Acreage Holdings, Inc. [ACRHF] Filings

10-Q 1 acrg-20230930.htm 10-Q acrg-20230930

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2023


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number 000-56021

ACREAGE HOLDINGS, INC.

(Exact name of registrant as specified in its charter)


British Columbia, Canada			98-1463868
(State or other jurisdiction of incorporation or organization)			(I.R.S. Employer Identification No.)

366 Madison Ave, 14th floor	New York	New York	10017
(Address of Principal Executive Offices)			(Zip Code)

(646) 600-9181

Registrant’s telephone number, including area code

Securities registered pursuant to Section 12(b) of the Act: None.

Securities registered pursuant to section 12(g) of the Act: Class D Subordinate Voting Shares, no par value; Class E Subordinate Voting Shares, no par value.

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports); and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

Yes x No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer	o	Accelerated filer	☒
Non-accelerated filer	o	Smaller reporting company	☒
		Emerging growth company	☒

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No x

The Company has three classes of issued and outstanding shares: the Class E subordinate voting shares (the “Fixed Shares”), the Class D subordinate voting shares (the “Floating Shares”) and the Class F multiple voting shares (the “Fixed Multiple Shares”). The Fixed Shares and Floating Shares each entitle the holders to notice of and to attend at any meeting of the shareholders of the Company, except a meeting of which only holders of another particular class or series of shares of the Company have the right to vote. Each Fixed Share is entitled to one vote per Fixed Share, each Floating Share is entitled to one vote per Floating Share and each Fixed Multiple Share is entitled to 4,300 votes per Fixed Multiple Share on all matters upon which the holders of shares are entitled to vote. As of November 2, 2023, there were 80,682,114 Fixed shares, 36,019,462 Floating Shares, and 117,600 Fixed Multiple Shares, in each case, issued and outstanding.

TABLE OF CONTENTS

Acreage Holdings, Inc.

Form 10-Q

For the Three and Nine Months Ended September 30, 2023


PART I	Financial Information

Item 1.	Unaudited Condensed Consolidated Statements of Financial Position as of September 30, 2023 (unaudited) and December 31, 2022 (audited)	1
	Unaudited Condensed Consolidated Statements of Operations for the three and nine months ended Se ptemb er 30, 2023 and 2022	2
	Unaudited Condensed Consolidated Statements of Shareholders’ Equity for the three and nine months ended September 30, 2023 and 2022	3
	Unaudited Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2023 and 2022	5
	Notes to the Unaudited Condensed Consolidated Financial Statements	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	30
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	42
Item 4.	Controls and Procedures	42

PART II	Other Information

Item 1.	Legal Proceedings	44
Item 1A.	Risk Factors	44
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	44
Item 3.	Defaults Upon Senior Securities	44
Item 4.	Mine Safety Disclosures	44
Item 5.	Other Information	44
Item 6.	Exhibits	45

	SIGNATURES	46

PART I

Item 1. Financial Statements and Supplementary Data.


ACREAGE HOLDINGS, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION


(in thousands)	September 30, 2023		December 31, 2022
	(unaudited)		(audited)
ASSETS
Cash and cash equivalents	$	15,142	$	24,067
Restricted cash	9,651		—
Accounts receivable, net	8,242		10,512
Inventory	51,050		49,446
Notes receivable, net	—		29,191


Other current assets	5,594		4,977
Total current assets	89,679		118,193
Long-term investments	33,176		34,046

Capital assets, net	136,866		133,405
Operating lease right-of-use assets	18,699		22,443
Intangible assets, net	35,124		35,124
Goodwill	38,721		13,761

Other non-current assets	3,519		3,601
Total non-current assets	266,105		242,380
TOTAL ASSETS	$	355,784	$	360,573

LIABILITIES AND SHAREHOLDERS’ EQUITY
Accounts payable and accrued liabilities	$	35,431	$	29,566
Taxes payable	40,445		24,226
Interest payable	5,676		2,575
Operating lease liability, current	2,535		2,443
Debt, current	3,336		1,584


Other current liabilities	9,244		11,939
Total current liabilities	96,667		72,333
Debt, non-current	231,402		213,496
Operating lease liability, non-current	18,298		21,692
Deferred tax liability	10,654		9,623
Other liabilities	2,961		3,250
Total non-current liabilities	263,315		248,061
TOTAL LIABILITIES	359,982		320,394
Commitments and contingencies
Common stock, no par value - unlimited authorized, 115,965 and 112,437 issued and outstanding, respectively	—		—
Additional paid-in capital	758,918		760,529
Treasury stock, 842 common stock held in treasury	(21,054)		(21,054)
Accumulated deficit	(716,829)		(678,091)
Total Acreage Shareholders' equity	21,035		61,384
Non-controlling interests	(25,233)		(21,205)
TOTAL EQUITY (DEFICIT)	(4,198)		40,179

TOTAL LIABILITIES AND EQUITY	$	355,784	$	360,573

See accompanying Notes to Unaudited Condensed Consolidated Financial Statements

F-1


ACREAGE HOLDINGS, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS


	Three Months Ended September 30,				Nine Months Ended September 30,

(in thousands, except per share amounts)	2023		2022		2023		2022
REVENUE
Retail revenue, net	$	43,857	$	48,314	$	130,651	$	136,426
Wholesale revenue, net	12,645		12,810		39,845		42,342
Other revenue, net	—		295		84		881
Total revenues, net	56,502		61,419		170,580		179,649
Cost of goods sold, retail	(23,247)		(26,097)		(67,145)		(70,331)
Cost of goods sold, wholesale	(11,981)		(14,096)		(34,454)		(27,968)
Total cost of goods sold	(35,228)		(40,193)		(101,599)		(98,299)
Gross profit	21,274		21,226		68,981		81,350

OPERATING EXPENSES
General and administrative	8,036		9,727		25,621		27,036
Compensation expense	13,524		15,271		38,930		42,045
Equity-based compensation expense	745		3,156		2,423		8,970
Marketing	542		735		1,942		2,396
Impairments, net	—		506		—		2,973
Loss on notes receivable	—		7,219		—		7,219
Write down of assets held-for-sale	—		—		3,557		874
Legal recoveries	—		—		—		(335)
Depreciation and amortization	928		1,047		2,919		6,019
Total operating expenses	23,775		37,661		75,392		97,197

Net operating loss	$	(2,501)	$	(16,435)	$	(6,411)	$	(15,847)

Income from investments, net	248		17		228		154
Interest income from loans receivable	—		474		10		1,256
Interest expense	(9,207)		(5,688)		(26,143)		(15,989)
Other income, net	10,021		4,743		9,823		5,019
Total other income (loss)	1,062		(454)		(16,082)		(9,560)

Loss before income taxes	$	(1,439)	$	(16,889)	$	(22,493)	$	(25,407)

Income tax expense	(6,420)		(8,109)		(19,763)		(24,105)

Net loss	$	(7,859)	$	(24,998)	$	(42,256)	$	(49,512)

Less: net loss attributable to non-controlling interests	(234)		(2,784)		(3,885)		(4,675)

Net loss attributable to Acreage Holdings, Inc.	$	(7,625)	$	(22,214)	$	(38,371)	$	(44,837)

Net loss per share attributable to Acreage Holdings, Inc. - basic and diluted:	$	(0.07)	$	(0.20)	$	(0.34)	$	(0.41)

