What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-11-13 compared with 2024-08-06 · 74 added, 68 removed, 148 unchanged (49% of the section changed)

22 unchanged sentences

The Company may not be successful in these efforts.

Three months ended June 30, 2024, Compared to Three months ended June 30, 2023

Three months ended September 30, 2024, Compared to Three months ended September 30, 2023

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

For the three months ended June 30, 2024, 83% of our revenue was generated from retail dispensaries and 17% from the wholesale business.

For the three months ended June 30, 2023, 85% of our revenue was generated from retail business and 15% from wholesale business.

For the three months ended June 30, 2024, Minnesota operations contributed approximately 49% of revenues, New York contributed 10%, and Maryland contributed 41%.

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

Revenue for the three months ended June 30, 2024, was $25,108,247, an increase of $4,911,691 or 24% compared to revenue of $20,196,556 for the three-months ended June 30, 2023.

The increase is primarily attributable to increased revenue contributions from the Maryland business driven by the commencement of adult-use sales on July 1, 2023, partially offset by the decrease in New Mexico revenues, which was divested in June of 2023.

Retail revenue for the three months ended June 30, 2024, was $20,819,019 an increase of $3,675,920 or 21% compared to retail revenue of $17,143,099 for the three months ended June 30, 2023, primarily due to increased revenue contributions from the Maryland business driven by the commencement of adult-use sales on July 1, 2023, partially offset by the decrease in New Mexico revenues, which was divested in June of 2023.

Wholesale revenue for the three months ended June 30, 2024, was $4,289,228, an increase of $1,235,771 compared to wholesale revenue of $3,053,457 for the three months ended June 30, 2023.

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

For the three months ended September 30, 2024, 78% of our revenue was generated from retail dispensaries and 22% from the wholesale business.

For the three months ended September 30, 2023, 82% of our revenue was generated from retail business and 18% from wholesale business.

For the three months ended September 30, 2024, Minnesota operations contributed approximately 46% of revenues, New York contributed 11%, and Maryland contributed 43%.

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

Revenue for the three months ended September 30, 2024, was $25,165,343, an increase of $490,198 or 2% compared to revenue of $24,675,145 for the three-months ended September 30, 2023.

The increase is primarily attributable to increased revenue contributions from the Maryland business driven by the ramp up in adult-use sales, which commenced on July 1, 2023, partially offset by the decrease in New York revenues.

Retail revenue for the three months ended September 30, 2024, was $19,740,787 a decrease of $406,287 or 2% compared to retail revenue of $20,147,074 for the three months ended September 30, 2023, primarily due to decreased revenue contributions from the New York business.

Wholesale revenue for the three months ended September 30, 2024, was $5,424,556, an increase of $896,485 compared to wholesale revenue of $4,528,071 for the three months ended September 30, 2023.

The increase was primarily due to increased revenue contributions from the Maryland business driven by the ramp up in adult-use sales, which commenced on July 1, 2023.

Three Months Ended

September 30,

Total Wholesale

Total Revenue

Total Revenue excluding NY and NM

Not Meaningful

Total Revenue excluding NY

Cost of Sales and Gross Profit

1 unchanged sentence

Cost of sales represents the costs attributable to producing bulk materials and finished goods, which includes direct materials, labor, and certain indirect costs such as depreciation, insurance, utilities and valuation adjustments.

Cannabis costs are affected by various state regulations that limit the sourcing and procurement of cannabis product, which may create fluctuations in gross profit over comparative periods as the regulatory environment changes.

Cannabis costs are affected by various state regulations that limit the

sourcing and procurement of cannabis product, which may create fluctuations in gross profit over comparative periods as the regulatory environment changes.

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

Cost of sales for the three months ended June 30, 2024, was $11,557,604, an increase of $692,344 compared to the three months ended June 30, 2023, of $10,865,260.

Gross profit for the three months ended June 30, 2024, was $13,550,643, representing a gross margin of 54%.

This is compared to gross profit for the three months ended June 30, 2023, of $9,331,296 or a 46% gross margin.

The increase was primarily attributable to increased profit and margin contributions in Maryland driven by the commencement of Maryland adult-use sales on July 1, 2023.

Cost of sales for the three months ended September 30, 2024, was $12,841,373, an increase of $1,363,616 compared to the three months ended September 30, 2023, of $11,477,757.

Gross profit for the three months ended September 30, 2024, was $12,323,970, representing a gross margin of 49%.

This is compared to gross profit for the three months ended September 30, 2023, of $13,197,388 or a 53% gross margin.

The decrease was primarily attributable to sales pricing compression in Minnesota and Maryland, and a greater mix of wholesale sales during the three months ended September 30, 2024, relative to the three months ended September 30, 2023.

We believe our current production capacity has not been fully realized and we expect future operations to benefit from increased revenue growth reflective of higher demand, increased product output and new product development.

8 unchanged sentences

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

Total expenses for the three months ended June 30, 2024, were $7,756,621 a decrease of $2,616,719 compared to total expenses of $10,373,340 for the three months ended June 30, 2023.

The decrease in total expenses is primarily attributable to a decrease in stock-based compensation expense.

Total expenses for the three months ended September 30, 2024, were $8,472,523 an increase of $1,146,629 compared to total expenses of $7,325,894 for the three months ended September 30, 2024.

The increase in total expenses is primarily attributable to a increase in stock-based compensation expense driven by the issuance restricted stock unit and option grants during the three months ended September 30, 2024.

Operating Income before Other Income (Expense) and Income Taxes

Operating income before other income (expense) and provision for income taxes for the three months ended June 30, 2024, was $5,794,022 an increase of $6,836,066 compared to operating loss of $1,042,044 for the three months ended June 30, 2023.

Operating income before other income (expense) and provision for income taxes for the three months ended September 30, 2024, was $3,851,447 a decrease of $2,020,047 compared to $5,871,494 for the three months ended September 30, 2023.

Total Other Expense

Total other expense for the three months ended June 30, 2024, was $6,022,433, an increase of $1,328,093 compared to other expense of $4,694,340 for the three months ended June 30, 2023.

This change is primarily attributable to an increased interest expenses partially offset by the gain on warrants held of $1,602,412 .

Total other expense for the three months ended September 30, 2024, was $6,392,805, a decrease of $1,227,715 compared to other expense of $7,620,520 for the three months ended September 30, 2023.

This change is primarily attributable to increased other income driven by the increasing value of the warrants we hold in Grown Rogue.

Provision for Income Taxes

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

For the three months ended June 30, 2024, tax expense totaled $440,000 compared to tax expense of $1,592,871 for the three months ended June 30, 2023.

Six months ended June 30, 2024, Compared to six months ended June 30, 2023

For the three months ended September 30, 2024, tax expense totaled $2,385,000 compared to tax expense of $3,480,000 for the three months ended September 30, 2023.

Nine months ended September 30, 2024, Compared to nine months ended September 30, 2023

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

For the six months ended June 30, 2024, 82% of our revenue was generated from retail dispensaries and 18% from the wholesale business.

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

For the six months ended June 30, 2024, Minnesota operations contributed approximately 48% of revenues, New York contributed 11%, and Maryland contributed 41%.

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

Revenue for the six months ended June 30, 2024, was $49,195,562, an increase of $9,910,852 or 25% compared to revenue of $39,284,980 for the six months ended June 30, 2023.

The increase is primarily attributable to increased revenue

contributions from the Maryland business driven by the commencement of adult-use sales on July 1, 2023, partially offset by the decrease in New Mexico revenues, which was divested in June of 2023.

Retail revenue for the six months ended June 30, 2024, was $40,418,459 an increase of $6,803,560 or 20% compared to retail revenue of $33,614,899 for the six months ended June 30, 2023, primarily due to increased revenue contributions from the Maryland business driven by the commencement of adult-use sales on July 1, 2023, partially offset by the decrease in New Mexico revenues, which was divested in June of 2023.

Wholesale revenue for the six months ended June 30, 2024, was $8,777,103, an increase of $3,107,022 compared to wholesale revenue of $5,670,081 for the six months ended June 30, 2023.

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

Six Months Ended

For the nine months ended September 30, 2024, 81% of our revenue was generated from retail dispensaries and 19% from the wholesale business.

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

For the nine months ended September 30, 2024, Minnesota operations contributed approximately 48% of revenues, New York contributed 11%, and Maryland contributed 41%.

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

Revenue for the nine months ended September 30, 2024, was $74,360,905, an increase of $10,400,780 or 16% compared to revenue of $63,960,125 for the nine months ended September 30, 2023.

Retail revenue for the nine months ended September 30, 2024, was $60,159,246 an increase of $6,397,273 or 12% compared to retail revenue of $53,761,973 for the nine months ended September 30, 2023, primarily due to increased revenue contributions from the Maryland business driven by the commencement of adult-use sales on July 1, 2023, partially offset by the decrease in New Mexico revenues, which was divested in June of 2023.

Wholesale revenue for the nine months ended September 30, 2024, was $14,201,659 an increase of $4,003,507 compared to wholesale revenue of $10,198,152 for the nine months ended September 30, 2023.

The increase was primarily due to

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

Nine Months Ended

September 30,

Total Wholesale

Total Revenue

Total Revenue excluding NM and AZ

Total Revenue excluding NY and NM

Cost of Sales and Gross Profit

Cost of sales for the six months ended June 30, 2024, was $23,400,492, an increase of $2,967,021 compared to the six months ended June 30, 2023, of $20,433,471.

Gross profit for the six months ended June 30, 2024, was $25,795,070, representing a gross margin of 52%.

This is compared to gross profit for the six months ended June 30, 2023, of $18,851,509 or a 48% gross margin.

The increase was primarily attributable to increased profit and margin contributions in Maryland driven by the commencement of Maryland adult-use sales on July 1, 2023.

Cost of sales for the nine months ended September 30, 2024, was $36,241,865, an increase of $4,330,636 compared to the nine months ended September 30, 2023, of $31,911,229.

Gross profit for the nine months ended September 30, 2024, was $38,119,040, representing a gross margin of 51%.

This is compared to gross profit for the nine months ended September 30, 2023, of $32,048,896 or a 50% gross margin.

The lack of New Mexico operations, which carried a lower margin, in 2024 is the primary driver of the small increase in margin.

Total Expenses

Total expenses for the six months ended June 30, 2024, were $15,241,603 a decrease of $4,283,442 compared to total expenses of $19,525,045 for the six months ended June 30, 2023.

Total expenses for the nine months ended September 30, 2024, were $23,714,126 a decrease of $3,136,814 compared to total expenses of $26,850,940 for the nine months ended September 30, 2023.

The decrease in total expenses is primarily attributable to a decrease in salaries and wages and stock-based compensation expense.

Operating Income before Other Income (Expense) and Income Taxes

Operating income before other income (expense) and provision for income taxes for the six months ended June 30, 2024, was $10,553,467 an increase of $11,227,003 compared to operating loss of $673,536 for the six months ended June 30, 2023.

Operating income before other income (expense) and provision for income taxes for the nine months ended September 30, 2024, was $14,404,914 an increase of $9,206,958 compared to $5,197,956 for the nine months ended September 30, 2023.

Total Other Expense

Total other expense for the six months ended June 30, 2024, was $13,548,337, an increase of $1,741,520 compared to other expense of $11,806,817 for the six months ended June 30, 2023.

This change is primarily attributable to an increased interest expenses.

Total other expense for the nine months ended September 30, 2024, was $19,941,142, an increase of $513,805 compared to other expense of $19,427,337 for the nine months ended September 30, 2023.

This change is primarily attributable to increased interest expenses.

Provision for Income Taxes

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

For the six months ended June 30, 2024, tax expense totaled $4,385,000 compared to tax expense of $3,254,871 for the six months ended June 30, 2023.

For the nine months ended September 30, 2024, tax expense totaled $6,770,000 compared to tax expense of $6,734,871 for the nine months ended September 30, 2023.

NON-GAAP MEASURES

7 unchanged sentences

Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

Net income (loss)

12 unchanged sentences

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 repaid the note in full during the six months ended June 30, 2024.

The Company repaid the note in full during the nine months ended September 30, 2024.

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.

6 unchanged sentences

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

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 the six months ended June 30, 2024 and 2023.

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 a maturity date of November 29, 2024.

10 unchanged sentences

On April 30, 2024, the Company executed a short-term extension of the maturity date on the Credit Facility with the Agent.

The Credit Facility was extended until June 14, 2024, with no change to any other terms of the existing agreement.

On June 14, 2024, another short-term extension was executed which extended the maturity date on the Credit Facility to July 31, 2024, also with no change to any other terms of the existing agreement.

On May 21, 2024, the Company executed a $1,200,000 term loan with the Agent to assist with the purchase of a site for a new dispensary location.

The loan bears interest at a rate of 12.0% per annum and is due on May 28, 2027.

Financing costs of $68,600 were incurred in connection with the closing of the loan.

The Credit Facility was extended until June 14, 2024, matching all other terms of the existing agreement.

On June 14, 2024, another short-term extension was executed which extended the maturity date on the Credit Facility to July 31, 2024, matching all other terms of the existing agreement.

On July 31, 2024, the Company executed a ninth amendment to the Company’s Credit Facility.

The ninth amendment to the Credit Facility extends the maturity date on the credit facility loans to January 29, 2027, adjusts and extends the deadline with respect to the Company’s ongoing disposition of its New York operations through July 31, 2025, and amends certain financial measure definitions and covenants within the agreement.

The Company issued 12,500,000 Subordinate Voting Shares to the lenders in consideration for the credit facility amendment.

These 15,000,000 shares were valued at $5,387,500 using a fair value per share of $0.431 and considered a deferred financing cost.

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.

As of June 30, 2024, $66,694 (December 31, 2023 - $1,524,531) of deferred financing costs remain unamortized.

As of September 30, 2024, $5,089,311 (December 31, 2023 - $1,524,531) of deferred financing costs remain unamortized.

Convertible Notes

2 unchanged sentences

The initial tranche's principal amount of Convertible Notes outstanding in the amount of $2,000,000, plus all PIK 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 PIK 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 CSE.

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

6 unchanged sentences

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 June 30, 2024 $851,477 (December 31, 2023 - $1,083,697) of deferred financing costs remain unamortized.

As of September 30, 2024, $0 (December 31, 2023 - $1,083,697) of deferred financing costs remain unamortized.

On July 31, 2024, the holders voluntarily converted all outstanding convertible notes into 73,016,061 Subordinate Voting Shares of the Company.

Cash Used in Operating Activities

Net cash used in operating activities was $1.2 million for the six months ended June 30, 2024, a decrease of $1.0 million as compared to $2.2 million for the six months ended June 30, 2023.

The decrease is primarily attributed to increased gross profit.

Net cash used in operating activities was $0.2 million for the nine months ended September 30, 2024, a decrease of $3.8 million as compared to $0.5 million for the nine months ended September 30, 2023.

The increase is primarily attributed to less favorable changes in working capital, and reduced proceeds received from the Cares Employee Retention Credit in 2024 relative to 2023.

Cash Used in Investing Activities

Net cash used in investing activities was $4.2 million for the six months ended June 30, 2024, an increase of $2.0 million compared to net cash used in investing activities of $2.2 million for the six months ended June 30, 2023.

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

Net cash used in investing activities was $5.5 million for the nine months ended September 30, 2024, an increase of $2.2 million compared to net cash used in investing activities of $3.3 million for the nine months ended September 30, 2023.

The increase is primarily attributable to increased property, plant, and equipment additions relative to the prior year.

Cash Used in Financing Activities

Net cash provided by financing activities was $0.7 million for the six months ended June 30, 2024, a change of $0.2 million as compared to $0.5 million provided by financing activities in the six months ended June 30, 2023.

The change was principally due to the issuance of shares during the six months ended June 30, 2024.

Net cash provided by financing activities was $0.6 million for the nine months ended September 30, 2024, a change of $1.4 million as compared to $2.0 million provided by financing activities in the nine months ended September 30, 2023.

The change was principally due to the issuance of convertible during the nine months ended September 30, 2024.

Lease Transactions

As of June 30, 2024, we have entered into lease agreements for the use of buildings used in cultivation, production and/or sales of cannabis products in Maryland, Minnesota, and New York.

As of September 30, 2024, we have entered into lease agreements for the use of buildings used in cultivation, production and/or sales of cannabis products in Maryland, Minnesota, and New York.

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

1 unchanged sentence

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

As of June 30, 2024, we operated 14 retail locations secured under these agreements.

As of September 30, 2024, we operated 14 retail locations secured under these agreements.

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

3 unchanged sentences

Finance Leases

June 30, 2024

September 30, 2024

Total minimum lease payments

6 unchanged sentences

Outstanding Share Data

As of July 31, 2024, we had 114,905,722 shares issued and outstanding, consisting of the following:

As of November 11, 2024, we had 200,762,510 shares issued and outstanding, consisting of the following:

(a) Subordinate Voting Shares

9 unchanged sentences

Options, Warrants, and Convertible Promissory Notes

As of June 30, 2024, we had 29,843,198 employee stock options outstanding, 2,500,916 RSUs outstanding, 3,037,649 Subordinate Voting Share compensation warrants denominated in C$ related to financing activities, and 16,200,000 Subordinate Voting Share compensation warrants outstanding.

As of September 30, 2024, we had 31,440,328 employee stock options outstanding, 4,107,749 RSUs outstanding, 3,037,649 Subordinate Voting Share compensation warrants denominated in C$ related to financing activities, and 16,096,873 Subordinate Voting Share compensation warrants outstanding.

Off-Balance Sheet Arrangements

5 unchanged sentences

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis