What changed in this filing

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Item 2. Management’s Discussion and Analysis

2025-08-07 compared with 2025-05-08 · 89 added, 55 removed, 201 unchanged (42% of the section changed)

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Prior to its acquisition by us (the "FSC Acquisition"), FSC had been our managed services client.

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

We completed two acquisitions in the year ended December 31, 2024, which we accounted for as asset purchase.

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

We completed two acquisitions in the year ended December 31, 2024, which we accounted for as asset purchases.

On April 9, 2024, we acquired 100% of the membership interests of Allgreens Dispensary, LLC ("Allgreens"), which held a conditional adult-use cannabis dispensary license in Illinois.

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Results of Operations

Three months ended March 31, 2025 and 2024

Three and six months ended June 30, 2025 and 2024

Our main sources of revenue are comprised of the following:

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If deemed an agent, we do not recognize revenue for the performance obligations we do not satisfy.

Revenue for the three months ended March 31, 2025 and 2024 was comprised of the following (in thousands):

Three months ended March 31, Increase (decrease) from prior year

Revenue for the three and six months ended June 30, 2025 and 2024 was comprised of the following (in thousands):

Increase (decrease) from prior year

Three months ended June 30,

Product sales - retail

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$ 39,611 $ 40,438 $ (827) (2.0) %

Our total revenue for the three months ended March 31, 2025 was virtually unchanged from our total revenue in the three months ended March 31, 2024.

The $2.3 million increase in revenue from our wholesale operations was offset by decreases of $1.6 million and $0.7 million in retail sales and other revenue, respectively.

The increase in wholesale revenue was primarily attributable to higher wholesale revenue in Illinois and Maryland, coupled with higher revenue in certain of our other wholesale locations.

Our retail operations reported higher revenue in certain of our dispensaries in Massachusetts, Illinois and Ohio, along with the impact of FSC since the FSC Acquisition Date;

however, these increases

were offset by lower retail sales in other locations.

The decrease in other revenue was primarily due to lower management fees and real estate rentals arising from our acquisition of the businesses from whom we had previously recognized such revenue.

Six months ended June 30,

Product sales - retail $ 43,218 $ 45,969 $ (2,751) (6.0) %

Product sales - wholesale 33,917 30,373 3,544 11.7 %

Total other revenue 431 2,029 (1,598) (78.8) %

Total revenue $ 77,566 $ 78,371 $ (805) (1.0) %

Our total revenue for both the three and six months ended June 30, 2025 decreased by $0.8 million compared to the same prior year periods.

Our product sales increased by $0.1 million and $0.8 million in the three and six months ended June 30, 2025, respectively, compared to the three and six months ended June 30, 2024, respectively.

Decreases in retail sales were more than offset by increases in wholesale sales in each of the three and six month periods ended June 30, 2025, compared to the same prior year periods.

The decreases in retail sales in both current periods were primarily attributable to lower sales in certain of our dispensaries in Illinois, Massachusetts and Maryland.

These decreases were partially offset by higher sales in our other dispensaries in Maryland, Massachusetts and Ohio, as well as the inclusion of retail revenue from FSC for the period since the FSC Acquisition Date.

The increases in our wholesale revenue were primarily attributable to higher wholesale revenue in Maryland, Illinois, Missouri and Delaware, partially offset by a decline in wholesale revenue in Massachusetts.

The decreases in total other revenue in the three and six months ended June 30, 2025 compared to the same prior year periods were primarily attributable to lower other revenue due to the cessation of revenue recognition from management fees, rental income and other components of other income, effective as of the FSC Acquisition Date.

Cost of Revenue, Gross Profit and Gross Margin

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

Our cost of revenue, gross profit and gross margin for the three months ended March 31, 2025 and 2024 were as follows (in thousands, except percentages):

Three months ended March 31, Increase (decrease) from prior year

Our cost of revenue, gross profit and gross margin for the three and six months ended June 30, 2025 and 2024 were as follows (in thousands, except percentages):

Increase (decrease) from prior year

Three months ended June 30,

Cost of revenue $ 23,579 $ 23,529 $ 50 0.2 %

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Gross margin 40.5 % 41.8 %

Our cost of revenue increased $1.4 million while revenue remained virtually unchanged in the three months ended March 31, 2025 compared to the three months ended March 31, 2024.

This increase was primarily attributable to higher employee-related and facilities and related costs.

Our higher personnel costs were primarily due to our increased headcount in connection with our recent acquisitions and expanded footprint.

These increases were partially offset by decreases in certain inventory-related expenses.

Six months ended June 30,

Cost of revenue $ 46,396 $ 44,990 $ 1,406 3.1 %

Gross profit $ 31,170 $ 33,381 $ (2,211) (6.6) %

Gross margin 40.2 % 42.6 %

Our cost of revenue increased nominally in the three months ended June 30, 2025 compared to the three months ended June 30, 2024.

Our cost of revenue increased by $1.4 million in the six months ended June 30, 2025 compared to the six months

ended June 30, 2024, primarily due to higher employee-related, facilities and related expenses, partially offset by lower inventory-related expenses.

The increases in employee-related, facilities and related expenses were primarily due to our increased headcount in connection with our recent acquisitions and expanded footprint.

Operating Expenses

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

Our operating expenses for the three months ended March 31, 2025 and 2024 were as follows (in thousands, except percentages):

Three months ended March 31, Increase (decrease) from prior year

Our operating expenses for the three and six months ended June 30, 2025 and 2024 were as follows (in thousands, except percentages):

Increase (decrease) from prior year

2025 2024 $ %

Three months ended June 30,

Personnel $ 7,392 $ 6,958 $ 434 6.2 %

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$ 14,891 $ 15,953 $ (1,062) (6.7) %

The increase in our personnel expenses in the three months ended March 31, 2025 compared to the three months ended March 31, 2024 was primarily due to the increased headcount to support our acquisitions and resulting additional facilities and presence.

Personnel costs increased to approximately 19% of revenue in the three months ended March 31, 2025, compared to approximately 17% of revenue in the three months ended March 31, 2024.

The decrease in our marketing and promotion expenses in the three months ended March 31, 2025 compared to the three months ended March 31, 2024 was primarily attributable to our planned reductions to these expenses;

Six months ended June 30,

Personnel $ 14,733 $ 13,423 $ 1,310 9.8 %

Marketing and promotion 1,659 3,618 (1,959) (54.1) %

General and administrative 12,593 12,944 (351) (2.7) %

Acquisition-related and other 251 434 (183) (42.2) %

Bad debt 1,644 (15) 1,659 (11,060.0 %)

$ 30,880 $ 30,404 $ 476 1.6 %

The increases in our personnel expenses in both the three and six months ended June 30, 2025 compared to the three and six months ended June 30, 2024 were primarily due to the increased headcount to support our acquisitions and resulting additional facilities and presence.

Personnel costs increased to approximately 19% of revenue in each of the three and six months ended June 30, 2025, compared to approximately 17% of revenue in each of the three and six months ended June 30, 2024.

The decreases in our marketing and promotion expenses in each of the three and six months ended June 30, 2025 compared to the three and six months ended June 30, 2024 were primarily attributable to our planned reductions to these expenditures;

however, we continue to focus on judicious marketing initiatives that expand the branding and distribution of our licensed products.

Our general and administrative expenses increased slightly in the three months ended March 31, 2025 compared to the three months ended March 31, 2024.

The increase was primarily attributable to higher facilities, stock-based compensation and insurance expenses, which were largely offset by decreases in certain other general and administrative expenses, such as professional fees and depreciation.

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.

Our acquisition-related and other expense in the three months ended March 31, 2025 primarily related to the FSC Acquisition.

Our acquisition-related and other expense in the three months ended March 31, 2024 primarily related to the acquisitions of MedLeaf and Allgreens, which were both consummated in April 2024.

We recorded $1.4 million of bad debt expense in the three months ended March 31, 2025, comprised of $1.3 million of expense to fully reserve an amount due from a credit card service provider (the "Service Provider Receivable") and $0.1 million of expense to reserve for certain trade accounts receivable accounts.

The Service Provider Receivable was reported in our condensed consolidated balance sheets as a component of Other assets at March 31, 2025 and as a component of Cash at December 31, 2024.

The reserve was reported as a component of Other assets in our condensed consolidated balance sheet at March 31, 2025.

The increases in our general and administrative expenses in each of the three and six months ended June 30, 2025 compared to the three and six months ended June 30, 2024 were primarily attributable to higher facilities, stock-based compensation and insurance expenses.

These increases were largely offset by decreases in certain other general and administrative expenses, such as professional fees, travel and entertainment, and depreciation.

Acquisition-related and other expenses include those expenses related to acquisitive activities 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.

Our acquisition-related and other expense in each of the three and six months ended June 30, 2025 primarily related to the FSC Acquisition and other acquisitive activities.

Our acquisition-related and other expense in the three and six months ended June 30, 2024 primarily related to the acquisitions of MedLeaf and Allgreens, which were both consummated in April 2024, and non-cash expense for warrants to purchase our common stock issued to an entity in consideration for introductory and other services rendered in connection with certain funding and acquisitive transactions.

