What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-05-15 compared with 2022-11-14 · 64 added, 140 removed, 104 unchanged (66% of the section changed)

1 unchanged sentence

You should read the following discussion and analysis of our financial condition and results of operations together with the financial information and the notes thereto included in Part I, Item 1 of this Quarterly Report on Form 10-Q.

Some of the information contained in this discussion and analysis or set forth elsewhere in this Quarterly Report on Form 10-Q, including information with respect to our outlook, plans and strategy for our business and related financing, includes “forward-looking statements” within the meaning of Section 27A of the Securities Act and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act, or “forward-looking information” within the meaning of Canadian securities laws.

Some of the information contained in this discussion and analysis or set forth elsewhere in this Quarterly Report on Form 10-Q, including information with respect to our outlook, plans and strategy for our business and potential financing, includes “forward-looking statements” within the meaning of Section 27A of the Securities Act and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act, or “forward-looking information” within the meaning of Canadian securities laws.

These statements are often identified by the use of words such as “anticipate,” “believe,” “continue,” “remain,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “project,” “will,” “would,” “should,” “potential,” “intention,” “strategy,” “strategic,” “approach,” “subject to,” “possible,” “pending,” “if,” or the negative or plural of these words or similar expressions or variations.

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Overview of the Company

Goodness Growth is a physician-led, science-focused company and IP developer focused on building long-term, sustainable value by bringing the best of medicine, science, and engineering to the cannabis industry.

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.

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

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

Our wholly-owned subsidiary Resurgent Biosciences, Inc.

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 shareholders through partnerships or other strategic alternatives.

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

On January 31, 2022, we 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 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.

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.

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.

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

While the risk of substantial doubt is not effectively mitigated as of the reporting date, the Company expects to mitigate this risk before the Annual Report on Form 10-K for the fiscal year ended December 31, 2022 is issued.

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 and thus far in 2022, our revenue, gross profit and operating income were not negatively impacted by COVID-19 and we generally maintained the consistency of our operations.

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

Three months ended September 30, 2022, Compared to Three months ended September 30, 2021

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.

Three months ended March 31, 2023, Compared to Three months ended March 31, 2022

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

For the three months ended September 30, 2022, 87% of our revenue was generated from retail dispensaries and 13% from wholesale business.

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

For the three months ended September 30, 2022, Minnesota operations contributed approximately 54% of revenues, New York contributed 20%, New Mexico contributed 9%, and Maryland contributed 17%.

For the three months ended

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

Revenue for the three-months ended September 30, 2022 was $18,854,101, an increase of $5,484,669 or 41% compared to revenue of $13,369,432 for the three-months ended September 30, 2021.

The increase is primarily attributable to increased revenue contributions from the retail business in Minnesota, Maryland, and New Mexico, partially offset by the lack of third quarter 2022 retail revenues in Arizona, which was divested in the fourth quarter of 2021.

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, and the commencement of recreational marijuana sales in New Mexico on April 1, 2022.

Retail revenue for the three months ended September 30, 2022 was $16,389,226 an increase of $4,826,786 or 42% compared to retail revenue of $11,562,440 for the three months ended September 30, 2021 primarily due to revenue contributions from Minnesota and New Mexico.

Wholesale revenue for the three months ended September 30, 2022 was $2,464,875, an increase of $657,883 compared to wholesale revenue of $1,806,992 for the three months ended Septemer 30, 2021.

The increase in revenue contributions was primarily due to increased wholesale demand in New York.

For the three months ended March 31, 2023, 86% of our revenue was generated from retail dispensaries and 14% from wholesale business.

For the three months ended March 31, 2022, 79% of our revenue was generated from retail business and 21% from wholesale business.

For the three months ended March 31, 2023, Minnesota operations contributed approximately 56% of revenues, New York contributed 18%, New Mexico contributed 6%, and Maryland contributed 20%.

For the three months ended March 31, 2022, Minnesota operations contributed approximately 45% of revenues, New York contributed 22%, Arizona contributed 6%, New Mexico contributed 6%, and Maryland contributed 21%.

Revenue for the three-months ended March 31, 2023 was $19,088,423, an increase of $3,449,851 or 22% compared to revenue of $15,638,572 for the three-months ended March 31, 2022.

The increase is primarily attributable to increased revenue contributions from the retail business in Minnesota partially offset by the lack of Arizona wholesale revenue.

The key revenue driver is the increased patient demand in Minnesota driven by the addition of cannabis flower to the Minnesota medical program in March of 2022.

