Sundial Growers Inc Stock

Good morning, and welcome to SNDL's Third Quarter 2026 Financial Results Conference Call. This morning, SNDL issued a press release announcing their financial results for the second (sic) [ third ] quarter of 2026 ended on September 30, 2026. This press release is available on the company's website at sndl.com and filed on EDGAR and SEDAR as well. The webcast replay of the conference call will be also available on the sndl.com website. SNDL has also posted a supplemental investor presentation in addition to the conference call presentation we will be reviewing today on its sndl.com website.

Presenting on this morning's call, we have Zach George, Chief Executive Officer; and Alberto Paredero, Chief Financial Officer. Before we start, I would like to remind investors that certain matters discussed in today's conference call or answers that may be given to questions could constitute forward-looking statements. Actual results could differ materially from those anticipated. Risk factors that could affect results are detailed in the company's financial reports and other public filings that are made available on SEDAR and EDGAR. Additionally, all financial figures mentioned are in Canadian dollars, unless otherwise indicated. We will now make prepared remarks, and then we will move on to analyst questions. I would now like to turn the call over to Zach George. Please proceed.

Welcome to SNDL's Third Quarter 2026 Financial and Operational Results Conference Call. During the third quarter, SNDL delivered improved underlying financial performance while continuing to deploy capital against our highest conviction strategic priorities. We generated record quarterly free cash flow of $20 million and returned to positive adjusted operating income despite continued market pressure and significant challenges in Cannabis operations. Cannabis Retail delivered record quarterly net revenue and gross margin, while Liquor Retail also achieved a new quarterly gross margin record.

These results demonstrate the value of disciplined pricing, mix management, procurement productivity and continued cost control across our retail platforms. At the same time, Cannabis operations remained below our expectations. We took decisive action during the quarter to simplify the portfolio, exit the unprofitable domestic dried flower category, reduce costs and concentrate resources on higher-value products. We have also initiated a strategic review of the segment to assess a range of strategic and operational alternatives, including potential asset divestitures and broader productivity initiatives. We continue to allocate capital with discipline during the quarter.

We repurchased 5.4 million shares and announced our intention to pursue a potential substantial issuer bid of up to $50 million, subject to required approvals and documentation. We also made significant strategic investments in the United States. Following the completion of Parallel's restructuring in July, our participation in its rights offering increased our indirect equity ownership from approximately 67% to approximately 92%. We also funded investments supporting a new cultivation facility in Gainesville, Florida, and the acquisition of an additional portion of Parallel's take-back debt at a material discount to its face value. These actions reflect our priorities: improve operating performance, preserve financial flexibility, return capital when our shares represent an attractive investment and selectively pursue opportunities that can create meaningful long-term value. Over now to Alberto for more detail on our third quarter financial performance.

Thank you, Zach. Before moving on, I would like to remind everyone that the amounts discussed today are denominated in Canadian dollars unless otherwise stated. Certain figures referred to during this call are non-IFRS measures. For definitions of these measures and reconciliations where applicable, please refer to SNDL's management's discussion and analysis and the earnings press release issued today. Net revenue was $238 million in the third quarter of 2026, representing a decrease of $6.2 million or 2.5% compared with the same period of the prior year. Growth in Cannabis Retail and the impact of lower cannabis eliminations partially offset declines in Liquor Retail and Cannabis operations.

Gross profit was $57.9 million, a decline of $6.3 million or 9.8% year-over-year. Gross margin was 24.3%, down 2 percentage points as record margins in both retail segments were more than offset by a weak performance of Cannabis operations. Operating loss was $48.3 million, reflecting a $52 million noncash goodwill impairment associated with the Cannabis operations. Adjusted operating income, which excludes intangible impairment charges and restructuring costs, was positive $5.2 million, an improvement of $14.8 million compared with the same period last year.

Change in cash and cash equivalents was negative $50.7 million, primarily reflecting $60.8 million of capital contributions to equity accounted investees and $10 million of share repurchases. Free cash flow was a record $20 million, up $3.3 million or 19.5% year-over-year, including a $10.6 million benefit from the initial unwinding of our captive insurance.

Looking at our performance over the past several quarters, we're encouraged by the progress in adjusted operating income and free cash flow despite continued headwinds in revenue and gross profit. This reflects the financial discipline we have brought to the business and our continued focus on improving underlying profitability and cash generation. While there is still work to do, particularly in Cannabis operations, we believe we are making meaningful progress towards a more profitable and cash-generative business. Looking more closely at segment contributions, consolidated net revenue declined by $6.2 million year-over-year. Liquor Retail declined by $4.6 million and Cannabis operations declined by $10.3 million.

Cannabis Retail increased by $0.6 million, while the change in cannabis eliminations provided an $8.2 million offset. Gross profit declined by $6.3 million, driven by Cannabis operations, which accounted for a $6.6 million decline. Liquor Retail declined by $0.3 million, while Cannabis Retail increased by $0.7 million. Adjusted operating income improved by $14.8 million from a loss of $9.5 million in the prior year quarter to income of $5.2 million. A $9.9 million improvement in corporate expenses and a $6.6 million improvement from investments more than offset weaker results in Cannabis operations and Liquor Retail.

Free cash flow increased from $16.7 million in the third quarter of 2025 to a record $20 million this quarter. Compared with the prior year quarter, lower cash earnings reduced free cash flow by $1.1 million and year-over-year working capital change reduced by $11.8 million. Working capital optimization contributed $2.5 million in the third quarter of 2026, but this benefit was lower than in the prior year quarter due to differences in the timing of working capital movements. These impacts were more than offset by $16.2 million of other items, including a $10.6 million benefit from the initial unwind of the captive insurance arrangement. While the captive insurance contribution to Q3 free cash flow is a onetime item, we expect a second and final $8 million cash inflow in the fourth quarter as we complete the unwinding of the captive structure.

Turning to the commercial segments. I will begin with Liquor Retail. As a reminder, beginning in 2026, applicable direct and indirect overhead costs are allocated from corporate to its operating segments within general and administrative expenses and comparative periods have been recast. Liquor Retail net revenue was $134.8 million, a decline of $4.6 million or 3.3% year-over-year. Persistent softness in market demand continued to affect same-store sales, which declined 6%. Growth from the 3 new Wine and Beyond stores opened during the last 12 months, together with continued momentum in private label sales, which outperformed national brands by 8.5 percentage points in the quarter, helped partially offset the same-store sales decline.

Gross profit was $36.4 million, down $0.3 million, while gross margin expanded 70 basis points to a record 27.0%. The margin improvement was driven by pricing, product mix management and procurement productivity. Adjusted operating income was $6 million, down $0.6 million year-over-year as the benefit from gross margin expansion was more than offset by lower revenue and higher SG&A expenses associated with the recent store openings. Cannabis Retail net revenue returned to growth and reached a new quarterly record of $85.6 million, an increase of $0.6 million or 0.7% year-over-year.

New store openings and value-add conversions more than offset a 3.8% decline in same-store sales caused by market contraction in Alberta and Ontario. Gross profit increased by $0.7 million to $23.1 million, while gross margin expanded by 60 basis points to a record 27.0%. The improvement was supported by promotional and product mix efficiencies and increased data revenue. Adjusted operating income was $5.3 million, an increase of $0.2 million or 4.7% as promotional and product mix efficiencies and increased data revenue more than offset the impact of higher asset impairment reversals in the prior year period. Cannabis operations net revenue was $27.0 million, a decline of $10.3 million or 27.7% year-over-year.

The decline was primarily attributable to our exit from the unprofitable domestic dried flower category as we reshaped the segment to focus on higher-value product categories. Gross profit was negative $1.6 million with a gross margin of negative 6%. These results were primarily driven by inventory adjustments associated with our exit from dried flower as well as the Jeeter cost variances. Adjusted operating income loss was $11.4 million compared with a loss of $10.2 million in the prior year. While the segment results remain below our expectations, we took decisive action during the quarter to reduce manufacturing costs and other operating expenses, particularly at our Kelowna facility.

These actions included a workforce reduction of more than 30% at that site. We expect the P&L benefits of these actions to begin contributing in the fourth quarter. Given the segment's continued underperformance, we have also initiated a strategic review to evaluate alternatives to improve its financial performance and reduce its impact on our consolidated results. The review will consider a range of alternatives, including potential asset divestitures and broader productivity initiatives. Over to you, Zach, for additional comments on capital allocation and our strategic milestones.

Turning first to capital allocation. We continue to repurchase shares while maintaining balance sheet flexibility. During the third quarter, we repurchased 5.4 million common shares for $10 million, excluding commissions, at a weighted average price of USD 1.31 per share. Including repurchases completed in October through the measurement date shown in the presentation, we have repurchased 34 million shares since the fourth quarter of 2024 for $73.5 million at an average price of USD 1.54 per share. This represents an approximately 8% reduction in shares outstanding since the fourth quarter of 2024.

During 2026, we have significantly accelerated these repurchases. And under the current repurchase program, we have repurchased approximately 23 million shares for over $45 million at an average price of USD 1.41 per share. These shares represent approximately 9% of the 263.4 million common shares outstanding at the beginning of 2026. We have also announced a potential substantial issuer bid for an aggregate purchase price of up to $50 million at a price per share not to exceed USD 1.35. The proposed SIB would further accelerate capital returns while maintaining balance sheet flexibility.

The completion of Parallel restructuring was a transformational milestone for SNDL's U.S. investments. During the third quarter, our participation in Parallel's rights offering increased our indirect equity ownership from approximately 67% to approximately 92%. The funding provides liquidity to support inventory, product availability and essential supply chain infrastructure. SNDL also funded SunStream's investments supporting the build-out of a new cultivation facility in Gainesville, Florida. In addition, SunStream acquired a further portion of Parallel's take-back debt at 75% of face value, increasing its ownership of that debt from 39.4% to 69.4%.

As previously shared, Parallel currently operates in Florida, Texas and Massachusetts with 56 retail locations, 3 manufacturing and cultivation sites, approximately 800 employees and approximately USD 150 million of net revenue. We are evaluating different paths to direct ownership and the financial consolidation of Parallel's medical cannabis business as we believe it offers meaningful scale, an attractive margin profile and a platform for continued growth. We will provide further information as the path forward and timing become more clearly defined. We are encouraged by the progress towards resolving the long-standing regulatory matters involving the Alcohol and Gaming Commission of Ontario.

Subject to the completion of definitive documentation and payment of a $200,000 monetary penalty, the anticipated resolution is expected to provide a path towards normalized franchise operations. The contemplated structure includes approximately $30 million of third-party secured financing from a Tier 1 financial institution to repay existing SNDL debt. The proceeds received by SNDL are expected to remain restricted as collateral. The arrangement would also transition the relationship to a modified franchise structure under which SNDL would provide administrative services only.

As a result, the Ontario franchise operations are expected to be deconsolidated from SNDL's financial statements. Based on the trailing 12-month amounts presented, deconsolidation would reduce reported net revenue by approximately $105 million, while the impact on operating income would be significantly smaller at approximately $2 million. Our third quarter results demonstrate progress, but they also reinforce the important work still ahead. We delivered record free cash flow, returned to positive adjusted operating income and achieved record gross margins in both retail segments.

At the same time, Cannabis operations remains below expectations, and we are taking decisive action to improve its performance and evaluate strategic alternatives. We continue to approach capital allocation with discipline. We are returning capital to shareholders, investing selectively in opportunities such as Parallel and maintaining the flexibility provided by our debt-free balance sheet and investment portfolio. I want to thank our teams for their continued focus and execution and our shareholders for their ongoing support. We remain committed to improving operating performance and creating long-term value. I will now turn the call back to the operator for the analyst Q&A session.

[Operator Instructions] Our first question that comes from Frederico Gomes with ATB Cormark.

First question, I guess, you guys passed the audit for EU-GMP Atholville. Could you talk about how material actually getting the EU-GMP certification would be from a financial standpoint for that facility? What could be the potential upside here, savings and opportunities in international?

Frederico, thanks for the question. So in terms of the receipt of the certification itself, we're expecting that any day now. It was a big milestone for the team to successfully pass the audit. As you know, the standards are quite stringent. It really depends -- you can look at this from a number of different angles. If you were -- if you had to rely on processors, you're looking at costs of anywhere from $0.20 to $0.45 a gram. So that's eliminated. But more importantly, which also makes this moot is we're going through a series of upgrades within the Atholville facility, which is going to change the capabilities of that facility, including modern generation lights and HVAC upgrades. So we're expecting to see better quality and yields, which are going to be critical to improving realized pricing as we look at international markets. And so that's really where the focus is today.

And then just looking at your decision to exit flower domestically. Maybe could you explain a little bit better why did you make that decision? And do you think it could impact, I guess, sales in other categories that you have given that, I guess, you won't have branded flower product anymore?

Yes, I appreciate it. I think it's really important to distinguish where this market is on a price point basis. And you can see the dynamic very clearly with the broader peer group. So higher quality and also more expensive production from indoor facilities really is not well suited for where the domestic market is on dried flower. So we have strong partnerships and commercial relationships with LPs that have very strong underpinnings with hybrid glasshouse environments of 5 million square feet or more. And so that's a capability and a strategic advantage that SNDL does not possess. So we really don't think it makes sense to try to compete with those who have the lowest cost of production given that infrastructure that they're owning and managing through their individual enterprises.

So look, we have a dominant position in edibles and beverages as well. These are smaller categories, do quite well across a number of infused [indiscernible] categories. So we're really focused on distribution of branded products. As you know, we also have some very important and profitable license relationships. So we don't believe that this will impact sales in other categories. They need to stand on their own, that being said. But in this case, it's really about looking at marginable activities and ensuring that we're focused on areas where we can develop competitive advantage in terms of our capabilities.

