EX-99.1

DSUs
outstanding

Balance at December 31, 2022

Balance at June 30, 2023

EX-99.1 2 sndl-ex99_1.htm EX-99.1 EX-99.1

EXHIBIT 99.1

SNDL Inc.

Condensed Consolidated Interim Financial Statements

For the three and six months ended June 30, 2023

(Unaudited – expressed in thousands of Canadian dollars)

SNDL Inc.

Condensed Consolidated Interim Statement of Financial Position

(Unaudited - expressed in thousands of Canadian dollars)


As at	Note	June 30, 2023			December 31, 2022

Assets
Current assets
Cash and cash equivalents			185,455			279,586
Restricted cash			19,456			19,338
Marketable securities	6		3,535			21,926
Accounts receivable			32,661			22,636
Biological assets	7		1,330			3,477
Inventory	8		160,407			127,782
Prepaid expenses and deposits			21,792			10,110
Investments	14		23,038			6,552
Assets held for sale	3(a),9		8,391			6,375
Net investment in subleases	12		3,656			3,701
			459,721			501,483
Non-current assets
Long-term deposits			9,766			8,584
Right of use assets	10		136,947			134,154
Property, plant and equipment	11		181,841			143,409
Net investment in subleases	12		18,918			19,618
Intangible assets	13		74,446			74,885
Investments	14		9,638			90,702
Equity-accounted investees	15		532,818			519,255
Goodwill	3(a)		147,680			67,260
Total assets			1,571,775			1,559,350

Liabilities
Current liabilities
Accounts payable and accrued liabilities			62,557			48,153
Lease liabilities	17		35,982			30,206
Derivative warrants	16		3,960			11,002
			102,499			89,361
Non-current liabilities
Lease liabilities	17		136,136			139,625
Other liabilities			5,252			2,709
Total liabilities			243,887			231,695

Shareholders’ equity
Share capital	18(b)		2,365,845			2,292,810
Warrants			2,260			2,260
Contributed surplus			73,636			68,961
Contingent consideration			2,279			2,279
Accumulated deficit			(1,156,279	)		(1,091,999	)
Accumulated other comprehensive income			20,182			32,188
Total shareholders’ equity			1,307,923			1,306,499
Non-controlling interest			19,965			21,156
Total liabilities and shareholders’ equity			1,571,775			1,559,350

Commitments (note 27)

Subsequent events (notes 19 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 June 30						Six months ended June 30
	Note	2023			2022			2023			2022
Gross revenue	20		257,425			227,557			470,324			247,684
Excise taxes			12,914			3,862			23,361			6,392
Net revenue			244,511			223,695			446,963			241,292
Cost of sales	8		188,922			174,291			347,071			188,617
Inventory impairment and obsolescence	8		4,291			3,871			13,468			5,852
Gross margin before fair value adjustments			51,298			45,533			86,424			46,823
Change in fair value of biological assets			(1,413	)		(388	)		(4,948	)		3,302
Change in fair value realized through inventory			2,048			(2,066	)		2,998			(3,627	)
Gross margin			51,933			43,079			84,474			46,498

Interest and fee revenue	21		3,421			2,577			7,632			6,438
Investment loss	21		(4,020	)		(35,073	)		(9,189	)		(52,783	)
Share of profit (loss) of equity-accounted investees	15		(936	)		(37,978	)		8,580			(33,887	)

General and administrative			52,727			40,293			101,300			50,975
Sales and marketing			4,104			3,132			7,490			4,243
Research and development			20			390			160			485
Depreciation and amortization	10,11,13		13,443			8,800			29,911			9,539
Share-based compensation	19		3,893			438			6,102			4,642
Restructuring costs			4,042			(882	)		5,578			(882	)
Asset impairment	11,13		1,658			1,850			2,465			1,850
Loss from operations			(29,489	)		(81,416	)		(61,509	)		(104,586	)

Transaction costs			(173	)		7,938			(2,213	)		1,457
Finance costs, net	22		(2,458	)		(26,505	)		(7,631	)		(26,444	)
Change in estimate of fair value of derivative warrants	16		2,240			23,656			7,042			15,356
Foreign exchange gain (loss)			(31	)		161			(194	)		11
Gain (loss) on disposition of assets			(77	)		402			(261	)		402
Loss before income tax			(29,988	)		(75,764	)		(64,766	)		(113,804	)
Income tax recovery			—			1,791			—			1,791
Net loss from continuing operations			(29,988	)		(73,973	)		(64,766	)		(112,013	)
Net loss from discontinued operations	4		(3,170	)		—			(4,535	)		—
Net loss			(33,158	)		(73,973	)		(69,301	)		(112,013	)

Equity-accounted investees - share of other comprehensive income (loss)	15		(11,621	)		12,727			(12,006	)		5,994
Gain on translation of foreign operations			(5	)		—			—			—
Comprehensive loss			(44,784	)		(61,246	)		(81,307	)		(106,019	)

Net loss from continuing operations attributable to:
Owners of the Company			(29,350	)		(73,301	)		(63,553	)		(111,205	)
Non-controlling interest			(638	)		(672	)		(1,213	)		(808	)
			(29,988	)		(73,973	)		(64,766	)		(112,013	)
Net income (loss) attributable to:
Owners of the Company			(32,520	)		(73,301	)		(68,088	)		(111,205	)
Non-controlling interest			(638	)		(672	)		(1,213	)		(808	)
			(33,158	)		(73,973	)		(69,301	)		(112,013	)
Comprehensive income (loss) attributable to:
Owners of the Company			(44,146	)		(60,574	)		(80,094	)		(105,211	)
Non-controlling interest			(638	)		(672	)		(1,213	)		(808	)
			(44,784	)		(61,246	)		(81,307	)		(106,019	)
Net loss per common share attributable to owners of the Company
Basic and diluted	24	$	(0.12	)	$	(0.31	)	$	(0.26	)	$	(0.50	)

See accompanying notes to the condensed consolidated interim financial statements.

