What changed in this filing

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Item 1. Financial Statements

2021-11-10 compared with 2021-08-13 · 178 added, 116 removed, 753 unchanged (28% of the section changed)

3 unchanged sentences

(In U.S Dollars, unaudited and condensed)

September 30,

Current assets:

40 unchanged sentences

GOODNESS GROWTH HOLDINGS, INC.

CONSOLIDATED STATEMENTS OF NET LOSS AND COMPREHENSIVE LOSS

CONSOLIDATED STATEMENTS OF NET INCOME (LOSS) AND COMPREHENSIVE INCOME (LOSS)

Dollars, unaudited and condensed)

Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

Cost of sales

11 unchanged sentences

Other income (expense):

Loss on sale of property and equipment

Gain on disposal of assets held for sale

Loss on assets held for sale

Derivative gain (loss)

( 4,066,335 )

( 5,032,537 )

Interest expenses, net

4 unchanged sentences

Other income (expenses)

Other expenses, net

( 1,323,042 )

( 3,693,440 )

Other income (expenses), net

( 1,552,370 )

4 unchanged sentences

( 13,876,352 )

( 22,831,355 )

Current income tax expenses

( 3,723,000 )

( 3,150,000 )

( 4,575,000 )

Deferred income tax recoveries

Net loss and comprehensive loss

( 2,280,000 )

( 2,225,000 )

Net income (loss) and comprehensive income (loss)

( 6,243,231 )

( 18,710,407 )

Net loss per share - basic and diluted

Weighted average shares used in computation of net loss per share - basic and diluted

( 20,676,352 )

Net income (loss) per share - basic and diluted

Weighted average shares used in computation of net income (loss) per share - basic

Weighted average shares used in computation of net income (loss) per share - diluted

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements

11 unchanged sentences

( 20,676,352 )

Balance at June 30, 2020

Balance at September 30, 2020

( 99,467,202 )

9 unchanged sentences

( 18,710,407 )

Balance at June 30, 2021

Balance at September 30, 2021

( 120,443,451 )

3 unchanged sentences

Dollars, except for per share data, unaudited and condensed)

Six Months Ended June 30,

Nine Months Ended September 30,

September 30,

CASH FLOWS FROM OPERATING ACTIVITIES

7 unchanged sentences

Stock-based payments

Loss on assets held for sale

Interest Expense

Deferred income tax

Gain on disposal of business

( 16,884,173 )

4 unchanged sentences

Accounts Receivable

( 1,531,985 )

Prepaid expenses

( 1,573,909 )

( 7,765,288 )

( 1,091,279 )

Accounts payable and accrued liabilities

( 2,555,634 )

Held for sale assets and liabilities

Change in assets and liabilities held for sale

( 8,450,772 )

Net cash used in operating activities

5 unchanged sentences

( 3,581,289 )

Proceeds from sale of PAMS net of cash

Proceeds from sale of OMS net of cash

1 unchanged sentence

( 13,419,490 )

( 1,385,820 )

CASH FLOWS FROM FINANCING ACTIVITIES

4 unchanged sentences

Proceeds from option exercises

Debt interest payments

Lease payments

( 1,008,584 )

( 1,250,799 )

Net cash provided by financing activities

1 unchanged sentence

( 13,733,885 )

( 1,914,974 )

Cash and restricted cash, beginning of period

33 unchanged sentences

These unaudited condensed consolidated financial statements have been prepared on a going concern basis, which assumes the Company will continue in operation for the foreseeable future and, accordingly, will be able to realize its assets and discharge its liabilities in the normal course of operations as they come due.

For the three and six months ended June 30, 2021, the Company reported a net loss of $ 5,480,604 and $ 12,467,176 , respectively.

For the three and six months ended June 30, 2020, the Company reported a net loss of $ 16,115,334 and $ 23,628,355 , respectively.

For the six months ended June 30, 2021, the Company had cash flows used in operating activities of $ 17,491,337 .

The Company had net cash outflows for the six months ended June 30, 2021 of $ 4,686,824 .

The Company had working capital of $ 25,850,661 and $ 27,098,496 as of June 30, 2021, and December 31, 2020, respectively, reflecting a decrease in cash of $ 4,686,824 for the six months ended June 30, 2021.

For the three and nine months ended September 30, 2021, the Company reported a net loss of $ 6,243,231 and $ 18,710,407 , respectively.

For the three and nine months ended September 30, 2020, the Company reported a net income (loss) of $ 2,952,004 and $( 20,676,352 ), respectively.

For the nine months ended September 30, 2021, the Company had cash flows used in operating activities of $ 22,720,933 .

The Company had net cash outflows for the nine months ended September 30, 2021 of $ 13,733,885 .

The Company had working capital of $ 29,519,693 and $ 27,098,496 as of September 30, 2021, and December 31, 2020, respectively, reflecting an increase in working capital of $ 2,421,197 for the nine months ended September 30, 2021.

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

1 unchanged sentence

Basis of consolidation

These unaudited condensed consolidated financial statements include the accounts of the following entities wholly owned, or effectively controlled by the Company during the period ended June 30, 2021:

Name of entity

35 unchanged sentences

Massachusetts, USA

The entities listed above are wholly owned or effectively controlled by the Company and have been formed or acquired to support the intended operations of the Company, and all intercompany transactions and balances have been eliminated in the Company's unaudted condensed consolidated financial statements.

Recently adopted accounting pronouncements

44 unchanged sentences

In computing diluted earnings per share, common share equivalents are not considered in periods in which a net loss is reported, as the inclusion of the common share equivalents would be anti-dilutive.

Since the Company is in a net loss for all periods presented in these financial statements, there is no difference between the Company’s basic and diluted net loss per share for the periods presented.

The anti-dilutive shares outstanding for three month periods ending June 30, 2021 and 2020 were as follows:

The Company recorded a net loss for the three month period ended September 30, 2021, and the nine month periods ended September 30, 2021 and 2020, presented in these financial statements, and as such there is no difference between the Company’s basic and diluted net loss per share for these periods.

The Company recorded net income for the three month period ended September 30, 2020.

The dilutive effect of the outstanding stock options, warrants, and convertible securities for the three months ended September 30, 2020, on net income and weighted average shares outstanding was $ 164,032 and 13,646,075 , respectively, resulting in a diluted net income per share of $ 0.03 .

The anti-dilutive shares outstanding for the nine month periods ending September 30, 2021 and 2020 were as follows:

September 30,

Stock options

4 unchanged sentences

Operating segments are defined as components of an enterprise about which separate financial information is available that is regularly evaluated by the chief operating decision maker in deciding how to allocate resources to the segment and assess its performance.

The Company operates in one business segment, namely as the cannabis segment cultivates, processes and distributes medical and adult-use cannabis products in a variety of formats, as well as related accessories.

The Company operates in one business segment, namely as the cannabis segment cultivates, processes and distributes medical and adult-use cannabis

products in a variety of formats, as well as related accessories.

The Company’s Chief Executive Officer is the Company’s chief operating decision maker.

13 unchanged sentences

Inventory is comprised of work-in-progress, finished goods and non-cannabis.

Cost includes harvested finished goods, harvested cannabis (bud and trim) in progress, cannabis oil in progress, accessories, and packaging materials.

Inventory cost includes pre-harvest, post-harvest and shipment and fulfillment, as well as related accessories.

Inventory includes plants, harvested cannabis (bud and trim) in progress, cannabis oil in progress, finished goods, accessories, and packaging materials.

Inventory cost includes pre-harvest, post-harvest, shipment and fulfillment, as well as related accessories.

Pre-harvest costs include labor and direct materials to grow cannabis, which includes water, electricity, nutrients, integrated pest management, growing supplies and allocated overhead.

4 unchanged sentences

At the end of each reporting period, the Company performs an assessment of inventory and records write-downs for excess and obsolete inventories based on the Company’s estimated forecast of product demand, production requirements, market conditions, regulatory environment, and spoilage.

Actual inventory losses may differ from management’s estimates and such differences could be material to the Company’s balance sheets, statements of net loss and comprehensive loss and statements of cash flows.

Actual inventory

losses may differ from management’s estimates and such differences could be material to the Company’s balance sheets, statements of net loss and comprehensive loss and statements of cash flows.

Property and equipment

26 unchanged sentences

Impairment of long-lived assets

The Company reviews long-lived assets, including property and equipment and definite life intangible assets, for impairment whenever events or changes in circumstances indicate that the carrying value of an asset may not be

In order to determine if assets have been impaired, assets are grouped and tested at the lowest level for which identifiable independent cash flows are available (“ asset group ”).

30 unchanged sentences

The Company has elected not to recognize ROU assets and lease liabilities for short-term leases that have a lease term of 12 months or less that do not include an option to purchase the underlying asset that the Company is reasonably certain to exercise.

Short-term leases include real estate and vehicles and are not significant in comparison to the Company’s overall

lease portfolio.

Short-term leases include real estate and vehicles and are not significant in comparison to the Company’s overall lease portfolio.

The Company continues to recognize the lease payments associated with these leases as expenses on a straight-line basis over the lease term.

9 unchanged sentences

Revenue is recognized when control of the promised goods or services, through performance obligations by the Company, is transferred to the customer in an amount that reflects the consideration it expects to be entitled to in exchange for the performance obligations.

The Company generates substantially all its revenue from the direct sale of cannabis products through contracts with medical customers.