[Operator Instructions] One moment for our next question that comes from Aaron Grey with AGP, Alliance Global Partners.

I guess maybe a little bit piggybacking off of the last question and then just thinking about the strategic review and alternatives for the Cannabis operations business. I would love to get your perspective in terms of what do you think are the core competencies needed to win within Cannabis operations? I think you just alluded to one maybe being low-cost cultivation greenhouse or otherwise, which obviously Sundial doesn't currently have. But maybe outside of that, where do you feel like there's ways to win to where maybe you could add on to your existing asset base or sell one of your current assets to someone else where it might be complementary. I would love to get your broader perspective there.

Aaron, thank you for the question. So obviously, there are multiple dimensions in which we believe we need to improve to be competitive in the marketplace and to win. Starting with our commercial execution, driving the right focus behind the right categories with the right consumer understanding of consumer needs is an important capability that we have been building and we need to continue making improvements in that direction, including as well our commercialization strategy and improving the distribution that we have for our key products. Even with those products that are market leaders, as Zach mentioned a second ago, in [indiscernible] numbers. So that still represents an opportunity that we need to pursue and continue strengthening that commercial capability is certainly one priority.

Right now, the biggest struggle that we're having is with our operational execution in some of our facilities. We believe that we have appropriate infrastructure. We certainly have ideas on how we can step up and improve the -- with a better layout and with some capital investments that we can drive significant productivity. But it starts with better execution of our sales and operating planning process, our labor efficiencies. So there is a significant amount of opportunities that we are identifying there, some of which are low-hanging fruit, some of which may be a little bit more harder to get to.

While we are approaching this strategic review, we're certainly not leaving anything on the table. All options are valid. We know the value of some of those assets. We know the value to us. We know the value to some other people. We know the value that we can generate if we were to improve some of those capabilities. So all of those things I said will be on the table. We'll look at all of the possible options, and we are confident that we'll be able to make the right decisions at the end of the exercise.

That was really helpful in terms of how you guys are evaluating it. Second question for me, just in terms of some of the U.S. assets. You mentioned some in terms of Florida with Gainesville, but also just looking at Texas, I know we talked about it last call. But just as we think about the ability to potentially consolidate speaking with the exchanges or otherwise, can you talk about the dynamics needed for you to deploy capital into the U.S. market? Can you do that now? Would you have to wait? Would love to just get more color in terms of how you think about the U.S. and the capital allocation strategy that you alluded to earlier.

Yes. Thanks, Aaron. I think as you know and we've discussed, we have the ability today and we see it in our sort of trailing activities to deploy capital into the U.S. through our SunStream joint venture. We've done so with direct exposure to credit through that joint venture. We've also done -- we've also been able to get indirect exposure to equity through that vehicle. We're now at a point where most of the capital has been repatriated and the next step will be to reconcile these remaining exposures and work to consolidate the medical exposure. I think you've seen a number of other transactions in the marketplace where recreational assets have been ring-fenced and owned indirectly to facilitate an uplisting.

So that would, at this point, given the lack of clarity on Schedule III for rec in the U.S., be part of that. So we're not going to wait for the U.S. government action to focus on the controllables. But to directly answer your question, we have deployed capital. We have the ability to do so. And the next step is to work with the relevant regulatory bodies as well as exchanges to facilitate the consolidation of at least the medical exposure into our recurring P&L.

Thank you. Ladies and gentlemen, this will conclude our Q&A session. And I would like to turn the conference back over to Zach George for closing remarks.

Thank you. I want to thank our owners, commercial partners and employees across the organization today. To everyone joining us, thank you for your time and continued interest in SNDL. We appreciate your support and look forward to updating you again in the near future. Have a great day.

Thank you. And this concludes our conference call. You may disconnect your lines. Thank you for participating, and have a pleasant day.

Ladies and gentlemen, welcome to the Annual and Special Meeting of the Common Shareholders of SNDL Inc. My name is Greg Mills. I'm the Chair of the Board of Directors of SNDL. In the event of a technical disruption, the persons present and entitled to vote at this meeting shall choose one of their members to act as an alternative chair for the meeting.

Before we begin with the formal business portion of the meeting, I will provide some comments on voting and questions at today's meeting. In making the decision to hold a virtual meeting, it was paramount to ensure that shareholder rights were protected. We have ensured that this meeting offers shareholders the same opportunities to participate as in past in-person meetings. Voting during this meeting can only be done through our virtual voting platform on the webcast. Only registered shareholders who held shares in their name as of August 26, 2026, the record date of this meeting, or their validly appointed proxy holders are entitled to vote at this meeting.

We will conduct the vote on all of the matters before us by a poll. On a poll, every shareholder entitled to vote on the matter has 1 vote in respect of each share entitled to be voted on the matter and held by that shareholder. Proxy votes received prior to the meeting have already been counted. The poll will be open for all resolutions at the same time. This will allow you to choose to vote on each resolution immediately or to wait until the conclusion of the discussion on each resolution prior to casting your vote.

I also welcome all guests who are not registered shareholders or who are holding proxies for registered shareholders. As a reminder, as with an in-person meeting, only registered shareholders and duly appointed proxy holders are able to vote or ask questions. Shareholders can submit questions at any time during the meeting. There will be opportunities for shareholders to ask questions specific to each resolution on the webcast. If you have a question, click on the messaging at the top right of the webcast page. Please read the instructions in the text box before submitting your question.

In particular, we ask that you identify whether your question relates to a motion being considered as part of the formal business of this meeting or whether it is more general in nature. We will address questions that directly relate to a particular motion at the appropriate time of the meeting. If a question is personal in nature, we will follow up with you individually after the meeting. Once you have finished typing out your question, please click the submit button. Amber Kruger, Senior Legal Counsel, will receive the questions and, at appropriate time, we will read them out in order for everyone to be aware of the questions being dealt with.

Any proposed amendments or objections to a motion will need to be submitted as questions. All proposed amendments or objections will be addressed during the meeting, provided they are submitted during the period when the polls are open. With respect to questions other than proposed amendments or objections, the Chair will address the question as appropriate. If we have a number of questions that are the same or similar on a topic, we will paraphrase and group the questions and mention that we have received similar questions.

During the general question-and-answer session, after my remarks, we will endeavor to address general questions from our registered shareholders or duly appointed proxy holders that are not specific to a resolution. However, please note that due to time constraints, we may not be able to address all questions today.

The polls are now open on all resolutions. Voting can be completed at any time from now until the end of the formal business of the meeting. Thank you for those of you who have already voted. If you have already voted in advance of the meeting and do not wish to change your vote, then you do not need to do anything. For those who have not yet voted, we encourage you to vote now. Once discussion on all items of business has concluded, I will give you some time to change your votes or enter them if you have not yet voted. And then we will declare voting closed on all resolutions.

Okay. The Annual and Special Meeting will now come to order. SNDL's General Counsel and Corporate Secretary, Matt Husson, will act as Secretary of the meeting and representatives of Odyssey Trust Company will act as scrutineer of the meeting.

In order that the meeting covers all of the business for which it was convened within a reasonable period of time, for each motion brought today, Tomas Bottger will be deemed to have made the motion, and Matt Husson will be deemed to have seconded the motion.

The notice calling this meeting, as well as the information circular of SNDL dated September 3, 2026, containing the details of the matters to be put forward this meeting and the form of proxy, were sent to each shareholder of record entitled to vote at this meeting as of August 26, 2026. I will now ask the Secretary to confirm this.

Mr. Chair, I have before me a true copy of the notice of meeting, together with the statutory declaration from Odyssey Trust Company as to the mailing of the Notice of Meeting, information circular and form of proxy. The declaration indicates that all documents were mailed within the time periods required by the bylaws of SNDL and by applicable Canadian Corporate and Securities Laws.

Thank you, Matt. Proof of service has been duly filed, and I direct that copies of the notice and statutory declaration be kept by the Secretary with the minutes of this meeting.

The current bylaws of SNDL provide that a quorum for any meeting is 2 persons present in person or by proxy holding or representing not less than 25% of the outstanding shares of SNDL entitled to vote at the meeting. I've been advised by the scrutineer that prior to the meeting, proxies were received from the holders of 101,259,339 shares, or approximately 41.1% of all of the shares entitled to be voted. As a result, I declare that we have a quorum for this meeting, and the meeting is properly constituted for the transaction of business. I direct that a copy of the scrutineer's report be kept by the Secretary with the minutes of this meeting.

On behalf of management, I want to thank all the shareholders that have voted on the matters before us today. At this meeting, we will first receive the audited consolidated financial statements of the corporation for the year ended December 31, 2025, together with the auditor's report thereon. No vote by shareholders is required or proposed with respect to the financial statements. Following the receipt of the financial statements, we will move on to discussion of the ordinary resolution matters, those matters being fixing the number of directors to be elected, the election of directors and the appointment of the auditors. Following the ordinary resolution, we will move on to discuss the special resolution matter being the share consolidation.

Okay. We'll now proceed with the formal business of the meeting. Details of the matters to be dealt with today have been given in the management information circular dated September 3, 2026, a copy of which has been sent to each shareholder of record as of August 26, 2026. And any reference I make to an information circular or a circular means that management information circular.

The first item up for business is the shareholders' receipt of the audited consolidated financial statements of the corporation for the year ended December 31, 2025, together with the auditor's report thereon. No vote is required with respect to this matter. But if you have any questions, I would be pleased to direct you to SNDL's financial team after the formal portion of this meeting.

The next item of business is the election of directors for SNDL for the ensuing year. We will now prepare to discuss and vote on the motion that the number of directors to be elected at the meeting for the ensuing year, or otherwise as authorized by the shareholders of the corporation is hereby fixed at 5. I will now ask the Secretary to please advise if any questions specific to this motion were submitted.

Mr. Chair, no questions specific to this motion have been submitted.

Okay. Thank you, Matt. Unless we receive any objections, otherwise, we will proceed with the vote. Please record your vote now, remembering that if you have already voted in advance and do not wish to change your vote, no further action is required. I'll give you a few seconds.

[Voting]

Okay. We will now proceed with the election of the directors. The corporation has nominated Gregory Mills, Zachary George, Lori Ell, Bryan Pinney, and Greg Turnbull to serve as directors of SNDL. We will now prepare to discuss and vote on the motion to elect the nominees as directors of the corporation to hold office until the next election of the directors or until their successors are appointed. I will now ask the Secretary to please advise if any questions specific to this motion were submitted.

Mr. Chair, no questions specific to this motion have been submitted.

Thank you, Matt. And unless we receive any objections, otherwise, we'll proceed with the vote. Please record your vote now, remembering that if you have already voted in advance and do not wish to change your vote, no further action is required. I'll give you a few seconds.

[Voting]

Okay. The next item of business is the appointment of the auditors to vote on the motion that CBIZ CPAs P.C., the successors to Marcum LLP, be reappointed as the auditor of the corporation to serve until the close of the next annual meeting at a remuneration to be fixed by the directors. I will now ask the Secretary to please advise if any questions specific to this motion were submitted.

Mr. Chair, no questions specific to this motion have been submitted.

Thank you, Matt. And unless we receive any other objections, we will proceed with the vote. Similarly, please record your vote now, remembering that if you have already voted in advance and do not wish to change your vote, no further action is required. I'll give you a few seconds.

[Voting]

Okay. The next item of business is to consider and, if thought advisable, approve a special resolution, the full text of which is set forth in Appendix E of the information circular approving the consolidation of the issued and outstanding common shares of SNDL on the basis of not less than 1 post-consolidation common share for 2 pre-consolidation common shares, a ratio of 1:2 and not more than 1 post-consolidation share for 10 pre-consolidation common shares ratio of 10:1 or 1:10. This share consolidation is expected to be implemented by the Board to occur before October 31, 2026. But in any event, no later than 1 year after the date of this meeting or any postponement or adjournment of it.

The financial consolidation ratio within the range of 1:2 and 1:10 will be determined by the Board in its discretion. It will also be subject to the discretion of the Board to decide not to proceed with the share consolidation at all. The Board is of the opinion that it may be in the best interest of the corporation and shareholders to consolidate the common shares in order to enhance the marketability of the common shares, given that an increase in the price per common share could increase the interest of institutional and other investors with policies that prohibit them from purchasing stock below a minimum price.

The Board believes this could enhance shareholder value and broaden the shareholder base. And while the common share trading price is in compliance with the NASDAQ's continued listing requirements, it could further support this compliance. In order to be adopted, the resolution must be approved by not less than 66 and 2/3 of the votes cast at this meeting by shareholders present virtually at this meeting or represented by proxy.

The Board has determined that the share consolidation is in the best interest of the corporation and recommends that shareholders vote for this resolution. We will now prepare to discuss and vote on the motion that the resolution for the share consolidation be approved as set forth in Appendix E of the information circular.

I will now ask the Secretary to please advise if any questions specific to this motion were submitted.

Mr. Chair, no questions specific to this motion have been submitted.

Okay, Matt, thank you. And unless we receive any objections, otherwise, we'll proceed with the vote. Please record your vote now, remembering that if you have already voted in advance and do not wish to change your vote, no further action is required. I'll give you a few seconds.

[Voting]

Okay. We will now proceed with closing the polls. Are there any other matters to be properly brought before the meeting? There is no other business that we will proceed -- if there is no other business, we will proceed to close the polls. For those of you who have not yet voted on all the resolutions, please do so now. It is 10:14 Eastern Time. I will close the polls to all resolutions in 1 minute at 10:15.

