What changed in this filing

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Item 2. Management’s Discussion and Analysis

2021-08-13 compared with 2021-05-14 · 110 added, 72 removed, 141 unchanged (56% of the section changed)

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Some of the information contained in this discussion and analysis or set forth elsewhere in this Quarterly Report on Form 10-Q, including information with respect to our outlook, plans and strategy for our business and related financing, includes “forward-looking statements” within the meaning of Section 27A of the Securities Act and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act, or “forward-looking information” within the meaning of Canadian securities laws.

These statements are often identified by the use of words such as “anticipate,” “believe,” “continue,” “remain,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “project,” “will,” “would,” “should,” “potential,” “intention,” “strategy,” “strategic,” “approach,” or the negative or plural of these words or similar expressions or variations.

These statements are often identified by the use of words such as “anticipate,” “believe,” “continue,” “remain,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “project,” “will,” “would,” “should,” “potential,” “intention,” “strategy,” “strategic,” “approach,” “subject to,” “possible,” “pending,” “if,” or the negative or plural of these words or similar expressions or variations.

Such forward-looking statements and forward-looking information are subject to a number of risks, uncertainties, assumptions and other factors that could cause actual results and the timing of certain events to differ materially from future results expressed or implied by the forward-looking statements or forward-looking information.

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Overview of the Company

Vireo is a physician-led, science-focused cannabis company focused on building long-term, sustainable value by bringing the best of medicine, science, and engineering to the cannabis industry.

With our core operations strategically located in five limited-license markets through our state-licensed subsidiaries, we cultivate and manufacture cannabis products and distribute these products through our growing network of Green Goods™ and other Vireo branded retail dispensaries as well as third-party dispensaries in the markets in which our subsidiaries hold operating licenses.

Goodness Growth is a physician-led, science-focused company and IP developer focused on building long-term, sustainable value by bringing the best of medicine, science, and engineering to the cannabis industry.

With our core operations strategically located in five limited-license markets through our state-licensed subsidiaries, we cultivate and manufacture cannabis products and distribute these products through our growing network of Green Goods ® and other retail dispensaries we own or operate as well as to third-party dispensaries in the markets in which our subsidiaries hold operating licenses.

In addition to developing and maintaining cannabis businesses in our core limited-license jurisdictions, our team of scientists, engineers and attorneys also are focused on driving innovation and securing meaningful and protectable intellectual property.

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While we are not currently focused on substantial capital investment or expansion outside of our core markets, we do own or effectively control additional non-core medical cannabis licenses or operations that may present opportunities in the future.

We are currently actively seeking opportunities in Massachusetts, Nevada, and Puerto Rico.

We are currently actively seeking opportunities in Massachusetts and Nevada.

Revenue Streams

We cultivate, manufacture, and distribute cannabis products to third parties in wholesale markets and cultivate, manufacture, and sell cannabis products directly to approved patients and adult-use customers in our retail stores.

During the quarter ended March 31, 2021, we had operating revenue in six states:

We cultivate, manufacture, and distribute cannabis products to third parties in wholesale markets and cultivate, manufacture, and sell cannabis products directly to medical patients and adult-use customers in our retail stores.

During the six months ended June 30, 2021, we had operating revenue in six states:

Arizona, Maryland, Minnesota, New Mexico, New York, and Ohio.

Retail revenues were derived from sales in sixteen dispensaries throughout five states.

We had one operational dispensary in Arizona, one in Maryland, eight in Minnesota, two in New Mexico, and four in New York.

Retail revenues were derived from sales in seventeen dispensaries throughout five states.

We had one operational dispensary in Arizona, one in Maryland, eight in Minnesota, three in New Mexico, and four in New York.

Wholesale revenues were derived from sales of products to third parties in the states of Arizona, Maryland, New York, and Ohio.

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Our remaining two core markets, Minnesota and Maryland, each has the potential to enact adult-use legalization in the next 24 months.

In previous instances of adult-use legalization in several other state markets, licensed operators have realized substantial improvements in revenue growth rates, which gives us confidence that we will be able to drive financial performance improvements in the future if such events occur in one or both of our remaining core markets.

In addition to our core markets, during first quarter of 2021, we incurred start-up expenses related to pre-revenue operations in non-core markets, including Massachusetts, Nevada, and Puerto Rico.

While these markets may offer future revenue opportunities, our recent decision to focus efforts and capital on our core markets resulted in changes to future expectations regarding the overall revenue and profitability of our consolidated operations.

