What changed in this filing

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Item 7. Management’s Discussion and Analysis

2024-04-01 compared with 2023-03-31 · 112 added, 106 removed, 216 unchanged (50% of the section changed)

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Except as required by law, we undertake no obligation to update any forward-looking statements or forward-looking information to reflect events or circumstances after the date of such statements.

This management's discussion and analysis is dated April 1, 2024.

Amounts are presented in United States dollars, except as otherwise indicated.

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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.

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.

Verano Litigation

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.

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.

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.

We deny all of Verano’s allegations and believe we have complied with our obligations under the Arrangement Agreement in all material respects at all times.

We believe 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.

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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.

On July 31, 2023, the Company filed a requisition for adjournment of its application filed July 14, 2023, and set for hearing on July 31, 2023 to compel Verano’s compliance with document production.

Throughout 2023, the Company served 4 lists of documents, reviewed document production from Verano, and prepared for examinations for discovery.

The Company also prepared materials in anticipation of seeking summary determination of its claim.

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

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

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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, 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.

During the year ended December 31, 2023, the Company had operating revenue in four states:

Maryland, Minnesota, New Mexico, and New York.

I n June 2023, we sold our business operations in New Mexico.

Retail revenues during the year ended December 31, 2023 were derived from sales in eighteen dispensaries throughout four states.

We had eight operational dispensaries in Minnesota, four in New Mexico (until June 2023), four in New York, and two in Maryland.

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

Year ended December 31, 2023 Compared to the Year Ended December 31, 2022

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.

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 year ended December 31, 2023, 84% of the revenue was generated from retail dispensaries and 16% from wholesale business.

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

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, 2022, 83% of the revenue was generated from retail dispensaries and 17% from wholesale business.

During the year ended December 31, 2023, we ceased all operations in New Mexico.

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

For the year ended December 31, 2023, Minnesota operations contributed approximately 51% of revenues, New York contributed 16%, Maryland contributed 31%, and New Mexico contributed 2%.

Revenue for the year ended December 31, 2023, was $88,133,163, an increase of $13,507,296 or 18% compared to revenue of $74,625,867 for year ended December 31, 2022.

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.

The increase is primarily attributable to increased revenue contributions from the Maryland business driven by the commencement of adult-use 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.

Retail revenue for the year ended December 31, 2023, was $73,620,867, an increase of $11,497,510 or 19% compared to retail revenue of $62,123,357 for the year ended December 31, 2022, primarily due to increased revenue contributions from the Maryland business driven by the commencement of adult-use 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 year ended December 31, 2023, was $14,512,297, an increase of $2,009,787 or 16% compared to wholesale revenue of $12,502,510 for year ended December 31, 2022.

The increase was primarily due to increased revenue contributions from the Maryland business driven by the commencement of adult-use sales on July 1, 2023.

Total Wholesale

Total Revenue

AZ and OH Revenue

Total Revenue excluding AZ Retail and OH

Total Revenue excluding NM and AZ

Cost of Goods Sold and Gross Profit

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This is compared to gross profit for the year ended December 31, 2022, of $30,908,161 or a 41% 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.

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 adult-use sales in Maryland on July 1, 2023.

Total Operating Expenses

Total operating expenses for the year ended December 31, 2023, were $33,524,387, a decrease of $4,323,139 compared to total expenses of $37,847,526 for the year ended December 31, 2022.

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.

The decrease in total expenses was attributable to a decrease in selling, general, and administrative expenses of $5,605,706 partially offset by an increase in share based compensation expenses of $1,463,401.

Decreased salaries and wages driven by lower headcount and decreased professional fees account for the majority of the decrease in selling, general, and administrative expenses.

Operating Income (Loss) before Income Taxes and Other Income (Expense)

Operating income (loss) before other income (expense) and provision for income taxes for the year ended December 31, 2023, was $10,579,778, an increase of $17,519,143 compared to an operating loss before other income (expense) and provision for income taxes of $(6,939,365) for the year ended December 31, 2022.

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.

Total other expense for the year ended December 31, 2023, was ($28,403,867), a decrease of $1,221,212 compared to other expense of ($29,625,079) or the year ended December 31, 2022.

The decrease in other expense is primarily attributable to increased other income attributable to the receipt of the Coronavirus Aid, Relief, and Economic Security Act Employee Retention Tax Credit in 2023 and decreased 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 in connection with the divestiture of our business in New Mexico during 2023.

Provision for Income Taxes

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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%.

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 $5.3 million, the retail business in Maryland of $3.3 million, and the wholesale business in New York of $1.8 million, partially offset by the lack of revenues from the Pennsylvania retail and wholesale businesses, which were divested in 2020.

Key revenue drivers were the opening of the Fredrick dispensary in Maryland in the first quarter of 2021, increased patient demand in Minnesota, which is primarily the result of four new dispensary openings that occurred in the fourth quarter of 2020, and a large New York bulk oil sale that occurred during 2021.

Retail revenue for the year ended December 31, 2021, was $44,692,385, an increase of $7,456,084 or 20% compared to retail revenue of $37,236,301 for the year ended December 31, 2020, primarily due to revenue contributions from Minnesota and Maryland.

Wholesale revenue for the year ended December 31, 2021, was $9,753,783, a decrease of $2,218,531 compared to wholesale revenue of $11,972,314 for year ended December 31, 2020.

The decrease was primarily due to the divestiture of the Pennsylvania wholesale business in 2020.

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 adult-use marijuana sales in New Mexico on April 1, 2022, and the acquisition of Charm City Medicus, LLC in the fourth quarter of 2021.

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

PA, OH, and AZ Retail Revenue

Total Revenue excluding AZ and OH

NM, AZ, and OH

Total Revenue excluding NM and AZ

Not Meaningful

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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 year ended December 31, 2021, was $34,647,483, an increase of $2,563,875 compared to the year ended December 31, 2020 of $32,083,608, driven most significantly by the product costs associated with the increase in revenues year over year, and an increase in inventory valuation adjustments driven by a significant and unusual weather period in Arizona.

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 was driven by increased retail revenue, which carries a higher margin, as a percentage of total revenue in 2021, partially offset by an increase in inventory valuation adjustments of $1,666,696.

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

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.

increase in salaries and wages, and general and administrative expenses was driven by significant operational buildout in existing markets, and the decrease in share-based compensation was driven by the lack of share-based compensation expense affiliated with warrant vesting in 2021.

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, 2021, was $(20,481,564), a decrease of $2,561,558 compared to operating income before other income (expense) and provision for income taxes of $(23,043,122) for the year ended December 31, 2020.

Total Other Income (Expense)

Total other expense for the year ended December 31, 2021, was ($9,086,911), an increase of $17,977,839 compared to other income of $8,890,928 for the year ended December 31, 2020.

The increase in other expense is primarily attributable to increased interest expense of $5,479,522 in 2021 driven by the issuance of promissory notes, the impairment charge of $5,169,951 related to long-lived assets, as well as the decrease in the gain on disposal of assets of $13,350,138, partially offset by the 2020 derivative loss of $6,260,480.

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.

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, 2021, Federal and State income tax expense totaled $4,122,000 compared to a tax expense of $8,790,000 for the year ended December 31, 2020.

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

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.

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.

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.

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.

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.

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

Total Revenues excluding revenues from states where we have divested operations in 2021, 2022, and 2023 is also a non-GAAP measure that does not have a standardized definition under GAAP.

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

Reconciliations of the supplemental non-GAAP financial measure Total Revenues that excludes revenues from states where we have divested operations in 2021, 2022 and 2023 presented herein to the most directly comparable financial measures calculated in accordance with GAAP can be found in the tables above where the measures appear.

We have provided these 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.

This 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.

Net income (loss)

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Depreciation & Amortization

Depreciation included in cost of goods sold

Depreciation and amortization included in cost of goods sold

EBITDA (non-GAAP)

Inventory adjustment

Loss on impairment of long-lived assets

Stock-based compensation

Gain on disposal of assets

Adjusted EBITDA (non-GAAP)

Liquidity and Capital Resources

As of December 31, 2022 and 2021, the Company had working capital of $17,019,820 and $25,233,518 respectively, reflecting a decrease in working capital of $8,213,698 for the year ended December 31, 2022.

As of December 31, 2023 and 2022, the Company had a working capital deficiency of $(30,615,109) and $17,019,820 respectively, reflecting a decrease in working capital of $47,634,929 for the year ended December 31, 2023 driven by the reclassification of long-term debt to current.

The Company is an early-stage growth company.

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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.

The Company repaid the note in full subsequent to year end.

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.

On November 19, 2023, the Company and lender amended the note.

Per the terms of the amendment, the interest rate was modified to 15%, and the Company paid off $1,000,000 of principal.

The remaining principal balance of $1,000,000 is due on November 19, 2024, 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) 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.

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 which is treated as a deferred financing cost.

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

connection with this loan.

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

Obligations under the Credit Facility are secured by substantially all the assets of the Company.

On January 31, 2022, Goodness Growth and certain of its subsidiaries, as borrowers (collectively, “ Borrowers ”), entered into a Third Amendment to the Credit Facility (the “ Third Amendment ”) providing for additional delayed draw term loans of up to $55 million (the “ Delayed Draw Loans ”).

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

The Delayed Draw Loans have a maturity date of April 30, 2023 with an option to extend another 12 months for an additional fee of $1,375,000.

The cash interest rate on the Delayed Draw Loans under the Third Amendment is equal to the U.S.

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

Pursuant to the Arrangement Agreement, Verano 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.

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 15,000,000 Subordinate Voting Shares in lieu of a cash extension fee.

