Trulieve Cannabis Corp

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

NOTE 1. BASIS OF PRESENTATION

The accompanying unaudited condensed consolidated financial statements of Trulieve Cannabis Corp., ("Trulieve" and, together with its subsidiaries and variable interest entities, the "Company," "our," or "us") has been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and, therefore, do not include all financial information and footnotes required by GAAP for complete financial statements. In management's opinion, the condensed consolidated financial statements include all adjustments of a normal recurring nature necessary for a fair statement of the Company's financial position as of March 31, 2024, and the results of its operations and cash flows for the periods ended March 31, 2024 and 2023. The results of the Company's operations for the three months ended March 31, 2024 are not necessarily indicative of the results to be expected for the full 2024 fiscal year.

The accompanying unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements for Trulieve Cannabis Corp. and the notes thereto, included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023, filed with the Securities and Exchange Commission ("SEC") on February 29, 2024 (the "2023 Form 10-K").

Discontinued Operations

In June 2023, the Company exited operations in Massachusetts and in July 2022, the Company discontinued its Nevada operations. Both actions represented a strategic shift in business; therefore, the related assets and liabilities associated with the discontinued operations are classified as discontinued operations on the consolidated balance sheets and the results of the discontinued operations have been presented as discontinued operations within the consolidated statements of operations for all periods presented. Unless specifically noted otherwise, footnote disclosures only reflect the results of continuing operations.

Basis of Measurement

These condensed consolidated financial statements have been prepared on the going concern basis, under the historical cost convention, except for certain financial instruments that are measured at fair value as described herein.

Functional Currency

The functional currency of the Company and its subsidiaries, as determined by management, is the United States (“U.S.”) dollar. These condensed consolidated financial statements are presented in U.S. dollars.

Reclassifications

Certain reclassifications have been made to the condensed consolidated financial statements of prior periods to conform to the current period presentation.

NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The Company’s significant accounting policies are described in the Company’s 2023 Annual Report on Form 10-K, filed with the SEC on February 29, 2024. Our management has reviewed these significant accounting policies and related disclosures and determined that there were no significant changes to our critical accounting policies during the three month period ended March 31, 2024.

NOTE 3. SUPPLEMENTARY FINANCIAL INFORMATION

Inventories

Inventories are comprised of the following as of:

Notes Receivable

As of March 31, 2024 and December 31, 2023, the allowance for credit losses on notes receivable was $2.9 million andzero, respectively.

Fair Value of Financial Instruments

The fair values of financial instruments by class are as follows:

(1)There wereno transfers between hierarchy levels during the periods ending March 31, 2024 or December 31, 2023.

(2)Money market funds are included within cash and cash equivalents on the Company’s condensed consolidated balance sheets. Interest income from money market funds was $2.9 million and $0.7 million for the three months ended March 31, 2024 and 2023, respectively.

(3)The fair value of the interest rate swap liability is recorded in other long-term liabilities on the condensed consolidated balance sheets.

Redeemable Non-Controlling Interest

One of the Company’s consolidated variable interest entities is party to a shareholder agreement which provides certain of the non-controlling interest holders with optional redemption rights where they may put their shares in the consolidated subsidiary to the Company in exchange for a fixed number of Company shares. The non-controlling interest is redeemable at the option of the shareholder and is therefore recorded in temporary or "mezzanine" equity on the consolidated balance sheet in accordance with ASC Topic 480-10-S99. Certain put holders are required to pay a subscription fee prior to their put right becoming exercisable.

During the first quarter of 2024, certain redeemable non-controlling interest holders executed their put rights following the payment of their subscription amount to the consolidated subsidiary, resulting in the issuance of 974,930 of Company Shares. This redemption resulted in an increase in the Company's ownership interest to 65% from 46%.

At March 31, 2024, the redeemable non-controlling interest that is currently redeemable was recorded based on its redemption value of $8.1 million.

The following table presents the components of the change in redeemable non-controlling interest for the three months ended March 31, 2024:

Shared Based Compensation

Stock Options

The following table summarizes the Company's stock option activity for the three months ended March 31, 2024:

(1) The weighted average exercise price for stock options granted was $10.00.

Restricted Stock Units

The following table summarizes the Company's RSU activity for the three months ended March 31, 2024:

(1)The weighted average grant date fair value of RSUs granted was $10.00.

Revenue Disaggregation

Revenue is comprised of the following for the periods presented:

Commitments and Contingencies

Claims and Litigation

From time to time, the Company may be involved in litigation relating to claims arising out of operations in the normal course of business. As of March 31, 2024, there were no pending or threatened lawsuits that could reasonably be expected to have a material effect on the results of the Company’s condensed consolidated statements of operations. There are also no proceedings in which any of the Company’s directors, officers or affiliates is an adverse party or has a material interest adverse to the Company’s interest.

Contingencies

The Company records contingent liabilities which primarily consist of litigation on various claims in which it believes a loss is probable and can be estimated. As of March 31, 2024 and December 31, 2023, $4.2 million was included in contingent liabilities on the condensed consolidated balance sheets related to pending litigation.

NOTE 4. FINANCING ARRANGEMENTS

Private Placement Notes

Private placement notes payable consisted of the following:

The fair value of the private placement notes was approximately $341.8 million as of March 31, 2024.

Notes Payable

Notes payable consisted of the following:

(1)Interest rates range from 0.00% to 7.50%, with a weighted average interest rate of 6.63% as of March 31, 2024. Maturity dates range from October 4, 2024 to October 24, 2026.

(2)Notes payable are subordinated to the private placement notes.

Construction Finance Liabilities

Total construction finance liabilities were $138.0 million and $138.1 million as of March 31, 2024 and December 31, 2023, respectively. The contractual terms range from 10.0 years to 25.0 years with a weighted average remaining lease term of 16.6 years.

Maturities

Stated maturities of the principal portion of private placement and notes payable outstanding and future minimum lease payments for the construction finance liabilities, including interest, as of March 31, 2024 are as follows:

NOTE 5. EARNINGS PER SHARE

The following is areconciliation for the calculation of basic and diluted earnings per share for the periods presented:

(1)Potentially dilutive securities representing 11.0 million and 4.0 million shares of common stock were excluded from the computation of diluted earnings per share for the three months ended March 31, 2024 and 2023, respectively, as their effect would have been antidilutive.

As of March 31, 2024, there were approximately 187.3 million shares issued and outstanding, which excluded approximately 2.9 million fully vested RSUs which are not contractually issuable until September 2024 and approximately 0.1 million fully vested RSUs which are not contractually issuable until the earlier of a triggering event, as defined, or December 1, 2030.

NOTE 6. INCOME TAXES

The following table summarizes the Company’s income tax expense and effective tax rate for the periods presented:

The Company has computed its provision for income taxes based on the actual effective tax rate for the quarter as the Company believes this is the best estimate for the annual effective tax rate. The Company is subject to income taxes in the United States and Canada.

Significant judgment is required in evaluating the Company’s uncertain tax positions and determining the provision for income taxes. The Company recognizes benefits from uncertain tax positions based on the cumulative probability method whereby the largest benefit with a cumulative probability of greater than 50% is recorded. An uncertain tax position is not recognized if it has less than a 50% likelihood of being sustained.

A reconciliation of the beginning and ending amount of unrecognized tax benefits for the period presented:

A reconciliation of the beginning and ending amount of uncertain tax liabilities for the period presented:

(1) Amounts represent the interest and penalties recorded on uncertain tax positions during the respective years which are recorded to the income tax provision on the condensed consolidated statements of operations.

(2) Of the $278.0 million in uncertain tax liabilities, $247.3 million are related to our tax positions based on legal interpretations that challenge the Company's tax liability under IRC Section 280E.

The Company’s net uncertain tax liabilities, inclusive of interest and tax payments on deposit, were approximately $278.0 million and $180.4 million as of March 31, 2024 and December 31, 2023, respectively, which is recorded in other long-term liabilities in the condensed consolidated balance sheets. The increase of $97.6 million in uncertain tax positions is primarily due to activity related to tax positions based on legal interpretations that challenge the Company's tax liability under IRC Section 280E.

During the three months ended March 31, 2024, the Company recorded interest of $3.6 millionon uncertain tax liabilities in the consolidated statements of operations and comprehensive income, which is primarily related to the tax positions based on legal interpretations that challenge the Company's tax liability under IRC Section 280E. During the three months ended March 31, 2023, the Company recorded interest of $0.8 millionon uncertain tax liabilities in the consolidated statements of operations and comprehensive income, which primarily related to a tax position taken relating to our inventory costs for tax purposes in our Florida dispensaries.

As of March 31, 2024, the Company has tax payments on deposit of$154.7 million that would reduce the uncertain tax liability when ultimately paid to the tax jurisdictions.

NOTE 7. VARIABLE INTEREST ENTITIES

The Company has entered into certain agreements in several states with various entities related to the purchase and operation of cannabis dispensary, cultivation, and production licenses, and has determined these to be variable interest entities for which it is the primary beneficiary and/or holds a controlling voting equity position. The Company holds ownership interests in these entities ranging from 49% to 95% either directly or through a proxy as of March 31, 2024. The Company's VIEs are not material to the consolidated financial position or operations as of March 31, 2024 and December 31, 2023 or for the three months ended March 31, 2024 and 2023.

The following table presents the summarized assets and liabilities of the Company’s consolidated VIEs in which the Company does not hold a majority interest as of March 31, 2024 and December 31, 2023. The assets and liabilities in the table below include third-party assets and liabilities of our VIEs only and exclude intercompany balances that are eliminated in consolidation as included on our condensed consolidated balance sheets. As outlined within Note 3. Supplementary Financial Information, the redemption of a redeemable non-controlling interest resulted in an increase in the Company's ownership interest in one of the Company’s consolidated variable interest entities to 65%as of March 31, 2024 from 46% as of December 31, 2023. This increased the ownership in this consolidated variable interest entity where the Company holds a majority interest as of March 31, 2024.

NOTE 8. RELATED PARTIES

In the third quarter of 2023, the Company entered into an agreement to rent a piece of equipment from an entity that is directly owned in part by the Company’s Chief Executive Officer and Chair of the board of directors. The expense related to the use of this asset was $0.1 million for the three months ended March 31, 2024.

The Company leases a cultivation facility and corporate office facility from an entity that is directly or indirectly owned by the Company's Chief Executive Officer and Chair of the board of directors, a former member of the Company's board of directors, and another member of the Company's board of directors.

The Company had the following related party operating leases on the condensed consolidated balance sheets, under ASC 842, as of:

Lease expense recognized on related party leases was less than $0.1 million and less than $0.1 million for the three months ended March 31, 2024 and 2023, respectively.

NOTE 9. DISCONTINUED OPERATIONS

The assets and liabilities associated with discontinued operations consisted of the following as of:

The following table summarizes the Company's loss from discontinued operations for the periods presented.

The condensed consolidated statements of cash flows include continuing operations and discontinued operations. The following table summarizes the depreciation of long-lived assets, amortization of long-lived assets, and capital expenditures of discontinued operations for the prior year as the activity during the three months ended March 31, 2024 was nominal.

NOTE 10. SUBSEQUENT EVENTS

The Company’s management evaluates subsequent events through the date of issuance of the condensed consolidated financial statements. There have been no subsequent events that occurred during such period that would require adjustment to or disclosure in the condensed consolidated financial statements.