MARIMED INC. 10-Q

Item 1. Financial Statements MariMed Inc. Condensed Consolidated Balance Sheets (in thousands, except share and per share amounts) (unaudited) September 30, 2022 December 31, 2021 Assets Current assets: Cash and cash equivalents $ 11,113 $ 29,683 Accounts receivable, net 6,560 1,666 Deferred rents receivable 725 1,678 Notes receivable, current portion 134 127 Inventory 18,309 9,768 Investments, current 274 251 Other current assets 3,768 1,440 Total current assets 40,883 44,613 Property and equipment, net 70,396 62,150 Intangible assets, net 9,469 162 Goodwill 8,079 2,068 Notes receivable, net of current 9,160 8,987 Operating lease right-of-use assets 4,954 5,081 Finance lease right-of-use assets 747 46 Other assets 1,010 98 Total assets $ 144,698 $ 123,205 Liabilities, mezzanine equity and stockholders’ equity Current liabilities: Mortgages and notes payable, current portion $ 2,825 $ 1,410 Accounts payable 7,973 5,099 Accrued expenses and other 3,265 3,149 Income taxes payable 11,663 16,467 Operating lease liabilities, current portion 1,284 1,071 Finance lease liabilities, current portion 241 27 Total current liabilities 27,251 27,223 Mortgages and notes payable, net of current 23,048 17,262 Operating lease liabilities, net of current 4,214 4,574 Finance lease liabilities, net of current 483 22 Other liabilities 100 100 Total liabilities 55,096 49,181 Commitments and contingencies 4 Table of Contents MariMed Inc. Condensed Consolidated Balance Sheets (continued) (in thousands, except share and per share amounts) (unaudited) September 30, 2022 December 31, 2021 Mezzanine equity: Series B convertible preferred stock, $ 0.001 par value; 4,908,333 shares authorized, issued and outstanding at September 30, 2022 and December 31, 2021 14,725 14,725 Series C convertible preferred stock $ 0.001 par value; 12,432,432 shares authorized; 6,216,216 shares issued and outstanding at September 30, 2022 and December 31, 2021 23,000 23,000 Total mezzanine equity 37,725 37,725 Stockholders’ equity Undesignated preferred stock, $ 0.001 par value; 38,875,451 shares authorized; zero shares issued and outstanding at September 30, 2022 and December 31, 2021 — — Common stock, $ 0.001 par value; 700,000,000 shares authorized; 339,270,387 and 334,030,348 shares issued and outstanding at September 30, 2022 and December 31, 2021, respectively 339 334 Common stock subscribed but not issued 41 — Additional paid-in capital 141,652 134,920 Accumulated deficit ( 88,675 ) ( 97,392 ) Noncontrolling interests ( 1,480 ) ( 1,563 ) Total stockholders’ equity 51,877 36,299 Total liabilities, mezzanine equity and stockholders’ equity $ 144,698 $ 123,205 See accompanying notes to the unaudited condensed consolidated financial statements. 5 Table of Contents MariMed Inc. Condensed Consolidated Statements of Operations (in thousands, except per share amounts) (unaudited) Three months ended Nine months ended September 30, September 30, 2022 2021 2022 2021 Revenue $ 33,912 $ 33,208 $ 98,180 $ 90,420 Cost of revenue 17,748 15,027 50,035 39,647 Gross profit 16,164 18,181 48,145 50,773 Operating expenses: Personnel 3,746 1,481 10,170 5,266 Marketing and promotion 1,402 563 2,854 1,058 General and administrative 5,097 9,481 16,890 16,934 Acquisition-related and other 143 — 897 — Bad debt 40 36 54 1,855 Total operating expenses 10,428 11,561 30,865 25,113 Income from operations 5,736 6,620 17,280 25,660 Interest and other (expense) income: Interest expense ( 518 ) ( 300 ) ( 1,271 ) ( 2,077 ) Interest income 239 26 720 96 Other (expense) income, net ( 251 ) ( 214 ) 24 ( 631 ) Total interest and other expense ( 530 ) ( 488 ) ( 527 ) ( 2,612 ) Income before income taxes 5,206 6,132 16,753 23,048 Provision for income taxes 2,484 4,009 7,894 9,026 Net income 2,722 2,123 8,859 14,022 Less: Net income attributable to noncontrolling interests 16 103 142 289 Net income attributable to common stockholders $ 2,706 $ 2,020 $ 8,717 $ 13,733 Net income per share attributable to common stockholders: Basic $ 0.01 $ 0.01 $ 0.03 $ 0.04 Diluted $ 0.01 $ 0.01 $ 0.02 $ 0.04 Weighted average common shares outstanding: Basic 339,025 329,454 337,111 324,340 Diluted 381,071 378,934 379,868 370,204 See accompanying notes to the unaudited condensed consolidated financial statements. 6 Table of Contents MariMed Inc. Condensed Consolidated Statements of Stockholders’ Equity (in thousands, except share amounts) (unaudited) Nine months ended September 30, 2022 Common stock Common stock subscribed but not issued Additional paid-in capital Accumulated deficit Non- controlling interests Total stockholders’ equity Shares Par value Shares Amount Balances at January 1, 2022 334,030,348 $ 334 — $ — $ 134,920 $ ( 97,392 ) $ ( 1,563 ) $ 36,299 Exercise of stock options 55,000 10 10 Cashless exercise of stock options 200,000 — Cashless exercise of warrants 234,961 — Release of shares under stock grants 357,077 — Common stock subscribed but not issued 74,581 41 41 Shares issued as purchase consideration - business acquisition 2,343,750 3 1,497 1,500 Purchase of minority interests in certain of the Company’s subsidiaries ( 2,165 ) 165 ( 2,000 ) Obligations settled with common stock 906,393 1 636 637 Conversion of promissory notes to stock 1,142,858 1 399 400 Distributions to non-controlling interests ( 224 ) ( 224 ) Stock-based compensation 6,355 6,355 Net income 8,717 142 8,859 Balances at September 30, 2022 339,270,387 $ 339 74,581 $ 41 $ 141,652 $ ( 88,675 ) $ ( 1,480 ) $ 51,877 Nine months ended September 30, 2021 Common stock Common stock subscribed but not issued Additional paid-in capital Accumulated deficit Non- controlling interests Total stockholders’ equity Shares Par value Shares Amount Balances at January 1, 2021 314,418,812 $ 314 11,413 $ 5 $ 112,975 $ ( 104,617 ) $ ( 577 ) $ 8,100 Issuance of subscribed shares 11,413 ( 11,413 ) ( 5 ) 5 — Exercise of stock options 178,885 31 31 Exercise of warrants 980,062 1 92 93 Release of shares under stock grants 152,094 102,204 95 138 233 Issuance of standalone warrants 832 832 Issuance of warrants with stock 655 655 Conversion of debentures payable to equity 4,610,645 5 1,352 1,357 Conversion of promissory notes to equity 10,042,125 10 3,337 3,347 Common stock issued to settle obligations 71,691 54 54 Common stock issued to purchase property and equipment 750,000 1 704 705 Obligations settled with common stock 409,308 1 374 375 Common stock returned to the Company ( 79,815 ) ( 10 ) ( 10 ) Equity issuance costs ( 387 ) ( 387 ) Acquisition of interest in subsidiary 100,000 94 871 ( 975 ) ( 10 ) Distributions to non-controlling interests ( 301 ) ( 301 ) Stock-based compensation 6,208 6,208 Net income 13,733 289 14,022 Balances at September 30, 2021 331,545,220 $ 332 202,204 $ 189 $ 127,231 $ ( 90,884 ) $ ( 1,564 ) $ 35,304 See accompanying notes to the unaudited condensed consolidated financial statements. 7 Table of Contents MariMed Inc. Condensed Consolidated Statements of Cash Flows (in thousands) (unaudited) Nine months ended September 30, 2022 2021 Cash flows from operating activities: Net income attributable to common stockholders $ 8,717 $ 13,733 Net income attributable to noncontrolling interests 142 289 Adjustments to reconcile net income to cash provided by operating activities: Depreciation and amortization of property and equipment 2,469 1,499 Amortization of intangible assets 854 518 Stock-based compensation 6,396 7,152 Amortization of standalone warrant issuances — 776 Amortization of warrants attached to debt — 539 Amortization of beneficial conversion feature — 177 Amortization of original issue discount — 52 Bad debt expense 54 1,855 Obligations settled with common stock 637 375 Loss on obligations settled with equity — 3 Gain on sale of investment — ( 309 ) Loss on changes in fair value of investments 930 937 Other investment income ( 954 ) — Changes in operating assets and liabilities: Accounts receivable, net ( 4,856 ) ( 3,886 ) Deferred rents receivable 111 192 Inventory ( 4,215 ) ( 4,163 ) Other current assets ( 1,973 ) ( 1,641 ) Other assets ( 113 ) ( 17 ) Accounts payable 2,372 2,098 Accrued expenses and other ( 193 ) 8,069 Income taxes payable ( 4,804 ) — Net cash provided by operating activities 5,574 28,248 Cash flows from investing activities: Purchases of property and equipment ( 9,985 ) ( 14,649 ) Business acquisitions, net of cash acquired ( 12,746 ) — Advances toward future business acquisitions ( 800 ) — Purchases of cannabis licenses ( 330 ) ( 638 ) Proceeds from sale of investment — 1,475 Proceeds from notes receivable 130 407 8 Table of Contents MariMed Inc. Condensed Consolidated Statements of Cash Flows (continued) (in thousands) (unaudited) Nine months ended September 30, 2022 2021 Net cash used in investing activities ( 23,731 ) ( 13,405 ) Cash flows from financing activities: Proceeds from issuance of preferred stock — 23,000 Equity issuance costs — ( 387 ) Proceeds from issuance of promissory notes — 35 Principal payments of mortgages and promissory notes ( 1,033 ) ( 16,248 ) Proceeds from mortgages 3,000 2,700 Proceeds from exercise of stock options 10 31 Proceeds from exercise of warrants — 93 Repayment of loans from related parties — ( 1,158 ) Principal payments of finance leases ( 166 ) ( 26 ) Redemption of minority interests ( 2,000 ) — Distributions ( 224 ) ( 301 ) Net cash (used in) provided by financing activities ( 413 ) 7,739 Net (decrease) increase in cash and cash equivalents ( 18,570 ) 22,582 Cash and equivalents, beginning of year 29,683 2,999 Cash and cash equivalents, end of period $ 11,113 $ 25,581 Supplemental disclosure of cash flow information: Cash paid for interest $ 1,120 $ 1,705 Cash paid for income taxes $ 12,582 $ 419 Non-cash activities: Stock issued as purchase consideration $ 1,500 $ — Conversion of promissory notes $ 400 $ 3,346 Conversion of debentures payable $ — $ 1,356 Acquisition of interest in subsidiary $ — $ 975 Purchases of property and equipment with stock $ — $ 705 Operating lease right-of-use assets and liabilities $ 378 $ 466 Finance lease right-of-use assets and liabilities $ 781 $ — Common stock issued to settle obligations $ — $ 51 Return of stock $ — $ 10 Issuance of common stock associated with subscriptions $ — $ 5 Cashless exercise of warrants $ 235 $ 180 Cashless exercise of stock options $ 200 $ 53 See accompanying notes to the unaudited condensed consolidated financial statements. 