These 15,000,000 shares were valued at $1,407,903 and considered a deferred financing cost.

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, 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.

As of December 31, 2023, $1,524,531 (2022 - $5,085,792) of deferred financing costs remain unamortized.

Convertible Notes

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 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.

For each future tranche advanced, the principal amount of Convertible Notes outstanding, 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 the lesser of $0.145 or a 20.0% premium over the 30-day volume weighted average price of the Company’s Subordinate Voting Shares calculated on the day prior to the date on which each tranche is advanced, if permitted by the Canadian Securities Exchange.

The lenders also have the right to advance any remaining undrawn funds on the convertible loan facility to the Company at any time.

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

During the year ended December 31, 2023, the Company closed eight additional tranches 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 $8,000,000.

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

These warrants have a five year term, a strike price of $0.145, and were valued at $497,055 (Note 16).

The value of these warrants and other legal and administrative expenses amounting to $1,346,793 are treated as deferred financing costs.

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.

As of December 31, 2023, $1,083,697 of deferred financing costs remain unamortized.

Cash Used in Operating Activities

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.

Net cash used in operating activities was $1.0 million for the year ended December 31, 2023, a decrease of $17.1 million as compared to cash used in operating activities of $18.1 million for the year ended December 31, 2022.

The decrease is due to more favorable changes in working capital relative to 2022, increased gross profit, and decreased operating expenses.

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Net cash used in investing activities was $3.5 million for the year ended December 31, 2023, compared to net cash used of $5.6 million for the year ended December 31, 2022.

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.

The decrease in cash used is primarily attributable to a decrease in security deposits.

Cash Flow from Financing Activities

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.

Net cash provided by financing activities was $5.3 million for the year ended December 31, 2023, a decrease of $18.4 million as compared to the year ended December 31, 2022.

The decrease was principally due to fewer net proceeds received from the Credit Facility in 2023.

Lease Transactions

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.

As of December 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, and New York.

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.

These agreements are short-term facility leases that require us to make monthly rent payments as well as funding 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.

As of December 31, 2022, the Company had 18 retail locations secured under these agreements.

As of December 31, 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.

These leases are long-term agreements that provide, among other things, funds to make certain improvements to the property to increase production capacity and operational efficiency of the facility.

These leases are long-term agreements that provide, among other things, funds to make certain improvements to the property that we believe will significantly enhance production capacity and operational efficiency of the facility.

Excluding any contracts under one year in duration, the future minimum lease payments (principal and interest) on all our leases are as follows:

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Outstanding Share Data

As of March 27, 2023, we had 87,135,083 shares issued and outstanding, consisting of the following:

As of Deecmber 31, 2024, we had 110,338,223 shares issued and outstanding, consisting of the following:

(a) Subordinate Voting Shares

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0 shares issued and outstanding.

The holders of Super Voting Shares are entitled to one thousand votes per share at all shareholder meetings.

Holders of Super Voting Shares are entitled to one thousand votes per share at all shareholder meetings.

Each Super Voting Share is exchangeable for one hundred Subordinate Voting Shares.

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Options, Warrants, and Convertible Promissory Notes

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.

As of December 31, 2023, we had 29,969,324 employee stock options outstanding, 2,543,011 RSUs outstanding, 3,037,649 Subordinate Voting Share compensation warrants denominated in C$ related to financing activities, and 16,400,000 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.

Summary of Significant Accounting Policies

Summary of Significant Accounting Policies and Estimates

The critical accounting estimates, assumptions, and judgments that we believe to have the most significant impact on our consolidated financial statements are described below.

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The Company’s primary source of revenue is from wholesale of cannabis products to dispensary locations and direct retail sales to eligible customers at the Company-owned dispensaries.

Substantially all of the Company’s retail revenue is from the direct sale of cannabis products to medical customers.

Substantially all of the Company’s retail revenue is from the direct sale of cannabis products to adult-use and medical customers.

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

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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.

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Factors considered in the determination of obsolescence include slow-moving or non-marketable items.

Actual inventory losses may differ from management’s estimates and such differences could be material our consolidated balance sheets, statements of net loss and comprehensive loss and statements of cash flows.

Actual inventory losses may differ from management’s estimates and such differences could be material to our consolidated balance sheets, statements of net loss and comprehensive loss and statements of cash flows.

In calculating the value of the inventory, management is required to make a number of estimates, including estimating the stage of growth of the cannabis plant up to the point of harvest, harvesting costs, selling costs, sales price, wastage and expected yields of the cannabis plant.

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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.

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.

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Treasury yield curve in effect at the time of grant.

For stock options granted, the fair value of common stock at the date of grant was determined by the Board of Directors with assistance from third-party valuation specialists.

For stock options granted, the exercise price at the date of grant was determined by the Board of Directors with assistance from third-party valuation specialists.

The Company estimates forfeitures at the time of grant and revises these estimates in subsequent periods if actual forfeitures differ from those estimates.

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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