UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

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

For the quarterly period ended September 30, 2023

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

For the transition period from to

Commission file number: 000-56422

TILT Holdings Inc.

(Exact name of registrant as specified in its charter)


British Columbia		83-2097293
(State or other jurisdiction of incorporation or organization)		(I.R.S. employer identification no.)

2801 E. Camelback Road #180
Phoenix, Arizona		85016
(Address of principal executive offices)		(Zip code)

(623) 887-4990

(Registrant’s telephone number, including area code)

Not Applicable

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

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

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

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

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


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

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

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

As of October 31, 2023, there were 337,724,959 common shares, without par value, of TILT Holdings Inc. outstanding, excluding limited partnership units of Jimmy Jang, L.P. exchangeable for 43,821,379 common shares.

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TILT HOLDINGS INC.

INDEX

PART I — FINANCIAL INFORMATION	5

Item 1. Financial Statements (Unaudited)	5

Condensed Consolidated Balance Sheets as of September 30, 2023 (Unaudited) and December 31, 2022	5

Condensed Consolidated Statements of Operations and Comprehensive Loss for the three and nine months ended September 30, 2023 and 2022 (Unaudited)	6

Condensed Consolidated Statements of Stockholders’ Equity for the three and nine months ended September 30, 2023 and 2022 (Unaudited)	7

Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2023 and 2022 (Unaudited)	8

Notes to the Condensed Consolidated Financial Statements (Unaudited)	9

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	37

Item 3. Quantitative and Qualitative Disclosures About Market Risk	48

Item 4. Controls and Procedures	48

PART II — OTHER INFORMATION	50

Item 1. Legal Proceedings	50

Item 1A. Risk Factors	50

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	54

Item 3. Defaults Upon Senior Securities	54

Item 4. Mine Safety Disclosures	54

Item 5. Other Information	54

Item 6. Exhibits	55

Signatures	56

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USE OF NAMES AND CURRENCY

In this Quarterly Report on Form 10-Q, unless the context otherwise requires, the terms “we,” “us,” “our,” “Company,” or “TILT” refer to TILT Holdings Inc. together with its wholly owned subsidiaries.

Unless otherwise indicated, all references to “$,” “US$” or “USD$” in this Quarterly Report on Form 10-Q refer to United States dollars, and all references to “C$” or “CAD$” refer to Canadian dollars.

DISCLOSURES REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q includes “forward-looking information” and “forward-looking statements” within the meaning of applicable Canadian and United States (“U.S.”) securities laws (collectively, “forward-looking statements”). Such statements include, but are not limited to, statements with respect to expectations, projections, or other characterizations of future events or circumstances, and our objectives, goals, strategies, beliefs, intentions, plans, estimates, projections and outlook, including statements relating to our plans and objectives, or estimates or predictions of actions of customers, suppliers, competitors or regulatory authorities. These statements are subject to certain risks, assumptions and uncertainties that could cause actual results to differ materially from those included in the forward-looking statements. The words “believe”, “plan”, “intend”, “estimate”, “expect”, “likely”, “potential”, “proposed,” “scheduled,” “forecast” or “anticipate”, and similar expressions, as well as future or conditional verbs such as “will”, “should”, “would,” “may”, “might” and “could” identify forward-looking statements.

Management of the Company has based the forward-looking statements on its current views with respect to future events and financial performance and has made assumptions and applied certain factors regarding, among other things: future product pricing; costs of inputs; the Company’s ability to successfully market its products to its anticipated clients; the Company’s reliance on its key personnel; certain regulatory requirements; the application of federal and state environmental laws; the impact of increasing competition; the ability to obtain additional financing on favorable terms; the receipt of applicable regulatory approvals; and the regulatory environments in which the Company operates. Although the Company believes that the expectations reflected in such forward-looking statements are reasonable, it can give no assurance that such expectations will prove to have been correct. The Company’s forward-looking statements are expressly qualified in their entirety by this cautionary statement. The purpose of forward-looking statements is to provide the reader with a description of management’s expectations, and such forward-looking statements may not be appropriate for any other purpose.

By its nature, forward-looking information is subject to risks and uncertainties, and there are a variety of risk factors, many of which are beyond the control of the Company, and that may cause actual outcomes to differ materially from those discussed in the forward-looking statements. Such factors include, among others, the status of cannabis as a controlled substance under the U.S. Federal Controlled Substances Act; risks related to the enforcement activities by the U.S. Department of Justice; risks related to the Company’s ability to continue as a going concern; reputational risk to third parties; risks associated with banking, financial transactions and anti-money laundering laws and regulations; risks related to federal and state forfeiture laws; the risk of heightened scrutiny by regulatory authorities; risks related to the potential negative impact of regulatory scrutiny on raising capital; risks related to regulatory or political change; risks due to industry immaturity or limited comparable, competitive or established industry best practices; risks related to the uncertainty surrounding existing protection from U.S. federal prosecution relating to cannabis laws; risks related to uncertainty with respect to geo-political disruptions; risks related to regulatory changes in relation to vaporization devices and subsequent impacts to interstate commerce, registrations and revenue reporting requirements, and potential excise tax applicability; risks relating to tax status; risks associated with the Company’s business model; risks related to the transition of the Company’s leadership; risks related to the Company’s dependency on skilled labor, equipment, parts, components and key inputs; risks related to the reliance on third party suppliers; risks related to adverse economic conditions, labor shortages, supply chain disruptions, inflationary pressures and increasing interest rates; the uncertainty of the impact of the coronavirus (“COVID-19”) pandemic on the Company and on the operations of the Company; risks that the Company’s actual financial position and results of operations may differ materially from the expectations of the Company’s management; risks related to the costs and obligations relating to the Company’s investment in infrastructure, growth, regulatory compliance and operations; risks related to the Company’s dependency on regulatory approvals and

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licenses to conduct its business; risks related to the potential for changes in laws, regulations and guidelines which could adversely affect the Company’s future business; risks related to a failure on the part of the Company to comply with applicable regulations; risks related to the legal, regulatory and scientific status of cannabis; risks related to the Company’s ability to find suitable candidates and capital necessary to complete strategic alliances or partnerships; risks related to the Company’s ability to successfully identify and execute future acquisitions or dispositions; risks related to indebtedness and the Company’s ability to extend, refinance or repay such indebtedness; risks related to the Company’s ability to develop its products; risks related to the Company’s ability to achieve successful cultivation; risks related to adverse environmental conditions, accidents and labor disputes; risks related to the Company’s ability to turn a profit or generate immediate revenues; risks related to limitations on the permissible ownership of licenses; risks related to constraints on marketing the Company’s products under varying state laws; risks related to the potential results of future clinical research; risks related to the Company’s ability to effectively manage its growth and operations; risks related to the regulation of medical cannabis by the U.S. Food and Drug Administration; risks related to the differing local rules and regulations and the impact this may have on the Company’s ability to expand into new markets; risks related to the protection and enforcement of intellectual property rights and allegations that the Company is in violation of intellectual property rights of third parties; risks relating to access to banking; risks relating to disclosure of personal information to government or regulatory entities; risks related to potential requirement to disclose personal identifying information to government or regulatory entities; risk that the Company may be forced to litigate or defend its intellectual property rights, or to defend against claims by third parties against the Company relating to intellectual property rights; risks related to data privacy laws, rules and regulations; risks relating to fraudulent activity by employees, contractors and consultants, risks regarding the enforceability of contracts; risk of litigation generally; risks relating to increasing competition in the industry; risks relating to the Company’s ability to secure adequate or reliable sources of funding; risks relating to product recalls; risks relating to reliance on technology systems that may be subject to cyber-attacks or security breaches; risks that the Company’s officers and directors may be engaged in a range of business activities resulting in conflicts of interest; risks that the Company’s officers, directors and other parties may exert significant influence on the Company; risks relating to the Company’s inability to successfully implement adequate internal controls over financial reporting; risks relating to restrictions on entry to the U.S. for the Company’s Canadian individuals; risks relating to consumer perception; risks relating to the potential that bond requirements and insurance premiums may be economically prohibitive; risks relating to global economic and political instability and conflicts, such as the conflict between Russia and Ukraine; the risk that the Company’s web presence’s visibility is not limited by geography; risks relating to volatility in the market price of the Company’s securities; risks related to price volatility of publicly traded securities; risks related to dilution of the Company’s securities; risks related to the Company’s securities being currently quoted on the OTCQB; and other factors beyond our control, as more particularly described under the heading “Risk Factors” in this Quarterly Report on Form 10-Q for the quarter ended September 30, 2023, the Quarterly Report on Form 10-Q for the quarter ended June 30, 2023, the Quarterly Report on Form 10-Q for the quarter ended March 31, 2023, and the Form 10-K for the fiscal year ended December 31, 2022 filed by the Company with the U.S. Securities and Exchange Commission (the “SEC”) on March 16, 2023 (the “Form 10-K”) and on the System for Electronic Document Analysis and Retrieval Plus (“SEDAR+”) at www.sedarplus.ca.

Readers are cautioned that the foregoing list is not exhaustive of all factors and assumptions which may have been used. Although we have attempted to identify important factors that could cause actual results to differ materially, there may be other factors that cause results not to be as anticipated, estimated or intended. There can be no assurance that such forward-looking information and statements will prove to be accurate as actual results and future events could differ materially from those anticipated in such information and statements. Accordingly, readers should not place undue reliance on forward-looking information and statements. The forward-looking information and statements contained herein are presented for the purposes of assisting readers in understanding our expected financial and operating performance and our plans and objectives and may not be appropriate for other purposes.

The forward-looking information and statements contained in this Quarterly Report on Form 10-Q represent our views and expectations as of the date of this Quarterly Report on Form 10-Q. We anticipate that subsequent events and developments may cause our views to change. However, while we may elect to update such forward-looking information and statements at a future time, we have no current intention of doing so except to the extent required by applicable law.

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PART I — FINANCIAL INFORMATION

Item 1. Financial Statements

TILT HOLDINGS INC.

Condensed Consolidated Balance Sheets

(Amounts Expressed in Thousands of United States Dollars, Except for Share Amounts)


	September 30, 2023		December 31, 2022
	(unaudited)		(audited)
ASSETS
Current assets
Cash and cash equivalents	$	1,486	$	2,202
Restricted cash		1,297		1,298
Trade receivables, net		20,976		26,698
Inventories		38,435		52,909
Loans receivable, current portion		—		516
Prepaid expenses and other current assets		2,663		1,979
Assets held for sale		—		325
Total current assets		64,857		85,927

Non-current assets
Property, plant and equipment, net		52,675		67,937
Right-of-use assets – finance, net		2,437		4,351
Right-of-use assets – operating, net		12,406		740
Investments		1		6,402
Intangible assets, net		92,219		102,714
Loans receivable, net of current portion		1,355		3,703
Deferred tax asset		2,574		—
Goodwill		20,751		20,751
Other assets		1,954		1,453
TOTAL ASSETS	$	251,229	$	293,978

LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities
Accounts payable and accrued liabilities	$	48,984	$	58,170
Income taxes payable		1,414		979
Deferred revenue		4,040		5,760
Finance lease liability, current portion		1,169		1,075
Operating lease liability, current portion		79		135
Notes payable, current portion		19,197		59,378
Total current liabilities		74,883		125,497

Non-current liabilities
Finance lease liability, net of current portion		3,355		4,245
Operating lease liability, net of current portion		12,757		701
Notes payable, net of discount, net of current portion		34,287		350
Massachusetts lease liability		40,577		40,022
Deferred tax liability		—		1,373
Other liabilities		1,233		273
TOTAL LIABILITIES		167,092		172,461

Shareholders’ equity
Common shares, without par value, unlimited shares authorized, 381,463,838 and 377,515,391 issued and outstanding as of September 30, 2023 and December 31, 2022, respectively		856,208		858,143
Additional paid-in capital		225,254		225,127
Warrants		5,835		796
Accumulated other comprehensive income		976		988
Accumulated deficit		(1,004,136)		(963,703)
TOTAL SHAREHOLDERS’ EQUITY		84,137		121,351

Non-controlling interest		—		166
TOTAL EQUITY		84,137		121,517
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	251,229	$	293,978

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

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TILT HOLDINGS INC.

Condensed Consolidated Statements of Operations and Comprehensive Loss (Unaudited)

(Amounts Expressed in Thousands of United States Dollars, Except Share and Per Share Amounts)


	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
Revenues, net	$	44,555	$	40,487	$	128,418	$	129,894
Cost of goods sold		(36,595)		(30,950)		(107,622)		(100,059)
Gross profit		7,960		9,537		20,796		29,835

Operating expenses:
Wages and benefits		4,707		4,881		16,362		16,384
General and administrative		3,721		4,643		13,870		15,007
Sales and marketing		175		808		869		1,801
Share-based compensation expense (benefit)		190		533		(1,875)		2,545
Depreciation and amortization		3,891		4,594		12,732		13,712
Impairment loss and loss on disposal of assets		—		175		5,135		7,541
Total operating expenses		12,684		15,634		47,093		56,990
Operating loss		(4,724)		(6,097)		(26,297)		(27,155)

Other income (expense):
Interest income		—		94		—		168
Other income		2		2		102		9
Change in fair value of warrant liability		—		610		—		2,360
Gain (loss) on sale of assets and membership interests		483		(1)		8,884		—
Unrealized loss on investment		(1)		(198)		(6,401)		(292)
Loan receivable losses		(14)		(133)		(5,602)		(1,154)
Loss on foreign currency exchange		(17)		—		(18)		—
Interest expense		(6,369)		(4,150)		(15,927)		(10,727)
Total other expense		(5,916)		(3,776)		(18,962)		(9,636)
Loss from operations before income tax and non-controlling interest		(10,640)		(9,873)		(45,259)		(36,791)

Income taxes
Income tax benefit (expense)		1,977		(5,818)		3,393		2,412
Net loss before non-controlling interest		(8,663)		(15,691)		(41,866)		(34,379)
Less: Net income attributable to non-controlling interest		—		—		1,433		8
Net loss attributable to TILT Holdings Inc.	$	(8,663)	$	(15,691)	$	(40,433)	$	(34,371)

Other comprehensive loss
Net loss before non-controlling interest	$	(8,663)	$	(15,691)	$	(41,866)	$	(34,379)
Foreign currency translation differences		(7)		(8)		(12)		(10)
Comprehensive loss before non-controlling interest		(8,670)		(15,699)		(41,878)		(34,389)
Less: Net income attributable to non-controlling interest		—		—		1,433		8
Comprehensive loss attributable to TILT Holdings Inc.	$	(8,670)	$	(15,699)	$	(40,445)	$	(34,381)


Weighted average number of shares outstanding:
Basic and diluted		379,610,460		375,776,275		378,541,584		375,311,644
Net loss per common share attributable to TILT Holdings Inc.
Basic and diluted	$	(0.02)	$	(0.04)	$	(0.11)	$	(0.09)

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

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TILT HOLDINGS INC.

Condensed Consolidated Statements of Changes in Shareholders’ Equity (Unaudited)

(Amounts Expressed in Thousands of United States Dollars, Except Share Amounts)


									Accumulated Other						Shareholders'
	Common Shares				Additional				Comprehensive		Accumulated		Non-Controlling		Equity
	Shares		Amount		Paid in Capital		Warrants		Income (Loss)		Deficit		Interest		Total
Balance - December 31, 2022	377,515,391	$	858,143	$	225,127	$	796	$	988	$	(963,703)	$	166	$	121,517
Share-based compensation	—		—		31		—		—		—		—		31
Warrants expired	—		—		67		(67)		—		—		—		—
Issuance and vesting of restricted share units	370,744		209		—		—		—		—		—		209
Shares reserved for contingent consideration	—		53		—		—		—		—		—		53
Warrants issued as part of debt modification	—		—		—		5,106		—		—		—		5,106
Comprehensive (loss) income for the period	—		—		—		—		(2)		(4,875)		9		(4,868)
Balance - March 31, 2023	377,886,135	$	858,405	$	225,225	$	5,835	$	986	$	(968,578)	$	175	$	122,048
Share-based compensation	—		—		3		—		—		—		—		3
Issuance and vesting (forfeiture) of restricted share units	642,726		(1,074)		—		—		—		—		—		(1,074)
Shares reserved for contingent consideration	—		(1,287)		—		—		—		—		—		(1,287)
Comprehensive loss for the period	—		—		—		—		(3)		(26,895)		(1,442)		(28,340)
Balance - June 30, 2023	378,528,861	$	856,044	$	225,228	$	5,835	$	983	$	(995,473)	$	(1,267)	$	91,350
Share-based compensation	—		—		26		—		—		—		—		26
Issuance and vesting of restricted share units	2,934,977		164		—		—		—		—		—		164
CGSF/SFNY Divestiture	—		—		—		—		—		—		1,267		1,267
Comprehensive loss for the period	—		—		—		—		(7)		(8,663)		—		(8,670)
Balance - September 30, 2023	381,463,838	$	856,208	$	225,254	$	5,835	$	976	$	(1,004,136)	$	—	$	84,137


								Accumulated Other						Shareholders’
	Common Shares			Additional				Comprehensive		Accumulated		Non-Controlling		Equity
	Shares	Amount		Paid in Capital		Warrants		Income (Loss)		Deficit		Interest		Total
Balance - December 31, 2021	374,082,759	$	854,952	$	224,835	$	952	$	999	$	(856,248)	$	175	$	225,665
Share-based compensation	—		—		81		—		—		—		—		81
Issuance and vesting of restricted share units	1,220,468		888		—		—		—		—		—		888
Shares reserved for contingent consideration	—		257		—		—		—		—		—		257
Comprehensive income (loss) for the period	—		—		—		—		1		(11,629)		(5)		(11,633)
Balance - March 31, 2022	375,303,227	$	856,097	$	224,916	$	952	$	1,000	$	(867,877)	$	170	$	215,258
Share-based compensation	—		—		18		—		—		—		—		18
Issuance and vesting of restricted share units	473,048		508		—		—		—		—		—		508
Shares reserved for contingent consideration	—		261		—		—		—		—		—		261
Comprehensive loss for the period	—		—		—		—		(3)		(7,051)		(3)		(7,057)
Balance - June 30, 2022	375,776,275	$	856,866	$	224,934	$	952	$	997	$	(874,928)	$	167	$	208,988
Share-based compensation	—		—		(13)		—		—		—		—		(13)
Issuance and vesting of restricted share units	—		430		—		—		—		—		—		430
Shares reserved for contingent consideration	—		117		—		—		—		—		—		117
Comprehensive loss for the period	—		—		—		—		(8)		(15,691)		—		(15,699)
Balance - September 30, 2022	375,776,275	$	857,413	$	224,921	$	952	$	989	$	(890,619)	$	167	$	193,823

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

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TILT HOLDINGS INC.

Condensed Consolidated Statements of Cash Flows (Unaudited)

(Amounts Expressed in Thousands of United States Dollars)


	Nine Months Ended September 30,
	2023		2022
Cash flows from operating activities:
Net loss	$	(41,866)	$	(34,379)
Adjustments to reconcile net loss to net cash provided by operating activities:
Unrealized loss on investments		6,401		292
(Gain) loss on sale of assets and other		(8,133)		10
Depreciation and amortization		16,527		17,826
Amortization of operating lease right of use assets		1,887		531
Change in allowance for doubtful accounts		328		(213)
Non-cash interest income		-		(45)
Deferred tax		(3,947)		(3,450)
Share-based compensation expense (benefit)		(1,875)		2,545
Accretion of debt discount		1,466		2,210
Change in fair value of warrant liability		-		(2,360)
Loan receivable losses		5,602		1,154
Impairment loss and loss on disposal of assets		5,135		7,541
Inventory adjustments		5,831		546
Non-cash interest expense		4,255		3,430
Net change in working capital items:
Trade receivables, net		5,394		8,666
Inventories		8,644		5,804
Prepaid expenses and other current assets		(1,185)		(452)
Accounts payable and accrued liabilities		(1,788)		(1,036)
Income tax payable		435		621
Deferred revenue		(1,720)		(949)
Net cash provided by operating activities		1,391		8,292

Cash flows from investing activities:
Purchases of property, plant, and equipment		(351)		(14,856)
Proceeds from sale of property, plant and equipment		15,000		9
Repayment of loan receivable, net of advances		(2,806)		(1,115)
Proceeds from CGSF/SFNY Divestiture		1,400		—
Net cash provided by (used in) investing activities		13,243		(15,962)

Cash flows from financing activities:
Payments on lease liability