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

Condensed Consolidated Interim Financial Statements

For the three months ended March 31, 2024

(Unaudited expressed in thousands of Canadian dollars)

Condensed Consolidated Interim Statements of Financial Position

(Unaudited - expressed in thousands of Canadian dollars)

Commitments (note 23)

Subsequent events (notes 11, 16(c) and 24)

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)

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 months ended March 31, 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. The Company also owns approximately 63% of Nova Cannabis Inc. ( Nova ), whose principal activities are the retail sale of cannabis.

SNDL and its subsidiaries operate solely in Canada. Through its joint venture, SunStream Bancorp Inc. ( SunStream ) (note 12), 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 May 8, 2024.

Notes to the Condensed Consolidated Interim Financial Statements

For the three months ended March 31, 2024

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

3.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 $12.0 million 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 retailer 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 for the period February 8, 2023 to March 31, 2023.

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

(3)Total assets include cash and cash equivalents.

(4)The Company has eliminated $11.4 million 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 retailer subsidiaries for resale, at which point the full retail sales revenue will be recognized. The elimination was recorded in the Corporate segment.

Geographical disclosure

As at March 31, 2024, the Company had non-current assets related to investment credit operations in the United States of $560.3 million (December 31, 2023 $538.3 million). For the three months ended March 31, 2024, share of profit of equity-accounted investees related to operations in the United States was a gain of $9.1 million (three months ended March 31, 2023 gain of $9.5 million). All other non-current assets relate to operations in Canada and revenues from external customers relate to operations in Canada.

Notes to the Condensed Consolidated Interim Financial Statements

For the three months ended March 31, 2024

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

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 March 31, 2024, it is estimated that the Company's biological assets will yield approximately 2,754 kilograms (December 31, 2023 2,230 kilograms) of dry cannabis when harvested. During the three months ended March 31, 2024, the Company harvested 1,145 kilograms of dry cannabis (three months ended March 31, 2023 6,029 kilograms).

During the three months ended March 31, 2024, inventories of $145.9 million were recognized in cost of sales as an expense (three months ended March 31, 2023 $146.7 million).

During the three months ended March 31, 2024, the Company recognized inventory write downs of $1.9 million (three months ended March 31, 2023 $9.2 million).

Notes to the Condensed Consolidated Interim Financial Statements

For the three months ended March 31, 2024

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

6.Assets held for sale

At March 31, 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 in the Zenabis acquisition.

7.Right of use assets

As at March 31, 2024, the Company recorded impairment losses of right of use assets of $1.6 million (March 31, 2023 nil) with $1.8 million in the cannabis retail reporting segment and an impairment reversal of $0.2 million in the liquor retail reporting segment. Refer to note 8 for the significant assumptions applied in the impairment test.

Notes to the Condensed Consolidated Interim Financial Statements

For the three months ended March 31, 2024

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

8.Property, plant and equipment

During the three months ended March 31, 2024, depreciation expense of $0.4 million was capitalized to biological assets and inventory (three months ended March 31, 2023 $1.8 million).

During the three months ended March 31, 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 budgets. 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 varies based on the remaining lease term of the CGU.

-Discount rate: A pre-tax discount rate range of 12.0% 13.8% was estimated and is based on market assessments of the time value of money and CGU specific risks. To determine a pre-tax discount rate, a weighted average cost of capital was used as a reference point which 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.

As at March 31, 2024, the Company recorded impairment losses of property, plant and equipment of $0.77 million (March 31, 2023 nil) in the cannabis retail reporting segment and an impairment reversal of $0.76 million (March 31, 2023 nil) in the liquor retail reporting segment. The Company also recorded impairment losses and impairment reversals of right of use assets (note 7).

Notes to the Condensed Consolidated Interim Financial Statements

For the three months ended March 31, 2024

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

9.Net investment in subleases

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.

10.Intangible assets

Investments at amortized cost

On April 1, 2024, the Company and Indiva Limited ( Indiva ) entered into an amendment to the Second Amended and Restated Promissory Note dated August 28, 2023, whereby Indiva repaid $2.0 million of principal and certain financial and reporting conditions were amended.

Notes to the Condensed Consolidated Interim Financial Statements

For the three months ended March 31, 2024

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

Investments at fair value through profit and loss