iANTHUS CAPITAL HOLDINGS, INC. [ITHUF] Filings

10-Q 1 ithuf-20240930.htm 10-Q 10-Q

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended September 30, 2024

☐ 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: 000-56228

IANTHUS CAPITAL HOLDINGS, INC.

(Exact Name of Registrant as Specified in its Charter)


British Columbia, Canada	98-1360810
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

214 King Street, Suite 400 Toronto, Ontario M5H 3S6	M5H 3S6
(Address of principal executive offices)	(Zip Code)

(646) 518-9418

(Registrant’s telephone number, including area code)

Not applicable

(Former name, former address and former fiscal year, if changed since last report)

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

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 ☒ No ☐

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 ☒ No ☐

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	☐	Accelerated filer	☐

Non-accelerated filer	☒	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 Exchange Act). Yes ☐ No ☒

Number of common shares outstanding as of October 31, 2024 was 6,673,394,942.

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TABLE OF CONTENTS



PART I. FINANCIAL INFORMATION

Item 1.	Financial Statements	4

	Interim Condensed Consolidated Balance Sheets as of September 30, 2024 (Unaudited) and December 31, 2023 (Audited)	4

	Unaudited Interim Condensed Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2024 and 2023 (Restated)	5

	Unaudited Interim Condensed Consolidated Statements of Changes in Shareholders’ (Deficit) for the Three and Nine Months Ended September 30, 2024 and 2023 (Restated)	6

	Unaudited Interim Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2024 and 2023 (Restated)	7

	Notes to Unaudited Interim Condensed Consolidated Financial Statements	8

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	33

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	46

Item 4.	Controls and Procedures	46

PART II. OTHER INFORMATION		47

Item 1.	Legal Proceedings	47

Item 1A.	Risk Factors	49

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	49

Item 3.	Defaults Upon Senior Securities	49

Item 4.	Mine Safety Disclosure	49

Item 5.	Other Information	49

Item 6.	Exhibits	50

	Signatures	51

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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS AND INDUSTRY DATA

This Quarterly Report on Form 10-Q contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Any statements in this Quarterly Report on Form 10-Q about our expectations, beliefs, plans, objectives, assumptions or future events or performance are not historical facts and are forward-looking statements. These statements are often, but not always, made through the use of words or phrases such as “believe,” “will,” “expect,” “anticipate,” “estimate,” “intend,” “plan” and “would.” For example, statements concerning financial condition, possible or assumed future results of operations, growth opportunities, industry ranking, plans and objectives of management, markets for our common shares and future management and organizational structure are all forward-looking statements. Forward-looking statements are not guarantees of performance. They involve known and unknown risks, uncertainties and assumptions that may cause actual results, levels of activity, performance or achievements to differ materially from any results, levels of activity, performance or achievements expressed or implied by any forward-looking statements.

Any forward-looking statements are qualified in their entirety by reference to the risk factors discussed throughout our most recent Annual Report on Form 10-K and any updates described in our Quarterly Reports on Form 10-Q and Current Reports on Form 8-K as may be amended, supplemented or superseded from time to time by other reports we file with the U.S. Securities and Exchange Commission (the “SEC”). You should read this Quarterly Report on Form 10-Q and the documents that we referenced herein and have filed as exhibits to the reports we file with the SEC, completely and with the understanding that our actual future results may be materially different from what we expect. You should assume that the information appearing in this Quarterly Report on Form 10-Q is accurate as of the date hereof. Because the risk factors in our SEC reports could cause actual results or outcomes to differ materially from those expressed in any forward-looking statements made by us or on our behalf, you should not place undue reliance on any forward-looking statements. Further, any forward-looking statement speaks only as of the date on which it is made, and except as required by law, we undertake no obligation to update any forward-looking statement to reflect events or circumstances after the date on which the statement is made or to reflect the occurrence of unanticipated events. New factors emerge from time to time, and it is not possible for us to predict which factors will arise. In addition, we cannot assess the impact of each factor on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. We qualify all of the information presented in this Quarterly Report on Form 10-Q, and particularly our forward-looking statements, by these cautionary statements.

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ITEM 1. FINANCIAL STATEMENTS

iANTHUS CAPITAL HOLDINGS, INC.

INTERIM CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands of U.S. dollars or shares)


	September 30,		December 31,
	2024 (Unaudited)		2023 (Audited)
Assets
Cash	$	19,935	$	13,104
Restricted cash		923		71
Accounts receivable, net of allowance for credit losses of $744 (December 31, 2023 - $384)		5,328		4,609
Prepaid expenses		2,991		2,100
Inventories, net		23,601		25,382
Other current assets		1,862		243
Current Assets		54,640		45,509
Investments		865		735
Property, plant and equipment, net		89,787		94,003
Operating lease right-of-use assets, net		26,213		27,377
Other long-term assets		4,924		4,411
Intangible assets, net		94,750		105,372
Total Assets	$	271,179	$	277,407
Liabilities and Shareholders' (Deficit)
Accounts payable	$	14,443	$	14,399
Accrued and other current liabilities		64,207		103,261
Current portion of long-term debt, net of issuance costs		61		55
Current portion of operating lease liabilities		7,353		7,716
Current Liabilities		86,064		125,431
Long-term debt, net of issuance costs		177,530		165,221
Deferred income tax		15,800		20,412
Long-term portion of operating lease liabilities		23,482		28,009
Uncertain tax position liabilities		61,950		—
Total Liabilities	$	364,826	$	339,073
Commitments (Refer to Note 9)
Shareholders' (Deficit)
Common shares - no par value. Authorized - unlimited number. 6,626,880 - issued and outstanding (December 31, 2023 - 6,510,527 - issued and outstanding)		—		—
Additional paid-in capital		1,269,426		1,265,978
Accumulated deficit		(1,363,073)		(1,327,644)
Total Shareholders' (Deficit)	$	(93,647)	$	(61,666)
Total Liabilities and Shareholders' (Deficit)	$	271,179	$	277,407

The accompanying notes are an integral part of these unaudited interim condensed consolidated financial statements.

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iANTHUS CAPITAL HOLDINGS, INC.

UNAUDITED INTERIM CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands of U.S. dollars, except per share amounts)


	Three Months Ended September 30,				Nine Months Ended September 30,
		2024		2023	2024		2023
				(Restated and adjusted)				(Restated and adjusted)
Revenues, net of discounts	$	40,286	$	42,890	$	124,849	$	118,358
Costs and expenses applicable to revenues (exclusive of depreciation and amortization expense shown separately below)		(22,202)		(29,542)		(68,874)		(71,108)
Gross profit		18,084		13,348		55,975		47,250

Operating expenses
Selling, general and administrative expenses		15,648		15,815		46,437		51,603
Depreciation and amortization		5,617		6,133		17,204		18,882
(Recoveries), write-downs and other charges, net		(1,925)		(69)		(1,222)		(45)
Total operating expenses		19,340		21,879		62,419		70,440

Loss from operations		(1,256)		(8,531)		(6,444)		(23,190)

Interest and other income		817		712		4,250		1,077
Interest expense		(4,352)		(4,014)		(12,745)		(11,648)
Accretion expense		(1,187)		(994)		(3,424)		(2,946)
Loss on debt extinguishment (Refer to Note 4)		—		—		(114)		(1,288)
(Losses) /gains from changes in fair value of financial instruments		(19)		58		(28)		15
Loss before income taxes		(5,997)		(12,769)		(18,505)		(37,980)

Income tax expense		5,645		6,413		16,924		19,946
Net loss	$	(11,642)	$	(19,182)	$	(35,429)	$	(57,926)

Net loss per share - basic and diluted	$	(0.00)	$	(0.00)	$	(0.01)	$	(0.01)
Weighted average number of common shares outstanding - basic and diluted		6,521,830		6,421,756		6,535,373		6,427,023

The accompanying notes are an integral part of these unaudited interim condensed consolidated financial statements.

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iANTHUS CAPITAL HOLDINGS, INC.

UNAUDITED INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ (DEFICIT)

(In thousands of U.S. dollars or shares)


	Three Months Ended September 30, 2024
	Number of Common Shares ('000)		Additional Paid-in-Capital		Accumulated Deficit		Total Shareholders’ (Deficit)
Balance – June 30, 2024		6,615,326	$	1,268,991	$	(1,351,431)	$	(82,440)
Share-based compensation		17,977		524		—		524
Share settlement for taxes paid related to restricted stock units		(6,423)		(89)		—		(89)
Net loss		—		—		(11,642)		(11,642)
Balance – September 30, 2024		6,626,880	$	1,269,426	$	(1,363,073)	$	(93,647)


	Nine Months Ended September 30, 2024
	Number of Common Shares ('000)		Additional Paid-in-Capital		Accumulated Deficit		Total Shareholders (Deficit)
Balance – January 1, 2024		6,510,527	$	1,265,978	$	(1,327,644)	$	(61,666)
Share-based compensation		43,924		1,684		—		1,684
Share settlement for taxes paid related to restricted stock units		(8,885)		(137)		—		(137)
Shares issued for legal settlement (Refer to Note 10)		20,000		320		—		320
Shares issued for 2024 NJ Amendment		61,314		1,581		—		1,581
Net loss		—		—		(35,429)		(35,429)
Balance – September 30, 2024		6,626,880	$	1,269,426	$	(1,363,073)	$	(93,647)


	Three Months Ended September 30, 2023
	Number of Common Shares ('000)		Additional Paid-in-Capital		Accumulated Deficit (Restated)		Total Shareholders’ (Deficit) (Restated)
Balance – June 30, 2023		6,445,223	$	1,264,863	$	(1,289,767)	$	(24,904)
Share-based compensation		19,439		473		—		473
Share settlement for taxes paid related to restricted stock units		(4,818)		(26)		—		(26)
Net loss		—		—		(19,182)		(19,182)
Balance – September 30, 2023		6,459,844	$	1,265,310	$	(1,308,949)	$	(43,639)


	Nine Months Ended September 30, 2023
	Number of Common Shares ('000)		Additional Paid-in-Capital		Accumulated Deficit (Restated)		Total Shareholders’ Equity/ (Deficit) (Restated)
Balance – January 1, 2023		6,403,289	$	1,262,012	$	(1,251,023)	$	10,989
Share-based compensation		72,252		3,555		—		3,555
Share settlement for taxes paid related to restricted stock units		(15,697)		(257)		—		(257)
Net loss		—		—		(57,926)		(57,926)
Balance – September 30, 2023		6,459,844	$	1,265,310	$	(1,308,949)	$	(43,639)

The accompanying notes are an integral part of these unaudited interim condensed consolidated financial statements.

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iANTHUS CAPITAL HOLDINGS, INC.

UNAUDITED INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands of U.S. dollars)


	Nine Months Ended September 30,
	2024		2023
			(Restated and adjusted)
CASH FLOW FROM OPERATING ACTIVITIES
Net loss	$	(35,429)	$	(57,926)
Adjustments to reconcile net loss to net cash provided by operations:
Interest income		(3)		(4)
Interest expense		12,745		11,648
Accretion expense		3,424		2,946
Depreciation and amortization		18,691		20,397
(Recoveries), write-downs and other charges, net		(1,222)		(45)
Gain from deconsolidation of subsidiaries		(2,120)		—
Inventory reserve		159		814
Share-based compensation		1,684		3,555
Losses/(gains) from changes in fair value of financial instruments		28		(15)
Loss on debt extinguishment (Refer to Note 4)		114		1,288
Loss on equity method investments		162		—
Change in operating assets and liabilities (Refer to Note 12)		12,455		22,155
NET CASH FLOW PROVIDED BY OPERATING ACTIVITIES	$	10,688	$	4,813
CASH FLOW FROM INVESTING ACTIVITIES
Purchase of property, plant and equipment		(2,766)		(2,488)
Acquisition of other intangible assets		(242)		(2,404)
Investments in associates		(320)		(580)
Proceeds from sale of property, plant and equipment		502		1,277
Cash impact of deconsolidation of subsidiaries		—		(68)
NET CASH USED IN INVESTING ACTIVITIES	$	(2,826)	$	(4,263)
CASH FLOW FROM FINANCING ACTIVITIES
Repayment of debt		(42)		(37)
Taxes paid related to net share settlement of restricted stock units		(137)		(257)
NET CASH USED IN FINANCING ACTIVITIES	$	(179)	$	(294)

CASH AND RESTRICTED CASH
NET INCREASE (DECREASE) IN CASH AND RESTRICTED CASH DURING THE PERIOD		7,683		256
CASH AND RESTRICTED CASH, BEGINNING OF PERIOD (Refer to Note 12)		13,175		14,406
CASH AND RESTRICTED CASH, END OF PERIOD (Refer to Note 12)	$	20,858	$	14,662

The accompanying notes are an integral part of these unaudited interim condensed consolidated financial statements.

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iANTHUS CAPITAL HOLDINGS, INC.

NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Tabular U.S. dollar amounts and shares in thousands, unless otherwise stated)

Note 1 – Organization and Description of Business

(a) Description of Business

iAnthus Capital Holdings, Inc. (“ICH”), together with its consolidated subsidiaries (the “Company”) was incorporated under the laws of British Columbia, Canada, on November 15, 2013. The Company is a vertically-integrated multi-state owner and operator of licensed cannabis cultivation, processing and dispensary facilities in the United States. Through the Company’s subsidiaries, licenses, interests and contractual arrangements, the Company has the capacity to operate dispensaries and cultivation/processing facilities, and manufacture and distribute cannabis across the states in which the Company operates in the U.S.

The Company’s registered office is located at 1055 West Georgia Street, Suite 1500, Vancouver, British Columbia, V6E 4N7, Canada. The Company is listed on the Canadian Securities Exchange (the “CSE”) under the ticker symbol “IAN” and on the OTCQB Tier of the OTC Markets Group Inc. under the symbol “ITHUF.”

The Company’s business activities, and the business activities of its subsidiaries, which operate in jurisdictions where the use of marijuana has been legalized under state and local laws, currently are illegal under U.S. federal law. The U.S. Controlled Substances Act classifies marijuana as a Schedule I controlled substance. Any proceeding that may be brought against the Company could have a material adverse effect on the Company’s business plans, financial condition and results of operations.

(b) Basis of Presentation

The accompanying unaudited interim condensed consolidated financial statements (the “financial statements”) have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information and in accordance with the rules and regulations of the Securities and Exchange Commission (“SEC”). Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements and, therefore, certain information, footnotes and disclosures normally included in the annual financial statements, prepared in accordance with U.S. GAAP, have been condensed or omitted in accordance with SEC rules and regulations.

The financial data presented herein should be read in conjunction with the audited consolidated financial statements and accompanying notes for the year ended December 31, 2023, included in the Company’s Annual Report on the Form 10-K filed with the SEC on March 28, 2024. In the opinion of management, the financial data presented includes all adjustments necessary to present fairly the financial position, results of operations and cash flows for the periods presented. These unaudited interim condensed consolidated financial statements include estimates and assumptions of management that affect the amounts reported on the unaudited interim condensed consolidated financial statements. Actual results could differ from these estimates.

The results of operations for the three and nine months ended September 30, 2024, are not necessarily indicative of the results to be expected for the entire year ending December 31, 2024, or any other period.

Except as otherwise stated, these unaudited interim condensed consolidated financial statements are presented in U.S. dollars.

On June 24, 2022 (the “Closing Date”), the Company completed its previously announced recapitalization transaction (the “Recapitalization Transaction”) pursuant to the terms of the Restructuring Support Agreement (the “Restructuring Support Agreement”) dated July 10, 2020, as amended on June 15, 2021, by and among the Company, all of the holders (the “Secured Lenders”) of the 13.0% senior secured convertible debentures (the “Secured Notes”) issued by iAnthus Capital Management, LLC (“ICM”), a wholly-owned subsidiary of the Company, and a majority of the holders (the “Consenting Unsecured Lenders”) of the Company’s 8.0% unsecured convertible debentures (the “Unsecured Debentures”).

In connection with the closing of the Recapitalization Transaction, the Company issued an aggregate of 6,072,580 common shares to the Secured Lenders and the Unsecured Lenders. Specifically, the Company issued 3,036,290 common shares (the “Secured Lender Shares”), or 48.625% of the outstanding common shares of the Company, to the Secured Lenders and 3,036,290 common shares (the “Unsecured Lender Shares” and together with Secured Lender Shares, the “Shares”), or 48.625% of the outstanding common shares of the Company, to the Unsecured Lenders. As of the Closing Date, there were 6,244,298 common shares of the Company issued and outstanding. As of the Closing Date, the then existing holders of the Company’s common shares collectively held 171,718 common shares, or 2.75% of the outstanding common shares of the Company.

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iANTHUS CAPITAL HOLDINGS, INC.

NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Tabular U.S. dollar amounts and shares in thousands, unless otherwise stated)

As of the Closing Date, the outstanding principal amount of the Secured Notes (including the interim financing secured notes in the aggregate principal amount of approximately $14.7 million originally due on July 13, 2025) together with interest accrued and fees thereon were forgiven in part and exchanged for (A) the Secured Lender Shares, (B) the issuance of the 8.0% secured debentures (the "June Secured Debentures") by ICM to the New Secured Lenders (as defined below) in the aggregate principal amount of $99.7 million and (C) the issuance of the 8.0% unsecured debentures (the “June Unsecured Debentures”) by ICM to the Secured Lenders in the aggregate principal amount of $5.0 million. Also, as of the Closing Date, the outstanding principal amount of the Unsecured Debentures together with interest accrued and fees thereon were forgiven in part and exchanged for (A) the Unsecured Lender Shares and (B) the June Unsecured Debentures in the aggregate principal amount of $15.0 million. Furthermore, all existing options and warrants to purchase common shares of the Company, including certain debenture warrants and exchange warrants previously issued to the Secured Lenders, the warrants previously issued in connection with the Unsecured Debentures and all other Affected Equity (as defined in the amended and restated plan of arrangement (the "Plan of Arrangement"), were cancelled and extinguished for no consideration.

(d) Going Concern

These unaudited interim condensed consolidated financial statements have been prepared under the assumption that the Company will be able to continue its operations and will be able to realize its assets and discharge its liabilities in the normal course of business for the foreseeable future. For the three and nine months ended September 30, 2024, the Company reported net losses of $11.6 million and $35.4 million, respectively. For the nine months ended September 30, 2024, the company generated operating cash inflow of $10.7 million, had a working capital deficiency of $31.4 million, and an accumulated deficit of $1,363.1 million.

The Company believes it may continue to generate positive cash flows from operations in the near future, notwithstanding the foregoing, the substantial losses and working capital deficiency cast substantial doubt on the Company’s ability to continue as a going concern for a period of no less than 12 months from the date of this report. These unaudited interim condensed consolidated financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.

(e) Basis of Consolidation

The unaudited interim condensed consolidated financial statements include the accounts of ICH together with its consolidated subsidiaries, except for subsidiaries which ICH has identified as variable interest entities where ICH is not the primary beneficiary.

(f) Use of Estimates

The preparation of the unaudited interim condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and judgments that affect the application of accounting policies and the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of unaudited interim condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Estimates and assumptions are continuously evaluated and are based on management’s experience and other factors, including expectations regarding future events that are believed to be reasonable under the circumstances. Actual results may differ significantly from these estimates.

Significant estimates made by management include, but are not limited to: economic lives of leased assets; inputs used in the valuation of inventory; allowances for potential credit losses, provisions for inventory obsolescence; impairment assessment of long-lived assets; depreciable lives of property, plant and equipment; useful lives of intangible assets; accruals for contingencies including tax contingencies; valuation allowances for deferred income tax assets; estimates for uncertain tax liabilities; estimates of fair value of identifiable assets and liabilities acquired in business combinations; estimates of fair value of derivative instruments; and estimates of the fair value of stock-based payment awards.

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iANTHUS CAPITAL HOLDINGS, INC.

NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Tabular U.S. dollar amounts and shares in thousands, unless otherwise stated)

(g) Recently Issued FASB Accounting Standard Updates

In November 2023, the FASB issued ASU 2023-07 Segment Reporting (Topic 280). All public entities will be required to report segment information in accordance with the new guidance starting in annual periods beginning after December 15, 2023. The amendments improve reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses. The Company is in the process of determining the effects adoption will have on its condensed consolidated financial statements.

In December 2023, the FASB issued ASU 2023-09 Income Taxes (Topic 740). For public business entities, the amendments are effective for annual periods beginning after December 15, 2024. The amendments address investor requests for more transparency about income tax information through improvements to income tax disclosures primarily related to the rate reconciliation and income taxes paid information. This amendment also looks to improve the effectiveness of income tax disclosures. The Company is in the process of determining the effects adoption will have on its condensed consolidated financial statements.

The Company does not believe any other recently issued, but not yet effective, accounting standards will have a material effect on our condensed consolidated financial statements.

(h) Revision of Prior Period Financial Statements

Subsequent to filing the Company's Form 10-Q for the quarter ended September 30, 2023, the Company identified an error related to its financial reporting process in connection with an intercompany consolidation of two wholly-owned subsidiaries and in the valuation of inventory, both resulting in an overstatement of inventory in its previously issued unaudited interim condensed consolidated financial statements for the three and nine months ended September 30, 2023. As a result, the Company restated its unaudited interim condensed consolidated financial statements for the three and nine months ended September 30, 2023 to reflect the impact of this material error.

The effect of the restatement on the line items within the Company’s unaudited interim condensed consolidated statement of operations for the three months ended September 30, 2023 are as follows:


	Three Months Ended September 30, 2023
	As reported		Adjustment		Restated
Costs and expenses applicable to revenues	$	(25,463)	$	(4,079)	$	(29,542)
Gross profit		17,427		(4,079)		13,348
Loss from operations		(7,555)		(4,079)		(11,634)
Loss before income tax		(11,792)		(4,079)		(15,871)
Income tax expense		3,780		(469)		3,311
Net loss		(15,572)		(3,610)		(19,182)

The effect of the restatement on the line items within the Company’s unaudited interim condensed consolidated statement of operations for the nine months ended September 30, 2023 are as follows:


	Nine Months Ended September 30, 2023
	As reported		Adjustment		Restated
Costs and expenses applicable to revenues	$	(67,029)	$	(4,079)	$	(71,108)
Gross profit		51,329		(4,079)		47,250
Loss from operations		(27,017)		(4,079)		(31,096)
Loss before income tax		(41,295)		(4,079)		(45,374)
Income tax expense		13,021		(469)		12,552
Net loss		(54,316)		(3,610)		(57,926)

The effect of the restatement on the line items within the Company’s unaudited interim condensed consolidated statement of changes in shareholders' deficit as of September 30, 2023 are as follows:


	September 30, 2023
	As reported		Adjustment		Restated
Accumulated deficit – Balance September 30, 2023	$	(1,305,339)	$	(3,610)	$	(1,308,949)
Total shareholders’ deficit – Balance September 30, 2023		(40,029)		(3,610)		(43,639)

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iANTHUS CAPITAL HOLDINGS, INC.

NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Tabular U.S. dollar amounts and shares in thousands, unless otherwise stated)

The effect of the restatement on the line items within the Company’s unaudited interim condensed consolidated statement of cash flows for the nine months ended September 30, 2023 are as follows:


	Nine Months Ended, September 30, 2023
	As reported		Adjustment		Restated
CASH FLOW FROM OPERATING ACTIVITIES
Net loss	$	(54,316)	$	(3,610)	$	(57,926)
Adjustments to reconcile net loss to net cash provided by (used in) operations:
Change in operating assets and liabilities		17,965		3,610		21,575
Inventory		(3,490)		4,079		589
Accrued and other liabilities		18,275		(469)		17,806

(i) Change in Accounting Policy

Upon adoption of Accounting Standards Codification (ASC) Topic 740-10 “Income Taxes” (Topic 740-10), the Company elected to follow an accounting policy to classify interest and penalties related to accrued income taxes under "selling, general and administrative expenses". The Company has now elected to classify interest and penalties related to income tax liabilities, when applicable, as part of “income tax expense”.

The change in classification is considered preferable as it i) aligns with how the Company manages its ongoing tax obligations, ii) provides more transparent reporting of expenses by classifying taxes distinct from expenses incurred as a result of the Company’s core business activities, and iii) enhances the comparability of these financial statements with those within the industry.

In accordance with ASC Topic 250-10 "Accounting Changes and Error Corrections", the periods presented below have been retrospectively adjusted to reflect the changes to income tax expense and selling, general, and administrative expenses. The effect of the adjustment on the line items within the Company’s unaudited interim condensed consolidated statements of operations for the three and nine months ended September 30, 2023 is as follows:


Prior Year's Line item	As Previously Restated				Amount Reclassified				As Adjusted
		Three Months Ended September 30, 2023		Nine Months Ended September 30, 2023		Three Months Ended September 30, 2023		Nine Months Ended September 30, 2023		Three Months Ended September 30, 2023		Nine Months Ended September 30, 2023

Selling, general and administrative expenses	$	18,917	$	58,997	$	(3,102)	$	(7,394)	$	15,815	$	51,603
Income tax expense	$	3,311	$	12,552	$	3,102	$	7,394	$	6,413	$	19,946

(j) Reclassification

Certain prior year amounts have been reclassified to conform with the current year’s presentation. These reclassification adjustments had no effect on the Company’s previously reported unaudited interim condensed consolidated statements of operations and unaudited interim condensed consolidated statements of cash flows.

The following table summarizes the effects of reclassification adjustments on the line items within the Company’s unaudited interim condensed consolidated statements of operations:


Prior Year's Line item	As Previously Restated				Amount Reclassified				As Reclassified
		Three Months Ended September 30, 2023		Nine Months Ended September 30, 2023		Three Months Ended September 30, 2023		Nine Months Ended September 30, 2023		Three Months Ended September 30, 2023		Nine Months Ended September 30, 2023

(Recoveries), write-downs, and other charges, net	$	(69)	$	467	$	—	$	(512)	$	(69)	$	(45)
Interest and other income	$	(712)	$	(1,589)	$	—	$	512	$	(712)	$	(1,077)

The following table summarizes the effects of reclassification adjustment on the line items within the Company’s unaudited interim condensed consolidated statements of cash flows:

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iANTHUS CAPITAL HOLDINGS, INC.

NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Tabular U.S. dollar amounts and shares in thousands, unless otherwise stated)


Prior Year's Line item	As Previously Restated		Amount Reclassified		As Reclassified
		Nine Months Ended September 30, 2023	Nine Months Ended September 30, 2023		Nine Months Ended September 30, 2023

Accounts payable	$	5,236	$	580	$	5,816
Change in operating assets and liabilities:		21,575		580		22,155
Investment in associates		—		(580)		(580)
Net cash used in investing activities		(3,683)		(580)		(4,263)

Note 2 – Leases

The Company mainly leases office space and cannabis cultivation, processing and retail dispensary space. Leases with an initial term of less than 12 months are not recorded on the unaudited interim condensed consolidated balance sheets. The Company recognizes operating lease right-of-use assets and operating lease liabilities based on the present value of future minimum lease payments over the lease term at commencement date and lease expense for these leases on a straight-line basis over the lease term. Most leases include one or more options to renew, with renewal terms that can extend the lease term from one to five years or more. The Company has determined that it was reasonably certain that the renewal options on the majority of its cannabis cultivation, processing and retail dispensary space would be exercised based on operating history and knowledge, current understanding of future business needs and the level of investment in leasehold improvements, among other considerations. The incremental borrowing rate used in the calculation of the lease liability is based on the rate available to the parent company. The depreciable life of assets and leasehold improvements are limited by the expected lease term. The Company’s lease agreements do not contain any material residual value guarantees or material restrictive covenants. Certain subsidiaries of the Company rent or sublease certain office space to/from other subsidiaries of the Company. These intercompany subleases are eliminated on consolidation and have lease terms ranging from less than one year to 15 years.

Maturities of lease liabilities for operating leases as of September 30, 2024, were as follows:


	Operating Leases
2025	$	7,353
2026		7,473
2027		6,677
2028		6,542
2029		6,325
Thereafter		33,333
Total lease payments	$	67,703
Less: interest expense		(36,868)
Present value of lease liabilities	$	30,835
Weighted-average remaining lease term (years)		9.4
Weighted-average discount rate		19%

For the three and nine months ended September 30, 2024, the Company recorded operating lease expenses of $2.1 million and $6.3 million, respectively (September 30, 2023 – $2.3 million and $6.8 million, respectively), which are included in costs and expenses applicable to revenues and selling, general and administrative expenses on the unaudited interim condensed consolidated statements of operations.

The Company has entered into multiple sublease agreements pursuant to which it serves as lessor to the sublessees. The gross rental income and underlying lease expense are presented gross on the Company’s unaudited interim condensed consolidated statements of operations. For the three and nine months ended September 30, 2024, the Company recorded sublease income of $0.2 million and $0.7 million, respectively (September 30, 2023 – $0.2 million and $0.7 million, respectively), which is included in interest and other income on the unaudited interim condensed consolidated statements of operations.

Operating cash flows from operating leases for the three and nine months ended September 30, 2024 was $1.8 million and $5.6 million, respectively (September 30, 2023 - $1.9 million and $5.8 million, respectively).

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iANTHUS CAPITAL HOLDINGS, INC.

NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Tabular U.S. dollar amounts and shares in thousands, unless otherwise stated)

Supplemental balance sheet information related to leases are as follows:



Balance Sheet Information	Classification	September 30, 2024		December 31, 2023
					(Audited)
Operating lease right-of-use assets, net	Operating leases	$	26,213	$	27,377
Lease liabilities
Current portion of operating lease liabilities	Operating leases	$	7,353	$	7,716
Long-term portion of operating lease liabilities	Operating leases		23,482		28,009
Total		$	30,835	$	35,725

Note 3 - Inventories, net

Inventories are comprised of the following items:


	September 30,		December 31,
	2024		2023
				(Audited)
Supplies	$	4,101	$	5,331
Raw materials		3,065		7,110
Work in process		6,635		6,351
Finished goods		9,800		6,614
Inventory reserve		—		(24)
Total	$	23,601	$	25,382

Inventories are written down for any obsolescence or when the net realizable value considering future events and conditions is less than the carrying value. For the three and nine months ended September 30, 2024, the Company recorded $0.2 million and $0.2 million, respectively (September 30, 2023 – $Nil and $0.9 million, respectively), related to spoiled inventory in costs and expenses applicable to revenues on the unaudited interim condensed consolidated statements of operations.

Note 4 - Long-Term Debt

The following table summarizes long term debt outstanding as of September 30, 2024:


	Secured Notes		June Secured Debentures		Additional Secured Debentures		June Unsecured Debentures		Other		Total
As of January 1, 2024	$	15,565	$	101,856	$	28,247	$	18,856	$	752	$	165,276
Fair value of financial liabilities issued		14,345		—		—		—		—		14,345
Paid-in-kind interest		239		7,002		1,755		1,405		—		10,401
Accretion of balance		450		2,232		—		742		—		3,424
Debt extinguishment		(15,813)		—		—		—		—		(15,813)
Repayment		—		—		—		—		(42)		(42)
As of September 30, 2024	$	14,786	$	111,090	$	30,002	$	21,003	$	710	$	177,591

As of September 30, 2024, the total and unamortized debt discount costs were $21.9 million and $12.6 million, respectively (December 31, 2023— $20.4 million and $14.6 million, respectively).

As of September 30, 2024, total interest paid on long-term debt was $1.0 million (December 31, 2023 - $0.1 million).

(a) iAnthus New Jersey, LLC Senior Secured Bridge Notes

On February 2, 2021, iAnthus New Jersey, LLC ("INJ") issued an aggregate of $11.0 million of senior secured bridge notes ("Senior Secured Bridge Notes") which initially matured on the earlier of (i) February 2, 2023, (ii) the date on which the Company closes a Qualified Financing (as defined below) and (iii) such earlier date that the principal amount may become due and payable

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NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Tabular U.S. dollar amounts and shares in thousands, unless otherwise stated)

pursuant to the terms of such notes. The Senior Secured Bridge Notes initially accrued interest at a rate of 14.0% per annum, decreasing to 8.0% upon the closing of the Recapitalization Transaction (increasing to 25.0% per annum in the event of default). “Qualified Financing” means a transaction or series of related transactions resulting in net proceeds to the ICH of not less than $10 million from the subscription of the ICH's securities, including, but not limited to, a private placement or rights offering.

On February 2, 2023, ICH and INJ entered into an amendment (the “Amendment”) to the Senior Secured Bridge Notes with all of the holders of the Senior Secured Bridge Notes. Pursuant to the Amendment, the maturity date of the Senior Secured Bridge Notes was extended until February 2, 2024, the interest on the principal amount outstanding was increased to a rate of 12.0% per annum, and an amendment fee equal to 10.0% of the principal amount outstanding of the Senior Secured Bridge Notes as of February 2, 2023 or $1.4 million in the aggregate, was added to such notes such that it will become due and payable on the extended maturity date.

On February 2, 2024, in order to facilitate the 2024 New Jersey Amendment, the parties agreed to a short-term extension of the maturity date from February 2, 2024 to February 16, 2024. On February 16, 2024, ICH and INJ entered into another amendment (the "2024 NJ Amendment") to the Senior Secured Bridge Notes. Pursuant to the 2024 NJ Amendment, the maturity date of the Senior Secured Bridge Notes was extended from February 16, 2024 to February 16, 2026 and the interest rate of the Senior Secured Bridge Notes remained at 12% per annum, but the interest accruing after February 16, 2024 will be payable in quarterly cash payments (the first interest payment being on May 16, 2024). In addition, the 2024 NJ Amendment provides for an amendment fee equal to 10% of the principal amount of the Senior Secured Bridge Notes as of the date of the 2024 NJ Amendment, or $1.6 million in the aggregate, which is satisfied through the issuance of ICH's common shares at a price per share equal to the volume-weighted average trading price of ICH's common shares on the CSE for the twenty (20) consecutive trading days immediately prior to the date of the 2024 NJ Amendment. Lastly, ICH and INJ agreed to utilize twenty-five percent (25%) of Non-Operational Receipts in excess of $5.0 million to make payments towards the principal amount outstanding under the Senior Secured Bridge Notes, without penalty. For purposes of the 2024 NJ Amendment, "Non-Operational Cash Receipts" means cash ICH received which is not derived from the sale of cannabis products in the ordinary course of business of ICH, whether through retail, wholesale or otherwise.

In accordance with debt extinguishment accounting guidance outlined in ASC 470 "Debt", the terms of the Senior Secured Bridge Notes were materially modified pursuant to both the Amendment and 2024 NJ Amendment and as such, for the three and nine months ended September 30, 2024, the Company recorded a loss on debt extinguishment of $Nil and $0.1 million, respectively (September 30, 2023 - $Nil and $1.3 million, respectively), on the unaudited interim condensed consolidated statements of operations.

The amended host debt, classified as a liability using the guidance of ASC 470, was recognized at the fair value of $14.3 million.

For the three and nine months ended September 30, 2024, interest expense of $0.5 million and $1.4 million, respectively (September 30, 2023 - $0.4 million and $1.2 million, respectively), and accretion expense of $0.2 million and $0.5 million, respectively (September 30, 2023 - less than $0.1 million and $0.1 million, respectively), were recorded on the unaudited interim condensed consolidated statements of operations.

The Senior Secured Bridge Notes are secured by a security interest in certain assets of INJ. ICH provided a guarantee in respect of all of the obligations of INJ under the Senior Secured Bridge Notes, and the Company is in compliance with the terms of the Senior Secured Bridge Notes as of September 30, 2024. The Senior Secured Bridge Notes are classified as long-term debt, net of issuance costs on the unaudited interim condensed consolidated balance sheets.

Certain of the Secured Lenders, including Gotham Green Fund II, L.P., Gotham Green Fund II (Q), L.P., Oasis Investments II Master Fund LTD., Senvest Global (KY), LP, Senvest Master Fund, LP and Hadron Healthcare and Consumer Special Opportunities Master Fund, held greater than 5.0% of the outstanding common shares of the Company upon closing of the Recapitalization Transaction. As principal owners of the Company, these lenders are considered to be related parties.

(b) June Secured Debentures

On June 24, 2022 in connection with the closing of the Recapitalization Transaction, the Company entered into the Secured Debenture Purchase Agreement (the "Secured DPA"), between ICM, the other Credit Parties (as defined in the Secured DPA), the Collateral Agent, and the lenders party thereto (the “New Secured Lenders”) pursuant to which ICM issued the June Secured Debentures in the aggregate principal amount of $99.7 million which accrue interest at the rate of 8.0% per annum increasing to 11.0% per annum upon the occurrence of an Event of Default (as defined in the Secured DPA), with a maturity date of June 24, 2027. The June Secured Debentures may be prepaid on a pro rata basis from and after the third anniversary of the Closing Date of the Recapitalization Transaction upon prior written notice to the New Secured Lenders without premium or penalty.

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NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Tabular U.S. dollar amounts and shares in thousands, unless otherwise stated)

The host debt, classified as a liability using the guidance of ASC 470, was recognized at the fair value of $84.5 million.

Interest is to be paid in kind by adding the interest accrued on the principal amount on the last day of each fiscal quarter (the first such interest payment date being June 30, 2022) and such amount thereafter becoming part of the principal amount, which will accrue additional interest. Interest paid in kind will be payable on the date when all of the principal amount is due and payable.

For the three and nine months ended September 30, 2024, interest expense of $2.4 million and $7.0 million, respectively (September 30, 2023 - $2.2 million and $6.4 million, respectively), and accretion expense of $0.8 million and $2.2 million, respectively (September 30, 2023 - $0.7 million and $2.2 million, respectively), were recorded on the unaudited interim condensed consolidated statements of operations.

The terms of the Secured DPA impose certain restrictions on the Company’s operating and financing activities, including certain restrictions on the Company’s ability to: incur certain additional indebtedness; grant liens; make certain dividends and other payment restrictions affecting the Company’s subsidiaries; issue shares or convertible securities; and sell certain assets. The June Secured Debentures are secured by all current and future assets of the Company and ICM. The terms of the Secured DPAs do not have any financial covenants or market value test and ICM is in compliance with the terms of the June Secured Debentures as of September 30, 2024. The June Secured Debentures are classified as long-term debt, net of issuance costs on the unaudited interim condensed consolidated balance sheets.

Certain of the New Secured Lenders that hold the June Secured Debentures, including Gotham Green Fund 1, L.P., Gotham Green Fund 1 (Q), L.P., Gotham Green Fund II, L.P., Gotham Green Fund II (Q), Gotham Green Credit Partners SPV 1, L.P., Gotham Green Partners SPV V, L.P., L.P., and Parallax Master Fund, LP, held greater than 5.0% of the outstanding common shares of the Company upon the closing of the Recapitalization Transaction. As principal owners of the Company, certain of the New Secured Lenders are considered to be related parties.

On June 24, 2022 in connection with the closing of the Recapitalization Transaction, the Company entered into the Unsecured Debenture Purchase Agreement (the "Unsecured DPA"), pursuant to which ICM issued June Unsecured Debentures in the aggregate principal amount of $20.0 million which accrue interest at the rate of 8.0% per annum increasing to 11.0% per annum upon the occurrence of an Event of Default (as defined in the Unsecured DPA), with a maturity date of June 24, 2027. The June Unsecured Debentures may be prepaid on a pro rata basis from and after the third anniversary of the Closing Date of the Recapitalization Transaction upon prior written notice to the Unsecured Lender without premium or penalty.

The host debt, classified as a liability using the guidance of ASC 470, was recognized at the fair value of $14.9 million.

For the three and nine months ended September 30, 2024, interest expense of $0.5 million and $1.4 million, respectively (September 30, 2023 - $0.4 million and $1.3 million, respectively), and accretion expense of $0.3 million and $0.7 million, respectively (September 30, 2023 - $