SNDL Inc. Condensed Consolidated Interim Financial Statements For the three and nine months ended

Condensed Consolidated Interim Financial Statements

For the three and nine months ended September 30, 2022

(Unaudited - expressed in thousands of Canadian dollars)

Condensed Consolidated Interim Statement of Financial Position

(Unaudited - expressed in thousands of Canadian dollars)

Commitments (note 25)

Subsequent events (notes 18 and 26)

See accompanying notes to the condensed consolidated interim financial statements.

Condensed Consolidated Interim Statement of Loss and Comprehensive Loss

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

See accompanying notes to the condensed consolidated interim financial statements.

Condensed Consolidated Interim Statement of Changes in Shareholders' Equity

(Unaudited - expressed in thousands of Canadian dollars)

Condensed Consolidated Interim Statement of Changes in Shareholders' Equity

(Unaudited - expressed in thousands of Canadian dollars)

See accompanying notes to the condensed consolidated interim financial statements.

Condensed Consolidated Interim Statement of Cash Flows

(Unaudited - expressed in thousands of Canadian dollars)

See accompanying notes to the condensed consolidated interim financial statements.

Notes to the Condensed Consolidated Interim Financial Statements

For the three and nine months ended September 30, 2022

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

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 production, distribution and sale of cannabis in Canada 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. Through its joint venture, SunStream Bancorp Inc. (note 14), the Company provides growth capital that pursues indirect investment and financial services opportunities in the global 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".

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 ("IASB") and interpretations of the International Financial Reporting Interpretations Committee ("IFRIC"). 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, 2021. These financial statements should be read in conjunction with the annual consolidated financial statements for the Company for the year ended December 31, 2021.

These financial statements were approved and authorized for issue by the Board of Directors ("Board") on November 14, 2022.

On October 7, 2021, the Company announced that it had entered into an arrangement agreement with Alcanna Inc. ("Alcanna") pursuant to which the Company would acquire all of the issued and outstanding common shares of Alcanna by way of a statutory plan of arrangement (the "Alcanna Transaction"). The Company and Alcanna amended the arrangement agreement in respect of the Alcanna Transaction on January 6, 2022, and the Alcanna Transaction closed on March 31, 2022. Alcanna is a Canadian liquor retailer, operating predominantly in Alberta under its three retail brands, "Wine and Beyond", "Liquor Depot" and "Ace Liquor". Alcanna holds an approximate 63% equity interest in Nova, a Canadian cannabis retailer operating stores across Alberta, Saskatchewan and Ontario, under its "Value Buds" retail brand. The Company is deemed to control Nova through its equity interest and Nova's results are included in the financial statements of the Company with the minority interest shown as non-controlling interest through equity.

Alcanna was acquired to diversify and stabilize cash flows and advance the Company's vertical integration strategy.

Notes to the Condensed Consolidated Interim Financial Statements

For the three and nine months ended September 30, 2022

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

The Alcanna Transaction consideration was comprised of (i) an aggregate $54.3 million cash ($1.50 in cash for each Alcanna common share), and (ii) an aggregate 32.1 million SNDL common shares valued at $287.1 million based on the fair value of each common share of the Company on the closing date (0.885 of a SNDL common share for each Alcanna common share).

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 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:

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

Non-controlling interest has been measured as the fair value of the non-controlling interest in Nova, which at the time was 37%, and was measured by applying a market approach with reference to Nova's closing share price on the day of the Alcanna Transaction of $2.66.

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.

On March 31, 2022, the Company repaid in full the acquired long-term debt balance of $10.0 million.

The financial statements incorporate the operations of Alcanna commencing March 31, 2022. During the three months ended September 30, 2022, the Company recorded revenues of $211.4 million and net earnings of $3.8 million from the Alcanna operations. From the date of acquisition on March 31, 2022, to September 30, 2022, the Company recorded revenues of $418.3 million and net earnings of $4.5 million for the Alcanna operations. Had the Alcanna Transaction closed on January 1, 2022, management estimates that for the period January 1, 2022, to March 30, 2022, revenue would have increased by $162.5 million and net loss would have increased by $6.1 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, 2022.

Notes to the Condensed Consolidated Interim Financial Statements

For the three and nine months ended September 30, 2022

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

The Company incurred costs related to the Alcanna Transaction of $7.1 million which have been included in transaction costs.

On May 5, 2021, the Company and Inner Spirit Holdings Ltd. ("Inner Spirit") announced that they had entered into an arrangement agreement pursuant to which the Company acquired all of the issued and outstanding common shares of Inner Spirit (the "Inner Spirit Transaction"). The Inner Spirit Transaction closed on July 20, 2021. Inner Spirit is a retailer and franchisor of Spiritleaf recreational cannabis stores across Canada, with a network that included more than 100 franchised and corporate-owned locations at the acquisition date.

The Company 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 fair value of consideration paid was as follows:

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

The Company recorded adjustments to the fair value in the third quarter of 2022 to reflect additional information and greater certainty with respect to management estimates pertaining to facts and circumstances that were either unknown or uncertain at the date of acquisition. These adjustments related to changes in preliminary valuation assumptions, including refinement of accounts receivable, inventory, net investment in subleases, lease liabilities and amounts allocated to intangible assets and a deferred tax liability. All measurement period adjustments were offset to goodwill.

The Company made retrospective adjustments to provisional amounts in the comparative period as follows:

Notes to the Condensed Consolidated Interim Financial Statements

For the three and nine months ended September 30, 2022

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

Inner Spirit goodwill and intangible asset impairment

At September 30, 2022, the Company recorded impairments to goodwill of $67.9 million and intangible assets with indefinite useful lives of $16.4 million due to changes in circumstances since the date of the acquisition, mainly caused by the continued oversaturation of the cannabis retail market. The goodwill and intangible asset impairments were recognized in the cannabis retail reportable segment. The estimated recoverable amount was determined to be its value in use and was $40.0 million using a discount rate of 19.5%.

The Company's reportable segments are organized by business line, and with the acquisition of Alcanna, 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 recreational 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 in Canada. Investments include the deployment of capital to investment opportunities. Certain overhead expenses not directly attributable to any operating segment are reported as "Corporate".

Notes to the Condensed Consolidated Interim Financial Statements

For the three and nine months ended September 30, 2022

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

Geographical disclosure

As at September 30, 2022, the Company had non-current assets related to investment credit operations in the United States of $526.7 million (December 31, 2021 - $412.9 million). For the nine months ended September 30, 2022, share of profit of equity-accounted investees related to operations in the United States was a loss of $24.7 million (nine months ended September 30, 2021 - gain of $13.6 million).

Securities collateral was comprised of a cash balance to satisfy margin requirements on the Company's option trading position.

The Company has secured insurance coverage for its directors and officers through two separate captive insurance structures.

Notes to the Condensed Consolidated Interim Financial Statements

For the three and nine months ended September 30, 2022

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

During the nine months ended September 30, 2021, proceeds of $29.7 million were received from dispositions of marketable securities and a gain on disposition of $18.2 million was recognized (note 21).

Marketable securities have been designated as Fair Value Through Profit or Loss ("FVTPL") (note 24).

The components of marketable securities are as follows:

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 are as follows:

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:

Notes to the Condensed Consolidated Interim Financial Statements

For the three and nine months ended September 30, 2022

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

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

The Company estimates the harvest yields for cannabis at various stages of growth. As at September 30, 2022, it is estimated that the Company's biological assets will yield approximately 3,274 kilograms (December 31, 2021 - 5,672 kilograms) of dry cannabis when harvested. During the nine months ended September 30, 2022, the Company harvested 16,642 kilograms of dry cannabis (nine months ended September 30, 2021 - 11,628 kilograms).