The Company generates substantially all its revenue from the direct sale of cannabis products through contracts with medical and recreational customers.

Cannabis products are sold through various distribution channels.

55 unchanged sentences

New accounting pronouncements not yet adopted

The Company has not adopted any new or amended standards during the period ended June 30, 2021.

The Company has not adopted any new or amended standards during the period ended September 30, 2021.

Business Combinations and Dispositions

On June 22, 2020, the Company reached a definitive agreement with Jushi Inc, a subsidiary of Jushi Holdings, Inc.

(“ Jushi ”), to divest all the equity in its subsidiary company, Pennsylvania Medical Solutions, LLC (“ PAMS ”).

On August 11, 2020, the Company completed the sale of its equity in PAMS to Jushi, for consideration of $ 20.45 million consisting of $ 16.7 million in cash, and $ 3.75 million in the form of a four-year note with an 8 percent coupon rate payable quarterly.

As part of this transaction, the Company was relieved of $ 13.3 million of Right of Use Liabilities.

Consideration received exceeded PAMS net assets at the time of sale, resulting in a gain of $ 16,884,173 which was recorded in the statement of loss and comprehensive loss for the nine months ended September 30, 2020.

In July of 2020, the Company divested all the equity in its subsidiary company, Midwest Hemp Research, LLC, to the CEO of the Company.

Prior to the disposition, the Company had $ 50,000 in outstanding convertible notes associated with the initial acquisition of Midwest Hemp, and had recorded an intangible asset of $ 50,000 on the balance sheet.

Upon divestiture these outstanding convertible notes were cancelled, and the intangible asset was disposed of, resulting in no gain or loss.

Per the terms of the agreement, all remaining assets and liabilities associated with Midwest Hemp Research reverted back to the Company prior to the exchange of ownership.

On October 1, 2020, the Company caused three of its executives to enter into a definitive agreement with a third party to sell all of the assets and liabilities of its affiliated company, Ohio Medical Solutions, LLC (“OMS”), which was owned by such executives, for $ 1,150,000 in cash.

A loss on assets held for sale of $ 446,544 related to OMS is included in the

statement of loss and comprehensive loss for the three and nine month periods ended September 30, 2020, given net assets as of September 30, 2020, exceeded the agreed upon purchase price of $ 1.15 million.

On March 31, 2021, the sale of OMS was completed.

As part of this transaction, the Company transferred assets and liabilities with a net book value of $ 712,893 .

Consideration received exceeded OMS’s net assets at the time of sale, resulting in a gain of $ 437,107 which was recorded in the unaudted condensed consolidated statement of loss and comprehensive loss for the six months ended June 30, 2021.

Assets held for sale

On November 1, 2021, subsidiaries and an affiliate of the Company entered into a Purchase Agreement with subsidiaries and an affiliate of Copperstate Farms, LLC (“Copperstate”) pursuant to which the Company will sell its Phoenix dispensary and cultivation licenses, dispensary inventory and equipment, dispensary lease, and all dispensary revenue-producing contracts to Copperstate for $ 15,000,010 in cash (the “Transaction”).

The Company expects the Transaction to close during the fourth quarter, subject to regulatory approval and customary closing conditions.

Certain assets and liabilities relating to the Transaction have been classified as “held for sale.” The carrying value of assets held for sale, net of liabilities to be assumed by Copperstate, was less than the agreed upon purchase price of $ 15,000,010 .

As such, no allowance for loss on assets held for sale was recorded as of September 30, 2021.

Assets and liabilities held for sale relating to are as follows:

Assets held for sale

Property and equipment

Operating lease, right-of-use-asset

Intangible assets, net

Total assets held for sale

Liabilities held for sale

Right of Use Liability

Asset Acquisitions

4 unchanged sentences

The acquisition of MJ Distributing was completed on January 5, 2021.

As part of the closing of the acquisition the restricted cash of $ 1,592,500 was transferred to the sellers, the convertible notes in escrow were cancelled, and the Company issued

1,050,000 subordinate voting shares to the sellers.

As part of the closing of the acquisition the restricted cash of $ 1,592,500 was transferred to the sellers, the convertible notes in escrow were cancelled, and the Company issued 1,050,000 subordinate voting shares to the sellers.

Management determined the total consideration paid of $ 1,592,500 in restricted cash, $ 1,564,500 associated with the fair value of the subordinate voting shares issued, and $ 28,136 of incurred acquisition costs, was equal to the fair value of the intangible asset acquired, or $ 3,185,136 .

5 unchanged sentences

Fair values determined by Level 3 inputs are unobservable data points for the asset or liability, and includes situations where there is little, if any, market activity for the asset or liability.

The following tables present information about the Company’s assets that are measured at fair value on a recurring basis as of June 30, 2021, and December 31, 2020, indicates the fair value hierarchy of the valuation techniques the Company utilized to determine such fair value:

The following tables present information about the Company’s assets that are measured at fair value on a recurring basis as of September 30, 2021, and December 31, 2020, indicates the fair value hierarchy of the valuation techniques the Company utilized to determine such fair value:

Quoted prices in

1 unchanged sentence

identical assets

June 30, 2021

September 30, 2021

Restricted cash

8 unchanged sentences

( 2,317,065 )

Balance as of June 30, 2021

The resulting gain upon revaluation of $ 1,689,900 for the six month period ended June 30, 2021, is reflected in the unaudited condensed consolidated statement of net loss and comprehensive loss.

Balance as of September 30, 2021

The resulting gain upon revaluation of $ 2,317,065 for the nine month period ended September 30, 2021, is reflected in the unaudited condensed consolidated statement of net loss and comprehensive loss.

Items measured at fair value on a non-recurring basis

The Company's non-financial assets, such as prepayments and other current assets, long lived assets, including property and equipment and intangible assets, are measured at fair value when there is an indicator of impairment and are recorded at fair value only when an impairment charge is recognized.

In connection with an evaluation of such non-financial assets during the year ended December 31, 2020, the fair values of intangible assets and goodwill were concluded to exceed their

carrying values.

In connection with an evaluation of such non-financial assets during the year ended December 31, 2020, the fair values of intangible assets and goodwill were concluded to exceed their carrying values.

As a result, the Company did not record impairment charges during the year ended December 31, 2020.

No additional impairment was determined necessary as of June 30, 2021.

The estimated fair value of cash and cash equivalents, accounts receivable, net, accounts payable, and accrued expenses and other current liabilities at June 30, 2021 and December 31, 2020 approximate their carrying amount due to short term nature of these instruments.

Trade Receivables

No additional impairment was determined necessary as of September 30, 2021.

The estimated fair value of cash, accounts receivable, net, accounts payable, accrued expenses, and other current liabilities at September 30, 2021 and December 31, 2020 approximate their carrying amount due to short term nature of these instruments.

Accounts Receivable

Trade receivables are comprised of the following items:

September 30,

Trade receivable

Tenant improvements receivable

Included in the trade receivables, net balance at June 30, 2021 is an allowance for doubtful accounts of $ 257,729 and $ 132,490 at December 31, 2020.

Included in the accounts receivable, net balance at September 30, 2021 is an allowance for doubtful accounts of $ 189,467 and $ 132,490 at December 31, 2020.

Notes Receivable

As of June 30, 2021, the Company had a total of $ 3,850,561 in notes receivable and $ 4,043,700 at December 31, 2020.

The June 30, 2021 balance is comprised primarily of the $ 3,750,000 four-year note with an 8 percent coupon rate payable quarterly obtained as part of the disposition of Pennsylvania Medical Solutions in August of 2020.

Inventory is comprised of the following items net of inventory reserves of $ 161,000 and $ 290,000 as of June 30, 2021, and December 31, 2020, respectively:

As of September 30, 2021, the Company had a total of $ 3,769,954 in notes receivable and $ 4,043,700 at December 31, 2020.

The September 30, 2021, and December 31, 2020, balances are comprised primarily of the $ 3,750,000 four-year note with an 8 percent coupon rate payable quarterly obtained as part of the disposition of Pennsylvania Medical Solutions in August of 2020.

Inventory is comprised of the following items net of inventory reserves of $ 218,000 and $ 290,000 as of September 30, 2021, and December 31, 2020, respectively:

September 30,

Work-in-progress

3 unchanged sentences

Inventory valuation adjustments included in cost of sales on the statements of net loss and comprehensive loss is comprised of the following:

Three Months Ended June 30,

Six Months Ended June 30,

Three Months Ended September 30,

Nine Months Ended September 30,

Work-in-progress

1 unchanged sentence

Non-cannabis inventory

During the three and six months ended June 30, 2021 and 2020, the Company recorded write downs to net realizable value and adjustments to the inventory reserve.

During the three and nine months ended September 30, 2021 and 2020, the Company recorded write downs to net realizable value and adjustments to the inventory reserve.

Based on the market sales prices relative to the cost to produce certain inventories net realizable value was less than the carrying value of inventory.

1 unchanged sentence

Prepayments and other current assets are comprised of the following items:

September 30,

Prepaid Insurance

1 unchanged sentence

Deferred Acquisition Costs

As of June 30, 2021, the Company had a total of $ 0 in deferred acquisition costs.

As of September 30, 2021, the Company had a total of $ 0 in deferred acquisition costs.

The December 31, 2020 balance of $ 28,136 relating to the acquisition of MJ Distributing was released upon the closing of the acquisition on January 5, 2021 (Note 3).

1 unchanged sentence

Property and equipment, net consisted of the following:

September 30,

Buildings and leasehold improvements

5 unchanged sentences

( 4,890,039 )

For the six months ended June 30, 2021 and 2020, total depreciation on property and equipment was $ 1,404,705 and $ 1,280,477 , respectively.

For the six months ended June 30, 2021 and 2020, accumulated amortization of the right of use asset under finance lease amounted to $ 2,024,551 and $ 2,786,418 , respectively.

For the nine months ended September 30, 2021 and 2020, total depreciation on property and equipment was $ 2,194,465 and $ 2,018,006 , respectively.

For the nine months ended September 30, 2021 and 2020, accumulated amortization of the right of use asset under finance lease amounted to $ 2,258,732 and $ 1,598,128 , respectively.

The right of use asset under finance lease of $ 70,713,084 consists of leased processing and cultivation premises.

The Company capitalized into inventory $ 986,896 and $ 1,057,849 relating to depreciation associated with manufacturing equipment and production facilities as of June 30, 2021 and 2020, respectively.

The Company capitalized into inventory $ 1,678,558 and $ 1,757,281 relating to depreciation associated with manufacturing equipment and production facilities for the nine months ended September 30, 2021 and 2020, respectively.

The capitalized depreciation costs associated are added to inventory and expensed through Cost of Sales Product Cost on the unaudited condensed consolidated statements of net loss and comprehensive loss.

For the nine months ended September 30, 2021 and 2020, total capitalized interest related to the construction or expansion of facilities financed by the Credit Facility (Note 15) was $ 521,178 and $ 0 , respectively.

Components of lease expenses are listed below:

September 30,

Finance lease cost

6 unchanged sentences

Finance Leases

June 30, 2021

September 30, 2021

Total minimum lease payments

3 unchanged sentences

The Company has entered into various lease agreements for the use of buildings used in production and retail sales of cannabis products.

On September 24, 2021, the Company signed a third amendment to the existing lease agreements for the cultivation and processing facilities in New York.

Under the terms of the amendment, the term of the lease was extended to September 23, 2041, and provides for additional tenant improvements up to $ 49,435,000 .

The amended agreement for the cultivation and processing facility in New York requires additional monthly base rent payments of $ 492,625 .

Supplemental cash flow information related to leases:

September 30,

Cash paid for amounts included in the measurement of lease liabilities:

3 unchanged sentences

Other information about lease amounts recognized in the financial statements:

September 30,

Weighted-average remaining lease term (years) – operating leases

4 unchanged sentences

Goodwill - January 1, 2020

Goodwill - December 31, 2020 and June 30, 2021

Transfer to held for sale

( 2,948,655 )

Goodwill - December 31, 2020 and September 30, 2021

Goodwill is tested for impairment annually or more frequently if indicators of impairment exist or if a decision is made to dispose of business.

1 unchanged sentence

On this date the Company performed a Step 1 goodwill impairment analysis.

No indicators of impairment exist as of June 30, 2021.

During the six months ended June 30, 2021, the Company acquired cannabis licenses in Nevada.

No indicators of impairment exist as of September 30, 2021.

During the nine months ended September 30, 2021, the Company acquired cannabis licenses in Nevada.

The fair value allocated to a license is depreciated over its expected useful life, which is estimated to be 15 years .

5 unchanged sentences

Additions (Note 3)

Balance, June 30, 2021

Amortization expense for intangibles was $ 206,442 and $ 412,885 during the three and six months ended June 30, 2021, respectively, and $ 154,191 and $ 308,381 during the three and six months ending June 30, 2020, respectively.

Transfer to held for sale (Note 3)

( 5,553,333 )

Balance, September 30, 2021

Amortization expense for intangibles was $ 206,442 and $ 619,327 during the three and nine months ended September 30, 2021, respectively, and $ 153,356 and $ 461,737 during the three and nine months ending September 30, 2020, respectively.

Amortization expense is recorded in operating expenses on the unaudited condensed consolidated statements of net loss and comprehensive loss.

2 unchanged sentences

Accounts payable and accrued liabilities are comprised of the following items:

September 30,

Accounts payable – trade

1 unchanged sentence

Taxes payable

Insurance payable

Contract liability

3 unchanged sentences

The note bears interest at a rate of 15 % per annum with interest payments required on a monthly basis.

Effective November 13, 2019, the Company’s promissory note payable in the amount of $ 1,010,000 was modified to increase the amount payable to $ 1,110,000 and extend the maturity date to December 31, 2021 .

November 13, 2019, the Company’s promissory note payable in the amount of $ 1,010,000 was modified to increase the amount payable to $ 1,110,000 and extend the maturity date to December 31, 2021 .

On March 25, 2021, the Company entered into a credit agreement for a senior secured delayed draw term loan with an aggregate principal amount of up to $ 46,000,000 (the “Credit Facility”).

5 unchanged sentences

The Credit Facility matures on March 31, 2024.

On March 25, 2021, in connection with closing the Credit Facility, Goodness Growth issued (a) five year warrants to the agent to and each lender to purchase an aggregate of 2,803,984 subordinate voting shares at an exercise price of C$ 3.50 per share, and (b) a five year warrant to the broker to purchase 233,665 subordinate voting shares at an exercise price of C$ 3.50 per share.

On March 25, 2021, in connection with closing the Credit Facility, Goodness Growth issued (a) five year warrants to the agent and each lender to purchase an aggregate of 2,803,984 subordinate voting shares at an exercise price of C$ 3.50 per share, and (b) a five year warrant to the broker to purchase 233,665 subordinate voting shares at an exercise price of C$ 3.50 per share.

Each warrant provides customary anti-dilution provisions.

2 unchanged sentences

The following table shows a summary of the Company’s long-term debt:

September 30,

Beginning of year

17 unchanged sentences

C$ Exchange Rate:

On June 30, 2021, the warrants were subsequently revalued using the Black Scholes option pricing model at $ 3,705,859 using the following assumptions:

On September 30, 2021, the warrants were subsequently revalued using the Black Scholes option pricing model at $ 3,078,694 using the following assumptions:

Exercise Price:

4 unchanged sentences

C$ Exchange Rate:

The resulting gain upon revaluation of $ 1,689,900 is reflected in the unaudited condensed consolidated statements of net loss and comprehensive loss.

On March 9, 2020, the Company closed the first tranche of a non-brokered private placement and issued 13,651,574 units at a price of C$ 0.77 per Unit.

The resulting gain upon revaluation of $ 627,165 and $ 2,317,065 for the three, and nine-month periods ended September 30, 2021, is reflected in the unaudited condensed consolidated statements of net loss and comprehensive loss.

On March 9, 2020, the Company closed the first tranche of a non-brokered private placement and issued 13,651,574 units at a price of C$ 0.77 per Unit (Note 18) .

Each unit is comprised of one subordinate voting share of the Company and one subordinate voting share purchase warrant.

7 unchanged sentences

C$ Exchange Rate:

On June 30, 2021, the warrants were subsequently revalued using the Black Scholes option pricing model at $ 4,521,230 using the following assumptions:

On September 30, 2020, the warrants were subsequently revalued using the Black Scholes option pricing model at $ 8,587,567 using the following assumptions:

Exercise Price:

4 unchanged sentences

C$ Exchange Rate:

The resulting loss upon revaluation of $ 2,292,130 is reflected in the unaudited condensed consolidated statements of net loss and comprehensive loss.

The resulting loss upon revaluation of $ 4,066,335 and $ 5,032,537 for the three, and nine-month periods ended September 30, 2020, respectively, is reflected in the unaudited condensed consolidated statements of net loss and comprehensive loss.

Convertible Notes

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.

This note was repaid in full during the nine month period ended September 30, 2021.

The following table sets forth the net carrying amount of the convertible notes:

June 30, 2021

September 30, 2021

December 31, 2020

2 unchanged sentences

Stockholders’ Equity

The Company’s certificate of incorporation authorized the Company to issue the following classes of shares with the following par value and voting rights as of December 31, 2019.

The liquidation and dividend rights are identical among shares equally in the Company’s earnings and losses on an as converted basis.

The Company’s certificate of incorporation authorized the Company to issue the following classes of shares with the following par value and voting rights as of September 30, 2021 The liquidation and dividend rights are identical among shares equally in the Company’s earnings and losses on an as converted basis.

Voting Rights

14 unchanged sentences

Shares Issued

During the six months ended June 30, 2021, employee stock options were redeemed for 3,659,668 Subordinate Voting Shares.

During the nine months ended September 30, 2021, employee stock options were redeemed for 3,989,344 Subordinate Voting Shares.

Proceeds from these transactions were $ 1,152,596 .

On June 4, 2021, the Company issued 295,774 shares with a fair value of $ 686,196 to a third party for ongoing corporate advisory services.

The fair value of the issued shares was recorded to stock-based compensation expense in the unaudited condensed consolidated statements of net loss and comprehensive loss for the three and six month periods ended June 30, 2021.

On March 31, 2021, as part of a settlement and release of claims regarding a dispute over certain post-termination terms under his employment agreement, the Company issued 7,110,481 subordinate voting shares to its former Executive Chairman, Bruce Linton, upon a cashless exercise of 10 million warrants that had an exercise price of $ 1.02 per share and issued him 889,519 subordinate voting shares with a fair value of $ 1,627,820 pursuant to an exemption from registration under the Securities Act.

The fair value of the 889,519 subordinate voting shares issued of $ 1,627,820 was recorded as stock-based compensation expense in the unaudited condensed consolidated statements of net loss and comprehensive loss for the three and six months ended June 30, 2021.

The Company did not receive any proceeds in connection with the warrant exercise or issuance of shares.

1 unchanged sentence

the additional 889,519 shares are subject to a holding period expiring on August 1, 2021.

He was previously issued

15,000,000 warrants under his employment agreement and as part of the settlement, he surrendered all right, title, and interest in the remaining 5,000,000 warrants for cancellation.

He was previously issued 15,000,000 warrants under his employment agreement and as part of the settlement, he surrendered all right, title, and interest in the remaining 5,000,000 warrants for cancellation.

On March 9, 2020, the Company closed the first tranche of a non-brokered private placement and issued 13,651,574 units at a price of C$ 0.77 per unit.

12 unchanged sentences

Options granted under the equity incentive plan were valued using the Black-Scholes option pricing model with the following weighted average assumptions:

September 30,

Risk-Free Interest Rate

3 unchanged sentences

Expected Dividend Yield

Stock option activity for the three months ended June 30, 2021 and for the years ended December 31, 2020 and 2019, are presented below:

Stock option activity for the three months ended September 30, 2021 and for the years ended December 31, 2020 and 2019, are presented below:

Weighted Average

7 unchanged sentences

( 3,989,344 )

Options Outstanding at June 30, 2021

Options Exercisable at June 30, 2021

During the six months ended June 30, 2021 and 2020, the Company recognized $ 1,408,639 and $ 649,785 in stock-based compensation relating to stock options, respectively.

During the three months ended June 30, 2021 and 2020, the Company recognized $ 721,884 and $ 277,660 in stock-based compensation relating to stock options, respectively.

As of June 30, 2021, the total unrecognized compensation costs related to unvested stock options awards granted was $ 4,111,897 .

Options Outstanding at September 30, 2021

Options Exercisable at September 30, 2021

During the nine months ended September 30, 2021 and 2020, the Company recognized $ 2,243,761 and $ 1,152,052 in stock-based compensation relating to stock options, respectively.

During the three months ended September 30, 2021 and 2020, the Company recognized $ 835,122 and $ 502,266 in stock-based compensation relating to stock options, respectively.

As of September 30, 2021, the total unrecognized compensation costs related to unvested stock options awards granted was $ 3,274,032 .

In addition, the weighted average period over which the unrecognized compensation expense is expected to be recognized is approximately 2.5 years.

The total intrinsic value of stock options outstanding and exercisable as of June 30, 2021, was $ 30,960,105 and $ 23,744,512 , respectively.

The total intrinsic value of stock options outstanding and exercisable as of September 30, 2021, was $ 25,194,365 and $ 20,667,245 , respectively.

The Company does not estimate forfeiture rates when calculating compensation expense.

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Warrants issued were valued using the Black-Scholes option pricing model with the following assumptions:

Risk-Free Interest Rate

Expected Life of Options (years)

Expected Annualized Volatility

Expected Forfeiture Rate

Expected Dividend Yield

September 30,

SVS Warrants Denominated in C$

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Expected Dividend Yield

Risk-Free Interest Rate

Expected Life of Options (years)

Expected Annualized Volatility

Expected Forfeiture Rate

Expected Dividend Yield

A summary of the warrants outstanding is as follows:

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( 7,889,519 )

Warrants outstanding at June 30, 2021

Warrants exercisable at June 30, 2021

Warrants outstanding at September 30, 2021

Warrants exercisable at September 30, 2021

Weighted Average

4 unchanged sentences

Warrants outstanding at December 31, 2020

Warrants outstanding at June 30, 2021

Warrants exercisable at June 30, 2021

Warrants outstanding at September 30, 2021

Warrants exercisable at September 30, 2021

Weighted Average

4 unchanged sentences

Warrants outstanding at December 31, 2020

Warrants outstanding at June 30, 2021

Warrants exercisable at June 30, 2021

During the six months ended June 30, 2021, $ 0 (2020 - $ 10,981,157 ) in stock-based compensation expense was recorded in connection with the SVS compensation warrants and $ 0 (2020 - $ 90,418 ) in stock-based compensation was recorded in connection with the MVS warrants.

During the three months ended June 30, 2021, $ 0 (2020 - $ 8,671,561 ) in stock-based compensation expense was recorded in connection with the SVS compensation warrants and $ 0 (2020 - $ 36,200 ) in stock-based compensation was recorded in connection with the MVS warrants.

Warrants outstanding at September 30, 2021

Warrants exercisable at September 30, 2021

During the nine months ended September 30, 2021, $ 0 (2020 - $ 10,981,157 ) in stock-based compensation expense was recorded in connection with the SVS compensation warrants and $ 0 (2020 - $ 112,203 ) in stock-based compensation was recorded in connection with the MVS warrants.

