What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-11-08 compared with 2022-08-09 · 239 added, 346 removed, 8 unchanged (99% of the section changed)

Management’s Discussions and Analysis of Financial Condition and Results of Operations

following discussion of the financial condition and results of operations of MariMed Inc.

should be read in conjunction with the condensed

consolidated financial statements and the related notes thereto included elsewhere in this Quarterly Report on Form 10-Q and the audited

financial statements and notes thereto and Management’s Discussion and Analysis of Financial Condition and Results of Operations

included in our Annual Report on Form 10-K for the year ended December 31, 2021, which was filed with the U.S.

Securities and Exchange

Commission (“SEC”) on March 16, 2022.

are a multi-state operator in the United States cannabis industry.

We develop, operate, manage, and optimize over 300,000 square feet

of state-of-the-art, regulatory-compliant facilities for the cultivation, production and dispensing of medicinal and recreational cannabis.

The following discussion of the financial condition and results of operations of MariMed Inc.

should be read in conjunction with the condensed consolidated financial statements and the related notes thereto included elsewhere in this Quarterly Report on Form 10-Q and the audited financial statements and notes thereto and Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K for the year ended December 31, 2021, which was filed with the U.S.

Securities and Exchange Commission (“SEC”) on March 16, 2022.

We are a multi-state operator in the United States cannabis industry.

We develop, operate, manage, and optimize state-of-the-art, regulatory-compliant facilities for the cultivation, production and dispensing of medicinal and adult use cannabis.

We also license our proprietary brands of cannabis and hemp-infused products, along with other top brands, in several domestic markets.

and overseas.

common stock commenced trading on the Canadian Securities Exchange effective July 12, 2022, under the ticker symbol MRMD, and continues

to trade on the OTCQX under the same symbol.

April 27, 2022 (the “Kind Acquisition Date”), we acquired Kind Therapeutics USA (“Kind”), our former client in

Maryland that holds licenses for the cultivation, production, and dispensing of medical cannabis (the “Kind Acquisition”).

The financial results of Kind are included in our condensed consolidated financial statements for the period subsequent to the Kind Acquisition

May 5, 2022, we completed the acquisition of 100% of the equity ownership of Green Growth Group Inc.

(“Green Growth”), an

entity that holds a craft cultivation and production cannabis license in the state of Illinois (the “Green Growth Acquisition”).

the balance of 2022 and into 2023, we are focused on continuing to execute our strategic growth plan, with priority on activities that

include the following:

to consolidate the cannabis business that we have developed and manage.

revenue, assets, and our footprint in the states in which we operate:

Massachusetts, we intend to open two additional dispensaries and significantly expand the

capacity and capability of our manufacturing facility.

Delaware, we intend to develop an additional 40,000 square feet of cultivation and production

capacity at our facility in Milford.

Maryland, we intend to expand our manufacturing facility by 40,000 square feet and open a

dispensary in Annapolis.

Illinois, we recently closed on the acquisition of an Illinois craft cannabis license which

will enable us to be vertically integrated and add cultivation, manufacturing, and distribution

to our four existing retail cannabis operations in Illinois.

Under Illinois cannabis laws, we have the potential to add six additional

dispensaries, for a total of ten.

into other legal states through mergers and acquisitions and by filing new applications in

states where new licensing opportunities are available.

revenues by producing and distributing our award-winning brands to qualified strategic partners

or by acquiring production and distribution licenses.

Accounting Policies and Estimates

discussion and analysis of financial condition and results of operations is based upon our condensed consolidated financial statements,

which have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”).

The preparation

of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues,

and expenses, and related disclosure of contingent assets and liabilities.

We base our estimates and judgments on historical experience,

knowledge of current conditions and believes of what could occur in the future given available information.

If actual results differ

significantly from management’s estimates and projections, there could be a material effect on our condensed consolidated financial

We consider the following accounting policies to be both those most important to the portrayal of our financial condition

and those that require the most subjective judgment:

accounts receivable, the valuation of inventory, estimated useful lives and depreciation

and amortization of property and equipment and intangible assets, accounting for acquisitions and business combinations, loss contingencies

and reserves, stock-based compensation, and accounting for income taxes.

provide credit to our clients in the form of payment terms.

We limit our credit risk by performing credit evaluations of our clients

and maintaining a reserve, as applicable, for potential credit losses.

Such evaluations are judgmental in nature and include a review

of the client’s outstanding balances with consideration toward such client’s historical collection experience, as well as

prevailing economic and market conditions and other factors.

Accordingly, the actual amounts collected could differ from expected amounts

and require that we record additional reserves.

net realizable value of inventories represents the estimated selling price for inventories in the ordinary course of business, less all

estimated costs of completion and costs necessary to make the sale.

The determination of net realizable value requires significant judgment,

including consideration of factors such as shrinkage, the aging of and future demand for inventory, expected future selling price, what

we expect to realize by selling the inventory and the contractual arrangements with customers.

Reserves for excess and obsolete inventory

are based upon quantities on hand, project volumes from demand forecasts and net realizable value.

The estimates are judgmental in nature

and are made at a point in time, using available information, expected business plans and expected market conditions.

As a result, the

actual amount received on sale could differ from the estimated value of inventory.

Our common stock commenced trading on the Canadian Securities Exchange effective July 12, 2022, under the ticker symbol MRMD, and continues to trade on the OTCQX under the same symbol.

On April 27, 2022 (the “Kind Acquisition Date”), we acquired Kind Therapeutics USA (“Kind”), our former client in Maryland that holds licenses for the cultivation, production, and dispensing of medical cannabis (the “Kind Acquisition”).

The financial results of Kind are included in our condensed consolidated financial statements for the periods subsequent to the Kind Acquisition Date.

