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, 2022~~March 31, 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 000-56021

ACREAGE HOLDINGS, INC.

(Exact name of registrant as specified in its charter)


British Columbia, Canada			98-1463868
(State or other jurisdiction of incorporation or organization)			(I.R.S. Employer Identification No.)

366 Madison Ave, 14th floor	New York	New York	10017
(Address of Principal Executive Offices)			(Zip Code)

(646) 600-9181

Registrant’s telephone number, including area code

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

Securities registered pursuant to section 12(g) of the Act: Class D Subordinate Voting Shares, no par value; Class E Subordinate Voting Shares, no par value.

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

Yes o No x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.

Yes o No x

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 x No o

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 x No o

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	o	Accelerated filer	☒
Non-accelerated filer	o	Smaller reporting company	o☒
		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 Act). Yes ☐ No x

The Company has three classes of issued and outstanding shares: the Class E subordinate voting shares (the “Fixed Shares”), the Class D subordinate voting shares (the “Floating Shares”) and the Class F multiple voting shares (the “Fixed Multiple Shares”). The Fixed Shares and Floating Shares each entitle the holders to notice of and to attend at any meeting of the shareholders of the Company, except a meeting of which only holders of another particular class or series of shares of the Company have the right to vote. Each Fixed Share is entitled to one vote per Fixed Share, each Floating Share is entitled to one vote per Floating Share and each Fixed Multiple Share is entitled to 4,300 votes per Fixed Multiple Share on all matters upon which the holders of shares are entitled to vote. As of ~~November 2, 2022,~~May 12, 2023, there were ~~79,046,738~~79,255,991 Fixed shares, ~~34,114,596~~34,192,028 Floating Shares, and 117,600 Fixed Multiple Shares, in each case, issued and outstanding.

TABLE OF CONTENTS

Acreage Holdings, Inc.

Form 10-Q

For the Three ~~and Nine~~ Months Ended ~~September 30, 2022~~March 31, 2023


PART I	Financial Information

Item 1.	Condensed Consolidated Statements of Financial Position as of ~~September 30, 2022~~March 31, 202 3 (unaudited) and December 31, ~~2021~~202 2 (audited)	1
	Unaudited Condensed Consolidated Statements of Operations for the three ~~and nine~~ months ended ~~September 30, 2022~~March 31, 202 3 and ~~2021~~2022	32
	Unaudited Condensed Consolidated Statements of Shareholders’ Equity for the three ~~and nine~~ months ended ~~September 30, 2022~~March 31, 202 3 and ~~2021~~2022	43
	Unaudited Condensed Consolidated Statements of Cash Flows for the ~~nine~~three months ended ~~September 30, 2022~~March 31, 202 3 and ~~2021~~2022	64
	Notes to the Unaudited Condensed Consolidated Financial Statements	81
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	3322
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	4532
Item 4.	Controls and Procedures	4532

PART II	Other Information

Item 1.	Legal Proceedings	4734
Item 1A.	Risk Factors	4734
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	4734
Item 3.	Defaults Upon Senior Securities	4734
Item 4.	Mine Safety Disclosures	4734
Item 5.	Other Information	4734
Item 6.	Exhibits	4835

	SIGNATURES	36


~~PART I~~

~~Item 1. Financial Statements and Supplementary Data.~~

PART I

Item 1. Financial Statements and Supplementary Data.


ACREAGE HOLDINGS, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION


(in thousands)	(in thousands)	September 30, 2022		December 31, 2021		(in thousands)	March 31, 2023		December 31, 2022
		(unaudited)		(audited)			(unaudited)		(audited)
ASSETS	ASSETS					ASSETS
Cash and cash equivalents	Cash and cash equivalents	$	26,476	$	43,180	Cash and cash equivalents	$	14,251	$	24,067
Restricted cash		95		1,098

Accounts receivable, net	Accounts receivable, net	9,466		8,202		Accounts receivable, net	6,546		10,512
Inventory	Inventory	50,892		41,804		Inventory	53,611		49,446
Notes receivable, current		2,500		7,104
Notes receivable, net						Notes receivable, net	1,489		29,191

Assets held-for-sale		—		8,952

Other current assets	Other current assets	3,843		2,639		Other current assets	4,978		4,977
Total current assets	Total current assets	93,272		112,979		Total current assets	80,875		118,193
Long-term investments	Long-term investments	34,328		35,226		Long-term investments	33,293		34,046
Notes receivable, non-current		27,343		27,563

Capital assets, net	Capital assets, net	135,362		126,797		Capital assets, net	135,625		133,405
Operating lease right-of-use assets	Operating lease right-of-use assets	22,730		24,598		Operating lease right-of-use assets	20,842		22,443
Intangible assets, net	Intangible assets, net	135,807		119,695		Intangible assets, net	35,124		35,124
Goodwill	Goodwill	30,492		43,310		Goodwill	38,694		13,761

Other non-current assets	Other non-current assets	3,563		1,383		Other non-current assets	3,601		3,601
Total non-current assets	Total non-current assets	389,625		378,572		Total non-current assets	267,179		242,380
TOTAL ASSETS	TOTAL ASSETS	$	482,897	$	491,551	TOTAL ASSETS	$	348,054	$	360,573

LIABILITIES AND SHAREHOLDERS’ EQUITY	LIABILITIES AND SHAREHOLDERS’ EQUITY					LIABILITIES AND SHAREHOLDERS’ EQUITY
Accounts payable and accrued liabilities	Accounts payable and accrued liabilities	$	26,082	$	23,861	Accounts payable and accrued liabilities	$	29,077	$	29,566
Taxes payable	Taxes payable	29,240		24,572		Taxes payable	29,706		24,226
Interest payable	Interest payable	1,167		1,432		Interest payable	1,803		2,575
Operating lease liability, current	Operating lease liability, current	2,298		2,145		Operating lease liability, current	2,529		2,443
Debt, current	Debt, current	7,218		1,583		Debt, current	1,689		1,584
Non-refundable deposits on sale		—		1,000
Liabilities related to assets held for sale		—		1,867

Other current liabilities	Other current liabilities	10,500		10,333		Other current liabilities	9,312		11,939
Total current liabilities	Total current liabilities	76,505		66,793		Total current liabilities	74,116		72,333
Debt, non-current	Debt, non-current	194,874		169,151		Debt, non-current	215,248		213,496
Operating lease liability, non-current	Operating lease liability, non-current	22,324		24,255		Operating lease liability, non-current	20,293		21,692
Deferred tax liability	Deferred tax liability	29,875		27,082		Deferred tax liability	10,629		9,623
Other liabilities	Other liabilities	1,125		—		Other liabilities	3,129		3,250
Total non-current liabilities	Total non-current liabilities	248,198		220,488		Total non-current liabilities	249,299		248,061
TOTAL LIABILITIES	TOTAL LIABILITIES	324,703		287,281		TOTAL LIABILITIES	323,415		320,394
Commitments and contingencies						Commitments and contingencies
Common stock, no par value - unlimited authorized, 112,724 and 112,437 issued and outstanding, respectively						Common stock, no par value - unlimited authorized, 112,724 and 112,437 issued and outstanding, respectively	—		—
Additional paid-in capital						Additional paid-in capital	761,527		760,529
Treasury stock, 842 common stock held in treasury						Treasury stock, 842 common stock held in treasury	(21,054)		(21,054)
Accumulated deficit						Accumulated deficit	(693,048)		(678,091)
Total Acreage Shareholders' equity						Total Acreage Shareholders' equity	47,425		61,384
Non-controlling interests						Non-controlling interests	(22,786)		(21,205)
TOTAL EQUITY						TOTAL EQUITY	24,639		40,179

TOTAL LIABILITIES AND EQUITY						TOTAL LIABILITIES AND EQUITY	$	348,054	$	360,573

See accompanying Notes to Unaudited Condensed Consolidated Financial Statements

F-1


ACREAGE HOLDINGS, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF ~~FINANCIAL POSITION~~OPERATIONS

Commitments and contingencies
Common stock, no par value - unlimited authorized, 112,147 and 106,903 issued and outstanding, respectively — —
Additional paid-in capital 761,684 756,536
Treasury stock, 842 common stock held in treasury (21,054) (21,054)
Accumulated deficit (583,052) (538,215)
Total Acreage Shareholders' equity 157,578 197,267
Non-controlling interests 616 7,003
TOTAL EQUITY 158,194 204,270
TOTAL LIABILITIES AND EQUITY $ 482,897 $ 491,551


	Three Months Ended March 31,

(in thousands, except per share amounts)		2023		2022
REVENUE
Retail revenue, net		$	41,881	$	41,427
Wholesale revenue, net		13,998		15,172
Other revenue, net		84		280
Total revenues, net		55,963		56,879
Cost of goods sold, retail		(20,414)		(20,768)
Cost of goods sold, wholesale		(8,964)		(6,601)
Total cost of goods sold		(29,378)		(27,369)
Gross profit		26,585		29,510

OPERATING EXPENSES
General and administrative		10,512		8,387
Compensation expense		12,203		14,195
Equity-based compensation expense		984		4,159
Marketing		744		697
Impairments, net		—		2,138

Write down of assets held-for-sale		—		874
Legal recoveries		—		(25)
Depreciation and amortization		997		1,807
Total operating expenses		25,440		32,232

Net operating income (loss)		$	1,145	$	(2,722)

Income (loss) from investments, net		(342)		1,133
Interest income from loans receivable		16		417
Interest expense		(8,074)		(4,781)
Other loss, net		(1,553)		(10)
Total other loss		(9,953)		(3,241)

Loss before income taxes		$	(8,808)	$	(5,963)

Income tax expense		(7,349)		(7,948)

Net loss		$	(16,157)	$	(13,911)

Less: net loss attributable to non-controlling interests		(1,567)		(1,217)

Net loss attributable to Acreage Holdings, Inc.		$	(14,590)	$	(12,694)

Net loss per share attributable to Acreage Holdings, Inc. - basic and diluted:		$	(0.13)	$	(0.12)

Weighted average shares outstanding - basic and diluted		112,546		106,900

See accompanying Notes to Unaudited Condensed Consolidated Financial Statements

F-2


ACREAGE HOLDINGS, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY


			Attributable to shareholders of the parent
(in thousands)	LLC Membership Units	Pubco Shares (as converted)	Share Capital		Treasury Stock		Accumulated Deficit		Shareholders’ Equity		Non-controlling Interests		Total Equity
December 31, 2021	3,861	106,903	$	756,536	$	(21,054)	$	(538,215)	$	197,267	$	7,003	$	204,270
NCI adjustments for changes in ownership	—	—	5		—		—		5		(5)		—
Equity-based compensation expense and related issuances	—	508	4,159		—		—		4,159		—		4,159
Net loss	—	—	—		—		(12,694)		(12,694)		(1,217)		(13,911)
March 31, 2022	3,861	107,411	$	760,700	$	(21,054)	$	(550,909)	$	188,737	$	5,781	$	194,518


			Attributable to shareholders of the parent
(in thousands)	LLC Membership Units	Pubco Shares (as converted)	Share Capital		Treasury Stock		Accumulated Deficit		Shareholders’ Equity		Non-controlling Interests		Total Equity
December 31, 2022	3,861	112,437	$	760,529	$	(21,054)	$	(678,091)	$	61,384	$	(21,205)	$	40,179
Cumulative effect of change in accounting principle for current expected credit losses, net of tax	—	—			—		(367)		(367)		—		(367)
NCI adjustments for changes in ownership	—	—	14		—		—		14		(14)		—
Equity-based compensation expense and related issuances	—	287	984		—		—		984		—		984
Net loss	—	—	—		—		(14,590)		(14,590)		(1,567)		(16,157)
March 31, 2023	3,861	112,724	$	761,527	$	(21,054)	$	(693,048)	$	47,425	$	(22,786)	$	24,639

See accompanying Notes to Unaudited Condensed Consolidated Financial Statements

F-2


ACREAGE HOLDINGS, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF ~~OPERATIONS~~CASH FLOWS

Three Months Ended September 30, Nine Months Ended September 30,
(in thousands, except per share amounts) 2022 2021 2022 2021
REVENUE
Retail revenue, net $ 48,314 $ 30,795 $ 136,426 $ 85,038
Wholesale revenue, net 12,810 17,077 42,342 42,634
Other revenue, net 295 280 881 3,090
Total revenues, net 61,419 48,152 179,649 130,762
Cost of goods sold, retail (26,097) (16,279) (70,331) (43,412)
Cost of goods sold, wholesale (14,096) (8,069) (27,968) (19,049)
Total cost of goods sold (40,193) (24,348) (98,299) (62,461)
Gross profit 21,226 23,804 81,350 68,301
OPERATING EXPENSES
General and administrative 9,727 8,465 27,036 23,067
Compensation expense 15,271 10,699 42,045 32,236
Equity-based compensation expense 3,156 4,168 8,970 17,191
Marketing 735 583 2,396 992
Impairments, net 506 2,339 2,973 3,157
Loss on notes receivable 7,219 — 7,219 1,726
Write down (recovery) of assets held-for-sale — — 874 (8,616)
Legal settlements (recoveries) — — (335) 322
Depreciation and amortization 1,047 4,044 6,019 9,670
Total operating expenses 37,661 30,298 97,197 79,745
Net operating loss $ (16,435) $ (6,494) $ (15,847) $ (11,444)
Income (loss) from investments, net 17 489 154 (777)
Interest income from loans receivable 474 1,067 1,256 4,125
Interest expense (5,688) (3,620) (15,989) (14,072)
Other income, net 4,743 80 5,019 7,825
Total other income (loss) (454) (1,984) (9,560) (2,899)
Loss before income taxes $ (16,889) $ (8,478) $ (25,407) $ (14,343)
Income tax expense (8,109) (5,579) (24,105) (11,661)
Net loss $ (24,998) $ (14,057) $ (49,512) $ (26,004)
Less: net loss attributable to non-controlling interests (2,784) (1,761) (4,675) (3,347)
Net loss attributable to Acreage Holdings, Inc. $ (22,214) $ (12,296) $ (44,837) $ (22,657)
Net loss per share attributable to Acreage Holdings, Inc. - basic and diluted: $ (0.20) $ (0.12) (1) $ (0.41) $ (0.22) (1)
Weighted average shares outstanding - basic and diluted 111,200 106,332 (1) 108,795 104,524 (1)

~~(1)~~ ~~Presentation of September 30, 2021 figures have been revised.~~


	Three Months Ended March 31,
(in thousands)	2023		2022
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$	(16,157)	$	(13,911)
Adjustments for:
Depreciation and amortization	997		1,807
Depreciation and amortization included in COGS	2,287		1,084
Equity-based compensation expense	984		4,159


Loss on disposal of capital assets	—		49
Loss on impairment	—		2,138


Bad debt expense	1,276		(96)
Non-cash interest expense	1,202		644
Non-cash operating lease expense	(437)		(9)

Deferred tax income	(9)		(279)
Non-cash (income) loss from investments, net	753		(788)

Write-down of assets held-for-sale	—		874


Change, net of acquisitions in:
Accounts receivable, net	8,102		1,407
Inventory	(3,535)		(7,002)
Other assets	170		(1,469)
Interest receivable	(360)		(417)
Accounts payable and accrued liabilities	(4,184)		(1,856)
Taxes payable	4,368		6,071
Interest payable	(772)		1,130
Other liabilities	(2,755)		1,101
Net cash used in operating activities	$	(8,070)	$	(5,363)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of capital assets	$	(2,230)	$	(8,290)

Collection of notes receivable	—		5,279




Business acquisitions, net of cash acquired	516		—


Distributions from investments	—		345



Cash paid for short-term investment	—		(3,400)

Net cash used in investing activities	$	(1,714)	$	(6,066)
CASH FLOWS FROM FINANCING ACTIVITIES:



Deferred financing costs paid	—		(11)







Repayment of debt	(32)		—


Net cash used in financing activities	$	(32)	$	(11)
Net decrease in cash, cash equivalents, restricted cash, and cash held for sale	$	(9,816)	$	(11,440)
Cash, cash equivalents, restricted cash, and cash held for sale - Beginning of period	24,067		44,501
Cash, cash equivalents, restricted cash, and cash held for sale - End of period	$	14,251	$	33,061

RECONCILIATION OF CASH FLOW INFORMATION:
Cash and cash equivalents	$	14,251	$	32,619
Restricted cash	—		95

See accompanying Notes to Unaudited Condensed Consolidated Financial Statements

~~F-3~~


~~ACREAGE HOLDINGS, INC.~~
~~UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY~~

Attributable to shareholders of the parent
(in thousands) LLC Membership Units Pubco Shares (as converted) Share Capital Treasury Stock Accumulated Deficit Shareholders’ Equity Non-controlling Interests Total Equity
December 31, 2020 3,861 101,250 $ 737,290 $ (21,054) $ (475,205) $ 241,031 $ 18,678 $ 259,709
Purchase of non-controlling interest in subsidiary — (272) — — (272) (14) (286)
NCI adjustments for changes in ownership — 400 601 — — 601 (601) —
Capital distributions, net — — — — — — (30) (30)
Other equity transactions — 97 300 — — 300 — 300
Equity-based compensation expense and related issuances — 1,693 6,042 — — 6,042 — 6,042
Net loss — — — — (7,809) (7,809) (833) (8,642)
March 31, 2021 3,861 103,440 $ 743,961 $ (21,054) $ (483,014) $ 239,893 $ 17,200 $ 257,093
NCI adjustments for changes in ownership — 666 (1,463) — — (1,463) 1,463 —
Capital distributions, net — — — — — — (2,547) (2,547)
Other equity transactions — 1 117 — — 117 — 117
Equity-based compensation expense and related issuances — 1,595 6,981 — — 6,981 — 6,981
Net loss — — — — (2,553) (2,553) (753) (3,306)
June 30, 2021 3,861 105,702 $ 749,596 $ (21,054) $ (485,567) $ 242,975 $ 15,363 $ 258,338
NCI adjustments for changes in ownership — — 76 — — 76 (76) —
Equity-based compensation expense and related issuances — 701 4,168 — — 4,168 — 4,168
Net loss — — — — (12,297) (12,297) (1,761) (14,058)
September 30, 2021 3,861 106,403 $ 753,840 $ (21,054) $ (497,864) $ 234,922 $ 13,526 $ 248,448

~~See accompanying Notes to Unaudited Condensed Consolidated Financial Statements~~

~~F-4~~


~~ACREAGE HOLDINGS, INC.~~
~~UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY~~

Attributable to shareholders of the parent
(in thousands) LLC Membership Units Pubco Shares (as converted) Share Capital Treasury Stock Accumulated Deficit Shareholders’ Equity Non-controlling Interests Total Equity
December 31, 2021 3,861 106,903 $ 756,536 $ (21,054) $ (538,215) $ 197,267 $ 7,003 $ 204,270
NCI adjustments for changes in ownership — — 5 — — 5 (5) —
Equity-based compensation expense and related issuances — 508 4,159 — — 4,159 — 4,159
Net loss — — — — (12,694) (12,694) (1,217) (13,911)
March 31, 2022 3,861 107,411 $ 760,700 $ (21,054) $ (550,909) $ 188,737 $ 5,781 $ 194,518
NCI adjustments for changes in ownership — — (4,524) — — (4,524) 4,524 —
Capital distributions, net — — — — — — (5,534) (5,534)
Equity-based compensation expense and related issuances — 1,778 1,655 — — 1,655 — 1,655
Net loss — — — — (9,929) (9,929) (674) (10,603)
June 30, 2022 3,861 109,189 $ 757,831 $ (21,054) $ (560,838) $ 175,939 $ 4,097 $ 180,036
NCI adjustments for changes in ownership — — 697 — — 697 (697) —
Other equity transactions — 378 — — — — — —
Equity-based compensation expense and related issuances — 2,580 3,156 — — 3,156 — 3,156
Net loss — — — — (22,214) (22,214) (2,784) (24,998)
September 30, 2022 3,861 112,147 $ 761,684 $ (21,054) $ (583,052) $ 157,578 $ 616 $ 158,194

~~See accompanying Notes to Unaudited Condensed Consolidated Financial Statements~~

~~F-5~~


~~ACREAGE HOLDINGS, INC.~~
~~UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS~~

Nine Months Ended September 30,
(in thousands) 2022 2021
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (49,512) $ (26,004)
Adjustments for:
Depreciation and amortization 6,019 9,670
Depreciation and amortization included in COGS 4,840 1,714
Equity-based compensation expense 8,970 17,607
Gain on business divestiture (3,490) (11,681)
Loss on disposal of capital assets 49 1,690
Loss on impairment 2,973 9,947
Loss on notes receivable 7,219 3,726
Recovery on notes receivable (1,107) —
Bad debt expense 22 (1,060) (1)
Non-cash interest expense 2,301 3,154
Non-cash operating lease expense 223 (572)
Loss on lease termination 297 —
Deferred tax (income) expense (889) (8,125)
Non-cash loss from investments, net 895 778
Other non-cash (income) expense, net — (2,500)
Write-down (recovery) of assets held-for-sale 874 (8,616)
Change, net of acquisitions in:
Accounts receivable, net (2,787) (11,128) (1)
Inventory (8,715) (11,864)
Other assets (1,240) 9,514 (1)
Interest receivable (1,125) (1,031)
Accounts payable and accrued liabilities (279) 1,238
Taxes payable 4,668 12,935
Interest payable (265) (2,060)
Other liabilities (414) (5,644)
Net cash used in operating activities $ (30,473) $ (18,312)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of capital assets $ (12,582) $ (27,535)
Investments in notes receivable — (3,918)
Collection of notes receivable 7,106 13,225
Proceeds from business divestiture — 24,407
Proceeds from sale of capital assets — 5
Business acquisitions, net of cash acquired — 541
Purchases of intangible assets (900) —
Distributions from investments 1,048 1,427
Proceeds from sale of promissory notes — 26,000
Cash paid for short-term investment (3,400) —
Proceeds from disposal of short-term investments 3,400 —
Net cash provided by (used in) investing activities $ (5,328) $ 34,152
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from financing (refer to Note 14 for related party financing) $ 25,000 $ 6,301
Deferred financing costs paid (511) (975)

~~See accompanying Notes to Unaudited Condensed Consolidated Financial Statements~~

~~F-6~~F-2


ACREAGE HOLDINGS, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

Repayment of debt (1,084) (46,321)
Capital distributions - non-controlling interests (5,534) —
Net cash provided by (used in) financing activities $ 17,871 $ (40,995)
Net decrease in cash, cash equivalents, restricted cash, and cash held for sale $ (17,930) $ (25,155)
Cash, cash equivalents, restricted cash, and cash held for sale - Beginning of period 44,501 54,639
Cash, cash equivalents, restricted cash, and cash held for sale - End of period $ 26,571 $ 29,484
RECONCILIATION OF CASH FLOW INFORMATION:
Cash and cash equivalents $ 26,476 $ 27,868
Restricted cash 95 1,098
Cash held for sale $ — $ 518
Total cash, cash equivalents, restricted cash, and cash held for sale at end of period $ 26,571 $ 29,484


Cash held for sale	$	—	$	347
Total cash, cash equivalents, restricted cash, and cash held for sale at end of period	$	14,251	$	33,061

~~(1)~~ ~~Presentation of September 30, 2021 figures have been revised, refer to Note 2 for further discussion.~~


		Nine Months Ended September 30,					Three Months Ended March 31,
(in thousands)	(in thousands)	2022		2021		(in thousands)	2023		2022
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:	SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:					SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid - non-lease	Interest paid - non-lease	$	12,730	$	11,444	Interest paid - non-lease	$	7,638	$	2,446
Income taxes paid	Income taxes paid	21,742		6,346		Income taxes paid	2,627		2,065
OTHER NON-CASH INVESTING AND FINANCING ACTIVITIES:	OTHER NON-CASH INVESTING AND FINANCING ACTIVITIES:					OTHER NON-CASH INVESTING AND FINANCING ACTIVITIES:
Capital assets not yet paid for	Capital assets not yet paid for	$	6,242	$	4,063	Capital assets not yet paid for	$	—	$	3,631

Promissory note conversion (Note 6)		—		10,880
Insurance proceeds not yet received		—		6,790
Non-cash proceeds from business divestiture		7,850		34,475

Non-cash proceeds from finance lease	Non-cash proceeds from finance lease	5,785		—		Non-cash proceeds from finance lease	—		5,785

See accompanying Notes to Unaudited Condensed Consolidated Financial Statements

~~F-7~~F-2


ACREAGE HOLDINGS, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data)

1. NATURE OF OPERATIONS

Acreage Holdings, Inc. (the “Company”, “Pubco” or “Acreage”) is a vertically integrated, multi-state operator in the United States (“U.S.”) cannabis industry and has contractual relationships with cannabis cultivation facilities, dispensaries and other cannabis-related companies in the U.S. The Company’s operations include (i) cultivating and processing cannabis plants, (ii) manufacturing branded consumer products, (iii) distributing cannabis flower and manufactured products, and (iv) retailing dosable cannabis products to consumers. The Company’s products appeal to medical and adult recreational use customers through brand strategies intended to build trust and loyalty. The Company’s Class E subordinate voting shares (“Fixed Shares”) and Class D subordinate voting shares (“Floating Shares”) are listed on the Canadian Securities Exchange under the symbols “ACRG.A.U” and “ACRG.B.U”, respectively, quoted on the OTCQX under the symbols “ACRHF” and “ACRDF”, respectively, and traded on the Frankfurt Stock Exchange under the symbols “0VZ1” and “0VZ2”, respectively.

High Street Capital Partners, LLC, a Delaware limited liability company doing business as “Acreage Holdings” (“HSCP”), was formed on April 29, 2014. The Company became the indirect parent of HSCP on November 14, 2018 in connection with the reverse takeover (“RTO”) transaction described below.

The Company’s principal place of business is located at 366 Madison Ave, 14th floor, New York, New York in the U.S. The Company’s registered and records office address is Suite 2800, Park Place, 666 Burrard Street, Vancouver, British Columbia in Canada.

