Good morning and welcome to Sundial Growers' second quarter 2021 financial results conference call. As a reminder, all participants are in listen-only mode and the conference is being recorded. After the presentation, there will be an opportunity to ask questions. [Operator Instructions].

Yesterday afternoon, Sundial issued a press release announcing their financial results for the second quarter ended June 30, 2021. This press release is available on the company's website at sndlgroup.com and filed on EDGAR and SEDAR as well.

Presenting on this morning's call, we have Zach George, Chief Executive Officer, Jim Keough, Chief Financial Officer and Andrew Stordeur, President and Chief Operating Officer.

Before we start, I would like to remind investors that certain matters discussed in today's conference call or answers that may be given to questions 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.

I would also like to note that we are conducting the call today from our respective remote locations. As such, there may be brief delays, crosstalk or minor technical issues during this call. We thank you in advance for your patience and understanding. We will now make prepared remarks and then we will move on to the question-and-answer session.

I would now like to turn the call over to Zach George..

Good morning everyone and thank you for joining us on our second quarter 2021 earnings call.

The first half of 2021 has been a transitional period for Sundial and following on our aggressive restructuring in 2020, we have been able to rapidly reshape our business model to focus on a two pillar strategy that, we believe, will position our shareholders for future success.

The first pillar consists of our core cannabis operations where we are leveraging our strong financial position to align our operation as to what we expect to be a healthier and more profitable Canadian cannabis market in coming years.

With the post quarter acquisition of Inner Spirit, which will refer to moving forward as SpiritLeaf in keeping with the recognition of the brand in the retail marketplace, Sundial is now vertically integrated.

The acquisition of SpiritLeaf enables Sundial to directly manage and influence all aspects of production, distribution and sales channels which, we believe, will result in increased sales and profitability. Most importantly, the SpiritLeaf acquisition demonstrates our commitment to owning the relationship with the consumer.

As we remain focused and committed to our cultivation and processing activities, our upstream cultivation results within our indoor modular facility continue to improve amidst the intentional curtailment of activity in response to market conditions.

I am excited to highlight that we continue to improve our cultivation results and have achieved our strongest harvest outcomes in May and June 2021 with THC potency consistently above 20%.

We continue to invest time and effort into our expanded library of strains which have yielded average THC potency in the mid 20% range during the research and development phase and commercialization of these strain is expected to occur in early 2022.

The second pillar of our business is our investment operations, where we are putting our liquidity position to work by strategically providing our investors with exposure to the rapidly growing global cannabis industry. Much of our capital exposure to-date has been committed to our joint venture, SunStream Bancorp.

The SunStream Bancorp team is focused on deploying capital within the cannabis sector on an attractive risk-adjusted basis and is exploring a broad spectrum opportunity within financial services. Sundial's investments in cannabis-related credit facilities and the SunStream joint venture totaled CAD253 million as of June 30, 2021.

These investments generated interest and fee income of CAD7.1 million for the quarter compared to CAD2.8 million in the previous quarter and are tracking an annualized rate of return of approximately 13%. Our balance sheet remains strong and we remain debt-free.

We have a total capital base, including liquid securities, loan assets and unrestricted cash of more than CAD1.2 billion. Sundial expects to benefit from a growing interest income stream as more of our capital is deployed and the resulting cash flow has materially buffered our pre-profit core cannabis operations to-date.

We have also made a small number of select equity investments in businesses that we believe can enhance our upstream and downstream capabilities. Our second quarter performance continued to be impacted by retrenchment in our cultivation activities and our refusal to push suboptimal product into the market.

As we mentioned in the past quarter, Sundial has no interest in pursuing unprofitable revenue growth but we are unwilling to seek the maintenance of market share at all costs. We have been focused on restructuring our cultivation activities, which has included changes to our processes as well as workforce and other cost reductions.

