Good morning, and welcome to Sundial Growers Q1 2022 Financial Results Conference Call. Yesterday, Sundial issued a press release announcing their financial results for the first quarter ended on March 31, 2022. This press release is available on the company's website at sndlgroup.com and filed on EDGAR and SEDAR as well. The webcast replay of the conference call will also be available on the sndlgroup.com website. Sundial has also posted a supplemental investor presentation found on the sndlgroup.com website. 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. 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.
Good morning, everyone, and thank you for joining us on our Q1 2022 Earnings Call. The Q1 of 2022 was both transformational and transitional for Sundial. Through our acquisition of Alcanna, Sundial is now Canada's largest private sector distributor of both liquor and cannabis, with an industry-leading balance sheet and access to capital. In terms of results, our net revenue was CAD 17.6 million, including one day of revenue from the acquisition of Alcanna on March 31, which represents an increase of over 78% over Q1 of 2021. Had the acquisition of Alcanna occurred on January 1, 2022, revenue would have increased by approximately CAD 162 million. A single day of contribution from Alcanna and Nova Cannabis in Q1 amounted to approximately CAD 2 million in revenue.
One of the most powerful highlights of this quarter is the material improvement in gross margins in our cannabis operations. While we have a significant amount of work yet to do, we have reduced costs and created a more balanced and diverse product mix that focuses on higher margin, higher quality cannabis. Our cultivation techniques and processes continue to be refined, and we achieved our all-time highest average THC potency results of approximately 24% in Q1. I am proud of our team at our facility in Olds, Alberta, and I would now put the quality of our flower up against any of our competitors. The cannabis retail experience and infrastructure acquired through Spiritleaf in 2021 have now been bolstered with the Alcanna Nova acquisition.
The transaction has materially improved our talent density, and these combined banners represent the largest cannabis retail network in Canada, with average daily transactions north of 21,000 during Q1 and more than CAD 900,000 in average daily revenue. The insights gained from this critical distribution infrastructure will be key to owning the customer relationship. Across a broader retail value chain in cannabis and liquor, Sundial now has access to unique insights into tens of thousands of daily shopper transactions at over 350 retail stores. This will enable us to optimize offerings, pricing, and promotions in both liquor and cannabis locations to better serve customers. The company's access to a larger customer base also provides us with a strong foundation for e-commerce and direct-to-consumer strategies that will improve Sundial's competitiveness.
Additionally, we will continue to assess private label opportunities and develop targeted merchandising strategies for our entire retail portfolio. We remain committed to the development and support of the Spiritleaf and Value Buds banners. Following a two-year break due to COVID, we are thrilled to welcome our Spiritleaf franchise partners to Calgary in June for our Circle event, which will facilitate strategic discussions, education, and engagement with Canada's top LPs. Nova's Value Buds banner has been highly disruptive in the Canadian industry and has become an absolute velocity machine in Alberta, with a current average annual run rate of around CAD 3 million per store, which is more than twice as much as the average retail door in the province.
In less than two months, we have been able to increase branded product distribution by shipping products to Value Buds stores and have started to realize synergies against an integration plan that will be a focus for the balance of the year. By the end of the first quarter of 2022, Sundial had deployed capital on several cannabis-related investments, resulting in a total of CAD 650.2 million, including about CAD 453 million to the SunStream Bancorp joint venture. For Q1 of 2022, the investment portfolio generated interest and fee revenue of CAD 3.9 million, equity pickup of CAD 4.1 million from SunStream, and an investment loss of CAD 17.7 million on marketable securities, which includes unrealized losses on previously publicly disclosed strategic investments in Village Farms International and The Valens Company.
The current rising interest rate environment has caused us to make non-cash accounting adjustments to our largely fixed-rate SunStream portfolio, resulting in muted Adjusted EBITDA contribution for the quarter. SunStream remains the largest Canadian-funded credit portfolio in the industry. Given rising interest rates and geopolitical turmoil, as well as the cannabis industry being rife with challenges such as oversupply, price compression, and saturation in the retail market, cannabis equity valuations have been under extreme pressure. As our investors are well aware, Sundial has not been immune to these market challenges. While our shares have outperformed global and Canadian cannabis indices on a one-year and year-to-date basis through May 13, we believe that we are undervalued and are committed to the relentless pursuit of shareholder value creation.