Retail revenue for the three months ended March 31, 2023 was $16,471,799 an increase of $4,059,576 or 33% compared to retail revenue of $12,412,223 for the three months ended March 31, 2022 primarily due to increased revenue contributions from Minnesota.

Wholesale revenue for the three months ended March 31, 2023 was $2,616,624, a decrease of $609,725 compared to wholesale revenue of $3,226,349 for the three months ended March 31, 2022.

The decrease was primarily due to the lack of Arizona wholesale revenues.

Three Months Ended

September 30,

Total Wholesale

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

Cost of goods sold for the three months ended September 30, 2022 was $9,317,241, an increase of $1,062,797 compared to the three months ended September 30, 2021 of $8,254,444, driven by higher production volume and sales.

Gross profit for the three months ended September 30, 2022 was $9,536,860, representing a gross margin of 51%.

This is compared to gross profit for the three months ended September 30, 2021 of $5,114,988 or a 38% gross margin.

The increase in gross profit and margin was driven primarily by increased retail sales in Minnesota.

Cost of goods sold for the three months ended March 31, 2023 was $9,568,211, a decrease of $3,581,683 compared to the three months ended March 31, 2022 of $13,149,894.

Gross profit for the three months ended March 31, 2023 was $9,520,212, representing a gross margin of 50%.

This is compared to gross profit for the three months ended March 31, 2022 of $2,488,678 or a 16% gross margin.

The increase in gross profit and margin was driven primarily by increased retail sales in Minnesota and a $3,476,917 decrease in inventory valuation adjustments.

The decrease in inventory valuation adjustments was driven by the lack of Arizona related inventory net realizable value write downs during the three months ended March 31, 2023.

Our current production capacity has not been fully realized and we expect future gross profits to increase with revenue growth reflective of higher demand, increased product output and new product development.

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We expect general and administrative expenses as a percentage of sales to decrease as we realize revenue growth organically and through positive regulatory developments in our core markets.

Total expenses for the three months ended September 30, 2022 were $9,726,016 an increase of $480,167 compared to total expenses of $9,245,849 for the three months ended September 30, 2021.

The increase in total expenses is primarily attributable to an increase in professional fees driven by the Arrangement Agreement.

Total expenses for the three months ended March 31, 2023 were $9,151,706 a decrease of $1,097,132 compared to total expenses of $10,248,838 for the three months ended March 31, 2022.

The decrease in total expenses is primarily attributable to a decrease in salaries and wages and professional fees partially offset by an increase in share based compensation expense.

Operating Income (Loss) before Income Taxes

Operating income (loss) before other income (expense) and provision for income taxes for the three months ended September 30, 2022 was $(189,156) a decrease of $3,941,705 compared to an operating loss of ($4,130,861) for the three months ended September 30, 2021.

Operating income (loss) before other income (expense) and provision for income taxes for the three months ended March 31, 2023 was $368,506 an increase of $8,128,666 compared to an operating loss of ($7,760,160) for the three months ended March 31, 2022.

Total Other Income (Expense)

Total other expense for the three months ended September 30, 2022 was $(7,594,633), a change of $5,415,098 compared to other expense of $(2,179,535) for the three months ended September 30, 2021.

This change is primarily attributable to increased interest expense driven by the Credit Facility.

Provision for Income Taxes

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

For the three months ended September 30, 2022, tax expense totaled $640,000 compared to a tax expense of $560,000 for the three months ended September 30, 2021.

The increase in tax expense is primarily attributable to increased gross profit partially offset the recognition of deferred tax assets related to property, plant, and equipment impairments and state net operating loss carryforwards.

Nine months ended September 30, 2022 Compared to Nine months ended September 30, 2021

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

For the nine months ended September 30, 2022, 82% of the revenue was generated from retail business and 18% from wholesale business.

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

For the nine months ended September 30, 2022, Minnesota operations contributed approximately 50% of revenues, New York contributed 19%, Arizona contributed 4%, New Mexico contributed 9%, and Maryland contributed 18%.

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

Revenue for the nine months ended September 30, 2022 was $55,582,821, an increase of $14,792,600 or 36% compared to revenue of $40,790,221 for the nine months ended September 30, 2021.

The increase is primarily attributable to increased revenue contributions from the retail businesses in Minnesota, New Mexico, and Maryland, partially offset by the lack of Arizona retail revenues, which was divested in the fourth quarter of 2021.

