What changed in this filing

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Item 2. Management’s Discussion and Analysis

2021-11-10 compared with 2021-08-13 · 100 added, 93 removed, 158 unchanged (55% of the section changed)

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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 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 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:

During the nine months ended September 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 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.

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

We had one operational dispensary in Arizona, one in Maryland, eight in Minnesota, four 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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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.

In addition to our core markets, during the nine months ended September 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.

We may consider operationalization of these licenses in the future.

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

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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 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 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.

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

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

For the three months ended September 30, 2021, 86% of the revenue was generated from retail dispensaries and 14% from wholesale business.

For the three months ended September 30, 2020, 79% of the revenue was generated from retail business and 21% from wholesale business.

For the three months ended September 30, 2021, Minnesota operations contributed approximately 41% of revenues, New York contributed 24%, Arizona contributed 12%, New Mexico contributed 6%, and Maryland contributed 17%.

For the three months ended September 30, 2020, Minnesota operations contributed approximately 34% of revenues, New York contributed 23%, Arizona contributed 12%, New Mexico contributed 5%, Maryland contributed 10%, Ohio contributed 1%, and Pennsylvania contributed 15%.

Revenue for the three-months ended September 30, 2021 was $13,369,432, an increase of $893,650 or 7% compared to revenue of $12,475,782 for the three-months ended September 30, 2020.

The increase is primarily attributable to increased revenue contributions from the retail businesses in Minnesota and Maryland of $1.2 million and $1.1 million respectively, partially offset by the lack of third quarter 2021 revenues in the Pennsylvania retail and wholesale businesses, which were divested in 2020.

Retail revenue for the three months ended September 30, 2021 was $11,562,440 an increase of $1,658,406 or 17% compared to retail revenue of $9,904,034 for the three months ended September 30, 2020 primarily due to revenue contributions from Minnesota and Maryland.

Wholesale revenue for the three months ended September 30, 2021 was $1,806,992, a decrease of $764,756 compared to wholesale revenue of $2,571,748 for the three months ended September 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.

Three Months Ended

September 30,

Total Wholesale

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Gross profit reflects total net revenue less cost of goods sold.

Cost of goods sold represents the costs attributable to producing finished goods, which includes direct materials, labor, and certain indirect costs such as depreciation, insurance

and utilities.

Cannabis costs are affected by various state regulations that limit the sourcing and procurement of cannabis product, which may create fluctuations in gross profit over comparative periods as the regulatory environment changes.

Cost of goods sold represents the costs attributable to producing bulk materials and finished goods, which includes direct materials, labor, and certain indirect costs such as depreciation, insurance and utilities.

Cannabis costs are affected by various state regulations that limit the sourcing and

procurement of cannabis product, which may create fluctuations in gross profit over comparative periods as the regulatory environment changes.

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 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.

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.

Cost of goods sold for the three months ended September 30, 2021 was $8,254,444, an increase of $742,445 compared to the three months ended September 30, 2020 of $7,511,999, driven by higher throughput and sales.

Gross profit for the three months ended September 30, 2021 was $5,114,988, representing a gross margin of 38%.

This is compared to gross profit for the three months ended September 30, 2020 of $4,963,783 or a 40% gross margin.

The decrease in margin was driven by an increase in inventory valuation adjustments of $199,672 compared to the three months ended September 30, 2020.

Excluding inventory valuation adjustments, margins were relatively flat.

The Minnesota retail market saw slight margin expansion due to increased sales driven by the addition of four new dispensaries relative to September 30, 2020.

The Minnesota margin expansion was offset by slight margin compression in New York and Arizona.

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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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 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.

Total expenses for the three months ended September 30, 2021 were $9,245,849 an increase of $2,012,880 compared to total expenses of $7,232,969 for the three months ended September 30, 2020.

The increase in total expenses was attributable to a increase in stock-based compensation expenses of approximately $0.3 million and an increase general and administrative expenses of $1.6 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 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 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.

Operating loss before other income (expense) and provision for income taxes for the three months ended September 30, 2021 was $(4,130,861), an increase of $1,861,675 compared to $(2,269,186) for the three months ended September 30, 2020.

Total Other Income (Expense)

Total other expense for the three months ended September 30, 2021 was $(1,552,370), a change of $12,776,560 compared to other income of $11,224,190 for the three months ended September 30, 2020.

This change is primarily attributable to the gain on disposal of PAMS during the three months ended September 30, 2020 of 16,884,173.

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 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.

For the three months ended September 30, 2021, tax expense totaled $560,000 compared to a tax expense of $6,003,000 for the three months ended September 30, 2020.

The decrease in tax expense is primarily attributable to the gain on the disposal of PAMS during the three months ended September 30, 2020.

Nine months ended September 30, 2021 Compared to Nine months ended September 30, 2020

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

For the nine months ended September 30, 2021, 82% of the revenue was generated from retail dispensaries and 18% from wholesale business.

For the nine months ended September 30, 2020, 74% of the revenue was generated from retail business and 26% from wholesale business.

For the nine months ended September 30, 2021, Minnesota operations contributed approximately 40% of revenues, New York contributed 26%, Arizona contributed 18%, New Mexico contributed 5%, and Maryland contributed 11%.

For the nine months ended September 30, 2020, Minnesota operations contributed approximately 33% of revenues, New York contributed 23%, Arizona contributed 14%, New Mexico contributed 5%, Maryland contributed 8%, and Pennsylvania contributed 17%.

Revenue for the nine months ended September 30, 2021 was $40,790,221, an increase of $3,980,507 or 11% compared to revenue of $36,809,714 for the nine months ended September 30, 2020.

The increase is primarily attributable to increased revenue contributions from the retail business in Minnesota and Maryland of $4.1 million and $2.0 million, respectively, and the wholesale business in New York of $1.6 million, partially offset by the lack of 2021 revenues in the Pennsylvania retail and wholesale businesses, which were divested in 2020.

Retail revenue for the nine months ended September 30, 2021 was $33,247,058, an increase of $5,976,669 or 22% compared to retail revenue of $27,270,389 for the nine months ended September 30, 2020 primarily due to revenue contributions from Minnesota, Arizona, and Maryland.

Wholesale revenue for the nine months ended September 30, 2021 was $7,543,163, a decrease of $1,996,162 compared to wholesale revenue of $9,539,325 for the nine months ended September 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

Nine Months Ended

September 30,

Total Wholesale

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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.

Cost of goods sold for the nine months ended September 30, 2021 was $23,146,503, a decrease of $1,830,898 compared to the nine months ended September 30, 2020 of $24,977,401, driven by higher throughput across all markets decreasing fixed cost per unit.

Gross profit for the nine months ended September 30, 2021 was $17,643,718, representing a gross margin of 43%.

This is compared to gross profit for the nine months ended September 30, 2020 of $11,832,313 or a 32% 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.

The Minnesota retail market saw gross profit expansion of approximately $3.5 million due to increased sales driven by the addition of four new dispensaries relative to September 30, 2020.

Additionally, the New York market saw gross profit expansion of approximately $1.5 million driven by increased wholesale sales during the nine months ended September 30, 2021.

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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.

Total expenses for the nine months ended September 30, 2021 were $30,134,871, a decrease of $2,510,935 compared to total expenses of $32,645,806 for the nine months ended September 30, 2020.

The decrease in total expenses was attributable to a decrease in stock- based compensation expenses of approximately $7.7 million partially offset by increase general and administrative expenses of $4.8 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.

Operating loss before other income (expense) and provision for income taxes for the nine months ended September 30, 2021 was $(12,491,153), a decrease of $8,322,340 compared to $(20,813,493) for the nine months ended September 30, 2020.

Total Other Income (Expense)

Total other expense for the nine months ended September 30, 2021 was $(3,249,254), a change of $10,186,395 compared to other income of $6,937,141 for the nine months ended September 30, 2020.

The change is primarily attributable to the gain on the disposal of PAMS during the three months ended September 30, 2020, of $16,884,173.

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.

For the nine months ended September 30, 2021, tax expense totaled $2,970,000 compared to a tax expense of $6,800,000 for the nine months ended September 30, 2020.

The decrease in tax expense is primarily attributable to the gain on the disposal of PAMS during the nine months ended September 30, 2020.

NON-GAAP MEASURES

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Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

Net income (loss)

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EBITDA (non-GAAP)

Derivative Gain

Derivative (Gain) Loss

Inventory adjustment

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Severance Expense

Loss on assets held for sale

Gain on sale of discontinued operations

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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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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.

Cash Used in Operating Activities

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.

Net cash used in operating activities was $22.7 million for the nine months ended September 30, 2021, an increase of $11.7 million as compared to the nine months ended September 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 nine months ended September 30, 2021, compared to stable inventory levels and an increase in accounts payable and accrued liabilities during the nine months ended September 30, 2020.

