Welcome to Sundial Growers Q2 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. To join the question queue, you may press star then one on your telephone keypad. Should you need assistance during the conference call, you may signal an operator by pressing star and zero. If you are participating online, you can submit a question using the "Ask a Question" tab on your screen. Yesterday afternoon, Sundial issued a press release announcing their financial results for the Q2 ended June 30th, 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'd 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'll move on to a question-and-answer session. I would now like to turn the call over to Zach George.
Good morning, thank you everyone for joining us on our Q2 2021 earnings call. The H1 of 2021 has been a transitional period for Sundial, and following our aggressive restructuring in 2020, we've 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 operations with 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 we 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 of 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 strains 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 the financial sector. SNDL's investments in cannabis-related credit facilities and the SunStream joint venture totaled CAD 253 million as of June 30th, 2021.
These investments generated interest and fee income of CAD 7.1 million for the quarter, compared to CAD 2.8 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 CAD 1.2 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've also made a small number of select equity investments in businesses that we believe can enhance our upstream and downstream capabilities. Our Q2 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, and 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 consumers 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'll now pass the call to Jim for commentary on our financial results.
Thank you, Zach. Good morning to all who are listening in. I'd like to remind everyone that all amounts that I mention this morning are denominated in Canadian dollars unless otherwise stated. As Zach discussed, the H1 of 2021 was a transitional period for Sundial, where we've 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'll start with our cannabis operations results and adjusted EBITDA. In the Q2 of 2021, adjusted EBITDA from continuing operations was a loss of CAD 0.2 million, compared to earnings of CAD 3.3 million in the prior quarter. Decrease in adjusted EBITDA was primarily due to the following factors: lower realized gains on marketable securities, increased SG&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 CAD 3.1 million year to date, compared to a loss of CAD 15.5 million for the six months ended June 30th, 2020. The CAD 18.7 million increase was due primarily to the following: revenue from investments, interest, and fees, including the SunStream joint venture of CAD 22.1 million, offset by reduced adjusted gross margin on cannabis operations of CAD 5.3 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 Q2 to CAD 7.3 million from CAD 7.2 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 SNDL's formats and brands in the Q2. Revenue from licensed producer sales was CAD 1.9 million in the Q2, compared to CAD 2.7 million in the Q1. Average gross selling price per gram equivalent of branded products, net of provisions, was CAD 3.19 per gram in the Q2 of 2021, compared to CAD 3.15 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 CAD 10.1 million compared to CAD 7.1 million in Q1. This increase was primarily due to mailing and distribution costs related to conducting our AGM for approximately 2.4 million individual SNDL shareholders. In Q2 2021, sales and marketing expenses increased by 37% to CAD 1.3 million from CAD 950,000 for the previous quarter.
Sundial continues to follow cost discipline, specifically when it comes to brand development and promotion expenses. 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 30th, 2021 was negative CAD 0.4 million compared to negative CAD 1.6 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 the backdrop of industry-wide price compression and higher comparative operating costs associated with our premium facility. Total capital expenditures in the Q2 of 2021 were CAD 1.6 million compared to an immaterial amount in the Q1. We have budgeted CAD 5.7 million in capital expenditures for full year 2021 related to processing automation, minor facility improvements, and maintenance capital.
Sundial's net loss in the Q2 of 2021 was CAD 52.3 million, compared to a net loss of CAD 134.4 million in the previous quarter. Net earnings in the Q2 of 2021 were negatively impacted by a CAD 60 million long-lived asset impairment charge on the Olds facility. The company determined that indicators of impairment existed during the six months ended June 30th, 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 CAD 7.7 million for the quarter. Let's review our liquidity and capital structure during the quarter. We closed the Q2 of 2021 with CAD 885 million of unrestricted cash on hand. As of August 9th, 2021, the company had an unrestricted cash balance of approximately CAD 760 million.
