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

Condensed Consolidated Interim Financial Statements

For the three and six months ended June 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 13 and 14)

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 six months ended June 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 also 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".

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 August 12, 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. 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.

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 320.6 million SNDL common shares valued at $287.0 million based on the fair value of each common share of the Company on the closing date (8.85 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

Notes to the Condensed Consolidated Interim Financial Statements

For the three and six months ended June 30, 2022

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

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 numbers below are provisional.

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 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, then 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 one-day period of March 31, 2022, the Company recorded revenues of $2.0 million and net loss of $0.1 million. During the period April 1, 2022, to June 30, 2022, the Company recorded revenues of $204.9 million and net earnings of $0.8 million. 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.

The Company incurred acquisition-related costs of $6.8 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 includes more than 100 franchised and corporate-owned locations. 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, then the accounting for the acquisition will be revised. At June 30, 2022, no adjustments were made to the preliminary estimates of the fair value of assets and liabilities acquired presented at December 31, 2021.

Notes to the Condensed Consolidated Interim Financial Statements

For the three and six months ended June 30, 2022

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

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 wholly owned liquor stores. Cannabis retail includes the private sale of recreational cannabis through wholly owned and franchise retail cannabis stores. Cannabis operations include the cultivation, distribution and sale of cannabis for the adult-use market 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 six months ended June 30, 2022

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

Geographical disclosure

As at June 30, 2022, the Company had non-current assets related to operations in the United States of $480.3 million (December 31, 2021 - $412.9 million). For the six months ended June 30, 2022, share of profit of equity-accounted investees related to operations in the United States was a loss of $33.9 million (six months ended June 30, 2021 - $3.7 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.

During the six months ended June 30, 2021, proceeds of $24.2 million were received for the dispositions of marketable securities and a gain on disposition of $12.2 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.

Notes to the Condensed Consolidated Interim Financial Statements

For the three and six months ended June 30, 2022

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

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:

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, 2022, it is estimated that the Company's biological assets will yield approximately 3,769 kilograms (December 31, 2021 - 5,672 kilograms) of dry cannabis when harvested. During the six months ended June 30, 2022, the Company harvested 12,263 kilograms of dry cannabis (six months ended June 30, 2021 - 11,628 kilograms).

During the three and six months ended June 30, 2022, inventories of $174.3 million and $188.6 million were recognized in cost of sales as an expense (three and six months ended June 30, 2021 - $9.5 million and $21.0 million). During the three and six months ended June 30, 2022, the Company recognized inventory write downs of $4.4 million and $7.2 million (three and six months ended June 30, 2021 - $1.6 million and $3.3 million), of which $3.9 million and $5.9 million (three and six months ended June 30, 2021 - $1.7 million and $3.4 million) was recognized as an impaired and obsolete inventory provision, and $0.5 million and $1.3 million (three and six months ended June 30, 2021 - $0.1 million and $0.1 million) was included in the change in fair value realized through inventory as the fair value component of the impaired and obsolete inventory provision.

Notes to the Condensed Consolidated Interim Financial Statements

For the three and six months ended June 30, 2022

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

During the six months ended June 30, 2022, depreciation expense of $3.4 million was capitalized to biological assets and inventory (six months ended June 30, 2021 - $2.8 million).

At June 30, 2022, the Company determined that no indicators of impairment existed or indicators that a previous impairment should be reversed, and no impairment test was required.

During the six months ended June 30, 2022, proceeds of $3.5 million were received for the disposition of the Company's Merritt facility and a gain on disposal of $0.5 million was recognized. During the year ended December 31, 2020, the Merritt facility was reclassified from property, plant and equipment to assets held for sale.

During the six months ended June 30, 2022, proceeds of $3.9 million were received for the disposition of the Company's Rocky View facility and no gain on disposal was recognized.

Notes to the Condensed Consolidated Interim Financial Statements

For the three and six months ended June 30, 2022

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

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