What changed in this filing

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Item 2. Management’s Discussion and Analysis

2026-08-13 compared with 2026-05-14 · 89 added, 61 removed, 220 unchanged (41% of the section changed)

86 unchanged sentences

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.

We reserve for legal contingencies and related legal fees when the amounts are probable and estimable.

Customer Loyalty Program

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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.

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.

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Results of Operations

Three months ended March 31, 2026 and 2025

Three and six months ended June 30, 2026 and 2025

Our main sources of revenue are comprised of the following:

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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.

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.

Revenue for the three months ended March 31, 2026 and 2025 was comprised of the following (in thousands, except percentages):

Three months ended Increase (decrease)

March 31, from prior year

Revenue for the three and six months ended June 30, 2026 and 2025 was comprised of the following (in thousands, except percentages):

Increase (decrease)

from prior year

2026 2025 $ %

Three months ended June 30,

Product sales - retail

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$ 41,925 $ 39,506 $ 2,419 6.1 %

Our product sales increased by $1.7 million in the three months ended March 31, 2026 compared to the three months ended March 31, 2025.

The increase in retail sales was primarily attributable to our dispensaries in Delaware and Maryland, partially offset by lower sales in certain of our other dispensaries in Illinois and, to a lesser extent, our Massachusetts dispensaries.

The increase in our wholesale revenue was primarily attributable to higher wholesale revenue in Delaware and Illinois, partially offset by lower wholesale revenue in Maryland.

The decrease in total other revenue in the three months ended March 31, 2026 compared to the three months ended March 31, 2025 was primarily attributable to the cessation of revenue recognition from management fees, rental income and other components of other income from FSC prior to its acquisition by us in March 2025.

Six months ended June 30,

Product sales - retail $ 44,945 $ 43,064 $ 1,881 4.4 %

Product sales - wholesale 36,031 33,917 2,114 6.2 %

Other revenue 430 431 (1) (0.2) %

Total revenue $ 81,406 $ 77,412 $ 3,994 5.2 %

Our product sales increased by $2.3 million and $4.0 million, respectively, in the three and six months ended June 30, 2026, compared to the three and six months ended June 30, 2025.

The increase in retail sales in each of the current year periods was primarily attributable to our dispensaries in Delaware and Maryland and, to a lesser extent, Ohio.

These increases were partially offset by lower sales in our Massachusetts dispensaries and certain of our dispensaries in Illinois.

The increase in our wholesale revenue in the three and six months ended June 30, 2026 compared to the three and six months ended June 30, 2025 was primarily attributable to higher wholesale revenue in Delaware and Illinois and, to a lesser extent, Maryland, partially offset by lower wholesale revenue in Missouri.

Both our retail and wholesale revenue in the six months ended June 30, 2026 benefited from the inclusion of a full six months of revenue from Delaware, as the prior year six-month period included only four months of such revenue.

The increase in other revenue in the three months ended June 30, 2026 compared to the three months ended June 30, 2025 was primarily attributable to the increase in revenue from licensing fees in the current year period.

Other revenue was essentially unchanged in the six months ended June 30, 2026 compared to the same prior year period, as the increase in the three months ended June 30, 2026 was offset by the cessation of revenue recognition from management fees, rental income and other components, effective as of the FSC Acquisition Date in connection with the FSC Acquisition.

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, 2026 and 2025 were as follows (in thousands, except percentages):

Three months ended Increase

March 31, from prior year

Our cost of revenue, gross profit and gross margin for the three and six months ended June 30, 2026 and 2025 were as follows (in thousands, except percentages):

from prior year

2026 2025 $ %

Three months ended June 30,

Cost of revenue $ 25,700 $ 23,579 $ 2,121 9.0 %

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Gross margin 38.7 % 40.3 %

The increase in our cost of revenue in the three months ended March 31, 2026 compared to the three months ended March 31, 2025 was primarily due to higher employee- and facilities-related expenses.

This increase primarily resulted from the inclusion of FSC expenses for the full quarter in 2026 and the expansion of our production footprint in Maryland.

Six months ended June 30,

Cost of revenue $ 49,905 $ 46,396 $ 3,509 7.6 %

Gross profit $ 31,501 $ 31,016 $ 485 1.6 %

Gross margin 38.7 % 40.1 %

The increases in our cost of revenue in both the three and six months ended June 30, 2026 compared to the same prior year periods was primarily due to increases in certain production-related expenses, coupled with higher employee-related expenses.

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

These increases primarily resulted from the inclusion of FSC expenses for the full six-month period in 2026 and the expansion of our production footprint in Maryland.

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, 2026 and 2025 were as follows (in thousands, except percentages):

Three months ended Increase (decrease)

March 31, from prior year

Our operating expenses for the three and six months ended June 30, 2026 and 2025 were as follows (in thousands, except percentages):

Increase (decrease)

from prior year

2026 2025 $ %

Three months ended June 30,

Personnel $ 7,475 $ 7,392 $ 83 1.1 %

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$ 15,807 $ 14,911 $ 896 6.0 %

Our personnel expenses were relatively unchanged in the three months ended March 31, 2026 compared to the three months ended March 31, 2025.

The slight decrease in the three months ended March 31, 2026 compared to the same prior year period was primarily attributable to the elimination of employee expenses in connection with our pre-acquisition operations in Missouri, which we exited in the fourth quarter of 2025, coupled with lower employee cash incentive payments.

Personnel costs decreased to approximately 18% of revenue in the three months ended March 31, 2026, from approximately 19% in the three months ended March 31, 2025.

The decrease in our marketing and promotion expenses in the three months ended March 31, 2026 compared to the three months ended March 31, 2025 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.

The increase in our general and administrative expenses in the three months ended March 31, 2026 compared to the three months ended March 31, 2025 were primarily attributable to higher facility-related, employee travel and entertainment, and depreciation expenses.

These increases were largely offset by decreases in certain other general and administrative expenses, such as stock-based compensation, amortization of acquired intangible assets, and insurance.

Six months ended June 30,

Personnel $ 14,729 $ 14,733 $ (4) — %

Marketing and promotion 1,612 1,689 (77) (4.6) %

General and administrative 13,751 12,593 1,158 9.2 %

Acquisition-related and other 285 251 34 13.5 %

Bad debt 581 1,644 (1,063) (64.7 %)

$ 30,958 $ 30,910 $ 48 0.2 %

Our personnel expenses increased slightly in the three months ended June 30, 2026 compared to June 30, 2025, and were essentially unchanged in the six months ended June 30, 2026 compared to the six months ended June 30, 2025.

The increase in the three months ended June 30, 2026 was primarily related to higher cash wages and commissions, partially offset by lower expenses related to our cash incentive programs and insurances.

Personnel expenses decreased as a percentage of revenue in both current year periods compared to the respective prior year periods, from approximately 19% in each of the three and six months ended June 30, 2025 to 18% in each of the three and six months ended June 30, 2026.

Our marketing and promotion expenses increased slightly in the three months ended June 30, 2026 compared to the three months ended June 30, 2025, and decreased slightly in the six months ended June 30, 2026 compared to the six months

ended June 30, 2025.

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, 2026 compared to the respective three and six months ended June 30, 2025 were primarily attributable to higher facility-related expenses, professional fees and depreciation expense.

These increases in both current year periods were partially offset by reductions in expense related to our employee equity incentive program and amortization of acquired intangible assets.

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 expenses in the three months ended March 31, 2026 primarily related to multiple pre-acquisitive and similar activities.

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

We recorded $0.1 million of bad debt expense in the three months ended March 31, 2026 to reserve for certain trade receivable accounts.

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 reserve was reported as a component of Other assets in our condensed consolidated balance sheets at each of March 31, 2026 and December 31, 2025.

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 by $0.2 million in the three months ended March 31, 2026 compared to the three months ended March 31, 2025.

This increase was primarily due to the inclusion in the three months of March 31, 2026 of interest on finance leases entered into in the third quarter of 2025.

Our acquisition-related and other expenses in the three and six months ended June 30, 2026 primarily related to multiple pre-acquisitive and similar activities.

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

We recorded $0.5 million and $0.6 million of bad debt expense in the three and six months ended June 30, 2026, respectively, to reserve for certain trade receivable accounts.

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 service providers (the "Service Provider Receivables") and $0.1 million of expense to reserve for certain trade receivable accounts.

Of the $1.5 million 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 balances at each of June 30, 2026 and December 31, 2025.

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

Interest income primarily related to our notes receivable.

Our net interest expense increased in both the three and six months ended June 30, 2026 compared to the respective prior year periods.

These increases were primarily due to interest related to new finance leases and automobile financing entered into after the second quarter of 2025.

Gain on Extinguishment of Debt

We recognized a gain on the extinguishment of debt of $0.7 million in connection with the Series B Restructuring Agreement described in the “Overview” section above.

In the first quarter of 2026, we recognized a gain on the extinguishment of debt of $0.7 million in connection with the Series B Restructuring Agreement described in the “Overview” section above.

Income Tax Provision

We recorded income tax provisions of $2.7 million and $2.8 million in the three months ended March 31, 2026 and 2025, respectively.

We recorded income tax provisions of $4.7 million and $3.5 million in the six months ended June 30, 2026 and 2025, 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 (the “IRC”), Section 280E, under which taxpayers are only allowed to deduct expenses directly related to cost of goods sold of cannabis products.

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

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As a result, business conducted within these categories is no longer subject to IRC Section 280E, allowing for full deduction of ordinary and necessary business expenses.

Due to the timing of when the final order was issued, we did not record the impact in our income tax provision for the three months ended March 31, 2026.

Due to the timing of when the final order was issued, we recorded the impact in our income tax provision for the three months ended June 30, 2026.

The impact of this change in 280E applicability was a reduction in income tax expense of approximately $786,000 in each of the three and six months ended

June 30, 2026.

We continue to monitor guidance from the DOJ and the U.S.

Internal Revenue Service (the "IRS") to properly record and disclose any impact in our future financial statements.

In February 2026, the IRS filed a lien against FSC in connection with an approximate $1 million tax liability for the years 2023 and 2024, which periods were prior to the FSC Acquisition Date.

In February 2026, the IRS filed a lien against FSC in connection with an approximate $1 million tax liability for the 2023 and 2024 tax periods, which periods were prior to the FSC Acquisition Date.

We recorded this liability as part of the allocation of the purchase consideration for FSC.

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Liquidity and Capital Resources

We had cash, cash equivalents and restricted cash aggregating $7.9 million and $8.9 million at March 31, 2026 and December 31, 2025, respectively.

We had cash, cash equivalents and restricted cash aggregating $8.4 million and $8.9 million at June 30, 2026 and December 31, 2025, 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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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, 2026 and December 31, 2025.

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' (but not the Company's) ability to incur additional

indebtedness and grant liens that are otherwise not permitted, among others.

The CREM Loan Agreement also includes customary negative covenants limiting the CREM Borrowers' (but not the Company's) 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.

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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 $0.9 million and $1.3 million of cash in the three months ended March 31, 2026 and 2025, respectively.

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

Our operating activities provided $3.2 million and $1.6 million of cash in the six months ended June 30, 2026 and 2025, respectively.

The change in cash from operating activities in the current year period compared to the prior year was primarily attributable to higher revenue, partially offset by expenses arising from expanding our geographic presence.

These higher costs primarily relate to cultivation/manufacturing, personnel and facility-related expenses.

Cash Flows from Investing Activities

Our investing activities used $0.8 million and $0.1 million of cash in the three months ended March 31, 2026 and 2025, respectively.

During the three months ended March 31, 2026, we used $0.4 million for each of purchases of cannabis licenses and for capital expenditures.

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 $1.3 million and $0.7 million of cash in the six months ended June 30, 2026 and 2025, respectively.

During the six months ended June 30, 2026, we used $0.7 million of cash for capital expenditures and $0.6 million for purchases and renewals of cannabis licenses.

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.

Cash Flows from Financing Activities

Our financing activities used $1.1 million and $1.3 million of cash in the three months ended March 31, 2026 and 2025, respectively.

During the three months ended March 31, 2026, we made $1.1 million of aggregate principal payments on our outstanding mortgages, promissory notes and finance leases, and approximately $49,000 of distribution payments.

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.

Our financing activities used $2.4 million and $2.1 million of cash in the six months ended June 30, 2026 and 2025, respectively.

During the six months ended June 30, 2026, we made $2.3 million of aggregate principal payments on our outstanding mortgages, promissory notes and finance leases, and approximately $80,000 of distribution payments.

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 approximately $81,000 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 which we consume cash is dependent on the cash needs of our future operations, including our contractual obligations at March 31, 2026, and our ability to raise additional cash through financing activities.

Our contractual obligations at March 31, 2026 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 $79 million at March 31, 2026.

The rate at which we consume cash is dependent on the cash needs of our future operations, including our contractual obligations at June 30, 2026, and our ability to raise additional cash through financing activities.

Our contractual obligations at June 30, 2026 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 $79 million at June 30, 2026.

Non-GAAP Measurement

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

The table below reconciles income (loss) from operations to Adjusted EBITDA for the three months ended March 31, 2026 and 2025 (in thousands):

Three months ended

2026 March 31,

GAAP Income (loss) from operations $ 125 $ (910)

The table below reconciles income (loss) from operations to Adjusted EBITDA for the three and six months ended June 30, 2026 and 2025 (in thousands):

Three months ended Six months ended

2026 June 30,

2025 June 30,

2026 June 30,

GAAP Income from operations $ 418 $ 1,016 $ 543 $ 106

Depreciation and amortization of property and equipment 2,331 2,114 4,484 3,921

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Stock-based compensation 350 549 675 1,096

Severance 16 — 16 —

Acquisition-related and other 116 139 285 251

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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