In addition to restricted cash, long-term investments, and marketable securities at a market value of CAD 447 million, for a total of CAD 1.2 billion when combined. Outstanding share count was 2.03 billion at the end of Q2 and sits at 2.06 billion today. During the Q2 of 2021, Sundial issued 252.9 million common shares pursuant to at-the-market equity or ATM programs and warrant exercises for total proceeds of CAD 327.4 million, or an average price of CAD 1.30 per share. Company's ATM facility has been inactive for 49 days 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 30th, 2021, including cash, loans, marketable securities in the Olds facility at net book value was approximately CAD 1.34 billion or CAD 0.66 per share. Let's turn our focus to our investment operations. As mentioned earlier, SNDL's investment income has been classified as income from operations, as SNDL 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. SNDL continued to strategically deploy its capital throughout the Q2 and subsequent to quarter end. Summarize our deployment of capital in our investment segment to date. Through the end of the Q2, the company had funded several cannabis-related debt and equity investments totaling CAD 354.5 million, including CAD 187.6 million to the SunStream joint venture.
These investments generated CAD 9.4 million in investment revenue in the Q2, including interest, fees, and realized and unrealized gains on marketable securities. On July 7th, 2021, the company announced that it had increased its commitment to the SunStream joint venture to CAD 538 million from the previously announced commitment. In the Q2, 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 4th, 2021, Sundial announced it had acquired 10.1% of the issued and outstanding common shares of The Valens Company Inc. I would like to invite Andrew Stordeur, President and COO of Sundial, to provide remarks related to cannabis operations.
Thank you, Jim. Throughout the H1 of this year, our top priority within cannabis operations 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 Q2 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 offerings. 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 our 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 our comprehensive review of our Sundial portfolio, we launched three new Palmetto cultivars in the Q2 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 to the province of Quebec, a sativa hash and an indica hash. Our third cultivation pillar is around plants. Now, I'm very proud of our team inside of our Olds facility, as they have been working hard over the past year on fully revamping our genetic R&D capability.
Early results from this work are promising, particularly around potency terpene profiles and plant yield. We entered the commercial flowering stage for 13 new cultivars in the Q2 of 2021. Some of which are exclusive to SNDL. The preliminary outcomes from these new cultivars provide a results averaging higher than 22% THC and greater than 2% on terpenes. These cultivars are expected to be harvested in Q3 2021 and selected for limited release by year-end. Subsequent to the Q2, SNDL 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-dried, slow-cured, individually inspected, hand-manicured, and hand-bottled for a differentiated experience.
I'd like to turn our attention to SNDL's acquisition of 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 our 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 a short-term market share and unsustainable margins and 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 and improvements inside our cannabis operations as a key enabler to unlocking value for our consumers and customers across the country. With that, I'd 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 had an opportunity to enjoy this summer season. We look forward to updating you on further progress that Sundial makes as the year progresses. I'll now turn it back over to the operator for the question period.
Thank you. We will now begin the question and answer session. 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 increase in your commitment to Sunstream, a pretty meaningful increase in the capital commitment. Do you mind just elaborating a bit more? I mean, what are you seeing, I guess, in the pipeline that prompted you to raise the commitment so meaningfully?
Hey, Tamy. Thanks a lot for the question. Yeah, this market has been evolving very quickly, and we actually see a target pipeline well north of CAD 1 billion in front of us. Of course, no certainty that we can execute and close on that quantum of transactions. Our increased commitment is very much in line with the expanded opportunities that we see in front of us.
This pipeline of well north of CAD 1 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're seeing.
Got it. Okay. Just a 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're launching? Thanks.
Yeah. I'll hand it to Andrew to give a little bit more color, obviously, Tamy, we don't give forward guidance at this point in time, given the general lack of visibility in the industry. I'll let Andrew share a bit about our excitement around cultivars and select innovation.
Thanks, Zach, and thanks, Tamy, for the question. Yeah, no, we're very excited, very optimistic around what we've got in the market currently. I think the three that we're seeing very good traction on and some of the highest velocity sales that we put in the market, particularly around L.A. Kush Cake, which is under our Top Leaf brand, Romulan, and Platinum Cookies under our Palmetto brand, we're continuing to see that move in all markets that we have those products launched. I did also mention that we're in the commercial flowering stage of 13 new genetics that we've been working hard on over the past year, and we're going to be harvesting those in quarter three. Depending on those results, we'll look to potentially put some small batch into select provinces this year.
