SNDL 6-K 2023 - Equibles

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 May 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and File No. 333-269242) and to be a part thereof from the date on which this report is filed, to the extent not superseded by documents or reports subsequently filed or furnished.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: May 12, 2023	By:	/s/ Zach George
	Name:	Zach George
	Title:	Chief Executive Officer and Director

EXHIBIT

Exhibit	Description of Exhibit
99.1	Condensed Consolidated Interim Financial Statements for the Three Months Ended March 31, 2023 and 2022
99.2	Management’s Discussion and Analysis for the Three Months Ended March 31, 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)

EX-99.1

EXHIBIT 99.1

SNDL Inc.

Condensed Consolidated Interim Financial Statements

For the three months ended March 31, 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
Assets
Current assets
Cash and cash equivalents		213,253		279,586
Restricted cash		19,380		19,338
Marketable securities	6	10,992		21,926
Accounts receivable		33,704		22,636
Biological assets	7	1,795		3,477
Inventory	8	153,542		127,782
Prepaid expenses and deposits		21,025		10,110
Investments	14	22,997		6,552
Assets held for sale	3(a),9	12,563		6,375
Net investment in subleases	12	3,650		3,701
		492,901		501,483
Non-current assets
Long-term deposits		8,618		8,584
Right of use assets	10	139,703		134,154
Property, plant and equipment	11	200,228		143,409
Net investment in subleases	12	18,887		19,618
Intangible assets	13	75,529		74,885
Investments	14	9,991		90,702
Equity-accounted investees	15	535,932		519,255
Goodwill		135,957		67,260
Total assets		1,617,746		1,559,350
Liabilities
Current liabilities
Accounts payable and accrued liabilities		62,106		48,153
Lease liabilities	17	32,367		30,206
Derivative warrants	16	6,200		11,002
		100,673		89,361
Non-current liabilities
Lease liabilities	17	142,775		139,625
Other liabilities		5,088		2,709
Total liabilities		248,536		231,695
Shareholders’ equity
Share capital	18(b)	2,365,319		2,292,810
Warrants		2,260		2,260
Contributed surplus		70,716		68,961
Contingent consideration		2,279		2,279
Accumulated deficit		(1,123,759	)	(1,091,999	)
Accumulated other comprehensive income		31,808		32,188
Total shareholders’ equity		1,348,623		1,306,499
Non-controlling interest		20,587		21,156
Total liabilities and shareholders’ equity		1,617,746		1,559,350

Commitments (note 27)

Subsequent events (notes 4, 15 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<br>March 31
	Note	2023			2022
Gross revenue	20		212,899			20,127
Excise taxes			10,447			2,530
Net revenue			202,452			17,597
Cost of sales	8		158,149			14,326
Inventory impairment and obsolescence	8		9,177			1,981
Gross margin before fair value adjustments			35,126			1,290
Change in fair value of biological assets			(3,535	)		3,690
Change in fair value realized through inventory			950			(1,561	)
Gross margin			32,541			3,419
Interest and fee revenue	21		4,211			3,861
Investment loss	21		(5,169	)		(17,710	)
Share of profit (loss) of equity-accounted investees	15		9,516			4,091
General and administrative			48,573			10,682
Sales and marketing			3,386			1,111
Research and development			140			95
Depreciation and amortization	10,11,13		16,468			739
Share-based compensation	19		2,209			4,204
Restructuring costs			1,536			—
Asset impairment	13		807			—
Loss from operations			(32,020	)		(23,170	)
Transaction costs			(2,040	)		(6,481	)
Finance costs, net	22		(5,173	)		61
Change in estimate of fair value of derivative warrants	16		4,802			(8,300	)
Foreign exchange gain (loss)			(163	)		(150	)
Gain (loss) on disposition of assets			(184	)		—
Loss before income tax			(34,778	)		(38,040	)
Income tax recovery			—			—
Net loss from continuing operations			(34,778	)		(38,040	)
Net loss from discontinued operations	4		(1,365	)		—
Net loss			(36,143	)		(38,040	)
Equity-accounted investees - share of other comprehensive loss	15		(385	)		(6,733	)
Gain on translation of foreign operations			5			—
Comprehensive loss			(36,523	)		(44,773	)
Net loss from continuing operations attributable to:
Owners of the Company			(34,203	)		(37,904	)
Non-controlling interest			(575	)		(136	)
			(34,778	)		(38,040	)
Net income (loss) attributable to:
Owners of the Company			(35,568	)		(37,904	)
Non-controlling interest			(575	)		(136	)
			(36,143	)		(38,040	)
Comprehensive income (loss) attributable to:
Owners of the Company			(35,948	)		(44,637	)
Non-controlling interest			(575	)		(136	)
			(36,523	)		(44,773	)
Net loss per common share attributable to owners of the Company
Basic and diluted	24	$	(0.14	)	$	(0.18	)

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
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		—		—	—		—	(35,568	)	—		(575	)	(36,143	)
Other comprehensive loss		—		—	—		—	—		(380	)	—		(380	)
Share repurchases	18(b)	(5,344	)	—	—		—	3,808		—		—		(1,536	)
Share issuances by subsidiaries		—		—	(12	)	—	—		—		4		(8	)
Acquisition	3(a)	83,953		—	—		—	—		—		—		83,953
Shares acquired and cancelled	18(b)	(6,615	)	—	—		—	—		—		—		(6,615	)
Share-based compensation	19	—		—	2,282		—	—		—		—		2,282
Employee awards exercised	18(b)	515		—	(515	)	—	—		—		—		—
Distribution declared by subsidiaries		—		—	—		—	—		—		2		2
Balance at March 31, 2023		2,365,319		2,260	70,716		2,279	(1,123,759	)	31,808		20,587		1,369,210
Balance at December 31, 2021		2,035,704		8,092	60,734		2,279	(785,112	)	7,607		229		1,329,533
Net loss		—		—	—		—	(37,904	)	—		(136	)	(38,040	)
Other comprehensive loss		—		—	—		—	—		(6,733	)	—		(6,733	)
Share issuances		2,870		—	—		—	—		—		—		2,870
Acquisition		287,129		—	—		—	—		—		58,250		345,379
Share-based compensation		—		—	2,965		—	—		—		—		2,965
Employee awards exercised		1,740		—	(1,740	)	—	—		—		—		—
Balance at March 31, 2022		2,327,443		8,092	61,959		2,279	(826,414	)	874		58,343		1,632,576

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<br>March 31
	Note	2023			2022
Cash provided by (used in):
Operating activities
Net loss for the period			(36,143	)		(38,040	)
Adjustments for:
Interest and fee revenue	21		(4,211	)		(3,861	)
Change in fair value of biological assets			3,535			(3,690	)
Share-based compensation	19		2,209			4,204
Depreciation and amortization	10,11,13		18,259			2,439
Loss (gain) on disposition of assets			184			—
Inventory obsolescence	8		9,177			1,981
Finance costs	22		5,173			(61	)
Change in estimate of fair value of derivative warrants	16		(4,802	)		8,300
Unrealized foreign exchange loss (gain)			48			16
Asset impairment			807			—
Share of (profit) loss of equity-accounted investees	15		(9,516	)		(4,091	)
Loss on settlement of marketable securities	6,21		43,804			—
Unrealized (gain) loss on marketable securities	6,21		(38,635	)		17,834
Additions to marketable securities			—			(601	)
Proceeds from settlement of marketable securities	6		26			—
Income distributions from equity-accounted investees			—			685
Interest received			3,703			3,715
Change in non-cash working capital	23		(42,562	)		(14,850	)
Net cash used in operating activities from continuing operations			(48,944	)		(26,020	)
Net cash provided by operating activities from discontinued operations	4		147			—
Net cash used in operating activities			(48,797	)		(26,020	)
Investing activities
Additions to property, plant and equipment	11		(1,394	)		(981	)
Additions to intangible assets	13		(17	)		(56	)
Additions to investments			(827	)		(14,431	)
Additions to equity-accounted investees	15		(7,546	)		(57,320	)
Proceeds from disposal of property, plant and equipment			82			—
Acquisitions, net of cash acquired	3		3,695			(31,149	)
Change in non-cash working capital	23		(459	)		(35	)
Net cash used in investing activities from continuing operations			(6,466	)		(103,972	)
Net cash used in investing activities from discontinued operations	4		—			—
Net cash used in investing activities			(6,466	)		(103,972	)
Financing activities
Change in restricted cash			(42	)		5,066
Payments on lease liabilities, net			(9,491	)		(447	)
Repurchase of common shares, net of costs	18(b)		(1,536	)		—
Repayment of long-term debt			—			(10,000	)
Change in non-cash working capital	23		(1	)		(54	)
Net cash used in financing activities from continuing operations			(11,070	)		(5,435	)
Net cash used in financing activities from discontinued operations	4		—			—
Net cash used in financing activities			(11,070	)		(5,435	)
Change in cash and cash equivalents			(66,333	)		(135,427	)
Cash and cash equivalents, beginning of year			279,586			558,251
Cash and cash equivalents, end of period			213,253			422,824

See accompanying notes to the condensed consolidated interim financial statements.

SNDL Inc.

Notes to the Condensed Consolidated Interim Financial Statements

For the three months ended March 31, 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 currently operate solely in Canada, with the exception of Green Roads, Inc. (“Green Roads”), a subsidiary acquired in the Valens Transaction (defined below) who sold CBD products in the United States and is classified as held for sale (note 9) and discontinued operations (note 4). 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 (“Nasdaq”) 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 May 12, 2023.

3. Business acquisitions

a) Valens

On August 22, 2022, the Company and The Valens Company Inc. (“Valens”) announced that they had entered into an arrangement agreement (the “Valens Arrangement Agreement”) pursuant to which the Company would acquire, subject to Valens’ shareholder approval and customary closing conditions, 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”). Concurrently with the execution of the Valens Arrangement Agreement, the Company assumed Valens’ non-revolving term loan facility from its then-existing lender, and amended and restated the related credit agreement to provide for a $60.0 million non-revolving term loan facility with a maturity date of December 15, 2023 and an interest rate of 10% per annum (the “Valens Facility”). As Valens is now a wholly-owned subsidiary of the

SNDL Inc.

Notes to the Condensed Consolidated Interim Financial Statements

For the three months ended March 31, 2023

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

Company, the Valens Facility became inter-company debt following the closing of the Valens Transaction. The Valens Transaction closed on January 17, 2023.

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, and (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).

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. Additionally, Valens manufactured, distributed, and sold a wide range of CBD products in the United States through its subsidiary Green Roads, prior to the Valens Transaction. Green Roads filed for bankruptcy in the United States on March 6, 2023. The Company has provided a superpriority secured debtor-in-possession line of credit to Green Roads in the amount of USD $1.75 million.

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
Valens loan facility		61,512
Issuance of common shares		83,953
		145,465

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


Cash	3,615
Accounts receivable	21,361
Investments	876
Prepaid expenses and deposits	4,980
Inventory	14,140
Assets held for sale	6,330
Right of use assets	2,882
Property, plant and equipment	63,030
Intangible assets	2,285
Goodwill	68,697
Accounts payable and accrued liabilities	(34,185	)
Contractual obligation	(5,339	)
Lease liabilities	(3,207	)
	145,465

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 has been classified as held for sale (note 9) and discontinued operations (note 4).

SNDL Inc.

Notes to the Condensed Consolidated Interim Financial Statements

For the three months ended March 31, 2023

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

The financial statements incorporate the operations of Valens commencing January 18, 2023. During the period January 18, 2023 to March 31, 2023 the Company recorded revenues of $16.9 million and net loss of $9.0 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 $2.3 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 $1.7 million which have been included in transaction costs.

b) Superette

On February 7, 2023, the Company announced that, in the context of the Superette Group’s (as defined below) proceedings under the Companies’ Creditors Arrangement Act (“CCAA”), it had 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) (the “APS”) and the approval and vesting order issued by the Ontario Superior Court of Justice (Commercial List) on December 20, 2022.

The Superette Group sells cannabis and non-cannabis branded merchandise and has furthered its market exposure and brand awareness through private-label cannabis offerings. Pursuant to the APS, certain of the Superette entities, including Superette Inc. and Superette Ontario Inc. (“Superette Ontario”) (collectively, the “Superette Group”), have sold to SNDL their right, title and interest in (i) five Superette retail locations within Toronto and Ottawa; (ii) the intellectual property rights related to the Superette brand (the “Superette IP”); and (iii) the shares of Superette Ontario (collectively, the “Superette Transaction”).

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

The fair value of consideration paid was as follows:

	Provisional
Extinguishment of promissory note		2,625
		2,625

The preliminary 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

As new information 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.

The financial statements incorporate the operations of Superette commencing February 8, 2023. During the period February 8, 2023 to March 31, 2023 the Company recorded revenues of $0.6 million and net loss of $0.2 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.

SNDL Inc.

Notes to the Condensed Consolidated Interim Financial Statements

For the three months ended March 31, 2023

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

The Company incurred costs related to the Superette Transaction of $0.2 million which have been included in transaction costs.

4. Discontinued operations

The Green Roads operations are comprised of manufacturing, distributing and selling a wide range of CBD products in the United States. The Green Roads operations have been classified as held for sale and discontinued operations as the carrying amount of the disposal group is expected to be recovered through a sale transaction rather than through continued use.

Green Roads filed for bankruptcy on March 6, 2023. Subject to the bid procedures, a successful bid of USD$3.1 million was accepted and the sale was approved at a court hearing on May 10, 2023.

The consolidated statement of loss and comprehensive loss and consolidated statement of cash flows has been presented to show the discontinued operations separately from continuing operations. The consolidated statement of financial position presents the Green Roads disposal group as an asset held for sale (note 9).

Results of discontinued operations

	Three months ended<br>March 31
	2023			2022
Net revenue		4,532			—
Cost of sales		2,201			—
Gross margin		2,331			—
General and administrative		2,337			—
Sales and marketing		1,130			—
Depreciation and amortization		219			—
Loss from operations		(1,355	)		—
Finance costs		(10	)		—
Net loss		(1,365	)		—

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”.

SNDL Inc.

Notes to the Condensed Consolidated Interim Financial Statements

For the three months ended March 31, 2023

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


As at March 31, 2023
Total assets	327,072		202,921		333,439		734,934		19,380		1,617,746
Three months ended March 31, 2023
Net revenue	115,911		67,408		19,133		—		—		202,452
Gross margin	26,267		15,819		(9,545	)	—		—		32,541
Interest and fee revenue	—		—		—		4,211		—		4,211
Investment (loss) income	—		—		(283	)	(4,886	)	—		(5,169	)
Share of profit of equity-accounted investees	—		—		—		9,516		—		9,516
Depreciation and amortization	10,346		3,690		1,146		—		1,286		16,468
Earnings (loss) from operations	(1,936	)	(53	)	(18,687	)	8,737		(20,081	)	(32,020	)
Income (loss) before income tax	(2,963	)	(744	)	(19,120	)	5,370		(17,321	)	(34,778	)

(1) Cannabis retail includes the operations of Superette from February 8, 2023 to March 31, 2023.

(2) Cannabis operations includes the operations of Valens for the period January 18, 2023 to March 31, 2023.

(3) Total assets include cash and cash equivalents.


As at December 31, 2022
Total assets	351,338		200,393		163,130		825,151		19,338		1,559,350
Three months ended March 31, 2022
Net revenue	1,310		7,512		8,775		—		—		17,597
Gross margin	284		3,293		(158	)	—		—		3,419
Interest and fee revenue	—		—		—		3,861		—		3,861
Investment loss	—		—		—		(17,710	)	—		(17,710	)
Share of profit of equity-accounted investees	—		—		—		4,091		—		4,091
Depreciation and amortization	—		595		9		—		135		739
Earnings (loss) from operations	(73	)	131		(9,190	)	(9,758	)	(4,280	)	(23,170	)
Income (loss) before income tax	(73	)	(280	)	(2,964	)	(9,695	)	(25,028	)	(38,040	)

(1) Liquor retail includes one day of operations of Alcanna retail stores and cannabis retail includes one day of operations of Nova retail stores.