The RTO transaction

On September 21, 2018, the Company, HSCP, HSCP Merger Corp. (a wholly-owned subsidiary of the Company), Acreage Finco B.C. Ltd. (a special purpose corporation) (“Finco”), Acreage Holdings America, Inc. (“USCo”) and Acreage Holdings WC, Inc. (“USCo2”) entered into a business combination agreement (the “Business Combination Agreement”) whereby the parties thereto agreed to combine their respective businesses, which would result in the RTO of Pubco by the security holders of HSCP, which was deemed to be the accounting acquiror. On November 14, 2018, the parties to the Business Combination Agreement completed the RTO.

Canopy Growth Corporation transaction

On June 27, 2019, the Company and Canopy Growth Corporation (“Canopy Growth” or “CGC”) implemented the Prior Plan of Arrangement (as defined in Note 13) contemplated by the Original Arrangement Agreement (as defined in Note 13). Pursuant to the Prior Plan of Arrangement, Canopy Growth was granted an option to acquire all of the issued and outstanding shares of the Company in exchange for the payment of 0.5818 of a common share in the capital of Canopy Growth for each Class A subordinate voting share (each, a “SVS”) held (with the Class B proportionate voting shares (the “PVS”) and Class C multiple voting shares (the “MVS”) being automatically converted to SVS immediately prior to consummation of the Acquisition (as defined in Note 13), which original exchange ratio was subject to adjustment in accordance with the Original Arrangement Agreement. Canopy Growth was required to exercise the option upon a change in federal laws in the United States to permit the general cultivation, distribution and possession of marijuana (as defined in the relevant legislation) or to remove the regulation of such activities from the federal laws of the United States (the “Triggering Event”) and, subject to the satisfaction or waiver of certain closing conditions set out in the Original Arrangement Agreement, Canopy Growth was required to acquire all of the issued and outstanding SVS (following the mandatory conversion of the PVS and MVS into SVS).

On June 24, 2020, Canopy Growth and the Company entered into an agreement to, among other things, amend the terms of the Original Arrangement Agreement and the terms of the Prior Plan of Arrangement (the “Amended Arrangement”). On September 16, 2020, the Company’s shareholders voted in favor of a special resolution authorizing and approving the terms of, among other things, the Amended Arrangement. Subsequently, on September 18, 2020, the Company obtained a final order from the Supreme Court of British Columbia approving the Amended Arrangement, and on September 23, 2020 the Company and Canopy Growth entered into the Amending Agreement (as defined in Note 13) and implemented the Amended Arrangement. Pursuant to the Amended Arrangement, the Company’s articles were amended to create the Fixed Shares, the Floating Shares and the Class F multiple voting shares (the “Fixed Multiple Shares”), and each outstanding SVS was exchanged for 0.7 of a Fixed Share and 0.3 of a Floating Share, each outstanding PVS was exchanged for 28 Fixed Shares and 12 Floating Shares; and each outstanding MVS was exchanged for 0.7 of a Fixed Multiple Share and 0.3 of a Floating Share. ~~Refer~~Pursuant to ~~Note 13~~the Amended Arrangement, Canopy Growth was granted the option to acquire all of the issued and outstanding Fixed Shares on the basis of 0.3048 (the “Fixed Exchange Ratio”) of a common share of Canopy Growth (each, a “Canopy Share”) for ~~further discussion.~~each Fixed Share held at the time of the acquisition of the Fixed Shares (the “Acquisition” or “Acquisition Time”), subject to

~~F-8~~1


ACREAGE HOLDINGS, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data)

adjustment in accordance with the terms of the Amended Arrangement (the “Canopy Call Option”), which Canopy Growth is required to exercise upon the occurrence, or waiver (at the discretion of Canopy Growth), of a change in federal laws in the United States to permit the general cultivation, distribution and possession of marijuana (as defined in the relevant legislation) or to remove the regulation of such activities from the federal laws of the United States (the “Triggering Event” and the date on which the Triggering Event occurs, the “Triggering Event Date”). Refer to Note 13 for further discussion.

Pursuant to the implementation of the Amended Arrangement, on September 23, 2020, a subsidiary of Canopy Growth advanced gross proceeds of $50,000 to Universal Hemp, LLC, an affiliate of the Company. The debenture bears interest at a rate of 6.1% per annum. Refer to Note 10 for further discussion.

~~Subsequent to the balance sheet date,~~On October 24, 2022, the Company entered into ~~a new~~an arrangement agreement (the “Floating Share Agreement”) with Canopy Growth ~~regarding the acquisition~~and Canopy USA, LLC (“Canopy USA”), Canopy Growth’s newly-created U.S. domiciled holding company, pursuant to which, subject to approval of the ~~Company’s~~holders of the Class D subordinate voting shares of Acreage (the “Floating Shares”) and the terms and conditions of the Floating ~~Shares.~~Share Agreement, Canopy USA will acquire all of the issued and outstanding Floating Shares by way of court-approved plan of arrangement (the “Floating Share Arrangement”) for consideration of 0.4500 of a common share of Canopy Growth (each whole share a “Canopy Share”) in exchange for each Floating Share. Refer to Note 1713 for further discussion.

~~COVID-19~~

In December 2019, a novel strain of coronavirus (“COVID-19”) emerged in Wuhan, China. Since then, it has spread to other countries and infections have been reported around the world. On March 11, 2020, the World Health Organization declared the outbreak of COVID-19 a global pandemic.

In response to the outbreak, governmental authorities in the United States, Canada and internationally have introduced various recommendations and measures to try to limit the pandemic, including travel restrictions, border closures, non-essential business closures, quarantines, self-isolations, shelters-in-place and social distancing. The COVID-19 outbreak and the response of governmental authorities to try to limit it are having a significant impact on the private sector and individuals, including unprecedented business, employment and economic disruptions. Management has been closely monitoring the impact of COVID-19, with a focus on the health and safety of the Company’s employees, business continuity and supporting the communities where the Company operates. The Company implemented various measures at the height of the pandemic to reduce the spread of the virus, such as implementing social distancing measures at its facilities. Most of these measures are no longer considered to be necessary or required; however, the Company reserves the right to implement similar precautionary measures in the future as circumstances change.

~~Despite some impact to our day-to-day operations at select locations from time-to-time, COVID-19 has had a minimal impact overall on the Company’s performance.~~

2. SIGNIFICANT ACCOUNTING POLICIES

Basis of presentation and going concern

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. In the opinion of management, all adjustments consisting only of normal recurring adjustments necessary for a fair presentation have been reflected in these unaudited condensed consolidated financial statements. Operating results for the interim periods presented are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, ~~2022,~~2023, or any other period.

As reflected in the unaudited condensed consolidated financial statements, the Company had an accumulated deficit as of ~~September 30, 2022,~~March 31, 2023, as well as a net loss and negative cash flow from operating activities for the ~~nine~~three months ended ~~September 30, 2022.~~March 31, 2023. These factors raise substantial doubt about the Company’s ability to continue as a going concern for at least one year from the issuance of these financial statements.

However, management believes that substantial doubt about the Company’s ability to meet its obligations for the next twelve months from the date these financial statements were issued has been alleviated due to, but not limited to, (i) ~~access to future capital commitments, (ii) continued~~expected long-term sales growth from the Company’s consolidated operations, ~~(iii)~~(ii) latitude as to the timing and amount of certain operating expenses as well as capital expenditures, ~~(iv) restructuring~~(iii) expense reduction plans that have already been put in place to improve the Company’s ~~profitability, (v)~~results, (iv) the ~~AFC-VRT~~prime rate credit facilities (refer to Notes 10 and 17 for further discussion), (v) proceeds from the sale (with recourse) of certain Employee Retention Tax Credits receivable subsequent to March 31, 2023 and (vi) access to the U.S. and Canadian public equity markets.

If the Company is unable to raise additional capital whenever necessary, it may be forced to decelerate or curtail its footprint build-out or other operational activities until such time as additional capital becomes available. Such limitation of the Company’s activities would allow it to slow its rate of spending and extend its use of cash until additional capital is raised. However, management cannot provide any assurances that the Company will be successful in accomplishing any of its plans. Management also cannot provide any assurance as to unforeseen circumstances that could occur at any time within the next twelve months or thereafter which could increase the Company’s need to raise additional capital on an immediate basis.

~~F-9~~


~~ACREAGE HOLDINGS, INC.~~
~~NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~
~~(in thousands, except per share data)~~

These interim unaudited condensed consolidated financial statements and notes thereto should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2021,~~2022, dated ~~March 11, 2022,~~May 1, 2023, as filed with the Securities and Exchange Commission (the ~~“2021~~“2022 Form 10-K”).


ACREAGE HOLDINGS, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data)

Use of estimates

~~The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”).~~ Preparation of financial statements in conformity with GAAP requires management to make estimates, judgments and assumptions that affect the reported amounts of assets and liabilities as of the dates presented and the reported amounts of revenues and expenses during the periods presented. Actual results could differ from those estimates. Significant estimates inherent in the preparation of the accompanying unaudited condensed consolidated financial statements include the fair value of assets acquired and liabilities assumed in business combinations, assumptions relating to equity-based compensation expense, estimated useful lives for property, plant and equipment and intangible assets, the valuation allowance against deferred tax assets and the assessment of potential charges on goodwill, intangible assets and investments in equity and notes receivable.

Emerging growth company

The Company is an “emerging growth company” as defined in the Jumpstart Our Business Startups Act (the “JOBS Act”). Under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards until such time as those standards apply to private companies.

Functional and presentation currency

The unaudited condensed consolidated financial statements and the accompanying notes are expressed in U.S. dollars. Financial metrics are presented in thousands. Other metrics, such as shares outstanding, are presented in thousands unless otherwise noted.

Basis of consolidation

The Company’s unaudited condensed consolidated financial statements include the accounts of Acreage, its subsidiaries and variable interest entities (“VIEs”) where the Company is considered the primary beneficiary, if any, after elimination of intercompany accounts and transactions. Investments in business entities in which Acreage lacks control but is able to exercise significant influence over operating and financial policies are accounted for using the equity method. The Company’s proportionate share of net income or loss of the entity is recorded in ~~Income (loss)~~Loss from investments, net in the Unaudited Condensed Consolidated Statements of Operations.

~~VIEs~~

In determining whether the Company is the primary beneficiary of a VIE, the Company assesses whether it has the power to direct matters that most significantly impact the activities of the VIE and have the obligation to absorb losses or the right to receive benefits from the VIE that could potentially be significant to the VIE. There were no material consolidated VIEs as of September 30, 2022 or December 31, 2021.

Non-controlling interests (“NCI”)

Non-controlling interests represent ownership interests in consolidated subsidiaries by parties that are not shareholders of Pubco. They are shown as a component of Total equity in the Unaudited Condensed Consolidated Statements of Financial Position, and the share of loss attributable to non-controlling interests is shown as a component of Net loss in the Unaudited Condensed Consolidated Statements of Operations. Changes in the parent company’s ownership that do not result in a loss of control are accounted for as equity transactions.

~~Restricted~~Cash and cash equivalents

~~Restricted~~The Company defines cash ~~represents funds contractually~~equivalents as highly liquid investments held for ~~specific purposes~~the purpose of meeting short-term cash commitments that are readily convertible into known amounts of cash, with original maturities of three months or less. The Company maintains cash with various U.S. banks and ascredit unions with balances in excess of the Federal Deposit Insurance Corporation and National Credit Union Share Insurance Fund limits, respectively. The failure of a bank or credit union where the Company has significant deposits could result in a loss of a portion of such ~~not available for general corporate purposes.~~cash balances in excess of the insured limit, which could materially and adversely affect the Company’s business, financial condition, results of operations and the market price of the Company’s Fixed Shares and Floating Shares.

~~F-10~~3


ACREAGE HOLDINGS, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data)

Cash and restricted cash, as presented on the Unaudited Condensed Consolidated Statements of Cash Flows, consists of $26,476 and $95 as of September 30, 2022, respectively, and $27,868 and $1,098 as of September 30, 2021, respectively.

~~Accounts receivable valuations and reclassifications~~

Accounts receivable ~~are stated~~and notes receivable valuations

The Company reports accounts receivable at their net realizable ~~value. The allowance against gross trade receivables reflects the~~value, which is management’s best estimate of ~~probable~~the cash that will ultimately be received from customers. The Company's notes receivable represent notes due from various third parties. The Company maintains an allowance for expected credit losses ~~inherent~~to reflect the expected uncollectability of accounts receivable and notes receivable based on historical collection data and specific risks identified among uncollected accounts, as well as management’s expectation of future economic conditions. The Company also considers relevant qualitative and quantitative factors to assess whether historical loss experience should be adjusted to better reflect the risk characteristics of the companies receivables and the expected future losses. If current or expected future economic trends, events, or changes in circumstances indicate that specific receivable balances may be impaired, further consideration is given to the ~~receivables portfolio determined on~~collectability of those balances and the ~~basis of historical experience, specific allowances for known troubled~~allowance is adjusted accordingly. Trade accounts receivable and ~~other currently available information.~~notes receivable are written off after exhaustive collection efforts occur and the receivable is deemed uncollectible. As of ~~September 30, 2022 and December~~March 31, ~~2021,~~2023, the ~~Company’s~~ allowance for ~~doubtful~~credit losses over accounts receivable and notes receivable was ~~$63~~$1,081 and ~~$445,~~$19, respectively.

~~Income taxes~~

~~The Company has unrecognized tax benefits (“UTBs”) of $6,161 and $7,695 as of September 30, 2022 and December 31, 2021, respectively, which are included in~~ ~~Other current liabilities~~ in the Consolidated Statements of Financial Position. UTBs arise as a result of differences existing between a tax position taken or expected to be taken on a tax return and the benefit recognized and measured.

Net loss per share

Net loss per share represents the net loss attributable to shareholders divided by the weighted average number of shares outstanding during the period on an as converted basis. Basic and diluted loss per share are the same as of ~~September 30,~~March 31, 2023, 2022 ~~2021~~ and ~~2020,~~2021, as the issuance of shares upon conversion, exercise or vesting of outstanding units would be anti-dilutive in each period. There were ~~47,999~~42,869 and ~~42,621~~39,522 anti-dilutive shares outstanding as of ~~September 30,~~March 31, 2023 and 2022, ~~and 2021,~~ respectively.

~~Change in presentation~~

Note that certain items presented on the nine months ended September 30, 2021, Unaudited Condensed Consolidated Statement of Cash Flows, includes a change in presentation to conform to the current year presentation. There was no impact to our Consolidated Financial Statements as a result of this reclassification.

Accounting Pronouncements Recently Adopted

As of January 1, ~~2022,~~2023, the Company adopted ~~ASU 2019-12 -~~ ~~Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes (ASU 2019-12)~~. ASU 2019-12 attempts to simplify aspects of accounting for franchise taxes and enacted changes in tax laws or rates and clarifies the accounting for transactions that result in a step-up in the tax basis of goodwill. The adoption of ASU 2019-12 did not have a material effect on the Company’s unaudited condensed consolidated financial statements.

~~As of January 1, 2022, the Company adopted ASU 2020-01 -~~ ~~Investments-Equity Securities (Topic 321), Investments-Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815)~~. The new standard clarifies the interaction of accounting for the transition into and out of the equity method. The new standard also clarifies the accounting for measuring certain purchased options and forward contracts to acquire investments. The adoption of ASU 2020-01 did not have a material effect on the Company’s unaudited condensed consolidated financial statements.

~~As of January 1, 2022, the Company adopted ASU 2021-04 -~~ Earnings Per Share (Topic 260), Debt - Modifications and Extinguishments (Topic 470-50), Compensation - Stock Compensation (Topic 718), and Derivatives and Hedging - Contracts in Entity's Own Equity (Subtopic 815-40), which clarifies existing guidance for freestanding written call options which are equity classified and remain so after they are modified or exchanged in order to reduce diversity in practice. The standard applies prospectively to modifications or exchanges that occur after it is adopted. The adoption of ASU 2021-04 did not have a material effect on the Company’s unaudited condensed consolidated financial statements.

~~Accounting Pronouncements Not Yet Adopted~~

~~In June 2016, the FASB issued~~ ASU 2016-13 - Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”), which was subsequently revised by ASU 2018-19 and ASU 2020-02. This standard applies to financial assets, measured at amortized cost, including loans, held-to-maturity debt securities, net investments in leases and trade accounts receivable. The guidance must be adopted using a modified retrospective transition method through a cumulative-effect adjustment to retained earnings in the period of adoption. The adoption of ASU ~~introduces~~2016-13 did not have a ~~new model for assessing impairment~~material effect on most financial assets. Entities will be required to use a forward-looking expected loss model, which will replace the current incurred loss model, which will result in earlier recognition of allowance for losses. The ASU will be effective for the Company’s ~~first interim period of fiscal 2023. The Company continues to evaluate the impact of this ASU on its~~ unaudited condensed consolidated financial statements.

~~F-11~~


~~ACREAGE HOLDINGS, INC.~~
~~NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~
~~(in thousands, except per share data)~~

Accounting Pronouncements Not Yet Adopted

In October 2021, the FASB issued ASU 2021-08 - Business Combinations (Topic 805), Accounting for Contract Assets and Contract Liabilities from Contracts with Customers. The new standard improves the accounting for acquired revenue contracts with customers in a business combination by addressing diversity in practice and inconsistency. The new standard requires an entity to recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with ASC 606 - Revenue from Contracts with Customers. The ASU will be effective for the Company’s first interim period of fiscal 2024. The standard should be applied prospectively to business combinations occurring on or after the effective date of the amendments. The Company does not anticipate a material impact on the Company’s unaudited condensed consolidated financial statements upon adoption.

~~3. ACQUISITIONS, DIVESTITURES AND ASSETS HELD FOR SALE~~

~~Acquisitions~~

During the nine-month period ended September 30, 2022, the Company did not complete any business acquisitions. During the year ended December 31, 2021, the Company completed the following business acquisitions, and has allocated the purchase price as follows:

Purchase Price Allocation Greenleaf CWG Total
Assets acquired:
Cash and cash equivalents $ 1,209 $ 828 $ 2,037
Inventory 2,692 1,200 3,892
Other current assets 1,520 347 1,867
Capital assets, net 22,923 3,312 26,235
Operating lease right-of-use asset 2,819 1,584 4,403
Goodwill 1,819 1,482 3,301
Intangible assets, net - cannabis licenses 16,800 3,200 20,000
Intangible assets, net - customer relationships — 1,000 1,000
Other non-current assets 189 40 229
Liabilities assumed:
Accounts payable and accrued liabilities (1,829) (464) (2,293)
Taxes payable (33) (68) (101)
Operating lease liability, current (315) (193) (508)
Other current liabilities (294) 3 (291)
Operating lease liability, non-current (2,504) (1,391) (3,895)
Fair value of net assets acquired $ 44,996 $ 10,880 $ 55,876
Consideration paid:
Settlement of pre-existing relationship 44,996 10,880 $ 55,876
Total consideration $ 44,996 $ 10,880 $ 55,876

~~Greenleaf~~

On October 1, 2021, a subsidiary of the Company acquired of 100% of Greenleaf Apothecaries, Greenleaf Gardens, and Greenleaf Therapeutics, collectively known as “Greenleaf.” Greenleaf consists of cannabis cultivation, processing, and dispensary operations in the state of Ohio. The completion of this acquisition established Acreage’s footprint in the Ohio cannabis market.

~~F-12~~


ACREAGE HOLDINGS, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data)

3. ACQUISITIONS, DIVESTITURES AND ASSETS HELD FOR SALE

Acquisitions

On ~~July~~January 2, 2018, the Company entered into purchase agreements for Greenleaf for the total purchase price of approximately $8,245 in cash, $6,096 in seller notes payable and 1.2 million shares of HSCP with an average fair value of $7.73 per share, which are convertible into shares of the Company. In addition, the Company extended a $31,200 line of credit and issued $12,500 in promissory notes to the Greenleaf entities. The consideration paid was made in exchange for: (a) the rights to acquire the Greenleaf entities upon state regulatory approval and; (b) master services agreements (“MSAs”) to operate the entities until such approval was granted and ownership interests were transferred. The purchase consideration paid represents the fair value of the intangible asset related to the MSA that was recorded on the Company’s Statement of Financial Position at the time of the transaction. The intangible asset was amortized over the life of the MSAs.

Upon closing, the Company repaid the remaining $3,300 worth of sellers notes payable and accrued interest and assumed $42,043 in notes and interest receivable owed to the Company by Greenleaf that was eliminated upon consolidation. Total consideration for the asset transfer transaction was $44,996, representing the sum of the $2,953 carrying value of intangible assets from the 2018 transaction and the liabilities assumed. As the Company owns 100% of Greenleaf, the subsidiary is accounted for on a consolidated basis as of the closing date.

~~The purchase price allocation is based upon final valuations within the measurement period (generally one year from the acquisition date)~~

~~CWG~~

~~On April 30, 2021,~~2023, a subsidiary of the Company acquired ~~100% of CWG Botanicals, Inc. (“CWG”), an adult-use cannabis~~ cultivation, processing and ~~processing~~retail operations in Maine from a third party who provided cultivation, manufacturing, processing, distribution and handling, recordkeeping, compliance, and other services to the ~~state~~Company’s operations in Maine. Under the terms of ~~California.~~

~~The~~the agreement, the consideration paid ~~for CWG~~ consisted of the settlement of a pre-existing relationship, which included a ~~line of~~line-of credit, ~~of $9,321~~other advances and the related interest receivable, ~~of $1,559,~~all totaling $27,691, which were ~~both~~ previously recorded in Notes receivable, ~~non-current~~net on the Statements of Financial Position.

The purchase price allocation is based upon ~~final~~preliminary valuations and estimates and assumptions which are subject to change within the measurement period, ~~(generally~~generally one year from the acquisition ~~date).~~

~~NCCRE~~

~~On March 19, 2021, a subsidiary~~date. The primary areas of the Company, HSC Solutions, LLC entered into an assignment of membership agreement to acquire the remaining non-controlling interests of its subsidiary, NCC Real Estate, LLC (“NCCRE”), based primarily on the fair value of property held by NCCRE estimated in the amount of $850. The consideration paidpurchase price allocation that are not yet finalized relate to the ~~non-controlling interest sellers of $286 was recorded in~~ ~~Additional paid-in capital~~ ~~and~~ ~~Non-controlling interests~~ ~~on the Statements of Financial Position. Additionally, the Company subsequently repaid the outstanding principal balance~~valuation of the ~~NCCRE secured loan.~~

~~Divestitures~~

~~In February 2021, a subsidiary of the Company entered into a definitive agreement~~capital assets, tangible and management services agreement to sell an indoor cultivation facility in Medford, Oregon ("Medford"), and a retail dispensary in Powell, Oregon ("Powell"), for total consideration of $3,000. In March 2022, the total consideration was reduced to $2,000. In April 2022, the Company sold all equity interests in Medford for an aggregate sale price of $2,000 and recognized a gain on sale of $290 for the nine months ended September 30, 2022 which was recorded in Other income, net in the Unaudited Condensed Consolidated Statements of Operations. The aggregate sales price consisted of $750 paid to the Company in February 2021 and $1,250 of promissory notes (refer to Note 6 for further discussion). In conjunction with the sale, the Company closed its dispensary in Powell. Further, the Company derecognized deferred tax liabilities of $375 related to Medford.

In September 2021, a subsidiary of the Company entered into a definitive agreement and management services agreements to sell, upon regulatory approval, four retail dispensaries in Oregon for total consideration of $6,500. In July 2022, the Company executed and closed an amendment to its previously announced asset purchase and services agreement for the sale of its four Oregon retail dispensaries (the “Amended Agreement”). Under the terms of the Amended Agreement, the sale price was reduced to $6,200intangible assets acquired and the ~~Company recognized a gain on sale of $3,189 for~~residual goodwill resulting from the nine months ended September 30, 2022 which was recorded in Other income, net in the Unaudited Condensed Consolidated Statements of Operations. The aggregate sales price consisted of a $250 payment previously made at the signing of the Original Agreement, plus an additional $100 in cash at closing. The remaining amount of $5,850 has been satisfied by a 36-month secured promissory note bearing interest at a rate of 12% per annum (the “Note”). Under the terms of the Note, quarterly interest payments commence on January 1, 2023, principal payments of $1,000 are due on January 1, 2024 and January 1, 2025, and the remaining principal is due on January 1, 2026.

~~F-13~~

transaction.


~~ACREAGE HOLDINGS, INC.~~
~~NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~
~~(in thousands, except per share data)~~Purchase Price Allocation	Northeast Patients Group
Assets acquired:
Cash and cash equivalents	$	516
Inventory	384
Other current assets	5,580
Capital assets	2,404
Operating lease right-of-use asset	1,695
Goodwill	24,933



Liabilities assumed:
Accounts payable and accrued liabilities	(3,679)
Taxes payable	(1,112)
Operating lease liability, current	(160)

Operating lease liability, non-current	(1,844)
Notes payable	(11)
Deferred tax liability	(1,015)
Fair value of net assets acquired	$	27,691

Consideration paid:
Settlement of pre-existing relationship	27,691
Total consideration	$	27,691

During the ~~nine~~year ended December 31, 2022, the Company did not complete any business acquisitions.

Divestitures

During the three months ended ~~September 30, 2021, a subsidiary of~~March 31, 2023 and 2022, the Company sold all equity interests in Acreage Florida, Inc. (“Acreage Florida”), for an aggregate sale price of $60,000. Acreage Florida is licensed to operate medical cannabis dispensaries, a processing facility and a cultivation facility in the state of Florida. The aggregate sales price consisted of approximately $21,500 in cash, $7,000 of the buyer’s common stock, subject to a rolling lock up restriction period ending one year after the disposition date, with the lock up expiring in monthly 1/6th ~~increments beginning October 27, 2021, and secured promissory notes totaling approximately $31,500. This resulted in a gain on sale of $11,682 recorded in~~ ~~Other income, net~~ on the Consolidated Statements of Operations for the nine months ended September 30, 2021. The Company subsequently sold the promissory notes and recognized a net loss of $2,000 as discussed in Note 6. Further, the Company de-recognized deferred tax liabilities related to indefinite-lived intangible lived assets held by Acreage Florida of $6,044 as a result of the disposition in ~~Other income, net~~ ~~on the Unaudited Condensed Consolidated Statements of Operations for the nine months ended September 30, 2021.~~did not complete any divestitures.

Assets Held for Sale

As of ~~September 30,~~March 31, 2023 and December 31, 2022, the Company did not have any business or assets that met the held-for-sale criteria. As of December 31, 2021 the Company determined certain businesses and assets met the held-for-sale criteria. As such, the related assets and liabilities within these disposal groups were transferred into Assets held-for-sale and Liabilities related to assets held for sale on the Unaudited Condensed Consolidated Statements of Financial Position.

During the ~~nine~~three months ended ~~September 30,~~March 31, 2022, the Company tested each disposal group for impairment and recognized charges of $874 within Write down (recovery) of assets held-for-sale on the Unaudited Condensed Consolidated Statements of Operations related to Medford and Powell. During the nine months ended September 30, 2021, the Company recognized a ~~recovery~~write down of assets held-for-sale of ~~$8,616~~$874 related to ~~the Acreage Florida disposal group~~its Oregon operations within Write down (recovery) of assets held-for-sale on the Unaudited Condensed Consolidated Statements of Operations.

The table below presents the assets and liabilities classified as held for sale on the Unaudited Condensed Consolidated Statements of Financial Position for the year ended December 31, 2021 and is subject to change based on developments during the sales process.

December 31, 2021
Michigan(1)
Oregon Total
Cash $ — $ 223 $ 223
Inventory — 445 445
Notes receivable, current — 31 31
Other current assets — 9 9
Total current assets classified as held-for-sale — 708 708
Capital assets, net 1,907 2,342 4,249
Operating lease right-of-use assets — 1,695 1,695
Goodwill — 2,191 2,191
Non-current assets — 109 109
Total assets classified as held for sale $ 1,907 $ 7,045 $ 8,952
Accounts payable and accrued liabilities $ — $ (639) $ (639)
Operating lease liability, current — (441) (441)
Total current liabilities classified as held-for-sale — (1,080) (1,080)
Operating lease liability, non-current — (787) (787)
Total liabilities classified as held-for-sale $ — $ (1,867) $ (1,867)

~~(1)~~ During the nine months ended September 30, 2022, the Company was unsuccessful in finding a satisfactory buyer for certain of its Michigan locations. As a result, the assets at these specific locations no longer meet the criteria for being classified as held-for-sale (refer to Note 7 for further discussion).

~~F-14~~5


ACREAGE HOLDINGS, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data)

4. INTANGIBLE ASSETS AND GOODWILL

Intangible assets

The following table details the intangible asset balances by major asset classes:

Intangibles September 30, 2022 December 31, 2021
Finite-lived intangible assets:
Management contracts $ 1,808 $ 1,511
Customer relationships 1,000 1,000
Total finite-lived intangible assets 2,808 2,511
Accumulated amortization on finite-lived intangible assets:
Management contracts (931) (493)
Customer relationships (850) —
Total accumulated amortization on finite-lived intangible assets (1,781) (493)
Finite-lived intangible assets, net 1,027 2,018
Indefinite-lived intangible assets
Cannabis licenses 134,780 117,677
Total intangibles, net $ 135,807 $ 119,695

The intangible assets balance as of December 31, 2021 excludes intangible assets reclassified to assets held-for-sale (refer to Note 3 for further discussion). The average useful life of finite-lived intangible assets as of September 30, 2022 ranges from 0.3 to 1.5 years, with 0.3 and 1.5 years being the average useful life for customer relationships and management contracts, respectively.


Intangibles	March 31, 2023		December 31, 2022
Finite-lived intangible assets:

Customer relationships	1,000		1,000

Total finite-lived intangible assets	1,000		1,000
Accumulated amortization on finite-lived intangible assets:

Customer relationships	(1,000)		(1,000)

Total accumulated amortization on finite-lived intangible assets	(1,000)		(1,000)
Finite-lived intangible assets, net	—		—

Indefinite-lived intangible assets
Cannabis licenses	35,124		35,124

Total intangibles, net	$	35,124	$	35,124

During the ~~three and nine months~~year ended ~~September 30,~~December 31, 2022, the Company amended the purchase price allocation related to its acquisition of ~~Greenleaf~~certain Ohio operations based upon final valuations within the measurement ~~period (refer to Note 3 for further discussion).~~period. As a result, ~~$16,800~~$17,000 was re-allocated from Goodwill to Intangible assets, net on the Unaudited Condensed Consolidated Statements of Financial Position.

~~Impairment of intangible assets~~

~~The Company assessed whether any events or changes in circumstances ("triggering events") indicated finite-lived intangible assets to be held-and-used would not be recovered. During~~There was no amortization expense recorded for the three ~~and nine~~ months ended September 30, 2022, the Company did not identify any triggering events. During the nine months ended September 30, 2021, the Company identified a triggering event for its management contract owned by Prime Alternative Treatment Center Consulting, LLC ("PATCC"). The Company evaluated the recoverability of the asset by comparing the carrying value of the asset to the future net undiscounted cash flows expected to be generated by the asset. The carrying value was determined to not be recoverable and the Company proceeded to test the asset for impairment. The Company recognized an impairment charge of $818 due to changes in expected cash flows pursuant to a revised consulting services agreement. These charges are recognized in ~~Impairments, net~~ on the Unaudited Condensed Consolidated Statements of Operations. The impairment resulted in the recognition of a tax provision benefit and an associated reversal of deferred tax liabilities of $207 during the nine months ended September 30, 2021.

During the three and nine months ended September 30, 2021, the Company de-recognized deferred tax liabilities related to indefinite-lived intangible assets held by Acreage Florida of $6,044 in Other income (loss), net on the Unaudited Condensed Consolidated Statements of Operations. Refer to Note 3 for further discussion.

March 31, 2023. Amortization expense associated with the Company’s intangible assets was ~~$296 and $1,288~~$696 for the three ~~and nine~~ months ended ~~September 30, 2022, respectively, and $3,117 and $7,588 for the three and nine months ended September 30, 2021, respectively.~~

~~F-15~~


~~ACREAGE HOLDINGS, INC.~~
~~NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~
~~(in thousands, except per share data)~~

~~Expected annual amortization expense for existing intangible assets subject to amortization as of September 30, 2022 is as follows for each of the next five fiscal years:~~

Amortization of Intangibles 2022 2023 2024 2025 2026
Amortization expense $ 297 $ 584 $ 146 $ — $ —
March 31, 2022.

Goodwill

The following table details the changes in the carrying amount of goodwill:


Goodwill	Total
December 31, ~~2021~~2022	$	~~43,310~~13,761
~~Adjustment to purchase price allocation~~Acquisitions	~~(16,500)~~24,933

~~Other Adjustments(1)~~	~~3,682~~
~~September 30, 2022~~March 31, 2023	$	~~30,492~~38,694

~~(1)~~ ~~Represents adjustments related to the remeasurement of certain deferred tax assets and related adjustments within the measurement period.~~

During the three ~~and nine~~ months ended ~~September 30, 2022,~~March 31, 2023, the Company ~~amended~~recognized $24,933 of goodwill based on the preliminary purchase price allocation related to ~~its~~the acquisition of ~~Greenleaf based upon final valuations within the measurement period (refer~~Northeast Patients Group. Refer to Note 3 for further ~~discussion). As a result, $16,800 was re-allocated from~~ ~~Goodwill~~ to ~~Intangible assets, net~~ ~~on the Unaudited Condensed Consolidated Statements of Financial Position.~~

discussion.

5. INVESTMENTS

The carrying values of the Company’s investments in the Unaudited Condensed Consolidated Statements of Financial Position as of ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021~~2022 are as follows:

Investments September 30, 2022 December 31, 2021
Investments held at FV-NI $ 34,328 $ 35,226
Total long-term investments $ 34,328 $ 35,226

~~Income (loss) from investments, net~~ ~~in the Unaudited Condensed Consolidated Statements of Operations during the three and nine months ended September 30, 2022 and 2021 is as follows:~~

Investment income (loss) Three Months Ended September 30, Nine Months Ended September 30,
2022 2021 2022 2021
Short-term investments $ 1 $ — $ 4 $ —
Investments held at FV-NI 16 489 150 (777)
Income (loss) from investments, net $ 17 $ 489 $ 154 $ (777)


Investments	March 31, 2023		December 31, 2022


Investments held at FV-NI	$	33,293	$	34,046

Total long-term investments	$	33,293	$	34,046

~~F-16~~6


ACREAGE HOLDINGS, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data)

Loss from investments, net in the Unaudited Condensed Consolidated Statements of Operations during the three months ended March 31, 2023 and 2022 is as follows:


Investment income (loss)	Three Months Ended March 31,
		2023		2022
Short-term investments		$	7	$	1

Investments held at FV-NI		(349)		1,132


Income (loss) from investments, net		$	(342)	$	1,133

Investments held at FV-NI

The Company has investments in equity of ~~several~~other companies that do not result in significant influence or control. These investments are carried at fair value, with gains and losses recognized in the Unaudited Condensed Consolidated Statements of Operations.

As further described under the “6.10% Secured debenture due September 2030” in Note 10, on September 23, 2020, a subsidiary of the Company, Universal Hemp, LLC ("Universal Hemp") was advanced gross proceeds of $50,000 (less transaction costs) pursuant to the terms of a secured debenture. The Company subsequently engaged an investment advisor, which under the investment advisor's sole discretion, on September 28, 2020 invested $34,019 of these proceeds on behalf of Universal Hemp. As a result, Universal Hemp acquired 34,019 class B units, at $1 par value per unit, which represented 100% financial interest in an Investment Partnership, a Canada-based limited partnership. An affiliate of the ~~Institutional Investor~~institutional investor holds Class A units of the Investment Partnership. The general partner of the Investment Partnership is also an affiliate of the Institutional Investor. The Class B units are held by the Investment Advisor as an agent for Universal Hemp.

Universal Hemp, through its investment with the Investment Advisor, was originally determined to hold significant influence in the Investment Partnership in accordance with ASC 810 due to (1) the economic financial interest, and (2) the entitlement to matters as they pertain to ‘Extraordinary Resolution’ items as defined within the Investment Partnership Agreement. As a result, the Company accounted for the investment in the Investment Partnership under the equity method until December 2020. Refer to Note 10 for further discussion. In December 2020, the Company no longer held significant influence due to the removal of the Extraordinary Resolution entitlements and other revisions in the Investment Partnership Agreement. As a result, the Company changed its accounting for the Investment Partnership to recognize the investment at fair value, with gains and losses recognized in the Unaudited Condensed Consolidated Statements of Operations.

6. NOTES RECEIVABLE, NET

Notes receivable as of ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021~~2022 consisted of the following:


		September 30, 2022		December 31, 2021			March 31, 2023		December 31, 2022
Promissory notes receivable	Promissory notes receivable	$	34,257	$	27,260	Promissory notes receivable	$	9,211	$	34,088
Line of credit receivable	Line of credit receivable	6,831		12,609		Line of credit receivable	4,331		5,831
Interest receivable	Interest receivable	3,524		2,834		Interest receivable	3,193		4,147
Allowance for notes and interest receivables		(14,769)		(8,036)
Allowance for notes and interest receivable						Allowance for notes and interest receivable	(15,246)		(14,875)
Total notes receivable	Total notes receivable	$	29,843	$	34,667	Total notes receivable	$	1,489	$	29,191
Less: Notes receivable, current	Less: Notes receivable, current	2,500		7,104		Less: Notes receivable, current	1,489		29,191
Notes receivable, non-current	Notes receivable, non-current	$	27,343	$	27,563	Notes receivable, non-current	$	—	$	—

Interest income on notes receivable during the three ~~and nine~~ months ended ~~September 30,~~March 31, 2023 and December 31, 2022 was ~~$474~~$16 and ~~$1,256, respectively,~~$417, respectively.

At each reporting date, the Company applies its judgment to evaluate the collectability of the note receivable and ~~$1,067~~makes a provision based on the assessed amount of expected credit loss. This judgment is based on parameters such as interest rates, market conditions and ~~$4,125 for~~creditworthiness of the ~~three and nine months ended September 30, 2021, respectively.~~creditor.


ACREAGE HOLDINGS, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data)

The Company determined that the collectability of certain notes receivables is doubtful based on information available. As of ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021,~~2022, the Company’s allowance for notes receivable of ~~$14,769~~$15,246 and ~~$8,036,~~$14,875, respectively, included ~~$12,292~~$12,060 and ~~$6,046~~$12,041 of principal outstanding and ~~$2,477~~$3,186 and ~~$1,990~~$2,834 of accrued interest, respectively, and represents the full value of such loan balances.

Activity during the ~~nine~~three months ended ~~September 30,~~March 31, 2023

In January 2023, the Company received a $250 cash payment in full on a promissory note receivable.

In January 2023, a subsidiary of the Company acquired cultivation, processing and retail operations in Maine from a third party who provided cultivation, manufacturing, processing, distribution and handling, recordkeeping, compliance, and other services to the Company’s operations in Maine and the amounts outstanding under the promissory notes receivable were converted into equity in Northeast Patients Group. Refer to Note 3 for further discussion.

Activity during the three months ended March 31, 2022

In February 2022, the Company received a $5,279 cash payment in full on a line of credit due from Patient Centric Martha’s Vineyard, and subsequently closed the line of credit.

In April 2022, the Company executed and closed its previously announced asset purchase agreement for the sale of Medford and Powell in Oregon. Part of the total consideration was satisfied by a 12-month $1,250 secured promissory note bearing interest at a rate of 12.5% per annum, refer to Note 3 for further discussion. In August 2022, the secured promissory note was replaced with a $500 secured promissory note bearing interest at a rate of 12.5% per annum and a $750 non-interest bearing secured promissory note, with both secured promissory notes due on May 1, 2023.

In July 2022, the Company executed and closed an amendment to its previously announced asset purchase and services agreement for the sale of its four Oregon retail dispensaries (the “Amended Agreement”). Part of the total consideration was satisfied by a 36-month $5,850 secured promissory note bearing interest at a rate of 12% per annum, refer to Note 3 for further discussion.

~~Activity during the nine months ended September 30, 2021~~

In March 2021, the Company entered into a revised consulting services and line of credit agreement with PATCC, whereby previously unrecognized management fees were settled for $2,500, which was recognized in ~~Other revenue, net~~ ~~on Unaudited~~

~~F-17~~


~~ACREAGE HOLDINGS, INC.~~
~~NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~
~~(in thousands, except per share data)~~

Condensed Consolidated Statements of Operations during the three and nine months ended September 30, 2021. Pursuant to the revised line of credit agreement, the line of credit is non-interest bearing and will be repaid on a payment schedule with seven payments in the aggregate amount of $7,150 through June 2023.

In April 2021, the Company received three secured promissory notes in the aggregate amount of $31,500 related to the sale of Acreage Florida. Of the $31,500 in promissory notes, a promissory note for $3,500 was collected during the year ended December 31, 2021. In June 2021, the remaining two promissory notes totaling $28,000 were sold in a related party transaction to Viridescent Realty Trust, Inc. (“Viridescent”) for cash proceeds of $26,000. This sale resulted in a loss of $2,000 recorded in ~~Other income, net~~ ~~on the Unaudited Condensed Consolidated Statements of Operations. Refer to Notes 3 and 14 for further discussion.~~

~~In April 2021, a subsidiary of the Company acquired 100% of CWG, and the amounts outstanding under the line of credit were converted into equity in CWG. Refer to Note 3 for further discussion.~~

7. CAPITAL ASSETS, ~~net~~NET

Net property, plant and equipment consisted of:


		September 30, 2022		December 31, 2021			March 31, 2023		December 31, 2022
Land	Land	$	3,828	$	3,777	Land	$	9,843	$	9,605
Building	Building	57,935		43,921		Building	58,366		58,334
Right-of-use asset, finance leases	Right-of-use asset, finance leases	10,731		5,077		Right-of-use asset, finance leases	6,297		5,077
Furniture, fixtures and equipment	Furniture, fixtures and equipment	31,587		31,325		Furniture, fixtures and equipment	40,381		46,811
Leasehold improvements	Leasehold improvements	37,399		51,646		Leasehold improvements	51,655		6,178
Construction in progress	Construction in progress	17,409		7,644		Construction in progress	7,729		34,435
Capital assets, gross	Capital assets, gross	$	158,889	$	143,390	Capital assets, gross	$	174,271	$	160,440
Less: accumulated depreciation		(23,527)		(16,593)
Less: accumulated depreciation and amortization						Less: accumulated depreciation and amortization	(38,646)		(27,035)
Capital assets, net	Capital assets, net	$	135,362	$	126,797	Capital assets, net	$	135,625	$	133,405

Depreciation and amortization of capital assets for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2023 and 2022 ~~is comprised of $751~~includes $997 and ~~$4,731~~$1,111 of depreciation and amortization expense, and ~~$1,963~~$2,287 and ~~$5,679~~$1,922 that was capitalized to inventory, ~~respectively, and $928 and $2,083 of depreciation expense and $876 and $2,567 that was capitalized to inventory for the three and nine months ended September 30, 2021,~~ respectively.

During the ~~nine~~three months ended ~~September 30,~~March 31, 2022, the Company determined that it was unable to find a satisfactory buyer for the held-for-sale assets related to its Michigan operations and, as such, these assets were reclassified as held-and-used. This conclusion was considered a triggering event for capital asset impairment testing. Upon assessment, these specific capital assets were not considered to have future economic value. As such, the fair value of the assets was considered to be nil and the Company recognized an impairment charge of $1,907 within Impairments, net on the Statements of Operations during the ~~nine months ended September 30, 2022. Refer to Note 3 for further discussion on changes in held-for-sale entities.~~

In August 2021, the Company’s Sewell facility in New Jersey was negatively impacted by a tornado formation from Hurricane Ida. The unusually severe weather conditions caused widespread damage and resulted in a $9,130 loss to capital assets, which has been offset by insurance proceeds of $7,000. The net loss of $2,130 was recognized in ~~Impairments, net~~ ~~on the Statements of Operations for the~~ three months ended ~~September 30, 2021.~~March 31, 2022.

~~F-18~~8


ACREAGE HOLDINGS, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data)

8. LEASES

The Company leases land, buildings, equipment and other capital assets which it plans to use for corporate purposes in addition to the production and sale of cannabis products. Leases with an initial term of 12 months or less are not recorded on the Unaudited Condensed Consolidated Statements of Financial Position and are expensed in the Unaudited Condensed Consolidated Statements of Operations on the straight-line basis over the lease term. The Company does not have any material variable lease payments and accounts for non-lease components separately from leases.


Balance Sheet Information	Balance Sheet Information	Classification	September 30, 2022		December 31, 2021		Balance Sheet Information	Classification	March 31, 2023		December 31, 2022
Right-of-use assets	Right-of-use assets						Right-of-use assets
Operating	Operating	Operating lease right-of-use assets	$	22,730	$	24,598	Operating	Operating lease right-of-use assets	$	20,842	$	22,443
Finance	Finance	Capital assets, net	9,986		4,522		Finance	Capital assets, net	4,782		4,269
Total right-of-use assets	Total right-of-use assets		$	32,716	$	29,120	Total right-of-use assets		$	25,624	$	26,712

Lease liabilities	Lease liabilities						Lease liabilities
Current	Current						Current
Operating	Operating	Operating lease liability, current	$	2,298	$	2,145	Operating	Operating lease liability, current	$	2,529	$	2,443
Financing	Financing	Debt, current	5,635		—		Financing	Debt, current	105		1
Non-current	Non-current						Non-current
Operating	Operating	Operating lease liability, non-current	22,324		24,255		Operating	Operating lease liability, non-current	20,293		21,692
Financing	Financing	Debt, non-current	5,290		5,245		Financing	Debt, non-current	5,877		5,305
Total lease liabilities	Total lease liabilities		$	35,547	$	31,645	Total lease liabilities		$	28,804	$	29,441


			Three Months Ended September 30,				Nine Months Ended September 30,						Three Months Ended March 31,
Statement of Operations Information	Statement of Operations Information	Classification	2022		2021		2022		2021		Statement of Operations Information	Classification		2023		2022
Short-term lease expense	Short-term lease expense	General and administrative	$	(28)	$	(40)	$	190	$	17	Short-term lease expense	General and administrative		$	151	$	48

Operating lease expense	Operating lease expense	General and administrative	1,221		1,038		3,613		3,175		Operating lease expense	General and administrative		1,337		1,248
Finance lease expense:	Finance lease expense:										Finance lease expense:
Amortization of right of use asset	Amortization of right of use asset	Depreciation and amortization	63		63		190		190		Amortization of right of use asset	Depreciation and amortization		93		63
Interest expense on lease liabilities	Interest expense on lease liabilities	Interest expense	314		190		855		561		Interest expense on lease liabilities	Interest expense		209		212
Sublease income		Other income (loss), net	—		—		—		(3)

Net operating and finance lease cost	Net operating and finance lease cost		$	1,598	$	1,291	$	4,658	$	3,923	Net operating and finance lease cost			$	1,639	$	1,523


			Nine Months Ended September 30,						Three Months Ended March 31,
Statement of Cash Flows Information	Statement of Cash Flows Information	Classification	2022		2021		Statement of Cash Flows Information	Classification		2023		2022
Cash paid for operating leases	Cash paid for operating leases	Net cash used in operating activities	$	3,390	$	3,747	Cash paid for operating leases	Net cash used in operating activities		$	1,774	$	1,257
Cash paid for finance leases - interest	Cash paid for finance leases - interest	Net cash used in operating activities	$	843	$	508	Cash paid for finance leases - interest	Net cash used in operating activities		$	269	$	201

~~F-19~~9


ACREAGE HOLDINGS, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data)

The following represents the Company’s future minimum payments required under existing leases with initial terms of one year or more as of ~~September 30, 2022:~~March 31, 2023:


Maturity of lease liabilities	Maturity of lease liabilities	Operating Leases		Finance Leases		Maturity of lease liabilities	Operating Leases		Finance Leases
2022		$	1,147	$	5,858
2023	2023	4,349		722		2023	$	3,359	$	677
2024	2024	4,310		743		2024	4,522		923
2025	2025	4,347		766		2025	4,485		946
2026	2026	4,428		789		2026	4,551		969
2027						2027	4,037		992
Thereafter	Thereafter	20,285		12,487		Thereafter	13,267		11,705
Total lease payments	Total lease payments	$	38,866	$	21,365	Total lease payments	$	34,221	$	16,212
Less: interest	Less: interest	14,244		10,440		Less: interest	11,399		10,230
Present value of lease liabilities	Present value of lease liabilities	$	24,622	$	10,925	Present value of lease liabilities	$	22,822	$	5,982

Weighted average remaining lease term (years)	Weighted average remaining lease term (years)	8		2		Weighted average remaining lease term (years)	8		12
Weighted average discount rate	Weighted average discount rate	10%		12%		Weighted average discount rate	10%		12%

As of ~~September 30, 2022,~~March 31, 2023, there have been no leases entered into that have not yet commenced.

9. INVENTORY

The Company’s inventory balance consists of the following:


		September 30, 2022		December 31, 2021			March 31, 2023		December 31, 2022
Retail inventory	Retail inventory	$	4,116	$	3,331	Retail inventory	$	3,723	$	3,255
Wholesale inventory	Wholesale inventory	37,143		28,643		Wholesale inventory	40,832		35,885
Cultivation inventory	Cultivation inventory	6,492		6,367		Cultivation inventory	6,469		7,133
Supplies & other	Supplies & other	3,141		3,463		Supplies & other	2,587		3,173
Total	Total	$	50,892	$	41,804	Total	$	53,611	$	49,446

Inventory is valued at the lower of cost and net realizable value (“NRV”), defined as estimated selling price in the ordinary course of business, less estimated costs of disposal. During the ~~nine~~three months ended ~~September 30, 2022,~~March 31, 2023, the Company analyzed its inventory balances, and recorded wholesale inventory adjustments as a result of (i) having excess or obsolete inventory and (ii) reducing the carrying value to ensure inventory balances are properly recorded at the lower of cost and NRV. The Company recognized ~~$6,286~~$2,237 of wholesale inventory adjustments within Cost of goods sold, wholesale on the Statements of Operations during the three ~~and nine~~ months ended ~~September 30, 2022.~~March 31, 2023.

10. DEBT

The Company’s debt balances consist of the following:


Debt balances	Debt balances	September 30, 2022		December 31, 2021		Debt balances	March 31, 2023		December 31, 2022
Financing liability (failed sale-leaseback)	Financing liability (failed sale-leaseback)	$	15,253	$	15,253	Financing liability (failed sale-leaseback)	$	15,253	$	15,253
Finance lease liabilities	Finance lease liabilities	10,925		5,245		Finance lease liabilities	5,982		5,306
7.50% Loan due April 2026	7.50% Loan due April 2026	31,156		30,763		7.50% Loan due April 2026	31,418		31,288
6.10% Secured debenture due September 2030	6.10% Secured debenture due September 2030	46,388		46,050		6.10% Secured debenture due September 2030	46,614		46,502
Note due December 2024	Note due December 2024	3,958		4,750		Note due December 2024	3,167		3,167
9.75% Credit facilities due January 2026		94,412		68,673
Prime rate credit facilities due January 2026, as amended						Prime rate credit facilities due January 2026, as amended	114,503		113,564
Total debt	Total debt	$	202,092	$	170,734	Total debt	$	216,937	$	215,080
Less: current portion of debt	Less: current portion of debt	7,218		1,583		Less: current portion of debt	1,689		1,584
Total long-term debt	Total long-term debt	$	194,874	$	169,151	Total long-term debt	$	215,248	$	213,496

~~F-20~~10


ACREAGE HOLDINGS, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data)

Scheduled maturities of debt, excluding amortization of discount and issuance costs, are as follows:


2022		$	6,426
2023	2023	1,583		2023	$	1,583
2024	2024	1,584		2024	1,584
2025	2025	—		2025	—
2026	2026	133,011		2026	158,011
2027				2027	39
Thereafter	Thereafter	70,532		Thereafter	71,185
Total payments (excluding amortization of discount and issuance costs)	Total payments (excluding amortization of discount and issuance costs)	$	213,136	Total payments (excluding amortization of discount and issuance costs)	$	232,402

During the three ~~and nine~~ months ended ~~September 30,~~March 31, 2023 and 2022, the Company incurred interest expense of ~~$5,688~~$8,074 and ~~$15,989, respectively, and $3,620 and $14,072 during the three and nine months ended September 30, 2021,~~$4,781, respectively, on the Unaudited Condensed Consolidated Statements of Operations. Interest expense for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2023 and 2022, included debt discount amortization of ~~$381~~$488 and ~~$1,132,~~$373, respectively, and amortization of debt issuance costs of ~~$297~~$690 and $849, respectively. Interest expense for the three and nine months ended September 30, 2021 included debt discount amortization of $298 and $821, respectively, and amortization of debt issuance costs of $493 and $2,914,$266, respectively. As of ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021,~~2022, the Company had unamortized discount ~~$5,062~~$5,603 and ~~$6,194,~~$6,093, respectively, and debt issuance costs of ~~$5,982~~$9,862 and ~~$6,320,~~$10,552, respectively, which is netted against the gross carrying value of long-term debt in Debt, non-current on Unaudited Condensed ~~Unaudited Condensed~~ Consolidated Statements of Financial Position. Additionally, as of ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021,~~2022, the Company had accrued interest of ~~$1,167~~$1,803 and ~~$1,432,~~$2,575, respectively, within Interest payable on the Unaudited Condensed Consolidated Statements of Financial Position.

Financing liability (failed sales leaseback)

In connection with the Company’s failed sale-leaseback transaction in November 2020, a financing liability was recognized equal to the cash proceeds received. The Company will recognize the cash payments made on the lease as interest expense, and the principal will be de-recognized upon expiration of the lease.

6.10% Secured debenture due September 2030

On September 23, 2020, pursuant to the implementation of the Amended Arrangement (Refer to Note 13 for further discussion), a subsidiary of Canopy Growth advanced gross proceeds of $50,000 (less transaction costs of approximately $4,025) to Universal Hemp, an affiliate of the Company, pursuant to the terms of a secured debenture (“6.1% Loan”). In accordance with the terms of the debenture, the funds cannot be used, directly or indirectly, in connection with or for any cannabis or cannabis-related operations in the United States, unless and until such operations comply with all applicable laws of the United States. An additional $50,000 may be advanced pursuant to the debenture subject to the satisfaction of certain conditions by Universal Hemp. The debenture bears interest at a rate of 6.1% per annum, matures 10 years from the date hereof or such earlier date in accordance with the terms of the debenture and all interest payments made pursuant to the debenture are payable in cash by Universal Hemp. The debenture is secured by substantially all of the assets of Universal Hemp and its subsidiaries and, further, is not convertible and is not guaranteed by Acreage.

With a portion of the proceeds for the 6.1% Loan received by Universal Hemp, Acreage engaged an Investment Advisor which, under the Investment Advisor’s sole discretion, invested on behalf of Universal Hemp $34,019 on September 28, 2020. As a result, Universal Hemp acquired 34,019 class B units, at $1.00 par value per unit, which represented 100% financial interest in the Investment Partnership, a Canada-based limited partnership. An affiliate of the Institutional Investor holds class A units of the Investment Partnership. The general partner of the Investment Partnership is also an affiliate of the Institutional Investor. The class B units are held by the Investment Advisor as an agent for Universal Hemp. Upon execution of the limited partnership agreement, $1,019 was distributed to the class A unit holders of the Investment Partnership.

~~F-21~~


~~ACREAGE HOLDINGS, INC.~~
~~NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~
~~(in thousands, except per share data)~~

7.50% Loan due April 2026

On September 28, 2020, the Company received gross proceeds of $33,000 (less transaction costs of approximately $959) from an affiliate of the Institutional Investor (the “Lender”) and used a portion of the proceeds of this loan to retire its short-term $11,000 convertible note (as described above) and its short-term note aggregating approximately $18,000 in October 2020, with the remainder being used for working capital purposes. The loan is unsecured, matures in 3 years and bears interest at a 7.5% annual interest rate. The Lender is controlled by the Institutional Investor. The Investment Partnership is the investor in the Lender. On December 16, 2021, the Company paid an amendment fee of $413 to extend the maturity date from September 28, 2023 to April 2, 2026. The amendment was treated as a debt extinguishment.

Note due December 2024


ACREAGE HOLDINGS, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data)

In November 2020, the Company issued a promissory note with a third party, which is non-interest bearing and payable based on a payment schedule with ten payments in the aggregate amount of $7,750 through December 31, 2024, as a result of a settlement described under the “CanWell Dispute” in Note 13.

~~9.75% Credit~~Prime rate credit facilities due January 2026, as amended

On December 16, 2021, the Company entered into a $150,000 senior secured credit facility with a syndicate of lenders consisting of a $75,000 initial draw, a $25,000 delayed draw that must be advanced within 12 months and a $50,000 committed accordion facility that is available after December 1, 2022, provided certain financial covenants are met, and with a maturity of January 1, 2026. Upon closing, gross proceeds of $75,000 were drawn (before origination discounts and issuance costs of approximately $4,000 and $1,500, respectively, which were capitalized). In April 2022, the Company drew down on the ~~remaining~~ $25,000 ~~under this facility.~~delayed draw. Refer to Note 14 for further discussion of the syndicated related party lender.

On October 24, 2022, the Company amended the senior secured credit facility such that $25,000 of the committed accordion was available for immediate draw by Acreage, which was drawn down in the fourth quarter of 2022, with the remaining $25,000 available from January 1, 2023, provided certain predetermined milestones are achieved. The Company paid an amendment fee of $1,250 to the syndicate of lenders and the amendment was treated as a debt modification.

The loan is secured by pledged equity interests and substantially all of the assets of the Company. Advances under the facility bear interest at ~~9.75%~~a variable rate of U.S. prime (“Prime”) plus 5.75% per annum, ~~(plus~~payable monthly in arrears, with a Prime floor of 5.50% plus an additional 1.0% per annum until certain collateral assignment agreements are ~~delivered) and undrawn~~delivered. Undrawn amounts ~~(excluding the committed accordion facility until it is available)~~ bear interest at 3.0% per annum.

The facility has a maturity date of January 1, 2026 and the Company has the option to extend the maturity date to January 1, 2027, for a fee equal to 1.0% of the total loan amount.

The loan is subject to various financial covenants, including (i) a fixed charge coverage ratio and two leverage ~~ratios.~~ ratios in respect of all periods beginning on or after December 31, 2023 and (ii) a minimum cash requirement of $10.0 million at each quarter end of the Company. Finally, the Amended Credit Facility includes approval for Canopy USA to acquire control of Acreage without requiring repayment of all amounts outstanding under the Amended Credit Facility, provided certain conditions are satisfied. As of March 31, 2023 the Company was in compliance with all covenants.

The Company obtained a waiver of ~~these~~the financial covenants for the three month periods ended March 31, 2022 and June 30, 2022. This waiver included a $500 waiver fee that was paid to the lenders. ~~Subsequent to the balance sheet date, the 9.75% Credit facilities due January 2026 were amended (refer to Note 17 for further discussion).~~

Commencing with the receipt of the of the loan, mandatory prepayments are required from net proceeds of certain sale or disposition activities provided these proceeds are not invested in additional capital assets within 12 months of the disposition date, as defined by the Credit Agreement.

11. SHAREHOLDERS’ EQUITY AND NON-CONTROLLING INTERESTS

The table below details the change in Pubco shares outstanding by class for the three ~~and nine~~ months ended ~~September 30, 2022:~~March 31, 2023:


Shareholders’ Equity	Shareholders’ Equity	Fixed Shares	Floating Shares	Fixed Shares Held in Treasury	Floating Shares Held in Treasury	Fixed Multiple Shares	Total Shares Outstanding	Shareholders’ Equity	Fixed Shares	Floating Shares	Fixed Shares Held in Treasury	Floating Shares Held in Treasury	Fixed Multiple Shares	Total Shares Outstanding

December 31, 2021		74,665	32,962	(589)	(253)	118	106,903
December 31, 2022								December 31, 2022	79,047	34,114	(589)	(253)	118	112,437
Issuances	Issuances	3,897	969	—	—	—	4,866	Issuances	209	78	—	—	—	287
NCI conversions	NCI conversions	265	113	—	—	—	378	NCI conversions	—	—	—	—	—	—
September 30, 2022		78,827	34,044	(589)	(253)	118	112,147
March 31, 2023								March 31, 2023	79,256	34,192	(589)	(253)	118	112,724

~~F-22~~12


ACREAGE HOLDINGS, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data)

Warrants

A summary of the warrants activity outstanding is as follows:


Warrants	Warrants	Fixed Shares	Floating Shares	Warrants	Fixed Shares	Floating Shares
December 31, 2021		5,817	2,524
December 31, 2022				December 31, 2022	5,817	2,524

Expired	Expired	—	—	Expired	—	—

September 30, 2022		5,817	2,524
March 31, 2023				March 31, 2023	5,817	2,524

The exercise price of each Fixed Share warrant ranged from $3.15 to $4.00, respectively, and the exercise price of each Floating Share warrant ranged from $3.01 to $4.00, respectively. The warrants are exercisable for a period of 4 years. The weighted-average remaining contractual life of the warrants outstanding is approximately ~~2.4~~1.7 years. There was no aggregate intrinsic value for warrants outstanding as of ~~September 30, 2022.~~March 31, 2023.

Non-controlling interests - convertible units

The Company has NCIs in consolidated subsidiaries USCo2 and HSCP. The non-voting shares of USCo2 and HSCP units make up substantially all of the NCI balance as of ~~September 30, 2022~~March 31, 2023 and are convertible for either 0.7 of a Fixed Share and 0.3 of a Floating Share of Pubco or cash, as determined by the Company. Summarized financial information of HSCP is presented below. USCo2 does not have discrete financial information separate from HSCP.


HSCP net asset reconciliation	HSCP net asset reconciliation	September 30, 2022			December 31, 2021			HSCP net asset reconciliation	March 31, 2023			December 31, 2022
Current assets	Current assets	$	93,253		$	113,011		Current assets	$	80,875		$	118,193
Non-current assets	Non-current assets	385,138			375,807			Non-current assets	262,465			237,665
Current liabilities	Current liabilities	(18,429)			(29,256)			Current liabilities	(4,357)			(9,141)
Non-current liabilities	Non-current liabilities	(220,299)			(195,791)			Non-current liabilities	(240,776)			(239,525)
Other NCI balances	Other NCI balances	(723)			(718)			Other NCI balances	(729)			(725)
Accumulated equity-settled expenses	Accumulated equity-settled expenses	(239,592)			(226,596)			Accumulated equity-settled expenses	(241,744)			(240,760)
Net assets	Net assets	$	(652)		$	36,457		Net assets	$	(144,266)		$	(134,293)
HSCP/USCo2 ownership % of HSCP	HSCP/USCo2 ownership % of HSCP	16.36		%	17.24		%	HSCP/USCo2 ownership % of HSCP	16.30		%	16.33		%
Net assets allocated to USCo2/HSCP	Net assets allocated to USCo2/HSCP	$	(107)		$	6,285		Net assets allocated to USCo2/HSCP	$	(23,515)		$	(21,930)
Net assets attributable to other NCIs	Net assets attributable to other NCIs	723			718			Net assets attributable to other NCIs	729			725
Total NCI	Total NCI	$	616		$	7,003		Total NCI	$	(22,786)		$	(21,205)


		Three Months Ended September 30,						Nine Months Ended September 30,							Three Months Ended March 31,
HSCP Summarized Statement of Operations	HSCP Summarized Statement of Operations	2022			2021			2022			2021			HSCP Summarized Statement of Operations		2023			2022
Net loss allocable to HSCP/USCo2	Net loss allocable to HSCP/USCo2	$	(16,549)		$	(10,052)		$	(27,589)		$	(18,882)		Net loss allocable to HSCP/USCo2		$	(9,601)		$	(7,080)
HSCP/USCo2 weighted average ownership % of HSCP	HSCP/USCo2 weighted average ownership % of HSCP	16.84		%	17.57		%	16.96		%	17.80		%	HSCP/USCo2 weighted average ownership % of HSCP		16.31		%	17.21		%
Net loss allocated to HSCP/USCo2	Net loss allocated to HSCP/USCo2	$	(2,787)		$	(1,766)		$	(4,679)		$	(3,361)		Net loss allocated to HSCP/USCo2		$	(1,566)		$	(1,218)
Net loss allocated to other NCIs	Net loss allocated to other NCIs	3			5			4			14			Net loss allocated to other NCIs		(1)			1
Net loss attributable to NCIs	Net loss attributable to NCIs	$	(2,784)		$	(1,761)		$	(4,675)		$	(3,347)		Net loss attributable to NCIs		$	(1,567)		$	(1,217)

As of ~~September 30, 2022,~~March 31, 2023, USCo2’s non-voting shares owned approximately 0.22% of HSCP units. USCo2’s capital structure is comprised of voting shares, all of which are held by the Company, and of non-voting shares held by certain former HSCP members. Certain executive employees and profits interests holders own approximately ~~16.14%~~16.08% of HSCP units. The remaining ~~83.64%~~83.70% interest in HSCP is held by USCo and represents the members’ equity attributable to shareholders of the parent.

During the nine months ended September 30, 2022 and 2021, the Company had several transactions with HSCP and USCo2 that changed its ownership interest in the subsidiaries but did not result in loss of control. These transactions included business acquisitions and the redemption of HSCP and USCo2 convertible units for Pubco shares (as shown in the table below), and

~~F-23~~13


ACREAGE HOLDINGS, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data)

~~resulted in a $55 allocation from shareholders' equity to NCI and $862 allocation from NCI to shareholders' equity for the nine months ended September 30, 2022 and 2021, respectively.~~

A reconciliation of the beginning and ending amounts of convertible units is as follows:


Convertible Units	Convertible Units	September 30, 2022	December 31, 2021	Convertible Units	March 31, 2023	December 31, 2022
Beginning balance	Beginning balance	23,076	24,142	Beginning balance	22,698	23,076

NCI units converted to Pubco	NCI units converted to Pubco	(378)	(1,066)	NCI units converted to Pubco	—	(378)
Ending balance	Ending balance	22,698	23,076	Ending balance	22,698	22,698

12. EQUITY-BASED COMPENSATION EXPENSE

Amended Arrangement with Canopy Growth

On September 23, 2020, the Company announced the implementation of the Amended Arrangement (as defined in Note 13). Pursuant to the Amended Arrangement, the Company’s articles have been amended to create new Fixed Shares, Floating Shares and Fixed Multiple Shares. Consequently, the Company’s equity-based compensation was modified into new equity awards of the Company. Refer to Note 13 for further discussion.

Equity-based compensation - Plan (Acreage Holdings, Inc. Omnibus Incentive Plan)

In connection with the RTO transaction, the Company’s Board of Directors adopted an Omnibus Incentive Plan, as amended September 23, 2020 (the “Plan”), which permits the issuance of stock options, stock appreciation rights, stock awards, share units, performance shares, performance units and other stock-based awards up to an amount equal to 15% of the issued and outstanding Subordinate Voting Shares of the Company.

Pursuant to the Amended Arrangement, the Company retained the Plan described above, the upper limit of issuances being up to an amount equal to 15% of the issued and outstanding Fixed Shares and Floating Shares of the Company. As of ~~September 30, 2022,~~March 31, 2023, the Company had ~~3,199~~4,212 shares authorized and available for grant under the Plan.

Restricted Share Units (“RSUs”)


		Fixed Shares			Floating Shares				Fixed Shares			Floating Shares
Restricted Share Units (Fair value information expressed in whole dollars)	Restricted Share Units (Fair value information expressed in whole dollars)	RSUs	Weighted Average Grant Date Fair Value		RSUs	Weighted Average Grant Date Fair Value		Restricted Share Units (Fair value information expressed in whole dollars)	RSUs	Weighted Average Grant Date Fair Value		RSUs	Weighted Average Grant Date Fair Value
Unvested, January 1, 2022		3,188	$	7.30	1,262	$	7.39
Unvested, January 1, 2023								Unvested, January 1, 2023	6,324	$	1.80	464	$	6.68
Granted	Granted	7,717	$	0.67	95	$	1.19	Granted	—	$	—	—	$	—
Forfeited	Forfeited	(533)	$	2.07	(83)	$	2.54	Forfeited	(109)	$	0.98	(1)	$	2.15
Vested	Vested	(3,811)	$	4.08	(764)	$	7.90	Vested	(458)	$	2.17	(161)	$	2.24
Unvested, September 30, 2022		6,561	$	1.80	510	$	6.27
Unvested, March 31, 2023								Unvested, March 31, 2023	5,757	$	1.79	302	$	9.06
Vested and unreleased(1)	Vested and unreleased(1)	225	$	5.80	24	$	15.15	Vested and unreleased(1)	449	$	2.50	147	$	3.16
Outstanding, September 30, 2022		6,786	$	1.93	534	$	6.67
Outstanding, March 31, 2023								Outstanding, March 31, 2023	6,206	$	1.84	449	$	7.13

(1) RSUs that are vested and unreleased represent RSUs that are pending delivery.

RSUs of the Company generally vest over a period of three years and RSUs granted to certain executives vest based on achievement of specific performance conditions. In certain situations for specified individuals, RSUs vest on an accelerated basis on separation. The fair value for RSUs is based on the Company’s share price on the date of the grant. The Company recorded ~~$2,256~~$758 and ~~$7,645~~$3,877 as Equity-based compensation expense relating to RSUs on the Unaudited Condensed Consolidated Statements of Operations during the three ~~and nine~~ months ended ~~September 30,~~March 31, 2023 and 2022, ~~respectively, and $3,092 and $14,044 during the three and nine months ended September 30, 2021,~~ respectively. The fair value of RSUs vested during the three ~~and nine~~ months ended ~~September 30,~~March 31, 2023 and 2022 was ~~$1,427~~$442 and ~~$4,760, respectively, and $718 and $15,045 during the three and nine months ended September 30, 2021,~~$1,882, respectively.

The total weighted average remaining contractual life and aggregate intrinsic value of unvested RSUs as of March 31, 2023 was approximately 2.0 years and $3,214, respectively. Unrecognized compensation expense related to these awards at March 31, 2023 was $11,054 and is expected to be recognized over a weighted average period of approximately 1.7 years.

~~F-24~~


ACREAGE HOLDINGS, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data)

The total weighted average remaining contractual life and aggregate intrinsic value of unvested RSUs as of September 30, 2022 was approximately 2 years and $3,856, respectively. Unrecognized compensation expense related to these awards at September 30, 2022 was $13,005 and is expected to be recognized over a weighted average period of approximately 1 year.

Stock options


		Fixed Shares			Floating Shares				Fixed Shares			Floating Shares
Stock Options (Exercise price expressed in whole dollars)	Stock Options (Exercise price expressed in whole dollars)	Options	Weighted Average Exercise Price		Options	Weighted Average Exercise Price		Stock Options (Exercise price expressed in whole dollars)	Options	Weighted Average Exercise Price		Options	Weighted Average Exercise Price
Options outstanding, January 1, 2022		1,529	$	11.07	2,414	$	3.06
Options outstanding, January 1, 2023								Options outstanding, January 1, 2023	7,337	$	2.75	2,267	$	3.10
Granted	Granted	5,849	$	0.59	—	$	—	Granted	—	$	—	—	$	—
Forfeited	Forfeited	(41)	$	5.66	(91)	$	2.57	Forfeited	—	$	—	—	$	—
Expired	Expired	—	$	—	(20)	$	2.55	Expired	—	$	—	(31)	$	2.55

Options outstanding, September 30, 2022		7,337	$	2.75	2,303	$	3.09
Options outstanding, March 31, 2023								Options outstanding, March 31, 2023	7,337	$	2.75	2,236	$	3.10

Options exercisable, September 30, 2022		1,229	$	12.85	1,925	$	3.14
Options exercisable, March 31, 2023								Options exercisable, March 31, 2023	1,834	$	9.14	2,106	$	3.10

Stock options of the Company generally vest over a period of three years and options granted to certain executives vest based on achievement of specific performance conditions. Stock options of the Company have an expiration period of 5 or 10 years from the date of grant. The weighted average contractual life remaining for Fixed Share options outstanding and exercisable as of ~~September 30, 2022~~March 31, 2023 was approximately 5 and 6 years, respectively. The weighted average contractual life remaining for Floating Share options outstanding and exercisable as of ~~September 30, 2022~~March 31, 2023 was approximately 46 and 47 years, respectively. The Company recorded ~~$300~~$226 and ~~$725~~$282 as Equity-based compensation expense on Unaudited Condensed Consolidated Statements of Operations during the three ~~and nine~~ months ended ~~September 30,~~March 31, 2023 and 2022, ~~and $1,076 and $3,147 during the three and nine months ended September 30, 2021, respectively, in connection with these awards.~~respectively.

As of ~~September 30, 2022,~~March 31, 2023, unamortized expense related to stock options totaled ~~$2,182~~$1,670 and is expected to be recognized over a weighted-average period of approximately 2 years. As of ~~September 30, 2022,~~March 31, 2023, the aggregate intrinsic value for unvested options and for vested and exercisable options was nil, respectively.

~~Equity-based compensation - other~~

~~In May 2022, the Company granted 301 Fixed Shares and 127 Floating Shares and recorded $600 as~~ ~~Equity-based compensation expense~~ ~~on Unaudited Condensed Consolidated Statements of Operations during the for the three and nine months ended September 30, 2022 in settlement of post-employment expenses.~~

13. COMMITMENTS AND CONTINGENCIES

Commitments

The Company provides revolving lines of credit to ~~several~~certain of its portfolio companies. As of ~~September 30, 2022,~~March 31, 2023, only one revolving line of credit remained outstanding and the maximum obligation under ~~these arrangements~~this arrangement was ~~$15,150~~equal to the balance advanced of$4,331 (refer to Note 6 for further discussion).

Prior Plan of Arrangement with Canopy Growth

On June 19, 2019, the shareholders of the Company and of Canopy Growth separately approved the proposed plan of arrangement (the “Prior Plan of Arrangement”) involving the two companies, and on June 21, 2019, the Supreme Court of British Columbia granted a final order approving the Prior Plan of Arrangement. Effective June 27, 2019, the articles of the Company were amended pursuant to the Prior Plan of Arrangement to provide that, upon the occurrence (or waiver by Canopy Growth) of the Triggering Event, subject to the satisfaction of the conditions set out in the arrangement agreement entered into between Acreage and Canopy Growth on April 18, 2019, as amended on May 15, 2019 (the “Original Arrangement Agreement”), Canopy Growth will acquire (the “Acquisition”) all of the issued and outstanding shares in the capital of the Company (each, an “Acreage Share”).

Second Amendment to the Arrangement Agreement with Canopy Growth

~~F-25~~


~~ACREAGE HOLDINGS, INC.~~
~~NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~
~~(in thousands, except per share data)~~

On September 23, 2020, Acreage and Canopy Growth entered into an amending agreement (the “Amending Agreement” or “Amended Arrangement”) (and together with the Original Arrangement Agreement and any further amendments thereto, the “Amended Plan of Arrangement”) and the Amended Arrangement became effective at 12:01 a.m. (Vancouver time) (the “Amendment Time”) on September 23, 2020 (the “Amendment Date”). Pursuant to the Amended Plan of Arrangement, Canopy Growth made a cash payment of $37,500 which was delivered to Acreage’s shareholders and certain holders of securities convertible or exchangeable into shares of Acreage. Acreage also completed a capital reorganization (the “Capital Reorganization”) effective as of the Amendment Time whereby: (i) each existing SVS was exchanged for 0.7 of a Fixed Share and 0.3 of a Floating Share; (ii) each issued and outstanding PVS was exchanged for 28 Fixed Shares and 12 Floating Shares; and (iii) each issued and outstanding MVS was exchanged for 0.7 of a Fixed Multiple Share and 0.3 of a Floating Share.


ACREAGE HOLDINGS, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data)

At the Amendment Time, each option, restricted share unit, compensation option, and warrant to acquire existing SVS (each a “Security”) that was outstanding immediately prior to the Amendment Time, was exchanged for a replacement Security to acquire Fixed Shares (a “Fixed Share Replacement Security”) and a replacement Security to acquire Floating Shares (a “Floating Share Replacement Security”) to account for the Capital Reorganization.

Pursuant to the Amended Plan of Arrangement, upon the occurrence or waiver (at the discretion of Canopy Growth) of the Triggering Event (the “Triggering Event Date”), Canopy Growth will, subject to the satisfaction or waiver of certain closing conditions set out in the Arrangement Agreement: (i) acquire all of the issued and outstanding Fixed Shares (following the mandatory conversion of the Fixed Multiple Shares into Fixed Shares) on the basis of 0.3048 of a common share of Canopy Growth (each whole common share, a “Canopy Growth Share”) for each Fixed Share held (the “Fixed Exchange Ratio”) at the time of the acquisition of the Fixed Shares (the “Acquisition Time”), subject to adjustment in accordance with the terms of the Amended Plan of Arrangement (the “Canopy Call Option”); and (ii) have the right (but not the obligation) (the “Floating Call Option”), exercisable for a period of 30 days following the Triggering Event Date to acquire all of the issued and outstanding Floating Shares at a price to be determined based upon the 30 day volume-weighted average trading price of the Floating Shares, subject to a minimum price of $6.41, as may be adjusted in accordance with the terms of the Amended Plan of Arrangement, to be payable, at the option of Canopy Growth, in cash, Canopy Growth Shares or a combination thereof. If any portion is paid in Canopy Growth Shares, the number of Canopy Growth Shares to be exchanged for each Floating Share shall be determined on the basis of a 30 day volume-weighted average calculation using the Floating Shares (the “Floating Ratio”). The closing of the acquisition of the Floating Shares pursuant to the Floating Call Option, if exercised, will take place concurrently with the closing of the acquisition of the Fixed Shares pursuant to the Canopy Call Option, if exercised. The Canopy Call Option and the Floating Call Option will expire 10 years from the Amendment Time.

At the Acquisition Time, on the terms and subject to the conditions of the Amended Plan of Arrangement, each Fixed Share Replacement Security will be exchanged for a replacement Security from Canopy Growth equal to: (i) the number of Fixed Shares that were issuable upon exercise of such Fixed Share Replacement Security immediately prior to the Acquisition Time, multiplied by (ii) the Fixed Exchange Ratio in effect immediately prior to the Acquisition Time (provided that if the foregoing would result in the issuance of a fraction of a Canopy Growth Share, then the number of Canopy Growth Shares to be issued will be rounded down to the nearest whole number).

In the event that the Floating Call Option is exercised and Canopy Growth acquires the Floating Shares at the Acquisition Time, on the terms and subject to the conditions of the Amended Plan of Arrangement, each Floating Share Replacement Security will be exchanged for a replacement Security from Canopy Growth equal to: (i) the number of Floating Shares that were issuable upon exercise of such Floating Share Replacement Security immediately prior to the Acquisition Time, multiplied by (ii) the Floating Ratio (if the foregoing would result in the issuance of a fraction of a Canopy Growth Share, then the number of Canopy Growth Shares to be issued will be rounded down to the nearest whole number). In the event that the Floating Call Option is exercised and Canopy Growth acquires the Floating Shares at the Acquisition Time, Acreage will be a wholly-owned subsidiary of Canopy Growth.

The Amended Plan of Arrangement provides for, among other things, Amendments to the definition of Purchaser Approved Share Threshold (as defined therein) to change the number of shares of Acreage available to be issued by Acreage without an adjustment in the Fixed Exchange Ratio such that Acreage may issue a maximum of 32,700 shares. Furthermore, Acreage generally may not issue any equity securities without Canopy Growth’s prior consent. Additionally, the Amended Plan of Arrangement allows for various Canopy Growth rights that extend beyond the Acquisition Date, including, among others: (i) rights to nominate a majority of Acreage’s Board of Directors following the Acquisition Time; (ii) restrictive covenants in respect of the business conduct in favor of Canopy Growth; (iii) termination of non-competition and exclusivity rights granted to Acreage by Canopy Growth in the event that Acreage does not meet certain specified financial targets; (iv) implementation of further restrictions on Acreage’s ability to operate its business in the event that Acreage does not meet certain specified

~~F-26~~


~~ACREAGE HOLDINGS, INC.~~
~~NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~
~~(in thousands, except per share data)~~

financial targets; and (v) termination of the Amended Plan of Arrangement in the event that Acreage does not meet certain specified financial targets in the trailing 12 month period. Each of the financial targets referred to above is specified in the Amending Agreement and related to the performance of Acreage relative to a business plan for Acreage for each fiscal year ended December 31, 2020 through December 31, 2029 set forth in the Proposal Agreement (the “Initial Business Plan”).

Further, the Amended Plan of Arrangement imposes restrictions on Acreage entering into any contracts in respect of Company Debt if: (i) such contract would be materially inconsistent with market standards for companies operating in the United States cannabis industry; (ii) such contract prohibits a prepayment of the principal amount of such Company Debt; and (iii) such contract would provide for interest payments to be paid through the issuance of securities as opposed to cash, among other restrictions. The Amended Plan of Arrangement also provides for the following: (i) certain financial reporting obligations to Canopy Growth; (ii) certain specified criteria related to any new directors or officers of Acreage, and (iii) a limit to Acreage’s operations to the Identified States (as defined therein).

~~Subsequent~~Third Amendment to the ~~balance sheet date,~~Arrangement Agreement with Canopy Growth

On October 24, 2022, the Company entered into ~~a new~~an arrangement agreement (the “Floating Share Agreement”) with Canopy Growth ~~regarding~~and Canopy USA, LLC (“Canopy USA”), Canopy Growth’s newly-created U.S. domiciled holding company, pursuant to which, subject to approval of the holders of the Class D subordinate voting shares of Acreage (the “Floating Shares”) and the terms and conditions of the Floating Share Agreement, Canopy USA will acquire all of the issued and outstanding Floating Shares by way of court-approved plan of arrangement (the “Floating Share Arrangement”) for consideration of 0.4500 of a common share of Canopy Growth (each whole share a “Canopy Share”) in exchange for each Floating Share. A special meeting of the holders of Floating Shares was held on March 15, 2023, where the holders of Floating Shares approved the Floating Share Arrangement (the “Special Meeting”).

Concurrently with entering the Floating Share Agreement, Canopy Growth irrevocably waived its option to acquire the Floating Shares pursuant to the Amended Arrangement.


ACREAGE HOLDINGS, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data)

Subject to the provisions of the Floating Share Agreement, Canopy Growth has agreed to exercise the fixed option pursuant to the Amended Agreement to acquire all outstanding Fixed Shares, representing approximately 70% of the total shares of Acreage as at the date hereof, at a fixed exchange ratio of 0.3048 of a Canopy Share for each Fixed Share.

Acreage expects the Floating Share Arrangement to close upon the satisfaction or waiver of all conditions under the Floating Share Agreement and the Amended Arrangement. It is anticipated that the acquisition by Canopy USA of the ~~Company’s~~Fixed Shares pursuant to the Fixed Option will be completed immediately following closing of the Floating ~~Shares. Refer~~Share Agreement. In the event that Canopy USA exercises the Fixed Option and acquires the Floating Shares pursuant to ~~Note~~the Floating Share Arrangement, Acreage will be wholly-owned subsidiary of Canopy USA.

On March 17, ~~for further discussion.~~

2023, Acreage, Canopy and Canopy USA entered into a first amendment to the Floating Share Arrangement Agreement (the “Amendment”). Pursuant to the terms of the Amendment, Acreage, Canopy and Canopy USA agreed to amend the Exercise Outside Date (as defined in the Floating Share Arrangement Agreement) from March 31, 2023 to May 31, 2023.

Tax Receivable Agreement and Tax Receivable Bonus Plans

The Company is a party to i)(i) a tax receivable agreement dated November 14, 2018 and subsequently amended (the “Tax Receivable Agreement”) between the Company and certain current and former unit holders of HSCP and ~~ii)~~(ii) tax receivable bonus plans dated November 14, 2018 and subsequently amended (the “Tax Receivable Bonus Plans”) between the Company and certain directors, officers and consultants of the Company (together the “Tax Receivable Recipients”). Under the Tax Receivable Agreement and the Tax Receivable Bonus Plans, the Company is required to make cash payments to the Tax Receivable Recipients equal to 85% of the tax benefits, if any, that the Company actually realizes, or in certain circumstances is deemed to realize, as a result of (i) the increases in its share of the tax basis of assets of HSCP resulting from any redemptions or exchanges of Units from the HSCP Members, and (ii) certain other tax benefits related to the Company making payments under the Tax Receivable Agreement and the Tax Receivable Bonus Plan. Although the actual timing and amount of any payments that the Company makes to the Tax Receivable Recipients ~~can not~~cannot be estimated, it expects those payments will be significant. Any payments made by the Company to the Tax Receivable Recipients may generally reduce the amount of overall cash flow that might have otherwise been available to it. Payments under the Tax Receivable Agreement are not conditioned on any Tax Receivable Recipient’s continued ownership of Units or our shares after the completion of the RTO. Payments under the Tax Receivable Bonus Plan may, at times, be conditioned on the Tax Receivable Recipient’s continued employment by the Company. As of March 31, 2023, the Company has not made any payments in relation to the Tax Receivable Agreement or the Tax Receivable Bonus Plans.

~~In connection~~Concurrently with the ~~Amended~~execution of the Floating Share Arrangement Agreement, Canopy Growth, Canopy USA, High Street, Acreage Holdings America, Inc. and certain individuals party to the Tax Receivable Agreement, amended the Tax Receivable Agreement in accordance with the Floating Share Agreement. Pursuant to the Floating Share Agreement, Canopy Growth, on behalf of Canopy USA agreed to: (i) issue Canopy Shares with a value of approximately $30,500 to the Tax Receivable Agreement Members in exchange for each such individual executing an assignment of rights agreement assigning such individual’s rights under the Tax Receivable Agreement to Canopy USA, such that following assignment, Canopy USA is the sole member and beneficiary under the Tax Receivable Agreement; and (ii) fund a payment with a value of approximately $19,500 to be made by the Company in Canopy Shares to certain eligible participants pursuant to the Tax Receivable Bonus Plans, as amended ~~the terms~~on October 24, 2022, both in order to reduce a potential liability of approximately $121,000 under the Tax Receivable Agreement and the Tax Receivable Bonus Plans. ~~Additionally, subsequent~~In connection with the foregoing, Canopy Growth issued 5,648,927 Canopy Shares on or about November 4, 2022 and 7,102,081 Canopy Shares on or about March 17, 2023 to the ~~balance sheet date,~~Tax Receivable Agreement Members. In addition, the ~~Company agreed~~Tax Receivable Agreement Bonuses with an aggregate value of approximately $19,500 in Canopy Shares will be issued by Canopy to ~~further amendments to~~certain eligible participants under the Tax Receivable Bonus Plans on the closing of the Floating Share Arrangement or, if the Floating Share Arrangement does not close or is terminated but the Amended Arrangement closes, then on the closing of the acquisition. The Tax Receivable Agreement ~~and~~Bonuses will be paid to recipients to be determined by Kevin Murphy, the administrator of the Tax Receivable Bonus ~~Plan. Refer~~Plans, and may include one or more of Kevin Murphy, John Boehner, Brian Mulroney, and Peter Caldini, each of whom are directors of Acreage and other current and former officers or consultants of Acreage as may be determined by Kevin Murphy. Canopy Growth has also agreed to ~~Note 17 for further discussion.~~

Debenture

In connection with the implementation of the Amended Arrangement, pursuant to a secured debenture dated September 23, 2020 (the “Debenture”) issued by Universal Hemp, LLC, an affiliate of Acreage that operates solely in the hemp industry in full compliance with all applicable laws (the “Borrower”), to 11065220 Canada Inc., an affiliate of Canopy Growth (the “Lender”), the Lender agreed to provide a loan of up to $100,000 (the “Loan”), $50,000 of which was advanced on the Amendment Date (the “Initial Advance”), and $50,000 of the Loan will be advanced in the event that the following conditions, among others, are satisfied: (a) the Borrower’s EBITDA (as defined in the Debenture) for any 90 day period is greater than or equal to 2.0 times


ACREAGE HOLDINGS, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data)

the interest costs associated with the Initial Advance; and (b) the Borrower’s business plan for the 12 months following the applicable 90 day period supports an Interest Coverage Ratio (as defined in the Debenture) of at least 2.00:1.

The principal amount of the Loan will bear interest from the date of advance, compounded annually, and be payable on each anniversary of the date of the Debenture in cash in U.S. dollars at a rate of 6.1% per annum. The Loan will mature 10 years from the date of the Initial Advance.

The Loan must be used exclusively for U.S. hemp-related operations and on the express condition that such amount will not be used, directly or indirectly, in connection with or for the operation or benefit of any of the Borrower’s affiliates other than subsidiaries of the Borrower exclusively engaged in U.S. hemp-related operations and not directly or indirectly, towards the

~~F-27~~


~~ACREAGE HOLDINGS, INC.~~
~~NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~
~~(in thousands, except per share data)~~

operation or funding of any activities that are not permissible under applicable law. The Loan proceeds must be segregated in a distinct bank account and detailed records of debits to such distinct bank account will be maintained by the Borrower.

No payment due and payable to the Lender by the Borrower pursuant to the Debenture may be made using funds directly or indirectly derived from any cannabis or cannabis-related operations in the United States, unless and until the Triggering Event Date.

The Debenture includes usual and typical events of default for a financing of this nature, including, without limitation, if: (i) Acreage is in breach or default of any representation or warranty in any material respect pursuant to the Arrangement Agreement; (ii) ~~the Non-Core Divestitures are not completed~~Operations deemed to be non-core must cease within 18 months from the Amendment Date; and (iii) Acreage fails to perform or comply with any covenant or obligation in the Arrangement Agreement which is not remedied within 30 days after written notice is given to the Borrower by the Lender. The Debenture also includes customary representations and warranties, positive covenants and negative covenants of the Borrower.

Advisor fee

In connection with the Prior Plan of Arrangement, the Company entered into an agreement with its financial advisor providing for a fee payment of $7,000 in either cash, Acreage shares or Canopy Growth shares, at the discretion of the Company, upon the successful acquisition of Acreage by Canopy Growth. ~~Subsequent to September 30,~~During the fourth quarter of 2022, the Company amended the terms of the agreement with its financial advisors providing for a fee payment of $3,000 in cash, less a $500 initial payment, and $2,000 in shares of the Company, upon the successful acquisition of Acreage by Canopy Growth.

Surety bonds

The Company has indemnification obligations with respect to surety bonds primarily used as security against non-performance in the amount of $5,000 as of ~~September 30, 2022,~~March 31, 2023, for which no liabilities are recorded on the Unaudited Condensed Consolidated Statements of Financial Position.

The Company is subject to other capital commitments and similar obligations. As of ~~September 30,~~March 31, 2023 and 2022, ~~and 2021,~~ such amounts were not material.

CanWell Settlement

In November 2020, the Company entered into a final confidential settlement agreement with CanWell, LLC for certain outstanding proceedings. As part of that agreement, the Company accrued for $7,750 in Legal settlements, net on the Statements of Operations for the year ended December 31, 2020. In connection with this settlement agreement, the Company issued a promissory note in the amount of $7,750 to CanWell, which is non-interest bearing and is payable in periodic payments through December 31, 2024. Through ~~September 30, 2022,~~March 31, 2023, the Company has paid ~~$3,792~~$4,583 of the promissory note.

Contingencies

The Company’s operations are subject to a variety of local and state regulations. Failure to comply with one or more of those regulations could result in fines, restrictions on its operations, or losses of permits that could result in the Company’s applicable subsidiaries ceasing operations. While management of the Company believes that the Company’s subsidiaries are in compliance with applicable local and state regulations as of ~~September 30, 2022,~~March 31, 2023, cannabis regulations continue to evolve and are subject to differing interpretations. As a result, the Company’s subsidiaries may be subject to regulatory fines, penalties, or restrictions in the future.


ACREAGE HOLDINGS, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data)

The Company and its subsidiaries may be, from time to time, subject to various administrative, regulatory and other legal proceedings arising in the ordinary course of business. Contingent liabilities associated with legal proceedings are recorded when a liability is probable, and the contingent liability can be reasonably estimated.

New York outstanding litigation

On November 2, 2018, EPMMNY LLC (“EPMMNY”) filed a complaint in the Supreme Court of the State of New York, County of New York, asserting claims against 16 defendants, including NYCANNA, Impire State Holdings LLC, NY Medicinal Research & Caring, LLC (each, a wholly-owned subsidiary of High Street) and High Street. The Index Number for the action is 655480/2018. EPMMNY alleges that it was wrongfully deprived of a minority equity interest and management

~~F-28~~


~~ACREAGE HOLDINGS, INC.~~
~~NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~
~~(in thousands, except per share data)~~

role in NYCANNA by its former partner, New Amsterdam Distributors, LLC, which attempted to directly or indirectly sell or transfer EPMMNY’s alleged interest in NYCANNA to other entities in 2016 and 2017, including Impire, NYMRC and High Street.

EPMMNY alleges that it is entitled to the value of its alleged minority interest in NYCANNA or minority ownership in NYCANNA. EPMMNY also alleges that certain defendants misused its alleged intellectual property and/or services, improperly solicited its employees, and aided and abetted or participated in the transfer of equity and/or business opportunities from EPMMNY.

High Street intends to vigorously defend this action, which the Company firmly believes is without merit. High Street is also entitled to full indemnity from the claims asserted against it by EPMMNY pursuant to the purchase agreement pertaining to its acquisition of NYCANNA and personal guarantee by the largest shareholders of the seller. High Street, along with the other defendants, filed a motion to dismiss on April 1, 2019. The motion was fully briefed and submitted to the Court as of July 18, 2019, and oral argument was heard on September 6, 2019. The motion remains pending before the Court. Following a hearing held ~~the week of~~during April ~~25-29,~~ 2022, the Court ruled that Plaintiff had the capacity to bring this action on behalf of EPMMNY. The motions to dismiss remain pending on all other grounds.

14. RELATED PARTY TRANSACTIONS

Transactions with related parties are entered into in the normal course of business and are measured at the amount established and agreed to by the parties.

~~Related party notes receivable~~

In May 2021, the Company sold two secured promissory notes totaling $28,000 received from the sale of Acreage Florida to Viridescent for cash proceeds of approximately $26,000. Viridescent is an entity controlled by Kevin Murphy, the Chairman of the board of directors. Refer to Note 6 for further discussion.

6.10% Secured debenture due September 2030

As disclosed in Note 10, “6.10% Secured debenture due September 2030”, on September 23, 2020, pursuant to the implementation of the Amended Arrangement, a subsidiary of Canopy Growth advanced gross proceeds of $50,000 (less transaction costs of approximately $4,025) to Universal Hemp, an affiliate of the Company, pursuant to the terms of a secured debenture. In accordance with the terms of the debenture, the funds cannot be used, directly or indirectly, in connection with or for any cannabis or cannabis-related operations in the United States, unless and until such operations comply with all applicable laws of the United States. Acreage then engaged an investment advisor (the “Investment Advisor”) which, under the Investment Advisor’s sole discretion, invested on behalf of Universal Hemp, $34,019 of the proceeds on September 28, 2020. During the three ~~and nine~~ months ended ~~September 30, 2022,~~March 31, 2023, the Company incurred interest expense attributable to the 6.10% Secured debenture due September 2030 of ~~$624 and $1,851, respectively.~~$763.

As a result of the transaction above, Universal Hemp, a subsidiary of the Company, acquired 34,019 class B units, at $1 par value per unit, which represented 100% financial interest in an Investment Partnership, a Canada-based limited partnership. An affiliate of the Institutional Investor holds Class A Units of the Investment Partnership. The general partner of the Investment Partnership is also an affiliate of the Institutional Investor. The class B units are held by the Institutional Investor as agent for Universal Hemp. On September 28, 2020, the Company received gross proceeds of $33,000 (less transaction costs of approximately $959) from an affiliate of the Institutional Lender (the “Lender”) and used a portion of the proceeds of this loan to retire its short-term $11,000 convertible note and its short-term note aggregating approximately $18,000 in October 2020, with the remainder being used for working capital purposes. The Lender is controlled by the Institutional Lender. The Investment Partnership is the investor in the Lender.

Prime rate credit facilities due January 2026, as amended

On December 16, 2021, the Company entered into the Prime rate credit facilities due January 2026 with a syndicate of lenders, including Viridescent Realty Trust, Inc. (“Viridescent”), an entity controlled by Kevin Murphy. Refer to Note 10 for further discussion. On October 24, 2022, the Company amended these credit facilities and the Company paid an amendment fee of $1,250 to the lenders, with $375 paid to Viridescent.

~~F-29~~


ACREAGE HOLDINGS, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data)

~~Michigan consulting agreement~~

Pursuant to the Consulting Services Agreement by and between Kevin Michigan, LLC, a company controlled by Kevin Murphy, and High Street (the “Michigan Consulting Agreement”), High Street provides certain consulting services to Kevin Michigan, LLC, which includes, but is not limited to, services related to application support, provisioning center administration and operation, local and state regulatory filings, human resource matters, and marketing matters. The Michigan Consulting Agreement explicitly states that High Street is not able to direct or control the business of Kevin Michigan, LLC. Additionally, there are certain leases held by and between Kevin Michigan, LLC, as lessee and certain wholly owned subsidiaries of High Street, as lessors. As of September 30, 2022, Kevin Michigan, LLC is not operational, and no consulting fees or rents have been paid to High Street or its wholly owned subsidiaries. Kevin Michigan, LLC is owned and controlled by the Company’s Chairman, Kevin Murphy.

~~9.75% Credit facilities due January 2026~~

As disclosed in Note 10, on December 16, 2021, the Company entered into the 9.75% Credit facilities due January 2026 with a syndicate of lenders, including Viridescent Realty Trust, Inc. (“Viridescent”), an entity controlled by Kevin Murphy. Under the terms of the 9.75% Credit facilities due January 2026, a $75,000 initial draw was available immediately, an additional $25,000 delayed draw is available that must be advanced within 12 months, and a $50,000 committed accordion facility is available after December 1, 2022, provided certain financial covenants are met. Advances under the facilities bear interest at 9.75% per annum and undrawn amounts (excluding the committed accordion facility until it is available) bear interest at 3.0% per annum. In April 2022, the Company drew down on the additional $25,000 delayed draw under this facility.

Viridescent has committed ~~$30,000~~$37,500 of the ~~$100,000~~$125,000 drawn down under the Credit Facility, with third-party syndicated affiliates committing the additional ~~$70,000.~~$87,500. During the three ~~and nine~~ months ended ~~September 30, 2022,~~March 31, 2023, the Company incurred interest expense attributable to Viridescent of ~~$824 and $2,215, respectively.~~$1,260. The loan is secured by first-lien mortgages on Acreage’s wholly owned real estate and other commercial security interests. A third-party syndicate served as Administrative Agent for the transaction. ~~Subsequent to the balance sheet date, the 9.75% Credit facilities due January 2026 were amended (refer to Note 17 for further discussion).~~

15. REPORTABLE SEGMENTS

The Company prepares its segment reporting on the same basis that its Chief Operating Decision Maker manages the business, and makes operating decisions. The Company operates under one operating segment, which is its only reportable segment: the production and sale of cannabis products. The Company’s measure of segment performance is net income, and derives its revenue primarily from the sale of cannabis products, as well as related management or consulting services which were not material in all periods presented. All of the Company’s operations are located in the United States.

16. EARNINGS PER SHARE

Basic earnings per share are computed by dividing net loss attributable to common shareholders of the Company by the weighted average number of outstanding shares for the period. Diluted earnings per share are calculated based on the weighted number of outstanding common shares plus the dilutive effect of stock options and warrants, as if they were exercised, and restricted stock units and profits interests, as if they vested and NCI convertible units, as if they converted.

Basic and diluted loss per share is as follows:

Three Months Ended September 30, Nine Months Ended September 30,
2022 2021 2022 2021
Net loss attributable to common shareholders of the Company $ (22,214) $ (12,296) $ (44,837) $ (22,657)
Weighted average shares outstanding - basic 111,200 106,332 108,795 104,524
Effect of dilutive securities — — — —
Weighted average shares - diluted 111,200 106,332 108,795 104,524
Net loss per share attributable to common shareholders of the Company - basic $ (0.20) $ (0.12) $ (0.41) $ (0.22)
Net loss per share attributable to common shareholders of the Company - diluted $ (0.20) $ (0.12) $ (0.41) $ (0.22)

~~F-30~~


~~ACREAGE HOLDINGS, INC.~~
~~NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~
~~(in thousands, except per share data)~~


	Three Months Ended March 31,
		2023		2022
Net loss attributable to common shareholders of the Company		$	(14,590)	$	(12,694)
Weighted average shares outstanding - basic		112,546		106,900
Effect of dilutive securities		—		—
Weighted average shares - diluted		112,546		106,900
Net loss per share attributable to common shareholders of the Company - basic		$	(0.13)	$	(0.12)
Net loss per share attributable to common shareholders of the Company - diluted		$	(0.13)	$	(0.12)

During the three ~~and nine~~ months ended ~~September 30, 2022,~~March 31, 2023, 5,817 Fixed warrants, 2,524 Floating warrants, ~~6,786~~6,206 Fixed Share RSUs, ~~534~~449 Floating Share RSUs, 7,337 Fixed Share stock options, ~~2,303~~2,236 Floating Share stock options and 22,698 NCI convertible units were excluded from the calculation of net loss per share attributable to common shareholders of the Company - diluted, as they were anti-dilutive. During the three ~~and nine~~ months ended ~~September 30, 2021, 7,131~~March 31, 2022, 5,817 Fixed warrants, ~~3,087~~2,524 Floating warrants, ~~3,621~~2,916 Fixed Share RSUs, ~~1,757~~1,251 Floating Share RSUs, ~~1,530~~1,525 Fixed Share stock options, ~~2,419~~2,413 Floating Share stock options and ~~23,076~~22,698 NCI convertible units were excluded from the calculation of net loss per share attributable to common shareholders of the Company - diluted, as they were anti-dilutive.

~~17. SUBSEQUENT EVENTS~~

~~Acreage enters into new strategic arrangement with Canopy Growth~~

On October 24, 2022, the Company entered into an arrangement agreement (the “Floating Share Agreement”) with Canopy Growth and Canopy USA, LLC (“Canopy USA”), Canopy Growth’s newly-created U.S. domiciled holding company, pursuant to which, subject to approval of the holders of the Class D subordinate voting shares of Acreage (the “Floating Shares”) and the terms and conditions of the Floating Share Agreement, Canopy USA will acquire all of the issued and outstanding Floating Shares by way of court-approved plan of arrangement (the “Floating Share Arrangement”) for consideration of 0.4500 of a common share of Canopy Growth (each whole share a “Canopy Share”) in exchange for each Floating Share.

~~Concurrently with entering into of the Floating Share Agreement, Canopy Growth irrevocably waived its option to acquire the Floating Shares pursuant to the Amended Arrangement.~~

Completion of the Floating Share Agreement is subject to the satisfaction or waiver of certain closing conditions, including receipt of applicable regulatory and court approvals, the approval of at least (i) 66⅔% of the votes cast by Floating Shareholders, and (ii) a majority of the votes cast by Floating Shareholders excluding the votes cast by “interested parties” and “related parties” under Multilateral Instrument 61-101 - Protection of Minority Security Holders in Special Transactions (“MI 61-101”) of the Canadian Securities Administrators, at a special meeting of Acreage shareholders (the “Special Meeting”) expected to take place in January 2023.

Canopy Growth and Canopy USA have entered into voting support agreements with certain of the Company’s directors and current and former officers holding approximately 7.3% of the issued and outstanding Floating Shares pursuant to which they have agreed, among other things, to vote their Floating Shares in favor of the Floating Share Agreement.

Acreage expects the Floating Share Arrangement to close in the second half of 2023, subject to receipt of shareholder, court, and regulatory approvals, as well as the satisfaction or waiver of all conditions under the Floating Share Agreement and the Amended Arrangement. It is anticipated that the acquisition by Canopy USA of the Fixed Shares pursuant to the Fixed Option will be completed immediately following closing of the Floating Share Agreement. Refer to Note 13 for further discussion on the Prior Plan of Arrangement and the Amended Arrangement

~~Tax Receivable Account and Tax Receivable Bonus Plan Amendments~~

Concurrently with execution of the Floating Share Agreement, Canopy Growth agreed to issue (i) Canopy Shares with a value of approximately $30,500 to certain current or former unit holders of HSCP to acquire the right to all future payments under HSCP’s existing Tax Receivable Agreement, as amended (the “TRA”) and (ii) a payment with a value of approximately $19,500 in Canopy Shares to certain directors, officers or consultants of Acreage to satisfy obligations under HSCP’s existing Tax Receivable Bonus Plans, under further amendment to each. Canopy Shares with a value of approximately $15,300 will be issued to certain Holders as soon as practicable as the first installment under the amended TRA with a second payment of approximately $15,300 in Canopy Shares to occur on the earlier of (a) the second business day following the date on which the Floating Shareholders approve the Floating Share Arrangement; or (b) April 24, 2023. In addition, a final payment with a value of approximately $19,500 in Canopy Shares will be issued by Canopy Growth to certain eligible participants under the Tax Receivable Bonus Plans immediately prior to the completion of Floating Share Arrangement. Refer to Note 13 for further discussion on the Tax Receivable Agreement.

~~Credit Facility Amendment~~

On October 24, 2022, the Company amended its existing $150,000 credit facility (the “Amended Credit Facility”). Under the terms of the Amended Credit Facility, $25,000 is available for immediate draw by Acreage with a further $25,000 available in future periods under a committed accordion option once certain predetermined milestones are achieved. In conjunction with entering into the Amended Credit Facility, all financial debt covenants, except a minimum cash requirement, were waived until

~~F-31~~


ACREAGE HOLDINGS, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data)

~~December 31,~~17. SUBSEQUENT EVENTS

On April 11, 2023, the Company sold, for total proceeds of $12,113, the rights to receive certain Employee Retention Tax Credits (“ERTC”) with an aggregate receivable value of $14,251. In the event that all or a portion of the ERTC are a) objected to by the IRS or otherwise asserted by the IRS to be, unenforceable or invalid, b) impaired by the commencement by the IRS of any action or proceeding including, but not limited to any proceeding which seeks to reduce all or part of the Claim Amount, or c) offset or setoff against unpaid taxes of the Company, disallowed, reduced, subordinated or otherwise impaired by action of the IRS, in whole or in part for any reason whatsoever, the purchaser shall have the right to put all or a portion of the purchased ERTC back to the Company plus interest thereon at ten percent per annum.

On April 13, 2023, Health Circle, Inc. (the “Borrower”) filed a civil action in the Massachusetts Superior Court of Plymouth County against the Company and ~~new covenants have been~~MA RMD SVCS, LLC (the “Lender”), related to the parties’ Revolving Line of Credit Agreement, and has alleged breach of contract, breach of the implied covenant of good faith and fair dealing, fraud, and a violation of G.L. c. 93A. The filing of this preemptive “strike suit” follows the Company’s continuing efforts to recover the principal and interest payments owed to the Company by Borrower under the Revolving Line of Credit Agreement. The Company believes Health Circle’s allegations to be without merit and intends to respond to the complaint and to assert its own claims against Borrower and its principal(s) for their failure to repay their debt under the terms of the Credit Agreement.

On April 28, 2023, the Company reached an agreement with the lenders of the Prime rate credit facilities due January 2026 that would allow it to draw a further $15,000 under its current Credit Agreement, but such funds would be maintained in a segregated account until dispersed and be restricted for use to only eligible capital expenditures. As part of this agreement, the Company has agreed ~~upon in respect of all periods beginning on or after December 31, 2023. Finally,~~to limit the ~~Amended Credit Facility includes approval for Canopy USA to acquire control of Acreage without requiring repayment of all~~total amounts outstanding under the ~~Amended~~ Credit ~~Facility, provided certain conditions are satisfied. Acreage intends~~Agreement to ~~use~~$140,000 and to, at all times subsequent to the ~~proceeds of~~amendment, maintain collateral (as defined in the ~~Amended~~ Credit ~~Facility to fund expansion initiatives and provide additional working capital.~~

The Amended Credit Facility will bear interest at a variable rate of U.S. prime (“Prime”) plus 5.75% per annum, payable monthly in arrears, with a Prime floor of 5.50%, and a maturity date of January 1, 2026. Under the terms of the Amended Credit Facility, the Company has the option to extend the maturity date to January 1, 2027, for a feeAgreement) equal to ~~1.0% of~~or greater than the ~~total loan amount. Separately,~~outstanding amount under the ~~Company paid an amendment fee of $1,250 to the syndicate of lenders.~~Credit Agreement. Refer to Note 10 for further ~~discussion on the 9.75% Credit facilities due January 2026.~~discussion.

Management has reviewed all other events subsequent to ~~September 30, 2022~~March 31, 2023 through the date of issuing these financial statements and determined that no further subsequent events require adjustment or disclosure.

~~F-32~~21

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

Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is intended to assist in the understanding and assessing the trends and significant changes in our results of operations and financial condition. Historical results may not be indicative of future performance. This discussion includes forward-looking statements that reflect our plans, estimates and beliefs. Such statements involve risks and uncertainties. Our actual results may differ materially from those contemplated by these forward-looking statements as a result of various factors, including those set forth in “Risk Factors” in Part I, Item 1A of the Annual Report on Form 10-K for the year ended December 31, ~~2021~~2022 (the ~~“2021~~“2022 Form 10-K”), and “Cautionary Statement Regarding Forward-Looking Statements” set forth below.

This MD&A should be read in conjunction with the Company’s unaudited condensed consolidated financial statements and for the three month period ended ~~September 30, 2022~~March 31, 2023 and related notes appearing elsewhere in this Quarterly Report on Form 10-Q (this “Quarterly Report” or “Form ~~10-Q”)~~10-Q) and the ~~2021~~2022 Form 10-K. Financial information presented in this MD&A is presented in thousands of U.S. dollars, unless otherwise indicated.

Cautionary Statement Regarding Forward Looking-Statements

This Quarterly Report of the Company contains statements that include forward-looking information and are forward-looking statements within the meaning of applicable Canadian and United States securities legislation (“forward-looking statements”), including the Private Securities Litigation Reform Act of 1995, that involve risks and uncertainties. All statements, other than statements of historical fact, included herein are forward-looking statements, including, for greater certainty, ~~the on-going implications of the novel coronavirus (“COVID-19”) and~~ statements regarding the proposed transactions with Canopy Growth Corporation (“Canopy Growth~~”) and Canopy USA, LLC (“Canopy USA”~~ or “Canopy”), ~~as applicable,~~ including the anticipated benefits and likelihood of completion thereof.

Generally, forward-looking statements may be identified by the use of forward-looking terminology such as “plans”, “expects” or “does not expect”, “proposed”, “is expected”, “budgets”, “scheduled”, “estimates”, “forecasts”, “intends”, “anticipates” or “does not anticipate”, or “believes”, or variations of such words and phrases, or by the use of words or phrases which state that certain actions, events or results may, could, would, or might occur or be achieved. There can be no assurance that such forward-looking statements will prove to be accurate, and actual results and future events could differ materially from those anticipated in such forward-looking statements. Forward-looking statements reflect Acreage’s current beliefs and are based on information currently available to Acreage and on assumptions Acreage believes are reasonable. Forward-looking statements are subject to known and unknown risks, uncertainties and other factors that may cause the actual results, level of activity, performance or achievements of Acreage to be materially different from those expressed or implied by such forward-looking statements. Such risks and other factors may include, but are not limited to:

•~~the future implications to the business, financial results and performance~~The US Federal Illegality of the ~~Company arising, directly or indirectly, from COVID-19;~~

•~~the anticipated benefits of the Amended Arrangement;~~Company’s Business Activities

•the anticipated benefits of the Floating Share ~~Arrangement;~~

•~~the ability of Acreage to meets its performance targets and financial thresholds agreed upon~~Arrangement with Canopy ~~Growth as part of the Amended Arrangement;~~Growth;

•the likelihood of Canopy Growth completing the acquisition of the Fixed Shares ~~and timing thereof;~~and/or Floating Shares;

•~~the likelihood of Canopy USA completing the acquisition of the Floating Shares and timing thereof;~~

•~~the ability of the parties to the Floating Share Arrangement to receive, in a timely manner and on satisfactory terms, the necessary regulatory, court and shareholder approvals;~~

•~~the ability of the parties to satisfy, in a timely manner, the other conditions to the completion of the Floating Share Agreement;~~

•the ability of the parties to each of the Amending Agreement and the Floating Share Agreement to satisfy, in a timely manner, the conditions to closing of each of the Amended Arrangement and the Floating Share Arrangement, respectively;

•~~in the event that the Floating Share Arrangement is not adopted, the likelihood of completion of the acquisition of the Floating Shares pursuant to an alternative transaction;~~

•~~in the event that the Floating Share Arrangement is not adopted, the likelihood of Canopy Growth completing the acquisition of the Fixed Shares under the Amended Arrangements;~~ risks related to the ability ~~of the Company~~ to finance ~~its~~Acreage’s business and fund its obligations;

•other expectations and assumptions concerning the transactions contemplated between Canopy Growth ~~and/~~and Acreage;

•in the event that the Floating Share Arrangement is completed, the likelihood of Canopy completing the Acquisition in accordance with the Existing Arrangement Agreement;

•the risk of a change of control of either Canopy or Canopy USA;

•the impact of material non-recurring expenses in connection with the Floating Share Arrangement on Acreage’s future results of operations, cash flows and financial condition;

•the ability of Canopy, Canopy USA and ~~Acreage;~~Acreage to leverage each other’s respective capabilities and resources;

•the available funds of Acreage and the anticipated use of such funds;

•the availability of financing opportunities for Acreage and the risks associated with the completion thereof;

•regulatory and licensing risks;

•changes in general economic, business and political conditions, including changes in the financial and stock markets;

•~~risks related to infectious diseases, including the impacts of COVID-19;~~

•legal and regulatory risks inherent in the cannabis industry;

•risks associated with economic conditions, dependence on management and currency risk;

•risks relating to U.S. regulatory landscape and enforcement related to cannabis, including political risks;

•risks relating to anti-money laundering laws and regulation;

•~~risks relating to shortages in materials and increased costs for transportation, energy, and raw material due in part to the negative impact of the Russia-Ukraine war on the global economy;~~

•other governmental and environmental regulation;

•public opinion and perception of the cannabis industry;

•risks related to contracts with third-party service providers;

•risks related to the enforceability of contracts and lack of access to U.S. bankruptcy protections;

•reliance on the expertise and judgment of senior management of Acreage;

•risks related to proprietary intellectual property and potential infringement by third parties;

•the concentrated voting control of Acreage’s founder and the unpredictability caused by Acreage’s capital structure;

•the dual structure of the Fixed and Floating Shares

•risks relating to the management of growth;

•increasing competition in the industry;

•risks inherent in an agricultural business;

•risks relating to energy costs;

•risks associated with cannabis products manufactured for human consumption including potential product recalls;

•reliance on key inputs, suppliers and skilled labor;

•cybersecurity risks;

•ability and constraints on marketing products;

•fraudulent activity by employees, contractors and consultants;

•tax and insurance related risks;

•risks related to the economy generally;

•risk of litigation;

•conflicts of interest;

•risks relating to certain remedies being limited and the difficulty of enforcement judgments and effecting service outside of Canada;

•risks related to future acquisitions or dispositions;

•sales by existing shareholders; and

•limited research and data relating to cannabis.

A description of additional assumptions used to develop such forward-looking statements and a description of additional risk factors that may cause actual results to differ materially from forward-looking statements can be found in Part I, Item 1A of the Company’s Annual Report on Form 10-K, under the heading “Risk Factors”, dated ~~March 11, 2022,~~May 1, 2023, as filed with the Securities and Exchange Commission. Although Acreage has attempted to identify important factors that could cause actual results to differ materially from those contained in forward-looking statements, there may be other factors that cause results not to be as anticipated, estimated or intended. Readers are cautioned that the foregoing list of factors is not exhaustive. Readers are further cautioned not to place undue reliance on forward-looking statements as there can be no assurance that the plans, intentions or expectations upon which they are placed will occur. Forward-looking statements contained in this Form 10-Q are expressly qualified by this cautionary statement. The forward-looking statements contained in this Form 10-Q represent the expectations of Acreage as of the date of this Form 10-Q and, accordingly, are subject to change after such date. However, Acreage expressly disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as expressly required by applicable securities law.

Management’s discussion and analysis of financial condition and results of operations is intended to help provide an understanding of the Company’s financial condition, changes in financial condition and results of operations. This discussion is organized as follows:

•Overview—This section provides a general description of the Company’s businesses, its strategic objectives, as well as developments that occurred during the three ~~and nine~~ months ended ~~September 30,~~March 31, 2023 and 2022 ~~and 2021~~ that the Company believes are important in understanding its results of operations and financial condition or to disclose known trends.

•Results of Operations—This section provides an analysis of the Company’s results of operations for the three ~~and nine~~ months ended ~~September 30, 2022~~March 31, 2023 and ~~2021.~~2022. This analysis is presented on a consolidated basis. In addition, a brief description is provided of significant transactions and events that impact the comparability of the results being analyzed.

•Liquidity and Capital Resources—This section provides an analysis of the Company’s cash flows for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2023 and 2022, ~~and 2021,~~ as well as a discussion on the Company’s outstanding debt and commitments that existed as of ~~September 30, 2022.~~March 31, 2023. Included in the discussion of outstanding debt is a discussion of the amount of financial capacity available to fund the Company’s future commitments and obligations, as well as a discussion of other financing arrangements.

Overview

Acreage, a vertically integrated, multi-state operator of cannabis licenses and assets in the U.S, was continued into the Province of British Columbia under the Business Corporations Act (British Columbia). Acreage Fixed Shares and Floating Shares (as such terms are defined at Note 13 of the unaudited condensed consolidated financial statements) are each listed on the Canadian Securities Exchange under the symbols “ACRG.A.U” and “ACRG.B.U”, respectively, and are quoted on the OTCQX® Best Market by OTC Markets Group under the symbols “ACRHF” and “ACRDF”, respectively and on the Open Market of the Frankfurt Stock Exchange under the symbols “0VZ1” and “0VZ2”, respectively. Acreage operates through its consolidated subsidiary High Street Capital Partners, LLC (“HSCP”), a Delaware limited liability company. HSCP, which does business as “Acreage Holdings”, was formed on April 29, 2014. The Company became an indirect parent of HSCP on November 14, 2018 in connection with a reverse takeover (“RTO”) transaction. The Company’s operations include (i) cultivating cannabis plants, (ii) manufacturing branded consumer products, (iii) distributing cannabis flower and manufactured products, and (iv) retailing high-quality, effective and dosable cannabis products to consumers. The Company appeals to medical and adult-use customers through brand strategies intended to build trust and loyalty.

As of ~~September 30, 2022,~~March 31, 2023, Acreage owned and operated a total of twenty-three dispensaries - four in New York, three in New Jersey, three in Connecticut, two in Massachusetts, two in Illinois, five in Ohio, and four in Maine. As of ~~September 30, 2022,~~March 31, 2023, Acreage owned and operated a total of nine cultivation and processing facilities, one each in California, Illinois, Maine, New Jersey, New York, Ohio and Pennsylvania, respectively, and two in Massachusetts.

Strategic Priorities

The Company believes its ~~refocused~~focused strategy is the key to continued improvements in its financial results and shareholder value. ~~The~~For the past few years, the Company ~~remains~~was focused on three key strategic objectives - accelerating growth in its core markets, driving profitability, and strengthening the balance sheet. For 2023 and onwards, the Company has modified its strategic objectives in response to Company and industry developments - focus on cash, accelerate growth in core markets with core brands and prepare for Canopy USA.

Focus on Cash: A combination of economic conditions, lack of regulatory change and industry competition impacting pricing has negatively impacted the Company’s ability to generate cash flow to support operational requirements and capital activities. Additionally, these factors have likely limited the additional capital that might be available to the Company. While these factors continue, the Company will focus on maximizing the cash flow generated by operating activities and limit capital expenditures to only those projects that can be funded from existing resources and are expected to generate near-term returns.

Accelerating Growth in Core Markets with Core Brands: Through prior acquisitions and capital expenditures, management believes Acreage is well positioned for future success in several key markets as regulations regarding the use of cannabis continue to evolve. The Company will continue to focus its growth on its core markets where it can take advantage of and expand on the presence already established. Additionally, the Company has developed a portfolio of core brands that resonate with its customers. The Company will focus on ensuring that these core brands feature prominently in the markets where they are available.

~~Driving Profitability~~Prepare for Canopy USA:: The Company's focus on improving operational and financial results has generally resulted in improving profitability. Management continues to diligently control costs, improve operational efficiencies, and accelerate organic growth in its core markets to continue to report improved profitability going forward.

~~Strengthening~~ During the ~~Balance Sheet~~: Strengthening the balance sheet is key to both providing the Company with the necessary capital to achieve its operational plans and building shareholder confidence. The Company has worked to ensure that sufficient capital is available when needed. Going forward, the Company will monitor the capital markets and utilize opportunities to access additional debt or equity, or both, when it is necessary and advantageous to do so.

~~Highlights from the three and nine months ended September 30,~~fourth quarter of 2022,:

•~~Subsequent to the end of the quarter,~~ the Company entered into a new strategic arrangement with Canopy Growth that, would allow Canopy Growth to acquire 100% of Acreage by i)(i) waiving its existing Floating Share option and entering into a new Floating Share acquisition agreement; and ~~ii)~~(ii) committing to exercise its Fixed Share option, all subject to required approvals and terms of the related agreements. Throughout 2023, the Company will take all steps necessary to prepare for the eventual closing of this transactions.

•Highlights from the three months ended March 31, 2023~~Subsequent to the end of the quarter, the Company amended its $150 million credit facility to provide immediate access to $25 million and increased flexibility through updated covenants.~~

•Subsequent to the end of the quarter, the Company’s social equity joint venture in Connecticut was approved for both a Disproportionately Impacted Area Cultivation License and an Adult-use Cannabis Retailer license.:

•The ~~Company achieved~~Company’s total consolidated revenue ~~growth of 28% and 37%~~declined 2% as compared with the three ~~and nine~~ months ended ~~September 30, 2021, respectively.~~March 31, 2022. After adjusting for acquisitions and divestitures, revenue for the 3 months ended March 31, 2023 was relatively consistent with the comparable period in the prior year.

•Adjusted EBITDA for the three ~~and nine~~ months ended ~~September 30, 2022~~March 31, 2023 was ~~$8.8~~$10.6 million, ~~and $27.9 million, respectively,~~ compared to adjusted EBITDA of ~~$6.5~~$8.6 million ~~and $16.2 million, respectively,~~ during the same period in

~~2021.~~ 2022. Excluding the impact of the reversal of bonus provisions related to the prior year, adjusted EBITDA for the three months ended March 31, 2023 was $6.3 million. This marks ~~seven~~nine consecutive quarters of positive adjusted EBITDA, further validating management's refocused strategic plan. Refer to section “Non-GAAP Information” ~~in this Item 2~~ for a discussion of Adjusted EBITDA as a non-GAAP measure.

•Launched Botanist Vape Cartridges and Disposables in Illinois as well as Superflux Cured Concentrates to build on reputation of national brand. Further, Superflux Won Best Vape Pen and Cartridge category in High Times Cannabis Cup Illinois with their Live Resin Margalope Cartridge.

•On ~~July 5, 2022,~~January 2, 2023, the Company ~~completed~~acquired cultivation, processing and retail operations in Maine from a third party who provided cultivation, manufacturing, processing, distribution and handling, recordkeeping, compliance, and other services to the ~~sale of its four remaining Oregon dispensaries for total proceeds of $6.2 million with $5.85 million being satisfied by a 36 month promissory note bearing interest at a rate of 12% per annum.~~Company’s operations in Maine.

•On ~~May 3, 2022, the Company completed the sale of its cultivation facility in Medford, Oregon for total proceeds of $2.0 million.~~

•~~On May 1, 2022, the Company acquired and converted to adult use the final dispensary owned by our partner in Maine.~~

•~~On April 25, 2022,~~January 10, 2023, the Company commenced adult-use operations in ~~New Jersey,~~Connecticut, offering a range of products from our flagship brand The Botanist for adult-use ~~sales.~~sales in Montville.

•On January 31, 2023, the Company launched “Fast-Acting Gummies” or “TiME Gummies” under its flagship brand The Botanist in Illinois, Maine, Massachusetts, and Ohio.

•The Floating Share Arrangement was approved at a special meeting of the holders of Floating Shares held on March 15, 2023. Refer to Note 13 for further discussion.

Operational and Regulation Overview (all amounts in thousands, except per share amounts)

The Company believes its operations are in material compliance with all applicable state and local laws, regulations and licensing requirements in the states in which it operates. However, cannabis is illegal under U.S. federal law. Substantially all of the Company’s revenue is derived from U.S. cannabis operations. For information about risks related to U.S. cannabis operations, please refer to Item 1A of the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2021.~~

~~COVID-19~~

In response to the outbreak, governmental authorities in the United States, Canada and internationally have introduced various recommendations and measures to try to limit the pandemic, including travel restrictions, border closures, non-essential business closures, quarantines, self-isolations, shelters-in-place and social distancing. The COVID-19 outbreak and the response of governmental authorities to try to limit it are having a significant impact on the private sector and individuals, including unprecedented business, employment and economic disruptions. Management has been closely monitoring the impact of COVID-19, with a focus in the health and safety of our employees, business continuity and supporting our communities. The Company implemented various measures at the height of the pandemic to reduce the spread of the virus, such as implementing social distancing measures at its facilities. Most of these measures are no longer considered to be necessary or required; however, the Company reserves the right to implement similar precautionary measures in the future as circumstances change.

Aside from minimal impact to our day-to-day operations at select locations, COVID-19 has had an immaterial impact overall on our Company’s performance as key performance metrics are trending positively, including, but not limited to, significant improvements to net revenue and net loss as well as positive adjusted EBITDA results.2022.

Results of Operations

The following table presents selected financial data derived from the unaudited condensed consolidated financial statements of the Company for the three ~~and nine~~ months ended ~~September 30, 2022~~March 31, 2023 and ~~2021.~~2022. The selected financial information set out below may not be indicative of the Company’s future performance.

Summary Results of Operations


						Better/(Worse)									Better/(Worse)													Better/(Worse)
in thousands, except per share amounts	in thousands, except per share amounts	Three Months Ended September 30,				2022 vs. 2021				Nine Months Ended September 30,				2022 vs. 2021					in thousands, except per share amounts	Three Months Ended March 31,						2023 vs. 2022
		2022		2021		$		%		2022		2021			$		%							2023				2022			$			%
Revenues, net	Revenues, net	$	61,419	$	48,152	$	13,267	28	%	$	179,649	$	130,762		$	48,887	37	%				Revenues, net		$	55,963			$	56,879		$	(916)		(2)	%
Net operating loss		(16,435)		(6,494)		(9,941)		(153)		(15,847)		(11,444)			(4,403)		(38)
Net operating income (loss)																					Net operating income (loss)		1,145				(2,722)			3,867			n/m
Net loss attributable to Acreage	Net loss attributable to Acreage	(22,214)		(12,296)		(9,918)		(81)		(44,837)		(22,657)			(22,180)		(98)					Net loss attributable to Acreage		(14,590)				(12,694)			(1,896)			(15)
Basic and diluted loss per share attributable to Acreage	Basic and diluted loss per share attributable to Acreage	$	(0.20)	$	(0.12)	$	(0.08)	(67)	%	$	(0.41)	$	(0.22)		$	(0.19)	(86)	%				Basic and diluted loss per share attributable to Acreage		$	(0.13)			$	(0.12)		$	(0.01)		(8)	%

Revenues, Cost of goods sold and Gross profit

The Company derives its revenues from sales of cannabis and cannabis-infused products through retail dispensary, wholesale and manufacturing and cultivation businesses, as well as from management or consulting fees from entities for whom the Company provides management or consulting services.

Gross profit is revenue less cost of goods sold. Cost of goods sold includes costs directly attributable to inventory sold such as direct material, labor, and overhead, including depreciation. Such costs are further affected by various state regulations that limit the sourcing and procurement of cannabis and cannabis-related products, which may create fluctuations in gross profit over comparative periods as the regulatory environment changes.


								Better/(Worse)											Better/(Worse)											Better/(Worse)
in thousands	in thousands	Three Months Ended September 30,						2022 vs. 2021				Nine Months Ended September 30,						2022 vs. 2021					in thousands		Three Months Ended March 31,	2023 vs. 2022
		2022			2021			$		%		2022			2021				$		%						2023			2022			$		%
Retail revenue, net	Retail revenue, net	$	48,314		$	30,795		$	17,519	57	%	$	136,426		$	85,038			$	51,388	60	%		Retail revenue, net			$	41,881		$	41,427		$	454	1	%
Wholesale revenue, net	Wholesale revenue, net	12,810			17,077			(4,267)		(25)		42,342			42,634				(292)		(1)			Wholesale revenue, net			13,998			15,172			(1,174)		(8)
Other revenue, net	Other revenue, net	295			280			15		5		881			3,090				(2,209)		(71)			Other revenue, net			84			280			(196)		(70)
Total revenues, net	Total revenues, net	$	61,419		$	48,152		$	13,267	28	%	$	179,649		$	130,762			$	48,887	37	%		Total revenues, net			$	55,963		$	56,879		$	(916)	(2)	%
Cost of goods sold, retail	Cost of goods sold, retail	(26,097)			(16,279)			(9,818)		(60)		(70,331)			(43,412)				(26,919)		(62)			Cost of goods sold, retail			(20,414)			(20,768)			354		2
Cost of goods sold, wholesale	Cost of goods sold, wholesale	(14,096)			(8,069)			(6,027)		(75)		(27,968)			(19,049)				(8,919)		(47)			Cost of goods sold, wholesale			(8,964)			(6,601)			(2,363)		(36)
Total cost of goods sold	Total cost of goods sold	$	(40,193)		$	(24,348)		$	(15,845)	(65)	%	$	(98,299)		$	(62,461)			$	(35,838)	(57)	%		Total cost of goods sold			$	(29,378)		$	(27,369)		$	(2,009)	(7)	%
Gross profit	Gross profit	$	21,226		$	23,804		$	(2,578)	(11)	%	$	81,350		$	68,301			$	13,049	19	%		Gross profit			$	26,585		$	29,510		$	(2,925)	(10)	%
Gross margin	Gross margin	35		%	49		%			(14)	%	45		%	52		%				(7)	%		Gross margin			48		%	52		%			(4)	%
n/m - Not Meaningful	n/m - Not Meaningful																							n/m - Not Meaningful

Three months ended ~~September 30,~~March 31, 2023 vs. 2022 ~~vs. 2021~~

Total revenues for the three months ended ~~September 30, 2022 grew~~March 31, 2023 declined by ~~$13,267,~~$916, or ~~28%~~2%, compared ~~with 2021. On a comparative basis,~~to the three months ended March 31, 2022. The decline in total revenue ~~increased by $14,208~~was primarily due to i)a decrease of $1,238 related to the ~~acquisitions of Greenleaf Ohio in October 2021 and ii) the acquisition of certain Maine operations and offset by iii) the disposition~~divestiture of the Company’s operations in Oregon, offset by an increase of $485 due to the acquisitions of a Maine dispensary in ~~July~~ 2022. Excluding these acquisitions and ~~divestitures/closures,~~divestitures, total revenue decreased by ~~$941, or 2%~~$163 for the three months ended ~~September 30, 2022,~~March 31, 2023, as compared to ~~2021.~~

2022.

Retail revenue for the three months ended ~~September 30, 2022~~March 31, 2023 grew by ~~$17,519,~~$454, or ~~57%~~1%, compared ~~with 2021.~~to the three months ended March 31, 2022. Excluding the impact of acquisitions and ~~divestitures/closures,~~divestitures, retail revenue increased by ~~$4,730~~$1,208, or ~~16%~~3%, for the three months ended ~~September 30, 2022~~March 31, 2023 compared to ~~fiscal 2021.~~the three months ended March 31, 2022. This organic growth was primarily driven by ~~increased demand~~the commencement of adult use sales in New Jersey in April 2022 and ~~production across various states, offset by price compression.~~Connecticut in January 2023.

Wholesale revenue for the three months ended ~~September 30, 2022~~March 31, 2023 decreased by ~~$4,267,~~$1,174, or ~~25%~~8%, compared to ~~fiscal 2021.~~the three months ended March 31, 2022. The ~~decreased~~decline in wholesale revenue was primarily due to price compression and decreased wholesale demand in select markets, ~~and somewhat offset by~~particularly in those markets where integrated operators put a greater focus on the ~~acquisition~~sales of ~~Greenleaf Ohio.~~their own internally produced products.

Retail cost of goods sold increased ~~$9,818,~~$354, or ~~60%~~2%, for the three months ended ~~September 30, 2022~~March 31, 2023 compared to ~~2021,~~2022, which was generally consistent with the ~~57%~~1% increase in retail revenue. Price compression in select markets was offset by cost efficiencies.

Wholesale cost of goods sold increased ~~$6,027,~~$2,363, or ~~75%~~36%, for the three months ended ~~September 30, 2022~~March 31, 2023 compared to ~~2021,~~2022, which outpaced the ~~25% increase~~8% decrease in wholesale revenue. Wholesale cost of goods sold increased due to ~~$6,286~~$2,237 of non-cash inventory adjustments made induring the three months ended ~~September 30, 2022~~March 31, 2023 as a result of i) excess inventory in select markets,

~~ii)~~ reducing the carrying value of wholesale inventory to reflect the lower of cost and net realizable ~~value and iii) increased costs due to inflation. Excluding these non-cash inventory adjustments, wholesale costs of goods sold decreased $259 or 3%.~~

Gross profit decreased $2,578, or 11%, for the three months ended September 30, 2022 to $21,226 from $23,804 in 2021. Gross margin decreased from 49% of revenue for the three months ended September 30, 2021 to 35% of revenue in 2022, or (14)%. Efficiencies gained from further economies of scale were unable to offset overall selling price declines, cost increases due to inflation, and the aforementioned wholesale non-cash inventory adjustments. Excluding these non-cash inventory adjustments, margin decreased to 45%.

~~Nine months ended September 30, 2022 vs. 2021~~

Total revenues for the nine months ended September 30, 2022 grew by $48,887, or 37%, compared with 2021. On a comparative basis, total revenue increased by $49,066 due to the acquisitions of (i) Greenleaf Ohio in October 2021, (ii) certain Maine operations and (iii) CWG in May 2021 and was offset by decreases of $3,428 due to the decreased performance and ultimate divestiture of the Company’s operations in Oregon in July 2022 and the divestiture of Acreage Florida in April 2021. Additionally, total revenue for the prior comparative nine months ended September 30, 2021 included (i) $2,530 of previously unrecognized management fees in New Hampshire, some of which related to prior periods and (ii) a bulk wholesale sale transaction of $1,500 that did not recur. Excluding these acquisitions and divestitures/closures, the impact of total revenue declines in the Company’s Oregon operations and the non-recurring transactions for the nine months ended September 30, 2021, total revenue increased by $3,249, or 3%, for the nine months ended September 30, 2022, as compared to fiscal 2021.

Retail revenue for the nine months ended September 30, 2022 grew by $51,388, or 60%, compared with 2021. Excluding the impact of acquisitions and divestitures/closures, as well as declines in the Company’s Oregon operations prior to their ultimate sale, retail revenue increased by $9,790, or 12%, for the nine months ended September 30, 2022 compared to the nine months ended 2021. This organic growth was primarily driven by increased demand and production across various states.

Wholesale revenue for the nine months ended September 30, 2022 decreased slightly by $292, or 1%, compared to fiscal 2021. The relatively flat wholesale revenue was primarily due to increased capacity, coupled with maturing operations offset by price compression and decreased wholesale demand in select markets. Additionally, wholesale revenue for the nine months ended September 30, 2022 increased by $4,040 due to acquisitions that have occurred over the prior 24 months which was somewhat offset by a bulk wholesale sale transaction of $1,500 in the second quarter of 2021 that did not recur.

Retail cost of goods sold increased $26,919, or 62%, for the nine months ended September 30, 2022 compared to 2021, which was generally consistent with the 60% increase in retail revenue. Price compression in select markets was offset by cost efficiencies.

Wholesale cost of goods sold increased $8,919, or 47%, for the nine months ended September 30, 2022 compared to 2021, which outpaced the 1% decrease in wholesale revenue. Wholesale cost of goods sold increased due to $6,286 of non-cash inventory adjustments made in the nine months ended September 30, 2022 as a result of i) excess inventory in select markets, ii) reducing the carrying value of wholesale inventory to reflect the lower of cost and net realizable value and iii) increased costs due to inflation.value. Excluding these non-cash inventory adjustments, wholesale costs of goods sold increased ~~$2,633~~$129 or ~~14%~~2%. Cost increases and product mix shifts drove the increase in wholesale cost of goods sold.

Gross profit ~~increased $13,049,~~decreased $2,925, or ~~19%~~10%, for the ~~nine~~three months ended ~~September 30,~~March 31, 2023 to $26,585 from $29,510 in 2022, ~~to $81,350 from $68,301 in 2021,~~ and Gross margin decreased from 52% of revenue for the ~~nine~~three months ended ~~September 30, 2021~~March 31, 2022 to ~~45%~~48% of revenue in ~~2022,~~2023, or ~~(7)%~~4%, due to the factors discussed above. Efficiencies gained from further economies of scale were unable to offset overall selling price declines, cost increases due to inflation, and the aforementioned wholesale non-cash inventory adjustments. Excluding ~~these~~the non-cash inventory adjustments, margin decreased slightly to ~~49%~~51%.

Revenue by geography

While the Company operates under one operating segment for the production and sale of cannabis products, the below revenue breakout by geography is included as management believes it provides relevant and useful information to investors.


Revenue by region	Revenue by region					Better/(Worse)									Better/(Worse)					Revenue by region							Better/(Worse)
in thousands	in thousands	Three Months Ended September 30,				2022 vs. 2021				Nine Months Ended September 30,				2022 vs. 2021					in thousands			Three Months Ended March 31,	2023 vs. 2022
		2022		2021		$		%		2022		2021			$		%							2023	2022			$		%
New England	New England	$	16,481	$	19,893	$	(3,412)	(17)	%	$	49,293	$	56,070		$	(6,777)	(12)	%			New England			15,088	$	16,426		$	(1,338)	(8)	%
Mid-Atlantic	Mid-Atlantic	21,235		14,694		6,541		45		56,125		43,474			12,651		29				Mid-Atlantic			20,276	15,355			4,921		32
Midwest	Midwest	23,096		10,012		13,084		131		70,059		22,333			47,726		214				Midwest			20,317	23,169			(2,852)		(12)
West	West	607		3,553		(2,946)		(83)		4,172		8,264			(4,092)		(50)				West			282	1,929			(1,647)		(85)
South		—		—		—		n/m		—		621			(621)		(100)

Total revenues, net	Total revenues, net	$	61,419	$	48,152	$	13,267	28	%	$	179,649	$	130,762		$	48,887	37	%			Total revenues, net			55,963	$	56,879		$	(916)	(2)	%

n/m - Not Meaningful

Total operating expenses

Total operating expenses consist primarily of loss on impairments, compensation expense at our corporate offices as well as operating subsidiaries, professional fees, which includes, but is not limited to, legal and accounting services, depreciation and other general and administrative expenses.

Operating expenses Better/(Worse) Better/(Worse)
in thousands Three Months Ended September 30, 2022 vs. 2021 Nine Months Ended September 30, 2022 vs. 2021
2022 2021 $ % 2022 2021 $ %
General and administrative $ 9,727 $ 8,465 $ 1,262 15 % $ 27,036 $ 23,067 $ 3,969 17 %
Compensation expense 15,271 10,699 4,572 43 42,045 32,236 9,809 30
Equity-based compensation expense 3,156 4,168 (1,012) (24) 8,970 17,191 (8,221) (48)
Marketing 735 583 152 26 2,396 992 1,404 142
Impairments, net 506 2,339 (1,833) (78) 2,973 3,157 (184) (6)
Loss on notes receivable 7,219 — 7,219 n/m 7,219 1,726 5,493 318
Write down (recovery) of assets held-for-sale — — — n/m 874 (8,616) 9,490 n/m
Legal settlements (recoveries) — — — n/m (335) 322 (657) n/m
Depreciation and amortization 1,047 4,044 (2,997) (74) 6,019 9,670 (3,651) (38)
Total operating expenses $ 37,661 $ 30,298 $ 7,363 24 % $ 97,197 $ 79,745 $ 17,452 22 %
n/m - Not Meaningful


Operating expenses							Better/(Worse)
in thousands	Three Months Ended March 31,			2023 vs. 2022
		2023			2022			$		%
General and administrative		$	10,512		$	8,387		$	(2,125)	(25)	%
Compensation expense		12,203			14,195			1,992		14
Equity-based compensation expense		984			4,159			3,175		76
Marketing		744			697			(47)		(7)
Impairments, net		—			2,138			2,138		n/m

Write down (recovery) of assets held-for-sale		—			874			874		n/m
Legal settlements (recoveries)		—			(25)			(25)		n/m
Depreciation and amortization		997			1,807			810		45
Total operating expenses		$	25,440		$	32,232		$	6,792	21	%

n/m - Not Meaningful

Three months ended ~~September 30,~~March 31, 2023 vs. 2022 ~~vs. 2021~~

Total operating expenses for the three months ended ~~September 30, 2022~~March 31, 2023 were ~~$37,661,~~$25,440, an ~~increase~~decrease of ~~$7,363,~~$6,792, or ~~24%~~21%, compared with ~~2021.~~2022. The primary drivers of the increase in operating expenses were as follows:

•General and administrative expenses increased ~~$1,262~~$2,125 during the three months ended ~~September 30, 2022~~March 31, 2023 compared with ~~2021,~~2022, primarily due to ~~(i) increased costs associated with the Company’s expanded operations from both organic growth and acquisitions, (ii) an~~ increases in ~~professional fees, which was driven by professional and consulting fees incurred, and (iii) an increase in~~(i) the cost of ~~insurance.~~insurance, fees, permits and licenses, (ii) bad debt expenses of $1,250 related to the write-off of previously recognized management fees which are not collectible, (iii) increased travel as restrictions have been lifted and (iv) increased office expenses.

•Compensation expense ~~increased $4,572~~decreased $1,992 during the three months ended ~~September 30, 2022~~March 31, 2023 as compared with ~~2021,~~2022, primarily due to ~~increased headcount required~~the reversal of bonus provisions related to ~~manage~~ the ~~Company’s expanded operations, including the acquisitions of Greenleaf during the period, as well as certain non-recurring retention payments made in the current period.~~prior year.

•Equity-based compensation expense decreased ~~$1,012,~~$3,175, or ~~24%~~76%, during the three months ended ~~September 30, 2022~~March 31, 2023 as compared with ~~2021,~~2022, primarily due to ~~benefits associated with reorganization efforts undertaken in~~the fully vesting, prior ~~periods, resulting in the acceleration of restricted share vesting for certain employees and previously issued awards becoming fully vested and cancelled in prior periods.~~

•Impairments, net decreased $1,833 for the nine months ended September 30, 2022 as compared with 2021, which was primarily driven by the non-recurrence of the write-off of $2,339 of capital assets at the Sewell, New Jersey locations resulting from damage by Hurricane Ida.

•~~Loss on notes receivable for~~to the three months ended ~~September 30,~~March 31, 2023 of certain historic equity-based compensation grants and no annual grants have been issued to employees during 2023 under the Company’s normal long-term incentive plan.

•There were no impairments in the three months ended March 31, 2023. The impairments in the comparative period of 2022 isare primarily due to an impairment of $1,907 related to certain Michigan locations as the ~~determination that~~Company was unsuccessful in finding a satisfactory buyer for these assets which were previously classified as held-for-sale.

•There were no write downs or recoveries of assets held-for-sale in the ~~payment for certain notes receivables was doubtful based on~~three months ended March 31, 2023. The write downs of assets held-for-sale in the ~~most recent information available~~comparative period of 2022 relate to the ~~Company.~~Company’s Oregon operations which were disposed of in the year ended December 31, 2022.

•Depreciation and amortization expenses decreased by ~~$2,997~~$810 during the three months ended ~~September 30, 2022~~March 31, 2023 compared with ~~2021,~~2022, primarily due to an acceleration of the amortization of certain intangible assets as a result of a reduction in the expected useful lives of such assets during the three months ended ~~September 30, 2021.~~

~~Nine months ended September 30,~~March 31, 2022 ~~vs. 2021~~

Total operating expenses for the nine months ended September 30, 2022 were $97,197, an increase of $17,452, or 22%, compared with 2021. The primary drivers of the decrease in operating expenses were as follows:

•~~General~~ and administrative expenses increased $3,969 during the nine months ended September 30, 2022 compared with 2021, primarily due to increases in (i) professional fees, which was driven by professional and consulting fees incurred, (ii) an increase in the cost of insurance, fees, permits and licenses and (iii) increased costs associated with the Company’s expanded operations from both organic growth and acquisitions.

•Compensation expense increased $9,809 during the nine months ended September 30, 2022 as compared with 2021, primarily due to increased headcount required to manage the Company’s expanded operations, including the acquisitions of certain Maine operations, CWG, and Greenleaf during the period, as well as certain non-recurring retention payments made in the current period.

•Equity-based compensation expense decreased $8,221, or 48%, during the nine months ended September 30, 2022 as compared with 2021, primarily due to benefits associated with reorganization efforts undertaken in prior periods, resulting in the acceleration of restricted share vesting for certain employees and previously issued awards becoming fully vested and cancelled in prior periods. Additionally, no annual grants were issued to employees under the Company’s normal long-term incentive plan until July 2022 for the current year-to-date period.

•~~The loss on notes receivable for the nine months ended September 30, 2022 and September 30, 2021 is~~ due to the ~~determination that the payment for certain notes receivables were doubtful based on the most recent information available to the Company.~~

•Write down (recovery) of assets held-for-sale of $874 for the nine months ended September 30, 2022 related to the Company’s Oregon operations, Write down (recovery) of assets held-for-sale of for the nine months ended September 30, 2021 were due to a recovery that was attributable to the Company agreeing on terms to sell Acreage Florida, and determining that the fair value less costs to sell its Acreage Florida disposal group increased $8,616 in excess of its previously written down value.

•~~Depreciation and amortization expenses decreased by $2,997 during the three months ended September 30, 2022 compared with 2021, primarily due to an acceleration of the amortization~~impairment of certain intangible assets ~~as a result of a reduction~~ in the ~~expected useful lives of such assets during the nine months~~year ended ~~September 30, 2021.~~December 31, 2022.

Total other income (loss)


Other income (loss)	Other income (loss)					Better/(Worse)									Better/(Worse)					Other income (loss)									Better/(Worse)
in thousands	in thousands	Three Months Ended September 30,				2022 vs. 2021				Nine Months Ended September 30,				2022 vs. 2021					in thousands				Three Months Ended March 31,	2023 vs. 2022
		2022		2021		$		%		2022		2021			$		%									2023			2022			$			%
Income (loss) from investments, net	Income (loss) from investments, net	$	17	$	489	$	(472)	(97)	%	$	154	$	(777)		$	931	n/m					Income (loss) from investments, net				$	(342)		$	1,133		$	(1,475)		n/m
Interest income from loans receivable	Interest income from loans receivable	474		1,067		(593)		(56)		1,256		4,125			(2,869)		(70)	%				Interest income from loans receivable				16			417			(401)			(96)	%
Interest expense	Interest expense	(5,688)		(3,620)		(2,068)		(57)		(15,989)		(14,072)			(1,917)		(14)					Interest expense				(8,074)			(4,781)			(3,293)			(69)
Other income, net		4,743		80		4,663		n/m		5,019		7,825			(2,806)		(36)
Other loss, net																					Other loss, net				(1,553)			(10)			(1,543)			n/m
Total other loss	Total other loss	$	(454)	$	(1,984)	$	1,530	77	%	$	(9,560)	$	(2,899)		$	(6,661)	(230)	%				Total other loss				$	(9,953)		$	(3,241)		$	(6,712)		(207)	%

n/m - Not Meaningful	n/m - Not Meaningful																					n/m - Not Meaningful

Three months ended ~~September 30,~~March 31, 2023 vs. 2022 ~~vs. 2021~~

Total other loss for the three months ended ~~September 30, 2022~~March 31, 2023 was ~~$(454), a decrease~~$9,953, an increase of ~~$1,530~~$6,712 compared with ~~2021.~~2022. The primary drivers of the decrease in Total other income (loss) were as follows:

•~~Income~~Loss from investments, ~~and interest income from loans receivable have declined due to the performance~~net of ~~certain investments held by the Company and a reduced balance of notes receivable due to repayments that have occurred over the past 15 months.~~

•~~Interest expense~~$342 for the three months ended ~~September 30, 2022 of $5,688 increased by $2,068 as a result of the Company having a larger debt balance as compared to 2021.~~

•~~Other income, net for the three months ended September 30, 2022 of $4,743 increased by $4,663~~March 31, 2023 has decreased $1,475 as compared with ~~2021. Other income, net for the three months ended September 30,~~ 2022 ~~was primarily related to a gain on the sale of the Company’s Oregon operations of $3,189.~~

~~Nine months ended September 30, 2022 vs. 2021~~

~~Total other loss for the nine months ended September 30, 2022 was $9,560, an increase of $6,661 compared with 2021. The primary drivers of the decrease in Total other income (loss) were as follows:~~

•~~Income (loss) from investments, net of $154 for the nine months ended September 30, 2022 has increased $931 as compared with 2021~~ due to ~~improved performance of certain investments held by~~fair value adjustments to the ~~Company.~~investment in equity in other companies.

•Interest income from loans receivable of ~~$1,256~~$16 for the ~~nine~~three months ended ~~September 30, 2022~~March 31, 2023 has declined ~~$2,869~~$401 as compared with ~~2021~~2022 due to a reduction in loans receivable outstanding during the comparative period.

•Interest expense for the ~~nine~~three months ended ~~September 30, 2022~~March 31, 2023 of ~~$15,989~~$8,074 increased by ~~$1,917~~$3,293 as a result of the Company having a larger debt balance as compared to ~~2021, somewhat offset by a lower over blended~~2022 and due to an increased interest rate ~~that is payable~~ on a substantial portion of the Company’s debt.

•Other ~~income, net~~loss for the ~~nine~~three months ended ~~September 30, 2022~~March 31, 2023 of ~~$5,019 decreased~~$1,553 increased by ~~$2,806~~$1,543 as compared with ~~2021.~~2022. Other income, net for the ~~nine months~~year ended ~~September 30, 2022~~March 31, 2023 was primarily ~~related~~due to a gain on the sale of the Company’s Oregon operations of $3,189. Other income, net for the nine months ended September 30, 2021 was primarily related to a gain on the sale of Acreage Florida of $11,682 and was partially offset by the loss on the ~~subsequent sale~~termination of ~~notes receivable received as consideration from~~a lease related the ~~buyer of Acreage Florida of approximately $2,000 and by losses related to the disposal of capital assets related to Form Factory.~~Company’s operations in Massachusetts.

Net loss


Net loss	Net loss					Better/(Worse)									Better/(Worse)					Net loss						Better/(Worse)
in thousands	in thousands	Three Months Ended September 30,				2022 vs. 2021				Nine Months Ended September 30,				2022 vs. 2021					in thousands			Three Months Ended March 31,	2023 vs. 2022
		2022		2021		$		%		2022		2021			$		%							2023		2022		$		%
Net loss	Net loss	$	(24,998)	$	(14,057)	$	(10,941)	(78)	%	$	(49,512)	$	(26,004)		$	(23,508)	(90)	%			Net loss			$	(16,157)	$	(13,911)	$	(2,246)	(16)	%
Less: net loss attributable to non-controlling interests	Less: net loss attributable to non-controlling interests	(2,784)		(1,761)		(1,023)		(58)		(4,675)		(3,347)			(1,328)		(40)				Less: net loss attributable to non-controlling interests			(1,567)		(1,217)		(350)		(29)
Net loss attributable to Acreage Holdings, Inc.	Net loss attributable to Acreage Holdings, Inc.	$	(22,214)	$	(12,296)	$	(9,918)	(81)	%	$	(44,837)	$	(22,657)		$	(22,180)	(98)	%			Net loss attributable to Acreage Holdings, Inc.			$	(14,590)	$	(12,694)	$	(1,896)	(15)	%

n/m - Not Meaningful

The changes in net loss are driven by the factors discussed above.

Non-GAAP Information

This statement includes Adjusted EBITDA, which is a non-GAAP performance measure that we use to supplement our results presented in accordance with U.S. GAAP. The Company uses Adjusted EBITDA to evaluate its actual operating performance and for planning and forecasting future periods. The Company believes that the adjusted results presented provide relevant and useful information for investors because they clarify the Company’s actual operating performance, make it easier to compare our results with those of other companies and allow investors to review performance in the same way as our management. Since these measures are not calculated in accordance with U.S. GAAP, they should not be considered in isolation of, or as a substitute for, net loss or our other reported results of operations as reported under U.S. GAAP as indicators of our performance, and they may not be comparable to similarly named measures from other companies.

The Company defines Adjusted EBITDA as net income before interest, income taxes and, depreciation and amortization and excluding the following: (i) income from investments, net (the majority of the Company's investment income relates to remeasurement to net asset value of previously-held interests in connection with our roll-up of affiliates, and the Company expects income from investments to be a non-recurring item as its legacy investment holdings diminish), (ii) equity-based compensation expense, (iii) non-cash impairment losses, (iv) transaction costs, (v) non-cash inventory adjustments and (vi) other non-recurring expenses (other expenses and income not expected to recur).

4128


Adjusted EBITDA	Adjusted EBITDA					Better/(Worse)									Better/(Worse)					Adjusted EBITDA						Better/(Worse)
in thousands	in thousands	Three Months Ended September 30,				2022 vs. 2021				Nine Months Ended September 30,				2022 vs. 2021					in thousands			Three Months Ended March 31,	2023 vs. 2022
		2022		2021		$		%		2022		2021			$		%							2023		2022		$		%
Net loss (U.S. GAAP)	Net loss (U.S. GAAP)	$	(24,998)	$	(14,057)					$	(49,512)	$	(26,004)								Net loss (U.S. GAAP)			$	(16,157)	$	(13,911)
Income tax expense	Income tax expense	8,109		5,579						24,105		11,661									Income tax expense			7,349		7,948
Interest expense, net	Interest expense, net	5,214		2,553						14,733		9,947									Interest expense, net			8,058		4,364
Depreciation and amortization(1)	Depreciation and amortization(1)	2,583		4,590						9,930		11,384									Depreciation and amortization(1)			3,038		2,891
EBITDA (non-GAAP)	EBITDA (non-GAAP)	$	(9,092)	$	(1,335)	$	(7,757)	n/m		$	(744)	$	6,988		$	(7,732)	(111)	%			EBITDA (non-GAAP)			$	2,288	$	1,292	$	996	77	%
Adjusting items:	Adjusting items:																				Adjusting items:
Loss (income) from investments, net	Loss (income) from investments, net	(17)		(489)						(154)		777									Loss (income) from investments, net			342		(1,133)
Impairments, net	Impairments, net	506		—						2,596		818									Impairments, net			—		1,956
Non-cash inventory adjustments	Non-cash inventory adjustments	6,286		—						6,286		—									Non-cash inventory adjustments			2,237		—
Loss on extraordinary events(2)	Loss on extraordinary events(2)	—		2,339						376		2,339									Loss on extraordinary events(2)			1,492		182
Loss on notes receivable		7,219		—						7,219		1,726

Write down (recovery) of assets held-for-sale	Write down (recovery) of assets held-for-sale	—		—						874		(8,616)									Write down (recovery) of assets held-for-sale			—		874
Legal settlements, net	Legal settlements, net	—		—						(335)		322									Legal settlements, net			—		(25)
Gain on business divestiture	Gain on business divestiture	(3,200)		(109)						(3,496)		(11,791)									Gain on business divestiture			—		(4)
Equity-based compensation expense	Equity-based compensation expense	3,156		4,168						8,970		17,191									Equity-based compensation expense			984		4,159

Other non-recurring expenses(3)	Other non-recurring expenses(3)	3,989		1,924						6,267		6,425									Other non-recurring expenses(3)			3,250		1,326
Adjusted EBITDA (non-GAAP)	Adjusted EBITDA (non-GAAP)	$	8,847	$	6,498	$	2,349	36	%	$	27,859	$	16,179		$	11,680	72	%			Adjusted EBITDA (non-GAAP)			$	10,593	$	8,627	$	1,966	23	%

n/m - Not Meaningful

(1) Depreciation and amortization ~~as of September 30, 2021~~for the three months ended March 31, 2023 and 2022 contains depreciation and amortization included in cost of goods sold.

(2) Extraordinary items are events and transactions that are distinguished by their unusual nature and by the infrequency of their occurrence.

(3) Other non-recurring expenses relates to certain compensation, general and administrative, and other miscellaneous expenses. The Company excludes these items as they are not expected to recur.

The increases in adjusted EBITDA are driven by the factors discussed above.

LIQUIDITY AND CAPITAL RESOURCES

Liquidity

Sources and uses of cash (all amounts in thousands, except per share amounts)

The Company’s primary uses of capital include operating expenses, income taxes, capital expenditures and the servicing of outstanding debt. The Company’s primary sources of capital include funds generated by cannabis sales as well as financing activities. Through ~~September 30, 2022,~~March 31, 2023, the Company had primarily used private financing as a source of liquidity for short-term working capital needs and general corporate purposes.

As of ~~September 30, 2022,~~March 31, 2023, the Company had cash of ~~$26,476 (not including $95 of restricted cash).~~$14,251. The Company’s ability to fund its operations, capital expenditures, acquisitions, and other obligations depends on its future operating performance and ability to obtain financing, which are subject to prevailing economic conditions, as well as financial, business and other factors, some of which are beyond the Company’s control.

The Company’s future contractual obligations include the following:

Leases

As of ~~September 30, 2022,~~March 31, 2023, the Company had future operating lease obligations and future finance lease obligations of ~~$38,866~~$34,221 and ~~$21,365,~~$16,212, respectively, with ~~$1,147~~$3,359 and ~~$5,858~~$677 payable within the ~~remaining three~~next nine months, respectively. The Company leases land, buildings, equipment and other capital assets which it plans to use for corporate purposes in addition to the production and sale of cannabis products. Leases with an initial term of 12 months or less are not recorded on the Unaudited Condensed Consolidated Statements of Financial Position and are expensed in the Unaudited Condensed Consolidated Statements of Operations on the straight-line basis over the lease term. The Company does not have any material variable lease payments, and accounts for non-lease components separately from leases. Refer to Note 8 of the Unaudited Condensed Consolidated Financial Statements for further discussion.

Debt

~~Debt~~

As of ~~September 30, 2022,~~March 31, 2023, the Company had outstanding debt with varying maturities for an aggregate principal amount of ~~$202,092,~~$216,937 (net of $15,465 of unamortized discounts and debt issuance costs), with ~~$6,426~~$1,583 payable within the remaining ~~three~~nine months. The Company has related future interest payments of ~~$65,469,~~$73,514, with ~~$4,134~~$16,279 payable within the remaining ~~three~~nine months. In April 2023, the Company reached an agreement with its lenders that would allow it to draw a further $15,000 under its current credit agreement, but such funds would be restricted for use to only eligible capital expenditures. As part of this agreement, the Company agreed to not draw additional funds under the Credit Agreement. Refer to ~~Note~~Notes 10 and 17 of the Unaudited Condensed Consolidated Financial Statements for further discussion.

The Company expects that its total readily available funds of ~~$26,476~~$14,251 as of ~~September 30, 2022~~March 31, 2023 and its further ability to obtain private and/or public financing, will be adequate to support the future obligations discussed above as well as the capital needs of the existing operations and expansion plans over the next twelve months. Additionally, ~~subsequent to the end of the quarter,~~ the Company ~~amended~~has a further $15,000 of long-term debt available from its ~~$150~~committed debt facilities, but such funds are restricted for use to only eligible capital expenditures. Further, in February 2023, the Company filed for certain Employee Retention Tax Credits (“ERTC”) and it expects to receive approximately $15,000, less applicable agent fees and other expenses. On April 11, 2023, the Company sold, with recourse, the rights to receive certain Employee Retention Tax Credits (“ERTC”) with an aggregate receivable value of $14.3 million ~~credit facility to provide immediate access to $25 million~~for total proceeds of ~~the committed accordion with further access to the remaining $25 million of the committed accordion available on January 1, 2023 provided certain predetermined milestones are achieved.~~$12.1 million. Refer to Note 2 of the ~~Unaudited Condensed~~ Consolidated Financial Statements for further discussion.

Cash flows

Cash and cash equivalents ~~restricted cash, and cash held for sale~~ were ~~$26,571~~$14,251 as of ~~September 30, 2022,~~March 31, 2023, which represents a net decrease of ~~$17,930~~$9,816 for the ~~nine~~three months ended ~~September 30, 2022.~~March 31, 2023. The following table details the change in cash, cash equivalents, restricted cash and cash related to assets held for sale for the ~~nine~~three months ended ~~September 30, 2022~~March 31, 2023 and ~~2021.~~2022.


Cash flows	Cash flows						Better/(Worse)					Cash flows							Better/(Worse)
in thousands	in thousands	Nine Months Ended September 30,				2022 vs. 2021					in thousands		Three Months Ended March 31,				2023 vs. 2022
		2022		2021			$		%						2023		2022			$		%
Net cash used in operating activities	Net cash used in operating activities	$	(30,473)	$	(18,312)		$	(12,161)	(66)	%				Net cash used in operating activities	$	(8,070)	$	(5,363)		$	(2,707)	(50)	%
Net cash provided by (used in) investing activities		(5,328)		34,152			(39,480)		n/m
Net cash provided by (used in) financing activities		17,871		(40,995)			58,866		n/m
Net cash used in investing activities														Net cash used in investing activities	(1,714)		(6,066)			4,352		72
Net cash used in financing activities														Net cash used in financing activities	(32)		(11)			(21)		(191)
Net decrease in cash, cash equivalents, restricted cash, and cash held for sale	Net decrease in cash, cash equivalents, restricted cash, and cash held for sale	$	(17,930)	$	(25,155)		$	7,225	29	%				Net decrease in cash, cash equivalents, restricted cash, and cash held for sale	$	(9,816)	$	(11,440)		$	1,624	14	%

n/m - Not Meaningful	n/m - Not Meaningful													n/m - Not Meaningful

Net cash used in operating activities

During the ~~nine~~three months ended ~~September 30, 2022,~~March 31, 2023, the Company used ~~$30,473~~$8,070 of net cash in operating activities, which represented an increase of ~~$12,161,~~$2,707, or ~~66%~~50%, when compared with ~~2021.~~2022. Although the reported net loss increased by ~~$23,508~~$2,246 during the ~~nine~~three months ended ~~September 30, 2022~~March 31, 2023 when compared to the same period of ~~2021,~~2022, the net loss excluding non-cash items such as impairments, ~~equity based~~equity-based compensation, write-offs and recoveries, gains and losses on disposals and depreciation and amortization increased by ~~$10,044~~$3,656 when compared to the same period of ~~2021. Additionally,~~2022.

Net cash used in ~~operating activities for the nine months ended September 30, 2021 benefited from a difference in the timing of tax payments.~~

~~Net cash provided by (used in)~~ investing activities

During the ~~nine~~three months ended ~~September 30, 2022,~~March 31, 2023, the Company used ~~$5,328~~$1,714 of net cash through investing activities compared to ~~$34,152~~$6,066 of net cash ~~provided by~~used in investing activities in the same period for ~~the nine months ended September 30, 2021,~~2022, which represented ~~a change~~an improvement of ~~$39,480.~~$4,352. Net cash used in investing activities for the ~~nine~~three months ended ~~September 30, 2022~~March 31, 2023 included ~~(i) $12,582~~$2,230 on the purchase of capital assets and intangibles ~~and (ii) $3,400 paid for short-term investments,~~ which was partially offset by ~~(iii) the collection~~cash acquired through business acquisitions of ~~notes receivable of $7,106.~~ $516.

Net cash provided by investing activities for the nine months ended September 30, 2021 included (i) proceeds from the sale of promissory notes for $26,000, (ii) proceeds from business divestitures if $24,407, and (iii) the collection of notes receivable of $13,225, which was partially offset by (iv) $27,535 on the purchase of capital assets and intangibles.

~~Net cash provided by (used in)~~used in financing activities

During the ~~nine~~three months ended ~~September 30, 2022,~~March 31, 2023, the Company ~~had $17,871~~used $32 of net cash ~~provided by~~through financing activities compared to ~~$40,995~~$11 of net cash used in financing activities in the same period for ~~the nine months ended September 30, 2021,~~2022, which represented a change of $58,866. Net cash provided by financing activities for the nine months ended September 30, 2022 included (i) $24,489 of net proceeds from financing and was partially offset by (ii) $5,534 of capital distributions to non-controlling interest repayments of debt, and (iii) $1,084 of repayments of debt.$21. Net cash used in financing activities for the ~~nine~~three months ended ~~September 30, 2021~~March 31, 2023 included ~~(i) 46,321 of repayments~~$32 of debt ~~and was partially offset by (ii) $6,301 of net proceeds from financing.~~repayments.

Capital Resources

Capital structure and debt

Our debt outstanding as of ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021~~2022 is as follows:


Debt balances	Debt balances	September 30, 2022		December 31, 2021		Debt balances	March 31, 2023		December 31, 2022
Financing liability (failed sale-leaseback)	Financing liability (failed sale-leaseback)	$	15,253	$	15,253	Financing liability (failed sale-leaseback)	$	15,253	$	15,253
Finance lease liabilities	Finance lease liabilities	10,925		5,245		Finance lease liabilities	5,982		5,306
7.50% Loan due April 2026	7.50% Loan due April 2026	31,156		30,763		7.50% Loan due April 2026	31,418		31,288
6.10% Secured debenture due September 2030	6.10% Secured debenture due September 2030	46,388		46,050		6.10% Secured debenture due September 2030	46,614		46,502
Note due December 2024	Note due December 2024	3,958		4,750		Note due December 2024	3,167		3,167
9.75% Credit facilities due January 2026		94,412		68,673
Prime rate credit facilities due January 2026, as amended						Prime rate credit facilities due January 2026, as amended	114,503		113,564
Total debt	Total debt	$	202,092	$	170,734	Total debt	$	216,937	$	215,080
Less: current portion of debt	Less: current portion of debt	7,218		1,583		Less: current portion of debt	1,689		1,584
Total long-term debt	Total long-term debt	$	194,874	$	169,151	Total long-term debt	$	215,248	$	213,496

Commitments and contingencies

Commitments

The Company provides revolving lines of credit to several third parties. Refer to Note 6 of the Unaudited Condensed Consolidated Financial Statements for further discussion.

Arrangement with Canopy Growth

On June 19, 2019, the shareholders of the Company and of Canopy Growth separately approved the Prior Plan of Arrangement involving the two companies. Subsequently, on September 23, 2020, Acreage and Canopy Growth entered into an amending agreement and the Amended Arrangement became effective on September 23, 2020.

~~Subsequent to September 30,~~During the fourth quarter of 2022,the Company entered into a new strategic arrangement with Canopy Growth that, would allow Canopy Growth to acquire 100% of Acreage by i)(i) waiving its existing Floating Share option and entering into a new Floating Share acquisition agreement; and ~~ii)~~(ii) committing to exercise its Fixed Share option, all subject to required approvals and terms of the related agreements.

Refer to ~~Notes~~Note 13 ~~and 17~~ of the Unaudited Condensed Consolidated Financial Statements for further discussion.

Advisor fee

Tax Receivable Agreement

The Company is a party to i)(i) a tax receivable agreement dated November 14, 2018 and subsequently amended (the “Tax Receivable Agreement”) between the Company, ~~and~~ certain current and former unit holders of HSCP and, ~~ii)~~Canopy Growth and Canopy USA and (ii) tax receivable bonus plans dated November 14, 2018 and subsequently amended (the “Tax Receivable Bonus Plans”) between the Company

and certain directors, officers, ~~and~~ consultants of the Company, Canopy Growth and Canopy USA (together the “Tax Receivable Recipients”). Under the Tax Receivable Agreement and the Tax Receivable Bonus Plans, the Company is required to make cash payments to the Tax Receivable Recipients equal to 85% of the tax benefits, if any, that the Company actually realizes, or in certain circumstances is deemed to realize, as a result of (i) the increases in its share of the tax basis of assets of HSCP resulting from any redemptions or exchanges of Units from the HSCP Members, and (ii) certain other tax benefits related to the Company making payments under the Tax Receivable Agreement and the Tax Receivable Bonus Plan.

Surety bonds

The Company is subject to other capital commitments and similar obligations. As of ~~September 30, 2022,~~March 31, 2023, such amounts were not material.

Contingencies

Critical accounting policies and estimates

We have adopted various accounting policies to prepare the Unaudited Condensed Consolidated Financial Statements in accordance with GAAP. Certain of our accounting policies require the application of significant judgment by management in selecting the appropriate assumptions for calculating financial estimates. In our ~~2021~~2022 Annual Report on Form 10-K, we identified the critical accounting policies which affect our more significant estimates and assumptions used in preparing our consolidated financial statements.

As of ~~September 30, 2022~~March 31, 2023 there have been no material changes to our critical accounting policies and estimates from those previously disclosed in our ~~2021~~2022 Annual Report on Form 10-K for the year ended December 31, ~~2021.~~2022.

Item 3. Quantitative and Qualitative Disclosures About Market Risk (presented in thousands, except share amounts).

The Company has exposure to certain risks, including market, credit, liquidity, asset forfeiture, banking and interest rate risk, and assesses the impact and likelihood of those risks. However, there have been no material changes in our market risk during the three ~~and nine~~ months ended ~~September 30, 2022.~~March 31, 2023. For additional information, refer to our ~~2021~~2022 Annual Report on Form 10-K for the year ended December 31, ~~2021.~~2022.

Item 4. Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

Based on an evaluation under the supervision and with the participation of the Company’s management, and due to the material weakness in internal controls over financial reporting described below, the Company’s principal executive officer and principal financial officer have concluded that the Company’s disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act were not effective for the period ending ~~September 30, 2022~~March 31, 2023 to provide reasonable assurance that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is (i) recorded, processed, summarized and reported within the time periods specified in the SEC rules and forms and (ii) accumulated and communicated to the Company’s management, including its principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.

Inherent Limitations Over Internal Controls

The Company’s internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. GAAP. The Company’s internal control over financial reporting includes those policies and procedures that:

(i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the Company’s assets;

(ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with U.S. GAAP, and that the Company’s receipts and expenditures are being made only in accordance with authorizations of the Company’s management and directors; and

(iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company’s assets that could have a material effect on the financial statements.

Management, including the Company’s Chief Executive Officer and Chief Financial Officer, does not expect that the Company’s internal controls will prevent or detect all errors and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of internal controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected. Also, any evaluation of the effectiveness of controls in future periods are subject to the risk that those internal controls may become inadequate because of changes in business conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In accordance with guidance issued by the SEC, companies are permitted to exclude acquisitions from their final assessment of internal control over financial reporting for the first fiscal year in which the acquisition occurred. Management, including the Chief Executive Officer and Chief Financial Officer, has limited the evaluation of the Company’s internal controls over financial reporting to exclude controls, policies and procedures and internal controls over financial reporting of the recently acquired operations of:

•~~Greenleaf Apothecaries, Greenleaf Gardens, and Greenleaf Therapeutics, collectively “Greenleaf” (acquired October 1, 2021).~~

The operations of Greenleaf represents approximately 11% of the Company’s total assets as of September 30, 2022 and 25% of the Company’s gross revenue for the three and nine months ended September 30, 2022.

Material Weaknesses in Internal Control Over Financial Reporting

A material weakness in internal controls over financial reporting is a deficiency, or a combination of deficiencies, in internal controls over financial reporting, such that there is a reasonable possibility that a material misstatement of the Company’s annual or interim financial statements will not be prevented or detected on a timely basis.

The review, testing and evaluation of key internal controls over financial reporting completed by the Company resulted in the Company’s principal executive officer and principal financial officer concluding that ~~as of September 30, 2022,~~ a material weakness ~~existed~~ in the Company’s internal controls over financial ~~reporting.~~reporting remained present as of December 31, 2022. Specifically, as a result of turnover and the availability of resources with the appropriate level of technical capabilities (including the impacts on staffing and recruiting and the general global labor shortage brought about by the global COVID-19 pandemic), the Company did not have effective staffing levels and adequate segregation of duties within several finance and accounting processes. Further, and as a result of this material weakness, the Company’s financial disclosures for the quarterly period ending June 30, 2021 incorrectly disclosed certain debt that was due 11 months after the balance sheet date as long-term rather than as current liabilities. Additionally, and as a result of this material weakness, the Company’s financial disclosures for the quarterly and annual periods ended June 30, 2020, September 30, 2020, December 31, 2020, March 31, 2021, June 30, 2021, and September 30, 2021 incorrectly reported the weighted average shares outstanding which resulted in an incorrect determination of earnings per share and diluted earnings per share. Finally, for the year ended December 31, 2022, the Company did not have adequate processes or sufficient resources to adequately assess the impairment of goodwill and intangible assets and cutoff over inventory.

The Company has begun to address the material ~~weakness~~weaknesses described above through the following ~~actions, which are expected to~~actions. Although the Company previously believed the material weaknesses would be ~~completed~~addressed by the second half of ~~2023:~~2023, due to continued staff turnover and the availability of resources with appropriate levels of technical capabilities, the Company now expects to complete these actions in 2024:

a.Engaging third-party consultants with appropriate expertise to assist the finance and accounting department on an interim basis until key roles are filled;

b.Assessing finance and accounting resources to identify the areas and functions that lack sufficient personnel and recruiting for experienced personnel to assume these roles;

c.Further centralization of key accounting processes to enable greater segregation of duties;

d.Developing further training on segregation of duties; and

e.Designing and implementing additional compensating controls where necessary.

The Company is working diligently to remediate this material weakness by hiring qualified and capable personnel. Further, we will continue to evaluate and assess the staffing needs of the Company as the landscape and needs of the Company continue to evolve. While we are working diligently to remediate this material weakness, there is no assurance that this material weakness will be fully remediated by the ~~second half of 2023~~ given continuing lasting impacts of COVID-19 on staffing and labor for companies within our industry and otherwise.

Changes in Internal Control Over Financial Reporting

Other than the changes discussed above in connection with our implementation of the remediation plan, there were no changes in our internal control over financial reporting (as such term is defined in Rules 13a–15(f) and 15d–15(f) under the Exchange Act) that occurred during our most recent quarter, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II

Item 1. Legal Proceedings.

For information on legal proceedings, refer to Note 13 to the Unaudited Condensed Consolidated Financial Statements included this report.

Item 1A. Risk Factors.

There have been no material changes to the risk factors described in the section titled “Risk Factors” in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2021.~~2022.

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

None.

Item 3. Defaults Upon Senior Securities.

None.

Item 4. Mine Safety Disclosures.

Not applicable.

Item 5. Other Information.

Not applicable.

4734

Item 6. Exhibits.

Incorporated by Reference
Exhibit No. Description of Document Schedule Form File Number Exhibit/Form Filing Date Filed or Furnished Herewith
10.1 Arrangement Agreement, dated October 24, 2022, by and among Acreage Holdings, Inc., Canopy Growth Corporation and Canopy USA, LLC. 8-K 000-56021
10.1
10/31/2022
10.2 Form of Voting Support Agreement dated October 24, 2022. 8-K 000-56021
10.2
10/31/2022
10.3+ First Amendment to Credit Agreement and Incremental Increase Activation Notice, dated October 24, 2022 by and among High Street Capital Partners, LLC, Acreage Holdings, Inc., each lender identified on the signature pages thereto, AFC Agent LLC, as co-agent for the lenders and VRT Agent LLC, as co-agent for the lenders. 8-K 000-56021
10.3
10/31/2022
10.4+ Third Amendment to Tax Receivable Agreement, dated October 24, 2022, by and among Acreage Holdings America, Inc., High Street Capital Partners, LLC, the members signatory thereto, Canopy Growth Corporation and Canopy USA LLC. 8-K 000-56021
10.4
10/31/2022
10.5 Fourth Amendment to Third Amended and Restated Limited Liability Agreement of High Street Capital Partners, LLC, dated October 24, 2022. 8-K 000-56021
10.5
10/31/2022
31.1
Certification of Periodic Report by Principal Executive Officer under Section 302 of the Sarbanes-Oxley Act of 2002. X
31.2
Certification of Periodic Report by Principal Financial Officer under Section 302 of the Sarbanes-Oxley Act of 2002. X
32.1
Certification of Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.* X
101
Attached as Exhibit 101 to this report are the following documents formatted in iXBRL (Extensible Business Reporting Language):): (i) Consolidated Statements of Financial Position as of September 30, 2022 (unaudited) and December 31, 2021 (audited), (ii) Unaudited Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2022 and September 30, 2021, (iii) Unaudited Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2022 and September 30, 2021, (iv) Unaudited Condensed Consolidated Statements of Shareholders’ Equity for the three and nine months ended September 30, 2022 and September 30, 2021 and (v) Notes to Unaudited Condensed Consolidated Financial Statements.
X

Incorporated by Reference

Exhibit No.

Description of Document

Schedule Form

File Number

Exhibit/Form

Filing Date

Filed or Furnished Herewith

10 .1

Second Amendment to Credit Agreement, dated April 28, 2023, by and among High Street Capital Partners, LLC, Acreage Holdings, Inc., each lender identified on the signature pages thereto, AFC Agent LLC, as co-agent for the lenders, and VRT Agent LLC, as co-agent for the lenders. +

8-K

000-56021

10.1

5/4/2023

31.1

Certification of Periodic Report by Principal Executive Officer under Section 302 of the Sarbanes-Oxley Act of 2002.

31.2

Certification of Periodic Report by Principal Financial Officer under Section 302 of the Sarbanes-Oxley Act of 2002.

32.1

Certification of Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*

101

Attached as Exhibit 101 to this report are the following documents formatted in iXBRL (Extensible Business Reporting Language):): (i) Consolidated Statements of Financial Position as of March 31, 2023 (unaudited) and December 31, 2022 (audited), (ii) Unaudited Condensed Consolidated Statements of Operations for the three months ended March 31, 2023 and March 31, 2022, (iii) Unaudited Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2023 and March 31, 2022, (iv) Unaudited Condensed Consolidated Statements of Shareholders’ Equity for the three months ended March 31, 2023 and March 31, 2022 and (v) Notes to Unaudited Condensed Consolidated Financial Statements.

* Document has been furnished, is not deemed filed and is not to be incorporated by reference into any of the Company’s filings under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, irrespective of any general incorporation language contained in any such filing.

+ Portions of this exhibit are redacted pursuant to Item 601(b)(10)(iv) of Regulation S-K.

4935

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Date: ~~November 9, 2022~~May 22, 2023


			Acreage Holdings, Inc.

			By:						/s/ Steve Goertz
									Steve Goertz
									Chief Financial Officer

5036


Repayment of debt	(1,084)		(46,321)

Capital distributions - non-controlling interests	(5,534)		—
Net cash provided by (used in) financing activities	$	17,871	$	(40,995)
Net decrease in cash, cash equivalents, restricted cash, and cash held for sale	$	(17,930)	$	(25,155)
Cash, cash equivalents, restricted cash, and cash held for sale - Beginning of period	44,501		54,639
Cash, cash equivalents, restricted cash, and cash held for sale - End of period	$	26,571	$	29,484

RECONCILIATION OF CASH FLOW INFORMATION:
Cash and cash equivalents	$	26,476	$	27,868
Restricted cash	95		1,098
Cash held for sale	$	—	$	518
Total cash, cash equivalents, restricted cash, and cash held for sale at end of period	$	26,571	$	29,484


Purchase Price Allocation	Greenleaf		CWG		Total
Assets acquired:
Cash and cash equivalents	$	1,209	$	828	$	2,037
Inventory	2,692		1,200		3,892
Other current assets	1,520		347		1,867

Capital assets, net	22,923		3,312		26,235
Operating lease right-of-use asset	2,819		1,584		4,403
Goodwill	1,819		1,482		3,301
Intangible assets, net - cannabis licenses	16,800		3,200		20,000
Intangible assets, net - customer relationships	—		1,000		1,000
Other non-current assets	189		40		229
Liabilities assumed:
Accounts payable and accrued liabilities	(1,829)		(464)		(2,293)

Taxes payable	(33)		(68)		(101)
Operating lease liability, current	(315)		(193)		(508)
Other current liabilities	(294)		3		(291)
Operating lease liability, non-current	(2,504)		(1,391)		(3,895)
Fair value of net assets acquired	$	44,996	$	10,880	$	55,876

Consideration paid:
Settlement of pre-existing relationship	44,996		10,880		$	55,876
Total consideration	$	44,996	$	10,880	$	55,876


	December 31, 2021
	Michigan(1)		Oregon		Total
Cash	$	—	$	223	$	223
Inventory	—		445		445
Notes receivable, current	—		31		31
Other current assets	—		9		9
Total current assets classified as held-for-sale	—		708		708
Capital assets, net	1,907		2,342		4,249
Operating lease right-of-use assets	—		1,695		1,695

Goodwill	—		2,191		2,191
Non-current assets	—		109		109
Total assets classified as held for sale	$	1,907	$	7,045	$	8,952

Accounts payable and accrued liabilities	$	—	$	(639)	$	(639)

Operating lease liability, current	—		(441)		(441)

Total current liabilities classified as held-for-sale	—		(1,080)		(1,080)

Operating lease liability, non-current	—		(787)		(787)

Total liabilities classified as held-for-sale	$	—	$	(1,867)	$	(1,867)


Amortization of Intangibles	2022		2023		2024		2025		2026
Amortization expense	$	297	$	584	$	146	$	—	$	—