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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, 2023
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from______ to______
Commission File Number: 333-254800
https://cdn.kscope.io/48e5121a648078f74c3536ffbad31c79-AWH Logo.jpg
ASCEND WELLNESS HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
Delaware83-0602006
(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 classTrading 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 filerAccelerated filer
Non-accelerated filerSmaller 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 7, 2023, there were 205,688,362 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
This Quarterly Report on Form 10-Q for Ascend Wellness Holdings, Inc. and its subsidiaries (collectively referred to as “AWH,” “Ascend,” “we,” “us,” “our,” or the “Company”) contains both historical and forward-looking statements, within the meaning of the Private Securities Litigation Reform Act of 1995, and forward-looking information, within the meaning of applicable Canadian securities laws (collectively, “forward-looking statements”), that involve risks and uncertainties. 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 proposed legislation on our tax liabilities and financial performance;
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 (the “FDA”) 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 climate change;
the effect of risks related to information technology systems;
the effect of unknown health impacts associated with the use of cannabis and cannabis derivative products;
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 the maturation of the cannabis market;
the effect of adverse changes in the wholesale and retail prices;
the effect of sustained inflation;
the effect of political and economic instability;
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.
1


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, 2022 (the “Annual Report”) 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. The forward-looking statements contained in this Form 10-Q are expressly qualified in their entirety by this cautionary statement.
2


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, 2023December 31, 2022
Assets
Current assets
Cash and cash equivalents$68,046 $74,146 
Accounts receivable, net22,121 14,101 
Inventory89,552 97,532 
Notes receivable16,713 3,423 
Other current assets16,711 9,541 
Total current assets213,143 198,743 
Property and equipment, net267,117 279,860 
Operating lease right-of-use assets130,331 108,810 
Intangible assets, net220,730 221,093 
Goodwill48,288 44,370 
Other noncurrent assets19,951 19,284 
TOTAL ASSETS$899,560 $872,160 
Liabilities and Stockholders' Equity
Current liabilities
Accounts payable and accrued liabilities$59,954 $56,595 
Current portion of debt, net9,013 11,329 
Operating lease liabilities, current 3,204 2,633 
Income taxes payable46,956 34,678 
Other current liabilities5,526 5,714 
Total current liabilities124,653 110,949 
Long-term debt, net300,784 319,297 
Operating lease liabilities, noncurrent260,463 229,816 
Deferred tax liabilities, net31,640 33,607 
Other non-current liabilities16,065 15,076 
Total liabilities733,605 708,745 
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, 2023 and December 31, 2022
  
Class A common stock, $0.001 par value per share; 750,000 shares authorized; 204,825 and 187,999 shares issued and outstanding at June 30, 2023 and December 31, 2022
205 188 
Class B common stock, $0.001 par value per share, 100 shares authorized; 65 issued and outstanding at June 30, 2023 and December 31, 2022
  
Additional paid-in capital450,529 430,375 
Accumulated deficit(284,779)(267,148)
Total stockholders' equity165,955 163,415 
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY$899,560 $872,160 
The accompanying notes are an integral part of the condensed consolidated financial statements.
3

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)2023202220232022
Revenue, net$122,988 $97,499 $237,164 $182,589 
Cost of goods sold(94,669)(64,531)(173,141)(126,174)
Gross profit28,319 32,968 64,023 56,415 
Operating expenses
General and administrative expenses36,304 33,573 71,753 66,800 
Settlement expense   5,000 
Total operating expenses36,304 33,573 71,753 71,800 
Operating loss(7,985)(605)(7,730)(15,385)
Other income (expense)
Interest expense(10,481)(9,246)(19,456)(15,277)
Other, net24,044 151 24,309 254 
Total other income (expense)13,563 (9,095)4,853 (15,023)
Income (loss) before income taxes5,578 (9,700)(2,877)(30,408)
Income tax expense(4,737)(11,472)(14,754)(18,579)
Net income (loss)$841 $(21,172)$(17,631)$(48,987)
Net income (loss) per share attributable to Class A and Class B common stockholders — basic and diluted$ $(0.11)$(0.09)$(0.27)
Weighted-average common shares outstanding — basic and diluted195,650 185,308 192,068 178,898 

The accompanying notes are an integral part of the condensed consolidated financial statements.
4

ASCEND WELLNESS HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
(UNAUDITED)
Six Months Ended June 30, 2023
Class A and Class B
Common Stock
(in thousands)SharesAmountAdditional Paid-In CapitalAccumulated DeficitTotal
December 31, 2022188,064 $188 $430,375 $(267,148)$163,415 
Vesting of equity-based payment awards2,023 2 (2)—  
Equity-based compensation expense— — 4,555 — 4,555 
Taxes withheld under equity-based compensation plans, net(521)(1)(536)— (537)
Net loss— — — (18,472)(18,472)
March 31, 2023189,566 $189 $434,392 $(285,620)$148,961 
Shares issued in private placement, net of offering expenses9,859 10 6,990 — 7,000 
Shares issued in acquisitions or asset purchases5,185 5 4,765 — 4,770 
Vesting of equity-based payment awards382 1 (1)—  
Equity-based compensation expense— — 4,457 — 4,457 
Taxes withheld under equity-based compensation plans, net(102)— (74)— (74)
Net income— — — 841 841 
June 30, 2023204,890 $205 $450,529 $(284,779)$165,955 

Six Months Ended June 30, 2022
Class A and Class B
Common Stock
(in thousands)SharesAmountAdditional Paid-In CapitalAccumulated DeficitTotal
December 31, 2021171,586 $171 $362,555 $(186,249)$176,477 
Vesting of equity-based payment rewards4,131 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, 2022174,457 $174 $371,916 $(214,064)$158,026 
Shares issued in acquisitions or asset purchases12,900 13 42,944 — 42,957 
Vesting of equity-based payment awards138 — — — — 
Equity-based compensation expense— — 4,170 — 4,170 
Issuance of warrants— — 2,639 — 2,639 
Net loss— — — (21,172)(21,172)
June 30, 2022187,495 $187 $421,669 $(235,236)$186,620 
The accompanying notes are an integral part of the condensed consolidated financial statements.
5

ASCEND WELLNESS HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Six Months Ended
June 30,
(in thousands)20232022
Cash flows from operating activities
Net loss$(17,631)$(48,987)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation and amortization29,264 18,138 
Amortization of operating lease assets531 837 
Non-cash interest expense5,280 3,413 
Equity-based compensation expense9,012 11,630 
Deferred income taxes(4,381)(2,128)
(Gain) loss on sale of assets(226)746 
Other12,881 2,316 
Changes in operating assets and liabilities, net of effects of acquisitions
Accounts receivable(8,020)(1,559)
Inventory(2,698)(26,784)
Other current assets(7,136)4,467 
Other noncurrent assets(667)(358)
Accounts payable and accrued liabilities3,390 11,038 
Other current liabilities(188)(601)
Lease liabilities(514)(585)
Income taxes payable12,278 7,912 
Net cash provided by (used in) operating activities31,175 (20,505)
Cash flows from investing activities
Additions to capital assets(4,715)(32,442)
Investments in notes receivable(14,585)(1,390)
Collection of notes receivable164 164 
Proceeds from sale of assets15,000 39,225 
Acquisition of businesses, net of cash acquired(19,857)(24,890)
Purchase of intangible assets(943)(29,009)
Net cash used in investing activities(24,936)(48,342)
Cash flows from financing activities
Proceeds from issuance of common stock in private placement7,000  
Proceeds from issuance of debt 65,000 
Repayments of debt(19,092)(1,455)
Repayments under finance leases(147) 
Debt issuance costs (4,686)
Taxes withheld under equity-based compensation plans, net(100)(4,942)
Net cash (used in) provided by financing activities(12,339)53,917 
Net decrease in cash, cash equivalents, and restricted cash(6,100)(14,930)
Cash, cash equivalents, and restricted cash at beginning of period74,146 155,481 
Cash, cash equivalents, and restricted cash at end of period$68,046 $140,551 



The accompanying notes are an integral part of the condensed consolidated financial statements.
6

ASCEND WELLNESS HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(CONTINUED, UNAUDITED)

Six Months Ended
June 30,
(in thousands)20232022
Supplemental Cash Flow Information
Interest paid$14,064 $10,515 
Income taxes paid, net of refunds6,817 12,807 
Non-cash investing and financing activities
Capital expenditures incurred but not yet paid5,103 8,818 
Issuance of shares in business acquisitions4,770  
Taxes withheld under equity-based compensation plans, net611  
Issuance of shares for intangible assets 42,957 
Warrants issued with notes payable 2,639 
Financing costs incurred but not yet paid 300 
The accompanying notes are an integral part of the condensed consolidated financial statements.
7

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 vertically integrated 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, Maryland, Massachusetts, Michigan, Ohio, New Jersey, and Pennsylvania. Our core business is the cultivation, manufacturing, and distribution of cannabis consumer packaged goods, which are sold through company-owned retail stores and to third-party licensed retail cannabis stores. AWH is headquartered in New York, New York.
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.”
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, 2022 (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 Plus (“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, 2023.
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.
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.
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 and can delay adopting new or revised accounting standards until such time as those standards apply to private companies.
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.
8

Ascend Wellness Holdings, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
(in thousands, except per unit or per share data)

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.
Liquidity
As reflected in the Financial Statements, the Company had an accumulated deficit as of June 30, 2023 and December 31, 2022, as well as a net loss for the six months ended June 30, 2023 and 2022, 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, 2023 and December 31, 2022, we did not hold significant restricted cash or cash equivalents.
Fair Value of Financial Instruments
During the six months ended June 30, 2023 and 2022, 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 Earnings (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.
Basic EPS is computed by dividing net income or loss by the weighted average number of common shares outstanding during the period. Diluted EPS reflects potential dilution and is computed by dividing net income or 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 include incremental shares of common stock issuable upon the exercise of warrants, unvested restricted stock awards, unvested restricted stock units, and outstanding stock options. At June 30, 2023 and 2022, 24,133 and 13,294 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
9

Ascend Wellness Holdings, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
(in thousands, except per unit or per share data)

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
The following standards have been recently adopted by the Company. Recently effective standards 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
On January 1, 2023, the Company adopted Accounting Standards Update (“ASU”) 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, (“ASU 2016-13”) and the related subsequent amendments, transitional guidance, and other interpretive guidance within ASU 2019-05, ASU 2019-11, ASU 2020-03, and ASU 2022-02 (collectively, including ASU 2016-13, “ASC 326”). ASC 326 replaces the 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 results in earlier recognition of credit losses than the previous “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.
Following the adoption of this guidance, the Company’s estimation of allowance for doubtful accounts related to trade receivables considers factors such as historical credit loss experience, age of receivable balances, current market conditions, and an assessment of receivables due from specific identifiable counterparties to determine whether these receivables are considered at risk or uncollectible. Additionally, the Company’s estimation of allowances on notes receivable, as applicable, incorporates historical loss information, the financial condition of loan recipients, and various other economic conditions. The adoption of this guidance did not have a significant impact on our consolidated financial statements.
Recently Issued Accounting Pronouncements
The following standards have been recently issued by the Financial Accounting Standards Board (“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.
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 could be adopted as reference rate reform activities occurred through December 31, 2022. In December 2022, the FASB issued ASU 2022-06, Reference Rate Reform (Topic 848): Deferral of the Sunset Date of Topic 848, to extend the sunset date of the transition guidance included in ASU 2020-04 to December 31, 2024. This guidance can be adopted prospectively as reference rate reform activities occur, with early adoption permitted, and is not expected to have a material impact on our consolidated financial statements.
10

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
June 30,
Six Months Ended
June 30,
(in thousands)2023202220232022
Retail revenue$89,854 $75,556 $172,599 $138,846 
Wholesale revenue61,178 42,114 119,592 80,047 
151,032 117,670 292,191 218,893 
Elimination of inter-company revenue(28,044)(20,171)(55,027)(36,304)
Total revenue, net$122,988 $97,499 $237,164 $182,589 
The liability related to the loyalty program we offer dispensary customers at certain locations was $845 and $672 at June 30, 2023 and December 31, 2022, respectively, and is included within “Other current liabilities” on the accompanying unaudited Condensed Consolidated Balance Sheets. The Company recorded $965 and $493 in allowance for doubtful accounts as of June 30, 2023 and December 31, 2022, respectively. Write-offs were not significant during the three and six months ended June 30, 2023 and 2022.
4. ACQUISITIONS
Business Combinations
The Company has determined that the acquisitions discussed below are considered business combinations under ASC Topic 805, Business Combinations, 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 these Financial Statements from the date of the acquisition.
The 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.
2023 Acquisition
On April 27, 2023, the Company acquired 100% of the membership interests of certain entities related to Devi Holdings, Inc. (“Devi”), pursuant to a definitive agreement that was entered into on January 25, 2023 (the “Maryland Agreement”). Through the Maryland Agreement, the Company acquired the four licensed medical cannabis dispensaries that Devi owned and operated in Maryland (“Devi Maryland”). Total consideration at closing consisted of cash consideration of $12,000, subject to customary closing conditions and working capital adjustments, and 5,185 shares of Class A common stock with an estimated fair value of $4,770 at issuance. Acquisition related costs incurred during the six months ended June 30, 2023 were not material.
11

Ascend Wellness Holdings, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
(in thousands, except per unit or per share data)

Preliminary Purchase Price Allocation
(in thousands)
Devi Maryland
Assets acquired (liabilities assumed):
Cash$143 
Inventory447 
Prepaids and other current assets114 
Property and equipment(1)
4,593 
Licenses(2)
9,050 
Goodwill(3)
3,918 
Accounts payable and accrued liabilities(1,495)
Net assets acquired$16,770 
Consideration transferred:
Cash$12,000 
Fair value of shares issued(4)
4,770 
Total consideration$16,770 
(1)Consists of: furniture, fixtures, and equipment of $953; land of $364; and buildings of $3,276.
(2)The amortization period of the acquired licenses is 10 years.
(3)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.
(4)The seller received 5,185 shares of Class A common stock with a fair value of $4,770.
Our results of operations for the three and six months ended June 30, 2023 include $1,729 of net revenue and $673 of net loss related to Devi Maryland. Pro forma financial information is not presented, as such results are immaterial to both the current and prior periods.
2022 Acquisition
Effective October 14, 2022, the Company acquired Marichron Pharma LLC (“Marichron”), a medical cannabis processor in Ohio. The purchase price allocation remains preliminary as the Company finalizes certain estimates of the fair value of the net assets acquired within the measurement period. Our results of operations for the three and six months ended June 30, 2023 include $299 and $556 of net revenue, respectively, and $406 and $744 of net loss, respectively, related to Marichron.

12

Ascend Wellness Holdings, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
(in thousands, except per unit or per share data)

Asset Acquisitions
The Company determined the acquisitions below did not meet the definition of a business and are therefore accounted for as asset acquisitions. When the Company acquires assets and liabilities that do not constitute a business or variable interest entity (“VIE”) of which the Company is the primary beneficiary, the cost of each acquisition, including certain transaction costs, is allocated to the assets acquired and liabilities assumed on a relative fair value basis. Contingent consideration associated with the acquisition is generally recognized only when the contingency is resolved.
When the Company acquires assets and liabilities that do not constitute a business but meet the definition of a VIE of which the Company is the primary beneficiary, the purchase is accounted for using the acquisition method described above for business combinations, except that no goodwill is recognized. To the extent there is a difference between the purchase consideration, including the estimated fair value of contingent consideration, plus the estimated fair value of any non-controlling interest and the VIE’s identifiable assets and liabilities recorded and measured at fair value, the difference is recognized as a gain or loss. A non-controlling interest represents the non-affiliated equity interest in the underlying entity. Transaction costs are expensed.
2022 Asset Acquisitions
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 two years following the transaction date and up to an additional total of $10,000 over the course of ten years following the transaction date.
The total acquisition cost in respect of the Story of PA acquisition was $137,594 and was allocated to the license intangible asset acquired. The total cost consists of the equity consideration, cash consideration, Geisinger funding commitment, other liabilities related to consulting agreements, forgiveness of the previously outstanding bridge loan, transaction costs, the initial cost of the investment, and an acquisition-related deferred tax liability of $37,391 that was recorded during the fourth quarter of 2022.
Of the total funding commitment, $15,000 was paid in April 2022 and $15,000 remains outstanding and is included within “Accounts payable and other accrued liabilities” on the unaudited Condensed Consolidated Balance Sheet at June 30, 2023 and December 31, 2022. The additional $10,000 is included within “Other non-current liabilities” on the unaudited Condensed Consolidated Balance Sheet at June 30, 2023 and December 31, 2022. A total of $471 and $943 due under one of the consulting agreements was paid during the three and six months ended June 30, 2023, respectively, which includes the final required payment.
Ohio Patient Access
On August 12, 2022, the Company entered into a definitive agreement (the “Ohio Agreement”) that provides the Company the option to acquire 100% of the equity of Ohio Patient Access LLC (“OPA”), the holder of a license that grants it the right to operate three medical dispensaries in Ohio, which operations have not yet commenced. The Ohio Agreement is subject to regulatory review and approval. Once the regulatory approval is received, the Company may exercise the option, and the exercise is solely within the Company’s control. The Company may exercise the option until the fifth anniversary of the agreement date or can elect to extend the exercise period for an additional year. Under the Ohio Agreement, the Company will also acquire the real property of the three dispensary locations. In conjunction with the Ohio Agreement, the parties also entered into a support services agreement under which the Company will provide management and advisory services to OPA for a set monthly fee.
13

Ascend Wellness Holdings, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
(in thousands, except per unit or per share data)

The parties also entered into a working capital loan agreement under which the Company may, at its full discretion, loan OPA up to $10,000 for general working capital needs.
The purchase price per the Ohio Agreement consists of total cash consideration of $22,300. The Ohio Agreement also includes an earn-out provision of $7,300 that is dependent upon the commencement of adult-use cannabis sales in Ohio. The sellers may elect to receive the earn-out payment as either cash or shares of the Company’s Class A common stock, or a combination thereof. If the sellers elect to receive any or all of the payment in shares, the number of shares issued will be equal to the earn-out payment amount, or portion thereof, divided by the thirty-day volume weighted average price of the Class A shares immediately preceding the date the earn-out provision is achieved. If the sellers elect to receive Class A shares for the earn-out, those shares would be issued pursuant to the exemption from registration contained in Section 4(a)(2) of the Securities Act of 1933, as amended.
The Company determined OPA is a VIE and the Company became the primary beneficiary as of the signing date; therefore, OPA is consolidated as a VIE. To account for the initial consolidation of OPA, management applied the acquisition method discussed above. The total estimated fair value of the transaction consideration was determined to be $24,132 and consists of the fair value of the cash consideration of $19,290 plus the initial estimated fair value of the contingent consideration of $4,842. Of the total cash consideration, $11,300 was funded at signing pursuant to note agreements. The $11,000 payment that is due at final closing (the “OPA Sellers’ Note”) was recorded net of a discount of $3,010 based on the estimated payment date utilizing the Company’s incremental borrowing rate and is included within “Long-term debt, net” on the accompanying unaudited Condensed Consolidated Balance Sheet at June 30, 2023 and December 31, 2022; refer to Note 11, “Debt,” for additional information. The license intangible asset acquired was determined to have an estimated fair value of $21,684 and the three properties had an estimated fair value of $2,448, which was determined using a market approach based on the total transaction consideration. The license acquired will be amortized in accordance with the Company’s policy once operations commence.
The estimated fair value of the contingent consideration was determined utilizing an income approach based on a probability-weighted estimate of the future payment discounted using the Company’s estimated incremental borrowing rate and is classified within Level 3 of the fair value hierarchy. As of June 30, 2023 and December 31, 2022, the estimated fair value of this contingent consideration was $6,064 and $5,076, respectively, and is included within “Other non-current liabilities” on the accompanying unaudited Condensed Consolidated Balance Sheets. The $497 and $988 change in fair value during the three and six months ended June 30, 2023, respectively, is included within “General and administrative expenses” on the unaudited Condensed Consolidated Statement of Operations. Direct transaction expenses of $224 were incurred in the year ended December 31, 2022. The Company determined the fair value of any noncontrolling interest is de minimis. Refer to Note 8, “Variable Interest Entities,” for additional information regarding the Company’s VIEs.
Illinois Licenses
In August 2022, the Company entered into definitive agreements to acquire two additional licenses in Illinois. Neither of these licenses were associated with active operations at signing and the transfer of each license is subject to regulatory review and approval.
One transaction was entered on August 11, 2022 for total cash consideration of $5,500. The Company accounted for this transaction as an asset acquisition and allocated the cash consideration as the cost of the license acquired. Of the total cash consideration, $3,000 was paid at signing and $2,500 is due at final closing, which the Company anticipates may occur within the twelve months following the commencement of operations at the associated location that began during the second quarter of 2023. In conjunction with the commencement of operations, the Company recorded a deferred tax liability of $2,414 , which was allocated to the license as additional cost basis. The closing payment is included as a sellers’ note within “Current portion of debt, net” on the accompanying unaudited Condensed Consolidated Balance Sheet at June 30, 2023 and “Long-term Debt, net” at December 31, 2022; refer to Note 11, “Debt,” for additional information.

14

Ascend Wellness Holdings, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
(in thousands, except per unit or per share data)

The second transaction was entered on August 12, 2022 for total cash consideration of $5,600. The Company accounted for this transaction as an asset acquisition and allocated the cash consideration as the cost of the license acquired. The consideration will be paid at final closing and is included as a sellers’ note within “Long-term, debt, net” on the accompanying unaudited Condensed Consolidated Balance Sheet at June 30, 2023 and December 31, 2022; refer to Note 11, “Debt,” for additional information. Operations at the associated location have not yet commenced.
5. INVENTORY
The components of inventory are as follows:
(in thousands)June 30, 2023December 31, 2022
Materials and supplies$16,194 $16,115 
Work in process38,460 49,586 
Finished goods34,898 31,831 
Total$89,552 $97,532 
Total compensation expense capitalized to inventory was $17,174 and $12,421 during the three months ended June 30, 2023 and 2022, respectively, and $34,295 and $25,555 during the six months ended June 30, 2023 and 2022, respectively. At June 30, 2023 and December 31, 2022, $10,064 and $15,920, respectively, of compensation expense remained capitalized as part of inventory. The Company recognized, as a component of cost of goods sold, total write-downs of $6,172 and $112 during the three months ended June 30, 2023 and 2022, respectively, and $10,114 and $2,316 during the six months ended June 30, 2023 and 2022, respectively, related to net realizable value adjustments, expired products, and obsolete packaging. These amounts are included within “Other” on the unaudited Condensed Consolidated Statements of Cash Flows.
6. NOTES RECEIVABLE
(in thousands)June 30, 2023December 31, 2022
Maryland Loan Receivable(1)
$10,843 $ 
Massachusetts Note(2)
3,448 1,001 
MMNY - working capital loan(3)
2,422 2,422 
Total$16,713 $3,423 
(1)In June 2023, the Company purchased $12,027 of the outstanding principal, at par, of a loan agreement (the “Maryland Loan Receivable”), plus the associated interest receivable. The agreement underlying the Maryland Loan Receivable (the “Maryland Loan Agreement”) is with a cannabis license holder in Maryland, matures on August 1, 2026, and provides for a base interest rate of 12.0% plus LIBOR (LIBOR floor of 1.0%) and a paid-in-kind (“PIK”) interest rate of 4.50%. The Maryland Loan Agreement requires monthly repayments equal to 10.0% of the outstanding balance (including PIK interest) and may be prepaid, subject to a customary make-whole payment or prepayment penalty, as applicable. Mandatory prepayments are required from the proceeds of certain events. The Maryland Loan Agreement contains customary events of default including: non-payment of principal, interest, or other amounts due; violations of covenants; bankruptcy; change of control; cross defaults to other debt; and material judgments. The Maryland Loan Agreement is guaranteed by certain owners of the borrowing entity and is secured by substantially all of the assets of the borrowing entity, excluding certain cannabis-related assets where prohibited. The Maryland Loan Agreement contains financial covenants including: a minimum adjusted EBITDA; a minimum free cash flow; a maximum total leverage ratio; a minimum fixed charge coverage ratio, and a minimum cash balance, each as provided for in the Maryland Loan Agreement. The Maryland Loan Agreement also contains non-financial covenants including restrictions on: indebtedness; liens; fundamental changes; disposal of assets; issuance of stock; sale and leaseback transactions; capital expenditures; and certain other matters.
The Company recorded the Maryland Loan Receivable at an amortized cost basis of $12,622. A total of $595 of transaction-related expenses were capitalized as part of the amortized cost basis and will be amortized to interest income over the term, of which $483 remained outstanding as of June 30, 2023. The Company identified certain events of default and covenant violations as of June 30, 2023, including non-payment, and provided an acceleration notice declaring all amounts due and payable. During each of the three and six months ended June 30, 2023, the Company recognized a total of $965 of interest
15