On May 5, 2022, we completed the acquisition of 100% of the equity ownership of Green Growth Group Inc.

(“Green Growth”), an entity that holds a craft cultivation and production cannabis license in the state of Illinois (the “Green Growth Acquisition”).

During the balance of 2022 and into 2023, we are focused on continuing to execute our strategic growth plan, with priority on activities that include the following:

• Continuing to consolidate the cannabis business that we have developed and manage.

• Expanding revenues, assets, and our footprint in the states in which we operate:

◦ In Massachusetts, we intend to open two additional dispensaries and significantly expand the capacity and capability of our manufacturing facility.

◦ In Delaware, we intend to develop an additional 40,000 square feet of cultivation and production capacity at our facility in Milford, which, upon completion, will be leased to our client in this state.

◦ In Maryland, we opened a dispensary in Annapolis on October 18, 2022, and we intend to expand our manufacturing facility by 40,000 square feet.

Under Maryland cannabis laws, we have the potential to add three additional dispensaries, for a total of four.

◦ In Illinois, we recently closed on the acquisition of an Illinois craft cannabis license which will enable us to be vertically integrated and add cultivation, manufacturing, and distribution to our four existing retail cannabis operations in Illinois.

Under Illinois cannabis laws, we have the potential to add six additional dispensaries, for a total of ten.

• Expanding into other legal states through mergers and acquisitions and by filing new applications in states where new licensing opportunities are available.

• Increasing revenues by producing and distributing our award-winning brands to qualified strategic partners or by acquiring production and distribution licenses.

Critical Accounting Policies and Estimates

Management’s discussion and analysis of financial condition and results of operations is based upon our condensed consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”).

The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues, and expenses, and related disclosure of contingent assets and liabilities.

We base our estimates and judgments on historical experience, knowledge of current conditions and beliefs of what could occur in the future given available information.

If actual results differ significantly from management’s estimates and projections, there could be a material effect on our condensed consolidated financial statements.

We consider the following accounting policies to be both those most important to the portrayal of our financial condition and those that require the most subjective judgment:

accounts receivable;

valuation of inventory;

estimated useful lives and depreciation and amortization of property and equipment and intangible assets;

accounting for acquisitions and business combinations;

loss contingencies and reserves;

stock-based compensation;

and accounting for income taxes.

Accounts Receivable

We provide credit to our clients in the form of payment terms.

We limit our credit risk by performing credit evaluations of our clients and maintaining a reserve, as applicable, for potential credit losses.

Such evaluations are judgmental in nature and include a review of the client’s outstanding balances with consideration toward such client’s historical collection experience, as well as prevailing economic and market conditions and other factors.

Accordingly, the actual amounts collected could differ from expected amounts and require that we record additional reserves.

Our inventory is valued at the lower of cost or market, including consideration of factors such as shrinkage, the aging of and future demand for inventory, expected future selling price, what we expect to realize by selling the inventory and the contractual arrangements with customers.

Reserves for excess and obsolete inventory are based upon quantities on hand, projected volumes from demand forecasts, and net realizable value.

These estimates are judgmental in nature and are made at a point in time, using available information, expected business plans and expected market conditions.

As a result, the actual amount received on sale could differ from the estimated value of inventory.

Periodic reviews are performed on the inventory balance.

The impact of any changes in inventory reserves is reflected in cost of goods sold.

Useful Lives and Depreciation and Amortization of Property and Equipment and Intangible Assets

and amortization of property and equipment and intangible assets are dependent upon estimates of useful lives, which are determined through

the exercise of judgment.

The assessment of any impairment of these assets is dependent upon estimates of recoverable amounts that take

into account factors such as economic and market conditions and the useful lives of assets.

and Business Combinations

Classification

of an acquisition as a business combination or an asset acquisition depends on whether the assets acquired constitute a business, which

can be a complex judgment.

Whether an acquisition is classified as a business combination or asset acquisition can have a significant

impact on how we record the transaction.

allocate the purchase price of acquired assets and companies to identifiable assets acquired and liabilities assumed at their acquisition

date fair values.

Goodwill as of the acquisition date is measured as the excess of consideration transferred over the net amount of the

acquisition date fair values of the assets acquired and the liabilities assumed and represents the expected future economic benefits

from other assets acquired in the acquisition or business combination that are not individually identified and separately recognized.

Significant judgments and assumptions are required in determining the fair value of assets acquired and liabilities assumed, particularly

acquired intangible assets, which are principally based upon estimates of the future performance and cash flows expected from the acquired

asset or business and applied discount rates.

While we use our best estimates and assumptions as part of the purchase price allocation

process to accurately value assets acquired and liabilities assumed at the acquisition date, our estimates and assumptions are inherently

uncertain and subject to refinement.

If different assumptions are used, it could materially impact the purchase price allocation and

our financial position and results of operations.

Any adjustments to assets acquired or liabilities assumed subsequent to the purchase

price allocation period are included in operating results in the period in which the adjustments are determined.

Intangible assets typically

are comprised of trademarks and tradenames, licenses and customer relationships, and non-compete agreements.

Contingencies and Reserves

are subject to ongoing business risks arising in the ordinary course of business that affect the estimation process of the carrying value

of asserts, the recording liabilities, and the possibility of various loss contingencies.

An estimated loss contingency is accrued when

it is probably that a liability has been incurred or an asset has been impaired and the amount of loss can be reasonably estimated.

regularly evaluate current information available to determine whether such amounts should be adjusted and record changes in estimates

in the period they become know.

We are subject to various legal claims.

We reserve for legal contingencies and legal fees when the amounts

are probable and estimable.

stock-based compensation cost is measured at the grant date based on the fair value of the award and is recognized over the requisite

service period, which is generally the vesting period.

We use the Black-Scholes valuation model for estimating the fair value of stock

options as of the date of grant.

Determining the fair value of stock option awards at the grant date requires judgment regarding certain

valuation assumptions, including the volatility of our stock price, expected term of the stock option, risk-free interest rate and expected

Estimated Useful Lives and Depreciation and Amortization of Property, Equipment, and Intangible Assets

Depreciation and amortization of property, equipment, and intangible assets are dependent upon estimates of useful lives, which are determined through the exercise of judgment.

The assessment of any impairment of these assets is dependent upon estimates of recoverable amounts that take into account factors such as economic and market conditions and the useful lives of assets.

Acquisitions and Business Combinations

Classification of an acquisition as a business combination or an asset acquisition depends on whether the assets acquired constitute a business, which can be a complex judgment.

Whether an acquisition is classified as a business combination or asset acquisition can have a significant impact on how we record the transaction.

We allocate the purchase price of acquired assets and companies to identifiable assets acquired and liabilities assumed at their acquisition date fair values.

Goodwill as of the acquisition date is measured as the excess of consideration transferred over the net amount of the acquisition date fair values of the assets acquired and the liabilities assumed and represents the expected future economic benefits from other assets acquired in the acquisition or business combination that are not individually identified and separately recognized.

Significant judgments and assumptions are required in determining the fair value of assets acquired and liabilities assumed, particularly acquired intangible assets, which are principally based upon estimates of the future performance and cash flows expected from the acquired asset or business and applied discount rates.

While we use our best estimates and assumptions as part of the purchase price allocation process to accurately value assets acquired and liabilities assumed at the acquisition date, our estimates and assumptions are inherently uncertain and subject to refinement.

If different assumptions are used, it could materially impact the purchase price allocation and our financial position and results of operations.

Any adjustments to assets acquired or liabilities assumed subsequent to the purchase price allocation period are included in operating results in the period in which the adjustments are determined.

Intangible assets typically are comprised of trademarks and tradenames, licenses and customer relationships, and non-compete agreements.

Loss Contingencies and Reserves

We are subject to ongoing business risks arising in the ordinary course of business that affect the estimation process of the carrying value of assets, the recording liabilities, and the possibility of various loss contingencies.

An estimated loss contingency is accrued when it is probable that a liability has been incurred or an asset has been impaired and the amount of loss can be reasonably estimated.

We regularly evaluate current information available to determine whether such amounts should be adjusted and record changes in estimates in the period they become known.

We are subject to legal claims from time to time.

We reserve for legal contingencies and legal fees when the amounts are probable and estimable.

Stock-Based Compensation

Our stock-based compensation cost is measured at the grant date based on the fair value of the award and is recognized over the requisite service period, which is generally the vesting period.

We use the Black-Scholes valuation model for estimating the fair value of stock options as of the date of grant.

Determining the fair value of stock option awards at the grant date requires judgment regarding certain valuation assumptions, including the volatility of our stock price, expected term of the stock option, risk-free interest rate and expected dividends.

Changes in such assumptions and estimates could result in different fair values and could therefore impact our earnings.

changes, however, would not impact our cash flows.

use the asset and liability method to account for income taxes.

Under this method, deferred income tax assets and liabilities are recorded

for the future tax consequences of differences between the tax basis and financial reporting basis of assets and liabilities, measured

using enacted tax rates and laws that will be in effect when the differences are expected to reverse.

Deferred tax assets are reduced

by a valuation allowance to the extent our management concludes that it is more likely than not that the assets will not be realized.

To assess the recoverability of any tax assets recorded on the balance sheet, we consider all available positive and negative evidence,

including our past operating results, the existence of cumulative income in the most recent years, changes in the business in which we

operate and our forecast of future taxable income.

In determining future taxable income, we make assumptions, including the amount of

state and federal pre-tax operating income, the reversal of temporary differences and the implementation of feasible and prudent tax

These assumptions require significant judgment about the forecasts of future taxable income and are consistent with the plans

and estimates we are using to manage our businesses.

of Operations

and six months ended June 30, 2022 and 2021

main sources of revenue are comprised of the following:

sales (retail and wholesale) – direct sales of cannabis and cannabis-infused products

primarily by our retail dispensaries and wholesale operations in Massachusetts, Illinois,

and, as of the Kind Acquisition Date, Maryland.

We recognize this revenue when products are

delivered or at retail points-of-sale.

estate rentals – rental income and additional rental fees generated from leasing of

our state-of-the-art, regulatory compliant cannabis facilities to our cannabis-licensed clients.

Rental income is generally a fixed amount per month that escalates over the respective lease

terms, while additional rental fees are based on a percentage of tenant revenues that exceed

specified amounts.

fees – fees for providing our cannabis clients with comprehensive oversight of their

cannabis cultivation, production and dispensary operations.

These fees are based on a percentage

of such clients’ revenue and are recognized after services have been performed.

procurement – resale of cultivation and production resources, supplies and equipment

that we have acquired from top national vendors at discounted prices to our clients and third

parties within the cannabis industry.

We recognize this revenue after the delivery and acceptance

of goods by the purchaser.

fees – revenue from the sale of our branded products, including Betty’s Eddies

and Kalm Fusion, and from the sublicensing or contracted brands, including Healer and Tikum

Olam, to regulated dispensaries throughout the United States and Puerto Rico.

this revenue when the products are delivered.

revenue for the three and six months ended June 30, 2022 and 2021 was comprised of the following (in thousands):

sales - retail

sales - wholesale

product sales

estate rentals

Such changes, however, would not impact our cash flows.

We use the asset and liability method to account for income taxes.

Under this method, deferred income tax assets and liabilities are recorded for the future tax consequences of differences between the tax basis and financial reporting basis of assets and liabilities, measured using enacted tax rates and laws that will be in effect when the differences are expected to reverse.

