What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-11-07 compared with 2024-08-08 · 291 added, 293 removed, 478 unchanged (55% of the section changed)

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(“VFF”, together with its subsidiaries, the “Company”, “Village Farms”, “we” “us” or “our”) is a corporation existing under the Business Corporations Act (Ontario).

The Company’s principal operating subsidiaries are Village Farms Canada LP ("VFCLP"), Village Farms LP ("VFLP"), Pure Sunfarms Corp.

The Company’s principal operating subsidiaries are Village Farms Canada Limited Partnership ("VFCLP"), Village Farms L.P.

("VFLP"), Pure Sunfarms Corp.

(“Pure Sunfarms” or "PSF"), Balanced Health Botanicals, LLC (“Balanced Health”), Rose LifeScience Inc.

("Rose LifeScience” or “Rose”), and VF Clean Energy, Inc.

("Rose LifeScience” or “Rose”), VF Clean Energy, Inc.

(“VFCE”), and Leli Holland B.

("Leli" or "Leli Holland").

The Company’s vision is to be recognized as an international leader in consumer products developed from plants, whereby we produce and market value-added products that are consistently preferred by consumers.

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Our focus for our Canadian Cannabis segment is to produce high quality cannabis, leveraging our low-cost production to provide preferred products at an attractive price that address the preferred consumer segments in the market.

This market positioning, combined with our cultivation expertise, has enabled us to evolve into the second best-selling producer nationally and one of the few Canadian LPs with consistently strong operating results.

This market positioning, combined with our cultivation expertise, has enabled us to evolve into the second best-selling producer nationally and one of the few Canadian licensed producers with consistently strong operating results.

Additionally, through organic growth, exports and/or acquisitions, we have a strategy to participate in other international markets where cannabis attains legal status.

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As a result of the typically higher margins in international medical markets, we expect international expansion to enhance our profitability while expanding our brand and experience into emerging legal cannabis markets.

Through our 85% ownership of Leli Holland, we hold one of ten licenses to cultivate cannabis legally in the Netherlands under that country’s Closed Supply Chain Experiment program, with production targeted to start in the fourth quarter of 2024.

Through our ownership of Leli Holland, we hold one of ten licenses to cultivate cannabis legally in the Netherlands under that country’s Closed Supply Chain Experiment program, with cultivation beginning in October of 2024.

In the U.S., Balanced Health is our industry-leading cannabinoid business, extending our portfolio into cannabidiol (“CBD”) consumer products.

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Canadian Cannabis Segment

Our Canadian Cannabis segment is comprised of Pure Sunfarms and an 80% ownership in Rose LifeScience.

Pure Sunfarms is one of the single largest cannabis cultivation and processing operations in the world, one of the lowest-cost greenhouse producers and has developed four of the best-selling flower brands in Canada.

Our Canadian Cannabis segment is composed of Pure Sunfarms and an 80% ownership in Rose LifeScience.

Village Farms Canadian Cannabis has one of the single largest cannabis cultivation and processing operations in the world, one of the lowest-cost greenhouse producers and has maintains three of the best-selling flower brands in Canada.

Pure Sunfarms leverages our 30 years of experience as a vertically integrated greenhouse grower to grow, produce and sell cannabis products throughout Canada and for export to markets where permissible by law.

Rose is the second best-selling licensed producer of cannabis in the Province of Quebec, as well as a prominent cannabis products commercialization expert in Quebec, acting as the exclusive, direct-to-retail sales, marketing and distribution entity for some of the best-known brands in Canada, as well as Quebec-based micro and craft growers.

Rose is a top two licensed producer of cannabis in the Province of Quebec, as well as a prominent cannabis products commercialization expert in Quebec, acting as the exclusive, direct-to-retail sales, marketing and distribution entity for some of the best-known brands in Canada, as well as Quebec-based micro and craft growers.

Our long-term objective for our Canadian Cannabis segment is to garner and sustain the leading retail market share in Canada stemming from our leading position as the low-cost, high-quality cannabis producer in Canada and expand our Canadian success into the growing foreign cannabis medicinal markets across the globe.

Cannabis Segment

Cannabis segment is comprised of Balanced Health.

Cannabis segment is composed of Balanced Health.

Balanced Health is one of the leading cannabinoid brands and e-commerce platforms in the United States.

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Produce Segment

Our Produce segment is comprised of VF Fresh, which currently consists of Village Farms LP and Village Farms Canada LP.

Our Produce segment is composed of VF Fresh, which currently consists of VFLP and VFCLP.

VF Fresh, grows, markets and distributes premium-quality, greenhouse-grown produce in North America.

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Energy Segment

Our Energy segment is comprised of VF Clean Energy Inc.

Our Energy segment is composed of VF Clean Energy Inc.

VFCE has partnered with Terreva Renewables (formerly Mas Energy) for the Delta RNG Project based on VFCE’s 20-year contract (including a five-year option to extend) with the City of Vancouver to capture landfill gas at the Delta, B.C.

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Canadian Cannabis

• Further expanded its number two national market share position 1 , further narrowing the gap to the number one position and achieving our highest national market share position to date;

• Was the only LP among the top five to expand its national market share position sequentially 1 ;

• Was the fastest growing producer year-over year by market share;

• Further expanded its number one national market share position in dried flower 1 ;

• Expanded its number two national market share position in the pre-roll category 1 ;

• Continued to achieve steady market share gains in British Columbia (moving up two positions to be tied for the number two position) and Alberta (moving up four positions to the number four position) in the last year 1 ;

• The Supertoast brand was the third fastest growing brand nationally for the first half of 2024 with 20% market share in the milled category nationally 2 , despite being sold in only four provinces;

• Village Farms' SKUs held the number one position in the flower category during both the first and second quarters of 2024 2 ;

• Launched Hi-Def Pre-Rolls, a first-of-its-kind pre-roll, featuring pure ground flower optimized for high potency, with THC content between 36-44%, with no concentrates, infusions or kief.

1.For the second quarter of 2024.

Based on estimated retail sales from HiFyre, other third parties and provincial boards.

• Continued to hold the number two producer position in Canada;

• Continued to hold the number two national market share position in the pre-roll category 1 ;

• Achieved the number one market share in Quebec;

maintained the number one market share in Ontario;

• Super Toast remained the third fastest growing brand nationally in Q3 2024;

• Launched Neon Lambo cultivar to strong reception in Q4 2024;

new category launches planned through the remainder of Q4 2024 and Q1 2025;

• Currently hold the #1 and #3 cultivars in the German market through a supply agreement 2 ;

• Saw year-over-year increases in international medicinal sales to each of Australia, Germany and the United Kingdom for Q3 and year-to-date 2024 (reported within Canadian Cannabis).

1.For the third quarter of 2024.

Based on estimated retail sales from HiFyre, other third parties and provincial boards.

International Cannabis

• Continued the build-out of the Company’s first indoor cannabis production facility in Drachten, The Netherlands for the Dutch recreational cannabis program, with production on track to begin in the fourth quarter of 2024.

The Dutch Program recently completed its start-up phase and expanded the number of municipalities in which regulated cannabis can be sold in “coffee shops” from two to ten.

2.Based on estimates from Flowzz.

• The Company was one of 25 participants, and the only operator, selected to participate in the Drug Enforcement Administration’s (DEA) upcoming Administrative Law Judge (ALJ) hearing regarding the proposed rescheduling of marijuana in the United States from a Schedule I to a Schedule III drug under the Controlled Substances Act, which is currently expected to take place sometime in January or February 2025;

• The proliferation of unregulated hemp-derived products in the U.S.

market, continues to challenge market share for the CBD industry and is causing certain states to impose significant restrictions on intoxicating hemp derived products;

• Completed internalization of gummy production, which will support consistency of supply and gross profit;

• Balanced Health’s CBDistillery reported study results demonstrating its shhh+ Distilled THC + CBN Deep Sleep Gummies help users to achieve better-quality rest, fall back to sleep during the night and wake up feeling refreshed;

• The Company’s application for a Texas medicinal marijuana license remains pending review by the Department of Public Services.

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• Continued improvement in our Texas greenhouse operations resulting in a year-over-year decrease in cost per pound due to ongoing labor efficiencies and increased yields;

• Entered into a strategic agreement to expand third-party supply;

• Implementing new cultivation t echnologies, including artificial intelligence, to drive further operational improvements;

• Amended and extended the credit agreement for the Company’s C$10 million revolving line of credit with a Canadian chartered bank.

Amendments include the expansion of the Company’s borrowing options to provide additional financial flexibility and the maturity date was extended from May 24, 2024 to May 24, 2027;

• The Company has an ongoing sale process for its Monahans (Permian Basin, Texas) greenhouse facility.

It is also evaluating other uses for the site and facility, some of which are outside its historical produce business.

• Acquired the remaining equity ownership interest in Leli, which holds one of 10 licenses to participate in the Dutch recreational cannabis program, to increase our ownership of Leli to 100 percent from 85 percent;

• Completed construction of the Company’s first indoor cultivation facility in the town of Drachten, Netherlands.

The Drachten facility has five flower rooms and additional space for drying, manufacturing, and packaging of finished goods for distribution to approximately 80 Dutch coffeeshops in participating jurisdictions;

• The Company began cultivating in October 2024 and continues to expect its first sales to begin during the first quarter of 2025.

Village Farms Clean Energy

• In April 2024, the Delta, British Columbia Renewable Natural Gas Project began operations, which immediately began contributing incremental profit to the Company;

• Increased ownership of Rose by 10% to hold an 80% interest, with the purchase being immediately accretive to adjusted EBITDA and net income;

• Appointed finance and operations veteran, Carolyn Hauger, to the Board of Directors;

• During the third quarter of 2024, Village Farms Clean Energy produced net income of $0.3 million through royalty payments received from its clean energy partner.

• Following the conclusion of an evaluation managed by the Audit Committee of the Board of Directors (the “Board”) of the Company, the Board approved the appointment of KPMG LLP as the Company’s independent registered public accounting firm effective August 8, 2024;

• Received notification from Nasdaq that the Company is not in compliance with the minimum bid price requirement for continued listing on the Nasdaq Capital Market (Nasdaq Listing Rule 5550(a)(2)) (the "Minimum Bid Requirement”) as the bid price for the Company closed below US$1.00 from September 6, 2024 to October 17, 2024 (the “Notification”).