SNDL Inc.

Condensed Consolidated Interim Statement of Changes in Shareholders’ Equity

(Unaudited - expressed in thousands of Canadian dollars)


	Note	Share capital			Warrants		Contributed surplus			Contingent consideration		Accumulated deficit			Accumulated other comprehensive income			Non-controlling interest			Total
Balance at December 31, 2022			2,292,810			2,260		68,961			2,279		(1,091,999	)		32,188			21,156			1,327,655
Net loss			—			—		—			—		(68,088	)		—			(1,213	)		(69,301	)
Other comprehensive loss			—			—		—			—		—			(12,006	)		—			(12,006	)
Share repurchases	18(b)		(5,344	)		—		—			—		3,808			—			—			(1,536	)
Share issuances by subsidiaries			—			—		25			—		—			—			26			51
Acquisition	3(a)		83,953			—		—			—		—			—			—			83,953
Shares acquired and cancelled	18(b)		(6,615	)		—		—			—		—			—			—			(6,615	)
Share-based compensation	19		—			—		5,691			—		—			—			—			5,691
Employee awards exercised	18(b)		1,041			—		(1,041	)		—		—			—			—			—
Distribution declared by subsidiaries			—			—		—			—		—			—			(4	)		(4	)
Balance at June 30, 2023			2,365,845			2,260		73,636			2,279		(1,156,279	)		20,182			19,965			1,327,888

Balance at March 31, 2023			2,365,319			2,260		70,716			2,279		(1,123,759	)		31,808			20,587			1,369,210
Net loss			—			—		—			—		(32,520	)		—			(638	)		(33,158	)
Other comprehensive income			—			—		—			—		—			(11,626	)		—			(11,626	)
Share issuances by subsidiaries			—			—		37			—		—			—			22			59
Share-based compensation	19		—			—		3,409			—		—			—			—			3,409
Employee awards exercised	18(b)		526			—		(526	)		—		—			—			—			—
Distribution declared by subsidiaries			—			—		—			—		—			—			(6	)		(6	)
Balance at June 30, 2023			2,365,845			2,260		73,636			2,279		(1,156,279	)		20,182			19,965			1,327,888

SNDL Inc.

Condensed Consolidated Interim Statement of Changes in Shareholders’ Equity

(Unaudited - expressed in thousands of Canadian dollars)


	Note	Share capital			Warrants		Contributed surplus			Contingent consideration		Accumulated deficit			Accumulated other comprehensive income		Non- controlling interest			Total equity
Balance at December 31, 2021			2,035,704			8,092		60,734			2,279		(785,112	)		7,607		229			1,329,533
Net loss			—			—		—			—		(111,205	)		—		(808	)		(112,013	)
Other comprehensive income			—			—		—			—		—			5,994		—			5,994
Share issuances			2,870			—		—			—		—			—		—			2,870
Share repurchases			(5,170	)		—		—			—		3,117			—		—			(2,053	)
Share issuances by subsidiaries			—			—		57			—		—			—		35			92
Acquisition			287,129			—		—			—		—			—		58,250			345,379
Share-based compensation			—			—		5,992			—		—			—		95			6,087
Employee awards exercised			1,740			—		(1,740	)		—		—			—		—			—
Balance at June 30, 2022			2,322,273			8,092		65,043			2,279		(893,200	)		13,601		57,801			1,575,889

Balance at March 31, 2022			2,327,443			8,092		61,959			2,279		(823,016	)		874		58,343			1,635,974
Net loss			—			—		—			—		(73,301	)		—		(672	)		(73,973	)
Other comprehensive income			—			—		—			—		—			12,727		—			12,727
Share repurchases			(5,170	)		—		—			—		3,117			—		—			(2,053	)
Share issuances by subsidiaries			—			—		57			—		—			—		35			92
Share-based compensation			—			—		3,027			—		—			—		95			3,122
Balance at June 30, 2022			2,322,273			8,092		65,043			2,279		(893,200	)		13,601		57,801			1,575,889

