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, 2024

(Unaudited expressed in thousands of Canadian dollars)

Condensed Consolidated Interim Statements of Financial Position

(Unaudited - expressed in thousands of Canadian dollars)

Commitments (note 24)

Subsequent events (notes 12, 16(b) and 25)

See accompanying notes to the condensed consolidated interim financial statements.

Condensed Consolidated Interim Statements 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 Statements of Changes in Shareholders' Equity

(Unaudited - expressed in thousands of Canadian dollars)

Condensed Consolidated Interim Statements 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 Statements 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, 2024

(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. As at September 30, 2024, the Company also owned approximately 65% of Nova Cannabis Inc. ( Nova ), whose principal activities are the retail sale of cannabis (note 25).

SNDL and its subsidiaries operate solely in Canada. Through its joint venture, SunStream Bancorp Inc. ( SunStream ) (note 13), 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 liquor retail operations are seasonal in nature. Accordingly, sales will vary by quarter based on consumer spending behaviour. The Company is able to adjust certain variable costs in response to seasonal revenue patterns; however, costs such as occupancy are fixed, causing the Company to report a higher level of earnings in the third and fourth quarters. This business seasonality results in quarterly performance that is not necessarily indicative of the year's performance. The cannabis retail industry is a growing industry for which seasonality cannot be reliably predicted.

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

2.Basis of presentation

Statement of compliance

These 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, 2023. These financial statements should be read in conjunction with the annual consolidated financial statements for the Company for the year ended December 31, 2023.

Certain prior period amounts have been reclassified to conform to current year presentation. Specifically, cost of sales, inventory impairment and obsolescence, change in fair value of biological assets and change in fair value realized through inventory have been combined as cost of sales. Interest and fee revenue and investment income (loss) have been combined as investment income (loss). Finance costs (income), change in fair value of derivative warrants, transaction costs and foreign exchange gain (loss) have been combined as other income (expenses).

These financial statements were approved and authorized for issue by the board of directors of the Company (the Board ) on November 4, 2024.

Notes to the Condensed Consolidated Interim Financial Statements

For the three and nine months ended September 30, 2024

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

3.Business acquisitions

On March 28, 2023, the Company announced that it had entered into an agreement with Lightbox Enterprises Ltd. ( Lightbox ) pursuant to which, in connection with Lightbox's proceedings under the Companies' Creditors Arrangement Act (Canada), the Company (or its designee) would acquire the assets comprising four cannabis retail stores operating under the Dutch Love cannabis retail banner (the Lightbox Transaction ). The Lightbox Transaction consideration was comprised of (i) approximately $1.7 million in cash, (ii) the cancellation of $3.0 million in debt owing by Lightbox to the Company, and (iii) the issuance of 1.1 million SNDL common shares valued at approximately $3.7 million.

On April 1, 2024, the Company announced that it had agreed to assign its rights to own or operate the four cannabis retail stores to Nova. On May 8, 2024, the Company completed the Lightbox Transaction and the assignment of its rights to own or operate the four cannabis retail stores to Nova.

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:

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

Goodwill is mainly attributable to the expansion of the store network and the Value Buds brand growth in British Columbia.

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

The financial statements incorporate the operations of Lightbox commencing May 9, 2024. During the period May 9, 2024 to September 30, 2024 the Company recorded revenues of $3.9 million and net loss of $0.2 million from the Lightbox operations. Had the Lightbox Transaction closed on January 1, 2024, management estimates that for the period January 1, 2024, to May 8, 2024, revenue would have increased by $3.1 million and net earnings would have increased by $0.2 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, 2024.

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

Notes to the Condensed Consolidated Interim Financial Statements

For the three and nine months ended September 30, 2024

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

4.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 .

(1)Total assets include cash and cash equivalents.

(2)The Company has eliminated $39.3 million for the nine months ended September 30, 2024 and $13.8 million for the three months ended September 30, 2024 of cannabis operations revenue and equal cost of sales associated with sales to provincial boards that are expected to be subsequently repurchased by the Company's licensed retail subsidiaries for resale, at which point the full retail sales revenue will be recognized. The elimination was recorded in the Corporate segment.

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

(2)Cannabis operations includes the operations of The Valens Company Inc. for the period January 18, 2023 to September 30, 2023.

(3)Total assets include cash and cash equivalents.

(4)The Company has eliminated $34.7 million for the nine months ended September 30, 2023 and $10.7 million for the three months ended September 30, 2023 of cannabis operations revenue and equal cost of sales associated with sales to provincial boards that are expected to be subsequently repurchased by the Company's licensed retail subsidiaries for resale, at which point the full retail sales revenue will be recognized. The elimination was recorded in the Corporate segment.

