What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2026-08-04 compared with 2026-05-05 · 185 added, 338 removed, 62 unchanged (89% of the section changed)

Management’s Discussion and Analysis of Financial

Condition and Results of Operations

The information contained

in this Quarterly Report is intended to update the information contained in our Annual Report on Form 10-K for the year ended December

31, 2025 filed with the Securities And Exchange Commission (the “SEC”) on March 3, 2026 (the “Form 10-K”) and

presumes that readers have access to, and will have read, the “Management’s Discussion and Analysis of Financial Condition

and Results of Operations” and other information contained in the Form 10-K.

The following discussion and analysis also should

be read together with our financial statements and the notes to the financial statements included elsewhere in this Quarterly Report.

The following discussion

contains certain statements that may be deemed “forward-looking statements” within the meaning of the Private Securities

Litigation Reform Act of 1995.

Such statements appear in a number of places in this Quarterly Report, including, without limitation,

“Management’s Discussion and Analysis of Financial Condition and Results of Operations.” These statements are not guarantees

of future performance and involve risks, uncertainties and requirements that are difficult to predict or are beyond our control.

Forward-looking

statements speak only as of the date of this Quarterly Report.

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

The information contained in this Quarterly Report is intended to update the information contained in our Annual Report on Form 10-K for the year ended December 31, 2025 filed with the Securities And Exchange Commission (the “SEC”) on March 3, 2026 (the “Form 10-K”) and presumes that readers have access to, and will have read, the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and other information contained in the Form 10-K.

The following discussion and analysis also should be read together with our financial statements and the notes to the financial statements included elsewhere in this Quarterly Report.

The following discussion contains certain statements that may be deemed “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995.

Such statements appear in a number of places in this Quarterly Report, including, without limitation, “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” These statements are not guarantees of future performance and involve risks, uncertainties and requirements that are difficult to predict or are beyond our control.

Forward-looking statements speak only as of the date of this Quarterly Report.

You should not put undue reliance on any forward-looking statements.

strongly encourage investors to carefully read the risk factors described in the Form 10-K in the section entitled “Risk Factors”

for a description of certain risks that could, among other things, cause actual results to differ from these forward-looking statements.

We strongly encourage investors to carefully read the risk factors described in the Form 10-K in the section entitled “Risk Factors” for a description of certain risks that could, among other things, cause actual results to differ from these forward-looking statements.

We assume no responsibility to update the forward-looking statements contained in this Quarterly Report.

The following should also be

read in conjunction with the unaudited financial statements and notes thereto that appear elsewhere in this Quarterly Report.

Unless otherwise stated

or the context otherwise requires, references in this report to “RYTHM”, the “Company,” “we,” “us,”

“our,” or similar references mean RYTHM, Inc.

The following should also be read in conjunction with the unaudited financial statements and notes thereto that appear elsewhere in this Quarterly Report.

Unless otherwise stated or the context otherwise requires, references in this report to “RYTHM”, the “Company,” “we,” “us,” “our,” or similar references mean RYTHM, Inc.

and its subsidiaries on a consolidated basis.

delivers well-being to consumers through its portfolio

of hemp-derived THC products and iconic licensed brands.

The Company’s portfolio of consumer-packaged goods brands includes RYTHM,

incredibles, Dogwalkers, Beboe, &Shine, Doctor Solomon’s, Good Green and Señorita.

Our Señorita brand offers consumers

hemp-derived tetrahydrocannabinol (“THC”) beverages and are sold at top retailers, online and through direct-to-retail partnerships.

The Señorita brand mirrors well-known cocktails like a margarita – in four flavors – classic Lime Jalapeño Margarita,

Mango Margarita, Paloma and Ranch Water.

Known for its clean, fresh taste and commitment to high-quality, natural ingredients, Señorita

offers a low-sugar, low-calorie alternative to alcoholic beverages and is available in seventeen U.S.

states and Canada including at top

retailers such as Total Wine, ABC Fine Wine & Spirits, and Binny’s.

The RYTHM branded beverage comes in two fruit-driven flavors

with effect-based ingredients.

Both Señorita and RYTHM hemp-derived beverages are available at Chicago’s iconic United Center,

based on a partnership announced in January 2026, establishing RYTHM as the venue’s official THC sponsor.

Other hemp-derived products

including incredibles and Beboe edible products are primarily sold online and through direct-to-retail partnerships.

In addition to the

sale of hemp-derived products (“Non-licensing Revenue”), we license our brands to be manufactured and distributed in exchange

for a licensing fee (“Licensing Revenue”).

RYTHM has also historically been a leading provider of innovative cultivation

and extraction solutions for the cannabis industry.

Prior to the exit of the extraction business on March 30, 2025, the Company’s

comprehensive extraction product line (“the Extraction Business”), which included hydrocarbon, alcohol, solventless, post-processing,

and lab equipment, empowered cannabis producers to maximize the quantity and quality of extract required for premium concentrates.

Additionally,

prior to its sale on December 31, 2024, the Company’s proprietary micro-environment-controlled Agrify Vertical Farming Units (“VFUs”)

enabled cultivators to produce high quality products for the cannabis industry (the “Cultivation Business”).

As the discontinuation

of the Extraction Business and the sale of the Cultivation Business represented strategic shifts that had a major effect on our operations

and financial results, they have been presented in discontinued operations separate from continuing operations for the three months ended

March 31, 2026 and 2025 in our condensed consolidated statements of operations and as of March 31, 2026 and December 31, 2025 in our condensed

consolidated balance sheets and applicable footnotes in accordance with ASC 205, Presentation of Financial Statements .

to Item 1 and the notes to the unaudited condensed consolidated financial statements for details on recent developments and significant

transactions during the period.

delivers well-being to consumers through its portfolio of hemp-derived THC products and iconic licensed brands.

The Company’s portfolio of consumer-packaged goods brands includes RYTHM, incredibles, Dogwalkers, Beboe, &Shine, Doctor Solomon’s, Good Green and Señorita.

Our Señorita brand offers consumers hemp-derived tetrahydrocannabinol (“THC”) beverages and are sold at top retailers, online and through direct-to-retail partnerships.