(2) Total assets include cash and cash equivalents.

Geographical disclosure

As at March 31, 2023, the Company had non-current assets related to investment credit operations in the United States of $535.9 million (December 31, 2022 – $519.3 million). For the three months ended March 31, 2023, share of profit of equity-accounted investees related to operations in the United States was a gain of $9.5 million (three months ended March 31, 2022 – gain of $4.1 million). 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
Balance, beginning of year	21,926		83,724
Acquisition (note 3(a))	876		—
Additions	—		3,755
Dispositions	(50,445	)	—
Change in fair value recognized in profit or loss	38,635		(65,553	)
Balance, end of period	10,992		21,926

During the three months ended March 31, 2023, non-cash proceeds valued at $6.6 million were received for the settlement of Valens common shares in connection with the Valens Transaction (note 3(a) and note 18(b)) and a gain

SNDL Inc.

Notes to the Condensed Consolidated Interim Financial Statements

For the three months ended March 31, 2023

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

on settlement of $0.7 million was recognized. In addition, proceeds of $26 were received for the dispositions of marketable securities and a loss on disposition of $0.1 million was recognized.

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
Balance, beginning of year	3,477		4,410
Increase in biological assets due to capitalized costs	9,189		27,749
Acquisition	—		909
Net change in fair value of biological assets	(3,535	)	(1,309	)
Transferred to inventory upon harvest	(7,336	)	(28,282	)
Balance, end of period	1,795		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				Effect of 10% change (000s)
			December 31<br>2022		March 312023	December 31<br>2022
Yield per square foot of growing space (1)	Grams	42		48			279
Average net selling price (2)	/gram	4.69		4.66			687
After harvest cost to complete and sell	/gram	1.17		1.27			187

All values are in US Dollars.

(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.

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 March 31, 2023, it is estimated that the Company’s biological assets will yield approximately 2,871 kilograms (December 31, 2022 – 3,904 kilograms) of dry cannabis when harvested. During the three months ended March 31, 2023, the Company harvested 6,029 kilograms of dry cannabis (three months ended March 31, 2022 – 6,636 kilograms).

SNDL Inc.

Notes to the Condensed Consolidated Interim Financial Statements

For the three months ended March 31, 2023

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

8. Inventory

As at
Retail liquor	96,163	82,589
Harvested cannabis
Raw materials, packaging and components	7,658	4,577
Extracted cannabis & hemp oils	8,604	—
Work-in-progress	17,298	19,927
Finished goods	8,440	7,040
Retail cannabis	15,103	13,373
Millwork	276	276
	153,542	127,782

During the three months ended March 31, 2023, inventories of $158.1 million were recognized in cost of sales as an expense (three months ended March 31, 2022 – $14.3 million).

During the three months ended March 31, 2023, the Company recognized inventory write downs of $9.2 million (three months ended March 31, 2022 – $2.7 million), of which $9.2 million (three months ended March 31, 2022 – $2.0 million) was recognized as an impaired and obsolete inventory provision, and nil (three months ended March 31, 2022 – $0.7 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 March 31, 2023, assets held for sale was comprised of the following:

Stellarton facility	6,375
Mission facility	2,016
Green Roads disposal group	4,009
Extraction equipment	163
	12,563

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)).

The Green Roads disposal group is comprised of the Green Roads operations, which include the manufacturing, distributing and selling of CBD products in the United States. The Green Roads operations have been classified as held for sale and discontinued operations as the carrying amount of the disposal group is expected to be recovered through a sale transaction rather than through continued use. The disposal group was stated at fair value less costs to sell, based on the successful bid received through the bankruptcy process.

Green Roads filed for bankruptcy on March 6, 2023. Subject to the bid procedures, a successful bid of USD$3.1 million was accepted and the sale was approved at a court hearing on May 10, 2023.

SNDL Inc.

Notes to the Condensed Consolidated Interim Financial Statements

For the three months ended March 31, 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	146
Renewals, remeasurements and dispositions	9,415
Balance at March 31, 2023	180,639
Accumulated depreciation and impairment
Balance at December 31, 2022	32,913
Depreciation	8,023
Balance at March 31, 2023	40,936
Net book value
Balance at December 31, 2022	134,154
Balance at March 31, 2023	139,703

During the three months ended March 31, 2023, renewals, remeasurements and dispositions of $9.4 million mainly related to lease renewals.

11. Property, plant and equipment


Cost
Balance at December 31, 2022	11,964	152,726	72,322		78,922		9,454		325,388
Acquisition (note 3(a), note3(b))	4,859	39,070	3,660		17,518		—		65,107
Additions	—	—	606		1,176		(408	)	1,374
Dispositions	—	—	(289	)	(464	)	—		(753	)
Balance at March 31, 2023	16,823	191,796	76,299		97,152		9,046		391,116
Accumulated depreciation and impairment
Balance at December 31, 2022	—	131,831	15,450		28,877		5,821		181,979
Depreciation	—	877	3,940		4,568		—		9,385
Dispositions	—	—	(264	)	(212	)	—		(476	)
Balance at March 31, 2023	—	132,708	19,126		33,233		5,821		190,888
Net book value
Balance at December 31, 2022	11,964	20,895	56,872		50,045		3,633		143,409
Balance at March 31, 2023	16,823	59,088	57,173		63,919		3,225		200,228

During the three months ended March 31, 2023, depreciation expense of $1.8 million was capitalized to biological assets and inventory (three months ended March 31, 2022 – $1.7 million).

At March 31, 2023, the Company determined that no indicators of impairment or indicators that a previous impairment should be reversed existed, and no impairment test was required.

SNDL Inc.

Notes to the Condensed Consolidated Interim Financial Statements

For the three months ended March 31, 2023

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

12. Net investment in subleases


Balance, beginning of year	23,319		26,562
Additions	—		1,408
Finance income	220		833
Rents recovered (payments made directly to landlords)	(1,002	)	(4,141	)
Dispositions and remeasurements	—		(1,343	)
Balance, end of period	22,537		23,319
Current portion	3,650		3,701
Long-term	18,887		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.

13. Intangible assets


Cost
Balance at December 31, 2022	80,400	10,000	5,542	—	750	96,692
Acquisition (note 3(a))	—	—	265	2,020	—	2,285
Additions	—	—	17	—	—	17
Balance at March 31, 2023	80,400	10,000	5,824	2,020	750	98,994
Accumulated amortization and impairment
Balance at December 31, 2022	19,317	1,811	679	—	—	21,807
Amortization	60	308	261	222	—	851
Impairment	807	—	—		—	807
Balance at March 31, 2023	20,184	2,119	940	222	—	23,465
Net book value
Balance at December 31, 2022	61,083	8,189	4,863	—	750	74,885
Balance at March 31, 2023	60,216	7,881	4,884	1,798	750	75,529

During the three months ended March 31, 2023, the Company determined that indicators of impairment existed regarding the Sun 8 intellectual property due to decreasing market demand for the underlying strains and brand. The estimated recoverable amount of the intangible asset was determined to be $1.5 million and an impairment of $0.8 million was recorded.

14. Investments

As at
Investments at amortized cost	24,457	24,493
Investments at FVTPL	8,531	72,761
	32,988	97,254
Current portion	22,997	6,552
Long-term	9,991	90,702

SNDL Inc.

Notes to the Condensed Consolidated Interim Financial Statements

For the three months ended March 31, 2023

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

Investments at 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 three months ended March 31, 2023, and $3.7 million during the year ended December 31, 2022) (note 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	March 31, 2023		December 31, 2022
Interest in joint venture		535,932		519,255

As at March 31, 2023, the Company had funded $522.3 million out of the total $538.0 million that was originally committed to SunStream. Subsequent to March 31, 2023, the Company contributed $3.4 million to SunStream.

