# Green Thumb Industries Inc.: Form 10-Q for the period ended Sep 30, 2023

- Company: [Green Thumb Industries Inc.](/companies/gtbif.md) (CIK 1795139)
- Form: 10-Q
- Filed: 2023-11-09
- Accepted by EDGAR: Nov 9, 2023, 06:04 ET
- Period: 2023-09-30
- Accession: 0000950170-23-061475
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1795139/000095017023061475/gtbif-20230930.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1795139/000095017023061475/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2023-09-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 9 months, 2023-01-01 to 2023-09-30 | $776.3m | us-gaap:Revenues |
| Cost of revenue | 3 months, 2023-07-01 to 2023-09-30 | $141.6m | us-gaap:CostOfGoodsAndServicesSold |
| Cost of revenue | 9 months, 2023-01-01 to 2023-09-30 | $392.5m | us-gaap:CostOfGoodsAndServicesSold |
| Gross profit | 3 months, 2023-07-01 to 2023-09-30 | $133.8m | us-gaap:GrossProfit |
| Gross profit | 9 months, 2023-01-01 to 2023-09-30 | $383.8m | us-gaap:GrossProfit |
| Selling, general and administrative | 3 months, 2023-07-01 to 2023-09-30 | $84.8m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Selling, general and administrative | 9 months, 2023-01-01 to 2023-09-30 | $249.5m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Operating income | 3 months, 2023-07-01 to 2023-09-30 | $49.0m | us-gaap:OperatingIncomeLoss |
| Operating income | 9 months, 2023-01-01 to 2023-09-30 | $134.3m | us-gaap:OperatingIncomeLoss |
| Interest expense | 3 months, 2023-07-01 to 2023-09-30 | $4.6m | us-gaap:InterestExpense |
| Interest expense | 9 months, 2023-01-01 to 2023-09-30 | $11.3m | us-gaap:InterestExpense |
| Income tax | 3 months, 2023-07-01 to 2023-09-30 | $34.5m | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 9 months, 2023-01-01 to 2023-09-30 | $93.9m | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2023-07-01 to 2023-09-30 | $10.5m | us-gaap:NetIncomeLoss |
| Net income | 9 months, 2023-01-01 to 2023-09-30 | $33.1m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2023-07-01 to 2023-09-30 | $0.05 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 9 months, 2023-01-01 to 2023-09-30 | $0.14 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2023-07-01 to 2023-09-30 | $0.05 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 9 months, 2023-01-01 to 2023-09-30 | $0.14 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2023-07-01 to 2023-09-30 | 240,289,959 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 9 months, 2023-01-01 to 2023-09-30 | 239,827,112 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 9 months, 2023-01-01 to 2023-09-30 | $153.9m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 9 months, 2023-01-01 to 2023-09-30 | $183.6m | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Current assets | at 2023-09-30 | $320.2m | us-gaap:AssetsCurrent |
| Total assets | at 2023-09-30 | $2.50bn | us-gaap:Assets |
| Current liabilities | at 2023-09-30 | $149.9m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2023-09-30 | $792.3m | us-gaap:Liabilities |
| Shareholders' equity | at 2023-09-30 | $1.71bn | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 29,979 characters.

This management discussion and analysis (“MD&A”) of the financial condition and results of operations of Green Thumb Industries Inc. (the “Company” or “Green Thumb”) is for the three and nine months ended September 30, 2023 and 2022. It is supplemental to, and should be read in conjunction with, the Company’s unaudited interim condensed consolidated financial statements as of September 30, 2023 and the consolidated financial statements for the year ended December 31, 2022 included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022 filed with the U.S. Securities and Exchange Commission on March 1, 2023 (the “2022 Form 10-K”) and the accompanying notes for each respective period. The Company’s financial statements are prepared in accordance with accounting principles generally accepted in the United States (“GAAP”). Financial information presented in this MD&A is presented in United States dollars (“$” or “US$”), unless otherwise indicated.

This MD&A contains certain “forward-looking statements” and certain “forward-looking information” as defined under applicable United States securities laws. Please refer to the discussion of forward-looking statements and information set out under the heading “Disclosure Regarding Forward-Looking Statements,” identified in the ‘‘Risks and Uncertainties’’ section of this MD&A and in Part II, Item 1A, “Risk Factors of the 2022 Form 10-K.” As a result of many factors, the Company’s actual results may differ materially from those anticipated in these forward-looking statements and information.

### OVERVIEW OF THE COMPANY

Established in 2014 and headquartered in Chicago, Illinois, Green Thumb promotes well-being through the power of cannabis through branded consumer packaged goods and people-first retail experiences, while giving back to the communities in which it serves. As of September 30, 2023, Green Thumb has operations in fifteen U.S. markets, employs approximately 4,400 people and serves millions of patients and customers annually.

Green Thumb’s core business is manufacturing, distributing and marketing a portfolio of owned cannabis consumer packaged goods brands (which we refer to as our Consumer Packaged Goods business), including &Shine, Beboe, Dogwalkers, Doctor Solomon’s, Good Green, incredibles and RYTHM. The Company distributes and markets these products primarily to third-party licensed retail cannabis stores across the United States as well as to Green Thumb-owned retail stores (which we refer to as our Retail business).

The Company’s Consumer Packaged Goods portfolio is primarily generated from plant material that Green Thumb grows and processes itself, which we use to produce our consumer packaged goods in eighteen manufacturing facilities. This portfolio consists of stock keeping units across a range of cannabis product categories, including flower, pre-rolls, concentrates, vape, capsules, tinctures, edibles, topicals and other cannabis-related products (none of which are individually material to the Company). These Consumer Packaged Goods products are sold in retail stores throughout the U.S. including at Green Thumb’s own RISE and other retail stores.

Green Thumb owns and operates a national cannabis retail chain called RISE that provides relationship-centric retail experiences aimed to deliver a superior level of customer service through high-engagement consumer interaction, a consultative, transparent and education-forward selling approach and a consistently available assortment of cannabis products. In addition, Green Thumb owns retail stores under other names, primarily where naming is subject to licensing or similar restrictions or in certain instances where we co-own the store. The income from Green Thumb’s retail stores is primarily derived from the sale of cannabis-related products, which includes the sale of Green Thumb produced products as well as those produced by third parties, with an immaterial (under 10%) portion of this income resulting from the sale of other merchandise (such as t-shirts and accessories for cannabis use). The RISE stores currently are located in fourteen of the states in which we operate. As of September 30, 2023, the Company had 85 open and operating retail stores. The Company’s new store opening plans is fluid, depending on market conditions, obtaining local licensing, construction and other permissions and subject to the Company’s capital allocation plans.

### Results of Operations – Consolidated

The following table sets forth the Company’s selected consolidated financial results for the periods, and as of the dates, indicated. The (i) unaudited interim condensed consolidated statements of operations for the three and nine months ended September 30, 2023 and 2022 and (ii) unaudited interim condensed consolidated balance sheet as of September 30, 2023 and December 31, 2022 have been derived from, and should be read in conjunction with, the unaudited interim condensed consolidated financial statements and accompanying notes presented in Item 1 of this quarterly report on Form 10-Q.

The Company’s unaudited interim condensed consolidated financial statements have been prepared in accordance with GAAP and on a going-concern basis that contemplates continuity of operations and realization of assets and liquidation of liabilities in the ordinary course of business.

*(in thousands, except share and per share amounts)*

|  | Three Months Ended September 30, 2023 | 2022 | Nine Months Ended September 30, 2023 | 2022 | QTD Change $% Increase (Decrease) |  | YTD Change $% |  |
| --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: |
| Revenues, Net of Discounts | $275,398 | $261,194 | $776,322 | $758,105 | $14,204 | 5% | $18,217 | 2% |
| Cost of Goods Sold, Net | (141,592) | (129,954) | (392,515) | (378,127) | 11,638 | 9% | 14,388 | 4% |
| Gross Profit | 133,806 | 131,240 | 383,807 | 379,978 | 2,566 | 2% | 3,829 | 1% |
| **Expenses:** |  |  |  |  |  |  |  |  |
| Selling, General, and Administrative | 84,779 | 82,479 | 249,515 | 214,402 | 2,300 | 3% | 35,113 | 16% |
| Total Expenses | 84,779 | 82,479 | 249,515 | 214,402 | 2,300 | 3% | 35,113 | 16% |
| Income From Operations | 49,027 | 48,761 | 134,292 | 165,576 | 266 | 1% | (31,284) | (19)% |
| Total Other Income (Expense) | (3,694) | (5,644) | (6,463) | 1,429 | 1,950 | 35% | (7,892) | (552)% |
| Income Before Provision for Income Taxes And Non-Controlling Interest | 45,333 | 43,117 | 127,829 | 167,005 | 2,216 | 5% | (39,176) | (23)% |
| Provision for Income Taxes | 34,526 | 32,969 | 93,927 | 102,440 | 1,557 | 5% | (8,513) | (8)% |
| Net Income Before Non-Controlling Interest | 10,807 | 10,148 | 33,902 | 64,565 | 659 | 6% | (30,663) | (47)% |
| Net Income Attributable to Non-Controlling Interest | 295 | 319 | 851 | 1,360 | (24) | (8)% | (509) | (37)% |
| Net Income Attributable To Green Thumb Industries Inc. | $10,512 | $9,829 | $33,051 | $63,205 | $683 | 7% | $(30,154) | (48)% |
| Net Income Per Share - Basic | $0.05 | $0.04 | $0.14 | $0.27 | $0.01 | 25% | $(0.13) | (48)% |
| Net Income Per Share - Diluted | $0.05 | $0.04 | $0.14 | $0.26 | $0.01 | 25% | $(0.12) | (46)% |
| Weighted Average Number of Shares Outstanding – Basic | 239,459,783 | 237,002,873 | 238,248,852 | 236,546,078 |  |  |  |  |
| Weighted Average Number of Shares Outstanding – Diluted | 240,289,959 | 237,804,799 | 239,827,112 | 237,872,595 |  |  |  |  |

*(in thousands)*

|  | September 30, 2023 | December 31, 2022 |
| --- | ---: | ---: |
| Total Assets | $2,499,212 | $2,433,528 |
| Long-Term Liabilities | $642,431 | $621,525 |

### Three Months Ended September 30, 2023 Compared to the Three Months Ended September 30, 2022

#### Revenues, net of Discounts

Revenue for the three months ended September 30, 2023 was $275,398 thousand, an increase of 5% from $261,194 thousand for the three months ended September 30, 2022. The increase in revenue was largely due to legalization of adult-use sales in Maryland, which began on July 1, 2023.

The Company generated revenue from 85 retail stores during the quarter, compared to 77 in the same quarter of the prior year. During the three months ended September 30, 2023, the Company opened one retail store in Nevada, and one retail store in Florida.

#### Cost of Goods Sold, net

Cost of goods sold are derived from retail purchases made by the Company from its third-party licensed producers operating within our state markets and costs related to the internal cultivation and production of cannabis. Cost of goods sold for the three months ended September 30, 2023 was $141,592 thousand, an increase of 9% from $129,954 thousand for the three months ended September 30, 2022, driven by increased volume from the launch of adult-use sales in Maryland as described above, and new retail store openings in Nevada and Florida.

#### Gross Profit

Gross profit for the three months ended September 30, 2023 was $133,806 thousand, representing a gross margin on the sale of branded cannabis flower and processed and packaged products including concentrates, edibles, topicals and other cannabis products, of 49%. This is compared to gross profit for the three months ended September 30, 2022 of $131,240 thousand, or a 50% gross margin. The decrease in gross margin (percent) was primarily driven by price compression. The increase in gross profit (dollars) was directly attributable to the revenue increase as described above.

#### Total Expenses

Total expenses for the three months ended September 30, 2023 were $84,779 thousand, or 31% of revenues, net of discounts, resulting in an increase of $2,300 thousand over the same period in the prior year. Total expenses for the three months ended September 30, 2022 were $82,479 thousand or 32% of revenues, net of discounts. The increase in total expense for the three months ended September 30, 2023 was attributable to an increase in retail salaries and benefits and other operational and facility expenses, mainly as a result of the legalization of adult-use sales in Maryland, which began on July 1, 2023, as well as new locations opened since September 30, 2022.

#### Total Other Income (Expense)

Total other income (expense) for three months ended September 30, 2023 was $(3,694) thousand, an increase of $1,950 thousand, primarily due to favorable fair value adjustments to the Company's equity investments, as well as a reduction in unfavorable fair value adjustments to the Company's warrant liability recorded during the three months ended September 30, 2023.

#### Income (Loss) Before Provision for Income Taxes and Non-Controlling Interest

Income before provision for income taxes and non-controlling interest for the three months ended September 30, 2023 was $45,333 thousand, an increase of $2,216 thousand compared to the three months ended September 30, 2022.

As presented under the heading “Non-GAAP Measures” below, after adjusting for non-cash equity incentive compensation of $7,215 thousand and $7,878 thousand in the three months ended September 30, 2023 and 2022, respectively, and other nonoperating (income) expenses, of $1,119 thousand and $3,306 thousand in the three months ended September 30, 2023 and 2022, respectively, adjusted earnings before interest, depreciation, and amortization (“EBITDA”) was $82,989 thousand and $84,463 thousand, respectively.

#### Provision for Income Taxes

Income tax expense is recognized based on the expected tax payable on the taxable income for the year, using tax rates enacted or substantively enacted at year-end. For the three months ended September 30, 2023, federal and state income tax expense totaled $34,526 thousand compared to expense of $32,969 thousand for the three months ended September 30, 2022.

### Nine Months Ended September 30, 2023 Compared to the Nine Months Ended September 30, 2022

#### Revenues, net of Discounts

Revenue for the nine months ended September 30, 2023 was $776,322 thousand, an increase of 2% from $758,105 for the nine months ended September 30, 2022. The increase in revenue was largely due to legalization of adult-use sales in New Jersey, which began on April 21, 2022, legalization of adult-use sales in Maryland, which began on July 1, 2023, legalization of adult-use sales in Connecticut, which began on January 10, 2023, continued growth in existing markets, as well as revenue generated from new retail stores opened in the current period, partially offset by price compression.

The Company generated revenue from 85 retail stores during the period compared to 77 in the same period of the prior year. During the nine months ended September 30, 2023, the Company opened two retail stores in Pennsylvania, two retail stores in Virginia, one retail store in Minnesota, two retail stores in Nevada, and one retail store in Florida.

#### Cost of Goods Sold, net

Cost of goods sold are derived from retail purchases made by the Company from its third-party licensed producers operating within our state markets and costs related to the internal cultivation and production of cannabis. Cost of goods sold for the nine months ended September 30, 2023 was $392,515 thousand, an increase of 4% from $378,127 thousand for the nine months ended September 30, 2022, driven by increased volume from the launch of adult-use sales in New Jersey and Maryland as described above, and new retail store openings in Pennsylvania, Virginia, Minnesota, Nevada and Florida.

#### Gross Profit

Gross profit for the nine months ended September 30, 2023 was $383,807 thousand, representing a gross margin on the sale of branded cannabis flower and processed and packaged products including concentrates, edibles, topicals and other cannabis products, of 49%. This is compared to gross profit for the nine months ended September 30, 2022 of $379,978 thousand or a 50% gross margin. The decrease in gross margin (percent) was primarily driven by price compression. The increase in gross profit (dollars) was directly attributable to the revenue increase as described above.

#### Total Expenses

Total expenses for the nine months ended September 30, 2023 were $249,515 thousand or 32% of revenues, net of discounts, resulting in an increase of $35,113 thousand over the same period in the prior year. Total expenses for the nine months ended September 30, 2022 were $214,402 thousand or 28% of revenues, net of discounts. Total expenses were lower in the first nine months of 2022 primarily due to favorable fair value adjustments associated with the remeasurement of the Company's contingent consideration arrangements recorded during the nine months ended September 30, 2022.

#### Total Other Income (Expense)

Total other income (expense) for the nine months ended September 30, 2023 was $(6,463) thousand, a decrease of $7,892 thousand over the same period in the prior year, primarily due to a one-time favorable fair value adjustment associated with the Company's acquisition of ILDISP, LLC recorded during nine months ended September 30, 2022, partially offset by an increase in capitalized interest during the nine months ended September 30, 2023.

#### Income (Loss) Before Provision for Income Taxes and Non-Controlling Interest

Net operating income before provision for income taxes and non-controlling interest for the nine months ended September 30, 2023 was $127,829 thousand, a decrease of $39,176 thousand compared to the nine months ended September 30, 2022.

As presented under the heading “Non-GAAP Measures” below, after adjusting for non-cash equity incentive compensation of $20,835 thousand and $19,362 thousand, and other nonoperating (income) expenses, of $6,549 thousand and $(26,405) thousand in the nine months ended September 30, 2023 and 2022, respectively, Adjusted EBITDA was $235,039 thousand and $230,239 thousand, respectively.

#### 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, 2023, federal and state income tax expense totaled $93,927 thousand compared to expense of $102,440 thousand for the nine months ended September 30, 2022.

### Results of Operations by Segment

The following table summarizes revenues net of sales discounts by segment for the three and nine months ended September 30, 2023 and 2022:

*(in thousands)*

|  | Three Months Ended September 30, 2023 | 2022 | 2023 vs. 2022 $ Change Increase (Decrease) | % Change |
| --- | ---: | ---: | ---: | ---: |
| Retail | $205,441 | $199,632 | $5,809 | 3% |
| Consumer Packaged Goods | 150,425 | 127,676 | 22,749 | 18% |
| Intersegment Eliminations | (80,468) | (66,114) | 14,354 | 22% |
| **Total Revenues, Net of Discounts** | **$275,398** | **$261,194** | **$14,204** | **5%** |

*(in thousands)*

|  | Nine Months Ended September 30, 2023 | 2022 | 2023 vs. 2022 $ Change Increase (Decrease) | % Change |
| --- | ---: | ---: | ---: | ---: |
| Retail | $582,363 | $564,951 | $17,412 | 3% |
| Consumer Packaged Goods | 412,096 | 368,692 | 43,404 | 12% |
| Intersegment Eliminations | (218,137) | (175,538) | 42,599 | 24% |
| **Total Revenues, Net of Discounts** | **$776,322** | **$758,105** | **$18,217** | **2%** |

### Three Months Ended September 30, 2023 Compared with the Three Months Ended September 30, 2022

Revenues, net of discounts, for the Retail segment were $205,441 thousand, an increase of $5,809 thousand or 3%, compared to the three months ended September 30, 2022. The increase in revenue was primarily due to the legalization of adult-use sales in Maryland, which began on July 1, 2023, partially offset by price compression.

Revenues, net of discounts, for the Consumer Packaged Goods Segment were $150,425 thousand, an increase of $22,749 thousand or 18%, compared to the three months ended September 30, 2022. The increase in Consumer Packaged Goods revenues was primarily due to the legalization of adult-use sales in Maryland, which began on July 1, 2023, as well as the legalization of adult-use sales in Connecticut, which began on January 10, 2023.

Intersegment eliminations associated with the Consumer Packaged Goods Segment were $80,468 thousand, an increase of $14,354 thousand or 22% compared to the three months ended September 30, 2022. The increase in intersegment eliminations was driven by increased intercompany sales to Company-owned retail stores primarily in Pennsylvania and Maryland. Consumer Packaged Goods revenues, net of intersegment eliminations, made up 25% of total revenues during the three months ended September 30, 2023 as compared to 24% during the three months ended September 30, 2022.

Due to the vertically integrated nature of the business, the Company reviews its revenue at the Retail and Consumer Packaged Goods level while reviewing its operating results on a consolidated basis.

### Nine Months Ended September 30, 2023 Compared with the Nine Months Ended September 30, 2022

Revenues, net of discounts for the Retail segment were $582,363, an increase of $17,412 or 3%, compared to the nine months ended September 30, 2022. The increase in Retail revenues, net of discounts, was primarily driven by the legalization of adult-use sales in New Jersey, which began on April 21, 2022, and the legalization of adult-use sales in Maryland, which began on July 1, 2023, partially offset by price compression.

Revenues, net of discounts, for the Consumer Packaged Goods Segment were $412,096 thousand, an increase of $43,404 thousand or 12%, compared to the nine months ended September 30, 2022. The increase in Consumer Packaged Goods revenues was primarily driven by the legalization of adult-use sales in New Jersey, which began on April 21, 2022, and the legalization of adult-use sales in Maryland, which began on July 1, 2023.

Intersegment eliminations associated with the Consumer Packaged Goods Segment were $218,137 thousand, an increase of $42,599 thousand or 24% compared to the nine months ended September 30, 2022. The increase in intersegment eliminations was driven by increased intercompany sales to Company-owned retail stores primarily in Pennsylvania and Maryland. Consumer Packaged Goods revenues, net of intersegment eliminations, made up 25% of total revenues during the nine months ended September 30, 2023 as compared to 25% during the nine months ended September 30, 2022.

Due to the vertically integrated nature of the business, the Company reviews its revenue at the Retail and Consumer Packaged Goods level while reviewing its operating results on a consolidated basis.

### Drivers of Results of Operations

#### Revenue

The Company derives its revenue from two revenue streams: a Consumer Packaged Goods business in which it manufactures, sells and distributes its portfolio of Consumer Packaged Goods brands including Beboe, Dogwalkers, Dr. Solomon’s, Good Green, incredibles, and RYTHM, primarily to third-party customers; and a Retail business in which it sells finished goods sourced primarily from third-party cannabis manufacturers in addition to the Company’s own Consumer Packaged Goods products direct to the end consumer in its retail stores, as well as direct-to-consumer delivery where applicable by state law.

For the three and nine months ended September 30, 2023, revenue was contributed from Consumer Packaged Goods and Retail sales across California, Colorado, Connecticut, Florida, Illinois, Maryland, Massachusetts, Minnesota, Nevada, New Jersey, New York, Ohio, Pennsylvania, Rhode Island and Virginia.

#### Gross Profit

Gross profit is revenue less cost of goods sold. Cost of goods sold includes the costs directly attributable to product sales and includes amounts paid for finished goods, such as flower, edibles, and concentrates, as well as packaging and other supplies, fees for services and processing, and allocated overhead which includes allocations of rent, utilities and related costs. 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. Gross margin measures our gross profit as a percentage of revenue.

During the nine months ended September 30, 2023, the Company continued to focus on creating sustainable, profitable growth of the Company’s business within its current markets while considering strategic acquisition and partnership opportunities.

#### Total Expenses

Total expenses other than the cost of goods sold consist of selling costs to support customer relationships and marketing and branding activities. It also includes a significant investment in the corporate infrastructure required to support the Company’s ongoing business.

Retail selling costs generally correlate to revenue. As new stores begin operations, these stores generally experience higher selling costs as a percentage of revenue compared to more established stores, which experience a more constant rate of selling costs. As a percentage of sales, the Company expects selling costs to remain constant in the more established stores and increase in the newer stores as business continues to grow.

General and administrative expenses also include costs incurred at the Company’s corporate offices, primarily related to back office personnel costs, including salaries, incentive compensation, benefits, stock-based compensation and other professional service costs, and fair value adjustments on the Company's contingent consideration arrangements. The Company expects to continue to invest considerably in this area to support the business by attracting and retaining top-tier talent. Furthermore, the Company anticipates an increase in stock-based compensation expenses related to recruiting and hiring talent, along with legal and professional fees associated with being a publicly traded company in Canada and registered with the U.S. Securities and Exchange Commission.

#### Provision for Income Taxes

The Company is subject to income taxes in the jurisdictions in which it operates and, consequently, income tax expense is a function of the allocation of taxable income by jurisdiction and the various activities that impact the timing of taxable events. As the Company operates in the federally illegal cannabis industry, it is subject to the limitations of the U.S. Internal Revenue Code (“IRC”) Section 280E, under which taxpayers are only allowed to deduct expenses directly related to sales of product. This results in permanent differences between ordinary and necessary business expenses deemed non-allowable under IRC Section 280E and a higher effective tax rate than most industries. Therefore, the effective tax rate can be highly variable and may not necessarily correlate to pre-tax income or loss.

### Non-GAAP Measures

EBITDA, and Adjusted EBITDA are non-GAAP measures and do not have standardized definitions under GAAP. The following information provides reconciliations of the supplemental non-GAAP financial measures, presented herein to the most directly comparable financial measures calculated and presented in accordance with GAAP. The Company has provided the non-GAAP financial measures, which are not calculated or presented in accordance with GAAP, as supplemental information and in addition to the financial measures that are calculated and presented in accordance with GAAP. These supplemental non-GAAP financial measures are presented because management has evaluated the financial results both including and excluding the adjusted items and believe that the supplemental non-GAAP financial measures presented provide additional perspective and insights when analyzing the core operating performance of the business. These supplemental non-GAAP financial measures should not be considered superior to, as a substitute for or as an alternative to, and should be considered in conjunction with, the GAAP financial measures presented.

*(in thousands)*

*(in thousands)*

|  | Three Months Ended September 30, 2023 | 2022 | Nine Months Ended September 30, 2023 | 2022 |
| --- | ---: | ---: | ---: | ---: |
| **Net Income Before Non-Controlling Interest** | $10,807 | $10,148 | $33,902 | $64,565 |
| Interest Income, net | (1,576) | (1,085) | (4,838) | (2,609) |
| Interest Expense, net | 4,639 | 4,644 | 11,324 | 16,113 |
| Provision For Income Taxes | 34,526 | 32,969 | 93,927 | 102,440 |
| Total Other Income | 631 | 2,085 | (23) | (14,933) |
| Depreciation and amortization | 25,628 | 24,518 | 73,363 | 71,706 |
| **Earnings before interest, taxes, depreciation and amortization (EBITDA) (non-GAAP measure)** | **$74,655** | **$73,279** | **$207,655** | **$237,282** |
| Stock-based compensation, non-cash | 7,215 | 7,878 | 20,835 | 19,362 |
| Acquisition, transaction and other non-operating (income) costs | 1,119 | 3,306 | 6,549 | (26,405) |
| **Adjusted EBITDA (non-GAAP measure)** | **$82,989** | **$84,463** | **$235,039** | **$230,239** |

34

### Liquidity, Financing Activities During the Period, and Capital Resources

As of September 30, 2023, and December 31, 2022, the Company had total current liabilities of $149,882 thousand and $146,571 thousand, respectively, and cash and cash equivalents of $136,842 thousand and $177,682 thousand, respectively, to meet its current obligations. The Company had working capital of $170,299 thousand as of September 30, 2023, a decrease of $34,481 thousand as compared to December 31, 2022. This decrease in working capital was primarily driven by purchases of property, plant, and equipment as well as the repurchase of 2,500,000 Subordinate Voting Shares through the Company's share repurchase program.

The Company is an early-stage growth company, generating cash from revenues, deploying its capital reserves to acquire and develop assets capable of producing additional revenues and earnings over both the immediate and long term. Capital reserves are primarily being utilized for capital expenditures, facility improvements, strategic investment opportunities, product development and marketing, as well as customer, supplier, and investor and industry relations.

The Company takes a cautious approach in allocating its capital to maximize its returns while ensuring appropriate liquidity. Given the current uncertainty of the future economic environment, the Company has taken additional measures in monitoring and deploying its capital to minimize the negative impact on its current operations and expansion plans.

### Cash Flows

#### Cash Used in Operating Activities, Investing and Financing Activities

Net cash provided by (used in) operating, investing and financing activities for the nine months ended September 30, 2023 and 2022, were as follows:

*(in thousands)*

|  | Nine Months Ended September 30, 2023 | 2022 |
| --- | ---: | ---: |
| Net Cash Provided by Operating Activities | $153,872 | $88,220 |
| Net Cash Used in Investing Activities | $(187,444) | $(161,168) |
| Net Cash Used in Financing Activities | $(7,268) | $(10,214) |

### Off-Balance Sheet Arrangements

As of September 30, 2023, the Company does not have any off-balance-sheet arrangements that have, or are reasonably likely to have, a current or future effect on the results of operations or financial condition of the Company, including, and without limitation, such considerations as liquidity and capital resources.

### Changes in or Adoption of Accounting Practices

Refer to the discussion of recently adopted/issued accounting pronouncements under Part I, Item 1, Notes to Unaudited Interim Condensed Consolidated Financial Statements, Note 1—Overview and Basis of Presentation.

### Critical Accounting Policies and Significant Judgments and Estimates

There were no material changes to our critical accounting policies and estimates from the information provided in “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” included in our 2022 Form 10-K.

## Market risk

As filed, 121 characters.

There have been no material changes to our market risk disclosures as set forth in Part II Item 7A of our 2022 Form 10-K.

## Controls and procedures

As filed, 1,854 characters.

### Evaluation of Disclosure Controls and Procedures

The Company's management carried out an evaluation under the supervision and with the participation of the Company's Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures, as such term is defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended (the Exchange Act). Based upon that evaluation, management concluded that our disclosure controls and procedures were effective as of September 30, 2023.

### Changes in Internal Control Over Financial Reporting

There have been no changes in the Company's internal control over financial reporting during the third quarter of 2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

### Inherent Limitations on Control Systems

Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, will be or have been detected. These inherent limitations include the realities that judgments in decision making can be faulty, and that breakdowns can occur because of simple errors or mistakes. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate.

## Risk factors

As filed, 134 characters.

For a discussion of our potential risks and uncertainties, see the information under the heading "Risk Factors" in our 2022 Form 10-K.

Filed Nov 9, 2023.
Source: SEC EDGAR, the filing index for accession 0000950170-23-061475. Last ingested by Listed: Nov 3, 2026, 22:14 ET. No prices; not investment advice.