What changed in this filing

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Item 1. Financial Statements

2022-11-14 compared with 2022-08-11 · 158 added, 104 removed, 621 unchanged (30% of the section changed)

3 unchanged sentences

(In U.S Dollars, unaudited and condensed)

September 30,

Current assets:

10 unchanged sentences

Accounts Payable and Accrued liabilities

Long-Term debt, current portion

Right of use liability

2 unchanged sentences

Right-of-use liability

Long-Term debt

Long-Term debt, net

Total liabilities

19 unchanged sentences

Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

Cost of sales

12 unchanged sentences

( 2,108,703 )

( 7,476,618 )

Loss on sale of property and equipment

19 unchanged sentences

( 4,130,000 )

( 3,150,000 )

Deferred income tax recoveries

23 unchanged sentences

( 20,759,515 )

Balance at June 30, 2021

Balance at September 30, 2021

( 122,492,559 )

2 unchanged sentences

Conversion of MVS shares

Options exercised

Stock-based compensation

1 unchanged sentence

( 29,173,646 )

Balance at June 30, 2022

Balance at September 30, 2022

( 164,597,165 )

3 unchanged sentences

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

September 30,

CASH FLOWS FROM OPERATING ACTIVITIES

17 unchanged sentences

( 1,408,580 )

( 1,531,985 )

Prepaid expenses

2 unchanged sentences

( 2,205,236 )

( 7,765,288 )

Accounts payable and accrued liabilities

21 unchanged sentences

Lease principal payments

( 1,437,346 )

( 1,008,584 )

Net cash provided by financing activities

9 unchanged sentences

(“ 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”.

The Company was previously 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.

1 unchanged sentence

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.

Goodness Growth operates cannabis cultivation, production, and dispensary facilities in Maryland, Minnesota, New Mexico, and New York, and formerly in Arizona and Ohio.

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

2 unchanged sentences

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 .

On January 31, 2022, the Company entered into an Arrangement Agreement (the “Arrangement Agreement”) with Verano Holdings Corp.

(“ Verano ”), pursuant to which Verano was to 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 would 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.

On October 13, 2022, Goodness Growth received a notice of purported termination of the Arrangement Agreement (the “ Notice ”) from Verano.

The Notice asserted certain breaches of the Arrangement Agreement, including claims the Company’s public filings and communications with respect to its business and ongoing operations were misleading and that the Company breached its representations to Verano under the Arrangement Agreement.

Verano also claimed, as a result of such breaches, it is entitled to payment of the $ 14,875,000 termination fee and its transaction expenses.

Goodness Growth denies all of Verano’s allegations and affirmatively states that it has complied with its obligations under the Arrangement Agreement, and will its disclosure obligations under US and Canadian law, in all material respects at all times.

Verano has no factual or legal basis to justify or support its purported grounds for termination of the Arrangement Agreement.

On October 21, 2022, Goodness Growth commenced an action in the Supreme Court of British Columbia against Verano after Verano wrongfully repudiated the Arrangement Agreement.

The Company is seeking damages, costs and interest, based on Verano's breach of contract and of its duty of good faith and honest performance.

Due to uncertainties inherent in litigation, it is not possible for Goodness Growth to predict the timing or final outcome of the legal proceedings against Verano or to determine the amount of damages, if any, that may be awarded.

The termination of the Arrangement Agreement gives rise to substantial doubt about the Company’s ability to meet its obligations over the next twelve months.

Company management is working with the Company’s lenders, counsel, and other applicable parties to implement a plan to effectively mitigate the conditions giving rise to substantial doubt.

Elements of this plan may include, but are not limited to, asset sales, debt restructuring, and capital raises.

The accompanying consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business.

However, the Company’s continuance as going

concern is dependent on its future profitability and implementation of the aforementioned plan.

The Company may not be successful in these efforts.

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 "

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 the United States Securities and Exchange Commission (“ SEC ”) on March 15, 2022 (the "

Annual Financial Statements ").

4 unchanged sentences

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 ”).

GAAP ”) and pursuant to the rules and regulations of the SEC.

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.

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.

5 unchanged sentences

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 and six month periods ended June 30, 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.

