What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2023-11-14 compared with 2023-08-14 · 66 added, 57 removed, 157 unchanged (44% of the section changed)

16 unchanged sentences

With our core operations strategically located in three 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.

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.

The termination of the Arrangement Agreement gives rise to substantial doubt about the Company’s ability to continue as a going concern.

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.

3 unchanged sentences

The Company may not be successful in these efforts.

Three months ended June 30, 2023, Compared to Three months ended June 30, 2022

Three months ended September 30, 2023, Compared to Three months ended September 30, 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 June 30, 2023, 85% of our revenue was generated from retail dispensaries and 15% from wholesale business.

For the three months ended June 30, 2022, 81% of our revenue was generated from retail business and 19% from wholesale business.

For the three months ended June 30, 2023, Minnesota operations contributed approximately 57% of revenues, New York contributed 17%, New Mexico contributed 5%, and Maryland contributed 21%.

For the three months ended June 30, 2022, Minnesota operations contributed approximately 48% of revenues, New York contributed 18%, Arizona contributed 6%, New Mexico contributed 11%, and Maryland contributed 17%.

Revenue for the three-months ended June 30, 2023, was $20,196,556, a decrease of $893,592 or 4% compared to revenue of $21,090,148 for the three-months ended June 30, 2022.

The decrease is primarily attributable to decreased revenue contributions from the retail business in New Mexico and the lack of Arizona revenues, which was disposed of in 2022, partially offset by Minnesota and Maryland revenue growth.

An increased number of operators and store count drove decreased New Mexico revenues, while increased patient count and demand drove increased Minnesota revenues.

Retail revenue for the three months ended June 30, 2023, was $17,143,099 an increase of $101,607 or 1% compared to retail revenue of $17,041,492 for the three months ended June 30, 2022, primarily due to increased revenue contributions from Minnesota and Maryland offset by decreased contributions from New York and New Mexico.

Wholesale revenue for the three months ended June 30, 2023, was $3,053,457, a decrease of $995,199 compared to wholesale revenue of $4,048,656 for the three months ended June 30, 2022.

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

For the three months ended September 30, 2023, 82%

of our revenue was generated from retail dispensaries, 17% from wholesale business, and 1% was generated from service revenue.

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

For the three months ended September 30, 2023, Minnesota operations contributed approximately 48% of revenues, New York contributed 14%, and Maryland contributed 38%.

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%.

Revenue for the three-months ended September 30, 2023, was $24,675,145, an increase of $5,821,044 or 31% compared to revenue of $18,854,101 for the three-months ended September 30, 2022.

The increase is primarily attributable to increased revenue contributions from the Maryland business driven by the commencement of recreational sales on July 1, 2023, and increased in revenue contributions from Minnesota driven by increased patient count, partially offset by the lack of New Mexico revenues, which was divested in June of 2023.

Retail revenue for the three months ended September 30, 2023, was $20,147,074 an increase of $3,757,848 or 23% compared to retail revenue of $16,389,226 for the three months ended September 30, 2022, primarily due to increased revenue contributions from the Maryland business driven by the commencement of recreational sales on July 1, 2023, and increased in revenue contributions from Minnesota driven by increased patient count, partially offset by the lack of New Mexico revenues, which was divested in June of 2023

Wholesale revenue for the three months ended September 30, 2023, was $4,299,106, an increase of $1,834,23 compared to wholesale revenue of $2,464,875 for the three months ended September 30, 2022.

The increase was primarily due to

increased revenue contributions from the Maryland business driven by the commencement of recreational sales on July 1, 2023.

Three Months Ended

September 30,

Total Wholesale

MD Service Revenue

Total Revenue

6 unchanged sentences

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 June 30, 2023, was $10,865,260, an increase of $142,138 compared to the three months ended June 30, 2022, of $10,723,122.

Gross profit for the three months ended June 30, 2023, was $9,331,296, representing a gross margin of 46%.

This is compared to gross profit for the three months ended June 30, 2022, of $10,367,026 or a 49% gross margin.

The decrease in gross profit and margin was driven primarily by an increase in inventory valuation adjustments of $529,805.

Cost of goods sold for the three months ended September 30, 2023, was $11,477,757, an increase of $2,160,516 compared to the three months ended September 30, 2022, of $9,317,241.

Gross profit for the three months ended September 30, 2023, was $13,197,388, representing a gross margin of 53%.

This is compared to gross profit for the three months ended September 30, 2022, of $9,536,860 or a 51% gross margin.

The increases were primarily attributable to increased profit and margin contributions in Maryland driven by the commencement of Maryland recreational sales on July 1, 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.

8 unchanged sentences

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 June 30, 2023, were $10,373,340 an increase of $314,499 compared to total expenses of $10,058,841 for the three months ended June 30, 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.

Total expenses for the three months ended September 30, 2023, were $7,325,894 a decrease of $2,400,122 compared to total expenses of $9,726,016 for the three months ended September 30, 2022.

The decrease in total expenses is primarily attributable to a decrease in salaries and wages, insurance expenses, and stock-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 June 30, 2023, was ($1,042,044) a decrease of $1,350,229 compared to operating income of $308,185 for the three months ended June 30, 2022.

Operating income (loss) before other income (expense) and provision for income taxes for the three months ended September 30, 2023, was $5,871,494 an increase of $6,060,650 compared to operating loss of $189,156 for the three months ended September 30, 2022.

Total Other Income (Expense)

Total other expense for the three months ended June 30, 2023, was $(4,694,340), a change of $751,921 compared to other expense of $(5,446,261) for the three months ended June 30, 2022.

This change is primarily attributable to an increased losses on disposal of assets and interest expense, partially offset by increased other income attributable to the receipt of $4,650,264 related to the CARES Employee Retention credit.

Total other expense for the three months ended September 30, 2023, was $(7,620,520), a change of $25,887 compared to other expense of $(7,594,663) for the three months ended September 30, 2022.

This change is primarily attributable to an increased interest expenses partially offset by the decreased losses on the disposal of assets.

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 June 30, 2023, tax expense totaled $1,592,871 compared to tax expense of $1,045,000 for the three months ended June 30, 2022.

Six months ended June 30, 2023, Compared to Six months ended June 30, 2022

For the three months ended September 30, 2023, tax expense totaled $3,480,000 compared to tax expense of $640,000 for the three months ended September 30, 2022.

Nine months ended September 30, 2023, Compared to Nine months ended September 30, 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 five states.

For the six months ended June 30, 2023, 86% of the revenue was generated from retail business and 14% from wholesale business.

For the six months ended June 30, 2022, 80% of the revenue was generated from retail dispensaries and 20% from wholesale business.

For the six months ended June 30, 2023, Minnesota operations contributed approximately 57% of revenues, New York contributed 17%, New Mexico contributed 5%, and Maryland contributed 21%.

For the six months ended June 30, 2022, Minnesota operations contributed approximately 47% of revenues, New York contributed 20%, Arizona contributed 6%, New Mexico contributed 9%, and Maryland contributed 18%.

Revenue for the six months ended June 30, 2023, was $39,284,980, an increase of $2,556,260 or 7% compared to revenue of $36,728,720 for the six months ended June 30, 2022.

The increase is primarily attributable to increased revenue contributions from the retail business in Minnesota, partially offset by decreased retail revenues in New Mexico, and the lack of Arizona revenues, which was disposed of in 2022.

The key revenue driver was increased patient demand in Minnesota, which is the result of the addition of cannabis flower to the Minnesota medical program in March of 2022.

Retail revenue for the six months ended June 30, 2023, was $33,614,899, an increase of $4,161,184 or 14% compared to retail revenue of $29,453,715 for the six months ended June 30, 2022, primarily due to revenue contributions from Minnesota and Maryland, partially offset by decreased New York and New Mexico retail revenues.

Wholesale revenue for the six months ended June 30, 2023, was $5,670,081, a decrease of $1,604,914 compared to wholesale revenue of $7,275,005 for the six months ended June 30, 2022.

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

Six Months Ended

For the nine months ended September 30, 2023, 84% of the revenue was generated from retail business and 16% from wholesale business.

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

For the nine months ended September 30, 2023, Minnesota operations contributed approximately 54% of revenues, New York contributed 16%, New Mexico contributed 3%, and Maryland contributed 27%.

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%.

Revenue for the nine months ended September 30, 2023, was $63,960,125, an increase of $8,377,304 or 15% compared to revenue of $55,582,821 for the nine months ended September 30, 2022.

The increase is primarily attributable to

increased revenue contributions from the Maryland business driven by the commencement of recreational sales on July 1, 2023, and increased in revenue contributions from Minnesota driven by increased patient count, partially offset by the lack of New Mexico revenues, which was divested in June of 2023.

Retail revenue for the nine months ended September 30, 2023, was $53,761,973, an increase of $7,919,032 or 17% compared to retail revenue of $45,842,941 for the nine months ended September 30, 2022.

The increase is primarily attributable to increased revenue contributions from the Maryland business driven by the commencement of recreational sales on July 1, 2023, and increased in revenue contributions from Minnesota driven by increased patient count, partially offset by decreased New Mexico revenues, which was divested in June of 2023.

Wholesale revenue for the nine months ended September 30, 2023, was $9,969,187, an increase of $229,307 compared to wholesale revenue of $9,739,880 for the nine months ended September 30, 2022.

The increase was primarily due to to increased revenue contributions from the Maryland business driven by the commencement of recreational sales on July 1, 2023, partially offset by the lack of Arizona revenues.

Nine Months Ended

September 30,

Total Wholesale

MD Service Revenue

Total Revenue

2 unchanged sentences

Cost of Goods Sold and Gross Profit

Cost of goods sold for the six months ended June 30, 2023 was $20,433,471, a decrease of $3,439,545 compared to the six months ended June 30, 2022, of $23,873,016.

Gross profit for the six months ended June 30, 2023 was $18,851,509 representing a gross margin of 48%.

This is compared to gross profit for the six months ended June 30, 2022 of $12,855,704 or a 35% gross margin.

The increase in margin was driven by increased retail revenue contributions from Minnesota, which carries a high margin profile, both overall and as a percentage of total revenue, and the disposition of all Arizona wholesale operations, which carried a low margin in 2022.

Cost of goods sold for the nine months ended September 30, 2023 was $31,911,229, a decrease of $1,279,028 compared to the nine months ended September 30, 2022, of $33,190,257.

Gross profit for the nine months ended September 30, 2023 was $32,048,896 representing a gross margin of 50%.

This is compared to gross profit for the nine months ended September 30, 2022 of $22,392,564 or a 40% gross margin.

The increase in margin was driven by increased retail revenue contributions from Minnesota, which carries a high margin profile, both overall and as a percentage of total revenue, the disposition of all Arizona wholesale operations, which carried a low margin in 2022, and the commencement of recreational sales in Maryland on July 1, 2023.

1 unchanged sentence

Total Expenses

Total expenses for the six months ended June 30, 2023 were $19,525,045, a decrease of $782,633 compared to total expenses of $20,307,678 for the six months ended June 30, 2022.

Total expenses for the nine months ended September 30, 2023 were $26,850,940, a decrease of $3,182,754 compared to total expenses of $30,033,694 for the nine months ended September 30, 2022.

The decrease in total expenses was attributable to a decrease in general and administrative expenses partially offset by an increase in stock-based compensation expenses driven by increased option issuances in 2023 relative to 2022.

1 unchanged sentence

Operating Loss before Income Taxes

Operating loss before other income (expense) and provision for income taxes for the six months ended June 30, 2023 was ($673,536), a decrease of $6,855,252 compared to $(7,451,974) for the six months ended June 30, 2022.

Operating income (loss) before other income (expense) and provision for income taxes for the nine months ended September 30, 2023 was $5,197,956, an increase of $12,839,086 compared to $(7,641,130) for the nine months ended September 30, 2022.

Total Other Expense

Total other expenses for the six months ended June 30, 2022, were $11,806,817, a decrease of $2,186,067 compared to $13,992,884 for the six months ended June 30, 2022.

Total other expenses for the nine months ended September 30, 2023, were $19,427,337, a decrease of $2,160,179 compared to $21,587,516 for the nine months ended September 30, 2022.

This decrease is primarily attributable to increased other income attributable to the receipt of $4,650,264 related to the CARES Employee Retention credit and the lack of impairment losses in 2023, partially offset by increased interest expense driven by the Credit Facility and increased losses on disposal of assets related to the Red Barn Growers disposition.

1 unchanged sentence

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 six months ended June 30, 2023, tax expense totaled $3,254,871 compared to a tax recoveries of $695,000 for the six months ended June 30, 2022.

For the six months ended September 30, 2023, tax expense totaled $6,734,871 compared to a tax recoveries of $55,000 for the nine months ended September 30, 2022.

NON-GAAP MEASURES

3 unchanged sentences

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.

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

Six Months Ended

Nine Months Ended

September 30,

Net income (loss)

1 unchanged sentence

Depreciation & Amortization

Depreciation included in cost of goods sold

Depreciation and amortization included in cost of goods sold

EBITDA (non-GAAP)

30 unchanged sentences

On April 28, 2023, the Company closed on a new convertible debt facility which enables the Company to access up to $10,000,000 in aggregate principal amount of convertible notes (the “Convertible Notes”).

The convertible facility has a

term of three years, with an annual interest rate of 12.0%, 6.0% cash and 6.0% paid-in-kind.

The convertible facility has a term of three years, with an annual interest rate of 12.0%, 6.0% cash and 6.0% paid-in-kind.

The initial tranche's principal amount of Convertible Notes outstanding in the amount of $2,000,000, plus all paid-in-kind interest and all other accrued but unpaid interest thereunder, is convertible into Subordinate Voting Shares of the Company at the option of the holders at any time by written notice to the Company, at a conversion price equal to $0.145.

2 unchanged sentences

If the notes are not converted, the outstanding principal amount and unpaid paid in kind interest is due on April 30, 2026.

During the three months ended June 30, 2023, the Company closed a second and third tranche of Convertible Notes, which are both convertible into Subordinate Voting Shares at a conversion price of $0.145.

During the nine months ended September 30, 2023, the Company closed four additional tranche of Convertible Notes, which are convertible into Subordinate Voting Shares at a conversion price of $0.145.

Total proceeds received from these tranches amounted to $4,000,000.

In connection with this financing, the Company issued 6,250,000 warrants to purchase Subordinate Voting Shares of the Company to the lenders.

3 unchanged sentences

Cash Used in Operating Activities

Net cash used in operating activities was $2.2 million for the six months ended June 30, 2023, a decrease of $7.7 million as compared to $9.8 million for the six months ended June 30, 2022.

Net cash used in operating activities was $0.5 million for the nine months ended September 30, 2023, a decrease of $11.5 million as compared to $12.0 million for the nine months ended September 30, 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 $2.2 million for the six months ended June 30, 2023, a decrease of $1.5 million compared to net cash used in investing activities of $3.7 million for the six months ended June 30, 2022.

Net cash used in investing activities was $3.3 million for the nine months ended September 30, 2023, a decrease of $1.5 million compared to net cash used in investing activities of $4.8 million for the nine months ended September 30, 2022.

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

Cash Provided (Used) by Financing Activities

Net cash provided by financing activities was $0.5 million for the six months ended June 30, 2023, a change of $14.8 million as compared to $15.4 million provided by financing activities in the six months ended June 30, 2022.

Net cash provided by financing activities was $2.0 million for the nine months ended September 30, 2023, a change of $21.5 million as compared to $23.4 million provided by financing activities in the nine months ended September 30, 2022.

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

Lease Transactions

As of June 30, 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, New York, and Puerto Rico.

As of September 30, 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, 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.

1 unchanged sentence

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

As of June 30, 2023, we operated 14 retail locations secured under these agreements.

As of September 30, 2023, we operated 14 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.

3 unchanged sentences

Finance Leases

June 30, 2023

September 30, 2023

Total minimum lease payments

6 unchanged sentences

Outstanding Share Data

As of August 11, 2023, we had 108,610,772 shares issued and outstanding, consisting of the following:

As of November 11, 2023, we had 108,680,270 shares issued and outstanding, consisting of the following:

(a) Subordinate voting shares

14 unchanged sentences

Options, Warrants, and Convertible Promissory Notes

As of June 30, 2023, we had 30,185,610 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 6,400,000 Subordinate Voting Share compensation warrants outstanding.

As of September 30, 2023, we had 29,633,217 employee stock options outstanding, 2,714,491 RSUs outstanding, 3,037,649 Subordinate Voting Share compensation warrants denominated in C$ related to financing activities, and 6,400,000 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