UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q



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

For the quarterly period ended ~~March 31, 2020~~June 30, 2023



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

For the transition period from to

Commission file number 000-56021

ACREAGE HOLDINGS, INC.

(Exact name of registrant as specified in its charter)



British Columbia, Canada			98-1463868
(State or other jurisdiction of incorporation or organization)			(I.R.S. Employer Identification No.)

366 Madison ~~Avenue, 11th Floor~~Ave, 14th floor	New York	New York	10017
(Address of Principal Executive Offices)			(Zip Code)

(646) 600-9181

Registrant’s telephone number, including area code

Securities registered pursuant to Section 12(b) of the Act: None.

Securities registered pursuant to section 12(g) of the Act: Class AD Subordinate Voting Shares, no par value; Class E Subordinate Voting Shares, no par value.

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

Yes o No x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.

Yes o No x

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports); and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

Yes x No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.



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

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

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

The Company has three classes of issued and outstanding shares: the Class E subordinate voting shares (the “Fixed Shares”), the Class D subordinate voting shares (the “Floating Shares”) and the Class F multiple voting shares (the “Fixed Multiple Shares”). The Fixed Shares and Floating Shares each entitle the holders to notice of and to attend at any meeting of the shareholders of the Company, except a meeting of which only holders of another particular class or series of shares of the Company have the right to vote. Each Fixed Share is entitled to one vote per Fixed Share, each Floating Share is entitled to one vote per Floating Share and each Fixed Multiple Share is entitled to 4,300 votes per Fixed Multiple Share on all matters upon which the holders of shares are entitled to vote. As of ~~June 25, 2020,~~August 2, 2023, there were ~~99,407,960 Subordinate Voting~~80,652,047 Fixed shares, 34,274,128 Floating Shares, ~~as converted,~~and 117,600 Fixed Multiple Shares, in each case, issued and outstanding.

TABLE OF CONTENTS

Acreage Holdings, Inc.

Form 10-Q

For the Three and Six Months Ended ~~March 31, 2020~~

June 30, 2023


PART I			Financial Information

~~PART I~~			~~Financial Information.~~

Item 1.	Unaudited Condensed Consolidated Statements of Financial Position as of ~~March 31, 2020~~June 30, 2023 (unaudited) and December 31, ~~2019~~2022 (audited).			31
			Unaudited Condensed Consolidated Statements of Operations for the three and six months ended ~~March 31, 2020~~June 30, 2023 and ~~2019.~~2022		43
			Unaudited Condensed Consolidated Statements of Shareholders’ Equity for the three and six months ended ~~March 31, 2020~~June 30, 2023 and ~~2019.~~2022		54
			Unaudited Condensed Consolidated Statements of Cash Flows for the ~~three~~six months ended ~~March 31, 2020~~June 30, 2023 and ~~2019.~~2022		65
			Notes to the Unaudited Condensed Consolidated Financial ~~Statements.~~Statements		87
Item 2.			Management’s Discussion and Analysis of Financial Condition and Results of Operations.		3129
Item 3.			Quantitative and Qualitative Disclosures About Market Risk.		3741
Item 4.			Controls and Procedures.		4041

PART II			Other Information
~~PART II~~			~~Other Information.~~

Item 1.	Legal Proceedings.			4143
Item 1A.			Risk ~~Factors.~~Factors		4143
Item 2.			Unregistered Sales of Equity Securities and Use of ~~Proceeds.~~Proceeds		4143
Item 3.			Defaults Upon Senior Securities.		4143
Item 4.			Mine Safety ~~Disclosures.~~Disclosures		4143
Item 5.			Other Information.		4143
Item 6.			~~Exhibits.~~Exhibits		4244


	~~SIGNATURES~~	43

~~Explanatory Note~~

Due to the outbreak of coronavirus disease 2019 (“COVID-19”), Acreage Holdings, Inc. (the “Company”, “we”, “our”, “us” or “Acreage”) previously filed a current report on Form 8-K to avail itself of an extension to file its Quarterly Report on Form 10‑Q for the period ended March 31, 2020 (this “Quarterly Report” or “Form 10-Q”), originally due on May 15, 2020, relying on an order issued by the Securities and Exchange Commission (the “SEC”) on March 25, 2020 pursuant to Section 36 of the Securities Exchange Act of 1934, as amended (Release No. 34-88465) (the “Order”), regarding exemptions granted to certain public companies from specified provisions of the Securities Exchange Act of 1934, as amended, and the rules promulgated thereunder. In December 2019, COVID-19 was reported to have surfaced in Wuhan, China, which has and is continuing to spread throughout China and other parts of the world, including the United States. On January 30, 2020, the World Health Organization declared the outbreak of the COVID-19 a “Public Health Emergency of International Concern,” and on March 11, 2020, the World Health Organization characterized the outbreak as a “pandemic”. Our operations are located in many states throughout the United States, including New York, one of the areas of the United States hardest-hit by the COVID-19 pandemic. The Company’s corporate headquarters are located in New York City.

As a result of COVID-19, the Company has been following the recommendations of local health authorities to minimize exposure risk for its employees for the past several weeks, including the temporary closures of its offices and having employees work remotely to the extent possible, which has adversely affected employee efficiency and disrupted the Company’s business operations. In particular, these changes have affected the collaboration of our financial reporting team and the accessibility of the Company’s books and records, resulting in delays in the review, preparation and completion of its financial statements for the first quarter of 2020 due to guidance from authorities for employees to follow work from home procedures. As such, the Company has relied upon the 45-day grace period provided by the Order to delay filing of its Quarterly Report.



~~ACREAGE HOLDINGS, INC.~~ SIGNATURES			45
~~CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION~~

PART I

Item 1. Financial Statements and Supplementary Data.


ACREAGE HOLDINGS, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

(in thousands) March 31, 2020 December 31, 2019
(unaudited) (audited)
ASSETS
Cash and cash equivalents $ 13,944
$ 26,505
Restricted cash 22,095
95
Inventory 21,057
18,083
Notes receivable, current 2,123
2,146
Other current assets 8,903
8,506
Total current assets 68,122
55,335
Long-term investments 4,725
4,499
Notes receivable, non-current 101,713
79,479
Capital assets, net 116,693
106,047
Operating lease right-of-use assets 55,411
51,950
Intangible assets, net 155,490
285,972
Goodwill 28,867
105,757
Other non-current assets 2,708
2,638
Total non-current assets 465,607
636,342
TOTAL ASSETS $ 533,729
$ 691,677

LIABILITIES AND SHAREHOLDERS’ EQUITY
Accounts payable and accrued liabilities $ 31,641
$ 32,459
Taxes payable 7,469
4,740
Interest payable 366
291
Operating lease liability, current 3,253
2,759
Debt, current 22,514
15,300
Other current liabilities 2,524
1,604
Total current liabilities 67,767
57,153
Debt, non-current 47,467
28,186
Operating lease liability, non-current 51,016
47,522
Deferred tax liability 32,303
63,997
Other liabilities 5
25
Total non-current liabilities 130,791
139,730
TOTAL LIABILITIES 198,558
196,883
Commitments and contingencies (Note 13)
Common stock, no par value (Note 11) - unlimited authorized, 97,430 and 90,646 issued and outstanding, respectively —
—
Additional paid-in capital 671,738
615,678
Treasury stock, 842 SVS held in treasury (21,054 ) (21,054 )
Accumulated deficit (360,571 ) (188,617 )
Total Acreage Shareholders' equity 290,113
406,007
Non-controlling interests 45,058
88,787
TOTAL EQUITY 335,171
494,794

TOTAL LIABILITIES AND EQUITY $ 533,729
$ 691,677


(in thousands)	June 30, 2023		December 31, 2022
	(unaudited)		(audited)
ASSETS
Cash and cash equivalents	$	16,401	$	24,067
Restricted cash	13,628		—
Accounts receivable, net	8,953		10,512
Inventory	47,938		49,446
Notes receivable, net	—		29,191

Assets held-for-sale	1,788		—
Other current assets	5,418		4,977
Total current assets	94,126		118,193
Long-term investments	33,287		34,046

Capital assets, net	136,085		133,405
Operating lease right-of-use assets	19,067		22,443
Intangible assets, net	35,124		35,124
Goodwill	38,694		13,761

Other non-current assets	3,531		3,601
Total non-current assets	265,788		242,380
TOTAL ASSETS	$	359,914	$	360,573

LIABILITIES AND SHAREHOLDERS’ EQUITY
Accounts payable and accrued liabilities	$	31,078	$	29,566
Taxes payable	33,959		24,226
Interest payable	2,824		2,575
Operating lease liability, current	2,268		2,443
Debt, current	13,805		1,584

Liabilities related to assets held for sale	1,288		—
Other current liabilities	9,071		11,939
Total current liabilities	94,293		72,333
Debt, non-current	230,163		213,496
Operating lease liability, non-current	18,839		21,692
Deferred tax liability	10,620		9,623
Other liabilities	3,004		3,250
Total non-current liabilities	262,626		248,061
TOTAL LIABILITIES	356,919		320,394

See accompanying Notes to Unaudited Condensed Consolidated Financial Statements

F-1


ACREAGE HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION


Commitments and contingencies
Common stock, no par value - unlimited authorized, 113,203 and 112,437 issued and outstanding, respectively	—		—
Additional paid-in capital	758,702		760,529
Treasury stock, 842 common stock held in treasury	(21,054)		(21,054)
Accumulated deficit	(709,204)		(678,091)
Total Acreage Shareholders' equity	28,444		61,384
Non-controlling interests	(25,449)		(21,205)
TOTAL EQUITY	2,995		40,179

TOTAL LIABILITIES AND EQUITY	$	359,914	$	360,573

See accompanying Notes to Unaudited Condensed Consolidated Financial Statements

F-2


ACREAGE HOLDINGS, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS


	Three Months Ended June 30,					Six Months Ended June 30,

(in thousands, except per share amounts)	2023		2022			2023		2022
REVENUE
Retail revenue, net	$	44,913	$	46,685		$	86,794	$	88,112
Wholesale revenue, net	13,202		14,360			27,200		29,532
Other revenue, net	—		306			84		586
Total revenues, net	58,115		61,351			114,078		118,230
Cost of goods sold, retail	(23,484)		(23,466)			(43,898)		(44,234)
Cost of goods sold, wholesale	(13,509)		(7,271)			(22,473)		(13,872)
Total cost of goods sold	(36,993)		(30,737)			(66,371)		(58,106)
Gross profit	21,122		30,614			47,707		60,124

OPERATING EXPENSES
General and administrative	7,073		8,922			17,585		17,309
Compensation expense	13,203		12,579			25,406		26,774
Equity-based compensation expense	694		1,655			1,678		5,814
Marketing	656		964			1,400		1,661
Impairments, net	—		329			—		2,467

Write down of assets held-for-sale	3,557		—			3,557		874
Legal recoveries	—		(310)			—		(335)
Depreciation and amortization	994		3,165			1,991		4,972
Total operating expenses	26,177		27,304			51,617		59,536

Net operating income (loss)	$	(5,055)	$	3,310		$	(3,910)	$	588

Income (loss) from investments, net	322		(996)			(20)		137
Interest income (loss) from loans receivable	(6)		365			10		782
Interest expense	(8,862)		(5,520)			(16,936)		(10,301)
Other income (loss), net	1,355		286			(198)		276
Total other loss	(7,191)		(5,865)			(17,144)		(9,106)

Loss before income taxes	$	(12,246)	$	(2,555)		$	(21,054)	$	(8,518)

Income tax expense	(5,994)		(8,048)			(13,343)		(15,996)

Net loss	$	(18,240)	$	(10,603)		$	(34,397)	$	(24,514)

Less: net loss attributable to non-controlling interests	(2,084)		(674)			(3,651)		(1,891)

Net loss attributable to Acreage Holdings, Inc.	$	(16,156)	$	(9,929)		$	(30,746)	$	(22,623)

Net loss per share attributable to Acreage Holdings, Inc. - basic and diluted:	$	(0.14)	$	(0.09)	(1)	$	(0.27)	$	(0.21)

Weighted average shares outstanding - basic and diluted	112,810		108,230		(1)	112,679		107,569

Three Months Ended March 31,
(in thousands, except per share amounts) 2020 2019
REVENUE
Retail revenue, net $ 17,573
$ 9,909
Wholesale revenue, net 6,548
2,815
Other revenue, net 104
173
Total revenues, net 24,225
12,897
Cost of goods sold, retail (10,889 ) (5,881 )
Cost of goods sold, wholesale (3,382 ) (1,696 )
Total cost of goods sold (14,271 ) (7,577 )
Gross profit 9,954
5,320

OPERATING EXPENSES
General and administrative 13,032
10,158
Compensation expense 14,477
6,489
Equity-based compensation expense 34,737
18,977
Marketing 987
801
Loss on impairment 187,775
—
Loss on notes receivable 8,161
—
Depreciation and amortization 2,067
908
Total operating expenses 261,236
37,333

Net operating loss $ (251,282 ) $ (32,013 )

Income from investments, net 234
2,727
Interest income from loans receivable 1,647
730
Interest expense (1,226 ) (118 )
Other (loss) income, net (174 ) 92
Total other income 481
3,431

Loss before income taxes $ (250,801 ) $ (28,582 )

Income tax benefit (expense) 28,572
(2,222 )

Net loss $ (222,229 ) $ (30,804 )

Less: net loss attributable to non-controlling interests (50,275 ) (7,427 )

Net loss attributable to Acreage Holdings, Inc. $ (171,954 ) $ (23,377 )

Net loss per share attributable to Acreage Holdings, Inc. - basic and diluted: $ (1.85 ) $ (0.29 )

Weighted average shares outstanding - basic and diluted 92,902
79,440

See accompanying Notes to Unaudited Condensed Consolidated Financial Statements

F-3



ACREAGE HOLDINGS, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

Attributable to shareholders of the parent
(in thousands) LLC Membership Units Pubco Shares (as converted) Share Capital Treasury Stock Accumulated Deficit Shareholders’ Equity Non-controlling Interests Total Equity
December 31, 2018 —
79,164
$ 414,757
$ (21,054 ) $ (38,349 ) $ 355,354
$ 130,922
$ 486,276
Issuances for business acquisitions/purchases of intangible assets —
211
3,948
—
—
3,948
4,000
7,948
NCI adjustments for changes in ownership —
643
3,640
—
—
3,640
(3,640 ) —
Other equity transactions —
12
264
—
—
264
—
264
Equity-based compensation expense and related issuances —
190
16,187
—
—
16,187
—
16,187
Net loss —
—
—
—
(23,377 ) (23,377 ) (7,427 ) (30,804 )
March 31, 2019 —
80,220
$ 438,796
$ (21,054 ) $ (61,726 ) $ 356,016
$ 123,855
$ 479,871

December 31, 2019 —
90,646
$ 615,678
$ (21,054 ) $ (188,617 ) $ 406,007
$ 88,787
$ 494,794
Issuances for private placement —
6,085
27,887
—
—
27,887
—
27,887
NCI adjustments for changes in ownership —
113
(6,564 ) —
—
(6,564 ) 6,564
—
Capital distributions, net —
—
—
—
—
—
(18 ) (18 )
Equity-based compensation expense and related issuances —
586
34,737
—
—
34,737
—
34,737
Net loss —
—
—
—
(171,954 ) (171,954 ) (50,275 ) (222,229 )
March 31, 2020 —
97,430
$ 671,738
$ (21,054 ) $ (360,571 ) $ 290,113
$ 45,058
$ 335,171


			Attributable to shareholders of the parent
(in thousands)	LLC Membership Units	Pubco Shares (as converted)	Share Capital		Treasury Stock		Accumulated Deficit		Shareholders’ Equity		Non-controlling Interests		Total Equity
December 31, 2021	3,861	106,903	$	756,536	$	(21,054)	$	(538,215)	$	197,267	$	7,003	$	204,270
NCI adjustments for changes in ownership	—	—	5		—		—		5		(5)		—
Equity-based compensation expense and related issuances	—	508	4,159		—		—		4,159		—		4,159
Net loss	—	—	—		—		(12,694)		(12,694)		(1,217)		(13,911)
March 31, 2022	3,861	107,411	$	760,700	$	(21,054)	$	(550,909)	$	188,737	$	5,781	$	194,518
NCI adjustments for changes in ownership	—	—	(4,524)		—		—		(4,524)		4,524		—
Capital distributions, net	—	—	—		—		—		—		(5,534)		(5,534)
Equity-based compensation expense and related issuances	—	1,778	1,655		—		—		1,655		—		1,655
Net loss	—	—	—		—		(9,929)		(9,929)		(674)		(10,603)
June 30, 2022	3,861	109,189	$	757,831	$	(21,054)	$	(560,838)	$	175,939	$	4,097	$	180,036


			Attributable to shareholders of the parent
(in thousands)	LLC Membership Units	Pubco Shares (as converted)	Share Capital		Treasury Stock		Accumulated Deficit		Shareholders’ Equity		Non-controlling Interests		Total Equity
December 31, 2022	3,861	112,437	$	760,529	$	(21,054)	$	(678,091)	$	61,384	$	(21,205)	$	40,179
Cumulative effect of change in accounting principle for current expected credit losses, net of tax	—	—			—		(367)		(367)		—		(367)
NCI adjustments for changes in ownership	—	—	14		—		—		14		(14)		—
Equity-based compensation expense and related issuances	—	287	984		—		—		984		—		984
Net loss	—	—	—		—		(14,590)		(14,590)		(1,567)		(16,157)
March 31, 2023	3,861	112,724	$	761,527	$	(21,054)	$	(693,048)	$	47,425	$	(22,786)	$	24,639
NCI adjustments for changes in ownership	—	—	(3,389)		—		—		(3,389)		3,389		—
Capital distributions, net	—	—	—		—		—		—		(3,968)		(3,968)
Other equity transactions	—	—	(130)		—		—		(130)		—		(130)
Equity-based compensation expense and related issuances	—	479	694		—		—		694		—		694
Net loss	—	—	—		—		(16,156)		(16,156)		(2,084)		(18,240)
June 30, 2023	3,861	113,203	$	758,702	$	(21,054)	$	(709,204)	$	28,444	$	(25,449)	$	2,995

See accompanying Notes to Unaudited Condensed Consolidated Financial Statements

F-4



ACREAGE HOLDINGS, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS


	Three Months Ended March 31,							Six Months Ended June 30,
(in thousands)	2020			2019			(in thousands)	2023		2022
CASH FLOWS FROM OPERATING ACTIVITIES:							CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$	(222,229	)	$	(30,804	)	Net loss	$	(34,397)	$	(24,514)
Adjustments for:							Adjustments for:
Depreciation and amortization	2,067			908			Depreciation and amortization	1,991		4,972
Equity-settled expenses, including compensation	34,737			18,977
Depreciation and amortization included in COGS							Depreciation and amortization included in COGS	8,935		2,877
Equity-based compensation expense							Equity-based compensation expense	1,678		5,814
Gain on business divestiture							Gain on business divestiture	—		(290)

Loss on disposal of capital assets							Loss on disposal of capital assets	—		49
Loss on impairment	187,775			—			Loss on impairment	—		2,467
Loss on notes receivable	8,161			—

Bad debt expense							Bad debt expense	339		14
Non-cash interest expense	319			—			Non-cash interest expense	2,457		1,470
Non-cash operating lease expense	527			434			Non-cash operating lease expense	(112)		(55)
Deferred tax (benefit) expense	(31,694		)	409
Non-cash income from investments, net	(234		)	(2,182		)
Loss on lease termination							Loss on lease termination	(200)		338
Deferred tax income							Deferred tax income	(18)		(791)
Non-cash loss from investments, net							Non-cash loss from investments, net	759		552

Write-down of assets held-for-sale							Write-down of assets held-for-sale	3,557		874

Change, net of acquisitions in:							Change, net of acquisitions in:
Accounts receivable, net							Accounts receivable, net	6,068		(2,304)
Inventory	(2,374		)	(1,694		)	Inventory	(5,194)		(10,460)
Other assets	(835		)	(505		)	Other assets	(469)		(197)
Interest receivable	882			(1,153		)	Interest receivable	(360)		(782)
Accounts payable and accrued liabilities	(5,226		)	559			Accounts payable and accrued liabilities	(5,670)		(2,331)
Taxes payable	2,729			1,538			Taxes payable	8,540		(3,246)
Interest payable	29			(248		)	Interest payable	249		2,022
Other liabilities	(35		)	131			Other liabilities	(3,260)		55
Net cash used in operating activities	$	(25,401	)	$	(13,630	)	Net cash used in operating activities	$	(15,107)	$	(23,466)
CASH FLOWS FROM INVESTING ACTIVITIES:							CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of capital assets	$	(7,790	)	$	(8,288	)	Purchases of capital assets	$	(3,232)	$	(11,876)
Investments in notes receivable	(11,560		)	(8,629		)

Collection of notes receivable	23			2,835			Collection of notes receivable	2,000		5,999
Proceeds from sale of capital assets	—			162

Business acquisitions, net of cash acquired	—			(20,770		)	Business acquisitions, net of cash acquired	516		—
Purchases of intangible assets	—			(56,497		)	Purchases of intangible assets	—		(900)
Deferred acquisition costs and deposits	—			(300		)

Distributions from investments	8			—			Distributions from investments	—		689
Proceeds from purchase of short-term investments	—			74,768

Cash paid for short-term investment							Cash paid for short-term investment	—		(3,400)

Net cash used in investing activities	$	(19,319	)	$	(16,719	)	Net cash used in investing activities	$	(716)	$	(9,488)
CASH FLOWS FROM FINANCING ACTIVITIES:							CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from related party debt	5,000			—
Repayment of related party loan	(20,000		)	—
Proceeds from financing	21,000			—

Proceeds from financing (refer to Note 14 for related party financing)							Proceeds from financing (refer to Note 14 for related party financing)	$	27,121	$	25,000
Deferred financing costs paid	(1,531		)	—			Deferred financing costs paid	(500)		(511)
Proceeds from issuance of private placement units, net	27,887			—
Collateral received from financing agreement	22,000			—
Settlement of taxes withheld	—			(2,790		)

Repayment of debt	(197		)	(7,621		)	Repayment of debt	(868)		(938)
Net cash provided by (used in) financing activities	$	54,159		$	(10,411	)
Net increase (decrease) in cash, cash equivalents and restricted cash	$	9,439		$	(40,760	)
Cash, cash equivalents and restricted cash - Beginning of period	26,600			105,038
Cash, cash equivalents and restricted cash - End of period	$	36,039		$	64,278

Capital distributions - non-controlling interests							Capital distributions - non-controlling interests	(3,968)		(5,534)
Net cash provided by financing activities							Net cash provided by financing activities	$	21,785	$	18,017
Net increase (decrease) in cash, cash equivalents, restricted cash, and cash held for sale							Net increase (decrease) in cash, cash equivalents, restricted cash, and cash held for sale	$	5,962	$	(14,937)
Cash, cash equivalents, restricted cash, and cash held for sale - Beginning of period							Cash, cash equivalents, restricted cash, and cash held for sale - Beginning of period	24,067		44,501
Cash, cash equivalents, restricted cash, and cash held for sale - End of period							Cash, cash equivalents, restricted cash, and cash held for sale - End of period	$	30,029	$	29,564

See accompanying Notes to Unaudited Condensed Consolidated Financial Statements

F-5



ACREAGE HOLDINGS, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS



RECONCILIATION OF CASH FLOW INFORMATION:
Cash and cash equivalents	$	16,401	$	29,235
Restricted cash	13,628		95
Cash held for sale	$	—	$	234
Total cash, cash equivalents, restricted cash, and cash held for sale at end of period	$	30,029	$	29,564


	Three Months Ended March 31,					Six Months Ended June 30,
(in thousands)	2020		2019		(in thousands)	2023		2022
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:					SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid - non-lease	$	2	$	354	Interest paid - non-lease	$	14,222	$	5,586
Income taxes paid	525		273		Income taxes paid	4,280		21,476
OTHER NON-CASH INVESTING AND FINANCING ACTIVITIES:					OTHER NON-CASH INVESTING AND FINANCING ACTIVITIES:
Capital assets not yet paid for	$	4,377	$	380	Capital assets not yet paid for	$	3,729	$	5,505
Issuance of Class D units for land	—		264
Exchange of intangible assets to notes receivable (Note 4)	18,800		—
Holdback of Maine HSCP notes receivable (Note 6)	917		—
Capital assets not yet received	—		380

Non-cash proceeds from business divestiture					Non-cash proceeds from business divestiture	—		2,000

Non-cash proceeds from finance lease					Non-cash proceeds from finance lease	—		5,785
Reclassification of assets held-for-sale to in-use					Reclassification of assets held-for-sale to in-use	—		—
Cumulative effect of change in accounting principle for current expected credit losses, net of tax					Cumulative effect of change in accounting principle for current expected credit losses, net of tax	121		—
NCI adjustments for changes in ownership					NCI adjustments for changes in ownership	(14)		—

See accompanying Notes to Unaudited Condensed Consolidated Financial Statements

F-6



ACREAGE HOLDINGS, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data)

1. NATURE OF OPERATIONS

Acreage Holdings, Inc. (the “Company”, “Pubco” or “Acreage”) ~~was originally incorporated under~~is a vertically integrated, multi-state operator in the Business Corporations Act (Ontario) on July 12, 1989 as Applied Inventions Management Inc. On August 29, 2014, the Company changed its name to Applied Inventions Management Corp. The Company continued into British Columbia and changed its name to Acreage Holdings, Inc. on November 9, 2018. The Company’s Subordinate Voting Shares are listed on the Canadian Securities Exchange under the symbol “ACRG.U”, quoted on the OTCQX under the symbol “ACRGF” and traded on the Frankfurt Stock Exchange under the symbol “0VZ”. The Company owns, operatesUnited States (“U.S.”) cannabis industry and has contractual relationships with cannabis cultivation facilities, dispensaries and other cannabis-related companies ~~across~~in the ~~United States~~U.S. The Company’s operations include (i) cultivating and processing cannabis plants, (ii) manufacturing branded consumer products, (iii) distributing cannabis flower and manufactured products, and (iv) retailing dosable cannabis products to consumers. The Company’s products appeal to medical and adult recreational use customers through brand strategies intended to build trust and loyalty. The Company’s Class E subordinate voting shares (“~~U.S.”~~Fixed Shares”). and Class D subordinate voting shares (“Floating Shares”) are listed on the Canadian Securities Exchange under the symbols “ACRG.A.U” and “ACRG.B.U”, respectively, quoted on the OTCQX under the symbols “ACRHF” and “ACRDF”, respectively, and traded on the Frankfurt Stock Exchange under the symbols “0VZ1” and “0VZ2”, respectively.

High Street Capital Partners, LLC, a Delaware limited liability company doing business as ~~Acreage Holdings~~“Acreage Holdings” (“HSCP”), was formed on April 29, 2014. The Company became the indirect parent of HSCP on November 14, 2018 in connection with athe reverse takeover (“RTO”) transaction described below.

The Company’s ~~corporate office and~~ principal place of business is located at 366 Madison ~~Avenue, 11th Floor,~~Ave, 14th floor, New York, New York in the U.S. The Company’s registered and records office address is Suite 2800, Park Place, 666 Burrard Street, Vancouver, British Columbia in Canada.

The RTO transaction

On September 21, 2018, the Company, HSCP, HSCP Merger Corp. (a wholly-owned subsidiary of the Company), Acreage Finco B.C. Ltd. (a special purpose corporation) (“Finco”), Acreage Holdings America, Inc. (“USCo”) and Acreage Holdings WC, Inc. (“USCo2”) entered into a business combination agreement (the ~~“Agreement”~~“Business Combination Agreement”) whereby the parties thereto agreed to combine their respective businesses, which would result in the RTO of Pubco by the security holders of HSCP, which was deemed to be the accounting acquiror. On November 14, 2018, the parties to the Business Combination Agreement completed the RTO. ~~The RTO transaction is described in detail in Note 1 to the Consolidated Financial Statements of the Company in the Company’s Annual Report on Form 10-K, filed with the SEC on May 29, 2020.~~

Canopy Growth Corporation transaction

On June 27, 2019, the Company and Canopy Growth Corporation (“Canopy Growth” or “CGC”) ~~completed~~implemented the ~~transactions~~Prior Plan of Arrangement (as defined in Note 13) contemplated by the ~~arrangement agreement dated April 18, 2019, as amended May 15, 2019, between Canopy Growth and Acreage.~~Original Arrangement Agreement (as defined in Note 13). Pursuant to the Prior Plan of Arrangement, Canopy Growth was granted an option to acquire all of the issued and outstanding shares of the Company ~~with~~in exchange for the payment of 0.5818 of a ~~requirement~~common share in the capital of Canopy Growth for each Class A subordinate voting share (each, a “SVS”) held (with the Class B proportionate voting shares (the “PVS”) and Class C multiple voting shares (the “MVS”) being automatically converted to ~~do so upon the occurrence~~SVS immediately prior to consummation of the ~~occurrence of changes~~Acquisition (as defined in ~~U.S.~~Note 13), which original exchange ratio was subject to adjustment in accordance with the Original Arrangement Agreement. Canopy Growth was required to exercise the option upon a change in federal ~~law~~laws in the United States to permit the general cultivation, distribution and possession of marijuana (as defined in the relevant legislation) or to remove the regulation of such activities from the federal laws of the United States (the ~~“Arrangement”~~“Triggering Event”) and, subject to the satisfaction or waiver of certain closing conditions set out in the Original Arrangement Agreement, Canopy Growth was required to acquire all of the issued and outstanding SVS (following the mandatory conversion of the PVS and MVS into SVS).

On June 24, 2020, Canopy Growth and the Company entered into an agreement to, among other things, amend the terms of the ~~Arrangement. Please refer to Note 13 for further discussion.~~

~~COVID-19~~

~~In December 2019, a novel strain~~Original Arrangement Agreement and the terms of ~~coronavirus (“COVID-19”) emerged in Wuhan, China. Since then, it has spread to several other countries and infections have been reported around~~ the ~~world.~~Prior Plan of Arrangement (the “Amended Arrangement”). On ~~March 11,~~September 16, 2020, the ~~World Health Organization declared~~Company’s shareholders voted in favor of a special resolution authorizing and approving the ~~outbreak~~terms of, ~~COVID-19~~among other things, the Amended Arrangement. Subsequently, on September 18, 2020, the Company obtained a ~~global pandemic.~~

~~In response~~final order from the Supreme Court of British Columbia approving the Amended Arrangement, and on September 23, 2020 the Company and Canopy Growth entered into the Amending Agreement (as defined in Note 13) and implemented the Amended Arrangement. Pursuant to the ~~outbreak, governmental authorities in~~Amended Arrangement, the ~~United States, Canada and internationally have introduced various recommendations and measures~~Company’s articles were amended to ~~try to limit~~create the ~~pandemic, including travel restrictions, border closures, non-essential business closures, quarantines, self-isolations, shelters-in-place and social distancing. The COVID-19 outbreak~~Fixed Shares, the Floating Shares and the ~~response~~Class F multiple voting shares (the “Fixed Multiple Shares”), and each outstanding SVS was exchanged for 0.7 of ~~governmental authorities~~a Fixed Share and 0.3 of a Floating Share, each outstanding PVS was exchanged for 28 Fixed Shares and 12 Floating Shares; and each outstanding MVS was exchanged for 0.7 of a Fixed Multiple Share and 0.3 of a Floating Share. Pursuant to ~~try~~the Amended Arrangement, Canopy Growth was granted the option to ~~limit it are having a significant impact~~acquire all of the issued and outstanding Fixed Shares on the ~~private sector and individuals, including unprecedented business, employment and economic disruptions. The continued spread~~basis of ~~COVID-19 in~~0.3048 (the “Fixed Exchange Ratio”) of a common share of Canopy Growth (each, a “Canopy Share”) for each Fixed Share held at the United States, Canada and globally could have an adverse impact on our business, operations and financial results, including through disruptions in our cultivation and processing activities, supply chains and sales channels, as well as a deteriorationtime of ~~general economic conditions including a possible national~~the acquisition of the Fixed Shares (the “Acquisition” or ~~global recession. Shelter-in-place orders and social distancing practices designed~~“Acquisition Time”), subject to limit the spread of COVID-19 may affect our retail business. Due to the speed with which the COVID-19 situation is developing and the uncertainty of its magnitude, outcome and duration, it is not possible to estimate its impact on our business, operations or financial results; however, the impact could be material.

F-7



ACREAGE HOLDINGS, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data)

adjustment in accordance with the terms of the Amended Arrangement (the “Canopy Call Option”), which Canopy Growth is required to exercise upon the occurrence, or waiver (at the discretion of Canopy Growth), of a change in federal laws in the United States to permit the general cultivation, distribution and possession of marijuana (as defined in the relevant legislation) or to remove the regulation of such activities from the federal laws of the United States (the “Triggering Event” and the date on which the Triggering Event occurs, the “Triggering Event Date”). Refer to Note 13 for further discussion.

Pursuant to the implementation of the Amended Arrangement, on September 23, 2020, a subsidiary of Canopy Growth advanced gross proceeds of $50,000 to Universal Hemp, LLC, an affiliate of the Company. The debenture bears interest at a rate of 6.1% per annum. Refer to Note 10 for further discussion.

On October 24, 2022, the Company entered into an arrangement agreement (the “Floating Share Agreement”) with Canopy Growth and Canopy USA, LLC (“Canopy USA”), Canopy Growth’s newly-created U.S. domiciled holding company, pursuant to which, subject to approval of the holders of the Class D subordinate voting shares of Acreage (the “Floating Shares”) and the terms and conditions of the Floating Share Agreement, Canopy USA will acquire all of the issued and outstanding Floating Shares by way of court-approved plan of arrangement (the “Floating Share Arrangement”) for consideration of 0.4500 of a common share of Canopy Growth (each whole share a “Canopy Share”) in exchange for each Floating Share. On March 15, 2023, the Company received the required approval of the holders of Floating Shares in connection with the Floating Share Arrangement at its special meeting of holders of Floating Shares. On March 21, 2023, the Corporation obtained a final order form from the Supreme Court of British Columbia approving the Floating Share Arrangement. Upon the satisfaction or waiver of all other conditions set out in the Floating Share Arrangement Agreement, which the parties continue to work towards, the parties will complete the Floating Share Arrangement. Refer to Note 13 for further discussion.

2. SIGNIFICANT ACCOUNTING POLICIES

Basis of presentation and going concern

The ~~Unaudited Condensed Consolidated Financial Statements of Acreage~~accompanying unaudited condensed consolidated financial statements have been prepared in accordance with ~~United States (“~~U.S.”) generally accepted accounting principles (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. In the opinion of management, all adjustments consisting only of normal recurring adjustments necessary for a fair presentation have been reflected in these ~~Unaudited Condensed Consolidated Financial Statements.~~unaudited condensed consolidated financial statements. Operating results for the interim periods presented are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, ~~2020.~~2023, or any other period.

As reflected in the unaudited condensed consolidated financial statements, the Company had an accumulated deficit as of ~~March 31, 2020,~~June 30, 2023, as well as a net loss and ~~net~~negative cash ~~used in~~flow from operating activities for the ~~reporting period then ended.~~six months ended June 30, 2023. These factors raise substantial doubt about the Company’s ability to continue as a going concern for at least one year from the issuance of these financial statements.

However, management believes that substantial doubt about the Company’s ability to meet ~~our~~its obligations for the next twelve months from the date these financial statements ~~were~~are issued, ~~has been alleviated due to,~~can be mitigated by, but not limited to, (i) ~~capital raised between January and June 2020, (ii) access to future capital commitments (see Note 13), (iii) continued~~expected long-term sales growth from ~~our~~the Company’s consolidated operations, ~~(iv)~~(ii) latitude as to the timing and amount of certain operating expenses as well as capital expenditures, ~~(v) restructuring~~(iii) expense reduction plans that have already been put in place to improve the Company’s ~~profitability~~results, (iv) access to the U.S. and ~~(vi) the Standby Equity Distribution Agreement described in Note 17 of the Unaudited Condensed Consolidated Financial Statements.~~Canadian public equity markets.

If the Company is unable to raise additional capital whenever necessary, it may be forced to decelerate or curtail its footprint ~~buildout~~build-out or other operational activities until such time as additional capital becomes available. Such limitation of the Company’s activities would allow it to slow its rate of spending and extend its use of cash until additional capital is raised. However, management cannot provide any assurances that wethe Company will be successful in accomplishing any of ~~our~~its plans. Management also cannot provide any assurance as to unforeseen circumstances that could occur at any time within the next twelve months or thereafter which could increase ~~our~~the Company’s need to raise additional capital on an immediate basis.

These interim unaudited condensed consolidated financial statements and notes thereto should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022, dated May 1, 2023, as filed with the Securities and Exchange Commission (the “2022 Form 10-K”).

F-8


ACREAGE HOLDINGS, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data)

Use of estimates

~~The preparation~~Preparation of ~~the Company’s Unaudited Condensed Consolidated Financial Statements~~financial statements in conformity with GAAP requires management to make estimates, judgments and assumptions that affect the reported amounts ~~that are~~of assets and liabilities as of the dates presented and the reported inamounts of revenues and expenses during the Unaudited Condensed Consolidated Financial Statements and accompanying disclosures. Although these estimates are based on management’s best knowledge of current events and actions that the Company may undertake in the future, actualperiods presented. Actual results ~~may~~could differ from those estimates. Significant estimates inherent in the preparation of the accompanying ~~Unaudited Condensed Consolidated Financial Statements~~unaudited condensed consolidated financial statements include the fair value of assets acquired and liabilities assumed in business combinations, assumptions relating to equity-based compensation expense, estimated useful lives for property, plant and equipment and intangible assets, the valuation allowance against deferred tax assets and the assessment of potential ~~impairment~~ charges on goodwill, intangible assets and investments in equity and notes receivable.

These interim Unaudited Condensed Consolidated Financial Statements and notes thereto should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2019 as filed with the Securities and Exchange Commission on May 29, 2020 (the “2019 Form 10-K”).

Emerging growth company

~~We are~~The Company is an “emerging growth company” as defined in the Jumpstart Our Business Startups Act (the “JOBS Act”). Under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards until such time as those standards apply to private companies.

Functional and presentation currency

The ~~Unaudited Condensed Consolidated Financial Statements~~unaudited condensed consolidated financial statements and the accompanying notes are expressed in U.S. dollars. Financial metrics are presented in thousands. Other metrics, such as shares outstanding, are presented in thousands unless otherwise noted.

~~ACREAGE HOLDINGS, INC.~~

~~NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(in thousands, except per share data)~~

Basis of consolidation

~~Our Unaudited Condensed Consolidated Financial Statements~~The Company’s unaudited condensed consolidated financial statements include the accounts of Acreage, its subsidiaries and variable interest entities (“VIEs”) where ~~we are~~the Company is considered the primary beneficiary, if any, after elimination of intercompany accounts and transactions. Investments in business entities in which ~~the Company has~~Acreage lacks control but is able to exercise significant influence ~~but less than a controlling~~over operating and financial ~~interest,~~policies are accounted for using the equity method. ~~Our~~The Company’s proportionate share of net income or loss of the entity is recorded in ~~Income (loss)~~Loss from investments, net in the Unaudited Condensed Consolidated Statements of Operations.

Non-controlling interests (“NCI”)

Non-controlling interests represent ownership interests in consolidated subsidiaries by parties that are not shareholders of Pubco. They are shown as a component of Total equity in the Unaudited Condensed Consolidated Statements of Financial Position, and the share of loss attributable to non-controlling interests is shown as a component of Net loss in the Unaudited Condensed Consolidated Statements of Operations. Changes in the parent company’s ownership that do not result in a loss of control are accounted for as equity transactions.

Cash and cash equivalents

The ~~unaudited~~Company defines cash equivalents as highly liquid investments held for the purpose of meeting short-term cash commitments that are readily convertible into known amounts of cash, with original maturities of three months or less. The Company maintains cash with various U.S. banks and ~~audited consolidated~~credit unions with balances in excess of the Federal Deposit Insurance Corporation and National Credit Union Share Insurance Fund limits, respectively. The failure of a bank or credit union where the Company has significant deposits could result in a loss of a portion of such cash balances in excess of the insured limit, which could materially and adversely affect the Company’s business, financial ~~statements are referred to as the “Financial Statements” herein. The unaudited condensed consolidated statements~~condition, results of operations ~~are referred~~and the market price of the Company’s Fixed Shares and Floating Shares. Cash and cash equivalents belonging to entities the Company has classified as held-for-sale have been reclassified to Assets held-for-sale on the ~~“Statements of Operations” herein. The unaudited and audited condensed consolidated statements of financial position are referred to as the “Statements~~Unaudited Condensed Consolidated Statements of Financial ~~Position” herein. The unaudited condensed consolidated statements of cash flows are referred~~Position. Refer to ~~as the “Statements of Cash Flows” herein.~~Note3 for further discussion.

Restricted cash

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

Cash and restricted cash, as presented on the Unaudited Condensed Consolidated Statements of Cash Flows, consists of ~~$13,944~~$16,401 and ~~$22,095~~$13,628 as of ~~March 31, 2020,~~June 30, 2023, respectively, and ~~$26,505~~$29,235 and $95 as of ~~December 31, 2019.~~June 30, 2022, respectively.

F-9

~~Impairment~~


ACREAGE HOLDINGS, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data)

Accounts receivable and notes receivable valuations

The Company reports accounts receivable at their net realizable value, which is management’s best estimate of ~~long-lived assets~~

~~Goodwill~~the cash that will ultimately be received from customers. The Company's notes receivable represent notes due from various third parties. The Company maintains an allowance for expected credit losses to reflect the expected uncollectability of accounts receivable and ~~indefinite-lived intangible assets are not subject~~notes receivable based on historical collection data and specific risks identified among uncollected accounts, as well as management’s expectation of future economic conditions. The Company also considers relevant qualitative and quantitative factors to ~~amortization~~assess whether historical loss experience should be adjusted to better reflect the risk characteristics of the companies receivables and ~~are tested for impairment annually~~the expected future losses. If current or ~~more frequently if~~expected future economic trends, events, or changes in circumstances indicate that ~~they might~~specific receivable balances may be ~~impaired. Goodwill and indefinite-lived intangible assets are tested at the individual business level. The Company may first assess qualitative factors and, if it determines it~~impaired, further consideration is ~~more likely than not that the fair value is less than the carrying value, then proceed to a quantitative test if necessary.~~

Finite-lived intangible assets and other long-lived assets are tested for impairment based on undiscounted cash flows when events or changes in circumstances indicate that the carrying amount may not be recoverable.

~~Accounting for warrants~~

The Company determines the accounting classification of warrants it issues, as either liability or equity classified, by first assessing whether the warrants meet liability classification in accordance with ASC 480-10, ~~Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity, then in accordance with ASC 815-40,~~ ~~Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company’s Own Stock~~. Under ASC 480, warrants are considered liability classified if the warrants are mandatorily redeemable, obligate the Company to settle the warrants or the underlying shares by paying cash or other assets, or warrants that must or may require settlement by issuing a variable number of shares.

If warrants do not meet the liability classification under ASC 480-10, the Company assesses the requirements under ASC 815-40, which states that contracts that require or may require the issuer to settle the contract for cash are liabilities recorded at fair value, irrespective of the likelihood of the transaction occurring that triggers the net cash settlement feature. If the warrants do not require liability classification under ASC 815-40, and in order to conclude equity classification, the Company also assesses whether the warrants are indexed to its common stock and whether the warrants are classified as equity under ASC 815-40 or other applicable GAAP. After all relevant assessments, the Company concludes whether the warrants are classified as liability or equity. Liability classified warrants require fair value accounting at issuance and subsequent to initial issuance with all changes in fair value after the issuance date recorded in the statements of operations. Equity classified warrants only require fair value accounting at issuance with no changes recognized subsequentgiven to the ~~issuance date.~~collectability of those balances and the allowance is adjusted accordingly. Trade accounts receivable and notes receivable are written off after exhaustive collection efforts occur and the receivable is deemed uncollectible. As of June 30, 2023, the Company’s allowance for doubtful accounts was $373, all of which relates to the allowance for credit losses over accounts receivable. As of June 30, 2023, the allowance on loans receivable was $15,095, of which the allowance for credit losses over notes receivable was nil as the receivables were fully reserved for. Refer to Note 6 for further discussion.

Net loss per share

Net loss per share represents the net loss attributable to shareholders divided by the weighted average number of shares outstanding during the period on an as converted basis. Basic and diluted loss per share are the same as of ~~March 31, 2020~~June 30, 2023, 2022 and ~~2019~~2021, as the issuance of shares upon conversion, exercise or vesting of outstanding units would be anti-dilutive in each period. There were ~~46,962~~46,243 and ~~37,588~~37,472 anti-dilutive shares outstanding as of ~~March 31, 2020~~June 30, 2023 and ~~2019,~~2022, respectively. ~~Refer to Note 16 for further details.~~

~~ACREAGE HOLDINGS, INC.~~

~~NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(in thousands, except per share data)~~

Accounting Pronouncements Recently Adopted

As of ~~December 2019,~~January 1, 2023, the Company ~~early~~ adopted ~~ASU 2017-04 -~~ ~~Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment~~ (“ASU 2017-04”). The objective of ASU 2017-04 is to simplify how an entity is required to test goodwill for impairment. Under previous GAAP, entities were required to test goodwill for impairment using a two-step approach. Under the amendments in ASU 2017-04, an entity performs its goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. The adoption of ASU 2017-04 did not have an effect on the Company’s Financial Statements.

~~Accounting Pronouncements Not Yet Adopted~~

~~In June 2016, the FASB issued~~ ASU 2016-13 - Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“(“ASU 2016-13”), which was subsequently revised by ASU ~~2018-19.~~2018-19 and ASU 2020-02. This standard applies to financial assets, measured at amortized cost, including loans, held-to-maturity debt securities, net investments in leases and trade accounts receivable. The guidance must be adopted using a modified retrospective transition method through a cumulative-effect adjustment to retained earnings in the period of adoption. The adoption of ASU ~~introduces~~2016-13 did not have a material effect on the Company’s unaudited condensed consolidated financial statements.

Accounting Pronouncements Not Yet Adopted

In October 2021, the FASB issued ASU 2021-08 - Business Combinations (Topic 805), Accounting for Contract Assets and Contract Liabilities from Contracts with Customers. The new ~~model~~standard improves the accounting for ~~assessing impairment on most financial assets. Entities will be required~~acquired revenue contracts with customers in a business combination by addressing diversity in practice and inconsistency. The new standard requires an entity to ~~use~~recognize and measure contract assets and contract liabilities acquired in a ~~forward-looking expected loss model, which will replace the current incurred loss model, which will result~~business combination in ~~earlier recognition of allowance for losses.~~accordance with ASC 606 - Revenue from Contracts with Customers. The ASU will be effective for the Company’s first interim period of fiscal ~~2023, and~~2024. The standard should be applied prospectively to business combinations occurring on or after the ~~Company is currently evaluating the impact~~effective date of the ~~new standard.~~amendments. The Company does not anticipate a material impact on the Company’s unaudited condensed consolidated financial statements upon adoption.

F-10



ACREAGE HOLDINGS, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data)

3. ACQUISITIONS, DIVESTITURES AND ASSETS HELD FOR SALE

Acquisitions

On January 2, 2023, a subsidiary of the Company acquired cultivation, processing and retail operations in Maine from a third party who provided cultivation, manufacturing, processing, distribution and handling, recordkeeping, compliance, and other services to the Company’s operations in Maine. Under the terms of the agreement, the consideration paid consisted of the settlement of a pre-existing relationship, which included a line-of credit, other advances and the related interest receivable, all totaling $27,691, which were previously recorded in Notes receivable, net on the Statements of Financial Position.

The purchase price allocation is based upon preliminary valuations, estimates and assumptions which are subject to change within the measurement period, generally one year from the acquisition date. The primary areas of the purchase price allocation that are not yet finalized relate to the valuation of the capital assets, tangible assets acquired and the residual goodwill resulting from the transaction.


Purchase Price Allocation	Northeast Patients Group
Assets acquired:
Cash and cash equivalents	$	516
Inventory	384
Other current assets	5,580
Capital assets	2,404
Operating lease right-of-use asset	1,695
Goodwill	24,933



Liabilities assumed:
Accounts payable and accrued liabilities	(3,679)
Taxes payable	(1,112)
Operating lease liability, current	(160)

Operating lease liability, non-current	(1,844)
Notes payable	(11)
Deferred tax liability	(1,015)
Fair value of net assets acquired	$	27,691

Consideration paid:
Settlement of pre-existing relationship	27,691
Total consideration	$	27,691

During the ~~three months~~year ended ~~March~~December 31, ~~2020,~~2022, the Company did not complete any business ~~combinations.~~acquisitions.

Divestitures

During the three and six months ended ~~March 31, 2019,~~June 30, 2023 and 2022, the Company ~~completed~~did not complete any divestitures.

Assets Held for Sale

The Company determined certain businesses and assets met the ~~following business combinations,~~held-for-sale criteria. As such, the related assets and ~~has allocated each purchase price as follows:~~liabilities within these disposal groups were transferred into Assets held-for-sale and Liabilities related to assets held for sale on the Unaudited Condensed Consolidated Statements of Financial Position.

Purchase Price Allocation
Thames Valley
(1)

NCC
(2)
Total
Assets acquired:
Cash and cash equivalents $ 106

$ 696
$ 802
Inventory 39

170
209
Other current assets 1

36
37
Capital assets, net —

539
539
Goodwill 3,596

4,192
7,788
Intangible assets - cannabis licenses 14,850

2,500
17,350
Other non-current assets —

25
25
Liabilities assumed:
Accounts payable and accrued liabilities (121 )
(24 ) (145 )
Other current liabilities —

(621 ) (621 )
Deferred tax liability (3,399 )
(461 ) (3,860 )
Other liabilities —

(175 ) (175 )
Fair value of net assets acquired $ 15,072
$ 6,877
$ 21,949

Consideration paid:
Cash 15,072
—
15,072
Deferred acquisition costs and deposits —
100
100
Subordinate Voting Shares —
3,948
3,948
Settlement of pre-existing relationship —
830
830
Fair value of previously held interest —
1,999
1,999
Total consideration $ 15,072
$ 6,877
$ 21,949

Subordinate Voting Shares issued —
211
211

The ~~operating results~~tables below present the assets and liabilities classified as held for sale on the Unaudited Condensed Consolidated Statements of Financial Position as of June 30, 2023, and are subject to change based on developments during the ~~above acquisitions were not material to the periods presented.~~

~~(1) On January 29, 2019,~~sales process. As of December 31, 2022, the Company ~~acquired 100% of Thames Valley Apothecary, LLC (“Thames Valley”), a dispensary license holder in Connecticut.~~did not have any business or assets that met the held-for-sale criteria.

(2) On March 4, 2019, the Company acquired the remaining 70% ownership interest in NCC LLC (“NCC”), a dispensary license holder in Illinois. The market price used in valuing SVS issued was $18.70. As a result of this acquisition, the previously held interest in NCC was re-measured, resulting in a gain of $999, which was recorded in
~~Income from investments, net~~ ~~in the Statements of Operations during the three months ended March 31, 2019.~~

~~Deferred acquisition costs and deposits~~

~~The Company makes advance payments to certain acquisition targets for which the transfer is pending certain regulatory approvals prior to the acquisition date.~~

F-11



ACREAGE HOLDINGS, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data)


						June 30, 2023
						CWG
Cash						165
Accounts receivable, net						53
Inventory						685

Other current assets						64
Total current assets classified as held-for-sale						967
Capital assets, net						471
Operating lease right-of-use assets						310


Non-current assets						40
Total assets classified as held for sale						1,788

Accounts payable and accrued liabilities						(242)
Taxes payable						81
Operating lease liability, current						(271)

Total current liabilities classified as held-for-sale						(432)

Operating lease liability, non-current						(856)

Total liabilities classified as held-for-sale						(1,288)

AsThe Company determined certain businesses and assets met the held-for-sale criteria. Upon classification of ~~March 31, 2020 and December 31, 2019,~~the disposal groups as held for sale, the Company ~~had no deferred acquisition costs outstanding.~~tested each disposal group for impairment and recognized charges of $3,557 within Write down of assets held-for-sale on the Unaudited Condensed Consolidated Statements of Operations related to CWG for three and six months ended June 30, 2023, respectively. Additionally, all assets and liabilities determined within these disposal groups were transferred into Assets held-for-sale and Liabilities related to assets held for sale on the Consolidated Statements of Financial Position as of June 30, 2023

During the three and six months ended June 30, 2022, the Company recognized a write down of assets held-for-sale of $874 related to its Oregon operations within Write down of assets held-for-sale on the Unaudited Condensed Consolidated Statements of Operations.

F-12


ACREAGE HOLDINGS, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data)

4. INTANGIBLE ASSETS AND GOODWILL

Intangible assets

The following table details ~~our~~the intangible asset balances by major asset classes:

Intangibles March 31, 2020 December 31, 2019
Finite-lived intangible assets:
Management contracts $ 19,580
$ 52,438
Customer relationships —
4,600
Developed technology —
3,100
19,580
60,138
Accumulated amortization on finite-lived intangible assets:
Management contracts (3,639 ) (5,750 )
Customer relationships —
(649 )
Developed technology —
(114 )
(3,639 ) (6,513 )
Finite-lived intangible assets, net 15,941
53,625

Indefinite-lived intangible assets
Cannabis licenses 139,549
232,347

Total intangibles, net $ 155,490
$ 285,972


Intangibles	June 30, 2023		December 31, 2022
Finite-lived intangible assets:

Customer relationships	1,000		1,000

Total finite-lived intangible assets	1,000		1,000
Accumulated amortization on finite-lived intangible assets:

Customer relationships	(1,000)		(1,000)

Total accumulated amortization on finite-lived intangible assets	(1,000)		(1,000)
Finite-lived intangible assets, net	—		—

Indefinite-lived intangible assets
Cannabis licenses	35,124		35,124

Total intangibles, net	$	35,124	$	35,124

~~The average useful life~~During the year ended December 31, 2022, the Company amended the purchase price allocation related to its acquisition of ~~finite-lived intangible assets ranges~~certain Ohio operations based upon final valuations within the measurement period. As a result, $17,000 was re-allocated from ~~six~~Goodwill to ~~nine years~~.

~~Impairment of intangible~~Intangible assets,

In December 2019, a novel strain of coronavirus emerged in Wuhan, China, which since then, has spread worldwide. As a result of the recent global economic impact and uncertainty due to the COVID-19 pandemic, the Company concluded a triggering event had occurred as of March 31, 2020, and accordingly, performed interim impairment testing.

The Company performed a quantitative analysis and concluded certain of the indefinite-lived cannabis licenses had a fair value below the carrying value as of March 31, 2020. During the three months ended March 31, 2020 and 2019, the Company recognized impairment charges of $92,798 and NaN, respectively, with respect to its indefinite-lived intangible assets at Acreage Florida, Inc., Form Factory Holdings, LLC and Kanna, Inc. The charge is recognized in ~~Loss on impairment~~ net on the Unaudited Condensed Consolidated Statements of ~~Operations.~~Financial Position.

~~The Company evaluated~~There was no amortization expense recorded for the ~~recoverability of~~six months ended June 30, 2023. Amortization expense associated with the ~~related finite-lived~~Company’s intangible assets ~~to be held~~was $296 and used by comparing the carrying amount of the assets to the future net undiscounted cash flows expected to be generated by the assets, or comparable market sales data to determine if the carrying value is recoverable. During the three months ended March 31, 2020 and 2019, the Company recognized impairment charges of $8,324 and NaN, respectively, with respect to its finite-lived intangible assets at Form Factory and CWG Botanicals, Inc. The charge is recognized in ~~Loss on impairment~~ ~~on the Statements of Operations.~~

~~These impairments resulted in the recognition of a tax provision benefit and an associated reversal of deferred tax liabilities of $31,316~~$992 for the three and six months ended ~~March 31, 2020.~~

During the second quarter of fiscal 2020, the Company determined certain indefinite-lived intangible assets met the held-for-sale criteria which includes: management commits to a plan to sell; the asset is available for immediate sale; an active program to locate

~~ACREAGE HOLDINGS, INC.~~

~~NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(in thousands, except per share data)~~

a buyer exists; the sale of the asset is probable and expected to be completed within one year; the asset is being actively marketed for sale; and it is unlikely that significant changes to the plan will be made. The Company has identified these assets relating to cannabis licenses within the Company’s national footprint and has evaluated the assets as part of interim impairment testing as noted above. The Company is in the process of evaluating whether this meets the criteria for discontinued operations.

~~WCM Refinancing~~

On March 6, 2020, the Company closed on a refinancing, transaction and conversion related to Northeast Patients Group, operating as Wellness Connection of Maine (“WCM”), a medical cannabis business in Maine, resulting in ownership of WCM by three individuals. In connection with the transaction, WCM converted from a non-profit corporation to a for-profit corporation. Refer to Note 6 for further details. Concurrently, a portion of the management contract was converted into a promissory note of $18,800 in ~~Notes receivable, non-current~~ on the Statements of Financial Position in exchange for the previously held management contract. An impairment was determined as the differential between the net carrying value of the previously held management contract and the promissory note received in exchange. This resulted in an impairment loss to finite-lived intangible assets of $9,395 in ~~Loss on impairment~~ ~~on the Statements of Operations.~~

~~Amortization expense recorded during the three months ended March 31, 2020 and 2019 was $1,165 and $661,~~June 30, 2022, respectively.

~~Expected annual amortization expense for existing intangible assets subject to amortization at March 31, 2020 is as follows for each of the next five fiscal years:~~

Amortization of Intangibles 2020 2021 2022 2023 2024
Amortization expense $ 1,623
$ 2,164
$ 2,164
$ 2,164
$ 2,164

Goodwill

The following table details the changes in the carrying amount of goodwill:

Goodwill Total
December 31, 2019 $ 105,757
Acquisitions —
Impairment (76,890 )
March 31, 2020 $ 28,867


Goodwill	Total
December 31, 2022	$	13,761
Acquisitions	24,933


June 30, 2023	$	38,694

Also as a result of the recent global economic impact and uncertainty due to the COVID-19 pandemic, the Company concluded a triggering event had occurred as of March 31, 2020, and accordingly, performed interim impairment testing.

During the ~~three~~six months ended ~~March 31, 2020 and 2019,~~June 30, 2023, the Company recognized ~~impairment charges~~$24,933 of ~~$65,304 and NaN, respectively, with respect to its~~ goodwill based on the preliminary purchase price allocation related to ~~Form Factory. The Company applied~~ the ~~DCF approach~~acquisition of Northeast Patients Group. Refer to ~~determine the fair value of Form Factory. The charge is recognized in~~ ~~Loss on impairment~~ ~~on the Statements of Operations.~~Note 3 for further discussion.

~~Pursuant to the WCM refinancing described above, the Company recognized an impairment loss to goodwill of $11,586 on~~ ~~Loss of impairment~~ ~~on the Statements of Operations. This was determined as the differential between the net carrying value of the previously held management contract and the promissory note received in exchange.~~

~~ACREAGE HOLDINGS, INC.~~

~~NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(in thousands, except per share data)~~

5. INVESTMENTS

The carrying values of the Company’s investments in the Unaudited Condensed Consolidated Statements of Financial Position as of ~~March 31, 2020~~June 30, 2023 and December 31, ~~2019~~2022 are as follows:


Investments	June 30, 2023		December 31, 2022


Investments held at FV-NI	$	33,287	$	34,046

Total long-term investments	$	33,287	$	34,046

Investments March 31, 2020 December 31, 2019
Investments held at FV-NI 4,607
4,376
Equity method investments 118
123
Total long-term investments $ 4,725
$ 4,499

F-13


ACREAGE HOLDINGS, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data)

~~Income~~Loss from investments, net in the Unaudited Condensed Consolidated Statements of Operations during the three and six months ended ~~March 31, 2020~~June 30, 2023 and ~~2019~~2022 is as follows:

Investment income Three Months Ended March 31,
2020 2019
Short-term investments $ —
$ 500
Investments held at FV-NI 240
1,203
Equity method investments (6 ) 1,024
Income from investments, net $ 234
$ 2,727

~~Short-term investments~~

The Company from time to time invests in U.S. Treasury bills which are classified as held-to-maturity and measured at amortized cost. These range in original maturity from three to six months, and bear interest ranging from 2.2% - 2.4%. During the three months ended March 31, 2019, short-term investments in U.S. Treasury bills in the amount of $74,768 matured.


Investment income (loss)	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
Short-term investments	$	—	$	2	$	—	$	3

Investments held at FV-NI	322		(998)		(20)		134


Income (loss) from investments, net	$	322	$	(996)	$	(20)	$	137

Investments held at FV-NI

The Company has investments in equity of ~~several~~other companies that do not result in significant influence or control. These investments are carried at fair value, with gains and losses recognized in the Unaudited Condensed Consolidated Statements of Operations.

~~Equity method investments~~

As further described under the “6.10% Secured debenture due September 2030” in Note 10, on September 23, 2020, a subsidiary of the Company, Universal Hemp, LLC ("Universal Hemp") was advanced gross proceeds of $50,000 (less transaction costs) pursuant to the terms of a secured debenture. The Company ~~accounts~~subsequently engaged an investment advisor, which under the investment advisor's sole discretion, on September 28, 2020 invested $34,019 of these proceeds on behalf of Universal Hemp. As a result, Universal Hemp acquired 34,019 class B units, at $1 par value per unit, which represented 100% financial interest in an Investment Partnership, a Canada-based limited partnership. An affiliate of the institutional investor holds Class A units of the Investment Partnership. The general partner of the Investment Partnership is also an affiliate of the Institutional Investor. The Class B units are held by the Investment Advisor as an agent for ~~investments in which it can exert~~Universal Hemp.

Universal Hemp, through its investment with the Investment Advisor, was originally determined to hold significant influence ~~but does not control~~in the Investment Partnership in accordance with ASC 810 due to (1) the economic financial interest, and (2) the entitlement to matters as they pertain to ‘Extraordinary Resolution’ items as defined within the Investment Partnership Agreement. As a result, the Company accounted for the investment in the Investment Partnership under the equity method ~~investments. As of March 31,~~until December 2020. Refer to Note 10 for further discussion. In December 2020, ~~and December 31, 2019,~~ the ~~Company’s equity method investments were not deemed~~Company no longer held significant influence due to the ~~Company’s Financial~~removal of the Extraordinary Resolution entitlements and other revisions in the Investment Partnership Agreement. As a result, the Company changed its accounting for the Investment Partnership to recognize the investment at fair value, with gains and losses recognized in the Unaudited Condensed Consolidated Statements ~~and as such, additional disclosure is omitted.~~of Operations.

6. NOTES RECEIVABLE, NET

Notes receivable as of ~~March 31, 2020~~June 30, 2023 and December 31, ~~2019~~2022 consisted of the following:

March 31, 2020 December 31, 2019
Notes receivable $ 99,105
$ 75,851
Interest receivable 4,731
5,774
Total notes receivable $ 103,836
$ 81,625
Less: Notes receivable, current 2,123
2,146
Notes receivable, non-current $ 101,713
$ 79,479


	June 30, 2023		December 31, 2022
Promissory notes receivable	$	7,212	$	34,088
Line of credit receivable	4,331		5,831
Interest receivable	3,552		4,147
Allowance for notes and interest receivable	(15,095)		(14,875)
Total notes receivable	$	—	$	29,191
Less: Notes receivable, current	—		29,191
Notes receivable, non-current	$	—	$	—

Interest income ~~on notes~~(loss) from loans receivable during the three and six months ended ~~March 31, 2020~~June 30, 2023 was $(6) and ~~2019 totaled $1,647~~$10, respectively, and ~~$730,~~$365 and $782 for the three and six months ended June 30, 2022, respectively.

~~On March 6, 2020,~~At each reporting date, the Company ~~closed~~applies its judgment to evaluate the collectability of the note receivable and makes a provision based on ~~a refinancing, transaction~~the assessed amount of expected credit loss. This judgment is based on parameters such as interest rates, market conditions and ~~conversion related to Northeast Patients Group, operating as WCM, a medical cannabis business in Maine, resulting in ownership~~creditworthiness of ~~WCM by three individuals. In connection with~~ the transaction, WCM converted from a non-profit corporation to a for-profit corporation. WCM previously had a series of agreements with Wellness Pain & Management Connection LLC (“WPMC”), which resulted in an outstanding balance of $18,800 due tocreditor.

F-14



ACREAGE HOLDINGS, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data)

WPMC as of closing of this transaction. A restated consulting agreement was put in place, whereby WCM agrees to pay a fixed annual fee of $120, payable monthly, in exchange for a suite of consulting services. In addition, a promissory note payable to WPMC was signed in the amount of $18,800 to convert the existing payment due into a fixed, secured debt obligation.

In order to fund the transaction of WCM, the Company created a new Maine corporation, named Maine HSCP, Inc. (“Maine HSCP”). At closing, the Company contributed $5,700 to Maine HSCP, and then sold 900 shares of Maine HSCP, constituting all of the outstanding equity interests of Maine HSCP, to three qualifying individuals in exchange for promissory notes of $1,900 each. Each note is secured by a pledge of the shares in Maine HSCP, and payment of the note is to be made solely from dividends paid to the shareholder by Maine HSCP, except for amounts to be paid to the shareholder to cover tax obligations. As of March 31, 2020, the Company recorded a holdback reserve of $917 for the State of Maine as a result of finalization of valuation by the State. The Company has the option, exercisable at any time, to buy back the shares, at the higher of fair market value or the remaining balance under the promissory notes. The individuals also have the right at any time to put the shares to the Company on the same terms. The net equity impact to the Company was NaN, and the option described above is only redeemable if permissible pursuant to Maine regulations.

On July 1, 2019, the Company entered into $8,000 convertible note receivable with a west coast social equity program. Upon certain conditions related to a subsequent capital raise, the Company will obtain the right to convert its financing receivable to an ownership interest. The line of credit matures in June 2022 and bears interest at a rate of 8% per annum.

~~During the three months ended March 31, 2020, the Company wrote off the note receivable and the accrued interest of $8,000 and $161, respectively, as the~~ Company determined that the ~~note was not collectible~~collectability of certain notes receivables is doubtful based on information available. As of June 30, 2023 and ~~recorded a loss on~~December 31, 2022, the Company’s allowance for notes receivable of ~~$8,161.~~$15,095 and $14,875, respectively, included $11,543 and $12,041 of principal outstanding and $3,552 and $2,834 of accrued interest, respectively, and represents the full value of such loan balances.

~~The Company provides revolving lines of credit to several entities under management services agreements which are included in notes receivable. The relevant terms and balances are detailed below.~~Activity during the six months ended June 30, 2023

Lines of Credit Balance as of
Counterparty Maximum Obligation Interest Rate March 31, 2020 December 31, 2019
Greenleaf ⁽¹⁾
$ 29,286
3.25% - 4.75% $ 27,277
$ 22,569
CWG Botanicals, Inc. ("CWG") ⁽²⁾
12,000
8% 9,466
9,152
Compassionate Care Foundation, Inc. (“CCF”) ⁽³⁾
12,500
18% 7,952
7,152
Prime Alternative Treatment Center, Inc. ("PATC") ⁽⁴⁾
4,650
15% 4,650
4,650
Patient Centric of Martha’s Vineyard, Ltd. (“PCMV”) ⁽⁵⁾
9,000
15% 6,209
5,758
Health Circle, Inc. ⁽⁶⁾
8,000
15% 4,331
3,988
Total $ 75,436
$ 59,885
$ 53,269

~~(1) During the year ended December 31, 2018,~~In January 2023, a subsidiary of the Company acquired cultivation, processing and retail operations in Maine from a third party who provided cultivation, manufacturing, processing, distribution and handling, recordkeeping, compliance, and other services to the Company’s operations in Maine and the amounts outstanding under the promissory notes receivable were converted into equity in Northeast Patients Group. Refer to Note 3 for further discussion.

In April 2023, the Company’s subsidiary Prime Alternative Treatment Center Consulting, LLC (“NH-PATCC”) received $1,500 from Prime Alternative Treatment Center, Inc. ("PATC") in settlement of the principal balance related to a promissory note that was extended ~~lines of credit~~ to ~~Greenleaf Apothecaries, LLC, Greenleaf Therapeutics, LLC and Greenleaf Gardens, LLC (together “Greenleaf”), which mature~~“PATC”.

In May 2023, the Company received a $500 cash payment towards the principal balance on a promissory note receivable from Grown Rogue.

Activity during the six months ended June 30, 2022

In February 2022, the Company received a $5,279 cash payment in ~~June 2023.~~

~~(2) The revolving~~full on a line of credit due from ~~CWG matures in December 2021.~~

~~(3) In September 2018, the Company entered into a management agreement to provide certain advisory~~Patient Centric Martha’s Vineyard, and consulting services to Compassionate Care Foundation, Inc. (“CCF”) for a monthly fee based on product sales. Upon certain changes in New Jersey state laws to allow for-profit entities to hold cannabis licenses and certain regulatory approvals, the management agreement will terminate and any outstanding obligations onsubsequently closed the line of ~~credit will convert~~credit.

7. CAPITAL ASSETS, NET

Net property, plant and equipment consisted of:


	June 30, 2023		December 31, 2022
Land	$	9,778	$	9,605
Building	58,524		58,334
Right-of-use asset, finance leases	6,297		5,077
Furniture, fixtures and equipment	40,698		46,811
Leasehold improvements	49,587		6,178
Construction in progress	11,415		34,435
Capital assets, gross	$	176,299	$	160,440
Less: accumulated depreciation and amortization	(40,214)		(27,035)
Capital assets, net	$	136,085	$	133,405

Depreciation of capital assets for the three and six months ended June 30, 2023 is comprised of $994 and $1,991 of depreciation expense, and $2,090 and $4,377 that was capitalized to inventory, respectively, and $2,868 and $3,980 of depreciation expense and $1,794 and $3,716 that was capitalized to inventory for the three and six months ended June 30, 2022, respectively.

During the six months ended June 30, 2022, the Company determined that it was unable to find a ~~direct ownership interest in CCF, which will convert~~satisfactory buyer for the held-for-sale assets related to its Michigan operations and, as such, these assets were reclassified as held-and-used. This conclusion was considered a ~~for-profit entity.~~

~~On November 15, 2019, as a result of changes~~triggering event for capital asset impairment testing. Upon assessment, these specific capital assets were not considered to ~~state laws as described above, Acreage entered into a Reorganization Agreement with CCF, pursuant to which Acreage will acquire 100%~~have future economic value. As such, the fair value of the ~~equity interests in CCF’s successor entity, pending state approval. The outstanding amounts receivable under the line of credit will convert~~assets was considered to ~~54% ownership,~~be nil and the Company ~~will pay $10,000~~recognized an impairment charge of $1,907 within Impairments, net on the Statements of Operations during the six months ended June 30, 2022. Refer to Note 3 for ~~the remaining 46%. On June 26, 2020, the transactions contemplated by the Reorganization Agreement closed and the line of credit converted into equity~~further discussion on changes in ~~CCF’s successor entity as described in the prior sentence. Please see Note 17 for additional details.~~held-for-sale entities.

(4) Prime Alternative Treatment Center, Inc. (“PATC”) is a non-profit license holder in New Hampshire to which the Company’s consolidated subsidiary PATCC provides management or other consulting services. The line of credit matures in August 2022.

F-15



ACREAGE HOLDINGS, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data)

(5) In November 2018, the Company entered into a services agreement with Patient Centric of Martha’s Vineyard, Ltd. (“PCMV”). The line of credit matures in November 2023. The services agreement was terminated in February 2020.

(6) Health Circle, Inc. is a non-profit license holder in Massachusetts that formerly had a services agreement with the Company’s consolidated subsidiary MA RMDS. The line of credit matures in November 2032. The services agreement was terminated in February 2020.

~~7. CAPITAL ASSETS, net~~

~~Net property and equipment consisted of:~~

March 31, 2020 December 31, 2019
Land $ 11,611
$ 9,839
Building 37,516
34,522
Right-of-use asset, finance leases 5,980
5,954
Construction in progress 17,125
17,288
Furniture, fixtures and equipment 27,897
21,019
Leasehold improvements 23,240
22,682
Capital assets, gross $ 123,369
$ 111,304
Less: accumulated depreciation (6,676 ) (5,257 )
Capital assets, net $ 116,693
$ 106,047

~~Depreciation of capital assets for the three months ended March 31, 2020 and 2019 include $902 and $247 of depreciation expense, and $600 and $410, that was capitalized to inventory, respectively.~~

~~ACREAGE HOLDINGS, INC.~~

~~NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(in thousands, except per share data)~~

8. LEASES

The Company leases land, buildings, equipment and other capital assets which it plans to use for corporate purposes ~~and~~in addition to the production and sale of cannabis products. Leases with an initial term of 12 months or less are not recorded on the Unaudited Condensed Consolidated Statements of Financial Position and are expensed in the Unaudited Condensed Consolidated Statements of Operations on the straight-line basis over the lease term. The Company does not have any material variable lease payments and accounts for non-lease components separately from leases.


Balance Sheet Information	Classification	June 30, 2023		December 31, 2022
Right-of-use assets
Operating	Operating lease right-of-use assets	$	19,067	$	22,443
Finance	Capital assets, net	4,690		4,269
Total right-of-use assets		$	23,757	$	26,712

Lease liabilities
Current
Operating	Operating lease liability, current	$	2,268	$	2,443
Financing	Debt, current	109		1
Non-current
Operating	Operating lease liability, non-current	18,839		21,692
Financing	Debt, non-current	5,860		5,305
Total lease liabilities		$	27,076	$	29,441

Balance Sheet Information Classification March 31, 2020 December 31, 2019
Right-of-use assets
Operating Operating lease right-of-use assets $ 55,411
$ 51,950
Finance Capital assets, net 5,764
5,832
Total right-of-use assets $ 61,175
$ 57,782

Lease liabilities
Current
Operating Operating lease liability, current $ 3,253
$ 2,759
Financing Debt, current 74
49
Non-current
Operating Operating lease liability, non-current 51,016
47,522
Financing Debt, non-current 5,932
6,083
Total lease liabilities $ 60,275
$ 56,413

Statement of Operations Information Classification Three Months Ended
March 31, 2020 Three Months Ended March 31, 2019
Short-term lease expense General and administrative $ 317
$ 298
Operating lease expense General and administrative 2,020
956
Finance lease expense:
Amortization of right of use asset Depreciation and amortization 95
2
Interest expense on lease liabilities Interest expense 215
12
Sublease income Other (loss) income, net (16 ) (43 )
Net lease cost $ 2,314
$ 927

Statement of Cash Flows Information Classification Three Months Ended
March 31, 2020 Three Months Ended March 31, 2019
Cash paid for operating leases Net cash used in operating activities 1,493
522
Cash paid for finance leases - interest Net cash used in operating activities 196
12


		Three Months Ended June 30,				Six Months Ended June 30,
Statement of Operations Information	Classification	2023		2022		2023		2022
Short-term lease expense	General and administrative	$	58	$	170	$	209	$	218

Operating lease expense	General and administrative	1,277		1,144		2,615		2,392
Finance lease expense:
Amortization of right of use asset	Depreciation and amortization	92		64		185		127
Interest expense on lease liabilities	Interest expense	211		329		420		541

Net operating and finance lease cost		$	1,580	$	1,537	$	3,220	$	3,060


		Six Months Ended June 30,
Statement of Cash Flows Information	Classification	2023		2022
Cash paid for operating leases	Net cash used in operating activities	$	2,727	$	2,447
Cash paid for finance leases - interest	Net cash used in operating activities	$	493	$	522

F-16



ACREAGE HOLDINGS, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data)

The following represents the Company’s future minimum payments required under existing leases with initial terms of one year or more as of ~~March 31, 2020:~~June 30, 2023:

Maturity of lease liabilities Operating Leases Finance Leases
2020 $ 6,414
$ 652
2021 8,629
873
2022 8,484
893
2023 8,310
914
2024 8,030
936
Thereafter 53,986
18,740
Total lease payments $ 93,853

$ 23,008
Less: imputed interest 39,584
17,002
Present value of lease liabilities $ 54,269
$ 6,006

Weighted average remaining lease term (years) 12 24
Weighted average discount rate 10% 14%


Maturity of lease liabilities	Operating Leases		Finance Leases
2023	$	2,030	$	453
2024	4,153		923
2025	4,098		946
2026	4,307		969
2027	3,890		992
Thereafter	13,267		11,705
Total lease payments	$	31,745	$	15,988
Less: interest	10,638		10,019
Present value of lease liabilities	$	21,107	$	5,969

Weighted average remaining lease term (years)	8		12
Weighted average discount rate	10%		12%

As of ~~March 31, 2020,~~June 30, 2023, there have been no leases entered into that have not yet commenced.

9. INVENTORY

The Company’s inventory balance consists of the following:


	March 31, 2020		December 31, 2019			June 30, 2023		December 31, 2022
Retail inventory	$	2,103	$	1,784	Retail inventory	$	3,714	$	3,255
Wholesale inventory	13,816		11,993		Wholesale inventory	36,478		35,885
Cultivation inventory	3,235		3,021		Cultivation inventory	5,070		7,133
Supplies & other	1,903		1,285		Supplies & other	2,676		3,173
Total	$	21,057	$	18,083	Total	$	47,938	$	49,446

Inventory is valued at the lower of cost and net realizable value (“NRV”), defined as estimated selling price in the ordinary course of business, less estimated costs of disposal. During the six months ended June 30, 2023, the Company analyzed its inventory balances, and recorded wholesale inventory adjustments as a result of (i) having excess or obsolete inventory and (ii) reducing the carrying value to ensure inventory balances are properly recorded at the lower of cost and NRV. The Company recognized $4,484 and $6,721 of wholesale inventory adjustments within Cost of goods sold, wholesaleon the Statements of Operations for the three and six months ended June 30, 2023, respectively.

The Company’s debt balances consist of the following:

Debt balances March 31, 2020 December 31, 2019
NCCRE loan $ 487
$ 492
Seller’s notes 2,744
2,810
Related party debt —
15,000
Financing liability 19,052
19,052
Finance lease liabilities 6,006
6,132
SAF loan 19,438
—
SAF loan collateral (related party) 22,254
—
Total debt $ 69,981
$ 43,486
Less: current portion of debt 22,514
15,300

Total long-term debt $ 47,467
$ 28,186


Debt balances	June 30, 2023		December 31, 2022
Financing liability (failed sale-leaseback)	$	15,253	$	15,253
Finance lease liabilities	5,969		5,306
7.50% Loan due April 2026	31,549		31,288
6.10% Secured debenture due September 2030	46,727		46,502
Note due December 2024	2,375		3,167
Prime rate credit facilities due January 2026, as amended	129,982		113,564
Note backed by ERTC	12,113		—
Total debt	$	243,968	$	215,080
Less: current portion of debt	13,805		1,584
Total long-term debt	$	230,163	$	213,496



ACREAGE HOLDINGS, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data)

Scheduled maturities of debt, excluding amortization of discount and issuance costs, are as follows:

~~The~~


2023	$	12,904
2024	1,584
2025	—
2026	173,011
2027	39
Thereafter	71,172
Total payments (excluding amortization of discount and issuance costs)	$	258,710

During the three and six months ended June 30, 2023, the Company incurred interest expense ~~related to the Company’s debt~~of $8,862 and $16,936, respectively, and $5,520 and $10,301 during the three and six months ended ~~March~~June 30, 2022, respectively, on the Unaudited Condensed Consolidated Statements of Operations. Interest expense for the three and six months ended June 30, 2023 included debt discount amortization of $525 and $1,015, respectively, and amortization of debt issuance costs of $698 and $1,388, respectively. Interest expense for the three and six months ended June 30, 2022 included debt discount amortization of $377 and $751, respectively, and amortization of debt issuance costs of $294 and $552, respectively. As of June 30, 2023 and December 31, ~~2020~~2022, the Company had unamortized discount $5,578 and ~~2019 consists~~$6,093, respectively, and debt issuance costs of ~~the following:~~

Interest Expense Three Months Ended March 31,
2020 2019
NCCRE loan 5
5
Seller’s notes 72
101
Interest expense on financing liability 591
—
Interest expense on finance lease liability 215
12
Interest expense on SAF loan 89
—
Interest expense on SAF loan collateral (related party) 254
—
Total interest expense $ 1,226
$ 118

~~NCC Real Estate, LLC (“NCCRE”) loan~~

~~NCCRE,~~$9,164 and $10,522, respectively, which is ~~owned by~~netted against the ~~Company’s consolidated subsidiary HSC Solutions, LLC, entered into a $550 secured loan with a financial institution for the purchase~~gross carrying value of ~~a building~~long-term debt in ~~Rolling Meadows, Illinois in December 2016. The building is leased to NCC. The promissory note payable carries a fixed interest rate~~Debt, non-current on Unaudited Condensed Unaudited Condensed Consolidated Statements of ~~3.7%~~Financial Position. Additionally, as of June 30, 2023 and ~~is due in December 2021.~~

~~Seller’s notes~~

~~The Company issued Seller’s notes payable in connection with several transactions, bearing interest at rates ranging from 3.5% to 10%.~~

~~Related party debt~~

~~During the year ended~~ December 31, ~~2019,~~2022, the ~~Company’s CEO made a non-interest bearing loan~~Company had accrued interest of ~~$15,000 to Acreage. In January 2020, he made an additional loan~~$2,824 and $2,575, respectively, within Interest payable on the Unaudited Condensed Consolidated Statements of ~~$5,000 to Acreage. These amounts were subsequently repaid in March 2020.~~Financial Position.

(failed sales leaseback)

In connection with the Company’s failed sale-leaseback transaction ~~(refer to Note 14),~~in November 2020, a financing liability was recognized equal to the cash proceeds received. The Company will recognize the cash payments made on the lease as interest expense, and the principal will be ~~derecognized~~de-recognized upon expiration of the lease.

~~SAF loan and collateral~~

6.10% Secured debenture due September 2030

On ~~March 11,~~September 23, 2020, pursuant to the implementation of the Amended Arrangement (Refer to Note 13 for further discussion), a subsidiary of Canopy Growth advanced gross proceeds of $50,000 (less transaction costs of approximately $4,025) to Universal Hemp, an affiliate of the Company, ~~borrowed $21,000 from an institutional lender~~ pursuant to the terms of a ~~credit facility. The credit facility permits~~secured debenture (“6.1% Loan”). In accordance with the ~~Company to borrow up to $100,000, which~~terms of the debenture, the funds cannot be used, directly or indirectly, in connection with or for any cannabis or cannabis-related operations in the United States, unless and until such operations comply with all applicable laws of the United States. An additional $50,000 may be ~~drawn down~~advanced pursuant to the debenture subject to the satisfaction of certain conditions by ~~the Company in four tranches, maturing two~~Universal Hemp. The debenture bears interest at a rate of 6.1% per annum, matures 10 years from the date hereof or such earlier date in accordance with the terms of the ~~first draw down. The Company will pay an annual~~debenture and all interest ~~rate of 3.55% on the first advance of debt for a term of two years. The borrowed amounts under the credit facility are fully collateralized by $22,000 of restricted cash, which was borrowed~~payments made pursuant to the ~~loan transaction described below. Any additional draws must be fully~~debenture are payable in cash ~~collateralized as well.~~

~~Also on March 11, 2020, the Company closed $22,000 in borrowings pursuant to a loan transaction with IP Investment Company, LLC (the “Lender”).~~by Universal Hemp. The maturity date is 366 days from the closing date of the loan transaction. The Company will pay monthly interest on the collateral in the form of 41 SVS through the maturity date. The Lender may put any unsold interest shares to the Company upon maturity at a price of $4.50 per share. Kevin Murphy, the Company’s Chief Executive Officer, loaned $21,000 of the $22,000 borrowed by the Company to the Lender. The loandebenture is secured by ~~the non-U.S. intellectual property assets, a cannabis state license and 12,000 SVS shares~~substantially all of the ~~Company.~~assets of Universal Hemp and its subsidiaries and, further, is not convertible and is not guaranteed by Acreage.

With a portion of the proceeds for the 6.1% Loan received by Universal Hemp, Acreage engaged an Investment Advisor which, under the Investment Advisor’s sole discretion, invested on behalf of Universal Hemp $34,019 on September 28, 2020. As a result, Universal Hemp acquired 34,019 class B units, at $1.00 par value per unit, which represented 100% financial interest in the Investment Partnership, a Canada-based limited partnership. An affiliate of the Institutional Investor holds class A units of the Investment Partnership. The ~~Company has determined such interest on collateral to be a mandatorily redeemable financial instrument that~~general partner of the Investment Partnership is ~~recorded as a liability in accordance with ASC 480 -~~ ~~Distinguishing liabilities from equity~~ ~~(“ASC 480”).~~also an affiliate of the Institutional Investor. The ~~liability is calculated based upon the share interest multiplied~~class B units are held by the ~~maturity price~~Investment Advisor as an agent for Universal Hemp. Upon execution of ~~$4.50 per share. The liability amounted~~the limited partnership agreement, $1,019 was distributed to ~~$128 as~~the class A unit holders of ~~March 31, 2020 and was recorded in~~ ~~Debt, current~~ ~~within~~ the ~~Statements of Financial Position.~~

Investment Partnership.



ACREAGE HOLDINGS, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data)

7.50% Loan due April 2026

On September 28, 2020, the Company received gross proceeds of $33,000 (less transaction costs of approximately $959) from an affiliate of the Institutional Investor (the “Lender”) and used a portion of the proceeds of this loan to retire its short-term $11,000 convertible note (as described above) and its short-term note aggregating approximately $18,000 in October 2020, with the remainder being used for working capital purposes. The loan is unsecured, matures in 3 years and bears interest at a 7.5% annual interest rate. The Lender is controlled by the Institutional Investor. The Investment Partnership is the investor in the Lender. On December 16, 2021, the Company paid an amendment fee of $413 to extend the maturity date from September 28, 2023 to April 2, 2026. The amendment was treated as a debt extinguishment.

Note due December 2024

In November 2020, the Company issued a promissory note with a third party, which is non-interest bearing and payable based on a payment schedule with ten payments in the aggregate amount of $7,750 through December 31, 2024, as a result of a settlement described under the “CanWell Dispute” in Note 13.

Prime rate credit facilities due January 2026, as amended

On December 16, 2021, the Company entered into a $150,000 senior secured credit facility with a syndicate of lenders consisting of a $75,000 initial draw, a $25,000 delayed draw that must be advanced within 12 months and a $50,000 committed accordion facility that is available after December 1, 2022, provided certain financial covenants are met, and with a maturity of January 1, 2026.Upon closing, gross proceeds of $75,000 were drawn (before origination discounts and issuance costs of approximately $4,000 and $1,500, respectively, which were capitalized). In April 2022, the Company drew down on the $25,000 delayed draw. Refer to Note 14 for further discussion of the syndicated related party lender.

The Company obtained a waiver of the financial covenants for the three month periods ended March 31, 2022 and June 30, 2022. This waiver included a $500 waiver fee that was paid to the lenders

On October 24, 2022, the Company amended the senior secured credit facility such that $25,000 of the committed accordion was available for immediate draw by Acreage, which was drawn down in the fourth quarter of 2022, with the remaining $25,000 available from January 1, 2023, provided certain predetermined milestones are achieved. The Company paid an amendment fee of $1,250 to the syndicate of lenders and the amendment was treated as a debt modification.

On April 28, 2023, the Company reached an agreement with the lenders of the Prime rate credit facilities due January 2026 that would allow it to draw a further $15,000 under its current Credit Agreement, but such funds would be maintained in a segregated account until dispersed and be restricted for use to only eligible capital expenditures. As part of this agreement, the Company agreed to limit the total amounts outstanding under the Credit Agreement to $140,000 and to at all times subsequent to the amendment, maintain collateral (as defined in the Credit Agreement) equal to or greater than the outstanding amount under the Credit Agreement.

The loan is secured by pledged equity interests and substantially all of the assets of the Company. Advances under the facility bear interest at a variable rate of U.S. prime (“Prime”) plus 5.75% per annum, payable monthly in arrears, with a Prime floor of 5.50% plus an additional 1.0% per annum until certain collateral assignment agreements are delivered.

The facility has a maturity date of January 1, 2026 and the Company has the option to extend the maturity date to January 1, 2027 prior to January 1, 2024, for a fee equal to 1.0% of the total loan amount. If the Company chooses to extend the maturity date, it will also be required to make monthly installment payments, each of which shall be an amount equal to five percent per year of the outstanding amount of the loan.

The loan is subject to various financial covenants, including (i) a fixed charge coverage ratio and two leverage ratios in respect of all periods beginning on or after December 31, 2023 and (ii) a minimum cash requirement of $9.0 million at each quarter end of the Company. Finally, the Amended Credit Facility includes approval for Canopy USA to acquire control of Acreage without requiring repayment of all amounts outstanding under the Amended Credit Facility, provided certain conditions are satisfied. As of June 30, 2023 the Company was in compliance with all covenants.

ERTC Factoring Agreement

On April 11, 2023, the Company received $12,113 pursuant to a financing agreement with a third-party lender (the “Financing Agreement”), which is included in “Debt, current” as of June 30, 2023. The Company assigned to the lender its interests in


ACREAGE HOLDINGS, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data)

Employee Retention Tax Credits (“ERTC”) that it submitted for a claim of approximately $14,251. If the Company does not receive the ERTC, in whole or in part, the Company is required to repay the related portion of the funds received plus 10% interest accrued from the date of the Financing Agreement through the repayment date. The Financing Agreement does not have a stated maturity date and the discount is being accreted to interest expense over an expected term. The Company’s obligations under the Financing Agreement will be satisfied upon receipt of the ERTC or other full repayment. Finally, the Company determined the ERTC did not meet the criteria to record as a receivable as of June 30, 2023 due to the uncertain nature of such claims.

11. SHAREHOLDERS’ EQUITY AND NON-CONTROLLING INTERESTS

The table below details the change in Pubco shares outstanding by class for the three and six months ended ~~March 31, 2020:~~June 30, 2023:

Shareholders’ Equity Subordinate Voting Shares Subordinate Voting Shares Held in Treasury Proportionate Voting Shares (as converted) Multiple Voting Shares Total Shares Outstanding
December 31, 2019 68,177

(842 )
23,143

168
90,646
Issuances 6,671

—

—

—
6,671
NCI conversions 113

—

—

—
113
PVS conversions 294

—

(294 )
—
—
March 31, 2020 75,255
(842 ) 22,849
168
97,430

~~The table below details the change in Pubco shares outstanding by class for the three months ended March 31, 2019:~~

Shareholders’ Equity Subordinate Voting Shares Subordinate Voting Shares Held in Treasury Proportionate Voting Shares (as converted) Multiple Voting Shares Total Shares Outstanding
December 31, 2018 21,943
(842 ) 57,895
168
79,164
Issuances 413
—
—
—
413
NCI conversions 643
—
—
—
643
PVS conversions 21,472
—
(21,472 ) —
—
March 31, 2019 44,471

(842 )
36,423

168

80,220


Shareholders’ Equity	Fixed Shares	Floating Shares	Fixed Shares Held in Treasury	Floating Shares Held in Treasury	Fixed Multiple Shares	Total Shares Outstanding



December 31, 2022	79,047	34,114	(589)	(253)	118	112,437
Issuances	607	159	—	—	—	766
NCI conversions	—	—	—	—	—	—
June 30, 2023	79,654	34,273	(589)	(253)	118	113,203

A summary of the warrants activity outstanding is as follows:

Warrants Three Months Ended March 31,
2020 2019
Beginning balance 2,040
2,259
Granted 6,085
—
Expired —
—
Ending balance 8,125
2,259

On February 10, 2020, the Company raised $27,887, net of issuance costs, from a private placement of 6,085 warrants priced at $4.93 per unit. The warrants were automatically exercised on March 2, 2020 for no additional consideration, and each unit sold consists of 1 SVS voting share and 1 purchase warrant with an exercise price of $5.80 and a five-year expiration. The Company evaluated the warrants for liability or equity classification in accordance with ASC 480 and determined that equity treatment was appropriate as the warrants only require settlement through the issuance of the Company’s SVS which are not redeemable, and do not represent an obligation to issue a variable number of shares. Accordingly, the warrants were classified as equity and are not subject to remeasurement at each balance sheet date.


Warrants	Fixed Shares	Floating Shares
December 31, 2022	5,817	2,524

Expired	—	—

June 30, 2023	5,817	2,524

The exercise price of ~~all other~~each Fixed Share warrant ranged from $3.15 to $4.00, respectively, and the exercise price of each Floating Share warrant ranged from $3.01 to $4.00, respectively. The warrants ~~outstanding as~~are exercisable for a period of ~~March 31, 2020 is $25 per share.~~

4 years. The weighted-average remaining contractual life of the warrants outstanding is approximately 41.5 years. There was no aggregate intrinsic value for warrants outstanding as of ~~March 31, 2020.~~June 30, 2023.

Non-controlling interests - convertible units

The Company has NCIs in consolidated subsidiaries USCo2 and HSCP. The non-voting shares of USCo2 and HSCP units make up substantially all of the NCI balance as of ~~March 31, 2020~~June 30, 2023 and are convertible for either ~~one Subordinate Voting~~0.7 of a Fixed Share and 0.3 of a Floating Share of Pubco or cash, as determined by the Company. Summarized financial information of HSCP is presented below. USCo2 does not have discrete financial information separate from HSCP.


HSCP net asset reconciliation	June 30, 2023			December 31, 2022
Current assets	$	94,126		$	118,193
Non-current assets	261,072			237,665
Current liabilities	(6,986)			(9,141)
Non-current liabilities	(266,212)			(239,525)
Other NCI balances	(726)			(725)
Accumulated equity-settled expenses	(242,438)			(240,760)
Net assets	$	(161,164)		$	(134,293)
HSCP/USCo2 ownership % of HSCP	16.24		%	16.33		%
Net assets allocated to USCo2/HSCP	$	(26,175)		$	(21,930)
Net assets attributable to other NCIs	726			725
Total NCI	$	(25,449)		$	(21,205)



ACREAGE HOLDINGS, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data)

HSCP net asset reconciliation March 31, 2020 December 31, 2019
Current assets $ 68,038
$ 55,296
Non-current assets 452,280
584,812
Current liabilities (59,525 ) (46,434 )
Non-current liabilities (91,035 ) (75,219 )
Other NCI balances (491 ) (1,041 )
Accumulated equity-settled expenses (148,310 ) (111,934 )
Net assets $ 220,957
$ 405,480
HSCP/USCo2 ownership % of HSCP 20.17 % 21.64 %
Net assets allocated to USCo2/HSCP $ 44,567
$ 87,746
Net assets attributable to other NCIs 491
1,041
Total NCI $ 45,058
$ 88,787
Three Months Ended March 31,
HSCP Summarized Statement of Operations 2020 2019
Net loss allocable to HSCP/USCo2 $ (235,203 ) $ (28,958 )
HSCP/USCo2 weighted average ownership % of HSCP 21.15 % 25.63 %
Net loss allocated to HSCP/USCo2 $ (49,745 ) $ (7,422 )
Net loss allocated to other NCIs (530 ) (5 )
Net loss attributable to NCIs $ (50,275 ) $ (7,427 )


	Three Months Ended June 30,						Six Months Ended June 30,
HSCP Summarized Statement of Operations	2023			2022			2023			2022
Net loss allocable to HSCP/USCo2	$	(12,801)		$	(3,958)		$	(22,403)		$	(11,040)
HSCP/USCo2 weighted average ownership % of HSCP	16.28		%	16.98		%	16.29		%	17.13		%
Net loss allocated to HSCP/USCo2	$	(2,084)		$	(672)		$	(3,650)		$	(1,891)
Net loss allocated to other NCIs	—			(2)			(1)			—
Net loss attributable to NCIs	$	(2,084)		$	(674)		$	(3,651)		$	(1,891)

As of ~~March 31, 2020,~~June 30, 2023, USCo2’s non-voting shares owned approximately ~~0.61%~~0.22% of HSCP units. USCo2’s capital structure is comprised of voting shares, ~~(approximately 69%),~~ all of which are held by the Company, and of non-voting shares ~~(approximately 31%)~~ held by certain former HSCP members. Certain executive employees and profits interests holders own approximately ~~19.56%~~16.07% of HSCP units. The remaining ~~79.83%~~83.71% interest in HSCP is held by USCo and represents the members’ equity attributable to shareholders of the parent.

During the three months ended March 31, 2020 and 2019, the Company had several transactions with HSCP and USCo2 that changed its ownership interest in the subsidiaries but did not result in loss of control. These transactions included business acquisitions and intangible purchases where equity was issued as consideration (see Notes 3 and 4) and the redemption of HSCP and USCo2 convertible units for Pubco shares (as shown in the table below), and resulted in a $6,564 and $(3,640) allocation from NCI to shareholders' equity for the three months ended March 31, 2020 and 2019, respectively.

A reconciliation of the beginning and ending amounts of convertible units is as follows:

Three Months Ended March 31,
Convertible Units 2020 2019
Beginning balance 25,035
27,340
Issuance of NCI units —
198
Vested LLC C-1s canceled (1,310 ) (123 )
LLC C-1s vested 1,000
625
NCI units settled in cash —
(643 )
NCI units converted to Pubco (113 ) —
Ending balance 24,612
27,397


Convertible Units	June 30, 2023	December 31, 2022
Beginning balance	22,698	23,076




NCI units converted to Pubco	—	(378)
Ending balance	22,698	22,698

12. EQUITY-BASED COMPENSATION EXPENSE

~~Equity-based~~Amended Arrangement with Canopy Growth

On September 23, 2020, the Company announced the implementation of the Amended Arrangement (as defined in Note 13). Pursuant to the Amended Arrangement, the Company’s articles have been amended to create new Fixed Shares, Floating Shares and Fixed Multiple Shares. Consequently, the Company’s equity-based compensation ~~expense recognized in~~was modified into new equity awards of the ~~Statements of Operations~~Company. Refer to Note 13 for ~~the periods presented is as follows:~~further discussion.

Equity-based compensation expense Three Months Ended March 31,
2020 2019
Equity-based compensation - Plan $ 19,290
$ 18,881
Equity-based compensation - other 15,447
96
Total equity-based compensation expense $ 34,737
$ 18,977

Equity-based compensation - Plan (Acreage Holdings, Inc. Omnibus Incentive Plan)

In connection with the RTO transaction, the Company’s Board of Directors adopted an Omnibus Incentive Plan, as amended ~~May 7, 2019 and June 19, 2019~~September 23, 2020 (the “Plan”), which permits the issuance of stock options, stock appreciation rights, stock awards, share units, performance shares, performance units and other stock-based awards up to an amount equal to 15% of the issued and outstanding Subordinate Voting Shares of the Company.

Pursuant to the Amended Arrangement, the Company retained the Plan described above, the upper limit of issuances being up to an amount equal to 15% of the issued and outstanding Fixed Shares and Floating Shares of the Company. As of June 30, 2023, the Company had 5,308 shares authorized and available for grant under the Plan.

Restricted Share Units (“RSUs”)

Three Months Ended
March 31, 2020
Restricted Share Units
(Fair value information expressed in whole dollars)
RSUs Weighted Average Grant Date Fair Value
Unvested, beginning of period 7,843
$ 15.10
Granted ⁽¹⁾
4,155
3.68
Forfeited (1,593 ) 14.48
Vested (1,247 ) 8.00
Unvested, end of period 9,158
$ 10.99


	Fixed Shares			Floating Shares
Restricted Share Units (Fair value information expressed in whole dollars)	RSUs	Weighted Average Grant Date Fair Value		RSUs	Weighted Average Grant Date Fair Value
Unvested, January 1, 2023	6,324	$	1.80	464	$	6.68
Granted	—	$	—	—	$	—
Forfeited	(245)	$	1.00	(1)	$	2.15
Vested	(711)	$	2.50	(228)	$	2.59
Unvested, June 30, 2023	5,368	$	1.75	235	$	10.65
Vested and unreleased(1)	21	$	15.31	11	$	17.35
Outstanding, June 30, 2023	5,389	$	1.80	246	$	10.94


ACREAGE HOLDINGS, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data)

(1) RSUs that are vested and unreleased represent RSUs that are pending delivery.

RSUs of the Company generally vest over a period of ~~two years.~~three years and RSUs granted to certain executives vest based on achievement of specific performance conditions. In certain situations for specified individuals, RSUs vest on an accelerated basis on separation. The fair value for RSUs is based on the Company’s share price on the date of the grant. The Company recorded ~~$13,414~~$470 and $1,228 as Equity-based compensation expense on Unaudited Condensed Consolidated Statements of Operations during the three and six months ended ~~March 31, 2020.~~June 30, 2023, respectively, and $1,512 and $5,389 during the three and six months ended June 30, 2022, respectively. The fair value of RSUs vested during the three and six months ended ~~March 31, 2020~~June 30, 2023 was ~~$3,503.~~$157 and $599, respectively, and $1,451 and $3,333 during the three and six months ended June 30, 2022, respectively.

The total weighted average remaining contractual life and aggregate intrinsic value of unvested RSUs ~~at March 31, 2020~~as of June 30, 2023 was approximately 21.7 years and ~~$21,247,~~$962, respectively. Unrecognized compensation expense related to these awards at ~~March 31, 2020~~June 30, 2023 was ~~$77,083~~$10,471 and is expected to be recognized over a weighted average period of approximately 21.5 years.

There were 744 and 4 vested RSUs that are pending delivery or deferred as of March 31, 2020 and 2019, respectively. On February 20, 2020, the Company issued 1,505 RSUs to certain executives with a weighted-average grant fair value of $5.11 per share. 148 of the 1,505 RSUs vested immediately. Certain shares are subject to restriction thus a discount for lack of marketability was applied that correlates to the period of time. On March 13, 2020, the Company issued 630 RSUs to employees of the Company. All of these units vested immediately, with a fair market value of $2.15, which was the closing price of the Company’s subordinate voting shares on March 13, 2020. The entire amount is pending delivery as of March 31, 2020.

~~(1) Equity-based compensation - Plan (CGC Awards)~~

~~Included in the RSUs granted during the three months ended March 31, 2020 are “CGC Awards” issued in connection with the RSUs which were granted in July 2019:~~

On June 27, 2019, pursuant to the Arrangement Agreement (as defined in Note 13), 4,909 RSUs were awarded in total to five executive employees under the Plan. These awards vest as follows: 25% in June 2020, 25% in June 2021 and 50% three months following the Acquisition (as defined in Note 13). The Company recorded $2,762 as compensation expense during the three March 31, 2020 in connection with these awards. A discount for lack of marketability was applied that correlates to the period of time certain of these shares are subject to restriction.

On July 31, 2019, the Company issued 1,778 RSUs to employees with unvested RSUs and stock options ("make-whole awards") as at the date of the Option Premium payment (as defined in Note 13). The RSUs were issued to provide additional incentive for employees that were not eligible to receive the full Option Premium and were subject to the same vesting terms as the unvested

~~options and RSUs held as of the grant date. The Company recorded $2,049 as compensation expense during the three months ended March 31, 2020 in connection with these awards.~~

Three Months Ended
March 31, 2020
Stock Options
(Exercise price expressed in whole dollars)
Options Weighted Average Exercise Price
Options outstanding, beginning of period 5,607
$ 21.56
Granted 191
5.75
Forfeited (731 ) 16.39
Exercised —
—
Options outstanding, end of period 5,067
$ 21.71

Options exercisable, end of period 1,718
$ 24.80


	Fixed Shares			Floating Shares
Stock Options (Exercise price expressed in whole dollars)	Options	Weighted Average Exercise Price		Options	Weighted Average Exercise Price
Options outstanding, January 1, 2023	7,337	$	2.75	2,267	$	3.10
Granted	—	$	—	—	$	—
Forfeited	—	$	—	—	$	—
Expired	—	$	—	(35)	$	2.55


Options outstanding, June 30, 2023	7,337	$	2.75	2,232	$	3.11

Options exercisable, June 30, 2023	1,834	$	9.14	2,101	$	3.10

Stock options of the Company generally vest over a period of three years and options granted to certain executives vest based on achievement of specific performance conditions. Stock options of the Company have an expiration period of 5 or 10 ~~years.~~years from the date of grant. The weighted average contractual life remaining for Fixed Share options outstanding and exercisable as of ~~March 31, 2020~~June 30, 2023 was approximately ~~9 years.~~4.5 and 6 years, respectively. The weighted average contractual life remaining for Floating Share options outstanding and exercisable as of June 30, 2023 was approximately 6 and 6 years, respectively. The Company recorded ~~$5,876~~$224 and $450 as Equity-based compensation expense on Unaudited Condensed Consolidated Statements of Operations during the three and six months ended ~~March 31, 2020,~~June 30, 2023 and $143 and $425 during the three and six months ended June 30, 2022, respectively, in connection with these awards.

As of ~~March 31, 2020,~~June 30, 2023, unamortized expense related to stock options totaled ~~$41,088~~$1,447 and is expected to be recognized over a weighted-average period of approximately 2 years. ~~There was no~~As of June 30, 2023, the aggregate intrinsic value for unvested options ~~outstanding or~~and for vested and exercisable ~~as of March 31, 2020.~~options was nil, respectively.

~~Equity-based compensation - other~~

~~HSCP C-1 Profits Interests Units (“Profits Interests”)~~

These membership units qualify as profits interests for U.S. federal income tax purposes and were accounted for in accordance with ASC 718, Compensation - Stock Compensation. HSCP amortizes awards over service period and until awards are fully vested.

~~The following table summarizes the status of unvested Profits Interests for the three months ended March 31, 2020:~~

Three Months Ended
March 31, 2020
Profits Interests
(Fair value information expressed in whole dollars)
Number of Units Weighted Average Grant Date Fair Value
Unvested, beginning of period 1,000
$ 0.43
Class C-1 units granted —
—
Class C-1 units canceled —
—
Class C-1 vested (1,000 ) 0.43
Unvested, end of period —
$ —

The Company recorded $70 as compensation expense in connection with these awards during the three months ended March 31, 2020. The fair value of Profits Interests vested during the three months ended March 31, 2020 was $1,239.

~~As of March 31, 2020, all Profits Interests were fully vested.~~

~~Restricted Shares (“RSs”)~~

In connection with the Company’s acquisition of Form Factory during 2019, 1,369 restricted shares with a grant date fair value of $20.45 were issued to former employees of Form Factory subject to future service conditions, which fully vest 24 months from the acquisition date. The fair value for RSs is based on the Company’s share price on the date of the grant. The Company recorded compensation expense of $15,377 during the three months ended March 31, 2020 in connection with these awards. During the

three months ended March 31, 2020, certain employees separated from the Company, resulting in 1,128 RSs accelerating vesting and $14,888 incurred in expenses. The total weighted average remaining contractual life and aggregate intrinsic value of RSs at March 31, 2020 was approximately 1 year and $559, respectively. As of March 31, 2020, unamortized expense related to RSs totaled $1,991 and is expected to be recognized over a weighted average period of approximately 1 year. There was no comparable RS activity during the three months ended March 31, 2019.

13. COMMITMENTS ~~and~~AND CONTINGENCIES

The Company provides revolving lines of credit to ~~several~~certain of its portfolio companies. ~~Refer~~As of June 30, 2023, only one revolving line of credit remained outstanding and the maximum obligation under this arrangement was equal to the balance advanced of $4,331 (refer to Note 6 for further ~~information.~~discussion).

~~Definitive agreements~~

~~On April 17, 2019, the Company entered into a definitive agreement to acquire Deep Roots Medical, LLC (“Deep Roots”), a vertically integrated license holder in Nevada, for consideration~~Prior Plan of 4,762 HSCP units (valued at approximately $11,048 based on the March 31, 2020 closing price of $2.32 per share) and $20,000 in cash. The Company announced the termination of the agreement by Deep Roots on April 3, 2020 following March 31, 2020, the end date for consummating the transaction.

During the year ended December 31, 2018, the Company entered into a definitive agreement to acquire all ownership interests in GCCC Management, LLC, a management company overseeing the operations of Greenleaf Compassionate Care Center, Inc., a non-profit cultivation and processing facility in Rhode Island, for cash consideration of $10,000. The agreement terminated in April 2020.

Arrangement with Canopy Growth

On June 19, 2019, the shareholders of the Company and of Canopy Growth separately approved the proposed plan of arrangement (the “Prior Plan of Arrangement”) involving the two companies, ~~(the “Existing Arrangement”),~~ and on June 21, 2019, the Supreme Court of British Columbia granted a final order approving the ~~Existing~~Prior Plan of Arrangement. Effective June 27, 2019, the articles of the Company were amended pursuant to ~~a plan~~the Prior Plan of ~~arrangement~~Arrangement to provide that, upon ~~a change in federal laws in~~ the ~~United States to permit the general cultivation, distribution and possession of marijuana (as defined in the relevant legislation) or to remove the regulation of such activities from the federal laws~~occurrence (or waiver by Canopy Growth) of the ~~United States (the “Triggering Event”),~~Triggering Event, subject to the satisfaction of the conditions set out in the arrangement agreement entered into between Acreage and Canopy Growth on April 18, 2019, as amended on May 15, 2019 (the ~~“Arrangement~~ “Original Arrangement


ACREAGE HOLDINGS, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data)

Agreement”), Canopy Growth will acquire (the “Acquisition”) all of the issued and outstanding shares in the capital of the Company (each, an “Acreage Share”). ~~Under the terms of~~

Second Amendment to the Arrangement Agreement holders of Acreage Shares and certain securities convertible or exchangeable into Class A subordinate voting shares of Acreage (the “Subordinate Voting Shares”) as of the close of business on June 26, 2019, received approximately $2.63, being their pro rata portion (on an as converted to Subordinate Voting Share basis) of $300,000 (the “Option Premium”) paid bywith Canopy ~~Growth.~~

~~Upon the occurrence of the Triggering Event and subject to the satisfaction or waiver of the conditions to closing set out in the Arrangement Agreement, Canopy~~ Growth will acquire (the “Acquisition”) each of the Subordinate Voting Shares of Acreage (following the automatic conversion of the Class B proportionate voting shares and Class C multiple voting shares of Acreage into Subordinate Voting Shares) for the payment of 0.5818 of a common share of Canopy Growth (each whole common share, a “Canopy Growth Share”) per Subordinate Voting Share (subject to adjustment in accordance with the terms of the Arrangement Agreement) (the “Exchange Ratio”).

~~HSCP unit holders will be required to convert their units within three years following the closing of the Acquisition as will holders of non-voting shares of USCo2.~~

Pursuant to the terms of the Arrangement Agreement, the Company is permitted to issue up to an additional 58,000 Subordinate Voting Shares (of which approximately 39,000 remain available for issuance as of March 31, 2020) without any adjustment being required to the Exchange Ratio. The Exchange Ratio is subject to adjustment in the circumstances set out in the Arrangement Agreement.

~~Proposed Amendment to Canopy Growth Arrangement~~

On ~~June 24,~~September 23, 2020, Acreage and Canopy Growth entered into ~~a proposal~~an amending agreement (the ~~“Proposal~~“Amending Agreement” or “Amended Arrangement”) ~~which sets out, among other things,~~(and together with the ~~terms and conditions upon which the parties are proposing to amend the~~Original Arrangement Agreement ~~(the “Amended Arrangement Agreement”)~~ and ~~amend and restate~~any further amendments thereto, the ~~existing plan of arrangement (the~~ “Amended Plan of Arrangement”)~~. The effectiveness of~~ and the Amended Arrangement Agreement and the implementation of the Amended Plan of Arrangement is subject to the conditions set out in the Proposal Agreement, including, among others, approval by (i) the Supreme Court of British Columbia at a hearing upon the procedural and substantive fairness of the terms and conditions of the Amended Plan of Arrangement (“Court Approval”); and (ii) the shareholders of Acreage as required by applicable corporate and securities laws. Upon receipt of Acreage shareholder approval, Court Approval and the satisfaction of all other conditions set out in the Proposal Agreement, including the advance of $50,000 to a subsidiary of Acreage pursuant to a loan, Acreage and Canopy Growth will enter into the Amended Arrangement Agreement.

The effectiveness of the Amended Arrangement Agreement and the implementation of the Amended Plan of Arrangement is also subject to additional conditions as set forth in the Proposal Agreement. Each of Acreage and Canopy Growth has made certain representations and warranties and agreed to certain covenants in the Proposal Agreement, including covenants regarding the conduct of their respective businesses prior to the Amendment Time (as defined below) that are in addition to the covenants contained in the Arrangement Agreement. In particular, the Proposal Agreement sets forth, among other things, (i) certain financial reporting obligations of Acreage from the execution of the Proposal Agreement until the earlier of the termination of the Proposal Agreement or the implementation of the Amended Plan of Arrangement (the “Interim Period”); (ii) certain restrictions on Acreage’s ability to issue any securities or incur any debt obligations during the Interim Period; (iii) a business plan for Acreage for each fiscal year ended December 31, 2020 through to December 31, 2029, and a requirement for Acreage to conduct its business in accordance with such business plan; and (iv) limitations on any public communication made by Acreage during the Interim Period.

The Proposal Agreement contains certain termination rights, including (i) in favor of both Acreage and Canopy Growth, in the event that the Acreage shareholder approval is not obtained at the special meeting of Acreage shareholders, or (ii) in favor of Canopy Growth in the event that the Acreage board of directors determines, in accordance with the Proposal Agreement to make a Change in Recommendation (as defined in the Proposal Agreement). The Proposal Agreement further provides that, upon termination of the Proposal Agreement following a Change in Recommendation, Acreage will be required to pay an expense reimbursement to Canopy Growth in the amount of $3,000; provided however, that Acreage will not be required to make this payment if the Change in Recommendation was the result of a Purchaser Material Adverse Effect (as defined in the Arrangement Agreement).

~~Upon satisfaction or waiver of the conditions set out in the Proposal Agreement, the Amending Agreement and the Amended Plan of Arrangement will be~~became effective at 12:01 a.m. (Vancouver time) ~~or such other time as the parties may mutually agree~~ (the “Amendment Time”) on ~~the date that the Amended Plan of Arrangement becomes effective.~~September 23, 2020 (the “Amendment Date”). Pursuant to the Amended Plan of Arrangement, ~~at the Amendment Time,~~ Canopy Growth ~~will make~~made a cash payment of $37,500 which was delivered to ~~the Acreage~~Acreage’s shareholders and certain holders of securities convertible or exchangeable into shares of Acreage. Acreage ~~and Acreage will complete~~also completed a capital reorganization (the “Capital Reorganization”) ~~whereby~~effective as of the Amendment Time whereby: (i) each ~~Existing~~existing SVS ~~will be~~was exchanged for ~~70.0%~~0.7 of a ~~Class E subordinate voting share (each whole share, a “Fixed Share”)~~Fixed Share and ~~30.0%~~0.3 of a ~~Class D subordinate voting share (each whole share, a “Floating Share”);~~Floating Share; (ii) each ~~Existing~~issued and outstanding PVS ~~will be~~was exchanged for 28 Fixed Shares and 12 Floating Shares; and (iii) each ~~Existing~~issued and outstanding MVS ~~will be~~was exchanged for ~~70.0%~~0.7 of a ~~new multiple voting share (each whole share, a “Fixed~~Fixed Multiple ~~Share”)~~Share and ~~30.0%~~0.3 of a Floating Share. ~~No fractional~~

At the Amendment Time, each option, restricted share unit, compensation option, and warrant to acquire existing SVS (each a “Security”) that was outstanding immediately prior to the Amendment Time, was exchanged for a replacement Security to acquire Fixed Shares ~~Fixed Multiple Shares or~~(a “Fixed Share Replacement Security”) and a replacement Security to acquire Floating Shares ~~will be issued pursuant~~(a “Floating Share Replacement Security”) to account for the Capital Reorganization. Each Fixed Multiple Voting Share will be entitled to 4,300 votes at all meetings of Acreage shareholders with each Fixed Share and each Floating Share will be entitled to one vote per share at such meetings.

Pursuant to the Amended Plan of Arrangement, upon the occurrence or waiver (at the discretion of Canopy Growth) of the Triggering Event (the “Triggering Event Date”), Canopy Growth will, subject to the satisfaction or waiver of certain closing conditions set out in the Arrangement ~~Agreement~~Agreement: (i) acquire all of the issued and outstanding Fixed Shares (following the mandatory conversion of the Fixed Multiple Shares into Fixed Shares) on the basis of ~~30.48%~~0.3048 of a common share of Canopy Growth ~~Share~~(each whole common share, a “Canopy Growth Share”) for each Fixed Share held (the “Fixed Exchange Ratio”) at the time of the acquisition of the Fixed Shares (the “Acquisition Time”), subject to adjustment in accordance with the terms of the Amended Plan of Arrangement (the “Canopy Call Option”); and (ii) have the right (but not the obligation) (the “Floating Call Option”), exercisable for a period of 30 days following the Triggering Event Date to acquire all of the issued and outstanding Floating Shares at a price to be determined based upon the fair market value of the Floating Shares relative to the Canopy Growth Shares on the Triggering Event Date, subject to (a) a minimum price of $6.41; and (b) adjustment in accordance with the terms of the Amended Plan of Arrangement, to be payable, at the option of Canopy Growth, in cash or Canopy Growth Shares. The closing of the acquisition of the Floating Shares pursuant to the Floating Call Option, if exercised, will take place concurrently with the closing of the acquisition of the Fixed Shares pursuant to the Canopy Call Option, if exercised. No fractional Canopy Growth Shares will be issued pursuant

~~to the Amended Plan of Arrangement.~~. The Canopy Call Option and the Floating Call Option will expire 10 years from the Amendment Time.

At the Acquisition Time, on the terms and subject to the conditions of the Amended Plan of Arrangement, each Fixed Share Replacement Security will be exchanged for a replacement Security from Canopy Growth equal to: (i) the number of Fixed Shares that were issuable upon exercise of such Fixed Share Replacement Security immediately prior to the Acquisition Time, multiplied by (ii) the Fixed Exchange Ratio in effect immediately prior to the Acquisition Time (provided that if the foregoing would result in the issuance of a fraction of a Canopy Growth Share, then the number of Canopy Growth Shares to be issued will be rounded down to the nearest whole number).

The Amended Plan of Arrangement provides for, among other things, Amendments to the definition of Purchaser Approved Share Threshold (as defined therein) to change the number of shares of Acreage available to be issued by Acreage without an adjustment in the Fixed Exchange Ratio such that Acreage may issue a maximum of 32,700 shares. Furthermore, Acreage generally may not issue any equity securities without Canopy Growth’s prior consent. Additionally, the Amended Plan of Arrangement allows for various Canopy Growth rights that extend beyond the Acquisition Date, including, among others: (i) rights to nominate a majority of Acreage’s Board of Directors following the Acquisition Time; (ii) restrictive covenants in respect of the business conduct in favor of Canopy Growth; (iii) termination of non-competition and exclusivity rights granted to Acreage by Canopy Growth in the event that Acreage does not meet certain specified financial targets; (iv) implementation of further restrictions on Acreage’s ability to operate its business in the event that Acreage does not meet certain specified financial targets; and (v) termination of the Amended Plan of Arrangement in the event that Acreage does not meet certain specified financial targets in the trailing 12 month period. Each of the financial targets referred to above is specified in the Amending Agreement and related to the performance of Acreage relative to a business plan for Acreage for each fiscal year ended December 31, 2020 through December 31, 2029 set forth in the Proposal Agreement (the “Initial Business Plan”).

Further, the Amended Plan of Arrangement imposes restrictions on Acreage entering into any contracts in respect of Company Debt if: (i) such contract would be materially inconsistent with market standards for companies operating in the United States cannabis industry; (ii) such contract prohibits a prepayment of the principal amount of such Company Debt; and (iii) such contract would provide for interest payments to be paid through the issuance of securities as opposed to cash, among other restrictions. The Amended Plan of Arrangement also provides for the following: (i) certain financial reporting obligations to Canopy Growth; (ii) certain specified criteria related to any new directors or officers of Acreage, and (iii) a limit to Acreage’s operations to the Identified States (as defined therein).


ACREAGE HOLDINGS, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data)

Third Amendment to the Arrangement Agreement with Canopy Growth

Concurrently with entering the Floating Share Agreement, Canopy Growth irrevocably waived its option to acquire the Floating Shares pursuant to the Amended Arrangement.

Subject to the provisions of the Floating Share Agreement, Canopy Growth has agreed to exercise the fixed option pursuant to the Amended Agreement to acquire all outstanding Fixed Shares, representing approximately 70% of the total shares of Acreage as at the date hereof, at a fixed exchange ratio of 0.3048 of a Canopy Share for each Fixed Share.

Acreage expects the Floating Share Arrangement to close upon the satisfaction or waiver of all conditions under the Floating Share Agreement and the Amended Arrangement. It is anticipated that the acquisition by Canopy USA of the Fixed Shares pursuant to the Fixed Option will be completed immediately following closing of the Floating Share Agreement. In the event that Canopy USA exercises the Fixed Option and acquires the Floating Shares pursuant to the Floating Share Arrangement, Acreage will be wholly-owned subsidiary of Canopy USA.

On March 17, 2023, Acreage, Canopy and Canopy USA entered into a first amendment to the Floating Share Arrangement Agreement (the “First Amendment”). Pursuant to the terms of the First Amendment, Acreage, Canopy and Canopy USA agreed to amend the Exercise Outside Date (as defined in the Floating Share Arrangement Agreement) from March 31, 2023 to May 31, 2023. On May 31, 2023, the parties entered into a second amendment to the Floating Share Arrangement, further extending the Exercise Outside date from May 31, 2023 to August 31, 2023.

Tax Receivable Agreement and Tax Receivable Bonus Plans

Concurrently with the execution of the Floating Share Arrangement Agreement, Canopy Growth, Canopy USA, High Street, Acreage Holdings America, Inc. and certain individuals party to the Tax Receivable Agreement, amended the Tax Receivable Agreement in accordance with the Floating Share Agreement. Pursuant to the Floating Share Agreement, Canopy Growth, on behalf of Canopy USA agreed to: (i) issue Canopy Shares with a value of approximately $30,500 to the Tax Receivable Agreement Members in exchange for each such individual executing an assignment of rights agreement assigning such individual’s rights under the Tax Receivable Agreement to Canopy USA, such that following assignment, Canopy USA is the sole member and beneficiary under the Tax Receivable Agreement; and (ii) fund a payment with a value of approximately $19,500 to be made by the Company in Canopy Shares to certain eligible participants pursuant to the Tax Receivable Bonus Plans, as amended on October 24, 2022, both in order to reduce a potential liability of approximately $121,000 under the Tax Receivable Agreement and the Tax Receivable Bonus Plans. In connection with the foregoing, Canopy Growth issued 5,648,927 Canopy Shares on or about November 4, 2022 and 7,102,081 Canopy Shares on or about March 17, 2023 to the Tax Receivable Agreement Members. In addition, the Tax Receivable Agreement Bonuses with an aggregate value of approximately $19,500 in Canopy Shares will be issued by Canopy to certain eligible participants under the Tax Receivable


ACREAGE HOLDINGS, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data)

Bonus Plans on the closing of the Floating Share Arrangement or, if the Floating Share Arrangement does not close or is terminated but the Amended Arrangement closes, then on the closing of the acquisition. The Tax Receivable Agreement Bonuses will be paid to recipients to be determined by Kevin Murphy, the administrator of the Tax Receivable Bonus Plans, and may include one or more of Kevin Murphy, John Boehner, Brian Mulroney, and Peter Caldini, each of whom are directors of Acreage and other current and former officers or consultants of Acreage as may be determined by Kevin Murphy. Canopy Growth has also agreed to register the resale of such Canopy Shares under the Securities Act of 1933, as amended.

In connection with the implementation of the Amended Arrangement, pursuant to a secured debenture dated September 23, 2020 (the “Debenture”) issued by Universal Hemp, LLC, an affiliate of Acreage that operates solely in the hemp industry in full compliance with all applicable laws (the “Borrower”), to 11065220 Canada Inc., an affiliate of Canopy Growth (the “Lender”), the Lender agreed to provide a loan of up to $100,000 (the “Loan”), $50,000 of which was advanced on the Amendment Date (the “Initial Advance”), and $50,000 of the Loan will be advanced in the event that the following conditions, among others, are satisfied: (a) the Borrower’s EBITDA (as defined in the Debenture) for any 90 day period is greater than or equal to 2.0 times the interest costs associated with the Initial Advance; and (b) the Borrower’s business plan for the 12 months following the applicable 90 day period supports an Interest Coverage Ratio (as defined in the Debenture) of at least 2.00:1.

The principal amount of the Loan will bear interest from the date of advance, compounded annually, and be payable on each anniversary of the date of the Debenture in cash in U.S. dollars at a rate of 6.1% per annum. The Loan will mature 10 years from the date of the Initial Advance.

The Loan must be used exclusively for U.S. hemp-related operations and on the express condition that such amount will not be used, directly or indirectly, in connection with or for the operation or benefit of any of the Borrower’s affiliates other than subsidiaries of the Borrower exclusively engaged in U.S. hemp-related operations and not directly or indirectly, towards the operation or funding of any activities that are not permissible under applicable law. The Loan proceeds must be segregated in a distinct bank account and detailed records of debits to such distinct bank account will be maintained by the Borrower.

No payment due and payable to the Lender by the Borrower pursuant to the Debenture may be made using funds directly or indirectly derived from any cannabis or cannabis-related operations in the United States, unless and until the Triggering Event Date.

The Debenture includes usual and typical events of default for a financing of this nature, including, without limitation, if: (i) Acreage is in breach or default of any representation or warranty in any material respect pursuant to the Arrangement Agreement; (ii) Operations deemed to be non-core must cease within 18 months from the Amendment Date; and (iii) Acreage fails to perform or comply with any covenant or obligation in the Arrangement Agreement which is not remedied within 30 days after written notice is given to the Borrower by the Lender. The Debenture also includes customary representations and warranties, positive covenants and negative covenants of the Borrower.

In connection with the Prior Plan of Arrangement, the Company entered into an agreement with its financial advisor providing for a fee payment of $7,000 in either cash, Acreage shares or Canopy Growth shares, at the discretion of the Company, upon the successful acquisition of Acreage by Canopy Growth. During the fourth quarter of 2022, the Company amended the terms of the agreement with its financial advisors providing for a fee payment of $3,000 in cash, less a $500 initial payment, and $2,000 in shares of the Company, upon the successful acquisition of Acreage by Canopy Growth.

The Company has indemnification obligations with respect to surety bonds primarily used as security against non-performance in the amount of $5,000 as of ~~March 31, 2020,~~June 30, 2023, for which no liabilities are recorded on the Unaudited Condensed Consolidated Statements of Financial Position.

The Company is subject to other capital commitments and similar obligations. As of ~~March 31, 2020~~June 30, 2023 and ~~2019,~~2022, such amounts were not material.

~~Contingencies~~CanWell Settlement


ACREAGE HOLDINGS, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data)

In November 2020, the Company ~~has consulting fees~~entered into a final confidential settlement agreement with CanWell, LLC for certain outstanding proceedings. As part of that agreement, the Company accrued for $7,750 in Legal settlements, net on the Statements of Operations for the year ended December 31, 2020. In connection with this settlement agreement, the Company issued a promissory note in the amount of $7,750 to CanWell, which is non-interest bearing and is payable in ~~SVS which are contingent upon successful acquisition~~periodic payments through December 31, 2024. Through June 30, 2023, the Company has paid $5,375 of ~~certain state cannabis licenses. The Company had maximum obligations of $8,750 and 400 SVS, and no reserve for~~ the ~~contingencies has been recorded as of March 31, 2020.~~promissory note.

The Company’s operations are subject to a variety of local and state regulations. Failure to comply with one or more of those regulations could result in fines, restrictions on its operations, or losses of permits that could result in the ~~Company~~Company’s applicable subsidiaries ceasing operations. While management of the Company believes that the ~~Company is~~Company’s subsidiaries are in compliance with applicable local and state regulations as of ~~March 31, 2020,~~June 30, 2023, cannabis regulations continue to evolve and are subject to differing interpretations. As a result, the ~~Company~~Company’s subsidiaries may be subject to regulatory fines, penalties, or restrictions in the future.

The Company and its subsidiaries may be, from time to time, subject to various administrative, regulatory and other legal proceedings arising in the ordinary course of business. Contingent liabilities associated with legal proceedings are recorded when a liability is probable, and the contingent liability can be reasonably estimated.

New York outstanding litigation

On November 2, 2018, EPMMNY LLC (“EPMMNY”) filed a complaint in the Supreme Court of the State of New York, County of New York, asserting claims against 16 defendants, including NYCANNA, Impire State Holdings LLC (“Impire”), NY Medicinal Research & Caring, LLC (“NYMRC”) (each, a ~~wholly-owned~~wholly owned subsidiary of High Street) and High Street. The Index Number for the action is 655480/2018. EPMMNY alleges that it was wrongfully deprived of a minority equity interest and management role in NYCANNA by its former partner, New Amsterdam Distributors, LLC (“New Amsterdam”), which attempted to directly or indirectly sell or transfer EPMMNY’s alleged interest in NYCANNA to other entities in 2016 and 2017, including Impire, NYMRC and High Street.

EPMMNY alleges that it is entitled to the value of its alleged minority interest in NYCANNA or minority ownership in NYCANNA. EPMMNY also alleges that certain defendants misused its alleged intellectual property and/or services, improperly solicited its employees, and aided and abetted or participated in the transfer of equity and/or business opportunities from EPMMNY.

High Street, along with the other Defendants, filed motions to dismiss on April 1, 2019. The motions were fully briefed and submitted to the Court as of July 18, 2019, and oral argument was heard on September 6, 2019. Following a hearing held during April 2022, in ruling on one dismissal argument advanced by several Defendants, the Court ruled that Plaintiff had the capacity to bring this action on behalf of EPMMNY. On July 13, 2023, the Court ruled on the remaining dismissal arguments, granting the vast majority of them. As part of its ruling, the Court dismissed without prejudice every claim against NYCANNA, Impire, NYMRC, and High Street, except the claims for unjust enrichment and quantum meruit (which also were permitted to proceed against other Defendants). The only other claim that the Court did not dismiss was for breach of contract against New Amsterdam.

On July 24, 2023, EPMMNY moved for leave to file a proposed amended complaint. The proposed amended complaint names several defendants, including NYCANNA, Impire, NYMRC, High Street, and Kevin Murphy, and contains similar allegations to those in the original complaint. High Street intends to oppose the motion for leave to amend and,if necessary, move to dismiss the new complaint.

High Street intends to continue vigorously defend this action, which the Company firmly believes is without merit. ~~EPMMNY alleges that it was improperly deprived of its equity stake in NYCANNA before NYCANNA was acquired by High Street.~~ High Street also believes it is ~~also~~ entitled to full indemnity from the claims asserted against it by EPMMNY pursuant to the purchase agreement pertaining to its acquisition of NYCANNA and personal guarantee by the largest shareholders of the seller. ~~The defendants~~

Health Circle, Inc. litigation

On April 13, 2023, Health Circle, Inc., a licensed cannabis dispensary operator in Massachusetts, initiated a civil action against the Company and MA RMD SVCS, LLC in Plymouth County, Massachusetts for alleged breaches of that certain Revolving Line of Credit, dated October 31, 2017, by and between Health Circle, Inc. and MA RMD SVCS, LLC (the “HCI Credit Agreement”) and certain torts. High Street has filed a ~~motion~~second civil action against Michael Westort, individually, in the Business Litigation Section, located in Boston, MA, predicated upon that certain Membership Interest Purchase Agreement, dated June


ACREAGE HOLDINGS, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data)

30, 2018, by and between Mr. Westort and High Street. The Company previously moved to dismiss the complaint in Plymouth County, which was recently amended. The Company is assessing the amended complaint, and will file counterclaims against Health Circle, Inc. based on ~~April 1, 2019.~~the outstanding debt under the HCI Credit Agreement. High Street intends to vigorously defend against this action, which the Company believes is without merit, and to pursue its claims against Mr. Westort and Health Circle, Inc.

Alfred’s Finest, Inc. arbitration

On June 22, 2023, Alfred’s Finest, Inc. (“AFI”) filed a demand for arbitration relating to that certain Asset Purchase Agreement, dated June 24, 2021, by and between Alfred’s Finest, Inc., Robert M. Andrews, Jr and The ~~motion was fully briefed~~Botanist, Inc., a wholly owned subsidiary of High Street, and ~~submitted~~the Company (the “AFI APA”). The AFI APA provided for the payment of $2,000 to ~~the Court~~AFI upon closing and an additional $3,000 payable on ~~July 18, 2019, and oral argument was heard on September 6, 2019. The motion remains pending~~or before the ~~Court.~~18-month anniversary of the closing date. Pursuant to its termination rights provided under the APA, the Company sent a notice of termination of the AFI APA on June 29, 2022 before the closing occurred. AFI alleges that the Company breached the terms of the APA and claims that the notice of termination sent by the Company has no basis in the language of the AFI APA. AFI is seeking relief from the Company consisting of specific performance of the AFI APA and recovery of its damages, including arbitration fees and costs. The Company believes the plain language of the AFI APA supports its position and intends to vigorously defend this action, which the Company believes is without merit. The Company has filed a counterclaim against AFI for breach of the AFI APA based on AFI’s failure to act in good faith as required by the AFI APA.

On June 28, 2023, in response to AFI’s demand for arbitration, the Company asserted its right under the AFI APA to submit the dispute to mediation before it proceeds to arbitration. The parties are in the process of scheduling the mediation and identifying a mediator.

14. RELATED PARTY TRANSACTIONS

Transactions with related parties are entered into in the normal course of business and are measured at the amount established and agreed to by the parties.

~~Related party notes receivable~~6.10% Secured debenture due September 2030

As disclosed in Note 10, “6.10% Secured debenture due September 2030”, on September 23, 2020, pursuant to the implementation of the Amended Arrangement, a subsidiary of Canopy Growth advanced gross proceeds of $50,000 (less transaction costs of approximately $4,025) to Universal Hemp, an affiliate of the Company, pursuant to the terms of a secured debenture. In accordance with the terms of the debenture, the funds cannot be used, directly or indirectly, in connection with or for any cannabis or cannabis-related operations in the United States, unless and until such operations comply with all applicable laws of the United States. Acreage then engaged an investment advisor (the “Investment Advisor”) which, under the Investment Advisor’s sole discretion, invested on behalf of Universal Hemp, $34,019 of the proceeds on September 28, 2020. During the three and six months ended June 30, 2023, the Company incurred interest expense attributable to the 6.10% Secured debenture due September 2030 of $763.

~~Acreage has certain outstanding notes receivable~~

As a result of the transaction above, Universal Hemp, a subsidiary of the Company, acquired 34,019 class B units, at $1 par value per unit, which represented 100% financial interest in an Investment Partnership, a Canada-based limited partnership. An affiliate of the Institutional Investor holds Class A Units of the Investment Partnership. The general partner of the Investment Partnership is also an affiliate of the Institutional Investor. The class B units are held by the Institutional Investor as agent for Universal Hemp. On September 28, 2020, the Company received gross proceeds of $33,000 (less transaction costs of approximately $959) from an affiliate of the Institutional Lender (the “Lender”) and used a portion of the proceeds of this loan to retire its short-term $11,000 convertible note and its short-term note aggregating approximately $18,000 in October 2020, with ~~related parties.~~the remainder being used for working capital purposes. The Lender is controlled by the Institutional Lender. The Investment Partnership is the investor in the Lender.

Prime rate credit facilities due January 2026, as amended

On December 16, 2021, the Company entered into the Prime rate credit facilities due January 2026 with a syndicate of lenders, including Viridescent Realty Trust, Inc. (“Viridescent”), an entity controlled by Kevin Murphy. Refer to Note 610 for further ~~information.~~discussion. On October 24, 2022, the Company amended these credit facilities and the Company paid an amendment fee of $1,250 to the lenders, with $375 paid to Viridescent. On April 28, 2023, the Company and the lenders further amended the Prime rate credit facilities. Refer to Note 10 for further discussion.

~~The Company has an investment carried at FV-NI in GreenAcreage. The Company also has an equity method investment in the management company of GreenAcreage resulting from the CEO’s board involvement.~~



ACREAGE HOLDINGS, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data)

~~Related party debt~~

~~In December 2019,~~Viridescent has committed $42,000 of the ~~Company’s CEO loaned $15,000 to~~$140,000 drawn down under the ~~Company. In January 2020, he made an~~Credit Facility, with third-party syndicated affiliates committing the additional ~~loan of $5,000 to Acreage. These amounts were subsequently repaid in March 2020.~~

~~Credit agreement collateral~~

~~On March 11, 2020,~~$98,000. During the six months ended June 30, 2023, the Company ~~closed $22,000 in borrowings pursuant~~incurred interest expense attributable to ~~a loan transaction with the Lender. The maturity date is 366 days from the closing date~~Viridescent of the loan transaction. The Company will pay monthly interest on the collateral in the form of 41 SVS through the maturity date. The Lender may put any unsold interest shares to the Company upon maturity at a price of $4.50 per share. Kevin Murphy, the Company’s Chief Executive Officer, loaned $21,000 of the $22,000 borrowed by the Company to the Lender.$2,690. The loan is secured by first-lien mortgages on Acreage’s wholly owned real estate and other commercial security interests. A third-party syndicate served as Administrative Agent for the ~~non-U.S. intellectual property assets, a cannabis state license and 12,000 SVS shares of the Company. Refer to Note 10 for further information.~~transaction.

15. REPORTABLE SEGMENTS

The Company prepares its segment reporting on the same basis that its Chief Operating Decision Maker manages the business, and makes operating decisions. The Company operates under 1one operating segment, which is its only reportable segment: the production and sale of cannabis products. The Company’s measure of segment performance is net income, and derives its revenue primarily from the sale of cannabis products, as well as related management or consulting services which were not material in all periods presented. All of the Company’s operations are located in the United States.

16. EARNINGS PER SHARE

Basic earnings per share are computed by dividing net loss attributable to common shareholders of the Company by the weighted average number of outstanding shares for the period. Diluted earnings per share are calculated based on the weighted number of outstanding common shares plus the dilutive effect of stock options and warrants, as if they were exercised, and restricted stock units and profits interests, as if they vested and NCI convertible units, as if they converted.

Basic and diluted loss per share is as follows:


	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
Net loss attributable to common shareholders of the Company	$	(16,156)	$	(9,929)	$	(30,746)	$	(22,623)
Weighted average shares outstanding - basic	112,810		108,230		112,679		107,569
Effect of dilutive securities	—		—		—		—
Weighted average shares - diluted	112,810		108,230		112,679		107,569
Net loss per share attributable to common shareholders of the Company - basic	$	(0.14)	$	(0.09)	$	(0.27)	$	(0.21)
Net loss per share attributable to common shareholders of the Company - diluted	$	(0.14)	$	(0.09)	$	(0.27)	$	(0.21)

During the ~~three~~six months ended ~~March 31, 2020, 8,125~~June 30, 2023, 5,817 Fixed warrants, ~~9,158 restricted share units, 5,067~~2,524 Floating warrants, 5,389 Fixed Share RSUs, 246 Floating Share RSUs, 7,337 Fixed Share stock options, 2,232 Floating Share stock options and ~~24,612~~22,698 NCI convertible units were excluded from the calculation of net loss per share attributable to common shareholders of the Company - diluted, as they were anti-dilutive. During the ~~three~~six months ended ~~March 31, 2019, 2,259~~June 30, 2022, 5,817 Fixed warrants, ~~1,830 restricted share units, 4,902~~2,524 Floating warrants, 1,604 Fixed Share RSUs, 652 Floating Share RSUs, 1,493 Fixed Share stock options, ~~1,200 profits interests~~2,306 Floating Share stock options and ~~27,397~~23,076 NCI convertible units were excluded from the calculation of net loss per share attributable to common ~~share attributable to common~~ shareholders of the Company - diluted, as they were anti-dilutive.

17. SUBSEQUENT EVENTS

~~Terminated Transactions~~

Management has reviewed all events subsequent to June 30, 2023 through the date of issuing these financial statements and determined that no further subsequent events require adjustment or disclosure.

~~ACREAGE HOLDINGS, INC.~~

~~NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(in thousands, except per share data)~~

On April 3, 2020, the Company announced the termination of the securities purchase agreement among Greenleaf Compassionate Care Center, Inc., GCCC Management, LLC (“GCCCM”), the equity holders of GCCCM and high Street Capital Partners, LLC relating to the proposed acquisition of a dispensary in Rhode Island.

~~Additionally, the merger agreement entered into with Deep Roots Medical LLC was terminated.~~

~~Sale of Acreage North Dakota~~

~~On May 8, 2020, the Company sold all equity interests in Acreage North Dakota, LLC, a medical cannabis dispensary holder and operator, for $1,000.~~

~~Standby Equity Distribution Definitive Agreement~~

Effective May 29, 2020, the Company reached a definitive agreement with an institutional lender for $50,000 of financing commitments under a Standby Equity Distribution Agreement. The investor commits to purchase up to $50,000 of subordinate voting shares of the Company at a purchase price of 95% of the market price over the course of 24 months from the effective date.

~~Convertible Note~~

Effective May 29, 2020, the Company entered into a securities purchase agreement (the “Securities Purchase Agreement”) with YA II PN, Ltd. (the “Investor”), pursuant to which the Company sold and issued $11,000 in principal amount under a secured convertible debenture, with gross proceeds to the Company of $10,000 before transaction fees (the “Convertible Debenture”).

The Convertible Debenture will bear interest at 15% per annum and is secured by the Company’s medical cannabis dispensaries in Connecticut. The Convertible Debenture is convertible by the holder in whole or in part after September 30, 2020. Prior to September 30, 2020, the holder may convert only $550 of principal amount. The Convertible Debenture is convertible into Class A Subordinate Voting Shares of the Company at a conversion price of $1.68 per share, subject to the conversion limitations described above. The Company has the right to redeem up to 95% of the principal amount on or prior to September 29, 2020 without penalty.

In connection with the Securities Purchase Agreement, the Company executed a registration rights agreement (the “Registration Rights Agreement”) pursuant to which it is required to file a registration statement (the “Registration Statement”) with the Securities and Exchange Commission (the “SEC”) for the resale of certain of the shares of the Company. Pursuant to the Registration Rights Agreement, the Company is required to meet certain obligations with respect to, among other things, the timeliness of the filing and effectiveness of the Registration Statement. The Company is obligated to file the Registration Statement no later than 30 days following May 29, 2020 and to use its best efforts have it declared effective by the SEC no later than 90 days after filing. Acreage filed the Registration Statement on June 22, 2020.

~~Secured Bridge Loan Agreement~~

On June 16, 2020, the Company entered into a short-term definitive funding agreement with an institutional investor for gross proceeds of $15,000 (less transaction costs of approximately $943). The secured note has a maturity date of four months and bears an interest rate of 60% per annum. It is secured by, among other items, the Company’s cannabis operations in Illinois, New Jersey and Florida, as well as the Company’s U.S. intellectual property. In the event of default, the Company is obligated to pay the lender an additional fee of $6,000. The Company may pre-pay the secured note without penalty or premium at any time following the 90^th ~~day after closing.~~

~~Acquisition of New Jersey Medical Operations~~

On June 26, 2020, the Company announced the closing of the transactions contemplated by the previously announced Reorganization Agreement, dated November 15, 2019, among the Company, Compassionate Care Foundation, Inc. (“CCF”), a New Jersey vertically integrated medical cannabis nonprofit corporation, and certain affiliates thereof, pursuant to which Acreage CCF New Jersey, LLC, a subsidiary of HSCP, acquired 100% of the operations of CCF.

In accordance with the terms of the Reorganization Agreement, Acreage assumed all debts, liabilities and obligations of CCF, including fees, costs and expenses to be incurred by CCF in connection with the dissolution and wind-up of CCF and paid to the former trustees of CCF an aggregate total of $10,000 at closing.

~~Proposed Amendment to Arrangement with Canopy Growth Corporation~~

On June 24, 2020, Acreage and Canopy Growth entered into a proposal agreement which sets out, among other things, the terms and conditions upon which the parties are proposing to amend the current arrangement agreement and amend and restate the existing plan of arrangement. Please refer to Note 13 for additional details.

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

Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is intended to assist in the understanding and assessing the trends and significant changes in our results of operations and financial condition. Historical results may not be indicative of future performance. This discussion includes forward-looking statements that reflect our plans, estimates and beliefs. Such statements involve risks and uncertainties. Our actual results may differ materially from those contemplated by these forward-looking statements as a result of various factors, including those set forth in “Risk Factors” in Part I, Item 1A of ~~our~~the Annual Report on Form 10-K for the year ended December 31, ~~2019 filed with the SEC on May 29, 2020~~2022 (the ~~“2019~~“2022 Form 10-K”), and “Cautionary Statement Regarding Forward-Looking Statements” set forth below.

This MD&A should be read in conjunction with the Company’s unaudited condensed consolidated financial statements for the three and six month period ended June 30, 2023 and related notes appearing elsewhere in this Quarterly Report on Form 10-Q (this “Quarterly Report” or “Form ~~10-Q”)~~10-Q) and the ~~2019~~2022 Form 10-K. Financial information presented in this MD&A is presented in thousands of ~~United States (“~~U.S.”) dollars, unless otherwise indicated.

This Quarterly Report of the Company contains statements that include forward-looking information and are forward-looking statements within the meaning of applicable Canadian and United States securities legislation (“forward-looking statements”), including the Private Securities Litigation Reform Act of 1995, that involve risks and uncertainties. All statements, other than statements of historical fact, included herein are forward-looking statements, including, for greater certainty, ~~the on-going implications of the novel coronavirus (“COVID-19”) and~~ statements regarding the proposed ~~transaction~~transactions with Canopy Growth Corporation (“Canopy ~~Growth”~~Growth or “Canopy”), including the anticipated benefits and likelihood of completion thereof.

Generally, forward-looking statements may be identified by the use of forward-looking terminology such as “plans”, “expects” or “does not expect”, “proposed”, “is expected”, “budgets”, “scheduled”, “estimates”, “forecasts”, “intends”, “anticipates” or “does not anticipate”, or “believes”, or variations of such words and phrases, or by the use of words or phrases which state that certain actions, events or results may, could, would, or might occur or be achieved. There can be no assurance that such forward-looking statements will prove to be accurate, and actual results and future events could differ materially from those anticipated in such forward-looking statements. Forward-looking statements reflect Acreage’s current beliefs and are based on information currently available to Acreage and on assumptions Acreage believes are reasonable. Forward-looking statements isare subject to known and unknown risks, uncertainties and other factors that may cause the actual results, level of activity, performance or achievements of Acreage to be materially different from those expressed or implied by such forward-looking statements. Such risks and other factors may include, but are not limited to:

the ability of Acreage and Canopy Growth to receive, in a timely manner and on satisfactory terms, the necessary regulatory, court and shareholders approvals relating to the proposed new arrangement (the “New Arrangement”);



Purchase Price Allocation	Thames Valley (1)			NCC (2)			Total
Assets acquired:
Cash and cash equivalents	$	106		$	696		$	802
Inventory	39			170			209
Other current assets	1			36			37
Capital assets, net	—			539			539
Goodwill	3,596			4,192			7,788
Intangible assets - cannabis licenses	14,850			2,500			17,350
Other non-current assets	—			25			25
Liabilities assumed:
Accounts payable and accrued liabilities	(121		)	(24		)	(145		)
Other current liabilities	—			(621		)	(621		)
Deferred tax liability	(3,399		)	(461		)	(3,860		)
Other liabilities	—			(175		)	(175		)
Fair value of net assets acquired	$	15,072		$	6,877		$	21,949

Consideration paid:
Cash	15,072			—			15,072
Deferred acquisition costs and deposits	—			100			100
Subordinate Voting Shares	—			3,948			3,948
Settlement of pre-existing relationship	—			830			830
Fair value of previously held interest	—			1,999			1,999
Total consideration	$	15,072		$	6,877		$	21,949

Subordinate Voting Shares issued	—			211			211



Amortization of Intangibles	2020		2021		2022		2023		2024
Amortization expense	$	1,623	$	2,164	$	2,164	$	2,164	$	2,164



Investment income	Three Months Ended March 31,
	2020			2019
Short-term investments	$	—		$	500
Investments held at FV-NI	240			1,203
Equity method investments	(6		)	1,024
Income from investments, net	$	234		$	2,727



	March 31, 2020		December 31, 2019
Notes receivable	$	99,105	$	75,851
Interest receivable	4,731		5,774
Total notes receivable	$	103,836	$	81,625
Less: Notes receivable, current	2,123		2,146
Notes receivable, non-current	$	101,713	$	79,479



Lines of Credit				Balance as of
Counterparty	Maximum Obligation		Interest Rate	March 31, 2020		December 31, 2019
Greenleaf ⁽¹⁾	$	29,286	3.25% - 4.75%	$	27,277	$	22,569
CWG Botanicals, Inc. ("CWG") ⁽²⁾	12,000		8%	9,466		9,152
Compassionate Care Foundation, Inc. (“CCF”) ⁽³⁾	12,500		18%	7,952		7,152
Prime Alternative Treatment Center, Inc. ("PATC") ⁽⁴⁾	4,650		15%	4,650		4,650
Patient Centric of Martha’s Vineyard, Ltd. (“PCMV”) ⁽⁵⁾	9,000		15%	6,209		5,758
Health Circle, Inc. ⁽⁶⁾	8,000		15%	4,331		3,988
Total	$	75,436		$	59,885	$	53,269



Shareholders’ Equity	Subordinate Voting Shares	Subordinate Voting Shares Held in Treasury		Proportionate Voting Shares (as converted)		Multiple Voting Shares	Total Shares Outstanding
December 31, 2019	68,177	(842	)	23,143		168	90,646
Issuances	6,671	—		—		—	6,671
NCI conversions	113	—		—		—	113
PVS conversions	294	—		(294	)	—	—
March 31, 2020	75,255	(842	)	22,849		168	97,430



	Three Months Ended March 31, 2020
Restricted Share Units (Fair value information expressed in whole dollars)	RSUs		Weighted Average Grant Date Fair Value
Unvested, beginning of period	7,843		$	15.10
Granted ⁽¹⁾	4,155		3.68
Forfeited	(1,593	)	14.48
Vested	(1,247	)	8.00
Unvested, end of period	9,158		$	10.99



	Three Months Ended March 31, 2020
Profits Interests (Fair value information expressed in whole dollars)	Number of Units		Weighted Average Grant Date Fair Value
Unvested, beginning of period	1,000		$	0.43
Class C-1 units granted	—		—
Class C-1 units canceled	—		—
Class C-1 vested	(1,000	)	0.43
Unvested, end of period	—		$	—



	Three months ended
	March 31, 2020			March 31, 2019
Net loss attributable to common shareholders of the Company	$	(171,954	)	$	(23,377	)
Weighted average shares outstanding - basic	92,902			79,440
Effect of dilutive securities	—			—
Weighted average shares - diluted	92,902			79,440
Net loss per share attributable to common shareholders of the Company - basic	$	(1.85	)	$	(0.29	)
Net loss per share attributable to common shareholders of the Company - diluted	$	(1.85	)	$	(0.29	)


•	~~Results of Operations~~—This section provides an analysis of the Company’s results of operations for the three months ended March 31, 2020 and 2019. This analysis is presented on a consolidated basis. In addition, a brief description is provided of significant transactions and events that impact the comparability of the results being analyzed.


•	~~We opened~~ ~~The Botanist~~ ~~dispensary in Spring Hill, Florida during March. This medical cannabis dispensary is~~ •On April 11, 2023, the ~~Company’s first in the state.~~


																	Better/(Worse)									Better/(Worse)
Summary Results of Operations							Better/(Worse)
in thousands, except per share amounts	Three Months Ended March 31,						2020 vs. 2019					in thousands, except per share amounts	Three Months Ended June 30,				2023 vs. 2022				Six Months Ended June 30,				2023 vs. 2022
	2020			2019			$			%			2023		2022		$		%		2023		2022			$		%
Revenues, net	$	24,225		$	12,897		$	11,328		88	%	Revenues, net	$	58,115	$	61,351	$	(3,236)	(5)	%	$	114,078	$	118,230		$	(4,152)	(4)	%
Operating loss	(251,282		)	(32,013		)	(219,269		)	(685	)%
Net operating income (loss)												Net operating income (loss)	(5,055)		3,310		(8,365)		n/m		(3,910)		588			(4,498)		n/m
Net loss attributable to Acreage	(171,954		)	(23,377		)	(148,577		)	(636	)%	Net loss attributable to Acreage	(16,156)		(9,929)		(6,227)		(63)		(30,746)		(22,623)			(8,123)		(36)
Basic and diluted loss per share attributable to Acreage	$	(1.85	)	$	(0.29	)	$	(1.56	)	(538	)%	Basic and diluted loss per share attributable to Acreage	$	(0.14)	$	(0.09)	$	(0.05)	(56)	%	$	(0.27)	$	(0.21)		$	(0.06)	(29)	%


Revenue by region					Better/(Worse)				Revenue by region					Better/(Worse)							Better/(Worse)
in thousands	Three Months Ended March 31,				2020 vs. 2019				in thousands	Three Months Ended June 30,				2023 vs. 2022			Six Months Ended June 30,			2023 vs. 2022
	2020		2019		$		%			2023		2022		$	%		2023	2022				$	%
New England	$	11,323	$	7,084	$	4,239	60	%	New England	$	17,571	$	16,386	1,185	7	%	32,659	$	32,812			(153)	—	%
Mid-Atlantic	7,086		3,093		3,993		129	%	Mid-Atlantic	21,099		19,535		1,564	8	%	41,375	34,890				6,485	19	%
Midwest	2,943		596		2,347		394	%	Midwest	19,210		23,794		(4,584)	(19)	%	39,527	46,963				(7,436)	(16)	%
West	2,803		2,124		679		32	%	West	235		1,636		(1,401)	(86)	%	517	3,565				(3,048)	(85)	%

Total revenues, net	$	24,225	$	12,897	$	11,328	88	%	Total revenues, net	$	58,115	$	61,351	(3,236)	(5)	%	114,078	$	118,230			(4,152)	(4)	%


Other income (loss)					Better/(Worse)									Better/(Worse)
in thousands	Three Months Ended June 30,				2023 vs. 2022				Six Months Ended June 30,				2023 vs. 2022
	2023		2022		$		%		2023		2022			$		%
Income (loss) from investments, net	$	322	$	(996)	$	1,318	n/m		$	(20)	$	137		$	(157)	n/m
Interest income (loss) from loans receivable	(6)		365		(371)		n/m		10		782			(772)		(99)	%
Interest expense	(8,862)		(5,520)		(3,342)		(61)		(16,936)		(10,301)			(6,635)		(64)
Other income (loss), net	1,355		286		1,069		374		(198)		276			(474)		n/m
Total other loss	$	(7,191)	$	(5,865)	$	(1,326)	(23)	%	$	(17,144)	$	(9,106)		$	(8,038)	(88)	%

n/m - Not Meaningful



Other income							Better/(Worse)
in thousands	Three Months Ended March 31,						2020 vs. 2019
	2020			2019			$			%
Income from investments, net	$	234		$	2,727		$	(2,493	)	(91	)%
Interest income from loans receivable	1,647			730			917			126	%
Interest expense	(1,226		)	(118		)	(1,108		)	(939	)%
Other (loss) income, net	(174		)	92			(266		)	n/m
Total other income	$	481		$	3,431		$	(2,950	)	(86	)%

n/m - Not Meaningful


Adjusted EBITDA					Better/(Worse)									Better/(Worse)
in thousands	Three Months Ended June 30,				2023 vs. 2022				Six Months Ended June 30,				2023 vs. 2022
	2023		2022		$		%		2023		2022			$		%
Net loss (U.S. GAAP)	$	(18,240)	$	(10,603)					$	(34,397)	$	(24,514)
Income tax expense	5,994		8,048						13,343		15,996
Interest expense, net	8,868		5,155						16,926		9,519
Depreciation and amortization(1)	3,511		4,456						6,549		7,347
EBITDA (non-GAAP)	$	133	$	7,056	$	(6,923)	(98)	%	$	2,421	$	8,348		$	(5,927)	(71)	%
Adjusting items:
Loss (income) from investments, net	(322)		996						20		(137)
Impairments, net	—		134						—		2,090
Non-cash inventory adjustments	4,484		—						6,721		—
Loss on extraordinary events(2)	200		194						1,692		376

Write down (recovery) of assets held-for-sale	3,557		—						3,557		874
Legal settlements, net	—		(310)						—		(335)
Gain on business divestiture	—		(292)						—		(296)
Equity-based compensation expense	694		1,655						1,678		5,814

Other non-recurring expenses(3)	(1,910)		952						1,339		2,278
Adjusted EBITDA (non-GAAP)	$	6,836	$	10,385	$	(3,549)	(34)	%	$	17,428	$	19,012		$	(1,584)	(8)	%



Cash flows							Better/(Worse)
in thousands	Three Months Ended March 31,						2020 vs. 2019
	2020			2019			$			%
Net cash used in operating activities	$	(25,401	)	$	(13,630	)	$	(11,771	)	(86	)%
Net cash used in investing activities	(19,319		)	(16,719		)	(2,600		)	(16	)%
Net cash provided by (used in) financing activities	54,159			(10,411		)	64,570			n/m
Net increase (decrease) in cash, cash equivalents and restricted cash	$	9,439		$	(40,760	)	$	50,199		n/m
n/m - Not Meaningful



Debt balances	March 31, 2020
NCCRE loan	$	487
Seller’s notes	2,744
Financing liability	19,052
Finance lease liabilities	6,006
SAF loan	19,438
SAF loan collateral (related party)	22,254
Total debt	$	69,981
Less: current portion of debt	22,514
Total long-term debt	$	47,467


~~(i)~~	~~pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the Company’s assets;~~


~~(ii)~~	provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP, and that the Company’s receipts and expenditures are being made only in accordance with authorizations of the Company’s management and directors; and


~~(iii)~~	provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company’s assets that could have a material effect on the financial statements.


	Acreage Holdings, Inc.

	~~Acreage Holdings, Inc.~~By:	/s/ Carl Nesbitt
	~~(Registrant)~~	Carl Nesbitt

~~By:~~	~~/s/ Glen Leibowitz~~
	~~Glen Leibowitz~~
	Chief Financial Officer