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 June 30, 2024

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

For the transition period from to

Commission file number: 000-56422

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 July 31, 2024, there were 346,670,029 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 June 30, 2024 (Unaudited) and December 31, 2023	5

Condensed Consolidated Statements of Operations and Comprehensive Loss for the three and six months ended June 30, 2024 and 2023 (Unaudited)	6

Condensed Consolidated Statements of Changes in Shareholders’ Equity for the three and six months ended June 30, 2024 and 2023 (Unaudited)	7

Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2024 and 2023 (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	32

Item 3. Quantitative and Qualitative Disclosures About Market Risk	42

Item 4. Controls and Procedures	43

PART II — OTHER INFORMATION	44

Item 1. Legal Proceedings	44

Item 1A. Risk Factors	44

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	44

Item 3. Defaults Upon Senior Securities	44

Item 4. Mine Safety Disclosures	44

Item 5. Other Information	45

Item 6. Exhibits	46

Signatures	48

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

CAUTIONARY NOTE 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 the Company’s objectives, goals, strategies, beliefs, intentions, plans, estimates, projections and outlook, including statements relating to the Company’s 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 Company’s ability to successfully execute its operating plan for the next 12 months; the Company’s ability to obtain additional financing on favorable terms; the Company’s ability to defer principal and interest payments on certain notes; the Company’s ability to successfully negotiate a mutually agreeable waiver and forbearance agreement with certain noteholders; 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 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; 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

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Company’s dependency on regulatory approvals and 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 the 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 the potential that bond requirements and insurance premiums may be economically prohibitive; risks relating to global economic and political instability and conflicts; 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 the Form 10-K for the fiscal year ended December 31, 2023 filed by the Company with the U.S. Securities and Exchange Commission (the “SEC”) on March 22, 2024 (the “Form 10-K”) and on the System for Electronic Document Analysis and Retrieval Plus (“SEDAR+”) at www.sedarplus.com.

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)


	June 30, 2024		December 31, 2023
	(unaudited)		(audited)
ASSETS
Current assets
Cash and cash equivalents	$	1,377	$	2,034
Restricted cash		1,300		1,298
Trade receivables, net		11,233		17,919
Inventories		27,487		32,908
Prepaid expenses and other current assets		1,466		2,115
Total current assets		42,863		56,274

Non-current assets
Property, plant and equipment, net		32,831		51,185
Right-of-use assets – finance, net		1,854		2,242
Right-of-use assets – operating, net		12,155		12,296
Investments		—		1
Intangible assets, net		78,325		84,801
Loans receivable		1,002		1,066
Deferred tax asset		—		3,657
Goodwill		17,721		17,721
Other assets		3,171		1,945
TOTAL ASSETS	$	189,922	$	231,188

LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities
Accounts payable and accrued liabilities	$	45,119	$	49,098
Income taxes payable		2,925		2,564
Deferred revenue		3,979		6,083
Finance lease liability, current portion		1,273		1,203
Operating lease liability, current portion		92		72
Notes payable, current portion		24,437		17,052
Total current liabilities		77,825		76,072

Non-current liabilities
Finance lease liability, net of current portion		2,390		3,041
Operating lease liability, net of current portion		12,760		12,743
Notes payable, net of discount, net of current portion		37,669		35,108
Massachusetts lease liability		41,173		40,774
Deferred tax liability		472		—
Other liabilities		716		1,057
TOTAL LIABILITIES		173,005		168,795

Shareholders’ equity
Common shares, without par value, unlimited shares authorized, 390,491,408 and 384,833,546 issued and outstanding as of June 30, 2024 and December 31, 2023, respectively		856,532		856,422
Additional paid-in capital		225,270		225,250
Warrants		5,835		5,835
Accumulated other comprehensive income		965		973
Accumulated deficit		(1,071,685)		(1,026,087)
TOTAL SHAREHOLDERS’ EQUITY		16,917		62,393
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	189,922	$	231,188

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 June 30,				Six Months Ended June 30,
	2024		2023		2024		2023
Revenues, net	$	26,581	$	41,599	$	64,085	$	83,863
Cost of goods sold		(22,322)		(37,559)		(53,109)		(71,027)
Gross profit		4,259		4,040		10,976		12,836

Operating expenses:
Wages and benefits		4,637		5,871		9,133		11,655
General and administrative		3,323		4,529		6,806		10,149
Sales and marketing		187		290		329		694
Share-based compensation expense (benefit)		23		(2,358)		130		(2,065)
Depreciation and amortization		3,862		4,712		7,728		8,841
Impairment loss		15,728		4,947		15,740		5,135
Total operating expenses		27,760		17,991		39,866		34,409
Operating loss		(23,501)		(13,951)		(28,890)		(21,573)

Other income (expense):
Interest income (expense)		1		(64)		3		—
Other income		510		3		714		100
Gain on sale of assets		—		—		—		8,401
Unrealized loss on investment		—		(6,400)		(1)		(6,400)
Loan receivable losses		—		(5,200)		—		(5,588)
Loss on foreign currency exchange		—		(1)		(4)		(1)
Interest expense		(6,792)		(5,466)		(12,835)		(9,558)
Total other expense		(6,281)		(17,128)		(12,123)		(13,046)
Loss from operations before income tax and non-controlling interest		(29,782)		(31,079)		(41,013)		(34,619)

Income taxes:
Income tax (expense) benefit		(6,165)		2,742		(4,585)		1,416
Net loss before non-controlling interest		(35,947)		(28,337)		(45,598)		(33,203)
Less: Net loss attributable to non-controlling interest		—		1,442		—		1,433
Net loss attributable to TILT Holdings Inc.	$	(35,947)	$	(26,895)	$	(45,598)	$	(31,770)

Other comprehensive loss:
Net loss before non-controlling interest	$	(35,947)	$	(28,337)	$	(45,598)	$	(33,203)
Foreign currency translation differences		(1)		(3)		(8)		(5)
Comprehensive loss before non-controlling interest		(35,948)		(28,340)		(45,606)		(33,208)
Less: Net loss attributable to non-controlling interest		—		1,442		—		1,433
Comprehensive loss attributable to TILT Holdings Inc.	$	(35,948)	$	(26,898)	$	(45,606)	$	(31,775)


Weighted average number of shares outstanding:
Basic and diluted		388,483,846		378,296,093		387,103,846		377,998,289
Net loss per common share attributable to TILT Holdings Inc.
Basic and diluted	$	(0.09)	$	(0.07)	$	(0.12)	$	(0.08)

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, 2023	384,833,546	$	856,422	$	225,250	$	5,835	$	973	$	(1,026,087)	$	—	$	62,393
Share-based compensation	—		—		17		—		—		—		—		17
Issuance and vesting of restricted share units	2,613,463		90		—		—		—		—		—		90
Comprehensive loss for the period	—		—		—		—		(7)		(9,651)		—		(9,658)
Balance - March 31, 2024	387,447,009	$	856,512	$	225,267	$	5,835	$	966	$	(1,035,738)	$	—	$	52,842
Share-based compensation	—		—		3		—		—		—		—		3
Issuance and vesting (forfeiture) of restricted share units	3,044,399		20		—		—		—		—		—		20
Comprehensive loss for the period	—		—		—		—		(1)		(35,947)		—		(35,948)
Balance - June 30, 2024	390,491,408	$	856,532	$	225,270	$	5,835	$	965	$	(1,071,685)	$	—	$	16,917


								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

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)

v
	Six Months Ended June 30,
	2024		2023
Cash flows from operating activities:
Net loss	$	(45,598)	$	(33,203)
Adjustments to reconcile net loss to net cash provided by operating activities:
Unrealized loss on investments		1		6,400
Gain on sale of assets and other		(717)		(8,379)
Depreciation and amortization		9,959		11,490
Amortization of operating lease right of use assets		1,408		1,185
Payments on operating lease liability		(1,230)		—
Change in allowance for doubtful accounts		(12)		369
Deferred tax		4,129		(2,381)
Share-based compensation expense (benefit)		130		(2,065)
Accretion (adjustment) of debt discount		(249)		404
Loan receivable losses		—		5,588
Impairment loss and loss on disposal of assets		15,740		5,135
Inventory adjustments		228		5,103
Non-cash interest expense		9,209		6,289
Net change in working capital items:
Trade receivables, net		6,697		243
Inventories		2,877		10,980
Prepaid expenses and other current assets		1,077		280
Accounts payable and accrued liabilities		(3,603)		(7,489)
Income tax payable		361		847
Deferred revenue		(2,104)		(356)
Net cash (used in) provided by operating activities		(1,697)		440

Cash flows from investing activities:
Purchases of property, plant, and equipment		(479)		(326)
Proceeds from sale of property, plant and equipment		—		15,000
Repayment of loan receivable, net of advances		64		(2,792)
Net cash (used in) provided by investing activities		(415)		11,882

Cash flows from financing activities:
Payments on financing lease liability		(582)		(3,862)
Repayments on notes payable and Massachusetts Lease Liability		—		(10,324)
Repayments on Revolving Facility		(47,383)		(59,572)
Debt issuance costs		—		(1,213)
Proceeds from Revolving Facility		46,430		59,267
Proceeds from 2024 Standard Farms Loan		3,000		—
Proceeds from notes payable and Massachusetts Lease Liability		—		4,000
Net cash provided by (used in) financing activities		1,465		(11,704)

Effect of foreign exchange on cash and cash equivalents		(8)		(5)

Net change in cash and cash equivalents and restricted cash		(655)		613

Cash and cash equivalents and restricted cash, beginning of year		3,332		3,500

Cash and cash equivalents and restricted cash, end of year	$	2,677	$	4,113

Supplemental disclosures of non-cash investing and financing activities:
Increases to right of use assets related to Ohio facility	$	80	$	—
Increases to operating lease liability related to Ohio facility	$	80	$	—
Decrease in inventory related to the 2024 Standard Farms Loan	$	2,316	$	—
Increase in other assets related to the 2024 Standard Farms Loan	$	1,654	$	—
Increase in notes payable, discount related to the 2024 Standard Farms Loan	$	662	$	—
Increases to right of use assets related to Pennsylvania Transaction	$	—		11,974
Increase to operating lease liability related to Pennsylvania Transaction	$	—		11,880
Reclassification from accounts payable and accrued liabilities to notes payable related to 2023 New Notes (see Note 10)	$	—	$	8,260
Warrants issued related to 2023 Notes (equity classified)	$	—	$	5,106
Noteholder representative fee related to 2023 Refinanced Notes	$	—	$	1,620
Non-cash debt issuance cost	$	—	$	500

Supplemental disclosure of cash flow information:
Cash paid for interest	$	3,039	$	2,814
Cash paid for income taxes	$	96	$	—

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

All dollar amounts expressed in thousands, except per share amounts

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TILT HOLDINGS INC.

Notes to the Condensed Consolidated Financial Statements (Unaudited)

1. Nature and Continuance of Operations

TILT Holdings Inc. (“TILT” or the “Company”) is a business solutions provider to the global cannabis industry offering a diverse range of value-added products and services to industry participants. Through a portfolio of companies providing technology, hardware, cultivation and production, TILT services brands and cannabis retailers in regulated markets across 40 states in the United States (“U.S.”), as well as Canada, Israel, Mexico, South America, and the European Union.

TILT was incorporated under the laws of Nevada pursuant to NRS Chapter 78 on June 22, 2018. The Company was continued under the Business Corporations Act (British Columbia) pursuant to a Certificate of Continuance dated November 14, 2018. The Company is a reporting issuer in Canada in the Provinces of British Columbia, Alberta, and Ontario and its common shares are listed for trading on the Cboe Canada (formerly known as the NEO Exchange) under the symbol “TILT.” In addition, the common shares are quoted on the OTCQB in the U.S. under the symbol “TLLTF.” The Company’s head office is in Phoenix, Arizona and its registered office is located at Suite 2400, 745 Thurlow Street, Vancouver, BC V6C 0C5 Canada.

Liquidity and Going Concern

The Company has experienced operating losses since its inception and may continue to incur losses in the development of its business. The Company incurred a comprehensive loss of $45,606 during the six months ended June 30, 2024 and has an accumulated deficit of $1,071,685 as of June 30, 2024. Additionally, as of June 30, 2024, the Company had negative working capital of $34,962 compared to negative working capital of $19,798 as of December 31, 2023. The negative working capital is related to certain notes payable becoming due within the next 12 months, including the Company’s asset-based revolving credit facility (the “Revolving Facility”), the employee retention credit note, and obligation under the 2023 Refinanced Notes and 2023 New Notes (each defined below). See Note 10 — Notes Payable for additional information.

On May 2, 2024, Standard Farms, LLC (“Standard Farms PA”) entered into a Secured Promissory Note with a third party experienced retailer and operator (the “Lender”) for borrowings up to $10,500 (the “2024 Standard Farms Loan”). Proceeds from the 2024 Standard Farms Loan will be used to construct dispensaries obtained via a permit issued from the Department of Health, Bureau of Medical Marijuana, of the Commonwealth of Pennsylvania (the “Commonwealth”). The Standard Farms PA permit will allow the construction and operation of up to three medical marijuana dispensaries in the Commonwealth (collectively, the “Retail Locations”). Proceeds from the 2024 Standard Farms Loan will also be utilized for the initial setup and operation of the Retail Locations. The 2024 Standard Farms Loan will mature on December 31, 2027, and will initially bear interest at 20%. The interest rate will automatically increase to 30% upon Standard Farm PA’s opening a Retail Location and completing a first commercial sale in the Commonwealth (“Location Opening Date”). On May 2, 2024, the Company drew $3,000 in proceeds on the 2024 Standard Farms Loan, $1,700 of which is allocated to a contingent interest derivative, and recognized a debt discount of $784. See Note 10 — Notes Payable for additional information.

On February 15, 2023 (the “Effective Date”), the Company and its subsidiaries, Jimmy Jang, L.P. (“JJ LP”), Baker Technologies, Inc. and subsidiaries (collectively, “Baker”), Commonwealth Alternative Care (“CAC”), and Jupiter Research LLC (“Jupiter”) (collectively, the “Subsidiary Borrowers”) entered into a first amendment (the “NPA Amendment”) to its existing junior secured note purchase agreement (the “2019 Junior Notes NPA”) with Jordan Geotas, as the noteholder representative (the “Noteholder Representative”) on behalf of the noteholders under the 2019 Junior Notes NPA (the “Note Holders”) and refinanced $38,000 in aggregate principal amount of secured promissory notes issued originally under the 2019 Junior Notes NPA (the “2023 Refinanced Notes”).

All dollar amounts expressed in thousands, except per share amounts

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Pursuant to the NPA Amendment, the Subsidiary Borrowers also issued by way of private placement secured promissory notes (the “2023 New Notes”) in the aggregate principal amount of $8,260 to the Note Holders with a maturity date of February 15, 2027. The consideration for the 2023 New Notes was paid by an offset of an existing unsecured obligation owed by the Subsidiary Borrowers to the Note Holders. See Note 10 — Notes Payable for additional information.

On March 13, 2023, the Company, through its subsidiary Jupiter, entered into an amendment to its existing $10,000 Revolving Facility to increase the amount available under the Revolving Facility to $12,500 and extend the maturity date to July 21, 2024. The Revolving Facility bears interest at the prime rate plus 3%.

On May 15, 2023, the Company and its subsidiaries issued senior secured promissory notes in the aggregate principal amount of $4,500 (the “2023 Bridge Notes”). The 2023 Bridge Notes provided gross cash proceeds of $4,000 with an original issue discount of $500 and require monthly payments of $750 which started July 1, 2023. The 2023 Bridge Notes bore interest at the greater of 16% or the prime rate plus 8.5%, payable monthly, with a maturity date of December 1, 2023.

The Company’s operating plans for the next 12 months include (i) increasing revenue growth from the sale of existing products and the introduction of new products across all operating segments; (ii) reducing production and operational costs as a result of efficiencies in cannabis operations; (iii) reducing supply chain costs; (iv) reducing and delaying overhead and other certain expenditures; (v) obtaining other financings as necessary; and (vi) deferring principal and interest payments on the 2023 Refinanced Notes.

The Company believes that successfully implementing these operating plans will help to mitigate any substantial doubt raised by our historical operating results and satisfy our estimated liquidity needs for the 12 months following the issuance of these condensed consolidated financial statements. However, during the second quarter of 2023, a primary supplier significantly changed the payment terms of the Company’s trade payable. This was an unexpected event impacting short-term liquidity, therefore, the Company secured additional financing through the issuance of the 2023 Bridge Notes to satisfy the transition of the new payment terms and provide working capital for the business. The issuance of the 2023 Bridge Notes required the Company to have to obtain a waiver of the financial covenant defaults expected to occur for the 2023 Refinanced Notes and 2023 New Notes. As a result of the waiver, the Company had to pay default interest rates on its 2023 Refinanced Notes and 2023 New Notes, which resulted in an increase from 16.5% as of March 31, 2023 to 25.0% as of June 30, 2023. On October 2, 2023, the Company and the Subsidiary Borrowers entered into the Limited Waiver and Continued Forbearance Agreement (the “October Forbearance Agreement”) with the Noteholder Representative on behalf of the Note Holders under the 2019 Junior Notes NPA. The October Forbearance Agreement reduced the interest rate on the 2023 Refinanced Notes to 17.0% as of September 30, 2023.

However, as of June 30, 2024, the Company used a default rate of 26.0% to accrue interest on the 2023 Refinanced Notes due to noncompliance with financial covenants. The 26.0% interest rate represents the prime rate of 8.5% plus 8.5%, the 8% default interest rate, and the 1% annual increase pursuant to the NPA Amendment, as the principal balance was more than $30,000 as of the first anniversary of the Effective Date. The 2023 New Notes remain at the default interest rate of 25.0%.

The interest payments required under these rates will constrain the Company’s liquidity while these rates remain in effect. While, as of the date of this filing, the Company is not in compliance with certain payment obligations and covenants under the 2023 Refinanced Notes and the 2023 New Notes, the Note Holders have not provided the requisite notice of an event of default under these notes. The Company is currently negotiating a waiver and forbearance agreement with the Note Holders to address such non-compliance. The Company can provide no assurance that the parties will reach a mutually agreeable resolution. See Note 10 — Notes Payable for additional information.

The Company cannot predict with certainty the outcome of its actions to generate liquidity as discussed above, including the availability of additional financing as necessary, or whether such actions would generate the expected liquidity as currently planned. Therefore, management has concluded there is substantial doubt about the Company’s ability to continue as a going concern within 12 months after the date of this filing. These financial statements do not include any adjustments that might become necessary should the Company be unable to continue as a going concern.

All dollar amounts expressed in thousands, except per share amounts

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2. Basis of Presentation and Summary of Significant Accounting Policies

Basis of Presentation

The accompanying condensed consolidated unaudited interim financial statements have been prepared in accordance with (i) United States generally accepted accounting principles (“U.S. GAAP”) for interim financial information, (ii) the instructions to Form 10-Q, and (iii) Article 10 of Regulation S-X. In the opinion of our management, our condensed consolidated unaudited financial statements and accompanying notes (the “Financial Statements”) include all normal recurring adjustments that are necessary for the fair statement of the interim periods presented. Interim results of operations are not necessarily indicative of results for the full year, or any other period. The Financial Statements should be read in conjunction with our audited consolidated financial statements (and notes thereto) in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023 (the “Form 10-K”), as filed with the SEC on March 22, 2024 and with the relevant Canadian securities regulatory authorities under our profile on SEDAR+. Except as noted below, there have been no material changes to the Company's significant accounting policies and estimates during the six months ended June 30, 2024. Certain information, footnotes and disclosures normally included in the annual financial statements, prepared in accordance with U.S. GAAP, have been condensed or omitted in accordance with SEC rules and regulations.

The financial data included in the Financial Statements contain all normal and recurring adjustments necessary to state fairly the consolidated financial condition, results of operations, statements of changes in shareholder’s equity, and cash flows of the Company for the six months ended June 30, 2024 and 2023. Operating results for the six months ended June 30, 2024 are not necessarily indicative of the results that may be expected for the current year ending December 31, 2024.

Principles of Consolidation

The Financial Statements have been prepared in accordance with U.S. GAAP and include the accounts of the Company and its subsidiaries, as well as the accounts of any entities over which the Company has a controlling financial interest in accordance with Accounting Standards Codification (“ASC”) 810 Consolidation. All transactions and balances between these entities have been eliminated upon consolidation.

Use of Estimates

The preparation of these Financial Statements requires management to make judgments, estimates and assumptions that affect the application of policies and reported amounts of assets and liabilities, and revenue and expenses. Actual results may differ from these estimates.

Restricted Cash

The Company had $1,300 and $1,298 in restricted cash as of June 30, 2024 and December 31, 2023, respectively. Included in restricted cash was a certificate of deposit related to Jupiter customs bonds totaling $1,254 and $1,253 as of June 30, 2024 and December 31, 2023, respectively.

All dollar amounts expressed in thousands, except per share amounts

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Estimated Useful Lives and Depreciation of Property, Plant and Equipment

Depreciation of property, plant and equipment is dependent upon estimates of useful lives which are determined through the exercise of judgment. The assessment of any impairment of these assets is dependent upon estimates of recoverable amounts that take into account factors such as economic and market conditions and the useful lives of assets.

Depreciation is provided on a straight-line basis over the following estimated useful lives:


Machinery and equipment	2 – 7 years
Furniture and fixtures	3 – 10 years
Autos and trucks	5 years
Buildings and land improvements	5 – 39 years
Leasehold improvements	Lesser of useful life of lease term
Greenhouse - agricultural structure	5 – 15 years
Land	Not depreciated

The assets’ residual values, useful lives and methods of depreciation are reviewed annually and adjusted prospectively, if appropriate. Buildings, leaseholds and land improvements are amortized over the shorter of either the useful life or term of the lease. Gains or losses on disposal of an item are determined by comparing the proceeds from disposal with the carrying amount of the item and recognized in the consolidated statements of operations and comprehensive loss.

Recently Adopted and Issued Accounting Pronouncements

Recent accounting pronouncements, other than those below, issued by the Financial Accounting Standards Board (“FASB”), the American Institute of Certified Public Accountants, and the SEC did not or are not believed by management to have a material effect on the Company’s present or future financial statements.

Recently Issued Accounting Pronouncements

In November 2023, the FASB issued accounting standards update (“ASU”) 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures, which improves reportable segment disclosure requirements. These improvements include enhanced disclosures about significant segment expenses that are regularly provided to the chief operating decision maker (“CODM”) and included within each reported measure of segment profit or loss, the CODM’s title and position, the measures the CODM uses to measure segment profit or loss, and how the CODM uses those measures. This guidance is effective for fiscal years beginning after December 15, 2023 and interim periods within fiscal years beginning December 15, 2024 with early adoption permitted. The Company adopted this standard on January 1, 2024 and does not anticipate any impact on its Financial Statements.

In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures. This ASU requires public companies to annually disclose specific categories in the rate reconciliation and provide additional information for reconciling items that meet a quantitative threshold, certain information about income taxes paid, and certain information disaggregated between federal, state, and/or domestic, and foreign. This guidance is effective for public business entities after December 15, 2024, with early adoption permitted. The Company expects to adopt this standard on January 1, 2025 and does not anticipate any impact to its Financial Statements.

All dollar amounts expressed in thousands, except per share amounts

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3. Fair Value Measurements

A number of the Company’s accounting policies and disclosures require the measurement of fair values, for both financial and non-financial assets and liabilities. Fair value is defined as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities that are required to be recorded at fair value, the Company considers all related factors of the asset by market participants in which the Company would transact and the market-based risk measurements or assumptions that market participants would use in pricing the asset or liability, such as inherent risk, transfer restrictions and credit risk.

When measuring the fair value of an asset or a liability, the Company uses observable market data as far as possible. Fair values are categorized into different levels in a fair value hierarchy based on the inputs used in the valuation techniques as follows:

●

Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities.

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Level 2: inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly (i.e., as prices) or indirectly (i.e., derived from prices).

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Level 3: inputs for the asset or liability that are not based on observable market data (unobservable inputs).

Assets and liabilities measured at fair value on a recurring basis, including their levels in the fair value hierarchy are as follows:


	As of June 30, 2024
	Fair value hierarchy
Fair value of assets	Level 1		Level 2		Level 3
Cash and cash equivalents	$	1,377	$	—	$	—
Restricted cash		1,300		—		—
Investments		—		—		—
Total fair value of assets	$	2,677	$	—	$	—

Fair value of liabilities
Contingent interest feature derivative		—		—		(1,700)
Total fair value of liabilities	$	—	$	—	$	(1,700)