In previous instances of adult-use legalization in several other state markets, licensed operators have realized substantial improvements in revenue growth rates, which gives us confidence that we will be able to drive financial performance improvements in the future in New York and New Mexico, and if such events occur in one or both of our remaining core markets, Minnesota and Maryland.

In addition to our core markets, during the six months ended June 30, 2021, we incurred start-up expenses related to pre-revenue operations in non-core markets, including Massachusetts, Nevada, and Puerto Rico.

While these markets may offer future revenue opportunities, our decision to focus efforts and capital on our core markets resulted in changes to future expectations regarding the overall revenue and profitability of our consolidated operations.

We may consider operationalization of these licenses in the future and are actively seeking opportunities in Massachusetts and Nevada.

Since being declared a global pandemic on March 11, 2020, the spread of COVID-19 has severely impacted many local economies around the globe.

Due to COVID-19, governments have imposed restrictions on travel and business operations, temporarily closed businesses, and implemented quarantines and shelter-in-place orders.

Due to COVID-19, many governments and businesses have imposed restrictions on travel and business operations, temporarily closed businesses, and/or implemented quarantines and shelter-in-place orders.

Consequently, the COVID-19 pandemic has negatively impacted global economic activity, caused significant volatility and disruption in global financial markets, and generally introduced significant uncertainty and unpredictability throughout the world.

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It is not possible to reliably estimate the duration and severity of these consequences, as well as their impact on the financial position and results of the Company for future periods.

Three-months ended March 31, 2021 Compared to Three-months ended March 31, 2020

Three months ended June 30, 2021 Compared to Three months ended June 30, 2020

We derived our revenue from cultivating, processing, and distributing cannabis products through our seventeen dispensaries in five states and our wholesale sales to third parties in five states.

For the three months ended March 31, 2021, 79% of the revenue was generated from retail dispensaries and 21% from wholesale business.

For the three months ended March 31, 2020, 68% of the revenue was generated from retail business and 32% from wholesale business.

For the three months ended March 31, 2021, Minnesota retail operations contributed approximately 40% of revenues, New York contributed 24%, Arizona contributed 26%, New Mexico contributed 5%, and Maryland contributed 5%.

For the three months ended March 31, 2020, Minnesota retail operations contributed approximately 31% of revenues, New York contributed 22%, Arizona contributed 21%, New Mexico contributed 4%, Maryland contributed 6%, and Pennsylvania contributed 16%.

Revenue for the three-months ended March 31, 2021 was $13,189,889, an increase of $1,071,322 or 9% compared to revenue of $12,118,567 for the three-months ended March 31, 2020.

The increase is primarily attributable to increased revenue contributions from the retail businesses in Minnesota and New York of $1.5 million and $0.5 million respectively, and the wholesale business in Arizona of $0.6 million, partially offset by the lack of first quarter 2021 revenues in the Pennsylvania retail and wholesale businesses, which were divested in 2020.

Key revenue drivers are increased market penetration of Vireo branded products in the Arizona wholesale market and increased patient demand in Minnesota, which is partially the result of four new dispensary openings which occurred after March 31, 2020.

Retail revenue for the three months ended March 31, 2021 was $10,373,630, an increase of $2,190,739 or 27% compared to retail revenue of $8,182,891 for the three months ended March 31, 2020 primarily due to revenue contributions from Minnesota and New York.

Wholesale revenue for the three months ended March 31, 2021 was $2,816,259, a decrease of $1,119,417 compared to wholesale revenue of $3,935,676 for the three months ended March 31, 2020.

For the three months ended June 30, 2021, 79% of the revenue was generated from retail dispensaries and 21% from wholesale business.

For the three months ended June 30, 2020, 75% of the revenue was generated from retail business and 25% from wholesale business.

For the three months ended June 30, 2021, Minnesota operations contributed approximately 38% of revenues, New York contributed 31%, Arizona contributed 14%, New Mexico contributed 5%, and Maryland contributed 12%.

For the three months ended June 30, 2020, Minnesota retail operations contributed approximately 33% of revenues, New York contributed 24%, Arizona contributed 11%, New Mexico contributed 5%, Maryland contributed 8%, and Pennsylvania contributed 19%.

Revenue for the three-months ended June 30, 2021 was $14,230,900, an increase of $2,015,535 or 16% compared to revenue of $12,215,365 for the three-months ended June 30, 2020.

The increase is primarily attributable to increased revenue contributions from the retail businesses in Minnesota and Maryland of $1.3 million and $0.9 million respectively, and the wholesale business in New York of $1.4 million, partially offset by the lack of second quarter 2021 revenues in the Pennsylvania retail and wholesale businesses, which were divested in 2020.

Key revenue drivers are the opening of the Fredrick dispensary in Maryland in the first quarter of 2021, increased patient demand in Minnesota, which is partially the result of four new dispensary openings which occurred after June 30, 2020, and a $1.1 million wholesale sale in New York.

Retail revenue for the three months ended June 30, 2021 was $11,301,497, an increase of $2,118,033 or 23% compared to retail revenue of $9,183,464 for the three months ended June 30, 2020 primarily due to revenue contributions from Minnesota and Maryland.

Wholesale revenue for the three months ended June 30, 2021 was $2,929,403, a decrease of $102,498 compared to wholesale revenue of $3,031,901 for the three months ended June 30, 2020.

The decrease in revenue contributions was primarily due to the disposition of our Pennsylvania retail and wholesale operations, which were divested in December and August of 2020, respectively.

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Total Revenue

Total Revenue excluding PA

PA & OH Revenue

Total Revenue excluding PA & OH

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Cost of goods sold are determined from costs related to the cultivation and processing of cannabis and cannabis-derived products as well as the cost of finished goods inventory purchased from third parties.

Cost of goods sold for the three months ended March 31, 2021 was $7,574,048, a decrease of $1,266,613 compared to the three months ended March 31, 2020 of $8,840,661, driven by higher throughput across all markets decreasing fixed cost per unit.

Gross profit for the three months ended March 31, 2021 was $5,615,841, representing a gross margin of 43%.

This is compared to gross profit for the three months ended March 31, 2020 of $3,277,906 or a 27% gross margin.

Cost of goods sold for the three months ended June 30, 2021 was $7,318,011, a decrease of $1,306,730 compared to the three months ended June 30, 2020 of $8,624,741, driven by higher throughput across all markets decreasing fixed cost per unit.

Gross profit for the three months ended June 30, 2021 was $6,912,889, representing a gross margin of 49%.

This is compared to gross profit for the three months ended June 30, 2020 of $3,590,624 or a 29% gross margin.

The increase in margin was driven by higher throughput across all markets decreasing fixed cost per unit.

Maryland and Arizona wholesale gross profit for the three months ended March 31, 2021, increased $0.5 million and $0.8 million, respectively, relative to the three months ended March 31, 2020.

Additionally, the Minnesota retail market saw gross profit expansion of approximately $1.3 million due to increased sales driven by the addition of four new dispensaries relative to March 31, 2020.

The Minnesota retail market saw gross profit expansion of approximately $1.1 million due to increased sales driven by the addition of four new dispensaries relative to June 30, 2020.

Additionally, the New York market saw gross profit expansion of approximately $1.7 million driven by a $1.1 million wholesale sale during the three months ended June 30, 2021.

Our current production capacity has not been fully realized and we expect future gross profits to increase with revenue growth reflective of higher demand, increased product output and new product development.

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As a percentage of sales, we expect selling costs to remain relatively flat in its more established operational markets (Minnesota and New York) and decrease in developing markets as business continues to grow (Arizona, New Mexico, and Maryland).

The increase is expected to be driven primarily by the growth of retail and wholesale channels to sustainable market share.

The decrease is expected to be driven primarily by the growth of retail and wholesale channels to sustainable market share.

General and administrative expenses also include costs incurred at the corporate offices, primarily related to personnel costs, including salaries, benefits, and other professional service costs, as well as corporate insurance, legal and professional fees associated with being a publicly traded company.

We expect this spend to decrease as a percentage of revenue as sales continue to ramp in all markets.

We expect this spend to decrease as a percentage of revenue as sales continue to ramp up in all markets.

We anticipate that share-based compensation expenses will continue to persist in order to recruit and retain competitive talent.

Total expenses for the three months ended March 31, 2021 were $10,728,571, an increase of $958,352 compared to total expenses of $9,770,219 for the three months ended March 31, 2020.

The increase in total expenses was attributable to an increase general and administrative expenses of $1.2 million which was driven by significant operational buildouts in existing markets, specifically Arizona and Maryland, where we are in the process of large cultivation and manufacturing expansion projects.

