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, 2024 (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 top-five 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, in 2023 Pure Sunfarms began exporting cannabis products to Germany and the United Kingdom for the medical markets in those countries, and in 2025 it began exporting cannabis products to New Zealand. 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. During the fourth quarter of 2024, we completed our acquisition of Leli Holland. Through our ownership of Leli Holland, we hold one of ten licenses to cultivate and distribute cannabis legally in the Netherlands under that country’s Controlled Cannabis Supply Chain Experiment, with sales beginning in the first quarter of 2025. In the U.S., Balanced Health is our industry-leading cannabinoid business, extending our portfolio into cannabidiol (“CBD”) and hemp-derived 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, hemp, CBD and produce ecosystems) 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 includes wholly owned Pure Sunfarms and an 80% ownership interest in Rose LifeScience. 17 Pure Sunfarms is one of the single largest cannabis growing operations in the world, one of the lowest-cost greenhouse producers and one of the leading flower brands in Canada. Pure Sunfarms leverages our 30 years of experience as a vertically integrated greenhouse grower for cannabis growth opportunities in Canada with commercial distribution in all Canadian provinces and territories. Our long-term objective for Pure Sunfarms is to be the leading low-cost, high-quality cannabis producer in Canada. Rose is one of the top-selling licensed producers 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 a leading retail market share in Canada, as well as a leading exporter of medicinal cannabis, stemming from our position as a leading low-cost, high-quality cannabis producer in Canada and expand our Canadian success into growing international cannabis markets across the globe by becoming a leading exporter of medicinal cannabis. Netherlands Cannabis Segment (Leli Holland) Our Netherlands Cannabis operating segment is comprised of wholly owned subsidiary, Leli Holland. Through Leli, we hold one of ten licenses to cultivate and distribute recreational cannabis legally in the Netherlands under that country’s Closed Supply Chain Experiment program, with sales commencing in February 2025. U.S. Cannabis Segment Our U.S. Cannabis segment includes wholly owned subsidiary, 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™. Produce Segment Our Produce segment is composed of VF Fresh, which currently consists of VFLP and VFCLP. Through VF Fresh, we grow, market and distribute 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. Clean Energy Segment Our Clean Energy segment is comprised of wholly owned subsidiary, VF Clean Energy Inc. VFCE, which 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 landfill gas into high-demand renewable natural gas ("RNG") through a state-of-the-art 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 • Maintained top three overall market share in Canada 1 and number two position in dried flower during the first quarter despite planned reductions in sales of lower margin branded products; • Returned to the high end of its targeted gross margin range of 30-40% and delivered its highest quarter of adjusted EBITDA performance in three years; and • Subsequent to quarter end, refinanced its syndicated Pure Sunfarms Term Loans, consolidating its three previous loans into one credit facility with two of its existing lenders. The new Canadian cannabis credit facility carries a variable interest rate that is currently below 8.0 percent, reflecting a 50 basis point improvement to the previous interest rate, as well as improved financial covenants and a maturity date of February 7, 2028, replacing its previous credit facilities maturing on February 7, 2026. 1. For the first quarter of 2025. Based on estimated retail sales from HiFyre, other third parties and provincial boards. 18 International Medical Cannabis (Reported Within Canadian Cannabis) • International sales increased 285% year-over-year in the first quarter with continued growth in shipment volumes to Australia, Germany and the United Kingdom; • Continue to hold leading cultivars in the German market through third-party distributors 1 ; • During the first quarter, expanded international medical cannabis distribution to New Zealand through a supply agreement with Medleaf Therapeutics, an established New Zealand-based medical cannabis company with a comprehensive distribution network; and • The Company continues to expect that international medical export sales will triple in fiscal year 2025, as compared to fiscal year 2024. 1. Based on rankings compiled by German outlet Flowzz Netherlands Cannabis (Leli Holland) • Commenced sales to Dutch coffeeshops in February 2025, consistent with the Company’s previously-disclosed timeline; and, • Broke ground on a Phase II indoor cultivation facility in the town of Groningen. The Phase II facility is expected to be complete in Q1 2026 and quintuple annual production capacity. U.S. Cannabis • Balanced Health Botanicals' CBDistillery™ announced that its full range of hemp-derived gummies are now manufactured in-house at its GMP-certified facility south of Denver, Colorado. Internalization of manufacturing is expected to enable greater innovation, operational flexibility, and inventory control in the future; 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 and comply with all applicable regulatory requirements. VF Fresh (Produce) • Subsequent to quarter end, announced a transformative transaction to privatize certain assets and operations of its Fresh Produce segment. Under the terms of the agreement, the Company will privatize Produce segment operations, including its Marfa II and Fort Davis greenhouses, and all of its produce distribution centers, through a series of asset and lease transfers, for total consideration of $40 million and a 37.9% equity ownership interest in Vanguard Food LP, a new, private-equity-backed joint venture with private investment firms including Sweat Equities. • Vanguard is expected to be backstopped by additional capital commitments to execute a M&A roll-up strategy of other produce brands and assets in North America. The transaction is expected to close during the second quarter of 2025. • Village Farms will retain ownership of all its Canadian greenhouse assets, and Texas-based Marfa I and Monahans greenhouse assets for potential future cannabis market optionality. Corporate • Appointed Yvonne Trupiano, who has led human resources functions for public and private companies across various industries and sizes, with the majority of her career at Fortune 500 global companies, as Executive Vice President and Global Chief Human Resources Officer; • Subsequent to quarter end, the Nasdaq approved the Company’s request for a 180-calendar day extension (the “Extension”) to regain compliance with the minimum closing bid price of US$1.00 per share listing requirement (NASDAQ Listing Rule 5550(a)(2). As a result of the Extension, the Company now has until October 13, 2025 to regain compliance with the Minimum Bid Requirement; and • Subsequent to quarter end, the Company amended its loan with Farm Credit Canada (“FCC Loan”) to among other things, replace the fixed charge ratio covenant with a more favorable liquidity coverage ratio covenant. This amendment was a result of the Company’s considerable expansion and growth of Village Farms’ business since entering into the original credit agreement in 2013, as well a recognition of the Company’s stronger strategic focus on its growing cannabis business. Presentation of Financial Results 19 Our consolidated results of operations for the three months ended March 31, 2025 and 2024 presented below reflect the operations of our consolidated wholly-owned subsidiaries, our 70% ownership interest in Rose LifeScience through March 31, 2024, our 80% ownership interest in Rose LifeScience beginning on April 1, 2024, our 85% ownership interest in Leli through September 22, 2024, and our 100% ownership interest in Leli beginning on September 23, 2024. Foreign currency exchange rates All currency amounts in this Quarterly Report are stated in U.S. dollars, which is our reporting currency, unless otherwise noted. All references to “dollars” or “$” 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 March 31, 2025, March 31, 2024, and December 31, 2024. 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 to U.S. dollars is shown below: As of March 31, 2025 March 31, 2024 December 31, 2024 Spot rate 0.6966 0.7383 0.6957 Three-month period ended 0.6965 0.7417 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 March 31, 2025 2024 Sales $ 77,074 $ 78,077 Cost of sales (65,734 ) (62,564 ) Gross profit 11,340 15,513 Selling, general and administrative expenses (16,779 ) (16,387 ) Interest expense (706 ) (917 ) Interest income 75 206 Foreign exchange loss (84 ) (878 ) Other income 22 104 Loss before taxes (6,132 ) (2,359 ) Provision for income taxes (983 ) (320 ) Loss including non-controlling interests (7,115 ) (2,679 ) Less: net loss (income) attributable to non-controlling interests, net of tax 412 (173 ) Net loss attributable to Village Farms International Inc. shareholders $ (6,703 ) $ (2,852 ) Adjusted EBITDA (1) $ 81 $ 3,591 Basic loss per share $ (0.06 ) $ (0.03 ) Diluted loss per share $ (0.06 ) $ (0.03 ) (1) 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 months ended March 31, 2025 and 2024 may not be indicative of our future performance. Discussion of Financial Results A discussion of our consolidated results for the three months ended March 31, 2025 and 2024 is included below. The consolidated results include all five of our operating segments: Produce, Canadian Cannabis, U. S. Cannabis, Cannabis Netherlands, and Clean Energy, along with public company expenses. For a discussion of our segmented results, please see “Segmented Results of Operations” below. 20 CONSOLIDATED RESULTS Three Months Ended March 31, 2025 Compared to Three Months Ended March 31, 2024 Sales Sales for the three months ended March 31, 2025 were $77,074 compared with $78,077 for the three months ended March 31, 2024. The decrease of $1,003, or 1%, was primarily due to a decrease in Canadian Cannabis sales of $2,609 resulting from an unfavorable impact of exchange rate fluctuations, and a decrease in U.S. Cannabis sales of $633, partially offset by an increase in VF Fresh sales of $1,327. For additional information, refer to “Segmented Results of Operations” below. Cost of Sales Cost of sales for the three months ended March 31, 2025 were $65,734 compared with $62,564 for the three months ended March 31, 2024. The increase of $3,170, or 5%, was primarily due to an increase in VF Fresh cost of sales of $8,919, partially offset by a decrease in both Canadian Cannabis cost of sales of $5,576 and U.S. Cannabis cost of sales of $531. For additional information, refer to “Segmented Results of Operations” below. Gross Profit Gross profit for the three months ended March 31, 2025 was $11,340 compared with $15,513 for the three months ended March 31, 2024. The decrease of $4,173, or 27%, was primarily due to a decrease in gross profit at VF Fresh of $7,592, partially offset by an increase in gross profit at Canadian Cannabis of $2,967. 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 March 31, 2025 were $16,779 (22% of sales) compared with $16,387 (21% of sales) for the three months ended March 31, 2024. The increase of $392, or 2%, was primarily due to an increase in operating expenses for Canadian Cannabis of $1,058 and VF Fresh of $182, partially offset by a decrease in U.S. Cannabis operating expenses of $871. For additional information, refer to “Segmented Results of Operations” below. For the Three Months Ended March 31, 2025 2024 Selling, general and administrative expenses $ 16,634 $ 15,982 Share-based compensation 145 405 Total selling, general and administrative expenses $ 16,779 $ 16,387 Interest Expense Interest expense for the three months ended March 31, 2025 was $706 compared with $917 for the three months ended March 31, 2024. The decrease of $211, or 23%, was due to a decrease in the overall borrowing base and a decrease in the Company's interest rates on its various debt instruments. Interest Income Interest income for the three months ended March 31, 2025 and was $75 compared with $206 for the three months ended March 31, 2024. Other Income Other income for the three months ended March 31, 2025 was $22 compared with $104 for the three months ended March 31, 2024. Loss Before Taxes Loss before taxes for the three months ended March 31, 2025 was ($6,132) compared with ($2,359) for the three months ended March 31, 2024. The increase of $3,773 was primarily due to the lower gross margins in VF Fresh, partially offset by the improved margins on Canadian Cannabis. Net Loss Attributable to Village Farms International, Inc. Shareholders Net loss attributable to Village Farms International, Inc. shareholders for the three months ended March 31, 2025 was ($6,703) compared with ($2,852) for the three months ended March 31, 2024. The decrease of $3,851 was primarily due to lower gross margins in VF Fresh and higher selling, general, and administrative expenses in Canadian Cannabis, partially offset by the improved margins on Canadian Cannabis. 21 Adjusted EBITDA Adjusted EBITDA for the three months ended March 31, 2025 was $81 compared with $3,591 for the three months ended March 31, 2024. The change was mainly driven by decreased profitability of VF Fresh offset by improved margins on Canadian Cannabis. 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 March 31, 2025 VF Fresh (Produce) Cannabis Canada Cannabis U.S. Clean Energy Cannabis Netherlands Corporate Total Sales $ 37,421 $ 34,837 $ 3,904 $ 426 $ 486 $ — $ 77,074 Cost of sales (41,703 ) (22,362 ) (1,311 ) (73 ) (285 ) — (65,734 ) Selling, general and administrative expenses (2,875 ) (8,762 ) (2,535 ) (28 ) (439 ) (2,140 ) (16,779 ) Other (expense) income, net (531 ) (202 ) — — — 40 (693 ) Operating (loss) income (7,688 ) 3,511 58 325 (238 ) (2,100 ) (6,132 ) Provision for income taxes (69 ) (891 ) — — (4 ) (19 ) (983 ) (Loss) income from consolidated entities (7,757 ) 2,620 58 325 (242 ) (2,119 ) (7,115 ) Less: net loss attributable to non-controlling interests, net of tax — 412 — — — — 412 Net (loss) income $ (7,757 ) $ 3,032 $ 58 $ 325 $ (242 ) $ (2,119 ) $ (6,703 ) Adjusted EBITDA (1) $ (5,122 ) $ 6,698 $ 114 $ 325 $ 77 $ (2,011 ) $ 81 Basic (loss) income per share $ (0.07 ) $ 0.03 $ 0.00 $ 0.00 $ (0.00 ) $ (0.02 ) $ (0.06 ) Diluted (loss) income per share $ (0.07 ) $ 0.03 $ 0.00 $ 0.00 $ (0.00 ) $ (0.02 ) $ (0.06 ) For The Three Months Ended March 31, 2024 VF Fresh (Produce) Cannabis Canada Cannabis U.S. Clean Energy Cannabis Netherlands Corporate Total Sales $ 36,094 $ 37,446 $ 4,537 $ — $ — $ — $ 78,077 Cost of sales (32,784 ) (27,938 ) (1,842 ) — — — (62,564 ) Selling, general and administrative expenses (2,693 ) (7,704 ) (3,406 ) (20 ) (363 ) (2,201 ) (16,387 ) Other expense, net (503 ) (401 ) — — — (581 ) (1,485 ) Operating income (loss) 114 1,403 (711 ) (20 ) (363 ) (2,782 ) (2,359 ) (Provision for) recovery of income taxes — (329 ) — — — 9 (320 ) Income (loss) from consolidated entities 114 1,074 (711 ) (20 ) (363 ) (2,773 ) (2,679 ) Less: net (income) loss attributable to non-controlling interests, net of tax — (227 ) — — 54 — (173 ) Net income (loss) $ 114 $ 847 $ (711 ) $ (20 ) $ (309 ) $ (2,773 ) $ (2,852 ) Adjusted EBITDA (1) $ 2,028 $ 4,073 $ (615 ) $ (20 ) $ (42 ) $ (1,833 ) $ 3,591 Basic income (loss) per share $ 0.00 $ 0.01 $ (0.01 ) $ (0.00 ) $ (0.00 ) $ (0.03 ) $ (0.03 ) Diluted income (loss) per share $ 0.00 $ 0.01 $ (0.01 ) $ (0.00 ) $ (0.00 ) $ (0.03 ) $ (0.03 ) (1) 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 months ended March 31, 2025 and 2024. 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 March 31, 2025 Compared to Three Months Ended March 31, 2024 Sales Canadian Cannabis net sales for the three months ended March 31, 2025 were $34,837 compared with $37,446 for the three months ended March 31, 2024. The decrease of $2,609, or 7%, was primarily driven by unfavorable exchange rate fluctuations of 22 approximately $2,258 and a decrease in net branded sales, reflecting a planned shift away from value-based product offerings, which was partially offset by an increase in international sales of 259%, primarily driven by continued strength in export volumes to Germany. Canadian Cannabis continues to pay a burdensome excise tax on its branded sales (sales to provincial distributors). For the three months ended March 31, 2025, the Company incurred excise duties of $13,937 (C$20,016), or 38% of gross branded sales, compared with $19,703 (C$26,565), or 40% of gross branded sales, for the three months ended March 31, 2024. The decrease of $5,766 (C$6,259), or 29%, was due to a decrease in kilograms sold in the branded channel and the impact of exchange rate fluctuations. The Canadian excise duty is our single largest cost of participating in the branded adult-use market in Canada. For the three months ended March 31, 2025, 65% of net sales were generated from branded flower, pre-rolls and cannabis derivative products compared with 77% for the three months ended March 31, 2024. Non-branded, international, and other sales accounted for 35% of Canadian Cannabis net sales for the three months ended March 31, 2025, as compared with 23% for the three months ended March 31, 2024. The net average selling price of branded flower and pre-roll formats increased in 2025 compared to 2024. Excluding pre-roll formats, the average net selling price of branded flower increased by 11% in 2025 due to a lower ratio of sales for our value brand Fraser Valley Weed Co. The net average selling price of bulk non-branded flower increased by 33% and bulk trim increased by 43% in 2025, largely due to an increase in the market price, as well as a reduced need to move aged flower inventory compared to 2024. 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 March 31, 2025 and 2024: For the Three Months Ended March 31, (in thousands of U.S. dollars) 2025 2024 Branded sales $ 36,698 $ 48,723 Non-branded sales 6,279 6,478 International sales 5,388 1,499 Other 409 449 Less: excise taxes (13,937 ) (19,703 ) Net Sales $ 34,837 $ 37,446 For the Three Months Ended March 31, (in thousands of Canadian dollars) 2025 2024 Branded sales $ 52,685 $ 65,692 Non-branded sales 9,009 8,734 International sales 7,735 2,021 Other 587 617 Less: excise taxes (20,016 ) (26,565 ) Net Sales $ 50,000 $ 50,499 Cost of Sales Canadian Cannabis cost of sales for the three months ended March 31, 2025 was $22,362 compared with $27,938 for the three months ended March 31, 2024. The decrease of $5,576, or 20%, was primarily due to a decrease in volume (kilograms) packaged and sold of our branded and non-branded products and the impact of exchange rate fluctuations. Gross Profit Canadian Cannabis gross profit for the three months ended March 31, 2025 was $12,475, a 31% increase compared to $9,508 for the three months ended March 31, 2024. Canadian Cannabis gross margin for the three months ended March 31, 2025 was 36% compared with 25% for the three months ended March 31, 2024. The increase in gross margin was due to higher sales volume of international and non-brand flower, as well as lower sales of value brands within the branded sales category. Selling, General and Administrative Expenses Canadian Cannabis selling, general and administrative expenses for the three months ended March 31, 2025 were $8,762, or 25%, of sales compared with $7,704, or 21%, of sales for the three months ended March 31, 2024. The increase of $1,058 was primarily due to higher commercial and marketing expenses and incremental integration costs. Net Income Canadian Cannabis net income for the three months ended March 31, 2025 was $3,032 compared with net income of $847 for the three months ended March 31, 2024. The increase in net income was primarily due to the improved margins, partially offset by an increase in the tax provision expense of $562 and an increase in selling, general and administrative expenses. 23 Adjusted EBITDA Adjusted EBITDA for Canadian Cannabis for the three months ended March 31, 2025 was $6,698 compared with $4,073 for the three months ended March 31, 2024. The increase of $2,695, or 64%, between periods was primarily due to improved margins in the Canadian Cannabis segment. 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 months ended March 31, 2025 and 2024, U.S. Cannabis financial results are based on the results of Balanced Health. Three Months Ended March 31, 2025 Compared to Three Months Ended March 31, 2024 Sales U.S. Cannabis net sales for the three months ended March 31, 2025 was $3,904 compared with $4,537 for the three months ended March 31, 2024. The decrease of $633, or 14%, 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 94% e-commerce sales and 6% retail sales. Cost of Sales U.S. Cannabis cost of sales for the three months ended March 31, 2025 was $1,311 compared with $1,842 for the three months ended March 31, 2024. The decrease of $531, or 29%, was primarily due to cost efficiencies from the internalization of our gummy manufacturing and lower sales. Gross Profit U.S Cannabis gross profit for the three months ended March 31, 2025 decreased $102, or 4%, to $2,593, or a 66% gross margin, compared with $2,695, or a 59% gross margin, for the three months ended March 31, 2024. Selling, General and Administrative Expenses U.S. Cannabis selling general and administrative expenses for the three months ended March 31, 2025 were $2,535 compared with $3,406 for the three months ended March 31, 2024. The decrease of $871, or 26%, is due to more efficient marketing and brand spending and contract renegotiation. Net Income (Loss) U.S. Cannabis net income for the three months ended March 31, 2025 was $58 compared with net loss of ($711) for the three months ended March 31, 2024. The increase of $769 was primarily due to the lower selling, general, and administrative expenses. Adjusted EBITDA U.S. Cannabis adjusted EBITDA for the three months ended March 31, 2025 was $114 compared with ($615) for the three months ended March 31, 2024. The improvement of $729 was primarily due to the lower selling, general, and administrative expenses. 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”. NETHERLANDS CANNABIS SEGMENT RESULTS The Netherlands Cannabis segment consists of Leli Holland. Leli Holland commenced sales during the first quarter of 2025. Leli Holland was not operational during the comparable quarter of 2024 and, as a result, comparative financial performance to the prior-year quarter is not meaningful. Sales Net sales for the three months ended March 31, 2025 was $486. Cost of Sales Cost of sales for the three months ended March 31, 2025 was $285. Selling, General and Administrative Expenses Selling General and Administrative Expenses for the three months ended March 31, 2025 was $439. Gross Profit Gross profit for the three months ended March 31, 2025 was $201, or a 41% gross margin. 24 Net Loss Net loss for the three months ended March 31, 2025 was $242. Adjusted EBITDA Adjusted EBITDA for the three months ended March 31, 2025 was $77. 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 months ended March 31, 2025 and 2024. Three Months Ended March 31, 2025 Compared to Three Months Ended March 31, 2024 Sales VF Fresh sales for the three months ended March 31, 2025 were $37,421 compared with $36,094 for the three months ended March 31, 2024. The increase of $1,327, or 4%, was primarily due to a 39% increase in volume from supply partners. This was partially offset by a lower average selling price due to weaker market prices. The average selling price for all produce sold during the three months ended March 31, 2025 compared with the three months ended March 31, 2024 was as follows: tomatoes changed (15%), peppers changed (34%), cucumbers changed (9%), and mini cucumbers changed (1%). Cost of Sales VF Fresh cost of sales for the three months ended March 31, 2025 increased by $8,919, or 27%, to $41,703 compared with $32,784 for the three months ended March 31, 2024. The increase was primarily due to an increase from Company-owned greenhouses of $4,306, an increase from supply partners of $3,565, and an increase in freight expense of $1,048. The increase in VF Fresh-owned greenhouses cost of sales was due to a negative impact to the overall crop resulting from dust storms that occurred in March 2025, the increase in supply partner costs were due to higher spot price contract commitments, and the increased freight costs were due to the increase in product volume. Gross (Loss) Profit VF Fresh gross loss for the three months ended March 31, 2025 was ($4,282) compared with a gross profit of $3,310 for the three months ended March 31, 2024. Gross margin for the three months ended March 31, 2025 was (11%) compared with 9% for the three months ended March 31, 2024. The decreases in both gross profit and gross margin percentage were due to the increase in cost of sales at the Company-owned greenhouses and lower margins on supply partner volumes, whereas during the prior year, the decreases in both gross profit and gross margin percentage were due to unfavorable market prices. Selling, General and Administrative Expenses VF Fresh selling, general and administrative expenses for the three months ended March 31, 2025 increased by $182, or 7%, to $2,875 (8% of sales) compared with $2,693 (7% of sales) for the three months ended March 31, 2024. Net (Loss) Income VF Fresh net loss for the three months ended March 31, 2025 was ($7,757) compared with a net income of $114 for the three months ended March 31, 2024. The decrease of $7,871 was primarily due to a lower gross margin. Adjusted EBITDA VF Fresh Adjusted EBITDA for the three months ended March 31, 2025 was ($5,122) compared with $2,028 for the three months ended March 31, 2024. The decrease of $7,150 in Adjusted EBITDA was primarily due to a lower 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”. Liquidity and Capital Resources Capital Resources At March 31, 2025, cash and cash equivalents were $15,125 and working capital was $50,313, compared with cash and cash equivalents of $24,631 and working capital of $53,800 at December 31, 2024. 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. 25 (in thousands of U.S. dollars unless otherwise noted) Maximum Availability Outstanding as of March 31, 2025 Operating Loan $ 7,844 $ 5,000 FCC Term Loan $ 20,329 $ 20,329 Pure Sunfarms Loans $ 18,874 $ 18,874 Pure Sunfarms Revolving Line of Credit C$ 15,000 $ — The Company is required to comply with financial covenants. At December 31, 2024, the Company was not in compliance with financial covenants related to the fixed charge coverage ratio under the FCC Term Loan (as defined below) and the PSF Term Loan (as defined below), for which the Company received waivers. The covenants were reinstated at the end of the first quarter for the PSF Term Loan and at the end of the fiscal year for the FCC Term Loan. On April 10, 2025, the Company entered into an Amended and Restated Credit Agreement (the “A&R Credit Agreement”) with FCC as the lender, which amended and restated the FCC Term Loan. Among other things, the A&R Credit Agreement replaced the current financial covenants with more favorable financial covenants . Under the Pure Sunfarms Secured Credit Facilities entered into on April 17, 2025, the Company is also required to maintain certain financial covenants. We can provide no assurance that we will be in compliance, or receive a waiver, for any non-compliance of the financial covenants. See “Risk Factors—Business and Operational Risk Factors—We are subject to restrictive covenants under our Credit Facilities” in our most recently filed Annual Report on Form 10-K. Accrued interest payable on the Credit Facilities and Pure Sunfarms Loans as of March 31, 2025 and December 31, 2024 was $353 and $271, 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 $20,329 on March 31, 2025 and $20,821 on December 31, 2024. 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 March 31, 2025 and December 31, 2024, borrowings under the FCC Term Loan agreement were subject to an interest rate of 7.87% and 8.12% per annum, respectively. 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 March 31, 2025 and December 31, 2024 was $69,613 and $77,682, respectively. On April 10, 2025, the Company entered into the A&R Credit Agreement with respect to the FCC Term Loan. Among other things, the A&R Credit Agreement (i) adds the Company as a new borrower, (ii) adds VF Clean Energy, Inc. as a new guarantor, and (iii) replaces the fixed charged ratio covenant with a more favorable liquidity ratio covenant. Operating Loan The Company has a revolving line of credit agreement with Bank of Montreal (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 $5,000 and future availability of $2,844 on March 31, 2025. 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 March 31, 2025 and December 31, 2024 was $23,755 and $27,136, respectively. Pure Sunfarms Loans As of March 31, 2025, Pure Sunfarms had a credit facility with the Business Development Bank of Canada (the "BDC 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 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. As described below, on April 17, 2025, Pure Sunfarms replaced the Pure Sunfarms Loans and the PSF Revolving Line of Credit with the Pure Sunfarms Secured Credit Facilities (as defined below). As of March 31, 2025, the PSF Revolving Line of Credit could be drawn for advances of up to C$15,000 and had an outstanding balance of $0 as of March 31, 2025 and December 31, 2024. Interest under the PSF Revolving Line of Credit was payable at the Canadian prime rate plus an applicable margin per annum, payable monthly. 26 As of March 31, 2025, the PSF Non-Revolving Facility was secured by the Delta 2 and Delta 3 greenhouse facilities and contains customary financial and restrictive covenants. As of March 31, 2025, Pure Sunfarms was in compliance with these financial covenants. The outstanding amount on the PSF Non-Revolving Facility was $5,921 on March 31, 2025 and $6,262 on December 31, 2024. Interest under the PSF Non-Revolving Facility was payable at the Canadian prime rate plus an applicable margin per annum, 6.95% as of March 31, 2025, payable quarterly. Amounts outstanding under the PSF Non-Revolving Facility would have matured on February 7, 2026. The outstanding amount on the PSF Term Loan was $10,014 on March 31, 2025 and $10,436 on December 31, 2024. Interest under the PSF Term Loan was payable at the Canadian prime rate plus an applicable margin per annum, 6.95% as of March 31, 2025, payable quarterly. The PSF Term Loan would have matured on February 7, 2026. The outstanding amount under the BDC Facility, a demand loan included in current liabilities was $2,939 on March 31, 2025 and $3,043 on December 31, 2024. Interest under the BDC Facility was payable at an interest rate of 8.70%, payable monthly, and the amount outstanding would have matured on December 31, 2031. On April 17, 2025, the Company entered into a secured credit facility with a Canadian chartered bank as administrative agent with an aggregate borrowing capacity of C$37.4 million, consisting of a maximum C$10.0 million revolving credit facility (the “Pure Sunfarms Revolving Credit Facility”), and a C$27.4 million term loan facility (the “Pure Sunfarms Term Loan Facility”, and collectively with the Pure Sunfarms Revolving Credit Facility, the “Pure Sunfarms Secured Credit Facilities”). The Pure Sunfarms Secured Credit Facilities are secured by the Delta 2 and Delta 3 greenhouse facilities. The Pure Sunfarms Secured Credit Facilities will be used for working capital and other general corporate purposes, and was used to replace, and repay remaining outstanding balances on, the Company’s (i) Pure Sunfarms Loans and (ii) the PSF Revolving Line of Credit. The credit and guarantee agreements related to the Pure Sunfarms Loans and the PSF Revolving Line of Credit were likewise terminated. The Pure Sunfarms Secured Credit Facilities can be drawn for advances of up to C$10.0 million. The outstanding amount of the Pure Sunfarms Term Loan Facility will be repayable, on a quarterly basis, in an amount equal to C$1.0 million. Any amount remaining unpaid will be due and payable in full on the maturity date, which is on February 7, 2028. The loans under the Pure Sunfarms Secured Credit Facilities will accrue interest at a rate equal to, at the Company’s option, (a) the Canadian Prime Rate plus the applicable margin, or (b) the Canadian Overnight Repo Rate Average plus the applicable margin. The applicable margin for the Pure Sunfarms Secured Credit Facility is determined based upon the leverage ratio. The Pure Sunfarms Secured Credit Facilities also contain customary covenants, customary representations and warranties, affirmative covenants, financial covenants and events of default. Summary of Cash Flows For the Three Months Ended March 31, (in Thousands) 2025 2024 Cash, beginning of period $ 24,631 $ 35,291 Net cash flow used in: Operating activities (6,376 ) (50 ) Investing activities (2,839 ) (1,876 ) Financing activities (384 ) (1,442 ) Net cash decrease for the period (9,599 ) (3,368 ) Effect of exchange rate changes on cash 93 (238 ) Cash, end of the period $ 15,125 $ 31,685 Operating Activities For the three months ended March 31, 2025 and 2024, cash used in operating activities were ($6,376) and ($50), respectively. The operating activities for the three months ended March 31, 2025 consisted of ($4,209) in changes in non-cash working capital items and ($2,167) in changes before non-cash working capital items, while operating activities for the three months ended March 31, 2024 consisted of ($3,290) in changes in non-cash working capital items and $3,240 in changes before non-cash working capital items. The reduction when comparing the change in before non-cash working capital items for 2025 with 2024 was primarily due to a decrease in VF Fresh gross margin partially offset by improvements in Canadian Cannabis gross margin in 2025 compared with 2024. Investing Activities For the three months ended March 31, 2025 and 2024, cash used in investing activities were ($2,839) and ($1,876), respectively. The increase in investing activities for the three months ended March 31, 2025 was primarily due to capital expenditures made to support VF Fresh, Canadian Cannabis, and U.S. Cannabis operations. Financing Activities 27 For the three months ended March 31, 2025 and 2024, cash used in financing activities were ($384) and ($1,442), respectively. For the three months ended March 31, 2025, cash (used in) provided by financing activities consisted of debt repayments of ($1,384) and a draw of $1,000 from the Operating Loan. For the three months ended March 31, 2024, cash flows used by financing activities consisted of debt repayments of ($1,442). 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. 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 March 31, (in thousands of U.S. dollars) 2025 2024 Net loss $ (6,703 ) $ (2,852 ) Add: Amortization and depreciation 4,973 4,558 Foreign currency exchange (gain) loss (18 ) 775 Interest expense, net 631 711 Provision for income taxes 983 320 Share-based compensation 145 405 Deferred financing fees — 10 Other expenses — (35 ) Adjustments attributable to non-controlling interest 70 (301 ) Adjusted EBITDA (1) $ 81 $ 3,591 (1) 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: 28 For The Three Months Ended March 31, 2025 (in thousands of U.S. dollars) VF Fresh (Produce) Cannabis Canada Cannabis U.S. Clean Energy Cannabis Netherlands Corporate Total Net (loss) income $ (7,757 ) $ 3,032 $ 58 $ 325 $ (242 ) $ (2,119 ) $ (6,703 ) Add: Amortization and depreciation 1,991 2,574 49 — 315 44 4,973 Foreign currency exchange gain (loss) 48 (51 ) — — — (15 ) (18 ) Interest expense, net 514 141 — — — (24 ) 631 Provision for income taxes 69 891 — — 4 19 983 Share-based compensation 13 41 7 — — 84 145 Adjustments attributable to non-controlling interest — 70 — — — — 70 Adjusted EBITDA (1) $ (5,122 ) $ 6,698 $ 114 $ 325 $ 77 $ (2,011 ) $ 81 For The Three Months Ended March 31, 2024 (in thousands of U.S. dollars) VF Fresh (Produce) Cannabis Canada Cannabis U.S. Clean Energy Cannabis Netherlands Corporate Total Net income (loss) $ 114 $ 847 $ (711 ) $ (20 ) $ (309 ) $ (2,773 ) $ (2,852 ) Add: Amortization and depreciation 1,334 2,796 54 — 314 60 4,558 Foreign currency exchange gain 9 31 — — — 735 775 Interest expense (income), net 571 294 — — — (154 ) 711 Provision for (recovery of) income taxes — 329 — — — (9 ) 320 Share-based compensation — 55 42 — — 308 405 Deferred financing fees — 10 — — — — 10 Other expenses — (35 ) — — — — (35 ) Adjustments attributable to non-controlling interest — (254 ) — — (47 ) — (301 ) Adjusted EBITDA (1) $ 2,028 $ 4,073 $ (615 ) $ (20 ) $ (42 ) $ (1,833 ) $ 3,591 (1) 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 months ended March 31, 2025, 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 month comparative period in 2024 rather than the actual average exchange rates in effect during the current period. All growth comparisons relate to the corresponding period in 2024. 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 months ended March 31, 2025 compared with the three months ended March 31, 2024 on an as reported and constant currency basis (in thousands): 29 As Reported As Adjusted for Constant Currency For the Three Months Ended March 31, As Reported Change For the Three Months Ended March 31, Constant Currency Change 2025 2024 $ % 2025 $ % Sales $ 77,074 $ 78,077 $ (1,003 ) (1 %) $ 79,332 $ 1,255 2 % Cost of sales (65,734 ) (62,564 ) (3,170 ) (5 %) (67,184 ) (4,620 ) (7 %) Selling, general and administrative expenses (16,779 ) (16,387 ) (392 ) (2 %) (17,347 ) (960 ) (6 %) Other expense, net (693 ) (1,485 ) 792 53 % (706 ) 779 52 % Operating loss (6,132 ) (2,359 ) (3,773 ) (160 %) (5,904 ) (3,545 ) (150 %) Loss including non-controlling interests (7,115 ) (2,679 ) (4,436 ) (166 %) (6,945 ) (4,266 ) (159 %) Net loss (6,703 ) (2,852 ) (3,851 ) (135 %) (6,506 ) (3,654 ) (128 %) Adjusted EBITDA - Constant Currency (1) 81 3,591 (3,510 ) 98 % 515 (3,076 ) 86 % (1) 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 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 months ended March 31, 2025 and 2024, 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. At March 31, 2025, 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 goodwill and intangible assets for its reporting units to be below their carrying amounts. At March 31, 2025, the carrying value of goodwill associated with our Cannabis – Canada segment was $42.4 million and the carrying value of intangible assets associated with our Cannabis – Canada segment was $20.9 million. 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. 30 Item 3. Quantitative and Qualitati ve Disclosures About Market Risk Interest Rate Risk As of March 31, 2025, 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 March 31, 2025, we had approximately $5,000 aggregate principal amount of outstanding revolving loans under our Operating Loan with an interest rate of 8.0% and we had approximately $39,203 in aggregate principal amounts of our Term Loans with a weighted average interest rate of 7.8%. The current interest rates for outstanding revolving loans under our Credit Facility and Term Loans reflect basis point increases of approximately 0.7% over the comparable period in 2024. 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 $50 for the three months ended March 31, 2025 and $59 for the three months ended March 31, 2024. 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 March 31, 2025 and 2024, the Canadian/U.S. foreign exchange rate was C$1.00 = US$0.6966 and C$1.00 = US$0.7383, 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 March 31, 2025 and 2024 with the net foreign exchange gain or loss directly impacting net income (loss): March 31, 2025 March 31, 2024 Financial assets Cash and cash equivalents $ 1,535 $ 2,244 Trade receivables 4,180 3,968 Inventories 5,626 7,397 Prepaid and deposits 176 503 Financial liabilities Trade payables and accrued liabilities (4,334 ) (4,793 ) Loan payable (2,750 ) (3,286 ) Net foreign exchange gain $ 4,433 $ 6,033 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.