SEC Filing - Ascend Wellness Holdings

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aawh-20220630

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 June 30, 2022


☐			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/213b5541cc73f08048e8ee09e6436d8c-aawh-20220630_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 August 10, 2022, there were 188,163,575 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 (Unaudited)			2
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			31
Item 3. Quantitative and Qualitative Disclosures About Market Risk			48
Item 4. Controls and Procedures			49
PART II. OTHER INFORMATION			49
Item 1. Legal Proceedings			49
Item 1A. Risk Factors			49
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			49
Item 3. Defaults Upon Senior Securities			49
Item 4. Mine Safety Information			49
Item 5. Other Information			49
Item 6. Exhibits			50
SIGNATURES			51

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 our Annual Report on Form 10-K for the year ended December 31, 2021 and in other reports we may file from time to time with the United States 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 statements, 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)	June 30, 2022		December 31, 2021
Assets
Current assets
Cash and cash equivalents	$	140,551	$	155,481

Accounts receivable, net	9,171		7,612
Inventory	87,493		65,588
Notes receivable	4,541		4,500
Other current assets	18,194		24,831
Total current assets	259,950		258,012
Property and equipment, net	239,367		239,656
Operating lease right-of-use assets	110,252		103,958
Intangible assets, net	155,573		59,271
Goodwill	43,018		42,967
Deferred tax assets, net	705		—
Other noncurrent assets	19,928		19,572
TOTAL ASSETS	$	828,793	$	723,436

Liabilities and Stockholders' Equity
Current liabilities
Accounts payable and accrued liabilities	$	59,967	$	45,454
Current portion of debt, net	11,231		27,940
Operating lease liabilities, current	2,198		2,665
Income taxes payable	44,096		36,184
Other current liabilities	4,552		5,152
Total current liabilities	122,044		117,395
Long-term debt, net	282,050		230,846
Operating lease liabilities, noncurrent	228,079		197,295
Deferred tax liabilities, net	—		1,423
Other non-current liabilities	10,000		—
Total liabilities	642,173		546,959
Commitments and contingencies (Note 15)
Stockholders' Equity
Preferred stock, $0.001 par value per share; 10,000 shares authorized, none issued and outstanding as of June 30, 2022 and December 31, 2021 (Note 12)	—		—
Class A common stock, $0.001 par value per share; 750,000 shares authorized; 187,430 and 171,521 shares issued and outstanding at June 30, 2022 and December 31, 2021, respectively (Note 12)	187		171
Class B common stock, $0.001 par value per share, 100 shares authorized; 65 issued and outstanding at June 30, 2022 and December 31, 2021 (Note 12)	—		—
Additional paid-in capital	421,669		362,555
Accumulated deficit	(235,236)		(186,249)


Total stockholders' equity	186,620		176,477
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	828,793	$	723,436

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 June 30,				Six Months Ended June 30,
(in thousands, except per share amounts)	2022		2021		2022		2021
Revenue, net	$	97,499	$	83,367	$	182,589	$	149,504
Cost of goods sold	(64,531)		(48,851)		(126,174)		(85,321)
Gross profit	32,968		34,516		56,415		64,183
Operating expenses
General and administrative expenses	33,573		30,612		66,800		55,758
Settlement expense	—		—		5,000		36,511
Total operating expenses	33,573		30,612		71,800		92,269
Operating (loss) profit	(605)		3,904		(15,385)		(28,086)

Other (expense) income
Interest expense	(9,246)		(36,888)		(15,277)		(44,225)
Other, net	151		82		254		162
Total other expense	(9,095)		(36,806)		(15,023)		(44,063)
Loss before income taxes	(9,700)		(32,902)		(30,408)		(72,149)
Income tax expense	(11,472)		(11,995)		(18,579)		(20,971)
Net loss	$	(21,172)	$	(44,897)	$	(48,987)	$	(93,120)



Net loss per share attributable to Class A and Class B common stockholders — basic and diluted (Note 12)	$	(0.11)	$	(0.30)	$	(0.27)	$	(0.73)

Weighted-average common shares outstanding — basic and diluted	185,308		150,341		178,898		128,392

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)


		Six Months Ended June 30, 2022
	Class A and Class B Common Stock
(in thousands)		Shares	Amount		Additional Paid-In Capital		Accumulated Deficit		Total
December 31, 2021		171,586	$	171	$	362,555	$	(186,249)	$	176,477
Vesting of equity-based payment awards		4,131	4		(4)		—		—
Equity-based compensation expense		—	—		14,306		—		14,306
Taxes withheld under equity-based compensation plans, net		(1,260)	(1)		(4,941)		—		(4,942)
Net loss		—	—		—		(27,815)		(27,815)
March 31, 2022		174,457	$	174	$	371,916	$	(214,064)	$	158,026

Shares issued in acquisitions or asset purchases		12,900	13		42,944		—		42,957
Vesting of equity-based payment awards		138	—		—		—		—
Equity-based compensation expense		—	—		4,170		—		4,170

Issuance of warrants		—	—		2,639		—		2,639

Net loss		—	—		—		(21,172)		(21,172)
June 30, 2022		187,495	$	187	$	421,669	$	(235,236)	$	186,620

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)


			Six Months Ended June 30, 2021
		Class A and Class B Common Stock
(in thousands)	Historical LLC Units		Shares	Amount		Additional Paid-In Capital		Accumulated Deficit		Total
December 31, 2020	106,082		—	$	—	$	67,378	$	(63,592)	$	3,786
Vesting of restricted common units	1,033		—	—		—		—		—
Equity-based compensation expense	50		—	—		2,487		—		2,487
Reserve for equity issued in litigation settlement	—		—	—		27,431		—		27,431
Net loss	—		—	—		—		(48,223)		(48,223)
March 31, 2021	107,165		—	$	—	$	97,296	$	(111,815)	$	(14,519)
Release of reserve for equity issued in litigation settlement	—		—	—		(27,431)		—		(27,431)
Equity issued in litigation settlement	5,025		—	—		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
Conversion of convertible notes upon initial public offering	—		37,388	37		137,718		—		137,755
Beneficial conversion feature associated with conversion of preferred units upon initial public offering	—		3,420	3		27,358		—		27,361
Vesting of restricted common units	1,176		3,155	3		(3)		—		—
Equity-based compensation expense	—		—	—		1,711		—		1,711
Repurchase of warrants	—		—	—		(4,156)		—		(4,156)
Net loss	—		—	—		—		(44,897)		(44,897)
June 30, 2021	—		168,829	$	168	$	345,864	$	(156,712)	$	189,320

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

ASCEND WELLNESS HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)


	Six Months Ended June 30,
(in thousands)	2022		2021
Cash flows from operating activities


Net loss	$	(48,987)	$	(93,120)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization	18,138		11,911
Amortization of operating lease assets	837		612
Non-cash interest expense	3,413		35,898
Equity-based compensation expense	11,630		4,198

Equity issued in litigation settlement	—		27,431
Deferred income taxes	(2,128)		(1,056)
Loss on sale of assets	746		—
Changes in operating assets and liabilities, net of effects of acquisitions
Accounts receivable	(1,559)		1,401

Inventory	(24,468)		(19,992)
Other current assets	4,467		(4,084)

Other noncurrent assets	(358)		(9,110)
Accounts payable and accrued liabilities	11,038		19,245

Other current liabilities	(601)		1,415
Lease liabilities	(585)		464
Income taxes payable	7,912		12,732

Net cash used in operating activities	(20,505)		(12,055)
Cash flows from investing activities
Additions to capital assets	(32,442)		(56,046)
Investments in notes receivable	(1,390)		(1,656)
Collection of notes receivable	164		164
Proceeds from sale of assets	39,225		—
Acquisition of businesses, net of cash acquired	(24,890)		(13,630)
Purchase of intangible assets	(29,009)		—

Net cash used in investing activities	(48,342)		(71,168)
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	65,000		49,500
Repayments of debt	(1,455)		(2,071)