Total expenses for the three months ended June 30, 2021 were $10,160,451, a decrease of $5,482,167 compared to total expenses of $15,642,618 for the three months ended June 30, 2020.

The decrease in total expenses was attributable to a decrease in stock- based compensation expenses of approximately $7.6 million partially offset by increase general and administrative expenses of $2.0 million which was driven by significant operational buildouts in existing markets, specifically Arizona and Maryland, where we are in the process of large cultivation and manufacturing expansion projects.

Operating Loss before Income Taxes

Operating loss before other income (expense) and provision for income taxes for the three months ended March 31, 2021 was $(5,486,572), a decrease of $1,599,349 compared to $(7,085,921) for the three months ended March 31, 2020.

Operating loss before other income (expense) and provision for income taxes for the three months ended June 30, 2021 was $(3,247,562), a decrease of $8,804,432 compared to $(12,051,994) for the three months ended June 30, 2020.

Total Other Expense

Total other expenses for the three months ended March 31, 2021 were $373,842, a decrease of $219,766 compared to $593,608 for the three months ended March 31, 2020.

This decrease is primarily attributable to the gain on the divestiture of Ohio Medical Solutions, Inc.

Total other expense for the three months ended June 30, 2021 were $1,323,042, a decrease of $2,370,398 compared to $3,693,440 for the three months ended June 30, 2020.

This decrease is primarily attributable to the gain on derivative liability of $1,531,371.

Provision for Income Taxes

Income tax expense is recognized based on the expected tax payable on the taxable income for the year, using tax rates enacted or substantively enacted at year-end.

For the three months ended March 31, 2021, tax expense totaled $1,500,000 compared to a tax expense of $427,100 for the three months ended March 31, 2020.

For the three months ended June 30, 2021, tax expense totaled $910,000 compared to a tax expense of $369,900 for the three months ended June 30, 2020.

Six months ended June 30, 2021 Compared to Six months ended June 30, 2020

We derived our revenue from cultivating, processing, and distributing cannabis products through our seventeen dispensaries in five states and our wholesale sales to third parties in five states.

For the six months ended June 30, 2021, 79% of the revenue was generated from retail dispensaries and 21% from wholesale business.

For the six months ended June 30, 2020, 71% of the revenue was generated from retail business and 29% from wholesale business.

For the six months ended June 30, 2021, Minnesota operations contributed approximately 39% of revenues, New York contributed 27%, Arizona contributed 21%, New Mexico contributed 5%, and Maryland contributed 8%.

For the six months ended June 30, 2020, Minnesota operations contributed approximately 32% of revenues, New York contributed 23%, Arizona contributed 16%, New Mexico contributed 4%, Maryland contributed 7%, and Pennsylvania contributed 18%.

Revenue for the six months ended June 30, 2021 was $27,420,789, an increase of $3,086,857 or 13% compared to revenue of $24,333,932 for the six months ended June 30, 2020.

The increase is primarily attributable to increased revenue contributions from the retail business in Minnesota of $2.9 million, and the wholesale business in New York of $1.4 million, partially offset by the lack of first quarter 2021 revenues in the Pennsylvania retail and wholesale businesses, which were divested in 2020.

Key revenue drivers were the opening of the Fredrick dispensary in Maryland in the first quarter of 2021, increased patient demand in Minnesota, which is primarily the result of four new dispensary openings that occurred after June 30, 2020, and a $1.1 million wholesale sale in New York.

Retail revenue for the six months ended June 30, 2021 was $21,684,617, an increase of $4,318,262 or 25% compared to retail revenue of $17,366,355 for the six months ended June 30, 2020 primarily due to revenue contributions from Minnesota, Arizona, and Maryland.

Wholesale revenue for the six months ended June 30, 2021 was $5,736,172, a decrease of $1,231,405 compared to wholesale revenue of $6,967,577 for the six months ended June 30, 2020.

The decrease in revenue contributions was primarily due to the disposition of our Pennsylvania wholesale operation, which was divested in August of 2020.

Six Months Ended

Total Wholesale

Total Revenue

PA & OH Revenue

Total Revenue excluding PA & OH

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Cost of Goods Sold and Gross Profit

Cost of goods sold for the six months ended June 30, 2021 was $14,892,059, a decrease of $2,573,343 compared to the six months ended June 30, 2020 of $17,465,402, driven by higher throughput across all markets decreasing fixed cost per unit.

Gross profit for the six months ended June 30, 2021 was $12,528,730, representing a gross margin of 46%.

This is compared to gross profit for the six months ended June 30, 2020 of $6,868,530 or a 28% gross margin.

The increase in margin was driven by higher throughput across all markets decreasing fixed cost per unit.

The Minnesota retail market saw gross profit expansion of approximately $2.4 million due to increased sales driven by the addition of four new dispensaries relative to June 30, 2020.

Additionally, the New York market saw gross profit expansion of approximately $1.8 million driven by a $1.1 million wholesale sale during the six months ended June 30, 2021.

However, we expect gradual price compression as markets mature that could place downward pressure on our retail and wholesale gross margins.

Total Expenses

Total expenses for the six months ended June 30, 2021 were $20,889,022, a decrease of $4,523,815 compared to total expenses of $25,412,837 for the six months ended June 30, 2020.

The decrease in total expenses was attributable to a decrease in stock- based compensation expenses of approximately $8.0 million partially offset by increase general and administrative expenses of $3.2 million which was driven by significant operational buildouts in existing markets, specifically Arizona and Maryland, where we are in the process of large cultivation and manufacturing expansion projects.

Operating Loss before Income Taxes

Operating loss before other income (expense) and provision for income taxes for the six months ended June 30, 2021 was $(8,360,292), a decrease of $10,184,015 compared to $(18,544,307) for the six months ended June 30, 2020.

Total Other Expense

Total other expenses for the six months ended June 30, 2021 were $1,696,884, a decrease of $2,590,164 compared to $4,287,048 for the six months ended June 30, 2020.

This decrease is primarily attributable to the gain on derivative liability of $1,689,900.

Provision for Income Taxes

Income tax expense is recognized based on the expected tax payable on the taxable income for the year, using tax rates enacted or substantively enacted at year-end.

For the six months ended June 30, 2021, tax expense totaled $2,410,000 compared to a tax expense of $797,000 for the six months ended June 30, 2020.

NON-GAAP MEASURES

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Three Months Ended

Six Months Ended

Net income (loss)

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We are generating cash from sales and deploying our capital reserves to acquire and develop assets capable of producing additional revenues and earnings over both the immediate and near term.

Capital reserves are being utilized for acquisitions in the medical and adult-use cannabis markets, for capital expenditures and improvements in existing facilities, product development and marketing, as well as customer, supplier, investor, and industry relations.

Capital reserves are being utilized for acquisitions in the medical and adult-use cannabis markets, for capital expenditures and

improvements in existing facilities, product development and marketing, as well as customer, supplier, investor, and industry relations.

Current management forecasts and related assumptions support the view that we can adequately manage the operational needs of the business.

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5% Convertible Note

On June 17, 2019, we issued a convertible note with a face value of $900,000 in connection with the XAAS Argo, Inc.

The convertible note bears interest at a rate of 5.0% per annum, payable monthly commencing June 17, 2019 and continuing on the first of each month thereafter.

Additional interest may accrue on the convertible notes in specified circumstances.

The convertible note will mature on June 17, 2021, unless earlier repurchased, redeemed or converted.

There are no principal payments required over the two-year term of the convertible note, except in the case of redemption or events of defaults.

The convertible note is a general unsecured obligation and ranks senior in right of payment to all of our indebtedness that is expressly subordinated in right of payment to the notes;

equal in right of payment with any of our unsecured indebtedness that is not so subordinated;

effectively junior in right of payment to any of our secured indebtedness to the extent of the value of the assets securing such indebtedness;

and structurally junior to all indebtedness and other liabilities (including trade payables but excluding intercompany obligations) of our current or future subsidiaries.

The note includes customary covenants and sets forth certain events of default after which the convertible notes may be declared immediately due and payable, including certain types of bankruptcy or insolvency involving the Company.

To the extent the Company or the holder so elects, the convertible note will be convertible at a conversion rate equal to the price per share that our capital stock is valued at in the reverse merger of $4.25 per Subordinate Voting Share.

The initial conversion rate for the convertible note is 211.7547 per one-thousand-dollar principal amount of the note which represents 211,765 common shares, based on the $900,000 aggregate principal amount of convertible notes outstanding as of March 31, 2021.

As of March 31, 2021, we were in compliance with all the covenants set forth under the 5% convertible note.

On June 17, 2019, the Company issued a convertible note with a face value of $900,000 in connection with the XAAS Argo, Inc.

This note was repaid in full during the six month period ended June 30, 2021.

Cash Used in Operating Activities

Net cash used in operating activities was $5.0 million for the three months ended March 31, 2021, an increase of $2.3 million as compared to the three months ended March 31, 2020.

The increase is primarily attributed to an increase in inventory in the first quarter of 2021.

Net cash used in operating activities was $17.5 million for the three months ended June 30, 2021, an increase of $10.0 million as compared to the six months ended June 30, 2020.

The increase is primarily attributed to a substantial inventory build and a decrease in accounts payable and accrued liabilities driven by the payment of the Company’s 2020 tax liability during the six months ended June 30, 2021, compared to stable inventory levels and an increase in accounts payable and accrued liabilities during the six months ended June 30, 2020.

Cash Used in Investing Activities

Net cash used in investing activities was $3.8 million for the three months ended March 31, 2021, compared to net cash used of $0.5 million for the three months ended March 31, 2020.

Net cash used in investing activities was $9.9 million for the three months ended June 30, 2021, compared to net cash used of $1.4 million for the six months ended June 30, 2020.

The decrease in cash flow is primarily attributable to an increase property, plant, and equipment additions driven by operational expansion in Maryland and Arizona.

Cash Provided by Financing Activities

Net cash provided by financing activities was $23.8 million for the three months ended March 31, 2021, an increase of $16.5 million as compared to the three months ended March 31, 2020.

Net cash provided by financing activities was $22.7 million for the three months ended June 30, 2021, an increase of $15.7 million as compared to the six months ended June 30, 2020.

The increase was principally due to the receipt of approximately $23 million in net proceeds from the Credit Facility.

Lease Transactions

As of March 31, 2021, we have entered into lease agreements for the use of buildings used in cultivation, production and/or sales of cannabis products in Arizona, Maryland, Minnesota, Nevada, New Mexico, New York, and Puerto Rico.

As of June 30, 2021, we have entered into lease agreements for the use of buildings used in cultivation, production and/or sales of cannabis products in Arizona, Maryland, Minnesota, Nevada, New Mexico, New York, and Puerto Rico.

The lease agreements for all of the retail space used for our dispensary operations are with third-party landlords and remaining duration ranges from 1 to 6 years.

These agreements are short-term facility leases that require us to make monthly rent payments as well as funding common area costs, utilities and maintenance.

These agreements are short-term facility leases that require us to make

monthly rent payments as well as funding common area costs, utilities and maintenance.

In some cases, we have received tenant improvement funds to assist in the buildout of the space to meet our operating needs.

As of March 31, 2021, we had 16 retail locations secured under these agreements.

As of June 30, 2021, we operated 17 retail locations secured under these agreements.

We have also entered into sale and leaseback arrangements for our cultivation and processing facilities in Minnesota and New York with a special-purpose real estate investment trust.

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Finance Leases

March 31, 2021

June 30, 2021

Total minimum lease payments

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Outstanding Share Data

As of May 12, 2021, Vireo had 75,289,552 shares issued and outstanding, consisting of the following:

As of August 11, 2021, we had 78,795,837 shares issued and outstanding, consisting of the following:

(a) Subordinate voting shares

78,315,477 shares issued and outstanding.

The holders of subordinate voting shares are entitled to receive dividends which may be declared from time to time and are entitled to one vote per share at all shareholder

The holders of subordinate voting shares are entitled to receive dividends which may be declared from time to time and are entitled to one vote per share at all shareholder meetings.

All subordinate voting shares are ranked equally with regards to the Company’s residual assets.

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Options, Warrants, and Convertible Promissory Notes

As of March 31, 2021, we have 23,772,642 employee stock options outstanding, as well as 3,037,649 SVS warrants denominated in C$ and 13,583 MVS warrants related to financing activities, and $900,000 outstanding in convertible promissory notes related to an acquisition.

As of June 30, 2021, we have 23,928,810 employee stock options outstanding, as well as 3,037,649 SVS warrants denominated in C$ and 13,583 MVS warrants related to financing activities.

Off-Balance Sheet Arrangements

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We anticipate growth investments made in 2020, along with the successful execution of our core market strategy, will yield organic revenue growth for the foreseeable future.

Stronger revenue growth, coupled with expectations for reduced selling, general, and administrative expenses as a percentage of revenue, should substantially reduce the operating outflow of cash from existing operations throughout 2021.

