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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

OR
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, Canada98-1463868
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)
366 Madison Ave, 14th floor
New YorkNew York10017
(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, there were 79,046,738 Fixed shares, 34,114,596 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
PART IFinancial Information
Item 1.
Item 2.
Item 3.
Item 4.
PART IIOther Information
Item 1.
Item 1A.
Item 2.
Item 3.
Item 4.
Item 5.
Item 6.


PART I
Item 1. Financial Statements and Supplementary Data.
ACREAGE HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

(in thousands)September 30, 2022December 31, 2021
(unaudited)(audited)
ASSETS
Cash and cash equivalents$26,476 $43,180 
Restricted cash95 1,098 
Accounts receivable, net9,466 8,202 
Inventory50,892 41,804 
Notes receivable, current2,500 7,104 
Assets held-for-sale 8,952 
Other current assets3,843 2,639 
Total current assets
93,272 112,979 
Long-term investments34,328 35,226 
Notes receivable, non-current27,343 27,563 
Capital assets, net135,362 126,797 
Operating lease right-of-use assets22,730 24,598 
Intangible assets, net135,807 119,695 
Goodwill30,492 43,310 
Other non-current assets3,563 1,383 
Total non-current assets
389,625 378,572 
TOTAL ASSETS$482,897 $491,551 
LIABILITIES AND SHAREHOLDERS’ EQUITY
Accounts payable and accrued liabilities$26,082 $23,861 
Taxes payable29,240 24,572 
Interest payable1,167 1,432 
Operating lease liability, current2,298 2,145 
Debt, current7,218 1,583 
Non-refundable deposits on sale 1,000 
Liabilities related to assets held for sale 1,867 
Other current liabilities10,500 10,333 
Total current liabilities
76,505 66,793 
Debt, non-current194,874 169,151 
Operating lease liability, non-current22,324 24,255 
Deferred tax liability29,875 27,082 
Other liabilities1,125  
Total non-current liabilities
248,198 220,488 
TOTAL LIABILITIES324,703 287,281 
See accompanying Notes to Unaudited Condensed Consolidated Financial Statements
F-1

ACREAGE HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
Commitments and contingencies
Common stock, no par value - unlimited authorized, 112,147 and 106,903 issued and outstanding, respectively
  
Additional paid-in capital761,684 756,536 
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 interests616 7,003 
TOTAL EQUITY158,194 204,270 
TOTAL LIABILITIES AND EQUITY$482,897 $491,551 
See accompanying Notes to Unaudited Condensed Consolidated Financial Statements
F-2

ACREAGE HOLDINGS, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended September 30,Nine Months Ended September 30,
(in thousands, except per share amounts)2022202120222021
REVENUE
Retail revenue, net$48,314 $30,795 $136,426 $85,038 
Wholesale revenue, net12,810 17,077 42,342 42,634 
Other revenue, net295 280 881 3,090 
Total revenues, net61,419 48,152 179,649 130,762 
Cost of goods sold, retail(26,097)(16,279)(70,331)(43,412)
Cost of goods sold, wholesale(14,096)(8,069)(27,968)(19,049)
Total cost of goods sold(40,193)(24,348)(98,299)(62,461)
Gross profit21,226 23,804 81,350 68,301 
OPERATING EXPENSES
General and administrative9,727 8,465 27,036 23,067 
Compensation expense15,271 10,699 42,045 32,236 
Equity-based compensation expense3,156 4,168 8,970 17,191 
Marketing735 583 2,396 992 
Impairments, net506 2,339 2,973 3,157 
Loss on notes receivable7,219  7,219 1,726 
Write down (recovery) of assets held-for-sale  874 (8,616)
Legal settlements (recoveries)  (335)322 
Depreciation and amortization1,047 4,044 6,019 9,670 
Total operating expenses37,661 30,298 97,197 79,745 
Net operating loss$(16,435)$(6,494)$(15,847)$(11,444)
Income (loss) from investments, net17 489 154 (777)
Interest income from loans receivable474 1,067 1,256 4,125 
Interest expense(5,688)(3,620)(15,989)(14,072)
Other income, net4,743 80 5,019 7,825 
Total other income (loss)(454)(1,984)(9,560)(2,899)
Loss before income taxes$(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 diluted111,200 106,332 
(1)
108,795 104,524 
(1)
(1) Presentation of September 30, 2021 figures have been revised.
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 UnitsPubco Shares (as converted)Share CapitalTreasury StockAccumulated DeficitShareholders’ EquityNon-controlling InterestsTotal Equity
December 31, 20203,861 101,250 $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, 20213,861 103,440 $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, 20213,861 105,702 $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, 20213,861 106,403 $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 UnitsPubco Shares (as converted)Share CapitalTreasury StockAccumulated DeficitShareholders’ EquityNon-controlling InterestsTotal Equity
December 31, 20213,861 106,903 $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, 20223,861 107,411 $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, 20223,861 109,189 $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, 20223,861 112,147 $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)20222021
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss$(49,512)$(26,004)
Adjustments for:
Depreciation and amortization6,019 9,670 
Depreciation and amortization included in COGS4,840 1,714 
Equity-based compensation expense8,970 17,607 
Gain on business divestiture(3,490)(11,681)
Loss on disposal of capital assets49 1,690 
Loss on impairment2,973 9,947 
Loss on notes receivable7,219 3,726 
Recovery on notes receivable(1,107) 
Bad debt expense22 (1,060)
(1)
Non-cash interest expense2,301 3,154 
Non-cash operating lease expense223 (572)
Loss on lease termination297  
Deferred tax (income) expense(889)(8,125)
Non-cash loss from investments, net895 778 
Other non-cash (income) expense, net (2,500)
Write-down (recovery) of assets held-for-sale874 (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 payable4,668 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 receivable7,106 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 investments1,048 1,427 
Proceeds from sale of promissory notes 26,000 
Cash paid for short-term investment(3,400) 
Proceeds from disposal of short-term investments3,400  
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

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 period44,501 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 $27,868 
Restricted cash95 1,098 
Cash held for sale$ $518 
Total cash, cash equivalents, restricted cash, and cash held for sale at end of period$26,571 $29,484 
(1) Presentation of September 30, 2021 figures have been revised, refer to Note 2 for further discussion.
Nine Months Ended September 30,
(in thousands)20222021
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid - non-lease$12,730 $11,444 
Income taxes paid21,742 6,346 
OTHER NON-CASH INVESTING AND FINANCING ACTIVITIES:
Capital assets not yet paid for$6,242 $4,063 
Promissory note conversion (Note 6) 10,880 
Insurance proceeds not yet received 6,790 
Non-cash proceeds from business divestiture7,850 34,475 
Non-cash proceeds from finance lease5,785  


See accompanying Notes to Unaudited Condensed Consolidated Financial Statements
F-7

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 to Note 13 for further discussion.
F-8

ACREAGE HOLDINGS, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data)
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, the Company entered into a new arrangement agreement with Canopy Growth regarding the acquisition of the Company’s Floating Shares. Refer to Note 17 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, or any other period.

As reflected in the unaudited condensed consolidated financial statements, the Company had an accumulated deficit as of September 30, 2022, as well as a net loss and negative cash flow from operating activities for the nine months ended September 30, 2022. 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 sales growth from the Company’s consolidated operations, (iii) latitude as to the timing and amount of certain operating expenses as well as capital expenditures, (iv) restructuring plans that have already been put in place to improve the Company’s profitability, (v) the AFC-VRT credit facilities (refer to Notes 10 and 17 for further discussion), 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, dated March 11, 2022, as filed with the Securities and Exchange Commission (the “2021 Form 10-K”).

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) 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

Restricted cash represents funds contractually held for specific purposes and, as such, not available for general corporate purposes.
F-10

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 at their net realizable value. The allowance against gross trade receivables reflects the best estimate of probable losses inherent in the receivables portfolio determined on the basis of historical experience, specific allowances for known troubled accounts and other currently available information. As of September 30, 2022 and December 31, 2021, the Company’s allowance for doubtful accounts was $63 and $445, 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, 2022, 2021 and 2020, as the issuance of shares upon conversion, exercise or vesting of outstanding units would be anti-dilutive in each period. There were 47,999 and 42,621 anti-dilutive shares outstanding as of September 30, 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, 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. The ASU introduces a new model for assessing impairment 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)
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 AllocationGreenleafCWGTotal
Assets acquired:
Cash and cash equivalents$1,209 $828 $2,037 
Inventory2,692 1,200 3,892 
Other current assets1,520 347 1,867 
Capital assets, net22,923 3,312 26,235 
Operating lease right-of-use asset2,819 1,584 4,403 
Goodwill1,819 1,482 3,301 
Intangible assets, net - cannabis licenses16,800 3,200 20,000 
Intangible assets, net - customer relationships 1,000 1,000 
Other non-current assets189 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)(50