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 June 30						Six months ended June 30
	Note	2023			2022			2023			2022
Cash provided by (used in):
Operating activities
Net loss for the period			(33,158	)		(73,973	)		(69,301	)		(112,013	)
Adjustments for:
Income tax recovery			—			(1,791	)		—			(1,791	)
Interest and fee revenue	21		(3,421	)		(2,577	)		(7,632	)		(6,438	)
Change in fair value of biological assets			1,413			388			4,948			(3,302	)
Share-based compensation	19		3,893			438			6,102			4,642
Depreciation and amortization	10,11,13		14,674			10,538			32,933			12,977
Loss (gain) on disposition of assets			77			(402	)		261			(402	)
Inventory obsolescence	8		4,291			3,871			13,468			5,852
Finance costs	22		2,458			26,505			7,631			26,444
Change in estimate of fair value of derivative warrants	16		(2,240	)		(23,656	)		(7,042	)		(15,356	)
Unrealized foreign exchange loss (gain)			(72	)		19			(24	)		35
Asset impairment			1,658			1,850			2,465			1,850
Share of (profit) loss of equity-accounted investees	15		936			37,978			(8,580	)		33,887
Loss on settlement of marketable securities	6,21		48,988			—			92,792			—
Unrealized (gain) loss on marketable securities	6,21		(44,968	)		35,338			(83,603	)		53,172
Additions to marketable securities			—			(2,899	)		—			(3,500	)
Proceeds from settlement of marketable securities	6		3,437			—			3,463			—
Income distributions from equity-accounted investees			—			—			—			685
Interest received			3,217			2,084			6,920			5,799
Change in non-cash working capital	23		(14,193	)		(31,584	)		(56,755	)		(46,434	)
Net cash used in operating activities from continuing operations			(13,010	)		(17,873	)		(61,954	)		(43,893	)
Net cash provided by operating activities from discontinued operations	4		4,167			—			4,314			—
Net cash used in operating activities			(8,843	)		(17,873	)		(57,640	)		(43,893	)
Investing activities
Additions to property, plant and equipment	11		(1,247	)		(3,554	)		(2,641	)		(4,535	)
Additions to intangible assets	13		(39	)		1			(56	)		(55	)
Additions to investments			125			337			(702	)		(14,094	)
Additions to equity-accounted investees	15		(9,443	)		(36,880	)		(16,989	)		(94,200	)
Proceeds from disposal of property, plant and equipment			55			4,000			137			4,000
Acquisitions, net of cash acquired	3		—			—			3,695			(31,149	)
Change in non-cash working capital	23		1,586			294			1,127			259
Net cash used in investing activities from continuing operations			(8,963	)		(35,802	)		(15,429	)		(139,774	)
Net cash used in investing activities from discontinued operations	4		—			—			—			—
Net cash used in investing activities			(8,963	)		(35,802	)		(15,429	)		(139,774	)
Financing activities
Change in restricted cash			(76	)		2,541			(118	)		7,607
Payments on lease liabilities, net			(10,116	)		(9,177	)		(19,607	)		(9,624	)
Repurchase of common shares, net of costs	18(b)		—			(2,053	)		(1,536	)		(2,053	)
Repayment of long-term debt			—			—			—			(10,000	)
Change in non-cash working capital	23		200			2,170			199			2,116
Net cash used in financing activities from continuing operations			(9,992	)		(6,519	)		(21,062	)		(11,954	)
Net cash used in financing activities from discontinued operations	4		—			—			—			—
Net cash used in financing activities			(9,992	)		(6,519	)		(21,062	)		(11,954	)
Change in cash and cash equivalents			(27,798	)		(60,194	)		(94,131	)		(195,621	)
Cash and cash equivalents, beginning of period			213,253			422,824			279,586			558,251
Cash and cash equivalents, end of period			185,455			362,630			185,455			362,630

See accompanying notes to the condensed consolidated interim financial statements.

SNDL Inc.

Notes to the Condensed Consolidated Interim Financial Statements

For the three and six months ended June 30, 2023

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

Description of business

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

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

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

SNDL and its subsidiaries 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”.

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 August 11, 2023.

Business acquisitions

Valens

On January 17, 2023, the Company acquired all of the issued and outstanding common shares of The Valens Company Inc. (“Valens”), other than those owned by SNDL and its subsidiaries, by way of a statutory plan of arrangement (the “Valens Transaction”). The Valens Transaction consideration was comprised of (i) the assumption of Valens’ $60 million non-revolving term loan facility from its then existing lender, 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).

SNDL Inc.

Notes to the Condensed Consolidated Interim Financial Statements

For the three and six months ended June 30, 2023

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

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.

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

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

The fair value of consideration paid was as follows:


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

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


	Provisional			Adjustments			Provisional
Cash		3,615			—			3,615
Accounts receivable		21,361			—			21,361
Investments		876			—			876
Prepaid expenses and deposits		4,980			—			4,980
Inventory		14,140			—			14,140
Assets held for sale		6,330			—			6,330
Right of use assets		2,882			—			2,882
Property, plant and equipment		63,030			(10,938	)		52,092
Intangible assets		2,285			(785	)		1,500
Goodwill		68,697			11,723			80,420
Accounts payable and accrued liabilities		(34,185	)		—			(34,185	)
Contractual obligation		(5,339	)		—			(5,339	)
Lease liabilities		(3,207	)		—			(3,207	)
		145,465			—			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 was sold and has been classified as held for sale and discontinued operations (note 4).

The financial statements incorporate the operations of Valens commencing January 18, 2023. During the period January 18, 2023 to June 30, 2023 the Company recorded revenues of $39.1 million and net loss of $25.8 million from the Valens operations. Had the Valens Transaction closed on January 1, 2023, management estimates that for the period January 1, 2023, to January 17, 2023, revenue would have increased by $4.2 million and net loss would have increased by $2.1 million. In determining these amounts, management assumes the fair values on the date of acquisition would have been the same as if the acquisition had occurred on January 1, 2023.

The Company incurred costs related to the Valens Transaction of $2.6 million which have been included in transaction costs.

SNDL Inc.

Notes to the Condensed Consolidated Interim Financial Statements

For the three and six months ended June 30, 2023

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

Superette

On February 7, 2023, the Company acquired the right, title and interest in (i) five Superette retail locations within Toronto and Ottawa; (ii) the intellectual property rights related to the Superette brand (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:



Extinguishment of promissory note		2,625
		2,625

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



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

The financial statements incorporate the operations of Superette commencing February 8, 2023. During the period February 8, 2023 to June 30, 2023 the Company recorded revenues of $1.7 million and net loss of $0.7 million from the Superette operations. Had the Superette Transaction closed on January 1, 2023, management estimates that for the period January 1, 2023, to February 7, 2023, revenue would have increased by $0.5 million and net loss would have increased by $0.1 million. In determining these amounts, management assumes the fair values on the date of acquisition would have been the same as if the acquisition had occurred on January 1, 2023.

The Company incurred costs related to the Superette Transaction of $0.6 million which have been included in transaction costs.

Discontinued operations

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

Green Roads filed for bankruptcy on March 6, 2023. 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 disposition of Green Roads closed on May 31, 2023 and a loss on disposition of $2.3 million was recorded.

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

SNDL Inc.