This has allowed us to continuously improve our cultivation outcomes and remain focused on best practices to deliver great results in potency, yield and terpenes, as mentioned previously. We are committed to excellence in cultivation in our modular indoor facility and our brand promise to consumer is fundamental to our strategy.

We are focused not only on affecting change in the challenging and unstable Canadian cannabis industry landscape today but are charting the characteristics of a dominant and profitable business model in a more healthy and stable environment that we expect to evolve to within the next three years following necessary regulatory reform, industry consolidation and a greater balance between supply and demand.

We remain focused on continuous improvement in our quest to delight consumers. Thank you all and I will now pass the call to Jim for commentary on our financial results..

Thank you Zach and good morning to all who are listening in. I would like to remind everyone that all amounts that I mention this morning are denominated in Canadian dollars unless otherwise stated.

As Zach discussed, the first half of 2021 was a transitional period for Sundial where we have raised and deployed significant amounts of strategic capital and realigned our business into two segments for operational and reporting purposes, cannabis operations and investment operations.

I will start with our cannabis operations results and adjusted EBITDA. In the second quarter of 2021, adjusted EBITDA from continuing operations was a loss of CAD0.2 million compared to earnings of CAD3.3 million in the prior quarter. Decrease in adjusted EBITDA was primarily due to the following factors.

Lower realized gains on marketable securities, increased SMG&A associated with the cost of 2.4 million shareholders of record for Sundial's AGM and lower average sales prices. This was offset by improved cost of goods sold per gram.

Comparing first half year-over-year results, we are pleased that adjusted EBITDA from continuing operations was CAD3.1 year-to-date compared to a loss of CAD15.5 for the six months ended June 30, 2020. The CAD18.7 million increase was due primarily to the following.

Revenue from investments, interest and fees, including the SunStream joint venture of CAD22.1 million offset by reduced adjusted gross margin on cannabis operations of CAD5.3 million from the combined effects of lower sales volume, lower prices and reduced cost of goods sold per gram.

Net revenue from branded cannabis products increased slightly in the second quarter to CAD7.3 million from CAD7.2 million in the previous quarter, despite provincial boards reducing inventory levels, challenging retail market conditions and continued price compression across the industry.

These market dynamics impacted all of Sundial's formats and brands in the second quarter. Revenue from licensed producer sales was CAD1.9 million in the second quarter compared to CAD2.7 million in the first quarter.

Average gross selling price per gram equivalent of branded products, net of provisions, was CAD3.19 per gram in the second quarter of 2021 compared to CAD3.15 per gram in the prior quarter despite continued price compression and a consumer shift to value products seen across the industry.

General and administrative expenses were about 42% higher at CAD10.1 million compared to CAD7.1 million in Q1. This increase was primarily due to mailing and distribution costs related to conducting our AGM for approximately 2.4 million individual Sundial shareholders.

In Q2 2021, sales and marketing expenses increased by 37% to CAD1.3 million from CAD950,000 for the previous quarter. Sundial continues to follow cost discipline, specifically when it comes to brand development and promotion expenses, however we have resumed targeted sales and marketing investments on certain of our strains and formats.

Adjusted gross margin before inventory impairment and fair value adjustments for the three months ended June 30, 2021 was negative CAD0.4 million compared to negative CAD1.6 million for the previous quarter, as a result of Sundial's ongoing focus on cost optimization and offering the most competitive and profitable strains and brands to its customers., against a backdrop of industry-wide price compression and higher comparative operating costs associated with our premium facility Total capital expenditures in the second quarter of 2021 were CAD1.6 million compared to an immaterial amount in the first quarter.

We had budgeted CAD5.7 million in capital expenditures for full year 2021 related to processing automation, minor facility improvements and maintenance capital. Sundial's mills net loss in the second quarter of 2021 was CAD52.3 million compared to a net loss of CAD134.4 million in the previous quarter.

Net earnings in the second quarter of 2021 were negatively impacted by a CAD60 million long-lived asset impairment charge on the Olds facility.

