SNDL

Overall Financial Performance

• Q2 2026 net revenue declined 3.7% YoY to $235.8 million, pressured by persistent demand softness and broad market headwinds across both liquor and cannabis segments.
• Free cash flow improved 1.2 million YoY to negative $6.7 million, despite seasonal incentive payments and a $2.7 million increase in cash in transit.
• As of June 30, 2026, the company held $183.2 million in unrestricted cash with no outstanding debt, and a portfolio of cannabis-related investments with a carrying value of $415.2 million.

Capital Allocation and Share Repurchases

• The company accelerated share repurchase activity in Q2 2026, repurchasing 11.7 million common shares for $23.3 million (excluding commissions) at a weighted average price of $1.43 US per share.
• Since Q4 2024, total repurchases have exceeded 29 million shares, representing a ~7% reduction in shares outstanding, with an aggregate repurchase value of ~$64.5 million and an average price of $1.58 US per share.
• Management views repurchases as disciplined capital allocation at attractive valuations that reflects confidence in the company's intrinsic value.

Parallel Restructuring Milestone

• SNDL completed a key milestone for the Parallel restructuring, which will open the door for the company to gain direct exposure and control over U.S. medical cannabis operations in Florida, Texas, and Massachusetts, pending remaining legal, regulatory, accounting, and NASDAQ requirements.
• Parallel currently operates 56 retail locations, 3 cultivation and manufacturing sites, ~800 employees, with near-term annualized revenue expected to reach ~$150 million.
• Post-completion, SNDL expects to become the largest cannabis retailer in the world by store count with potential to exceed $1 billion Canadian in annual revenue.
• The restructuring substantially reduces Parallel's historical debt burden, creates a sustainable capital structure for future growth, and preserves the value of SNDL's legacy distressed credit investment.

Operational Initiatives

• Management maintained focus on disciplined execution, cost optimization, and implemented profit enhancement initiatives expected to drive over $20 million in incremental operating income, mostly during the remainder of 2026.
• In liquor retail, private label sales outperformed national brands by 13 percentage points in the quarter, offsetting some demand weakness.

• Management expects the second half of 2026 to be a stronger period for free cash flow generation, consistent with historical seasonal trends, and forecasts the company will generate positive free cash flow for the full 2026 calendar year.
• For the cannabis retail segment, management expects low single-digit market growth to return in the second half of 2026, and projects continued margin and free cash flow accretion from improved product mix management.
• For the liquor retail segment, management expects promotional investment levels to decrease in the second half of 2026, leading to flat or improving margins compared to the prior year period. No near-term broad market recovery is expected, though private label and the Wine & Beyond banner continue to deliver growth.
• Some cost headwinds from the JITA production ramp-up in cannabis operations are expected to persist over the coming months.
• Management expects to gain direct control of Parallel's U.S. medical cannabis operations in the coming months after satisfying remaining regulatory and compliance requirements.

All figures below are in Canadian dollars:

1. Liquor Retail Segment:

• Net revenue: $134.7 million, a 5.1% year-over-year (YoY) decrease ($7.2 million absolute decline), contributing 57.1% of total consolidated net revenue.
• Gross profit: $33.8 million, a 7.4% YoY decrease; gross margin of 25.1%, down 60 basis points YoY.
• Adjusted operating income: $3.2 million, a $3.5 million YoY decline.

1. Cannabis Retail Segment:

• Net revenue: $83.2 million, a 1.4% YoY decrease ($1.2 million absolute decline), contributing 35.3% of total consolidated net revenue.
• Gross profit: $22 million, essentially flat (a $0.1 million YoY increase); gross margin expanded 50 basis points to 26.4% YoY.
• Adjusted operating income: $3 million, a $1.2 million YoY decline, driven by the absence of prior year asset impairment reversals.

1. Cannabis Operations Segment:

• Net revenue: $32.2 million, a 10.1% YoY decrease ($3.6 million absolute decline), contributing 13.7% of total consolidated net revenue.
• Gross profit: $0.6 million, an $8.7 million YoY decline; gross margin of 1.8%, down 24 percentage points YoY.
• Adjusted operating loss: $9 million, compared to an adjusted operating loss of $2.8 million in the prior year.

Consolidated intersegment eliminations offset the total net revenue decline by $3 million, resulting in a consolidated net revenue of $235.8 million for the quarter.

• Persistent broad macroeconomic headwinds and demand softness across both liquor and Canadian cannabis markets are pressuring revenue and profitability across segments.
• Cannabis retail in Alberta and Ontario faces continued pressure from flat overall consumption paired with increasing store count growth that splits existing market demand among more operators.
• Liquor retail same-store sales have declined, and market weakness is expected to continue in the near term, with the convenience banner underperforming other sub-segments.
• The JITA production ramp-up in cannabis operations created significant cost inefficiencies and gross margin pressure, and these headwinds are expected to persist into coming quarters.
• The planned acquisition of direct control of Parallel's U.S. operations remains subject to remaining legal, regulatory, accounting, and NASDAQ requirements, with no guarantee of timely completion.
• The Canadian cannabis market remains highly competitive with a compressed pricing environment and inefficient tax structure that pressures the profitability of domestic licensed producers.

Q: With the Parallel deal nearing completion and upcoming U.S. investment needs, how will capital allocation strategy change from the aggressive share repurchase strategy of recent quarters?

A: The commitment to repurchasing undervalued shares will not change, as management still views share repurchases as an attractive use of capital. The company's debt-free balance sheet provides optionality to both continue repurchases and invest in the U.S., with a cost-of-capital advantage over pure-play U.S. operators. Plans include CapEx to improve Parallel's Florida processing capabilities, expand store counts, and pursue organic growth in the high-potential Texas medical cannabis market.

Q: What portion of cannabis operations gross margin pressure comes from the JITA ramp versus B2B supply demand shortfalls, and will these issues persist? Will the company pursue more vertical integration via M&A in Canada to address these issues?

A: 80-90% of the Q2 2026 gross margin shortfall in cannabis operations is driven by the JITA production ramp-up, with 20 percentage points of the 25 percentage point total margin shortfall directly attributable to ramp-up inefficiencies. Management believes these challenges are fixable, and the broader cannabis platform is still expected to generate full-year positive free cash flow. Management does not see large upstream cultivation M&A as the optimal solution, given the highly competitive, price-compressed Canadian cannabis market with an inefficient tax structure.

Q: What is driving the cannabis retail market contraction in Alberta and Ontario, and when will growth return? What is the current cannabis retail M&A strategy after the failed 1CM transaction?

A: Contraction stems from lapping strong 2025 first half growth, reduced promotional intensity industry-wide to protect margins, and flat overall consumption paired with growing store counts splitting existing demand. Management expects low single-digit market growth to return in the second half of 2026. The company prefers organic store rollout and continues to identify small pockets of white space for expansion; with the upcoming entry into the U.S. market, management will prioritize disciplined capital allocation to the highest risk-adjusted return opportunities across both Canadian and U.S. markets.

Q: When will liquor retail performance stabilize, and what is the segment's outlook going forward?

A: Weak demand in liquor retail is a broad global macroeconomic trend, and management does not expect a sharp near-term recovery, though the wine category has already begun to show early signs of growth. Lower promotional investment in the second half is expected to improve margins, and the company can still gain share via outperformance of the Wine & Beyond banner and high-margin private label sales. Management is focused on improving the struggling convenience banner via better product mix and velocity management to drive better performance.