We recorded $0.2 million and $1.6 million of bad debt expense in the three and six months ended June 30, 2025, respectively.

The six-month amount included $1.5 million of expense to fully reserve amounts due from two credit card service providers (the "Service Provider Receivables") and $0.1 million of expense to reserve for certain trade receivable accounts.

Of the $1.5 million of Service Provider Receivables, $1.3 million and the related reserve were included as

components of Other assets and $0.2 million and the related reserve were included as components of Accounts Receivable in the condensed consolidated balance sheet at June 30, 2025.

At December 31, 2024, the Service Provider Receivables were included as components of Cash.

We recorded a nominal credit to bad debt expense in each of the three and six months ended June 30, 2024.

Interest expense primarily relates to interest on mortgages and notes payable, as well as the CREM Loan (described below).

Interest income primarily relates to our notes receivable.

Our net interest expense increased $0.1 million in the three months ended March 31, 2025 compared to the three months ended March 31, 2024, primarily due to the interest on the notes issued in connection with the MedLeaf and Allgreens acquisitions and our entry into additional finance leases.

Our net interest expense increased nominally in the three months ended June 30, 2025 compared to the three months ended June 30, 2024, and increased $0.2 million in the six months ended June 30, 2025 compared to the six months ended June 30, 2024.

These increases were primarily due to the interest on additional finance leases and the refinancing of one of our mortgages.

Other Expense, Net

We reported net other expense of approximately $20,000 in the three months ended March 31, 2024, which was related to the change in the fair value of our investments.

We did not recognize any other income or expense in the three months ended March 31, 2025.

We recorded net other income of approximately $17,000 in each of the three and six months ended June 30, 2025 in connection with gains on the disposal of assets.

We recorded net other expense of approximately $30,000 and $50,000 in the three and six months ended June 30, 2024, respectively, primarily related to changes in the fair value of investments.

Income Tax Provision

We recorded income tax provisions of $2.8 million and $1.7 million in the three months ended March 31, 2025 and 2024, respectively.

Our income tax provisions are impacted by Section 280E of the Internal Revenue Code, which prohibits the deduction of certain ordinary business expenses.

We recorded income tax provisions of $0.7 million and $3.5 million in the three and six months ended June 30, 2025, respectively, and $0.9 million and $2.6 million in the three and six months ended June 30, 2024, respectively.

We are subject to income taxes in the jurisdictions in which we operate, and consequently, income tax expense is a function of the allocation of taxable income by jurisdiction and the various activities that impact the timing of taxable events.

As we operate in the federally illegal cannabis industry, we are subject to the limitations of the U.S.

Internal Revenue Code of 1986, as amended (“IRC”) Section 280E, under which taxpayers are only allowed to deduct expenses directly related to cost of goods sold of cannabis products.

This results in permanent differences between ordinary and necessary business expenses deemed non-allowable under IRC Section 280E and a higher effective tax rate than most industries.

As a result, our effective tax rate can be highly variable and may not necessarily correlate to pre-tax income or loss.

In June 2025, the IRS filed a lien against us in connection with an approximate $6 million 2023 alleged tax liability.

We are disputing the assessment through a Collection Due Process (“CDP”) Hearing and pursuing a resolution, including potential reduction or collection alternatives.

While the matter is pending, IRS enforcement is generally stayed.

Although the liability is fully accrued in the accompanying condensed consolidated financial statements, an unfavorable outcome could materially impact our operations and financial position.

Liquidity and Capital Resources

We had cash and cash equivalents of $7.2 million and $7.3 million at March 31, 2025 and December 31, 2024, respectively.

We had cash and cash equivalents of $6.1 million and $7.3 million at June 30, 2025 and December 31, 2024, 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.

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The Company has fully guaranteed the obligations of the CREM Borrowers under the CREM Loan Transaction and pledged to the CREM Lender its equity ownership in each CREM Borrower.

The CREM Lender has a first priority security interest in all of the CREM Borrowers' operating assets in Maryland and Massachusetts and first priority mortgages on the CREM Borrowers' properties owned in Maryland and Massachusetts.

The CREM Lender has a

first priority security interest in all of the CREM Borrowers' operating assets in Maryland and Massachusetts and first priority mortgages on the CREM Borrowers' properties owned in Maryland and Massachusetts.

The CREM Loan Transaction is for a term of ten years and has an interest rate for the initial five years of 8.43% per annum.

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in Quincy, Massachusetts.

Concurrent with the repayment of the BNE Mortgage, we refinanced these properties through the CREM Loan and accordingly, effective November 16, 2023, the mortgage on these properties is held by the CREM Lender, which mortgage matures in 2033 and which outstanding amount is included as a component of the CREM Loan amount in our consolidated balance sheets at March 31, 2025 and December 31, 2024.

The CREM Loan Agreement includes customary representations and warranties and customary events of default, including, without limitation, payment defaults, breaches of representations and warranties, covenant defaults, cross-defaults to material indebtedness, and events of bankruptcy and insolvency.

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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 $1.3 million and $3.2 million of cash in the three months ended March 31, 2025 and 2024, respectively.

Our operating activities provided $1.6 million and $6.4 million of cash in the six months ended June 30, 2025 and 2024, respectively.

The change in cash from operating activities in the current year period compared to the prior year was primarily attributable to higher personnel costs and operating expenses arising from expanding our geographic presence.

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Cash Flows from Investing Activities

Our investing activities used $0.1 million and $4.3 million of cash in the three months ended March 31, 2025 and 2024, respectively.

During the three months ended March 31, 2025, we used $0.3 million of cash for capital expenditures and $0.1 million in the aggregate for advances toward future business acquisitions and purchases of cannabis licenses.

Our investing activities used $0.7 million and $13.8 million of cash in the six months ended June 30, 2025 and 2024, respectively.

During the six months ended June 30, 2025, we used $0.6 million of cash for capital expenditures and $0.4 million in the aggregate for advances toward future business acquisitions and purchases and renewals of cannabis licenses.

These amounts were partially offset by $0.2 million of cash acquired in connection with the FSC Acquisition and approximately $26,000 of proceeds from notes receivable.

During the three months ended March 31, 2024, we used $3.4 million of cash for capital expenditures, $0.5 million for advances toward future business acquisitions, $0.3 million for purchases of cannabis licenses an $0.1 million for the purchase of certain investments.

During the six months ended June 30, 2024, we used $8.3 million of cash for capital expenditures, $4.3 million in the aggregate for purchase consideration in connection with the MedLeaf Acquisition and Allgreens Acquisition, $0.6 million for purchases and renewals of cannabis licenses and $0.5 million for advances toward future business acquisitions.

Cash Flows from Financing Activities

Our financing activities used $1.3 million of cash in the three months ended March 31, 2025 and provided $1.6 million of cash in the three months ended March 1, 2024.

During the three months ended March 31, 2025, we made $1.2 million of aggregate principal payments on our outstanding mortgages, promissory notes and finance leases, and approximately $58,000 of distribution payments.

During the three months ended March 31, 2024, we received $1.0 million of proceeds from the CREM Loan (described above) and $1.2 million of proceeds from the refinancing of our retail facility in Mt.

Our financing activities used $2.1 million of cash in the six months ended June 30, 2025 and provided $3.0 million of cash in the six months ended June 30, 2024.

During the six months ended June 30, 2025, we made $4.0 million of aggregate principal payments on our outstanding mortgages, promissory notes and finance leases and made approximately $81,000 of

distribution payments.

We received $2.0 million from the refinancing of the mortgage on one of our facilities in Illinois, of which we used $0.7 million of proceeds to retire the previous mortgage on this facility, which amount is included in the aggregate principal payments discussed above.

During the six months ended June 30, 2024, we received $2.9 million of additional proceeds from the CREM Loan (described above) and $1.2 million of proceeds from the refinancing of our retail facility in Mt.

Vernon, Illinois.

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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 March 31, 2025, and our ability to raise additional cash through financing activities.

Our contractual obligations at

March 31, 2025 were primarily comprised of our outstanding CREM Loan, mortgages and promissory notes, and operating leases.

Our CREM Loan, mortgage and promissory note obligations totaled approximately $74 million at March 31, 2025.

The rate at which we consume cash is dependent on the cash needs of our future operations, including our contractual obligations at June 30, 2025, and our ability to raise additional cash through financing activities.

Our contractual obligations at June 30, 2025 were primarily comprised of our outstanding CREM Loan, mortgages, promissory notes, and operating and finance leases.

Our CREM Loan, mortgage and promissory note obligations totaled approximately $74 million at June 30, 2025.

Non-GAAP Measurement

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

The table below reconciles income from operations to Adjusted EBITDA for the three months ended March 31, 2025 and 2024 (in thousands):

Three months ended

2025 March 31,

GAAP (Loss) income from operations $ (851) $ 2,021

The table below reconciles income from operations to Adjusted EBITDA for the three and six months ended June 30, 2025 and 2024 (in thousands):

Three months ended Six months ended

2025 June 30,

2024 June 30,

2025 June 30,

GAAP Income from operations $ 1,141 $ 956 $ 290 $ 2,977

Depreciation and amortization of property and equipment 2,114 2,008 3,921 3,946

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis