SNDL (SNDL) 6-K Condensed Consolidated Interim Financial Statements

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.

1

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 thecondensed consolidated interim financial statements.

2

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

3

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.

4

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.

5

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.

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”.

2.

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.

3.

Business acquisitions

A)

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.

6

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.

B)

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”).

7

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.

4.

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.

8

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	)		—

5.

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”.

9

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.

10

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.

6.

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

7.

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.

11

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).

8.

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.

9.

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)).

12

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

13

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.

14

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

15

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

16

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

17

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

A)

Authorized

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

B)

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

18

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

A)

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

B)

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.

19

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

C)

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

D)

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).

20

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:

	DSUs outstanding
Balance at December 31, 2022		1,708,383
Granted		503,707
Balance at September 30, 2023		2,212,090

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.

21

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	)

22

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	)

23

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.

24

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

25

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)

A)

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).

B)

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.

26