As we noted in the opening remarks, we'll scale most of those that we decide to bring to market in the early part of 2022, and we're very excited, optimistic about that. Exciting kind of news coming 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 Q3 2021, can you just talk about the wholesale commitments that you've already received around that product? Is it accounted for? Do you feel assured that you're going to have shelf space to sell that?
Hey, Vivien, it's Andrew. Thanks for the question. Just so I'm clear, regarding the current ones we have in the market or the ones I referenced as far as the 13 new genetics?
The new genetics. Thanks.
Okay, perfect. Yeah. Actually, we have been communicating with the customers around our R&D plan. Part of our R&D plan, going back a year ago, was really around what are consumers looking for, and that was inputted from our research as well as the feedback from our customers. What I can say is, once we harvest these, obviously we've got to go through the process and look at the results and make sure they meet the spec that we're requiring to launch. This currently is not in our plan year to go, as far as our revenue and mix goes. We look at that as potential upside, and we certainly have great feedback and a customer commitment from the boards that we have presented and to the retailers we have presented on these.
Yeah, it is something that we would have incremental to the plan year to go. We're just going to have to wait for those results as they come down this quarter.
Understood. A similar question on the pre-roll, given that you have the new manufacturing equipment in place, do you feel confident that there's appetite in the marketplace for more pre-roll capacity?
Yeah, look, I think it's a great question. I would view our commissioning of the new equipment and the automation that we've 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. We look at things like potency and quality improvements and good yields per square foot and sellable product and COGS are kind of key success factors. Certainly to answer your question, pre-roll continues to be a segment that's continuing to grow. We're growing with that segment, and we've obviously got some new cultivars that we're putting in the market, and the corresponding consumer customer feedback has been really good on that.
We're 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 on the retail market. We're seeing many stores opening in Canada. There's a lot of pressure coming, especially from the value segment in retail. Could you give us some color on your strategy there? How do you think that may impact your sales and margins in the Spiritleaf network, and how do you plan to compete there? Thanks.
Yeah, maybe I'll tackle that first. Thanks very much for 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. 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. 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 ingredients to success. When you combine that with best-in-class technology capabilities, we think we'll be in a great position to not just weather the storm, but also be successful. We expect significant consolidation, and actually quite a bit of bloodshed in the retail segment in Canada.
We're excited to be competing.
Okay. No, that's helpful. Just maybe if you could talk about in terms of the mix of owned stores versus franchises, how do you see that mix evolving? What's the strategy there for your expansion? 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 a retailer to consider becoming a franchisee? Thank you.
Sure. I'll pass part of that question to Andrew. We're not going to specifically guide to a mix or split between corporate and franchise locations. It's worth noting that we're also open-minded when it comes to managing multi-banner retail. In terms of the value proposition and the brand attributes, Andrew, do you want to shed a little light with your perspective?
Yeah. I think we view this as obviously a great opportunity to ensure that the Sundial portfolio is well-positioned inside the Spiritleaf network. We're going to be really partnering well with our franchisees, and I think I mentioned that in my comments with regards to the Spiritleaf Franchisee Advisory Council. These operators, they've been doing this for a while now. They understand what works. We're going to be leveraging some of the research and the data and certainly the actionable insights that we have to make sure that we've got the right portfolio. That doesn't mean 500, 600 SKUs. The Pareto principle does not discriminate in cannabis. I think that's the value proposition we're going to bring, is to certainly listen first, understand what's working, what's not working. The answers are there with our franchisee partners.
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. We want to make sure we have the right assortment in place. Of course, we're going to make sure that we can augment that accordingly with the Sundial portfolio because we do think we've got a great assortment as well to supplement what consumers are looking for.
That's helpful. Thank you. I'll pass it to Shaan.
The next question comes from Shaan Mir with Canaccord. Please go ahead.
Good morning. 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%.
Yeah, Shaan, this is Jim. Let me just take that one. It really just relates around the mix between branded sales and LP sales. LP sales clearly don't have the excise tax attached to them. It's just a function of that shift and an increased quarter-over-quarter to more branded product in Q2 over Q1.
Okay. Thank you. My second question, on vape, that's been a core part of the inhalable strategy for SNDL, I wanted to touch on that a bit. This is now the Q2 where vapes are showing some weakness in the product mix. You previously noted that was a result of some increased competition in the segment. I was just wondering what your views were on your ability to attack and drive sales in that segment and how SNDL plans to recapture some of that momentum, whether it be through product innovation or increased marketing, whatever it may be. What's the attack strategy here, and what do you think are the catalysts needed to see those vape 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're seeing in the segment. Obviously our strategy first, our 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'll double-click on that a little bit. When you think about looking at the mixed components inside of vape, we have broad spectrum as kind of the anchor that we decided to go to the market with. The lion's share of what we're seeing in the vape segment is really distillate, flavored distillate, to be specific. We're monitoring that accordingly. Obviously, Health Canada's got a consultation out with regards to how that's going to be viewed moving forward.
We're very aware that the potential regulations could change over time, and that's going to impact distillate, flavored distillate to be specifically as far as the relevancy goes on that front. All that to say, I think a couple of things that we're focused on with regards to continuing to build awareness on our great portfolio of vape offerings, and we're certainly looking at larger formats, particularly in 1 gram. We think that's going to continue as far as consumer preference goes on that sizing. We're also going to be launching in the back half of this year under the Top Leaf brand, some innovation with regards to live resin. We think that's also another great differentiator. We've mentioned that in previous calls, and we're 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. We'll continue to focus on that side of it as well too. Fully holistic approach on it. Vape has certainly been pressured certainly by competition, but we've got some opportunities in the future here to go that are going to really add some relevancy there for us.
Thank you, Andrew . That's it for my questions. Congrats on the quarter once again.
Once again, if you have a question, please press star then one. The next question comes from Pablo Zuanic with Cantor Fitzgerald. Please go ahead.
Good morning. When I look at your company, I appreciate all the efforts you're making on the cannabis side, but you still have only about, my math, about less than 2% market share on branded rec, right? You have those CAD 1.2 billion there on the balance sheet that you talked about. It's more how you deploy that capital going forward that creates value than necessarily going from 2%- 2.2% market share in rec. If I'm right about what I'm saying, and I have to say, a comment here, you've been very disciplined about how you're using that cash, right? You didn't go and spend CAD 350 million on a CBD brand like some of your peers. I guess the first question would be, how do you decide when you're making minority equity investments, whether it's done through Sundial or through Sunstream?
I suppose that SunStream is not just lending, right? It's also equity and hybrids. Can you comment on that first, please? Thanks.
Hey, Pablo. It's Zach. Thanks for the question, and happy to clarify. The vast majority of the focus for Sunstream right now, and this is really driven by the robust opportunities that we see, is really focused around credit, structured credit, and some hybrid instrument opportunities. When you're thinking about minority investments specifically, I would say that it's a very small part of what we're focused on, and you're 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're very focused internally, and we believe that the credit opportunity in cannabis is quite large and very attractive.
When it comes to minority equity investments, those would typically be done off the SNDL balance sheet and not through our joint venture relationship and SunStream Bancorp. I hope that helps.
No, that's helpful. Just to follow up on that, when you talk about structured credit and hybrids, I suppose that that may include warrants or converts that eventually could be converted into equity, right? Am I right about that or not?
You're potentially correct. That doesn't necessarily mean that we would end up owning the underlying equity. There are structured means of 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. The very last one. Again, you have been very disciplined in my opinion, but the industry's consolidating. Some of your peers are making a lot of acquisitions, so you cannot wait too long, I would say, right? Is it about growing more in Canada? Is it about investments overseas, Latin America, Europe? Can you just remind us about that on the equity side? I appreciate, again, yes, Canada has potential, but CAD 1.2 billion, is it going to go all into Canada equity investments? Thanks.
It's a great question, Pablo. Yeah. 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. We are highly focused on the Canadian market and working on better understanding the evolution of the sector. You'll notice that many of our peers will direct investor attention away from Canada. Focused on Europe, focused on the U.S., bigger markets. We're going to take advantage of opportunities, and that'll largely be expressed through capital that's deployed through SunStream Bancorp when it comes to international markets. We are laser-focused on understanding where we're going in terms of consolidation, attrition and business failure, and also common sense regulatory reform, which we're 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 us 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.