Verano Holdings Corp.: Form 10-Q for the period ended Jun 30, 2025

This management discussion and analysis (this “MD&A”) of the financial condition and results of operations of the Company is for the three and six months ended June 30, 2025 and June 30, 2024. It is supplemental to, and should be read in conjunction with, the Company’s Unaudited Interim Condensed Consolidated Financial Statements and the accompanying notes for the three and six months ended June 30, 2025 and with the Company’s Audited Consolidated Financial Statements and the accompanying notes for the years ended December 31, 2024, 2023 and 2022 included in the Form 10-K. The financial statements referenced in this MD&A are prepared in accordance with GAAP. Financial information presented in this MD&A is presented in United States dollars (“$” or “US$”) and expressed in thousands, unless otherwise indicated. This MD&A contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those projected, forecasted, or expected in these forward-looking statements as a result of various factors, including, but not limited to, those discussed in the Form 10-K and this Form 10-Q. See “Cautionary Statement Regarding Forward-Looking Statements” above, “Risk Factors” in Part I, Item 1A above and “Risk Factors” in the Form 10-K and Part II, Item 1A of subsequently filed Form 10-Qs. The Company's management believes the assumptions underlying the Company’s financial statements and accompanying notes are reasonable. However, the Company’s financial statements and accompanying notes may not be an indication of the Company's financial condition and results of operations in the future.

OVERVIEW OF THE COMPANY

Verano, one of the U.S. cannabis industry’s leading companies based on historical revenue, geographical scope and brand performance, is a vertically integrated, multi-state operator embracing a mission of saying Yes to plant progress and the bold exploration of cannabis. An operator of licensed cannabis cultivation, processing, wholesale distribution and retail facilities, our goal is the ongoing development of communal wellness by providing responsible access to regulated medical and adult use cannabis products to discerning customers. As of August 5, 2025, through our subsidiaries and affiliates we operate businesses in 13 states, including 157 retail dispensaries and 15 cultivation and processing facilities with over 1.1 million square feet of cultivation capacity. We produce a wide variety of high-quality cannabis products sold under our portfolio of consumer brands, including Encore™, Avexia™, MÜV™, Savvy™, (the) Essence™, BITS™ and Verano™. We also design, build and operate branded retail environments including Zen Leaf™ and MÜV™ dispensaries that deliver a cannabis shopping experience in both medical and adult use markets.

Notwithstanding the permissive regulatory environment of medical, and in some cases, also adult use (i.e., recreational) cannabis, at the state level, it remains illegal under U.S. federal law to cultivate, manufacture, distribute, sell or possess cannabis in the U.S. Because federal law prohibits transporting any federally restricted substance across state lines, cannabis cannot be transported across state lines. As a result of current federal law prohibitions, the U.S. cannabis industry is conducted on a state-by-state basis. To date, in the U.S 39 states plus the District of Columbia and the U.S. territories of Puerto Rico, Guam, the Commonwealth of Northern Marina Islands, and the U.S. Virgin Islands have authorized comprehensive medical cannabis programs, 24 states plus the District of Columbia and the U.S. territories of Guam, the Commonwealth of Northern Mariana Islands, and the U.S. Virgin Islands have authorized comprehensive programs for medical and adult use (i.e. recreational) cannabis, and 6 states allow the use of low tetrahydrocannabinol (THC) and high cannabidiol (CBD) products for specified medical uses. Verano operates within states where cannabis use, medical or both medical and adult use, has been approved by state and local regulatory bodies. Strict compliance with state and local laws with respect to cannabis may neither absolve the Company of liability under U.S. federal law, nor may it provide a defense to any federal proceeding which may be brought against the Company or any of its subsidiaries.

Our strategy is to vertically integrate as a single cohesive company in multiple states through the consolidation of seed-to-sale cultivating, manufacturing, distributing, and dispensing cannabis brands and products at scale. Our cultivation, processing and wholesale distribution of cannabis consumer packaged goods are designed to guarantee shelf-space in our national retail dispensary chains, as well as to develop and foster long term wholesale supply relationships with third-party retail operators. Our model includes geographic diversity by establishing a footprint to allow us to adapt to changes in both industry and market conditions.

The United States government has recently adopted new approaches to trade policy and has announced tariffs on certain foreign goods and the possibility of significant additional tariff increases or expansions of tariffs. The timing and scope of such tariffs by the United States and retaliatory tariffs by other countries in response to such tariffs is currently uncertain. Such tariffs could create supply chain disruptions or increased pricing of procured materials, which could impact our current and expansion strategy as well as our business, operating results and financial condition. See “Risk Factors” in Part II, Item 1A in the Form 10-Q filed for the period ended March 31, 2025.

SELECTED RESULTS OF OPERATIONS

The following presents selected financial data derived from the (i) Unaudited Interim Condensed Consolidated Financial Statements for the three and six months ended June 30, 2025 and 2024 and (ii) the Condensed Consolidated Balance Sheets as of June 30, 2025 and December 31, 2024, and should be read in conjunction with the Unaudited Interim Condensed Consolidated Financial Statements and accompanying notes presented in Item 1 of this Form 10-Q. The selected Unaudited Interim Condensed Consolidated financial information below may not be indicative of the Company's future performance.

Three Months Ended June 30, 2025, as Compared to Three Months Ended June 30, 2024

($ in thousands)

Revenues, net of discounts

Revenues, net of discounts, for the three months ended June 30, 2025 was $202,272, a decrease of $20,118 or 9.0%, compared to revenue of $222,390 for the three months ended June 30, 2024. The decrease in revenue, net of discounts, was driven primarily by the Company's accounts receivable strategy of maintaining a number of accounts on hold for non-payment coupled with expected third-party price compression in established markets. This is partially offset by the launch of the Ohio adult-use program during August 2024, new stores associated with the acquisition of CC East Virginia and Cannabist AZ, and increased sales within the Florida market when comparing the three months ended June 30, 2025 to the three months ended June 30, 2024. During the three months ended June 30, 2025, the Company opened three new stores: one in Connecticut, one in Florida and one in Ohio. Retail revenue for the three months ended June 30, 2025 was approximately 69.7% of total revenue compared to 64.0% of total revenue for the three months ended June 30, 2024, in each case, excluding intersegment eliminations. Cultivation (wholesale) revenue for the three months ended June 30, 2025 was 30.3% of total revenue compared to 36.0% of total revenue for the three months ended June 30, 2024, in each case, excluding intersegment eliminations.

Gross Profit

Gross profit for the three months ended June 30, 2025 was $112,984, representing a gross profit margin of 55.9%. This is compared to gross profit for the three months ended June 30, 2024 of $114,340, which represented a gross profit margin of 51.4%. The decrease in gross profit during the three months ended June 30, 2025 compared to the three months ended June 30, 2024, was primarily attributable to overall top-line revenue decline coupled with increased promotional activity in established markets, partially offset by more efficient harvests from expanded cultivation facilities.

Net Loss

Net Loss attributable to the Company for the three months ended June 30, 2025 was $(19,150), a decrease of $2,614, compared to a net loss of $(21,764) for the three months ended June 30, 2024. The decrease was primarily driven by an overall decrease in other income (expense), net partially offset by an increase in the provision for income taxes when comparing the three months ended June 30, 2025 to the three months ended June 30, 2024.

($ in thousands)

Cost of Goods Sold, net

Cost of goods sold, net includes the costs directly attributable to cultivating and processing cannabis and for retail purchases of finished goods, such as flower, edibles, and concentrates. Cost of goods sold, net for the three months ended June 30, 2025 was $89,288, a decrease of $18,762 or 17.4%, as compared to the three months ended June 30, 2024. The decrease was primarily driven by overall decline in top-line revenue coupled with more efficient harvests from expanded cultivation facilities.

Selling, General, and Administrative Expenses

Selling, general and administrative expenses (“SG&A”) for the three months ended June 30, 2025 were $86,345, a decrease of $729 or 0.8%, compared to SG&A expenses of $87,074 for the three months ended June 30, 2024. SG&A expenses as a percentage of revenue were 42.7% and 39.2% for the three months ended June 30, 2025 and June 30, 2024, respectively. The slight decrease in SG&A expenses was attributable to a decrease in amortization largely offset by additional SG&A costs associated with new locations related to the CC East Virginia and Cannabist AZ acquisitions when comparing the three months ended June 30, 2025 to the three months ended June 30, 2024.

