What changed in this filing

/stocks — the workspaceLOADING

Item 1. Financial Statements

2022-05-11 compared with 2021-11-10 · 240 added, 494 removed, 437 unchanged (63% of the section changed)

3 unchanged sentences

(In U.S Dollars, unaudited and condensed)

September 30,

Current assets:

Restricted cash

Accounts receivable, net of allowance for doubtful accounts of $ 482,038 and $ 572,080 , respectively

Prepayments and other current assets

Notes receivable

Deferred acquisition costs

Assets Held for Sale

Deferred financing costs

Total current assets

7 unchanged sentences

Right of use liability

Convertible notes, net of issuance costs

Long-Term debt, current portion

Liabilities held for sale

Warrant Liability

Total current liabilities

19 unchanged sentences

GOODNESS GROWTH HOLDINGS, INC.

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

CONSOLIDATED STATEMENTS OF NET LOSS AND COMPREHENSIVE LOSS

Dollars, unaudited and condensed)

Three Months Ended

Nine Months Ended

September 30,

Cost of sales

8 unchanged sentences

( 4,844,773 )

( 12,491,153 )

( 20,813,493 )

Other income (expense):

Loss on sale of property and equipment

Gain on disposal of assets held for sale

Loss on assets held for sale

Derivative gain (loss)

( 4,066,335 )

Impairment of long-lived assets

( 5,313,176 )

Gain on disposal of assets

Interest expenses, net

1 unchanged sentence

( 1,026,146 )

( 6,037,057 )

( 4,249,090 )

Other income (expenses)

1 unchanged sentence

( 8,546,622 )

( 3,249,254 )

Loss before income taxes

1 unchanged sentence

( 5,377,144 )

( 13,876,352 )

Current income tax expenses

1 unchanged sentence

( 1,735,000 )

( 4,575,000 )

Deferred income tax recoveries

( 2,280,000 )

( 2,225,000 )

Net income (loss) and comprehensive income (loss)

( 6,243,231 )

Net loss and comprehensive loss

( 14,566,782 )

( 6,877,144 )

Net income (loss) per share - basic and diluted

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

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

Net loss per share - basic and diluted

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

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

7 unchanged sentences

( 101,733,044 )

Shares issued in private placement

Conversion of MVS shares

Shares issued in Nevada acquisition

Options exercised

Warrants exercised

Warrants issued in financing activities

Stock-based compensation

1 unchanged sentence

( 6,877,144 )

Balance at September 30, 2020

Balance at March 31, 2021

( 108,610,188 )

2 unchanged sentences

Conversion of MVS shares

Shares issued in Nevada acquisition

Shares issued

Options exercised

Warrants exercised

Stock-based compensation

1 unchanged sentence

( 14,566,782 )

Balance at September 30, 2021

Balance at March 31, 2022

( 149,990,301 )

3 unchanged sentences

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

Nine Months Ended September 30,

September 30,

CASH FLOWS FROM OPERATING ACTIVITIES

7 unchanged sentences

Stock-based payments

Loss on assets held for sale

Interest Expense

Impairment of long-lived assets

Deferred income tax

Gain on disposal of business

( 3,115,000 )

Derivative (Gain) Loss

( 2,317,065 )

Gain on disposal of OMS

Gain on disposal of royalty asset

Change in operating assets and liabilities:

Accounts Receivable

( 1,764,878 )

Prepaid expenses

3 unchanged sentences

Accounts payable and accrued liabilities

( 2,555,634 )

Held for sale assets and liabilities

Change in assets and liabilities held for sale

( 8,450,772 )

Net cash used in operating activities

5 unchanged sentences

( 4,922,251 )

Proceeds from sale of PAMS net of cash

Proceeds from sale of royalty asset

Acquisition of MJ Distributing

( 1,592,500 )

Proceeds from sale of OMS net of cash

1 unchanged sentence

( 2,213,479 )

( 5,366,346 )

CASH FLOWS FROM FINANCING ACTIVITIES

Proceeds from issuance of shares

Deferred financing costs

Proceeds from long-term debt

Convertible debt payment

Proceeds from long-term debt, net of issuance costs

Proceeds from option exercises

Debt interest payments

Lease payments

( 1,008,584 )

( 1,250,799 )

Lease principal payments

Net cash provided by financing activities

8 unchanged sentences

Goodness Growth Holdings, Inc.