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

Retail revenue for the nine months ended September 30, 2022 was $45,842,941, an increase of $12,595,883 or 38% compared to retail revenue of $33,247,058 for the nine months ended September 30, 2021 primarily due to revenue contributions from Minnesota, New Mexico, and Maryland, partially offset by the lack of Arizona retail revenues.

Wholesale revenue for the nine months ended September 30, 2022 was $9,739,880, an increase of $2,196,717 compared to wholesale revenue of $7,543,163 for the nine months ended September 30, 2021.

The increase in revenue contributions was primarily due to increased wholesale demand in Minnesota and Maryland, partially offset by the lack of revenues in Arizona.

Nine Months Ended

September 30,

Total Wholesale

Total Revenue

AZ and OH Revenue

Total Revenue excluding AZ and OH

Not Meaningful

Cost of Goods Sold and Gross Profit

Cost of goods sold for the nine months ended September 30, 2022 was $33,190,257, an increase of $10,043,754 compared to the nine months ended September 30, 2021 of $23,146,503, driven by higher production volume and sales.

Gross profit for the nine months ended September 30, 2022 was $22,392,564, representing a gross margin of 40%.

This is compared to gross profit for the nine months ended September 30, 2021 of $17,643,718 or a 43% gross margin.

The decrease in margin was driven by an increase in inventory valuation adjustments of $3,193,788 compared to the nine months ended September 30, 2021.

Excluding inventory valuation adjustments, margins were relatively flat.

These inventory valuation adjustments were driven by substantial write downs of Arizona inventory to net realizable value.

However, we expect gradual price compression as markets mature that could place downward pressure on our retail and wholesale gross margins.

Total Expenses

Total expenses for the nine months ended September 30, 2022 were $30,033,694, an increase of $166,780 compared to total expenses of $29,866,914 for the nine months ended September 30, 2021.

The small increase in total expenses was attributable to an increase in professional fees related to the Arrangement Agreement offset by a decrease in stock-based compensation expenses.

Operating Loss before Income Taxes

Operating loss before other income (expense) and provision for income taxes for the nine months ended September 30, 2022 was $(7,641,130), a decrease of $4,582,066 compared to $(12,223,196) for the nine months ended September 30, 2021.

Total Other Expense

Total other expenses for the nine months ended September 30, 2022 were $21,587,516, an increase of $16,021,197 compared to $5,566,319 for the nine months ended September 30, 2021.

This increase is primarily attributable to the loss on impairment of long-lived assets of $7,476,618 and increased interest expense driven by the Credit Facility.

Total other expense for the three months ended March 31, 2023 was $(7,112,476), a change of $1,434,146 compared to other expense of $(8,546,622) for the three months ended March 31, 2022.

This change is primarily attributable to a decrease in impairment charges of $5,313,176 partially offset by an increase in interest expense of $2,532,990 driven by the Credit Facility.

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 nine months ended September 30, 2022, tax recoveries totaled $55,000 compared to a tax expense of $2,970,000 for the nine months ended September 30, 2021.

The increase in tax recoveries is primarily attributable to the recognition of deferred tax assets related to property, plant, and equipment impairments and state net operating loss carryforwards.

For the three months ended March 31, 2023, tax expense totaled $1,662,000 compared to tax recoveries of $1,740,000 for the three months ended March 31, 2022.

The increase in tax expense is primarily attributable to increased gross profit, decreased inventory valuation adjustments, and decreased asset impairments.

NON-GAAP MEASURES

EBITDA and Adjusted EBITDA are non-GAAP measures and do not have standardized definitions under GAAP.

The following information provides reconciliations of the supplemental non-GAAP financial measures presented herein to the most directly comparable financial measures calculated and presented in accordance with GAAP.

We have 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 believes that the supplemental non-GAAP financial measures presented provide additional perspective and insights when analyzing the core operating performance of the business.

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.

EBITDA is a non-GAAP measure that does not have standardized definition under GAAP.

The following information provides reconciliations of the supplemental non-GAAP financial measure presented herein to the most directly comparable financial measures calculated and presented in accordance with GAAP.

We have provided the non-GAAP financial measure, which is 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.

This supplemental non-GAAP financial measure is presented because management has evaluated the financial results both including and excluding the adjusted items and believes that the supplemental non-GAAP financial measure presented provide additional perspective and insights when analyzing the core operating performance of the business.

This supplemental non-GAAP

financial measure 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.