Total Other Income (Expense), net

Total other income (expense), net for the three months ended June 30, 2025, was $(10,209), a decrease of $8,291 as compared to the three months ended June 30, 2024. The total other income (expense), net decrease was primarily due to the Company's voluntary partial payoff agreement for the CC East Virginia Promissory Note resulting in a Gain on Debt Extinguishment of $2,947 for the three months ended June 30, 2025, compared to a Loss on Debt Extinguishment of $(3,068) attributable to the Permitted Partial Optional Prepayment under the 2022 Credit Agreement for the three months ended June 30, 2024.

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. Income tax expense for the three months ended June 30, 2025, was $35,152, an increase of $4,622 or 15.1% when compared to the three months ended June 30, 2024, primarily due to the forecasted annualized effective tax rates, adjusted for discrete items.

Six Months Ended June 30, 2025, as Compared to Six Months Ended June 30, 2024

($ in thousands)

Revenues, net of discounts

Revenues, net of discounts, for the six months ended June 30, 2025 was $412,081, a decrease of $31,615 or 7.1%, compared to revenue of $443,696 for the six months ended June 30, 2024. The decrease in revenue, net of discounts was driven primarily by the Company's accounts receivable strategy of maintaining a number of accounts on hold for non-payment coupled with expected third-party price compression in established markets. This is partially offset by the launch of the Ohio adult-use program during August 2024, new stores associated with the acquisition of CC East Virginia and Cannabist AZ, and increased sales within the Florida market. During the six months ended June 30, 2025, the Company opened five new stores: two in Connecticut, two in Florida and one in Ohio. Retail revenue for the six months ended June 30, 2025 was approximately 68.8% of total revenue compared to 65.1% of total revenue for the six months ended June 30, 2024, in each case, excluding intersegment eliminations. Cultivation (wholesale) revenue for the six months ended June 30, 2025 was 31.2% of total revenue compared to 34.9% of total revenue for the six months ended June 30, 2024, in each case, excluding intersegment eliminations.

Gross Profit

Gross profit for the six months ended June 30, 2025 was $212,565, representing a gross profit margin on the sale of cannabis, cannabis extractions, edibles and related accessories of 51.6%. This is compared to gross profit for the six months ended June 30, 2024 of $227,300, which represented a 51.2% gross profit margin on the sale of cannabis, cannabis extractions, edibles and related accessories. The decrease in gross profit during the six months ended June 30, 2025 compared to the six months ended June 30, 2024, was primarily attributable to overall top-line revenue decline coupled with increased promotional activity in established markets, partially offset by more efficient harvests from expanded cultivation facilities.

Net Loss

Net Loss attributable to the Company for the six months ended June 30, 2025 was $(30,665), an increase of $4,079, compared to a net loss of $(26,586) for the six months ended June 30, 2024. The increase was driven by an overall decline in top-line revenues, net of discounts and gross profit coupled with an increase in the provision for income taxes for the six months ended June 30, 2025 compared to the six months ended June 30, 2024.

($ in thousands)

Cost of Goods Sold, net

Cost of goods sold, net, includes the costs directly attributable to cultivating and processing cannabis and for retail purchases of finished goods, such as flower, edibles, and concentrates. Cost of goods sold, net, for the six months ended June 30, 2025 was $199,516, a decrease of $16,880 or 7.8%, as compared to the six months ended June 30, 2024. The decrease was primarily driven by overall decline in top-line revenue coupled with more efficient harvests from expanded cultivation facilities.

Selling, General, and Administrative Expenses

SG&A for the six months ended June 30, 2025 were $170,924, a decrease of $6,439 or 3.6%, compared to SG&A expenses of $177,363 for the six months ended June 30, 2024. SG&A expenses as a percentage of revenue was 41.5% and 40.0% for the six months ended June 30, 2025, and June 30, 2024, respectively. The decrease in SG&A expenses was driven by a decrease in amortization coupled with ongoing efficiencies generated across the business. This decrease was partially offset by additional SG&A costs associated with new locations related to the CC East Virginia and Cannabist AZ acquisitions when comparing the six months ended June 30, 2025 to the six months ended June 30, 2024.

Total Other Income (Expense), net

Total other income (expense), net for the six months ended June 30, 2025, was $(19,377), a decrease of $15,139 as compared to the six months ended June 30, 2024. The total other income (expense), net decrease was largely attributable to the voluntary partial payoff agreement for the CC East Virginia Promissory Note resulting in a Gain on Debt Extinguishment of $2,947 for the three months ended June 30, 2025, compared to a Loss on Debt Extinguishment of $(3,068) attributable to the Permitted Partial Optional Prepayment under the 2022 Credit Agreement for the three months ended June 30, 2024. Additionally, the other income (expense), net decrease was attributable to less interest expense on our debt obligations coupled with a Gain on Deconsolidation relating to our Arkansas operations during January 2025, which no longer met the criteria for consolidation as a result of termination of contracts providing us with control over the applicable entity's operations, when comparing the three months ended June 30, 2025 to the three months ended June 30, 2024.

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. Income tax expense for the six months ended June 30, 2025, was $(52,501), an increase of $(10,494) or 25.0% primarily due to the forecasted annualized effective tax rates, adjusted for discrete items.

Results of Operations by Segment

The Company has two reportable segments: (i) cultivation (wholesale) and (ii) retail. Due to the vertically integrated nature of its business, the Company reviews its revenue at the cultivation (wholesale) and retail levels while reviewing its operating results on a consolidated basis.

The following tables summarize revenues, net of discounts, by segment for the three and six months ended June 30, 2025 and 2024:

($ in thousands)

Revenues, net of discounts, for the cultivation (wholesale) segment were $73,340 for the three months ended June 30, 2025, a decrease of $19,131 or 20.7%, compared to the three months ended June 30, 2024, in each case, excluding intersegment eliminations. The decrease in cultivation (wholesale) revenues, net of discounts, was driven by the Company's accounts receivable strategy of maintaining a number of accounts on hold for non-payment, competition in the New Jersey and Illinois markets and strategic allocation of materials for new product development when comparing the three months ended June 30, 2025 to the three months ended June 30, 2024.

Revenues, net of discounts, for the retail segment were $169,098 for the three months ended June 30, 2025, an increase of $4,506 or 2.7%, compared to the three months ended June 30, 2024, in each case, excluding intersegment eliminations. The increase in retail revenues, net of discounts, was primarily driven by favorable contributions from the CC East Virginia and Cannabist AZ acquisitions and increased sales within the Florida market. Additionally, the Company continued to see increased competition and promotional activity, specifically in New Jersey and Illinois, which is consistent with other multi-state cannabis operators.

($ in thousands)

Revenues, net of discounts, for the cultivation (wholesale) segment were $152,901 for the six months ended June 30, 2025, a decrease of $25,690 or 14.4%, compared to the six months ended June 30, 2024, in each case, excluding intersegment eliminations. The decrease in cultivation (wholesale) revenues, net of discounts, was driven by the Company's accounts receivable strategy of maintaining a number of accounts on hold for non-payment, competition and reduced third-party wholesale sales in the New Jersey and Illinois markets, as well as, strategic allocation of materials for new product development.

Revenues, net of discounts, for the retail segment were $337,905 for the six months ended June 30, 2025, an increase of $4,725 or 1.4%, compared to the six months ended June 30, 2024, in each case, excluding intersegment eliminations. The increase in retail revenues, net of discounts, was driven by increased sales within the Florida market, the launch of the Ohio adult-use program during August 2024, new store openings and acquisition activity when comparing the six months ended June 30, 2025 to the six months ended June 30, 2024. Additionally, the Company continued to see increased competition and promotional activity, specifically in New Jersey and Illinois which is consistent with other multi-state cannabis operators.

Drivers of Operational Performance

Revenue

The Company derives its revenue from both its cultivation (wholesale) business in which it cultivates, produces and sells cannabis products to third-party retail customers, and its retail business, in which it directly sells cannabis products to retail patients and consumers. For the three months ended June 30, 2025, approximately 30.3% of the Company’s revenue was generated from the cultivation (wholesale) business, excluding intersegment eliminations, and approximately 69.7% from the retail business, excluding intersegment eliminations. For the six months ended June 30, 2025, approximately 31.2% of revenue was generated from the cultivation (wholesale) business and approximately 68.8% from the retail business, excluding intersegment eliminations.

Gross Profit

Gross profit is revenue less cost of goods sold, net. Cost of goods sold, net 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, 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 profit margin measures the Company’s gross profit as a percentage of revenue.

The Company’s expansion and revenue growth strategy has taken priority and will continue to do so for the foreseeable future as it expands its footprint, by exploring new markets and opening or acquiring new dispensary locations, and scales production within certain markets. In the core markets in which the Company is already operational and, as the state markets mature, the Company anticipates that there will be pressure on margins in the cultivation (wholesale) and retail channels. The Company’s current production capacity has not been fully realized and it is expected that price compression at the cultivation (wholesale) level, will be partially offset by operational optimization.

Total Expenses

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

Selling costs generally correlate to revenue. As a percentage of sales, selling costs are expected to increase slightly in currently operational markets as facility and market expansion occurs. The increase is expected to be driven primarily by the growth of the Company’s retail and cultivation (wholesale) channels and new retail openings.

SG&A 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 professional service costs. SG&A expenses may increase in connection with supporting the business and could experience an increase in expenses related to recruiting and hiring talent, along with legal and professional fees associated with being a public-reporting company and publicly traded in Canada and a public-reporting company in the U.S.

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 cannabis industry, it is subject to the limits of Section 280E of the Code under which the Company is only allowed to deduct expenses directly related to the sale of products. This results in permanent differences between ordinary and necessary business expenses deemed non-allowable under Section 280E of the Code and a higher effective tax rate than most industries. The Company has taken a position that it does not owe taxes attributable to the application of Section 280E of the Code.

LIQUIDITY, FINANCING ACTIVITIES AND CAPITAL RESOURCES

As of June 30, 2025 and December 31, 2024, the Company had total current liabilities of $147,832 and $197,968, respectively. As of June 30, 2025 and December 31, 2024, the Company had cash and cash equivalents of $68,569 and $87,796, respectively, to meet its current obligations. The Company had working capital of $223,524 as of June 30, 2025, an increase of working capital of $63,983 as compared to December 31, 2024. This increase in working capital during the six months ended June 30, 2025 compared to December 31, 2024, was attributable to an increase in inventory driven by higher production volumes and more efficient harvests from expanded cultivation facilities coupled with increases in Held for Sale Assets related to, in the aggregate, cultivation facilities in Florida, Massachusetts and Pennsylvania, two retail facilities in Massachusetts and a property in Virginia as of June 30, 2025.

The Company generates cash from revenues and deploys its capital to acquire and develop assets capable of producing additional revenues and earnings over both the immediate and long term. Capital is 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 inflation and the uncertainty of the future economic environment, the Company has taken additional measures in monitoring and deploying its capital to minimize the potentially negative impact on its operations and expansion plans.

Liquidity Requirements

Our short-term liquidity requirements consist primarily of funds necessary to pay for our acquisitions, to repay borrowings, maintain our operations and other general business needs. We believe that internally generated funds and other sources of liquidity discussed below will be sufficient to meet working capital needs, capital expenditures, and other business requirements for at least the next 12 months. We believe we will meet known or reasonably likely future cash requirements through the combination of cash generated from operating activities, available cash balances and available borrowings. If these sources of liquidity need to be augmented, additional cash requirements would likely be financed through the issuance of equity securities or additional borrowings; however, there can be no assurances that we will be able to obtain additional equity financing or debt financing on acceptable terms, or on terms similar to our existing financings, in the future.

Our long-term liquidity requirements consist primarily of completing additional acquisitions, scheduled debt payments and future payments of income tax payables, maintaining and expanding our operations and other general business needs. We expect to meet our long-term liquidity requirements through various sources of capital, which may include future debt or equity issuances, net cash provided by operations and other secured and unsecured borrowings. We believe that the foregoing sources of capital will provide sufficient funds for our operations, anticipated expansion and scheduled debt payments for the long-term. Our ability to fund our operating needs will depend on our future ability to continue to generate positive cash flow from operations and our ability to obtain debt or equity financing on acceptable terms.

Credit Facility

In October 2022, Verano and certain of its subsidiaries and affiliates, as the Borrowers, entered into the 2022 Credit Agreement with Chicago Atlantic, as administrative agent for the Lenders, and the Lenders party thereto, pursuant to which the Lenders advanced the Borrowers a $350,000 senior secured term loan, and which also provides the Borrowers with the right, subject to conditions, to request an additional incremental term loan of up to $100,000; provided that the Lenders elect to fund such incremental term loan. At funding, all the proceeds of the loans made under the 2022 Credit Agreement were used to repay the amounts owing under the Company's previous senior secured term loan credit facility. In connection with such repayment, such previous credit facility was terminated and is no longer in force or effect.

The 2022 Credit Agreement allows the Borrowers to (i) incur up to $120,000 of additional indebtedness from third-party lenders secured by real estate excluded as collateral under the 2022 Credit Agreement, (ii) incur additional mortgage financing from third-party lenders secured by real estate acquired after the initial funding of the 2022 Credit Agreement, and (iii) upon the SAFE Banking Act or similar legislation making banking services available to U.S. cannabis companies being passed by the United States Congress, incur up to $50,000 under a revolving credit facility from third-party lenders that is pari passu or subordinated to the 2022 Credit Agreement obligations, all of which are subject to customary conditions.

The obligations under the 2022 Credit Agreement are secured by substantially all of the assets of the Borrowers, excluding vehicles, specified parcels of real estate and other customary exclusions. The 2022 Credit Agreement provides for a floating annual interest rate equal to the prime rate then in effect plus 6.50%, which rate may be increased by 3.00% upon an event of default that is not a material event of default or 6.00% upon a material event of default as provided in the 2022 Credit Agreement. The initially funded $350,000 loan requires scheduled amortization payments of $350 per month beginning in October 2023 with the remaining principal balance due in full on October 30, 2026.

At any time, the Borrowers may voluntarily prepay up to $100,000 of the principal balance, subject to a one-time $1,000 prepayment premium upon the first prepayment, and may prepay the remaining outstanding principal balance for a prepayment premium at varying rates based on the timing of any subsequent prepayments. The Borrowers may not voluntarily prepay more than $100,000 of the principal balance without prepaying the entire outstanding principal balance of the loan.

On April 30, 2024, the Company made a Permitted Partial Optional Prepayment (as defined in the 2022 Credit Agreement) in the amount of $50,000 pursuant to the 2022 Credit Agreement and paid a $1,000 prepayment premium in connection therewith. In connection with such Permitted Partial Optional Prepayment, Chicago Atlantic and certain Lenders agreed to (a) release certain Borrowers from their obligations under, and as parties to, the 2022 Credit Agreement and related agreements and (b) release all liens over such Borrowers’ property, including real estate, held by Chicago Atlantic for the benefit of the Lenders, in each case, pursuant to a limited consent and waiver, dated as of April 29, 2024, by and among Borrowers, certain of the lenders party thereto and Chicago Atlantic.

The 2022 Credit Agreement includes customary representations, warranties and covenants and customary events of default, including payment defaults, breaches of representations and warranties, covenant defaults, cross-defaults to material indebtedness, and events of bankruptcy and insolvency.

The 2022 Credit Agreement also includes customary negative covenants limiting the Borrowers’ ability to incur additional indebtedness and grant liens, and the ability to enter into definitive documents or consummate acquisitions or dispositions that are not otherwise permitted thereunder, among others. Additionally, the 2022 Credit Agreement requires the Borrowers to meet financial tests regarding minimum cash balances, minimum levels of Adjusted EBITDA (as defined in the 2022 Credit Agreement) and a minimum fixed charge coverage ratio.

As of June 30, 2025, the Company was in compliance with such covenants.

George Archos, the Chairman and Chief Executive Officer of the Company, participated in the 2022 Credit Agreement as a lender funding $1,000 of the $350,000 principal amount. Mr. Archos is excluded from certain approval rights of the lenders and any penalties and fees due to Mr. Archos under the 2022 Credit Agreement are immaterial to the Company.

Tax Liabilities

The Company has U.S. income tax payable liabilities. These income tax payable liabilities will require payment from our liquidity sources, and we believe we have sufficient liquidity for both short-term and long-term payments of our income tax payable liabilities in addition to our other obligations. The Company expects to retain additional cash from operations, due in part to the Company's treatment of Section 280E of the Code as not applying to limit its deduction of ordinary and necessary business expenses.

Sources and Uses of Cash

Net Cash Provided by (Used in) Operating Activities, Investing and Financing Activities

Net cash provided by (used in) operating, investing, and financing activities for the six months ended June 30, 2025 and 2024 were as follows:

Cash Flows from Operating Activities. Cash flow generated from operating activities provides us with a source of liquidity. Our cash flows from operating activities result from cash received from our customers, offset by cash payments we make for products and services, operational costs, and income taxes. During the six months ended June 30, 2025 and 2024, the Company had net cash inflows of $12,686 and $38,962, respectively. The $26,276 decrease was largely driven by an increase in inventory driven by higher production volumes and more efficient harvests from expanded cultivation facilities when comparing the six months ended June 30, 2025 to the six months ended June 30, 2024.

Cash Flows from Investing Activities. During the six months ended June 30, 2025 and 2024, the Company had net cash outflows of $(15,183) and $(28,215), respectively. The $13,032 decrease in net cash outflows during the six months ended June 30, 2025 compared to the six months ended June 30, 2024 was primarily driven by proceeds from the Noah's Ark deconsolidation of $9,071 coupled with lower purchases of property, plant and equipment of $(24,333) during the six months ended June 30, 2025, compared to purchases of property, plant and equipment of $(28,215) during the six months ended June 30, 2024.

Cash Flows from Financing Activities. During the six months ended June 30, 2025 and 2024, the Company had net cash outflows of $(16,727) and $(55,470), respectively. The $38,743 decrease in net cash outflows during the six months ended June 30, 2025 compared to the six months ended June 30, 2024 was largely attributable to the Permitted Partial Optional Prepayment under the 2022 Credit Agreement during the six months ended June 30, 2024 partially offset by the partial payoff related to a portion of the CC East Virginia Promissory Note and distributions made to non-controlling interest holders during the six months ended June 30, 2025.

Changes in or Adoption of Accounting Practices

Refer to the discussion of recently issued accounting standards 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 Judgements 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 the Form 10-K.

Disclosure Controls and Procedures

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 (the “Exchange Act”)) are designed to ensure that information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in SEC rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow for timely decisions regarding required disclosure.

As required by Rule 13a-15(b) and Rule 15d-15(b) under the Exchange Act, our management, including our Chief Executive Officer (who is our principal executive officer) and Chief Financial Officer (who is our principal financial officer), evaluated, as of June 30, 2025, the end of the period covered by this Form 10-Q, the effectiveness of our disclosure controls and procedures as defined in Exchange Act Rule 13a-15(e) and Rule 15d-15(e). Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of the end of the period covered by this Form 10-Q.

We believe that a controls system, no matter how well designed and operated, cannot provide absolute assurance that the objectives of the controls systems are met, and no evaluation of controls can provide absolute assurance that all control issues and instances of fraud or error, if any, within a company have been detected.

Changes in Internal Control over Financial Reporting

There have not been any changes in our internal control over financial reporting during the quarter ended June 30, 2025, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Each of Part I, Item 1A. “Risk Factors” in our Form 10-K and Part II, Item 1A. “Risk Factors” in our Quarterly Report on Form 10-Q filed with the SEC on May 8, 2025 (the “Q1 2025 Form 10-Q”), include a discussion of our risk factors. There have been no material changes from the risk factors described within the Form 10-K and the Q1 2025 Form 10-Q. We may disclose changes to such risk factors or disclose additional risk factors from time to time in our future SEC filings.