The Señorita brand mirrors well-known cocktails like a margarita – in four flavors – classic Lime Jalapeño Margarita, Mango Margarita, Paloma and Ranch Water.

Known for its clean, fresh taste and commitment to high-quality, natural ingredients, Señorita offers a low-sugar, low-calorie alternative to alcoholic beverages and is available in eighteen U.S.

states and Canada including at top retailers such as Total Wine, ABC Fine Wine & Spirits, and Binny’s.

The RYTHM branded beverage comes in two fruit-driven flavors with effect-based ingredients.

Both Señorita and RYTHM hemp-derived beverages are available at Chicago’s iconic United Center, based on a partnership announced in January 2026, establishing RYTHM as the venue’s official THC sponsor.

Other hemp-derived products including incredibles and Beboe edible products are primarily sold online and through direct-to-retail partnerships.

In addition to the sale of hemp-derived products (“Non-licensing Revenue”), we license our brands to be manufactured and distributed in exchange for a licensing fee (“Licensing Revenue”).

The Company was historically a leading provider of innovative cultivation and extraction solutions for the cannabis industry.

Prior to the exit of the extraction business on March 30, 2025, the Company’s comprehensive extraction product line (“the Extraction Business”), which included hydrocarbon, alcohol, solventless, post-processing, and lab equipment, empowered cannabis producers to maximize the quantity and quality of extract required for premium concentrates.

Additionally, prior to its sale on December 31, 2024, the Company’s proprietary micro-environment-controlled Agrify Vertical Farming Units (“VFUs”) enabled cultivators to produce high quality products for the cannabis industry (the “Cultivation Business”).

As the discontinuation of the Extraction Business and the sale of the Cultivation Business represented strategic shifts that had a major effect on our operations and financial results, they have been presented in discontinued operations separate from continuing operations for the three and six months ended June 30, 2026 and 2025 in our condensed consolidated statements of operations and as of June 30, 2026 and December 31, 2025 in our condensed consolidated balance sheets and applicable footnotes in accordance with Accounting Standards Codification (“ASC”) 205, Presentation of Financial Statements .

Please refer to Item 1 and the notes to the unaudited condensed consolidated financial statements for details on recent developments and significant transactions during the period.

Critical Accounting Policies and Significant Judgments and Estimates

Our management’s discussion and analysis of our financial position

and results of operations is based on our financial statements, which have been prepared in accordance with accounting principles generally

accepted in the United States of America, or GAAP.

The preparation of financial statements in conformity with GAAP requires us to make

estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes.

On an ongoing basis, we

evaluate estimates, which include estimates related to accruals, stock-based compensation expense, recoverability of goodwill, intangible

assets, and other assets (prepaid licensing rights), and reported amounts of revenues and expenses during the reported period.

our estimates on historical experience and other market-specific or other relevant assumptions that we believe to be reasonable under

the circumstances.

Our management’s discussion and analysis of our financial position and results of operations is based on our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America, or GAAP.

The preparation of financial statements in conformity with GAAP requires us to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes.

On an ongoing basis, we evaluate estimates, which include estimates related to accruals, stock-based compensation expense, recoverability of goodwill, intangible assets, and other assets (prepaid licensing rights), and reported amounts of revenues and expenses during the reported period.

We base our estimates on historical experience and other market-specific or other relevant assumptions that we believe to be reasonable under the circumstances.

Actual results may differ materially from those estimates or assumptions.

Refer to Note 1 included elsewhere in the

notes to the unaudited condensed consolidated financial statements, for further information.

Refer to Note 1 included elsewhere in the notes to the unaudited condensed consolidated financial statements, for further information.

Results of Operations

We have a history of recurring

net losses and have incurred losses to date, except for the three months ended March 31, 2026, during which we recognized net income primarily

as a result of a non-cash income tax benefit.

Our unaudited condensed consolidated financial statements have been prepared assuming that

we will continue as a going concern and, accordingly, do not include adjustments relating to the recoverability and realization of assets

and classification of liabilities that might be necessary should we be unable to continue in operation.

Refer to information provided

under the heading “Liquidity and Capital Resources” below for further details.

We have a history of recurring net losses and have incurred losses to date, except for the three and six months ended June 30, 2026, during which we recognized net income primarily as a result of a non-cash income tax benefit.

Our unaudited condensed consolidated financial statements have been prepared assuming that we will continue as a going concern and, accordingly, do not include adjustments relating to the recoverability and realization of assets and classification of liabilities that might be necessary should we be unable to continue in operation.

Refer to information provided under the heading “Liquidity and Capital Resources” below for further details.

Results of Operations

Comparison of the Three Months Ended March

31, 2026 and 2025

The following table summarizes

our results of continuing operations for the three months ended March 31, 2026 and 2025:

Three months ended March 31,

Comparison of the Three and Six Months Ended June 30, 2026 and 2025

The following table summarizes our results of continuing operations for the three and six months ended June 30, 2026 and 2025:

Three months ended

June 30, Six months ended

2026 2025 2026 2025

Revenue (1) $ 23,021 $ 2,042 $ 36,307 $ 2,580

Cost of goods sold 4,485 1,360 7,374 1,808

Gross profit 18,536 682 28,933 772

Selling, general and administrative (2) 16,600 7,480 31,031 11,271

Total operating expenses 16,600 7,480 31,031 11,271

Operating loss from continuing operations

Interest (expense) income, net (3)

Change in fair value of warrant liabilities

Other income, net

Operating income (loss) from continuing operations 1,936 (6,798 ) (2,098 ) (10,499 )

Interest expense, net (3) (1,727 ) (291 ) (3,469 ) (290 )

(Loss) gain in fair value of warrant liabilities (232 ) (115 ) (127 ) 292

Other income (expense), net 2 (1 ) 2 18

Total other (expenses) income, net (1,957 ) (407 ) (3,594 ) 20

3 unchanged sentences

Loss from discontinued operations — (123 ) — (2,041 )

Gain on disposal of Extraction business

Income from discontinued operations, net of income taxes

(Loss) gain on disposal of Extraction business — (32 ) — 3,534

Loss (income) from discontinued operations, net of income taxes — (155 ) — 1,493

Net income (loss) $ 1,184 $ (7,360 ) $ 21,106 $ (8,986 )

3 unchanged sentences

Weighted average common shares outstanding - diluted 2,283,971 1,965,425 5,252,126 1,958,724

$10.0 million for the three months ended March 31, 2026, and $80 thousand for the three months ended March 31, 2025, in each case from

related parties.

$4.3 million for the three months ended March 31, 2026, and $1.4 million for the three months ended March 31, 2025, in each case from

related parties.

$1.8 million of interest expense for the three months ended March 31, 2026, and $250 thousand for the three months ended March 31, 2025,

in each case from a related party.

We generate revenue from

sales of hemp-derived THC products (non-licensing) and related party Licensing Revenue.

The following table provides

a breakdown of our revenue from continuing operations for the three months ended March 31, 2026 and 2025:

(1) Includes $17.7 million and $27.7 million for the three and six months ended June 30, 2026, and $264 thousand and $265 thousand for the three and six months ended June 30, 2025, in each case from related parties.

(2) Includes $5.9 million and $10.2 million for the three and six months ended June 30, 2026, and $2.8 million and $4.2 million for the three and six months ended June 30, 2025, in each case from related parties.

(3) Includes $1.8 million and $3.6 million of interest expense for the three and six months ended June 30, 2026, and $548 thousand and $798 thousand for the three and six months ended June 30, 2025, in each case from a related party.

We generate revenue from sales of hemp-derived THC products (non-licensing) and related party Licensing Revenue.

The following table provides a breakdown of our revenue from continuing operations for the three and six months ended June 30, 2026 and 2025:

Three months ended

(In thousands)

June 30, % Six months ended

(In thousands) 2026 2025 Change Change 2026 2025 Change Change

Non-licensing Revenue $ 5,521 $ 1,794 $ 3,727 208 % $ 8,832 $ 2,332 $ 6,500 279 %

1 unchanged sentence

Total revenue $ 23,021 $ 2,042 $ 20,979 1027 % $ 36,307 $ 2,580 $ 33,727 1307 %

Revenue increased by $12.7

million for the three months ended March 31, 2026, as compared to the same period in 2025.

The comparative increase in revenue was primarily

driven by the commencement of Licensing Revenue in May and August 2025 as well as the $2.8 million increase in Non-Licensing Revenue.

Of the revenue recognized for the three months ended March 31, 2026, $10.0 million was attributable to related parties, as compared to

$80 thousand for the three months ended March 31, 2025.

Revenue increased by $21 million for the three months ended June 30, 2026, as compared to the same period in 2025.

The comparative increase in revenue was primarily driven by the commencement of Licensing Revenue arrangements in May and August 2025 and subsequent amendment to a fixed annual structure, as well as the $3.7 million increase in Non-Licensing Revenue.

Of the revenue recognized for the three months ended June 30, 2026, $17.7 million was attributable to related parties, as compared to $264 thousand for the three months ended June 30, 2025.

Revenue increased by $33.7 million for the six months ended June 30, 2026, as compared to the same period in 2025.

Of the revenue recognized for the six months ended June 30, 2026, $27.7 million was attributable to related parties, as compared to $265 thousand for the six months ended June 30, 2025.

Cost of Goods Sold

Cost of goods sold represents costs associated with the hemp-derived

THC product sales (Non-licensing Revenue).

The following table presents our cost of goods sold from continuing

operations for the three months ended March 31, 2026 and 2025, all of which relates to non-licensing revenue:

Cost of goods sold represents costs associated with Non-licensing Revenue.

The following table presents our cost of goods sold from continuing operations for the three and six months ended June 30, 2026 and 2025, all of which relates to Non-Licensing Revenue:

Three months ended

(In thousands)

June 30, % Six months ended

(In thousands) 2026 2025 Change Change 2026 2025 Change Change

Cost of goods sold $ 4,485 $ 1,360 $ 3,125 230 % $ 7,374 $ 1,808 $ 5,566 308 %

Cost of goods sold increased by $2.4 million for the three months ended

March 31, 2026 compared to the same period in 2025.

The comparative increase in cost of goods sold is driven by the increased sales of

hemp-derived THC products.

Cost of goods sold increased by $3.1 million for the three months ended June 30, 2026 compared to the same period in 2025.

The comparative increase in cost of goods sold was driven by the increased sales of Non-licensing Revenue.

Cost of goods sold increased by $5.6 million for the six months ended June 30, 2026 compared to the same period in 2025.

The increase was primarily driven by increased Non-licensing Revenue during the period, which resulted in higher product costs, freight, fulfillment, and related distribution costs.

Three months ended

(In thousands)

Gross profit totaled $10.4 million, or 78% of total revenue during

the three months ended March 31, 2026, compared to a gross profit of $90 thousand, or 17% of total revenue during the three months ended

March 31, 2025.

The comparative $10.3 million increase in gross profit was primarily driven by the commencement of Licensing Revenue in

June 30, % Six months ended

(In thousands) 2026 2025 Change Change 2026 2025 Change Change

Gross profit $ 18,536 $ 682 $ 17,854 2618 % $ 28,933 $ 772 $ 28,161 3648 %

Gross profit totaled $18.5 million, or 80.5% of total revenue during the three months ended June 30, 2026, compared to a gross profit of $682 thousand, or 33.4% of total revenue during the three months ended June 30, 2025.

The comparative $17.9 million increase in gross profit is primarily due to the commencement of second Licensing Revenue arrangement in August 2025, as well as increased Non-licensing Revenue during the period.

Gross profit totaled $28.9 million, or 79.7% of total revenue during the six months ended June 30, 2026, compared to a gross profit of $772 thousand, or 29.9% of total revenue during the six months ended June 30, 2025.

The comparative $28.2 million increase in gross profit was primarily driven by the commencement of second Licensing Revenue arrangement in August 2025, as well as increased Non-licensing Revenue during the period.

Selling, General and Administrative

Three months ended

(In thousands)

Selling, general and administrative

June 30, % Six months ended

(In thousands) 2026 2025 Change Change 2026 2025 Change Change

Selling, general and administrative $ 16,600 $ 7,480 $ 9,120 122 % $ 31,031 $ 11,271 $ 19,760 175 %

(“SG&A”) expenses consist principally of marketing costs and support services performed by Vision Management Services,

LLC, a subsidiary of Green Thumb Industries Inc, a related party (“Green Thumb”), pursuant to two shared services agreements,

as well as stock-based compensation and travel expenses associated with executive and other administrative functions.

Other SG&A expenses

include, but are not limited to, professional fees for legal and accounting services and amortization costs.

SG&A expense increased

by $10.6 million, or 281%, for the three months ended March 31, 2026, compared to the same period in 2025.

The comparative change is primarily

attributable to marketing and consulting costs to support the growth of the hemp-derived THC products sales in addition to the presentation

of SG&A expense from the Cultivation Business and Extraction Business for the three months ended March 31, 2025 as part of discontinued

Selling, general and administrative (“SG&A”) expenses consist principally of marketing costs and support services performed by Vision Management Services, LLC, a subsidiary of Green Thumb Industries Inc, a related party (“Green Thumb”), pursuant to two shared services agreements, as well as stock-based compensation and travel expenses associated with executive and other administrative functions.

Other SG&A expenses include, but are not limited to, professional fees for legal and accounting services and amortization costs.

SG&A expense increased by $9.1 million, or 122%, for the three months ended June 30, 2026, compared to the same period in 2025.

The comparative change was primarily due to higher marketing, brand, trade, and promotional spend to support growth in hemp-derived THC product sales.

The increase was also driven by higher consulting, outsourced services, and shared service costs, in addition to the reclassification of SG&A expense from the Cultivation and Extraction business from continuing operations to discontinued operations in the 2025 comparative period.

SG&A expense increased by $19.8 million, or 175%, for the six months ended June 30, 2026, compared to the same period in 2025.

The comparative change is primarily attributable to marketing and consulting costs to support the growth of the hemp-derived THC products sales in addition to the reclassification of SG&A expense from the Cultivation and Extraction business from continuing operations to discontinued operations in the 2025 comparative period.

Other (Expenses) Income, Net

Three months ended

(In thousands)

Interest (expense) income, net

Change in fair value of warrant liabilities

Other income, net

June 30, % Six months ended

(In thousands) 2026 2025 Change Change 2026 2025 Change Change

Interest expense, net $ (1,727 ) $ (291 ) $ (1,436 ) 493 % $ (3,469 ) $ (290 ) $ (3,179 ) 1096 %

(Loss) gain in fair value of warrant liabilities (232 ) (115 ) (117 ) 102 % (127 ) 292 (419 ) (143 )%

Other income (expense), net 2 (1 ) 3 (300 )% 2 18 (16 ) (89 )%

Total other (expenses) income, net $ (1,957 ) $ (407 ) $ (1,550 ) 381 % $ (3,594 ) $ 20 $ (3,614 ) (18070 )%

Interest expense, net was $1.7 million for the three months ended March

31, 2026, compared to interest income, net of $1 thousand for the three months ended March 31, 2025.

The change is attributable mainly

to the increase of $80.0 million new borrowings under the Convertible Notes (as that term is defined under “—Indebtedness”

Included in interest expense, net for the three months ended March 31, 2026 is $1.8 million of interest expense incurred with

a related party and $0.3 million of interest income.

The fair value gain on warrant liabilities decreased by $302 thousand,

or 74%, for the three months ended March 31, 2026, compared to the same period in 2025.

The decrease reflects a smaller reduction in the

fair value of warrant liabilities during the current period compared to the prior year period.

Other income, net was nil for the three months ended March 31, 2026,

compared to $19 thousand for the same period in 2025.

Interest expense, net was $1.7 million for the three months ended June 30, 2026, compared to interest expense, of $291 thousand for the three months ended June 30, 2025.

The change is attributable mainly to the increase of $80.0 million new borrowings in May and August 2025 under the Convertible Notes (as that term is defined under “Indebtedness” below).

Included in interest expense, net for the three months ended June 30, 2026 is $1.8 million of interest expense incurred with a related party and $0.3 million of interest income.

Interest expense, net was $3.5 million for the six months ended June 30, 2026, compared to interest expense, net of $290 thousand for the six months ended June 30, 2025.

The change is attributable mainly to the increase of $80.0 million new borrowings in May and August 2025 under the Convertible Notes (as that term is defined under “Indebtedness” below).

Included in interest expense, net for the six months ended June 30, 2026 is $3.6 million of interest expense incurred with a related party and $0.5 million of interest income.

The change in fair value of warrant liabilities resulted in a loss of $232 thousand for the three months ended June 30, 2026, compared to a loss of $115 thousand for the three months ended June 30, 2025.

The loss was primarily due to the periodic remeasurement of the warrant liabilities to fair value, reflecting changes in valuation inputs, including the Company’s stock price and other market-based assumptions.

The change in fair value of warrant liabilities resulted in a loss of $127 thousand for the six months ended June 30, 2026, compared to a gain of $292 thousand for the six months ended June 30, 2025.

The loss of $419 thousand was primarily attributable to the periodic remeasurement of the Company’s warrant liabilities to fair value, reflecting changes in valuation inputs, including the Company’s stock price and other market-based assumptions.

Other income, net was $2 thousand for the three months ended June 30, 2026, compared to loss of $1 thousand for the same period in 2025.

Other income, net was $2 thousand for the six months ended June 30, 2026, compared to $18 thousand for the same period in 2025.

Income Tax Benefit

Income tax benefit was $25.6 million for the three months ended March 31, 2026, compared to nil for the three

months ended March 31, 2025.

The increase was attributable to a $25.6 million non-cash income tax benefit resulting from the release of

the Company’s valuation allowance against its deferred tax assets.

The valuation allowance was released following the execution

of an amendment to the Company’s license agreement with GTI Core on March 31, 2026, which transitioned licensing fees to a fixed

annual structure and reduced uncertainty in projected future taxable income.

Based on this change and sustained projected profitability,

management concluded that sufficient positive evidence exists to support the realizability of its deferred tax assets.

Income tax benefit was $1.2 million and $26.8 million for the three and six months ended June 30, 2026, compared to nil for the three and six months ended June 30, 2025.

The increase was attributable to a $25.6 million non-cash income tax benefit resulting from the release of the Company’s valuation allowance against its deferred tax assets.

The valuation allowance was released following the execution of an amendment to the Company’s license agreement with GTI Core on March 31, 2026, which transitioned licensing fees to a fixed annual structure and reduced uncertainty in projected future taxable income.

During the three months ended June 30, 2026, the Company released an additional $1.2 million, primarily reflecting deferred tax assets generated during the period, bringing the aggregate valuation allowance released to $26.8 million as of June 30, 2026.

Based on this change and sustained projected profitability, management concluded that sufficient positive evidence exists to support the realizability of its deferred tax assets.

Non-GAAP Measures

“EBITDA” and “Adjusted

EBITDA” are non-GAAP measures and do not have standardized definitions under GAAP.

The following information provides reconciliations

of the supplemental non-GAAP financial measures, presented herein to the most directly comparable financial measures calculated and presented

in accordance with GAAP.

The Company has provided the non-GAAP financial measures, which are not calculated or presented in accordance

with GAAP, as supplemental information and in addition to the financial measures that are calculated and presented in accordance with

These supplemental non-GAAP financial measures are presented because management has evaluated the financial results both including

and excluding the adjusted items and believes that the supplemental non-GAAP financial measures presented provide additional perspective

and insights when analyzing the core operating performance of the business.

These supplemental non-GAAP financial measures should not

be considered superior to, as a substitute for or as an alternative to, and should be considered in conjunction with, the GAAP financial

measures presented.

“EBITDA” and “Adjusted EBITDA” are non-GAAP measures and do not have standardized definitions under GAAP.

The following information provides reconciliations of the supplemental non-GAAP financial measures, presented herein to the most directly comparable financial measures calculated and presented in accordance with GAAP.

The Company has provided the non-GAAP financial measures, which are not calculated or presented in accordance with GAAP, as supplemental information and in addition to the financial measures that are calculated and presented in accordance with GAAP.

These supplemental non-GAAP financial measures are presented because management has evaluated the financial results both including and excluding the adjusted items and believes that the supplemental non-GAAP financial measures presented provide additional perspective and insights when analyzing the core operating performance of the business.

These supplemental non-GAAP financial measures should not be considered superior to, as a substitute for or as an alternative to, and should be considered in conjunction with, the GAAP financial measures presented.

EBITDA is calculated as Income (loss) from continuing operations before:

net interest (expense) income, provision

for income taxes, and depreciation and amortization.

Adjusted EBITDA is calculated as EBITDA before stock-based compensation and change

in fair value of warrant liabilities.

The following table presents

a reconciliation of Income (loss) from continuing operations (GAAP) to non-GAAP Adjusted EBITDA, for the periods presented:

net interest (expense) income, provision for income taxes, and depreciation and amortization.

Adjusted EBITDA is calculated as EBITDA before stock-based compensation, change in fair value of warrant liabilities and exceptional items.

The following table presents a reconciliation of Income (loss) from continuing operations (GAAP) to non-GAAP Adjusted EBITDA, for the periods presented:

Three months ended

June 30, Six months ended

(In thousands) 2026 2025 2026 2025

(unaudited) (unaudited)

Income (loss) from continuing operations, net of income taxes $ 1,184 $ (7,205 ) $ 21,106 $ (10,479 )

Interest expense (income), net

Interest expense, net 1,727 291 3,469 290

Income tax benefit (1,205 ) — (26,798 ) —

3 unchanged sentences

Change in fair value of warrant liabilities 232 115 127 (292 )

Exceptional items 1 360 437 360 437

Adjusted EBITDA (non-GAAP measure) $ 6,357 $ (5,448 ) $ 6,337 $ (8,205 )

1 Exceptional items correspond to costs incurred outside the ordinary course of business, including transition, restructuring, or other dislocation costs arising from or related to resizing initiatives, distributor termination fees, and other similar items.

Liquidity and Capital Resources

As of March 31, 2026, our

principal sources of liquidity are cash and cash equivalents totaling $33.3 million.

Our current working capital needs are to support

revenue growth and manage inventory to meet demand forecasts and support operational growth.

Our long-term financial needs primarily

include working capital requirements.

There are many factors that may negatively impact our available sources of funds in the future,

including the ability to generate cash from operations, raise debt capital and raise cash from the issuance of our securities.

of cash generated from operations is dependent upon factors such as the successful execution of our business strategy and general economic

We may opportunistically

raise debt capital, subject to market and other conditions.

Additionally, as part of our growth strategies, we may also raise debt capital

for strategic alternatives and general corporate purposes.

If additional financing is required from outside sources, we may not be able

to raise such capital on terms acceptable to us or at all.

If we are unable to raise additional capital when desired, our business, operating

results and financial condition may be adversely affected.

We are required to evaluate

whether there are conditions or events, considered in aggregate, that raise substantial doubt about our ability to continue as a going

concern within one year after the date that the financial statements are issued.

Substantial doubt exists when conditions and events,

considered in aggregate, indicate that it is probable that a company will be unable to meet its obligations as they become due within

one year after the date that the condensed consolidated financial statements are issued.

We have a history of recurring net losses and negative cash flow in

operating activities.

However, for the three months ended March 31, 2026, the Company generated positive cash flow from operating activities

and reported net income which was mainly impacted by a non-cash income tax benefit.

We believe our $33.3 million of cash and cash equivalents,

anticipated contractual Licensing Revenue and ability to address our Convertible Notes will be sufficient to meet our cash requirements

through at least the 12-month period following the date that these condensed consolidated financial statements were issued.

Convertible Notes maturities

of $80.0 million exist through February 2027, with $72.0 million held by a subsidiary of Green Thumb, a related party.

If the holders

of these notes elect to be paid in cash upon maturity could raise substantial doubt about the our ability to continue as a going concern.

However, while these contractual maturities require management attention, management believes it is probable that the obligations will

be addressed through extension or conversion consistent with historical practice.

