What changed in this filing

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Item 2. Management’s Discussion and Analysis

2025-11-06 compared with 2025-08-07 · 80 added, 62 removed, 228 unchanged (38% of the section changed)

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◦ expanding our dispensary footprint in current markets where regulations allow and into new markets through new license applications and/or acquisitions of existing cannabis businesses.

On July 30, 2025, we entered into a Management Services Agreement ("MSA") with Standard Farms, LLC ("Standard Farms"), a wholly-owned subsidiary of TILT Holdings Inc.

Under the terms of the MSA, which became effective on September 1, 2025, we assumed the day-to-day management of TILT's Standard Farms cultivation and processing facility in White Haven, Pennsylvania.

These management services include oversight of Standard Farms' budgeting, financial planning, compliance with applicable laws and quality management.

In addition, pursuant to a licensing arrangement with us, upon regulatory approval, Standard Farms intends to produce and distribute our brands in Pennsylvania.

Critical Accounting Policies and Estimates

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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.

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.

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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.

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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.

Customer Loyalty Program – Adjustments to Correct Error in Prior Periods

We have a customer loyalty program (the “Loyalty Program”) under which customers earn points based on qualifying purchases that can be redeemed for discounts on future purchases.

Applying Accounting Standards Codification 606, Revenue from Contracts with Customers (“ASC 606”), a portion of the transaction price is allocated to the loyalty points based on their relative standalone selling price, and revenue is deferred until the points are redeemed or expire.

During the third quarter of 2025, we determined that we were not accounting for the Loyalty Program in accordance with ASC 606 and, accordingly, calculated the amounts that should have been recorded in prior periods.

These amounts were deemed immaterial to our condensed consolidated financial statements.

We have adjusted our financial statements to reflect the impact of adjustments to prior periods, which adjustments are reflected in the condensed consolidated financial statements included herein.

We recorded decreases to revenue of approximately $83,000 and $237,000 in the three and nine months ended September 30, 2025, respectively, an increase to revenue of approximately $4,000 in the three months ended September 30, 2024 and a decrease to revenue of approximately $202,000 in the nine months ended September 30, 2024.

We recorded additional marketing and promotion expense of approximately $16,000 and $46,000 in the three and nine months ended September 30, 2025, respectively, a nominal credit to marketing and promotion expense in the three months ended September 30, 2024 and additional marketing and promotion expense of approximately $38,000 in the nine months ended September 30, 2024.

OTCQX Listing

On June 10, 2025, the OTC Markets Group notified us of our non-compliance with the minimum bid price requirement, thereby triggering a discretionary cure period.

To regain compliance, we must have maintained a bid price of at least $0.10 per share for a minimum of 10 consecutive trading days by September 8, 2025, which occurred effective September 5, 2025.

Results of Operations

Three and six months ended June 30, 2025 and 2024

Three and nine months ended September 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 and six months ended June 30, 2025 and 2024 was comprised of the following (in thousands):

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

Increase (decrease) from prior year

Three months ended June 30,

Three months ended September 30,

Product sales - retail

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$ 40,764 $ 40,595 $ 169 0.4 %

Six months ended June 30,

Nine months ended September 30,

Product sales - retail $ 65,637 $ 69,151 $ (3,514) (5.1) %

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Total revenue $ 118,176 $ 118,760 $ (584) (0.5) %

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.

Our product sales increased by $0.9 million and $1.8 million, respectively, in the three and nine months ended September 30, 2025, compared to the three and nine months ended September 30, 2024.

Decreases in retail sales were more than offset by increases in wholesale sales in each of the three and nine month ended September 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 our Metropolis, Illinois dispensary and, to a lesser extent, certain of our dispensaries in Massachusetts, Maryland and our other Illinois dispensaries.

These decreases were partially offset by higher sales in our other dispensaries in Delaware, Maryland, Ohio and Massachusetts, 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 Delaware, Illinois and Massachusetts.

These increases were partially offset by a decline in wholesale revenue in Maryland.

The decreases in total other revenue in the three and nine months ended September 30, 2025 compared to the same prior year periods were primarily attributable 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 and six months ended June 30, 2025 and 2024 were as follows (in thousands, except percentages):

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

Increase (decrease) from prior year

Three months ended June 30,

Three months ended September 30,

Cost of revenue $ 24,401 $ 23,813 $ 588 2.5 %

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Gross margin 40.1 % 41.3 %

Six months ended June 30,

Nine months ended September 30,

Cost of revenue $ 70,797 $ 68,803 $ 1,994 2.9 %

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Gross margin 40.1 % 42.1 %

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 our cost of revenue in both the three and nine months ended September 30, 2025 compared to the same prior year periods were 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.

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

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

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

Increase (decrease) from prior year

2025 2024 $ %

Three months ended June 30,

Three months ended September 30,

Personnel $ 7,028 $ 7,255 $ (227) (3.1) %

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$ 14,764 $ 15,437 $ (673) (4.4) %

Six months ended June 30,

Nine months ended September 30,

Personnel $ 21,761 $ 20,678 $ 1,083 5.2 %

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$ 45,674 $ 45,880 $ (206) (0.4) %

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;

The decrease in our personnel expenses in the three months ended September 30, 2025 compared to the three months ended September 30, 2024 was primarily related to the strategic elimination and consolidation of certain positions, coupled with lower expense in connection with certain employee benefits.

These decreases were partially offset by increased headcount in connection with our acquisitions and expanded presence.

The increase in our personnel expenses in the nine months ended September 30, 2025 compared to the nine months ended September 30, 2024 was primarily attributable to increased headcount in connection with our acquisitions and expanded presence, partially offset by lower expense in connection with certain employee benefits.

Personnel costs decreased to approximately 17% of revenue in the three months ended September 30, 2025, from approximately 18% in the three months ended September 30, 2024.

Personnel costs increased to approximately 18% of revenue in the nine months ended September 30, 2025, compared to approximately 17% in the same prior year period.

The decreases in our marketing and promotion expenses in each of the three and nine months ended September 30, 2025 compared to the three and nine months ended September 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.

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.

The increases in our general and administrative expenses in each of the three and nine months ended September 30, 2025 compared to the three and nine months ended September 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.

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.

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

Our acquisition-related and other expense in the three and nine months ended September 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 $0.1 million of credits to bad debt expense and $1.5 million of bad debt expense in the three and nine months ended September 30, 2025, respectively.

The nine-month amount included $1.5 million of expense to fully reserve amounts due from two credit card service providers (the "Service Provider Receivables").

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 September 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.

We recorded $0.1 million of credits to bad debt expense in each of the three and nine months ended September 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 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.

Our net interest expense increased by $0.1 million in the three months ended September 30, 2025 compared to the three months ended September 30, 2024, and increased by $0.3 million in the nine months ended September 30, 2025 compared to the nine months ended September 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 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.

Other Income (Expense), Net

We recorded net other income of approximately $19,000 and $36,000 in the three and nine months ended September 30, 2025, respectively.

We recorded net other expense of approximately $50,000 in the nine months ended September 30, 2024, primarily related to changes in the fair value of investments.

We did not record other income or expense in the three months ended September 30, 2024.

Income Tax Provision

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 recorded income tax provisions of $2.8 million and $6.3 million in the three and nine months ended September 30, 2025, respectively, and $0.7 million and $3.2 million in the three and nine months ended September 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.

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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.

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

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

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Liquidity and Capital Resources

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

We had cash and cash equivalents of $6.6 million and $7.3 million at September 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 June 30, 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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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 $1.6 million and $6.4 million of cash in the six months ended June 30, 2025 and 2024, respectively.

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 $4.3 million and $7.2 million of cash in the nine months ended September 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 $0.7 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 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.

Our investing activities used $1.2 million and $15.9 million of cash in the nine months ended September 30, 2025 and 2024, respectively.

During the nine months ended September 30, 2025, we used $1.1 million of cash for capital expenditures and an aggregate of $0.4 million 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, approximately $45,000 of cash proceeds from the disposal of assets and approximately $26,000 of proceeds from notes receivable.

During the nine months ended September 30, 2024, we used $10.9 million of cash for capital expenditures, an aggregate of $4.3 million for purchase consideration in connection with the MedLeaf Acquisition and Allgreens Acquisition, and $0.7 million for purchases and renewals of cannabis licenses.

Cash Flows from Financing Activities

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.

Our financing activities used $3.8 million of cash in the nine months ended September 30, 2025 and provided $3.9 million of cash in the nine months ended September 30, 2024.

During the nine months ended September 30, 2025, we made $5.6 million of aggregate principal payments on our outstanding mortgages, promissory notes and finance leases and made approximately $115,000 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.

During the nine months ended September 30, 2024, we received $5.1 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 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.

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

Our contractual obligations at September 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 $73 million at September 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 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,

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

Three months ended Nine months ended

September 30,

2025 September 30,

2024 September 30,

2025 September 30,

GAAP Income from operations $ 1,599 $ 1,345 $ 1,705 $ 4,077

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Stock-based compensation 382 280 1,478 772

Severance 224 — 224 —

Acquisition-related and other 145 371 396 805

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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