SNDL (NASDAQ:SNDL) reported lower second-quarter revenue and gross profit as demand weakness across liquor and cannabis markets, cannabis-production ramp-up costs and promotional activity weighed on results. The company said it continued to generate positive operating cash flow and improved free cash flow year over year, while accelerating share repurchases and advancing a restructuring involving U.S. cannabis operator Parallel.
Net revenue for the quarter ended June 30 fell 3.7% from a year earlier to C$235.8 million. Gross profit declined 16.6% to C$56.3 million, while gross margin contracted 3.7 percentage points to 23.9%.
Free cash flow was negative C$6.7 million, compared with negative C$7.9 million in the prior-year period. Paredero-Quiros said the year-over-year improvement was supported by working-capital changes and rent-expense timing, though the quarter also included a C$6.9 million annual payment tied to 2025 management incentives and a C$2.7 million increase in cash in transit.
Segment Performance
Liquor Retail revenue declined 5.1% to C$134.7 million, driven by a 6.2% decrease in same-store sales amid softer market demand. The revenue decline occurred despite the contribution from two Wine and Beyond locations that opened in the fourth quarter of 2025 and private-label sales that outperformed national brands by 13 percentage points during the quarter.
Liquor Retail gross profit fell 7.4% to C$33.8 million, and gross margin declined 60 basis points to 25.1%. The company attributed the margin pressure to increased promotional activity intended to support sales volumes. Adjusted operating income in the segment was C$3.2 million, down C$3.5 million year over year, reflecting lower sales, promotional support and higher selling, general and administrative costs related to the newer Wine and Beyond stores.
Cannabis Retail revenue slipped 1.4% to C$83.2 million as same-store sales declined 4.6%, which SNDL attributed to market contraction in Alberta and Ontario. New store openings and Value Buds conversions partly offset the decline. Gross profit was essentially unchanged at C$22 million, while gross margin increased 50 basis points to 26.4% on promotional efficiencies, pricing actions and product-mix management.
During the analyst question-and-answer session, Paredero-Quiros said cannabis retail trends improved through the second quarter, with some provincial markets moving closer to break-even growth in June. He said SNDL expects market growth to return at a low-single-digit rate during the second half of the year.
Cannabis Operations revenue fell 10.1% to C$32.2 million, affected by market headwinds and the absence of business-to-business flower deliveries from partners facing their own demand shortfalls. International sales rose C$1.2 million to C$5 million. Segment gross profit declined to C$0.6 million from C$9.3 million a year earlier, and gross margin fell 24 percentage points to 1.8%.
Chief Executive Officer Zach George and Paredero-Quiros said production inefficiencies associated with the Jeeter ramp-up in Kelowna were the principal factor behind the Cannabis Operations margin shortfall. Paredero-Quiros estimated that 80% to 90% of the quarterly gross-margin shortfall was related to the ramp-up, with about 20 percentage points of margin pressure tied to Jeeter. SNDL expects some related costs to continue over the coming months while it works on process and labor-efficiency improvements.
Profit Initiatives and Capital Position
George said SNDL has deployed profit-enhancement initiatives that it expects will generate more than C$20 million of incremental operating income, primarily over the rest of 2026. He also said the company expects to produce positive free cash flow for the full calendar year, noting the seasonal effect of second-quarter payments and historically stronger second-half cash generation.
As of June 30, SNDL had C$183.2 million of unrestricted cash, no outstanding debt and cannabis-related investments with a carrying value of C$415.2 million, according to George.
The company repurchased 11.7 million common shares during the quarter for C$23.3 million, excluding commissions, at a weighted average price of C$1.43 per share. Since the fourth quarter of 2024, SNDL has bought back more than 29 million shares for about C$64.5 million at an average price of C$1.58 per share, reducing shares outstanding by approximately 7%.
George said the company still views repurchases as an attractive use of capital, while its debt-free balance sheet provides flexibility for investments and acquisitions. He said SNDL also sees opportunities to invest in U.S. operations following the Parallel transaction, including improving processing capabilities in Florida and pursuing growth in Texas.
Parallel Restructuring Advances U.S. Strategy
SNDL said it completed a major milestone in the restructuring of Parallel, one of SunStream’s legacy credit investments. Subject to remaining legal, regulatory, accounting and Nasdaq requirements, SNDL expects to obtain direct control of Parallel’s medical cannabis operations in Florida, Texas and Massachusetts in the coming months.
Parallel has 56 retail locations, three cultivation and manufacturing sites and approximately 800 employees, according to SNDL. George said the business is expected to have near-term annualized revenue of about C$150 million.
If completed, the transaction could give SNDL a U.S. medical cannabis platform with what George described as an accretive margin profile. He said the combined company could exceed C$1 billion in annual revenue and become the largest cannabis retailer globally by store count. The restructuring also substantially reduces Parallel’s historical debt burden, SNDL said.
Looking ahead, management said it plans to balance operational improvements, selective growth investments, potential U.S. opportunities and continued shareholder returns amid challenging conditions in both liquor and cannabis markets.
About SNDL (NASDAQ:SNDL)
SNDL Inc, formerly known as Sundial Growers Inc, is a Canada-based consumer packaged goods company focused on the production, manufacturing and distribution of cannabis products. Headquartered in Calgary, Alberta, SNDL operates multiple cultivation and processing facilities across Canada, including indoor and hybrid greenhouses in British Columbia and Ontario. The company serves both adult-use and medical cannabis markets, supplying provincial distributors as well as operating through its own wholesale and retail networks.
The company’s product portfolio spans dried flower, pre-rolls, vape cartridges, cannabis oils, edibles and infused beverages under a variety of in-house brands.
