Verano Holdings Corp.: Form 10-Q for the period ended Jun 30, 2026

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, 2026 and June 30, 2025. 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, 2026 and with the Company’s Audited Consolidated Financial Statements and the accompanying notes for the years ended December 31, 2025 and 2024 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. See “Cautionary Statement Regarding Forward-Looking Statements” above, “Risk Factors” in Part II, Item 1A below and “Risk Factors” in the Form 10-K. 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 Holdings Corp., a Nevada corporation (“Verano,” the “Company,” “we,” “us,” or “our”), 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. As an operator of licensed cannabis cultivation, processing, wholesale distribution and retail facilities, our goal is to support communal wellness by providing responsible access to regulated medical and adult use cannabis products. As of August 3, 2026, through our subsidiaries and affiliates we operate businesses in 13 states, including 163 retail dispensaries and 14 cultivation and processing facilities with over 1.1 million square feet of cultivation capacity. We produce a wide variety of cannabis products sold under our portfolio of consumer brands, including Savvy™, (the) Essence™, Swift Lifts™, HYPHEN™, Encore™, BITS™, Avexia™, MÜV™, CTPharma™, and Verano™. We also design, build and operate branded dispensaries operating under the Zen Leaf™ and MÜV™ retail banners, among others, 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. 40 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 8 states allow the use of low tetrahydrocannabinol and high cannabidiol 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.

On December 18, 2025, President Trump issued the Executive Order which directs federal agencies to expedite the process of rescheduling cannabis from a Schedule I to a Schedule III controlled substance under the CSA. Rescheduling cannabis to Schedule III would not legalize state sanctioned medical cultivation, manufacturing, distribution, sale or possession of medical or adult use cannabis in the U.S. However, it would lessen criminal penalties at the federal level and remove Section 280E tax considerations. The final effects of the Executive Order are dependent on other government actions. Despite such actions and the ongoing rule making process, there can be no guarantees that the rescheduling rule making process will continue on a certain timeline or that any rules will come out of the rule making process that will benefit the Company. The Executive Order, and rescheduling cannabis to Schedule III, alone, does not federally legalize adult use and would not federally authorize or approve state sanctioned medical programs. Cannabis would still be subject to the same FDA drug approval process as all other substances, and sales outside of FDA approval, would still be criminal at the federal level.

On April 23, 2026, the Justice Department in accordance with the Executive Order issued the “April Final Order” reclassifying medical cannabis from Schedule I to Schedule III under the CSA. This action, taken pursuant to the Attorney General’s Authority under the CSA to schedule substances in compliance with the Single Convention on Narcotic Drugs, 1961, applies only to state licensed and approved medical cannabis; all other forms of cannabis including adult use remains classified as Schedule I. The April Final Order, effective as of April 26, 2026, provides an expedited registration process for state medical licensees and specifically states that registered state medical licensees will no longer be subject to the constraints of Section 280E. Separately, the Attorney General filed notices withdrawing the pending hearing on the proposed rulemaking notice filed in 2024, and instituted a new hearing on the proposed rule which began on June 29, 2026 and concluded on July 15, 2026. This expedited hearing addressed rescheduling the plant in its entirety, outside of state sanctioned medical programs. The evidentiary hearing concluded on July 15, 2026, and initial briefings are due from the parties on August 17, 2026. To date, no schedule has been set for an issuance of a final order on the hearing. The IRS, in a press release, has indicated that, for Section 280E purposes, rescheduling will generally apply to the full taxable year that includes the effective date of the April Final Order, for activities no longer involving Schedule I or II substances. However, formal guidance from the IRS remains pending. The ultimate impact of the April Final Order and the hearing — including the resolution of accrued uncertain tax positions, remains uncertain and is subject to ongoing evaluation due to the complexity of the regulatory and tax environment. In May 2026, several petitions were filed challenging the April Final Order, along with a motion to stay the April Final Order. The outcome of this litigation and its impact on the April Final Order and the hearing are uncertain. Verano remains subject to federal laws, including those prohibiting all other forms of cannabis, including adult use. There can be no guarantees that the rescheduling of adult use cannabis will continue on a certain timeline or at all or that the outcome will benefit the Company.