Okay. I now declare the polls to be formally closed. I now ask the Secretary to provide the preliminary results of the voting.

Thank you, Mr. Chairman. I've received confirmation from the scrutineer that the motion to fix the number of directors at 5 until the next annual meeting of SNDL has been approved. Each of the 5 directors nominated by the Board has been elected. The motion to reappoint CBIZ CPA, formerly Marcum as the auditors of SNDL has been approved. The special resolution approving the share consolidation, the full text of which is set forth in Appendix E of the information circular, has not been approved.

Okay. Thanks, Matt. I declare each of the resolutions considered at today's meeting, other than the share consolidation resolution, in respect to those matters carried. The share consolidation resolution has not been carried. The exact number of votes cast in respect of each matter will be filed on EDGAR and SEDAR+ and made available on our website.

Thank you again to all shareholders and proxy holders for your attendance today. As there is no further business to be brought before the meeting, I declare the formal portion of the meeting concluded.

We will now turn to the question-and-answer period of the meeting for which I have allocated 15 minutes. I will now ask our moderator, Amber Kruger, to please advise if any questions have been submitted and to please read the first question so that either Zach George or myself will be able to respond.

Mr. Chair, there have been no questions submitted at this time.

Okay. I will now ask for a motion to conclude the meeting.

My name is Tomas Bottger, and I move that the meeting be concluded.

My name is Matthew Husson, and I second the motion.

Thank you. I now declare the motion carried and the meeting concluded. I'd like to take this opportunity to thank all of the shareholders who submitted votes and also thank those who attended SNDL's Annual Meeting of Shareholders today. Please take care and stay safe. Thank you.

Thank you. Good morning and welcome to SNDL's second quarter 2026 financial results conference call. This morning, S&DL issued a press release announcing their financial results for the second quarter of 2026 ended on June 30th, 2026. This press release is available on the company's website at SNDL.com and filed on Edgar and CDAR as well. The webcast replay of the conference call will also be available on SNDL.com website. SNDL has also posted a supplemental investor presentation in addition to the conference call presentation we'll be reviewing today on its SNDL.com website. Presenting on this morning's call, we have Zach George, Chief Executive Officer in Alberto Paredes. Alberto Paradero, Chief Financial Officer. Before we start, I would like to remind investors that certain matters discussed in today's conference call or answers that may be given to questions could constitute forward-looking statements.

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

Welcome to S&DL's second quarter 2026 financial and operational results conference call. During the second quarter of 2026, S&DL continued to operate through a challenging market environment across both liquor and cannabis. Net revenue declined 3.7% year-over-year to $235.8 million, reflecting persistent demand softness and broader market headwinds. While these conditions pressured results, we stayed focused on discipline execution, cost optimization, and initiatives that strengthen our long-term earnings power. Profitability was impacted by lower net revenue, new product production ramp up costs in cannabis operations, and a relatively small Sunstream valuation adjustment. At the same time, we continue to exercise financial discipline and maintain a relentless focus on spend management, which partially offset these pressures. Importantly, we continue to generate positive operating cash flow and improve free cash flow compared to the same period last year.

FREE CASH FLOW WAS NEGATIVE 6.7 MILLION IN THE QUARTER, AN IMPROVEMENT OF 1.2 MILLION YEAR OVER YEAR, DESPITE SEASONAL PAYMENTS AND A 2.7 MILLION INCREASE IN CASH IN TRANSIT. We also continue to act on our strategic priorities. During the quarter, we accelerated our share repurchase activity, deployed profit enhancement initiatives expected to drive more than 20 million of incremental operating income, mostly over the remainder of the year, and completed a significant milestone in the parallel restructuring. The parallel restructuring is particularly particularly important because it opens the door for S&DL to obtain direct exposure to and control over US medical cannabis operations in Florida, Texas and Massachusetts subject to satisfying the remaining legal regulatory accounting and NASDAQ requirements and Periods of market pressure require sharper focus and disciplined execution. Our teams are responding with targeted commercial and operational initiatives, including improved promotional discipline, operational efficiency. targeted investments in high performing platforms while preserving balance sheet flexibility. Consistent with our board approved share repurchase program, we repurchased 11.7 million common shares during the second quarter. Since the fourth quarter of 2024, total repurchases have exceeded 29 million shares, representing approximately a 7% reduction in shares outstanding.

We remain encouraged by the strategic optionality created by our balance sheet. WITH 183.2 MILLION OF UNRESTRICTED CASH, NO OUTSTANDING DEBT AS OF JUNE 30TH, 2026, AND A PORTFOLIO OF CANNABIS RELATED INVESTMENTS WITH A CARRYING VALUE OF 415.2 MILLION. SNDL IS WELL POSITIONED TO PURSUE DISCIPLINE GROWTH, STRATEGIC INVESTMENTS, ACQUISITIONS, AND CONTINUING INVESTMENTS. continued return of capital to shareholders. Over now to Alberto for more detail on our second quarter financial performance.

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

Operating loss was $7.8 million in the quarter. And adjusted operating loss was $7 million. The year-over-year reduction was driven primarily by the impact of new production ramp-up costs in cannabis operations, revenue and margin decline in liquor retail. the absence of prior year impairment reversals in cannabis retail and a $2.3 million reduction in the Sunstream valuation, partly offset by lower corporate overhead costs. Free cash flow was negative 6.7 million, improving by 1.2 million compared with the same period last year. The result was primarily driven by the $6.9 million annual payment of the 2025 management incentive and a $2.7 million increase in cash in transit. Our second quarter performance reflects continued market pressure across the portfolio. Net revenue and gross profit declined year over year, and adjusted operating income was impacted by the lower gross profit, production ramp-up cost, and the downstream valuation impact.

Looking ahead, our focus remains on driving sustained profitability and free cash flow growth, while continuing to invest selectively in our strategic growth agenda and shareholder value creation. Looking more closely at segment-level contributions across our key financial KPIs, consolidated net revenue declined by $9 million year-over-year. The largest contributor was liquor retail, which declined by 7.2 million, followed by cannabis operations, which declined by 3.6 million, and cannabis retail, which declined by 1.2 million. Malice eliminations partly offset the decline by 3 million. Gross profit decline by 11.3 million year over year. Liquor retail contributed a $2.7 million decline, while cannabis operations contributed an $8.7 million decline. Cannabis retail gross profit was essentially flat, increasing by 0.1 million here over here.

Adjusted operating income declined by $12.8 million year-over-year to a loss of $7 million, primarily reflecting declines in liquor retail, cannabis retail, cannabis operations, and investments. offset by a 1.4 million improvement in corporate cost. Pre-cash flow improved 15.2% year-over-year from negative 7.9 million to negative 6.7 million. The improvement was supported by more favorable working capital and differences in timing of rent expenses compared to prior year, even as earnings represented a year-over-year headwind. The chart on the right-hand side of the slide illustrates the seasonal nature of free cash flow, with Q2 historically impacted by seasonal payments and the second half typically representing a stronger cash flow generation period. Turning to the commercial segments, I will begin with LicoRetail. As a reminder, starting in 2026, we began allocating applicable direct and indirect overhead costs from corporate to each operating segment within general and administrative expenses. The comparative periods have been restated to reflect this allocation.

Liquor retail net revenue was $134.7 million, a decline of $7.2 million, or 5.1% year-over-year. The decline was driven by persistent softness in market demand, which impacted same-store sales by 6.2%. despite the contribution of two new YNAB Yonah stores, opening Q4, 2025, and private label sales outperforming national brands by 13 percentage points in the quarter. Gross profit was 33.8 million, down 7.4% year-over-year, and gross margin was 25.1%, down 60 basis points. The marketing decline was driven by increased promotional activity aimed at stimulating sales volume. Adjusted operating income was $3.2 million, down $3.5 million year-over-year. The decrease was driven by lower revenue, increased promotional support, and higher SD&A expenses associated with the recent Y&B on-store openings. Cannabis retail net revenue was $83.2 million, down $1.2 million or 1.4% year-over-year.

The decline was driven by negative same-store sales of 4.6%, reflecting market contraction in Alberta and Ontario, partially offset by new store openings and value-backed store conversions. Gross profit was $22 million, increasing slightly by $0.1 million year-over-year, while gross margin expanded 50 basis points to 26.4%. This improvement was supported by promotional efficiencies, pricing actions, and product mix management. Adjusted operating income was $3 million, down $1.2 million year-over-year. The decline was primarily due to prior year asset impairment reversals, which upset the current year benefits from margin expansion and overhead efficiency. Cannabis operations net revenue was $32.2 million, a decline of $3.6 million or 10.1% year-over-year. The decline was driven by market headwinds and the absence of business-to-business flower deliveries, as some of our partners are also experiencing demands of shortfalls.

These impacts were partially offset by a $1.2 million increase in international sales, which reached $5 million in the second quarter of 2026. Gross profit was 0.6 million, down 8.7 million year-over-year, while gross margin was 1.8%, a decline of 24 percentage points from the prior period. In addition to the revenue decline, we experienced significant inefficiencies associated with the jitter production ramp-up during the second quarter. While we're working closely with our partners to implement process improvements and increase labor efficiency, some of these cost headwinds are expected to persist over the coming months. Adjusted operating loss was $9 million compared with an adjusted operating loss of $2.8 million in the prior year. The decline was primarily due to the production ramp up inefficiencies impacting gross profit. Over to you, Zach, for additional comments on our capital allocation priorities and strategic milestones.

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

Parallel provides exposure to medical cannabis operations in Florida, Texas, and Massachusetts with 56 retail locations, 3 cultivation and manufacturing sites, approximately 800 employees, and near-term annualized revenue expected to be approximately 150 million. Subject to satisfying the remaining legal, regulatory, accounting, and NASDAQ requirements, we expect to obtain direct control of Parallels Medical Cannabis operations in the coming months. This will provide us with a significant U.S. medical cannabis platform and a creative margin profile and the potential to exceed $1 billion Canadian in annual revenue and become the largest cannabis retailer in the world by store count. Importantly, this transaction concludes a complex multi-year restructuring of one of Sunstream's largest legacy credit investments and substantially reduces Parallel's historical debt burden, creating a more sustainable capital structure to support future growth. The successful completion of the restructuring preserves and enhances the value of a significant legacy investment while establishing a stronger foundation for the future performance of the business. We believe Parallel's operating footprint, established brands, and positions in key medical cannabis markets provide meaningful long-term strategic optionality as we pursue the next phase of the transaction. This transaction also demonstrates the value of differentiated investment strategy and balance sheet strength.

Our ability to navigate a complex restructuring process and ultimately convert a distressed credit position into significant economic exposure to a scaled us operator highlights the strategic flexibility provided by our capital. capital resources and investment platform. While current market conditions remain challenging, we are taking decisive action to improve profitability, preserve balance sheet strength, and allocate capital with discipline. I want to thank our teams for their continued focus and resilience and our shareholders for their ongoing support. We remain committed to building long-term value through operational improvement, strategic growth and the discipline return of capital.

I will now turn the call back to the operator for the analyst Q&A session. Thank you. We will now begin the analyst question and answer session. To join the question queue, you may press star, then 1-1 on your telephone keypad. You will hear an automated message acknowledging your hand is raised. If you're using a speakerphone, please pick up a hand to the first before pressing any keys. To withdraw your question, please press star 1-1 again. We will pause for a moment while we continue.

Thank you. our Q&A roster. Our first question comes from Aaron Gray with Alliance Global Partners. Your line is open.

Good morning and thank you very much for the question. Zach, I want to pick up where you just left off in terms of capital allocation strategy, particularly as you think about the transformational parallel deal that's set to be complete in the coming months. Just given the fact that obviously you've had some share repurchases the past quarter and year-to-date. How can we think about that changing now that you're on the verge of having direct access into the U.S., either via M&A or CapEx into markets like Texas? Does that now change in terms of capital allocation going forward versus what we saw in the first half? Thank you.

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

And I would point out that when you at the cost of debt capital that is experienced by a number of U.S. operators, having Canadian exposure in terms of a sizable operating base both in liquor and cannabis really gives us a cost of capital advantage on the debt side when you think about the willingness of of Canadian banks to lend at competitive rates, which have been shown to us in like the mid single digits. So there's a lot of optionality, a number of levers we can pull. As you point out, we do intend to invest going forward in the United States, whether that be to improve processing capabilities in Florida to increase and get more competitive in terms of that network and door count, which has been dormant with parallel being stuck in this foreclosure process for several years, and also view Texas as a really incredible opportunity going forward, which will likely have a very slow burn upwards. would note that for the existing operators, just with the introduction of vape alone in the last couple months, it created an immediate 40% bump in revenue. So coming off of a low base, but a pretty exciting market that is largely distillate based today that will continue to grow. And you're hearing word from other competitors that are excited to try to be in market and acquire patients later in the year.

this year okay appreciate that that was really helpful color there's a second question for me just on cannabis operations maybe first off if you talk about you know how much of the gross margin pressure was from the Jeter ramp versus maybe higher you know cost related to the absence of b2b the supply. And then regarding the supply, maybe how much of that do you think particularly is near term? You mentioned some near term pressure in the coming quarters, you know, versus something that you can eventually evolve beyond. And do you think that this increases the need to get more vertical in Canada via M&A.

