What changed in this filing

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Item 2. Management’s Discussion and Analysis

2025-05-09 compared with 2024-11-13 · 70 added, 96 removed, 126 unchanged (57% of the section changed)

16 unchanged sentences

With our core operations strategically located in three limited-license markets through our state-licensed subsidiaries, we cultivate and manufacture cannabis products and distribute these products through our growing network of Green Goods ® and other retail dispensaries we own or operate as well as to third-party dispensaries in the markets in which our subsidiaries hold operating licenses.

The termination of the Arrangement Agreement with Verano (as more fully described in Note 17 – Commitments and Contingencies – of our notes to our consolidated financial statement contained herein) gives rise to substantial doubt about the Company’s ability to continue as a going concern.

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

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

The accompanying consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business.

However, the Company’s continuance as going concern is dependent on its future profitability and implementation of the aforementioned plan.

The Company may not be successful in these efforts.

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

Operating Segment

We report our operating results in one business segment:

the cultivation, production, and sale of cannabis.

We cultivate, manufacture, and distribute cannabis products to third parties in wholesale markets and cultivate, manufacture, and sell cannabis products directly to approved patients and adult-use-customers in our owned or operated retail stores.

During the three months ended March 31, 2025, the Company had operating revenue in three states:

Maryland, Minnesota, and New York.

Retail revenues during the three months ended March 31, 2025 were derived from sales in 14 dispensaries throughout these three states.

We had eight operational dispensaries in Minnesota, four in New York, and two in Maryland.

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

Merger Agreements with Deep Roots, Proper and Wholesome

On December 18, 2024, we entered into the Merger Agreements with respect the Mergers.

Each Merger is an all-share transaction whereby, at the closing of each applicable transaction, (i) a new wholly-owned subsidiary of the

Company would merge with and into Deep Roots, (ii) a new wholly-owned subsidiary of the Company would merge with and into Wholesome, and (ii) the Proper entities would each merge with and into new wholly-owned subsidiaries of the Company.

None of the Deep Roots Merger, the Proper Mergers or the Wholesome Merger is contingent on the completion of any of the other Mergers.

Three months ended March 31, 2025, Compared to Three months ended March 31, 2024

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 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.

For the three months ended March 31, 2025, 78% of our revenue was generated from retail dispensaries and 22% from the wholesale business.

For the three months ended March 31, 2024, 81% of our revenue was generated from retail business and 19% from wholesale business.

For the three months ended March 31, 2025, Minnesota operations contributed approximately 47% of revenues, New York contributed 9%, and Maryland contributed 44%.

For the three months ended March 31, 2024, Minnesota operations contributed approximately 46% of revenues, New York contributed 12%, and Maryland contributed 42%.

Revenue for the three months ended March 31, 2025, was $24,540,641, an increase of $453,326 or 2% compared to revenue of $24,087,315 for the three-months ended March 31, 2024.

The increase is primarily attributable to increased revenue contributions from the Maryland wholesale business partially offset by the decrease in New York revenues.

Retail revenue for the three months ended March 31, 2025, was $19,233,641 a decrease of $365,799 or 2% compared to retail revenue of $19,599,440 for the three months ended March 31, 2024, primarily due to decreased revenue contributions from the New York business.

Wholesale revenue for the three months ended March 31, 2025, was $5,307,000, an increase of $819,125 compared to wholesale revenue of $4,487,875 for the three months ended March 31, 2024.

The increase was primarily due to increased revenue contributions from the Maryland business.

Three Months Ended

September 30,

Total Wholesale

4 unchanged sentences

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 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.

Cost of sales for the three months ended March 31, 2025, was $12,128,329, an increase of $285,441 compared to the three months ended March 31, 2024, of $11,842,888.

Gross profit for the three months ended March 31, 2025, was $12,412,312, representing a gross margin of 51%.

This is compared to gross profit for the three months ended March 31, 2024, of $12,244,427 or a 51% gross margin.

The increase in gross profit was driven by an increase in sales holding flat margins.

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 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.

Total expenses for the three months ended March 31, 2025, were $10,436,623 an increase of $2,951,640 compared to total expenses of $7,484,983 for the three months ended March 31, 2024.

The increase in total expenses is primarily attributable to a increase in stock-based compensation expense and transaction costs associated with the Merger transactions.

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 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.

Operating income before other income (expense) and provision for income taxes for the three months ended March 31, 2025, was $1,975,689 a decrease of $2,783,755 compared to $4,759,444 for the three months ended March 31, 2024.

Total Other Expense

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.

Total other expense for the three months ended March 31, 2025, was $6,809,479, a decrease of $716,425 compared to other expense of $7,525,904 for the three months ended March 31, 2024.

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

1 unchanged sentence

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

For the 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 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.

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 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 NY and NM

Cost of Sales and Gross Profit

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 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 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 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 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.

For the three months ended March 31, 2025, tax expense totaled $1,675,000 compared to tax expense of $3,945,000 for the three months ended March 31, 2024.

NON-GAAP MEASURES

7 unchanged sentences

Three Months Ended

Nine Months Ended

September 30,

Net income (loss)

3 unchanged sentences

EBITDA (non-GAAP)

Inventory adjustment

Grown Rogue termination fee included in cost of goods sold

Stock-based compensation

Transaction related expenses

Severance expense

Loss on disposal of assets

Adjusted EBITDA (non-GAAP)

Liquidity, Financing Activities During the Period, and Capital Resources

1 unchanged sentence

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

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

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

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

3 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 nine months ended September 30, 2024.

The Company paid the note off in full during the year ended December 31, 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.

2 unchanged sentences

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 November 27, 2024, the Company and lender executed the second amendment to the note.

Per the terms of the amendment, the maturity date was extended, the interest rate was increased to 18 %, and the Company repaid $ 100,000 in principal.

The remaining principal balance of $ 900,000 was repaid in full during the three months ended March 31, 2025.

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.

1 unchanged sentence

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 nine months ended September 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.

12 unchanged sentences

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 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 an interest rate of 12.0% and is due on May 28, 2027.

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

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 ninth amendment to the Company’s 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.

1 unchanged sentence

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

As of March 31, 2025, $5,704,752 (December 31, 2024 - $6,576,985) of deferred financing costs remain unamortized.

Convertible Notes

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

The convertible facility has a term of three years, with an annual interest rate of 12.0%, comprised of 6.0% cash and 6.0% PIK.

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 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 PIK 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.

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

On July 31, 2024, the holders voluntarily converted convertible notes issued in 2023 into 73,016,061 Subordinate Voting Shares of the Company.

On November 1, 2024, the Company entered into a Joinder and Tenth Amendment to Credit Agreement.

The Tenth Amendment provides a convertible note facility (the “New Convertible Notes”) with a maximum principal amount of $10,000,000.

The New Convertible Notes mature November 1, 2027, have a cash interest rate of 12.0 percent per year, are convertible into that number of the Company’s subordinate voting shares determined by dividing the outstanding principal amount plus all accrued but unpaid interest on the Convertible Notes on the date of such conversion by a conversion price of $0.625.

The Company incurred $145,717 in financing costs in connection with the signing of the Tenth Amendment.

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 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.

As of March 31, 2025, $125,472 (December 31, 2024 - $137,622) of deferred financing costs remain unamortized.

Cash Used in Operating Activities

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.

Net cash used in operating activities was $3.3 million for the three months ended March 31, 2025, an increase of $2.1 million as compared to $1.2 million for the three months ended March 31, 2024.

The increase is primarily attributed to less favorable changes in working capital, particularly assets held for sale, and increased transaction costs associated with the Merger transactions.

Cash Used in Investing Activities

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.

Net cash used in investing activities was $1.1 million for the three months ended March 31, 2025, an increase of $0.1 million compared to net cash used in investing activities of $1.0 million for the three months ended March 31, 2024.

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 $0.6 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.

Net cash used in financing activities was $0.9 million for the three months ended March 31, 2025, a change of $0.2 million as compared to $1.1 million used in financing activities in the three months ended March 31, 2024.

The change was principally due to decreased debt principal payments during the three months ended March 31, 2025 relative to the prior year quarter.

Lease Transactions

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.

As of March 31, 2025, 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 September 30, 2024, we operated 14 retail locations secured under these agreements.

As of March 31, 2025, 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

September 30, 2024

December 31, 2024

Total minimum lease payments

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Outstanding Share Data

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

As of May 7, 2025, we had 367,292,288 shares issued and outstanding on an as converted basis, consisting of the following:

(a) Subordinate Voting Shares

339,475,288 shares issued and outstanding.

The holders of Subordinate Voting Shares are entitled to receive dividends which may be declared from time to time and are entitled to one vote per share at all shareholder meetings.

All Subordinate Voting Shares are ranked equally with regards to the Company’s residual assets.

The holders of Subordinate Voting Shares are entitled to one vote per share at all shareholder meetings.

The Company is authorized to issue an unlimited number of no-par value Subordinate Voting Shares.

5 unchanged sentences

Options, Warrants, and Convertible Promissory Notes

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.

As of March 31, 2025, we had 30,731,300 employee stock options outstanding, 71,156,247 RSUs outstanding, 3,037,649 Subordinate Voting Share compensation warrants denominated in C$ related to financing activities, and 15,503,937 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