SNDL NASDAQ: SNDL reported first-quarter 2026 results marked by softer market demand across both liquor and cannabis, alongside execution issues in cannabis operations working capital that management said have since been addressed. On the company’s earnings call, executives said the quarter reflected more than typical seasonal weakness, as both retail segments saw same-store sales declines after 16 consecutive quarters of operational improvement.
Management cites market softness and execution issues
Chief Executive Officer Zach George said the first quarter faced “notable challenges beyond the usual seasonality” that typically makes the start of the calendar year the weakest period. George pointed to familiar weakness in liquor retail, but said softness that began in cannabis during the second half of the prior year “has developed into a more significant and persistent challenge.”
He also said results were “further affected by sub-optimal execution on working capital management within our upstream cannabis operations,” adding that the issue was addressed following the quarter-end.
Despite the headwinds, George said SNDL continued investing in growth platforms, highlighting an exclusive contract to produce and commercialize Jeeter in Canada. While exclusivity was formally assumed in April, he said production activities and inventory pipeline development began in March, with initial shipments delivered to provincial boards.
Financial results: revenue and gross profit declined
Chief Financial Officer Alberto Paredero-Quiros reported net revenue of CAD 196 million, down 4.4% year over year, citing market contraction across segments. Gross profit totaled CAD 53 million, down CAD 3.8 million, or 6.8%, versus the prior-year quarter. Consolidated gross margin declined 70 basis points, which Paredero-Quiros said was “purely driven” by the cannabis operations segment, as both retail segments expanded margin.
Operating income—both adjusted and unadjusted—remained negative in the quarter due to seasonality, but improved from the prior year, which management attributed to operating expense improvements and “the absence of prior year Sunstream valuation reduction,” according to Paredero-Quiros.
Free cash flow was negative CAD 7.6 million, which the CFO said was “partially driven by seasonality.” Compared with the prior year, free cash flow declined by CAD 6.5 million, which he attributed mainly to working capital increases in cannabis operations, additional capital expenditures across segments, and higher lease costs.
Paredero-Quiros noted that inventory built more than in the prior year, in part due to seasonality and “more pronounced” increases related to the Jeeter launch. He added that improvements elsewhere in working capital, including the net impact of receivables and payables, reflected “continued optimization of collections and payment terms.”
The CFO also highlighted an accounting presentation change following amendments to IFRS 7 and IFRS 9. As of 2026, “cash in transit is no longer classified as cash and cash equivalents,” and is instead reported as a receivable. He said the change has no impact on liquidity, cash generation, or underlying economics, but affects comparability of reported cash balances. SNDL reported CAD 213.4 million of cash on its March 31, 2026 balance sheet, excluding cash in transit; the company’s reported CAD 252.2 million at Dec. 31, 2025 included CAD 12.1 million of cash in transit.
Segment performance: margin gains in retail; cannabis operations pressured
SNDL also changed segment reporting beginning in 2026, allocating shared service costs to operating segments rather than Corporate. Paredero-Quiros said the company restated 2025 segment information for comparability and that the change is intended to provide a “fully loaded profitability” view for each segment.
- Liquor retail: Net revenue declined 4.9% year over year, driven by demand softness and broader market declines. Same-store sales fell 6.1%, partially offset by new store openings. Gross margin improved 20 basis points, supported by pricing and promotional optimization and greater penetration of private label offerings. Operating income was negative due to seasonality and “modestly lower than the prior year,” as depreciation and amortization efficiencies were offset by lower gross profit and higher sales and marketing expense.
- Cannabis retail: Same-store sales fell 2.5%, partially offset by new store openings and the integration of five Cost Cannabis locations. Gross profit increased 3.7% to CAD 20.4 million, supported by 100 basis points of gross margin expansion tied to pricing actions, promotional effectiveness, and product mix. The segment delivered positive operating income of CAD 1.1 million, though the CFO said operating income growth was constrained by approximately CAD 1 million in “unadjusted one-time charges.”
- Cannabis operations: Net revenue declined 14% to CAD 29.4 million, driven by destocking activity and timing shifts in business-to-business orders. International sales rose to CAD 3.5 million from CAD 1.8 million in the prior-year quarter. Gross margin fell by seven percentage points, with Paredero-Quiros attributing the compression to inventory adjustments and under-absorption due to lower production volumes, alongside one-time items including an incremental write-down related to an idle sterile term facility.
Jeeter rollout, retail expansion, and profitability initiatives
George framed progress around three priorities: growth, profitability, and people. On growth, he said Jeeter represents an “important milestone,” and that SNDL now controls execution “end-to-end” in Canada, from manufacturing to distribution. The company also expanded its cannabis retail network by six stores since Dec. 31, including five Cost Cannabis locations in Alberta and Saskatchewan. In Saskatchewan, SNDL is completing investment for a new Wine and Beyond liquor store expected to open in the second quarter.
George also said the Rise Rewards loyalty program, launched in cannabis in the second quarter of 2025, expanded into Ace Liquor and Liquor Depot during the first quarter of 2026, with rollout to Wine and Beyond scheduled for the second quarter.
On profitability, George said retail margins improved year over year, with liquor retail gross margin up 20 basis points and cannabis retail up 100 basis points, translating to an average 50-basis-point improvement across combined retail segments. He said the company implemented decisions under a “Profit Enhancement Initiative” expected to generate “more than CAD 20 million in incremental operating income over the remainder of the year,” driven mostly by efficiency gains as well as pricing actions and mix optimization.
George also noted CAD 2 million in additional G&A savings during the quarter and said “data-related revenue reached CAD 4.2 million.”
Capital allocation: buybacks, Sunstream exposure, and U.S. rescheduling
George said SNDL repurchased 4.5 million shares in the first quarter under its board-approved share repurchase program. In the Q&A session, Paredero-Quiros said the company expects to continue the buyback program “as long as the share prices are at these levels,” adding that management believes the stock is trading below its internal assessment of underlying business value.
George said SNDL has been approached frequently regarding transactions and financings amid what he described as a heating M&A environment, adding that at current levels the company’s equity is “not at a suitable valuation to be used as a currency in transactions.” As a result, he said investors should expect SNDL to be “biased to retiring shares as a more accretive use of cash” relative to larger-scale M&A.
Executives also discussed a recent U.S. regulatory step toward rescheduling cannabis, which George said is relevant given SNDL’s credit exposure through Sunstream, particularly to Parallel. George said Parallel is a predominantly medical portfolio and that, as it seeks DEA registration, it would “no longer be liable for 280E related taxes for the 2026 calendar year,” which he said could reduce uncertainty around margins and profitability. He added SNDL is focused on completing Parallel’s foreclosure process, which he said is expected to be completed “in the next couple of months,” before considering significant additional investments.
Asked about maintaining SNDL’s Nasdaq listing while managing U.S. exposure, George said the company would have “structural options” if DEA registration creates permissibility for uplisting, and that such options could allow SNDL to “retain our Nasdaq listing” while continuing to grow the business.
On cannabis retail demand, George said multiple factors are at play, including market maturity, stiff competition, and consumer discretionary pressure. He specifically cited increases in gasoline and heating oil prices since the start of the Ukraine war and said the impact on Canadian consumers “became very, very acute early this year.” Paredero-Quiros added that more than 85% of cannabis retail sales are in Alberta and Ontario, markets he said declined about 3% and 1%, respectively, in the first quarter, and he said the company expects performance to improve as it laps softer comparisons in the second half of 2026.
About SNDL NASDAQ: SNDL
SNDL Inc, formerly known as Sundial Growers Inc, is a Canada-based consumer packaged goods company focused on the production, manufacturing and distribution of cannabis products. Headquartered in Calgary, Alberta, SNDL operates multiple cultivation and processing facilities across Canada, including indoor and hybrid greenhouses in British Columbia and Ontario. The company serves both adult-use and medical cannabis markets, supplying provincial distributors as well as operating through its own wholesale and retail networks.
The company's product portfolio spans dried flower, pre-rolls, vape cartridges, cannabis oils, edibles and infused beverages under a variety of in-house brands.
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