MARIMED INC

Previous wording

Three months ended March 31, 2024 and 2023

Current wording

We completed two acquisitions during the three months ended June 30, 2024 that we accounted for as asset purchases. On April 9, 2024, we acquired 100% of the membership interests of Allgreens Dispensary, LLC ("Allgreens"), which held a conditional adult-use cannabis dispensary license in Illinois. On April 5, 2024, we acquired 100% of the membership interests of Our Community Wellness & Compassionate Care Center, Inc. ("MedLeaf"), which held a retail dispensary license in Maryland. The MedLeaf dispensary has been closed since July 1, 2023. We will commence retail sales upon receiving regulatory approvals, which we expect will occur later in 2024.

Previous wording

•Increasing product brand revenue by introducing new, innovative products that consumers want, expanding our award-winning brands to include new effects or to fill additional need-state opportunities, and by identifying qualified licensing partners that will expand our distribution into new markets.

Current wording

•Increasing product brand revenue by introducing new, innovative products that consumers want, expanding our award-winning brands to include new effects or to fill additional customer needs, and by identifying qualified licensing partners that will expand our distribution into new markets.

Previous wording

Classification of an acquisition as a business combination or an asset acquisition depends on whether the assets acquired constitute a business, which can be a complex judgment. Whether an acquisition is classified as a business combination or asset acquisition can have a significant impact on how we record the transaction.

Current wording

Classification of a business acquisition as a business combination or an asset acquisition depends on whether the assets acquired constitute a business, which can be a complex judgment. Whether an acquisition is classified as a business combination or asset acquisition can have a significant impact on how we record the transaction.

Previous wording

We use the asset and liability method to account for income taxes. Under this method, deferred income tax assets and liabilities are recorded for the future tax consequences of differences between the tax basis and financial reporting basis of assets and liabilities, measured using enacted tax rates and laws that will be in effect when the differences are expected to reverse. Deferred tax assets are reduced by a valuation allowance to the extent our management concludes that it is more likely than not that the assets will not be realized. To assess the recoverability of any tax assets recorded on the balance sheet, we consider all available positive and negative evidence, including our past operating results, the existence of cumulative income in the most recent years, changes in the business in which we operate and our forecast of future taxable income. In determining future taxable income, we make assumptions, including the amount of state and federal pre-tax operating income, the reversal of temporary differences and the implementation of feasible and prudent tax strategies. These assumptions require significant judgment about the forecasts of future taxable income and are consistent with the plans and estimates we are using to manage our businesses.

Current wording

We use the asset and liability method to account for income taxes. Under this method, deferred income tax assets and liabilities are recorded for the future tax consequences of differences between the tax basis and financial reporting basis of assets and liabilities, measured using enacted tax rates and laws that will be in effect when the differences are expected to reverse. Deferred tax assets are reduced by a valuation allowance to the extent our management concludes that it is more likely than not that the assets will not be realized. To assess the recoverability of any tax assets recorded on the balance sheet, we consider all available positive and negative evidence, including our past operating results, the existence of cumulative income in the most recent years, changes in the business in which we operate and our forecast of future taxable income. In determining future taxable income, we make assumptions, including the amount of state and federal pre-tax operating income, the reversal of temporary differences and the implementation of feasible and prudent tax strategies.

Previous wording

Our revenue for the three months ended March 31, 2024 and 2023 was comprised of the following (in thousands):

Current wording

Our revenue for the three and six months ended June 30, 2024 and 2023 was comprised of the following (in thousands):

Previous wording

Our total revenue increased $3.6 million in the three months ended March 31, 2024 compared to the three months ended March 31, 2023. Our total product revenue increased $3.3 million, or 9.8%, in the three months ended March 31, 2024 compared to the same prior year period. This increase was primarily attributable to higher wholesale revenue in all of our wholesale locations, particularly in Maryland, which accounted for approximately 70% of this increase. Net lower retail revenue, particularly in Illinois, partially offset the increase in wholesale revenue. Our retail operations in Massachusetts, Maryland and Ohio all reported higher retail revenue in the three months ended March 31, 2024 compared to the same prior year period. The increase in other revenue in the three months ended March 31, 2024 compared to the three months ended March 31, 2023 was primarily attributable to management fees from Allgreens.

Current wording

Our total revenue increased $3.9 million in the three months ended June 30, 2024 compared to the three months ended June 30, 2023. Our total product revenue increased $4.1 million, or 11.7%, in the three months ended June 30, 2024 compared to the same prior year period. This increase was primarily attributable to higher revenue in each of our wholesale locations, particularly in Maryland. Our retail operations in Maryland, Massachusetts and Ohio all reported higher retail revenue in the three months ended June 30, 2024 compared to the same prior year period; however, these increases were partially offset by lower retail revenue in most of our Illinois dispensaries. The decrease in other revenue in the three months ended June 30, 2024 compared to the three months ended June 30, 2023 was primarily attributable to lower real estate rentals and licensing fees, partially offset by management fees from Allgreens.

Previous wording

Our cost of revenue, gross profit and gross margin for the three months ended March 31, 2024 and 2023 were as follows (in thousands, except percentages):

Current wording

Our cost of revenue, gross profit and gross margin for the three and six months ended June 30, 2024 and 2023 were as follows (in thousands, except percentages):

Previous wording

Our cost of revenue increased in the three months ended March 31, 2024 compared to the three months ended March 31, 2023. This increase was primarily attributable to increases in materials and employee-related expenses aggregating $4.8 million. Our higher personnel costs were primarily due to our increased headcount in connection with our recent acquisitions and expanded footprint. These increases were partially offset primarily by decreases in certain inventory-related and supply procurement expenses.

Current wording

Our cost of revenue increased in both the three- and six-month periods ended June 30, 2024 compared to the same periods in the prior year. These increases were primarily attributable to increases in materials and employee-related expenses aggregating approximately $6 million and $11 million, respectively, in the three and six months ended June 30, 2024. Our higher personnel costs were primarily due to our increased headcount in connection with our recent acquisitions and expanded footprint. These increases were partially offset primarily by decreases in certain inventory-related expenses.

Previous wording

Our operating expenses are comprised of personnel, marketing and promotion, general and administrative, acquisition-related and other, and bad debt expenses. Our operating expenses for the three months ended March 31, 2024 and 2023 were as follows (in thousands, except percentages):

Current wording

Our operating expenses are comprised of personnel, marketing and promotion, general and administrative, acquisition-related and other, and bad debt expenses. Our operating expenses for the three and six months ended June 30, 2024 and 2023 were as follows (in thousands, except percentages):

Previous wording

The increase in our personnel expenses in the three months ended March 31, 2024 compared to the three months ended March 31, 2023 was primarily due to the hiring of additional staff to support higher levels of projected revenue from existing operations and our recent acquisitions. Personnel costs increased to approximately 17% of revenue in the three months ended March 31, 2024 compared to approximately 14% of revenue in the three months ended March 31, 2023.

Current wording

The increase in our personnel expenses in both the three- and six-month periods ended June 30, 2024 compared to the three- and six-month periods ended June 30, 2023 was primarily due to the hiring of additional staff to support higher levels of projected revenue from existing operations and our recent acquisitions. Personnel costs increased to approximately 17% of revenue in both the three- and six-month periods ended June 30, 2024, compared to approximately 15% of revenue in both the three- and six-month periods ended June 30, 2023.

Previous wording

The increase in our marketing and promotion expenses in the three months ended March 31, 2024 compared to the three months ended March 31, 2023 was primarily attributable to our continued focus on upgrading our marketing initiatives in order to expand branding and distribution of our licensed products.

Current wording

The increase in our marketing and promotion expenses in both the three- and six-month periods ended June 30, 2024, compared to the three- and six-month periods ended June 30, 2023 was primarily attributable to our continued focus on upgrading our marketing initiatives in order to expand branding and distribution of our licensed products.

Previous wording

The increase in our general and administrative expenses in the three months ended March 31, 2024 compared to the three months ended March 31, 2023 was primarily attributable to higher facility-related expense, depreciation and amortization of fixed assets, and employee travel and related expenses.

Current wording

The increase in our general and administrative expenses in the three months ended June 30, 2024 compared to the three months ended June 30, 2023 was primarily attributable to higher facility and related expenses, depreciation and amortization of fixed assets, and professional fees (i.e., legal, accounting and consulting). The increase in our general and administrative expenses in the six months ended June 30, 2024 compared to the six months ended June 30, 2023 was primarily attributable to higher facility and related expenses, depreciation and amortization of fixed assets, and professional fees. These increases were primarily attributable to the addition of new facilities and related fixed assets, coupled with higher professional fees, primarily legal fees in connection with our acquisitive and financing activities.

Previous wording

Acquisition-related and other expenses include those expenses related to acquisitions and other significant transactions that we would otherwise not have incurred, and include professional and services fees, such as legal, audit, consulting, paying agent and other fees. Our acquisition-related and other expense in the three months ended March 31, 2024, primarily related to the acquisitions of MedLeaf and Allgreens, which were both consummated in April 2024. Our acquisition-related and other expense in the three months ended March 31, 2023 primarily related to our acquisitions and professional fees incurred to obtain the CA Credit Agreement (as described below).

Current wording

Acquisition-related and other expenses include those expenses related to acquisitions and other significant transactions that we would otherwise not have incurred, and include professional and services fees, such as legal, audit, consulting, paying agent and other fees. Our acquisition-related and other expense in both the three and six months ended June 30, 2024 primarily related to the acquisitions of MedLeaf and Allgreens, which were both consummated in April 2024, and non-cash expense for warrants to purchase our common stock issued to an entity in consideration for introductory and other services rendered in connection with certain funding and acquisitive transactions. Our acquisition-related and other expense in the three and six months ended June 30, 2023 primarily related to our acquisitions and professional fees incurred to obtain the CA Credit Agreement (described below).

Previous wording

Interest expense primarily relates to interest on mortgages and notes payable as well as the CREM Loan (as described below) in 2024 and the CA Term Loan (as described below) in 2023. Interest income primarily relates to our notes receivable.

Current wording

Interest expense primarily relates to interest on mortgages and notes payable, as well as the CREM Loan (described below) in 2024 and the CA Term Loan (described below) in 2023. Interest income primarily relates to our notes receivable.

Previous wording

Our net interest expense decreased $0.8 million in the three months ended March 31, 2024 compared to the three months ended March 31, 2023, primarily due to lower non-cash interest expense in the current year quarter. Non-cash interest expense in the three months ended March 31, 2023 primarily related to the CA Term Loan.

Current wording

Our net interest expense decreased $0.8 million in the three months ended June 30, 2024 compared to the three months ended June 30, 2023, and $1.6 million in the six months ended June 30, 2024 compared to the six months ended June 30, 2023. These decreases were primarily due to lower non-cash interest expense in the current year periods, coupled with lower interest rates on our CREM Loan compared to our previous financing facility.

Previous wording

We reported net other expense of approximately $20,000 and $0.9 million in the three months ended March 31, 2024 and 2023, respectively. The expense in the three months ended March 31, 2024 related to the change in the fair value of our investments. The expense in the three months ended March 31, 2023 was primarily due to the write-off of assets in connection with our decision to cancel our plans to expand into Nevada.

Current wording

We reported net other expense of approximately $30,000 and $50,000 in the three and six months ended June 30, 2024, respectively, and approximately $10,000 and $910,000 in the three and six months ended June 30, 2023, respectively. The expense in the six months ended June 30, 2023 was primarily due to the write-off of assets in connection with our decision to cancel our plans to expand into Nevada.

Previous wording

We recorded income tax provisions of $1.7 million and $2.5 million in the three months ended March 31, 2024 and 2023, respectively. Our income tax provisions are impacted by Section 280E of the Internal Revenue Code, which prohibits the deduction of certain ordinary business expenses.

Current wording

We recorded income tax provisions of $2.6 million and $4.4 million in the six months ended June 30, 2024 and 2023, respectively. Our income tax provisions are impacted by Section 280E of the Internal Revenue Code, which prohibits the deduction of certain ordinary business expenses.

Previous wording

We had cash and cash equivalents of $15.2 million and $14.6 million at March 31, 2024 and December 31, 2023, respectively. In addition to the discussions below of our cash flows from operating, investing, and financing activities, please also see our discussion of non-GAAP Adjusted EBITDA in the section “Non-GAAP Measurement” below, which discusses an additional financial measure not defined by GAAP which our management also uses to measure our liquidity.

Current wording

We had cash and cash equivalents of $10.2 million and $14.6 million at June 30, 2024 and December 31, 2023, respectively. In addition to the discussions below of our cash flows from operating, investing, and financing activities, please also see our discussion of non-GAAP Adjusted EBITDA in the section “Non-GAAP Measurement” below, which discusses an additional financial measure not defined by GAAP which our management also uses to measure our liquidity.

Previous wording

Proceeds from the CA Credit Agreement were designated to complete the build-out of a new cultivation and processing facility in Illinois, complete the build-out of a new processing kitchen in Missouri, expand existing cultivation and processing facilities in Massachusetts and Maryland, fund certain capital expenditures, and repay in full the Kind Therapeutics seller notes incurred in connection with the Kind Acquisition, which repayment occurred on January 24, 2023. The remaining balance, if any, was expected to be used to fund acquisitions.

Current wording

Proceeds from the CA Credit Agreement were designated to complete the build-out of a new cultivation and processing facility in Illinois, complete the build-out of a new processing kitchen in Missouri, expand existing cultivation and processing facilities in Massachusetts and Maryland, fund certain capital expenditures, and repay in full the Kind

Previous wording

On November 16, 2023 (the "Payoff Date"), we repaid and retired the CA Term Loan (the "Term Loan Payoff") using proceeds from a new $58.7 million loan entered into on the same day (described below). The Term Loan Payoff amount totaled $32.7 million, comprised of $28.5 million for the outstanding principal, $3.7 million for the make-whole payment, $0.2 million for accrued unpaid interest and $0.3 million for transaction-related fees. We recognized a loss of $10.2 million in connection with the Term Loan Payoff.

Current wording

On November 16, 2023 (the "Payoff Date"), we repaid and retired the CA Term Loan (the "Term Loan Payoff") using proceeds from a new $58.7 million loan entered into on the same date (described below). The Term Loan Payoff amount totaled $32.7 million, comprised of $28.5 million for the outstanding principal, $3.7 million for the make-whole payment, $0.2 million for accrued unpaid interest and $0.3 million for transaction-related fees. We recognized a loss of $10.2 million in connection with the Term Loan Payoff.

Previous wording

The CREM Loan Transaction matures in ten years and has an interest rate for the initial five years of 8.43% per annum. The interest rate will reset after five years to the FHLB Rate (the Classic Advance Rate for Fixed Rate advances for a period of five years for an amount greater than or equal to the loan amount, as such rate is defined and published by the Federal Home Loan Bank of Boston), plus 3.50%. We will make interest-only payments for the first twelve months of the term of the loan, with payments thereafter based upon a twenty-year amortization schedule.

Current wording

The CREM Loan Transaction is for a term of ten years and has an interest rate for the initial five years of 8.43% per annum. The interest rate will reset after five years to the FHLB Rate (the Classic Advance Rate for Fixed Rate advances for a period of five years for an amount greater than or equal to the loan amount, as such rate is defined and published by the Federal Home Loan Bank of Boston), plus 3.50%. We will make interest-only payments for the first twelve months of the term of the loan, with payments thereafter based upon a twenty-year amortization schedule.

Previous wording

The CREM Lender initially released $52.8 million to the CREM Borrowers (the "Initial CREM Distribution"). The remaining proceeds of $5.9 million will be held in escrow to complete the expansion of our Hagerstown, Maryland cultivation facility (the "Hagerstown Facility"). Any unused proceeds will be released to us after completion of the Hagerstown Facility expansion. We used $46.8 million of the Initial CREM Distribution to fully repay certain of our outstanding debt. These payments were comprised of $32.7 million to repay the Term Loan, $11.9 million to repay the mortgage with Bank of New England for our New Bedford, MA and Middleborough, MA properties (the "BNE Mortgage"), and $2.2 million to reduce the outstanding balance of the note we issued in connection with the Ermont Acquisition. Concurrent with the repayment of the BNE Mortgage, we refinanced these properties through the CREM Loan and accordingly, effective November 16, 2023, the mortgage on these properties is held by Needham Bank, which mortgage matures in 2033 and which outstanding amount is included as a component of the CREM Loan amount in our consolidated balance sheet at December 31, 2023. During the three months ended March 31, 2024, we received $1.0 million of the amount previously held back by the CREM Lender.

Current wording

The CREM Lender initially released $52.8 million to the CREM Borrowers (the "Initial CREM Distribution"), with the remaining proceeds of $5.9 million placed into in escrow to complete the expansion of our Hagerstown, Maryland cultivation facility (the "Hagerstown Facility"). Any unused proceeds will be released to us after completion of the Hagerstown Facility expansion. We used $46.8 million of the Initial CREM Distribution to fully repay certain of our outstanding debt obligations. These payments were comprised of $32.7 million to repay the Term Loan, $11.9 million to repay the mortgage with Bank of New England for our New Bedford, MA and Middleborough, MA properties (the "BNE Mortgage"), and $2.2 million to reduce the outstanding balance of the note we issued in connection with the Ermont Acquisition. Concurrent with the repayment of the BNE Mortgage, we refinanced these properties through the CREM Loan and accordingly, effective November 16, 2023, the mortgage on these properties is held by Needham Bank, which mortgage matures in 2033 and which outstanding amount is included as a component of the CREM Loan amount in our consolidated balance sheet at December 31, 2023. During the six months ended June 30, 2024, we received $2.9 million of the amount previously held back by the CREM Lender.

Previous wording

Our operating activities provided $3.2 million and used $4.5 million of cash in the three months ended March 31, 2024 and 2023, respectively. The change in cash from operating activities in the current year period compared to the prior year was primarily attributable to higher costs and operating expenses arising from expanding our sales activities, facilities and geographic footprint, both in the states where we currently operate and to expand into other states. These higher costs primarily relate to personnel, cultivation/manufacturing and facility expenses.

Current wording

Our operating activities provided $6.4 million and used $3.2 million of cash in the six months ended June 30, 2024 and 2023, respectively. The change in cash from operating activities in the current year period compared to the prior year was primarily attributable to higher costs and operating expenses arising from expanding our sales activities, facilities and geographic footprint, both in the states where we currently operate and to expand into other states. These higher costs primarily relate to personnel, cultivation/manufacturing and facility expenses.

Previous wording

Our investing activities used $4.3 million and $6.9 million of cash in the three months ended March 31, 2024 and 2023, respectively. During the three months ended March 31, 2024, we used $3.4 million of cash for capital expenditures, $0.5 million for advances toward future business acquisitions, $0.3 million for purchases of cannabis licenses and $0.1 million for the purchase of certain investments. During the three months ended March 31, 2023 we used $3.1 million for capital expenditures, $3.0 million for capital expenditures, $3.0 million as part of the purchase consideration for the Ermont Acquisition, $0.6 million for cannabis licenses and $0.3 million for advances toward future business acquisitions.

Current wording

Our investing activities used $13.8 million and $13.4 million of cash in the six months ended June 30, 2024 and 2023, respectively. During the six months ended June 30, 2024, we used $8.3 million of cash for capital expenditures, $4.3 million for purchase consideration in connection with the MedLeaf Acquisition and Allgreens Acquisition, $0.6 million for purchases of cannabis licenses and $0.5 million for advances toward future business acquisitions. During the six months ended June 30, 2023 we used $8.8 million of cash for capital expenditures, $3.0 million as part of the purchase consideration for the Ermont Acquisition, $0.6 million for cannabis licenses and $0.3 million for advances toward future business acquisitions. We also issued $0.9 million of notes receivable to a cannabis-licensed client.

Previous wording

Our financing activities provided $1.6 million of cash in the three months ended March 31, 2024 and $23.3 million of cash in the three months ended March 31, 2023. During the three months ended March 31, 2024, we received $1.0 million of additional proceeds from the CREM Loan and $1.2 million of proceeds from the refinancing of our retail facility in Mt. Vernon, Illinois. We made $0.5 million of aggregate principal payments on our outstanding mortgages, promissory notes and finance leases and approximately $45,000 of distribution payments.

Current wording

Our financing activities provided $3.0 million of cash in the six months ended June 30, 2024 and $21.5 million of cash in the six months ended June 30, 2023. During the six months ended June 30, 2024, we received $2.9 million of additional proceeds from the CREM Loan and $1.2 million of proceeds from the refinancing of our retail facility in Mt. Vernon, Illinois. We made $1.1 million of aggregate principal payments on our outstanding mortgages, promissory notes and finance leases, and approximately $83,000 of distribution payments.

Previous wording

During the three months ended March 31, 2023, we received proceeds of $29.1 million from the CA Credit Agreement, of which we used $5.5 million to repay in full the notes issued in connection with our 2022 acquisition of Kind Therapeutics USA, made $0.3 million of aggregate principal payments on our outstanding mortgages and finance leases and approximately $34,000 of distribution payments.

Current wording

During the six months ended June 30, 2023, we received proceeds of $29.1 million from the CA Credit Agreement, of which we used $5.5 million to repay in full the notes issued in connection with our 2022 acquisition of Kind Therapeutics USA (the "Kind Acquisition") and made approximately $81,000 of distribution payments. Excluding the aforementioned repayment of the notes in connection with the Kind Acquisition, we made $1.2 million of aggregate principal payments on our outstanding mortgages and promissory notes, including the repayment in full in May 2023 of our mortgage with South Porte Bank. We also made $0.6 million of payments toward the outstanding balance of the CA Credit Agreement and $0.2 million of principal payments of finance leases.

Previous wording

The table below reconciles income from operations to Adjusted EBITDA for the three months ended March 31, 2024 and 2023 (in thousands):

Current wording

The table below reconciles income from operations to Adjusted EBITDA for the three and six months ended June 30, 2024 and 2023 (in thousands):