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, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☒ No ☐

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes ☒ No ☐

As of ~~August 9,~~November 11, 2022, the registrant had ~~252,907,618~~258,580,542 shares of common stock, $0.01 par value per share, outstanding.

This Quarterly Report on Form 10-Q contains statements that TerrAscend Corp. (“TerrAscend” or the “Company”) believes are, or may be considered to be, “forward-looking ~~statements.”~~statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the "Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). All statements other than statements of historical fact included in this Quarterly Report on Form 10-Q regarding the prospects of the Company’s industry or the Company’s prospects, plans, financial position or business strategy may constitute forward-looking statements. Such statements can be identified by the use of forward-looking terminology such as "can", “expect”, “likely”, “may”, “will”, “should”, “intend”, “anticipate”, “potential”, “proposed”, “estimate” and other similar words, including negative and grammatical variations thereof, or statements that certain events or conditions “may” or “will” happen, or by discussions of strategy. Forward-looking statements include estimates, plans, expectations, opinions, forecasts, projections, targets, guidance, or other statements that are not statements of fact. Forward-looking statements in this Quarterly Report on Form 10-Q include, but are not limited to, statements with respect to:

Certain of the forward-looking statements contained herein concerning the cannabis industry and the general expectations of the Company concerning the cannabis industry are based on estimates prepared by the Company using data from publicly available governmental sources as well as from market research and industry analysis and on assumptions based on data and knowledge of the cannabis industry. Such data is inherently imprecise. The cannabis industry involves risks and uncertainties that are subject to change based on various factors, which factors are described further below.

With respect to the forward-looking statements contained in this Quarterly Report on Form 10-Q, the Company has made assumptions regarding, among other things: (i) its ability to generate cash flows from operations and obtain necessary financing on acceptable terms; (ii) general economic, financial market, regulatory and political conditions in which the Company operates; (iii) the output from the Company’s operations; (iv) consumer interest in the Company’s products; (v) competition; (vi) anticipated and unanticipated costs; (vii) government regulation of the Company’s activities and products and in the areas of taxation and environmental protection; (viii) the timely receipt of any required regulatory approvals; (ix) the Company’s ability to obtain qualified staff, equipment and services in a timely and cost efficient manner; (x) the Company’s ability to conduct operations in a safe, efficient and effective manner; and (xi) the Company’s construction plans and timeframe for completion of such plans.

Readers are cautioned that the above list of cautionary statements is not exhaustive. Known and unknown risks, many of which are beyond the control of the Company, could cause actual results to differ materially from the forward-looking statements in this Quarterly Report on Form 10-Q. Such risks and uncertainties include, but are not limited to, current and future market conditions; risks related to federal, state, provincial, territorial, local and foreign government laws, rules and regulations, including federal and state laws in the

United States relating to cannabis operations in the United States; and those discussed under Item 1A – “Risk Factors” in ~~this Quarterly~~our Annual Report on Form ~~10-Q.~~10-K for the year ended December 31, 2021, filed with the Securities and Exchange Commission on March 17, 2022 and as amended on March 24, 2022 ("2021 Form 10-K"). The purpose of forward-looking statements is to provide the reader with a description of management’s expectations, and such forward-looking statements may not be appropriate for any other purpose. You should not place undue reliance

on forward-looking statements contained in this Quarterly Report on Form 10-Q. The Company can give no assurance that such expectations will prove to have been correct. Forward-looking statements contained herein are made as of the date of this Quarterly Report on Form 10-Q and are based on the beliefs, estimates, expectations and opinions of management on the date such forward-looking statements are made. The Company undertakes no obligation to update or revise any forward-looking statements, whether as a result of new information, estimates or opinions, future events or results or otherwise or to explain any material difference between subsequent actual events and such forward-looking statements, except as required by applicable law.

(Amounts expressed in thousands of United States dollars, except for share and per share amounts)

The accompanying notes are an integral part of these unaudited interim condensed consolidated financial statements.

Unaudited Interim Condensed Consolidated Statements of Operations and Comprehensive Income (Loss)

(Amounts expressed in thousands of United States dollars, except for per share amounts)

The accompanying notes are an integral part of these unaudited interim condensed consolidated financial statements.

Unaudited Interim Condensed Consolidated Statements of Changes in Shareholders’ Equity (Deficit)

(Amounts expressed in thousands of United States dollars, except for per share amounts)

The accompanying notes are an integral part of these unaudited condensed consolidated interim financial statements

(Amounts expressed in thousands of United States dollars, except for per share amounts)

The accompanying notes are an integral part of these unaudited interim condensed consolidated financial statements.

(Amounts expressed in thousands of United States dollars, except for per share amounts)

The over 90 days aged balance relates mainly to 1one customer who has agreed to a payment plan and the Company has received payments in accordance with the payment plan subsequent to ~~June~~September 30, 2022.

~~Property and equipment~~

~~Property and equipment consisted of:~~

1012

TerrAscend Corp.

Notes to the Unaudited Condensed Consolidated Financial Statements

(Amounts expressed in thousands of United States dollars, except for per share amounts)

June 30, 2022

December 31, 2021

Land

$
7,613

$
4,183

Assets in process

52,624

6,858

Buildings & improvements

157,814

118,014

Machinery & equipment

27,906

23,424

Office furniture & equipment

8,290

3,232

Assets under finance leases

4,961

239

Total cost

259,208

155,950

Less: accumulated depreciation

(20,411
)

(15,188
)
Property and equipment, net

$
238,797

$
140,762

In addition, management wrote down its inventory by $6,378 and $12,948 for the three and nine months ended September 30, 2022, respectively, and $388 and $1,087 for the three and nine months ended September 30, 2021. The inventory write-downs in the three months ended September 30, 2022 primarily related to inventory the Company deemed unsaleable in its business in Canada. Additionally, the remaining impairment taken during the nine months ended September 30, 2022 was mainly due to the write down of inventory to lower of cost or market which was related to the Company's operational reconfiguration of its cultivation facility in Pennsylvania. The inventory write-downs in the prior year period were related to unsaleable disposable vape pens with faulty batteries as well as inventory in Canada that the Company deemed unsaleable.

Property and equipment

Property and equipment consisted of:


	September 30, 2022			December 31, 2021
Land	$	7,762		$	4,183
Assets in process		29,574			6,858
Buildings & improvements		185,563			118,014
Machinery & equipment		30,492			23,424
Office furniture & equipment		8,492			3,232
Assets under finance leases		4,760			239
Total cost		266,643			155,950
Less: accumulated depreciation		(22,518	)		(15,188	)
Property and equipment, net	$	244,125		$	140,762

Assets in process represent construction in progress related to both cultivation and dispensary facilities not yet completed, or otherwise not placed in service.

During the ~~six~~nine months ended ~~June~~September 30, 2022 and the twelve months ended December 31, 2021, borrowing costs were 0not capitalized because the assets in process did not meet the criteria of a qualifying asset.

Depreciation expense was $~~3,027~~3,006 and $~~5,513~~8,519 for the three and ~~six~~nine months ended ~~June~~September 30, 2022, respectively ($~~1,670~~2,538 and $~~3,406~~5,944, respectively, were included in cost of sales) and $~~1,805~~2,144 and $~~3,771~~5,915 for the three and ~~six~~nine months ended ~~June~~September 30, 2021, respectively ($~~1,127~~1,503 and $~~2,225~~3,728, respectively, were included in cost of sales).

Intangible assets and goodwill

Intangible assets consisted of the following:


At June 30, 2022	Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount
At September 30, 2022								Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount
Finite lived intangible assets
Software	$	2,926	$	(1,819	)	$	1,107	$	2,677	$	(1,985	)	$	692
Licenses		284,818		(17,301	)		267,517		172,593		(16,166	)		156,427
Brand intangibles		1,144		(568	)		576		1,144		(540	)		604
Non-compete agreements		280		(48	)		232		280		(257	)		23
Total finite lived intangible assets		289,168		(19,736	)		269,432		176,694		(18,948	)		157,746
Indefinite lived intangible assets
Brand intangibles		82,206		—			82,206		82,757		—			82,757
Total indefinite lived intangible assets		82,206		—			82,206		82,757		—			82,757
Intangible assets, net	$	371,374	$	(19,736	)	$	351,638	$	259,451	$	(18,948	)	$	240,503

TerrAscend Corp.

Notes to the Unaudited Condensed Consolidated Financial Statements

(Amounts expressed in thousands of United States dollars, except for per share amounts)


At December 31, 2021	Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount
Finite lived intangible assets
Software	$	2,626	$	(1,353	)	$	1,273
Licenses		153,300		(11,311	)		141,989
Brand intangibles		1,144		(254	)		890
Non-compete agreements		280		(221	)		59
Total finite lived intangible assets		157,350		(13,139	)		144,211
Indefinite lived intangible assets
Brand intangibles		24,773		—			24,773
Total indefinite lived intangible assets		24,773		—			24,773
Intangible assets, net	$	182,123	$	(13,139	)	$	168,984

11Amortization expense was $4,104 and $10,722 for the three and nine months ended September 30, 2022, respectively ($1,555 and $4,631, respectively, were included in cost of sales) and $2,056 and $5,335 for the three and nine months ended September 30, 2021, respectively ($750 and $1,858, respectively, were included in cost of sales).

Estimated future amortization expense for finite lived intangible assets for the next five years is as follows:


2022	$	2,166
2023	$	7,594
2024	$	7,167
2025	$	6,768
2026	$	6,780

The Company's goodwill is allocated to one reportable segment. The following table summarizes the activity in the Company’s goodwill balance:


Balance at December 31, 2021	$	90,326
Acquisitions (see Note 4)		160,201
Measurement period adjustment (see Note 4)		18,113
Impairment of goodwill		(178,314	)
Balance at September 30, 2022	$	90,326

Impairment of Intangible Assets


	For the Three Months Ended					For the Nine Months Ended
		September 30, 2022		September 30, 2021			September 30, 2022		September 30, 2021
Finite lived intangible assets
Software		$	-	$	-		$	-	$	9
Licenses			133,728		—			133,728		—
Customer Relationships			—		—			—		2,000
Non-compete agreements			—		—			—		224
Total impairment of finite lived intangible assets			133,728		—			133,728		2,233
Indefinite lived intangible assets
Brand intangibles			19,200		—			19,200		1,400
Total impairment of indefinite lived intangible assets			19,200		—			19,200		1,400
Total impairment of intangible assets		$	152,928	$	-		$	152,928	$	3,633

Long-lived assets

The Company evaluates the recoverability of long-lived assets, including definite lived intangible assets, whether events or changes in circumstances indicate that the carrying value of the asset may not be recoverable. The Company determined that changes in market

TerrAscend Corp.

Notes to the Unaudited Condensed Consolidated Financial Statements

(Amounts expressed in thousands of United States dollars, except for per share amounts)

~~Amortization expense~~expectations of cash flows in its Michigan business, as well as increased competition and supply in the state, were indicators that an impairment test was appropriate.

The impairment test for long-lived assets is a two-step test, whereby management first determines the recoverable amount by calculating the undiscounted cash flows of each asset group. If the recoverable amount is lower than the carrying value of the asset group, then impairment is indicated. The Company then determines the fair value of the asset group and allocates the impairment to the assets, being the (i) cultivation and processing licenses, and (ii) retail licenses, acquired through the Gage Acquisition. The Company compared the carrying value of the assets to its fair value and determined that the carrying value exceeded the fair value for both the retail and the cultivation and processing licenses. As such, the Company recorded impairment of $~~4,019~~78,998 and $~~6,618~~54,730 for the ~~three~~cultivation and ~~six months ended June 30, 2022,~~processing licenses and retail licenses, respectively, ($~~2,345~~ ~~and~~reducing both the carrying values to $~~3,076~~nil~~, respectively included in cost of sales) and $~~.~~1,787~~ ~~and $3,279~~ ~~for the three and six months ended June 30, 2021, respectively ($621~~ ~~and $1,108, respectively included in cost of sales).~~

~~Estimated~~The fair value of each asset group was determined using cash flows expected to be generated by market participants, discounted at a weighted average cost of capital. The fair value of the specific assets that were impaired was determined using the multi period excess earnings method based on the following key assumptions:

•

Cash flows: estimated cash flows were projected based on actual operating results from internal sources, as well as industry and market trends. The forecasts were extended through the estimated useful lives of the assets;

•

Post-tax discount rate: the post-tax discount rate is reflective of the weighted average cost of capital ("WACC"). The WACC was estimated based on the risk-free rate, equity risk premium, beta premium, and after-tax cost of debt based on corporate bond yields; and

•

Tax rate: the tax rates used in determining future ~~amortization expense for finite~~cash flows were those substantively enacted at the respective valuation date.

Indefinite lived intangible assets ~~for the next five years is as follows:~~

2022

$
8,236

2023

$
15,661

2024

$
15,234

2025

$
14,797

2026

$
14,748

Indefinite lived intangible assets are reviewed for impairment annually and whether there are events or changes in circumstances that indicate that the carrying amount has been impaired. The ~~following table summarizes~~Company determined that the ~~activity~~existence of impairment on certain long-lived assets, together with the changes in market expectations of cash flows in Michigan, as well as increased competition and supply in the ~~Company’s goodwill balance:~~state since the Company acquired the indefinite lived assets, indicate that the fair value of the Gage brand intangible assets are more likely than not lower than the carrying value. As such, the Company performed an impairment analysis and determined the fair value of its brand intangibles using the relief of royalty method. As a result of the quantitative analysis performed, the Company recognized impairment of $19,200, reducing the carrying value of the brand intangibles to $57,985.

Balance at December 31, 2021

$
90,326

Acquisitions (see Note 4)

150,272

Balance at June 30, 2022

$
240,598

~~Impairment of Intangible Assets~~

For the Three Months Ended

For the Six Months Ended

June 30, 2022

June 30, 2021

June 30, 2022

June 30, 2021

Finite lived intangible assets

Software

$
-

$
9

$
-

$
9

Licenses

—

—

—

-

Customer Relationships

—

2,000

—

2,000

Non-compete agreements

—

224

—

224

Total impairment of finite lived intangible assets

—

2,233

—

2,233

Indefinite lived intangible assets

Brand intangibles

—

1,400

—

1,400

Total impairment of indefinite lived intangible assets

—

1,400

—

1,400

Total impairment of intangible assets

$
-

$
3,633

$
-

$
3,633

In August 2021, the Company made the decision to undertake a strategic review process to explore, review and evaluate potential alternatives for its Arise business focused on maximizing shareholder value. As a result of this review, the Company recorded impairment of intangible assets of $3,633 for the ~~six~~nine months ended ~~June~~September 30, 2021.

~~Loans payable~~

Canopy Growth (formerly RIV Capital) Loan

Canopy Growth- Canada Inc Loan

Other Loans

Canopy Growth- Arise Loan

Ilera Term Loan

KCR Loan

Gage loans

Total

Balance at December 31, 2021

$
8,680

$
42,165

$
7,915

$
8,900

$
115,233

$
2,250

$
-

$
185,143

Addition on acquisition

—

—

—

—

—

—

60,605

60,605

Loan amendment fee

—

—

—

—

(1,200
)

—

—

(1,200
)
Interest accretion

665

2,739

319

702

8,542

74

2,819

15,860

Principal and interest paid

(624
)

(3,837
)

(2,586
)

—

(7,662
)

(2,324
)

(2,811
)

(19,844
)
Effects of movements in foreign exchange

(142
)

(691
)

(94
)

—

—

—

—

(927
)
Ending carrying amount at June 30, 2022

$
8,579

$
40,376

$
5,554

$
9,602

$
114,913

$
-

$
60,613

$
239,637

Less: current portion

(309
)

(1,170
)

(464
)

—

(42
)

—

(56,871
)

(58,856
)
Non-current loans payable

$
8,270

$
39,206

$
5,090

$
9,602

$
114,871

$
-

$
3,742

$
180,781

12Impairment of goodwill

Goodwill is reviewed for impairment annually and whenever there are events or changes in circumstances that indicate the carrying value has been impaired. Based on the indicators of impairment noted previously, the Company determined that there were indicators that the fair value of its reporting units are more likely than not lower than its carrying value. As such, a one-step quantitative impairment test was performed over its Michigan reporting unit, which includes goodwill acquired through the Gage Acquisition and the Pinnacle Acquisition. The following significant assumptions were applied in the determination of the fair value of the reporting unit using a discounted cash flow model:

•

Cash flows: estimated cash flows were projected based on actual operating results from internal sources, as well as industry and market trends. The forecasts were extended to a total of five years (with a terminal value thereafter);

•

Terminal value growth rate: The terminal growth rate was based on historical and projected consumer price inflation, historical and projected economic indicators and projected industry growth;

•

Post-tax discount rate: the post-tax discount rate is reflective of the WACC. The WACC was estimated based on the risk-free rate, equity risk premium, beta premium, and after-tax cost of debt based on corporate bond yields; and

•

Tax rate: the tax rates used in determining future cash flows were those substantively enacted at the respective valuation date.

TerrAscend Corp.

Notes to the Unaudited Condensed Consolidated Financial Statements

(Amounts expressed in thousands of United States dollars, except for per share amounts)

During the nine months ended September 30, 2022, the Company recorded impairment of goodwill of $178,314 at its Michigan reporting unit, reducing the carrying value of the goodwill acquired through the Gage Acquisition and Pinnacle Acquisition to $nil.

As discussed in Note 4, the accounting for the acquisitions is provisional and subject to adjustment. Therefore, the impairment loss recognized for intangible assets and goodwill are also provisional until management has finalized the accounting for the acquisitions.

Loans payable


	Canopy Growth (formerly RIV Capital) Loan			Canopy Growth- Canada Inc Loan			Other Loans			Canopy Growth- Arise Loan		Ilera Term Loan			KCR Loan			Gage loans			Pinnacle loans			Total
Balance at December 31, 2021	$	8,680		$	42,165		$	7,915		$	8,900	$	115,233		$	2,250		$	-		$	-		$	185,143
Addition on acquisition		—			—			—			—		—			—			60,605			10,000			70,605
Loan amendment fee		—			—			—			—		(1,200	)		—			(1,109	)		—			(2,309	)
Interest accretion		1,006			4,117			557			1,080		12,959			74			5,456			15			25,264
Principal and interest paid		(624	)		(3,837	)		(2,700	)		—		(11,556	)		(2,324	)		(5,509	)		(181	)		(26,731	)
Effects of movements in foreign exchange		(672	)		(3,177	)		(496	)		—		—			—			—			—			(4,345	)
Ending carrying amount at September 30, 2022	$	8,390		$	39,268		$	5,276		$	9,980	$	115,436		$	-		$	59,443		$	9,834		$	247,627
Less: current portion		(437	)		(2,003	)		(474	)		—		(5,042	)		—			(57,515	)		(9,834	)		(75,305	)
Non-current loans payable	$	7,953		$	37,265		$	4,802		$	9,980	$	110,394		$	-		$	1,928		$	-		$	172,322

Total interest paid on all loan payables was $~~6,370~~6,002 and $~~14,641~~20,643 for the three and ~~six~~nine months ended ~~June~~September 30, 2022, respectively, and $~~4,150~~4,118 and $~~13,290~~17,408 for the three and ~~six~~nine months ended ~~June~~September 30, 2021, respectively.

Gage loans

The Gage Acquisition (refer to Note 4) included a senior secured term loan with an acquisition date fair value of $~~53,357~~53,859. The Credit Agreement bears interest at a rate equal to the greater of (i) the Prime Rate plus 7% or (ii) 10.25%. The term loan is payable monthly and matures on November 30, 2022. The term loan is secured by a first lien on all Gage assets.

Additionally, the Gage Acquisition included a loan payable to a former owner of a licensed entity with an acquisition date fair value of $2,683, and a ~~Promissory Note~~promissory note with an acquisition date fair value of $4,065. The loan payable to the former owner bears interest at a rate of 0.2%. The ~~Promissory Note~~promissory note bears interest at a fixed rate of 6%.

Pinnacle loans

The Pinnacle Acquisition purchase price included two promissory notes in an aggregate amount of $10,000 to pay down all Pinnacle liabilities and encumbrances. The promissory notes mature on June 30, 2023 and bear interest rates of 6%.

Maturities of loans payable

Stated maturities of loans payable over the next five years are as follows:


	June 30, 2022		September 30, 2022
2022	$	56,589	$	61,047
2023		9,187		18,183
2024		131,869		126,253
2025		—		—
2026		—		—
Thereafter		82,491		78,748
Total principal payments	$	280,136	$	284,231

Leases

TerrAscend Corp.

Notes to the Unaudited Condensed Consolidated Financial Statements

(Amounts expressed in thousands of United States dollars, except for per share amounts)

The majority of the Company’s leases are operating leases used primarily for corporate offices, retail, cultivation and manufacturing. The ~~operating~~ lease periods generally range from 1 to 28~~years.~~ years for operating leases and 6 to 10 years for finance leases. The Company had 3three finance leases at ~~June~~September 30, 2022 and 1one finance lease at December 31, 2021.

Amounts recognized in the consolidated balance sheet are as follows:


	June 30, 2022		December 31, 2021		September 30, 2022		December 31, 2021
Operating leases:
Operating lease right-of-use assets	$	30,570	$	29,561	$	30,044	$	29,561

Operating lease liability classified as current		1,394		1,171		1,582		1,171
Operating lease liability classified as non-current		31,680		30,573		31,058		30,573
Total operating lease liabilities	$	33,074	$	31,744	$	32,640	$	31,744

Finance leases:
Property and equipment, net	$	4,724	$	168	$	4,523	$	168

Lease obligations under finance leases classified as current		384		22		369		22
Lease obligations under finance leases classified as non-current		4,794		181		4,698		181
Total finance lease obligations	$	5,178	$	203	$	5,067	$	203

The Company recognized operating lease expense of $~~1,173~~1,310 and $~~2,355~~3,665 for the three and ~~six~~nine months ended ~~June~~September 30, 2022, respectively, and $~~1,231~~1,365 and $~~2,109~~3,474 for the three and ~~six~~nine months ended ~~June~~September 30, 2021, respectively.

During the year ended December 31, 2021, the Company entered into a lease termination agreement (the "Lease Termination") with the landlord of its 22,000 square foot facility in Frederick, Maryland to enable the Company to terminate the lease prior to the end of the lease term. On January 27, 2022, the Company made a payment of $3,300 related to the Lease Termination at its Hagerstown location which enables the Company to terminate its building lease at a later date. The lease termination fee was expensed during the year ended December 31, 2021.

Other information related to operating leases at September 30, 2022 and December 31, 2021 consist of the following:


	September 30, 2022			December 31, 2021
Weighted-average remaining lease term (years)
Operating leases		13.2			14.2
Finance leases		9.5			5.5

Weighted-average discount rate
Operating leases		10.69	%		10.72	%

Supplemental cash flow information related to leases are as follows:


	September 30, 2022		December 31, 2021
Cash paid for amounts included in measurement of operating lease liabilities	$	3,665	$	3,987
Right-of-use assets obtained in exchange for operating lease obligations	$	6,371	$	9,773
Cash paid for amounts included in measurement of finance lease liabilities	$	116	$	40
Assets under finance leases obtained in exchange for finance lease obligations	$	308	$	-

Undiscounted lease obligations are as follows:

TerrAscend Corp.

Notes to the Unaudited Condensed Consolidated Financial Statements

(Amounts expressed in thousands of United States dollars, except for per share amounts)

~~Other information related to operating leases at June 30, 2022 and December 31, 2021 consist of the following:~~

June 30, 2022

December 31, 2021

Weighted-average remaining lease term (years)

Operating leases

12.9

14.2

Finance leases

9.9

5.5

Weighted-average discount rate

Operating leases

10.69
%

10.72
%

~~Supplemental cash flow information related to leases are as follows:~~

June 30, 2022

December 31, 2021

Cash paid for amounts included in measurement of operating lease liabilities

$
2,434

$
3,987

Right-of-use assets obtained in exchange for lease obligations

$
6,641

$
9,773

Cash paid for amounts included in measurement of finance lease liabilities

$
67

$
40

~~Undiscounted lease obligations are as follows:~~


	Operating			Finance			Total			Operating			Finance			Total
2022	$	2,448		$	264		$	2,712		$	1,224		$	215		$	1,439
2023		4,975			824			5,799			4,971			824			5,795
2024		4,966			757			5,723			4,962			757			5,719
2025		4,950			775			5,725			4,947			775			5,722
2026		4,672			794			5,466			4,671			794			5,465
Thereafter		43,887			4,608			48,495			43,887			4,608			48,495
Total lease payments		65,898			8,022			73,920			64,662			7,973			72,635
Less: interest		(32,824	)		(2,844	)		(35,668	)		(32,022	)		(2,906	)		(34,928	)
Total lease liabilities	$	33,074		$	5,178		$	38,252		$	32,640		$	5,067		$	37,707

Under the terms of these operating sublease agreements, future rental income from such third-party leases is expected to be as follows:



2022	$	243	$	122
2023		435		433
2024		434		434
2025		448		447
2026		263		263
Thereafter		-		-
Total rental payments	$	1,823	$	1,699

A sale-leaseback transaction occurs when an entity sells an asset it owns and then immediately leases the asset back from the buyer. The seller then becomes the lessee and the buyer becomes the lessor. Under ~~ASC~~Financial Accounting Standards Board Accounting Standards Codification 842, both parties must assess whether the buyer-lessor has obtained control of the asset and a sale has occurred. The Company's subsidiary Gage entered into leaseback transactions on 5five properties of owned real estate. The Company has determined that these transactions do not qualify as a sale because control was not transferred to the buyer-lessor. Therefore, the Company has classified the lease portion of the transaction as a finance lease and continues to depreciate the asset. The Gage Acquisition (refer to Note 4) included financing obligations. The balance at ~~June~~September 30, 2022 was $~~12,352~~12,182. Of this amount, $~~746~~775 is included in other current liabilities and $~~11,606~~11,407 is included in financing obligations in the unaudited condensed consolidated balance sheets.

10.

Shareholders’ equity

~~TerrAscend Corp.~~

~~Notes to the Unaudited Condensed Consolidated Financial Statements~~

~~(Amounts expressed in thousands of United States dollars, except for per share amounts)~~

Warrants

The following is a summary of the outstanding warrants for Common Shares:


	Number of Common Share Warrants Outstanding			Number of Common Share Warrants Exercisable		Weighted Average Exercise Price $		Weighted Average Remaining Life (years)		Number of Common Share Warrants Outstanding			Number of Common Share Warrants Exercisable		Weighted Average Exercise Price $		Weighted Average Remaining Life (years)
Outstanding, December 31, 2021		30,995,473			8,855,066	$	4.20		5.66		30,995,473			8,855,066	$	4.20		5.66
Exercised		(7,989,436	)								(7,989,436	)				2.53
Replacement warrants granted on acquisition of Gage		282,023									282,023					6.47
Outstanding, June 30, 2022		23,288,060			1,110,168	$	4.71		7.06
Outstanding, September 30, 2022											23,288,060			1,110,168	$	4.43		6.81

Pursuant to the terms of the Gage Acquisition, each holder of a Gage warrant received a 0.3001 equivalent replacement warrant. Each warrant is exercisable into common share purchase warrants. The warrants range in exercise price from $3.83 to $7.00 and expire at various dates from October 6, 2022 to July 2, 2025. Refer to Note 4 for the determination of fair value of warrants acquired.

The Gage Acquisition included warrant liabilities that are exchangeable into Common Shares. Refer to Note 4 for the determination of the fair value of the warrant liability.

Number of Common Share Warrants Outstanding

Number of Common Share Warrants Exercisable

Weighted Average Exercise Price $

Weighted Average Remaining Life (years)

Outstanding, December 31, 2021

-

-

$
-

-

Granted on acquisition of Gage

7,129,517

Outstanding, June 30, 2022

7,129,517

7,129,517

$
8.66

1.49

~~The following is a summary of the outstanding warrants for Proportionate Voting Shares at June 30, 2022. These warrants are exercisable for~~ ~~0.001~~ ~~of a Proportionate Voting Share. The Proportionate Voting Shares are exchangeable into Common Shares on a basis of~~ ~~1,000~~ ~~Common Shares per Proportionate Voting Share.~~

Number of Proportionate Share Warrants Outstanding

Number of Proportionate Share Warrants Exercisable

Weighted Average Exercise Price $

Weighted Average Remaining Life (years)

Outstanding, December 31, 2021

8,590,908

8,590,908

$
5.69

0.64

Exercised

—

Outstanding, June 30, 2022

8,590,908

8,590,908

$
5.60

0.15

~~The following is a summary of the outstanding Preferred Share warrants at June 30, 2022. Each warrant is exercisable into~~ 1 ~~preferred share:~~

Number of Preferred Share Warrants Outstanding

Number of Preferred Share Warrants Exercisable

Weighted Average Exercise Price $

Weighted Average Remaining Life (years)

Outstanding, December 31, 2021

16,056

16,056

$
3,000

1.39

Exercised

(950
)

Outstanding, June 30, 2022

15,106

15,106

$
3,000

0.90

~~11.~~

~~Share-based compensation plans~~

1518

TerrAscend Corp.

Notes to the Unaudited Condensed Consolidated Financial Statements

(Amounts expressed in thousands of United States dollars, except for per share amounts)


	Number of Common Share Warrants Outstanding		Number of Common Share Warrants Exercisable		Weighted Average Exercise Price $		Weighted Average Remaining Life (years)
Outstanding, December 31, 2021		-		-	$	-		-
Granted on acquisition of Gage		7,129,517
Outstanding, September 30, 2022		7,129,517		7,129,517	$	8.66		1.24

The following is a summary of the outstanding warrants for proportionate voting shares of the Company at September 30, 2022. These warrants are exercisable for 0.001 of a proportionate voting share. The proportionate voting shares are exchangeable into Common Shares on a basis of 1,000 Common Shares per proportionate voting share.


	Number of Proportionate Share Warrants Outstanding			Number of Proportionate Share Warrants Exercisable		Weighted Average Exercise Price $		Weighted Average Remaining Life (years)
Outstanding, December 31, 2021		8,590,908			8,590,908	$	5.69		0.64
Expired		(8,590,908	)
Outstanding, September 30, 2022		-			-	N/A		N/A

The expiration of the warrants for proportionate voting shares resulted in an increase to additional paid in capital and a decrease to the accumulated deficit in the unaudited interim condensed consolidated balance sheets.

The following is a summary of the outstanding preferred share warrants at September 30, 2022. Each warrant is exercisable into one preferred share:


	Number of Preferred Share Warrants Outstanding			Number of Preferred Share Warrants Exercisable		Weighted Average Exercise Price $		Weighted Average Remaining Life (years)
Outstanding, December 31, 2021		16,056			16,056	$	3,000		1.39
Exercised		(950	)
Outstanding, September 30, 2022		15,106			15,106	$	3,000		0.64

11.

Share-based compensation plans

Share-based payments expense

Total share-based payments expense was as follows:


	For the Three Months Ended					For the Six Months Ended					For the Three Months Ended					For the Nine Months Ended
		June 30, 2022		June 30, 2021			June 30, 2022		June 30, 2021			September 30, 2022		September 30, 2021			September 30, 2022		September 30, 2021
Stock options		$	3,500	$	4,316		$	6,090	$	7,766		$	2,338	$	1,179		$	8,428	$	8,945
Restricted share units			963		332			1,729		449			367		3,999			2,096		4,448
Total share-based payments		$	4,463	$	4,648		$	7,819	$	8,215		$	2,705	$	5,178		$	10,524	$	13,393

Stock Options

The following table summarizes the stock option activity for the ~~six~~nine months ended ~~June~~September 30, 2022:

Number of Stock Options

Weighted average remaining contractual life (in years)

Weighted Average Exercise Price (per share) $

Aggregate intrinsic value

Weighted average fair value of nonvested options (per share) $

Outstanding, December 31, 2021

12,854,519

4.84

$
4.85

$
27,557

$
4.22

Granted

4,182,590

5.16

Replacement options granted on acquisition of Gage

4,940,364

2.99

Exercised

(88,015
)

4.04

Forfeited (1)

(649,376
)

8.65

Expired

(396,441
)

8.08

Outstanding, June 30, 2022

20,843,641

4.94

$
4.24

3,615

$
-

Exercisable, June 30, 2022

12,396,267

3.07

$
3.11

3,615

N/A

Nonvested, June 30, 2022

8,447,374

7.69

$
5.89

-

N/A

TerrAscend Corp.

Notes to the Unaudited Condensed Consolidated Financial Statements

(Amounts expressed in thousands of United States dollars, except for per share amounts)


	Number of Stock Options			Weighted average remaining contractual life (in years)		Weighted Average Exercise Price (per share) $		Aggregate intrinsic value		Weighted average fair value of nonvested options (per share) $
Outstanding, December 31, 2021		12,854,519			4.84	$	4.85	$	27,557	$	4.22
Granted		7,058,840					3.67
Replacement options granted on acquisition of Gage		4,940,364					2.99
Exercised		(238,065	)				1.60
Forfeited (1)		(1,457,049	)				7.21
Expired		(408,684	)				8.00
Outstanding, September 30, 2022		22,749,925			5.30	$	3.63		1,173	$	-

Exercisable, September 30, 2022		12,657,335			2.84	$	2.99		1,173	N/A

Nonvested, September 30, 2022		10,092,588			8.38	$	4.43		-	N/A

(1)

For stock options forfeited, represents one share for each stock option forfeited.

The aggregate intrinsic value in the table above represents the total pre-tax intrinsic value (the difference between the Company’s closing stock price on ~~June~~September 30, 2022 and December 31, 2021, respectively, and the exercise price, multiplied by the number of the in-the-money options) that would have been received by the option holders had all option holders exercised their in-the-money options on ~~June~~September 30, 2022 and December 31, 2021, respectively.

The total pre-tax intrinsic value (the difference between the market price of the Company’s Common Stock on the exercise date and the price paid by the option holder to the exercise the option) related to stock options exercised is presented below:

For the Three Months Ended

For the Six Months Ended

June 30, 2022

June 30, 2021

June 30, 2022

June 30, 2021

Exercised

$
79

$
1,721

$
140

$
4,798


	For the Three Months Ended					For the Nine Months Ended
		September 30, 2022		September 30, 2021			September 30, 2022		September 30, 2021
Exercised		$	188	$	492		$	328	$	5,290

The Gage Acquisition included consideration in the form of 4,940,364 replacement options that had been issued ~~before~~on the acquisition date to employees of Gage. The post-combination options vest over a 1-3 year period. The fair value of the replacement options are estimated using the Black-Scholes Option Pricing Model with the following assumptions:

~~TerrAscend Corp.~~

~~Notes to the Unaudited Condensed Consolidated Financial Statements~~

~~(Amounts expressed in thousands of United States dollars, except for per share amounts)~~


	March 10, 2022
Volatility	55.0%-80.0%
Risk-free interest rate	1.22%-1.94%
Expected life (years)	1.00-5.00
Dividend yield		0	%

The fair value of the various stock options granted was estimated using the Black-Scholes Option Pricing Model with the following assumptions:


	June 30, 2022			December 31, 2021			September 30, 2022			December 31, 2021
Volatility	77.55% - 79.04%			79.05% - 81.51%			77.55% - 77.89%			79.05% - 81.51%
Risk-free interest rate	1.63% - 3.02%			0.90% - 1.72%			1.63% - 3.51%			0.90% - 1.72%
Expected life (years)	9.62 - 10.01			4.57 - 10.05			9.62 - 10.01			4.57 - 10.05
Dividend yield		0	%		0	%		0	%		0	%
Forfeiture rate		23.73	%	23.21% - 27.73%				24.47	%	23.21% - 27.73%

TerrAscend Corp.

Notes to the Unaudited Condensed Consolidated Financial Statements

(Amounts expressed in thousands of United States dollars, except for per share amounts)

Volatility was estimated by using the historical volatility of the Company's stock price. The expected life in years represents the period of time that the options issued are expected to be outstanding. The risk-free rate is based on US treasury bond issues with a remaining term approximately equal to the expected life of the options. Dividend yield is zero since the Company has never paid cash dividends and does not expect to pay cash dividends in the foreseeable future.

The total estimated fair value of stock options that vested during the ~~six~~nine months ended ~~June~~September 30, 2022 and 2021 was $~~4,921~~6,378 and $~~9,140~~13,358, respectively. As of ~~June~~September 30, 2022, there was $~~30,806~~39,658 of total unrecognized compensation cost related to unvested options.

Restricted Share Units

The following table summarizes the activities for the unvested ~~RSUs~~restricted stock units ("RSUs") for the three and ~~six~~nine months ended ~~June~~September 30, 2022:


	Number of RSUs			Number of RSUs vested		Weighted average remaining contractual life (in years)	Number of RSUs			Number of RSUs vested		Weighted average remaining contractual life (in years)
Outstanding, December 31, 2021		192,171			13,294	N/A		192,171			13,294	N/A
Granted		573,716						1,176,397
Vested		(58,825	)					(165,833	)
Forfeited		(23,250	)					(253,998	)
Outstanding, June 30, 2022		683,812			13,050	N/A
Outstanding, September 30, 2022								948,737			13,050	N/A

As of ~~June~~September 30, 2022, there was $~~3,916~~3,904 of total unrecognized compensation cost related to unvested RSUs.

12.

Non-controlling interest

Non-controlling interest consists mainly of the Company’s ownership minority interest in its New Jersey operations and IHC Real Estate operations and consists of the following amounts:


	June 30, 2022			December 31, 2021			September 30, 2022			December 31, 2021
Opening carrying amount	$	5,367		$	3,802		$	5,367		$	3,802
Capital distributions		(448	)		(53	)		(3,724	)		(53	)
Investment in NJ partnership		—			(1,406	)		—			(1,406	)
Net income attributable to non-controlling interest		1,296			3,024			3,523			3,024
Ending carrying amount	$	6,215		$	5,367		$	5,166		$	5,367

13.

Related parties

~~TerrAscend Corp.~~

~~Notes to the Unaudited Condensed Consolidated Financial Statements~~

~~(Amounts expressed in thousands of United States dollars, except for per share amounts)~~

Parties are related if one party has the ability to control or exercise significant influence over the other party in making financing and operating decisions. At ~~June~~September 30, 2022 amounts due to/from related parties consisted of:

•

Loans payable: During the year ended December 31, 2020, a small number of related persons, which consisted of key management of the Company, participated in the Ilera term loan (Note 8), which makes up $3,550 of the total loan principal balance at ~~June~~each of September 30, 2022 and December 31, 2021, respectively.

•

Shareholders’ Equity: During the ~~six~~nine months ended ~~June~~September 30, 2022, the Company had the following transactions related to shareholders’ equity:

•

Pursuant to the Gage Acquisition, Jason Wild, Chairman of TerrAscend, and his respective affiliates received 10,467,229 of the Company's Common Shares in exchange for their Gage subordinate voting shares that were owned, held, controlled or directed, directly or indirectly, by Mr. Wild and his respective affiliates and 7,129,517 of the Company's warrants in exchange for their Gage warrants that were owned, held, controlled or directed, directly or indirectly, by Mr. Wild and his respective affiliates. The value of the interests of funds controlled directly or indirectly by Mr. Wild in the transaction in respect of the common shares was $~~52,335~~51,614, less a restriction discount of $10,323 (refer to Note 4), in addition to the Company warrants issued in replacement of Gage warrants, at the implied consideration of $~~1.50~~0.95 per ~~Gage~~TerrAscend warrant. Richard Mavrinac, a former director of the Company, received

TerrAscend Corp.

Notes to the Unaudited Condensed Consolidated Financial Statements

(Amounts expressed in thousands of United States dollars, except for per share amounts)

40,213 Common Shares in exchange for his Gage subordinate voting shares that were owned, held, controlled or directed, directly or indirectly, by Mr. Mavrinac and also received 6,683 Common Shares in exchange for his Gage restricted stock units that were owned, held, controlled or directed, directly or indirectly by Mr. Mavrinac. The value of Mr. Mavrinac's interest in the transaction was $234.

14.

Income taxes

The effective tax rate was 2510% and ~~128~~8% for the three and ~~six~~nine months ended ~~June~~September 30, 2022, respectively, and -318% and -6064% for the three and ~~six~~nine months ended ~~June~~September 30, 2021, respectively. The effective tax rate for the three and nine months ended September 30, 2022 differed from the federal statutory tax rate primarily due to the disallowed tax deduction related to the Company's impairment of goodwill recorded during the three months ended September 30, 2022, and the disallowed tax deductions for business expenses pursuant to Section 280E of the Internal Revenue Code of 1986 (the "Code"). The effective tax rate for the three and nine months ended September 30, 2021 differed from the federal statutory tax rate primarily due to the disallowed tax deductions for business expenses pursuant to Section 280E of the Code.

During the three and nine months ended September 30, 2022, the Company recorded impairment of goodwill and intangible assets (refer to Note 7). The impairment charge resulted in a $41,316 reduction to the deferred tax liability associated with the Gage Acquisition intangibles recorded in purchase accounts (refer to Note 4). As discussed in Note 4, the accounting for the acquisitions is provisional and subject to adjustment. Therefore, the deferred tax liability is provisional until management has finalized the accounting for the acquisitions.

Unrecognized tax benefits on the ~~Unaudited Interim Condensed Consolidated Balance Sheets~~unaudited interim condensed consolidated balance sheets of $9,318 were ~~reclassed~~reclassified from corporate income tax payable to other long term liability at December 31, 2021 as the classification better aligns with the recognition of the benefits.

15.

General and administrative expenses

The Company’s general and administrative expenses were as follows:


	For the Three Months Ended					For the Six Months Ended					For the Three Months Ended					For the Nine Months Ended
		June 30, 2022		June 30, 2021			June 30, 2022		June 30, 2021			September 30, 2022		September 30, 2021			September 30, 2022		September 30, 2021
Office and general		$	6,042	$	3,369		$	9,608	$	7,224		$	5,749	$	276		$	15,357	$	7,500
Professional fees			3,564		3,070			6,492		5,749			3,333		4,927			9,825		10,676
Lease expense			1,105		1,109			2,355		2,109			1,275		1,471			3,630		3,580
Facility and maintenance			813		597			1,450		1,315			1,828		6			3,278		1,321
Salaries and wages			13,629		7,451			22,917		15,102			11,971		8,703			34,888		23,805
Share-based compensation			4,463		4,648			7,819		8,215			2,705		5,178			10,524		13,393
Sales and marketing			4,365		506			5,892		1,428			2,524		759			8,416		2,187
Total		$	33,981	$	20,750		$	56,533	$	41,142		$	29,385	$	21,320		$	85,918	$	62,462

16.

Revenue, net

The Company’s disaggregated net revenue by source, primarily due to the Company’s contracts with its external customers were as follows:


	For the Three Months Ended					For the Six Months Ended					For the Three Months Ended					For the Nine Months Ended
		June 30, 2022		June 30, 2021			June 30, 2022		June 30, 2021			September 30, 2022		September 30, 2021			September 30, 2022		September 30, 2021
Wholesale		$	16,825	$	36,330		$	40,766	$	74,714		$	13,579	$	24,221		$	54,345	$	98,935
Retail			47,979		22,393			73,697		37,363			53,446		24,918			127,143		62,281
Total		$	64,804	$	58,723		$	114,463	$	112,077		$	67,025	$	49,139		$	181,488	$	161,216

1822

TerrAscend Corp.

Notes to the Unaudited Condensed Consolidated Financial Statements

(Amounts expressed in thousands of United States dollars, except for per share amounts)

For each of the three and ~~six~~nine months ended ~~June~~September 30, 2022 and 2021, the Company did 0not have any single customer that accounted for 10% or more of the Company’s revenue.

As a result of the vape recall in Pennsylvania (refer to ~~note~~Note 5), the Company recorded sales returns of $nil and $1,040 during the three and ~~six~~nine months ended ~~June~~September 30, 2022, respectively.

17.

Finance and other expenses

The Company’s finance and other expenses included the following:


	For the Three Months Ended						For the Six Months Ended							For the Three Months Ended						For the Nine Months Ended
		June 30, 2022		June 30, 2021				June 30, 2022			June 30, 2021				September 30, 2022			September 30, 2021			September 30, 2022			September 30, 2021
Interest accretion		$	8,758	$	6,464			$	15,860		$	12,746			$	10,576		$	6,643		$	26,436		$	19,389
Forgiveness of principal and interest on loans			—		766				—			-
Indemnification asset release			3,998		2,599				3,973			3,796				—			95		$	3,973			3,891
Loss on disposal of fixed assets			845		37				929			37
Other expense (income)			301		(947	)			(4	)		(1,270	)
(Gain)/loss on disposal of fixed assets																(81	)		219		$	848			256
Other (income) expense																(1,026	)		15		$	(1,030	)		(1,255	)
Total		$	13,902	$	8,919			$	20,758		$	15,309			$	9,469		$	6,972		$	30,227		$	22,281

The indemnification asset release is the reduction of the indemnification asset related to the expiration of the escrow agreement related to the acquisition of The Apothecarium.

18.

Segment and geography information

Operating Segment

The Company determines its operating segments according to how the business activities are managed and evaluated by the Company’s chief operating decision maker. The Company operates under 1one operating segment, being the cultivation, production and sale of cannabis products.

Geography

The Company operates with subsidiaries located in Canada and the US.

The Company had the following net revenue by geography of:


	For the Three Months Ended					For the Six Months Ended					For the Three Months Ended					For the Nine Months Ended
		June 30, 2022		June 30, 2021			June 30, 2022		June 30, 2021			September 30, 2022		September 30, 2021			September 30, 2022		September 30, 2021
United States		$	63,952	$	52,457		$	112,545	$	102,141		$	66,243	$	46,117		$	178,788	$	148,258
Canada			852		6,266			1,918		9,936			782		3,022			2,700		12,958
Total		$	64,804	$	58,723		$	114,463	$	112,077		$	67,025	$	49,139		$	181,488	$	161,216

The Company had non-current assets by geography of:


	June 30, 2022		December 31, 2021		September 30, 2022		December 31, 2021
United States	$	842,569	$	409,150	$	584,905	$	409,150
Canada		28,730		29,563		27,186		29,563
Total	$	871,299	$	438,713	$	612,091	$	438,713

19.

Capital management

1923

TerrAscend Corp.

Notes to the Unaudited Condensed Consolidated Financial Statements

(Amounts expressed in thousands of United States dollars, except for per share amounts)

The Company’s objective in managing capital is to ensure a sufficient liquidity position to safeguard the Company’s ability to continue as a going concern in order to provide returns for shareholders and benefits for other stakeholders. In order to achieve this objective, the Company prepares a capital budget to manage its capital structure. The Company defines capital as borrowings, equity comprised of issued share capital, share-based payments, accumulated deficit, as well as funds borrowed from related parties.

Since inception, the Company has primarily financed its liquidity needs through the issuance of share capital and through borrowings. The equity issuances are outlined in Note 11 and debt issuances are outlined in Note 8.

The Company is subject to covenants as a result of its loans payable with various lenders. The Company is in compliance with its debt covenants as of ~~June~~September 30, 2022. ~~Other than these items related~~

Canopy Growth- Canada Inc loan

On November 11, 2022, TerrAscend Canada Inc. and Canopy USA III Limited Partnership ("Canopy USA III LP"), a successr to ~~loans payable as of June~~Canopy Growth Corporation, entered into an agreement for the period commencing August 31, 2022 to (and including) November 30, 2022, ~~and December 31, 2021, the Company is not~~ subject to ~~externally imposed capital requirements.~~certain conditions, whereby Canopy USA III LP agreed to a waiver of TerrAscend Canada Inc.’s obligation to maintain the minimum current assets as set forth in the loan financing agreement with Canopy USA LLL LP (see Note 8, referncing "Canopy Growth Canada Inc. loan").

Ilera term loan

On April 28, 2022, the Ilera term loan (refer to Note 8) was amended to provide WDB Holding PA, a subsidiary of the Company, with greater flexibility by resetting the minimum consolidated interest coverage ratio levels that must be satisfied at the end of each measurement period and extending the ~~optional prepayment~~ date in which WDB Holding PA is required to deliver its budget for the fiscal year ending 2021. In addition, the no-call period was ~~amended~~extended from 18 months to 30 months ~~(from~~ ~~18 months) from the closing date,~~, subject to a premium ~~payment due.~~payment. This modification was not considered extinguishments of debt under ASC 470, Debt.

On November 11, 2022, WDB Holding PA, the Company, TerrAscend USA Inc. and the subsidiary guarantors party to the PA Credit Agreement and the PA Agent (on behalf of the required lenders) entered into an amendment to the PA Credit Agreement, pursuant to which the PA Agent and the required lenders agreed that WDB Holding PA’s obligation to maintain the consolidated interest coverage ratio as set forth in the PA Credit Agreement for the period ended September 30, 2022, shall not apply, subject to certain conditions, including (but not limited to) an obligation to enter into a subsequent amendment agreement on or before December 15, 2022, documenting certain enhancements and amendments to the PA Credit Agreement to be agreed. In addition, WDB Holding PA offered a prepayment of $5,000 pro rata to all lenders holding outstanding loans thereunder at a price equal to 103.22% of the principal amount prepaid, plus accrued and unpaid interest.

Gage loan

On August 10, 2022, the Gage senior secured term loan (refer to Note 8) was amended as a result of the corporate restructure in conjunction with the Gage Acquisition. The amendments to the Gage senior secured term loan include the addition of a borrower and guarantor under the term loan and a right of first offer in favor of the administrative agent for a refinancing of the term loan. This modification was not considered extinguishments of debt under ASC 470, Debt.

20.

Financial instruments and risk management

Assets and liabilities measured at fair value

Cash and cash equivalents, net accounts receivable, accounts payable and accrued liabilities, loans payable, convertible debentures, and other current receivables and payables represent financial instruments for which the carrying amount approximates fair value due to their short-term maturities.

TerrAscend Corp.

Notes to the Unaudited Condensed Consolidated Financial Statements

(Amounts expressed in thousands of United States dollars, except for per share amounts)

The following table represents the fair value amounts of financial assets and financial liabilities measured at estimated fair value on a recurring basis:


	At June 30, 2022								At December 31, 2021								At September 30, 2022								At December 31, 2021
		Level 1		Level 2			Level 3			Level 1		Level 2			Level 3			Level 1		Level 2			Level 3			Level 1		Level 2			Level 3
Assets
Cash and cash equivalents		$	48,426	$	-	—	$	-		$	79,642	$	-	—	$	-		$	34,288	$	-	—	$	-		$	79,642	$	-	—	$	-
Restricted cash			605		—			—			—		—			—			1,031		—			—			—		—			—
Purchase option derivative asset			—		—			50			—		—			868			—		—			50			—		—			868
Total Assets		$	49,031	$	-		$	50		$	79,642	$	-		$	868		$	35,319	$	-		$	50		$	79,642	$	-		$	868
Liabilities
Contingent consideration payable			—	$	-		$	5,648		$	-	$	-		$	12,535		$	-	$	-		$	5,684		$	-	$	-		$	12,535
Warrant liability			—		6,176			—			—		54,986			—			—		679			—			—		54,986			—
Total Liabilities		$	-	$	6,176		$	5,648		$	-	$	54,986		$	12,535		$	-	$	679		$	5,684		$	-	$	54,986		$	12,535

There were 0no transfers between the levels of fair value hierarchy during the three and ~~six~~nine months ended ~~June~~September 30, 2022.

The valuation approaches and key inputs for each category of assets or liabilities that are classified within levels of the fair value hierarchy are presented below:

Level 1

Level 2

Warrant liability

The following table summarizes the changes in the warrant liability for the ~~six~~nine months ended ~~June~~September 30, 2022:

~~TerrAscend Corp.~~

~~Notes to the Unaudited Condensed Consolidated Financial Statements~~

~~(Amounts expressed in thousands of United States dollars, except for per share amounts)~~


Balance at December 31, 2021	$	54,986		$	54,986
Addition on acquisition		6,756			6,756
Included in gain on fair value of warrants		(53,876	)		(59,373	)
Exercises		(1,690	)		(1,690	)
Balance at June 30, 2022	$	6,176
Balance at September 30, 2022				$	679

The Company's warrant liability consists of its Series A, B, C, and D convertible preferred stock issued through its 2020 private placements ("private placement warrant liability"), as well as the warrant liability acquired through its Gage Acquisition ("Gage warrant liability") (refer to Note 4).

The private placement warrant liability has been measured at fair value at ~~June~~September 30, 2022. Key inputs and assumptions used in the Black Scholes ~~valuation~~model were as follows:


	June 30, 2022			December 31, 2021			September 30, 2022			December 31, 2021
Common Stock Price of TerrAscend Corp.	$	2.28		$	6.11		$	1.28		$	6.11
Warrant exercise price	$	3,000		$	3,000		$	3,000		$	3,000
Warrant conversion ratio	$	1,000		$	1,000		$	1,000		$	1,000
Annual volatility		65.7	%		65.5	%		73.3	%		65.5	%
Annual risk-free rate		2.9	%		0.6	%		4.0	%		0.6	%
Expected term (in years)		0.9		1.4				0.6		1.4

The Gage warrant liability has been remeasured at fair value at ~~June~~September 30, 2022. Key inputs and assumptions used in the Black Scholes ~~valuation~~model were as follows:

June 30, 2022

March 10, 2022

Common Stock Price of TerrAscend Corp.

$
2.28

$
5.70

Warrant exercise price

$
8.66

$
8.66

Annual volatility

62.88% - 63.73%

61.65% - 61.87%

Annual risk-free rate

2.9
%

1.8
%
Expected term (in years)

1.5

1.7

TerrAscend Corp.

Notes to the Unaudited Condensed Consolidated Financial Statements

(Amounts expressed in thousands of United States dollars, except for per share amounts)


	September 30, 2022			March 10, 2022
Common Stock Price of TerrAscend Corp.	$	1.28		$	4.92
Warrant exercise price	$	8.66		$	8.66
Annual volatility	69.72% - 70.19%				65.0	%
Annual risk-free rate		4.2	%		1.7	%
Expected term (in years)		1.3			2.0

Level 3

Purchase option derivative asset

The following table summarizes the changes in the purchase option derivative asset:


Balance at December 31, 2021	$	868		$	868
Revaluation of purchase option derivative asset		(818	)		(818	)
Balance at June 30, 2022	$	50
Balance at September 30, 2022				$	50

The purchase option derivative asset has been measured at fair value at the transaction date using the Monte Carlo simulation model that relies on assumptions around the Company's EBITDA volatility and risk adjusted discount, among others. Key inputs and assumptions used in the Monte Carlo simulation model are summarized below:


	June 30, 2022			December 31, 2021			September 30, 2022			December 31, 2021
Term (in years)		0.8			1.3			0.8			1.3
Risk-free rate		2.5	%		0.4	%		2.5	%		0.4	%
EBITDA discount rate		15.5	%		15.0	%		15.5	%		15.0	%
EBITDA volatility		37.1	%		44.0	%		37.1	%		44.0	%

Contingent Consideration Payable

~~TerrAscend Corp.~~

~~Notes to the Unaudited Condensed Consolidated Financial Statements~~

~~(Amounts expressed in thousands of United States dollars, except for per share amounts)~~

The fair value of contingent consideration at ~~June~~September 30, 2022 and December 31, 2021 was determined using a probability weighted model based on the likelihood of achieving certain revenue and EBITDA scenario outcomes. A discount rate of 12.2% ~~(June~~(September 30, 2021 – 12.8%) was utilized to determine the present value of the liabilities, resulting in a loss on revaluation of contingent consideration of $3436 and $~~153~~189 for the three and ~~six~~nine months ended ~~June~~September 30, 2022, respectively ~~(June~~(September 30, 2021 - ($7338) and $~~2,990~~2,652, respectively).

The illustrative variance of the total contingent consideration at ~~June~~September 30, 2022 based on reasonably possible changes to one of the significant unobservable inputs, holding other inputs constant, would have the following effects:


Discount rate sensitivity	KCR		KCR
Increase 100 basis points	$	1,175	$	1,212
Increase 50 basis points	$	1,195	$	1,231
Decrease 50 basis points	$	1,236	$	1,271
Decrease 100 basis points	$	1,258	$	1,292

21.

Commitments and contingencies

Legal proceedings

In the ordinary course of business, the Company is involved in a number of lawsuits incidental to its business, including litigation related to intellectual property, product liability, employment, and commercial matters. Although it is difficult to predict the ultimate outcome of these cases, management believes that any ultimate liability would not have a material adverse effect on the Company's consolidated balance sheets or results of operations. At ~~June~~September 30, 2022, there were no pending lawsuits that could reasonably be expected to have a material effect on the results of the Company’s consolidated financial statements.

2226

TerrAscend Corp.

Notes to the Unaudited Condensed Consolidated Financial Statements

(Amounts expressed in thousands of United States dollars, except for per share amounts)

22.

Subsequent events

~~Subsequent to June 30,~~On October 11, 2022, subsidiaries of the Company, ~~opened~~among others, entered into a loan agreement with Pelorus Fund REIT, LLC ("Pelorus") for a single-draw senior secured term loan ("Pelorus Term Loan") in an aggregate principal amount of $45,478. The ~~Apothecarium Lodi, its third retail location in~~Pelorus Term Loan bears interest of 12.77% per annum, which is based on a variable rate tied to the one month secured overnight financing rate (SOFR), subject to a 2.5% floor plus 9.5%, with interest-only payments for the first 36 months. The obligations of the borrowers under the Pelorus Term Loan are guaranteed by the Company, TerrAscend USA Inc. and certain other subsidiaries of the Company and secured by substantially all of the assets of the Company’s Maryland and New Jersey businesses, including certain real estate in Maryland and ~~27th dispensary overall.~~New Jersey. The ~~retail location was opened~~Pelorus Term Loan matures on ~~July 25, 2022 to medical patients. On July 26, 2022, the Company received approval for Adult Use sales at this location.~~

October 11, 2027.

~~ii)~~

~~On July~~ 27 ~~2022, the Company's first "Cookies Corner" opened in its Maplewood dispensary in New Jersey.~~

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis of the Company's financial condition and results of operations should be read in conjunction with the Company's unaudited interim condensed consolidated financial statements and related notes appearing elsewhere in this Quarterly Report on Form 10-Q and the audited consolidated financial information and the notes thereto included in the ~~Company's Annual Report on~~2021 Form 10-K for the year ended December 31, 2021, which was filed with the Securities and Exchange Commission, or SEC, on March 17, 2022. Some of the information contained in this discussion and analysis or set forth elsewhere in this Quarterly Report on Form 10-Q, including information with respect to the Company's plans and strategy for its business, includes forward-looking statements that involve risks and uncertainties. As a result of many factors, including those factors set forth under "Risk Factors" in the ~~Company's Annual Report on~~2021 Form 10-K, its actual results could differ materially from the results described in or implied by the "Cautionary Note Regarding Forward-Looking Statements" contained in this Quarterly Report on Form 10-Q and in the following discussion and analysis.

~~This Management’s Discussion and Analysis (“MD&A”)~~Unless otherwise noted, dollar amounts in this Item 2 are in thousands of ~~the financial condition and results of operations of TerrAscend is for the three and six months ended June 30, 2022 and 2021 and the accompanying notes for each respective period.~~U.S. dollars.

~~Business~~ Overview

TerrAscend is a leading North American cannabis operator with vertically integrated operations in Pennsylvania, New Jersey, and California, licensed cultivation and processing operations in Michigan and Maryland, and licensed processing operations in Canada. TerrAscend operates a chain of Apothecarium dispensary retail locations, as well as scaled cultivation, processing, and manufacturing facilities on both the east and west coasts of the United States. TerrAscend’s cultivation and manufacturing practices yield consistent, high-quality cannabis, providing industry-leading product selection to both the medical and legal adult-use market. Notwithstanding various states in the USU.S. which have implemented medical marijuana laws, or which have otherwise legalized the use of cannabis, the use of cannabis remains illegal under USU.S. federal law for any purpose, by way of the ~~CSA.~~Controlled Substances Act of 1970.

TerrAscend operates under one operating segment which is the cultivation, production and sale of cannabis products.

TerrAscend’s portfolio of operating businesses and brands include:

●

Gage Growth Corp. ("Gage"), a cultivator and processor in ~~Michigan~~Michigan;

●

Ilera Healthcare, a vertically integrated cannabis cultivator, processor and dispensary operator in Pennsylvania;

●

TerrAscend NJ LLC, a majority owned subsidiary that holds a permit to operate up to three ~~alternative treatment centers~~medical and/or recreational dispensaries in New Jersey with the ability to cultivate and process;

●

The Apothecarium, consisting of retail dispensaries in California, Pennsylvania and New Jersey;

●

Valhalla Confections, a provider of premium edible products;

●

State Flower, a California-based cannabis producer operating a licensed cultivation facility in San Francisco, California;

●

HMS Health, LLC and HMS Processing, LLC, a producer and seller of dried flower and oil products for the wholesale medical cannabis market in Maryland;

●

TerrAscend Canada Inc., a Licensed Producer (as such term is defined in the Cannabis Act) of cannabis, with its current principal business activities including processing and sale of cannabis flower and oil products in Canada;

●

Cookies Canada, the operator of a minority owned retail cannabis dispensary in Toronto, Canada; and

●

Arise Bioscience, a manufacturer and distributor of hemp-derived products, located in Boca Raton, Florida.

~~Objective~~Recent Developments

(i)

On August 23, 2022, in order to expand its retail footprint in Michigan, the Company acquired KISA Enterprises MI, LLC and KISA Holdings, LLC (collectively, "Pinnacle"), a dispensary operator in Michigan, and related real estate for total consideration of $28,500. The transaction includes six retail dispensary licenses, five of which are currently operational and located in the cities of Addison, Buchanan, Camden, Edmore, and Morenci, Michigan. The Company intends to rebrand each of the dispensaries under either the Gage or Cookies retail brand.

(ii)

During the nine months ended September 30, 2022, the Company commenced adult-use sales in New Jersey.

Pending and Subsequent Transactions

TerrAscend's MD&A is designed to provide information about its financial condition and results of operations from management's perspective. It includes relevant components of TerrAscend's financial condition and current and long-term liquidity. Primary revenue drivers include the manufacture, distribution, and sale of medical and adult-use cannabis products where permitted. TerrAscend's primary obligations are related to compliance with state and federal regulators, as applicable. TerrAscend's primary sources of capital have been through the issuance of equity securities or debt. TerrAscend's objective is to discuss how all these factors have affected our historical results and, where applicable, how it expects these factors to impact its future results and future liquidity.

2428

(i)

On October 11, 2022, the subsidiaries of the Company, among others, entered into a loan agreement with Pelorus Fund REIT, LLC ("Pelorus") for a single-draw senior secured term loan ("Pelorus Term Loan") in an aggregate principal amount of $45,478. The Pelorus Term Loan bears interest of 12.77% per annum, which is based on a variable rate tied to the one month secured overnight financing rate (SOFR), subject to a 2.5% floor plus 9.5%, with interest-only payments for the first 36 months. The obligations of the borrowers under the Pelorus Term Loan are guaranteed by the Company, TerrAscend USA Inc. and certain other subsidiaries of the Company and secured by substantially all of the assets of the Company’s Maryland and New Jersey businesses, including certain real estate in Maryland and New Jersey. The Pelorus Term Loan matures on October 11, 2027.

(ii)

On April 8, 2022, the Company entered into a definitive agreement to acquire Allegany Medical Marijuana Dispensary ("AMMD"), a medical dispensary in Maryland from Moose Curve Holdings, LLC. Under the terms of the agreement, the Company will acquire 100% equity interest in AMMD for total consideration of $10,000 in cash, in addition to acquiring the real estate for $1,700. The transaction is subject to customary closing conditions and regulatory approvals. The Company intends to rebrand the 8,000 square foot dispensary as The Apothecarium.

Results from Operations- Three months ended ~~June~~September 30, 2022 and ~~June~~September 30, 2021

The following tables represent the Company’s results from operations for the three months ended ~~June~~September 30, 2022 and 2021.

Revenue, net


	For the Three Months Ended							For the Three Months Ended
		June 30, 2022			June 30, 2021				September 30, 2022			September 30, 2021
Revenue		$	65,367		$	61,977			$	67,726		$	50,537
Excise and cultivation taxes			(563	)		(3,254	)			(701	)		(1,398	)
Revenue, net		$	64,804		$	58,723			$	67,025		$	49,139
$ change		$	6,081						$	17,886
% change			10	%						36	%

The increase in net revenue at ~~June~~September 30, 2022 as compared to ~~June~~September 30, 2021 was due to an increase in retail revenue of ~~$25,586~~$28,528 from ~~$22,393~~$24,918 for the three months ended ~~June~~September 30, 2021 to ~~$47,979~~$53,446 for the three months ended ~~June~~September 30, 2022. The increase in revenue iswas mainly due to adult use sales in New Jersey which commenced during the ~~three months ended June 30, 2022,~~current year, as well as the acquisition of Gage (the "Gage Acquisition") in Michigan in March 2022. Retail dispensaries increased from ~~thirteen~~13 at ~~June~~September 30, 2021 to ~~twenty-six~~30 at ~~June~~September 30, 2022.

The increase iswas partially offset by the decrease of ~~$19,505~~$10,642 in wholesale revenue from ~~$36,330 at June 30, 2021 to $16,825~~$24,221 for the three months ended ~~June~~September 30, 2021 to $13,579 for the three months ended September 30, 2022, which was mainly related to ~~the operational reconfiguration of the Company's cultivation facility~~challenging market dynamics in Pennsylvania.

Cost of Sales


	For the Three Months Ended							For the Three Months Ended
		June 30, 2022			June 30, 2021				September 30, 2022			September 30, 2021
Cost of sales		$	34,389		$	23,773			$	36,284		$	27,494
Impairment and write downs of inventory			7,422			115				6,378			148
Total cost of sales		$	41,811		$	23,888			$	42,662		$	27,642
$ change		$	17,923						$	15,020
% change			75	%						54	%
Cost of sales as a % of revenue			65	%		41	%			64	%		56	%

The increase in cost of sales for the three months ended ~~June~~September 30, 2022 as compared to the three months ended ~~June~~September 30, 2021 was driven mainly by the Gage Acquisition, as well as an increase in New Jersey due to the increase in adult use sales which commenced during the current year. The increase in cost of sales as a percentage of revenue was due to lower volumes in Pennsylvania leading to under-absorption, primarily related to lower wholesale flower sales, as well as operational challenges at the Company's cultivation facility in Frederick, Maryland as the Company transitioned to its Hagerstown location.

In addition, management wrote down its inventory by $6,378 and $148 for the three months ended September 30, 2022 and 2021, respectively. The inventory write-downs in the current year period were mainly due to inventory deemed unsaleable in its business in Canada. The inventory write-downs in the prior year period were related to inventory that the Company deemed unsaleable in its business in Canada.

General and Administrative Expense (G&A)


	For the Three Months Ended
		September 30, 2022			September 30, 2021
General and administrative expense		$	29,385		$	21,320
$ change		$	8,065
% change			38	%
G&A excluding share-based compensation		$	26,680		$	16,142
G&A excluding share-based compensation as a % of revenue			40	%		33	%

The increase in G&A expenses was primarily a result of increased office and general expenses of $7,030 and increased salaries and wages of $3,268, which are primarily a result of the Gage Acquisition in March 2022.

Amortization and Depreciation Expense


	For the Three Months Ended
		September 30, 2022			September 30, 2021
Amortization and depreciation		$	3,032		$	1,947
$ change		$	1,085
% change			56	%

The increase in amortization and depreciation expense for the three months ended September 30, 2022 as compared to the three months ended September 30, 2021 was primarily due to the Gage Acquisition during March 2022. The Company acquired retail licenses, which are amortized over a 15 year period. The fair value of the retail licenses at acquisition were $56,665.

Impairment of intangible assets


	For the Three Months Ended
		September 30, 2022			September 30, 2021
Impairment of intangible assets		$	152,928		$	-
$ change		$	152,928
% change			100	%

During the three months ended September 30, 2022, the Company performed impairment analyses over its indefinite lived and definite lived intangible assets acquired through the Gage Acquisition as the changes in the market expectations of cash flows in Michigan, as well as increased competition and supply in the state, were determined to be indicators of impairment. The Company determined that it was more likely than not that the carrying value of its definite lived retail and cultivation and processing licenses was greater than its fair value, and therefore recorded impairment of $78,998 and $54,730 for the retail and cultivation and processing licenses, respectively, reducing both the carrying values to $nil at September 30, 2022. Additionally, the Company recorded impairment of its indefinite lived brand intangible assets acquired through the Gage Acquisition of $19,200, reducing the carrying value of the brand intangibles to $57,985 at September 30, 2022.

Impairment of goodwill


	For the Three Months Ended
		September 30, 2022			September 30, 2021
Impairment of goodwill		$	178,314		$	-
$ change		$	178,314
% change			100	%

During the three months ended September 30, 2022, as it was determined that it was more likely than not that the Michigan reporting unit's fair value was less than its carrying value, a one-step goodwill quantitative impairment test was performed. As a result of the quantitative impairment test, the Company recorded impairment of goodwill of $178,314 at its Michigan reporting unit, reducing the carrying value of the goodwill acquired through the Gage Acquisition and Pinnacle Acquisition to $nil.

The impairment of goodwill for the three months ended September 30, 2021 was related to the Company's Florida reporting unit as the Company determined that the estimated cash flows of its Arise business did not support the carrying value of the intangible assets and goodwill. As a result, the Company recorded impairment to reduce the balance of goodwill at its Florida reporting unit to $nil.

Gain on fair value of warrants and purchase option derivative asset


	For the Three Months Ended
		September 30, 2022			September 30, 2021
Gain on fair value of warrants and purchase option derivative asset		$	(5,497	)	$	(69,016	)
$ change		$	63,519
% change			-92	%

The warrant liability was remeasured to fair value at September 30, 2022 using the Black Scholes Option Pricing Model ("Black Scholes model"). The Company recognized a gain on fair value of warrants of $5,497 during the three months ended September 30, 2022 as a result of the reduction of the Company's share price from June 30, 2022, as compared to September 30, 2022.

During the three months ended September 30, 2021, the Company recognized a gain on fair value of warrants of $69,016 as a result of the decrease in the Company's share price from June 30, 2021 to September 30, 2021 as well as warrants exercised during the three months ended September 30, 2021.

Finance and other expenses


	For the Three Months Ended
		September 30, 2022			September 30, 2021
Finance and other expenses		$	9,469		$	6,972
$ change		$	2,497
% change			36	%

The increase in finance and other expenses for the three months ended September 30, 2022 as compared to the three months ended September 30, 2021 was primarily due to interest expense recognized on the loans acquired as part of the Gage Acquisition.

Transaction and restructuring costs


	For the Three Months Ended
		September 30, 2022			September 30, 2021
Transaction and restructuring costs		$	1,359		$	1,034
$ change		$	325
% change			31	%

The transaction and restructuring costs for the three months ended September 30, 2022 were primarily due to personnel related reorganization and severance costs in Canada. The transaction and restructuring costs for the three months ended September 30, 2021 included legal costs related to the acquisitions of KCR, HMS, and Gage.

Unrealized and realized foreign exchange loss (gain)


	For the Three Months Ended
		September 30, 2022			September 30, 2021
Unrealized and realized foreign exchange loss (gain)		$	586		$	(1,256	)
$ change		$	1,842
% change			-147	%

The Company recognized an unrealized foreign exchange loss for the three months ended September 30, 2022 as compared to a gain for the three months ended September 30, 2021, which was a result of the remeasurement related to USD denominated liabilities recorded in C$ functional currency at the Company’s Canadian operations.

Unrealized and realized gain on investments


	For the Three Months Ended
		September 30, 2022			September 30, 2021
Unrealized and realized gain on investments		$	(231	)	$	-
$ change		$	(231	)
% change			100	%

The gain on investment during the three months ended September 30, 2022 was related to the revaluation of the investments acquired through the Gage Acquisition.

Provision for income taxes


	For the Three Months Ended
		September 30, 2022			September 30, 2021
Provision for income taxes		$	(34,033	)	$	4,999
$ change		$	(39,032	)
% change			-781	%

The decrease in provision for income taxes for the three months ended September 30, 2022 as compared to the three months ended September 30, 2021 was primarily driven by the decrease in pre-tax book income as a result of the impairment of intangible assets and goodwill recorded by the Company during the quarter.

Results from Operations- Nine months ended September 30, 2022 and September 30, 2021

The following tables represent the Company’s results from operations for the nine months ended September 30, 2022 and 2021.

Revenue, net


	For the Nine Months Ended
		September 30, 2022			September 30, 2021
Revenue		$	183,538		$	169,010
Excise and cultivation taxes			(2,050	)		(7,794	)
Revenue, net		$	181,488		$	161,216
$ change		$	20,272
% change			13	%

The increase in net revenue at September 30, 2022 as compared to September 30, 2021 was due to an increase of $64,862 in retail sales from $62,281 for the nine months ended September 30, 2021 to $127,143 for the nine months ended September 30, 2022. The increase in revenue was mainly due to adult use sales in New Jersey, which commenced during the current year, as well as the Gage Acquisition in March. Retail dispensaries increased from thirteen at September 30, 2021 to thirty at September 30, 2022.

The increase was partially offset by the decrease of $44,590 in wholesale revenue from $98,935 for the nine months ended September 30, 2021 to $54,345 for the nine months ended September 30, 2022, which was mainly related to challenging market dynamics in Pennsylvania.

Cost of Sales


	For the Nine Months Ended
		September 30, 2022			September 30, 2021
Cost of sales		$	104,119		$	69,679
Impairment and write downs of inventory			14,873			263
Total cost of sales		$	118,992		$	69,942
$ change		$	49,050
% change			70	%
Cost of sales as a % of revenue			66	%		43	%

The increase in cost of sales for the nine months ended September 30, 2022 as compared to nine months ended September 30, 2021 was driven mainly by the Gage Acquisition, as well as an increase in New Jersey due to the increase in adult use sales which commenced

during the current year. The increase in cost of sales as a percentage of revenue was due to lower volumes in Pennsylvania leading to under-absorption, primarily related to lower wholesale flower sales, as well as operational challenges at the Company's cultivation facility in Frederick, Maryland as the Company transitions to its Hagerstown location.

In addition, management wrote down its inventory by ~~$7,422~~$14,873 and ~~$115~~$263 for the ~~three~~nine months ended June 30, 2022 and 2021, respectively. The inventory write-downs in the current year period were mainly due to the write down of inventory to lower of cost or market which was related to the aforementioned operational reconfiguration of its cultivation facility in Pennsylvania, write downs of inventory related to a recall by the Pennsylvania Department of Health of certain vape products produced by the Company, as well as inventory in Canada that the Company deemed unsaleable. On February 4, 2022, more than 500 vape products were recalled by the Pennsylvania's Department of Health, including several of the Company's SKUs. As a result of the recall, the Company wrote off $1,071 of inventory during the three months ended June 30, 2022. The inventory write-downs in the prior year period were related to inventory that the Company deemed unsaleable.

~~General and Administrative Expense (G&A)~~

For the Three Months Ended

June 30, 2022

June 30, 2021

General and administrative expense

$
33,981

$
20,750

$ change

$
13,231

% change

64
%

G&A excluding share-based compensation

$
29,518

$
16,102

G&A excluding share-based compensation as a % of revenue

46
%

27
%

The increase in G&A expenses was primarily a result of increased salaries and wages of $6,178, sales and marketing expense of $3,859, and office and general expense of $2,673, which is primarily a result of the Gage Acquisition in March 2022.

~~Amortization and Depreciation Expense~~

For the Three Months Ended

June 30, 2022

June 30, 2021

Amortization and depreciation

$
3,016

$
1,844

$ change

$
1,172

% change

64
%

The increase in amortization and depreciation expense for the three months ended June 30, 2022 as compared to the three months ended June 30, 2021 is primarily due to the Gage Acquisition during March 2022. The company acquired intangible assets including cultivation and processing licenses, as well as retail licenses, which are amortized over a 15 year period. The fair value of the cultivation and processing and retail licenses at acquisition were $77,198 and $53,321, respectively.

~~(Gain) loss on fair value of warrants and purchase option derivative asset~~

For the Three Months Ended

June 30, 2022

June 30, 2021

(Gain) loss on fair value of warrants and purchase option derivative asset

$
(47,345
)

$
19,891

$ change

$
(67,236
)

% change

-338
%

The warrant liability has been remeasured to fair value at June 30, 2022 using the Black Scholes model. The Company recognized a gain during the three months ended June 30, 2022 as a result of the reduction of the Company's share price from March 31, 2021 as compared to June 30, 2022, as well as from warrants exercised during the three months ended June 30, 2022. The combined impact resulted in a gain on fair value of warrants of $47,845.

For the three months ended June 30, 2022, the purchase option derivative asset related to the option to purchase an additional 6.25% ownership of the Company's New Jersey partnership, was remeasured using the Monte Carlo simulation model and resulted in a loss of $500.

During the three months ended June 30, 2021, the Company recognized a loss on fair value of warrants of $19,891 as a result of the increase in the Company's share price from December 31, 2020 to June 30, 2021 as well as warrants exercised during the three months ended June 30, 2021.

~~Finance and other expenses~~

For the Three Months Ended

June 30, 2022

June 30, 2021

Finance and other expenses

$
13,902

$
8,919

$ change

$
4,983

% change

56
%

The increase in finance expense for the three months ended June 30, 2022 as compared to the three months ended June 30, 2021 is primarily due to interest expense recognized on the loans acquired as part of the Gage Acquisition, as well as a loss recognized on disposal of fixed assets of $981 related to lights at the Pennsylvania cultivation facility which were discarded during the three months ended June 30, 2022.

~~Transaction and restructuring costs~~

For the Three Months Ended

June 30, 2022

June 30, 2021

Transaction and restructuring costs

$
627

$
432

$ change

$
195

% change

45
%

The increase in transaction and restructuring costs for the three months ended June 30, 2022 as compared to the three months ended June 30, 2021 was primarily due to work done for Sarbanes Oxley implementation during the three months ended June 30, 2022.

~~Impairment of goodwill~~

For the Three Months Ended

June 30, 2022

June 30, 2021

Impairment of goodwill

$
-

$
5,007

$ change

$
(5,007
)

% change

-100
%

The impairment of goodwill for the three months ended June 30, 2021 was related to the Company's Florida reporting unit as the Company determined that the estimated cash flows of its Arise business did not support the carrying value of the intangible assets and goodwill. As a result, the Company recorded impairment to reduce the balance of goodwill at its Florida reporting unit to $nil.

~~Impairment of intangible assets~~

For the Three Months Ended

June 30, 2022

June 30, 2021

Impairment of intangible assets

$
-

$
3,633

$ change

$
(3,633
)

% change

-100
%

~~The impairment recorded during the three months ended June 30, 2021 relates to the write-off of intellectual property at the Company's Arise business.~~

~~Unrealized and realized foreign exchange loss~~

For the Three Months Ended

June 30, 2022

June 30, 2021

Unrealized and realized foreign exchange loss

$
(306
)

$
3,055

$ change

$
(3,361
)

% change

-110
%

The decrease in unrealized foreign exchange loss for the three months ended June 30, 2022 as compared to the three months ended June 30, 2021 is a result of the remeasurement of USD denominated cash and other assets recorded in C$ functional currency at the Company’s Canadian operations.

~~Unrealized and realized gain on investments~~

For the Three Months Ended

June 30, 2022

June 30, 2021

Unrealized and realized loss (gain) on investments

$
234

$
(5,964
)
$ change

$
6,198

% change

-104
%

The loss on investment during the three months ended June 30, 2022 is related to the revaluation of the investments acquired through the Gage Acquisition. The gain on investment during the three months ended June 30, 2021 relates to the acquisition of the remaining 90% investment in Guadco LLC and KCR Holdings LLC on April 30, 2021.

~~Provision for income taxes~~

For the Three Months Ended

June 30, 2022

June 30, 2021

Provision for income taxes

$
4,688

$
6,937

$ change

$
(2,249
)

% change

-32
%

The decrease in provision for income taxes for the three months ended June 30, 2022 as compared to the three months ended June 30, 2021 was due to the decline in revenue and associated decline in gross profit, mainly related to the operational reconfiguration of the Company's cultivation facility in Pennsylvania.

~~Results from Operations- Six months ended June 30, 2022 and June 30, 2021~~

~~The following tables represent the Company’s results from operations for the six months ended June 30, 2022 and 2021.~~

~~Revenue, net~~

For the Six Months Ended

June 30, 2022

June 30, 2021

Revenue

$
115,812

$
118,473

Excise and cultivation taxes

(1,349
)

(6,396
)
Revenue, net

$
114,463

$
112,077

$ change

$
2,386

% change

2
%

The increase in net revenue at June 30, 2022 as compared to June 30, 2021 was due to an increase in retail revenue of $36,334 from $37,363 for the six months ended June 30, 2021 to $73,697 for the six months ended June 30, 2022. The increase in revenue is mainly due to adult use sales in New Jersey which commenced during the six months ended June 30, 2022, as well as the Gage Acquisition. Retail dispensaries increased from thirteen at June 30, 2021 to twenty-six at June 30, 2022.

This increase is partially offset by a decrease of $33,948 in wholesale revenue from $74,714 for the six months ended June 30, 2021 to $40,766 for the six months ended June 30, 2022, which was mainly related to a decline in the Canada business, as well as the operational reconfiguration of the Company's cultivation facility in Pennsylvania, as well as the aforementioned vape recall. As a result of the recall, the Company recorded sales returns of $1,040 during the six months ended June 30, 2022.

~~Cost of Sales~~

For the Six Months Ended

June 30, 2022

June 30, 2021

Cost of sales

$
67,835

$
41,601

Impairment and write downs of inventory

8,495

699

Total cost of sales

$
76,330

$
42,300

$ change

$
34,030

% change

80
%

Cost of sales as a % of revenue

67
%

38
%

The increase in cost of sales for the six months ended June 30, 2022 as compared to the six months ended June 30, 2021 was driven mainly by the Gage Acquisition, as well as an increase in New Jersey due to adult use sales which commenced during the six months ended June 30, 2022. The increase in cost of sales as a percentage of revenue was primarily due to lower wholesale flower sales volume in Pennsylvania leading to under-absorption, and unfavorable mix, primarily related to lower Gage bulk wholesale sales at the end of the first quarter.

~~In addition, management wrote down its inventory by $8,495 and $699 for the six months ended June~~September 30, 2022 and 2021, respectively. The inventory write-downs in the current year period were mainly due to the write down of inventory to lower of cost or market which was related to the Company's operational reconfiguration of its cultivation facility in Pennsylvania, write downs of inventory related to the vape recall in Pennsylvania, as well as inventory deemed unsaleable in ~~Canada that the Company deemed unsaleable. As a result of the recall, the Company wrote off $1,925 of inventory during the six months ended June 30, 2022.~~its business in Canada. The ~~inventory write-downs~~impairment recorded in the prior year period ~~were related~~was due to obsolete or slow-moving inventory at the Company's Arise business and other inventory that the Company deemed ~~unsaleable.~~unsaleable in its business in Canada.

General and Administrative Expense (G&A)


	For the Six Months Ended							For the Nine Months Ended
		June 30, 2022			June 30, 2021				September 30, 2022			September 30, 2021
General and administrative expense		$	56,533		$	41,142			$	85,918		$	62,462
$ change		$	15,391						$	23,456
% change			37	%						38	%
G&A excluding share-based compensation		$	48,714		$	32,927			$	75,394		$	49,069
G&A excluding share-based compensation as a % of revenue			43	%		29	%			42	%		30	%

The increase in G&A expenses was primarily a result of increased salaries and wages of ~~$7,815,~~$11,083, office and general expenses of $9,415, and sales and marketing ~~expense~~ of ~~$4,464, and office and general expense of $2,384,~~$4,672, which is primarily a result of the Gage Acquisition.

Amortization and Depreciation Expense

For the Six Months Ended

June 30, 2022

June 30, 2021

Amortization and depreciation

$
5,634

$
3,717

$ change

$
1,917

% change

52
%


	For the Nine Months Ended
		September 30, 2022			September 30, 2021
Amortization and depreciation		$	8,666		$	5,664
$ change		$	3,002
% change			53	%

The increase in amortization and depreciation expense for the ~~six~~nine months ended ~~June~~September 30, ~~2022~~2021 as compared to ~~the six months ended June~~September 30, ~~2021 is~~2020 was primarily due to the Gage ~~Acquisition.~~Acquisition during March 2022. The ~~Company~~company acquired ~~intangible assets including cultivation and processing licenses, as well as~~ retail licenses which are amortized over a 15 year period. The fair value of the retail licenses at acquisition was $53,321.

Impairment of intangible assets


	For the Nine Months Ended
		September 30, 2022			September 30, 2021
Impairment of intangible assets		$	152,928		$	3,633
$ change		$	149,295
% change			4109	%

During the nine months ended September 30, 2022, the Company performed impairment analyses over its indefinite lived and definite lived intangible assets acquired through the Gage Acquisition as the changes in the market expectations of cash flows in Michigan, as well as increased competition and supply in the state, were determined to be indicators of impairment. The Company determined that it was more likely than not that the carrying value of its definite lived retail and cultivation and processing licenses was greater than its fair value, and therefore recorded impairment of $78,998 and $54,730 for the retail and cultivation and processing licenses, respectively, reducing both the carrying values to $nil at ~~acquisition were $77,198 and $53,321, respectively.~~September 30, 2022. Additionally, the Company recorded impairment of its indefinite lived brand intangible assets acquired through the Gage Acquisition of $19,200, reducing the carrying value of the brand intangibles to $57,985 at September 30, 2022.

~~Revaluation of contingent consideration~~

For the Six Months Ended

June 30, 2022

June 30, 2021

Revaluation of contingent consideration

$
153

$
2,990

$ change

$
(2,837
)

% change

-95
%

The ~~decrease in~~impairment recorded during the ~~revaluation of contingent consideration for the six~~nine months ended ~~June~~September 30, ~~2022 as compared to the six months ended June 30,~~ 2021 is a result of a reduction in the liability as compared to June 30, 2021 due to payments for the earnout of Ilera of $29,668, and State Flower of $7,040 made subsequent to June 30, 2021, reducing the amount outstanding. This decrease is partially offset by the accretion of the contingent consideration payable for KCR, which are recorded at the present value of future payments upon initial recognition.

~~(Gain) loss on fair value of warrants and purchase option derivative asset~~

For the Six Months Ended

June 30, 2022

June 30, 2021

(Gain) loss on fair value of warrants and purchase option derivative asset

$
(53,058
)

$
25,301

$ change

$
(78,359
)

% change

-310
%

The warrant liabilities have been remeasured to fair value at June 30, 2022 using the Black Scholes model. The Company recognized a gain during the six months ended June 30, 2022 as a result of the reduction of the Company's share price from December 31, 2021 as compared to June 30, 2022, as well as from warrants exercised during the six months ended June 30, 2022. The combined impact resulted in a gain on fair value of warrants of $53,876.

~~For the six months ended June 30, 2022, the purchase option derivative asset~~ related to the ~~option to purchase an additional 6.25% ownership~~write-off of intellectual property at the ~~Company's New Jersey partnership, was remeasured using the Monte Carlo simulation model and resulted in a loss of $818.~~

During the six months ended June 30, 2021 the Company recognized a loss on fair value of warrants of $25,301 as a result of the increase in the Company's share price from December 31, 2020 to June 30, 2021 as well as warrants exercised during the six months ended June 30, 2021.

~~Finance and other expenses~~

For the Six Months Ended

June 30, 2022

June 30, 2021

Finance and other expenses

$
20,758

$
15,309

$ change

$
5,449

% change

36
%

The increase in finance expense for the six months ended June 30, 2022 as compared to the six months ended June 30, 2021 is primarily due to interest expense recognized on the loans acquired as part of the Gage Acquisition.

~~Transaction and restructuring costs~~

For the Six Months Ended

June 30, 2022

June 30, 2021

Transaction and restructuring costs

$
1,242

$
432

$ change

$
810

% change

188
%

The increase in transaction and restructuring costs for the six months ended June 30, 2022 as compared to the six months ended June 30, 2021 was primarily due to the Gage Acquisition, as well as work done for Sarbanes Oxley implementation.Company’s Arise business.

Impairment of goodwill

2933


	For the Six Months Ended						For the Nine Months Ended
		June 30, 2022			June 30, 2021			September 30, 2022			September 30, 2021
Impairment of goodwill		$	-		$	5,007		$	178,314		$	5,007
$ change		$	(5,007	)				$	173,307
% change			-100	%					3461	%

During the nine months ended September 30, 2022, as it was determined that it was more likely than not that the Michigan reporting unit's fair value was less than its carrying value, a one-step goodwill quantitative impairment test was performed. As a result of the quantitative impairment test, the Company recorded impairment of goodwill of $178,314 at its Michigan reporting unit, reducing the carrying value of the goodwill acquired through the Gage Acquisition and Pinnacle Acquisition to $nil.

The impairment ~~of goodwill~~recorded for the ~~six~~nine months ended ~~June~~September 30, 2021 ~~was~~ related to the ~~Company's~~Company’s Florida reporting unit as the Company determined that the estimated cash flows of its Arise business did not support the carrying value of the intangible assets and goodwill. As a result, the ~~Company~~company recorded impairment to reduce the balance of goodwill at its Florida reporting unit to $nil.

~~Impairment~~Revaluation of ~~intangible assets~~contingent consideration


	For the Six Months Ended						For the Nine Months Ended
		June 30, 2022			June 30, 2021			September 30, 2022			September 30, 2021
Impairment of intangible assets		$	-		$	3,633
Revaluation of contingent consideration								$	189		$	2,652
$ change		$	(3,633	)				$	(2,463	)
% change			-100	%					-93	%

The ~~impairment~~decrease in the revaluation of contingent consideration for the nine months ended September 30, 2022 as compared to the nine months ended September 30, 2021 was a result of a reduction in the liability as compared to September 30, 2021 due to payments for the earnout of State Flower of $7,040 made subsequent to September 30, 2021, reducing the amount outstanding. This decrease was partially offset by the accretion of the contingent consideration payable for KCR, which is recorded at the present value of future payments upon initial recognition.

Gain on fair value of warrants and purchase option derivative asset


	For the Nine Months Ended
		September 30, 2022			September 30, 2021
Gain on fair value of warrants and purchase option derivative asset		$	(58,555	)	$	(43,715	)
$ change		$	(14,840	)
% change			34	%

The warrant liability was remeasured to fair value at September 30, 2022 using the Black Scholes model. The Company recognized a gain during the ~~six~~nine months ended ~~June~~September 30, 2022 as a result of the reduction of the Company's share price from December 31, 2021 as compared to September 30, 2022, as well as from warrants exercised during the nine months ended September 30, 2022. The combined impact resulted in a gain on fair value of warrants of $59,373.

For the nine months ended September 30, 2022, the purchase option derivative asset related to the option to purchase an additional 6.25% of ownership of the Company's New Jersey partnership, were remeasured using the Monte Carlo simulation model and resulted in a loss of $818.

During the nine months ended September 30, 2021, ~~relates~~the Company recognized a gain on fair value of warrants of $43,715 as a result of the decrease in the Company's share price from December 31, 2020 to September 30, 2021 as well as warrants exercised during the nine months ended September 30, 2021.

Finance and other expenses


	For the Nine Months Ended
		September 30, 2022			September 30, 2021
Finance and other expenses		$	30,227		$	22,281
$ change		$	7,946
% change			36	%

The increase in finance and other expenses for the nine months ended September 30, 2022 as compared to the ~~write-off~~nine months ended September 30, 2021 was primarily due to interest expense recognized on the loans acquired as part of ~~intellectual property at~~ the ~~Company's Arise business.~~Gage Acquisition.

Transaction and restructuring costs


	For the Nine Months Ended
		September 30, 2022			September 30, 2021
Transaction and restructuring costs		$	2,601		$	1,466
$ change		$	1,135
% change			77	%

The increase in transaction and restructuring costs for the nine months ended September 30, 2022 was primarily due to personnel related reorganization and severance costs in Canada. The transaction and restructuring costs for the three months ended September 30, 2021 included legal costs related to the acquisitions of KCR, HMS, and Gage.

Unrealized and realized foreign exchange loss


	For the Six Months Ended						For the Nine Months Ended
		June 30, 2022			June 30, 2021			September 30, 2022			September 30, 2021
Unrealized and realized foreign exchange loss		$	50		$	5,838		$	636		$	4,582
$ change		$	(5,788	)				$	(3,946	)
% change			-99	%					-86	%

The decrease in unrealized foreign exchange loss for the ~~six~~nine months ended ~~June~~September 30, 2022 as compared to the ~~six~~nine months ended ~~June~~September 30, 2021 iswas a result of the remeasurement of USD denominated ~~cash and other assets~~liabilities recorded in C$ functional currency at the Company’s Canadian operations.

Unrealized and realized gain on investments


	For the Six Months Ended							For the Nine Months Ended
		June 30, 2022			June 30, 2021				September 30, 2022			September 30, 2021
Unrealized and realized loss (gain) on investments		$	234		$	(6,192	)		$	3		$	(6,192	)
$ change		$	6,426						$	6,195
% change			-104	%						-100	%

The loss on investment during the ~~six~~nine months ended ~~June~~September 30, 2022 iswas related to the revaluation of the investments acquired through the Gage Acquisition. The gain on investment during the ~~six~~nine months ended ~~June~~September 30, 2021 ~~relates~~related to the acquisition of the remaining 90% investment in Guadco LLC and KCR Holdings ~~LLC on April 30, 2021.~~LLC.

Provision for income taxes


	For the Six Months Ended						For the Nine Months Ended
		June 30, 2022			June 30, 2021			September 30, 2022			September 30, 2021
Provision for income taxes		$	8,431		$	16,373		$	(25,602	)	$	21,372
$ change		$	(7,942	)				$	(46,974	)
% change			-49	%					-220	%

The decrease in provision for income taxes for the ~~six~~nine months ended ~~June~~September 30, 2022 as compared to the ~~six~~nine months ended ~~June~~September 30, 2021 was ~~due to~~primarily driven by the ~~decline~~decrease in ~~revenue and associated decline in gross profit, mainly related to the operational reconfiguration~~pre-tax book income as a result of the ~~Company's cultivation facility in Pennsylvania, as well as the vape recall~~impairment of intangible assets and goodwill recorded by the ~~Pennsylvania Department of Health.~~Company during the period.

Liquidity and Capital Resources

3035


	June 30, 2022			December 31, 2021		September 30, 2022			December 31, 2021
	$			$		$			$
Cash and cash equivalents		48,426			79,642		34,288			79,642
Current assets		137,318			143,221		113,397			143,221
Non-current assets		871,299			438,713		612,091			438,713
Current liabilities		140,403			61,044		172,342			61,044
Non-current liabilities		323,246			291,936		274,324			291,936
Working capital		(3,085	)		82,177		(58,945	)		82,177
Total shareholders' equity		544,968			228,954		278,822			228,954

The calculation of working capital provides additional information and is not defined under GAAP. The Company defines working capital as current assets less current liabilities. This measure should not be considered in isolation or as a substitute for any standardized measure under GAAP.

~~At June~~Sources of liquidity

Since its inception, the Company's primary sources of capital have been through the issuance of equity securities or debt facilities, and the Company has received aggregate net proceeds from such transactions totaling $564,896 as of September 30, ~~2022, TerrAscend had cash and cash equivalents of $48,426, which is sufficient~~2022.

The Company expects to fund ~~the Company’s ongoing operations. Any~~any additional future requirements ~~will be funded~~ through the following sources of capital:

•

Cash from ongoing operations.

•

Market offerings.

•

Debt - the Company may seek to obtain additional debt from additional creditors.

•

Sale leaseback - the Company may seek to sell and lease back its capital properties.

•

Exercise of options and warrants - the Company would receive funds from exercise of options and warrants from the holders of such securities in the event they are exercised.

~~The Company’s objective with respect to its capital management is to ensure it has sufficient~~Capital requirements

As of September 30, 2022, there were no material changes in the Company's short-term and long-term cash ~~resources to maintain its ongoing operations~~requirements from those disclosed in the "Management's Discussion and ~~finance its research~~Analysis of Financial Condition and ~~development activities, corporate and administration expenses, working capital and overall capital expenditures. Since inception,~~Results of Operations" included in the ~~Company has primarily financed its liquidity needs through the issuance of shares and utilization of borrowings.~~Company's 2021 10-K, except as those described below:

The Company has ~~$280,136~~$284,231 in principal amounts of loans payable at ~~June~~September 30, 2022. Of this amount, ~~$68,955~~$78,847 are due within the next twelve months.

At September 30, 2022, the Company had cash and cash equivalents of $34,288. As reflected in the unaudited condensed consolidated financial statements, the Company has incurred net losses for the three and nine months ended September 30, 2022 of $310,985 and $312,829, respectively, which primarily related to impairment of goodwill and intangible assets in its Michigan business (refer to Note 7), and the Company had negative cash flow from operating activities for the nine months ended September 30, 2022 of $33,431. Subsequent to the quarter end, the Company entered into a senior secured term loan in an aggregate amount of $45,478 (refer to Note 22 for further details about the loan). The Company has $55,000 of debt that becomes due on November 30, 2022 that the Company plans to refinance (refer to Note 8 for more information about the senior secured term loan that becomes due on November 30, 2022).

While the Company's cash flow and net losses for the nine months ended September 30, 2022 are indicators that raise substantial doubt about whether the Company will be able to support its operations and meet its obligations in the near term, the Company believes this concern is mitigated by steps to improve its operations and cash position, including (i) identifying access to future capital, (ii) continued sales growth from the Company's consolidated operations, and (iii) various actions that were implemented during the three months ended September 30, 2022 leading to general and administrative expense reductions. If the Company is unable to refinance its debt obligations that become due November 30, 2022 and the efforts outlined above are ineffective, there could be a material adverse effect on the results of the Company's operations and financial condition.

The Company has entered into ~~operating~~ leases for certain premises and offices for which it owes monthly lease payments. The Company has $5,809 in lease obligations due in the next twelve months. Additionally, the Company makes monthly payments on financing obligations on five properties of owned real estate. The Company has $1,887 in financing obligations due in the next twelve months.

Through the pending acquisition of AMMD, the Company has capital commitments of $10,000 to purchase all the outstanding equity, in addition to acquiring the real estate for $1,700. In addition, the Company's undiscounted contingent consideration payable is $10,734 at ~~June~~September 30, 2022. The contingent consideration payable relates to the Company's business acquisitions of The Apothecarium, State Flower, and KCR. Contingent consideration is based upon the potential earnout of the underlying business unit and is measured at fair value using a projection model for the business and the formulaic structure for determining the consideration under the agreement. The contingent consideration is revalued at the end of each reporting period.

The Company ~~expects~~does not have any off-balance sheet arrangements that ~~its cash~~have, or are reasonably likely to have, a current or future effect on ~~hand~~the Company's results of operations or financial condition, including, and ~~cash flows from operations, along~~without limitation, such consideration as liquidity and capital resources.

The Company’s objective with ~~financing transactions, will be adequate~~respect to ~~meet~~ its capital ~~requirements~~management is to ensure it has sufficient cash resources to maintain its ongoing operations and ~~operational~~finance its research and development activities, corporate and administration expenses, working capital and overall capital expenditures. Since inception, the Company has primarily financed its liquidity needs through the issuance of shares and utilization of borrowings.

Debt facilities

Canopy Growth- Canada Inc loan

On November 11, 2022, TerrAscend Canada Inc. and Canopy USA III Limited Partnership ("Canopy USA III LP"), a successor to Canopy Growth Corporation, entered into an agreement for the period commencing August 31, 2022 to (and including) November 30, 2022, subject to certain conditions, whereby Canopy USA III LP agreed to a waiver of TerrAscend Canada Inc.’s obligation to maintain the minimum current assets as set forth in the loan financing agreement with Canopy USA LLL LP (see Note 8 of the unaudited condensed consolidated financial statements referencing "Canopy Growth Canada Inc. loan").

Ilera term loan

On April 28, 2022, the Ilera term loan (refer to Note 8 of the unaudited condensed consolidated financial statements) was amended to provide WDB Holding PA, a subsidiary of the Company, with greater flexibility by resetting the minimum consolidated interest coverage ratio levels that must be satisfied at ~~least~~ the ~~next 12 months.~~end of each measurement period and extending the date in which WDB Holding PA is required to deliver its budget for the fiscal year ending 2021. In addition, the no-call period was extended from 18 months to 30 months, subject to a premium payment. This modification was not considered extinguishments of debt under ASC 470, Debt.

Cash Flows

Cash flows ~~from~~used in operating activities

For the Six Months Ended

June 30, 2022

June 30, 2021

Net cash used in operating activities

$
(34,976
)

$
(10,076
)


	For the Nine Months Ended
		September 30, 2022			September 30, 2021
Net cash used in operating activities		$	(33,431	)	$	(28,012	)

The increase in cash used in operating activities for the ~~six~~nine months ended ~~June~~September 30, 2022 is primarily due to an increase in loss from operations, ~~to $24,034~~excluding non-cash impairment losses on intangible assets and goodwill, of $32,088 from a profit of ~~$24,918~~$23,148 in the prior year period, as well as changes in working capital items of ~~$16,081.~~$6,616.

Cash flows ~~from~~used in investing activities


	For the Nine Months Ended
		September 30, 2022			September 30, 2021
Net cash used in investing activities		$	(12,582	)	$	(95,495	)

For the Six Months Ended

June 30, 2022

June 30, 2021

Net cash provided used in investing activities

$
(39
)

$
(63,387
)

The net cash used in investing activities for the ~~six~~nine months ended ~~June~~September 30, 2022 primarily relates to investments in property and equipment of ~~$12,500 and deposits for property and equipment of $10,036,~~$24,678, primarily related to the buildout of a cultivation site in Maryland, continuing renovations at the Company's Pennsylvania cultivation site, as well as the continued buildout of the Company's Lodi alternative treatment center in New Jersey. Additionally, the Company had investments in intangible assets of $1,330, primarily related to adult use licenses in New Jersey. The cash used in investing activities is offset by cash inflows of ~~$24,716~~$16,227 related to the cash acquired through the Gage Acquisition, offset by net cash paid for consideration for the Pinnacle Acquisition.

~~In comparison, the net~~Net cash used in investing activities for the ~~six~~nine months ended ~~June~~September 30, 2021 primarily relates to cash consideration paid for the ~~acquisitions~~acquisition of KCR and HMS totaling $42,736. During the nine months ended September 30, 2021, the Company made payments of $25,000 related to the purchase of the additional 12.5% of the issued and outstanding equity of TerrAscend NJ from BWH NJ, LLC and Blue Marble Ventures, LLC. Additionally, the Company had investments in property and equipment of ~~$10,856~~$26,706 primarily related to the buildout of the New Jersey operations and expansions in Pennsylvania cultivation and ~~$10,583~~$1,739 related to deposits paid for expansion of the cultivation premises in Pennsylvania.

Cash flows from financing activities

For the Six Months Ended

June 30, 2022

June 30, 2021

Net cash provided by financing activities

$
8,781

$
168,507


	For the Nine Months Ended
		September 30, 2022		September 30, 2021
Net cash provided by financing activities		$	5,537	$	167,935

During the ~~six~~nine months ended ~~June~~September 30, 2022, 7,989,436 Common Share warrants were exercised for total proceeds of $23,797 and ~~88,015~~238,065 stock options were exercised for total gross proceeds of $361. The cash provided by financing activities was offset by payments of contingent consideration related to the acquisition of State Flower of $6,630, loan principal payments of ~~$5,203,~~$6,088, loan amendment ~~fee~~fees paid on the modification of the Ilera term loan and the Gage senior secured term loan of ~~$1,200, and~~$2,309, tax distributions paid on behalf of the partners of the New Jersey operations of ~~$1,436.~~$1,436, and distributions to non-controlling interests of $1,237.

Net cash provided by financing activities for the ~~six~~nine months ended ~~June~~September 30, 2021, was ~~mainly the~~primarily a result of the private placement on January 28, 2021, in which the Company issued 18,115,656 Common Shares at a price of $9.64 (C$12.35) per Common Share for total proceeds of $173,477, net of share issuance costs of $1,643. Additionally, during the ~~six~~nine months ended ~~June~~September 30, 2021, 2,590,178 Common Share warrants were exercised for total proceeds of $6,777 and ~~699,009~~829,675 stock options were exercised at $0.67-$6.93 (C$0.85-$~~8.52)~~8.82) per unit for total gross proceeds of ~~$2,385.~~$3,677. In addition, ~~1,900 preferred share~~1,968 Preferred Share warrants were exercised at $3,000 per unit for total gross proceeds of ~~$3,759.~~$3,588. The cash provided by financing activities was offset by payments of contingent consideration related to the acquisition of Ilera of $18,274.

Reconciliation of Non-GAAP Measures

In addition to reporting the financial results in accordance with GAAP, the Company reports certain financial results that differ from what is reported under GAAP. Non-GAAP measures used by management do not have any standardized meaning prescribed by GAAP and may not be comparable to similar measures presented by other companies. The Company believes that certain investors and analysts use these measures to measure a company's ability to meet other payment obligations or as a common measurement to value companies in the cannabis industry, and the Company calculates (i) Adjusted gross profit as gross profit adjusted for certain material non-cash items and (ii) Adjusted EBITDA as EBITDA adjusted for certain material non-cash items and certain other adjustments, which management believes are not reflective of the ongoing operations and performance. Such information is intended to provide additional information and should not be considered in isolation or as a substitute for measures of performance prepared in accordance with GAAP.

The Company believes ~~this definition~~Adjusted EBITDA is a useful performance measure to assess the performance of the Company as it provides more meaningful ongoing operating results by excluding the effects of expenses that are not reflective of the Company's underlying

business performance and other one-time non-recurring expenses.

The table below reconciles net loss to EBITDA and Adjusted EBITDA for the three and ~~six~~nine months ended ~~June~~September 30, 2022 and 2021.


		For the Three Months Ended							For the Six Months Ended								For the Three Months Ended							For the Nine Months Ended
	Notes		June 30, 2022			June 30, 2021				June 30, 2022			June 30, 2021			Notes		September 30, 2022			September 30, 2021				September 30, 2022			September 30, 2021
Net income (loss)			$	14,162		$	(29,662	)		$	(1,844	)	$	(43,773	)			$	(310,985	)	$	55,835			$	(312,829	)	$	12,062
Add (deduct) the impact of:
Provision for income taxes				4,688			6,937				8,431			16,373					(34,033	)		4,999				(25,602	)		21,372
Finance expenses				9,427			6,424				16,125			11,783					10,092			6,351				26,217			18,134
Amortization and depreciation				7,046			3,529				12,131			7,050					7,110			4,200				19,241			11,250
EBITDA	(a)			35,323			(12,772	)			34,843			(8,567	)	(a)			(327,816	)		71,385				(292,973	)		62,818
Add (deduct) the impact of:
Relief of fair value upon acquisition	(b)			549			567				2,355			567		(b)			415			1,163				2,770			1,730
Non-cash write downs of inventory	(c)			5,894			449				5,894			449		(c)			6,037			—				11,931			449
Vape recall	(d)			1,071			-				2,965			—		(d)			—			—				2,965			—
Share-based compensation	(e)			4,463			4,648				7,819			8,215		(e)			2,705			5,178				10,524			13,393
Impairment of goodwill and intangible assets	(f)			-			8,640				-			8,640		(f)			331,242			—				331,242			8,640
Loss on disposal of fixed assets	(g)			929			36				929			36
(Gain) loss on disposal of fixed assets																(g)			(81	)		220				848			256
Revaluation of contingent consideration	(h)			34			(7	)			153			2,990		(h)			36			(338	)			189			2,652
Restructuring costs and executive severance	(i)			-			467				-			467		(i)			1,443			450				1,443			917
Legal settlements	(j)			-			740				—			2,121		(j)			1,170			—				1,170			2,121
Other one-time items	(k)			924			860				2,898			1,122		(k)			1,311			1,365				4,209			2,487
(Gain) loss on fair value of warrants and purchase option derivative asset	(l)			(47,345	)		19,891				(53,058	)		25,301
Gain on fair value of warrants and purchase option derivative asset																(l)			(5,497	)		(69,016	)			(58,555	)		(43,715	)
Indemnification asset release	(m)			3,998			2,599				3,973			3,796		(m)			—			95				3,973			3,891
Unrealized and realized loss (gain) on investments	(n)			234			(5,964	)			234			(6,192	)
Unrealized and realized foreign exchange loss	(o)			(306	)		3,055				50			5,838
Unrealized and realized (gain) loss on investments																(n)			(231	)		—				3			(6,192	)
Unrealized and realized foreign exchange loss (gain)																(o)			586			(1,256	)			636			4,582
Adjusted EBITDA			$	5,768		$	23,209			$	9,055		$	44,783				$	11,320		$	9,246			$	20,375		$	54,029

The Company calculates adjusted gross profit to adjust gross profit for the one-time relief of fair value upon acquisition, non-cash write downs of inventory, vape recall and accelerated depreciation as the Company does not believe that these impacts are reflective of ongoing operations. The table below reconciles gross profit to adjusted gross profit for the three and ~~six~~nine months ended ~~June~~September 30, 2022 and 2021.


		For the Three Months Ended					For the Six Months Ended						For the Three Months Ended					For the Nine Months Ended
	Notes		June 30, 2022		June 30, 2021			June 30, 2022		June 30, 2021		Notes		September 30, 2022		September 30, 2021			September 30, 2022		September 30, 2021

Gross profit			$	22,993	$	34,835		$	38,133	$	69,777			$	24,363	$	21,497		$	62,496	$	91,274
Add (deduct) the impact of:
Relief of fair value upon acquisition	(b)			549		567			2,355		567	(b)			415		1,163			2,770		1,730
Non-cash write downs of inventory	(c)			5,894		449			5,894		449	(c)			6,037		—			11,931		449
Vape recall	(d)			1,071		-			2,965		-	(d)			—		—			2,965		—
Facility transition costs												(p)			107		—			107		—
Accelerated depreciation	(p)			-		-			238		-	(q)			—		—			238		—
			$	30,507	$	35,851		$	49,585	$	70,793
Adjusted gross profit														$	30,922	$	22,660		$	80,507	$	93,453

(a)

EBITDA is a non-GAAP measure and is calculated as earnings before interest, tax, depreciation and amortization.

(b)

In connection with the Company's acquisitions, inventory was acquired at fair value, which included a markup or markdown for profit. Recording inventory at fair value in purchase accounting has the effect of increasing or decreasing inventory and thereby increasing or decreasing cost of sales as compared to the amounts the Company would have recognized if the inventory was sold through at cost. The write-up or down of acquired inventory represents the incremental cost of sales that were recorded during purchase accounting.

(c)

Represents inventory write downs outside of the normal course of operations. These inventory write-downs were related to ~~the~~inventory that was deemed unsaleable in its business in Canada, as well as the write down of aged inventory to lower of cost or market which was related to the Company's operational reconfiguration of its cultivation facility in Pennsylvania.

(d)

On February 4, 2022, more than 500 vape products were recalled by the Pennsylvania's Department of Health, including several of the Company's SKUs. As a result of the recall the Company recorded sales returns of $nil and $1,040 and write-downs of inventory of ~~$1,071~~$nil and $1,925 for the three and ~~six~~nine months ended ~~June~~September 30, 2022, respectively.

(e)

Represents non-cash share-based compensation expense.

(f)

Represents impairment charges taken on the Company's intangible assets and goodwill.

(g)

Represents (gain) loss taken on write-down of property and equipment.

(h)

Represents the revaluation of the Company’s contingent consideration liabilities.

(i)

Represents costs associated with executive severance and restructuring of business units.

(j)

Represents one-time legal settlement charges.

(k)

Includes one-time fees incurred in connection with the Company’s acquisitions, such as expenses related to professional fees, consulting, legal and accounting, that would otherwise not have been incurred. In addition, includes one-time charges for Sarbanes Oxley Act of 2022 implementation, as well as work completed in preparation of becoming a US filer. These fees are not indicative of the Company’s ongoing costs.

(l)

Represents the ~~(gain) loss~~gain on fair value of warrants, including effects of the foreign exchange of the US denominated preferred share warrants, as well as the revaluation of the fair value of the purchase option derivative asset.

(m)

Represents the reduction to the indemnification asset related to the Apothecarium tax audit settlement and statute expirations for tax years ended September 30, 2014 and September 30, 2015.

(n)

Represents unrealized and realized (gain) loss ~~(gain)~~ on fair value changes on strategic investments.

(o)

Represents the remeasurement of USD denominated cash and other assets recorded in C$ functional currency.

(p)

Represents facility transfer costs taken in Maryland due to the move of the cultivation facility from Frederick to Hagerstown.

(q)

Represents accelerated depreciation taken in Maryland due to the move of the cultivation facility from Frederick and Hagerstown.

The decrease in Adjusted EBITDA and adjusted gross profit for the three and ~~six~~nine months ended ~~June~~September 30, 2022 compared to the three and ~~six~~nine months ended ~~June~~September 30, 2021 was primarily due to lower volume and resulting gross margin compression ~~in Pennsylvania~~mainly related to ~~the Company's operational reconfiguration of its cultivation facility~~challenging market dynamics in Pennsylvania.

~~Pending and Subsequent Transactions~~

On April 14, 2022, the Company entered into a definitive agreement to acquire KISA Enterprises MI, LLC and KISA Holdings, LLC ("Pinnacle"), a dispensary operator in Michigan, and related real estate, for total consideration of $28,500, payable in cash, two promissory notes in an aggregate amount of $10,000, and stock. The transaction includes six retail dispensary licenses, five of which are currently operational and located in the cities of Addison, Buchanana, Camden, Edmore, and Morenci, Michigan. The Company intends to rebrand each of the dispensaries under either the Gage or Cookies retail brand. This transaction is pending approval.

~~Changes in or Adoption of~~Recent Accounting ~~Principles~~Pronouncements

Information regarding the Company's adoption of new accounting and reporting standards is discussed in Note 2 to the accompanying unaudited condensed consolidated financial ~~statements.~~statements in this Quarterly Report on Form 10-Q.

Descriptions of the recently issued and adopted accounting principles are included in Item 1. "Financial Statements" in Note 1, Summary of Significant Accounting Policies, to the ~~Condensed Consolidated Financial Statements.~~condensed consolidated financial statements included in this Quarterly Report on Form 10-Q.

Critical Accounting ~~Policies and~~ Estimates

The condensed consolidated financial statements have been prepared in accordance with GAAP. The preparation of these condensed consolidated financial statements require us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses, and related disclosures. The Company bases its estimates on historical experience and assumptions on an ongoing basis. Actual results may differ from these estimates. To the extent that there are material differences between these estimates and actual results, the Company's future financial statements will be affected.

There have been no significant changes to the critical accounting ~~policies and~~ estimates from the information provided in Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operation," included in the ~~Annual Report on~~2021 Form ~~10-K for the year ended December 31, 2021, which was filed on March 17, 2022.~~10-K.

Emerging Growth Company Status

The Company is an emerging growth company, as defined in the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”). Under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards issued subsequent to the enactment of the JOBS Act until such time as those standards apply to private companies. The Company has elected to use this extended transition period for complying with new or revised accounting standards that have different effective dates for public and private companies until the earlier of the date that the Company (i) is no longer an emerging growth company or (ii) affirmatively and irrevocably opt out of the extended transition period provided in the JOBS Act. As a result, the condensed consolidated financial statements may not be comparable to companies that comply with the new or revised accounting pronouncements as of public company effective dates.

The Company will remain an emerging growth company until the earlier to occur of: (i) the last day of the fiscal year (a) following the fifth anniversary of the completion of ~~the IPO,~~its initial public offering, (b) in which we have total annual gross revenue of ~~$1.07~~$1.235 billion or more, or (c) in which the Company is deemed to be a large accelerated filer, which means the market value of our ~~common stock~~Common Stock that is held by non-affiliates exceeds $700.0 million as of the prior June 30th; and (ii) the date on which the Company has issued more than $1.0 billion in non-convertible debt during the prior three-year period.

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

There have been no material changes in the Company's primary risk exposures or management of market risks for the quarter ended ~~June~~September 30, 2022 from those disclosed in its ~~Annual Report on~~2021 Form ~~10-K for the fiscal year ended December 31, 2021.~~10-K.

Item 4. Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

The Company's management, with the participation of its ~~President~~Principal Executive officer and Chief Financial Officer, has evaluated the effectiveness of the Company's disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the ~~Securities Exchange Act of 1934, as amended, or the~~ Exchange Act), as of the end of the period covered by this Quarterly Report on Form 10-Q. Based upon that evaluation, the ~~President~~Principal Executive Officer and Chief Financial Officer concluded that, as of ~~June~~September 30, 2022 the Company's disclosure controls and procedures were effective to provide reasonable assurance that information required to be disclosed by the Company in the reports that it files or submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms and to provide reasonable assurance that such information is accumulated and communicated to the Company's management, including its ~~President~~Principal Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

Changes in Internal Control over Financial Reporting

There were no changes in the Company's internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the ~~six months~~fiscal quarter ended ~~June~~September 30, 2022, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Limitations on Effectiveness of Controls and Procedures

In designing and evaluating our disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required to apply judgment in evaluating the benefits of possible controls and procedures relative to their costs.

PART II—OTHER INFORMATION

Item 1. Legal Proceedings.

The Company is from time to time involved in various legal proceedings, including litigation related to intellectual property, product liability, employment, and commercial matters. TerrAscend believes that none of the litigation in which it is currently involved in individually or in the aggregate, is material to the Company’s consolidated financial condition or results of operations. ~~There have been no material changes~~Refer to Note 21, Legal Proceedings, in the notes to the ~~Company's legal proceedings as previously disclosed~~unaudited condensed consolidated financial statements in ~~its~~this Quarterly Report on Form ~~10-Q for the period ended March 31, 2022.~~10-Q.

Item 1A. Risk Factors.

Investing in the Company's ~~common stock~~Common Stock involves a high degree of risk. For a detailed discussion of the risks that affect the Company's business, please refer to the section titled “Risk Factors” in the ~~Company's Annual Report on~~2021 Form 10-K for the year ended December 31, 2021, which was filed with the SEC on March 17, ~~2022.~~2022 and as amended. There have been no material changes to the Company's risk factors as previously disclosed in ~~its~~the 2021 Form 10-K.~~Annual Report on Form 10-K for the year ended December 31, 2021.~~

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

The following information describes securities sold by the Company during the fiscal quarter ending June 30, 2022, which were not registered under the Securities Act. Included are securities issued in exchange other securities. The Company sold all of the securities listed below pursuant to the exemption from registration provided by Section 4(a)(2) of the Securities Act, or Regulation D or Regulation S promulgated thereunder.

~~Recent Sales of Unregistered Securities~~

During the year ended December 31, 2021, the Company did not issue or sell any unregistered securities as previously disclosed in its Current Report on Form 8-K, as originally filed with the SEC on March 14, 2022.None.

Item 6. Exhibits.

Exhibit

Description of Exhibit Incorporated Herein by Reference
Filed
Number

Description

Form
File No.
Exhibit
Filing Date
Herewith

2.1*

Arrangement Agreement, dated October 8, 2018, by and among TerrAscend Corp., Canopy Growth Corporation, Canopy Rivers Corporation, JW Opportunities Master Fund, Ltd., JW Partners, LP and Pharmaceutical Opportunities Fund, LP.

10-12G
000-56363
2.1
11/2/2021

2.2*

Securities Purchase Agreement, dated February 10, 2019 by and among BTHHM Berkeley, LLC, PNB Noriega, LLC, V Products, LLC, certain limited liability company interest holders of each of the forgoing entities, Michael Thomsen and TerrAscend Corp. and WDB Holding CA, Inc.

10-12G
000-56363
2.2
11/2/2021

2.3*

Securities Purchase Agreement, dated February 10, 2019, by and among RHMT, LLC, Deep Thought, LLC, Howard Street Partners, LLC, certain limited liability company interest holders of each of the forgoing entities, Michael Thomsen, and TerrAscend Corp. and WDB Holding CA, Inc.

10-12G
000-56363
2.3
11/2/2021

2.4*

Securities Purchase and Exchange Agreement, dated August 1, 2019, by and among Ilera Holdings LLC, Mera I LLC, Mera II LLC, TerrAscend Corp., WDB Holding PA, Inc. and Osagie Imasogie.

10-12G
000-56363
2.4
11/2/2021

2.5*

Securities Purchase Agreement, dated February 10, 2019, by and among Gravitas Nevada Ltd, Verdant Nevada LLC, Green Achers Consulting Limited, TerrAscend Corp. and WDB Holding, NV, Inc.

10-12G
000-56363
2.5
11/2/2021

2.6*

Arrangement Agreement, dated August 31, 2021, by and between TerrAscend Corp. and Gage Growth Corp.

10-12G
000-56363
2.6
11/2/2021

2.7*

Membership Interest Purchase Agreement, dated August 31, 2021, by and between WDB Holdings MI, Inc. and 3 State Park, LLC, AEY Holdings, LLC, AEY Capital, LLC, AEY Thrive, LLC and Seller.

10-12G
000-56363
2.7
11/2/2021

2.8*

First Amendment to Membership Purchase Agreement, dated November 9, 2021, by and between WDB Holdings MI, Inc. and 3 State Park, LLC, AEY Holdings, LLC, AEY Capital, LLC, AEY Thrive, LLC and Seller.

10-12G/A
000-56363
2.8
12/22/2021

2.9

Amending Agreement, dated October 4, 2021, by and between TerrAscend Corp. and Gage Growth Corp.

10-12G
000-56363
2.9
11/2/2021

3.1

Articles of TerrAscend Corp., dated March 7, 2017

10-12G
000-56363
3.1
11/2/2021

3.2

Articles of Amendment to the Articles of TerrAscend Corp., dated November 30, 2018

10-12G/A
000-56363
3.2
12/22/2021

3641

3.3

Articles of Amendment to the Articles of TerrAscend Corp., dated May 22, 2020.

10-12G/A
000-56363
3.3
12/22/2021

3.4

By-Laws of TerrAscend Corp., dated March 7, 2017

10-12G
000-56363
3.4
11/2/2021

10.1

Second Amendment to Membership Interest Purchase Agreement, dated March 8, 2022, by and between WDB Holdings MI, Inc. and 3 State Park, LLC, AEY Holdings, LLC, AEY Capital, LLC, AEY Thrive, LLC, Seller* and Gage Growth Corp.

8-K
000-56363
10.1
3/14/2022

10.2

Second Amendment to Arrangement Agreement, dated March 8, 2022, by and between TerrAscend Corp. and Gage Growth Corp.

8-K
000-56363
10.2
3/14/2022

10.3*

Debenture Agreement, dated March 10, 2020 by and between Canopy Growth and TerrAscend Canada, Inc.

10-K
000-56363
10.2
3/17/2022

10.4

Credit Agreement, dated December 18, 2020, by and among WDB Holding PA, Inc., the lenders party thereto and Acquiom Agency Services LLC, as Administrative Agent.

10-K
000-56363
10.3
3/17/2022

110.5

Credit Agreement, dated November 2, 2021, by and among Gage Growth Corp. and its subsidiaries, as Borrowers, and Chicago Atlantic Admin, LLC, as Administrative Agent and Collateral Agent

10-K
000-56363
10.21
3/17/2022

10.6*

Employment Agreement, dated May 23, 2022, by and between TerrAscend Corp. and Lynn Gefen

X

10.7

First Amendment to Credit Agreement, dated December 18, 2020, by and among WDB Holding PA, Inc., the lenders party thereto and Acquiom Agency Services LLC, as Administrative Agent

X

31.1*

Certification of Principal Executive Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

X
31.2*

Certification of Principal Financial Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

X
32.1*

Certification of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

X
32.2*

Certification of Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

X

101.INS

Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because XBRL tags are embedded within the Inline XBRL document.

101.SCH

Inline XBRL Taxonomy Extension Schema Document

101.CAL

Inline XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF

Inline XBRL Taxonomy Extension Definition Linkbase Document

101.LAB

Inline XBRL Taxonomy Extension Label Linkbase Document


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~~104~~		~~Cover Page Interactive Data File (embedded within the Inline XBRL document)~~


Exhibit		Description of Exhibit Incorporated Herein by Reference				Filed
Number	Description	Form	File No.	Exhibit	Filing Date	Herewith
3.1	Articles of TerrAscend Corp., dated March 7, 2017.	10-12G	000-56363	3.1	11/2/2021

3.2	Articles of Amendment to the Articles of TerrAscend Corp., dated November 30, 2018.	10-12G/A	000-56363	3.2	12/22/2021

3.3	Articles of Amendment to the Articles of TerrAscend Corp., dated May 22, 2020.	10-12G/A	000-56363	3.3	12/22/2021

3.4	By-Laws of TerrAscend Corp., dated March 7, 2017	10-12G	000-56363	3.4	11/2/2021

10.8*†	Joinder, First Amendment to Credit Agreement and Security Agreements and Consent, dated as of August 10, 2022, among WDB Holding MI, Inc., Gage Growth Corp., Gage Innovations Corp., Cookies Retail Canada Corp., other borrower and lender parties thereto, and Chicago Atlantic Admin, LLC, as administrative agent for the lenders and Chicago Atlantic, as collateral agent for the secured parties thereto.					X

31.1*	Certification of Principal Executive Officer of TerrAscend Corp. Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.					X

31.2*	Certification of Principal Financial Officer of TerrAscend Corp. Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.					X

32.1+	Certification of Principal Executive Officer and Principal Financial Officer of TerrAscend Corp. Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.					X

101.INS	Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because XBRL tags are embedded within the Inline XBRL document.
101.SCH	Inline XBRL Taxonomy Extension Schema Document
101.CAL	Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF	Inline XBRL Taxonomy Extension Definition Linkbase Document
101.LAB	Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE	Inline XBRL Taxonomy Extension Presentation Linkbase Document
104	Cover Page Interactive Data File (embedded within the Inline XBRL document)

* ~~Certain confidential information has been excluded from this exhibit because it is both (i) not material and (ii) would be competitively harmful if publicly disclosed.~~Filed herewith.

† Certain schedules and exhibits to this Exhibit have been omitted pursuant to Regulation S-K Item 601(a)(5). The Registrant agrees to furnish supplementally a copy of any omitted schedule or exhibit to the SEC upon request[AU1] .

38[AU1]Important addition here

+ This certification is being furnished solely to accompany this Quarterly Report on Form 10-Q pursuant to 18 U.S.C. Section 1350, and is not being filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liability.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


	~~Company Name~~TerrAscend Corp.

Date: ~~August 11,~~November 14, 2022	By:	~~/s/~~ /s/ Ziad Ghanem
		Ziad Ghanem
		President and Chief Operating Officer
		(Principal Executive Officer)

Date: November 14, 2022	By:	/s/ Keith Stauffer
		Keith Stauffer
		Chief Financial Officer
		(Principal Financial Officer and Principal Accounting Officer)

3943


Ontario	N/A
( State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
3610 Mavis Road Mississauga, Ontario	L5C 1W2
(Address of principal executive offices)	(Zip Code)


	For the Six Months Ended								For the Nine Months Ended
		June 30, 2022				June 30, 2021				September 30, 2022				September 30, 2021
Operating activities
Net loss	$		(1,844	)	$		(43,773	)
Net (loss) income									$		(312,829	)	$		12,062
Adjustments to reconcile net income to net cash provided by (used in) operating activities
Non-cash write downs of inventory			8,495				699				14,873				961
Accretion expense			1,936				(544	)			5,793				1,981
Depreciation of property and equipment and amortization of intangible assets			12,131				7,050				19,241				11,250
Amortization of operating right-of-use assets			1,074				2,269				1,513				1,289
Share-based compensation			7,819				8,215				10,524				13,393
Deferred income tax (recovery) expense			(787	)			285
(Gain) loss on fair value of warrants and purchase option derivative			(53,058	)			25,301
Deferred income tax recovery											(44,266	)			(682	)
Loss on fair value of warrants and purchase option derivative											(58,555	)			(43,715	)
Revaluation of contingent consideration			153				2,990				189				2,652
Impairment of intangible assets			—				3,633				152,928				3,633
Impairment of goodwill			—				5,007				178,314				5,007
Loss on disposal of fixed assets			929				—				848				—
Release of indemnification asset			3,973				3,796				3,973				3,891
Forgiveness of loan principal and interest			—				(766	)			—				(766	)
Unrealized and realized foreign exchange loss			50				5,838				636				4,582
Unrealized and realized loss (gain) on investments			234				(6,192	)			3				(6,192	)
Changes in operating assets and liabilities
Receivables			475				(950	)			4,317				1,144
Inventory			208				(9,879	)			(1,894	)			(10,450	)
Prepaid expense and deposits			1,474				(507	)			721				(523	)
Deposits			206				—				2,340				(408	)
Other assets			461				389				(1,522	)			(4,214	)
Accounts payable and accrued liabilities and other payables			(8,299	)			639				(9,530	)			(590	)
Operating lease liability			(614	)			(1,889	)			(889	)			3,750
Other liability			(10,353	)			—				(9,627	)			(11,394	)
Contingent consideration payable			(410	)			(11,394	)			(410	)			(14,978	)
Corporate income tax payable			5				(293	)			9,451				305
Deferred revenue			766				—				427				—
Net cash used in operating activities			(34,976	)			(10,076	)			(33,431	)			(28,012	)
Investing activities
Investment in property and equipment			(12,500	)			(10,856	)			(24,678	)			(26,706	)
Investment in intangible assets			(1,330	)			(40	)			(1,330	)			(342	)
Principal payments received on lease receivable			392				359				394				559
Distributions of earnings from associates			—				469				—				469
Deposits for property and equipment			(10,036	)			(10,583	)			(1,455	)			(1,739	)
Deposits for business acquisition			(852	)			—				(852	)			(25,000	)
Payments made for land contracts			(429	)			—				(888	)			—
Cash received on acquisition			24,716				—
Cash portion of consideration paid in acquisitions, net of cash acquired			—				(42,736	)
Net cash received on acquisition, net of cash paid											16,227				(42,736	)
Net cash used in investing activities			(39	)			(63,387	)			(12,582	)			(95,495	)
Financing activities
Proceeds from options and warrants exercised			24,158				12,921				24,158				14,042
Loan principal paid			(5,203	)			—				(6,088	)			(2,250	)
Loan amendment fee paid			(1,200	)			—				(2,309	)			—
Proceeds from loans payable			—				766				—				766
Cash distributions to NJ partners			(1,436	)			—				(1,436	)			—
Capital contributions received (paid) from (to) non-controlling interests			(448	)			(383	)
Capital contributions (paid) received (to) from non-controlling interests											(1,237	)			174
Payments of contingent consideration			(6,630	)			(18,274	)			(6,630	)			(18,274	)
Payments made for financing obligations			(460	)			—				(921	)			—
Proceeds from private placement, net of share issuance costs			—				173,477				—				173,477
Net cash provided by financing activities			8,781				168,507				5,537				167,935
Net (decrease) increase in cash and cash equivalents and restricted cash during the period			(26,234	)			95,044				(40,476	)			44,428
Net effects of foreign exchange			(4,377	)			(89	)			(3,847	)			(1,016	)
Cash and cash equivalents and restricted cash, beginning of period			79,642				59,226				79,642				59,226
Cash and cash equivalents and restricted cash, end of period	$		49,031		$		154,181		$		35,319		$		102,638

Supplemental disclosure with respect to cash flows
Income taxes paid	$		9,213		$		16,381		$		9,213		$		37,032
Interest paid	$		14,641		$		13,290		$		20,643		$		17,408
Lease termination fee paid	$		3,300				-		$		3,300				-
Non-cash transactions
Equity and warrant liability issued as consideration for acquisition	$		294,800		$		34,427		$		337,739		$		34,427
Promissory note issued as consideration for acquisitions	$		-		$		6,750		$		10,000		$		6,750
Investment in NJ Partnership									$		-		$		25,000
Shares issued for liability settlement	$		22		$		57		$		264		$		-
Accrued capital purchases	$		9,776		$		336		$		12,118		$		4,655


	June 30, 2022			December 31, 2021
Trade receivables	$	22,341		$	14,684
Sales tax receivable		559			358
Other receivables		437			370
Provision for sales returns		(316	)		(157	)
Expected credit losses		(832	)		(335	)
Total receivables, net	$	22,189		$	14,920


	September 30, 2022			December 31, 2021
Trade receivables	$	18,213		$	14,684
Sales tax receivable		454			358
Other receivables		188			370
Provision for sales returns		(350	)		(157	)
Expected credit losses		(568	)		(335	)
Total receivables, net	$	17,937		$	14,920


	June 30, 2022			December 31, 2021			September 30, 2022			December 31, 2021
Trade receivables	$	22,341		$	14,684		$	18,213		$	14,684
Less: provision for sales returns and expected credit losses		(1,148	)		(492	)		(918	)		(492	)
Total trade receivables, net	$	21,193		$	14,192		$	17,295		$	14,192

Of which
Current		8,173			13,282			6,158			13,282
31-90 days		711			569			464			569
Over 90 days		13,457			833			11,591			833
Less: provision for sales returns and expected credit losses		(1,148	)		(492	)		(918	)		(492	)
Total trade receivables, net	$	21,193			14,192		$	17,295			14,192


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


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


Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated filer	☒	Smaller reporting company	☐
Emerging growth company	☒


		Page

PART I.	FINANCIAL INFORMATION	1

Item 1.	Financial Statements (Unaudited)	1
	Condensed Consolidated Balance Sheets	1
	Condensed Consolidated Statements of Operations	2
	Condensed Consolidated Statements of Operations and Comprehensive Loss	2
	Condensed Consolidated Statements of Cash Flows	5
	Notes to Unaudited Condensed Consolidated Financial Statements	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	2428
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	3440
Item 4.	Controls and Procedures	3540

PART II.	OTHER INFORMATION	3541

Item 1.	Legal Proceedings	3541
Item 1A.	Risk Factors	3541
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	3541
Item 6.	Exhibits	3641
Signatures		3943


•	the performance of the Company’s business and operations;


•	the Company’s expectations regarding revenues, expenses and anticipated cash needs;


•	federal, state, provincial, territorial, local and foreign government laws, rules and regulations, including federal and state laws in the USU.S. relating to cannabis operations in the ~~US;~~U.S.;


•	the legalization of the use of cannabis for medical and/or recreational use in the USU.S. and the related timing and impact thereof;


•	laws and regulations and any amendments thereto applicable to the business and the impact thereof;


•	the competitive advantages and business strategies of the Company;


	June 30, 2022		December 31, 2021		September 30, 2022		December 31, 2021
Raw materials	$	7,161	$	3,185	$	6,826	$	3,185
Finished goods		16,520		8,721		11,314		8,721
Work in process		27,842		26,852		27,704		26,852
Accessories, supplies and consumables		2,848		3,565		3,547		3,565
	$	54,371	$	42,323	$	49,391	$	42,323


•	the Company’s ability to source and operate facilities in the ~~US;~~U.S.;


•	the Company’s ability to integrate and operate the assets acquired from Arise Bioscience Inc. (“Arise”), the Apothecarium Dispensaries (“The Apothecarium”), Valhalla Confections (“Valhalla”), Ilera Healthcare (“Ilera”), State Flower or ABI SF LLC (“State Flower”), HMS Health, LLC, KCR Holdings LLC, Gage Growth Corp. ("Gage"), and ~~Gage;~~KISA Enterprises MI, LLC and KISA Holdings, LLC (collectively, "Pinnacle");
•	any benefits expected from the acquisition of Gage ~~Acquisition;~~("Gage Acquisition"); and


•	Gage’s plans to continue building a diverse portfolio of branded cannabis assets and business arrangements through investments, strategic business relationships and the pursuit of licenses in attractive retail locations in Michigan.


	Number of Shares
					Convertible Preferred Stock
	Common Stock		Exchangeable Shares		Series A			Series B		Series C		Series D		Common Shares Equivalent		Additional paid in capital			Accumulated other comprehensive income (loss)			Accumulated deficit			Non-controlling interest			Total
Balance at March 31, 2022		251,971,226		52,395,071		13,358			610		—		—		318,334,501	$	850,386		$	(783	)		(329,855	)		5,491		$	525,239
Shares issued - stock option, warrant and RSU exercises		36,099		—		—			—		—		—		36,099		1,041			—			—			—			1,041
Shares issued- conversion		700,000		—		(700	)		—		—		—		—		—			—			—			—			—
Share-based compensation expense		—		—		—			—		—		—		—		4,463			—			—			—			4,463
Options expired/forfeited		—		—		—			—		—		—		—		(1,506	)		—			1,506			—			—
Capital Contribution		—		—		—			—		—		—		—		564			—			—			(221	)		343
Net income for the period		—		—		—			—		—		—		—		—			—			13,217			945			14,162
Foreign currency translation		—		—		—			—		—		—		—		—			(280	)		—			—			(280	)
Balance at June 30, 2022		252,707,325		52,395,071		12,658			610		—		—		318,370,600	$	854,948		$	(1,063	)	$	(315,132	)	$	6,215		$	544,968


	$
Cash and cash equivalents		3,838
Inventory		790
Prepaid expenses and other current assets		93
Property and equipment		5,321
Intangible assets		18,300
Goodwill		9,929
Accounts payable and accrued liabilities		(938	)
Corporate income taxes payable		(443	)
Deferred revenue		(249	)
Deferred tax liability		(6,388	)
Net assets acquired		30,253

Consideration paid in cash		13,183
Promissory note payable		10,000
Common shares of TerrAscend		7,926
Working capital adjustment		(856	)
Total consideration		30,253


	$
Cash and cash equivalents		~~24,716~~23,366
Restricted cash		1,350
Accounts receivable		~~8,996~~7,307
Inventory		~~20,852~~19,364
Prepaid expenses and other ~~current~~ assets		~~1,855~~3,154
Property and equipment		~~69,595~~65,393
Operating right of use asset		~~1,948~~1,968
Deposits		1,147
Intangible assets		~~187,953~~215,713
Goodwill		~~150,272~~168,385
Investments		~~4,121~~3,596
Accounts payable and accrued liabilities		(~~29,871~~29,271	)
Corporate income taxes payable		(5,000	)
Operating lease liability		(~~1,948~~1,986	)
Finance lease liability		(~~308~~235	)
Deferred revenue		(562	)
Loans payable		(60,605	)
Deferred tax liability		(~~59,603~~64,597	)
Financing obligations		(~~12,184~~12,577	)
Other liabilities		(~~6,574~~6,097	)
Net assets acquired		~~294,800~~329,813

Common ~~shares~~Shares of TerrAscend		~~274,462~~309,475
Fair value of other equity instruments		13,582
Fair value of warrants classified as liabilities		6,756
Total consideration		~~294,800~~329,813


	State Flower			Apothecarium			KCR		Total			State Flower			Apothecarium			KCR		Total
Carrying amount, December 31, 2021	$	8,360		$	3,028		$	1,147	$	12,535		$	8,360		$	3,028		$	1,147	$	12,535
Payments of contingent consideration		(7,040	)		—			—		(7,040	)		(7,040	)		—			—		(7,040	)
Revaluation of contingent consideration		86			—			67		153			86			—			103		189
Carrying amount, June 30, 2022	$	1,406		$	3,028		$	1,214	$	5,648
Carrying amount, September 30, 2022												$	1,406		$	3,028		$	1,250	$	5,684
Less: current portion		—			(3,028	)		—		(3,028	)		(1,406	)		(3,028	)		—		(4,434	)
Non-current contingent consideration	$	1,406		$	-		$	1,214	$	2,620		$	-		$	-		$	1,250	$	1,250