The company determined that indicators of impairment existed during the six months ended June 30, 2021 when utilization of capacity in the facility was curtailed to align cannabis production with current demand estimates. Excluding this non-cash impairment provision, Sundial would have had net income of CAD7.7 million for the quarter.

Let's review our liquidity and capital structure during the quarter. We closed the second quarter of 2021 with CAD885 million of unrestricted cash on hand.

And as of August 9, 2021, the company had an unrestricted cash balance of approximately CAD760 million in addition to restricted cash, long term investments and marketable securities at a market value of CAD447 million for a total of CAD1.2 billion when combined.

Outstanding share count was 2.03 billion at the end of Q2 and sits at 2.06 billion today. During the second quarter of 2021, Sundial issued 252.9 common shares pursuant to at-the-market equity or ATM programs and warrant exercises for total proceeds of CAD327.4 million for an average price of CAD1.30 per share.

Company's ATM facility has been inactive for 49 prior to yesterday's news release. Subsequent to quarter-end, Sundial issued an additional 26.9 million shares related to the SpiritLeaf acquisition and settlement of related SpiritLeaf debt. As of today, the company remains debt-free.

Asset value per share at June 30 2021 including cash, loans, marketable securities and the Olds facility at net book value was approximately CAD1.34 billion or CAD0.66 per share. Now let's turn our focus to our investment operations.

As mentioned earlier, Sundial's investment income has been classified as income from operations as Sundial intends to continue to deploy significant capital, targeting a portfolio of attractive risk return opportunities in the cannabis industry in debt, equity and hybrid investments.

Sundial continued to strategically deploy its capital throughout the second quarter and subsequent to quarter-end. To summarize our deployment capital in our investment segment to-date.

Through the end of the second quarter, the company had funded several cannabis related debt and equity investments totaling CAD354.5 million including CAD187.6 million to the SunStream joint venture.

These investments generated CAD9.4 million in investment revenue in the second quarter, including interest, fees and realized and unrealized gains on marketable securities. On July 7, 2021, the company announced that it had increased its commitment to the SunStream joint venture to $538 million from the previously announced commitment.

In the second quarter, the company's portfolio of credit-related investments generated an annualized rate of return of approximately 13%. Sundial continues to strategically deploy its capital with a focus on maximizing cash flows and shareholder value.

For example, on May 4, 2021, Sundial announced it had acquired 10.1% of the issued and outstanding common shares of The Valens Company. Now, I would like to invite Andrew Stordeur, President and COO of Sundial to provide remarks related to cannabis operations..

Thank you Jim. Throughout the first half of this year, our top priority within cannabis operation has been on improving our cultivation consistency with a focus on the premium inhalable segment.

While progress has been substantial, we continue to see tremendous opportunity for increased improvements with our facility operations for the balance of 2021. Let me review some of the progress we have made over the second quarter of 2021.

Sundial's commitment to cultivation excellence and our small batch at scale approach has been developed around three pillars of focus. People, process and plants. In terms of people, we continue to configure our supply and operations teams to adapt to the industry dynamics.

We recently implemented a new pod structure inside of our Olds facility to increase efficiency and effectiveness across all functions. One of the primary objectives of our supply chain moving forward will remain on driving a simplified SKU assortment with a focus on core inhalable available offering.

Year-to-date, we have taken a different approach on product innovation versus our industry peers as we have simplified our SKUs nationally by 65%. We are excited about our revised innovation pipeline for the balance of the year and remain focused on margin accretive offerings that supplement our existing core portfolio.

Our second cultivation pillar is around process. We have implemented several improvements inside of grow rooms, primarily focused on room environment, plant maintenance and fertigation. In Q2, we achieved the company's strongest cultivation results in May and June of 2021 with an average THC potency greater than 20% and yields above target.