Debt issuance costs	(4,686)		—
Taxes withheld under equity-based compensation plans, net	(4,942)		—
Repurchase of warrants	—		(4,156)
Net cash provided by financing activities	53,917		129,338
Net (decrease) increase in cash, cash equivalents, and restricted cash	(14,930)		46,115
Cash, cash equivalents, and restricted cash at beginning of period	155,481		58,097
Cash, cash equivalents, and restricted cash at end of period	$	140,551	$	104,212

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)


	Six Months Ended June 30,
(in thousands)	2022		2021
Supplemental Cash Flow Information
Interest paid	$	10,515	$	6,103
Income taxes paid	12,807		9,311

Non-cash investing and financing activities
Capital expenditures incurred but not yet paid	8,818		13,734
Issuance of shares for intangible assets	42,957		—
Warrants issued with notes payable	2,639		—
Financing costs incurred but not yet paid	300		—

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
Direct issuance costs incurred but not yet paid	—		156

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 “AWH,” “Ascend,” “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, Michigan, Ohio, Massachusetts, New Jersey, and Pennsylvania. 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. The historical consolidated financial statements prior to the Conversion date are those of Ascend Wellness Holdings, LLC and its subsidiaries.

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. On May 4, 2021, the Company completed an Initial Public Offering (“IPO”) of its Class A common stock. See Note 12, “Stockholders’ 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® Best Market (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 interim 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) in our Annual Report on Form 10-K for the year ended December 31, 2021 (the “Annual Report”), as filed with the United States Securities and Exchange Commission (“SEC”) and with the relevant Canadian securities regulatory authorities under its profile on the System for Electronic Document Analysis and Retrieval (“SEDAR”). Except as noted below, there have been no material changes to the Company’s significant accounting policies and estimates during the six months ended June 30, 2022.

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.

Ascend Wellness Holdings, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

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

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.

Use of Estimates

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.

Liquidity

As reflected in the Financial Statements, the Company had an accumulated deficit as of June 30, 2022 and December 31, 2021, as well as a net loss for the three and six months ended June 30, 2022 and 2021, and negative cash flows from operating activities during the six months ended June 30, 2022 and 2021, 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 and (ii) continued growth of sales 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.

Cash and Cash Equivalents and Restricted Cash

As of June 30, 2022 and December 31, 2021, we did not hold significant restricted cash or cash equivalents.

Fair Value of Financial Instruments

During the six months ended June 30, 2022 and 2021, 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 six months ended June 30, 2022 and 2021 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,

Ascend Wellness Holdings, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

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

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, unvested restricted stock units, and outstanding stock options. Potential dilutive securities in the prior year include incremental shares of common stock issuable upon the exercise of warrants and unvested restricted stock awards. At June 30, 2022 and 2021, 13,294 and 5,400 shares of common stock equivalents, respectively, were excluded from the calculation of diluted EPS because their inclusion would have been anti-dilutive.

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

Debt

In August 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“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. ASU 2020-06 became effective for us on January 1, 2022 and did not have a significant impact on our consolidated financial statements upon adoption.

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. ASU 2021-04 became effective for us on January 1, 2022 and did not have a significant impact on our consolidated financial statements upon adoption.

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.

Ascend Wellness Holdings, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

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

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.

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.

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 guidance was effective upon issuance as of March 12, 2020 and may be adopted as reference rate reform activities occur through December 31, 2022. We have not yet applied any of the expedients and exceptions and do not expect this guidance to have a material impact on our consolidated financial statements.

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 June 30,				Six Months Ended June 30,
(in thousands)	2022		2021		2022		2021
Retail revenue	$	75,556	$	58,038	$	138,846	$	103,559
Wholesale revenue	42,114		39,473		80,047		69,815
	117,670		97,511		218,893		173,374
Elimination of inter-company revenue	(20,171)		(14,144)		(36,304)		(23,870)
Total revenue, net	$	97,499	$	83,367	$	182,589	$	149,504

Ascend Wellness Holdings, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

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

The liability related to the loyalty program we offer dispensary customers at certain locations was $562 and $518 at June 30, 2022 and December 31, 2021, respectively, and is included within “Other current liabilities” on the accompanying unaudited Condensed Consolidated Balance Sheets. As of June 30, 2022 and December 31, 2021, the Company recorded $341 and $374, respectively, in allowance for doubtful accounts. Write-offs were not significant during the three and six months ended June 30, 2022 and 2021.

4. ACQUISITIONS

Business Combinations

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 are included in the Financial Statements from the date of the acquisition.

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 Acquisitions

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. Effective October 1, 2021, the Company completed the acquisition of BCCO, LLC (“BCCO”), a medical dispensary license holder in Ohio. Additionally, effective December 22, 2021, the Company completed the acquisition of Ohio Cannabis Clinic, LLC (“OCC”), a medical dispensary license holder in Ohio.

During the six months ended June 30, 2022, we recorded a measurement period purchase accounting adjustment of $51 related to the OCC acquisition for the final working capital adjustment, with a related impact to goodwill. No significant adjustments were recorded in finalizing the purchase price allocation for Hemma during the three and six months ended June 30, 2022.

Financial and Pro Forma Information

The following table summarizes the revenue and net (loss) income related to Hemma, BCCO, and OCC that is included in our consolidated results for the three and six months ended June 30, 2022.


	Three Months Ended June 30, 2022
(in thousands)	Hemma		BCCO		OCC
Revenue, net	$	303	$	1,882	$	1,349
Net (loss) income	(950)		440		154


	Six Months Ended June 30, 2022
(in thousands)	Hemma		BCCO		OCC
Revenue, net	$	447	$	3,661	$	2,723
Net (loss) income	(1,240)		778		358

Our results of operations for the three and six months ended June 30, 2021 include $101 of net loss related to Hemma and no revenue.

Ascend Wellness Holdings, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

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

Pro forma financial information is not presented for Hemma, BCCO, or OCC as such results are immaterial, individually and in aggregate, to both the current and prior periods.

Asset Acquisitions

The Company determined the acquisition below did not meet the definition of a business and is therefore accounted for as an asset acquisition using the cost accumulation model whereby the cost of the acquisition, including certain transaction costs, is allocated to the assets acquired on a relative fair value basis.

Story of PA

On April 19, 2022, the Company acquired Story of PA CR, LLC (“Story of PA”). Total consideration for the acquisition of the outstanding equity interests in Story of PA was $53,127, consisting of 12,900 shares of Class A common stock with a fair value of $42,957 and cash consideration of $10,170. Story of PA received a clinical registrant permit from the Pennsylvania Department of Health on March 1, 2022. Through a research collaboration agreement with the Geisinger Commonwealth School of Medicine (“Geisinger”), a Pennsylvania Department of Health-Certified Medical Marijuana Academic Clinical Research Center, the Company intends to open a cultivation and processing facility and up to six medical dispensaries throughout the Commonwealth of Pennsylvania. The Company will help fund clinical research to benefit the patients of Pennsylvania by contributing $30,000 to Geisinger over the next two years (of which $15,000 was funded in April 2022), and up to an additional $10,000 over the next ten years.

The total acquisition cost was $100,203, as summarized in the table below, and was allocated to the license intangible asset acquired. The license will be amortized in accordance with the Company’s policy once operations commence.


(in thousands)
Equity consideration(1)	$	42,957
Cash consideration	10,170
Geisinger funding commitment(2)	40,000
Other liabilities assumed(3)	5,130
Forgiveness of bridge loan(4)	1,349
Transaction costs	595
Cost of initial investment	2
Total	$	100,203

(1)Comprised of 12,900 shares of Class A common stock with a fair value of $42,957 at issuance.

(2)Of the total funding commitment, $15,000 was paid in April 2022 and $15,000 is due in April 2023 and is included within “Accounts payable and other accrued liabilities” on the unaudited Condensed Consolidated Balance Sheet at June 30, 2022. An additional $10,000 is due annually from the third anniversary of the transaction through the tenth anniversary based on a percentage of revenue (after operations commence) and is included within “Other non-current liabilities” on the unaudited Condensed Consolidated Balance Sheet at June 30, 2022.

(3)Liabilities related to two consulting agreements assumed in the transaction. A total of $2,772 related to one agreement was paid during the second quarter of 2022. A payment of $472 related to the second agreement was made during the second quarter of 2022 and a total of $1,886 is due, in quarterly payments, through June 2023 and is included within “Accounts payable and other accrued liabilities” on the unaudited Condensed Consolidated Balance Sheet at June 30, 2022.

(4)Refer to Note 6, “Notes Receivable,” for additional information on the bridge loan agreement.

Ascend Wellness Holdings, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

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

5. INVENTORY

The components of inventory are as follows:


(in thousands)	June 30, 2022		December 31, 2021
Materials and supplies	$	17,280	$	8,899
Work in process	39,544		28,235
Finished goods	30,669		28,454
Total	$	87,493	$	65,588

Total compensation expense capitalized to inventory was $12,421 and $8,157 during the three months ended June 30, 2022 and 2021, respectively, and $25,555 and $14,520 during the six months ended June 30, 2022 and 2021, respectively. At June 30, 2022 and December 31, 2021, $10,453 and $8,571, respectively, of compensation expense remained capitalized as part of inventory.

6. NOTES RECEIVABLE


(in thousands)	June 30, 2022		December 31, 2021
MMNY - working capital loan(1)	$	2,422	$	2,422
Marichron - note receivable(2)	1,500		1,500
Marichron - working capital loan(2)	619		78
Other(3)	—		500
Total	$	4,541	$	4,500

(1)On February 25, 2021, the Company entered into a working capital advance agreement with MedMen NY, Inc. (“MMNY”), an unrelated third party, in conjunction with an Investment Agreement (as defined in Note 15, “Commitments and Contingencies”). The working capital advance agreement allows for initial maximum borrowings of up to $10,000, which may be increased to $17,500, and was issued to provide MMNY with additional funding for operations in conjunction with the Investment Agreement. Borrowings do not bear interest, but may be subject to a financing fee. The outstanding balance is due and payable at the earlier of the initial closing of the Investment Agreement or, if the Investment Agreement is terminated for certain specified reasons, three business days following such termination. Additional borrowing requests are at the Company’s discretion.

(2)In April 2019, the Company issued a $1,500 promissory note to Marichron Pharma LLC (“Marichron”), an unrelated third party, with a stated interest rate of 12% per year. The Company also entered into a working capital line of credit with Marichron, allowing for maximum borrowings of $1,000. The promissory note and working capital line of credit were issued in conjunction with a unit purchase option agreement that the parties entered into during 2019 and were issued to provide Marichron with additional funding for operations. The note, as amended, matures at the earlier of the definitive closing of the unit purchase option agreement or December 31, 2022. The Company submitted a license transfer application to the state in June 2022, which approval remains pending, and may settle the outstanding balances as part of the purchase price at closing following state approval.

(3)In November 2021, the Company issued a bridge loan to Story of PA that provided for maximum borrowings of up to $16,000 with an interest rate of 9% per annum. Repayment was due at maturity in November 2023 or upon an event of default (as defined in the bridge loan agreement). In April 2022, the Company acquired the outstanding equity interests of Story of PA (refer to Note 4, “Acquisitions”) and settled the balance of $1,349 due under the bridge loan as additional consideration at closing.

In addition to the activity described above, in May 2022 the Company issued a secured promissory note to a retail dispensary license holder in Massachusetts providing up to $3,500 of funding (the “Massachusetts Note”), of which none is outstanding as of June 30, 2022. The Massachusetts Note accrues interest at a fixed annual rate of 11.5%. Following the opening of the borrower’s retail dispensary, the principal amount is due monthly through the maturity date of May 25, 2026. The borrower may prepay the outstanding principal amount, plus accrued interest thereon. Borrowings under the Massachusetts Note are secured by the assets of the borrower. The borrower is partially owned by an entity that is managed, in part, by one of the founders of the Company.

Ascend Wellness Holdings, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

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

Additionally, a total of $4,260 is outstanding at June 30, 2022 related to a promissory note issued to the owner of a property the Company is leasing, of which $160 and $4,100 is included in “Other current assets” and “Other noncurrent assets,” respectively, on the unaudited Condensed Consolidated Balance Sheet. At December 31, 2021, $4,337 was outstanding, of which $156 and $4,181 is included in “Other current assets” and “Other noncurrent assets,” respectively, on the unaudited Condensed Consolidated Balance Sheet.

The Company has not identified any collectability concerns as of June 30, 2022 for the amounts due under notes receivable. No impairment losses on notes receivable were recognized during the six months ended June 30, 2022 or 2021.

7. PROPERTY AND EQUIPMENT

Property and equipment consists of the following:


(in thousands)	June 30, 2022		December 31, 2021
Leasehold improvements	$	145,471	$	103,976
Furniture, fixtures, and equipment	54,241		49,058
Buildings	49,976		45,663
Construction in progress	19,867		60,986
Land	2,430		1,302
Property and equipment, gross	271,985		260,985
Less: accumulated depreciation	32,618		21,329
Property and equipment, net	$	239,367	$	239,656

Total depreciation expense was $6,296 and $3,509 during the three months ended June 30, 2022 and 2021, respectively, and $11,674 and $6,461 during the six months ended June 30, 2022 and 2021, respectively. Total depreciation expense capitalized to inventory was $4,764 and $2,378 during the three months ended June 30, 2022 and 2021, respectively, and $8,972 and $4,334 during the six months ended June 30, 2022 and 2021, respectively. At June 30, 2022 and December 31, 2021, $4,772 and $2,070, respectively, of depreciation expense remained capitalized as part of inventory.

During the six months ended June 30, 2022, we recognized a loss of $874 related to the sale of three properties, net of a $72 gain on sale recognized during the three months ended June 30, 2022, which is included within “General and administrative expenses” on the unaudited Condensed Consolidated Statement of Operations, and wrote-off $385 of accumulated depreciation.

In June 2022, the Company entered into a master lease agreement under which the Company may be reimbursed for up to $15,000 of equipment purchases, which the Company will subsequently lease back pursuant to individual lease agreements. No such individual lease agreements were in effect as of June 30, 2022.

Ascend Wellness Holdings, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

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

8. VARIABLE INTEREST ENTITIES

A variable interest entity (“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 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.

The following tables present the summarized financial information about the Company’s consolidated VIE that is included in the unaudited Condensed Consolidated Balance Sheets as of June 30, 2022 and December 31, 2021 and in the unaudited Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2022 and 2021. This entity was determined to be a VIE since the Company possesses the power to direct the significant activities of the VIE and has the obligation to absorb losses or the right to receive benefits from the VIE.


	Ascend Illinois
(in thousands)	June 30, 2022		December 31, 2021
Current assets	$	77,692	$	111,118
Other noncurrent assets	171,436		171,566
Current liabilities	70,534		71,264
Noncurrent liabilities	115,004		126,397

Equity	54,797		41,873


	Ascend Illinois
	Three Months Ended June 30,				Six Months Ended June 30,
(in thousands)	2022		2021		2022		2021
Revenue, net	$	64,914	$	68,083	$	128,806	$	122,821


Net income	5,902		9,329		13,200		16,423

Ascend Wellness Holdings, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

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

9. INTANGIBLE ASSETS AND GOODWILL

Intangible Assets


(in thousands)	June 30, 2022		December 31, 2021

Finite-lived intangible assets
Licenses and permits	$	155,484	$	55,281
In-place leases	19,963		19,963
Trade names	380		380
	175,827		75,624
Accumulated amortization:
Licenses and permits	(8,218)		(5,415)
In-place leases	(11,656)		(10,558)
Trade names	(380)		(380)
	(20,254)		(16,353)

Total intangible assets, net	$	155,573	$	59,271

Amortization expense was $1,931 and $1,687 during the three months ended June 30, 2022 and 2021, respectively, and $3,901 and $3,372 during the six months ended June 30, 2022 and 2021, respectively. Total amortization expense capitalized to inventory was $406 and $348 during the three months ended June 30, 2022 and 2021, respectively, and $814 and $610 during the six months ended June 30, 2022 and 2021, respectively. At June 30, 2022 and December 31, 2021, $680 and $502, respectively, of amortization expense remained capitalized as part of inventory.

No impairment indicators were noted during the six months ended June 30, 2022 or 2021 and, as such, we did not record any impairment charges during either period.

Goodwill


(in thousands)
Balance, December 31, 2021	$	42,967

Adjustments to purchase price allocation(1)	51
Balance, June 30, 2022	$	43,018

(1)During the six months ended June 30, 2022, we recorded measurement period purchase accounting adjustments related to one of our 2021 acquisitions. See Note 4, “Acquisitions,” for additional information.

10. LEASES

The Company leases land, buildings, equipment, and other capital assets which it uses for corporate purposes and the production and sale of cannabis products. We determine if an arrangement is a lease at inception and begin recording lease activity at the commencement date, which is generally the date in which we take possession of or control the physical use of the asset. Right-of-use (“ROU”) assets and lease liabilities are recognized based on the present value of lease payments over the lease term with lease expense recognized on a straight-line basis. We use our incremental borrowing rate to determine the present value of future lease payments unless the implicit rate is readily determinable. Our incremental borrowing rate is the rate of interest we would have to pay to borrow on a collateralized basis over a similar term at an amount equal to the lease payments in a similar economic environment. This incremental borrowing rate is applied to the minimum lease payments within each lease agreement to determine the amounts of our ROU assets and lease liabilities.

Ascend Wellness Holdings, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

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

Our lease terms range from 1 to 20 years. Some leases include one or more options to renew, with renewal terms that can extend the lease terms. We typically exclude options to extend the lease in a lease term unless it is reasonably certain that we will exercise the option and when doing so is at our sole discretion. The depreciable lives of assets and leasehold improvements are limited by the expected lease term unless there is a transfer of title or purchase option reasonably certain of exercise. Typically, if we decide to cancel or terminate a lease before the end of its term, we would owe the lessor the remaining lease payments under the term of such lease. Our lease agreements generally do not contain any material residual value guarantees or material restrictive covenants. We may rent or sublease to third parties certain real property assets that we no longer use.

Lease agreements may contain rent escalation clauses, rent holidays, or certain landlord incentives, including tenant improvement allowances. ROU assets include amounts for scheduled rent increases and are reduced by lease incentive amounts. Certain of our lease agreements include variable rent payments, consisting primarily of rental payments adjusted periodically for inflation and amounts paid to the lessor based on cost or consumption, such as maintenance and utilities. Variable rent lease components are not included in the lease liability.

The components of lease assets and lease liabilities and their classification on our unaudited Condensed Consolidated Balance Sheets were as follows:


(in thousands)	Classification	June 30, 2022		December 31, 2021
Lease assets
Operating leases	Operating lease right-of-use assets	$	110,252	$	103,958



Lease liabilities
Current liabilities
Operating leases	Operating lease liabilities, current	$	2,198	$	2,665

Noncurrent liabilities
Operating leases	Operating lease liabilities, noncurrent	228,079		197,295

Total lease liabilities		$	230,277	$	199,960

The components of lease costs and classification within the unaudited Condensed Consolidated Statements of Operations were as follows:


	Three Months Ended June 30,				Six Months Ended June 30,
(in thousands)	2022		2021		2022		2021
Operating lease costs
Capitalized to inventory	$	6,778	$	4,620	$	13,836	$	9,114
General and administrative expenses	927		1,310		1,259		2,590
Total operating lease costs	$	7,705	$	5,930	$	15,095	$	11,704

At June 30, 2022 and December 31, 2021, $5,713 and $4,393, respectively, of lease costs remained capitalized in inventory. We recognized a gain of $128 during the six months ended June 30, 2022 related to the termination of two of our leases, which is included in “General and administrative expenses” on the unaudited Condensed Consolidated Statement of Operations.

The following table presents information on short-term and variable lease costs:


	Three Months Ended June 30,				Six Months Ended June 30,
(in thousands)	2022		2021		2022		2021


Total short-term and variable lease costs	$	1,263	$	174	$	2,469	$	826

Sublease income generated during the three and six months ended June 30, 2022 and 2021 was immaterial.

Ascend Wellness Holdings, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

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

The following table includes supplemental cash and non-cash information related to our leases:


	Six Months Ended June 30,
(in thousands)	2022		2021
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows from operating leases	$	14,880	$	10,568


ROU assets obtained in exchange for new lease obligations
Operating leases	$	33,844	$	17,759

The weighted-average remaining lease term for our real estate leases is 15.6 years and 15.8 years at June 30, 2022 and December 31, 2021, respectively, and the weighted-average discount rate is 14.8% and 12.7% at June 30, 2022 and December 31, 2021, respectively.

The amounts of future undiscounted cash flows related to the lease payments over the lease terms and the reconciliation to the present value of the lease liabilities as recorded on our unaudited Condensed Consolidated Balance Sheet as of June 30, 2022 are as follows:


(in thousands)	Operating Lease Liabilities
Remainder of 2022	$	16,260
2023	33,508
2024	34,450
2025	35,418
2026	36,022
Thereafter	475,680
Total lease payments	631,338
Less: imputed interest	401,061
Present value of lease liabilities	$	230,277

Lease Amendments

In March 2022, we amended the leases related to our Athol, Massachusetts and Lansing, Michigan cultivation facilities to increase the tenant improvement allowance for each, which resulted in increased rent amounts. We accounted for the amendments as lease modifications and remeasured each ROU asset and lease liability as of the amendment dates. The modifications resulted in a total additional tenant improvement allowance of $19,300, a reduction of $22,483 to total ROU assets, and a reduction of $3,183 to total lease liabilities.

Sale Leaseback Transactions

In February 2022, the Company sold and subsequently leased back one of its capital assets in New Jersey for total proceeds of $35,400, excluding transaction costs. The transaction met the criteria for sale leaseback treatment. The lease was recorded as an operating lease and resulted in a lease liability of $33,707 and an ROU asset of $29,107, which was recorded net of a $4,600 tenant improvement allowance.

In June 2022, the Company sold and subsequently leased back two of its capital assets in Pennsylvania for total proceeds of $3,825, excluding transaction costs. Each transaction met the criteria for sale leaseback treatment. The leases were recorded as operating leases and resulted in a total lease liability and ROU asset of $2,102. Each of the lease agreements provide for a capital expenditure allowance of up to $3,000. The rent payments due under each lease will increase by a percentage of the capital expenditure allowance as funding occurs, and, therefore, each lease will be reassessed and remeasured as a modification upon such funding. As of June 30, 2022, no amounts were funded under the capital expenditure allowance for either lease.

Ascend Wellness Holdings, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

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

On June 29, 2021, a wholly owned subsidiary of the Company entered into a definitive agreement for the sale of certain real estate and related assets of a commercial property located in New Bedford, Massachusetts to a third-party for a total purchase price of $350, subject to certain adjustments, which remains pending. The closing is subject to certain conditions, including entering into an operating lease with the third-party. The Company anticipates this transaction will be accounted for either as a sale leaseback transaction or a finance liability, depending on the final lease terms.

The following table presents cash payments due under transactions that did not qualify for sale-leaseback treatment. The cash payments are allocated between interest and liability reduction, as applicable. The “sold” assets remain within land, buildings, and leasehold improvements, as appropriate, for the duration of the lease and a financing liability equal to the amount of proceeds received is recorded within “Long-term debt, net” on the accompanying unaudited Condensed Consolidated Balance Sheets.


(in thousands)	Remainder of 2022		2023		2024		2025		2026		Thereafter	Total
Cash payments due under financing liabilities	$	1,050	$	2,143	$	2,206	$	2,271	$	2,338