Verano Holdings Corp.

04/30/2026 | Press release | Distributed by Public on 04/30/2026 05:12

Quarterly Report for Quarter Ending March 31, 2026 (Form 10-Q)

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This management discussion and analysis (this "MD&A") of the financial condition and results of operations of the Company is for the three months ended March 31, 2026 and March 31, 2025. It is supplemental to, and should be read in conjunction with, the Company's Unaudited Interim Condensed Consolidated Financial Statements and the accompanying notes for the three months ended March 31, 2026 and with the Company's Audited Consolidated Financial Statements and the accompanying notes for the years ended December 31, 2025 and 2024 included in the Form 10-K. The financial statements referenced in this MD&A are prepared in accordance with GAAP. Financial information presented in this MD&A is presented in United States dollars ("$" or "US$") and expressed in thousands, unless otherwise indicated. This MD&A contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those projected, forecasted, or expected in these forward-looking statements as a result of various factors, including, but not limited to, those discussed in the Form 10-K. See "Cautionary Statement Regarding Forward-Looking Statements" above, "Risk Factors" in Part II, Item 1A below and "Risk Factors" in the Form 10-K. The Company's management believes the assumptions underlying the Company's financial statements and accompanying notes are reasonable. However, the Company's financial statements and accompanying notes may not be an indication of the Company's financial condition and results of operations in the future.
OVERVIEW OF THE COMPANY
Verano Holdings Corp., a Nevada corporation ("Verano," the "Company," "we," "us," or "our"), one of the U.S. cannabis industry's leading companies based on historical revenue, geographical scope and brand performance, is a vertically integrated, multi-state operator embracing a mission of saying Yes to plant progress and the bold exploration of cannabis. As an operator of licensed cannabis cultivation, processing, wholesale distribution and retail facilities, our goal is to support communal wellness by providing responsible access to regulated medical and adult use cannabis products. As of April 28, 2026, through our subsidiaries and affiliates we operate businesses in 13 states, including 162 retail dispensaries and 14 cultivation and processing facilities with over 1.1 million square feet of cultivation capacity. We produce a wide variety of cannabis products sold under our portfolio of consumer brands, including Encore™, Avexia™, MÜV™, Savvy™, (the) Essence™, BITS™, HYPHEN™, Swift Lifts™ and Verano™. We also design, build and operate branded dispensaries operating under the Zen Leaf™ and MÜV™ retail banners, among others, that deliver a cannabis shopping experience in both medical and adult use markets.
Notwithstanding the permissive regulatory environment of medical, and in some cases, also adult use (i.e., recreational) cannabis, at the state level, it remains illegal under U.S. federal law to cultivate, manufacture, distribute, sell or possess cannabis in the U.S. Because federal law prohibits transporting any federally restricted substance across state lines, cannabis cannot be transported across state lines. As a result of current federal law prohibitions, the U.S. cannabis industry is conducted on a state-by-state basis. To date, in the U.S. 40 states plus the District of Columbia and the U.S. territories of Puerto Rico, Guam, the Commonwealth of Northern Marina Islands, and the U.S. Virgin Islands have authorized comprehensive medical cannabis programs, 24 states plus the District of Columbia and the U.S. territories of Guam, the Commonwealth of Northern Mariana Islands, and the U.S. Virgin Islands have authorized comprehensive programs for medical and adult use (i.e. recreational) cannabis, and 8 states allow the use of low tetrahydrocannabinol and high cannabidiol products for specified medical uses. Verano operates within states where cannabis use, medical or both medical and adult use, has been approved by state and local regulatory bodies.
On December 18, 2025, President Trump issued an executive order titled "Increasing Medical Marijuana and Cannabidiol Research," (the "Executive Order") which directs federal agencies to expedite the process of rescheduling cannabis from a Schedule I to a Schedule III controlled substance under the Controlled Substances Act (21 U.S.C. § 811) (the "CSA"). On April 23, 2026, the Justice Department in accordance with the Executive Order issued a final order (the "Final Order") implementing a rule that places FDA approved products containing cannabis and products regulated by state medical marijuana licenses in Schedule III. The Justice Department also initiated an expedited administrative hearing process (the "Hearing Process") to consider the broader rescheduling of cannabis to Schedule III. The Final Order creates a pathway for state licensed medical operators to legally cultivate, manufacture, and dispense medical only products, and could also remove 280E tax considerations from the medical aspect of Verano's operations. Until the issuance of an order by the administrative law judge following the conclusion of the Hearing Process, adult use or recreational cannabis remains a Schedule I drug, subject to 280E tax constraints. Issuance of an order rescheduling all cannabis to Schedule III is not guaranteed. Verano remains subject to federal laws, including those prohibiting recreational cannabis, during the pendency of the hearing and following the outcome. The final effects of the Executive Order and Final Order are dependent on other government actions. Despite such actions and the ongoing Hearing Process, there can be no guarantees that the Hearing Process will continue on a certain timeline or at all or that any rules will come out of the Hearing Process that will benefit the Company. The Executive Order and Final Order do not federally legalize recreational adult use, and rescheduling of cannabis in full to Schedule III would not legalize adult use or recreational cannabis, but could remove the 280E constraints for the full range of Verano's operations.
Substantially all of the Company's business, operating results and financial condition relate to U.S. cannabis-related activities. Our strategy is to vertically integrate as a single cohesive company in multiple states through the consolidation of seed-to-sale cultivating, manufacturing, distributing, and dispensing of cannabis brands and products at scale. Our cultivation, processing and distribution of cannabis consumer packaged goods are designed to support our retail dispensaries, as well as to develop and foster long term wholesale supply relationships with third-party retail operators. Our model includes establishing a diverse geographic footprint that allows us to adapt to changes in both industry and market conditions.
SELECTED RESULTS OF OPERATIONS
The following presents selected financial data derived from the (i) Unaudited Interim Condensed Consolidated Financial Statements for the three months ended March 31, 2026 and 2025 and (ii) the Condensed Consolidated Balance Sheets as of March 31, 2026 and December 31, 2025, and should be read in conjunction with the Unaudited Interim Condensed Consolidated Financial Statements and accompanying notes presented in Item 1 of this Form 10-Q. The selected Unaudited Interim Condensed Consolidated financial information below may not be indicative of the Company's future performance.
Three Months Ended March 31, 2026, as Compared to Three Months Ended March 31, 2025
For the Three Months Ended March 31,
($ in thousands)
2026
2025
$ Change
Revenues, net of Discounts
$
208,178
$
209,809
$
(1,631)
Gross Profit
98,976
99,581
(605)
Net Loss Attributable to Verano Holdings Corp. & Subsidiaries
(17,823)
(11,515)
(6,308)
Net Loss per share - basic & diluted
(0.05)
(0.03)
(0.02)
Revenues, net of Discounts
Revenues, net of discounts, for the three months ended March 31, 2026 was $208,178, a decrease of $(1,631) or (0.8)%, compared to revenues, net of discounts, of $209,809 for the three months ended March 31, 2025. The decrease in revenues, net of discounts for the three months ended March 31, 2026 was primarily driven by continued increased competition and promotional activity in the third party wholesale markets. This is partially offset by an increase in revenues, net of discounts in the retail markets driven by successful new product launches and operational efficiencies. During the three months ended March 31, 2026, the Company opened two new stores in Florida. Retail revenues, net of discounts, for the three months ended March 31, 2026 was approximately 68.6% of total revenue compared to 68.0% of total revenue for the three months ended March 31, 2025, excluding intersegment eliminations. Cultivation (wholesale) revenues, net of discounts, made up 31.4% of revenues, net of discounts, for the three months ended March 31, 2026, as compared to 32.0% of total revenue for the three months ended March 31, 2025, excluding intersegment eliminations. Refer to "Results of Operations by Segment" for further discussion of our retail revenue and cultivation (wholesale) revenues, net of discounts.
Gross Profit
Gross profit for the three months ended March 31, 2026 was $98,976, representing a gross profit margin of 47.5%. This is compared to gross profit for the three months ended March 31, 2025 of $99,581, which represented a gross profit margin of 47.5%. The slight decrease in gross profit during the three months ended March 31, 2026 compared to the three months ended March 31, 2025, was primarily driven by overall revenue decline.
Net Loss
Net Loss attributable to the Company for the three months ended March 31, 2026 was $(17,823), an increase in net loss of $6,308, compared to a net loss of $(11,515) for the three months ended March 31, 2025. The increase in net loss was largely driven by a loss on debt extinguishment related to the 2022 Credit Agreement for the three months ended March 31, 2026 when compared to the three months ended March 31, 2025.
For the Three Months Ended March 31,
($ in thousands)
2026
2025
$ Change
Cost of Goods Sold, net
$
109,202
$
110,228
$
(1,026)
Selling, General, and Administrative Expenses
85,877
84,579
1,298
Other Expense, net
(19,299)
(9,168)
(10,131)
Provision for Income Taxes
(11,623)
(17,349)
5,726
Cost of Goods Sold, net
Cost of goods sold, net includes the costs directly attributable to product sales and includes amounts paid for finished goods, such as flower, edibles, and concentrates, as well as packaging and other supplies, fees for services and processing, rent, utilities, and related costs. Cost of goods sold, net for the three months ended March 31, 2026 was $109,202, a decrease of $(1,026) or (0.9)%, as compared to the three months ended March 31, 2025. The decrease was primarily the result of continued competition in key markets, which led to a reduction in overall revenues, net of discounts.
Selling, General, and Administrative Expenses
Selling, general and administrative expenses ("SG&A") for the three months ended March 31, 2026 were $85,877, an increase of $1,298 or 1.5%, compared to SG&A expenses of $84,579 for the three months ended March 31, 2025. SG&A expenses as a percentage of revenue was 41.3% and 40.3% for the three months ended March 31, 2026, and March 31, 2025, respectively. The increase was driven primarily by additional general and administrative costs associated with new stores when comparing the three months ended March 31, 2026 to the three months ended March 31, 2025.
Other Expense, net
Other expense, net for the three months ended March 31, 2026, was $19,299, an increase of $10,131 as compared to $9,168 for the three months ended March 31, 2025. The other expense increase was primarily due to a loss on debt extinguishment related to the 2022 Credit Agreement obligations during the three months ended March 31, 2026. Additionally, the year-over-year variance is driven by a gain on deconsolidation relating to our Arkansas operations during the three months ended March 31, 2025.
Provision for Income Taxes
Income tax expense is recognized based on the expected tax payable on the taxable income for the year, using tax rates enacted or substantively enacted at year-end. Income tax expense for the three months ended March 31, 2026, was $11,623 as compared to $17,349 for the three months ended March 31, 2025, a decrease of $5,726 or (33.0)% primarily due to the forecasted annualized effective tax rates, adjusted for discrete items when compared to the three months ended March 31, 2025.
Results of Operations by Segment
The Company has two reportable segments: (i) cultivation (wholesale) and (ii) retail. Due to the vertically integrated nature of its business, the Company reviews its revenue at the cultivation (wholesale) and retail levels while reviewing its operating results on a consolidated basis.
The following tables summarize revenues, net of discounts, by segment for the three months ended March 31, 2026 and 2025:
For the Three Months Ended March 31,
($ in thousands)
2026
2025
$ Change
% Change
Revenues, net of Discounts
Cultivation (Wholesale)
$
78,832
$
79,561
$
(729)
(0.9)
%
Retail
172,140
168,807
3,333
2.0
%
Intersegment Eliminations
(42,794)
(38,559)
(4,235)
11.0
%
Total Revenues, net of Discounts
$
208,178
$
209,809
$
(1,631)
(0.8)
%
Revenues, net of discounts, for the cultivation (wholesale) segment were $78,832 for the three months ended March 31, 2026, a decrease of $(729) or (0.9)%, compared to the three months ended March 31, 2025, in each case, excluding intersegment eliminations. During the three months ended March 31, 2026, cultivation (wholesale) revenues, net of discounts in the Illinois and New Jersey markets were the largest contributors. The decrease in cultivation (wholesale) revenues, net of discounts, was primarily driven by continued increased competition and promotional activity in the third party wholesale markets when comparing the three months ended March 31, 2026 to the three months ended March 31, 2025.
Revenues, net of discounts for the retail segment were $172,140 for the three months ended March 31, 2026, an increase of $3,333 or 2.0%, compared to the three months ended March 31, 2025, in each case, excluding intersegment eliminations. During the three months ended March 31, 2026, retail revenues, net of discounts, in the Florida market was the largest contributor to overall revenues, net of discounts in the retail segment, excluding intersegment eliminations. The increase in retail revenues, net of discounts, was primarily driven by successful new product launches and operational efficiencies when comparing the three months ended March 31, 2026 to the three months ended March 31, 2025.
Drivers of Operational Performance
Revenue
The Company derives its revenue from both its cultivation (wholesale) business in which it cultivates, produces and sells cannabis products to third-party retail customers, and its retail business, in which it directly sells cannabis products to retail patients and consumers. For the three months ended March 31, 2026, approximately 31.4% of the Company's revenue was generated from the cultivation (wholesale) business, excluding intersegment eliminations, and approximately 68.6% from the retail business, excluding intersegment eliminations. For the three months ended March 31, 2025, approximately 32.0% of revenue was generated from the cultivation (wholesale) business, excluding intersegment eliminations, and approximately 68.0% from the retail business, excluding intersegment eliminations.
Gross Profit
Gross profit is revenue less cost of goods sold, net. Cost of goods sold, net, includes the costs directly attributable to product sales and includes amounts paid for finished goods, such as flower, edibles, and concentrates, as well as packaging and other supplies, fees for services and processing, rent, utilities, and related costs. Cannabis costs are affected by various state regulations that limit the sourcing and procurement of cannabis product, which may create fluctuations in gross profit over comparative periods as the regulatory environment changes. Gross profit margin measures the Company's gross profit as a percentage of revenue.
The Company's expansion strategy and revenue growth have taken priority and will continue to do so for the foreseeable future as it expands its footprint, by exploring new markets and opening or acquiring new dispensary locations, and scales production within certain markets. In the core markets in which the Company is already operational and, as the state markets mature, the Company has experienced pressure on margins within the cultivation (wholesale) and retail segments and expects this to continue. The Company's current production capacity has not been fully realized and it is expected that price compression at the cultivation (wholesale) level, will be partially offset by operational optimization.
Total Expenses
Total expenses other than the cost of goods sold consist of selling costs to support customer relationships and to deliver product to the Company's retail stores. It also includes a significant investment in the corporate infrastructure required to support ongoing business.
Selling costs generally correlate to revenue. As a percentage of sales, selling costs are expected to continue to increase slightly in currently operational markets as facility and market expansion occurs. The increase is expected to continue to be driven primarily by the growth of the Company's retail and cultivation (wholesale) segments and new retail openings.
SG&A expenses also include personnel costs incurred, including salaries, incentive compensation, benefits, stock-based compensation and professional service costs. SG&A expenses may increase in connection with supporting the business and the Company could experience an increase in expenses related to recruiting and hiring talent, along with legal and professional fees associated with being a public-reporting company.
Provision for Income Taxes
The Company is subject to income taxes in the jurisdictions in which it operates and, consequently, income tax expense is a function of the allocation of taxable income by jurisdiction and the various activities that impact the timing of taxable events. As the Company operates in the cannabis industry, it is subject to the limits of Section 280E of the Code under which the Company is only allowed to deduct expenses directly related to the sale of products. This results in permanent differences between ordinary and necessary business expenses deemed non-allowable under Section 280E of the Code and a higher effective tax rate than most industries. The Company has taken a position that it does not owe taxes attributable to the application of Section 280E of the Code.
LIQUIDITY, FINANCING ACTIVITIES AND CAPITAL RESOURCES
As of March 31, 2026 and December 31, 2025, the Company had total current liabilities of $118,911 and $140,261, respectively. As of March 31, 2026 and December 31, 2025, the Company had cash and cash equivalents of $74,026 and $82,724, respectively, to meet its current obligations. The Company had working capital of $275,610 as of March 31, 2026, an increase of working capital of $11,220 as compared to December 31, 2025. This increase in working capital was primarily driven by a reduction in current liabilities, especially accounts payable and accrued liabilities, which offset a modest decrease in current assets. Positive operating cash flow and increased management of payables and accruals contributed to this improvement during the three months ended March 31, 2026.
The Company generates cash from revenues and deploys its capital to acquire and develop assets capable of producing additional revenues and earnings over both the immediate and long term. Capital is primarily being utilized for facility improvements, strategic investment opportunities, and general and administrative expenses.
Liquidity Requirements
Our short-term liquidity requirements consist primarily of funds necessary to pay for our acquisitions, to repay borrowings, maintain our operations and other general business needs. We believe that internally generated funds and other sources of liquidity discussed below will be sufficient to meet working capital needs, capital expenditures, and other business requirements for at least the next 12 months. We believe we will meet known or reasonably likely future cash requirements through the combination of cash generated from operating activities and available cash balances. If these sources of liquidity need to be augmented, additional cash requirements would likely be financed through the issuance of equity securities or additional borrowings; however, there can be no assurances that we will be able to obtain additional equity financing or debt financing on acceptable terms, or on terms similar to our existing financings, in the future.
Our long-term liquidity requirements consist primarily of completing additional acquisitions, scheduled debt payments, future payments of income tax payables, maintaining and expanding our operations and other general business needs. We expect to meet our long-term liquidity requirements through various sources of capital, which may include future debt or equity issuances, net cash provided by operations and other secured and unsecured borrowings. We believe that the foregoing sources of capital will provide sufficient funds for our operations, anticipated expansion and scheduled debt payments for the long-term. Our ability to fund our operating needs will depend on our future ability to continue to generate positive cash flow from operations and our ability to obtain debt or equity financing on acceptable terms.
2022 Credit Agreement
On October 27, 2022, Verano and certain of its subsidiaries and affiliates from time-to-time party thereto (collectively, the "Borrowers"), entered into a credit agreement (the "2022 Credit Agreement") with Chicago Atlantic Admin, LLC ("Chicago Atlantic"), as administrative agent for the lenders, and the lenders from time-to-time party thereto (the "Lenders"), pursuant to which the Lenders advanced the Borrowers a $350,000 senior secured term loan, and which also provided the Borrowers with the right, subject to conditions, to request an additional incremental term loan of up to $100,000; provided that the Lenders elected to fund such incremental term loan. At funding, all the proceeds of the loans made under the 2022 Credit Agreement were used to repay the amounts owing under the Company's previous senior secured term loan credit facility. In connection with such repayment, such previous credit facility was terminated and is no longer in force or effect.
Beginning in October 2023, the loan required scheduled amortization payments of $350 per month and the remaining principal balance was due in full on October 30, 2026.
The 2022 Credit Agreement also provided the Borrowers with the right to (a) incur up to $120,000 of additional indebtedness from third-party lenders secured by real estate excluded as collateral under the 2022 Credit Agreement, (b) incur additional mortgage financing from third-party lenders secured by real estate acquired after the closing date, and (c) upon the SAFE Banking Act or similar legislation making banking services available to U.S. cannabis companies being passed by the United States Congress, incur up to $50,000 pursuant to a revolving credit facility from third-party lenders that is pari passu or subordinated to the 2022 Credit Agreement obligations, each of which were subject to customary conditions.
The obligations under the 2022 Credit Agreement were secured by substantially all of the assets of the Borrowers, excluding vehicles, specified parcels of real estate and other customary exclusions.
The 2022 Credit Agreement provided for a floating annual interest rate equal to the prime rate then in effect plus 6.50%, which rate could have been increased by 3.00% upon an event of default that is not a material event of default or 6.00% upon a material event of default as provided in the 2022 Credit Agreement.
At any time, the Company was able to voluntarily prepay up to $100,000 of the principal balance, subject to a one-time $1,000 prepayment premium upon the first prepayment, and was able to prepay the remaining outstanding principal balance for a prepayment premium at varying rates based on the timing of any subsequent prepayments. The Borrowers were not able to voluntarily prepay more than $100,000 of the principal balance without prepaying the entire outstanding principal balance of the loan.
On April 30, 2024, the Company made a Permitted Partial Optional Prepayment (as defined in the 2022 Credit Agreement) in the amount of $50,000 pursuant to the 2022 Credit Agreement and paid a $1,000 prepayment premium in connection therewith. In connection with such Permitted Partial Optional Prepayment, Chicago Atlantic and certain Lenders agreed to (a) release certain Borrowers from their obligations under, and as parties to, the 2022 Credit Agreement and related agreements and (b) release all liens over such Borrowers' property, including real estate, held by Chicago Atlantic for the benefit of the Lenders, in each case, pursuant to a limited consent and waiver, dated as of April 29, 2024, by and among Borrowers, certain of the lenders party thereto and Chicago Atlantic.
On September 30, 2025, the Company made an additional Permitted Partial Optional Prepayment (as defined in the 2022 Credit Agreement) in the amount of $50,000 pursuant to the 2022 Credit Agreement, without any penalty or premium.
On March 11, 2026, the Company repaid all amounts owing under the 2022 Credit Agreement together with a prepayment premium of $4,345. As a result of such payment, the Credit Agreement was then terminated and is no longer in force or effect.
Revolver
On September 30, 2025, the Company entered into a credit agreement (as amended, the "Revolver"), by and among the Company, as a guarantor, certain subsidiaries of the Company from time-to-time party thereto as borrowers (the "Real Estate Subsidiaries"), lenders from time-to-time party thereto, and Chicago Atlantic, as administrative agent for the lenders.
The Revolver initially provided for a $75,000 revolving loan facility, $50,000 of which was drawn on September 30, 2025 and used to prepay, without any penalty or premium, $50,000 of outstanding obligations due under the 2022 Credit Agreement. Amounts drawn under the Revolver do not require amortization payments. The Revolver provides for a floating annual interest rate on amounts drawn equal to one-month Term SOFR (subject to a minimum 4% SOFR floor) plus 6%, which rate may be increased by 3% upon an event of default or 6% upon a material event of default as provided in the Revolver. The Company incurred debt issuance costs of $2,209 in connection with the establishment of the Revolver.
The Revolver may be drawn in $2,500 increments upon ten business days prior notice and any outstanding amount under the Revolver may be voluntarily prepaid in $2,500 increments upon five business days prior notice without any penalty or premium, unless such prepayment occurs within six months of the applicable advance, in which case, such prepayment shall be subject to a six-month interest make whole. Any amounts prepaid may be redrawn subject to the same requirements set forth above. The Revolver was initially subject to a borrowing base which required the outstanding principal balance under the Revolver to be equal to or less than 60% of the appraised value, net of certain indebtedness, of the owned real estate serving as collateral for the Revolver from time to time.
The obligations under the Revolver are secured by substantially all of the assets of the Real Estate Subsidiaries, which primarily consists of owned real estate, and are guaranteed by the Company on an unsecured basis. Additionally, the Revolver allows for the proportionate release of certain Real Estate Subsidiaries upon request of the Company so long as the outstanding principal balance under the Revolver does not exceed 80% of the appraised value, net of certain indebtedness, of the owned real estate serving as collateral after giving effect to such release.
The Revolver includes customary representations, warranties, covenants and customary events of default, including, without limitation, payment defaults, breaches of representations and warranties, covenant defaults, cross-defaults to material indebtedness, and events of bankruptcy and insolvency. The Revolver also includes customary covenants, including, without limitation, limiting the Real Estate Subsidiaries' ability to incur additional indebtedness, make guarantees and grant liens that are otherwise not permitted and enter into or consummate acquisitions or dispositions that are not otherwise permitted, among others. As of March 31, 2026, the Company was in compliance with such covenants.
On January 12, 2026, the Company entered into a First Amendment to Credit Agreement and Omnibus First Amendment to Credit Documents (the "First Amendment"), to amend the Revolver.
The First Amendment increased the lending commitment of the Revolver from $75,000 to $100,000 and amended the date on which all outstanding amounts are due in full from September 29, 2028 to February 28, 2029. Additionally, the First Amendment amended the borrowing base for the Revolver to an advance rate of up to 80%, rather than 60%, of the appraised value, net of certain indebtedness, of the owned real estate serving as collateral for the Revolver. The First Amendment also includes certain other immaterial updates to the Revolver. No additional collateral was pledged to secure the Revolver in connection with the First Amendment. On March 11, 2026, the Company drew $50,000 under the Revolver, bringing the total amount drawn under the Revolver to $100,000, which was used to repay the amounts owing under the 2022 Credit Agreement.
2026 Credit Agreement
On March 11, 2026, Verano and certain of its subsidiaries and affiliates from time-to-time party thereto (collectively, the "2026 Borrowers"), entered into a credit agreement (the "2026 Credit Agreement") with Needham Bank ("Needham"), as collateral agent and administrative agent for the lenders, Chicago Atlantic Financial Services, LLC, as co-administrative agent for the lenders, and the lenders from time-to-time party thereto (the "2026 Lenders"), pursuant to which the 2026 Lenders advanced the 2026 Borrowers a $195,000 senior secured term loan, all of which was used to repay the amounts owing under the 2022 Credit Agreement as discussed above. The Company is required to make scheduled amortization payments of $875 per month and the remaining principal balance is due in full on March 11, 2029; provided that the maturity date may be extended to March 11, 2030 upon the election of the Company, the payment of 1.5% of the then outstanding principal balance by the Company, and the consent of the 2026 Lenders. The 2026 Credit Agreement may be prepaid in part (in increments of $5,000 and in an amount not less than $10,000) or in full at any time, subject to a 1.5% prepayment premium during the first two years of the 2026 Credit Agreement and 0% thereafter; provided, that if the maturity date is extended to March 11, 2030, the prepayment premium will be 1.5% in all cases.
The obligations under the 2026 Credit Agreement are secured by substantially all of the assets of the 2026 Borrowers, excluding vehicles, specified parcels of real estate, other customary exclusions, and subject to compliance with the terms of the 2026 Credit Agreement, entities, assets and parcels of real estate acquired after the closing of the 2026 Credit Agreement. The 2026 Credit Agreement provides for a floating annual interest rate equal to one-month Term SOFR (subject to a minimum 4% SOFR floor) plus 5.5%, which rate may be increased by 5% upon an event of default as provided in the 2026 Credit Agreement. The 2026 Credit Agreement includes customary representations and warranties, covenants and customary events of default, including, without limitation, payment defaults, breaches of representations and warranties, covenant defaults, cross-defaults to material indebtedness, and events of bankruptcy and insolvency. Additionally, the 2026 Credit Agreement requires the Borrowers to meet certain financial tests regarding minimum cash balances and a minimum fixed charge coverage ratio. As of March 31, 2026, the Company was in compliance with such covenants.
George Archos, the Chairman, Chief Executive Officer and President of the Company, funded, through an affiliated entity, $10,000 of the amount provided by a 2026 Lender. As a result of this participation, Mr. Archos will receive his pro rata share of all interest and principal payments made by the Company to such 2026 Lender under the 2026 Credit Agreement.
Tax Liabilities
The Company has U.S. income tax payable liabilities. These income tax payable liabilities will require payment from our liquidity sources, and we believe we have sufficient liquidity for both short-term and long-term payments of our income tax payable liabilities in addition to our other obligations. The Company expects to retain additional cash from operations, due in part to the Company's treatment of Section 280E as not applying to limit its deduction of ordinary and necessary business expenses.
On April 23, 2026, the Acting Attorney General signed a Final Order reclassifying medical cannabis from Schedule I to Schedule III under the CSA. This action, taken pursuant to the Attorney General's Authority under the CSA to schedule substances in compliance with the Single Convention on Narcotic Drugs, 1961, applies only to medical cannabis; adult-use cannabis remains classified as Schedule I. The Final Order, effective as of the date of publication in the Federal Register, provides an expedited registration process for state medical licensees and specifically states that registered state medical licensees will no longer be subject to the constraints of Section 280E. Separately, the Attorney General filed notices withdrawing the pending hearing on the proposed rulemaking notice filed in 2024, and instituted a new hearing on the proposed rule to begin on June 29, 2026. This expedited hearing will address all forms of cannabis, medical and adult use. The IRS, in a press release, has indicated that, for Section 280E purposes, rescheduling will generally apply to the full taxable year that includes the effective date of the Final Order, for activities no longer involving Schedule I or II substances. However, formal guidance from the IRS remains pending. The ultimate impact of this order, including the resolution of accrued UTPs, remains uncertain and is subject to ongoing evaluation due to the complexity of the regulatory and tax environment. The Company continues to assess the financial statement impact and is unable to reasonably estimate the effect at this time.
Sources and Uses of Cash
Cash Provided by (Used in) Operating Activities, Investing and Financing Activities
Net cash provided by (used in) operating, investing, and financing activities for the three months ended March 31, 2026 and 2025 were as follows:
For the Three Months Ended March 31,
2026
2025
$ Change
Net Cash Provided by Operating Activities
$
18,587
$
1,786
$
16,801
Net Cash Used in Investing Activities
$
(14,907)
$
(4,771)
$
(10,136)
Net Cash Used in Financing Activities
$
(12,378)
$
(591)
$
(11,787)
Cash Flows from Operating Activities. Cash flow generated from operating activities provides us with a source of liquidity. Our cash flows from operating activities result from cash received from our customers, offset by cash payments we make for products and services, operational costs, and income taxes. During the three months ended March 31, 2026 and 2025, the Company had net cash inflows of $18,587 and $1,786, respectively. The $16,801 increase was largely driven by the change in the income tax payable balance on the Condensed Consolidated Balance Sheets of $(812) during the three months ended March 31, 2026, compared to $(19,903) during the three months ended March 31, 2025.
Cash Flows from Investing Activities. During the three months ended March 31, 2026 and 2025, the Company had net cash outflows of $14,907 and $4,771, respectively. The $10,136 increase in net cash outflows during the three months ended March 31, 2026 compared to the three months ended March 31, 2025 was largely driven by $9,071 of net cash inflows from the Noah's Ark deconsolidation during the three months ended March 31, 2025. Additionally, purchases of property, plant and equipment were $14,937 during the three months ended March 31, 2026, compared to purchases of property, plant and equipment of $13,864 during the three months ended March 31, 2025.
Cash Flows from Financing Activities. During the three months ended March 31, 2026 and 2025, the Company had net cash outflows of $12,378 and $591, respectively. The $11,787 increase in net cash outflows was largely driven by the debt issuance costs paid related to the 2026 Credit Agreement and the First Amendment of $11,337, coupled with the payments of debt extinguishment of $4,345 related to the 2022 Credit Agreement when comparing the three months ended March 31, 2026 to the three months ended March 31, 2025.
Changes in or Adoption of Accounting Practices
Refer to the discussion of recently issued accounting standards under Part I, Item 1, Notes to Unaudited Interim Condensed Consolidated Financial Statements, Note 1 - Overview and Basis of Presentation.
Critical Accounting Policies and Significant Judgments and Estimates
There were no material changes to our critical accounting policies and estimates from the information provided in "Management's Discussion and Analysis of Financial Condition and Results of Operations," included in the Form 10-K.
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