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Item 7. Management’s Discussion and Analysis

2023-03-03 compared with 2022-03-16 · 246 added, 306 removed, 5 unchanged (99% of the section changed)

Management's Discussion and Analysis of Financial Condition and Results of Operations

Looking Statements

used in this form 10-K and in future filings by the Company with the Commission, words or phrases such as “anticipate,” “believe,”

“could,” “would,” “should,” “estimate,” “expect,” “intend,” “may,”

“plan,” “predict,” “project,” “will” or similar expressions are intended to identify

“forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995.

Readers are cautioned

not to place undue reliance on any such forward looking statements, each of which speak only as of the date made.

Such statements are

subject to certain risks and uncertainties that could cause actual results to differ materially from historical earnings and those presently

anticipated or projected.

The Company has no obligation to publicly release the result of any revisions which may be made to any forward-looking

statements to reflect anticipated or unanticipated events or circumstances occurring after the date of such statements.

These forward-looking statements involve known and

unknown risks, uncertainties and other factors that may cause actual results to be materially different.

These factors include, but are

not limited to, changes that may occur to general economic and business conditions;

changes in current pricing levels that the Company

can charge for its services and products or which it pays to its suppliers and business partners;

changes in political, social and economic

conditions in the jurisdictions in which the Company operates;

Forward Looking Statements

When used in this Annual Report on Form 10-K and in future filings by the Company with the U.S.

Securities and Exchange Commission, words or phrases such as “anticipate,” “believe,” “could,” “would,” “should,” “estimate,” “expect,” “intend,” “may,” “plan,” “predict,” “project,” “will” or similar expressions are intended to identify “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995.

Readers are cautioned not to place undue reliance on any such forward looking statements, each of which speak only as of the date made.

Such statements are subject to certain risks and uncertainties that could cause actual results to differ materially from historical earnings and those presently anticipated or projected.

The Company has no obligation to publicly release the result of any revisions which may be made to any forward-looking statements to reflect anticipated or unanticipated events or circumstances occurring after the date of such statements.

These forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause actual results to be materially different.

These factors include, but are not limited to, changes that may occur to general economic and business conditions;

changes in current pricing levels that the Company can charge for its services and products or

which it pays to its suppliers and business partners;

changes in political, social and economic conditions in the jurisdictions in which the Company operates;

changes to regulations that pertain to its operations;

changes in technology

that render the Company’s technology relatively inferior, obsolete or more expensive compared to others;

changes in the business

prospects of the Company’s business partners and customers;

increased competition, including from the Company’s business

and enforcement of federal cannabis related laws.

following discussion should be read in conjunction with the financial statements and related notes which are included in this report

under Item 8.

The Company does not undertake to update its

forward-looking statements or risk factors to reflect future events or circumstances.

(the “Company”) is a multi-state operator in the United States cannabis industry.

The Company develops, operates, manages,

and optimizes 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 Company also licenses its proprietary brands of cannabis and hemp-infused products, along

with other top brands, in several domestic markets and overseas.

its entry into the cannabis industry in 2014, the Company was an advisory firm that procured state-issued cannabis licenses on behalf

of its clients, developed cannabis facilities which it leased to these newly-licensed companies, and provided industry-leading expertise

and oversight in all aspects of their cannabis operations.

The Company also provided its clients with ongoing regulatory, accounting,

real estate, human resources, and administrative services.

the last few years, the Company made the strategic decision to transition from a consulting business to a direct owner and operator of

cannabis licenses in high-growth states.

Core to this transition is the acquisition and consolidation of the Company’s clients

(the “Consolidation Plan”).

Among several benefits, the Consolidation Plan would present a simpler, more transparent financial

picture of the full breadth of the Company’s efforts, with a clearer representation of the revenues, earnings, and other financial

metrics the Company has generated for its clients.

