# TerrAscend Corp.: Form 10-Q for the period ended Jun 30, 2023

- Company: [TerrAscend Corp.](/companies/tsndf.md) (CIK 1778129)
- Form: 10-Q
- Filed: 2023-08-10
- Accepted by EDGAR: Aug 10, 2023, 16:05 ET
- Period: 2023-06-30
- Accession: 0000950170-23-041289
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1778129/000095017023041289/tsndf-20230630.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1778129/000095017023041289/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2023-06-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2023-04-01 to 2023-06-30 | $72.1m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Revenue | 6 months, 2023-01-01 to 2023-06-30 | $141.5m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Cost of revenue | 3 months, 2023-04-01 to 2023-06-30 | $35.9m | us-gaap:CostOfRevenue |
| Cost of revenue | 6 months, 2023-01-01 to 2023-06-30 | $71.4m | us-gaap:CostOfRevenue |
| Gross profit | 3 months, 2023-04-01 to 2023-06-30 | $36.2m | us-gaap:GrossProfit |
| Gross profit | 6 months, 2023-01-01 to 2023-06-30 | $70.1m | us-gaap:GrossProfit |
| Selling, general and administrative | 3 months, 2023-04-01 to 2023-06-30 | $30.5m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Selling, general and administrative | 6 months, 2023-01-01 to 2023-06-30 | $58.2m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Operating income | 3 months, 2023-04-01 to 2023-06-30 | $3.5m | us-gaap:OperatingIncomeLoss |
| Operating income | 6 months, 2023-01-01 to 2023-06-30 | $7.3m | us-gaap:OperatingIncomeLoss |
| Income tax | 3 months, 2023-04-01 to 2023-06-30 | $6.4m | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 6 months, 2023-01-01 to 2023-06-30 | $19.1m | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2023-04-01 to 2023-06-30 | −$13.5m | us-gaap:NetIncomeLoss |
| Net income | 6 months, 2023-01-01 to 2023-06-30 | −$36.2m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2023-04-01 to 2023-06-30 | −$0.05 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 6 months, 2023-01-01 to 2023-06-30 | −$0.15 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2023-04-01 to 2023-06-30 | −$0.05 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 6 months, 2023-01-01 to 2023-06-30 | −$0.15 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2023-04-01 to 2023-06-30 | 275,186,279 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 6 months, 2023-01-01 to 2023-06-30 | 271,223,233 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 6 months, 2023-01-01 to 2023-06-30 | $9.1m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 6 months, 2023-01-01 to 2023-06-30 | $4.5m | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Cash and equivalents | at 2023-06-30 | $28.9m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2023-06-30 | $106.6m | us-gaap:AssetsCurrent |
| Total assets | at 2023-06-30 | $721.7m | us-gaap:Assets |
| Current liabilities | at 2023-06-30 | $133.5m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2023-06-30 | $426.1m | us-gaap:Liabilities |
| Long-term debt | at 2023-06-30 | $208.7m | us-gaap:LongTermDebt |
| Shareholders' equity | at 2023-06-30 | $295.6m | us-gaap:StockholdersEquityIncludingPortionAttributableToNoncontrollingInterest |

## Management's discussion and analysis

As filed, 55,702 characters.

*The following discussion and analysis of TerrAscend's financial condition and results of operations should be read in conjunction with TerrAscend's unaudited interim condensed consolidated financial statements and related notes appearing elsewhere in this Quarterly Report on Form 10-Q and the audited consolidated financial information and the notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022, which was filed with the Securities and Exchange Commission, or SEC, on March 16, 2023, or the Annual Report. Some of the information contained in this discussion and analysis or set forth elsewhere in this Quarterly Report on Form 10-Q including information with respect to TerrAscend's plans and strategy for its business, includes forward-looking statements that involve risks and uncertainties. As a result of many factors, including those factors set forth under "Risk Factors" in our Annual Report, its actual results could differ materially from the results described in or implied by the "Cautionary Note Regarding Forward-Looking Statements" contained in this Quarterly Report on Form 10-Q and in the following discussion and analysis.*

*Unless otherwise noted, dollar amounts in this Item 2 are in thousands of U.S. dollars.*

This Management’s Discussion and Analysis (“MD&A”) of the financial condition and results of operations of TerrAscend is for the three and six months ended June 30, 2023 and 2022 and the accompanying notes for each respective period.

### Overview

TerrAscend is a leading North American cannabis operator with vertically integrated licensed operations in Pennsylvania, New Jersey, Michigan, Maryland and California, and is a cannabis retailer in Ontario, Canada with a majority-owned dispensary in Toronto, Ontario, Canada. TerrAscend’s cultivation and manufacturing practices yield consistent and high-quality cannabis, providing industry-leading product selection to both the medical and legal adult-use markets. Notwithstanding the fact that various states in the U.S. have implemented medical marijuana laws or that have otherwise legalized the use of cannabis, the use of cannabis remains illegal under U.S. federal law for any purpose, by way of the Controlled Substances Act of 1970.

TerrAscend operates under one operating segment, which is the cultivation, production and sale of cannabis products.

TerrAscend owns a portfolio of operating businesses and several synergistic brands including:

- Allegany Medical Marijuana Dispensary ("AMMD"), a dispensary in Cumberland, Maryland;
- Blue Ridge Wellness (“Blue Ridge”), a dispensary located in Parkville, Maryland;
- Gage Growth ("Gage"), a vertically integrated cannabis cultivator, processor and dispensary operator in Michigan;
- Herbiculture Inc ("Herbiculture"), a dispensary located in Burtonsville, Maryland;
- HMS Health, LLC (“HMS Health”) and HMS Processing, LLC (“HMS Processing” and together with HMS Health, “HMS”), a producer and seller of dried flower and oil products for the wholesale cannabis market in Maryland;
- Ilera Healthcare ("Ilera"), a vertically integrated cannabis cultivator, processor and dispensary operator in Pennsylvania;
- KISA Enterprises MI, LLC and KISA Holdings, LLC (collectively "Pinnacle"), a dispensary operator in Michigan;
- Peninsula Alternative Health ("Peninsula"), a dispensary located in Salisbury, Maryland;
- State Flower, a California-based cannabis producer operating a licensed cultivation facility in San Francisco, California;
- TerrAscend Canada (“TerrAscend Canada” or “TCI”) is a cannabis retailer in Ontario, Canada with a majority-owned dispensary in Toronto, Ontario, Canada ("Cookies Canada"). TerrAscend Canada was previously a Licensed Producer (as such term is defined in the Cannabis Act) of cannabis until TerrAscend commenced an optimization of its operations in Canada, whereby TerrAscend reduced its manufacturing footprint in order to focus on its Cookies Canada retail business, as well as monetize its intellectual property portfolio in Canada. TerrAscend ceased operations at its manufacturing facility during the three months ended December 31, 2022 and increased its ownership interest in Cookies Retail Canada Corp. to 95% of the issued and outstanding shares effective April 14, 2023;
- TerrAscend NJ, LLC (“TerrAscend NJ”), a majority owned subsidiary that operates three dispensaries in New Jersey with the ability to cultivate and process;
- The Apothecarium, consisting of retail dispensaries in California, Pennsylvania, and New Jersey;
- Valhalla Confections, a provider of premium edible products.