9 Table of Contents MariMed Inc. Notes to Condensed Consolidated Financial Statements (unaudited) (1) BASIS OF PRESENTATION Business MariMed Inc. (“MariMed” or the “Company”) is a multi-state operator in the United States cannabis industry. MariMed develops, operates, manages, and optimizes state-of-the-art, regulatory-compliant facilities for the cultivation, production, and dispensing of medical and adult use cannabis. MariMed also licenses its proprietary brands of cannabis and hemp-infused products, along with other top brands, in domestic markets. Basis of Presentation In the opinion of management, the accompanying unaudited condensed consolidated financial statements include all adjustments, consisting only of normal recurring items, necessary for their fair presentation in accordance with accounting principles generally accepted in the United States of America (“GAAP”). On April 27, 2022 (the “Kind Acquisition Date”), the Company acquired Kind Therapeutics USA (“Kind”). The financial results of Kind are included in the Company’s condensed consolidated financial statements for the periods subsequent to the Kind Acquisition Date. Interim results are not necessarily indicative of results for the full fiscal year or any future interim period. The information included in this Quarterly Report on Form 10-Q should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2021 (the “Annual Report”), which was filed with the U.S. Securities and Exchange Commission (“SEC”) on March 16, 2022. Certain reclassifications, not affecting previously reported net income or cash flows, have been made to the previously issued financial statements to conform to the current period presentation. Significant Accounting Policies The Company’s significant accounting policies are disclosed in Note 2 to the Consolidated Financial Statements included in the Annual Report. There were no material changes to the significant accounting policies during the three- or nine-month periods ended September 30, 2022. Principles of Consolidation The accompanying condensed consolidated financial statements include the accounts of MariMed and its wholly- and majority-owned subsidiaries. Intercompany transactions and balances have been eliminated in consolidation. Noncontrolling interests represent third-party minority ownership interests in the Company’s majority-owned consolidated subsidiaries. Net income attributable to noncontrolling interests is reported in the condensed consolidated statements of operations, and the value of minority-owned interests is presented as a component of equity within the condensed consolidated balance sheets. Use of Estimates and Judgments The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reporting amounts of revenue and expenses during the reporting periods. Significant estimates and judgments relied upon in preparing these condensed consolidated financial statements include accounting for business combinations, inventory valuations, assumptions used to determine the fair value of stock-based compensation, and intangible assets and goodwill. Actual results could differ from those estimates. 10 Table of Contents Cash and Cash Equivalents The Company considers all highly liquid investments with a maturity date of three months or less to be cash equivalents. The fair values of these investments approximate their carrying values. The Company had $ 0.1 million of cash held in escrow at September 30, 2022. At December 31, 2021, the Company had cash of $ 5.1 million held in escrow, of which $ 5.0 million was an escrow deposit in connection with the acquisition of Kind. Fair Value of Financial Instruments The carrying amounts of the Company’s financial instruments approximate their fair values and include cash equivalents, accounts receivable, deferred rents receivable, notes receivable, mortgages and notes payable, and accounts payable. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or a liability. The three-tier fair value hierarchy is based on the level of independent, objective evidence surrounding the inputs used to measure fair value. A financial instrument’s categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. The fair value hierarchy is as follows: Level 1 . Level 1 applies to assets or liabilities for which there are quoted prices in active markets for identical assets or liabilities. Level 2 . Level 2 applies to assets or liabilities for which there are inputs that are directly or indirectly observable in the marketplace, such as quoted prices for similar assets or liabilities in active markets or quoted prices for identical assets or liabilities in markets with insufficient volume or infrequent transactions (less active markets). Level 3 . Level 3 applies to assets or liabilities for which there are unobservable inputs to the valuation methodology that are significant to the measurement of the fair value of the assets or liabilities. Recent Accounting Pronouncements The Company has reviewed all recently issued, but not yet effective, Accounting Standards Updates (“ASUs”) and does not believe that the future adoption of any such ASUs will have a material impact on its financial condition or results of operations. (2) ACQUISITIONS Kind In December 2021, the Company entered into a membership interest purchase agreement with the members of Kind to acquire 100 % of the equity ownership of Kind in exchange for $ 13.5 million payable in cash (subject to certain adjustments) and $ 6.5 million payable by the issuance of four-year 6.0 % promissory notes to the members of Kind, secured by a first priority lien on the Company’s property in Hagerstown, MD (collectively, the “Kind Consideration”). Kind was the Company's client in Maryland that held licenses for the cultivation, production, and dispensing of medical cannabis. Upon execution of the membership interest purchase agreement, the Company had deposited $ 5.0 million into escrow as a contract down payment. In April 2022, the Maryland Medical Cannabis Commission approved the Company’s acquisition of Kind, and the acquisition was completed on the Kind Acquisition Date (the “Kind Acquisition”). Following the Kind Acquisition, litigation between the Company and the members of Kind was dismissed (see Note 18). The Company believes that the Kind Acquisition allows it to expand its operations into the Maryland cannabis industry and marketplace. 11 Table of Contents The Kind Acquisition has been accounted for as a business combination and the financial results of Kind have been included in the Company’s condensed consolidated financial statement for the periods subsequent to the Kind Acquisition Date. The Company’s financial results for the three months ended September 30, 2022 include $ 2.6 million of revenue and a net loss of $ 0.2 million attributable to Kind. The Company's financial results for the nine months ended September 30, 2022 include $ 4.3 million of revenue and a net loss of $ 0.5 million attributable to Kind. A summary of the preliminary allocation of Kind Consideration to the acquired assets, identifiable intangible assets and certain assumed liabilities is as follows (in thousands): Fair value of consideration transferred: Cash consideration: Cash paid at closing $ 10,128 Release of escrow 2,444 Severance paid from escrow 556 Less cash acquired ( 2,310 ) Net cash consideration 10,818 Note payable 5,634 Write-off accounts receivable 658 Write-off of deferred accounts receivable 842 Total fair value of consideration transferred $ 17,952 Fair value of assets acquired and (liabilities assumed): Current assets, net of cash acquired $ 5,047 Property and equipment 622 Intangible assets: Tradename and trademarks 2,041 Licenses and customer base 4,700 Non-compete agreements 42 Goodwill 6,011 Current liabilities ( 511 ) Fair value of net assets acquired $ 17,952 The valuation of the acquired intangible assets is inherently subjective and relies on significant unobservable inputs. The Company used an income approach to value the acquired tradename/trademarks, licenses/customer base, and non-compete intangible assets. The valuation for each of these intangible assets was based on estimated projections of expected cash flows to be generated by the assets discounted to the present value at discount rates commensurate with perceived risk. The valuation assumptions take into consideration the Company’s estimates of new markets, products and customers and its outcome through key assumptions driving asset values, including sales growth, royalty rates and other related costs. The Company is amortizing the identifiable intangible assets arising from the Kind Acquisition in relation to the expected cash flows from the individual intangible assets over their respective useful lives, which have a weighted average life of 5.77 years (see Note 9). Goodwill results from assets that are not separately identifiable as part of the transaction and is not deductible for tax purposes. Concurrent with entering into the Kind membership purchase agreement, the Company entered into a membership interest purchase agreement with one of the members of Kind to acquire such member’s entire equity ownership interest in (i) Mari Holdings MD LLC (“Mari-MD”), the Company’s majority-owned subsidiary that owns production and retail cannabis facilities in Hagerstown, MD and Annapolis, MD, and (ii) Mia Development LLC (“Mia”), the Company’s majority-owned subsidiary that owns production and retail cannabis facilities in Wilmington, DE. Upon the dismissal in September 2022 of the derivative claims in the DiPietro lawsuit (see Note 18), the Company paid the aggregate purchase consideration of $ 2.0 million, and the transaction was completed, increasing the Company’s ownership of Mari-MD and Mia to 99.7 % and 94.3 %, respectively. Green Growth Group Inc. In January 2022, the Company entered into a stock purchase agreement to acquire 100 % of the equity ownership of Green Growth Group Inc. (“Green Growth”), an entity that holds a craft cultivation and production cannabis license issued by the 12 Table of Contents Illinois Department of Agriculture, in exchange for cash of $ 1.9 million and shares of the Company’s common stock valued at $ 1.5 million. Concurrently, the Company made a good faith deposit of $ 100,000 . In April 2022, the Illinois Department of Agriculture approved the Company’s acquisition of