To correct the immaterial misstatements for the three and nine month periods ended September 30, 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 and six months ended June 30, 2021 is reflected in the following table:

Statement of Net Loss and Comprehensive Loss for the six months ended June 30, 2021 (unaudited)

The impact of the revisions on the Company’s interim unaudited condensed consolidated financial statements for the three and nine months ended September 30, 2021 is reflected in the following table:

Statement of Net Loss and Comprehensive Loss for the nine months ended September 30, 2021 (unaudited)

As Previously Reported

20 unchanged sentences

( 20,759,515 )

Statement of Net Loss and Comprehensive Loss for the three months ended June 30, 2021 (unaudited)

Statement of Net Loss and Comprehensive Loss for the three months ended September 30, 2021 (unaudited)

As Previously Reported

1 unchanged sentence

Derivative gain (loss)

( 1,531,371 )

Other income (expenses), net

1 unchanged sentence

( 2,179,535 )

( 2,854,413 )

Loss before income taxes

1 unchanged sentence

( 6,310,396 )

( 6,101,975 )

Net income (loss) and comprehensive income (loss)

1 unchanged sentence

( 6,870,396 )

( 7,011,975 )

Consolidated Statement of Changes in Stockholders' Equity as of June 30, 2021 (unaudited)

Consolidated Statement of Changes in Stockholders' Equity as of September 30, 2021 (unaudited)

As Previously Reported

5 unchanged sentences

( 20,759,515 )

Balance at June 30, 2021

Consolidated Statement of Cash Flows for the six months ended June 30, 2021 (unaudited)

Balance at September 30, 2021

Consolidated Statement of Cash Flows for the nine months ended September 30, 2021 (unaudited)

As Previously Reported

7 unchanged sentences

Basis of consolidation

These unaudited condensed consolidated financial statements include the accounts of the following entities wholly owned, or effectively controlled by the Company during the period ended June 30, 2022:

Name of entity

44 unchanged sentences

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

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

Potential dilutive common share equivalents consist of stock options, warrants, and restricted stock units.

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 and six month periods ended June 30, 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 six month period ending June 30, 2022 and 2021 were as follows:

The Company recorded a net loss for the three and nine month periods ended September 30, 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 nine month period ending September 30, 2022 and 2021 were as follows:

September 30,

Stock options

3 unchanged sentences

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

Six Months Ended

Nine Months Ended

September 30,

Three Months Ended

September 30,

New accounting pronouncements not yet adopted

6 unchanged sentences

(“ OMS ”) to Ayr Strategies Inc.

(“ Ayr ”) for consideration of $ 1,150,000 .

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 unaudited condensed consolidated statement of loss and comprehensive loss for the six months ended June 30, 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 six months ended June 30, 2022.

Asset Acquisitions

8 unchanged sentences

Assets Held for Sale

As of June 30, 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 $ 54,739 for the three months ended June 30, 2022, and $ 5,367,915 for the six months ended June 30, 2022.

As of September 30, 2022 the Company identified property, equipment, and lease assets and liabilities associated with the businesses in Maryland, Arizona, Nevada, and Massachusetts with carrying amounts that are expected to be recovered principally through sale or disposal 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 months.

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 $ 2,108,703 for the three months ended September 30, 2022, and $ 7,476,618 for the nine months ended September 30, 2022.

Assets and liabilities held for sale are as follows:

1 unchanged sentence

Property and equipment

Intangible assets

Operating lease, right-of-use asset

Total assets held for sale

7 unchanged sentences

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

The following tables present information about the Company’s assets that are measured at fair value on a recurring basis as of June 30, 2022, and December 31, 2021, indicates the fair value hierarchy of the valuation techniques the Company utilized to determine such fair value:

The following tables present information about the Company’s assets that are measured at fair value on a recurring basis as of September 30, 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

June 30, 2022

September 30, 2022

December 31, 2021

1 unchanged sentence

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 six months ended June 30, 2022, the carrying values of property and equipment were concluded to exceed their fair values.

In connection with an evaluation of such non-financial assets during the nine months ended September 30, 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 2 inputs (Note 8).

2 unchanged sentences

Trade receivables are comprised of the following items:

September 30,

Trade receivable

Tax withholding receivable

Included in the trade receivables, net balance at June 30, 2022 and December 31, 2021, is an allowance for doubtful accounts of $ 187,206 and $ 215,606 , respectively.

Included in the tax withholding receivable, net balance at June 30, 2022 and December 31, 2021 is an allowance for doubtful accounts of $ 356,474 .

Other receivables, as of June 30, 2022, primarily consists of deferred financing costs paid in connection with the Credit Facility (Note 13), but subject to reimbursement by Verano per the terms of the Arrangement Agreement.

Included in the trade receivables, net balance at September 30, 2022 and December 31, 2021, is an allowance for doubtful accounts of $ 124,505 and $ 215,606 , respectively.

Included in the tax withholding receivable, net balance at September 30, 2022 and December 31, 2021 is an allowance for doubtful accounts of $ 356,474 .

Other receivables, as of September 30, 2022, primarily consists of deferred financing costs 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:

September 30,

Work-in-progress

2 unchanged sentences

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

Three Months Ended June 30,

Six Months Ended June 30,

Three Months Ended September 30,

Nine Months Ended September 30,

Work-in-progress

2 unchanged sentences

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

September 30,

Prepaid Insurance

2 unchanged sentences

Property and equipment, net consisted of the following:

September 30,

Buildings and leasehold improvements

5 unchanged sentences

( 7,693,878 )

For the six months ended June 30, 2022 and 2021, total depreciation on property and equipment was $ 1,633,280 and $ 1,404,705 , respectively.

For the six months ended June 30, 2022 and 2021, accumulated amortization of the right of use asset under finance lease amounted to $ 3,007,098 and $ 2,024,551 , respectively.

The right of use asset under finance lease of $ 70,048,971 consists of leased processing and cultivation premises.

The Company capitalized into inventory $ 1,314,056 and $ 986,896 relating to depreciation associated with manufacturing equipment and production facilities for the six months ended June 30, 2022 and 2021, respectively.

For the nine months ended September 30, 2022 and 2021, total depreciation on property and equipment was $ 2,446,700 and $ 2,194,465 , respectively.

For the nine months ended September 30, 2022 and 2021, accumulated amortization of the right of use asset under finance lease amounted to $ 3,121,441 and $ 2,258,732 , respectively.

The right of use asset under

finance lease of $ 69,892,379 consists of leased processing and cultivation premises.

The Company capitalized into inventory $ 1,959,536 and $ 1,678,558 relating to depreciation associated with manufacturing equipment and production facilities for the nine months ended September 30, 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.

As of June 30, 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 of September 30, 2022, in conjunction with the Company’s held for sale assessment and disposal of certain long-lived assets, 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 $ 7,476,618 (2021 - $ 0 ) on property and equipment, net.

Components of lease expenses are listed below:

September 30,

Finance lease cost

6 unchanged sentences

Finance Leases

June 30, 2022

September 30, 2022

Total minimum lease payments

9 unchanged sentences

Supplemental cash flow information related to leases:

September 30,

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

3 unchanged sentences

Other information about lease amounts recognized in the financial statements:

September 30,

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

5 unchanged sentences

( 2,948,655 )

Goodwill - December 31, 2021 and June 30, 2022

Goodwill - December 31, 2021 and September 30, 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 exists as of June 30, 2022.

No indicators of impairment exists as of September 30, 2022.

Intangible assets are comprised of the following items:

7 unchanged sentences

Divestitures (Note 3)

Balance, June 30, 2022

Amortization expense for intangibles was $ 172,267 and $ 344,533 during the three and six months ended June 30, 2022, respectively, and $ 206,442 and $ 412,885 during the three and six months ending June 30, 2021, respectively.

Transfer to held for sale (Note 3)

Balance, September 30, 2022

Amortization expense for intangibles was $ 172,267 and $ 516,800 during the three and nine months ended September 30, 2022, respectively, and $ 206,442 and $ 619,327 during the three and nine months ending September 30, 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

13 unchanged sentences

The Credit Facility matures on March 31, 2024.

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

C$ 3.50 per share.

Each warrant provides customary anti-dilution provisions.

8 unchanged sentences

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

These fees are included as other income in the unaudited statement of loss and comprehensive loss for the six months ended June 30, 2022, and to the extent these fees have not been reimbursed, they are included in our other receivables balance (Note 5).

During the three months ended June 30, 2022, the Company drew $ 14,000,000 in principal debt from the Delayed Draw Loans.

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 through the purported termination of the Arrangement Agreement on October 13, 2022.

During the nine months ended September 30, 2022, the Company drew $ 27,075,000 in principal debt from the Delayed Draw Loans.

Proceeds received, net of deferred financing fees of $ 2,206,857 were $ 24,868,143 .

The Company is to be reimbursed by Verano for $ 1,190,863 of these deferred financing fees pursuant to the Arrangement Agreement, and still

expects to collect despite the purported termination of the Arrangement Agreement (Note 1).

These fees are included as other income in the unaudited statement of loss and comprehensive loss for the nine months ended September 30, 2022, and to the extent these fees have not been reimbursed, they are included in our other receivables balance (Note 5).

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.

3 unchanged sentences

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

September 30,

Beginning of year

9 unchanged sentences

Stockholders’ Equity

The Company’s certificate of incorporation authorized the Company to issue the following classes of shares with the following par value and voting rights as of June 30, 2022.

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, 2022.

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

15 unchanged sentences

Shares Issued

During the six months ended June 30, 2022, 28,134 Multiple Voting Shares were redeemed for 2,813,400 Subordinate Voting Shares.

During the six months ended June 30, 2021, 131,977 Multiple Voting Shares were redeemed for 13,197,700 Subordinate Voting Shares.

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

During the nine months ended September 30, 2022, 47,336 Multiple Voting Shares were redeemed for 4,733,600 Subordinate Voting Shares.

During the nine months ended September 30, 2021, 151,408 Multiple Voting Shares were redeemed for 15,140,700 Subordinate Voting Shares.

During the nine months ended September 30, 2022, employee stock options were redeemed for 15,002 Subordinate Voting Shares.

Proceeds from these transactions were $ 7,201 .

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

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

On June 4, 2021, the Company issued 295,774 shares with a fair value of $ 604,876 to a third party for ongoing corporate advisory services.

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

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

The fair value of the 889,519 subordinate voting shares issued of $ 1,441,183 was recorded as stock-based compensation expense in the 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.

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

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

He was previously

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

the additional 889,519 shares were subject to a holding period which expired on August 1, 2021.

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

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

4 unchanged sentences

Expected Dividend Yield

Stock option activity for the six months ended June 30, 2022 and for the year ended December 31, 2021 is presented below:

Stock option activity for the nine months ended September 30, 2022 and for the year ended December 31, 2021 is presented below:

Weighted Average

6 unchanged sentences

Balance, December 31, 2021

Options Outstanding at June 30, 2022

Options Exercisable at June 30, 2022

During the six months ended June 30, 2022 and 2021, the Company recognized $ 1,393,718 and $ 1,408,639 in stock-based compensation relating to stock options, respectively.

During the three months ended June 30, 2022 and 2021, the Company recognized $ 802,118 and $ 803,204 in stock-based compensation relating to stock options, respectively.

As of June 30, 2022, the total unrecognized compensation costs related to unvested stock options awards granted was $ 3,093,921 .

Options Outstanding at September 30, 2022

Options Exercisable at September 30, 2022

During the nine months ended September 30, 2022 and 2021, the Company recognized $ 1,993,908 and $ 2,243,761 in stock-based compensation relating to stock options, respectively.

During the three months ended September 30, 2022 and 2021, the Company recognized $ 600,191 and $ 835,122 in stock-based compensation relating to stock options, respectively.

As of September 30, 2022, the total unrecognized compensation costs related to unvested stock options awards granted was $ 2,444,354 .

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

The total intrinsic value of stock options outstanding and exercisable as of June 30, 2022, was $ 16,226,531 and $ 15,293,771 , respectively.

The total intrinsic value of stock options outstanding and exercisable as of September 30, 2022, was $ 10,554,188 and $ 10,282,418 , 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$

12 unchanged sentences

( 7,889,519 )

Warrants outstanding at December 31, 2021 and June 30, 2022

Warrants exercisable at December 31, 2021 and June 30, 2022

Warrants outstanding at December 31, 2021 and September 30, 2022

Warrants exercisable at December 31, 2021 and September 30, 2022

Weighted Average

5 unchanged sentences

Warrants outstanding at December 31, 2021

Warrants outstanding at June 30, 2022

Warrants exercisable at June 30, 2022

Warrants outstanding at September 30, 2022

Warrants exercisable at September 30, 2022

Weighted Average

4 unchanged sentences

Warrants outstanding at December 31, 2021

Warrants outstanding at June 30, 2022

Warrants exercisable at June 30, 2022

During the three and six months ended June 30, 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.

Warrants outstanding at September 30, 2022

Warrants exercisable at September 30, 2022

During the three and nine months ended September 30, 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.

1 unchanged sentence

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

During the three and six months ended June 30, 2022 the Company recognized $295,890 and $346,795, respectively, in stock-based compensation expense related to RSUs.

During the three and nine months ended September 30, 2022 the Company recognized $ 295,890 and $ 642,686 , respectively, in stock-based compensation expense related to RSUs.

A summary of RSUs is as follows:

1 unchanged sentence

Balance, December 31, 2021

Balance, June 30, 2022

Balance, September 30, 2022

Commitments and Contingencies

14 unchanged sentences

Shimpa, executive officers and directors of Vireo U.S.

and the Company.

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.

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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 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.

Schneyer opposed the appointment of the Second SLC.

On December 9, 2021, the Court dismissed Schneyer’s claim for rescissory damages and the Remaining Derivative Claim alleging fraud.

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

On January 31, 2022, the Company entered into the Arrangement Agreement with Verano, pursuant to which Verano was to acquire all of the issued and outstanding shares of Goodness Growth pursuant to a Plan of Arrangement.

Subject to the terms and conditions set forth in the Arrangement Agreement and the Plan of Arrangement, holders of Goodness Growth Shares would receive 0.22652 of a Verano Subordinate Voting Share, subject to adjustment as described below, 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.

On October 13, 2022, Goodness Growth received a notice of purported termination of the Arrangement Agreement (the “ Notice ”) from Verano.

Verano also claimed, as a result of such breaches, it is entitled to payment of the $ 14,875,000 termination fee and its transaction expenses.

Verano has no factual or legal basis to justify or support its purported grounds for termination of the Arrangement Agreement.

On October 21, 2022, Goodness Growth commenced an action in the Supreme Court of British Columbia against Verano after Verano wrongfully repudiated the Arrangement Agreement.

The Company is seeking damages, costs and interest, based on Verano's breach of contract and of its duty of good faith and honest performance.

Lease commitments

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Three Months Ended

Six Months Ended

September 30,

Nine Months Ended

September 30,

Salaries and benefits

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Supplemental Cash Flow Information (1)

Six Months Ended

Nine Months Ended

September 30,

Cash paid for interest

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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 June 30, 2022, the Company’s financial liabilities consist of accounts payable and accrued liabilities, and debt.

As of September 30, 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.

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Foreign currency risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in foreign currency rates.

Given the Company’s financial transactions are rarely denominated in a foreign currency, there is minimal foreign currency risk exposure.

Interest rate risk

Interest rate risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in market interest rates.

The Company currently does not carry variable interest-bearing debt.

Management believes that the Company is not exposed to significant interest rate risk.

The Company currently carries variable interest-bearing debt subject to fluctuations in the United States Prime rate.

A change of 100 basis points in interest rates during the nine months ended September 30, 2022, would have resulted in a corresponding change in the statement of loss and comprehensive loss of $ 301,548 .

Related Party Transactions

As of June 30, 2022, and December 31, 2021, there were $ 0 and $ 98,750 due to related parties, respectively.

For the six months ended June 30, 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) $ 60,000 and $ 0 , respectively, for ongoing corporate advisory services.

As of September 30, 2022, and December 31, 2021, there were $ 10,000 and $ 98,750 due to related parties, respectively.

For the nine months ended September 30, 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) $ 90,000 and $ 20,000 , 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

In July of 2022, the Company drew an additional $ 6,000,000 in net proceeds from the Delayed Draw Loans.

In October of 2022, the Company drew an additional $ 925,000 in net proceeds from the Delayed Draw Loans.

On October 13, 2022, Verano delivered notice to the Company purporting to terminate the Arrangement Agreement.

The Company believes that Verano has no legal basis to terminate the Arrangement Agreement, and that Verano has committed various material breaches of the Arrangement Agreement.

On October 21, 2022, the Company commenced an action in the Supreme Court of British Columbia against Verano, seeking damages for the wrongful termination.

Verano’s repudiation of the Arrangement Agreement has been acknowledged by Goodness, and the Transaction will not proceed (Note 1).

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