Village Farms International, Inc. 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our unaudited condensed consolidated financial statements and related notes included in Item 1 of Part I of this Quarterly Report and the Management’s Discussion and Analysis of Financial Condition and Results of Operations and consolidated financial statements contained in our Annual Report on Form 10-K for the year ended December 31, 2023 (our "Annual Report on Form 10-K"). This discussion and analysis contains forward-looking statements about our plans and expectations of what may happen in the future. Forward-looking statements are based on assumptions and estimates that are inherently subject to significant risks and uncertainties, and our actual results could differ materially from the results anticipated by our forward-looking statements. We encourage you to review the risks and uncertainties described in “Risk Factors” in Part I, Item 1A in our Annual Report on Form 10-K, and in Part II, Item 1A of this Quarterly Report. These risks and uncertainties could cause actual results to differ materially from those projected or implied by our forward-looking statements contained in this report. These forward-looking statements are made as of the date of this management’s discussion and analysis, and we do not intend, and do not assume any obligation, to update these forward-looking statements, except as required by law. EXECUTIVE OVERVIEW Village Farms International, Inc. (“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 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”), VF Clean Energy, Inc. (“VFCE”), and Leli Holland B. V. ("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. To do so, we leverage decades of cultivation expertise, investment, and experience in fresh produce into branded and wholesale cannabis products within markets with legally permissible opportunities. In Canada, we converted two produce facilities to grow cannabis for the Canadian legal adult use (recreational) market. 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 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. In September 2021, our Canadian Cannabis business began exporting cannabis products to Australia for that country’s medical market. In March 2022, our Canadian Cannabis business received European Union Good Manufacturing Practice (“EU GMP”) certification for Pure Sunfarms’ 1.1 million square foot Delta 3 cannabis facility located in Delta, British Columbia (“B.C.”) which permits Pure Sunfarms to export EU GMP-certified medical cannabis to importers and distributors in international markets that require EU GMP certification. In late 2022, Pure Sunfarms commenced exports to Israel and in 2023, Pure Sunfarms began exporting cannabis products to Germany and the United Kingdom for the medical markets in those countries. 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 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. We also operate a large, well-established, produce business (primarily tomatoes) under the Village Farms Fresh (“VF Fresh”) brand which sells to food distribution companies and mass retail stores. We own and operate produce cultivation assets in Texas and Delta, B.C. and source produce from our growing partners, in Mexico and Canada. Our intention is to use our assets, expertise and experience (across cannabis, CBD and produce) to participate in the U.S. Cannabis market subject to compliance with applicable U.S. federal and state laws and applicable stock exchange rules. Our Operating Segments Canadian Cannabis Segment Our Canadian Cannabis segment is composed of Pure Sunfarms and an 80% ownership in Rose LifeScience. 15 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 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. U.S. Cannabis Segment Our U.S. Cannabis segment is composed of Balanced Health. Balanced Health is one of the leading cannabinoid brands and e-commerce platforms in the United States. Balanced Health develops and sells high-quality CBD and hemp-based health and wellness products, distributing its diverse portfolio of consumer products through its top-ranked e-commerce platform, CBDistillery™ and third-party retailers. Produce Segment 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. These premium products are grown in sophisticated, highly intensive agricultural greenhouse facilities located in British Columbia and Texas. We also market and distribute premium tomatoes, peppers and cucumbers produced under exclusive and non-exclusive arrangements from our greenhouse supply partners located in Mexico, B.C. and Ontario. We primarily market and distribute under our Village Farms® brand name to retail supermarkets and dedicated fresh food distribution companies throughout the United States and Canada. Energy Segment 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. landfill site (the "Delta RNG Project"). The Delta RNG Project, which commenced operations in 2024, converts VFCE’s previous landfill gas-to-electricity business into a state-of-the-art landfill gas to high-demand renewable natural gas ("RNG") facility. Terreva Renewables sells the renewable natural gas and VFCE receives a portion of the revenue in the form of a royalty. Recent Developments and Updates Canadian Cannabis • Was the fastest growing producer year-over year by market share; • Further expanded its number one national market share position in dried flower 1 ; • 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; and, • 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. 