The Company has played a key role in the successes of these entities, from the securing

of their cannabis licenses, to the development of facilities that are models of excellence, to funding their operations, and to providing

operational and corporate guidance.

Accordingly, the Company believes it is well suited to own these businesses and manage the continuing

growth of their operations.

date, the acquisition and consolidation of the Company’s client businesses in Massachusetts and Illinois have been completed.

The acquisition of a client business in Maryland has been contracted, and the Company is awaiting approval by the Maryland Cannabis

Control Commission, which is pending.

Upon approval, this entity will be consolidated.

The acquisitions of the remaining businesses

located in Nevada and Delaware are at various stages of completion and subject to each state’s laws governing the ownership

transfer of cannabis licenses and other closing conditions.

Delaware will require a modification of current cannabis ownership laws

to permit for-profit ownership, which is expected to occur when the state legalizes recreational adult-use cannabis.

Until the law changes and the acquisition is approved, the

Company continues to generate revenue from rental income, management fees, and licensing royalties.

transition to a fully integrated muti-state cannabis operator (“MSO”) is part of a strategic growth plan (the “Strategic

Growth Plan”) the Company is implementing to drive its revenues and profitability.

The Strategic Growth Plan has four components:

(i) complete the Consolidation Plan, (ii) increase revenues in existing states, by spending capital to increase the Company’s cultivation

and production capacity, and develop additional assets within those states, (iii) expand the Company’s footprint in additional

legal cannabis states through new applications and acquisitions of existing cannabis businesses, and (iv) optimize the Company’s

brand portfolio and licensing revenue by expanding into additional states with legal cannabis programs.

The Company has created its own brands of cannabis flower, concentrates, and precision-dosed products utilizing proprietary

strains and formulations.

These products are developed by the Company in cooperation with state-licensed operators who meet the Company’s

strict quality standards, including all natural—not artificial or synthetic—ingredients.

The Company licenses its brands

and product formulations only to certified manufacturing professionals who follow state cannabis laws and adhere to the Company’s

precise scientific formulations and product recipes.

Company markets its high-quality cannabis flowers and concentrates under the award-winning 1 Nature’s

Heritage brand;

cannabis-infused chewable tables and powder drink mixes under the brand names Kalm Fusion and K Fusion;

all natural fruit

chews under the award-winning 1 Betty’s Eddies brand;

and brownies, cookies, and other social sweets under the Bubby’s

The Company’s cannabis-infused brands have been top-selling products in Maryland and Massachusetts.

2 The Company

intends to introduce additional product lines under these brands in the foreseeable future.

Company also has strategic alliances with prominent brands.

The Company has partnered with renowned ice cream maker Emack & Bolio’s®

to create a line-up of cannabis-infused vegan and dairy ice cream.

Additionally, the Company has secured distribution rights for the

Binske® line of cannabis products crafted from premium artisan ingredients, the Healer line of medical full-spectrum cannabis tinctures,

and the clinically-tested medicinal cannabis strains developed in Israel by global medical cannabis research pioneer Tikun Olam.

Awards won by the Company’s Betty’s Eddies brand include LeafLink 2021 Best Selling Medical Product, Reddit Sparkie

2021 Best Edible, Respect My Region 2021 Hottest Edible, LeafLink 2020 Industry Innovator, and Explore Maryland Cannabis 2020 Edible

Awards won by the Company’s Nature’s Heritage brand include the Cultivators Cup 2021 Silver Medal and the High

Times Cannabis Cup 2021 Bronze Medal.

LeafLink Insights 2020.

Company’s revenues are primarily comprised of the following categories:

Sales – direct sales of cannabis and cannabis-infused products by the Company’s dispensary and wholesale operations in

Massachusetts and Illinois, and sales of hemp and hemp-infused products.

Future product sales are expected to include the Company’s

planned cannabis-licensee acquisitions in Maryland, Nevada, and Delaware (upon this state’s amendment to permit for-profit

ownership of cannabis entities).

