SNDL (NASDAQ: SNDL) returns to adjusted operating profit but books a cannabis impairment

What happened

SNDL Inc. (NASDAQ: SNDL) returned to positive adjusted operating income in the third quarter, but a C$52 million goodwill impairment left an operating loss.

Adjusted operating income, which excludes impairments and restructuring costs, was C$5.2 million against a loss of C$9.5 million a year earlier. The reported operating loss was C$48.3 million, compared with C$11.1 million in the third quarter of 2025. The impairment is non-cash and relates to the Cannabis Operations segment.

Net revenue fell 2.5% to C$238.0 million from C$244.2 million. Gross margin slipped 2.0 percentage points to 24.3%, mainly because of weak Cannabis Operations. SNDL reported on Oct. 27 for the quarter ended Sept. 30, in Canadian dollars.

Key numbers

Metric	Latest	Change	Source
Net revenue, Q3	C$238.0 million	from C$244.2 million, -2.5%	SEC 6-K Exhibit 99.1
Adjusted operating income (loss), Q3	C$5.2 million	from -C$9.5 million, +C$14.8 million	SEC 6-K Exhibit 99.1
Operating loss, Q3	-C$48.3 million	from -C$11.1 million, -337.3%	SEC 6-K Exhibit 99.1
Free cash flow, Q3	C$20.0 million	from C$16.7 million, +19.5%	SEC 6-K Exhibit 99.1
Change in cash and cash equivalents, Q3	-C$50.7 million	from C$32.4 million, -256.8%	SEC 6-K Exhibit 99.1
Gross margin, Q3	24.3%	from 26.3%, -2.0 percentage points	SEC 6-K Exhibit 99.1

Read more: SNDL (SNDL) company research

Where the improvement came from

The adjusted gain came from Corporate and Investments, not the operating businesses. The Corporate adjusted loss narrowed to C$2.5 million from C$12.5 million. Investments earned C$7.9 million, up from C$1.5 million.

Of the Investments figure, C$6.9 million was SNDL's share of profit from equity-accounted investees of SunStream Bancorp Inc. (SunStream). It mainly reflects a higher valuation of Surterra Holdings, Inc. (Parallel). The cash flow statement removes that profit from operating cash flow.

Both retail segments set quarterly gross margin records. Cannabis Retail margin rose to 27.0% from 26.4%. Liquor Retail margin rose to 27.0% from 26.3%. Cannabis Retail revenue grew 0.7% to C$85.6 million. Liquor Retail revenue fell 3.3% to C$134.8 million.

Same-store sales fell 3.8% in Cannabis Retail and 6.0% in Liquor Retail. SNDL blamed market contraction in Ontario and Alberta for the cannabis decline. It blamed persistent demand softness for the liquor decline.

Stock perps: every US stock that trades as a perpetual future, by leverage, live

Cannabis Operations falls short

Cannabis Operations revenue dropped 27.7% to C$27.0 million. Its gross margin turned negative at -6.0%, against 13.4% a year earlier. SNDL said most of the revenue decline came from its exit from the unprofitable domestic dried flower category.

Beyond the goodwill charge, which the company said reflects current business trends, the segment took C$6 million of other impacts. These were mostly inventory adjustments tied to the dried flower exit and Jeeter cost variances.

SNDL cut the workforce at its Kelowna manufacturing site by more than 30%. It said the benefits should begin showing in the fourth quarter. It is also starting a strategic review of the segment, with options from asset divestitures to larger productivity initiatives.

Cash, buybacks and the U.S. bet

Free cash flow reached C$20.0 million, a quarterly record that the company said was up 19.5% from C$16.7 million. It included a C$10.6 million benefit from the initial unwinding of the captive insurance arrangement. For the nine months, free cash flow was C$5.7 million, down from C$7.7 million.

Cash and cash equivalents still fell C$50.7 million in the quarter. SNDL attributed that to C$60.8 million of strategic investments in the U.S. and C$10.0 million of share repurchases. Cash stood at C$132.5 million on Sept. 30, against C$252.2 million at the end of 2025.

The U.S. money followed the July 27 completion of the Parallel restructuring, which cut its debt by about US$842 million. SNDL joined a rights offering that lifted its indirect equity stake from approximately 67% to approximately 92%. The cannabis investment portfolio was carried at C$485.2 million, up C$70.0 million in the quarter.

SNDL has no outstanding debt. It reports C$617.8 million of unrestricted cash, marketable securities and investments, including equity-accounted investees. It bought 5,431,300 shares for cancellation in the quarter at a weighted average US$1.31. It has bought 23,088,153 so far this year through Oct. 22, leaving 243,320,644 outstanding.

The board has directed management to pursue a possible substantial issuer bid for up to C$50 million at a price not exceeding C$1.92 (US$1.35) per share. If fully subscribed at that maximum price, it could cut shares outstanding by more than an additional 10%.

Why it matters

OptimistFi has argued that SNDL works only if scale, pricing discipline and cost control turn a loss-making market into recurring cash generation. Record retail gross margins support the pricing point. The Cannabis Operations loss and impairment cut against the cost-control point.

The improvement is real on the adjusted measure but narrow. Corporate and Investments drove it, and part of the Investments gain is a valuation increase, not cash. The free cash flow record leaned on the insurance unwinding benefit. Nine-month free cash flow is still lower than a year earlier.

Buybacks and the possible tender offer show management putting cash behind the shares. They compete with the U.S. investments for the same balance sheet. That is why the quarter reads as mixed, not as a turn.

What's next

SNDL expects to renew its share repurchase program when it expires on Nov. 20, 2026, subject to board approval. It expects the Kelowna cost cuts and other actions to begin contributing in the fourth quarter.

A Cannabis Operations adjusted loss smaller than this quarter's C$11.4 million would support the turnaround case. A repeat of the margin slide would weaken it.

SNDL also expects to resolve the Alcohol and Gaming Commission of Ontario matter, subject to definitive documentation and a C$200,000 penalty. That would let the Value Buds franchise network resume growth in Ontario after a pause of more than a year. Ontario retail operations would be deconsolidated, with net economics substantially preserved.

More from OptimistFi

• SNDL stock: research and coverage of SNDL
• Stock research on every company OptimistFi covers

From OptimistFi Perps