EX-99.1

DSUs
outstanding

Balance at December 31, 2022

Balance at March 31, 2023

EX-99.1 2 sndl-ex99_1.htm EX-99.1 EX-99.1

EXHIBIT 99.1

SNDL Inc.

Condensed Consolidated Interim Financial Statements

For the three months ended March 31, 2023

(Unaudited – expressed in thousands of Canadian dollars)

SNDL Inc.

Condensed Consolidated Interim Statement of Financial Position

(Unaudited - expressed in thousands of Canadian dollars)


As at	Note	March 31, 2023			December 31, 2022

Assets
Current assets
Cash and cash equivalents			213,253			279,586
Restricted cash			19,380			19,338
Marketable securities	6		10,992			21,926
Accounts receivable			33,704			22,636
Biological assets	7		1,795			3,477
Inventory	8		153,542			127,782
Prepaid expenses and deposits			21,025			10,110
Investments	14		22,997			6,552
Assets held for sale	3(a),9		12,563			6,375
Net investment in subleases	12		3,650			3,701
			492,901			501,483
Non-current assets
Long-term deposits			8,618			8,584
Right of use assets	10		139,703			134,154
Property, plant and equipment	11		200,228			143,409
Net investment in subleases	12		18,887			19,618
Intangible assets	13		75,529			74,885
Investments	14		9,991			90,702
Equity-accounted investees	15		535,932			519,255
Goodwill			135,957			67,260
Total assets			1,617,746			1,559,350

Liabilities
Current liabilities
Accounts payable and accrued liabilities			62,106			48,153
Lease liabilities	17		32,367			30,206
Derivative warrants	16		6,200			11,002
			100,673			89,361
Non-current liabilities
Lease liabilities	17		142,775			139,625
Other liabilities			5,088			2,709
Total liabilities			248,536			231,695

Shareholders’ equity
Share capital	18(b)		2,365,319			2,292,810
Warrants			2,260			2,260
Contributed surplus			70,716			68,961
Contingent consideration			2,279			2,279
Accumulated deficit			(1,123,759	)		(1,091,999	)
Accumulated other comprehensive income			31,808			32,188
Total shareholders’ equity			1,348,623			1,306,499
Non-controlling interest			20,587			21,156
Total liabilities and shareholders’ equity			1,617,746			1,559,350

Commitments (note 27)

Subsequent events (notes 4, 15 and 28)

See accompanying notes to the condensed consolidated interim financial statements.

SNDL Inc.

Condensed Consolidated Interim Statement of Loss and Comprehensive Loss

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


		Three months ended March 31
	Note	2023			2022
Gross revenue	20		212,899			20,127
Excise taxes			10,447			2,530
Net revenue			202,452			17,597
Cost of sales	8		158,149			14,326
Inventory impairment and obsolescence	8		9,177			1,981
Gross margin before fair value adjustments			35,126			1,290
Change in fair value of biological assets			(3,535	)		3,690
Change in fair value realized through inventory			950			(1,561	)
Gross margin			32,541			3,419

Interest and fee revenue	21		4,211			3,861
Investment loss	21		(5,169	)		(17,710	)
Share of profit (loss) of equity-accounted investees	15		9,516			4,091

General and administrative			48,573			10,682
Sales and marketing			3,386			1,111
Research and development			140			95
Depreciation and amortization	10,11,13		16,468			739
Share-based compensation	19		2,209			4,204
Restructuring costs			1,536			—
Asset impairment	13		807			—
Loss from operations			(32,020	)		(23,170	)

Transaction costs			(2,040	)		(6,481	)
Finance costs, net	22		(5,173	)		61
Change in estimate of fair value of derivative warrants	16		4,802			(8,300	)
Foreign exchange gain (loss)			(163	)		(150	)
Gain (loss) on disposition of assets			(184	)		—
Loss before income tax			(34,778	)		(38,040	)
Income tax recovery			—			—
Net loss from continuing operations			(34,778	)		(38,040	)
Net loss from discontinued operations	4		(1,365	)		—
Net loss			(36,143	)		(38,040	)

Equity-accounted investees - share of other comprehensive loss	15		(385	)		(6,733	)
Gain on translation of foreign operations			5			—
Comprehensive loss			(36,523	)		(44,773	)

Net loss from continuing operations attributable to:
Owners of the Company			(34,203	)		(37,904	)
Non-controlling interest			(575	)		(136	)
			(34,778	)		(38,040	)
Net income (loss) attributable to:
Owners of the Company			(35,568	)		(37,904	)
Non-controlling interest			(575	)		(136	)
			(36,143	)		(38,040	)
Comprehensive income (loss) attributable to:
Owners of the Company			(35,948	)		(44,637	)
Non-controlling interest			(575	)		(136	)
			(36,523	)		(44,773	)
Net loss per common share attributable to owners of the Company
Basic and diluted	24	$	(0.14	)	$	(0.18	)

See accompanying notes to the condensed consolidated interim financial statements.

SNDL Inc.

Condensed Consolidated Interim Statement of Changes in Shareholders’ Equity

(Unaudited - expressed in thousands of Canadian dollars)


	Note	Share capital			Warrants		Contributed surplus			Contingent consideration		Accumulated deficit			Accumulated other comprehensive income			Non-controlling interest			Total
Balance at December 31, 2022			2,292,810			2,260		68,961			2,279		(1,091,999	)		32,188			21,156			1,327,655
Net loss			—			—		—			—		(35,568	)		—			(575	)		(36,143	)
Other comprehensive loss			—			—		—			—		—			(380	)		—			(380	)
Share repurchases	18(b)		(5,344	)		—		—			—		3,808			—			—			(1,536	)
Share issuances by subsidiaries			—			—		(12	)		—		—			—			4			(8	)
Acquisition	3(a)		83,953			—		—			—		—			—			—			83,953
Shares acquired and cancelled	18(b)		(6,615	)		—		—			—		—			—			—			(6,615	)
Share-based compensation	19		—			—		2,282			—		—			—			—			2,282
Employee awards exercised	18(b)		515			—		(515	)		—		—			—			—			—
Distribution declared by subsidiaries			—			—		—			—		—			—			2			2
Balance at March 31, 2023			2,365,319			2,260		70,716			2,279		(1,123,759	)		31,808			20,587			1,369,210

Balance at December 31, 2021			2,035,704			8,092		60,734			2,279		(785,112	)		7,607			229			1,329,533
Net loss			—			—		—			—		(37,904	)		—			(136	)		(38,040	)
Other comprehensive loss			—			—		—			—		—			(6,733	)		—			(6,733	)
Share issuances			2,870			—		—			—		—			—			—			2,870
Acquisition			287,129			—		—			—		—			—			58,250			345,379
Share-based compensation			—			—		2,965			—		—			—			—			2,965
Employee awards exercised			1,740			—		(1,740	)		—		—			—			—			—
Balance at March 31, 2022			2,327,443			8,092		61,959			2,279		(826,414	)		874			58,343			1,632,576

See accompanying notes to the condensed consolidated interim financial statements.

SNDL Inc.

Condensed Consolidated Interim Statement of Cash Flows

(Unaudited - expressed in thousands of Canadian dollars)


		Three months ended March 31
	Note	2023			2022
Cash provided by (used in):
Operating activities
Net loss for the period			(36,143	)		(38,040	)
Adjustments for:
Interest and fee revenue	21		(4,211	)		(3,861	)
Change in fair value of biological assets			3,535			(3,690	)
Share-based compensation	19		2,209			4,204
Depreciation and amortization	10,11,13		18,259			2,439
Loss (gain) on disposition of assets			184			—
Inventory obsolescence	8		9,177			1,981
Finance costs	22		5,173			(61	)
Change in estimate of fair value of derivative warrants	16		(4,802	)		8,300
Unrealized foreign exchange loss (gain)			48			16
Asset impairment			807			—
Share of (profit) loss of equity-accounted investees	15		(9,516	)		(4,091	)
Loss on settlement of marketable securities	6,21		43,804			—
Unrealized (gain) loss on marketable securities	6,21		(38,635	)		17,834
Additions to marketable securities			—			(601	)
Proceeds from settlement of marketable securities	6		26			—
Income distributions from equity-accounted investees			—			685
Interest received			3,703			3,715
Change in non-cash working capital	23		(42,562	)		(14,850	)
Net cash used in operating activities from continuing operations			(48,944	)		(26,020	)
Net cash provided by operating activities from discontinued operations	4		147			—
Net cash used in operating activities			(48,797	)		(26,020	)
Investing activities
Additions to property, plant and equipment	11		(1,394	)		(981	)
Additions to intangible assets	13		(17	)		(56	)
Additions to investments			(827	)		(14,431	)
Additions to equity-accounted investees	15		(7,546	)		(57,320	)
Proceeds from disposal of property, plant and equipment			82			—
Acquisitions, net of cash acquired	3		3,695			(31,149	)
Change in non-cash working capital	23		(459	)		(35	)
Net cash used in investing activities from continuing operations			(6,466	)		(103,972	)
Net cash used in investing activities from discontinued operations	4		—			—
Net cash used in investing activities			(6,466	)		(103,972	)
Financing activities
Change in restricted cash			(42	)		5,066
Payments on lease liabilities, net			(9,491	)		(447	)
Repurchase of common shares, net of costs	18(b)		(1,536	)		—
Repayment of long-term debt			—			(10,000	)
Change in non-cash working capital	23		(1	)		(54	)
Net cash used in financing activities from continuing operations			(11,070	)		(5,435	)
Net cash used in financing activities from discontinued operations	4		—			—
Net cash used in financing activities			(11,070	)		(5,435	)
Change in cash and cash equivalents			(66,333	)		(135,427	)
Cash and cash equivalents, beginning of year			279,586			558,251
Cash and cash equivalents, end of period			213,253			422,824

See accompanying notes to the condensed consolidated interim financial statements.

SNDL Inc.

Notes to the Condensed Consolidated Interim Financial Statements

For the three months ended March 31, 2023

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

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”) (TSX: NOVC), whose principal activities are the retail sale of cannabis.

SNDL and its subsidiaries currently operate solely in Canada, with the exception of Green Roads, Inc. (“Green Roads”), a subsidiary acquired in the Valens Transaction (defined below) who sold CBD products in the United States and is classified as held for sale (note 9) and discontinued operations (note 4). Through its joint venture, SunStream Bancorp Inc. (“SunStream”) (note 15), 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 common shares trade on the Nasdaq Capital Market (“Nasdaq”) under the ticker symbol “SNDL”.

Basis of presentation

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 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, 2022. These financial statements should be read in conjunction with the annual consolidated financial statements for the Company for the year ended December 31, 2022.

These financial statements were approved and authorized for issue by the Board of Directors (“Board”) on May 12, 2023.

Business acquisitions

Valens

On August 22, 2022, the Company and The Valens Company Inc. (“Valens”) announced that they had entered into an arrangement agreement (the “Valens Arrangement Agreement”) pursuant to which the Company would acquire, subject to Valens’ shareholder approval and customary closing conditions, all of the issued and outstanding common shares of Valens, other than those owned by SNDL and its subsidiaries, by way of a statutory plan of arrangement (the “Valens Transaction”). Concurrently with the execution of the Valens Arrangement Agreement, the Company assumed Valens’ non-revolving term loan facility from its then-existing lender, and amended and restated the related credit agreement to provide for a $60.0 million non-revolving term loan facility with a maturity date of December 15, 2023 and an interest rate of 10% per annum (the “Valens Facility”). As Valens is now a wholly-owned subsidiary of the

SNDL Inc.

Notes to the Condensed Consolidated Interim Financial Statements

For the three months ended March 31, 2023

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

Company, the Valens Facility became inter-company debt following the closing of the Valens Transaction. The Valens Transaction closed on January 17, 2023.

The Valens Transaction consideration was comprised of (i) the assumption of Valens’ $60 million non-revolving term loan facility from its then existing lender, as described above, and (ii) an aggregate 27.6 million SNDL common shares valued at $84.0 million based on the fair value of each common share of the Company on the closing date (0.3334 of a SNDL common share for each Valens common share).

Valens is a manufacturer of cannabis products providing proprietary cannabis processing services, in addition to product development, manufacturing, and commercialization of cannabis consumer packaged goods. Valens products are formulated for the medical, health and wellness, and recreational consumer segments. Additionally, Valens manufactured, distributed, and sold a wide range of CBD products in the United States through its subsidiary Green Roads, prior to the Valens Transaction. Green Roads filed for bankruptcy in the United States on March 6, 2023. The Company has provided a superpriority secured debtor-in-possession line of credit to Green Roads in the amount of USD $1.75 million.

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:


	Provisional
Valens loan facility		61,512
Issuance of common shares		83,953
		145,465

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


	Provisional
Cash		3,615
Accounts receivable		21,361
Investments		876
Prepaid expenses and deposits		4,980
Inventory		14,140
Assets held for sale		6,330
Right of use assets		2,882
Property, plant and equipment		63,030
Intangible assets		2,285
Goodwill		68,697
Accounts payable and accrued liabilities		(34,185	)
Contractual obligation		(5,339	)
Lease liabilities		(3,207	)
		145,465

As new information is 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.

Valens subsidiary Green Roads has been classified as held for sale (note 9) and discontinued operations (note 4).

SNDL Inc.

Notes to the Condensed Consolidated Interim Financial Statements

For the three months ended March 31, 2023

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

The financial statements incorporate the operations of Valens commencing January 18, 2023. During the period January 18, 2023 to March 31, 2023 the Company recorded revenues of $16.9 million and net loss of $9.0 million from the Valens operations. Had the Valens Transaction closed on January 1, 2023, management estimates that for the period January 1, 2023, to January 17, 2023, revenue would have increased by $4.2 million and net loss would have increased by $2.3 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, 2023.

The Company incurred costs related to the Valens Transaction of $1.7 million which have been included in transaction costs.

Superette

On February 7, 2023, the Company announced that, in the context of the Superette Group’s (as defined below) proceedings under the Companies’ Creditors Arrangement Act (“CCAA”), it had successfully closed the Superette Transaction (as defined below) contemplated by the agreement of purchase and sale dated August 29, 2022 (as amended and restated on December 12, 2022) (the “APS”) and the approval and vesting order issued by the Ontario Superior Court of Justice (Commercial List) on December 20, 2022.

The Superette Group sells cannabis and non-cannabis branded merchandise and has furthered its market exposure and brand awareness through private-label cannabis offerings. Pursuant to the APS, certain of the Superette entities, including Superette Inc. and Superette Ontario Inc. (“Superette Ontario”) (collectively, the “Superette Group”), have sold to SNDL their right, title and interest in (i) five Superette retail locations within Toronto and Ottawa; (ii) the intellectual property rights related to the Superette brand (the “Superette IP”); and (iii) the shares of Superette Ontario (collectively, the “Superette Transaction”).

The Superette acquisition consideration was comprised of the extinguishment of the Company’s promissory note.

The fair value of consideration paid was as follows:


	Provisional
Extinguishment of promissory note		2,625
		2,625

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


	Provisional
Cash		80
Accounts receivable		30
Prepaid expenses and deposits		141
Inventory		371
Right of use assets		1,129
Property, plant and equipment		2,077
Accounts payable and accrued liabilities		(74	)
Lease liabilities		(1,129	)
		2,625

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.

The financial statements incorporate the operations of Superette commencing February 8, 2023. During the period February 8, 2023 to March 31, 2023 the Company recorded revenues of $0.6 million and net loss of $0.2 million from the Superette operations. Had the Superette Transaction closed on January 1, 2023, management estimates that for the period January 1, 2023, to February 7, 2023, revenue would have increased by $0.5 million and net loss would have increased by $0.1 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, 2023.

SNDL Inc.

Notes to the Condensed Consolidated Interim Financial Statements

For the three months ended March 31, 2023

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

The Company incurred costs related to the Superette Transaction of $0.2 million which have been included in transaction costs.

Discontinued operations

The Green Roads operations are comprised of manufacturing, distributing and selling a wide range of CBD products in the United States. The Green Roads operations have been classified as held for sale and discontinued operations as the carrying amount of the disposal group is expected to be recovered through a sale transaction rather than through continued use.

Green Roads filed for bankruptcy on March 6, 2023. Subject to the bid procedures, a successful bid of USD$3.1 million was accepted and the sale was approved at a court hearing on May 10, 2023.

The consolidated statement of loss and comprehensive loss and consolidated statement of cash flows has been presented to show the discontinued operations separately from continuing operations. The consolidated statement of financial position presents the Green Roads disposal group as an asset held for sale (note 9).

Results of discontinued operations


	Three months ended March 31
	2023			2022
Net revenue		4,532			—
Cost of sales		2,201			—
Gross margin		2,331			—

General and administrative		2,337			—
Sales and marketing		1,130			—
Depreciation and amortization		219			—
Loss from operations		(1,355	)		—

Finance costs		(10	)		—
Net loss		(1,365	)		—

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”.

SNDL Inc.

Notes to the Condensed Consolidated Interim Financial Statements

For the three months ended March 31, 2023

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


	Liquor Retail			Cannabis Retail (1)			Cannabis Operations (2)			Investments (3)			Corporate			Total
As at March 31, 2023
Total assets		327,072			202,921			333,439			734,934			19,380			1,617,746
Three months ended March 31, 2023
Net revenue		115,911			67,408			19,133			—			—			202,452
Gross margin		26,267			15,819			(9,545	)		—			—			32,541
Interest and fee revenue		—			—			—			4,211			—			4,211
Investment (loss) income		—			—			(283	)		(4,886	)		—			(5,169	)
Share of profit of equity-accounted investees		—			—			—			9,516			—			9,516
Depreciation and amortization		10,346			3,690			1,146			—			1,286			16,468
Earnings (loss) from operations		(1,936	)		(53	)		(18,687	)		8,737			(20,081	)		(32,020	)
Income (loss) before income tax		(2,963	)		(744	)		(19,120	)		5,370			(17,321	)		(34,778	)

(1)

Cannabis retail includes the operations of Superette from February 8, 2023 to March 31, 2023.

(2)

Cannabis operations includes the operations of Valens for the period January 18, 2023 to March 31, 2023.

(3)

Total assets include cash and cash equivalents.


	Liquor Retail (1)			Cannabis Retail (1)			Cannabis Operations			Investments (2)			Corporate			Total
As at December 31, 2022
Total assets		351,338			200,393			163,130			825,151			19,338			1,559,350
Three months ended March 31, 2022
Net revenue		1,310			7,512			8,775			—			—			17,597
Gross margin		284			3,293			(158	)		—			—			3,419
Interest and fee revenue		—			—			—			3,861			—			3,861
Investment loss		—			—			—			(17,710	)		—			(17,710	)
Share of profit of equity-accounted investees		—			—			—			4,091			—			4,091
Depreciation and amortization		—			595			9			—			135			739
Earnings (loss) from operations		(73	)		131			(9,190	)		(9,758	)		(4,280	)		(23,170	)
Income (loss) before income tax		(73	)		(280	)		(2,964	)		(9,695	)		(25,028	)		(38,040	)

(1)

Liquor retail includes one day of operations of Alcanna retail stores and cannabis retail includes one day of operations of Nova retail stores.

(2)

Total assets include cash and cash equivalents.

Geographical disclosure

As at March 31, 2023, the Company had non-current assets related to investment credit operations in the United States of $535.9 million (December 31, 2022 – $519.3 million). For the three months ended March 31, 2023, share of profit of equity-accounted investees related to operations in the United States was a gain of $9.5 million (three months ended March 31, 2022 – gain of $4.1 million). All other non-current assets relate to operations in Canada and revenues from external customers relate to operations in Canada.

Marketable securities


As at	March 31, 2023			December 31, 2022
Balance, beginning of year		21,926			83,724
Acquisition (note 3(a))		876			—
Additions		—			3,755
Dispositions		(50,445	)		—
Change in fair value recognized in profit or loss		38,635			(65,553	)
Balance, end of period		10,992			21,926

During the three months ended March 31, 2023, non-cash proceeds valued at $6.6 million were received for the settlement of Valens common shares in connection with the Valens Transaction (note 3(a) and note 18(b)) and a gain

SNDL Inc.

Notes to the Condensed Consolidated Interim Financial Statements

For the three months ended March 31, 2023

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

on settlement of $0.7 million was recognized. In addition, proceeds of $26 were received for the dispositions of marketable securities and a loss on disposition of $0.1 million was recognized.

biological assets

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:


As at	March 31, 2023			December 31, 2022
Balance, beginning of year		3,477			4,410
Increase in biological assets due to capitalized costs		9,189			27,749
Acquisition		—			909
Net change in fair value of biological assets		(3,535	)		(1,309	)
Transferred to inventory upon harvest		(7,336	)		(28,282	)
Balance, end of period		1,795			3,477

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:


Assumption	Input	Weighted average input				Effect of 10% change ($000s)
		March 31 2023		December 31 2022		March 31 2023		December 31 2022
Yield per square foot of growing space (1)	Grams		42		48		407		279
Average net selling price (2)	$/gram		4.69		4.66		337		687
After harvest cost to complete and sell	$/gram		1.17		1.27		80		187

(1)

Varies by strain; obtained through historical growing results or grower estimate if historical results are not available.

(2)

Varies by strain and sales market; obtained through average selling prices or estimated future selling prices if historical results are not available.

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 March 31, 2023, it is estimated that the Company’s biological assets will yield approximately 2,871 kilograms (December 31, 2022 – 3,904 kilograms) of dry cannabis when harvested. During the three months ended March 31, 2023, the Company harvested 6,029 kilograms of dry cannabis (three months ended March 31, 2022 – 6,636 kilograms).

SNDL Inc.

Notes to the Condensed Consolidated Interim Financial Statements

For the three months ended March 31, 2023

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

Inventory


As at	March 31, 2023		December 31, 2022
Retail liquor		96,163		82,589
Harvested cannabis
Raw materials, packaging and components		7,658		4,577
Extracted cannabis & hemp oils		8,604		—
Work-in-progress		17,298		19,927
Finished goods		8,440		7,040
Retail cannabis		15,103		13,373
Millwork		276		276
		153,542		127,782

During the three months ended March 31, 2023, inventories of $158.1 million were recognized in cost of sales as an expense (three months ended March 31, 2022 – $14.3 million).

During the three months ended March 31, 2023, the Company recognized inventory write downs of $9.2 million (three months ended March 31, 2022 – $2.7 million), of which $9.2 million (three months ended March 31, 2022 – $2.0 million) was recognized as an impaired and obsolete inventory provision, and nil (three months ended March 31, 2022 – $0.7 million) was included in the change in fair value realized through inventory as the fair value component of the impaired and obsolete inventory provision.

Assets held for sale

At March 31, 2023, assets held for sale was comprised of the following:


Stellarton facility			6,375
Mission facility			2,016
Green Roads disposal group			4,009
Extraction equipment			163
			12,563

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.

The Mission facility is located in Mission, British Columbia, and its primary purpose was the cultivation of cannabis and the packaging of dried cannabis flower in consumer packaging. The Mission facility was acquired in the Valens Transaction (note 3(a)).

The Green Roads disposal group is comprised of the Green Roads operations, which include the manufacturing, distributing and selling of CBD products in the United States. The Green Roads operations have been classified as held for sale and discontinued operations as the carrying amount of the disposal group is expected to be recovered through a sale transaction rather than through continued use. The disposal group was stated at fair value less costs to sell, based on the successful bid received through the bankruptcy process.

Green Roads filed for bankruptcy on March 6, 2023. Subject to the bid procedures, a successful bid of USD$3.1 million was accepted and the sale was approved at a court hearing on May 10, 2023.

SNDL Inc.

Notes to the Condensed Consolidated Interim Financial Statements

For the three months ended March 31, 2023

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

10.

Right of use assets


Cost
Balance at December 31, 2022			167,067
Acquisition (note 3(a), note3(b))			4,011
Additions			146
Renewals, remeasurements and dispositions			9,415
Balance at March 31, 2023			180,639

Accumulated depreciation and impairment
Balance at December 31, 2022			32,913
Depreciation			8,023
Balance at March 31, 2023			40,936

Net book value
Balance at December 31, 2022			134,154
Balance at March 31, 2023			139,703

During the three months ended March 31, 2023, renewals, remeasurements and dispositions of $9.4 million mainly related to lease renewals.

11.

Property, plant and equipment


	Land		Production facilities		Leasehold improvements			Equipment			Construction in progress (“CIP”)			Total
Cost
Balance at December 31, 2022		11,964		152,726		72,322			78,922			9,454			325,388
Acquisition (note 3(a), note3(b))		4,859		39,070		3,660			17,518			—			65,107
Additions		—		—		606			1,176			(408	)		1,374
Dispositions		—		—		(289	)		(464	)		—			(753	)
Balance at March 31, 2023		16,823		191,796		76,299			97,152			9,046			391,116

Accumulated depreciation and impairment
Balance at December 31, 2022		—		131,831		15,450			28,877			5,821			181,979
Depreciation		—		877		3,940			4,568			—			9,385
Dispositions		—		—		(264	)		(212	)		—			(476	)
Balance at March 31, 2023		—		132,708		19,126			33,233			5,821			190,888

Net book value
Balance at December 31, 2022		11,964		20,895		56,872			50,045			3,633			143,409
Balance at March 31, 2023		16,823		59,088		57,173			63,919			3,225			200,228

During the three months ended March 31, 2023, depreciation expense of $1.8 million was capitalized to biological assets and inventory (three months ended March 31, 2022 – $1.7 million).

At March 31, 2023, the Company determined that no indicators of impairment or indicators that a previous impairment should be reversed existed, and no impairment test was required.

SNDL Inc.

Notes to the Condensed Consolidated Interim Financial Statements

For the three months ended March 31, 2023

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

12.

Net investment in subleases


	March 31, 2023			December 31, 2022
Balance, beginning of year		23,319			26,562
Additions		—			1,408
Finance income		220			833
Rents recovered (payments made directly to landlords)		(1,002	)		(4,141	)
Dispositions and remeasurements		—			(1,343	)
Balance, end of period		22,537			23,319

Current portion		3,650			3,701
Long-term		18,887			19,618

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.

13.

Intangible assets


	Brands and trademarks		Franchise agreements		Software		Manufacturing and Sales License		Retail Licenses		Total
Cost
Balance at December 31, 2022		80,400		10,000		5,542		—		750		96,692
Acquisition (note 3(a))		—		—		265		2,020		—		2,285
Additions		—		—		17		—		—		17
Balance at March 31, 2023		80,400		10,000		5,824		2,020		750		98,994

Accumulated amortization and impairment
Balance at December 31, 2022		19,317		1,811		679		—		—		21,807
Amortization		60		308		261		222		—		851
Impairment		807		—		—				—		807
Balance at March 31, 2023		20,184		2,119		940		222		—		23,465

Net book value
Balance at December 31, 2022		61,083		8,189		4,863		—		750		74,885
Balance at March 31, 2023		60,216		7,881		4,884		1,798		750		75,529

During the three months ended March 31, 2023, the Company determined that indicators of impairment existed regarding the Sun 8 intellectual property due to decreasing market demand for the underlying strains and brand. The estimated recoverable amount of the intangible asset was determined to be $1.5 million and an impairment of $0.8 million was recorded.

14.

Investments


As at	March 31, 2023		December 31, 2022
Investments at amortized cost		24,457		24,493
Investments at FVTPL		8,531		72,761
		32,988		97,254

Current portion		22,997		6,552
Long-term		9,991		90,702

SNDL Inc.

Notes to the Condensed Consolidated Interim Financial Statements

For the three months ended March 31, 2023

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

Investments at fvtpl

Valens

On January 17, 2023, the Company announced that it had successfully closed the Valens Transaction (note 3(a)). The $60.0 million non-revolving term loan formed part of the consideration (note 3(a)).

Superette

On February 7, 2023, the Company announced that it had successfully closed the Superette Transaction (note 3(b)). The Company has adjusted the fair value of the Superette promissory note downward by $5.4 million ($1.7 million during the three months ended March 31, 2023, and $3.7 million during the year ended December 31, 2022) (note 22) to management’s best estimate of the fair value of the Superette promissory note at February 7, 2023. The Superette promissory note was extinguished immediately preceding the business combination and forms the consideration transferred (note 3(b)).

15.

Equity-accounted investees


As at	March 31, 2023		December 31, 2022
Interest in joint venture		535,932		519,255

As at March 31, 2023, the Company had funded $522.3 million out of the total $538.0 million that was originally committed to SunStream. Subsequent to March 31, 2023, the Company contributed $3.4 million to SunStream.

The following table summarizes the carrying amount of the Company’s interest in the joint venture:


	Carrying amount
Balance at December 31, 2022		519,255
Capital contributions		7,546
Share of net earnings (loss)		9,516
Share of other comprehensive income (loss)		(385	)
Balance at March 31, 2023		535,932

SunStream is a related party due to it being classified as a joint venture of the Company. Capital contributions to the joint venture and distributions received from the joint venture are classified as related party transactions.

The following table summarizes the financial information of SunStream:


As at	March 31, 2023			December 31, 2022
Current assets (including cash and cash equivalents - 2023: $3.3 million, 2022: $1.5 million)		8,252			5,437
Non-current assets		524,501			509,418
Current liabilities		(2,179	)		(1,146	)
Net assets (liabilities) (100%)		530,574			513,709

Three months ended March 31	2023			2022
Revenue (loss)		11,329			6,549
Profit (loss) from operations		9,691			4,003
Other comprehensive income (loss)		(385	)		(6,733	)
Total comprehensive income (loss)		9,332			(2,738	)

SNDL Inc.

Notes to the Condensed Consolidated Interim Financial Statements

For the three months ended March 31, 2023

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

16.

Derivative warrants


	March 31, 2023			December 31, 2022
Balance, beginning of year		11,002			21,700
Change in fair value recognized in profit or loss		(4,802	)		(10,783	)
Acquisition		—			85
Balance, end of period		6,200			11,002

The following table summarizes outstanding derivative warrants as at March 31, 2023:


	Exercise price (USD)		Number of warrants		Weighted average contractual life
2020 Series A Warrants (1)		1.77		50,000		2.4
Unsecured Convertible Notes Warrants (1)		1.77		50,000		0.8
New Warrants		2.29		9,833,333		1.4
December 2018 Performance Warrants	CAD 5.51			118,067		0.7
				10,051,400		1.4

(1)

The conversion or exercise price, as applicable, is subject to full ratchet antidilution protection upon any subsequent transaction at a price lower than the price then in effect and standard adjustments in the event of any share split, share dividend, share combination, recapitalization or other similar transaction. If the Company issues, sells or enters into any agreement to issue or sell, any variable rate securities, the investors have the additional right to substitute the variable price (or formula) of such securities for the conversion or exercise price, as applicable.

17.

Lease Liabilities


	March 31, 2023			December 31, 2022
Balance, beginning of year		169,831			33,470
Acquisitions (note 3(a), note3(b))		4,336			142,106
Additions		146			7,497
Lease payments		(10,493	)		(31,834	)
Renewals, remeasurements and dispositions		9,376			10,890
Tenant inducement allowances received		—			1,799
Accretion expense		1,946			5,903
Balance, end of period		175,142			169,831

Current portion		32,367			30,206
Long-term		142,775			139,625

During the three months ended March 31, 2023, renewals, remeasurements and dispositions of $9.4 million mainly related to lease renewals.

The following table presents the contractual undiscounted cash flows, excluding periods covered by lessee lease extension options that have been included in the determination of the lease term, related to the Company’s lease liabilities as at March 31, 2023:


	March 31, 2023
Less than one year		41,126
One to three years		68,944
Three to five years		68,955
Thereafter		27,841
Minimum lease payments		206,866

SNDL Inc.

Notes to the Condensed Consolidated Interim Financial Statements

For the three months ended March 31, 2023

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

18.

Share capital and warrants

(a)

Authorized

The authorized capital of the Company consists of an unlimited number of voting common shares and preferred shares with no par value.

(b)

Issued and outstanding


		March 31, 2023						December 31, 2022
	Note	Number of Shares			Carrying Amount			Number of Shares			Carrying Amount
Balance, beginning of year			235,194,236			2,292,810			206,040,836			2,035,704
Share issuances			—			—			370,179			2,870
Share repurchases			(546,700	)		(5,344	)		(4,252,489	)		(41,617	)
Acquisition	3(a)		27,605,782			83,953			32,060,135			287,129
Shares acquired and cancelled			(2,175,023	)		(6,615	)		—			—
Employee awards exercised			65,819			515			975,575			8,724
Balance, end of period			260,144,114			2,365,319			235,194,236			2,292,810

For the three months ended March 31, 2023, the Company purchased and cancelled 0.5 million common shares at a weighted average price of $2.78 (US$2.04) per common share for a total cost of $1.5 million. Accumulated deficit was reduced by $3.8 million, representing the excess of the average carrying value of the common shares over their purchase price.

In connection with the Valens Transaction (note 3(a)), the Company received and cancelled 2.2 million of its own common shares valued at $6.6 million based on the fair value on the closing date. At the time of the acquisition, the Company owned 6.5 million Valens common shares which were classified as marketable securities (note 6). In accordance with the Valens Transaction consideration, the Company received 2.2 million common shares (0.3334 of a SNDL common share for each Valens common share).

19.

Share-based compensation

The Company has a number of share-based compensation plans which include simple and performance warrants, stock options, restricted share units (“RSUs”) and deferred share units (“DSUs”). Further detail on each of these plans is outlined below. Subsequent to the Company’s initial public offering, the Company established the stock option, RSU and DSU plans to replace the granting of simple warrants and performance warrants.

The components of share-based compensation expense are as follows:


	Three months ended March 31
	2023			2022
Equity-settled expense
Simple warrants (A)		(337	)		547
Stock options (B)		(5	)		29
Restricted share units (1) (C)		2,624			2,389
Cash-settled expense
Deferred share units (1)(2) (D)		(73	)		1,239
		2,209			4,204

(1)

For the three months ended March 31, 2023, the Company recognized share-based compensation expense under Nova’s RSU plan of $14 and share-based compensation recovery under Nova’s DSU plan of $25.

(2)

Cash-settled DSUs are accounted for as a liability and are measured at fair value based on the market value of the Company’s common shares at each period end. Fluctuations in the fair value are recognized during the period in which they occur.

SNDL Inc.

Notes to the Condensed Consolidated Interim Financial Statements

For the three months ended March 31, 2023

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

Equity-settled plans

Simple and performance warrants

The Company issued simple warrants and performance warrants to employees, directors and others at the discretion of the Board. Simple and performance warrants granted generally vest annually over a three-year period, simple warrants expire five years after the grant date and performance warrants do not expire.

The following table summarizes changes in the simple and performance warrants during the three months ended March 31, 2023:


	Simple warrants outstanding			Weighted average exercise price		Performance warrants outstanding			Weighted average exercise price
Balance at December 31, 2022		165,820		$	46.91		123,200		$	42.26
Forfeited		(3,200	)		359.38		(6,400	)		321.88
Expired		(12,480	)		6.25		—			0.00
Balance at March 31, 2023		150,140		$	43.62		116,800		$	26.94

The following table summarizes outstanding simple and performance warrants as at March 31, 2023:


	Warrants outstanding						Warrants exercisable
Range of exercise prices	Number of warrants		Weighted average exercise price		Weighted average contractual life (years)		Number of warrants		Weighted average exercise price		Weighted average contractual life (years)
Simple warrants
$6.25 - $9.38		62,860		7.45		1.41		62,860		7.45		1.41
$29.69 - $45.31		27,120		31.26		1.36		26,320		31.02		1.30
$62.50 - $93.75		49,920		63.50		3.80		49,920		63.50		3.80
$125.00 - $312.50		10,240		201.58		3.94		8,640		200.71		3.65
		150,140	$	43.62		2.37		147,740	$	41.89		2.33
Performance warrants
$6.25 - $9.38		45,066		6.71	n/a			45,066		6.71		1.76
$12.50 - $18.75		17,334		15.15	n/a			17,334		15.15		0.79
$29.69 - $45.31		42,400		31.99	n/a			42,400		31.99		1.99
$62.50 - $93.75		9,334		77.68	n/a			1,334		93.75		2.92
$125.00 - $218.75		2,666		187.50	n/a			—		—	n/a
		116,800	$	26.94	n/a			106,134	$	19.28		1.71

Stock options

The Company issues stock options to employees and others at the discretion of the Board. Stock options granted generally vest annually in thirds over a three-year period and expire ten years after the grant date.

The following table summarizes changes in stock options during the three months ended March 31, 2023:


	Stock options outstanding			Weighted average exercise price
Balance at December 31, 2022		44,360		$	13.24
Forfeited		(5,000	)		11.50
Balance at March 31, 2023		39,360		$	13.46

SNDL Inc.

Notes to the Condensed Consolidated Interim Financial Statements

For the three months ended March 31, 2023

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

The following table summarizes outstanding stock options as at March 31, 2023:


	Stock options outstanding				Stock options exercisable
Exercise prices	Number of options		Weighted average contractual life (years)		Number of options		Weighted average contractual life (years)
$11.50		27,500		7.16		21,667		7.16
$11.90		8,160		7.24		8,160		7.24
$31.50		3,700		5.26		3,025		5.13
		39,360		7.00		32,852		7.00

Restricted share units

RSUs are granted to employees and the vesting requirements and maximum term are at the discretion of the Board. RSUs are exchangeable for an equal number of common shares.

The following table summarizes changes in RSUs during the three months ended March 31, 2023:


	RSUs outstanding
Balance at December 31, 2022		1,381,330
Granted		7,836,492
Forfeited		(46,055	)
Exercised		(65,819	)
Balance at March 31, 2023		9,105,948

At March 31, 2023, no RSUs were vested or exercisable.

Cash-settled plans

Deferred share units

DSUs are granted to directors and generally vest in equal instalments over one year. DSUs are settled by making a cash payment to the holder equal to the fair value of the Company’s common shares calculated at the date of such payment.

As at March 31, 2023, the Company recognized a liability of $2.3 million relating to the fair value of cash-settled DSUs (December 31, 2022 – $2.3 million).

The following table summarizes changes in DSUs during the three months ended March 31, 2023:

At March 31, 2023, 1.0 million DSUs were vested but none were exercisable.

20.

Gross revenue

Liquor retail revenue is derived from the sale of wines, beers and spirits to customers. Cannabis retail revenue is derived from retail cannabis sales to customers, franchise revenue consists of royalty, advertising and franchise fee revenue, and other revenue consists of millwork, supply and accessories revenue and proprietary licensing. Cannabis

SNDL Inc.

Notes to the Condensed Consolidated Interim Financial Statements

For the three months ended March 31, 2023

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

operations revenue is derived from contracts with customers and is comprised of sales to Provincial boards that sell cannabis through their respective distribution models, sales to licensed producers for further processing, provision of proprietary cannabis processing services, product development, manufacturing and commercialization of cannabis consumer products and sales to medical customers.


	Three months ended March 31
	2023		2022
Liquor retail revenue		115,911		1,310
Cannabis retail revenue
Retail		64,100		5,439
Franchise		1,767		2,050
Other		1,541		23
Cannabis retail revenue		67,408		7,512
Cannabis operations revenue
Provincial boards		26,129		9,732
Medical		21		3
Wholesale		3,149		1,570
Analytical testing		281		—
Cannabis operations revenue		29,580		11,305
Gross revenue		212,899		20,127

21.

Investment revenue (LOSS)


	Three months ended March 31
	2023		2022
Interest and fee revenue
Interest revenue from investments at amortized cost		1,006		995
Interest and fee revenue from investments at FVTPL		624		2,116
Interest revenue from cash		2,581		750
		4,211		3,861


	Three months ended March 31
	2023			2022
Investment loss
Realized (losses) gains (note 6)		(43,804	)		124
Unrealized gains (losses) (note 6)		38,635			(17,834	)
		(5,169	)		(17,710	)

SNDL Inc.

Notes to the Condensed Consolidated Interim Financial Statements

For the three months ended March 31, 2023

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

22.

Finance costs


	Three months ended March 31
	2023			2022
Cash finance expense
Other finance costs		28			24
		28			24
Non-cash finance expense (income)
Change in fair value of investments at FVTPL		3,368			—
Accretion on lease liabilities		1,946			340
Financial guarantee liability (recovery) expense		(139	)		(142	)
Other		190			—
		5,365			198
Interest income		(220	)		(283	)
		5,173			(61	)

23.

supplemental cash flow disclosures


	Three months ended March 31
	2023			2022
Cash provided by (used in):
Accounts receivable		8,096			(1,850	)
Biological assets		(1,853	)		4,369
Inventory		(20,426	)		(8,406	)
Prepaid expenses and deposits		(5,827	)		1,601
Investments		332			48
Right of use assets		(9,252	)		—
Property, plant and equipment		12			—
Accounts payable and accrued liabilities		(23,369	)		(10,701	)
Lease liabilities		9,265			—
		(43,022	)		(14,939	)

Changes in non-cash working capital relating to:
Operating		(42,562	)		(14,850	)
Investing		(459	)		(35	)
Financing		(1	)		(54	)
		(43,022	)		(14,939	)

SNDL Inc.

Notes to the Condensed Consolidated Interim Financial Statements

For the three months ended March 31, 2023

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

24.

Loss per share


	Three months ended March 31
	2023			2022
Weighted average shares outstanding (000s)
Basic and diluted (1)		255,556			206,146
Continuing operations
Net loss attributable to owners of the Company		(34,203	)		(37,904	)
Per share - basic and diluted	$	(0.13	)	$	(0.18	)
Discontinued operations
Net loss attributable to owners of the Company		(1,365	)		—
Per share - basic and diluted	$	(0.01	)	$	—
Net loss attributable to owners of the Company		(35,568	)		(37,904	)
Per share - basic and diluted	$	(0.14	)	$	(0.18	)

(1)

For the three months ended March 31, 2023, there were 0.3 million equity classified warrants, 9.9 million derivative warrants, 0.2 million simple warrants, 0.1 million performance warrants, 0.04 million stock options and 9.1 million RSUs that were excluded from the calculation as the impact was anti-dilutive (three months ended March 31, 2022– 0.4 million equity classified warrants, 9.9 million derivative warrants, 0.3 million simple warrants, 0.1 million performance warrants, 0.04 million stock options and 2.3 million RSUs).

25.

Financial instruments

The financial instruments recognized on the consolidated statement of financial position are comprised of cash and cash equivalents, restricted cash, marketable securities, accounts receivable, investments at amortized cost, investments at FVTPL, accounts payable and accrued liabilities and derivative warrants.

Fair value

The carrying value of cash and cash equivalents, restricted cash, accounts receivable and accounts payable and accrued liabilities approximate their fair value due to the short-term nature of the instruments. The carrying value of investments at amortized cost approximate their fair value as the fixed interest rates approximate market rates for comparable transactions.

SNDL Inc.

Notes to the Condensed Consolidated Interim Financial Statements

For the three months ended March 31, 2023

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

Fair value measurements of marketable securities, investments at FVTPL and derivative warrants are as follows:


			Fair value measurements using
March 31, 2023	Carrying amount		Level 1		Level 2		Level 3
Recurring measurements:
Financial assets
Marketable securities		10,992		10,992		—		—
Investments at FVTPL		8,531		—		—		8,531
Financial liabilities
Derivative warrants (1)		6,200		—		—		6,200

			Fair value measurements using
December 31, 2022	Carrying amount		Level 1		Level 2		Level 3
Recurring measurements:
Financial assets
Marketable securities		21,926		21,926		—		—
Investments at FVTPL		72,761		—		—		72,761
Financial liabilities
Derivative warrants (1)		11,002		—		—		11,002

(1)

The carrying amount is an estimate of the fair value of the derivative warrants and is presented as a current liability. The Company has no cash obligation with respect to the derivative warrants, rather it will deliver common shares if and when warrants are exercised.

At March 31, 2023, a 10% change in the material assumptions would change the estimated fair value of derivative warrant liabilities by approximately $1.0 million.

There were no transfers between Levels 1, 2 and 3 inputs during the period.

26.

RELATED PARTIES

The Company entered into the following related party transactions during the periods noted, in addition to those disclosed in note 15 relating to the Company’s joint venture.

A member of key management personnel jointly controls a company that owns property leased to SNDL for one of its retail liquor stores. The lease term is from November 1, 2017 to October 31, 2027 and includes extension terms from November 1, 2027 to October 31, 2032 and November 1, 2032 to October 31, 2037. Monthly rent for the location includes base rent, common area costs and sign rent. The rent amounts are subject to increases in accordance with the executed lease agreement. For the three months ended March 31, 2023, the Company paid $41.7 thousand in total rent with respect to this lease.

27.

Commitments and contingencies

The following table summarizes contractual commitments at March 31, 2023:


	Less than one year		One to three years		Three to five years		Thereafter		Total
Accounts payable and accrued liabilities		62,106		—		—		—		62,106
Financial guarantee liability		—		268		—		—		268
Contractual obligation		—		2,566		—		—		2,566
Balance, end of year		103,232		71,778		68,955		27,841		271,806

SNDL Inc.

Notes to the Condensed Consolidated Interim Financial Statements

For the three months ended March 31, 2023

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

(a)

Commitments

The Company has entered into certain supply agreements to provide dried cannabis and cannabis products to third parties. The contracts require the provision of various amounts of dried cannabis on or before certain dates. Should the Company not deliver the product in the agreed timeframe, financial penalties apply which may be paid either in product in-kind or cash. Under these agreements, the Company has accrued financial penalties payable as at March 31, 2023 of $2.5 million (December 31, 2022 – $2.5 million).

(b)

Contingencies

From time to time, the Company is involved in various claims and legal actions which occurred in the ordinary course of operations, the losses from which, if any, are not anticipated to be material to the financial statements.

28.

Subsequent events

On December 20, 2022, the Company and Nova announced that they had entered into an implementation agreement pursuant to which the Company and Nova agreed to implement a strategic transaction in the Canadian retail cannabis industry (the “Nova Transaction”).

As part of the Nova Transaction, the Company and Nova agreed to complete the following transactions, subject to certain terms and conditions (including receipt of the requisite regulatory approvals and approval of Nova shareholders under Multilateral Instrument 61-101 – Protection of Minority Security Holders in Special Transactions): (i) the Company will transfer or cause to be transferred its 26 corporate-owned cannabis retail stores to Nova; (ii) Nova will transfer its intellectual property related to the “Value Buds” retail banner to the Company; (iii) the parties and certain of their subsidiaries will enter into a strategic partnership agreement and store level license agreement with respect to the “Spiritleaf”, “Superette” and “Value Buds” retail banners to implement certain collaborative retail initiatives; (iv) the parties will amend certain existing governance documents (to which Alcanna was a predecessor party), including their investor rights agreement; (v) the Company will reduce its equity ownership interest in Nova to approximately 19.9%; and (vi) the parties will replace Nova’s existing credit facility with SNDL with a $15.0 million credit facility, with a $10.0 million “accordion” feature.

On May 5, 2023, Nova’s shareholders approved the previously announced agreement with SNDL to implement a strategic partnership to create a well-capitalized cannabis retail platform in Canada under a vertical integration model as amended on April 3, 2023. Completion of the Nova reorganization remains subject to certain other customary closing conditions, including the receipt of certain regulatory approvals required under applicable provincial cannabis legislation. Subject to the satisfaction or waiver of all closing conditions, the Nova reorganization is expected to be completed on or before June 30, 2023.