2.Based on estimates from Flowzz. 16 U.S. Cannabis • 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; and • The Company’s application for a Texas medicinal marijuana license remains pending review by the Department of Public Services. If awarded, the Company plans to work with its listing authority to structure an acceptable ownership structure. VF Fresh (Produce) • 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; • Implementing new cultivation t echnologies, including artificial intelligence, to drive further operational improvements; • 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. Leli Holland • 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; and • 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; and • 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. Corporate • 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; and • 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$1.00 from September 6, 2024 to October 17, 2024 (the “Notification”). The Notification has no immediate effect on the listing of the Common Shares on the Nasdaq Capital Market. Under Nasdaq Listing Rule 5810(c)(3)(A), the Company has until April 16, 2025 (a period of 180 calendar days from the date of Notification) to regain compliance with the Minimum Bid Requirement. Presentation of Financial Results Our consolidated results of operations for the three and nine months ended September 30, 2024 and 2023 presented below reflect the operations of our consolidated wholly-owned subsidiaries, our 70% ownership in Rose LifeScience through March 31, 2024, our 80% ownership in Rose LifeScience beginning on April 1, 2024, our 85% ownership in Leli through September 22, 2024, and our 100% ownership in Leli beginning on September 23, 2024. 17 Foreign currency exchange rates All currency amounts in this Quarterly Report are stated in U.S. dollars, which is our reporting currency, unless otherwise noted. All references to “dollars” or “$” are to U.S. dollars. 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. The condensed consolidated statements of operations and comprehensive income (loss) and condensed consolidated statements of cash flows of our foreign operations are translated into dollars by applying the average foreign exchange rate in effect for the reporting period. The exchange rates used to translate from Canadian dollars ("C") to dollars is shown below: As of September 30, 2024 September 30, 2023 December 31, 2023 Spot rate 0.7398 0.7363 0.7543 Three-month period ended 0.7331 0.7453 N/A Nine-month period ended 0.7352 0.7431 N/A RESULTS OF OPERATIONS Consolidated Financial Performance (In thousands of U.S. dollars, except per share amounts, and unless otherwise noted) Three Months Ended September 30, Nine Months Ended September 30, 2024 2023 2024 2023 Sales $ 83,368 $ 69,510 $ 253,627 $ 211,378 Cost of sales (67,660 ) (54,889 ) (213,158 ) (172,958 ) Gross profit 15,708 14,621 40,469 38,420 Selling, general and administrative expenses (16,540 ) (15,822 ) (52,593 ) (49,980 ) Interest expense (784 ) (988 ) (2,606 ) (3,532 ) Interest income 229 262 757 741 Foreign exchange gain (loss) 352 (971 ) (929 ) (302 ) Other income (loss) 379 (19 ) 528 5,613 Goodwill and intangible asset impairments (1) — — (11,939 ) — Loss before taxes (656 ) (2,917 ) (26,313 ) (9,040 ) (Provision for) recovery of income taxes (94 ) 1,664 (674 ) (269 ) Loss including non-controlling interests (750 ) (1,253 ) (26,987 ) (9,309 ) Less: net income attributable to non-controlling interests, net of tax (70 ) (46 ) (234 ) (6 ) Net loss attributable to Village Farms International Inc. shareholders $ (820 ) $ (1,299 ) $ (27,221 ) $ (9,315 ) Adjusted EBITDA (2) $ 5,302 $ 3,248 $ 5,334 $ 8,243 Basic loss per share $ (0.01 ) $ (0.01 ) $ (0.25 ) $ (0.09 ) Diluted loss per share $ (0.01 ) $ (0.01 ) $ (0.25 ) $ (0.09 ) (1) Reflects impairment to goodwill and intangibles of $11,939 in U.S. Cannabis that was based on recent historical performance, near-term forecasts, and the state of the CBD industry in the United States. See “Critical Accounting Estimates and Judgments” below for more information . (2) Adjusted EBITDA is not a recognized earnings measure and does not have a standardized meaning prescribed by GAAP. Therefore, Adjusted EBITDA may not be comparable to similar measures presented by other issuers. 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, 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 nine months ended September 30, 2024 and 2023 is included below. The consolidated results include all four of our operating segments: Produce, Canadian Cannabis, U. S. Cannabis, and Energy, along with public company expenses. For a discussion of our segmented results, please see “Segmented Results of Operations” below. 18 CONSOLIDATED RESULTS Three Months Ended September 30, 2024 Compared to Three Months Ended September 30, 2023 Sales 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. Cannabis sales of $1,045. For additional information, refer to "Segmented Results of Operations" below. Cost of Sales 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 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. For additional information, refer to "Segmented Results of Operations" below. Selling, General and Administrative Expenses 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 September 30, 2024 2023 Selling, general and administrative expenses $ 15,665 $ 15,075 Share-based compensation 875 747 Total selling, general and administrative expenses $ 16,540 $ 15,822 Interest Expense 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 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 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. Shareholders Net loss attributable to Village Farms International, Inc. 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, 19 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 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”. Nine Months Ended September 30, 2024 Compared to Nine Months Ended September 30, 2023 Sales 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. Cannabis sales of $2,489. For additional information, refer to "Segmented Results of Operations" below. Cost of Sales 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 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. Cannabis of $2,157. For additional information, refer to "Segmented Results of Operations" below. Selling, General and Administrative Expenses 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. Cannabis of $1,040. For additional information, refer to "Segmented Results of Operations" below. For the Nine Months Ended September 30, 2024 2023 Selling, general and administrative expenses $ 49,117 $ 46,845 Share-based compensation 3,476 3,135 Total selling, general and administrative expenses $ 52,593 $ 49,980 Interest Expense 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 nine months ended September 30, 2024 was $757 compared with $741 for the nine months ended September 30, 2023. Other Income 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 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 20 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. Shareholders Net loss attributable to Village Farms International, Inc. 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 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”. SEGMENTED RESULTS OF OPERATIONS (In thousands of U.S. dollars, except per share amounts, and unless otherwise noted) For The Three Months Ended September 30, 2024 VF Fresh (Produce) Cannabis Canada Cannabis U.S. Clean Energy Corporate Total Sales $ 42,770 $ 36,463 $ 3,943 $ 192 $ — $ 83,368 Cost of sales (39,289 ) (26,864 ) (1,443 ) (64 ) — (67,660 ) Selling, general and administrative expenses (2,690 ) (7,983 ) (2,692 ) (1 ) (3,174 ) (16,540 ) Other expense, net (388 ) (16 ) — 170 410 176 Operating income (loss) 403 1,600 (192 ) 297 (2,764 ) (656 ) (Provision for) recovery of income taxes (27 ) (308 ) — — 241 (94 ) Income (loss) from consolidated entities 376 1,292 (192 ) 297 (2,523 ) (750 ) Less: net (income) loss attributable to non-controlling interests, net of tax — (124 ) — — 54 (70 ) Net income (loss) $ 376 $ 1,168 $ (192 ) $ 297 $ (2,469 ) $ (820 ) Adjusted EBITDA (2) $ 2,331 $ 4,752 $ (159 ) $ 313 $ (1,935 ) $ 5,302 Basic income (loss) per share $ 0.00 $ 0.01 $ (0.00 ) $ 0.00 $ (0.02 ) $ (0.01 ) Diluted income (loss) per share $ 0.00 $ 0.01 $ (0.00 ) $ 0.00 $ (0.02 ) $ (0.01 ) For The Three Months Ended September 30, 2023 VF Fresh (Produce) Cannabis Canada Cannabis U.S. Clean Energy Corporate Total Sales $ 35,712 $ 28,810 $ 4,988 $ — $ — $ 69,510 Cost of sales (34,220 ) (18,866 ) (1,803 ) — — (54,889 ) Selling, general and administrative expenses (2,066 ) (7,598 ) (3,095 ) — (3,063 ) (15,822 ) Other expense, net (598 ) (428 ) (11 ) (58 ) (621 ) (1,716 ) Operating (loss) income (1,172 ) 1,918 79 (58 ) (3,684 ) (2,917 ) Recovery of income taxes 221 1,034 — — 409 1,664 (Loss) income from consolidated entities (951 ) 2,952 79 (58 ) (3,275 ) (1,253 ) Less: net (income) loss attributable to non-controlling interests, net of tax — (89 ) — — 43 (46 ) Net (loss) income $ (951 ) $ 2,863 $ 79 $ (58 ) $ (3,232 ) $ (1,299 ) Adjusted EBITDA (2) $ 774 $ 4,585 $ 221 $ (57 ) $ (2,275 ) $ 3,248 Basic (loss) income per share $ (0.01 ) $ 0.03 $ 0.00 $ (0.00 ) $ (0.03 ) $ (0.01 ) Diluted (loss) income per share $ (0.01 ) $ 0.03 $ 0.00 $ (0.00 ) $ (0.03 ) $ (0.01 ) 21 For The Nine Months Ended September 30, 2024 VF Fresh (Produce) Cannabis Canada Cannabis U.S. Clean Energy Corporate Total Sales $ 125,883 $ 114,654 $ 12,777 $ 313 $ — $ 253,627 Cost of sales (123,256 ) (84,842 ) (4,953 ) (107 ) — (213,158 ) Selling, general and administrative expenses (8,996 ) (24,436 ) (9,058 ) (38 ) (10,065 ) (52,593 ) Other expense (loss) (1,418 ) (687 ) — 170 (315 ) (2,250 ) Goodwill and intangible asset impairments (1) — — (11,939 ) — — (11,939 ) Operating (loss) income (7,787 ) 4,689 (13,173 ) 338 (10,380 ) (26,313 ) (Provision for) recovery of income taxes (23 ) (896 ) — — 245 (674 ) (Loss) income from consolidated entities (7,810 ) 3,793 (13,173 ) 338 (10,135 ) (26,987 ) Less: net (income) loss attributable to non-controlling interests, net of tax — (394 ) — — 160 (234 ) Net (loss) income $ (7,810 ) $ 3,399 $ (13,173 ) $ 338 $ (9,975 ) $ (27,221 ) Adjusted EBITDA (2) $ (1,991 ) $ 13,643 $ (1,014 ) $ 354 $ (5,658 ) $ 5,334 Basic (loss) income per share $ (0.07 ) $ 0.03 $ (0.12 ) $ 0.00 $ (0.09 ) $ (0.25 ) Diluted (loss) income per share $ (0.07 ) $ 0.03 $ (0.12 ) $ 0.00 $ (0.09 ) $ (0.25 ) For The Nine Months Ended September 30, 2023 VF Fresh (Produce) Cannabis Canada Cannabis U.S. Clean Energy Corporate Total Sales $ 114,125 $ 81,987 $ 15,266 $ — $ — $ 211,378 Cost of sales (114,779 ) (52,873 ) (5,285 ) (21 ) — (172,958 ) Selling, general and administrative expenses (7,836 ) (22,273 ) (10,098 ) (30 ) (9,743 ) (49,980 ) Other income (expense) net 3,993 (1,838 ) (8 ) (77 ) 450 2,520 Operating (loss) income (4,497 ) 5,003 (125 ) (128 ) (9,293 ) (9,040 ) Recovery of (provision for) income taxes 229 (922 ) — — 424 (269 ) (Loss) income from consolidated entities (4,268 ) 4,081 (125 ) (128 ) (8,869 ) (9,309 ) Less: net (income) loss attributable to non-controlling interests, net of tax — (149 ) — — 143 (6 ) Net (loss) income $ (4,268 ) $ 3,932 $ (125 ) $ (128 ) $ (8,726 ) $ (9,315 ) Adjusted EBITDA (2) $ 1,110 $ 13,273 $ 424 $ (128 ) $ (6,436 ) $ 8,243 Basic (loss) income per share $ (0.04 ) $ 0.04 $ (0.00 ) $ (0.00 ) $ (0.08 ) $ (0.08 ) Diluted (loss) income per share $ (0.04 ) $ 0.04 $ (0.00 ) $ (0.00 ) $ (0.08 ) $ (0.08 ) (1) Reflects impairment to goodwill and intangibles of $11,939 in U.S. Cannabis that was based on recent historical performance, near-term forecasts, and the state of the CBD industry in the United States. See “Critical Accounting Estimates and Judgments” below for more information . (2) Adjusted EBITDA is not a recognized earnings measure and does not have a standardized meaning prescribed by GAAP. Therefore, Adjusted EBITDA may not be comparable to similar measures presented by other issuers. 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, 85% interest in Leli through September 22, 2024, and our 100% interest in Leli beginning on September 23, 2024. 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 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 September 30, 2024 Compared to Three Months Ended September 30, 2023 Sales 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 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 September 30, 2024, the Company incurred excise duties of $17,674 22 (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 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 September 30, 2024 and 2023: For the Three Months Ended September 30, (in thousands of U.S. dollars) 2024 2023 Branded sales $ 44,951 $ 37,459 Non-branded sales 7,402 4,469 International sales 1,360 701 Other 424 577 Less: excise taxes (17,674 ) (14,396 ) Net Sales $ 36,463 $ 28,810 For the Three Months Ended September 30, (in thousands of Canadian dollars) 2024 2023 Branded sales $ 61,317 $ 50,259 Non-branded sales 10,097 6,048 International sales 1,873 940 Other 578 774 Less: excise taxes (24,109 ) (19,314 ) Net Sales $ 49,756 $ 38,707 Cost of Sales 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 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 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. Net Income 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 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”. 23 Nine Months Ended September 30, 2024 Compared to Nine Months Ended September 30, 2023 Sales 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 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 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 nine months ended September 30, 2024 and 2023: For the Nine Months Ended September 30, (in thousands of U.S. dollars) 2024 2023 Branded sales $ 144,025 $ 108,731 Non-branded sales 22,147 9,706 International sales 4,355 3,765 Other 1,320 1,509 Less: excise taxes (57,193 ) (41,724 ) Net Sales $ 114,654 $ 81,987 For the Nine Months Ended September 30, (in thousands of Canadian dollars) 2024 2023 Branded sales $ 195,906 $ 146,299 Non-branded sales 30,143 13,109 International sales 5,953 5,071 Other 1,796 2,030 Less: excise taxes (77,788 ) (56,145 ) Net Sales $ 156,010 $ 110,364 Cost of Sales 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 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 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. Net Income 24 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 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”. U.S. CANNABIS SEGMENT RESULTS The U.S. Cannabis segment consists of Balanced Health. 