Substantially all of the Company’s business, operating results and financial condition relate to U.S. cannabis-related activities. 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 of cannabis brands and products at scale. Our cultivation, processing and distribution of cannabis consumer packaged goods are designed to support our retail dispensaries, as well as to develop and foster long term wholesale supply relationships with third-party retail operators. Our model includes establishing a diverse geographic footprint that allows us to adapt to changes in both industry and market conditions.

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, 2026 and 2025 and (ii) the Condensed Consolidated Balance Sheets as of June 30, 2026 and December 31, 2025, 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. All shares of Common Stock, RSUs, stock options, share capital and per share information presented in this report have been retroactively adjusted, where applicable, to reflect the Reverse Stock Split.

Three Months Ended June 30, 2026, as Compared to Three Months Ended June 30, 2025

($ in thousands)

Revenues, net of discounts

Revenues, net of discounts, for the three months ended June 30, 2026 was $217,918, an increase of $15,646 or 8%, compared to revenue of $202,272 for the three months ended June 30, 2025. The increase in revenue, net of discounts, was driven by strong new product momentum, including the continued expansion of our HYPHEN™ and Swift Lifts™ product lines, as well as strategic collaborations, which broadened brand offerings in select markets and categories. Additionally, when comparing the three months ended June 30, 2026 to the three months ended June 30, 2025, operational improvements attributed to the increase of revenues, net of discounts, including extended store hours across our Florida locations and targeted marketing initiatives designed to improve customer acquisition and retention. During the three months ended June 30, 2026, the Company continued to grow its retail presence, including the opening of one new store in Florida. These favorable factors were partially offset by competitive pressures in the Connecticut third party wholesale market. Retail revenues, net of discounts, for the three months ended June 30, 2026 was approximately 69.5% of total revenue compared to 69.7% of total revenue for the three months ended June 30, 2025, in each case, excluding intersegment eliminations. Cultivation (wholesale) revenues, net of discounts, for the three months ended June 30, 2026 was approximately 30.5% of total revenue compared to 30.3% of total revenue for the three months ended June 30, 2025, in each case, excluding intersegment eliminations. Refer to “Results of Operations by Segment” for further discussion of our retail revenue and cultivation (wholesale) revenues, net of discounts.

Gross Profit

Gross profit for the three months ended June 30, 2026 was $99,699, representing a gross profit margin of 46%. This is compared to gross profit for the three months ended June 30, 2025 of $112,984, which represented a gross profit margin of 56%. The decrease was primarily attributable to price compression in the third-party cultivation (wholesale) segment when comparing the three months ended June 30, 2026 to the three months ended June 30, 2025.

Net Loss

Net loss attributable to the Company for the three months ended June 30, 2026 was $(13,411), a decrease of $5,739, compared to a net loss of $(19,150) for the three months ended June 30, 2025. The decrease was primarily driven by a lower provision for income taxes, partially offset by an increase in operational expenses when comparing the three months ended June 30, 2026 to the three months ended June 30, 2025.

($ in thousands)

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. Cost of goods sold, net for the three months ended June 30, 2026 was $118,219, an increase of $28,931 or 32.4%, as compared to the three months ended June 30, 2025. The increase was mainly attributable to an increase in overall revenues, net of discounts, when comparing the three months ended June 30, 2026 to the three months ended June 30, 2025.

Selling, General, and Administrative Expenses

Selling, general and administrative (“SG&A”) expenses for the three months ended June 30, 2026 were $92,494, an increase of $6,149 or 7%, compared to SG&A expenses of $86,345 for the three months ended June 30, 2025. SG&A expenses as a percentage of revenue were 42% and 43% for the three months ended June 30, 2026 and June 30, 2025, respectively. The increase in SG&A expenses was attributable to administrative costs and additional operational costs associated with new store openings when comparing the three months ended June 30, 2026 to the three months ended June 30, 2025.

Loss on Impairment of Held for Sale Assets

During the three months ended June 30, 2026, the Company recorded an impairment on a held-for-sale asset related to a cultivation facility in Massachusetts of $4,062 as the carrying value exceeded the fair value less the cost to sell by such amount. In an effort to maximize its return on investments coupled with footprint optimization, the Company has $23,927 of assets held for sale. The Company has $21,725 of assets held for sale related to cultivation facilities in Florida and Massachusetts and $2,202 of assets held for sale related to two retail facilities in Massachusetts as of June 30, 2026.

