Ascend Wellness Holdings Inc.
11/12/2026 | Press release | Distributed by Public on 11/12/2026 16:12
Quarterly Report for Quarter Ending September 30, 2026 (Form 10-Q)
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
The following management discussion and analysis, which we refer to as the "MD&A," of the financial condition and results of operations of Ascend Wellness Holdings, Inc. (the "Company," "AWH," or "Ascend") is for the three and nine months ended September 30, 2026 and 2025. It is supplemental to, and should be read in conjunction with, the unaudited condensed consolidated financial statements, and the accompanying notes thereto, (the "Financial Statements") appearing elsewhere in this Quarterly Report on Form 10-Q (the "Quarterly Report" or "Form 10-Q") and our Annual Report on Form 10-K for the year ended December 31, 2025 (the "Annual Report"), which has been filed with the United States Securities and Exchange Commission ("SEC") and with the relevant Canadian securities regulatory authorities under its profile on the System for Electronic Document Analysis and Retrieval Plus ("SEDAR+"). The Financial Statements and Annual Report were prepared in accordance with accounting principles generally accepted in the United States of America, which we refer to as "U.S. GAAP."
The following discussion should be read in conjunction with, and is qualified in its entirety by, the Financial Statements. The discussion in this section contains both historical information and forward-looking statements, within the meaning of the Private Securities Litigation Reform Act of 1995, and forward-looking information, within the meaning of applicable Canadian securities laws, (collectively, "forward-looking statements") that involve risks and uncertainties. Generally, forward-looking statements may be identified by the use of forward-looking terminology such as "plans," "expects," "does not expect," "proposed," "is expected," "budgets," "scheduled," "estimates," "forecasts," "intends," "anticipates," "does not anticipate," "believes," or variations of such words and phrases, or by the use of words or phrases which state that certain actions, events, or results may, could, would, or might occur or be achieved. There can be no assurance that such forward-looking statements will prove to be accurate, and actual results and future events could differ materially from those anticipated in such forward-looking statements. Forward-looking statements are subject to known and unknown risks, uncertainties, and other factors that may cause the actual results, level of activity, performance, or achievements of the Company to be materially different from those or implied by such forward-looking statements. Readers are further cautioned not to place undue reliance on forward-looking statements as there can be no assurance that the plans, intentions, or expectations upon which they are placed will occur. Forward-looking statements in this MD&A are expressly qualified by this cautionary statement. See "Forward-Looking Statements" for more information.
Financial information and share figures, except per-share amounts, in this MD&A are presented in thousands of United States dollars ("$"), unless otherwise indicated. We round amounts in this MD&A to the thousands and calculate all percentages and per-share data from the underlying whole-dollar amounts. Thus, certain amounts may not foot, crossfoot, or recalculate based on reported numbers due to rounding. Unless otherwise indicated, all references to years are to our fiscal year, which ends on December 31.
The Company's shares of Class A common stock are listed on the Canadian Securities Exchange (the "CSE") under the ticker symbol "AAWH.U" and are quoted on the OTCQX® Best Market under the symbol "AAWH." We are an emerging growth company under federal securities laws and as such we are able to elect to follow scaled disclosure requirements for this filing.
BUSINESS OVERVIEW
Established in 2018 and headquartered in Rochelle Park, New Jersey, AWH is a vertically integrated multi-state operator focused on adult-use or near-term adult-use cannabis states in limited license markets. Our core business is the cultivation, manufacturing, and distribution of cannabis consumer packaged goods, which we sell through our company-owned retail stores, to retail partner locations, and to third-party licensed retail locations. We believe in bettering lives through cannabis. Our mission is to improve the lives of our employees, patients, customers, and the communities we serve through the use of the cannabis plant. We are committed to providing safe, reliable, and high-quality products and providing consumers options and education to ensure they are able to identify and obtain the products that fit their personal needs.
Since our formation, we have expanded our operational footprint, primarily through acquisitions, and, as of September 30, 2026, had direct or indirect operations or financial interests in seven United States geographic markets: Illinois, Maryland, Massachusetts, Michigan, New Jersey, Ohio, and Pennsylvania. While we have been successful in opening cultivation facilities and dispensaries under our current licenses, we expect continued growth to be driven by opening dispensaries under our current licenses and through partnership opportunities, expansion of our current cultivation facilities, and increased consumer demand. As of September 30, 2026, we employed approximately 2,500 people, including employees of retail partner locations.
Our consumer products portfolio is generated primarily from plant material that we grow and process ourselves. We have current production capacity across five manufacturing facilities with approximately 230,000 square feet of total canopy. This total excludes approximately 30,000 square feet of canopy associated with the Company's Lansing, Michigan facility, which was temporarily closed at the end of the second quarter of 2026 for remediation activities related to a fire incident at the site that was contained. The Company does not anticipate this temporary closure will have a material impact on its Michigan business.
During the three and nine months ended September 30, 2026, we sold a total of approximately 56,000 and 175,000 pounds of wholesale product, on a gross basis, respectively, compared to 53,000 and 165,000 pounds sold during the three and nine months ended September 30, 2025, respectively. Our product portfolio consists of a range of cannabis product categories including flower, pre-rolls, concentrates, vapes, edibles, and other cannabis-related products. As of September 30, 2026, we have 56 open and operating retail locations, which includes 18 retail partner locations, and we continue to explore expansion opportunities. Our new store opening plans are flexible and will ultimately depend on market conditions, local licensing, construction, and other regulatory permissions. Our expansion plans are subject to capital allocation decisions, the evolving regulatory environment, and the general economic environment.
Recent Developments
Business Developments
The Company continues to focus on optimizing its operations, including evaluating expansion opportunities across the markets in which it operates. In addition to the recent acquisition-related activity that is further described below, subsequent to quarter end, the Company entered into a definitive agreement to acquire two additional dispensaries in the Northeast and three additional dispensaries opened that were associated with previously consolidated transactions. During the year, the Company also debuted a revamped product offering of its Ozone-branded products that are aimed to provide an elevated customer experience and complement Ascend's other product offerings in the market and continues to enhance its product offering.
Recent and Pending Transactions
Refer to Note 4, "Acquisitions," in the Financial Statements for additional information regarding the Company's acquisition-related activity, including previous transactions that remain pending.
Pursuant to various contractual agreements, the Company is providing funding and operational support to third-parties that meet the criteria to be consolidated as variable interest entities (each, a "VIE"). Refer to Note 8, "Variable Interest Entities," in the Financial Statements for additional information regarding the Company's VIEs.
2026 Acquisitions
Northeast Retail Partnership Dispensary Six
In April 2025, the Company entered into a definitive agreement pursuant to which the Company proposed to acquire an entity that anticipated obtaining an adult-use license ("Northeast Retail Partnership Dispensary Six") and receive $1,000 of cash consideration in exchange for the Company's Ohio cultivation license (the "Ohio Cultivation License"). This transaction was subject to certain closing conditions, including regulatory approvals, and closed in March 2026. Northeast Retail Partnership Dispensary Six was not operational at the time of closing and therefore the Company accounted for this transaction as an asset acquisition and, as further described in Note 4, "Acquisitions," in the Financial Statements, allocated the cost of $2,700 to the license acquired, in addition to an acquisition-related deferred tax liability of $1,063. The Company recognized a gain on sale of $137, which is included within "General and administrative expenses" on the unaudited Condensed Consolidated Statements of Operations in the Financial Statements for the nine months ended September 30, 2026. This gain represented the excess of fair value compared with the $3,529 book value of the Ohio Cultivation License that was de-recognized as of the transaction date, less the $1,000 cash received and a nominal value associated with inventory. The parties also settled $349 that the Company previously funded under a note receivable and reimbursed the seller for an additional $588 related to capital expenditures. The Company also assumed the lease for the dispensary location which had a lease liability and ROU asset of $1,066 as of the effective date and is classified as an operating lease. Refer to Note 4, "Acquisitions," in the Financial Statements for additional information related to this transaction and refer to Note 10, "Leases," for additional information regarding the Company's leases.