During the three months ended September 30, 2021, $ 0 (2020 - $ 8,671,561 ) in stock-based compensation expense was recorded in connection with the SVS compensation warrants and $ 0 (2020 - $ 21,786 ) in stock-based compensation was recorded in connection with the MVS warrants.

Commitments and Contingencies

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Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

Salaries and benefits

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Supplemental Cash Flow Information (1)

September 30,

Cash paid for interest

Cash paid for income taxes

Non-cash change in construction accrued expenses

Change in construction accrued expenses

( 1,418,281 )

Non-cash investing

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The Company’s approach to managing liquidity risk is to ensure that it will have sufficient liquidity to meet liabilities when due.

As of June 30, 2021, the Company’s financial liabilities consist of accounts payable and accrued liabilities,

debt, and convertible notes.

As of September 30, 2021, the Company’s financial liabilities consist of accounts payable and accrued liabilities, debt, and convertible notes.

The Company manages liquidity risk by reviewing its capital requirements on an ongoing basis.

Historically, the Company’s main source of funding has been additional funding from shareholders.

Historically, the Company’s main source of funding has been additional funding from shareholders and debt financing.

The Company’s access to financing is always uncertain.

There can be no assurance of continued access to significant equity financing.

There can be no assurance of continued access to significant equity or debt financing.

Goodness Growth operates in the United States.

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Related Party Transactions

As of June 30, 2021, and December 31, 2020, there were no amounts due from related parties.

For the six months ended June 30, 2021, and 2020, the Company paid a related party (Salo LLC, owned by a former member of the Board of Directors) for contract staffing expenses in the amount of $ 0 and $ 79,356 , respectively.

As of September 30, 2021, and December 31, 2020, there were no amounts due to related parties.

For the nine months ended September 30, 2021, and 2020, the Company paid a related party (Bengal Impact Partners, of which a member of the Board of Directors is a managing partner) $ 20,000 and $ 0 , respectively, for ongoing corporate advisory services.

For the nine months ended September 30, 2021, and 2020, the Company paid a related party (Salo LLC, owned by a former member of the Board of Directors) for contract staffing expenses in the amount of $ 0 and $ 126,896 , respectively.

Certain directors and officers of the Company (Kyle Kingsley, Amber Shimpa, and Stephen Dahmer) owned OMS, which was sold on March 31, 2021 (Note 3).

1 unchanged sentence

Subsequent Events

On July 8, 2021, the Company’s subsidiary, Vireo of Charm City, LLC, signed a definitive agreement to purchase substantially all the assets of Charm City Medicus, LLC, a medical cannabis dispensary located in Baltimore, Maryland for a purchase price of $ 8.0 million, comprised of $ 4.0 million in cash, $ 2.0 million in subordinate voting shares (subject to a one year lock up), and a $ 2.0 million promissory note to be issued to the seller.

The transaction is subject to approval of the dispensary license transfer by the Maryland Medical Cannabis Commission and customary closing conditions.

Subsequent to June 30, 2021, employee stock options were exercised for 329,676 Subordinate Voting Shares.

Proceeds from these transactions were $ 76,028 in cash.

On November 1, 2021, subsidiaries and an affiliate of the Company entered into a Purchase Agreement with subsidiaries and an affiliate of Copperstate pursuant to which the Company will sell its Phoenix dispensary and cultivation licenses, dispensary inventory and equipment, dispensary lease, and all dispensary revenue-producing contracts to Copperstate for $ 15,000,010 in cash.

The Company expects the Transaction to close during the fourth quarter, subject to regulatory approval and customary closing conditions.

As part of the Transaction, at the closing, the parties will enter into a Retail Shelf Space Agreement pursuant to which Copperstate will continue to sell the Company’s cannabis and cannabis products at the Phoenix dispensary for two years .

As part of the Transaction, at the closing the Company and Copperstate will enter into a Cultivation Management Services Agreement (“Cultivation Agreement”) which allows the Company to continue cultivating, manufacturing, and selling wholesale medical and adult-use cannabis and cannabis products in Arizona, subject to regulatory compliance oversight by Copperstate and payment of a monthly fee.

Under the Cultivation Agreement, the Company will continue its cultivation operations at its Amado facility at its own expense and will retain all of its wholesale revenue.

The Cultivation Agreement has an initial term of five years and three five-year renewal terms

On October 28, 2021, the Company received regulatory approval of its acquisition of a dispensary license in Baltimore, Maryland.

The previously-announced transaction is expected to close during the fourth quarter, and will bring the Company’s total number of operating dispensaries in Maryland to two .

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 1. Financial Statements