SEC Filing - Ascend Wellness Holdings

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aawh-20210930

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

__________________________

FORM 10-Q

(Mark One)


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

For the quarterly period ended September 30, 2021


☐			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: 333-254800

https://cdn.kscope.io/bb0823b271f0fe3ed2a49003ba9c559f-aawh-20210930_g1.jpg

ASCEND WELLNESS HOLDINGS, INC.

(Exact name of registrant as specified in its charter)


Delaware						83-0602006
(State or other jurisdiction of incorporation or organization)						(I.R.S. Employer Identification No.)

__________________________

1411 Broadway

16th Floor

New York, NY 10018

(Address of principal executive offices)

(646) 661-7600

(Registrant’s telephone number, including area code)

None

(Former name, former address and former fiscal year, if changed since last report)

__________________________

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

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

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

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

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

Large accelerated filer

☐

Accelerated filer

☐

Non-accelerated filer

☒

Smaller reporting company

☐

Emerging growth company

☒

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

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

As of November 9, 2021, there were 172,595,306 shares of the registrant’s Class A common stock, par value $0.001, and 65,000 shares of the registrant’s Class B common stock, par value $0.001, outstanding.

ASCEND WELLNESS HOLDINGS, INC

TABLE OF CONTENTS


FORWARD-LOOKING STATEMENTS			1
PART I. FINANCIAL INFORMATION			2
Item 1. Condensed Consolidated Financial Statements			2
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			34
Item 3. Quantitative and Qualitative Disclosures About Market Risk			51
Item 4. Controls and Procedures			53
PART II. OTHER INFORMATION			53
Item 1. Legal Proceedings			53
Item 1A. Risk Factors			53
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			53
Item 3. Defaults Upon Senior Securities			54
Item 4. Mine Safety Information			54
Item 5. Other Information			54
Item 6. Exhibits			55
SIGNATURES			56

FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains “forward-looking statements” regarding Ascend Wellness Holdings, Inc. and its subsidiaries (collectively referred to as “AWH,” “we,” “us,” “our,” or the “Company”). We make forward-looking statements related to future expectations, estimates, and projections that are uncertain and often contain words such as, but not limited to, “anticipate,” “believe,” “could,” “estimate,” “expect,” “forecast,” “intend,” “likely,” “may,” “outlook,” “plan,” “predict,” “should,” “target,” or other similar words or phrases. These statements are not guarantees of future performance and are subject to known and unknown risks, uncertainties, and assumptions that are difficult to predict. Particular risks and uncertainties that could cause our actual results to be materially different from those expressed in our forward-looking statements include those listed below:

•the effect of the volatility of the market price and liquidity risks on shares of our Class A common stock;

•the effect of the voting control exercised by holders of Class B common stock;

•our ability to attract and maintain key personnel;

•our ability to continue to open new dispensaries and cultivation facilities as anticipated;

•the illegality of cannabis under federal law;

•our ability to comply with state and federal regulations;

•the uncertainty regarding enforcement of cannabis laws;

•the effect of restricted access to banking and other financial services;

•the effect of constraints on marketing and risks related to our products;

•the effect of unfavorable tax treatment for cannabis businesses;

•the effect of security risks;

•the effect of infringement or misappropriation claims by third parties;

•our ability to comply with potential future U.S. Food and Drug Administration regulations;

•our ability to enforce our contracts;

•the effect of unfavorable publicity or consumer perception;

•the effect of risks related to material acquisitions, dispositions and other strategic transactions;

•the effect of agricultural and environmental risks;

•the effect of risks related to information technology systems;

•the effect of product liability claims and other litigation to which we may be subjected;

•the effect of risks related to the results of future clinical research;

•the effect of intense competition in the industry;

•the effect of adverse changes in the wholesale and retail prices;

•the effect of outbreaks of pandemic diseases, fear of such outbreaks or economic disturbances due to such outbreaks, particularly the impact of the COVID-19 pandemic; and

•the effect of general economic risks, such as the unemployment level, interest rates and inflation, and challenging global economic conditions.

The list of factors above is illustrative and by no means exhaustive. Additional information regarding these risks and other risks and uncertainties we face is contained in Part II, Item 1A, “Risk Factors,” in our quarterly report on Form 10-Q for the quarter ended March 31, 2021 and in other reports we may file from time to time with the Securities and Exchange Commission and the applicable Canadian securities regulatory authorities (including all amendments to those reports). Although the Company has attempted to identify important factors that could cause actual results to differ materially from those contained in forward-looking information, there may be other factors that cause results not to be as anticipated, estimated, or intended.

We urge readers to consider these risks and uncertainties in evaluating our forward-looking statements. We caution readers not to place undue reliance upon any such forward-looking statements, which speak only as of the date made. We undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future events, or otherwise, except as required by law.

PART I. FINANCIAL INFORMATION

ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.

ASCEND WELLNESS HOLDINGS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(UNAUDITED)


(in thousands, except per share amounts)	September 30, 2021		December 31, 2020
Assets
Current assets
Cash and cash equivalents	$	204,510	$	56,547
Restricted cash	—		1,550
Accounts receivable, net	8,577		6,227
Inventory	56,007		28,997
Notes receivable	7,274		8,259
Other current assets	23,298		32,598
Total current assets	299,666		134,178
Property and equipment, net	210,749		120,540
Operating lease right-of-use assets	104,248		84,642
Intangible assets, net	50,835		50,461
Goodwill	30,316		22,798
Deferred tax assets, net	1,309		2,395
Other noncurrent assets	19,760		12,734
TOTAL ASSETS	$	716,883	$	427,748

Liabilities and Stockholders' Equity
Current liabilities
Accounts payable and accrued liabilities	$	30,395	$	31,224
Current portion of debt, net	25,073		59,330
Operating lease liabilities, current	2,369		2,128
Income taxes payable	42,057		18,275
Other current liabilities	4,994		4,328
Total current liabilities	104,888		115,285
Long-term debt, net	230,498		152,277
Operating lease liabilities, noncurrent	197,460		156,400
Total liabilities	532,846		423,962
Commitments and contingencies (Note 15)
Stockholders' Equity
Membership units, no par value; none authorized, issued, and outstanding as of September 30, 2021; 106,082 issued and outstanding as of December 31, 2020 (Note 12)	—		—
Preferred stock, $0.001 par value per share; 10,000 shares authorized, none issued and outstanding as of September 30, 2021; none authorized, issued, and outstanding as of December 31, 2020 (Note 12)	—		—
Class A common stock, $0.001 par value per share; 750,000 shares authorized, 170,945 shares issued and outstanding as of September 30, 2021; none authorized, issued, and outstanding as of December 31, 2020 (Note 12)	170		—
Class B common stock, $0.001 par value per share, 100 shares authorized, 65 shares issued and outstanding as of September 30, 2021; none authorized, issued, and outstanding as of December 31, 2020 (Note 12)	—		—
Additional paid-in capital	353,605		67,378
Accumulated deficit	(169,738)		(63,592)


Total stockholders' equity	184,037		3,786
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	716,883	$	427,748

The accompanying notes are an integral part of the condensed consolidated financial statements.

ASCEND WELLNESS HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)


	Three Months Ended September 30,				Nine Months Ended September 30,
(in thousands, except per share amounts)	2021		2020		2021		2020
Revenue, net	$	94,382	$	41,473	$	243,886	$	89,449
Cost of goods sold	(53,428)		(23,121)		(138,749)		(51,427)
Gross profit	40,954		18,352		105,137		38,022
Operating expenses
General and administrative expenses	29,341		15,000		85,099		34,624
Settlement expense	—		—		36,511		—
Total operating expenses	29,341		15,000		121,610		34,624
Operating profit (loss)	11,613		3,352		(16,473)		3,398

Other (expense) income
Interest expense	(12,376)		(2,627)		(56,601)		(8,030)
Other, net	44		3		206		6
Total other expense	(12,332)		(2,624)		(56,395)		(8,024)
(Loss) income before income taxes	(719)		728		(72,868)		(4,626)
Income tax expense	(12,307)		(5,643)		(33,278)		(11,712)
Net loss	(13,026)		(4,915)		(106,146)		(16,338)
Less: net income attributable to non-controlling interests	—		501		—		1,598
Net loss attributable to Ascend Wellness Holdings, Inc.	$	(13,026)	$	(5,416)	$	(106,146)	$	(17,936)

Net loss per share attributable to Class A and Class B stockholders of Ascend Wellness Holdings, Inc. — basic and diluted (Note 12)	$	(0.08)	$	(0.06)	$	(0.75)	$	(0.19)

Weighted-average common shares outstanding — basic and diluted	169,879		96,515		142,221		92,052

The accompanying notes are an integral part of the condensed consolidated financial statements.

ASCEND WELLNESS HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(UNAUDITED)


	Nine Months Ended September 30, 2021
		Class A and Class B Common Stock	Attributable to Stockholders of the Parent
(in thousands)	Historical LLC Units		Shares	Amount		Additional Paid-In Capital		Accumulated Deficit		Stockholders’ Equity (Deficit)		Non- Controlling Interests		Total Equity
December 31, 2020	106,082		—	$	—	$	67,378	$	(63,592)	$	3,786	$	—	$	3,786
Vesting of equity-based payment awards	1,033		—	—		—		—		—		—		—
Equity-based compensation expense	50		—	—		2,487		—		2,487		—		2,487
Reserve for equity issued in litigation settlement	—		—	—		27,431		—		27,431		—		27,431
Net loss	—		—	—		—		(48,223)		(48,223)		—		(48,223)
March 31, 2021	107,165		—	$	—	$	97,296	$	(111,815)	$	(14,519)	$	—	$	(14,519)



Release of reserve for equity issued in litigation settlement	—		—	—		(27,431)		—		(27,431)		—		(27,431)
Equity issued in litigation settlement	5,025		—	—		27,431		—		27,431		—		27,431
Conversion of historical common units	(55,330)		55,330	55		(55)		—		—		—		—
Conversion of historical preferred units	(58,036)		58,036	58		(58)		—		—		—		—
Issuance of common stock in public offerings, net of $5,935 of underwriting commissions and discounts and offering expenses	—		11,500	12		86,053		—		86,065		—		86,065
Conversion of convertible notes upon initial public offering	—		37,388	37		137,718		—		137,755		—		137,755
Beneficial conversion feature associated with conversion of preferred units upon initial public offering	—		3,420	3		27,358		—		27,361		—		27,361
Vesting of equity-based payment awards	1,176		3,155	3		(3)		—		—		—		—

Equity-based compensation expense	—		—	—		1,711		—		1,711		—		1,711
Repurchase of warrants	—		—	—		(4,156)		—		(4,156)		—		(4,156)
Net loss	—		—	—		—		(44,897)		(44,897)		—		(44,897)
June 30, 2021	—		168,829	$	168	$	345,864	$	(156,712)	$	189,320	$	—	$	189,320
Issuance of common stock	—		1,986	2		3,748		—		3,750		—		3,750
Vesting of equity-based payment awards	—		195	—		—		—		—		—		—
Equity-based compensation expense	—		—	—		3,993		—		3,993		—		3,993
Net loss	—		—	—		—		(13,026)		(13,026)		—		(13,026)
September 30, 2021	—		171,010	$	170	$	353,605	$	(169,738)	$	184,037	$	—	$	184,037

The accompanying notes are an integral part of the condensed consolidated financial statements.

ASCEND WELLNESS HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(UNAUDITED)


	Nine Months Ended September 30, 2020
		Class A and Class B Common Stock	Attributable to Stockholders of the Parent
(in thousands)	Historical LLC Units		Shares	Amount		Additional Paid-In Capital		Accumulated Deficit		Stockholders’ Equity		Non- Controlling Interests		Total Equity
December 31, 2019	89,821		—	$	—	$	71,947	$	(38,153)	$	33,794	$	1,046	$	34,840
Equity-based compensation expense	—		—	—		185		—		185		—		185
Issuance of warrants	—		—	—		147		—		147		—		147
Net loss	—		—	—		—		(7,478)		(7,478)		360		(7,118)
March 31, 2020	89,821		—	$	—	$	72,279	$	(45,631)	$	26,648	$	1,406	$	28,054
Equity-based compensation expense	—		—	—		85		—		85		—		85
Issuance of warrants	—		—	—		16		—		16		—		16
Net loss	—		—	—		—		(5,042)		(5,042)		737		(4,305)
June 30, 2020	89,821		—	$	—	$	72,380	$	(50,673)	$	21,707	$	2,143	$	23,850
Units issued in acquisitions or asset purchases	10,000		—	—		2,800		—		2,800		—		2,800
Purchase of non-controlling interests	3,635		—	—		(8,329)		—		(8,329)		(2,644)		(10,973)
Equity-based compensation expense	—		—	—		71		—		71		—		71
Issuance of warrants	—		—	—		40		—		40		—		40
Net loss	—		—	—		—		(5,416)		(5,416)		501		(4,915)
September 30, 2020	103,456		—	$	—	$	66,962	$	(56,089)	$	10,873	$	—	$	10,873

The accompanying notes are an integral part of the condensed consolidated financial statements.

ASCEND WELLNESS HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)


	Nine Months Ended September 30,
(in thousands)	2021		2020
Cash flows from operating activities


Net loss	$	(106,146)	$	(16,338)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization	16,692		10,085
Amortization of operating lease assets	1,034		660
Non-cash interest expense	41,506		2,993
Equity-based compensation expense	8,191		341

Equity issued in litigation settlement	27,431		—
Deferred income taxes	(1,889)		(899)
Loss on sale of assets	649		286
Changes in operating assets and liabilities, net of effects of acquisitions
Accounts receivable	(2,309)		(4,042)

Inventory	(27,904)		(9,554)
Other current assets	(6,099)		(2,281)

Other noncurrent assets	(7,026)		(4,785)
Accounts payable and accrued liabilities	8,505		3,998

Other current liabilities	612		2,711
Lease liabilities	676		1,999
Income taxes payable	23,783		9,158

Net cash used in operating activities	(22,294)		(5,668)
Cash flows from investing activities
Additions to capital assets	(70,918)		(18,065)
Investments in notes receivable	(2,185)		(682)
Collection of notes receivable	245		—
Proceeds from sale of assets	930		26,750
Acquisition of businesses, net of cash acquired	(13,630)		(23,327)
Purchases of intangible assets	—		(127)

Net cash used in investing activities	(85,558)		(15,451)
Cash flows from financing activities
Proceeds from issuance of common stock in public offerings, net of underwriting discounts and commissions and offering expenses	86,065		—
Proceeds from issuance of debt	259,500		49,262
Repayments of debt	(78,413)		(18,806)

Repurchase of warrants	(4,156)		—
Proceeds from finance leases	—		3,750
Repayments under finance leases	—		(337)
Debt issuance costs	(8,731)		(206)

Net cash provided by financing activities	254,265		33,663
Net increase in cash, cash equivalents, and restricted cash	146,413		12,544
Cash, cash equivalents, and restricted cash at beginning of period	58,097		12,805
Cash, cash equivalents, and restricted cash at end of period	$	204,510	$	25,349

The accompanying notes are an integral part of the condensed consolidated financial statements.

ASCEND WELLNESS HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(CONTINUED, UNAUDITED)


	Nine Months Ended September 30,
(in thousands)	2021		2020
Supplemental Cash Flow Information
Interest paid	$	14,618	$	4,839
Income taxes paid	11,400		2,398

Non-cash investing and financing activities
Capital expenditures incurred but not yet paid	7,656		17,535
Conversion of convertible notes and accrued interest upon initial public offering	137,755		—
Conversion of preferred units into Class A common stock upon initial public offering	70,660		—
Beneficial conversion feature associated with conversion of preferred units upon initial public offering	27,361		—

Shares issued for share-settled debt	3,750		—
Issuance of shares in business acquisitions	—		2,319
Issuance of shares for intangible assets	—		481
Issuance of shares in purchase of non-controlling interests	—		1,018
Warrants issued with notes payable	—		203

The accompanying notes are an integral part of the condensed consolidated financial statements.

Ascend Wellness Holdings, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

(in thousands, except per unit or per share data)

1. THE COMPANY AND NATURE OF OPERATIONS

Ascend Wellness Holdings, Inc., which operates through its subsidiaries (collectively referred to as “Ascend Wellness,” “AWH,” “we,” “us,” “our,” or the “Company”), is a multi-state operator in the United States cannabis industry. AWH owns, manages, and operates cannabis cultivation facilities and dispensaries in several states across the United States, including Illinois, Massachusetts, Michigan, New Jersey, and Ohio. AWH is headquartered in New York, New York.

The Company was originally formed on May 15, 2018 as Ascend Group Partners, LLC, and changed its name to “Ascend Wellness Holdings, LLC” on September 10, 2018. On April 22, 2021, Ascend Wellness Holdings, LLC converted into a Delaware corporation and changed its name to “Ascend Wellness Holdings, Inc.” and effected a 2-for-1 reverse stock split (the “Reverse Split”), which is retrospectively presented for all periods in these financial statements. We refer to this conversion throughout this filing as the “Conversion.” As a result of the Conversion, the members of Ascend Wellness Holdings, LLC became holders of shares of stock of Ascend Wellness Holdings, Inc.

Following the Conversion, the Company has authorized 750,000 shares of Class A common stock with a par value of $0.001 per share, 100 shares of Class B common stock with a par value of $0.001 per share and 10,000 shares of preferred stock with a par value of $0.001 per share. The rights of the holders of Class A common stock and Class B common stock are identical, except for voting and conversion rights. Each share of Class A common stock is entitled to one vote per share. Each share of Class B common stock is entitled to 1,000 votes per share and is convertible at any time into one share of Class A common stock at the option of the holder. See Note 12, “Stockholders’ Equity,” for additional details.

Initial Public Offering

On May 4, 2021, the Company completed an Initial Public Offering (“IPO”) of its Class A common stock, in which it issued and sold 10,000 shares of Class A common stock at a price of $8.00 per share. On May 7, 2021, the underwriters exercised their over-allotment option in full and we issued and sold an additional 1,500 shares of Class A common stock. We received total net proceeds of approximately $86,065 after deducting underwriting discounts and commissions and certain other direct offering expenses paid by us. In connection with the IPO, the historical common units, Series Seed Preferred Units, Series Seed+ Preferred Units, and Real Estate Preferred Units then-outstanding automatically converted into a total of 113,301 shares of Class A common stock and 65 historical common units were allocated as shares of Class B common stock. Additionally, 3,420 shares of Class A common stock were issued for a beneficial conversion feature associated with the conversion of certain historical preferred units and the Company’s convertible notes, plus accrued interest, converted into 37,388 shares of Class A common stock. See Note 12, “Equity,” for additional details.

Shares of the Company’s Class A common stock are listed on the Canadian Securities Exchange (the “CSE”) under the ticker symbol “AAWH.U” and are quoted on the OTCQX under the symbol “AAWH.” We are an emerging growth company under federal securities laws and as such we are able to elect to follow scaled disclosure requirements for this filing.

2. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation and Principles of Consolidation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with (i) United States generally accepted accounting principles (“U.S. GAAP”) for interim financial information, and (ii) the instructions to Form 10-Q and Article 10 of Regulation S-X. In the opinion of our management, our unaudited condensed consolidated financial statements and accompanying notes (the “Financial Statements”) include all normal recurring adjustments that are necessary for the fair statement of the interim periods presented. Interim results of operations are not necessarily indicative of results for the full year, or any other period. The Financial Statements should be read in conjunction with our audited consolidated financial statements (and notes thereto) for the year ended December 31, 2020 (the “Annual Financial Statements”) which are included in our Registration Statement on Form S-1, as amended, filed with the U.S. Securities and Exchange Commission on April

Ascend Wellness Holdings, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

(in thousands, except per unit or per share data)

26, 2021. Except as noted below, there have been no material changes to the Company’s significant accounting policies and estimates during the nine months ended September 30, 2021.

The Financial Statements include the accounts of Ascend Wellness Holdings, Inc. and its subsidiaries. Refer to Note 8, “Variable Interest Entities,” for additional information regarding certain entities that are not wholly-owned by the Company. We include the results of acquired businesses in the consolidated statements of operations from their respective acquisition dates. All intercompany accounts and transactions have been eliminated in consolidation.

The preparation of condensed consolidated financial statements in accordance with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts. We base our estimates on historical experience, known or expected trends, independent valuations, and various other measurements that we believe to be reasonable under the circumstances. As future events and their effects cannot be determined with precision, actual results could differ significantly from these estimates.

We round amounts in the Financial Statements to thousands, except per unit or per share amounts or as otherwise stated. We calculate all percentages, per-unit, and per-share data from the underlying whole-dollar amounts. Thus, certain amounts may not foot, crossfoot, or recalculate based on reported numbers due to rounding. Unless otherwise indicated, all references to years are to our fiscal year, which ends on December 31.

Liquidity

As reflected in the Financial Statements, the Company had an accumulated deficit as of September 30, 2021 and December 31, 2020, as well as a net loss for the three and nine months ended September 30, 2021 and 2020, and negative cash flows from operating activities during the nine months ended September 30, 2021 and 2020, which are indicators that raise substantial doubt of our ability to continue as a going concern. Management believes that substantial doubt of our ability to continue as a going concern for at least one year from the issuance of these Financial Statements has been alleviated due to: (i) cash on hand, including capital raised from the Company’s IPO in May 2021 and proceeds received under our new credit agreement in August 2021, and (ii) continued growth of sales and gross profit from our consolidated operations. Management plans to continue to access capital markets for additional funding through debt and/or equity financings to supplement future cash needs, as may be required. However, management cannot provide any assurances that the Company will be successful in accomplishing its business plans. If the Company is unable to raise additional capital whenever necessary, it may be forced to decelerate or curtail certain of its operations until such time as additional capital becomes available.

Reclassifications

Certain prior year amounts have been reclassified to conform with our current period presentation. These changes had no impact on our previously reported net loss.

Variable Interest Entities

In determining whether we are the primary beneficiary of a variable interest entity (“VIE”), we assess whether we have the power to direct matters that most significantly impact the activities of the VIE and the obligation to absorb losses or the right to receive the benefits from the VIE that could potentially be significant to the VIE.

A VIE is a legal entity that does not have sufficient equity at risk to finance its activities without additional subordinated financial support or is structured that such equity investors lack the ability to make significant decisions relating to the entity’s operations through voting rights or do not substantively participate in the gains or losses of the entity. The primary beneficiary has both the power to direct the activities of the VIE that most significantly impact the entity’s economic performance and the obligation to absorb losses or the right to receive benefits from the VIE that could potentially be significant to the VIE. We assess all variable interests in the entity and use our judgment when determining if we are the primary beneficiary. Other qualitative factors that are considered include decision-making responsibilities, the VIE capital structure, risk and rewards sharing, contractual

Ascend Wellness Holdings, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

(in thousands, except per unit or per share data)

agreements with the VIE, voting rights, and level of involvement of other parties. We assess the primary beneficiary determination for a VIE on an ongoing basis if there are any changes in the facts and circumstances related to a VIE.

Where we determine we are the primary beneficiary of a VIE, we consolidate the accounts of that VIE. The equity owned by other stockholders is shown as non-controlling interests in the accompanying unaudited Condensed Consolidated Balance Sheets, Statements of Operations, and Statements of Changes in Stockholders’ Equity. The assets of the VIE can only be used to settle obligations of that entity, and any creditors of that entity generally have no recourse to the assets of other entities or the Company unless the Company separately agrees to be subject to such claims.

Cash and Cash Equivalents and Restricted Cash

The following table provides a reconciliation of cash, cash equivalents, and restricted cash to amounts shown in the unaudited Condensed Consolidated Statements of Cash Flows:


(in thousands)	September 30, 2021		December 31, 2020
Cash and cash equivalents	$	204,510	$	56,547
Restricted cash	—		1,550
Total cash, cash equivalents, and restricted cash	$	204,510	$	58,097

As of September 30, 2021 and December 31, 2020, we did not hold significant cash equivalents.

Fair Value of Financial Instruments

During the nine months ended September 30, 2021 and 2020, we had no transfers of assets or liabilities between any of the hierarchy levels.

In addition to assets and liabilities that are measured at fair value on a recurring basis, we are also required to measure certain assets at fair value on a non-recurring basis that are subject to fair value adjustments in specific circumstances. These assets can include: goodwill; intangible assets; property and equipment; and lease related right-of use assets. We estimate the fair value of these assets using primarily unobservable Level 3 inputs.

Basic and Diluted Loss per Share

The Company computes earnings (loss) per share (“EPS”) using the two-class method required for multiple classes of common stock. The rights, including the liquidation and dividend rights, of the Class A common stock and Class B common stock are substantially identical, except for voting and conversion rights. As the liquidation and dividend rights are identical, undistributed earnings are allocated on a proportionate basis to each class of common stock and the resulting basic and diluted net loss per share attributable to common stockholders are, therefore, the same for both Class A and Class B common stock on both an individual and combined basis. EPS and weighted-average shares outstanding for the three and nine months ended September 30, 2021 and 2020 have been computed on the basis of treating the historical common unit equivalents previously outstanding as shares of Class A common stock, as such historical units converted into shares of Class A common stock in the Conversion.

Basic EPS is computed by dividing net loss by the weighted average number of common shares outstanding during the period. Diluted EPS reflects potential dilution and is computed by dividing net loss by the weighted average number of common shares outstanding during the period increased by the number of additional common shares that would have been outstanding if all potential common shares had been issued and were dilutive. However, potentially dilutive securities are excluded from the computation of diluted EPS to the extent that their effect is anti-dilutive. Potential dilutive securities in the current year include incremental shares of common stock issuable upon the exercise of warrants, unvested restricted stock awards, and unvested restricted stock units. Potential dilutive securities in the prior year periods include incremental shares of common stock issuable upon the exercise of warrants, vested incentive units, and the conversion of convertible notes. As of September 30, 2021 and 2020, 10,827 and 30,545 shares of common stock equivalents, respectively, were excluded from the calculation of diluted EPS because their inclusion would have been anti-dilutive.

Ascend Wellness Holdings, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

(in thousands, except per unit or per share data)

Shares of restricted stock granted by us are considered to be legally issued and outstanding as of the date of grant, notwithstanding that the shares remain subject to the risk of forfeiture if the vesting conditions for such shares are not met, and are included in the number of shares of Class A common stock outstanding disclosed on the cover page of this Quarterly Report on Form 10-Q. Weighted-average common shares outstanding excludes time-based and performance-based unvested shares of restricted Class A common stock, as restricted shares are treated as issued and outstanding for financial statement presentation purposes only after such shares have vested and, therefore, have ceased to be subject to a risk of forfeiture.

Recently Adopted Accounting Standards

Income Taxes

In December 2019, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2019-12, Income Taxes (Topic 740) – Simplifying the Accounting for Income Taxes, (“ASU 2019-12”) which is intended to simplify various aspects related to accounting for income taxes. ASU 2019-12 removes certain exceptions to the general principles in Topic 740 and also clarifies and amends existing guidance to improve consistent application. ASU 2019-12 became effective for the Company beginning on January 1, 2021 and did not have a significant impact on our Financial Statements.

Investments

In January 2020, the FASB issued ASU 2020-01, Investments – Equity Securities (Topic 321), Investments – Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815): Clarifying the Interactions between Topic 321, Topic 323, and Topic 815. This ASU provides clarification of the interaction of rules for equity securities, the equity method of accounting, and forward contracts and purchase options on certain types of securities and became effective for the Company beginning on January 1, 2021. Adoption of this guidance did not have a material impact on our Financial Statements.

Reference Rate Reform

In January 2021, the FASB issued ASU 2021-01, Reference Rate Reform (Topic 848): Scope, (“ASU 2021-01”), which clarifies certain optional expedients and exceptions in Topic 848 when accounting for derivative contracts and certain hedging relationships affected by changes in interest rates. ASU 2021-01 was effective upon issuance and the amendments within are applied either prospectively or retrospectively. ASU 2021-01 did not have a significant impact on our Financial Statements.

Recently Issued Accounting Pronouncements

The following standards have been recently issued by the FASB. Pronouncements that are not applicable to the Company or where it has been determined do not have a significant impact on us have been excluded herein.

Financial Instruments

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”). ASU 2016-13 replaces the existing guidance surrounding measurement and recognition of credit losses on financial assets measured at amortized cost, including trade receivables and investments in certain debt securities, by requiring recognition of an allowance for credit losses expected to be incurred over an asset’s life based on relevant information about past events, current conditions, and supportable forecasts impacting its ultimate collectability. This current expected credit losses (“CECL”) model will result in earlier recognition of credit losses than the current “as incurred” model, under which losses are recognized only upon the occurrence of an event that gives rise to the incurrence of a probable loss.

ASU 2019-05, Financial Instruments – Credit Losses (Topic 326): Targeted Transition Relief, was issued in May 2019 to provide target transition relief allowing entities to make an irrevocable one-time election upon adoption of the new credit losses standard to measure financial assets previously measured at amortized cost (except held-to-maturity securities) using the fair value option.

Ascend Wellness Holdings, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

(in thousands, except per unit or per share data)

ASU 2019-11, Codification Improvements to Topic 326, Financial Instruments – Credit Losses, was issued in November 2019 to clarify, improve, and amend certain aspects of ASU 2016-13, such as disclosures related to accrued interest receivables and the estimation of credit losses associated with financial assets secured by collateral.

ASU 2020-03, Codification Improvements to Financial Instruments, was issued in March 2020 to improve and clarify various financial instruments topics, including the CECL standard issued in 2016. The ASU includes seven different issues that describe the areas of improvement and the related amendments to U.S. GAAP, intended to make the standards easier to understand and apply by eliminating inconsistencies and providing clarifications. Certain amendments contained within this update were effective upon issuance and had no material impact on our Financial Statements. The amendments related to ASU 2019-05 and ASU 2016-13 will be adopted in conjunction with ASU 2016-13. ASU 2016-13 and its related ASUs are effective for us beginning January 1, 2023. We are currently evaluating the impact of this guidance on our consolidated financial statements.

Reference Rate Reform

In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting, which provides optional expedients and exceptions for applying U.S. GAAP to contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform. This new guidance can be adopted prospectively no later than December 1, 2022, with early adoption permitted, and is not expected to have a material impact on our consolidated financial statements.

Debt

In August 2020, the FASB issued ASU 2020-06, Debt – Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity, which simplifies the accounting for convertible instruments by reducing the number of accounting models available for convertible debt instruments. This guidance also eliminates the treasury stock method to calculate diluted earnings per share for convertible instruments and requires the use of the if-converted method. This guidance will be effective for us January 1, 2022 on a full modified or modified retrospective basis, with early adoption permitted. We are currently evaluating the impact of this guidance on our consolidated financial statements.

Modification or Exchanges of Freestanding Equity-Classified Written Call Options

In May 2021, the FASB issued ASU 2021-04, Earnings Per Share (Topic 260), Debt – Modifications and Extinguishments (Subtopic 470-50), Compensation – Stock Compensation (Topic 718), and Derivatives and Hedging – Contracts in an Entity’s Own Equity (Subtopic 815-40): Issuer’s Accounting For Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options, (“ASU 2021-04”). ASU 2021-04 provides clarification and reduces diversity in an issuer’s accounting for certain modifications or exchanges of freestanding equity-classified written call options, such as warrants, that remain equity classified after modification or exchange. This guidance will be effective for us on January 1, 2022 with early adoption permitted and will be applied prospectively. We are currently evaluating the impact of this guidance on our consolidated financial statements.

Ascend Wellness Holdings, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

(in thousands, except per unit or per share data)

3. REPORTABLE SEGMENTS AND REVENUE

The Company operates under one operating segment, which is its only reportable segment: the production and sale of cannabis products. 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’s measure of segment performance is net income and derives its revenue primarily from the sale of cannabis products. All of the Company’s operations are located in the United States.

Disaggregation of Revenue

The Company disaggregates its revenue from the direct sale of cannabis to customers as retail revenue and wholesale revenue. We have determined that disaggregating revenue into these categories best depicts how the nature, amount, timing, and uncertainty of revenue and cash flows are affected by economic factors.


	Three Months Ended September 30,				Nine Months Ended September 30,
(in thousands)	2021		2020		2021		2020
Retail revenue	$	63,517	$	27,938	$	167,076	$	65,925
Wholesale revenue	41,526		17,449		111,341		35,349
	105,043		45,387		278,417		101,274
Elimination of inter-company revenue	(10,661)		(3,914)		(34,531)		(11,825)
Total revenue, net	$	94,382	$	41,473	$	243,886	$	89,449

Sales discounts were not material during the three and nine months ended September 30, 2021 and 2020. The liability related to the loyalty program we offer dispensary customers at certain locations was $949 and $219 at September 30, 2021 or December 31, 2020, respectively, and is included in “Other current liabilities” on the accompanying unaudited condensed consolidated balance sheets.

4. ACQUISITIONS

The Company has determined that the acquisitions discussed below are considered business combinations under ASC Topic 805, Business Combinations, (“ASC Topic 805”) and are accounted for by applying the acquisition method, whereby the assets acquired and the liabilities assumed are recorded at their fair values with any excess of the aggregate consideration over the fair values of the identifiable net assets allocated to goodwill. Operating results have been included in these Financial Statements from the date of the acquisition.

The Company allocates the purchase price of each of its acquisitions to the assets acquired and liabilities assumed at fair value. The preliminary purchase price allocation for each acquisition reflects various preliminary fair value estimates and analyses, including certain tangible assets acquired and liabilities assumed, the valuation of intangible assets acquired, and goodwill, which are subject to change within the measurement period as preliminary valuations are finalized (generally one year from the acquisition date). Measurement period adjustments are recorded in the reporting period in which the estimates are finalized and adjustment amounts are determined.

2021 Acquisition

Effective May 5, 2021, the Company completed the acquisition of the parent company of Hemma, LLC (“Hemma”), the owner of a medical cultivation site in Ohio, for total consideration of $10,381, subject to customary working capital adjustments. Acquisition-related costs incurred during the three and nine months ended September 30, 2021 were not material.

Ascend Wellness Holdings, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

(in thousands, except per unit or per share data)

Preliminary Purchase Price Allocation

The Company allocated the purchase price of the Hemma acquisition as summarized in the table below. The purchase price allocation reflects various preliminary fair value estimates and analyses, including certain tangible assets acquired and liabilities assumed, the valuation of intangible assets acquired, and goodwill, which are subject to change within the measurement period as preliminary valuations are finalized.


(in thousands)
Assets acquired (liabilities assumed):
Cash	$	44
Accounts receivable	41
Inventory	188

Property and equipment	153
Intangible assets(1)	6,928
Goodwill(2)	3,039
Accounts payable and accrued liabilities	(12)
Net assets acquired	$	10,381

Consideration transferred:
Cash(3)	$	7,212
Settlement of note and working capital loan(4)	3,169
Total consideration	$	10,381

(1) The amortization period for the acquired intangible assets is 10 years.

(2) Goodwill is largely attributable to the value we expect to obtain from long-term business growth and buyer-specific synergies. The Company is evaluating whether the goodwill is deductible for tax purposes under the limitations imposed under Internal Revenue Code (“IRC”) Section 280E. See Note 14, “Income Taxes,” for additional information.

(3) Total cash consideration includes a $4,712 sellers’ note. See Note 11, “Debt,” for additional information.

(4) Includes settlement of $2,500 due under a note receivable and settlement of $669 due under a working capital line of credit.

2020 Acquisitions

Effective August 1, 2020, the Company acquired MOCA LLC (“MOCA”), a dispensary operator in the Chicago, Illinois area, which was consolidated as a VIE from the signing date until the final closing date in December 2020. Effective September 29, 2020, the Company’s subsidiary, Ascend New Jersey, acquired the assets and liabilities of Greenleaf Compassion Center (“GCC”), a vertically integrated operator in New Jersey with licenses for three retail locations and one cultivation and manufacturing facility. Additionally, effective December 15, 2020, the Company acquired Chicago Alternative Health Center, LLC and Chicago Alternative Health Center Holdings, LLC (together, “Midway”), a medical and adult use dispensary operator in the Chicago, Illinois area. Midway is consolidated as a VIE from the signing date through the final closing date, which is pending the state’s approval of the license transfer.

During the nine months ended September 30, 2021, we recorded measurement period purchase accounting adjustments based on changes to certain estimates and assumptions and their related impact to goodwill. The MOCA license was revised from $10,661 to $9,755; the GCC license was revised from $11,845 to $11,501; the Midway license was revised from $15,108 to $14,684; and the Midway trade name was revised from $10 to $180. Additionally, during the three and nine months ended September 30, 2021, we recorded a measurement period adjustment to goodwill of $2,975 related to the MOCA acquisition for a deferred tax liability associated with the acquired intangible assets. The measurement period for the MOCA acquisition ended one year after the August 1, 2020 acquisition date.

Ascend Wellness Holdings, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

(in thousands, except per unit or per share data)

Financial and Pro Forma Information

The following tables summarize the revenue and net income related to MOCA, GCC, Midway, and Hemma included in our consolidated results for the three and nine months ended September 30, 2021.


	Three Months Ended September 30, 2021
(in thousands)	MOCA		GCC		Midway		Hemma
Revenue, net	$	11,371	$	2,577	$	6,948	$	126
Net income (loss)	2,075		(252)		350		(204)


	Nine Months Ended September 30, 2021
(in thousands)	MOCA		GCC		Midway		Hemma
Revenue, net	$	32,360	$	7,634	$	15,526	$	126
Net income (loss)	3,969		(1,194)		(556)		(305)

Our consolidated results for the three and nine months ended September 30, 2020 include $4,103 of revenue, net, and $314 of net income related to MOCA.

The tables below summarize the unaudited pro forma combined revenue and net income (loss) of AWH, MOCA, GCC, and Midway for the three and nine months ended September 30, 2020 as if the respective acquisitions had occurred on January 1, 2019. The results for MOCA and GCC are through their respective acquisition dates, as the results for each were included in our consolidated financial statements after such dates. These results do not reflect the cost of integration activities or benefits from expected revenue enhancements and synergies. Accordingly, the unaudited pro forma information is not necessarily indicative of the results that would have been achieved if the acquisitions had been effective on January 1, 2019. Pro forma financial information is not presented for Hemma, as such results are immaterial to both the current and prior periods.


	Three Months Ended September 30, 2020
(in thousands)	AWH (as reported)		MOCA		GCC		Midway		Pro Forma Adjustments(1)		Pro Forma Combined
Revenue, net	$	41,473	$	1,577	$	1,025	$	3,199	$	—	$	47,274
Net income (loss)	(4,915)		378		11		650		(3,001)		(6,877)

(1)These adjustments include estimated additional amortization expense of $736 on intangible assets acquired as part of the acquisitions as follows: $81 related to MOCA, $288 related to GCC, and $367 related to Midway. These adjustments also include additional estimated interest expense of $2,557 and an adjustment to exclude $292 of acquisition-related costs incurred during the three months ended September 30, 2020, which are included in “General and administrative expenses” in the accompanying unaudited Condensed Consolidated Statements of Operations. These adjustments are not tax-effected, as the related expenses are not deductible for tax purposes due to the limitations imposed on marijuana dispensaries under IRC Section 280E.


	Nine Months Ended September 30, 2020
(in thousands)	AWH (as reported)		MOCA		GCC		Midway		Pro Forma Adjustments(1)		Pro Forma Combined
Revenue, net	$	89,449	$	8,612	$	3,036	$	7,840	$	—	$	108,937
Net income (loss)	(16,338)		2,398		526		1,556		(9,795)		(21,653)

(1)These adjustments include estimated additional amortization expense of $2,533 on intangible assets acquired as part of the acquisitions as follows: $569 related to MOCA, $863 related to GCC, and $1,101 related to Midway. These adjustments also include additional estimated interest expense of $7,625 and an adjustment to exclude $363 of acquisition-related costs incurred during the nine months ended September 30, 2020, which are included in “General and administrative expenses” in the accompanying unaudited Condensed Consolidated Statements of Operations. These adjustments are not tax-effected, as

Ascend Wellness Holdings, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

(in thousands, except per unit or per share data)

the related expenses are not deductible for tax purposes due to the limitations imposed on marijuana dispensaries under IRC Section 280E.

5. INVENTORY

The components of inventory are as follows:


(in thousands)	September 30, 2021		December 31, 2020
Materials and supplies	$	7,806	$	7,756
Work in process	27,180		13,615
Finished goods	21,021		7,626
Total	$	56,007	$	28,997

Total compensation expense capitalized to inventory was $10,860 and $