sndl-ex992

Management’s Discussion and Analysis of Financial Condition and Results of Operations

This Management’s Discussion and Analysis (“MD&A”) of the financial condition and performance of SNDL Inc. (“SNDL” or the “Company”) for the three and six months ended June 30, 2022 is dated August 12, 2022. This MD&A should be read in conjunction with the Company’s condensed consolidated interim financial statements and the notes thereto for the three and six months ended June 30, 2022 and the audited consolidated financial statements and notes thereto for the year ended December 31, 2021 (the “Audited Financial Statements”) and the risks identified under “Risk Factors” below and in the Company’s Annual Report on Form 20-F for the year ended December 31, 2021 (the “Annual Report”). This MD&A has been prepared in accordance with National Instrument 51-102 - Continuous Disclosure Obligations and is presented in thousands of Canadian dollars, except where otherwise indicated. All share amounts in this MD&A have been adjusted retrospectively to reflect the Share Consolidation (as defined herein) unless otherwise noted. See “Liquidity and Capital Resources—Equity.

SNDL Inc., formerly Sundial Growers Inc, operates under four reportable segments:

The Company also owns approximately 63% of Nova Cannabis Inc. (“Nova”), whose principal activities are the retail sale of cannabis.

SNDL was incorporated under the Business Corporations Act (Alberta) on August 19, 2006. The Company’s common shares are listed under the symbol “SNDL” on the NASDAQ Capital Market (“Nasdaq”).

On July 25, 2022, the Company’s shareholders approved a special resolution amending the articles of SNDL to change the name of the Company from “Sundial Growers Inc.” to “SNDL Inc.”

SNDL is headquartered in Calgary, Alberta, with operations in Olds, Alberta, and Rocky View County, Alberta, and corporate-owned and franchised retail liquor and cannabis stores in five provinces across Canada.

The principal activities of the Company are the retailing of wines, beers and spirits under the Wine and Beyond, Liquor Depot and Ace Liquor retail banners; the operation and support of corporate-owned and franchise retail cannabis stores in Canadian jurisdictions where the private sale of recreational cannabis is permitted, under the Value Buds and Spiritleaf retail banners; the production, distribution and sale of cannabis in Canada pursuant to the Cannabis Act (Canada) (the “Cannabis Act”) through a cannabis brand portfolio that includes Top Leaf, Sundial Cannabis, Palmetto, Spiritleaf Selects and Grasslands; and, the deployment of capital to direct and indirect investments and partnerships throughout the global cannabis industry. The Cannabis Act regulates the production, distribution, and possession of cannabis for both medical and adult recreational access in Canada.

The Company produces and markets cannabis products for the Canadian adult-use market. SNDL’s purpose-built indoor modular grow rooms create consistent, highly controlled cultivation environments and are the foundation of the Company’s production of high-quality, strain-specific cannabis products. SNDL’s operations cultivate cannabis using an individualized “room” approach, in approximately 448,000 square feet of total space. The Company has established supply agreements with ten Canadian provinces and has a distribution network that covers 98% of the national adult-use cannabis industry.

SNDL and its subsidiaries currently operate solely in Canada. Through its joint venture, SunStream Bancorp Inc. (“SunStream”), the Company provides growth capital that pursues indirect investment and financial services opportunities in the global cannabis sector, as well as other investment opportunities. The Company also makes strategic portfolio investments in debt and equity securities.

SNDL’s overall strategy is to build sustainable, long-term shareholder value by improving liquidity and cost of capital while optimizing the capacity and capabilities of its production facilities in the creation of a consumer-centric brand and product portfolio. SNDL’s retail operations will continue to build a Canadian retail liquor brand and a network of retail cannabis stores across Canadian jurisdictions where the private distribution of cannabis is legal. SNDL’s investment operations seek to deploy capital through direct and indirect investments and partnerships throughout the global cannabis industry.

On November 11, 2021, the Company announced that the board of directors of SNDL (the “Board”) approved a share repurchase program (the "Share Repurchase Program") which authorizes the Company to repurchase, from time to time, up to an aggregate of $100.0 million (the "Share Repurchase Amount") of its outstanding common shares through open market purchases at prevailing market prices. Notwithstanding the Share Repurchase Amount, SNDL may only purchase a maximum of 10.3 million common shares under the Share Repurchase Program, representing approximately 5% of the issued and outstanding common shares as at the date of announcement.

Subject to the foregoing limitations, the Share Repurchase Program commenced on November 19, 2021 and will expire on November 19, 2022. The Share Repurchase Program does not require the Company to purchase any minimum number of common shares and repurchases may be suspended or terminated at any time at the Company's discretion. The actual number of common shares which may be purchased pursuant to the Share Repurchase Program and the timing of any purchases will

be determined by SNDL’s management and the Board. All common shares purchased pursuant to the Share Repurchase Program will be returned to treasury for cancellation.

For the six months ended June 30, 2022, the Company purchased and cancelled 0.5 million common shares at a weighted average price of $3.86 (US$2.98) per common share for a total cost of $2.0 million. Accumulated deficit was reduced by $3.1 million, representing the excess of the average carrying value of the common shares over their purchase price.

As previously reported, the Company was notified by Nasdaq on August 9, 2021, that the bid price for its common shares was not in compliance with the Nasdaq minimum bid price requirement. At that time, the Company had until February 7, 2022, to regain compliance. On February 8, 2022, the Company received a 180-day extension and had until August 8, 2022, to regain compliance with the minimum bid requirement.

On July 25, 2022, immediately following the shareholder approval, the Board determined to affect a share consolidation on the basis of one post-consolidation common share for every ten pre-consolidation common shares. The share consolidation took effect on July 25, 2022, and the common shares began trading on Nasdaq on a post-consolidation basis beginning on July 26, 2022.

On August 9, 2022, the Company was notified by Nasdaq that the Company had regained compliance with the minimum bid requirement as the bid price for its common shares closed at or above US$1.00 per share for the 10 consecutive business days between July 26, 2022 and August 8, 2022.

The following table summarizes selected operational and financial information of the Company for the periods noted.


($000s, except as indicated)	Q2 2022			Q2 2021			Change			% Change
Financial
Gross revenue		227,557			12,739			214,818			1686	%
Net revenue		223,695			9,151			214,544			2344	%
Cost of sales		174,291			9,534			164,757			1728	%
Gross margin		43,079			(2,821	)		45,900			1627	%
Gross margin %		19	%		-31	%					50	%
Gross margin before fair value adjustments⁽¹⁾⁽²⁾		45,533			(2,034	)		47,567			2339	%
Gross margin before fair value adjustments percentages⁽²⁾		20	%		-22	%					43	%
Interest and fee revenue		2,577			3,344			(767	)		-23	%
Investment (loss) income		(35,073	)		2,362			(37,435	)		1585	%
Loss from operations		(81,416	)		(71,020	)		(10,396	)		-15	%
Net loss⁽³⁾		(73,301	)		(52,287	)		(21,014	)		-40	%
Per share, basic and diluted ⁽³⁾		(0.31	)		(0.28	)		(0.03	)		-11	%
Adjusted EBITDA⁽²⁾		(25,927	)		(205	)		(25,722	)		-12547	%

Statement of Financial Position
Cash and cash equivalents		362,630			885,418			(522,788	)		-59	%
Inventory		141,622			35,194			106,428			302	%
Property, plant and equipment		135,720			53,409			82,311			154	%
Total assets		1,881,340			1,411,278			470,062			33	%

	Three months ended June 30				Six months ended June 30
($000s)	2022		2021		2022		2021
Salaries and wages		23,938		4,015		30,284		7,949
Consulting fees		451		289		863		626
Office and general		10,537		3,374		12,235		4,693
Professional fees		2,261		1,355		4,348		2,237
Merchant processing fees		1,514		—		1,514		—
Director compensation		153		87		241		175
Other		1,439		966		1,490		1,499
		40,293		10,086		50,975		17,179

General and administrative expenses for the three months ended June 30, 2022 were $40.3 million compared to $10.1 million for the three months ended June 30, 2021. The increase of $30.2 million was mainly due to increases in salaries and wages and office and general expenses from the Alcanna and Inner Spirit acquisitions.

General and administrative expenses for the six months ended June 30, 2022 were $51.0 million compared to $17.2 million for the six months ended June 30, 2021. The increase of $33.8 million was mainly due to increases in salaries and wages and office and general expenses from the Alcanna and Inner Spirit acquisitions.

	Three months ended June 30						Six months ended June 30
($000s)	2022			2021			2022			2021
Equity-settled expense
Simple warrants		599			1,033			1,146			1,630
Stock options		23			(147	)		52			(77	)
Restricted share units		2,253			1,787			4,642			3,431
Cash-settled expense
Deferred share units		(2,437	)		1,866			(1,198	)		3,011
		438			4,539			4,642			7,995

Share-based compensation expense includes the expense related to the Company’s issuance of simple and performance warrants, stock options, restricted share units (“RSUs”) and deferred share units (“DSUs”) to employees, directors, and others at the discretion of the Company’s Board. Share-based compensation also includes the expense related to Nova’s issuance of RSUs and DSUs.

The fair value of the Company’s common shares is based on public trading data. The estimated fair value of the Company’s common shares at the time of grant is used to determine the associated share-based compensation expense. The Company determines the amount of share-based compensation expense for equity settled awards by utilizing the Black-Scholes pricing model with inputs based on the terms of the award, including the strike price, and other estimates and assumptions, including the expected life of the award, the volatility of the underlying share price, the risk-free rate of return and the estimated rate of forfeiture of the awards granted.

Share-based compensation expense for the three months ended June 30, 2022 was $0.4 million compared to $4.5 million for the three months ended June 30, 2021. The decrease of $4.1 million was due to a decrease in DSU expense, partially offset by an increase in RSU expense. The decrease in DSU expense was caused by the change from being equity-settled to cash-settled in the prior year, requiring the DSUs to be accounted for as a liability instrument measured at fair value. The current period DSU recovery was caused by a decrease in the fair value of DSUs resulting from a decrease in the Company’s share price. The comparative period does not include any fair value adjustments. RSU expense increased due to the increased number of RSUs granted during the year.

Share-based compensation expense for the six months ended June 30, 2022 was $4.6 million compared to $8.0 million for the six months ended June 30, 2021. The decrease of $3.4 million was primarily due to a decrease in DSU expense, partially offset by an increase in RSU expense. The decrease in DSU expense was caused by the change from being equity-settled to cash-settled in the prior year, requiring the DSUs to be accounted for as a liability instrument measured at fair value. The current period DSU recovery was caused by a decrease in the fair value of DSUs resulting from a decrease in the Company’s share price.

The comparative period does not include any fair value adjustments. RSU expense increased due to the increased number of RSUs granted during the year.

Transaction costs for the three months ended June 30, 2022, were a recovery of $7.9 million compared to $0.8 million for the three months ended June 30, 2021. The current period recovery relates to the reversal of a provision for costs associated with securities class action lawsuits. The provision was recorded at the full amount payable upon settlement and has now been reduced by the amount covered by the Company’s directors and officers insurance policy.

Transaction costs for the six months ended June 30, 2022 were a recovery of $1.5 million compared to $4.5 million for the six months ended June 30, 2021. Transaction cost recoveries include a recovery of costs related to securities class action lawsuits (as explained above), partially offset by costs associated with the Alcanna transaction. Transaction costs in the comparative period included costs associated with legal costs and various financing initiatives.

	Three months ended June 30					Six months ended June 30
($000s)	2022			2021		2022			2021
Cash finance expense
Other finance costs		145			11		169			39
		145			11		169			39
Non-cash finance expense
Change in fair value of investments at FVTPL		22,305			—		22,305			—
Interest on lease liabilities		3,928			21		4,268			44
Financial guarantee liability (recovery) expense		65			—		(77	)		—
Other		189			8		189			8
		26,487			29		26,685			52
Interest income		(127	)		—		(410	)		—
		26,505			40		26,444			91

Finance costs include interest expense related to lease obligations, finance income related to net investment in subleases, change in fair value of investments at Fair Value Through Profit or Loss (“FVTPL”) and certain other expenses.

Finance costs for the three months ended June 30, 2022 were $26.5 million compared to $0.1 million for the three months ended June 30, 2021. The increase of $26.4 million was due to the change in fair value of investments at FVTPL and an increase in interest on lease liabilities. The decrease in fair value of investments at FVTPL was mainly due to an adjustment to the Zenabis senior loan (refer to note 13 in the condensed consolidated interim financial statements).

Finance costs for the six months ended June 30, 2022 were $26.4 million compared to $0.1 million for the six months ended June 30, 2021. The increase of $26.3 million was due to the change in fair value of investments at FVTPL and an increase in interest on lease liabilities. The Company’s lease obligations have increased significantly due to both the Inner Spirit transaction and the Alcanna transaction as corporate stores have leased retail space.

Change in estimate of fair value of derivative warrants for the three months ended June 30, 2022 was a recovery of $23.7 million compared to a recovery of $19.8 million for the three months ended June 30, 2021. The increased recovery of $3.9 million was due to a decrease in estimated fair value.

Change in estimate of fair value of derivative warrants for the six months ended June 30, 2022 was a recovery of $15.4 million compared to an expense of $110.1 million for the six months ended June 30, 2021. The recovery in the current period relates

to a decrease in the fair value, mainly due to a decrease in the Company’s share price from USD$0.70 at March 31, 2022, to USD$0.33 at June 30, 2022. The expense in the comparative period related to the granting of 249.6 million derivative warrants and the corresponding changes in fair value.

The carrying amount is an estimate of the fair value of the derivative warrants and is presented as a current liability, pursuant to IFRS requirements due to the warrant exercise prices being denominated in United States dollars. Refer to note 24 in the condensed consolidated interim financial statements for valuation methodology. The Company has no cash obligation with respect to the derivative warrants, and its only obligation is to deliver common shares if, and when, warrants are exercised.

Net loss for the three months ended June 30, 2022 was $74.0 million compared to a net loss of $52.3 million for three months ended June 30, 2021. The increase of $21.7 million was largely due to investment losses ($37.4 million), share of profit (loss) of equity-accounted investees ($41.7 million), higher general and administrative expenses ($30.2 million), depreciation and amortization ($7.9 million) and finance costs ($26.5 million), partially offset by an increase in gross margin ($45.8 million), lower asset impairment ($58.2 million), lower transaction costs ($8.7 million) and change in fair value of derivative warrant liabilities ($3.8 million).

Net loss for the six months ended June 30, 2022 was $112.0 million compared to a net loss of $186.7 million for the six months ended June 30, 2021. The decreased loss of $74.7 million was mostly due to an increase in gross margin ($52.9 million), lower asset impairment ($58.2 million), lower transaction costs ($5.9 million) and change in fair value of derivative warrant liabilities ($125.5 million), partially offset by, investment losses ($68.0 million), share of profit (loss) of equity-accounted investees ($37.6 million), higher general and administrative expenses ($33.8 million), depreciation and amortization ($7.6 million) and finance costs ($26.4 million).

Adjusted EBITDA was a loss of $25.9 million for the three months ended June 30, 2022 compared to a loss of $0.2 million for the three months ended June 30, 2021. The increased loss was due to the following:

Adjusted EBITDA was a loss of $26.6 million for the six months ended June 30, 2022 compared to $3.1 million for the six months ended June 30, 2021. The increased loss was due to the following:

The Company’s reportable segments are organized by business line, and with the acquisition of Alcanna, are comprised of four reportable segments: liquor retail, cannabis retail, cannabis operations, and investments.

Liquor retail includes the sale of wines, beers and spirits through wholly owned liquor stores. Cannabis retail includes the private sale of recreational cannabis through wholly owned and franchise retail cannabis stores. Cannabis operations include the cultivation, distribution and sale of cannabis for the adult-use market and medical markets in Canada. Investments include the deployment of capital to investment opportunities. Certain overhead expenses not directly attributable to any operating segment are reported as “Corporate”.

($000s)	Liquor Retail⁽¹⁾		Cannabis Retail⁽¹⁾			Cannabis			Investments⁽²⁾			Corporate			Total
As at June 30, 2022
Total assets		573,428		257,663			148,678			882,165			19,406			1,881,340
Six months ended June 30, 2022
Net revenue		149,947		71,006			20,339			—			—			241,292
Gross margin		33,812		17,190			(4,504	)		—			—			46,498
Interest and fee revenue		—		—			—			6,438			—			6,438
Loss on marketable securities		—		—			—			(52,783	)		—			(52,783	)
Share of loss of equity-accounted investees		—		—			—			(33,887	)		—			(33,887	)
Depreciation and amortization		5,315		3,965			9			—			250			9,539
Earnings (loss) before tax		7,171		(63	)		(10,927	)		(101,973	)		(8,012	)		(113,804	)
Three months ended June 30, 2022
Net revenue		148,637		63,494			11,564			—			—			223,695
Gross margin		33,528		13,897			(4,346	)		—			—			43,079
Interest and fee revenue		—		—			—			2,577			—			2,577
Gain (loss) on marketable securities		—		—			—			(35,073	)		—			(35,073	)
Share of loss of equity-accounted investees		—		—			—			(37,978	)		—			(37,978	)
Depreciation and amortization		5,315		3,370			—			—			115			8,800
Earnings (loss) before tax		7,244		217			(7,963	)		(92,278	)		17,016			(75,764	)

($000s)	Liquor Retail		Cannabis Retail		Cannabis			Investments⁽¹⁾		Corporate			Total
As at December 31, 2021
Total assets		—		153,624		147,887			1,093,596		29,155			1,424,262
Six months ended June 30, 2021
Net revenue		—		—		19,042			—		—			19,042
Gross margin		—		—		(6,273	)		—		—			(6,273	)
Interest and fee revenue		—		—		—			6,193		—			6,193
Gain on marketable securities		—		—		—			15,262		—			15,262
Share of profit of equity-accounted investees		—		—		—			3,724		—			3,724
Depreciation and amortization		—		—		1,782			—		207			1,989
Earnings (loss) before tax		—		—		(84,623	)		23,351		(125,460	)		(186,732	)
Three months ended June 30, 2021
Net revenue		—		—		9,151			—		—			9,151
Gross margin		—		—		(2,821	)		—		—			(2,821	)
Interest and fee revenue		—		—		—			3,344		—			3,344
Gain (loss) on marketable securities		—		—		—			2,362		—			2,362
Share of profit of equity-accounted investees		—		—		—			3,724		—			3,724
Depreciation and amortization		—		—		828			—		103			931
Earnings (loss) before tax		—		—		(75,451	)		9,051		14,113			(52,287	)

The liquor retail segment results are comprised of operations for the period March 31 to June 30, 2022. Gross margin for the three months ended June 30, 2022 was $33.5 million (23%) and for the six months ended June 30, 2022 was $33.8 million (23%). Cost of sales for liquor retail operations is comprised of the cost of wine, beer and spirits.

Gross revenue for the three months ended June 30, 2022 was $63.5 million and for the six months ended June 30, 2022 was $71.0 million. Retail revenue is comprised of retail cannabis sales to private customers from corporate-owned stores. Franchise revenue is comprised of royalty revenue, advertising revenue and franchise fees. Prior to opening, Spiritleaf franchised retail cannabis stores purchase millwork (store fixtures) from the Company. Once a franchise Spiritleaf retail cannabis store is open and operating, it purchases supplies and Spiritleaf accessories from the Company to sell to customers.

Gross margin for the three months ended June 30, 2022 was $13.9 million (22%) and for the six months ended June 30, 2022 was $17.2 million (24%). Cost of sales for cannabis retail operations is comprised of the cost of pre-packaged cannabis and related accessories.

For the three months ended June 30, 2022, the Company sold 3,632 kilogram equivalents of cannabis compared to 5,412 kilogram equivalents for the three months ended June 30, 2021. The decrease of 1,780 kilogram equivalents sold was due to a decrease in kilogram equivalents sold to other licensed producers (“LPs”).

For the six months ended June 30, 2022, the Company sold 7,003 kilogram equivalents of cannabis compared to 9,401 kilogram equivalents for the six months ended June 30, 2021. The decrease of 2,398 kilogram equivalents sold was due to a decrease in kilogram equivalents sold to other LPs and a slight decrease in kilogram equivalents sold to provincial boards. The Company’s sales growth strategy is to continue targeting branded sales to provincial boards.

The Company’s calculation of kilogram equivalents (or other measurement equivalents stated in this MD&A, including gram equivalents) is based upon internal estimates and may not be comparable to similar measures used by other companies.

	Three months ended June 30						Six months ended June 30
($/gram equivalent)	2022			2021			2022			2021
Provincial boards	$	4.21		$	3.19		$	4.04		$	3.17
Medical	$	3.00		$	1.81		$	3.00		$	3.68
Licensed producers	$	5.70		$	0.93		$	2.30		$	1.46
Average gross selling price	$	4.25		$	2.35		$	3.82		$	2.60
Excise taxes	$	(1.06	)	$	(0.66	)	$	(0.91	)	$	(0.58	)
Average net selling price	$	3.18		$	1.69		$	2.90		$	2.03

For the three months ended June 30, 2022, the average net selling price was $3.18 per gram equivalent compared to $1.69 for the three months ended June 30, 2021. The increase of $1.49 per gram equivalent was largely due to an increase in prices for sales to other LPs and an increase in prices for provincial board sales. LP prices have increased due to the inclusion of service revenue which does not have a corresponding gram equivalent. Service revenue is comprised of administrative and facility fees (see “Revenue by channel”). Excluding service revenue, the average net selling price in the current period was $1.44 per gram equivalent. Provincial board sales prices have increased due to the shift from value products to core products lower price discounts and concessions compared to the prior period.

