Blum Holdings, Inc.: Form 10-Q for the period ended Sep 30, 2025

This management’s discussion and analysis (“MD&A”) of the financial condition and results of operations of Blum Holdings, Inc. (“Blüm” or the “Company”) is for the three and nine months ended September 30, 2025. The following discussion should be read in conjunction with, and is qualified in its entirety by, the consolidated financial statements and the accompanying notes presented in Item 1 of this Quarterly Report on Form 10-Q (this "Form 10-Q") and those discussed in Item 8 of the Company’s Annual Report on Form 10-K (the “Form 10-K”) filed with the SEC on March 13, 2025. Except for historical information, the discussion in this section contains forward-looking statements that involve risks and uncertainties. Future results could differ materially from those discussed below for many reasons, including the risks described in “Cautionary Language Concerning Forward-Looking Statements,” “Item 1A—Risk Factors” and elsewhere in this Form 10-Q.

COMPANY OVERVIEW

Our Business

Blüm is a publicly traded holding company with operating subsidiaries throughout California committed to providing the highest quality of medical and adult use cannabis products and related services. The Company is home to Korova, a brand of high potency products across multiple product categories. The Company formerly operated Blüm Santa Ana, a premier cannabis dispensary in Orange County, California, which was sold in June 2024. The Company previously owned dispensaries in California which operated as Blüm in Oakland and Blüm in San Leandro, which were sold in November 2024. In May 2024, the Company began operating the retail store, Cookies Sacramento, and providing consulting services for two additional dispensaries located in Northern California. In May 2025, the Company began operating a retail dispensary located in Santa Clara County, California. In July 2025, the Company began operating Cookies Redding. As of September 30, 2025, the Company operates a total of five cannabis retail locations in the state of California. As of September 30, 2025, the Company had 133 employees.

We are organized into two reportable segments:

• Cannabis Retail – Includes cannabis-focused retail, both physical stores and non-store front delivery
• Cannabis Distribution – Includes cannabis distribution operations

Either independently or in conjunction with third parties, we operate medical marijuana retail and adult use dispensaries in California.

Blüm has completed a significant realignment, divesting unprofitable assets, consolidating overhead, and concentrating resources on profitable channels. This groundwork has enabled a pivot to a platform model that can scale through both direct ownership and operational control agreements. Key pillars of our strategy:

1. Portfolio Focus: Concentrating on high-performing retail in strategic California markets.

2. Capital Efficiency: Using non-cash consideration, earn-outs, and management agreements to expand without overleveraging.

3. Brand Strength: Revitalizing core product lines and deepening retail brand presence to support margin growth.

4. Operational Leverage: Streamlining purchasing, marketing, and systems across the portfolio to drive efficiency and cash flow.

Our goal is to build not just a chain of stores, but a flywheel platform company that delivers consistent value to customers, partners, and shareholders.

Our corporate headquarters are located at 11516 Downey Avenue, Downey, California 90241 and our telephone number is (888) 909-5564. Our website address is www.blumholdings.com (http://www.blumholdings.com). No information available on or through our websites shall be deemed to be incorporated into this Form 10-Q. Our common stock, par value $0.001 (the “Common Stock”), is quoted on the OTC Markets Group, Inc’s OTCQB tier under the symbol “BLMH.”

Recent Developments

Settlement with People's California, LLC

On February 12, 2025, the Company’s wholly owned subsidiaries Unrivaled Brands, Inc. (“Unrivaled”) and Halladay Holding, LLC (“Halladay Holding”) (collectively, the “Debtors”) and People's California, LLC ("People's") participated in an in-person mediation and reached a settlement. On March 27, 2025, the parties executed definitive documentation for the terms of the settlement. On May 2, 2025, the Bankruptcy Court signed an order approving the settlement, and on May 16, 2025, the settlement went into effect. Under the settlement terms, all pre-petition litigation and bankruptcy adversary proceedings between the parties were dismissed, People's withdrew its motion to dismiss the bankruptcy case, People's will support the Debtors’ liquidating plan, and a payment of $0.40 million from the sale of the Halladay Holding property was made to People's, with an additional $1.00 million subject to an interpleader complaint, which was later resolved and distributed to People’s and a third party.

Intended Acquisitions

On January 2, 2025, the Company entered into a binding term sheet with Mt. Tam Ventures II, LLC ("MTV II") pursuant to which the Company intends to negotiate and enter into an Acquisition Agreement or Share Exchange Agreement, or similarly situated document, pursuant to which the Company shall acquire 100% of the membership interests of MTV II (the "Transaction"). Upon closing of the Transaction, the Company shall pay $0.25 million in cash to MTV II and issue 1,931,152 shares of common stock of the Company (the "Common Stock") to the various holders of the membership interests of MTV II (the "Sellers"). The Company shall also issue to the Sellers a Common Stock purchase warrant to purchase up to 238,368 shares of the Company with an exercise price of $0.54. The aggregate value exchanged shall be equal to $3.93 million. Closing of the Transaction is subject to the execution of definitive agreements and regulatory approvals among other customary conditions.

On January 8, 2025, the Company entered into a binding term sheet with Mesh Ventures, LLC ("Mesh") pursuant to which the Company intends to negotiate and enter into a Merger Agreement or Share Exchange Agreement, or similarly situated document for the Company's acquisition of 100% of the membership interests of Mesh (the "Transaction"). Upon closing of the Transaction, the Company shall pay $0.36 million in cash to Mesh to pay agreed upon debts and liabilities and shall issue 4,531,965 shares of Common Stock to the various holders of the membership interests of Mesh (the "Sellers"). The Company shall also issue to the Sellers warrants to purchase, in the aggregate, up to 471,989 shares of Common Stock, at an exercise price of $0.64 per share. The aggregate value exchanged is expected to equal to $8.99 million. Closing of the Transaction is subject to the execution of definitive agreements and regulatory approvals among other customary conditions.

On May 12, 2025, the Company entered into a binding term sheet (the "Term Sheet") with a holding company ("Target Entity") that holds an equity interest in Cookies Creative Consulting & Promotions, Inc. (“Cookies”) pursuant to which the Company intends to enter into a Share Exchange Agreement or similarly situated document whereby a wholly owned subsidiary of the Company (“Blüm Acquisition Co.”), will acquire 100% of the membership interests of Target Entity (the “Transaction). Upon closing of the Transaction, the Company shall issue 489,131 shares of common stock of the Company, par value $0.001 (the “Common Stock”) and a common stock purchase warrant to acquire, in the aggregate, up to 30,762 shares of Common Stock, at an exercise price of $0.64 per share. The aggregate value exchanged is expected to equal to $562,500.

Acquisition of Fourth Retail Location

On January 31, 2025, the Company entered into a binding letter of intent with EWCR wherein the Company and the sellers of EWCR shall enter into a Stock Sale and Purchase Agreement in which the Company will acquire 100% of the common stock of EWCR, a retail dispensary located in Santa Clara County. On January 31, 2025, Blum Management Holdings, Inc. ("Blum Management") entered into a senior secured convertible promissory note for $0.50 million, bearing 8.0% interest and maturing on March 31, 2025, with an option to convert into shares of EWCR, subject to performance-based adjustments. On March 31, 2025, the maturity date of the promissory note was amended to May 30, 2025.

On May 13, 2025, the Company executed an Amended and Restated Binding Letter of Intent ("A&R LOI") with EWCR wherein the total consideration paid shall consist of: (i) $0.80 million in cash upon execution of the MSA dated May 15, 2025, (ii) assignment of a senior secured convertible promissory note in the amount of the $0.50 million, (iii) the issuance of 434,783 shares of Common Stock of the Company valued at $0.50 million based on a per share price of $1.15, which shall be issued at closing and subject to a 12-month holdback, and (iv) an earn-out provision in the amount of $0.20 million payable in cash or Common Stock at the seller’s election. The proposed transaction is subject to the execution of definitive agreements upon regulatory approval.

On May 15, 2025, the Company, through its wholly-owned subsidiary Blum Management, executed a management services agreement with EWCR (the "MSA") pursuant to which the Company shall have immediate operational and economic control of EWCR. As consideration for such services, the Company shall receive a management fee of 100% of the economic benefit of EWCR. The term of the MSA is indefinite and may only be terminated by the Company or upon the closing of the proposed transaction. The MSA entered into on May 15, 2025 resulted in the consolidation of EWCR. Refer to "Note 10 – Business Combinations" of the consolidated financial statements for further information.

Acquisition of Fifth Retail Location

On July 1, 2025, the Company entered into a binding term sheet with Green Door Redding, LLC ("GDR") pursuant to which the Company intends to acquire 80% of the membership interests in GDR (the "Transaction") in exchange for shares of the Company's Common Stock. The total purchase consideration will be determined based on the greater of: (i) GDR’s trailing twelve months revenue or (ii) the best consecutive six-month revenue period during the 12-month period following closing multiplied by 2.0x, and reduced by verified and unrecorded liabilities as of the closing date. The exchange valuation may be further increased by 125% of any available cash at closing that is contributed to or invested directly into the Company. In addition, up to $750,000 of contingent consideration, payable in shares of the Company’s Common Stock, is contingent upon GDR’s achievement of specified revenue and EBITDA margin thresholds during the 12-month period following closing. The equity consideration includes a redemption right permitting the seller, if the average closing price of the Company’s Common Stock over any 15 consecutive trading-day period between 24 and 26 months after closing is below $1.15 per share, to redeem all of the Common Stock received in exchange for the return of their original equity interests in GDR. The final purchase price will be determined 12 months after the closing date and payable in shares of Common Stock. The preliminary exchange valuation consists of 1,428,696 shares of Common Stock with an aggregate value of $1,643,000 based on a per share price of $1.15. The closing of the Transaction is subject to customary regulatory approvals at the state and municipal levels.

On July 1, 2025, the Company, through its wholly-owned subsidiary Blum Management, entered into a management services agreement with GDR pursuant to which the Company has been granted exclusive operational and economic control of GDR. GDR operates Cookies Redding, a retail dispensary located in Redding, California. As consideration for such management services, the Company shall receive 100% of the economic benefit of GDR. The Company shall pay all expenses and liabilities incurred to operate GDR. The term of the MSA is indefinite and may only be terminated by the Company or upon the closing of the proposed transaction. The MSA entered into on July 1, 2025 resulted in the consolidation of EWCR. Refer to "Note 10 – Business Combinations" of the consolidated financial statements for further information.

Unsecured Note Financing

On January 8, 2025, the Company issued unsecured promissory notes in the aggregate principal amount of $0.10 million (the “January 2025 Notes”) amongst four separate investors (the “Lenders”). The January 2025 Notes have a maturity date of December 30, 2026 with no interest accruing except for default interest and no prepayment penalty. The January 2025 Notes are convertible at the Lenders’ individual election into a convertible promissory note that shall include (i) an automatic conversion into the shares of capital stock issued by Blüm in its next bona fide equity financing with proceeds to Blüm of at least $10.00 million or such lesser amount as approved by Lenders at a conversion price equal to the lesser of (x) 85% of the lowest price paid by the cash investors in such financing and (y) the price represented by a $30.00 million pre-money valuation of Blüm. The Company issued to the Lenders warrants to purchase, in the aggregate, up to 7,812 shares of the Company's Common Stock, at an exercise price of $0.64 per share. The proceeds from the January 2025 Notes were used for general working capital needs. On April 30, 2025, the Company amended and restated the Notes wherein the maturity date was extended to January 8, 2027 and the conversion feature was amended. The Notes, as amended, may be converted at the Lender’s election into a convertible promissory note that shall include an automatic conversion into shares of capital stock issued by Blüm at a conversion price equal to 85% of a $20.90 million pre-money valuation of Blüm (equal to a per share price of $0.98 on a fully diluted basis).

On February 25, 2025, the Company issued an unsecured promissory note in the principal amount of $0.20 million which matured on September 30, 2025 and bears no interest. The Company may prepay the principal balance in full at any time without penalty. The proceeds from the unsecured promissory note dated February 25, 2025 were used for general working capital needs. On May 7, 2025, the unsecured promissory note was amended wherein the note may be converted at the Lender’s election into a convertible promissory note. The conversion shall include the option to convert into shares of capital stock issued by Blüm at a conversion price equal to 85% of a $20.90 million pre-money valuation of Blüm (equal to a per share price of $0.98 on a fully diluted basis). In addition, the Company issued to the Lender warrants to purchase up to 75,472 shares of the Company's common stock, at an exercise price of $0.53 per share. The balance of the unsecured promissory note was unpaid as of September 30, 2025. Management is renegotiating terms of the promissory note as of the date of these consolidated financial statements were issued.

On April 18, 2025, the Company issued an unsecured promissory note in the principal amount of $0.33 million which matured on July 31, 2025 and bears no interest. The Company may prepay the principal balance in full at any time without penalty. The proceeds from the unsecured promissory note dated April 18, 2025 were used for general working capital needs. On May 8, 2025, the unsecured promissory note was amended wherein the note may be converted at the Lender’s election into a convertible promissory note. The conversion shall include the option to convert into shares of capital stock issued by Blüm at a conversion price equal to 85% of a $20.90 million pre-money valuation of Blüm (equal to a per share price of $0.98 on a fully diluted basis). In addition, the Company issued to the Lender warrants to purchase up to 122,642 shares of the Company's common stock, at an exercise price of $0.53 per share. The balance of the unsecured promissory note was unpaid as of September 30, 2025. Management is renegotiating terms of the promissory note as of the date of these consolidated financial statements were issued.

On May 2, 2025, the Company executed and delivered an Unsecured Promissory Note in the principal amount of $1.00 million (the “Note”) to an investor (the “Lender”). The Note has a maturity date of May 2, 2027 and bears interest at a rate of 8.0% per annum payable monthly in arrears, commencing on June 15, 2025. The Company may prepay the principal balance in full at any time without penalty. The Note is convertible at the Lender’s election into a convertible promissory note that shall include an automatic conversion into the shares of capital stock issued by Blüm at a conversion price equal to 85% of a $20.90 million pre-money valuation of Blüm (equal to a per share price of $0.98 on a fully diluted basis). The Company issued to the Lender warrants to purchase up to 377,358 shares of Common Stock, at an exercise price of $0.53 per share. The proceeds from the Note were used for the cash consideration of $0.80 million related to EWCR and general working capital needs.

On May 15, 2025, the Company amended and restated the unsecured promissory note dated November 12, 2024 in the aggregate principal amount of $0.80 million wherein the conversion feature was amended to an automatic conversion into shares of capital stock issued by Blüm at a conversion price equal to 85% of a $20.90 million pre-money valuation of Blüm (equal to a per share price of $0.98 on a fully diluted basis).

On September 16, 2025, the Company issued an unsecured promissory note in the principal amount of $0.50 million which matures on September 16, 2027 and bears interest at a rate of 8.0% per annum payable monthly in arrears, commencing on January 15, 2026. The Company may prepay the principal balance in full at any time without penalty. The Note is convertible at the Lender’s election into a convertible promissory note that shall include an automatic conversion into the shares of capital stock issued by Blüm at a conversion price equal to 85% of a $20.90 million pre-money valuation of Blüm (equal to a per share price of $0.98 on a fully diluted basis). The Company issued to the Lender warrants to purchase up to 571,429 shares of Common Stock, at an exercise price of $0.35 per share.

On September 17, 2025, the Company issued an unsecured promissory note in the principal amount of $0.25 million which matures on September 17, 2027 and bears interest at a rate of 8.0% per annum payable monthly in arrears, commencing on January 15, 2026. The Company may prepay the principal balance in full at any time without penalty. The Note is convertible at the Lender’s election into a convertible promissory note that shall include an automatic conversion into the shares of capital stock issued by Blüm at a conversion price equal to 85% of a $20.90 million pre-money valuation of Blüm (equal to a per share price of $0.98 on a fully diluted basis). The Company issued to the Lender warrants to purchase up to 285,714 shares of Common Stock, at an exercise price of $0.35 per share.

On September 26, 2025, the Company received an advance payment of $0.20 million in connection with a promissory note that is currently under verbal agreement. The promissory note has not yet been formally signed by the parties involved. The advance is recorded as a liability until the terms of the formal agreement are finalized. The Company is in the process of negotiating the terms of the promissory note as of the date of these consolidated financial statements were issued.

Management Changes

On January 1, 2025, the Company entered into an Amended and Restated Engagement Letter with Adnant, LLC wherein the term of the engagement was extended to December 31, 2025 and the monthly service fee was decreased from $0.25 million to $0.08 million, which shall be payable monthly subject to the Company having a sufficient cash balance.

On May 8, 2025, the Company appointed Brad Hirsch to the Board of Directors (the “Board”), effective May 8, 2025. Mr. Hirsch will serve as a member of the Company's (i) Audit Committee, (ii) Compensation Committee, and (iii) Governance and Nominating Committee.

Outlook

Blüm is progressing from a period of restructuring and cost reduction into a more focused and disciplined growth phase. Over the past year, the Company streamlined its operations by divesting non-core assets, lowering overhead, and improving efficiency, which has laid the foundation for sustainable expansion. Management believes this work is beginning to show results, as Blüm continues to add profitable retail locations in key California markets and expand its reach through a mix of acquisitions, management agreements, and partnerships that allow for growth without significant cash commitments. These efforts are complemented by initiatives to strengthen our retail brands and enhance the customer experience, supporting margin expansion, loyalty, and broader product distribution.

Looking ahead, management intends to maintain a balanced approach to growth by strengthening cash flow, maintaining a conservative balance sheet, and funding core drivers such as inventory, targeted promotions, and selective acquisitions. As integration activities from recent acquisitions progress, SG&A is expected to remain well managed relative to revenue, supporting improved operating leverage. The Company continues to seek financing structures that align with its long-term goals, focusing on flexibility and capital efficiency. Overall, Blüm’s strategy centers on disciplined execution, prioritizing profitability, operational efficiency, and sustainable value creation for shareholders.

RESULTS OF OPERATIONS

The below table outlines our consolidated statements of operations for the nine months ended September 30, 2025 and 2024:

(in thousands)

29

Nine Months Ended September 30, 2025 Compared to Nine Months Ended September 30, 2024 (Unaudited)

Revenue

Overall revenue for the nine months ended September 30, 2025 was $10.57 million compared to $9.93 million for the nine months ended September 30, 2024, an increase of $0.63 million or 6.4%. Revenue from continuing operations for the nine months ended September 30, 2025 was composed of retail revenue of $10.33 million and distribution revenue of $0.24 million. This compared to prior year revenue from continuing operations which composed of retail revenue of $9.79 million and distribution revenue of $0.14 million.

Retail revenue for the nine months ended September 30, 2025 increased by $0.54 million or 5.5% compared to the same period in prior year. The current year additions of two new retail dispensaries contributed $5.52 million in retail revenue, which more than offset the loss of revenue resulting from the sale of Blüm Santa Ana in June 2024 and Blüm Oakland and Blüm San Leandro in November 2024. As of September 30, 2025, the Company's retail operations consisted of five dispensaries (three acquired in May 2024 and two in the current period) compared to six dispensaries as of September 30, 2024.

Distribution revenue for the nine months ended September 30, 2025 increased by $0.1 million or 69.3% compared to the same period in the prior year. The increase in distribution revenue was primarily due to the distribution of Korova products to third-party retail dispensaries during the current year.

Gross Profit

Cost of goods sold for the nine months ended September 30, 2025 was $5.36 million, an increase of $0.27 million or 5.3% compared to $5.1 million for the nine months ended September 30, 2024. The increase in cost of goods was directly correlated with the increase in overall revenue as described above.

Gross profit from continuing operations for the nine months ended September 30, 2025 was $5.2 million compared to $4.84 million for the nine months ended September 30, 2024, an increase of $0.36 million or 7.5%. The increase in gross profit was primarily impacted by the increase in revenue as described above. The Company's overall gross margin for the nine months ended September 30, 2025 of 49.2% was generally consistent with 48.7% for the same period in the prior year. Gross margin for on-going retail operations declined from 50.8% for the nine months ended September 30, 2024 down to 49.5% for the nine months ended September 30, 2025, primarily reflecting the impact of the acquisition of EWCR, which operates with lower margins under a value-oriented pricing model designed to drive higher sales volumes and customer growth.

Selling, General & Administrative Expenses

Selling, general and administrative expenses for the nine months ended September 30, 2025 were $8.81 million compared to $14.84 million for the nine months ended September 30, 2024, a decrease of $6.03 million or 40.6%. The decrease in selling, general and administrative expenses was primarily due to a decrease of $0.63 million in rental and facility expenses, a decrease of $0.53 million in security expense, and a decrease of $0.37 million in stock-based compensation. The decreases in rent and security expense were primarily driven by the sale of three dispensaries with higher operating costs during fiscal year 2024. In addition, professional fees decreased by $4.42 million due to the significant bankruptcy and restructuring efforts undertaken in the prior year as well as the Amended and Restated Engagement Letter with Adnant, LLC dated January 1, 2025 wherein the monthly service fee was decreased from $0.25 million to $0.08 million. The reduction in selling, general and administrative expenses reflects the Company's operational restructuring for a leaner corporate structure.

Operating Loss

The Company realized an operating loss from continuing operations of $3.61 million for the nine months ended September 30, 2025 compared to $12.2 million for the nine months ended September 30, 2024, a decrease of $8.6 million or 70.4%. The decrease in operating loss was primarily due to the decrease in selling, general and administrative expenses as described above, coupled with an impairment loss on long-lived assets of $1.71 million recognized in prior year versus none in the nine months ended September 30, 2025.

Other Income (Expenses)

The Company recognized other expenses of $0.36 million for the nine months ended September 30, 2025 compared to other income of $13.09 million for the nine months ended September 30, 2024, a decrease of $13.45 million or 102.8%. This was primarily due to a gain on extinguishment of debt of $15.18 million recognized in the prior year, resulting from the disposition of People's First Choice, LLC. In contrast, a loss on extinguishment of debt of $0.17 million was recognized in the current year, resulting from amendments to unsecured promissory notes with various lenders during the nine months ended September 30, 2025. For the same reasons, interest expense decreased by $0.75 million compared to the same period in the prior year. During the nine months ended September 30, 2025, the Company received a management service termination fee of $0.70 million. In addition, the Company recognized a gain of $0.19 million for changes in fair value of derivative liability in the current year, versus a loss of $0.68 million in the prior year, primarily due to changes in the Company's underlying stock price as of the reporting date.

Provision for Income Taxes

Provision for income tax expense for continuing operations was $1.04 million for the nine months ended September 30, 2025 compared to $0.75 million for the nine months ended September 30, 2024, an increase of $0.3 million or 39.7%. For the nine months ended September 30, 2025, the Company calculated its provision for income taxes during the interim reporting period by treating the year-to-date period as if it were the annual period and applying an estimate of the federal income tax rate on gross profit for the current period.

Discontinued Operations

Net income from discontinued operations was nil for the nine months ended September 30, 2025 compared to $16.44 million for the comparative prior period. Discontinued operations for all periods presented consist of the Company's cultivation operations, Blüm Santa Ana, and The Spot. These operations were fully divested as of December 31, 2024, and as a result, the Company had no income or loss from discontinued operations during the nine months ended September 30, 2025.

Three Months Ended September 30, 2025 Compared to Three Months Ended June 30, 2025 (Unaudited)

The below table outlines our consolidated statements of operations for the fiscal third quarter of 2025 compared to the fiscal second quarter of 2025:

(in thousands)

Revenue

Overall revenue for the three months ended September 30, 2025 was $4.85 million compared to $3.48 million for the three months ended June 30, 2025, an increase of $1.37 million or 39.4%. Revenue from continuing operations for the three months ended September 30, 2025 was composed of retail revenue of $4.78 million and distribution revenue of $0.07 million. This compared to the prior quarter ended June 30, 2025 in which revenue from continuing operations consisted of retail revenue of $3.38 million and distribution revenue of $0.1 million.

Retail revenue for the three months ended September 30, 2025 increased by $1.4 million or 41.3% compared to the consecutive prior quarter ended June 30, 2025. On July 1, 2025, the Company began operating Cookies Redding which contributed $0.98 million in retail revenue during the three months ended September 30, 2025. The addition of a retail location in Santa Clara County on May 15, 2025 contributed revenue for part of the fiscal second quarter, compared with a full three months in the fiscal third quarter.

Distribution revenue for the fiscal third quarter ended September 30, 2025 was generally consistent with the fiscal second quarter ended June 30, 2025.

Gross Profit

Cost of goods sold for the three months ended September 30, 2025 was $2.53 million, an increase of $0.74 million or 41.1%, compared to $1.79 million for the three months ended June 30, 2025. The increase in cost of goods sold is relative to the increase in revenue as described above.

Gross profit from continuing operations for the three months ended September 30, 2025 was $2.32 million compared to $1.69 million for the three months ended June 30, 2025, an increase of $0.63 million or 37.5%. The increase in gross profit was directly impacted by the increase in revenue as described above. The Company's overall gross margin declined slightly from the prior consecutive quarter at 47.9% compared to 48.6% for the three months ended June 30, 2025. The decrease primarily reflects the full-quarter impact of the EWCR acquisition, which operates with lower margins under a value-oriented pricing model. The prior quarter included only a partial contribution from EWCR following its acquisition on May 15, 2025. Similarly, gross margin for on-going retail operations decreased slightly to 47.6% for the three months ended September 30, 2025 compared to 48.4% for the preceding quarter.

Selling, General & Administrative Expenses

Selling, general and administrative expenses for the three months ended September 30, 2025 were $3.82 million compared to $2.5 million for the three months ended June 30, 2025, an increase of $1.32 million or 52.8%. The increase in selling, general and administrative expenses was primarily due to an increase of $0.48 million in salaries and benefits, an increase of $0.19 million in rental and facility expenses, and an increase of $0.17 million in general operating costs. Such increases resulted from the addition of a fifth retail location, Cookies Redding, in July 2025, and the addition of EWCR in May 2025 which contributed expenses for part of the prior quarter, compared with a full three months in the current quarter.

Operating Loss

The Company realized an operating loss from continuing operations of $1.5 million for the three months ended September 30, 2025 compared to $0.81 million for the three months ended June 30, 2025, an increase of $0.69 million or 84.7%. The increase in operating loss from the preceding quarter was due to the increase in selling, general and administrative expenses of $1.32 million as described above, offset by the increase in gross profit.

Other Expenses

The Company recognized other expenses of $0.6 million for the three months ended September 30, 2025 compared to $0.75 million for the three months ended June 30, 2025. Changes in fair value of derivative liability decreased by $0.17 million compared to the preceding quarter as a result of stabilization in the underlying share price and associated market volatility during the current quarter. During the fiscal second quarter of 2025, the Company recognized a loss on extinguishment of debt of $0.17 million, resulting from amendments to unsecured promissory notes with various lenders during the prior quarter, versus no such debt amendments during the current period.

Provision for Income Taxes

Provision for income tax expense for continuing operations was $0.46 million for the three months ended September 30, 2025 compared to $0.33 million for the three months ended June 30, 2025, an increase of $0.13 million or 39.9%. For the three months ended September 30, 2025, the Company calculated its provision for income taxes during the interim reporting period by treating the year-to-date period as if it were the annual period and applying an estimate of the federal income tax rate on gross profit for the current period.

Non-GAAP Reconciliations

Non-GAAP earnings is a supplemental measure of our performance that is neither required by, nor presented in accordance with, U.S. generally accepted accounting principles (“US GAAP”). Non-GAAP earnings is not a measurement of the Company's financial performance under US GAAP and should not be considered as alternative to net income, operating income, or any other performance measures derived in accordance with US GAAP, or as alternative to cash flows from operating activities as a measure of the Company's liquidity. In addition, in evaluating non-GAAP earnings, you should be aware that in the future the Company will incur expenses or charges such as those added back to calculate non-GAAP earnings. The Company's presentation of non-GAAP earnings should not be construed as an inference that its future results will be unaffected by unusual or nonrecurring items.

Non-GAAP earnings has limitations as an analytical tool, and you should not consider it in isolation, or as a substitute for analysis of the Company's results as reported under US GAAP. Some of these limitations are (i) it does not reflect the Company's cash expenditures, or future requirements for capital expenditures or contractual commitments, (ii) it does not reflect changes in, or cash requirements for, the Company's working capital needs, (iii) it does not reflect interest expense, or the cash requirements necessary to service interest or principal payments, on the Company's debt, (iv) although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future, and non-GAAP earnings does not reflect any cash requirements for such replacements, (v) it does not adjust for all non-cash income or expense items that are reflected in the Company's statements of cash flows, and (vi) other companies in our industry may calculate this measure differently than we do, limiting its usefulness as comparative measures.

The Company compensates for these limitations by providing specific information regarding the US GAAP amounts excluded from such non-GAAP financial measures. The Company further compensates for the limitations in our use of non-GAAP financial measures by presenting comparable US GAAP measures more prominently.

The Company believes that non-GAAP earnings facilitates operating performance comparisons from period to period by isolating the effects of some items that vary from period to period without any correlation to core operating performance or that vary widely among similar companies. These potential differences may be caused by variations in capital structures (affecting interest expense) and the age and book depreciation of facilities and equipment (affecting relative depreciation expense). The Company also presents non-GAAP earnings because (i) it believes that this measure is frequently used by securities analysts, investors and other interested parties to evaluate companies in the Company's industry, (ii) the Company believes that investors will find these measures useful in assessing the Company's ability to service or incur indebtedness, and (iii) the Company uses non-GAAP earnings internally as benchmark to compare its performance to that of its competitors.

In the presentation of the financial results below, the Company reconciles non-GAAP Adjusted EBITDA Loss with net loss attributable to continuing operations, the most directly comparable US GAAP measure. Management believes that this presentation may be more meaningful in analyzing our income generation.

On a non-GAAP basis, the Company recorded non-GAAP Adjusted EBITDA Loss of $1.27 million for the three months ended September 30, 2025 compared to $0.62 million for the three months ended June 30, 2025. For the nine months ended September 30, 2025 and 2024, the Company recorded non-GAAP Adjusted EBITDA Loss of $2.31 million and $8.84 million, respectively. The details of those expenses and non-GAAP reconciliation of these non-cash items are set forth below:

(in thousands)

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LIQUIDITY, CAPITAL RESOURCES AND GOING CONCERN

We incurred pre-tax net loss from continuing operations of $2.1 million and $3.97 million for the three and nine months ended September 30, 2025, respectively, and had an accumulated deficit of $426.09 million and $421.08 million at September 30, 2025 and December 31, 2024, respectively. As of September 30, 2025, we had a working capital deficit of $23.7 million, including $0.39 million of cash, compared to a working capital deficit of $6.79 million, including $1.04 million of cash, as of December 31, 2024. Current assets were approximately 0.07 times current liabilities as of September 30, 2025, compared to approximately 0.30 times current liabilities as of December 31, 2024.

We have not been able to generate sufficient cash from operating activities to fund our ongoing operations. Since our inception, we have raised capital through private sales of Common Stock, preferred stock, and debt securities. Our future success is dependent upon our ability to achieve profitable operations and generate cash from operating activities. There is no guarantee that we will be able to generate enough revenue and/or raise capital to support our operations. We will be required to raise additional funds through public or private financing, additional collaborative relationships or other arrangements until we are able to raise revenues to a point of positive cash flow. We continue to evaluate various options to further reduce our cash requirements to operate at a reduced rate, as well as options to raise additional funds, including obtaining loans and selling Common Stock. There is no guarantee that we will be able to generate enough revenue and/or raise capital to support our operations, or if we are able to raise capital, that such capital will be available to us on acceptable terms, on an acceptable schedule, or at all.

The risks and uncertainties surrounding the Company’s ability to continue to raise capital and its limited capital resources raise substantial doubt as to the Company’s ability to continue as a going concern for twelve months from the issuance of these financial statements. The accompanying consolidated financial statements have been prepared in accordance with US GAAP, which contemplate our continuation as a going concern.

Operating Activities

Cash used in operating activities for the nine months ended September 30, 2025 was $1.51 million compared to $1.31 million for the nine months ended September 30, 2024, a change of $0.2 million. In May 2024, the Company expanded its retail operations through the addition of three dispensaries in Northern California, which represented all of the Company's retail operations during the fiscal first quarter of 2025. In May 2025 and July 2025, the Company added a dispensary located in Santa Clara County and Redding, California to its renewed retail portfolio. This contrasts with the nine months ended September 30, 2024, during which the Company's retail operations also included Blum Oakland and Blum San Leandro, which were subsequently sold in November 2024. Since August 2022, management implemented a restructuring and reorganization to stabilize operations and position the Company for profitability. As part of this initiative, the Company integrated five new retail locations in Northern California during fiscal year 2025 and strategically disposed of underperforming legacy assets, allowing the Company to redirect resources and enable better allocation of capital. Management anticipates improvements in cash flow from operating activities as the Company continues to execute its growth strategy.

Investing Activities

Cash used in investing activities for the nine months ended September 30, 2025 was $0.97 million compared to cash provided by investing activities of $2.34 million for the nine months ended September 30, 2024, a decrease of $3.31 million, or 141.5%. The decrease in cash provided by investing activities was primarily due to proceeds from investments of $1.30 million in the prior year. In addition, during the fiscal second quarter of 2024, the Company acquired $0.96 million in cash from Coastal Pines Group as part of the transactions on May 1, 2024. Whereas during the nine months ended September 30, 2025, the Company has paid an aggregate amount of $0.66 million in cash to acquire EWCR and GDR.

Financing Activities

Cash provided by financing activities for the nine months ended September 30, 2025 was $1.83 million compared to cash used in financing activities of $0.42 million for the nine months ended September 30, 2024, a decrease of $2.25 million, or 534.5%. The decrease in cash used in financing activities as compared to the prior year was primarily due to cash proceeds totaling $2.34 million from unsecured note financing during the nine months ended September 30, 2025, versus no financing in the comparative prior period. This was offset by an increase of $0.13 million in payments of debt principal.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Our “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section discusses our unaudited consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. On an on-going basis, management evaluates its estimates and judgments, including those related to revenue recognition, accrued expenses, financing operations, and contingencies and litigation. Management bases its estimates and judgments on historical experience and on various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. The most significant accounting estimates inherent in the preparation of our financial statements include estimates as to the appropriate carrying value of certain assets and liabilities which are not readily apparent from other sources. These accounting policies are described in “Note 2 – Summary of Significant Accounting Policies” of the notes to unaudited consolidated financial statements included in this Form 10-Q.

DISCLOSURE ABOUT OFF-BALANCE SHEET ARRANGEMENTS

As of September 30, 2025, the Company does not have any transactions, agreements or other contractual arrangements that constitute off-balance sheet arrangements.

Under the supervision and with the participation of our management, our principal executive officer and our principal financial officer are responsible for conducting an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, as of September 30, 2025. Based on this evaluation, our principal executive officer and principal financial officer concluded as of the evaluation date that our disclosure controls and procedures were not effective to a reasonable level as of September 30, 2025.

Based on the results of its assessment, our management concluded that our internal control over financial reporting was not effective as of September 30, 2025 based on such criteria due to material weaknesses in internal control over financial reporting described below:

Material Weaknesses in Internal Control over Financial Reporting

• Failure to timely record transactions and to timely review account reconciliations resulting in post-closing adjustments and restatement of the financial statements.
• The Company’s primary user access controls (i.e. provisioning, de-provisioning, and quarterly user access review) to ensure appropriate segregation of duties that would adequately restrict user and privileged access to the financially relevant systems and data to appropriate Company personnel were not operating effectively. Automated process-level controls and manual controls that are dependent upon the information derived from such financially relevant systems were also determined to be ineffective as a result of such deficiency.

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Remediation Plan

We plan to enhance our internal control over financial reporting in an effort to remediate the material weaknesses described above. We are committed to ensuring that our internal control over financial reporting is designed and operating effectively. Our remediation process will include:

• Enhancing the organizational structure to support financial reporting processes and internal controls.
• Investing in IT systems to enhance our operational and financial reporting and internal controls.
• Establishing effective general controls over IT systems to ensure that information produced can be relied upon by process level controls is relevant and reliable.
• Providing guidance, education and training to employees relating to our accounting policies and procedures.
• Further developing and documenting detailed policies and procedures regarding business processes for significant accounts, critical accounting policies and critical accounting estimates.

We expect to remediate these material weaknesses during fiscal year 2025. However, we may discover additional material weaknesses that may require additional time and resources to remediate.

Changes in Internal Control Over Financial Reporting

We regularly assess the adequacy of our internal controls over financial reporting and enhance our controls in response to internal control assessments and external audit and regulatory recommendations. No changes in internal control over financial reporting have been identified in connection with the evaluation of disclosure controls and procedures during the quarter ended September 30, 2025 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

Certain factors that may affect the Company’s business or operations are described under “Risk Factors” in Part I, Item 1A, of our Annual Report on Form 10-K (the “Annual Report”). There have been no material changes to our risk factors from the risk factors previously disclosed in the 2024 Annual Report.