Q2 2026 SNDL Inc Earnings Call

July 28, 2026

Speaker #1: Good morning and welcome to SNDL Q2 2026 financial results conference call. This morning SNDL issued a press release announcing their financial results for the Q2 of 2026, ended on June 30, 2026.

Speaker #1: This press release is available on the company's website at sndl.com and filed on Edgar & Cedar as well. The webcast replay of the conference call will also be available on sndl.com website.

Speaker #1: SNDL has also posted a supplemental investor presentation in addition to the conference call presentation we'll be reviewing today on its sndl.com website. Presenting on this morning's call we have Zach George, Chief Executive Officer, and Alberto Paredero, Chief Financial Officer.

Speaker #1: Before we start, I would like to remind investors that certain matters discussed in today's conference call were answers that may be given to questions could constitute forward-looking statements.

Speaker #1: Actual results could differ materially from those anticipated. Risk factors that could cause actual results are detailed on the company's financial reports and other public filings that are made available on Cedar and Edgar.

Speaker #1: Additionally, all financial measures all financial figures mentioned are in Canadian dollars unless otherwise indicated. We will now make prepared remarks and then we will move on to analyst questions.

Speaker #1: I will now turn the call over to Zach George. Please go ahead.

Speaker #2: Welcome to SNDL's Q2 2026 financial and operational results conference call. During the Q2 of 2026, SNDL continued to operate through a challenging market environment across both liquor and cannabis.

Speaker #2: Net revenue declined 3.7% year over year, to $235.8 million, reflecting persistent demand softness and broader market headwinds. While these conditions pressured results, we stayed focused on discipline execution, cost optimization, and initiatives that strengthen our long-term earnings power.

Speaker #2: Profitability was impacted by lower net revenue, new product production ramp-up costs in cannabis operations, and a relatively small sunstream valuation adjustment. At the same time, we continued to exercise financial discipline and maintained a relentless focus on spend management, which partially offset these pressures.

Speaker #2: Importantly, we continued to generate positive operating cash flow and improved free cash flow compared to the same period last year. Free cash flow was negative 6.7 million in the quarter, and improvement of 1.2 million year over year, despite seasonal payments and a 2.7 million increase in cash in transit.

Speaker #2: We also continued to act on our strategic priorities. During the quarter, we accelerated our share repurchase activity, deployed profit enhancement initiatives expected to drive more than $20 million of incremental operating income, mostly over the remainder of the year, and completed a significant milestone in the parallel restructuring.

Speaker #2: The parallel restructuring is particularly important because it opens the door for SNDL to obtain direct exposure to and control over U.S. medical cannabis operations in Florida, Texas, and Massachusetts, subject to satisfying the remaining legal, regulatory, accounting, and NASDAQ requirements.

Speaker #2: Periods of market pressure require sharper focus and disciplined execution. Our teams are responding with targeted commercial and operational initiatives, including improved promotional discipline, operational efficiency, and targeted investments in high-performing platforms, while preserving balance sheet flexibility.

Speaker #1: Good morning, and welcome to the SNDL Q2 2026 financial results conference call. This morning, SNDL issued a press release announcing their financial results for Q2 2026.

Speaker #1: Ended on June 30, 2026. This press release is available on the company's website at sndl.com and filed on EDGAR and SEDAR as well. The webcast replay of the conference call will also be available on the sndl.com website.

Speaker #2: Consistent with our board-approved share repurchase program, we repurchased $11.7 million common shares during the Q2. Since the Q4 of 2024, total repurchases have exceeded $29 million shares, representing approximately a 7% reduction in shares outstanding.

Speaker #1: SNDL has also posted a supplemental investor presentation, in addition to the conference call presentation we will be reviewing today, on its sndl.com website. Presenting on this morning's call, we have Zach George, Chief Executive Officer, and Alberto Paredero, Chief Financial Officer.

Speaker #2: We remain encouraged by the strategic optionality created by our balance sheet, with $183.2 million of unrestricted cash, no outstanding debt as of June 30, 2026, and a portfolio of cannabis-related investments with a carrying value of $415.2 million.

Speaker #1: Before we start, I would like to remind investors that certain matters discussed in today's conference call, or answers that may be given to questions, could constitute forward-looking statements.

Speaker #2: SNDL is well-positioned to pursue disciplined growth, strategic investments, acquisitions, and continued return of capital to shareholders. Over now to Alberto for more detail on our Q2 financial performance.

Speaker #3: Thank you, Zach. Before moving on, I'd like to remind everyone that the amounts discussed today are denominated in Canadian dollars unless otherwise stated. Certain figures referred to during this call are non-GAAP and non-IFRS measures.

Speaker #1: Additionally, all financial figures mentioned are in Canadian dollars unless otherwise indicated. We will now make prepared remarks, and then we will move on to analyst questions.

Speaker #1: I will now turn the call over to Zach George. Please go ahead.

Speaker #3: For definitions of these measures and reconciliations where applicable, please refer to SNDL's management discussion and analysis and the earnings press release issued today. Net revenue was $235.8 million in the Q2 of 2026, representing a 3.7% decrease compared with the same period of the prior year.

Speaker #2: Welcome to SNDL's Q2 2026 financial and operational results conference call. During Q2 2026, SNDL continued to operate in a challenging market environment across both liquor and cannabis.

Speaker #2: Net revenue declined 3.7% year over year to $235.8 million, reflecting persistent demand softness and broader market headwinds. While these conditions pressured results, we stayed focused on disciplined execution, cost optimization, and initiatives that strengthen our long-term earnings power.

Speaker #3: The decline was driven by market headwinds across both liquor and cannabis segments. Gross profit was $56.3 million, a decline of 11.3 million, or 16.6% year over year.

Speaker #3: Gross margin was $23.9%, down 3.7 percentage points, mainly driven by cannabis operations and liquor retail, partially offset by margin expansion in cannabis retail. Operating loss was $7.8 million in the quarter, and adjusted operating loss was $7 million.

Speaker #2: Profitability was impacted by lower net revenue, new product production ramp-up costs in cannabis operations, and a relatively small SunStream valuation adjustment. At the same time, we continued to exercise financial discipline and maintained a relentless focus on spend management, which partially offset these pressures.

Speaker #3: The year-over-year reduction was driven primarily by the impact of new product production ramp-up costs in cannabis operations revenue and margin decline in liquor retail, and the absence of prior year impairment reversals in cannabis retail, and a 2.3 million reduction in the sunstream valuation partly offset by lower corporate overhead costs.

Speaker #2: Importantly, we continued to generate positive operating cash flow and improved free cash flow compared to the same period last year. Free cash flow was negative $6.7 million in the quarter, an improvement of $1.2 million year over year, despite seasonal payments and a $2.7 million increase in cash in transit.

Speaker #3: Free cash flow was negative 6.7 million, improving by 1.2 million compared with the same period last year. The result was primarily driven by. The 6.9 million annual payment of the 2025 management incentive and a 2.7 million increase in cash in transit.

Speaker #2: We also continued to act on our strategic priorities. During the quarter, we accelerated our share repurchase activity, deployed profit enhancement initiatives expected to drive more than $20 million of incremental operating income—mostly over the remainder of the year—and completed a significant milestone in the parallel restructuring.

Speaker #3: Our Q2 performance reflects continued market pressure across the portfolio. Net revenue and gross profit declined year over year, and adjusted operating income was impacted by the lower gross profit production ramp-up costs and the sunstream valuation impact.

Speaker #2: The parallel restructuring is particularly important because it opens a door for SNDL to obtain direct exposure to, and control over, U.S. medical cannabis operations in Florida, Texas, and Massachusetts, subject to satisfying the remaining legal, regulatory, accounting, and NASDAQ requirements.

Speaker #3: Looking ahead, our focus remains on driving sustained profitability and free cash flow growth, while continuing to invest selectively in our strategic growth agenda and shareholder value creation.

Speaker #3: Looking more closely at segment-level contributions across our key financial KPIs, consolidated net revenue declined by $9 million year over year. The largest contributor was liquor retail, which declined by 7.2 million, followed by cannabis operations, which declined by 3.6 million, and cannabis retail, which declined by 1.2 million.

Speaker #3: Cannabis eliminations partly offset the decline, by 3 million. Gross profit decline by 11.3 million year over year. Liquor retail contributed a 2.7 million decline, while cannabis operations contributed an 8.7 million decline.