Deferred tax assets are reduced by a valuation allowance to the extent our management concludes that it is more likely than not that the assets will not be realized.

To assess the recoverability of any tax assets recorded on the balance sheet, we consider all available positive and negative evidence, including our past operating results, the existence of cumulative income in the most recent years, changes in the business in which we operate and our forecast of future taxable income.

In determining future taxable income, we make assumptions, including the amount of state and federal pre-tax operating income, the reversal of temporary differences and the implementation of feasible and prudent tax strategies.

These assumptions require significant judgment about the forecasts of future taxable income and are consistent with the plans and estimates we are using to manage our businesses.

Results of Operations

Three and nine months ended September 30, 2022 and 2021

Our main sources of revenue are comprised of the following:

• Product sales (retail and wholesale) - direct sales of cannabis and cannabis-infused products primarily by our retail dispensaries and wholesale operations in Massachusetts, Illinois, and, as of the Kind Acquisition Date, Maryland.

We recognize this revenue when products are delivered or at retain points-of-sale.

• Real estate rentals - rental income generated from leasing of our state-of-the-art, regulatory compliant cannabis facilities to our cannabis-licensed clients.

Rental income is generally a fixed amount per month that escalates over the respective lease terms.

Prior to the third quarter of 2022, we charged additional rental fees based on a percentage of tenant revenues that exceeded specified amounts.

• Management fees - fees for providing our cannabis clients with comprehensive oversight of their cannabis cultivation, production and dispensary operations.

These fees are based on a percentage of such clients' revenue and are recognized after services have been performed.

• Supply procurement - resale of cultivation and production resources, supplies and equipment that we have acquired from top national vendors at discounted prices to our clients and third parties within the cannabis industry.

We recognize this revenue after the delivery and acceptance of goods by the purchaser.

• Licensing fees - revenue from the licensing of our branded products, including Betty's Eddies, Bubby's Baked, Vibations, and Kalm Fusion, to wholesalers and to regulated dispensaries throughout the United States and Puerto Rico.

We recognize this revenue when the products are delivered.

Our revenue for the three and nine months ended September 30, 2022 and 2021 was comprised of the following (in thousands):

Three months ended Nine months ended

September 30,

2022 September 30,

2021 September 30,

2022 September 30,

Product revenue:

Product revenue - retail $ 23,593 $ 23,454 $ 68,121 $ 59,230

Product revenue - wholesale 9,009 6,633 23,029 20,536

Total product revenue 32,602 30,087 91,150 79,766

Other revenue:

total revenue increased slightly in the three months ended June 30, 2022 compared to the three months ended June 30, 2021.

product revenue increased $2.3 million, primarily attributable to higher retail dispensary cannabis sales in Illinois and the inclusion

of Kind’s sales in our results since the Kind Acquisition Date.

These increases were partially offset by lower retail and wholesale

sales in Massachusetts due to increased competition.

The decrease in our other revenue was primarily attributable to rent and management

fee reductions in connection with one of our customers and the Kind Acquisition, partially offset by higher supply procurement revenue

primarily attributable to revenue generated from our cannabis clients in Delaware and Maryland.

total revenue increased 12.3% in the six months ended June 30, 2022 compared to the six months ended June 30, 2021.

Our total product

revenue increased $8.9 million, or 17.9%, primarily attributable to higher retail dispensary cannabis sales in Illinois and the inclusion

of Kind’s sales in our results since the Kind Acquisition Date.

Similar to our quarter-over-quarter results described above, the

decrease in our other revenue was primarily attributable to rent and management fee reductions in connection with one of our customers

and the Kind Acquisition, partially offset by higher supply procurement revenue primarily attributable to revenue generated from our

cannabis clients in Delaware and Maryland.

of Revenue, Gross Profit and Gross Margin

cost of revenue represents the direct costs associated with the generation of our revenue, including licensing, packaging, supply procurement,

manufacturing, supplies, depreciation, amortization of acquired intangible assets, and other product-related costs.

cost of revenue, gross profit and gross margin for the three and six months ended June 30, 2022 and 2021 were as follows (in thousands,

except percentages):

(decrease) from prior year

Three months ended

Six months ended

cost of revenue increased in both the three and six months ended June 30, 2022 compared to the three and six months ended June 30, 2021.

These higher costs resulted in lower gross margins in both current year periods compared to the same prior year periods.

Our higher cost

of revenue in the current year periods compared to the same prior year periods was primarily attributable to higher manufacturing, employee-related

and supply procurement costs aggregating $4.4 million and $8.9 million, respectively, in the three and six months ended June 30, 2022.

These higher costs were primarily attributable to continuing supply chain issues and associated higher shipping costs, coupled with higher

employee-related costs principally due to our increased headcount in connection with our recent acquisitions and in-process expansions.

Real estate rentals 434 1,726 2,867 5,397

Supply procurement 815 528 2,825 1,446

Management fees 9 685 843 2,562

Licensing fees 52 182 495 1,249

Total other revenue 1,310 3,121 7,030 10,654

Total revenue $ 33,912 $ 33,208 $ 98,180 $ 90,420

Our total revenue increased $0.7 million in the three months ended September 30, 2022 compared to the three months ended September 30, 2021.

Our total product revenue increased $2.5 million, or 8.4%, primarily attributable to higher wholesale revenue arising from the Kind Acquisition.

This increase was partially offset by lower retail sales in Massachusetts due to increased competition.

The decrease in our other revenue was primarily attributable to rent and management fee reductions in connection with one of our clients and the Kind Acquisition, partially offset by higher supply procurement revenue primarily attributable to revenue generated from our cannabis clients in Delaware and, prior to the Kind Acquisition, in Maryland.

Our total revenue increased $7.8 million, or 8.6%, in the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021.

Our total product revenue increased $11.4 million, or 14.3%, primarily attributable to higher retail dispensary cannabis sales in Illinois and the inclusion of Kind’s sales in our results since the Kind Acquisition Date.

Similar to our quarter-over-quarter results described above, the decrease in our other revenue was primarily attributable to rent and management fee reductions in connection with one of our clients and the Kind Acquisition, partially offset by higher supply procurement revenue primarily attributable to revenue generated from our cannabis clients in Delaware and, prior to the Kind Acquisition, in Maryland.

Cost of Revenue, Gross Profit and Gross Margin

Our cost of revenue represents the direct costs associated with the generation of our revenue, including licensing, packaging, supply procurement, manufacturing, supplies, depreciation, amortization of acquired intangible assets, and other product-related costs.

Our cost of revenue, gross profit and gross margin for the three and nine months ended September 30, 2022 and 2021 were as follows (in thousands, except percentages):

Increase (decrease) from prior year

2022 2021 $ %

Three months ended September 30,

Cost of revenue $ 17,748 $ 15,027 $ 2,721 18.1 %

Gross profit $ 16,164 $ 18,181 $ (2,017) (11.1) %

Gross margin 47.7 % 54.7 %

Nine months ended September 30,

Cost of revenue $ 50,035 $ 39,647 $ 10,388 26.2 %

Gross profit $ 48,145 $ 50,773 $ (2,628) (5.2) %

Gross margin 49.0 % 56.2 %

Our cost of revenue increased in both the three and nine months ended September 30, 2022 compared to the three and nine months ended September 30, 2021.

Our higher cost of revenue in the current year periods was primarily attributable to higher employee-related, facility and supply procurement costs aggregating $2.8 million and $10.2 million, respectively, in the three and nine months ended September 30, 2022.

These higher costs were primarily due to continuing supply chain issues and associated higher shipping costs, coupled with our increased headcount in connection with our recent acquisitions and in-process expansions.

These increases in cost and resulting decreases in gross profit resulted in lower gross margins in both current year periods.

operating expenses are comprised of personnel, marketing and promotion, general and administrative, acquisition-related and other, and

bad debt expenses.

Our operating expenses for the three and six months ended June 30, 2022 and 2021 were as follows (in thousands, except

percentages):

(decrease) from prior year

Three months ended

and promotion

and administrative

Acquisition-related

ended June 30,

and promotion

and administrative

Acquisition-related

increase in our personnel expenses in both the three and six months ended June 30, 2022 compared to the three and six months ended June

30, 2021 was primarily due to the hiring of additional staff to support higher levels of projected revenue from existing operations

as well as from the Kind Acquisition.

Personnel costs increased to approximately 10% of revenue in both current year periods, compared

to approximately 6% of revenue in the same prior year periods.

increase in our marketing and promotion expenses in both the three and six months ended June 30, 2022 compared to the three and six months

ended June 30, 2021 was primarily attributable to our focused efforts to upgrade our marketing initiatives and personnel in order to

expand branding and distribution of our licensed products.

Marketing and promotion costs increased to approximately 2% of revenue in

both current year periods, compared to less than 1% of revenue in the same prior year periods.

increase in our general and administrative expenses in the three months ended June 30, 2022 compared to the three months ended June 30,

2021 was primarily attributable to $1.3 million of higher stock-based compensation, $0.3 million of higher depreciation and $0.2 million

of higher facility-related expenses.

These increases were partially offset by $0.5 million of lower professional fees.

The increase in

the six months ended June 30, 2022 compared to the six months ended June 30, 2021 was primarily attributable to $3.4 million of higher

stock-based compensation, a $0.5 million increase in depreciation expense and an increase of $0.3 million in facility-related expenses.

General and administrative expenses increased to 16.9% and 18.3% of revenue in the three and six months ended June 30, 2022, respectively,

compared to approximately 13% of revenue in both the three and six months ended June 30, 2021.

Acquisition-related

and other expenses include those expenses related to acquisitions and other significant transactions that we would otherwise not have

incurred, and include professional and services fees, such as legal, audit, consulting, paying agent and other fees.

We recorded $0.8

million of acquisition-related and other expenses in both the three and six months ended June 30, 2022, primarily related to the Kind

Acquisition and the recent listing of our common stock on the Canadian Securities Exchange.

We did not record any acquisition-related

and other expenses in the three and six months ended June 30, 2021.

did not record bad debt expense in the three months ended June 30, 2022, and such expense was nominal in the six months then ended, compared

to $0.8 million and $1.8 million in the three and six months ended June 30, 2021, respectively.

These decreases are due to the higher

reserve balances that were required in 2021 for aged trade receivable balances.

and Other (Expense) Income, Net

expense primarily relates to interest on mortgages and notes payable.

Interest income primarily relates to interest receivable in connection

with our notes receivable.

Other (expense) income, net, includes gains (losses) on changes in the fair value of our investments, and

other investment-related income (expense).

net interest expense decreased in both the three and six months ended June 30, 2022 compared to the same prior year periods, reflecting

our lower debt levels in the current year periods.

Our net other expense was $0.7 million and $0.4 million in the three months ended

June 30, 2022 and 2021, respectively, and was primarily comprised of losses from the changes in the fair value of our investments.

three months ended June 30, 2021 also included a nominal loss on the extinguishment of debt.

recorded net other income of $0.3 million in the six months ended June 30, 2022 and net other expense of $0.4 million in the six months

ended June 30, 2021.

The current year amount is comprised of $1.0 million of non-cash income from an investment, partially offset by

a $0.7 million loss from the change in fair value of our investments.

The prior year amount is comprised of a $0.4 million loss from

the change in fair value of our investments and a nominal loss on the extinguishment of debt.

Tax Provision

recorded income tax provisions of $5.4 million and $5.0 million in the six months ended June 30, 2022 and 2021, respectively.

and Capital Resources

had cash and cash equivalents of $7.9 million and $29.7 million at June 30, 2022 and December 31, 2021, respectively.

In addition to

the discussions below of our cash flows from operating, investing, and financing activities included here, please also see our discussion

of non-GAAP Adjusted EBITDA in the section “Non-GAAP Measurement” below, which discusses an additional financial measure

not defined by GAAP which our management also uses to measure our liquidity.

Flows from Operating Activities

primary sources of cash from operating activities are from sales to customers in our dispensaries and cash collections from our wholesale

We expect cash flows from operating activities to be affected by increases and decreases in sales volumes and timing of collections,

and by purchases of inventory and shipment of our products.

Our primary uses of cash for operating activities are for personnel costs,

purchases of packaging and other materials required for the production and sale of our products, and income taxes.

operating activities provided $2.0 million and $17.6 million of cash in the six months ended June 30, 2022 and 2021, respectively.

change in cash from operating activities in the current year period compared to the prior year was primarily attributable to $11.9 million

of cash utilized to pay income taxes in the current year period, compared to $0.4 million in the same prior year period, coupled with higher

costs and operating expenses arising as we continue to increase and expand our sales activities, facilities and footprint both in the

states where we currently operate and into other states.

Flows from Investing Activities

investing activities used $20.9 million and $8.5 million of cash in the six months ended June 30, 2022 and 2021, respectively.

in cash usage in the current year period was primarily attributable to $12.7 million of aggregate cash consideration paid for the Kind

Acquisition and Green Growth Acquisition in April 2022 and May 2022, respectively.

Flows from Financing Activities

financing activities used $2.9 million of cash in the six months ended June 30, 2022 and provided $5.3 million of cash in the six months

ended June 30, 2021.

We paid $2.0 million of cash to redeem the outstanding minority interests in one of our majority-owned subsidiaries

in June 2022 and made $0.6 million of aggregate principal payments on our outstanding mortgages and notes payable.

On August 4, 2022, we entered into a Second Amendment

to the Purchase Agreement with Hadron pursuant to which, inter alia, (a) Hadron’s obligation to provide any further funding to the

Company and the Company’s obligation to issue any further securities to Hadron was terminated, (b) Hadron’s right to appointment

a designee to the Company’s board of directors was eliminated, and (c) certain covenants restricting the Company’s incurrence

of new indebtedness were eliminated.

on our current expectations, we believe our current cash and future funding opportunities will be sufficient to meet our anticipated

cash needs for working capital and capital expenditures for at least the next twelve months.

The rate at which we consume cash is dependent

on the cash needs of our future operations, including our contractual obligations at June 30, 2022, primarily comprised of our outstanding

mortgages and promissory notes, as well as our operating leases.

Our mortgage and promissory note obligations totaled approximately $23

million at June 30, 2022, with payments aggregating approximately $1 million in the remainder of 2022, $3 million in 2023, $2 million

in 2024, $2 million in 2025, $1 million in 2026 and $14 million thereafter.

Our operating lease obligations totaled approximately $9

million at June 30, 2022, with payments aggregating approximately $571,000 in the remainder of 2022, $1 million in each of the years

2023 through 2026, and $3 million thereafter.

We anticipate devoting substantial capital resources to continue our efforts to execute

our strategic growth plan as described above.

addition to the financial information reflected in this report, which is prepared in accordance with generally accepted accounting principles

in the United States (“GAAP”), we are providing a non-GAAP financial measurement of profitability – Adjusted EBITDA

– as a supplement to the preceding discussion of our financial results.

defines Adjusted EBITDA as net income, determined in accordance with GAAP, excluding the following:

income and interest expense;

tax provision;

● depreciation

and amortization of property and equipment;

● amortization

of acquired intangible assets;

● impairments

or write-downs of acquired intangible assets;

● stock-based

compensation;

● acquisition-related

income (expense), net;

● discontinued

believes that Adjusted EBITDA is a useful measure to assess our performance and liquidity, as it provides meaningful operating results

by excluding the effects of expenses that are not reflective of our operating business performance.

In addition, our management uses

Adjusted EBITDA to understand and compare operating results across accounting periods, and for financial and operational decision-making.

The presentation of Adjusted EBITDA is not intended to be considered in isolation or as a substitute for the financial information prepared

in accordance with GAAP.

believes that investors and analysts benefit from considering Adjusted EBITDA in assessing our financial results and our ongoing business,

as it allows for meaningful comparisons and analysis of trends in the business.

Adjusted EBITDA is used by many investors and analysts

themselves, along with other metrics, to compare financial results across accounting periods and to those of peer companies.

there are no standardized methods of calculating non-GAAP measurements, our calculations may differ from those used by analysts, investors,

and other companies, even those within the cannabis industry, and therefore may not be directly comparable to similarly titled measures

used by others.

Reconciliation

of Net Income to Adjusted EBITDA (a Non-GAAP Measurement)

table below reconciles Net income to Adjusted EBITDA for the three and six months ended June 30, 2022 and 2021 (in thousands):

tax provision

and amortization of property and equipment

of acquired intangible assets

(earnings before interest, taxes, depreciation and amortization)

Acquisition-related

expense (income), net

Sheet Arrangements

have no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition,

changes in financial condition, revenue, expenses, results of operations, liquidity, capital expenditures or capital resources that is

material to investors.

the opinion of management, inflation has not had a material effect on our financial condition or results of operations.

the opinion of management, our financial condition and results of its operations are not materially impacted by seasonal sales.

Operating Expenses

Our operating expenses are comprised of personnel, marketing and promotion, general and administrative, acquisition-related and other, and bad debt expenses.

Our operating expenses for the three and nine months ended September 30, 2022 and 2021 were as follows (in thousands, except percentages):

Increase (decrease) from prior year

2022 2021 $ %

Three months ended September 30,

Personnel $ 3,746 $ 1,481 $ 2,265 152.9 %

Marketing and promotion 1,402 563 839 149.0 %

General and administrative 5,097 9,481 (4,384) (46.2) %

Acquisition-related and other 143 — 143 100.0 %

Bad debt 40 36 4 11.1 %

$ 10,428 $ 11,561 $ (1,133) (9.8) %

Nine months ended September 30,

Personnel $ 10,170 $ 5,266 $ 4,904 93.1 %

Marketing and promotion 2,854 1,058 1,796 169.8 %

General and administrative 16,890 16,934 (44) (0.3) %

Acquisition-related and other 897 — 897 100.0 %

Bad debt 54 1,855 (1,801) (97.1 %)

$ 30,865 $ 25,113 $ 5,752 22.9 %

The increase in our personnel expenses in both the three and nine months ended September 30, 2022 compared to the three and nine months ended September 30, 2021 was primarily due to the hiring of additional staff to support higher levels of projected revenue from existing operations, as well as from the Kind Acquisition.

Personnel costs increased to approximately 11% of revenue in the three months ended September 30, 2022, compared to approximately 5% of revenue in the three months ended September 30, 2021, and approximately 10% of revenue in the nine months ended September 30, 2022, compared to approximately 6% of revenue in the nine months ended September 30, 2021.

The increase in our marketing and promotion expenses in both the three and nine months ended September 30, 2022 compared to the three and nine months ended September 30, 2021 was primarily attributable to our focused efforts to upgrade our marketing initiatives in order to expand branding and distribution of our licensed products.

Marketing and promotion costs increased to approximately 4% of revenue in three months ended September 30, 2022, compared to approximately 2% of revenue in the three months ended September 30, 2021, and approximately 3% of revenue in the nine months ended September 30, 2022, compared to approximately 1% of revenue in the nine months ended September 30, 2021.

Our general and administrative expenses decreased by approximately $4 million in the three months ended September 30, 2022 compared to the same prior year period.

This decrease was primarily attributable to lower costs in connection with our equity programs in the current year period.

Our general and administrative expenses were essentially unchanged in the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021.

Acquisition-related and other expenses include those expenses related to acquisitions and other significant transactions that we would otherwise not have incurred, and include professional and services fees, such as legal, audit, consulting, paying agent and other fees.

We incurred $0.1 million and $0.9 million of acquisition-related and other expenses in the three and nine months ended September 30, 2022, respectively, primarily related to the Kind Acquisition and the recent listing of our common stock on the Canadian Securities Exchange.

We did not record any acquisition-related and other expenses in the three and nine months ended September 30, 2021.

We recorded nominal bad debt expense in both the three and nine months ended September 30, 2022, as well as in the three months ended September 30, 2021.

We recorded $1.9 million in the nine months ended September 30, 2021 due to the higher reserve balances that were required in 2021 for aged trade receivable balances.

The increase in operating expenses, as detailed above, is the primary reason for the decrease in our net income for the nine months ended September 30, 2022, as compared to the same period in 2021.

Interest and Other (Expense) Income, Net

Interest expense primarily relates to interest on mortgages and notes payable.

Interest income primarily relates to interest receivable in connection with our notes receivable.

Other (expense) income, net, includes gains (losses) on changes in the fair value of our investments and other investment-related income (expense).

Our net interest expense was virtually unchanged in the three months ended September 30, 2022 compared to the same prior year period.

Our net interest expense decreased $1.4 million in the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021.

Higher interest expense was partially offset by higher interest income in the three months ended September 30, 2022 compared to the same prior year period.

The decrease in net interest expense in the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021 was attributable to $0.6 million of higher interest income, coupled with $0.8 million of lower interest expense.

Our net other expense was $0.3 million and $0.2 million in the three months ended September 30, 2022 and 2021, respectively, and was primarily comprised of losses from the changes in the fair value of our investments.

The three months ended September 30, 2021 also included a nominal loss on the extinguishment of debt.

We recorded net other income of approximately $24,000 in the nine months ended September 30, 2022 and net other expense of $0.6 million in the nine months ended September 30, 2021.

The current year-to-date amount is comprised of $1.0 million of non-cash income from the sale of an investment, virtually offset by a $0.9 million loss from the change in fair value of other investments.

The prior year amount is comprised of a $0.9 million loss from the change in fair value of our investments and a nominal loss on the extinguishment of debt.

These losses were partially offset by a gain of $0.3 million on an asset sale.

Income Tax Provision

We recorded income tax provisions of $7.9 million and $9.0 million in the nine months ended September 30, 2022 and 2021, respectively.

Liquidity and Capital Resources

We had cash and cash equivalents of $11.1 million and $29.7 million at September 30, 2022 and December 31, 2021, respectively.

In addition to the discussions below of our cash flows from operating, investing, and financing activities

included here, please also see our discussion of non-GAAP Adjusted EBITDA in the section “Non-GAAP Measurement” below, which discusses an additional financial measure not defined by GAAP which our management also uses to measure our liquidity.

Cash Flows from Operating Activities

Our primary sources of cash from operating activities are from sales to customers in our dispensaries and cash collections from our wholesale customers.

We expect cash flows from operating activities to be affected by increases and decreases in sales volumes and timing of collections, and by purchases of inventory and shipment of our products.

Our primary uses of cash for operating activities are for personnel costs, purchases of packaging and other materials required for the production and sale of our products, and income taxes.

Our operating activities provided $5.6 million and $28.2 million of cash in the nine months ended September 30, 2022 and 2021, respectively.

The change in cash from operating activities in the current year period compared to the prior year was primarily attributable to $12.6 million of cash utilized to pay income taxes in the current year period, compared to $0.4 million in the same prior year period, coupled with higher costs and operating expenses arising as we continue to increase and expand our sales activities, facilities and footprint both in the states where we currently operate and into other states.

Cash Flows from Investing Activities

Our investing activities used $23.7 million and $13.4 million of cash in the nine months ended September 30, 2022 and 2021, respectively.

The increase in cash usage in the current year period was primarily attributable to $12.7 million of aggregate cash consideration paid for the Kind Acquisition and Green Growth Acquisition in April 2022 and May 2022, respectively.

Cash Flows from Financing Activities

Our financing activities used $0.4 million of cash in the nine months ended September 30, 2022 and provided $7.7 million of cash in the nine months ended September 30, 2021.

We paid $2.0 million of cash to redeem the outstanding minority interests in one of our majority-owned subsidiaries in June 2022, made $1.0 million of aggregate principal payments on our outstanding mortgages and notes payable, made $0.2 million of distribution payments and $0.2 million of finance lease principal payments.

On August 4, 2022, we entered into a Second Amendment to the Purchase Agreement with Hadron pursuant to which, inter alia, (a) Hadron’s obligation to provide any further funding to the Company and the Company’s obligation to issue any further securities to Hadron was terminated, (b) Hadron’s right to appointment a designee to the Company’s board of directors was eliminated, and (c) certain covenants restricting the Company’s incurrence of new indebtedness were eliminated.

Based on our current expectations, we believe our current cash and future funding opportunities will be sufficient to meet our anticipated cash needs for working capital and capital expenditures for at least the next twelve months.

The rate at which we consume cash is dependent on the cash needs of our future operations, including our contractual obligations at September 30, 2022, and our ability to raise additional cash through financing activities.

Our contractual obligations at September 30, 2022 were primarily comprised of our outstanding mortgages and promissory notes, as well as our operating leases.

Our mortgage and promissory note obligations totaled approximately $26 million at September 30, 2022, with payments aggregating approximately $500,000 in the remainder of 2022, $3 million in 2023, $2 million in 2024, $3 million in 2025, $1 million in 2026 and $17 million thereafter.

Our operating lease obligations totaled approximately $8 million at September 30, 2022, with payments aggregating approximately $300,000 in the remainder of 2022, $1 million in each of the years 2023 through 2026, and $3 million thereafter.

We anticipate devoting substantial capital resources to continue our efforts to execute our strategic growth plan as described above.

Non-GAAP Measurement

In addition to the financial information reflected in this report, which is prepared in accordance with GAAP, we are providing a non-GAAP financial measurement of profitability – Adjusted EBITDA – as a supplement to the preceding discussion of our financial results.

Management defines Adjusted EBITDA as net income, determined in accordance with GAAP, excluding the following:

• interest income and interest expense;

• income tax provision;

• depreciation and amortization of property and equipment;

• amortization of acquired intangible assets;

• impairments or write-downs of acquired intangible assets;

• stock-based compensation;

• acquisition-related and other;

• legal settlements;

• other income (expense), net;

• discontinued operations.

Management believes that Adjusted EBITDA is a useful measure to assess our performance and liquidity, as it provides meaningful operating results by excluding the effects of expenses that are not reflective of our operating business performance.

In addition, our management uses Adjusted EBITDA to understand and compare operating results across accounting periods, and for financial and operational decision-making.

The presentation of Adjusted EBITDA is not intended to be considered in isolation or as a substitute for the financial information prepared in accordance with GAAP.

Management believes that investors and analysts benefit from considering Adjusted EBITDA in assessing our financial results and our ongoing business, as it allows for meaningful comparisons and analysis of trends in the business.

Adjusted EBITDA is used by many investors and analysts themselves, along with other metrics, to compare financial results across accounting periods and to those of peer companies.

As there are no standardized methods of calculating non-GAAP measurements, our calculations may differ from those used by analysts, investors, and other companies, even those within the cannabis industry, and therefore may not be directly comparable to similarly titled measures used by others.

Reconciliation of Net Income to Adjusted EBITDA (a Non-GAAP Measurement)

The table below reconciles Net income to Adjusted EBITDA for the three and nine months ended September 30, 2022 and 2021 (in thousands):

Three months ended Nine months ended

September 30,

2022 September 30,

2021 September 30,

2022 September 30,

GAAP Net income $ 2,722 $ 2,123 $ 8,859 $ 14,022

Interest expense, net 279 274 551 1,981

Income tax provision 2,484 4,009 7,894 9,026

Depreciation and amortization of property and equipment 917 536 2,469 1,499

Amortization of acquired intangible assets 429 172 854 518

EBITDA (earnings before interest, taxes, depreciation and amortization) 6,831 7,114 20,627 27,046

Stock-based compensation 1,372 5,552 6,396 7,152

Settlement of litigation — (266) — (266)

Acquisition-related and other 143 — 897 —

Other expense (income), net 251 214 (24) 631

Adjusted EBITDA $ 8,597 $ 12,614 $ 27,896 $ 34,563

Off-Balance Sheet Arrangements

We have no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenue, expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.

In the opinion of management, inflation has not had a material effect on our financial condition or results of operations.

In the opinion of management, our financial condition and results of its operations are not materially impacted by seasonal sales.

Quantitative and Qualitative Disclosure About Market Risk

Company is a “smaller reporting company” as defined by Regulation S-K and, as such, is not required to provide the information

contained in this item pursuant to Regulation S-K.

The Company is a “smaller reporting company” as defined by Regulation S-K and, as such, is not required to provide the information contained in this item pursuant to Regulation S-K.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis