Item 7. Management’s Discussion and Analysis
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
Forward Looking Statements
When used in this Annual Report on Form 10-K and in future filings by the Company with the SEC, 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 partners; and enforcement of United States 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.
Overview
We are a multi-state cannabis operator in the United States, headquartered in Norwood, Massachusetts, dedicated to improving lives every day through our high-quality products, our actions, and our values. We develop, own and manage seed to sale state-licensed, state-of-the-art, regulatory-compliant facilities for the cultivation, production and dispensing of
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medicinal and adult-use cannabis. We have created and continue to develop our own brands of premium cannabis flower, concentrates, edibles and other precision-dosed products utilizing our proprietary strains and formulations. We also license our proprietary brands, along with other top cannabis products, in select domestic markets, although licensing revenues are not material to our overall results of operations. Cannabis remains illegal under United States federal law. Our operations are conducted in compliance with applicable state and local laws and regulations in the jurisdictions in which we operate.
We completed the acquisition of First State Compassion Center ("FSC"), the leading cannabis operator in Delaware, effective March 1, 2025 (the "FSC Acquisition Date"). Prior to its acquisition (the "FSC Acquisition"), FSC had been our managed services client. The financial results of FSC are included in our 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. On April 5, 2024, we acquired 100% of the membership interests of Our Community Wellness & Compassionate Care Center, Inc. ("MedLeaf"), which held a retail dispensary license in Maryland. The MedLeaf dispensary had ceased operations since July 1, 2023, but we reopened it on August 19, 2024, upon receiving regulatory approval to commence adult use retail sales.
We continue to focus on executing our strategic growth plan, with priority on activities that include the following:
• Increasing our product brand revenue by:
◦ strengthening our cultivation and processing capabilities to ensure a reliable, high-quality supply of raw materials that will enhance product consistency, quality, and innovation;
◦ developing and launching innovative new products that align with consumer preferences and demand;
◦ offering new effects and formulations that differentiate our existing brands;
◦ broadening our distribution network in existing markets to maximize our reach and brand visibility; and
◦ expanding our distribution into new markets through new license applications, acquisitions of existing cannabis businesses, and/or identification of qualified licensing partners.
• Increasing retail store revenue by:
◦ driving additional and higher average transactions in our existing stores through an outstanding customer experience that prioritizes our product selection and the ease of the shopping experience; and
◦ 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. ("TILT"). 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
Management’s discussion and analysis of financial condition and results of operations is based upon our 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, revenue, 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
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projections, there could be a material effect on our 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 each 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.
Inventory
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 of 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
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amounts should be adjusted and we 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.
Income Taxes
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.
Customer Loyalty Program
We have a customer loyalty program (the “Loyalty Program”) under which customers who participate in the Loyalty Program earn points based on qualifying purchases that can be redeemed for discounts on future purchases. 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.
Results of Operations
Years ended December 31, 2025 and 2024
Revenue
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 multiple states. We recognize this revenue when products are delivered to unrelated parties or at our retail points-of-sale.
• Other revenue - comprised of real estate rental income from our cannabis-licensed client, supply procurement fees from facilitating purchases of resources, supplies and equipment for our cannabis-licensed client and third parties, management fees for providing our cannabis-licensed clients with comprehensive oversight of their operations, and licensing fees from the licensing of our branded products to wholesalers and regulated dispensaries.
We recognize revenue in amounts that represent the consideration that we expect to receive in exchange for goods or services provided to customers as follows:
• Identify the contract(s) with a customer;
• Identify the performance obligations in the contract(s);
• Determine the transaction price;
• Allocate the transaction price to the performance obligations in the contract(s); and
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• Recognize revenue as the performance obligation is satisfied.
Additionally, when another party is involved in providing goods or services to our clients, a determination is made as to who - us or the other party - is acting in the capacity as the principal in the sale transaction, and who is the agent arranging for goods or services to be provided by the other party.
We are typically considered the principal if we control the specified good or service before such good or service is transferred to our client, and typically considered the agent if we do not exert such control. We may also be deemed to be the principal even if we engage another party (an agent) to satisfy some of the performance obligations on our behalf, provided we (i) take on certain responsibilities, obligations and risks, (ii) possess certain abilities and discretion, or (iii) fulfill other relevant indicators of the sale. If deemed an agent, we do not recognize revenue for the performance obligations we do not satisfy.
Our revenue for the years ended December 31, 2025 and 2024 was comprised of the following (in thousands, except percentages):
Year ended December 31, Increase (decrease) from prior year
2025
2024
$ %
Product sales - retail $ 89,024 $ 91,275 $ (2,251) (2.5) %
Product sales - wholesale 69,579 62,895 6,684 10.6 %
Other revenue 1,223 3,539 (2,316) (65.4) %
Total revenue $ 159,826 $ 157,709 $ 2,117 1.3 %
Our total revenue increased $2.1 million, or 1.3%, in the year ended December 31, 2025 ("2025") compared to the year ended December 31, 2024 ("2024"). This increase was attributable to higher product revenue, partially offset by lower other revenue.
Our total product revenue in 2025 increased $4.4 million, or 2.9%, comprised of $6.7 million of higher wholesale revenue that was partially offset by $2.3 million of lower retail revenue. The increase in wholesale revenue was primarily attributable to higher wholesale revenue in Illinois and Maryland, coupled with the inclusion of wholesale revenue in Delaware in 2025 for the period subsequent to the FSC Acquisition Date. The decrease in retail revenue in 2025 was primarily attributable to lower sales in our Illinois dispensaries, partially offset by the inclusion of FSC retail revenue for the period subsequent to the FSC Acquisition Date.
The decrease in our other revenue was 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 revenue generation, 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 2025 and 2024 were as follows (in thousands, except percentages):
Year ended December 31, Increase (decrease) from prior year
2025
2024
$ %
Cost of revenue $ 101,945 $ 95,096 $ 6,849 7.2 %
Gross profit $ 57,881 $ 62,613 $ (4,732) (7.6) %
Gross margin 36.2 % 39.7 %
Our cost of revenue increased in 2025 compared to 2024, primarily attributable to higher employee-related costs and facilities and related expenses. These increases were primarily due to our increased headcount in connection with our recent acquisitions and expanded footprint. Our cost of revenue included $5.6 million and $3.7 million of revaluation
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expense in 2025 and 2024, respectively. The revaluation expense related to the redefinition of our standard cost assumptions to better align with our actual production and procurement trends.
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 2025 and 2024 were as follows (in thousands, except percentages):
Year ended December 31, Increase (decrease) from prior year
2025
2024
$ %
Personnel $ 28,515 $ 27,059 $ 1,456 5.4 %
Marketing and promotion 3,976 6,712 (2,736) (40.8) %
General and administrative 26,142 25,618 524 2.0 %
Acquisition-related and other 486 951 (465) (48.9) %
Bad debt expense (income) 1,582 (336) 1,918 570.8 %
Total operating expenses $ 60,701 $ 60,004 $ 697 1.2 %
The increase in personnel expenses in 2025 compared to 2024 was primarily related to increased headcount in connection with our acquisitions and expanded presence, coupled with increases in certain employee benefit expenses. These increases were partially offset by cost reductions related to the strategic elimination and consolidation of certain positions. Personnel costs increased to approximately 18% of revenue in 2025, compared to approximately 17% of revenue in 2024.
The decrease in our marketing and promotion expenses in 2025 compared to 2024 was 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. Marketing and promotion expenses were 2.5% of revenue in 2025, compared to approximately 4% of revenue in 2024.
The increase in our general and administrative expenses in 2025 compared to 2024 was 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 depreciation, professional fees, and travel and entertainment. General and administrative expenses were approximately 16% of revenue in each of 2025 and 2024.
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 and other fees. Our acquisition-related and other expense in 2025 primarily related to the FSC Acquisition and other acquisitive activities. Our acquisition-related and other expense in 2024 primarily related to the acquisitions of MedLeaf and Allgreens, coupled with 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 $1.6 million of bad debt expense in 2025 and $0.3 million of credits to bad debt expense in 2024. The 2025 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, net, in the consolidated balance sheet at December 31, 2025. At December 31, 2024, the Service Provider Receivables were included as components of cash, cash equivalents and restricted cash in the consolidated balance sheet.
Overall, the increase in our operating expenses in 2025 compared to 2024 was primarily attributable to our higher bad debt, personnel, and general and administrative expenses, partially offset by lower marketing and promotion, and acquisition-related and other expense.
Interest Expense, Net
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.
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Our net interest expense increased by $0.5 million in 2025 compared to 2024. This increase was primarily due to the interest on additional finance leases and the refinancing of one of our mortgages.
Other Expense, Net
We recorded net other expense of $0.7 million in 2025, comprised of the $0.8 million loss on our exit from Missouri operations and $0.1 million of net other income. We recorded net other expense of approximately $50,000 in 2024, primarily related to changes in the fair value of investments.
Income Tax Provision
We recorded income tax provisions of $3.6 million and $8.2 million in 2025 and 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.
Liquidity and Capital Resources
We had cash, cash equivalents and restricted cash of $8.9 million and $7.3 million at December 31, 2025 and 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.
CREM Loan
On November 16, 2023, Mari Holdings MD LLC, Hartwell Realty Holdings LLC, Kind Therapeutics USA, LLC, ARL Healthcare Inc., and MariMed Advisors, Inc., each a wholly-owned direct or indirect subsidiary of ours (collectively, the "CREM Borrowers") entered into a Loan Agreement (the "CREM Loan Agreement"), by and among the CREM Borrowers and Needham Bank, a Massachusetts co-operative bank (the "CREM Lender") pursuant to which the CREM Lender loaned to the CREM Borrowers an aggregate principal amount of $58.7 million (the "CREM Loan Transaction"). We have fully guaranteed the obligations of the CREM Borrowers under the CREM Loan Transaction and pledged to the CREM Lender our 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 Loan Transaction is for a term of ten years and has an interest rate for the initial five years of 8.43% per annum. The interest rate will reset after five years to the FHLB Rate (the Classic Advance Rate for Fixed Rate advances for a period of five years for an amount greater than or equal to the loan amount, as such rate is defined and published by the Federal Home Loan Bank of Boston), plus 3.50%. We made interest-only payments for the first twelve months of the term of the loan, with payments thereafter based upon a twenty-year amortization schedule.
The CREM Lender initially released $52.8 million to the CREM Borrowers (the "Initial CREM Distribution"), with the remaining proceeds of $5.9 million placed into in escrow to complete the expansion of our Hagerstown, Maryland cultivation facility (the "Hagerstown Facility"). Any unused proceeds would be released to us after completion of the Hagerstown Facility expansion. We used $46.8 million of the Initial CREM Distribution to fully repay certain of our outstanding debt obligations. These payments were comprised of $32.7 million to repay the previous term loan with Chicago Atlantic Admin, LLC, $11.9 million to repay the mortgage with Bank of New England for our New Bedford, MA and Middleborough, MA properties (the "BNE Mortgage"), and $2.2 million to reduce the outstanding balance of the note we issued in connection with the 2023 acquisition of Ermont, Inc. 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 each of December 31, 2025 and 2024.
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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. The CREM Loan Agreement also includes customary negative covenants limiting the CREM Borrowers' ability to incur additional indebtedness and grant liens that are otherwise not permitted, among others. The CREM Loan Agreement also requires the CREM Borrowers to meet certain periodic financial tests. We were in compliance with such periodic financial tests at December 31, 2025.
Effective December 31, 2025, we and the CREM Borrowers entered into a First Amendment to the CREM Loan Agreement (the "Amendment") in connection with a federal tax lien filed against us relating to our 2023 income taxes (the "Tax Lien"), which we are disputing (the "Disputed Taxes"). Pursuant to the Amendment, beginning in January 2026, the CREM Borrowers are required to deposit $100,000 per month into a non-interest-bearing cash collateral reserve account to be held by the CREM Lender until the full amount of the Disputed Taxes is on deposit. The account is pledged as additional collateral under the CREM Loan Agreement and the amounts on deposit are available for payment of the Disputed Taxes. The Amendment also modified the CREM Borrowers' reporting obligations under the CREM Loan Agreement. All other material terms of the CREM Loan Agreement remain in effect.
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 $7.7 million and $6.8 million of cash in 2025 and 2024, respectively. The change in cash from operating activities in 2025 compared to 2024 was primarily attributable to lower marketing and acquisition-related expenses, partially offset by certain higher costs and operating expenses arising from expanding our sales activities, facilities and geographic footprint.
Cash Flows from Investing Activities
Our investing activities used $1.4 million and $17.1 million of cash in 2025 and 2024, respectively.
Our 2025 capital expenditures were $1.2 million and primarily related to building improvements and purchases of machinery and equipment. We used $0.5 million in 2025 to purchase or renew state cannabis licenses and made $50,000 of advances toward future business acquisitions. We received $0.2 million of cash in connection with the FSC Acquisition and $0.1 million of combined proceeds from notes receivable and the disposal of machinery and equipment.
Our 2024 capital expenditures were $12.0 million, and primarily related to the build-out of certain facilities to add cultivation, processing and sales capacity. We used $4.3 million of cash for purchase consideration, comprised of $2.3 million for the acquisition of Allgreens and $2.0 million for the acquisition of MedLeaf. We made advances toward future business acquisitions of $0.1 million and spent $0.7 million to purchase or renew state cannabis licenses.
Cash Flows from Financing Activities
Our financing activities used $4.7 million of cash in 2025 and provided $3.0 million of cash in 2024.
During 2025, we made $6.6 million of aggregate principal payments on our outstanding mortgages, promissory notes and finance leases and approximately $137,000 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 the proceeds to retire the previous mortgage on the facility, which amount is included in the aggregate principal payments discussed above.
In 2024, we received $5.1 million of additional proceeds from the CREM Loan and $1.2 million of proceeds from the refinancing of our retail facility in Mt. Vernon, Illinois. We made $3.1 million of aggregate principal payments on our outstanding mortgages, promissory notes and finance leases, and approximately $139,000 of distribution payments.
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
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which we consume cash is dependent on the cash needs of our future operations, including our contractual obligations at December 31, 2025. Our contractual obligations at December 31, 2025 were primarily comprised of our outstanding CREM Loan, mortgages and promissory notes, as well as our operating leases. Our CREM Loan, mortgage and promissory note obligations totaled approximately $73 million at December 31, 2025.
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 income from operations, determined in accordance with GAAP, excluding the following:
• depreciation and amortization of property and equipment;
• amortization of acquired intangible assets;
• impairments or write-downs of acquired intangible assets;
• inventory revaluation;
• stock-based compensation;
• severance;
• legal settlements; and
• acquisition-related and other.
Our 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.
Our 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 they may not be directly comparable to similarly titled measures used by others.
Reconciliation of Income from Operations to Adjusted EBITDA (a Non-GAAP Measurement)
The table below reconciles Income from operations to Adjusted EBITDA for the years ended December 31, 2025 and 2024 (in thousands):
Year ended December 31,
2025
2024
GAAP (Loss) income from operations $ (2,820) $ 2,609
Depreciation and amortization of property and equipment 8,109 7,910
Amortization of acquired intangible assets 3,401 2,948
Inventory revaluation 5,559 3,667
Stock-based compensation 1,860 1,050
Severance 266 211
Acquisition-related and other 486 951
Adjusted EBITDA $ 16,861 $ 19,346
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Subsequent Event
Series B Stock Restructuring and Exchange Agreement
On February 24, 2026, we and the holders of the Series B Preferred Stock entered into a Restructuring and Exchange Agreement (the “Restructuring and Exchange Agreement”) to address and restructure the Series B Obligation (as defined below) (the “Loan Restructuring Transaction”).
Pursuant to the mandatory conversion provisions of the Series B Preferred Stock, on February 28, 2026, all outstanding shares of Series B Preferred Stock would have automatically converted into 4,908,333 shares of our common stock and we would have been obligated to pay the holders of the Series B Preferred Stock (the “Series B Holders”) an amount equal to the difference between the sixty-day VWAP (approximately $0.1018) and $3.00 per share, or approximately $14.2 million (the “Series B Obligation”).
Pursuant to the Restructuring and Exchange Agreement, all the outstanding shares of Series B Preferred Stock were cancelled, and the Series B Obligation was extinguished. In exchange therefor, we issued to the Series B Holders (i) two new promissory notes in the aggregate principal amount of $8,000,000, one in the principal amount of $2,000,000, due March 1, 2028, accruing interest at a rate of 8.0% per annum (“Note #1”) and the other in the principal amount of $6,000,000, due March 1, 2031, accruing interest at a rate of 10.0% per annum (subject to reduction to 8.0% if Note #1 is paid in full within six (6) months of February 24, 2026) (“Note #2” collectively with Note #1, the “New Notes”), and (ii) 26,900,000 shares of an amended and restated class of Series B Convertible Preferred Stock (the “New Series B Preferred Stock”), having an aggregate liquidation preference of $6,725,000 ($0.25 per share), and the rights, preferences and privileges set forth in the Second Amended and Restated Certificate of Designation filed with the Secretary of State of the State of Delaware on February 26, 2026 (the “Amended Certificate of Designation”). The New Notes are guaranteed by certain of our subsidiaries pursuant to a Subsidiary Guaranty, dated as of February 24, 2026.
The New Series B Preferred Stock is non-voting. However, the affirmative vote or consent of the New Series B Holders voting separately as a class is required for certain acts taken by us, including the amendment or repeal of certain charter provisions, our liquidation or winding up, the creation of stock senior to the New Series B Preferred Stock, and/or other acts as defined in the Amended Certificate of Designation. The New Series B Preferred Stock ranks senior to our common stock with respect to dividend rights and rights on liquidation, winding up and dissolution. We will not declare, pay, or set aside any dividends on shares of any other class or series of our capital stock unless the New Series B Holders first receive, or simultaneously receive, a dividend on each outstanding share of New Series B Preferred Stock in an amount calculated pursuant to the Amended Certificate of Designation.
In the event of any voluntary or involuntary liquidation, dissolution or winding up of our company, the New Series B Holders will be entitled to be paid out of our assets legally available for distribution to stockholders before any payment is made to the holders of our common stock by reason of their ownership thereof, an amount per share equal to $0.25, plus any dividends declared but unpaid thereon, with any remaining assets distributed on a prorated basis among the New Series B Holders and the holders of our common stock, based on the number of shares held by each such holder, treating for this purpose all such securities as if they had been converted to our common stock.
At any time on or prior to the five-year anniversary of the original issuance date of the New Series B Preferred Stock, (i) the New Series B Holders have the option to convert their shares of New Series B Preferred Stock into shares of our common stock on a one-for-one basis, without the payment of additional consideration, and (ii) we have the option to convert all, but not less than all, of the shares of New Series B Preferred Stock into common stock, on a one-for-one basis, if the daily volume weighted average price of common stock (the “VWAP”) exceeds $2.00 per share for at least twenty consecutive trading days prior to the date on which we give notice of such conversion to the New Series B Holders and the average daily volume of shares traded is at least 400,000 shares.
On February 25, 2031, the day following the five-year anniversary of the original issuance date of the New Series B Preferred Stock, all outstanding shares of New Series B Preferred Stock will automatically convert into our common stock as follows:
If the sixty-day VWAP is less than or equal to $0.25 per share, we will have the option to:
• convert all shares of New Series B Preferred Stock into shares of common stock at a conversion ratio of 1:1 (26,900,000 shares), subject to adjustment upon the occurrence of certain events, and pay cash to the New Series B Holders equal to the difference between the sixty-day VWAP and $0.25 per share; or
• pay cash to the New Series B Holders equal to $0.25 per share ($6,725,000).
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If the sixty-day VWAP is greater than $0.25 per share, we will have the option to:
• convert all shares of New Series B Preferred Stock into shares of common stock at a conversion price per share equal to $0.25 per share divided by the sixty-day VWAP;
• pay cash to the New Series B Holders equal to $0.25 per share ($6,725,000); or
• convert a number of shares of New Series B Preferred Stock, such number at our sole discretion, into shares of our common stock valued at the sixty-day VWAP (the "Conversion Value") and pay cash to the New Series B Holders equal to the difference between $6,725,000 and the Conversion Value (shares issued multiplied by the sixty-day VWAP).
We will at all times when New Series B Preferred Stock is outstanding, reserve and keep available such number of our duly authorized shares of common stock as shall from time to time be sufficient to effect the conversion of all outstanding shares of New Series B Preferred Stock.
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenue, or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.
Inflation
In the opinion of management, inflation has impacted us through increased costs of ingredients, nutrients and packaging. 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.
Seasonality
In the opinion of management, our financial condition and results of operations are not materially impacted by seasonal sales.
Recent Accounting Pronouncements
We have reviewed all other recently issued, but not yet effective, accounting pronouncements, and we do not believe the future adoption of any such pronouncements will have a material impact on our financial condition or the results of its operations.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
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.
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