The Notification has no immediate effect on the listing of the Common Shares on the Nasdaq Capital Market.

Under Nasdaq Listing Rule 5810(c)(3)(A), the Company has until April 16, 2025 (a period of 180 calendar days from the date of Notification) to regain compliance with the Minimum Bid Requirement.

Presentation of Financial Results

Our consolidated results of operations (prior to net income) for the three and six months ended June 30, 2024 and 2023 presented below reflect the operations of our consolidated wholly-owned subsidiaries, our 70% ownership in Rose LifeScience through March 31, 2024, our 80% ownership in Rose LifeScience beginning on April 1, 2024, and our 85% ownership in Leli.

Our consolidated results of operations for the three and nine months ended September 30, 2024 and 2023 presented below reflect the operations of our consolidated wholly-owned subsidiaries, our 70% ownership in Rose LifeScience through March 31, 2024, our 80% ownership in Rose LifeScience beginning on April 1, 2024, our 85% ownership in Leli through September 22, 2024, and our 100% ownership in Leli beginning on September 23, 2024.

Foreign currency exchange rates

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All references to “dollars” or “$” are to U.S.

The assets and liabilities of our foreign operations are translated into dollars at the exchange rate in effect as of June 30, 2024, June 30, 2023, and December 31, 2023.

The assets and liabilities of our foreign operations are translated into dollars at the exchange rate in effect as of September 30, 2024, September 30, 2023, and December 31, 2023.

Transactions affecting the shareholders’ equity (deficit) are translated at historical foreign exchange rates.

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The exchange rates used to translate from Canadian dollars ("C") to dollars is shown below:

June 30, 2024

June 30, 2023

September 30, 2024

September 30, 2023

December 31, 2023

Three-month period ended

Six-month period ended

Nine-month period ended

RESULTS OF OPERATIONS

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dollars, except per share amounts, and unless otherwise noted)

Three Months Ended June 30,

Six Months Ended June 30,

Three Months Ended September 30,

Nine Months Ended September 30,

Cost of sales

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Interest income

Foreign exchange (loss) gain

Foreign exchange gain (loss)

Other income (loss)

Goodwill and intangible asset impairments (1)

Loss before taxes

Provision for income taxes

(Provision for) recovery of income taxes

Loss including non-controlling interests

net loss (income) attributable to non-controlling interests, net of tax

net income attributable to non-controlling interests, net of tax

Net loss attributable to Village Farms International Inc.

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Management believes that Adjusted EBITDA is a useful supplemental measure in evaluating the performance of the Company because it excludes non-recurring and other items that do not reflect our business performance.

Adjusted EBITDA includes the Company’s 70% interest in Rose LifeScience through March 31, 2024, 80% interest in Rose LifeScience beginning on April 1, 2024 and 85% interest in Leli.

We caution that our results of operations for the three and six months ended June 30, 2024 and 2023 may not be indicative of our future performance.

Adjusted EBITDA includes the Company’s 70% interest in Rose LifeScience through March 31, 2024, 80% interest in Rose LifeScience beginning on April 1, 2024, 85% interest in Leli through September 22, 2024, and our 100% interest in Leli beginning on September 23, 2024.

We caution that our results of operations for the three and nine months ended September 30, 2024 and 2023 may not be indicative of our future performance.

Discussion of Financial Results

A discussion of our consolidated results for the three and six months ended June 30, 2024 and 2023 is included below.

A discussion of our consolidated results for the three and nine months ended September 30, 2024 and 2023 is included below.

The consolidated results include all four of our operating segments:

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CONSOLIDATED RESULTS

Three Months Ended June 30, 2024 Compared to Three Months Ended June 30, 2023

Sales for the three months ended June 30, 2024 were $92,182 compared with $77,212 for the three months ended June 30, 2023.

Three Months Ended September 30, 2024 Compared to Three Months Ended September 30, 2023

Sales for the three months ended September 30, 2024 were $83,368 compared with $69,510 for the three months ended September 30, 2023.

The increase of $13,858, or 20%, was primarily due to an increase in Canadian Cannabis sales of $7,653 and an increase in VF Fresh sales of $7,058, partially offset by a decrease in U.S.

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Cost of Sales

Cost of sales for the three months ended June 30, 2024 was ($82,934) compared with ($65,713) for the three months ended June 30, 2023.

The increase of $17,221, or 26%, was primarily due to an increase in Canadian Cannabis of $12,691 and VF Fresh cost

of sales of $4,576, partially offset by a decrease in U.S.

Cost of sales for the three months ended September 30, 2024 was ($67,660) compared with ($54,889) for the three months ended September 30, 2023.

The increase of $12,771, or 23%, was primarily due to an increase in Canadian Cannabis cost of sales of $7,998 and VF Fresh cost of sales of $5,069, partially offset by a decrease in U.S.

Cannabis cost of sales of $360.

For additional information, refer to "Segmented Results of Operations" below.

Gross profit for the three months ended June 30, 2024 was $9,248 compared with $11,499 for the three months ended June 30, 2023.

The decrease of $2,251, or 20%, was primarily due to a decrease in gross profit at VF Fresh of $1,403 and U.S.

Gross profit for the three months ended September 30, 2024 was $15,708 compared with $14,621 for the three months ended September 30, 2023.

The increase of $1,087, or 7%, was primarily due to an increase in gross profit at VF Fresh of $1,989, partially offset by a decrease in gross profit at Canadian Cannabis of $345 and U.S.

Cannabis of $685.

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Selling, General and Administrative Expenses

Selling, general and administrative expenses for the three months ended June 30, 2024 were ($19,666) (21% of sales) compared with ($16,753) (22% of sales) for the three months ended June 30, 2023.

The increase of $2,913, or 17%, was primarily due to an increase in share-based compensation of $1,540 and operating expenses for Canadian Cannabis of $922 and VF Fresh of $759, partially offset by a decrease in U.S.

Selling, general and administrative expenses for the three months ended September 30, 2024 were ($16,540) (20% of sales) compared with ($15,822) (23% of sales) for the three months ended September 30, 2023.

The increase of $718, or 5%, was primarily due to an increase in operating expenses for Canadian Cannabis of $385 and VF Fresh of $624 , partially offset by a decrease in U.S.

Cannabis operating expenses of $403.

For additional information, refer to "Segmented Results of Operations" below.

For the Three Months Ended June 30,

For the Three Months Ended September 30,

Selling, general and administrative expenses

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Interest Expense

Interest expense for the three months ended June 30, 2024 was ($905) compared with ($1,411) for the three months ended June 30, 2023.

Interest expense for the three months ended September 30, 2024 was ($784) compared with ($988) for the three months ended September 30, 2023.

The decrease of $204, or 21%, was due to a decrease in the average outstanding debt balance under our credit facilities.

Interest Income

Interest income for the three months ended June 30, 2024 was $322 compared with $283 for the three months ended June 30, 2023.

Other income for the three months ended June 30, 2024 was $45 compared with $5,602 for the three months ended June 30, 2023.

The decrease was primarily attributable to a favorable legal settlement at VF Fresh of $5,584 in the three months ended June 30, 2023 relating to the partial recovery of operational losses from the Tomato Brown Rugose Fruit Virus ("ToBRFV") infestation (the "ToBRFV Legal Settlement"), which was recorded only in prior-year periods.

Interest income for the three months ended September 30, 2024 was $229 compared with $262 for the three months ended September 30, 2023.

Other Income (loss)

Other income (loss) for the three months ended September 30, 2024 was $379 compared with ($19) for the three months ended September 30, 2023.

The increase was primarily attributable to a favorable fee adjustment for VFCE in the three months ended September 30, 2024.

Loss Before Taxes

Loss before taxes for the three months ended June 30, 2024 was ($23,298) compared with ($42) for the three months ended June 30, 2023.

The change of ($23,256) was primarily due to the impairment of goodwill and intangible assets within the U.S.

Cannabis segment during the three months ended June 30, 2024 of ($11,939) (see "Critical Accounting Estimates and Judgments" below), lower gross margins in VF Fresh and U.S.

Cannabis, and higher selling, general, and administrative expenses.

The three months ended June 30, 2023 also included the ToBRFV Legal Settlement, which was recorded in prior-year periods.

Loss before taxes for the three months ended September 30, 2024 was ($656) compared with ($2,917) for the three months ended September 30, 2023.

The decrease of $2,261 was primarily due to the improved gross margins in VF Fresh and Canadian Cannabis and a gain on foreign currency for the three months ended September 30, 2024 compared to a loss for the three months ended September 30, 2023, partially offset by higher selling, general, and administrative expenses.

Net Loss Attributable to Village Farms International, Inc.

Net loss attributable to Village Farms International, Inc.

shareholders for the three months ended June 30, 2024 was ($23,549) compared with ($1,380) for the three months ended June 30, 2023.

The change of ($22,169) was primarily due to the impairment of U.S.

Cannabis goodwill and intangible assets incurred during the three months ended June 30, 2024 of ($11,939), a lower operating margin, and higher selling, general, and administrative expenses.

The change as compared to the three months ended June 30, 2023 also reflected the ToBRFV Legal Settlement in prior-year periods.

shareholders for the three months ended September 30, 2024 was ($820) compared with ($1,299) for the three months ended September 30, 2023.

The decrease of $479 was primarily due to the improved gross margins in VF Fresh and Canadian Cannabis and a gain on foreign currency for the three months ended September 30,

2024 compared to a loss for the three months ended September 30, 2023, partially offset by higher selling, general, and administrative expenses.

Adjusted EBITDA

Adjusted EBITDA for the three months ended June 30, 2024 was ($3,559) compared with $4,475 for the three months ended June 30, 2023.

The change was primarily due to the inclusion of the ToBRFV Legal Settlement at VF Fresh of $5,584 for the three months ended June 30, 2023, lower gross margins, and higher non-share-based compensation selling, general, and administrative costs.

Adjusted EBITDA for the three months ended September 30, 2024 was $5,302 compared with $3,248 for the three months ended September 30, 2023.

The improvement was mainly driven by stronger performance from VF Fresh.

For additional information, refer to the reconciliation of Adjusted EBITDA to net (loss) income in “Non-GAAP Measures—Reconciliation of Net Loss to Adjusted EBITDA”.