Estate – rental income and additional rental fees generated from leasing of the Company’s state-of-the-art, regulatory-compliant

cannabis facilities to its cannabis-licensed clients.

– fees for providing the Company’s cannabis clients with comprehensive oversight of their cannabis cultivation, production,

and dispensary operations.

Along with this oversight, the Company provides human resources, regulatory, marketing, and other corporate

Procurement – resale of cultivation and production resources, supplies, and equipment, acquired by the Company from top national

vendors at volume discounted prices, to its clients and third-parties within the cannabis industry.

– revenue from the sale of precision-dosed, cannabis-infused products—such as Betty’s Eddies, Kalm Fusion,

and Nature’s Heritage—to regulated dispensaries throughout the United States

and Puerto Rico.

Company classifies its expenses into three general categories:

of Revenues – the direct costs associated with the generation of the Company’s revenues.

Expenses – comprised of the sub-categories of personnel, marketing and promotion, general and administrative, and bad debts.

Non-operating

Income and Expenses – comprised of the sub-categories of interest expense, interest income, losses on obligations settled with

equity, equity in earnings of investments, changes in the fair value of non-consolidated investments, and other non-recurring gains

and Capital Resources

Company produced significant improvements to its liquidity in the reported periods:

and cash equivalents increased nearly ten-fold to $29.7 million at December 31, 2021, from $3.0 million

at December 31, 2020.

2021, the Company’s operating activities provided positive cash flow of $35.9 million, compared to $3.4 million

December 31, 2021, working capital increased to $17.4 million from a working capital deficit of $2.2 million at December 31, 2020,

a positive swing of $19.6 million.

Company generated net income of $7.6 million in 2021, an increase of 214% from net income of $2.4 million in 2020.

aforementioned improvements to the Company’s liquidity were primarily the result of increases in revenues and profitability

generated by the Company’s cannabis operations in the states of Illinois and Massachusetts.

These operations launched as

part of the Company’s aforementioned Consolidation Plan to transition from a consulting business to a direct owner of cannabis

licenses and operator of seed-to-sale operations.

The liquidity improvements were also attributable to $23.0 million of equity

capital raised from Hadron Healthcare Master Fund (“Hadron”), further discussed under the Financing Activities section

addition to the above, the Company evaluates liquidity using the financial measurement of Adjusted EBITDA, a commonly used

metric to assess liquidity that is not defined by generally accepted accounting principles.

The section below entitled Non-GAAP

Measurement discusses the components of this measurement in further detail.

cash provided by operating activities was $35.9 million in 2021, compared to $3.4 million in 2020.

The year-over-year

improvement was primarily attributable to the increase in cannabis-derived profits in 2021 generated by the Company’s

four active dispensaries in Illinois, and its retail and wholesale operations in Massachusetts.

Net cash used in investing

activities was $16.6 million in 2021, compared to $4.5 million in 2020.

The year-over-year increase was attributable to an increase in

property and equipment expenditures in 2021 for the Company’s facilities in Delaware, Illinois, Maryland, and Massachusetts, offset

by $1.2 million of proceeds from the asset sale of a Company-owned investment.

cash provided by financing activities was $7.5 million in 2021, compared to $3.3 million in 2020.

In March 2021,

the Company entered into a securities purchase agreement with Hadron Healthcare Master Fund (“Hadron”) whereby Hadron will

provide funding of up to $46.0 million to repay existing non-mortgage debt, to fund expansion plans of existing operations, and to finance

planned acquisitions.

In March 2021, Hadron funded $23.0 million under this facility.

The Company also raised $2.7 million

from a new mortgage.

These proceeds were offset by the repayment of $17.0 million of debt in 2021.

Company raised $21.4 million from debt financings,

offset by $17.4 million of promissory note and mortgage repayments during the year.

proceeds from the aforementioned financings were used to execute on the Company’s strategy to become a fully integrated multistate

operator of seed-to-sale cannabis operations, to continue the development of its regulated facilities, to pay down its debt, to expand

its branded licensing business, and for working capital purposes.

of Operations

ended December 31, 2021 compared to year ended December 31, 2020

grew to $121.5 million in 2021, an increase of $70.6 million or 139%, compared to $50.9 million in 2020.

The year-over-year

increase was primarily due to the nearly three-fold expansion of the Company’s cannabis sales to $108.2 million in 2021, compared

to $39.4 million in 2020.

This growth was primarily attributable to sales increases of (i) $38.3 million generated by the Company’s

dispensaries in Illinois, where one new dispensary commenced operations in May 2021, and three ongoing dispensaries experienced an 80%

year-over-year increase in customer visits, (ii) $14.0 million generated from the Company’s dispensary in Massachusetts, which

experienced a nearly six-fold year-over-year increase in customer visits, and (iii) $15.7 million generated by the Company’s wholesale

operations in Massachusetts, which experience a 151% increase in customers in 2021 compared to 2020.

year-over-year increase in revenues was also the result of the continued growth of rental income, management fees, and supply procurement

revenue, generated primarily from the Company’s cannabis clients in Delaware and Maryland.

of revenues were $55.2 million in 2021 compared to $19.6 million in 2020, an increase of $35.6 million.

The year-over-year variance was

primarily attributable to the higher level of revenues as these costs are largely variable in nature and fluctuate in-step with revenues.

As a percentage of revenues, these costs increased to 45.4% in 2021 from 38.5% in the same period in 2020, primarily due to the

change in the relative mix of revenue categories in each period.

Specifically, in 2021, (a) 88.2% of revenues were comprised of product

sales, which historically have had corresponding costs of revenue of in the range of 45.0% to 50.0%, and (b) 8.6% of revenues were comprised

of real estate and management revenue, which have no corresponding cost of revenue.

This compares to revenues in 2020 that were comprised

of (x) 77.4% of product sales and (y) 16.2% of real estate and management revenues.

While the cost rate is higher for product sales,

the level of product sales able to be generated by the Company is several multiples higher than the level of real estate and management

revenues able to be generated, resulting in significantly higher gross profit dollars to be generated by the Company.

gross profit grew to $66.3 million in 2021 from $31.3 million in 2020.

expenses increased to $8.4 million in 2021 from $5.5 million in 2020.

The increase was primarily due to the

hiring of additional staff to support (i) higher levels of revenue, and (ii) the Company’s expansion into a direct owner and operator

of seed-to-sale cannabis businesses, offset by the reversal of an approximate $1.0 million accrual related to the settlement in August

2021 of an employment-related complaint.

As a percentage of revenues, personnel expenses decreased to 6.9% in 2021

from to 10.8% in 2020.

and promotion costs increased to $1.6 million in 2021 from $411,000 in 2020.

The increase is primarily the result

of increased spending on branding and design consulting, customer loyalty programs, social media, and local outdoor advertising.

a percentage of revenues, these costs increased to 1.3% in 2021 from 0.8% in 2020.

General and administrative costs increased to

$27.6 million in 2021 from approximately $9.9 million in 2020.

This change is primarily due to increases of (i) $13.2 million in non-cash

equity compensation expense associated with option grants and warrant issuances, (ii) $1.2 million in credit card processing fees from

a significant increase in credit card sales at the Company’s cannabis dispensaries, (iii) $1.1 million in facility costs on additional

properties in service in 2021, (iv) $965,000 in net professional fees primarily due to the hiring of investment bankers, offset by a

reduction in legal costs, and (v) $514,000 in depreciation and amortization expenses from higher levels of property, equipment, and intangibles.

debt expense increased to $1.9 million in 2021 from $982,000 in 2020.

The change is due to the increase of reserves recorded

against aging trade accounts receivable and against the working capital balance of the Company’s client in Nevada.