Notes to the Condensed Consolidated Interim Financial Statements

For the three and six months ended June 30, 2023

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

Results of discontinued operations


	Three months ended June 30					Six months ended June 30
	2023			2022		2023			2022
Net revenue		2,978			—		7,510			—
Cost of sales		1,640			—		3,841			—
Gross margin		1,338			—		3,669			—

General and administrative		1,302			—		3,639			—
Sales and marketing		687			—		1,817			—
Depreciation and amortization		231			—		450			—
Loss from operations		(882	)		—		(2,237	)		—

Finance costs		(6	)		—		(16	)		—
Loss on disposition		(2,282	)		—		(2,282	)		—
Net loss		(3,170	)		—		(4,535	)		—

Segment information

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

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

SNDL Inc.

Notes to the Condensed Consolidated Interim Financial Statements

For the three and six months ended June 30, 2023

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


	Liquor Retail		Cannabis Retail (1)		Cannabis Operations (2)			Investments (3)			Corporate			Total
As at June 30, 2023
Total assets		339,097		204,016		318,028			691,178			19,456			1,571,775
Six months ended June 30, 2023
Net revenue		267,601		139,289		40,073			—			—			446,963
Gross margin		61,627		33,599		(10,752	)		—			—			84,474
Interest and fee revenue		—		58		—			7,397			177			7,632
Investment (loss) income		—		—		(497	)		(8,692	)		—			(9,189	)
Share of profit (loss) of equity-accounted investees		—		—		—			8,580			—			8,580
Depreciation and amortization		18,507		7,051		1,796			—			2,557			29,911
Earnings (loss) from operations		6,271		2,287		(32,821	)		7,077			(44,323	)		(61,509	)
Income (loss) before income tax		3,751		477		(32,951	)		3,453			(39,496	)		(64,766	)
Three months ended June 30, 2023
Net revenue		151,690		71,881		20,940			—			—			244,511
Gross margin		35,360		17,780		(1,207	)		—			—			51,933
Interest and fee revenue		—		58		—			3,186			177			3,421
Investment (loss) income		—		—		(214	)		(3,806	)		—			(4,020	)
Share of profit (loss) of equity-accounted investees		—		—		—			(936	)		—			(936	)
Depreciation and amortization		8,161		3,361		650			—			1,271			13,443
Earnings (loss) from operations		8,207		2,340		(14,134	)		(1,660	)		(24,242	)		(29,489	)
Income (loss) before income tax		6,714		1,221		(13,831	)		(1,917	)		(22,175	)		(29,988	)

(1)

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

(2)

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

(3)

Total assets include cash and cash equivalents.


	Liquor Retail (1)		Cannabis Retail (1)		Cannabis Operations			Investments (2)			Corporate			Total
As at December 31, 2022
Total assets		351,338		200,393		163,130			825,151			19,338			1,559,350
Six months ended June 30, 2022
Net revenue		149,947		71,006		20,339			—			—			241,292
Gross margin		33,812		17,190		(4,504	)		—			—			46,498
Interest and fee revenue		—		—		—			6,438			—			6,438
Investment loss		—		—		—			(52,783	)		—			(52,783	)
Share of profit (loss) of equity-accounted investees		—		—		—			(33,887	)		—			(33,887	)
Depreciation and amortization		2,799		2,842		9			—			3,889			9,539
Earnings (loss) from operations		11,215		1,196		(11,257	)		(79,668	)		(26,072	)		(104,586	)
Income (loss) before income tax		8,306		167		(11,000	)		(101,973	)		(9,304	)		(113,804	)
Three months ended June 30, 2022
Net revenue		148,637		63,494		11,564			—			—			223,695
Gross margin		33,528		13,897		(4,346	)		—			—			43,079
Interest and fee revenue		—		—		—			2,577			—			2,577
Investment loss		—		—		—			(35,073	)		—			(35,073	)
Share of profit (loss) of equity-accounted investees		—		—		—			(37,978	)		—			(37,978	)
Depreciation and amortization		2,799		2,247		—			—			3,754			8,800
Earnings (loss) from operations		11,288		1,476		(8,293	)		(69,973	)		(15,914	)		(81,416	)
Income (loss) before income tax		8,379		447		(8,036	)		(92,278	)		15,724			(75,764	)

(1)

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

(2)

Total assets include cash and cash equivalents.

SNDL Inc.

Notes to the Condensed Consolidated Interim Financial Statements

For the three and six months ended June 30, 2023

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

Geographical disclosure

As at June 30, 2023, the Company had non-current assets related to investment credit operations in the United States of $532.8 million (December 31, 2022 – $519.3 million). For the six months ended June 30, 2023, share of profit of equity-accounted investees related to operations in the United States was a gain of $8.6 million (six months ended June 30, 2022 – loss of $33.9 million). All other non-current assets relate to operations in Canada and revenues from external customers relate to operations in Canada.

Marketable securities


As at	June 30, 2023			December 31, 2022
Balance, beginning of year		21,926			83,724
Acquisition (note 3(a))		876			—
Additions		—			3,755
Dispositions		(10,078	)		—
Change in fair value recognized in profit or loss		(9,189	)		(65,553	)
Balance, end of period		3,535			21,926

biological assets

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


As at	June 30, 2023			December 31, 2022
Balance, beginning of year		3,477			4,410
Increase in biological assets due to capitalized costs		15,214			27,749
Acquisition		—			909
Net change in fair value of biological assets		(4,948	)		(1,309	)
Transferred to inventory upon harvest		(12,413	)		(28,282	)
Balance, end of period		1,330			3,477

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

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

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


Assumption	Input	Weighted average input				Effect of 10% change ($000s)
		June 30 2023		December 31 2022		June 30 2023		December 31 2022
Yield per square foot of growing space (1)	Grams		48		48		83		279
Average net selling price (2)	$/gram		5.62		4.66		221		687
After harvest cost to complete and sell	$/gram		1.15		1.27		47		187

(1)

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

(2)

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

SNDL Inc.