Six Months Ended June 30, 2024 Compared to Six Months Ended June 30, 2023

Sales for the six months ended June 30, 2024 were $170,259 compared with $141,868 for the six months ended June 30, 2023.

Nine Months Ended September 30, 2024 Compared to Nine Months Ended September 30, 2023

Sales for the nine months ended September 30, 2024 were $253,627 compared with $211,378 for the nine months ended September 30, 2023.

The increase of $42,249, or 20%, was primarily due to an increase in Canadian Cannabis sales of $32,667 and an increase in VF Fresh sales of $11,758, partially offset by a decrease in U.S.

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Cost of Sales

Cost of sales for the six months ended June 30, 2024 were ($145,498) compared with ($118,069) for the six months ended June 30, 2023.

The increase of $27,429, or 23%, was primarily attributable to an increase in Canadian Cannabis cost of sales of $23,971 on higher volume, and VF Fresh cost of sales of $3,408.

Cost of sales for the nine months ended September 30, 2024 were ($213,158) compared with ($172,958) for the nine months ended September 30, 2023.

The increase of $40,200, or 23%, was primarily attributable to an increase in Canadian Cannabis cost of sales of $31,969 due to higher volume, and an increase in VF Fresh cost of sales of $8,477.

For additional information, refer to "Segmented Results of Operations" below.

Gross profit for the six months ended June 30, 2024 was $24,761, compared with $23,799 for the six months ended June 30, 2023.

Gross profit for the nine months ended September 30, 2024 was $40,469, compared with $38,420 for the nine months ended September 30, 2023.

The increase of $2,049, or 5%, was primarily attributable to an increase in gross profit at VF Fresh of $3,281 and Canadian Cannabis of $698, partially offset by a decrease in gross profit at U.S.

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Selling, General and Administrative Expenses

Selling, general and administrative expenses for the six months ended June 30, 2024 increased $1,895, or 6%, to ($36,053) (21% of sales), compared with ($34,158) (24% of sales), for the six months ended June 30, 2023.

Selling, general and administrative expenses for the nine months ended September 30, 2024 increased $2,613, or 5%, to ($52,593) (21% of sales), compared with ($49,980) (24% of sales), for the nine months ended September 30, 2023.

The increase was primarily attributable to an increase in Canadian Cannabis of $2,163 and VF Fresh of $1,160, partially offset by a decrease in U.S.

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For additional information, refer to "Segmented Results of Operations" below.

For the Six Months Ended June 30,

For the Nine Months Ended September 30,

Selling, general and administrative expenses

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Interest Expense

Interest expense for the six months ended June 30, 2024 was ($1,822) compared with ($2,544) for the six months ended June 30, 2023.

Interest expense for the nine months ended September 30, 2024 was ($2,606) compared with ($3,532) for the nine months ended September 30, 2023.

The decrease of $926, or 26%, was due to a decrease in the average outstanding debt balance under our credit facilities.

Interest Income

Interest income for the six months ended June 30, 2024 was $528 compared with $479 for the six months ended June 30, 2023.

Other income for the six months ended June 30, 2024 was $149 compared with $5,632 for the six months ended June 30, 2023.

The decrease in other income was primarily due to the ToBRFV Legal Settlement that was recorded in the six months ended June 30, 2023 within VF Fresh.

Interest income for the nine months ended September 30, 2024 was $757 compared with $741 for the nine months ended September 30, 2023.

Other income for the nine months ended September 30, 2024 was $528 compared with $5,613 for the nine months ended September 30, 2023.

The decrease in other income was primarily due to the partial recovery of operational losses from the Tomato Brown Rugose Fruit Virus infestation (the "ToBRFV Legal Settlement") of $5,584 that was recorded in the nine months ended September 30, 2023 within VF Fresh.

Loss Before Taxes

Loss before taxes for six months ended June 30, 2024 was ($25,657) compared with ($6,123) for the six months ended June 30, 2023.

The change of ($19,534), or (319%), was primarily due to an impairment of goodwill and intangible assets of ($11,939) in the U.S.

Cannabis segment during the six months ended June 30, 2024, lower gross margin in VF Fresh and U.

Cannabis, and higher selling, general, and administrative expenses.

The six months ended June 30, 2023 also included the ToBRFV Legal Settlement, which was not present in current-year periods.

Loss before taxes for nine months ended September 30, 2024 was ($26,313) compared with ($9,040) for the nine months ended September 30, 2023.

The increase of ($17,273), or (191%), was primarily due to an impairment of goodwill and intangible

assets of ($11,939) in the U.S.

Cannabis segment during the nine months ended September 30, 2024 and higher selling, general, and administrative expenses.

The nine months ended September 30, 2023 also included the ToBRFV Legal Settlement of $5,584.

Net Loss Attributable to Village Farms International, Inc.

Net loss attributable to Village Farms International, Inc.

shareholders for the six months ended June 30, 2024 was ($26,401) as compared with ($8,016) for the six months ended June 30, 2023, a change of ($18,385), or (229%), primarily due to an impairment of goodwill and intangible assets of ($11,939) in the U.S.

Cannabis segment during the six months ended June 30, 2024, lower operating margin in VF Fresh and U.S.

Cannabis, and higher selling, general, and administrative expenses.

The six months ended June 30, 2023 also included the ToBRFV Legal Settlement of $5,584 for VF Fresh that was not present in current-year periods.

shareholders for the nine months ended September 30, 2024 was ($27,221) as compared with ($9,315) for the nine months ended September 30, 2023, an increase of ($17,906), or (192%), primarily due to an impairment of goodwill and intangible assets of ($11,939) in the U.S.

Cannabis segment during the nine months ended September 30, 2024 and higher selling, general, and administrative expenses.

The nine months ended September 30, 2023 also included the ToBRFV Legal Settlement of $5,584 for VF Fresh.

Adjusted EBITDA

Adjusted EBITDA for the six months ended June 30, 2024 was $32 compared with $4,994 for the six months ended June 30, 2023.

The change was mainly driven by the inclusion of the ToBRFV Legal Settlement of $5,584 at VF Fresh during the six months ended June 30, 2023, lower gross margins and higher non-share-based compensation selling, general, and administrative costs for the six months ended June 30, 2024.

Adjusted EBITDA for the nine months ended September 30, 2024 was $5,334 compared with $8,243 for the nine months ended September 30, 2023.

The year over year decrease of $2,909 was mainly driven by the inclusion of the ToBRFV Legal Settlement of $5,584 at VF Fresh during the nine months ended September 30, 2023 and higher selling, general, and administrative costs for the nine months ended September 30, 2024.

For additional information, refer to the reconciliation of Adjusted EBITDA to net (loss) income in “Non-GAAP Measures—Reconciliation of Net Loss to Adjusted EBITDA”.

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dollars, except per share amounts, and unless otherwise noted)

For The Three Months Ended June 30, 2024

For The Three Months Ended September 30, 2024

Cannabis Canada

3 unchanged sentences

Other expense, net

Goodwill and intangible asset impairments (1)

Operating (loss) income

Recovery of (provision for) income taxes

(Loss) income from consolidated entities

Operating income (loss)

(Provision for) recovery of income taxes

Income (loss) from consolidated entities

net (income) loss attributable to non-controlling interests, net of tax

Net (loss) income

Net income (loss)

Adjusted EBITDA (2)

Basic (loss) income per share

Diluted (loss) income per share

For The Three Months Ended June 30, 2023

Basic income (loss) per share

Diluted income (loss) per share

For The Three Months Ended September 30, 2023

Cannabis Canada

2 unchanged sentences

Selling, general and administrative expenses

Other income (expense), net

Other expense, net

Operating (loss) income

Provision for income taxes

Recovery of income taxes

(Loss) income from consolidated entities

4 unchanged sentences

Diluted (loss) income per share

For The Six Months Ended June 30, 2024

For The Nine Months Ended September 30, 2024

Cannabis Canada

2 unchanged sentences

Selling, general and administrative expenses

Other expense, net

Other expense (loss)

Goodwill and intangible asset impairments (1)

Operating (loss) income

Recovery of (provision for) income taxes

(Provision for) recovery of income taxes

(Loss) income from consolidated entities

4 unchanged sentences

Diluted (loss) income per share

For The Six Months Ended June 30, 2023

For The Nine Months Ended September 30, 2023

Cannabis Canada

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Adjusted EBITDA includes the Company’s 70% interest in Rose LifeScience through March 31, 2024, 80% interest in Rose LifeScience beginning on April 1, 2024 and 85% interest in Leli.

CANADIAN CANNABIS SEGMENT RESULTS

The Canadian Cannabis segment consists of Pure Sunfarms and Rose LifeScience.

The comparative analysis for Canadian Cannabis is based on the consolidated results of Pure Sunfarms and our interest in Rose LifeScience for the three and six months ended June 30, 2024 and 2023.

The comparative analysis for Canadian Cannabis is based on the consolidated results of Pure Sunfarms and our interest in Rose LifeScience for the three and nine months ended September 30, 2024 and 2023.

Beginning on April 1, 2024, our interest in Rose LifeScience increased from 70% to 80%, which is reflected in the results presented below.

Three Months Ended June 30, 2024 Compared to Three Months Ended June 30, 2023

Canadian Cannabis net sales for the three months ended June 30, 2024 were $40,745 compared with $28,065 for the three months ended June 30, 2023.

Three Months Ended September 30, 2024 Compared to Three Months Ended September 30, 2023

Canadian Cannabis net sales for the three months ended September 30, 2024 were $36,463 compared with $28,810 for the three months ended September 30, 2023.

The increase of $7,653, or 27%, was due primarily to a 18% increase in net branded sales and a 66% increase in non-branded sales.

The increase in net branded sales was due to market share gain across the flower, pre-roll and milled categories, driven by high quality cultivation and new product launches.

The increase in non-branded sales resulted from improved supply conditions and pricing created by the shift of many producers to asset light models, including sales of non-brand-spec inventory.

International sales increased by 9% primarily due to higher sales to Germany and UK, partially offset by lower sales to Australia.

The increase in net branded sales was due to market share gain across the flower, pre-roll and milled categories, driven by successful new product launches, the expansion of a rapidly growing brand, and rising demand for value-based product offerings.

The increase in non-branded sales resulted from improved industry supply dynamics and pricing supported by a shift of many producers toward asset-light models and sales of non-brand-spec inventory.