Green Growth, and the purchase transaction (the “Green Growth Acquisition”) was completed on May 5, 2022 (the “Green Growth Acquisition Date”). The Company paid the remaining $ 1.8 million in cash and issued 2,343,750 shares of common stock to the sellers on the Green Growth Acquisition Date. With this license, the Company can cultivate up to 14,000 square feet of cannabis flowers and produce cannabis concentrates. The Company believes that the acquisition of this cannabis license will allow it to be vertically integrated in Illinois by growing cannabis and producing cannabis products that can be distributed and sold at the Company-owned Thrive dispensaries and sold into the robust Illinois wholesale cannabis marketplace. The Company has allocated the purchase price to its licenses/customer base intangible asset on a preliminary basis. The Company recorded approximately $ 85,000 and $ 142,000 of amortization expense in the three and nine months ended September 30, 2022, respectively, for the intangible asset acquired based on an estimated ten-year life for such asset. Meditaurus LLC In 2019, the Company had acquired a 70.0 % ownership interest in Meditaurus in exchange for stock and cash aggregating $ 2.8 million. In September 2021, the Company acquired the remaining 30.0 % ownership interest of Meditaurus LLC, a developer of CBD products sold under the Florance brand name (“Meditaurus”), in exchange for 100,000 shares of the Company’s common stock, valued at approximately $ 94,000 , and $ 10,000 in cash. The carrying value of the noncontrolling interest of approximately $ 975,000 was eliminated on the date such interest was acquired, and as there was no change in control of Meditaurus from this transaction, the resulting gain on bargain purchase was recognized in Additional paid-in capital in the condensed consolidated balance sheet. As part of this transaction, the initial purchase agreement was amended, eliminating all future license fees and payments to the prior owners of Meditaurus. The Company has discontinued sales of its Meditaurus products. Pending Transactions Beverly Asset Purchase In November 2021, the Company entered into an asset purchase agreement to acquire the cannabis license, property lease, and other assets and rights of, and to assume certain liabilities and operating obligations associated with a cannabis dispensary that had been operating in Beverly, MA. The purchase price is comprised of 2,000,000 shares of the Company’s common stock and $ 5.1 million in cash, with the cash amount to be paid on a monthly basis as a percentage of the business’ monthly gross sales. The purchase was contingent upon the approval of the Massachusetts Cannabis Control Commission (the "State") for a license and the city transfer of the host community agreement to MariMed. The State has approved the transfer but the Company has not yet received approval of the host community agreement transfer. Upon final inspection by the State, the dispensary will be able to open. The Company expects this to occur in early 2023. Concurrent with the execution of this agreement, the parties entered into a consulting agreement under which the Company provides certain oversight services related to the development, staffing, and operation of the business in exchange for a monthly fee. The Harvest Foundation LLC In 2019, the Company entered into a purchase agreement to acquire 100 % of the ownership interests of The Harvest Foundation LLC (“Harvest”), the holder of a cannabis cultivation license in the state of Nevada. The acquisition is conditioned upon state regulatory approval of the transaction and other closing conditions. The regulatory approval process for license transfers in Nevada has experienced significant delays as a result of multiple factors including the impact of Covid. Additionally, the progress of this acquisition has been delayed as a result of actions taken by the Nevada Cannabis Control Board (“CCB”) relating to regulatory operating violations by Harvest and its current ownership. Harvest is in process of negotiating a settlement with the CCB to resolve these violations which will allow it to proceed with the sale. In October 2022, the CCB issued an order approving the placement of a receiver to oversee Harvest and its licenses. This followed the motion of a creditor of Harvest for such appointment which was granted by the Eighth Judicial District Court, Clark County Nevada, subject to CCB approval. The Company has had exchanges with the receiver in connection with 13 Table of Contents potentially moving forward with the acquisition. The Company is monitoring the status of Harvest matters which will require adjustments to the terms of the purchase agreement if the Company determines to proceed with the acquisition. The original purchase agreement provided for a purchase price comprised of the issuance of (i) 1,000,000 shares of the Company’s common stock in the aggregate to the two owners of Harvest, which were issued as a good faith deposit upon execution of the purchase agreement, (ii) $ 1.2 million of the Company’s common stock at closing, based on the closing price of the common stock on the day prior to regulatory approval of the transaction, which have not been issued, and (iii) warrants to purchase 400,000 shares of the Company’s common stock at an exercise price equal to the closing price of the Company’s common stock on the day prior to regulatory approval of the transaction, which have not been issued. The issued shares were recorded at par value. Such shares are restricted and are to be returned to the Company in the event the transaction does not close. If the Company determines to proceed with the acquisition on terms acceptable to it, upon CCB approval of the transfer, and the fulfillment of other closing conditions, if achieved, the ownership of Harvest will be transferred to the Company, and the operations of Harvest will begin to be consolidated into the Company’s financial statements. There is no assurance that the Company will determine to proceed with the acquisition of Harvest, and if it does, that the closing conditions to the Company’s acquisition of Harvest, including regulatory approval, will be achieved or that the acquisition will be consummated. (3) EARNINGS PER SHARE Basic earnings per share is computed by dividing net income by the weighted average number of shares outstanding during the period. Diluted net earnings per share is determined by using the weighted average number of common and dilutive common equivalent shares outstanding during the period, unless the effect is antidilutive. The calculations of shares used to compute net earnings per share were as follows (in thousands): Three months ended Nine months ended September 30, 2022 September 30, 2021 September 30, 2022 September 30, 2021 Weighted average shares outstanding - basic 339,025 329,454 337,111 324,340 Potential dilutive common shares 42,046 49,480 42,757 45,864 Weighted average shares outstanding - diluted 381,071 378,934 379,868 370,204 (4) DEFERRED RENTS RECEIVABLE The Company is the lessor under operating leases which contain escalating rents over time, rent holidays, options to renew, requirements to pay property taxes, insurance and/or maintenance costs, and contingent rental payments based on a percentage of monthly tenant revenues. The Company is not the lessor under any finance leases. The Company recognizes fixed rental receipts from such lease agreements on a straight-line basis over the expected lease term. Differences between amounts received and amounts recognized are recorded in Deferred rents receivable in the condensed consolidated balance sheets. Contingent rentals are recognized only after tenants’ revenues are finalized and if such revenues exceed certain minimum levels. The Company leases the following owned properties: • Delaware – a 45,000 square foot cannabis cultivation, processing, and dispensary facility which is leased to its cannabis-licensed client under a triple net lease that expires in 2035. • Maryland – a 180,000 square foot cultivation and processing facility that expires in 2037. This facility had been leased to Kind prior to the Kind Acquisition Date. • Massachusetts – a 138,000 square foot industrial property of which approximately half of the available square footage is leased to a non-cannabis manufacturing company under a lease that expires in February 2023. 14 Table of Contents The Company subleases the following properties: • Delaware – a 4,000 square foot cannabis dispensary which is subleased to its cannabis-licensed client under a sublease expiring in April 2027. • Delaware – a 100,000 square foot warehouse, of which the Company developed 60,000 square feet into a cultivation facility that is subleased to its cannabis-licensed client. The sublease expires in March 2030, with an option to extend the term for three additional five-year periods. The Company intends to develop the remaining space into a processing facility. • Delaware – a 12,000 square foot cannabis production facility with offices which is subleased to its cannabis-licensed client. The sublease expires in January 2026 and contains an option to negotiate an extension at the end of the lease term. The Company received rental payments aggregating $ 0.4 million and $ 2.4 million in the three and nine months ended September 30, 2022, respectively, and $ 1.2 million and $ 3.6 million in the three and nine months ended September 30, 2021, respectively. Revenue from these payments was recognized on a straight-line basis and aggregated $ 0.4 million and $ 2.3 million in the three and nine months ended September 30, 2022, respectively, and $ 1.1 million and $ 3.4 million in the three and nine months ended September 30, 2021, respectively. Future minimum rental receipts for non-cancellable leases and subleases as of September 30, 2022 were as follows (in thousands): Year ending December 31, Remainder of 2022 $ 315 2023 1,170 2024 1,196 2025 1,199 2026 1,051 Thereafter 6,131 $ 11,062 (5) NOTES RECEIVABLE Notes receivable, including accrued interest, at September 30, 2022 and December 31, 2021 consisted of the following (in thousands): September 30, 2022 December 31, 2021 First State Compassion Center (initial note) $ 348 $ 403 First State Compassion Center (secondary note) 8,080 7,845 Healer LLC 866 866 Total notes receivable 9,294 9,114 Notes receivable, current portion 134 127 Notes receivable, less current portion $ 9,160 $ 8,987 First State Compassion Center The Company’s cannabis-licensed client in Delaware, First State Compassion Center (“FSCC”), issued a 10 -year promissory note to the Company in May 2016 for $ 0.7 million, bearing interest at a rate of 12.5 % per annum and maturing in April 2026, as amended (the “FSCC Initial Note”). The monthly payments on the FSCC Initial Note approximate $ 10,000 . At September 30, 2022 and December 31, 2021, the current portions of the FSCC Initial Note were approximately $ 82,000 and $ 75,000 , respectively, and were included in Notes receivable, current, in the condensed consolidated balance sheets. 