SNDL Reports 1st Quarter 2024 Financial, Operational Results

CALGARY, Alberta, May 9, 2024 – PRESS RELEASE – SNDL Inc. reported its financial and operational results for the first quarter ended March 31, 2024. All financial information in this press release is reported in millions of Canadian dollars unless otherwise indicated.

SNDL has also posted a supplemental investor presentation on its website, found at https://sndl.com.

First Quarter 2024 Financial and Operational Highlights

• Net revenue for the first quarter of 2024 was $197.8 million, compared to $191 million in the first quarter of 2023, an increase of 4%. This increase is driven by the cannabis retail and cannabis operations segments, as the liquor retail segment reported flat net revenue. The decrease in net revenue in the quarter, as compared to net revenue of $248.5 million in the fourth quarter of 2023, is attributed to seasonality in the liquor and cannabis retail segments, as the fourth quarter is traditionally the strongest retail period, and the first quarter is impacted by decreased consumer spend.
• Achieved a gross profit of $50.4 million, representing a record gross margin of 25% of sales in the first quarter of 2024, up from 17% in the first quarter of 2023. The 55% improvement in gross profit year over year highlights the success of the company's data sales program, as well as the supply chain productivity initiatives, including optimized procurement and cultivation consolidation following the closure of the Olds, Alberta, cultivation facility in October 2023, which significantly enhanced operational efficiencies and reduced costs.
• Cash flow was negative $6.1 million in the first quarter of 2024, compared to negative $66.3 million in the first quarter of 2023, a 91% improvement. SNDL is encouraged by this result, as it is achieved in the context of business seasonality that lowers the sales in both liquor and cannabis retail segments during the first quarter.
• Free cash flow in the first quarter of 2024 was negative $6.4 million, compared to negative $60.1 million in the first quarter of 2023, an 89% improvement year-over-year underpinned by profitability and working capital management improvements.
• Operating loss was $4.4 million for the first quarter of 2024, compared to a loss of $32.2 million in the first quarter of 2023, an 86% improvement primarily driven by margin expansion.
• The first quarter of 2024 yielded solid results, and a step change in profitability despite seasonality impacts. There are several additional highlights during the quarter that, coupled with a strong pipeline of future initiatives, position SNDL on a strong path to continue driving sustainable profitable growth:
• Opened a new Spiritleaf store in the coveted resort community of Whistler, British Columbia, and added a new Wine and Beyond store in Airdrie, one of the fastest-growing communities in Alberta. 
• Continued expansion of the proprietary data licensing in cannabis retail and initiated the program in the liquor retail segment.
• Created opportunity for cannabis retail growth into British Columbia through the Dutch Love transaction.
• Dynamic 29% revenue growth of SNDL's liquor retail segment private labels.
• Continued productivity initiatives in the cannabis operations segment, notably the strategic closure of the Olds, Alberta, facility, coupled with a ramp-up in cultivation at the Atholville, New Brunswick, facility to ensure stable and increasing supply for retail, B2B and international partners as demand grows. 
• The company had $783.2 million of unrestricted cash, marketable securities and investments and no outstanding debt, with $189 million of unrestricted cash as at March 31, 2024. SNDL has not raised cash through share offerings since June 2021.

"The SNDL team has delivered a solid first quarter result, exemplified by a record gross margin of 25 percent and the undeniable improvement in the profitability of all of our operating segments over multiple years," SNDL CEO Zach George said. "We are well-positioned to further expand our retail network and product distribution in Canada where we expect further consolidation and attrition. Building on the momentum of our Canadian operations, the recent completion of Nasdaq's review of our SunStream USA structure creates an opportunity for SNDL to close on U.S. assets currently under restructuring, positioning us to become a leading global cannabis company. We intend to complete a rigorous strategic planning exercise in June of 2024 and are focused on a material reduction in corporate expenses to drive further improvements into the back half of the year. SNDL remains steadfast in its commitment to driving long-term, stabilized profitability. Following our first-ever two quarters of positive free cash flow in 2023, we are targeting the generation of positive free cash flow for the aggregate 2024 calendar year."  

First Quarter 2024 Results

SNDL's business is operated and reported in four segments: liquor retail, cannabis retail, cannabis operations, and investments. 

Liquor Retail

SNDL is Canada's largest private sector liquor retailer, operating 171 locations, predominantly in Alberta, under its three retail banners: Wine and Beyond, Liquor Depot, and Ace Liquor.

