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 June 30, 2020March 31, 2021

OR

☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from  to



Commission file number 000-56021


ACREAGE HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
British Columbia, Canada98-1463868
(State or other jurisdiction of incorporation or organization)(I.R.S. Employer Identification No.)
366 Madison450 Lexington Avenue, 11th Floor#3308New YorkNew York1001710163
(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 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 fileroAccelerated filero
Non-accelerated filerxSmaller 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

As of August 11, 2020,May 3, 2021, there were 99,860,761 Subordinate Voting Shares,73,494,279 and 32,114,122 Class E subordinate voting shares and Class D subordinate voting shares, as converted, issued and outstanding.


outstanding, respectively.
 



























TABLE OF CONTENTS
Acreage Holdings, Inc.
Form 10-Q
For the Three and Six Months Ended June 30, 2020
March 31, 2021
PART IFinancial Information
PART IFinancial Information.
Item 1.
34
45
56
67
78
Item 2.
3337
Item 3.
4045
Item 4.
4348
PART IIOther Information.Information
Item 1.
4449
Item 1A.
4449
Item 2.
4449
Item 3.
4449
Item 4.
4449
Item 5.
4449
Item 6.
4549
4549





ACREAGE HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

PART I
Item 1. Financial Statements and Supplementary Data.Data
(in thousands)June 30, 2020 December 31, 2019
 (unaudited) (audited)
ASSETS   
Cash and cash equivalents$13,979
 $26,505
Restricted cash22,095
 95
Inventory21,344
 18,083
Notes receivable, current2,094
 2,146
Assets held-for-sale68,040
 —
Other current assets11,811
 8,506
Total current assets139,363
 55,335
Long-term investments4,711
 4,499
Notes receivable, non-current94,302
 79,479
Capital assets, net96,819
 106,047
Operating lease right-of-use assets36,280
 51,950
Intangible assets, net145,660
 285,972
Goodwill26,675
 105,757
Other non-current assets3,401
 2,638
Total non-current assets407,848
 636,342
TOTAL ASSETS$547,211
 $691,677
    
LIABILITIES AND SHAREHOLDERS’ EQUITY   
Accounts payable and accrued liabilities$27,593
 $32,459
Taxes payable10,365
 4,740
Interest payable1,020
 291
Operating lease liability, current2,283
 2,759
Debt, current47,009
 15,300
Liabilities related to assets held-for-sale26,352
 —
Other current liabilities6,643
 1,604
Total current liabilities121,265
 57,153
Debt, non-current43,859
 28,186
Operating lease liability, non-current35,058
 47,522
Deferred tax liability35,472
 63,997
Other liabilities2
 25
Total non-current liabilities114,391
 139,730
TOTAL LIABILITIES235,656
 196,883
Commitments and contingencies (Note 13)   
Common stock, no par value (Note 11) - unlimited authorized, 98,566 and 90,646 issued and outstanding, respectively—
 —
Additional paid-in capital693,425
 615,678
Treasury stock, 842 SVS held in treasury(21,054) (21,054)
Accumulated deficit(397,763) (188,617)
Total Acreage Shareholders' equity274,608
 406,007
Non-controlling interests36,947
 88,787
TOTAL EQUITY311,555
 494,794
    
TOTAL LIABILITIES AND EQUITY$547,211
 $691,677
(in thousands)March 31, 2021December 31, 2020
(unaudited)(audited)
ASSETS
Cash and cash equivalents$22,844 $32,542 
Restricted cash23,097 22,097 
Inventory25,375 23,715 
Notes receivable, current8,892 2,032 
Assets held-for-sale73,381 62,971 
Other current assets5,748 4,663 
Total current assets159,337 148,020 
Long-term investments33,968 34,126 
Notes receivable, non-current94,392 97,901 
Capital assets, net92,963 89,136 
Operating lease right-of-use assets16,889 17,247 
Intangible assets, net137,624 138,983 
Goodwill31,922 31,922 
Other non-current assets4,271 4,718 
Total non-current assets412,029 414,033 
TOTAL ASSETS$571,366 $562,053 
LIABILITIES AND SHAREHOLDERS’ EQUITY
Accounts payable and accrued liabilities$19,123 $18,913 
Taxes payable18,857 14,780 
Interest payable5,688 3,504 
Operating lease liability, current1,285 1,492 
Debt, current47,642 27,139 
Non-refundable deposits on sale6,500 750 
Liabilities related to assets held-for-sale19,167 18,154 
Other current liabilities12,534 13,010 
Total current liabilities130,796 97,742 
Debt, non-current132,870 153,318 
Operating lease liability, non-current16,331 16,609 
Deferred tax liability34,276 34,673 
Other liabilities0 2 
Total non-current liabilities183,477 204,602 
TOTAL LIABILITIES314,273 302,344 
Commitments and contingencies00
Common stock, no par value - unlimited authorized, 103,440 and 101,250 issued and outstanding, respectively0 0 
Additional paid-in capital743,961 737,290 
Treasury stock, 842 common stock held in treasury(21,054)(21,054)
Accumulated deficit(483,014)(475,205)
Total Acreage Shareholders' equity239,893 241,031 
Non-controlling interests17,200 18,678 
TOTAL EQUITY257,093 259,709 
TOTAL LIABILITIES AND EQUITY$571,366 $562,053 
See accompanying notes to Unaudited Condensed Consolidated Financial Statements
3
ACREAGE HOLDINGS, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

Three Months Ended March 31,
(in thousands, except per share amounts)20212020
REVENUE
Retail revenue, net$25,847 $17,573 
Wholesale revenue, net10,016 6,548 
Other revenue, net2,530 104 
Total revenues, net38,393 24,225 
Cost of goods sold, retail(13,082)(10,889)
Cost of goods sold, wholesale(4,690)(3,382)
Total cost of goods sold(17,772)(14,271)
Gross profit20,621 9,954 
OPERATING EXPENSES
General and administrative9,218 13,032 
Compensation expense10,362 14,477 
Equity-based compensation expense6,042 34,737 
Marketing12 987 
Impairments, net818 187,775 
Loss on notes receivable0 8,161 
Recovery of assets held-for-sale(8,616)0 
Legal settlements, net10 0 
Depreciation and amortization969 2,067 
Total operating expenses18,815 261,236 
Net operating income (loss)$1,806 $(251,282)
(Loss) income from investments, net(144)234 
Interest income from loans receivable1,465 1,647 
Interest expense(4,857)(1,226)
Other loss, net(1,566)(174)
Total other (loss) income(5,102)481 
Loss before income taxes$(3,296)$(250,801)
Income tax (expense) benefit(5,346)28,572 
Net loss$(8,642)$(222,229)
Less: net loss attributable to non-controlling interests(833)(50,275)
Net loss attributable to Acreage Holdings, Inc.$(7,809)$(171,954)
Net loss per share attributable to Acreage Holdings, Inc. - basic and diluted:$(0.07)$(1.85)
Weighted average shares outstanding - basic and diluted106,204 92,902 
  Three Months Ended June 30, Six Months Ended
June 30,
(in thousands, except per share amounts) 2020
2019 2020
2019
REVENUE        
Retail revenue, net $19,875
 $13,351
 $37,448
��$23,260
Wholesale revenue, net 7,167
 4,128
 13,715
 6,943
Other revenue, net 30
 266
 134
 439
Total revenues, net 27,072
 17,745
 51,297
 30,642
Cost of goods sold, retail (11,981) (8,193) (22,870) (14,074)
Cost of goods sold, wholesale (3,880) (1,939) (7,262) (3,635)
Total cost of goods sold (15,861) (10,132) (30,132) (17,709)
Gross profit 11,211
 7,613
 21,165
 12,933
         
OPERATING EXPENSES        
General and administrative 12,386
 17,904
 25,418
 28,062
Compensation expense 7,957
 11,252
 22,434
 17,741
Equity-based compensation expense 20,187
 20,693
 54,924
 39,670
Marketing 481
 1,201
 1,468
 2,002
Loss on impairment —
 —
 187,775
 —
Loss on notes receivable —
 —
 8,161
 —
Write down of assets held-for-sale 8,110
 —
 8,110
 —
Depreciation and amortization 1,425
 2,223
 3,492
 3,131
Total operating expenses 50,546
 53,273
 311,782
 90,606
         
Net operating loss $(39,335) $(45,660) $(290,617) $(77,673)
         
Income (loss) from investments, net 4
 (499) 238
 2,228
Interest income from loans receivable 1,830
 1,001
 3,477
 1,731
Interest expense (3,733) (131) (4,959) (249)
Other loss, net (23) (2,400) (197) (2,308)
Total other (loss) income (1,922) (2,029) (1,441) 1,402
         
Loss before income taxes $(41,257) $(47,689) $(292,058) $(76,271)
         
Income tax (expense) benefit (3,113) (1,576) 25,459
 (3,798)
         
Net loss $(44,370) $(49,265) $(266,599) $(80,069)
         
Less: net loss attributable to non-controlling interests (7,178) (11,724) (57,453) (19,151)
         
Net loss attributable to Acreage Holdings, Inc. $(37,192) $(37,541) $(209,146) $(60,918)
         
Net loss per share attributable to Acreage Holdings, Inc. - basic and diluted: $(0.38) $(0.44) $(2.19) $(0.74)
         
Weighted average shares outstanding - basic and diluted 98,444
 85,640
 95,688
 82,557

See accompanying notes to Unaudited Condensed Consolidated Financial Statements
4
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
Issuances for business acquisitions/purchases of intangible assets
—

4,770

95,266

—

—

95,266

356

95,622
NCI adjustments for changes in ownership
—

388

(15,820)
—

—

(15,820)
15,820

—
Capital distributions, net
—

—

—

—

—

—

(4,298)
(4,298)
Other equity transactions
—

294

5,201

—

—

5,201

—

5,201
Equity-based compensation expense and related issuances
—

288

15,574

—

—

15,574

—

15,574
Net loss
—

—

—

—

(37,541)
(37,541)
(11,724)
(49,265)
June 30, 2019
—

85,960

$539,017

$(21,054)
$(99,267)
$418,696

$124,009

$542,705

      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, 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
NCI adjustments for changes in ownership 3,861
 272
 977
 —
 —
 977
 (977) —
Beneficial conversion feature on convertible note (See Note 10) —
 —
 523
 —
 —
 523
 —
 523
Other equity transactions —
 —
 —
 —
 —
 —
 44
 44
Equity-based compensation expense and related issuances —
 864
 20,187
 —
 —
 20,187
 —
 20,187
Net loss —
 —
 —
 —
 (37,192) (37,192) (7,178) (44,370)
June 30, 2020 3,861
 98,566
 $693,425
 $(21,054) $(397,763) $274,608
 $36,947
 $311,555
Attributable to shareholders of the parent
(in thousands)LLC Membership UnitsPubco Shares (as converted)Share CapitalTreasury StockAccumulated DeficitShareholders’ EquityNon-controlling InterestsTotal Equity
December 31, 20190 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 0 
Capital distributions, net— — — — — — (18)(18)
Equity-based compensation expense and related issuances— 586 34,737 — — 34,737 — 34,737 
Net loss— — 0 — (171,954)(171,954)(50,275)(222,229)
March 31, 20200 97,430 $671,738 $(21,054)$(360,571)$290,113 $45,058 $335,171 
December 31, 20203,861 101,250 $737,290 $(21,054)$(475,205)$241,031 $18,678 $259,709 
Purchase of non-controlling interest in subsidiary— — (272)— — (272)(14)(286)
NCI adjustments for changes in ownership— 400 601 — — 601 (601)0 
Capital distributions, net— — — — — — (30)(30)
Other equity transactions— 97 300 — — 300 — 300 
Equity-based compensation expense and related issuances— 1,693 6,042 — — 6,042 — 6,042 
Net loss— — 0 — (7,809)(7,809)(833)(8,642)
March 31, 20213,861 103,440 $743,961 $(21,054)$(483,014)$239,893 $17,200 $257,093 
See accompanying notes to Unaudited Condensed Consolidated Financial Statements
5
ACREAGE HOLDINGS, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

Three Months Ended March 31,
(in thousands)20212020
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss$(8,642)$(222,229)
Adjustments for:
Depreciation and amortization969 2,067 
Depreciation and amortization included in COGS552 156 
Equity-based compensation expense6,042 34,737 
Loss on disposal of capital assets1,592 0 
Impairments, net818 187,775 
Loss on notes receivable0 8,161 
Non-cash other revenue(2,500)0 
Non-cash interest expense1,119 319 
Non-cash operating lease adjustments(391)527 
Deferred tax benefit(400)(31,694)
Non-cash income from investments, net(157)(234)
Recovery of assets held-for-sale(8,616)0 
Change, net of acquisitions in:
Inventory(1,736)(2,530)
Other assets(1,289)(835)
Interest receivable292 882 
Accounts payable and accrued liabilities(1,328)(5,226)
Taxes payable4,618 2,729 
Interest payable2,184 29 
Other liabilities5,284 (35)
Net cash used in operating activities$(1,589)$(25,401)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of capital assets$(5,421)$(7,790)
Investments in notes receivable(1,229)(11,560)
Collection of notes receivable86 23 
Cash paid for long-term investments302 0 
Proceeds from sale of capital assets5 0 
Business acquisitions, net of cash acquired(286)0 
Distributions from investments13 8 
Net cash used in investing activities$(6,530)$(19,319)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from related party debt$0 $5,000 
Repayment of related party loan0 (20,000)
Proceeds from debt financing1,190 21,000 
Deferred financing costs paid0 (1,531)
Proceeds from equity transactions301 27,887 
Collateral received from financing agreement0 22,000 
Repayment of debt(2,070)(197)
Net cash (used in) provided by financing activities$(579)$54,159 
Net (decrease) increase in cash, cash equivalents and restricted cash$(8,698)$9,439 
Cash, cash equivalents and restricted cash - Beginning of period54,639 26,600 
Cash, cash equivalents and restricted cash - End of period$45,941 $36,039 
Three Months Ended March 31,
(in thousands)20212020
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid - non-lease$1,555 $2 
Income taxes paid1,044 525 
OTHER NON-CASH INVESTING AND FINANCING ACTIVITIES:
Capital assets not yet paid for$1,805 $4,377 
Exchange of intangible assets to notes receivable (Note 4)0 18,800 
Holdback of Maine HSCP notes receivable (Note 6)0 917 
  Six Months Ended June 30,
(in thousands) 2020 2019
CASH FLOWS FROM OPERATING ACTIVITIES:    
Net loss $(266,599) $(80,069)
Adjustments for:    
Depreciation and amortization 3,492
 3,131
Equity-settled expenses, including compensation 54,924
 44,874
Gain on business divestiture (217) —
(Gain) loss on disposal of capital assets (187) 84
Loss on impairment 187,775
 —
Loss on notes receivable 8,161
 —
Bad debt expense 172
 —
Non-cash interest expense 2,353
 —
Non-cash operating lease expense 947
 538
Deferred tax benefit (31,955) (99)
Non-cash income from investments, net (238) (1,436)
Write-down of assets held-for-sale 8,110
 —
Change, net of acquisitions in:    
Inventory (2,913) (3,901)
Other assets (1,522) (2,926)
Interest receivable (574) (2,246)
Accounts payable and accrued liabilities (7,849) 5,899
Taxes payable 6,083
 (111)
Interest payable 729
 (387)
Other liabilities (10) (597)
Net cash used in operating activities $(39,318) $(37,246)
CASH FLOWS FROM INVESTING ACTIVITIES:    
Purchases of capital assets $(7,880) $(20,291)
Investments in notes receivable (13,092) (14,574)
Collection of notes receivable 192
 3,024
Cash paid for long-term investments —
 (158)
Proceeds from business divestiture 997
 —
Proceeds from sale of capital assets 1,102
 162
Business acquisitions, net of cash acquired (9,983) (20,205)
Purchases of intangible assets —
 (56,497)
Deferred acquisition costs and deposits —
 (215)
Distributions from investments 26
 —
Proceeds from purchase of short-term investments —
 149,828
Net cash (used in) provided by investing activities $(28,638) $41,074
CASH FLOWS FROM FINANCING ACTIVITIES:    
Proceeds from related party debt
5,000

—
Repayment of related party loan (20,000) —
Proceeds from financing 46,000
 —
Deferred financing costs paid (3,181) —
Proceeds from issuance of private placement units, net 27,887
 —
Collateral received from financing agreement 22,000
 —
Settlement of taxes withheld —
 (7,909)
Repayment of debt (276) (12,075)
Capital distributions, net —
 (4,298)
Net cash provided by (used in) financing activities $77,430
 $(24,282)
Net increase (decrease) in cash, cash equivalents and restricted cash $9,474
 $(20,454)
Cash, cash equivalents and restricted cash - Beginning of period 26,600
 105,038
Cash, cash equivalents and restricted cash - End of period $36,074
 $84,584

  Six Months Ended June 30,
(in thousands) 2020 2019
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:    
Interest paid - non-lease $176
 $588
Income taxes paid 525
 4,006
OTHER NON-CASH INVESTING AND FINANCING ACTIVITIES:    
Capital assets not yet paid for $4,635
 $670
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
 —
Promissory note conversion to equity (Note 6) 10,087
 —
Deferred tax liability related to business acquisition (Note 3) 3,425
 —
Beneficial conversion feature (Note 10) 523
 —


See accompanying notes to Unaudited Condensed Consolidated Financial Statements
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 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“Acreage Holdings, Inc.” on November 9, 2018. The Company’s Subordinate Voting SharesClass E subordinate voting shares (“Fixed Shares”) and Class D subordinate voting shares (“Floating Shares”) are listed on the Canadian Securities Exchange under the symbol “ACRG.U”symbols “ACRG.A.U” and “ACRG.B.U”, respectively, quoted on the OTCQX under the symbol “ACRGF”symbols “ACRHF” and “ACRDF”, respectively, and traded on the Frankfurt Stock Exchange under the symbol “0VZ”.symbols “0VZ1” and “0VZ2”, respectively. The Company indirectly owns, operates and has contractual relationships with cannabis cultivation facilities, dispensaries and other cannabis-related companies acrossin the United States (“U.S.”).
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 Madison450 Lexington Avenue, 11th Floor,#3308, 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”) completedimplemented the transactionsPrior 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 within exchange for the payment of 0.5818 of a requirementcommon 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 occurrenceSVS immediately prior to consummation of the occurrence of changesAcquisition (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 lawlaws 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 Original Arrangement Agreement and the terms of the Prior Plan of Arrangement (the “Amended Arrangement”). On September 16, 2020, the Company’s shareholders voted in favor of a special resolution authorizing and approving the terms of, among other things, the Amended Arrangement. Please referSubsequently, on September 18, 2020, the Company obtained a final order from the Supreme Court of British Columbia approving the Amended Arrangement, and on September 23, 2020 the Company and Canopy Growth entered into the Amending Agreement (as defined in Note 13) and implemented the Amended Arrangement. Pursuant to the Amended Arrangement, the Company’s articles were amended to create the Fixed Shares, the Floating Shares and the Class F multiple voting shares (the “Fixed Multiple Shares”), and each outstanding SVS was exchanged for 0.7 of a Fixed Share and 0.3 of a Floating Share, each outstanding PVS was exchanged for 28 Fixed Shares and 12 Floating Shares, and each outstanding MVS was exchanged for 0.7 of a Fixed Multiple Share and 0.3 of a Floating Share. Refer to Note 13 for further discussion.
7
ACREAGE HOLDINGS, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data)
Pursuant to the implementation of the Amended Agreement, 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.
COVID-19

In December 2019, a novel strain 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. On March 11, 2020, the World Health Organization declared the outbreak of COVID-19 a global pandemic.

In response to the outbreak, governmental authorities in the United States, Canada and internationally have introduced various recommendations and measures to try to limit the pandemic, including travel restrictions, border closures, non-essential business closures, quarantines, self-isolations, shelters-in-place and social distancing. The COVID-19 outbreak and the response of governmental authorities to try to limit it are having a significant impact on the private sector and individuals, including unprecedented business, employment and economic disruptions. Management has been closely monitoring the impact of COVID-19, with a focus in the health and safety of ourthe Company’s employees, business continuity and supporting ourits communities. We haveThe Company has implemented various measures to reduce the spread of the virus, including implementing social distancing measures at ourits cultivation facilities, manufacturing facilities, and dispensaries, enhancing cleaning protocols at such facilities and dispensaries and encouraging employees to adhere to preventative measures recommended by local, state, and federal health officials.


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

2.    SIGNIFICANT ACCOUNTING POLICIES
Basis of presentation and going concern

The Unaudited Condensed Consolidated Financial Statements of Acreageaccompanying 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.

2021, or any other period.
As reflected in the financial statements, the Company had an accumulated deficit as of June 30, 2020,March 31, 2021, as well as a net loss and net cash used in operating activities for the reporting period then ended. 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 ourits obligations for the next twelve months from the date these financial statements were issued has been alleviated due to, but not limited to, (i) access to future capital commitments, (ii) continued sales growth from ourthe Company’s consolidated operations, (iii) latitude as to the timing and amount of certain operating expenses as well as capital expenditures, (iv) restructuring plans that have already been put in place to improve the Company’s profitability, (see Note 3) and (v) the Standby Equity Distribution Agreement described in(refer to Note 13 ofand 17 for further discussion) and (vi) the Unaudited Condensed Consolidated Financial Statements.

anticipated Non-Core Divestitures (refer to Note 3 for further discussion).
If the Company is unable to raise additional capital whenever necessary, it may be forced to decelerate or curtail its footprint buildout 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 weit will be successful in accomplishing any of ourthe Company’s 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 ourthe 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, 2020, dated March 25, 2021, as filed with the Securities and Exchange Commission (the “2020 Form 10-K”).
8
ACREAGE HOLDINGS, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data)
Emerging growth company
The Company is an “emerging growth company” as defined in the Jumpstart Our Business Startups Act (the “JOBS Act”). Under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards until such time as those standards apply to private companies.
Functional and presentation currency
The unaudited condensed consolidated financial statements and the accompanying notes are expressed in U.S. dollars. Financial metrics are presented in thousands. Other metrics, such as shares outstanding, are presented in thousands unless otherwise noted.
Use of estimates

The preparation of the Company’s Unaudited Condensed Consolidated Financial Statementsunaudited condensed consolidated financial statements in conformity with GAAP requires management to make estimates, judgments and assumptions that affect the amounts that are reported in the Unaudited Condensed Consolidated Financial Statementsunaudited 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, actual results may differ from those estimates. Significant estimates inherent in the preparation of the accompanying Unaudited Condensed Consolidated Financial Statementsunaudited 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 an “emerging growth company” as defined in the Jumpstart Our Business Startups Act (the “JOBS Act”). Under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards until such time as those standards apply to private companies.
Functional and presentation currency

The Unaudited Condensed Consolidated Financial Statements and the accompanying notes are expressed in U.S. dollars. Financial metrics are presented in thousands. Other metrics, such as shares outstanding, are presented in thousands unless otherwise noted.
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 StatementsThe unaudited condensed consolidated financial statements include the accounts of Acreage, its subsidiaries and variable interest entities (“VIEs”) where we arethe Company is considered the primary beneficiary, if any, after elimination of intercompany accounts and transactions. Investments in entities in which the Company has significant influence, but less than a controlling financial interest, are accounted for using the equity method. OurThe Company’s proportionate share of net income or loss of the entity is recorded in Income (loss) from investments, net in the Consolidated Statements of Operations.
The unaudited and audited consolidated financial statements are referred to as the “Financial Statements” herein. The unaudited condensed consolidated statements of operations are referred to as the “Statements of Operations” herein. The unaudited and audited condensed consolidated statements of financial position are referred to as the “Statements of Financial Position” herein. The unaudited condensed consolidated statements of cash flows are referred to as the “Statements of Cash Flows” herein.
Restricted cash

Restricted cash represents funds contractually held for specific purposes (Refer(refer to Note 10) and, as such, not available for general corporate purposes. Cash and restricted cash, as presented on the Statements of Cash Flows, consists of $13,979$22,844 and $23,097 as of March 31, 2021, respectively, and $13,944 and $22,095 as of June 30,March 31, 2020, respectively, and $26,505 and $95 as of December 31, 2019.

respectively.
Impairment of long-lived assets

Goodwill and indefinite-lived intangible assets are not subject to amortization and are tested for impairment annually or more frequently if events or changes in circumstances indicate that they might 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 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.

9
ACREAGE HOLDINGS, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data)
Accounting for warrants and convertible notes

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 subsequent to the issuance date.

The Company records, when necessary, discounts to convertible notes for the intrinsic value of conversion options embedded in debt instruments based upon the difference between the fair value of the underlying common stock at the commitment date of the note transaction and the effective conversion price embedded in the note. The debt discounts under these arrangements are amortized over the earlier of (i) the term of the related debt using the straight line method which approximates the interest rate method or (ii) redemption of the debt. The amortization of debt discounts is included as a component of Interest expense in the accompanying Statements of Operations. Refer to Note 10.10 for further discussion.

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


The Company classifies long-lived assets or disposal groups as held for sale in the period when the following held for sale criteria are met: (i) the Company commits to a plan to sell; (ii) the long-lived asset or disposal group is available for immediate sale in its present condition subject only to terms that are usual and customary for sales of such long-lived assets or disposal groups; (iii) an active program to locate a buyer and other actions required to complete the plan to sell have been initiated; (iv) the sale is probable within one year; (v) the asset or disposal group is being actively marketed for sale at a price that is reasonable in relation to its current fair value; and (vi) it is unlikely that significant changes to the plan will be made or that the plan will be withdrawn. In accordance with ASC 360-10, Property, Plant and Equipment, long-lived assets and disposal groups classified as held for sale are measured at the lower of their carrying amount or fair value less costs to sell.

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 June 30,March 31, 2021 and 2020 and 2019 as the issuance of shares upon conversion, exercise or vesting of outstanding units would be anti-dilutive in each period. There were 46,73944,466 and 41,953 anti-dilutive46,962 potentially dilutive shares outstanding as of June 30,March 31, 2021 and 2020, and 2019, respectively. Refer to Note 16 for further details.
Accounting Pronouncements Recently Adopted
As of December 2019, 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.discussion.
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, ASU 2019-04, ASU 2019-05, ASU 2019-11, ASU 2020-02 and ASU 2020-03. ASU 2016-13 introduces a new model for assessing impairment on most financial assets. Entities will be required to use a forward-looking expected loss model, which will replace the current incurred loss model, which will result in earlier recognition of allowance for losses. As an emerging growth company, the Company has elected to use the extended transition period for complying with any new or revised financial accounting standards pursuant to Section 13(a) of the Securities and Exchange Act of 1934. Accordingly, ASU 2016-13 will be effective for the Company’s first interim period of fiscal 2023, and the Company is currently evaluating the impact of the new standard.

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

During the three and six months ended June 30, 2020,March 31, 2021, a subsidiary of the Company, completedHSC Solutions, LLC (“HSC Solutions”) entered into an assignment of membership agreement to acquire the following business combination below. The preliminary purchase price allocation is as follows:

Purchase Price AllocationCCF (1)
Assets acquired:
Cash and cash equivalents17
Inventory1,969
Other current assets3,164
Capital assets, net4,173
Operating lease ROU assets4,455
Goodwill—
Intangible assets - cannabis licenses15,247
Other non-current assets10
Liabilities assumed:
Accounts payable and accrued liabilities(228)
Taxes payable(17)
Other current liabilities(4,248)
Operating lease liability(4,455)
Fair value of net assets acquired20,087
Consideration paid:
Cash10,000
Settlement of pre-existing relationship10,087
Total consideration20,087


(1) On June 26, 2020,remaining non-controlling interests of its subsidiary, NCC Real Estate, LLC (“NCCRE”), based primarily on the Company acquired 100%fair value of Compassionate Care Foundation, Inc. (“CCF”), a New Jersey vertically integrated medical cannabis nonprofit corporation.

The settlement of pre-existing relationship includedproperty held by NCCRE estimated in the transaction price includes a $7,952 lineamount of credit as well as interest receivable of $2,135 which were both previously recorded in Notes receivable, non-current in the Statements of Financial Position.$850. The carrying value of these amounts approximated their fair value.
ACREAGE HOLDINGS, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data)


During the six months ended June 30, 2019, the Company completed the following business combinations, and has allocated each purchase price as follows:
Purchase Price Allocation
Thames Valley
(1)

NCC
(2)

Form Factory
(3)
Total
Assets acquired:











Cash and cash equivalents
$106
 $696

$4,276

$5,078
Inventory
39
 170

520

729
Other current assets
1
 36

1,136

1,173
Capital assets, net
—
 539

3,988

4,527
Operating lease ROU assets
—
 —

10,477

10,477
Goodwill
3,594
 4,196

66,127

73,917
Intangible assets - cannabis licenses
14,850
 2,500

39,469

56,819
Intangible assets - customer relationships
—
 —

4,600

4,600
Intangible assets - developed technology
—
 —

3,100

3,100
Other non-current assets
—
 25

406

431
Liabilities assumed:


 







Accounts payable and accrued liabilities
(121) (24)
(1,572)
(1,717)
Other current liabilities
—
 (621)
—

(621)
Debt
—
 —

(494)
(494)
Operating lease liability
—
 —

(10,477)
(10,477)
Deferred tax liability
(3,397) (465)
(14,517)
(18,379)
Other liabilities
—
 (175)
(23)
(198)
Fair value of net assets acquired
$15,072
 $6,877

$107,016

$128,965




 







Consideration paid:


 







Cash
15,072
 —

3,711

18,783
Deferred acquisition costs and deposits
—

100

—

100
Subordinate Voting Shares
—

3,948

95,266

99,214
Settlement of pre-existing relationship
—

830

8,039

8,869
Fair value of previously held interest
—

1,999

—

1,999
Total consideration
$15,072

$6,877

$107,016

$128,965













Subordinate Voting Shares issued
—

211

4,770

4,981

The operating results of the above acquisitions were not materialconsideration paid to the periods presented.
(1) On January 29, 2019, the Company acquired 100%non-controlling interest sellers of Thames Valley Apothecary, LLC (“Thames Valley”), a dispensary license holder in Connecticut.
(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$286 was recorded in Income from investments, netAdditional paid-in capital in the Statements of Operations during the six months ended June 30, 2019.
The settlement of pre-existing relationship included in the transaction price includes a $550 promissory note receivable as well as an amount receivable of $280 which was previously recorded in Other current assets in the Statements of Financial Position. The carrying value of these amounts approximated their fair value.
ACREAGE HOLDINGS, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data)

(3) On April 16, 2019, the Company acquired 100% of Form Factory Holdings, LLC (“Form Factory”), a manufacturer and distributor of cannabis-based edibles and beverages. The useful life of the developed technology was determined to be 19 years, and the useful life of the customer relationships was determined to be 5 years.
The market price used in valuing unrestricted SVS issued was $20.45 per share. Certain SVS are subject to clawback should certain indemnity conditions arise and as such, a discount for lack of marketability was applied that correlates to the period of time these shares are subject to restriction.

The Company also recorded an expense of $2,139 in the Statements of Operations for the six months ended June 30, 2019 in connection with the acquisition of Form Factory that represents stock compensation fully vested on the acquisition date. 86 SVS valued at $1,753 were issued and recorded in Other equity transactionsNon-controlling interests on the Statements of Shareholders’ Equity, with the remainder settled in cash.

The settlementFinancial Position, as of pre-existing relationship included in the transaction price included a $7,924 promissory note receivable and $115 of interest receivable. The carrying value of these amounts approximated their fair value.

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.
As of June 30, 2020 and DecemberMarch 31, 2019,2021. Additionally, the Company had no deferred acquisition costs outstanding.

subsequently repaid the outstanding principal balance of the NCCRE secured loan. Refer to Note 10 for further discussion.
Divestitures

On May 8,During the three months ended March 31, 2021, and 2020, the Company sold all equity interests in Acreage North Dakota, LLC, a medical cannabis dispensary holder and operator, for $1,000. This resulted in a gain on sale of $217 recorded in Other loss, net on the Statements of Operations for the three and six months ended June 30, 2020.

did not complete any divestitures.
Assets Held for Sale

On June 30, 2020, the Company determined certain businesses and assets met the held-for-sale criteria. The Company has identified the following businesses as their separate disposal groups: Acreage Florida, Inc. (“Acreage Florida”), Kanna, Inc., Maryland Medicinal Research & Caring, LLC (“MMRC”) and certain Oregon entities comprising HSCP Oregon, LLC, 22nd & Burn, Inc., The Firestation 23, Inc., East 11th Incorporated.Incorporated and a dispensary in Springfield, Oregon, collectively (“Cannabliss”). As a further disposal group,groups, the Company has identified certain assets owned in HSCP Oregon, LLC (comprising Medford and Powell) and Michigan as held-for-sale.

In accordance towith ASC 205-20-45 - Discontinued Operations, a disposal of a component of an entity shall be reported in discontinued operations if the divestiture represents a strategic shift that will have a major effect on the entity’s operations and financial results. Management determined that the expected divestitures will not represent a strategic shift that will have a major effect on the Company’s operations and financial results and thus will not report the expected divestitures of these assets as discontinued operations.

Upon classification of the disposal groups as held for sale, the Company tested each disposal group for impairment and recognized a chargecharges of $8,110 within Write down of assets held-for-sale on the Statements of Operations$11,003 for the three and six monthsyear ended June 30,December 31, 2020 to write the disposal groups down to its fair value less costs to sell. During the three months ended March 31, 2021, the Company recognized a recovery on the Acreage Florida disposal group of $8,616 within Recovery of assets held-for-sale on the Statements of Operations as the estimated fair value less costs to sell increased. 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 Statements of Financial Position, respectively as of June 30, 2020March 31, 2021 from each of their previous respective financial statement captions. Refer to the table below for further details.

11
ACREAGE HOLDINGS, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data)
The preliminary fair values of the major classes of assets and liabilities of the businesses and assets classified as held-for-sale on ourthe Statements of Financial Position are presented below and are subject to change based on developments during the sales process.

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


  June 30, 2020
  Acreage Florida, Inc. Kanna, Inc. 
MMRC(1)
 Michigan Oregon Total
Inventory $1,017
 $—
 $30
 $—
 $1,657
 $2,704
Notes receivable, current —
 —
 —
 —
 64
 64
Other current assets 90
 —
 46
 —
 1
 137
Total current assets classified as held-for-sale 1,107
 —
 76
 —
 1,722
 2,905
Capital assets, net 6,480
 1,172
 286
 7,469
 2,951
 18,358
Operating lease right-of-use assets 11,725
 2,209
 362
 —
 2,328
 16,624
Intangible assets, net 26,190
 970
 801
 —
 —
 27,961
Goodwill —
 —
 —
 —
 2,192
 2,192
Total assets classified as held for sale $45,502
 $4,351
 $1,525
 $7,469
 $9,193
 $68,040

 
 
 
 
 
 
Accounts payable and accrued liabilities $(1,281) $(361) $(50) $—
 $(308) $(2,000)
Taxes payable (7) 1
 —
 —
 (469) (475)
Operating lease liability, current (501) (373) (29) —
 (323) (1,226)
Other current liabilities (161) —
 —
 —
 3
 (158)
Total current liabilities classified as held-for-sale (1,950) (733) (79) —
 (1,097) (3,859)
Debt, non-current (3,799) —
 —
 —
 —
 (3,799)
Operating lease liability, non-current (14,348) (1,879) (342) —
 (2,130) (18,699)
Deferred tax liabilities —
 —
 —
 —
 5
 5
Total liabilities classified as held-for-sale $(20,097) $(2,612) $(421) $—
 $(3,222) $(26,352)

March 31, 2021
Acreage Florida(3)
Kanna, Inc.
MMRC(1)
MichiganCannabliss
OR - Medford(2)
OR - Powell(2)
Total
Cash$212 $0 $0 $0 $0 $0 $0 $212 
Inventory606 0 0 0 265 100 104 1,075 
Notes receivable, current0 0 0 0 0 62 0 62 
Other current assets169 0 10 0 1 0 0 180 
Total current assets classified as held-for-sale987 0 10 0 266 162 104 1,529 
Capital assets, net10,093 1,156 286 7,469 83 2,252 7 21,346 
Operating lease right-of-use assets16,796 944 362 0 1,354 321 164 19,941 
Intangible assets, net26,190 970 801 0 0 0 0 27,961 
Goodwill0 0 0 0 2,192 0 0 2,192 
Other non-current assets339 0 0 0 23 40 10 412 
Total assets classified as held for sale$54,405 $3,070 $1,459 $7,469 $3,918 $2,775 $285 $73,381 
Accounts payable and accrued liabilities$(260)$(127)$(6)$0 $(492)$0 $(39)$(924)
Taxes payable0 (15)0 0 (688)0 0 (703)
Operating lease liability, current(509)(259)(29)0 (257)(136)(126)(1,316)
Other current liabilities(134)0 0 0 0 0 0 (134)
Total current liabilities classified as held-for-sale(903)(401)(35)0 (1,437)(136)(165)(3,077)
Operating lease liability, non-current(13,979)(542)(317)0 (1,004)(254)0 (16,096)
Deferred tax liabilities0 0 0 0 6 0 0 6 
Total liabilities classified as held-for-sale$(14,882)$(943)$(352)$0 $(2,435)$(390)$(165)$(19,167)
(1) OnIn August 11, 2020, the Company entered into a transaction of sale for MMRC for $1,500. Refer$1,500 with a buyer. The Company’s applicable subsidiary, when permitted by state law, will transfer all of the issued and outstanding membership interests of MMRC to the buyer. In the interim, and subject to regulatory approval, the buyer and MMRC will enter into a management services agreement for the management and operation of MMRC until such time as the Company can transfer the equity of MMRC to the buyer.
(2) In February 2021, a subsidiary of the Company entered into a definitive agreement and management services agreement to sell an indoor cultivation facility in Medford, Oregon and a retail dispensary in Portland, Oregon, for total consideration of $3,000, to be paid in a series of tranches based on estimated regulatory approvals expected not to exceed 18 months.
(3) In February 2021, the Company entered into a definitive agreement to sell its ownership interests in Acreage Florida for an aggregate purchase price of $60,000. Acreage Florida is licensed to operate medical marijuana dispensaries, a processing facility and a cultivation facility in the state of Florida. The agreement also includes the sale of property in Sanderson, Florida. The aggregate purchase price includes an upfront cash payment of $5,000, an additional $20,000 in cash, $7,000 of the buyer’s common stock and the issuance of $28,000 in promissory notes upon the closing. These terms were modified upon the closing of the transaction in April 2021, refer to Note 17 for further information.
discussion.
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 ourthe intangible asset balances by major asset classes:
Intangibles June 30, 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 (4,180) (5,750)
Customer relationships —
 (649)
Developed technology —
 (114)
  (4,180) (6,513)
Finite-lived intangible assets, net 15,400
 53,625
     
Indefinite-lived intangible assets    
Cannabis licenses 130,260
 232,347
     
Total intangibles, net $145,660
 $285,972

IntangiblesMarch 31, 2021December 31, 2020
Finite-lived intangible assets:
Management contracts$16,467 $19,580 
Accumulated amortization on finite-lived intangible assets:
Management contracts(3,508)(5,262)
Finite-lived intangible assets, net12,959 14,318 
Indefinite-lived intangible assets
Cannabis licenses124,665 124,665 
Total intangibles, net$137,624 $138,983 
The intangible assets balance as of June 30, 2020March 31, 2021 excludes intangible assets reclassified to assets held for sale. Refer to Note 3 for further information.discussion. The average useful life of finite-lived intangible assets ranges from onesix to five years.nine years.

Impairment of 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.

During the six months ended June 30, 2020, theThe Company performed a quantitative analysis and concluded certain of the indefinite-lived cannabis licenses had a fair value below the carrying value.value as of March 31, 2020. Accordingly, during the sixthree months ended June 30,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 (“Form Factory”) and Kanna, Inc. The charge is recognized in Loss on impairmentImpairments, net on the Statements of Operations.

The Company evaluated the recoverability of the related finite-lived intangible assets to be held 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 sixthree months ended June 30,March 31, 2021, the Company recognized an impairment charge of $818, related to its finite-lived intangible asset at Prime Alternative Treatment Center Consulting, LLC (“PATCC”), due to changes in expected cash flows pursuant to a revised consulting services agreement. 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(“CWG”). These charges are recognized in Loss on impairmentImpairments, net 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$205 and $31,398$31,316 during the three and six months ended June 30,March 31, 2021 and 2020, respectively.



WCM Refinancing
13
ACREAGE HOLDINGS, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data)

WCM Refinancing

On March 6, 2020, a subsidiary of 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 three3 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.discussion. 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 impairmentImpairments, net on the Statements of Operations for the sixthree months ended June 30,March 31, 2020.
Amortization expense recorded during the three and six months ended June 30,March 31, 2021 and 2020 was $542$541 and $1,707,$1,165, respectively. Amortization expense recorded during
During the three and six months ended June 30, 2019 was $1,674March 31, 2021, the Company revised its estimated useful life related to its management services agreements with Greenleaf Apothecaries, LLC, Greenleaf Therapeutics, LLC and $2,335, respectively.Greenleaf Gardens, LLC (together “Greenleaf), due to changes in the expected duration of the agreements.
Expected annual amortization expense for existing intangible assets subject to amortization at June 30, 2020March 31, 2021 is as follows for each of the next five fiscal years:
Amortization of Intangibles 2020 2021 2022 2023 2024
Amortization expense $1,082
 $2,164
 $2,164
 $2,164
 $2,164

Amortization of Intangibles20212022202320242025
Amortization expense$9,469 $815 $815 $815 $815 
Goodwill
The following table details the changes in the carrying amount of goodwill:
Goodwill Total
December 31, 2019 $105,757
Acquisitions —
Impairment (76,890)
Less: Goodwill held for sale (2,192)
June 30, 2020 $26,675

GoodwillTotal
December 31, 2020$31,922
Acquisitions0 
Impairment0 
Less: Goodwill held for sale0 
March 31, 2021$31,922
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 sixthree months ended June 30,March 31, 2020, and 2019, the Company recognized impairment charges of $65,304, and NaN, respectively, with respect to its goodwill related to Form Factory. The Company applied the DCFdiscounted cash flow approach to determine the fair value of Form Factory. The charge is recognized in Loss on impairmentImpairments, net on the Statements of Operations.

Pursuant to the WCM refinancing described above, the Company recognized an impairment loss to goodwill of $11,586 on Loss of impairmentImpairments, net on the Statements of Operations for the sixthree months ended June 30,March 31, 2020. This was determined as the differential between the net carrying value of the previously held management contract and the promissory note received in exchange.

14





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 Statements of Financial Position as of June 30, 2020March 31, 2021 and December 31, 20192020 are as follows:
Investments June 30, 2020 December 31, 2019
Investments held at FV-NI 4,613
 4,376
Equity method investments 98
 123
Total long-term investments $4,711
 $4,499

InvestmentsMarch 31, 2021December 31, 2020
Investments held at FV-NI33,968 34,126 
Equity method investments0 0 
Total long-term investments$33,968 $34,126 
Income (loss)(Loss) income from investments, net in the Statements of Operations during the three and six months ended June 30,March 31, 2021 and 2020 and 2019 is as follows:
Investment income Three Months Ended June 30, Six Months Ended June 30,
  2020 2019 2020 2019
Short-term investments $—
 $238
 $—
 $738
Investments held at FV-NI 23
 (737) 263
 466
Equity method investments (19) —
 (25) 1,024
Income (loss) from investments, net $4
 $(499) $238
 $2,228

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 six months ended June 30, 2019, short-term investments in U.S. Treasury bills in the amount of $149,828 matured.
Investment (loss) incomeThree Months Ended March 31,
20212020
Investments held at FV-NI(144)240 
Equity method investments0 (6)
(Loss) income from investments, net$(144)$234 
Investments held at FV-NI

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

With a portion of the proceeds for the 6.1% loan received by Universal Hemp, LLC (“Universal Hemp”), Acreage engaged an investment advisor (the “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 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 Company accountsgeneral 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 exertUniversal Hemp. Universal Hemp, through its investment with the Investment Advisor was determined to hold significant influence but does not controlin 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 June 30,until December 2020. Refer to Note 10 for further discussion (“September 2020 andTransactions”).
In December 31, 2019,2020, as the Company’s equity method investments were not deemedCompany no longer held significant influence due to the Company’s Financialremoval of the Extraordinary Resolution entitlements and other revisions in the Investment Partnership Agreement, the Company changed its accounting for the Investment Partnership to recognize the investment at fair value, with gains and losses recognized in the Statements and as such, additional disclosure is omitted.of Operations.

6.     NOTES RECEIVABLE

Notes receivable as of June 30, 2020March 31, 2021 and December 31, 20192020 consisted of the following:
March 31, 2021December 31, 2020
Notes receivable$97,817 $94,171 
Interest receivable5,467 5,762 
Total notes receivable$103,284 $99,933 
Less: Notes receivable, current8,892 2,032 
Notes receivable, non-current$94,392 $97,901 
  June 30, 2020 December 31, 2019
Notes receivable $92,344
 $75,851
Interest receivable 4,052
 5,774
Total notes receivable $96,396
 $81,625
Less: Notes receivable, current 2,094
 2,146
Notes receivable, non-current $94,302
 $79,479
15

ACREAGE HOLDINGS, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data)
Interest income on notes receivable during the three and six months ended June 30,March 31, 2021 and 2020 totaled $1,830$1,465 and $3,477, respectively. Interest income on notes receivable during the three and six months ended June 30, 2019 totaled $1,001 and $1,731,$1,647, respectively.
On March 6, 2020, a subsidiary of the Company closed on a refinancing transaction and conversion related to Northeast Patients Group, operating as WCM, a medical cannabis business in Maine, resulting in ownership of WCM by three3 individuals. In connection with the
ACREAGE HOLDINGS, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data)

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 to 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, a subsidiary of the Company created a new Maine corporation, named Maine HSCP, Inc. (“Maine HSCP”). At closing, a subsidiary of 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 three3 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 June 30, 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 CompanyCompany’s relevant subsidiary 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 CompanyCompany’s subsidiary 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, a subsidiary of 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 CompanyCompany’s applicable subsidiary 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 sixthree months ended June 30,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 and recorded a loss on notes receivable of $8,161.
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.
Lines of Credit     Balance as of
Counterparty Maximum Obligation Interest Rate June 30, 2020 December 31, 2019
Greenleaf (1)
 $29,286
 3.25% - 4.75% $28,336
 $22,569
CWG Botanicals, Inc. ("CWG") (2)
 12,000
 8% 9,767
 9,152
Compassionate Care Foundation, Inc. (“CCF”) (3)
 12,500
 18% —
 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% 6,069
 5,758
Health Circle, Inc. (6)
 8,000
 15% 4,331
 3,988
Total $75,436
   $53,153
 $53,269

Lines of CreditBalance as of
CounterpartyMaximum ObligationInterest RateMarch 31, 2021December 31, 2020
Greenleaf (1)
$31,200 3.25% - 4.75%$29,422 $29,422 
CWG Botanicals Inc. (“CWG”) (2)
12,000 8%9,767 9,767 
Compassionate Care Foundation, Inc. (“CCF”) (3)
12,500 18%0 0 
Prime Alternative Treatment Center, Inc. ("PATC") (4)
7,150 0%7,150 4,650 
Patient Centric of Martha’s Vineyard, Ltd. (“PCMV”) (5)
9,000 15%7,161 6,873 
Health Circle, Inc. (6)
8,000 15%4,331 4,331 
Total$79,850 $57,831 $55,043 
(1) During the year ended December 31, 2018, a subsidiary of the Company extended lines of credit to Greenleaf Apothecaries, LLC, Greenleaf Therapeutics, LLC and Greenleaf Gardens, LLC (together, “Greenleaf”), which mature in June 2023.
(2) The revolving line of credit due from CWG matures in December 2021.
(3) In September 2018, a subsidiary of the Company entered into a management agreement to provide certain advisory and consulting services to CCF for a monthly fee based on product sales.
OnIn November 15, 2019, certain changes in New Jersey state laws occurred to allow for-profit entities to hold cannabis licenses and certain regulatory approvals. Accordingly, a subsidiary of the Company entered into a Reorganization Agreement with CCF, whereby the management agreement will terminate and any outstanding obligations on the line of credit will convert to a direct ownership interest in CCF, which will convert to a for-profit entity. OnIn June 26, 2020, the transactions contemplated
16
ACREAGE HOLDINGS, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data)
by the Reorganization Agreement closed and the line of credit converted into equity in CCF’s successor entity. Please seeRefer to Note 3 for additional details.further discussion.
(4) Prime Alternative Treatment Center, Inc. (“PATC”)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
In March 2021, PATC entered into a revised consulting services and line of credit maturesagreement with PATCC, whereby previously unrecognized management fees were settled for $2,500, which was recognized in August 2022.Other revenue, net during the three months ended March 31, 2021. Pursuant to the revised line of credit agreement, the line of credit is non-interest bearing and will be repaid on a payment schedule with 7 payments in the aggregate amount of $7,150 through June 30, 2023.
(5) In November 2018, a subsidiary of the Company entered into a services agreement with Patient Centric of Martha’s Vineyard, Ltd. (“PCMV”).PCMV. The line of credit matures in November 2023. The services agreement was terminated in February 2020.
ACREAGE HOLDINGS, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data)

(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 SVCS, LCC.RMD SCVS, LLC. 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:
  June 30, 2020 December 31, 2019
Land (1)
 $6,490
 $9,839
Building 34,366
 34,522
Right-of-use asset, finance leases 5,954
 5,954
Construction in progress 14,737
 17,288
Furniture, fixtures and equipment 19,041
 21,019
Leasehold improvements 23,398
 22,682
Capital assets, gross $103,986
 $111,304
Less: accumulated depreciation (7,167) (5,257)
Capital assets, net $96,819
 $106,047

March 31, 2021December 31, 2020
Land$3,811 $3,811 
Building36,756 34,114 
Right-of-use asset, finance leases5,077 5,077 
Construction in progress15,620 13,697 
Furniture, fixtures and equipment17,658 18,062 
Leasehold improvements24,634 23,681 
Capital assets, gross$103,556 $98,442 
Less: accumulated depreciation(10,593)(9,306)
Capital assets, net$92,963 $89,136 
Depreciation of capital assets for the three and six months ended June 30,March 31, 2021 and 2020, include $883$428 and $1,785$902 of depreciation expense, and $728$911 and $1,328,$600, that was capitalized to inventory, respectively. Depreciation of capital assets for the three and six months ended June 30, 2019 include $549 and $796 of depreciation expense, and $421 and $831, that was capitalized to inventory, respectively.
17
(1)ACREAGE HOLDINGS, INC.
On May 8, 2020, the Company sold a parcel of land for a sale price of $1,081. In connection with the transaction, the Company recorded a $280 gain on sale at NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Other loss, net(in thousands, except per share data) on the Statements of Operations.
8.    LEASES
The Company leases land, buildings, equipment and other capital assets which it plans to use for corporate purposes and the production and sale of cannabis products. Leases with an initial term of 12 months or less are not recorded on the Statements of Financial Position and are expensed in the 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 InformationClassificationMarch 31, 2021December 31, 2020
Right-of-use assets
OperatingOperating lease right-of-use assets$16,889 $17,247 
FinanceCapital assets, net4,712 4,776 
Total right-of-use assets$21,601 $22,023 
Lease liabilities
Current
OperatingOperating lease liability, current$1,285 $1,492 
Non-current
OperatingOperating lease liability, non-current16,331 16,609 
FinancingDebt, non-current5,190 5,174 
Total lease liabilities$22,806 $23,275 
Balance Sheet Information Classification June 30, 2020 December 31, 2019
Right-of-use assets      
Operating Operating lease right-of-use assets $36,280
 $51,950
Finance Capital assets, net 5,657
 5,832
Total right-of-use assets   $41,937
 $57,782
       
Lease liabilities      
Current      
Operating Operating lease liability, current $2,283
 $2,759
Financing Debt, current 73
 49
Non-current     
Operating Operating lease liability, non-current 35,058
 47,522
Financing Debt, non-current 5,925
 6,083
Total lease liabilities   $43,339
 $56,413
Statement of Operations InformationClassificationThree Months Ended March 31,
20212020
Short-term lease expenseGeneral and administrative$88 $317 
Operating lease expenseGeneral and administrative1,046 2,020 
Finance lease expense:
Amortization of right of use assetDepreciation and amortization63 95 
Interest expense on lease liabilitiesInterest expense184 215 
Sublease incomeOther loss, net(3)(16)
Net lease cost$1,290 $2,314 
Statement of Cash Flows InformationClassificationThree Months Ended March 31,
20212020
Cash paid for operating leasesNet cash used in operating activities$1,437 $1,493 
Cash paid for finance leases - interestNet cash used in operating activities$169 $196 
18
ACREAGE HOLDINGS, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data)

Statement of Operations Information Classification Three Months Ended June 30, Six Months Ended June 30,
    2020 2019 2020 2019
Short-term lease expense General and administrative $354
 $188
 $671
 $486
Operating lease expense General and administrative 2,430
 1,012
 4,450
 1,968
Finance lease expense:          
Amortization of right of use asset Depreciation and amortization 89
 17
 (6) 19
Interest expense on lease liabilities Interest expense 216
 25
 431
 38
Sublease income Other loss, net —
 (5) (16) (48)
Net lease cost   $2,735
 $1,049
 $4,859
 $1,977
Statement of Cash Flows Information Classification Six Months Ended
June 30, 2020		 Six Months Ended
June 30, 2019
Cash paid for operating leases Net cash used in operating activities $3,503
 $1,430
Cash paid for finance leases - interest Net cash used in operating activities $403
 $38


The following represents the Company’s future minimum payments required under existing leases with initial terms of one year or more as of June 30, 2020:March 31, 2021:
Maturity of lease liabilities Operating Leases Finance LeasesMaturity of lease liabilitiesOperating LeasesFinance Leases
2020 (1)
 $9,218
 $863
2021 6,186
 883
2021 (1)
2021 (1)
$2,992 $511 
2022 6,043
 904
20222,949 701 
2023 6,207
 925
20232,849 722 
2024 6,374
 923
20242,912 743 
202520252,960 766 
Thereafter 29,472
 18,286
Thereafter14,184 13,276 
Total lease payments $63,500

$22,784
Total lease payments$28,846 $16,719 
Less: imputed interest 24,935
 16,786
Less: imputed interest10,920 11,529 
Present value of lease liabilities $38,565
 $5,998
Present value of lease liabilities$17,926 $5,190 
    
Weighted average remaining lease term (years) 10 23Weighted average remaining lease term (years)814
Weighted average discount rate 11% 14%Weighted average discount rate11%12%
(1) Includes minimum payments under existing operating leases currently classified as held-for-sale (Refer to Note 3 for details)discussion).

As of June 30, 2020,March 31, 2021, there have been 0 leases entered into that have not yet commenced.


9.    INVENTORY
March 31, 2021December 31, 2020
Retail inventory$1,855 $1,803 
Wholesale inventory18,459 18,055 
Cultivation inventory3,444 2,317 
Supplies & other1,617 1,540 
Total$25,375 $23,715 

19
ACREAGE HOLDINGS, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data)

9.    INVENTORY
  June 30, 2020 December 31, 2019
Retail inventory $1,369
 $1,784
Wholesale inventory 16,039
 11,993
Cultivation inventory 2,364
 3,021
Supplies & other 1,572
 1,285
Total $21,344
 $18,083


10.    DEBT
The Company’s debt balances consist of the following:
Debt balancesJune 30, 2020 December 31, 2019
NCCRE loan$481
 $492
Seller’s notes2,679
 2,810
Related party debt—
 15,000
Financing liability (related party)15,253
 19,052
Finance lease liabilities5,998
 6,132
SAF loan19,638
 —
SAF loan collateral (related party)23,358
 —
Convertible note, net of debt discount9,288
 —
Bridge loan14,173
 —
Total debt$90,868
 $43,486
Less: current portion of debt47,009
 15,300
    
Total long-term debt$43,859
 $28,186
Debt balancesMarch 31, 2021December 31, 2020
NCCRE loan$0 $470 
Seller’s notes2,581 2,581 
Financing liability (related party)15,253 15,253 
Finance lease liabilities5,190 5,174 
3.55% Credit facility due 202120,215 20,043 
3.55% Credit facility collateral (related party)20,845 22,169 
7.5% Loan due 2023 (related party)32,203 32,124 
6.1% Secured debenture due 2030 (related party)46,185 46,085 
Hempco Foros promissory note2,000 2,000 
Senior secured term loan facility23,200 22,870 
Construction financing loan6,090 4,438 
Canwell promissory note6,750 7,250 
Total debt$180,512 $180,457 
Less: current portion of debt47,642 27,139 
Total long-term debt$132,870 $153,318 
The interest expense related to the Company’s debt during the three and six months ended June 30,March 31, 2021 and 2020 and 2019 consists of the following:
Interest Expense Three Months Ended June 30, Six Months Ended June 30,
  2020 2019 2020 2019
NCCRE loan $4
 $5
 $9
 $10
Seller’s notes 72
 101
 144
 201
Interest expense on financing liability 707
 —
 1,298
 —
Interest expense on finance lease liability 216
 25
 431
 38
Interest expense on SAF loan 387
 —
 476
 —
Interest expense on SAF loan collateral (related party) 1,103
 —
 1,357
 —
Interest expense on convertible note 753
 —
 753
 —
Interest expense on bridge loan 491
 —
 491
 —
Total interest expense $3,733
 $131
 $4,959
 $249

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

Interest ExpenseThree Months Ended March 31,
20212020
NCCRE loan$4 $5 
Seller’s notes78 72 
Financing liability (related party)351 591 
Finance lease liabilities184 215 
3.55% Credit facility due 2021599 89 
3.55% Credit facility collateral (related party)674 254 
7.5% Loan due 2023 (related party)689 0 
6.1% Secured debenture due 2030 (related party)863 0 
Hempco Foros promissory note49 0 
Senior secured term loan facility1,366 0 
Total interest expense$4,857 $1,226 
NCC Real Estate, LLC (“NCCRE”) loan

NCCRE, which is owned by the Company’s consolidated subsidiary HSC Solutions, LLC, entered into a $550 secured loan with a financial institution for the purchase of a building in Rolling Meadows, Illinois in December 2016.Illinois. The building is leased to NCC.NCC LLC. The promissory note payablesecured loan carries a fixed interest rate of 3.7% and is due in December 2021. In connection with the Company acquiring the remaining non-controlling interests in NCCRE, the secured loan was subsequently repaid in March 2021 (refer to Note 3 for further discussion).
20
ACREAGE HOLDINGS, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data)
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, Kevin Murphy, the Chairman of the board of directors, made a non-interest bearing loan of $15,000 to Acreage. In January 2020, heMr. Murphy made an additional non-interest bearing loan of $5,000 to Acreage. These amounts were subsequently repaid in March 2020.
In October 2020, Mr. Murphy made an interest bearing loan of $2,100 to the Company, bearing interest at 9.9% per annum. This amount was subsequently repaid in November 2020.
In addition, Mr. Murphy has an interest in the credit facility disclosed below under “3.55% Credit facility and collateral”, in connection with which he loaned $21,000 of the $22,000 borrowed by the Company to the Lender (as defined below), which amount remains outstanding.
Financing liability

 (related party)
In connection with the Company’s failed sale-leaseback transaction, 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 upon expiration of the lease.
SAF loan3.55% Credit facility and collateral

OnIn March 11, 2020, the Company borrowed $21,000 from an institutional lender pursuant to a credit facility. The credit facility permits the Company to borrow up to $100,000, which may be drawn down by the Company in four4 tranches, maturing two years from the date of the first draw down. TheOn the first advance of debt with a term of two years, the Company will pay an annual interest rate of 3.55% onfor the first advanceyear and LIBOR+7% after the first year. Pursuant to the terms of debt for a term of two years. The borrowed amounts under the credit facility, any amounts borrowed are required to be fully collateralized by $22,000 of restricted cash of the aggregate principal amount plus $1,000, which was borrowed pursuantmet as of March 31, 2021. On March 11, 2021, the Company accelerated the maturity date related to the loan transaction described below. Any additional draws must be fully cash collateralized as well.this borrowing to June 15, 2021.
Also onin March 11, 2020, the Company closed $22,000 in borrowings pursuant to a loan transaction with IP Investment Company, LLC (the “Lender”“Lender”). 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 27 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. KevinMr. Murphy the Chairman of the board of directors, loaned $21,000 of the $22,000 borrowed by the Company to the Lender. The loan is secured by the non-U.S. intellectual property assets, a cannabis state license and 12,000 SVS shares of the Company.
Pursuant to the Amended Arrangement, the monthly interest on the collateral payable to Mr. Murphy was modified to cash payments for the remaining duration of the term at an interest rate of 12% per annum, payable upon maturity. The remaining interest will continue to be paid monthly in the form of 2 Fixed Shares and 1 Floating Share through the maturity date.
The Company has determined such equity interest on collateral to be a mandatorily redeemable financial instrument that is recorded as a liability in accordance with ASC 480 - Distinguishing liabilities from equity (“ASC 480”). The liability is calculated based upon the share interest multiplied by the maturity price of $4.50 per share. The equity and cash liability amounted to $682$28 and $621, respectively as of June 30, 2020March 31, 2021 and was recorded in Debt, current within the Statements of Financial Position.
Convertible note

On May 29, 2020,March 7, 2021, the Company entered into a securities purchase agreement (the “Securities Purchase Agreement”)extended the maturity date related to the $22,000 in borrowings with YA II PN, Ltd. (the “Investor”), pursuantthe Lender to whichMarch 31, 2021. On March 29, 2021, the Company sold and issued $11,000 in principal amount under a secured convertible debenture, with gross proceeds tofurther extended the Companymaturity date of $10,000 before transaction fees (the “Convertible Debenture”).

The Convertible Debenture bears 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 up to $550 of principal amount. The Convertible Debenture may not be converted to SVS to the extent such conversion would result in the holder beneficially owning more than 4.99%Tranche B of the Company’s outstanding SVS. The Convertible Debentureloan transaction with the Lender, which is convertible into Class A Subordinate Voting Shares$21,000 of the Company at a conversion price$22,000 aggregate amount of $1.68 per share, subjectthe loan transaction, to June 30, 2021. Tranche A of the conversion limitations described above.

The maturity dateloan transaction with the Lender, which is $1,000 of the earlier$22,000 aggregate amount of (i) May 29, 2021 or (ii) on the consummation of one or more debt, equity or a combination of debt and equity financing transactionsloan transaction, was subsequently repaid in which the Company receives gross proceeds of $40,000 or more. Management hasApril 2021.
21
ACREAGE HOLDINGS, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data)

September 2020 Transactions
accordingly accreted all discounts overOn September 23, 2020, pursuant to the period through September 30, 2020, at which point the full redemptionimplementation of the principal balance is expectedAmended Arrangement (refer to occur.

The Company recorded beneficial conversionNote 13), a subsidiary of $523, representing 5%Canopy Growth advanced gross proceeds of $50,000 (less transaction costs of approximately $4,025) to Universal Hemp, an affiliate of the principal amount which is currently convertibleCompany, pursuant to the terms of a secured debenture (“6.1% Loan”). In accordance with the terms of the debenture, the funds cannot be used, directly or indirectly, in Share Capitalconnection with or for any cannabis or cannabis-related operations in the Statements of Shareholders’ Equity,United States, unless and an equivalent discount was recorded against the carrying valueuntil such operations comply with all applicable laws of the Convertible Debenture.United States. An additional $50,000 may be advanced pursuant to the debenture subject to the satisfaction of certain conditions by Universal Hemp. The beneficial conversion feature was determineddebenture bears interest at a rate of 6.1% per annum, matures 10 years from the date hereof or such earlier date in accordance with ASC 470-20 - Debt with conversionthe terms of the debenture and other optionsall interest payments made pursuant to the debenture are payable in cash by Universal Hemp. The debenture is not convertible and is calculated at its intrinsic value being the difference between the conversion price and the fair valuenot guaranteed by Acreage.
With a portion of the common stock intoproceeds for the 6.1% Loan received by Universal Hemp, Acreage engaged an Investment Advisor which, under the debtInvestment 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 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 Universal Hemp. Upon execution of the limited partnership agreement, $1,019 was distributed to the class A unit holders of the Investment Partnership.
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.
Hempco Foros promissory note
In October 2020, Foros Securities LLC extended a promissory note of $2,000 to the Company bearing interest at 10% per annum. The promissory note matures at the commitmentearlier of July 5, 2021 or the date being $3.28 per share, multiplied by the number of shares into which the debt is convertible. The Company has the right to redeem up to 95% of the principal is repaid in full.
Senior secured term loan facility
In October 2020, the Company’s subsidiary received initial commitments and funding from a syndicate of lenders for gross proceeds of $28,000 (before origination discounts and issuance costs of approximately $840 and $1,136, respectively) pursuant to a senior secured term loan facility at an annual interest rate of 15% with a maturity of 4 years from closing. The total amount on or prior to September 29, 2020 without penalty.available under the senior secured term loan facility is $70,000. Pursuant to the redemption prior to September 29, 2020, the remaining 95%terms of the principal amountsenior secured term loan facility, the Company is classified as havingrequired to maintain a contingent beneficial conversion feature, valued at $9,026minimum cash liquidity position, which was met as of June 30, 2020. The excess of the fair value that the holder would receive at conversion over the proceeds received is $10,852 as of June 30, 2020.March 31, 2021.

The Company determined the conversion feature above does not meet the characteristics of a derivative instrument in accordance with ASC 815 - Derivatives and Hedging (“ASC 815”), as the conversion feature is indexed to its own stock and is classified under Share Capital in the Statements of Stockholders’ Equity. As such, there was no derivative liability associatedIn connection with the Convertible Debenture under ASC 815.

For the three and six months ended June 30, 2020,advance, the Company recorded amortizationissued the lenders an aggregate of debt discount1,557 Fixed Share Warrants with each Fixed Share Warrant exercisable for 1 Fixed Share and 698 Floating Share Warrants with each Floating Share Warrant exercisable for 1 Floating Share. The exercise price of $402.each Fixed Share Warrant is $3.15 and the exercise price of each Floating Share Warrant is $3.01. The warrants are exercisable for a period of 4 years.

Construction financing loan
Pursuant to the Securities Purchase Agreement, the Company has reserved 7,530 SVS for issuance exclusively upon conversion of the Convertible Debenture as of June 30, 2020.


Secured Bridge Loan

On June 16,In November 2020, the Company entered into a short-term definitive fundingloan agreement with an institutional investora cannabis-focused real estate investment trust for gross proceedsa construction financing loan in the amount of $15,000 (less$13,320 (with transaction costs of approximately $943)$1,399). The secured note has a maturity date of four months and bearsloan agreement provides for an annual interest rate of 60% per annum. It16% and a term of 18 months. The loan will be used to complete the expansion of the Company’s cultivation and processing factory in Illinois (the “Illinois Property”). The loan is secured by among other items, the Company’s cannabis operations in Illinois New JerseyProperty and Florida, as well as the Company’s U.S. intellectual property. In the event of default,is subject to periodic advances to the Company to fund the completion of improvements or real property collateral or fund other amounts as permitted under the loan agreement.
CanWell promissory note
In November 2020, the Company issued a promissory note to the Canwell LLC (“Canwell”), which is obligated to paynon-interest bearing and payable based on a payment schedule with 10 payments in the lender an additional feeaggregate amount of $6,000. The Company may pre-pay the secured note without penalty or premium at any time following the 90th day after closing.

$7,750 through December 31, 2024.
22
ACREAGE HOLDINGS, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data)

11.    SHAREHOLDERS’ EQUITY AND NON-CONTROLLING INTERESTS
The table below details the change in Pubco shares outstanding by class for the sixthree months ended June 30, 2020:March 31, 2021:

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 7,535
 —
 —
 —
 7,535
NCI conversions 385
 —
 —
 —
 385
PVS conversions 883
 —
 (883) —
 —
June 30, 2020 76,980
 (842) 22,260
 168
 98,566

Shareholders’ EquityFixed SharesFloating SharesFixed Shares Held in TreasuryFloating Shares Held in TreasuryFixed Multiple SharesTotal Shares Outstanding
December 31, 202071,346 30,628 (589)(253)118 101,250 
Issuances890 900 0 0 0 1,790 
NCI conversions280 120 0 0 0 400 
March 31, 202172,516 31,648 (589)(253)118 103,440 

During the three months ended March 31, 2021, the Company issued 61 Fixed Shares and 28 Floating Shares as compensation for consulting services expense of $300, recorded in Other equity transactions on the Statements of Shareholders’ Equity. Additionally, during the three months ended March 31, 2021, the Company issued 5 Fixed Shares and 2 Floating Shares related to the 3.55% Credit facility and collateral borrowings, recorded in Other equity transactions on the Statements of Shareholders’ Equity.
Pursuant to the Amended Arrangement, on September 23, 2020, Acreage completed a capital reorganization whereby (i) each existing SVS was exchanged for 0.7 of a Fixed Share and 0.3 of a Floating Share; (ii) each existing PVS was exchanged for 28 Fixed Shares and 12 Floating Shares; and (iii) each existing MVS was exchanged for 0.7 of a Fixed Multiple Share and 0.3 of a Floating Share. No fractional Fixed Shares, Fixed Multiple Shares or Floating Shares were issued pursuant to the Capital Reorganization. Refer to Note 13 for further discussion.
The table below details the change in Pubco shares outstanding by class for the sixthree months ended June 30, 2019:March 31, 2020:

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 5,765
 —
 —
 —
 5,765
NCI conversions 1,031
 —
 —
 —
 1,031
PVS conversions 32,167
 —
 (32,167) —
 —
June 30, 2019 60,906

(842)
25,728

168

85,960

Shareholders’ EquitySubordinate Voting SharesSubordinate Voting Shares Held in TreasuryProportionate Voting Shares (as converted)Multiple Voting SharesTotal Shares Outstanding
December 31, 201968,177 (842)23,143 168 90,646 
Issuances6,671 0 0 0 6,671 
NCI conversions113 0 0 0 113 
PVS conversions294 0 (294)0 0 
March 31, 202075,255 (842)22,849 168 97,430 
During the six months ended June 30, 2019, the Company issued 208 SVS as compensation for consulting services expense of $3,424, respectively, recorded in Other equity transactions on the Statements of Shareholders’ Equity.
Warrants
A summary of the warrants activity outstanding is as follows:
WarrantsThree Months Ended
March 31, 2021		Three Months Ended
March 31, 2020
Fixed SharesFloating SharesSVS
Beginning balance7,131 3,087 2,040 
Granted0 0 6,085 
Expired0 0 0 
Ending balance7,131 3,087 8,125 
Warrants Six Months Ended June 30,
  2020 2019
Beginning balance 2,040
 2,259
Granted 6,085
 4
Expired (4) —
Ending balance 8,121
 2,263

On February 10, 2020, the Company raised $27,887, net of issuance costs, from a private placement of 6,085 special warrants priced at $4.93 per unit. The warrants wereEach special warrant was automatically exercised on March 2, 2020 for no additional consideration, and eachinto one unit sold consistscomprised of 1 SVS voting share and 1 SVS purchase warrant with an exercise price of $5.80 and a five-year expiration.term. Pursuant to the Amended Arrangement, the exercise price was thereafter amended to $4.00. Refer to Note 13 for further discussion. 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 SVScommon stock, 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.
23
ACREAGE HOLDINGS, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data)
In November 2020, in connection with the senior secured credit term loan facility, the Company issued an aggregate of 1,557 Fixed Share Warrants with each Fixed Share Warrant exercisable for 1 Fixed Share and 698 Floating Share Warrants with each Floating Share Warrant exercisable for 1 Floating Share. The exercise price of each Fixed Share Warrant is $3.15 and the exercise price of each Floating Share Warrant is $3.01. The warrants are exercisable for a period of 4 years. Refer to Note 10 for further discussion.
Pursuant to the Amended Arrangement, the exercise price of all other warrants outstanding as of June 30, 2020March 31, 2021 is $25$17.50 and $7.50 per share.Fixed Share and Floating Share, respectively. Refer to Note 13 for further discussion.
The weighted-average remaining contractual life of the warrants outstanding is approximately 43 years. There was noThe aggregate intrinsic value for warrantsFixed Share Warrants and Floating Share Warrants outstanding as of June 30, 2020.
During the six months ended June 30, 2019, the Company issued 4 warrants with a weighted-average grant date fair value of $6.74 per share,March 31, 2021 was $8,886 and an expense of $27 was recorded in General and administrative expenses in the Statements of Operations.
ACREAGE HOLDINGS, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data)

NaN, respectively.
The exercise price of all warrants outstanding as of June 30, 2019March 31, 2020 was $25 per share and the weighted-average remaining contractual life of the warrants outstanding is approximately 2 years. Therethere was no0 aggregate intrinsic value for warrants outstanding as of June 30, 2019.March 31, 2020.
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 June 30, 2020March 31, 2021 and are convertible for either one Subordinate Voting0.7 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 reconciliationMarch 31, 2021December 31, 2020
Current assets$149,321 $144,938 
Non-current assets415,196 410,269 
Current liabilities(109,348)(80,649)
Non-current liabilities(150,765)(171,485)
Other NCI balances(702)(742)
Accumulated equity-settled expenses(212,656)(206,315)
Net assets$91,046 $96,016 
HSCP/USCo2 ownership % of HSCP18.12 %18.68 %
Net assets allocated to USCo2/HSCP$16,498 $17,936 
Net assets attributable to other NCIs702 742 
Total NCI$17,200 $18,678 
HSCP net asset reconciliationJune 30, 2020 December 31, 2019
Current assets$134,934
 $55,296
Non-current assets405,609
 584,812
Current liabilities(108,412) (46,434)
Non-current liabilities(73,471) (75,219)
Other NCI balances(539) (1,041)
Accumulated equity-settled expenses(168,498) (111,934)
Net assets$189,623
 $405,480
HSCP/USCo2 ownership % of HSCP19.2% 21.64%
Net assets allocated to USCo2/HSCP$36,408
 $87,746
Net assets attributable to other NCIs539
 1,041
Total NCI$36,947
 $88,787
 Three Months Ended June 30, Six Months Ended June 30,
HSCP Summarized Statement of Operations2020 2019 2020 2019
Net loss allocable to HSCP/USCo2(41,867) (48,059) (277,070) (77,017)
HSCP/USCo2 weighted average ownership % of HSCP17.18% 24.40% 20.55% 24.86%
Net loss allocated to HSCP/USCo2(7,193) (11,724) (56,938) (19,146)
Net loss allocated to other NCIs15
 —
 (515) (5)
Net loss attributable to NCIs(7,178) (11,724) (57,453) (19,151)

Three Months Ended March 31,
HSCP Summarized Statement of Operations20212020
Net loss allocable to HSCP/USCo2(4,549)(235,203)
HSCP/USCo2 weighted average ownership % of HSCP18.40 %21.15 %
Net loss allocated to HSCP/USCo2(837)(49,745)
Net loss allocated to other NCIs4 (530)
Net loss attributable to NCIs(833)(50,275)
As of June 30, 2020,March 31, 2021, USCo2’s non-voting shares owned approximately 0.57%0.53% of HSCP units. USCo2’s capital structure is comprised of voting shares (approximately 70%71%), all of which are held by the Company, and of non-voting shares (approximately 30%29%) held by certain former HSCP members. Certain executive employees and profits interests holders own approximately 18.63%17.59% of HSCP units. The remaining 80.80%81.88% interest in HSCP is held by USCo and represents the members’ equity attributable to shareholders of the parent.
During the sixthree months ended June 30,March 31, 2021 and 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 the
24
ACREAGE HOLDINGS, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data)
redemption of HSCP and USCo2 convertible units for Pubco shares (as shown in the table below), and resulted in a $5,587$(601) and $12,180$6,564 allocation from NCI to shareholders' equity for the sixthree months ended June 30,March 31, 2021 and 2020, and 2019, respectively.
During the three and six monthsyear ended June 30,December 31, 2020, Pubco, by way of Acreage CCF New Jersey, LLC, acquired 100% of the operations of CCF for total consideration of $20,087. (Refer to Note 3 for further information). Pursuant to the acquisition, Pubco subsequently transferred the ownership of Acreage CCF New Jersey, LLC to HSCP by way of issuance of $10,000 HSCP units at closing price.
During the six months ended June 30, 2019, the Company made cash payments in the amount of $4,278 to HSCP and USCo2 unit holders in satisfaction of redemption requests the Company chose to settle in cash, as well as for LLC unitholders tax liabilities in accordance with the HSCP operating agreement.
ACREAGE HOLDINGS, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data)

A reconciliation of the beginning and ending amounts of convertible units is as follows:
  Six Months Ended June 30,
Convertible Units 2020 2019
Beginning balance 25,035
 27,340
Issuance of NCI units —
 198
Vested LLC C-1s canceled (1,310) (126)
LLC C-1s vested 1,000
 625
NCI units settled in cash —
 (58)
NCI units converted to Pubco (385) (1,027)
Ending balance 24,340
 26,952

Three Months Ended March 31,
Convertible Units20212020
Beginning balance24,142 25,035 
Vested LLC C-1s canceled0 (1,310)
LLC C-1s vested0 1,000 
NCI units converted to Pubco(400)(113)
Ending balance23,742 24,612 


12.    EQUITY-BASED COMPENSATION EXPENSE
Equity-based compensation expense recognized in the Statements of Operations for the periods presented is as follows:
Equity-based compensation expenseThree Months Ended March 31,
20212020
Equity-based compensation - Plan$3,684 $19,290 
Equity-based compensation - Plan (Plan of Arrangement Awards) (1)
2,358 0 
Equity-based compensation - other0 15,447 
Total equity-based compensation expense$6,042 $34,737 
Equity-based compensation expense Three Months Ended June 30, Six Months Ended June 30,
  2020 2019 2020 2019
Equity-based compensation - Plan $11,302
 $15,674
 $25,781
 $34,555
Equity-based compensation - Plan (CGC Awards) 7,181
 314
 11,992
 314
Equity-based compensation - other 1,704
 4,705
 17,151
 4,801
Total equity-based compensation expense $20,187
 $20,693
 $54,924
 $39,670
(1)In accordance with the Prior Plan of Arrangement (as defined in Note 13) with Canopy Growth, awards were granted in July 2019, and amortized based on the vesting schedule set forth herein.

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 was modified into new equity awards of the Company. Refer to Note 13 for further discussion.
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 and 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.
25
ACREAGE HOLDINGS, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data)
Restricted Share Units (“RSUs”)
  Six Months Ended June 30, 2020
Restricted Share Units
(Fair value information expressed in whole dollars)
 RSUs Weighted Average Grant Date Fair Value
Unvested, beginning of period (1)
 7,843
 $15.10
Granted 4,926
 3.60
Forfeited (2,052) 13.15
Vested (2,736) 11.60
Unvested, end of period 7,981
 $9.70
Vested and unreleased 1,368
 $15.73
Outstanding, end of period 9,349
 $10.58

Three Months Ended March 31, 2021
Fixed SharesFloating Shares
Restricted Share Units
(Fair value information expressed in whole dollars)
RSUsWeighted Average Grant Date Fair ValueRSUsWeighted Average Grant Date Fair Value
Unvested, beginning of the period (1)
5,119 $9.24 2,688 $7.83 
Granted147 $5.34 182 $3.03 
Forfeited(211)$3.68 (92)$3.60 
Vested(706)$4.85 (387)$4.46 
Unvested, end of period4,349 $10.09 2,391 $8.17 
Vested and unreleased92 $14.22 40 $14.22 
Outstanding, end of period4,441 $10.17 2,431 $8.27 
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. The fair value for RSUs isare based on the Company’s share price on the date of the grant. The Company recorded $12,684 and $26,098$5,024 as compensation expense during the three and six months ended June 30, 2020, respectively.March 31, 2021. The fair value of RSUs vested during the three and six months ended June 30, 2020March 31, 2021 was $3,748 and $7,251, respectively.
ACREAGE HOLDINGS, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data)

$5,667.
The total weighted average remaining contractual life and aggregate intrinsic value of unvested RSUs at June 30, 2020March 31, 2021 was approximately 2 years and $20,112,$29,888, respectively. Unrecognized compensation expense related to these awards at June 30, 2020March 31, 2021 was $62,919$78,501 and is expected to be recognized over a weighted average period of approximately 2 years.
There were 1,36892 Fixed RSUs and 3 vested40 Floating RSUs that arewere pending delivery or deferred as of June 30, 2020 and 2019, respectively. On February 20, 2020, the Company issued 1,505 RSUs to certain executives with a weighted-average grant date 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, 2020.31, 2021.
(1) Equity-based compensation - Plan (CGC(Plan of Arrangement Awards)
Included within the RSUs during the three and six months ended June 30, 2020March 31, 2021 are “CGC“Plan of Arrangement Awards” issued in connection with the RSUs which were granted in June and July 2019:
On June 27, 2019, pursuant to the Original Arrangement Agreement (as defined in Note 13), 4,909 RSUs were awarded in total to five5 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 $5,587 and $8,349$1,908 as compensation expense during the three and six months ended June 30, 2020March 31, 2021 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 $1,594 and $3,643$450 as compensation expense during the three and six months ended June 30, 2020, respectively,March 31, 2021 in connection with these awards.
26
ACREAGE HOLDINGS, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data)
Stock options
  Six Months Ended June 30, 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 (869) 17.29
Exercised —
 —
Options outstanding, end of period 4,929
 $21.70
     
Options exercisable, end of period 2,125
 $24.50

Three Months Ended March 31, 2021
Fixed SharesFloating Shares
Stock Options
(Exercise price expressed in whole dollars)
OptionsWeighted Average Exercise PriceOptionsWeighted Average Exercise Price
Options outstanding, beginning of period1,556 $11.18 1,818 $3.12 
Granted24 7.22 334 3.35 
Forfeited(69)9.64 (29)4.13 
Exercised0 0 0 0 
Options outstanding, end of period1,511 $11.19 2,123 $3.14 
Options exercisable, end of period881 $15.01 1,346 $3.28 
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 years or 10 years.years from the date of grant. The weighted average contractual life remaining for options outstanding and exercisable as of June 30, 2020March 31, 2021 was approximately 96 years. The Company recorded $5,799 and $11,675$1,017 as compensation expense during the three and six months ended June 30, 2020, respectively,March 31, 2021 in connection with these awards. As of June 30, 2020,March 31, 2021, unamortized expense related to stock options totaled $33,070$4,021 and is expected to be recognized over a weighted-average period of approximately 1 year. There was noAs of March 31, 2021, the aggregate intrinsic value for unvested options outstanding or exercisable as of June 30, 2020.was $2,034.
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 the related service periodperiods and until awards are fully vested.
ACREAGE HOLDINGS, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data)

The following table summarizes the status of unvested Profits Interests for the six months ended June 30, 2020:
  Six Months Ended June 30, 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 $0 and $70 as compensation expense in connection with these awards during the three and six months ended June 30, 2020, respectively.March 31, 2020. The fair value of Profits Interests vested during the three and six months ended June 30,March 31, 2020 was $0 and $1,239, respectively.$1,239.
As of June 30,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 $1,704 and $17,081$15,377 during the three and six months ended June 30,March 31, 2020, respectively, in connection with these awards. During the three months ended June 30, 2020, certain employees separated from the Company, resulting in 161 RSs accelerating vesting and $2,131 incurred in expenses. During the six months ended June 30, 2020, certain employees separated from the Company, resulting in 1,289 RSs accelerating vesting and $17,019 incurred in expenses. The total weighted average remaining contractual life and aggregate intrinsic value of RSs at June 30, 2020 was approximately 1 year and $184, respectively.
As of June 30,December 31, 2020, unamortized expense related toall RSs totaled $150 and is expected to be recognized over a weighted average period of approximately 1 year. The total weighted average remaining contractual life and aggregate intrinsic value of RSs at June 30, 2019 was approximately 2 years and $22,465, respectively. As of June 30, 2019, unamortized expense related to RSs totaled $24,946 and is expected to be recognized over a weighted average period of approximately 2 years.were fully vested.

13.    COMMITMENTS AND CONTINGENCIES
Commitments
The Company provides revolving lines of credit to several of its portfolio companies. Refer to Note 6 for further information.discussion.
Definitive agreements
27

ACREAGE HOLDINGS, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data)
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 considerationPrior Plan of 4,762 HSCP units (valued at approximately $12,000 based on the June 30, 2020 closing price of $2.52 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 two2 companies, (the “Existing Arrangement”), and on June 21, 2019, the Supreme Court of British Columbia granted a final order approving the ExistingPrior Plan of Arrangement. Effective June 27, 2019, the articles of the Company were amended pursuant to a plan
ACREAGE HOLDINGS, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data)

the Prior Plan of arrangementArrangement 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 lawsoccurrence (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 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 the Original Arrangement Agreement, holders of Acreage Shares and certain securities convertible or exchangeable into Class A subordinate voting shares of Acreage (the “Subordinate Voting Shares”)SVS 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 ShareSVS basis) of $300,000 (the “Option Premium”) paid by 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 beare required to convert their units within three years following the closing of the Acquisition as will holders of non-voting shares of USCo2.
PursuantSecond Amendment 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 38,000 remain available for issuance as of June 30, 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 towith Canopy Growth Arrangement
On June 24, 2020, Acreage and Canopy Growth entered into a proposal agreement (the “Proposal Agreement”) which setsset out, among other things, the terms and conditions upon which the parties arewere proposing to enter into an amending agreement (the “Amending Agreement”) to amend the Original Arrangement Agreement, (the “Amended Arrangement Agreement”) and amend and restate the existing planPrior Plan of arrangementArrangement (the “Amended Plan of Arrangement”) and implement the Amended Plan of Arrangement pursuant to the Business Corporations Act (British Columbia). The effectiveness of the Amendedamendment to the Original Arrangement Agreement and the implementation of the Amended Plan of Arrangement iswas subject to the conditions set out in the Proposal Agreement, including,which included, 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”);Arrangement; and (ii) the shareholders of Acreage as required by applicable corporate and securities laws. Upon receipt of Acreage shareholder approval, Court Approval and
Following the satisfaction of all othervarious 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 ofAgreement, on September 23, 2020, 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).
ACREAGE HOLDINGS, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data)

Upon satisfaction or waiver of the conditions set out in the Proposal Agreement,entered into the Amending Agreement (and together with the Original Arrangement Agreement, the “Arrangement Agreement”) and implemented the Amended Plan of Arrangement will be 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 makemade a cash payment of $37,500 which was delivered to the AcreageAcreage’s shareholders and certain holders of securities convertible or exchangeable into shares of Acreage. Acreage and Acreage will completealso completed a capital reorganization (the “Capital Reorganization”) wherebyeffective as of the Amendment Time whereby: (i) each Existingexisting SVS will bewas 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 Existingissued and outstanding PVS will bewas exchanged for 28 Fixed Shares and 12 Floating Shares; and (iii) each Existingissued and outstanding MVS will bewas exchanged for 70.0%0.7 of a new multiple voting share (each whole share, a “FixedFixed Multiple Share”)Share and 30.0%0.3 of a Floating Share. No fractional
At the Amendment Time, on the terms and subject to the conditions of the Amended Plan of Arrangement, each option, restricted share unit, compensation option and warrant to acquire existing SVS that was outstanding immediately prior to the Amendment Time, was exchanged for a replacement option, restricted stock unit, compensation option or warrant, as applicable, to acquire Fixed Shares Fixed Multiple Shares(a “Fixed Share Replacement Security”) and a replacement option, restricted stock unit, compensation option or warrant, as applicable, to acquire Floating Shares will be issued pursuant(a “Floating Share Replacement Security”) in order 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 AgreementAgreement: (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 value30 day volume-weighted average trading price 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$6.41, as may be adjusted 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.Shares or a combination thereof. If any portion is paid in Canopy Growth Shares, the number of Canopy Growth Shares to be exchanged for each Floating Share shall
28
ACREAGE HOLDINGS, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data)
be determined on the basis of a 30 day volume-weighted average calculation using the Floating Shares (the “Floating Ratio”). 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 option, restricted stock unit, compensation option or warrant, as applicable, to acquire from Canopy Growth such number of Canopy Growth Shares as is 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).
In the event that the Floating Call Option is exercised and Canopy Growth acquires the Floating Shares at the Acquisition Time, on the terms and subject to the conditions of the Amended Plan of Arrangement, each Floating Share Replacement Security will be exchanged for a replacement option, restricted stock unit, compensation option or warrant, as applicable, to acquire from Canopy Growth such number of Canopy Growth Shares as is equal to: (i) the number of Floating Shares that were issuable upon exercise of such Floating Share Replacement Security immediately prior to the Acquisition Time, multiplied by (ii) the Floating Ratio (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).
In the event that the Floating Call Option is exercised and Canopy Growth acquires the Floating Shares at the Acquisition Time, Acreage will be a wholly-owned subsidiary of Canopy Growth.
The Amending Agreement also provides for, among other things, amendments to the definition of Purchaser Approved Share Threshold (as defined in the Arrangement Agreement) 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 (or convertible securities in proportion to the foregoing), which will include (i) 3,700 Floating Shares which are to be issued solely in connection with the exercise of stock options granted to Acreage management (the “Option Shares”); (ii) 8,700 Floating Shares other than the Option Shares; and (iii) 20,300 Fixed Shares. Notwithstanding the foregoing, the Amending Agreement provides that Acreage may not issue any equity securities, without Canopy Growth’s prior consent, other than: (i) upon the exercise or conversion of convertible securities outstanding as of the Amendment Date; (ii) contractual commitments existing as of the Amendment Date; (iii) the Option Shares; (iv) the issuance of up to $3,000 worth of Fixed Shares pursuant to an at-the-market offering to be completed no more than four times during any one-year period; (v) the issuance of up to 500 Fixed Shares in connection with debt financing transactions that are otherwise in compliance with the terms of the Arrangement Agreement, as amended by the Amending Agreement; or (vi) pursuant to 1 private placement or public offering of securities during any one-year period for aggregate gross proceeds of up to $20,000, subject to specific limitations as set out in the Amending Agreement.
In addition, the Amending Agreement provides for, among other things: (i) various Canopy Growth rights that extend beyond the Acquisition Date and continue until Canopy Growth ceases to hold at least 35% of the issued and outstanding Acreage shares (such date being the “End Date”), including, among others, rights to nominate a majority of Acreage’s Board of Directors (the “Acreage Board”) following the Acquisition Time, restrictions on Acreage’s ability to incur certain indebtedness without Canopy Growth’s consent; (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 Arrangement Agreement in the event that Acreage does not meet certain specified financial targets on an annual basis during the term of the Canopy Call Option as further described below; (iv) implementation of further restrictions on Acreage’s ability to operate its business, including its ability to hire certain employees or make certain payments or incur any non-trade-payable debt without Canopy Growth’s consent in the event that Acreage does not meet certain specified financial targets on a quarterly basis during the term of the Canopy Call Option as further described below; and (v) termination of the Arrangement Agreement and Canopy Growth’s obligation to complete the acquisition of the Fixed Shares pursuant to the Canopy Call Option in the event that Acreage does not meet certain specified financial targets in the trailing 12 month period as further described below. 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”).
29
ACREAGE HOLDINGS, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data)
The Amending Agreement precludes Acreage from entering into any contract in respect of Company Debt (as defined in the Arrangement Agreement) if, among other restrictions: (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, requires a make-whole payment for the interest owing during the remainder of the term of such contract or charges a prepayment fee in an amount greater than 3.0% of the principal amount to be repaid; (iii) such contract would provide for interest payments to be paid through the issuance of securities as opposed to cash; or (iv) such contract has a principal amount of more than $10,000 or a Cost of Capital (as defined in the Amending Agreement) that is greater than 30.0% per annum; provided that, if such Company Debt is fully secured by cash in a blocked account, the Cost of Capital may not be greater than 3.0% per annum. Notwithstanding the foregoing, Canopy Growth’s consent will not be required for Acreage or any of its subsidiaries to enter into a maximum of 2 transactions for Company Debt that would require consent based on the foregoing during any one-year period, in accordance with the following terms: (i) the principal amount of the Company Debt per transaction may not exceed $10,000, (ii) the Company Debt is not convertible into any securities; and (iii) the contract does not provide for the issuance of more than 500 Acreage shares (or securities convertible into or exchangeable for 500 Acreage shares).
The Amending Agreement also provides for certain financial reporting obligations and that Acreage may not nominate or appoint any new director or appoint any new officer that does not meet certain specified criteria. The Amending Agreement also requires Acreage to submit a business plan to Canopy Growth on a quarterly basis that complies with certain specified criteria, including the Initial Business Plan. In the event that Acreage has not satisfied: (i) 90% of the minimum revenue and earnings targets set forth in the Initial Business Plan measured on a quarterly basis, certain additional restrictive covenants will become operative as austerity measures for Acreage’s business; (ii) 80% of the minimum revenue and earnings targets set forth in the Initial Business Plan, as determined on an annual basis, certain restrictive covenants applicable to Canopy Growth under the Arrangement Agreement will cease to apply in order to permit Canopy Growth to acquire, or conditionally acquire, a competitor of Acreage in the United States should it wish to do so; and (iii) 60% of the minimum revenue and earnings targets set forth in the Initial Business Plan for the trailing 12 month period ending on the date that is 30 days prior to the proposed Acquisition Time, a material adverse impact will be deemed to have occurred for purposes of Section 6.2(2)(h) of the Arrangement Agreement and Canopy Growth will not be required to complete the acquisition of the Fixed Shares pursuant to the Canopy Call Option.
The Amending Agreement also requires Acreage to limit its operations to the Identified States (as defined in the Amending Agreement). In connection with the execution of the Proposal Agreement, Acreage was provided with consent from Canopy Growth to divest of all assets outside of the Identified States (the “Non-Core Divestitures”).
In addition, the Amending Agreement includes certain covenants that will apply following the Acquisition Time until the earlier of the date on which the Floating Shares are acquired by Canopy Growth or the End Date. Such covenants include, among others, pre-emptive rights and top-up rights in favor of Canopy Growth, restrictions on M&A activities, approval rights for Acreage’s quarterly business plan, nomination rights for a majority of the directors on the Acreage Board and certain audit and inspection rights.
Debenture
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
30
ACREAGE HOLDINGS, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data)
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) the Non-Core Divestitures are not completed 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.
Surety bonds

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 June 30, 2020,March 31, 2021, for which no liabilities are recorded on the Statements of Financial Position.
The Company is subject to other capital commitments and similar obligations. As of June 30,March 31, 2021 and 2020, and 2019, such amounts were not material.
Contingencies
As of June 30, 2020,March 31, 2021, the Company hashad consulting fees payable in SVSFixed Shares and Floating Shares which are contingent upon successful acquisition of certain state cannabis licenses. The Company had maximum obligations of $8,750 and 400 SVS,238 Fixed Shares and no102 Floating Shares. No reserve for the contingencies has been recorded as of June 30, 2020.March 31, 2021.
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 CompanyCompany’s applicable subsidiaries ceasing operations. While management of the Company believes that the Company isCompany’s subsidiaries are in compliance with applicable local and state regulations as of June 30, 2020,March 31, 2021, cannabis regulations continue to evolve and are subject to differing interpretations. As a result, the CompanyCompany’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.
Standby Equity Distribution Definitive Agreement

On May 29, 2020, the Company entered into an agreement with an institutional lender for $50,000 of financing commitments under a Standby Equity Distribution Agreement.Agreement (“SEDA”). The investor may, at its discretion, purchase, and the Company may, at its discretion, periodically sell to the investor, up to $50,000 of subordinate voting shares of the Company at a purchase price of 95% of the
ACREAGE HOLDINGS, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data)

market price over the course of 24 months from the effective date. Pursuant to the SEDA, investor may, at its discretion, purchase, and the Company may, at its discretion, periodically sell to the investor, up to $35,000 and $15,000 of the Company’s Fixed Shares and Floating Shares, respectively. In consideration for entering the Standby Equity Distribution Definitive Agreement,SEDA, the Company will issueissued the investor 200 SVS as commitment shares. Pursuant to the Amended Arrangement, these SVS shares have since been exchanged for 140 Fixed Shares and 60 Floating Shares.

On each of September 28, 2020 and January 25, 2021, the Company entered into letter agreements (the “Letter Agreements”) with the institutional investor extending the termination deadline of the SEDA to the earliest of November 30, 2020 and June 30, 2021, respectively, and the date that the Company has obtained both a receipt from the Ontario Securities Commission for a short-form final base shelf prospectus and a declaration from the United States Securities and Exchange Commission that its registration statement is effective, in each case qualifying an At-The-Market equity offering program. On March 11, 2021, the SEDA termination deadline was further extended to April 15, 2022.
31
ACREAGE HOLDINGS, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data)
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, NY Medicinal Research & Caring, LLC (each, a 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, 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 intends to 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 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 filed a motion to dismiss on April 1, 2019. The motion was fully briefed and submitted to the Court on July 18, 2019, and oral argument was heard on September 6, 2019. The motion remains pending before the Court. A Special Referee hearing relating to the motion to dismiss has been scheduled for September 2021. The plaintiff also filed a motion seeking a preliminary injunction of any transfer of the Company’s assets. This motion was fully briefed and the Company is awaiting the Court’s decision.

CanWell Dispute
The CanWell dispute is comprised of 5 separate proceedings:
i. CanWell's petition filed in Rhode Island Superior Court (C.A. KM-2019-0948) to compel arbitration of claims arising out of WPMC withdrawal as a member of the CanWell entities as well as other disputes, including issues relating to termination of the Alternative Dosage Agreement (“ADA”) (relating to the Maine dispensary).
ii. CanWell's petition filed in Rhode Island Superior Court (C.A. No. KM-2019-1047) to compel arbitration of WPMC's redemption of the CanWell entity's interest in WPMC, including issues relating to termination of the ADA.
iii. An arbitration proceeding relating to WPMC's withdrawal from the CanWell entities. A procedural meeting with the arbitrator took place on November 5, 2019.
iv. An arbitration that will soon be underway with the American Arbitration Association on the issue of whether WPMC had the right to redeem CanWell's interest in WPMC.
v. A civil action pending in Maine (Docket No. CUMSC-CV-19-0357) which was filed by Northeast Patients Group d/b/a Wellness Connection of Maine against CanWell, LLC and CanWell Processing (Maine), LLC, relating to the termination of the ADA. While no Acreage affiliate is currently a party to this action, the issue being litigated relates to the termination of the ADA, which is one of the issues that CanWell is attempting to arbitrate in Rhode Island.
vi. A declaratory judgment action pending in Delaware, High Street Capital Partners, LLC v. CanWell, LLC, CanWell Processing (Maine), LLC, and CanWell Processing (Rhode Island), LLC (Court of Chancery, No. 2019-0957-MTZ) seeking a declaratory judgment that, as a matter of law, High Street is not subject to any non-compete provision with regard to the agreements detailed above. This case remains in the preliminary stages of litigation.
The Court issued an order on January 29, 2020 that determined that the arbitrability of the ADA Disputes is to be decided by an arbitrator, not the Court.
Following the parties’ entering into a Memorandum of Understanding (MOU) on proposed settlement terms that would settle each of the matters listed above, the parties have now reached a final confidential settlement agreement. As part of that agreement, the Company has 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 periodic payments through December 31, 2024, of which the first and second payments of $500 were made in November 2020 and February 2021, respectively.
32
ACREAGE HOLDINGS, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data)
Lease Dispute
On or around December 2019, it is alleged that a wholly-owned subsidiary of HSCP entered into 3 five-year leases to occupy approximately 70 square feet of commercial space on a cannabis cultivation campus in California. As of November 24, 2020, HSCP and its wholly-owned subsidiary entered into a confidential settlement and release agreement with the commercial landlord, pursuant to which HSCP will make 6 payments to the commercial landlord totaling $6,336, which the Company has accrued for in Legal settlements, net on the Statements of Operations for the year ended December 31, 2020. The first and second payments of $1,000 were made in November 2020 and December 2020, respectively. The third payment of $1,084 was made in March 2021 and the remaining payments will become due through the year ended December 31, 2021.
Compass Neuroceuticals Litigation
In February 2021, a JAMS arbitration was initiated in Atlanta by Acreage Georgia LLC (“Acreage Georgia”) against its former consultant, Compass Neuroceuticals, Inc. (“Compass”), stemming from Compass’ breach of the consulting agreement entered into between the parties in June 2019, related to the preparation of an application for a Class 1 cultivation license in Georgia. Acreage Georgia is alleging damages, including lost profits, of approximately $9,000. Compass filed counterclaims for breach, also in the $9,000 range. A final arbitration hearing is currently scheduled for August 2021. The matter is in its early stages; therefore, it is too early to ascertain the materiality of any potential settlement or judgment, but the Company plans to defend itself vigorously in this matter.
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

Acreage has certain outstanding notes receivable with related parties. Refer to Note 6 for further information.discussion.
GreenAcreageSeptember 2020 Transactions

TheAs disclosed in Note 10 to the unaudited condensed consolidated financial statements, ”September 2020 Transactions”, 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, haspursuant 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 carried at fair value through profit and loss in GreenAcreage. The Company also has an equity method investment inadvisor (the “Investment Advisor”) which, under the management companyInvestment Advisor’s sole discretion, invested on behalf of GreenAcreage resulting fromUniversal Hemp, $34,019 of the CEO’s board involvement. During the year ended December 31, 2019,proceeds on September 28, 2020.
As a result, Universal Hemp, a subsidiary of the Company, sold and subsequently leased back severalacquired 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 its capital assets in a transaction with GreenAcreage.the Institutional Investor holds Class A Units of the Investment Partnership. The subsequent leases metgeneral partner of the criteriaInvestment Partnership is also an affiliate of the Institutional Investor. The class B units are held by the Institutional Investor as agent for finance leases, and as such, the transactions do not qualify for sale-leaseback treatment.
Universal Hemp. On July 15,September 28, 2020, the Company entered intoreceived gross proceeds of $33,000 (less transaction costs of approximately $959) from an affiliate of the Institutional Lender (the “Lender”) and used a definitive agreementportion 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 GreenAcreage to internalize the Company’s management operations.remainder being used for working capital purposes. The Lender is controlled by the Institutional Lender. The Investment Partnership is the investor in the Lender.
Related party debt

In December 2019, the Kevin Murphy, the Chairman of the board of directors, loaned $15,000 to the Company. In January 2020, he made an additional loan of $5,000 to Acreage. These amounts were subsequently repaid in March 2020.
In October 2020, Mr. Murphy made an interest bearing loan of $2,100 to the Company, bearing interest at 9.9% per annum. This amount was subsequently repaid in November 2020.
33
ACREAGE HOLDINGS, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data)
Credit agreement collateral

On March 11, 2020, the Company closed $22,000 in borrowings pursuant to a loan transaction with the Lender. 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 27 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. KevinMr. Murphy the Chairman of the board of directors, loaned $21,000 of the $22,000 borrowed by the Company to the Lender. The loan is secured by 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.discussion.

Pursuant to the Amended Arrangement, the monthly interest on the collateral payable to Mr. Murphy was modified to cash payments for the remaining duration of the term at an interest rate of 12% per annum, payable upon maturity. The remaining interest will continue to be paid monthly in the form of 2 Fixed Shares and 1 Floating Share through the maturity date.
On March 7, 2021, the Company extended the maturity date related to the $22,000 in borrowings with the Lender to March 31, 2021. On March 29, 2021, the Company further extended the maturity date of Mr. Murphy’s tranche of the loan transaction, which is $21,000 of the $22,000 aggregate amount of the loan transaction, to June 30, 2021.
Michigan consulting agreement
ACREAGE HOLDINGS, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data)
Pursuant to the Consulting Services Agreement by and between Kevin Michigan, LLC and High Street (the “Michigan Consulting Agreement”), High Street provides certain consulting services to Kevin Michigan, LLC, which includes, but is not limited to, services related to application support, provisioning center administration and operation, local and state regulatory filings, human resource matters, and marketing matters. The Michigan Consulting Agreement explicitly states that High Street is not able to direct or control the business of Kevin Michigan, LLC. Additionally, there are certain leases held by and between Kevin Michigan, LLC, as lessee and certain wholly owned subsidiaries of High Street, as lessors. As of March 31, 2021, Kevin Michigan, LLC is not operational, and no consulting fees or rents has been paid to High Street or its wholly owned subsidiaries. Kevin Michigan, LLC is owned and controlled by the Company’s Chairman, Kevin Murphy.

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 1 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.services. 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,
 2020 2019 2020 2019
Net loss attributable to common shareholders of the Company$(37,192) $(37,541) $(209,146) $(60,918)
Weighted average shares outstanding - basic98,444
 85,640
 95,688
 82,557
Effect of dilutive securities—
 —
 —
 —
Weighted average shares - diluted98,444
 85,640
 95,688
 82,557
Net loss per share attributable to common shareholders of the Company - basic$(0.38) $(0.44) $(2.19) $(0.74)
Net loss per share attributable to common shareholders of the Company - diluted$(0.38) $(0.44) $(2.19) $(0.74)


Three Months Ended March 31,
20212020
Net loss attributable to common shareholders of the Company$(7,809)$(171,954)
Weighted average shares outstanding - basic106,204 92,902 
Effect of dilutive securities0 0 
Weighted average shares - diluted106,204 92,902 
Net loss per share attributable to common shareholders of the Company - basic$(0.07)$(1.85)
Net loss per share attributable to common shareholders of the Company - diluted$(0.07)$(1.85)
During the sixthree months ended June 30, 2020, 8,121March 31, 2021, 7,131 Fixed warrants, 9,349 restricted share units, 4,9293,087 Floating warrants, 4,441 Fixed Share RSUs, 2,431 Floating Share RSUs, 1,511 Fixed Share stock options, 2,123 Floating Share stock options and 24,34023,742 NCI convertible units were excluded from the calculation of net loss per share attributable to common shareholders of the Company - diluted, as they
34
ACREAGE HOLDINGS, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data)
were anti-dilutive. During the sixthree months ended June 30, 2019, 2,263March 31, 2020, 8,125 SVS warrants, 6,5479,158 SVS restricted share units, 4,9915,067 SVS stock options, 1,200 profits interests and 26,95224,612 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
Sale of Maryland Medicinal Research & Caring, LLCAcreage Florida

On August 11, 2020,In February 2021, the Company entered into a transactiondefinitive agreement to sell its ownership interests in Acreage Florida, Inc. (“Acreage Florida”) for an aggregate purchase price of sale for MMRC for $1,500 with$60,000, which included an upfront cash payment of $5,000. Acreage Florida is licensed to operate medical marijuana dispensaries, a buyer. The Company, when permitted byprocessing facility and a cultivation facility in the state law, will transfer allof Florida. On April 27, 2021, the definitive agreement was amended resulting in an aggregate remaining purchase price of approximately $16,500 in cash, $7,000 of the issuedbuyer’s common stock, and outstanding membership intereststhe issuance of MMRC tosecured promissory notes totaling $31,500 and the buyer. In the interim, and subject to regulatory approval, the buyer and MMRC will enter into a management services agreement for the management and operation of MMRC until such time as the Company can transfer the equity of MMRC to the buyer.
sale transaction was consummated.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.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 ourthe Company’s results of operations and financial condition. Historical results may not be indicative of future performance. This discussion includes forward-looking statements that reflect ourthe Company’s plans, estimates and beliefs. Such statements involve risks and uncertainties. OurThe Company’s 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 Item 1A of ourthe Annual Report on Form 10-K for the year ended December 31, 2019 filed with the SEC on May 29, 2020 (the “2019“2020 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 month period ended March 31, 2021 and related notes appearing elsewhere in this Quarterly Report on Form 10-Q (this “Quarterly Report” or “Form 10-Q”) and the 20192020 Form 10-K. Financial information presented in this MD&A is presented in thousands of United States (“U.S.”) dollars, unless otherwise indicated.

Cautionary Statement Regarding Forward Looking-Statements

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 with Canopy Growth Corporation (“Canopy Growth”), 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 is 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 future implications to the business, financial results and performance of the Company arising, directly or indirectly, from COVID-19;
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”);
the ability of the parties to satisfy, in a timely manner, the other conditions to the completion of the New Arrangement;
other expectations and assumptions concerning the transactions contemplated in the New Arrangement;
•the anticipated benefits of the NewAmended Arrangement;
•the occurrence or waiver of the Triggering Event (as described in Note 13), 13 of the unaudited condensed consolidated financial statements);
•the ability of Acreage to satisfy the conditions to closing of the Acquisition;
•the ability of Acreage to meets its performance targets and financial thresholds agreed upon with Canopy Growth as part of the NewAmended Arrangement, including those that are conditions to closing the New Arrangement;Acquisition;
•the likelihood of the Triggering Event being satisfied or waived by the outside date; in the event the New Arrangement is not adopted, the likelihood of completing the current plan of arrangement on the current terms;
in the event that the New Agreement is adopted, •the likelihood of Canopy Growth completing the acquisition of the Fixed Shares and/or Floating Shares;
•risks related to the ability to financing Acreage’s business and fund its obligations;
•other expectations and assumptions concerning the transactions contemplated between Canopy Growth and Acreage;
•the available funds of Acreage and the anticipated use of such funds;
•the availability of financing opportunities for Acreage and the risks associated with the completion thereof;
•regulatory and licensing risks;
•changes in general economic, business and political conditions, including changes in the financial and stock markets;
36


•risks related to infectious diseases, including the impacts of the novel coronavirus;
•legal and regulatory risks inherent in the cannabis industry;
•risks associated with economic conditions, dependence on management and currency risk;
•risks relating to U.S. regulatory landscape and enforcement related to cannabis, including political risks;


•risks relating to anti-money laundering laws and regulation;
•other governmental and environmental regulation;
•public opinion and perception of the cannabis industry;
•risks related to contracts with third-party service providers;
•risks related to the enforceability of contracts and lack of access to U.S. bankruptcy protections;
•reliance on the expertise and judgment of senior management of Acreage;
•risks related to proprietary intellectual property and potential infringement by third parties;
•the concentrated voting control of Acreage’s founder and the unpredictability caused by Acreage’s capital structure;
•risks relating to the management of growth;
•increasing competition in the industry;
•risks inherent in an agricultural business;
•risks relating to energy costs;
•risks associated to cannabis products manufactured for human consumption including potential product recalls;
•reliance on key inputs, suppliers and skilled labor;
•cybersecurity risks;
•ability and constraints on marketing products;
•fraudulent activity by employees, contractors and consultants;
•tax and insurance related risks;
•risks related to the economy generally;
•risk of litigation;
•conflicts of interest;
•risks relating to certain remedies being limited and the difficulty of enforcement judgments and effecting service outside of Canada;
•risks related to future acquisitions or dispositions;
•sales by existing shareholders; and
•limited research and data relating to cannabis.
A description of additional assumptions used to develop such forward-looking statements and a description of additional risk factors that may cause actual results to differ materially from forward-looking statements can be found in Part I, Item 1A of the Company’s Annual Report on Form 10-K, under the heading “Risk Factors”, dated March 25, 2021, as filed with the SEC on May 29, 2020.Securities and Exchange Commission. Although Acreage has attempted to identify important factors that could cause actual results to differ materially from those contained in forward-looking statements, there may be other factors that cause results not to be as anticipated, estimated or intended. Readers are cautioned that the foregoing list of factors is not exhaustive. Readers are further cautioned not to place undue reliance on forward-looking statements as there can be no assurance that the plans, intentions or
37


expectations upon which they are placed will occur. Forward-looking statements contained in this Form 10-Q are expressly qualified by this cautionary statement. The forward-looking statements contained in this Form 10-Q represent the expectations of Acreage as of the date of this Form 10-Q and, accordingly, are subject to change after such date. However, Acreage expressly disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as expressly required by applicable securities law.

Management’s discussion and analysis of financial condition and results of operations is intended to help provide an understanding of the Company’s financial condition, changes in financial condition and results of operations. This discussion is organized as follows:
•
•Overview—This section provides a general description of the Company’s businesses, as well as developments that occurred during the three months ended March 31, 2021 and 2020 that the Company believes are important in understanding its results of operations and financial condition or to disclose known trends.
•Results of Operations—This section provides an analysis of the Company’s results of operations for the three months ended March 31, 2021 and six months ended June 30, 2020 and 2019 that the Company believes are important in understanding its results of operations and financial condition or to disclose known trends.
•
Results of Operations—This section provides an analysis of the Company’s results of operations for the three and six months ended June 30, 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.
•
Liquidity and Capital Resources—This section provides an analysis of the Company’s cash flows for the six months ended June 30, 2020 and 2019, as well as a discussion on the Company’s outstanding debt and commitments that existed as of June 30, 2020. 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.
•Liquidity and Capital Resources—This section provides an analysis of the Company’s cash flows for the three months ended March 31, 2021 and 2020, as well as a discussion on the Company’s outstanding debt and commitments that existed as of March 31, 2021. Included in the discussion of outstanding debt is a discussion of the amount of financial capacity available to fund the Company’s future commitments and obligations, as well as a discussion of other financing arrangements.


Overview
Acreage, Holdings, Inc. (“Acreage”, “we”, “our” or the “Company”) is a vertically integrated, multi-state operator of cannabis licenses and assets in the U.S. OurU.S, was continued into the Province of British Columbia under the Business Corporations Act (British Columbia). Acreage Fixed Shares and Floating Shares (as such terms are defined at Note 13 of the unaudited condensed consolidated financial statements) are each listed on the Canadian Securities Exchange under the symbols “ACRG.A.U” and “ACRG.B.U”, respectively, and are quoted on the OTCQX® Best Market by OTC Markets Group under the symbols “ACRHF” and “ACRDF”, respectively and on the Open Market of the Frankfurt Stock Exchange under the symbols “0VZ1” and “0VZ2”, respectively. Acreage operates through its consolidated subsidiary High Street Capital Partners, LLC (“HSCP”), a Delaware limited liability company. HSCP, which does business as “Acreage Holdings”, was formed on April 29, 2014. The Company became an indirect parent of HSCP on November 14, 2018 in connection with a reverse takeover (“RTO”) transaction. The Company’s operations include (i) cultivating cannabis plants, (ii) manufacturing branded consumer products, (iii) distributing cannabis flower and manufactured products, and (iv) retailing high-quality, effective and dosable cannabis products to consumers. We appealThe Company appeals to medical and adult-use customers through brand strategies intended to build trust and loyalty.

Highlights from the sixthree months ended June 30, 2020March 31, 2021
We began adult-use sales at our•The Company achieved total consolidated revenue growth of 58% as compared with the three months ended March 31, 2020.
•The Company opened a third The Botanist dispensary in Illinois; the significantly increased sales have exceeded internal expectations. We also received zoning approval to open a dispensary in Chicago.Williamstown, New Jersey.
•The Company closed a refinancing transaction and conversionentered into an agreement to sell its operations in Florida, which is consistent with its overall strategy to focus on its core states.
•The Company extended the maturity date related to Northeast Patients Group, operating as Wellness Connection$21,000 of Maine (“WCM”), a medical cannabis business in Maine, resulting in ownership of WCM by three Maine residents, as required by Maine law. In connection with the transaction, WCM converted from a non-profit corporation to a for-profit corporation.
We raised $48,887, net of issuance costs, as part of a series of financing transactions that were announced on February 7, 2020.
•
We launched $22,000 3.55% Credit facility collateral loan.Leaf Trade, an e-commerce ordering and fulfillment platform to manage and market wholesale cannabis and hemp in Illinois.
•
We received Cannabis Control Commission provisional approval for adult-use sales at The Botanist locations in Worcester and Shrewsbury, Massachusetts.
We closed our acquisition of Compassionate Care Foundation, Inc. (“CCF”), a medical cannabis cultivator and dispenser in New Jersey.
Operational and Regulation Overview

We believe ourThe Company believes its operations are in material compliance with all applicable state and local laws, regulations and licensing requirements in the states in which we operate.it operates. However, cannabis is illegal under U.S. federal law. Substantially all ourof the Company’s revenue is derived from U.S. cannabis operations. For information about risks related to U.S. cannabis operations, please refer to Item 1A of the 2019Company’s Annual Report on Form 10-K.10-K for the year ended December 31, 2020.
38


Results of Operations
The following table presents selected financial data derived from the Unaudited Condensed Consolidated Financial Statementsunaudited condensed consolidated financial statements of the Company for the three and six months ended June 30, 2020March 31, 2021 and 2019.2020. The selected financial information set out below may not be indicative of the Company’s future performance.
Summary Results of Operations     Better/(Worse)     Better/(Worse)Summary Results of OperationsBetter/(Worse)
in thousands, except per share amounts Three Months Ended
June 30,		 2020 vs. 2019 Six Months Ended June 30, 2020 vs. 2019in thousands, except per share amountsThree Months Ended March 31,2021 vs. 2020
 2020 2019 $ % 2020 2019 $ %20212020$%
Revenues, net $27,072
 $17,745
 $9,327
 53% $51,297
 $30,642
 $20,655
 67 %Revenues, net$38,393 $24,225 $14,168 58 %
Operating loss (39,335) (45,660) 6,325
 14% (290,617) (77,673) (212,944) (274)%
Operating income (loss)Operating income (loss)1,806 (251,282)253,088 n/m
Net loss attributable to Acreage (37,192) (37,541) 349
 1% (209,146) (60,918) (148,228) (243)%Net loss attributable to Acreage(7,809)(171,954)164,145 95 %
Basic and diluted loss per share attributable to Acreage $(0.38) $(0.44) $0.06
 14% $(2.19) $(0.74) $(1.45) (196)%Basic and diluted loss per share attributable to Acreage$(0.07)$(1.85)$1.78 96 %
Revenues, net, cost of goods sold and gross profitmargin

The Company derives its revenues from sales of cannabis and cannabis-infused products through retail dispensary, wholesale and manufacturing and cultivation businesses, as well as from management or consulting fees from entities for whom we providethe Company provides management or consulting services. As of June 30, 2020,March 31, 2021, Acreage owned and operated five dispensaries in Oregon (three in Portland, one in Eugene and one in Springfield), four in New York (Buffalo, Farmingdale, Middletown, and Queens), three in New Jersey (Atlantic City, Egg Harbor and Williamstown), three in Connecticut (Bethel, South Windsor and Uncasville), two in Massachusetts (Worcester and Shrewsbury), two in Illinois (Chicago and Rolling Meadows), one in Worcester, MassachusettsMaine (South Portland) and one in Rolling Meadows, Illinois.Florida (Spring Hill). As of March 31, 2021, Acreage hashad cultivation facilities in Sinking


Spring, Pennsylvania, Sterling, Massachusetts, Syracuse, New York, Freeport, Illinois, Sanderson, Florida and Freeport, Illinois.Egg Harbor, New Jersey. Acreage also collectscollected management services revenues, substantially all in Maine.Maine and New Hampshire.
Gross profit is revenue less cost of goods sold. Cost of goods sold includeincludes costs directly attributable to inventory sold such as direct material, labor, and overhead.overhead, including depreciation. Such costs are further affected by various state regulations that limit the sourcing and procurement of cannabis and cannabis-related products, which may create fluctuations in gross profit over comparative periods as the regulatory environment changes.
Gross profitBetter/(Worse)
in thousandsThree Months Ended March 31,2021 vs. 2020
20212020$%
Retail revenue, net$25,847 $17,573 $8,274 47 %
Wholesale revenue, net10,016 6,548 3,468 53 %
Other revenue, net2,530 104 2,426 n/m
Total revenues, net$38,393 $24,225 $14,168 58 %
Cost of goods sold, retail(13,082)(10,889)(2,193)(20)%
Cost of goods sold, wholesale(4,690)(3,382)(1,308)(39)%
Total cost of goods sold$(17,772)$(14,271)$(3,501)(25)%
Gross profit$20,621 $9,954 $10,667 107 %
Gross margin54 %41 %13 %
Gross profit     Better/(Worse)     Better/(Worse)
in thousands Three Months Ended
June 30,		 2020 vs. 2019 Six Months Ended June 30, 2020 vs. 2019
  2020 2019 $ % 2020 2019 $ %
Retail revenue, net $19,875
 $13,351
 $6,524
 49 % $37,448
 $23,260
 $14,188
 61 %
Wholesale revenue, net 7,167
 4,128
 3,039
 74 % 13,715
 6,943
 6,772
 98 %
Other revenue, net 30
 266
 (236) (89)% 134
 439
 (305) (69)%
Total revenues, net $27,072
 $17,745
 $9,327
 53 % $51,297
 $30,642
 $20,655
 67 %
Cost of goods sold, retail (11,981) (8,193) (3,788) (46)% (22,870) (14,074) (8,796) (62)%
Cost of goods sold, wholesale (3,880) (1,939) (1,941) (100)% (7,262) (3,635) (3,627) (100)%
Total cost of goods sold $(15,861) $(10,132) $(5,729) (57)% $(30,132) $(17,709) $(12,423) (70)%
Gross profit $11,211
 $7,613
 $3,598
 47 % $21,165
 $12,933
 $8,232
 64 %
Gross margin 41% 43%   (2)% 41% 42%   (1)%
RevenueTotal revenue increased 53% and 67%by $14,168 or 58% for the three and six months ended March 31, 2021, as compared to the corresponding period of fiscal 2020. Excluding the increase in other revenues, net, which was driven by increased management services revenue, total revenue increased 49% for the three months ended March 31, 2021, as compared to the corresponding period of fiscal 2020.
Retail revenue saw an increase of 47% for the three months ended March 31, 2021, as compared to the corresponding period of fiscal 2020. The increase in retail revenue, net of $8,274 for the three months ended March 31, 2021, was primarily driven by increased demand and production across various states of $5,344 (primarily Illinois, Massachusetts, New York, Maine, Connecticut and Florida), along with CCF ($4,363) driven by its acquisition in June 30, 2020, respectively,2020. Specific drivers of increased demand included, i) the opening of another adult-use dispensary in Illinois, ii) the launching of new The Botanist branded products into
39


the retail channel in Ohio and New York, iii) the opening of new stores in New York and iv) increased business in Massachusetts and Connecticut. These increases were partially offset by the net impact of the divestitures and decreased demand and production in non core states.
Wholesale revenue increased 53% for the three months ended March 31, 2021, as compared to the corresponding periods of fiscal 2019.2020. The increaseincreases in retail revenue, net was primarily due to increased demand and production across various states. The increase inwholesale revenue for the sixthree months ended June 30, 2020 was further driven by the impact of NCC being acquired and fully operational since March 2019. These increases31, 2021 were partially offset by the divestiture of Acreage North Dakota, LLC in May 2020. The increase in wholesale revenue, net was primarily due to increased capacity, coupled with maturing operations in ourat the Company’s Pennsylvania, Massachusetts, Pennsylvania and Illinois cultivation facilities. This resulted in higher yields and product mix in each of the respective markets.
Cost of goods soldOther revenue increased 57% and 70% for the three and six months ended June 30, 2020, respectively,March 31, 2021, as compared to the corresponding period of fiscal 2020, primarily due to the recognition of previously unrecognized management fees in New Hampshire, some of which relates to prior periods.
While total revenues increased 58%, total costs of goods sold only increased 25% for the three months ended March 31, 2021, as compared with the corresponding periods of fiscal 2019. Cost2020.
Retail cost of goods sold increased 20% for the three months ended March 31, 2021, as compared to the corresponding period of fiscal 2020, and below the 47% increase in retail revenue. While retail cost of goods sold increased in linedue to the volume increase associated with the retail revenue increases. Costgrowth, the rate of goods sold, wholesale increasedgrowth was lower primarily as a result of increasesthe Company’s vertically integrated sales and distribution channels.
Wholesale cost of goods sold increased 39% for the three months ended March 31, 2021, as compared to the corresponding period of fiscal 2020, and below the 53% increase in wholesale revenue. While wholesale cost of goods sold increased due to the volume increase associated with the wholesale revenue growth, the rate of growth was lower as a result of production efficiencies being achieved. In addition, wholesale cost of goods sold for the increase was furthercomparative period were driven by the initial set up costs and consequential expansion impact of various cultivation facilities with increased efforts duringthat did not occur in the latter half of 2019 through 2020. Thecurrent period. Finally, the suspension of operations at Form Factory Holdings, LLC (“Form Factory”), a manufacturer and distributor of cannabis-based edibles and beverages, since March 2020 further increasedpartially offset the increase in costs of wholesale goods sold wholesalein the current period, as a result of consequential inventory write-offs.write-offs that were recognized in the comparable period.
The increase in gross profit was driven by the factors discussed above.
Gross margin for the three months ended June 30, 2020March 31, 2021 was 41.4%53.7%, compared to 42.9%41.1% for the three months ended June 30, 2019. GrossMarch 31, 2020. The increase in gross margin forwas driven by the six months ended June 30, 2020 was 41.3%, compared to 42.2% for the six months ended June 30, 2019.factors discussed above.
Revenue by geography
While the Company operates under one operating segment, the production and sale of cannabis products, the below revenue breakout by geography is included as management believes it provides relevant and useful information to investors.


Revenue by region     Better/(Worse)     Better/(Worse)Revenue by regionBetter/(Worse)
in thousands Three Months Ended June 30, 2020 vs. 2019 Six Months Ended June 30, 2020 vs. 2019in thousandsThree Months Ended March 31,2021 vs. 2020
 2020 2019 $ % 2020 2019 $ %20212020$%
New England $12,600
 $8,533
 $4,067
 48 % $23,923
 $15,617
 $8,306
 53%New England$18,056 $11,323 $6,733 59 %
Mid-Atlantic 7,319
 4,530
 2,789
 62 % 14,405
 7,623
 6,782
 89%Mid-Atlantic12,135 7,086 5,049 71 %
Midwest 4,286
 1,821
 2,465
 135 % 7,229
 2,417
 4,812
 199%Midwest5,872 2,943 2,929 100 %
West 2,578
 2,861
 (283) (10)% 5,381
 4,985
 396
 8%West1,859 2,803 (944)(34)%
South 289
 —
 289
 n/m
 359
 —
 359
 n/m
South471 70 401 573 %
Total revenues, net $27,072
 $17,745
 $9,327
 53 % $51,297

$30,642
 $20,655
 67%Total revenues, net$38,393 $24,225 $14,168 58 %
                
n/m - Not Meaningful                n/m - Not Meaningful
Total operating expenses

Total operating expenses consist primarily of compensation expense at ourthe Company’s corporate offices as well as operating subsidiaries, impairment losses, professional fees, which includes, but is not limited to, legal and accounting services, depreciation and other general and administrative expenses.
40


Operating expenses     Better/(Worse)     Better/(Worse)Operating expensesBetter/(Worse)
in thousands Three Months Ended
June 30,		 2020 vs. 2019 Six Months Ended June 30, 2020 vs. 2019in thousandsThree Months Ended March 31,2021 vs. 2020
 2020 2019 $ % 2020 2019 $ %20212020$%
General and administrative $12,386
 $17,904
 $5,518
 31% $25,418
 $28,062
 $2,644
 9 %General and administrative$9,218 $13,032 $3,814 29 %
Compensation expense 7,957
 11,252
 3,295
 29% 22,434
 17,741
 (4,693) (26)%Compensation expense10,362 14,477 4,115 28 %
Equity-based compensation expense 20,187
 20,693
 506
 2% 54,924
 39,670
 (15,254) (38)%Equity-based compensation expense6,042 34,737 28,695 83 %
Marketing 481
 1,201
 720
 60% 1,468
 2,002
 534
 27 %Marketing12 987 975 99 %
Loss on impairment —
 —
 —
 n/m
 187,775
 —
 (187,775) n/m
Impairments, netImpairments, net818 187,775 186,957 100 %
Loss on notes receivable —
 —
 —
 n/m
 8,161
 —
 (8,161) n/m
Loss on notes receivable— 8,161 8,161 n/m
Write down of assets held-for-sale 8,110
 —
 (8,110) n/m
 8,110
 —
 (8,110) n/m
Recovery of assets held-for-saleRecovery of assets held-for-sale(8,616)— 8,616 n/m
Legal settlements, netLegal settlements, net10 — (10)n/m
Depreciation and amortization 1,425
 2,223
 798
 36% 3,492
 3,131
 (361) (12)%Depreciation and amortization969 2,067 1,098 53 %
Total operating expenses $50,546
 $53,273
 $2,727
 5% $311,782
 $90,606
 $(221,176) (244)%Total operating expenses$18,815 $261,236 $242,421 93 %
                
n/m - Not Meaningful                n/m - Not Meaningful
Total operating expenses for the three months ended March 31, 2021 were $18,815, a decrease of $242,421 or 93% from the corresponding period of fiscal 2020. The primary drivers of the decrease in operating expenses were as follows:
•General and administrative expenses decreased during the three months ended March 31, 2021, as compared to the corresponding period of fiscal 2020, primarily due to a reduction of legal fees and rental and lease expenses incurred.
•Compensation expense decreased during the three months ended June 30, 2020,March 31, 2021, as compared to the corresponding period of fiscal 2019,2020, primarily due to a reduction in costs related to reorganization efforts including a suspension of operations at Form Factory since March 2020. Compensationundertaken in the previous period.
•Equity-based compensation expense increaseddecreased during the sixthree months ended June 30, 2020,March 31, 2021, as compared to the corresponding period of fiscal 2019,2020, primarily driven by stock compensationdue to attractcosts related to the reorganization efforts undertaken in the previous period, resulting in the acceleration of restricted share vesting for Form Factory employees and retain talentpreviously issued awards becoming fully vested and increased headcount to scale our operations. General and administrativecancelled in the prior period.
•Marketing expenses decreased during the three and six months ended June 30, 2020,March 31, 2021, as compared to the corresponding periodsperiod of fiscal 2019,2020, primarily due to higher acquisitionsignificantly reduced marketing activities in the current period.
•Impairment expenses, net for the corresponding three months ended March 31, 2020 included impairment charges related interim intangible and due diligence activitygoodwill impairment testing undertaken in the prior year. period due to the triggering event caused by the COVID-19 pandemic, as further discussed in Note 4 in the unaudited condensed consolidated financial statements. No such impairment charge was required in the three months ended March 31, 2021.
•Loss on notes receivable decreased during the three months ended March 31, 2021, as compared to the corresponding period of fiscal 2020, as there were no similar write-offs of notes receivable in the current period.
•During the three and six monthsyear ended June 30,December 31, 2020, the Company determined certain businesses and assets met the held-for-sale criteria. In accordance with ASC 360-10, Property, Plant and Equipment, the assessed disposal groups for such assets held-for-sale were written down to fair value less costs to sell, resulting in the recognition of write down charges. During the three months ended March 31, 2021, the Company entered in a chargedefinitive agreement to sell its Acreage Florida disposal group at a purchase price in excess of $8,110. Thethe previously estimated fair value less costs to sell. Accordingly, the Company recognized an impairment loss ona recovery of assets held-for-sale related to its Acreage Florida disposal group related to the previously recognized write-down of assets held-for-sale. Refer to Notes 3 and 17 in the unaudited condensed consolidated financial statements for further discussion.
•Depreciation and amortization expenses decreased during the three months ended March 31, 2021, compared to the corresponding period of fiscal 2020, due a lower net carrying value of certain fixed assets and intangible assets during the six months ended June 30, 2020on which depreciation and amortization expense is determined as a result of our interimprior period impairment testing, primarily due to declines in future cash flow projections at Form Factory and certain cannabis licenses and management services contracts. These impairments resulted in the recognition of a tax provision benefit and an associated reversal of deferred tax liabilities of $31,316 and $31,398 during the three and six months ended June 30, 2020, respectively. The Company recognized a loss on notes receivable and associated accrued interest during the six months ended June 30, 2020, as it was determined that the note was no longer collectible.charges.
41




Total other (loss) income
Other (loss) incomeBetter/(Worse)
in thousandsThree Months Ended March 31,2021 vs. 2020
20212020$%
(Loss) income from investments, net$(144)$234 $(378)n/m
Interest income from loans receivable1,465 1,647 (182)(11)%
Interest expense(4,857)(1,226)(3,631)(296)%
Other loss, net(1,566)(174)(1,392)(800)%
Total other (loss) income$(5,102)$481 $(5,583)n/m
n/m - Not Meaningful
Other income     Better/(Worse)     Better/(Worse)
in thousands Three Months Ended
June 30,		 2020 vs. 2019 Six Months Ended June 30, 2020 vs. 2019
  2020 2019 $ % 2020 2019 $ %
Income (loss) from investments, net $4
 $(499) $503
 n/m
 $238
 $2,228
 $(1,990) (89)%
Interest income from loans receivable 1,830
 1,001
 829
 83% 3,477
 1,731
 1,746
 101 %
Interest expense (3,733) (131) (3,602) n/m
 (4,959) (249) (4,710) n/m
Other loss, net (23) (2,400) 2,377
 99% (197) (2,308) 2,111
 91 %
Total other (loss) income $(1,922) $(2,029) $107
 5% $(1,441) $1,402
 $(2,843) n/m
                 
n/m - Not Meaningful                
Income from investments,Interest expense, net increased during the three months ended June 30, 2020,March 31, 2021, compared to the corresponding period of fiscal 2019 due to mark-to-market fluctuations in our portfolio. Income from investments, net decreased during the six months ended June 30, 2020, compared to the corresponding period of fiscal 2019 due to the roll up of our investments in certain consolidated subsidiaries, and the absence of treasury bills in the current period. Interest expenseCompany’s increased duringdebt financing transactions primarily undertaken subsequent to the three and six months ended June 30, 2020, compared to the corresponding periods of fiscal 2019 primarily due to the effects of increased financing transactions as well as the Company’s failed sale-leaseback transaction. Interest income from loans receivable increased during the three and six months ended June 30, 2020, compared to the corresponding periods of fiscal 2019 as our amount of outstanding loans increased.March 31, 2020. The improvement to increase in Other loss, net was driven by higher expensesprimarily related to day one charges forhigher losses on the acquisitiondisposal of capital assets related to Form Factory incurred during the three and six months ended June 30, 2019.March 31, 2021.
Net loss
Net loss     Better/(Worse)     Better/(Worse)Net lossBetter/(Worse)
in thousands Three Months Ended
June 30,		 2020 vs. 2019 Six Months Ended June 30, 2020 vs. 2019in thousandsThree Months Ended March 31,2021 vs. 2020
 2020 2019 $ % 2020 2019 $ %20212020$%
Net loss $(44,370) $(49,265) $4,895
 10% $(266,599) $(80,069) $(186,530) (233)%Net loss$(8,642)$(222,229)$213,587 96 %
Less: net loss attributable to non-controlling interests (7,178) (11,724) 4,546
 39% (57,453) (19,151) (38,302) (200)%Less: net loss attributable to non-controlling interests(833)(50,275)49,442 98 %
Net loss attributable to Acreage Holdings, Inc. $(37,192) $(37,541) $349
 1% $(209,146) $(60,918) $(148,228) (243)%Net loss attributable to Acreage Holdings, Inc.$(7,809)$(171,954)$164,145 95 %
The increases in net loss are driven by the factors discussed above.
LIQUIDITY AND CAPITAL RESOURCES
Liquidity
Sources and uses of cash
OurThe Company’s primary uses of capital include operating expenses, capital expenditures and the servicing of outstanding debt and operating expenses. Ourdebt. The Company’s primary sources of capital include funds generated by cannabis sales as well as financing activities. Through June 30, 2020, we haveMarch 31, 2021, the Company had primarily used private financing as a source of liquidity for short-term working capital needs and general corporate purposes.
In May andMarch 2021, the Company extended the maturity date related to $21,000 of the $22,000 aggregate amount of the loan transaction to June 2020, we closed on two separate financing transactions30, 2021, as described in detail in Note 10 to the Unaudited Condensed Consolidated Financial Statements. Ourunaudited condensed consolidated financial statements.
The Company’s ability to fund ourits operations, capital expenditures, acquisitions, and other obligations depends on ourits future operating performance and ability to obtain financing, which are subject to prevailing economic conditions, as well aas financial, business and other factors, some of which are beyond ourthe Company’s control.
We expectThe Company expects that ourits cash on hand and cash flows from operations, along with ourits ability to obtain private and/or public financing, will be adequate to support the capital needs of the existing operations as well as expansion plans for the next 12 months. While ourthe Company’s liquidity risk has increased since ourits RTO transaction as a result of the Company’s rapid growth and continued expansion, which resulted in negative operating cash flow for the year ended December 31, 2019, we believe we have2020, the Company believes it has alleviated the risk. Please see the disclosures under “Basis of presentation and going concern” in Note 2 to our Unaudited Condensed Consolidated Financial Statements.the unaudited condensed consolidated financial statements.

42



Cash flows
Cash and cash equivalents and restricted cash were $36,074$45,941 as of June 30, 2020, a declineMarch 31, 2021, an increase of $48,510$9,902 from June 30, 2019.March 31, 2020. The following table summarizes the change in cash, cash equivalents and restricted cash for the sixthree months ended June 30, 2020March 31, 2021 and 2019.2020.
Cash flows     Better/(Worse)Cash flowsBetter/(Worse)
in thousands Six Months Ended June 30, 2020 vs. 2019in thousandsThree Months Ended March 31,2021 vs. 2020
 2020 2019 $ %20212020$%
Net cash used in operating activities $(39,318) $(37,246) $(2,072) (6)%Net cash used in operating activities$(1,589)$(25,401)$23,812 94 %
Net cash (used in) provided by investing activities (28,638) 41,074
 (69,712) n/m
Net cash provided by (used in) financing activities 77,430
 (24,282) 101,712
 n/m
Net increase (decrease) in cash, cash equivalents and restricted cash $9,474
 $(20,454) $29,928
 n/m
Net cash used in investing activitiesNet cash used in investing activities(6,530)(19,319)12,789 66 
Net cash (used in) provided by financing activitiesNet cash (used in) provided by financing activities(579)54,159 (54,738)n/m
Net (decrease) increase in cash, cash equivalents and restricted cashNet (decrease) increase in cash, cash equivalents and restricted cash$(8,698)$9,439 $(18,137)n/m
n/m - Not Meaningful        n/m - Not Meaningful
Net cash used in operating activities

The increasesdecrease in cash used in operating activities werewas primarily driven by an increasethe improvement in compensation expenses during the sixnet operating income (loss) for the three months ended June 30, 2020,March 31, 2021 as compared to the corresponding period of fiscal 2019.
The2020. Excluding non-cash items such as impairments, write-offs and depreciation and amortization in the net operating income (loss), this improved operating income was a result of revenue increases exceeding increases in costs of goods sold and a decrease in compensation, marketing and general and administrative expenses. Additionally, improvements in working capital help to drive the decrease in cash used in operating activities were primarily driven by an increase in general and administrative and compensation expenses during the six months ended June 30, 2019, as compared to the corresponding period of fiscal 2018.activities.
Net cash used in investing activities

Cash used in investing activities during the sixthree months ended June 30, 2020, as compared to the corresponding period of fiscal 2019March 31, 2021, was primarily driven by the acquisition of Compassionate Care Foundation, Inc. (“CCF”) for $9,983, net of cash acquired, $7,880$5,421 spent on capital expenditures to build out ourthe Company’s owned operations and $12,900$1,143 advanced to entities, net of collections, with which we havethe Company has a management or consulting services arrangement. This is partially offset by proceeds received from the sale of capital assets and the proceeds from the sale of Acreage North Dakota, LLC for $1,102 and $997, respectively.
Cash provided byused in investing activities during the sixthree months ended June 30, 2019March 31, 2020, was primarily driven by the maturing of short-term investments, which contributed $149,828. Partially offsetting this cash receipt were cash disbursements of $76,917 spent on the advanced payments and purchases of cannabis license holders and management contracts, $20,291$7,790 spent on capital expenditures to build out ourthe Company’s owned operations and $11,550$11,560 advanced to entities, net of collections, with which we havethe Company has a management or consulting services arrangement.
Net cash (used in) provided by (used in) financing activities

Cash used in financing activities during the three months ended March 31, 2021 was primarily driven by the repayment of debt of $2,070, partially offset by $1,190 related to financing proceeds.
Cash provided by financing activities during the sixthree months ended June 30,March 31, 2020 was primarily driven by proceeds from raising $27,887 as a result ofthrough the issuance of warrants, $46,000$19,438 related to financing proceeds,a draw down associated with a credit facility, as well as $22,000 related to the collateral received pursuant to a portion of the financing proceeds.draw down. This iswas partially offset by the repayment of short-term related party debt of $15,000 as well as payments of deferred financing costs of $3,181.$15,000.

43


Cash used in financing activities during the six months ended June 30, 2019 was primarily driven by $12,075 in debt repayments, $4,298 paid to settle taxes withheld, and $4,298 related to net capital distributions for non-controlling interests.
Capital Resources
Capital structure and debt
OurThe Company’s debt outstanding as of June 30, 2020 isMarch 31, 2021 was as follows:
Debt balancesJune 30, 2020
NCCRE loan$481
Seller’s notes2,679
Financing liability (related party)15,253
Finance lease liabilities5,998
SAF loan19,638
SAF loan collateral (related party)23,358
Convertible note, net of debt discount9,288
Bridge loan14,173
Total debt$90,868
Less: current portion of debt47,009
Total long-term debt$43,859
Debt balancesMarch 31, 2021
Seller’s notes2,581 
Financing liability (related party)15,253 
Finance lease liabilities5,190 
3.55% Credit facility due 202120,215 
3.55% Credit facility collateral (related party)20,845 
7.5% Loan due 2023 (related party)32,203 
6.1% Secured debenture due 2030 (related party)46,185 
Hempco Foros promissory note2,000 
Senior secured term loan facility23,200 
Construction financing loan6,090 
Canwell promissory note6,750 
Total debt$180,512
Less: current portion of debt47,642 
Total long-term debt$132,870
Commitments and contingencies
SeeRefer to Note 13–Commitments and Contingencies. 13 of the unaudited condensed consolidated financial statements.

Item 3. Quantitative and Qualitative Disclosures About Market Risk.Risk
The Company has exposure to the following risks from its use of financial instruments and other risks to which it is exposed and assesses the impact and likelihood of those risks. These risks include market, credit, liquidity, asset forfeiture, banking and interest rate risk.
Market risk

Strategic and operational risks arise if the Company fails to carry out business operations and/or to raise sufficient equity and/or debt financing. These strategic opportunities or threats arise from a range of factors that might include changing economic and political circumstances and regulatory approvals and competitor actions. The risk is mitigated by consideration of other potential development opportunities and challenges which management may undertake.
Credit risk

The Company’s exposure to non-payment or non-performance by its counterparties is a credit risk. The maximum credit exposure as of June 30, 2020,March 31, 2021, is the carrying amount of cash and cash equivalents, restricted cash, and accounts, notes and other receivables. The Company does not have significant credit risk with respect to customers. The Company mitigates its credit risk on its notes and other receivables by securing collateral, such as capital assets, and by its review of the counterparties and their businesses. The Company considers a variety of factors when determining interest rates for notes receivable, including the creditworthiness of the counterparty, market interest rates prevailing at the note’s origination, and duration and terms of the note. The Company determined expected credit losses to be immaterial due to collateral held. Analysis of collateral held and future expected cash flows within the cannabis industry were considered in its expected credit loss assessment.
Liquidity risk

Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they become due. The Company endeavors to ensure that there is sufficient liquidity in order to meet short-term business requirements, after taking into account the Company’s cash holdings. As of June 30, 2020,March 31, 2021, the Company’s financial liabilities consist of accounts payable and accrued


liabilities, lease liabilities and long-term debt. The Company manages its liquidity risk by reviewing its capital requirements on an ongoing basis.
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As reflected in the Unaudited Condensed Consolidated Financial Statements,unaudited condensed consolidated financial statements, the Company had an accumulated deficit as of June 30, 2020,March 31, 2021, as well as a net loss and negative cash flow from operating activities for the reporting period then ended. 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 of ourthe Company’s ability to meet ourits obligations for the next twelve months from the date these financial statements were first made available has been alleviated due to, but not limited to, (i) access to future capital commitments, (ii) continued sales growth from ourthe Company’s consolidated operations, (iii) latitude as to the timing and amount of certain operating expenses as well as capital expenditures, (iv) restructuring plans that have already been put in place to improve the Company’s profitability, (See Note 3 of the Unaudited Condensed Consolidated Financial Statements), and (v) the Standby Equity Distribution Agreement described in(refer to Note 13 of the Unaudited Condensed Consolidated Financial Statements.unaudited condensed consolidated financial statements for further discussion) and (vi) the anticipated Non-Core Divestitures (refer to Note 3 of the unaudited condensed consolidated financial statements for further discussion). 

If the Company is unable to raise additional capital whenever necessary, it may be forced to decelerate or curtail its footprint buildout 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 ourits 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 ourthe Company’s need to raise additional capital on an immediate basis.
Asset forfeiture risk

Because the cannabis industry remains illegal under U.S. federal law, any property owned by participants in the cannabis industry which are either used in the course of conducting such business, or are the proceeds of such business, could be subject to seizure by law enforcement and subsequent civil asset forfeiture. Even if the owner of the property were never charged with a crime, the property in question could still be seized and subject to an administrative proceeding by which, with minimal due process, it could be subject to forfeiture.
Banking risk

Notwithstanding that a majority of states have legalized medical marijuana, there has been no change in U.S. federal banking laws related to the deposit and holding of funds derived from activities related to the marijuana industry. Given that U.S. federal law provides that the production and possession of cannabis is illegal, there is a strong argument that banks cannot accept for deposit funds from businesses involved with the marijuana industry. Consequently, businesses involved in the marijuana industry often have difficulty accessing the U.S. banking system and traditional financing sources. The inability to open bank accounts with certain institutions may make it difficult to operate the businesses of the Company, its subsidiaries and investee companies, and leaves their cash holdings vulnerable. The Company has banking relationships in all jurisdictions in which it operates.
In addition, the Company maintains cash with various U.S. banks and 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 condition, results of operations and the market price of the Company’s Subordinate Voting Shares.

Interest rate risk

Interest rate risk is the risk that the fair value or the future cash flows of a financial instrument will fluctuate as a result of changes in market interest rates. The Company’s interest-bearing loans and borrowings are all at fixed interest rates. The Company considers cash flow interest rate risk to be immaterial.
Capital risk management

The Company considers its capital structure to include contributed capital, accumulated deficit, non-controlling interests and any other component of equity. The Company’s objectives when managing its capital are to safeguard its ability to continue as a going concern, to meet its capital expenditures for its continued operations and to maintain a flexible capital structure which optimizes the cost of capital within a framework of acceptable risk. The Company manages its capital structure and adjusts it as appropriate given changes in economic conditions and the risk characteristics of the underlying assets. To maintain or adjust its
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capital structure,


the Company may issue new shares, issue new debt, or acquire or dispose of assets. The Company is not subject to externally imposed capital requirements.
Management reviews its capital management approach on an ongoing basis and believes that this approach, given the relative size of the Company, is reasonable.
As reflected in the Unaudited Condensed Consolidated Financial Statements,unaudited condensed consolidated financial statements, the Company had an accumulated deficit as of June 30, 2020,March 31, 2021, as well as a net loss and negative cash flow from operating activities for the reporting period then ended. 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 of ourthe Company’s ability to meet ourits obligations for the next twelve months from the date these financial statements were first made available has been alleviated due to, but not limited to, (i) capital raised between January and June 2020, (ii) access to future capital commitments, (iii)(ii) continued sales growth from ourthe Company’s consolidated operations, (iv)(iii) latitude as to the timing and amount of certain operating expenses as well as capital expenditures, (v)(iv) restructuring plans that have already been put in place to improve the Company’s profitability, and (vi)(v) the Standby Equity Distribution Agreement described in(refer to Note 13 of the Unaudited Condensed Consolidated Financial Statements. unaudited condensed consolidated financial statements for further discussion) and (vi) the anticipated Non-Core Divestitures (refer to Note 3 of the unaudited condensed consolidated financial statements for further discussion).

If the Company is unable to raise additional capital whenever necessary, it may be forced to decelerate or curtail its footprint buildout 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 ourits 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 ourthe Company’s need to raise additional capital on an immediate basis.


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Item 4. Controls and Procedures.Procedures
Evaluation of Disclosure Controls and Procedures

Based on an evaluation under the supervision and with the participation of the Company’s management, the Company’s principal executive officer and principal financial officer have concluded that the Company’s disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act were effective as of June 30, 2020for the period ending March 31, 2021 to provide reasonable assurance that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is (i) recorded, processed, summarized and reported within the time periods specified in the SEC rules and forms and (ii) accumulated and communicated to the Company’s management, including its principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.

Inherent Limitations Over Internal Controls

The Company’s internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. generally accepted accounting principles (“GAAP”).GAAP. The Company’s internal control over financial reporting includes those policies and procedures that:

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

Management, including the Company’s Chief Executive Officer and Chief Financial Officer, does not expect that the Company’s internal controls will prevent or detect all errors and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of internal controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected. Also, any evaluation of the effectiveness of controls in future periods are subject to the risk that those internal controls may become inadequate because of changes in business conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In accordance with guidance issued by the SEC, companies are permitted to exclude acquisitions from their final assessment of internal control over financial reporting for the first fiscal year in which the acquisition occurred. Management, including the Chief Executive Officer and Chief Financial Officer, has limited the evaluation of ourthe Company’s internal controls over financial reporting to exclude controls, policies and procedures and internal controls over financial reporting of the recently acquired operations of:

•Compassionate Care Foundation, Inc. (“CCF”) (acquired June 26, 2020)


The operations of CCF represents approximately 5% of ourthe Company’s total assets as of June 30, 2020March 31, 2021 and 0%12% of ourthe Company’s gross revenue for the sixthree months endedJune 30, 2020. March 31, 2021.

Changes in Internal Control Over Financial Reporting

There were no changes in the Company’s internal control over financial reporting during the secondfirst quarter of 2020,2021, which were identified in connection with management’s evaluation required by paragraph (d) of Rules 13a-15 and 15d-15 under the Exchange Act, that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.


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PART II
Item 1. Legal Proceedings.Proceedings
For information on legal proceedings, seerefer to Note 13 to the condensed consolidated financial statements included this report.

Item 1A. Risk Factors.Factors
There have been no material changes to the risk factors described in the section titled “Risk Factors” in the 2019Company’s Annual Report on Form 10-K.10-K for the year ended December 31, 2020.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.Proceeds
None.

Item 3. Defaults Upon Senior Securities.Securities
None.

Item 4. Mine Safety Disclosures.Disclosures
Not applicable.

Item 5. Other Information.Information
Not applicable.




Item 6. Exhibits.
 Incorporated by Reference  Incorporated by Reference
Exhibit No.Description of DocumentSchedule FormFile NumberExhibit Filing Date Filed or Furnished HerewithExhibit No.Description of DocumentSchedule FormFile NumberExhibitFiling DateFiled or Furnished Herewith
10.1
Proposal Agreement, dated as of June 24, 2020 by and between Canopy Growth Corporation and Acreage Holdings, Inc.
8-K
000-56021
2.1
 
6/30/2020
  
10.1
Letter amending the Standby Equity Distribution Agreement by and between the Institutional Investor and Acreage Holdings, Inc., dated January 25, 2021
8-K
000-56021
10.21/28/21
10.2
10.2
Letter amending the Standby Equity Distribution Agreement by and between the Institutional Investor and Acreage Holdings, Inc., dated March 11, 2021
10-K
000-56021
10.313/25/21
10.2
10.2
Stock Purchase Agreement by and among RWB Florida LLC, Red, White & Bloom Inc., High Street Capital Partners, LLC and Acreage Florida, Inc. dated February 24, 2021
10-K
000-56021
10.283/25/21
10.3
10.3
Amendment No. 3 to Credit Agreement by and among Acreage Finance Delaware, LLC, Acreage IP Holdings, LLC and IP Investment Company, LLC, originally dated as of March 11, 2020.
8-K
000-56021
10.23/11/21
10.410.4X
10.8
10.8
Separation Agreement between Tyson Macdonald and Acreage Holdings, Inc., effective March 9, 2020
S-1
333-252828
10.222/8/21
10.10
10.10
Offer of Employment Letter, dated February 15, 2021, by and between Acreage Holdings, Inc. and Steve Goertz
8-K
000-56021
10.12/26/21
10.11
10.11
Amendment No. 2 to Credit Agreement by and among Acreage Finance Delaware, LLC, Acreage IP Holdings, LLC and IP Investment Company, LLC, originally dated as of March 11, 2020.
8-K
000-56021
10.13/11/21
31.1
Certification of Periodic Report by Principal Executive Officer under Section 302 of the Sarbanes-Oxley Act of 2002.
    X31.1X
31.2
Certification of Periodic Report by Principal Financial Officer under Section 302 of the Sarbanes-Oxley Act of 2002.
    X31.2X
32.1
Certification of Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*
    X32.1X
101Attached as Exhibit 101 to this report are the following documents formatted in iXBRL (Extensible Business Reporting Language): (i) Condensed Consolidated Statements of Financial Position as of June 30, 2020 (unaudited) and December 31, 2019 (audited), (ii) Unaudited Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2020 and June 30, 2019, (iii) Unaudited Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2020 and June 30, 2019, (iv) Unaudited Condensed Consolidated Statements of Shareholders’ Equity for the three and six months ended June 30, 2020 and June 30, 2019 and (v) Notes to Unaudited Condensed Consolidated Financial Statements.    X101Attached as Exhibit 101 to this report are the following documents formatted in iXBRL (Extensible Business Reporting Language): (i) Condensed Consolidated Statements of Financial Position as of March 31, 2021 (unaudited) and December 31, 2020 (audited), (ii) Unaudited Condensed Consolidated Statements of Operations for the three months ended March 31, 2021 and March 31, 2020, (iii) Unaudited Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2021 and March 31, 2020, (iv) Unaudited Condensed Consolidated Statements of Shareholders’ Equity for the three months ended March 31, 2021 and March 31, 2020 and (v) Notes to Unaudited Condensed Consolidated Financial Statements.X
      
* Document has been furnished, is not deemed filed and is not to be incorporated by reference into any of the Company’s filings under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, irrespective of any general incorporation language contained in any such filing.





SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
Date: August 14, 2020
May 10, 2021
Acreage Holdings, Inc.
(Registrant)
Acreage Holdings, Inc.By:/s/ Steve Goertz
(Registrant)Steve Goertz
By:/s/ Glen Leibowitz
Glen Leibowitz
Chief Financial Officer



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