Weighted average shares outstanding - basic and diluted	114,171		111,200		113,181		108,795

See accompanying Notes to Unaudited Condensed Consolidated Financial Statements

F-2


ACREAGE HOLDINGS, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY


			Attributable to shareholders of the parent
(in thousands)	LLC Membership Units	Pubco Shares (as converted)	Share Capital		Treasury Stock		Accumulated Deficit		Shareholders’ Equity		Non-controlling Interests		Total Equity
December 31, 2021	3,861	106,903	$	756,536	$	(21,054)	$	(538,215)	$	197,267	$	7,003	$	204,270
NCI adjustments for changes in ownership	—	—	5		—		—		5		(5)		—
Equity-based compensation expense and related issuances	—	508	4,159		—		—		4,159		—		4,159
Net loss	—	—	—		—		(12,694)		(12,694)		(1,217)		(13,911)
March 31, 2022	3,861	107,411	$	760,700	$	(21,054)	$	(550,909)	$	188,737	$	5,781	$	194,518
NCI adjustments for changes in ownership	—	—	(4,524)		—		—		(4,524)		4,524		—
Capital distributions, net	—	—	—		—		—		—		(5,534)		(5,534)
Equity-based compensation expense and related issuances	—	1,778	1,655		—		—		1,655		—		1,655
Net loss	—	—	—		—		(9,929)		(9,929)		(674)		(10,603)
June 30, 2022	3,861	109,189	$	757,831	$	(21,054)	$	(560,838)	$	175,939	$	4,097	$	180,036
NCI adjustments for changes in ownership	—	—	697		—		—		697		(697)		—
Other equity transactions	—	378	—		—		—		—		—		—
Equity-based compensation expense and related issuances	—	2,580	3,156		—		—		3,156		—		3,156
Net loss	—	—	—		—		(22,214)		(22,214)		(2,784)		(24,998)
September 30, 2022	3,861	112,147	$	761,684	$	(21,054)	$	(583,052)	$	157,578	$	616	$	158,194

See accompanying Notes to Unaudited Condensed Consolidated Financial Statements

F-3


ACREAGE HOLDINGS, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY


			Attributable to shareholders of the parent
(in thousands)	LLC Membership Units	Pubco Shares (as converted)	Share Capital		Treasury Stock		Accumulated Deficit		Shareholders’ Equity		Non-controlling Interests		Total Equity (Deficit)
December 31, 2022	3,861	112,437	$	760,529	$	(21,054)	$	(678,091)	$	61,384	$	(21,205)	$	40,179
Cumulative effect of change in accounting principle for current expected credit losses, net of tax	—	—			—		(367)		(367)		—		(367)
NCI adjustments for changes in ownership	—	—	14		—		—		14		(14)		—
Equity-based compensation expense and related issuances	—	287	984		—		—		984		—		984
Net loss	—	—	—		—		(14,590)		(14,590)		(1,567)		(16,157)
March 31, 2023	3,861	112,724	$	761,527	$	(21,054)	$	(693,048)	$	47,425	$	(22,786)	$	24,639
NCI adjustments for changes in ownership	—	—	(3,389)		—		—		(3,389)		3,389		—
Capital distributions, net	—	—	—		—		—		—		(3,968)		(3,968)
Other equity transactions	—	—	(130)		—		—		(130)		—		(130)
Equity-based compensation expense and related issuances	—	479	694		—		—		694		—		694
Net loss	—	—	—		—		(16,156)		(16,156)		(2,084)		(18,240)
June 30, 2023	3,861	113,203	$	758,702	$	(21,054)	$	(709,204)	$	28,444	$	(25,449)	$	2,995
NCI adjustments for changes in ownership	—	—	(450)		—		—		(450)		450		—
Other equity transactions	—	—	(79)		—		—		(79)		—		(79)
Equity-based compensation expense and related issuances	—	2,762	745		—		—		745		—		745
Net loss	—	—	—		—		(7,625)		(7,625)		(234)		(7,859)
September 30, 2023	3,861	115,965	$	758,918	$	(21,054)	$	(716,829)	$	21,035	$	(25,233)	$	(4,198)

See accompanying Notes to Unaudited Condensed Consolidated Financial Statements

F-4


ACREAGE HOLDINGS, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS


	Nine Months Ended September 30,
(in thousands)	2023		2022
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$	(42,256)	$	(49,512)
Adjustments for:
Depreciation and amortization	2,919		6,019
Depreciation and amortization included in COGS	6,058		4,840
Equity-based compensation expense	2,423		8,970
Inventory write-off and provision	8,824		6,286		(1)
Gain on business divestiture	(47)		(3,490)

Loss on disposal of capital assets	34		49
Loss on impairment	—		2,973
Loss on notes receivable	—		7,219
Recovery on notes receivable	—		(1,107)
Bad debt expense	320		22
Non-cash interest expense	3,743		2,301
Non-cash operating lease expense (income)	(18)		223
(Gain) Loss on lease termination	(200)		297
Deferred tax (income) expense	16		(889)
Non-cash loss from investments, net	870		895

Write-down of assets held-for-sale	3,557		874


Change, net of acquisitions in:
Accounts receivable, net	(3,427)		(2,787)
Inventory	(12,572)		(15,001)		(1)
Other assets	(597)		(1,240)
Interest receivable	(756)		(1,125)
Accounts payable and accrued liabilities	(2,628)		(279)
Taxes payable	15,026		4,668
Interest payable	3,101		(265)
Other liabilities	(3,119)		(414)
Net cash used in operating activities	$	(18,729)	$	(30,473)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of capital assets	$	(5,345)	$	(12,582)

Collection of notes receivable	2,150		7,106




Business acquisitions, net of cash acquired	516		—
Purchases of intangible assets	(27)		(900)

Distributions from investments	—		1,048



Cash paid for short-term investment	—		(3,400)
Proceeds from disposal of short-term investments	—		3,400
Proceeds from business divestiture	500		—
Net cash used in investing activities	$	(2,206)	$	(5,328)
CASH FLOWS FROM FINANCING ACTIVITIES:


Proceeds (payments) from equity transactions	(79)		—
Proceeds from financing (refer to Note 14 for related party financing)	$	27,121	$	25,000
Deferred financing costs paid	(500)		(511)







Repayment of debt	(913)		(1,084)

See accompanying Notes to Unaudited Condensed Consolidated Financial Statements

F-5


ACREAGE HOLDINGS, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS


Capital distributions - non-controlling interests	(3,968)		(5,534)
Net cash provided by financing activities	$	21,661	$	17,871
Net increase (decrease) in cash, cash equivalents, restricted cash, and cash held for sale	$	726	$	(17,930)
Cash, cash equivalents, and restricted cash - Beginning of period	24,067		44,501
Cash, cash equivalents, and restricted cash - End of period	$	24,793	$	26,571

RECONCILIATION OF CASH FLOW INFORMATION:
Cash and cash equivalents	$	15,142	$	26,476
Restricted cash	9,651		95

Total cash, cash equivalents, restricted cash, and cash held for sale at end of period	$	24,793	$	26,571

[1]Presentation of September 30, 2022 figures have been revised, refer to Note 2 for further discussion.