Other Expense, net

Other expense, net for the three months ended June 30, 2026, was $(13,629), an increase of $3,420 as compared to the three months ended June 30, 2025. The increase in other expense, net was attributable to other non-operational costs when comparing the three months ended June 30, 2026 to the three months ended June 30, 2025. The year-over-year variance is partially offset by the Company's voluntary partial payoff agreement for the promissory note issued by the Company to Columbia Care East Virginia, LLC (the “CC East Virginia Promissory Note”) resulting in a Gain on Debt Extinguishment of $2,947 for the three months ended June 30, 2025, when compared to the three months ended June 30, 2026.

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, 2026, was $2,925, as compared to $35,152 for the three months ended June 30, 2025, a decrease of $32,227 or 92% primarily due to the forecasted annualized effective tax rates, adjusted for discrete items.

Six Months Ended June 30, 2026, as Compared to Six Months Ended June 30, 2025

($ in thousands)

Revenues, net of discounts

Revenues, net of discounts, for the six months ended June 30, 2026 was $426,096, an increase of $14,015 or 3%, compared to revenue of $412,081 for the six months ended June 30, 2025. The increase in revenue, net of discounts, was driven by strong new product momentum, including the continued expansion of our HYPHEN™ and Swift Lifts™ product lines, as well as strategic collaborations, which broadened brand offerings in select markets and categories. Additionally, when comparing the six months ended June 30, 2026 to the six months ended June 30, 2025, operational improvements attributed to the increase of revenues, net of discounts, including extended store hours across our Florida locations and targeted marketing initiatives designed to improve customer acquisition and retention. During the six months ended June 30, 2026, the Company continued to grow its retail presence, including the opening of three new stores in Florida. Retail revenue for the six months ended June 30, 2026 was approximately 69.1% of total revenue compared to 68.8% of total revenue for the six months ended June 30, 2025, in each case, excluding intersegment eliminations. Cultivation (wholesale) revenue for the six months ended June 30, 2026 was approximately 30.9% of total revenue compared to 31.2% of total revenue for the six months ended June 30, 2025, in each case, excluding intersegment eliminations. Refer to “Results of Operations by Segment” for further discussion of our retail revenue and cultivation (wholesale) revenues, net of discounts.

Gross Profit

Gross profit for the six months ended June 30, 2026 was $198,675, representing a gross profit margin of 47%. This is compared to gross profit for the six months ended June 30, 2025 of $212,565, which represented a gross profit margin of 52%. The decrease in gross profit during the six months ended June 30, 2026 compared to the six months ended June 30, 2025, was primarily attributable to price compression in the third-party cultivation (wholesale) segment.

Net Loss

Net loss attributable to the Company for the six months ended June 30, 2026 was $(31,234), an increase of $569, compared to a net loss of $(30,665) for the six months ended June 30, 2025. The increase was primarily driven by an increase in operational and non-operational expenses, and a loss on debt extinguishment related to the 2022 Credit Agreement of $5,738, which is largely offset by a decrease in the provision for income taxes when comparing the six months ended June 30, 2026 to the six months ended June 30, 2025.

($ in thousands)

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. Cost of goods sold, net, for the six months ended June 30, 2026 was $227,421, an increase of $27,905 or 14%, as compared to the six months ended June 30, 2025. The increase was primarily driven by an increase in overall revenues, net of discounts, when comparing the six months ended June 30, 2026 to the six months ended June 30, 2025.

Selling, General, and Administrative Expenses

SG&A expenses for the six months ended June 30, 2026 were $178,371, an increase of $7,447 or 4%, compared to SG&A expenses of $170,924 for the six months ended June 30, 2025. SG&A expenses as a percentage of revenue was 42% and 41% for the six months ended June 30, 2026, and June 30, 2025, respectively. The increase in SG&A expenses was attributable to administrative costs, marketing costs and additional operational costs associated with new store openings when comparing the six months ended June 30, 2026 to the six months ended June 30, 2025.

Loss on Impairment of Held for Sale Assets

During the six months ended June 30, 2026, the Company recorded an impairment on a held-for-sale asset related to a cultivation facility in Massachusetts of $4,062 as the carrying value exceeded the fair value less the cost to sell by such amount. In an effort to maximize its return on investments coupled with footprint optimization, the Company has $23,927 of assets held for sale. The Company has $21,725 of assets held for sale related to cultivation facilities in Florida and Massachusetts and $2,202 of assets held for sale related to two retail facilities in Massachusetts as of June 30, 2026.