For the six months ended June 30, 2022, the average net selling price was $2.90 per gram equivalent compared to $2.03 for the six months ended June 30, 2021. The increase of $0.87 per gram equivalent was due to higher prices for provincial board sales and higher prices for sales to other LPs. Provincial board prices have increased due to the shift from value products to core products and lower price discounts and concessions compared to the prior period. LP prices have increased due to the inclusion of service revenue which does not have a corresponding gram equivalent. Excluding service revenue, the average net selling price in the current period was $1.47 per gram equivalent.

The principal drivers of the Company’s realized prices are the formats of the products sold (currently both bulk and packaged flower, inhalables and accessories, trim, bulk extracted oil, edibles and concentrates) and the channels in which products are sold (principally Canadian provincial boards and LPs).

Excise taxes are the federal excise duties and additional provincial or territorial duties payable on adult-use cannabis products. Excise taxes for the six months ended June 30, 2022 and 2021 are based solely on adult-use end-consumer packaged cannabis sales.

	Three months ended June 30				Six months ended June 30
($000s)	2022		2021		2022		2021
Revenue from dried flower		13,125		9,774		21,978		19,490
Revenue from vapes		1,198		1,284		1,729		2,697
Revenue from oil		11		1,410		38		1,591
Revenue from edibles and concentrates		696		271		2,232		709
Revenue from services		396		—		754		—
Gross revenue		15,426		12,739		26,731		24,487

	Three months ended June 30						Six months ended June 30
($000s, except as indicated)	2022			2021			2022			2021
Provincial boards		14,893			10,888			24,625			19,930
Medical		3			1			6			3
Licensed producers		530			1,850			2,100			4,554
Gross revenue		15,426			12,739			26,731			24,487
Excise taxes		(3,862	)		(3,588	)		(6,392	)		(5,445	)
Net revenue		11,564			9,151			20,339			19,042
Gross revenue per gram sold	$	4.25		$	2.35		$	3.82		$	2.60
Net revenue per gram sold	$	3.18		$	1.69		$	2.90		$	2.03

The Company’s revenue comprises bulk and packaged sales under the Cannabis Act pursuant to its supply agreements with Canadian provincial boards and to other LPs. The Company’s sales growth strategy is to continue targeting branded sales to provincial boards.

The Company has entered into a concentrates licensing agreement with a third party based out of its Rocky View facility. Administrative fees and facility fees charged under the licensing agreement are recorded as revenue from services.

Gross revenue for the three months ended June 30, 2022 was $15.4 million compared to $12.7 million for the three months ended June 30, 2021. The increase of $2.7 million was due to an increase in selling prices, partially offset by a decrease in kilogram equivalents sold. Provincial board revenue increased by $4.0 million due to an increase in selling prices and an increase in kilogram equivalents sold. LP revenue decreased by $1.4 million due to a decrease in kilogram equivalents sold, partially offset by an increase in selling prices.

Gross revenue for the six months ended June 30, 2022 was $26.7 million compared to $24.5 million for the six months ended June 30, 2021. The increase of $2.2 million was due to an increase in selling prices, partially offset by a decrease in kilogram equivalents sold. Provincial board revenue increased by $4.7 million due to an increase in selling prices, partially offset by a decrease in kilogram equivalents sold. LP revenue decreased by $2.5 million due to a decrease in kilogram equivalents sold, partially offset by an increase in selling prices.

Excise taxes are the federal excise duties and additional provincial or territorial duties payable on adult-use cannabis products at the time such product is shipped from the production facility in its final packaging. Federal duties on adult-use cannabis products are calculated as the greater of (i) $0.25 per gram of flowering material, (ii) $0.75 per gram of non-flowering material or $0.25 per viable seed or seedling and (iii) 2.5% of the dutiable amount as calculated in accordance with the Excise Act, 2001. The rates of provincial or territorial duties vary by jurisdiction.

Excise taxes for the three months ended June 30, 2022 were $3.9 million compared to $3.6 million for the three months ended June 30, 2021. The increase of $0.3 million was due to an increase in sales to provincial boards from the comparative period.

Excise taxes for the six months ended June 30, 2022 were $6.4 million compared to $5.4 million for the six months ended June 30, 2021. The increase of $1.0 million was due to expanded sales in provinces with higher provincial duties than the comparable period.

Cost of sales includes three main categories: pre-harvest, post-harvest and shipment and fulfillment costs. These costs are incurred in respect of cultivating, harvesting, processing and packaging cannabis products. Pre-harvest costs include all direct and indirect costs incurred between initial recognition and the point of harvest, including labour-related costs, grow consumables, materials, utilities, facilities costs and depreciation related to production facilities. Post-harvest costs include all direct and indirect costs incurred subsequent to the point of harvest, including labour-related costs, consumables, materials, utilities and facilities costs. Shipment and fulfillment costs include packaging, transportation, quality control and testing costs.

Cost of sales for the three months ended June 30, 2022 were $9.6 million compared to $9.5 million for the three months ended June 30, 2021. The increase of $0.1 million was due to an increase in the cost of sales per gram sold, partially offset by a decrease in kilogram equivalents sold compared to the prior period. Cost of sales per gram sold for the three months ended June 30, 2022 were $2.64 compared to $1.76 for the three months ended June 30, 2021. The increase of $0.88 was mostly due to increased post-harvest, shipment and fulfilment costs.

Cost of sales for the six months ended June 30, 2022 were $18.7 million compared to $21.0 million for the six months ended June 30, 2021. The decrease of $2.3 million was due to a decrease in kilogram equivalents sold compared to the prior period, partially offset by an increase in the cost of sales per gram sold compared to the prior period. Cost of sales per gram sold for the six months ended June 30, 2022 were $2.67 compared to $2.23 for the six months ended June 30, 2021. The increase of $0.44 per gram sold was due to increased post-harvest, shipment and fulfilment costs.

	Three months ended June 30						Six months ended June 30
($000s)	2022			2021			2022			2021
Net revenue		11,564			9,151			20,339			19,042
Cost of sales		9,585			9,534			18,666			20,979
Inventory impairment and obsolescence		3,871			1,651			5,852			3,405
Gross margin before fair value adjustments ⁽¹⁾		(1,892	)		(2,034	)		(4,179	)		(5,342	)
Change in fair value of biological assets		(388	)		(331	)		3,302			(425	)
Change in fair value realized through inventory		(2,066	)		(456	)		(3,627	)		(506	)
Gross margin		(4,346	)		(2,821	)		(4,504	)		(6,273	)

Gross margin before fair value adjustments is defined as net revenue less cost of sales and inventory obsolescence and impairment before adjusting for the non-cash changes in the fair value adjustments on the sale of inventory and the growth of biological assets.

Gross margin before fair value adjustments for the three months ended June 30, 2022 was $1.9 million compared to negative $2.0 million for the three months ended June 30, 2021. The increase of $0.1 million was due to higher net revenue, partially offset by a higher inventory obsolescence provision compared to the prior period. The inventory obsolescence provision in the comparative period was applied primarily to bulk flower, shake and concentrates due to price compression in the market, as well as certain obsolete packaging inventory.

Gross margin before fair value adjustments for the six months ended June 30, 2022 was negative $4.2 million compared to negative $5.3 million for the six months ended June 30, 2021. The increase of $1.1 million was due to higher net revenue and lower cost of sales, partially offset by a higher inventory obsolescence provision compared to the prior period. The inventory obsolescence provision was applied across all product formats. The inventory obsolescence provision in the comparative period was applied primarily to concentrates, bulk flower and shake due to price compression in the market, as well as certain obsolete packaging inventory.

The total inventory obsolescence and impairment recognized during the six months ended June 30, 2022 was $7.2 million, with $5.9 million relating to cost of sales and $1.3 million relating to the change in fair value realized through inventory. The total

inventory obsolescence and impairment recognized during the six months ended June 30, 2021 was $3.3 million, with $3.4 million relating to cost of sales and negative $0.1 million relating to the change in fair value realized through inventory.

Biological assets consist of cannabis plants in various stages of vegetation, including clones, which have not yet been harvested. Net unrealized changes in fair value of biological assets less cost to sell during the period are included in the results of operations for the related period. Biological assets are presented at their fair values less costs to sell up to the point of harvest. The fair values are determined using a model which estimates the expected harvest yield in grams for plants currently being cultivated, and then adjusted for the amount for the expected selling price less costs to sell per gram.

Change in fair value realized through inventory comprises fair value adjustments associated with the cost of inventory when such inventory is sold. Inventories are carried at the lower of cost and net realizable value. When sold, the cost of inventory is recorded as cost of sales, while fair value adjustments are recorded as change in fair value realized through inventory.

The change in fair value realized through inventory for the three months ended June 30, 2022 was a decrease of $2.1 million compared to a decrease of $0.5 million for the three months ended June 30, 2021. The decrease of $1.6 million was due to the fair value component of the excess and obsolete inventory provision and the reversal of larger prior period changes in fair value of biological assets as they are transferred to inventory and sold.

The change in fair value realized through inventory for the six months ended June 30, 2022 was a decrease of $3.6 million compared to a decrease of $0.5 million for the six months ended June 30, 2021. The decrease of $3.1 million was due to the fair value component of the excess and obsolete inventory provision and the reversal of larger prior period changes in fair value of biological assets as they are transferred to inventory and sold.

The Company determined that indicators of impairment existed during the six months ended June 30, 2022, regarding the Sun 8 intellectual property due to decreasing market demand. The estimated recoverable amount of the intangible assets was determined to be $2.5 million and an impairment of $1.9 million was recorded.

The Company determined that indicators of impairment existed during the six months ended June 30, 2021, with respect to the Company’s Olds cash generating unit (“CGU”) as a result of curtailment in the utilization of the capacity in the Company’s Olds facility to align cannabis production with current demand estimates. A test for impairment was performed at the CGU level by comparing the estimated recoverable amount to the carrying values of the assets. The estimated recoverable amount of the assets was determined to be their value in use and an impairment of $60.0 million was recorded to write down the assets to their estimated recoverable amount.

	Three months ended June 30				Six months ended June 30
($000s)	2022		2021		2022		2021
Interest and fee revenue
Interest revenue from investments at amortized cost		818		328		1,813		441
Interest and fee revenue from investments at FVTPL		543		2,100		2,659		4,282
Interest revenue from cash		1,216		916		1,966		1,470
		2,577		3,344		6,438		6,193

Interest and fee revenue for the three months ended June 30, 2022 was $2.6 million compared to $3.3 million for the three months ended June 30, 2021. The decrease of $0.7 million was due to the suspension of interest payments on the Zenabis senior loan (refer to note 13 in the condensed consolidated interim financial statements).

Interest and fee revenue for the six months ended June 30, 2022, was $6.4 million compared to $6.2 million for the six months ended June 30, 2021. The increase of $0.2 million was due to an increase in the number and dollar amount of investments compared to the prior period.

Investment revenue is comprised of realized and unrealized gains and losses on marketable securities.

Investment loss for the three months ended June 30, 2022 was negative $35.1 million compared to $2.4 million for the three months ended June 30, 2021. The change was primarily due to an increase in unrealized losses caused mainly by a decrease in share prices of the Company’s investments in Village Farms International, Inc. and The Valens Company. The Company also realized a gain on disposition of $4.2 million in the comparative period from the disposition of its shares held in another Canadian LP.

Investment revenue for the six months ended June 30, 2022, was negative $52.8 million compared to $15.3 million for the six months ended June 30, 2021. The change from an unrealized gain in the comparative period to an unrealized loss in the current period was mostly due to a decrease in share prices of the Company’s investments in Village Farms International, Inc. and The Valens Company. The Company also realized a gain on disposition of $12.2 million in the comparative period from the disposition of all its shares held in another Canadian LP. The Company continues to strategically deploy capital with a focus on maximizing risk-adjusted cash flows and shareholder value.

Share of profit of equity-accounted investees is comprised of the Company’s share of the net profit generated from its investments in SunStream. The current investment portfolio of SunStream is comprised of secured debt and hybrid debt and derivative instruments with United States based cannabis businesses.

Share of profit of equity-accounted investees for the three months ended June 30, 2022 was a loss of $38.0 million compared to $3.7 million for the three months ended June 30, 2021. The decrease of $41.7 million was due to fair value adjustments to the investments related to increased assumed credit risk in the US cannabis industry.

Share of profit of equity-accounted investees for the six months ended June 30, 2022 was a loss of $33.9 million compared to $3.7 million for the six months ended June 30, 2021. The decrease of $37.6 million was due to fair value adjustments to the investments related to increased assumed credit risk in the US cannabis industry.

The following table summarizes selected consolidated operating and financial information of the Company for the preceding eight quarters.

	2022						2021												2020
($000s, except as indicated)	Q2			Q1			Q4			Q3			Q2			Q1			Q4 ⁽¹⁾			Q3
Gross revenue		227,557			20,127			25,630			17,162			12,739			11,748			16,865			15,525
Gross investment revenue (loss)		(32,496	)		(13,849	)		(38,108	)		(14,699	)		5,706			15,749			—			—
Gross margin		43,079			3,419			(2,499	)		1,782			(2,821	)		(3,452	)		(4,695	)		(19,544	)
Net loss attributable to owners of the Company		(73,301	)		(37,904	)		(54,990	)		11,311			(52,287	)		(134,416	)		(57,622	)		(71,386	)
Per share, basic		(0.31	)		(0.02	)		(0.03	)		0.006			(0.03	)		(0.09	)		(0.11	)		(0.53	)
Per share, diluted		(0.31	)		(0.02	)		(0.03	)		0.005			(0.03	)		(0.09	)		(0.11	)		(0.53	)
Adjusted EBITDA ⁽²⁾		(25,927	)		(675	)		18,425			10,539			(205	)		3,327			(5,633	)		(4,409	)

During the eight most recent quarters the following items have had a significant impact on the Company’s financial results and results of operations:

Capital resources are financing resources available to the Company and are defined as the Company’s debt and equity. The Company manages its capital resources with the objective of maximizing shareholder value and sustaining future development of the business. The Company manages its capital structure and adjusts it, based on the funds available to the Company, in order to support the Company’s activities. The Company may adjust capital spending, issue new equity or issue new debt, subject to the availability on commercial terms.