	Nine Months Ended September 30,
(in thousands)	2023		2022
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid - non-lease	$	19,266	$	12,730
Income taxes paid	5,933		21,742
OTHER NON-CASH INVESTING AND FINANCING ACTIVITIES:
Capital assets not yet paid for	$	5,040	$	6,242





Non-cash proceeds from business divestiture	—		7,850





Non-cash proceeds from finance lease	—		5,785

Cumulative effect of change in accounting principle for current expected credit losses, net of tax	121		—
NCI adjustments for changes in ownership	(14)		—

See accompanying Notes to Unaudited Condensed Consolidated Financial Statements

F-6


ACREAGE HOLDINGS, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data)

1. NATURE OF OPERATIONS

Acreage Holdings, Inc. (the “Company”, “Pubco” or “Acreage”) is a vertically integrated, multi-state operator in the United States (“U.S.”) cannabis industry. The Company’s operations include (i) cultivating and processing cannabis plants, (ii) manufacturing branded consumer products, (iii) distributing cannabis flower and manufactured products, and (iv) retailing cannabis products to patients and consumers. The Company’s products appeal to medical and adult recreational use customers through brand strategies intended to build trust and loyalty.

The Company’s Class E subordinate voting shares (“Fixed Shares”) and Class D subordinate voting shares (“Floating Shares”) are listed on the Canadian Securities Exchange under the symbols “ACRG.A.U” and “ACRG.B.U”, respectively, quoted on the OTCQX under the symbols “ACRHF” and “ACRDF”, respectively, and traded on the Frankfurt Stock Exchange under the symbols “0VZ1” and “0VZ2”, respectively.

High Street Capital Partners, LLC (“HSCP”) was formed on April 29, 2014. The Company became the indirect parent of HSCP on November 14, 2018 in connection with the reverse takeover (“RTO”) transaction described below.

The Company’s principal place of business is located at 366 Madison Ave, 14th floor, New York, New York in the U.S. The Company’s registered and records office address is Suite 2800, Park Place, 666 Burrard Street, Vancouver, British Columbia in Canada.

The RTO transaction

On September 21, 2018, the Company, HSCP, HSCP Merger Corp. (a wholly-owned subsidiary of the Company), Acreage Finco B.C. Ltd. (a special purpose corporation) (“Finco”), Acreage Holdings America, Inc. (“USCo”) and Acreage Holdings WC, Inc. (“USCo2”) entered into a business combination agreement (the “Business Combination Agreement”) whereby the parties thereto agreed to combine their respective businesses, which would result in the RTO of Pubco by the security holders of HSCP, which was deemed to be the accounting acquiror. On November 14, 2018, the parties to the Business Combination Agreement completed the RTO.

Canopy Growth Corporation transaction

On June 27, 2019, the Company and Canopy Growth Corporation (“Canopy Growth” or “CGC”) implemented the Prior Plan of Arrangement (as defined in Note 13) contemplated by the Original Arrangement Agreement (as defined in Note 13). Pursuant to the Prior Plan of Arrangement, Canopy Growth was granted an option to acquire all of the issued and outstanding shares of the Company in exchange for the payment of 0.5818 of a common share in the capital of Canopy Growth for each Class A subordinate voting share (each, a “SVS”) held (with the Class B proportionate voting shares (the “PVS”) and Class C multiple voting shares (the “MVS”) being automatically converted to SVS immediately prior to consummation of the Acquisition (as defined in Note 13), which original exchange ratio was subject to adjustment in accordance with the Original Arrangement Agreement. Canopy Growth was required to exercise the option upon a change in federal laws in the United States to permit the general cultivation, distribution and possession of marijuana (as defined in the relevant legislation) or to remove the regulation of such activities from the federal laws of the United States (the “Triggering Event”) and, subject to the satisfaction or waiver of certain closing conditions set out in the Original Arrangement Agreement, Canopy Growth was required to acquire all of the issued and outstanding SVS (following the mandatory conversion of the PVS and MVS into SVS).

On June 24, 2020, Canopy Growth and the Company entered into an agreement to, among other things, amend the terms of the Original Arrangement Agreement and the terms of the Prior Plan of Arrangement (the “Amended Arrangement”). On September 16, 2020, the Company’s shareholders voted in favor of a special resolution authorizing and approving the terms of, among other things, the Amended Arrangement. Subsequently, on September 18, 2020, the Company obtained a final order from the Supreme Court of British Columbia approving the Amended Arrangement, and on September 23, 2020 the Company and Canopy Growth entered into the Amending Agreement (as defined in Note 13) and implemented the Amended Arrangement. Pursuant to the Amended Arrangement, the Company’s articles were amended to create the Fixed Shares, the Floating Shares and the Class F multiple voting shares (the “Fixed Multiple Shares”), and each outstanding SVS was exchanged for 0.7 of a Fixed Share and 0.3 of a Floating Share, each outstanding PVS was exchanged for 28 Fixed Shares and 12 Floating Shares; and each outstanding MVS was exchanged for 0.7 of a Fixed Multiple Share and 0.3 of a Floating Share. Pursuant to the Amended Arrangement, Canopy Growth was granted the option to acquire all of the issued and outstanding Fixed Shares on the basis of 0.3048 (the “Fixed Exchange Ratio”) of a common share of Canopy Growth (each, a “Canopy Share”) for each Fixed Share held at the time of the acquisition of the Fixed Shares (the “Acquisition” or “Acquisition Time”), subject to adjustment in accordance with the terms of the Amended Arrangement (the “Canopy Call Option”), which Canopy Growth is

F-7


ACREAGE HOLDINGS, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data)

required to exercise upon the occurrence, or waiver (at the discretion of Canopy Growth), of a change in federal laws in the United States to permit the general cultivation, distribution and possession of marijuana (as defined in the relevant legislation) or to remove the regulation of such activities from the federal laws of the United States (the “Triggering Event” and the date on which the Triggering Event occurs, the “Triggering Event Date”). Refer to Note 13 for further discussion.

Pursuant to the implementation of the Amended Arrangement, on September 23, 2020, a subsidiary of Canopy Growth advanced gross proceeds of $50,000 to Universal Hemp, LLC, an affiliate of the Company. The debenture bears interest at a rate of 6.1% per annum. Refer to Note 10 for further discussion.

On October 24, 2022, the Company entered into an arrangement agreement (the “Floating Share Agreement”) with Canopy Growth and Canopy USA, LLC (“Canopy USA”), Canopy Growth’s newly-created U.S. domiciled holding company, pursuant to which, subject to approval of the holders of the Class D subordinate voting shares of Acreage (the “Floating Shares”) and the terms and conditions of the Floating Share Agreement, Canopy USA will acquire all of the issued and outstanding Floating Shares by way of court-approved plan of arrangement (the “Floating Share Arrangement”) for consideration of 0.4500 of a common share of Canopy Growth (each whole share a “Canopy Share”) in exchange for each Floating Share. On March 15, 2023, the Company received the required approval of the holders of Floating Shares in connection with the Floating Share Arrangement at its special meeting of holders of Floating Shares. On March 21, 2023, the Corporation obtained a final order form from the Supreme Court of British Columbia approving the Floating Share Arrangement. Upon the satisfaction or waiver of all other conditions set out in the Floating Share Arrangement Agreement, which the parties continue to work towards, the parties will complete the Floating Share Arrangement. Refer to Note 13 for further discussion.

2. SIGNIFICANT ACCOUNTING POLICIES

Basis of presentation and going concern

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. In the opinion of management, all adjustments consisting only of normal recurring adjustments necessary for a fair presentation have been reflected in these unaudited condensed consolidated financial statements. Operating results for the interim periods presented are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2023, or any other period.

As reflected in the unaudited condensed consolidated financial statements, the Company had an accumulated deficit as of September 30, 2023, as well as a net loss and negative cash flow from operating activities for the nine months ended September 30, 2023. Additionally, subsequent to quarter end the Company was temporarily in default of the Universal Hemp 6.1% Loan. Refer to Note 10 for further discussion. These factors raise substantial doubt about the Company’s ability to continue as a going concern for at least one year from the issuance of these financial statements.

However, management believes that substantial doubt about the Company’s ability to meet its obligations for the next twelve months from the date these financial statements are issued, can be mitigated by, but not limited to, (i) expected long-term sales growth from the Company’s consolidated operations, (ii) latitude as to the timing and amount of certain operating expenses as well as capital expenditures, (iii) expense reduction plans that have already been put in place to improve the Company’s results, and (iv) access to the U.S. and Canadian public equity markets.

If the Company is unable to raise additional capital whenever necessary, it may be forced to decelerate or curtail its footprint build-out or other operational activities until such time as additional capital becomes available. Such limitation of the Company’s activities would allow it to slow its rate of spending and extend its use of cash until additional capital is raised. However, management cannot provide any assurances that the Company will be successful in accomplishing any of its plans. Management also cannot provide any assurance as to unforeseen circumstances that could occur at any time within the next twelve months or thereafter which could increase the Company’s need to raise additional capital on an immediate basis.

These interim unaudited condensed consolidated financial statements and notes thereto should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022, dated May 1, 2023, as filed with the Securities and Exchange Commission (the “2022 Form 10-K”).

F-8


ACREAGE HOLDINGS, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data)

Use of estimates

Preparation of financial statements in conformity with GAAP requires management to make estimates, judgments and assumptions that affect the reported amounts of assets and liabilities as of the dates presented and the reported amounts of revenues and expenses during the periods presented. Actual results could differ from those estimates. Significant estimates inherent in the preparation of the accompanying unaudited condensed consolidated financial statements include the fair value of assets acquired and liabilities assumed in business combinations, assumptions relating to equity-based compensation expense, estimated useful lives for property, plant and equipment and intangible assets, the valuation allowance against deferred tax assets and the assessment of potential charges on goodwill, intangible assets and investments in equity and notes receivable.

Emerging growth company

The Company is an “emerging growth company” as defined in the Jumpstart Our Business Startups Act (the “JOBS Act”). Under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards until such time as those standards apply to private companies.

Functional and presentation currency

The unaudited condensed consolidated financial statements and the accompanying notes are expressed in U.S. dollars. Financial metrics are presented in thousands. Other metrics, such as shares outstanding, are presented in thousands unless otherwise noted.

Basis of consolidation

The Company’s unaudited condensed consolidated financial statements include the accounts of Acreage, its subsidiaries and variable interest entities (“VIEs”) where the Company is considered the primary beneficiary, if any, after elimination of intercompany accounts and transactions. Investments in business entities in which Acreage lacks control but is able to exercise significant influence over operating and financial policies are accounted for using the equity method. The Company’s proportionate share of net income or loss of the entity is recorded in Loss from investments, net in the Unaudited Condensed Consolidated Statements of Operations.

Non-controlling interests (“NCI”)

Non-controlling interests represent ownership interests in consolidated subsidiaries by parties that are not shareholders of Pubco. They are shown as a component of Total equity in the Unaudited Condensed Consolidated Statements of Financial Position, and the share of loss attributable to non-controlling interests is shown as a component of Net loss in the Unaudited Condensed Consolidated Statements of Operations. Changes in the parent company’s ownership that do not result in a loss of control are accounted for as equity transactions.

Cash and cash equivalents

The Company defines cash equivalents as highly liquid investments held for the purpose of meeting short-term cash commitments that are readily convertible into known amounts of cash, with original maturities of three months or less. The Company maintains cash with various U.S. banks and credit unions with balances in excess of the Federal Deposit Insurance Corporation and National Credit Union Share Insurance Fund limits, respectively. The failure of a bank or credit union where the Company has significant deposits could result in a loss of a portion of such cash balances in excess of the insured limit, which could materially and adversely affect the Company’s business, financial condition, results of operations and the market price of the Company’s Fixed Shares and Floating Shares. Cash and cash equivalents belonging to entities the Company has classified as held-for-sale have been reclassified to Assets held-for-sale on the Unaudited Condensed Consolidated Statements of Financial Position. Refer to Note 3 for further discussion.

Restricted cash

Restricted cash represents funds contractually held for specific purposes and, as such, not available for general corporate purposes.

Cash and restricted cash, as presented on the Unaudited Condensed Consolidated Statements of Cash Flows, consists of $15,142 and $9,651 as of September 30, 2023, respectively, and $26,476 and $95 as of September 30, 2022, respectively.

F-9


ACREAGE HOLDINGS, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data)

Accounts receivable and notes receivable valuations

The Company reports accounts receivable at their net realizable value, which is management’s best estimate of the cash that will ultimately be received from customers. The Company's notes receivable represent notes due from various third parties. The Company maintains an allowance for expected credit losses to reflect the expected uncollectability of accounts receivable and notes receivable based on historical collection data and specific risks identified among uncollected accounts, as well as management’s expectation of future economic conditions. The Company also considers relevant qualitative and quantitative factors to assess whether historical loss experience should be adjusted to better reflect the risk characteristics of the companies receivables and the expected future losses. If current or expected future economic trends, events, or changes in circumstances indicate that specific receivable balances may be impaired, further consideration is given to the collectability of those balances and the allowance is adjusted accordingly. Trade accounts receivable and notes receivable are written off after exhaustive collection efforts occur and the receivable is deemed uncollectible. As of September 30, 2023 and December 31, 2022, the Company’s allowance for doubtful accounts was $339 and $953, respectively, all of which relates to the allowance for credit losses over accounts receivable. As of September 30, 2023 and December 31, 2022, the allowance on loans receivable was $15,340 and $14,875, respectively, of which the allowance for credit losses over notes receivable was nil as the receivables were fully reserved for. Refer to Note 6 for further discussion.

Net loss per share

Net loss per share represents the net loss attributable to shareholders divided by the weighted average number of shares outstanding during the period on an as converted basis. Basic and diluted loss per share are the same as of September 30, 2023 and 2022 as the issuance of shares upon conversion, exercise or vesting of outstanding units would be anti-dilutive in each period. There were 51,006 and 47,999 anti-dilutive shares outstanding as of September 30, 2023 and 2022, respectively.

Change in presentation

Note that certain items presented on the nine months ended September 30, 2022, Unaudited Condensed Consolidated Statement of Cash Flows, includes a change in presentation to conform to the current year presentation. There was no impact to our Consolidated Financial Statements as a result of this reclassification.

Accounting Pronouncements Recently Adopted

As of January 1, 2023, the Company adopted Accounting Standards Update (“ASU”) 2016-13 - Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”), which was subsequently revised by ASU 2018-19 and ASU 2020-02. This standard applies to financial assets, measured at amortized cost, including loans, held-to-maturity debt securities, net investments in leases and trade accounts receivable. The guidance must be adopted using a modified retrospective transition method through a cumulative-effect adjustment to retained earnings in the period of adoption. The adoption of ASU 2016-13 did not have a material effect on the Company’s unaudited condensed consolidated financial statements.

