Form 6-K - Report of foreign issuer [Rules 13a-16 and 15d-16]

DSUs
outstanding

Balance at December 31, 2022

Balance at September 30, 2023

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

Form 6-K

REPORT OF FOREIGN PRIVATE ISSUER

PURSUANT TO RULE 13a-16 OR 15d-16 OF THE

SECURITIES EXCHANGE ACT OF 1934

For the month of November 2023

Commission File Number 001-39005

SNDL INC.

(Registrant’s name)

#300, 919 - 11 Avenue SW

Calgary, AB T2R 1P3

Tel.: (403) 948-5227

(Address of principal executive offices)

Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F:

Form 20-F ☒ Form 40-F ☐

INCORPORATION BY REFERENCE

This report on Form 6-K shall be deemed to be incorporated by reference in SNDL Inc.’s registration statements on Form F-3 (File No. 333-253169 and File No. 333-253813) and Form S-8 (File No. 333-233156, File No. 333-262233, File No. 333-267510 and File No. 333-269242) and to be a part thereof from the date on which this report is filed, to the extent not superseded by documents or reports subsequently filed or furnished.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


	SNDL INC.
Date: November 13, 2023	By:	/s/ Alberto Paredero Quiros
	Name:	Alberto Paredero Quiros
	Title:	Chief Financial Officer

EXHIBIT


Exhibit		Description of Exhibit
99.1		Condensed Consolidated Interim Financial Statements for the Three and Nine Months Ended September 30, 2023 and 2022
99.2		Management’s Discussion and Analysis for the Three and Nine Months Ended September 30, 2023 and 2022
99.3		Form 52-109F2 Certificate of Interim Filings by CEO (pursuant to Canadian regulations)
99.4		Form 52-109F2 Certificate of Interim Filings by CFO (pursuant to Canadian regulations)

EXHIBIT 99.1

SNDL Inc.

Condensed Consolidated Interim Financial Statements

For the three and nine months ended September 30, 2023

(Unaudited – expressed in thousands of Canadian dollars)

SNDL Inc.

Condensed Consolidated Interim Statement of Financial Position

(Unaudited - expressed in thousands of Canadian dollars)


As at	Note	September 30, 2023			December 31, 2022

Assets
Current assets
Cash and cash equivalents			201,983			279,586
Restricted cash			19,661			19,338
Marketable securities	6		265			21,926
Accounts receivable			25,505			22,636
Biological assets	7		562			3,477
Inventory	8		142,550			127,782
Prepaid expenses and deposits			17,814			10,110
Investments	14		3,400			6,552
Assets held for sale	3(a),9		8,391			6,375
Net investment in subleases	12		3,603			3,701
			423,734			501,483
Non-current assets
Long-term deposits			9,720			8,584
Right of use assets	10		133,792			134,154
Property, plant and equipment	11		176,144			143,409
Net investment in subleases	12		18,262			19,618
Intangible assets	13		73,776			74,885
Investments	14		29,058			90,702
Equity-accounted investees	15		550,523			519,255
Goodwill	3(a)		148,282			67,260
Total assets			1,563,291			1,559,350

Liabilities
Current liabilities
Accounts payable and accrued liabilities			57,230			48,153
Lease liabilities	17		33,809			30,206
Derivative warrants	16		6,800			11,002
			97,839			89,361
Non-current liabilities
Lease liabilities	17		137,201			139,625
Other liabilities			6,860			2,709
Total liabilities			241,900			231,695

Shareholders’ equity
Share capital	18(b)		2,366,775			2,292,810
Warrants			2,260			2,260
Contributed surplus			76,912			68,961
Contingent consideration			2,279			2,279
Accumulated deficit			(1,178,063	)		(1,091,999	)
Accumulated other comprehensive income			31,306			32,188
Total shareholders’ equity			1,301,469			1,306,499
Non-controlling interest			19,922			21,156
Total liabilities and shareholders’ equity			1,563,291			1,559,350

Commitments (note 27)

Subsequent events (notes 18 and 28)

See accompanying notes to the condensed consolidated interim financial statements.

SNDL Inc.

Condensed Consolidated Interim Statement of Loss and Comprehensive Loss

(Unaudited - expressed in thousands of Canadian dollars, except per share amounts)


		Three months ended September 30						Nine months ended September 30
	Note	2023 (1)			2022			2023 (1)			2022
Gross revenue (1)	20		249,796			235,144			696,118			482,828
Excise taxes (1)			12,201			4,644			35,562			11,036
Net revenue			237,595			230,500			660,556			471,792
Cost of sales (1)	8		180,375			179,093			503,444			367,710
Inventory impairment and obsolescence	8		9,126			(2,307	)		22,594			3,545
Gross margin before fair value adjustments			48,094			53,714			134,518			100,537
Change in fair value of biological assets			(1,819	)		(1,899	)		(6,767	)		1,403
Change in fair value realized through inventory			2,330			(1,506	)		5,328			(5,133	)
Gross margin			48,605			50,309			133,079			96,807

Interest and fee revenue	21		3,445			4,312			11,077			10,750
Investment loss	21		(29	)		(5,513	)		(9,218	)		(58,296	)
Share of profit (loss) of equity-accounted investees	15		6,581			9,176			15,161			(24,711	)

General and administrative			48,235			45,014			149,535			95,989
Sales and marketing			3,271			1,935			10,761			6,178
Research and development			57			1,503			217			1,988
Depreciation and amortization	10,11,13		15,545			9,783			45,456			19,322
Share-based compensation	19		5,373			2,069			11,475			6,711
Restructuring costs			708			—			6,286			(882	)
Asset impairment	11,13		1,783			86,522			4,248			88,372
Loss from operations			(16,370	)		(88,542	)		(77,879	)		(193,128	)

Transaction costs			(226	)		(417	)		(2,439	)		1,040
Finance costs, net	22		(2,142	)		(8,409	)		(9,773	)		(34,853	)
Change in estimate of fair value of derivative warrants	16		(2,840	)		(8,500	)		4,202			6,856
Foreign exchange gain (loss)			(235	)		91			(429	)		102
Gain (loss) on disposition of assets			(14	)		6			(275	)		408
Loss before income tax			(21,827	)		(105,771	)		(86,593	)		(219,575	)
Income tax recovery			—			6,927			—			8,718
Net loss from continuing operations			(21,827	)		(98,844	)		(86,593	)		(210,857	)
Net loss from discontinued operations	4		—			—			(4,535	)		—
Net loss			(21,827	)		(98,844	)		(91,128	)		(210,857	)

Equity-accounted investees - share of other comprehensive income (loss)	15		11,124			23,194			(882	)		29,188
Comprehensive loss			(10,703	)		(75,650	)		(92,010	)		(181,669	)

Net loss from continuing operations attributable to:
Owners of the Company			(21,784	)		(98,108	)		(85,337	)		(209,313	)
Non-controlling interest			(43	)		(736	)		(1,256	)		(1,544	)
			(21,827	)		(98,844	)		(86,593	)		(210,857	)
Net loss attributable to:
Owners of the Company			(21,784	)		(98,108	)		(89,872	)		(209,313	)
Non-controlling interest			(43	)		(736	)		(1,256	)		(1,544	)
			(21,827	)		(98,844	)		(91,128	)		(210,857	)
Comprehensive loss attributable to:
Owners of the Company			(10,660	)		(74,914	)		(90,754	)		(180,125	)
Non-controlling interest			(43	)		(736	)		(1,256	)		(1,544	)
			(10,703	)		(75,650	)		(92,010	)		(181,669	)
Net loss per common share attributable to owners of the Company
Basic and diluted	24	$	(0.08	)	$	(0.41	)	$	(0.35	)	$	(0.92	)

(1) Recast - refer to note 20.

See accompanying notes to the condensed consolidated interim financial statements.

SNDL Inc.

Condensed Consolidated Interim Statement of Changes in Shareholders’ Equity

(Unaudited - expressed in thousands of Canadian dollars)


	Note	Share capital			Warrants		Contributed surplus			Contingent consideration		Accumulated deficit			Accumulated other comprehensive income			Non-controlling interest			Total
Balance at December 31, 2022			2,292,810			2,260		68,961			2,279		(1,091,999	)		32,188			21,156			1,327,655
Net loss			—			—		—			—		(89,872	)		—			(1,256	)		(91,128	)
Other comprehensive loss			—			—		—			—		—			(882	)		—			(882	)
Share repurchases	18(b)		(5,344	)		—		—			—		3,808			—			—			(1,536	)
Share issuances by subsidiaries			—			—		25			—		—			—			26			51
Acquisition	3(a)		83,953			—		602			—		—			—			—			84,555
Shares acquired and cancelled	18(b)		(6,615	)		—		—			—		—			—			—			(6,615	)
Share-based compensation	19		—			—		9,295			—		—			—			—			9,295
Employee awards exercised	18(b)		1,971			—		(1,971	)		—		—			—			—			—
Distribution declared by subsidiaries			—			—		—			—		—			—			(4	)		(4	)
Balance at September 30, 2023			2,366,775			2,260		76,912			2,279		(1,178,063	)		31,306			19,922			1,321,391

Balance at June 30, 2023			2,365,845			2,260		73,636			2,279		(1,156,279	)		20,182			19,965			1,327,888
Net loss			—			—		—			—		(21,784	)		—			(43	)		(21,827	)
Other comprehensive income			—			—		—			—		—			11,124			—			11,124
Acquisition			—			—		602			—		—			—			—			602
Share-based compensation	19		—			—		3,604			—		—			—			—			3,604
Employee awards exercised	18(b)		930			—		(930	)		—		—			—			—			—
Balance at September 30, 2023			2,366,775			2,260		76,912			2,279		(1,178,063	)		31,306			19,922			1,321,391

SNDL Inc.

Condensed Consolidated Interim Statement of Changes in Shareholders’ Equity

(Unaudited - expressed in thousands of Canadian dollars)


	Note	Share capital			Warrants			Contributed surplus			Contingent consideration		Accumulated deficit			Accumulated other comprehensive income		Non- controlling interest			Total equity
Balance at December 31, 2021			2,035,704			8,092			60,734			2,279		(785,112	)		7,607		229			1,329,533
Net loss			—			—			—			—		(209,313	)		—		(1,544	)		(210,857	)
Other comprehensive income			—			—			—			—		—			29,188		—			29,188
Share issuances			2,870			—			—			—		—			—		—			2,870
Share repurchases			(16,532	)		—			—			—		10,383			—		—			(6,149	)
Share issuances by subsidiaries			—			—			57			—		—			—		35			92
Acquisition			287,129			—			—			—		—			—		58,250			345,379
Warrants expired			—			(5,832	)		5,832			—		—			—		—			—
Share-based compensation			—			—			8,530			—		—			—		114			8,644
Employee awards exercised			1,747			—			(1,747	)		—		—			—		—			—
Distribution declared by subsidiaries			—			—			—			—		—			—		(11	)		(11	)
Balance at September 30, 2022			2,310,918			2,260			73,406			2,279		(984,042	)		36,795		57,073			1,498,689

Balance at June 30, 2022			2,322,273			8,092			65,043			2,279		(893,200	)		13,601		57,801			1,575,889
Net loss			—			—			—			—		(98,108	)		—		(736	)		(98,844	)
Other comprehensive income			—			—			—			—		—			23,194		—			23,194
Share repurchases			(11,362	)		—			—			—		7,266			—		—			(4,096	)
Warrants expired			—			(5,832	)		5,832			—		—			—		—			—
Share-based compensation			—			—			2,538			—		—			—		19			2,557
Employee awards exercised			7			—			(7	)		—		—			—		—			—
Distribution declared by subsidiaries			—			—			—			—		—			—		(11	)		(11	)
Balance at September 30, 2022			2,310,918			2,260			73,406			2,279		(984,042	)		36,795		57,073			1,498,689

See accompanying notes to the condensed consolidated interim financial statements.

SNDL Inc.

Condensed Consolidated Interim Statement of Cash Flows

(Unaudited - expressed in thousands of Canadian dollars)


		Three months ended September 30						Nine months ended September 30
	Note	2023			2022			2023			2022
Cash provided by (used in):
Operating activities
Net loss for the period			(21,827	)		(98,844	)		(91,128	)		(210,857	)
Adjustments for:
Income tax recovery			—			(6,927	)		—			(8,718	)
Interest and fee revenue	21		(3,445	)		(4,312	)		(11,077	)		(10,750	)
Change in fair value of biological assets			1,819			1,899			6,767			(1,403	)
Share-based compensation	19		5,373			2,069			11,475			6,711
Depreciation and amortization	10,11,13		16,602			11,294			49,535			24,271
Loss (gain) on disposition of assets			14			(6	)		275			(408	)
Inventory obsolescence	8		9,126			(2,307	)		22,594			3,545
Finance costs	22		2,142			8,409			9,773			34,853
Change in estimate of fair value of derivative warrants	16		2,840			8,500			(4,202	)		(6,856	)
Unrealized foreign exchange loss (gain)			68			(75	)		44			(40	)
Asset impairment			1,783			86,522			4,248			88,372
Share of (profit) loss of equity-accounted investees	15		(6,581	)		(9,176	)		(15,161	)		24,711
Realized loss on settlement of marketable securities	6,21		46,082			—			138,874			—
Unrealized loss on marketable securities	6,21		(46,053	)		5,513			(129,656	)		58,685
Additions to marketable securities			—			—			—			(3,500	)
Proceeds from settlement of marketable securities	6		3,241			—			6,704			—
Income distributions from equity-accounted investees			—			976			—			1,661
Interest received			3,325			3,874			10,245			9,673
Change in non-cash working capital	23		13,033			1,163			(43,722	)		(45,271	)
Net cash provided by (used in) operating activities from continuing operations			27,542			8,572			(34,412	)		(35,321	)
Net cash provided by operating activities from discontinued operations	4		—			—			4,314			—
Net cash provided by (used in) operating activities			27,542			8,572			(30,098	)		(35,321	)
Investing activities
Additions to property, plant and equipment	11		(3,042	)		(2,119	)		(5,683	)		(6,654	)
Additions to intangible assets	13		(32	)		—			(88	)		(55	)
Additions to investments			195			(60,676	)		(507	)		(74,770	)
Additions to equity-accounted investees	15		—			(8,072	)		(16,989	)		(102,272	)
Proceeds from disposal of property, plant and equipment			1,150			3			1,287			4,003
Acquisitions, net of cash acquired	3		—			—			3,695			(31,149	)
Change in non-cash working capital	23		730			(754	)		1,857			(495	)
Net cash used in investing activities from continuing operations			(999	)		(71,618	)		(16,428	)		(211,392	)
Net cash used in investing activities from discontinued operations	4		—			—			—			—
Net cash used in investing activities			(999	)		(71,618	)		(16,428	)		(211,392	)
Financing activities
Change in restricted cash			(205	)		70			(323	)		7,677
Payments on lease liabilities, net			(9,793	)		(9,127	)		(29,400	)		(18,751	)
Repurchase of common shares, net of costs	18(b)		—			(4,096	)		(1,536	)		(6,149	)
Repayment of long-term debt			—			—			—			(10,000	)
Change in non-cash working capital	23		(17	)		4,996			182			7,112
Net cash used in financing activities from continuing operations			(10,015	)		(8,157	)		(31,077	)		(20,111	)
Net cash used in financing activities from discontinued operations	4		—			—			—			—
Net cash used in financing activities			(10,015	)		(8,157	)		(31,077	)		(20,111	)
Change in cash and cash equivalents			16,528			(71,203	)		(77,603	)		(266,824	)
Cash and cash equivalents, beginning of period			185,455			362,630			279,586			558,251
Cash and cash equivalents, end of period			201,983			291,427			201,983			291,427

See accompanying notes to the condensed consolidated interim financial statements.

SNDL Inc.

Notes to the Condensed Consolidated Interim Financial Statements

For the three and nine months ended September 30, 2023

(Unaudited, expressed in thousands of Canadian dollars, except where otherwise noted)

Description of business

SNDL Inc. (“SNDL” or the “Company”) was incorporated under the Business Corporations Act (Alberta) on August 19, 2006. On July 25, 2022, the Company’s shareholders approved a special resolution amending the articles of SNDL to change the name of the Company from “Sundial Growers Inc.” to “SNDL Inc.”.

The Company’s head office is located at 300, 919 11th Avenue SW, Calgary, Alberta, Canada.

The principal activities of the Company are the retailing of wines, beers and spirits, the operation and support of corporate-owned and franchise retail cannabis stores in Canadian jurisdictions where the private sale of recreational cannabis is permitted, the manufacturing of cannabis products providing proprietary cannabis processing services, the production, distribution and sale of cannabis domestically and for export pursuant to the Cannabis Act (Canada) (the “Cannabis Act”), and the deployment of capital to investment opportunities. The Cannabis Act regulates the production, distribution, and possession of cannabis for both medical and adult recreational access in Canada. The Company also owns approximately 63% of Nova Cannabis Inc. (“Nova”) (TSX: NOVC), whose principal activities are the retail sale of cannabis.

SNDL and its subsidiaries operate solely in Canada. Through its joint venture, SunStream Bancorp Inc. (“SunStream”) (note 15), the Company provides growth capital that pursues indirect investment and financial services opportunities in the cannabis sector, as well as other investment opportunities. The Company also makes strategic portfolio investments in debt and equity securities.

The Company’s common shares trade on the Nasdaq Capital Market under the ticker symbol “SNDL”.

Basis of presentation

Statement of compliance

The condensed consolidated interim financial statements (“financial statements”) have been prepared in accordance with International Accounting Standard 34 – Interim Financial Reporting as issued by the International Accounting Standards Board and interpretations of the International Financial Reporting Interpretations Committee. These financial statements were prepared using the same accounting policies and methods as those disclosed in the annual consolidated financial statements for the year ended December 31, 2022. These financial statements should be read in conjunction with the annual consolidated financial statements for the Company for the year ended December 31, 2022.

These financial statements were approved and authorized for issue by the Board of Directors (“Board”) on November 10, 2023.

Business acquisitions

Valens

On January 17, 2023, the Company acquired all of the issued and outstanding common shares of The Valens Company Inc. (“Valens”), other than those owned by SNDL and its subsidiaries, by way of a statutory plan of arrangement (the “Valens Transaction”). The Valens Transaction consideration was comprised of (i) the assumption of Valens’ $60 million non-revolving term loan facility from its then existing lender, (ii) an aggregate 27.6 million SNDL common shares valued at $84.0 million based on the fair value of each common share of the Company on the closing date (0.3334 of a SNDL common share for each Valens common share), and (iii) contingent consideration valued at $0.6 million representing the fair value of Valens stock options.

Valens is a manufacturer of cannabis products providing proprietary cannabis processing services, in addition to product development, manufacturing, and commercialization of cannabis consumer packaged goods. Valens products are formulated for the medical, health and wellness, and recreational consumer segments.

SNDL Inc.

Notes to the Condensed Consolidated Interim Financial Statements

For the three and nine months ended September 30, 2023

(Unaudited, expressed in thousands of Canadian dollars, except where otherwise noted)

The Company has engaged independent valuation experts to assist in determining the fair value of certain assets acquired and liabilities assumed and related deferred income tax impacts. The purchase price allocation is not final as the Company is continuing to obtain and verify information required to determine the fair value of certain assets and liabilities and the amount of deferred income taxes, if any, arising on their recognition.

Due to the inherent complexity associated with valuations and the timing of the acquisition, the amounts below are provisional and subject to adjustment.

The fair value of consideration paid was as follows:


	Provisional		Adjustments		Provisional
Valens loan facility		61,512		—		61,512
Issuance of common shares		83,953		—		83,953
Contingent consideration		—		602		602
		145,465		602		146,067

The preliminary fair value of the assets and liabilities acquired was as follows:


	Provisional			Adjustments			Provisional
Cash		3,615			—			3,615
Accounts receivable		21,361			—			21,361
Investments		876			—			876
Prepaid expenses and deposits		4,980			—			4,980
Inventory		14,140			—			14,140
Assets held for sale		6,330			—			6,330
Right of use assets		2,882			—			2,882
Property, plant and equipment		63,030			(10,938	)		52,092
Intangible assets		2,285			(785	)		1,500
Goodwill		68,697			12,325			81,022
Accounts payable and accrued liabilities		(34,185	)		—			(34,185	)
Contractual obligation		(5,339	)		—			(5,339	)
Lease liabilities		(3,207	)		—			(3,207	)
		145,465			602			146,067

As new information is obtained within one year of the date of acquisition, about facts and circumstances that existed at the date of acquisition, identifies adjustments to the above amounts, the accounting for the acquisition will be revised.

Valens subsidiary Green Roads, Inc. (“Green Roads”) was sold and has been classified as held for sale and discontinued operations (note 4).

The financial statements incorporate the operations of Valens commencing January 18, 2023. During the period January 18, 2023 to September 30, 2023 the Company recorded gross revenues of $63.1 million and net loss of $37.9 million from the Valens operations. Had the Valens Transaction closed on January 1, 2023, management estimates that for the period January 1, 2023, to January 17, 2023, revenue would have increased by $4.2 million and net loss would have increased by $2.1 million. In determining these amounts, management assumes the fair values on the date of acquisition would have been the same as if the acquisition had occurred on January 1, 2023.

The Company incurred costs related to the Valens Transaction of $2.8 million which have been included in transaction costs.

Superette

On February 7, 2023, the Company acquired the right, title and interest in (i) five Superette retail locations within Toronto and Ottawa; (ii) the intellectual property rights related to the Superette brand; and (iii) the shares of Superette Ontario (collectively, the “Superette Transaction”).

SNDL Inc.

Notes to the Condensed Consolidated Interim Financial Statements

For the three and nine months ended September 30, 2023

(Unaudited, expressed in thousands of Canadian dollars, except where otherwise noted)

The Superette acquisition consideration was comprised of the extinguishment of the Company’s promissory note.

The fair value of consideration paid was as follows:



Extinguishment of promissory note		2,625
		2,625

The fair value of the assets and liabilities acquired was as follows:



Cash	80
Accounts receivable	30
Prepaid expenses and deposits	141
Inventory	371
Right of use assets	1,129
Property, plant and equipment	2,077
Accounts payable and accrued liabilities	(74	)
Lease liabilities	(1,129	)
	2,625

The financial statements incorporate the operations of Superette commencing February 8, 2023. During the period February 8, 2023 to September 30, 2023 the Company recorded gross revenues of $2.8 million and net loss of $1.2 million from the Superette operations. Had the Superette Transaction closed on January 1, 2023, management estimates that for the period January 1, 2023, to February 7, 2023, revenue would have increased by $0.5 million and net loss would have increased by $0.1 million. In determining these amounts, management assumes the fair values on the date of acquisition would have been the same as if the acquisition had occurred on January 1, 2023.

The Company incurred costs related to the Superette Transaction of $0.7 million which have been included in transaction costs.

Discontinued operations

The Green Roads operations acquired as part of the Valens acquisition were classified as held for sale and discontinued operations as the carrying amount of the disposal group was expected to be recovered through a sale transaction rather than through continued use.

Green Roads filed for bankruptcy on March 6, 2023. A successful bid of US$3.1 million was accepted and the sale was approved at a court hearing on May 10, 2023. The disposition of Green Roads closed on May 31, 2023 and a loss on disposition of $2.3 million was recorded.

The consolidated statement of loss and comprehensive loss and consolidated statement of cash flows have been presented to show the discontinued operations separately from continuing operations.

SNDL Inc.

Notes to the Condensed Consolidated Interim Financial Statements

For the three and nine months ended September 30, 2023

(Unaudited, expressed in thousands of Canadian dollars, except where otherwise noted)

Results of discontinued operations


	Three months ended September 30				Nine months ended September 30
	2023		2022		2023			2022
Net revenue		—		—		7,510			—
Cost of sales		—		—		3,841			—
Gross margin		—		—		3,669			—

General and administrative		—		—		3,639			—
Sales and marketing		—		—		1,817			—
Depreciation and amortization		—		—		450			—
Loss from operations		—		—		(2,237	)		—

Finance costs		—		—		(16	)		—
Loss on disposition		—		—		(2,282	)		—
Net loss		—		—		(4,535	)		—

Segment information

The Company’s reportable segments are organized by business line and are comprised of four reportable segments: liquor retail, cannabis retail, cannabis operations, and investments.

Liquor retail includes the sale of wines, beers and spirits through owned liquor stores. Cannabis retail includes the private sale of adult-use cannabis through owned and franchise retail cannabis stores. Cannabis operations include the cultivation, distribution and sale of cannabis for the adult-use and medical markets domestically and for export, and providing proprietary cannabis processing services, in addition to product development, manufacturing, and commercialization of cannabis consumer packaged goods. Investments include the deployment of capital to investment opportunities. Certain overhead expenses not directly attributable to any operating segment are reported as “Corporate”.

SNDL Inc.

Notes to the Condensed Consolidated Interim Financial Statements

For the three and nine months ended September 30, 2023

(Unaudited, expressed in thousands of Canadian dollars, except where otherwise noted)


	Liquor Retail		Cannabis Retail (1)		Cannabis Operations (2)			Investments (3)			Corporate			Total
As at September 30, 2023
Total assets		321,598		209,684		299,489			712,859			19,661			1,563,291
Nine months ended September 30, 2023
Net revenue (4)		419,402		214,828		61,027			—			(34,701	)		660,556
Gross margin		98,890		53,645		(19,456	)		—			—			133,079
Interest and fee revenue		—		75		—			10,723			279			11,077
Investment (loss) income		—		—		(611	)		(8,607	)		—			(9,218	)
Share of profit of equity-accounted investees		—		—		—			15,161			—			15,161
Depreciation and amortization		27,943		11,391		2,750			—			3,372			45,456
Earnings (loss) from operations		14,528		5,768		(46,792	)		16,963			(68,346	)		(77,879	)
Income (loss) before income tax		10,200		3,230		(46,725	)		13,287			(66,585	)		(86,593	)
Three months ended September 30, 2023
Net revenue (4)		151,801		75,539		20,954			—			(10,699	)		237,595
Gross margin		37,263		20,046		(8,704	)		—			—			48,605
Interest and fee revenue		—		17		—			3,326			102			3,445
Investment (loss) income		—		—		(114	)		85			—			(29	)
Share of profit of equity-accounted investees		—		—		—			6,581			—			6,581
Depreciation and amortization		9,436		4,340		954			—			815			15,545
Earnings (loss) from operations		8,257		3,481		(13,971	)		9,886			(24,023	)		(16,370	)
Income (loss) before income tax		6,449		2,753		(13,774	)		9,834			(27,089	)		(21,827	)

(1)

Cannabis retail includes the operations of Superette for the period February 8, 2023 to September 30, 2023.

(2)

Cannabis operations includes the operations of Valens for the period January 18, 2023 to September 30, 2023.

(3)

Total assets include cash and cash equivalents.

(4)

Recast - refer to note 20.


	Liquor Retail (1)		Cannabis Retail (1)			Cannabis Operations			Investments (2)			Corporate			Total
As at December 31, 2022
Total assets		351,338		200,393			163,130			825,151			19,338			1,559,350
Nine months ended September 30, 2022
Net revenue		302,435		137,208			32,149			—			—			471,792
Gross margin		69,380		31,684			(4,257	)		—			—			96,807
Interest and fee revenue		—		—			—			10,750			—			10,750
Investment loss		—		—			—			(58,296	)		—			(58,296	)
Share of loss of equity-accounted investees		—		—			—			(24,711	)		—			(24,711	)
Depreciation and amortization		5,722		6,041			9			—			7,550			19,322
Earnings (loss) from operations		24,517		(82,512	)		(16,930	)		(71,732	)		(46,471	)		(193,128	)
Income (loss) before income tax		19,042		(84,681	)		(16,686	)		(98,721	)		(38,529	)		(219,575	)
Three months ended September 30, 2022
Net revenue		152,488		66,202			11,810			—			—			230,500
Gross margin		35,568		14,494			247			—			—			50,309
Interest and fee revenue		—		—			—			4,312			—			4,312
Investment loss		—		—			—			(5,513	)		—			(5,513	)
Share of profit of equity-accounted investees		—		—			—			9,176			—			9,176
Depreciation and amortization		2,923		3,199			—			—			3,661			9,783
Earnings (loss) from operations		13,302		(83,708	)		(5,673	)		7,936			(20,399	)		(88,542	)
Income (loss) before income tax		10,736		(84,848	)		(5,686	)		3,252			(29,225	)		(105,771	)

(1)

Liquor retail includes operations of Alcanna Inc. (“Alcanna”) retail stores for the period March 31, 2022 to September 30, 2022, and cannabis retail includes operations of Nova retail stores for the period March 31, 2022 to September 30, 2022.

(2)

Total assets include cash and cash equivalents.

SNDL Inc.

Notes to the Condensed Consolidated Interim Financial Statements

For the three and nine months ended September 30, 2023

(Unaudited, expressed in thousands of Canadian dollars, except where otherwise noted)

Geographical disclosure

As at September 30, 2023, the Company had non-current assets related to investment credit operations in the United States of $550.5 million (December 31, 2022 – $519.3 million). For the three and nine months ended September 30, 2023, share of profit of equity-accounted investees related to operations in the United States was a gain of $6.6 million and $15.2 million, respectively (three and nine months ended September 30, 2022 – gain of $9.2 million and a loss of $24.7 million, respectively). All other non-current assets relate to operations in Canada and revenues from external customers relate to operations in Canada.

Marketable securities


As at	September 30, 2023			December 31, 2022
Balance, beginning of year		21,926			83,724
Acquisition (note 3(a))		876			—
Additions		—			3,755
Dispositions		(13,319	)		—
Change in fair value recognized in profit or loss		(9,218	)		(65,553	)
Balance, end of period		265			21,926

biological assets

The Company’s biological assets consist of cannabis plants in various stages of vegetation, including plants which have not been harvested. The change in carrying value of biological assets is as follows:


As at	September 30, 2023			December 31, 2022
Balance, beginning of year		3,477			4,410
Increase in biological assets due to capitalized costs		19,867			27,749
Acquisition		—			909
Net change in fair value of biological assets		(6,767	)		(1,309	)
Transferred to inventory upon harvest		(16,015	)		(28,282	)
Balance, end of period		562			3,477

Biological assets are valued in accordance with IAS 41 and are presented at their fair value less costs to sell up to the point of harvest. This is determined using a model which estimates the expected harvest yield in grams for plants currently being cultivated, and then adjusts that amount for the expected selling price less costs to produce and sell per gram.

The fair value measurements for biological assets have been categorized as Level 3 fair values based on the inputs to the valuation technique used. The Company’s method of accounting for biological assets attributes value accretion on a straight-line basis throughout the life of the biological asset from initial cloning to the point of harvest.

Management believes the most significant unobservable inputs and their impact on fair value of biological assets are as follows:


Assumption	Input	Weighted average input				Effect of 10% change ($000s)
		September 30 2023		December 31 2022		September 30 2023		December 31 2022
Yield per square foot of growing space (1)	Grams		49		48		42		279
Average net selling price (2)	$/gram		4.95		4.66		133		687
After harvest cost to complete and sell	$/gram		1.57		1.27		32		187

(1)

Varies by strain; obtained through historical growing results or grower estimate if historical results are not available.

(2)

Varies by strain and sales market; obtained through average selling prices or estimated future selling prices if historical results are not available.

SNDL Inc.

Notes to the Condensed Consolidated Interim Financial Statements

For the three and nine months ended September 30, 2023

(Unaudited, expressed in thousands of Canadian dollars, except where otherwise noted)

These assumptions are estimates that are subject to volatility in market prices and several uncontrollable factors. The Company’s estimates are, by their nature, subject to change and differences from the anticipated yield will be reflected in the net change in fair value of biological assets in future periods.

The Company estimates the harvest yields for cannabis at various stages of growth. As at September 30, 2023, it is estimated that the Company’s biological assets will yield approximately 1,394 kilograms (December 31, 2022 – 3,904 kilograms) of dry cannabis when harvested. During the nine months ended September 30, 2023, the Company harvested 13,831 kilograms of dry cannabis (nine months ended September 30, 2022 – 16,642 kilograms).

Inventory


As at	September 30, 2023		December 31, 2022
Retail liquor		94,823		82,589
Harvested cannabis
Raw materials, packaging and components		8,164		4,577
Extracted cannabis & hemp oils		11,472		—
Work-in-progress		5,260		19,927
Finished goods		6,802		7,040
Retail cannabis		16,029		13,373
Millwork		—		276
		142,550		127,782

During the three and nine months ended September 30, 2023, inventories of $180.4 million and $503.4 million were recognized in cost of sales as an expense (three and nine months ended September 30, 2022 – $179.1 million and $367.7 million).

During the three and nine months ended September 30, 2023, the Company recognized inventory write downs of $9.2 million and $22.7 million (three and nine months ended September 30, 2022 – reversal of $1.9 million and write down of $5.2 million), of which $9.1 million and $22.6 million (three and nine months ended September 30, 2022 – reversal of $2.3 million and write down of $3.5 million) was recognized as an impaired and obsolete inventory provision, and $50.0 thousand and $140.0 thousand (nine months ended September 30, 2022 – $0.4 million and $1.7 million) was included in the change in fair value realized through inventory as the fair value component of the impaired and obsolete inventory provision.

Assets held for sale

At September 30, 2023, assets held for sale were measured at their fair value less costs to sell and comprised of the following:


Stellarton facility			6,375
Mission facility			2,016
			8,391

The Stellarton facility is located in Stellarton, Nova Scotia, and its primary purpose was the packaging and processing of value added and derivative products for the adult-use cannabis market. The Stellarton facility was acquired in the Zenabis acquisition.

The Mission facility is located in Mission, British Columbia, and its primary purpose was the cultivation of cannabis and the packaging of dried cannabis flower in consumer packaging. The Mission facility was acquired in the Valens Transaction (note 3(a)).

SNDL Inc.

Notes to the Condensed Consolidated Interim Financial Statements

For the three and nine months ended September 30, 2023

(Unaudited, expressed in thousands of Canadian dollars, except where otherwise noted)

10.

Right of use assets


Cost
Balance at December 31, 2022			167,067
Acquisition (note 3(a), note3(b))			4,011
Additions			2,718
Renewals, remeasurements and dispositions			18,998
Balance at September 30, 2023			192,794

Accumulated depreciation and impairment
Balance at December 31, 2022			32,913
Depreciation			24,778
Impairment			1,311
Balance at September 30, 2023			59,002

Net book value
Balance at December 31, 2022			134,154
Balance at September 30, 2023			133,792

During the nine months ended September 30, 2023, renewals, remeasurements and dispositions of $19.0 million mainly related to lease renewals.

As at September 30, 2023, the Company recorded impairment losses of right-of-use assets of $1.3 million with $1.2 million in the liquor retail reporting segment and $0.1 million in the cannabis retail reporting segment. Refer to note 11 for the significant assumptions applied in the impairment test.

11.

Property, plant and equipment


	Land		Production facilities			Leasehold improvements			Equipment			Construction in progress (“CIP”)		Total
Cost
Balance at December 31, 2022		11,964		154,234			70,814			78,922			9,454		325,388
Acquisition (note 3(a), note3(b))		8,661		24,330			3,660			17,518			—		54,169
Additions		—		10			1,344			3,997			121		5,472
Dispositions		—		(33	)		(316	)		(2,789	)		—		(3,138	)
Balance at September 30, 2023		20,625		178,541			75,502			97,648			9,575		381,891

Accumulated depreciation and impairment
Balance at December 31, 2022		—		132,007			15,369			28,782			5,821		181,979
Depreciation		—		1,824			8,861			12,320			—		23,005
Impairment		—		—			544			1,699			—		2,243
Dispositions		—		—			(290	)		(1,190	)		—		(1,480	)
Balance at September 30, 2023		—		133,831			24,484			41,611			5,821		205,747

Net book value
Balance at December 31, 2022		11,964		22,227			55,445			50,140			3,633		143,409
Balance at September 30, 2023		20,625		44,710			51,018			56,037			3,754		176,144

During the nine months ended September 30, 2023, depreciation expense of $4.1 million was capitalized to biological assets and inventory (nine months ended September 30, 2022 – $4.9 million).

During the nine months ended September 30, 2023, the Company determined that indicators of impairment existed relating to idle machinery and equipment. The estimated recoverable amount of the assets was determined to be nil

SNDL Inc.

Notes to the Condensed Consolidated Interim Financial Statements

For the three and nine months ended September 30, 2023

(Unaudited, expressed in thousands of Canadian dollars, except where otherwise noted)

and an impairment of $1.4 million was recorded. The impairment was recognized in the Company’s cannabis operations reporting segment.

During the nine months ended September 30, 2023, the Company determined that indicators of impairment existed relating to its retail stores due to underperforming operating results of certain stores. For impairment testing of retail property, plant and equipment and right of use assets, the Company determined that a cash generating unit (“CGU”) was defined as each individual retail store. The Company completed impairment tests for each store location determined to have an indicator of potential impairment using a discounted cash flow methodology. The recoverable amounts for each CGU were based on the higher of its estimated value in use and fair value less costs of disposal using Level 3 inputs. The significant assumptions applied in the impairment test are described below:

•

Cash flows: Estimated cash flows are based on forecasted EBITDA. The forecast is extended to a total of five years based on an analysis of the industry’s expected growth rates, historical and forecast volume changes, and inflation rates, except where a CGU has a defined life due to lease expiration. Management determined forecasted growth rates of sales based on past performance and its expectations of future performance for each location. Expenditures were based upon a combination of historical percentages of revenue, sales growth rates, and contractual lease payments.

•

Discount rate: The weighted average cost of capital was estimated to be 12.0% and is based on market capital structure of debt, risk-free rate, equity risk premium, beta adjustment to the equity risk premium based on a review of betas of comparable publicly traded companies, the Company’s historical data, an unsystematic risk premium and after-tax cost of debt based on corporate bond yields.

As at September 30, 2023, the Company recorded impairment losses of property, plant and equipment of $0.9 million ($0.5 million in leasehold improvements and $0.4 million in equipment) with $0.5 million in the cannabis retail reporting segment and $0.4 million in the liquor retail reporting segment.

12.

Net investment in subleases


	September 30, 2023			December 31, 2022
Balance, beginning of year		23,319			26,562
Additions		832			1,408
Finance income		648			833
Rents recovered (payments made directly to landlords)		(3,040	)		(4,141	)
Dispositions and remeasurements		106			(1,343	)
Balance, end of period		21,865			23,319

Current portion		3,603			3,701
Long-term		18,262			19,618

Net investment in subleases represent leased retail stores that have been subleased to certain franchise partners. These subleases are classified as a finance lease as the sublease terms are for the remaining term of the head lease.

SNDL Inc.

Notes to the Condensed Consolidated Interim Financial Statements

For the three and nine months ended September 30, 2023

(Unaudited, expressed in thousands of Canadian dollars, except where otherwise noted)

13.

Intangible assets


	Brands and trademarks		Franchise agreements		Software		Retail Licenses		Total
Cost
Balance at December 31, 2022		80,400		10,000		5,542		750		96,692
Acquisition (note 3(a))		1,500		—		—		—		1,500
Additions		—		—		88		—		88
Balance at September 30, 2023		81,900		10,000		5,630		750		98,280

Accumulated amortization and impairment
Balance at December 31, 2022		19,317		1,811		679		—		21,807
Amortization		152		935		675		—		1,762
Impairment		935		—		—		—		935
Balance at September 30, 2023		20,404		2,746		1,354		—		24,504

Net book value
Balance at December 31, 2022		61,083		8,189		4,863		750		74,885
Balance at September 30, 2023		61,496		7,254		4,276		750		73,776

During the three and nine months ended September 30, 2023, the Company determined that indicators of impairment existed regarding the Sun 8 intellectual property and the intellectual property and rights pertaining to certain other cannabis strains due to decreasing market demand. The estimated recoverable amount of the intangible assets was determined to be $1.5 million and nil, respectively, and an impairment of $0.8 million and $0.1 million was recorded in the cannabis operations reporting segment.

14.

Investments


As at	September 30, 2023		December 31, 2022
Investments at amortized cost		24,163		24,493
Investments at FVTPL		8,295		72,761
		32,458		97,254

Current portion		3,400		6,552
Long-term		29,058		90,702

Investments at amortized cost

The Company has a loan outstanding to Indiva Limited (“Indiva”) with a principal balance of $19.8 million that had a maturity date of February 23, 2024. On August 28, 2023, the Company amended the maturity date to February 24, 2026.

Investments at fair value through profit and loss (“fvtpl”)

Valens

On January 17, 2023, the Company announced that it had successfully closed the Valens Transaction (note 3(a)). The $60.0 million non-revolving term loan formed part of the consideration (note 3(a)).

Superette

On February 7, 2023, the Company announced that it had successfully closed the Superette Transaction (note 3(b)). The Company has adjusted the fair value of the Superette promissory note downward by $5.4 million ($1.7 million during the nine months ended September 30, 2023, and $3.7 million during the year ended December 31, 2022) (note

SNDL Inc.

Notes to the Condensed Consolidated Interim Financial Statements

For the three and nine months ended September 30, 2023

(Unaudited, expressed in thousands of Canadian dollars, except where otherwise noted)

22) to management’s best estimate of the fair value of the Superette promissory note at February 7, 2023. The Superette promissory note was extinguished immediately preceding the business combination and forms the consideration transferred (note 3(b)).

15.

Equity-accounted investees


As at	September 30, 2023		December 31, 2022
Interest in joint venture		550,523		519,255

SunStream is a joint venture in which the Company has a 50% ownership interest. SunStream is a private company, incorporated under the Business Corporations Act (Alberta), which provides growth capital that pursues indirect investment and financial services opportunities in the global cannabis sector, as well as other investment opportunities.

SunStream is structured as a separate vehicle and the Company has a residual interest in the net assets of SunStream. Accordingly, the Company has classified its interest in SunStream as a joint venture, which is accounted for using the equity-method.

The current investment portfolio of SunStream is comprised of secured debt, hybrid debt and derivative instruments with United States based cannabis businesses. These investments are recorded at fair value each reporting period with any changes in fair value recorded through profit or loss. SunStream actively monitors these investments for changes in credit risk, market risk and other risks specific to each investment.

As at September 30, 2023, the Company had funded $531.7 million out of the total $538.0 million that was originally committed to SunStream. No capital contributions were made during the three months ended September 30, 2023.

The following table summarizes the carrying amount of the Company’s interest in the joint venture:


	Carrying amount
Balance at December 31, 2022		519,255
Capital contributions		16,989
Share of net earnings (loss)		15,161
Share of other comprehensive income (loss)		(882	)
Balance at September 30, 2023		550,523

SunStream is a related party due to it being classified as a joint venture of the Company. Capital contributions to the joint venture and distributions received from the joint venture are classified as related party transactions.

The following table summarizes the financial information of SunStream:


As at	September 30, 2023			December 31, 2022
Current assets (including cash and cash equivalents - 2023: $0.3 million, 2022: $1.5 million)		6,902			5,437
Non-current assets		539,549			509,418
Current liabilities		(272	)		(1,146	)
Net assets (liabilities) (100%)		546,179			513,709

Nine months ended September 30	2023			2022
Revenue (loss)		20,590			(19,001	)
Profit (loss) from operations		15,587			(24,217	)
Other comprehensive income (loss)		(882	)		37,906
Total comprehensive income (loss)		14,884			13,757

SNDL Inc.

Notes to the Condensed Consolidated Interim Financial Statements

For the three and nine months ended September 30, 2023

(Unaudited, expressed in thousands of Canadian dollars, except where otherwise noted)

16.

Derivative warrants


	September 30, 2023			December 31, 2022
Balance, beginning of year		11,002			21,700
Change in fair value recognized in profit or loss		(4,202	)		(10,783	)
Acquisition		—			85
Balance, end of period		6,800			11,002

The following table summarizes outstanding derivative warrants as at September 30, 2023:


	Exercise price (USD)		Number of warrants		Weighted average contractual life
2020 Series A Warrants (1)		1.77		50,000		1.9
Unsecured Convertible Notes Warrants (1)		1.77		50,000		0.2
New Warrants		2.29		9,833,333		0.9
December 2018 Performance Warrants	CAD 5.51			118,067		0.2
				10,051,400		0.9

(1)

The conversion or exercise price, as applicable, is subject to full ratchet antidilution protection upon any subsequent transaction at a price lower than the price then in effect and standard adjustments in the event of any share split, share dividend, share combination, recapitalization or other similar transaction. If the Company issues, sells or enters into any agreement to issue or sell, any variable rate securities, the investors have the additional right to substitute the variable price (or formula) of such securities for the conversion or exercise price, as applicable.

17.

Lease Liabilities


	September 30, 2023			December 31, 2022
Balance, beginning of year		169,831			33,470
Acquisitions (note 3(a), note3(b))		4,336			142,106
Additions		3,550			7,497
Lease payments		(32,440	)		(31,834	)
Renewals, remeasurements and dispositions		19,727			10,890
Tenant inducement allowances received		91			1,799
Accretion expense		5,915			5,903
Balance, end of period		171,010			169,831

Current portion		33,809			30,206
Long-term		137,201			139,625

During the nine months ended September 30, 2023, renewals, remeasurements and dispositions of $19.7 million mainly related to lease renewals.

The following table presents the contractual undiscounted cash flows, excluding periods covered by lessee lease extension options that have been included in the determination of the lease term, related to the Company’s lease liabilities as at September 30, 2023:


	September 30, 2023
Less than one year		40,839
One to three years		68,898
Three to five years		76,285
Thereafter		14,089
Minimum lease payments		200,111

SNDL Inc.

Notes to the Condensed Consolidated Interim Financial Statements

For the three and nine months ended September 30, 2023

(Unaudited, expressed in thousands of Canadian dollars, except where otherwise noted)

18.

Share capital and warrants

Authorized

The authorized capital of the Company consists of an unlimited number of voting common shares and preferred shares with no par value.

Issued and outstanding


		September 30, 2023						December 31, 2022
	Note	Number of Shares			Carrying Amount			Number of Shares			Carrying Amount
Balance, beginning of year			235,194,236			2,292,810			206,040,836			2,035,704
Share issuances			—			—			370,179			2,870
Share repurchases			(546,700	)		(5,344	)		(4,252,489	)		(41,617	)
Acquisition	3(a)		27,605,782			83,953			32,060,135			287,129
Shares acquired and cancelled			(2,175,023	)		(6,615	)		—			—
Employee awards exercised			411,555			1,971			975,575			8,724
Balance, end of period			260,489,850			2,366,775			235,194,236			2,292,810

For the nine months ended September 30, 2023, the Company purchased and cancelled 0.5 million common shares at a weighted average price of $2.78 (US$2.04) per common share for a total cost of $1.5 million. Accumulated deficit was reduced by $3.8 million, representing the excess of the average carrying value of the common shares over their purchase price.

In connection with the Valens Transaction (note 3(a)), the Company received and cancelled 2.2 million of its own common shares valued at $6.6 million based on the fair value on the closing date. At the time of the acquisition, the Company owned 6.5 million Valens common shares which were classified as marketable securities (note 6). In accordance with the Valens Transaction consideration, the Company received 2.2 million common shares (0.3334 of a SNDL common share for each Valens common share).

Subsequent to September 30, 2023, the Company issued 0.9 million common shares related to the acquisition of certain franchise stores in Ontario.

19.

Share-based compensation

The Company has a number of share-based compensation plans which include simple and performance warrants, stock options, restricted share units (“RSUs”) and deferred share units (“DSUs”). Further detail on each of these plans is outlined below. Subsequent to the Company’s initial public offering, the Company established the stock option, RSU and DSU plans to replace the granting of simple warrants and performance warrants.

The components of share-based compensation expense are as follows:


	Three months ended September 30					Nine months ended September 30
	2023		2022			2023			2022
Equity-settled expense
Simple warrants (A)		3		126			(332	)		1,272
Stock options (B)		—		13			(2	)		65
Restricted share units (1) (C)		3,602		2,417			9,711			7,059
Cash-settled expense
Deferred share units (1)(2) (D)		1,768		(487	)		2,098			(1,685	)
		5,373		2,069			11,475			6,711

SNDL Inc.

Notes to the Condensed Consolidated Interim Financial Statements

For the three and nine months ended September 30, 2023

(Unaudited, expressed in thousands of Canadian dollars, except where otherwise noted)

(1)

For the nine months ended September 30, 2023, the Company recognized share-based compensation expense under Nova’s RSU plan of $28 and share-based compensation expense under Nova’s DSU plan of $436.

(2)

Cash-settled DSUs are accounted for as a liability and are measured at fair value based on the market value of the Company’s common shares at each period end. Fluctuations in the fair value are recognized during the period in which they occur.

Equity-settled plans

Simple and performance warrants

The Company issued simple warrants and performance warrants to employees, directors and others at the discretion of the Board. Simple and performance warrants granted generally vest annually over a three-year period, simple warrants expire five years after the grant date and performance warrants expire five years after vesting criteria met.

The following table summarizes changes in the simple and performance warrants during the nine months ended September 30, 2023:


	Simple warrants outstanding			Weighted average exercise price		Performance warrants outstanding			Weighted average exercise price
Balance at December 31, 2022		165,820		$	46.91		123,200		$	42.26
Forfeited		(45,760	)		70.61		(52,800	)		54.55
Expired		(20,480	)		15.41		(16,000	)		14.07
Balance at September 30, 2023		99,580		$	42.49		54,400		$	38.62

The following table summarizes outstanding simple and performance warrants as at September 30, 2023:


	Warrants outstanding						Warrants exercisable
Range of exercise prices	Number of warrants		Weighted average exercise price		Weighted average contractual life (years)		Number of warrants		Weighted average exercise price		Weighted average contractual life (years)
Simple warrants
$6.25 - $9.38		39,500		7.52		1.04		39,500		7.52		1.04
$29.69 - $45.31		19,120		31.91		1.28		18,320		31.60		1.20
$62.50 - $93.75		33,920		63.97		3.30		33,920		63.97		3.30
$125.00 - $312.50		7,040		163.94		3.70		5,440		151.50		3.33
		99,580	$	42.49		2.04		97,180	$	39.82		1.99
Performance warrants
$6.25 - $9.38		19,200		6.25	n/a			19,200		6.25		1.44
$29.69 - $45.31		23,200		32.60	n/a			23,200		32.60		1.53
$62.50 - $93.75		9,334		77.68	n/a			1,334		93.75		2.42
$125.00 - $218.75		2,666		187.50	n/a			—		—	n/a
		54,400	$	38.62	n/a			43,734	$	22.90		1.52

Stock options

The Company issues stock options to employees and others at the discretion of the Board. Stock options granted generally vest annually in thirds over a three-year period and expire ten years after the grant date.

SNDL Inc.

Notes to the Condensed Consolidated Interim Financial Statements

For the three and nine months ended September 30, 2023

(Unaudited, expressed in thousands of Canadian dollars, except where otherwise noted)

The following table summarizes changes in stock options during the nine months ended September 30, 2023:


	Stock options outstanding			Weighted average exercise price
Balance at December 31, 2022		44,360		$	13.24
Acquired (note 3(a))		1,317,837			17.63
Forfeited		(375,993	)		17.11
Expired		(33,440	)		9.70
Balance at September 30, 2023		952,764		$	17.90

The following table summarizes outstanding stock options as at September 30, 2023:


	Stock options outstanding				Stock options exercisable
Exercise prices	Number of options		Weighted average contractual life (years)		Number of options		Weighted average contractual life (years)
$11.50		10,000		6.66		10,000		6.66
$11.90		8,160		6.74		8,160		6.74
$31.50		3,000		4.98		2,700		4.90
$11.79 - $38.88 (Legacy Valens)		931,604		2.47		931,604		2.47
		952,764		2.56		952,464		2.56

Restricted share units

RSUs are granted to employees and the vesting requirements and maximum term are at the discretion of the Board. RSUs are exchangeable for an equal number of common shares.

The following table summarizes changes in RSUs during the nine months ended September 30, 2023:


	RSUs outstanding
Balance at December 31, 2022		1,381,330
Granted		10,248,044
Forfeited		(665,443	)
Exercised		(411,555	)
Balance at September 30, 2023		10,552,376

At September 30, 2023, no RSUs were vested or exercisable.

Cash-settled plans

Deferred share units

DSUs are granted to directors and generally vest in equal instalments over one year. DSUs are settled by making a cash payment to the holder equal to the fair value of the Company’s common shares calculated at the date of such payment.

As at September 30, 2023, the Company recognized a liability of $4.0 million relating to the fair value of cash-settled DSUs (December 31, 2022 – $2.3 million).

SNDL Inc.

Notes to the Condensed Consolidated Interim Financial Statements

For the three and nine months ended September 30, 2023

(Unaudited, expressed in thousands of Canadian dollars, except where otherwise noted)

The following table summarizes changes in DSUs during the nine months ended September 30, 2023:

At September 30, 2023, 1.3 million DSUs were vested but none were exercisable.

20.

Gross revenue

Liquor retail revenue is derived from the sale of wines, beers and spirits to customers. Cannabis retail revenue is derived from retail cannabis sales to customers, franchise revenue consists of royalty and franchise fee revenue, and other revenue consists of millwork, supply and accessories revenue and proprietary licensing. Cannabis operations revenue is derived from contracts with customers and is comprised of sales to Provincial boards that sell cannabis through their respective distribution models, sales to licensed producers for further processing, provision of proprietary cannabis processing services, product development, manufacturing and commercialization of cannabis consumer products and sales to medical customers.


	Three months ended September 30				Nine months ended September 30
	2023		2022		2023		2022
Liquor retail revenue		151,801		152,488		419,402		302,435
Cannabis retail revenue
Retail		69,732		62,501		201,255		128,022
Franchise		1,814		2,182		5,380		6,297
Other		3,993		1,519		8,193		2,889
Cannabis retail revenue		75,539		66,202		214,828		137,208
Cannabis operations revenue
Provincial boards		18,976		16,021		52,817		40,646
Medical		—		1		24		7
Wholesale		3,224		432		8,153		2,532
Analytical testing		256		—		894		—
Cannabis operations revenue		22,456		16,454		61,888		43,185
Gross revenue		249,796		235,144		696,118		482,828

During the three months ended September 30, 2023, the Company determined that the application of its revenue recognition policy should eliminate cannabis operations revenue and related cost of sales from sales to provincial boards when it is expected to be subsequently repurchased by its licensed retailer subsidiaries for resale, at which point the full retail sales revenue will be recognized.

The following table presents the effect of the adjustments made to gross revenue and cost of sales for the periods indicated. There is no impact below gross margin before fair value adjustments.

SNDL Inc.

Notes to the Condensed Consolidated Interim Financial Statements

For the three and nine months ended September 30, 2023

(Unaudited, expressed in thousands of Canadian dollars, except where otherwise noted)


	Three months ended March 31, 2023							Three months ended June 30, 2023
	As Previously Reported		Adjustment			As Recast		As Previously Reported		Adjustment			As Recast
Gross revenue		212,899		(11,407	)		201,492		257,425		(12,595	)		244,830
Excise taxes		10,447		—			10,447		12,914		—			12,914
Net revenue		202,452		(11,407	)		191,045		244,511		(12,595	)		231,916
Cost of sales		158,149		(11,407	)		146,742		188,922		(12,595	)		176,327
Inventory impairment and obsolescence		9,177		—			9,177		4,291		—			4,291
Gross margin before fair value adjustments		35,126		—			35,126		51,298		—			51,298

	Three months ended September 30, 2023							Nine months ended September 30, 2023
						As Reported		As Reported (1)		Adjustment			As Reported
Gross revenue							249,796		720,120		(24,002	)		696,118
Excise taxes							12,201		35,562		—			35,562
Net revenue							237,595		684,558		(24,002	)		660,556
Cost of sales							180,375		527,446		(24,002	)		503,444
Inventory impairment and obsolescence							9,126		22,594		—			22,594
Gross margin before fair value adjustments							48,094		134,518		—			134,518

(1)

As reported for the nine months ended September 30, 2023 is a combination of as previously reported for the three months ended March 31, 2023 and June 30, 2023, and as reported for the three months ended September 30, 2023.

21.

Investment revenue (LOSS)


	Three months ended September 30				Nine months ended September 30
	2023		2022		2023		2022
Interest and fee revenue
Interest revenue from investments at amortized cost		908		924		2,894		2,737
Interest and fee revenue from investments at FVTPL		250		1,095		1,124		3,754
Interest revenue from cash		2,287		2,293		7,059		4,259
		3,445		4,312		11,077		10,750


	Three months ended September 30						Nine months ended September 30
	2023			2022			2023			2022
Investment loss		(29	)		(5,513	)		(9,218	)		(58,296	)

SNDL Inc.

Notes to the Condensed Consolidated Interim Financial Statements

For the three and nine months ended September 30, 2023

(Unaudited, expressed in thousands of Canadian dollars, except where otherwise noted)

22.

Finance costs


	Three months ended September 30						Nine months ended September 30
	2023			2022			2023			2022
Cash finance expense
Other finance costs		2			1			47			170
		2			1			47			170
Non-cash finance expense (income)
Change in fair value of investments at FVTPL		52			4,684			3,677			26,989
Accretion on lease liabilities		1,676			4,095			5,915			8,363
Financial guarantee liability (recovery) expense		—			(14	)		(139	)		(91	)
Other		625			(130	)		921			59
		2,353			8,635			10,374			35,320
Interest income		(213	)		(227	)		(648	)		(637	)
		2,142			8,409			9,773			34,853

23.

supplemental cash flow disclosures


	Three months ended September 30						Nine months ended September 30
	2023			2022			2023			2022
Cash provided by (used in):
Accounts receivable		7,275			(13	)		16,598			(2,578	)
Biological assets		(1,051	)		(2,062	)		(3,852	)		3,120
Inventory		9,081			(127	)		(22,851	)		(13,076	)
Prepaid expenses and deposits		4,043			2,064			(3,722	)		2,122
Investments		106			40			586			471
Right of use assets		(1,945	)		(2,745	)		(2,709	)		(3,896	)
Property, plant and equipment		22			—			95			—
Accounts payable and accrued liabilities		(5,797	)		4,746			(28,615	)		(30,533	)
Lease liabilities		2,012			3,502			2,787			5,716
		13,746			5,405			(41,683	)		(38,654	)

Changes in non-cash working capital relating to:
Operating		13,033			1,163			(43,722	)		(45,271	)
Investing		730			(754	)		1,857			(495	)
Financing		(17	)		4,996			182			7,112
		13,746			5,405			(41,683	)		(38,654	)

SNDL Inc.

Notes to the Condensed Consolidated Interim Financial Statements

For the three and nine months ended September 30, 2023

(Unaudited, expressed in thousands of Canadian dollars, except where otherwise noted)

24.

Loss per share


	Three months ended September 30						Nine months ended September 30
	2023			2022			2023			2022
Weighted average shares outstanding (000s)
Basic and diluted (1)		260,435			237,760			258,757			227,563
Continuing operations
Net loss attributable to owners of the Company		(21,784	)		(98,108	)		(85,337	)		(209,313	)
Per share - basic and diluted	$	(0.08	)	$	(0.41	)	$	(0.33	)	$	(0.92	)
Discontinued operations
Net loss attributable to owners of the Company		—			—			(4,535	)		—
Per share - basic and diluted		—			—		$	(0.02	)	$	—
Net loss attributable to owners of the Company		(21,784	)		(98,108	)		(89,872	)		(209,313	)
Per share - basic and diluted	$	(0.08	)	$	(0.41	)	$	(0.35	)	$	(0.92	)

(1)

For the nine months ended September 30, 2023, there were 0.3 million equity classified warrants, 9.9 million derivative warrants, 0.1 million simple warrants, 0.1 million performance warrants, 0.95 million stock options and 10.6 million RSUs that were excluded from the calculation as the impact was anti-dilutive (nine months ended September 30, 2022– 0.3 million equity classified warrants, 9.9 million derivative warrants, 0.3 million simple warrants, 0.1 million performance warrants, 0.04 million stock options and 2.4 million RSUs).

25.

Financial instruments

The financial instruments recognized on the consolidated statement of financial position are comprised of cash and cash equivalents, restricted cash, marketable securities, accounts receivable, investments at amortized cost, investments at FVTPL, accounts payable and accrued liabilities and derivative warrants.

Fair value

The carrying value of cash and cash equivalents, restricted cash, accounts receivable and accounts payable and accrued liabilities approximate their fair value due to the short-term nature of the instruments. The carrying value of investments at amortized cost approximate their fair value as the fixed interest rates approximate market rates for comparable transactions.

SNDL Inc.

Notes to the Condensed Consolidated Interim Financial Statements

For the three and nine months ended September 30, 2023

(Unaudited, expressed in thousands of Canadian dollars, except where otherwise noted)

Fair value measurements of marketable securities, investments at FVTPL and derivative warrants are as follows:


			Fair value measurements using
September 30, 2023	Carrying amount		Level 1		Level 2		Level 3
Recurring measurements:
Financial assets
Marketable securities		265		265		—		—
Investments at FVTPL		8,295		—		—		8,295
Financial liabilities
Derivative warrants (1)		6,800		—		—		6,800

			Fair value measurements using
December 31, 2022	Carrying amount		Level 1		Level 2		Level 3
Recurring measurements:
Financial assets
Marketable securities		21,926		21,926		—		—
Investments at FVTPL		72,761		—		—		72,761
Financial liabilities
Derivative warrants (1)		11,002		—		—		11,002

(1)

The carrying amount is an estimate of the fair value of the derivative warrants and is presented as a current liability. The Company has no cash obligation with respect to the derivative warrants, rather it will deliver common shares if and when warrants are exercised.

At September 30, 2023, a 10% change in the material assumptions would change the estimated fair value of derivative warrant liabilities by approximately $0.9 million.

There were no transfers between Levels 1, 2 and 3 inputs during the period.

26.

RELATED PARTIES

The Company entered into the following related party transactions during the periods noted, in addition to those disclosed in note 15 relating to the Company’s joint venture.

A member of key management personnel jointly controls a company that owns property leased to SNDL for one of its retail liquor stores. The lease term is from November 1, 2017 to October 31, 2027 and includes extension terms from November 1, 2027 to October 31, 2032 and November 1, 2032 to October 31, 2037. Monthly rent for the location includes base rent, common area costs and sign rent. The rent amounts are subject to increases in accordance with the executed lease agreement. For the nine months ended September 30, 2023, the Company paid $125.2 thousand in total rent with respect to this lease.

27.

Commitments and contingencies

The following table summarizes contractual commitments at September 30, 2023:


	Less than one year		One to three years		Three to five years		Thereafter		Total
Accounts payable and accrued liabilities		57,230		—		—		—		57,230
Financial guarantee liability		—		268		—		—		268
Contractual obligation		—		2,628		—		—		2,628
Balance, end of year		57,230		2,896		—		—		60,126

SNDL Inc.

Notes to the Condensed Consolidated Interim Financial Statements

For the three and nine months ended September 30, 2023

(Unaudited, expressed in thousands of Canadian dollars, except where otherwise noted)

Commitments

The Company has entered into certain supply agreements to provide dried cannabis and cannabis products to third parties. The contracts require the provision of various amounts of dried cannabis on or before certain dates. Should the Company not deliver the product in the agreed timeframe, financial penalties apply which may be paid either in product in-kind or cash. Under these agreements, the Company has accrued financial penalties payable as at September 30, 2023 of $2.5 million (December 31, 2022 – $2.5 million). The corresponding expenses were recognized during the years ended December 31, 2019 ($1.5 million) and December 31, 2021 ($1.0 million).

Contingencies

From time to time, the Company is involved in various claims and legal actions which occurred in the ordinary course of operations, the losses from which, if any, are not anticipated to be material to the financial statements.

28.

Subsequent events

Streamlining of cannabis operations

On October 19, 2023, the Company announced that it will consolidate all cultivation activities at its Atholville, New Brunswick Facility (the “Atholville Facility”) following the centralization of SNDL’s manufacturing, processing and production operations to Kelowna, British Columbia. In connection with the closing of the Olds facility, the Company expects to record any related non-cash impairment charges during the fourth quarter of 2023. The carrying amount of the Olds facility at September 30, 2023 was $36.4 million.

Nova transaction

On December 20, 2022, the Company and Nova announced that they had entered into an implementation agreement pursuant to which the Company and Nova agreed to implement a strategic transaction in the Canadian retail cannabis industry (the “Nova Transaction”).

On May 5, 2023, Nova’s shareholders approved the previously announced agreement with SNDL to implement a strategic partnership to create a well-capitalized cannabis retail platform in Canada, pursuant to the implementation agreement entered into between SNDL and Nova dated December 20, 2022, as amended on April 3, 2023 (the “Implementation Agreement”).

On June 1, 2023, SNDL announced that it had amended the terms of the plan of arrangement (the “Original Plan of Arrangement”), and such amended form of the Original Plan of Arrangement being (the “Amended Plan of Arrangement”) approved by the SNDL shareholders at its annual and special meeting of shareholders held on July 25, 2022, pursuant to which SNDL intends to distribute certain of its Nova common shares to SNDL shareholders.

The completion of the share distribution remains subject to certain closing conditions set out in the Implementation Agreement, including the receipt of certain key regulatory approvals and the amendment to certain terms of the Nova Transaction that are mutually satisfactory to SNDL and Nova. SNDL continues to work with regulators to ensure that the Nova Transaction is in compliance with regulations in all relevant jurisdictions.

Due to ongoing review by regulators with respect to required approvals, SNDL and Nova have extended the outside date for closing of the Nova Transaction to on or before November 30, 2023.

EXHIBIT 99.2

SNDL Inc.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

For the three and nine months ended September 30, 2023

Management’s Discussion and Analysis

This Management’s Discussion and Analysis (“MD&A”) of the financial condition and performance of SNDL Inc. (“SNDL” or the “Company”) for the three and nine months ended September 30, 2023 is dated November 13, 2023. This MD&A should be read in conjunction with the Company’s condensed consolidated interim financial statements and the notes thereto for the three and nine months ended September 30, 2023 (the “Interim Financial Statements”) and the audited consolidated financial statements and notes thereto for the year ended December 31, 2022 (the “Audited Financial Statements”) and the risks identified in the Company’s Annual Report on Form 20-F for the year ended December 31, 2022 (the “Annual Report”) and elsewhere in this MD&A. This MD&A has been prepared in accordance with National Instrument 51-102 - Continuous Disclosure Obligations and is presented in thousands of Canadian dollars, except where otherwise indicated. All share amounts in this MD&A have been adjusted retrospectively to reflect the Share Consolidation (as defined herein) unless otherwise noted. See “Liquidity and Capital Resources—Equity”.

MD&A – Table of Contents


COMPANY OVERVIEW	1
RECENT DEVELOPMENTS	2
Other developments	2
FINANCIAL HIGHLIGHTS	4
CONSOLIDATED RESULTS	4
OPERATING SEGMENTS	8
LIQUOR RETAIL SEGMENT RESULTS	9
CANNABIS RETAIL SEGMENT RESULTS	10
CANNABIS OPERATIONS SEGMENT RESULTS	11
INVESTMENTS SEGMENT RESULTS	13
SELECTED QUARTERLY INFORMATION	14
LIQUIDITY AND CAPITAL RESOURCES	14
CONTRACTUAL COMMITMENTS AND CONTINGENCIES	17
SPECIFIED FINANCIAL MEASURES	18
RELATED PARTIES	20
OFF BALANCE SHEET ARRANGEMENTS	20
CRITICAL ACCOUNTING POLICIES AND ESTIMATES	20
NEW ACCOUNTING PRONOUNCEMENTS	21
RISK FACTORS	21
DISCLOSURE CONTROLS AND PROCEDURES	21
INTERNAL CONTROL OVER FINANCIAL REPORTING	21
REMEDIATION	22
CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING	22
ABBREVIATIONS	22
FORWARD-LOOKING INFORMATION	22
ADDITIONAL INFORMATION	23

COMPANY OVERVIEW

SNDL Inc., formerly Sundial Growers Inc., operates under four reportable segments:

•

Liquor retail sales of wines, beers and spirits;

•

Cannabis retail sales of cannabis products and accessories through corporate-owned and franchised cannabis retail operations;

•

Cannabis operations as a licensed producer that grows cannabis using indoor facilities and manufactures cannabis products, providing proprietary cannabis processing services; and

•

Investments targeting the cannabis industry.

The principal activities of the Company are the retailing of wines, beers and spirits under the Wine and Beyond, Liquor Depot and Ace Liquor retail banners; the operation and support of corporate-owned and franchise retail cannabis stores in certain Canadian jurisdictions where the private sale of recreational cannabis is permitted, under the Value Buds, Sweet Tree, Spiritleaf, Superette and Firesale retail banners; the manufacturing of cannabis products providing proprietary cannabis processing services, the production, distribution and sale of cannabis domestically and for export pursuant to the Cannabis Act (Canada) (the “Cannabis Act”) through a cannabis brand portfolio that includes Top Leaf, Contraband, Citizen Stash, Sundial Cannabis, Vacay, Spiritleaf Selects, Palmetto, Value Buds, Versus, Bonjak, Namaste, Re-up and Grasslands; and, the deployment of capital to direct and indirect investments and partnerships throughout the cannabis industry.

The Company produces and markets cannabis products for the Canadian adult-use market and for the international medicinal market. SNDL’s operations cultivate cannabis using approximately 448,000 square feet of total space in Olds (refer to “Recent Developments – Cost-saving Measures and Rightsizing Cannabis Operations at Alberta Facility” below) and approximately 380,000 square feet of total space in Atholville. SNDL’s extraction and manufacturing operations include 81,800 square feet of total space in British Columbia and 32,000 square feet of total space in Ontario. The Company has a distribution network that covers 98% of the national adult-use cannabis industry.

SNDL and its subsidiaries operate solely in Canada. Through its joint venture, SunStream Bancorp Inc. (“SunStream”), the Company provides growth capital that pursues indirect investment and financial services opportunities in the cannabis sector, as well as other investment opportunities. The Company also makes strategic portfolio investments in debt and equity securities.

The Company also owns approximately 63% of Nova Cannabis Inc. (“Nova”), whose principal activities are related to the retail sale of cannabis.

SNDL was incorporated under the Business Corporations Act (Alberta) on August 19, 2006. The Company’s common shares are listed under the symbol “SNDL” on the Nasdaq Capital Market (“Nasdaq”).

On July 25, 2022, the Company’s shareholders approved a special resolution amending the articles of SNDL to change the name of the Company from “Sundial Growers Inc.” to “SNDL Inc.” and the change became effective on the same day. In light of the evolution of SNDL’s business over the past two years, the new name more appropriately reflects the operating model and strategy across liquor and cannabis retail, cannabis cultivation and production and investments. The rebrand underscores SNDL’s differentiated vertical integration model and reorients to its position as Canada’s largest private sector regulated cannabis and liquor product platform.

SNDL is headquartered in Calgary, Alberta, with operations in Olds, Alberta, Kelowna, British Columbia, Bolton, Ontario and Atholville, New Brunswick, and corporate-owned and franchised retail liquor and cannabis stores in five provinces across Canada.

SNDL’s overall strategy is to build sustainable, long-term shareholder value by improving liquidity and cost of capital while optimizing the capacity and capabilities of its production facilities in the creation of a consumer-centric brand and product portfolio. SNDL’s retail operations will continue to build a Canadian retail liquor brand and a network of retail cannabis stores across Canadian jurisdictions where the private distribution of cannabis is legal. SNDL’s investment operations seek to deploy capital through direct and indirect investments and partnerships throughout the cannabis industry.

RECENT DEVELOPMENTS

Cost-saving measures and rightsizing cannabis operations at alberta facility

Beginning in February 2023, the Company undertook a rightsizing of cannabis cultivation operations in both Olds, Alberta, and Atholville, New Brunswick in an effort to focus the facility on premium products and brands. The Valens Transaction (as defined below) accelerated the need to optimize and rationalize SNDL’s manufacturing and operational footprint to better address market saturation and oversupply. On October 19, 2023, the Company announced that it will consolidate all cultivation activities at its Atholville, New Brunswick Facility (the “Atholville Facility”) following the centralization of SNDL’s manufacturing, processing and production operations to Kelowna, British Columbia.

SNDL expects optimizing its facility footprint to result in over $10 million in annual savings from its Cannabis Operations segment through a reduction in fixed overhead, power costs, and labour efficiencies. These cost savings are in addition to the previously announced $18.2 million of annualized cost savings since the acquisition of The Valens Company Inc. (“Valens”). In connection with the closing of the Olds facility, the Company expects to record any related non-cash impairment charges during the fourth quarter of 2023. The carrying amount of the Olds facility at September 30, 2023 was $36.4 million. The Atholville Facility will continue to focus on cultivation, research and development, and supply chain efficiencies with an aim to realize additional cost savings while ensuring no disruptions to the availability of SNDL’s current product portfolio. In line with this strategic transition, SNDL expects to expand its operations in Atholville, creating potential employment opportunities in the area.

Strategic partnership with nova

On May 5, 2023, Nova’s shareholders approved the previously announced agreement with SNDL to implement a strategic partnership to create a well-capitalized cannabis retail platform in Canada, pursuant to the implementation agreement entered into between SNDL and Nova dated December 20, 2022 (as amended to date, the “Implementation Agreement”).

On June 1, 2023, SNDL provided an update on its proposed transaction with Nova (the “Nova Transaction”), that it had amended the terms of the plan of arrangement (the “Original Plan of Arrangement”), and such amended form of the Original Plan of Arrangement being (the “Amended Plan of Arrangement”) approved by the SNDL shareholders at its annual and special meeting of shareholders held on July 25, 2022, pursuant to which SNDL intends to distribute certain of its Nova common shares to SNDL shareholders.

Due to ongoing review by regulators with respect to required approvals, SNDL and Nova extended the outside date for closing of the Nova Transaction to on or before November 30, 2023.

OTHER DEVELOPMENTS

Investments at amortized cost

On February 16, 2021, the Company announced a $22 million strategic investment (the “Indiva Investment”) in Indiva Limited (“Indiva”). The Indiva Investment closed on February 23, 2021. The Indiva Investment was completed in the form of a brokered private placement of 25 million common shares of Indiva at a price of $0.44 per common share, for gross proceeds of $11 million, and a non-revolving secured term loan to Indiva in the principal amount of $11 million (the “Indiva Term Loan”). The Indiva Term Loan bore interest at a rate of 9% per annum. On October 4, 2021, the Company provided an additional $8.5 million principal loan to Indiva and amended the Indiva Term Loan to an interest rate of 15% per annum and maintained the maturity date of February 23, 2024. Accrued and unpaid interest of $0.3 million was added to the outstanding principal balance, bringing the total principal outstanding to $19.8 million. On August 28, 2023, the Company amended the maturity date to February 24, 2026.

LIGHTBOX Acquisition

On March 28, 2023, the Company announced that it had entered into an agreement (the “Lightbox Agreement”) with Lightbox Enterprises Ltd. (“Lightbox”) to acquire four cannabis retail stores operating under the Dutch Love Cannabis banner (“Dutch Love”). Under the Lightbox Agreement, SNDL will acquire from Lightbox the rights to four Dutch Love stores in British Columbia and the rights to use certain Dutch Love related intellectual property for total consideration of $7.8 million. The consideration is comprised of i) $1.5 million cash; ii) the cancellation of the $3.0 million debt owed by Lightbox to SNDL; and iii) $3.3 million payable in common shares of SNDL.

The transaction is expected to be completed in the context of Lightbox’s proceedings under the Companies’ Creditors Arrangement Act (Canada) (“CCAA”) from the Supreme Court of British Columbia (the “BC Court”). On December 2, 2022, the BC Court granted an order that approved a sale and investment solicitation process (“SISP”) in respect of the assets, undertakings and properties of Lightbox, and the Lightbox Agreement is the result of the SISP process.

The transaction is anticipated to close in the fourth quarter of 2023.

Valens Acquisition

On January 17, 2023, the Company acquired all of the issued and outstanding common shares of Valens, other than those owned by SNDL and its subsidiaries, by way of a statutory plan of arrangement (the “Valens Transaction”). The Valens Transaction consideration was comprised of (i) the assumption of Valens’ $60 million non-revolving term loan facility from its then existing lender, as described above, (ii) an aggregate 27.6 million SNDL common shares valued at $84.0 million based on the fair value of each common share of the Company on the closing date (0.3334 of a SNDL common share for each Valens common share), and (iii) contingent consideration valued at $0.6 million representing the fair value of Valens stock options.

Superette Acquisition

On February 7, 2023, the Company announced that in the context of certain of the Superette entities, including Superette Inc. and Superette Ontario Inc., proceedings under the CCAA, it has successfully closed the Superette Transaction (as defined below) contemplated by the agreement of purchase and sale dated August 29, 2022 (as amended and restated on December 12, 2022) and the approval and vesting order issued by the Ontario Superior Court of Justice (Commercial List) on December 20, 2022. The Company acquired the right, title and interest in (i) five Superette retail locations within Toronto and Ottawa; (ii) the intellectual property rights related to the Superette brand; and (iii) the shares of Superette Ontario (collectively, the “Superette Transaction”).

share repurchase program

On November 13, 2023, the Company announced that the Board approved a renewal of the share repurchase program upon its expiry on November 20, 2023. The share repurchase program authorizes the Company to repurchase up to $100 million of its outstanding common shares through open market purchases at prevailing market prices. SNDL may purchase up to a maximum of 13.1 million common shares under the share repurchase program, representing approximately 5% of the issued and outstanding common shares as at the date of announcement, and will expire on November 20, 2024. The share repurchase program does not require the Company to purchase any minimum number of common shares and repurchases may be suspended or terminated at any time at the Company’s discretion. The actual number of common shares which may be purchased pursuant to the share repurchase program and the timing of any purchases will be determined by SNDL’s management and the Board. All common shares purchased pursuant to the share repurchase program will be returned to treasury for cancellation.

Refer to “Liquidity and Capital Resources – Equity” below and “Item 16E – Purchases of Equity Securities by the Issuer and Affiliated Purchasers” in the Annual Report for further details regarding common shares purchased and cancelled during 2022 and 2023.

FINANCIAL HIGHLIGHTS

The following table summarizes selected financial information of the Company for the periods noted.



($000s, except as indicated)	Q3 2023			Q3 2022			Change			% Change
Financial
Gross revenue		249,796			235,144			14,652			6	%
Net revenue		237,595			230,500			7,095			3	%
Cost of sales		180,375			179,093			1,282			1	%
Gross margin (1)		48,605			50,309			(1,704	)		-3	%
Gross margin %		20	%		22	%					-1	%
Gross margin before fair value adjustments (1)(2)		48,094			53,714			(5,620	)		-10	%
Gross margin before fair value adjustments % (2)		20	%		23	%					-3	%
Interest and fee revenue		3,445			4,312			(867	)		-20	%
Investment loss		(29	)		(5,513	)		5,484			99	%
Loss from operations		(16,370	)		(88,542	)		72,172			82	%
Net loss from continuing operations attributable to owners of the Company		(21,784	)		(98,108	)		76,324			78	%
Per share, basic and diluted		(0.08	)		(0.41	)		0.33			80	%
Net loss attributable to owners of the Company		(21,784	)		(98,108	)		76,324			78	%
Per share, basic and diluted		(0.08	)		(0.41	)		0.33			80	%
Adjusted EBITDA from continuing operations (2)		16,117			18,320			(2,203	)		-12	%

Statement of Financial Position
Cash and cash equivalents		201,983			291,427			(89,444	)		-31	%
Inventory		142,550			144,056			(1,506	)		-1	%
Property, plant and equipment		176,144			130,355			45,789			35	%
Total assets		1,563,291			1,817,428			(254,137	)		-14	%

(1)

Includes inventory obsolescence and impairment expense of $9.1 million for the three months ended September 30, 2023, and a recovery of $2.3 million for the three months ended September 30, 2022.

(2)

Adjusted EBITDA from continuing operations, gross margin before fair value adjustments and gross margin before fair value adjustments percentage are specified financial measures that do not have standardized meanings prescribed by IFRS and therefore may not be comparable to similar measures used by other companies. Refer to the “Specified Financial Measures” section of this MD&A for further information.

CONSOLIDATED RESULTS

General and administrative


	Three months ended September 30				Nine months ended September 30
($000s)	2023		2022		2023		2022
Salaries and wages		27,061		24,088		85,629		54,372
Consulting fees		1,741		341		3,487		1,204
Office and general		13,494		13,002		40,001		25,237
Professional fees		1,884		4,081		7,575		8,429
Merchant processing fees		1,648		1,582		4,528		3,096
Director fees		135		116		400		357
Other		2,272		1,804		7,915		3,294
		48,235		45,014		149,535		95,989

General and administrative expenses for the three months ended September 30, 2023 were $48.2 million compared to $45.0 million for the three months ended September 30, 2022. The increase of $3.2 million was mainly due to increases in salaries and wages as a result of the Valens acquisition and an increase in consulting fees.

General and administrative expenses for the nine months ended September 30, 2023 were $149.5 million compared to $96.0 million for the nine months ended September 30, 2022. The increase of $53.5 million was mainly due to increases in salaries and wages and office and general expenses as a result of the Alcanna Inc. (“Alcanna”), Valens and Zenabis Ltd. (“Zenabis”) acquisitions.

Share-based compensation


	Three months ended September 30					Nine months ended September 30
($000s)	2023		2022			2023			2022
Equity-settled expense
Simple warrants		3		126			(332	)		1,272
Stock options		—		13			(2	)		65
Restricted share units		3,602		2,417			9,711			7,059
Cash-settled expense
Deferred share units		1,768		(487	)		2,098			(1,685	)
		5,373		2,069			11,475			6,711

Share-based compensation expense includes the expense related to the Company’s issuance of simple and performance warrants, stock options, restricted share units (“RSUs”) and deferred share units (“DSUs”) to employees, directors, and others at the discretion of the Board. Share-based compensation also includes the expense related to Nova’s issuance of RSUs and DSUs.

Share-based compensation expense for the three months ended September 30, 2023 was $5.4 million compared to $2.1 million for the three months ended September 30, 2022. The increase of $3.3 million was due to increases in RSU expense and DSU expense. The increase in RSU expense was due to the issuance of new RSUs, partially offset by the vesting of RSUs granted in prior years. The increase in DSU expense was mainly caused by the increase in fair value in the current period compared to a decrease in fair value in the comparative period.

Share-based compensation expense for the nine months ended September 30, 2023 was $11.5 million compared to $6.7 million for the nine months ended September 30, 2022. The increase of $4.8 million was due to an increase in RSU expense and DSU expense, partially offset by a decrease in simple warrant expense. The increase in RSU expense was due to the issuance of new RSUs, partially offset by the vesting of RSUs granted in prior years. The increase in DSU expense was mainly caused by a minimal fair value increase in the current year, compared to a decrease in fair value in the prior year. The current year was also impacted by an increase in the number of DSUs issued due to the Board adding an additional director at the beginning of the year. The decrease in simple warrant expense was caused by the vesting of awards issued in prior years in addition to the recovery of unvested forfeitures.

Transaction costs


	Three months ended September 30				Nine months ended September 30
($000s)	2023		2022		2023		2022
Transaction costs		226		417		2,439		(1,040	)

Transaction costs for the three months ended September 30, 2023, were $0.2 million compared to $0.4 million for the three months ended September 30, 2022. Transaction costs in the current period relate to various acquisitions. Transaction costs in the comparative period related primarily to the Alcanna acquisition.

Transaction costs for the nine months ended September 30, 2023, were $2.4 million compared to a recovery of $1.0 million for the nine months ended September 30, 2022. Transaction costs in the current period relate to various acquisitions, including Valens and Superette. Transaction cost recoveries in the comparative period related to the reversal of a provision for costs associated with securities class action lawsuits. The provision was initially recorded at the full amount payable upon settlement and was subsequently reduced by the amount covered by the Company’s insurance policy. The recovery was partially offset by costs associated with the Alcanna acquisition.

Finance costs


	Three months ended September 30						Nine months ended September 30
($000s)	2023			2022			2023			2022
Cash finance expense
Other finance costs		2			1			47			170
		2			1			47			170
Non-cash finance expense
Change in fair value of investments at fair value through profit or loss		52			4,684			3,677			26,989
Accretion on lease liabilities		1,676			4,095			5,915			8,363
Financial guarantee liability (recovery) expense		—			(14	)		(139	)		(91	)
Other		625			(130	)		921			59
		2,353			8,635			10,374			35,320
Interest income		(213	)		(227	)		(648	)		(637	)
		2,142			8,409			9,773			34,853

Finance costs include accretion expense related to lease obligations, finance income related to net investment in subleases, change in fair value of investments at Fair Value Through Profit or Loss (“FVTPL”) and certain other expenses.

Finance costs for the three months ended September 30, 2023 were $2.1 million compared to $8.4 million for the three months ended September 30, 2022. The decrease of $6.3 million was mainly due to the change in fair value of investments at FVTPL and a decrease in accretion on lease liabilities. The prior period included a $3.5 million decrease in the fair value of the Superette promissory note and a $0.8 million decrease in the fair value of the Delta 9 Cannabis Inc. (“Delta 9”) convertible debenture.

Finance costs for the nine months ended September 30, 2023 were $9.8 million compared to $34.9 million for the nine months ended September 30, 2022. The decrease of $25.1 million was due to the change in fair value of investments at FVTPL. The decrease in the fair value of investments at FVTPL was mainly due to an adjustment to the Superette promissory note (refer to note 14 in the Interim Financial Statements). The comparative period included a $22.1 million decrease in the fair value of the Zenabis senior loan, a $3.7 million decrease in the fair value of the Superette promissory note and a $0.8 million decrease in the fair value of the Delta 9 convertible debenture.

Change in estimate of fair value of derivative warrants


	Three months ended September 30				Nine months ended September 30
($000s)	2023		2022		2023			2022
Change in estimate of fair value of derivative warrants		2,840		8,500		(4,202	)		(6,856	)

Change in estimate of fair value of derivative warrants for the three months ended September 30, 2023 was an expense of $2.8 million compared to an expense of $8.5 million for the three months ended September 30, 2022. The expense in the current period relates to an increase in fair value, mainly due to an increase in the Company’s share price from US$1.37 on June 30, 2023, to US$1.90 on September 30, 2023. The expense in the prior period related to an adjustment to the exercise price of the 9.8 million warrants issued in 2021, triggered by the Company’s Share Consolidation.

Change in estimate of fair value of derivative warrants for the nine months ended September 30, 2023 was a recovery of $4.2 million compared to a recovery of $6.9 million for the nine months ended September 30, 2022. The recovery in the current period relates to a decrease in fair value, mainly due to a decrease in the Company’s share price from US$2.09 on December 31, 2022, to US$1.90 on September 30, 2023. The recovery in the prior period relates to a decrease in fair value, mainly due to a decrease in the Company’s share price from US$5.78 on December 31, 2021, to US$2.18 on September 30, 2022.

Net loss from continuing operations


	Three months ended September 30						Nine months ended September 30
($000s)	2023			2022			2023			2022
Net loss from continuing operations		(21,827	)		(98,844	)		(86,593	)		(210,857	)

Net loss from continuing operations for the three months ended September 30, 2023 was $21.8 million compared to $98.8 million for the three months ended September 30, 2022. The decrease in net loss from continuing operations of $77.0 million was mainly due to lower investment losses ($5.5 million), lower impairment ($84.7 million), lower finance costs ($6.3 million) and change in fair value of derivative warrants ($5.7 million), partially offset by an increase in inventory obsolescence provision impacting gross margin ($11.4 million), lower share of profit of equity-accounted investees ($2.6 million), higher general and administrative expenses ($3.2 million), depreciation and amortization ($5.8 million), share-based compensation ($3.3 million) and lower income tax recovery ($6.9 million). The increased general and administrative expenses, depreciation and amortization and share-based compensation were driven by the integration of the Valens structure.

Net loss from continuing operations for the nine months ended September 30, 2023 was $86.6 million compared to $210.9 million for the nine months ended September 30, 2022. The decrease in net loss from continuing operations of $124.3 million was largely due to an increase in gross margin ($36.4 million), lower investment losses ($49.1 million), increased share of profit of equity-accounted investees ($39.9 million), lower impairment ($84.1 million) and lower finance costs ($25.1 million), partially offset by higher general and administrative expenses ($53.5 million), sales and marketing expense ($4.6 million), depreciation and amortization ($26.1 million), share-based compensation ($4.8 million), restructuring costs ($7.2 million), transaction costs ($3.5 million) and lower income tax recovery ($8.7 million). The increased general and administrative expenses, depreciation and amortization and share-based compensation were driven by the integration of the Valens structure.

Adjusted EBITDA from continuing operations


	Three months ended September 30				Nine months ended September 30
($000s)	2023		2022		2023		2022
Adjusted EBITDA from continuing operations (1)		16,117		18,320		25,726		(8,282	)

(1)

Adjusted EBITDA from continuing operations is a specified financial measure that does not have standardized meaning prescribed by IFRS and therefore may not be comparable to similar measures used by other companies. Refer to the “Specified Financial Measures” section of this MD&A for further information.

Adjusted EBITDA from continuing operations was $16.1 million for the three months ended September 30, 2023 compared to $18.3 million for the three months ended September 30, 2022. The decrease was due to the following:

•

Increase in general and administrative expenses due to the acquisition of Valens; and

•

Decrease in share of profit of equity-accounted investees related to fair value accounting adjustments to the Company’s SunStream joint venture investments.

The decrease was partially offset by an:

•

Increase in net revenue less cost of sales.

Adjusted EBITDA from continuing operations was $25.7 million for the nine months ended September 30, 2023 compared to a loss of $8.3 million for the nine months ended September 30, 2022. The increase was due to the following:

•

Increase in net revenue less cost of sales; and

•

Increase in share of profit of equity-accounted investees related to fair value accounting adjustments to the Company’s SunStream joint venture investments.

The increase was partially offset by an:

•

Increase in general and administrative expenses due to the acquisition of Alcanna, Valens and Zenabis.

OPERATING SEGMENTS

The Company’s reportable segments are organized by business line and are comprised of four reportable segments: liquor retail, cannabis retail, cannabis operations, and investments.

Liquor retail includes the sale of wines, beers and spirits through wholly owned liquor stores. Cannabis retail includes the private sale of recreational cannabis through wholly owned and franchise retail cannabis stores. Cannabis operations include the cultivation, distribution and sale of cannabis for the adult-use and medical markets domestically and for export, and providing proprietary cannabis processing services, in addition to product development, manufacturing, and commercialization of cannabis consumer packaged goods. Investments include the deployment of capital to investment opportunities. Certain overhead expenses not directly attributable to any operating segment are reported as “Corporate”.


($000s)	Liquor Retail		Cannabis Retail (1)		Cannabis Operations (2)			Investments (3)			Corporate			Total
As at September 30, 2023
Total assets		321,598		209,684		299,489			712,859			19,661			1,563,291
Nine months ended September 30, 2023
Net revenue (4)		419,402		214,828		61,027			—			(34,701	)		660,556
Gross margin		98,890		53,645		(19,456	)		—			—			133,079
Interest and fee revenue		—		75		—			10,723			279			11,077
Investment (loss) income		—		—		(611	)		(8,607	)		—			(9,218	)
Share of profit of equity-accounted investees		—		—		—			15,161			—			15,161
Depreciation and amortization		27,943		11,391		2,750			—			3,372			45,456
Earnings (loss) from operations		14,528		5,768		(46,792	)		16,963			(68,346	)		(77,879	)
Income (loss) before income tax		10,200		3,230		(46,725	)		13,287			(66,585	)		(86,593	)
Three months ended September 30, 2023
Net revenue (4)		151,801		75,539		20,954			—			(10,699	)		237,595
Gross margin		37,263		20,046		(8,704	)		—			—			48,605
Interest and fee revenue		—		17		—			3,326			102			3,445
Investment (loss) income		—		—		(114	)		85			—			(29	)
Share of profit of equity-accounted investees		—		—		—			6,581			—			6,581
Depreciation and amortization		9,436		4,340		954			—			815			15,545
Earnings (loss) from operations		8,257		3,481		(13,971	)		9,886			(24,023	)		(16,370	)
Income (loss) before income tax		6,449		2,753		(13,774	)		9,834			(27,089	)		(21,827	)

(1)

Cannabis retail includes the operations of Superette for the period February 8, 2023 to September 30, 2023.

(2)

Cannabis operations include the operations of Valens for the period January 18, 2023 to September 30, 2023.

(3)

Total assets include cash and cash equivalents.

(4)

Recast - refer to note 20 in the Company’s Interim Financial Statements.


($000s)	Liquor Retail (1)		Cannabis Retail (1)			Cannabis Operations			Investments (2)			Corporate			Total
As at December 31, 2022
Total assets		351,338		200,393			163,130			825,151			19,338			1,559,350
Nine months ended September 30, 2022
Net revenue		302,435		137,208			32,149			—			—			471,792
Gross margin		69,380		31,684			(4,257	)		—			—			96,807
Interest and fee revenue		—		—			—			10,750			—			10,750
Investment loss		—		—			—			(58,296	)		—			(58,296	)
Share of loss of equity-accounted investees		—		—			—			(24,711	)		—			(24,711	)
Depreciation and amortization		5,722		6,041			9			—			7,550			19,322
Earnings (loss) from operations		24,517		(82,512	)		(16,930	)		(71,732	)		(46,471	)		(193,128	)
Income (loss) before income tax		19,042		(84,681	)		(16,686	)		(98,721	)		(38,529	)		(219,575	)
Three months ended September 30, 2022
Net revenue		152,488		66,202			11,810			—			—			230,500
Gross margin		35,568		14,494			247			—			—			50,309
Interest and fee revenue		—		—			—			4,312			—			4,312
Investment loss		—		—			—			(5,513	)		—			(5,513	)
Share of profit of equity-accounted investees		—		—			—			9,176			—			9,176
Depreciation and amortization		2,923		3,199			—			—			3,661			9,783
Earnings (loss) from operations		13,302		(83,708	)		(5,673	)		7,936			(20,399	)		(88,542	)
Income (loss) before income tax		10,736		(84,848	)		(5,686	)		3,252			(29,225	)		(105,771	)

(1)

Liquor retail includes operations of Alcanna retail stores for the period March 31, 2022 to September 30, 2022, and cannabis retail includes operations of Nova retail stores for the period March 31, 2022 to September 30, 2022.

(2)

Total assets include cash and cash equivalents.

LIQUOR RETAIL SEGMENT RESULTS

Earnings (loss) from operations


	Three months ended September 30						Nine months ended September 30
($000s)	2023			2022			2023			2022 (1)
Net revenue		151,801			152,488			419,402			302,435
Cost of sales		114,538			116,920			320,512			233,055
Gross margin		37,263			35,568			98,890			69,380
Gross margin %		24.5	%		23.3	%		23.6	%		22.9	%

General and administrative		17,153			18,242			51,510			36,104
Sales and marketing		777			1,101			3,269			3,037
Depreciation and amortization		9,436			2,923			27,943			5,722
Asset impairment		1,640			—			1,640			—
Earnings (loss) from operations		8,257			13,302			14,528			24,517

(1)

Liquor retail includes operations of Alcanna retail stores for the period March 31, 2022 to September 30, 2022.

Gross margin for the three months ended September 30, 2023 was $37.3 million (24.5%) compared to $35.6 million (23.3%) for the three months ended September 30, 2022. Cost of sales for liquor retail operations is comprised of the cost of wine, beer and spirits. The increase in gross margin and gross margin percentage is attributable to an increase in preferred label sales compared to the prior period, and procurement improvements.

Gross margin for the nine months ended September 30, 2023 was $98.9 million (23.6%) compared to $69.4 million (22.9%) for the nine months ended September 30, 2022. Cost of sales for liquor retail operations is comprised of the cost of wine, beer and spirits. The increases in net revenue, cost of sales and gross margin are due to the impact of the Alcanna acquisition which includes nine months in 2023 compared to six months plus one day in the prior period.

At September 30, 2023, and November 13, 2023, the Ace Liquor store count was 138, the Liquor Depot store count was 20 and the Wine and Beyond store count was 12.

CANNABIS RETAIL SEGMENT RESULTS

Earnings (loss) from operations


	Three months ended September 30						Nine months ended September 30
($000s)	2023			2022			2023 (1)			2022 (2)
Net revenue		75,539			66,202			214,828			137,208
Cost of sales		55,493			51,708			161,183			105,524
Gross margin		20,046			14,494			53,645			31,684
Gross margin %		26.5	%		21.9	%		25.0	%		23.1	%

Interest and fee revenue		17			—			75			—

General and administrative		11,874			10,347			35,005			23,091
Sales and marketing		258			185			984			773
Depreciation and amortization		4,340			3,199			11,391			6,041
Share-based compensation		2			105			6			(75	)
Asset impairment		108			84,366			566			84,366
Earnings (loss) from operations		3,481			(83,708	)		5,768			(82,512	)

(1)

Cannabis retail results include the operations of Superette from February 8, 2023 to September 30, 2023.

(2)

Cannabis retail results includes operations of Nova retail stores for the period March 31, 2022 to September 30, 2022.

Net revenue for the three months ended September 30, 2023 was $75.5 million compared to $66.2 million for the three months ended September 30, 2022. The increase of $9.3 million is mainly attributable to increased retail revenue and proprietary licensing arrangements. Net revenue is comprised of retail cannabis sales to private customers from corporate-owned stores, royalty revenue, franchise fees, millwork, supply and accessories revenue and proprietary licensing.

Net revenue for the nine months ended September 30, 2023 was $214.8 million compared to $137.2 million for the nine months ended September 30, 2022. The increase of $77.6 million is mainly attributable to the impact of the Alcanna and Nova acquisition which includes nine months of gross revenue in 2023 compared to six months plus one day of net revenue in the prior period.

Gross margin for the three months ended September 30, 2023 was $20.0 million (26.5%) compared to $14.5 million (21.9%) for the three months ended September 30, 2022. Cost of sales for cannabis retail operations is comprised of the cost of pre-packaged cannabis and related accessories. Gross margin percentage in the current period is higher due to proprietary licensing arrangements which have no associated cost of sales and improved product mix management from the introduction of private label initiatives.

Gross margin for the nine months ended September 30, 2023 was $53.6 million (25.0%) compared to $31.7 million (23.1%) for the nine months ended September 30, 2022.

At September 30, 2023, the Spiritleaf store count was 88 (20 corporate stores and 68 franchise stores), the Superette store count was 5 corporate stores, the Firesale store count was 2 corporate stores and the Value Buds store count was 91 corporate stores. At November 13, 2023, the Spiritleaf store count was 87 (22 corporate stores and 65 franchise stores), the Superette store count was 5 corporate stores, the Firesale store count was 2 corporate stores and the Value Buds store count was 92 corporate stores.

CANNABIS OPERATIONS SEGMENT RESULTS

Gross margin


	Three months ended September 30						Nine months ended September 30
($000s)	2023			2022			2023 (2)			2022
Gross revenue		33,155			16,454			96,589			43,185
Excise taxes		(12,201	)		(4,644	)		(35,562	)		(11,036	)
Net revenue		20,954			11,810			61,027			32,149
Cost of sales		21,043			10,465			56,450			29,131
Inventory impairment and obsolescence		9,126			(2,307	)		22,594			3,545
Gross margin before fair value adjustments (1)		(9,215	)		3,652			(18,017	)		(527	)
Change in fair value of biological assets		(1,819	)		(1,899	)		(6,767	)		1,403
Change in fair value realized through inventory		2,330			(1,506	)		5,328			(5,133	)
Gross margin		(8,704	)		247			(19,456	)		(4,257	)

(1)

Gross margin before fair value adjustments is a specified financial measure that does not have standardized meaning prescribed by IFRS and therefore may not be comparable to similar measures used by other companies. Refer to the “Specified Financial Measures” section of this MD&A for further information.

(2)

Cannabis operations include the operations of Valens for the period January 18, 2023 to September 30, 2023.

Revenue

The Company’s revenue comprises bulk and packaged sales under the Cannabis Act pursuant to its supply agreements with Canadian provincial boards, other licensed producers and international exports, proprietary extraction services, white label product formulation and manufacturing, the sale of bulk winterized oil and distillate, toll processing and co-packaging services and analytical testing.

Gross revenue for the three months ended September 30, 2023 was $33.2 million compared to $16.5 million for the three months ended September 30, 2022. The increase of $16.7 million was due to the additional revenue as a result of the Valens and Zenabis acquisitions.

Gross revenue for the nine months ended September 30, 2023 was $96.6 million compared to $43.2 million for the nine months ended September 30, 2022. The increase of $53.4 million was mainly due to the additional revenue as a result of the Valens and Zenabis acquisitions. Provincial board revenue increased by $46.9 million and wholesale revenue increased by $5.7 million.

Excise taxes are the federal excise duties and additional provincial or territorial duties payable on adult-use cannabis products at the time such product is shipped from the production facility in its final packaging. Federal duties on adult-use cannabis products are calculated as the greater of (i) $0.25 per gram of flowering material, (ii) $0.75 per gram of non-flowering material or $0.25 per viable seed or seedling and (iii) 2.5% of the dutiable amount as calculated in accordance with the Excise Act, 2001 (Canada). The rates of provincial or territorial duties vary by jurisdiction.

Excise taxes for the three months ended September 30, 2023 were $12.2 million compared to $4.6 million for the three months ended September 30, 2022. The increase of $7.6 million was due to the increased revenue from the Valens and Zenabis acquisitions. The excise tax rate as a percentage of revenue has increased due to the application of excise tax on a volume basis that has experienced price declines.

Excise taxes for the nine months ended September 30, 2023 were $35.6 million compared to $11.0 million for the nine months ended September 30, 2022. The increase of $24.6 million was due to the increased revenue from the Valens and Zenabis acquisitions. The excise tax rate as a percentage of revenue has increased due to the application of excise tax on a volume basis that has experienced price declines.

Cost of sales

Cost of sales includes four main categories: procurement, cultivation, manufacturing and shipment and fulfillment costs.

Cost of sales for the three months ended September 30, 2023 were $21.0 million compared to $10.5 million for the three months ended September 30, 2022. The increase of $10.5 million was due to the increase in sales associated with the Valens and Zenabis acquisitions.

Cost of sales for the nine months ended September 30, 2023 were $56.5 million compared to $29.1 million for the nine months ended September 30, 2022. The increase of $27.4 million was due to the increase in sales associated with the Valens and Zenabis acquisitions.

Gross margin before fair value adjustments

Gross margin before fair value adjustments is defined as net revenue less cost of sales and inventory obsolescence and impairment before adjusting for the non-cash changes in the fair value adjustments on the sale of inventory and the growth of biological assets.