These products will be available to consumers in Q3 2021. We have completed commissioning on our new fully automated pre-roll machine which has allowed us to double our annual production capacity while significantly reducing costs. Current capacity sits at 14,000 units per shift with further opportunity to increase over time.

Through a comprehensive review of our Sundial portfolio, we launched three new Palmetto cultivars in the second quarter of 2021 and shipped approximately 9,300 cases across the country The initial consumer feedback on all three strains has been positive.

During Q2 2021, Sundial also launched two concentrate products in the province of Quebec, a sativa hash and an indica hash. Our third cultivation pillar is around plants. Now I am very proud of our team inside of our Olds facilities as they have been working hard over the past year on fully revamping our genetic R^D capability.

The early results from this work are promising, particularly around potency, terpenes profiles and plant yield. We entered the commercial flowering stage of 13 new cultivars in the second quarter of 2021, some of which are exclusive to Sundial.

The preliminary outcomes from these new strains provided results averaging higher than 22% THC and greater than 2% on terpenes. These cultivars are expected to be harvested in Q3 2021 and select for limited release by year-end.

Subsequent to the second quarter, Sundial has begun final packaging and is expected to launch a 28 gram LA Kush Cake format under the Top Leaf brand in select provinces.

We believe a large format premium offering in flower will provide consumers the choice and quality as expected from our Top Leaf brand, which is hang drive, slow cured, individually inspected, hand manicured and hand bottled for a differentiated experience. I would like to turn our attention to Sundial acquisition SpiritLeaf.

SpiritLeaf has done a tremendous job in growing the banner network to over 100 locations. We believe an optimal assortment of top-selling products coupled with a consistent premium shopping experience will continue to differentiate the SpiritLeaf store network.

Our integration work continues to progress as we look to unlock further growth opportunities and strong partnerships with their franchisee leaders across the country.

We will also be launching the SpiritLeaf franchisee advisory council to engage our franchisees and to obtain feedback and collaboration on strategic initiatives to drive the continued growth and success of the SpiritLeaf banner.

Our balance sheet strength allows us to position ourselves for the normalization of market conditions that is expected to evolve over the next few years without pursuing the short term market share and unsustainable margins at all cost approach. We remain focused and have momentum around our cultivation excellence aspirations.

While we need to balance cost and return, we continue to invest in capability improvements inside our cannabis operations as a key enabler to unlocking value for consumers and customers across the country. With that, I would like to turn the call back to Zach for closing remarks..

Thank you again for joining us today. This is an exciting time to be in the cannabis space. We remain very optimistic as we continue to execute against our strategy. I hope that you and your families remain safe and healthy and have an opportunity to enjoy this summer season.

We look forward to updating you on further progress that Sundial makes as the year progresses. I will now turn it back over to the operator for the question period..

[Operator Instructions]. The first question comes from Tamy Chen with BMO Capital Markets. Please go ahead..

Thanks. Good morning. First question is, I wanted to go back to the increasing your commitment to SunStream as pretty meaningful increasing the capital commitment.

So do you mind to just elaborate a bit more? What are you seeing, I guess, in the pipeline that prompted you to raise the commitment so meaningfully?.

Hi Tamy. Thanks a lot for the question. So yes, this market has been evolving very quickly. And we actually see a target pipeline well north of CAD1 billion in front of us. Of course, certainty that we can execute and close on that quantum of transactions.

But our increased commitment is very much in line with the expanded opportunities that we see in front of us..

And this pipeline of well north of CAD1 billion, I presume that wouldn't just be in Canada anymore.

Is that correct? Are you broadening out beyond Canada for these opportunities?.

That's right, Tamy. That wouldn't just be in Canada. There are international credit and other opportunities that we are seeing..

Got it. Okay. And just the follow-up is, any additional color you can provide on how we should think about the potential uplift in your branded sales trajectory into Q3 and then Q4 with these new cultivars that you are launching? Thanks..

Yes. So I will hand that to Andrew to give a little bit more color, but obviously, Tamy, we don't give forward guidance at this point in time, given the general lack of visibility in the industry. But I will let Andrew share a bit about our excitement around cultivars and select innovation..

Thanks Zach. And thanks Tamy for the question. So yes, we are very excited, very optimistic around what we have got in the market currently.

I think the three that we are seeing very good traction on in some of the highest velocity sales that we put in the market particularly around LA Kush Cake, which is on our Top Leap brands, Romulan and Platinum Cookies under our Palmetto brands that we are continuing to see that move in all markets that we have those products launched.

I did also mention that we are in the commercial flowering stage of 13 new genetics that we have been working hard on over the past year and we are going to be harvesting those in quarter three. And depending on those results, we will look to potentially put some small batch in to select provinces this year.

But as we noted in the opening remarks, we will scale most of those that we decide to bring to market in the early part of 2022, I am very excited and optimistic about that. So exciting kind of news coming on, on that front for cultivations, for sure..

Okay. Great. Thank you..

The next question comes from Vivien Azer with Cowen. Please go ahead..

Hi. Good morning. Thank you.

In terms of the new cultivars that you have hitting the marketplace in 3Q 2021, can you just talk about the wholesale commitments that you have already received around that product? Is it accounted for? Or do you feel assured that you are going to have shelf space to sell that?.

Hi Vivien, it's Andrew. Thanks for the question.

Just so I am clear regarding the current ones we have in the market or the ones that we referenced as far as the 13 new genetics?.

The new genetics. Thanks..

Okay. Perfect. Yes. So actually, we have been communicating with our customers around just kind of our R&D plan. And part of our R&D plan going back a year ago was really around what our consumer is looking for and that was input from our research as well as kind of the feedback from our customers.

What I can say is, once we harvest these, obviously got to go through the process and look at the results and make sure they meet the spec that we are requiring to launch. But this currently is not in our plan here to go as far as our revenue and mix goes.

So, we look at that as potential upside and we certainly have great feedback and customer commitments from the boards that we have presented into the retailers we have presented on these.

So yes, it is something that we would have incremental to the plan year to go and we are just going to have to wait for those results as they come down this quarter..

Understood. And a similar question on the pre-roll.

Given that you have the new manufacturing equipment in place, do you feel confident that there is appetite in the marketplace for more pre-roll capacity?.

Yes. Look, I think it's a great question. I would view our commissioning of the new equipment and the automation that we brought into the facility over the last six months has been substantial. It starts with a pretty simple view from our end that better sales requires better cannabis. And that's inclusive of all the formats we put in there.

So, we look at things like potency and quality improvements and good yields per square foot and sell product and COGS are kind of key success factors. But certainly to answer your question, pre-roll continues to be a segment that's continuing to grow.

We are growing with that segment and we have obviously got some new cultivars that we are putting in the market and the corresponding consumer customer feedback was really good on that. So we are well-positioned, Vivien, on meeting the demand as our pre-roll and as the segment continues to grow..

Understood. Thank you very much..

The next question comes from Frederico Gomes with ATB Capital Markets. Please go ahead..

Thank you. Good morning guys. Just wanted to touch showing the retail market. We are seeing many stores opening in Canada. There's a lot of pressure coming especially from the value segment in retail.

So could you give us some color on your strategy there? How do you think that may impact your sales and margins and the SpiritLeaf network? And how you plan to compete there? Thanks..

Yes. Maybe I will talk to that first. Thanks very much of the question. Look, there's no question that the retail landscape is highly competitive and we actually expect a significant amount of attrition in the space. So not all operators are going to be successful here.

I think on one of our previous calls, we talked about hitting a saturation point in retail. And so we think about the premium in-store experience and connection point with the consumer, which is really exciting to us, in the phenomenal platform that SpiritLeaf has built out along with financial stability as being key ingredient to success.

