SNDL posts record 27% margins in both retail units despite decline in gross margin
Key Facts
SNDL said on October 27 that revenue was C$238.0 million in the third quarter of 2026, down 2.5% from the same period a year earlier. The decline came as liquor retail revenue fell 3.3% and cannabis operations revenue fell 27.7%, despite a 0.7% increase in cannabis retail revenue. Both retail units posted record quarterly gross margins of 27.0%. But the company’s gross margin fell to 24.3%, down two percentage points year over year. The company attributed this mainly to weak performance in cannabis operations, highlighting the gap between retail margins and the contribution of its other activities.
Cannabis retail revenue was C$85.605 million, with a gross margin of 27.0%, while liquor retail generated revenue of C$134.774 million and an equal gross margin. The company said same-store sales in cannabis retail fell 3.8% during the quarter. It attributed the decline to market contraction in its largest provinces, Ontario and Alberta. New store openings and the conversion of Value Buds stores helped offset some of the impact of lower same-store sales. Cannabis retail revenue therefore grew year over year alongside weaker sales at existing stores, while the unit’s margin remained at a record level.
In cannabis operations, SNDL said most of the revenue decline reflected its exit from the unprofitable domestic dried flower category and a focus on higher-value products. It added that inventory adjustments and Jeeter cost variances also affected profitability. Meanwhile, the carrying value of its Canadian cannabis-related investments was C$485.2 million on September 30, including C$467.7 million at SunStream. The investments’ carrying value rose C$70.0 million during the quarter, driven mainly by contributions from the Gainesville cultivation facility, SNDL’s participation in Parallel’s rights offering and the purchase of an additional portion of its debt. The company also increased its indirect stake in Parallel from about 67% to about 92% after participating in a rights offering, while Parallel’s restructuring was completed on July 27, 2026.
On liquidity, free cash flow was C$20.0 million, up 19.5% year over year, which the company said was a quarterly record. The figure included a C$10.6 million benefit related to beginning to unwind the captive insurance arrangement. On October 15, SNDL had forecast free cash flow of about C$20 million, describing it at the time as the highest in its history; it also linked about C$10.6 million to unwinding the arrangement. In its earlier announcement, the company said its board had directed management to pursue a potential share buyback offer with a total value of no more than C$50 million and a maximum price of C$1.92 per share. The maximum price represented a 17.4% premium to the October 14 closing price, while the company repurchased about 5.4 million shares in the third quarter and about 21.8 million in the twelve months ended September 30 for about C$43.4 million.
The company said manufacturing cost-cutting and operating expense measures at its Kelowna facility, which included reducing the workforce by more than 30%, are expected to begin contributing to results in the fourth quarter. It also announced the start of a strategic review of its cannabis operations segment, which could include asset sales or productivity initiatives. In the stock market, SNDL closed at $1.27 on October 26, compared with a close of $1.29 on October 23. Chief Executive Zach George linked the company’s approach to strategic investment with improving underlying financial performance and generating record quarterly free cash flow. The company said in its statement that “the Company is making significant strategic investments while improving underlying financial performance and achieving record quarterly free cash flow of $20 million.”