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Item 8. Financial Statements and Supplementary Data

2024-04-01 compared with 2023-03-31 · 349 added, 304 removed, 723 unchanged (47% of the section changed)

Financial Statements and Supplementary Data

Report of Independent Registered Public Accounting Firm (PCAOB ID 731 )

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

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We have audited the accompanying consolidated balance sheets of Goodness Growth Holdings Inc.

(the “Company”) as of December 31, 2022 and 2021, and the related consolidated statements of net loss and comprehensive loss, changes in stockholders’ equity, and cash flows for the years ended December 31, 2022 and 2021, and the related notes (collectively referred to as the “financial statements”).

(the “Company”), as of December 31, 2023 and 2022, and the related consolidated statements of net loss and comprehensive loss, stockholders’ equity (deficiency), and cash flows for the years ended December 31, 2023 and 2022, and the related notes (collectively referred to as the “financial statements”).

In our opinion, the financial statements present fairly, in all material respects, the financial position of Goodness Growth Holdings Inc.

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Going Concern

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern.

As discussed in Note 2 to the consolidated financial statements, the Company has concluded that the historical recurring losses from operations, negative cash flows from operations, dependence on debt and other financings and the termination of the Arrangement Agreement gives rise to substantial doubt about its ability to continue as a going concern.

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern.

As discussed in Note 2 to the financial statements, the Company has concluded that the historical recurring losses from operations, negative cash flows from operations, dependence on debt and other financings and the termination of the Arrangement Agreement gives rise to substantial doubt about its ability to continue as a going concern.

Management's plans in regard to these matters are also described in Note 2.

The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Basis for Opinion

These consolidated financial statements are the responsibility of the Company’s management.

Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits.

These financial statements are the responsibility of the Company’s management.

Our responsibility is to express an opinion on the Company’s financial statements based on our audits.

We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S.

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We conducted our audits in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud.

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.

The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.

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Our audits included performing procedures to assess the risks of material misstatements of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements.

Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.

Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that our audits provide a reasonable basis for our opinion.

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Chartered Professional Accountants

March 31, 2023

April 1, 2024

GOODNESS GROWTH HOLDINGS, INC.

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Current assets:

Accounts receivable, net of allowance for doubtful accounts of $ 453,860 and $ 572,080 , respectively

Accounts receivable, net of credit losses of $ 254,961 and $ 453,860 , respectively

Income tax receivable

Prepayments and other current assets

Notes receivable, current

Warrants held

Assets Held for Sale

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Right of use liability

Uncertain tax liability

Liabilities held for sale

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Right-of-use liability

Other long-term liabilities

Convertible debt, net

Long-Term debt, net

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Commitments and contingencies (refer to Note 18)

Stockholders’ equity

Stockholders’ equity (deficiency)

Subordinate Voting Shares ($- par value, unlimited shares authorized;

86,721,030 shares issued and outstanding)

110,007,030 shares issued and outstanding at December 31, 2023 and 86,712,030 at December 31, 2022)

Multiple Voting Shares ($- par value, unlimited shares authorized;

348,642 shares issued and outstanding)

331,193 shares issued and outstanding at December 31, 2023 and 348,642 at December 31, 2022)

Super Voting Shares ($- par value;

unlimited shares authorized;

65,411 shares issued and outstanding, respectively)

0 shares issued and outstanding at December 31, 2023 and 65,411 at December 31, 2022)

Additional Paid in Capital

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( 177,880,963 )

Total stockholders' equity

Total liabilities and stockholders' equity

Total stockholders' equity (deficiency)

( 16,043,649 )

Total liabilities and stockholders' equity (deficiency)

The accompanying notes are an integral part of these consolidated financial statements

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Consolidated Statements of Net Loss and Comprehensive Loss (In U.S.

Dollars, except per share amounts)

For the Years Ended December 31,

Cost of sales

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( 6,939,365 )

( 20,481,564 )

Other income (expense):

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( 8,596,201 )

Gain (loss) on disposal of assets

( 4,477,738 )

Gain on disposal of assets

Interest expenses, net

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Deferred income tax recoveries

( 1,687,000 )

Net loss and comprehensive loss

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Net loss per share - basic and diluted

Weighted average shares used in computation of net loss per share - basic & diluted

Weighted average shares used in computation of net loss per share - basic and diluted

The accompanying notes are an integral part of these consolidated financial statements

GOODNESS GROWTH HOLDINGS, INC.

Consolidated Statements of Stockholders’ Equity

Consolidated Statements of Stockholders’ Equity (Deficiency)

Dollars, except per share amounts)

Super Voting Shares

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Stockholders'

Equity (deficiency)

Balance, January 1, 2022

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Conversion of MVS shares

Shares issued in Nevada acquisition

Shares issued in Charm City acquisition

Options exercised

Warrants exercised

Warrants issued in financing activities

Stock-based compensation

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Conversion of MVS shares

Options exercised

Conversion of Super Voting Shares

Stock-based compensation

Shares issued in financing activities

Warrants issued in financing activities

( 25,547,089 )

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( 203,428,052 )

( 16,043,649 )

The accompanying notes are an integral part of these consolidated financial statements

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Consolidated Statements of Cash Flows

Dollars, except for per share data)

For the Years Ended December 31,

CASH FLOWS FROM OPERATING ACTIVITIES

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Amortization of intangible assets

Amortization of intangible assets capitalized into inventory

Stock-based payments

Warrants receivable

( 1,937,352 )

Interest Expense

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Deferred income tax

( 1,338,000 )

Gain on Sale of Property and Equipment

Gain on disposal of AZ Dispensary

( 6,465,932 )

Gain on disposal of OMS

Loss (gain) on sale of property and equipment

Loss on disposal of Red Barn Growers

Loss (gain) on disposal of assets

Gain on disposal of royalty asset

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Accounts Receivable

( 3,488,926 )

Prepaid expenses

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( 3,992,663 )

( 18,330,899 )

Uncertain tax position liabilities

Accounts payable and accrued liabilities

Change in assets and liabilities held for sale

Net cash used in operating activities

( 1,256,913 )

Changes in operating lease liabilities

( 1,151,011 )

Change in assets and liabilities held for sale

Net cash provided by (used in) operating activities

( 18,073,265 )

CASH FLOWS FROM INVESTING ACTIVITIES:

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( 5,561,663 )

Proceeds from sale of AZ Dispensary net of cash

Intangible license additions

( 1,090,919 )

Proceeds from sale of Red Barn Growers net of cash

Proceeds from sale of property, plant, and equipment

Proceeds from sale of royalty asset

Acquisition of Charm City

( 3,543,830 )

Acquisition of MJ Distributing

( 1,592,500 )

Proceeds from sale of OMS net of cash

Net cash provided by (used in) investing activities

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Proceeds from long-term debt, net of issuance costs

Convertible debt payment

Proceeds from convertible debt, net of issuance costs

Proceeds from option exercises

Proceeds from warrant exercises

Debt principal payments

Lease principal payments

( 2,976,362 )

Lease principal payments

( 2,086,444 )

Net cash provided by financing activities

Net cash provided by (used in) financing activities

Net change in cash

( 11,950,401 )

Cash and restricted cash, beginning of year

Cash and restricted cash, end of year

Cash, beginning of year

Cash, end of year

The accompanying notes are an integral part of these consolidated financial statements.

Refer to Note 22 for supplemental cash flow information.

GOODNESS GROWTH HOLDINGS, INC.

Notes to Consolidated Financial Statements

For the years ended December 31, 2023 and 2022

Description of Business and Summary

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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.

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

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

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

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federal law, a Schedule I drug or substance has a high potential for abuse, no accepted medical use in the United States, and a lack of safety for the use of the drug under medical supervision.

Recently some federal officials have attempted to distinguish between medical cannabis use as necessary, but recreational use as “still a violation of federal law.” At the present time, the distinction between “medical marijuana” and “recreational marijuana” does not exist under U.S.

Recently some federal officials have attempted to distinguish between medical cannabis use as necessary, but adult-use as “still a violation of federal law.” At the present time, the distinction between “medical marijuana” and “adult-use marijuana” does not exist under U.S.

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

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

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.

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We anticipate that we will continue to report losses and negative cash flow for the foreseeable future.

We have concluded that our historical recurring losses from operations and negative cash flows from operations as well as our dependence on debt and other financings and the termination of the Arrangement Agreement gives rise to substantial doubt about the Company’s ability to meet its obligations over the next twelve months.

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

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Massachusetts, USA

Elephant Head Farm, LLC

EHF Cultivation Management, LLC

Retail Management Associates, LLC

Arizona Natural Remedies, Inc.

Vireo Health of New Mexico, LLC

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Massachusetts, USA

The entities listed above are wholly owned, or effectively controlled by the Company and have been formed or acquired to support the intended operations of the Company and all intercompany transactions and balances have been eliminated in the financial statements of the Company.

During the year ended December 31, 2021, Ohio Medical Solutions, Inc.

was removed as a result of a business disposition, and Vireo Health of Nevada 1, LLC, and Vireo of Charm City, LLC, were acquired.

During the year ended December 31, 2023, Red Barn Growers, Inc.

was removed as a result of a business disposition.

Refer to Note 3 for further details on business dispositions.

Recently adopted accounting pronouncements

In November of 2021 FASB issued ASU 2021 -10 - Government Assistance (Topic 832):

Disclosures by Business Entities about Government Assistance.

The update is intended to increase the transparency of government assistance including the disclosure of the types of assistance, an entity’s accounting for the assistance, and the effect of the assistance on an entity’s financial statements.

The Company adopted Topic 832 on January 1, 2022.

The adoption of the standard did not have a material impact on the Company's results of operations or cash flows.

In October of 2021 FASB issued ASU 2021-08 Business Combinations (Topic 805):

Accounting for Contract Assets and Contract Liabilities from Contracts with Customers.

The update is intended to improve the accounting for acquired revenue contracts with customers in a business combination by addressing diversity in practice and inconsistency related to the recognition of an acquired contract liability and payment terms and their effect on subsequent revenue recognized by the acquirer.

The adoption of the standard on January 1, 2023, did not have a material impact on the Company's results of operations or cash flows.

Use of estimates and significant judgments

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Revisions to estimates are recognized prospectively.

Examples of key estimates in these consolidated financial statements include cash flows and discount rates used in accounting for business combinations including contingent consideration, asset impairment including estimated future cash flows and fair values, the allowance for doubtful accounts receivable and trade receivables, inventory valuation adjustments that contemplate the market value of, and demand for inventory, estimated useful lives of property and equipment and intangible assets, valuation allowance on deferred income tax assets, determining the fair value of financial instruments, fair value of stock-based compensation, estimated variable consideration on contracts with customers, estimated redemption rates on loyalty sales programs, estimated paid time off redemption rates, sales return estimates, the fair value of the convertible notes and equity component and the classification, incremental borrowing rates and lease terms applicable to lease contracts.

Examples of key estimates in these consolidated financial statements include credit losses, inventory valuation adjustments that contemplate the market value of, and demand for inventory, estimated useful lives of property and equipment and intangible assets, valuation allowance on deferred income tax assets, determining the fair value of financial instruments, fair value of stock-based compensation, estimated variable consideration on contracts with customers, estimated redemption rates on loyalty sales programs, estimated paid time off redemption rates, sales return estimates, the fair value of the convertible notes and equity component and the classification, incremental borrowing rates, uncertain tax positions, and lease terms applicable to lease contracts.

Financial statement areas that require significant judgments are as follows:

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During the years ended December 31, 2023 and 2022, the Company completed various divestitures, further described in Note 3.

Management considered the quantitative results of the divested entities as well as qualitative strategic considerations to judge whether the two divestitures constitute a discontinued operation.

Management does not believe these divestitures

represent a strategic shift that has or will have a major effect on an entity’s operations and financial results, and as such, none of these divestitures are considered a discontinued operation.

Definition of a business – Determination of what constitutes a business for purposes of acquisition accounting requires significant judgement.

ASC 805 notes that if substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or group of similar identifiable assets, the set is not considered a business.

However, the exact quantitative threshold is not explicitly defined.

During the year ended December 31, 2022, no acquisition activity occurred.

During the year ended December 31, 2021, the Company completed two acquisitions, further described in Note 3.

Management determined that substantially all of the fair value of the assets acquired was concentrated in the licenses acquired, and as such they should be treated as asset acquisitions.

Management considered the quantitative results of the divested entities as well as qualitative strategic considerations to judge whether the divestitures constitute a discontinued operation.

Management does not believe these divestitures represent a strategic shift that has or will have a major effect on an entity’s operations and financial results, and as such, none of these divestitures are considered a discontinued operation.

Stock-based compensation - Valuation of stock-based compensation and warrants requires management to make estimates regarding the inputs for option pricing models, such as the expected life of the option, the volatility of the Company’s stock price, the vesting period of the option and the risk-free interest rate are used.

Actual results could differ from those estimates.

The estimates are considered for each new grant of stock options or warrants.

Uncertain tax positions - The evaluation of the Company’s uncertain tax positions involves significant judgment in the interpretation and application of GAAP.

Although management believes the Company’s reserves are reasonable, no assurance can be given that the final outcome of these uncertainties will not be different from that which is reflected in the Company’s reserves.

Reserves are adjusted considering changing facts and circumstances, such as the closing of a tax examination.

Resolution of these uncertainties in a manner inconsistent with management’s expectations could have a material impact on the Company’s financial condition and operating results.

Asset impairment – Asset impairment tests require the allocation of assets to asset groups, where appropriate, which requires significant judgment and interpretation with respect to the integration between the assets and shared resources.

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Diluted net loss per share is computed by dividing net loss by the sum of the weighted average number of common shares and the number of potential dilutive common share equivalents outstanding during the period.

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

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

Potential dilutive common share equivalents consist of the incremental common shares issuable upon the exercise of vested share

options and the incremental shares issuable upon conversion of the convertible notes.

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

In computing diluted earnings per share, common share equivalents are not considered in periods in which a net loss is reported, as the inclusion of the common share equivalents would be anti-dilutive.

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Stock options

Convertible debt

Segment Information

Accounting Standards Codification ("

ASC ") 280, Segment Reporting, establishes disclosure requirements relating to operating segments in annual and interim financial statements.

Accounting Standards Codification (" ASC ") 280, Segment Reporting, establishes disclosure requirements relating to operating segments in annual and interim financial statements.

Operating segments are defined as components of an enterprise about which separate financial information is available that is regularly evaluated by the chief operating decision maker in deciding how to allocate resources to the segment and assess its performance.

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The Company’s Chief Executive Officer is the Company’s chief operating decision maker.

Cash and cash equivalents

Cash and cash equivalents are comprised of cash and highly liquid investments that are readily convertible into known amounts of cash with original maturities of three months or less.

Cash is comprised of cash.

The Company has no cash equivalents for the years presented.

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Fair value measurements

The carrying value of the Company’s accounts receivable, accounts payable, and accrued liabilities approximate their fair value due to their short-term nature, and the carrying value of notes receivable and long-term debt approximates fair value as they bear a market rate of interest.

The carrying value of the Company’s accounts receivable, deposits, accounts payable, and accrued liabilities approximate their fair value due to their short-term nature, and the carrying value of notes receivable, convertible debt, and long-term debt approximates fair value as they bear a market rate of interest.

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.

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Depreciation is computed using the straight-line method over the estimated useful lives of the assets.

The estimated useful life of buildings and improvements ranges from five to thirty-nine , the estimated useful life of property and equipment, other than buildings, ranges from three to ten years .

The estimated useful life of buildings and improvements ranges from five to thirty-nine years , the estimated useful life of property and equipment, other than buildings, ranges from three to ten years .

Land is not depreciated.

Leasehold improvements, included in buildings and improvements, are depreciated over the lesser of the asset’s estimated useful life or the remaining lease term.

The estimated useful life of right of use assets relating to operating and finance leases ranges from one to sixty-four years .

The estimated useful life of right of use assets relating to operating and finance leases ranges from one to twenty years .

When assets are retired or disposed of, the cost and accumulated depreciation are removed from the respective accounts and any related gain or loss is recognized.

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Amortization of definite life intangible assets is calculated on a straight-line basis over the estimated useful lives of the assets as follows:

15 - 20 years

When there is no foreseeable limit on the period of time over which an intangible asset is expected to contribute to the cash flows of the Company, an intangible asset is determined to have an indefinite life.

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Impairment of long-lived assets

The Company reviews long-lived assets, including property and equipment and definite life intangible assets, for impairment annually or whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable.

The Company reviews long-lived assets, including property and equipment, definite life intangible assets, and other long-lived assets for impairment annually or whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable.

In order to determine if assets have been impaired, assets are grouped and tested at the lowest level for which identifiable independent cash flows are available (“ asset group ”).

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The reversal of impairment losses is prohibited.

Financial assets

Initial recognition and measurement

The Company aggregates its financial assets into classes at the time of initial recognition based on the Company's business model and the contractual terms of the cash flows.

Non-derivative financial assets are classified and measured as “financial assets at fair value”, as either fair value through profit or loss (“FVPL”), or “financial assets at amortized cost”, as appropriate.

All financial assets are recognized initially at fair value plus, in the case of financial assets not at FVPL, directly attributable transaction costs on the trade date at which the Company becomes a party to the contractual provisions of the instrument.

Financial assets with embedded derivatives are considered in their entirety when determining their classification.

Subsequent measurement - Financial assets at amortized cost

After initial recognition, financial assets measured at amortized cost are subsequently measured at the end of each reporting period at amortized cost using the Effective Interest Rate (“EIR”) method.

Amortized cost is calculated by considering any discount or premium on acquisition and any fees or costs that are an integral part of the EIR.

In these consolidated financial statements, cash, trade and other receivables, indemnification receivables, and loans receivable are classified in this category.

Subsequent measurement - Financial assets at FVPL

Financial assets measured at FVPL include financial assets such as the Company's equity investments in other entities, and any derivative financial instrument that is not designated as a hedging instrument in a hedge relationship.

Financial assets measured at FVPL are carried at fair value in the consolidated statement of financial position with changes in fair value recognized in a separate caption in the consolidated statements of loss and comprehensive loss.

Derecognition

A financial asset is derecognized when the contractual rights to the cash flows from the asset expire, or the Company no longer retains substantially all the risks and rewards of ownership.

Impairment of financial assets

Financial assets classified subsequently as amortized cost are subject to impairment based on the expected credit losses (“ECL's”).

The Company's financial assets subject to impairment are cash, accounts receivable and notes receivable.

Accounts receivable and notes receivables are recognized initially at fair value and subsequently measured at amortized cost, less any provisions for impairment.

Impairment provisions are estimated using the ECL impairment model where any expected future credit losses are provided for, irrespective of whether a loss event has occurred at the reporting date.

Estimates of expected credit losses consider the Company's collection history by country and customer, deterioration of collection rates during the average credit period, as well as observable changes in and forecasts of future economic conditions that affect default risk.

The Company utilizes a provision matrix to estimate lifetime ECL's for accounts receivable, supplemented by specific allowance based on customer-specific data.

Changes in the allowance are recognized as bad debt expense in the consolidated statements of net loss and comprehensive loss.

When the Company determines that no recovery of the amount owed is possible, the amount is deemed irrecoverable, and the financial asset is written off.

Impairment of goodwill and indefinite life intangible assets

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ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term.

As most of the Company’s leases do not provide an implicit rate, the incremental borrowing rate is used based on the information available at commencement date in determining the present value of lease payments.

As most of the Company’s leases do not provide an implicit rate, the incremental borrowing rate is used based

on the information available at commencement date in determining the present value of lease payments.

The Company uses the implicit rate when readily determinable.

The ROU assets also include any lease payments made and excludes

lease incentives.

The ROU assets also include any lease payments made and excludes lease incentives.

The lease terms may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option.

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The Company continues to recognize the lease payments associated with these leases as expenses on a straight-line basis over the lease term.

Convertible notes

The Company accounts for its convertible notes with a cash conversion feature in accordance with ASC 470-20, Debt with Conversion and Other Options (“ ASC 470-20 ”), which requires the liability and equity components of convertible debt instruments that may be settled in cash upon conversion, including partial cash settlement, to be separately accounted for in a manner that reflects the issuer’s nonconvertible debt borrowing rate.

The initial proceeds from the sale of convertible notes are allocated between a liability component and an equity component in a manner that reflects interest expense at the rate of similar nonconvertible debt that could have been issued at such time.

Convertible debt

The Company first analyzes convertible debt with a conversion feature in accordance with ASC 470-20, Debt with Conversion and Other Options (“ ASC 470-20 ”), to determine whether the fair value option should be applied.

ASC 470-20 requires the liability and equity components of convertible debt instruments that may be settled in cash upon conversion, including partial cash settlement, to be separately accounted for in a manner that reflects the issuer’s nonconvertible debt borrowing rate.

The initial proceeds from the sale of convertible debt are allocated between a liability component and an equity component in a manner that reflects interest expense at the rate of similar nonconvertible debt that could have been issued at such time.

The equity component represents the excess initial proceeds received over the fair value of the liability component of the notes as of the date of issuance.

The resulting debt discount is amortized over the period during which the convertible notes are expected to be outstanding as additional non-cash interest expenses.

The resulting debt discount is amortized over the period during which the convertible debt are expected to be outstanding as additional non-cash interest expenses.

If the Company does not elect the fair value option, any conversion feature is then evaluated in accordance with ASC 815 to determine if the conversion option is required to be bifurcated.

ASC 815 does not require a conversion option to be bifurcated if the conversion option is indexed to the Company’s own stock and classified in stockholders’ equity in the statement of financial position.

Upon repurchase of convertible debt instruments, ASC 470-20 requires the issuer to allocate total settlement consideration, inclusive of transaction costs, amongst the liability and equity components of the instrument based on the fair value of the liability component immediately prior to repurchase.

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The remaining settlement consideration allocated to the equity component would be recognized as a reduction of additional paid-in capital in the balance sheets.

During the year ended December 31, 2023, the Company issued convertible debt (Note 15).

It was determined that the debt should be accounted for as a liability in its entirety.

Warrants held

The Company accounts for warrants held under ASC 321, Investments – Equity Securities (“ ASC 321 ”).

The scope of ASC 321 includes investments in equity securities and other ownership interests in an entity, including investments in partnerships, unincorporated joint ventures and limited liability companies.

Under ASC 321 an equity security is any security representing an ownership interest in an entity (e.g., common, preferred, other capital stock) or the right to acquire (e.g., warrants, rights, forward purchase contracts, call options) or dispose of (e.g., put options, forward sale contracts) an ownership interest in an entity at fixed or determinable prices.

ASC 321 calls for equity interests to be carried at fair value with changes in value recorded in earnings.

The Company has elected to use a black scholes valuation model to arrive at a fair value of the warrants held (Note 19), which will be remeasured at each period end with any changes in valuation being recorded in other income.

Revenue recognition

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.

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

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Retail revenues are recognized at the point of sale.

Service revenues are recognized when the service is performed.

Discounts are recorded at the time of revenue recognition.

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In determining the transaction price for the sale of goods, the Company considers the effects of variable consideration and the existence of significant financing components (if any).

(i) Variable consideration

Some contracts for the sale of goods may provide customers with a right of return, volume discount, bonuses for volume/quality achievement, or sales allowance.

In addition, the Company may provide in certain circumstances, a retrospective price reduction to a customer based primarily on inventory movement.

These items give rise to variable consideration.

The Company uses the expected value method to estimate the variable consideration because this method best predicts the amount of variable consideration to which the Company will be entitled.

The Company uses historical evidence, current information and forecasts to estimate the variable consideration.

The requirements in ASC 606 on constraining estimates of variable consideration are applied to determine the amount of variable consideration that can be included in the transaction price.

The Company reduces revenue and recognizes a contract liability equal to the amount expected to be refunded to the customer in the form of a future rebate or credit for a retrospective price reduction, representing its obligation to return the customer’s consideration.

The estimate is updated at each reporting period.

(ii) Significant financing component

The Company may receive short-term advances from its customers.

Using the practical expedient in ASC 606, the Company does not adjust the promised amount of consideration for the effects of a significant financing component if the Company expects, at contract inception, that the period between when the Company transfers a promised good to a

customer and when the customer pays for that good or service will be one year or less.

The Company has not, nor expects to receive long-term advances from customers.

(iii) Contract balance

Contract assets

A contract asset is the right to consideration in exchange for goods or services transferred to the customer.

If the Company performs by transferring goods to a customer before the customer pays consideration or before payment is due, a contract asset is recognized for the earned consideration.

Accounts receivable

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The Company recognizes the cost of sales as the associated revenues are recognized.

Advertising Costs

Advertising costs are expensed as incurred and are included in selling, general, and administrative expenses on the accompanying consolidated statements of loss and comprehensive loss and totaled $ 791,980 and $ 1,066,946 for the years ended December 31, 2023 and 2022, respectively.

Stock-based compensation

The Company measures and recognizes compensation expense for stock options and restricted stock units (RSUs) to employees and non-employees on a straight-line basis over the vesting period based on their grant date fair values.

Prior to the adoption of ASU 2018-07 on January 1, 2019, the fair value of stock options to non-employees were re-measured at each reporting date until one of either of the counterparty’s commitment to perform is established or until the performance is complete.

The Company estimates the fair value of stock options on the date of grant using the Black-Scholes option pricing model.

Determining the estimated fair value of at the grant date requires judgment in determining the appropriate valuation model and assumptions, including the fair value of subordinated voting shares on the grant date, risk-free rate, volatility rate, annual dividend yield and the expected term.

Determining the estimated fair value at the grant date requires judgment in determining the appropriate valuation model and assumptions, including the fair value of subordinated voting shares on the grant date, risk-free rate, volatility rate, annual dividend yield and the expected term.

The volatility rate is based on historical volatilities of public companies operating in a similar industry to the Company, as well as the Company’s historical volatility.

The Company estimates the fair value of RSUs to be the closing market price of the Company’s stock on the business day immediately preceding the grant date.

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 management.

For stock options granted, the exercise price at the date of grant was determined by the Board of Directors with assistance from management.

The Company does not estimate forfeiture rates when calculating compensation expense for stock options or RSUs.

2 unchanged sentences

Stock-based payment transactions with non-employees are measured at the fair value of the consideration received or the fair value of the equity instruments issued, whichever is more reliably measurable.

Where fully vested, non-forfeitable equity instruments are granted to parties other than employees in exchange for notes or financing receivable, the note or receivable is presented in additional paid-in capital on the balance sheets.

The Company uses the liability method of accounting for income taxes.

3 unchanged sentences

The Company recognizes uncertain income tax positions at the largest amount that is more likely than not to be sustained upon audit by the relevant taxing authority.

An uncertain income tax position will not be recognized if it has less than a 50% likelihood of being sustained.

An uncertain income tax position will not be recognized if it has less than a

50% likelihood of being sustained.

Changes in recognition or measurement are reflected in the period in which judgment occurs.

New accounting pronouncements not yet adopted

In October of 2021 FASB issued ASU 2021-08 Business Combinations (Topic 805):

Accounting for Contract Assets and Contract Liabilities from Contracts with Customers.

The required date of adoption is January 1, 2023, and the Company is evaluating potential future impacts on the Company’s financial statements.

Business Combinations and Dispositions

ASU 2023-07 In November 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update ("ASU") 2023-07, Improvements to Reportable Segment Disclosures (Topic 280) .

This ASU updates reportable segment disclosure requirements by requiring disclosures of significant reportable segment expenses that are regularly provided to the Chief Operating Decision Maker (“CODM”) and included within each reported measure of a segment's profit or loss.

This ASU also requires disclosure of the title and position of the individual identified as the CODM and an explanation of how the CODM uses the reported measures of a segment’s profit or loss in assessing segment performance and deciding how to allocate resources.

The ASU is effective for annual periods beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024.

Early adoption is also permitted.

This ASU will result in additional required disclosures when adopted, where applicable.

ASU 2023-09 In December 2023, the FASB issued ASU 2023-09, Improvements to Income Tax Disclosures (Topic 740) .

The ASU requires disaggregated information about a reporting entity’s effective tax rate reconciliation as well as additional information on income taxes paid.

The ASU is effective on a prospective basis for annual periods beginning after December 15, 2024.

Early adoption is also permitted for annual financial statements that have not yet been issued or made available for issuance.

Once adopted, this ASU will result in additional disclosures.

Assets Held for Sale and Dispositions

On June 23, 2023, the Company divested all the assets and liabilities of Red Barn Growers, Inc., a New Mexico nonprofit organization effectively controlled by the Company’s subsidiary company, Vireo Health of New Mexico, LLC, to 37 Management Group, Inc., a New Mexico corporation (“ 37 Management ”).

As part of this transaction, the Company is to be paid $ 1,000,000 , less cash on hand of $ 60,814 , of which $ 439,186 was paid at closing, and $ 500,000 is to be paid within one year of the close date.

The Company received $ 250,000 in December of 2023.

Consideration received was less than the net book value of the transferred assets and liabilities of $ 3,909,757 , resulting in a loss of $ 2,909,757 which was recorded in the consolidated statement of loss and comprehensive loss for the year ended December 31, 2023.

On March 31, 2022, the Company sold the rights to a 10 % royalty on future net revenues generated by High Gardens, Inc., a former subsidiary of the Company that was divested in 2020, for cash consideration of $ 236,635 .

The carrying value of the intangible royalty asset prior to disposition was $ 68,276 , resulting in a gain of $ 168,359 which was recorded in the unaudited condensed consolidated statement of loss and comprehensive loss for the year ended December 31, 2022.

On October 1, 2020, the Company reached a definitive agreement with Ayr Strategies Inc.

(“ Ayr ”) to sell all of the assets and liabilities of its affiliated company, Ohio Medical Solutions, Inc.

(“ OMS ”) for $ 1,150,000 in cash.

Assets and liabilities relating to OMS were classified as “held for sale” as of December 31, 2020.

On March 31, 2021, the sale of OMS was completed.

As part of this transaction, the Company transferred assets and liabilities with a net book value of $ 712,894 .

Consideration received exceeded OMS’s net assets at the time of sale, resulting in a gain of $ 437,106 which was recorded in the consolidated statement of loss and comprehensive loss for the year ended December 31, 2021.

On November 1, 2021, subsidiaries and an affiliate of the Company entered into a Purchase Agreement with subsidiaries and an affiliate of Copperstate Farms, LLC (“ Copperstate ”) pursuant to which the Company sold its Phoenix dispensary and cultivation licenses, dispensary inventory and equipment, dispensary lease, and all dispensary revenue-producing contracts to Copperstate (the “ Transaction ”).

On November 18, 2021, the Transaction closed.

Cash consideration received of $ 15,125,010 exceeded net assets transferred of $ 8,659,077 resulting in a gain of $ 6,465,933 which was recorded in the consolidated statement of loss and comprehensive loss for the year ended December 31, 2021.

Asset Acquisitions

Acquisition of MJ Distributing C201, LLC and MJ Distributing P132, LLC

On April 10, 2019, the Company entered into a definitive agreement to acquire 100 % of the membership interests in MJ Distributing C201, LLC and MJ Distributing P132, LLC (“ MJ Distributing ”) which currently hold licenses to cultivate and distribute, respectively, medical and adult-use cannabis in the state of Nevada.

The purpose of this acquisition was to acquire a medical marijuana license in the state of Nevada.

The acquisition was financed with cash on hand and stock.

The acquisition of MJ Distributing was completed on January 5, 2021.

As part of the closing of the acquisition the restricted cash of $ 1,592,500 was transferred to the sellers, the convertible notes in escrow were cancelled, and the Company issued 1,050,000 subordinate voting shares to the sellers.

Management determined the total consideration paid of $ 1,592,500 in restricted cash, $ 1,385,239 associated with the fair value of the subordinate voting shares issued, and

$ 28,136 of deferred acquisition costs, was equal to the fair value of the intangible asset acquired, or $ 3,005,875 .

The related operating results are included in the accompanying consolidated statements of operations, changes in shareholders’ equity, and statement of cash flows commencing from the date of acquisition.

Acquisition of the Assets of Charm City Medicus, LLC

On July 8, 2021, the Company’s subsidiary, Vireo of Charm City, LLC, signed a definitive agreement to purchase substantially all the assets of Charm City Medicus, LLC, a medical cannabis dispensary located in Baltimore, Maryland, and closed the transaction on November 19, 2021.

Consideration paid totaled $ 7,219,713 consisting of 1,459,803 subordinate voting shares with a fair value of $ 1,367,590 , a $ 2,000,000 note payable bearing an interest rate of 8 %, cash of $ 3,491,865 , an unpaid cash consideration of $ 308,294 , and transaction costs of $ 51,964 .

Consideration paid exceeded net assets acquired of $ 35,131 .

The excess consideration paid of $ 7,184,583 was equal to the fair value of the intangible asset acquired.

The carrying value of the intangible royalty asset prior to disposition was $ 68,276 , resulting in a gain of $ 168,359 which was recorded in the consolidated statement of loss and comprehensive loss for the year ended December 31, 2022.

Assets Held for Sale

As of December 31, 2022 the Company identified property, equipment, and lease assets and liabilities associated with the businesses in Maryland, Nevada, Massachusetts, and Puerto Rico with carrying amounts that are expected to be recovered principally through sale or disposal rather than through continuing use.

As of December 31, 2023, the Company identified property and equipment, deposits, and lease assets and liabilities associated with the businesses in New York, Nevada, and Massachusetts with carrying amounts that are expected to be recovered principally through sale or disposal rather than through continuing use.

The sale of these assets and liabilities is highly probable, they can be sold in their immediate condition, and the sales are expected to occur within the next twelve months.

As such, these assets and liabilities have been classified as “held for sale.” The carrying value of these net assets exceeded fair value less expected cost to sell, and as such, the Company recorded an impairment loss of $ 8,596,201 for the year ended December 31, 2022.

As such, these assets and liabilities have been classified as “held for sale.” Management does not believe these divestitures represent a strategic shift that has or will have a major effect on an entity’s operations and financial results, and as such, none of these divestitures are considered a discontinued operation.

The carrying value of New York and Nevada net assets exceeded fair value less expected cost to sell, and as such, the Company recorded no impairment loss.

The carrying value of the Massachusetts net assets was less than fair value less costs to sell, and as such, the Company recorded an impairment loss of $ 399,999 for the year ended December 31, 2023.

Additionally, the Company disposed of certain held for sale property, equipment, and leased assets for which proceeds received of $ 253,288 were less than carrying value resulting in a loss on disposal of $ 1,567,981 in the statement of loss and comprehensive loss.

Assets and liabilities held for sale are as follows:

7 unchanged sentences

Total liabilities held for sale

Current assets and liabilities held by our New York business have not been classified as held for sale.

Pre-tax operating losses attributable to the New York business were $ 13,670,439 for the year ended December 31, 2023.

Fair Value Measurements

3 unchanged sentences

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

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

Quoted prices in

active markets for

identical assets

December 31, 2022

December 31, 2021

Items measured at fair value on a non-recurring basis

The Company’s non-financial assets, such as prepayments and other current assets, long lived assets, including property and equipment, goodwill, and intangible assets, are measured at fair value when there is an indicator of impairment and are recorded at fair value only when an impairment charge is recognized.

In connection with an evaluation of such non-financial assets during the year ended December 31, 2022, the carrying values of property and equipment and intangible assets and were concluded to exceed their fair values.

In connection with an evaluation of such non-financial assets during the year ended December 31, 2023, the carrying values of property and equipment included in assets held for sale and an intangible license no longer in use were concluded to exceed their fair values.

As a result, the Company recorded impairment charges that incorporates fair value measurements.

The Company used Level 2 fair value inputs when a buyer quote was received, or similar assets had been sold recently in the market.

To the extent a market for the asset didn’t exist, or was illiquid, the Company used Level 3 fair value inputs (refer to Notes 9 & 12).

The carrying value of the Company’s accounts receivable, accounts payable, and accrued liabilities approximate their fair value due to their short-term nature, and the carrying value of notes receivable, convertible debt, and long-term debt approximates fair value as they bear a market rate of interest.

Accounts Receivable

2 unchanged sentences

Tax withholding receivable

Included in the trade receivables, net balance at December 31, 2022, and 2021, is an allowance for doubtful accounts of $ 169,699 and $ 215,606 , respectively.

Included in the tax withholding receivable, net balance at December 31, 2022 and 2021, is an allowance for doubtful accounts of $ 284,161 and $ 356,474 respectively.

Included in the trade receivables balance at December 31, 2023, and 2022, are credit losses of $ 95,686 and $ 169,699 , respectively.

Included in the tax withholding receivable, net balance at December 31, 2023 and 2022, are credit losses of $ 159,275 and $ 284,161 respectively.

Notes Receivable

As of December 31, 2023, and 2022, the Company had a total of $ 3,750,000 in notes receivable.

The balance is comprised of a $ 3,750,000 four-year note with an 8 % coupon rate payable quarterly obtained as part of a 2020 disposition.

The balance is comprised of a $ 3,750,000 four-year note due on August 10, 2024, with an 8 % coupon rate payable quarterly obtained as part of a 2020 disposition.

Inventory is comprised of the following items:

5 unchanged sentences

Finished goods

During the years ended December 31, 2022 and 2021, the Company recorded write downs to net realizable value in its Maryland and Arizona subsidiaries.

During the years ended December 31, 2023 and 2022, the Company recorded write downs to net realizable value in its New York, Maryland, and Arizona subsidiaries.

Based on the market sales price relative to the cost to produce certain inventories, these costs could not be recovered, and as a consequence net realizable value was less than carrying value of inventory.

15 unchanged sentences

For the years ended December 31, 2023 and 2022, total depreciation on property and equipment was $ 2,874,043 and $ 3,335,895 , respectively.

For the year ended December 31, 2022 and 2021, accumulated amortization of the right of use asset amounted to $ 3,392,377 and $ 2,513,223 , respectively.

For the years ended December 31, 2023 and 2022, accumulated amortization of the right of use asset amounted to $ 2,364,557 and $ 3,392,377 , respectively.

For the years ended December 31, 2023 and 2022, the right of use asset under finance lease of $ 7,938,138 and $ 69,892,379 , respectively, consists of leased processing and cultivation premises, and leased equipment.

1 unchanged sentence

The Company capitalized into inventory $ 2,404,095 and $ 2,682,818 relating to depreciation associated with manufacturing equipment and production facilities as of December 31, 2023 and 2022, respectively.

The capitalized depreciation costs associated are added to inventory and expensed through Cost of Sales Product Cost on the consolidated statements of net loss.

As of December 31, 2022, in conjunction with the Company’s held for sale assessment and disposal of certain long-term assets, the Company evaluated whether property and equipment showed any indicators of impairment, and it was determined that the recoverable amount of certain net assets was below book value.

The capitalized depreciation costs associated are added to inventory and expensed through Cost of Sales Product Cost on the consolidated statements of net loss and comprehensive loss.

As of December 31, 2023, the Company evaluated whether property and equipment showed any indicators of impairment, and it was determined that the recoverable amount of certain net assets was above book value.

As a result, the Company recorded an impairment charge of $ 0 (2022 - $ 8,596,201 ) on property and equipment, net.

Cash proceeds received during the year ended December 31, 2022, for disposed assets was $ 395,458 .

Components of lease expenses are listed below:

17 unchanged sentences

( 85,111,503 )

( 88,326,323 )

Present value of lease liability

The Company has entered into various lease agreements for the use of buildings used in production and retail and wholesale sales of cannabis products.

On November 1, 2023, the Company notified its landlord in Puerto Rico that it was surrendering the premises.

As such, the Company disposed of the held for sale assets affiliated with the Puerto Rico lease and recorded a loss on disposal of assets of $ 1,632,372 in the statement of loss and comprehensive loss for the year ended December 31, 2023.

On October 27, 2023, the Company executed a fifth amendment to its lease with its landlord on its cannabis cultivation and manufacturing facilities located in Johnstown, New York.

As part of the fifth amendment to the lease in Johnstown, the Company and its landlord have agreed to increase the tenant improvement allowance on the lease by an additional $ 14.0 million.

The increase in tenant improvement funds will be utilized to support the completion of the construction of the indoor expansion project that was announced in September 2021.

The parties have also agreed to a monthly base rental increase of $ 210,000 beginning November 2023.

The amendment also allows the Company to terminate the lease for a fee of $ 14,000,000 if written notice is provided on or before January 15, 2024, and subsequently amended to April 30, 2024.

On February 24, 2023, the Company signed the fourth amendment to the existing lease agreements for the cultivation and processing facilities in New York.

The amendment provides for additional tenant improvements of $ 4,000,000 and increases base rent by $ 50,000 a month.

On October 1, 2022, the Company terminated the existing lease agreements for the cultivation and processing facilities in Arizona.

1 unchanged sentence

This gain is included in other income on the consolidated statement of net loss and comprehensive loss for the year ended December 31, 2022.

On September 24, 2021, the Company signed a third amendment to the existing lease agreements for the cultivation and processing facilities in New York.

Under the terms of the amendment, the term of the lease was extended to September 23, 2041, and provides for additional tenant improvements up to $ 49,435,000 .

The amended agreement for the cultivation and processing facility in New York increased base rent by $ 492,625 .

This base rent increase will be phased in over the sixteen months following the amendment date.

Supplemental cash flow information related to leases

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

Lease principal payments

Lease principal payments - finance

Lease principal payments - operating

Non-cash additions to ROU assets

6 unchanged sentences

The following table shows the change in carrying amount of goodwill:

Goodwill - January 1, 2021

( 2,948,655 )

Goodwill - December 31, 2021 and 2022

Goodwill is tested for impairment annually or more frequently if indicators of impairment exist or if a decision is made to dispose of business.

The valuation date for the Company annual impairment testing is December 31.

Divestitures (Note 3)

Goodwill - December 31, 2023

Goodwill is tested for impairment annually or more frequently if indicators of impairment exist or if a decision is made to dispose of the business.

The valuation date for the Company’s annual impairment testing is December 31.

On this date, the Company performed a qualitative test to determine whether it is necessary to perform a two-step goodwill impairment test.

After assessing the totality of the events and circumstances surrounding the performance and outlook of the Company’s cash generating units with goodwill it was determined that it is more likely than not that the fair value of a reporting unit exceeds its carrying amount.

As such, the first and second steps of the goodwill impairment test are unnecessary, and no impairment charge was taken.

The Company divested Vireo Health of New Mexico, LLC, and the associated goodwill on June 23, 2023 (Note 3).

The Company has no goodwill as of December 31, 2023.

As such, no further impairment testing procedures were performed.

Intangible assets are comprised of the following items:

Licenses & Trademarks

Royalty Asset

Balance December 31, 2021

Divestitures (Note 3)

( 5,492,890 )

( 2,105,483 )

Balance, December 31, 2021

Divestitures (Note 3)

Transfer to held for sale (Note 3)

Balance, December 31, 2022

Balance, December 31, 2023

Amortization expense for intangibles was $ 728,419 and $ 676,566 during the years ending December 31, 2023 and 2022, respectively and is recorded in operating expenses on the consolidated statements of net loss and comprehensive loss.

As of December 31, 2022, the Company evaluated whether intangible assets showed any indicators of impairment, and it was determined that none exist.

As such, no impairment of intangible assets was recorded for the year ended December 31, 2022.

During the year ended December 31, 2023, the Company wrote off $ 11,630 relating to a trademark no longer in use.

No further indicators of impairment existed, and no additional impairment of intangible assets was recorded for the year ended December 31, 2023.

The Company estimates that amortization expense will be $ 819,655 per year , for the next five years.

7 unchanged sentences

Long-Term Debt

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 (Note 25).

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 %, 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 .

In connection with the Credit Facility, the Company also pays a monthly credit monitoring fee in the amount of $ 130,400 which is included in interest expense in the consolidated statements of loss and comprehensive loss for th years ended December 31, 2023 and 2022.The Credit Facility matures on March 31, 2024.

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 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 using a fair value per share of $ 0.094 and considered a deferred financing cost.

The fair value per share reflects a 22 % discount to the market price at the time of issuance to account for the four-month trading lock-up imposed on the shares.

The amendment 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.

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

Beginning of year

Note payable issued in Charm City acquisition

Principal repayments

( 2,976,362 )

Deferred financing costs

2 unchanged sentences

Amortization of deferred financing costs

Principal payments

End of period

2 unchanged sentences

As of December 31, 2023, stated maturities of long-term debt were as follows:

Convertible Debt

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 %, comprised of 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.

The following table shows a summary of the Company’s convertible debt:

Beginning of year

Deferred financing costs

( 1,346,793 )

Amortization of deferred financing costs

current portion

Total convertible debt

Stockholders’ Equity

The Company’s certificate of incorporation authorized the Company to issue the following classes of shares with the following par value and voting rights as of December 31, 2023.

Thef liquidation and dividend rights are identical among Shares equally in our earnings and losses on an as converted basis.

The liquidation and dividend rights are identical among Shares equally in our earnings and losses on an as converted basis.

Voting Rights

12 unchanged sentences

Holders of Super Voting Shares will be entitled to ten votes in respect of each Subordinate Voting Share into which such Super Voting Share could ultimately then be converted, which for greater certainty, shall initially equal one thousand votes per Super Voting Share.

Each Super Voting share shall be convertible into one hundred Subordinate Voting Share

Each Super Voting share shall be convertible into one hundred Subordinate Voting Shares.

Shares Issued

During the year ended December 31, 2023, the Company issued the 15,000,000 Subordinate Voting Shares to its senior secured lender, Chicago Atlantic Admin, LLC, an affiliate of Green Ivy Capital, and a group of lenders in connection with the fifth amendment to its Credit Facility signed on March 31, 2023 (Note 14).

During the year ended December 31, 2023, 65,411 Super Voting Shares were redeemed for 6,541,100 Subordinate Voting Shares

During the year ended December 31, 2023, 17,449 Multiple Voting Shares were redeemed for 1,744,900 Subordinate Voting Shares

During the year ended December 31, 2022, 54,078 Multiple Voting Shares were converted into 5,407,800 Subordinate Voting Shares.

1 unchanged sentence

Proceeds from these transactions were $ 7,201 .

During the year ended December 31, 2021, employee stock options were exercised for 4,289,392 Subordinate Voting Shares.

Proceeds from these transactions were $ 1,209,605 .

During the year ended December 31, 2021, 151,407 Multiple Voting Shares were converted into 15,140,700 Subordinate Voting Shares.

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

The fair value of the issued shares was recorded to stock-based compensation expense in the consolidated statements of net loss and comprehensive loss for the year ended December 31, 2021.

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

The fair value of the 889,519 subordinate voting shares issued of $ 1,441,183 was recorded as stock-based compensation expense in the consolidated statement of net loss and comprehensive loss for the year ended December 31, 2021.

The Company did not receive any proceeds in connection with the warrant exercise or issuance of shares.

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

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

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

Stock-Based Compensation

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Under the terms of the plan, a total of ten percent of the number of shares outstanding assuming conversion of all super voting and multiple voting shares to subordinate voting shares are permitted to be issued.

The exercise price for incentive stock options issued under the plan will be set by the committee but will not be less 100 % of the fair market value of the Company’s shares on the date of grant.

The exercise price for incentive stock options issued under the plan will be set by the committee but will not be less than 100 % of the fair market value of the Company’s shares on the date of grant.

Incentive stock options have a maximum term of 10 years from the date of grant.

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Weighted Average Exercise Price

Weighted Average Stock Price

Expected Life of Options (years)

Expected Annualized Volatility

Grant Fair Value

Expected Forfeiture Rate

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Weighted Avg.

Number of Shares

Number of Options

Exercise Price

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Options Exercisable at December 31, 2023

During the years ended December 31, 2022 and 2021, the Company recognized $ 2,151,972 and $ 2,945,557 in share-based compensation relating to stock options, respectively.

During the years ended December 31, 2023 and 2022, the Company recognized $ 2,365,775 and $ 2,151,972 in stock-based compensation relating to stock options, respectively.

As of December 31, 2023, the total unrecognized compensation costs related to unvested stock options awards granted was $ 525,464 .

In addition, the weighted average period over which the unrecognized compensation expense is expected to be recognized is approximately 1.5 years.

The total intrinsic value of stock options outstanding and exercisable as of December 31, 2022, was $ 0 .

In addition, the weighted average period over which the

unrecognized compensation expense is expected to be recognized is approximately 1.8 years.

The total intrinsic value of stock options outstanding and exercisable as of December 31, 2023, was $ 497,590 and $ 429,222 , respectively.

The Company does not estimate forfeiture rates when calculating compensation expense.

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Expected Annualized Volatility

Expected Forfeiture Rate

Expected Dividend Yield

SVS Warrants Denominated in C$

Risk-Free Interest Rate

Expected Life of Options (years)

Expected Annualized Volatility

Exercise Price

Grant Date Fair Value

Expected Forfeiture Rate

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Warrants outstanding at December 31, 2021

( 7,110,481 )

( 7,889,519 )

Warrants outstanding at December 31, 2022

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Warrants outstanding at December 31, 2021

Warrants outstanding at December 31, 2022

Warrants outstanding at December 31, 2022 and December 31, 2023

Warrants exercisable at December 31, 2023

During the years ended December 31, 2022 and 2021, $ 0 in share-based compensation was recorded in connection with the MVS warrants.

In connection with the closing of the convertible debt facility (Note 15), 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 .

The value of these warrants were 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.

On May 25, 2023, the Company and Grown Rogue International, Inc.

(“Grown Rogue”) entered into a strategic agreement whereby Grown Rogue will support Goodness Growth in the optimization of its cannabis flower products, with a particular focus on improving the quality and yield of top-grade “A” cannabis flower across its various operating markets, starting with Maryland and Minnesota.

As part of this strategic agreement the Company issued 10,000,000 warrants to purchase subordinate voting shares of Goodness Growth to Grown Rogue, with a strike price equal to $ 0.233 .

During the year ended December 31, 2023, $ 1,233,560 (2022 - $ 0 ) in stock-based compensation was recorded in connection with the issuance of these SVS warrants.

As of December 31, 2021, there were 150,000 SVS compensation warrants earned in connection with ongoing corporate advisory and financing services rendered, but not yet issued.

The Company recorded $ 191,026 in share-based compensation expense and accounts payable and accrued liabilities in connection with these warrants as of December 31, 2021.

The Company recorded $ 191,026 in stock-based compensation expense and accounts payable and accrued liabilities in connection with these warrants as of December 31, 2021.

These warrants were granted during the year ended December 31, 2022 and marked to their fair value of $ 2,034 on the date of grant.

The difference between the fair value of these warrants at December 31, 2021 and the grant date of $ 188,992 was recorded as contra-stock based compensation expense in the consolidated statement of loss and comprehensive loss for the year ended December 31, 2022.

The expense associated with RSUs is based on closing price of the Company’s Subordinate Voting Shares on the business day immediately preceding the grant date, adjusted for the absence of future dividends and is amortized on a straight-line basis over the periods during which the restrictions lapse.

The expense associated with RSUs is based on the closing price of the Company’s Subordinate Voting Shares on the business day immediately preceding the grant date, adjusted for the absence of future dividends and is amortized on a straight-line basis over the periods during which the restrictions lapse.

The Company currently has RSUs that vest over a three year period.

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

During the year ended December 31, 2022 the Company recognized $ 731,217 in stock-based compensation expense related to RSUs.

During the years ended December 31, 2023 and 2022, the Company recognized $ 558,263 and $ 731,217 , respectively, in stock-based compensation expense related to RSUs.

A summary of RSUs is as follows:

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Balance, December 31, 2022

Balance, December 31, 2023

Vested at December 31, 2023

Commitments and Contingencies

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The essence of the claims made by Schneyer is Vireo U.S.

paid an inadequate price for MaryMed, LLC (“ MaryMed ”), which it purchased it from Capital in 2018, and that the consideration given – shares of preferred stock in Vireo U.S.

paid an inadequate price for MaryMed, LLC

(“ MaryMed ”), which it purchased it from Capital in 2018, and that the consideration given – shares of preferred stock in Vireo U.S.

– was distributed inappropriately by Capital at the direction of Dorchester Management (the managing member of Capital).

Schneyer, who is a Class B member of Capital, is seeking unspecified damages in excess of $ 50,000 and other relief.

Schneyer, who is a Class B member of Capital, sought unspecified damages in excess of $ 50,000 and other relief.

Dorchester Management, LLC is an affiliated entity to Vireo U.S.

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and the Company.

Simultaneously with the complaint, Schneyer filed a motion seeking a temporary restraining order (“ TRO ”) to prevent the “further transfer” of MaryMed which would, Schneyer claimed, occur if Vireo U.S.’s RTO transactions were allowed to occur.

The Court held a hearing on the motion for TRO on March 5, 2019 and denied the motion on the same day.

Weeks prior to commencement of the litigation, Dorchester Management had appointed a special litigation committee (“ SLC ”) on behalf of Capital to investigate the consideration provided by Vireo U.S.

for the purchase of MaryMed and assess any potential claims Capital may have as a result of the transaction.

The SLC, a retired judge who engaged another retired judge as legal counsel to the SLC, was appointed in accordance with Minnesota law, issued a report on May 1, 2021, recommending, among other things, that certain claims be permitted to proceed (the “ Remaining Derivative Claims ”) and other claims not be permitted to proceed by the Court (the “ Rejected Derivative Claims ”).

On July 7, 2021, Schneyer filed a Second Amended Complaint asserting direct claims on behalf of himself and the Remaining Derivative Claims on behalf of Capital and some Rejected Derivative Claims on behalf of Capital.

Under Delaware law, Capital has a right to control the litigation of the Remaining Derivative Claims, the Rejected Derivative Claims, and any other derivative allegations that may be asserted on behalf of Capital.

On August 17, 2021, Management exercised this right for Capital and appointed a second independent special litigation committee (the “ Second SLC ”), a partner at an international law firm, to manage the litigation of the claims raised in Schneyer’s Second Amended Complaint.

On August 31, 2021, Capital filed a complaint at the Second SLC’s direction alleging the Remaining Derivative Claims and the Rejected Derivative Claims.

Schneyer opposed the appointment of the Second SLC.

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

The Court also ruled that the Remaining Derivative Claims should be pursued by the Second SLC.

Finally, the Court also denied Schneyer’s request to seek punitive damages.

On February 22, 2022, the Minnesota Court of Appeals denied the immediate review of the December 9, 2021 order.

On June 20,2022 the Court issued an order amending and realigning the complaint brought by Capital for the Remaining Derivative Claims.

The order also denied Vireo U.S.’ and Dorchester Management’s motion to dismiss the Remaining Derivative Claims brought by Capital.

Following this order, the litigation will proceed with Schneyer’s three direct contract claims against Vireo U.S and a direct fraud claim against Management and Vireo U.S.

on an individual basis, as well as the Remaining Derivative Claims brought by Capital.

believes that Schneyer’s claims lack merit and expects to be vindicated in the SLC process or, in the alternative, prevail in the litigation, if and when it proceeds.

However, should Vireo U.S.

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

While Vireo U.S.

continues to believe that Schneyer’s claims lack merit, it agreed to settle the litigation in April 2023 to avoid the expense, distraction and risk of the pre-trial and trial processes.

Entering into this settlement in no way changed the defendants’ position that they did nothing wrong and that the claims were baseless.

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

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

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

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

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

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

The Company believes that Verano has no factual or legal basis to justify or support its purported termination of the Arrangement Agreement, which the Company determined to treat as a repudiation of the Arrangement Agreement.

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

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

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 based upon the Company’s belief that Verano was engaging in tactics to delay the litigation.

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, which it anticipates filing within 30 days .

The damages sought will be significant and material given that Verano’s breach left the Company in a vulnerable position resulting in the Company being constrained in its ability to fund growth initiatives that were desirable and that its competitors were able to undertake, most notably in Minnesota and New York markets.

Lease commitments

The Company leases various facilities, under non-cancelable finance and operating leases, which expire at various dates through September 2041.

Other Income (Expense)

The Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”) provides an employee retention credit (“CARES Employee Retention credit”), which is a refundable tax credit against certain employment taxes of up to $5,000 per employee for eligible employers.

The tax credit is equal to 50% of qualified wages paid to employees during a quarter, capped at $10,000 of qualified wages per employee through December 31, 2020.

Additional relief provisions were passed by the United States government, which extend and slightly expand the qualified wage caps on these credits through December 31, 2021.

Based on these additional provisions, the tax credit is now equal to 70% of qualified wages paid to employees during a quarter, and the limit on qualified wages per employee has been increased to $10,000 of qualified wages per quarter.

The Company qualifies for the tax credit under the CARES Act.

During the year ended December 31, 2023, the Company recorded $ 5,855,076 (2022 - $ 0 ) related to the CARES Employee Retention credit in other income on the consolidated statement of net loss and comprehensive loss for the year ended December 31, 2023.

The Company has collected $ 5,855,076 of this credit.

On May 25, 2023, the Company and Grown Rogue entered into a strategic agreement whereby Grown Rogue will support Goodness Growth in the optimization of its cannabis flower products.

As part of this strategic agreement Grown Rogue granted the Company 8,500,000 warrants to purchase subordinate voting shares of Grown Rogue to Goodness Growth on October 5, 2023.

These warrants were recorded as other income in the consolidated statement of net loss and comprehensive loss at a fair value of $ 1,937,532 on December 31, 2023.

The fair value was derived from a black-scholes valuation using a stock price of $ 0.28 , an exercise price of $ 0.17 , an expected life of 4.77 years, an annual risk free rate of 4.68 %, and volatility of 100 %.

General and Administrative Expenses

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( 2,171,000 )

( 1,490,000 )

( 1,338,000 )

Year ended December 31,

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Stock based and other compensation

Warrant income

Change in valuation allowance

Uncertain Tax Position

Federal true up

( 14,388,074 )

State true up

( 2,123,580 )

Rate true up and other

( 3,751,473 )

Income tax expense, net

The following table summarizes the components of deferred tax:

Deferred assets

Deferred tax assets

Operating loss carryforwards - United States

Allowance for doubtful accounts

Credit losses

Inventory reserve

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Capital loss carryforward

Excess business interest expense

Share based compensation

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Related party management fee receivables

Note Receivable

Installment sale

Warrants receivable

Total deferred tax liabilities

Net deferred asset/(tax liabilities)

At December 31, 2022, the Company had United States federal net operating loss carryforwards of approximately $ 740,000 that can be carried forward indefinitely and are limited in annual use to 80 % of current year taxable income, and state net operating loss carryforwards of approximately $ 39,835,000 that can be carried forward fifteen years .

Net deferred tax asset/(tax liabilities)

At December 31, 2023, the Company had United States federal net operating loss carryforwards of approximately $ 25,400,000 that can be carried forward indefinitely and are limited in annual use to 80 % of current year taxable income,

and state net operating loss carryforwards of approximately $ 29,500,000 that can be carried forward fifteen years .

State net operating loss carryforwards begin to expire on December 31, 2034.

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Interest and penalties are recorded as a component of income tax expenses.

As of both December 31, 2022 and 2021, the Company had a cumulative balance of accrued interest and penalties on unrecognized tax positions of $ 0 .

As of both December 31, 2023 and 2022, the Company had a cumulative balance of accrued interest and penalties on unrecognized tax positions of $ 635,000 and $ 0 , respectively on the consolidated balance sheet.

The Company’s federal and state income tax returns are subject to examination by income taxing authorities, generally for three years after the returns are filed.

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The Company believes it is no longer subject to income tax examinations for fiscal periods ended prior to 2020.

The Company operates in a number of domestic tax jurisdictions and is subject to examination of its income tax returns by tax authorities in these jurisdictions who may challenge any item of those returns.

Because tax matters that may be challenged by tax authorities are typically complex, the ultimate outcome of these challenges is uncertain.

The Company accounts for uncertain tax positions by recognizing the financial statement effects of a tax position only when, based upon technical merits, it is more-likely-than-not that the position will be sustained upon examination.

The Company evaluates uncertain tax positions on a quarterly basis and adjusts the level of the liability to reflect any subsequent changes in the relevant facts surrounding the uncertain positions.

The measurement of the uncertain tax position is based on the largest benefit amount to be realized upon settlement of the matter.

If payment ultimately proves to be unnecessary, the reversal of the liabilities would result in tax benefits being recognized in the period when the Company determines the liabilities are no longer necessary.

If the Company’s estimate of tax liabilities proves to be less than the ultimate assessment, a further charge to income tax expense may result.

As of December 31, 2023, the Company recorded an uncertain tax liability for uncertain tax positions primarily related to the treatment of certain transactions and deductions under IRC Section 280E based on legal interpretations that challenge the Company’s tax liability under IRC Section 280E.

The Company and its subsidiaries are filing amended tax returns for periods ending 2020 through 2022 to reflect this position.

The Company does not expect any resolution to this uncertain tax position in the next 12 months.

An estimate of the range of the possible change cannot be made until these tax matters are further developed or resolved.

The following table shows a summary of uncertain tax positions:

Beginning Balances

Increase related to tax positions taken during a prior year

Increases related to tax positions taken during the current year

Ending Balances

Supplemental Cash Flow Information (1)

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Change in construction accrued expenses

( 1,787,111 )

Non-cash investing

Acquisition of Nevada through issuance of SVS

Acquisition of Nevada through restricted cash and deferred acquisition costs

Acquisition of Charm City through issuance of SVS

Acquisition of Charm City through issuance of note payable

Warrants issued in connection with financing activities

(1) For supplemental cash flow information related to leases, refer to Note 10.

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Credit risk is the risk of loss associated with counterparty’s inability to fulfill its payment obligations.

The Company’s credit risk is primarily attributable to cash, accounts receivable, and notes receivable.

The Company’s credit risk is primarily attributable to cash, accounts receivable, deposits, and notes receivable.

A small portion of cash is held on hand, from which management believes the risk of loss is remote.

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The Company’s approach to managing liquidity risk is to ensure that it will have sufficient liquidity to meet liabilities when due.

As of December 31, 2021, the Company’s financial liabilities consist of accounts payable and accrued liabilities, debt.

As of December 31, 2023, the Company’s financial liabilities consist of accounts payable and accrued liabilities, debt and convertible debt.

The Company manages liquidity risk by reviewing its capital requirements on an ongoing basis.

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Related Parties Transactions

As of December 31, 2022, and 2021, there were $ 1,613 and $ 98,750 , respectively, due to related parties.

For the years ended December 31, 2022, and 2021, the Company paid a related party (Bengal Impact Partners, of which a member of the Board of Directors is a managing partner) $ 120,000 and $ 30,000 , respectively, for ongoing corporate advisory services.

The Company granted 150,000 compensation warrants to Bengal Impact Partners for ongoing corporate advisory services (Note 16).

Certain directors and officers of the Company (Kyle Kingsley, Amber Shimpa, and Stephen Dahmer) owned OMS which was controlled by the Company through a management agreement.

OMS was sold on March 31, 2021 (Note 3).

None of the proceeds received from this transaction were paid to the aforementioned directors and officers, rather, they were owed and paid to the Company

As of December 31, 2023, and 2022, there was $ 121,846 and $ 1,613 , respectively, due to related parties.

For the years ended December 31, 2023, and 2022, the Company paid a related party (Bengal Impact Partners, of which Joshua Rosen, who is the Company’s Chief Executive Officer, Interim Chief Financial Officer, and a member of the Company’s Board of Directors, is a managing partner) $ 1,613 and $ 120,000 , respectively, for ongoing corporate advisory services.

In 2022 the Company granted 150,000 compensation warrants to Bengal Impact Partners for ongoing corporate advisory services (Note 16).

Subsequent Events

In January of 2023 the Company granted 7,461,109 stock options to employees with a weighted average exercise price of $ 0.16 .

On February 24, 2023, the Company signed the fourth amendment to the existing lease agreements for the cultivation and processing facilities in New York.

The amendment provides for additional tenant improvements of $ 4,000,000 and increases base rent by $ 50,000 a month.

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.

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, and the commitment to enter into a $ 10,000,000 convertible note by April 30, 2023.

As conditions of the financing activities described above, the Company also agreed to make certain corporate governance changes.

Chelsea Grayson and Amber Shimpa agreed to resign from the Company’s Board of Directors, effective immediately.

The resignations of Ms.

Grayson and Ms.

Shimpa resulted in a reduction in the number of current members of the Company’s Board to five .

Furthermore, Executive Chairman Dr.

Kyle Kingsley has agreed to convert his 65,411 Super Voting Shares of Goodness Growth into 6,541,100 Subordinate Voting Shares of Goodness Growth.

Following the conversions, there will be no Goodness Growth Super Voting Shares issued and outstanding, which will have the effect of retiring the enhanced voting rights of the Company’s class of Super Voting Shares.

On February 22, 2024, the Company executed a lease with its landlord on a site for cannabis cultivation and manufacturing facilities.

Per the terms of the lease the landlord agreed to provide the Company with $ 2,000,000 of tenant improvement allowances.

Rent payments will not commence until January 1, 2025, at which time monthly base rent will be $ 82,500 .

Starting January 1, 2025, the Company has the option to purchase the property.

The initial purchase price is $ 13,000,000 increasing by 3 % at the start of each calendar year until the option expires on December 31, 2028.

The lease expires on December 31, 2034.

On March 25, 2024, the Company paid off $ 1,050,000 in principal of it’s outstanding notes payable (Note 14).

This note was due on December 31, 2023, and has no remaining outstanding balance.

On April 1, 2024, the Company executed a eighth amendment to its lease with its landlord on its cannabis cultivation and manufacturing facilities located in Johnstown, New York.

As part of the eighth amendment to the lease in Johnstown, the Company extended it’s option to terminate the lease.

Written notice of termination now needs to be provided by June 15, 2024.

Additionally, the Company has a purchase option to buy the premises for $ 81,000,000 .

The purchase option extends through March 27, 2026, and the purchase price increases 3 % every six months.

On April 1, 2024, ACE Ventures, LLC (“Ace”), a minority-owned business partnership in the State of New York, and the Company executed a binding term sheet whereby Ace plans to acquire the Company’s subsidiary, Vireo Health of New York (“VireoNY”), pending the satisfaction of closing conditions, including secured capital commitments and regulatory approval.

Terms of the transaction include a purchase price between $ 3.0 and $ 5.0 million for Vireo Health of New York’s licenses, inventory and assets, as well as either Ace’s assumption of the lease agreement with Innovative Industrial Properties (“IIP”) for the Johnstown, NY cannabis cultivation and manufacturing campus or Ace’s acquisition of this campus.

Ace has agreed to take financial responsibility for VireoNY’s operations, including its operating losses, beginning on April 1, 2024.

These activities are expected to be supported initially by a $ 2.5 million unsecured loan from the Company to VireoNY.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

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 8. Financial Statements and Supplementary Data