What changed in this filing

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Item 7. Management’s Discussion and Analysis

2023-03-31 compared with 2022-03-15 · 109 added, 109 removed, 213 unchanged (51% of the section changed)

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Overview of the Company

Goodness Growth Holdings, Inc.

“(“ Goodness Growth ” or the “ Company ”) is a physician-led, science-focused cannabis company striving to build long-term, sustainable value by bringing the best of medicine, science, and engineering to the cannabis industry.

With our core operations strategically located in four limited-license markets through our subsidiaries, we cultivate and manufacture cannabis products and distribute these products through our growing network of Green Goods™ and other branded retail dispensaries as well as third-party dispensaries in the markets in which our subsidiaries hold operating licenses.

In addition to developing and maintaining cannabis businesses in its core limited-license jurisdictions, our team of scientists, engineers and attorneys are also focused on driving innovation and securing meaningful and protectable intellectual property.

We believe that this dual-path approach to long-term value creation enhances the potential for shareholder returns.

Resurgent Biosciences, Inc., a wholly-owned subsidiary of Goodness Growth, is a non-plant-touching entity that was formed with the intent of commercializing our intellectual property portfolio.

This portfolio includes two patents for harm reduction in tobacco products as well as many other patent-pending opportunities that we believe could have potential to create additional value for our shareholders through licensing or other monetization.

While we are not currently focused on substantial capital investment or expansion outside of our core markets, we do own or effectively control additional non-core medical cannabis licenses or operations that may present opportunities for exploitation or divestiture in the future.

Goodness Growth is a cannabis company whose mission is to provide safe access, quality products and value to its customers while supporting its local communities through active participation and restorative justice programs.

The Company is evolving with the industry and is in the midst of a transformation to being significantly more customer-centric across its operations, which include cultivation, manufacturing, wholesale and retail business lines.

With our core operations strategically located in four limited-license markets through our state-licensed subsidiaries, we cultivate and manufacture cannabis products and distribute these products through our growing network of Green Goods ® and other retail dispensaries we own or operate as well as to third-party dispensaries in the markets in which our subsidiaries hold operating licenses.

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.

Reverse Take Over (“RTO”) Transaction

On March 18, 2019, Vireo Health, Inc., (“ Vireo U.S.

completed the RTO of Darien Business Development, Inc.

(“ Darien ”) whereby Darien acquired all of the issued and outstanding shares of Vireo U.S.

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

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

The RTO was treated as a reverse recapitalization effected by a share exchange for financial accounting and reporting purposes since substantially all of Darien’s operations were disposed of as part of the consummation of the RTO and therefore no goodwill or other intangible assets were recorded by the Company as a result of the RTO.

was treated as the accounting acquirer as its shareholders controlled the Company after the RTO, even though Darien was the legal acquirer.

As a result, the historical assets, liabilities and operations that are reflected in these financial statements are those of Vireo U.S.

as if Vireo U.S.

had always been the reporting company.

(“ 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 was to receive 0.22652 of a subordinate voting share of Verano (each 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, we 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 our public filings and

communications with respect to our business and ongoing operations were misleading and that we breached our 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 of up to $3,000,000.

We deny all of Verano’s allegations and have complied with our obligations under the Arrangement Agreement 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, we commenced an action in the Supreme Court of British Columbia against Verano seeking damages after Verano wrongfully terminated the Arrangement Agreement.

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

On November 14, 2022, Verano filed counterclaims against the Company for the termination fee and transaction expenses described above.

Due to uncertainties inherent in litigation, it is not possible 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.

Operating Segments

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We cultivate, manufacture, and distribute cannabis products to third parties in wholesale markets and cultivate, manufacture, and sell cannabis products directly to approved patients and adult-use-customers in our owned or operated retail stores.

During the year ended December 31, 2021, the Company had operating revenue in six states:

Arizona, Maryland, Minnesota, New Mexico, New York, and Ohio.

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

We had one operational dispensary in Arizona, eight in Minnesota, four in New Mexico, four in New York, and two in Maryland.

