Cannabis is still considered a Schedule 1 substance under the Controlled Substance Act. As such, there is an inherent risk related to the federal government’s position on cannabis; additionally, the risk exists, due to the Company’s business in cannabis, that third party service providers could suspend or withdraw services and as well as the risk that regulatory bodies could impose certain restrictions on the issuer’s ability to operate in the U.S.; however, the Company has deemed it not reasonable to estimate a potential liability related to the possible enforcement of laws against the medical cannabis industry.

(b)	Contingent consideration payable

As part of the acquisition of Om of Medicine, LLC and Cannex’s prior acquisition of Pure Ratios, the Company is subject to contingent consideration payable to the sellers. The fair value of the contingent consideration, which is based on specific revenue levels achieved over a 2-3-year period, is as follows:


	Om of Medicine			Pure Ratios			Total
Balance, December 31, 2019	$	3,964		$	1,500		$	5,464
Accretion		758			—			758
Changes in fair value		774			—			774
Payments and settlements		—			(1,500	)		(1,500	)

Balance, December 31, 2020		5,496			—			5,496
Accretion		505			—			505
Payments and settlements		(1,201	)		—			(1,201	)
Notes issued (Note 11)		(485	)		—			(485	)
Shares Issued		(722	)		—			(722	)
Reclass to accrued expenses and other current liabilities		(1,200	)		—			(1,200	)

Balance, December 31, 2021		2,393			—			2,393
Less: current potion		—			—			—

Long-term portion	$	2,393		$	—		$	2,393

The contingent consideration payable is measured at fair value based on unobservable inputs and is considered a Level 3 financial instrument. The determination of the fair value of these liabilities is primarily driven by the Company’s expectations of the respective subsidiaries achieving certain milestones. The expected milestones were assigned probabilities and the expected related cash flows were discounted to derive the fair value of the contingent consideration. For the year ended December 31, 2021, the Company determined the outstanding current contingent consideration payable of $1,200 is no longer deemed contingent consideration and therefore reclassed the balance to accrued expenses and other current liabilities. The remaining balance of contingent consideration as of December 31, 2021 is $2,393, all of which is a long-term contingent consideration.

OM of Medicine:

The contingent consideration payable is determined as the amount in excess of gross sales of $3,400 (for fiscal 2020 and 2021) and $3,500 (2022) to a maximum payable of $6,000.

During the year ended December 31, 2021, the Company incurred $505 of accretion expense, recorded $1,201 in payment and settlements of contingencies, issued $485 in notes during the year to satisfy contingencies due to OM of Medicine, and issued $722 of shares issued for OM of Medicine earnout (see Statements of Changes In Stockholders’ Equity). The Company also reclassed the $1,200 current portion of the contingent consideration, as discussed above, to accrued expenses and other current liabilities, as the current portion was determined to no longer be contingent at December 31, 2021.

At December 31, 2020, the probability of achieving all milestones to Om of Medicine’s contingent consideration payable was estimated to be 100% and the contingent liability was increased by $774 and a loss on the fair value adjustment was recorded to Other in Other Income (Expense), Net

on the Consolidated Statements of Operations.

Pure Ratios:

Contingent consideration of $750 was earned during 2019 due to CBD sales reaching a milestone, and stock was issued to the seller with a value of $94. Per an amendment to the agreement, $656 of the earned consideration was used to reduce the principal of a note receivable. In 2020 an additional $750 was earned due to CBD sales and was used to pay

down the note receivable. As of December 31, 2020, $167 due to Pure Ratios was recorded in accounts payable and was settled during the year ended December 31, 2021

through the issuance of 473,491 Class A shares.

(c)	Legal Matters

From time to time, the Company may be involved in certain disputes arising in the ordinary course of business. Such disputes, taken in the aggregate, are not expected to have a material adverse effect on the Company. There are 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.

On August 5, 2019, Richard Hernandez and Commerce Citizens Against Marijuana Corruption (the “Complainants”) filed a complaint (Superior Court of California Case No. 19ST-CV-27029) and writ of mandamus against the City of Commerce, California and certain of its officials alleging procedural errors committed by the City in relation to certain development agreements granted to 22 cannabis operators allowing such operators to operate various cannabis businesses in the City of Commerce. Cannex Holdings (California), Inc., a wholly owned subsidiary of the Company, is one such operator that was named as a Real Party in Interest in the case, and as such, engaged counsel to defend its interests relating to the claims brought against the City of Commerce, California. On April 15, 2021, the court in the matter ruled on a demurrer where certain of the Complainants’ claims were dismissed. Additionally, a writ of mandamus hearing (subject to an application for continuance being sought on August 17, 2021) was scheduled for September 30, 2021. If the Complainants’ remaining claims were upheld (including through appeals), the City of Commerce could have been required to reissue the “ordinances”, “Development Agreements” or other applicable license rights to the current license holders. While the City of Commerce stated in no uncertain terms that it would act immediately to ensure/restore fully licensed status of any of the affected operators, there could be no assurances that such relicensing would be successful or if successful would not result in a significant disruption of operations for the operators. As a result, the Company entered into a confidential settlement with Complainants on or around September 22, 2021 and the matter was dismissed with prejudice as to the Company.

In December 2021, the Company settled a dispute with an undisclosed defendant. As part of the settlement, the Company recorded a gain on the settlement of $3,768.

On January 26, 2022, Savills, Inc. sued the Company in the U.S. District Court for the Southern District of New York. That lawsuit alleges that the Company has breached an alleged agreement with Savills under which the Company was allegedly required to pay Savills a percentage of savings realized under certain incentive programs offered in some jurisdictions, which Savills would assist the Company in obtaining. Savills claims damages of approximately $19,000 in connection with its claim that it obtained benefits for the Company allegedly valued at over $129,000. The Company denies these allegations, denies the Company has obtained such benefits, disputes Savills’ characterization of the facts, and denies liability. The Company has filed a counterclaim against Savills alleging breach of contract by Savills