• Net revenue for liquor retail sales for the three banners combined was $116.1 million in the first quarter of 2024, stable compared to $115.9 million for the same period in the year prior.
• Same-store sales for stores open in the first quarter of 2023 and 2024 have remained stable year-over-year. Same-store sales refer to the revenue generated by the company's existing retail liquor locations, which operated during the current and comparative periods.
• Gross profit for liquor retail was $28.8 million, or 25% of sales, in the first quarter of 2024, compared to $26.3 million, or 23% of sales, in the first quarter of 2023, representing a 10% increase year-over-year. The company achieved record gross margin for its liquor retail segment in March 2024, with margins reaching 25.3%. This improvement was mainly driven by procurement productivity and product mix management initiatives.  
• Operating income for liquor retail was $2.2 million in the first quarter of 2024, compared to negative $2 million in the first quarter of 2023, a 212% improvement.
• SNDL started to monetize its proprietary data licensing program for liquor retail in the first quarter of 2024, helping to further enhance the segment's profit margins with no associated cost of sales.   
• Private label sales, a substantial driver of margin accretive profitable growth, increased by 28.9% compared to the first quarter of 2023, and private label sales as a percent of total sales increased from 11.4% in the fourth quarter of 2023 to 12.6% in the first quarter of 2024. This increase is driven by further additions to the private label offerings, particularly within the value segment. The company plans to extend its private label line-up with wine varietals sourced from distinguished regions and notable winemakers, all priced attractively, which is expected to contribute to further enhance SNDL's consumer value proposition, further distinguishing its liquor retail banners. 
• The company opened its 13th Wine and Beyond location in Airdrie, Alberta, to further build on the success of the experiential, destination approach of the banner.   

As of May 9, 2024, the Ace Liquor store count is 138, the Liquor Depot store count is 20, and the Wine and Beyond store count is 13.  

Cannabis Retail

With its 63% ownership interest in Nova Cannabis Inc., SNDL is Canada's largest private-sector cannabis retailer by number of stores, operating 188 locations under its four retail banners: Value Buds, Spiritleaf, Superette, and Firesale Cannabis. The company's cannabis retail strategy is based on several pillars, including the quality of its store locations, its range of products, and the unique experiences it provides customers. Using data and insights from a large volume of monthly transactions enables SNDL to leverage technology and analytics to inform and improve its retail strategy. 

• Net revenue for cannabis retail in the first quarter of 2024 was $71.3 million, compared to $67.4 million in the first quarter of 2023. The 6% increase year-over-year was driven by productivity improvements and new stores opened through December 2023.
• Same-store sales increased 2.1% for stores operating in the first quarters of 2023 and 2024. Same-store sales refer to the revenue generated by the company's existing retail cannabis locations, which operated during the current and comparative periods.
• Gross profit for cannabis retail was $18.4 million, or 26% of sales, in the first quarter of 2024, compared to $15.8 million, or 24% of sales, in the first quarter of 2023, a 17% increase year-over-year. The increase showcases the company's efforts in continued margin expansion initiatives, including growth of its data program, in-store productivity programs, and the continued development of private label offerings.
• Operating income for the cannabis retail was negative $1 million in the first quarter of 2024, compared to negative $78,000 in the first quarter of 2023.
• SNDL's proprietary data licensing program generated revenue of $3.5 million for the first quarter of 2024, an increase of 139% or $2 million from the same period in the year prior. 
• The company expanded its Spiritleaf footprint into the coveted community of Whistler, British Columbia, in February 2024.
• Subsequent to quarter end, SNDL began the expansion of its cannabis retail segment in British Columbia through the Dutch Love transaction, paving the way for the launch of the first Value Buds branded stores in the region. This move enhances the company's presence and demonstrates the strength of its M&A strategy.

As of May 9, 2024, the Spiritleaf store count was 84 (20 corporate stores and 64 franchise stores), the Superette store count was four corporate stores, the Firesale store count was one corporate store, and the Value Buds store count was 99 corporate stores.

Cannabis Operations

SNDL has a diverse brand portfolio from value to premium, emphasizing premium inhalable formats and a full suite of 2.0 products. With enhanced procurement capabilities and plans to continue evolving toward a cost-effective cultivation and manufacturing operation, the cannabis operations segment is a key enabler of SNDL's vertical integration strategy. Cannabis operations include the operations of The Valens Company Inc. for the period of January 18, 2023, to December 31, 2023.

• Net revenue for cannabis operations for the first quarter of 2024 was $22.4 million, up 17% from $19.1 million in the first quarter of 2023, as a result of increasing provincial board and B2B distribution and a continued focus on consumer innovation, quality and operational efficiencies. Provincial board revenue represented $14.5 million in revenue for the quarter, while wholesale revenue increased 138% to $7.5 million for the quarter.
• Record gross profit for the segment in the first quarter of 2024 of $3.2 million, an increase of $12.7 million, from negative $9.5 million in the first quarter of 2023. The 134% improvement in gross profit is largely attributable to several productivity initiatives, including the strategic decision to close the Olds, Alberta, facility.
• The company has begun a strategic ramp-up in cultivation production at its Atholville, New Brunswick, facility to ensure stable and consistent supply for both its retail B2B and international partners as demand increases.
• Operating income for the segment improved 104% for the period, to $0.9 million, compared to negative $18.9 million in the first quarter of 2023. The substantial increase in operating income results from margin expansion and operational efficiencies.
• Following SNDL's inaugural international export contract with IM Cannabis Corp. in Israel, the company is pursuing EU-GMP certification at its Atholville facility to expand its international export footprint further and increase B2B opportunities within emerging global markets such as the U.K. and Germany.
• Subsequent to quarter end, the company secured approximately 350 additional distribution points within prominent national cannabis retail chains, helping to further drive market share and revenue in future quarters.

Investments

• As of March 31, 2024, the company has deployed capital to a portfolio of cannabis-related investments with a carrying value of $594.2 million, including $560.3 million to SunStream Bancorp Inc.
• In the first quarter of 2024, the investment portfolio generated positive operating income of $13.1 million compared to $8.7 million in the quarter of the prior year. 
• SunStream is a joint venture sponsored by SNDL. During 2023, SunStream directed the formation of the SunStream USA group of companies in connection with the restructuring of certain loans provided by SunStream. SunStream USA Group is anticipated to be a U.S. platform with one or more independent third-party investors, which will be independently managed and governed.
• On May 2, 2024, SNDL announced that SunStream USA Group would proceed with acquiring equity positions in U.S. cannabis assets following the completion of its review by Nasdaq, which confirmed that the proposed structure meets all applicable laws and Nasdaq listing rules.
• At the end of the first quarter of 2024, the credit portfolio controlled by SunStream comprised five investments: Jushi Holdings Inc., SKYMINT Brands, Ascend Wellness Holdings, Surterra Holdings Inc. d/b/a Parallel, and Columbia Care Inc. 
• The previously announced transactions to acquire certain operations and assets of Parallel and Skymint are anticipated to close in 2024 and are subject to certain conditions and regulatory approvals. 
• SNDL is optimistic about the proposed regulatory reforms in Germany, Florida, and the recent decision by the U.S. federal government to reclassify cannabis. On April 30, 2024, the U.S. Justice Department, through the U.S. Drug Enforcement Administration, announced that it would move to reclassify marijuana from a Schedule I drug to a Schedule III drug, subject to a formal rulemaking process. Though this decision will not legalize cannabis at a federal level in the United States, it is expected to facilitate various research and permit certain tax deductions for U.S. cannabis businesses. This decision does not directly affect SNDL's operations, which are located solely in Canada, though it is expected to have a favorable effect on the SunStream joint venture investments in the United States. SNDL is closely following the developments of this decision and how it may create opportunities for the company.

Equity Position

• $783.2 million of unrestricted cash, marketable securities and investments, including investments in equity-accounted investees, and no outstanding debt as of March 31, 2024, resulting in a net book value of $1.2 billion.  
• On Nov. 13, 2023, the company announced that its board of directors had approved a renewal of the share repurchase program upon its expiry on Nov. 20, 2023. The company's share repurchase program continues to be available to lower the outstanding share float. SNDL will continue to assess opportunities to utilize the program to the extent that management believes it is in the best interest of SNDL's shareholders. For the three months ended March 31, 2024, the company did not purchase common shares for cancellation.

This press release is intended to be read in conjunction with the company's condensed consolidated interim financial statements and the notes thereto for the three months ended March 31, 2024, and the accompanying management's discussion and analysis. These documents are available under the company's profile on SEDAR+ at www.sedarplus.ca and EDGAR at www.sec.gov/edgar.shtml.  

SNDL’s line-by-line financial sheets are available here.