20FR12G 1 form20fr12g.htm

As filed with the Securities and Exchange Commission on September 20, 2021

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549

FORM 20-F

☒ REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) or 12(g) OF THE SECURITIES EXCHANGE ACT OF 1934

☐ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For The Fiscal Year Ended

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

☐ SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE ACT OF 1934

Commission file number:

VERANO HOLDINGS CORP.

(Exact Name of the Registrant as Specified in its Charter)

British Columbia, Canada
(Jurisdiction of Incorporation or Organization)

415 North Dearborn Street, 4th Floor, Chicago, Illinois 60654
(Address of Principal Executive Offices)

George Archos
Chief Executive Officer
415 North Dearborn Street, 4th Floor
Chicago, Illinois 60654
(312) 265-0730
(Name, Telephone, E-mail or Facsimile number and Address of Company Contact Person)

Securities registered or to be registered pursuant to Section 12(b) of the Act:

None

Securities registered or to be registered pursuant to Section 12(g) of the Act:

Class A subordinate voting shares

Title of Class

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act: None

Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report: Not applicable

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

YES ☐

NO ☒

If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.

YES ☐

NO ☐

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 ☐

NO ☐

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 ☐

NO ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or an emerging growth company.

Large Accelerated Filer ☐ Accelerated Filer ☐ Non-accelerated Filer ☒ Emerging Growth Company ☒

If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, 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 has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☐

Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:

U.S. GAAP ☐

International Financial Reporting Standards as issued by the International Accounting Standards Board ☒

Other ☐

If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow.

Item 17 ☐

Item 18 ☐

If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

YES ☐

NO ☐

TABLE OF CONTENTS

GENERAL MATTERS	3

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS	4

PART I
ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS	7
ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE	7
ITEM 3. KEY INFORMATION	7
ITEM 4. INFORMATION ON THE COMPANY	30
ITEM 4A. UNRESOLVED STAFF COMMENTS	44
ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS	44
ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES	55
ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS	67
ITEM 8. FINANCIAL INFORMATION	69
ITEM 9. THE OFFER AND LISTING	69
ITEM 10. ADDITIONAL INFORMATION	70
ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	84
ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES	84

PART II
ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES	85
ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS	85
ITEM 15. CONTROLS AND PROCEDURES	85
ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT	85
ITEM 16B. CODE OF ETHICS	85
ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES	85
ITEM 16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES	85
ITEM 16E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS	85
ITEM 16F. CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT	85
ITEM 16G. CORPORATE GOVERNANCE	85
ITEM 16H. MINE SAFETY DISCLOSURE	85

PART III
ITEM 17: FINANCIAL STATEMENTS	86
ITEM 18: FINANCIAL STATEMENTS	86
ITEM 19: EXHIBITS	86

GENERAL MATTERS

Unless otherwise stated or the context requires otherwise, references in this registration statement on Form 20-F (this “Registration Statement”) to the “Company,” “Verano,” “we,” “us,” and “our” refer to Verano Holdings Corp., a British Columbia corporation. The Company has prepared this Registration Statement to register Class A subordinate voting shares, without par value (the “Subordinate Voting Shares”), under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) with the Securities and Exchange Commission (the “SEC”).

The Company is a leading vertically-integrated multi-state cannabis operator in the United States. An operator of licensed cannabis cultivation, processing and retail facilities, the Company’s goal is the ongoing development of communal wellness by providing responsible access to regulated cannabis products to discerning high-end customers. The Company is licensed to operate in 14 U.S. states, with active operations in 11 U.S. states, which includes 83 active dispensaries and ten production facilities comprising approximately 832,000 square feet (including a 26,000 square foot facility in Massachusetts nearing completion of construction), with a focus on tightly regulated, limited license markets. Upon the consummation of pending acquisitions and the completion of construction, the Company will have 85 active dispensaries and 11 production facilities comprised of approximately 842,000 square feet.

The Company is a reporting issuer under applicable securities legislation in the Canadian provinces of Alberta, British Columbia and Ontario, and its Subordinate Voting Shares are listed on the Canadian Securities Exchange (the “CSE”) under the symbol “VRNO”. The Subordinate Voting Shares are also quoted in the United States on the OTCQX marketplace operated by the OTC Market Group (the “OTCQX”) under the symbol “VRNOF”.

The Company prepares its financial statements in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board. Investors should be aware that financial statements prepared in accordance with IFRS may differ in certain respects from financial statements prepared in accordance with U.S. generally accepted accounting principles.

The Company presents its financial statements in United States dollars. Except where otherwise indicated, all references to “$” or “US$” are to United States dollars, and all references to “C$” are to Canadian dollars.

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Registration Statement contains “forward-looking information” and “forward-looking statements” within the meaning of United States securities laws and Canadian securities laws (together, “forward-looking statements”). In addition, the Company or its affiliates may make or approve statements in future filings with United States and Canadian securities regulatory authorities, in press releases, or in oral or written presentations by representatives of the Company or its affiliates that are not statements of historical fact and may also constitute forward-looking statements. All statements, other than statements of historical fact, made by the Company or its affiliates that address activities, events or developments that the Company or its affiliates expect or anticipate will or may occur in the future are forward-looking statements, including, but not limited to, statements preceded by, followed by or that include words such as “may,” “will,” “would,” “could,” “should,” “believes,” “estimates,” “projects,” “potential,” “expects,” “plans,” “intends,” “anticipates,” “targeted,” “continues,” “forecasts,” “designed,” “goal,” or the negative of those words or other similar or comparable words.

The forward-looking statements contained herein are based on certain key expectations and assumptions, including, but not limited to, expectations and assumptions concerning:

	●	the ability of the Company and its affiliates to obtain, maintain and renew regulatory approvals in all states and localities of its operations and planned operations on a timely basis;

	●	government regulations, including future legislative and regulatory developments involving medical and adult-use cannabis and the timing thereof;

	●	the Company’s outlook on its expansion and growth of business and operations;

	●	the Company’s ability to achieve its goals, business plans and strategy;

	●	the ability of the Company to access capital and obtain necessary financing to pursue its growth and business plans;

	●	operational results and other financial and business conditions and prospects of the Company;

	●	the timing and completion of acquisitions and other commercial transactions;

	●	the integration of acquired businesses;

	●	the timing and amount of capital expenditures;

	●	availability of equipment, skilled labor and services needed for cannabis operations;

	●	demand, developments and trends in the cannabis industry;

	●	competition in the cannabis industry in the markets in which the Company operates or plans to operate;

	●	the size of the medical cannabis market and the adult-use cannabis market in each state;

	●	conditions in general economic and financial markets; and

	●	the impacts of COVID-19 and future steps to be taken in response to COVID-19.

Forward-looking statements may relate to future financial conditions, results of operations, plans, objectives, performance or business developments. These statements speak only as at the date they are made and are based on information currently available and on the then current expectations of the party making the statement and assumptions concerning future events, which are subject to a number of known and unknown risks, uncertainties and other factors that may cause actual results, performance or achievements to be materially different from that which was expressed or implied by such forward-looking statements, including, but not limited to, risks and uncertainties related to:

	●	the impacts of COVID-19 on the Company and global markets;

	●	the Company’s limited operating history;

	●	the need to create and maintain strong brand identities;

	●	the resources required by litigation matters and adverse outcomes of litigation;

	●	reliance on management;

	●	outstanding indebtedness and potential indebtedness;

	●	integration of acquisitions;

	●	uninsured or underinsured losses;

	●	materially different results from management’s expectations;

	●	the Company’s lack of portfolio diversification;

	●	the Company’s reliance on the performance of its subsidiaries and affiliates;

	●	the Company’s expansion-by-acquisition strategy;

	●	the unconventional due diligence process in the medical and adult-use cannabis industry;

	●	existing competition and new market entrants;

	●	third-party suppliers, contractors and manufacturers, and availability of raw or other materials;

	●	wholesale and retail price fluctuations;

	●	the introduction of synthetic alternatives by pharmaceutical and other companies;

	●	potential product liability and recalls;

	●	physical security of the Company’s assets and property, and potential fraudulent practices by insiders and third parties;

	●	agricultural and environmental risks and the impacts of regulations on the agriculture industries and environmental protections;

	●	regulatory and political changes to state laws;

	●	bonding and insurance costs;

	●	unknown future regulatory fees and taxes;

	●	disparate state-by-state regulatory landscapes and licensing regimes;

	●	potential difficulty accessing or maintaining banking or financial services due to the Company’s business;

	●	required public disclosure and filings of personal information by the Company’s officers, investors and other stakeholders;

	●	the ability to, and constraints on, promoting and marketing cannabis products;

	●	the United States regulatory landscape and enforcement related to medical or adult-use cannabis, including political risks, civil asset forfeiture and regulation by additional regulatory authorities;

	●	outcomes of clinical research studies and related activities on the use of cannabis products;

	●	public opinion and perception of the cannabis industry;

	●	the Company’s inability to enforce its contracts or any liens granted to it;

	●	anti-money laundering laws and regulations;

	●	the lack of access to federal bankruptcy protections in the United States;

	●	heightened scrutiny from Canadian government authorities;

	●	limited trademark protection for cannabis products;

	●	reliance on information technology systems, the potential disclosure of personal information and cybersecurity risks;

	●	reliance on intellectual property, including trademarks and trade secrets, and the potential infringement by third parties;

	●	the Company’s “Foreign Private Issuer” status and potential loss thereof;

	●	the Company’s elimination of monetary liability and indemnification rights against its directors, officers and employees under British Columbia law;

	●	the Company’s capital structure with the Subordinate Voting Shares and Proportionate Voting Shares;

	●	shareholders’ limited participation in the Company’s affairs;

	●	the Company’s expectation to not pay out dividends;

	●	the limited research and reliable data available relating to the cannabis industry;

	●	access to capital markets and the availability of financing opportunities;

	●	the reliance on the expertise and judgment of senior management of the Company;

	●	the reliance on key inputs, suppliers and skilled labor;

	●	internal controls and the potential for fraudulent activity by employees, contractors and consultants;

	●	the limitation of certain remedies and the difficulty of enforcement of judgments and to effect service outside of Canada;

	●	the limited market for securities of the Company;

	●	the increased costs associated with the Company being a U.S. and Canadian reporting company and publicly traded company and maintaining such status;

	●	the taxation of cannabis companies; and

	●	other risks described in this Registration Statement, as more particularly described under the heading “Risk Factors,” and described from time to time in documents filed by the Company with United States and Canadian securities regulatory authorities.

Although the Company believes that the expectations and assumptions on which forward-looking statements are based are reasonable, undue reliance should not be placed on the forward-looking statements, because no assurance can be given that they will prove to be correct. Forward-looking statements address future events and conditions, and thus involve inherent risks and uncertainties.

Consequently, all forward-looking statements made in this Registration Statement and other documents of the Company are qualified by such cautionary statements and there can be no assurance that the anticipated results or developments will actually be realized or, even if realized, that they will have the expected consequences to or effects on the Company. The cautionary statements contained or referred to in this section should be considered in connection with any subsequent written or oral forward-looking statements that the Company or persons acting on its behalf may issue. The Company does not undertake any obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, other than as required under applicable securities legislation.

PART I

ITEM 1: IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS.

A.	Directors and Senior Management

For information regarding the Company’s directors and members of senior management, see “Item 6.A. - Directors and Senior Management” and “ Item 6.C - Board Practices”.

B.	Advisers

The Company’s principal Canadian legal advisors are Dentons Canada LLP, located at 77 King Street West, Suite 400, Toronto-Dominion Centre Toronto, ON M5K 0A1 Canada. The Company’s principal United States legal advisors are Dentons US LLP, located at 233 South Wacker Drive, Suite 5900, Chicago, IL 60606-6361.

C.	Auditors

In June 2021, Baker Tilly US, LLP (“Baker Tilly”) became the Company’s independent auditor. Baker Tilly is registered with the Public Company Accounting Oversight Board (the “PCAOB”).

Macias Gini & O’Connell LLP (“MGO”) previously acted as the independent auditor for the Company and Verano Holdings, LLC (“Verano LLC”), and audited the consolidated financial statements of Verano LLC for the years ended December 31, 2020, 2019 and 2018. MGO is registered with the PCAOB.

Hill, Barth & King LLC (“HBK”) previously acted as the independent auditor for, and audited the financial statements of, (i) Alternative Medical Enterprises LLC (“AME LLC”), Agronomy Innovations LLC, Fort Consulting LLC, Agronomy Holdings LLC, AltMed LLC, Cave Creek Real Estate LLC, MuV Health LLC, and NuTrae LLC (collectively with AME LLC, the “AME Group”) for the year ended December 31, 2020 and (ii) Plants of Ruskin GPS, LLC and RVC 360, LLC (collectively, “Plants of Ruskin”) for the years ended December 31, 2020 and 2019. HBK is registered with the PCAOB. ATLAS CPAs and Advisors PLLC (“ATLAS”) previously acted as the independent auditor for the AME Group for the year ended December 31, 2019.

ITEM 2: OFFER STATISTICS AND EXPECTED TIMETABLE

Not applicable.

ITEM 3: KEY INFORMATION

A.	Selected Financial Data

As part of the Business Combination described in Item 4.A “History and Development of the Company,” in February 2021, the Company resulted from a reverse takeover transaction and Verano LLC and AME LLC became subsidiaries of the Company and the other members of the AME Group and Plants of Ruskin became subsidiaries of AME LLC. Plants of Ruskin and AME LLC are collectively referred to as the “AME Parties.” Prior to the Business Combination, Verano LLC, the AME Group and Plants of Ruskin were not consolidated or combined.

The following table sets forth selected consolidated and combined financial data for the periods, and as of the dates, indicated. The (i) consolidated statements of operations data for the years ended December 31, 2020, 2019 and 2018 and (ii) consolidated and combined balance sheet data as of December 31, 2020, 2019 and 2018 have been derived from the audited consolidated financial statements of Verano LLC which are included in this Registration Statement. The selected consolidated financial data for the six months ended June 30, 2021 has been derived from the unaudited interim condensed consolidated financial statements of the Company, and the selected consolidated financial data for the six months ended June 30, 2020 has been derived from the unaudited interim condensed consolidated financial statements of Verano LLC included in this Registration Statement.

The data set forth below should be read in conjunction with “Item 5. Operating and Financial Review And Prospects”, “Item 8. Financial Information”, and the Consolidated and Combined Financial Statements, the Unaudited Pro Forma Condensed Combined Financial Statements and the accompanying notes presented in Item 8, Item 17 and Item 18 of this Registration Statement. The financial statements from which the data was derived have been prepared in accordance with IFRS.

	Six Months Ended						Years Ended
	June 30,						December 31,
	2021			2020			2020			2019			2018
Total Revenues, net of discounts	$	319,601,554		$	90,147,010		$	228,530,083		$	65,968,292		$	31,095,461
Cost of Goods Sold	$	144,845,799		$	31,978,372		$	94,386,849		$	38,469,325		$	18,380,350
Gross Profit	$	220,686,136		$	87,914,913		$	255,744,212		$	42,062,870		$	18,926,314
Total Expenses	$	86,655,590		$	18,925,584		$	45,861,967		$	37,810,559		$	10,630,442
Other Income (Expense)	$	(8,709,431	)	$	(7,974,223	)	$	(9,101,841	)	$	(6,787,494	)	$	(3,093,624	)
Net Income (Loss)	$	74,914,746		$	32,839,844		$	124,106,963		$	(18,434,020	)	$	(561,983	)
Earnings Per Share	$	0.56			N/A			N/A			N/A			N/A
Total Assets	$	2,193,138,135			268,454,252		$	459,306,917		$	194,114,696		$	153,400,556
Long-Term Liabilities	$	421,468,764			24,932,836		$	94,463,800		$	20,930,846		$	3,668,993

B.	Capitalization and Indebtedness

The following table sets forth the Company’s capitalization and indebtedness as of June 30, 2021. Investors should read this information together with the other information provided in this Registration Statement, including “Item 5. Operating and Financial Review and Prospects,” and the Company’s financial statements, including the notes thereto, included in this Registration Statement.

Long-Term Indebtedness
Long-term bank loan (secured) (non-current portion)⁽¹⁾	$	131,041,859
Total long-term indebtedness	$	131,041,859
Equity
Share capital	$	1,402,828,847
Reserves	$	4,979,110
Non-Controlling Interest		344,620
Net Income	$	76,353,992
Total equity	$	1,484,506,569
Total capitalization	$	1,615,548,428

⁽¹⁾	Excludes current portion of $2,969,277.

C.	Reasons for the Offer and Use of Proceeds

Not applicable.

D.	Risk Factors

The Company is subject to risks, certain of which are described below. The occurrence of any one or more of these risks or uncertainties could have a material adverse effect on the value of any investment in the Company and the financial condition or operating results of the Company. Additional risks and uncertainties not presently known to the Company or that the Company currently deems immaterial may also impair the Company’s business operations. Due to the nature of the Company and its business, investors should carefully consider all such risks, including those set out in the discussion below.

Risks Related to Our Business and Operations - General

The Company remains subject to various risks and uncertainties as a result of the Coronavirus pandemic which could adversely affect its business, financial condition or results of operations.

The outbreak of COVID-19 has resulted in federal, state and local governments in the U.S. and worldwide enacting emergency measures to combat the spread of the virus. These measures, which have included the implementation of travel bans, self-imposing quarantine periods and social distancing, have caused material disruption to businesses in the U.S. and globally resulting in an economic slowdown. Governments and central banks have reacted with significant monetary and fiscal interventions designed to stabilize economic conditions. The duration and impact of the COVID-19 outbreak is unknown currently, as is the efficacy of the government and central bank interventions. It is not possible to reliably estimate the length and severity of these developments and the impact on the financial results and condition of the Company in future periods. Effects on the Company’s business to date have included increased construction costs due to shortages of raw materials, a slowdown in the production and delivery of mechanical and other components needed in the construction or maintenance of the Company’s facilities, and labor shortages.

Challenging global economic conditions may negatively impact the Company’s business, financial condition or results of operations in the future.

Future disruptions and volatility in global financial markets and declining consumer and business confidence could lead to decreased levels of consumer spending. The Company’s operations could be affected by the economic context should the unemployment level, interest rates or inflation reach levels that influence consumer trends and spending and, consequently, impact the Company’s sales and profitability. These macroeconomic developments could negatively impact the Company’s business, which depends on the general economic environment and levels of consumer spending. As a result, the Company may not be able to maintain its existing customers or attract new customers, or the Company may be forced to reduce the price of its products. The Company is unable to predict the likelihood of the occurrence, duration, or severity of such disruptions in the credit and financial markets and adverse global economic conditions. Any general or market-specific economic downturn could have a material adverse effect on the Company’s business, financial condition or results of operations.

The Company is in its early stages and may experience unforeseen operating difficulties inherent in an early-stage business, which could negatively impact the Company’s business, financial condition or results of operations.

The Company is in its early stages. Unanticipated expenses and problems or technical difficulties may occur which may result in material delays in the operation of the Company’s business. The Company may not successfully address these risks and uncertainties or successfully implement its operating strategies. If the Company fails to do so, it could materially harm the Company’s business to the point of having to cease operations and could impair the value of the Subordinate Voting Shares to such an extent that investors may lose their entire investment.

The Company expects to continue to commit significant resources and capital to develop and enter new geographic markets, market existing products and develop new products and services. The Company cannot assure that it will achieve market acceptance in new geographic areas or for its products and services that the Company may offer in the future. Moreover, the Company may face significant competition with offerings by new and existing competitors in the business. In addition, expansion into new markets and the development of new products and services may pose a variety of challenges and require the Company to attract additional qualified employees. The failure to successfully enter new markets, develop and market new products and services, or attract such employees could seriously harm the Company’s business, financial condition or results of operations.

The Company is dependent upon promoting and maintaining strong brand identities and may have to incur significant expenses to maintain its brand identities, which could negatively affect its business, financial condition or results of operations.

The Company believes that establishing and maintaining the brand identities of products is a critical aspect of attracting and expanding a large customer base. Promotion and enhancement of brands will depend largely on the Company’s success in providing high quality products. If customers and patients do not perceive the Company’s products to be of high quality, or if the Company introduces new products or enters into new business ventures that are not favorably received by customers and patients, the Company will risk diluting brand identities and decreasing their attractiveness to existing and potential customers. Moreover, in order to attract and retain customers and to promote and maintain brand equity in response to competitive pressures, the Company may have to substantially increase its financial commitment to creating and maintaining a distinct brand loyalty among customers. If the Company incurs significant expenses in an attempt to promote and maintain its brands, such efforts could have a material adverse effect on the business, financial condition or results of operations of the Company.

The Company may be a party to material litigation that requires outsized expenses or results in negative outcomes that could affect the Company’s business, financial condition or results of operations.

The Company may become party to litigation from time to time in the ordinary course of business which could adversely affect its business. Should any litigation in which the Company becomes involved be concluded in a way which is adverse to the Company, such a decision could adversely affect the Company’s ability to continue operating and could use significant resources. Even if the Company is involved in litigation and receives a successful outcome, litigation can redirect significant resources of the Company. See “Item 8.A. Consolidated Statements and Other Financial Information – Legal Proceedings”.

The Company relies on the expertise of its management team and other employees experienced in the cannabis industry, and therefore the loss of key personnel could negatively affect its business, financial condition or results of operations.

The Company’s future success largely depends upon the continued services of its executive officers and management team members. If one or more of the Company’s executive officers or management members is unable or unwilling to continue in her or his present position, the Company may not be able to replace such individual readily, if at all. Additionally, the Company may incur additional expenses to recruit and retain new executive officers and management members. The Company does not maintain “key person” life insurance on any of its executive officers. Because of these factors, the loss of the services of any of these key persons could adversely affect its business, financial condition or results of operations.

The Company is a borrower under secured debt facilities, and the Company may be unable to repay such indebtedness. Further, such facilities contain covenants that may restrict the Company’s business or be difficult or costly to comply with. If the Company is unable to pay its debts, it would have a material adverse effect on the business, financial condition or results of operations of the Company.

The Company has outstanding secured indebtedness and is subject to risks typically associated with secured debt financing. The Company’s cash flows could be insufficient to satisfy its required payments of principal and interest. The Company’s ability to make scheduled payments of principal and interest on its indebtedness depends on its future cash flow, which is subject to the financial performance of the Company’s business, prevailing economic conditions, prevailing interest rate levels and other financial, competitive and operational factors, many of which are beyond the Company’s control.

The covenants of its indebtedness may limit the Company’s ability to engage in activities that may be in the Company’s long-term best interest. In addition, the terms and conditions of the indebtedness include financial, operational and reporting covenants, and compliance with these covenants may increase the Company’s legal and financial costs, make certain activities more difficult or restricted, and may be time-consuming or costly and increase demand on the Company’s systems and resources. The Company’s failure to comply with any such covenants could result in an event of default, which could result in the acceleration of repayment of the Company’s debt or realization of the security granted. See - “Item 4.A - History and Development of the Company - Credit Facility”.

The Company may incur additional debt. As funds are borrowed, debt service increases the expense of operating the Company. In addition, lenders may require restrictions on future borrowing, distributions and operating policies. The Company’s ability to meet its debt obligations will depend upon the Company’s future performance and will be subject to financial, business and other factors affecting the Company’s business and operations, including general economic conditions. There are no assurances that the Company will be able to meet its debt obligations.

The Company is exposed to various operational risks, any of which may be uninsured or underinsured, and could have a material adverse effect on the business, financial condition or results of operations.

The Company may be affected by a number of operational risks and may not be adequately insured for certain risks, including labor disputes; catastrophic accidents; fires; blockades or other acts of social activism; equipment defects, malfunction and failures; changes in the regulatory environment; impact of non-compliance with laws and regulations; and outbreak of a global pandemic (including COVID-19). Such risks can cause interruption of operations, shortage of staff, disruption of supply chain, and market volatility; and natural phenomena, such as inclement weather conditions, floods, earthquakes, ground movements, accidents and explosions that can cause personal injury, loss of life, suspension of operations, damage to facilities, business interruption and damage to or destruction of property, equipment and the environment. There is no assurance that the foregoing risks and hazards will not result in damage to, or destruction of, the Company’s properties, dispensary facilities and production facilities, or cause personal injury or death, environmental damage or have an adverse impact on the Company’s operations, costs, monetary losses, potential legal liability and adverse governmental action, any of which could have a material adverse effect on the business, financial condition or results of operations of the Company.

The Company will continuously monitor its operations for quality control and safety. However, there are no assurances that the Company’s safety procedures will always prevent such damages and the Company may be affected by liability or sustain losses in respect of risks and hazards. Although the Company will maintain insurance coverage that it believes to be adequate and customary in the industry, there can be no assurance that such insurance will be adequate to cover its liabilities. The Company may elect not to insure against certain risks due to cost of or ease of procuring such insurance. The occurrence of a significant uninsured claim, a claim in excess of the insurance coverage limits then maintained by the Company, or a claim at a time when it is not able to obtain liability insurance, could have a material adverse effect on the business, financial condition or results of operations of the Company.

Past performance is not necessarily indicative of future results; if the actual operations of the Company differ materially from management’s expectations, it could have a material adverse effect on the business, financial condition or results of operations of the Company.

The operational performance of the Company is not indicative of the future operating results of the Company. There can be no assurance that the historical operating results achieved by the Company, its subsidiaries, or the Company’s affiliates will be achieved by the Company, and the Company’s performance may be materially different. See “Cautionary Note Regarding Forward-Looking Statements.”

The Company’s asset portfolio is not highly diversified; if its cannabis assets underperform, the Company’s business, financial condition or results of operations would be negatively impacted.

The Company’s assets are associated with the medical and adult-use cannabis industry. While the Company may purchase other assets and make other loans and investments not limited to the cannabis industry, the Company intends to maintain and acquire assets related to the cannabis industry. Thus, the Company has limited diversity as to asset type. Additionally, the assets held by the Company may be geographically concentrated from time to time. This lack of diversification could increase the risk associated with the revenue stream the Company expects to receive from the assets and, as a result, could have a material adverse effect on the business, financial condition or results of operations of the Company.

Risks Related to Our Business and Operations - Organizational Structure and Acquisition-Based Strategy

The Company depends on the performance of its subsidiaries and affiliates and therefore any material declines with these entities will adversely affect its business, financial condition or results of operations.

The Company is dependent on the operations, assets and financial health of its subsidiaries and affiliates. Accordingly, any decline in the financial performance of any subsidiary or affiliate will adversely affect the Company’s investment in such subsidiary or affiliate and its ability to realize a return on such investment.

The Company engages in acquisitions, dispositions and other strategic transactions, which present numerous risks; the Company may encounter unforeseen obstacles related to these transactions that would negatively impact its business, financial condition or results of operations.

Material acquisitions, dispositions and other strategic transactions involve a number of risks, including: (i) potential disruption of the Company’s ongoing business; (ii) distraction of management; (iii) the Company becoming more financially leveraged; (iv) the anticipated benefits and cost savings of those transactions not being realized fully or at all, or taking longer to realize than expected; (v) an increase in the scope and complexity of the Company’s operations; and (vi) a loss or reduction of control over certain of the Company’s assets. Additionally, the Company may issue additional equity interests in connection with such transactions, which issuances would dilute a shareholder’s holdings in the Company.

The Company’s acquisitions are subject to varying degrees of approval which include in some, but not all cases, among other things (i) approval of the Company’s shareholders; (ii) approval of the transfer of the cannabis-related licenses by local and state authorities in many of the markets where the Company’s assets and licenses will be held, or approval of the transfer of ownership by the person or entity holding such cannabis-related licenses; and (iii) other regulatory approvals. The Company is unable to predict when all required approvals or authorizations will be obtained, if at all.

After acquisitions are approved, the presence of one or more material liabilities of an acquired company that are unknown to the Company at the time of acquisition could have a material adverse effect on the business, financial condition or results of operations of the Company.

The Company may be unable to identify and acquire assets or integrate acquired assets that it deems necessary to achieve its desired growth, which would negatively impact its business, financial condition or results of operations.

The ability to achieve desired growth will depend in part on the Company’s ability to identify, evaluate, successfully negotiate and consummate investment opportunities with target companies. Achieving this objective in a cost-effective manner will be a product of the Company’s sourcing capabilities, the management of the investment process, the ability to provide capital on terms that are attractive to target companies and the Company’s access to financing on acceptable terms. Failure to effectively integrate acquired assets and manage future growth and successfully negotiate suitable investments could have a material adverse effect on the business, financial condition or results of operations of the Company.

Some of the companies in which the Company invests or may invest have limited operations or revenues; these businesses may underperform the Company’s targets and thus negatively impact its business, financial condition or results of operations.

The Company may make investments in companies with no significant sources of operating cash flow and no revenue from operations. The Company’s investments in such companies will be subject to risks and uncertainties that new companies with no operating history may face. In particular, there is a risk that the Company’s investment in these pre-revenue companies will not be able to meet anticipated revenue targets or that these companies will generate no revenue at all, which could have a material adverse effect on the business, financial condition or results of operations of the Company.

The uncertain and fragmented nature of the medical and adult-use cannabis industry often results in an unconventional due diligence process and acquisition terms that could result in unknown and materially detrimental consequences to the Company.

The uncertainty inherent in various aspects of the medical and adult-use cannabis industry can result in what otherwise would be inadequate investment due diligence information and uncertain legal consequences relative to a target investment. The reluctance of banks and other financial institutions to facilitate financial transactions in the medical and adult-use cannabis industry can result in inadequate and unverifiable financial information about target investments, as well as cash management practices that are vulnerable to theft and/or fraud. The lack of established, traditional sources of financing for industry participants can result in unusual and uncertain arrangements affecting the ownership and obligations of a target investment. The reluctance of some professionals and advisors to represent cannabis industry participants in financings and other business transactions can result in the lack of documentation setting forth the terms of the transactions, inadequately documented transactions, and transactions that in whole or in part are illegal under applicable state law, among other detrimental consequences. The Company will have invested in, and may in the future invest in, businesses and companies that are or may become party to legal proceedings, may have inadequate financial and other due diligence information, may employ vulnerable cash management practices, lack written or adequate legal documents governing significant transactions and otherwise have known or unknown conditions that could be detrimental to its business and assets, which in turn could have a material adverse effect on the business, financial condition or results of operations of the Company. See “Risks Related to our Business and Operations - Our Industry”.

The Company’s assets may be purchased with limited representations and warranties from the sellers of those assets; these limited representations and warranties could result in a lack of legal remedies for unknown and materially detrimental problems with the assets, which in turn would negatively impact its business, financial condition or results of operations.

The Company may acquire assets, after conducting its due diligence, with only limited representations and warranties from the seller regarding the quality of the assets and the likelihood of payment. As a result, if defects in the assets or the payment of amounts owing on the assets are discovered, the Company may not be able to pursue a claim for damages against the former owners. The extent of damages that the Company may incur as a result of such matters cannot be predicted, but potentially could have a significant adverse effect on the value of the Company’s assets and revenue streams. Further, some of the Company’s assets consist of obligations of cannabis operations, and the Company’s remedies against such obligors may be limited if deemed unenforceable under federal laws or for other reasons.

Risks Related to our Business and Operations - Our Industry

If the Company is unable to maintain its competitive advantages against current and potential market participants, the Company’s business, financial condition or results of operations may be adversely impacted.

A number of other companies engage in, and may in the future engage in, businesses similar to the business of the Company, operate businesses in competition with the Company and purchase assets or make investments that the Company will also seek to purchase or make. This competition may increase the price the Company must pay for assets or make it more difficult for the Company to operate at a profit and to purchase additional assets. The inability to operate at a profit and acquire assets on terms favorable to the Company may adversely impact the revenue stream that the Company anticipates.

Large conglomerates and companies who also recognize the potential for financial success through investment in the cannabis industry could strategically purchase or assume control of larger dispensaries and cultivation facilities. In doing so, these larger competitors could establish price setting and cost controls which would effectively “price out” many of the participants in the varied businesses operating within and in support of the medical and adult-use cannabis industry. While the trend in most state laws and regulations seemingly deters this type of takeover, the industry remains nascent and the future regulatory landscape remains largely unknown, which in itself is a risk.

The Company also faces competition from the illicit market and illegal dispensaries that are unlicensed and unregulated and that are selling cannabis and cannabis products, including products with higher concentrations of active ingredients, and using delivery methods, including edibles and extract vaporizers, that the Company may be prohibited from offering to individuals due to certain U.S. state laws. Any inability or unwillingness of law enforcement authorities to enforce existing laws prohibiting the unlicensed production and sale of cannabis and cannabis products could result in the perpetuation of the illicit market for cannabis or have a material adverse effect on the perception of cannabis use. Any or all these events could have a material adverse effect on the Company’s business, financial condition or results of operations.

The Company relies on third-party suppliers, manufacturers and contractors and any significant interruption or negative change in the availability or economics of these relationships could have a material adverse effect on the business, financial condition or results of operations of the Company.

The cultivation, extraction, production, sale and distribution of cannabis and cannabis products is dependent on a number of key inputs from third party suppliers and their related costs including raw materials, electricity, water and other local utilities. Some of these inputs may only be available from a single supplier or a limited group of suppliers. If a sole source supplier were to go out of business, the Company might be unable to find a replacement for such source in a timely manner or at all.

The Company also relies on relationships with numerous other business partners and third party service providers located in the U.S. Unless and until the federal legal landscape with respect to medical or adult-use cannabis changes (and as to the timing or scope of any such potential amendments there can be no assurance), there is a significant risk that business partners and third party service providers may be required to suspend or withdraw services and business relationships to avoid prosecution by U.S. federal authorities under U.S. federal laws. Any inability to secure required supplies and services or to do so on appropriate terms could have a material adverse effect on the business, financial condition or results of operations of the Company.

A drop in the wholesale and/or retail price of cannabis products would negatively impact the Company’s business, financial condition or results of operations.

The demand for the Company’s products depends in part on the price of commercially-grown cannabis. Fluctuations in economic and market conditions that impact the prices of commercially-grown cannabis, such as increases in the supply of such cannabis and the decrease in the price of products using commercially-grown cannabis, could cause the demand for cannabis products to decline, which would have a negative impact on its business, financial condition or results of operations.

Synthetic products may compete with cannabis and cannabis products.

The pharmaceutical industry may attempt to compete with or dominate the cannabis industry, and in particular, legal cannabis, through the development and distribution of synthetic products that emulate the effects and treatment of organic cannabis. If they are successful, the widespread popularity of such synthetic products could change the demand, volume and profitability of the cannabis industry. This could adversely affect the ability of the Company to secure long-term profitability and success through the sustainable and profitable operation of the businesses and investment targets and could have a material adverse effect on the business, financial condition or results of operations of the Company.

The Company may be subject to product liability claims which could adversely affect the business, financial condition or results of operations of the Company.

The Company manufactures, processes and distributes products designed to be ingested by humans, and therefore faces an inherent risk of exposure to product liability claims, regulatory action and litigation if products are alleged to have caused loss or injury. In addition, the manufacture and sale of cannabis products involve risk of injury to consumers due to tampering by unauthorized third parties or product contamination. Previously unknown adverse reactions resulting from human consumption of cannabis products alone or in combination with other medications or substances could occur. Although the Company has quality control procedures in place, the Company may be subject to various product liability claims, including, among others, that the products produced by the Company, or the products that will be purchased by the Company from third party licensed producers, caused injury or illness, include inadequate instructions for use or include inadequate warnings concerning possible side effects or interactions with other substances. A product liability claim or regulatory action could result in increased costs, could adversely affect the reputation of the Company, and could have a material adverse effect on the business, financial condition or results of operations of the Company. There can be no assurances that product liability insurance will be obtained or maintained on acceptable terms or with adequate coverage against potential liabilities.

The Company’s products may be recalled, which could damage its brand identity and adversely affect the business, financial condition or results of operations of the Company.

Despite the Company’s quality control procedures, cultivators, manufacturers and distributors of products are sometimes subject to the recall or return of their products for a variety of reasons, including product defects, such as contamination, unintended harmful side effects or interactions with other substances, packaging safety and inadequate or inaccurate labeling disclosure. If any of the products produced by the Company, or any of the products that will be purchased by the Company from a third party licensed producer, are recalled due to an alleged product defect or for any other reason, the Company could be required to incur the unexpected expense of the recall and any legal proceedings that might arise in connection with the recall, and may lose a significant amount of sales and may not be able to replace those sales at an acceptable margin or at all. A recall for any of the foregoing reasons could lead to a deterioration in the Company’s brand identity, decreased demand for products produced by the Company or purchased from a third-party producer and could have a material adverse effect on the business, financial condition or results of operations of the Company.

The Company faces physical security risks; any security event could lead to losses that would negatively affect the business, financial condition or results of operations. If a security breach resulted in substantial cannabis diversion the Company could become a target for federal cannabis enforcement.

The business premises of the Company’s operating locations may be targets for theft. While the Company has implemented security measures at each location and continue to monitor and improve their security measures, their cultivation, production and dispensary facilities could be subject to break-ins, robberies and other breaches in security. If there was a breach in security and a subsidiary or affiliate fell victim to a robbery or theft, the loss of cannabis plants, cannabis oils, cannabis flowers and cultivation and production equipment could have a material adverse effect on the business, financial condition or results of operations of the Company. Furthermore, if such losses resulted in cannabis diversion, especially diversion to minors or across state lines, the Company could become a target for federal enforcement action, which could lead to criminal or civil sanctions that would materially impact the Company’s business, financial condition or results of operations.

There is a risk of fraudulent or illegal activity by Company employees, contractors and consultants; such acts could negatively affect the business, financial condition or results of operations.

The Company is exposed to the risk that its employees, independent contractors and consultants may engage in fraudulent or other illegal activity. Misconduct by these parties could include intentional, reckless or negligent conduct or disclosure of unauthorized activities to the Company that violates: (i) government regulations; (ii) manufacturing standards; (iii) federal and state healthcare fraud and abuse laws and regulations; or (iv) laws that require the true, complete and accurate reporting of financial information or data. It may not always be possible for the Company to identify and deter misconduct by its employees and other third parties, and the precautions taken by the Company to detect and prevent this activity may not be effective in controlling unknown or unmanaged risks or losses or in protecting the Company from governmental investigations or other actions or lawsuits stemming from a failure to be in compliance with such laws or regulations. If any such actions are instituted against the Company, and the Company is not successful in defending itself or asserting its rights, those actions could have a significant impact on the business of the Company, including the imposition of civil, criminal and administrative penalties, damages, monetary fines, contractual damages, reputational harm, diminished profits and future earnings and curtailment of the operations of the Company, any of which could have a material adverse effect on the business, financial condition or results of operations of the Company.

The cannabis industry is subject to the risks inherent in an agricultural business, including environmental factors and the risk of crop failure; such risks could negatively impact the Company’s business, financial condition or results of operations.

The growing of cannabis is an agricultural process. As such, the Company is subject to the risks inherent in the agricultural business, including risks of crop failure presented by weather, climate-change, water scarcity, fires, insects, plant diseases and similar agricultural risks. Although some cannabis production is indoors under climate controlled conditions, cannabis continues to be grown outdoors and in partially open greenhouses, and there can be no assurance that environmental factors will not entirely interrupt production activities or have an adverse effect on the production of cannabis and, accordingly, the operations of the Company. These factors could have an adverse effect on the Company’s business, financial condition or results of operations.

The Company is subject to environmental risks and regulations, and future changes in environmental regulation could have a material adverse effect on the business, financial condition or results of operations.

The operations of the Company are subject to environmental regulation in the various jurisdictions in which it operates. These regulations mandate, among other things, the maintenance of air and water quality standards and land reclamation. They also set forth limitations on the generation, transportation, storage and disposal of solid and hazardous waste. Environmental legislation is evolving in a manner which will require stricter standards and enforcement, increased fines and penalties for non-compliance, more stringent environmental assessments of proposed projects and a heightened degree of responsibility for companies and their officers, directors (or the equivalent thereof) and employees. There is no assurance that future changes in environmental regulation, if any, will not have a material adverse effect on the business, financial condition or results of operations of the Company.

Risks Related to our Business and Operations - United States Cannabis Regulatory Regime

Cannabis, other than hemp, remains illegal under federal law, and therefore any change in federal enforcement could have material adverse impact on the business, financial condition or results of operations of the Company.

All but three U.S. states have legalized, to some extent, cannabis for medical purposes. Thirty-seven states, the District of Columbia, Puerto Rico and Guam have legalized some form of whole-plant cannabis cultivation, sales and use for specified medical purposes. Eighteen of those states and the District of Columbia and Northern Mariana have also legalized cannabis for adults for non-medical purposes (sometimes referred to as adult-use or recreational use). Ten additional states have legalized low-tetrahydrocannabinol (“THC”)/high-cannabidiol (“CBD”) extracts for select medical conditions.

Under U.S. federal law, however, those activities are illegal. Cannabis, other than hemp (defined by the U.S. government as Cannabis sativa L. with a THC concentration of not more than 0.3% on a dry weight basis), is a Schedule I controlled substance under the Controlled Substances Act (“CSA”) which means it is viewed by the U.S. federal government as a drug that has a high potential for abuse and no therapeutic value. Therefore, even in states or territories that have legalized cannabis to some extent, the cultivation, possession and sale of cannabis violates the CSA and is punishable by imprisonment, substantial fines and forfeiture. Moreover, individuals and entities may violate federal law if they aid and abet another in violating the CSA, or conspire with another to violate the law. Violating the CSA is also a predicate for other crimes, including money laundering laws and the Racketeer Influenced and Corrupt Organizations Act. The U.S. Supreme Court has ruled that the federal government has the authority to regulate and criminalize the sale, possession and use of cannabis, even for individual medical purposes, regardless of whether it is legal under state law. For over six years, however, the U.S. government has not enforced those laws against companies (and their vendors) complying with state cannabis law.

The likelihood of any future adverse enforcement against companies complying with state cannabis laws remains uncertain. In 2018, then-U.S. Attorney General Jefferson Sessions issued a memorandum (known as the “Sessions Memo”) rescinding the U.S. Department of Justice’s (“DOJ”) previous guidance (known as the “Cole Memo”) that had given federal prosecutors discretion not to enforce federal law in states that legalized cannabis, as long as the state’s legal regime adequately addressed specified federal priorities. The Sessions Memo, which remains in effect, states that each U.S. Attorney’s Office should follow established principles that govern all federal prosecutions when deciding which cannabis activities to prosecute. As a result, federal prosecutors could and still can use their prosecutorial discretion to decide to prosecute state-legal cannabis activities. Since the Sessions Memo was issued over three years ago, however, U.S. Attorneys have not targeted state law compliant entities. The policy of not prosecuting companies complying with state cannabis laws is likely to continue under current U.S. Attorney General Merrick Garland. At his confirmation hearing, Attorney General Garland stated that he did not see enforcement of Federal Cannabis Law as a high priority use of resources for the DOJ:

This is a question of the prioritization of our resources and prosecutorial discretion. It does not seem to me a useful use of limited resources that we have, to be pursuing prosecutions in states that have legalized and that are regulating the use of marijuana, either medically or otherwise. I don’t think that’s a useful use. I do think we need to be sure there are no end-runs around the state laws that criminal enterprises are doing. So that kind of enforcement should be continued. But I don’t think it’s a good use of our resources, where states have already authorized. That only confuses people, obviously, within the state.

Additionally, since 2014, versions of the U.S. omnibus spending bill have included a provision prohibiting the DOJ, which includes the U.S. Drug Enforcement Administration (“DEA”), from using appropriated funds to prevent states from implementing their medical-use cannabis laws. In United States vs. McIntosh, the U.S. Court of Appeals for the Ninth Circuit held that this provision prohibits the DOJ from spending funds to prosecute individuals who engage in conduct permitted by state medical-use cannabis laws and who strictly comply with such laws. The court noted that, if the spending bill provision were not continued, prosecutors could enforce against conduct occurring during the statute of limitations even while the provision was previously in force. Other courts that have considered the issue have ruled similarly, although courts disagree about which party bears the burden of proof of showing compliance or noncompliance with state law.

While the omnibus spending bill affords some protection to medical cannabis businesses, the Company also operates adult-use cannabis businesses that are permissible under state and local laws. Consequently, some of the Company’s operations may be outside any protections extended to medical-use cannabis under the spending bill provision. This could subject the Company to greater and/or different federal legal and other risks as compared to businesses where cannabis is sold exclusively for medical use, which, in turn, could materially and adversely affect the Company’s business. Furthermore, any change in the federal government’s enforcement posture with respect to state-licensed cannabis sales, including the enforcement postures of individual federal prosecutors in judicial districts where the Company operates, would lead to an inability to execute its business plan, likely resulting in significant losses with respect to the Company’s customer base and adversely affecting its business, financial condition or results of operations.

In addition to criminal liability for producing, manufacturing, distributing and selling cannabis, other subsections of the CSA criminalize related activities with expanded sentences and increased penalties for corporations. For example, entities or persons who manage or control a property and knowingly make that property available for the purposes of manufacturing, distributing or using any controlled substances can be found liable under section 856(a) of the CSA (“maintaining a drug involved premise”). The Company owns properties on which prohibited activities occur. Therefore, a federal prosecutor could prosecute the Company as an owner of “drug-involved premises” and the Company could be found to violate federal law by virtue of these assets.

Additionally, the Company intends to invest in businesses that are directly or indirectly engaged in the medical and adult-use cannabis industry in the U.S. where state and local law permits such activities.

The Company’s anticipated funding of the activities of businesses engaged in the medical and adult-use cannabis industry, whether through loans or through other forms of investment, is illegal under applicable U.S. federal laws. Any criminal charges brought against the Company could result in the inability to execute its business plan and could further result in significant fines, penalties and losses with respect to transactions with cannabis industry participants in the United States, which would adversely affect the Company’s business, financial condition or results of operations.

THE CONSEQUENCES OF SUCH GOVERNMENTAL ENFORCEMENT WOULD LIKELY BE MATERIALLY DETRIMENTAL TO THE COMPANY, THE COMPANY’S BUSINESS AND THE HOLDERS OF THE COMPANY SHARES AND COULD RESULT IN THE FORFEITURE OR SEIZURE OF ALL OR SUBSTANTIALLY ALL OF THE COMPANY’S ASSETS.

The Company’s business is subject to a variety of laws regarding financial transactions related to cannabis, which could subject it to legal claims or otherwise adversely affect its business, financial condition or results of operations.

The Company is subject to a variety of laws and regulations that prohibit money laundering, including the Money Laundering Control Act (U.S. Code Title 18 Sections 1956 and 1957), as amended, and the rules and regulations thereunder and any related or similar rules, regulations or guidelines issued, administered or enforced by governmental authorities in the U.S. or any other jurisdiction in which we have business operations. Financial institutions in the U.S. that the Company relies on are subject to the Bank Secrecy Act, as amended by Title III of the USA Patriot Act. The penalties for violation of these laws include imprisonment, substantial fines and forfeiture.

In 2014, the DOJ directed federal prosecutors to exercise restraint in prosecuting money laundering violations arising in the state legal cannabis programs and to consider the federal enforcement priorities enumerated in the Cole Memo when determining whether to charge institutions or individuals based upon cannabis-related activity. In the same year, the Treasury Department issued guidance that clarified how financial institutions can provide services to cannabis-related businesses, consistent with financial institutions’ obligations under the Bank Secrecy Act. Then Attorney General Sessions’ rescission of the DOJ’s guidance on the state cannabis programs in early 2018 increased uncertainty and heighted the risk that federal law enforcement authorities could seek to pursue money laundering charges against entities or individuals, engaged in supporting the cannabis industry. On January 31, 2018, the Treasury Department issued additional guidance that the 2014 guidance would remain in place until further notice, despite the rescission of the DOJ’s earlier guidance memoranda.

If any of the Company’s business activities, any dividends or distributions therefrom, or any profits or revenue accruing thereby are found to be in violation of money laundering statutes, it could be subject to criminal liability and significant penalties and fines. Any violations of these laws, or allegations of such violations could disrupt the Company’s operations and involve significant management distraction and expenses. As a result, money laundering charges could materially affect the Company’s business, financial condition or results of operations. Additionally, proceeds from the Company’s business activities could be subject to seizure or forfeiture if they are found to be illegal proceeds of a crime transmitted in violation of anti-money laundering laws, which could have a material adverse effect on its business, financial condition or results of operations.

There is a substantial risk of regulatory or political change to state laws permitting cannabis activities; such changes could have material adverse impact on the business, financial condition or results of operations of the Company.

Continued development of the cannabis industry depends upon continued legislative authorization of cannabis at the state level. The status quo of, or progress in, the regulated cannabis industry, while encouraging, is not assured and any number of factors could slow or halt further progress in this area. The political environment surrounding the cannabis industry in the United States in general can be volatile and the regulatory framework remains in flux. While there may be ample public support for legislative action permitting the production and use of cannabis, numerous factors impact and can delay the legislative and regulatory processes. If pro-cannabis regulations are not enacted, or enacted but subsequently repealed or amended, or enacted with prolonged phase-in periods, the growth targets of the Company, and thus, the effect on the return of investor capital, could be limited or reduced.

Additionally, recent state legislation throughout the U.S. has prioritized minority and diversity participation in the cannabis industry, even going so far as to provide licensing preferences to minority owners, individuals with specified criminal convictions, and individuals from economically depressed or disadvantaged areas. As new medical and adult-use legislation is passed, multi-state operators such as the Company may be prevented or discouraged from obtaining new licenses or from participating in new markets. Such a result could adversely impact the Company’s ability to maintain market share or obtain a positive return on investment in existing markets.

Further, there is no guarantee that, at some future date, voters or the applicable legislative bodies will not repeal, overturn or limit any such legislation legalizing the cultivation, manufacture, sale, distribution and/or consumption of medical or adult-use cannabis. It is also important to note that local and city ordinances may strictly limit or restrict the distribution of cannabis in a manner that may make it extremely difficult or impossible to transact business that is necessary for the continued operation of the cannabis industry generally and the Company specifically. Any one of these factors could slow or halt additional legislative authorization of cannabis, which could harm the Company’s business, financial condition or results of operations.

There is a risk of high bonding and insurance costs which could materially impact the Company’s business, financial condition or results of operations.

There is risk that some or all state regulatory agencies will require entities and individuals engaged in aspects of the business or industry of legal cannabis to post a bond when applying for a cannabis-related license or renewal as a guarantee of payment of sales and franchise tax. It remains an unknown cost that could have a negative impact on the ultimate success of the Company or the Company’s participation in the business opportunities ultimately selected.

Unknown additional regulatory fees and taxes may be assessed in the future, which could materially impact the Company’s business, financial condition or results of operations.

Various localities have imposed (or may in the future impose) fees to fund, among other things, schools, road improvements and low-income and moderate-income housing. Additionally, multiple states in the United States are considering or may be considering special taxes or fees on businesses in the cannabis industry. The imposition of such additional taxes or fees could adversely affect the Company’s operating results and expected returns on future investments or business opportunities.

Disparate state-by-state regulatory landscapes and the constraints related to holding cannabis licenses in various states results in operational and legal structures that could cause materially detrimental consequences to the Company.

The Company realizes, and will continue to realize, the benefits from cannabis licenses pursuant to a number of different structures, depending on the regulatory requirements from state to state, including realizing the economic benefit of cannabis licenses through Management Services Agreements, Consulting Agreements, and Licensing Agreements (any such arrangement, as used herein, a “Management Agreement”), often with unaffiliated third parties. Management Agreements are often required to comply with applicable laws and regulations or are in response to perceived risks that the Company determines warrant such arrangements.

The foregoing structures present various risks to the Company, including but not limited to the following risks, each of which could have a material adverse effect on the business, financial condition or results of operations of the Company:

	●	A governmental body or regulatory entity may determine that these Management Agreement structures are in violation of a legal or regulatory requirement or change the legal or regulatory requirements such that the contractual structure violates such requirements. The Company cannot provide assurance that a license application submitted by a third party will be accepted, especially if the management and operation of the license is dependent on a Management Agreement structure.

	●	There could be a material and adverse impact on the revenue stream the Company intends to receive from or on account of cannabis licenses (as the Company will not be the license holder, and therefore any economic benefit is received pursuant to a contractual arrangement). If a Management Agreement is terminated, the Company will no longer receive any economic benefit from the applicable dispensary or production license.

	●	These structures could potentially result in the funds invested by the Company being used for unintended purposes, such as to fund litigation.

	●	If a Management Agreement structure is in place, the Company will not be the license holder of the applicable state-issued cannabis license, and therefore, only has contractual rights with respect to any interest in any such license. If the license holder fails to adhere to its contractual agreement with the Company, or if the license holder makes, or fails to make, decisions in respect of the license that the Company disagrees with, the Company will only have contractual recourse and will not have recourse to any regulatory authority.

	●	The license holder may renege on its obligation to pay fees and other compensation pursuant to a Management Agreement or violate other provisions of these agreements.

	●	The license holder’s acts or omissions may violate the requirements applicable to it pursuant to the applicable dispensary or production license, thus jeopardizing the status and economic value of the license holder (and, by extension, the Company).

	●	The license holder may attempt to terminate the Management Agreement in violation of its express terms.

In any or all of the above situations, it would be difficult and expensive for the Company to protect its rights through litigation, arbitration or similar proceedings.

The Company may be required to divest certain licenses, which would adversely impact its business, financial condition or results of operations.

Some states in which the Company operates, or expects to operate, limit or may in the future limit, the number of licenses that can be held by one entity within that state. The Company may hold more than the prescribed number of licenses in a state, and accordingly may be required to divest licenses in order to comply with applicable regulations. The divestiture of licenses may result in a material adverse effect on the business, financial condition or results of operations of the Company.

The Company is dependent on its banking relations, and it may have difficulty accessing or consistently maintaining banking or other financial services due to the nature of its business, which could adversely impact its business, financial condition, or results of operations.

The Company’s connection to the cannabis industry may hamper its efforts to do business or establish collaborative relationships with others that may fear disruption or increased regulatory scrutiny of their own activities.

The Company is dependent on the banking industry. Its business operating functions, including payroll for employees, equipment and property leases, and the payment of other expenses, are reliant on traditional banking. The Company requires access to banking services to make and receive payments in a timely manner, and these could be jeopardized if the Company loses access to a bank account. Most federal and federally-insured state banks currently do not serve cannabis businesses on the stated ground that growing and selling cannabis is illegal under federal law, even though the Treasury Department’s Financial Crimes Enforcement Network (“FinCEN”), issued guidelines to banks in February 2014 that clarified how financial institutions can provide services to cannabis-related businesses, consistent with financial institutions’ obligations under the Bank Secrecy Act. When cannabis businesses are able to find a bank that will provide services, they face extensive customer due diligence in light of complex state regulatory requirements and guidance from FinCEN, and these reviews may be time-consuming and costly, potentially creating additional barriers to financial services for, and imposing additional compliance requirements on, the Company. While the federal government has generally not initiated financial crime prosecutions against state-law compliant cannabis companies or their vendors, the government theoretically could initiate such prosecutions, at least against companies in the adult-use markets. The continued uncertainty surrounding financial transactions related to cannabis activities and the subsequent risks this uncertainty presents to financial institutions may result in their discontinuing services to the cannabis industry or limiting their ability to provide services to the cannabis industry or ancillary businesses providing services to the cannabis industry.

The Company, its officers, investors or other stakeholders may be required to disclose personal information to government or regulatory entities; failing to do so could put some licenses in jeopardy and negatively impact the Company’s business, financial conditions or results of operations.

The Company owns, manages, or provides services to various U.S. state-licensed cannabis operations. Acquiring even a minimal or indirect interest in a U.S. state-licensed cannabis business can trigger requirements to disclose officers’, investors’ and other stakeholders’ personal information. While these requirements vary by jurisdiction, some require interest holders to apply for regulatory approval and to provide tax returns, compensation agreements, fingerprints for background checks, criminal history records and other documents and information. Some states require disclosures of directors, officers and holders of more than a specified percentage of equity of the applicant. While some states include exceptions for investments in publicly traded entities, not all states do so, and some such exceptions are confined to companies traded on a U.S. securities exchange. If these regulations apply to the Company, investors, officers and other stakeholders are required to comply with such regulations, or face the possibility that the relevant cannabis license could be revoked or cancelled by the state licensing authority.

Investors in the Company and the Company’s directors, officers and employees may be subject to the risk of being barred from entry into the United States; if investors or personnel of the Company are barred from entering the United States, it could negatively impact its business, financial condition or results of operations.

Because cannabis remains illegal under U.S. federal law, those who are not U.S. citizens employed at or investing in legal and licensed U.S. cannabis companies could face detention, denial of entry or lifetime bans from the United States for their business associations with U.S. cannabis businesses. Entry happens at the sole discretion of Customs Border Patrol (“CBP”) officers on duty, and these officers have wide latitude to ask questions to determine the admissibility of a foreign national. The government of Canada has started warning travelers on its website that previous use of cannabis, or any substance prohibited by U.S. federal laws, could mean denial of entry to the United States. Business or financial involvement in the legal cannabis industry in Canada or in the United States could also be reason enough for United States border guards to deny entry. On September 21, 2018, CBP released a statement outlining its current position with respect to enforcement of the laws of the United States. It stated that Canada’s legalization of cannabis will not change CBP enforcement of U.S. federal laws regarding controlled substances and, because cannabis continues to be a controlled substance under U.S. federal law, working in or facilitating the proliferation of the legal cannabis industry in U.S. states where it is deemed legal, or in Canada, may affect admissibility to the United States. As a result, CBP has affirmed that employees, directors, officers, managers and investors of companies involved in business activities related to cannabis in the United States or Canada who are not U.S. citizens face the risk of being barred from entry into the United States for life. On October 9, 2018, CBP released an additional statement regarding the admissibility of Canadian citizens working in the legal cannabis industry. CBP stated that a Canadian citizen working in or facilitating the proliferation of the legal cannabis industry in Canada coming into the United States for reasons unrelated to the cannabis industry will generally be admissible to the United States; however, if such person is found to be coming into the United States for reasons related to the cannabis industry, such person may be deemed inadmissible.

Applicable state laws may prevent the Company from maximizing its potential income, including by restricting its sales and marketing activities; if the Company’s profits are constrained by such regulations, it could negatively impact its business, financial condition or results of operations.

The development of the Company’s business and operating results may be hindered by applicable restrictions on sales and marketing activities imposed by government regulatory bodies. The regulatory environment in the United States limits the Company’s ability to compete for market share in a manner similar to other industries. If the Company is unable to effectively market its products and compete for market share, or if the costs of compliance with government legislation and regulation cannot be absorbed through increased prices for its products, the Company’s sales and operating results could be adversely affected.

Clinical research with respect to the Company’s products is ongoing, and negative findings could lead to rollbacks of state legalizations laws, which would negatively affect the Company’s business, financial condition or results of operations.

Research in the U.S. and internationally regarding the medical benefits, viability, safety, efficacy, dosing and social acceptance of cannabis or isolated cannabinoids (such as CBD and THC) remains in early stages. There have been relatively few clinical trials on the benefits of cannabis or isolated cannabinoids. Although the Company relies on the articles, reports and studies that support its beliefs regarding the medical benefits, viability, safety, efficacy, dosing and social acceptance of cannabis, future research and clinical trials may prove such statements to be incorrect, or could raise concerns regarding, and perceptions relating to, cannabis. Further, the cannabis industry is highly dependent upon consumer perception, which can be significantly influenced by scientific research or findings, regulatory investigations, litigation, media attention and other publicity regarding the consumption of cannabis products. There can be no assurance that future scientific research or findings, regulatory investigations, litigation, media attention or other publicity will be favorable to the cannabis market or any particular product, or consistent with earlier publicity.

Future research studies and clinical trials may reach negative conclusions regarding the medical benefits, viability, safety, efficacy, dosing, social acceptance or other facts and perceptions related to cannabis, which could lead to rollbacks in state regulation or otherwise have a material adverse effect on the demand for the Company’s products with the potential to lead to a material adverse effect on the business, financial condition or results of operations of the Company. There is no assurance that such adverse research studies or clinical trials will not arise.

Cannabis and industrial hemp may become subject to increased regulation by the FDA; if the Company is unable to comply with such regulations, it could have a material adverse effect on the business, financial condition or results of operations of the Company.

Cannabis remains a Schedule I controlled substance under U.S. federal law. If the federal government de-schedules cannabis or reclassifies cannabis to a Schedule II controlled substance, it is possible that the FDA would regulate it under the Food, Drug and Cosmetics Act of 1938 (“FDCA”). The FDA is responsible for ensuring public health and safety through regulation of food, drugs, supplements and cosmetics, among other products, through its enforcement authority pursuant to the FDCA. The FDA’s responsibilities include regulating the ingredients as well as the marketing and labeling of food, drugs and cosmetics sold in interstate commerce. Because cannabis is federally illegal to produce and sell, and because it has no federally recognized medical uses, the FDA has historically deferred enforcement related to cannabis to the DEA; however, the FDA has enforced the FDCA with regard to industrial hemp-derived products, especially CBD derived from industrial hemp sold outside of state-regulated cannabis businesses. The FDA has recently affirmed its authority to regulate CBD derived from both cannabis and industrial hemp, and its intention to develop a framework for regulating the production and sale of CBD derived from industrial hemp.

Additionally, the FDA may issue rules and regulations, including good manufacturing practices, related to the growth, cultivation, harvesting and processing of cannabis or industrial hemp. Clinical trials may be needed to verify the efficacy and safety of both cannabis products and industrial hemp products. It is also possible that the FDA would require facilities that grow medical-use cannabis to register with the FDA and comply with federally prescribed regulations. In the event that some or all of these regulations are imposed, the impact on the cannabis industry is unknown, including what costs, requirements and possible prohibitions may be enforced. If the Company is unable to comply with the regulations or registration as prescribed by the FDA, it may have a material adverse effect on the business, financial condition or results of operations of the Company.

Inconsistent public opinion and perception of the medical and adult-use use cannabis industry may hinder market growth and state adoption.

Public opinion and support for medical and adult-use cannabis has traditionally been inconsistent and varies from jurisdiction to jurisdiction. While public opinion and support appears to be rising for legalizing medical and adult-use cannabis, it remains a controversial issue subject to differing opinions surrounding the level of legalization (for example, medical cannabis as opposed to legalization in general). Inconsistent public opinion and perception of medical and adult-use cannabis may hinder growth and state adoption, which could have a material adverse effect on the business, financial condition or results of operations of the Company.

The Company’s dependence upon consumer perceptions means that adverse scientific research reports, findings, regulatory proceedings, litigation, media attention or other publicity, whether or not accurate or with merit, could have a material adverse effect on the Company. Further, adverse publicity reports or other media attention regarding the safety, efficacy and quality of adult-use cannabis in general, or the Company’s products specifically, or associating the consumption of adult-use cannabis with illness or other negative effects or events, could have such a material adverse effect. Such adverse publicity reports or other media attention could arise even if the adverse effects associated with such products resulted from consumers’ failure to consume such products appropriately or as directed.

The Company may be unable to enforce its contracts, which could negatively impact its business, financial condition or results of operations.

Because cannabis is illegal at a federal level, judges in multiple U.S. states have on several occasions refused to enforce contracts for the repayment of money when the loan was used in connection with activities that violate federal law, even if there is no violation of state law. Therefore, there is uncertainty that the Company will be able to legally enforce its agreements, including agreements that are material to the Company.

The Company may not be able to enforce any liens it may be granted on the inventory or licenses of third parties that secure its right to payment or other contractual rights.

In general, the laws of the various states that have legalized the sale and cultivation of cannabis do not expressly or impliedly allow for the pledge of inventory containing cannabis as collateral for the benefit of third parties, such as the Company, that do not possess the requisite licenses and entitlements to cultivate, sell or possess cannabis pursuant to the applicable state law. Likewise, the laws of those states generally do not allow for transfer of the licenses and entitlements to sell or produce cannabis to third parties that have not been granted such licenses and entitlements by the applicable state agency. The inability of the Company to enforce liens on the inventory and licenses of third parties that secure its payment and other contractual rights increases the risk of loss resulting from breaches of the applicable agreements by the contracting parties, which, in turn, could have a material adverse effect on the business, financial condition or results of operations of the Company.

The Company lacks access to U.S. bankruptcy protections, which could negatively impact its business, financial condition or results of operations.

Because the use of cannabis is illegal under federal law, many courts have denied cannabis businesses bankruptcy protections, thus making it very difficult for lenders to recoup their investments in the cannabis industry in the event of a bankruptcy. If the Company were to experience a bankruptcy, there is no guarantee that U.S. federal bankruptcy protections would be available, which would have a material adverse effect on any restructuring transaction.

Additionally, there is no guarantee that the Company will be able to effectively enforce any interests it may have in the Company’s subsidiaries and investments. A bankruptcy or other similar event related to an entity in which the Company holds an interest that precludes such entity from performing its obligations under an agreement may have a material adverse effect on the business, financial condition or results of operations of the Company. Further, should an entity in which the Company holds an interest have insufficient assets to pay its liabilities, it is possible that other liabilities will be satisfied prior to the liabilities or equity owed to the Company. In addition, bankruptcy or other similar proceedings are often a complex and lengthy process, the outcome of which may be uncertain and could result in a material adverse effect on the business, financial condition or results of operations of the Company.

Lastly, some state cannabis laws preclude entities which become insolvent from holding medical or adult-use cannabis licenses. Any insolvency proceedings by the Company could therefore put the operations of its subsidiaries or affiliates at risk, which would have a negative impact on the business, financial condition or results of operations of the Company.

The Company may be subject to heightened scrutiny by Canadian authorities, which could negatively affect its business, financial condition or results of operations.

The business, operations and investments of the Company in the U.S., and any future businesses, operations and investments, may become the subject of heightened scrutiny by regulators, stock exchanges and other authorities in Canada. As a result, the Company may be subject to significant direct and indirect interaction with Canadian public officials. There can be no assurance that this heightened scrutiny will not in turn lead to the imposition of restrictions on the Company’s ability to invest or hold interests in other entities in the U.S. or any other jurisdiction.

On February 8, 2018, the Canadian Securities Administrators published Staff Notice 51-352 describing the Canadian Securities Administrators’ disclosure expectations for specific risks facing issuers with cannabis-related activities in the U.S. Staff Notice 51-352 confirms that a disclosure-based approach remains appropriate for issuers with U.S. cannabis-related activities. Staff Notice 51-352 includes additional disclosure expectations that apply to all issuers with U.S. cannabis-related activities, including those with direct and indirect involvement in the cultivation and distribution of cannabis, as well as issuers that provide goods and services to third parties involved in the U.S. cannabis industry.

The Canadian Depository for Securities Ltd. (“CDS”) is Canada’s central securities depository, clearing and settling trades in the Canadian equity, fixed income and money markets. On February 8, 2018, following discussions with the Canadian Securities Administrators and the TMX Group, which is the owner and operator of CDS, CDS announced the signing of a Memorandum of Understanding (the “TSX MOU”) with Aequitas NEO Exchange Inc., the CSE and the Toronto Stock Exchange confirming that it relies on such exchanges to review the conduct of listed issuers. The TSX MOU notes that securities regulation requires that the rules of each of the exchanges must not be contrary to the public interest and that the rules of each of the exchanges have been approved by the securities regulators. Pursuant to the TSX MOU, CDS will not ban accepting deposits of or transactions for clearing and settlement of securities of issuers with cannabis-related activities in the U.S.

Even though the TSX MOU indicated that there are no plans of banning the settlement of securities of cannabis issuers through the CDS, there can be no guarantee that the settlement of such securities will continue in the future. If such a ban were to be implemented, it would have a material adverse effect on the ability of holders of Subordinate Voting Shares to make and settle trades. In particular, the Subordinate Voting Shares would become highly illiquid until an alternative was implemented, and shareholders would have no ability to effect a trade of the Subordinate Voting Shares through the facilities of a stock exchange.

Risks Related to our Business and Operations - Information Technology, Cybersecurity and Intellectual Property

There is limited trademark protection for cannabis products; if the Company is unable to protect its trademarks, it could negatively affect its business, financial condition or results of operations.

The Company may not be able to register U.S. federal trademarks for cannabis products. Because producing, manufacturing, processing, possessing, distributing, selling and using cannabis is illegal under the CSA, the United States Patent and Trademark Office will not permit the registration of any trademark that identifies cannabis products. As a result, the Company likely will be unable to protect its cannabis product trademarks beyond the geographic areas in which it conducts business. The use of their trademarks outside the states in which the Company operates by one or more other persons could have a material adverse effect on the value of such trademarks.

The Company is subject to risks related to its information technology systems, including cyber-security risks; Successful cyber-attacks or technological malfunctions can result in, among other things, financial losses, the inability to process transactions, the unauthorized release of confidential information and reputational risk, all which would negatively impact the Company’s business, financial condition or results of operations.

The Company’s use of technology is critical to its continued operations. The Company is susceptible to operational, financial and information security risks resulting from cyber-attacks or technological malfunctions. Successful cyber-attacks or technological malfunctions affecting the Company or its respective service providers can result in, among other things, financial losses, the inability to process transactions, the unauthorized release of customer information or confidential information and reputational risk. As cybersecurity threats continue to evolve, the Company may be required to use additional resources to continue to modify or enhance protective measures or to investigate security vulnerabilities, which could have a material adverse effect on the business, financial condition or results of operations of the Company.

The Company is reliant on its intellectual property; failure by the Company to protect its intellectual property could negatively affect its business, financial condition or results of operations.

The Company’s success will depend in part on its ability to use and develop new extraction technologies, recipes, know-how and new strains of cannabis. The Company may be vulnerable to competitors who develop competing technology, whether independently or as a result of acquiring access to the proprietary products and trade secrets of acquired businesses. In addition, effective future patent, copyright and trade secret protection may be unavailable or limited in the U.S. due to federal illegality or in foreign countries and may be unenforceable under the laws of some jurisdictions. Failure of the Company to adequately maintain and enhance protection over its proprietary techniques and processes, as well as over the Company’s unregistered intellectual property, including its policies, procedures and training manuals, could have a material adverse effect on the business, financial condition or results of operations of the Company.

The Company licenses intellectual property; failure by the Company to retain such licenses could negatively affect its business, financial condition or results of operations.

The Company holds exclusive licenses to intellectual property. These licenses include provisions whereby the licensor of the intellectual property may unilaterally terminate the license. If a licensor were to terminate the license, the Company would no longer have the right to use any of the licensed intellectual property or produce or sell any of the licensed products thereunder. Failure to maintain these licenses could have a material adverse effect on the business, financial condition or results of operations of the Company. See “Item 10.C - Material Contracts”.

The Company’s trade secrets may be difficult to protect; failure to obtain or maintain meaningful trade secret protection could adversely affect the Company’s competitive position and its business, financial condition or results of operations.

The Company’s success depends upon the skills, knowledge, and experience of its scientific and technical personnel, its consultants and advisors, as well as its licensees and contractors. Because the Company operates in a highly competitive industry, the Company relies in part on trade secrets to protect its proprietary technology and processes. However, trade secrets are difficult to protect. The Company enters into business protection, confidentiality or non-disclosure agreements with its corporate partners, employees, consultants, outside scientific collaborators, developers and other advisors. These agreements generally require that the receiving party keep confidential and not disclose to third parties confidential information developed by the receiving party or made known to the receiving party by it during the course of the receiving party’s relationship with it. These agreements also generally provide that inventions conceived by the receiving party in the course of rendering services to it will be its exclusive property, and the Company enters into assignment agreements to perfect its rights.

These confidentiality, inventions, assignment and business protection agreements may be breached and may not effectively assign intellectual property rights to the Company. The Company’s trade secrets also could be independently discovered by competitors, in which case the Company would not be able to prevent the use of such trade secrets by its competitors. The enforcement of a claim alleging that a party illegally obtained and was using its trade secrets could be difficult, expensive and time consuming and the outcome would be unpredictable. In addition, courts may be less willing to protect trade secrets. The failure to obtain or maintain meaningful trade secret protection could adversely affect the Company’s competitive position.

The Company may be exposed to infringement or misappropriation claims by third parties, which, if determined adversely to the Company, could subject the Company to significant liabilities and other costs, negatively impacting its business, financial condition or results of operations.

The Company’s success will depend in part on its ability to use and develop new extraction technologies, recipes, know-how and new strains of cannabis without infringing the intellectual property rights of third parties. The Company cannot assure that third parties will not assert intellectual property claims against it. The Company is subject to additional risks if entities licensing intellectual property to the Company do not have adequate rights in the licensed materials. If third parties assert copyright or patent infringement or violation of other intellectual property rights against the Company, it will be required to defend itself in litigation or administrative proceedings, which can be both costly and time consuming and may significantly divert the efforts and resources of management personnel. An adverse determination in any such litigation or proceeding to which the Company may become a party could subject it to significant liability to third parties, require it to seek licenses from third parties or pay ongoing royalties or subject the Company to injunctions prohibiting the development and operation of its applications.

Risks Related to our Securities

The Company benefits from its status as a Foreign Private Issuer, and a change in its status as a Foreign Private Issuer could negatively impact its business, financial condition or results of operations.

The Company has been a “Foreign Private Issuer”, which means any non-U.S. company, other than a foreign government, except any issuer meeting the following conditions:

1.	more than 50% of the outstanding voting securities of such issuer are, directly or indirectly, held of record by residents of the United States; and

2.	any one of the following:

	(a)	the majority of the executive officers or directors are U.S. citizens or residents, or

	(b)	more than 50% of the assets of the issuer are located in the United States, or

	(c)	the business of the issuer is administered principally in the United States.

For purposes of determining whether more than 50% of its outstanding voting securities are held “of record” by U.S. residents, the Company must “look through” the record ownership of brokers, dealers, banks or nominees holding securities for the accounts of their customers, and also consider any beneficial ownership reports or other information available to the Company. It must conduct this “look through” in three jurisdictions: the United States; the Company’s home jurisdiction; and the primary trading market for the Company’s voting securities, if different from the Company’s home jurisdiction. Additionally, if the Company is not able to obtain information about the record holders’ accounts after reasonable inquiry, the Company may rely on the presumption that such accounts are held in the broker’s, dealer’s, bank’s, or nominee’s principal place of business.

In December 2016, the SEC issued a Compliance and Disclosure Interpretation to clarify that issuers with multiple classes of voting stock carrying different voting rights may, for the purposes of calculating compliance with this threshold, examine either (i) the combined voting power of its share classes, or (ii) the number of voting securities, in each case held of record by U.S. residents. Based on this interpretation, each issued and outstanding Proportionate Voting Share is counted as one voting security and each issued and outstanding Subordinate Voting Share is counted as one voting security for the purposes of determining the 50% U.S. resident threshold. Accordingly, the Company has qualified as a Foreign Private Issuer. However, should the SEC’s guidance and interpretation change, the Company may lose its Foreign Private Issuer status. Additionally, the Company anticipates that it may no longer qualify as a Foreign Private Issuer beginning on the final day of its second fiscal quarter during the year ended December 31, 2022 (the “FPI Determination Date”). If the Company no longer qualifies as a Foreign Private Issuer as of the FPI Determination Date, the Company may continue to utilize relaxed reporting and governance obligations available to Foreign Private Issuers until December 31, 2022, but will be deemed a “foreign issuer” beginning January 1, 2023. As a foreign issuer, the Company would be required to comply with U.S. domestic filing and registration obligations with the SEC, which carry significant additional capital and human resources.

The elimination of monetary liability against the Company’s directors, officers, and employees under British Columbia law and the existence of indemnification rights for the Company’s obligations to its directors, officers and employees may result in substantial expenditures by it and may discourage the Company from bringing lawsuits against its directors, officers, and employees, which could negatively impact its business, financial condition or results of operations.

The Company’s articles contain a provision permitting it to eliminate the personal liability of its directors to the Company and its shareholders for damages incurred by a director or officer to the extent provided for under British Columbia law. The Company may also have contractual indemnification obligations under employment agreements with its officers or agreements entered into with its directors. These indemnification obligations could result in the Company incurring substantial expenditures to cover the cost of settlement or damage awards against directors and officers, which the Company may be unable to recoup. These provisions and the resulting costs may also discourage it from bringing a lawsuit against directors and officers for breaches of their fiduciary duties, and may similarly discourage the filing of derivative litigation by shareholders against the Company’s directors and officers even though such actions, if successful, might otherwise benefit it and its shareholders.

The Company’s capital structure may negatively impact the trading price of the Subordinate Voting Shares, which could affect the Company’s business, financial condition or results of operations.

Although other Canadian-based companies have dual class or multiple voting share structures, the capital structure of the Company could result in a lower trading price for or greater fluctuations in the trading price of the Subordinate Voting Shares and may result in adverse publicity to the Company or other adverse consequences.

Planned issuances of additional Subordinate Voting Shares and Proportionate Voting Shares will result in dilution to the Company’s investors.

The Company plans to issue additional securities in the future in connection with its planned acquisitions, offerings and financing transactions (including through the sale of securities convertible into or exchangeable or exercisable for Subordinate Voting Shares), which will dilute a shareholder’s holdings in the Company. The Company’s articles permit the issuance of an unlimited number of Subordinate Voting Shares and Proportionate Voting Shares, and shareholders will have no pre-emptive rights in connection with such further issuance. The board of directors of the Company (the “Board”) has discretion to determine the price and the terms of further issuances. The Company cannot predict the effect that future issuances and sales of its securities will have on the market price of the Subordinate Voting Shares. Issuances of a substantial number of additional securities of the Company, or the perception that such issuances could occur, may adversely affect prevailing market prices for the Subordinate Voting Shares. With any additional issuance of the Company’s securities, investors will suffer dilution to their voting power and the Company may experience dilution in its revenue per share.

Issuances and sales of substantial amounts of Subordinate Voting Shares may have an adverse effect on the market price of the Subordinate Voting Shares.

Issuances and sales of substantial amounts of Subordinate Voting Shares, or the availability of such securities for sale, could adversely affect the prevailing market prices for the Subordinate Voting Shares. A decline in the market prices of the Subordinate Voting Shares could impair the Company’s ability to raise additional capital through the sale of securities should it desire to do so.

Upon issuance, transfer restrictions are placed on a substantial number of Subordinate Voting Shares and Proportionate Voting Shares that expire periodically in increments. When transfer restrictions expire, the holders of the unrestricted Subordinate Voting Shares may seek to sell the shares in the public markets, and the increase in the volume of available shares for sale may have an adverse effect on the market price of the Subordinate Voting Shares.

When issued, Subordinate Voting Shares and Proportionate Voting Shares may be subject to restrictions on transfer, which restrictions expire in increments. In anticipation of and following the periodic expiration of these transfer restrictions, the sales price of the Subordinate Voting Shares may experience a decline due to additional shares being available for sale on the public markets. The sale of a significant amount of Subordinate Voting Shares by existing shareholders or the perception by investors that such sales may occur could adversely affect the prevailing market price for the Subordinate Voting Shares.

The Subordinate Voting Shares are subject to price volatility.

The market price for the Subordinate Voting Shares may be volatile and subject to wide fluctuations in response to numerous factors, many of which will be beyond the Company’s control, including the following:

	●	actual or anticipated fluctuations in the Company’s annual and quarterly results of operations;

	●	recommendations by securities research analysts;

	●	changes in the economic performance or market valuations of companies in the cannabis industry;

	●	addition or departure of the Company’s executive officers and other key personnel;

	●	release or expiration of transfer restrictions on outstanding Subordinate Voting Shares;

	●	sales or perceived sales of additional Subordinate Voting Shares;

	●	operating and financial performance that varies from the expectations of management, securities analysts and investors;

	●	regulatory changes affecting the cannabis industry generally and the Company’s business and operations;

	●	announcements of developments and other material events by the Company or its competitors;

	●	fluctuations to the costs of vital production materials and services;

	●	changes in global financial markets and global economies and general market conditions, such as interest rates and product price volatility;

	●	significant acquisitions or business combinations, strategic partnerships, joint ventures or capital commitments by or involving the Company or its competitors;

	●	dual class share structure of the Company;

	●	public announcements by the Company; and

	●	news reports relating to trends, concerns, technological or competitive developments, regulatory changes and other related issues in the cannabis industry or the Company’s target markets.

In recent years, the securities markets in the U.S. and Canada have experienced a high level of price and volume volatility, and the market prices of securities of many companies have experienced wide fluctuations in price which have not necessarily been related to the operating performance, underlying asset values or prospects of such companies. There can be no assurance that fluctuations in price of the Subordinate Voting Shares will not occur. Increased levels of volatility and resulting market turmoil may adversely impact the price of the Subordinate Voting Shares. There can be no assurance that fluctuations in price of the Subordinate Voting Shares will not occur.

Shareholders have little or no rights to participate in the Company’s affairs.

With the exception of the limited rights of shareholders under applicable laws, the day-to-day decisions regarding the management of the Company’s affairs will be made exclusively by the Board and the Company’s officers. Shareholders will have little or no control over the Company’s future business and investment decisions, its business, and its affairs, including, without limitation, the selection and investment in dispensaries, cultivation operations and real estate. The Company may also retain other officers and agents to provide various services to the Company, over which the shareholders will have no control. There can be no assurance that the Board, officers or its other agents will effectively manage and direct the affairs of the Company.

The Company does not expect to pay dividends.

Holders of the Subordinate Voting Shares or Proportionate Voting Shares will not have a right to receive dividends on such shares unless declared by the Board. The Company has not paid dividends in the past, and it is not anticipated that the Company will pay any dividends in the foreseeable future. The declaration of dividends is at the discretion of the Board, even if the Company has sufficient funds, net of its liabilities, to pay dividends, and the declaration of any dividend will depend on the Company’s financial results, cash requirements, future prospects and other factors deemed relevant by the Board. Dividends paid by the Company would be subject to withholding taxes as further summarized under the heading “Risks Related to Taxation.”

The Company is to subject to significant costs and expenses as a result of being a public reporting company in Canada and the U.S. and a listed company on the Canadian Securities Exchange.

As a public company, there are costs associated with legal, accounting and other expenses related to regulatory compliance. Securities legislation and the rules and policies of Canadian Securities Administrators, the CSE and the SEC require reporting and listed companies to, among other things, adopt corporate governance and related practices, and to continuously prepare and disclose material information, all of which add to a company’s legal and financial compliance costs. The Company may also elect to devote greater resources than a non-reporting company otherwise would on communications and other activities involving shareholders, investors and analysts which are typically considered important for publicly traded companies.

Risks Related to Taxation

The Company is subject to Canadian and United States tax on its worldwide income.

The Company is deemed to be a resident of Canada for Canadian federal income tax purposes by virtue of being organized under the laws of a province of Canada. Accordingly, the Company is subject to Canadian taxation on its worldwide income, in accordance with the rules in the Income Tax Act (Canada) (the “Tax Act”) generally applicable to corporations residing in Canada.

Notwithstanding that the Company is deemed to be a resident of Canada for Canadian federal income tax purposes, the Company is treated as a United States corporation for United States federal income tax purposes, pursuant to Section 7874(b) of the Internal Revenue Code of 1986, as amended (the “Code”), and is subject to United States federal income tax on its worldwide income. As a result, the Company will be subject to taxation both in Canada and the United States, which could have a material adverse effect on the business, financial condition or results of operations of the Company. Accordingly, all prospective investors and shareholders of the Company should review the discussion under “Certain U.S. Federal Income Tax Consequences,” and consult with their own tax advisors in this regard.

The application of Section 280E of the Code may substantially limit the Company’s ability to deduct certain expenses for United States tax purposes.

Pursuant to Section 280E of the Code, any business trafficking in certain controlled substances may not take certain deductions for U.S. federal income tax purposes. Cannabis is currently a controlled substance within the meaning of Schedule I of the CSA. As a result, the U.S. federal taxable income of the Company and its subsidiaries is likely to exceed its actual profits. While recent legislative proposals, if enacted into law, could eliminate or diminish the application of Section 280E of the Code to cannabis businesses, the enactment of any such law is uncertain. Accordingly, Section 280E of the Code may apply to the Company indefinitely.

Dividends, if ever paid, on the Subordinate Voting Shares or Proportionate Voting Shares are subject to Canadian and/or United States withholding tax.

It is currently not anticipated that the Company will pay any dividends on the Subordinate Voting Shares or Proportionate Voting Shares in the foreseeable future.

To the extent dividends are paid on the Subordinate Voting Shares, dividends received by Non-U.S. Holders who are residents of Canada for purposes of the Tax Act will be subject to U.S. withholding tax. Any such dividends may not qualify for a reduced rate of withholding tax under the U.S.-Canada income tax treaty (“U.S.-Canada Treaty”). In addition, a Canadian foreign tax credit or a deduction in respect of such U.S. withholding taxes paid may not be available.

Dividends received by shareholders who are residents of the United States (“U.S. Holders”) will not be subject to U.S. withholding tax but will be subject to Canadian withholding tax. Dividends paid by the Company will be characterized as U.S. source income for purposes of the foreign tax credit rules under the Code. Accordingly, U.S. Holders generally will not be able to claim a credit for any Canadian tax withheld unless, depending on the circumstances, they have an excess foreign tax credit limitation due to other foreign source income that is subject to a low or zero rate of foreign tax.

Dividends received by Non-U.S. Holders who are not residents of Canada for purposes of the Tax Act will be subject to U.S. withholding tax and will also be subject to Canadian withholding tax. These dividends may not qualify for a reduced rate of U.S. withholding tax under any income tax treaty otherwise applicable to a shareholder of the Company, subject to examination of the relevant treaty. These dividends may, however, qualify for a reduced rate of Canadian withholding tax under any income tax treaty otherwise applicable to a shareholder of the Company, subject to examination of the relevant treaty. Each shareholder should seek tax advice, based on such shareholder’s particular facts and circumstances, from an independent tax advisor.

The transfer of Subordinate Voting Shares may be subject to United States estate and generation-skipping transfer tax.

Because the Subordinate Voting Shares will be treated as shares of a U.S. domestic corporation, the U.S. estate and generation-skipping transfer tax rules generally may apply to a Non-U.S. Holder of the Subordinate Voting Shares. Each shareholder should seek tax advice, based on such shareholder’s particular facts and circumstances, from an independent tax advisor.

Changes in tax laws may affect the Company and its shareholders.

There can be no assurance that the Canadian and U.S. federal income tax treatment of the Company or an investment in the Company will not be modified, prospectively or retroactively, by legislative, judicial or administrative action, in a manner adverse to the Company or its shareholders.

On March 31, 2021, the current United States presidential administration (the “Administration”) proposed the “American Jobs Plan” to create domestic jobs, rebuild national infrastructure and increase American competitiveness. To fund its expected US$2 trillion cost, the Administration also proposed the “Made in America Tax Plan” in April 2021, which is intended to raise that amount or more over 15 years through several methods including higher income tax rates on corporations. If the Administration’s legislative tax proposals are enacted, among other changes, the Company’s federal corporate income tax rate would increase from 21% to 28%. Any increase in the Company’s federal corporate tax rate would require the Company to pay larger amounts in federal taxes, thus reducing the Company’s net revenue.

ITEM 4: INFORMATION ON THE COMPANY

A.	History and Development of the Company

Overview

The Company is a leading vertically-integrated multi-state cannabis operator in the United States. As an operator of licensed cannabis cultivation, processing and retail facilities, the Company’s goal is the ongoing development of communal wellness by providing responsible access to regulated cannabis products to discerning high-end customers. The Company is licensed to operate in 14 U.S. states, with active operations in 11 U.S. states, which includes 83 active dispensaries and ten production facilities comprising approximately 832,000 square feet (including a 26,000 square foot facility in Massachusetts nearing completion of construction) with a focus on tightly regulated, limited license markets. Upon the consummation of pending acquisitions and the completion of construction, the Company will have 85 active dispensaries and 11 production facilities comprised of approximately 842,000 square feet. The Company produces a suite of premium, artisanal cannabis products sold under its portfolio of consumer brands, including Encore™, Avexia™, MÜV™ and Verano™. The Company designs, builds and operates branded dispensary environments including Zen Leaf™ and MÜV™ that deliver a cannabis shopping experience in both medical and adult-use markets.

The Company is a reporting issuer under applicable securities legislation in the Canadian provinces of Alberta, British Columbia and Ontario and its Subordinate Voting Shares are listed on the CSE under the symbol “VRNO”. The Subordinate Voting Shares are also quoted for trading in the United States on the OTCQX marketplace operated by the OTC Market Group under the symbol “VRNOF”.

The head office of the Company is located at 415 North Dearborn Street, 4th Floor, Chicago, Illinois 60654. The registered office of the Company is located at 20th Floor, 250 Howe Street, Vancouver, British Columbia V6C 3R8. The Company’s telephone number is (312) 265-0730. The Company’s Internet address is www.verano.com. Unless and to the extent specifically referred to herein, the information on the Company’s website shall not be deemed to be incorporated by reference in this Registration Statement.

The SEC maintains an internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC at http://www.sec.gov. The Company also files its annual reports and other information with the securities regulatory authorities of Canada via the System for Electronic Document Analysis and Retrieval (SEDAR) at www.sedar.com.

Verano LLC

Verano LLC was the start of the Company’s business operations. Verano LLC is a Delaware limited liability company that was co-founded by George Archos and Sam Dorf in September 2017. Verano LLC was formed as a Chicago, Illinois based holding company to consolidate cannabis operations initially in Illinois, including cultivation facilities and dispensaries.

Beginning in August 2018, Verano LLC began to acquire control, management, ownership, and other rights to medical and adult-use cannabis licenses across multiple U.S. states in which Verano LLC or Verano LLC’s co-founders held an existing ownership or management stake.

Starting in January 2019, Verano LLC implemented an expansion strategy whereby Verano LLC, either directly or through subsidiaries or affiliates, began acquiring control, management, sole or joint-ownership, and other rights to medical and adult-use cannabis businesses across multiple U.S. states.

Recent Developments

RTO

On December 14, 2020, Verano LLC, Majesta Minerals, Inc., an Alberta corporation (“Majesta Minerals”), 1276268 B.C. Ltd., a British Columbia corporation (“Verano FinCo”), 1277233 B.C. Ltd, a British Columbia corporation, and 1278655 B.C. Ltd., a British Columbia corporation, entered into an Arrangement Agreement (as amended January 26, 2021, the “Arrangement Agreement”), pursuant to which the Company would result from a reverse takeover transaction as a British Columbia public reporting company (the “RTO”).

In accordance with the plan of arrangement forming part of the Arrangement Agreement (the “Plan of Arrangement”), Majesta Minerals completed a consolidation of its common shares on the basis of 100,000 issued and outstanding common shares on a post-consolidation basis. Further in accordance with the Plan of Arrangement, Majesta Minerals reorganized its capital by altering its notice of articles and articles to (i) attach special rights and restrictions to its common shares, (ii) change the identifying name of its common shares to “subordinate voting shares” and (iii) create a new class of proportionate voting shares. As part of the Plan of Arrangement, prior to the RTO Majesta Minerals also changed its name to “Verano Holdings Corp.”.

In connection with the RTO and Plan of Arrangement, the Company consummated a private placement conducted on a commercially reasonable best-efforts basis (the “Financing”), whereby 10,000,000 subscription receipts (the “Subscription Receipts”) were issued by Verano FinCo prior to the RTO in January 2021, at a price per Subscription Receipt of $10.00, for aggregate gross proceeds of $100,000,000. Pursuant to the Plan of Arrangement, the net proceeds of the Financing transferred to the Company, as the resulting corporation in the RTO.

The RTO was completed on February 11, 2021. Upon the consummation of the RTO, the Company’s authorized capital consisted of (i) an unlimited number of subordinate voting shares (the “Subordinate Voting Shares”), and (ii) an unlimited number of proportionate voting shares (the “Proportionate Voting Shares”). The shareholders of Verano FinCo received one Subordinate Voting Share for each share of Verano FinCo for a total of 10,000,000 Subordinate Voting Shares in the aggregate. The members of Verano LLC, and owners of some of its subsidiaries, through a series of transactions, exchanged their ownership interests in Verano LLC and such subsidiaries for an aggregate of 96,892,040 Subordinate Voting Shares and 1,172,382 Proportionate Voting Shares, resulting in Verano LLC becoming a wholly-owned subsidiary of the Company. In connection with the Financing, the Company issued 578,354 Subordinate Voting Shares to the offering agents as a broker fee. See “Item 10.A - Share Capital”.

The Subordinate Voting Shares were listed on the Canadian Securities Exchange and began trading on February 17, 2021 under the trading symbol “VRNO.”

The foregoing is merely a summary of the RTO and the Plan of Arrangement, and is qualified in its entirety by reference to the Arrangement Agreement and amendment thereto, which are filed hereto as Exhibits 4.1 and 4.2.

AME Merger Agreement

On November 6, 2020, Verano LLC entered into an agreement and plan of merger (as amended on December 14, 2020 and February 5, 2021, the “AME Merger Agreement”) with the AME Parties, pursuant to which the Company, as the assignee of all of Verano LLC’s rights and obligations thereunder, would acquire the AME Group via a series of merger transactions. The merger transactions were contingent upon, and were to close contemporaneously with, the RTO, resulting in the creation of the Company as a Canadian publicly-traded parent company of Verano LLC, AME LLC and their respective subsidiaries.

The RTO and the merger transactions with the AME Parties (collectively, the “Business Combination”), each closed on February 11, 2021. The members of the AME Parties, through a series of transactions, exchanged their membership interests in the AME Parties for an aggregate of 18,092,987 Subordinate Voting Shares and 470,984 Proportionate Voting Shares, plus cash consideration of $35 million, of which $20 million was paid at the closing of the mergers, $10 million was paid on August 11, 2021, and the $5 million balance is payable on February 11, 2022.

The foregoing is merely a summary of the AME Merger Agreement and the transactions contemplated thereby, and is qualified in its entirety by reference to the AME Merger Agreement and amendments thereto, which are filed hereto as Exhibits 4.3, 4.4 and 4.5.

Acquisitions During 2021

The Company is an early-stage growth company and acquisitions of cannabis businesses and related licenses and assets is an important part of the Company’s growth strategy. In 2021, the Company and its subsidiaries entered into a number of strategic transactions, thereby expanding its footprint across the United States.

Glass City Alternatives, LLC

In January 2021, Verano LLC acquired all of the ownership interest of an owner of one dispensary located in Ohio. The total purchase price was $2,700,000 plus a $329,345 purchase price adjustment. The Company paid $500,000 in shares upon consummation of the RTO. The deferred consideration of $1,081,915 is due in January 2022.

Perpetual Healthcare Inc.

On February 24, 2021, the Company entered into an agreement pursuant to which Perpetual Healthcare Inc. (“PHI”) agreed to transfer the management and governance of PHI to the Company. PHI operates a dispensary located in Phoenix, Arizona. The transaction closed on March 10, 2021. Total consideration includes cash consideration of $11,250,000 plus a $326,426 purchase price adjustment, and 541,994 Subordinate Voting Shares. The remaining $6,175,342 obligation was paid through the issuance of 350,644 Subordinate Voting Shares.

The Herbal Care Center, Inc.

On February 24, 2021, the Company entered into an agreement to acquire The Herbal Care Center, Inc. (“The Herbal Care Center”). The Herbal Care Center operates one of Illinois’ largest and top-performing combined medical and adult-use dispensaries, located in Chicago’s Medical District, and plans to open a second adult-use dispensary in the city’s West Loop/Greektown neighborhood. The transaction closed on March 17, 2021. Total consideration includes cash consideration of $18,750,000, payable over 12 months, plus a $2,107,499 purchase price adjustment, and 90,464 Subordinate Voting Shares and 9,625 Proportionate Voting Shares.

NSE Holdings, LLC

On February 24, 2021, a subsidiary of the Company entered into an agreement pursuant to which it acquired all the equity interests of a licensee that holds one dispensary permit in Pennsylvania, which gives the subsidiary of the Company the ability to open three dispensaries. The transaction closed on March 9, 2021. Pursuant to the agreement, the Company paid cash consideration of $7,350,000 upon closing and issued 666,587 Subordinate Voting Shares and Proportionate Voting Shares equivalent to 666,586 Subordinate Voting Shares on an as-converted basis. Unpaid consideration is related to earnouts due in July 2022, 2023, and 2024 and are expected to be settled by the issuances of Subordinate Voting Shares and Proportionate Voting Shares.

Local Joint

On March 22, 2021, an affiliate of the Company entered into an asset purchase agreement with Flower Launch LLC, the manager of Patient Alternative Relief Center, Inc., d/b/a Local Joint, an Arizona nonprofit corporation, which holds a dispensary license, an authorization to operate a second dispensary, and an authorization to operate an offsite cultivation facility, all in the state of Arizona. The transaction closed on March 30, 2021. Total consideration includes cash consideration of $13,500,000, with $10,000,000 paid on the closing date and $3,500,000 paid within 120 days after the closing date, plus 179,767 Subordinate Voting Shares.

Territory Dispensary

On February 24, 2021, the Company entered into an agreement to acquire three active dispensaries and one cultivation and production facility in Arizona from NZCO LLC, Murff & Company LLC, JWC1 LLC, Hu Commercial Properties LLC and BISHCO LLC (collectively, “Territory”). The transaction closed on April 8, 2021. Total consideration includes $19,735,684 paid upon closing, subject to a purchase price adjustment, 997,453 Subordinate Voting Shares and 29,924 Proportionate Voting Shares. The remaining consideration is payable in cash 50% on March 31, 2022, and the remaining payable in shares or in cash at the election of the recipient on March 31, 2023.

TerraVida Holistic Centers, LLC

On February 24, 2021, subsidiaries of the Company entered into an agreement to acquire three active Pennsylvania dispensaries. The transaction closed on May 11, 2021. Total consideration includes cash consideration of $62,500,000, of which $15,000,000 plus a purchase price adjustment of $3,795,515 was paid on the closing date, $10,000,000 was paid within 90 days after closing, and the remaining $37,500,0000 is payable within 180 days after the closing date. In addition, the consideration includes 1,506,750 Subordinate Voting Shares and 15,067 Proportionate Voting Shares.

The Healing Center, LLC

On March 29, 2021, the Company entered into an agreement to acquire three active dispensaries in Pittsburgh, Pennsylvania by purchasing all the issued and outstanding equity interests of The Healing Center, LLC (“The Healing Center”). The transaction closed on May 14, 2021. Total consideration includes cash consideration of $56,892,320, plus a $2,354,886 purchase price adjustment, of which $31,463,479 was paid upon closing and $25,428,841 was paid within 60 days after the closing date. In addition, the merger consideration included 454,302 Subordinate Voting Shares and 25,744 Proportionate Voting Shares.

Ohio Grown Therapies, LLC

On June 30, 2021, a subsidiary of the Company entered into a letter agreement regarding the final closing of an option purchase agreement entered into on January 14, 2019, which would allow the Company to operate one dispensary located in Newark, Ohio. The final closing had no impact on operations as the Company already exerted control over the dispensary through a consulting agreement entered into in 2019.

Mad River Remedies, LLC

On April 1, 2021, the Company announced it had entered into an agreement to acquire Mad River Remedies, LLC, a dispensary of medical marijuana in Dayton, Ohio. The transaction closed on July 8, 2021. Total consideration includes cash consideration of $12,000,000 (subject to adjustment) of which $10,000,000 was paid at closing and $2,000,000 was placed in escrow subject to release upon certain conditions. In addition, the merger consideration included 488,861 Subordinate Voting Shares.

Agri-Kind, LLC, and Agronomed Holdings Inc.

On April 21, 2021, the Company entered into an agreement to acquire all of the equity interests in both Agri-Kind, LLC (“Agri-Kind”), an operator of a 62,000 square foot cultivation and production facility of medical marijuana located in Chester, Pennsylvania, and Agronomed Holdings Inc., the owner of the cultivation and processing facility operated by Agri-Kind. These transactions closed on July 12, 2021. The total consideration includes cash consideration of $66,000,000, the issuance of 3,208,035 Subordinate Voting Shares and an earnout of $31,500,000, which may be increased based upon financial performance metrics of Agri-Kind for 2021. The earnout is payable in Subordinate Voting Shares, unless cash payment is elected by the recipient.

Agronomed Biologics, LLC

On April 21, 2021, the Company entered into an agreement to acquire all of the equity interests in Agronomed Biologics, LLC (“Agronomed”), which holds a clinical registrant license (including cultivation and production and six dispensaries, to be developed) in Pennsylvania. As a clinical registrant, Agronomed has partnered with the Drexel University College of Medicine to conduct medical marijuana research. This transaction closed on July 12, 2021. The total consideration includes cash consideration of $10,000,000, 3,240,436 Subordinate Voting Shares and an earnout of $15,000,000, which is payable in Subordinate Voting Shares unless cash payment is elected by the recipient.

WSCC, Inc.

On July 26, 2021, the Company announced it had entered into an agreement to acquire all of the equity interests in WSCC, Inc., a Nevada corporation doing business as Sierra Well. The total consideration is $29,000,000, which is payable in a combination of cash and Subordinate Voting Shares. Closing of the acquisition is subject to customary conditions, contingencies, and approvals, including regulatory approval.

Willow Brook Wellness, LLC

On September 13, 2021, the Company entered into an agreement to acquire all of the equity interests in Willow Brook Wellness, LLC, a Connecticut limited liability company which operates Willow Brook Wellness, one of 18 dispensaries in the state of Connecticut. The total consideration is $22,000,000, which is payable in a combination of cash, including pursuant to a 12 month promissory note, and Subordinate Voting Shares. Closing of the acquisition is subject to customary conditions, contingencies, and approvals, including regulatory approval.

Credit Facility

On May 10, 2021, the Company and certain of its subsidiaries entered into an amended and restated credit agreement with the agent and the lenders named therein, which was amended by the parties on May 20, 2021, (as amended, the “Credit Agreement”), pursuant to which an additional $100,000,000 was funded to the Company resulting in a total of $130,000,000 in term loan commitments being funded and outstanding under the Credit Agreement. The Credit Agreement provides for, among other things, (i) the term loans being secured by a first priority lien on substantially all of the assets of the Company and its subsidiaries (other than immaterial subsidiaries and specified assets), (ii) the original $30,000,000 loan bearing interest at a rate of 15.25% per annum and the incremental $100,000,000 loan bearing interest at a rate of 9.75% per annum; (iii) no principal amortization with the entire $130,000,000 plus applicable interest being due in full on the stated maturity date of May 30, 2023; (iv) prepayment fees generally of 1% of any principal amount being prepaid; (v) restrictive covenants which apply to the operations of the Company and its subsidiaries, including limitations on the ability to incur additional debt, limitations on the granting of liens and the terms of permitted acquisitions; and (vi) financial covenants requiring the Company to maintain on a consolidated basis specified levels of liquidity, a minimum quarterly amount of earnings before interest, taxes, depreciation and amortization and a minimum fixed charge coverage ratio. Funding of the additional $100,000,000 term loan occurred on May 21, 2021.

The foregoing is merely a summary of the Credit Agreement and the transactions contemplated thereby, and is qualified in its entirety by reference to the Credit Agreement and amendment thereto which are filed hereto as Exhibit 4.6 and Exhibit 4.7.

B.	Business Overview

The Company’s strategy is to vertically integrate as a single cohesive company through the consolidation of cultivating, manufacturing, distributing, and dispensing premium brands and products at scale. The Company’s cultivation and wholesale distribution of cannabis consumer packaged goods supports the national retail dispensary chain, operating under brand names including Zen Leaf™ and MÜV. This model was developed to guarantee shelf-space in the Company’s retail stores, and foster long term relationships with third-party dispensary customers though supply arrangements.

As a vertically-integrated company with a portfolio of brands and products including a proprietary portfolio of over 1,000 product SKUs, the Company, through its subsidiaries and affiliates, manufactures and sells a comprehensive array of premium cannabis products. The Company’s products are designed and developed with various consumer segments in mind and include premium flower, concentrates for dabbing and vaporizing, edibles, and topicals. The Company distributes its portfolio of brands to the majority of cannabis retail stores in its active markets, including its own retail outlets.

The Company’s strategy is to establish its footprint in such a manner to enable it to adapt to changes in both industry and market conditions seamlessly and profitably. The Company believes that the following have positioned it for growth:

	●	The Company’s business plan centers around four foundational pillars: cultivation, production, brand creation and retail.

	●	Diversity in revenue streams positions the Company to respond positively to changes in economics, regulations and healthcare, as well as navigating ever-evolving consumer habits.

	●	The Company operates and manages the entire vertical cannabis operation and supply chain, from seed to sale.

	●	The Company’s historical approach deliberately focuses on large markets where it aims to be the first involved.

	●	The Company will seek to continue its growth through acquisitions of new licenses and existing businesses as well as leveraging relationships within the research and development sectors.

	●	The Company’s network encompasses a market of nearly 150 million Americans in Illinois, Florida, Arizona, New Jersey, Pennsylvania, Ohio, Maryland, Massachusetts, Nevada, Michigan, Arkansas, West Virginia, California and Missouri.

	●	The Company emphasizes developing premium, handcrafted products in controlled quantities. The quality, positive reviews and finite availability elevate the Company’s products’ market desirability and value.

	●	The Company grows pesticide-free, meeting testing and state regulatory requirements, and, while no facilities have a Good Manufacturing Practice (GMP) certification, the Company believes it adheres to Current Good Manufacturing Practices (cGMP) with respect to its facilities. The Company adheres to standard operating procedures across all of its production facilities.

	●	The Company espouses a customer-and patient-driven business philosophy to deliver value to its downstream customers and consumers.

The United States federal government regulates drugs through the Controlled Substances Act (“CSA”) (21 U.S.C. § 801 et seq.) (the “CSA”), which places controlled substances, including cannabis, in a schedule. Cannabis is classified as a Schedule I drug. Under United States federal law, a Schedule I drug or substance has a high potential for abuse, no accepted medical use in the United States, and a lack of accepted safety for the use of the drug under medical supervision. The United States Food and Drug Administration has not approved cannabis as a safe and effective drug for any indication.

In the United States, cannabis is largely regulated at the state level. State laws regulating cannabis are in direct conflict with the federal CSA, which makes cannabis use and possession federally illegal. Although some states authorize medical and/or adult-use cannabis production and distribution by licensed or registered entities, under United States federal law, the possession, use, cultivation, and transfer of cannabis and any cannabis-related drug paraphernalia is illegal and any such acts are criminal acts under federal law.

Products and Services

The Company has two primary operating subsidiaries, Verano LLC and AME LLC, and offers its products and services through various direct and indirect subsidiaries of Verano LLC and AME LLC.

The Company, which has one of the largest footprints for multi-state, vertically-integrated cannabis owners and operators in the U.S., derives its revenues from a balanced contribution of sources through its wholesale cannabis business and national retail dispensaries under brands including Zen Leaf™ and MÜV™. The Company’s objective is to support its national retail dispensary chain through its wholesale cannabis consumer packaged goods business (cultivation and manufacturing).

Currently the wholesale and retail channels are vertically-integrated across multiple highly-regulated, limited license (and therefore limited legal supply markets) in Illinois, Maryland, Florida, West Virginia, Pennsylvania, Arizona, New Jersey, Nevada and Ohio. In addition, the Company has dispensaries, licenses, or interests in several other key markets, including Massachusetts, Arkansas, Michigan, California and Missouri. The Company’s primary markets, where the Company believes supply and demand can be reasonably predicted and forecasted, create the foundation upon which the Company has sought to build sustainable and profitable growth.

Ownership of both wholesale and retail supports the Company’s strategy of distributing brands at scale by enabling the Company to capture large market share, generate brand awareness, and earn customer loyalty in its operating markets. The Company plans to continue expansion of its operations by winning merit-based processes or acquiring licenses in limited license markets and increasing its presence in current markets.

Operational Foundation & Current Geographic Markets

The Company currently operates wholesale and retail businesses in Illinois, Maryland, Massachusetts, Nevada, Ohio, New Jersey, Pennsylvania, Florida, Arizona and West Virginia. The Company also has dispensaries, licenses or other commercial interests in Arkansas, Michigan, California and Missouri. The Company’s businesses and operations are subject to applicable state regulations that vary state-by-state, and many of these regulations have, from time to time have been modified and amended since initial enactment. In addition, municipalities may individually determine what local permits or licenses are required to operate cannabis businesses within their boundaries. The Company actively monitors state and local statutory and regulatory developments which may impact the Company.

Revenue Streams

The Company engages in the cultivation, manufacturing and distribution of cannabis products with wholesale and retail business operations.

Illinois Operations

Subject to state regulations, Illinois currently allows access to cannabis for both medical and adult-use. A subsidiary of the Company is licensed to operate a cultivation center in the state of Illinois. The cultivation center license permits the licensee to acquire, possess, cultivate, deliver, transfer, have tested, transport, supply or sell medical and adult use cannabis and related supplies to medical and adult-use dispensing organizations. Company affiliates also own and/or operate ten medical and adult-use dispensaries across the state of Illinois.

Maryland Operations

Subject to state regulations, Maryland currently allows access to cannabis for medical use. A subsidiary of the Company is licensed to operate a cultivation facility and a retail medical cannabis dispensary in Maryland. The retail dispensary license permits it to purchase medical cannabis from cultivation facilities, cannabis and cannabis products from product manufacturing facilities and cannabis from other retail stores and allows the sale of cannabis and cannabis products to registered patients. The cultivation license permits the licensee to acquire, possess, cultivate, deliver, transfer, have tested, transport, supply or sell cannabis and related supplies to medical marijuana dispensaries, and medical cannabis cultivation facilities. A subsidiary of the Company also is licensed to operate a processing facility. The processing license permits it to purchase medical cannabis from cultivation facilities, manufacture cannabis products, and sell those products to licensed medical cannabis dispensaries. In addition, through direct ownership and Management Agreements, the Company’s subsidiaries own or manage four dispensaries in Maryland and one processor licensee.

Massachusetts Operations

Subject to state regulations, Massachusetts currently allows access to cannabis for both medical and adult-use. A subsidiary of the Company holds licenses with the Massachusetts Cannabis Control Commission (which regulates Massachusetts’ medical and recreational marijuana programs) for medical and adult-use licenses to operate retail dispensaries, cultivation facilities, and manufacturing facilities in Sharon and Plymouth, Massachusetts. This licensee has received approval for dispensary locations in both Sharon and Plymouth.

Nevada Operations

Subject to state regulations, Nevada currently allows access to cannabis for both medical and adult-use. Company affiliates are owners, operators, managers, consultants, and/or have licensing or other commercial arrangements with cannabis licensees to operate retail dispensaries, a cultivation facility, and a manufacturing facility in Nevada. On July 26, 2021, the Company also announced that it had entered into an agreement to purchase two additional fully-operational dispensaries in Reno and Carson City as well as a cultivation and production facility in Reno. The closing of this transaction is subject to customary conditions, contingencies, and approvals, including regulatory approval.

Ohio Operations

Subject to state regulations, Ohio currently allows access to cannabis for medical use. The Company owns and operates, through its wholly-owned subsidiaries, a cultivation facility, and five medical cannabis dispensaries in Cincinnati, Canton, Bowling Green, Dayton, and Newark.

New Jersey Operations

Subject to state regulations, New Jersey currently allows access to cannabis for medical use, and in December 2020 passed legislation legalizing adult-use. The Company’s affiliates are owners, operators, managers, consultants, and/or have licensing or other commercial arrangements with an alternative treatment center in the state of New Jersey.

Michigan Operations

Subject to state regulations, Michigan currently allows access to cannabis for both medical and adult-use. The Company’s affiliates are owners, operators, managers, consultants, and/or have licensing or other commercial arrangements with a cannabis dispensary licensee in the state of Michigan.

Arkansas Operations

Subject to state regulations, Arkansas currently allows access to cannabis for medical use. The Company’s affiliates are owners, operators, managers, consultants, and/or have licensing or other commercial arrangements with a cannabis dispensary licensee in the state of Arkansas.

Pennsylvania Operations

Subject to state regulations, Pennsylvania currently allows access to cannabis for medical use. Subsidiaries of the Company are owners and operators of four cannabis dispensary permittees in Pennsylvania, as well as one grower and processor permit and one clinical registrant permit (which allows for cultivation, processing, and dispensing).

Florida Operations

Subject to state regulations, Florida currently allows access to cannabis for medical use. The Company holds a license under a subsidiary. This licensee operates a cultivation and manufacturing facility as well as 37 medical cannabis dispensaries across the State of Florida. AME LLC also educates patients and potential patients on the Company’s products and services through its certifying physicians, community outreach events and ongoing staff education, all of which are supported by a patient care call center with more than 30 staff for direct phone, email and online chat support.

Arizona Operations

Subject to state regulations, Arizona currently allows access to cannabis for medical use, and in November 2020 passed legislation legalizing adult-use. The Company’s affiliates have licensing or other commercial arrangements with six cannabis licensees in the state of Arizona.

California Operations

Subject to state regulations, California currently allows access to cannabis for both medical and adult-use. In February 2019, Verano LLC entered into an agreement with a holder of cannabis manufacturing and distribution licenses in the state of California, and another party creating a joint venture to extract cannabis oil and manufacture and distribute cannabis products in the state. The joint venture and its affiliated entities control manufacturing and distribution licenses in California.

Missouri Operations

Subject to state regulations, Missouri currently allows access to cannabis for medical use. An affiliate of the Company was awarded three manufacturing licenses by the state of Missouri’s Department of Health & Senior Services (responsible for Missouri’s licensing regime) for the same location, which were merged into one. As such, this affiliate holds one manufacturing and one dispensary license in the state of Missouri, neither of which are operational.

West Virginia Operations

Subject to state regulations, West Virginia currently allows access to cannabis for medical use. The Company’s affiliates are owners, operators, managers, consultants, and/or have licensing or other commercial arrangements with one medical cultivation license, one medical processor license, and seven medical dispensary licenses.

Research and Development

The Company’s research and development activities have primarily focused on the development and improvement of efficient and sustainable cannabis cultivation and manufacturing methodologies and technologies to increase yields and maintain and improve the quality of its products. This includes research on lighting methods, air controls, racking and stacking, growing media, nutrient mixtures, pest management techniques, ambient controls, and automation.

The Company also engages in research and development activities focused on creating new extracted or infused products, and breeds new strains and varietals. The Company’s dedicated and experienced product development team includes members from all relevant product disciplines, who actively monitor existing and prospective markets, as well as test and evaluate the financial viability of all new products.

Marketing, Sales and Business Development

The Company is licensed to operate in 14 U.S. states, with active operations in 11 U.S. states. The Company has enacted and plans to continue an active expansion-by-acquisition strategy. Sales revenue is derived from the Company’s wholesale cannabis business and national retail dispensaries under brands including Zen Leaf™ and MÜV™.

Some of the states in which the Company operates have regulations that restrict marketing and sales activities of cannabis products. Restrictions may specify what, where and to whom product information and descriptions may appear or be advertised. Marketing, advertising, packaging and labeling regulations also vary from state to state, potentially limiting the consistency and scale of consumer branding communication and product education efforts. The Company deploys a diverse range of marketing and brand recognition strategies, subject to applicable local and state laws and regulations.

In Florida the Company seeks to educate patients and potential patients about its products and services through its certifying physicians, community outreach events and ongoing staff education, all of which are supported by a patient care call center with more than 30 staff for direct phone, email and online chat support.

Cultivation and Production

The Company’s portfolio includes eight cultivation licenses and ten processing and manufacturing licenses with a focus on tightly regulated, limited license markets. The Company’s production facilities currently have approximately 832,000 square feet (including a 26,000 square foot facility in Massachusetts nearing completion of construction). Upon the consummation of pending acquisitions and the completion of construction, the Company will have 11 production facilities comprising approximately 842,000 square feet. Each new manufacturing suite is built to ISO 8 clean room specifications and employs advanced nutritional and pharmaceutical formulations technology for the most optimal delivery methods. While no facilities have a Good Manufacturing Practice (GMP) certification, the Company believes it adheres to Current Good Manufacturing Practices (cGMP) with respect to its facilities.

The Company grows pesticide-free, meeting testing and state regulatory requirements, and, while no facilities have a Good Manufacturing Practice (GMP) certification, the Company believes it adheres to Current Good Manufacturing Practices (cGMP) with respect to its facilities. The Company adheres to standard operating procedures across all of its cultivation and manufacturing facilities.

Intellectual Property

The Company has developed proprietary cultivation techniques for operating ethanol, butane, and carbon dioxide extraction machinery, including best production practices, procedures, and methods. This requires specialized skills in cultivation, extraction and refining.

The Company, through its subsidiaries, has a suite of registered trademarks including with respect to products, retail branding and educational offerings. The Company’s subsidiaries have exclusive perpetual licenses to patents and patent applications held by some of the Company’s subsidiaries, and also license intellectual property related to cannabis-infused products from a third party on an exclusive basis. For additional details, see “Item 3.D - Risk Factors- Risks Related to Our Business and Operations - Information Technology, Cybersecurity and Intellectual Property” and “Item 10.C - Material Contracts”.

The Company has several website domains, including www.verano.com, numerous social media accounts across all major platforms and various phone and web application platforms.

The Company relies on non-disclosure/confidentiality agreements to protect its intellectual property rights. To the extent the Company describes or discloses its proprietary cultivation or extraction techniques in its applications for cultivation or processing licenses, the Company redacts or requests redaction of such information prior to public disclosure. For additional details on the risks associated with the Company’s intellectual property, see “Item 3.D - Risk Factors- Risks Related to Our Business and Operations - Information Technology, Cybersecurity and Intellectual Property”.

Specialized Skill and Knowledge

To remain a leader in its field, the Company relies on a motivated and experienced team, focused on offering the highest quality products and services in a highly-regulated industry. The Company, through its subsidiaries, employs a diverse group of, hand-picked for their respective administrative, operational, and/or financial expertise, and where appropriate, chosen for their experience and demonstrated skill in the cultivation and operations of medical and adult-use cannabis.

The Company has established training and education tools designed to align the Company’s employee training efforts and resources with the Company’s core principles and strategic goals. Employees are expected to complete at least 20 hours of continued training and education annually. The Company’s training tools are designed to be flexible to include new policies and procedures, and can be revised as necessary based on new or ongoing operational concerns, management observations, and new or improved best practices. The Company’s employees undergo significant and diverse training, tailored to each employee based on their function and business-lines. Training includes but is not limited to the following topics: (i) applicable laws, rules, and regulations; (ii) propagation, cloning, and nursery management; (iii) transplanting and vegetative growth; (iv) fertigation and nutrient management; (v) irrigation and water conservation; (vi) integrated pest management and biosecurity; (vii) flower canopy management; (viii) harvesting; (ix) drying and curing; (x) waste and disposal procedures; (xi) trimming and packaging preparation; (xii) sampling, laboratory testing, and quality assurance; (xiii) extraction, infusion, and food handling; (xiv) surveillance and security; (xv) inventory control; (xvi) emergency preparedness and response; (xvii) diversion control and prevention; (xviii) health, safety, sanitation and hygiene; (xvix) recordkeeping and reporting: (xvx) recall and quarantine procedures; (xvxi) regulatory inspection preparedness; and (xvxii) law enforcement interactions.

Competitive Conditions

The fast-growing market for legalized cannabis in the U.S. has created a competitive environment for cannabis producers as well as other types of companies who provide goods and services to the cannabis industry. The Company competes with a variety of different operators across the several states in which it currently operates. In the majority of these states, there are specific license caps that create high barriers to entry. Management of the Company views multi-state operators that have vertical operations as the most direct competition, including Green Thumb Industries Inc., Cresco Labs, Inc., Curaleaf Holdings, Inc., Harvest Health and Recreation, Inc., and Acreage Holdings, LLC.

Aside from this direct competition, out-of-state operators that are capitalized well enough to enter those markets through acquisitions are also considered part of the competitive landscape. Similarly, as the Company executes its national growth strategy, operators in future state markets will inevitably become direct competitors. Additionally, the Company, along with all legally operating competitors, face competition from the illicit markets. See “Item 3.D - Risk Factors- Risks Related to our Business and Operations - Our Industry”. However, as state and local regulators increase scrutiny on these markets, management of the Company believes this competitive threat will be meaningfully reduced.

There remains a significant lack of traditional sources of bank lending and equity capital available to fund the operations of companies in the cannabis sector. Financing for companies in the cannabis sector is more difficult than other sectors, particularly in the United States, due to the fact that cannabis is still classified as a Schedule I drug and illegal at a federal level, which creates barriers to entry. The changing regulatory environment at a state level further complicates financing for companies in this sector. Competitors may have better access than the Company to financing and the capital markets.

Components

The principal components in the production of the Company’s cannabis consumer packaged goods include cannabis grown internally or acquired through wholesale channels, other agricultural products, and packaging materials (including glass, plastic and cardboard).

Due to the U.S. federal prohibition on cannabis, the Company must source cannabis within each individual state in which it operates. While there are opportunities for centralized sourcing of some packaging materials, given each state’s unique regulatory requirements, multi-state operators do not currently have access to nationwide packaging solutions.

Cycles

Although cannabis is an agricultural product, the Company’s cultivation methodologies employ a perpetual harvest system whereby plants are propagated and thereafter harvested on a staggered schedule. This ensures limited variability in the availability of finished products and minimizes the otherwise cyclical or seasonal nature of the business.

Dependence on Material License Approvals and Renewals

The Company is dependent upon the maintenance and renewal of its cannabis licenses and permits in the states and localities in which it operates its business. Maintenance and renewal of these licenses and permits requires the Company to remain in compliance with state and local law and the rules and regulations promulgated by state and local jurisdictions.

Employees and Human Capital

As of September 13, 2021, the Company had 3,481 employees across its operating jurisdictions, primarily employed in the Company’s cultivation, manufacturing, and processing operations and support thereof. Other significant departments include retail and other operations, logistics and supply chain, sales and marketing, legal and compliance, and other administrative and support functions. The Company recruits, hires and promotes individuals that it believes are best qualified for each position, priding itself on using a selection process that recruits people who are trainable, cooperative and share its core values as a company. None of the Company’s employees are party to any collective bargaining agreements. The Company considers its relationship with its employees to be good.

Reorganizations

See “Item 4.A - History and Development of the Company” for a description of the RTO, Plan of Arrangement and Business Combination, and “Item 4.C - Organizational Structure” for a description of the Company’s current organizational structure.

Social or Environmental Policies

The Company has implemented social or environmental policies that are fundamental to its operations. Notwithstanding, ensuring that the Company’s operations are environmentally sustainable, low impact, and respectful of environmental concerns and effects is an integral part of the Company’s ethos and guiding mission. From the selection of cultivation equipment and lighting to air handling, water usage, conservation and sustainable procurement policies, environmental consciousness is interwoven into each and every facet of the Company’s building design, management, and operations. To promote sustainable practices on a day-to-day level, the Company has also developed policies and procedures focused on improving environmental efficiencies and reducing the Company’s resource demand. The Company has also developed programs in which the Company’s employees and purchasers across the Company’s markets alike can participate in offsetting any environmental impact the Company’s operations may have. As advocates for environmental stewardship and sustainability, the Company hopes to serve as an example that other operators nationwide will emulate to collectively lessen and mitigate the environmental impact businesses in the cannabis industry have on the environment.

C.	Organizational Structure

The following chart sets forth the corporate structure of the Company and its material subsidiaries, Verano LLC and AME LLC. In connection with the RTO and Plan of Arrangement, the Company, through a series of transactions, formed Verano Holdings USA Corp., a Delaware corporation (“BlockerCo”), ZNN Holdings, LLC, a Delaware limited liability company, Nuuvn Holdings, LLC, a Delaware limited liability company, ZenNorth LLC, a Delaware limited liability company, A&T SPV II LLC, a Texas limited liability company and SGI 1 LLC, a Delaware (together with ZNN Holdings, LLC, Nuuvn Holdings, LLC, ZenNorth LLC and A&T SPV II LLC, the “Blocker Members”). BlockerCo and the Blocker Members have no business or operations and exist solely to effect the taxation of the Company as a U.S. corporation rather than a British Columbia corporation.

D.	Property, Plants and Equipment

The following tables set forth the Company’s owned and leased physical properties as of September 14, 2021, which include corporate offices, a call center, dispensaries (operating, planned and under construction) and cultivation and production facilities (operating and under construction).

Property Type	Owned/ Leased	County	State
Dispensary	Owned	Anne Arundel County	MD
Dispensary	Leased	Baltimore County	MD
Dispensary (under construction)	Leased	Anne Arundel County	MD
Cultivation facility of 38,000 square feet	Leased	Howard County	MD
Cultivation facility of 20,000 square feet	Owned	Navajo County	AZ
Cultivation facility of 42,000 square feet	Owned	Clark County	NV
Dispensaries (five)	Owned	Maricopa County	AZ
Cultivation facilities of 90,000 square feet (expanding additional 71,200 square feet)	Owned	Pinal County	AZ
Cultivation facility of 192,000 square feet	Owned	Edwards County	IL
Cultivation facility of 120,000 square feet	Leased	Hunterdon County	NJ
Dispensary	Owned	Berrien County	MI
Dispensary	Owned	Maricopa County	AZ
Dispensaries (two, plus two under construction)	Owned	Clark County	NV
Two-unit commercial building – one unit is leased to a third party, other is vacant)	Owned	Clark County	NV
Cultivation facility of 25,732 square feet	Owned	Norfolk County	MA
Dispensary	Leased	Norfolk County	MA
Dispensary	Leased	Plymouth County	MA
Dispensary	Leased	Wood County	OH
Dispensary	Owned	Stark County	OH
Cultivation facility of 22,000 square feet	Owned	Stark County	OH
Dispensary	Leased	Philadelphia County	PA
Dispensary	Leased	Dauphin	PA
Dispensary	Leased	Logan County	PA
Dispensary	Leased	York County	PA
Dispensary and office	Leased	Montgomery	PA
Dispensary	Leased	Bucks	PA
Dispensaries (one and one under construction)	Leased	Delaware	PA
Dispensary	Owned	Venango	PA
Dispensary	Owned	Allegheny	PA
Dispensary	Owned	Washington	PA
Dispensary	Leased	Chester County	PA
Dispensary	Owned	Chester County	PA
Cultivation facility of 62,000 square feet	Owned	Chester County	PA
Cultivation facility (under construction)	Owned	Chester County	PA

Property Type	Owned/ Leased	County	State
Dispensary	Owned	Licking County	OH
Dispensary	Leased	Montgomery	OH
Dispensary	Leased	Hamilton	OH
Cultivation facility of 220,000 square feet	Owned	Hillsborough County	FL
Call center	Owned	Hillsborough County	FL
Dispensaries (two)	Leased	Manatee County	FL
Dispensaries (three operating and one to be constructed)	Leased	Lee County	FL
Dispensaries (three)	Leased	Palm Beach County	FL
Dispensaries (four)	Leased	Pinellas County	FL
Dispensary (one and one to be constructed)	Leased	Broward County	FL
Dispensary	Leased	Alachua County	FL
Dispensary (two and one to be constructed)	Leased	Duval County	FL
Dispensary (two)	Leased	Monroe County	FL
Dispensary	Leased	Lake County	FL
Dispensary	Leased	Polk County	FL
Dispensaries (six)	Leased	Hillsborough County	FL
Dispensary	Leased	Brevard County	FL
Dispensary (under construction)	Owned	Brevard County	FL
Dispensary (one and one under construction)	Leased	Miami-Dade County	FL
Dispensaries (two)	Leased	Sarasota County	FL
Dispensary (two and one under construction)	Leased	Volusia County	FL
Dispensaries (three)	Leased	Orange County	FL
Dispensary	Leased	Escambia County	FL
Dispensary	Leased	St. Lucie County	FL
Dispensary	Leased	Indian River County	FL
Dispensary	Leased	Okaloosa County	FL
Dispensary	Leased	Pasco County	FL
Dispensary	Leased	St. Johns County	FL
Dispensary	Owned	Seminole County	FL
Dispensary	Owned	Leon County	FL
Dispensary (one under construction)	Leased	Martin County	FL
Dispensary (one under construction)	Leased	Charlotte County	FL
Dispensary (one under construction)	Leased	Clay County	FL
Dispensary (one under construction)	Leased	Collier County	FL
Dispensary	Leased	Maricopa County	AZ
Dispensary	Owned	Union County	AR
Corporate office	Leased	Cook County	IL
Dispensaries (five operating and one to be constructed)	Leased	Cook County	IL

Property Type	Owned/ Leased	County	State
Dispensary	Owned	Kane County	IL
Dispensary (one under construction)	Leased	Kane County	IL
Dispensary	Leased	Lake County	IL
Dispensaries (two)	Leased	DuPage County	IL
Dispensary	Leased	Effingham County	IL
Dispensary	Leased	Coles	IL
Dispensary	Leased	Montgomery County	MD
Dispensary	Leased	Monmouth	NJ
Dispensary	Leased	Mercer	NJ
Dispensary	Leased	Union	NJ
Dispensaries (two under construction)	Leased	Monongalia	WV
Cultivation facility of 39,000 square feet (under construction)	Leased	Raleigh	WV
Dispensary (under construction)	Leased	Harrison	WV
Dispensary (under construction)	Leased	Ohio	WV

Properties Subject to an Encumbrance.

Substantially all of the Company’s and its current subsidiaries assets and owned real property is subject to mortgages that secure outstanding indebtedness for borrowed money or pledged as collateral securing the obligations owing under the Credit Agreement.

ITEM 4A: UNRESOLVED STAFF COMMENTS

Not Applicable.

ITEM 5: OPERATING AND FINANCIAL REVIEW AND PROSPECTS

A.	Results of Operations

The RTO, Plan of Arrangement and Business Combination were each consummated in February 2021. See “Item 3.A - History and Development of the Company”. Upon the consummation of the RTO, (i) the Company resulted from the amalgamation contemplated by the Plan of Arrangement, (ii) Verano LLC and AME LLC became subsidiaries of the Company, and (iii) the other members of the AME Group and Plants of Ruskin became subsidiaries of AME LLC. Previously, the financial results of Verano LLC, the AME Group and Plants of Ruskin were not consolidated or combined with each other.

The information set forth in this Item 5.A represents the respective results of operations for (i) the three and six months ended June 30, 2021 of the Company compared to the three and six months ended June 30, 2020 of Verano LLC; (ii) the year ended December 31, 2020 compared to the year ended December 31, 2019 of Verano LLC; (iii) the year ended December 31, 2020 compared to the year ended December 31, 2019 of Plants of Ruskin, (iv) the year ended December 31, 2020 compared to the year ended December 31, 2019 of the AME Group, and (v) the year ended December 31, 2019 compared to the year ended December 31, 2018 of Verano LLC.

Three Months Ended June 30, 2021 of the Company, Compared to Three Months Ended June 30, 2020 of Verano LLC

Revenue

Revenue for the three months ended June 30, 2021, was $198,706,561, an increase of $151,408,321 or 320% compared to revenue of $47,298,240 for the three months ended June 30, 2020. The increase was primarily driven by retail expansion in the Florida and Illinois markets, along with the acquisitions that closed during the quarter in the Arizona and Pennsylvania markets, comprised of Territory, TerraVida Holistic Centers, and The Healing Center. In addition, production output and sales of flower expanded in the Illinois, New Jersey, and Maryland markets.

Cost of Goods Sold and Biological Assets

Cost of goods sold includes the costs directly attributable to cultivating and processing cannabis and for retail purchases of finished goods, such as flower, edibles, and concentrates. Cost of goods sold, excluding any adjustments to the fair value of biological assets for the three months ended June 30, 2021, was $98,577,575, an increase of $75,063,850 or 319% compared to the three months ended June 30, 2020. This increase was primarily due to production costs of cannabis increasing in tandem with increase in sales. Additionally, increased cost of goods sold was driven by the IFRS 3, Business Combinations requirement to report inventory acquired in business combinations at fair value. In accordance with guidance, the Company initially measured the inventory of its acquisitions at the selling price, less cost to sell. The step-up to adjust inventory to fair value was expensed through cost of goods sold.

Biological asset transformation totaled a net loss of $24,920,937 for the three months ended June 30, 2021, a decrease of $41,760,812 or (248)% compared to the three months ended June 30, 2020. The decrease was primarily driven by a change in cultivation methods focused in research and development to reduce plant count at certain cultivation facilities to increase yields to be realized over time.

Gross Profit

Gross profit before biological asset adjustments for the three months ended June 30, 2021, was $100,128,986, representing a gross margin on the sale of cannabis, cannabis extractions and edibles, and from related accessories of 50%. This is compared to gross profit before biological asset adjustments for the three months ended June 30, 2020, of $23,784,515, which represented a 50% gross margin. Gross profit after net gains on biological asset transformation for the three months ended June 30, 2021, was $75,208,049, representing a gross margin of 38% compared with gross profit after net gains on biological asset transformation of $40,624,390 or 86% gross margin for the three months ended June 30, 2020. The increase in gross profit margin is primarily due to top-line growth catalyzed by strong market growth in Illinois and Florida and continued expansion into the Arizona and Pennsylvania markets.

Total Expenses

Total expenses for the three months ended June 30, 2021, was $57,581,879, an increase of $47,682,490 or 482%, compared to total expenses of $9,899,389 for the three months ended June 30, 2020. Total expenses as a percentage of revenue, net of discounts, was 29% and 21% for the three months ended June 30, 2021, and 2020, respectively. The increase was primarily due to a $29,616,443 or 784% increase in general and administrative costs and a $14,257,925 or 446% increase in salaries in benefits, which was driven by an increase in earnout-related expenses, acquisition expenses and other one-time transaction expenses, start-up costs in new markets, and expanded headcount in the Company’s primary operating markets.

The Company expects to continue to invest organically and in new markets to support expansion plans and adapt to the increasing complexity of the cannabis business. Furthermore, the Company expects to incur acquisition and transaction costs related to expansion.

Total Other Income (Expense)

Total other expense for the year three months June 30, 2021, was $5,619,164, an increase of $1,713,862 or 44% compared to $3,905,302 for the three months ended June 30, 2020. The increase was primarily due to increased interest expense related to the $100 million upsize of debt in May 2021.

Provision for Income Taxes

Income tax expense is recognized based on the expected tax payable on the taxable income for the year, using tax rates enacted or substantively enacted at year-end. For the three months ended June 30, 2021, provision for income taxes totaled $5,087,824 compared to $15,131,857 for the prior three months ended June 30, 2020. The decrease in income tax expense was primarily driven by the decrease in taxable income in the second quarter of 2021 compared to June 30, 2020.

Six Months Ended June 30, 2021 of the Company, Compared to Six Months Ended June 30, 2020 of Verano LLC

Revenue

Revenue for the six months ended June 30, 2021, was $319,601,554, an increase of $229,454,544 or 255% compared to revenue of $90,147,010 from the six months ended June 30, 2020. The increase was primarily driven by retail expansion in the Florida and Illinois markets, along with the acquisitions in the Arizona and Pennsylvania markets, comprised of Territory, TerraVida Holistic Centers, and The Healing Center. In addition, production output and sales of flower expanded in the Illinois, New Jersey, and Maryland markets.

Cost of Goods Sold and Biological Assets

Cost of goods sold includes the costs directly attributable to cultivating and processing cannabis and for retail purchases of finished goods, such as flower, edibles, and concentrates.

Cost of goods sold, excluding any adjustments to the fair value of biological assets, for the six months ended June 30, 2021, was $144,845,799, an increase of $112,867,427 or 353% from the six months ended June 30, 2020. This increase is primarily due to production costs of cannabis increasing in tandem with the increase in sales. Additionally, increased cost of goods sold was driven by the IFRS 3, Business Combinations requirement to report inventory acquired in business combinations at fair value. In accordance with guidance, the Company initially measured the inventory of its acquisitions at selling price, less cost to sell. The step-up to adjust inventory to fair value was expensed through cost of sales.

Inventory of plants under production is considered a biological asset. Under IFRS, biological assets are to be recorded at fair value at the time of harvest, less costs to sell, which are transferred to inventory and the transfer becomes the deemed cost on a go-forward basis. When the product is sold, the fair value is relieved from inventory and the transfer is booked to cost of sales. In addition, the cost of sales also includes products and costs related to other products acquired from other producers and sold by the Company. Biological asset transformation totaled a net gain of $45,930,381 for the six months ended June 30, 2021, an increase of $16,184,106 or 54% from the prior the six months ended June 30, 2020. The increase was primarily driven by the Business Combination in February 2021, and continued expansion at existing cultivation facilities.

Gross Profit

Gross profit before biological asset adjustments for the six months ended June 30, 2021, was $174,755,755, representing a gross margin on the sale of cannabis, cannabis extractions and edibles and from related accessories of 55%. This is compared to gross profit before biological asset adjustments for the six months ended June 30, 2020, of $58,168,638, which represented a 65% gross margin.

Gross profit after net gains on biological asset transformation for the six months ended June 30, 2021, was $220,686,136, representing a gross margin of 69%, compared with gross profit after net gains on biological asset transformation of $87,914,913, or 98%, gross margin for the six months ended June 30, 2020, which includes sales from both wholesale and retail. The increase in gross profit is primarily due to top-line growth catalyzed by strong market growth in Illinois and Florida and entrances into four new markets. The 28% decrease in the gross profit margin is primarily due to the inventory step-ups related to the 2021 acquisitions that were expensed through the cost of sales and the net impact of biologicals, which was 14% and 33% as percentage of net revenues for the periods ended June 30, 2021, and 2020, respectively.

Total Expenses

Total expenses for the six months ended June 30, 2021, were $86,655,590, an increase of $67,730,007 or 358%, compared to total expenses of $18,925,584 for the six months ended June 30, 2020. Total expenses as a percentage of revenue, net of discounts, was 27% and 21% for the six months ended June 30, 2021, and 2020, respectively. The increase was primarily due to a $40,133,033 or 500% increase in general and administrative costs, in addition to a $22,648,336 or 401% increase in salaries in benefits, which was driven by an increase in earnout-related expenses, acquisition expenses and other one-time transaction expenses, start-up costs in new markets, and expanded headcount in the Company’s primary operating markets. The Company expects to continue to invest organically and in new markets to support expansion plans and adapt to the increasing complexity of the cannabis business. Furthermore, the Company expects to incur acquisition and transaction costs related to expansion.

Total Other Income (Expense)

Total other expense for the year six months June 30, 2021, was $8,709,431, an increase of $735,208 or 9% compared to $7,974,223 for the six months ended June 30, 2020. The increase was primarily due to increased interest expense related to the $130 million credit facility.

Provision for Income Taxes

Income tax expense is recognized based on the expected tax payable on the taxable income for the year, using tax rates enacted or substantively enacted at year-end. For the six months ended June 30, 2021, provision for income taxes totaled $50,414,686, an increase of $21,410,950 or 74% compared to $29,003,736 for the prior the six months ended June 30, 2020. The increase in income tax expense was driven by a $64,630,782 increase in taxable income.

Verano LLC - Year Ended December 31, 2020 Compared to Year Ended December 31, 2019

Revenue

Cost of Goods Sold and Biological Assets

Cost of goods sold includes the costs directly attributable to cultivating and processing cannabis and for retail purchases of finished goods, such as flower, edibles, and concentrates. Cost of goods sold, excluding any adjustments to the fair value of biological assets, for the year ended December 31, 2020 was $94,386,849, an increase of $55,917,524, or 145.4%, from the year ended December 31, 2019. This increase is primarily due to production costs of cannabis in the Illinois cultivation facility, along with start-up costs in New Jersey and Ohio. On the retail side, this increase is due to expansion of sales and continued store openings.

Inventory of plants under production is considered a biological asset. Under IFRS, biological assets are to be recorded at fair value at the time of harvest, less costs to sell, which are transferred to inventory and the transfer becomes the deemed cost on a go-forward basis. When the product is sold, the fair value is relieved from inventory and the transfer is booked to cost of sales. In addition, the cost of sales also includes products and costs related to other products acquired from other producers and sold by Verano LLC. Biological asset transformation totaled a net gain of $121,600,978, for fiscal year ended December 31, 2020, up 734.9% or $107,037,075 from prior fiscal year ended December 31, 2019.

Gross Profit

Gross profit before biological asset adjustments for the fiscal year ended December 31, 2020 was $134,143,234, representing a gross margin on the sale of cannabis, cannabis extractions and edibles and from related accessories of 58.7%. This is compared to gross profit before biological asset adjustments for the fiscal year ended December 31, 2019 of $27,498,967, which represented a 41.7% gross margin.

Gross profit after net gains on biological asset transformation for fiscal year ended December 31, 2020 was $255,744,212, representing a gross margin of 111.9%, compared with gross profit after net gains on biological asset transformation of $42,062,870, or 63.8% gross margin, for the fiscal year ended December 31, 2019, which includes sales from both the wholesale and retail segments combined. The increase in gross profit margin was primarily due to top-line growth in the Illinois market as well as the opening of 15 dispensaries.

Total Expenses

Total expenses for fiscal year ended December 31, 2020 were $45,861,967, an increase of $8,051,408 or 21.3%, compared to total expenses of $37,810,559 for fiscal year ended December 31, 2019. Total expenses as a percentage of revenue, net of discounts, was 20.1% and 57.3% for the years ended December 31, 2020 and 2019, respectively. The increase was primarily due to a $9,996,801 or 160.4% increase in salaries and benefits, which was driven by an increase in headcount from Verano LLC’s primary operating markets, start-up costs in new markets, and transaction costs relating to the RTO (as defined in the ‘Proposed Transactions’ section below) of $2,763,526.

Total Other Income (Expense)

Total other expense for the year ended December 31, 2020 was $9,101,841, an increase of $2,314,347 or 34.1% as compared to the year ended December 31, 2019. The increase is due to amortization of debt issuance costs for warrants and convertible debt.

Provision for Income Taxes

Income tax expense is recognized based on the expected tax payable on the taxable income for the year, using tax rates enacted or substantively enacted at year-end. For fiscal year ended December 31, 2020, provision for income taxes totaled $76,831,828, compared to $15,203,221 for the prior fiscal year ended December 31, 2019. The increased income tax expense was primarily driven by greater taxable income in 2020.

Net Income (Loss)

Net income attributable to Verano LLC for fiscal year ended December 31, 2020 was $124,106,963, an increase of $142,540,983, compared to a net loss of $18,434,020, for fiscal year ended December 31, 2019. The increase in net income was driven by the factors described above.

Plants of Ruskin- Year Ended December 31, 2020 Compared to Year Ended December 31, 2019

Revenue

Revenue for the fiscal year ended December 31, 2020, was $105.7 million, representing an increase of $66.3 million, or 168%, compared to revenue of $39.4 million for the fiscal year ended December 31, 2019. The increase in revenue was driven by a full fiscal year of revenue from the 11 retail locations opened in prior years plus the addition of 18 locations.

Cost of Goods Sold and Biological Assets

Cost of goods sold are derived from costs related to the internal cultivation. Cost of goods sold, excluding any adjustments to the fair value of biological assets, for the fiscal year ended December 31, 2020 was $26.4 million, representing an increase of $13.3 million or 102% compared to cost of goods sold, excluding any adjustments to the fair value of biological assets, of $13.0 million for the fiscal year ended December 31, 2019. The increase was primarily driven by the increased revenue due to expansion. Inventory of plants under production is considered a biological asset. Under IFRS, biological assets are to be recorded at fair value at the time of harvest, less costs to sell, which are transferred to inventory and the transfer becomes the deemed cost on a go-forward basis. When the product is sold, the fair value is relieved from inventory and the transfer is booked to cost of sales. In addition, the cost of sales also includes products and costs related to other products acquired from other producers and sold by Plants of Ruskin. Biological asset transformation totaled a net gain of $63.0 million and $12.1 million, for fiscal years ended December 31, 2020, and 2019, respectively, due to flower sales not approved for sale in Florida until 2019. In calculating the value of biological assets, a higher value is placed on oil infused products versus flower products.

Gross Profit

Gross profit before biological asset adjustments for the fiscal years ended December 31, 2020, and 2019, was $79.3 million and $26.3 million respectively, representing a gross margin on the sale of cannabis, cannabis extractions, and from related accessories of 75% and 67%, for the years ended December 31, 2020, and 2019, respectively. The increase in gross profit margin is mainly due to the expansion of the cultivation site. Gross profit after net gains on biological asset transformation for fiscal years ended December 31, 2020, and 2019, was $142.3 million and $38.4 million respectively, representing a gross margin of 135% and 98% for fiscal years ended December 31, 2020, and 2019, respectively.

Operating Expenses

Operating expenses for the fiscal year ended December 31, 2020, was $24.7 million, representing an increase of $16.1 million or 186% compared to operating expenses of $8.6 million for the fiscal year ended December 31, 2019, which represents 23% of revenue for the fiscal year ended December 31, 2020, compared to 22% of revenue for the prior year. The increase in operating expenses was attributable to the continued expansion in Florida.

Additionally, Plants of Ruskin had marketing and advertising expense of $1.0 million in 2020 which represented an increase from 2019 marketing and advertising expense of $0.6 million. This increase is primarily due to Plants of Ruskin’s operations in Florida of 29 retail dispensaries as of December 31, 2020, as compared to 11 retail dispensaries as of December 31, 2019. In addition, each retail location incurred a large amount of marketing expenses, particularly around the opening, ongoing online presence, and search engine optimization strategies for each location. Plants of Ruskin continues to implement certain key advertising and marketing strategies to raise awareness in the market of the brand and additional retail locations. Depreciation and amortization expense was $5.8 million for the fiscal year ended December 31, 2020, representing a $3.7 million increase from $2.1 million for the fiscal year ended December 31, 2019. The increase was due to the expansion of the cultivation site and continued expansion of retail dispensary locations.

Income from Operations

Income from operations for the fiscal year ended December 31, 2020, was $117.6 million, an increase of $87.8 million, or 294%, compared to income from operations of $29.8 million for the fiscal year ended December 31, 2019. The increase was driven by a full fiscal year of revenue from the 11 retail locations opened in prior years plus the addition of 18 retails locations (29 operating retail locations by year-end 2020).

Other Income (Expenses)

Other Income

Other income was $109,000 for the fiscal year ended December 31, 2020, compared to $36,000 for the fiscal year ended December 31, 2019. The increase was due to the increase in ATM commissions from the additional retail dispensary locations.

Other Expenses

Other expenses were $1.4 million for the fiscal year ended December 31, 2020, compared to $345,000 for the fiscal year ended December 31, 2019. The increase was primarily due to increased leased dispensary locations and implementing IFRS 16 – Lease Accounting (“IFRS 16”).

Total Assets

Total assets increased by $109.7 million to $186.9 million for the fiscal year ended December 31, 2020, from $77.2 million for the fiscal year ended December 31, 2019. The increase was due to the continued expansion of retail

AME Group - Year Ended December 31, 2020 Compared to Year Ended December 31, 2019

Revenue

Operating Revenue for fiscal year ended December 31, 2020 and 2019 was $20.6 million and $14.5 million respectively, an increase of $6.1 million year over year. Operating revenue consists of sales out of the Müv dispensary, wholesale sales consisting of product sold to other dispensaries within the state of Arizona, MüvHealth CBD products, and other revenue. Most sales come from dispensary sales and wholesale sales.

Wholesale Revenue increased $1.5 million year over year. The increase is due to two main drivers. The first is the increase in gummy sales. During 2020, the AME Group produced Wana gummy products increased in sales by $2.1 million. This is due in large part to the popularity of the product and the introduction of a 300 mg product. The second driver for the increase in sales relates to bulk flower. In the fourth quarter of 2019 the bulk price per pound of Müv flower was increased. As demand increased in 2020, the AME Group continued to increase the price. The average wholesale price for a pound of flower increased on average $635/lb. from 2019. While the total pounds sold through wholesale decreased year over year, total revenue related to bulk flower sales remained unchanged. The flower that would have been sold wholesale was routed to the dispensary where flower sales averaged $360/lb. more than if sold wholesale.

During 2020, the cultivation site reached capacity and some product categories were no longer sold through the wholesale channel. Concentrates (shatter, crumble, etc.) and Vape Cartridges were sold through the dispensary but not wholesale. With the limitations in production capacity biomass resources were allocated to the production of gummies, flower, and enough of the other product categories to sell through the dispensary.

In 2020 total pounds sold of flower were 2,548 lbs., an increase of 448 lbs. (21%) from 2019. While this allowed for record sales in 2020, it was determined early in 2020 that the AME Group needed to expand production capacity. An additional 2,000+ square foot flower room was placed in service in Q4 of 2020. The first harvest date was in the fourth quarter of 2020, with the biomass beginning to be sold in 2021. In addition, the AME Group entered a contract to build a semi-enclosed greenhouse on the property it purchased in 2020. Phase One of the Greenhouse (55,000 square feet) is set to be completed in Q3 of 2021. Phase one is anticipated to produce over 8,000 lbs. of flower per year, and a similar volume of trim will be available for extraction.

Cost of Revenues and Biological Assets

Cost of Revenues are derived from cost related to the internal cultivation and production of cannabis and from retail and wholesale purchases made from other licensed producers operating within our state markets. Inventory of plants under production is considered a biological asset. Under IFRS, biological assets are to be recorded at fair value at the time of harvest, less costs to sell, which are transferred to inventory and the transfer becomes the deemed cost on a go-forward basis. When the product is sold, the fair value is relieved from inventory and the transfer is booked to cost of sales. In addition, the cost of sales also includes products and costs related to other products acquired from other producers and sold by the AME Group. In 2020, the AME Group focused on selling their Müv products out of their dispensaries. This resulted in a 254% increase in products sold through the AME Group dispensaries. This in turn reduced the Cost of Revenue for Dispensary sales since the produced product have a lower cost than 3rd party products that would have otherwise been purchased.

General and Administrative Expenses

2020 Selling, General, and Administrative (“SG&A”) expenses are comprised of General and Administrative expenses and the costs associated with operating the dispensary and wholesale sales departments. Year over Year these costs increased by $236,000. The driver of the increase is related to legal expenses accrued at year end to account for fees incurred stemming from the Business Combination. At the beginning of the COVID pandemic the dispensary also extended its hours to try and avoid large crowds. This also factors into the increase for the year. If the accrued legal fees are excluded, then year over year SG&A costs are flat.

Depreciation and Amortization

In 2020 certain assets were written off. This resulted in a loss on the disposal of the assets, but the overall Depreciation expense for the year was also reduced. Amortization expense for the year consists of 3 intangible assets. The Cultivation and Management Fee Agreement between Agronomy Innovations LLC and Fort Consulting, a Right to Use agreement, and a buyout of investor equity dating back to 2015. Both the Right to Use and Buyout intangible assets were written down to zero in 2020. Going forward, the only intangible asset to be amortized is the Cultivation and Management Fee Agreement to the dispensary where flower sales averaged $360/lb. more than if sold wholesale.

Provision for Income Taxes

Fort Consulting, LLC is a non-profit entity for Arizona income tax purposes and elected to be taxed as a C-corporation for U.S. Federal tax purposes. Therefore, income taxes are provided for the tax effects of transactions in the financial statements and consist of taxes currently due, plus deferred taxes related primarily to differences between the basis of certain assets and liabilities for financial and tax reporting.

Deferred taxes are provided on the asset and liability method whereby deferred tax assets are recognized for deductible temporary differences and operating loss and tax credit carryforwards and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the reported amounts of assets and labilities and their tax basis. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in the tax laws and rates on the date of enactment. AME LLC accounts for uncertain tax positions in accordance with the provisions of IFRS 12, Income Taxes (“IFRS 12”). IFRS 12 provides a comprehensive model for the recognition, measurement, and disclosure in the financial statements of uncertain tax positions that AME LLC has taken or expects to take on a tax return. Under this standard, AME LLC can recognize the benefit of an income tax position only if it is more likely than not (greater than 50%) that the tax position will be sustained upon tax examination, based solely on the technical merits of the tax position. Otherwise, no benefit can be recognized. The tax benefits recognized are measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement.

Verano LLC - Year Ended December 31, 2019 Compared to the Year Ended December 31, 2018

Revenue

Revenue for the year ended December 31, 2019 was $65,968,292 an increase of $34,872,831, or 112%, compared to revenue of $31,095,461 from the year ended December 31, 2018. The increase was primarily due to increased supply capacity and demand in Illinois, along with strong performance in Maryland and Nevada.

Cost of Goods Sold and Biological Assets

Cost of goods sold includes the costs directly attributable to cultivating and processing cannabis and for retail purchases of finished goods, such as flower, edibles and concentrates.

Cost of goods sold, excluding any adjustments to the fair value of biological assets, for the year ended December 31, 2019 was $38,469,325 an increase of $20,088,975, or 109%, from the year ended December 31, 2018. This increase is primarily due to production costs of cannabis in the Illinois cultivation facility, along with Maryland and Nevada. On the retail side, this increase is due to expansion of sales and continued store openings.

Biological asset transformation totaled a net gain of $14,563,903, for fiscal year ended December 31, 2019, up 134% or $6,211,203 from prior fiscal year ended December 31, 2018.

Gross Profit

Gross profit before biological asset adjustments for the fiscal year ended December 31, 2019 was $27,498,967, representing a gross margin on the sale of cannabis, cannabis extractions and edibles and from related accessories of 41.7%. This is compared to gross profit before biological asset adjustments for the fiscal year ended December 31, 2018 of $12,715,111, which represented a 40.9% gross margin.

Gross profit after net gains on biological asset transformation for fiscal year ended December 31, 2019 was $42,062,870, representing a gross margin of 63.8%, compared with gross profit after net gains on biological asset transformation of $18,926,314, or 60.9% gross margin, for the fiscal year ended December 31, 2018.

Total Expenses

Total expenses for fiscal year ended December 31, 2019 were $37,810,559, an increase of $27,180,117 or 209%, compared to total expenses of $10,630,442 for fiscal year ended December 31, 2018, which represents 57.3% of revenue for the fiscal year ended December 31, 2019 compared to 34.2% of revenue for the prior year. Increase in total expenses was attributable to an increase in general and administrative expenses, totaling $28,106,966 for fiscal year ended December 31, 2019, an increase of $21,327,796 or 314.6%, due to an increase in headcount from Verano LLC’s primary operating markets, start-up costs in new markets, and significant transaction expense related to the acquisition by Harvest Health & Recreation.

Total Other Income (Expense)

Total other income for the year ended December 31, 2019 was $6,787,494, an increase of $3,693,870 when compared to the year ended December 31, 2018. The increase is due to a loss on deconsolidation in 2019 related to an Illinois dispensary offset by amortization of debt issuance costs for warrants in 2018.

Provision for Income Taxes

In 2019, Verano LLC elected to be taxed as a C Corporation. For the year December 31, 2018, Verano LLC was treated as a limited liability company and, accordingly, taxable income and losses flowed through to the respective members. Income tax expense is recognized based on the expected tax payable on the taxable income for the year, using tax rates enacted or substantively enacted at year-end. For fiscal year ended December 31, 2019, provision for income taxes totaled $15,203,221 compared to $1,771,912 for the prior fiscal year ended December 31, 2018.

On September 15, 2018, Verano LLC closed on a roll-up transaction of its licenses and operations, which combined all of Verano LLC’s operational and ownership structure. Prior to the roll-up transaction, these businesses were managed by Verano LLC’s senior management.

Net Income (Loss)

Net operating loss for fiscal year ended December 31, 2019 was $18,434,020, an increase of $17,872,037, compared to a net loss of $561,983 for fiscal year ended December 31, 2018. The increase in net operating loss was driven by the factors described above.

B.	Liquidity and Capital Resources

Six Months Ended June 30, 2021

As of June 30, 2021, the Company had total current liabilities of $287,162,802 and cash and cash equivalents of $149,671,398 compared to Verano LLC as of December 31, 2020, which had current liabilities of $122,524,484 and cash and cash equivalents of $16,494,365 to meet its current obligations. As of June 30, 2021, the Company had working capital of $284,867,278 compared to Verano LLC’s working capital of $80,499,032 as of December 31, 2020. The significant increase in working capital is due to the increases in cash, inventory and biological assets driven by market expansion and accretive acquisitions made in Illinois, Arizona, Florida and Pennsylvania, and the Company’s $100 million upsize in its debt facility.

Cash Flows

Cash Flow from Operating Activities

Net cash provided in operating activities was $65,623,790 for the six months ended June 30, 2021, an increase of $22,910,583 or 54%, compared to cash provided of $42,713,207 for the six months ended June 30, 2020. The increase in net cash provided in operating activities was primarily due to an increased operational footprint from the prior year.

Cash Flow from Investing Activities

Net cash used in investing activities was $(39,374,825) for the six months ended June 30, 2021, an increase of $7,017,893 or 22%, compared to $(32,356,931) for the six months ended June 30, 2020. The increase in net cash used in investing activities was primarily due to an increase in investment of property and equipment.

Cash Flow from Financing Activities

Net cash provided by financing activities was $106,928,068 for the six months ended June 30, 2021, an increase of $106,449,340 compared to $478,728 of cash provided for the six months ended June 30, 2020. The increase in net cash provided by financing activities was primarily due to significant increases in proceeds from the reverse take-over financing, cash received in warrant private placement, and $100 million credit upsize that occurred in May 2021.

Contractual Obligations

The Company’s contractual obligations primarily consist of lease liabilities related to real estate as well as promissory and convertible notes to fund business activity such as acquisitions and capital expenditures.

Contractual Obligations	Payments Due by Period
	Total		Less Than 1 Year		1-2 Years		3-4 Years		5 Years and After
Long Term Debt	$	139,450,916	$	1,156,119	$	135,351,818	$	364,486	$	2,578,493
Capital Lease Obligations		Nil		Nil		Nil		Nil		Nil
Operating Leases	$	61,778,620	$	4,345,623	$	16,824,141	$	14,210,045	$	26,398,811
Purchase Obligations (1)		Nil		Nil		Nil		Nil		Nil
Other Long Term Obligations (2)		Nil		Nil		Nil		Nil		Nil
Total Contractual Obligations	$	201,229,536	$	5,501,742	$	152,175,959	$	14,574,531	$	28,977,304

Notes

(1) “Purchase Obligations” means an agreement to purchase goods or services that is enforceable and legally binding on the Company that specifies all significant terms, including: fixed or minimum quantities to be purchased; fixed, minimum or variable price considerations; and the approximate timing of the transaction.

(2) “Other Long-Term Obligations” means other long-term liabilities reflected on the Company’s balance sheet, excluding deferred income taxes.”

The financial performance and its cash flows for the six months ended on June 30, 2021, and 2020 were evaluated in accordance with IFRS. All future financial information and documents will be reported under IFRS.

Off-Balance Sheet Arrangements

As of June 30, 2021, the Company does not have any off-balance-sheet arrangements that have, or are reasonably likely to have, a current or future effect on the results of operations or financial condition of the Company, including, and without limitation, such considerations as liquidity and capital resources.

C.	Research and Development

During the past three years, research and development activities of the Company, Verano LLC and the AME Parties have primarily focused on developing and improving more efficient and sustainable cultivation and manufacturing methodologies and equipment in order to increase yields and maintain the quality of its products. This includes research on lighting methods, air controls, racking and stacking, growing media, nutrient mixtures, pest management techniques, ambient controls, and automation.

The Company also engages in research and development activities focused on creating new extracted or infused products, and breeding new strains and varietals.

The Company estimates that costs associated with ongoing research and development will be approximately $1,000,000 through the end of 2021, including costs associated with obtaining the necessary equipment for production.

D	Trend Information

The Company operates in competitive, highly regulated markets that require expertise in cultivation, manufacturing, retail and logistics. The Company collects and analyzes internal data and market data for predictive analysis to be used in its strategic and tactical business decisions involving marketing, product demand and expansion. Market inputs include product trends and purchasing patterns by area to enable the Company to predict desirable products, product mix and quantities in specified markets. Historical data includes sales transactions which allows the Company to assess sales trends, quantities dispensed and category of products sold by location and time period. The data is used for regression and predictive analysis to enable the Company to meet market trends and evolving demand through cultivation and production planning, expansion and marketing.

E.	Critical Accounting Estimates

Not applicable.

ITEM 6: DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES

A.	Directors and Senior Management

The below table and biographies provide information regarding the Company’s directors (the “Directors”) and executive officers as of September 20, 2021. The business address for each director and executive officer is 415 North Dearborn Street, 4th Floor, Chicago, Illinois, 60654.

Name, Age and Residence	Positions	Previous Occupation	Officer/Director Since
George Archos⁽¹⁾ Age: 42 Illinois, USA	Chairman, Chief Executive Officer and Director	Chairman and Chief Executive Officer of Verano Holdings, LLC	February 11, 2021

John Tipton Age: 60 Florida, USA	President	Chief Executive Officer of Plants of Ruskin GPS, LLC and RVC 360, LLC	February 11, 2021

Brian Ward Age: 34 Illinois, USA	Chief Financial Officer	Chief Financial Officer of Verano Holdings, LLC	February 11, 2021

Darren Weiss Age: 37 Maryland, USA	General Counsel and Chief Legal Officer	General Counsel of Verano Holdings, LLC	February 11, 2021

Aaron Miles Age: 43 Illinois, USA	Chief Investment Officer	Head of Capital Markets of Verano Holdings, LLC; Head of Capital Markets of Cresco Labs, Inc.	June 1, 2021

R. Michael Smullen Age: 66 Florida, USA	Director and Corporate Secretary	Co-Founder, Chairman & Chief Executive Officer of Alternative Medical Enterprises, LLC	February 11, 2021

Edward Brown^{(1), (2)} Age: 58 Florida, USA	Director	Chairman of Clear Golf; Chairman of Selfless Love Foundation; Chief Executive Officer of The Patron Spirit’s Company AG	February 11, 2021

Cristina Nuñez^{(1), (2)} Age: 36 Florida, USA	Director	Co-Founder & Partner, True Beauty Ventures LP; Founder, Kensington Venture Partners LLC	February 11, 2021

Notes:

⁽¹⁾	Member of the audit committee of the Board.
⁽²⁾	Member of the compensation committee of the Board.

George Archos, Chairman and Chief Executive Officer

Mr. Archos has served as Chairman and Chief Executive Officer of the Company since February 2021. Mr. Archos co-founded Verano LLC in September 2017, and served as Verano LLC’s Chairman and Chief Executive Officer until February 2021 when Verano LLC became a subsidiary of the Company. Mr. Archos has significant executive-level experience in the logistics, delivery and operations business verticals. Mr. Archos entered the cannabis industry in 2014 when he founded Ataraxia Grow and Labs, an Illinois based medical cannabis growth and cultivation company (“Ataraxia”), where he led Ataraxia’s successful effort to obtain Illinois’ first issued medical cannabis growth license. Mr. Archos began his career in the hospitality industry in 2001, and is President and Owner of eight restaurants located throughout the state of Illinois. Mr. Archos received his Bachelor’s Degree from Loyola University where he studied communications and philosophy.

John Tipton, President

Mr. Tipton has served as President of the Company since February 2021. Beginning in 1997, Mr. Tipton served as Chief Executive Officer of Artesian Farms, Dickman Investments and Plants of Ruskin, a subsidiary of the Company since February 2021. Mr. Tipton’s acumen in accounting, finance, agriculture, and ‎construction have been directly applied in his role as founder and Chief Executive Officer ‎of Plants of Ruskin. As Chief Executive Officer of Plants of Ruskin, Mr. Tipton successfully spearheaded the acquisition of a highly ‎coveted vertically integrated medical marijuana treatment center license in Florida. From 1989 to 1997, Mr. Tipton acted as Chief Financial Officer of Harloff Farms. Mr. Tipton earned a degree in ‎accounting (magna cum laude) from Wheeling College in 1988 and has been a registered CPA since 1993. ‎

Brian Ward, Chief Financial Officer

Mr. Ward has served as Chief Financial Officer of the Company since February 2021. From December 2019 to February 2021, Mr. Ward served as Chief Financial Officer of Verano LLC, a subsidiary of the Company since February 2021. Mr. Ward was employed with Navigant Consulting (“Navigant”), a large publicly-traded consulting firm in various leadership capacities from February 2016 to December 2019. His roles with Navigant spanned from Finance Director & Controller for a successful start-up healthcare joint venture to leading internal audit, corporate governance compliance, and enterprise risk management functions. Mr. Ward began his career working in financial analysis for 3M in 2009 before spending a number of years in consulting. Mr. Ward led large global teams with Baker Tilly in 2010 and 2011, and KPMG International Limited, one of the “big four” accounting firms (“KPMG”), from 2011 to 2015. During his time with KPMG and Baker Tilly, Mr. Ward served clients across numerous industries, and advised multiple clients through IPO readiness and successful public offerings. Mr. Ward received his Bachelor’s Degree in 2009 from the University of Wisconsin, La Crosse.

Darren Weiss, General Counsel and Chief Legal Officer

Mr. Weiss has served as General Counsel and Chief Legal Officer of the Company since February 2021. Mr. Weiss joined Verano LLC in September 2017, and served as Verano LLC’s General Counsel and Chief Legal Officer until February 2021 when Verano LLC became a subsidiary of the Company. From March 2015 to September 2017, Mr. Weiss was a Principal at Offit Kurman, a prominent law firm, where he led the firm’s cannabis practice. Mr. Weiss currently sits on the Executive Committee and Board of the Maryland Wholesale Medical Cannabis Trade Association, was named to the Baltimore Business Journal’s 40 Under 40 List, was awarded the 2016 Innovator of the Year prize, and is identified as a 2017 People to Know in the Law. Mr. Weiss received his Bachelor’s Degree magna cum laude from Washington University in St. Louis in 2005 and his Juris Doctorate cum laude from George Mason University School of Law in 2010. Prior to his legal career, from 2005 through 2007, Mr. Weiss worked as a business consultant with performancesoft, Inc. (later Actuate Corp.), where he provided performance management and business operational consulting services for public and private-sector clients.

Aaron Miles, Chief Investment Officer

Mr. Miles has served as Chief Investment Officer of the Company since June 2021. Mr. Miles joined Verano LLC in September 2020, and served as Head of Investor Relations of Verano LLC and the Company until his promotion in June 2021. Mr. Miles has worked in a finance capacity for more than 19 years with capital markets, investor relations, treasury, mergers and acquisitions and communication responsibilities throughout a career that has spanned organizations including Cresco Labs from September 2018 to May 2019 and December 2019 to September 2020, the New York Stock Exchange from May 2019 to December 2019, Tribune Publishing from June 2017 to August 2019, Navigant Consulting from December 2014 to June 2017, the CME Group from May 2011 to October 2014, and Abbott Labs from June 2008 to May 2011. Mr. Miles graduated from Central Michigan University in 2002 with a Bachelor of Science in Economics, and from Walsh College in 2005 with a Master of Science in Finance.

R. Michael Smullen, Director and Corporate Secretary

Mr. Smullen has served as Corporate Secretary and a Director of the Company since February 2021. Mr. Smullen co-founded AME LLC in October 2014, and served as AME LLC’s Chief Executive Officer and Chairman until February 2021 when the AME Parties were acquired by the Company. Prior to entering the cannabis industry, Mr. Smullen spent 31 years in the pharmaceutical and biotech industries, where he built and led commercial operations for several companies. From May 1994 to July 2007, Mr. Smullen held various executive-level positions with MedImmune, LLC, a pharmaceutical company based in Maryland (“MedImmune”), which successfully launched the first monoclonal antibody approved in the U.S. for an infectious disease. In 2007, Mr. Smullen was part of the executive team that secured MedImmune’s $15.8 billion acquisition by AstraZeneca plc. Mr. Smullen graduated from Norwich University in 1976 and holds degrees in History and Criminal Justice.

Cristina Nuñez, Director

Ms. Nuñez has served as a Director of the Company since February 2021. Ms. Nuñez is a Partner with True Beauty Ventures, which she co-founded in April 2021. True Beauty Ventures is an emerging growth venture capital fund focused on identifying, partnering with, and scaling beauty, wellness and personal care companies. Prior to launching True Beauty Ventures in 2020, Ms. Nuñez spent half of her career as an operator in beauty and wellness. From May 2017 through April 2019, she was the General Manager and Chief Operating Officer of Clark’s Botanicals, a clean, botanical skincare brand with international ecommerce and prestige wholesale distribution. From October 2014 to May 2017, Ms. Nuñez held various executive leadership and operating roles at Laura Geller Beauty, a global, prestige makeup brand. Ms. Nuñez spent seven years with various prominent private equity firms and investment banks, including Tengram Capital Partners, L Catterton and UBS. Ms. Nuñez graduated magna cum laude from Duke University in May 2007 and holds a Bachelor of Arts with Highest Distinction in Public Policy Studies and Political Science.

Edward Brown, Director

Mr. Brown has served as a Director of the Company since February 2021. Since January 2020, Mr. Brown has served as Chairman and Chief Executive Officer of Clear Sports, an innovative sports equipment company. From June 2000 through December 2019, Mr. Brown served as Chief Executive of The Patron Spirit’s Company AG (“Patron”), where he led the growth of the Patron brand as one of the largest ultra-premium tequilas in the world. In 2018, Mr. Brown completed the sale of the Patron brand to Bacardi Limited for $5.1 billion, the single largest reported brand sale at such time. Prior to joining Patron, Mr. Brown spent ten years with Seagram Company Ltd., then one of the largest liquor companies in the world, where he held many executive positions between 1990 and 2000. Mr. Brown graduated from the University of Texas in 1985 and holds a Bachelor of Business Administration in Marketing.

B.	Compensation

The following table sets forth all compensation paid, payable, awarded, given or otherwise provided, directly or indirectly, by the Company or any subsidiary of the Company, to our Directors, and named executive officers (as determined in accordance with Canadian securities laws applicable to the Company) (“Named Executive Officers”), that served in such capacities for the year ended December 31, 2020, for whom disclosure is required pursuant to the securities laws of Canada applicable to the Company.

The Company’s non-employee Directors, Mr. Brown and Ms. Nuñez, joined the Board upon the consummation of the RTO, and as such did not receive any compensation from the Company or any of its subsidiaries during the year ended December 31, 2020.

Name and Position	Year	Salary, Consulting Fee, Retainer or Commission		Bonus		Committee or Meeting Fees	Value of All Other Compensation	Total Compensation
George Archos, Chairman, Chief Executive Officer and Director(1)	2020	$	475,000	$	81,250	Nil	Nil	$	556,250
John Tipton, President(2)	2020	$	340,000	$	250,000	Nil	Nil	$	590,000
Brian Ward, Chief Financial Officer(1)	2020	$	166,346	$	82,500	Nil	Nil	$	248,846
R. Michael Smullen, Director and Corporate Secretary(2)	2020	$	225,000		Nil	Nil	Nil	$	225,000
Cristina Nuñez, Director(3)	2020		Nil		Nil	Nil	Nil		Nil
Edward Brown, Director(3)	2020		Nil		Nil	Nil	Nil		Nil

Notes:

(1)

Reflects compensation paid to Messrs. Archos and Ward from Verano LLC during the year ended December 31, 2020.

(2)

Reflects compensation paid to Messrs. Tipton and Smullen from Plants of Ruskin and AME LLC, respectively, during the year ended December 31, 2020.

(3)

Ms. Nuñez and Mr. Brown joined the Board in February 2021, and received no compensation during the year ended December 31, 2020.

Stock Options and Other Compensation Securities

No compensation securities were granted or issued to members of our management team and directors during the year ended December 31, 2020.

Exercise of Compensation Securities by Directors and Named Executive Officers

There were no compensation securities exercised by the Company’s Named Executive Officers and directors during the year ended December 31, 2020.

Employment, Consulting and Management Agreements

During the year ended December 31, 2020, the Company did not have any employment agreements with any of its employees and did not have any termination or change of control obligations.

Since the completion of the RTO, the Company has entered into employment agreements with its officers. The following are merely summaries of the relevant agreements the Company has with the Named Executive Officers (as determined in accordance with Canadian securities laws applicable to the Company) and are qualified in their entirety by reference to the full text of the agreements with Messrs. Archos, Tipton, Ward and Smullen which are filed as Exhibits 4.9, 4.10, 4.11 and 4.12 hereto.

George Archos, Chief Executive Officer and Chairman

On February 18, 2021, the Company entered into an employment agreement (the “Archos Employment Agreement”) with George Archos in his capacity as Chief Executive Officer of the Company, for a period of three years. The Archos Employment Agreement automatically renews following the initial three-year term for successive one-year terms unless either party gives the other party at least 30 days’ notice of its election not to renew.

Mr. Archos is entitled to a base annual salary of no less than $375,000 and a cash bonus at the end of each calendar year in a targeted amount of $200,000 that is based upon the Company’s and the executive’s performance. Mr. Archos is also eligible to receive awards of equity incentives granted pursuant to the Company’s 2021 Equity Incentive Plan.

The Archos Employment Agreement terminates upon Mr. Archos’ death or permanent disability or incapacity or may be terminated by the Company at any time with or without Cause (as defined in the Archos Employment Agreement). If the Archos Employment Agreement is terminated either by the Company for Cause or by Mr. Archos during the employment period, Mr. Archos will be entitled to receive his accrued obligations up to the termination date and will not be entitled to any other compensation. If the Archos Employment Agreement is terminated without Cause by the Company, then Mr. Archos will receive, for a period of ten consecutive months, (i) his base salary (prorated monthly), and (ii) an amount equal to the monthly premiums or cost of coverage under COBRA for Mr. Archos applicable to the Company’s group health plans. If the Archos Employment Agreement is terminated as a result of Mr. Archos’ death, permanent disability or incapacity during the employment period, Mr. Archos’ representatives or beneficiaries will be entitled to receive the accrued obligations.

The Archos Employment Agreement is subject to restrictive covenants including a non-competition covenant and non-solicitation covenant for a period terminating on the second anniversary of the termination date along with restrictive covenants regarding confidentiality and intellectual property.

John Tipton, President

On March 31, 2021, the Company entered into an employment agreement (the “Tipton Employment Agreement”) with John Tipton in his capacity as President of the Company for a period of two years. The Tipton Employment Agreement renews automatically following the initial two-year term for successive one-year terms unless either party gives the other party at least 30 days’ notice of its election not to renew.

Mr. Tipton is entitled to a base annual salary of no less than $100,000. He is also entitled to four separate performance bonuses, each paid in combination of one-half cash and one-half Proportionate Voting Shares (or Subordinate Voting Shares, at the Company’s discretion) based upon the gross sales for the Company’s Florida and Arizona operations acquired in the Business Combination. Mr. Tipton received the first $1,000,000 bonus in April 2021. Mr. Tipton also received a signing bonus in the amount of $1,000,000.

The Tipton Employment Agreement terminates upon Mr. Tipton’s death or permanent disability or incapacity or may be terminated by the Company at any time with or without Cause (as defined in the Tipton Employment Agreement). If the Tipton Employment Agreement is terminated either by the Company or by Mr. Tipton during the employment period, then Mr. Tipton will be entitled to receive his accrued obligations up to the termination date and unpaid performance bonuses. If the Tipton Employment Agreement is terminated as a result of Mr. Tipton’s death, permanent disability or incapacity during the employment period, Mr. Tipton’s representatives or beneficiaries will be entitled to receive the accrued obligations and any performance bonuses unpaid as of the termination date.

The Tipton Employment Agreement is subject to restrictive covenants including a non-competition covenant and non-solicitation covenant for a period terminating on the third anniversary of the Termination Date along with restrictive covenants regarding confidentiality and intellectual property.

Brian Ward, Chief Financial Officer

On February 18, 2021, the Company entered into an employment agreement (the “Ward Employment Agreement”) with Brian Ward in his capacity as Chief Financial Officer of the Company for a period of three years. The Ward Employment Agreement automatically renews following the initial three-year term for successive one-year terms unless either party gives the other party at least 30 days’ notice of its election not to renew.

Mr. Ward is entitled to a base annual salary of no less than $350,000 and a cash bonus at the end of each calendar year in a targeted amount of $150,000 that is based upon the Company’s and the executive’s performance. Mr. Ward is also eligible to receive certain stock-based awards granted pursuant to the Company’s 2021 Equity Incentive Plan.

The Ward Employment Agreement terminates upon Mr. Ward’s death or permanent disability or incapacity or may be terminated by the Company at any time with or without Cause (as defined in the Ward Employment Agreement). If the Ward Employment Agreement is terminated either by the Company for Cause or by Mr. Ward during the employment period, Mr. Ward will be entitled to receive his accrued obligations up to the termination date and will not be entitled to any other compensation. If the Ward Employment Agreement is terminated without Cause by the Company, then Mr. Ward will receive, for a period of ten consecutive months, (i) his base salary (prorated monthly), and (ii) an amount equal to the monthly premiums or cost of coverage under COBRA for the executive applicable to the Company’s group health plans. If the Ward Employment Agreement is terminated as a result of Mr. Ward’s death, permanent disability or incapacity during the employment period, Mr. Ward’s representatives or beneficiaries will be entitled to receive the accrued obligations.

The Ward Employment Agreement is subject to restrictive covenants including a non-competition covenant and non-solicitation covenant for a period terminating on the second anniversary of the Termination Date along with restrictive covenants regarding confidentiality and intellectual property.

R. Michael Smullen, Corporate Secretary and Director

On March 31, 2021, the Company entered into an employment agreement (the “Smullen Employment Agreement”) with R. Michael Smullen in his capacity as Secretary of the Company for a period of two years. The Smullen Employment Agreement renews automatically following the initial two-year term for successive one-year terms unless either party gives the other party at least 30 days’ notice of its election not to renew.

Mr. Smullen is entitled to a base annual salary of no less than $100,000. He is also entitled to four separate performance bonuses, each paid in combination of one-half cash and one-half Proportionate Voting Shares (or Subordinate Voting Shares, at the Company’s discretion) based upon the gross sales for the Company’s Florida and Arizona operations acquired in the Business Combination. Mr. Smullen received the first $1,000,000 bonus in April 2021. Mr. Smullen also received a signing bonus in the amount of $1,000,000.

The Smullen Employment Agreement terminates upon Mr. Smullen’s death or permanent disability or incapacity or may be terminated by the Company at any time with or without Cause (as defined in the Smullen Employment Agreement). If the Smullen Employment Agreement is terminated either by the Company or by Mr. Smullen during the employment period, then Mr. Smullen will be entitled to receive his accrued obligations up to the termination date and unpaid performance bonuses. If the Smullen Employment Agreement is terminated as a result of Mr. Smullen’s death, permanent disability or incapacity during the employment period, Mr. Smullen’s representatives or beneficiaries will be entitled to receive the accrued obligations and any performance bonuses unpaid as of the termination date.

The Smullen Employment Agreement is subject to restrictive covenants including a non-competition covenant and non-solicitation covenant for a period terminating on the third anniversary of the termination date along with restrictive covenants regarding confidentiality and intellectual property.

Stock Option Plans and Other Incentive Plans

The Company’s 2021 Equity Incentive Plan (the “Equity Incentive Plan”) was adopted by the Company’s shareholders and became effective upon the consummation of the RTO in accordance with the Plan of Arrangement.

Purpose

The purpose of the Equity Incentive Plan is to enable the Company and its affiliated companies to: (i) promote and retain employees, officers, consultants, advisors and directors capable of assuring the future success of the Company; (ii) to offer such persons incentives to put forth maximum efforts; and (iii) to compensate such persons through various stock and cash-based arrangements and provide them with opportunities for stock ownership, thereby aligning the interests of such persons and shareholders.

The Equity Incentive Plan permits the grant of: (i) nonqualified stock options (“Company NQSOs”) and incentive stock options (“Company ISOs”) (collectively, “Company Options”); (ii) restricted stock awards; (iii) restricted stock units (“Company RSUs”); (iv) stock appreciation rights (“Company SARs”); (v) performance compensation awards; and (vi) other stock-based awards, which are referred to herein collectively as “Awards”, as more fully described below.

Eligibility

Any of the Company’s employees, officers, directors, consultants (who are natural persons) (the “Participants”) are eligible to participate in the Equity Incentive Plan if selected by the Compensation Committee. The basis of participation of an individual under the Equity Incentive Plan, and the type and amount of any Award that an individual will be entitled to receive under the Equity Incentive Plan, will be determined by the Compensation Committee taking into account the nature of the services rendered by the respective Participants, their historical contributions to the success of the Company’s predecessor entities or affiliates, present and potential contributions to the success of the Company or such other factors as the Compensation Committee determines, based on its judgment as to the best interests of the Company and its shareholders, and therefore cannot be determined in advance.

The maximum number of Subordinate Voting Shares that may be issued under the Equity Incentive Plan will be determined by the Board from time to time, but in no case will exceed, in the aggregate, 10% of the number of common shares (the “Company Shares”) then outstanding (whereby the Proportionate Voting Shares are calculated on an as-converted to Subordinate Voting Share basis). Any shares subject to an Award under the Equity Incentive Plan that are forfeited, cancelled, expire unexercised, are settled in cash, or are used or withheld to satisfy tax withholding obligations of a Participant will again be available for Awards under the Equity Incentive Plan. Other than an award made pursuant to any election by the director to receive an award in lieu of all or a portion of annual and committee retainers and meeting fees, no non-employee director may be granted any award or Awards denominated in Subordinate Voting Shares that exceed in the aggregate $1,000,000 in any calendar year. If, and so long as, the Company is listed on the CSE, the aggregate number of Company Shares issued or issuable to persons providing investor relations activities (as defined in CSE policies) as compensation within a one-year period, will not exceed 1% of the total number of Subordinate Voting Shares then outstanding. For the purposes of the Equity Incentive Plan, the term outstanding Subordinate Voting Shares includes the number of Subordinate Voting Shares issuable on conversion of the Proportionate Voting Shares.

In the event of: (i) any dividend, recapitalization, forward or reverse stock split, reorganization, merger, amalgamation, consolidation, split-up, split-off, combination, repurchase or exchange of Subordinate Voting Shares or other securities of the Company; (ii) issuance of warrants or other rights to acquire Subordinate Voting Shares or other securities of the Company or other similar corporate transaction or events which affects the Subordinate Voting Shares; (iii) unusual or nonrecurring events affecting the Company, the financial statements of the Company; or (iv) changes in applicable rules, rulings, regulations or other requirements of any governmental body or securities exchange or inter-dealer quotation system, accounting principles or law, the Compensation Committee may make such adjustment, which is appropriate in order to prevent dilution or enlargement of the rights of Participants under the Equity Incentive Plan, to (A) the number and kind of shares which may thereafter be issued in connection with Awards, (B) the number and kind of shares issuable in respect of outstanding Awards, (C) the purchase price or exercise price relating to any Award or, if deemed appropriate, provide for a cash payment with respect to any outstanding Award, and (D) any share limit set forth in the Equity Incentive Plan.

Awards

Options

The Compensation Committee is authorized to grant Company Options to purchase Subordinate Voting Shares that are either Company ISOs, meaning they are intended to satisfy the requirements of Section 422 of the Code, or Company NQSOs, meaning they are not intended to satisfy the requirements of Section 422 of the Code. Company Options granted under the Equity Incentive Plan will be subject to the terms and conditions established by the Compensation Committee. Under the terms of the Equity Incentive Plan, unless the Compensation Committee determines otherwise, in the event that a Company Option is substituted for another Company Option in connection with a corporate transaction, the exercise price of the Company Option will not be less than the fair market value (as determined under the Equity Incentive Plan) of the shares at the time of grant. Company Options granted under the Equity Incentive Plan will be subject to such terms, including the exercise price and the conditions and timing of exercise, as may be determined by the Compensation Committee and specified in the applicable award agreement. The maximum term of a Company Option granted under the Equity Incentive Plan will be ten years from the date of grant (or five years in the case of a Company ISO granted to a shareholder of the Company who holds more than 10% of Company Shares). Payment in respect of the exercise of a Company Option may be made in cash or by check, by surrender of unrestricted shares (at their fair market value on the date of exercise) or by such other method as the Compensation Committee may determine to be appropriate. Additional minimum provisions set forth in the Equity Incentive Plan will apply to awards granted to California participants if such award is granted in reliance on Section 25102(o) of the California Corporations Code.

Restricted Stock

A restricted stock award is a grant of Subordinate Voting Shares, which are subject to forfeiture restrictions during a restriction period. The Compensation Committee will determine the price, if any, to be paid by the Participant for each Subordinate Voting Shares subject to a restricted stock award. The Compensation Committee may condition the expiration of the restriction period, if any, upon: (i) the Participant’s continued service over a period of time with the Company or its affiliates; (ii) the achievement by the Participant, the Company or its affiliates of any other performance goals set by the Compensation Committee; or (iii) any combination of the above conditions as specified in the applicable award agreement. If the specified conditions are not attained, the Participant will forfeit the portion of the restricted stock award with respect to those conditions which are not attained, and the underlying Subordinate Voting Shares will be forfeited. At the end of the restriction period, if the conditions, if any, have been satisfied, the restrictions imposed will lapse with respect to the applicable number of Subordinate Voting Shares. During the restriction period, unless otherwise provided in the applicable award agreement, a Participant will have the right to vote the shares underlying the restricted stock; however, all dividends will remain subject to restriction until the stock with respect to which the dividend was issued lapses. The Compensation Committee may, in its discretion, accelerate the vesting and delivery of shares of restricted stock. Unless otherwise provided in the applicable award agreement or as may be determined by the Compensation Committee, upon a Participant’s termination of service with the Company, the unvested portion of a restricted stock award will be forfeited.

RSUs

Company RSUs are granted in reference to a specified number of Subordinate Voting Shares and entitle the holder to receive, on achievement of specific performance goals established by the Compensation Committee, after a period of continued service with the Company or its affiliates or any combination of the above as set forth in the applicable award agreement, one Subordinate Voting Share for each such Subordinate Voting Share covered by the Company RSU; provided, that the Compensation Committee may elect to pay cash, or part cash and part Subordinate Voting Shares in lieu of delivering only Subordinate Voting Shares. The Compensation Committee may, in its discretion, accelerate the vesting of Company RSUs. Unless otherwise provided in the applicable award agreement or as may be determined by the Compensation Committee, upon a Participant’s termination of service with the Company, the unvested portion of the Company RSUs will be forfeited.

Stock Appreciation Rights

A Company SAR entitles the recipient to receive, upon exercise of the Company SAR, the increase in the fair market value of a specified number of Subordinate Voting Shares from the date of the grant of the Company SAR and the date of exercise payable in Subordinate Voting Shares. Any grant may specify a vesting period or periods before the Company SAR may become exercisable and permissible dates or periods on or during which the Company SAR will be exercisable. No Company SAR may be exercised more than ten years from the grant date. Upon a Participant’s termination of service, the same general conditions applicable to Company Options as described above would be applicable to the Company SAR.

Other Stock-Based Awards

The Compensation Committee may grant other awards that are denominated or valued in whole or in part by reference to Subordinate Voting Shares. The Compensation Committee will determine the terms and condition of such awards. No Other Stock-Based Award will contain a purchase right or option-like exercise feature.

Administration of the Equity Incentive Plan

The Compensation Committee may impose restrictions on the grant, exercise or payment of an Award as it determines appropriate. Generally, Awards granted under the Equity Incentive Plan will be nontransferable except by will or by the laws of descent and distribution. No Participant will have any rights as a shareholder with respect to Subordinate Voting Shares covered by Company Options, Company SARs, restricted stock awards, Company RSUs or other stock-based awards, unless and until such Awards are settled in Subordinate Voting Shares.

No Company Option (or, if applicable, Company SARs) will be exercisable, no Subordinate Voting Shares will be issued, no certificates for Subordinate Voting Shares will be delivered and no payment will be made under the Equity Incentive Plan except in compliance with all applicable laws.

The Board may amend, alter, suspend, discontinue or terminate the Equity Incentive Plan and the Compensation Committee may amend any outstanding Award at any time; provided that (i) such amendment, alteration, suspension, discontinuation, or termination will be subject to the approval of the Company’s shareholders if such approval is necessary to comply with any tax or regulatory requirement applicable to the Equity Incentive Plan (including, without limitation, as necessary to comply with any rules or requirements of any applicable securities exchange), and (ii) no such amendment or termination may adversely affect Awards then outstanding without the Award holder’s permission.

In the event of any reorganization, merger, consolidation, split-up, spin-off, combination, plan of arrangement, takeover bid or tender offer, repurchase or exchange of Subordinate Voting Shares or other securities of the Company or any other similar corporate transaction or event involving the Company (or the Company will enter into a written agreement to undergo such a transaction or event), the Compensation Committee or the Board may, in its sole discretion, provide for any (or a combination) of the following to be effective upon the consummation of the event (or effective immediately prior to the consummation of the event, provided, however that the consummation of the event subsequently occurs):

	●	termination of the Award, whether or not vested, in exchange for cash or other property, if any, equal to the amount that would have been attained upon the exercise of the vested portion of the Award or realization of the Participant’s vested rights,

	●	the replacement of the Award with other rights or property selected by the Compensation Committee or the Board, in its sole discretion,

	●	assumption of the Award by the successor or survivor corporation, or a parent or subsidiary thereof, or will be substituted for by similar options, rights or awards covering the stock of the successor or survivor corporation, or a parent or subsidiary thereof, with appropriate adjustments as to the number and kind of shares and prices,

	●	that the Award will be exercisable or payable or fully vested with respect to all Subordinate Voting Shares covered thereby, notwithstanding anything to the contrary in the applicable award agreement, or

	●	that the Award cannot vest, be exercised or become payable after a date certain in the future, which may be the effective date of the event.

Tax Withholding

The Company may take such action as it deems appropriate to ensure that all applicable federal, state, local or foreign payroll, withholding, income or other taxes, which are the sole and absolute responsibility of a Participant, are withheld or collected from such Participant.

The above is a summary description of the material terms of the Equity Incentive Plan, with such description being qualified in its entirety by reference to the full text of the Equity Incentive Plan which is attached hereto as Exhibit 4.13.

Oversight and Description of Director and Executive Officer Compensation

The Company’s compensation practices are designed to retain, motivate and reward its executive officers for their performance and contribution to the Company’s long-term success. The Board seeks to compensate the Company’s executive officers by combining short and long-term cash and equity incentives. These practices are intended to reward the achievement of corporate and individual performance objectives, and to align executive officer incentives with shareholder value creation. The Board seeks to tie individual goals to the area of each executive officer’s primary responsibility. These goals may include the achievement of specific financial or business development goals. The Board also intends to set Company performance goals that reach across all business areas and include achievements in finance, business development and corporate development.

The Compensation Committee reviews the executive compensation arrangements for the Chief Executive Officer, President, Chief Legal Officer, Chief Financial Officer and other senior officers of the Company and makes recommendations regarding such executive compensation arrangements to the Board.

Benchmarking

The executive team is expected to establish an appropriate comparator group for purposes of setting the future compensation of executive officers.

Elements of Compensation

The compensation of executive officers is comprised of the following major elements: (i) base salary; (ii) an annual, discretionary cash bonus; and (iii) Awards granted under the Equity Incentive Plan and any other equity plan that may be approved by the Board from time to time. These principal elements of compensation are described below.

Base Salary

Base salaries are intended to provide an appropriate level of fixed compensation that will assist in employee retention and recruitment. Base salaries will be determined on an individual basis, taking into consideration the past, current and potential contribution to the Company’s success, each executive officer’s experience and expertise, the position and responsibilities of such executive officer, and competitive industry pay practices for other high growth, premium brand companies of similar size and revenue growth potential.

Annual Cash Bonus

Annual bonuses may be awarded based on qualitative and quantitative performance standards, and will reward performance of executive officers individually. The determination of an executive officer’s performance may vary from year to year depending on economic conditions and conditions in the cannabis industry, and may be based on measures such as stock price performance, the meeting of financial targets against budget (such as adjusted funds from operations), the meeting of acquisition objectives and balance sheet performance.

Equity-Based Compensation

The Board may also decide to grant Awards pursuant to the Equity Incentive Plan in the future. For further details in respect of the Equity Incentive Plan, see “Item 6.B - Compensation”.

Compensation of Directors

The Company does not pay compensation to any of its employee Directors and only pays compensation to its non-employee Directors. Director compensation is comprised of cash (including annual fees for attending meetings of the Board and additional compensation for acting as chairs of committees of the Board) or Awards granted in accordance with the terms of the Equity Incentive Plan and the CSE policies, or a combination of both. All Directors are reimbursed for any out-of-pocket travel expenses incurred in order to attend meetings of the Board, committees of the Board or meetings of the shareholders of the Company. In addition, the Company maintains directors and officers insurance for the benefit of all of its Directors.

Cristina Nuñez and Edward Brown are currently the independent Directors of the Company, and they are each entitled to an annual fee of $45,000, paid in equal installments quarterly, and were each granted 500 Company RSUs on February 18, 2021, entitling the holder to one Proportionate Voting Share for each Company RSU. The Company RSUs vest equally over an 18 month period such that 1/3 of the Company RSUs vested six months following the date of grant, 1/3 of the Company RSUs will vest 12 months following the date of grant and 1/3 of the Company RSUs will vest 18 months following the date of grant.

C.	Board Practices

Each Director’s term of office will expire at the next annual meeting of shareholders of the Company to be held in 2022 or when his or her successor is duly elected or appointed, unless his or her office is vacated earlier in accordance with the articles of the Company or he or she becomes disqualified to act as a director of the Company.

Each non-independent Director works full time for the Company. The independent Directors have no other role with the Company other than sitting on the Board and acting as committee members. The independent Directors are expected to devote sufficient time to the Company’s business in order to carry out their duties as directors of the Company; however, being a director of the Company is not the primary occupation of either of the independent directors. See “Item 6.A - Directors and Senior Management”.

Audit Committee

The Audit Committee of the Board (the “Audit Committee”) was put in place at the time of the RTO in February 2021. The role of the Audit Committee is to act in an objective, independent capacity as a liaison between the auditors, management and the Board and to ensure the auditors have a facility to consider and discuss governance and audit issues with parties not directly responsible for operations.

Composition of the Audit Committee

The Audit Committee is currently composed of three Directors, Cristina Nuñez, George Archos and Edward Brown. Ms. Nuñez and Mr. Brown are independent within the meaning of that term as defined in sections 1.4 and 1.5 of National Instrument 52-110 - Audit Committees (“NI 52-110”). All members of the Audit Committee are financially literate as required by Section 3.1(4) of NI 52-110.

Relevant Education and Experience

Each Audit Committee member possesses education and experience which is relevant to the performance of his or her responsibilities as an Audit Committee member and, in particular, education or experience which provides the member with one or more of the following: an understanding of the accounting principles used by the Company to prepare its financial statements; the ability to assess the general application of such accounting principles in connection with the accounting for estimates, accruals and provisions; experience preparing, auditing, analyzing or evaluating financial statements that present a breadth and level of complexity of accounting issues that are generally comparable to the breadth and complexity of issues that can reasonably be expected to be raised by the Company’s financial statements, or experience actively supervising one or more individuals engaged in such activities; and an understanding of internal controls and procedures for financial reporting. See “Item 6.a - Directors and Senior Management”.

Audit Committee Oversight

In 2021, there has not been any recommendation of the Audit Committee to nominate or compensate an external auditor that was not adopted by the Board.

Pre-Approval Policies and Procedures

The Audit Committee’s policies and procedures for the engagement of external auditors for non-audit services requires the pre-approval of the Audit Committee.

Compensation Committee

The Compensation Committee of the Board (the “Compensation Committee”) was put in place at the time of the RTO in February 2021. The role of the Compensation Committee is to assist the Board in fulfilling its responsibilities for compensation philosophy and guidelines, and fixing compensation levels for the Company’s executive officers. In addition, the Compensation Committee is charged with reviewing the Equity Incentive Plan and proposing changes thereto, approving any Awards under the Equity Incentive Plan and recommending any other employee benefit plans, incentive awards and prerequisites with respect to the Company’s executive officers.

Composition of the Compensation Committee

The Compensation Committee is currently composed of the two non-employee Directors, Cristina Nuñez and Edward Brown.

Relevant Education and Experience

Each member of the Compensation Committee has business and other experience which is relevant to his or her position as a member of the Compensation Committee. By virtue of their differing professional backgrounds, business experience, knowledge of the Company’s industry and knowledge of corporate governance practices, the members of the Compensation Committee are able to make decisions on the suitability of the Company’s compensation policies and practices. See “Item 6.A - Directors and Senior Management” for a description of each Compensation Committee member’s experience and education.

Compensation Committee Oversight

See “Item 6.B - Executive Compensation” for a discussion of, among other things, the process by which the Compensation Committee, in collaboration with the Board, determines the compensation of the Company’s directors and officers.

Nomination of Directors and Corporate Governance Oversight

The Board has not established a standing Nominating and Corporate Governance Committee, or similar such standing committee, but may do so in the future. Activities such as the nomination and selection of directors and officers, and the development and implementation of corporate governance guidelines and practices, are carried out by the Board.

D.	Employees

As of September 13, 2021, the Company had 3,481 employees across its operating jurisdictions, primarily employed in the Company’s cultivation, manufacturing, and processing operations and support thereof. Other significant departments include retail and other operations, logistics and supply chain, sales and marketing, legal and compliance, and other administrative and support functions. The Company recruits, hires and promotes individuals that are best qualified for each position, priding itself on using a selection process that recruits people who are trainable, cooperative and share its core values as a company. The Company believe that relations with its employees are good.

E.	Share Ownership

For information regarding the share ownership of the Company’s directors and officers, see “Item 6.B.—Compensation” and “Item 7.A.—Major Shareholders”.

ITEM 7: MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS

A.	Major Shareholders

To the knowledge of the directors and executive officers of the Company, other than George Archos, the Company’s Chairman and Chief Executive Officer, no Person beneficially owns, directly or indirectly, or exercises control or direction over voting securities carrying more than 5% of the voting rights attached to the Subordinate Voting Shares and Proportionate Voting Shares.

Set forth below are the Named Executive Officers and Directors beneficial ownership of Subordinate Voting Shares and Proportionate Voting Shares (collectively, “Company Shares”) as of September 14, 2021.

Name

Number and Percentage of Subordinate Voting Shares Beneficially Owned⁽¹⁾

Number and Percentage of Proportionate Voting Shares Beneficially Owned⁽²⁾

Number and Percentage of Subordinate Shares on an As Converted Basis Beneficially Owned ⁽³⁾

George Archos (4)

14,489,679 / 7.2

431,256 / 37.8

57,615,279 / 18.3

John Tipton

744,176 / *

22,817 / *

3,025,876 / 1.0

Brian Ward

46,331 / *

1,673 (5) / *

213,631 / *

Michael Smullen

544,361 / *

16,604 / *

2,204,761 / *

Edward Brown

11,797 / *

334 (6) / *

45,197 / *

Cristina Nunez

Nil / Nil

500 (7) / *%

50,000 / *

All Directors and Named Executive Officers

15,836,344 / 7.9

473,184 / 41.5

63,154,744 / 20.1

(1)	Based on 200,962,343 Subordinate Voting Shares outstanding as of September 14, 2021.
(2)	Based on 1,140,286.3898 Proportionate Voting Shares outstanding as of September 14, 2021.
(3)	Based on outstanding Company Shares as of September 14, 2021, including the conversion of all issued and outstanding Proportionate Voting Shares into Subordinate Voting Shares on an as-converted basis as set forth in this Registration Statement.

(4)	Includes (i) 263,133 Subordinate Voting Shares, 4,371 Proportionate Voting Share RSUs and Options to purchase up to 88 Proportionate Voting Shares held individually; (ii) 3,801,438 Subordinate Voting Shares and 114,043 Proportionate Voting Shares held by 3PLGK, LLC; (iii) 1,105,198 Subordinate Voting Shares and 33,156 Proportionate Voting Shares held by Archos Capital Group, LLC; (iv) 4,201,930 Subordinate Voting Shares and 180,239 Proportionate Voting Shares held by Copperstone Trust; (v) 2,538,652 Subordinate Voting Shares and 76,160 Proportionate Voting Shares held by GP Management Group, LLC and (vi) 2,579,328 Subordinate Voting Shares and 23,199 Proportionate Voting Shares held by The George P. Archos Irrevocable Trust. Mr. Archos holds sole voting and dispositive power over the Company Shares held by each of the foregoing entities other than the Company Shares held by 3PLGK, LLC, over which he has shared voting and dispositive power.
(5)	Includes 1,591 Proportionate Voting Share RSUs and options to purchase up to 82 Proportionate Voting Shares.
(6)	Includes 334 Proportionate Voting Share RSUs.
(7)	Includes 500 Proportionate Voting Share RSUs.

The Company’s major shareholders do not have different voting rights than other holders of Subordinate Voting Shares and Proportionate Voting Shares.

To the best of the Company’s knowledge, the Company is not directly or indirectly owned or controlled by another corporation, by any foreign government or by any other natural or legal persons severally or jointly. To the best of the Company’s knowledge, there are no arrangements, the operation of which may at a subsequent date result in a change of control of the Company.

As of August 23, 2021, approximately 57.0585% of the Company’s issued and outstanding voting securities were directly or indirectly held by residents of countries other than the United States, and 42.9415% of the Company’s issued and outstanding voting securities were directly or indirectly held by residents of the United States.

B.	Related Party Transactions

The Company was formed upon consummation of the RTO, Plan of Arrangement and the Business Combination, as described in this Registration Statement. Other than as disclosed below, since the consummation of the RTO, there have been no (i) transactions or presently proposed transactions which are material to the company or the related party, (ii) transactions that are unusual in their nature or conditions, involving goods, services, or tangible or intangible assets, to which the company or any of its parent or subsidiaries was a party, or (iii) loans for the benefit of any person listed in (a) through (e) below (including guarantees of any kind), between the Company and:

	(a)	enterprises that directly or indirectly through one or more intermediaries, control or are controlled by, or are under common control with, the Company;

	(b)	associates, meaning unconsolidated enterprises in which the Company holds a significant influence over, or which hold a significant influence over the Company;

	(c)	individuals owning, directly or indirectly, an interest in the voting power of the Company that gives them significant influence over the Company, and close members of any such individual’s family (close members of an individual’s family are those that may be expected to influence, or be influenced by, that person in their dealings with the Company);

	(d)	key management personnel, that is, those persons having authority and responsibility for planning, directing and controlling the activities of the Company, including directors and senior management of the Company and close members of such individuals’ families; and

(e)

enterprises in which a substantial interest in the voting power is owned, directly or indirectly, by any person described in (c) or (d) or over which such a person is able to exercise significant influence, including enterprises owned by directors or major shareholders of the Company and enterprises that have a member of key management in common with the Company.

See “Item 4 - Information on the Company” for a description of the AME Merger Agreement.

See “Item 6.B - Compensation” for a description of the Company’s employment agreements with the Company’s Named Executive Officers.

C.	Interests of Experts and Counsel

Not applicable.

ITEM 8: FINANCIAL INFORMATION

A.	Consolidated Statements and Other Financial Information

See “Item 18. - Financial Statements”.

Legal Proceedings

The Company is not a party to any material legal proceedings.

Dividend Policy

There are no restrictions in the Company’s articles or elsewhere that prevent the Company from paying dividends. However, the Company has not paid dividends in the past, and it is not anticipated that the Company will pay any dividends in the foreseeable future. Rather, the Company currently intends to retain future earnings, if any, to fund the development and growth of its business and does not intend to pay any cash dividends on its shares for the foreseeable future. Any decision to pay dividends in the future will be made by the Board on the basis of earnings, financial requirements and other conditions existing at the time. All Company Shares are entitled to an equal share in any dividends declared and paid. The Credit Agreement further restricts the Company’s ability to pay dividends.

B.	Significant Changes

The Company consummated the RTO, Plan of Arrangement and Business Combination following the year ended December 31, 2020. See “Item 4.A - History and Development of the Company” for a description of the RTO, Plan of Arrangement and Business Combination, and “Item 4.C - Organizational Structure” for a description of the Company’s current organizational structure. There have been no significant changes in the Company’s financial condition since the consummation of the foregoing transactions and as otherwise described in this Registration Statement.

ITEM 9: THE OFFER AND LISTING

A.	Offer and Listing Details

The Subordinate Voting Shares are listed in Canada on the CSE under the symbol “VRNO”. The Subordinate Voting Shares are also quoted over-the-counter in the United States on the OTCQX under the symbol “VRNOF”. The Proportionate Voting Shares are not listed or quoted for trading in Canada or over-the-counter in the United States.

The Company’s articles permit the issuance of an unlimited number of Subordinate Voting Shares and Proportionate Voting Shares. The Subordinate Voting Shares are Proportionate Voting Shares are fully paid.

The Subordinate Voting Shares and Proportionate Voting Shares are managed by the Company’s transfer agent and registrar, Odyssey Trust Company.

For additional details regarding the Subordinate Voting Shares and Proportionate Voting Shares, see “Item 10.A - “Share Capital”.

B.	Plan of Distribution

Not applicable.

C.	Markets

Not applicable.

D.	Selling Shareholders

Not applicable.

E.	Dilution

Not applicable.

F.	Expenses of the Issue

Not applicable.

ITEM 10: ADDITIONAL INFORMATION

A.	Share Capital

The Company is authorized to issue an unlimited number of Subordinate Voting Shares and an unlimited number of Proportionate Voting Shares. As of September 14, 2021, there were 200,962,342.00 Subordinate Voting Shares and 1,140,286 Proportionate Voting Shares issued and outstanding. The following is a summary of the rights, privileges, restrictions and conditions attached to the Subordinate Voting Shares and the Proportionate Voting Shares.

Subordinate Voting Shares

Shareholder Vote

Holders of Subordinate Voting Shares are entitled to notice of and to attend and vote at any meeting of the shareholders of the Company, except a meeting of which only holders of another class or series of shares of the Company will have the right to vote. At each such meeting, holders of Subordinate Voting Shares are entitled to one vote for each Subordinate Voting Share held.

Protective Provisions

As long as any Subordinate Voting Shares remain outstanding, the Company will not, without the consent of the holders of the Subordinate Voting Shares by separate special resolution, alter or amend the articles of the Company if the result of such alteration or amendment would (i) prejudice or interfere with any right or special right attached to the Subordinate Voting Shares or (ii) affect the rights or special rights of the holders of Subordinate Voting Shares or Proportionate Voting Shares or on a per share basis.

No subdivision or consolidation of the Subordinate Voting Shares will occur unless, simultaneously, the Proportionate Voting Shares are subdivided or consolidated using the same divisor or multiplier.

Dividends

Holders of Subordinate Voting Shares are entitled to receive as and when declared by the Board, dividends in cash or property of the Company. No dividend will be declared on the Subordinate Voting Shares unless the Company simultaneously declares an equivalent dividend on the Proportionate Voting Shares in an amount per Proportionate Voting Share equal to the amount of the dividend declared per Subordinate Voting Share, multiplied by 100.

The Board may declare a stock dividend payable in Subordinate Voting Shares on the Subordinate Voting Shares, but only if the Board simultaneously declares a stock dividend payable in: (i) Proportionate Voting Shares on the Proportionate Voting Shares, in a number of shares per Proportionate Voting Share equal to the number of Subordinate Voting Shares declared as a dividend per Subordinate Voting Share; or (ii) Subordinate Voting Shares on the Proportionate Voting Shares, in a number of shares per Proportionate Voting Share (or a fraction thereof) equal to the number of Subordinate Voting Shares declared as a dividend per Subordinate Voting Share, multiplied by 100.

The Board may declare a stock dividend payable in Proportionate Voting Shares on the Subordinate Voting Shares, but only if the directors simultaneously declare a stock dividend payable in Proportionate Voting Shares on the Proportionate Voting Shares, in a number of shares per Proportionate Voting Share equal to the number of Proportionate Voting Shares declared as a dividend per Subordinate Voting Share, multiplied by 100.

Holders of fractional Subordinate Voting Shares are entitled to receive any dividend declared on the Subordinate Voting Shares in an amount equal to the dividend per Subordinate Voting Share multiplied by the fraction thereof held by such holder.

Liquidation and Dissolution Events

In the event of a liquidation, dissolution or winding-up of the Company, whether voluntary or involuntary, or in the event of any other distribution of assets of the Company among its shareholders for the purpose of winding up its affairs, the holders of Subordinate Voting Shares will, subject to the rights of the holders of any shares of the Company ranking in priority to the Subordinate Voting Shares, be entitled to participate ratably along with all the holders of Proportionate Voting Shares, with the amount of such distribution per Subordinate Voting Share equal to the amount of such distribution per Proportionate Voting Share divided by 100. Each fraction of a Subordinate Voting Share is entitled to the amount calculated by multiplying such fraction by the amount payable per whole Subordinate Voting Share.

Conversion Right

If an offer is made to purchase Proportionate Voting Shares, and such offer is required pursuant to applicable securities legislation or the rules of any stock exchange on which the Proportionate Voting Shares or the Subordinate Voting Shares may then be listed, to be made to all or substantially all of the holders of Proportionate Voting Shares in a province or territory of Canada to which the requirement applies (an “Offer”) and not made to the holders of Subordinate Voting Shares for consideration per Subordinate Voting Share equal to or greater than 1/100^thof the consideration offered per Proportionate Voting Share, then each Subordinate Voting Share will become convertible at the option of the holder into Proportionate Voting Shares on the basis of 100 Subordinate Voting Shares for one Proportionate Voting Share, at any time while the Offer is in effect until one day after the time prescribed by applicable securities legislation or stock exchange rules for the offeror to take up and pay for such shares as are to be acquired pursuant to the Offer (the “Subordinate Voting Share Conversion Right”).

The Subordinate Voting Share Conversion Right may only be exercised for the purpose of depositing the Proportionate Voting Shares acquired upon conversion under such Offer, and for no other reason.

If Proportionate Voting Shares issued upon such conversion and deposited under such Offer are withdrawn by such holder, or such Offer is abandoned, withdrawn or terminated by the offeror, or such Offer expires without the offeror taking up and paying for such Proportionate Voting Shares, such Proportionate Voting Shares and any fractions thereof issued will automatically be reconverted into Subordinate Voting Shares on the basis of one Proportionate Voting Share for 100 Subordinate Voting Shares.

Subject to approval by the Board, each Subordinate Voting Share may be converted at the option of the holder into such number of Proportionate Voting Shares as is determined by dividing the number of Subordinate Voting Shares being converted by 100. The conversion will be deemed to have taken place immediately prior to the close of business on the day on which the certificates or direct registration statements representing the Subordinate Voting Shares to be converted is deemed surrendered by the holder thereof and the conversion notice is delivered by such holder, and the person entitled to receive the Proportionate Voting Shares issuable upon such conversion will be treated for all purposes as the holder of record of such Proportionate Voting Shares as of such date.

Proportionate Voting Shares

Shareholder Vote

Holders of Proportionate Voting Shares are entitled to notice of and to attend and vote at any meeting of the shareholders of the Company, except a meeting of which only holders of another class or series of shares of the Company will have the right to vote. Subject to the terms set out in the articles of the Company, at each such meeting, holders of Proportionate Voting Shares are entitled to 100 votes in respect of each Proportionate Voting Share, and each fraction of a Proportionate Voting Share will entitle the holder to the number of votes calculated by multiplying the fraction by 100 and rounding the product down to the nearest whole number.

Protective Provisions

As long as any Proportionate Voting Shares remain outstanding, the Company will not, without the consent of the holders of the Proportionate Voting Shares expressed by separate special resolution, alter or amend the articles of the Company if the result of such alteration or amendment would (i) prejudice or interfere with any right or special right attached to the Proportionate Voting Shares or (ii) affect the rights or special rights of the holders of Subordinate Voting Shares or Proportionate Voting Shares on a per share basis. At any meeting of holders of Proportionate Voting Shares called to consider such a separate special resolution, each whole Proportionate Voting Share will entitle the holder to one vote.

No subdivision or consolidation of the Proportionate Voting Shares may occur unless, simultaneously, the Subordinate Voting Shares are subdivided or consolidated using the same divisor or multiplier.

Dividends

Holders of Proportionate Voting Shares are entitled to receive, as and when declared by the Board, dividends in cash or property of the Company. No dividend will be declared on the Proportionate Voting Shares unless the Company simultaneously declares equivalent dividends on the Subordinate Voting Shares, in an amount equal to the amount of the dividend declared per Proportionate Voting Share divided by 100.

The Board may declare a stock dividend payable in Proportionate Voting Shares on the Proportionate Voting Shares, but only if the directors simultaneously declare a stock dividend payable in (i) Proportionate Voting Shares on the Subordinate Voting Shares, in a number of shares per Subordinate Voting Share equal to the number of Proportionate Voting Shares declared as a dividend per Proportionate Voting Share, divided by 100, or (ii) Subordinate Voting Shares on the Subordinate Voting Shares, in a number of shares per Subordinate Voting Share equal to the number of Proportionate Voting Shares declared as a dividend per Proportionate Voting Share. The Board may declare a stock dividend payable in Subordinate Voting Shares on the Proportionate Voting Shares, but only if the directors simultaneously declare a stock dividend payable in Subordinate Voting Shares on the Subordinate Voting Shares, in a number of shares per Subordinate Voting Share equal to the number of Subordinate Voting Shares declared as a dividend per Proportionate Voting Share, divided by 100. Holders of fractional Proportionate Voting Shares will be entitled to receive any dividend declared on the Proportionate Voting Shares, in an amount equal to the dividend per Proportionate Voting Share multiplied by the fraction held by such holder.

Liquidation and Dissolution Events

In the event of the liquidation, dissolution or winding-up of the Company, whether voluntary or involuntary, or in the event of any other distribution of assets of the Company among its shareholders for the purpose of winding up its affairs, the holders of Proportionate Voting Shares are entitled to participate ratably along with the holders of Subordinate Voting Shares, with the amount of such distribution per Proportionate Voting Share equal to the amount of such distribution per Subordinate Voting Share multiplied by 100; and each fraction of a Proportionate Voting Share will be entitled to the amount calculated by multiplying the fraction by the amount payable per whole Proportionate Voting Share.

Conversion Right

Each Proportionate Voting Share will be convertible, at the option of the holder thereof, into a number of Subordinate Voting Shares as is determined by multiplying the number of Proportionate Voting Shares in respect of which the share conversion right is exercised by 100. The ability of a holder to convert the Proportionate Voting Shares during the any restricted period is subject to a restriction that, unless the Board determines otherwise, the aggregate number of Subordinate Voting Shares and Proportionate Voting Shares held of record, directly or indirectly, by residents of the United States (as determined in accordance with Rules 3b-4 and 12g3-2(a) under the Exchange Act) may not exceed 40% of the aggregate number of Subordinate Voting Shares and Proportionate Voting Shares then outstanding after giving effect to such conversions, determined in accordance with the articles of the Company.

In addition, in accordance with the articles of the Company, the Company may require a holder of Proportionate Voting Shares to convert all, but not less than all, of the Proportionate Voting Shares held by such holder into Subordinate Voting Shares if (i) the Company is subject to the reporting requirements of Section 13 or 15(d) of the U.S. Exchange Act, and (ii) the Subordinate Voting Shares are listed or quoted (and are not suspended from trading) on a recognized North American stock exchange. Each Proportionate Voting Share will be convertible into such number of fully paid and non-assessable Subordinate Voting Shares as is determined by multiplying the number of Proportionate Voting Shares in respect of which the share conversion right is exercised by 100.

B.	Memorandum and Articles of Association

Incorporation

Majesta Minerals was incorporated under the Business Corporations Act (Alberta), as amended, (the “ABCA”) as “1839579 Alberta Ltd.” on August 6, 2014. On December 22, 2014, 1839579 Alberta Ltd. filed articles of amendment under the ABCA changing its name to “Majesta Minerals Inc.”. As part of the Plan of Arrangement, on January 27, 2021, Majesta Minerals continued out of the Canadian province of Alberta and into the Canadian province of British Columbia. In order to complete the RTO, on February 11, 2021, Majesta Minerals underwent a name change to “Verano Holdings Corp.” and amalgamated with 1277233 B.C. Ltd. (“BC Newco”)under the Business Corporations Act (British Columbia), as amended, (the “BCBCA”), in each case as a step in the Plan of Arrangement, resulting in the Company as a British Columbia corporation named “ Verano Holdings Corp.”.

The head office of the Company is located at 415 North Dearborn Street, 4th Floor, Chicago, Illinois 60654. The registered office of the Company is located at 250 Howe Street, 20th Floor, Vancouver, British Columbia V6C 3R8.

The following is a brief summary of certain provisions contained in the Notice of Articles as well as the Articles of the Company (the “Articles”). To the extent there is a conflict between the Articles and the BCBCA, the BCBCA will prevail.

Directors’ Powers

The Articles provide that a director or senior officer who holds a disclosable interest (as that term is used in the BCBCA) in a contract or transaction into which the Company has entered or proposes to enter is liable to account to the Company for any profit that accrues to the director or senior officer under or as a result of the contract or transaction only if and to the extent provided in the BCBCA. The Articles also provide that a director who holds a disclosable interest in a contract or transaction into which the Company has entered or proposes to enter is not entitled to vote on any directors’ resolution to approve that contract or transaction, unless all the directors have a disclosable interest in that contract or transaction, in which case any or all of those directors may vote on such resolution. A director who holds a disclosable interest in a contract or transaction into which the Company has entered or proposes to enter and who is present at the meeting of directors at which the contract or transaction is considered for approval may be counted in the quorum at the meeting whether or not the director votes on any or all of the resolutions considered at the meeting. A director or senior officer who holds any office or possesses any property, right or interest that could result, directly or indirectly, in the creation of a duty or interest that materially conflicts with that individual’s duty or interest as a director or senior officer, must disclose the nature and extent of the conflict as required by the BCBCA.

Director Remuneration

The Articles provide that the directors are entitled to the remuneration for acting as directors, if any, as the directors may from time to time determine. That remuneration may be in addition to any salary or other remuneration paid to any officer or employee of the Company as such, who is also a director. The Articles provide that the Company must reimburse each director for the reasonable expenses that he or she may incur in his or her capacity as a director of the Company.

Qualifications of Directors

The Articles provide that a director is not required to hold a share in the capital of the Company as qualification for his or her office, but must be qualified as required by the BCBCA to become, act or continue to act as a director.

Share Rights

The Company’s authorized capital consists of an unlimited number of Subordinate Voting Shares without par value and an unlimited number of Proportionate Voting Shares without par value. For details regarding the Subordinate Voting Shares and Proportionate Voting Shares, see “Item 10.A - Share Capital”.

Alterations

Subject to the Articles and the BCBCA, the Company may by resolution of the Board: (a) create one or more classes or series of shares or, if none of the shares of a class or series of shares is allotted or issued, eliminate that class or series of shares; (b) increase, reduce or eliminate the maximum number of shares that the Company is authorized to issue out of any class or series of shares or establish a maximum number of shares that the Company is authorized to issue out of any class or series of shares for which no maximum is established; (c) subdivide or consolidate all or any of its unissued, or fully paid issued, shares; (d) if the Company is authorized to issue shares of a class of shares with par value: (i) decrease the par value of those shares; or (ii) if none of the shares of that class of shares is allotted or issued, increase the par value of those shares; (e) change all or any of its unissued, or fully paid issued, shares with par value into shares without par value or any of its unissued shares without par value into shares with par value; (f) alter the identifying name of any of its shares; or (g) otherwise alter its shares or authorized share structure when required or permitted to do so by the BCBCA.

The Articles provide that subject to the BCBCA, the Company may by ordinary resolution: (a) create special rights or restrictions for, and attach those special rights or restrictions to, the shares of any class or series of shares, whether or not any or all of those shares have been issued; or (b) vary or delete any special rights or restrictions attached to the shares of any class or series of shares, whether or not any or all of those shares have been issued.

The Articles provide that if the BCBCA does not specify the type of resolution and the Articles do not specify another type of resolution, the Company may by ordinary resolution alter the Articles. Similarly, if the BCBCA does not specify the type of resolution and the Articles do not specify another type of resolution, the Company may by ordinary resolution alter its Notice of Articles.

Shareholder Meetings

The Articles provide that, unless an annual general meeting is deferred or waived in accordance with the BCBCA, the Company must hold an annual general meeting at least once in each calendar year and not more than 15 months after the last annual general meeting.

According to the Articles, the directors may call a meeting of shareholders. The Articles state that the directors may, by director’s resolution, approve a location outside of British Columbia for the holding of a meeting of shareholders.

The Articles provide that the Company must send notice of the date, time and location of any meeting of shareholders, in the manner provided in the Articles, or in such other manner, if any, as may be prescribed by ordinary resolution (whether previous notice of the resolution has been given or not), to each shareholder entitled to attend the meeting, to each director and to the auditor of the Company, unless the Articles otherwise provide, at least the following number of days before the meeting: (a) if and for so long as the Company is a public company, 21 days; and (b) otherwise, ten days. The accidental omission to send notice of any meeting to, or the non-receipt of any notice by, any of the persons entitled to receive notice does not invalidate any proceedings at that meeting. Any person entitled to receive notice of a meeting of shareholders may, in writing or otherwise, waive or reduce the period of notice of such meeting. Under Section 10.9 of the Articles, if a meeting of shareholders is to consider special business, the notice of meeting shall: (a) state the general nature of the special business; and (b) if the special business includes considering, approving, ratifying, adopting or authorizing any document or the signing of or giving of effect to any document, have attached to it a copy of the document or state that a copy of the document will be available for inspection by the shareholders: (i) at the Company’s records office, or at such other reasonably accessible location in British Columbia as is specified in the notice; and (ii) during statutory business hours on any one or more specified days before the day set for the holding of the meeting. At a meeting of shareholders, the following business is special business: (a) at a meeting of shareholders that is not an annual general meeting, all business is special business except business relating to the conduct of or voting at the meeting; (b) at an annual general meeting, all business is special business except for the following: (i) business relating to the conduct of, or voting at, the meeting; (ii) consideration of any financial statements of the Company presented to the meeting; (iii) consideration of any reports of the directors or auditor; (iv) the setting or changing of the number of directors; (v) the election or appointment of directors; (vi) the appointment of an auditor; (vii) business arising out of a report of the directors not requiring the passing of a special resolution or an exceptional resolution; and (viii) any other business which, under these Articles or the BCBCA, may be transacted at a meeting of shareholders without prior notice of the business being given to the shareholders.

The Article provide that, subject to the special rights and restrictions attached to the shares of any class or series of shares, the quorum for the transaction of business at a meeting of shareholders is two persons who are, or who represent by proxy, shareholders who, in the aggregate, hold at least 5% of the issued shares entitled to be voted at the meeting.

The Articles provide that if there is only one shareholder entitled to vote at a meeting of shareholders, then the quorum is one person who is, or who represents by proxy, that shareholder; and (b) that shareholder, present in person or by proxy, may constitute the meeting.

Ownership Threshold

United States federal securities laws require the Company to disclose, in its Annual Report on Form 20-F, (i) holders who own more than 5% of the Company’s issued and outstanding shares and (ii) holdings of the Company’s directors and management.

C.	Material Con