Sundial's debt-free balance sheet and ample cash reserves place us in an enviable position as we witness a violent and swift reckoning taking hold in the Canadian cannabis market. Continued aggressive cash consumption by our peers, reduced access to capital, and waning investor risk appetite are likely to accelerate sector rationalization as the industry slowly moves towards the formation of an oligopoly. While the Canadian sector is difficult and may be entering its darkest hours, the industry's rate of change is showing no signs of slowing down and will likely look vastly different over the next 12-24 months. We are keenly focused on the future state of our business and the industry as we focus on delighting consumers. Before I close, I'd like to provide an update on the previously announced share repurchase program.
In light of Sundial's management views on the company's liquidity, assets, operations, and the recent trading price of our equity, we view the repurchase of shares as an accretive use of capital. In addition, the company recently sought approval from the Alberta Securities Commission and Ontario Securities Commission to enable Sundial to sell put options to enhance this program. In summation, we remain optimistic about the future of regulated products in Canada. Sundial remains focused on building long-term shareholder value through vertical integration, including the expansion of our retail network, the further streamlining of the company's operating structure, and an enhanced offering of high-quality brands to consumers. Thank you, and I'll pass the call to Jim for comments on our financial results.
Thank you, Zach, and good morning, everyone. I'd like to remind you that all amounts that I discuss today are denominated in Canadian dollars unless otherwise stated. Certain amounts that I will refer to on this call are non-IFRS GAAP measures. Please refer to Sundial's management discussion and analysis for the definitions of these measures. On the last day of March 2022, Sundial acquired Alcanna Inc. and its 63% owned subsidiary, Nova Cannabis Inc. We are now reflecting a fourth operating segment, Liquor Retail. With the acquisition, Sundial is Canada's leading private regulated products retail platform. Please note that the Alcanna and Nova inclusions are comprised of just one day of operations following the acquisition on March 31, 2022. However, I will also discuss the estimated full Q1 2022 results for these entities. I'll begin with our consolidated results.
Net revenue for Q1 of 2022 was CAD 17.6 million, including the one day of revenue on the acquisition of Alcanna Inc., an increase of 78% over Q1 of 2021. Had the acquisition of Alcanna Inc. occurred on January 1, 2022, revenue would have been approximately CAD 164 million, and gross margin would have been approximately CAD 36 million. Our gross margin improved to CAD 3.4 for Q1 of 2022 compared to a loss of 3.5 million in Q1 of 2021, a 200% improvement. We reported a reduced net loss of CAD 38 for Q1 of 2022 compared to a 134 million loss in Q1 of 2021.
The CAD 96 million improvement in net loss is primarily due to a net revenue increase of CAD 7.7 million, share of profit from SunStream of CAD 4.1 million in 2022, and a non-cash change in fair value of derivative warrant liabilities of CAD 122 million. This is partially offset by a downward change in investment revenue of CAD 31 million and higher general and administrative expenses of CAD 3.6 million. We had an Adjusted EBITDA loss of CAD 0.7 for Q1 of 2022 compared to Adjusted EBITDA of 3.3 million in Q1 of 2021. The decrease was largely driven by fair value adjustments and central bank interest rate changes related to the SunStream joint venture in 2022, as well as realized gains on disposition of marketable securities in 2021.
General and administrative expenses for the three months ended March 31, 2022 were CAD 10.7 compared to 7.1 million for the three months ended March 31, 2021. The increase of CAD 3.6 million was mainly due to increases in salaries and wages, office and general, and professional fees due to the acquisition of Inner Spirit Holdings in July 2021, and to a lesser extent, to one day of Alcanna following the acquisition. The increase in professional fees was largely due to the completion of our year-end audit. Sundial had just over CAD 1 billion of cash, marketable securities, and long-term investments and no outstanding debt at March 31, 2022, and we had CAD 361 million of unrestricted cash at May 13. Now let's turn to cannabis cultivation and production.
Gross margin for Q1 of 2022 was negative CAD 0.2 compared to negative 3.5 million for the three months ended March 31, 2021. The improvement demonstrates Sundial's progress in supply chain and cost optimization despite price compression and lower revenue. Andrew will provide more details on the improvements we have achieved to date. Gross revenue for the cultivation and production of cannabis was CAD 11.3 million for Q1 of 2022, a small decrease of 3% compared to Q1 of 2021. This reflects a further shift to branded product sales compared to Q1 of the prior year. Sundial has terminated the service and sale agreement between Sundial and Sun 8 Holdings, Inc. for consideration of approximately CAD 3.1 million in cash and 2.9 million of Sundial shares.
Sundial has decontracted the royalty and eliminated the annual royalty fee that Sundial was paying to Sun Eight, which was CAD 2.6 million in 2021. Our cannabis retail results, including one day of Nova, are as follows. Gross revenue for the three months ended March 31, 2022, was CAD 7.5 million, including CAD 0.7 million, representing one day of sales for Nova. Gross margin for Q1 of 2022 was CAD 3.3 million. System-wide retail sales were CAD 34.6 million for Q1 of 2022, including that one day of Nova revenue. The Nova retail store results for one day were gross revenue of CAD 0.7 million and gross margin of 0.2 million.
While Sundial does not account for the results of the Nova retail stores prior to the acquisition date, the Nova results for the full quarter were gross revenue of CAD 49.8 million and gross margin of 9.4 million, or 18.8% of sales. As for our one day of liquor retail results, gross revenue was CAD 1.3 million and gross margin was CAD 0.3 million. Again, while Sundial does not account for the results of the liquor retail segment prior to the acquisition date, the results of Alcanna's retail locations for Q1 were as follows. Gross revenue for the Ace Liquor, Wine and Beyond, and Liquor Depot banners was CAD 115 million, and gross margin was 27 million, or 24.1% of sales. Finally, I'd like to review our investment operations.
By the end of Q1 of 2022, the company had deployed capital on cannabis-related investments totaling CAD 650 million, including 453 million to the SunStream Bancorp Inc. Joint Venture. Revenue from investments in loans in Q1 of 2022 was CAD -9.8 million. This is comprised of CAD 3.9 million of interest on credits held directly by Sundial, CAD 4.1 million on share of profit from the SunStream Joint Venture, and unrealized losses of CAD 17.8 million from investments in marketable securities which are marked to market. Downward performance of share prices from our strategic equity portfolio of Canadian cannabis-related investments resulted in these unrealized losses. I would now like to invite Andrew to provide further remarks related to cannabis operations.
Thank you, Jim. I'm pleased with our team's continued execution and commitment to cultivation excellence this past quarter. Our cannabis operations are continuing to build momentum as we remain focused on driving to a sustainable, profitable business. The Canadian cannabis market remains volatile, with too much low-quality product and geographical pockets of high retail saturation. These headwinds pose challenges, but they have also forced our business to be opportunistic by differentiating through product, pricing, and a better understanding of the consumer and customer needs. Our average net selling price in Q1 of 2022 increased by 5% versus Q1 of 2021 and showed an 11% increase compared to Q4 of 2021.
This pricing and mix focus supported material improvements in our gross margin on a year-over-year basis, with Q1 of 2022 at CAD -0.2 , compared to -3.5 million in Q1 of 2021. We are making progress with our gross margins in cannabis operations with more work required. While our overall revenue increased, our cannabis cultivation and production revenue decreased slightly by 3% compared to last year, mainly due to industry declines, most notably in the province of Quebec, as January and February industry sales in that province declined by about 3% as measured by Statistics Canada. From a quarter-over-quarter standpoint, we had some one-time factors through a previously announced licensing service agreement that positively impacted Q4 2021 revenue that was not repeated in Q1 2022.
Accounting for this one-time factor, our net revenue for cannabis operations was stable on a sequential basis and reflects the early progress and commitment to executing our retail vertical integration strategy across Western Canada and Ontario. We have a strong plan that our team continues to execute against, underpinned by the five key initiatives announced at our year-end update. Now, let me walk you through these initiatives and provide some additional context against each. We continue to make progress with our cultivation excellence focus. This has contributed to an improvement in our cultivation consistency with Sundial's highest average weight and potency results achieved in Q1 of 2022, coming in at 23.9% THC. This represents a 1.5% increase from the previous quarter.
Further, Sundial's average weighted yield per sq ft broke a new record for Sundial in March 2022, with a weighted average yield of 64g per sq ft. As we continue to focus on cost, we have made significant progress in optimizing costs on pre-roll packaging and processes. From an operational standpoint, we continue to identify significant cost savings beyond our synergy initiatives. The company has made material improvements in its cultivation and innovation pipeline, which is contributing to an enhanced product portfolio nationally. In Q1 2022, priority SKU distribution increased nationally by 1,389 points of distribution as measured by internal CRM reporting. Further, we continue to partner effectively with Provincial Boards, securing 159 new inhalable product listings nationally year to date.
This innovation success rate represents a 92% strike rate versus the company's plan in an industry where provinces and retailers continue to scrutinize and rationalize SKUs. Western Canada represents the largest gain on new listings year to date, with 104 SKUs, followed by OCS with 20 SKUs, SQDC with eight SKUs, and Atlantic Canada with 27 SKUs. Our vertical integration strategy is proving fruitful, and we expect to see better results in the coming quarters. Sundial continued to see brand share increases for its house brands sold in Spiritleaf locations through Q1 and we continue to see product penetration momentum in the Q2 of 2022. Finally, our fifth initiative is analytics and insights.
With over 350 retail locations and thousands of daily shopper transactions, we have a unique advantage as one of the largest vertically integrated players in Canadian cannabis. These shopper insights are now being deployed with our franchise partners, other licensed producers, and our retail customers nationally as we look to take accountability for a healthier industry dynamic for all of our stakeholders. We look forward to sharing some of these important capability building initiatives through advanced analytics and insights at our upcoming Circle event next month. In summary, we remain focused and consistent in our approach with our cannabis operations division. While the industry continues to evolve, we believe our differentiated strategy is on target and beginning to show proof points of sustainable progress moving forward. I will now turn the call back to Zach for closing remarks.
Thank you, Andrew. Our goal is to deliver sustainable profits and returns to shareholders through 2022 and beyond. By focusing on fundamentals and executing a contrarian strategy relative to our peers, we believe that we are in the process of setting Sundial up for success. We have significant work ahead to reach our goals, and the path forward is unlikely to be a straight line. Through a vertically integrated model and an unapologetic focus on the Canadian market, Sundial is on a differentiated path towards consumer delight and the creation of shareholder value. I'll now pass the call to the operator for analyst questions.
Thank you. We will now begin the analyst question and answer session. To join the question queue, you may press star then one on your telephone keypad. You will hear a tone acknowledging your request. If you are using a speakerphone, please pick up your handset before pressing any keys. To withdraw your question, please press star then two. The first question is from Frederico Gomes with ATB Capital Markets. Please go ahead.
Hi, good morning, guys. Thanks for taking my questions. I guess my first one is on your buyback program and the plan of selling puts against your own stock. Is there a metric or metrics that you're looking at to buy back stock? You know, is it gonna be based on book value per share or net tangible book value, you know, or some other metric like that that we should be looking at? Thank you.
Thanks, Frederico. It's Zach. Yeah, we're not going to give out specific metrics on the buyback. We will have significant transparency as any purchases or transactions require filing in line with securities regulations. There'll be- t he market will be well aware of the transactions and where they are, but don't wanna get into trading strategies on a public call at this time. Thanks.
Okay, understood. The second question is just looking at your investments here in Canada, you know, your or a stake in Village Farms and Valens, how are you looking at those investments right now, just given the decline in the stock prices? You know, if you look at Valens, for example, stock's down, you know, 90% over the last year. The amount that you paid for your stake, you know, could now potentially is the market price of the company right now. I'm just curious on how you're looking at those investments right now. It seems like the market is offering some great prices there. Just your strategy going forward. Thank you.
Sure. Certainly the mark-to-market impact across the space, but with those two securities specifically has been painful as of late. It also creates an opportunity, especially if you're thinking about potential industry consolidation or M&A. All else being equal, if you were looking at these companies as potential acquisition targets, you would welcome the decline in prices. Specifically, we see some very interesting capabilities with both Village and Valens. Valens is a very unique has unique manufacturing and processing capabilities in terms of 2.0 products. Village Farms is a very well-run upstream cultivator with extremely attractive cash cost of cultivation in their British Columbia-based operation.
Again, we do expect a further consolidation in the industry. You know, the timing is sometimes difficult to plan, and there's many reasons why, otherwise, you know, good transactions can stumble or not get done. We think that you're going to see further M&A in the space and don't think that the Alcanna transaction is necessarily the last, you know, acquisition that Sundial engages in.
Thank you. That's really helpful. Maybe just if I could squeeze one more question here on your SunStream portfolio. You mentioned that it's mostly fixed rates. Can you give us a sense on the weighted average fixed rate of that portfolio? And could you comment on the potential risk to your real rate of return there, just given inflation and rising interest rates? Thank you.
Sure. Jim, do you wanna comment on average yields in the investment portfolio?
Sure. Thanks, Zach. Yeah, our weighted average return on the portfolio is around 13%. I think we disclosed in the press release that the impact of the fixed rate changes was a little over CAD 6 million in Q1.
Okay. Thank you. I'll get back in the queue.
Once again, if you have a question, please press star then one. The next question is from Pablo Zuanic with Cantor Fitzgerald. Please go ahead.
Hi, this is Matthew Baker on for Pablo. Thank you for taking our questions. Can you describe how the competitive environment has changed for SunStream Bancorp? We think there's more supply and capital yields have also come down. Also related to that, can you remind us of the growth plans for SunStream? Thank you.
Sure. In terms of the competitive environment, you know, there has been a bit of a cottage industry that's popped up in the U.S., in various formats. You actually have publicly listed entities that have taken the form of BDC or mortgage or property REIT models, that I think you're well aware of. I would say that many individual states are starting to go through their own cycles. As some degree of oversupply and saturation impact these markets, there are pricing and margin pressures out there.
That being said, you know, we're quite pleased to be for the most part at the senior point in the capital structure for these companies and are a strong partner to help them work through consolidation and other business improvement efforts that they have on the go. We've previously announced the commitment that our board has made to the SunStream Limited Partnership Fund and strategy. There's no intention to update or increase that at this time. Still working on the existing portfolio and building out the previous allocation.
Okay. Thank you for that. For a follow-up question, we realized that a company now has four verticals, but would you consider entering the cannabis tech and/or fintech space in a large way?
You know, our sole focus right now is really the integration of this transformational Alcanna transaction. You know, we do see a number of potential business opportunities in other lines, but really trying to stay focused on our knitting right now in terms of proper integration and getting our feet underneath us, and really showing the market and our investors the benefits of this vertically integrated model. Thereafter, as we get to a more stabilized rate of profitability, we'll be able to lift our heads up and think about other opportunities. We're really not looking to get outside of the four segments we're working on currently.
Thank you.
Once again, if you have a question, please press star then one. This concludes the question and answer session. I would like to turn the conference back over to Zach George for any closing remarks.
Thank you, and thanks to all for your support in joining our call. We look forward to updating you on our progress in the near future. Have a great day.
This concludes today's conference call. You may disconnect your lines. Thank you for participating, and have a pleasant day.