(“ Goodness Growth ” 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., the shareholders of Vireo U.S.

became the controlling shareholders of the Company, and the Company changed its name to Vireo Health International, Inc.

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

(“ 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 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 through its subsidiaries.

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

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 is “still a violation of federal law.” At the present time, the distinction between “medical marijuana” and “recreational marijuana” does not exist under U.S.

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.

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

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

3 unchanged sentences

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 notwithstanding the loosening or elimination of restrictions in some areas.

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.

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

Significant Accounting Policies

The Company’s significant accounting policies are described in Note 2 to the Company’s consolidated financial statements included in the Annual Report on Form 10-K for the fiscal year ended December 31, 2021, filed with this Securities and

Exchange Commission, or SEC, on March 15, 2022 (the "

Annual Financial Statements ").

There have been no material changes to the Company’s significant accounting policies.

Basis of presentation

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

The information included in these statements should be read in conjunction with the audited consolidated financial statements included in the Company’s Form 10-K for the year ended December 31, 2020 (the “ Annual Financial Statements ”).

The information included in these statements should be read in conjunction with the Annual Financial Statements.

The unaudited condensed consolidated financial statements were prepared in accordance with generally accepted accounting principles in the United States of America (“ U.S.

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

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

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

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

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

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

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

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

These unaudited condensed 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.

In the opinion of management, the financial data presented includes all adjustments necessary to present fairly the financial position, results of operations and cash flows for the interim periods presented.

Results of interim periods should not be considered indicative of the results for the full year.

These unaudited interim condensed consolidated financial statements include estimates and assumptions of management that affect the amounts reported in the unaudited condensed consolidated financial statements.

Actual results could differ from these estimates.

Revision of Previously Issued Financial Statements

During the year ended December 31, 2021, management identified an error related to the accounting treatment of warrants with a Canadian dollar exercise price issued in connection with the Credit Facility.

The Company initially recorded these Canadian denominated warrants as a derivative liability subject to revaluation at each period end, when they should have received equity treatment.

Additionally, the Company identified errors related to the valuation of stock issued in the acquisition of MJ Distributing, and stock issued to our former Executive Chairman, Bruce Linton.

In both instances the stock issued carried certain lock up provisions.

The Company initially recorded the equity value of the stock issued at market value on the date of issuance, rather than applying a discount for lack of marketability to account for the lock up provisions.

To correct the immaterial misstatements for the three months ended March 31, 2021, the Company elected to revise its previously issued interim unaudited condensed consolidated statements of net loss and comprehensive loss, stockholders’ equity, and cash flows.

The Company will present the revision of its previously issued interim unaudited condensed consolidated financial statements in connection with the future filing of its Quarterly Reports on Form 10-Q.

The impact of the revisions on the Company’s interim unaudited condensed consolidated financial statements for the three months ended March 31, 2021 is reflected in the following table:

Statement of Net Loss and Comprehensive Loss for the three months ended March 31, 2021 (unaudited)

As Previously Reported

Operating expenses:

Stock-based compensation expenses

Total operating expenses

Loss from operations

( 5,112,730 )

( 4,844,773 )

Other income (expense):

Derivative gain (loss)

Other income (expenses), net

Loss before income taxes

( 5,486,572 )

( 5,377,144 )

Net income (loss) and comprehensive income (loss)

( 6,986,572 )

( 6,877,144 )

Consolidated Statement of Changes in Stockholders' Equity as of March 31, 2021

As Previously Reported

Shares issued in Nevada acquisition

Stock-based compensation

Warrants issued in financing activities

( 6,986,572 )

( 6,877,144 )

Balance at March 31, 2021

Consolidated Statement of Cash Flows for the three months ended March 31, 2021 (unaudited)

As Previously Reported

CASH FLOWS FROM OPERATING ACTIVITIES

( 6,986,572 )

( 6,877,144 )

Derivative gain

Share-based payments

Basis of consolidation

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

Name of entity

Place of incorporation

Goodness Growth Holdings, Inc.

British Columbia, CAN

Vireo Health, Inc.

4 unchanged sentences

Minnesota, USA

Ohio Medical Solutions, Inc.

Delaware, USA

Maryland, USA

8 unchanged sentences

Elephant Head Farm, LLC

EHF Cultivation Management, LLC

Retail Management Associates, LLC

15 unchanged sentences

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

accounted for under Topic 815.

ASU 2020-01 is effective for the Company beginning January 1, 2021.

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 Company adopted Topic 832 on January 1, 2022.

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 unaudited condensed 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.

Examples of key estimates in these unaudited condensed 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.

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 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

5 unchanged sentences

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

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

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

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

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

September 30,

The Company recorded a net loss for the three month periods ended March 31, 2022 and 2021, presented in these financial statements, and as such there is no difference between the Company’s basic and diluted net loss per share for these periods.

The anti-dilutive shares outstanding for the three month periods ending March 31, 2022 and 2021 were as follows:

Stock options

Convertible notes

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 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.

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, 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.

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 work-in-progress, finished goods and non-cannabis.

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

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

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

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 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.

Property and equipment

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 fifteen years , 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.

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 complete and the facility is available for commercial use.

Intangible assets

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.

Cost 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.

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

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 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.

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.

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.

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

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

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

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

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

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.

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).

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 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 estimate is updated at each reporting period.

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

Contract assets

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

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.

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.

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 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.

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.

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:

Three Months Ended

New accounting pronouncements not yet adopted

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

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.

Business Combinations and Dispositions

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

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

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

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

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

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

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

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

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

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

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

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

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

On March 31, 2021, the Company sold all of the assets and liabilities of its affiliated company, Ohio Medical Solutions, Inc.

(“ OMS ”) to Ayr Strategies Inc.

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 $ 437,107 which was recorded in the unaudted condensed consolidated statement of loss and comprehensive loss for the nine months ended September 30, 2021.

Assets held for sale

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

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

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

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

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

Assets held for sale

Property and equipment

Operating lease, right-of-use-asset

Intangible assets, net

Total assets held for sale

Liabilities held for sale

Right of Use Liability

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

On March 31, 2022, the Company sold the rights to a 10 % royalty on future net revenues generated by High Gardens, Inc., a former subsidiary of the Company that was divested in 2020, for cash consideration of $ 236,635 .

The carrying value of the intangible royalty asset prior to disposition was $ 68,276 , resulting in a gain of $ 168,359 which was recorded in the unaudited condensed consolidated statement of loss and comprehensive loss for the three months ended March 31, 2022.

Asset Acquisitions

5 unchanged sentences

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

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

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

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.

Assets Held for Sale

As of March 31, 2022 the Company identified property, equipment, and lease assets and liabilities associated with the businesses in Maryland and Arizona with carrying amounts that are expected to be recovered principally through sale rather than through continuing use.

The sale of these assets and liabilities is highly probable, they can be sold in their immediate condition, and the sales are expected to occur within the next twelve motnhs.

As such, these assets and liabilities have been classified as “held for sale.” The carrying value of these net assets exceeded fair value less expected cost to sell,

and as such, the Company recorded an impairment loss of $ 5,313,176 , which is included in the statement of loss and comprehensive loss for the three months ended March 31, 2022.

Assets and liabilities held for sale are as follows:

Assets held for sale

Property and equipment

Total assets held for sale

Liabilities held for sale

Right of Use Liability

Total liabilities held for sale

Fair Value Measurements

3 unchanged sentences

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

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

The following tables present information about the Company’s assets that are measured at fair value on a recurring basis as of March 31, 2022, and December 31, 2021, indicates the fair value hierarchy of the valuation techniques the Company utilized to determine such fair value:

Quoted prices in

1 unchanged sentence

identical assets

September 30, 2021

Restricted cash

Warrant liability

Total liabilities

March 31, 2022

December 31, 2021

Restricted cash

The following table reflects the activity for the Company’s warrant derivative liability for the private placement measured at fair value using Level 3 inputs:

Warrant Liability

Balance as of December 31, 2020

Adjustments to estimated fair value

( 2,317,065 )

Balance as of September 30, 2021

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

Items measured at fair value on a non-recurring basis

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

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

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

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

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

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 three months ended March 31, 2022, the carrying values of property and equipment 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 (Note 8).

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.

Accounts Receivable

Trade receivables are comprised of the following items:

September 30,

Trade receivable

Tenant improvements receivable

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

Notes Receivable

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

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

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

September 30,

Tax withholding receivable

Included in the trade receivables, net balance at March 31, 2022 and December 31, 2021, is an allowance for doubtful accounts of $ 125,564 and $ 215,606 , respectively.

Included in the tax withholding receivable, net balance at March 31, 2022 and December 31, 2021 is an allowance for doubtful accounts of $ 356,474 .

Other receivables, as of March 31, 2022, primarily consists of interest paid in connection with the Credit Facility (Note 13), but subject to reimbursement by Verano per the terms of the Arrangement Agreement.

Inventory is comprised of the following items:

Work-in-progress

Finished goods

Non-cannabis inventory

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:

Three Months Ended September 30,

Nine Months Ended September 30,

Work-in-progress

Finished goods

Non-cannabis inventory

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

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

Prepayments and other current assets

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

September 30,

Prepaid Insurance

Other Prepaid Expenses

Deferred Acquisition Costs

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

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

Property and Equipment, Net

Property and equipment, net consisted of the following:

September 30,

Buildings and leasehold improvements

5 unchanged sentences

( 7,693,878 )

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

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

For the three months ended March 31, 2022 and 2021, total depreciation on property and equipment was $ 856,289 and $ 679,920 , respectively.

For the three months ended March 31, 2022 and 2021, accumulated amortization of the right of use asset under finance lease amounted to $ 2,736,162 and $ 1,802,458 , respectively.

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

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

The Company capitalized into inventory $ 700,193 and $ 508,359 relating to depreciation associated with manufacturing equipment and production facilities for the three months ended March 31, 2022 and 2021, respectively.

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

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

As of March 31, 2022, in conjunction with the Company’s held for sale assessment, the Company evaluated whether property and equipment showed any indicators of impairment, and it was determined that the recoverable amount of certain net assets were below book value.

As a result, the Company recorded an impairment charge of $ 5,313,176 (2021 - $ 0 ) on property and equipment, net.

Components of lease expenses are listed below:

September 30,

Finance lease cost

6 unchanged sentences

Finance Leases

September 30, 2021

March 31, 2022

Total minimum lease payments

1 unchanged sentence

( 4,300,836 )

( 180,627,862 )

( 184,928,698 )

Less liabilities held for sale

( 1,129,249 )

Present value of lease liability

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

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

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

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

Supplemental cash flow information related to leases:

September 30,

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

Financing cash flows from finance leases

Lease principal payments

Non-cash additions to ROU assets

1 unchanged sentence

Other information about lease amounts recognized in the financial statements:

September 30,

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

4 unchanged sentences

Goodwill - January 1, 2021

Transfer to held for sale

( 2,948,655 )

Goodwill - December 31, 2020 and September 30, 2021

Goodwill - December 31, 2021 and March 31, 2022

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

1 unchanged sentence

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

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

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

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

No indicators of impairment exists as of March 31, 2022.

Intangible assets are comprised of the following items:

1 unchanged sentence

Balance December 31, 2020

Additions (Note 3)

Balance, December 31, 2020

Additions (Note 3)

Transfer to held for sale (Note 3)

( 5,492,890 )

Balance, September 30, 2021

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

( 2,105,483 )

Balance, December 31, 2021

Divestitures (Note 3)

Balance, March 31, 2022

Amortization expense for intangibles was $ 172,267 and $ 206,443 during the three months ended March 31, 2022 and 2021, respectively.

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

2 unchanged sentences

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

September 30,

Accounts payable – trade

1 unchanged sentence

Taxes payable

Insurance payable

Contract liability

3 unchanged sentences

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

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

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

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.

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 broker.

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.

2 unchanged sentences

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.

All deferred financing costs are treated as a contra-liability, to be netted against the outstanding loan balance of $ 26,000,000 and amortized over the remaining life of the loan.

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

On November 18, 2021, the Company and lenders 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 % per annum 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.

On January 31, 2022, Goodness Growth and certain of its subsidiaries, as borrowers (collectively, “Borrowers”), entered into a Third Amendment to the Credit Facility (the “Third Amendment”) providing for additional 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 months 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 closing of the transaction under the Arrangement Agreement, or termination of the Arrangement Agreement.

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 $ 1,074,556 , were $ 3,000,444 .

Additionally, the Company incurred $ 115,863 of third party legal fees related to the draw.

The Company expects to be reimbursed by Verano for the $ 1,190,863 in deferred financing pursuant to the Arrangement Agreement.

These fees are included in our other receivables balance (Note 5), and included as other income in the unaudited statement of loss and comprehensive loss for the three months ended March 31, 2022.

Unless otherwise specified, 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.

The note bears an interest rate of 8 % per annum with interest payments 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:

September 30,

Beginning of year

Note payable issued in Charm City acquisition

Deferred financing costs

( 1,190,419 )

( 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 25, 2021, in connection with closing the Credit Facility (Note 15), Goodness Growth issued (a) five year warrants to the agent to and each lender to purchase an aggregate of 2,803,984 subordinate voting shares at an exercise price of C$ 3.50 per share, and (b) a five year warrant to the broker to purchase 233,665 subordinate voting shares at an exercise price of C$ 3.50 per share.

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 25, 2021, the warrants were valued using the Black Scholes option pricing model at $ 5,395,759 using the following assumptions:

Exercise Price:

Expected Life:

Annualized Volatility:

Dividend yield:

Discount Rate:

C$ Exchange Rate:

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

Exercise Price:

Expected Life:

Annualized Volatility:

Dividend yield:

Discount Rate:

C$ Exchange Rate:

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

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

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

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:

Expected Life:

Annualized Volatility:

Dividend yield:

Discount Rate:

C$ Exchange Rate:

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

Exercise Price:

Expected Life:

Annualized Volatility:

Dividend yield:

Discount Rate:

C$ Exchange Rate:

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

Convertible Notes

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

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

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

September 30, 2021

December 31, 2020

5.00 % convertible notes

Net carrying amount

Stockholders’ Equity

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

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 March 31, 2022.

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

Voting Rights

14 unchanged sentences

Shares Issued

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

During the three months ended March 31, 2022, 28,134 Multiple Voting Shares were redeemed for 2,813,400 Subordinate Voting Shares.

During the three months ended March 31, 2021, 94,177 Multiple Voting Shares were redeemed for 9,417,700 Subordinate Voting Shares.

During the three months ended March 31, 2021, employee stock options were redeemed for 3,130,343 Subordinate Voting Shares.

Proceeds from these transactions were $ 966,156 .

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

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

On March 31, 2021, as part of a settlement and release of claims regarding a dispute over certain post-termination terms under his employment agreement, the Company issued 7,110,481 subordinate voting shares to its former Executive Chairman, Bruce Linton, upon a cashless exercise of 10 million warrants that had an exercise price of $ 1.02 per share and issued him 889,519 subordinate voting shares with a fair value of $ 1,441,183 pursuant to an exemption from registration under the Securities Act.

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

The fair value of the 889,519 subordinate voting shares issued of $ 1,441,183 was recorded as stock-based compensation expense in the unaudited condensed consolidated statements of net loss and comprehensive loss for the three months ended March 31, 2021.

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

2 unchanged sentences

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

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

Each unit is comprised of one Subordinate Voting Share 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 share.

The Company has the right to force the holders of the warrants to exercise the warrants into subordinate voting shares if, prior to the maturity date, the five-trading-day volume weighted-average price of the subordinate voting 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

6 unchanged sentences

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

September 30,

Risk-Free Interest Rate

Weighted Average Exercise Price

Expected Life of Options (years)

2 unchanged sentences

Expected Dividend Yield

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

Stock option activity for the three months ended March 31, 2022 and for the year ended December 31, 2021 is presented below:

Weighted Average

6 unchanged sentences

Balance, December 31, 2021

( 3,989,344 )

Options Outstanding at September 30, 2021

Options Exercisable at September 30, 2021

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

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

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

Options Outstanding at March 31, 2022

Options Exercisable at March 31, 2022

During the three months ended March 31, 2022 and 2021, the Company recognized $ 591,600 and $ 686,755 in stock-based compensation expense relating to stock options, respectively.

As of March 31, 2022, the total unrecognized compensation costs related to unvested stock options awards granted was $ 3,913,312 .

In addition, the weighted average period over which the unrecognized compensation expense is expected to be recognized is approximately 2.3 years.

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

The total intrinsic value of stock options outstanding and exercisable as of March 31, 2022, was $ 36,075,647 and $ 30,434,024 , respectively.

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

3 unchanged sentences

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

September 30,

SVS Warrants Denominated in C$

10 unchanged sentences

Warrants outstanding at December 31, 2020

( 7,110,481 )

( 7,889,519 )

Warrants outstanding at September 30, 2021

Warrants exercisable at September 30, 2021

Warrants outstanding at December 31, 2021 and March 31, 2022

Warrants exercisable at December 31, 2021 and March 31, 2022

Weighted Average

4 unchanged sentences

Warrants outstanding at December 31, 2020

Warrants outstanding at September 30, 2021

Warrants exercisable at September 30, 2021

Warrants outstanding at December 31, 2021

Warrants outstanding at March 31, 2022

Warrants exercisable at March 31, 2022

Weighted Average

4 unchanged sentences

Warrants outstanding at December 31, 2021

Warrants outstanding at September 30, 2021

Warrants exercisable at September 30, 2021

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

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

Warrants outstanding at March 31, 2022

Warrants exercisable at March 31, 2022

During the three months ended March 31, 2022 and 2021, $ 0 in stock-based compensation expense was recorded in connection with the SVS compensation warrants and $ 0 in stock-based compensation was recorded in connection with the MVS warrants.

The expense associated with RSUs is based on closing share price of the Company’s common stock on the business day immediately preceding the grant date, adjusted for the absence of future dividends and is amortized on a straight-line basis over the periods during which the restrictions lapse.

The Company currently has RSUs that vest over a three year period.

The awards are generally subject to forfeiture in the event of termination of employment.

During the three months ended March 31, 2022 the Company recognized $ 51,906 in stock-based compensation expense related to RSUs.

A summary of RSUs is as follows:

Number of Shares

Balance, December 31, 2021

Balance, March 31, 2022

Commitments and Contingencies

1 unchanged sentence

On February 25, 2019, Dr.

Mark Schneyer (“ Schneyer ”) filed a lawsuit in Minnesota District Court, Fourth District, 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.

Dorchester Management is an affiliated entity to Vireo Health, Inc.

(“ Vireo U.S.

”) and was previously used as a management company over Capital.

It no longer has active operations following Vireo U.S.’s acquisition of MaryMed, LLC (“ MaryMed ”) in 2017.

It is owned and controlled by Kyle Kingsley and Amber Shimpa, executive officers and directors of the Company.

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, which it purchased it from Capital in 2018, and that the consideration given – shares of preferred stock in 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, LLC in 2017.

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.

2 unchanged sentences

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 in May, 2021, recommending, among other things, that certain claims be permitted to proceed and other claims not be permitted to proceed by the court.

As of May 6, 2021, the court has not yet issued a determination regarding any of the matters contained in the SLC’s report.

We have filed motions to dismiss the complaint and to stay the proceedings.

The motion to dismiss has not yet been decided and the motion to stay was granted on November 23, 2019, pending the outcome of the SLC process.

We believe that Schneyer’s claims lack merit and expect to prevail in the litigation, if and when it proceeds.

However, should we not ultimately prevail, it is not possible to estimate the amount or range of potential loss, if any.

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 dismiss 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

3 unchanged sentences

Three Months Ended

Nine Months Ended

September 30,

Salaries and benefits

3 unchanged sentences

Supplemental Cash Flow Information (1)

September 30,

Three Months Ended

Cash paid for interest

1 unchanged sentence

Change in construction accrued expenses

( 1,418,281 )

Non-cash investing

14 unchanged sentences

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

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

As of March 31, 2022, the Company’s financial liabilities consist of accounts payable and accrued liabilities, and debt.

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

17 unchanged sentences

Related Party Transactions

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

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

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

As of March 31, 2022, and December 31, 2021, there were $ 10,000 and $ 98,750 due to related parties, respectively.

For the three months ended March 31, 2022, and 2021, the Company paid a related party (Bengal Impact Partners, of which a member of the Company’s Board of Directors is a managing partner) $ 20,000 and $ 0 , respectively, for ongoing corporate advisory services.

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

1 unchanged sentence

Subsequent Events

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

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

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

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

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

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

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

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

On April 1, 2022, the Company drew an additional $ 8,000,000 in principal debt from the Delayed Draw Loans.

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

What changed 10-Q

Item 1. Financial Statements