Wholesale revenues were derived from sales of products to third parties in the states of Arizona, Maryland, New York, and Ohio.

During the year ended December 31, 2022, the Company had operating revenue in five states:

Arizona, Maryland, Minnesota, New Mexico, and New York.

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

We had eight operational dispensaries in Minnesota, four in New Mexico, four in New York, and two in Maryland.

Wholesale revenues were derived from sales of products to third parties in the states of Arizona, Maryland, Minnesota, and New York.

During the year ended December 31, 2022, we ceased all operations in Arizona.

During the year ended December 31, 2021, we divested our retail operation in Arizona, and the Ohio business.

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

Due to COVID-19, governments have imposed restrictions on travel and business operations, temporarily closed businesses, and implemented quarantines and shelter-in-place orders.

Consequently, the COVID-19 pandemic has negatively impacted global economic activity, caused significant volatility and disruption in global financial markets, and generally introduced significant uncertainty and unpredictability throughout the world.

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

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

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.

Year ended December 31, 2022 Compared to the Year Ended December 31, 2021

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For the year ended December 31, 2022, Minnesota operations contributed approximately 51% of revenues, New York contributed 20%, Arizona contributed 3%, New Mexico contributed 8%, and Maryland contributed 18%.

For the year ended December 31, 2021, Minnesota operations contributed approximately 40% of revenues, New York contributed 25%, Arizona contributed 16%, New Mexico contributed 6%, and Maryland contributed 13%.

Revenue for the year ended December 31, 2022, was $74,625,867, an increase of $20,179,699 or 37% compared to revenue of $54,446,168 for year ended December 31, 2021.

The increase is primarily attributable to revenue contributions from the retail business in Minnesota of $15.7 million, the retail business in Maryland of $4.7 million, and the retail business in New Mexico of $2.9 million, partially offset by the lack of revenues from the Arizona retail business, which was divested

Key revenue drivers are the increased patient demand in Minnesota driven by the addition of cannabis flower to the Minnesota medical program in March of 2022, the commencement of recreational marijuana sales in New Mexico on April 1, 2022, and the acquisition of Charm City Medicus, LLC in the fourth quarter of 2021.

Retail revenue for the year ended December 31, 2022, was $62,123,357, an increase of $17,430,972 or 39% compared to retail revenue of $44,692,385 for the year ended December 31, 2021, primarily due to increased revenue contributions from Minnesota, Maryland, and New Mexico.

Wholesale revenue for the year ended December 31, 2022, was $12,502,510, an increase of $2,748,727 compared to wholesale revenue of $9,753,783 for year ended December 31, 2021.

The increase was primarily due to increased wholesale demand in Maryland and New York.

Total Wholesale

Total Revenue

AZ and OH Revenue

Total Revenue excluding AZ Retail and OH

Cost of Goods Sold and Gross Profit

Cost of goods sold are determined from costs related to the cultivation and processing of cannabis and cannabis-derived products as well as the cost of finished goods inventory purchased from third parties.

Cost of goods sold for the year ended December 31, 2022, was $43,717,706, an increase of $9,070,223 compared to the year ended December 31, 2021 of $34,647,483, driven most significantly by the product costs associated with the increase in revenues year over year.

Gross profit for the year ended December 31, 2022, was $30,908,161, representing a gross margin of 41%.

This is compared to gross profit for the year ended December 31, 2021, of $19,798,685 or a 36% gross margin.

The increase in margin and gross profit was driven primarily by increased retail revenues, specifically increased Minnesota retail contributions as a percentage of overall revenue, which carry higher margins.

Total Operating Expenses

Total operating expenses for the year ended December 31, 2022, were $37,847,526, a decrease of $2,432,723 compared to total expenses of $40,280,249 for the year ended December 31, 2021.

The decrease in total expenses was attributable to a decrease in share-based compensation of $2,488,444.

Operating Loss before Income Taxes and Other Income (Expense)

Operating loss before other income (expense) and provision for income taxes for the year ended December 31, 2022, was $(6,939,365), a decrease of $13,542,199 compared to an operating loss before other income (expense) and provision for income taxes of $(20,481,564) for the year ended December 31, 2021.

Total Other Income (Expense)

Total other expense for the year ended December 31, 2022, was ($29,625,079), an increase of $20,538,168 compared to other expense of ($9,086,911) or the year ended December 31, 2021.

The increase in other expense is primarily attributable to increased interest expense of $12,018,182 in 2022 driven by the issuance of promissory notes, increased impairment charges of $3,426,250 related to long-lived assets, and a decrease of $6,734,680 in asset disposal gains due to a lack of asset divestitures in 2022.

Provision for Income Taxes

Income tax expense is recognized based on the expected tax payable on the taxable income for the year, using tax rates enacted or substantively enacted at year-end.

For the year ended December 31, 2022, Federal and State income tax expense totaled $5,893,000 compared to tax expense of $4,122,000 for the year ended December 31, 2021.

The increase in tax expense is primarily attributable to the increase in gross profit relative to the prior year.

Year ended December 31, 2021 Compared to the Year Ended December 31, 2020

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

For the year ended December 31, 2021, 82% of the revenue was generated from retail dispensaries and 18% from wholesale business.

For the year ended December 31, 2020, 76% of the revenue was generated from retail business and 24% from wholesale business.

For the year ended December 31, 2020, Minnesota operations contributed approximately 34% of revenues, New York contributed 23%, Arizona contributed 15%, New Mexico contributed 5%, Maryland contributed 8%, Ohio contributed 1%, and Pennsylvania contributed 14%.

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PA, OH, and AZ Retail Revenue

Total Revenue excluding PA, OH, and AZ Retail

Total Revenue excluding AZ and OH

Not Meaningful

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The increase in inventory valuation adjustments was driven by a significant and unusual weather period in Arizona, which lead to increased obsolete inventory.

Total Expenses

Total expenses for the year ended December 31, 2021, were $40,280,249, an increase of $109,406 compared to total expenses of $40,170,843 for the year ended December 31, 2020.

Total Operating Expenses

Total operating expenses for the year ended December 31, 2021, were $40,280,249, an increase of $109,406 compared to total expenses of $40,170,843 for the year ended December 31, 2020.

The increase in total expenses was attributable to an increase in salaries and wages, professional fees, and general and administrative expenses of $7.3 million, an increase in amortization and depreciation of $0.4 million, offset by a decrease in share-based compensation of $7.6 million.

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The 2020 expense is significantly impacted by the $20.3 million gain affiliated with the divestiture of various subsidiaries.

Year ended December 31, 2020 Compared to the Year Ended December 31, 2019

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

For the year ended December 31, 2020, 76% of the revenue was generated from retail dispensaries and 24% from wholesale business.

For the year ended December 31, 2019, 81% of the revenue was generated from retail business and 19% from wholesale business.

For the year ended December 31, 2020, Minnesota operations contributed approximately 34% of revenues, New York contributed 23%, Arizona contributed 15%, Pennsylvania contributed 14%, Maryland contributed 8%, New Mexico contributed 5%, and Ohio contributed 1%.

For the year ended December 31, 2019, New York operations contributed approximately 34% of revenues, while Minnesota contributed 35%, Arizona contributed 15%, Pennsylvania contributed 10%, Maryland contributed 2%, and New Mexico contributed 4%.

Revenue for the year ended December 31, 2020 was $49,211,329, an increase of $19,255,157 or 64% compared to revenue of $29,956,172 for year ended December 31, 2019.

The increase is primarily attributable to revenue contributions from the retail business in Minnesota of $6.1 million, the retail business in Pennsylvania of $3.3 million, the wholesale business in Maryland of $3.3 million, and the wholesale business in Arizona of $1.6 million.

Key revenue drivers are increased market penetration of our branded products in the Maryland and Arizona wholesale markets and increased patient demand in Minnesota, which is partially the result of an increase in the number of qualifying conditions, which helps contribute to growth in certified patient enrollments.

The two retail dispensaries in Pennsylvania, opened in the fourth quarter of 2019, also contributed significantly to year over year growth.

Retail revenue for the year ended December 31, 2020 was $37,236,301, an increase of $12,886,279 or 53% compared to retail revenue of $24,350,022 for the year ended December 31, 2019 primarily due to revenue contributions from Minnesota and Pennsylvania.

Wholesale revenue for the year ended December 31, 2020 was $11,972,314, an increase of $6,366,164 compared to wholesale revenue of $5,606,150 for year ended December 31, 2019.

The increase was primarily due to increased revenue contributions from Maryland and Arizona.

Total Wholesale

Total Revenue

Total Revenue excluding PA

Cost of Goods Sold and Gross Profit

Cost of goods sold for the year ended December 31, 2020 was $32,083,608, an increase of $9,463,716 compared to the year ended December 31, 2019 of $22,619,892, driven most significantly by the increase in retail sales and patient demand in Pennsylvania and Minnesota, and the increase in wholesale sales in Maryland and Arizona.

Gross profit for the year ended December 31, 2020 was $17,127,721, representing a gross margin of 35%.

This is compared to gross profit for the year ended December 31, 2019 of $7,336,280 or a 24% gross margin.

The increase in margin was driven by higher throughput across all markets decreasing fixed cost per unit.

This was especially true in the Maryland and Pennsylvania wholesale markets, which were not operating at full capacity in 2019.

2020 Maryland and Pennsylvania wholesale gross profit increased approximately $1.3 million and $1.1 million respectively relative to 2019.

Additionally, the Minnesota and Pennsylvania retail market saw gross profit expansion of approximately $5.6 million and $1.1 million, respectively, due to increased sales driven by increased qualifying conditions and patient enrollments.

Total Expenses

Total expenses for the year ended December 31, 2020 were $40,170,843, an increase of $10,466,917 compared to total expenses of $29,703,926 for the year ended December 31, 2019.

The increase in total expenses was attributable to an increase in salaries and wages, professional fees, and general and administrative expenses of $1.3 million, including

$630,282 in professional fees incurred as part of the one-time transition from an IFRS basis of accounting to a GAAP basis of accounting, and an increase in share-based compensation of $9.5 million.

The increase in salaries and wages, and general and administrative expenses was driven by significant operational buildout in existing markets, and the increase in share-based compensation was driven by the issuance of various compensation warrants in 2019.

Operating Loss before Income Taxes

Operating loss before other income (expense) and provision for income taxes for the year ended December 31, 2020 was $(23,043,122), a decrease of $675,476 compared to operating income before other income (expense) and provision for income taxes of $(22,367,646) for the year ended December 31, 2019.

Total Other Income (Expense)

Total other income for the year ended December 31, 2020 was $8,890,928, an increase of $43,416,594 compared to other expense of $(34,525,666) for the year ended December 31, 2019.

The increase in other income is primarily attributable to the 2019 intangible asset write-offs of $28,264,850 to reflect changing market conditions, the 2020 gain on the divestitures of the various subsidiaries of $20.3 million, partially offset by the loss on derivative liability of $6.3 million.

The impairment of intangible assets resulted from our view of changing industry and market circumstances, primarily in non-core markets.

Provision for Income Taxes

Income tax expense is recognized based on the expected tax payable on the taxable income for the year, using tax rates enacted or substantively enacted at year-end.

For the year ended December 31, 2020, Federal and State income tax expense totaled $8,790,000 compared to a tax expense of $586,000 for the year ended December 31, 2019.

This expense is significantly impacted by the $20.3 million gain affiliated with the divestiture of various subsidiaries.

Non-GAAP Measures

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The Company has provided the non-GAAP financial measures, which are not calculated or presented in accordance with GAAP, as supplemental information and in addition to the financial measures that are calculated and presented in accordance with GAAP.

These supplemental non-GAAP financial measures are presented because management has evaluated the financial results both including and excluding the adjusted items and believe that the supplemental non-GAAP financial measures presented provide additional perspective and insights when analyzing the core operating performance of the business.

Management occasionally elects to provide supplemental non-GAAP financial measures in circumstances which it believes provide additional perspective and insights when analyzing the core operating performance of the business.

These supplemental non-GAAP financial measures should not be considered superior to, as a substitute for, or as an alternative to, and should be considered in conjunction with, the GAAP financial measures presented.

Our calculation of EBITDA and Adjusted EBITDA now also excludes “depreciation included in the cost of goods sold.” We believe excluding these additional items better represents our EBITDA by excluding all depreciation.

During fiscal year 2022, management discussed and provided reconocilations of quarterly EBITDA and Adjusted EBITDA to directly comparable GAAP financial measures.

As a result, references and reconciliations to these measures have been provided for the full year.

However, management does not undertake any responsibility to provide similar disclosures in future periods.

Our calculation of EBITDA and Adjusted EBITDA excludes “depreciation included in the cost of goods sold.” We believe excluding these additional items better represents EBITDA by excluding all depreciation.Our calculation of EBITDA and

Adjusted EBITDA now excludes “depreciation included in the cost of goods sold.” We believe excluding these additional items better represents EBITDA by excluding all depreciation.

Net income (loss)

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EBITDA (non-GAAP)

Derivative (Gain) Loss

Inventory adjustment

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Stock-based compensation

Severance Expense

Gain on sale of discontinued operations

Costs associated with the IFRS to GAAP transition

Gain on disposal of assets

Adjusted EBITDA (non-GAAP)

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It is generating cash from sales and is deploying its capital reserves to acquire and develop assets capable of producing additional revenues and earnings over both the immediate and near term.

Capital reserves are being utilized for acquisitions in the medical and adult use cannabis markets, for capital expenditures and improvements in existing facilities, product development and marketing, as well as customer, supplier and investor and industry relations.

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

Capital reserves are being utilized for capital expenditures and improvements in existing facilities, product development and marketing, as well as customer, supplier and investor and industry relations.

Credit Facility

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

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

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

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

On March 25, 2021, the Company entered into a credit agreement for a senior secured delayed draw term loan with an aggregate principal amount of up to $46,000,000 (the “ Credit Facility ”), and executed a draw of $26,000,000 in principal.

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

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

The unpaid principal amounts outstanding under the Credit Facility bear interest at a rate of (a) the U.S.

prime rate plus 10.375% per annum payable monthly in cash, and (b) 2.75% per annum paid in kind interest payable monthly.

The Credit Facility matures on March 31, 2024.

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

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

Each warrant provides customary anti-dilution provisions.

The fair value of these warrants at the time of issuance was $5,395,759 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.

In connection with the Arrangement Agreement, on January 31, 2022, Goodness Growth and certain of its subsidiaries, as borrowers (collectively, “Borrowers”), entered into a Third Amendment to their existing Credit Agreement with Chicago Atlantic Admin, LLC and the lenders party thereto (the “Third Amendment”) providing for delayed draw term loans of up to $55 million (the “Delayed Draw Loans”).

Subject to certain conditions to be satisfied prior to the initial

funding thereunder, Goodness Growth may borrow a portion of the $55 million for working capital and other general corporate purposes and may borrow the remainder for other specific purposes, including relating to its ongoing expansion in New York.

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.

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prime rate plus 10.375%, with a minimum required rate of 13.375% per annum, in addition to paid-in-kind interest of 2.75% per annum.

Pursuant to the Arrangement Agreement, Verano will reimburse Goodness Growth for all interest expenses related to the Third Amendment in excess of 10% per annum until the earlier of either the Effective Date or termination of the Arrangement Agreement (the “Interest Funding”).

Pursuant to the Arrangement Agreement, Verano reimbursed 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 year ended December 31, 2022, the Company drew $28,000,000 in principal debt from the Delayed Draw Loans.