Furthermore, recent efforts to scale production and expand our retail footprint could lead to a substantial improvement in financial performance through 2022, especially given the potential for positive regulatory developments within our state-based markets as well as at the federal level.

We remain focused on the prudent deployment of capital into what we believe are the high yield opportunities and achieving free cash flow from operations.

Stronger revenue growth, coupled with expectations for reduced selling, general, and administrative expenses as a percentage of revenue, should reduce the operating outflow of cash from existing operations throughout the remainder of 2021.

We remain focused on the prudent deployment of capital into what we believe are high yield opportunities and on achieving free cash flow from operations.

We also are focused on driving margin expansion through operating efficiencies and greater economies of scale with the intention of becoming one of the lowest-cost producers in each of our operational markets.

We have taken a strategic approach to facility site selection and generally pursue non-land-locked opportunities that allow for significant future expansion.

Our recently completed nine-acre shade house in Arizona, 110,000 square foot expansion of our cultivation facility in Maryland, and recently acquired option to purchase an additional 96 acres in New York demonstrate our large-scale approach to production.

Our recently completed nine-acre shade house in Arizona, 110,000 square foot expansion of our cultivation facility in Maryland, and recently acquired options to purchase an additional 96 acres in New York and 22 acres in Minnesota for future expansion, demonstrate our large-scale approach to production.

Consistent with a focus on driving profitable growth across our various markets, we anticipate making further investments in capital expenditures to improve scale with additional facility build outs as our markets continue expanding.

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facility in the town of Massey.

We expect both cultivation facility expansions to be completed by the end of the third quarter of 2021 and the processing facility expansion to be completed by the end of 2021.

Our retail strategy is focused on the growth of our retail footprint and ongoing efforts to rebrand all our stores to our Green Goods™ retail concept.

We opened four new stores in Minnesota in 2020, one new store in Maryland in March of 2021, and expect to open two additional stores in New Mexico during the second quarter of 2021.

The rebranding of our retail stores in New York to Green Goods™, including our cannabis superstore in Queens, will continue throughout 2021, prior to the commencement of adult use sales in the state of New York.

In addition to the recent legislation legalizing adult-use cannabis in Arizona, New Mexico, and New York, Maryland could also potentially pass adult-use legislation this year, and there is potential for the addition of raw flower to the medical program in the state of Minnesota.

Each of these potential outcomes would serve as significant revenue growth catalyst for our business, and with large-scale production across our markets there are clear opportunities to protect and expand margins over time.

We expect these expansion projects to be completed by the end of 2021.

Our retail strategy is focused on the growth of our retail footprint and ongoing efforts to rebrand our stores to our Green Goods ® retail concept.

We opened four new stores in Minnesota in 2020, one new store in Maryland in March of 2021, and finished construction of two additional stores in New Mexico during the second quarter of 2021 which opened in the summer of 2021.

The rebranding of our retail stores in New York to Green Goods ® , including our cannabis superstore in Queens, will continue throughout 2021, prior to the commencement of adult use sales in the state.

In addition to the recent legislation legalizing adult-use cannabis in Arizona, New Mexico, and New York and recent approval of raw flower to the medical program in Minnesota, Maryland could also potentially pass adult-use legislation this year.

We believe that each of these recent changes in state programs, once sales commence, will serve as significant revenue growth catalyst for our business, and that with large-scale production across our markets there are clear opportunities to protect and expand margins over time.

Management has provided various outlook ranges for performance in fiscal year 2022 below, the achievement of which depend upon several factors, including the Company’s ability to achieve expected cultivation yields, the timing of completion of various development projects, the timing of commencement of adult-use sales in New Mexico and New York, and the timing of commencement of flower sales in the Minnesota medical market.

We expect to generate total revenue in the range of $140 to $180 million in fiscal year 2022.

We expect to generate adjusted EBITDA in the range of $35 to $55 million in fiscal year 2022.

We expect net capex, excluding financing from real estate partners, to be in the range of approximately $15 to $20 million through 2022, and to open an additional 6-10 Green Goods® retail dispensaries during this timeframe including the two recently-opened dispensaries in New Mexico.

We believe it’s possible for our business to produce positive cash flow from operations during the fourth quarter of fiscal year

2021 if our planned expansion projects are completed on time and we achieve cultivation yields that we expect across our operating footprint.

Once our expansion projects are complete, and operating at full capacity, we expect to generate positive cash flow from operations for full fiscal year 2022.

Critical Accounting Policies

3 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis