What changed in this filing

/stocks — the workspaceLOADING

Item 8. Financial Statements and Supplementary Data

2022-03-15 compared with 2021-03-31 · 689 added, 1346 removed, 358 unchanged (85% of the section changed)

Financial Statements and Supplementary Data

of Independent Registered Public Accounting Firm

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Shareholders and Directors of

Vireo Health International, Inc.

Goodness Growth Holdings, Inc.

(formerly Vireo Health International, Inc.)

Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated

balance sheets of Vireo Health International, Inc.

(the “Company”) as of December 31, 2020 and 2019, and the related consolidated

statements of net loss and comprehensive loss, equity, and cash flows for the years ended December 31, 2020 and 2019, and the related

notes (collectively referred to as the “financial statements”).

In our opinion, the consolidated financial statements present

fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019, and the results of its operations

and its cash flows for each of the years ended December 31, 2020 and 2019, in conformity with accounting principles generally accepted

in the United States of America.

We have audited the accompanying consolidated balance sheets of Goodness Growth Holdings, Inc.

(the “Company”) as of December 31, 2021 and 2020, and the related consolidated statements of net loss and comprehensive loss, changes in stockholders’ equity, and cash flows for the years ended December 31, 2021 and 2020, and the related notes (collectively referred to as the “financial statements”).

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2021 and 2020, and the results of its operations and its cash flows for the years ended December 31, 2021 and 2020, in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

These consolidated financial statements are the

responsibility of the Company’s management.

Our responsibility is to express an opinion on these consolidated financial statements

based on our audits.

We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB")

and are required to be independent with respect to the Company in accordance with the U.S.

federal securities laws and the applicable

rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the

standards of the PCAOB.

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated

financial statements are free of material misstatement, whether due to error or fraud.

The Company is not required to have, nor were we

engaged to perform, an audit of its internal control over financial reporting.

As part of our audits we are required to obtain an understanding

of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the entity’s

internal control over financial reporting.

These financial statements are the responsibility of the Company’s management.

Our responsibility is to express an opinion on these financial statements based on our audits.

We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S.

federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.

The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.

As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control over financial reporting.

Accordingly, we express no such opinion.

Our audits included performing procedures to assess

the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond

to those risks.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated

financial statements.

Our audits also included evaluating the accounting principles used and significant estimates made by management,

as well as evaluating the overall presentation of the consolidated financial statements.

We believe that our audits provide a reasonable

basis for our opinion.

We have served as the Company’s auditor

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.

Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that our audits provide a reasonable basis for our opinion.

We have served as the Company’s auditor since 2018.

/s/ Davidson & Company LLP

Vancouver, Canada

Professional Accountants

Chartered Professional Accountants

March 14, 2022

VIREO HEALTH INTERNATIONAL, INC.

GOODNESS GROWTH HOLDINGS, INC.

Consolidated Balance Sheets (In U.S Dollars)

3 unchanged sentences

Prepayments and other current assets

Notes receivable, current

Notes receivable

Deferred acquisition costs

6 unchanged sentences

Intangible assets, net

Deferred Loss on Sale Leaseback

Deferred tax assets

7 unchanged sentences

Right-of-use liability

Convertible notes, net of issuance costs

Long-Term debt

1 unchanged sentence

Commitments and contingencies (refer to Note 20)

Stockholders’

Stockholders’ equity

Subordinate Voting Shares ($- par value, unlimited shares authorized;

7 unchanged sentences

Accumulated deficit

( 135,423,519 )

( 101,733,044 )

Total stockholders' equity

Total liabilities and stockholders' equity

accompanying notes are an integral part of these consolidated financial statements

VIREO HEALTH INTERNATIONAL, INC.

Consolidated Statements of Net Loss and

Comprehensive Loss (In U.S.

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

GOODNESS GROWTH HOLDINGS, INC.

Consolidated Statements of Net Loss and Comprehensive Loss (In U.S.

Cost of sales

9 unchanged sentences

Other income (expense):

Impairment of Intangible assets and goodwill

Impairment of long-lived assets

( 5,169,951 )

Loss on sale of property and equipment

Gain (Loss) on disposal of assets held for sale

Derivative loss

Gain on disposal of assets

Derivative gain (loss)

( 6,260,480 )

Interest expenses, net

( 10,575,370 )

( 5,095,848 )

Other income (expenses)

5 unchanged sentences

Current income tax expenses

Deferred income tax recoveries (expense)

Net loss and comprehensive loss

( 5,460,000 )

( 7,427,000 )

Net loss per share - basic and diluted

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

The accompanying notes are an integral part

of these consolidated financial statements

VIREO HEALTH INTERNATIONAL, INC.

Consolidated Statements of Stockholders’

(in thousands of United States dollars)

Deferred income tax recoveries

( 1,363,000 )

Net income (loss) and comprehensive income (loss)

( 33,690,475 )

( 22,942,194 )

Net income (loss) per share - basic and diluted

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

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

GOODNESS GROWTH HOLDINGS, INC.

Consolidated Statements of Stockholders’ Equity

Super Voting Shares

3 unchanged sentences

( 78,790,850 )

shares on RTO transaction

(21,663,494 )

(10,261,655 )

(22,772,744 )

(11,500,855 )

Shares issued on RTO transaction

Re capitalization costs

Shares issued in provate placement

Cumulative adjustment transition to ASC 842

Conversion of MVS shares to SVS shares

Acquisition of Mayflower Botanicals

Acquisition of AZ entities

Acquisition of Silver Fox assets

Shares issued in private placement

Warrants exercised

Options exercised

Stock-based compensation

Shares issued on conversion of debt

( 22,942,194 )

Balance, January 1, 2020

Balance at December 31, 2020

( 101,733,044 )

Balance, January 1, 2021

( 101,733,044 )

Shares issued in private placement

Exercise of Warrants

Exercise of Options

Conversion of MVS shares

Shares issued in Nevada acquisition

Shares issued in Charm City acquisition

Options exercised

Warrants exercised

Warrants issued in financing activities

Stock-based compensation

3 unchanged sentences

( 135,423,519 )

$ (101,733,044 )

accompanying notes are an integral part of these consolidated financial statements

VIREO HEALTH INTERNATIONAL, INC.

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

GOODNESS GROWTH HOLDINGS, INC.

Consolidated Statements of Cash Flows

(in United States dollars, except for

per share data)

Year ended December 31,

Dollars, except for per share data)

CASH FLOWS FROM OPERATING ACTIVITIES

( 33,690,475 )

( 22,942,194 )

Adjustments to reconcile net loss to net cash used in operating activities:

3 unchanged sentences

Amortization of intangible assets

Share-based payments

Impairment of goodwill

Impairment of intangible assets

Stock-based payments

Interest Expense

Impairment of long-lived assets

Deferred income tax

( 1,338,000 )

Deferred Gain/Loss Sale Leaseback

Accrued interest

Acquisition costs

Loss on Sale of Property and Equipment

Derivative Loss

Loss on disposal of business HG

Derivative (Gain) Loss

Gain on disposal of AZ Dispensary

( 6,465,932 )

Gain on disposal of OMS

Gain on disposal of PDS

( 3,402,794 )

Gain on disposal of business MWH

Gain on disposal of business PAMS

( 17,116,068 )

Loss on disposal of business HG

Change in operating assets and liabilities:

Accounts Receivable

( 3,488,926 )

Prepaid expenses

( 10,347,840 )

( 2,661,090 )

Accounts payable and accrued liabilities

Deferred acquisition costs

Change in assets and liabilities held for sale

Net cash used in operating activities

( 30,517,197 )

( 10,932,383 )

CASH FLOWS FROM INVESTING ACTIVITIES:

Proceeds from Sale of PPE

PP&E Additions

( 18,043,946 )

( 8,449,097 )

Proceeds from sale of AZ Dispensary net of cash

Proceeds from sale of PAMS net of cash

Proceeds from sale of HG net of cash

Proceeds from sale of PDS net of cash

Acquisition of High Gardens

Acquisition of Silver Fox

Acquisition of Mayflower

Acquisition of XAAS Agro

Acquisition of Midwest Hemp

Acquisition of Elephant Head

Proceeds from sale of HG net of cash

Acquisition of Charm City

( 3,543,830 )

Acquisition of MJ Distributing

( 1,592,500 )

Proceeds from sale of OMS net of cash

Net cash provided by (used in) investing activities

( 7,211,348 )

CASH FLOWS FROM FINANCING ACTIVITIES

1 unchanged sentence

Deferred financing costs

Proceeds from long-term debt

Proceeds from warrant exercises

Proceeds from long-term debt, net of issuance costs

Convertible debt payment

Proceeds from option exercises

Proceeds from warrant exercises

Debt principal payments

Lease principal payments

( 1,579,700 )

( 1,576,553 )

Net cash provided by financing activities

Net change in cash and restricted cash

Cash and restricted cash, beginning of year

Cash and restricted cash, end of year

accompanying notes are an integral part of these consolidated financial statements

VIREO HEALTH INTERNATIONAL, INC.

( 11,950,401 )

Cash and restricted cash, beginning of period

Cash and restricted cash, end of period

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

GOODNESS GROWTH HOLDINGS, INC.

Notes to Consolidated Financial Statements

Description of Business

Vireo Health International Inc.

or the “ Company ”) (formerly, Darien Business Development Corp.) was incorporated under the Alberta Business

Corporations Act on November 23, 2004.

On March 18, 2019, the Company completed a Reverse Takeover Transaction (“ RTO ”)

with Vireo Health Inc.

(“ Vireo U.S.

”), whereby the Company acquired Vireo U.S.

and the shareholders of Vireo

became the controlling shareholders of the Company ( Note 3 ).

Following the RTO, the Company is listed on the Canadian

Securities Exchange (the “ CSE ”) under ticker symbol “VREO”.

Vireo is a physician-led, science-focused

organization that cultivates and manufactures pharmaceutical-grade cannabis and cannabis extracts.

Vireo operates cannabis cultivation,

production, and dispensary facilities in Arizona, Maryland, Minnesota, New Mexico, New York, and Ohio through its subsidiaries.

While marijuana and CBD-infused products

are legal under the laws of several U.S.

states (with vastly differing restrictions), the United States Federal Controlled Substances

Act classifies all “marijuana” as a Schedule I drug.

federal law, a Schedule I drug or substance has a high

potential for abuse, no accepted medical use in the United States, and a lack of safety for the use of the drug under medical supervision.

Recently some federal officials have attempted to distinguish between medical cannabis use as necessary, but recreational use as

“still a violation of federal law.” At the present time, the distinction between “medical marijuana” and

“recreational marijuana” does not exist under U.S.

Since being declared a global pandemic

on March 11, 2020, the spread of COVID-19 has severely impacted many local economies around the globe.

to COVID-19, governments have imposed restrictions on travel and business operations, temporarily closed businesses, and 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.

Governments and central banks have responded with monetary and fiscal interventions

to stabilize economic conditions.

The duration and impact of the COVID-19 pandemic, as well as

the effectiveness of government and central bank responses, remains unclear at this time.

Although our business has been deemed

essential and/or we have been permitted to continue operating our facilities in the states in which we cultivate, process, and

sell cannabis during the pendency of the COVID-19 pandemic, there is no assurance that our operations will continue to be deemed

essential and/or will continue to be permitted to operate.

We may incur expenses or delays relating to such events outside of our

control, which could have a material, adverse effect on our business, operating results, financial condition and the trading price

of our Subordinate Voting Shares.

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.

of Significant Accounting Policies

of presentation and going concern

accompanying financial statements reflect the accounts of the Company.

The consolidated financial statements were prepared in accordance

with generally accepted accounting principles in the United States (“ GAAP ”)

and pursuant to the rules and regulations of the United States Securities and Exchange Commission (“ SEC ”).

financial statements have been prepared on a going concern basis, which assumes that 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.

The Company’s ability to continue as a going concern is dependent upon obtaining additional

financing to meet anticipated cash needs for working capital and capital expenditures through the next twelve months.

the year ended December 31, 2020, the Company reported a net loss of $ 22,942,194 and

a net loss of $ 57,479,312 for the year ended December 31, 2019.

the years ended December 31, 2020 and 2019, the Company had negative cash flows used in operating activities of $ 10,932,383

and $26,906,844, respectively.

of December 31, 2020 and 2019, the Company had working capital of $ 27,098,496 and

$ 23,488,483 respectively, reflecting an increase in cash of $ 17,871,507 for

the year ended December 31, 2020 .

management forecasts and related assumptions support the view that the Company can adequately manage the operational needs

of the business.

These management forecasts and assumptions support

the Company’s ability to meet its contractual obligations such as payment of interest on the 5% convertible notes of $45,000, payment

of interest on the additional financings, and the Company’s lease commitments of $5,014,048.

financial statements reflect all adjustments, which, in the opinion of management, are necessary for a fair presentation of the

Company’s financial position and results of operations.

of consolidation

financial statements include the accounts of the following entities wholly owned, or effectively controlled by the Company as of

December 31, 2020:

Description of Business and Summary

Goodness Growth Holdings, Inc.

(“ Goodness Growth ” or the “ Company ”) (formerly, Vireo Health International, Inc.) was incorporated under the Alberta Business Corporations Act on November 23, 2004.

The Company was listed on the Canadian Securities Exchange (the “ CSE ”) under ticker symbol “VREO”.

On June 9, 2021, the Company changed its name to Goodness Growth Holdings, Inc.

and its ticker symbol on the CSE to “GDNS.”

Goodness Growth is a physician-led, science-focused organization that cultivates and/or manufactures pharmaceutical-grade cannabis and cannabis extracts.

Goodness Growth operates cannabis cultivation, production, and dispensary facilities in Arizona, Maryland, Minnesota, New Mexico, and New York, and formerly in Ohio, which was disposed of on March 31, 2021, through its subsidiaries.

While marijuana and CBD-infused products are legal under the laws of several U.S.

states (with vastly differing restrictions), the United States Federal Controlled Substances Act classifies all “marijuana” as a Schedule I drug.

federal law, a Schedule I drug or substance has a high potential for abuse, no accepted medical use in the United States, and a lack of safety for the use of the drug under medical supervision.

Recently some federal officials have attempted to distinguish between medical cannabis use as necessary, but recreational use as “still a violation of federal law.” At the present time, the distinction between “medical marijuana” and “recreational marijuana” does not exist under U.S.

Since being declared a global pandemic in March 2020, the spread of COVID-19 has severely impacted virtually all areas of the globe.

In many countries, including the United States, businesses were forced to cease or limit operations for long or indefinite periods of time.

Measures taken to contain the spread of the virus, including travel bans, quarantines, social distancing, and closures of non-essential services triggered significant disruptions to businesses worldwide, resulting in an economic slowdown.

Global stock markets have also experienced great volatility.

Governments and central banks have responded with monetary and fiscal interventions to stabilize economic conditions.

The duration and impact of the COVID-19 pandemic, as well as the effectiveness of government and central bank responses, remains unclear at this time.

During 2021, the Company’s revenue, gross profit and operating income were not negatively impacted by COVID-19 and the Company generally maintained the consistency of its operations.

However, the uncertain nature of the spread of COVID-19 may impact its business operations for reasons including the potential quarantine of Goodness Growth employees or those of its supply chain partners.

Summary of Significant Accounting Policies

Basis of presentation and going concern

The accompanying consolidated financial statements reflect the accounts of the Company.

The consolidated financial statements were prepared in accordance with generally accepted accounting principles in the United States (“ GAAP ”) and pursuant to the rules and regulations of the United States Securities and Exchange Commission (“ SEC ”).

These consolidated financial statements have been prepared on a going concern basis, which assumes that 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 year ended December 31, 2021, the Company reported a net loss of $ 33,690,475 and a net loss of $ 22,942,194 for the year ended December 31, 2020.

For the years ended December 31, 2021 and 2020, the Company had negative cash flows used in operating activities of $ 30,517,197 and $ 10,932,383 , respectively.

As of December 31, 2021 and 2020, the Company had working capital of $ 25,233,518 and $ 27,098,496 respectively, reflecting a decrease in working capital of $ 1,864,978 for the year ended December 31, 2021.

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

These management forecasts and assumptions support the Company’s ability to meet its contractual obligations such as payments of principal and interest on the outstanding notes payable and the Company’s lease commitments.