TerrAscend’s head office and registered office is located at 77 City Centre Drive, Suite 501 – East Tower, Mississauga, Ontario, Canada, L5B 1M5.

TerrAscend’s telephone number is 1.717.610.4165 and its website is www.terrascend.com. Information contained on or accessible through TerrAscend’s website is not a part of this Quarterly Report, and the inclusion of TerrAscend’s website address in this Quarterly Report on Form 10-Q is an inactive textual reference only.

### Recent Developments

- On May 23, 2023, the Company completed the sale of its facility located in Mississauga, Canada for CAD $19,700 with net proceeds used to pay down existing Company debt.
- On June 23, 28, and 30, 2023, the Company closed the private placements of 10,105 senior unsecured convertible debenture at a price of $1,000 per debenture for total gross proceeds of approximately $10,105. Unless repaid or converted earlier, the outstanding principal and accrued and unpaid interest on the debentures will be due and payable on the Maturity Date. Each debenture will bear interest at a rate of 9.9% per annum from the date of issuance, calculated and compounded semi-annually, and payable on the Maturity Date. Each holder may, at the option of the holder upon signing of the subscription agreement, elect to receive up to 4.95% per annum of such interest payable in cash on a semi-annual basis. Each debenture will be convertible into Common Shares, at the option of the holder, at any time or times prior to the close of business on the last business day immediately preceding the Maturity Date, at a conversion price of $2.01. Holders converting their debentures will receive accrued and unpaid interest for the period from and including the date of the last interest payment date, to and including, the date of conversion.
- On June 26, 2023, the Company closed on the Stearns Loan, a $25,000 million commercial loan with Stearns Bank, secured by the Company’s cultivation facility in Pennsylvania and its AMMD dispensary in Cumberland, Maryland. The loan carries an interest rate of prime plus 2.25% and matures on December 26, 2024. The Company is required to hold $2,500 on deposit in a restricted account. The proceeds from the loan were used to pay down the Company's higher interest rate Ilera Term Loan, thereby lowering its overall interest expense.
- On June 28, 2023, the Company completed the acquisition of Derby 1, LLC (d/b/a “Peninsula Alternative Health”), a dispensary in Maryland.
- On June 29, 2023, the Company announced that its common shares would commence trading on the TSX on July 4, 2023 under the new ticker symbol “TSND”.
- On June 30, 2023, WDB Holding PA, Inc., a subsidiary of the Company, completed the paydown of $37,000 of its senior secured term loan in Pennsylvania.
- On June 30, 2023, the Company completed the acquisition of Hempaid, LLC (d/b/a “Blue Ridge Wellness”), a dispensary in Maryland.

### Subsequent Transactions

- On July 4, 2023, the Company commenced trading of its common shares on the TSX under the new ticker symbol “TSND”. Subsequently, the ticker symbol on the OTC market was also changed to “TSNDF” effective July 6, 2023.
- On July 10, 2023, the Company completed the acquisition of Herbiculture Inc. (“Herbiculture”) a dispensary in Maryland.
- On July 28, 2023, subsequent to closing of the Stearns Loan, the Company met the criteria for $2,500 of restricted cash to be released.

### Components of Results of Operations

The following discussion sets forth certain components of our Unaudited Condensed Consolidated Statements of Comprehensive Loss as well as factors that impact those items.

### Revenue

TerrAscend generates revenue from the sale of cannabis products, brands, and services to the United States and Canadian markets. Revenues consist of wholesale and retail sales in the medical and legal adult use market across Canada and in several U.S. states where cannabis has been legalized for medical or adult use.

### Cost of sales

Cost of sales primarily consists of expenses related to providing cannabis products and services to TerrAscend's customers, including personnel-related expenses, the depreciation of property and equipment, amortization of acquired intangible assets, and other overhead costs.

### General and administrative

General and administrative ("G&A") consists primarily of personnel costs related to finance, human resources, legal, and other administrative functions. Additionally G&A expense includes professional fees to third parties, as well as marketing expenses. In addition, G&A expense includes share-based compensation on options, restricted stock units and warrants. TerrAscend expects that G&A expense will increase in absolute dollars as the business grows.

### Amortization and depreciation

Amortization and depreciation includes the amortization of intangible assets. Amortization is calculated on a straight line basis over the following terms:

|  |  |
| --- | --- |
| Brand intangibles- indefinite lives | Indefinite useful lives |
| Brand intangibles- definite lives | 3 years |
| Software | 5 years |
| Licenses | 5-30 years |
| Customer relationships | 5 years |
| Non-compete agreements | 3 years |

Depreciation of property and equipment is calculated on a straight-line basis over the estimated useful life of the asset using the following terms:

|  |  |
| --- | --- |
| Buildings and improvements | Lesser of useful life or 30 years |
| Land | Not depreciated |
| Machinery & equipment | 5-15 years |
| Office furniture & production equipment | 3-5 years |
| Right of use assets | Lease term |
| Assets in process | Not depreciated |

### Impairment of intangible assets and goodwill

Goodwill and indefinite lived intangible assets are reviewed for impairment annually and whenever there are events or changes in circumstances that indicate that the carrying amount has been impaired. TerrAscend first performs a qualitative assessment. If based on the results of a qualitative assessment it has been determined that it is more likely than not that the fair value of a reporting unit exceeds its carrying value, additional quantitative impairment test is performed which compares the carrying value of the reporting unit to its estimated fair value. If the carrying value exceeds the estimated fair value, an impairment is recorded.

Definite lived intangible assets are tested for impairment when there are indications that an asset may be impaired. When indicators of impairment exist, TerrAscend performs a quantitative impairment test which compares the carrying value of the assets for intangible assets to their estimated fair values. If the carrying value exceeds the estimated fair value, an impairment is recorded.

### (Gain) loss from revaluation of contingent consideration

As a result of some of its acquisitions, TerrAscend recognizes a contingent consideration payable, which is an obligation to transfer additional assets to the seller if future events occur. The liability is revalued at the end of each reporting period to determine its fair value. A gain or loss is recognized in the other (income) expense in the Consolidated Statements of Operations and Comprehensive Loss as a result of the revaluation.