As such, our financial statements have been prepared

on a going concern basis.

As of June 30, 2026, our principal sources of liquidity are cash and cash equivalents totaling $41.9 million.

Our current working capital needs are to support revenue growth and manage inventory to meet demand forecasts and support operational growth.

Our long-term financial needs primarily include working capital requirements.

There are many factors that may negatively impact our available sources of funds in the future, including the ability to generate cash from operations, raise debt capital and raise cash from the issuance of our securities.

The amount of cash generated from operations is dependent upon factors such as the successful execution of our business strategy and general economic conditions.

We may opportunistically raise debt capital, subject to market and other conditions.

Additionally, as part of our growth strategies, we may also raise debt capital for strategic alternatives and general corporate purposes.

If additional financing is required from outside sources, we may not be able to raise such capital on terms acceptable to us or at all.

If we are unable to raise additional capital when desired, our business, operating results and financial condition may be adversely affected.

We are required to evaluate whether there are conditions or events, considered in aggregate, that raise substantial doubt about our ability to continue as a going concern within one year after the date that the financial statements are issued.

Substantial doubt exists when conditions and events, considered in aggregate, indicate that it is probable that a company will be unable to meet its obligations as they become due within one year after the date that the condensed consolidated financial statements are issued.

We have a history of recurring net losses and negative cash flow in operating activities.

However, for the six months ended June 30, 2026, the Company generated positive cash flow from operating activities and reported net income which was mainly impacted by a non-cash income tax benefit.

We believe our $41.9 million of cash and cash equivalents, anticipated contractual Licensing Revenue and ability to address our Convertible Notes will be sufficient to meet our cash requirements through at least the 12-month period following the date that these condensed consolidated financial statements were issued.

Convertible Notes maturities of $80.0 million exist through February 2027, with $72.0 million held by a subsidiary of Green Thumb, a related party.

If the holders of these notes elect to be paid in cash upon maturity could raise substantial doubt about our ability to continue as a going concern.

However, while these contractual maturities require management attention, management believes it is probable that the obligations will be addressed through extension or conversion consistent with historical practice.

As such, our financial statements have been prepared on a going concern basis.

Convertible Notes

On May 22, 2025, we issued

secured convertible notes with an aggregate original principal amount of $30.0 million (collectively the “May 2025 Notes”)

to RSLGH and to certain other third-party accredited investors.

The May 2025 Notes are secured obligations and rank senior to all of our

indebtedness except for the August 2025 Notes, which ranks on parity with the May 2025 Notes.

The May 2025 Notes will mature on November

22, 2026 and accrue interest at a 10.0% annualized rate, with interest to be paid on the first calendar day of each September and March

while the May 2025 Notes are outstanding, in pre-funded warrants, beginning September 1, 2025.

The principal amount of the May 2025 Notes

will be payable on the maturity date.

The May 2025 Notes may be converted into Common Stock or, at the election of the holder, into pre-funded

warrants, with a beneficial ownership limitation for RSLGH of 49.99% and a beneficial ownership limitation for other holders of 4.99%,

in each case subject to applicable Nasdaq listing rules.

If a holder elects to convert the May 2025 Notes into Common Stock, the conversion

price per share will be $23.53, equal to the most recent closing price of the Common Stock on the Nasdaq Capital Market at the time the

May 2025 Notes were issued, subject to customary adjustments for certain corporate events.

If a holder elects to convert the May 2025

Notes into pre-funded warrants, and for interest payments payable in the form of pre-funded warrants, the conversion price per pre-funded

warrant will be equal to the $23.53 conversion price less than $0.001 exercise price of the warrant.

The conversion of the May 2025 Notes

into Common Stock and/or pre-funded warrants is subject to certain customary conditions and, to the extent necessary, the receipt of stockholder

approval under Nasdaq listing rules.

On August 25, 2025, we issued

secured convertible notes with an aggregate original principal amount of $50.0 million (collectively the “August 2025 Notes”)

to RSLGH and to certain other third-party accredited investors.

The August 2025 Notes are secured obligations and rank senior to all of

our indebtedness except for the May 2025 Notes, which rank on parity with the August 2025 Notes.

The August 2025 Notes will mature on

February 25, 2027 and accrue interest at a 10.0% annualized rate, with interest to be paid on the first calendar day of each September

and March, while the August 2025 Notes are outstanding beginning March 1, 2026.

The principal amount of the August 2025 Notes will be

payable on the maturity date.

The August 2025 Notes may be converted into Common Stock or, at the election of the holder, into pre-funded

warrants, with a beneficial ownership limitation for RSLGH of 49.99% and a beneficial ownership limitation for other holders of 4.99%,

in each case subject to applicable Nasdaq listing rules.

If a holder elects to convert the August 2025 Notes into Common Stock, the conversion

price per share will be $29.475, equal to the Minimum Price as such term is defined under Nasdaq Listing Rule 5635 at the time the August

2025 Notes were issued, subject to customary adjustments for certain corporate events.

If a holder elects to convert the August 2025 Notes

into pre-funded warrants, and for interest payments elected to be paid in the form of pre-funded warrants, the conversion price per pre-funded

warrant will be equal to the $29.475 conversion price less than $0.001 exercise price of the warrant.

The conversion of the August 2025

Notes into Common Stock and/or pre-funded warrants is subject to certain customary conditions and, to the extent necessary, the receipt

of stockholder approval under Nasdaq listing rules.

The May 2025 Notes and August 2025 Notes (together referred to as “the

Convertible Notes”) impose certain customary affirmative and negative covenants upon us, including covenants relating to ranking

and reservation of shares.

If an event of default under one or more of the Convertible Notes occurs and is not waived, the holder can

elect to accelerate all or a portion of the then-outstanding principal amount of the applicable Note, plus accrued and unpaid interest,

including default interest, which accrues at a rate per annum equal to 14% from the date of a default or event of default.

compliance with these covenants as of March 31, 2026.

On May 22, 2025, we issued secured convertible notes with an aggregate original principal amount of $30.0 million (collectively the “May 2025 Notes”) to RSLGH and to certain other third-party accredited investors.

The May 2025 Notes are secured obligations and rank senior to all of our indebtedness except for the August 2025 Notes, which rank on parity with the May 2025 Notes.

The May 2025 Notes will mature on November 22, 2026 and accrue interest at a 10.0% annualized rate, with interest to be paid on the first calendar day of each September and March while the May 2025 Notes are outstanding, in pre-funded warrants, beginning September 1, 2025.

The principal amount of the May 2025 Notes will be payable on the maturity date.

The May 2025 Notes may be converted into Common Stock or, at the election of the holder, into pre-funded warrants, with a beneficial ownership limitation for RSLGH of 49.99% and a beneficial ownership limitation for other holders of 4.99%, in each case subject to applicable Nasdaq listing rules.

If a holder elects to convert the May 2025 Notes into Common Stock, the conversion price per share will be $23.53, equal to the most recent closing price of the Common Stock on the Nasdaq Capital Market at the time the May 2025 Notes were issued, subject to customary adjustments for certain corporate events.

If a holder elects to convert the May 2025 Notes into pre-funded warrants, and for interest payments payable in the form of pre-funded warrants, the conversion price per pre-funded warrant will be equal to the $23.53 conversion price less than the $0.001 exercise price of the warrant.

The conversion of the May 2025 Notes into Common Stock and/or pre-funded warrants is subject to certain customary conditions and, to the extent necessary, the receipt of stockholder approval under Nasdaq listing rules.

On August 25, 2025, we issued secured convertible notes with an aggregate original principal amount of $50.0 million (collectively the “August 2025 Notes” and, together with the May 2025 Notes, the “Convertible Notes”) to RSLGH and to certain other third-party accredited investors.

The August 2025 Notes are secured obligations and rank senior to all of our indebtedness except for the May 2025 Notes, which rank on parity with the August 2025 Notes.

The August 2025 Notes will mature on February 25, 2027 and accrue interest at a 10.0% annualized rate, with interest to be paid on the first calendar day of each September and March, while the August 2025 Notes are outstanding beginning March 1, 2026.

The principal amount of the August 2025 Notes will be payable on the maturity date.

The August 2025 Notes may be converted into Common Stock or, at the election of the holder, into pre-funded warrants, with a beneficial ownership limitation for RSLGH of 49.99% and a beneficial ownership limitation for other holders of 4.99%, in each case subject to applicable Nasdaq listing rules.

If a holder elects to convert the August 2025 Notes into Common Stock, the conversion price per share will be $29.475, equal to the Minimum Price as such term is defined under Nasdaq Listing Rule 5635 at the time the August 2025 Notes were issued, subject to customary adjustments for certain corporate events.

If a holder elects to convert the August 2025 Notes into pre-funded warrants, and for interest payments elected to be paid in the form of pre-funded warrants, the conversion price per pre-funded warrant will be equal to the $29.475 conversion price less than the $0.001 exercise price of the warrant.

The conversion of the August 2025 Notes into Common Stock and/or pre-funded warrants is subject to certain customary conditions and, to the extent necessary, the receipt of stockholder approval under Nasdaq listing rules.

The Company filed with the SEC a proxy statement with respect to a special meeting of stockholders to be held August 10, 2026 for a vote on the proposed issuance to RSLGH of Common Stock underlying certain convertible promissory notes, pre-funded warrants and pursuant to shared services agreements, in accordance with Nasdaq Listing Rule 5635.

If approved, the proposal would permit the conversion of the Convertible Notes, and full exercise of pre-funded warrants, irrespective of any ownership limitations contained in those instruments, including the 49.99% beneficial ownership limitations, to the extent those limitations are removed from the Convertible Notes and the pre-funded warrants pursuant to a future amendment.

The Convertible Notes impose certain customary affirmative and negative covenants upon us, including covenants relating to ranking and reservation of shares.

If an event of default under one or more of the Convertible Notes occurs and is not waived, the holder can elect to accelerate all or a portion of the then-outstanding principal amount of the applicable Note, plus accrued and unpaid interest, including default interest, which accrues at a rate per annum equal to 14% from the date of a default or event of default.

We were in compliance with these covenants as of June 30, 2026.

Summary Statement of Cash Flows

The following table presents

the major components of net cash flows from and used in operating, investing, and financing activities for the three months ended March

31, 2026 and 2025:

Three months ended

The following table presents the major components of net cash flows from and used in operating, investing, and financing activities for the six months ended June 30, 2026 and 2025:

Six months ended

(In thousands) 2026 2025

3 unchanged sentences

Financing activities — 29,999

Net increase (decrease) in cash and cash equivalents

The following discussion

explains the major components contributing to the net cash flows from operating, investing, and financing activities for the three months

ended March 31, 2026 and 2025, as summarized in the table above.

Each section below provides details on the key drivers of the cash inflows

and outflows for the respective periods.

Net increase in cash and cash equivalents $ 9,697 $ 9,786

The following discussion explains the major components contributing to the net cash flows from operating, investing, and financing activities for the six months ended June 30, 2026 and 2025, as summarized in the table above.

Each section below provides details on the key drivers of the cash inflows and outflows for the respective periods.

Cash Flow from Operating Activities

For the three months ended

March 31, 2026, our operating cash flows included a net income of $19.9 million, which included $3.4 million related to depreciation and

amortization, $25.6 million non-cash deferred income tax benefit, $750 thousand non-cash interest expenses, $570 thousand of stock-based

compensation expense, and $105 thousand gain related to the change in fair value of warrant liabilities.

Net cash was increased by changes

in operating assets and liabilities of $1.9 million.

For the three months ended March 31, 2025, our operating cash flows

included a net loss of $1.6 million, which included $336 thousand related to depreciation and amortization, $589 thousand of stock-based

compensation expense, $407 thousand gain related to the change in fair value of warrant liabilities, and $3.6 million gain on disposal

of the Extraction Business.

Net cash was decreased by changes in operating assets and liabilities of $2.3 million.

For the six months ended June 30, 2026, our operating cash flows included net income of $21.1 million, which included $6.9 million related to depreciation and amortization, $26.8 million non-cash deferred income tax benefit, $1.5 million non-cash interest expenses, and $1.1 million of stock-based compensation expense.

Net cash was also increased by changes in operating assets and liabilities of $5.6 million.

For the six months ended June 30, 2025, our operating cash flows included net loss of $9.0 million, which included $735 thousand related to depreciation and amortization, $1.1 million of stock-based compensation expense, $292 thousand gain related to the change in fair value of warrant liabilities, and $3.5 million gain on disposal of the Extraction business.

Net cash was also decreased by changes in operating assets and liabilities of $4.6 million.

Cash Flow from Investing Activities

For the three months ended

March 31, 2026 and 2025, there were no cash flows from investing activities.

For the six months ended June 30, 2026, there were no cash flows from investing activities.

For the six months ended June 30, 2025, net cash used in investing activities was $5.1 million, which primarily resulted from the related party acquisition of MC Brands, LLC and its wholly-owned subsidiary Core Growth LLC (together referred to as “MC Brands”).

Cash Flow from Financing Activities

For the three months ended

March 31, 2026, there were no cash flows from financing activities.

For the three months ended March 31, 2025, net cash provided by financing

activities was due to immaterial repayments of notes payable.

For the six months ended June 30, 2026, there were no cash flows from financing activities.

For the six months ended June 30, 2025, net cash provided by financing activities was $30.0 million, which resulted from proceeds from the May 2025 Notes.

Off-Balance Sheet Arrangements

During the periods presented,

we did not have, nor do we currently have, any relationships with unconsolidated entities or financial partnerships, such as entities

often referred to as structured finance or special purpose entities, which would have been established for the purpose of facilitating

off-balance sheet arrangements or other contractually narrow or limited purposes.

We are therefore not exposed to the financing, liquidity,

market, or credit risk that could arise if we had engaged in those types of relationships.

During the periods presented, we did not have, nor do we currently have, any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes.

We are therefore not exposed to the financing, liquidity, market, or credit risk that could arise if we had engaged in those types of relationships.

Critical Accounting Policies and Estimates

Part I, Item, 2, “Management’s Discussion and Analysis

of Financial Condition and Results of Operations” discusses our unaudited condensed consolidated financial statements, which have

been prepared in accordance with GAAP.

The preparation of these unaudited condensed consolidated financial statements requires management

to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and

liabilities at the date of the unaudited condensed consolidated financial statements and the reported amounts of revenues and expenses

during the reporting period.

Part I, Item, 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” discusses our unaudited condensed consolidated financial statements, which have been prepared in accordance with GAAP.

The preparation of these unaudited condensed consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the unaudited condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period.

Actual results may differ from these estimates under different assumptions or conditions.

These estimates are based

on our knowledge and understanding of current conditions and actions that we may take in the future.

Changes in these estimates will

occur as a result of the passage of time and the occurrence of future events.

Subsequent changes in these estimates may have a significant

impact on our financial condition and results of operations and are recorded in the period in which they become known.

We have identified

the following estimates that, in our opinion, are subjective in nature, require the exercise of judgment and involve complex analysis:

the fair value of derivative assets and liabilities, net realizable value of inventory, goodwill impairment assessment, intangible assets

and revenue recognition.

The significant accounting

policies and estimates that have been adopted and followed in the preparation of our condensed consolidated financial statements are

detailed in Note 1 - Overview, Basis of Presentation and Significant Accounting Policies included in the Form 10-K and Note 1 - Overview,

Basis of Presentation and Significant Accounting Policies to our unaudited condensed consolidated financial statements in Part I, Item

1 of this Quarterly Report.

Other than the addition of the accounting policies related to business combinations and asset acquisitions

described in Note 1 – Overview, Basis of Presentation and Significant Accounting Policies, there have been no changes in these

policies and estimates that had a significant impact on the financial condition and results of operations for the periods covered in

this Quarterly Report.

These estimates are based on our knowledge and understanding of current conditions and actions that we may take in the future.

Changes in these estimates will occur as a result of the passage of time and the occurrence of future events.

Subsequent changes in these estimates may have a significant impact on our financial condition and results of operations and are recorded in the period in which they become known.

We have identified the following estimates that, in our opinion, are subjective in nature, require the exercise of judgment and involve complex analysis:

the fair value of derivative assets and liabilities, net realizable value of inventory, goodwill impairment assessment, intangible assets and revenue recognition.

The significant accounting policies and estimates that have been adopted and followed in the preparation of our condensed consolidated financial statements are detailed in Note 1 - Overview, Basis of Presentation and Significant Accounting Policies included in the Form 10-K and Note 1 - Overview, Basis of Presentation and Significant Accounting Policies to our unaudited condensed consolidated financial statements in Part I, Item 1 of this Quarterly Report.

Other than the addition of the accounting policies related to business combinations and asset acquisitions described in Note 1 – Overview, Basis of Presentation and Significant Accounting Policies, there have been no changes in these policies and estimates that had a significant impact on the financial condition and results of operations for the periods covered in this Quarterly Report.

Recently Issued Accounting Pronouncements Adopted

For more information on

recently issued accounting pronouncements are included within Note 1 - Overview, Basis of Presentation and Significant Accounting Policies,

included elsewhere in the notes to unaudited condensed consolidated financial statements covered under Part I, Item 1 of this Quarterly

For more information on recently issued accounting pronouncements, see Note 1—Overview, Basis of Presentation and Significant Accounting Policies, included elsewhere in the notes to the unaudited condensed consolidated financial statements under Part I, Item 1 of this Quarterly Report.

New Accounting Pronouncements Not Yet Adopted

For more information on

new accounting pronouncements not yet adopted are included within Note 1 - Overview, Basis of Presentation and Significant Accounting

Policies, included elsewhere in the notes to unaudited condensed consolidated financial statements covered under Part I, Item 1 in this

Quarterly Report.

Quantitative and Qualitative Disclosures

About Market Risk

As a “smaller reporting

company” as defined by 17 C.F.R.

Quantitative and Qualitative Disclosures About Market Risk

As a “smaller reporting company” as defined by 17 C.F.R.

§ 229.10, the Company is not required to provide information required by this Item.

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