Ascend Wellness Holdings, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
(in thousands, except per unit or per share data)

income, including certain default fees and premiums and PIK interest, which total remained outstanding as of June 30, 2023 and is recorded within “Other, net” on the accompanying unaudited Condensed Consolidated Statements of Operations. As of June 30, 2023, the all-in interest rate was 26.6%, which included a default penalty of 5%. Following the replacement of LIBOR, effective July 1, 2023, the interest rate transitioned from LIBOR to the secured overnight financing rate (“SOFR”) plus an alternative reference rate committee (“ARRC”) standard adjustment.
Additionally, during the three and six months ended June 30, 2023, the Company established a reserve of $1,804 for potential collectability that is included within “General and administrative expenses” on the accompanying unaudited Condensed Consolidated Statements of Operations and within “Other” on the unaudited Condensed Consolidated Statements of Cash Flows.
(2)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”). The Massachusetts Note accrues interest at a fixed annual rate of 11.5%. Following the opening of the borrower’s retail dispensary, which had not occurred as of June 30, 2023, 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. Additionally, the Company transacts with the retail dispensary in the ordinary course of business.
(3)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. The Company is pursuing collection of the amounts due under this working capital advance agreement through its legal proceedings against MMNY. Refer to Note 15, “Commitments and Contingencies,” for additional information.
No impairment losses on notes receivable were recognized during the six months ended June 30, 2023 or 2022, other than as described above.
Additionally, a total of $4,100 is outstanding at June 30, 2023 related to a promissory note issued to the owner of a property that the Company is leasing, of which $166 and $3,934 is included in “Other current assets” and “Other noncurrent assets,” respectively, on the unaudited Condensed Consolidated Balance Sheet. At December 31, 2022, $4,181 was outstanding, of which $163 and $4,018 is included in “Other current assets” and “Other noncurrent assets,” respectively, on the unaudited Condensed Consolidated Balance Sheet.
16

Ascend Wellness Holdings, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
(in thousands, except per unit or per share data)

7. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
(in thousands)June 30, 2023December 31, 2022
Leasehold improvements$176,470 $174,099 
Furniture, fixtures, and equipment68,981 63,974 
Buildings61,406 71,951 
Construction in progress17,430 9,633 
Land5,242 6,505 
Property and equipment, gross329,529 326,162 
Less: accumulated depreciation62,412 46,302 
Property and equipment, net$267,117 $279,860 
Total depreciation expense was $8,281 and $6,296 during the three months ended June 30, 2023 and 2022, respectively, and $16,427 and $11,674 during the six months ended June 30, 2023 and 2022, respectively. Total depreciation expense capitalized to inventory was $6,231 and $4,764 during the three months ended June 30, 2023 and 2022, respectively, and $12,401 and $8,972 during the six months ended June 30, 2023 and 2022, respectively. At June 30, 2023 and December 31, 2022, $5,601 and $6,548, respectively, of depreciation expense remained capitalized as part of inventory.
The table above includes equipment with a gross value of $2,302 and $1,086 as of June 30, 2023 and December 31, 2022, respectively, and accumulated amortization of $271 and $89, respectively, that the Company is renting under finance leases pursuant to a master lease agreement that was entered into in June 2022 and allows for an aggregate of $15,000 of such leases. Refer to Note 10, “Leases,” for additional information regarding our lease arrangements.
During the three and six months ended June 30, 2023, we recognized a loss of $323 related to the sale of one property that is included within “General and administrative expenses” on the unaudited Condensed Consolidated Statements of Operations, and wrote-off $317 of accumulated depreciation. Refer to Note 10, “Leases,” for additional information regarding this sale leaseback transaction.
8. VARIABLE INTEREST ENTITIES
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 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.
17

Ascend Wellness Holdings, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
(in thousands, except per unit or per share data)

The following tables present the summarized financial information about the Company’s consolidated VIEs which are included in the unaudited Condensed Consolidated Balance Sheets as of June 30, 2023 and December 31, 2022 and in the unaudited Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2023 and 2022, as applicable. These entities were determined to be VIEs since the Company possesses the power to direct the significant activities of the VIEs and has the obligation to absorb losses or the right to receive benefits from the VIEs. The information below excludes intercompany balances and activity that eliminate in consolidation.
Ohio Patient Access
(in thousands)June 30, 2023December 31, 2022
Other noncurrent assets$28,702 $24,675 
Current liabilities10,115 1,675 
Deficit(1,785)(588)
Three Months Ended
June 30,
Six Months Ended
June 30,
2023202220232022
(in thousands)Ohio Patient Access
Ascend Illinois(1)
Ohio Patient Access
Ascend Illinois(1)
Revenue, net$ $64,914 $ $128,806 
Net (loss) income(599)5,902 (1,197)13,200 
(1)In December 2022, following regulatory approvals for the title transfer of certain licenses, Ascend Illinois (including its subsidiaries) is wholly-owned by Ascend Wellness Holdings, Inc. and therefore is no longer considered a VIE as of December 31, 2022.
9. INTANGIBLE ASSETS AND GOODWILL
(in thousands)June 30, 2023December 31, 2022
Intangible Assets
Licenses and permits$238,383 $226,919 
In-place leases19,963 19,963 
Trade names380 380 
258,726 247,262 
Accumulated amortization:
Licenses and permits(23,763)(13,035)
In-place leases(13,853)(12,754)
Trade names(380)(380)
(37,996)(26,169)
Total intangible assets, net$220,730 $221,093 
Amortization expense related to intangible assets was $5,676 and $1,931 during the three months ended June 30, 2023 and 2022, respectively, and $11,827 and $3,901 during the six months ended June 30, 2023 and 2022, respectively. Total amortization expense capitalized to inventory was $686 and $406 during the three months ended June 30, 2023 and 2022, respectively, and $1,421 and $814 during the six months ended June 30, 2023 and 2022, respectively. At June 30, 2023 and December 31, 2022, $1,040 and $1,101, respectively, of amortization expense remained capitalized as part of inventory.
No impairment indicators were noted during the six months ended June 30, 2023 or 2022 and, as such, we did not record any impairment charges during either period.
18

Ascend Wellness Holdings, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
(in thousands, except per unit or per share data)

Goodwill
(in thousands)
Balance, December 31, 2022$44,370 
Acquisitions3,918 
Balance, June 30, 2023$48,288 
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 with terms generally ranging from 1 to 20 years.
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. 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. 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. 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.
The components of lease assets and lease liabilities and their classification on the unaudited Condensed Consolidated Balance Sheets were as follows:
(in thousands)ClassificationJune 30, 2023December 31, 2022
Lease assets
Operating leasesOperating lease right-of-use assets$130,331 $108,810 
Finance leasesProperty and equipment, net2,031 997 
Total lease assets$132,362 $109,807 
Lease liabilities
Current liabilities
Operating leasesOperating lease liabilities, current $3,204 $2,633 
Finance leasesCurrent portion of debt, net458 207 
Noncurrent liabilities
Operating leasesOperating lease liabilities, noncurrent260,463 229,816 
Finance leasesLong-term debt, net1,428 695 
Total lease liabilities$265,553 $233,351 

19

Ascend Wellness Holdings, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
(in thousands, except per unit or per share data)

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)2023202220232022
Operating lease costs
Capitalized to inventory
$8,471 $6,778 $16,698 $13,836 
General and administrative expenses
923 927 1,263 1,259 
Total operating lease costs$9,394 $7,705 $17,961 $15,095 
Finance lease costs
Amortization of leased assets(1)
$108 $ $182 $ 
Interest on lease liabilities34  70  
Total finance lease costs$142 $ $252 $ 
(1)Included as a component of depreciation expense within “General and administrative expenses” on the accompanying unaudited Condensed Consolidated Statements of Operations.
At June 30, 2023 and December 31, 2022, $3,996 and $6,660, respectively, of lease costs remained capitalized in inventory.
The following table presents information on short-term and variable lease costs:
Three Months Ended
June 30,
Six Months Ended
June 30,
(in thousands)2023202220232022
Total short-term and variable lease costs$1,043 $1,263 $2,177 $2,469 
Sublease income generated during the three and six months ended June 30, 2023 and 2022 was immaterial.
The following table includes supplemental cash and non-cash information related to our leases:
Six Months Ended
June 30,
(in thousands)20232022
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows from operating leases$17,919 $14,880 
Operating cash flows from finance leases70  
Financing cash flows from finance leases147  
ROU assets obtained in exchange for new lease obligations
Operating leases$31,731 $33,844 
Finance leases1,131  

20

Ascend Wellness Holdings, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
(in thousands, except per unit or per share data)

The following table summarizes the weighted-average remaining lease term and discount rate:
June 30, 2023December 31, 2022
Weighted-average remaining term (years)
Operating leases14.715.1
Finance leases3.53.7
Weighted-average discount rate
Operating leases15.1 %14.8 %
Finance leases13.7 %13.6 %
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, 2023 are as follows:
(in thousands)
Operating Lease Liabilities
Finance Lease Liabilities
Remainder of 2023$19,452 $342 
202440,074 684 
202541,215 684 
202641,996 563 
202743,121 98 
Thereafter517,107  
Total lease payments702,965 2,371 
Less: imputed interest439,298 485 
Present value of lease liabilities$263,667 $1,886 
Lease Amendments
In February 2023, we amended the lease related to our Franklin, New Jersey cultivation facility to increase the tenant improvement allowance, which resulted in increased rent amounts. We accounted for the amendment as a lease modification and remeasured the ROU asset and lease liability as of the amendment date, which resulted in a total additional tenant improvement allowance of $15,000, a reduction of $2,254 to the ROU asset, and an increase of $12,746 to the lease liability.
During the six months ended June 30, 2023, we received a total of $1,990 under the capital expenditure allowance associated with two leases in Pennsylvania that was recorded as a tenant improvement allowance, which, based on the modified lease terms, resulted in $1,075 of additional lease liabilities, a reduction of $366 to the ROU asset, and a net gain of $107 and $549 during the three and six months ended June 30, 2023, respectively, which is included in “General and administrative expenses” on the unaudited Condensed Consolidated Statement of Operations.

21

Ascend Wellness Holdings, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
(in thousands, except per unit or per share data)

Sale Leaseback Transactions
In May 2023, the Company sold and subsequently leased back one of its capital assets in Pennsylvania for total proceeds of $15,000, 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 $12,758 and an ROU asset of $19,496, which includes an off-market lease adjustment of $6,738.
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 20232024202520262027ThereafterTotal
Cash payments due under financing liabilities$1,238 $2,416 $2,525 $2,599 $2,676 $9,477 $20,931 
11. DEBT
(in thousands)June 30, 2023December 31, 2022
2021 Credit Facility(1)
$275,000 $275,000 
Sellers’ Notes(2)
18,709 27,606 
Finance liabilities(3)
18,100 18,100 
Financing Agreement(4)
4,490 19,364 
Finance leases(5)
1,886 902 
Total debt$318,185 $340,972 
Current portion of debt9,019 11,347 
Less: unamortized deferred financing costs6 18 
Current portion of debt, net$9,013 $11,329 
Long-term debt309,166 329,625 
Less: unamortized deferred financing costs8,382 10,328 
Long-term debt, net$300,784 $319,297 
(1)On August 27, 2021, the Company entered into a credit agreement with a group of lenders (the “2021 Credit Agreement”) that provided for an initial term loan of $210,000 (the “2021 Credit Facility”), which was borrowed in full. The 2021 Credit Agreement provided for an expansion feature that allowed the Company to request an increase in the 2021 Credit Facility up to $275,000 if the then-existing lenders (or other lenders) agreed to provide such additional term loans. During the second quarter of 2022, the Company borrowed an additional $65,000 pursuant to the expansion feature (the “2022 Loans”) for total borrowings of $275,000 under the 2021 Credit Facility.
The 2021 Credit Facility matures on August 27, 2025 and does not require scheduled principal amortization payments. Borrowings under the 2021 Credit Facility bear interest at a rate of 9.5% per annum, payable quarterly and, as to any portion of the term loan that is prepaid, on the date of prepayment. The 2021 Credit Agreement permits the Company to request an extension of the maturity date for 364 days, subject to the lenders’ discretion.
We incurred initial financing costs of $8,806 and additional financing costs of $7,606 related to the 2022 Loans, which includes warrants issued to certain lenders to acquire 3,130 shares of Class A common stock that had a fair value of $2,639 at issuance. The financing costs are being amortized to interest expense over the term of 2021 Credit Facility using the straight-line method which approximates the interest rate method. The 2022 Loans were funded by a combination of new and existing lenders. Borrowings from the existing lenders were accounted for as a modification of existing debt, with the exception of one lender that was considered an extinguishment. We recognized a loss on extinguishment of $2,180 as a
22

Ascend Wellness Holdings, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
(in thousands, except per unit or per share data)

component of interest expense during the second quarter of 2022, which was comprised of the write-off of $337 related to the lender’s initial term loan and $1,843 related to the lender’s new loan, which included the estimated fair value of the warrants issued to the lender.
The 2021 Credit Agreement requires mandatory prepayments from proceeds of certain events, including the proceeds of indebtedness that is not permitted under the agreement and asset sales and casualty events, subject to customary reinvestment rights. The Company may prepay the 2021 Credit Facility at any time, subject to a customary make-whole payment or prepayment penalty, as applicable. Once repaid, amounts borrowed under the 2021 Credit Facility may not be re-borrowed.
The Company is required to comply with two financial covenants under the 2021 Credit Agreement. The Company may not permit its liquidity (defined as unrestricted cash and cash equivalents pledged under the 2021 Credit Facility plus any future revolving credit availability) to be below $20,000 as of the last day of any fiscal quarter. Additionally, the Company may not permit the ratio of Consolidated EBITDA (as defined in the 2021 Credit Agreement) to consolidated cash interest expense for any period of four consecutive fiscal quarters to be less than 2.50:1.00. The Company has a customary equity cure right for each of these financial covenants. The Company is in compliance with these covenants as of June 30, 2023.
The 2021 Credit Agreement requires the Company to make certain representations and warranties and to comply with customary covenants, including restrictions on the payment of dividends, repurchase of stock, incurrence of indebtedness, dispositions, and acquisitions. The 2021 Credit Agreement also contains customary events of default including: non-payment of principal or interest; violations of covenants; bankruptcy; change of control; cross defaults to other debt; and material judgments. The 2021 Credit Facility is guaranteed by all of the Company’s subsidiaries and is secured by substantially all of the assets of the Company and its subsidiaries.
(2)Sellers’ Notes consist of amounts owed for acquisitions or other purchases. During the six months ended June 30, 2023, we repaid $8,000 to the former owners of one entity that we previously acquired, which is included in “Current portion of debt, net” on the unaudited Condensed Consolidated Balance Sheet at December 31, 2022. Additionally, as further described in Note 4, “Acquisitions,” Sellers’ Notes includes a total of $8,100 related to the acquisition of two additional licenses in Illinois, of which $2,500 is included within “Current portion of debt, net” at June 30, 2023 and within “Long-term debt, net” at December 31, 2022, with the remainder included within “Long-term debt, net” at each period end. Sellers’ Notes also includes $9,038 and $8,366, respectively, related to the OPA Sellers’ Note included in “Long-term debt, net” at June 30, 2023 and December 31, 2022. The $11,000 OPA Sellers’ Note was recorded net of a discount of $3,010 that was calculated utilizing the Company’s estimated incremental borrowing rate based on the anticipated close date and is being accreted to interest expense over the expected term.
Additionally, as of June 30, 2023 and December 31, 2022, $1,571 and $3,140, respectively, remains due under the purchase of a previous non-controlling interest and is included in “Current portion of debt, net” on the unaudited Condensed Consolidated Balance Sheet at each date.
(3)Finance liabilities related to failed sale leaseback transactions. See Note 10, “Leases,” for additional information.
(4)In December 2022, the Company received $19,364 pursuant to a financing agreement with a third-party lender (the “Financing Agreement”). The Company assigned to the lender its interests in an employee retention tax credit claim (the “ERTC Claim”) that it submitted in November 2022 totaling approximately $22,794. If the Company does not receive the ERTC Claim, in whole or in part, the Company is required to repay the related portion of the funds received plus interest of 10% accrued from the date of the Financing Agreement through the repayment date. The Financing Agreement does not have a stated maturity date and the discount is being accreted to interest expense over an expected term. The Company’s obligations under the Financing Agreement will be satisfied upon receipt of the ERTC Claim, in full, or other full repayment. During the three and six months ended June 30, 2023, the Company received $17,520 of the ERTC Claim, which was remitted to the lender per the terms of the Financing Agreement, and recorded a receivable of $5,274 for the remaining claim amount that is outstanding as of June 30, 2023. This receivable is included in “Other current assets” on the unaudited Condensed Consolidated Balance Sheet as of June 30, 2023, and the balance outstanding under the Financing Agreement is included “Current portion of debt, net” at June 30, 2023 and “Long-term debt, net” at December 31, 2022. The total claim amount of $22,794 was recognized as a component of “Other, net” on the unaudited Condensed Consolidated Statements of Operations during the three and six months ended June 30, 2023.
(5)Liabilities related to finance leases. See Note 10, “Leases,” for additional information.

23

Ascend Wellness Holdings, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
(in thousands, except per unit or per share data)

Debt Maturities
During the six months ended June 30, 2023, we repaid $8,000 of sellers’ notes related to one previous acquisition and $1,572 of sellers’ notes related to the former owners of a previous non-controlling interest.
At June 30, 2023, the following cash payments are required under our debt arrangements:
(in thousands)Remainder of 202320242025Total
Sellers’ notes(1)
$1,571 $8,100 $11,000 $20,671 
Term note maturities  275,000 275,000 
(1)Certain cash payments include an interest accretion component. The timing of certain payments may vary based on regulatory approval of the underlying transactions.
Interest Expense
Interest expense during the three and six months ended June 30, 2023 and 2022 consisted of the following:
Three Months Ended
June 30,
Six Months Ended
June 30,
(in thousands)2023202220232022
Cash interest$6,514 $5,887 $12,964 $10,830 
Accretion3,361 662 5,280 1,235 
Interest on financing liabilities(1)
572 517 1,142 1,032 
Interest on finance leases34  70  
Loss on extinguishment of debt 2,180  2,180 
Total $10,481 $9,246 $19,456 $15,277 
(1)Interest on financing liability related to failed sale leaseback transactions. See Note 10, “Leases,” for additional details.
12. STOCKHOLDERS’ EQUITY
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. Holders of each share of Class A common stock are entitled to one vote per share and holders of Class B common stock are entitled to 1,000 votes per share. Holders of Class A common stock and Class B common stock will vote together as a single class on all matters (including the election of directors) submitted to a vote of stockholders, unless otherwise required by law or our certificate of incorporation. Each share of Class B common stock is convertible at any time into one share of Class A common stock at the option of the holder. In addition, each share of Class B common stock will automatically convert into one share of Class A common stock on May 4, 2026, the final conversion date. Each share of Class B common stock will convert automatically into one share of Class A common stock upon any transfer, whether or not for value, except for certain transfers described in our certificate of incorporation, including, without limitation, transfers for tax and estate planning purposes, so long as the transferring holder of Class B common stock continues to hold exclusive voting and dispositive power with respect to any such transferred shares. Once converted into a share of Class A common stock, a converted share of Class B common stock will not be reissued, and following the conversion of all outstanding shares of Class B common stock, no further shares of Class B common stock will be issued.
On June 23, 2023, the Company completed a non-brokered private placement offering of an aggregate of 9,859 shares of the Company’s Class A common stock to a single investor at a purchase price of $0.71 per share, for an aggregate of $7,000 in gross proceeds. Legal expenses incurred in connection with this financing were not material. These shares were issued pursuant to the exemption from registration provided by Rule 506(b) of Regulation D under the Securities Act of 1933, as amended, based on the nature of the transaction and various representations made by the investor.
24

Ascend Wellness Holdings, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
(in thousands, except per unit or per share data)

The following table summarizes the total shares of Class A common stock and Class B common stock outstanding as of June 30, 2023 and December 31, 2022:
(in thousands)June 30, 2023December 31, 2022
Shares of Class A common stock204,825 187,999 
Shares of Class B common stock65 65 
Total204,890188,064
Warrants
The following table summarizes the warrants activity during the six months ended June 30, 2023:
Number of Warrants
(in thousands)
Weighted-Average Exercise Price
Weighted-Average Remaining Exercise Period
(years)
Aggregate Intrinsic Value
(in thousands)(1)
Outstanding, December 31, 2022
5,740 $3.46 2.7$ 
Expired(334)4.00 
Outstanding, June 30, 2023(2)
5,406 $3.43 2.4$ 
(1)Based on the amount by which the closing market price of our Class A common stock exceeds the exercise price on each date indicated.
(2)The warrants outstanding as of June 30, 2023 are equity-classified instruments, are subject to customary anti-dilution adjustments, and are stand-alone instruments. The fair value per warrant is calculated at issuance using a Black-Scholes model and ranged from $0.02 to $0.84. Significant assumptions used in the calculations included volatility ranging from 70.0% to 108.4% and risk-free rates ranging from 0.17% to 4.20%. No warrants were exercised during the six months ended June 30, 2023.
13. EQUITY-BASED COMPENSATION EXPENSE
Equity Incentive Plans
The Company adopted an incentive plan in November 2020 (the “2020 Plan”) which authorized the issuance of incentive common unit options and restricted common units (collectively, “Awards”). The maximum number of Awards to be issued under the 2020 Plan is 10,031 and any Awards that expire or are forfeited may be re-issued. A total of 9,994 Awards had been issued under the plan as of June 30, 2023. The Awards generally vest over two or three years. The estimated fair value of the Awards at issuance is recognized as compensation expense over the related vesting period.
The following table summarizes the restricted common shares activity during the six months ended June 30, 2023:
(in thousands)Restricted Common Shares
Unvested, December 31, 2022617 
Vested(492)
Unvested, June 30, 2023
125 
As of June 30, 2023, total unrecognized compensation cost related to the restricted common shares was not material.
In July 2021, the Company adopted a new stock incentive plan (the “2021 Plan”), pursuant to which 17,000 shares of Class A common stock are reserved for issuance thereunder, subject to certain adjustments and other
25

Ascend Wellness Holdings, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
(in thousands, except per unit or per share data)

terms. Following the adoption of the 2021 Plan, no additional awards are expected to be issued under the 2020 Plan. The 2021 Plan authorized the issuance of stock options, stock appreciation rights (“SAR Awards”), restricted stock awards (“RSAs”), restricted stock units (“RSUs”), and other stock-based awards (collectively the “2021 Plan Awards”). Any 2021 Plan Awards that expire or are forfeited may be re-issued. The estimated fair value of the 2021 Plan Awards at issuance is recognized as compensation expense over the related vesting, exercise, or service periods, as applicable.
On March 9, 2023, the Company’s board of directors unanimously approved, subject to stockholder approval, an amendment to the 2021 Plan (the “Amendment”) to increase the maximum number of shares of Class A common stock available for issuance under the 2021 Plan to an amount not to exceed 10% of the total number of issued and outstanding shares of Class A common stock, on a non-diluted basis, as constituted on the grant date of an award pursuant to the 2021 Plan. On May 5, 2023, the stockholders of the Company voted to approve the Amendment. As of June 30, 2023, there were 2,162 shares of Class A common stock available for grant for future equity-based compensation awards under the 2021 Plan. Activity related to awards issued under the 2021 Plan is further described below. As of June 30, 2023, no SAR Awards and no RSAs had been granted under the 2021 Plan.
Stock Options
The following table summarizes stock option activity during the six months ended June 30, 2023:
Options Outstanding
(in thousands, except per share amounts)Number of OptionsWeighted-Average Exercise Price
Weighted-Average Remaining Contractual Life
(years)
Aggregate Intrinsic Value(1)
Outstanding, December 31, 20222,042$3.29 4.4$ 
Granted3,048$0.85 
Forfeited(264)$2.39 
Outstanding, June 30, 2023
4,826$1.80 4.5$ 
Exercisable at June 30, 2023
272$4.04 3.6$ 
(1)Based on the amount by which the closing market price of our Class A common stock exceeds the exercise price on each date indicated.
No options were exercised during the six months ended June 30, 2023. Total unrecognized stock-based compensation expense related to unvested options was $3,288 as of June 30, 2023, which is expected to be recognized over a weighted-average remaining period of 3.2 years.
We determine the fair value of stock options on the grant date using a Black-Scholes option pricing model. The fair value of stock options granted during the six months ended June 30, 2023 was calculated on the date of grant using the following weighted-average assumptions:
Six Months Ended
June 30, 2023
Risk-free interest rate3.8 %
Expected term (years)3.75
Dividend yield0 %
Expected volatility70.0 %
Using the Black-Scholes option pricing model, the weighted-average fair value of stock options granted during the six months ended June 30, 2023 was $0.45 per share.
26

Ascend Wellness Holdings, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
(in thousands, except per unit or per share data)

Restricted Stock Units
The following table summarizes the RSU activity during the six months ended June 30, 2023:
Number of Shares
(in thousands)
Weighted-Average Grant Date Fair Value per Share
Unvested, December 31, 20226,462 $7.62 
Granted9,870 0.91 
Vested(1)
(1,913)7.78 
Forfeited(643)4.11 
Unvested, June 30, 2023
13,776 $2.96 
(1)Includes 623 vested shares that were withheld to cover tax obligations and were subsequently cancelled.
As of June 30, 2023, total unrecognized compensation cost related to the RSUs was $31,162, which is expected to be recognized over a weighted-average remaining period of 2.1 years.
Compensation Expense by Type of Award
The following table details the equity-based compensation expense by type of award for the periods presented:
Three Months Ended
June 30,
Six Months Ended
June 30,
(in thousands)2023202220232022
RSUs$4,149 $5,719 $8,477 $11,252 
Stock Options243 147 420 174 
Restricted Common Shares65 49 115 204 
Total equity-based compensation expense$4,457 $5,915 $9,012 $11,630 
Of the total equity-based compensation expense, $2,259 and $2,027 was capitalized to inventory during the three months ended June 30, 2023 and 2022, respectively, and $3,859 and $5,238 was capitalized to inventory during the six months ended June 30, 2023 and 2022, respectively. As of June 30, 2023 and December 31, 2022, $2,414 and $536, respectively, remains capitalized in inventory. During the three months ended June 30, 2023 and 2022, we recognized $2,198 and $3,888, respectively, within “General and administrative expenses” on the unaudited Condensed Consolidated Statements of Operations and we recognized $1,931 and $3,167, respectively, within “Cost of goods sold.” During the six months ended June 30, 2023 and 2022, we recognized $5,153 and $6,392, respectively, within “General and administrative expenses” and we recognized $1,981 and $7,162, respectively, within “Cost of goods sold.”
Employee Stock Purchase Plan
In July 2021, the Company also adopted an employee stock purchase plan (the “2021 ESPP”), pursuant to which 4,000 shares of Class A common stock are reserved for issuance thereunder, subject to certain adjustments and other terms. No shares have been issued under the 2021 ESPP as of June 30, 2023.
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Ascend Wellness Holdings, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
(in thousands, except per unit or per share data)

14. INCOME TAXES
Three Months Ended
June 30,
Six Months Ended
June 30,
($ in thousands)2023202220232022
Income (loss) before income taxes$5,578 $(9,700)$(2,877)$(30,408)
Income tax expense4,737 11,472 14,754 18,579 
Effective tax rate84.9 %(118.3)%(512.8)%(61.1)%
Gross profit$28,319 $32,968 $64,023 $56,415 
Effective tax rate on gross profit16.7 %34.8 %23.0 %32.9 %
Since the Company operates in the cannabis industry, it is subject to the limitations of IRC Section 280E, which prohibits businesses engaged in the trafficking of Schedule I or Schedule II controlled substances from deducting ordinary and necessary business expenses from gross profit. Cannabis businesses operating in states that align their tax codes with IRC Section 280E are also unable to deduct ordinary and necessary business expenses for state tax purposes. Ordinary and necessary business expenses deemed non-deductible under IRC Section 280E are treated as permanent book-to-tax differences. Therefore, the effective tax rate can be highly variable and may not necessarily correlate with pre-tax income or loss.
Effective during the second quarter of 2023, Illinois and New Jersey, two states in which the Company has significant operations, began permitting cannabis businesses to deduct ordinary and necessary business expenses from gross profit for state tax purposes. As such, the effective tax rate for the three and six months ended June 30, 2023 reflects a benefit from this change and varies from the effective tax rate for the three and six months ended June 30, 2022.
The Company’s quarterly tax provision is calculated under the discrete method which treats the interim period as if it were the annual period and determines the income tax expense or benefit on that basis. The discrete method is applied when application of the estimated annual effective tax rate is impractical because it is not possible to reliably estimate the annual effective tax rate. The Company believes, at this time, the use of this discrete method is more appropriate than the annual effective tax rate method due to the high degree of uncertainty in estimating annual pre-tax income due to the early growth stage of the business.
15. COMMITMENTS AND CONTINGENCIES
Commitments
The Company does not have significant future annual commitments, other than related to leases and debt, which are disclosed in Notes 10 and 11, respectively, and certain payments related to acquisitions, as disclosed in Note 4.
Legal and Other Matters
The Company’s operations are subject to a variety of local and state regulations. Failure to comply with one or more of those regulations could result in fines, restrictions on its operations, or losses of permits that could result in the Company ceasing operations. While management believes that the Company is in compliance with applicable local and state regulations as of June 30, 2023 in all material respects, cannabis regulations continue to evolve and are subject to differing interpretations, and accordingly, the Company may be subject to regulatory fines, penalties, or restrictions in the future.
State laws that permit and regulate the production, distribution, and use of cannabis for adult-use or medical purposes are in direct conflict with the Controlled Substances Act (21 U.S.C. § 811) (the “CSA”), which makes cannabis use and possession federally illegal. Although certain states and territories of the United States authorize medical and/or adult-use cannabis production and distribution by licensed or registered entities, under United States
28

