiency of the retail community itself. And so, it is best to anticipate this to be a two-year course of as we transition and handle the assortment and blend going ahead. 

Shaan Mir — Canaccord Genuity — Analyst

Thanks. My subsequent query is simply in your views towards the U.S. operation. So, clearly, your steadiness sheet is a place of power right here.

And with Cover making that announcement for the form of USA construction, it looks as if there could also be a door that may open up a bit so that you can leverage that steadiness sheet within the U.S. So, simply wished to get a way, is that this one thing that Sundial has given any thought to, significantly utilizing an analogous construction to make opportunistic performs within the U.S., or is the main target nonetheless right here to stay on constructing that credit score guide there?

Zach George — Chief Government Officer

Yeah, thanks for the query, Shaan. So, as you understand, our tempo of deployment has slowed. So, now we have seen the cycle actually begin to creep in maturing markets within the U.S. And so, you have seen stress on flower costs.

I’d say that we predict that the cycle in Canada is as a lot as a number of years forward of what we’re seeing within the U.S. So, we anticipate extra competitors and stress within the U.S. as these markets mature. We really feel fairly good about our place with a half-billion-dollar credit score portfolio via our SunStream enterprise.

And as I discussed, I believe that is going to be a fairly dynamic guide. In some instances, we’ll very a lot be passive strategic suppliers of capital. Or in different instances, you understand, there’s nonetheless a necessity for added working capital and, in some instances, recapitalizations of companies. And we’re, you understand, well-suited to offer management and assist drive these processes.

So, we predict 2023 goes to be fairly an fascinating 12 months when it comes to our present capital footprint within the U.S.

Shaan Mir — Canaccord Genuity — Analyst

OK. Thanks for the reply there. And as soon as once more, congrats on the quarter, and I am going to cross it alongside.

Operator

[Operator instructions] Our subsequent query comes from Frederico Gomes of ATB Capital Markets. Please go forward.

Frederico Gomes — ATB Capital Markets — Analyst

Hello, good morning. Congrats on the quarter. Thanks for taking my questions. My first query is on the hashish retail phase.

I noticed that the variety of Spiritleaf’s shops declined this quarter, and apparently, that is coming out of your franchise community. So, might you touch upon what’s driving these retailer closures? Now, given the present setting in retail, how are the economics wanting prefer to Spiritleaf franchisees and what are you doing to perhaps enhance that? Thanks.

Zach George — Chief Government Officer

It is an important query. Very cool. Admire it. So, we have seen fairly a little bit of exercise and alter within the retail portfolio.

So, we have been actively opening doorways. In sure instances, closing doorways. You may recall that, you understand, lots of the location work or franchise associate choice was carried out by prior management. And so, nonetheless working to optimize that community.

And I’d anticipate kind of each iteration of what you’ll anticipate to occur, you understand, going ahead, together with natural openings, closings, and development by acquisition. So, that is actually a pure course of the place the, you understand, the portfolio must be pruned in a hyper-competitive setting. However general, the community is functioning, as you’ll anticipate, given the dynamics and the distinction within the pricing construction that is out there at this time.

Frederico Gomes — ATB Capital Markets — Analyst

OK. Thanks. After which when it comes to your first worldwide cargo this quarter to Israel and now with Zenabis, you understand, how ought to we take a look at the potential improve in worldwide gross sales there? And are you different potential markets akin to Germany, for instance?

Andrew Stordeur — President and Chief Working Officer

Yeah, thanks, Frederico. It is Andrew right here. Admire the query. Yeah, completely.

I believe our first transaction is — significantly with export is all the time essentially the most difficult dealer-wise. So, actually happy with our group’s capacity to execute that on the SNDL aspect in Q3. We simply clearly closed on the Zenabis acquisition on November 1st. So, it is, you understand, final two weeks right here, we have been form of transferring ahead there, understanding additional alternatives.

We take a look at export, as I discussed in my commentary, as nice optionality for our operations companies. As Canada form of figures itself out, we clearly are sustaining our concentrate on the home market. We’ve got numerous curiosity in our flower, each from a legacy Zenabis standpoint and a few present contracts, but in addition transferring ahead as different markets and regulatory frameworks figured themselves out. With reference to what the longer term holds on that entrance and different markets, we’re all of them.

, we will be fairly targeted on the present agreements that now we have in place, fulfilling these, however we’re establishing our operations to have the optionality required as extra regulatory, you understand, figures itself out relying on which nation, and we’re ranging from proceed to have a look at that. However, you understand, that is nonetheless some methods away, significantly in markets like Germany as we determine that out.

Frederico Gomes — ATB Capital Markets — Analyst

OK. Thanks for that. I am going to hop again to queue.

Operator

This concludes the question-and-answer session. I want to flip the convention again over to Zach George for any closing remarks.

Zach George — Chief Government Officer

Thanks, operator. And thanks, everybody, for becoming a member of us at this time. We look ahead to updating you on our progress within the close to future. Have an important day.

Operator

[Operator signoff]

Period: 0 minutes

Name members:

Zach George — Chief Government Officer

Jim Keough — Chief Monetary Officer

Tank Vander — President, Liquor Retail

Andrew Stordeur — President and Chief Working Officer

Shaan Mir — Canaccord Genuity — Analyst

Frederico Gomes — ATB Capital Markets — Analyst

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