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

But the solution may not be to simply go further upstream and, you know, pay a big premium for cultivation, it actually may be to go the opposite direction. And it's very clear that in the domestic market, the winners in the dried flower category are going to be scaled best in class hybrid glasshouse operators. and that you just really have to appreciate the price differential in these various markets. Again, just pointing to one simple example, but with the launch of Vape in Texas, operators are selling half-gram 510 carts at approximately $45. And you can – that's USD – you can basically access the same half-gram 510 cart half gram 510 cart on the streets of Toronto for about $17, $18 equivalent USD. the competitiveness and compressed environment with an inefficient tax structure is still impacting LPs in Canada when you look past some of the benefit from excise free trade that's happening internationally for some of the best in class flower producers. But I'll let Alberto comment a little bit more just in terms of the segment and those pain points.

No, thanks, Akan. Great question, Aaron. The vast majority, I would say 80, 90% of the gross margin shortfall that we have experienced in the second quarter in cannabis operations is driven by the jitter ramp-up. We did have a couple of minor... impairments of inventory during the quarter. But in a way, we are about 25 percentage points of margin short in this segment compared to what we would like or would need to be. And 20% of this point of margin is driven by jitter. Okay, great. That's helpful, Kolar. I'll go ahead and turn back in the queue.

Thank you. One moment for our next question. Our next question comes from Federico Gomes with ATB Cormart Capital Markets. Your line is open. Good morning. Thanks for taking my questions here.

the retail segment. So two questions here. Number one, you mentioned market contraction in Alberta and Ontario. So can you talk maybe about the drivers behind that contraction in those areas to market specifically and whether you see a return to growth anytime soon. And then second, in terms of your M&A strategy for cannabis retail, considering the failed 1CM transaction. How are you looking at that and how should we be thinking about M&A in cannabis retail? Thank you.

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

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

But as we move into the U.S. as a true cross-border opportunity, we're going to see a lot of operator, you're going to have more opportunities that are competing for our capital. And we need to be very disciplined about ensuring that we are focused on the most attractive rates of return on a risk-adjusted basis across all of these markets. And that's really what we're focused on discerning right now.

Just maybe to add from my side specifically on cannabis retail, so yes, those the large majority of our footprint. They had relatively large single-digit declines in the first quarter. The situation improved a little bit in the second quarter, as we were anticipating, but it was still on the negative side. Differences in trajectory from April to June, April we were still seeing some of these provinces go up in 3 to 4 percent. In the month of June we were starting to see closer to break-even growth from that standpoint. One anticipated the second half of the year to be much better. I mean, the main driver for the decline that we saw in the first half in the year was the these two provinces, we're lapping a very strong first half market-wise and as well from our own standpoint in the first half of last year, where you probably remember some of the top retailers, we were reporting high single digits, sometimes even double digits of revenue growth in market growth of 5% to 7%. during the first half of last year.

There were significant efforts at that point in time from most of our competitors and ourselves in terms of margin investments and promotional activities. This year, you're seeing margins improving, not only us, but as well as some of the other retailers in these two provinces. So there's significantly less in terms of intensity on promotional activity, which is eroding a little bit the growth rate, but it's improving the skilled margins and gross profit. dynamics and what we're lapping from last year and what we're expecting to return, the market to return to growth in the second half of the year at low single digits.

Thank you. I appreciate that. Then my second question is, I'm not sure if you have any questions. on liquor retail. Obviously, still same-star sales declined in that segment. I know that previously you were expecting a recovery, but that hasn't happened yet. Now, we also saw some margin decline there with promotion activities. How do you think about the future of liquor retail as part of your... your broader strategy and platform, considering these ongoing headwinds in the industry as well as, I guess, your entrance or expected entrance into the U.S. cannabis market, which is a huge opportunity. Thank you.

Yes, maybe take that one. Obviously, it's a tough environment, the one that we're seeing right now with liquor. It's a global phenomenon, as we know, in the sense that pretty much all markets, they are in the low single digit or in the mid single digit declines, we're not expecting a massive turn in that performance. in the foreseeable future. It's difficult to predict when and how these markets will stabilize we're talking to a lot of experts in multiple markets, not just Canada. And while some are expecting that we will continue seeing for the next couple of years single-digit declines, Some others are expecting that sooner than later, we're going to start seeing stabilization, that these current trends are not sustainable. We're starting to see already, for example, if we look at the wine category, starting to have some months where we're seeing already some growth. It's not yet the case in the spirits and beer. So it's still a mixed bag when it comes to the overall market performance.

That said, obviously we're playing in a tough economic environment and macro environment when it comes to the segment, but There are still quite a lot of things that we can do to improve our own performance within the segments and gain market share. We know that our convenience banner is very important. it's not performing as well as our Wine and Beyond banner. Within the segment, we're seeing Wine and Beyond is still growing, we're seeing our private label growing very nicely at accretive margins. So there are certainly some aspects that gives us the encouragement to continue working in the direction that we're going. But at the same time, we know we need to improve which is the part of the market that is struggling the most right now. We're not going to be making the same level of investments in productivity in the second half of the year, so we should be anticipating margins to be flat or going back to growth compared to last year in the second half. But there are still a lot of things that we can do from a mix management perspective and managing the velocity of our items within Convenience Banner to get to better performance in the second half of what we have seen in the first half.

Thank you. Again, ladies and gentlemen, if you have a question or a comment at this time, please press star 1 1 on your telephone. And I'm not showing any further questions at this time. I'd like to turn the call back over to Zach for any closing remarks.

Thank you, Operator, and thank everyone for your time and the continued interest in SMDL. We appreciate the support. We look forward to updating you next quarter. Thank you, Operator.

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

This live transcript is auto-generated without human intervention or review.

[Call has ended.]

Good morning, and welcome to SNDL's First Quarter 2026 Financial Results Conference Call. This morning, SNDL issued a press release announcing their financial results for the first quarter of 2026 ended on March 31, 2026. This press release is available on the company's website at sndl.com and filed on EDGAR and SEDAR as well. The webcast replay of the conference call will also be available on the sndl.com website. SNDL has also posted a supplemental investor presentation in addition to the conference call presentation we will be reviewing today on its sndl.com website. Presenting on this morning's call, we have Zach George, Chief Executive Officer; and Alberto Peradero, Chief Financial Officer. Before we start, I would like to remind investors that certain matters discussed in today's conference call or answers that may be given to questions could constitute forward-looking statements. Actual results could differ materially from those anticipated. Risk factors that could affect results are detailed in the company's financial reports and other public filings that are made available on SEDAR and EDGAR. Additionally, all financial figures mentioned are in Canadian dollars unless otherwise indicated. We will now make prepared remarks, and then we'll move on to the analyst questions. I would like now to turn the call over to Zach George. Please go ahead.

Welcome to SNDL's Q1 2026 Financial and Operational Results Conference Call. During the first quarter of 2026, SNDL faced notable challenges beyond the usual seasonality that typically results in the lowest demand at the start of each calendar year. After 16 consecutive quarters of operational improvement, both our liquor and cannabis markets experienced declines in same-store sales. The downward trend in the liquor market is a familiar issue, but the softness that began to emerge in the cannabis market during the second half of the previous year has developed into a more significant and persistent challenge. Our results for the quarter were further affected by suboptimal execution on working capital management within our upstream cannabis operations. This issue has since been addressed and remedied following the close of the quarter. Despite these headwinds impacting our financial performance, -- we remain encouraged by the proactive actions taken by our teams. They have responded with focus and determination, taking control of the situation and implementing necessary initiatives that support our ongoing efforts to build a successful, sustainable and profitable growth model. We continue to invest in growth platforms during the quarter. One notable example is our exclusive contract for the production and commercialization of Jeter, a leading U.S. cannabis brand. This exclusivity was formally assumed in April, but production activities and inventory pipeline development had already commenced in March with initial shipments delivered to provincial boards. Additionally, both of our retail segments, liquor and cannabis reported improvements in gross margin. Our teams achieved these gains by enhancing promotional efficiency, maintaining pricing discipline and optimizing product mix management. Periods of adversity are a true test of a management team's resilience and determination. The SNDL team has demonstrated these qualities by thinking creatively and implementing several profit enhancement initiatives. These actions are expected to boost profitability and improve commercial execution, generating more than $20 million in incremental operating income over the remainder of the year. As previously communicated during our Q4 and full year 2025 earnings call, we continue to leverage our Board-approved share repurchase program. In the first quarter of 2026, SNDL repurchased a total of 4.5 million shares. Last week, U.S. authorities took a significant step towards rescheduling cannabis by moving certain state licensed medical marijuana to Schedule III. While this does not constitute federal legalization, it is an important regulatory development. This step is particularly relevant for SNDL due to our credit exposure through the SunStream vehicle in the U.S., especially for Parallel, a licensed operator active in key medical markets such as Florida and Texas. The regulatory change is constructive for Parallel as its restructuring process continues to progress with only a limited number of outstanding conditions remaining. Over now to Alberto for more insights on our first quarter financial performance.

Thank you, Pat. I want to remind everyone that the amounts discussed today are denominated in Canadian dollars, unless otherwise stated. Certain figures referred to during this call are non-GAAP and non-IFRS measures. For definitions of these measures, please refer to SNDL's management discussion and analysis document. Before moving on, I would like to highlight a small accounting presentation change following the adoption of amendments to IFRS 7 and IFRS 9. As of 2026, cash in transit is no longer classified as cash and cash equivalents, and it is instead reported as a receivable. This change has no impact on liquidity, cash generation or underlying economics, but it does affect the comparability of reported cash balances. Specifically, the $213.4 million of cash reported on our March 31, 2026 balance sheet does not include any cash in transit, whereas the $252.2 million reported at December 31, 2025, included $12.1 million of cash in transit. Net revenue of $196 million in the first quarter of 2026 represented a 4.4% year-over-year decline, driven by market contractions impacted our different segments. Gross profit of $53 million is a reduction of $3.8 million or 6.8% compared to the same period of prior year. While most of this reduction is driven by the revenue decline, we also reported a consolidated gross margin decline of 70 basis points. This margin decline is purely driven by our cannabis operations segment as both our retail segments expanded margin. Both adjusted and unadjusted operating income, while negative due to the seasonality impact in the first quarter, saw an improvement compared to prior year as the reduction in gross profit is more than offset by OpEx improvements and the absence of prior year Sunstone valuation reduction. Free cash flow of negative $7.6 million in the quarter was partially driven by seasonality impact. Compared to the prior year, it represents a reduction of $6.5 million, mainly driven by working capital increases in cannabis operations as well as additional CapEx investments across retail and operations segments and increased lease costs. Our historical quarterly performance clearly reflects the seasonality typically impacting the first quarter. That said, despite a modest year-over-year improvement in operating income, net revenue, gross profit and free cash flow declined compared to the prior year, as previously discussed. Looking ahead, we expect to see improvements in revenue growth year-over-year as of the second half of 2026, driven in part by the impact of our initiatives and also as we begin to lap softer revenue comparisons for the second half of the year. Looking more closely at segment level contributions across our key financial KPIs. and starting with net revenue. The overall decline was driven primarily by Liquor retail and cannabis operations, while cannabis retail was essentially flat. I will expand further on the drivers by segment in a few minutes. But at high level, Liquor retail declines were driven by challenging market conditions. Cannabis Retail was able to offset market softness through growth from new store openings and cannabis operations declined due to market destocking and the timing of contract sales. Gross profit followed similar dynamics, although both retail segments were able to partially offset revenue pressure through continued margin improvements. Adjusted operating income showed a modest improvement as the operating income declined driven by lower gross profit in cannabis operations was offset by the absence of the prior year Sunstream valuation reduction and ongoing corporate cost savings. The decline in free cash flow compared to the same period last year was driven by lower earnings, primarily reflecting reduced gross profit as well as higher capital expenditures to support store openings and differences in the timing of lease payments relative to the prior year. Movements in working capital were broadly consistent with the prior year. However, as we will see in the next slide, 2 offsetting dynamics largely netted each other out. Looking more closely at free cash flow, there are a few takeaways. First, the combined impact of net income and noncash add-backs was negative. This is what we refer to as earnings on the previous slide. In simple terms, while net income improved by $4.8 million compared to the same period last year, that improvement was driven by noncash items. After adjusting for these noncash effects, the overall contribution from earnings was negative. Second, inventory increased more in 2026 than in the prior year, largely offset by improvements elsewhere in working capital. Inventory typically builds in the first quarter due to seasonality, and this year's increase was more pronounced as a result of the inventory build related to the year allowance in cannabis operations. Other working capital, primarily the net impact of receivables and payables, represented an improvement year-over-year, reflected continued optimization of collections and payment terms. We also saw capital expenditures and lease payments increased by $3.6 million compared to the same period last year, driven by initial investments to support new store openings as well as differences in the phasing of lease payments between the first and the second quarters relative to last year. Finally, the chart on the right-hand side of the slide clearly illustrates the seasonality of free cash flow, highlighting the typical differences between the first and second halves of the year. When reviewing each commercial segment individually, I would like to begin by highlighting a change in the way we're reporting segment results. As of 2026, we have started allocating shared service costs to the respective segments, which were previously recorded within corporate. This change allows investors to better assess the fully loaded profitability of each segment. For comparability purposes, we have also restated the segment information for 2025. Additional details on these adjustments are provided in our management discussion and analysis. Starting with Liquor. Net revenue in this segment continued to be impacted by demand softness and broader market declines. This resulted in a 6.1% decline in same-store sales, which was partially offset by new store openings, leading to a net 4.9% year-over-year decrease in revenue. The decline in gross profit driven primarily by lower revenue was partially offset by a 20 basis points improvement in gross margin. To this last point, in addition to pricing and promotional optimization, we continue to improve our product mix by increasing the penetration of private label offerings at accretive margins. Operating income was negative in the quarter, largely due to seasonality and modestly lower than the prior year as G&A efficiency improvements were more than offset by the gross profit decline and higher sales and marketing expenses. Cannabis retail was also impacted by market demand softness, although to a lesser extent than the other 2 commercial segments. A 2.5% decline in same-store sales was partially offset by new store openings and the integration of 5 cost cannabis locations. Gross profit of $20.4 million increased by 3.7% year-over-year, supported by a 100 basis point expansion in gross margin driven by pricing actions, improved promotional effectiveness and favorable product mix management. This gross profit improvement did not translate into operating income growth despite additional SG&A cost efficiencies due to the impact of approximately $1 million in unadjusted onetime charges incurred during the quarter. That said, the segment still delivered positive operating income of $1.1 million in the quarter. Cannabis operations experienced a large relative decline during the quarter. Net revenue of $29.4 million represented a 14% year-over-year decrease, driven primarily by destocking activity and temporary changes in the timing of business-to-business orders. These declines were partially offset by a strong growth in international sales, which increased from $1.8 million in the first quarter of 2025 to $3.5 million in the first quarter of 2026. Gross profit was impacted by both lower revenue and a 7 percentage point decline in gross margin. The margin compression was primarily driven by inventory adjustments and under-absorption resulting from lower production volumes. The decline in gross profit also weighted on adjusted operating income. Operating expenses were largely flat compared to the prior year as SG&A efficiency improvements were more than offset by onetime unadjusted charges, including an incremental write-down related to the idle federal term facility. As a reminder, we applied a very stringent definition of adjustments and only restructuring-related charges and impairments of intangible assets are adjusted. Over to you, Zach, for additional comments related to our strategic priorities.

Turning now to the progress we have made during the first quarter against our 3 strategic priorities: growth, profitability and people, I would like to highlight a few key developments, starting with growth. Our Jeter launch represents an important milestone with significant potential. Jeter is one of the leading branded cannabis platforms in the U.S. with strong consumer recognition and a proven track record in key medical and adult-use markets. By taking over the exclusive production and commercialization rights in Canada, we now control execution end-to-end from manufacturing to distribution, which gives us the ability to fully align quality, supply and brand strategy with our broader cannabis platform. In Canada, we are focused on building a disciplined and scalable rollout, leveraging Jeter's brand strength while applying our operational capabilities and relationships with provincial boards. In the U.S., Jeter continues to perform as a strong brand in medical and regulated markets. And together, this creates a complementary cross-border brand platform that supports long-term growth while remaining focused on execution and profitability. We also continue to expand our retail footprint. As most markets have reached or are approaching saturation, our focus remains on quality rather than quantity. In this context, since December 31 of last year, we've expanded our cannabis retail network by 6 stores, including 5 cost cannabis locations in Alberta and Saskatchewan. In Saskatchewan, we are also completing our investment to support a new Wine and Beyond liquor store, which is expected to open during the second quarter. We also continued to expand our international partnerships, generating $3.5 million in international sales during the first quarter, representing a 94% increase compared to the same period last year. Following the launch of our RISE Rewards loyalty program in cannabis during the second quarter of 2025, we expanded the program into our convenience liquor banners, Ace Liquor and Liquor Depot during the first quarter of 2026, with the rollout to our Wine and Beyond locations scheduled for the second quarter of this year. RIS Rewards is our customer-led loyalty program that delivers greater value to everyday shoppers through savings, rewards and personalized offers, strengthening engagement and long-term loyalty across our retail network. Turning to profitability. As previously mentioned, we were pleased with the continued year-over-year improvement in retail margins during the first quarter. A 20 basis point expansion in liquor retail and 100 basis point expansion in cannabis retail translated into an average improvement of 50 basis points across our combined retail segments. As highlighted in my introduction, we have recently implemented several decisions under a profit enhancement initiative that are expected to boost profitability and improve commercial execution, generating more than $20 million in incremental operating income over the remainder of the year. While the majority of this improvement will come from efficiency gains, it also reflects pricing actions, commercial and mix management optimizations. During the first quarter, we continued to demonstrate our ability to improve efficiencies by delivering an additional $2 million in G&A savings, while our data-related revenue reached $4.2 million. Under our people strategic priority, we also continue to make meaningful progress. From the completion of our performance to pay cycle, where our competitive compensation philosophy aligns individual impact and contributions with merit and incentives, to the alignment of individual goals for 2026 as well as continued improvements in our recruiting processes and employee value proposition. This strategic priority remains critical and foundational for us. As part of our ongoing talent review process, we will be particularly focused over the coming months on strengthening our capabilities in support of our strategy, including the review and deployment of individual development plans for our team members. While market conditions remain challenging, I am grateful for and energized by the passion and resilience demonstrated across our organization, and I want to thank our teams for their continued commitment. We remain focused on growth and cash flow generation and on delivering sustainable returns for shareholders, whom I would also like to thank once again for their continued trust and support. I will now turn the call back to the operator for the analyst Q&A session.

Our first question is going to come from Frederico Gomes with ATB Cormat Capital Markets.

First question is about capital allocation and how you're thinking about the U.S. following the rescheduling news. Does anything change here in terms of how you're looking at potential additional investments there as well as new investments and investments in the SunStream platform?

Thanks, Frederico. The recent news over the last week is actually incredibly positive for our SunStream exposure. As you're aware, parallel, for example, which is yet to complete its foreclosure process, but we expect that to be done in the next couple of months is a predominantly medical portfolio. So number one, it's very clear that from a tax perspective, as they see DEA registration, they will no longer be liable for doingE-related taxes for the 2026 calendar year. which lifts a lot of uncertainty around margins, profitability for the future. So very, very positive. We're really focused on completing the foreclosure before we tackle significant additional investments. But that team is working hard on potential operational improvements and also whether it's growing in the state of Florida or the emerging opportunity in the medical market in Texas, of which they are an original 3 license holder, we're very excited about the future. So I don't want to speculate too much in terms of uplifting opportunities, but we're going to have strong clarity on that in the next several weeks, we believe. So it's a top priority as we've stated in prior calls for the last several years, but we are -- we want to make sure we have all the facts and can close these restructurings before we get too aggressive.

Perfect. Appreciate that. And then just to follow up on capital allocation. You've obviously been active in terms of your share repurchases. If you look at the valuation, it looks like over 50% of your market cap now is net cash. So I guess how much more aggressive do you think you could be or you intend to be if these valuation levels hold?

Frederico, we will certainly -- we're still expecting to continue operating with our share buyback program as long as the share prices are at these levels. Obviously, we have our own internal models where we're looking at what is the -- what we believe is the underlying value of our different businesses and segments. And we are convinced that right now, our stock is trading below those values. As long as that will be the case, we'll continue being...

I would just add some color to that. The M&A market is heating up. And with the Schedule III announcement, there should be further momentum there. We're being approached on a near daily basis on a number of transactions and financings that we're being invited to participate in. We're seeing interest both on the buy and the sell side in different asset classes where it's been relatively quiet over the last 4 years. So there is a sense that animal spirits are emerging here. But to us that with where our equity is trading today is really not at a suitable valuation to be used as a currency in transactions. And so you'll see us bias to retiring shares as a more accretive use of cash relative to larger-scale M&A based on where we're trading right now.

Perfect. I appreciate that. And I guess just a final question for me. On the operational side, it looks like your cannabis operations segment is the one that has been particularly underperforming in terms of operating income loss. So I'm curious if you could just maybe provide more color specifically why that is? And have you identified exactly what could be improved here to get that segment to an operating income profit like the cannabis retail segment.

Yes. Great question. And yes, it is fair to say that the cannabis operations segment, particularly in the first quarter had a relatively weak performance. There were multiple factors impacting it. Starting with net revenue, as you saw a 14% decline in net revenue. There is a combination of different things, but the main 2 drivers is we saw a little bit of destocking in our retail channel for this segment. As you know, about 70% of the revenue that we have within the segment, it is to the provincial boards and that volume not only in our own retail, but as well in other third-party retail. And we saw a slight reductions on inventory levels, both at port levels as well as third-party retail in the first quarter. We did have as well some headwinds when it comes to the contract channel or what we call B2B. As you know as well, we are producers for some other LPs where we leverage our capacity and our expertise in manufacturing to provide products to other. And in that front specifically, we saw a relatively large reduction compared to last year, give you an indication last year in the first quarter, we had $9 million of contract sales. And in the first quarter of this year, it was half of that amount, so $4.5 million lower. All of that is timing. The timing of these contracts and the shipments are relatively volatile. And we just saw a very weak quarter in the first quarter. We have strong orders for the second quarter. So we're not concerned when it comes to the full year. But certainly, in the first quarter, that was a headwind. So that pretty much explains the reduction in net revenue because as we were pointing out in the presentation, we saw growth with our own retail, we saw growth as well in international. So we continue to be encouraging in the potential of those 2 channels. When you look at gross margin, we did see a relatively large reduction from a pretty healthy gross margin last year of 26.8%. We went down to 19.7% An element of that was the under-absorption triggered by the lower volumes and the lower revenue, as we pointed out before. We did have as well some teething problems with the ramp-up of the manufacturing of Gear. We're still learning about the product, and we did have some inefficiencies in that front. And we did have as well some onetime inventory adjustments that hated the quarter. So the combination of all of those factors is what triggered the reduction. A lot of what we said with the profit enhancement plan that we're planning for the second half of the year, well, actually as of the month of May, already starting to deliver good results. A lot of that is pointed specifically at this segment because we see a lot of opportunities and addressing some of the basic inefficiencies that we have. Finally, last but not least, we did had a few onetime items that were impacting the quarter in SG&A. They are north of $1.5 million. We don't adjust for those things. As you know, we have a policy of we don't like to adjust whatever we don't like sitting in our P&L. We just base it as it is, and we keep on working on it. But specifically in the first quarter, we have this $1.5 million of onetimes between terminations and impairments of fixed assets that create a little bit more of a headwind on the bottom line. Keep in mind as well that the $6.9 million negative operating income or operating income loss that we have in the first quarter of 2026 includes all of the allocations of services. So you're probably used to see last year better profitability levels. But as we pointed as well in the presentation, we have restated that. So right now, each segment shows the fully loaded profitability profile. It's the same thing for the 2 other segments. And obviously, there's still a lot of opportunities that we can materialize in the cannabis operations going forward.

And the next question will come from Aaron Grey with AGP.

Just with rescheduling that was announced for FDA-approved in state Medical, can you speak to some of the potential impacts for SunStream that you alluded to? And more particularly, just given there's certain assets that are exclusively medical markets, you talked about Florida and Texas specifically. Is there a route where you could choose only to consolidate those and maintain the NASDAQ listing while leaving the other ones within that SunStream portfolio? I know you said you're still evaluating that, but I would love there's some additional color there.

The short answer is yes. So there's nothing about the portfolio makeup in terms of the exposure that we carry as creditors through SunStream. You've got, in the case of Parallel, a medical operator that has -- is serving patients in the states of Massachusetts, Florida and Texas. Florida is the vast majority of that business. In the case of Sky, today, that's a purely rec business. So we understand that NASDAQ, for example, and its council are being swarmed right now. A lot of different parties looking for clarity, a number of MSOs making aggressive commentary about their time lines to uplist. So we just want to make sure that we can confirm that process. But if that EA registration creates permissibility in terms of uplisting, we will have -- we will certainly have structural options, which would let us retain our NASDAQ listing, which I think would be -- which would minimize disruption as we continue to grow the business.

Okay. Great. That's helpful color. And second for me is on cannabis retail. Just commenting on some of the same-store sales softness that you're seeing there. Obviously, some of it is just the market maturing, but curious if you're also seeing anything in terms of increased competitive market dynamics. And do you feel confident in terms of getting same-store sales back to positive in terms of some of that broader second half improvement in sales that you alluded to?

Yes, it's a great question. And there are multiple factors driving this result. One is maturity, as you pointed to. There still is very stiff competition amongst operators. When you look at our levels of profitability, even with this emerging flatness in terms of growth, we compare very nicely amongst the top 3 operators in Canada. I'm personally very concerned since the start of the Iran war, you've seen gasoline and heating oil prices, for example, up 20% to 35% as these commodities face the Canadian consumer. And so I think discretionary spend is -- has been challenged. We talked about this as a concern in prior quarters. But what was already challenging became very, very acute early this year with energy pricing escalating so dramatically. So we're watching it really carefully. We have levers to pull. We -- our profit enhancement plan is targeting even further efficiencies and margin improvement. So we're not standing still, and we do have a plan to improve performance. But there are certain elements of the macro environment that are going to continue to have an impact. and we're working to overcome those.

Some more color, Aaron, to that. If you look at the composition of our revenue, a little bit north of 85% of our sales in cannabis retail. It's in the Alberta and Ontario provinces. Both those 2 provinces are declining revenue, as Zac mentioned, driven by the saturation already in those markets and as well as the challenges consumers are facing. Specifically, Alberta that represents close to 55% of our revenue. The market has been declining 3% in the first quarter. I'm sure that you have access to the same type of information. And Ontario has been declining close to 1% in that period. So obviously, we're facing the headwinds that our larger markets are the ones that are declining and more mature and saturated. We need to put it as well in the context that last year, during the first half of the year, we're seeing very high single-digit growth rates in these markets, too. in the first half of last year. The focus from the market and us as well has been different as of late. And as you can see, we're improving 1 full percentage point the gross margin. So while we have been doing that already for a few years. So we're seeing a slight decline in same-store sales -- we continue focusing on opening the right doors, the right profitable doors, but as well improving the margin profile. We anticipate that as we start lapping as well in the second half of the year, softer revenue profile from 2025, we'll see better performance of sales. But obviously, we'll continue with our strategy, as I said before, on improving efficiencies, margins and as well as opening new doors where it makes sense.