As a percentage

of revenues, this expense decreased to 1.5% in 2021 from 1.9% in 2020.

a result of the foregoing, the Company generated operating income of $26.9 million in 2021 compared to $14.5

million in 2020.

Net non-operating expenses decreased to $3.0 million

in 2021 from $10.0 million in 2020.

The change is primarily due to a $7.5 million reduction of interest expense from lower levels of

outstanding debt, coupled with a $309,000 gain on a nonconsolidated private company investment, offset by a $757,000 decrease in the

fair value of nonconsolidated public company investment.

a result of the foregoing, the Company generated income before income taxes of $23.8 million in 2021 and $4.5 million in

After a tax provision of $16.2 million in 2021 and $2.1 million in 2020, net income was $7.6 million in 2020 and $2.4 million in 2020.

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

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

EBITDA – as a supplement to the preceding discussion of the Company’s financial results.

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

income and interest expense;

of fixed assets and amortization of intangibles;

expenses on debt and equity issuances;

or write-downs of intangible assets;

gains and losses on investments and currency translations;

or losses from the extinguishment of debt via the issuance of equity;

and acquisition-related transaction expenses.

believes Adjusted EBITDA is a useful measure to assess the performance and liquidity of the Company as it provides meaningful operating

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

In addition, the Company’s

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 the Company’s financial results and

its 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

there are no standardized methods of calculating non-GAAP measurements, the Company’s 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 years ended December 31, 2021 and 2020:

changes in technology that render the Company’s technology relatively inferior, obsolete or more expensive compared to others;

changes in the business prospects of the Company’s business partners and customers;

increased competition, including from the Company’s business partners;

and enforcement of U.S.

federal cannabis-related laws.

The following discussion should be read in conjunction with the financial statements and related notes which are included in this Annual Report on Form 10-K under Item 8.

The Company does not undertake to update its forward-looking statements or risk factors to reflect future events or circumstances, unless required by law.

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 products, along with other top brands, in several domestic markets.

Our common stock trades on both the OCTQX and on the Canadian Securities Exchange under the ticker symbol MRMD.

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 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”).

On December 30, 2022, we completed an asset purchase under which we acquired the cannabis license and assumed the property lease associated with a cannabis dispensary in Beverly, Massachusetts by Greenhouse Naturals LLC that had never been operational.

During 2023, we are focused on continuing to execute our strategic growth plan, with priority on activities described below:

• Continuing to consolidate the cannabis businesses that we have developed and managed.

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

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

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

• In Massachusetts, we intend to open two additional dispensaries, including the dispensary in Beverly, Massachusetts discussed above, and, as recently announced, a dispensary in Quincy, Massachusetts.

We also intend to significantly expand the capacity and capability of our manufacturing facility in New Bedford, MA.

• In Delaware, we developed an additional 40,000 square feet of cultivation and production capacity at our facility in Milford, which, upon completion, was leased to our client in this state.

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

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

• In Illinois, in May 2022, we closed on the acquisition of a 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 five additional dispensaries, for a total of ten.

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.

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.

Business Combinations and Asset Purchases

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 trade names, 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.

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

Years ended December 31, 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 retail points-of-sale.

• Real estate rental income - rental income generated from the 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;

these incremental rental fees were eliminated in connection with new contract negotiations with our client.

• 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.

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

Prior to the third quarter of 2022, these fees were based on a percentage of such clients' revenue and were recognized after services have been performed;

these fees were eliminated in connection with new contract negotiations with our client.

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

We recognize this revenue when the products are sold to the end customer.