And when you combine that with best-in-class technology capabilities, we think we will be in a great position to not just weather the storm would also be successful. We expect significant consolidation and actually quite a bit of bloodshed in the retail segment in Canada. And so we are excited to be competing..

Okay. No, that's helpful.

And then just maybe if you could talk about in terms of the mix of owned stores versus franchises? How do you see that needs evolving? What is your strategy there for your expansion? And also, if you could maybe describe what's the value proposition there for franchisees that you guys have? What are the main advantages that SpiritLeaf offers for retailer to continue be becoming your franchisee? Thank you..

Sure. I will pass part of that question to Andrew. We are not going to specifically guide to a mix or split between corporate and franchise locations. It's worth noting that we are also open-minded when it comes to managing multi-banner retail.

But in terms of the value proposition and the brand attributes, Andrew, do you want to shed a little light with your perspective?.

Yes. I think we view this as obviously a great opportunity to ensure that the Sundial portfolio is well-positioned inside the SpiritLeaf network. But we are also, we are going to be really partnering well with our franchisees. And I think I mentioned that in my comments with the regards to the franchisee advisory council.

These operators, they have been doing this for a while now. They understand what works. And we are going to be leveraging some of the research and the data and certainly the actionable insights that we have to make sure that we have got the right portfolio. And that doesn't mean 500, 600 SKUs, the predator rule does not discriminate in cannabis.

So I think that's the value proposition we are going to bring. It's certainly listen first, understand what's working, what's not working. The answers are there at the franchisee partners.

And I think we can add a ton of value as we have a different hat that we can wear and certainly looking at some of the brands that are out there, I want to make sure we have the right assortment in place.

And of course, we are going to make sure that we can augment that accordingly with the Sundial portfolio because we do think we have got a great assortment as well to supplement what consumers are looking for..

That's helpful. Thank you. I will hop back in the queue..

The next question comes from Shaan Mir with Canaccord. Please go ahead..

Hi. Good morning and thank you for taking my question. The first one, I just wanted to touch on the revenue line here, specifically as it relates to excise taxes and the spread between gross and net revenue in the quarter.

I was hoping you could help us understand some of the underlying components and the moving parts that went into that calculation, especially as we look at how the excise tax really resulted in a sequential decline on the net revenue while the gross revenue was up 8%..

Yes. Shaan, this is Jim. Let me just take that one and it really just relates around the mix between branded sales and LP sales. And LP sales clearly don't have the excise tax attached to them. And so it's just a function of that shift and it increased quarter-over-quarter to more branded product in Q2 over Q1..

Okay. Thank you. And my second question. So on vapes, that's been our core part of the inhalable strategy for Sundial and so I wanted to touch on that a bit. This is now the second quarter where vapes are showing some weakness in the product mix. And you previously noticed that was a result of some increased competition in this segment.

I was just wondering what you views were on your ability to attack and drive sales in that segment and how Sundial plans to recapture some of that momentum, whether it be through product innovation or increased marketing, whatever it may be? So what's the attack strategy and what do you think are the catalyst needed see those vapes sales start progressing once again? Thank you.

That's it for my questions..

It's Andrew. Thank you for the question. I think it's a good one in regards to kind of what we are seeing in the segment. And obviously our sales strategy for us to focus is on premium inhalables. Vape has been a big part of that strategy from day one. We were one of the first to launch.

And obviously, you mentioned increased competition that's come into the segment has been aggressive. Maybe just I will double click on that a little bit. When you think about looking at the mix component side of Vape, we have broad spectrum as kind of the anchor that we decided to go to the market with.

The lion share of what we are seeing in the vape segment is really distillates, flavor distillate to be specific. And we are monitoring that accordingly. Obviously, Health Canada has got consultation out with regards to how that's going to be viewed moving forward. So we are very aware that the potential regulations could change over time.

And that's going to impact distillate, flavor discipline to be specifically as far as the relevancy goes on that front. However, all that to say, I think a couple of things that we are focused on with regards to continuing to build awareness on our great portfolio of vape offerings.