### (Gain) loss on fair value of warrants and purchase option derivative asset

The Company's warrant liability consists of the warrant liability acquired through its Gage Acquisition, a detachable warrant liability issued through the private placement (Note 13), and a conversion option related to the convertible debenture offering (Note 12). These warrants were recorded as a warrant liability and are remeasured to fair value at the end of each reporting unit using the Black-Scholes model. A gain or loss is recognized in the other (income) expense in the Consolidated Statements of Operations and Comprehensive Loss as a result of the revaluation.

### Finance and other expenses

Finance and other expenses consists primarily of interest expense on TerrAscend's outstanding debt obligations.

### Transaction and restructuring costs

Transaction costs include costs incurred in connection with TerrAscend's acquisitions, such as expenses related to professional fees, consulting, legal and accounting. Restructuring costs are those costs associated with severance and restructuring of business units.

### Impairment of property and equipment

TerrAscend evaluates the recoverability of property and equipment whenever events or changes in circumstances indicate that the carrying value of the asset, or asset group, may not be recoverable. When TerrAscend determines that the carrying value of the long-lived asset may not be recoverable based upon the existence of one or more indicators, the assets are assessed for impairment based on the estimate of future undiscounted cash flows expected to result from the use of the asset and its eventual disposition. If the carrying value of an asset exceeds its estimated future undiscounted cash flows, an impairment loss is recorded for the excess of the asset’s carrying value over its fair value.

### Unrealized and realized foreign exchange loss

Unrealized and realized foreign exchange loss represents the loss recognized on the remeasurement of USD denominated cash and other assets recorded in the Canadian dollars functional currency at TerrAscend's Canadian operations.

### Unrealized and realized gain on investments

TerrAscend accounts for its investment in equity securities without readily determinable fair values using a valuation technique which maximizes the use of relevant observable inputs, with subsequent holding changes in fair value recognized in unrealized gain or loss on investments in the consolidated statement of loss.

### Provision for income taxes

Provision for income taxes consists of U.S. federal and state income taxes in certain jurisdictions in which TerrAscend conducts business.

### Results from Operations- Three Months Ended June 30, 2023 and June 30, 2022

The following tables represent the Company’s results from operations for the six months ended June 30, 2023 and 2022.

### Revenue, net

|  | For the Three Months Ended June 30, 2023 | June 30, 2022 |
| --- | ---: | ---: |
| Revenue | $72,437 | $64,221 |
| Excise and cultivation taxes | (313) | (261) |
| **Revenue, net** | **$72,124** | **$63,960** |
| $ change | $8,164 |  |
| % change | 13% |  |

Revenue increased from $63,960 to $72,124 driven by growth in retail offset by a decline in wholesale. Retail revenue increased from $47,979 during the three months ended June 30, 2022 to $58,254 during the three months ended June 30, 2023. The increase is primarily a result of adult use coming online in New Jersey in April 2022 and the acquisition of AMMD in Maryland in January 2023. The increase in retail revenue is partially offset by a $2,111 decrease in wholesale revenue related to declines in wholesale in the Pennsylvania market offset by growth in the wholesale market in New Jersey related to adult use sales in the state.

### Cost of Sales

|  | For the Three Months Ended June 30, 2023 | June 30, 2022 |
| --- | ---: | ---: |
| Cost of sales | $34,817 | $32,587 |
| Impairment and write downs of inventory | 1,081 | 7,422 |
| **Total cost of sales** | **$35,898** | **$40,009** |
| $ change | $(4,111) |  |
| % change | -10% |  |
| Cost of sales as a % of revenue | 50% | 63% |

The reduction of $4,111 in cost of sales for the three months ended June 30, 2023 as compared to the three months ended June 30, 2022 is mainly a result of impairments and write-downs of inventory in Pennsylvania of $7,422 in the prior period.

### General and Administrative Expense

|  | For the Three Months Ended June 30, 2023 | June 30, 2022 |
| --- | ---: | ---: |
| General and administrative expense | $30,476 | $32,925 |
| $ change | $(2,449) |  |
| % change | -7% |  |

The decline in G&A expense of $2,449 for the three months ended June 30, 2023 as compared to the three months ended June 30, 2022 was primarily a result of actions the Company undertook in the latter part of 2022 to reduce expenses and reduce its workforce in order to strengthen the position for the Company to generate positive cashflow from operations.

### Amortization and Depreciation Expense

|  | For the Three Months Ended June 30, 2023 | June 30, 2022 |
| --- | ---: | ---: |
| Amortization and depreciation | $2,242 | $2,581 |
| $ change | $(339) |  |
| % change | -13% |  |

The decrease of $339 in amortization and depreciation expense for the three months ended June 30, 2023 as compared to the three months ended June 30, 2022 is primarily due to a brand intangible asset that was fully amortized during 2022.

### Gain on fair value of warrants and purchase option derivative asset

|  | For the Three Months Ended June 30, 2023 | June 30, 2022 |
| --- | ---: | ---: |
| Gain on fair value of warrants and purchase option derivative asset | $(215) | $(47,345) |
| $ change | $47,130 |  |
| % change | -100% |  |

The Preferred Share warrant liability was remeasured to fair value at June 30, 2022 using the Black-Scholes model. The Company recognized a gain during the three months ended June 30, 2022 as a result of the reduction of the Company's share price from March 31, 2022 as compared to June 30, 2022, as well as from warrants exercised during the three months ended June 30, 2022. The combined impact resulted in a gain on fair value of warrants of $47,345.

The Preferred Share warrant liability expired during the three months ended June 30, 2023.

For the three months ended June 30, 2022, the purchase option derivative asset related to the option to purchase an additional 6.25% ownership of the Company's New Jersey partnership, was remeasured using the Monte Carlo simulation model and resulted in a loss of $500.

### Finance and other expenses

|  | For the Three Months Ended June 30, 2023 | June 30, 2022 |
| --- | ---: | ---: |
| Finance and other expenses | $8,171 | $13,663 |
| $ change | $(5,492) |  |
| % change | -40% |  |

The decrease of $5,492 in finance and other expenses for the three months ended June 30, 2023 as compared to the three months ended June 30, 2022 is primarily due to the indemnification of asset release as a result of the expiration of escrow agreement related to the acquisition of Apothecarium during the three months ended June 30, 2022.

### Transaction and restructuring costs

|  | For the Three Months Ended June 30, 2023 | June 30, 2022 |
| --- | ---: | ---: |
| Transaction and restructuring costs | $389 | $627 |
| $ change | $(238) |  |
| % change | -38% |  |

The decrease of $238 in transaction and restricting costs for the three months ended June 30, 2023 as compared to the three months ended June 30, 2022 relates primarily to work done for Sarbanes Oxley implementation during the three months ended June 30, 2022.

### Unrealized and realized foreign exchange (gain) loss

|  | For the Three Months Ended June 30, 2023 | June 30, 2022 |
| --- | ---: | ---: |
| Unrealized and realized foreign exchange (gain) loss | $(101) | $(315) |
| $ change | $214 |  |
| % change | -68% |  |

The increase of $214 in unrealized foreign exchange gain for the three months ended June 30, 2023 as compared to the three months ended June 30, 2022 is a result of the remeasurement of U.S. dollar denominated cash and other assets recorded in Canadian dollar functional currency at the Company’s Canadian operations.

### Provision for income taxes

|  | For the Three Months Ended June 30, 2023 | June 30, 2022 |
| --- | ---: | ---: |
| Provision for income taxes | $6,448 | $4,688 |
| $ change | $1,760 |  |
| % change | 38% |  |

The increase in provision for income taxes for the three months ended June 30, 2023 as compared to the three months ended June 30, 2022 was primarily driven by the increase in gross profit as a result of growth in new jurisdictions.

### Results from Operations- Six Months Ended June 30, 2023 and June 30, 2022

The following tables represent the Company’s results from operations for the six months ended June 30, 2023 and 2022.

### Revenue, net

|  | For the Six Months Ended June 30, 2023 | June 30, 2022 |
| --- | ---: | ---: |
| Revenue | $142,157 | $113,281 |
| Excise and cultivation taxes | (635) | (736) |
| **Revenue, net** | **$141,522** | **$112,545** |
| $ change | $28,977 |  |
| % change | 26% |  |

Revenue increased from $112,281 to $141,522 during the six months ended June 30, 2023 as compared to the six months ended June 30, 2022 driven by growth in retail offset by a decline in wholesale. The growth in retail was driven by the conversion to adult use in New Jersey, the acquisition of Gage in March 2022, and the acquisition of AMMD in January 2023. The decline in wholesale was driven by market dynamics in Pennsylvania and the decision the Company made to discontinue bulk wholesale in Michigan, partially offset by an increase in New Jersey driven by adult use implementation.

### Cost of Sales

|  | For the Six Months Ended June 30, 2023 | June 30, 2022 |
| --- | ---: | ---: |
| Cost of sales | $70,315 | $65,663 |
| Impairment and write downs of inventory | 1,081 | 7,307 |
| **Total cost of sales** | **$71,396** | **$72,970** |
| $ change | $(1,574) |  |
| % change | -2% |  |
| Cost of sales as a % of revenue | 50% | 65% |

The reduction of $1,574 in cost of sales for the six months ended June 30, 2023 as compared to the six months ended June 30, 2022 is mainly a result of impairments and write downs of inventory in Pennsylvania of $7,422 in the prior year.

### General and Administrative Expense

|  | For the Six Months Ended June 30, 2023 | June 30, 2022 |
| --- | ---: | ---: |
| General and administrative expense | $58,206 | $54,349 |
| $ change | $3,857 |  |
| % change | 7% |  |

The increase in G&A expense of $3,857 for the six months ended June 30, 2023 as compared to the six months ended June 30, 2022 was primarily a result of expenses related to implementation of adult use in New Jersey in April 2022 and the acquisition of Gage in March 2022, partially offset by expense reductions the Company undertook during the second half of 2022 across all areas of the Company as part of its plan to streamline operations and drive positive cashflow.

### Amortization and Depreciation Expense

|  | For the Six Months Ended June 30, 2023 | June 30, 2022 |
| --- | ---: | ---: |
| Amortization and depreciation | $4,271 | $4,756 |
| $ change | $(485) |  |
| % change | -10% |  |

The decrease of $485 in amortization and depreciation expense for the six months ended June 30, 2023 as compared to the six months ended June 30, 2022 is primarily due to a brand intangible asset that was fully amortized during 2022.

### Gain on fair value of warrants and purchase option derivative asset

|  | For the Six Months Ended June 30, 2023 | June 30, 2022 |
| --- | ---: | ---: |
| Gain on fair value of warrants and purchase option derivative asset | $(653) | $(53,058) |
| $ change | $52,405 |  |
| % change | -99% |  |

The Preferred Share warrant liability was remeasured to fair value at June 30, 2022 using the Black-Scholes model. The Company recognized a loss during the six months ended June 30, 2022 as a result of the reduction of the Company's share price from June 30, 2022 as compared to June 30, 2022.

The Preferred Share warrant liability expired during the six months ended June 30, 2023.

For the six months ended June 30, 2022, the purchase option derivative asset related to the option to purchase an additional 6.25% ownership of the Company's New Jersey partnership, was remeasured using the Monte Carlo simulation model and resulted in a loss of $818.

### Finance and other expenses

|  | For the Six Months Ended June 30, 2023 | June 30, 2022 |
| --- | ---: | ---: |
| Finance and other expenses | $18,258 | $20,318 |
| $ change | $(2,060) |  |
| % change | -10% |  |

The decrease of $2,060 in finance and other expenses for the six months ended June 30, 2023 as compared to the six months ended June 30, 2022 is primarily due to interest expense recognized on the loans as part of the Gage acquisition which closed on March 10, 2022.

### Transaction and restructuring costs

|  | For the Six Months Ended June 30, 2023 | June 30, 2022 |
| --- | ---: | ---: |
| Transaction and restructuring costs | $392 | $1,242 |
| $ change | $(850) |  |
| % change | -68% |  |

The decrease of $850 in transaction and restricting costs for the three months ended June 30, 2023 as compared to the six months ended June 30, 2022 relates primarily to the Gage Acquisition, which closed on March 10, 2022.

### Unrealized and realized foreign exchange loss

|  | For the Six Months Ended June 30, 2023 | June 30, 2022 |
| --- | ---: | ---: |
| Unrealized and realized foreign exchange loss (gain) | $(132) | $41 |
| $ change | $(173) |  |
| % change | -422% |  |

The decrease of $173 in unrealized foreign exchange loss for the six months ended June 30, 2023 as compared to the six months ended June 30, 2022 is a result of the remeasurement of U.S. dollar denominated cash and other assets recorded in Canadian dollar functional currency at the Company’s Canadian operations.

### Provision for income taxes

|  | For the Six Months Ended June 30, 2023 | June 30, 2022 |
| --- | ---: | ---: |
| Provision for income taxes | $19,112 | $8,431 |
| $ change | $10,681 |  |
| % change | 127% |  |

The increase in provision for the income taxes for the six months ended June 30, 2023 as compared to the six months ended June 30, 2022 was primarily driven by the increase in gross profit as a result of growth in new jurisdictions.

### Liquidity and Capital Resources

|  | June 30, 2023 $$ | December 31, 2022 |
| --- | ---: | ---: |
| Cash and cash equivalents | 28,915 | 26,158 |
| Restricted Cash | 3,106 | 605 |
| Current assets | 106,629 | 121,993 |
| Non-current assets | 615,119 | 579,594 |
| Current liabilities | 133,489 | 137,905 |
| Non-current liabilities | 292,660 | 242,511 |
| Working capital | (26,860) | (15,912) |
| Total shareholders' equity | 295,599 | 321,171 |

34

The calculation of working capital provides additional information and is not defined under GAAP. TerrAscend defines working capital as current assets less current liabilities. This measure should not be considered in isolation or as a substitute for any standardized measure under GAAP.

#### Liquidity and going concern

At June 30, 2023, TerrAscend had an accumulated deficit of $653,623. During the three and six months ended June 30, 2023, TerrAscend incurred a net loss from continuing operations of $12,855 and $32,033, respectively. Additionally, as of June 30, 2023 the Company’s current liabilities exceed its current assets. Therefore, it is possible that the Company may need additional capital to continue to fund its operations.

The aforementioned indicators raise substantial doubt about TerrAscend's ability to continue as a going concern for at least one year from the issuance of these financial statements. The Company believes this concern is mitigated by steps to improve its operations and cash position, including: (i) identifying access to future capital required to meet the Company’s on-going obligations, (ii) improved cashflow growth from TerrAscend's consolidated operations, particularly in New Jersey and most recently Maryland with conversion to adult use sales, and (iii) various cost and efficiency improvements.

Since its inception, TerrAscend's primary sources of capital have been through the issuance of equity securities or debt facilities, and TerrAscend has received aggregate net proceeds from such transactions totaling $654,000 as of June 30, 2023.

TerrAscend expects to fund any additional future requirements through the following sources of capital:

- cash from ongoing operations.
- market offerings.
- additional debt from additional creditors.
- sale of real property.
- sale leaseback transactions.
- exercise of options and warrants.

#### Capital requirements

The Company has $208,659 in principal amounts of loans payable at June 30, 2023. Of this amount, $22,336 are due within the next twelve months.

TerrAscend has entered into leases for certain premises and offices for which it owes monthly lease payments. TerrAscend has $78,204 in lease obligations. Of this amount, $6,151 are due in the next twelve months. Additionally, TerrAscend makes monthly payments on financing obligations on six of its real estate properties with $14,691 payable, $1,944 of which is due in the next twelve months.

TerrAscend's undiscounted contingent consideration payable is $4,434 at June 30, 2023. The contingent consideration payable relates to TerrAscend's business acquisitions of the Apothecarium and State Flower and is due in the next twelve months.

During the year ended December 31, 2020, TerrAscend expensed $7,500 related to amounts payable to an entity controlled by the minority shareholders of TerrAscend NJ pursuant to services surrounding the granting of certain licenses. The final payment of $3,750 was made in July 2023.

At June 30, 2023, the Company had accounts payable and accrued liabilities of $50,841 and corporate income taxes payable of $45,934.

TerrAscend does not have any off-balance sheet arrangements that have, or are reasonably likely to have, a current or future effect on TerrAscend's results of operations or financial condition, including and without limitation, such consideration as liquidity and capital resources.

TerrAscend intends to meet its capital commitments through any or all of the sources of capital noted above. TerrAscend's objective with respect to its capital management is to ensure it has sufficient cash resources to maintain its ongoing operations and finance future obligations.

#### Debt facilities

#### Ilera Term Loan

On December 18, 2020, WDB Holding PA, a subsidiary of TerrAscend, entered into a senior secured term loan with a syndicate of lenders in the amount of $120,000 ("Ilera Term Loan"). The term loan bears interest at 12.875% per annum and matures on December 17, 2024. TerrAscend has the ability to increase the facility by up to $30,000. WDB Holding PA's obligation under the Ilera Term Loan and related transaction documents are guaranteed by TerrAscend, TerrAscend USA, Inc., and certain subsidiaries of WDB Holding PA, and secured by TerrAscend USA Inc.'s equity interest in WDB Holding PA and substantially all of the assets of WDB Holding PA and the subsidiary guarantors party thereto. The loan can be refinanced at the option of the borrower after 18 months from the closing date subject to a premium payment due. Of the total proceeds received, $105,767 was used to satisfy the remaining Ilera earn-out payments.

On April 28, 2022, the Ilera Term Loan was amended to provide WDB Holding PA with greater flexibility by resetting the minimum consolidated interest coverage ratio levels that must be satisfied at the end of each measurement period and extending the date in which WDB Holding PA is required to deliver its budget for the fiscal year ending December 31, 2021. In addition, the no-call period was extended from 18 months to 30 months, subject to a premium payment. This modification was not considered extinguishment of debt under ASC 470 *Debt.*

On November 11, 2022, WDB Holding PA, TerrAscend, TerrAscend USA Inc. and the subsidiary guarantors party to the Ilera Term Loan and the PA Agent (on behalf of the required lenders) entered into an amendment to the PA Credit Agreement, pursuant to which PA Agent and the required lenders agreed that WDB Holding PA's obligation to maintain the consolidated interest coverage ratio as set forth in the PA Credit Agreement for the period ended September 30, 2022, shall not apply, subject to certain conditions, including (but not limited to) an obligation to enter into a subsequent amendment agreement on or before December 15, 2022, documenting certain enhancements and amendments to the PA Credit Agreement to be agreed. In addition, WDB Holding PA offered a prepayment of $5,000 pro rata to all lenders holding outstanding loans thereunder at a price equal to 103.22% of the principal amount prepaid, plus accrued and unpaid interest.

On December 21, 2022, WDB Holding PA completed an amendment to reduce TerrAscend's principal debt by $35,000 and annual interest expense by $5,000. TerrAscend agreed to make a $35,000 payment at the original prepayment price of 103.22% to par, and agreed to use commercially reasonable efforts to add certain collateral to Ilera Term Loan, collectively by March 15, 2023. The amendment further provided that should WDB Holding PA not maintain the prescribed interest coverage ratio, the Company shall be required to deposit funds, as outlined in the amendment, into a restricted account, and no event of default shall occur. This amendment was not considered extinguishment of debt under ASC 470 *Debt.*

On March 15, 2023, WDB Holding PA, in exchange for a fee in the amount of 1% of the then outstanding principal loan balance, agreed to an amendment among other things, to (i) extend the obligation date to prepay TerrAscend's debt from March 15, 2023 to June 30, 2023 in which WDB Holding PA must use commercially reasonable efforts to add additional collateral to the Ilera Term Loan, (ii) increase the amount of debt to be reduced by up to $37,000, subject to certain reductions in amount based on meeting certain time based milestones, at a prepayment price of 103.22% to par, and (iii) extend the next test date in respect of the interest coverage ratio until June 30, 2023. This amendment was not considered extinguishment of debt under ASC 470 *Debt*. There is $115,000 of principal amounts outstanding at March 31, 2023.

On April 14, 2023, WDB Holding PA agreed to an amendment to the Ilera Term Loan to, among other things, to (i) permit changes necessary for the TSX Transaction (as defined therein), and (ii) to waive certain tax provisions.

On June 22, 2023, WDB Holding PA further agreed to an amendment among other things, to (i) extend the next test date for the interest coverage ratio from June 30, 2023 to September 30, 2023, and (ii) amend the terms for which WDB Holding PA may incur certain indebtedness and liens.

#### Gage Loans

The Gage Acquisition included a senior secured term loan (the "Original Gage Term Loan") with an acquisition date fair value of $53,857. The credit agreement bears interest at a rate equal to the greater of (i) the Prime Rate plus 7% or (ii) 10.25%. The term loan is payable monthly and matures on November 30, 2022. The term loan is secured by a first lien on all Gage assets.

On August 10, 2022, the Original Gage Term Loan was amended as a result of the corporate restructure in conjunction with the Gage Acquisition. The amendment to the Original Gage Term Loan includes the addition of a borrower and guarantor under the term loan and a right of first offer in favor of the administrative agent for a refinancing of the term loan. This amendment was not considered extinguishment of debt under ASC 470 *Debt.*

On November 29, 2022, TerrAscend repaid $30,000 outstanding principal amount on the Original Gage Term Loan. On November 30, 2022, the remaining loan principal amount of $25,000 on the Original Gage Term Loan was amended (the "Amended Gage Term Loan"). The Amended Gage Term Loan bears interest on $25,000 at a per annum rate equal to the greater of (i) the U.S. "prime rate" plus 6.00%, and (ii) 13.0% and matures on November 1, 2024. Commencing on May 31, 2023, TerrAscend will make monthly principal repayments of 0.40% of the aggregate principal amount outstanding. Additionally, the unpaid principal amount of the loan shall bear paid in kind interest at a rate of 1.50% per annum. No prepayment fees are owed if TerrAscend voluntarily prepays the loan after 18 months. If such prepayment occurs prior to 18 months, a prepayment fee equal to all of the interest on the loans that would be due after the date of such prepayment, is owed. Under the Amended Gage Term Loan, TerrAscend has the ability to borrow incremental term loans of $30,000 at the option of TerrAscend and subject to consents from the required lenders. The additional $30,000 incremental term loans available under the amendment have not been drawn as of December 31, 2022. This loan represents a loan syndication, and therefore TerrAscend assessed each of the lenders separately under ASC 470 *Debt* to determine if this represents a modification, or an extinguishment of debt. For three of the four remaining lenders, it was determined that this was a modification. For the remaining lender, it was determined that this represented an extinguishment of debt and therefore the fees paid to the lenders on modification were expensed. As a result of this transaction, TerrAscend expensed $1,907 of fees paid to the lenders and third parties as they did not meet the criteria for capitalization under ASC 470 *Debt.*

Additionally, the Gage Acquisition included a loan payable to a former owner of a licensed entity with an acquisition date fair value of $2,683, and a promissory note with an acquisition date fair value of $4,065. The loan payable to the former owner bears interest at a rate of 0.2%. The promissory note bears interest at a rate of 6%. There is $4,583 of principal amounts outstanding at June 30, 2023 on the loan payable and promissory note.

On June 9, 2023, TerrAscend Growth Corp. agreed to an amendment among other things, to (i) permit changes necessary for the TSX Transaction (as defined therein) and (ii) to permit certain indebtedness and waive certain tax provisions.

This amendment was not considered extinguishment of debt under ASC 470 Debt.

#### Pinnacle Loans

The Pinnacle Acquisition purchase price included two promissory notes in an aggregate amount of $10,000 to pay down all Pinnacle liabilities and encumbrances. The promissory note matures on June 30, 2023 and bears interest rates of 6%. On June 27, 2023, Spartan Partners Properties, LLC, agreed to an amendment among other things, to extend the obligation date of the loan until December 1, 2023. There is $8,833 of principal amounts outstanding at March 31, 2023 on the two promissory notes.

#### Pelorus Term Loan

On October 11, 2022, subsidiaries of TerrAscend, among others, entered into a loan agreement with Pelorus Fund REIT, LLC ("Pelorus") for a single-draw senior secured term loan ("Pelorus Term Loan") in an aggregate principal amount of $45,478. The Pelorus Term Loan bears interest at a variable rate tied to the one month secured overnight financing rate (SOFR), subject to a base rate, plus 9.5%, with interest-only payments for the first 36 months. The base rate is defined as, on any day, the greatest of (i) 2.5%, (b) the effective federal funds rate in effect on such day plus 0.5%, and (c) one month SOFR in effect on such day. The obligations of the borrowers under the Pelorus Term Loan are guaranteed by TerrAscend, TerrAscend USA Inc. and certain other subsidiaries of TerrAscend and secured by all of the assets of TerrAscend's Maryland and New Jersey businesses, including certain real estate in Maryland and New Jersey, but excludes all MD dispensaries. The Pelorus Term Loan matures on October 11, 2027. There is $45,478 of principal amounts outstanding at June 30, 2023.

On April 17, 2023, TerrAscend NJ, LLC agreed to an amendment among other things, to (i) permit changes necessary for the TSX Transaction (as defined therein), and (ii) to waive certain tax provisions. On June 22, 2023, TerrAscend NJ, LLC further agreed to an amendment to permit certain indebtedness.

This amendment was not considered extinguishment of debt under ASC 470 Debt.

#### Stearns Loan

On June 26, 2023, the Company closed on a $25,000 commercial loan with Stearns Bank, secured by the Company's cultivation facility in Pennsylvania and its AMMD dispensary in Cumberland, Maryland. The Company is required to hold $2,500 on deposit in a restricted account. The loan carries an interest rate of prime plus 2.25% and matures in December 2024. The proceeds from the loan were used to pay down the Company's higher interest rate debt, thereby lowering the Company's overall interest expense.

#### Class A Share of TerrAscend Growth

As a part of the Reorganization (Note 3), TerrAscend Growth Corp. issued $ 1 million of Class A shares with a 20% guaranteed annual dividend. Under the Subscription Agreement, TerrAscend Growth Corp holds a call right to repurchase all of the Class A Shares, at any point in time, issuable to the holder of Class A shares and the holder of Class A shares is granted a put right that is exercisable at any time following the five-year anniversary of the closing of the investment. The instrument is considered as a debt due to the economic characteristics and risks.

#### IHC Real Estate LP Loan

On June 26, 2023, the Company bought out the minority interest in IHC Real Estate LP and entered into a promissory note of $7,500. The promissory note carries an interest rate of 15% and matures on January 15, 2024. On June 28, 2023, the Company made a payment of $1,500.

### Cash Flows

### Cash flows (used in) / provided by operating activities

|  | For the Six Months Ended June 30, 2023 | June 30, 2022 |
| --- | ---: | ---: |
| Net cash (used in) / provided by operating activities | $9,120 | $(34,976) |

The increase of $44,096 in net cash provided by operating activities for the six months ended June 30, 2023 as compared to June 30, 2022 is due primarily to lower interest of $5,832, reduced taxes of $22,127, and an increase in accounts payable and accrued liabilities and other payables of $11,929 due to timing of those payments, offset by an increase in inventory of $8,059.

### Cash flows used in investing activities

|  | For the Six Months Ended June 30, 2023 | June 30, 2022 |
| --- | ---: | ---: |
| Net cash (used in) investing activities | $(4,877) | $(39) |

The net cash used in investing activities for the six months ended June 30, 2023 primarily relates to the cash paid for the acquisition of three dispensaries in Maryland. Additionally, TerrAscend increased the investment in property and equipment by $5,426 during the six months ended June 30, 2023.

In comparison, the net cash used in investing activities for the six months ended June 30, 2022 primarily relates to investments in property and equipment of $12,500 and deposits for property and equipment of $10,036, primarily related to the buildout of a cultivation site in Maryland, continuing renovations at the Company's Pennsylvania cultivation site, as well as the continued buildout of the Company's Lodi alternative treatment center in New Jersey. Additionally, the Company had investments in intangible assets of $1,330, primarily related to adult use licenses in New Jersey. The cash used in investing activities is offset by cash inflows of $24,716 related to the cash acquired through the Gage Acquisition.

### Cash flows provided by financing activities

|  | For the Six Months Ended June 30, 2023 | June 30, 2022 |
| --- | ---: | ---: |
| Net cash provided by financing activities | $4,416 | $8,781 |

Net cash provided by financing activities for the six months ended June 30, 2023 was primarily due to cash inflow as a result of transfer with recourse of Employee Retention Credit of $12,677, net proceeds from the commercial loan with Stearns bank of $23,872, and net proceeds from private placements of $19,218, offset by loan principal paid of $40,359 and distributions to minority partners of $3,415.

During the six months ended June 30, 2022, 7,989,436 Common Share warrants were exercised for total proceeds of $23,797 and 88,015 stock options were exercised for total gross proceeds of $361. The cash provided by financing activities was offset by payments of contingent consideration related to the acquisition of State Flower of $6,630, loan principal payments of $5,203, loan amendment fee paid on the modification of the Ilera term loan of $1,200, and tax distributions paid on behalf of the partners of the New Jersey operations of $1,436.

### Reconciliation of Non-GAAP Measures

In addition to reporting the financial results in accordance with GAAP, TerrAscend reports certain financial results that differ from what is reported under GAAP. Non-GAAP measures used by management do not have any standardized meaning prescribed by GAAP and may not be comparable to similar measures presented by other companies. TerrAscend believes that certain investors and analysts use these metrics to measure a company’s ability to meet other payment obligations or as a common measurement to value companies in the cannabis industry, and TerrAscend calculates (i) Adjusted gross profit as gross profit from continuing operations adjusted for certain material non-cash items, and (ii) Adjusted EBITDA from continuing operations as EBITDA from continuing operations adjusted for certain material non-cash items and certain other adjustments which management believes are not reflective of the ongoing operations and performance. Such information is intended to provide additional information and should not be considered in isolation or as a substitute for measures of performance prepared in accordance with GAAP.

TerrAscend believes Adjusted EBITDA from continuing operations is a useful performance measure to assess the performance of TerrAscend as it provides more meaningful ongoing operating results by excluding the effects of expenses that are not reflective of TerrAscend’s underlying business performance and other one-time or non-recurring expenses. The table below reconciles net loss to EBITDA from continuing operations and Adjusted EBITDA from continuing operations for the three and six months ended June 30, 2023 and 2022:

|  | Notes | For the Three Months Ended June 30, 2023 | June 30, 2022 | For the Six Months Ended June 30, 2023 | June 30, 2022 |
| --- | --- | ---: | ---: | ---: | ---: |
| **Net loss** |  | **$(13,476)** | **$14,162** | **$(36,245)** | **$(1,844)** |
| Loss from discontinued operations |  | 621 | 2,697 | 4,212 | 4,953 |
| Loss from continuing operations |  | (12,855) | 16,859 | (32,033) | 3,109 |
| Add (deduct) the impact of: |  |  |  |  |  |
| Provision for income taxes |  | 6,448 | 4,688 | 19,112 | 8,431 |
| Finance expenses |  | 7,963 | 10,315 | 15,838 | 16,920 |
| Amortization and depreciation |  | 4,991 | 6,493 | 9,762 | 11,018 |
| **EBITDA from continuing operations** | (a) | **6,547** | **38,355** | **12,679** | **39,478** |
| Add (deduct) the impact of: |  |  |  |  |  |
| Relief of fair value upon acquisition | (b) | — | 549 | — | 2,355 |
| Non-cash write downs of inventory | (c) | — | 5,894 | — | 5,894 |
| Vape recall | (d) | — | 1,071 | — | 2,965 |
| Share-based compensation | (e) | 1,981 | 4,463 | 3,694 | 7,819 |
| Loss from revaluation of contingent consideration | (f) |  | 34 | 0 | 153 |
| Other one-time items | (g) | 2,932 | 924 | 4,290 | 2,898 |
| Employee Retention Credits Transfer Fee | (h) | — | — | 2,235 | — |
| Loss on lease termination and derecognition of ROU asset | (i) | — | — | 205 | — |
| Gain on fair value of warrants and purchase option derivative asset | (j) | (215) | (47,345) | (653) | (53,058) |
| Indemnification asset release | (k) | — | 3,998 | — | 3,973 |
| Impairment of property and equipment and loss on disposal of fixed assets | (l) | 10 | 929 | 345 | 929 |
| Unrealized and realized loss on investments | (m) | 1,661 | 234 | 2,360 | 234 |
| Unrealized and realized foreign exchange loss | (n) | (101) | (315) | (132) | 41 |
| **Adjusted EBITDA from continuing operations** |  | **$12,815** | **$8,791** | **$25,023** | **$13,681** |

TerrAscend calculates adjusted gross profit by adjusting gross profit for the one-time relief of fair value of inventory upon acquisition, non-cash write downs of inventory, vape recall, and other one time adjustments to gross profit as TerrAscend does not believe that these impacts are reflective of ongoing operations. The table below reconciles gross profit to adjusted gross profit for the three and six months ended June 30, 2023 and 2022:

|  | Notes | For the Three Months Ended June 30, 2023 | June 30, 2022 | For the Six Months Ended June 30, 2023 | June 30, 2022 |
| --- | --- | ---: | ---: | ---: | ---: |
| **Gross profit** |  | **$36,226** | **$23,951** | **$70,126** | **$39,575** |
| Add (deduct) the impact of: |  |  |  |  |  |
| Relief of fair value upon acquisition | (b) | — | 549 | — | 2,355 |
| Non-cash write downs of inventory | (c) | — | 5,894 | — | 5,894 |
| Vape recall | (d) | — | 1,071 | — | 2,965 |
| Other one time adjustments to gross profit | (g) | — | — | 94 | 238 |
| **Adjusted gross profit** |  | **$36,226** | **$31,465** | **$70,220** | **$51,027** |

a) EBITDA from continuing operations is a non-GAAP measure and is calculated as earnings from continuing operations before interest, tax, depreciation and amortization.

b) In connection with TerrAscend's acquisitions, inventory was acquired at fair value, which included a markup or markdown for profit. Recording inventory at fair value in purchase accounting has the effect of increasing or decreasing inventory and thereby increasing or decreasing cost of sales as compared to the amounts TerrAscend would have recognized if the inventory was sold through at cost. The write-up or down of acquired inventory represents the incremental cost of sales that were recorded during purchase accounting.

c) Represents inventory write downs outside of the normal course of operations. These inventory write-downs were related to the the write down of aged inventory to lower of cost or market which was related to the Company's operational reconfiguration of its cultivation facility in Pennsylvania.

d) On February 4, 2022, more than 500 vape products were recalled by the Pennsylvania's Department of Health, including several of the TerrAscend's SKUs. As a result of the recall TerrAscend recorded sales returns of $1,040 and write-downs of inventory of $854 for the three months ended March 31, 2022.

e) Represents non-cash share-based compensation expense.

f) Represents the revaluation of TerrAscend’s contingent consideration liabilities.

g) Includes one-time fees incurred in connection with TerrAscend’s acquisitions, such as expenses related to professional fees, consulting, legal, settlements, and accounting, that would otherwise not have been incurred. In addition, includes one-time charges for Sarbanes Oxley Act of 2022 implementation. These fees are not indicative of TerrAscend’s ongoing costs.

h) Represents expenses associated with ERC transfer of assets with recourse.

i) Represents loss taken as a result on the derecognition of right of use assets.

j) Represents the (gain) loss on fair value of warrants, including effects of the foreign exchange of the U.S. denominated preferred share warrants, as well as the revaluation of the fair value of the purchase option derivative asset.

k) Represents the reduction to the indemnification asset related to the Apothecarium tax audit settlement and statute expirations for tax years ended September 30, 2014 and September 30, 2015.

l) Represents impairment charges taken on TerrAscend's property and equipment, as well as write-downs of property and equipment.

m) Represents unrealized and realized gain on fair value changes on strategic investments.

n) Represents the remeasurement of USD denominated cash and other assets recorded in C$ functional currency.

The increase in Adjusted EBITDA from continuing operations for the three and six months ended June 30, 2023 compared to the three and six months ended June 30, 2022 was primarily due to implementation of adult use sales in New Jersey.

### Critical Accounting Policies and Estimates

The condensed consolidated financial statements have been prepared in accordance with GAAP. The preparation of these condensed consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses, and related disclosures. The Company bases its estimates on historical experience and assumptions on an ongoing basis. Actual results may differ from these estimates. To the extent that there are material differences between these estimates and actual results, the Company's future financial statements will be affected.

There have been no significant changes to the critical accounting estimates from the information provided in Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operation," other than the significant judgment relating to variable interest entities.

#### Variable interest entities

Management has applied significant judgment on the decision to consolidate its variable interest entity (“VIE”), TerrAscend Growth Corp.. The Company consolidates VIE when it has a variable interest that provide it with (1) the power to direct the activities of a VIE that most significantly impact the VIE’s economic performance (power) and (2) the obligation to absorb losses of the VIE that potentially could be significant to the VIE or the right to receive benefits from the VIE that potentially could be significant to the VIE (benefits). Key areas of judgment related to the assessment of the purpose and design of the VIE, the protection agreement in place, the board structure of TerrAscend Growth Corp., and substantive kick-out rights of the Class A shareholders.

### Emerging Growth Company Status

The Company is an emerging growth company, as defined in the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”). Under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards issued subsequent to the enactment of the JOBS Act until such time as those standards apply to private companies. The Company has elected to use this extended transition period for complying with new or revised accounting standards that have different effective dates for public and private companies until the earlier of the date that the Company (i) is no longer an emerging growth company or (ii) affirmatively and irrevocably opt out of the extended transition period provided in the JOBS Act. As a result, the condensed consolidated financial statements may not be comparable to companies that comply with the new or revised accounting pronouncements as of public company effective dates.

The Company will remain an emerging growth company until the earlier to occur of: (i) the last day of the fiscal year (a) following the fifth anniversary of the completion of its initial public offering, (b) in which we have total annual gross revenue of $1.235 billion or more, or (c) in which the Company is deemed to be a large accelerated filer, which means the market value of our Common Stock that is held by non-affiliates exceeds $700,000 as of the prior June 30th; and (ii) the date on which the Company has issued more than $1,000,000 in non-convertible debt during the prior three-year period.

## Market risk

As filed, 205 characters.

There have been no material changes in the Company's primary risk exposures or management of market risks from those disclosed in its Annual Report on Form 10-K for the fiscal year ended December 31, 2022.

## Controls and procedures

As filed, 2,026 characters.

### Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, or the Exchange Act), as of the end of the period covered by this Quarterly Report on Form 10-Q. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of June 30, 2023 our disclosure controls and procedures were effective to provide reasonable assurance that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms and to provide reasonable assurance that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

### Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the quarter ended June 30, 2023, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

### Limitations on Effectiveness of Controls and Procedures

In designing and evaluating our disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required to apply judgment in evaluating the benefits of possible controls and procedures relative to their costs.

## Risk factors

As filed, 517 characters.

Investing in our common shares involves a high degree of risk. In addition to the other information set forth in this Quarterly Report on Form 10-Q, you should carefully consider the factors described in Part I, Item 1.A. “Risk Factors” in our Annual Report. We may disclose changes to risk factors or disclose additional factors from time to time in our future filings with the SEC. Additional risks and uncertainties not presently known to us or that we currently deem immaterial may impair our business operations.

Filed Aug 10, 2023.
Source: SEC EDGAR, the filing index for accession 0000950170-23-041289. Last ingested by Listed: Oct 24, 2026, 15:07 ET. No prices; not investment advice.