Our revenue for the years ended December 31, 2022 and 2021 was comprised of the following (in thousands, except percentages):

Year ended December 31, Increase (decrease) from prior year

2022 2021 $ %

Product revenue:

Product sales - retail $ 92,836 $ 82,127 $ 10,709 13.0 %

Product sales - wholesale 32,865 26,119 6,746 25.8 %

Total product revenue 125,701 108,246 17,455 16.1 %

Other revenue:

Real estate rentals 3,526 6,548 (3,022) (46.2) %

Supply procurement 3,353 2,108 1,245 59.1 %

Management fees 848 3,079 (2,231) (72.5) %

Licensing fees 582 1,483 (901) (60.8) %

Total other revenue 8,309 13,218 (4,909) (37.1) %

Total revenue $ 134,010 $ 121,464 $ 12,546 10.3 %

Our total revenue increased $12.5 million, or 10.3%, in the year ended December 31, 2022 ("2022") compared to the year ended December 31, 2021 ("2021").

Our total product revenue increased $17.5 million, or 16.1%, primarily attributable to higher retail sales in our Metropolis, IL dispensary, which we opened in the second quarter of 2021, and higher wholesale revenue due to 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 cannabis-licensed clients, and the Kind Acquisition, after which we no longer recognized rental, management fees and related revenue.

These decreases were partially offset by higher supply procurement revenue primarily attributable to revenue generated from our cannabis-licensed client in Delaware.

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 2022 and 2021 were as follows (in thousands, except percentages):

Year ended December 31, Increase (decrease) from prior year

2022 2021 $ %

Cost of revenue $ 70,053 $ 55,201 $ 14,852 26.9 %

Gross profit $ 63,957 $ 66,263 $ (2,306) (3.5) %

Gross margin 47.7 % 54.6 %

Our cost of revenue increased in 2022 compared to 2021, primarily attributable to higher manufacturing and employee-related costs and, to a lesser extent, higher supply procurement and facility-related expenses.

These increases aggregated approximately $17 million, and were primarily due to our increased headcount in connection with our recent acquisitions and in-process expansions.

We have negotiated with certain of our suppliers to reduce our costs for future purchases of ingredients, nutrients and packaging, all of which have increased significantly as a result of current economic conditions.

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 2022 and 2021 were as follows (in thousands, except percentages):

Year ended December 31, Increase (decrease) from prior year

2022 2021 $ %

Personnel $ 14,404 $ 8,352 $ 6,052 72.5 %

Marketing and promotion 3,736 1,625 2,111 129.9 %

General and administrative 20,735 27,561 (6,826) (24.8) %

Acquisition-related and other 961 — 961 100.0 %

Bad debt 3,752 1,862 1,890 101.5 %

Total operating expenses $ 43,588 $ 39,400 $ 4,188 10.6 %

The increase in our personnel expenses in 2022 compared to 2021 was primarily due to the hiring of additional staff to support higher levels of projected revenue from existing operations, as well as increased headcount arising from the Kind Acquisition.

Personnel costs increased to approximately 11% of revenue in 2022, compared to approximately 7% of revenue in 2021.

The increase in our marketing and promotion expenses in 2022 compared to 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 3% of revenue in 2022, compared to approximately 1% of revenue in 2021.

The decrease in our general and administrative expenses in 2022 compared to 2021 was primarily attributable to lower costs in connection with our equity programs and professional fees (i.e., accounting, legal and consulting fees).

These decreases were partially offset by higher facilities-related and depreciation expenses.

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 $1.0 million of acquisition-related and other expenses in 2022, primarily related to the Kind Acquisition in April 2022 and the July 2022 listing of our common stock on the Canadian Securities Exchange.

We did not record any acquisition-related and other expenses in 2021.

We recorded nominal bad debt expense in 2022.

We recorded $1.9 million of bad debt expense in 2021 due to the higher reserve balances that were required in 2021 for aged trade receivable balances.

Overall, our operating expenses were relatively unchanged in 2022 compared to 2021;

our higher personnel, marketing and promotion, and acquisition-related and other expenses were virtually offset by our lower general and administrative and bad debt expense.

Interest and Other Expense, Net

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

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

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

Our net interest expense decreased $1.5 million in 2022 compared to 2021, the result of $0.8 million of higher interest income and $0.7 million of lower interest expense.