Speaker #2: We remain encouraged by the strategic optionality created by our balance sheet. With $183.2 million of unrestricted cash, no outstanding debt as of June 30, 2026, and a portfolio of cannabis-related investments with a carrying value of $415.2 million, SNDL is well positioned to pursue disciplined growth, strategic investments, acquisitions, and continued return of capital to shareholders.

Speaker #3: Cannabis retail gross profit was essentially flat, increasing by 0.1 million year over year. Adjusted operating income declined by 12.8 million year over year to a loss of 7 million, primarily reflecting declines in liquor retail, cannabis retail, cannabis operations, and investments, partially offset by a 1.4 million improvement in corporate costs.

Speaker #2: Over now to Alberto for more detail on our Q2 financial performance.

Speaker #3: Free cash flow improved 15.2% year over year, from negative $7.9 million to negative $6.7 million. The improvement was supported by more favorable working capital, and differences in timing of rent expenses compared to prior year.

Speaker #3: Even as earnings represented a year-over-year headwind. The chart on the right-hand side of the slide illustrates the seasonal nature of free cash flow. With Q2 historically impacted by seasonal payments and the second half typically representing a stronger cash flow generation period.

Speaker #3: For definitions of these measures and reconciliations where applicable, please refer to SNDL's Management Discussion and Analysis and the earnings press release issued today. Net revenue was $235.8 million in Q2 2026, representing a 3.7% decrease compared with the same period of the prior year.

Speaker #3: Turning to the commercial segments, I will begin with liquor retail. As a reminder, starting in 2026, we began allocating applicable direct and indirect overhead costs from corporate to each operating segment within general and administrative expenses.

Speaker #3: The decline was driven by market headwinds across both liquor and cannabis segments. Gross profit was $56.3 million, a decline of $11.3 million, or 16.6% year over year.

Speaker #3: The comparative periods have been restated to reflect these allocations. Liquor retail net revenue was $134.7 million, a decline of 7.2 million, or 5.1% year over year.

Speaker #3: The decline was driven by persistent softness in market demand, which impacted same-store sales by 6.2%. Despite the contribution of two new wine of Beyond Stores, opening Q4 2025, and private label sales outperforming national brands by 13 percentage points in the quarter.

Speaker #3: The year-over-year reduction was driven primarily by the impact of new product production ramp-up costs in cannabis operations, revenue and margin decline in liquor retail, and the absence of prior-year impairment reversals in cannabis retail, and a $2.3 million reduction in the SunStream valuation, partly offset by lower corporate overhead costs.

Speaker #3: Gross profit was $33.8 million, down 7.4% year over year, and gross margin was 25.1%, down 60 basis points. The margin decline was driven by increased promotional activity aimed at the stimulating sales volume.

Speaker #3: Free cash flow was negative $6.7 million, improving by $1.2 million compared with the same period last year. The result was primarily driven by the $6.9 million annual payment of the 2025 management incentive and a $2.7 million increase in cash in transit.

Speaker #3: Adjusted operating income was $3.2 million, down 3.5 million year over year. The decrease was driven by lower revenue increased promotional support and higher SDNA expenses associated with the recent wine of Beyond Store openings.

Speaker #3: Our Q2 performance reflects continued market pressure across the portfolio. Net revenue and gross profit declined year-over-year, and adjusted operating income was impacted by the lower gross profit, production ramp-up costs, and the Sunstream valuation impact.

Speaker #3: Cannabis retail net revenue was $83.2 million, down 1.2 million, or 1.4% year over year. The decline was driven by negative same-store sales of 4.6%, reflecting market contraction in Alberta and Ontario, partially offset by new-store openings and value-added store conversions.

Speaker #3: Looking ahead, our focus remains on driving sustained profitability and free cash flow growth while continuing to invest selectively in our strategic growth agenda and shareholder value creation.

Speaker #3: Gross profit was $22 million, increasing slightly by 0.1 million year over year, while gross margin expanded 50 basis points to 26.4%. This improvement was supported by promotional efficiencies, pricing actions, and product mix management.

Speaker #3: Adjusted operating income was $3 million, down 1.2 million year over year. The decline was primarily due to prior year asset impairment reversals, which offset the current year benefits from margin expansion and overhead efficiency.

Speaker #3: Cannabis eliminations partly offset the decline by $3 million. Gross profit declined by $11.3 million year over year. Liquor retail contributed a $2.7 million decline, while cannabis operations contributed an $8.7 million decline.

Speaker #3: Cannabis operations net revenue was $32.2 million, a decline of 3.6 million, or 10.1% year over year. The decline was driven by market headwinds and the absence of business-to-business flower deliveries.

Speaker #3: Cannabis retail gross profit was essentially flat, increasing by $0.1 million year over year. Adjusted operating income declined by $12.8 million year over year to a loss of $7.0 million, primarily reflecting declines in liquor retail, cannabis retail, cannabis operations, and investments, partially offset by a $1.4 million improvement in corporate costs.

Speaker #3: As some of our partners are also experiencing demand shortfalls. This impacts were partially offset by a 1.2 million increase in international sales, which reached 5 million in the Q2 of 2026.

Speaker #3: Gross profit was $0.6 million, down 8.7 million year over year, while gross margin was 1.8%, a decline of 24 percentage points from the prior period.

Speaker #3: In addition to the revenue decline, we experienced significant inefficiencies associated with the jitter production ramp-up during the Q2. While we're working closely with our partners to implement process improvements, I'd increased labor efficiency, some of these cost headwinds are expected to persist over the coming months.

Speaker #3: Even as earnings represented a year-over-year headwind, the chart on the right-hand side of the slide illustrates the seasonal nature of free cash flow, with Q2 historically impacted by seasonal payments and the second half typically representing a stronger cash flow generation period.

Speaker #3: Adjusted operating loss was $9 million, compared with an adjusted operating loss of $2.8 million in the prior year. The decline was primarily due to the production ramp-up inefficiencies impacting gross profit.

Speaker #3: Over to you, Zach, for additional comments on our capital allocation priorities and strategic milestones.

Speaker #1: Turning now to capital allocation and strategic milestones, I would like to highlight the progress we made in the quarter on two areas: discipline share repurchases and the completion of the parallel restructuring milestone.

Speaker #3: The comparative periods have been restated to reflect these allocations. Liquor retail net revenue was $134.7 million, a decline of $7.2 million, or 5.1% year over year.

Speaker #1: Starting with share repurchases, we accelerated execution in Q2 while maintaining balance sheet flexibility. During the quarter, we repurchased 11.7 million common shares for cancellation for 23.3 million of cash outflows, excluding commissions, at a weighted average price of $1.43 US per share.

Speaker #3: The decline was driven by persistent softness in market demand, which impacted same-store sales by 6.2%. Despite the contribution of two new Wine of Beyond stores, opening in Q4 2025, and private label sales outperforming national brands by 13 percentage points in the quarter.

Speaker #1: Since the Q4 of 2024, SNDL has repurchased more than 29 million shares, with an aggregate repurchased value of approximately $64.5 million, and an average price of $1.58 US per share.

Speaker #1: We believe this represents disciplined capital allocation at attractive prices and reflects our confidence in SNDL's intrinsic value and long-term prospects. The completion of the parallel restructuring is a transformational milestone for SNDL.

Speaker #1: Parallel provides exposure to medical cannabis operations in Florida, Texas, and Massachusetts, with 56 retail locations, 3 cultivation and manufacturing sites, approximately 800 employees, and near-term annualized revenue expected to be approximately $150 million.

Speaker #3: Cannabis retail net revenue was $83.2 million, down $1.2 million, or 1.4% year over year. The decline was driven by negative same-store sales of 4.6%, reflecting market contraction in Alberta and Ontario, partially offset by new-store openings and value-added store conversions.

Speaker #1: Subject to satisfying the remaining legal, regulatory, accounting, and NASDAQ requirements, we expect to obtain direct control of Parallel's medical cannabis operations in the coming months.

Speaker #3: Gross profit was $22 million, increasing slightly by $0.1 million year over year, while gross margin expanded 50 basis points to 26.4%. This improvement was supported by promotional efficiencies, pricing actions, and product mix management.

Speaker #1: This would provide SNDL with a significant US medical cannabis platform, and a creative margin profile, and the potential to exceed $1 billion CAD in annual revenue and become the largest cannabis retailer in the world by store count.

Speaker #1: Importantly, this transaction concludes a complex, multi-year restructuring of one of Sunstream's largest legacy credit investments and substantially reduces Parallel's historical debt burden, creating a more sustainable capital structure to support future growth.

Speaker #3: Adjusted operating income was $3 million, down $1.2 million year over year. The decline was primarily due to prior-year asset impairment reversals, which offset the current-year benefits from margin expansion and overhead efficiency.

Speaker #1: The successful completion of the restructuring preserves and enhances the value of a significant legacy investment while establishing a stronger foundation for the future performance of the business.

Speaker #3: Cannabis operations net revenue was $32.2 million, a decline of $3.6 million, or 10.1% year over year. The decline was driven by market headwinds and the absence of business-to-business flower deliveries, as some of our partners are also experiencing demand shortfalls.

Speaker #1: We believe Parallel's operating footprint, established brands, and position in key medical cannabis markets provide meaningful long-term strategic optionality as we pursue the next phase of the transaction.

Speaker #3: These impacts were partially offset by a $1.2 million increase in international sales, which reached $5 million in Q2 2026. Gross profit was $0.6 million, down $8.7 million year over year, while gross margin was 1.8%, a decline of 24 percentage points from the prior period.

Speaker #1: This transaction also demonstrates the value of SNDL's differentiated investment strategy and balance sheet strength, our ability to navigate a complex restructuring process, and ultimately convert a distressed credit position into significant economic exposure to a scaled US operator highlights the strategic flexibility provided by our capital resources and investment platform.

Speaker #3: In addition to the revenue decline, we experienced significant inefficiencies associated with the jittered production ramp-up during Q2. While we're working closely with our partners to implement process improvements and increase labor efficiency, some of these cost headwinds are expected to persist over the coming months.

Speaker #1: While current market conditions remain challenging, we are taking decisive action to improve profitability, preserve balance sheet strength, and allocate capital with discipline. I want to thank our teams for their continued focus and resilience, and our shareholders for their ongoing support.

Speaker #1: We remain committed to building long-term value through operational improvement, strategic growth, and the discipline return of capital. I will now turn the call back to the operator for the analyst Q&A session.

Speaker #3: Over to you, Zach, for additional comments on our capital allocation priorities and strategic milestones.

Speaker #1: Turning now to capital allocation and strategic milestones, I would like to highlight the progress we made in the quarter on two areas: disciplined share repurchases and the completion of the parallel restructuring milestone.

Speaker #2: Thank you. We will now begin the analyst question-and-answer session. To join the question queue, you may press star, then 11 on your telephone keypad.

Speaker #2: You will hear an automated message acknowledging your hand is raised. If you're using a speakerphone, please pick up the handset first before pressing any keys.

Speaker #1: Starting with share repurchases, we accelerated execution in Q2 while maintaining balance sheet flexibility. During the quarter, we repurchased 11.7 million common shares for cancellation for $23.3 million of cash outflows, excluding commissions, at a weighted average price of $1.43 US per share.

Speaker #2: To withdraw your question, please press star 11 again. We'll pause for a moment while we compile our Q&A roster. Our first question comes from Aaron Gray with Alliance Global Partners.

Speaker #2: Your line is open.

Speaker #4: Hi, good morning, Anna. Thank you very much for the question. As Zach wanted to pick up where you just left off in terms of, you know, capital allocation strategy, particularly as you think about, you know, the transformational parallel deal, that's yet to be complete in the coming months.

Speaker #1: Since Q4 of 2024, SNDL has repurchased more than 29 million shares, with an aggregate repurchase value of approximately $64.5 million and an average price of $1.58 US per share.

Speaker #4: Just given the fact that, obviously, you've had, you know, some repurchase share repurchases the past quarter, and year-to-date, how can we think about that changing now that, you know, on the verge of having direct access into the US?

Speaker #4: Either via M&A or CapEx into markets like Texas. Does that now change in terms of capital allocation going forward versus what we saw in the first half?

Speaker #4: Thank you.

Speaker #1: Thanks, Aaron. Thanks for the question. There was a lot there. So just trying to work backwards. Certain things are going to change. Certain things are not going to change, okay?

Speaker #1: So we still have the view that our equity is trading well below its intrinsic value. And when we look at investments that are available to us across the sector, it is still an attractive use of capital to reduce our outstanding share count.

Speaker #1: We're one of the only companies that is aggressively doing that in the sector. We've also put ourselves in a position where we have access to both debt and equity capital, with a debt-free balance sheet.

Speaker #1: So it creates a lot of opportunity. And I would point out that when you look at the cost of debt capital that is experienced by a number of US operators, having Canadian, exposure in terms of a sizable operating base, both in liquor and cannabis, really gives us a capital cost of capital advantage on the debt side.

Speaker #1: The successful completion of the restructuring preserves and enhances the value of a significant legacy investment, while establishing a stronger foundation for the future performance of the business.

Speaker #1: When you think about the willingness of, you know, Canadian banks to lend at competitive rates. Which have been shown to us in, like, the mid-single digits.

Speaker #1: So there's a lot of optionality, a number of levers we can pull. As you point out, we do intend to invest going forward in the United States, whether that be to improve processing capabilities in Florida, to increase and get more competitive in terms of that network and door count, which has been dormant with Parallel being stuck in this foreclosure process for several years.

Speaker #1: We believe Parallel's operating footprint, established brands, and positions in key medical cannabis markets provide meaningful long-term strategic optionality as we pursue the next phase of the transaction.

Speaker #1: This transaction also demonstrates the value of SNDL's differentiated investment strategy and balance sheet strength. Our ability to navigate a complex restructuring process and ultimately convert a distressed credit position into significant economic exposure to a scaled U.S. operator highlights the strategic flexibility provided by our capital resources and investment platform.

Speaker #1: And also, view Texas as a really incredible opportunity going forward, which will likely have a very slow burn upwards. But would note that, you know, for the existing operators, just with the introduction of vape alone in the last couple of months, it created an immediate 40% bump in revenue.

Speaker #1: So coming off of a low base, but a pretty exciting market that is largely distillate-based today. That will continue to grow, and you're hearing word from other competitors that are excited to try to be in market and acquire patients later this year.

Speaker #1: We remain committed to building long-term value through operational improvement, strategic growth, and the disciplined return of capital. I will now turn the call back to the operator for the analyst Q&A session.

Speaker #4: Okay, appreciate that. That was really helpful color there, Zach. Second question for me: just on cannabis operations, maybe first off, if you could talk about, you know, how much of the gross margin pressure was from the Jita ramp versus maybe higher, you know, cost related to the absence of B2B, you know, supply?

Speaker #2: Thank you. We will now begin the analyst question-and-answer session. To join the question queue, you may press star, then 1-1 on your telephone keypad.

Speaker #2: You will hear an automated message acknowledging your hand is raised. If you're using a speakerphone, please pick up a handset first before pressing any keys.

Speaker #2: To withdraw your question, please press star-one-one again. We will pause for a moment while we compile our Q&A roster. Our first question comes from Aaron Gray with Alliance Global Partners.

Speaker #4: And then regarding the supply, maybe how much of that do you think, particularly, is near-term? You mentioned some near-term pressure in the coming quarters, you know, versus something that you can eventually evolve beyond.

Speaker #2: Your line is open.

Speaker #4: And do you think that this increases the need to get, you know, more vertical in Canada and Canada via, you know, M&A or investing in cultivation?

Speaker #4: Hi, good morning, and thank you very much for the question. Zach, I want to pick up where you just left off in terms of capital allocation strategy, particularly as you think about the transformational parallel deal.

Speaker #4: Thanks.

Speaker #1: It's a great question. I think if you look at our 2025 results and year-to-date, what I would say with transparency is that we have some acute issues that we are managing through, specifically with regards to the team in Kelowna.

Speaker #4: That's yet to be completed in the coming months. Just given the fact that, obviously, you've had some share repurchases in the past quarter and year-to-date, how should we think about that changing now that you're on the verge of having direct access into the US?

Speaker #1: And that asset. That's also where the ramp and Jita production has been happening. In terms of attribution of that pressure, I'll ask Alberto to comment.

Speaker #4: Either via M&A or CapEx into markets like Texas. Does that now change in terms of capital allocation going forward versus what we saw in the first half?

Speaker #4: Thank you.

Speaker #1: But what I would say is that, no, the challenges that we have experienced, we believe are fixable. They also are a negative overlay on what is otherwise a platform that's generating significant free cash flow.

Speaker #1: Thanks, Aaron. Thanks for the question. There was a lot there. So just trying to work backwards. Certain things are going to change. Certain things are not going to change, okay?

Speaker #1: So, we still have the view that our equity is trading well below its intrinsic value. And when we look at investments that are available to us across the sector, it is still an attractive use of capital to reduce our outstanding share count.

Speaker #1: So it's been muted by some of these issues. But we still expect to generate positive free cash flow for the full calendar year. And as you know, we have some cyclicality that impacts the business throughout the calendar year.

Speaker #1: But the solution may not be to simply go further upstream and, you know, pay a big premium for cultivation. It actually may be to go the opposite direction.

Speaker #1: So it creates a lot of opportunity. And I would point out that when you look at the cost of debt capital that is experienced by a number of US operators, having Canadian exposure in terms of a sizable operating base both in liquor and cannabis really gives us a capital cost of capital advantage on the debt side when you think about the willingness of Canadian banks to lend at competitive rates.

Speaker #1: And it's very clear that in the domestic market, the winners on in the dried flower category are going to be scaled best-in-class hybrid glasshouse operators.

Speaker #1: And that, you know, you just really have to appreciate the price differential in these various markets again, just pointing to one simple example. But with the launch of vape in Texas, operators are selling, you know, half-gram, 510 card set, you know, approximately $45.

Speaker #1: Which have been shown to us in the mid-single digits. So there's a lot of optionality, a number of levers we can pull. As you point out, we do intend to invest going forward in the United States, whether that be to improve processing capabilities in Florida, to increase and get more competitive in terms of that network and door count, which has been dormant with Parallel being stuck in this foreclosure process for several years.

Speaker #1: And you can that's USD. You can basically access the same half-gram, 510 cart on the streets of Toronto for about $17, $18 equivalent USD.

Speaker #1: So the competitiveness and compressed environment with, you know, an inefficient tax structure is still impacting LPs in Canada when you look past some of the benefit from excise-free trade, that's happening internationally for, you know, some of the best-in-class flower producers.

Speaker #1: And also, view Texas as a really incredible opportunity going forward, which will likely have a very slow burn upwards. But I would note that for the existing operators, just with the introduction of vape alone in the last couple of months, it created an immediate 40% bump in revenue.

Speaker #1: But I'll let Alberto comment a little bit more, just in terms of the segment and those pain points.

Speaker #2: No, thanks, Zach. And great question, Aaron. The vast majority, I would say, 80, 90 percent of the gross margin shortfall that we have experienced in the second quarter in cannabis operations is driven by the Jita ramp-up.

Speaker #1: So coming off of a low base, but a pretty exciting market that is largely distillate-based today. That will continue to grow, and and you're hearing word from other competitors that are excited to try to be in market and acquire patients later this year.

Speaker #2: We did have a couple of minor impairments of inventory. During the quarter, but in a way, we are about 25 percentage points of margin short in this segment compared to where we would like or would need to be.

Speaker #4: Okay. Appreciate that. That was really helpful color there, Zach. Second question for me, just on cannabis operations, maybe first off, if you could talk about how much of the gross margin pressure was from the JITA ramp versus maybe higher cost related to the absence of B2B supply.

Speaker #2: 20 percentage points of margin is driven by Jita.

Speaker #4: Okay, great. That's helpful color. I'll go and jump back in the queue.

Speaker #5: Thank you. One moment before our next question. Our next question comes from Federico Gomes with ATB Cormorant Capital Markets. Your line is open.

Speaker #4: And then regarding the supply, maybe how much of that do you think, particularly, is near-term? You mentioned some near-term pressure in the coming quarters versus something that you can eventually evolve beyond.

Speaker #4: And do you think that this increases the need to get more vertical in Canada via M&A or investing in cultivation? Thanks.

Speaker #6: Good morning. Thanks for taking my questions here. I want to ask about the cannabis retail segment. So two questions here. Number one, you mentioned market contraction in Alberta and Ontario.

Speaker #1: That's a great question. I think if you look at our 2025 results and year-to-date, what I would say, with transparency, is that we have some acute issues that we are managing through, specifically with regards to the team in Kelowna.

Speaker #6: So can you talk maybe about the drivers behind that contraction in those two markets specifically? And whether you see a return to growth anytime soon?

Speaker #6: And then second, in terms of your M&A strategy for cannabis retail, you know, considering, you know, the, I guess, the failed 1CM transaction, how are you looking at that?

Speaker #1: And that asset. That's also where the ramp and JITA production has been happening. In terms of attribution of that pressure, I'll ask Alberto to comment.

Speaker #6: And how should we be thinking about M&A in cannabis retail? Thank you.

Speaker #1: Yeah, it's a great question. And I'll have Alberto share his thoughts here as well. But, you know, clearly you have a growth in terms of consumption, and broader sales, at the provincial levels, flattening out very, very quickly.

Speaker #1: So, it's been muted by some of these issues, but we still expect to generate positive free cash flow for the full calendar year. And as you know, we have some cyclicality that impacts the business throughout the calendar year.

Speaker #1: But in addition to that, if you look at a market like Ontario, we've seen a continued ramp-up of the store count. So you have an increasing number of doors and operators competing for what really are the same dollars.

Speaker #1: But the solution may not be to simply go further upstream and pay a big premium for cultivation—it actually may be to go the opposite direction.

Speaker #1: And that's putting pressure on a number of operators. The discount scale discount operators are faring much, much better. So we're not seeing the same declines that we were seeing across the broader market.

Speaker #1: And it's very clear that, in the domestic market, the winners in the dried flower category are going to be scaled, best-in-class, hybrid glasshouse operators.

Speaker #1: And there's some other players that are demonstrating the same resilience. But we expect that dynamic to continue. And we think that consolidation in this space eventual further penetration of e-com is going to further transform that retail experience.

Speaker #1: And that you just really have to appreciate the price differential in these various markets—again, just pointing to one simple example. With the launch of vape in Texas, operators are selling half-gram, 510 carts at...

Speaker #1: But continues to perform, we continue to see margin opportunities and, as we get our mix right in retail, we actually expect both margin and free cash flow accretion going forward.

Speaker #1: Approximately $45. And you can that's USD. You can basically access the same half-gram, 510 cart on the streets of Toronto for about $17, $18 equivalent USD.

Speaker #1: So it's really been a pillar of stability in the model, if anything. As you point out, the M&A question really is one of capital allocation.

Speaker #1: So the competitiveness and compressed environment with an inefficient tax structure is still impacting LPs in Canada. When you look past some of the benefit from excise-free trade, that's happening internationally for some of the best-in-class flower producers.

Speaker #1: And so we have a strong bias towards organic rollout. We are at the verge of a resolution in terms of our path in Ontario.

Speaker #1: And continue to see small pockets of white space that we are looking at elsewhere. But as we move into the US as a true cross-border operator, you're going to have more opportunities that are competing for our capital.

Speaker #1: But I'll let Alberto comment a little bit more just in terms of the segment and those pain points.

Speaker #2: No, thanks, Zach. And great question, Aaron. The vast majority—I would say 80 to 90 percent—of the gross margin shortfall that we have experienced in the second quarter in cannabis operations is driven by the JITA ramp-up.

Speaker #1: And we need to be very disciplined about ensuring that we are focused on the most attractive rates of return on a risk-adjusted basis across all of these markets.

Speaker #1: And that's really what we're focused on discerning right now.

Speaker #2: We did have a couple of minor impairments of inventory during the quarter, but, in a way, we are about 25 percentage points of margin short in this segment compared to where we would like or would need to be.

Speaker #2: Just to maybe to add from my side, specifically, on cannabis retail. So yeah, those the large majority of our footprint, they have relatively large single-digit declines in the first quarter.

Speaker #2: Twenty percentage points of margin is driven by JITA.

Speaker #2: The situation improved a little bit in the second quarter, as we were anticipating. But it was still on the negative side. Differences in trajectory from April to June.

Speaker #4: Okay, great. That's helpful color. I'll go and jump back in the queue.

Speaker #5: Thank you. One moment for our next question. Our next question comes from Federico Gomes with ATB Cormorant Capital Markets. Your line is open.

Speaker #2: April were still seeing some of these provinces going 3 to 4 percent in the month of June. We were starting to see closer to break-even growth from that standpoint.

Speaker #6: Good morning. Thanks for taking my questions here. I want to ask about the cannabis retail segment. So, two questions here. Number one, you mentioned market contraction in Alberta and Ontario.

Speaker #2: What anticipate in the second half of the year, to be much better. I mean, the main driver for the declines that we saw in the first half in these two provinces is we're lacking a very strong first half market-wise.

Speaker #6: So can you talk maybe about the drivers behind that contraction in those two markets specifically and whether you see a return to growth anytime soon?

Speaker #2: And as well, from our own standpoint, in the first half of last year, where you probably remember some of the top retailers we were reporting high single-digit, sometimes even double-digit revenue growth in market growth of 5 to 7 percent during the first half of last year.

Speaker #6: And then second, in terms of your M&A strategy for cannabis retail, considering the, I guess, the failed 1CM transaction, how are you looking at that, and how should we be thinking about M&A in cannabis retail?

Speaker #2: There were significant efforts at that point in time from most of our competitors and ourselves in terms of margin investments and promotional activity. This year, you're seeing margins improving.

Speaker #6: Thank you.

Speaker #1: Yeah, that's a great question, and I'll have Alberto share his thoughts here as well. But clearly, you have growth in terms of consumption and broader sales at the provincial levels, flattening out very, very quickly.

Speaker #2: Not only us, but as well some of the other retailers in these two provinces. So there's significantly less intensity on promotional activity. Which is eroding a little bit the growth rate, but it's improving still margins and gross profits comparative dynamics and what we're lacking from last year.

Speaker #2: And we're expecting to return the market to return to growth in the second half of the year at low single digits.

Speaker #1: And that's putting pressure on a number of operators. The discount-scale discount operators are faring much, much better, so we're not seeing the same declines that we were seeing across the broader market.

Speaker #6: Thank you. Appreciate that. Then my second question. On liquor retail. You know, obviously still same store sales declines in that segment. I know that you previously you were expecting a recovery but that hasn't happened yet.

Speaker #1: And there are some other players that are demonstrating the same resilience. But we expect that dynamic to continue, and we think that consolidation in the space, and eventual further penetration of e-comm, is going to further transform that retail experience.

Speaker #6: And now we are also saw some margin decline there with promotional activity. So how do you think about the future of liquor retail as part of your broader strategy and platform?

Speaker #6: You know, considering these ongoing headwinds in the industry as well as, I guess, your entrance or expected entrance into the US cannabis market, which is a huge opportunity.

Speaker #1: But it continues to perform. We continue to see margin opportunities, and as we get our mix right in retail, we actually expect both margin and free cash flow accretion going forward.

Speaker #6: Thank you.

Speaker #1: So it's really been a pillar of stability in the model, if anything. As you point out, the M&A question really is one of capital allocation.

Speaker #2: Yeah, maybe it takes that one sec. Obviously, it's a tough environment, the one that we're seeing right now with liquor. It's a global phenomenon, as you know.

Speaker #2: In the sense that pretty much all markets, they are declining in the low single-digit or in the mid-single-digit declines. We're not expecting a massive turn in that performance in the foreseeable future.

Speaker #1: And so we have a strong bias towards organic rollout. We are on the verge of a resolution in terms of our path in Ontario.

Speaker #2: It's difficult to predict when and how these markets will stabilize. Obviously, we're talking to a lot of experts in multiple markets, not just Canada.

Speaker #2: And while some are expecting that we will continue seeing for the next couple of years single-digit declines, some others are expecting that sooner than later we're going to start seeing stabilization that this current trends are not sustainable.

Speaker #1: And we need to be very disciplined about ensuring that we are focused on the most attractive rates of return on a risk-adjusted basis across all of these markets.

Speaker #1: And that's really what we're focused on discerning right now.

Speaker #2: Yes, right. Maybe to add from my side, specifically on cannabis retail—so, yeah, those are the large majority of our footprint. They had relatively large single-digit declines in the first quarter.

Speaker #2: We're starting to see already, for example, if we look at the wine category, starting to have some months where we're seeing already some growth.

Speaker #2: It's not yet the case in the spirits and beer. So it's still a mixed bag when it comes to the overall market performance. That said, obviously, we're playing in a tough economic environment.

Speaker #2: The situation improved a little bit in the second quarter, as we were anticipating, but it was still on the negative side. There were differences in trajectory from April to June.

Speaker #2: And macro environment when it comes to the segment. But there are still quite a lot of things that we can do to improve our own performance within the segment.

Speaker #2: April were still seeing some of these provinces going 3 to 4 percent in the month of June. We were starting to see closer to break-even growth from that standpoint.

Speaker #2: And gain market share. We know that our convenience banner is not performing as well as our wine and beyond banner. Within the segment, we're seeing wine and beyond is still growing.

Speaker #2: We're seeing our private label growing very nicely at a creative margins. So there are certainly some aspects that gives us the encouragement to continue working in that direction that we're going.

Speaker #2: And as well, from our own standpoint, in the first half of last year—where you probably remember some of the top retailers—we were reporting high single digits, sometimes even double-digit revenue growth in market growth of 5 to 7 percent during the first half of last year.

Speaker #2: But at the same time, we know we need to improve convenience, which is the part of the market that is struggling the most right now.

Speaker #2: We're not going to be making the same level of investments in promo activity in the second half of the year. So we should be anticipating margins to be flat or going back to growth compared to last year in the second half.

Speaker #2: There were significant efforts at that point in time from most of our competitors and ourselves in terms of margin investments and promotional activities. This year, you're seeing margins improving.

Speaker #2: But there are still a lot of things that we can do from a mixed management perspective. And managing the velocity of our items within convenience banner to get to better performance in the second half, that's what we have seen in the first half.

Speaker #2: Not only us, but as well some of the other retailers in these two provinces. So, there is significantly less intensity on promotional activity, which is eroding a little bit the growth rate, but it's still improving margins and gross profits. Operator dynamics are what we're lacking from last year.

Speaker #6: Thank you.

Speaker #1: Again, ladies and gentlemen, if you have a question or a comment at this time, please press star 11 on your telephone. And I'm not showing any further questions at this time.

Speaker #2: And we're expecting to return the market to return to growth in the second half of the year at low single digits.

Speaker #1: I'd like to turn the call back over to Zach for any closing remarks.

Speaker #6: Thank you. Appreciate that. Then my second question on liquor retail. Obviously, still same store sales declines in that segment. I know that you previously were expecting a recovery but that hasn't happened yet.

Speaker #2: Thank you, operator. And thank everyone for your time and the continued interest in SNDL. We appreciate the support. We look forward to updating you next quarter.

Speaker #2: Thank you, operator.

Speaker #1: Thank you, ladies and gentlemen. So this concludes today's presentation. We thank you for your participation and may now disconnect and have a wonderful day.

Speaker #6: And now we also saw some margin decline there with promotional activity. So, how do you think about the future of liquor retail as part of your broader strategy and platform, considering these ongoing headwinds in the industry, as well as, I guess, your entrance or expected entrance into the US cannabis market, which is a huge opportunity?

Speaker #6: Thank you.

Speaker #2: Yeah. Maybe take that one sec. Obviously, it's a tough environment—the one that we're seeing right now with liquor. It's a global phenomenon, as you know.

Speaker #2: In the sense that pretty much all markets, they are declining in the low single digit or in the mid single digit declines. We're not expecting a massive turn in that performance in the foreseeable future.

Speaker #2: It's difficult to predict when and how these markets will stabilize. Obviously, we're talking to a lot of experts in multiple markets, not just Canada.

Speaker #2: And while some are expecting that we will continue seeing for the next couple of years single digit declines, some others are expecting that sooner than later, we're going to start seeing stabilization that this current trends are not sustainable.

Speaker #2: We're starting to see already, for example, if we look at the wine category, starting to have some months where we're seeing already some growth.

Speaker #2: It's not yet the case in spirits and beer. So it's still a mixed bag when it comes to the overall market performance. At that said, obviously, we're playing in a tough economic environment.

Speaker #2: And macro environment when it comes to the segment. But there are still quite a lot of things that we can do to improve our own performance within the segments and gain market share.

Speaker #2: We know that our convenience banner is not performing as well as our wine and beyond banner. Within the segment, we're seeing wine and beyond still growing.

Speaker #2: We're seeing our private label growing very nicely at accretive margins. So there are certainly some aspects that give us the encouragement to continue working in that direction that we're going.

Speaker #2: But at the same time, we know we need to improve convenience, which is the part of the market that is struggling the most right now.

Speaker #2: We're not going to be making the same level of investments in promo activity in the second half of the year, so we should be anticipating margins to be flat or returning to growth compared to last year in the second half.

Speaker #2: But there are still a lot of things that we can do from a mix management perspective, and managing the velocity of our items—mixing convenience banner—to get to better performance in the second half than what we have seen in the first half.

Speaker #6: Thank you.

Speaker #1: Again, ladies and gentlemen, if you have a question or a comment at this time, please press star one-one on your telephone. And I'm not showing any further questions at this time.

Speaker #1: I'd like to turn the call back over to Zach for any closing remarks.

Speaker #2: Thank you, operator. And thank you, everyone, for your time and continued interest in SNDL. We appreciate the support and look forward to updating you next quarter.

Speaker #2: Thank you, operator.

Speaker #1: Thank you, ladies and gentlemen. So this this concludes today's presentation. We thank you for your participation and may now disconnect and have a wonderful day.

Operator: Good morning, and welcome to SNDL Q2 2026 Financial Results Conference Call. This morning, SNDL issued a press release announcing their financial results for the Q2 2026 ended on 30 June 2026. This press release is available on the company's website at sndl.com and filed on EDGAR and SEDAR as well. The webcast replay of the conference call will also be available on sndl.com website. SNDL has also posted a supplemental investor presentation in addition to the conference call presentation we will be reviewing today on its sndl.com website. Presenting on this morning's call, we have Zach George, Chief Executive Officer, and Alberto Paredero-Quiros, Chief Financial Officer. Before we start, I would like to remind investors that certain matters discussed in today's conference call or answers that may be given to questions could constitute forward-looking statements. Actual results could differ materially from those anticipated.

Operator: Risk factors that could cause actual results are detailed on the company's financial reports and other public filings that are made available on SEDAR and EDGAR. Additionally, all financial figures mentioned are in Canadian dollars unless otherwise indicated. We will now make prepared remarks, then we will move on to analyst questions. I will now turn the call over to Zach George. Please go ahead.

Zach George: Welcome to SNDL's Q2 2026 Financial and Operational Results Conference Call. During the Q2 2026, SNDL continued to operate through a challenging market environment across both liquor and cannabis. Net revenue declined 3.7% year over year to CAD 235.8 million, reflecting persistent demand softness and broader market headwinds. While these conditions pressured results, we stayed focused on disciplined execution, cost optimization, and initiatives that strengthen our long-term earnings power. Profitability was impacted by lower net revenue, new product production ramp-up costs in cannabis operations, and a relatively small SunStream valuation adjustment. At the same time, we continued to exercise financial discipline and maintained a relentless focus on spend management, which partially offset these pressures. Importantly, we continued to generate positive operating cash flow and improved free cash flow compared to the same period last year.

Zach George: Free cash flow was CAD -6.7 million in the quarter, an improvement of CAD 1.2 million year over year, despite seasonal payments and a CAD 2.7 million increase in cash in transit. We also continued to act on our strategic priorities. During the quarter, we accelerated our share repurchase activity, deployed profit enhancement initiatives expected to drive more than CAD 20 million of incremental operating income, mostly over the remainder of the year, and completed a significant milestone in the Parallel restructuring. The Parallel restructuring is particularly important because it opens the door for SNDL to obtain direct exposure to and control over US medical cannabis operations in Florida, Texas, and Massachusetts, subject to satisfying the remaining legal, regulatory, accounting, and NASDAQ requirements. Periods of market pressure require sharper focus and disciplined execution.

Zach George: Our teams are responding with targeted commercial and operational initiatives, including improved promotional discipline, operational efficiency, and targeted investments in high-performing platforms while preserving balance sheet flexibility. Consistent with our board-approved share repurchase program, we repurchased CAD 11.7 million common shares during the Q2. Since the Q4 2024, total repurchases have exceeded CAD 29 million shares, representing approximately a 7% reduction in shares outstanding. We remain encouraged by the strategic optionality created by our balance sheet. With CAD 183.2 million of unrestricted cash, no outstanding debt as of 30 June 2026, and a portfolio of cannabis-related investments with a carrying value of CAD 415.2 million, SNDL is well-positioned to pursue disciplined growth, strategic investments, acquisitions, and continued return of capital to shareholders. Over now to Alberto for more detail on our Q2 financial performance.

Alberto Paredero-Quiros: Thank you, Zach. Before moving on, I'd like to remind everyone that the amounts discussed today are denominated in Canadian dollars unless otherwise stated. Certain figures referred to during this call are non-GAAP and non-IFRS measures. For definitions of these measures and reconciliations where applicable, please refer to SNDL's management discussion and analysis and the earnings press release issued today. Net revenue was CAD 235.8 million in the Q2 2026, representing a 3.7% decrease compared with the same period of the prior year. The decline was driven by market headwinds across both liquor and cannabis segments. Gross profit was CAD 56.3 million, a decline of CAD 11.3 million or 16.6% year over year. Gross margin was 23.9%, down 3.7 percentage points, mainly driven by cannabis operations and liquor retail, partially offset by margin expansion in cannabis retail.

Alberto Paredero-Quiros: Operating loss was CAD 7.8 million in the quarter, and adjusted operating loss was CAD 7 million. The year over year reduction was driven primarily by the impact of new product production ramp-up costs in cannabis operations, revenue and margin decline in liquor retail, and the absence of prior year impairment reversals in cannabis retail on a CAD 2.3 million reduction in the SunStream valuation, partly offset by lower corporate overhead costs. Free cash flow was -CAD 6.7 million, improving by CAD 1.2 million compared with the same period last year. The result was primarily driven by the CAD 6.9 million annual payment of the 2025 management incentive and a CAD 2.7 million increase in cash in transit. Our Q2 performance reflects continued market pressure across the portfolio.

Alberto Paredero-Quiros: Net revenue and gross profit declined year over year, and adjusted operating income was impacted by the lower gross profit, production ramp-up cost, and the SunStream valuation impact. Looking ahead, our focus remains on driving sustained profitability and free cash flow growth while continuing to invest selectively in our strategic growth agenda and shareholder value creation. Looking more closely at segment-level contributions across our key financial KPIs, consolidated net revenue declined by CAD 9 million year over year. The largest contributor was Liquor Retail, which declined by CAD 7.2 million, followed by Cannabis Operations, which declined by CAD 3.6 million, and Cannabis Retail, which declined by CAD 1.2 million. Cannabis eliminations partly offset the decline by CAD 3 million. Gross profit declined by CAD 11.3 million year over year. Liquor Retail contributed a CAD 2.7 million decline, while Cannabis Operations contributed an CAD 8.7 million decline.

Alberto Paredero-Quiros: Cannabis Retail gross profit was essentially flat, increasing by CAD 0.1 million year over year. Adjusted operating income declined by CAD 12.8 million year over year to a loss of CAD 7 million, primarily reflecting declines in Liquor Retail, Cannabis Retail, Cannabis Operations, and investments, partially offset by a CAD 1.4 million improvement in corporate costs. Free cash flow improved 15.2% year over year from CAD -7.9 million to CAD -6.7 million. The improvement was supported by more favorable working capital and differences in timing of rent expenses compared to prior year, even as earnings represented a year-over-year headwind. The chart on the right-hand side of the slide illustrates the seasonal nature of free cash flow, with Q2 historically impacted by seasonal payments and the H2 typically representing a stronger cash flow generation period. Turning to the commercial segments, I will begin with Liquor Retail.

Alberto Paredero-Quiros: As a reminder, starting in 2026, we began allocating applicable direct and indirect overhead costs from corporate to each operating segment within general and administrative expenses. The comparative periods have been restated to reflect this allocation. Liquor Retail net revenue was CAD 134.7 million, a decline of CAD 7.2 million or 5.1% year over year. The decline was driven by persistent softness in market demand, which impacted same-store sales by 6.2%. Despite the contribution of two new Wine & Beyond stores opening Q4 2025 and private label sales outperforming national brands by 13 percentage points in the quarter. Gross profit was CAD 33.8 million, down 7.4% year over year, and gross margin was 25.1%, down 60 basis points. The margin decline was driven by increased promotional activity aimed at stimulating sales volume. Adjusted operating income was CAD 3.2 million, down CAD 3.5 million year over year.

Alberto Paredero-Quiros: The decrease was driven by lower revenue, increased promotional support, and higher SG&A expenses associated with the recent Wine & Beyond store openings. Cannabis Retail net revenue was CAD 83.2 million, down CAD 1.2 million or 1.4% year over year. The decline was driven by negative same-store sales of 4.6%, reflecting market contraction in Alberta and Ontario, partially offset by new store openings and value-backed store conversions. Gross profit was CAD 22 million, increasing slightly by CAD 0.1 million year over year, while gross margin expanded 50 basis points to 26.4%. This improvement was supported by promotional efficiencies, pricing actions, and product mix management. Adjusted operating income was CAD 3 million, down CAD 1.2 million year over year. The decline was primarily due to prior year asset impairment reversals, which offset the current year benefits from margin expansion and overhead efficiency.

Alberto Paredero-Quiros: Cannabis Operations' net revenue was CAD 32.2 million, a decline of CAD 3.6 million or 10.1% year over year. The decline was driven by market headwinds and the absence of business-to-business flower deliveries, as some of our partners are also experiencing demand softness. These impacts were partially offset by a CAD 1.2 million increase in international sales, which reached CAD 5 million in the Q2 2026. Gross profit was CAD 0.6 million, down CAD 8.7 million year over year, while gross margin was 1.8%, a decline of 24 percentage points from the prior period. In addition to the revenue decline, we experienced significant inefficiencies associated with the Jeeter production ramp-up during the Q2. While we're working closely with our partners to implement process improvements and increase labor efficiency, some of these cost headwinds are expected to persist over the coming months.

Alberto Paredero-Quiros: Adjusted operating loss was CAD 9 million, compared with an adjusted operating loss of CAD 2.8 million in the prior year. The decline was primarily due to the production ramp-up inefficiencies impacting gross profit. Over to you, Zach, for additional comments on our capital allocation priorities and strategic milestones.

Zach George: Turning now to capital allocation and strategic milestones, I would like to highlight the progress we made in the quarter on two areas: disciplined share repurchases and the completion of the Parallel restructuring milestone. Starting with share repurchases, we accelerated execution in Q2 while maintaining balance sheet flexibility. During the quarter, we repurchased 11.7 million common shares for cancellation for CAD 23.3 million of cash outflows, excluding commissions at a weighted average price of $1.43 US per share. Since Q4 2024, SNDL has repurchased more than 29 million shares with an aggregate repurchased value of approximately CAD 64.5 million, at an average price of $1.58 US per share. We believe this represents discipline, capital allocation at attractive prices, and reflects our confidence in SNDL's intrinsic value and long-term prospects. The completion of the Parallel restructuring is a transformational milestone for SNDL.

Zach George: Parallel provides exposure to medical cannabis operations in Florida, Texas, and Massachusetts, with 56 retail locations, three cultivation and manufacturing sites, approximately 800 employees, and near-term annualized revenue expected to be approximately CAD 150 million. Subject to satisfying the remaining legal, regulatory, accounting, and NASDAQ requirements, we expect to obtain direct control of Parallel's medical cannabis operations in the coming months. This will provide SNDL with a significant US medical cannabis platform and accretive margin profile, and the potential to exceed CAD 1 billion in annual revenue and become the largest cannabis retailer in the world by store count. Importantly, this transaction concludes a complex multi-year restructuring of one of SunStream's largest legacy credit investments and substantially reduces Parallel's historical debt burden, creating a more sustainable capital structure to support future growth.

Zach George: The successful completion of the restructuring preserves and enhances the value of a significant legacy investment while establishing a stronger foundation for the future performance of the business. We believe Parallel's operating footprint, established brands, and positions in key medical cannabis markets provide meaningful long-term strategic optionality as we pursue the next phase of the transaction. This transaction also demonstrates the value of SNDL's differentiated investment strategy and balance sheet strength. Our ability to navigate a complex restructuring process and ultimately convert a distressed credit position into significant economic exposure to a scaled US operator highlights the strategic flexibility provided by our capital resources and investment platform. While current market conditions remain challenging, we are taking decisive action to improve profitability, preserve balance sheet strength, and allocate capital with discipline. I want to thank our teams for their continued focus and resilience, and our shareholders for their ongoing support.

Zach George: We remain committed to building long-term value through operational improvement, strategic growth, and the disciplined return of capital. I will now turn the call back to the operator for the analyst Q&A session.

Operator: Thank you. We will now begin the analyst question and answer session. To join the question queue, you may press star then 11 on your telephone keypad. You will hear an automated message acknowledging your hand is raised. If you are using a speakerphone, please pick up a handset first before pressing any keys. To withdraw your question, please press star 11 again. We will pause for a moment while we compile our Q&A roster. Our first question comes from Aaron Gray with Alliance Global Partners. Your line is open.

Aaron Gray: Hi, good morning and thank you very much for the question. Zach, I wanted to pick up where you just left off in terms of capital allocation strategy, particularly as we think about the transformational Parallel deal that is set to be complete in the coming months. Just given the fact that obviously you have had some repurchase, share repurchases this past quarter and year to date, how should we think about that changing now that you are on the verge of having direct access into the US, either via M&A or CapEx into markets like Texas? Does that now change in terms of capital allocation going forward versus what we saw in H1? Thank you.

Aaron Grey: Hi, good morning and thank you very much for the question. Zach, I wanted to pick up where you just left off in terms of capital allocation strategy, particularly as we think about the transformational Parallel deal that is set to be complete in the coming months. Just given the fact that obviously you have had some repurchase, share repurchases this past quarter and year to date, how should we think about that changing now that you are on the verge of having direct access into the US, either via M&A or CapEx into markets like Texas? Does that now change in terms of capital allocation going forward versus what we saw in H1? Thank you.

Zach George: Thanks, Aaron. Thanks for the question. There was a lot there. Just trying to work backwards. Certain things are going to change, certain things are not going to change. Okay? We still have the view that our equity is trading well below its intrinsic value. When we look at investments that are available to us across the sector, it is still an attractive use of capital to reduce our outstanding share count. We are one of the only companies that is aggressively doing that in the sector. We have also put ourselves in a position where we have access to both debt and equity capital with a debt-free balance sheet, it creates a lot of opportunity.

Zach George: I would point out that when you look at the cost of debt capital that is experienced by a number of US operators, having Canadian exposure in terms of a sizable operating base both in liquor and cannabis, really gives us a cost of capital advantage on the debt side when you think about the willingness of Canadian banks to lend at competitive rates, which have been shown to us in like the mid-single digits. There's a lot of optionality, a number of levers we can pull. As you point out, we do intend to invest going forward in the United States, whether that be to improve processing capabilities in Florida to increase, and get more competitive in terms of that network and door count, which has been dormant with Parallel being stuck in this foreclosure process for several years.

Zach George: Also view Texas as a really incredible opportunity going forward, which will likely have a very slow burn upwards.

Zach George: Would note that for the existing operators, just with the introduction of vape alone in the last couple of months, it created an immediate 40% bump in revenue. Coming off of a low base, but a pretty exciting market that is largely distillate-based today that will continue to grow. You're hearing word from other competitors that are excited to try to be in market and acquire patients later this year.

Aaron Gray: Okay. Appreciate that. That was a really helpful color there, Zach. Second question from me, just on cannabis operations, maybe first off, if you could talk about how much of the gross margin pressure was from the Jeeter ramp versus maybe higher costs related to the absence of B2B supply. Then regarding the supply, maybe how much of that do you think particularly is near-term? You mentioned some near-term pressure in the coming quarters versus something that you can eventually evolve beyond. Do you think that this increases the need to get more vertical in Canada via M&A or invest in cultivation? Thanks.

Aaron Grey: Okay. Appreciate that. That was a really helpful color there, Zach. Second question from me, just on cannabis operations, maybe first off, if you could talk about how much of the gross margin pressure was from the Jeeter ramp versus maybe higher costs related to the absence of B2B supply. Then regarding the supply, maybe how much of that do you think particularly is near-term? You mentioned some near-term pressure in the coming quarters versus something that you can eventually evolve beyond. Do you think that this increases the need to get more vertical in Canada via M&A or invest in cultivation? Thanks.

Zach George: It's a great question. I think if you look at our 2025 results and year-to-date, what I would say with transparency is that we have some acute issues that we are managing through, specifically with regards to the team in Kelowna and that asset. That's also where the ramp in Jeeter production has been happening. In terms of attribution of that pressure, I'll ask Alberto to comment. What I would say is that, no, the challenges that we have experienced we believe are fixable. They also are a negative overlay on what is otherwise a platform that's generating significant free cash flow. It's been muted by some of these issues, but we still expect to generate positive free cash flow for the full calendar year. As you know, we have some cyclicality that impacts the business throughout the calendar year.

Zach George: The solution may not be to simply go further upstream and pay a big premium for cultivation. It actually may be to go the opposite direction. It's very clear that in the domestic market, the winners in the dried flower category are going to be scaled, best-in-class hybrid glasshouse operators. That you just really have to appreciate the price differential in these various markets. Again, just pointing to one simple example, but with the launch of vape in Texas, operators are selling half-gram 510 carts at approximately $45, and that's USD. You can basically access the same half-gram 510 cart on the streets of Toronto for about $17, $18 equivalent USD.

Zach George: The competitiveness and compressed environment with an inefficient tax structure is still impacting LPs in Canada when you look past some of the benefit from excise-free trade that's happening internationally for some of the best-in-class flower producers. I'll let Alberto comment a little bit more just in terms of the segments and those pain points.

Alberto Paredero-Quiros: No, thanks, Zach, great question, Aaron. The vast majority, I would say 80%, 90% of the gross margin shortfall that we have experienced in the Q2 in cannabis operations is driven by the Jeeter ramp-up. We did have a couple of minor impairments of inventory during the quarter. In a way, we are about 25 percentage points of margin short in this segment compared to what we would like or would need to be. More than 20 percentage points of margin is driven by Jeeter.

Aaron Gray: Okay, great. That's helpful color. I'll go and jump back in the queue.

Aaron Grey: Okay, great. That's helpful color. I'll go and jump back in the queue.

Operator: Thank you. One moment for our next question. Our next question comes from Frederico Gomes with ATB Cormark Capital Markets. Your line is open.

Frederico Gomes: Good morning. Thanks for taking my questions here. I want to ask about the cannabis retail segment. Two questions here. Number 1, you mentioned market contraction in Alberta and Ontario. Can you talk maybe about the drivers behind that contraction in those two markets specifically, and whether you see a return to growth anytime soon? Second, in terms of your M&A strategy for cannabis retail, considering the, I guess the failed 1CM transaction, how are you looking at that, and how should we be thinking about M&A in cannabis retail? Thank you.

Zach George: Yeah. It's a great question, and I'll have Alberto share his thoughts here as well. Clearly you have growth in terms of consumption and broader sales at the provincial levels flattening out very quickly. In addition to that, if you look at a market like Ontario, we've seen a continued ramp-up of the store count. You have an increasing number of doors and operators competing for what really are the same dollars, and that's putting pressure on a number of operators. The scale discount operators are faring much better, so we're not seeing the same declines that we were seeing across the broader market, and there are some other players that are demonstrating the same resilience.

Zach George: We expect that dynamic to continue, and we think that consolidation in the space, eventual further penetration of e-com is going to further transform that retail experience, but continues to perform. We continue to see margin opportunities, and as we get our mix right in retail, we actually expect both margin and free cash flow accretion going forward. It's really been a pillar of stability in the model, if anything. As you point out, the M&A question really is one of capital allocation. We have a strong bias towards organic rollout. We are at the verge of a resolution in terms of our path in Ontario and continue to see small pockets of white space that we are looking at elsewhere.

Zach George: Yes, as we move into the US as a true cross-border operator, you're going to have more opportunities that are competing for our capital, and we need to be very disciplined about ensuring that we are focused on the most attractive rates of return on a risk-adjusted basis across all of these markets. That's really what we're focused on discerning right now.

Alberto Paredero-Quiros: Yes, maybe to add from my side, specifically on cannabis retail. Those, the large majority of our footprints, they had relatively large single-digit declines in Q1. The situation improved a little bit in Q2 as we were anticipating, but it was still on the negative side. Differences in trajectory from April to June. April, we were still seeing some of these provinces go from 3% to 4%. In the month of June, we were starting to see closer to breakeven growth from that standpoint. We're anticipating the H2 of the year to be much better.

Alberto Paredero-Quiros: The main driver for the declines that we saw in H1 in these two provinces is we're lapping a very strong H1, market-wise, and as well from our own standpoint, in the H1 of last year, where, as you probably remember, some of the top retailers, we were reporting high single digits, sometimes even double digits of revenue growth in market growth of 5% to 7% during the H1 of last year. There were significant efforts at that point in time from most of our competitors and ourselves in terms of margin investments and promotional activities. This year, you're seeing margins improving. Not only us, but as well some of the other retailers in these two provinces. There's significantly less intensity on promotional activity, which is eroding a little bit the growth rate, but it's improving still margins and gross profits.

Alberto Paredero-Quiros: Competitive dynamics and what we're lapping from last year, we're expecting the market to return to growth in H2 at low single digits.

Frederico Gomes: Thank you. Appreciate that. My second question on liquor retail. Obviously, still same-store sales declines in that segment. I know that previously you were expecting a recovery, but that hasn't happened yet. Now we also saw some margin decline there with promotional activity. How do you think about the future of liquor retail as part of your broader strategy and platform, considering these ongoing headwinds in the industry as well as, I guess, your entrance or expected entrance into the US cannabis market, which is a huge opportunity? Thank you.

Alberto Paredero-Quiros: Yeah. Maybe I take that one, Zach. Obviously, it's a tough environment, the one that we're seeing right now with liquor. It's a global phenomenon, as we know, in the sense that pretty much all markets, they are declining in the low single digits, mid-single digit declines. We're not expecting a massive turn in that performance in the foreseeable future. It's difficult to predict when and how these markets will stabilize. Obviously, we're talking to a lot of experts in multiple markets, not just Canada. While some are expecting that we will continue seeing for the next couple of years single-digit decline, some others are expecting that sooner than later, we're going to start seeing stabilization, that these current trends are not sustainable. We're starting to see already, for example, if we look at the wine category, starting to have some months where we're seeing already some growth.

Alberto Paredero-Quiros: It's not yet the case in the spirits and beer. It's still a mixed bag when it comes to the overall market performance. That said, obviously, we're playing in a tough economic environment and macro environment when it comes to the segment, but there are still quite a lot of things that we can do to improve our own performance within the segment and gain market share. We know that our convenience banner, it's not performing as well as our Wine and Beyond banner. Within the segment, we're seeing Wine and Beyond is still growing. We're seeing our private label growing very nicely at accretive margins. There are certainly some aspects that gives us the encouragement to continue working in the direction that we're going.

Alberto Paredero-Quiros: At the same time, we know we need to improve convenience, which is the part of the market that is struggling the most right now. We're not really making the same level of investments in promo activity in the H2 of the year, so we should be anticipating margins to be flat or going back to growth compared to last year in the H2. There are still a lot of things that we can do from a mixed management perspective and managing the velocity of our items within convenience banner to get to better performance in the H2 than what we have seen in the H1.

Frederico Gomes: Thank you.

Operator: Again, ladies and gentlemen, if you have a question or a comment at this time, please press star one one on your telephone. I'm not showing any further questions at this time. I'd like to turn the call back over to Zach for any closing remarks. Thank you, operator, and thank you, everyone, for your time and the continued interest in SNDL. We appreciate the support, and we look forward to updating you next quarter. Thank you, operator.

Zach George: Thank you, operator, and thank you, everyone, for your time and the continued interest in SNDL. We appreciate the support, and we look forward to updating you next quarter. Thank you, operator.

Operator: Thank you, ladies and gentlemen. This concludes today's presentation. We thank you for your participation. You may now disconnect, and have a wonderful day.

Q2 2026 SNDL Inc Earnings Call

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