International sales increased by 94% primarily due to higher sales to Germany, the United Kingdom, and Australia.

The Canadian Cannabis business continues to pay a burdensome excise duty (also known as excise tax) on its branded sales (sales to provincial distributors).

For the three months ended June 30, 2024, the Company incurred excise duties of $19,815 (C$27,114), or 39% of gross branded sales, compared with $13,966 (C$18,760), or 38% of gross branded sales, for the three months ended June 30, 2023.

For the three months ended September 30, 2024, the Company incurred excise duties of $17,674

(C$24,109), or 39% of gross branded sales, compared with $14,396 (C$19,314), or 38% of gross branded sales, for the three months ended September 30, 2023.

The increase of $3,278 (C$4,795), or 23%, was due to an increase in kilograms sold in the branded channel.

The Canadian excise duty is our single largest cost of participating in the branded adult-use market in Canada.

For the three months ended June 30, 2024, 75% of net sales were generated from branded flower, pre-rolls and cannabis derivative products compared with 83% for the three months ended June 30, 2023.

Non-branded, international, and other sales accounted for 25% of Canadian Cannabis net sales for the three months ended June 30, 2024, as compared with 17% for the three months ended June 30, 2023.

For the three months ended September 30, 2024, 75% of net sales were generated from branded flower, pre-rolls and cannabis derivative products compared with 80% for the three months ended September 30, 2023.

Non-branded, international, and other sales accounted for 25% of Canadian Cannabis net sales for the three months ended September 30, 2024, as compared with 20% for the three months ended September 30, 2023.

The following table presents sales by Canadian Cannabis revenue stream, together with the impact of the excise tax, in U.S.

dollars and Canadian dollars, for the three months ended June 30, 2024 and 2023:

For the Three Months Ended June 30,

dollars and Canadian dollars, for the three months ended September 30, 2024 and 2023:

For the Three Months Ended September 30,

(in thousands of U.S.

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International sales

For the Three Months Ended June 30,

For the Three Months Ended September 30,

(in thousands of Canadian dollars)

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Cost of Sales

Canadian Cannabis cost of sales for the three months ended June 30, 2024 was ($30,040) compared with ($17,349) for the three months ended June 30, 2023.

Canadian Cannabis cost of sales for the three months ended September 30, 2024 was ($26,864) compared with ($18,866) for the three months ended September 30, 2023.

The increase of $7,998, or 42%, was primarily due to an increase in volume (kilograms) packaged and sold of branded products, as well as an increase in non-branded kilograms sold.

Gross Profit/Margin

Canadian Cannabis gross profit for the three months ended June 30, 2024 was $10,705 compared with $10,716 for the three months ended June 30, 2023.

Canadian Cannabis gross margin for the three months ended June 30, 2024 was 26% compared with 38% for the three months ended June 30, 2023.

The decrease in gross margin percentage was due to a significant volume of sales of non-brand-spec inventory within the non-branded sales channel, as well as higher sales of value brands within the branded sales channel.

Canadian Cannabis gross profit for the three months ended September 30, 2024 was $9,599 compared with $9,944 for the three months ended September 30, 2023.

Canadian Cannabis gross margin for the three months ended September 30, 2024 was 26% compared with 35% for the three months ended September 30, 2023.

The decrease in gross margin percentage was due to an unfavorable mix, with higher sales volume of non-brand-spec inventory within the non-branded sales channel, as well as higher sales of value brands within the branded sales channel.

Selling, General and Administrative Expenses

Canadian Cannabis selling, general and administrative expenses for the three months ended June 30, 2024 were ($8,749), or 21%, of sales compared with ($7,827), or 28%, of sales for the three months ended June 30, 2023.

Canadian Cannabis selling, general and administrative expenses for the three months ended September 30, 2024 were ($7,983), or 22%, of sales compared with ($7,598), or 26%, of sales for the three months ended September 30, 2023.

The increase of $385 was primarily due to higher commercial and marketing expenses.

Canadian Cannabis net income for the three months ended June 30, 2024 was $1,384 compared with net income of $1,174 for the three months ended June 30, 2023.

The improvement in net income was primarily due to a decrease in the tax provision expense of $559, partially offset by an increase in selling, general and administrative expenses.

Canadian Cannabis net income for the three months ended September 30, 2024 was $1,168 compared with net income of $2,863 for the three months ended September 30, 2023.

The decrease in net income was primarily due to an increase in the tax provision expense of $1,342 and an increase in selling, general and administrative expenses.

Adjusted EBITDA

Adjusted EBITDA for Canadian Cannabis for the three months ended June 30, 2024 was $4,818 compared with $4,778 for the three months ended June 30, 2023.

Adjusted EBITDA for Canadian Cannabis for the three months ended September 30, 2024 was $4,752 compared with $4,585 for the three months ended September 30, 2023.

For additional information, refer to the reconciliation of Adjusted EBITDA to net (loss) income in “Non-GAAP Measures—Reconciliation of Net Loss to Adjusted EBITDA”.

Six Months Ended June 30, 2024 Compared to Six Months Ended June 30, 2023

Canadian Cannabis net sales for the six months ended June 30, 2024 were $78,191 compared with $53,177 for the six months ended June 30, 2023.

Nine Months Ended September 30, 2024 Compared to Nine Months Ended September 30, 2023

Canadian Cannabis net sales for the nine months ended September 30, 2024 were $114,654 compared with $81,987 for the nine months ended September 30, 2023.

The increase of $32,667, or 40%, was due primarily to a 30% increase in net branded sales and a 128% increase in non-branded sales.

The increase in net branded sales was due to market share gain across the flower, pre-roll and milled categories, driven by high quality cultivation and new product launches.

The increase in non-branded sales resulted from improved supply conditions and pricing created by the shift of many producers to asset light models and sales of non-brand-spec inventory.

The Canadian Cannabis business continues to pay a burdensome excise duty (also known as excise tax) on its branded sales (sales to provincial distributors).

For the six months ended June 30, 2024, the Company incurred excise duties of $39,518 (C$53,679), or 40% of our gross branded sales, compared to $27,724 (C$37,361), or 39% of our gross branded sales for the six months ended June 30, 2023.

The increase in non-branded sales resulted from improved industry supply conditions and pricing supported by a shift of many producers toward asset light models and sales of non-brand-spec inventory.

The Canadian Cannabis business continues to pay a burdensome excise duty on its branded sales (sales to provincial distributors).

For the nine months ended September 30, 2024, the Company incurred excise duties of $57,193 (C$77,788), or 40% of our gross branded sales, compared to $41,724 (C$56,145), or 38% of our gross branded sales for the nine months ended September 30, 2023.

The increase of $15,469 (C$21,643), or 37%, in excise duties was due to an increase in kilograms sold in the branded channel.

The Canadian excise duty is our single largest cost of participating in the adult-use (branded) market in Canada.

For the six months ended June 30, 2024, 76% of net sales were generated from branded flower, pre-rolls and cannabis derivative products compared with 83% for the six months ended June 30, 2023.

Non-branded, international, and other sales accounted for 24% of Canadian Cannabis net sales for the six months ended June 30, 2024, as compared with 17% for the six months ended June 30, 2023.

For the nine months ended September 30, 2024, 76% of net sales were generated from branded flower, pre-rolls and cannabis derivative products compared with 82% for the nine months ended September 30, 2023.

Non-branded, international, and other sales accounted for 24% of Canadian Cannabis net sales for the nine months ended September 30, 2024, as compared with 18% for the nine months ended September 30, 2023.

The following table presents sales by Canadian Cannabis revenue stream, together with the impact of the excise tax, in U.S.

dollars and Canadian dollars, for the six months ended June 30, 2024 and 2023:

For the Six Months Ended June 30,

dollars and Canadian dollars, for the nine months ended September 30, 2024 and 2023:

For the Nine Months Ended September 30,

(in thousands of U.S.

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International sales

For the Six Months Ended June 30,

For the Nine Months Ended September 30,

(in thousands of Canadian dollars)

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Cost of Sales

Canadian Cannabis cost of sales for the six months ended June 30, 2024 was ($57,978) compared with ($34,007) for the six months ended June 30, 2023.

Canadian Cannabis cost of sales for the nine months ended September 30, 2024 was ($84,842) compared with ($52,873) for the nine months ended September 30, 2023.

The increase of $31,969, or 60%, was primarily due to an increase in volume (kilograms) packaged and sold of branded products, as well as an increase in non-branded kilograms sold.

Gross Profit/Margin

Canadian Cannabis gross profit for the six months ended June 30, 2024 was $20,213 compared with $19,170 for the six months ended June 30, 2023.

The increase of $1,043, or 5%, was driven by higher sales in the first six months of 2024.

Canadian Cannabis gross margin for the six months ended June 30, 2024 was 26% compared with 36% for the six months ended June 30, 2023, with the decrease due to a significant volume of non-brand-spec inventory within non-branded sales channel as well as higher sales of value brands within the branded sales channel.

Canadian Cannabis gross profit for the nine months ended September 30, 2024 was $29,812 compared with $29,114 for the nine months ended September 30, 2023.

The increase of $698, or 2%, was driven by higher sales in the first nine months of 2024.

Canadian Cannabis gross margin for the nine months ended September 30, 2024 was 26% compared with 36% for the nine months ended September 30, 2023, with the decrease due to unfavorable mix, with higher sales volume of non-brand-spec inventory within the non-branded sales channel as well as higher sales of value brands within the branded sales channel.

Selling, General and Administrative Expenses

Canadian Cannabis selling, general and administrative expenses for the six months ended June 30, 2024 increased $1,778 to ($16,453), or 21% of sales compared with ($14,675), or 28% of sales for the six months ended June 30, 2023.

Canadian Cannabis selling, general and administrative expenses for the nine months ended September 30, 2024 increased $2,163 to ($24,436), or 21% of sales compared with ($22,273), or 27% of sales for the nine months ended September 30, 2023.

The increase in selling, general and administrative expenses was primarily due to higher commercial and marketing expenses.

Canadian Cannabis net income for the six months ended June 30, 2024 was $2,231 compared with net income of $1,069 for the six months ended June 30, 2023.

The improvement in net income was primarily due to a decrease in the tax provision expense of $1,368, partially offset by an increase in selling, general and administrative expenses for the first six months of 2024 as compared to the first six months of 2023.

Canadian Cannabis net income for the nine months ended September 30, 2024 was $3,399 compared with net income of $3,932 for the nine months ended September 30, 2023.

The decrease in net income was primarily due to an increase in selling, general and administrative expenses for the first nine months of 2024 as compared to the first nine months of 2023.

Adjusted EBITDA

Adjusted EBITDA for Canadian Cannabis for the six months ended June 30, 2024 was $8,891 compared with $8,688 for the six months ended June 30, 2023.

Adjusted EBITDA for Canadian Cannabis for the nine months ended September 30, 2024 was $13,643 compared with $13,273 for the nine months ended September 30, 2023.

For additional information, refer to the reconciliation of Adjusted EBITDA to net (loss) income in “Non-GAAP Measures—Reconciliation of Net Loss to Adjusted EBITDA”.

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Cannabis segment consists of Balanced Health.

For the three and six months ended June 30, 2024 and 2023, U.S.

For the three and nine months ended September 30, 2024 and 2023, U.S.

Cannabis financial results are based on the results of Balanced Health.

Three Months Ended June 30, 2024 Compared to Three Months Ended June 30, 2023

Cannabis net sales for the three months ended June 30, 2024 was $4,297 compared with $5,301 for the three months ended June 30, 2023.

The decrease of $1,004, or 19%, was primarily due to lower direct-to-consumer sales resulting from the proliferation of unregulated hemp-derived products on the market.

Three Months Ended September 30, 2024 Compared to Three Months Ended September 30, 2023

Cannabis net sales for the three months ended September 30, 2024 was $3,943 compared with $4,988 for the three months ended September 30, 2023.

The decrease of $1,045, or 21%, was primarily due to new restrictions on CBD sales in an additional eight states beginning July 1, 2024 and lower direct-to-consumer sales resulting from the proliferation of unregulated hemp-derived products on the market.

Cannabis sales were generated in the United States, with gross sales composed of 92% e-commerce sales, 7% retail sales and 1% miscellaneous.

Cost of Sales

Cannabis cost of sales for the three months ended June 30, 2024 was ($1,668) compared with ($1,743) for the three months ended June 30, 2023.

The decrease of $75, or 4%, was primarily due to lower sales, partially offset by a shift in product mix as consumers moved to gummies and away from the higher margin tincture products.

Cannabis cost of sales for the three months ended September 30, 2024 was ($1,443) compared with ($1,803) for the three months ended September 30, 2023.

The decrease of $360, or 20%, was primarily due to lower sales.

Gross Profit/Margin

U.S Cannabis gross profit for the three months ended June 30, 2024 decreased $929, or 26%, to $2,629, or a 61% gross margin, compared with $3,558, or a 67% gross margin, for the three months ended June 30, 2023.

U.S Cannabis gross profit for the three months ended September 30, 2024 decreased $685, or 22%, to $2,500, or a 63% gross margin, compared with $3,185, or a 64% gross margin, for the three months ended September 30, 2023.

Selling, General and Administrative Expenses

Cannabis selling general and administrative expenses for the three months ended June 30, 2024 were ($2,960) compared with ($3,386) for the three months ended June 30, 2023.

Cannabis selling general and administrative expenses for the three months ended September 30, 2024 were ($2,692) compared with ($3,095) for the three months ended September 30, 2023.

The decrease of $403, or 13%, is due to more efficient marketing and brand spending and contract renegotiation.

Net (Loss) Income

Cannabis net loss for the three months ended June 30, 2024 was ($12,270) compared with net income of $172 for the three months ended June 30, 2023.

The change was primarily due to the goodwill and intangible asset impairment charge taken in the three months ended June 30, 2024 of ($11,939).

For more information, see "Critical Accounting Estimates and Judgments" below.

Cannabis net loss for the three months ended September 30, 2024 was ($192) compared with net income of $79 for the three months ended September 30, 2023.

The decrease of $271 was primarily due to the lower sales.

Adjusted EBITDA

Cannabis adjusted EBITDA for the three months ended June 30, 2024 was ($240) compared with $354 for the three months ended June 30, 2023.

The change was due to lower sales and a lower gross margin.

Cannabis adjusted EBITDA for the three months ended September 30, 2024 was ($159) compared with $221 for the three months ended September 30, 2023.

The decrease of $380 was due to lower sales.

For additional information, refer to the reconciliation of Adjusted EBITDA to net (loss) income in “Non-GAAP Measures—Reconciliation of Net Loss to Adjusted EBITDA”.

Six Months Ended June 30, 2024 Compared to Six Months Ended June 30, 2023

Cannabis net sales for the six months ended June 30, 2024 decreased $1,444, or 14%, to $8,834 compared with $10,278 for the six months ended June 30, 2023.

The decrease was primarily due to lower direct-to-consumer sales due to the proliferation of unregulated hemp-derived products on the market.

Nine Months Ended September 30, 2024 Compared to Nine Months Ended September 30, 2023

Cannabis net sales for the nine months ended September 30, 2024 decreased $2,489, or 16%, to $12,777 compared with $15,266 for the nine months ended September 30, 2023.

The decrease was primarily due to lower direct-to-consumer sales was primarily due to new restrictions on CBD sales in an additional eight states beginning July 1, 2024 and the proliferation of unregulated hemp-derived products on the market.

Cannabis sales were generated in the United States, with gross sales composed of 91% e-commerce sales, 7% retail sales and 2% miscellaneous.

Cost of Sales

Cannabis cost of sales for the six months ended June 30, 2024 was ($3,510) compared with ($3,482) for the six months ended June 30, 2023.

The 1% increase was primarily due to a shift in product mix as consumers moved to gummies and away from the higher margin tincture products.

Cannabis cost of sales for the nine months ended September 30, 2024 was ($4,953) compared with ($5,285) for the nine months ended September 30, 2023.

The 6% decrease was primarily due lower sales and a shift in product mix as consumers moved to gummies and away from the higher margin tincture products.

Gross Profit/Margin

U.S Cannabis gross profit for the six months ended June 30, 2024 decreased $1,472 to $5,324, or a 60% gross margin, compared with $6,796, or a 66% gross margin, for the six months ended June 30, 2023.

U.S Cannabis gross profit for the nine months ended September 30, 2024 decreased $2,157 to $7,824, or a 61% gross margin, compared with $9,981, or a 65% gross margin, for the nine months ended September 30, 2023.

Selling, General and Administrative Expenses

Cannabis selling general and administrative expenses for the six months ended June 30, 2024 were ($6,366) compared with ($7,003) for the six months ended June 30, 2023.

Cannabis selling general and administrative expenses for the nine months ended September 30, 2024 were ($9,058) compared with ($10,098) for the nine months ended September 30, 2023.

The decrease of $1,040, or 10%, is due to more efficient marketing and brand spending and contract renegotiation.

Cannabis net loss for the six months ended June 30, 2024 was ($12,981) compared with a net loss of ($204) for the six months ended June 30, 2023.

The change was primarily due to the 2024 impairment charge of ($11,939) as discussed above, and a decrease in sales at a lower gross margin.

Cannabis net loss for the nine months ended September 30, 2024 was ($13,173) compared with a net loss of ($125) for the nine months ended September 30, 2023.

The change was primarily due to the 2024 impairment charge of ($11,939) and lower sales at a lower gross margin.

Adjusted EBITDA

Cannabis adjusted EBITDA for the six months ended June 30, 2024 was ($855) compared with $203 for the six months ended June 30, 2023 due to lower sales and a lower gross margin.

Cannabis adjusted EBITDA for the nine months ended September 30, 2024 was ($1,014) compared with $424 for the nine months ended September 30, 2023 due to lower sales and a lower gross margin.

For additional information, refer to the reconciliation of Adjusted EBITDA to net (loss) income in “Non-GAAP Measures—Reconciliation of Net Loss to Adjusted EBITDA”.

PRODUCE SEGMENT RESULTS – VF FRESH

The produce segment, VF Fresh, consists of Village Farms LP and Village Farms Canada LP.

VF Fresh’s comparative analysis are based on the consolidated results of Village Farms LP and Village Farms Canada LP for the three and six months ended June 30, 2024 and 2023.

Three Months Ended June 30, 2024 Compared to Three Months Ended June 30, 2023

VF Fresh sales for the three months ended June 30, 2024 were $47,019 compared with $43,846 for the three months ended June 30, 2023.

The increase of $3,173, or 7%, was primarily due to a 16% increase in pounds sold, partially offset by a decrease in average selling price.

The increase in sales from Company-owned greenhouses of 21% was due to an increase in the planted area in 2024 following a (15%) strategic reduction in acres planted in Texas in 2023, as well as additional production from the Delta 2 facility, which was partially converted to produce in 2024.

These were partially offset by the Permian Basin facility not being used for production in 2024.

The average selling price for all produce sold during the three months ended June 30, 2024 compared with the three months ended June 30, 2023 was as follows:

The produce segment, VF Fresh, consists of VFLP and VFCLP.

VF Fresh’s comparative analysis are based on the consolidated results of VFLP and VFCLP for the three and nine months ended September 30, 2024 and 2023.

Three Months Ended September 30, 2024 Compared to Three Months Ended September 30, 2023

VF Fresh sales for the three months ended September 30, 2024 were $42,770 compared with $35,712 for the three months ended September 30, 2023.

The increase of $7,058, or 20%, was primarily due to a 25% increase in pounds sold from Company-owned greenhouses and a 6% increase in volume from supply partners.

The increase in sales from Company-owned greenhouses of 25% was due to additional production from the Delta 2 facility, which was partially converted to produce in 2024.

This was partially offset by the Permian Basin facility not being used for production in 2024.

The average selling price for all produce sold during the three months ended September 30, 2024 compared with the three months ended September 30, 2023 was as follows:

tomatoes changed (1%), peppers changed 33%, cucumbers changed 5%, and mini cucumbers changed (1%).

These price changes are due primarily to weaker market pricing and product mix.

Cost of Sales

VF Fresh cost of sales for the three months ended June 30, 2024 increased by $4,576, or 10%, to ($51,183) compared with ($46,607) for the three months ended June 30, 2023.

The increase was primarily due to an increase from Company-owned greenhouses of $2,657 and an increase from supply partners of $2,074, partially offset by lower freight expense of $156.

VF Fresh cost of sales for the three months ended September 30, 2024 increased by $5,069, or 15%, to ($39,289) compared with ($34,220) for the three months ended September 30, 2023.

The increase was primarily due to an increase from Company-owned greenhouses of $1,247, an increase from supply partners of $3,480, and an increase in freight expense of $342.

The increase in VF Fresh-owned greenhouses cost of sales was due to a 25% increase in pounds sold and the increase in supply partner cost of sales was due to an increase of 6% in product volume.

The decrease in freight cost is due to increased available drivers and decreases in fuel prices.

Gross Loss/Margin

VF Fresh gross loss for the three months ended June 30, 2024 was ($4,164) compared with ($2,761) for the three months ended June 30, 2023.

Gross margin for the three months ended June 30, 2024 was (9%) compared with (6%) for the three months ended June 30, 2023.

The decreases in both gross loss and gross margin percentage were due to a decrease in average selling price per pound.

Gross Profit/Margin

VF Fresh gross profit for the three months ended September 30, 2024 was $3,481 compared with $1,492 for the three months ended September 30, 2023.

Gross margin for the three months ended September 30, 2024 was 8% compared with 4% for the three months ended September 30, 2023.

The increases in both gross profit and gross margin percentage were due to an increase in pounds sold at a lower cost per pound.

Selling, General and Administrative Expenses

VF Fresh selling, general and administrative expenses for the three months ended June 30, 2024 increased by $759, or 27%, to ($3,613) (8% of sales) compared with ($2,854) (7% of sales) for the three months ended June 30, 2023.

VF Fresh net loss for the three months ended June 30, 2024 was ($8,300) compared with a net loss of ($698) for the three months ended June 30, 2023.

The change was primarily due to a weaker gross margin for the three months ended June 30, 2024 and the inclusion of the ToBRFV Legal Settlement of $5,584 for the three months ended June 30, 2023.

VF Fresh selling, general and administrative expenses for the three months ended September 30, 2024 increased by $624, or 30%, to ($2,690) (6% of sales) compared with ($2,066) (6% of sales) for the three months ended September 30, 2023 due to higher accounting and legal fees.

Net Income (Loss)

VF Fresh net income for the three months ended September 30, 2024 was $376 compared with a net loss of ($951) for the three months ended September 30, 2023.

The increase of $1,327 was primarily due to higher volume at a stronger gross margin for the three months ended September 30, 2024.

Adjusted EBITDA

VF Fresh Adjusted EBITDA for the three months ended June 30, 2024 was ($6,350) compared with $1,330 for the three months ended June 30, 2023.

The change in Adjusted EBITDA was primarily due to a decrease in gross margin for the reasons described above, as well as the inclusion of the ToBRFV Legal Settlement of $5,584 for the three months ended June 30, 2023.

VF Fresh Adjusted EBITDA for the three months ended September 30, 2024 was $2,331 compared with $774 for the three months ended September 30, 2023.

The increase of $1,557 in Adjusted EBITDA was primarily due to an improvement in gross margin for the reasons described above.

For additional information, refer to the reconciliation of Adjusted EBITDA to net (loss) income in “Non-GAAP Measures—Reconciliation of Net Loss to Adjusted EBITDA”.

Six Months Ended June 30, 2024 Compared to Six Months Ended June 30, 2023

VF Fresh sales for the six months ended June 30, 2024 was $83,113, compared with $78,413 for the six months ended June 30, 2023.

Nine Months Ended September 30, 2024 Compared to Nine Months Ended September 30, 2023

VF Fresh sales for the nine months ended September 30, 2024 was $125,883, compared with $114,125 for the nine months ended September 30, 2023.

The increase in sales of $11,758, or 10%, was primarily due to an increase of 12% in pounds sold and an increase in supply partner average selling price, partially offset by a decrease in the average selling price from Company-owned greenhouses.

The average selling price for all produce sold during the six months ended June 30, 2024 compared with the six months ended June 30, 2023 was as follows:

The average selling price for all produce sold during the nine months ended September 30, 2024 compared with the nine months ended September 30, 2023 was as follows:

tomatoes changed (3%), peppers changed 23%, cucumbers changed (6%) and mini cucumbers changed (11%).

The price changes are due primarily to product mix and weaker market pricing.

Cost of Sales

VF Fresh cost of sales for the six months ended June 30, 2024 increased by $3,408, or 4%, to ($83,967) compared with ($80,559) for the six months ended June 30, 2023.

The increase is primarily due to an increase from supply partners of $4,416, partially offset by a decrease from Company-owned greenhouses of $143, as well as lower freight expense of $865.

VF Fresh cost of sales for the nine months ended September 30, 2024 increased by $8,477, or 7%, to ($123,256) compared with ($114,779) for the nine months ended September 30, 2023.

The increase is primarily due to an increase from supply partners of $7,895, and an increase from Company-owned greenhouses of $1,104, partially offset by a decrease of lower freight expenses of $522.

The increase in supply partner costs is due to a 8% increase in pounds sold.

The increase in Company-owned greenhouse costs was due to a 15% increase in pounds sold partially offset by a lower cost per pound.

The decrease in freight costs is due to increased available drivers and decreases in fuel prices.

Gross Loss/Margin

VF Fresh gross loss for the six months ended June 30, 2024 was ($854) compared with ($2,146) for the six months ended June 30, 2023.

Gross margin for the six months ended June 30, 2024 was (1%) compared with (3%) for the six months ended June 30, 2023.

The improvements in both gross loss and gross margin percentage were due to an increase from Company-owned greenhouse sales, an increase in supply partner sales, a decrease from Company-owned greenhouse cost per pound, and a decrease in freight costs.

Gross Profit (Loss)/Margin

VF Fresh gross profit for the nine months ended September 30, 2024 was $2,627 compared with a gross loss of ($654) for the nine months ended September 30, 2023.

Gross margin for the nine months ended September 30, 2024 was 2% compared with (1%) for the nine months ended September 30, 2023.

The improvements in both gross profit and gross margin percentage were due to an increase from Company-owned greenhouse sales, an increase in supply partner sales, a decrease from Company-owned greenhouse cost per pound, and a decrease in freight costs.

Selling, General and Administrative Expenses

VF Fresh selling, general and administrative expenses for the six months ended June 30, 2024 increased by $536, or 9%, to ($6,306) (8% of sales) compared with ($5,770) (7% of sales) for the six months ended June 30, 2023.

VF Fresh net loss for the six months ended June 30, 2024 was ($8,186) compared with a net loss of ($3,317) for the six months ended June 30, 2023.

The change was primarily due to the ToBRFV Legal Settlement of $5,584 during the six months ended June 30, 2023 that was not present in current-year periods.

VF Fresh selling, general and administrative expenses for the nine months ended September 30, 2024 increased by $1,160, or 15%, to ($8,996) (7% of sales) compared with ($7,836) (7% of sales) for the nine months ended September 30, 2023 due to higher consulting, accounting, and legal fees.

VF Fresh net loss for the nine months ended September 30, 2024 was ($7,810) compared with a net loss of ($4,268) for the nine months ended September 30, 2023.

The change was primarily due to the ToBRFV Legal Settlement of $5,584 during the nine months ended September 30, 2023 that was not present in current-year period, partially offset by an increase in sales and improved margins for the nine months ended September 30, 2024.

Adjusted EBITDA

VF Fresh Adjusted EBITDA decreased to ($4,322) for the six months ended June 30, 2024 compared with $335 for the six months ended June 30, 2023.

The change in Adjusted EBITDA was primarily due to the ToBRFV Legal Settlement during the six months ended June 30, 2023, partially offset by the improved gross margin for the reasons identified above.

VF Fresh Adjusted EBITDA decreased to ($1,991) for the nine months ended September 30, 2024 compared with $1,110 for the nine months ended September 30, 2023.

The change in Adjusted EBITDA was primarily due to the ToBRFV Legal Settlement of $5,584 during the nine months ended September 30, 2023, partially offset by the improved gross margin for the reasons identified above.

For additional information, refer to the reconciliation of Adjusted EBITDA to net (loss) income in “Non-GAAP Measures—Reconciliation of Net Loss to Adjusted EBITDA”.

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Capital Resources

At June 30, 2024, cash and cash equivalents were $29,657 and working capital was $66,136, compared with cash, cash equivalents and restricted cash of $35,291 and working capital of $79,612 at December 31, 2023.

At September 30, 2024, cash and cash equivalents were $28,696 and working capital was $65,441, compared with cash, cash equivalents and restricted cash of $35,291 and working capital of $79,612 at December 31, 2023.

We believe that our existing cash, cash generated from our operating activities and the availability under our Operating Loan and Pure Sunfarms Loans (each as defined below), will provide us with sufficient liquidity to meet our working capital needs, repayments of our long-term debt and future contractual obligations and fund our planned capital expenditures for the next 12 months.

4 unchanged sentences

Maximum Availability

Outstanding as of June 30, 2024

Outstanding as of September 30, 2024

Operating Loan

2 unchanged sentences

Pure Sunfarms Revolving Line of Credit

The Company’s borrowings under the FCC Term Loan (as defined below) and the Operating Loan (as defined below) (collectively the “Credit Facilities”) are subject to certain positive and negative covenants, including debt ratios, and the Company is

required to maintain certain minimum working capital.

As of June 30, 2024, the Company was in compliance with all of its covenants under its Credit Facilities.

As of September 30, 2024, the Company was in compliance with all of its covenants under its Credit Facilities.

The Company was not in compliance with one financial covenant under the FCC Term Loan as of December 31, 2023, for which the Company received a waiver.

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We can provide no assurance that we will be in compliance, or receive a waiver, for any non-compliance as of the next annual testing date.

Accrued interest payable on the Credit Facilities and Pure Sunfarms Loans as of June 30, 2024 and December 31, 2023 was $347 and $390, respectively.

Accrued interest payable on the Credit Facilities and Pure Sunfarms Loans as of September 30, 2024 and December 31, 2023 was $405 and $390, respectively.

These amounts are included in accrued liabilities in the accompanying Condensed Consolidated Statements of Financial Position.

1 unchanged sentence

The Company has a term loan financing agreement with Farm Credit Canada ("FCC"), a Canadian creditor (the “FCC Term Loan”).

The non-revolving variable rate term loan has a maturity date of May 3, 2027 and a balance of $21,804 on June 30, 2024 and $22,788 on December 31, 2023.

The non-revolving variable rate term loan has a maturity date of May 3, 2027 and a balance of $21,312 on September 30, 2024 and $22,788 on December 31, 2023.

The outstanding balance is repayable by way of monthly installments of principal and interest, with the balance and any accrued interest to be paid in full on May 3, 2027.

As of June 30, 2024, borrowings under the FCC Term Loan agreement were subject to an interest rate of 8.90% per annum.

As of September 30, 2024, borrowings under the FCC Term Loan agreement were subject to an interest rate of 8.81% per annum.

As collateral for the FCC Term Loan, the Company has provided promissory notes, a first mortgage on the VFF-owned Delta 1 and Texas greenhouse facilities, and general security agreements over its assets.

In addition, the Company has provided full recourse guarantees and has granted security interests in respect of the FCC Term Loan.

The carrying value of the assets and securities pledged as collateral as of June 30, 2024 and December 31, 2023 was $80,400 and $117,293, respectively.

The carrying value of the assets and securities pledged as collateral as of September 30, 2024 and December 31, 2023 was $74,942 and $117,293, respectively.

Operating Loan

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The Operating Loan is subject to margin requirements stipulated by the lender.

The Operating Loan had an outstanding balance of $4,000 and future availability of $3,283 on June 30, 2024.

The Operating Loan had an outstanding balance of $4,000 and future availability of $4,556 on September 30, 2024.

As collateral for the Operating Loan, the Company has provided promissory notes and a first priority security interest over its accounts receivable and inventory.

In addition, the Company has granted full recourse guarantees and security therein.

The carrying value of the assets pledged as collateral as of June 30, 2024 and December 31, 2023 was $23,359 and $28,034, respectively.

The carrying value of the assets pledged as collateral as of September 30, 2024 and December 31, 2023 was $23,233 and $28,034, respectively.

Pure Sunfarms Loans

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In addition, Pure Sunfarms has a revolving line of credit (the “PSF Revolving Line of Credit”) with a Canadian chartered bank.

The PSF Revolving Line of Credit had an outstanding balance of $0 as of June 30, 2024 and December 31, 2023.

The PSF Revolving Line of Credit can be drawn for advances of up to C$15,000 and had an outstanding balance of $0 as of September 30, 2024 and December 31, 2023.

Interest under the PSF Revolving Line of Credit is payable at the Canadian prime rate plus an applicable margin per annum, payable monthly.

The PSF Non-Revolving Facility is secured by the Delta 2 and Delta 3 greenhouse facilities and contains customary financial and restrictive covenants.

As of June 30, 2024, Pure Sunfarms was in compliance with these financial covenants.

The outstanding amount on the PSF Non-Revolving Facility was $7,310 on June 30, 2024 and $8,298 on December 31, 2023.

Interest under the PSF Non-Revolving Facility is payable at the Canadian prime rate plus an applicable margin per annum, payable quarterly.

As of September 30, 2024, Pure Sunfarms was in compliance with these financial covenants.

The outstanding amount on the PSF Non-Revolving Facility was $7,028 on September 30, 2024 and $8,298 on December 31, 2023.

Interest under the PSF Non-Revolving Facility is payable at the Canadian prime rate plus an applicable margin per annum, 8.45% as of September 30, 2024, payable quarterly.

Amounts outstanding under the PSF Non-Revolving Facility mature on February 7, 2026.

The outstanding amount on the PSF Term Loan was $11,879 on June 30, 2024 and $13,201 on December 31, 2023.

Interest under the PSF Term Loan is payable at the Canadian prime rate plus an applicable margin per annum, payable quarterly.

The outstanding amount on the PSF Term Loan was $11,560 on September 30, 2024 and $13,201 on December 31, 2023.

Interest under the PSF Term Loan is payable at the Canadian prime rate plus an applicable margin per annum, 8.45% as of September 30, 2024, payable quarterly.

The PSF Term Loan matures on February 7, 2026.

The outstanding amount under the BDC Credit Facility, a demand loan included in current liabilities as of June 30, 2024 and December 31, 2023, was $3,426 on June 30, 2024 and $3,771 on December 31, 2023.

The outstanding amount under the BDC Credit Facility, a demand loan included in current liabilities as of September 30, 2024 and December 31, 2023, was $3,353 on September 30, 2024 and $3,771 on December 31, 2023.

Interest under the BDC Credit Facility is payable at an interest rate of 10.20%, payable monthly, and the amount outstanding matures on December 31, 2031.

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Summary of Cash Flows

For the Six Months Ended June 30,

For the Nine Months Ended September 30,

(in Thousands)

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Operating Activities

For the six months ended June 30, 2024 and 2023, cash provided by (used in) operating activities were $5,652 and ($5,247), respectively.

The operating activities for the six months ended June 30, 2024 consisted of $6,322 in changes in non-cash working capital items and ($670) in changes before non-cash working capital items, while operating activities for the six months ended June 30, 2023 consisted of ($7,825) in changes in non-cash working capital items and $2,578 in changes before non-cash working capital items.

For the nine months ended September 30, 2024 and 2023, cash provided by operating activities were $9,936 and $6,805, respectively.

The operating activities for the nine months ended September 30, 2024 consisted of $5,302 in changes in non-cash working capital items and $4,634 in changes before non-cash working capital items, while operating activities for the nine months ended September 30, 2023 consisted of ($2,191) in changes in non-cash working capital items and $8,996 in changes before non-cash working capital items.

The improvement when comparing the change in before non-cash working capital items for 2024 with 2023 was primarily due to a reduction in Canadian Cannabis inventory as a result of higher sales in 2024 compared with 2023.

Investing Activities

For the six months ended June 30, 2024 and 2023, cash used in investing activities were ($4,959) and ($1,713), respectively.

The increase in investing activities for the six months ended June 30, 2024 was primarily due to capital expenditures to support the build out of our first Netherlands-based cannabis production facility.

For the nine months ended September 30, 2024 and 2023, cash used in investing activities were ($8,227) and ($3,523), respectively.

The increase in investing activities for the nine months ended September 30, 2024 was primarily due to capital expenditures to support the build out of our first Netherlands-based cannabis production facility.

Additional capital expenditures were made to support VF Fresh, Canadian Cannabis, and U.S.

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Financing Activities

For the six months ended June 30, 2024 and 2023, cash (used in) provided by financing activities were ($5,886) and $17,012, respectively.

For the six months ended June 30, 2024, cash used in financing activities consisted of debt repayments of ($2,870) and cash used for the acquisition of an additional 10% ownership of Rose LifeScience.

For the six months ended June 30, 2023, cash flows provided by financing activities consisted of $23,335 in net proceeds from the issuance of Common Shares, $83 in proceeds from the exercise of stock options and net repayments of debt of ($6,406) due to repayment of PSF's revolving line of credit.

For the nine months ended September 30, 2024 and 2023, cash (used in) provided by financing activities were ($8,118) and $15,560, respectively.

For the nine months ended September 30, 2024, cash used in financing activities consisted of debt repayments of ($4,301) and cash used for the acquisition of an additional 10% ownership interest in Rose LifeScience and additional 15% ownership interest in Leli.

For the nine months ended September 30, 2023, cash flows provided by financing activities consisted of $23,335 in net proceeds from the issuance of Common Shares, $83 in proceeds from the exercise of stock options and net repayments of debt of ($7,858) due to repayment of PSF's revolving line of credit.

Contractual Obligations and Commitments

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Non-GAAP Measures

References in this Management’s Discussion and Analysis to “Adjusted EBITDA” are to earnings before interest, taxes, depreciation, and amortization (“EBITDA”), as further adjusted to exclude foreign currency exchange gains and losses on translation of long-term debt, share-based compensation, gains and losses on asset sales and the other adjustments set forth in the table below.

In addition, we present below and “Adjusted EBITDA – Constant Currency” which excludes the effect of foreign currency rate fluctuations.

References in this Management’s Discussion and Analysis to “Adjusted EBITDA” are to earnings before interest, taxes, depreciation, and amortization (“EBITDA”), as further adjusted to exclude foreign currency exchange gains and losses, share-based compensation, gains and losses on asset sales and the other adjustments set forth in the table below.

In addition, we present below “Adjusted EBITDA – Constant Currency” which excludes the effect of foreign currency rate fluctuations.

See “—Constant Currency” below.

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The following table reflects a reconciliation of net loss to Adjusted EBITDA, as presented by the Company:

For the Three Months Ended June 30,

For the Six Months Ended June 30,

For the Three Months Ended September 30,

For the Nine Months Ended September 30,

(in thousands of U.S.

1 unchanged sentence

Interest expense, net

Provision for income taxes

Provision for (recovery of) income taxes

Provision for income taxes attributable to non-controlling interest

Share-based compensation

Interest expense for JV's

Amortization for JVs

Foreign currency exchange gain for JVs

Share-based compensation for JV's

Other expense, net for JV's

Interest expense for NCI's

Amortization for NCI's

Foreign currency exchange gain for NCI's

Share-based compensation for NCI's

Other expense, net for NCI's

Deferred financing fees

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The following table reflects a reconciliation of segmented net loss to Adjusted EBITDA, as presented by the Company:

For The Three Months Ended June 30, 2024

For The Three Months Ended September 30, 2024

(in thousands of U.S.

1 unchanged sentence

Cannabis U.S.

Net (loss) income

Foreign currency exchange gain

Net income (loss)

Foreign currency exchange loss (gain)

Interest expense, net

(Recovery of) provision for income taxes

Provision for (recovery of) income taxes

Provision for income taxes attributable to non-controlling interest

Share-based compensation

Interest expense for JV's

Amortization for JVs

Foreign currency exchange gain for JVs

Share-based compensation for JV's

Other expense, net for JV's

Goodwill and intangible asset impairments (1)

Interest expense for NCI's

Amortization for NCI's

Foreign currency exchange gain for NCI's

Share-based compensation for NCI's

Adjusted EBITDA (2)

For The Six Months Ended June 30, 2024

For The Nine Months Ended September 30, 2024

(in thousands of U.S.

2 unchanged sentences

Net (loss) income

Foreign currency exchange gain

Foreign currency exchange loss (gain)

Interest expense, net

(Recovery of) provision for income taxes

Provision for (recovery of) income taxes

Provision for income taxes attributable to non-controlling interest

Share-based compensation

Interest expense for JV's

Amortization for JVs

Foreign currency exchange gain for JVs

Share-based compensation for JV's

Other expense, net for JV's

Interest expense for NCI's

Amortization for NCI's

Foreign currency exchange gain for NCI's

Share-based compensation for NCI's

Other expense, net for NCI's

Deferred financing fees

1 unchanged sentence

Adjusted EBITDA (2)

For The Three Months Ended June 30, 2023

For The Three Months Ended September 30, 2023

(in thousands of U.S.

2 unchanged sentences

Net (loss) income

Foreign currency exchange gain

Foreign currency exchange loss

Interest expense (income), net

Provision for income taxes

Recovery of income taxes

Share-based compensation

Interest expense for JV's

Amortization for JV's

Foreign currency exchange loss for JV's

Share-based compensation for JV's

Other expenses for JV's

Interest expense for NCI's

Amortization for NCI's

Foreign currency exchange loss for NCI's

Share-based compensation for NCI's

Other expenses for NCI's

Deferred financing fees

Other expenses

Adjusted EBITDA (2)

For The Six Months Ended June 30, 2023

For The Nine Months Ended September 30, 2023

(in thousands of U.S.

2 unchanged sentences

Net (loss) income

Foreign currency exchange (gain) loss

Interest expense (income), net

Foreign currency exchange loss (gain)

Interest expense, net

(Recovery of) provision for income taxes

Share-based compensation

Interest expense for JV's

Amortization for JV's

Foreign currency exchange loss for JV's

Share-based compensation for JV's

Other expenses for JV's

Interest expense for NCI's

Amortization for NCI's

Foreign currency exchange loss for NCI's

Share-based compensation for NCI's

Other expenses for NCI's

Deferred financing fees

9 unchanged sentences

To supplement the consolidated financial statements presented in accordance with U.S.

GAAP, we have presented constant currency adjusted financial measures for sales, cost of sales, selling, general and administrative, other income (expense), operating (loss) income, loss from consolidated entities, net loss, and Adjusted EBITDA for the three and six months ended June 30, 2024, which are considered non-GAAP financial measures.

GAAP, we have presented constant currency adjusted financial measures for sales, cost of sales, selling, general and administrative, other income (expense), operating (loss) income, loss from consolidated entities, net loss, and Adjusted EBITDA for the three and nine months ended September 30, 2024, which are considered non-GAAP financial measures.

We present constant currency information to provide a framework for assessing how our underlying operations performed excluding the effect of foreign currency rate fluctuations.

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dollars are converted into U.S.

dollars using the average exchange rates from the three and six month comparative periods in 2023 rather than the actual average exchange rates in effect during the respective current periods.

dollars using the average exchange rates from the three and nine month comparative periods in 2023 rather than the actual average exchange rates in effect during the respective current periods.

All growth comparisons relate to the corresponding period in 2023.

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The non-GAAP financial measures presented in this Quarterly Report should not be considered as a substitute for, or superior to, the measures of financial performance prepared in accordance with U.S.

The tables below set forth certain measures of consolidated results from continuing operations on a constant currency basis for the three and six months ended June 30, 2024 compared with the three and six months ended June 30, 2023 on an as reported and constant currency basis (in thousands):

The tables below set forth certain measures of consolidated results from continuing operations on a constant currency basis for the three and nine months ended September 30, 2024 compared with the three and nine months ended September 30, 2023 on an as reported and constant currency basis (in thousands):

As Adjusted for Constant Currency

For the Three Months Ended June 30,

For the Three Months Ended September 30,

As Reported Change

For the Three Months Ended June 30,

For the Three Months Ended September 30,

Constant Currency Change

2 unchanged sentences

Other (expense) income, net

Goodwill and intangible asset impairments (1)

Operating loss

2 unchanged sentences

As Adjusted for Constant Currency

For the Six Months Ended June 30,

For the Nine Months Ended September 30,

As Reported Change

For the Six Months Ended June 30,

For the Nine Months Ended September 30,

Constant Currency Change

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The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, sales and expenses and related disclosure of contingent assets and liabilities.

As described in Note 5, Goodwill and Intangible Assets, in our Unaudited Condensed Consolidated Interim Financial Statements included in Part 1 of this Quarterly Report on Form 10-Q, during the three and six months ended June 30, 2024 and 2023, the Company considered qualitative factors in assessing for impairment indicators for the Company’s U.S.

As described in Note 5, Goodwill and Intangible Assets, in our Unaudited Condensed Consolidated Interim Financial Statements included in Part 1 of this Quarterly Report on Form 10-Q, during the three and nine months ended September 30, 2024 and 2023, the Company considered qualitative factors in assessing for impairment indicators for the Company’s U.S.

and Canadian Cannabis segments.

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The Company reviewed the reporting segment's assets, including goodwill and intangible assets.

Based on recent historical performance during the quarter which has underperformed relative to budget, a revised June 30, 2024 forecast which shows a shortfall compared to the March 31, 2024 forecast, the new restrictions on CBD sales in an additional eight states at July 1, 2024, and the proliferation of unregulated hemp-derived products on the market which continues to challenge market share for the CBD industry, the Company concluded that as of June 30, 2024, the fair value of the brand intangible asset and goodwill was fully impaired and an impairment charge to intangibles of $1,900 and goodwill of $10,039 was allocated to the U.S.

Based on recent historical performance during the quarter which underperformed relative to budget, a revised June 30, 2024 forecast which resulted in a shortfall compared to the March 31, 2024 forecast, the new restrictions on CBD sales in an additional eight states at July 1, 2024, and the proliferation of unregulated hemp-derived products on the market which continues to challenge market share for the CBD industry, the Company concluded that as of June 30, 2024, the fair value of the brand intangible asset and goodwill was fully impaired and an impairment charge to intangibles of $1,900 and goodwill of $10,039 was recorded to the U.S.

Cannabis reporting unit.

Cannabis - U.S.

The fair value of the reporting unit was determined based on a discounted cash flow projection using projections for 2024 to 2028 with an average revenue growth rate of 6% between 2025 to 2028, followed by a terminal growth rate of 2%.

Management concluded that as of June 30, 2024, the fair value was lower than its carrying amount and as a result, an impairment charge to goodwill of $10,030 was allocated to the reporting unit.

At June 30, 2024, the fair value of the reporting unit was determined based on a discounted cash flow projection using projections for 2024 to 2028 with an average revenue growth rate of 6% between 2025 to 2028, followed by a terminal growth rate of 2%.

Management concluded that as of June 30, 2024, the fair value was lower than its carrying amount and as a result, an impairment charge to goodwill of $10,039 was recorded to the reporting unit.

The significant assumptions applied to the determination of the fair value are described below:

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Cannabis - Canada

When the Company considered qualitative factors in assessing impairment indicators for Canadian Cannabis it concluded that no impairment indicators existed as no events or circumstances occurred that would, more likely than not, reduce the fair value of the reporting units to be below their carrying amounts.

At June 30, 2023, the Company concluded that no impairment indicators existed as no events or circumstances occurred that would, more likely than not, reduce the fair value of the reporting units to be below their carrying amounts.

At September 30, 2024, when the Company considered qualitative factors in assessing impairment indicators for Canadian Cannabis it concluded that no impairment indicators existed as no events or circumstances occurred that would, more likely than not, reduce the fair value of the reporting units to be below their carrying amounts.

At September 30, 2023, the Company concluded that no impairment indicators existed as no events or circumstances occurred that would, more likely than not, reduce the fair value of the reporting units to be below their carrying amounts.

We believe that the estimates, assumptions and judgments involved in the accounting policies described in the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section of our Annual Report on Form 10-K have the greatest potential impact on our financial statements, so we consider these to be our critical accounting policies.

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Interest Rate Risk

As of June 30, 2024, our variable interest rate debt was primarily related to our Credit Facilities and Term Loans.

As of September 30, 2024, our variable interest rate debt was primarily related to our Credit Facilities and Term Loans.

Outstanding borrowings under our Credit Facility and Term Loans bear interest at either the (a) Secured Overnight Financing Rate (“SOFR”) or (b) Canadian Prime Rate, as defined in the agreement, plus an applicable margin.

As of June 30, 2024, we had approximately $4,000 aggregate principal amount of outstanding revolving loans under our Operating Loan with an interest rate of 7.8% and we had approximately $44,419 in aggregate principal amounts of our Term Loans with a weighted average interest rate of 9.1%.

As of September 30, 2024, we had approximately $4,000 aggregate principal amount of outstanding revolving loans under our Operating Loan with an interest rate of 7.8% and we had approximately $43,253 in aggregate principal amounts of our Term Loans with a weighted average interest rate of 8.8%.

The current interest rates for outstanding revolving loans under our Credit Facility and Term Loans reflect basis point increases of approximately 0.9% over the comparable period in 2023.

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This risk increases in the current inflationary environment, in which the Federal Reserve has increased interest rates, resulting in an increase in our variable interest rates and related interest expense.

An additional 50 basis point increase in the applicable interest rates under our Credit Facility and Term Loan would have increased our interest expense by approximately $58 and $116 for the three and six months ended June 30, 2024 and $65 and $131 for the three and six months ended June 30, 2023.

An additional 50 basis point increase in the applicable interest rates under our Credit Facility and Term Loan would have increased our interest expense by approximately $57 and $171 for the three and nine months ended September 30, 2024 and $65 and $131 for the three and nine months ended September 30, 2023.

While we cannot predict our ability to refinance existing debt or the significance of the impact that interest rate movements will have on our existing debt, management evaluates our financial position on an ongoing basis.

Foreign Exchange Risk

As of June 30, 2024 and 2023, the Canadian/U.S.

As of September 30, 2024 and 2023, the Canadian/U.S.

foreign exchange rate was C$1.00 = US$0.7398 and C$1.00 = US$0.7363, respectively.

If all other variables remain constant, an increase of $0.10 in the Canadian dollar would have the following impact on the ending balances of certain statements of financial position items at June 30, 2024 and 2023 with the net foreign exchange gain or loss directly impacting net income (loss):

June 30, 2024

June 30, 2023

If all other variables remain constant, an increase of $0.10 in the Canadian dollar would have the following impact on the ending balances of certain statements of financial position items at September 30, 2024 and 2023 with the net foreign exchange gain or loss directly impacting net income (loss):

September 30, 2024

September 30, 2023

Financial assets

8 unchanged sentences

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