Ascend Wellness Holdings, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
(in thousands, except per unit or per share data)

federal law, the possession, use, cultivation, and transfer of cannabis and any related drug paraphernalia is illegal and any such acts are criminal acts under federal law under the CSA. Although the Company’s activities are believed to be compliant with applicable state and local laws, strict compliance with state and local laws with respect to cannabis may neither absolve the Company of liability under United States federal law, nor may it provide a defense to any federal proceeding which may be brought against the Company.
The Company may be, from time to time, subject to various administrative, regulatory, and other legal proceedings arising in the ordinary course of business. Contingent liabilities associated with legal proceedings are recorded when a liability is probable and the contingent liability can be estimated. We do not accrue for contingent losses that, in our judgment, are considered to be reasonably possible but not probable. At June 30, 2023 there were no pending or threatened lawsuits that could reasonably be expected to have a material effect on our consolidated results of operations, other than as disclosed below.
MedMen NY Litigation
On February 25, 2021, the Company entered into a definitive investment agreement (the “Investment Agreement”) with subsidiaries of MedMen Enterprises Inc. (“MedMen”), under which we would have, subject to regulatory approval, completed an investment (the “Investment”) of approximately $73,000 in MedMen NY, Inc. (“MMNY”), a licensed medical cannabis operator in the state of New York. Following the completion of the transactions contemplated by the Investment Agreement, we were expected to hold all the outstanding equity of MMNY. Specifically, the Investment Agreement provided that at closing, the Company was going to pay to MedMen’s senior lenders $35,000, less certain transaction costs and a prepaid deposit of $4,000, and AWH New York, LLC was going to issue a senior secured promissory note in favor of MMNY’s senior secured lender in the principal amount of $28,000, guaranteed by AWH, which cash investment and note would be used to reduce the amounts owed to MMNY’s senior secured lender. Following its investment, AWH would hold a controlling interest in MMNY equal to approximately 86.7% of the equity in MMNY, and be provided with an option to acquire MedMen’s remaining interest in MMNY in the future for a nominal additional payment, which option the Company intended to exercise. The Investment Agreement also required AWH to make an additional investment of $10,000 in MMNY, which investment would also be used to repay MMNY’s senior secured lender, if adult-use cannabis sales commenced in MMNY’s dispensaries.
The Company contends that, in December 2021, the parties to the Investment Agreement received the required approvals from the State of New York to close the transactions contemplated by the Investment Agreement, but MedMen has disputed the adequacy of the approvals provided by the State of New York. The Company delivered notice to MedMen in December 2021 that it wished to close the transactions as required by the Investment Agreement. Nevertheless, MedMen, on January 2, 2022, gave notice to the Company that MedMen purported to terminate the Investment Agreement.
Following receipt of such notice, on January 13, 2022, the Company filed a complaint against MedMen and others in the Commercial Division of the Supreme Court of the State of New York (the “Court”), requesting specific performance that the transactions contemplated by the Investment Agreement must move forward, and such other relief as the Court may deem appropriate. The Company simultaneously moved for a temporary restraining order and preliminary injunction (the “Motion”) requiring MedMen to operate its New York business in the ordinary course of business and to refrain from any activities or transactions that might impair, encumber, or dissipate MedMen’s New York assets. The parties resolved the Motion via a “Stipulation and Order” entered by the Court on January 21, 2022 that requires that MMNY operate only in compliance with the law and in a manner consistent with its ordinary course of business that preserves all assets of MMNY. It further requires MMNY to not take certain actions, including any actions that would have a material adverse effect on MedMen’s New York business. On March 27, 2023, the parties entered a further stipulation that modified the January 21, 2022 Stipulation and Order by lifting the Court’s prohibition against a sale or transfer of MMNY or its assets. That further stipulation modifying the January 21, 2022 Stipulation and Order was entered by the Court on August 1, 2023.

29

Ascend Wellness Holdings, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
(in thousands, except per unit or per share data)

On January 24, 2022, MedMen filed counterclaims against the Company, alleging that Ascend had breached the Investment Agreement, and seeking declaratory relief that MedMen had properly terminated the Investment Agreement. On February 14, 2022, the Company moved to dismiss MedMen’s counterclaims and filed an amended complaint (the “First Amended Complaint”) that included additional claims against MedMen for breach of contract. The First Amended Complaint contained several causes of action, including for breach of contract and breach of the covenant of good faith and fair dealing. The First Amended Complaint sought damages in addition to continuing to seek injunctive and declaratory relief. On March 7, 2022, MedMen filed amended counterclaims, an answer, and affirmative defenses to the First Amended Counterclaim. On March 28, 2022, the Company moved to dismiss MedMen’s amended counterclaims. On April 20, 2022, the parties entered into a stipulation extending the time for MedMen to oppose the Company’s motion to dismiss until May 5, 2022. In addition, the parties agreed to stay all discovery, including both party and non-party discovery. On May 5, 2022, the parties filed another stipulation order with the Court adjourning until further notice from the Court MedMen’s time to oppose the Company’s motion to dismiss MedMen’s amended counterclaims. The parties again stipulated that all discovery remains stayed pending further order from the Court.
On May 10, 2022, the Company and MedMen signed a term sheet (the “Term Sheet”), pursuant to which the parties agreed to use best efforts to enter into a settlement agreement and enter into new or amended transactional documents. Specifically, if consummated, the agreements contemplated by the Term Sheet would entail, among other things, the Company paying MedMen $15,000 in additional transaction consideration, and MedMen withdrawing its counterclaims against the Company. Per the amended transaction terms contemplated in the Term Sheet, upon closing, the Company would receive a 99.99% controlling interest in MMNY and the Company would pay MedMen $74,000, which reflected the original transaction consideration plus an additional $11,000 per the parties’ term sheet, less a $4,000 deposit that the Company already paid.
The amended transaction terms contemplated in the Term Sheet also would have required MedMen to provide a representation and warranty that the status of the MMNY assets has not materially changed since December 31, 2021 and an acknowledgement that the representations and warranties from the Investment Agreement will survive for three months after the closing of the contemplated transactions. After the Company determined that MedMen cannot make or provide the representations and warranties MedMen would have been required to make as part of the contemplated transactions, the Company determined that it no longer intends to consummate the contemplated transactions.
On September 30, 2022, the Company sought leave from the Court to file a second amended complaint (the “Second Amended Complaint”). The Second Amended Complaint contains breach of contract claims against MedMen, as well as a claim for the breach of the implied covenant of good faith and fair dealing, and a claim for anticipatory breach of contract. In connection with those claims, the Company is no longer seeking injunctive or declaratory relief; however, the Company continues to seek damages from MedMen, including, but not limited to, the return of the $4,000 deposit, approximately $2,400 of advances pursuant to a working capital loan agreement (as described in Note 6, “Notes Receivable”) and other capital expenditure advances paid to MMNY by the Company.
On November 21, 2022, the parties entered into a stipulation whereby MedMen agreed to the filing of the Second Amended Complaint, which is now the operative pleading in the litigation. In addition, in the stipulation, the Company agreed that it would not contest MedMen’s filing of second amended counterclaims against the Company while reserving all rights with respect to any such counterclaims, including the right to move to dismiss any amended counterclaims. Because the parties agreed to the filing of each side’s amended pleadings, on November 28, 2022, the Court determined that Ascend’s March 2022 motion to dismiss was moot.
On December 21, 2022, MedMen filed amended counterclaims, an answer, and affirmative defenses to the Company’s Second Amended Complaint. In addition to the allegations in MedMen’s earlier pleadings, MedMen now also alleges that the Company breached the Term Sheet. On January 20, 2023, the Company moved to dismiss MedMen’s amended counterclaims. The briefing on the Company’s motion to dismiss was completed as of March 3, 2023 and the Court heard oral arguments on that motion on July 18, 2023. The parties are currently awaiting the Court’s decision.
30

Ascend Wellness Holdings, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
(in thousands, except per unit or per share data)

Following the Company’s decision to no longer consummate the contemplated transactions, during the third quarter of 2022, the Company expensed a total of $1,704 of capitalized costs, primarily consisting of capital expenditures or deposits that were incurred for certain locations. Additionally, during the fourth quarter of 2022, the Company established an estimated reserve of $3,700 related to the remaining amounts that it is actively pursuing collecting. The Company determined that the estimated reserve remained adequate as of June 30, 2023 and is included within “Other current assets” on the unaudited Condensed Consolidated Balance Sheets at June 30, 2023 and December 31, 2022.
16. RELATED PARTY TRANSACTIONS
There were no significant related party transactions during the six months ended June 30, 2023, other than as disclosed in Note 6, “Notes Receivable.”
17. SUPPLEMENTAL INFORMATION
The following table presents supplemental information regarding our other current assets:
(in thousands)June 30, 2023December 31, 2022
Deposits and other receivables$10,530 $3,170 
Prepaid expenses4,122 4,765 
Construction deposits872 863 
Tenant improvement allowance510 500 
Other677 243 
Total$16,711 $