Notes to the Condensed Consolidated Interim Financial Statements

For the three and six months ended June 30, 2023

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

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

The Company estimates the harvest yields for cannabis at various stages of growth. As at June 30, 2023, it is estimated that the Company’s biological assets will yield approximately 2,348 kilograms (December 31, 2022 – 3,904 kilograms) of dry cannabis when harvested. During the six months ended June 30, 2023, the Company harvested 10,865 kilograms of dry cannabis (six months ended June 30, 2022 – 12,263 kilograms).

Inventory


As at	June 30, 2023		December 31, 2022
Retail liquor		105,520		82,589
Harvested cannabis
Raw materials, packaging and components		7,242		4,577
Extracted cannabis & hemp oils		11,504		—
Work-in-progress		13,332		19,927
Finished goods		7,210		7,040
Retail cannabis		15,599		13,373
Millwork		—		276
		160,407		127,782

During the three and six months ended June 30, 2023, inventories of $188.9 million and $347.1 million were recognized in cost of sales as an expense (three and six months ended June 30, 2022 – $174.3 million and $188.6 million).

During the three and six months ended June 30, 2023, the Company recognized inventory write downs of $4.4 million and $13.6 million (three and six months ended June 30, 2022 – $4.4 million and $7.2 million), of which $4.3 million and $13.5 million (three and six months ended June 30, 2022 – $3.9 million and $5.9 million) was recognized as an impaired and obsolete inventory provision, and $0.1 million and $0.1 million (six months ended June 30, 2022 – $0.5 million and $1.3 million) was included in the change in fair value realized through inventory as the fair value component of the impaired and obsolete inventory provision.

Assets held for sale

At June 30, 2023, assets held for sale was comprised of the following:


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

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

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

SNDL Inc.

Notes to the Condensed Consolidated Interim Financial Statements

For the three and six months ended June 30, 2023

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

10.

Right of use assets


Cost
Balance at December 31, 2022			167,067
Acquisition (note 3(a), note3(b))			4,011
Additions			778
Renewals, remeasurements and dispositions			13,683
Balance at June 30, 2023			185,539

Accumulated depreciation and impairment
Balance at December 31, 2022			32,913
Depreciation			15,679
Balance at June 30, 2023			48,592

Net book value
Balance at December 31, 2022			134,154
Balance at June 30, 2023			136,947

During the six months ended June 30, 2023, renewals, remeasurements and dispositions of $13.7 million mainly related to lease renewals.

11.

Property, plant and equipment


	Land		Production facilities			Leasehold improvements			Equipment			Construction in progress (“CIP”)			Total
Cost
Balance at December 31, 2022		11,964		154,234			70,814			78,922			9,454			325,388
Acquisition (note 3(a), note3(b))		8,661		24,330			3,660			17,518			—			54,169
Additions		—		—			1,200			2,196			(764	)		2,632
Dispositions		—		(29	)		(289	)		(817	)		—			(1,135	)
Balance at June 30, 2023		20,625		178,535			75,385			97,819			8,690			381,054

Accumulated depreciation and impairment
Balance at December 31, 2022		—		132,007			15,369			28,782			5,821			181,979
Depreciation		—		1,124			6,377			8,567			—			16,068
Impairment		—		—			458			1,362			—			1,820
Dispositions		—		—			(273	)		(381	)		—			(654	)
Balance at June 30, 2023		—		133,131			21,931			38,330			5,821			199,213

Net book value
Balance at December 31, 2022		11,964		22,227			55,445			50,140			3,633			143,409
Balance at June 30, 2023		20,625		45,404			53,454			59,489			2,869			181,841

During the six months ended June 30, 2023, depreciation expense of $3.0 million was capitalized to biological assets and inventory (six months ended June 30, 2022 – $3.4 million).

During the six months ended June 30, 2023, the Company determined that indicators of impairment existed relating to idle machinery and equipment. The estimated recoverable amount of the assets was determined to be nil and an impairment of $1.4 million was recorded. The impairment was recognized in the Company’s cannabis operations reporting segment.

During the six months ended June 30, 2023, the Company determined that indicators of impairment existed relating to its retail stores due to underperforming operating results of certain stores. For impairment testing of retail

SNDL Inc.

Notes to the Condensed Consolidated Interim Financial Statements

For the three and six months ended June 30, 2023

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

property, plant and equipment the Company determined that a cash generating unit (“CGU”) was defined as each individual retail store. The Company completed impairment tests for each store location determined to have an indicator of potential impairment using a discounted cash flow methodology. The recoverable amounts for each CGU were based on the higher of its estimated value in use (“VIU”) and fair value less costs of disposal (“FVLCD”) using level 3 inputs. The significant assumptions applied in the impairment test are described below:

•

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

•

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

•

Long-term growth rate: Five years of cash flows have been included in the discounted cash flow models. Where a CGU’s lease terms do not define the forecast period, maintainable debt-free net cash flow beyond the forecast period is estimated to approximate the fifth-year cash flows increased by a terminal growth rate of 2.5% and is based on the industry’s expected growth rates, forecast inflation rates and management’s experience.

As at June 30, 2023, the Company recorded impairment losses of property, plant and equipment of $0.5 million in the cannabis retail reporting segment.

12.

Net investment in subleases


	June 30, 2023			December 31, 2022
Balance, beginning of year		23,319			26,562
Additions		832			1,408
Finance income		435			833
Rents recovered (payments made directly to landlords)		(2,012	)		(4,141	)
Dispositions and remeasurements		—			(1,343	)
Balance, end of period		22,574			23,319

Current portion		3,656			3,701
Long-term		18,918			19,618

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

SNDL Inc.

Notes to the Condensed Consolidated Interim Financial Statements

For the three and six months ended June 30, 2023

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

13.