15 Table of Contents In December 2021, the Company converted financed trade accounts receivable balances from FSCC aggregating $ 7.8 million into notes receivable, whereby FSCC issued promissory notes aggregating $ 7.8 million to the Company (the “FSCC Secondary Notes”). The FSCC Secondary Notes bear interest of 6.0 % per annum and mature in December 2025. FSCC is required to make periodic payments of principal and interest throughout the term of the FSCC Secondary Notes. At September 30, 2022, the FSCC Secondary Notes balance included approximately $ 54,000 of unpaid accrued interest. The increase in the FSCC Secondary Notes in the nine months ended September 30, 2022 was attributable to the accreted interest, which increases the value of such notes. Healer LLC In March 2021, the Company was issued a promissory note in the principal amount of approximately $ 0.9 million from Healer LLC, an entity that provides cannabis education, dosage programs, and products developed by Dr. Dustin Sulak (“Healer”). The principal balance of the note represents previous loans extended to Healer by the Company of $ 0.8 million, plus accrued interest through the revised promissory note issuance date of approximately $ 94,000 (the “Revised Healer Note”). The Revised Healer Note bears interest at a rate of 6.0 % per annum and requires quarterly payments of interest through the April 2026 maturity date. The Company has the right to offset any licensing fees payable by the Company to Healer in the event Healer fails to make any payment when due. In March 2021, the Company offset approximately $ 28,000 of licensing fees payable to Healer against the principal balance of the Revised Healer Note, reducing the principal amount to approximately $ 866,000 . Of the outstanding Revised Healer Note balance at both September 30, 2022 and December 31, 2021, approximately $ 52,000 was current. High Fidelity In August 2021, a $ 250,000 loan to High Fidelity Inc., an entity with cannabis operations in the state of Vermont, which bore interest at a rate of 10.0 % per annum, was repaid in full. (6) INVENTORY Inventory at September 30, 2022 and December 31, 2021 consisted of the following (in thousands): September 30, 2022 December 31, 2021 Plants $ 2,585 $ 1,015 Ingredients and other raw materials 2,582 262 Work-in-process 8,071 4,661 Finished goods 5,071 3,830 $ 18,309 $ 9,768 (7) INVESTMENTS The Company’s investments at September 30, 2022 and December 31, 2021 were all classified as current and were comprised of the following (in thousands): September 30, 2022 December 31, 2021 Flowr Corp. (formerly Terrace Inc.) $ 78 $ 251 WM Technology Inc. 196 — $ 274 $ 251 The Company did not have any noncurrent investments at September 30, 2022 or December 31, 2021. 16 Table of Contents Flowr Corp. (formerly Terrace Inc.) In December 2020, Terrace Inc., a Canadian cannabis entity in which the Company had an ownership interest of 8.95 % (“Terrace”), was acquired by Flowr Corp. (TSX.V: FLWR; OTC: FLWPF), a Toronto-headquartered cannabis company with operations in Canada, Europe, and Australia (“Flowr”). In accordance with the purchase agreement for this transaction, each shareholder of Terrace received 0.4973 shares in Flowr for each Terrace share held (the “Flowr Investment”). The Flowr Investment is recorded at fair value, with changes in fair value recorded as a component of Other (expense) income, net, in the condensed consolidated statements of operations. The Company recorded losses of $ 0.1 million and $ 0.2 million in the three and nine months ended September 30, 2022, respectively, and losses of $ 0.5 million and $ 0.9 million in of the three- and nine-month periods ended September 30, 2021, respectively. These amounts represent the changes in the fair value of the Flowr Investment in the respective periods. WM Technology Inc. (formerly MembersRSVP LLC) In January 2021, the Company and MembersRSVP LLC, an entity that develops cannabis-specific software (“MRSVP”) in which the Company owned a 23.0 % membership interest, entered into an agreement under which the Company returned membership interests comprising 11.0 % ownership in MRSVP in exchange for a release of the Company from any further obligation to make any incremental investments or payments to MRSVP, and certain other non-monetary consideration. In addition to the reduction of the Company’s ownership interest to 12.0 %, the Company relinquished its right to appoint a member to the board of MRSVP. As a result, the Company no longer had the ability to exercise significant influence over MRSVP, and accordingly, as of January 1, 2021, the Company discontinued accounting for this investment under the equity method. In September 2021, MRSVP sold substantially all of its assets pursuant to an asset purchase agreement. In connection with this transaction, the Company received cash proceeds of $ 1.5 million, which represented the Company’s pro rata share of the cash consideration received by MRSVP at the closing of the transaction. The cash proceeds reduced the Company’s MRSVP investment balance to zero and resulted in a gain of $ 0.3 million, which gain was reported as a component of Other (expense) income, net. As an ongoing member of MRSVP, the Company was entitled to its pro rata share of any additional consideration received by MRSVP pursuant to the asset purchase agreement, which could include securities or other forms of non-cash or in-kind consideration and holdback amounts, if and when received and distributed by MRSVP. In February 2022, the Company received 121,968 shares of common stock of WM Technology Inc. (Nasdaq: MAPS), a technology and software infrastructure provider to the cannabis industry, which represented the Company’s pro rata share of the additional consideration received by MRSVP pursuant to the asset purchase agreement. The Company recognized losses of $ 0.2 million and $ 0.8 million in the three and nine months ended September 30, 2022, respectively, which are included as components of Other (expense) income, net, in the condensed consolidated statements of operations for those periods. This amount represents the change in the fair value of the MAPS shares in the respective periods. 17 Table of Contents (8) PROPERTY AND EQUIPMENT, NET The Company’s property and equipment, net, at September 30, 2022 and December 31, 2021 was comprised of the following (in thousands): September 30, 2022 December 31, 2021 Land $ 4,450 $ 4,450 Buildings and building improvements 39,497 35,231 Tenant improvements 17,005 9,745 Furniture and fixtures 1,986 1,888 Machinery and equipment 9,689 7,221 Construction in progress 7,084 10,569 79,711 69,104 Less: accumulated depreciation ( 9,315 ) ( 6,954 ) Property and equipment, net $ 70,396 $ 62,150 The amounts reported as construction in progress primarily relate to the development of facilities in Annapolis, MD, Beverly, MA and Mt. Vernon, IL. (9) INTANGIBLE ASSETS AND GOODWILL The Company’s acquired intangible assets at September 30, 2022 consisted of the following (in thousands): Weighted average amortization period (years) Cost Accumulated amortization Net carrying value Tradename and trademarks 3.00 $ 2,041 $ 283 $ 1,758 Licenses and customer base 8.26 8,100 422 7,678 Non-compete agreements 2.00 42 9 33 7.18 $ 10,183 $ 714 $ 9,469 Estimated future amortization expense for the Company’s intangible assets at September 30, 2022 was as follows: Year ending December 31, Remainder of 2022 $ 428 2023 1,712 2024 1,698 2025 1,239 2026 1,011 Thereafter 3,381 Total $ 9,469 The changes in the carrying value of the Company’s goodwill in the three months ended September 30, 2022 and 2021 were as follows (in thousands): 2022 2021 Balance at January 1, $ 2,068 $ 2,068 Kind Acquisition 6,011 — Balance at September 30, $ 8,079 $ 2,068 18 Table of Contents (10) MORTGAGES AND NOTES PAYABLE The Company’s mortgages and notes payable are reported in the aggregate on the condensed consolidated balance sheets under the captions Mortgages and notes payable, current, and Mortgages and notes payable, net of current. Mortgages The Company’s mortgage balances, including accrued interest, at September 30, 2022 and December 31, 2021 were comprised of the following (in thousands): September 30, 2022 December 31, 2021 Bank of New England – New Bedford, MA and Middleboro, MA properties $ 12,231 $ 12,499 Bank of New England – Wilmington, DE property 1,374 1,463 DuQuoin State Bank – Anna, IL and Harrisburg, IL properties 759 778 DuQuoin State Bank – Metropolis, IL property 2,541 2,658 Du Quoin State Bank - Mt. Vernon, IL property 2,990 — South Porte Bank – Mt. Vernon, IL property 808 816 Total mortgages payable 20,703 18,214 Less: Mortgages payable, current ( 1,485 ) ( 1,400 ) Mortgages payable, less current portion $ 19,218 $ 16,814 The Company maintains an amended and restated mortgage agreement with the Bank of New England with an interest rate of 6.5 % per annum which matures in August 2025 (the “Amended BNE Mortgage”). The Amended BNE Mortgage is secured by the Company’s properties in New Bedford, MA and Middleboro, MA. Proceeds from the Amended BNE Mortgage were used to pay down a previous mortgage of $ 4.8 million with the Bank of New England on the New Bedford property, and $ 7.2 million of outstanding promissory notes as discussed below. The current portions of the outstanding principal balance under the Amended BNE Mortgage at September 30, 2022 and December 31, 2021 were approximately $ 376,000 and $ 358,000 , respectively. The Company maintains a second mortgage with Bank of New England that is secured by the Company’s property in Wilmington, DE (the “BNE Delaware Mortgage”). The mortgage matures in 2031, with monthly principal and interest payments. The interest rate is 5.25 % per annum, with the rate adjusting every five years to the then-prime rate plus 1.5 %, with a floor of 5.25 % per annum. The next interest rate adjustment will occur in September 2026. The current portions of the outstanding principal balance under the BNE Delaware Mortgage at September 30, 2022 and December 31, 2021 were approximately $ 125,000 and $ 120,000 , respectively. The Company maintains a mortgage with DuQuoin State Bank (“DSB”) in connection with its purchase of properties in Anna, IL and Harrisburg, IL (the “DuQuoin Mortgage”). On May 5 of each year, the DuQuoin Mortgage becomes due unless it is renewed for another year at a rate determined by DSB’s executive committee. The DuQuoin Mortgage was renewed in May 2021 at a rate of 6.75 % per annum. The current portions of the outstanding principal balance under the DuQuoin Mortgage at September 30, 2022 and December 31, 2021 were approximately $ 35,000 and $ 33,000 , respectively. In July 2022, Mari Holdings Mt Vernon LLC, a wholly owned subsidiary of the Company, entered into a $ 3 million loan agreement and mortgage with Du Quoin State Bank secured by property owned in Mt. Vernon, Illinois, which the Company is developing into a grow and production facility (the "DuQuoin Mt. Vernon Mortgage"). The DuQuoin Mt. Vernon Mortgage has a 20 -year term and initially bears interest at the rate of 7.75 %, subject to upward adjustment on each annual anniversary date to the Wall Street Journal U.S. Prime Rate (with an interest rate floor of 7.75 %). The proceeds of this loan are being utilized for the build-out of the property and other working capital needs. The current portion of the DuQuoin Mt. Vernon Mortgage was approximately $ 66,000 at September 30, 2022. In July 2021, the Company purchased the land and building in which it operates its cannabis dispensary in Metropolis, IL. The purchase price consisted of 750,000 shares of the Company’s common stock, which were valued at $ 705,000 on the date of the transaction, and payoff of the seller’s remaining mortgage balance of $ 1.6 million. In connection with this purchase, the Company entered into a second mortgage agreement with DSB for $ 2.7 million that matures in July 2041 and which initially bears interest at a rate of 6.25 % per annum (the “DuQuoin Metropolis Mortgage”). The interest rate on the DuQuoin Metropolis Mortgage is adjusted each year based on a certain interest rate index plus a margin. As part of this transaction, the seller was provided with a 30.0 % ownership interest in Mari Holdings Metropolis LLC (“Metro”), the 19 Table of Contents Company’s subsidiary that owns the property and holds the related mortgage obligation, reducing the Company’s ownership interest in Metro to 70.0 %. The current portions of the outstanding balance of the DuQuoin Metropolis Mortgage at September 30, 2022 and December 31, 2021 were approximately $ 75,000 and $ 73,000 , respectively. In February 2020, the Company entered into a mortgage agreement with South Porte Bank for the purchase and development of a property in Mt. Vernon, IL, (the “South Porte Bank Mortgage”). Beginning in August 2021, pursuant to the amendment of the South Porte Bank Mortgage, the monthly payments of principal and interest aggregated approximately $ 6,000 , with such payment amounts effective through June 2023, at which time all remaining principal, interest and fees are due. Promissory Notes Promissory Note Retirements In March 2021, utilizing a portion of the proceeds from the Hadron Transaction (defined below; see Note 12) , the Company retired $ 15.2 million of principal and interest on promissory notes issued in previous fiscal years to accredited individual and institutional investors. Concurrently, the remaining debt discount of approximately $ 450,000 on one of the retired promissory notes (such discount having arisen from the issuance of warrants attached to such promissory note) was fully amortized. Promissory Note Conversions During the three months ended March 31, 2021, the holder of a note issued by the Company in September 2020, with an outstanding balance of $ 4.2 million, converted $ 1.0 million of principal and approximately $ 10,000 of accrued interest into 3,365,972 shares of the Company’s common stock. The Company issued the holder an amended and restated promissory note simultaneous with the conversion transaction representing the $ 3.2 million remaining balance due. During 2021, in a series of transactions, the noteholder converted $ 2.8 million of principal into 8,033,296 shares of the Company’s common stock. At December 31, 2021, the outstanding balance on the amended and restated promissory note was $ 400,000 . During the three months ended March 31, 2022, the noteholder converted the remaining principal balance of $ 400,000 into 1,142,858 shares of the Company’s common stock and the note was retired. The Company did not record any gains or losses arising from these conversions. Promissory Notes Issued as Purchase Consideration – Kind Acquisition In connection with the Kind Acquisition (see Note 2), the Company issued four-year promissory notes aggregating $ 6.5 million at the rate of 6.0 % per annum to the members of Kind (the “Kind Notes”). The Company paid $ 0.8 million of principal during the period since the Kind Acquisition Date. At September 30, 2022, the current portions of the Kind Notes aggregated $ 1.5 million. Promissory Notes Issued to Purchase Commercial Vehicles In August 2020, the Company entered into a note agreement with First Citizens’ Federal Credit Union for the purchase of a commercial vehicle (the “First Citizens’ Note”). The First Citizens’ Note bears interest at the rate of 5.74 % per annum and matures in July 2026. At September 30, 2022, the First Citizens' Note had an outstanding balance of approximately $ 22,000 . The current portions of the outstanding balance under the First Citizens’ Note at September 30, 2022 and December 31, 2021 were approximately$ 6,500 and $ 5,000 , respectively. In September 2021, the Company entered into a note agreement with Ally Financial for the purchase of a second commercial vehicle (the “Ally Financial Note”). The Ally Financial note bears interest at the rate of 10.0 % per annum and matures in May 2027. At September 30, 2022, the Ally Financial Note had an outstanding balance of approximately $ 29,000 . The current portions of the outstanding balance under the Ally Financial Note at both September 30, 2022 and December 31, 2021 were approximately $ 5,000 . 20 Table of Contents Promissory Note Issued by MariMed Hemp Inc. In September 2020, the Company paid $ 0.5 million of principal on a $ 1.0 million promissory note issued in 2019 by MariMed Hemp Inc., one of the Company’s wholly-owned subsidiaries. In March 2021, utilizing a portion of the proceeds from the Hadron Transaction, the Company made an interest payment of $ 0.2 million and paid the remaining principal of $ 0.5 million on this promissory note. At September 30, 2022 and December 31, 2021, the Company was carrying accrued interest balances of approximately $ 309,000 and $ 125,000 , respectively. Future Payments The future principal amounts due under the Company outstanding mortgages and notes payable at September 30, 2022 are as follows (in thousands): Year ending December 31, Remainder of 2022 $ 536 2023 3,060 2024 2,390 2025 2,545 2026 1,263 Thereafter 16,700 26,494 Less: discount ( 621 ) $ 25,873 (11) DEBENTURES PAYABLE In a series of transactions from October 2018 through February 2020, the Company sold an aggregate of $ 21.0 million of convertible debentures (the “$21M Debentures”) to an unaffiliated institutional investor pursuant to an amended securities purchase agreement. As of March 31, 2021, the holder of the $21M Debentures had converted the entire $ 21.0 million of principal and related accrued interest into the Company’s common stock in a series of conversions, at conversion prices equal to 80.0 % of a calculated average of the daily volume-weighted price preceding the date of conversion. Of these conversions, $ 1.3 million of principal and approximately $ 56,000 of accrued interest were converted into 4,610,645 shares of common stock at a conversion price of $ 0.29 per share during the three months ended March 31, 2021. Additionally, a remaining (i) original issue discount of approximately $ 52,000 , (ii) debt discount of approximately $ 39,000 (such discount having arisen from the issuance of warrants attached to the $21M Debentures), and (iii) beneficial conversion feature of approximately $ 177,000 (such conversion feature having arisen from an in-the-money embedded conversion option on the commitment date), were fully amortized upon the final conversion of the $21M Debentures. All conversions were effected within the terms of the debenture agreements, and accordingly, the Company did not record any gains or losses in connection with these conversions. (12) MEZZANINE EQUITY Series B Convertible Preferred Stock In 2020, the Company entered into an exchange agreement with two unaffiliated institutional shareholders (the “Exchange Agreement”) whereby the Company (i) issued $ 4.4 million of promissory notes to the two institutional shareholders (such notes were retired in March 2021 as part of the promissory note retirements described above (see Note 11)), and (ii) exchanged 4,908,333 shares of the Company’s common stock previously acquired by the two institutional shareholders for an equal number of shares of newly designated Series B convertible preferred stock (the “Series B Stock”). 21 Table of Contents In connection with the Exchange Agreement, the Company filed (i) a certificate of designation with respect to the rights and preferences of the Series B Stock, and (ii) a certificate of elimination to return all shares of the Series A convertible preferred stock, of which no shares were issued or outstanding at the time of filing, to the status of authorized and unissued shares of undesignated preferred stock. The holders of Series B Stock (the “Series B Holders”) are entitled to cast the number of votes equal to the number of shares of common stock into which the shares of Series B Stock are convertible, together with the holders of common stock as a single class, on most matters. However, the affirmative vote or consent of the Series B Holders voting separately as a class is required for certain acts taken by the Company, including the amendment or repeal of certain charter provisions, liquidation or winding up of the Company, creation of stock senior to the Series B Stock, and/or other acts defined in the certificate of designation. The Series B Stock shall, with respect to dividend rights and rights on liquidation, winding up and dissolution, rank senior to the Company’s common stock. The Company shall not declare, pay, or set aside any dividends on shares of any other class or series of capital stock of the Company unless the Series B Holders then outstanding shall first receive, or simultaneously receive, a dividend on each outstanding share of Series B Stock in an amount calculated pursuant to the certificate of designation. In the event of any voluntary or involuntary liquidation, dissolution or winding up of the Company, the holder of Series B Stock shall be entitled to be paid out of the assets of the Company available for distribution to its stockholders before any payment shall be made to the holders of common stock by reason of their ownership thereof, an amount per share of Series B Stock equal to $ 3.00 , plus any dividends declared but unpaid thereon, with any remaining assets distributed pro-rata among the holders of the shares of Series B Stock and common stock, based on the number of shares held by each such holder, treating for this purpose all such securities as if they had been converted to common stock. At any time on or prior to the six-year anniversary of the issuance date of the Series B Stock, (i) the Series B Holders have the option to convert their shares of Series B Stock into common stock at a conversion price of $ 3.00 per share, without the payment of additional consideration, and (ii) the Company has the option to convert all, but not less than all, shares of Series B Stock into common stock at a conversion price of $ 3.00 if the daily volume weighted average price of common stock (the “VWAP”) exceeds $ 4.00 per share for at least twenty consecutive trading days prior to the date on which the Company gives notice of such conversion to the Series B Holders. On the day following the six-year anniversary of the issuance of the Series B convertible preferred stock, all outstanding shares of Series B Stock shall automatically convert into common stock as follows: • If the sixty-day VWAP is less than or equal to $ 0.50 per share, the Company shall have the option to (i) convert all shares of Series B Stock into common stock at a conversion price of $ 1.00 per share, and pay cash to the Series B Holders equal to the difference between the sixty-day VWAP and $ 3.00 per share, or (ii) pay cash to the Series B Holders equal to $ 3.00 per share. • If the sixty-day VWAP is greater than $ 0.50 per share, the Company shall have the option to (i) convert all shares of Series B Stock into common stock at a conversion price per share equal to the quotient of $ 3.00 per share divided by the sixty-day VWAP, or (ii) pay cash to the Series B Holders equal to $ 3.00 per share, or (iii) convert all shares of Series B Stock into common stock at a conversion price per share equal to the sixty-day VWAP and pay cash to the Series B Holders equal to the difference between $ 3.00 per share and the sixty-day VWAP. The Company shall at all times when the Series B Stock is outstanding, reserve and keep available out of its authorized but unissued capital stock, for the purpose of effecting the conversion of the Series B Stock, such number of its duly authorized shares of common stock as shall from time to time be sufficient to effect the conversion of all outstanding Series B Stock. Series C Convertible Preferred Stock In March 2021, the Company entered into a securities purchase agreement with Hadron Healthcare Master Fund (“Hadron”) with respect to a financing facility of up to $ 46.0 million (the “Hadron Facility”) in exchange for newly-designated Series C convertible preferred stock of the Company (the “Series C Stock”) and warrants to purchase the Company’s common stock (the “Hadron Transaction”). 22 Table of Contents At the closing of the Hadron Transaction in March 2021, Hadron purchased $ 23.0 million of Units at a price of $ 3.70 per Unit. Each Unit is comprised of one share of Series C Stock and a four-year warrant to purchase two and one-half shares of common stock. The Company issued to Hadron 6,216,216 shares of Series C Stock and warrants to purchase up to an aggregate of 15,540,540 shares of its common stock. Each share of Series C Stock is convertible, at Hadron’s option, into five shares of common stock, and each warrant is exercisable at an exercise price of $ 1.087 per share. The warrants are subject to early termination if certain milestones are achieved and the market value of the Company’s common stock reaches certain predetermined levels. The fair value of the warrants on the issuance date was $ 9.5 million, which amount was recorded in Additional paid-in capital. The Company incurred costs of $ 0.4 million related to the issuance of these securities, which was recorded as a reduction to Additional paid-in capital in March 2021. In connection with the closing of the Hadron Transaction, the Company filed a certificate of designation with respect to the rights and preferences of the Series C Stock. Such stock is zero coupon, non-voting, and has a liquidation preference equal to its original issuance price plus declared but unpaid dividends. Holders of Series C Stock are entitled to receive dividends on an as-converted basis. Of the $ 23.0 million of proceeds received by the Company in March 2021, $ 7.3 million was used to fund construction and upgrades of certain of the Company’s owned and managed facilities, and $ 15.7 million was used to pay down debt and related interest (see Note 10). No further funding has occurred under the Hadron Facility and, on August 4, 2022, the Company and Hadron entered into a Second Amendment to the Purchase Agreement pursuant to which, inter alia , (a) Hadron’s obligation to provide any further funding to the Company and the Company’s obligation to sell any further securities to Hadron was terminated, (b) Hadron’s right to appoint 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. (13) STOCKHOLDERS’ EQUITY AND STOCK-BASED COMPENSATION Common Stock During 2021 and 2022, the Company issued an aggregate of 12,542,126 shares of common stock in a series of conversions of a promissory note in the original principal amount of $ 8.8 million, of which 1,142,858 shares were issued in the first quarter of 2022, resulting in the promissory note being fully paid and retired (see Note 11). During the three months ended September 30, 2022, the Company issued an aggregate of 531,393 shares of common stock to one of its vendors as payment for services rendered and one of its partners as a royalty payment. The shares had an aggregate fair market value of approximately $ 361,000 . During the three months ended September 30, 2022, the issued subscriptions for common stock aggregating 74,581 shares, with a grant date fair value of approximately $ 41,000 . In August 2022, the Company issued 139 shares of common stock to an employee with a grant date fair value of approximately $ 80 . During the three months ended June 30, 2022, the Company issued 2,717 shares of restricted common stock associated with previously issued subscriptions for common stock with a grant date fair value of approximately $ 2,000 . In June 2022, the Company issued 4,221 shares of restricted common stock with a grant date fair value of approximately $ 2,500 . In May 2022, the Company issued 350,000 shares of restricted common stock with a grant date fair value of approximately $ 217,000 to the Company’s new Chief Financial Officer in connection with her appointment. In March 2022, the Company issued 375,000 shares of restricted common stock with a grant date fair value of approximately $ 274,000 in exchange for consulting services. 23 Table of Contents Amended and Restated 2018 Stock Award and Incentive Plan The Company’s Amended and Restated 2018 Stock Award and Incentive Plan (the “2018 Plan”) provides for the award of options to purchase the Company’s common stock (“stock options”), restricted stock units ("RSUs"), stock appreciation rights (“SARs”), restricted stock, deferred stock, dividend equivalents, performance shares or other stock-based performance awards and other stock- or cash-based awards. Awards can be granted under the 2018 Plan to the Company’s employees, officers and non-employee directors, as well as consultants and advisors of the Company and its subsidiaries. Warrants At September 30, 2022, warrants to purchase up to 23,951,571 shares of common stock were outstanding, with a weighted average exercise price of $ 0.85 . In April 2022, 750,000 warrants were exercised in a cashless transaction, under which the Company withheld 515,039 shares underlying such warrants and issued 234,961 shares of common stock. Stock Options At September 30, 2022, options to purchase up to 40,081,173 shares of common stock were outstanding, with a weighted average exercise price of $ 0.91 and a weighted average remaining life of approximately three years . In August 2022, 45,000 stock options were exercised, and the Company received $ 7,100 in connection with these exercises. In June 2022, 312,248 stock options were exercised in a cashless transaction, under which the Company withheld 112,248 shares underlying such stock options and issued 200,000 shares of common stock. In February 2022, 10,000 stock options were exercised, and the Company received $ 3,000 in connection with these exercises. The grant date fair values of options to purchase common stock granted in the three and nine months ended September 30, 2022 were estimated using the Black-Scholes valuation model with the following assumptions: Three months ended September 30, 2022 Nine months ended September 30, 2022 Estimated life (in years) 5.0 5.0 Volatility 89.4 % 90.0 % Risk-free interest rates 3.0 % 3.0 % Dividend yield — — Stock-Based Compensation The Company recorded stock-based compensation of $ 1.4 million and $ 6.4 million in the three and nine months ended September 30, 2022, respectively, and $ 5.6 million and $ 7.2 million in the three and nine months ended September 30, 2021, respectively. (14) REVENUE The Company’s main sources of revenue are comprised of the following: • Product sales (retail and wholesale) – direct sales of cannabis and cannabis-infused products primarily by the Company’s retail dispensaries and wholesale operations in Massachusetts, Illinois and, as of the Kind Acquisition Date, Maryland. This revenue is recognized when products are delivered or at retail points-of-sale. 24 Table of Contents • Real estate rentals – rental income generated from leasing of the Company’s state-of-the-art, regulatory compliant cannabis facilities to its 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, the Company charged additional rental fees based on a percentage of tenant revenues that exceeded specified amounts. • Management fees – fees for providing the Company’s 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, acquired by the Company from top national vendors at discounted prices, to its clients and third parties within the cannabis industry. The Company recognizes this revenue after the delivery and acceptance of goods by the purchaser. • Licensing fees – revenue from the licensing of the Company’s 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. This revenue is recognized when the products are delivered. The Financial Accounting Standards Board Accounting Standards Codification 606, Revenue from Contract with Customers, as amended by subsequently issued Accounting Standards Updates, requires an entity to recognize revenue to depict the transfer of goods or services to customers in an amount that reflects the consideration that it expects to be entitled to in exchange for those goods or services. The recognition of revenue is determined by performing the following consecutive steps: • Identify the contract(s) with a customer; • Identify the performance obligations in the contract(s); • Determine the transaction price; • Allocate the transaction price to the performance obligations in the contract(s); and • Recognize revenue as the performance obligation is satisfied. Additionally, when another party is involved in providing goods or services to the Company’s clients, a determination is made as to who - the Company or the other party - is acting in the capacity as the principal in the sale transaction, and who is the agent arranging for goods or services to be provided by the other party. The Company is typically considered the principal if it controls the specified good or service before such good or service is transferred to its client. The Company may also be deemed to be the principal even if it engages another party (an agent) to satisfy some of the performance obligations on its behalf, provided the Company (i) takes on certain responsibilities, obligations, and risks, (ii) possesses certain abilities and discretion, or (iii) other relevant indicators of the sale. If deemed an agent, the Company would not recognize revenue for the performance obligations it does not satisfy. 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, 2021 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: 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 25 Table of Contents (15) MAJOR CUSTOMERS The Company did not have any customers that contributed 10% or more of total revenue in any of the three- and nine-month periods ended September 30, 2022 and 2021. At September 30, 2022, one customer accounted for 10% or more of the Company’s accounts receivable balance, representing approximately 54 % of the total accounts receivable. At December 31, 2021, one customer accounted for 10% or more of the Company’s accounts receivable balance, representing approximately 28 % of total accounts receivable in the aggregate. The Company performs ongoing credit evaluations of its customers and generally does not require collateral on accounts receivable. The Company maintains an allowance for doubtful accounts and historical losses have been within management’s expectations. (16) LEASES Arrangements that are determined to be leases with a term greater than one year are accounted for by the recognition of right-of-use assets that represent the Company’s right to use an underlying asset for the lease term, and lease liabilities, that represent the Company’s obligation to make lease payments arising from the lease. Non-lease components within lease agreements are accounted for separately. Right-of-use assets and obligations are recognized at the commencement date based on the present value of lease payments over the lease term, utilizing the Company’s incremental borrowing rate. The Company’s lease terms may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option. Lease expense for lease payments is recognized on a straight-line basis over the lease term. The Company is currently the lessee under six operating leases and six finance leases. These leases contain rent holidays and customary escalations of lease payments for the type of facilities being leased. The Company recognizes rent expense on a straight-line basis over the expected lease term, including cancelable option periods which the Company fully expects to exercise. Certain leases require the payment of property taxes, insurance and/or maintenance costs in addition to the rent payments. The Company leases the following facilities under operating leases: • Delaware – 4,000 square feet of retail space in a multi-use building under a five-year lease that expires in April 2027 that the Company has developed into a cannabis dispensary which is subleased to its cannabis-licensed client. • Delaware – a 100,000 square foot warehouse, of which the Company developed 60,000 square feet into a cultivation facility that is being subleased to its cannabis-licensed client. The lease expires in March 2030, with an option to extend the term for three additional years. • Delaware – a 12,000 square foot premises which the Company developed into a cannabis production facility with offices, and which it subleases to its cannabis-licensed client. The lease expires in January 2026 and contains an option to negotiate an extension at the end of the lease. • Nevada – 10,000 square feet of an industrial building that the Company has built out into a cannabis cultivation facility which it plans to rent and then sublease to the cannabis-licensed entity, which will be coterminous with this lease expiring in 2024. • Massachusetts – 10,000 square feet of office space which the Company utilizes as its corporate offices under a lease with a related party expiring in 2028 with an option to extend the term for an additional five-year period. • Maryland – a 2,700 square foot two-unit apartment under a lease that expires in July 2023. The Company leases machinery and office equipment under finance leases that expire from February 2024 through November 2027, with such terms being a major part of the economic useful life of the leased property. 26 Table of Contents The components of lease expense for the three and nine months ended September 30, 2022 and 2021 were as follows (in thousands): Three months ended Nine months ended September 30, 2022 September 30, 2021 September 30, 2022 September 30, 2021 Operating lease expense $ 296 $ 277 $ 872 $ 821 Finance lease expenses: Amortization of right of use assets $ 48 $ 8 $ 108 $ 25 Interest on lease liabilities 14 1 32 4 Total finance lease expense $ 62 $ 9 $ 140 $ 29 At September 30, 2022, the weighted average remaining lease terms for operating leases and finance leases were 6.6 years and 3.3 years, respectively. The weighted average discount rate used to determine the right-of-use assets and lease liabilities was between 7.5 % and 12.0 % for all leases. Future minimum lease payments as of September 30, 2022 under all non-cancelable leases having an initial or remaining term of more than one year were (in thousands): Operating leases Finance leases Remainder of 2022 $ 304 $ 61 2023 1,298 238 2024 1,199 217 2025 1,179 216 2026 1,128 88 Thereafter 3,214 40 Total lease payments 8,322 860 Less: imputed interest ( 2,824 ) ( 136 ) $ 5,498 $ 724 In November 2021, the Company entered into lease agreements for six retail properties, each with square footage between 4,000 and 6,000 square feet, in the state of Ohio (each an “Ohio Lease” and collectively the “Ohio Leases”). Each Ohio Lease has an initial lease period of eleven months , with a minimum rent of $ 31.00 per square foot, which amount increases 3.0 % annually. In the event the Company is awarded one or more of the six Ohio cannabis licenses for which it had previously applied, the Company can extend the term of one or more of the Ohio Leases to ten years (with two additional five-year options to extend) upon the payment of $ 50,000 for each extended Ohio Lease, and develop the premises of such extended lease(s) into a cannabis dispensary. In February 2022, the Company was notified that it was awarded a cannabis dispensary license from the state of Ohio. The Company is awaiting the final verification process to be completed by the state. As of September 30, 2022, the lease terms of the Ohio Leases were all less than one year, and accordingly the Company has not recorded a right-of-use asset and corresponding lease liability on its balance sheet. In April 2022, the Company extended the term of one of the Ohio Leases to February 2023 (the "Extended Ohio Lease"), and the remaining five Ohio Leases were terminated. The Company intends to enter into a ten-year lease on the Extended Ohio Lease property, which will become effective upon the completion of the final verification process by the state, which is expected to occur in the first quarter of 2023. (17) RELATED PARTY TRANSACTIONS The Company’s corporate offices are leased from an entity in which the Company’s former Chief Financial Officer, now the Company’s President (the "President") has an investment interest. This lease expires in October 2028 and contains a five-year extension option. Expenses incurred under this lease were approximately $ 39,000 for both of the three-month periods ended September 30, 2022 and 2021, and approximately $ 117,000 for both of the nine-month periods ended September 30, 2022 and 2021. 27 Table of Contents The Company procures nutrients, lab equipment, cultivation supplies, furniture, and tools from an entity owned by the family of the Company’s Chief Operating Officer (“COO”). Purchases from this entity totaled $ 1.1 million and $ 3.4 million in the three and nine months ended September 30, 2022, respectively, and $ 1.5 million and $ 3.8 million in the three and nine months ended September 30, 2021, respectively. The Company pays royalties on the revenue generated from its Betty’s Eddies product line to an entity owned by the Company’s COO and its Chief Revenue Officer (“CRO") under a royalty agreement. This agreement was amended effective January 1, 2021 whereby, among other modifications, the royalty percentage changed from 2.5 % on all sales of Betty’s Eddies products to (i) 3.0 % and 10.0 % of wholesale sales of existing products within the product line if sold directly by the Company, or licensed by the Company for sale by third parties, respectively, and (ii) 0.5 % and 1.0 % of wholesale sales of future developed products within the product line if sold directly by the Company, or licensed by the Company for sale by third-parties, respectively. The aggregate royalties due to this entity were approximately $ 53,000 and $ 163,000 for the three and nine months ended September 30, 2022, respectively, and approximately $ 48,000 and $ 210,000 for the three and nine months ended September 30, 2021, respectively. During the three and nine months ended September 30, 2022, respectively, one of the Company’s majority-owned subsidiaries paid distributions in the aggregate of $ 4,200 and $ 27,300 to the Company’s Chief Executive Officer (“CEO”) and its President, who own minority equity interests in such subsidiary. During the three and nine months ended September 30, 2021, respectively, this majority-owned subsidiary paid aggregate distributions of approximately $ 13,000 and $ 34,000 to the Company’s CEO and President. During the three and nine months ended September 30, 2022, one of the Company’s majority-owned subsidiaries paid distributions of $ 6,500 and $ 17,500 , respectively, to a current employee who owns a minority equity interest in such subsidiary. During both the three and nine months ended September, the employee was paid $ 4,300 from such subsidiary. During the three and nine months ended September 30, 2022, the Company purchased fixed assets and consulting services aggregating $ 267,000 and $ 926,000 , respectively, from two entities owned by two of the Company’s general managers. During the three and nine months ended September 30, 2021, the Company purchased fixed assets and consulting services from these entities aggregating approximately $ 150,000 and $ 723,000 , respectively. During the three and nine months ended September 30, 2022, the Company purchased fixed assets of $ 125,000 and $ 486,000 , respectively, from an entity owned by an employee. During the three and nine months ended September 30, 2021, the Company purchased fix assets of approximately $ 78,000 and $ 438,000 , respectively, from this employee. The Company’s mortgages with Bank of New England, DuQuoin State Bank, and South Porte Bank are personally guaranteed by the Company’s CEO and the Company’s President. (18) COMMITMENTS AND CONTINGENCIES Maryland Litigation Following the consummation of the Kind Acquisition, in April 2022, the Maryland litigation between the Company and the members of Kind was dismissed in its entirety with prejudice, and the parties have released one another of any and all claims between them. DiPietro Lawsuit In December 2021, the parties to this action entered into a global confidential settlement and release agreement, along with the parties to the aforementioned Maryland litigation. At the same date, the Company’s wholly-owned subsidiary MariMed Advisors Inc. (“MMA”) and Jennifer DiPietro (“Ms. DiPietro”), one of the former members of Kind, entered into membership interest purchase agreement pursuant to which the Company would purchase Ms. DiPietro’s interests in Mia and Mari-MD. Upon the court’s approval of the parties’ joint motion for approval, on June 8, 2022, the purchase of Ms. DiPietro’s interests was consummated. The parties released all direct and derivative claims against one another, and a stipulation dismissing all claims and counterclaims with prejudice was filed with the court. 28 Table of Contents Bankruptcy Claim During 2019, the Company’s MMH subsidiary sold and delivered hemp seed inventory to GenCanna Global Inc., a Kentucky-based cultivator, producer, and distributor of hemp (“GenCanna”). At the time of sale, the Company owned a 33.5 % ownership interest in GenCanna. The Company recorded a related party receivable of approximately $ 29.0 million from the sale, which was fully reserved on December 31, 2019. In February 2020, GenCanna USA, GenCanna’s wholly-owned operating subsidiary, under pressure from certain of its creditors including MGG Investment Group LP, GenCanna’s senior lender (“MGG”), agreed to convert a previously-filed involuntary bankruptcy proceeding with the U.S. Bankruptcy Court in the Eastern District of Kentucky (the “Bankruptcy Court”) into a voluntary Chapter 11 proceeding. In addition, GenCanna and GenCanna USA’s subsidiary, Hemp Kentucky LLC (collectively with GenCanna and GenCanna USA, the “GenCanna Debtors”), filed voluntary petitions under Chapter 11 in the Bankruptcy Court. In May 2020, after an abbreviated solicitation/bid/sale process, the Bankruptcy Court, over numerous objections by creditors and shareholders of the GenCanna Debtors which included the Company, entered an order authorizing the sale of all or substantially all of the assets of the GenCanna Debtors to MGG. After the consummation of the sale of all or substantially all of their assets and business, the GenCanna Debtors n/k/a OGGUSA, Inc. and OGG, Inc. (the “OGGUSA Debtors”) filed their liquidating plan of reorganization (the “Liquidating Plan”) to collect various prepetition payments and commercial claims against third parties, liquidate the remaining assets of the ODDUSA Debtors, and make payments to creditors. The Company and the unsecured creditors committee filed objections to such Liquidating Plan, including opposition to the release of litigation against the OGGUSA Debtors’ senior lender, MGG, for lender liability, equitable subordination, and return of preference. As a part of such plan confirmation process, the OGGUSA Debtors filed various objections to proofs of claims filed by various creditors, including the proof of claim in the amount of $ 33.6 million filed by the Company. Through intense and lengthy negotiations with the OGGUSA Debtors and the unsecured creditors committee regarding the objections to the Liquidating Plan, the Company reached an agreement with the OGGUSA Debtors to withdraw the objections to the Company’s claim and to have it approved by the Bankruptcy Court as a general unsecured claim in the amount of $ 31.0 million. Since the approval of the Liquidating Plan, the OGGUSA Debtors have been in the process of liquidating the remaining assets, negotiating and prosecuting objections to other creditors’ claims, and pursuing the collection of accounts receivable and Chapter 5 bankruptcy avoidance claims. In January 2022, the Company, at the request of the Liquidating Plan administrator for the OGGUSA Debtors, executed a written release of claims, if any, of the Company against Huron Consulting Group (“Huron”), a financial consulting and management company retained by the senior lender of the OGGUSA Debtors to perform loan management services for the lender and OGGUSA Debtors prior to and during their Chapter 11 bankruptcy cases. Such release was executed in connection with a comprehensive settlement agreement between the OGGUSA Debtors and Huron. In consideration for the Company’s execution of the release, Huron paid an additional $ 40,000 to the bankruptcy estates of the OGGUSA Debtors to be included in the funds to be distributed to creditors, including the Company. On April 20, 2022, the Plan Administrator for the OGGUSA Debtors filed an adversary proceeding against the Company seeking to recover approximately $ 200,000 in certain alleged preferential transfers made to MariMed Hemp, Inc. prior to the filing of the Chapter 11 bankruptcy. After investigating the nature of these claims, the Company and its counsel do not believe that such claims have any factual or legal merit and intend to vigorously defend such preference action. In addition, by reason of the nature of the claims, the Company believes that it has certain counterclaims and possible third-party claims against the OGGUSA Debtors in relation to the facts asserted in the preference action. The Company and its counsel are continuing to have discussions with the Plan Administrator in an attempt to resolve this action without further litigation or expense. On October 19, 2022, counsel for the Plan Administrator requested a resumption of discussions between the parties regarding the settlement of the claims in question. It is not known at this time whether such matter can be resolved or if the Company will be required to proceed with its defense and counterclaims. In the event that the Company and the Plan Administrator are not able to reach a settlement agreement regarding the resolution of the claims, one or both of the parties will file an election notice with the bankruptcy court to allow the reference action to proceed. As of the date of this filing, since the preference section is still in its initial states and no discovery has been conducted by either party, there is still insufficient information as to (a) the details of the factual or legal basis for the preference claim asserted by the Plan Administrator or (b) what portion, if any, of the Company’s allowed claim will be paid upon the completion of the liquidation of the remaining assets of the OGGUSA Debtors. 29 Table of Contents (19) SUBSEQUENT EVENTS Equity Transactions Subsequent to September 30, 2022, (i) 896,031 warrants were exercised in a cashless transaction, under which the Company withheld 813,694 shares underlying such warrants and issued 82,337 shares of common stock and (ii) 629 shares of restricted common stock were issued as payment under a royalty agreement. Payoff of Promissory Note In November 2022, the Company and the holder of the promissory note issued by MariMed Hemp Inc. reached an agreement under which the Company will pay approximately $ 227,000 to the holder of such note. No additional amounts are due under this promissory note. 30 Table of Contents