Accounting Pronouncements Not Yet Adopted

In October 2021, the Financial Accounting Standards Board (“FASB”) issued ASU 2021-08 - Business Combinations (Topic 805), Accounting for Contract Assets and Contract Liabilities from Contracts with Customers. The new standard improves the accounting for acquired revenue contracts with customers in a business combination by addressing diversity in practice and inconsistency. The new standard requires an entity to recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with Accounting Standards Codification (“ASC”) 606 - Revenue from Contracts with Customers. The ASU will be effective for the Company’s first interim period of fiscal 2024. The standard should be applied prospectively to business combinations occurring on or after the effective date of the amendments. The Company does not anticipate a material impact on the Company’s unaudited condensed consolidated financial statements upon adoption.

3. ACQUISITIONS, DIVESTITURES AND ASSETS HELD FOR SALE

Acquisitions

On January 2, 2023, a subsidiary of the Company acquired cultivation, processing and retail operations in Maine from a third party who provided cultivation, manufacturing, processing, distribution and handling, recordkeeping, compliance, and other services to the Company’s operations in Maine. Under the terms of the agreement, the consideration paid consisted of the settlement of a pre-existing relationship, which included a line-of credit, other advances and the related interest receivable, all totaling $25,160, which were previously recorded in Notes receivable, net on the Statements of Financial Position.

F-10


ACREAGE HOLDINGS, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data)

The purchase price allocation is based upon preliminary valuations, estimates and assumptions which are subject to change within the measurement period, generally one year from the acquisition date. The primary areas of the purchase price allocation that are not yet finalized relate to the valuation of the capital assets, tangible assets acquired and the residual goodwill resulting from the transaction.


Purchase Price Allocation	Northeast Patients Group
Assets acquired:
Cash and cash equivalents	$	361
Accounts Receivable	25
Inventory	384
Other current assets	173
Capital assets	2,377
Financing lease right-of-use asset	416
Operating lease right-of-use asset	1,279
Goodwill	24,960



Liabilities assumed:
Accounts payable and accrued liabilities	(672)
Taxes payable	(1,112)
Finance lease liability, current	(87)
Finance lease liability, non-current	(459)
Operating lease liability, current	(73)

Operating lease liability, non-current	(1,385)
Notes payable	(11)
Deferred tax liability	(1,016)
Fair value of net assets acquired	$	25,160

Consideration paid:
Settlement of pre-existing relationship	25,160
Total consideration	$	25,160

During the year ended December 31, 2022, the Company did not complete any business acquisitions.

Divestitures

During the three and nine months ended September 30, 2023 management committed to a plan to sell CWG Botanicals, Inc. (“CWG”) as of June 30, 2023. At this point all assets and liabilities were classified as held for sale on the balance sheet and written down to the fair value of the expected sale price. On September 12, 2023 the company effectively sold 100% of its ownership interest in CWG for an aggregate sales price of $500 and recognizing a gain of $47 on the Unaudited Condensed Consolidated Statements of Operations in Other income, net.

During the three and nine months ended September 30, 2022, the Company completed the divestitures of six properties as outlined in the following paragraphs. In February 2021, a subsidiary of the Company entered into a definitive agreement and management services agreement to sell an indoor cultivation facility in Medford, Oregon ("Medford"), and a retail dispensary in Powell, Oregon ("Powell"), for total consideration of $3,000. In March 2022, the total consideration was reduced to $2,000. In April 2022, the Company sold all equity interests in Medford for an aggregate sale price of $2,000 and recognized a gain on sale of $290 for the nine months ended September 30, 2022 which was recorded in Other income, net in the Unaudited Condensed Consolidated Statements of Operations. The aggregate sales price consisted of $750 paid to the Company in February 2021 and $1,250 of promissory notes (refer to Note 6 for further discussion). In conjunction with the sale, the Company closed its dispensary in Powell. Further, the Company derecognized deferred tax liabilities of $375 related to Medford.

F-11


ACREAGE HOLDINGS, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data)

In September 2021, a subsidiary of the Company entered into a definitive agreement and management services agreements to sell, upon regulatory approval, four retail dispensaries in Oregon for total consideration of $6,500. In July 2022, the Company executed and closed an amendment to its previously announced asset purchase and services agreement for the sale of its four Oregon retail dispensaries (the “Amended Agreement”). Under the terms of the Amended Agreement, the sale price was reduced to $6,200 and the Company recognized a gain on sale of $3,189 for the nine months ended September 30, 2022 which was recorded in Other income, net in the Unaudited Condensed Consolidated Statements of Operations. The aggregate sales price consisted of a $250 payment previously made at the signing of the Original Agreement, plus an additional $100 in cash at closing. The remaining amount of $5,850 has been satisfied by a 36-month secured promissory note bearing interest at a rate of 12% per annum (the “Note”). Under the terms of the Note, quarterly interest payments commence on January 1, 2023, principal payments of $1,000 are due on January 1, 2024 and January 1, 2025, and the remaining principal is due on January 1, 2026.

Assets Held for Sale

The Company determined certain businesses and assets met the held-for-sale criteria. As such, the related assets and liabilities within these disposal groups were transferred into Assets held-for-sale and Liabilities related to assets held for sale on the Unaudited Condensed Consolidated Statements of Financial Position. As of September 30, 2023 and December 31, 2022, the Company did not have any business or assets that met the held-for-sale criteria.

Previously, the Company determined certain businesses and assets met the held-for-sale criteria. Upon classification of the disposal groups as held for sale, the Company tested each disposal group for impairment and recognized charges of $— and $3,557 within Write down of assets held-for-sale on the Unaudited Condensed Consolidated Statements of Operations related to CWG for three and nine months ended September 30, 2023, respectively.

During the three and nine months ended September 30, 2022, the Company recognized a write down of assets held-for-sale of $— and $874 related to its Oregon operations within Write down of assets held-for-sale on the Unaudited Condensed Consolidated Statements of Operations.

4. INTANGIBLE ASSETS AND GOODWILL

Intangible assets

The following table details the intangible asset balances by major asset classes:


Intangibles	September 30, 2023		December 31, 2022
Finite-lived intangible assets:

Customer relationships	—		1,000

Total finite-lived intangible assets	—		1,000
Accumulated amortization on finite-lived intangible assets:

Customer relationships	—		(1,000)

Total accumulated amortization on finite-lived intangible assets	—		(1,000)
Finite-lived intangible assets, net	—		—

Indefinite-lived intangible assets
Cannabis licenses	35,124		35,124

Total intangibles, net	$	35,124	$	35,124

During the year ended December 31, 2022, the Company amended the purchase price allocation related to its acquisition of certain Ohio operations based upon final valuations within the measurement period. As a result, $17,000 was re-allocated from Goodwill to Intangible assets, net on the Unaudited Condensed Consolidated Statements of Financial Position.

There was no amortization expense recorded for the three and nine months ended September 30, 2023, respectively. Amortization expense associated with the Company’s intangible assets was $296 and $1,288 for the three and nine months ended September 30, 2022, respectively.

F-12


ACREAGE HOLDINGS, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data)

Goodwill

The following table details the changes in the carrying amount of goodwill:


Goodwill	Total
December 31, 2022	$	13,761
Acquisitions	24,960


September 30, 2023	$	38,721

During the nine months ended September 30, 2023, the Company recognized $24,960 of goodwill based on the preliminary purchase price allocation related to the acquisition of Northeast Patients Group. Refer to Note 3 for further discussion.

5. INVESTMENTS

The carrying values of the Company’s investments in the Unaudited Condensed Consolidated Statements of Financial Position as of September 30, 2023 and December 31, 2022 are as follows:


Investments	September 30, 2023		December 31, 2022


Investments held at FV-NI	$	33,176	$	34,046

Total long-term investments	$	33,176	$	34,046

Income from investments, net in the Unaudited Condensed Consolidated Statements of Operations during the three and nine months ended September 30, 2023 and 2022 is as follows:


Investment income	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
Short-term investments	$	—	$	1	$	—	$	4

Investments held at FV-NI	248		16		228		150


Income from investments, net	$	248	$	17	$	228	$	154

Investments held at FV-NI

The Company has investments in equity of other companies that do not result in significant influence or control. These investments are carried at fair value, with gains and losses recognized in the Unaudited Condensed Consolidated Statements of Operations.

As further described under the “6.10% Secured debenture due September 2030” in Note 10, on September 23, 2020, a subsidiary of the Company, Universal Hemp, LLC ("Universal Hemp"), was advanced gross proceeds of $50,000 (less transaction costs) pursuant to the terms of a secured debenture. The Company subsequently engaged an investment advisor, which under the investment advisor's sole discretion, on September 28, 2020 invested $34,019 of these proceeds on behalf of Universal Hemp. As a result, Universal Hemp acquired 34,019 class B units, at $1 par value per unit, which represented 100% financial interest in an Investment Partnership, a Canada-based limited partnership. An affiliate of the institutional investor holds Class A units of the Investment Partnership. The general partner of the Investment Partnership is also an affiliate of the Institutional Investor. The Class B units are held by the Investment Advisor as an agent for Universal Hemp.

Universal Hemp, through its investment with the Investment Advisor, was originally determined to hold significant influence in the Investment Partnership in accordance with ASC 810 - Consolidations due to (1) the economic financial interest, and (2) the entitlement to matters as they pertain to ‘Extraordinary Resolution’ items as defined within the Investment Partnership Agreement. As a result, the Company accounted for the investment in the Investment Partnership under the equity method until December 2020. Refer to Note 10 for further discussion. In December 2020, the Company no longer held significant influence due to the removal of the Extraordinary Resolution entitlements and other revisions in the Investment Partnership Agreement. As a result, the Company changed its accounting for the Investment Partnership to recognize the investment at fair value, with gains and losses recognized in the Unaudited Condensed Consolidated Statements of Operations.

F-13


ACREAGE HOLDINGS, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data)

6. NOTES RECEIVABLE, NET

Notes receivable as of September 30, 2023 and December 31, 2022 consisted of the following:


	September 30, 2023		December 31, 2022
Promissory notes receivable	$	7,062	$	34,088
Line of credit receivable	4,331		5,831
Interest receivable	3,947		4,147
Allowance for notes and interest receivable	(15,340)		(14,875)
Total notes receivable, net	$	—	$	29,191
Less: Notes receivable, current	—		29,191
Notes receivable, non-current	$	—	$	—

Interest income from loans receivable during the three and nine months ended September 30, 2023 was $— and $10, respectively, and during the three and nine months ended September 30, 2022 was $474 and $1,256, respectively.

At each reporting date, the Company applies its judgment to evaluate the collectability of the note receivable and makes a provision based on the assessed amount of expected credit loss. This judgment is based on parameters such as interest rates, market conditions and creditworthiness of the creditor.

The Company determined that the collectability of certain notes receivables is doubtful based on information available. As of September 30, 2023 and December 31, 2022, the Company’s allowance for notes receivable of $15,340 and $14,875, respectively, included $11,393 and $12,041 of principal outstanding and $3,947 and $2,834 of accrued interest, respectively, and represents the full value of such loan balances.

Activity during the nine months ended September 30, 2023

In January 2023, a subsidiary of the Company acquired cultivation, processing and retail operations in Maine from a third party who provided cultivation, manufacturing, processing, distribution and handling, recordkeeping, compliance, and other services to the Company’s operations in Maine and the amounts outstanding under the promissory notes receivable were converted into equity in Northeast Patients Group. Refer to Note 3 for further discussion.

In April 2023, the Company’s subsidiary Prime Alternative Treatment Center Consulting, LLC (“NH-PATCC”) received $1,500 from Prime Alternative Treatment Center, Inc. (“PATC”) in settlement of the principal balance related to a promissory note that was extended to “PATC”.

In May 2023, the Company received a $500 cash payment towards the principal balance on a promissory note receivable from Grown Rogue.

In August 2023, the Company received a $150 cash payment towards the principal balance on a promissory note receivable from Grown Rogue.

Activity during the nine months ended September 30, 2022

In February 2022, the Company received a $5,279 cash payment in full on a line of credit due from Patient Centric Martha’s Vineyard, and subsequently closed the line of credit.

In April 2022, the Company executed and closed its previously announced asset purchase agreement for the sale of Medford and Powell in Oregon. Part of the total consideration was satisfied by a 12-month $1,250 secured promissory note bearing interest at a rate of 12.5% per annum. Refer to Note 3 for further discussion. In August 2022, the secured promissory note was replaced with a $500 secured promissory note bearing interest at a rate of 12.5% per annum and a $750 non-interest bearing secured promissory note, with both secured promissory notes due on May 1, 2023.

F-14


ACREAGE HOLDINGS, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data)

In July 2022, the Company executed and closed an amendment to its previously announced asset purchase and services agreement for the sale of its four Oregon retail dispensaries. Part of the total consideration was satisfied by a 36-month $5,850 secured promissory note bearing interest at a rate of 12% per annum. Refer to Note 3 for further discussion.

7. CAPITAL ASSETS, NET

Net property, plant and equipment consisted of:


	September 30, 2023		December 31, 2022
Land	$	9,778	$	9,605
Building	58,524		58,334
Right-of-use asset, finance leases	6,297		5,077
Furniture, fixtures and equipment	40,701		46,811
Leasehold improvements	49,611		6,178
Construction in progress	14,883		34,435
Capital assets, gross	$	179,794	$	160,440
Less: accumulated depreciation and amortization	(42,928)		(27,035)
Capital assets, net	$	136,866	$	133,405

Depreciation of capital assets for the three and nine months ended September 30, 2023 is comprised of $928 and $2,919 of depreciation expense, respectively, and $2,116 and $6,493 that was capitalized to inventory, respectively. Depreciation of capital assets for the three and nine months ended September 30, 2022 is comprised of $751 and $4,731 of depreciation expense, respectively, and $1,963 and $5,679 that was capitalized to inventory, respectively.

During the nine months ended September 30, 2022, the Company determined that it was unable to find a satisfactory buyer for the held-for-sale assets related to its Michigan operations and, as such, these assets were reclassified as held-and-used. This conclusion was considered a triggering event for capital asset impairment testing. Upon assessment, these specific capital assets were not considered to have future economic value. As such, the fair value of the assets was considered to be nil and the Company recognized an impairment charge of $1,907 within Impairments, net on the Unaudited Condensed Consolidated Statements of Operations during the nine months ended September 30, 2022. Refer to Note 3 for further discussion on changes in held-for-sale entities.

F-15


ACREAGE HOLDINGS, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data)

8. LEASES

The Company leases land, buildings, equipment and other capital assets which it plans to use for corporate purposes in addition to the production and sale of cannabis products. Leases with an initial term of 12 months or less are not recorded on the Unaudited Condensed Consolidated Statements of Financial Position and are expensed in the Unaudited Condensed Consolidated Statements of Operations on the straight-line basis over the lease term. The Company does not have any material variable lease payments and accounts for non-lease components separately from leases.


Statements of Financial Position Information	Classification	September 30, 2023		December 31, 2022
Right-of-use assets
Operating	Operating lease right-of-use assets	$	18,699	$	22,443
Finance	Capital assets, net	4,597		4,269
Total right-of-use assets		$	23,296	$	26,712

Lease liabilities
Current
Operating	Operating lease liability, current	$	2,535	$	2,443
Financing	Debt, current	112		1
Non-current
Operating	Operating lease liability, non-current	18,298		21,692
Financing	Debt, non-current	5,846		5,305
Total lease liabilities		$	26,791	$	29,441


		Three Months Ended September 30,				Nine Months Ended September 30,
Statement of Operations Information	Classification	2023		2022		2023		2022
Short-term lease expense	General and administrative	$	102	$	(28)	$	311	$	190

Operating lease expense	General and administrative	1,238		1,221		3,853		3,613
Finance lease expense:
Amortization of right of use asset	Depreciation and amortization	93		63		278		190
Interest expense on lease liabilities	Interest expense	213		314		633		855

Net operating and finance lease cost		$	1,544	$	1,598	$	4,764	$	4,658


		Nine Months Ended September 30,
Statement of Cash Flows Information	Classification	2023		2022
Cash paid for operating leases	Net cash used in operating activities	$	3,871	$	3,390
Cash paid for finance leases - interest	Net cash used in operating activities	$	718	$	843

F-16


ACREAGE HOLDINGS, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data)

The following represents the Company’s future minimum payments required under existing leases with initial terms of one year or more as of September 30, 2023:


Maturity of lease liabilities	Operating Leases		Finance Leases
2023	$	1,085	$	228
2024	4,285		923
2025	4,104		946
2026	4,314		969
2027	3,897		992
Thereafter	13,276		11,705
Total lease payments	$	30,961	$	15,763
Less: interest	10,128		9,805
Present value of lease liabilities	$	20,833	$	5,958

Weighted average remaining lease term (years)	8		11
Weighted average discount rate	10%		12%

As of September 30, 2023, there have been no leases entered into that have not yet commenced.

9. INVENTORY

The Company’s inventory balance consists of the following:


	September 30, 2023		December 31, 2022
Retail inventory	$	5,305	$	3,255
Wholesale inventory	36,129		35,885
Cultivation inventory	6,491		7,133
Supplies & other	3,125		3,173
Total	$	51,050	$	49,446

Inventory is valued at the lower of cost and net realizable value (“NRV”), defined as estimated selling price in the ordinary course of business, less estimated costs of disposal. During the nine months ended September 30, 2023, the Company analyzed its inventory balances, and recorded wholesale inventory adjustments as a result of (i) having excess or obsolete inventory and (ii) reducing the carrying value to ensure inventory balances are properly recorded at the lower of cost and NRV. The Company recognized $2,103 and $8,824 during the three and nine months ended September 30, 2023, respectively, and $6,286 during the three and nine months ended September 30, 2022 of wholesale inventory adjustments within Cost of goods sold, wholesale on the Unaudited Condensed Consolidated Statements of Operations.

F-17


ACREAGE HOLDINGS, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data)

10. DEBT

The Company’s debt balances consist of the following:


Debt balances	September 30, 2023		December 31, 2022
Financing liability (failed sale-leaseback)	$	15,253	$	15,253
Finance lease liabilities	5,958		5,306
7.50% Loan due April 2026	31,682		31,288
6.10% Secured debenture due September 2030	46,841		46,502
Note due December 2024	2,375		3,167
Prime rate credit facilities due January 2026, as amended	130,989		113,564
Note backed by ERTC	1,640		—
Total debt	$	234,738	$	215,080
Less: current portion of debt	3,336		1,584
Total long-term debt	$	231,402	$	213,496

Scheduled maturities of debt, excluding amortization of discount and issuance costs, are as follows:


2023	$	2,432
2024	1,584
2025	—
2026	173,011
2027	39
Thereafter	71,160
Total payments (excluding amortization of discount and issuance costs)	$	248,226

During the three and nine months ended September 30, 2023, the Company incurred interest expense of $9,207 and $26,143, respectively, and $5,688 and $15,989 during the three and nine months ended September 30, 2022, respectively, on the Unaudited Condensed Consolidated Statements of Operations. Interest expense for the three and nine months ended September 30, 2023 included debt discount amortization of $547 and $1,562, respectively, and amortization of debt issuance costs of $706 and $2,094, respectively. Interest expense for the three and nine months ended September 30, 2022 included debt discount amortization of $381 and $1,132, respectively, and amortization of debt issuance costs of $297 and $849, respectively. As of September 30, 2023 and December 31, 2022, the Company had unamortized discount $5,030 and $6,093, respectively, and debt issuance costs of $8,458 and $10,522, respectively, which is netted against the gross carrying value of long-term debt in Debt, non-current on Unaudited Condensed Unaudited Condensed Consolidated Statements of Financial Position. Additionally, as of September 30, 2023 and December 31, 2022, the Company had accrued interest of $5,676 and $2,575, respectively, within Interest payable on the Unaudited Condensed Consolidated Statements of Financial Position.

Financing liability (failed sales leaseback)

In connection with the Company’s failed sale-leaseback transaction in November 2020, a financing liability was recognized equal to the cash proceeds received. The Company will recognize the cash payments made on the lease as interest expense, and the principal will be de-recognized upon expiration of the lease.

6.10% Secured debenture due September 2030

On September 23, 2020, pursuant to the implementation of the Amended Arrangement (Refer to Note 13 for further discussion), a subsidiary of Canopy Growth advanced gross proceeds of $50,000 (less transaction costs of approximately $4,025) to Universal Hemp, an affiliate of the Company, pursuant to the terms of a secured debenture (“6.1% Loan”). In accordance with the terms of the debenture, the funds cannot be used, directly or indirectly, in connection with or for any cannabis or cannabis-related operations in the United States, unless and until such operations comply with all applicable laws of the United States. An additional $50,000 may be advanced pursuant to the debenture subject to the satisfaction of certain conditions by Universal Hemp. The debenture bears interest at a rate of 6.1% per annum, matures 10 years from the date hereof or such earlier date in accordance with the terms of the debenture and all interest payments made pursuant to the debenture are payable in cash by Universal Hemp. Subsequent to quarter end, Universal Hemp received a reservations of rights letter for

F-18


ACREAGE HOLDINGS, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data)

failure to make the annual cash interest payment within 10 business days of September 23, 2023 (October 10, 2023). The parties agreed on November 14, 2023 to waive the default and that the cash interest payment would be satisfied through a partial cash payment of $1,400 by year end 2023, an obligation of Universal Hemp to deliver proceeds from the sale of certain real property held by Universal Hemp and an agreement between the parties to offset potential future expenses that may be payable by Canopy Growth. The debenture is secured by substantially all of the assets of Universal Hemp and its subsidiaries and, further, is not convertible and is not guaranteed by Acreage.

With a portion of the proceeds for the 6.1% Loan received by Universal Hemp, Acreage engaged an Investment Advisor which, under the Investment Advisor’s sole discretion, invested on behalf of Universal Hemp $34,019 on September 28, 2020. As a result, Universal Hemp acquired 34,019 class B units, at $1.00 par value per unit, which represented 100% financial interest in the Investment Partnership, a Canada-based limited partnership. An affiliate of the Institutional Investor holds class A units of the Investment Partnership. The general partner of the Investment Partnership is also an affiliate of the Institutional Investor. The class B units are held by the Investment Advisor as an agent for Universal Hemp. Upon execution of the limited partnership agreement, $1,019 was distributed to the class A unit holders of the Investment Partnership.

7.50% Loan due April 2026

On September 28, 2020, the Company received gross proceeds of $33,000 (less transaction costs of approximately $959) from an affiliate of the Institutional Investor (the “Lender”) and used a portion of the proceeds of this loan to retire its short-term $11,000 convertible note (as described above) and its short-term note aggregating approximately $18,000 in October 2020, with the remainder being used for working capital purposes. The loan is unsecured, matures in 3 years and bears interest at a 7.5% annual interest rate. The Lender is controlled by the Institutional Investor. The Investment Partnership is the investor in the Lender. On December 16, 2021, the Company paid an amendment fee of $413 to extend the maturity date from September 28, 2023 to April 2, 2026. The amendment was treated as a debt extinguishment.

Note due December 2024

In November 2020, the Company issued a promissory note with a third party, which is non-interest bearing and payable based on a payment schedule with ten payments in the aggregate amount of $7,750 through December 31, 2024, as a result of a settlement described under the “CanWell Dispute” in Note 13.

Prime rate credit facilities due January 2026, as amended

On December 16, 2021, the Company entered into a $150,000 senior secured credit facility with a syndicate of lenders consisting of a $75,000 initial draw, a $25,000 delayed draw that must be advanced within 12 months and a $50,000 committed accordion facility that is available after December 1, 2022, provided certain financial covenants are met, and with a maturity of January 1, 2026. Upon closing, gross proceeds of $75,000 were drawn (before origination discounts and issuance costs of approximately $4,000 and $1,500, respectively, which were capitalized). In April 2022, the Company drew down on the $25,000 delayed draw. Refer to Note 14 for further discussion of the syndicated related party lender.

The Company obtained a waiver of the financial covenants for the three month periods ended March 31, 2022 and June 30, 2022. This waiver included a $500 waiver fee that was paid to the lenders

On October 24, 2022, the Company amended the senior secured credit facility such that $25,000 of the committed accordion was available for immediate draw by Acreage, which was drawn down in the fourth quarter of 2022, with the remaining $25,000 available from January 1, 2023, provided certain predetermined milestones are achieved. The Company paid an amendment fee of $1,250 to the syndicate of lenders and the amendment was treated as a debt modification.

On April 28, 2023, the Company reached an agreement with the lenders of the Prime rate credit facilities due January 2026 that would allow it to draw a further $15,000 under its current Credit Agreement, but such funds would be maintained in a segregated account until dispersed and be restricted for use to only eligible capital expenditures. As part of this agreement, the Company agreed to limit the total amounts outstanding under the Credit Agreement to $140,000 and to at all times subsequent to the amendment, maintain collateral (as defined in the Credit Agreement) equal to or greater than the outstanding amount under the Credit Agreement.

The loan is secured by pledged equity interests and substantially all of the assets of the Company. Advances under the facility bear interest at a variable rate of U.S. prime (“Prime”) plus 5.75% per annum, payable monthly in arrears, with a Prime floor of 5.50% plus an additional 1.0% per annum until certain collateral assignment agreements are delivered.

F-19


ACREAGE HOLDINGS, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data)

The facility has a maturity date of January 1, 2026 and the Company has the option to extend the maturity date to January 1, 2027 prior to January 1, 2024, for a fee equal to 1.0% of the total loan amount. If the Company chooses to extend the maturity date, it will also be required to make monthly installment payments, each of which shall be an amount equal to five percent per year of the outstanding amount of the loan.

The loan is subject to various financial covenants, including (i) a fixed charge coverage ratio and two leverage ratios in respect of all periods beginning on or after December 31, 2023 and (ii) a minimum cash requirement of $9.0 million at each quarter end of the Company. Finally, the Amended Credit Facility includes approval for Canopy USA to acquire control of Acreage without requiring repayment of all amounts outstanding under the Amended Credit Facility, provided certain conditions are satisfied. As of September 30, 2023 the Company was in compliance with all covenants.

ERTC Factoring Agreement

On April 11, 2023, the Company received $12,113 pursuant to a financing agreement with a third-party lender (the “Financing Agreement”), which was included in “Debt, current” as of June 30, 2023. The Company assigned to the lender its interests in Employee Retention Tax Credits (“ERTC”) that it submitted for a claim of approximately $14,251. If the Company does not receive the ERTC, in whole or in part, the Company is required to repay the related portion of the funds received plus 10% interest accrued from the date of the Financing Agreement through the repayment date. The Financing Agreement does not have a stated maturity date and the discount is being accreted to interest expense over an expected term. The Company’s obligations under the Financing Agreement will be satisfied upon receipt of the ERTC or other full repayment. Finally, the Company determined the ERTC did not meet the criteria to record as a receivable as of June 30, 2023 due to the uncertain nature of such claims.

During the three and nine months ended September 30, 2023, the Company received $10,472 of the ERTC claims which was remitted to the lender per the terms of the Financing Agreement, extinguishing an equal portion of the debt included in “Debt, current” as of September 30, 2023.

11. SHAREHOLDERS’ EQUITY AND NON-CONTROLLING INTERESTS

The table below details the change in Pubco shares outstanding by class for the nine months ended September 30, 2023:


Shareholders’ Equity	Fixed Shares	Floating Shares	Fixed Shares Held in Treasury	Floating Shares Held in Treasury	Fixed Multiple Shares	Total Shares Outstanding



December 31, 2022	79,047	34,114	(589)	(253)	118	112,437
Issuances	1,626	1,902	—	—	—	3,528

September 30, 2023	80,673	36,016	(589)	(253)	118	115,965

Warrants

A summary of the warrants activity outstanding is as follows:

Warrants

Fixed Shares

Floating Shares

December 31, 2022

5,817

2,524

Expired

—

Acreage Holdings, Inc. [ACRHF] Filings
Acreage Holdings, Inc. [ACRDF] Filings
10-Q	[2023-11-14]
10-Q	[2023-08-09]
10-Q	[2023-05-23]
10-K	[2023-05-01]
10-Q	[2022-11-09]
10-Q	[2022-08-09]
10-Q	[2022-05-10]
10-K	[2022-03-11]
10-Q	[2021-11-12]
10-Q	[2021-08-10]
10-Q	[2021-05-10]
10-K	[2021-03-26]
S-1	[2021-02-08]
10-Q	[2020-12-18]
10-Q	[2020-08-14]
10-Q	[2020-06-29]
10-K	[2020-05-29]

Acreage Holdings, Inc. [ACRHF] Filings

Acreage Holdings, Inc. [ACRDF] Filings