Intangible assets


	Brands and trademarks		Franchise agreements		Software		Retail Licenses		Total
Cost
Balance at December 31, 2022		80,400		10,000		5,542		750		96,692
Acquisition (note 3(a))		1,500		—		—		—		1,500
Additions		—		—		56		—		56
Balance at June 30, 2023		81,900		10,000		5,598		750		98,248

Accumulated amortization and impairment
Balance at December 31, 2022		19,317		1,811		679		—		21,807
Amortization		106		620		462		—		1,188
Impairment		807		—		—		—		807
Balance at June 30, 2023		20,230		2,431		1,141		—		23,802

Net book value
Balance at December 31, 2022		61,083		8,189		4,863		750		74,885
Balance at June 30, 2023		61,670		7,569		4,457		750		74,446

During the six months ended June 30, 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	June 30, 2023		December 31, 2022
Investments at amortized cost		24,328		24,493
Investments at FVTPL		8,348		72,761
		32,676		97,254

Current portion		23,038		6,552
Long-term		9,638		90,702

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

Valens

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

Superette

On February 7, 2023, the Company announced that it had successfully closed the Superette Transaction (note 3(b)). The Company has adjusted the fair value of the Superette promissory note downward by $5.4 million ($1.7 million during the six months ended June 30, 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)).

SNDL Inc.

Notes to the Condensed Consolidated Interim Financial Statements

For the three and six months ended June 30, 2023

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

15.

Equity-accounted investees


As at	June 30, 2023		December 31, 2022
Interest in joint venture		532,818		519,255

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

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

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

As at June 30, 2023, the Company had funded $531.7 million out of the total $538.0 million that was originally committed to SunStream.

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


	Carrying amount
Balance at December 31, 2022		519,255
Capital contributions		16,989
Share of net earnings (loss)		8,580
Share of other comprehensive income (loss)		(12,006	)
Balance at June 30, 2023		532,818

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	June 30, 2023			December 31, 2022
Current assets (including cash and cash equivalents - 2023: $2.0 million, 2022: $1.5 million)		8,720			5,437
Non-current assets		520,211			509,418
Current liabilities		(662	)		(1,146	)
Net assets (liabilities) (100%)		528,269			513,709

Six months ended June 30	2023			2022
Revenue (loss)		12,280			(29,853	)
Profit (loss) from operations		8,933			(33,548	)
Other comprehensive income (loss)		(12,006	)		7,785
Total comprehensive income (loss)		(3,026	)		(25,751	)

SNDL Inc.

Notes to the Condensed Consolidated Interim Financial Statements

For the three and six months ended June 30, 2023

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

16.

Derivative warrants


	June 30, 2023			December 31, 2022
Balance, beginning of year		11,002			21,700
Change in fair value recognized in profit or loss		(7,042	)		(10,783	)
Acquisition		—			85
Balance, end of period		3,960			11,002

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


	Exercise price (USD)		Number of warrants		Weighted average contractual life
2020 Series A Warrants (1)		1.77		50,000		2.1
Unsecured Convertible Notes Warrants (1)		1.77		50,000		0.5
New Warrants		2.29		9,833,333		1.1
December 2018 Performance Warrants	CAD 5.51			118,067		0.5
				10,051,400		1.1

(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


	June 30, 2023			December 31, 2022
Balance, beginning of year		169,831			33,470
Acquisitions (note 3(a), note3(b))		4,336			142,106
Additions		1,610			7,497
Lease payments		(21,619	)		(31,834	)
Renewals, remeasurements and dispositions		13,721			10,890
Tenant inducement allowances received		—			1,799
Accretion expense		4,239			5,903
Balance, end of period		172,118			169,831

Current portion		35,982			30,206
Long-term		136,136			139,625

During the six months ended June 30, 2023, renewals, remeasurements and dispositions of $13.7 million mainly related to lease renewals.

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


	June 30, 2023
Less than one year		40,975
One to three years		68,457
Three to five years		50,294
Thereafter		41,634
Minimum lease payments		201,360

SNDL Inc.

Notes to the Condensed Consolidated Interim Financial Statements

For the three and six months ended June 30, 2023

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

18.

Share capital and warrants

(a)

Authorized

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

(b)

Issued and outstanding


		June 30, 2023						December 31, 2022
	Note	Number of Shares			Carrying Amount			Number of Shares			Carrying Amount
Balance, beginning of year			235,194,236			2,292,810			206,040,836			2,035,704
Share issuances			—			—			370,179			2,870
Share repurchases			(546,700	)		(5,344	)		(4,252,489	)		(41,617	)
Acquisition	3(a)		27,605,782			83,953			32,060,135			287,129
Shares acquired and cancelled			(2,175,023	)		(6,615	)		—			—
Employee awards exercised			181,883			1,041			975,575			8,724
Balance, end of period			260,260,178			2,365,845			235,194,236			2,292,810

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

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

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 June 30					Six months ended June 30
	2023		2022			2023			2022
Equity-settled expense
Simple warrants (A)		2		599			(335	)		1,146
Performance warrants (A)		—		—			—			—
Stock options (B)		3		23			(2	)		52
Restricted share units (1) (C)		3,485		2,253			6,109			4,642
Cash-settled expense
Deferred share units (1)(2) (D)		403		(2,437	)		330			(1,198	)
		3,893		438			6,102			4,642

(1)

For the six months ended June 30, 2023, the Company recognized share-based compensation expense under Nova’s RSU plan of $21 and share-based compensation expense under Nova’s DSU plan of $201.

SNDL Inc.

Notes to the Condensed Consolidated Interim Financial Statements

For the three and six months ended June 30, 2023

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

(2)

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

Equity-settled plans

Simple and performance warrants

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

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


	Simple warrants outstanding			Weighted average exercise price		Performance warrants outstanding			Weighted average exercise price
Balance at December 31, 2022		165,820		$	46.91		123,200		$	42.26
Forfeited		(34,560	)		64.99		(44,800	)		62.05
Expired		(12,480	)		6.25		(16,000	)		14.07
Balance at June 30, 2023		118,780		$	45.92		62,400		$	35.28

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


	Warrants outstanding						Warrants exercisable
Range of exercise prices	Number of warrants		Weighted average exercise price		Weighted average contractual life (years)		Number of warrants		Weighted average exercise price		Weighted average contractual life (years)
Simple warrants
$6.25 - $9.38		47,500		7.83		1.21		47,500		7.83		1.21
$29.69 - $45.31		27,120		31.26		1.11		26,320		31.02		1.05
$62.50 - $93.75		33,920		63.97		3.56		33,920		63.97		3.56
$125.00 - $312.50		10,240		201.58		3.69		8,640		200.71		3.40
		118,780	$	45.92		2.07		116,380	$	43.76		2.02
Performance warrants
$6.25 - $9.38		21,866		6.63	n/a			21,866		6.63		1.63
$12.50 - $18.75		5,334		14.07	n/a			5,334		14.07		1.94
$29.69 - $45.31		23,200		32.60	n/a			23,200		32.60		1.78
$62.50 - $93.75		9,334		77.68	n/a			1,334		93.75		2.67
$125.00 - $218.75		2,666		187.50	n/a			—		—	n/a
		62,400	$	35.28	n/a			51,734	$	21.29		1.76

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 six months ended June 30, 2023:

SNDL Inc.

Notes to the Condensed Consolidated Interim Financial Statements

For the three and six months ended June 30, 2023

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


	Stock options outstanding			Weighted average exercise price
Balance at December 31, 2022		44,360		$	13.24
Forfeited		(11,741	)		11.63
Expired		(100	)		31.50
Balance at June 30, 2023		32,519		$	13.77

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


	Stock options outstanding				Stock options exercisable
Exercise prices	Number of options		Weighted average contractual life (years)		Number of options		Weighted average contractual life (years)
$11.50		20,834		6.91		20,834		6.91
$11.90		8,160		6.99		8,160		6.99
$31.50		3,525		5.13		3,225		5.05
		32,519		6.74		32,219		6.75

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 six months ended June 30, 2023:


	RSUs outstanding
Balance at December 31, 2022		1,381,330
Granted		7,836,492
Forfeited		(276,613	)
Exercised		(195,052	)
Balance at June 30, 2023		8,746,157

At June 30, 2023, no RSUs were vested or exercisable. Subsequent to June 30, 2023, 222,617 RSUs vested and were exercised.

Cash-settled plans

Deferred share units

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

As at June 30, 2023, the Company recognized a liability of $2.4 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 six months ended June 30, 2023:

SNDL Inc.

Notes to the Condensed Consolidated Interim Financial Statements

For the three and six months ended June 30, 2023

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

At June 30, 2023, 1.2 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 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 June 30				Six months ended June 30
	2023		2022		2023		2022
Liquor retail revenue		151,690		148,637		267,601		149,947
Cannabis retail revenue
Retail		67,423		60,082		131,523		65,521
Franchise		1,799		2,065		3,566		4,115
Other		2,659		1,347		4,200		1,370
Cannabis retail revenue		71,881		63,494		139,289		71,006
Cannabis operations revenue
Provincial boards		31,714		14,893		57,843		24,625
Medical		3		3		24		6
Wholesale		1,780		530		4,929		2,100
Analytical testing		357		—		638		—
Cannabis operations revenue		33,854		15,426		63,434		26,731
Gross revenue		257,425		227,557		470,324		247,684

21.

Investment revenue (LOSS)


	Three months ended June 30				Six months ended June 30
	2023		2022		2023		2022
Interest and fee revenue
Interest revenue from investments at amortized cost		980		818		1,986		1,813
Interest and fee revenue from investments at FVTPL		250		543		874		2,659
Interest revenue from cash		2,191		1,216		4,772		1,966
		3,421		2,577		7,632		6,438


	Three months ended June 30						Six months ended June 30
	2023			2022			2023			2022
Investment loss
Realized (losses) gains (note 6)		(48,988	)		265			(92,792	)		389
Unrealized gains (losses) (note 6)		44,968			(35,338	)		83,603			(53,172	)
		(4,020	)		(35,073	)		(9,189	)		(52,783	)

SNDL Inc.

Notes to the Condensed Consolidated Interim Financial Statements

For the three and six months ended June 30, 2023

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

22.

Finance costs


	Three months ended June 30						Six months ended June 30
	2023			2022			2023			2022
Cash finance expense
Other finance costs		17			145			45			169
		17			145			45			169
Non-cash finance expense (income)
Change in fair value of investments at FVTPL		257			22,305			3,625			22,305
Accretion on lease liabilities		2,293			3,928			4,239			4,268
Financial guarantee liability (recovery) expense		—			65			(139	)		(77	)
Other		106			189			296			189
		2,656			26,487			8,021			26,685
Interest income		(215	)		(127	)		(435	)		(410	)
		2,458			26,505			7,631			26,444

23.

supplemental cash flow disclosures


	Three months ended June 30						Six months ended June 30
	2023			2022			2023			2022
Cash provided by (used in):
Accounts receivable		1,227			(715	)		9,323			(2,565	)
Biological assets		(948	)		813			(2,801	)		5,182
Inventory		(11,506	)		(4,543	)		(31,932	)		(12,949	)
Prepaid expenses and deposits		(1,938	)		(1,543	)		(7,765	)		58
Investments		148			383			480			431
Right of use assets		8,488			(1,151	)		(764	)		(1,151	)
Property, plant and equipment		61			—			73			—
Accounts payable and accrued liabilities		551			(24,578	)		(22,818	)		(35,279	)
Lease liabilities		(8,490	)		2,214			775			2,214
		(12,407	)		(29,120	)		(55,429	)		(44,059	)

Changes in non-cash working capital relating to:
Operating		(14,193	)		(31,584	)		(56,755	)		(46,434	)
Investing		1,586			294			1,127			259
Financing		200			2,170			199			2,116
		(12,407	)		(29,120	)		(55,429	)		(44,059	)

SNDL Inc.

Notes to the Condensed Consolidated Interim Financial Statements

For the three and six months ended June 30, 2023

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

24.

Loss per share


	Three months ended June 30						Six months ended June 30
	2023			2022			2023			2022
Weighted average shares outstanding (000s)
Basic and diluted (1)		260,228			238,436			257,905			222,380
Continuing operations
Net loss attributable to owners of the Company		(29,350	)		(73,301	)		(63,553	)		(111,205	)
Per share - basic and diluted	$	(0.11	)	$	(0.31	)	$	(0.24	)	$	(0.50	)
Discontinued operations
Net loss attributable to owners of the Company		(3,170	)		—			(4,535	)		—
Per share - basic and diluted		(0.01	)		—		$	(0.02	)	$	—
Net loss attributable to owners of the Company		(32,520	)		(73,301	)		(68,088	)		(111,205	)
Per share - basic and diluted	$	(0.12	)	$	(0.31	)	$	(0.26	)	$	(0.50	)

(1)

For the six months ended June 30, 2023, there were 0.3 million equity classified warrants, 9.9 million derivative warrants, 0.1 million simple warrants, 0.1 million performance warrants, 0.03 million stock options and 8.7 million RSUs that were excluded from the calculation as the impact was anti-dilutive (six months ended June 30, 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 2.2 million RSUs).

25.

Financial instruments

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

Fair value

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

SNDL Inc.

Notes to the Condensed Consolidated Interim Financial Statements

For the three and six months ended June 30, 2023

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

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


			Fair value measurements using
June 30, 2023	Carrying amount		Level 1		Level 2		Level 3
Recurring measurements:
Financial assets
Marketable securities		3,535		3,535		—		—
Investments at FVTPL		8,348		—		—		8,348
Financial liabilities
Derivative warrants (1)		3,960		—		—		3,960

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

(1)

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

At June 30, 2023, a 10% change in the material assumptions would change the estimated fair value of derivative warrant liabilities by approximately $0.8 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 six months ended June 30, 2023, the Company paid $83.4 thousand in total rent with respect to this lease.

27.

Commitments and contingencies

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


	Less than one year		One to three years		Three to five years		Thereafter		Total
Accounts payable and accrued liabilities		62,557		—		—		—		62,557
Financial guarantee liability		—		268		—		—		268
Contractual obligation		—		2,553		—		—		2,553
Balance, end of year		62,557		2,821		—		—		65,378

SNDL Inc.

Notes to the Condensed Consolidated Interim Financial Statements

For the three and six months ended June 30, 2023

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

(a)

Commitments

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

(b)

Contingencies

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

28.

Subsequent events

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, pursuant to the implementation agreement entered into between SNDL and Nova dated December 20, 2022, as amended on April 3, 2023 (the “Implementation Agreement”).

On June 1, 2023, SNDL announced that it had amended the terms of the plan of arrangement (the “Original Plan of Arrangement”), and such amended form of the Original Plan of Arrangement being (the “Amended Plan of Arrangement”) approved by the SNDL shareholders at its annual and special meeting of shareholders held on July 25, 2022, pursuant to which SNDL intends to distribute certain of its Nova common shares (“Nova Shares”) to SNDL shareholders. Under the terms of the Amended Plan of Arrangement, among other things, (i) SNDL shareholders who would have been entitled to receive at least one “lot” of Nova Shares from the Nova Shares being distributed (the “Distributed Nova Shares”) had they been distributed to all SNDL shareholders on a pro rata basis (the “Eligible Holders”) will receive Nova Shares with the new SNDL common shares to which they were entitled under the Original Plan of Arrangement (“New SNDL Shares”), and (ii) all SNDL shareholders other than the Eligible Holders will receive, together with their New SNDL Shares, cash in lieu of the fractional Nova Shares that they would have been entitled to receive had the Distributed Nova Shares been distributed to all SNDL shareholders on a pro rata basis. The number of Nova Shares that would be considered a “lot” will be determined by SNDL’s Board of Directors (the “SNDL Board”), provided that a “lot” must be between one Nova Share and 500 Nova Shares. All other terms of the Amended Plan of Arrangement remain substantially similar to those of the Original Plan of Arrangement. A Final Order (the “Final Order”) of the Court of Kings Bench of Alberta (the “Court”) approving the Amended Plan of Arrangement and transactions contemplated thereby (collectively, the “Share Distribution”) was granted on May 26, 2023, and, subject

SNDL Inc.

Notes to the Condensed Consolidated Interim Financial Statements

For the three and six months ended June 30, 2023

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

to the SNDL Board determining the meaning of a “lot” of Nova Shares, the Company is now authorized by the Court to complete the Share Distribution.

The completion of the Share Distribution remains subject to certain closing conditions set out in the Implementation Agreement, including the receipt of certain key regulatory approvals and the amendment to certain terms of the Nova Transaction that are mutually satisfactory to SNDL and Nova. SNDL continues to work with regulators to ensure that the Nova Transaction is in compliance with regulations in all relevant jurisdictions. Pursuant to the Final Order and the Implementation Agreement, the Share Distribution is expected to be completed as part of the closing of the Nova Transaction. Subject to the satisfaction or waiver of all of the conditions precedent which include, but are not limited to, the receipt of certain key regulatory approvals from applicable provincial cannabis regulators and the Toronto Stock Exchange, the Nova Transaction was expected to close on or before June 30, 2023.

Due to ongoing review by regulators with respect to required approvals, on June 30, 2023, SNDL and Nova extended the outside date for closing of the Nova Transaction to on or before July 25, 2023, and on July 25, 2023, SNDL and Nova extended the outside date for closing of the Nova Transaction to on or before August 25, 2023.