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 September 30, 2024 Compared to Three Months Ended September 30, 2023 Sales U.S. 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. All U.S. 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 U.S. 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 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 U.S. 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 U.S. 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 U.S. 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”. Nine Months Ended September 30, 2024 Compared to Nine Months Ended September 30, 2023 Sales U.S. 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. All U.S. 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 U.S. 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 25 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 U.S. 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. Net Loss U.S. 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 U.S. 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 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 Sales 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%). Cost of Sales 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. 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 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 26 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”. Nine Months Ended September 30, 2024 Compared to Nine Months Ended September 30, 2023 Sales 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 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%). Cost of Sales 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 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 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. Net Loss 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 ($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”. Liquidity and Capital Resources Capital Resources 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. An additional potential source of liquidity is access to capital markets for additional equity or debt financing. We intend to use our cash on hand for daily operational funding requirements. 27 (in thousands of U.S. dollars unless otherwise noted) Maximum Availability Outstanding as of September 30, 2024 Operating Loan $ 8,556 $ 4,000 FCC Term Loan $ 21,312 $ 21,312 Pure Sunfarms Loans C$ 29,656 $ 21,940 Pure Sunfarms Revolving Line of Credit C$ 15,000 $ — 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 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. FCC measures our financial covenants once a year on the last calendar day of the year and our next annual testing date will be on December 31, 2024. 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 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. FCC Term Loan 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 $21,312 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 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 September 30, 2024 and December 31, 2023 was $74,942 and $117,293, respectively. Operating Loan The Company has a revolving line of credit agreement with Bank of Montreal (the "Operating Loan"). On March 13, 2023, the Company entered into a Note Modification Agreement (the “Modification”) to the Operating Loan. The Modification eliminated the use of LIBOR as a basis to determine certain interest rates under the Operating Loan and transitioned to the Secured Overnight Financing Rate (“SOFR”) for such purposes. The Company does not expect the Modification to materially change the amount of interest payable under the Operating Loan. On May 24, 2024, the Company entered into an amendment to the Operating Loan, which extended the maturity date of the Operating Loan to May 24, 2027. 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 $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 September 30, 2024 and December 31, 2023 was $23,233 and $28,034, respectively. Pure Sunfarms Loans Pure Sunfarms has a credit facility with the Business Development Bank of Canada (the "BDC Credit Facility"), a non-revolving credit facility (the “PSF Non-Revolving Facility”) and a term loan (the “PSF Term Loan”) with two Canadian chartered banks (collectively, with the BDC Credit Facility, the PSF Non-Revolving Facility, and the PSF Term Loan the “Pure Sunfarms Loans”). 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 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 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. 28 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 $11,560 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 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. Equity Offerings On January 30, 2023, the Company issued and sold 18,350,000 Common Shares under a registered direct equity offering, at a price of $1.35 per share, resulting in net proceeds for approximately $23,300 after deducting commissions and offering expenses (the "January 2023 Equity Offering"). As part of the January 2023 Equity Offering the Company also issued 18,350,000 Common Warrants at an exercise price of $1.65 per share. The Common Warrants became exercisable on July 31, 2023, and expire on July 30, 2028. Summary of Cash Flows For the Nine Months Ended September 30, (in Thousands) 2024 2023 Cash, beginning of period $ 35,291 $ 21,676 Net cash flow provided by (used in): Operating activities 9,936 6,805 Investing activities (8,227 ) (3,523 ) Financing activities (8,118 ) 15,560 Net cash (decrease) increase for the period (6,409 ) 18,842 Effect of exchange rate changes on cash (186 ) (35 ) Cash, end of the period $ 28,696 $ 40,483 Operating Activities 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 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. Cannabis operations. Financing Activities 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 We expect to meet our contractual obligations and commitments using our working capital and our other resources described under “Capital Resources” above. Other than with respect to our long-term debt described above, we currently do not have any material cash requirements in the near future. 29 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, 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. Adjusted EBITDA and Adjusted EBITDA - Constant Currency are measures of operating performance that are not recognized under GAAP and do not have a standardized meaning prescribed by GAAP. Therefore, these non-GAAP measures may not be comparable to similar measures presented by other issuers. Investors are cautioned that our non-GAAP measures should not be construed as an alternative to net income or loss determined in accordance with GAAP as an indicator of our performance. Our non-GAAP measures are used as additional measures to evaluate the operating and financial performance of our segments. Management believes that our non-GAAP measures are important measures in evaluating the historical performance of the Company because it excludes non-recurring and other items that do not reflect our business performance. Reconciliation of Net Loss to Adjusted EBITDA The following table reflects a reconciliation of net loss to Adjusted EBITDA, as presented by the Company: For the Three Months Ended September 30, For the Nine Months Ended September 30, (in thousands of U.S. dollars) 2024 2023 2024 2023 Net loss $ (820 ) $ (1,299 ) $ (27,221 ) $ (9,315 ) Add: Amortization 4,204 3,195 11,911 9,384 Foreign currency exchange (gain) loss (363 ) 929 754 196 Interest expense, net 662 708 1,996 2,724 Provision for (recovery of) income taxes 94 (1,664 ) 674 269 Provision for income taxes attributable to non-controlling interest (6 ) — (156 ) — Share-based compensation 858 690 3,402 2,973 Interest expense for NCI's (85 ) 13 (116 ) 47 Amortization for NCI's 738 603 2,070 1,762 Foreign currency exchange gain for NCI's 4 3 9 5 Share-based compensation for NCI's 16 39 58 113 Other expense, net for NCI's — (14 ) 4 (29 ) Deferred financing fees — 34 10 102 Goodwill and intangible asset impairments (1) — — 11,939 — Other expense, net — 11 — 12 Adjusted EBITDA (2) $ 5,302 $ 3,248 $ 5,334 $ 8,243 (1) Reflects impairment to goodwill and intangibles of $11,939 in U.S. Cannabis that was based on recent historical performance, near-term forecasts, and the state of the CBD industry in the United States. See “Critical Accounting Estimates and Judgments” below for more information . (2) Adjusted EBITDA is not a recognized earnings measure and does not have a standardized meaning prescribed by GAAP. Therefore, Adjusted EBITDA presented for these segments may not be comparable to similar measures presented by other issuers. 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 the underlying business performance of the Company. Reconciliation of Segmented Net Loss to Adjusted EBITDA The following table reflects a reconciliation of segmented net loss to Adjusted EBITDA, as presented by the Company: 30 For The Three Months Ended September 30, 2024 (in thousands of U.S. dollars) VF Fresh (Produce) Cannabis Canada Cannabis U.S. Clean Energy Corporate Total Net income (loss) $ 376 $ 1,168 $ (192 ) $ 297 $ (2,469 ) $ (820 ) Add: Amortization 1,348 2,734 50 — 72 4,204 Foreign currency exchange loss (gain) 20 (34 ) — — (349 ) (363 ) Interest expense, net 560 149 — 16 (63 ) 662 Provision for (recovery of) income taxes 27 308 — — (241 ) 94 Provision for income taxes attributable to non-controlling interest — (6 ) — — — (6 ) Share-based compensation — 12 (17 ) — 863 858 Interest expense for NCI's — (85 ) — — — (85 ) Amortization for NCI's — 486 — — 252 738 Foreign currency exchange gain for NCI's — 4 — — — 4 Share-based compensation for NCI's — 16 — — — 16 Adjusted EBITDA (2) $ 2,331 $ 4,752 $ (159 ) $ 313 $ (1,935 ) $ 5,302 For The Nine Months Ended September 30, 2024 (in thousands of U.S. dollars) VF Fresh (Produce) Cannabis Canada Cannabis U.S. Clean Energy Corporate Total Net (loss) income $ (7,810 ) $ 3,399 $ (13,173 ) $ 338 $ (9,975 ) $ (27,221 ) Add: Amortization 4,029 7,550 154 — 178 11,911 Foreign currency exchange loss (gain) 58 (19 ) — — 715 754 Interest expense, net 1,709 671 — 16 (400 ) 1,996 Provision for (recovery of) income taxes 23 896 — — (245 ) 674 Provision for income taxes attributable to non-controlling interest — (156 ) — — — (156 ) Share-based compensation — 52 66 — 3,284 3,402 Interest expense for NCI's — (116 ) — — — (116 ) Amortization for NCI's — 1,285 — — 785 2,070 Foreign currency exchange gain for NCI's — 9 — — — 9 Share-based compensation for NCI's — 58 — — — 58 Other expense, net for NCI's — 4 — — — 4 Deferred financing fees — 10 — — — 10 Goodwill and intangible asset impairments (1) — — 11,939 — — 11,939 Adjusted EBITDA (2) $ (1,991 ) $ 13,643 $ (1,014 ) $ 354 $ (5,658 ) $ 5,334 For The Three Months Ended September 30, 2023 (in thousands of U.S. dollars) VF Fresh (Produce) Cannabis Canada Cannabis U.S. Clean Energy Corporate Total Net (loss) income $ (951 ) $ 2,863 $ 79 $ (58 ) $ (3,232 ) $ (1,299 ) Add: Amortization 1,283 1,795 53 — 64 3,195 Foreign currency exchange loss 66 28 — 1 834 929 Interest expense (income), net 597 326 — — (215 ) 708 Recovery of income taxes (221 ) (1,034 ) — — (409 ) (1,664 ) Share-based compensation — 160 78 — 452 690 Interest expense for NCI's — 13 — — — 13 Amortization for NCI's — 372 — — 231 603 Foreign currency exchange loss for NCI's — 3 — — — 3 Share-based compensation for NCI's — 39 — — — 39 Other expenses for NCI's — (14 ) — — — (14 ) Deferred financing fees — 34 — — — 34 Other expenses — — 11 — — 11 Adjusted EBITDA (2) $ 774 $ 4,585 $ 221 $ (57 ) $ (2,275 ) $ 3,248 31 For The Nine Months Ended September 30, 2023 (in thousands of U.S. dollars) VF Fresh (Produce) Cannabis Canada Cannabis U.S. Clean Energy Corporate Total Net (loss) income $ (4,268 ) $ 3,932 $ (125 ) $ (128 ) $ (8,726 ) $ (9,315 ) Add: Amortization 3,839 5,078 279 — 188 9,384 Foreign currency exchange loss (gain) 40 (8 ) 19 — 145 196 Interest expense, net 1,728 1,615 (24 ) — (595 ) 2,724 (Recovery of) provision for income taxes (229 ) 922 — — (424 ) 269 Share-based compensation — 424 263 — 2,286 2,973 Interest expense for NCI's — 47 — — — 47 Amortization for NCI's — 1,072 — — 690 1,762 Foreign currency exchange loss for NCI's — 5 — — — 5 Share-based compensation for NCI's — 113 — — — 113 Other expenses for NCI's — (29 ) — — — (29 ) Deferred financing fees — 102 — — — 102 Other expense, net — — 12 — — 12 Adjusted EBITDA (2) $ 1,110 $ 13,273 $ 424 $ (128 ) $ (6,436 ) $ 8,243 (1) Reflects impairment to goodwill and intangibles of $11,939 in U.S. Cannabis that was based on recent historical performance, near-term forecasts, and the state of the CBD industry in the United States. See “Critical Accounting Estimates and Judgments” below for more information . (2) Adjusted EBITDA is not a recognized earnings measure and does not have a standardized meaning prescribed by GAAP. Therefore, Adjusted EBITDA presented for these segments may not be comparable to similar measures presented by other issuers. 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 the underlying business performance of the Company. Adjusted EBITDA – Constant Currency 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 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. To present this information, current and comparative prior period income statement results in currencies other than U.S. dollars are converted into U.S. 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. We have provided this non-GAAP financial information to aid investors in better understanding the performance of our segments without taking into account the effect of exchange rate fluctuations. 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. GAAP. 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 Reported As Adjusted for Constant Currency For the Three Months Ended September 30, As Reported Change For the Three Months Ended September 30, Constant Currency Change 2024 2023 $ % 2024 $ % Sales $ 83,368 $ 69,510 $ 13,858 20 % $ 85,276 $ 15,766 23 % Cost of sales (67,660 ) (54,889 ) (12,771 ) (23 %) (69,072 ) (14,183 ) (26 %) Selling, general and administrative expenses (16,540 ) (15,822 ) (718 ) (5 %) (16,947 ) (1,125 ) (7 %) Other (expense) income, net 176 (1,716 ) 1,892 110 % 165 1,881 110 % Operating loss (656 ) (2,917 ) 2,261 78 % (578 ) 2,339 80 % Loss including non-controlling interests (750 ) (1,253 ) 503 40 % (687 ) 566 45 % Net loss (820 ) (1,299 ) 479 37 % (763 ) 536 41 % Adjusted EBITDA - Constant Currency (2) 5,302 3,248 2,054 (63 %) 5,529 2,281 (70 %) 32 As Reported As Adjusted for Constant Currency For the Nine Months Ended September 30, As Reported Change For the Nine Months Ended September 30, Constant Currency Change 2024 2023 $ % 2024 $ % Sales $ 253,627 $ 211,378 $ 42,249 20 % $ 254,864 $ 43,486 21 % Cost of sales (213,158 ) (172,958 ) (40,200 ) (23 %) (214,072 ) (41,114 ) (24 %) Selling, general and administrative expenses (52,593 ) (49,980 ) (2,613 ) (5 %) (52,856 ) (2,876 ) (6 %) Other (expense) income, net (2,250 ) 2,520 (4,770 ) 189 % (2,256 ) (4,776 ) 190 % Goodwill and intangible asset impairments (1) (11,939 ) — (11,939 ) (11,939 ) (11,939 ) 0 % Operating (loss) income (26,313 ) (9,040 ) (17,273 ) (191 %) (26,259 ) (17,219 ) (190 %) Loss including non-controlling interests (26,987 ) (9,309 ) (17,678 ) (190 %) (26,943 ) (17,634 ) (189 %) Net loss (27,221 ) (9,315 ) (17,906 ) (192 %) (27,181 ) (17,866 ) (192 %) Adjusted EBITDA - Constant Currency (2) 5,334 8,243 (2,909 ) 35 % 5,485 (2,758 ) 33 % (1) Reflects impairment to goodwill and intangibles of $11,939 in U.S. Cannabis that was based on recent historical performance, near-term forecasts, and the state of the CBD industry in the United States. See “Critical Accounting Estimates and Judgments” below for more information . (2) Adjusted EBITDA - Constant Currency is not a recognized earnings measure and does not have a standardized meaning prescribed by GAAP. Therefore, Adjusted EBITDA - Constant Currency presented for these segments may not be comparable to similar measures presented by other issuers. Management believes that Adjusted EBITDA - Constant Currency is a useful supplemental measure in evaluating the performance of the Company because it excludes non-recurring and other items that do not reflect the underlying business performance of the Company. Recent Accounting Pronouncements Not Yet Adopted No accounting pronouncements recently issued or newly effective have had, or are expected to have, a material impact on the Company’s condensed consolidated financial statements. Critical Accounting Estimates and Judgments Our discussion and analysis of our financial condition and results of operations are based upon our Unaudited Condensed Consolidated Interim Financial Statements, which have been prepared in accordance with U.S. GAAP and are included in Part I of this Quarterly Report on Form 10-Q. 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 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. As part of this assessment, the Company considered both external and internal factors, including overall financial performance and outlook. Cannabis - U.S. At June 30, 2024, when the Company considered qualitative factors in assessing impairment indicators it concluded that the Company's U.S. - Cannabis segment more likely than not was impaired. The Company reviewed the reporting segment's assets, including goodwill and intangible assets. 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. - Goodwill 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%. 33 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: Post-tax discount rate: A market participant post-tax discount rate applied to the after-tax forecast cash flows was 12%. A decrease of 1% to the discount rate, would not result in material change to the impairment charge. Terminal growth rate: An increase of 1% in the terminal growth rate would not result in a material change to the impairment charge. Future cash flows: An increase in future cash flows by 10% would not result in a material change to the impairment charge. Cannabis – U.S. Brand The fair value of the brand was determined based on a discounted cash flow projection. Specifically, the Company utilized a relief from royalty valuation technique to arrive at the fair value of the brand. Management concluded that as of June 30, 2024, the fair value was lower than its carrying value of $1,900 as the notional brand maintenance costs exceeded the incremental royalty of 3.5%. Therefore, an impairment charge to the brand intangible of $1,900 was allocated to the reporting unit. Cannabis - Canada 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. Actual results could differ from the estimates we use in applying our critical accounting policies. We are not currently aware of any reasonably likely events or circumstances that would result in materially different amounts being reported. 34 Item 3. Quantitative and Qualitati ve Disclosures About Market Risk Interest Rate Risk 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 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. Our interest expense is affected by the overall interest rate environment. Our variable rate interest debt subjects us to risk from increases in prevailing interest rates. 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 $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 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 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 Cash and cash equivalents $ 3,426 $ 1,659 Trade receivables 3,303 2,958 Prepaid and deposits 238 573 Financial liabilities Trade payables and accrued liabilities (4,023 ) (5,842 ) Loan payable (3,019 ) (3,549 ) Net foreign exchange gain $ (75 ) $ (4,201 ) Our exposure to foreign exchange risk and the impact of foreign exchange rates are monitored by the Company’s management but generally the Company tries to match its sales (trade receivables) and vendor payments (trade payables) such that the net impact is not material. Other than the interest rate risk and foreign exchange risk discussed above, there have been no material changes to our market risks from those disclosed in Part II, Item 7A of our Annual Report on Form 10-K.