Proceeds received, net of deferred financing fees of $2,236,919 were $25,763,081.

The Company was reimbursed by Verano for $1,190,863 of these deferred financing fees pursuant to the Arrangement Agreement.

These fees are included as other income in the unaudited statement of loss and comprehensive loss for the year ended December 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.

Cash Used in Operating Activities

Net cash used in operating activities was $30.5 million for the year ended December 31, 2021, an increase of $19.6 million as compared to the year ended December 31, 2020.

The increase is primarily attributable to year over year inventory builds, and changes in the other working capital items.

Net cash used in operating activities was $18.1 million for the year ended December 31, 2022, a decrease of $12.4 million as compared to the year ended December 31, 2021.

The decrease is due to more favorable changes in working capital relative to 2021, increased gross profit, and decreased operating expenses.

Cash Flow from Investing Activities

Net cash used in investing activities was $7.2 million for the year ended December 31, 2021, compared to net cash provided of $12.9 million for the year ended December 31, 2020.

The increase in cash used is primarily attributable to increased capital expenditures of $9.6 million, the acquisitions of MJ Distributing and Charm City, and $6 million less proceeds from the sale of assets relative to the prior year.

Net cash used in investing activities was $5.6 million for the year ended December 31, 2022, compared to net cash used of $7.2 million for the year ended December 31, 2021.

The decrease in cash used is primarily attributable to decreased capital expenditures of $12.5 million, partially offset by the lack of asset disposals in 2022.

Cash Flow from Financing Activities

Net cash provided by financing activities was $25.8 million for the year ended December 31, 2020, an increase of $9.9 million as compared to the year ended December 31, 2020.

The increase was principally due to the proceeds received from the Credit Facility.

Net cash provided by financing activities was $23.7 million for the year ended December 31, 2022, an decrease of $2.1 million as compared to the year ended December 31, 2021.

The decrease was principally due to fewer net proceeds received from the Credit Facility in 2022.

Lease Transactions

As of December 31, 2021, we have entered into lease agreements for the use of buildings used in cultivation, production and sales of cannabis products in Arizona, Maryland, Minnesota, Nevada, New Mexico, New York, and Puerto Rico.

The lease agreements for all of retail space used for our dispensary operations are with third-party landlords and remaining duration ranges from 1 to 6 years.

These agreements are short-term facility leases that require the Company to make monthly rent payments as well as to fund common area costs, utilities and maintenance.

As of December 31, 2022, we have entered into lease agreements for the use of buildings used in cultivation, production and sales of cannabis products in Maryland, Minnesota, Nevada, New Mexico, New York, and Puerto Rico.

The lease agreements for all retail space used for our dispensary operations are with third-party landlords and remaining duration ranges from 1 to 6 years.

These agreements are short-term facility leases that require the Company to

make monthly rent payments as well as to fund common area costs, utilities and maintenance.

In some cases, we have received tenant improvement funds to assist in the buildout of the space to meet our operating needs.

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(152,606,947)

(156,054,450)

Less liabilities held for sale

Present value of lease liability

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Options, Warrants, and Convertible Promissory Notes

As of December 31, 2021, we had 23,226,338 employee stock options outstanding, as well as 13,583 MVS advisory and compensation warrants, and 3,037,649 SVS compensation warrants denominated in C$ related to financing activities.

As of December 31, 2022, we had 23,547,558 employee stock options outstanding, 3,037,649 Subordinate Voting Share compensation warrants denominated in C$ related to financing activities, and 150,000 Subordinate Voting Share compensation warrants outstanding.

Off-Balance Sheet Arrangements

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

Given the pending transaction with Verano, we are withdrawing our previously issued guidance and will not be issuing additional guidance at this time.

Summary of Significant Accounting Policies

25 unchanged sentences

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.

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

Cost of sales also includes inventory valuation adjustments.

31 unchanged sentences

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.

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

32 unchanged sentences

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

What changed 10-K

Item 7. Management’s Discussion and Analysis