Cash Used in Investing Activities

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.

Net cash used in investing activities was $13.4 million for the nine months ended September 30, 2021, compared to net cash provided by investing activities of $13.3 million for the nine months ended September 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, as well as the divestiture of the Company’s PAMS subsidiary in the third quarter of 2020.

Cash Provided by Financing Activities

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.

Net cash provided by financing activities was $22.4 million for the nine months ended September 30, 2021, an increase of $16.1 million as compared to the nine months ended September 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 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.

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

As of September 30, 2021, we operated 18 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

June 30, 2021

September 30, 2021

Total minimum lease payments

Less discount to net present value

(189,813,692)

Present value of lease liability

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Outstanding Share Data

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

As of November 8, 2021, we had 80,006,508 shares issued and outstanding, consisting of the following:

(a) Subordinate voting shares

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Options, Warrants, and Convertible Promissory Notes

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.

As of September 30, 2021, we have 23,610,886 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

As of the date of this filing, we do not have any off-balance-sheet arrangements that have, or are reasonably likely to have, a current or future effect on our results of operations or financial condition, including, and without limitation, such considerations as liquidity and capital resources.

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 reduce the operating outflow of cash from existing operations throughout the remainder of 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.

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

We believe that 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 over time.

Furthermore, recent efforts to scale production and expand our retail footprint could lead to a substantial improvement in financial performance through 2022 and beyond, especially given the potential for positive regulatory developments.

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 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.

Specifically, we began expansion projects of our cultivation facilities in Arizona and Maryland during the second quarter of fiscal year 2021.

In Arizona, we expect to invest approximately $3.0 million for the development of a 30,000 square foot processing facility and a second nine-acre shade house adjacent to our existing operations, bringing our total cultivation capacity in the state to approximately 18 acres.

In Maryland, we expect to invest approximately $5.0 million for the development of an additional 75,000 sq.

We have taken a strategic approach to facility site selection and generally pursue non-landlocked 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, recently acquired option to purchase an additional 20 acres in Minnesota for future expansion, and ongoing expansion projects in New York demonstrate our large-scale approach to production.

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

Specifically, we have begun construction on a 324,000 square foot indoor cultivation and processing facility in New York, which is being financed entirely through a real estate partner following the execution of a sale-leaseback transaction during the third quarter of 2021.

We have been approved by the state to complete 170,000 square feet of this facility, and anticipate completion of this project during the second quarter of 2022.

In Arizona, we completed construction of a second nine-acre shade house adjacent to our existing operations, bringing our total cultivation capacity in the state to approximately 18 acres.

We also plan to add a 30,000 square foot processing facility to the property in Arizona.

In Maryland, we began development of an additional 75,000 sq.

of cultivation capacity at our existing 110,000 sq.

facility in the town of Massey.

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

We previously anticipated these expansion projects in Arizona and Maryland would be completed by the end of 2021, but we have opted to pause construction of these projects as we align development timing with the demand growth we are experiencing in these markets.

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 are also evaluating the rebranding of our retail stores in New York as we consider expansion from four to eight dispensaries, but the timing of these initiatives will depend upon the timeline for commencement of adult use sales in the state, as well as regulatory approval of the incremental dispensaries.

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.

Following our recent decision to divest our Arizona licenses and Phoenix dispensary in order to focus solely on the wholesale market in Arizona, as well as uncertainty surrounding the start date of adult-use sales in the state of New York, we have revised our previous outlook ranges for financial performance in fiscal year 2022.

We now expect fiscal year 2022 revenues to be in the range of $100 to $120 million, and adjusted EBITDA in the range of $20 to $30 million.

The achievement of these ranges will depend upon several factors, including the Company’s ability to achieve expected cultivation yields and quality, the timing and availability of funding to complete various development projects, regulatory timelines, the timing of the commencement and performance of adult-use sales in New Mexico and New York, and the timing of the commencement and magnitude of flower sales in the Minnesota medical market.

We expect net capex, excluding financing from real estate partners, to be in the range of approximately $15 to $20 million through 2022.

We expect to open an additional four Green Goods® retail dispensaries in New York prior to the start of adult use sales in that state and we expect to add additional stores in New Mexico through the end of 2022.

Assuming timely completion of the planned development projects and that the timing of regulatory changes is as we anticipate, we expect to generate positive cash flow from operations for full fiscal year 2022.

Critical Accounting Policies

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What changed 10-Q

Item 2. Management’s Discussion and Analysis