These consolidated financial statements reflect all adjustments, which, in the opinion of management, are necessary for a fair presentation of the Company’s financial position and results of operations.

Basis of consolidation

These consolidated financial statements include the accounts of the following entities wholly owned, or effectively controlled by the Company for the year ended December 31, 2021:

Name of entity

incorporation

Vireo Health International, Inc.

British Columbia, CAN

Place of incorporation

Vireo Health, Inc.

7 unchanged sentences

Maryland, USA

Vireo of Charm City, LLC

Maryland, USA

1776 Hemp, LLC

5 unchanged sentences

Elephant Head Farm, LLC

EHF Cultivation Management, LLC

Retail Management Associates, LLC

13 unchanged sentences

Massachusetts, USA

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 financial statements

of the Company.

the year ended December 31, 2020, the following entities have been removed as a result of business dispositions:

High Gardens,

Inc., Midwest Hemp Research, LLC, Pennsylvania Medical Solutions, LLC, and Pennsylvania Dispensary Solutions, LLC.

Refer to Note

3 for further details on business dispositions.

On March 18, 2019, Vireo U.S.

the RTO of Vireo Health International Inc.

(formerly Darien Business Development Corp.

or “ Darien ”) whereby

Darien acquired all of the issued and outstanding shares of Vireo U.S.

Following the completion of the Transaction, the former

shareholders of Vireo U.S.

acquired control of the Company, as they own a majority of the outstanding shares of the Company upon

completion of the Transaction.

adopted accounting pronouncements

In June 2016, the FASB issued ASU

2016-13, Financial Instruments - Credit Losses (Topic 326):

Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”).

ASU 2016-13 requires the measurement of current expected credit losses for financial assets held at the reporting date based on

historical experience, current conditions and reasonable and supportable forecasts.

Adoption of ASU 2016-13 will require financial

institutions and other organizations to use forward-looking information to better formulate their credit loss estimates.

the ASU amends the accounting for credit losses on available for sale debt securities and purchased financial assets with credit

deterioration.

This update will be effective for fiscal years beginning after December 15, 2019, including interim periods

within those fiscal years.

The Company implemented the provisions of ASU 2016-13 on January 1, 2020.

The adoption of the standard

did not have a material impact on the Company's results of operations or cash flows.

In August 2018, the FASB issued ASU

2018-13, Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement (Topic 820) (“ASU 2018-13”).

ASU 2018-13 adds, modifies, and removes certain fair value measurement disclosure requirements.

ASU 2018-13 is effective for annual

and interim periods beginning after December 15, 2019.

Early adoption is permitted.

The following are the changes that will

have an immediate disclosure impact for the Company upon adoption of the guidance for fair value measurement:

(i) disclosure

of the valuation processes for Level 3 fair value measurements is no longer required, (ii) changes in unrealized gains and

losses for the reporting period included in other comprehensive income (loss) for recurring Level 3 fair value measurements held

at the end of the reporting period is a new disclosure requirement, and (iii) the range and weighted average (or reasonable

and rational method) of significant unobservable inputs used to develop Level 3 fair value measurement is a new disclosure requirement.

The Company implemented the provisions of ASU 2018-13 on January 1, 2020.

The adoption of the standard did not have a material

impact on the Company's results of operations or cash flows.

of estimates and significant judgments

The preparation of the Company’s

consolidated financial statements requires management to make estimates, assumptions and judgments that affect the reported amounts

of revenue, expenses, assets, liabilities, accompanying disclosures and the disclosure of contingent liabilities.

These estimates

and judgments are subject to change based on experience and new information which could result in outcomes that require a material

adjustment to the carrying amounts of assets or liabilities affecting future periods.

Estimates and judgments are assessed on an

ongoing basis.

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 financial statements of the Company.

During the year ended December 31, 2021, Ohio Medical Solutions, Inc.

was removed as a result of a business disposition, and Vireo Health of Nevada 1, LLC, and Vireo of Charm City, LLC, were acquired.

Refer to Note 3 for further details on business dispositions.

Recently adopted accounting pronouncements

In January 2020, the FASB issued ASU 2020-01, Investments - Equity Securities (Topic 321), Investments - Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815) (“ASU 2020-01”), which is intended to clarify the interaction of the accounting for equity securities under Topic 321 and investments accounted for under the equity method of accounting in Topic 323 and the accounting for certain forward contracts and purchased options.

The adoption of the standard did not have a material impact on the Company's results of operations or cash flows.

Use of estimates and significant judgments

The preparation of the Company’s consolidated financial statements requires management to make estimates, assumptions and judgments that affect the reported amounts of revenue, expenses, assets, liabilities, accompanying disclosures and the disclosure of contingent liabilities.

These estimates and judgments are subject to change based on experience and new information which could result in outcomes that require a material adjustment to the carrying amounts of assets or liabilities affecting future periods.

Estimates and judgments are assessed on an ongoing basis.

Revisions to estimates are recognized prospectively.

of key estimates in these consolidated financial statements include cash flows and discount rates used in accounting for business

combinations including contingent consideration, asset impairment including estimated future cash flows and fair values, the allowance

for doubtful accounts receivable and trade receivables, inventory valuation adjustments that contemplate the market value of, and

demand for inventory, estimated useful lives of property and equipment and intangible assets, valuation allowance on deferred income

tax assets, determining the fair value of financial instruments, fair value of stock-based compensation, estimated variable consideration

on contracts with customers, sales return estimates, the fair value of the convertible notes and equity component and the classification,

incremental borrowing rates and lease terms applicable to lease contracts.

Financial statement areas that require

significant judgments are as follows:

Assets held for sale and discontinued operations

- The Company classifies non-current assets and disposal groups as held for sale if their carrying amounts will be recovered principally

through a sale rather than through continuing use.

Such non-current assets and disposal groups classified as held for sale are

measured at the lower of their carrying amount and their fair value less cost to sell.

Costs to sell are the incremental costs

directly attributable to the sale, excluding finance costs and income tax expense.

The criteria for held for sale classification

is regarded as met only when the sale is highly probable and the asset or the disposal group is available for immediate sale in

its present condition.

Actions required to complete the sale should indicate that it is unlikely that significant changes to the

sale will be made or that the sale will be withdrawn.

Management must be committed to the sale expected within one year from the

date of the classification.

A discontinued operation is a component

of the Company that either has been abandoned, disposed of, or is classified as held for sale, and:

(i) disposal group is a component

of an entity (or group of components);

(ii) component of an entity (or group of components) meets the held for sale criteria, is

disposed of by sale, or is disposed of other than by sale;

(iii) component of an entity (or group of components) represents a strategic

shift that has (or will have) a major effect on an entity’s operations and financial results.

A component of the Company

comprises an operation and cash flows that can be clearly distinguished, operationally and for financial reporting purposes, from

the rest of the Company.

During the year ended December 31, 2020, the Company completed divestitures of four subsidiaries, further

described in Note 3.

None of these divestitures represent a strategic shift that has or will have a major effect on an entity’s

operations and financial results, and as such, none of these divestitures are considered a discontinued operation.

Asset impairment – Asset impairment

tests require the allocation of assets to asset groups, where appropriate, which requires significant judgment and interpretation

with respect to the integration between the assets and shared resources.

Asset impairment tests require the determination of whether

there is an indication of impairment.

The assessment of whether an indication of impairment exists is performed at the end of each

reporting period and requires the application of judgment, historical experience, and external and internal sources of information.

Leases – The Company applies judgment

in determining whether a contract contains a lease and if a lease is classified as an operating lease or a finance lease.

determines the lease term as the non-cancellable term of the lease, which may include options to extend or terminate the lease

when it is reasonably certain that the Company will exercise that option.

The Company has several lease contracts

that include extension and termination options.

The Company applies judgment in evaluating whether it is reasonably certain whether

or not to exercise the option to renew or terminate the lease.

That is, it considers all relevant factors that create an economic

incentive for it to exercise either the renewal or termination.

After the commencement date, the Company reassesses the lease term

if there is a significant event or change in circumstances that is within its control and affects its ability to exercise or not

to exercise the option to renew or to terminate (e.g., construction of significant leasehold improvements or significant customization

to the leased asset).

The Company also applies judgment in allocating

the consideration in a contract between lease and non-lease components.

It considers whether the Company can benefit from the right-of-use

asset either on its own or together with other resources and whether the asset is highly dependent on or highly interrelated with

another right-of-use asset.

financial statements are presented in the United States dollar (“ USD ”), which is the Company’s reporting

The functional currency of the Company and its subsidiaries, as determined by management, is the United States

(“ US ”) dollar.

loss per share

net loss per share is computed by dividing reported net loss by the weighted average number of common shares outstanding for the

reported period.

Diluted net loss per share reflects the potential dilution that could occur if securities or other contracts to

issue common stock were exercised or converted into common stock of the Company during the reporting period.

Diluted net loss per

share is computed by dividing net loss by the sum of the weighted average number of common shares and the number of potential dilutive

common share equivalents outstanding during the period.

Potential dilutive common share equivalents consist of the incremental

common shares issuable upon the exercise of vested share options and the incremental shares issuable upon conversion of the convertible

Examples of key estimates in these consolidated financial statements include cash flows and discount rates used in accounting for business combinations including contingent consideration, asset impairment including estimated future cash flows and fair values, the allowance for doubtful accounts receivable and trade receivables, inventory valuation adjustments that contemplate the market value of, and demand for inventory, estimated useful lives of property and equipment and intangible assets, valuation allowance on deferred income tax assets, determining the fair value of financial instruments, fair value of stock-based compensation, estimated variable consideration on contracts with customers, estimated redemption rates on loyalty sales programs, estimated paid time off redemption rates, sales return estimates, the fair value of the convertible notes and equity component and the classification, incremental borrowing rates and lease terms applicable to lease contracts.

Financial statement areas that require significant judgments are as follows:

Assets held for sale and discontinued operations - The Company classifies non-current assets and disposal groups as held for sale if their carrying amounts will be recovered principally through a sale rather than through continuing use.

Such non-current assets and disposal groups classified as held for sale are measured at the lower of their carrying amount and their fair value less cost to sell.

Costs to sell are the incremental costs directly attributable to the sale, excluding finance costs and income tax expense.

The criteria for held for sale classification is regarded as met only when the sale is highly probable and the asset or the disposal group is available for immediate sale in its present condition.

Actions required to complete the sale should indicate that it is unlikely that significant changes to the sale will be made or that the sale will be withdrawn.

Management must be committed to the sale expected within one year from the date of the classification.

A discontinued operation is a component of the Company that either has been abandoned, disposed of, or is classified as held for sale, and:

(i) disposal group is a component of an entity (or group of components);

(ii) component of an entity (or group of components) meets the held for sale criteria, is disposed of by sale, or is disposed of other than by sale;

(iii) component of an entity (or group of components) represents a strategic shift that has (or will have) a major effect on an entity’s operations and financial results.

A component of the Company comprises an operation and cash flows that can be clearly distinguished, operationally and for financial reporting purposes, from the rest of the Company.

During the year ended December 31, 2021, the Company completed two divestitures, further described in Note 3.

Management considered the quantitative results of the divested entities as well as qualitative strategic considerations to judge whether the two divestitures constitute a discontinued operation.

Management does not believe either of these divestitures represent a strategic shift that has or will have a major effect on an entity’s operations and financial results, and as such, none of these divestitures are considered a discontinued operation.

Definition of a business – Determination of what constitutes a business for purposes of acquisition accounting requires significant judgement.

ASC 805 notes that if substantially all of the fair value of the gross assets acquired is concentrated

in a single identifiable asset or group of similar identifiable assets, the set is not considered a business.

However, the exact quantitative threshold is not explicitly defined.

During the year ended December 31, 2021, the Company completed two acquisitions, further described in Note 3.

Management determined that substantially all of the fair value of the assets acquired was concentrated in the licenses acquired, and as such they should be treated as asset acquisitions.

Asset impairment – Asset impairment tests require the allocation of assets to asset groups, where appropriate, which requires significant judgment and interpretation with respect to the integration between the assets and shared resources.

Asset impairment tests require the determination of whether there is an indication of impairment.

The assessment of whether an indication of impairment exists is performed at the end of each reporting period and requires the application of judgment, historical experience, and external and internal sources of information.

Leases – The Company applies judgment in determining whether a contract contains a lease and if a lease is classified as an operating lease or a finance lease.

The Company determines the lease term as the non-cancellable term of the lease, which may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option.

The Company has several lease contracts that include extension and termination options.

The Company applies judgment in evaluating whether it is reasonably certain whether or not to exercise the option to renew or terminate the lease.

That is, it considers all relevant factors that create an economic incentive for it to exercise either the renewal or termination.

After the commencement date, the Company reassesses the lease term if there is a significant event or change in circumstances that is within its control and affects its ability to exercise or not to exercise the option to renew or to terminate (e.g., construction of significant leasehold improvements or significant customization to the leased asset).

The Company also applies judgment in allocating the consideration in a contract between lease and non-lease components.

It considers whether the Company can benefit from the right-of-use asset either on its own or together with other resources and whether the asset is highly dependent on or highly interrelated with another right-of-use asset.

Foreign currency

These consolidated financial statements are presented in the United States dollar (“ USD ”), which is the Company’s reporting currency.

The functional currency of the Company and its subsidiaries, as determined by management, is the United States (“ US ”) dollar.

Net loss per share

Basic net loss per share is computed by dividing reported net loss by the weighted average number of common shares outstanding for the reported period.

Diluted net loss per share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock of the Company during the reporting period.

Diluted net loss per share is computed by dividing net loss by the sum of the weighted average number of common shares and the number of potential dilutive common share equivalents outstanding during the period.

Potential dilutive common share equivalents consist of the incremental common shares issuable upon the exercise of vested share options and the incremental shares issuable upon conversion of the convertible notes.

Potential dilutive common share equivalents consist of stock options, warrants, and convertible notes.

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

years ending December 31, 2020 and 2019 were as follows:

For the year ended December 31,

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 years ending December 31, 2021 and 2020 were as follows:

Stock options

Convertible notes

Standards Codification ("

ASC ") 280, Segment Reporting, establishes disclosure requirements relating to operating

segments in annual and interim financial statements.

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

Segment Information

Accounting Standards Codification ("

ASC ") 280, Segment Reporting, establishes disclosure requirements relating to operating segments in annual and interim financial statements.

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 that 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.

and cash equivalents

and cash equivalents is comprised of cash and highly liquid investments that are readily convertible into known amounts of cash

with original maturities of three months or less.

Company has no cash equivalents for the years presented.

combinations and goodwill

Company accounts for business combinations using the acquisition method in accordance with ASC 805, Business Combinations, which

requires recognition of assets acquired and liabilities assumed, including contingent assets and liabilities, at their respective

fair values on the date of acquisition.

Any excess of the purchase consideration over the net fair value of tangible and identified

intangible assets acquired less liabilities assumed is recorded as goodwill.

The costs of business acquisitions, including fees

for accounting, legal, professional consulting and valuation specialists, are expensed as incurred within acquisition-related (income)

expenses, net.

Purchase price allocations may be preliminary and, during the measurement period not to exceed one year from the

date of acquisition, changes in assumptions and estimates that result in adjustments to the fair value of assets acquired and liabilities

assumed are recorded in the period the adjustments are determined.

estimated fair value of acquired assets and assumed liabilities are determined primarily using a discounted cash flow approach,

with estimated cash flows discounted at a rate that the Company believes a market participant would determine to be commensurate

with the inherent risks associated with the asset and related estimated cash flow streams.

value measurements

carrying value of the Company’s accounts receivable, accounts payable, accrued expenses and other current liabilities approximate

their fair value due to their short-term nature, and the carrying value of long-term loans and convertible debt approximates

fair value as they bear a market rate of interest.

value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market

participants at the measurement date.

In estimating the fair value of an asset or a liability,

the Company takes into account the characteristics of the asset or liability if market participants would take those characteristics

into account when pricing the asset or liability at the measurement date.

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.

cost includes pre-harvest, post-harvest and 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.

Post-harvest costs include costs associated with drying, trimming, blending, extraction, purification,

quality testing and allocated overhead.

Shipment and fulfillment costs include the costs of packaging, labelling, courier services

and allocated overhead.

is stated at the lower of cost or net realizable value, determined using weighted average cost.

Net realizable value is defined

as the estimated selling price in the ordinary course of business, less reasonably predictable costs of completion, disposal and

transportation.

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.

Cash and cash equivalents

Cash and cash equivalents is comprised of cash and highly liquid investments that are readily convertible into known amounts of cash with original maturities of three months or less.

The Company has no cash equivalents for the years presented.

Business combinations and goodwill

The Company accounts for business combinations using the acquisition method in accordance with ASC 805, Business Combinations, which requires recognition of assets acquired and liabilities assumed, including contingent assets and liabilities, at their respective fair values on the date of acquisition.

Any excess of the purchase consideration over the net fair value of tangible and identified intangible assets acquired less liabilities assumed is recorded as goodwill.

The costs of business acquisitions, including fees for accounting, legal, professional consulting and valuation specialists, are expensed as incurred within acquisition-related (income) expenses, net.

Purchase price allocations may be preliminary and, during the measurement period not to exceed one year from the date of acquisition, changes in assumptions and estimates that result in adjustments to the fair value of assets acquired and liabilities assumed are recorded in the period the adjustments are determined.

The estimated fair value of acquired assets and assumed liabilities are determined primarily using a discounted cash flow approach, with estimated cash flows discounted at a rate that the Company believes a market participant would determine to be commensurate with the inherent risks associated with the asset and related estimated cash flow streams.

Fair value measurements

The carrying value of the Company’s accounts receivable, accounts payable, and accrued liabilities approximate their fair value due to their short-term nature, and the carrying value of notes receivable and long-term debt approximates fair value as they bear a market rate of interest.

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.

In estimating the fair value of an asset or a liability, the Company takes into account the characteristics of the asset or liability if market participants would take those characteristics into account when pricing the asset or liability at the measurement date.

Inventory is comprised of cannabis work-in-process, cannabis finished goods and other inventory.

Work-in-process inventory includes cannabis plants, bulk harvested material, and various bulk oils and extracts.

Finished goods include packaged flower and extracts.

Other inventory includes product packaging, hemp derived CBD, apparel, and paraphernalia.

Inventory cost includes pre-harvest, post-harvest and 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.

Post-harvest costs include costs associated with drying, trimming, blending, extraction, purification, quality testing and allocated overhead.

Shipment and fulfillment costs include the costs of packaging, labelling, courier services and allocated overhead.

Inventory is stated at the lower of cost or net realizable value, determined using weighted average cost.

Net realizable value is defined as the estimated selling price in the ordinary course of business, less reasonably predictable costs of completion, disposal and transportation.

At the end of each reporting period, the Company performs an assessment of inventory and record 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.

Property and equipment

and equipment are recorded at cost net of accumulated depreciation and impairment, if any.

Depreciation is computed using the straight-line

method over the estimated useful lives of the assets.

The estimated useful life of buildings and improvements ranges from five

to fifteen years, the estimated useful life of property and equipment, other than buildings, ranges from three to ten years.

is not depreciated.

Leasehold improvements, included in buildings and improvements, are depreciated over the lesser of the asset’s

estimated useful life or the remaining lease term.

The estimated useful life of right of use assets relating to operating and finance

leases ranges from one to sixty-four years.

assets are retired or disposed of, the cost and accumulated depreciation are removed from the respective accounts and any related

gain or loss is recognized.

Property and equipment are recorded at cost net of accumulated depreciation and impairment, if any.

Depreciation is computed using the straight-line method over the estimated useful lives of the assets.

The estimated useful life of buildings and improvements ranges from five to thirty-nine , the estimated useful life of property and equipment, other than buildings, ranges from three to ten years .

Land is not depreciated.

Leasehold improvements, included in buildings and improvements, are depreciated over the lesser of the asset’s estimated useful life or the remaining lease term.

The estimated useful life of right of use assets relating to operating and finance leases ranges from one to sixty-four years .

When assets are retired or disposed of, the cost and accumulated depreciation are removed from the respective accounts and any related gain or loss is recognized.

Maintenance and repairs are charged to expenses as incurred.

Significant expenditures, which extend

the useful lives of assets or increase productivity, are capitalized.

When significant parts of an item of property and equipment

have different useful lives, they are accounted for as separate items or components of property and equipment.

Construction-in-process

includes construction progress payments, deposits, engineering costs, interest expense on long-term construction projects and other

costs directly related to the construction of the facilities.

Expenditures are capitalized during the construction period and construction

in progress is transferred to the relevant class of property and equipment when the assets are available for use, at which point

the depreciation of the asset commences.

estimated useful lives are reviewed at the end of each reporting period, with the effect of any changes in estimate being accounted

for on a prospective basis.

Capitalization of

incurred relating to the construction or expansion of facilities is capitalized to the construction in progress.

The Company ceases

the capitalization of interest when construction activities are substantially completed and the facility is available for commercial

Significant expenditures, which extend the useful lives of assets or increase productivity, are capitalized.

When significant parts of an item of property and equipment have different useful lives, they are accounted for as separate items or components of property and equipment.

Construction-in-process includes construction progress payments, deposits, engineering costs, interest expense on long-term construction projects and other costs directly related to the construction of the facilities.

Expenditures are capitalized during the construction period and construction in progress is transferred to the relevant class of property and equipment when the assets are available for use, at which point the depreciation of the asset commences.

The estimated useful lives are reviewed at the end of each reporting period, with the effect of any changes in estimate being accounted for on a prospective basis.

Capitalization of interest

Interest incurred relating to the construction or expansion of facilities is capitalized to the construction in progress.

The Company ceases the capitalization of interest when construction activities are substantially completed and the facility is available for commercial use.

Intangible assets

assets include intangible assets acquired as part of business combinations, asset acquisitions and other business transactions.

Intangible assets include intangible assets acquired as part of business combinations, asset acquisitions and other business transactions.

The Company records intangible assets at cost, net of accumulated amortization and accumulated impairment losses, if any.

is measured based on the fair values of cash consideration paid and equity interests issued.

The cost of an intangible asset acquired

is its acquisition date fair value.

of definite life intangible assets is calculated on a straight-line basis over the estimated useful lives of the assets as follows:

there is no foreseeable limit on the period of time over which an intangible asset is expected to contribute to the cash flows

of the Company, an intangible asset is determined to have an indefinite life.

Indefinite life intangible assets are not amortized

but tested for impairment annually or more frequently when indicators of impairment exist.

If the carrying value of an individual

indefinite-lived intangible asset exceeds its fair value, such individual indefinite-life intangible asset is impaired by the amount

of the excess.

estimated useful lives are reviewed at the end of each reporting period, with the effect of any changes in estimate being accounted

for on a prospective basis.

Impairment of long-lived

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 recoverable.

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 ”).

An impairment loss is recognized when the sum of projected undiscounted cash flows

is less than the carrying value of the asset group.

The measurement of the impairment loss to be recognized is based on the difference

between the fair value and the carrying value of the asset group.

Fair value can be determined using a market approach, income

approach or cost approach.

Intangible assets acquired in a business combination are measured at fair value on the acquisition date.

Amortization of definite life intangible assets is calculated on a straight-line basis over the estimated useful lives of the assets as follows:

15 - 20 years

When there is no foreseeable limit on the period of time over which an intangible asset is expected to contribute to the cash flows of the Company, an intangible asset is determined to have an indefinite life.

Indefinite life intangible assets are not amortized but tested for impairment annually or more frequently when indicators of impairment exist.

If the carrying value of an individual indefinite-lived intangible asset exceeds its fair value, such individual indefinite-life intangible asset is impaired by the amount of the excess.

The estimated useful lives are reviewed at the end of each reporting period, with the effect of any changes in estimate being accounted for on a prospective basis.

Impairment of long-lived assets

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

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 ”).

An impairment loss is recognized when the sum of projected undiscounted cash flows is less than the carrying value of the asset group.

The measurement of the impairment loss to be recognized is based on the difference between the fair value and the carrying value of the asset group.

Fair value can be determined using a market approach, income approach or cost approach.

The reversal of impairment losses is prohibited.

of goodwill and indefinite life intangible assets

and indefinite life intangible assets are tested for impairment annually, or more frequently when events or circumstances indicate

that impairment may have occurred.

As part of the impairment evaluation, the Company may elect to perform an assessment of qualitative

If this qualitative assessment indicates that it is more likely than not that the fair value of the indefinite-lived intangible

asset or the reporting unit (for goodwill) is less than its carrying value, a quantitative impairment test to compare the fair

value to the carrying value is performed.

Impairment of goodwill and indefinite life intangible assets

Goodwill and indefinite life intangible assets are tested for impairment annually, or more frequently when events or circumstances indicate that impairment may have occurred.

As part of the impairment evaluation, the Company may elect to perform an assessment of qualitative factors.

If this qualitative assessment indicates that it is more likely than not that the fair value of the indefinite-lived intangible asset or the reporting unit (for goodwill) is less than its carrying value, a quantitative impairment test to compare the fair value to the carrying value is performed.

An impairment charge is recorded if the carrying value exceeds the fair value.

Company determines if an arrangement is a lease at inception.

Operating leases are included in operating lease right-of-use (“ ROU ”)

assets and right-of-use liabilities (current and non-current) in the balance sheets.

Finance lease ROU assets are included in property

and equipment, net and ROU liabilities (current and non-current) in the balance sheets.

assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the

Company’s obligation to make lease payments arising from the lease.

ROU assets are classified as a finance lease or an

operating lease.

A finance lease is a lease in which 1) ownership of the property transfers to the lessee by the end of the

2) the lease grants the lessee an option to purchase the underlying asset that the lessee is reasonably

certain to exercise;

The Company determines if an arrangement is a lease at inception.

Operating leases are included in operating lease right-of-use (“ ROU ”) assets and right-of-use liabilities (current and non-current) in the balance sheets.

Finance lease ROU assets are included in property and equipment, net and ROU liabilities (current and non-current) in the balance sheets.

ROU assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease.

ROU assets are classified as a finance lease or an operating lease.

A finance lease is a lease in which 1) ownership of the property transfers to the lessee by the end of the lease term;

2) the lease grants the lessee an option to purchase the underlying asset that the lessee is reasonably certain to exercise;

3) the lease is for a major part of the remaining economic life of the underlying asset;

4) The present

value of the sum of the lease payments and any residual value guaranteed by the lessee that is not already included in the

lease payments equals or exceeds substantially all of the fair value;

or 5) the underlying asset is of such a specialized

nature that it is expected to have no alternative use to the lessor at the end of the lease term.

The Company classifies a

lease as an operating lease when it does not meet any one of these criteria.

assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term.

most of the Company’s leases do not provide an implicit rate, the incremental borrowing rate is used based on the information

available at commencement date in determining the present value of lease payments.

The Company uses the implicit rate when readily

determinable.

The ROU assets also include any lease payments made and excludes lease incentives.

The lease terms may include options

to extend or terminate the lease when it is reasonably certain that the Company will exercise that option.

finance leases, lease expenses are the sum of interest on the lease obligations and amortization of the ROU assets, resulting in

a front-loaded expense pattern.

ROU assets are amortized based on the lesser of the lease term and the useful life of the leased

asset according to the property and equipment accounting policy.

If ownership of the ROU assets transfers to the Company at the

end of the lease term or if the Company is reasonably certain to exercise a purchase option, amortization is calculated using the

estimated useful life of the leased asset, according to the property and equipment accounting policy.

For operating leases, the

lease expenses are generally recognized on a straight-line basis over the lease term and recorded to general and administrative

expenses in the statements of net loss and comprehensive loss.

The Company has elected to apply the practical

expedient, for each class of underlying asset, except real estate leases, to not separate non-lease components from the associated

lease components of the lessee’s contract and account for both components as a single lease component.

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.

The Company continues to recognize

the lease payments associated with these leases as expenses on a straight-line basis over the lease term.

4) The present value of the sum of the lease payments and any residual value guaranteed by the lessee that is not already included in the lease payments equals or exceeds substantially all of the fair value;

or 5) the underlying asset is of such a specialized nature that it is expected to have no alternative use to the lessor at the end of the lease term.

The Company classifies a lease as an operating lease when it does not meet any one of these criteria.

ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term.

As most of the Company’s leases do not provide an implicit rate, the incremental borrowing rate is used based on the information available at commencement date in determining the present value of lease payments.

The Company uses the implicit rate when readily determinable.

The ROU assets also include any lease payments made and excludes

lease incentives.

The lease terms may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option.

For finance leases, lease expenses are the sum of interest on the lease obligations and amortization of the ROU assets, resulting in a front-loaded expense pattern.

ROU assets are amortized based on the lesser of the lease term and the useful life of the leased asset according to the property and equipment accounting policy.

If ownership of the ROU assets transfers to the Company at the end of the lease term or if the Company is reasonably certain to exercise a purchase option, amortization is calculated using the estimated useful life of the leased asset, according to the property and equipment accounting policy.

For operating leases, the lease expenses are generally recognized on a straight-line basis over the lease term and recorded to general and administrative expenses in the statements of net loss and comprehensive loss.

The Company has elected to apply the practical expedient, for each class of underlying asset, except real estate leases, to not separate non-lease components from the associated lease components of the lessee’s contract and account for both components as a single lease component.

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.

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

Convertible notes

Company accounts for its convertible notes with a cash conversion feature in accordance with ASC 470-20, Debt with Conversion and

Other Options (“ ASC 470-20 ”), which requires the liability and equity components of convertible debt instruments

that may be settled in cash upon conversion, including partial cash settlement, to be separately accounted for in a manner that

reflects the issuer’s nonconvertible debt borrowing rate.

The initial proceeds from the sale of convertible notes are allocated

between a liability component and an equity component in a manner that reflects interest expense at the rate of similar nonconvertible

debt that could have been issued at such time.

The equity component represents the excess initial proceeds received over the fair

value of the liability component of the notes as of the date of issuance.

The resulting debt discount is amortized over

the period during which the convertible notes are expected to be outstanding as additional non-cash interest expenses.

repurchase of convertible debt instruments, ASC 470-20 requires the issuer to allocate total settlement consideration, inclusive

of transaction costs, amongst the liability and equity components of the instrument based on the fair value of the liability component

immediately prior to repurchase.

The difference between the settlement consideration allocated to the liability component and the

net carrying value of the liability component, including unamortized debt issuance costs, would be recognized as gain (loss) on

extinguishment of debt in the statements of net loss and comprehensive loss.

The remaining settlement consideration allocated to

the equity component would be recognized as a reduction of additional paid-in capital in the balance sheets.

The Company accounts for its convertible notes with a cash conversion feature in accordance with ASC 470-20, Debt with Conversion and Other Options (“ ASC 470-20 ”), which requires the liability and equity components of convertible debt instruments that may be settled in cash upon conversion, including partial cash settlement, to be separately accounted for in a manner that reflects the issuer’s nonconvertible debt borrowing rate.

The initial proceeds from the sale of convertible notes are allocated between a liability component and an equity component in a manner that reflects interest expense at the rate of similar nonconvertible debt that could have been issued at such time.

The equity component represents the excess initial proceeds received over the fair value of the liability component of the notes as of the date of issuance.

The resulting debt discount is amortized over the period during which the convertible notes are expected to be outstanding as additional non-cash interest expenses.

Upon repurchase of convertible debt instruments, ASC 470-20 requires the issuer to allocate total settlement consideration, inclusive of transaction costs, amongst the liability and equity components of the instrument based on the fair value of the liability component immediately prior to repurchase.

The difference between the settlement consideration allocated to the liability component and the net carrying value of the liability component, including unamortized debt issuance costs, would be recognized as gain (loss) on extinguishment of debt in the statements of net loss and comprehensive loss.

The remaining settlement consideration allocated to the equity component would be recognized as a reduction of additional paid-in capital in the balance sheets.

Revenue recognition

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.

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

Cannabis products are sold through various distribution channels.

Revenue is recognized when the control of the goods is transferred

to the customer, which occurs at a point in time, typically upon delivery to or receipt by the customer, depending on shipping

taxes collected from customers are remitted to the appropriate taxing jurisdictions and are excluded from sales revenue as

the Company considers itself a pass-through conduit for collecting and remitting sales taxes.