Northeast Retail Partnership Dispensaries Seven and Eight
In April 2026, Northeast Retail Partner Seven (as defined in Note 8, "Variable Interest Entities" in the Financial Statements) entered into a definitive agreement to acquire two adult-use dispensaries ("Northeast Retail Partnership Dispensaries Seven and Eight"), which agreement is subject to regulatory approval. The parties also entered into a consulting agreement under which Northeast Retail Partner Seven will provide management and advisory services for a set fee. This consulting agreement became effective in April 2026 and will remain in place until regulatory approval of the definitive agreement is received and the underlying transaction closes. Based on the provisions of this consulting agreement, Northeast Retail Partner Seven obtained operational and financial influence over Northeast Retail Partnership Dispensaries Seven and Eight and therefore recognized the transaction as a business combination as of the April 2026 effective date of the consulting agreement. Total cash consideration for Northeast Retail Partnership Dispensaries Seven and Eight is $3,600, of which $800 was remitted in May 2026 and the remainder is due at final closing, subject to customary closing adjustments, as applicable. Refer to Note 4, "Acquisitions," in the Financial Statements for additional information related to this transaction and refer to Note 8, "Variable Interest Entities," for additional information regarding the Company's VIEs.
Midwest Partnership Two Dispensaries
In May 2026, Midwest Retail Partner Two (as described in Note 8, "Variable Interest Entities," in the Financial Statements) entered into a definitive agreement to acquire four adult-use dispensaries (the "Midwest Partnership Two Dispensaries"), which agreement is subject to regulatory approval. The parties also entered into a management services agreement ("MSA") pursuant to which Midwest Retail Partner Two will provide certain management and advisory services for a set fee. This MSA became effective in May 2026, following regulatory approval of the MSA, and will remain in place until the definitive agreement receives regulatory approval and the underlying transaction closes. Based on the provisions of this MSA, Midwest Retail Partner Two obtained operational and financial influence over the Midwest Partnership Two Dispensaries and therefore recognized the transaction as a business combination as of May 2026.
The total consideration for the Midwest Partnership Two Dispensaries was determined to have an estimated fair value of $22,300. Of the total consideration, a deposit of $3,200 was remitted during the three months ended March 31, 2026 and $2,500 was remitted during the three months ended June 30, 2026. The remaining stated cash consideration of $18,800 is due at final closing, subject to certain customary adjustments (the "Midwest Partnership Two Dispensaries Sellers' Note"). The Midwest Partnership Two Dispensaries Sellers' Note was initially recorded net of a discount of $2,200 based on an estimated payment date utilizing the Company's incremental borrowing rate; refer to Note 11, "Debt," for additional information. Refer to Note 4, "Acquisitions," in the Financial Statements for additional information related to this transaction and refer to Note 8, "Variable Interest Entities," for additional information regarding the Company's VIEs.
Northeast Retail Partnership Dispensary Nine
In August 2026, the Company entered into a definitive agreement pursuant to which it may acquire a direct ownership interest in a third-party ("Northeast Retail Partner Eight"), which owns and operates one adult-use dispensary ("Northeast Retail Partnership Dispensary Nine"). The parties also entered into a consulting agreement that is expected to remain in place until the definitive agreement receives regulatory approval and the anticipated underlying transaction closes, as well as a note agreement that contains various covenants, including restrictive covenants. Based on the provisions of these agreements, the Company determined that it obtained operational and financial influence over Northeast Retail Partnership Dispensary Nine and consolidated the entity as a VIE and recognized the transaction as a business combination as of August 2026. Total cash consideration for this transaction is $6,500, of which $2,186 was remitted in August 2026 pursuant to the note agreement. The remaining consideration is payable in accordance with the terms of the underlying agreement, with a portion due at closing and the remainder due six months thereafter, subject to customary closing adjustments, as applicable. The underlying agreement is subject to regulatory review and approval. Direct transaction costs were not material. Refer to Note 4, "Acquisitions," in the Financial Statements for additional information related to this transaction and refer to Note 8, "Variable Interest Entities," for additional information regarding the Company's VIEs.
Operational and Regulation Overview
We believe our operations are in material compliance with all applicable state and local laws, regulations, and licensing requirements in the states in which we operate. However, cannabis is illegal under United States federal law. Substantially all of our revenue is derived from United States cannabis operations. For information about risks related to United States cannabis operations, refer to Item 1A., "Risk Factors," of the Annual Report and Item 1A. of Part II of this Quarterly Report.
On April 23, 2026, the U.S. Department of Justice (the "DOJ") issued an order placing cannabis products subject to qualifying state medical cannabis licenses and other cannabis products that are FDA-approved into Schedule III under the Controlled Substances Act (21 U.S.C. § 801 et seq.) (the "CSA") (the "April 2026 Order"). In addition, the Drug Enforcement Administration ("DEA") held an administrative hearing from June 29, 2026 through July 15, 2026 to address the proposed broader rescheduling of marijuana from Schedule I to Schedule III, including adult-use (recreational) cannabis. The rescheduling proceeding has been on hold since September 29, 2026 when the DEA Chief Administrative Law Judge overseeing the proceeding issued a stay to allow the tribunal time to consider a motion to reopen the hearing and add a newly released Government Accountability Office report (the "GAO Report") to the hearing record. On October 22, 2026, the judge denied the request to reopen the hearing for new testimony and discovery, but he allowed the GAO Report to be entered into the hearing record and is inviting the parties to submit briefings related to the report. The proceeding stays on hold until that briefing ends, after which the judge overseeing the proceeding will issue his rescheduling recommendation, but the final rescheduling decision ultimately rests with the DEA Administrator.
Following the April 2026 Order, certain cannabis products subject to qualifying state medical cannabis licenses and other cannabis products that are FDA-approved were rescheduled from Schedule I to Schedule III under the CSA. Because Internal Revenue Code ("IRC") Section 280E applies to Schedule I and Schedule II controlled substances, this rescheduling removes IRC Section 280E expense disallowances for qualifying medical cannabis activities. The Department of the Treasury and the IRS announced that forthcoming transition guidance will apply this relief to the full 2026 taxable year for qualifying medical cannabis activities. For businesses that operate both medical and adult-use cannabis under state licenses, the IRS has indicated that the guidance will include clarification on activity-based allocation and apportionment. The specific details and timing of such guidance remain unclear. Accordingly, the extent to which the Company may ultimately benefit from relief under IRC Section 280E is uncertain. As of and for the three and nine months ended September 30, 2026, the Company recognized relief from IRC Section 280E for its qualifying medical cannabis activities. Adult-use (recreational) cannabis operations remain classified under Schedule I, and, accordingly, IRC Section 280E remains applicable with regard to disallowance rules related to adult-use operations and apportioned shared expenses, pending further regulatory developments. State conformity to federal rescheduling varies, and the Company will evaluate state tax impacts as regulations and state guidance evolve.
The Company continues to evaluate the impact of the April 2026 Order on its medical cannabis operations, including its federal and state tax positions, compliance obligations, licensing, access to financial services, and capital markets activities. As further discussed within the "Results of Operations" sub-sections of this MD&A and Note 14, "Income Taxes," in the Financial Statements, the Company's estimated tax provision for the three and nine months ended September 30, 2026 includes a benefit related to the revised tax treatment of the Company's medical-related business. The Company continues to evaluate the limited implementation guidance and regulatory interpretation that is currently available, but the uncertainty of additional information related to such, as well as the potential outcome of additional DEA proceedings, may have a material effect on our future results of operations, cash flows, and liquidity, particularly if it reduces or eliminates the application of Internal Revenue Code ("IRC") Section 280E to some or all of our state-licensed cannabis operations. Any such impact will depend on, among other things, whether the April 2026 Order withstands any legal challenges to its validity, the scope of our qualifying medical cannabis activities, our ability to substantiate deductions attributable to those activities, future guidance that may be issued by various regulatory bodies, including but not limited to the Internal Revenue Service ("IRS"), DOJ, DEA, and various state regulators, and the outcome of the DEA proceedings regarding the broader rescheduling of marijuana, including adult-use (recreational) cannabis. The Company will continue to evaluate, as more guidance becomes available, whether to file amended tax returns and potential changes to our systems, controls, and cost allocation methodologies that may be required. At this time, we cannot be certain of the future amount of benefit to our income taxes that may be realized, whether the April 2026 Order will improve our access to capital or banking services, or if additional federal regulatory changes will occur.
Key Financial Highlights
•Revenue increased by $5,285, or 4%, during the three months ended September 30, 2026, as compared to the three months ended September 30, 2025, primarily driven by incremental revenue from acquisitions and consolidated partnership activity, partially offset by declines across our legacy business resulting from increased competition and pricing pressure in most of our markets.
•Operating profit was $4,500 during the three months ended September 30, 2026, as compared to operating loss of $1,325 during the three months ended September 30, 2025, primarily attributable to a contribution from improved margins.
•Net decrease in cash and cash equivalents of $22,051 during the nine months ended September 30, 2026, primarily resulting from payments associated with capital expenditures and acquisitions, which were offset by net cash provided by operating activities that was inclusive of interest payments of $38,849 on debt obligations and a $17,000 payment associated with a litigation matter (refer to "Management's Discussion and Analysis of Financial Condition and Results of Operations-Legal Matters-Green Thumb Industries Arbitration Matter" for additional information).
RESULTS OF OPERATIONS
Three Months Ended September 30, 2026 Compared with the Three Months Ended September 30, 2025
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Three Months Ended September 30, |
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| ($ in thousands) | 2026 | 2025 | Increase / (Decrease) | ||||||||||||||||||||
| Revenue, net | $ | 130,019 | $ | 124,734 | $ | 5,285 | 4% | ||||||||||||||||
| Cost of goods sold | (76,930) | (81,133) | (4,203) | (5)% | |||||||||||||||||||
| Gross profit | 53,089 | 43,601 | 9,488 | 22% | |||||||||||||||||||
| Gross profit % | 40.8 | % | 35.0 | % | |||||||||||||||||||
| Operating expenses | |||||||||||||||||||||||
| General and administrative expenses | 48,589 | 44,926 | 3,663 | 8% | |||||||||||||||||||
| Operating profit (loss) | 4,500 | (1,325) | 5,825 | 440% | |||||||||||||||||||
|
Other (expense) income
|
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| Interest expense | (21,977) | (12,562) | 9,415 | 75% | |||||||||||||||||||
| Other income, net | 59 | 341 | (282) | (83)% | |||||||||||||||||||
| Total other expense, net | (21,918) | (12,221) | 9,697 | 79% | |||||||||||||||||||
|
Loss before income taxes
|
(17,418) | (13,546) | 3,872 | 29% | |||||||||||||||||||
| Income tax expense | (10,533) | (12,279) | (1,746) | (14)% | |||||||||||||||||||
| Net loss | $ | (27,951) | $ | (25,825) | $ | 2,126 | 8% | ||||||||||||||||
Revenue
Revenue increased by $5,285, or 4%, during the three months ended September 30, 2026, as compared to the three months ended September 30, 2025. The increase in revenue was primarily attributable to $18,126 of incremental revenue from partner stores and new stores that were added during 2025 and 2026, partially offset by a total decline of $4,086 across legacy locations, primarily driven by softness in Pennsylvania, New Jersey, and Michigan that was partially offset by a benefit from adult-use sales in Ohio. Additionally, net revenue from our wholesale operations decreased by $8,755 largely resulting from an increased focus on selling products through Company-owned and retail partner locations, as well as ongoing price compression across certain markets, particularly in Illinois and New Jersey. We sold approximately 56,000 pounds of wholesale product, on a gross basis, during the three months ended September 30, 2026, compared to 53,000 during the three months ended September 30, 2025.
Cost of Goods Sold and Gross Profit
Cost of goods sold, which represents direct and indirect expenses attributable to the production of wholesale products as well as direct expenses incurred in purchasing products from other wholesalers, decreased by $4,203 during the three months ended September 30, 2026, as compared to the three months ended September 30, 2025. Gross profit for the three months ended September 30, 2026 was $53,089, representing a gross margin of 40.8%, compared to gross profit of $43,601 and gross margin of 35.0% for the three months ended September 30, 2025. Gross margin for the current quarter benefited from a higher volume of Company-produced products sold through our retail stores and retail partner locations, as well as an increased focus on higher-margin products, partially offset by an impact from increased competition and pricing pressure across certain markets. The current period also reflects $6,748 of lower write-downs of certain inventory items related to net realizable value adjustments, expired products, and obsolete packaging.
General and Administrative Expenses
General and administrative expenses increased by $3,663, or 8%, during the three months ended September 30, 2026, as compared to the three months ended September 30, 2025. The increase was primarily attributable to:
•a $4,246 increase in total compensation expense in support of the expansion of consolidated operations, net of $153 of lower equity-based compensation expense; and
•a $1,126 increase in depreciation and amortization expense, which was attributable to a larger average balance of fixed assets in service.
These increases were partially offset by a $1,249 decrease in professional services expenses, as well as a net reduction of overhead expenses attributable to ongoing cost-savings initiatives.
Interest Expense
Interest expense increased by $9,415, or 75%, during the three months ended September 30, 2026, as compared to the three months ended September 30, 2025. The current year was impacted primarily by $8,134 of higher interest associated with finance leases; refer to Note 10, "Leases," in the Financial Statements for additional information. During the three months ended September 30, 2026, the Company had a weighted-average outstanding debt balance, excluding finance leases, of $336,325 with a weighted-average interest rate of 12.3%, compared to a weighted-average debt balance of $339,821 during the three months ended September 30, 2025 with a weighted-average interest rate of 11.8%.
Income Tax Expense
Under the limitations of IRC Section 280E, which applies to Schedule I and Schedule II controlled substances, cannabis companies are only allowed to deduct expenses directly related to the sales of product (cost of goods sold). This results in permanent differences between ordinary and necessary business expenses deemed non-allowable under IRC Section 280E and those allowed for financial statement reporting purposes ("book-to-tax" differences). Cannabis companies operating in states that align their tax codes with IRC Section 280E are also unable to deduct ordinary and necessary business expenses for state tax purposes. Ordinary and necessary business expenses deemed non-deductible under IRC Section 280E are treated as permanent book-to-tax differences. Therefore, the effective tax rate on income realized by cannabis companies can be highly variable and may not necessarily correlate with pre-tax income or loss.
The Company's quarterly tax provision is calculated under the discrete method which treats the interim period as if it were the annual period and determines the income tax expense or benefit on that basis. The discrete method is applied when application of the estimated annual effective tax rate is impractical because it is not possible to reliably estimate the annual effective tax rate. The Company believes, at this time, the use of this discrete method is more appropriate than the annual effective tax rate method due to the high degree of uncertainty in estimating annual pre-tax income.
As of September 30, 2026, the Company recorded an uncertain tax liability totaling $231,423 for uncertain tax positions related to the treatment of certain transactions and deductions under IRC Section 280E based on legal interpretations that challenge the Company's tax liability under IRC Section 280E. The Company is evaluating the impact of the April 2026 Order on its existing uncertain tax positions recorded under IRC Section 280E, but, given the limited implementation guidance issued to date, the Company has not adjusted prior year positions as of the date these Financial Statements were issued. The Company has been selected for examination of its amended tax returns filed with its unrecognized tax benefits but does not currently anticipate these to be resolved in the next twelve months and anticipates that the total amount of unrecognized tax benefits may change within the next twelve months for additional uncertain tax positions taken on a go-forward basis. If favorably resolved, the unrecognized tax benefits would decrease the Company's effective tax rate. Refer to Note 14, "Income Taxes," in the Financial Statements for additional information regarding the Company's income taxes.
The statutory federal tax rate was 21% during both periods. The Company has operations in seven U.S. geographic markets: Illinois, Maryland, Massachusetts, Michigan, New Jersey, Ohio, and Pennsylvania, which have state tax rates ranging from 6% to 11.5%. Certain states, including Illinois, Maryland, Massachusetts, Michigan, New Jersey, and Pennsylvania do not align with IRC Section 280E for state tax purposes and permit the deduction of ordinary and necessary business expenses from gross profit in the calculation of state taxable income. There have been no material changes to income tax matters in connection with the normal course of our operations during the current year, other than as described above with respect to the April 2026 Order.
The Company's income tax expense was $10,533, or 19.8%, of gross profit, during the three months ended September 30, 2026, as compared to $12,279, or 28.2%, of gross profit, during the three months ended September 30, 2025. The effective tax rate on gross profit for the three months ended September 30, 2026 reflects a benefit related to the deductibility of certain expenses associated with medical cannabis activities as permitted in the current year following updates from the April 2026 Order. These benefits were partially offset by a $884 increase in the Company's valuation allowance for certain deferred tax assets. Refer to Note 14, "Income Taxes," in the Financial Statements for additional information regarding the Company's income taxes.
RESULTS OF OPERATIONS
Nine Months Ended September 30, 2026 Compared with the Nine Months Ended September 30, 2025
|
Nine Months Ended September 30, |
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| ($ in thousands) | 2026 | 2025 | Increase / (Decrease) | ||||||||||||||||||||
| Revenue, net | $ | 373,070 | $ | 380,035 | $ | (6,965) | (2)% | ||||||||||||||||
| Cost of goods sold | (229,608) | (255,481) | (25,873) | (10)% | |||||||||||||||||||
| Gross profit | 143,462 | 124,554 | 18,908 | 15% | |||||||||||||||||||
| Gross profit % | 38.5 | % | 32.8 | % | |||||||||||||||||||
| Operating expenses | |||||||||||||||||||||||
| General and administrative expenses | 131,136 | 124,395 | 6,741 | 5% | |||||||||||||||||||
| Operating profit | 12,326 | 159 | 12,167 | NM* | |||||||||||||||||||
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Other (expense) income
|
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| Interest expense | (63,031) | (35,810) | 27,221 | 76% | |||||||||||||||||||
| Other income, net | 174 | 1,302 | (1,128) | (87)% | |||||||||||||||||||
| Total other expense, net | (62,857) | (34,508) | 28,349 | 82% | |||||||||||||||||||
| Loss before income taxes | (50,531) | (34,349) | 16,182 | 47% | |||||||||||||||||||
| Income tax expense | (16,719) | (35,141) | (18,422) | (52)% | |||||||||||||||||||
| Net loss | $ | (67,250) | $ | (69,490) | $ | (2,240) | (3)% | ||||||||||||||||
*Not meaningful
Revenue
Revenue decreased by $6,965, or 2%, during the nine months ended September 30, 2026, as compared to the nine months ended September 30, 2025. Net revenue from our wholesale operations declined by $26,046 largely resulting from an increased focus on selling products through Company-owned and retail partner locations, as well as ongoing price compression across certain markets, particularly in Illinois and New Jersey. We sold approximately 175,000 pounds of wholesale product, on a gross basis, during the nine months ended September 30, 2026, compared to 165,000 pounds during the nine months ended September 30, 2025. Additionally, revenue across legacy dispensary locations declined by $21,614, primarily driven by softness across most markets that was partially offset by a benefit from adult-use sales in Ohio. These declines were partially offset by a contribution of $40,695 of incremental revenue from partner stores and from new stores that were added during 2025 and 2026.
Cost of Goods Sold and Gross Profit
Cost of goods sold decreased by $25,873, or 10%, during the nine months ended September 30, 2026, as compared to the nine months ended September 30, 2025. Gross profit for the nine months ended September 30, 2026 was $143,462, representing a gross margin of 38.5%, compared to gross profit of $124,554 and gross margin of 32.8% for the nine months ended September 30, 2025. Gross margin in the current year benefitted from a higher volume of Company-produced products sold through our retail stores and retail partner locations, as well as an increased focus on higher-margin products. These benefits were partially offset by an impact from increased competition and pricing pressure across most of our markets. Additionally, the current period reflects $11,454 of lower write-downs of certain inventory items related to net realizable value adjustments, expired products, and obsolete packaging.
General and Administrative Expenses
General and administrative expenses increased by $6,741, or 5%, during the nine months ended September 30, 2026, as compared to the nine months ended September 30, 2025. The increase was primarily driven by:
•a $7,287 increase in total compensation expense in support of the expansion of consolidated operations, net of $364 of lower equity-based compensation expense;
•a $3,911 increase in depreciation and amortization expense, which was attributable to a larger average balance of fixed assets in service; and
•a $657 loss on settlement of a loan receivable.
These increases were partially offset by a net benefit of $4,953 of acquisition-related earn-out fair value adjustments and a $1,835 decrease in professional services expenses, as well as a net reduction of overhead expenses attributable to ongoing cost-savings initiatives.
Interest Expense
Interest expense increased by $27,221, or 76%, during the nine months ended September 30, 2026, as compared to the nine months ended September 30, 2025, primarily impacted by $25,147 of higher interest associated with finance leases; refer to Note 10, "Leases," in the Financial Statements for additional information. During the nine months ended September 30, 2026, the Company had a weighted-average outstanding debt balance, excluding finance leases, of $325,339 with a weighted-average interest rate of 12.2%, compared to a weighted-average debt balance of $343,356 during the nine months ended September 30, 2025 with a weighted-average interest rate of 11.4%.
Income Tax Expense
Income tax expense was $16,719, or 11.7%, of gross profit, during the nine months ended September 30, 2026, as compared to $35,141, or 28.2%, of gross profit, during the nine months ended September 30, 2025. The nine months ended September 30, 2026 reflects a net benefit of $14,818 related to a release from the reserve for uncertain tax positions, a benefit related to the deductibility of certain expenses associated with medical cannabis activities as permitted in the current year following updates from the April 2026 Order, and a benefit from the tax treatment of a settlement payment. These benefits were partially offset by a $3,064 increase in the Company's valuation allowance for certain deferred tax assets. Refer to Note 14, "Income Taxes," in the Financial Statements for additional information regarding the Company's income taxes.
NON-GAAP FINANCIAL MEASURES
We define "Adjusted Gross Profit" as gross profit excluding non-cash inventory costs, which include depreciation and amortization included in cost of goods sold, equity-based compensation included in cost of goods sold, and other non-cash inventory adjustments. We define "Adjusted Gross Margin" as Adjusted Gross Profit Margin as a percentage of net revenue. Our "Adjusted EBITDA" is a non-GAAP measure used by management that is not defined by U.S. GAAP and may not be comparable to similar measures presented by other companies. We define "Adjusted EBITDA Margin" as Adjusted EBITDA as a percentage of net revenue. Management calculates Adjusted EBITDA as the reported net income or loss, adjusted to exclude: income tax expense, other (income) expense, interest expense, depreciation and amortization, depreciation and amortization included in cost of goods sold, non-cash inventory adjustments, equity-based compensation, equity-based compensation included in cost of goods sold, start-up costs, start-up costs included in cost of goods sold, transaction-related and other non-recurring expenses, gain or loss on sale of assets, and litigation settlement, as applicable. Accordingly, management believes that Adjusted EBITDA provides meaningful and useful financial information, as this measure demonstrates the operating performance of the business. The tables below provide reconciliations of these non-GAAP measures to the most comparable U.S. GAAP financial measure. Non-GAAP financial measures may be considered in addition to the results prepared in accordance with U.S. GAAP, but they should not be considered a substitute for, or superior to, U.S. GAAP results. The Company's presentation of these financial measures may not be comparable to similar non-GAAP measures used by other companies.
The following table presents Adjusted Gross Profit for the three and nine months ended September 30, 2026 and 2025:
|
Three Months Ended September 30, |
Nine Months Ended September 30, |
||||||||||||||||||||||
| ($ in thousands) | 2026 | 2025 | 2026 | 2025 | |||||||||||||||||||
| Gross Profit | $ | 53,089 | $ | 43,601 | $ | 143,462 | $ | 124,554 | |||||||||||||||
| Depreciation and amortization included in cost of goods sold | 9,237 | 6,928 | 27,837 | 25,209 | |||||||||||||||||||
| Equity-based compensation included in cost of goods sold | 335 | 329 | 1,370 | 1,631 | |||||||||||||||||||
|
Non-cash inventory adjustments(1)
|
219 | 6,967 | 2,429 | 13,883 | |||||||||||||||||||
| Adjusted Gross Profit | $ | 62,880 | $ | 57,825 | $ | 175,098 | $ | 165,277 | |||||||||||||||
| Adjusted Gross Profit Margin | 48.4 | % | 46.4 | % | 46.9 | % | 43.5 | % | |||||||||||||||
(1)Consists of write-offs of expired products, obsolete packaging, and net realizable value adjustments related to certain inventory items.
The following table presents Adjusted EBITDA for the three and nine months ended September 30, 2026 and 2025:
|
Three Months Ended September 30, |
Nine Months Ended September 30, |
||||||||||||||||||||||
| ($ in thousands) | 2026 | 2025 | 2026 | 2025 | |||||||||||||||||||
|
Net loss
|
$ | (27,951) | $ | (25,825) | $ | (67,250) | $ | (69,490) | |||||||||||||||
| Income tax expense | 10,533 | 12,279 | 16,719 | 35,141 | |||||||||||||||||||
| Other income, net | (59) | (341) | (174) | (1,302) | |||||||||||||||||||
| Interest expense | 21,977 | 12,562 | 63,031 | 35,810 | |||||||||||||||||||
| Depreciation and amortization | 20,206 | 16,771 | 59,540 | 53,001 | |||||||||||||||||||
|
Non-cash inventory adjustments(1)
|
219 | 6,967 | 2,429 | 13,883 | |||||||||||||||||||
| Equity-based compensation | 659 | 806 | 1,985 | 2,610 | |||||||||||||||||||
|
Start-up costs(2)
|
3,543 | 4,092 | 9,987 | 8,708 | |||||||||||||||||||
|
Transaction-related and other non-recurring expenses(3)
|
2,012 | 3,783 | 438 | 8,251 | |||||||||||||||||||
| (Gain) loss on sale of assets | - | - | (137) | 55 | |||||||||||||||||||
| Adjusted EBITDA | $ | 31,139 | $ | 31,094 | $ | 86,568 | $ | 86,667 | |||||||||||||||
| Adjusted EBITDA Margin | 23.9 | % | 24.9 | % | 23.2 | % | 22.8 | % | |||||||||||||||
(1)Consists of write-offs of expired products, obsolete packaging, and net realizable value adjustments related to certain inventory items.
(2)One-time costs associated with acquiring real estate, obtaining licenses and permits, and other costs incurred before commencement of operations at certain locations, as well as incremental expenses associated with the expansion of activities at our cultivation facilities that are not yet operating at scale, other expenses resulting from delays in regulatory approvals, and other related one-time or non-recurring expenses, as applicable. The three and nine months ended September 30, 2026 includes $2,477 and $7,317, respectively, of unallocated overhead expenses at certain cultivation facilities resulting from a rebalancing of overhead expenses from cost of goods sold to general and administrative expenses based on overhead allocations relative to production output at those locations, compared with $3,580 and $6,693 during the three and nine months ended September 30, 2025, respectively.
(3)Other non-recurring expenses including legal and professional fees associated with litigation matters, potential acquisitions, other regulatory matters, and other reserves or one-time expenses, including certain non-recurring professional fees associated with certain strategic initiatives. The three and nine months ended September 30, 2026 include $725 of severance. The three and nine months ended September 30, 2026 include $37 and $314, respectively, related to property development expense write-offs, and the nine months ended September 30, 2026 includes a net reduction related to acquisition-related earn-out fair value adjustments of approximately $4,953. The nine months ended September 30, 2025 include approximately $700 of expenses associated with our May 2025 term loans and approximately $400 of expenses associated with our January 2025 term loans. The three and nine months ended September 30, 2025 also include approximately $170 and $270, respectively, of fair value adjustments associated with acquisition earn-outs.
LIQUIDITY AND CAPITAL RESOURCES
We are an emerging growth company and our primary sources of liquidity are operating cash flows, borrowings through the issuance of debt, and funds raised through the issuance of equity securities. We are generating cash from sales and deploying our capital reserves to acquire and develop assets capable of producing additional revenue and earnings over both the immediate and long term. Capital reserves are being utilized for acquisitions in the medical and adult-use cannabis markets, capital expenditures and improvements in existing facilities, and product development and marketing, as well as customer, supplier, and investor and industry relations.
Financing History and Future Capital Requirements
Historically, we have used private financing as a source of liquidity for short-term working capital needs and general corporate purposes. In May 2021, we completed an initial public offering of shares of our Class A common stock through which we raised aggregate net proceeds of approximately $86,065, after deducting underwriting discounts and commissions and certain direct offering expenses paid by us. In August 2021, we entered into a credit facility under which we initially borrowed $210,000 through term loans and, during the second quarter of 2022, we borrowed an additional $65,000 of term loans from certain lenders under the expansion feature of this credit facility. During the second quarter of 2023, we raised an aggregate of $7,000 in gross proceeds through a non-brokered private placement offering of an aggregate of 9,859 shares of the Company's Class A common stock to a single investor. In July 2024 we issued term notes in aggregate principal of $235,000, which proceeds were used, together with cash on hand, to prepay a portion of our other term loans then-outstanding, as discussed further below. In January 2025, we issued an additional $15,000, in aggregate principal of term loans, for general corporate purposes, including to fund growth initiatives, and in May 2025 we issued an additional $50,000, in aggregate principal of term loans, which proceeds were utilized, along with cash on hand, to prepay the remaining $60,000 then-outstanding under our previous credit facility, as discussed further below.
Our future ability to fund operations, to make planned capital expenditures, to acquire other entities or investments, to make scheduled debt payments, and to repay or refinance indebtedness depends on our future operating performance, cash flows, and ability to obtain equity or debt financing, which are subject to prevailing economic conditions, as well as financial, business, and other factors, some of which are beyond our control.
As of September 30, 2026 and December 31, 2025, we had total current liabilities of $116,314 and $109,009, respectively, and total current assets of $181,191 and $208,949, respectively, which includes cash and cash equivalents of $63,625 and $85,676, respectively, to meet our current obligations. As of September 30, 2026, we had working capital of $64,877, compared to $99,940 as of December 31, 2025.
Approximately 92% and 94% of our cash and cash equivalents balance as of September 30, 2026 and December 31, 2025, respectively, is on deposit with banks, credit unions, or other financial institutions. We have not experienced any material impacts related to banking restrictions applicable to cannabis businesses. Our cash and cash equivalents balance is not restricted for use by VIEs.
As reflected in the Financial Statements, we have had recurring losses that have resulted in an accumulated deficit as of September 30, 2026 and December 31, 2025. As of September 30, 2026, we had cash and cash equivalents of $63,625, which, combined with anticipated cash flows from operating activities, management believes is more than adequate to support operations for the next twelve months from the date of issuance of this Quarterly Report on Form 10-Q. Over the longer term, management expects to fund our operations and strategic initiatives with cash flows from operating activities and existing financing arrangements, and we currently do not have significant debt maturities until 2029. Management may continue to access capital markets for additional funding through debt and/or equity financings to supplement future cash needs, as may be required. However, management cannot provide any assurances that the Company will be successful in accomplishing its business plans. If we are unable to raise additional capital on favorable terms, if at all, whenever necessary, we may be forced to decelerate or curtail certain of our operations until such time as additional capital becomes available.
2024 Term Notes
On July 16, 2024, the Company issued $235,000 in aggregate principal of senior secured notes due July 16, 2029 (the "July 2024 Term Notes") through a private placement (the "2024 Notes Offering") pursuant to an indenture agreement (the "July 2024 Loan Agreement"). The July 2024 Term Notes were issued at 94.75% of face value and do not require scheduled principal amortization payments. The total of the original issue discount and other capitalized direct financing fees was approximately $21,200 and will be amortized over the associated term using the straight-line method, which approximates the interest method. The Company utilized the proceeds from the 2024 Notes Offering, along with cash on hand, to prepay $215,000 of borrowings then-outstanding under a previous credit facility (the "2021 Credit Facility"). The July 2024 Loan Agreement permitted the Company, subject to certain limitations, to issue additional notes thereunder, including up to an additional $60,000 in aggregate principal, with the proceeds therefrom to be used to prepay the remaining outstanding balance under, and to terminate, the 2021 Credit Facility.
In January 2025, the Company borrowed an additional $15,000 through the issuance of additional term notes (the "January 2025 Term Notes"). The January 2025 Term Notes were issued at 97% of face value and are subject to the same terms and provisions of the July 2024 Loan Agreement, including the interest rate and maturity date thereunder, as further described below. In May 2025, the Company issued an additional $50,000, in aggregate principal, of term notes (the "May 2025 Term Notes" and, together with the July 2024 Term Notes and January 2025 Term Notes, the "2024 Term Notes") which proceeds were utilized, along with cash on hand, to prepay the remaining $60,000 of borrowings outstanding under the 2021 Credit Facility.
The 2024 Term Notes bear interest at a rate of 12.75% per annum, payable semi-annually in arrears on January 15 and July 15 of each year until the maturity date, commencing on January 15, 2025, unless earlier prepaid in accordance with the terms of the July 2024 Loan Agreement. In conjunction with the May 2025 Term Notes, those lenders prepaid $2,323 of accrued interest from the January 15 interest payment date through issuance, and, in turn, those lenders received interest for the full interest payment period that was payable on July 15, 2025. The 2024 Term Notes are irrevocably and unconditionally guaranteed, jointly and severally, on a senior secured basis by certain of the Company's subsidiaries (the "Guarantees"). The 2024 Term Notes and the Guarantees are (i) secured, on a first lien basis, by substantially all assets of the Company and the guarantors of the July 2024 Term Notes, subject to certain carveouts, and (ii) issued and governed by the July 2024 Loan Agreement.
The Company may, at any time and from time to time upon not less than 15 nor more than 60 days' prior notice, prepay the 2024 Term Notes, along with accrued and unpaid interest, subject to a prepayment premium. The July 2024 Loan Agreement requires mandatory prepayments from proceeds of certain events. In the event of a change of control, as provided in the July 2024 Loan Agreement, the Company will be required to make an offer to each holder of the 2024 Term Notes to repay all or any part of such holders' 2024 Term Notes at a price in cash equal to not less than 101% of the aggregate principal amount of such 2024 Term Notes repaid, plus accrued and unpaid interest thereon.
Pursuant to the July 2024 Loan Agreement, the Company has agreed to comply with certain customary covenants, including, but not limited to, restrictions on the Company's ability to: declare or pay dividends or make certain other payments; purchase, redeem, or otherwise purchase or retire for value any equity interests or any subordinated indebtedness or otherwise make any restricted investment or restricted payment; incur certain indebtedness; create certain liens; consolidate, amalgamate, merge, or transfer all or substantially all of the assets of the Company and certain restricted subsidiaries taken as a whole; enter into certain transactions with affiliates; and engage in certain types of businesses. Additionally, the July 2024 Loan Agreement provides for customary events of default which, if certain of them occur, would permit certain parties, including holders of not less than 25% in aggregate principal of the then-outstanding 2024 Term Notes to declare the principal of, and interest or premium, if any, and any other monetary obligations on, all the then-outstanding 2024 Term Notes to be due and payable immediately.
As amended, the July 2024 Loan Agreement requires the Company, on a consolidated basis, to maintain liquidity, consisting of cash and/or cash equivalents plus any future revolving credit availability, as of the last day of each fiscal month, as amended, in an aggregate amount of at least $20,000, with which the Company was in compliance as of September 30, 2026. The Company is required to comply with certain other financial covenants in contemplation of certain transactions or events, such as acquisitions and other financing activities, as defined within and provided for under the July 2024 Loan Agreement, as amended.
Refer to Note 11, "Debt," in the Financial Statements for additional information regarding the July 2024 Loan Agreement and the Company's other debt transactions.
Mortgage Note
On September 29, 2025, certain of the Company's subsidiaries (the "Borrowing Subsidiaries") entered into a loan agreement and related promissory note with an aggregate principal amount of $9,345 (the "Mortgage Note"), which was borrowed in full. The Company anticipates utilizing the net proceeds for general corporate purposes, including to fund growth initiatives. The Mortgage Note matures on September 29, 2030 and borrowings thereunder bear interest at a rate of 8.5% per annum. Principal will be repaid based on an amortization period of twenty years and any unpaid principal and accrued interest will be due and payable upon maturity. Monthly payments of principal and interest commenced on November 1, 2025. As of September 30, 2026 and December 31, 2025, $199 and $187, respectively, of principal is included within "Current portion of debt, net" and $8,984 and $9,133, respectively, is included within "Long-term debt, net" on the unaudited Condensed Consolidated Balance Sheets in the Financial Statements. The obligations under the Mortgage Note are secured by mortgages on three properties that the Company owns in Ohio, as well as assignment of any leases and rent amounts related to these properties that the Company may enter into. The Mortgage Note contains customary representations and events of default. The Borrowing Subsidiaries have agreed to comply with certain customary covenants, including, but not limited to, restrictions on their ability to: incur additional indebtedness; create certain liens; make material changes to the nature of the business conducted; and sell, lease, transfer, or otherwise dispose of all or a substantial part of their assets. The Mortgage Note also requires the Borrowing Subsidiaries to maintain a debt service coverage ratio (as defined in the Mortgage Note) of not less than 1.30 to 1.00 measured annually based on the entire calendar year and commencing on December 31, 2026.
Cash Flows
| Nine Months Ended September 30, | |||||||||||
| (in thousands) | 2026 | 2025 | |||||||||
| Net cash provided by operating activities | $ | 8,469 | $ | 21,737 | |||||||
| Net cash used in investing activities | (26,402) | (28,973) | |||||||||
| Net cash (used in) provided by financing activities | (4,118) | 6,254 | |||||||||
Operating Activities
Net cash provided by operating activities was $8,469 during the nine months ended September 30, 2026, as compared to $21,737 during the nine months ended September 30, 2025. The current year reflects $38,849 of cash interest paid on debt arrangements, compared with $36,431 paid for interest in the prior year, and a $17,000 settlement payment associated with a previous litigation matter, which were offset by a net improvement from working capital management.
Investing Activities
Net cash used in investing activities was $26,402 during the nine months ended September 30, 2026, as compared to $28,973 during the nine months ended September 30, 2025. The current year reflects higher payments associated with acquisitions as compared to the prior year, offset by proceeds received from the settlement of a previous loan receivable, proceeds from the sale of certain assets, and lower capital expenditures.
Financing Activities
Net cash used in financing activities was $4,118 during the nine months ended September 30, 2026, as compared to $6,254 of net cash provided during the nine months ended September 30, 2025. The current period reflects a revenue share payment pursuant to a research collaboration agreement that is associated with a prior acquisition, repayments under finance leases, and the remittance of taxes withheld under equity compensation plans, whereas the prior year primarily reflects the receipt of net proceeds from refinancing activity that was offset by repurchases of common stock and repayments under finance leases.
Contractual Obligations and Other Commitments and Contingencies
Material contractual obligations arising in the normal course of business primarily consist of long-term fixed rate debt and related interest payments, leases, finance arrangements, and amounts due for acquisitions. We believe that cash flows from operations will be sufficient to satisfy our capital expenditures, debt services, working capital needs, and other contractual obligations for the next twelve months.
The following table summarizes the Company's material future contractual obligations as of September 30, 2026:
| (in thousands) | Commitments Due by Period | |||||||||||||||||||||||||||||||
| Contractual Obligations | Total | Remainder of 2026 | 2027 - 2028 | 2029 - 2030 | Thereafter | |||||||||||||||||||||||||||
|
Term notes(1)
|
$ | 300,000 | $ | - | $ | - | $ | 300,000 | $ | - | ||||||||||||||||||||||
|
Fixed interest related to term notes(2)
|
114,750 | - | 76,500 | 38,250 | - | |||||||||||||||||||||||||||
|
Mortgage Note(3)
|
12,265 | 246 | 1,964 | 10,055 | - | |||||||||||||||||||||||||||
|
Operating leases(4)
|
137,186 | 3,248 | 26,758 | 26,362 | 80,818 | |||||||||||||||||||||||||||
|
Finance leases(4)
|
722,705 | 9,387 | 76,531 | 79,927 | 556,860 | |||||||||||||||||||||||||||
|
Finance arrangements(5)
|
16,670 | 659 | 5,406 | 4,093 | 6,512 | |||||||||||||||||||||||||||
| Total | $ | 1,303,576 | $ | 13,540 | $ | 187,159 | $ | 458,687 | $ | 644,190 | ||||||||||||||||||||||
(1)Principal payments due under our term notes payable as of September 30, 2026. Refer to Note 11, "Debt," in the Financial Statements for additional information regarding our debt arrangements.
(2)Represents fixed interest rate payments on borrowings under our term notes payable based on the principal outstanding as of September 30, 2026. Interest payments could fluctuate based on prepayments or additional amounts borrowed.
(3)Represents payments due monthly on borrowings under our Mortgage Note, which consist of principal and interest. Refer to Note 11, "Debt," in the Financial Statements for additional information.
(4)Reflects our contractual obligations to make future payments under non-cancelable leases and an estimate for anticipated extension periods, as applicable. Refer to Note 10, "Leases," in the Financial Statements for additional information.
(5)Reflects our contractual obligations to make future payments under non-cancelable operating leases that did not meet the criteria to qualify for sale-leaseback treatment. Refer to Note 10, "Leases," in the Financial Statements for additional information.
The table above excludes a total of $29,156 due under sellers' notes as of September 30, 2026 related to amounts owed for acquisitions or other similar transactions. The timing of such payments is uncertain and may vary based on regulatory approval of the underlying transactions. Certain payments include an interest accretion component. Refer to Note 11, "Debt," in the Financial Statements for additional information.
The table above also excludes up to an additional $6,236 of remaining funding that may be paid pursuant to a research collaboration agreement that is associated with an acquisition from 2022. This remainder will be paid based on a percentage of annual revenue through the ten year anniversary date of the associated transaction, unless satisfied earlier. Refer to Note 15, "Commitments and Contingencies," in the Financial Statements for additional information. Additionally, the Company has commercial relationships with license holders across the markets in which it operates with mutually beneficial purchasing and supply arrangements entered into in the ordinary course of business.
As of the date of this filing, we do not have any off-balance sheet arrangements, as defined by applicable regulations of the SEC, that have, or are reasonably likely to have, a material current or future effect on the results of our operations or financial condition, including, and without limitation, such considerations as liquidity and capital resources.
Capital Expenditures
We anticipate net capital expenditures of approximately $20,000 during 2026. Changes to this estimate could result from the timing of various project start dates, which are subject to local and regulatory approvals, as well as capital allocation considerations. Spending at our cultivation and processing facilities includes: construction; purchase of capital equipment such as extraction equipment, heating, ventilation, and air conditioning equipment, and other manufacturing equipment; general maintenance; and information technology capital expenditures. Dispensary-related capital expenditures includes construction costs for the initial build-out of each location, general maintenance costs, and upgrades to existing locations.
During the remainder of 2026, we expect to provide funding for partner dispensaries and the build out of additional dispensaries across our network. We also anticipate completing certain expansion projects across our cultivation facilities in addition to other enhancements and general maintenance activities across our portfolio. Management expects to fund capital expenditures primarily by utilizing cash flows from operations.
As of September 30, 2026, our construction in progress ("CIP") balance was $10,552 and relates to capital spending on projects that were not yet complete. This balance includes amounts related to: certain build out projects at partner dispensaries, certain enhancement projects at our Illinois, New Jersey, and Massachusetts cultivation facilities; and other projects across our dispensaries and cultivation facilities.
Other Matters
Conversion of Shares of Class B Common Stock
On May 4, 2026, in accordance with the automatic conversion provisions of the Company's certificate of incorporation, each share of Class B common stock then-outstanding automatically converted into one share of Class A common stock on a one-for-one basis. Accordingly, all 65 shares of Class B common stock that were issued and outstanding were converted and retired effective May 4, 2026. Refer to Note 12, "Stockholders' Equity (Deficit)," in the Financial Statements for additional information.
Equity Incentive Plans
The Company's current stock incentive plan, as amended, (the "Amended 2021 Plan"), authorizes the issuance of options, stock appreciation rights, restricted stock awards, restricted stock units ("RSUs"), and other stock-based awards (collectively the "2021 Plan Awards"). The Amended 2021 Plan provides for a maximum number of shares of Class A common stock available for issuance to not exceed 10% of the total number of issued and outstanding shares of Class A common stock, on a non-diluted basis, as constituted on the grant date of a plan award. As of September 30, 2026, there were 420 shares of Class A common stock available for grant for future equity-based compensation awards under the Amended 2021 Plan.
During the nine months ended September 30, 2026, 648 RSUs were granted under the Amended 2021 Plan, and a total of 1,385 that were previously granted were unvested as of September 30, 2026. Total unrecognized compensation cost related to the RSUs was $926 as of September 30, 2026, which is expected to be recognized over a weighted-average remaining period of 1.3 years.
As of September 30, 2026, a total of 18,538 stock option awards are outstanding under the Amended 2021 Plan, of which 8,280 are exercisable. A total of 6,887 stock option awards were granted during the nine months ended September 30, 2026 and a total of 101 were exercised. As of September 30, 2026, the outstanding options have a remaining weighted-average contractual life of 1.3 years and total unrecognized stock-based compensation expense related to unvested options was $1,181, which is expected to be recognized over a weighted-average remaining period of 1.0 years.
During the three months ended September 30, 2026 and 2025, the Company recognized $324 and $477, respectively, of equity-based compensation expense within "General and administrative expenses" on the unaudited Condensed Consolidated Statements of Operations in the Financial Statements and recognized $335 and $329, respectively, within "Cost of goods sold." During the nine months ended September 30, 2026 and 2025, the Company recognized $615 and $979, respectively, of expense within "General and administrative expenses" and $1,370 and $1,631, respectively, within "Cost of goods sold."
In July 2021, the Company adopted an employee stock purchase plan (the "2021 ESPP"), pursuant to which 4,000 shares of Class A common stock are reserved for issuance thereunder, subject to certain adjustments and other terms. As of September 30, 2026, no shares have been issued under the 2021 ESPP.
Refer to Note 13, "Equity-Based Compensation Expense," in the Financial Statements for additional information regarding the Company's equity awards and equity-based compensation expense.
Shareholder Approval of Reverse Stock Split
On August 28, 2026, the Company held a special meeting at which the holders of shares of Class A common stock (the "Class A Common Shares") of the Company voted to approve an amendment to the Company's Certificate of Incorporation to effect a reverse stock split of the Company's Class A Common Shares at a ratio within a specified range, with the exact ratio to be determined by the Company's board of directors in its discretion, for a period of up to one year, but prior to the date the Class A Common Shares may become listed on a national securities exchange, whichever is earlier. As of September 30, 2026 and the date of filing of this Quarterly Report on Form 10-Q, the reverse stock split had not been effected.
Lease-Related Transactions
Refer to Note 10, "Leases," in the Financial Statements for additional information regarding the Company's leases and lease-related transactions.
Legal Matters
Below is a description of our significant legal matters and the related impact, as applicable, on our financial condition, results of operations, and prospects. Refer to Note 15, "Commitments and Contingencies," in the Financial Statements for information regarding the Company's significant legal matters.
Green Thumb Industries Arbitration Matter
On February 11, 2026, the Company entered into a settlement agreement (the "Settlement Agreement") with Green Thumb Industries Inc. and TWD18, LLC (collectively, "GTI"), pursuant to which the parties agreed to resolve an arbitration matter that concerned certain contractual obligations and payment terms arising out of prior commercial arrangements between the parties for a negotiated payment amount of $17,000. This payment amount was included within "Accounts payable and accrued liabilities" on the unaudited Condensed Consolidated Balance Sheet as of December 31, 2025 and was subsequently paid on February 12, 2026, thereby satisfying the arbitration award and resolving all claims asserted in the arbitration proceeding. This matter is not expected to affect the Company's other commercial relationships with GTI and is not expected to result in a material disruption to the Company's ongoing operations.
State of Ohio Complaint
On February 6, 2026, the Attorney General of the State of Ohio filed a complaint against the Company and eight other multi-state operators ("MSOs") in the cannabis industry with operations in Ohio, alleging anticompetitive collusion among the MSOs to exclude single state operators based in Ohio from the cannabis market. The Company denies the claims with respect to the Company and plans to vigorously contest the case.
EEOC Complaint
On March 30, 2026, the U.S. Equal Employment Opportunity Commission ("EEOC") filed a lawsuit against the Company in the U.S. District Court for the Southern District of Illinois. The complaint alleges that the Company violated Title VII of the Civil Rights Act of 1964 by subjecting two former employees and other unnamed female employees at its Collinsville, Illinois dispensary to a sexually hostile work environment, and that the alleged harassment caused one of the former employees to be constructively discharged. The complaint is based primarily on EEOC charges filed in 2023 by the two former employees against the Company, alleging harassment by a former general manager. The Company terminated that individual's employment in July 2023. The EEOC seeks injunctive relief, monetary damages, and other relief.
On June 29, 2026, the Company filed a motion to dismiss or, in the alternative, for a more definite statement. The motion argues, among other things, that the complaint does not plausibly allege claims on behalf of the unnamed claimants and that claims based on conduct outside the statutory charge-filing period are time-barred. The motion has been fully briefed and remains pending, and no ruling date has been set. The parties are exchanging written discovery, through which the EEOC has identified five additional claimants. The parties have agreed to participate in mediation, scheduled for December 4, 2026.
The Company disputes the allegations and intends to defend the matter vigorously. As of the date of filing of this Quarterly Report on Form 10-Q, the Company cannot predict the outcome of the motion, the mediation, or the litigation, and is unable to estimate the amount or range of any possible loss.
Pending Transactions and Other Activity
In April 2025, the Company entered into a definitive agreement pursuant to which the Company proposes to acquire an entity in Ohio that owns and operates a dispensary in Ohio and receive $1,000 of cash consideration in exchange for an entity that holds a conditional dispensary license that the Company expects to receive. This transaction is subject to certain closing conditions, including regulatory approvals. This transaction is with a specific buyer and the Company determined the underlying assets did not meet the criteria to be classified as held-for-sale as of September 30, 2026 or December 31, 2025.
Beginning on June 25, 2026, there was a work stoppage at the Company's Barry, Illinois facility that the Company worked in good faith to resolve quickly. The affected workers returned on August 3, 2026 under a new contract that was ratified on July 30, 2026. The financial impact for the second and third quarters of 2026 was not material to the Company's consolidated financial statements.
In October 2026, the Company entered into a definitive agreement pursuant to which it anticipates acquiring two dispensaries in the Northeast, which agreement is subject to regulatory approval. The parties also entered into a consulting agreement pursuant to which the Company will provide certain management and advisory services for a set fee. The consulting agreement became effective in October 2026 and will remain in place until regulatory approval of the definitive agreement is received and the underlying transaction closes. Based on the provisions of this consulting agreement, the Company obtained operational and financial influence over the dispensaries and anticipates recognizing the transaction as a business combination as of the October 2026 effective date of this consulting agreement. Total cash consideration for the transaction is approximately $3,700, of which approximately $810 was remitted through October 2026, consisting of a $370 deposit that was paid in September 2026 and was included in "Other current assets" on the unaudited Condensed Consolidated Balance Sheet in the Financial Statements as of September 30, 2026, and $440 that was paid upon the effectiveness of the consulting agreement in October 2026. The remainder is due at final closing and subject to customary closing adjustments, as applicable.
In October 2026, the Company and certain subsidiaries entered into loan agreements and related promissory notes with an aggregate principal amount of $10,995 that have a five-year term. Borrowings under these loans bear interest at a rate of 8.5% per annum and principal and interest will be paid monthly based on an amortization period of ten years and any unpaid principal and accrued interest will be due and payable upon maturity. The obligations under the loans are secured by mortgages of five properties. The loan agreements and relates notes contain customary representations and events of default, as well as customary covenants, including that the borrowing subsidiaries maintain a debt service coverage ratio of not less than 1.30 to 1.00 measured annually based on the entire calendar year and commencing December 31, 2026. The Company expects to utilize the net proceeds to fund growth initiatives.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Our accompanying Financial Statements are prepared in accordance with U.S. GAAP, which requires us to make certain estimates in the application of our accounting policies based on the best assumptions, judgments, and opinions of our management. The Company's significant accounting policies are described in Note 2, "Basis of Presentation and Significant Accounting Policies," in the Financial Statements. For a description of our critical accounting policies, see Item 7., "Management's Discussion and Analysis of Financial Condition and Results of Operations," in our Annual Report. There have been no significant changes to our critical accounting policies and estimates discussed in our Annual Report.
Recently Adopted Accounting Standards and Recently Issued Accounting Pronouncements
For information about recently issued accounting standards that have not yet been adopted, see Note 2, "Basis of Presentation and Significant Accounting Policies," to the Financial Statements.
The Company is an emerging growth company under federal securities laws and as such we are able to elect to follow scaled disclosure requirements for this filing, including an extended transition period for complying with new or revised accounting standards applicable to public companies.
REGULATORY ENVIRONMENT: ISSUERS WITH UNITED STATES CANNABIS-RELATED ASSETS
In accordance with the Canadian Securities Administration Staff Notice 51-352, information regarding the current federal and state-level United States regulatory regimes in those jurisdictions where we are currently directly and indirectly involved in the cannabis industry, through our subsidiaries and investments, is incorporated by reference from subsections "Overview of Government Regulation," "Compliance with Applicable State Laws in the United States," and "State Regulation of Cannabis," under Item 1., "Business," of the Company's Annual Report, as filed with the SEC and with the relevant Canadian securities regulatory authorities under its profile on SEDAR+. In addition, for a discussion of subsequent developments regarding the regulatory status of cannabis under United States federal law, including the April 2026 Order and the related DEA administrative proceedings concerning broader cannabis rescheduling, refer to "Recent Developments - Operational and Regulation Overview" above in this MD&A and Item 1A., "Risk Factors," of Part II of this Quarterly Report.
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