Gross margin before fair value adjustments for the three months ended September 30, 2023 was negative $9.2 million compared to $3.7 million for the three months ended September 30, 2022. The decrease of $12.9 million was due to higher cost of sales and a larger inventory obsolescence provision, partially offset by higher net revenue.

Gross margin before fair value adjustments for the nine months ended September 30, 2023 was negative $18.0 million compared to negative $0.5 million for the nine months ended September 30, 2022. The decrease of $17.5 million was due to higher cost of sales and a higher inventory obsolescence provision, partially offset by higher net revenue.

The total inventory obsolescence and impairment recognized during the nine months ended September 30, 2023 was $22.7 million, with $22.6 million relating to cost of sales and 0.1 million relating to the change in fair value realized through inventory. The reorganization of the Cannabis Operations segment subsequent to the Valens Transaction has resulted in a larger than typical provision for inventory obsolescence and impairment provision as a result of an analysis of the allocation of the consolidated inventory across the brand portfolio and offered formats.

The total inventory obsolescence and impairment recognized during the nine months ended September 30, 2022 was $5.2 million, with $3.5 million relating to cost of sales and $1.7 million relating to the change in fair value realized through inventory. The inventory obsolescence provision was applied across all product formats.

Change in fair value of biological assets

Biological assets consist of cannabis plants in various stages of vegetation, including clones, which have not yet been harvested. Net unrealized changes in fair value of biological assets less cost to sell during the period are included in the results of operations for the related period. Biological assets are presented at their fair values less costs to sell up to the point of harvest. The fair values are determined using a model which estimates the expected harvest yield in grams for plants currently being cultivated, and then adjusted for the amount for the expected selling price less costs to sell per gram.

Change in fair value realized through inventory

Change in fair value realized through inventory comprises fair value adjustments associated with the cost of inventory when such inventory is sold. Inventories are carried at the lower of cost and net realizable value. When sold, the cost of inventory is recorded as cost of sales, while fair value adjustments are recorded as change in fair value realized through inventory.

INVESTMENTS SEGMENT RESULTS

Interest and fee revenue


	Three months ended September 30				Nine months ended September 30
($000s)	2023		2022		2023		2022
Interest and fee revenue
Interest revenue from investments at amortized cost		891		924		2,819		2,737
Interest and fee revenue from investments at FVTPL		250		1,095		1,124		3,754
Interest revenue from cash		2,185		2,293		6,780		4,259
		3,326		4,312		10,723		10,750

Interest and fee revenue for the three months ended September 30, 2023 was $3.3 million compared to $4.3 million for the three months ended September 30, 2022. The decrease of $1.0 million was mainly due to a decrease in interest and fee revenue from investments at FVTPL. Interest and fee revenue from investments at FVTPL decreased mainly due to the settlement of the Zenabis senior loan in connection with the Zenabis acquisition and the settlement of the Superette promissory note in connection with the Superette acquisition.

Interest and fee revenue for the nine months ended September 30, 2023 was $10.7 million compared to $10.8 million for the nine months ended September 30, 2022. The decrease of $0.1 million was due to a decrease in interest and fee revenue from investments at FVTPL, partially offset by an increase in interest revenue from cash. Interest and fee revenue from investments at FVTPL decreased mainly due to the settlement of the Zenabis senior loan in connection with the Zenabis acquisition and the settlement of the Superette promissory note in connection with the Superette acquisition. Interest revenue from cash increased due to increases in the base interest rates.

Investment revenue


	Three months ended September 30					Nine months ended September 30
($000s)	2023		2022			2023			2022
Investment revenue (loss)		85		(5,513	)		(8,607	)		(58,296	)

Investment revenue for the three months ended September 30, 2023 was $0.1 million compared to negative $5.5 million for the three months ended September 30, 2022. The current period was impacted by the realized loss on marketable securities and reversal of the unrealized loss on marketable securities previously recorded, both due to the disposition of shares in Indiva and Village Farms International Inc (“Village Farms”). The prior period was impacted by decreases in share prices of the Company’s investments in Indiva, Village Farms, and Valens.

Investment revenue for the nine months ended September 30, 2023 was negative $8.6 million compared to negative $58.3 million for the nine months ended September 30, 2022. The current period was impacted by the realized loss on marketable securities and reversal of the unrealized loss on marketable securities previously recorded, both due to the settlement of Valens shares, previously acquired in 2021 and 2022, in connection with the Valens Transaction, and the disposition of shares in Indiva and Village Farms. The prior period was impacted by decreases in share prices of the Company’s investments in Indiva, Village Farms, and Valens.

Share of profit of equity-accounted investees


	Three months ended September 30				Nine months ended September 30
($000s)	2023		2022		2023		2022
Net profit (loss)		6,581		9,176		15,161		(24,711	)

Share of profit of equity-accounted investees is comprised of the Company’s share of the net profit generated from its investments in SunStream. The current investment portfolio of SunStream is comprised of secured debt and hybrid debt and derivative instruments with United States based cannabis businesses.

Share of profit of equity-accounted investees for the three months ended September 30, 2023 was $6.6 million compared to profit of $9.2 million for the three months ended September 30, 2022. The decrease of $2.6 million was due to accounting fair value adjustments to the investments.

Share of profit of equity-accounted investees for the nine months ended September 30, 2023 was $15.2 million compared to a loss of $24.7 million for the nine months ended September 30, 2022. The increase of $39.9 million was due to accounting fair value adjustments to the investments.

SELECTED QUARTERLY INFORMATION

The following table summarizes selected consolidated operating and financial information of the Company for the preceding eight quarters.


	2023									2022												2021
($000s, except as indicated)	Q3			Q2			Q1			Q4			Q3			Q2			Q1			Q4 (1)
Gross revenue (2)		249,796			244,830			201,492			246,866			235,144			227,557			20,127			25,630
Gross margin		48,605			51,933			32,541			43,568			50,309			43,079			3,419			(2,499	)
Gross investment (loss) income		3,416			(599	)		(958	)		(879	)		(1,201	)		(32,496	)		(13,849	)		(38,108	)
Net (loss) income from continuing operations attributable to owners of the Company		(21,784	)		(32,520	)		(35,568	)		(125,801	)		(98,108	)		(73,301	)		(37,904	)		(56,989	)
Per share, basic and diluted		(0.08	)		(0.12	)		(0.14	)		(0.53	)		(0.41	)		(0.31	)		(0.18	)		(0.28	)
Adjusted EBITDA from continuing operations (3)		16,117			2,194			7,415			(7,549	)		18,320			(25,927	)		(675	)		18,425

(1)

Adjustments to provisional amounts have been made in the comparative period (Q4 2021) due the consummation of the Inner Spirit Holdings Ltd. (“Inner Spirit”) acquisition, refer to note 5(b) in the Company’s Audited Financial Statements.

(2)

Recast - refer to note 20 in the Company’s Interim Financial Statements.

(3)

During the eight most recent quarters the following items have had a significant impact on the Company’s financial results and results of operations:

•

Implementing several streamlining and efficiency initiatives which included workforce optimizations;

•

Entering into and acquiring several cannabis-related investments;

•

Investing in and disposing of marketable securities;

•

Price discounts and provisions for product returns;

•

Impairment of property, plant and equipment;

•

Provisions for inventory obsolescence and impairment;

•

Investments in SunStream;

•

Acquisitions of Alcanna (inclusive of its subsidiary, Nova), Zenabis, Valens and Superette; and

•

Impairment of goodwill and intangible assets from the Inner Spirit and Alcanna acquisitions.

LIQUIDITY AND CAPITAL RESOURCES


($000s)	September 30, 2023		December 31, 2022
Cash and cash equivalents		201,983		279,586

Capital resources are financing resources available to the Company and are defined as the Company’s debt and equity. The Company manages its capital resources with the objective of maximizing shareholder value and sustaining future development of the business. The Company manages its capital structure and adjusts it, based on the funds available to the Company, in order to support the Company’s activities. The Company may adjust capital spending, issue new equity or issue new debt, subject to the availability of such debt or equity financing on commercial terms.

The Company’s primary need for liquidity is to fund investment opportunities, capital expenditures, working capital requirements and for general corporate purposes. The Company’s lease liabilities have increased significantly due to both the Inner Spirit and Alcanna acquisitions as corporate stores occupy leased retail space. Refer to “Contractual Commitments and Contingencies – Commitments” for an estimate of the contractual maturities of the Company’s lease

liabilities. The Company’s primary source of liquidity historically has been from funds received from the proceeds of common share issuances and debt financing. The Company’s ability to fund operations and investments and make planned capital expenditures depends on future operating performance and cash flows, as well as the availability of future financing–all of which is subject to prevailing economic conditions and financial, business and other factors.

Management believes its current capital resources will be sufficient to satisfy cash requirements associated with funding the Company’s operating expenses and future development activities for at least the next twelve months. However, no assurance can be given that this will be the case or that future sources of capital will not be necessary.

Debt

As at September 30, 2023, the Company has no outstanding bank debt or other debt.

Equity

On July 25, 2022, the Company’s shareholders approved a special resolution for the consolidation of all of the issued and outstanding common shares (the “Share Consolidation”).

Immediately following the shareholder approval, the Board determined to effect the Share Consolidation on the basis of one post-consolidation common share for every ten pre-consolidation common shares. The Share Consolidation took effect on July 25, 2022, and the common shares began trading on Nasdaq on a post-consolidation basis beginning on July 26, 2022.

All references to common shares, warrants, simple warrants, performance warrants, stock options, RSUs and DSUs (excluding the Nova RSUs and DSUs), including exercise prices where applicable, have been fully retrospectively adjusted to reflect the Share Consolidation.

As at September 30, 2023, the Company had the following share capital instruments outstanding:


(000s)	September 30, 2023		December 31, 2022
Common shares		260,490		235,194
Common share purchase warrants (1)		309		309
Simple warrants (2)		100		166
Performance warrants (3)		54		123
Stock options (4)		953		44
Restricted share units		10,552		1,381

(1)

0.3 million warrants were exercisable as at September 30, 2023.

(2)

0.1 million simple warrants were exercisable as at September 30, 2023.

(3)

43.7 thousand performance warrants were exercisable as at September 30, 2023.

(4)

1.0 million stock options were exercisable as at September 30, 2023.

Common shares were issued during the nine months ended September 30, 2023 in connection with the following transactions:

•

The Company purchased and cancelled 0.5 million common shares at a weighted average price of $2.78 (US$2.04) per common share for a total cost of $1.5 million;

•

The Company issued 27.6 million common shares valued at $84.0 million as consideration for the Valens acquisition;

•

The Company received and cancelled 2.2 million of its own common shares in connection with the Valens acquisition; and

•

The Company issued 0.4 million common shares in connection with the vesting of RSUs under its long term incentive plan.

Subsequent to September 30, 2023:

•

The Company issued 0.9 million common shares related to the acquisition of certain franchise stores in Ontario.

As at November 13, 2023, a total of 261.3 million common shares were outstanding.

Cash Flow Summary


	Three months ended September 30						Nine months ended September 30
($000s)	2023			2022			2023			2022
Cash provided by (used in):
Operating activities		27,542			8,572			(30,098	)		(35,321	)
Investing activities		(999	)		(71,618	)		(16,428	)		(211,392	)
Financing activities		(10,015	)		(8,157	)		(31,077	)		(20,111	)
Change in cash and cash equivalents		16,528			(71,203	)		(77,603	)		(266,824	)

Cash Flow – Operating Activities

Net cash provided by operating activities was $27.5 million for the three months ended September 30, 2023 compared to $8.6 million provided by operating activities for the three months ended September 30, 2022. The increase of $18.9 million was due to a decrease in net loss adjusted for non-cash items, the change in non-cash working capital and an increase in proceeds from the disposition of marketable securities. The change in non-cash working capital is comprised of changes in inventory, accounts receivable, prepaid expenses and deposits and accounts payable.

Net cash used in operating activities was $30.1 million for the nine months ended September 30, 2023 compared to $35.3 million used in operating activities for the nine months ended September 30, 2022. The decrease of $5.2 million was due to the change in non-cash working capital and an increase in net loss adjusted for non-cash items, partially offset by a decrease in additions to marketable securities and an increase in proceeds from the disposition of marketable securities. The change in non-cash working capital is comprised of changes in inventory, accounts receivable, prepaid expenses and deposits and accounts payable.

Cash Flow – Investing Activities

Net cash used in investing activities was $1.0 million for the three months ended September 30, 2023 compared to $71.6 million used in investing activities for the three months ended September 30, 2022. The decrease of $70.6 million was mainly due to lower additions to investments and lower additions to equity-accounted investees.

Net cash used in investing activities was $16.4 million for the nine months ended September 30, 2023 compared to $211.4 million used in investing activities for the nine months ended September 30, 2022. The decrease of $195.0 million was primarily due to lower additions to investments, lower additions to equity-accounted investees and acquisitions in the comparative period.

Cash Flow – Financing Activities

Net cash used in financing activities was $10.0 million for the three months ended September 30, 2023 compared to $8.2 million used in financing activities for the three months ended September 30, 2022. The increase of $1.8 million was due to the change in non-cash working capital and increased payments on lease liabilities, partially offset by a decrease in repurchase of common shares.

Net cash used in financing activities was $31.1 million for the nine months ended September 30, 2023 compared to $20.1 million used in financing activities for the nine months ended September 30, 2022. The increase of $11.0 million was largely due to increased payments on lease liabilities and change in restricted cash in the prior period, partially offset by repayment of long-term debt and repurchase of common shares in the prior period.

Free cash flow

Free cash flow is a specified financial measure that does not have standardized meaning prescribed by IFRS and therefore may not be comparable to similar measures used by other companies. Refer to the “Specified Financial Measures” section of this MD&A for further information. Free cash flow is defined as the total change in cash and cash equivalents less cash used for common share repurchases, dividends (if any), net cash used for acquisitions plus cash provided by dispositions (if any).

The Company generated positive free cash flow of $16.5 million for the three months ended September 30, 2023 compared to negative $67.1 million for the three months ended September 30, 2022.

Liquidity risks associated with financial instruments

Credit risk

Credit risk is the risk of financial loss if the counterparty to a financial transaction fails to meet its obligations. The maximum amount of the Company’s credit risk exposure is the carrying amounts of cash and cash equivalents, accounts receivable, and investments. The Company attempts to mitigate such exposure to its cash and cash equivalents by investing only in financial institutions with investment grade credit ratings or secured investments. The Company manages risk over its accounts receivable by issuing credit only to credit worthy counterparties. The Company limits its exposure to credit risk over its investments by ensuring the agreements governing the investments are secured in the event of counterparty default. The Company considers financial instruments to have low credit risk when its credit risk rating is equivalent to investment grade. The Company assumes that the credit risk on a financial asset has increased significantly if it is outstanding past the contractual payment terms. The Company considers a financial asset to be in default when the debtor is unlikely to pay its credit obligations to the Company.

The Company applies the simplified approach under IFRS 9 and has calculated expected credit losses based on lifetime expected credit losses, taking into consideration historical credit loss experience and financial factors specific to the debtors and general economic conditions.

The Company has evaluated the credit risk of its investments, taking into consideration historical credit loss experience, financial factors specific to the debtors and general economic conditions, and determined the expected credit loss to be $0.3 million for the nine months ended September 30, 2023.

Liquidity risk

Liquidity risk is the risk that the Company cannot meet its financial obligations when due. The Company manages liquidity risk by monitoring operating and growth requirements. The Company prepares forecasts to ensure sufficient liquidity to fulfil obligations and operating plans. Management believes its current capital resources will be sufficient to satisfy cash requirements associated with funding the Company’s operating expenses and future development activities for at least the next 12 months. However, no assurance can be given that this will be the case or that future sources of capital will not be necessary.

Market risk

Market risk is the risk that changes in market prices will affect the Company’s income or value of its holdings of financial instruments. The Company is exposed to market risk in that changes in market prices will cause fluctuations in the fair value of its marketable securities. The fair value of marketable securities is based on quoted market prices as the Company’s marketable securities are shares of publicly traded entities.

CONTRACTUAL COMMITMENTS AND CONTINGENCIES

Commitments

The information presented in the table below reflects management’s estimate of the contractual maturities of the Company’s obligations at September 30, 2023.


($000s)	Less than one year		One to three years		Three to five years		Thereafter		Total
Accounts payable and accrued liabilities		57,230		—		—		—		57,230
Lease liabilities		40,839		68,898		76,285		14,089		200,111
Financial guarantee liability		—		268		—		—		268
Contractual obligation		—		2,628		—		—		2,628
Total		98,069		71,794		76,285		14,089		260,237

in-kind or cash. Under these agreements, the Company has accrued financial penalties payable as at September 30, 2023 of $2.5 million (December 31, 2022 - $2.5 million).

Contingencies

From time to time, the Company may become involved in legal proceedings arising in the ordinary course of its business. Such proceedings, certain of which are pending or have been threatened against the Company, could include commercial litigation related to breach of contract claims brought by customers, suppliers and contractors, as well as litigation related to termination of certain of its employees. The outcome of any litigation is inherently uncertain. Although the Company believes it has meritorious defenses against all currently pending and threatened proceedings and intend to vigorously defend all claims if they are brought, unfavorable rulings, judgments or settlement terms could have a material adverse impact on its business and results of operations.

SPECIFIED FINANCIAL MEASURES

Certain specified financial measures in this MD&A including adjusted EBITDA from continuing operations, gross margin before fair value adjustments, free cash flow and gross margin before fair value adjustments percentage are non-IFRS measures. These terms are not defined by IFRS and, therefore, may not be comparable to similar measures reported by other companies. These non-IFRS financial measures should not be considered in isolation or as an alternative for measures of performance prepared in accordance with IFRS.

Non-IFRS Financial Measures

Adjusted EBITDA from continuing operations

Adjusted EBITDA from continuing operations is a non-IFRS financial measure which the Company uses to evaluate its operating performance. Adjusted EBITDA from continuing operations provides information to investors, analysts, and others to aid in understanding and evaluating the Company’s operating results in a similar manner to its management team. Adjusted EBITDA from continuing operations is defined as net (loss) income from continuing operations before finance costs, change in estimate of fair value of derivative warrants, depreciation and amortization, income tax recovery and excluding change in fair value of biological assets, change in fair value realized through inventory, unrealized foreign exchange gains or losses, unrealized gains or losses on marketable securities, realized gains or losses on marketable securities, share-based compensation expense, asset impairment, gain or loss on disposal of property, plant and equipment, cost of sales non-cash component, inventory impairment (recovery) and obsolescence, restructuring costs and transaction costs.

The following table reconciles adjusted EBITDA from continuing operations to net income (loss) for the periods noted.


	Three months ended September 30						Nine months ended September 30
($000s)	2023			2022			2023			2022
Net (loss) income from continuing operations		(21,827	)		(98,844	)		(86,593	)		(210,857	)
Adjustments:
Finance costs		2,142			8,409			9,773			34,853
Change in estimate of fair value of derivative warrants		2,840			8,500			(4,202	)		(6,856	)
Depreciation and amortization		15,545			9,783			45,456			19,322
Income tax recovery		—			(6,927	)		—			(8,718	)
Change in fair value of biological assets		1,819			1,899			6,767			(1,403	)
Change in fair value realized through inventory		(2,330	)		1,506			(5,328	)		5,133
Unrealized foreign exchange (gain) loss		68			(75	)		44			(40	)
Unrealized (gain) loss on marketable securities		(46,053	)		5,513			(129,656	)		58,685
Realized loss on marketable securities		46,082			—			138,874			—
Share-based compensation		5,373			2,069			11,475			6,711
Asset impairment		1,783			86,522			4,248			88,372
Loss (gain) on disposition of PP&E		14			(6	)		275			(408	)
Cost of sales non-cash component (1)		601			1,861			3,274			5,301
Inventory impairment (recovery) and obsolescence		9,126			(2,307	)		22,594			3,545
Restructuring costs		708			—			6,286			(882	)
Transaction costs		226			417			2,439			(1,040	)
Adjusted EBITDA from continuing operations		16,117			18,320			25,726			(8,282	)

(1)

Cost of sales non-cash component is comprised of depreciation expense.

Gross margin before fair value adjustments

Gross margin before fair value adjustments is a non-IFRS financial measure which the Company uses to evaluate its operating performance in the Company’s Cannabis Operations segment. Gross margin before fair value adjustments provides information which management believes to be useful to investors, analysts and others in understanding and evaluating the Company’s operating results as it removes non-cash fair value metrics. Gross margin before fair value adjustments is defined as gross margin less the non-cash changes in the fair value adjustments on the sale of inventory and the growth of biological assets. Gross margin before fair value adjustments is comprised of net revenue less cost of sales and inventory obsolescence and impairment.

The following table reconciles gross margin before fair value adjustments to gross margin for the periods noted.


	Three months ended September 30						Nine months ended September 30
($000s)	2023			2022			2023			2022
Gross margin		(8,704	)		247			(19,456	)		(4,257	)
Change in fair value of biological assets		(1,819	)		(1,899	)		(6,767	)		1,403
Change in fair value realized through inventory		2,330			(1,506	)		5,328			(5,133	)
Gross margin before fair value adjustments		(9,215	)		3,652			(18,017	)		(527	)

Free cash flow

Free cash flow is a non-IFRS financial measure which the Company uses to evaluate its financial performance. Free cash flow provides information which management believes to be useful to investors, analysts and others in understanding and evaluating the Company’s ability to generate positive cash flows as it removes cash used for non-operational items. Free cash flow is defined as the total change in cash and cash equivalents less cash used for common share repurchases, dividends (if any), net cash used for acquisitions plus cash provided by dispositions (if any).


	Three months ended September 30					Nine months ended September 30
($000s)	2023		2022			2023			2022
Change in cash and cash equivalents		16,528		(71,203	)		(77,603	)		(266,824	)
Adjustments
Repurchase of common shares		—		4,096			1,536			6,149
Acquisitions, net of cash acquired		—		—			(3,695	)		31,149
Free cash flow		16,528		(67,107	)		(79,762	)		(229,526	)

Non-IFRS Financial Ratios

Gross margin before fair value adjustments percentage

Gross margin before fair value adjustments percentage is a non-IFRS financial ratio which the Company uses to evaluate its operating performance in the Company’s cannabis operations segment. Gross margin before fair value adjustments percentage is defined as gross margin before fair value adjustments divided by net revenue.

RELATED PARTIES

The Company entered into the following related party transactions during the periods noted, in addition to those disclosed in note 15 of the Interim Financial Statements relating to the Company’s SunStream joint venture.

OFF BALANCE SHEET ARRANGEMENTS

As at September 30, 2023, the Company did not have any off-balance sheet arrangements. The Company has certain operating or rental lease agreements, as disclosed in the “Contractual Commitments and Obligations” section of this MD&A, which are entered into in the normal course of operations.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

The Company makes assumptions in applying critical accounting estimates that are uncertain at the time the accounting estimate is made and may have a significant effect on the consolidated financial statements. Critical accounting estimates include the classification and recoverable amounts of CGUs, value of biological assets and inventory, estimating potential future returns on revenue, convertible instruments, value of investments, value of equity-accounted investees, value of leases, acquisitions and fair value of assets acquired and liabilities assumed in a business combination. Critical accounting estimates are based on variable inputs including but not limited to:

•

Demand for cannabis for recreational and medical purposes;

•

Price of cannabis;

•

Expected cannabis sales volumes;

•

Demand for liquor;

•

Price of liquor;

•

Expected liquor sales volumes;

•

Changes in market interest and discount rates;

•

Future development and operating costs;

•

Costs to convert harvested cannabis to finished goods;

•

Expected yields from cannabis plants;

•

Potential returns and pricing adjustments;

•

Facts and circumstances supporting the likelihood and amount of contingent liabilities;

•

Assumptions and methodologies for the valuation of derivative financial instruments;

•

Discount rates used to value investments;

•

Market prices, volatility and discount rates used to determine fair value of equity-accounted investees; and

•

Fair value less costs to sell of assets held for sale.

Changes in critical accounting estimates can have a significant effect on net income as a result of their impact on revenue, costs of sales, provisions and impairments. Changes in critical accounting estimates can have a significant effect on the valuation of biological assets, inventory, property, plant and equipment, provisions and derivative financial instruments.

For a detailed discussion regarding the Company’s critical accounting policies and estimates, refer to the notes to the Audited Financial Statements.

NEW ACCOUNTING PRONOUNCEMENTS

The International Accounting Standards Board and the IFRS Interpretations Committee regularly issue new and revised accounting pronouncements which have future effective dates and therefore are not reflected in the Company’s consolidated financial statements. Once adopted, these new and amended pronouncements may have an impact on the Company’s consolidated financial statements. The Company’s analysis of recent accounting pronouncements is included in the notes to the Audited Financial Statements.

RISK FACTORS

In addition to the risks described elsewhere in this document, for a detailed discussion regarding the Company’s risk factors, refer to the “Risk Factors” section of the Annual Report.

DISCLOSURE CONTROLS AND PROCEDURES

The Company has designed disclosure controls and procedures to provide reasonable assurance that: (i) material information relating to the Company is made known to the Company’s Chief Executive Officer and Chief Financial Officer by others, particularly during the period in which the annual and interim filings are being prepared; and (ii) information required to be disclosed by the Company in its annual filings, interim filings or other reports filed or submitted by it under securities legislation is recorded, processed, summarized and reported within the time period specified in securities legislation. Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the U.S. Securities Exchange Act of 1934, as amended (the “Exchange Act”)). Based upon evaluation of the Company’s disclosure controls and procedures as of September 30, 2023, our Chief Executive Officer and Chief Financial Officer have concluded that the Company’s disclosure controls and procedures were not effective as of such date, as a result of the material weaknesses described in our MD&A for the year ended December 31, 2022.

INTERNAL CONTROL OVER FINANCIAL REPORTING

Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in NI 52-109, Rule 13a-15(f) and Rule 15d-15(f) under the Exchange Act. Refer to our MD&A for the year ended December 31, 2022, for a discussion regarding internal control over financial reporting and the material weakness identified.

REMEDIATION

Management has implemented and continues to implement measures designed to ensure that control deficiencies are remediated, such that these controls are designed, implemented, and operating effectively. The remediation actions include:

•

continuing to strengthen procedures and controls related to the provision of and periodic review of user access to IT systems;

•

continuing to strengthen the logging and monitoring of software updates and changes to systems supporting our financial reporting processes;

•

enhancing the timeliness of executing user access reviews and the subsequent actions as required; and

•

working with our advisors to continue to assist with process improvements and strengthening of controls over financial systems.

At November 13, 2023 the above remediation measures are in progress but will not be considered remediated until the updated controls operate for a sufficient period of time, and management has concluded through testing, that these controls are operating effectively.

The Company is pursuing remediation of the above material weakness during the 2023 fiscal year.

CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING

Except for the remediation activities described above, as of September 30, 2023, there have been no other changes in our internal control over financial reporting (as defined in NI 52-109 and Rules 13a-15(f) or 15d-15(f) of the Exchange Act) that occurred during the quarter ended September 30, 2023, that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

ABBREVIATIONS

The following provides a summary of common abbreviations used in this document:


Financial and Business Environment
$ or C$	Canadian dollars
IFRS	International Financial Reporting Standards
MD&A	Management’s Discussion and Analysis
U.S.	United States
US$	United States dollars

FORWARD-LOOKING INFORMATION

This document may contain forward-looking information concerning the Company’s business, operations and financial performance and condition, as well as its plans, objectives and expectations for its business operations and financial performance and condition. Any statements contained herein that are not statements of historical facts may be deemed to be forward-looking statements. In some cases, you can identify forward-looking statements by terminology such as “aim”, “anticipate”, “assume”, “believe”, “contemplate”, “continue”, “could”, “due”, “estimate”, “expect”, “goal”, “intend”, “may”, “objective”, “plan”, “predict”, “potential”, “positioned”, “seek”, “should”, “target”, “will”, “would”, and other similar

expressions that are predictions of or indicate future events and future trends, or the negative of these terms or other comparable technology.

These forward-looking statements are based on current expectations, estimates, forecasts and projections about the Company’s business and the industry in which it operates and management’s beliefs and assumptions and are not guarantees of future performance or development and involve known and unknown risks, uncertainties and other factors that are in some cases beyond its control. As a result, any or all of the forward-looking information in this document may turn out to be inaccurate. Factors that may cause actual results to differ materially from current expectations include, among other things, those listed or referred to under the heading “Risk Factors” herein. Although management believes that its underlying assessments and assumptions are reasonable based on currently available information, given these risks and uncertainties, investors should not place undue reliance on forward-looking statements as a prediction of actual results. All forward-looking statements in this MD&A are qualified by these cautionary statements. These statements are made as of the date of this MD&A and, except as required by applicable law, the Company assumes no obligation to update or revise these forward-looking statements for any reason, even if new information becomes available in the future. Additionally, the Company undertakes no obligation to comment on analyses, expectations or statements made by third parties in respect of the Company, its financial or operating results or its securities.

This document contains estimates, projections and other information concerning the Company’s industry, business and the markets for its products. Information that is based on estimates, forecasts, projections, market research of similar methodologies is inherently subject to uncertainties, and actual events or circumstances may differ materially from events and circumstances that are assumed in this information. Unless otherwise expressly stated, the Company obtained this industry, business, market and other data from its own internal estimates and research as well as from reports, research surveys, studies and similar data prepared by market research firms and other third parties, industry, medical and general publications, government data and similar sources.

In addition, assumptions and estimates of the Company’s and industry’s future performance are necessarily subject to a high degree of uncertainty and risk due to a variety of factors, including those described in the section “Risk Factors” herein. These and other factors could cause the Company’s future performance to differ materially from the Company’s assumptions and estimates.

Further information regarding the assumptions and risks inherent in the making of forward-looking statements can be found in the Annual Report, along with the Company’s other public disclosure documents. Copies of the Annual Report and other public disclosure documents are available under the Company’s profile on the System for Electronic Document Analysis and Retrieval (“SEDAR”) at www.sedar.com and on the EDGAR section of the U.S. Securities and Exchange Commission’s (the “SEC”) website at www.sec.gov.

Certain information in this MD&A is “financial outlook” within the meaning of applicable Canadian securities laws. The purpose of the financial outlook is to provide readers with disclosure of the Company’s reasonable expectations of its anticipated results. The financial outlook is provided as of the date of this MD&A. Readers are cautioned that the financial outlook may not be appropriate for other purposes.

ADDITIONAL INFORMATION

Additional information relating to the Company can be viewed under the Company’s profile on SEDAR at www.sedar.com, on the EDGAR section of the SEC’s website at www.sec.gov, or on the Company’s website at www.sndl.com. The information on or accessible through our website is not part of and is not incorporated by reference into this MD&A, and the inclusion of our website address in this MD&A is only for reference.

EXHIBIT 99.3

Form 52-109F2

Certification of Interim Filings

Full Certificate

I, Zachary George, Chief Executive Officer of SNDL Inc., certify the following:

1. Review: I have reviewed the interim financial report and interim MD&A (together, the “interim filings”) of SNDL Inc. (the “issuer”) for the interim period ended September 30, 2023.

2. No misrepresentations: Based on my knowledge, having exercised reasonable diligence, the interim filings do not contain any untrue statement of a material fact or omit to state a material fact required to be stated or that is necessary to make a statement not misleading in light of the circumstances under which it was made, with respect to the period covered by the interim filings.

Fair presentation: Based on my knowledge, having exercised reasonable diligence, the interim financial report together with the other financial information included in the interim filings fairly present in all material respects the financial condition, financial performance and cash flows of the issuer, as of the date of and for the periods presented in the interim filings.

Responsibility: The issuer’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (DC&P) and internal control over financial reporting (ICFR), as those terms are defined in National Instrument 52-109 Certification of Disclosure in Issuers’ Annual and Interim Filings, for the issuer.

Design: Subject to the limitations, if any, described in paragraphs 5.2 and 5.3, the issuer’s other certifying officer and I have, as at the end of the period covered by the interim filings

(a) designed DC&P, or caused it to be designed under our supervision, to provide reasonable assurance that

(i) material information relating to the issuer is made known to us by others, particularly during the period in which the interim filings are being prepared; and

(ii) information required to be disclosed by the issuer in its annual filings, interim filings or other reports filed or submitted by it under securities legislation is recorded, processed, summarized and reported within the time periods specified in securities legislation; and

(b) designed ICFR, or caused it to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with the issuer’s GAAP.

5.1 Control framework: The control framework the issuer’s other certifying officer and I used to design the issuer’s ICFR is “Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO)”.

5.2 ICFR – material weakness relating to design: The issuer has disclosed in its interim MD&A for each material weakness relating to design existing at the end of the interim period

(a) a description of the material weakness;

(b) the impact of the material weakness on the issuer’s financial reporting and its ICFR; and

5.3 Limitation on scope of design: N/A

6. Reporting changes in ICFR: The issuer has disclosed in its interim MD&A any change in the issuer’s ICFR that occurred during the period beginning on January 1, 2023 and ended on September 30, 2023 that has materially affected, or is reasonably likely to materially affect, the issuer’s ICFR.

Date: November 13, 2023

/s/ Zachary George

_______________________

Zachary George

Chief Executive Officer

EXHIBIT 99.4

Form 52-109F2

Certification of Interim Filings

Full Certificate

I, Alberto Paredero Quiros, Chief Financial Officer of SNDL Inc., certify the following:

1. Review: I have reviewed the interim financial report and interim MD&A (together, the “interim filings”) of SNDL Inc. (the “issuer”) for the interim period ended September 30, 2023.

Design: Subject to the limitations, if any, described in paragraphs 5.2 and 5.3, the issuer’s other certifying officer and I have, as at the end of the period covered by the interim filings

(a) designed DC&P, or caused it to be designed under our supervision, to provide reasonable assurance that

(i) material information relating to the issuer is made known to us by others, particularly during the period in which the interim filings are being prepared; and

5.2 ICFR – material weakness relating to design: The issuer has disclosed in its interim MD&A for each material weakness relating to design existing at the end of the interim period

(a) a description of the material weakness;

(b) the impact of the material weakness on the issuer’s financial reporting and its ICFR; and

5.3 Limitation on scope of design: N/A

Date: November 13, 2023

/s/ Alberto Paredero Quiros

_______________________

Alberto Paredero Quiros

Chief Financial Officer