Excise duties that are both

imposed on and concurrent with a specific revenue-producing transaction, that are collected by the Company from a customer

are included in revenue.

Freight revenues on all product sales, when applicable, are also recognized, on a consistent manner,

at a point in time.

The term between invoicing and when payment is due is not significant and the period between when

the entity transfers the promised good or service to the customer and when the customer pays for that good or service is one

year or less.

The Company’s primary source of revenue is from wholesale of cannabis products to dispensary locations and direct retail sales to eligible customers at the Company-owned dispensaries.

Substantially all of the Company’s retail revenue is from the direct sale of cannabis products to medical customers.

The following table represents the Company’s disaggregated revenue by source:

Years Ended December 31,

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.

More specifically, wholesale revenues are recognized upon delivery and acceptance by wholesale customers.

Retail revenues are recognized at the point of sale.

Discounts are recorded at the time of revenue recognition.

Returns were not material during the years ended December 31, 2021 and 2020, but are recognized when the customer is refunded.

Revenues are presented net of discounts and returns.

Sales taxes collected from customers are remitted to the appropriate taxing jurisdictions and are excluded from sales revenue as the Company considers itself a pass-through conduit for collecting and remitting sales taxes.

Excise duties that are both imposed on and concurrent with a specific revenue-producing transaction, that are collected by the Company from a customer are included in revenue.

Freight revenues on all product sales, when applicable, are also recognized, on a consistent manner, at a point in time.

The term between invoicing and when payment is due is not significant and the period between when the entity transfers the promised good or service to the customer and when the customer pays for that good or service is one year or less.

Contract liabilities

contract liability is the obligation to transfer goods or services to a customer for which the Company has received consideration

from the customer.

If a customer pays consideration before the Company transfers goods or services, a contract liability is recognized

when the payment is made.

A contract liability is the obligation to transfer goods or services to a customer for which the Company has received consideration from the customer.

If a customer pays consideration before the Company transfers goods or services, a contract liability is recognized when the payment is made.

Contract liabilities are recognized as revenue when the Company performs under the contract.

Company considers whether there are other promises in the contracts that are separate performance obligations to which a portion

of the transaction price needs to be allocated.

In determining the transaction price for the sale of goods, the Company considers

the effects of variable consideration and the existence of significant financing components (if any).

Variable consideration

contracts for the sale of goods may provide customers with a right of return, volume discount, bonuses for volume/quality achievement,

or sales allowance.

In addition, the Company may provide in certain circumstances, a retrospective price reduction to a customer

based primarily on inventory movement.

The Company considers whether there are other promises in the contracts that are separate performance obligations to which a portion of the transaction price needs to be allocated.

In determining the transaction price for the sale of goods, the Company considers the effects of variable consideration and the existence of significant financing components (if any).

(i) Variable consideration

Some contracts for the sale of goods may provide customers with a right of return, volume discount, bonuses for volume/quality achievement, or sales allowance.

In addition, the Company may provide in certain circumstances, a retrospective price reduction to a customer based primarily on inventory movement.

These items give rise to variable consideration.

The Company uses the expected value method

to estimate the variable consideration because this method best predicts the amount of variable consideration to which the Company

will be entitled.

The Company uses the expected value method to estimate the variable consideration because this method best predicts the amount of variable consideration to which the Company will be entitled.

The Company uses historical evidence, current information and forecasts to estimate the variable consideration.

The requirements in ASC 606 on constraining estimates of variable consideration are applied to determine the amount of variable

consideration that can be included in the transaction price.

The Company reduces revenue and recognizes a contract liability equal

to the amount expected to be refunded to the customer in the form of a future rebate or credit for a retrospective price reduction,

representing its obligation to return the customer’s consideration.

The requirements in ASC 606 on constraining estimates of variable consideration are applied to determine the amount of variable consideration that can be included in the transaction price.

The Company reduces revenue and recognizes a contract liability equal to the amount expected to be refunded to the customer in the form of a future rebate or credit for a retrospective price reduction, representing its obligation to return the customer’s consideration.

The estimate is updated at each reporting period.

Significant financing component

Company may receive short-term advances from its customers.

Using the practical expedient in ASC 606, the Company does not adjust

the promised amount of consideration for the effects of a significant financing component if the Company expects, at contract inception,

that the period between when the Company transfers a promised good to a customer and when the customer pays for that good or service

will be one year or less.

(ii) Significant financing component

The Company may receive short-term advances from its customers.

Using the practical expedient in ASC 606, the Company does not adjust the promised amount of consideration for the effects of a significant financing component if the Company expects, at contract inception, that the period between when the Company transfers a promised good to a customer and when the customer pays for that good or service will be one year or less.

The Company has not, nor expects to receive long-term advances from customers.

Contract balance

(iii) Contract balance

Contract assets

contract asset is the right to consideration in exchange for goods or services transferred to the customer.

If the Company performs

by transferring goods to a customer before the customer pays consideration or before payment is due, a contract asset is recognized

for the earned consideration.

A contract asset is the right to consideration in exchange for goods or services transferred to the customer.

If the Company performs by transferring goods to a customer before the customer pays consideration or before payment is due, a contract asset is recognized for the earned consideration.

Accounts receivable

receivable represents the Company’s right to an amount of consideration that is unconditional (i.e., only the passage of

time is required before payment of the consideration).

of sales represents costs directly related to manufacturing and distribution of the Company’s products.

Primary costs include

raw materials, packaging, direct labor, overhead, shipping and handling and the depreciation of manufacturing equipment and production

Manufacturing overhead and related expenses include salaries, wages, employee benefits, utilities, maintenance and

property taxes.

A receivable represents the Company’s right to an amount of consideration that is unconditional (i.e., only the passage of time is required before payment of the consideration).

Cost of sales

Cost of sales represents costs directly related to manufacturing and distribution of the Company’s products.

Primary costs include raw materials, packaging, direct labor, overhead, shipping and handling and the depreciation of manufacturing equipment and production facilities.

Manufacturing overhead and related expenses include salaries, wages, employee benefits, utilities, maintenance and property taxes.

Cost of sales also includes inventory valuation adjustments.

The Company recognizes the cost of sales as the associated

revenues are recognized.

Company measures and recognizes compensation expense for stock options to employees and non-employees on a straight-line

basis over the vesting period based on their grant date fair values.

Prior to the adoption of ASU 2018-07 on January 1, 2019,

the fair value of stock options to non-employees were re-measured at each reporting date until one of either of the

counterparty’s commitment to perform is established or until the performance is complete.

The Company estimates the

fair value of stock options on the date of grant using the Black-Scholes option pricing model.

Determining the estimated fair

value of at the grant date requires judgment in determining the appropriate valuation model and assumptions, including

the fair value of subordinated voting shares on the grant date, risk-free rate, volatility rate, annual dividend yield and

the expected term.

The volatility rate is based on historical volatilities of public companies operating in a similar

industry to the Company.

stock options granted, the fair value of common stock at the date of grant was determined by the Board of Directors with assistance

from third-party valuation specialists.

The Company estimates forfeitures at the time of grant and revises these estimates in subsequent

periods if actual forfeitures differ from those estimates.

vested, non-forfeitable equity instruments issued to parties other than employees are measured on the date they are issued where

there is no specific performance required by the grantee to retain those equity instruments.

Stock-based payment transactions with

non-employees are measured at the fair value of the consideration received or the fair value of the equity instruments issued,

whichever is more reliably measurable.

Where fully vested, non-forfeitable equity instruments are granted to parties other than

employees in exchange for notes or financing receivable, the note or receivable is presented in additional paid-in capital on the

balance sheets.

Company uses the liability method of accounting for income taxes.

Under this method, deferred tax assets and liabilities are determined

based on the differences between the financial reporting and the tax bases of assets and liabilities and are measured using the

enacted tax rates and laws that will be in effect when the differences are expected to reverse.

Management assesses the likelihood

that the resulting deferred tax assets will be realized.

A valuation allowance is provided when it is more likely than not that

some portion or all of a deferred tax asset will not be realized.

Company recognizes uncertain income tax positions at the largest amount that is more likely than not to be sustained upon audit

by the relevant taxing authority.

An uncertain income tax position will not be recognized if it has less than a 50% likelihood

of being sustained.

The Company recognizes the cost of sales as the associated revenues are recognized.

Stock-based compensation

The Company measures and recognizes compensation expense for stock options to employees and non-employees on a straight-line basis over the vesting period based on their grant date fair values.

Prior to the adoption of ASU 2018-07 on January 1, 2019, the fair value of stock options to non-employees were re-measured at each reporting date until one of either of the counterparty’s commitment to perform is established or until the performance is complete.

The Company estimates the fair value of stock options on the date of grant using the Black-Scholes option pricing model.

Determining the estimated fair value of at the grant date requires judgment in determining the appropriate valuation model and assumptions, including the fair value of subordinated voting shares on the grant date, risk-free rate, volatility rate, annual dividend yield and the expected term.

The volatility rate is based on historical volatilities of public companies operating in a similar industry to the Company, as well as the Company’s historical volatility.

For stock options granted, the fair value of common stock at the date of grant was determined by the Board of Directors with assistance from management.

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

The Company records forfeitures as they occur.

Fully vested, non-forfeitable equity instruments issued to parties other than employees are measured on the date they are issued where there is no specific performance required by the grantee to retain those equity instruments.

Stock-based payment transactions with non-employees are measured at the fair value of the consideration received or the fair value of the equity instruments issued, whichever is more reliably measurable.

Where fully vested, non-forfeitable equity instruments are granted to parties other than employees in exchange for notes or financing receivable, the note or receivable is presented in additional paid-in capital on the balance sheets.

The Company uses the liability method of accounting for income taxes.

Under this method, deferred tax assets and liabilities are determined based on the differences between the financial reporting and the tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse.

Management assesses the likelihood that the resulting deferred tax assets will be realized.

A valuation allowance is provided when it is more likely than not that some portion or all of a deferred tax asset will not be realized.

The Company recognizes uncertain income tax positions at the largest amount that is more likely than not to be sustained upon audit by the relevant taxing authority.

An uncertain income tax position will not be recognized if it has less than a

50% likelihood of being sustained.

Changes in recognition or measurement are reflected in the period in which judgment occurs.

accounting pronouncements not yet adopted

In December 2019, the FASB issued

2019-12, Income Taxes (Topic 740) which is intended to simply the accounting for income taxes by eliminating

certain exceptions and simplifying certain requirements under Topic 740.

Updates are related to intraperiod tax allocation, deferred

tax liabilities for equity method investments interim period tax calculations, tax laws or rate changes in interim periods, and

income taxes related to employee stock ownership plans.

The guidance for ASU No.

2019-12 becomes effective on January 2021.

Management is currently evaluating the impact of these changes on the Consolidated Financial Statements.

In January 2020, the FASB issued ASU

2020-01, Investments - Equity Securities (Topic 321), Investments - Equity Method and Joint Ventures (Topic 323), and

Derivatives and Hedging (Topic 815) (“ ASU 2020-01 ”), which is intended to clarify the interaction of the accounting

for equity securities under Topic 321 and investments accounted for under the equity method of accounting in Topic 323 and the

accounting for certain forward contracts and purchased options accounted for under Topic 815.

ASU 2020-01 is effective for the

Company beginning January 1, 2021.

The Company is currently evaluating the effect of adopting this ASU on the Company’s

financial statements.

New accounting pronouncements not yet adopted

In October of 2021 FASB issued ASU 2021-08 Business Combinations (Topic 805):

Accounting for Contract Assets and Contract Liabilities from Contracts with Customers.

The update is intended to improve the accounting for acquired revenue contracts with customers in a business combination by addressing diversity in practice and inconsistency related to the recognition of an acquired contract liability and payment terms and their effect on subsequent revenue recognized by the acquirer.

The required date of adoption is January 1, 2023, and the Company is evaluating potential future impacts on the Company’s financial statements.

In November of 2021 FASB issued ASU 2021 -10 - Government Assistance (Topic 832):

Disclosures by Business Entities about Government Assistance.

The update is intended to increase the transparency of government assistance including the disclosure of the types of assistance, an entity’s accounting for the assistance, and the effect of the assistance on an entity’s financial statements.

The required date of adoption is January 1, 2022, and the Company is evaluating potential future impacts on the Company’s financial statements.

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 $20,320,936 including a $3,750,000 four-year note

with an 8 percent coupon rate payable quarterly.

As part of this transaction, the Company transferred assets and liabilities with

a net book value of 3,204,868.

Consideration received exceeded PAMS net assets at the time of sale, resulting in a gain of $17,116,068

which was recorded in the statement of loss and comprehensive loss for the year ended December 31, 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 and accrued interest

with a balance of $52,038 were cancelled, and the intangible asset with a net book value of $45,000 was disposed of, resulting

in a gain of $7,038.

On September 11, 2020, the

Company divested all the equity in its subsidiary company, High Gardens, Inc., in exchange for a 10% royalty on all

future net revenues generated by High Gardens, Inc.

The fair value of this royalty consideration was $68,276 and is

classified as an intangible asset with an indefinite life on the balance sheet.

This consideration received was less than

High Gardens, Inc.

net assets of $340,999 at the time of sale, resulting in a loss of $272,723 which was recorded in the

statement of loss and comprehensive loss for the year ended December 31, 2020.

As described above, this asset was

subsequently disposed in September 2020.

On December 17, 2020, the Company divested

all the equity in its subsidiary company, Pennsylvania Dispensary Solutions, LLC, to Jushi in exchange for consideration of $5,726,848

Consideration received exceeded PAMS net assets of $2,324,054 at the time of sale, resulting in a gain of $3,402,794 which

was recorded in the statement of loss and comprehensive loss for the year ended December 31, 2020.

Assets held for sale

On October 1, 2020, the Company reached

a definitive agreement with Ayr Strategies Inc.

(“ Ayr ”) to sell all of the assets and liabilities of its affiliated

company, Ohio Medical Solutions, Inc.

On October 1, 2020, the Company reached a definitive agreement with Ayr Strategies Inc.

(“ Ayr ”) to sell all of the assets and liabilities of its affiliated company, Ohio Medical Solutions, Inc.

(“ OMS ”) for $ 1,150,000 in cash.

Assets and liabilities relating to OMS

have been classified as “held for sale.” The carrying value of assets held for sale, net of liabilities to be assumed

by Ayr, related to OMS was less than the agreed upon purchase price of $1,150,000.

As such, no allowance for loss on assets held

for sale was recorded as of December 31, 2020.

The Company expects to recognize a gain when the sale is completed in 2021.

Assets and liabilities held for sale relating

to OMS are as follows:

Assets held for sale

Cash and cash equivalents

Right of use asset

Property and equipment

Total assets held for sale

Liabilities held for sale

Accounts payable and accrued liabilities

Right of Use Liability

Reverse Takeover

On March 18, 2019, Vireo U.S.

the reverse take-over of Vireo Health International Inc.

(formerly Darien) (the “ RTO ”) whereby Darien acquired

all of the issued and outstanding shares of Vireo U.S.

Following the completion of the RTO, the former shareholders of Vireo U.S.

acquired control of the Company, as they own a majority of the outstanding shares of the Company upon completion of the RTO.

The RTO is being treated as a reverse

recapitalization effected by a share exchange for financial accounting and reporting purposes since substantially all of

Darien operations were disposed of as part of the consummation of the RTO and therefore no goodwill or other intangible

assets were recorded by the Company as a result of the RTO.

is treated as the accounting acquirer as its

stockholders control the Company after the RTO, even though Darien was the legal acquirer.

As a result, the assets and

liabilities and the historical operations that are reflected in these financial statements are those of Vireo U.S.

had always been the reporting company.

All reference to Vireo U.S.

shares of common stock, warrants and options

have been presented on a post-transaction, post-reverse split basis.

The fair value of the shares issued in

the transaction was $2,999,986 and was listed as additional paid in capital in the statement of stockholder’s equity.

ASC 805 any excess of the fair value of the shares issued by the private entity over the value of the net monetary assets of the

public shell corporation is recognized as a reduction to equity.

The additional transaction cost associated with the RTO, $568,247

would still be expensed as incurred and would require no adjustment but would not be listed as a listing expense rather a transaction

Acquisition of Elephant Head Farm, LLC and retail Management

Associates, LLC

On March 22, 2019, the Company acquired

all of the equity interests of Elephant Head Farm, LLC and Retail Management Associates, LLC (collectively, the “ AZ entities ”).

The purpose of this acquisition was to acquire the exclusive right to manage and control Arizona Natural Remedies, an Arizona nonprofit

corporation with licenses to cultivate and distribute medical cannabis in the state of Arizona.

As part of the transaction, the

Company paid $10,500,000 in cash, issued $7,594,463 in multiple voting shares, and incurred total transaction costs related to

the acquisition of $723,272, including a finders’ fee of $620,000.

The transaction costs are included in selling, general

and administrative expenses in the consolidated statement of net loss and comprehensive loss.

The financial results of the AZ entities

are included in the Company’s financial statements since acquisition close.

The statements of net loss and comprehensive

loss include revenue of $4,631,052 and net loss of $5,413,373 for the year ended December 31, 2019, respectively.

The final allocations of the purchase price

to assets acquired and liabilities assumed on the acquisition date is listed below.

The goodwill of $7,792,605 is attributable

to the benefit of expected revenue growth and future market development.

Goodwill is not deductible for tax purposes.

Cash and cash equivalents

Other current assets

Property and equipment

Right of Use Assets

Intangible Asset (License)

Accounts payable and accrued liabilities

Right of Use Liability

Total liabilities

Net assets acquired

Acquisition of Red Barn Growers

On March 25, 2019, the Company acquired

substantially all of the assets of Silver Fox Management Services, LLC (“ Silver Fox ”) including all intellectual

property, contracts, leases, license rights and inventory.

The purpose of this acquisition was to acquire the exclusive right to

manage and control Red Barn Growers, Inc.

(“ Red Barn Growers ”), a New Mexico nonprofit corporation with licenses

to cultivate and distribute medical cannabis in the state of New Mexico.

As part of the transaction, the Company paid $2,000,000

in cash, issued $3,130,306 in multiple voting shares, and incurred total transaction costs related to the acquisition of $16,608.

The financial results of Red Barn Growers

are included in the Company’s financial statements since acquisition close.

The statements of net loss and comprehensive

loss include revenue of $1,085,332 and net loss of $4,010,077 for the year ended December 31, 2019, respectively.

The final allocations of the purchase price

to assets acquired and liabilities assumed on the acquisition date is listed below.

The goodwill of $3,878,300 is attributable

to the benefit of expected revenue growth and future market development.

Goodwill is not deductible for tax purposes.

Red Barn Growers

Cash and cash equivalents

Other current assets

Property and equipment

Right of Use Assets

Intangible Asset (License)

Accounts payable and accrued liabilities

Right of Use Liability

Total liabilities

Net assets acquired

Acquisition of MJ Distributing C201,

LLC and MJ Distributing P132, LLC

On April 10, 2019, the Company entered

into a definitive agreement to acquire 100% of the membership interests in MJ Distributing C201, LLC and MJ Distributing P132,

LLC (“ MJ Distributing ”) which hold provisional licenses to cultivate and distribute, respectively, medical cannabis

in the state of Nevada.

The purpose of this acquisition was to acquire a medical marijuana license in the state of Nevada.

acquisition was financed with cash on hand and borrowings.

As of December 31, 2019 and 2020, the Company

had made cash deposits with the sellers and in escrow of $1,592,500 and placed convertible promissory notes in the amount of $2,500,000

in escrow, as consideration for the equity.

Additionally, as of December 31, 2019, there were deferred acquisition costs of $28,136.

The completion of the acquisition of MJ

Distributing is conditional upon the Nevada Department of Taxation’s approval of the change in ownership, which occurred

on January 5, 2021.

See Note 26 for additional information on the close of this acquisition.

Assets and liabilities relating to OMS were classified as “held for sale” as of December 31, 2020.

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 $ 712,894 .

Consideration received exceeded OMS’s net assets at the time of sale, resulting in a gain of $ 437,106 which was recorded in the consolidated statement of loss and comprehensive loss for the year ended December 31, 2021.

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 sold its Phoenix dispensary and cultivation licenses, dispensary inventory and equipment, dispensary lease, and all dispensary revenue-producing contracts to Copperstate (the “Transaction”).

On November 18, 2021, the Transaction closed.

Cash consideration received of $ 15,125,010 exceeded net assets transferred of $ 8,659,077 resulting in a gain of $ 6,465,933 which was recorded in the consolidated statement of loss and comprehensive loss for the year ended December 31, 2021.

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 $ 20,320,936 including a $ 3,750,000 four-year note with an 8 percent coupon rate payable quarterly.

As part of this transaction, the Company transferred assets and liabilities with a net book value of 3,204,868 .

Consideration received exceeded PAMS net assets at the time of sale, resulting in a gain of $ 17,116,068 which was recorded in the consolidated statement of loss and comprehensive loss for the year ended December 31, 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 and accrued interest with a balance of $ 52,038 were cancelled, and the intangible asset with a net book value of $ 45,000 was disposed of, resulting in a gain of $ 7,038 .

On September 11, 2020, the Company divested all the equity in its subsidiary company, High Gardens, Inc., in exchange for a 10 % royalty on all future net revenues generated by High Gardens, Inc.

The fair value of this royalty consideration

was $ 68,276 and is classified as an intangible asset with an indefinite life on the balance sheet.

This consideration received was less than High Gardens, Inc.

net assets of $ 340,999 at the time of sale, resulting in a loss of $ 272,723 which was recorded in the statement of loss and comprehensive loss for the year ended December 31, 2020.

As described above, this asset was subsequently disposed in September 2020.

On December 17, 2020, the Company divested all the equity in its subsidiary company, Pennsylvania Dispensary Solutions, LLC, to Jushi in exchange for consideration of $ 5,726,848 cash.

Consideration received exceeded PAMS net assets of $ 2,324,054 at the time of sale, resulting in a gain of $ 3,402,794 which was recorded in the consolidated statement of loss and comprehensive loss for the year ended December 31, 2020.

Asset Acquisitions

Acquisition of High Gardens, Inc.

On January 4, 2019, the Company acquired

all of the issued and outstanding shares of High Gardens, Inc.

The purpose of this acquisition was to acquire a medical marijuana

license in the State of Rhode Island.

As part of the asset acquisition, the Company paid $300,000 in cash, issued $700,000 in convertible

debt, and incurred acquisition costs of $26,256 for the acquisition of High Gardens, Inc.

Management determined the consideration

paid was equal to the fair value of the intangible asset acquired, or $1,026,256.

The related operating results are included in

the accompanying consolidated statements of net loss, changes in stockholders’ equity, and statement of cash flows commencing

from the date of acquisition.

Acquisition of Mayflower Botanicals, Inc.

On March 29, 2019, the Company completed

the 100% acquisition of Mayflower Botanicals, Inc.

The purpose of this acquisition was to acquire a medical marijuana license in

the State of Massachusetts.

As part of the asset acquisition, the Company paid $1,001,165 in cash, issued $13,094,032 in multiple

voting shares, and incurred acquisition costs of $2,962,392, of which $2,902,492 related to the issuance of multiple voting shares

as a finder’s fee, for the acquisition of Mayflower Botanicals, Inc.

Management determined the consideration paid was equal

to the fair value of the intangible asset acquired, or $17,057,589.

The related operating results are included in the accompanying

consolidated statements of operations, changes in shareholders’ equity, and statement of cash flows commencing from the date

of acquisition.

Acquisition of XAAS Agro, Inc.

On June 19, 2019, the Company completed

the 100% acquisition of XAAS Agro, Inc.

The purpose of this acquisition was to acquire a medical marijuana license in the territory

of Puerto Rico.

As part of the asset acquisition, the Company paid $900,000 in cash, issued $900,000 in convertible debt, and incurred

acquisition costs of $91,863, for the acquisition of XAAS Agro, Inc.

Management determined the consideration paid was equal to

the fair value of the intangible asset acquired, or $1,891,863.

The related operating results are included in the accompanying

consolidated statements of net loss, changes in stockholder’s equity, and statement of cash flows commencing from the date

of acquisition.

Acquisition of Midwest Hemp Research, LLC

During the year ended December 31, 2019, the

Company completed the 100% acquisition of Midwest Hemp Research, LLC.

The purpose of this acquisition was to acquire an industrial hemp

license in the state of Minnesota.

As part of the asset acquisition, the Company issued $50,000 in convertible debt for the acquisition

of Midwest Hemp Research, LLC.

Management determined the consideration paid was equal to the fair value of the intangible asset acquired,

The related operating results are included in the accompanying consolidated statements of net loss, changes in stockholders’

equity, and statement of cash flows commencing from the date of acquisition.

As described above, this asset was sold in July 2020.

Acquisition of MJ Distributing C201, LLC and MJ Distributing P132, LLC

On April 10, 2019, the Company entered into a definitive agreement to acquire 100 % of the membership interests in MJ Distributing C201, LLC and MJ Distributing P132, LLC (“ MJ Distributing ”) which currently hold licenses to cultivate and distribute, respectively, medical and adult-use cannabis in the state of Nevada.

The purpose of this acquisition was to acquire a medical marijuana license in the state of Nevada.

The acquisition was financed with cash on hand and stock.

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.

Management determined the total consideration paid of $ 1,592,500 in restricted cash, $ 1,385,239 associated with the fair value of the subordinate voting shares issued, and $ 28,136 of deferred acquisition costs, was equal to the fair value of the intangible asset acquired, or $ 3,005,875 .

The related operating results are included in the accompanying consolidated statements of operations, changes in shareholders’ equity, and statement of cash flows commencing from the date of acquisition.

Acquisition of the Assets of Charm City Medicus, LLC

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, and closed the transaction on November 19, 2021.

Consideration paid totaled $ 7,219,713 consisting of 1,459,803 subordinate voting shares with a fair value of $ 1,367,590 , a $ 2,000,000 note payable bearing an interest rate of 8 %, cash of $ 3,491,865 , an unpaid cash consideration of $ 308,294 , and transaction costs of $ 51,964 .

Consideration paid exceeded net assets acquired of $ 35,131 .

The excess consideration paid of $ 7,184,583 was equal to the fair value of the intangible asset acquired.

Fair Value Measurements

Company complies with ASC 820, Fair Value Measurements, for its financial assets and liabilities that are re-measured and reported

at fair value at each reporting period, and non-financial assets and liabilities that are re-measured and reported at fair value

at least annually.

In general, fair values determined by Level 1 inputs utilize quoted prices (unadjusted) in active markets for

identical assets or liabilities.

Fair values determined by Level 2 inputs utilize data points that are observable such as quoted

prices, interest rates and yield curves.

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.

following tables present information about the Company’s assets that are measured at fair value on a recurring basis as of

December 31, 2020 and 2019 indicates the fair value hierarchy of the valuation techniques the Company utilized to determine such

The Company complies with ASC 820, Fair Value Measurements, for its financial assets and liabilities that are re-measured and reported at fair value at each reporting period, and non-financial assets and liabilities that are re-measured and reported at fair value at least annually.

In general, fair values determined by Level 1 inputs utilize quoted prices (unadjusted) in active markets for identical assets or liabilities.

Fair values determined by Level 2 inputs utilize data points that are observable such as quoted prices, interest rates and yield curves.

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 December 31, 2021 and 2020 indicates the fair value hierarchy of the valuation techniques the Company utilized to determine such fair value:

Quoted prices in

2 unchanged sentences

December 31, 2021

Restricted cash

December 31, 2020

Restricted cash

Cash and Restricted Cash

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, 2019, the carrying values of intangible

assets and goodwill were concluded to exceed their fair values.

As a result, the Company recorded impairment charges that incorporates

fair value measurements based on Level 3 inputs (refer to Notes 11 & 12).

No additional impairment was determined necessary

for the year ended December 31, 2020.

The estimated fair value of cash and cash

equivalents, accounts receivable, net, accounts payable, and accrued expenses and other current liabilities at December 31, 2020

and 2019 approximate their carrying amount due to short term nature of these instruments.

Trade Receivables

The Company’s non-financial assets, such as prepayments and other current assets, long lived assets, including property and equipment, goodwill, 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, 2021, the carrying values of property and equipment and intangible assets and were concluded to exceed their fair values.

As a result, the Company recorded impairment charges that incorporates fair value measurements based on Level 3 inputs (refer to Notes 10 & 13).

No impairment was determined necessary for the year ended December 31, 2020.

Accounts Receivable

Trade receivables are comprised of the following items:

1 unchanged sentence

Tenant improvements receivable

in the trade receivables, net balance at December 31, 2020, and 2019, is an allowance for doubtful accounts of $132,490 and $278,309,

respectively .

Tax withholding receivable

Included in the trade receivables, net balance at December 31, 2021, and 2020, is an allowance for doubtful accounts of $ 215,606 and $ 132,490 , respectively.

Included in the tax withholding receivable, net balance at December 31, 2021 is an allowance for doubtful accounts of $ 356,474 .

Notes Receivable

As of December 31, 2020, and 2019, the

Company had a total of $4,043,700 and $0, respectively, in notes receivable.

The December 31, 2020, 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 PAMS disposition further

described in Note 3.

Inventory is comprised

of the following items:

As of December 31, 2021, and 2020, the Company had a total of $ 3,750,000 and $ 4,043,700 , respectively, in notes receivable.

The balances are comprised primarily of the $ 3,750,000 four-year note with an 8 % coupon rate payable quarterly obtained as part of the PAMS disposition further described in Note 3.

Inventory is comprised of the following items:

Work-in-progress

Finished goods

Non-cannabis inventory

is written down for any obsolescence, spoilage and excess inventory or when the net realizable value of inventory is less than

the carrying value.

Inventory valuation adjustments included in cost of sales on the statements of net loss and comprehensive loss

is comprised of the following:

Inventory is written down for any obsolescence, spoilage and excess inventory or when the net realizable value of inventory is less than the carrying value.

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

Work-in-progress

Finished goods

Non-cannabis inventory

During the years ended December 31, 2020

and 2019, the Company recorded write downs to net realizable value in its Maryland, Pennsylvania, and Ohio subsidiaries.

on the market sales price relative to the cost to produce certain inventories, these costs could not be recovered, and as a consequence

net realizable value was less than carrying value of inventory.

Accordingly, inventory valuation adjustments amounting to $974,384

and $865,405 were recorded in 2020 and 2019 respectively.

During the years ended December 31, 2021 and 2020, the Company recorded write downs to net realizable value in its Maryland and Arizona subsidiaries.

Based on the market sales price relative to the cost to produce certain inventories, these costs could not be recovered, and as a consequence net realizable value was less than carrying value of inventory.

Additionally, the Company recorded inventory reserves related to expected future spoilage of inventory.

Accordingly, inventory valuation adjustments amounting to $ 2,641,080 and $ 974,384 were recorded in 2021 and 2020 respectively.

Prepayments and other current assets

Prepayments and other current assets are comprised of the following

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

Prepaid Insurance

1 unchanged sentence

Deferred Acquisition Costs

As of each of December 31, 2020, and 2019,

the Company had a total of $28,136 for deferred acquisition costs relating to the acquisition of MJ Distributing (Note 3), which

had not yet closed.

As of December 31, 2021, and 2020, the Company had a total of $ 0 and $ 28,136 respectively in deferred acquisition costs relating to the acquisition of MJ Distributing (Note 3), which had closed as of December 31, 2020.

Property and Equipment, Net

Property and equipment,

net consisted of the following:

Property and equipment, net consisted of the following:

Buildings and leasehold improvements

3 unchanged sentences

accumulated depreciation

the year ended December 31, 2020 and 2019, total depreciation on property and equipment was $ 2,481,083 and

$ 2,246,979 , respectively .

For the year ended December 31, 2020 and 2019, accumulated

amortization of the right of use asset amounted to $2,025,239 and $2,072,175, respectively.

The right of use asset under finance

lease of $12,351,838 consists of leased processing and cultivation premises.

The Company capitalized into inventory $2,067,991

and $1,755,809 relating to depreciation associated with manufacturing equipment and production facilities as of December 31, 2020

and 2019, respectively.

The capitalized depreciation costs associated are added to inventory and expensed through Cost of Sales

Product Cost on the consolidated statements of net loss.

Components of lease expenses are listed

( 7,693,878 )

( 4,890,039 )

For the year ended December 31, 2021 and 2020, total depreciation on property and equipment was $ 3,029,324 and $ 2,481,083 , respectively.

For the year ended December 31, 2021 and 2020, accumulated amortization of the right of use asset amounted to $ 2,513,223 and $ 2,025,239 , respectively.

For the year ended December 31, 2021 and 2020, the right of use asset under finance lease of $ 71,078,655 and 12,351,838 , respectively, consists of leased processing and cultivation premises, and leased equipment.

The Company capitalized into inventory $ 2,404,711 and $ 2,067,991 relating to depreciation associated with manufacturing equipment and production facilities as of December 31, 2021 and 2020, respectively.

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

As of December 31, 2021, the Company evaluated whether property and equipment showed any indicators of impairment, and it was determined that the recoverable amount of certain net assets was below book value.

As a result, the Company recorded an impairment charge of $ 3,064,468 (2020 - $ 0 ) on property and equipment, net.

Components of lease expenses are listed below:

Finance lease cost

3 unchanged sentences

Total lease expenses

Future minimum lease payments (principal and interest) on the

leases are as follows:

Future minimum lease payments (principal and interest) on the leases are as follows:

Operating Leases

5 unchanged sentences

( 4,653,945 )

The Company has entered into various lease

agreements for the use of buildings used in production and retail sales of cannabis products.

On April 10, 2020, the Company signed

a fourth amendment to the existing lease agreements for the cultivation and processing facilities in Minnesota.

Under the terms

of the amendment, the term of the lease was extended to April 9, 2040, and provides for additional tenant improvements up

to $6,698,183.

The amended agreement for the cultivation and processing facility in Minnesota requires regular monthly payments

On April 10, 2020, the Company signed

a second 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 April 9, 2035, and provides for additional tenant improvements up

to $3,360,000.

The amended agreement for the cultivation and processing facility in New York requires regular monthly payments

On April 10, 2020, the Company signed

a third amendment to the existing lease agreements for the cultivation and processing facilities in Pennsylvania.

Under the terms

of the amendment, tenant improvements were reduced to $8,036,670.

The amended agreement for the cultivation and processing facility

in Pennsylvania requires regular monthly payments of $184,786.

( 183,163,054 )

( 187,816,999 )

Present value of lease liability

The Company has entered into various lease agreements for the use of buildings used in production and retail and wholesale 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 increased base rent by $ 492,625 .

This base rent increase will be phased in over the sixteen months following the amendment date.

On April 10, 2020, the Company signed a fourth amendment to the existing lease agreements for the cultivation and processing facilities in Minnesota.

Under the terms of the amendment, the term of the lease was extended to April 9, 2040, and provides for additional expansion and tenant improvements up to $ 6,698,183 .

The amended agreement for the cultivation and processing facility in Minnesota requires regular monthly payments of $ 129,350 .

On April 10, 2020, the Company signed a second 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 April 9, 2035, and provides for additional tenant improvements up to $ 3,360,000 .

The amended agreement for the cultivation and processing facility in New York requires regular monthly payments of $ 90,519 .

On January 14, 2020, the Company signed a second amendment to the existing lease agreements for the cultivation and processing facilities in Pennsylvania.

Under the terms of the second amendment, the term of the lease was extended to December 7, 2038, and provides for additional tenant improvements of up to $ 8,336,670 .

The amended agreement for the cultivation and processing facility in Pennsylvania requires regular monthly payments of $ 182,419 .

On April 10, 2020, the Company signed a third amendment to the existing lease agreements for the cultivation and processing facilities in Pennsylvania.

Under the terms of the amendment, tenant improvements were reduced to $ 8,036,670 .

The amended agreement for the cultivation and processing facility in Pennsylvania requires regular monthly payments of $ 184,786 .

This lease was transferred on the disposition of PAMS (Note 3).

On January 14, 2020, the Company signed

a second amendment to the existing lease agreements for the cultivation and processing facilities in Pennsylvania.

Under the terms

of the second amendment, the term of the lease was extended to December 7, 2038 and provides for additional tenant improvements

of up to $8,336,670.

The amended agreement for the cultivation and processing facility in Pennsylvania requires regular monthly

payments of $182,419.

During the year ended December 31, 2019,

the Company entered into sale and leaseback transactions for cultivation facilities.

As part of the transaction, the Company entered

a lease agreement for the cultivation facilities as follows:

The lease agreement for a processing facility in Ohio with a fair value of $1,018,123 is for 15 years with two consecutive options to extend for an additional 5 years each.

The effective interest rate on the lease is 15% and requires regular monthly payments of $42,000, which increase by 3.5% each year.

The lease also provides for a Tenant Improvement (“ TI ”) allowance up to $2,581,887.

Supplemental cash flow information related to leases

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

Financing cash flows from finance leases

Lease principal payments

Non-cash additions to ROU assets

Amortization of operating leases

Other information about lease amounts recognized in the financial

Weighted-average remaining lease term (years) –

operating leases

Weighted-average remaining lease term (years) –

finance leases

Weighted-average discount rate –

operating leases

Weighted-average discount rate –

finance leases

The following table shows

the change in carrying amount of goodwill:

Goodwill - January 1, 2019

Acquisition of Elephant Head Farm

Acquisition of Red Barn

Other information about lease amounts recognized in the financial statements

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

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

Weighted-average discount rate – operating leases

Weighted-average discount rate – finance leases

The following table shows the change in carrying amount of goodwill:

Goodwill - December 31, 2019 and 2020

Goodwill is tested for impairment annually

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

The valuation date for the

Company annual impairment testing is December 31.

On this date, the Company performed a qualitative test to determine whether it

is necessary to perform a two-step goodwill impairment test.

After assessing the totality of the events

and circumstances surrounding the performance and outlook of Red Barn and Arizona entities the Company determined that it is more

likely than not that the fair value of a reporting unit exceeds its carrying amount.

As such, the first and second steps of the

goodwill impairment test are unnecessary, and no impairment charge was taken.

On December 31, 2019, the Company compared

the current fair value of each reporting unit to the net book value, including goodwill.

The Company utilized a discounted cash

flow model (“ DCF model ”) to estimate the current fair value of reporting units, as management believes forecasted

operating cash flows are the best indicator of current fair value.

A number of significant assumptions and estimates were involved

in the preparation of DCF models including future revenues and operating margin growth, the weighted-average cost of capital of

approximately 20% (“WACC”), tax rates, capital spending, impact of business initiatives and working capital projections.

DCF models are based on approved long-range plans for the early years and historical relationships and projections for later years.

WACC rates are derived from internal and external factors including, but not limited to, the average market price of the Company's

stock, book value of the Company's debt, the long-term risk-free interest rate, and both market and size-specific risk premiums.

The net book value

of the Red Barn and Elephant Head Farms reporting units exceeded their current fair values.

Accordingly, the second step of the

goodwill impairment test (“ Step 2 ”) was performed to determine if an impairment existed and the amount of goodwill

impairment to record, if any.

Step 2 compared

the net book value of the reporting unit’s goodwill with the implied fair value of that goodwill.

The implied fair value

of goodwill represents the excess of fair value of the reporting units over the fair value amounts assigned to all of the assets

and liabilities of the reporting unit if it were to be acquired in a hypothetical business combination and the current fair value

of the reporting unit represented the purchase price.

The result was that the net book value of two reporting units’ goodwill

exceeded the implied fair values.

Accordingly, an impairment charge of $8,538,414 was recorded (Elephant Head Farm:

As a result of

the impairment, the difference between the carrying value of the reporting unit and its fair value (typically referred to as “headroom”)

is smaller at the time of acquisition for Elephant Head Farm.

Accordingly, a relatively small decrease in reporting unit fair value

can trigger an impairment test which could potentially result in an additional impairment charge.

During the year ended December 31, 2019, the Company acquired

cannabis licenses in Arizona, Massachusetts, New Mexico, Puerto Rico, and Rhode Island.

The fair value allocated to a license is

depreciated over its expected useful life, which is estimated between 4-20 years.

( 2,948,655 )

Goodwill - December 31, 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.

The valuation date for the Company annual impairment testing is December 31.

On this date, the Company performed a qualitative test to determine whether it is necessary to perform a two-step goodwill impairment test.

After assessing the totality of the events and circumstances surrounding the performance and outlook of the Company’s cash generating units with goodwill it was determined that it is more likely than not that the fair value of a reporting unit exceeds its carrying amount.

As such, the first and second steps of the goodwill impairment test are unnecessary, and no impairment charge was taken.

During the year ended December 31, 2021, the Company acquired cannabis licenses in Nevada and Maryland.

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

Intangible assets are comprised of the following items:

1 unchanged sentence

Balance, December 31, 2019

Acquisition (Note 3)

(19,726,436 )

Additions (Note 3)

Balance, December 31, 2020

Additions (Note 3)

Dispositions (Note 3)

Divestitures (Note 3)

( 5,492,890 )

( 2,105,483 )

Balance, December 31, 2021

Amortization expense for intangibles was

$615,094 and $864,229 during the years ending December 31, 2020 and 2019, respectively and is recorded in operating expenses on

the Consolidated Statements of Net Loss and Comprehensive Loss.

During 2019, the Company decided not to pursue cannabis productions

in Puerto Rico, Massachusetts, and Rhode Island.

As a result, the licenses acquired from XAAS, Mayflower, and High Gardens were

impaired by their entire values, totaling $19,726,436.

The Company estimates that amortization

expense will be $615,094 per year, for the next five years.

Amortization expense for intangibles was $ 817,215 and $615,094 during the years ending December 31, 2021 and 2020, respectively and is recorded in operating expenses on the Consolidated Statements of Net Loss and Comprehensive Loss.

As of December 31, 2021, the Company evaluated whether intangible assets showed any indicators of impairment, and it was determined that the recoverable amount of the Company’s Nevada license was below book value.

The Company reviewed valuations of similar licenses held by peer companies, noting these valuations were substantially lower than the Company’s book value of the Nevada licenses.

The Company arrived at a valuation of the Nevada licenses that is in line with comparable licenses held be peer companies, and as a result, the Nevada licenses were impaired by $ 2,105,483 .

The Company estimates that amortization expense will be $ 689,471 per year , for the next five years.

Accounts Payable and Accrued Liabilities

Accounts payable and accrued

liabilities are comprised of the following items:

Accounts payable –

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

Accounts payable – trade

Accrued Expenses

3 unchanged sentences

Long-Term Debt

During the year ended December 31, 2017,

the Company signed a promissory note payable in the amount of $1,010,000.

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.

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

During the year ended December 31, 2017, the Company signed a promissory note payable in the amount of $ 1,010,000 .

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 .

On December 28, 2021, the Company’s promissory note payable in the amount of $ 1,110,000 was modified to extend the maturity date to December 31, 2023 , and the Company paid off $ 60,000 in principal.

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”), and executed a draw of $ 26,000,000 in principal.

Net of fees and closing costs of $ 1,971,705 , the Company received $ 24,028,295 of the first tranche on March 25, 2021.

Additionally, the Company incurred fees and closing costs of $ 1,083,422 which were paid in cash.

The unpaid principal amounts outstanding under the Credit Facility bear interest at a rate of (a) 13.625 % per annum payable monthly in cash, and (b) 2.75 % per annum paid in kind interest payable monthly.

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 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.

The fair value of these warrants at the time of issuance was $ 5,395,759 (Note 16) which is treated as a deferred financing cost.

On November 18, 2021, the Company and lender amended the Credit Facility to provide for an additional loan of $ 4,200,000 with a cash interest rate of 15 % per annum and PIK interest of 2 % and no warrants were issued in connection with this loan.

Cash received net of $ 156,900 in financing costs was $ 4,043,100 .

Obligations under the Credit Facility are secured by substantially all the assets of the Company.

All deferred financing costs are treated as a contra-liability, to be netted against the outstanding loan balance and amortized over the remaining life of the loan.

On November 19, 2021, the Company signed a promissory note payable in the amount of $ 2,000,000 in connection with the acquisition of Charm City Medicus, LLC (Note 3).

The note bears an interest rate of 8 % per annum with interest payments required due on the last day of each calendar quarter .

The maturity date of the note is November 19, 2023 , and the note is secured by 25 % of the membership interests in Vireo Health of Charm City, LLC.

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

Beginning of year

Note payable issued in Charm City acquisition (Note 3)

Deferred financing costs

( 8,607,786 )

Amortization of deferred financing costs

Principal payments

End of period

Current portion

( 1,110,000 )

Total long-term debt

Derivative Liability

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.

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

Because of the Canadian denominated exercise

price, these warrants do not qualify to be classified within equity and are therefore classified as derivative liabilities at fair

value through profit or loss.

On March 9, 2020, the warrants were valued using the Black Scholes option pricing model at $3,555,030

using the following assumptions:

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.

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

Because of the Canadian denominated exercise price, these warrants do not qualify to be classified within equity and are therefore classified as derivative liabilities at fair value through profit or loss.

On March 9, 2020, the warrants were valued using the Black Scholes option pricing model at $ 3,555,030 using the following assumptions:

Exercise Price:

4 unchanged sentences

C$ Exchange Rate:

On November 16, 2020, the Company announced the

forced exercise of the warrants.

The warrants were subsequently revalued prior to settlement using the Black Scholes options pricing

model at $9,815,510 using the following assumptions:

On November 16, 2020, the Company announced the forced exercise of the warrants.

The warrants were subsequently revalued prior to settlement using the Black Scholes options pricing model at $ 9,815,510 using the following assumptions:

Exercise Price:

Expected Life:

Annualized Volatility:

Dividend yield:

2 unchanged sentences

C$ Exchange Rate:

The resulting loss upon revaluation

of $6,260,480 for the year ended December 31, 2020, is reflected in the statement of loss and comprehensive loss.

Upon settlement of the warrants, the Company

received $9,857,498 million in cash, and extinguished the derivative liability of $9,815,510.

Both the proceeds from the warrants, and

the extinguishment of the derivative liability are included in Additional Paid in Capital on the balance sheet.

1.29 – 1.31 .

The resulting loss upon revaluation of $ 6,260,480 for the year ended December 31, 2020, is reflected in the statement of loss and comprehensive loss.

Upon settlement of the warrants, the Company received $ 9,857,498 million in cash, and extinguished the derivative liability of $ 9,815,510 .

Both the proceeds from the warrants, and the extinguishment of the derivative liability are included in Additional Paid in Capital on the balance sheet.

Convertible notes

3% Convertible Note

January 3, 2019, the Company issued a convertible note with a face value of $ 700,000 in connection with the High

Gardens acquisition (refer to Note 3) .

The convertible note bears interest at a

rate of 3.0 % per annum, payable monthly commencing January 3, 2019 and

continuing on the first of each month, beginning on February 1, 2019.

On June 4, 2019, the Company converted the

outstanding principal and accrued interest into 1,665 Multiple Voting Shares pursuant to the original contractual terms.

2.76% Convertible Note

On January 1, 2019, the Company issued

a convertible note with a face value of $50,000 in connection with the Midwest Hemp Research, LLC acquisition (refer to Note 3).The

convertible notes bear interest at a rate of 2.76% per annum, payable monthly commencing January 1, 2019 and continuing on

the first of each month, beginning on July 1, 2019.

These notes were cancelled in July of 2020.

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.

acquisition (refer

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, beginning on July 1, 2019.

Additional interest may accrue

on the convertible note 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.

convertible note is the Company’s general unsecured obligation and ranks senior in right of payment to all of the Company’s

indebtedness that is expressly subordinated in right of payment to the note;

equal in right of payment with any of the Company’s

unsecured indebtedness that is not so subordinated;

effectively junior in right of payment to any of Company’s 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 the Company’s current or future subsidiaries.

note includes customary covenants and sets forth certain events of default after which the convertible note may be declared immediately

due and payable, including certain types of bankruptcy or insolvency involving the Company.

the extent the Company or the Holder so elects, the convertible note will be convertible at the conversion rate equal to

the price per share of the Company’s capital stock as valued at in the RTO at $4.25 per share.