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


Balance at December 31, 2022	519,255
Capital contributions	7,546
Share of net earnings (loss)	9,516
Share of other comprehensive income (loss)	(385	)
Balance at March 31, 2023	535,932

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			December 31, 2022
Current assets (including cash and cash equivalents - 2023: 3.3 million, 2022: 1.5 million)	8,252			5,437
Non-current assets	524,501			509,418
Current liabilities	(2,179	)		(1,146	)
Net assets (liabilities) (100%)	530,574			513,709
Three months ended March 31			2022
Revenue (loss)	11,329			6,549
Profit (loss) from operations	9,691			4,003
Other comprehensive income (loss)	(385	)		(6,733	)
Total comprehensive income (loss)	9,332			(2,738	)

All values are in US Dollars.

SNDL Inc.

Notes to the Condensed Consolidated Interim Financial Statements

For the three months ended March 31, 2023

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

16. Derivative warrants


Balance, beginning of year	11,002		21,700
Change in fair value recognized in profit or loss	(4,802	)	(10,783	)
Acquisition	—		85
Balance, end of period	6,200		11,002

The following table summarizes outstanding derivative warrants as at March 31, 2023:

	Exercise price ()
2020 Series A Warrants (1)		50,000	2.4
Unsecured Convertible Notes Warrants (1)		50,000	0.8
New Warrants		9,833,333	1.4
December 2018 Performance Warrants	CAD 5.51	118,067	0.7
		10,051,400	1.4

All values are in US Dollars.

(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


Balance, beginning of year	169,831		33,470
Acquisitions (note 3(a), note3(b))	4,336		142,106
Additions	146		7,497
Lease payments	(10,493	)	(31,834	)
Renewals, remeasurements and dispositions	9,376		10,890
Tenant inducement allowances received	—		1,799
Accretion expense	1,946		5,903
Balance, end of period	175,142		169,831
Current portion	32,367		30,206
Long-term	142,775		139,625

During the three months ended March 31, 2023, renewals, remeasurements and dispositions of $9.4 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 March 31, 2023:

	March 31, 2023
Less than one year		41,126
One to three years		68,944
Three to five years		68,955
Thereafter		27,841
Minimum lease payments		206,866

SNDL Inc.

Notes to the Condensed Consolidated Interim Financial Statements

For the three months ended March 31, 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

		March 31, 2023						December 31, 2022
	Note	Number of<br>Shares			Carrying<br>Amount			Number of<br>Shares			Carrying<br>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			65,819			515			975,575			8,724
Balance, end of period			260,144,114			2,365,319			235,194,236			2,292,810

For the three months ended March 31, 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).

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<br>March 31
	2023			2022
Equity-settled expense
Simple warrants (A)		(337	)		547
Stock options (B)		(5	)		29
Restricted share units (1) (C)		2,624			2,389
Cash-settled expense
Deferred share units (1)(2) (D)		(73	)		1,239
		2,209			4,204

(1) For the three months ended March 31, 2023, the Company recognized share-based compensation expense under Nova’s RSU plan of $14 and share-based compensation recovery under Nova’s DSU plan of $25.

(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.

SNDL Inc.

Notes to the Condensed Consolidated Interim Financial Statements

For the three months ended March 31, 2023

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

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 do not expire.

The following table summarizes changes in the simple and performance warrants during the three months ended March 31, 2023:

			Weighted<br>average<br>exercise price				Weighted<br>average<br>exercise price
Balance at December 31, 2022	165,820		$	46.91	123,200		$	42.26
Forfeited	(3,200	)		359.38	(6,400	)		321.88
Expired	(12,480	)		6.25	—			0.00
Balance at March 31, 2023	150,140		$	43.62	116,800		$	26.94

The following table summarizes outstanding simple and performance warrants as at March 31, 2023:

						Warrants exercisable
Range of exercise prices		Weighted<br>average<br>exercise<br>price		Weighted<br>average<br>contractual<br>life (years)		Number of<br>warrants		Weighted<br>average<br>exercise<br>price		Weighted<br>average<br>contractual<br>life (years)
Simple warrants
6.25 - 9.38	62,860		7.45		1.41		62,860		7.45		1.41
29.69 - 45.31	27,120		31.26		1.36		26,320		31.02		1.30
62.50 - 93.75	49,920		63.50		3.80		49,920		63.50		3.80
125.00 - 312.50	10,240		201.58		3.94		8,640		200.71		3.65
	150,140	$	43.62		2.37		147,740	$	41.89		2.33
Performance warrants
6.25 - 9.38	45,066		6.71	n/a			45,066		6.71		1.76
12.50 - 18.75	17,334		15.15	n/a			17,334		15.15		0.79
29.69 - 45.31	42,400		31.99	n/a			42,400		31.99		1.99
62.50 - 93.75	9,334		77.68	n/a			1,334		93.75		2.92
125.00 - 218.75	2,666		187.50	n/a			—		—	n/a
	116,800	$	26.94	n/a			106,134	$	19.28		1.71

All values are in US Dollars.

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.

The following table summarizes changes in stock options during the three months ended March 31, 2023:

			Weighted<br>average<br>exercise price
Balance at December 31, 2022	44,360		$	13.24
Forfeited	(5,000	)		11.50
Balance at March 31, 2023	39,360		$	13.46

SNDL Inc.

Notes to the Condensed Consolidated Interim Financial Statements

For the three months ended March 31, 2023

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

The following table summarizes outstanding stock options as at March 31, 2023:

				Stock options exercisable
Exercise prices		Weighted<br>average<br>contractual<br>life (years)		Number of<br>options		Weighted<br>average<br>contractual<br>life (years)
11.50	27,500		7.16		21,667		7.16
11.90	8,160		7.24		8,160		7.24
31.50	3,700		5.26		3,025		5.13
	39,360		7.00		32,852		7.00

All values are in US Dollars.

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 three months ended March 31, 2023:


Balance at December 31, 2022	1,381,330
Granted	7,836,492
Forfeited	(46,055	)
Exercised	(65,819	)
Balance at March 31, 2023	9,105,948

At March 31, 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 March 31, 2023, the Company recognized a liability of $2.3 million relating to the fair value of cash-settled DSUs (December 31, 2022 – $2.3 million).

The following table summarizes changes in DSUs during the three months ended March 31, 2023:

	DSUs<br>outstanding
Balance at December 31, 2022		1,708,383
Granted		153,343
Balance at March 31, 2023		1,861,726

At March 31, 2023, 1.0 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, advertising and franchise fee revenue, and other revenue consists of millwork, supply and accessories revenue and proprietary licensing. Cannabis

SNDL Inc.

Notes to the Condensed Consolidated Interim Financial Statements

For the three months ended March 31, 2023

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

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<br>March 31
	2023		2022
Liquor retail revenue		115,911		1,310
Cannabis retail revenue
Retail		64,100		5,439
Franchise		1,767		2,050
Other		1,541		23
Cannabis retail revenue		67,408		7,512
Cannabis operations revenue
Provincial boards		26,129		9,732
Medical		21		3
Wholesale		3,149		1,570
Analytical testing		281		—
Cannabis operations revenue		29,580		11,305
Gross revenue		212,899		20,127

21. Investment revenue (LOSS)

	Three months ended<br>March 31
	2023		2022
Interest and fee revenue
Interest revenue from investments at amortized cost		1,006		995
Interest and fee revenue from investments at FVTPL		624		2,116
Interest revenue from cash		2,581		750
		4,211		3,861
	Three months ended<br>March 31
---	---	---	---	---	---	---
	2023			2022
Investment loss
Realized (losses) gains (note 6)		(43,804	)		124
Unrealized gains (losses) (note 6)		38,635			(17,834	)
		(5,169	)		(17,710	)

SNDL Inc.

Notes to the Condensed Consolidated Interim Financial Statements

For the three months ended March 31, 2023

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

22. Finance costs

	Three months ended<br>March 31
	2023			2022
Cash finance expense
Other finance costs		28			24
		28			24
Non-cash finance expense (income)
Change in fair value of investments at FVTPL		3,368			—
Accretion on lease liabilities		1,946			340
Financial guarantee liability (recovery) expense		(139	)		(142	)
Other		190			—
		5,365			198
Interest income		(220	)		(283	)
		5,173			(61	)

23. supplemental cash flow disclosures

	Three months ended<br>March 31
	2023			2022
Cash provided by (used in):
Accounts receivable		8,096			(1,850	)
Biological assets		(1,853	)		4,369
Inventory		(20,426	)		(8,406	)
Prepaid expenses and deposits		(5,827	)		1,601
Investments		332			48
Right of use assets		(9,252	)		—
Property, plant and equipment		12			—
Accounts payable and accrued liabilities		(23,369	)		(10,701	)
Lease liabilities		9,265			—
		(43,022	)		(14,939	)
Changes in non-cash working capital relating to:
Operating		(42,562	)		(14,850	)
Investing		(459	)		(35	)
Financing		(1	)		(54	)
		(43,022	)		(14,939	)

SNDL Inc.

Notes to the Condensed Consolidated Interim Financial Statements

For the three months ended March 31, 2023

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

24. Loss per share

	Three months ended<br>March 31
	2023			2022
Weighted average shares outstanding (000s)
Basic and diluted (1)		255,556			206,146
Continuing operations
Net loss attributable to owners of the Company		(34,203	)		(37,904	)
Per share - basic and diluted	$	(0.13	)	$	(0.18	)
Discontinued operations
Net loss attributable to owners of the Company		(1,365	)		—
Per share - basic and diluted	$	(0.01	)	$	—
Net loss attributable to owners of the Company		(35,568	)		(37,904	)
Per share - basic and diluted	$	(0.14	)	$	(0.18	)

(1) For the three months ended March 31, 2023, there were 0.3 million equity classified warrants, 9.9 million derivative warrants, 0.2 million simple warrants, 0.1 million performance warrants, 0.04 million stock options and 9.1 million RSUs that were excluded from the calculation as the impact was anti-dilutive (three months ended March 31, 2022– 0.4 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 2.3 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 months ended March 31, 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
March 31, 2023	Carrying<br>amount		Level 1		Level 2		Level 3
Recurring measurements:
Financial assets
Marketable securities		10,992		10,992		—		—
Investments at FVTPL		8,531		—		—		8,531
Financial liabilities
Derivative warrants (1)		6,200		—		—		6,200
			Fair value measurements using
December 31, 2022	Carrying<br>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 March 31, 2023, a 10% change in the material assumptions would change the estimated fair value of derivative warrant liabilities by approximately $1.0 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 three months ended March 31, 2023, the Company paid $41.7 thousand in total rent with respect to this lease.

27. Commitments and contingencies

The following table summarizes contractual commitments at March 31, 2023:


Accounts payable and accrued liabilities	62,106	—	—	—	62,106
Financial guarantee liability	—	268	—	—	268
Contractual obligation	—	2,566	—	—	2,566
Balance, end of year	103,232	71,778	68,955	27,841	271,806

SNDL Inc.

Notes to the Condensed Consolidated Interim Financial Statements

For the three months ended March 31, 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 March 31, 2023 of $2.5 million (December 31, 2022 – $2.5 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

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”).

As part of the Nova Transaction, the Company and Nova agreed to complete the following transactions, subject to certain terms and conditions (including receipt of the requisite regulatory approvals and approval of Nova shareholders under Multilateral Instrument 61-101 – Protection of Minority Security Holders in Special Transactions): (i) the Company will transfer or cause to be transferred its 26 corporate-owned cannabis retail stores to Nova; (ii) Nova will transfer its intellectual property related to the “Value Buds” retail banner to the Company; (iii) the parties and certain of their subsidiaries will enter into a strategic partnership agreement and store level license agreement with respect to the “Spiritleaf”, “Superette” and “Value Buds” retail banners to implement certain collaborative retail initiatives; (iv) the parties will amend certain existing governance documents (to which Alcanna was a predecessor party), including their investor rights agreement; (v) the Company will reduce its equity ownership interest in Nova to approximately 19.9%; and (vi) the parties will replace Nova’s existing credit facility with SNDL with a $15.0 million credit facility, with a $10.0 million “accordion” feature.

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 under a vertical integration model as amended on April 3, 2023. Completion of the Nova reorganization remains subject to certain other customary closing conditions, including the receipt of certain regulatory approvals required under applicable provincial cannabis legislation. Subject to the satisfaction or waiver of all closing conditions, the Nova reorganization is expected to be completed on or before June 30, 2023.

EX-99.2

EXHIBIT 99.2

SNDL Inc.

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

For the three months ended March 31, 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 months ended March 31, 2023 is dated May 12, 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 months ended March 31, 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	3
OPERATIONAL AND FINANCIAL HIGHLIGHTS	4
CONSOLIDATED RESULTS	4
OPERATING SEGMENTS	7
LIQUOR RETAIL SEGMENT RESULTS	8
CANNABIS RETAIL SEGMENT RESULTS	8
CANNABIS OPERATIONS SEGMENT RESULTS	9
INVESTMENTS SEGMENT RESULTS	11
SELECTED QUARTERLY INFORMATION	12
LIQUIDITY AND CAPITAL RESOURCES	12
CONTRACTUAL COMMITMENTS AND CONTINGENCIES	15
SPECIFIED FINANCIAL MEASURES	16
RELATED PARTIES	17
OFF BALANCE SHEET ARRANGEMENTS	17
CRITICAL ACCOUNTING POLICIES AND ESTIMATES	17
NEW ACCOUNTING PRONOUNCEMENTS	18
RISK FACTORS	18
DISCLOSURE CONTROLS AND PROCEDURES	18
INTERNAL CONTROL OVER FINANCIAL REPORTING	19
REMEDIATION	19
CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING	19
ABBREVIATIONS	19
FORWARD-LOOKING INFORMATION	20
ADDITIONAL INFORMATION	20

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 recently expanded to include export for the international medicinal market. SNDL’s purpose-built indoor modular grow rooms create consistent, highly controlled cultivation environments and are the foundation of the Company’s production of high-quality, strain-specific cannabis products. SNDL’s operations cultivate cannabis using approximately 448,000 square feet of total space in Olds 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 with the exception of Green Roads, Inc. (“Green Roads”), a subsidiary acquired in the Valens Transaction (defined below) who sold CBD products in the United States and is classified as held for sale and discontinued operations. 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

Strategic partnership with nova

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 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 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 by the end of June 2023.

Valens Acquisition

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, and (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).

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. Valens distributes medicinal cannabis products to Australia through its subsidiary Valens Australia Pty Ltd. (“Valens Australia”). Additionally, Valens manufactured, distributed, and sold a wide range of CBD products in the United States through its subsidiary Green Roads, prior to the Valens Transaction. Green Roads filed for bankruptcy on March 6, 2023. Subject to the bid procedures, a successful bid of USD$3.1 million was accepted and the sale was approved at a court hearing on May 10, 2023.

Superette Acquisition

On February 7, 2023, the Company announced that, in the context of the Superette Group’s (as defined below) proceedings under the Companies’ Creditors Arrangement Act (Canada) (“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) (the “APS”) and the approval and vesting order issued by the Ontario Superior Court of Justice (Commercial List) on December 20, 2022.

The Superette Group sells cannabis and non-cannabis branded merchandise and has furthered its market exposure and brand awareness through private-label cannabis offerings. Pursuant to the APS, certain of the Superette entities, including Superette Inc. and Superette Ontario Inc. (“Superette Ontario”) (collectively, the “Superette Group”), have sold their right, title and interest in (i) five Superette retail locations within Toronto and Ottawa; (ii) the intellectual property rights related to the Superette brand (the “Superette IP”); and (iii) the shares of Superette Ontario (collectively, the “Superette Transaction”).

OTHER DEVELOPMENTS

Cost-saving measures and rightsizing cannabis operations at alberta facility

On February 13, 2023, the Company announced changes to its operations through a rightsizing of cannabis cultivation in Olds, Alberta, and Atholville, New Brunswick in an effort to focus the facility on premium products and brands. On April 27, the Company announced the next step in rightsizing the Olds operation. A total of 172 positions were eliminated in these two reductions in workforce and are expected to deliver approximately $9 million in savings across labour and operational costs for the remainder of 2023. The Valens Transaction has accelerated the need to optimize and rationalize SNDL's manufacturing and operational footprint to better address market saturation and oversupply.

Through its integration and rationalization efforts, the Company is assessing all assets and will continue to make decisions based on sustainable profitability.

Initiation of share repurchase program

On November 16, 2022, the Company announced that the Board approved a renewal of the share repurchase program upon its expiry on November 19, 2022. The renewed 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 a maximum of 11.8 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 30, 2023. The renewed 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 renewed 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 renewed 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 to which this MD&A is attached as an exhibit for further details regarding common shares purchased and cancelled during 2022 and 2023.

OPERATIONAL AND FINANCIAL HIGHLIGHTS

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

($000s, except as indicated)
Financial
Gross revenue	212,899		20,127		192,772		958	%
Net revenue	202,452		17,597		184,855		1050	%
Cost of sales	158,149		14,326		143,823		1004	%
Gross margin (1)	32,541		3,419		29,122		852	%
Gross margin %	16	%	19	%			-3	%
Gross margin before fair value adjustments (1)(2)	35,126		1,290		33,836		2623	%
Gross margin before fair value adjustments % (2)	17	%	7	%			10	%
Interest and fee revenue	4,211		3,861		350		9	%
Investment loss	(5,169	)	(17,710	)	12,541		71	%
Loss from operations	(32,020	)	(23,170	)	(8,850	)	-38	%
Net loss from continuing operations attributable to owners of the Company	(34,203	)	(37,904	)	3,701		10	%
Per share, basic and diluted	(0.13	)	(0.18	)	0.05		28	%
Net loss from discontinued operations attributable to owners of the Company	(1,365	)	—		(1,365	)	100	%
Per share, basic and diluted	(0.01	)	—		(0.01	)	100	%
Net loss attributable to owners of the Company	(35,568	)	(37,904	)	2,336		6	%
Per share, basic and diluted	(0.14	)	(0.18	)	0.04		22	%
Adjusted EBITDA from continuing operations (2)	7,415		(675	)	8,090		1199	%
Statement of Financial Position
Cash and cash equivalents	213,253		422,824		(209,571	)	-50	%
Inventory	153,542		140,950		12,592		9	%
Property, plant and equipment	200,228		319,747		(119,519	)	-37	%
Total assets	1,617,746		1,996,272		(378,526	)	-19	%

(1) Includes inventory obsolescence and impairment expense of $9.2 million for the three months ended March 31, 2023, and expense of $2.0 million for the three months ended March 31, 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<br>March 31
($000s)	2023		2022
Salaries and wages		28,863		6,346
Consulting fees		747		412
Office and general		12,826		1,698
Professional fees		3,155		2,087
Merchant processing fees		1,271		—
Director fees		131		88
Other		1,580		51
		48,573		10,682

General and administrative expenses for the three months ended March 31, 2023 were $48.6 million compared to $10.7 million for the three months ended March 31, 2022. The increase of $37.9 million was mainly due to increases in salaries and wages, office and general expenses, professional fees and merchant processing fees as a result of the Alcanna Inc. (“Alcanna”), Valens and Zenabis Ltd. (“Zenabis”) acquisitions.

Share-based compensation

	Three months ended<br>March 31
($000s)	2023			2022
Equity-settled expense
Simple warrants		(337	)		547
Stock options		(5	)		29
Restricted share units		2,624			2,389
Cash-settled expense
Deferred share units		(73	)		1,239
		2,209			4,204

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 March 31, 2023 was $2.2 million compared to $4.2 million for the three months ended March 31, 2022. The decrease of $2.0 million was due to a decrease in DSU expense and simple warrant expense, partially offset by an increase in RSU expense. The decrease in DSU expense was caused by a decrease in fair value of the DSUs resulting from a decrease in the Company’s share price. 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. The increase in RSU expense was due to the issuance of new RSUs during the period, partially offset by the vesting of RSUs granted in prior periods.

Transaction costs

	Three months ended<br>March 31
($000s)	2023		2022
Transaction costs		2,040		6,481

Transaction costs for the three months ended March 31, 2023, were $2.0 million compared to $6.5 million for the three months ended March 31, 2022. Transaction costs in the current period relate to relate to various acquisitions, including Valens and Superette. Transaction costs in the comparative period include costs associated with the Alcanna acquisition.

Finance costs

	Three months ended<br>March 31
($000s)	2023			2022
Cash finance expense
Other finance costs		28			24
		28			24
Non-cash finance expense
Change in fair value of investments at fair value through profit or loss		3,368			—
Accretion on lease liabilities		1,946			340
Financial guarantee liability (recovery) expense		(139	)		(142	)
Other		190			—
		5,365			198
Interest income		(220	)		(283	)
		5,173			(61	)

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 March 31, 2023 were $5.2 million compared to a recovery of $0.1 million for the three months ended March 31, 2022. The increase of $5.3 million was due to the change in fair value of investments at FVTPL and an increase in accretion on lease liabilities. 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 Company's lease liabilities have increased significantly due to the Alcanna acquisition as the Company acquired leases of retail space for corporate-owned stores.

Change in estimate of fair value of derivative warrants

	Three months ended<br>March 31
($000s)	2023			2022
Change in estimate of fair value of derivative warrants		(4,802	)		8,300

Change in estimate of fair value of derivative warrants for the three months ended March 31, 2023 was a recovery of $4.8 million compared to an expense of $8.3 million for the three months ended March 31, 2022. The recovery in the current period relates to a decrease in the fair value, mainly due to a decrease in the Company’s share price from US$2.09 on December 31, 2022, to US$1.60 on March 31, 2023. The expense in the prior period relates to an increase in the fair value, mainly due to an increase in the Company’s share price from US$5.78 on December 31, 2021, to US$7.00 on March 31, 2022.

Net INCOME (loss) from continuing operations

	Three months ended<br>March 31
($000s)	2023			2022
Net loss from continuing operations		(34,778	)		(38,040	)

Net loss from continuing operations for the three months ended March 31, 2023 was $34.8 million compared to $38.0 million for the three months ended March 31, 2022. The decrease in net loss from continuing operations of $3.2 million was largely due to an increase in gross margin ($29.2 million), lower investment losses ($12.5 million), increased share of profit of equity-accounted investees ($5.4 million), lower transaction costs ($4.4 million) and change in fair value of derivative warrants ($13.1 million), partially offset by higher general and administrative expenses ($37.9 million), depreciation and amortization ($15.7 million) and finance costs ($5.2 million).

Adjusted EBITDA from continuing operations

	Three months ended<br>March 31
($000s)	2023		2022
Adjusted EBITDA from continuing operations (1)		7,415		(675	)

(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 $7.4 million for the three months ended March 31, 2023 compared to a loss of $0.7 million for the three months ended March 31, 2022. The increase was due to the following:

• Increase in gross margin including from the acquisition of Alcanna and Nova; 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)
As at March 31, 2023
Total assets	327,072		202,921		333,439		734,934		19,380		1,617,746
Three months ended March 31, 2023
Net revenue	115,911		67,408		19,133		—		—		202,452
Gross margin	26,267		15,819		(9,545	)	—		—		32,541
Interest and fee revenue	—		—		—		4,211		—		4,211
Investment (loss) income	—		—		(283	)	(4,886	)	—		(5,169	)
Share of profit of equity-accounted investees	—		—		—		9,516		—		9,516
Depreciation and amortization	10,346		3,690		1,146		—		1,286		16,468
Earnings (loss) from operations	(1,936	)	(53	)	(18,687	)	8,737		(20,081	)	(32,020	)
Income (loss) before income tax	(2,963	)	(744	)	(19,120	)	5,370		(17,321	)	(34,778	)

(1) Cannabis retail includes the operations of Superette from February 8, 2023 to March 31, 2023.

(2) Cannabis operations include the operations of Valens for the period January 18, 2023 to March 31, 2023.

(3) Total assets include cash and cash equivalents.

($000s)
As at December 31, 2022
Total assets	351,338		200,393		163,130		825,151		19,338		1,559,350
Three months ended March 31, 2022
Net revenue	1,310		7,512		8,775		—		—		17,597
Gross margin	284		3,293		(158	)	—		—		3,419
Interest and fee revenue	—		—		—		3,861		—		3,861
Investment loss	—		—		—		(17,710	)	—		(17,710	)
Share of profit of equity-accounted investees	—		—		—		4,091		—		4,091
Depreciation and amortization	—		595		9		—		135		739
Earnings (loss) from operations	(73	)	131		(9,190	)	(9,758	)	(4,280	)	(23,170	)
Income (loss) before income tax	(73	)	(280	)	(2,964	)	(9,695	)	(25,028	)	(38,040	)

(1) Liquor retail includes one day of operations of Alcanna retail stores and cannabis retail includes one day of operations of Nova retail stores.

(2) Total assets include cash and cash equivalents.

LIQUOR RETAIL SEGMENT RESULTS

Earnings (loss) from operations

	Three months ended<br>March 31
($000s)	2023			2022 (1)
Net revenue		115,911			1,310
Cost of sales		89,644			1,026
Gross margin		26,267			284
Gross margin %		22.7	%		21.7	%
General and administrative		17,046			357
Sales and marketing		811			—
Depreciation and amortization		10,346			—
Earnings (loss) from operations		(1,936	)		(73	)

(1) Liquor retail results include one day of operations of Alcanna retail stores.

Gross margin for the three months ended March 31, 2023 was $26.3 million (22.7%). Gross margin for the one day of operations on March 31, 2022 was $0.3 million (21.7%). Cost of sales for liquor retail operations is comprised of the cost of wine, beer and spirits.

At March 31, 2023, the Ace Liquor store count was 137, the Liquor Depot store count was 20 and the Wine and Beyond store count was 12. At May 12, 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

GROSS revenue

	Three months ended<br>March 31
($000s)	2023 (1)		2022 (2)
Retail		64,100		5,439
Franchise		1,767		2,050
Other		1,541		23
Gross revenue		67,408		7,512

(1) Cannabis retail results include the operations of Superette from February 8, 2023 to March 31, 2023.

(2) Cannabis retail results include one day of operations of Nova retail stores.

Gross revenue for the three months ended March 31, 2023 was $67.4 million compared to $7.5 million for the three months ended March 31, 2022. The increase of $59.9 million is mainly attributable to the Alcanna and Nova acquisition. Retail revenue is comprised of retail cannabis sales to private customers from corporate-owned stores. Franchise revenue is comprised of royalty revenue, advertising revenue and franchise fees. Other revenue consists of millwork, supply and accessories revenue and proprietary licensing.

Earnings (loss) from operations

	Three months ended<br>March 31
($000s)	2023 (1)			2022 (2)
Net revenue		67,408			7,512
Cost of sales		51,589			4,219
Gross margin		15,819			3,293
Gross margin %		23.5	%		43.8	%
General and administrative		11,967			2,332
Sales and marketing		226			235
Depreciation and amortization		3,690			595
Share-based compensation		(11	)		—
Earnings (loss) from operations		(53	)		131

(1) Cannabis retail results include the operations of Superette from February 8, 2023 to March 31, 2023.

(2) Cannabis retail results include one day of operations of Nova retail stores.

Gross margin for the three months ended March 31, 2023 was $15.8 million (23.5%) compared to $3.3 million (43.8%) for the three months ended March 31, 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 prior period is higher due to the proportion of franchise revenue compared to gross revenue. Franchise revenue does not have a corresponding cost of sales.

At March 31, 2023, the Spiritleaf store count was 99 (22 corporate stores and 77 franchise stores), the Superette store count was 5 corporate stores and the Value Buds store count was 91 corporate stores. At May 12, 2023, the Spiritleaf store count is 99 (22 corporate stores and 77 franchise stores), the Superette store count is 5 corporate stores, the Firesale store count is 2 corporate stores and the Value Buds store count is 91 corporate stores.

CANNABIS OPERATIONS SEGMENT RESULTS

Revenue

	Three months ended<br>March 31
($000s, except as indicated)	2023 (1)			2022
Provincial boards		26,129			9,732
Medical		21			3
Wholesale		3,149			1,570
Analytical testing		281			—
Gross revenue		29,580			11,305
Excise taxes		(10,447	)		(2,530	)
Net revenue		19,133			8,775

(1) Cannabis operations revenue includes the operations of Valens for the period January 18, 2023 to March 31, 2023.

The Company’s revenue comprises bulk and packaged sales under the Cannabis Act pursuant to its supply agreements with Canadian provincial boards, other LPs 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 March 31, 2023 was $29.6 million compared to $11.3 million for the three months ended March 31, 2022. The increase of $18.3 million was mainly due to the additional revenue as a result of the

Valens and Zenabis acquisitions. Provincial board revenue increased by $16.4 million and wholesale revenue increased by $1.5 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. The rates of provincial or territorial duties vary by jurisdiction.

Excise taxes for the three months ended March 31, 2023 were $10.4 million compared to $2.5 million for the three months ended March 31, 2022. The increase of $7.9 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

	Three months ended<br>March 31
($000s, except as indicated)	2023		2022
Cost of sales		16,916		9,081

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

Cost of sales for the three months ended March 31, 2023 were $16.9 million compared to $9.1 million for the three months ended March 31, 2022. The increase of $7.8 million was due to the increase in sales associated with the Valens and Zenabis acquisitions.

Gross margin

	Three months ended<br>March 31
($000s)	2023			2022
Net revenue		19,133			8,775
Cost of sales		16,916			9,081
Inventory impairment and obsolescence		9,177			1,981
Gross margin before fair value adjustments (1)		(6,960	)		(2,287	)
Change in fair value of biological assets		(3,535	)		3,690
Change in fair value realized through inventory		950			(1,561	)
Gross margin		(9,545	)		(158	)

(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.

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 March 31, 2023 was negative $7.0 million compared to negative $2.3 million for the three months ended March 31, 2022. The decrease of $4.7 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 three months ended March 31, 2023 was $9.2 million. 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.

The total inventory obsolescence and impairment recognized during the three months ended March 31, 2022 was $2.7 million, with $2.0 million relating to cost of sales and negative $0.7 million relating to the change in fair value realized through inventory.

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<br>March 31
($000s)	2023		2022
Interest and fee revenue
Interest revenue from investments at amortized cost		1,006		995
Interest and fee revenue from investments at FVTPL		624		2,116
Interest revenue from cash		2,581		750
		4,211		3,861

Interest and fee revenue for the three months ended March 31, 2023, was $4.2 million compared to $3.9 million for the three months ended March 31, 2022. The increase of $0.3 million was due to an increase in interest revenue from cash partially offset by a decrease in interest and fee revenue from investments at FVTPL. Interest revenue from cash increased due to increases in the base interest rates. 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.

Investment revenue

	Three months ended<br>March 31
($000s)	2023			2022
Investment revenue
Realized (losses) gains		(43,804	)		124
Unrealized gains (losses)		38,635			(17,834	)
		(5,169	)		(17,710	)

Investment revenue for the three months ended March 31, 2023, was negative $5.2 million compared to negative $17.7 million for the three months ended March 31, 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. The prior period was impacted by decreases in share prices of the Company’s investments in Indiva Limited, Village Farms International Inc., and Valens.

Share of profit of equity-accounted investees

	Three months ended<br>March 31
($000s)	2023		2022
Net profit (loss)		9,516		4,091

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 March 31, 2023 was $9.5 million compared to $4.1 million for the three months ended March 31, 2022. The increase of $5.4 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)	Q1			Q4			Q3			Q2			Q1			Q4 (1)			Q3 (1)			Q2
Gross revenue		212,899			246,866			235,144			227,557			20,127			25,630			17,162			12,739
Gross investment (loss) income		(958	)		(879	)		(1,201	)		(32,496	)		(13,849	)		(38,108	)		(14,699	)		5,706
Gross margin		32,541			43,568			50,309			43,079			3,419			(2,499	)		1,782			(2,821	)
Net (loss) income from continuing operations attributable to owners of the Company		(35,568	)		(125,801	)		(98,108	)		(73,301	)		(37,904	)		(56,989	)		16,708			(52,287	)
Per share, basic and diluted		(0.14	)		(0.53	)		(0.41	)		(0.31	)		(0.18	)		(0.28	)		0.08			(0.28	)
Adjusted EBITDA from continuing<br>operations (2)		7,415			(7,549	)		18,320			(25,927	)		(675	)		18,425			10,539			(205	)

(1) Adjustments to provisional amounts have been made in the comparative period (Q3 2021 and Q4 2021) due the consummation of the Inner Spirit acquisition, refer to note 5(b) in the Company’s Audited Financial Statements.

(2) 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.

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;

• Issuance of common shares under at-the-market equity programs;

• Entering into and acquiring several cannabis-related investments;

• Investing and disposing of marketable securities;

• Decreasing ownership in Pathway RX Inc.;

• The addition of investment strategies to the Company’s operations;

• Price discounts and provisions for product returns;

• Impairment of property, plant and equipment;

• Provisions for inventory obsolescence and impairment;

• Investments in SunStream;

• Acquisitions of Inner Spirit Holdings Ltd. (“Inner Spirit”), 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)	March 31, 2023		December 31, 2022
Cash and cash equivalents		213,253		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 March 31, 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 March 31, 2023, the Company had the following share capital instruments outstanding:

(000s)
Common shares	260,144	206,041
Common share purchase warrants (1)	309	357
Simple warrants (2)	150	259
Performance warrants (3)	117	139
Stock options (4)	39	45
Restricted share units	9,106	754

(1) 0.3 million warrants were exercisable as at March 31, 2023.

(2) 0.1 million simple warrants were exercisable as at March 31, 2023.

(3) 0.1 million performance warrants were exercisable as at March 31, 2023.

(4) 32.9 thousand stock options were exercisable as at March 31, 2023.

Common shares were issued during the three months ended March 31, 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; and

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

Subsequent to March 31, 2023:

• The Company issued 0.1 million common shares in connection with the vesting of RSUs under the long term incentive plan.

As at May 12, 2023, a total of 260.3 million common shares were outstanding.

Cash Flow Summary

	Three months ended<br>March 31
($000s)	2023			2022
Cash provided by (used in):
Operating activities		(48,797	)		(26,020	)
Investing activities		(6,466	)		(103,972	)
Financing activities		(11,070	)		(5,435	)
Change in cash and cash equivalents		(66,333	)		(135,427	)

Cash Flow – Operating Activities

Net cash used in operating activities was $48.8 million for the three months ended March 31, 2023 compared to $26.0 million used in operating activities for the three months ended March 31, 2022. The increase of $22.8 million was due to the change in non-cash working capital, partially offset by a decrease in net loss adjusted for non-cash items. The change in non-cash working capital is comprised of changes in inventory, accounts receivable, prepaid expenses and deposits and accounts payable. The main drivers were the seasonal accumulation of liquor inventory for the Liquor Retail segment as December drawdowns were replenished in the first quarter, and the payment of Valens accounts payable which had increased due to cash flow deficiencies and the impending acquisition by SNDL, including severance costs and over $6 million in excise tax in arrears.

Cash Flow – Investing Activities

Net cash used in investing activities was $6.5 million for the three months ended March 31, 2023 compared to $104.0 million used in investing activities for the three months ended March 31, 2022. The decrease of $97.5 million was primarily due to additions to equity-accounted investees, additions to investments and acquisitions in the comparative period.

Cash Flow – Financing Activities

Net cash used in financing activities was $11.1 million for the three months ended March 31, 2023 compared to $5.4 million used in financing activities for the three months ended March 31, 2022. The increase of $5.7 million was largely due to increased payments on lease liabilities and change in restricted cash in the prior period.

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 $0.1 million for the three months ended March 31, 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

a) Commitments

The information presented in the table below reflects management’s estimate of the contractual maturities of the Company’s obligations at March 31, 2023.

($000s)
Accounts payable and accrued liabilities	62,106	—	—	—	62,106
Lease liabilities	41,126	68,944	68,955	27,841	206,866
Financial guarantee liability	—	268	—	—	268
Contractual obligation	—	2,566	—	—	2,566
Total	103,232	71,778	68,955	27,841	271,806

b) 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 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 income (loss) 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 investments resulting from business combinations, share-based compensation expense, asset impairment, gain or loss on disposal of property, plant and equipment, cost of sales non-cash component, restructuring costs, transaction costs and certain one-time non-operating expenses, as determined by management.

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

	Three months ended<br>March 31
($000s)	2023			2022
Net (loss) income from continuing operations		(34,778	)		(38,040	)
Adjustments:
Finance costs		5,173			(61	)
Change in estimate of fair value of derivative warrants		(4,802	)		8,300
Depreciation and amortization		16,468			739
Change in fair value of biological assets		3,535			(3,690	)
Change in fair value realized through inventory		(950	)		1,561
Unrealized foreign exchange (gain) loss		48			16
Unrealized (gain) loss on marketable securities		(38,635	)		17,834
Realized loss on marketable securities resulting from business combinations		43,699			—
Share-based compensation		2,209			4,204
Asset impairment		807			—
Loss (gain) on disposition of PP&E		184			—
Cost of sales non-cash component (1)		1,704			—
Inventory impairment (recovery) and obsolescence		9,177			1,981
Restructuring costs		1,536			—
Transaction costs		2,040			6,481
Adjusted EBITDA from continuing operations		7,415			(675	)

(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<br>March 31
($000s)	2023			2022
Gross margin		(9,545	)		(158	)
Change in fair value of biological assets		(3,535	)		3,690
Change in fair value realized through inventory		950			(1,561	)
Gross margin before fair value adjustments		(6,960	)		(2,287	)

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 March 31, 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; and

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

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 (IASB) 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 Securities Exchange Act of 1934, as amended (“the Exchange Act”)). Based upon evaluation of the Company’s disclosure controls and procedures as of March 31, 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 and Rule 13a-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 May 12, 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 March 31, 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 March 31, 2023, that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

In accordance with guidance issued by the Canadian Securities Administrators and the SEC, companies are permitted to exclude acquisitions from their final assessment of internal control over financial reporting for the first fiscal year in which the acquisition occurred. Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has limited the evaluation of our internal control over financial reporting to exclude controls, policies and procedures and internal control over financial reporting of the recently acquired operations of Valens (acquired January 17, 2023) and Superette (acquired on February 7, 2023).

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.

EX-99.3

EXHIBIT 99.3

Form 52-109F2

Certification of Interim Filings

Full Certificate

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

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 March 31, 2023.
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.

4. 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.

5. 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

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 March 31, 2023 that has materially affected, or is reasonably likely to materially affect, the issuer’s ICFR.

Date: May 12, 2023

/s/ Zachary George

_______________________

Zachary George

Chief Executive Officer

EX-99.4

EXHIBIT 99.4

Form 52-109F2

Certification of Interim Filings

Full Certificate

I, James Keough, Chief Financial Officer of SNDL Inc., certify the following:

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 March 31, 2023.
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.

5. 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

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 March 31, 2023 that has materially affected, or is reasonably likely to materially affect, the issuer’s ICFR.

Date: May 12, 2023

/s/ James Keough

_______________________

James Keough

Chief Financial Officer