The increase in interest income was primarily related to the additional

notes receivable we recorded in 2021.

The decrease in interest expense was primarily attributable to the payoff in 2021 of certain outstanding indebtedness.

Our net other expense was $0.1 million and $0.8 million in 2022 and 2021, respectively, and was primarily comprised of losses from the changes in the fair value of our investments.

The current year amount is comprised of $1.0 million of non-cash income from the sale of an investment, virtually offset by a $1.1 million loss from the change in fair value of other investments.

The prior year amount is comprised of a $1.1 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 $5.9 million and $16.2 million in 2022 and 2021, respectively.

The provision recorded for 2022 was due in part to the impact of Section 280E of the Internal Revenue Code, which prohibits the deduction of certain ordinary business expenses, and true-ups from changes that occurred between the 2021 provision and 2021 income tax return that was filed.

Liquidity and Capital Resources

We had cash and cash equivalents of $9.7 million and $29.7 million at December 31, 2022 and 2021, respectively.

In addition to the discussions below of our cash flows from operating, investing, and financing activities, 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 to 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 $7.3 million and $35.9 million of cash in 2022 and 2021, respectively.

The change in cash from operating activities in 2022 compared to 2021 was primarily attributable to $14.6 million of cash used to pay income taxes in the current year period, compared to $0.6 million in the same prior year period, coupled with higher expenses arising from expanding our sales activities, facilities and geographic footprint, both in the states where we currently operate and into other states.

Cash Flows from Investing Activities

Our investing activities used $26.2 million and $16.6 million of cash in 2022 and 2021, respectively.

The increase in cash usage in the current year period was primarily attributable to $12.8 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 $1.0 million of cash in 2022 and provided $7.5 million of cash in 2021.

In 2022, we paid $2.0 million of cash to redeem the outstanding minority interests in one of our majority-owned real estate subsidiaries, made $1.5 million of aggregate principal payments on our outstanding mortgages and notes payable, and made distribution payments and finance lease principal payments aggregating $0.5 million.

These amounts were partially offset by $3.0 million of proceeds from a new mortgage on one of our facilities in Illinois.

In 2021, we received $23.0 million from the issuance of preferred stock and $2.7 million from a new mortgage on our Metropolis facility in Illinois.

These amounts were partially offset by $16.4 million of principal payments on our outstanding mortgages and notes payable, $1.2 million for repayment of related party loans, and $0.4 million paid for distributions.

On August 4, 2022, we entered into a Second Amendment to the Purchase Agreement with Hadron pursuant to which, among other things, (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 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.

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 December 31, 2022, and our ability to raise additional cash through financing activities.

Our contractual obligations at December 31, 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 $30 million at December 31, 2022.

On January 24, 2023, we announced that we had closed a $35 million credit facility with a three-year maturity and an ability to extend to a five-year maturity under certain conditions (the "Credit Facility").

We borrowed $30 million at close and can draw down up to an additional $5 million for the six-month period following closing.

We expect to use these funds to complete the build-out of a new cultivation and processing facility in Illinois and a new processing kitchen in Missouri, expand existing cultivation and processing facilities in Massachusetts and Maryland, fund other capital expenditures, and for business acquisitions.

In addition, on January 24, 2023, we repaid in full the promissory notes issued in connection with the Kind Acquisition (the "Kind Notes"), using $5.4 million of the proceeds from the Credit Facility.

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.

Our management defines Adjusted EBITDA as net income (loss), 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 and goodwill;

• 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 years ended December 31, 2022 and 2021 (in thousands):

Year ended December 31,

GAAP Net income (loss) $ 13,614 $ 7,624

Interest expense, net 734 2,247

Depreciation and amortization

Earnings before interest, taxes, depreciation, and amortization

Amortization of stock grants

Amortization of option grants

Amortization of stand-alone warrant issuances

Amortization of warrants issued with stock

Loss on equity issued to settle obligations

Equity in earnings of investments

Asset write-down

Legal settlement

Change in fair value of investments

Income tax (benefit) provision 5,894 16,192

Depreciation 3,432 2,098

Amortization of acquired intangible assets 1,282 690

EBITDA 24,956 28,851

Stock-based compensation 6,338 13,440

Settlement of litigation — (266)

Acquisition-related and other 961 —

Other expense, net 127 800

Adjusted EBITDA $ 32,382 $ 42,825

2022, the Company’s focus will be on the following key areas:

to the applicable state approvals, continue the execution of its Consolidation Plan.

and open two new dispensary locations in Massachusetts that can service both the medical and adult-use marketplaces.

Additionally,

the Company plans to begin expansion of its New Bedford, MA cultivation and processing facility in the fourth quarter

of 2022 and complete the project in 2023.

and open a cultivation and processing facility in Mt.

Vernon, Illinois and begin the production and sale of MariMed’s award-winning

branded products in both their retail dispensaries and through wholesale channels.

fees paid by its managed services client in Delaware by expanding cultivation and processing facilities.

the acquisition in Maryland and proceed with a plan to expand the cultivation and processing facilities as well as adding

a dispensary location.

licensing fees through the expansion of the Company’s Nature’s Heritage branded flower and popular infused-product

brands Betty’s Eddies and Kalm Fusion into the Company’s owned and managed facilities, and with strategic partners

into additional markets.

Expand the licensed Tropizen® and Binske® brands.

acquisition opportunities in other states.

assurances can be given that any of these plans will come to fruition or that if implemented will necessarily yield positive results.

following transactions occurred in early 2022:

January 2022, the Company entered into a stock purchase agreement to acquire 100% of the ownership interests of Green Growth Group Inc.,

an entity that has been awarded a craft grow cannabis license issued by the Illinois Department of Agriculture (the “IDA”)

for cultivation, production, and transporting of cannabis and cannabis-infused products in Illinois.

The purchase price of $3,400,000

shall be comprised of $1,900,000 in cash and shares of the Company’s common stock valued at $1,500,000.

The acquisition is

conditioned upon the approval by the IDA, among other closing conditions, which is expected to occur by July 2022.

in January 2022, the Company entered into an agreement to purchase a 30-acre parcel of land located in Mt.

Vernon, IL containing a

33,000 square foot manufacturing facility and a 13,000 square foot storage warehouse, in exchange for $1,495,000 in cash.

execution of the agreement, the Company provided a deposit of $100,000 to the seller.

The transaction is expected to close in the

second quarter of 2022, after the Company has performed a complete inspection and feasibility review.

If such review determines that

the premises will not satisfy the Company’s requirements, the Company shall have the right to terminate the agreement with no

other obligation other than the loss of the deposit.

Sheet Arrangements

Company has no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on its financial

condition, changes in financial condition, revenues, or 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 the Company’s financial condition or results of its operations.

the opinion of management, the Company’s financial condition and results of its operations are not materially impacted by seasonal

Accounting Pronouncements

Company has reviewed all other recently issued, but not yet effective, accounting pronouncements, and does not believe the future adoption

of any such pronouncements will have a material impact on its financial condition or the results of its operations.

Off-Balance Sheet Arrangements

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

In the opinion of management, inflation has impacted the Company through increased costs of ingredients, nutrients and packaging.

The Company recently negotiated with certain of our suppliers to reduce our costs for future purchases of ingredients, nutrients and packaging, all of which have increased significantly as a result of current economic conditions.

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

Recent Accounting Pronouncements

The Company has reviewed all other recently issued, but not yet effective, accounting pronouncements, and does not believe the future adoption of any such pronouncements will have a material impact on its financial condition or the results of its operations.

Quantitative and Qualitative Disclosures 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-K

Item 7. Management’s Discussion and Analysis