The initial conversion rate

for the convertible note is 235.2944 per one-thousand-dollar principal amount of the note which represents 211,765 shares of common

stock, based on the $900,000 aggregate principal amount of convertible notes outstanding as of December 31, 2020.

The following table sets

forth the net carrying amount of the 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 year ended December 31, 2021.

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

December 31, 2021

1 unchanged sentence

5.00 % convertible notes

2.76% convertible notes

3.00% convertible notes costs

Net carrying amount

Stockholders’ Equity

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 our 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 December 31, 2021.

The liquidation and dividend rights are identical among Shares equally in our earnings and losses on an as converted basis.

Voting Rights

Subordinate Voting Share (“SVS”)

1 vote for each share

Multiple Voting Share (“MVS”)

100 votes for each share

2 unchanged sentences

Subordinate Voting Shares

Holders of Subordinate Voting Shares are

entitled to one vote in respect of each Subordinate Voting Share held.

Holders of Subordinate Voting Shares are entitled to one vote in respect of each Subordinate Voting Share held.

Multiple Voting Shares

Holders of Multiple Voting Shares will

be entitled to one hundred votes for each Multiple Voting Share held.

Multiple Voting Shares each have the restricted

right to convert to one hundred Subordinate Voting Shares subject to adjustments for certain customary corporate changes.

Holders of Multiple Voting Shares will be entitled to one hundred votes for each Multiple Voting Share held.

Multiple Voting Shares each have the restricted right to convert to one hundred Subordinate Voting Shares subject to adjustments for certain customary corporate changes.

Super Voting Shares

Holders of Super Voting Shares will be

entitled to ten votes in respect of each Subordinate Voting Share into which such Super Voting Share could ultimately then be converted,

which for greater certainty, shall initially equal one thousand votes per Super Voting Share.

Each Super Voting share shall be

convertible into one Multiple Voting Share

On December 30, 2020, employee stock options

were redeemed for 75,000 Subordinate Voting Shares.

Holders of Super Voting Shares will be entitled to ten votes in respect of each Subordinate Voting Share into which such Super Voting Share could ultimately then be converted, which for greater certainty, shall initially equal one thousand votes per Super Voting Share.

Each Super Voting share shall be convertible into one hundred Subordinate Voting Share

Shares Issued

During the year ended December 31, 2021, employee stock options were redeemed for 4,289,392 Subordinate Voting Shares.

Proceeds from these transactions were $ 1,209,605 .

During the year ended December 31, 2021, 151,407 Multiple Voting Shares were converted into 15,140,700 Subordinate Voting Shares.

On June 4, 2021, the Company issued 295,774 shares with a fair value of $ 604,876 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 consolidated statements of net loss and comprehensive loss for the year ended December 31, 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 $ 1,441,183 pursuant to an exemption from registration under the Securities Act.

The fair value of the 889,519 subordinate voting shares issued of $ 1,441,183 was recorded as stock-based compensation expense in the consolidated statement of net loss and comprehensive loss for the year ended December 31, 2021.

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

The shares issued pursuant to the warrant exercise are free of trading restrictions;

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.

On December 30, 2020, employee stock options were redeemed for 75,000 Subordinate Voting Shares.

Proceeds from this transaction were $ 14,250 in cash.

On December 29, 2020, employee stock options

were redeemed for 4,200 Multiple Voting Shares.

On December 29, 2020, employee stock options were redeemed for 4,200 Multiple Voting Shares.

Proceeds from this transaction were $ 79,800 in cash.

On November 16, 2020, the Company announced the

forced exercise of the warrants issued in the March 9, 2020, non-brokered private placement transaction.

Proceeds from this transaction

were $9,857,498 in cash.

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.

Each Unit is comprised

of one Subordinate Voting Share of the Company and one subordinate voting share purchase warrant.

Each warrant entitles the holder to

purchase one Subordinate Voting Share for a period of three years from the date of issuance at an exercise price of C$ 0.96 per

Subordinate Voting Share.

The Company has the right to force the holders of the Warrants to exercise the Warrants into Shares if, prior

to the maturity date, the five-trading-day volume weighted-average price of the Shares equals or exceeds C$ 1.44.

Proceeds from

this transaction were $7,613,490 net of share issuance costs of $104,173.

The Company also recognized a derivative liability of

$3,555,030 on the transaction which is included in additional paid-in capital (Note 16).

On March 18, 2019, the Company issued 12,090,937

SVS of the Company at $4.25 per share for gross proceeds of $51,386,482.

In connection with the financing, the Company paid a cash

fee to the agents equal to $2,826,739 and the agents were granted a combined 763,111 in compensation warrants with a value of $1,723,741.

The agent’s compensation warrants will be exercisable at a price of $4.25 per share for a period of two years.

the Company paid a financial advisory fee of $415,000 and had costs in the amount of $379,785.

Of total costs, $448,840 was incurred

during the year ended December 31, 2018.

On March 18, 2019, the Company issued 705,879

SVSs as part of the RTO Transaction (refer to Note 3) in exchange for all outstanding shares of Vireo US at a price of $4.25.

addition, the Company incurred $2,994,606 of transaction related fees, representing the excess fair value of shares issued by Vireo

US over the value of the net monetary assets of Vireo Health International.

This was recognized as a recapitalization cost within

Stockholders’ equity.

On March 22, 2019, the Company issued 16,806

MVS shares at a value of $451.89 per share in connection with the closing of the Arizona Natural Remedies acquisition (refer to

On March 26, 2019, the Company issued 6,721

MVS shares at a deemed issuance price of $465.75 per share in connection with the closing of the Silver Fox Management Services,

LLC acquisition (refer to Note 3).

On March 29, 2019, the Company issued 30,325

MVS shares at a deemed issuance price of $431.79 per share in connection with the closing of the Mayflowers Botanicals acquisition

(refer to Note 3).

In addition, the Company issued 6,722 MVS shares at a deemed issuance price of $431.79 per share as a finders

fee for the acquisition.

On June 4, 2019, the Company issued 1,665

MVS in connection with the conversion of the 3.0% convertible note.

Throughout the year, the Company converted

26,299 MVS Shares into SVS shares at the conversion ratio of 100 to 1.

Preferred Shares

On January 1, 2018, the Vireo U.S.

from an LLC to a C Corporation and, as a result, became subject to corporate federal and state income taxes.

On conversion to a

C corporation, Vireo was authorized to issue 300,048,397 shares, including 225,036,298 common shares, and 75,012,099 preferred

stock both of which have a par value of $0.0001 per share.

From Vireo U.S.’s inception to December

31, 2017, the Company was not subject to corporate federal and state income taxes since it was operating as a Limited Liability

Company (LLC).

On January 1, 2018, Vireo U.S.

converted from an LLC to a C Company and, as a result, became subject to corporate

federal and state income taxes.

Vireo U.S.’s accumulated retained earnings of $4,225,000 was adjusted.

Voting Rights

Series A Preferred Stock

Series B Preferred Stock

Series C Preferred Stock

Series D Preferred Stock

Prior to the RTO, all the Series A, B,

C, D Preferred Stock were converted into common shares.

Concurrently, the shareholders of Vireo exchanged their common shares of

Vireo, will receive, Super Voting Shares, Subordinate Voting Shares or Multiple Voting Shares of the Corporation, as applicable

and received, based on a ratio of 0.300048 Multiple Voting Shares or Super Voting Shares or 30.0048 Subordinate Voting Shares for

every common share of Vireo.

On November 16, 2020, the Company announced the forced exercise of the warrants issued in the March 9, 2020, non-brokered private placement transaction.

Proceeds from this transaction were $ 9,857,498 in cash.

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.

Each Unit is comprised of one Subordinate Voting Share of the Company and one subordinate voting share purchase warrant.

Each warrant entitles the holder to purchase one Subordinate Voting Share for a period of three years from the date of issuance at an exercise price of C$ 0.96 per Subordinate Voting Share.

The Company has the right to force the holders of the Warrants to exercise the Warrants into Shares if, prior to the maturity date, the five-trading-day volume weighted-average price of the Shares equals or exceeds C$ 1.44 .

Proceeds from this transaction were $ 7,613,490 net of share issuance costs of $ 104,173 .

The Company also recognized a derivative liability of $ 3,555,030 on the transaction which is included in additional paid-in capital (Note 16).

Stock-Based Compensation

Stock Options

In January 2019, the Company adopted the

2019 Equity Incentive Plan under which the Company may grant incentive stock option, restricted shares, restricted share units,

or other awards.

Under the terms of the plan, a total of ten percent of the number of shares outstanding assuming conversion of

all super voting and multiple voting shares to subordinate voting shares are permitted to be issued.

The exercise price for incentive

stock options issued under the plan will be set by the committee but will not be less 100% of the fair market value of the Company’s

shares on the date of grant.

In January 2019, the Company adopted the 2019 Equity Incentive Plan under which the Company may grant incentive stock option, restricted shares, restricted share units, or other awards.

Under the terms of the plan, a total of ten percent of the number of shares outstanding assuming conversion of all super voting and multiple voting shares to subordinate voting shares are permitted to be issued.

The exercise price for incentive stock options issued under the plan will be set by the committee but will not be less 100 % of the fair market value of the Company’s shares on the date of grant.

Incentive stock options have a maximum term of 10 years from the date of grant.

The incentive stock

options vest at the discretion of the Board.

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

For the Years Ended December 31,

The incentive stock options vest at the discretion of the Board.

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

Risk-Free Interest Rate

Weighted Average Exercise Price

Expected Life of Options (years)

2 unchanged sentences

Expected Dividend Yield

Stock option activity

for the Company for the years ended December 31, 2020 and 2019 is presented below:

Stock option activity for the Company for the years ended December 31, 2021 and 2020 is presented below:

Weighted Average

Weighted Avg.

Number of Shares

Exercise Price

Weighted Avg.

Remaining Life

Balance, December 31, 2019

( 2,337,145 )

Balance, December 31, 2020

( 4,289,392 )

Options Outstanding at December 31, 2021

Options Exercisable at December 31, 2021

During the years ended December 31, 2020

and 2019, the Company recognized $1,674,806 and $789,537 in share-based compensation relating to stock options, respectively.

of December 31, 2020, the total unrecognized compensation costs related to unvested stock options awards granted was $5,209,123.

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

The total intrinsic value of stock options outstanding and exercisable as of December 31, 2020 was $27,211,816 and $21,276,975,

respectively.

The Company does not estimate forfeiture

rates when calculating compensation expense.

During the years ended December 31, 2021 and 2020, the Company recognized $ 2,945,557 and $ 1,674,806 in share-based compensation relating to stock options, respectively.

As of December 31, 2021, the total unrecognized compensation costs related to unvested stock options awards granted was $ 2,467,167 .

In addition, the weighted average period over which the unrecognized compensation expense is expected to be recognized is approximately 2.4 years.

The total intrinsic value of stock options outstanding and exercisable as of December 31, 2021, was $ 27,203,021 and $ 23,167,294 , respectively.

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

The Company records forfeitures as they occur.

Subordinate Voting Share (SVS) warrants

entitle the holder to purchase one subordinate voting share of the Company.

Multiple Voting Share (MVS) warrants entitle the holder

to purchase one multiple voting share of the Company.

During the year ended December 31, 2019,

the Company issued 763,111 SVS finders’ warrants with a value of $1,723,741.

The Company also issued 15,000,000 SVS compensation

warrants with a value of $12,351,687.

During the year ended December 31, 2019, the Company issued 13,583 MVS warrants and recorded

$1,121,132 in share-based compensation in connection with the MVS warrants.

Warrants issued were valued

using the Black-Scholes option pricing model with the following assumptions:

Risk-Free Interest Rate

1.74% - 2.31 %

Expected Life of Options (years)

Expected Annualized Volatility

Expected Forfeiture Rate

Expected Dividend Yield

Subordinate Voting Share (SVS) warrants entitle the holder to purchase one subordinate voting share of the Company.

Multiple Voting Share (MVS) warrants entitle the holder to purchase one multiple voting share of the Company.

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

SVS Warrants Denominated in C$

Risk-Free Interest Rate

3 unchanged sentences

Expected Dividend Yield

A summary of the warrants outstanding is

Exercise Price

A summary of the warrants outstanding is as follows:

Weighted Average

Exercise Price

Remaining Life

1 unchanged sentence

Warrants outstanding at December 31, 2020

( 7,110,481 )

( 7,889,519 )

Warrants outstanding at December 31, 2021

1 unchanged sentence

Weighted Average

SVS Warrants Denominated in C$

Exercise Price

Remaining Life

Warrants outstanding at December 31, 2020

Warrants outstanding at December 31, 2021

Warrants exercisable at December 31, 2021

Weighted Average

Exercise Price

Remaining Life

3 unchanged sentences

Warrants exercisable at December 31, 2021

During the year ended December 31, 2020,

$10,981,157 (2019 - $1,392,628) in share-based compensation expense was recorded in connection with the SVS compensation warrants

and $121,511 (2019 - $1,121,132) in share-based compensation was recorded in connection with the MVS warrants.

During the year ended December 31, 2021, $ 0 (2020 - $ 10,981,157 ) in share-based compensation expense was recorded in connection with the SVS compensation warrants and $ 0 (2020 - $ 121,511 ) in share-based compensation was recorded in connection with the MVS warrants.

As of December 31, 2021, there were 150,000 SVS compensation warrants earned in connection with ongoing corporate advisory and financing services rendered, but not yet issued.

The Company recorded $ 191,026 in share-based compensation expense and accounts payable and accrued liabilities in connection with these warrants as of December 31, 2021.

Commitments and Contingencies

Legal proceedings

the normal course of business, the Company may become involved in legal disputes regarding various litigation matters.

In the opinion

of management, any potential liabilities resulting from such claims would not have a material effect on the financial statements.

On February 25, 2019, Dr.

Mark Schneyer (“ Schneyer ”) filed a lawsuit in Minnesota District Court, Fourth District (the “ Court ”), on his own behalf and, derivatively, on behalf of Dorchester Capital, LLC, naming Vireo U.S., Dorchester Management, LLC (“ Dorchester Management ”), and Dorchester Capital, LLC (“ Capital ”), as defendants.

The essence of the claims made by Schneyer is Vireo U.S.

paid an inadequate price for MaryMed, LLC (“ MaryMed ”), which it purchased it from Capital in 2018, and that the consideration given – shares of preferred stock in Vireo U.S.

– was distributed inappropriately by Capital at the direction of Dorchester Management (the managing member of Capital).

Schneyer, who is a Class B member of Capital, is seeking unspecified damages in excess of $ 50,000 and other relief.

Dorchester Management, LLC is an affiliated entity to Vireo U.S.

and was previously used as a management company over Dorchester Capital, LLC.

It no longer has active operations following Vireo Health, Inc.’s acquisition of MaryMed,

It is owned and controlled by Kyle E.

Kingsley and Amber H.

Shimpa, executive officers and directors of Vireo U.S.

Simultaneously with the complaint, Schneyer filed a motion seeking a temporary restraining order (“ TRO ”) to prevent the “further transfer” of MaryMed which would, Schneyer claimed, occur if Vireo U.S.’s RTO transactions were allowed to occur.

The Court held a hearing on the motion for TRO on March 5, 2019 and denied the motion on the same day.

Weeks prior to commencement of the litigation, Dorchester Management had appointed a special litigation committee (“ SLC ”) on behalf of Capital to investigate the consideration provided by Vireo U.S.

for the purchase of MaryMed and assess any potential claims Capital may have as a result of the transaction.

The SLC, a retired judge who engaged another retired judge as legal counsel to the SLC, was appointed in accordance with Minnesota law, issued a report on May 1, 2021, recommending, among other things, that certain claims be permitted to proceed (the “ Remaining Derivative Claims ”) and other claims not be permitted to proceed by the Court (the “ Rejected Derivative Claims ”).

On July 7, 2021, Schneyer filed a Second Amended Complaint asserting direct claims on behalf of himself and the Remaining Derivative Claims on behalf of Capital and some Rejected Derivative Claims on behalf of Capital.

Under Delaware law, Capital has a right to control the litigation of the Remaining Derivative Claims, the Rejected Derivative Claims, and any other derivative allegations that may be asserted on behalf of Capital.

On August 17, 2021, Management exercised this right for Capital and appointed a second independent special litigation committee (the “ Second SLC ”), a partner at an international law firm, to manage the litigation of the claims raised in Schneyer’s Second Amended Complaint.

On August 31, 2021, Capital filed a complaint at the Second SLC’s direction alleging the Remaining Derivative Claims and the Rejected Derivative Claims.

Schneyer opposed the appointment of the Second SLC and the Court will rule on whether the Second SLC can pursue Second Amended Complaint.

On December 9, 2021, the Court dismissed Schneyer’s claim for rescissory damages and the Remaining Derivative Claim alleging fraud.

The Court also ruled that the Remaining Derivative Claims should be pursued by the Second SLC.

Finally, the Court also denied Schneyer’s request to seek punitive damages.

On February 22, 2022, the Minnesota Court of Appeals denied the immediate review of the December 9, 2021 order.

Following this denial, the litigation will proceed with Schneyer’s three contract claims and a direct fraud claim against Management and Vireo U.S., as well as the Remaining Derivative Claims brought by Capital.

filed a motion to discuss the Remaining Derivative Claims brought by Capital that remains pending before the Court.

believes that Schneyer’s claims lack merit and expects to be vindicated in the SLC process or, in the alternative, prevail in the litigation, if and when it proceeds.

However, should Vireo U.S.

not ultimately prevail, it is not possible to estimate the amount or range of potential loss, if any.

Lease commitments

The Company leases various

facilities, under non-cancelable finance and operating leases, which expire at various dates through June 2085.

The Company leases various facilities, under non-cancelable finance and operating leases, which expire at various dates through June 2085.

General and Administrative Expenses

General and administrative

expenses are comprised of the following items:

General and administrative expenses are comprised of the following items:

Years Ended December 31,

3 unchanged sentences

Other expenses

For financial reporting purposes, loss before income taxes includes

the following components:

For financial reporting purposes, loss before income taxes includes the following components:

Years Ended December 31,

6 unchanged sentences

Year ended December 31,

( 1,490,000 )

( 1,338,000 )

Year ended December 31,

4 unchanged sentences

( 6,209,380 )

( 2,996,351 )

( 2,400,960 )

( 1,426,834 )

Non-deductible expenses

1 unchanged sentence

Income tax expense, net

following table summarizes the components of deferred tax:

The following table summarizes the components of deferred tax:

Deferred assets

5 unchanged sentences

Intangible assets

Property and equipment

Capital loss carryforward

Share based compensation

1 unchanged sentence

Less valuation allowance

( 1,535,000 )

Net deferred tax assets

6 unchanged sentences

Net deferred asset/(tax liabilities)

At December 31, 2020, the Company had United

States federal net operating loss carryforwards of approximately $1,050,000 that can be carried forward indefinitely, and state

net operating loss carryforwards of approximately $11,880,000 that can be carried forward fifteen years and limited in annual use

to 100% of the current year taxable income.

The Company recognizes the financial statement

impact of a tax position only after determining that the relevant tax authority would more-likely-than-not sustain the position

following an audit.

For tax positions meeting the more-likely-than-not threshold, the amount recognized in the financial statements

is the largest impact that has a greater than fifty percent likelihood of being realized upon ultimate settlement with the relevant

tax authority.

Company recognizes interest and, if applicable, penalties (not included in the “unrecognized tax benefits”

for any uncertain tax positions.

At December 31, 2021, the Company had United States federal net operating loss carryforwards of approximately $ 480,000 that can be carried forward indefinitely, and state net operating loss carryforwards of approximately $ 18,270,000 that can be carried forward fifteen years and limited in annual use to 100 % of the current year taxable income.

The Company recognizes the financial statement impact of a tax position only after determining that the relevant tax authority would more-likely-than-not sustain the position following an audit.

For tax positions meeting the more-likely-than-not threshold, the amount recognized in the financial statements is the largest impact that has a greater than fifty percent likelihood of being realized upon ultimate settlement with the relevant tax authority.

The Company recognizes interest and, if applicable, penalties (not included in the “unrecognized tax benefits” table above) for any uncertain tax positions.

Interest and penalties are recorded as a component of income tax expenses.

As of December 31,

2020 and 2019, the Company had a cumulative balance of accrued interest and penalties on unrecognized tax positions of $ 0

and $ 0 , respectively .

The Company’s federal and state income

tax returns are subject to examination by income taxing authorities, generally for three years after the returns are filed.

Company is not currently under examination in any jurisdiction for any period.

The Company believes it is no longer subject to

income tax examinations for fiscal periods ended prior to 2017.

On March 27, 2020, the Coronavirus

Aid, Relief and Economic Security Act ( the “CARES Act”) was signed into law in response to the COVID-19 pandemic.

The CARES Act provides numerous tax provisions and stimulus measures, including temporary changes regarding the prior and future

utilization of net operating losses, temporary changes to the prior and future limitations on interest deductions, and technical

corrections from prior tax legislation for tax depreciation of certain qualified improvement property.

The Company has evaluated

the provisions of the CARES Act relating to income taxes which will not result in material impact on its financial statements.

As of both December 31, 2021 and 2020, the Company had a cumulative balance of accrued interest and penalties on unrecognized tax positions of $ 0 .

The Company’s federal and state income tax returns are subject to examination by income taxing authorities, generally for three years after the returns are filed.

The Company is not currently under examination in any jurisdiction for any period.

The Company believes it is no longer subject to income tax examinations for fiscal periods ended prior to 2018.

On March 27, 2020, the Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”) was signed into law in response to the COVID-19 pandemic.

The CARES Act provides numerous tax provisions and stimulus measures, including temporary changes regarding the prior and future utilization of net operating losses, temporary changes to the prior and future limitations on interest deductions, and technical corrections from prior tax legislation for tax depreciation of certain qualified improvement property.

The Company has evaluated the provisions of the CARES Act relating to income taxes which will not result in material impact on its financial statements.

Supplemental Cash Flow Information (1)

2 unchanged sentences

Cash paid for income taxes

Property and equipment included in accounts payable and accrued liabilities

Non-cash financing activities

Conversion of 3% Convertible Note to MVS

Change in construction accrued expenses

( 1,787,111 )

Non-cash investing

Acquisition of AZ Entities through issuance of MVS

Acquisition of Mayflower through issuance of MVS

Acquisition of Silverfox through issuance of MVS

Acquisition of Midwest Hemp through issuance of 2.76% Convertible Note

Acquisition of XAAS through issuance of 5.0% Convertible Note

supplemental cash flow information related to leases, refer to Note 10.

Acquisition of Nevada through issuance of SVS

Acquisition of Nevada through restricted cash and deferred acquisition costs

Acquisition of Charm City through issuance of SVS

Acquisition of Charm City through issuance of note payable

(1) For supplemental cash flow information related to leases, refer to Note 10.

Financial Instruments

Credit risk is the risk of loss associated

with counterparty’s inability to fulfill its payment obligations.

The Company’s credit risk is primarily attributable

to cash, accounts receivable, and notes receivable.

A small portion of cash is held on hand, from which management believes the

risk of loss is remote.

Receivables relate primarily to wholesale sales.

The Company does not have significant credit risk with

respect to customers.

Credit risk is the risk of loss associated with counterparty’s inability to fulfill its payment obligations.

The Company’s credit risk is primarily attributable to cash, accounts receivable, and notes receivable.

A small portion of cash is held on hand, from which management believes the risk of loss is remote.

Trade receivables relate primarily to wholesale sales.

The Company does not have significant credit risk with respect to customers.

The Company’s maximum credit risk exposure is equivalent to the carrying value of these instruments.

The Company has been granted licenses pursuant to the laws of the states of Arizona, Massachusetts, Maryland, Minnesota, New Mexico,

New York, Ohio, Pennsylvania, Puerto Rico and Rhode Island with respect to cultivating, processing, and/or distributing marijuana.

The Company has been granted licenses pursuant to the laws of the states of Massachusetts, Maryland, Minnesota, Nevada, New Mexico, New York, and Puerto Rico with respect to cultivating, processing, and/or distributing marijuana.

Presently, this industry is illegal under United States federal law.

The Company has, and intends, to adhere strictly to the state

statutes in its operations.

The Company has, and intends, to adhere strictly to the state statutes in its operations.

Liquidity risk

The Company's approach to managing liquidity

risk is to ensure that it will have sufficient liquidity to meet liabilities when due.

As of December 31, 2020, 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.

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

As of December 31, 2021, the Company’s financial liabilities consist of accounts payable and accrued liabilities, debt.

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 investors and debt issuances.

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 financing.

operates in the United States.

The United States federal government regulates drugs through the Controlled Substances Act (21 U.S.C.

811), which places

controlled substances, including cannabis, in a schedule.

§ 811), which places controlled substances, including cannabis, in a schedule.

Cannabis is classified as a Schedule I drug.

Under United States federal

law, a Schedule I drug or substance has a high potential for abuse, no accepted medical use in the United States, and a lack of

accepted safety for the use of the drug under medical supervision.

The United States Food and Drug Administration has not approved

marijuana as a safe and effective drug for any indication.

Under United States federal law, a Schedule I drug or substance has a high potential for abuse, no accepted medical use in the United States, and a lack of accepted safety for the use of the drug under medical supervision.

The United States Food and Drug Administration has not approved marijuana as a safe and effective drug for any indication.

In the United States marijuana is largely regulated at the state level.

State laws regulating cannabis are in direct conflict with the federal Controlled Substances Act, which makes cannabis use and

possession federally illegal.

currency risk

Foreign currency risk is the risk that

the fair value or future cash flows of a financial instrument will fluctuate because of changes in foreign currency rates.

Company is not exposed to currency risk.

Interest rate risk

Interest rate risk is the risk that the

fair value of future cash flows of a financial instrument will fluctuate because of changes in market interest rates.

currently does not carry variable interest-bearing debt.

It is management’s opinion that the Company is not exposed to significant

State laws regulating cannabis are in direct conflict with the federal Controlled Substances Act, which makes cannabis use and possession federally illegal.

Foreign currency risk

Foreign currency risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in foreign currency rates.

The Company is not exposed to significant currency risk.

Interest rate risk

Interest rate risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in market interest rates.

The Company currently does not carry variable interest-bearing debt.

It is management’s opinion that the Company is not exposed to significant interest rate risk.

Related Parties Transactions

As of December 31, 2020, and 2019, there

were no amounts due from related parties.

During the year ended December 31, 2019

the Company acquired Midwest Hemp Research, LLC which was 50% owned by Kyle Kingsley, the Chief Executive Officer of the Company.

As consideration for the acquisition, the Company issued a $25,000 convertible note to the CEO.

During the year ended December

31, 2020, the Company completed the divestiture of Midwest Hemp Research, LLC.

Refer to Note 3 for more detail.

For the year ending December 31, 2020, and 2019, the Company

paid a related party (Salo LLC owned by Amy Langer, a former member of the Board of Directors) for contract staffing expenses in

the amount of $126,896 and $295,463.

As of December 31, 2020, certain directors

and officers of the Company (Kyle Kingsley, Amber Shimpa, and Stephen Dahmer) own Ohio Medical Solutions, Inc.

The Company has

executed a management agreement and option to purchase Ohio Medical Solutions, Inc.

As of December 31, 2021, and 2020, there were $ 98,750 and $ 0 , respectively, due to related parties.

For the years ended December 31, 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) $ 30,000 and $ 0 , respectively, for ongoing corporate advisory services.

The Company recorded $ 191,026 in share-based compensation expense related to warrants earned by Bengal Impact Partners for ongoing corporate advisory services, but not yet issued.

For the years ended December 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 controlled by the Company through a management agreement.

OMS was sold on March 31, 2021 (Note 3).

None of the proceeds received from this transaction were paid to the aforementioned directors and officers, rather, they were owed and paid to the Company

Subsequent Events

On January 5, 2021, the Company completed the

acquisition of MJ Distributing, Inc, which holds licenses to cultivate and distribute, respectively, medical and adult-use cannabis in

the state of Nevada.

The Company issued 1,050,000 Subordinate Voting Shares to the seller’s designees, and the convertible promissory

notes from the original purchase agreement were cancelled.

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 “

Facility ”).

Net of fees and closing costs, we received $23.5 million of the first tranche on March 25, 2021.

Obligations under

the Credit Facility are secured by substantially all the assets of the borrowers.

The Credit Facility and related documents also provide

for the payment of certain fees to the agent, including a closing fee equal to 3% of each loan advanced, and a 3.25% closing fee to the

The unpaid principal amounts outstanding under the Credit Facility bear interest at a rate of (a) 13.625% per annum payable

monthly in cash, and (b) 2.75% per annum.

The Credit Facility matures on March 31, 2024.

On March 25, 2021, in connection with closing

the Credit Facility, Vireo issued (a) five year warrants to the agent to and each lender to purchase an aggregate of 2,803,984 Shares

at an exercise price of CDN$3.50 per Share, and (b) a five year warrant to the broker to purchase 233,665 Shares at an exercise price

of CDN$3.50 per Share.

Each warrant provides customary anti-dilution provisions.

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, we issued 7,110,381 subordinate

voting shares to our 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 pursuant to an exemption from registration under the Securities Act.

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

The shares issued pursuant to the warrant

exercise are free of trading restrictions;

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

He was previously issued 15 million warrants under his employment agreement.

As part of the settlement, he surrendered all right, title,

and interest in the remaining 5 million for cancellation.

In the first quarter of 2021 employee stock options

were exercised for 3,130,343 Subordinate Voting Shares.

Proceeds from these transactions were $966,166 in cash.

Changes in and Disagreements with Accountants on Accounting

and Financial Disclosure

On January 31, 2022, we entered into an Arrangement Agreement (the “Arrangement Agreement”) with Verano Holdings Corp.

(“Verano”), pursuant to which Verano will acquire all of the issued and outstanding shares of Goodness Growth pursuant to a plan of arrangement (the “Plan of Arrangement”) under the Business Corporations Act (British Columbia) (the “Arrangement”).

Subject to the terms and conditions set forth in the Arrangement Agreement and the Plan of Arrangement, holders of Goodness Growth Shares will receive 0.22652 of a subordinate voting share of Verano (each a “Verano Subordinate Voting Share”), subject to adjustment as described below (the “Exchange Ratio”), for each Subordinate Voting Share held, and 22.652 Verano Subordinate Voting Shares for each Multiple Voting Share and Super Voting Share held, immediately prior to the effective time of the Arrangement.

The Arrangement is subject to the approvals of the Supreme Court of British Columbia;

receipt of U.S.

regulatory approvals, including pursuant to the Hart–Scott–Rodino Antitrust Improvements Act and New York State regulatory requirements:

and other customary conditions of closing.

In connection with the Arrangement Agreement, on January 31, 2022, Goodness Growth and certain of its subsidiaries, as borrowers (collectively, “Borrowers”), entered into a Third Amendment to their existing Credit Agreement with Chicago Atlantic Admin, LLC and the lenders party thereto (the “Third Amendment”) providing for delayed draw term loans of up to $ 55 million (the “Delayed Draw Loans”).

Subject to certain conditions to be satisfied prior to the initial funding thereunder, Goodness Growth may borrow a portion of the $ 55 million for working capital and other general corporate purposes and may borrow the remainder for other specific purposes, including relating to its ongoing expansion in New York.

The Delayed Draw Loans have a maturity date of April 30, 2023 with an option to extend another 12 month s for an additional fee of $ 1,375,000 .

The cash interest rate on the Delayed Draw Loans under the Third Amendment is equal to the U.S.

prime rate plus 10.375 % , with a minimum required rate of 13.375 % per annum, in addition to paid-in-kind interest of 2.75 % per annum.

Pursuant to the Arrangement Agreement, Verano will reimburse Goodness Growth for all interest expenses related to the Third Amendment in excess of 10 % per annum until the earlier of either the Effective Date or termination of the Arrangement Agreement (the “Interest Funding”).

On March 3, 2022, the Company drew $ 4,075,000 in principal debt from the Delayed Draw Loans.

Proceeds received, net of deferred financing fees of $ 1,075,000 , were $ 3,000,000 .

On March 3, 2022, there was a fourth amendment to the Credit Facility.

This amendment provides that the Company will cause Verano to guarantee the Credit Facility if the Arrangement closes.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

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-K

Item 8. Financial Statements and Supplementary Data