Other Expense, net

Other expense, net for the six months ended June 30, 2026, was $(32,928), representing an increase of $(13,551) compared to the six months ended June 30, 2025. This increase was largely driven by a $5,738 loss on debt extinguishment related to the 2022 Credit Agreement obligations recognized during the six months ended June 30, 2026. When comparing the six months ended June 30, 2026 to the six months ended June 30, 2025, the year-over-year variance in other expense, net was primarily attributable to i) a $2,947 Gain on debt extinguishment resulting from the voluntary partial payoff of the CC East Virginia Promissory Note for the period ended June 30, 2025, and ii) a $4,739 Gain on Deconsolidation related to our Arkansas operations for the period ended June 30, 2025. The Arkansas deconsolidation occurred in January 2025, when those operations no longer met the criteria for consolidation following the termination of contracts that had previously provided us with control over the applicable entity's operations.

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, 2026, was $(14,548), a decrease of $37,953 or 72% 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, 2026 and 2025:

($ in thousands)

Revenues, net of discounts, for the cultivation (wholesale) segment were $79,812 for the three months ended June 30, 2026, an increase of $6,472 or 9%, compared to the three months ended June 30, 2025, in each case, excluding intersegment eliminations. The increase in cultivation (wholesale) revenues, net of discounts, was driven by the increased demand for new products, new customer growth, and notable strength in the New Jersey, Ohio, Pennsylvania, and Virginia third party wholesale markets. This is partially offset by increased competition and promotional activity in key third-party wholesale markets, specifically in Connecticut when comparing the three months ended June 30, 2026 to the three months ended June 30, 2025.

Revenues, net of discounts, for the retail segment were $182,158 for the three months ended June 30, 2026, an increase of $13,060, compared to the three months ended June 30, 2025, in each case, excluding intersegment eliminations. The increase in retail revenue, net of discounts, was driven by strong new product momentum, including the continued expansion of our HYPHEN™ and Swift Lifts™ product lines, as well as strategic collaborations, which broadened brand offerings in select markets and categories. Additionally, operational improvements attributed to the increase of retail revenues, net of discounts, including extended store hours across our Florida locations and targeted marketing initiatives designed to improve customer acquisition and retention, when comparing the three months ended June 30, 2026 to the three months ended June 30, 2025.

($ in thousands)

Revenues, net of discounts, for the cultivation (wholesale) segment were $158,644 for the six months ended June 30, 2026, an increase of $5,743 or 4%, compared to the six months ended June 30, 2025, in each case, excluding intersegment eliminations. The increase in cultivation (wholesale) revenues, net of discounts, was attributable to new customer acquisitions and increased customer base particularly in the New Jersey, Ohio, and Virginia markets. The comparative increase is partially offset by continued price compression and competition in third party wholesale markets, most notably in Connecticut when comparing the six months ended June 30, 2026 to the six months ended June 30, 2025.

Revenues, net of discounts, for the retail segment were $354,298 for the six months ended June 30, 2026, an increase of $16,393 or 5%, compared to the six months ended June 30, 2025, in each case, excluding intersegment eliminations. The increase in retail revenue, net of discounts, was driven by strong new product momentum, including the continued expansion of our HYPHEN™ and Swift Lifts™ product lines, as well as strategic collaborations, which broadened brand offerings in select markets and categories. Additionally, operational improvements attributed to the increase of retail revenues, net of discounts, including extended store hours across our Florida locations and targeted marketing initiatives designed to improve customer acquisition and retention, when comparing the six months ended June 30, 2026 to the six months ended June 30, 2025.

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, 2026, approximately 30.5% of the Company’s revenue was generated from the cultivation (wholesale) business, excluding intersegment eliminations, and approximately 69.5% from the retail business, excluding intersegment eliminations. For the six months ended June 30, 2026, approximately 30.9% of revenue was generated from the cultivation (wholesale) business, excluding intersegment eliminations and approximately 69.1% 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 strategy and revenue growth have 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 has experienced pressure on margins within the cultivation (wholesale) and retail segments and expects this to continue. 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 continue to increase slightly in currently operational markets as facility and market expansion occurs. The increase is expected to continue to be driven primarily by the growth of the Company’s retail and cultivation (wholesale) segments and new retail openings.

SG&A expenses also include personnel costs incurred, including salaries, incentive compensation, benefits, stock-based compensation and professional service costs. SG&A expenses may increase in connection with supporting the business and the Company 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.

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, 2026 and December 31, 2025, the Company had total current liabilities of $109,366 and $140,261, respectively. As of June 30, 2026 and December 31, 2025, the Company had cash and cash equivalents of $85,195 and $82,724, respectively, to meet its current obligations. The Company had working capital of $294,916 as of June 30, 2026, an increase of working capital of $30,526 as compared to December 31, 2025. This increase in working capital during the six months ended June 30, 2026 compared to December 31, 2025, was largely attributable to income tax payable balances due in part to the Company's treatment of Section 280E of the Code coupled with reductions in Accounts Payable and Accrued Liabilities.

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 facility improvements, strategic investment opportunities, and general and administrative expenses.

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 and available cash balances. 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, 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.

2022 Credit Agreement

On October 27, 2022, Verano and certain of its subsidiaries and affiliates from time-to-time party thereto (collectively, the “Borrowers”), entered into a credit agreement (the “2022 Credit Agreement”) with Chicago Atlantic Admin, LLC (“Chicago Atlantic”), as administrative agent for the lenders, and the lenders from time-to-time party thereto (the “Lenders”), pursuant to which the Lenders advanced the Borrowers a $350,000 senior secured term loan, and which also provided the Borrowers with the right, subject to conditions, to request an additional incremental term loan of up to $100,000; provided that the Lenders elected 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.

Beginning in October 2023, the loan required scheduled amortization payments of $350 per month and the remaining principal balance was due in full on October 30, 2026.

The 2022 Credit Agreement also provided the Borrowers with the right to (a) incur up to $120,000 of additional indebtedness from third-party lenders secured by real estate excluded as collateral under the 2022 Credit Agreement, (b) incur additional mortgage financing from third-party lenders secured by real estate acquired after the closing date, and (c) 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 pursuant to a revolving credit facility from third-party lenders that is pari passu or subordinated to the 2022 Credit Agreement obligations, each of which were subject to customary conditions.

The obligations under the 2022 Credit Agreement were 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 provided for a floating annual interest rate equal to the prime rate then in effect plus 6.50%, which rate could have been 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.

At any time, the Company was able to voluntarily prepay up to $100,000 of the principal balance, subject to a one-time $1,000 prepayment premium upon the first prepayment, and was able to prepay the remaining outstanding principal balance for a prepayment premium at varying rates based on the timing of any subsequent prepayments. The Borrowers were not able to 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.

On September 30, 2025, the Company made an additional Permitted Partial Optional Prepayment (as defined in the 2022 Credit Agreement) in the amount of $50,000 pursuant to the 2022 Credit Agreement, without any penalty or premium.

On March 11, 2026, the Company repaid all amounts owing under the 2022 Credit Agreement together with a prepayment premium of $4,345. As a result of such payment, the 2022 Credit Agreement was terminated and is no longer in force or effect.

Revolver

On September 30, 2025, the Company entered into a credit agreement (as amended, the “Revolver”), by and among the Company, as a guarantor, certain subsidiaries of the Company from time-to-time party thereto as borrowers (the “Real Estate Subsidiaries”), the lenders from time-to-time party thereto, and Chicago Atlantic, as administrative agent for the lenders.

The Revolver initially provided for a $75,000 revolving loan facility, $50,000 of which was drawn on September 30, 2025 and used to prepay, without any penalty or premium, $50,000 of outstanding obligations due under the 2022 Credit Agreement. Amounts drawn under the Revolver do not require amortization payments. The Revolver provides for a floating annual interest rate on amounts drawn equal to one-month Term SOFR (subject to a minimum 4% SOFR floor) plus 6%, which rate may be increased by 3% upon an event of default or 6% upon a material event of default as provided in the Revolver. The Company incurred debt issuance costs of $2,209 in connection with the establishment of the Revolver.

The Revolver may be drawn in $2,500 increments upon ten business days prior notice and any outstanding amount under the Revolver may be voluntarily prepaid in $2,500 increments upon five business days prior notice without any penalty or premium, unless such prepayment occurs within six months of the applicable advance, in which case, such prepayment is subject to a six-month interest make whole. Any amounts prepaid may be redrawn subject to the same requirements set forth above. The Revolver was initially subject to a borrowing base which required the outstanding principal balance under the Revolver to be equal to or less than 60% of the appraised value, net of certain indebtedness, of the owned real estate serving as collateral for the Revolver from time to time.

The obligations under the Revolver are secured by substantially all of the assets of the Real Estate Subsidiaries, which primarily consists of owned real estate, and are guaranteed by the Company on an unsecured basis. Additionally, the Revolver allows for the proportionate release of certain Real Estate Subsidiaries upon request of the Company so long as the outstanding principal balance under the Revolver does not exceed 60% of the appraised value, net of certain indebtedness, of the owned real estate serving as collateral after giving effect to such release.

The Revolver includes customary representations, warranties, covenants and customary events of default, including, without limitation, payment defaults, breaches of representations and warranties, covenant defaults, cross-defaults to material indebtedness, and events of bankruptcy and insolvency. The Revolver also includes customary covenants, including, without limitation, limiting the Real Estate Subsidiaries’ ability to incur additional indebtedness, make guarantees and grant liens that are otherwise not permitted and enter into or consummate acquisitions or dispositions that are not otherwise permitted, among others. As of June 30, 2026, the Company was in compliance with such covenants.

On January 12, 2026, the Company entered into a First Amendment to Credit Agreement and Omnibus First Amendment to Credit Documents (the “First Amendment”), to amend the Revolver. The First Amendment increased the lending commitment of the Revolver from $75,000 to $100,000 and amended the date on which all outstanding amounts are due in full from September 29, 2028 to February 28, 2029. Additionally, the First Amendment amended the borrowing base for the Revolver to an advance rate of up to 80%, rather than 60%, of the appraised value, net of certain indebtedness, of the owned real estate serving as collateral for the Revolver. The First Amendment also includes certain other immaterial updates to the Revolver. No additional collateral was pledged to secure the Revolver in connection with the First Amendment. On March 11, 2026, the Company drew $50,000 under the Revolver, bringing the total amount drawn under the Revolver to $100,000, which was used to repay amounts owing under the 2022 Credit Agreement.

2026 Credit Agreement

On March 11, 2026, Verano and certain of its subsidiaries and affiliates from time-to-time party thereto (collectively, the “2026 Borrowers”), entered into a credit agreement (the “2026 Credit Agreement”) with Needham Bank (“Needham”), as collateral agent and administrative agent for the lenders, Chicago Atlantic Financial Services, LLC, as co-administrative agent for the lenders, and the lenders from time-to-time party thereto (the “2026 Lenders”), pursuant to which the 2026 Lenders advanced the 2026 Borrowers a $195,000 senior secured term loan, all of which was used to repay the amounts owing under the 2022 Credit Agreement. The Company is required to make scheduled amortization payments of $875 per month and the remaining principal balance is due in full on March 11, 2029; provided that the maturity date may be extended to March 11, 2030 upon the election of the Company, the payment of 1.5% of the then outstanding principal balance by the Company, and the consent of the 2026 Lenders. The 2026 Credit Agreement may be prepaid in part (in increments of $5,000 and in an amount not less than $10,000) or in full at any time, subject to a 1.5% prepayment premium during the first two years of the 2026 Credit Agreement and 0% thereafter; provided, that if the maturity date is extended to March 11, 2030, the prepayment premium will be 1.5% in all cases.

The obligations under the 2026 Credit Agreement are secured by substantially all of the assets of the 2026 Borrowers, excluding vehicles, specified parcels of real estate, other customary exclusions, and subject to compliance with the terms of the 2026 Credit Agreement, entities, assets and parcels of real estate acquired after the closing of the 2026 Credit Agreement. The 2026 Credit Agreement provides for a floating annual interest rate equal to one-month Term SOFR (subject to a minimum 4% SOFR floor) plus 5.5%, which rate may be increased by 5% upon an event of default as provided in the 2026 Credit Agreement. The 2026 Credit Agreement includes customary representations and warranties, covenants and customary events of default, including, without limitation, payment defaults, breaches of representations and warranties, covenant defaults, cross-defaults to material indebtedness, and events of bankruptcy and insolvency. Additionally, the 2026 Credit Agreement requires the Borrowers to meet certain financial tests regarding minimum cash balances and a minimum fixed charge coverage ratio. As of June 30, 2026, the Company was in compliance with such covenants.

George Archos, the Chairman, Chief Executive Officer and President of the Company, funded, through an affiliated entity, $10,000 of the amount provided by a 2026 Lender. As a result of this participation, Mr. Archos will receive his pro rata share of all interest and principal payments made by the Company to such 2026 Lender under the 2026 Credit Agreement.

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 as not applying to limit its deduction of ordinary and necessary business expenses.

On April 23, 2026, the Justice Department in accordance with the Executive Order issued the April Final Order reclassifying medical cannabis from Schedule I to Schedule III under the CSA. This action, taken pursuant to the Attorney General’s Authority under the CSA to schedule substances in compliance with the Single Convention on Narcotic Drugs, 1961, applies only to state licensed and approved medical cannabis; all other forms of cannabis. including adult use, remains classified as Schedule I. The April Final Order, effective as of April 26, 2026, provides an expedited registration process for state medical licensees and specifically states that registered state medical licensees will no longer be subject to the constraints of Section 280E. Separately, the Attorney General filed notices withdrawing the pending hearing on the proposed rulemaking notice filed in 2024, and instituted a new hearing on the proposed rule which began on June 29, 2026 and concluded on July 15, 2026. This expedited hearing addressed rescheduling the plant in its entirety, outside of state sanctioned medical programs. The evidentiary hearing concluded on July 15, 2026, and initial briefings are due from the parties on August 17, 2026. To date, no schedule has been set for an issuance of a final order on the hearing. The IRS, in a press release, has indicated that, for Section 280E purposes, rescheduling will generally apply to the full taxable year that includes the effective date of the April Final Order, for activities no longer involving Schedule I or II substances. In May 2026, several petitions were filed challenging the April Final Order, along with a motion to stay the April Final Order. The outcome of this litigation and its impact on the April Final Order and the hearing are uncertain. However, formal guidance from the IRS remains pending. The ultimate impact of the April Final Order and the hearing — including the resolution of accrued UTPs, remains uncertain and is subject to ongoing evaluation due to the complexity of the regulatory and tax environment.

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, 2026 and 2025 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, 2026 and 2025, the Company had net cash inflows of $49,211 and $12,686, respectively. The $36,525 increase was largely driven by an improvement in inventory management coupled with lower income tax cash outflows attributable to the Company's treatment of Section 280E as not applying to limit its deduction of ordinary and necessary business expenses when comparing the six months ended June 30, 2026 to the six months ended June 30, 2025.

Cash Flows from Investing Activities. During the six months ended June 30, 2026 and 2025, the Company had net cash outflows of $(26,752) and $(15,183), respectively. The $(11,569) increase in net cash outflows during the six months ended June 30, 2026 compared to the six months ended June 30, 2025 was largely driven by $9,071 of net cash inflows from the deconsolidation of Noah's Ark, LLC during the six months ended June 30, 2025. Additionally, purchases of property, plant and equipment were $26,807 during the six months ended June 30, 2026, compared to purchases of property, plant and equipment of $24,333 during the six months ended June 30, 2025.

Cash Flows from Financing Activities. During the six months ended June 30, 2026 and 2025, the Company had net cash outflows of $(19,988) and $(16,727), respectively. The $(3,261) increase in net cash outflows during the six months ended June 30, 2026 compared to the six months ended June 30, 2025 was driven by the debt issuance costs paid related to the 2026 Credit Agreement and the First Amendment of $11,337, coupled with the payments of debt extinguishment of $4,345 related to the 2022 Credit Agreement, when comparing the six months ended June 30, 2026 to the six months ended June 30, 2025. Additionally, the Company had a $2,003 cash outflow during the six months ended June 30, 2026, related to the repurchase of 320,000 shares of Common Stock as part of the publicly announced share repurchase program.

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 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 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, 2026, 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, 2026, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Part I, Item 1A. “Risk Factors” in our Form 10-K includes a discussion of our risk factors. There have been no material changes from the risk factors described in the Form 10-K. We may disclose changes to such risk factors or disclose additional risk factors from time to time in our future SEC filings.