I am showing no further questions in the queue at this time. So I will turn the call back over to Zach for closing remarks.

Thank you, and thank you to all for joining us today. We look forward to updating you on our progress in the near future. Thank you.

This concludes today's conference call. Thank you for participating, and you may now disconnect.

Good morning, and welcome to SNDL's Fourth Quarter 2025 Financial Results Conference Call. This morning, SNDL issued a press release announcing their financial results for the fourth quarter of 2025 ended on December 31, 2025. This press release is available on the company's website at sndl.com and filed on EDGAR and SEDAR as well. The webcast replay of the conference call will also be available on the sndl.com website. SNDL has also posted a supplemental investor presentation in addition to the conference call presentation we will be reviewing today on its sndl.com website.

Presenting on this morning's call, we have Zach George, Chief Executive Officer; and Alberto Paredero, Chief Financial Officer.

Before we start, I would like to remind investors that certain matters discussed in today's conference call or answers that may be given to questions could constitute forward-looking statements. Actual results could differ materially from those anticipated. Risk factors that could affect results are detailed in the company's financial reports and other filings that are made available on SEDAR and EDGAR.

Additionally, all financial figures mentioned are in Canadian dollars unless otherwise indicated.

We will now make prepared remarks, and then we'll move on to analyst questions.

I would now like to turn the call over to Zach George. Please go ahead.

Welcome to SNDL's Q4 and Full Year 2025 Financial and Operational Results Conference Call.

2025 marked another step forward in our performance, with multiple new records achieved throughout the year, including record full year net revenue, gross profit, adjusted operating income and free cash flow.

Beginning with free cash flow, our most important KPI for assessing financial health, we are pleased to report that following our first year of positive annual free cash flow in 2024, we more than doubled this result in 2025, reaching $18 million. This was achieved through continued operational improvements and disciplined working capital management.

Our Cannabis business continued to grow, expanding revenue year-over-year during the last 16 consecutive quarters. While we have seen a market slowdown during the second half of 2025, both our Retail and Operations segments continued to gain market share, showcasing the strength of our vertical model.

We would also like to highlight that for the first time in our history, we achieved positive full year adjusted operating income, supported by a strong contribution in the fourth quarter. This result underscores our financial discipline and continued traction in delivering operational efficiencies and productivity initiatives, including synergies from the Indiva acquisition. As a reminder, the only adjustments to operating income in 2025 relate to restructuring costs associated with the integration of Indiva, and the corporate restructuring program, which is currently in its third and final phase.

Delivering consistent year-on-year financial progress remains a priority, alongside continuing to build a strong foundation for long-term profitable growth and shareholder returns. Few companies in our industry are positioned to leverage a balance sheet of this strength with no debt and over $250 million in unrestricted cash at the end of 2025, enabling disciplined capital deployment across both organic and inorganic opportunities.

In this regard, in 2025, we increased capital expenditures by nearly 50% compared to 2024, with the majority of the investment directed towards new store openings across our Cannabis and Liquor Retail segments.

As announced in January, we also completed the first stage of the acquisition of Cost Cannabis retail stores from 1CM, incorporating 5 locations in Alberta and Saskatchewan. We continue to maintain a strong pipeline of initiatives focused on simplification and strategic focus. For example, we are days away from completing a full consolidation of our ERP systems, which is expected to unlock significant opportunities to further optimize our processes and enhance our analytical capabilities.

We continue to leverage the share repurchase program approved by our Board, and since the fourth quarter of 2024, we have repurchased a total of 15.1 million shares, including 4.3 million shares acquired over the last 90 days.

We are also encouraged by the continued momentum toward U.S. cannabis rescheduling as well as the progress toward completion of the restructurings of our Parallel and Skymint investments, with only a limited number of remaining requirements outstanding.

Over now to Alberto for more insights on our fourth quarter and full year financial performance.

Thank you, Zach. I want to remind everyone that the amounts discussed today are denominated in Canadian dollars, unless otherwise stated. Certain figures referred to during this call are non-GAAP and non-IFRS measures. For definitions of these measures, please refer to SNDL's management discussion and analysis document.

Our fourth quarter financial results demonstrate a strong profitability improvement despite softness at the top line. Net revenue of $252 million represents a 2% year-over-year decline, driven by market contractions in both Liquor and Cannabis Retail, particularly Liquor Retail, partially offset by market share gains across both retail segments.

Gross profit of $70.2 million marked a new absolute quarterly record, increasing by $1.4 million or 2.1% year-over-year, despite the decline in revenue. A strong margin expansion across both retail segments translating to 110 basis point increase in gross margin, reaching a new quarterly record of 27.8%. This is strong gross margin performance, combined with efficiency improvements across retail and corporate SG&A, resulted in a record quarterly adjusted operating income of $12.8 million.

An adjusted operating income of $11.8 million also represents a new quarterly high. This performance reflects a significant improvement versus the prior year, driven not only by the absence of the $65.7 million SunStream valuation adjustment recorded 1 year ago, but also by meaningful underlying operational margin improvements.

Free cash flow of over $10 million in the quarter was another solid result, although slightly lower than the prior year due to differences in the timing of working capital build-up for the holiday season as well as increased capital expenditures and inventory investments to support new store openings.

Our full year financial results demonstrate meaningful year-over-year progress and new records across all key metrics. Net revenue of $946 million represents growth of 2.8%, supported by 11% growth from our combined Cannabis segments, partially offset by a 2.8% decline in Liquor. Importantly, all of our segments gained market share during the year.

This revenue growth, combined with a 120 basis point increase in gross margin, translate into gross profit growth of 7.6% compared to the prior year. Improved promotional execution, mix management and productivity initiatives were the key drivers of this gross margin expansion. This continuous improvement mindset also enabled us to reduce G&A spending, as in-store efficiency gains, as a well-executed corporate restructuring program more than offset cost inflation and the impact of new store openings.

As a result, both adjusted and unadjusted operating income reached new highs, with full year adjusted operating income achieving breakeven for the first time in our history. We're also pleased to report free cash flow of $18 million for the year, more than doubling the results achieved in the prior year.

Our historical quarterly performance demonstrates a clear upward trend in profitability and a strong multiyear compound annual growth rate. While quarterly operating income and free cash flow will continue to be influenced by seasonality and volatility, we remain committed to sustaining the upward trajectory with a focus on long-term value creation.

We have seen market declines across both the Liquor and Cannabis segments. While declines in Liquor have been a multiyear trend, the slowdown observed in Cannabis during the second half of 2025, which ultimately resulted in a marked decline in the fourth quarter, represents a newer development. We intend to address these headwinds through disciplined execution and a balanced approach to both organic and inorganic investment.

In particular, as the cannabis industry matures and growth rates moderate, less efficient operators are likely to face increased pressure, creating a favorable condition for industry consolidation. We believe we are well positioned to capitalize on these opportunities.

Looking more closely at segment-level contributions across our key financial KPIs, we can see these dynamics clearly unfolding. Net revenue reflects the market headwinds impacting both the Liquor and Cannabis segments, particularly in the fourth quarter. On a full year basis, however, growth in the Cannabis Retail and Cannabis Operations more than offset the declines experienced in Liquor. Despite revenue pressure, our Liquor segment was able to offset declines through productivity improvements, allowing it to maintain or expand gross profit. At the same time, our Cannabis segments contributed to gross profit growth at a faster pace than net revenue, particularly over the full year.

Adjusted operating income reflects solid contributions from our Cannabis Retail segment, while results from Liquor and Cannabis Operations were more muted. In the context of ongoing market declines, maintaining or expanding adjusted operating income in Liquor represents a strong performance.

Cannabis Operations was impacted by costs associated with the volume ramp-up at our Atholville cultivation facility undertaken to support international growth.

The Investment segment saw significant year-over-year improvement, primarily due to the absence of unfavorable valuation adjustments recorded in the prior year. The Corporate segment also delivered strong contributions to bottom line profitability, supported by the cost reductions from the restructuring program initiated in the second half of 2024. The $7.5 million contribution in the fourth quarter reflects both the benefit of these cost reductions and a $3.2 million [ impact ] from share-based compensation, as the decline in our share price during the fourth quarter partially offset the increase recorded in the third quarter.

Once again, both our fourth quarter and full year free cash flow results stand out as key highlights. In the fourth quarter, while we did not achieve a new record, free cash flow levels remained strong. Compared to the prior year, we benefited from higher earnings, reflecting improved P&L performance. This was offset by inventory and capital expenditure investments in new store openings as reflected in the working capital and other components of Page #7, respectively.

On a full year basis, the benefits from improved earnings and a strong working capital management more than offset the investments made to support new store openings.

On the following page, we can see the seasonality effects in our free cash flow generation. The first part of the year is typically impacted by lower revenue levels and working capital buildups, where the second half of the year benefits from the opposite dynamic. In aggregate, and supported by a particularly strong second half, we more than doubled free cash flow compared to the prior year.

When reviewing each commercial segment individually, starting with Liquor, we can see that both the fourth quarter and the full year were impacted by market-driven headwinds affecting net revenues. These declines, approximately 3% in both periods on a rounded basis, were primarily driven by broader market conditions. In this context, our team was able to gain market share, supported by the strong performance of our Wine and Beyond banner and continued growth in our private label offerings, both of which delivered positive results.

Improvements in pricing, promotional execution and mix management were the key drivers behind the gross margin expansion of 120 basis points in the fourth quarter and 70 basis points for the full year, reaching 26.0% and 25.9%, respectively. Q4 gross profit of $38.7 million and a full year gross margin of 25.9% both represent new records for the segment. This margin expansion, together with additional efficiency improvement in store operations, translate into an increase of $1.7 million or 5% in full year operating income.

In the fourth quarter, operating income was close to flat year-over-year, reflecting the absorption of ramp-up costs associated with the 2 new Wine and Beyond stores that opened in November.

Cannabis Retail delivered strong results in 2025 despite the market slowdown experienced in the second half of the year. Fourth quarter revenue was essentially flat year-over-year. However, supported by a 190 basis point improvement in gross margin and continued efficiency gains in store operations, operating income reached $8 million, representing a 33% increase compared to the same period last year. Full year results reflect a new revenue record of $330 million, representing 6% growth supported by 3.9% same-store sales growth and new store openings.

Gross profit of $86.1 million was also a new record, as was a gross margin of 26.1%, which expanded 80 basis points year-over-year. Similar to the Liquor segment, Cannabis Retail benefits from improved promotional execution and mix management. Operating income of over $30 million was driven by margin expansion and overhead optimization, more than doubling compared to 2024.

Following a material step-up in 2024, Cannabis Operations experienced greater volatility during 2025. As we began to lap the inclusion of the Indiva acquisition in the baseline that started in the fourth quarter of 2024, net revenue in the fourth quarter of 2025 was flat year-over-year. Gross profit, gross margin and operating income declined compared to the prior year, reflecting ongoing stabilization efforts related to the volume ramp-up and infrastructure improvements at our Atholville cultivation facility.

For the full year, the segment delivered record net revenue of $144.7 million, representing a growth of 32%, supported by the Indiva acquisition and continued growth in international sales. Gross profit of $32.9 million and a gross margin of 22.8% were also new full year records for the segment. We continue to see opportunities to further expand margins through increased scale and additional productivity initiatives.

Adjusted operating income of $2.5 million declined modestly year-over-year, primarily due to under-absorbed overhead investments. While Cannabis Operations remains the smallest and most volatile of our 3 commercial segments, we see significant opportunities to enhance our capabilities and footprint, positioning the segment as an increasingly important driver of long-term value creation for SNDL.

Over to you, Zach, for additional comments related to our strategic priorities.

Let's now turn to the progress we have made recently against our 3 strategic priorities: growth, profitability and people. Starting with growth.

Each of our Cannabis and Liquor Retail segments gained 20 basis points of market share year-over-year. Cannabis Retail achieved this through strong execution, new store openings and conversions to our successful Value Buds banner. Liquor Retail also demonstrated solid execution in a challenging environment, supported by private label growth and the resilience of our Wine and Beyond banner.

As previously mentioned, we increased our capital expenditures and working capital investments to support the opening of 3 additional cannabis stores and 2 new Wine and Beyond locations in the fourth quarter.

Our Cannabis Operations segment also contributed meaningfully, delivering 32% full year revenue growth, driven primarily by our leadership in edibles following the acquisition of Indiva as well as continued growth in international sales. Profitability is a strategic priority, where we made substantial progress not only throughout full year 2025 but also in the fourth quarter, as demonstrated by nearly $13 million in adjusted operating income and $10 million in free cash flow delivered in Q4. The previously highlighted improvements in gross margin were a key driver of this performance, alongside our continued focus on G&A optimization.

In this regard, our retail segments delivered full year combined efficiency improvements of $7.1 million in G&A reductions, and our corporate restructuring program has already surpassed the committed $20 million in annualized savings, even ahead of the implementation of the third and final phase of the initiative.

Last but not least, under our people strategic priority, we initiated our annual performance to pay process in the fourth quarter, designed to reward employee performance based on both overall business results and individual contributions. We also delivered merit increases ahead of the holiday season across our facilities and retail teams, ensuring market competitiveness and reinforcing a consistent and transparent compensation approach.

In addition, we completed our second annual Employee Engagement Survey, gathering valuable insights from across the organization to further enhance our employee value proposition. Building on these insights, we expanded our employee engagement initiatives to include mental and physical well-being as well as diversity, equity and inclusion, reinforcing our commitment to a safe, inclusive and supportive workplace.

Before concluding this presentation, we would like to share how we monitor our performance relative to our peer group, as we remain focused on delivering superior performance and shareholder returns. Looking at the most recent trailing 4 quarters reported by this group and normalizing for equivalent definitions, we can see that SNDL has climbed the ranks and has positioned itself firmly within the top tier in terms of profitability on an absolute basis. We believe that this progress, combined with the many opportunities ahead of us and our best-in-class balance sheet, with a significant cash position, creates a compelling investment case.

Once again, I would like to thank our entire team for their contributions, and our shareholders for their continued trust and support. I am proud of what our team accomplished in 2025 and I'm confident in our ability to unlock additional value in the years ahead.

With that, I will now turn the call back to the operator for the analyst Q&A session.

[Operator Instructions] Our first question comes from Frederico Gomes with ATB Cormark Capital Markets.

First question on the Cannabis Retail segment, the same-store sales decline that we saw this quarter and your comment about the market slowdown in the second half. Can you talk more about what's behind that slowdown? Is it related to competitive pressures at retail, just overall macro conditions or maybe just the natural state of the Canadian market becoming more mature at this point?

Yes, so we have noticed, particularly in the last 2 months of the quarter, for the months of November and December, absolute declines in the market. We attribute that to multiple factors. Certainly, there is an element of saturation in retail doors across most provinces, particularly where we have the biggest footprint, like Alberta. But in Ontario as well, we're starting to see that dynamic playing out.

There are different dynamics as well in terms of what we're lapping and what the industry is lapping from heavy, aggressive promotional period in the prior year. At the end of 2024, beginning of 2025, we're seeing pretty healthy growth rates based on more aggressive price competition. Obviously, as we're lapping that, and we believe that not only ourselves but many other retailers in the industry, they are focusing a little bit more on profitability and mix improvements. We see margin expansions, but we're seeing as well some reduction in traffic and top line.

There is as well a certain dynamic of some doors starting to shut down. We're getting to a dynamic where a lot of independents or some of independents, they're reaching their 5-year rent commitment, and they are realizing that this is a competitive, tough and competitive marketplace. Some of the larger operators, they are starting to build that scale. And it is difficult to compete against those. And as a result of that, as I said, the market in certain areas is starting to shrink as some doors are starting to shut down.

The industry is consolidating as well. So that is another element, not necessarily impacting the market, but clearly the dynamics in the industry. But in general, we think that it's saturation in the market [indiscernible] and price points.

Second question, still on the Cannabis Retail segment, specifically on M&A. So first, when do you expect that acquisition of the 1CM stores in Ontario to close? And in regards to your comment about maybe the industry consolidating, do you expect your growth in Cannabis Retail to be mainly driven by organic new store openings? Or are you more focused on the M&A side and acquiring some of these struggling players?

Frederico, it's Zach George. Thanks for the question, and this dovetails nicely from your prior question as well. Just in terms of the 1CM acquisition, remaining stores in Ontario, we're just finalizing our review with the AGCO. So we expect to -- the latest report back to shareholders in Q2 on that timing, but should be resolved shortly.

And yes, just in line with the deceleration of same-store sales growth that we're seeing across the space with almost every major player. If you think about this cyclically, this is exactly the time when operators start to lift their heads up and look for other ways to create value. So we do expect an intense focus on consolidation in the space, and I think that would apply to performing independents that may want to monetize their positions, but would also apply to both medium and even the largest portfolios in the Canadian marketplace.

And then in terms of organic growth, we have a pretty active pipeline, double-digit count of assets that are under review in multiple provinces. And we have a very attractive standup cost for the opening of new doors. So we're looking at this from multiple perspectives and not relying on M&A outcomes to drive future growth.

I appreciate that. If I could just ask one final question. Could you just remind us about the status of your EU GMP certification? And maybe comment about the international growth outlook for this year compared to 2025 as you expand that capacity.

Yes. We're waiting for last visit to our site. It has been a long process that we've -- that has required some patients. But we expect at this point to have the certification complete sometime over the summer. There has been some change in the administration in Germany that's impacted this as well.

And in terms of our international business, we saw decent growth off a very, very small base in terms of '25 versus '24. And we are in the process of developing relationships and building strong partnerships. But it's still early days. So we do expect material growth, but again, it's a very small part of the business today. That is a top 3 priority in terms of future capital deployment as well.

Our next question comes from Aaron Grey with Alliance Global Partners.

Yes, maybe touching on retail, but in terms of Liquor here. Obviously, you still have some structural challenges within the broader category outside of your sales. But some highlights for you guys, you guys did have 1 quarter during the fiscal year of some year-over-year growth, returned to declines, maybe the past 2, you guys are continuing to open up stores as well. So maybe just given your outlook, given you're still making investments in Liquor, there are some structural challenges, as you look into 2026, how are you seeing the broader Liquor Retail? Do you think it's in position for to start to stabilize on a year-over-year basis?

So yes, actually, throughout the year, as you saw in the first quarter, we have reported growth in 2025. That was driven primarily by the shift of Easter compared to the prior year. So on a normalized basis, we have seen a pretty consistent roundabout 3% revenue decline and about 4% to 5% market decline in the category.

It's very hard to predict where that is going to go. The first part or the first couple of months of 2026, we're seeing similar declines in the market. At the same time, there are a couple of areas within our portfolio that are showing very good strength, and this is where we're focusing our investments. Particularly, if you look at our Wine and Beyond banner, despite the market declines, mid-single digits, we're seeing that banner growing healthy.

It is a very different business model compared to the rest of the independent network, [ just meaning ] convenience business. Ours is a larger-scale format, significantly different type of offerings, a much broader portfolio base. That resonates very well with consumers. And that's why, as a result of that, a clear differentiation and unique offering that we have. We're seeing a positive growth.

It's still in the low single digits, but it's growth rates in the market. And as I said, we see a competitive advantage in that front, and that's where we're deploying the capital, both from a CapEx perspective, opening the doors, but as well the inventory associated with those store openings.

And then we have as well our private label. One clear dynamic that we're starting to observe as well is the loss in purchasing power, it's making consumers more price conscious and they are looking for products that offer a very good price point with good qualities as well. We have been expanding our private label offerings. That continues to gain penetration. It's been already several years of increases in market share from our private label offering. And that is an area where we're still building additional relationships with producers and we're expecting to continue making investments and expanding our portfolio on that front because, as I said, that's what is right now resonating with the consumers and we're seeing the stronger demand. And that part of the portfolio as well is growing in relative terms to the rest of the business and in absolute terms as well.

So that's where we're focusing. We believe that we still have opportunities to manage elements of growth within our portfolio despite the fact that the markets were still anticipated to decline in the low to mid-single digits for the next several quarters.

Okay. Great. I appreciate that color. That's helpful. Second question for me, just on some of your U.S. exposure, particularly with SunStream. Just if you could provide us an update in terms of some potential outcomes as we hopefully come to some resolutions, either Parallel or Skymint here in 2026. I know in the past you've talked about potential changes you might need to be made to best optimize some of the U.S. assets. So in terms of how you're looking at SunStream U.S. assets and how to best optimize those in 2026 as hopefully we come to some resolution there?

Absolutely, Aaron. So the portfolio has been simplified quite significantly. It's really 3 positions in the case of cannabis. I think you've been following the liquidation of that portfolio. So we've seen a return of capital recently as that position gets monetized and capital repatriated.

And then the 2 merger positions of interest would be in Parallel and Skymint. Parallel is going through a foreclosure process in the State of Florida, and Skymint is in receivership in Michigan. For almost the entirety of 20 the foreclosure of the foreclosure process related to Parallel was delayed because of a litigation that was in place. There was a key settlement to that litigation in December. And so we think there is now a path to resolve that foreclosure, and we'll likely see it sometime in Q2 or just after.

So we are finally heading towards a resolution here after a multiyear process. Again, the reason behind these delays and inefficiencies really comes down to the lack of access to the federal bankruptcy courts in the United States. And so once you relegated to these other insolvency proceedings at the state level, they are much less predictable, and the adjudication can be -- can provide unique outcomes. So we're pleased that we will actually land this plane, so to speak, in 2026, but it's been a frustrating process, and we're eager to have it wrapped up.

This concludes the question-and-answer session. I would now like to turn the conference back over to Zach George for any closing remarks.

Thank you, and thanks for joining our call today. We look forward to updating you in the near future. Have a great [ rest of your day ].

Thank you. This concludes today's conference call. You may disconnect your lines. Thank you for participating, and have a pleasant day.

Good morning, and welcome to SNDL's Third Quarter 2025 Financial Results Conference Call. This morning, SNDL issued a press release announcing their financial results for the 2025 third quarter, ended on September 30, 2025. This press release is available on the company's website at sndl.com and filed on EDGAR and SEDAR as well. The webcast replay of the conference will also be available on sndl.com website. SNDL has also posted a supplemental investor presentation in addition to the conference call presentation, we will be reviewing today on it's sndl.com website.

Presenting on this morning's call, we have Zach George, Chief Executive Officer; and Alberto Paredero, Chief Financial Officer.

Before we start, I would like to remind investors that certain matters discussed in today's conference call or answers that may be given to questions could constitute forward-looking statements. Actual results could differ materially from those anticipated. Risk factors that could affect results are detailed in the company's financial reports and other public filings that are made available on SEDAR and EDGAR.

Additionally, all financial figures mentioned are in Canadian dollars unless otherwise indicated. We will now make prepared remarks, and then we'll move to analyst questions.

I would now like to turn the call over to Zach George. Please go ahead.

Welcome to SNDL's Third Quarter 2025 Financial and Operational Results Conference Call. The third quarter of 2025 marks another milestone for SNDL as we report record quarterly free cash flow. And for the first time in our history, positive cumulative free cash flow for the first 9 months of the year. We also continue to report sustained double-digit revenue growth in our combined Cannabis segment, underscoring the strength of our ongoing operational and profitability improvements. Beyond our ability to generate cash, which, in our view, is the ultimate measure of a business' fundamentals. We are also seeing numerous bright spots in our income statement. These include robust growth in our Cannabis segments, margin expansion across our Retail Operations and reductions in SG&A expenses. Collectively, these factors translate into continuous improvements in our financial performance.

Despite our progress in operations and our strengthened competitive position, this quarter's P&L reflects the impact of $11.9 million in unfavorable noncash items. These were triggered by increases in our stock valuation as well as inventory and fixed asset impairments, resulting in a reported operating loss of $11 million.

For those who are unfamiliar, our unvested long-term incentive equity grants show up as a liability on our balance sheet. So when our stock price increases, we have to take a negative charge to operating income in order to reflect the increased value of that liability. These noncash items and the volatility inherent to our industry should not overshadow the undeniable operational improvements we have achieved. We also continue to leverage the strategic advantage provided by our strong balance sheet with no debt and over $240 million in unrestricted cash as we build a resilient, growth-oriented and profitable business. To this last point, during the third quarter, we continued to support the regulatory review process in Ontario which is the final step before closing the acquisition of 32 1CM cannabis stores. We also accelerated our investment pace to support the opening of 5 new Cannabis stores and 2 new Wine & Beyond stores during the fourth quarter.

Additionally, we completed the ramp-up of our Atholville cultivation facility to support international growth, and we are now making further investments in its infrastructure.

Last but not least, beyond strengthening our competitive position in Canada, the company continues to work towards resolving the ongoing litigation required to complete the SunStream restructurings. These restructurings are expected to provide shareholders with exposure to dynamic medical markets, including Florida and Texas.

I'll pass the call to Alberto now for more insights on our third quarter financial performance.

Thank you, Zach. I want to remind everyone that the amounts discussed today are denominated in Canadian dollars, unless otherwise stated. Certain figures referred to in this call are non-GAAP and non-IFRS measures. For definitions of these measures, please refer to SNDL's management discussion and analysis document.

Our third quarter financial results represent another step forward in profitability, particularly in terms of free cash flow generation.

Net revenue for the third quarter of 2025 reached $244 million, reflecting a 3.1% increase compared to Q3 of last year. This growth was driven by our Cannabis segments, while the Liquor segment continues to navigate market headwinds. Gross profit of $64.2 million represents a $1.2 million increase or 1.9% growth year-over-year despite being impacted by $3.9 million in noncash inventory-related adjustments within Cannabis Operations. This inventory adjustments reduced gross margin by 160 basis points, more than offsetting the strong margin expansion in both Liquor and Cannabis Retail segments. As a result, consolidated gross margin declined 30 basis points compared to the prior year.

Operating income was affected by noncash adjustments totaling $11.9 million. In addition to the $3.9 million inventory adjustment mentioned earlier, the 121% share price increase during the third quarter triggered a $6.8 million increase in share-based compensation liability.

Finally, we recorded a net of $1.6 million fixed asset impairment, mostly driven by the [ idle ] Stelletton facility. These 3 factors fully explain the reported operating loss of $11 million. When excluding a $1.5 million restructuring charge, adjusted operating income ended at a loss of $9.5 million. This represents a $7.1 million improvement or 42.7% compared to last year.

Free cash flow is the main highlight of the quarter, with a positive $16.7 million. In addition to the $7.5 million improvement compared to the same period last year, this strong Q3 results enable us for the first time in our history to achieve positive cumulative free cash flow for the first 9 months of the year, totaling $7.7 million year-to-date.

When reviewing our 4-year historical performance, we continue to demonstrate a clear upward trajectory, reflecting our sustained focus on growth and improve operational efficiency. Additionally, we can observe the seasonality of free cash flow within the first and second half of the year with a consistent upward trend over time. When analyzing the contributions from each segment across our main financial KPIs, we can clearly see that net revenue growth was driven by our Cannabis segments, partly offset by Liquor Retail. The revenue [ elimination ] for cannabis is related to the sales from the Cannabis Operations segment into our own retail. As in previous quarters, dissemination is increasing as a result of our cannabis business growth.

Adjusted operating income shows a solid improvement compared to the prior year, although there is some noise related to noncash adjustments in both periods. Liquor Retail posted a small decline of $0.6 million as gross margin and SG&A improvements were offset by revenue declines and the lapping of a $1.2 million favorable fixed asset impairment reversal recorded in 2024. Cannabis Retail delivered a strong operating income growth, driven by revenue gains, gross margin expansion and SG&A efficiencies. Additionally, this quarter included a $1 million reversal for asset impairments recorded several years ago.

Cannabis Operations reported negative operating growth, primarily due by the $3.9 million inventory valuation adjustments and the $2.7 million fixed asset impairment related to the idle Stelletton facility.

The Investment segment showed significant favorability year-over-year. As last year included an unfavorable valuation adjustment from the SunStream investment portfolio. Finally, despite meaningful cost reductions in the Corporate segment, the $6.8 million increase in share-based compensation triggered by the 121% rise in our share price during the third quarter, resulted in a $2.2 million unfavorable movement year-over-year. Clearly, there are numerous typical adjustments impacting the third quarter in both years. When we strip away this noise, the underlying improvement in operating income becomes evident.

Both the third quarter and the year-to-date free cash flow results are the key highlights. It's representing historic records for the company. In the third quarter, the negative income of $13.3 million was driven by the different noncash adjustments previously mentioned, which leads to the high amount of $30.8 million in noncash add-backs.

Inventory and other working capital follow the regular seasonality as the investments in the first half of this year start being offset as of the third quarter. We're also seen the higher amount of CapEx and lease payments in the third quarter compared to the previous 2 quarters, driven by the incremental capital investments for the anticipated store openings in the fourth quarter. This strong Q3 free cash flow results is allowing us to report for the first time in our history, positive cumulative free cash flow in the first 9 months of the year, with a total of $7.7 million.

Looking closer at the 3 operating segments, starting with Liquor Retail, we see that the segment delivered net revenue of $139.4 million in the third quarter, a 3.6% year-over-year decline as it continues to face market headwinds. Gross profit of $36.7 million represents a modest reduction of $0.2 million compared to the prior year. As the revenue decline was almost fully offset by 80 basis point improvement in gross margin, which reached 26.3%, a new historic record for the segment.

Operating income came in at $11.2 million, a decrease of $0.6 million compared to last year. While the record gross margin and further reduction in SG&A spending provided support, these gains were offset by the lapping of a $1.2 million in fixed asset impairment reversals recorded in 2024.

Cannabis Retail delivered outstanding results in the third quarter. Net revenue of $85 million represents a new record for the segment, supported by a 4.8% year-over-year growth, driven primarily by a 3.6% increase in same-store sales. Gross profit of $22.5 million is also a historic high for the segment, reflecting an 8.5% increase compared to last year, supported by a 90 basis points improvement in gross margin.

Finally, both operating income and adjusted operating income reached new records for the segment, driven by revenue growth, margin expansion and SG&A optimization.

Operating income of $9.1 million more than doubled compared to last year, further benefiting from a $1 million fixed asset impairment reversals recorded in the quarter.

Our Cannabis Operations segment delivered mixed results as a result of noncash adjustments impacting the third quarter, masking the underlying improvements.

Net revenue for the third quarter of 2025 was $37.4 million, also a new record for the segment, reflecting a $12.4 million or 50% growth compared to the prior year. This growth was driven by edibles following the acquisition of Indiva in the fourth quarter of 2024 as well as the accelerating international sales that reached $4.2 million in the quarter.

Gross profit was impacted by $3.9 million inventory write-offs and valuation adjustments primarily related to the cultivation ramp-up at our Atholville facility.

Gross margin ended up at 13.4% in the quarter, as the inventory adjustments had a negative impact of 10.4 percentage points to the margin of the segment.

Finally, adjusted operating income also reflects a $2.7 million fixed asset impairment related to the Stelletton idle facility. The total of $6.6 million in unfavorable inventory and fixed asset noncash adjustments resulted in the negative $4.8 million adjusted operating income.

Over to you, Zach for additional comments related to our strategic priorities.

Looking at the progress we've made towards our 3 strategic priorities: growth, profitability and people, there are several highlights I'd like to point out. Let's start with growth. Our Cannabis Retail segment continues to outperform the market, achieving 3.6% same-store sales growth in the third quarter and contributing to an additional 12 basis point gain in market share. Despite softness in the liquor market, our Wine and Beyond banner continues to demonstrate strength with 2.9% same-store sales growth, supported by double-digit growth in private label sales. As mentioned in previous calls, we have accelerated organic capital investments in new store expansion. In addition to the 2 cannabis stores opened during the third quarter, we anticipate opening 5 new cannabis stores and 2 new Wine and Beyond stores in the fourth quarter. It is also encouraging to see strong 50% revenue growth from our Cannabis Operations segment, driven by market leadership in edibles following the acquisition of Indiva in the fourth quarter of last year, as well as continued growth in international sales, which reached $4.2 million in the third quarter.

Shifting to profitability. The most significant highlight is the generation of $17 million in free cash flow during the quarter, enabling us to achieve positive year-to-date free cash flow of $7.7 million at the end of the third quarter for the very first time in our history. This was accomplished through revenue and margin expansion, coupled with working capital optimization despite incremental CapEx investments to fund future growth. While adjusted operating income remains negative due to the previously mentioned noncash items reflected in the quarter, it did grow by 43% compared to the prior year, supported by revenue growth, retail margin expansion and reductions in G&A costs. On that point, G&A expenses in the third quarter were $4 million lower than last year as our $5 million of productivity savings more than offset inflationary pressures. Additionally, data licensing revenue contributed $4.6 million in the quarter, providing further support for gross margin expansion.

Foundational to all of these improvements is our people strategic priority. During the third quarter, we continued to enhance the deployment of Talent cards and development conversations, a key step in our strategic talent review process. We also launched a recruitment efficiencies project to streamline hiring and improve the experience for recruiters, hiring managers and candidates through automated workflows. Additionally, we introduced a monthly leadership development series, a new networking forum where leaders share personal and professional experiences and discuss our strategic priorities. As we focus on driving strong execution in the fourth quarter and a strong finish to the year, we are also encouraged by the many opportunities and execution plans our teams are developing for 2026, taking us step by step closer to our ambition to become a global cannabis leader.

Once again, I'd like to thank our entire team for their contributions and our shareholders for their continued trust. I will now hand the call back to the operator for the analyst Q&A session.

[Operator Instructions] And the first question today will be coming from the line of Aaron Grey of Alliance Global Partners. Please go ahead.

I see some more of the cash flow generation. First question for me. I just want to kind of strip out some of the one-offs to make sure we have a good understanding of how best to think about the business going forward. So particularly for Cannabis Operations, included the write-offs for inventory within that. So I just want to clarify there from the prepared remarks. Was it only the $3.9 million inventory in the gross margin and the $1.6 million fixed asset, that's SG&A and not in gross margin? So I want to clarify that point.

And then secondly, how best to think about the gross margin specifically for the Cannabis Operations going forward? Both of those are added back, it gets you back to that 29% gross margin from prior quarter. If just inventory, gets you more to the mid-20s. So I just want to get a better understanding of how to think about that on a go-forward basis.

So yes, I confirm the $3.9 million of inventory adjustments that's obviously is impacting gross profit. And it has an impact of about 10.6 percentage points in the margin of the segment. The other onetime adjustments that we saw in the quarter is the Stelletton facility impairment, it's a $2.7 million charge, that happened below gross profit. So it's in other income and expenses. So it's part of operating income, but not reflected in the gross margin. So the total of those 2 things obviously are impacting operating income, but the only impact to gross profit is based on the inventory adjustment. Without those adjustments, we would have been at around 25% margin in the segment, which is what we're expecting. We have seen in round about that number in the last couple of quarters, and we're expecting that to be the low end of the range for the future.

Okay. Great. Sales to provincial boards saw some nice growth both on a quarter-over-quarter and year-over-year basis. Any specific drivers there? And anything to think about in terms of the mix within that shipment timing for how we think about that line segment going forward? Because it does seem like that growth outpaced some of what we're seeing from the third-party POS data.

Yes, indeed, we're seeing the same softness overall in the sales to the provincial boards from Cannabis Operations. We know that it's not driven by our own segment as we continue to gain momentum there, and we'll continue to see growth. But we have seen some softness in third-party retail. Obviously, we don't have full visibility to the inventory numbers of the provincial boards. So an element of the slowdown could be as well driven by that. But overall, that we have seen over the last couple of quarters, a slowdown in third-party retail, that we're working on, obviously trying to create some additional momentum and with the changes in new products and innovation, we believe that we're going to be regaining momentum there.

And just to add to Alberto's comments. We are seeing great progress in specific categories, including edibles, pre-roll and vape. And so that's enabled us to keep a great pace relative to the broader market.

Okay. Great. Last 1 for me. I know you've been increasing your efforts internationally. I think you said 4.2% in the quarter. So how best to think about international sales going forward, how big of a part of the business do you feel like that could be within the next 12 to 18 months?

It does keep to -- continue to gain momentum. We have been increasing quarterly-over-quarter since the beginning of the year. We have a strong demand. We have a lot of purchase orders for the fourth quarter as well. We are bullish as well with the outlook for 2026. A lot of our international partners, they are exploring options to continue increasing purchases from us. They're struggling with reliability of supply from some of their other partners that they have, and they have been very pleased with our performance so far. So yes, we believe and we're anticipating that, that number will continue growing in the future.

Worth mentioning that we are continuing to ramp production at our Atholville, New Brunswick facility. The benefits from extremely attractive relative power pricing. And so we should see monthly production based on our targets north of 15,000 kilograms a month in 2026. And so we expect the bulk of that biomass to be directed at international markets. And there are a number of other both 2.0 and other growth opportunities that we're looking at.

[Operator Instructions] Our next question will be coming from the line of Frederico Gomes of ATB Capital Markets.

First question just on the 1CM transaction that still hasn't closed. You said you're waiting regulatory approval in Ontario. So is there anything specific that's been an issue with that approval. I'm just thinking about the previous history year back when you had the [ Indiva ] transaction, and I believe that there was a hold up there in Ontario. So just any comments on that?

Fred, we don't have any additional information to share. We thought this would be -- the review would be completed late October. It's early November. There are a number of retail licenses, both applications that have been submitted by affiliated entities as well as third parties that are still moving to the pipeline in Ontario. So we'll update the market as soon as we have greater clarity.

And then second question, just on Cannabis Retail. I guess we saw good same-store sales growth this quarter again, record numbers in gross profit, operating income as well. Just broader comments about what you're seeing in that market right now? Are you seeing opportunities to increase prices and margins? Are you seeing a good pipeline of M&A? Or is it going to be concentrated more on organic growth, obviously, excluding the 1CM transaction? Just some broader color on the outlook for Cannabis Retail in Canada right now.

It's a great question. We are seeing maturity. It's really a province-by-province assessment. We've seen extreme saturation start to settle in Alberta. And as you well know, Frederico, Alberta was 1 of the quickest provinces out of the gate in terms of its pace of door count growth. You're seeing signs emerging of maturity in markets like Ontario as well, although there's still -- we still think there's opportunity there. And I think that the days of easy kind of double-digit, high single-digit same-store sales growth upon opening locations and managing a discount retail strategy are going to be in the rearview very quickly. Execution on the floor and owning the consumer relationship with a very convenient and attractive experience for customers is critical at this point. So we are very much focused on our consumer and owning that relationship.

I would add, Frederico, if you compare to the same period of last year, you have probably noticed in the third quarter that our same-store sales have slowed down somewhat compared to first half of the year. On the other side, we're seeing a significant increase, a 90 basis points improvement in gross margin. The main reason last year, as of the third quarter, we started to run more aggressive promotional activities. That obviously put a little bit the top line but tempered the gross margin. as we are lapping that strong promo activity this year, we're seeing the margin progression, obviously somehow a little bit of a slowdown on same store sales revenue growth. It will probably be a similar dynamic in the fourth quarter, but we still see some -- we've seen margins somewhat stabilizing for the long run. There is always an opportunity to increase efficiencies and manage mix a little bit better and gain marginally on the gross margin. But clearly, yes, as Zach said, on the revenue growth and the market growth, we're assuming -- we're expecting it would stay in the low single digits going forward.

That's very helpful. And then just a final question, just, I guess, related to that as well, just on the Rise Rewards program, now that you have some more time with that. Anything you can share in terms of how the rollout is occurring relative to your expectations? And any data points regarding members of the program, economics, et cetera?

Frederico, we're still early days. We're just several months into this launch, but it is tracking quite well. The engagement we're getting from loyalty members is extremely strong. We're excited to roll out a similar and parallel program for our Liquor business in the coming quarters and think that there'll be an interesting opportunity and some very rich data that we can receive from that. We're going to update the market on this program, but wanted to get a couple of quarters of performance underneath our belt before sharing more detailed stats.

Thank you. This does conclude the Q&A session for today. I would like to turn the call back over to Zach George for closing remarks. Please go ahead.

Thanks all for joining us today. I appreciate your support, and we look forward to updating you on our progress in the near future. Thank you.

This concludes today's conference call. You may disconnect your lines. Thank you for participating, and have a pleasant day.