Notes to the Condensed Consolidated Interim Financial Statements

For the three and nine months ended September 30, 2024

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

Geographical disclosure

As at September 30, 2024, the Company had non-current assets related to credit investments in the United States of $451.1 million (December 31, 2023 $538.3 million). For the nine months ended September 30, 2024, share of profit of equity-accounted investees related to operations in the United States was a gain of $1.0 million (nine months ended September 30, 2023 gain of $15.2 million). All other non-current assets relate to operations in Canada and revenues from external customers relate to operations in Canada.

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:

Biological assets are valued in accordance with International Accounting Standard 41 Agriculture 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.

The Company estimates the harvest yields for cannabis at various stages of growth. As at September 30, 2024, it is estimated that the Company's biological assets will yield approximately 3,416 kilograms (December 31, 2023 2,230 kilograms) of dry cannabis when harvested. During the nine months ended September 30, 2024, the Company harvested 5,529 kilograms of dry cannabis (nine months ended September 30, 2023 13,831 kilograms).

During the three and nine months ended September 30, 2024, inventories of $173.3 million and $488.4 million were recognized in cost of sales as an expense (three and nine months ended September 30, 2023 $180.4 million and $503.4 million).

During the three and nine months ended September 30, 2024, the Company recognized inventory write downs of $0.4 million and $3.4 million (three and nine months ended September 30, 2023 $9.1 million and $22.6 million).

Notes to the Condensed Consolidated Interim Financial Statements

For the three and nine months ended September 30, 2024

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

7.Assets held for sale

At September 30, 2024, assets held for sale were measured at their fair value less costs to sell and comprised of the following:

The Olds facility is located in Olds, Alberta, and its primary purpose was the cultivation of cannabis for the adult-use cannabis market. Management is committed to a plan to sell the Olds facility and the asset is available for immediate sale.

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 as part of the Zenabis acquisition. During the nine months ended September 30, 2024, the Company concluded that the Stellarton facility no longer met certain criteria for assets held for sale due to secondary commercial real estate market conditions in Nova Scotia. The facility was reclassified to property, plant and equipment and a $1.3 million impairment loss was recognized.

8.Right of use assets

For the nine months ended September 30, 2024, the Company recorded impairment losses of right of use assets of $1.1 million which consists of a net $1.6 million for the three months ended March 31, 2024, a net reversal of $0.4 million for the three months ended June 30, 2024 and a net reversal of $0.1 million for the three months ended September 30, 2024 (September 30, 2023 nil) with $1.6 million ($1.8 million for the three months ended March 31, 2024, a reversal of $0.3 million for the three months ended June 30, 2024 and impairment of $0.1 million for the three months ended September 30, 2024) in the cannabis retail reporting segment and an impairment reversal of $0.5 million ($0.2 million reversal for the three months ended March 31, 2024, $0.1 million reversal for the three months ended June 30, 2024 and $0.2 million reversal for the three months ended September 30, 2024) in the liquor retail reporting segment. Refer to note 9 for the significant assumptions applied in the impairment test.

Notes to the Condensed Consolidated Interim Financial Statements

For the three and nine months ended September 30, 2024

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

9.Property, plant and equipment

During the nine months ended September 30, 2024, depreciation expense of $1.6 million was capitalized to biological assets and inventory (nine months ended September 30, 2023 $4.1 million).

During the nine months ended September 30, 2024, the Company determined that indicators of impairment existed relating to certain cannabis retail stores due to underperforming store level operating results as well as indicators of impairment reversal relating to certain previously impaired liquor retail stores now overperforming store level operating results. For impairment testing of retail property, plant and equipment and right of use assets, the Company determined that a cash generating unit ( CGU ) was defined as each individual retail store. The Company completed impairment tests for each CGU determined to have an indicator of potential impairment or impairment reversal using a discounted cash flow model. The recoverable amounts for each CGU were based on the higher of its estimated value in use and fair value less costs of disposal using Level 3 inputs. The significant assumptions applied in the impairment test are described below:

-Cash flows: Projected future sales and earnings for cash flows are based on actual operating results and operating forecasts. Management determined forecasted growth rates of sales based on past performance, expectations of future performance for each location and industry averages. Expenditures were based upon a combination of historical percentages of revenue, sales growth rates, forecasted inflation rates and contractual lease payments. The duration of the cash flow projections for individual CGUs is 5 years or based on the remaining lease term of the CGU.