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," the "Company," "we," "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 September 30, 2024, and the results of its operations and cash flows for the periods ended September 30, 2024 and 2023. The results of the Company's operations for the three and nine months ended September 30, 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 exited operations in Nevada. 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 condensed consolidated balance sheets and the results of the discontinued operations have been presented as discontinued operations within the condensed 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 significant accounting policies during the nine month period ended September 30, 2024, except for the following:

Cash, Cash Equivalents, and Short-Term Investments

The Company considers cash deposits and all highly liquid investments with an original maturity of three months or less to be cash equivalents. Cash and cash equivalents include cash deposits in financial institutions plus cash held at retail locations. Cash held in money market investments are recorded at fair value. Cash held in financial institutions and cash held at retail locations have carrying values that approximate fair value.

Investments not considered cash equivalents and with maturities of one year or less are classified as short-term investments. Short-term investments consist of certificates of deposit with original maturity dates greater than three months and less than twelve months. The classification is determined at the time of purchase. The short-term investments are classified as held-to-maturity and recorded at amortized cost. If the cost of an individual investment exceeds its fair value, the Company evaluates, among other factors, general market conditions, the duration and extent to which the fair value is less than cost, and the Company's intent and ability to hold the investment. Once a decline in fair value is determined to be other-than-temporary, an impairment charge is recorded and a new cost basis in the investment is established.

NOTE 3. SUPPLEMENTARY FINANCIAL INFORMATION

Inventories

Inventories are comprised of the following as of:

Notes Receivable

As of September 30, 2024 and December 31, 2023, the allowance for credit losses on notes receivable was $5.7 million andzero, respectively. The provision for credit losses is recorded to other (expense) income, net on the condensed consolidated statements of operations and was $0.5 million and $5.7 million for the three and nine months ended September 30, 2024, respectively.

Held for Sale Assets

Held for sale assets primarily consist of property and equipment and are recorded in other current assets on the condensed consolidated balance sheets. The following table shows the activity of the Company's assets held for sale during the nine months ended September 30, 2024:

The Company recorded a $1.2 million loss on the impairment and disposal of held for sale assets during the nine months ended September 30, 2024, which was recorded to impairment and disposal of long-lived assets, net of recoveries, on the condensed consolidated statements of operations.

Deferred Revenue

Deferred revenue primarily consists of the liability related to the Company's customer rewards program, which was $6.2 million and $0.8 million as of September 30, 2024 and December 31, 2023, respectively.

Leases

Future minimum lease payments under the Company's non-cancellable operating and finance leases as of September 30, 2024 are as follows:

Fair Value Measurements

The fair values of financial instruments measured on a recurring basis by class are as follows:

(1)There wereno transfers between hierarchy levels during the periods ending September 30, 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 $3.0 million and $1.6 million for the three months ended September 30, 2024 and 2023, respectively, and was $9.6 million and $3.4 million for the nine months ended September 30, 2024 and 2023, respectively.

(3)The Company's certificates of deposit are included within short-term investments on the Company's condensed consolidated balance sheets and are classified as held-to-maturity securities as the Company intends to hold until their maturity dates. The certificates of deposit carry interest rates of 5.3% with original maturity dates ranging from five to six months and are scheduled to mature in December 2024 and January 2025. They are valued using Level 2 inputs based on industry standard data and due to their short maturities, their amortized cost approximates fair value. Interest income from certificates of deposit was $0.9 million for the three and nine months ended September 30, 2024.

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

Nonrecurring Fair Value Measurements

In addition to assets and liabilities that are recorded at fair value on a recurring basis, the Company's assets and liabilities are subject to nonrecurring fair value measurements. If events or indicators occur that require an impairment assessment, impairment charges may be recorded to reduce the assets to fair value. The Company recorded impairment charges totaling $1.2 million related to assets moved to held for sale during the nine months ended September 30, 2024. The impairment charges were recorded to impairment and disposal of long-lived assets, net of recoveries on the condensed consolidated statements of operations and were derived from the difference between the carrying value and the estimated fair value of the relevant asset, minus estimated selling costs. The fair value was estimated using an income capitalization approach with estimates and assumptions regarding the asset's future cash flows and return on investment (Level 3).

Redeemable Non-Controlling Interest

One of the Company’s consolidated variable interest entities ("VIE") 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 condensed consolidated balance sheets 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 September 30, 2024, the currently redeemable non-controlling interest could be settled with the issuance of 649,954 shares with a redemption value totaling $7.9 million.

The following table presents the components of the change in redeemable non-controlling interest for the periods presented:

Shared Based Compensation

Stock Options

The following table summarizes the Company's stock option activity for the nine months ended September 30, 2024:

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

Restricted Stock Units

The following table summarizes the Company's restricted stock unit ("RSU") activity for the nine months ended September 30, 2024:

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

In September 2021, the Board of Directors approved a grant of 2,904,079 RSUs for two executive officers as a replacement for canceled warrants. The RSUs immediately vested at grant, but were not contractually issuable until three years after the vesting date. In September 2024, the three-year contractual obligation was met and the holders elected to net settle their tax obligations, resulting in the issuance of 1,829,570 shares of common stock and a $12.2 million payment for taxes.

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 September 30, 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 consists of litigation on various claims in which it believes a loss is probable and can be estimated. As of September 30, 2024 and December 31, 2023, $4.6 million and $4.2 million, respectively, 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:

Notes Payable

Notes payable consisted of the following:

(1)Mortgage notes payable are secured by assets underlying the mortgages.

(2)Interest rates range from 0.00% to 7.50%, with a weighted average interest rate of 7.34% as of September 30, 2024. Maturity dates range from April 27, 2026 to October 24, 2026.

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

Construction Finance Liabilities

Total construction finance liabilities were $137.7 million and $138.1 million as of September 30, 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 16.1 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 September 30, 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 10.6 million shares of common stock were excluded from the computation of diluted earnings per share for the three and nine months ended September 30, 2024 and 7.8 million shares of common stock were excluded from the computation of diluted earnings per share for the three and nine months ended September 30, 2023.

As of September 30, 2024,189.2 million shares were issued and outstanding, which excluded 0.1 million fully vested RSUs that are not contractually issuable until the earlier of a defined triggering event or the award anniversary date, either December 1, 2030 or December 1, 2031.

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:

A reconciliation of the beginning and ending amount of uncertain tax position liabilities, net:

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

(2) Of the $384.1 million in uncertain tax position liabilities, net, $352.0 million is related to the Company's tax positions based on legal interpretations that challenge the Company's tax liability under IRC Section 280E.

The Company’s uncertain tax position liabilities, net, which includes interest and tax payments on deposit, were approximately $384.1 million and $180.4 million as of September 30, 2024 and December 31, 2023, respectively. The $203.8 million increase in uncertain tax positions is primarily due to receipt of$52.4 million in refunds in the current year, as well as$106.4 million current year accruals, each related to tax positions based on legal interpretations that challenge the Company's tax liability under IRC Section 280E.

The Company recorded interest on uncertain tax positions totaling $7.7 million and $0.7 million for the three months ended September 30, 2024 and 2023, respectively, and $17.2 million and $2.2 million for the nine months ended September 30, 2024 and 2023, respectively, to the provision for income taxes on the condensed consolidated statements of operations, which was primarily related to the tax positions based on legal interpretations that challenge the Company's tax liability under IRC Section 280E and related to a tax position taken related to inventory costs for tax purposes in the Company's Florida dispensaries.

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 a 0% ownership interest in these entities as of September 30, 2024.

The summarized assets and liabilities of the Company's consolidated VIEs in which the Company does not hold a majority interest are presented in the table below as of the periods presented and include third-party assets and liabilities of the Company's VIEs only and exclude intercompany balances that were eliminated in consolidation.

Consolidated VIE Settlement Transaction

During the three months ended June 30, 2024, the Company entered into a settlement agreement with the non-controlling interest holders of consolidated VIEs in Ohio in which the Company acquired the remaining ownership interest in dispensary businesses and agreed to provide funding and operational support for a cultivation and production business with new unrelated third parties.

The Company re-evaluated the VIEs after settlement and concluded that the Company continues to be the primary beneficiary of the cultivation and production business and there are no longer variable interests in the dispensary businesses as the Company increased its ownership to 100%. As a result, the Company accounted for this settlement as an equity transaction in accordance with ASC Topic 810-10.

NOTE 8. RELATED PARTIES

In the third quarter of 2023, the Company entered into an agreement to rent an asset 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 and $0.1 million for the three months ended September 30, 2024 and 2023, respectively, and $0.2 million and $0.1 million for the nine months ended September 30, 2024 and 2023, respectively.

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 $0.1 million and $0.1 million for the three months ended September 30, 2024 and 2023, respectively, and $0.2 million and $0.2 million for the nine months ended September 30, 2024 and 2023, respectively.

NOTE 9. DISCONTINUED OPERATIONS

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 nine months ended September 30, 2024 was nominal.

As a result of the Company's exit from the Massachusetts market during the second quarter of 2023, the Company performed a lease term reassessment for the Holyoke failed sale-leaseback financing arrangement due to lease renewals previously included in the lease term being excluded as of the Massachusetts exit. The Company concluded the failed sale-leaseback accounting conclusion is maintained. The Company recognized a gain on partial extinguishment of $18.5 million as a result of the lease term reassessment, which was recorded to net loss from discontinued operations, net of taxes.

Future minimum lease payments, including interest, for the construction finance liability associated with discontinued operations as of September 30, 2024, are as follows:

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.