The Company’s primary need for liquidity is to fund investment opportunities, capital expenditures, working capital requirements and for general corporate purposes. The Company’s lease obligations have increased significantly due to both the Inner Spirit Transaction and the Alcanna transaction as corporate stores occupy leased retail space. Refer to “Contractual Commitments and Contingencies – Commitments” for an estimate of the contractual maturities of the Company’s lease obligations. The Company’s primary source of liquidity historically has been from funds received from the proceeds of common share issuances and debt financing. The Company’s ability to fund operations and investments and make planned capital expenditures depends on future operating performance and cash flows, as well as the availability of future financing – all of which is subject to prevailing economic conditions and financial, business and other factors.

Management believes its current capital resources and its ability to manage cash flow and working capital levels will be sufficient to satisfy cash requirements associated with funding the Company’s operating expenses to maintain capacity and fund future development activities for at least the next 12 months. However, no assurance can be given that this will be the case or that future sources of capital will not be necessary.

On July 25, 2022, the Company’s shareholders approved a special resolution for the consolidation of all of the issued and outstanding common shares (the “Share Consolidation”) on the basis of not more than one post-consolidation common share for every ten pre-consolidation common shares and not less than one post-consolidation common share for every twenty-five pre-consolidation common shares, as to be determined by the Board in its sole discretion, to become effective at such time as the Board considers it to be in the best interests of the Company, but in any event not later than July 25, 2023.

Immediately following the shareholder approval, the Board determined to affect the Share Consolidation on the basis of one post-consolidation common share for every ten pre-consolidation common shares. The Share Consolidation took effect on July 25, 2022, and the common shares began trading on Nasdaq on a post-consolidation basis beginning on July 26, 2022.

All references to common shares, warrants, simple warrants, performance warrants, stock options, RSUs and DSUs (excluding the Nova RSUs and DSUs) have been fully retrospectively adjusted to reflect the Share Consolidation.

As at June 30, 2022, the Company had the following share capital instruments outstanding:

As at June 30, 2022, the Company had 238.0 million shares outstanding (December 31, 2021 – 206.0 million shares).

Common shares were issued during the six months ended June 30, 2022 in connection with the following transactions:

	Three months ended June 30						Six months ended June 30
($000s)	2022			2021			2022			2021
Cash provided by (used in):
Operating activities		(17,873	)		(70,382	)		(43,893	)		(104,748	)
Investing activities		(35,802	)		(192,288	)		(139,774	)		(203,147	)
Financing activities		(6,519	)		274,742			(11,954	)		1,134,988
Effect of exchange rate changes		—			(99	)		—			(2,051	)
Change in cash and cash equivalents		(60,194	)		11,973			(195,621	)		825,042

Net cash used in operating activities was $17.9 million for the three months ended June 30, 2022 compared to $70.4 million used in operating activities for the three months ended June 30, 2021. The decrease of $52.5 million was due to a decrease in net loss adjusted for non-cash items, partially offset by change in non-cash working capital. The change in non-cash working capital is comprised of changes in inventory, accounts receivable, prepaid expenses and deposits and accounts payable.

Net cash used in operating activities was $43.9 million for the six months ended June 30, 2022 compared to $104.7 million used in operating activities for the six months ended June 30, 2021. The decrease of $60.8 million was due to a decrease in net loss adjusted for non-cash items, partially offset by proceeds from disposal in marketable securities in the comparative period and change in non-cash working capital. The change in non-cash working capital is comprised of changes in inventory, accounts receivable, prepaid expenses and deposits and accounts payable.

Net cash used in investing activities was $35.8 million for the three months ended June 30, 2022 compared to $192.3 million used in investing activities for the three months ended June 30, 2021. The decrease of $156.5 million was mainly due to additions to equity-accounted investees in the comparative period.

Net cash used in investing activities was $139.8 million for the six months ended June 30, 2022 compared to $203.1 million used in investing activities for the six months ended June 30, 2021. The decrease of $63.3 million was primarily due to additions to equity-accounted investees in the comparative period, partially offset by the acquisition of Alcanna.

Net cash used in financing activities was $6.5 million for the three months ended June 30, 2022 compared to $274.7 million provided by financing activities for the three months ended June 30, 2021. The decrease of $281.2 million was due to proceeds from the issuance of shares in the comparative period, partially offset by the change in restricted cash.

Net cash used in financing activities was $12.0 million for the six months ended June 30, 2022 compared to $1,135.0 million provided by financing activities for the six months ended June 30, 2021. The decrease of $1,147.0 million was largely due to proceeds from the issuance of shares, proceeds from registered offerings and proceeds from the exercise of derivative warrants in the comparative period, partially offset by the change in restricted cash.

Credit risk is the risk of financial loss if the counterparty to a financial transaction fails to meet its obligations. The Company manages risk over its accounts receivable by issuing credit only to credit worthy counterparties. The Company limits its exposure to credit risk over its investments by ensuring the agreements governing the investments are secured in the event of counterparty default. The Company considers financial instruments to have low credit risk when its credit risk rating is equivalent to investment grade. The Company assumes that the credit risk on a financial asset has increased significantly if it is outstanding past the contractual payment terms. The Company considers a financial asset to be in default when the debtor is unlikely to pay its credit obligations to the Company.

The Company applies the simplified approach under IFRS 9 and has calculated expected credit losses based on lifetime expected credit losses, taking into consideration historical credit loss experience and financial factors specific to the debtors and general economic conditions.

The Company has evaluated the credit risk of its investments, taking into consideration historical credit loss experience, financial factors specific to the debtors and general economic conditions, and determined the expected credit loss to be nil.

The maximum amount of the Company’s credit risk exposure is the carrying amounts of cash and cash equivalents, accounts receivable, and investments. The Company attempts to mitigate such exposure to its cash and cash equivalents by investing only in financial institutions with investment grade credit ratings or secured investments. The Company manages risk over its accounts receivable by issuing credit only to credit worthy counterparties.

Liquidity risk is the risk that the Company cannot meet its financial obligations when due. The Company manages liquidity risk by monitoring operating and growth requirements. The Company prepares forecasts to ensure sufficient liquidity to fulfil obligations and operating plans. Management believes its current capital resources and its ability to manage cash flow and working capital levels will be sufficient to satisfy cash requirements associated with funding the Company’s operating expenses to maintain capacity and fund future development activities for at least the next 12 months.

Market risk is the risk that changes in market prices will affect the Company’s income or value of its holdings of financial instruments. The Company is exposed to market risk in that changes in market prices will cause fluctuations in the fair value of its marketable securities. The fair value of marketable securities is based on quoted market prices as the Company’s marketable securities are shares of publicly traded entities.

The information presented in the table below reflects managements estimate of the contractual maturities of the Company’s obligations at June 30, 2022.

The Company has entered into certain supply agreements to provide dried cannabis and cannabis products to third parties. The contracts require the provision of various amounts of dried cannabis on or before certain dates. Should the Company not deliver the product in the agreed timeframe, financial penalties apply which may be paid either in product in-kind or cash. Under these agreements, the Company has accrued financial penalties payable as at June 30, 2022 of $2.5 million (December 31, 2021 - $2.5 million).

From time to time, the Company may become involved in legal proceedings arising in the ordinary course of its business. Such proceedings, certain of which have been threatened against the Company, could include commercial litigation related to breach of contract claims brought by customers, suppliers and contractors, as well as litigation related to termination of certain of its employees. The outcome of any litigation is inherently uncertain. Although the Company believes it has meritorious defenses against all currently pending and threatened proceedings and intend to vigorously defend all claims if they are brought, unfavorable rulings, judgments or settlement terms could have a material adverse impact on its business and results of operations.

Certain specified financial measures in this MD&A including adjusted EBITDA, gross margin before fair value adjustments and gross margin before fair value adjustments percentage are non-IFRS measures. These terms are not defined by IFRS and, therefore, may not be comparable to similar measures provided by other companies. These non-IFRS financial measures should not be considered in isolation or as an alternative for measures of performance prepared in accordance with IFRS.

Adjusted EBITDA is a non-IFRS financial measure which the Company uses to evaluate its operating performance. Adjusted EBITDA provides information to investors, analysts, and others to aid in understanding and evaluating the Company’s operating results in a similar manner to its management team. Adjusted EBITDA is defined as net income (loss) before finance costs, depreciation and amortization, accretion expense, income tax recovery and excluding change in fair value of biological assets, change in fair value realized through inventory, unrealized foreign exchange gains or losses, share-based compensation expense, asset impairment, gain or loss on disposal of property, plant and equipment and certain one-time non-operating expenses, as determined by management.

The following table reconciles adjusted EBITDA to net income (loss) for the periods noted.

	Three months ended June 30						Six months ended June 30
($000s)	2022			2021			2022			2021
Net loss		(73,973	)		(52,287	)		(112,013	)		(186,732	)
Adjustments
Finance costs		26,505			40			26,444			91
Change in estimate of fair value of derivative warrants		(23,656	)		(19,810	)		(15,356	)		110,134
Depreciation and amortization		8,800			931			9,539			1,989
Income tax recovery		(1,791	)		—			(1,791	)		—
Change in fair value of biological assets		388			331			(3,302	)		425
Change in fair value realized through inventory		2,066			456			3,627			506
Unrealized foreign exchange (gain) loss		19			104			35			2,009
Unrealized (gain) loss on marketable securities		35,338			1,849			53,172			(3,032	)
Share-based compensation		438			4,539			4,642			7,995
Asset impairment		1,850			60,000			1,850			60,000
Loss (gain) on disposition of PP&E		(402	)		22			(402	)		139
Cost of sales non-cash component ⁽¹⁾		3,440			1,162			3,440			1,988
Inventory impairment and obsolescence		3,871			1,651			5,852			3,405
Restructuring costs		(882	)		—			(882	)		—
Transaction costs⁽²⁾		(7,938	)		805			(1,457	)		4,453
Government subsidies		—			—			—			(2,180	)
Other expenses		—			2			—			1,932
Adjusted EBITDA		(25,927	)		(205	)		(26,602	)		3,122

Gross margin before fair value adjustments is a non-IFRS financial measure which the Company uses to evaluate its operating performance in the Company’s cannabis segment. Gross margin before fair value adjustments provides useful information to investors, analysts and others in understanding and evaluating the Company’s operating results as it removes non-cash fair value metrics. Gross margin before fair value adjustments is defined as gross margin less the non-cash changes in the fair value adjustments on the sale of inventory and the growth of biological assets. Gross margin before fair value adjustments is comprised of net revenue less cost of sales and inventory obsolescence and impairment.

See “Cannabis Segment Results – Gross Margin” for a table reconciling gross margin before fair value adjustments to gross margin for the periods noted.

Gross margin before fair value adjustments percentage is a non-IFRS financial ratio which the Company uses to evaluate its operating performance in the Company’s cannabis segment. Gross margin before fair value adjustments percentage is defined as gross margin before fair value adjustments divided by net revenue.

The Company did not enter into any related party transactions during the six months ended June 30, 2022 and 2021, other than those disclosed in note 14 of the condensed consolidated interim financial statements relating to the Company’s SunStream joint venture.

As at June 30, 2022, the Company did not have any off-balance sheet arrangements. The Company has certain operating or rental lease agreements, as disclosed in the “Contractual Commitments and Obligations” section of this MD&A, which are entered into in the normal course of operations.

The Company makes assumptions in applying critical accounting estimates that are uncertain at the time the accounting estimate is made and may have a significant effect on the consolidated financial statements. Critical accounting estimates include the classification and recoverable amounts of CGUs, value of biological assets and inventory, estimating potential future returns on revenue, share-based compensation, convertible instruments, value of investments, value of equity-accounted investees, value of leases, acquisitions and fair value of assets acquired and liabilities assumed in a business combination. Critical accounting estimates are based on variable inputs including but not limited to:

Changes in critical accounting estimates can have a significant effect on net income as a result of their impact on revenue, costs of sales, provisions and impairments. Changes in critical accounting estimates can have a significant effect on the valuation of biological assets, inventory, property, plant and equipment, provisions and derivative financial instruments.

For a detailed discussion regarding the Company’s critical accounting policies and estimates, refer to the notes to the Audited Financial Statements.

The International Accounting Standards Board (IASB) and the IFRS Interpretations Committee regularly issue new and revised accounting pronouncements which have future effective dates and therefore are not reflected in the Company’s consolidated financial statements. Once adopted, these new and amended pronouncements may have an impact on the Company’s consolidated financial statements. The Company’s analysis of recent accounting pronouncements is included in the notes to the Audited Financial Statements.

In addition to the other risks described elsewhere in this document, or a detailed discussion regarding the Company’s risk factors, refer to the “Risk Factors” section of the Annual Report.

The Company has designed disclosure controls and procedures to provide reasonable assurance that: (i) material information relating to the Company is made known to the Company’s Chief Executive Officer and Chief Financial Officer by others, particularly during the period in which the annual and interim filings are being prepared; and (ii) information required to be disclosed by the Company in its annual filings, interim filings or other reports filed or submitted by it under securities legislation is recorded, processed, summarized and reported within the time period specified in securities legislation. Our management,

with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (“the Exchange Act”)). Based upon evaluation of the Company’s disclosure controls and procedures as of June 30, 2022, our Chief Executive Officer and Chief Financial Officer have concluded that the Company’s disclosure controls and procedures were not effective as of such date, as a result of the material weaknesses described in our MD&A for the year ended December 31, 2021.

Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in NI 52-109 and Rule 13a-15(f) under the Exchange Act. Refer to our MD&A for the year ended December 31, 2021, for a discussion regarding internal control over financial reporting and material weaknesses identified.

As previously described in our MD&A for the year ended December 31, 2021, management, with oversight from the Audit Committee, has initiated, and will continue to implement, remediation measures including the analysis of changes in the business and assessment of the key controls that are responsive to those changes.

At August 12, 2022, the above remediation measures are in progress and controls related to documentation of ITGCs, restricting privileged-level access and monitoring of software upgrades have been designed and implemented. Additionally, the Company continues to evaluate roles, resourcing requirements and add personnel who can assist with the Company’s financial reporting requirements. Management will continue to work to recruit and retain additional resources as needed. The deficiencies will not be considered remediated, however, until the applicable controls operate for a sufficient period, and management has concluded through testing, that these controls are operating effectively.

Additionally, the Company has implemented and tested workflows designed to remediate the lack of segregation of duties in its information technology systems and processes. The Company believes that this remediation is complete, subject to the remediation and testing of other deficiencies related to the ITGC’s material weakness described above.

The Company is pursuing remediation of all of the above material weaknesses during the 2022 fiscal year.

Except for the remediation activities described above, as of June 30, 2022, there have been no other changes in our internal control over financial reporting (as defined in NI 52-109 and Rules 13a-15(f) or 15d-15(f) of the Exchange Act) that occurred during the quarter ended June 30, 2022, that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

In accordance with guidance issued by the Canadian Securities Administrators and the SEC, companies are permitted to exclude acquisitions from their final assessment of internal control over financial reporting for the first fiscal year in which the acquisition occurred. Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has limited the evaluation of our internal control over financial reporting to exclude controls, policies and procedures and internal control over financial reporting of the recently acquired operations of Inner Spirit Holdings (acquired July 20, 2021) and Alcanna Inc. (acquired on March 31, 2022).

This document may contain forward-looking information concerning the Company’s business, operations and financial performance and condition, as well as its plans, objectives and expectations for its business operations and financial performance and condition. Any statements contained herein that are not statements of historical facts may be deemed to be forward-looking statements. In some cases, you can identify forward-looking statements by terminology such as “aim”, “anticipate”, “assume”, “believe”, “contemplate”, “continue”, “could”, “due”, “estimate”, “expect”, “goal”, “intend”, “may”, “objective”, “plan”, “predict”, “potential”, “positioned”, “pioneer”, “seek”, “should”, “target”, “will”, “would”, and other similar expressions that are predictions of or indicate future events and future trends, or the negative of these terms or other comparable technology.

These forward-looking statements are based on current expectations, estimates, forecasts and projections about the Company’s business and the industry in which it operates and management’s beliefs and assumptions and are not guarantees of future performance or development and involve known and unknown risks, uncertainties and other factors that are in some cases beyond its control. As a result, any or all of the forward-looking information in this document may turn out to be inaccurate. Factors that may case actual results to differ materially from current expectations include, among other things, those listed or referred to under the heading “Risk Factors” herein. Although management believes that its underlying assessments and assumptions are reasonable based on currently available information, given these risks and uncertainties, investors should not place undue reliance on forward-looking statements as a prediction of actual results. All forward-looking statements in this MD&A are qualified by these cautionary statements. These statements are made as of the date of this MD&A and, except as required by applicable law, the Company assumes no obligation to update or revise these forward-looking statements for any reason, even if new information becomes available in the future. Additionally, the Company undertakes no obligation to comment on analyses, expectations or statements made by third parties in respect of the Company, its financial or operating results or its securities.

This document contains estimates, projections and other information concerning the Company’s industry, business and the markets for its products. Information that is based on estimates, forecasts, projections, market research of similar methodologies is inherently subject to uncertainties, and actual events or circumstances may differ materially from events and circumstances that are assumed in this information. Unless otherwise expressly stated, the Company obtained this industry, business, market and other data from its own internal estimates and research as well as from reports, research surveys, studies and similar data prepared by market research firms and other third parties, industry, medical and general publications, government data and similar sources.

In addition, assumptions and estimates of the Company’s and industry’s future performance are necessarily subject to a high degree of uncertainty and risk due to a variety of factors, including those described in the section “Risk Factors” herein. These and other factors could cause the Company’s future performance to differ materially from the Company’s assumptions and estimates.

Further information regarding the assumptions and risks inherent in the making of forward-looking statements can be found in the Annual Report, along with the Company’s other public disclosure documents. Copies of the Annual Report and other public disclosure documents are available under the Company’s profile on the System for Electronic Document Analysis and Retrieval (“SEDAR”) at www.sedar.com and on the EDGAR section of the U.S. Securities and Exchange Commission’s (the “SEC”) website at www.sec.gov.

Certain information in this MD&A is “financial outlook” within the meaning of applicable Canadian securities laws. The purpose of the financial outlook is to provide readers with disclosure of the Company’s reasonable expectations of its anticipated results. The financial outlook is provided as of the date of this MD&A. Readers are cautioned that the financial outlook may not be appropriate for other purposes.

Additional information relating to the Company can be viewed under the Company’s profile on SEDAR at www.sedar.com, on the EDGAR section of the SEC’s website at www.sec.gov, or on the Company’s website at www.sndlgroup.com. The information on or accessible through our website is not part of and is not incorporated by reference into this MD&A, and the inclusion of our website address in this MD&A is only for reference.

COMPANY OVERVIEW	2
RECENT DEVELOPMENTS	2
OPERATIONAL AND FINANCIAL HIGHLIGHTS	4
CONSOLIDATED RESULTS	4
OPERATING SEGMENTS	7
LIQUOR RETAIL SEGMENT RESULTS	9
CANNABIS RETAIL SEGMENT RESULTS	9
CANNABIS SEGMENT RESULTS	10
INVESTMENTS SEGMENT RESULTS	14
SELECTED QUARTERLY INFORMATION	15
LIQUIDITY AND CAPITAL RESOURCES	16
CONTRACTUAL COMMITMENTS AND CONTINGENCIES	19
SPECIFIED FINANCIAL MEASURES	19
RELATED PARTIES	20
OFF BALANCE SHEET ARRANGEMENTS	21
CRITICAL ACCOUNTING POLICIES AND ESTIMATES	21
NEW ACCOUNTING PRONOUNCEMENTS	21
RISK FACTORS	21
DISCLOSURE CONTROLS AND PROCEDURES	22
INTERNAL CONTROL OVER FINANCIAL REPORTING	22
REMEDIATION	22
CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING	22
ABBREVIATIONS	23
FORWARD-LOOKING INFORMATION	23
ADDITIONAL INFORMATION	24

(000s)	June 30, 2022		December 31, 2021
Common shares		237,993		206,041
Common share purchase warrants⁽¹⁾		357		357
Simple warrants ⁽²⁾		256		259
Performance warrants ⁽³⁾		139		139
Stock options⁽⁴⁾		44		45
Restricted share units		2,232		754

($000s)	Less than one year		One to three years		Three to five years		Thereafter		Total
Accounts payable and accrued liabilities		37,080		—		—		—		37,080
Lease obligations		38,062		64,730		48,135		56,812		207,739
Financial guarantee liability		—		389		—		—		389
Total		75,142		65,119		48,135		56,812		245,208


Financial and Business Environment		Measurement
$ or C$	Canadian dollars	G or GM	Gram
IFRS	International Financial Reporting Standards	sq ft	Square feet
MD&A	Management’s Discussion and Analysis
U.S.	United States
US$	United States dollars
CBD	Cannabidiol
THC	Tetrahydrocannabinol