And we are certainly looking at larger formats, particularly in one gram. We think that's going to continue as far as consumer preference goes on that sizing. And we are also going to be launching on the back half of this year under the Top Leaf brands some innovation with regards to live-resin. We think that's also another great differentiator.

We have mentioned that in a previous call and we are excited to do that. I think that's going to create the right awareness that Top Leaf is here to stay when it comes to premium inhalables and we will we will continue to focus on that side of it as well too. So fully holistic approach on it.

Maybe certainly been pressured, certainly by competition, but we have got some opportunities in the future here to go that are going to really add some relevance there for us..

Thank you Andrew. And that's it for my questions. Congrats on the quarter once again..

[Operator Instructions]. The next question comes from Pablo Zuanic with Cantor Fitzgerald. Please go ahead..

Good morning. Look, when I look at your company, I appreciate all the efforts you are making on the cannabis side. But you still have only about, by my math, about less than 2% market share on branded rec, right. And of course, you have those $1.2 billion there on the balance sheet that you talked about.

So it's more how you deploy that capital going forward that creates value and necessarily going from 2% to 2.2% market share in rec. So if I am right about what I am saying and I have to say a comment here, you have been very disciplined about how you are using that cash, right.

You didn't go and spend CAD350 million on a CBD brand like some of your peers. But I guess the first question would be, how do you decide when you are making minority equity investments, whether it's done through Sundial or through SunStream? Because I mean I suppose that, I mean, SunStream is not just lending, right. It's also equity and hybrids.

Can you comment on that for us, please? Thanks..

Hi Pablo. It's Zach. Thanks for the question. I am happy to clarify. So the vast majority of the focus for SunStream right now is really driven by the robust opportunities that we see, is really focused around credit, structured credit and some hybrid instrument opportunities.

So when you are thinking about minority investments specifically, I would say that it's a very small part of what we are focused on. And you are never going to see more than a small handful of names where we have minority equity positions. Generally speaking, we don't see that as an area where the best risk adjusted returns would be.

We are very focused internally and we believe that the credit opportunity in cannabis is quite large and very attractive. So when it comes to minority equity investments, those would typically be done off the Sundial balance sheet and not through our joint venture relationship and SunStream Bancorp.

Hope that helps?.

That's helpful. But just to follow-up on that. When you talk about structural credit and hybrids, I suppose that that may include warrants or compares that eventually could be converted into equity, right.

Am I right about that?.

You are potentially correct, but that doesn't necessarily mean that we would end up owning the underlying equity. They are structured means earning that return, receiving cash. There's a lot of different ways that those economics can accrue to a lender or an investor..

Okay. Thank you. And the very last one. Again, you have been very disciplined, in my opinion, but the industry is consolidating. Some of your peers are making a lot of acquisitions. So you are going to wait too long, I would say, right.

So is it about growing more in Canada? Is it about investments overseas, Latin in America, Europe? Can you just remind us about that on the equity side? Because I appreciate again, yes, Canada has potential but CAD1.2 billion, is it going to go all into Canada equity investments? Thanks..

It's a great question, Pablo. Yes. So just for perspective, in terms of that total capital balance, do we expect it to be entirely or the vast majority be deployed in Canada? No, not necessarily. But we are highly focused on the Canadian market and working on better understanding the evolution of the sector.

You will notice that many of our peers will direct investor attention away from Canada focused on Europe, focused on the U. S., bigger markets. We are going to take advantage of opportunities and that will largely be expressed through capital that's deployed through SunStream Bancorp when it comes to international markets.

But we are laser focused on understanding where we are going in terms of consolidation, attrition and business failure and also common sense regulatory reform, which we are starting to see and it's a key part of the equation as well..

Great. Thank you..

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

Thanks everyone for joining today. We appreciate your time. Be safe..

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