Three Months Ended

Nine Months Ended

September 30,

Net income (loss)

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EBITDA (non-GAAP)

Inventory adjustment

Loss on impairment of long-lived assets

Stock-based compensation

Gain (loss) on disposal of assets

Adjusted EBITDA (non-GAAP)

Liquidity, Financing Activities During the Period, and Capital Resources

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

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

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

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

Credit Facility

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

During 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.

In 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.

The Company has paid off 60,000 in principal, and the remaining $1,050,000 principal balance is due on December 31, 2023.

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.

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

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

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

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

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

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

The Credit Facility matures on March 31, 2024.

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

Each warrant provides customary anti-dilution provisions.

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

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

with this loan.

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

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.

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 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 Arrangment 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).

On March 31, 2023, the Company executed a fifth amendment to its credit facility with its senior secured lender, Chicago Atlantic Admin, LLC (the "Agent"), an affiliate of Green Ivy Capital, and a group of lenders.

The amended credit facility extends the maturity date on its Delayed Draw Loans to April 30, 2024, through the issuance of 13,017,624 Subordinate

Voting Shares in lieu of a cash extension fee.

These 13,017,624 shares were valued at $1,221,837 on March 31, 2023, and considered a deferred financing cost.

An additional 1,982,376 Subordinate Voting Shares are issuable at the discretion of the Agent.

It also provides the Company with reduced cash outlays by eliminating required amortization of the loan, and requires the Company to divest certain assets to improve its liquidity position and financial performance.

The Company has the potential to extend the maturity date on its Delayed Draw Loans up to January 31, 2026 with the satisfaction of certain financial performance-related conditions.

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

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

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

Cash Used in Operating Activities

Net cash used in operating activities was $12.0 million for the nine months ended September 30, 2022, a decrease of $10.8 million as compared to the nine months ended September 30, 2021.

The decrease is primarily attributed to more favorable changes in working capital items.

Net cash used in operating activities was $3.8 million for the three months ended March 31, 2023, a decrease of $3.0 million as compared to $6.8 million for the three months ended March 31, 2022.

The decrease is primarily attributed to more favorable changes in working capital items, and increased gross profit.

Cash Used in Investing Activities

Net cash used in investing activities was $4.8 million for the nine months ended September 30, 2022, compared to net cash used in investing activities of $15.0 million for the nine months ended September 30, 2021.

Net cash used in investing activities was $0.7 million for the three months ended March 31, 2023, a decrease of $1.5 million compared to net cash used in investing activities of $2.2 million for the three months ended March 31, 2022.

The decrease is primarily attributable to decreased property, plant, and equipment additions relative to the prior year quarter.

Cash Provided by Financing Activities

Net cash provided by financing activities was $23.4 million for the nine months ended September 30, 2022, an increase of $1.0 million as compared to the nine months ended September 30, 2021.

The change was principally due to increased proceeds received from the Credit Facility in 2022 compared to 2021.

Cash Provided (Used) by Financing Activities

Net cash used in financing activities was $0.3 million for the three months ended March 31, 2023, a change of $2.7 million as compared to $2.4 million provided by financing activities in the three months ended March 31, 2022.

The change was principally due to increased proceeds received from the Credit Facility in 2022 as compared to 2023.

Lease Transactions

As of September 30, 2022, we have entered into lease agreements for the use of buildings used in cultivation, production and/or sales of cannabis products in Arizona, Maryland, Minnesota, Nevada, New Mexico, New York, and Puerto Rico.

As of March 31, 2023, we have entered into lease agreements for the use of buildings used in cultivation, production and/or sales of cannabis products in Maryland, Minnesota, Nevada, New Mexico, New York, and Puerto Rico.

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

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

As of September 30, 2022, we operated 18 retail locations secured under these agreements.

As of March 31, 2023, we operated 18 retail locations secured under these agreements.

We have also entered into sale and leaseback arrangements for our cultivation and processing facilities in Minnesota and New York with a special-purpose real estate investment trust.

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Finance Leases

September 30, 2022

March 31, 2023

Total minimum lease payments

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Outstanding Share Data

As of November 11, 2022, we had 87,135,083 shares issued and outstanding, consisting of the following:

As of May 11, 2023, we had 87,135,083 shares issued and outstanding, consisting of the following:

(a) Subordinate voting shares

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Options, Warrants, and Convertible Promissory Notes

As of September 30, 2022, we have 26,121,908 employee stock options outstanding, 1,094,200 RSUs, as well as 3,037,649 SVS warrants denominated in C$.

As of March 31, 2023, we had 28,566,282 employee stock options outstanding, 3,102,765 RSUs 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

5 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-Q

Item 2. Management’s Discussion and Analysis