SEC Filing - Ascend Wellness Holdings

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aawh-20230930

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

__________________________

FORM 10-Q

(Mark One)


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

For the quarterly period ended September 30, 2023


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

For the transition period from______ to______

Commission File Number: 333-254800

ASCEND WELLNESS HOLDINGS, INC.

(Exact name of registrant as specified in its charter)


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

__________________________

1411 Broadway

16th Floor

New York, NY 10018

(Address of principal executive offices)

(646) 661-7600

(Registrant’s telephone number, including area code)

None

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

__________________________

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

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

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

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

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

Large accelerated filer

☐

Accelerated filer

☒

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☒

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

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

As of November 6, 2023, there were 206,628,947 shares of the registrant’s Class A common stock, par value $0.001, and 65,000 shares of the registrant’s Class B common stock, par value $0.001, outstanding.

ASCEND WELLNESS HOLDINGS, INC

TABLE OF CONTENTS


FORWARD-LOOKING STATEMENTS			1
PART I. FINANCIAL INFORMATION			3
Item 1. Condensed Consolidated Financial Statements (Unaudited)			3
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			35
Item 3. Quantitative and Qualitative Disclosures About Market Risk			53
Item 4. Controls and Procedures			54
PART II. OTHER INFORMATION			54
Item 1. Legal Proceedings			54
Item 1A. Risk Factors			54
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			55
Item 3. Defaults Upon Senior Securities			55
Item 4. Mine Safety Information			55
Item 5. Other Information			55
Item 6. Exhibits			56
SIGNATURES			57

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 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.

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 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.

PART I. FINANCIAL INFORMATION

ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.

ASCEND WELLNESS HOLDINGS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(UNAUDITED)


(in thousands, except per share amounts)	September 30, 2023		December 31, 2022
Assets
Current assets
Cash and cash equivalents	$	63,921	$	74,146

Accounts receivable, net	25,379		14,101
Inventory	89,092		97,532
Notes receivable	16,661		3,423
Other current assets	16,272		9,541
Total current assets	211,325		198,743
Property and equipment, net	269,648		279,860
Operating lease right-of-use assets	132,387		108,810
Intangible assets, net	227,568		221,093
Goodwill	47,291		44,370

Other noncurrent assets	19,768		19,284
TOTAL ASSETS	$	907,987	$	872,160

Liabilities and Stockholders' Equity
Current liabilities
Accounts payable and accrued liabilities	$	54,581	$	56,595
Current portion of debt, net	5,433		11,329
Operating lease liabilities, current	3,476		2,633
Income taxes payable	59,937		34,678
Other current liabilities	6,328		5,714
Total current liabilities	129,755		110,949
Long-term debt, net	301,989		319,297
Operating lease liabilities, noncurrent	262,988		229,816
Deferred tax liabilities, net	37,120		33,607
Other non-current liabilities	16,670		15,076
Total liabilities	748,522		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 September 30, 2023 and December 31, 2022	—		—
Class A common stock, $0.001 par value per share; 750,000 shares authorized; 205,870 and 187,999 shares issued and outstanding at September 30, 2023 and December 31, 2022	206		188
Class B common stock, $0.001 par value per share, 100 shares authorized; 65 issued and outstanding at September 30, 2023 and December 31, 2022	—		—
Additional paid-in capital	455,278		430,375
Accumulated deficit	(296,019)		(267,148)


Total stockholders' equity	159,465		163,415
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	907,987	$	872,160

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

ASCEND WELLNESS HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)


	Three Months Ended September 30,				Nine Months Ended September 30,
(in thousands, except per share amounts)	2023		2022		2023		2022
Revenue, net	$	141,268	$	111,238	$	378,432	$	293,827
Cost of goods sold	(97,712)		(74,602)		(270,853)		(200,776)
Gross profit	43,556		36,636		107,579		93,051
Operating expenses
General and administrative expenses	40,009		34,159		111,762		100,959
Settlement expense	—		—		—		5,000
Total operating expenses	40,009		34,159		111,762		105,959
Operating profit (loss)	3,547		2,477		(4,183)		(12,908)

Other income (expense)
Interest expense	(8,963)		(8,434)		(28,419)		(23,711)
Other, net	902		273		25,211		527
Total other expense	(8,061)		(8,161)		(3,208)		(23,184)
Loss before income taxes	(4,514)		(5,684)		(7,391)		(36,092)
Income tax expense	(6,726)		(11,178)		(21,480)		(29,757)
Net loss	$	(11,240)	$	(16,862)	$	(28,871)	$	(65,849)



Net loss per share attributable to Class A and Class B common stockholders — basic and diluted	$	(0.05)	$	(0.09)	$	(0.15)	$	(0.36)

Weighted-average common shares outstanding — basic and diluted	205,710		187,697		196,616		181,833

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

ASCEND WELLNESS HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(UNAUDITED)


	Nine Months Ended September 30, 2023

	Class A and Class B Common Stock
(in thousands)	Shares	Amount		Additional Paid-In Capital		Accumulated Deficit		Total
December 31, 2022	188,064	$	188	$	430,375	$	(267,148)	$	163,415
Vesting of equity-based payment awards	2,023	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, 2023	189,566	$	189	$	434,392	$	(285,620)	$	148,961
Shares issued in private placement, net of offering expenses	9,859	10		6,990		—		7,000
Shares issued in acquisitions or asset purchases	5,185	5		4,765		—		4,770
Vesting of equity-based payment awards	382	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, 2023	204,890	$	205	$	450,529	$	(284,779)	$	165,955

Vesting of equity-based payment awards	1,384	1		(1)		—		—
Equity-based compensation expense	—	—		4,964		—		4,964
Taxes withheld under equity-based compensation plans, net	(339)	—		(214)		—		(214)

Net loss	—	—		—		(11,240)		(11,240)
September 30, 2023	205,935	$	206	$	455,278	$	(296,019)	$	159,465


	Nine Months Ended September 30, 2022
	Class A and Class B Common Stock
(in thousands)	Shares	Amount		Additional Paid-In Capital		Accumulated Deficit		Total
December 31, 2021	171,586	$	171	$	362,555	$	(186,249)	$	176,477
Vesting of equity-based payment rewards	4,131	4		(4)		—		—
Equity-based compensation expense	—	—		14,306		—		14,306
Taxes withheld under equity-based compensation plans, net	(1,260)	(1)		(4,941)		—		(4,942)
Net loss	—	—		—		(27,815)		(27,815)
March 31, 2022	174,457	$	174	$	371,916	$	(214,064)	$	158,026
Shares issued in acquisitions or asset purchases	12,900	13		42,944		—		42,957
Vesting of equity-based payment awards	138	—		—		—		—
Equity-based compensation expense	—	—		4,170		—		4,170

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

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

Vesting of equity-based payment awards	570	1		(1)		—		—
Equity-based compensation expense	—	—		4,545		—		4,545
Taxes withheld under equity-based compensation plans, net	(96)	—		(234)		—		(234)
Net loss	—	—		—		(16,862)		(16,862)
September 30, 2022	187,969	$	188	$	425,979	$	(252,098)	$	174,069

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

ASCEND WELLNESS HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)


	Nine Months Ended September 30,
(in thousands)	2023		2022
Cash flows from operating activities


Net loss	$	(28,871)	$	(65,849)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation and amortization	44,192		25,824
Amortization of operating lease assets	827		1,014
Non-cash interest expense	7,082		4,466
Equity-based compensation expense	13,976		17,662


Deferred income taxes	(10,875)		(3,725)
(Gain) loss on sale of assets	(226)		450
Other	17,837		8,069
Changes in operating assets and liabilities, net of effects of acquisitions
Accounts receivable	(11,278)		(5,763)

Inventory	(5,693)		(34,754)
Other current assets	(5,726)		4,734

Other noncurrent assets	(484)		235
Accounts payable and accrued liabilities	12,601		8,564

Other current liabilities	615		(650)
Lease liabilities	(569)		(521)
Income taxes payable	25,258		17,959

Net cash provided by (used in) operating activities	58,666		(22,285)
Cash flows from investing activities
Additions to capital assets	(16,012)		(62,959)
Investments in notes receivable	(15,169)		(2,391)
Collection of notes receivable	245		245
Proceeds from sale of assets	15,000		39,225
Acquisition of businesses, net of cash acquired	(19,857)		(24,890)
Purchase of intangible assets	(15,943)		(43,781)


Net cash used in investing activities	(51,736)		(94,551)
Cash flows from financing activities

Proceeds from issuance of common stock in private placement	7,000		—
Proceeds from issuance of debt	—		65,000
Repayments of debt	(23,188)		(2,289)


Repayments under finance leases	(256)		(23)
Debt issuance costs	—		(4,998)
Taxes withheld under equity-based compensation plans, net	(711)		(4,942)

Net cash (used in) provided by financing activities	(17,155)		52,748
Net decrease in cash, cash equivalents, and restricted cash	(10,225)		(64,088)
Cash, cash equivalents, and restricted cash at beginning of period	74,146		155,481
Cash, cash equivalents, and restricted cash at end of period	$	63,921	$	91,393

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

ASCEND WELLNESS HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(CONTINUED, UNAUDITED)


	Nine Months Ended September 30,
(in thousands)	2023		2022
Supplemental Cash Flow Information
Interest paid	$	20,579	$	17,100
Income taxes paid, net of refunds	7,057		15,505

Non-cash investing and financing activities
Capital expenditures incurred but not yet paid	6,102		7,324
Issuance of shares in business acquisitions	4,770		—
Taxes withheld under equity-based compensation plans, net	214		234
Issuance of shares for intangible assets	—		42,957
Warrants issued with notes payable	—		2,639

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

Ascend Wellness Holdings, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

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

1. THE COMPANY AND NATURE OF OPERATIONS

Ascend Wellness Holdings, Inc., which operates through its subsidiaries (collectively referred to as “AWH,” “Ascend,” “we,” “us,” “our,” or the “Company”), is a 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 nine months ended September 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.

Ascend Wellness Holdings, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

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

Liquidity

As reflected in the Financial Statements, the Company had an accumulated deficit as of September 30, 2023 and December 31, 2022, as well as a net loss for the nine months ended September 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 September 30, 2023 and December 31, 2022, we did not hold significant restricted cash or cash equivalents.

Fair Value of Financial Instruments

During the nine months ended September 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, as applicable. At September 30, 2023 and 2022, 26,840 and 15,069 shares of common stock equivalents, respectively, were excluded from the calculation of diluted EPS because their inclusion would have been anti-dilutive.

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

Ascend Wellness Holdings, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

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

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.

Ascend Wellness Holdings, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

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

3. REPORTABLE SEGMENTS AND REVENUE

The Company operates under one operating segment, which is its only reportable segment: the production and sale of cannabis products. The Company prepares its segment reporting on the same basis that its Chief Operating Decision Maker manages the business and makes operating decisions. The Company’s measure of segment performance is net income and derives its revenue primarily from the sale of cannabis products. All of the Company’s operations are located in the United States.

Disaggregation of Revenue

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


	Three Months Ended September 30,				Nine Months Ended September 30,
(in thousands)	2023		2022		2023		2022
Retail revenue	$	101,263	$	82,793	$	273,862	$	221,639
Wholesale revenue	68,671		51,466		188,263		131,513
	169,934		134,259		462,125		353,152
Elimination of inter-company revenue	(28,666)		(23,021)		(83,693)		(59,325)
Total revenue, net	$	141,268	$	111,238	$	378,432	$	293,827

The liability related to the loyalty program we offer dispensary customers at certain locations was $1,019 and $672 at September 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 $1,491 and $493 in allowance for doubtful accounts as of September 30, 2023 and December 31, 2022, respectively. Write-offs were not significant during the three and nine months ended September 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 nine months ended September 30, 2023 were not material.

Ascend Wellness Holdings, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

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

Preliminary Purchase Price Allocation


(in thousands)	Devi Maryland
Assets acquired (liabilities assumed):
Cash	$	143

Inventory	447
Prepaids and other current assets	114
Property and equipment(1)	4,593

Licenses(2)	9,790
Goodwill(3)	2,921
Accounts payable and accrued liabilities(4)	(1,238)
Net assets acquired	$	16,770

Consideration transferred:
Cash	$	12,000
Fair value of shares issued(5)	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. During the three months ended September 30, 2023, we refined certain estimates related to the fair value of the acquired licenses and recorded a measurement period purchase accounting adjustment that increased the value by $740, with a related impact to goodwill.

(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)During the three months ended September 30, 2023, we refined certain estimates related to the accounts payable assumed in the acquisition and recorded a measurement period purchase accounting adjustment that reduced the estimate by $257, with a related impact to goodwill.

(5)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 nine months ended September 30, 2023 include $9,541 and $11,270, respectively, of net revenue and $688 and $15, respectively, of net income 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. There was no incremental revenue associated with third-party sales related to Marichron during the three months ended September 30, 2023. Our results of operations for the nine months ended September 30, 2023 include $556 of net revenue related to Marichron and the three and nine months ended September 30, 2023 include $175 and $919, respectively, of net loss.

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. A second payment of $15,000 was paid in August 2023 and is included within “Accounts payable and other accrued liabilities” on the unaudited Condensed Consolidated Balance Sheet at December 31, 2022. The additional $10,000 due under the funding commitment is included within “Other non-current liabilities” on the unaudited Condensed Consolidated Balance Sheet at September 30, 2023 and December 31, 2022. A total of $943 due under one of the consulting agreements was paid during the nine months ended September 30, 2023, 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.

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 September 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. During the third quarter of 2023, the Company recorded an acquisition-related deferred tax liability of $9,516, which was allocated to the estimated fair value of the license.

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 September 30, 2023 and December 31, 2022, the estimated fair value of this contingent consideration was $6,670 and $5,076, respectively, and is included within “Other non-current liabilities” on the accompanying unaudited Condensed Consolidated Balance Sheets. The $606 and $1,594 change in fair value during the three and nine months ended September 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 during 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. During the second quarter of 2023, the Company recorded an acquisition-related 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 September 30, 2023 and “Long-term Debt, net” at December 31, 2022; refer to Note 11, “Debt,” for additional information.

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 September 30, 2023 and December 31, 2022; refer to Note 11, “Debt,” for additional information. During the third quarter of 2023, the Company recorded an acquisition-related deferred tax liability of $2,458, which was allocated to the license as additional cost basis.

5. INVENTORY

The components of inventory are as follows:


(in thousands)	September 30, 2023		December 31, 2022
Materials and supplies	$	15,928	$	16,115
Work in process	35,431		49,586
Finished goods	37,733		31,831
Total	$	89,092	$	97,532

Total compensation expense capitalized to inventory was $18,552 and $14,406 during the three months ended September 30, 2023 and 2022, respectively, and $52,847 and $39,961 during the nine months ended September 30, 2023 and 2022, respectively. At September 30, 2023 and December 31, 2022, $12,420 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 $2,938 and $4,049 during the three months ended September 30, 2023 and 2022, respectively, and $13,052 and $6,365 during the nine months ended September 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)	September 30, 2023		December 31, 2022
Maryland Loan Receivable(1)	$	10,690	$	—
Massachusetts Note(2)	3,549		1,001
MMNY - working capital loan(3)	2,422		2,422



Total	$	16,661	$	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 that matures on August 1, 2026. The Maryland Loan Agreement initially provided for a base interest rate of 12.0% plus LIBOR (LIBOR floor of 1.0%) and a paid-in-kind (“PIK”) interest rate of 4.5%. Following the replacement of LIBOR, effective July 1, 2023, the LIBOR component of the interest rate transitioned to the secured overnight financing rate (“SOFR”) plus an alternative reference rate committee (“ARRC”) standard adjustment. As of September 30, 2023, the all-in interest rate was 26.9%, which included a default penalty of 5.0%. 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.

Ascend Wellness Holdings, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

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

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 are being amortized to interest income over the term. The Company identified certain events of default and covenant violations, including non-payment, and provided an acceleration notice during the second quarter of 2022 that declared all amounts due and payable. Such events of default and covenant violations were not remedied as of September 30, 2023. During the three and nine months ended September 30, 2023, the Company recognized a total of $917 and $1,882, respectively, of interest income, including certain default fees and premiums and PIK interest, which total remained outstanding as of September 30, 2023 and is recorded within “Other, net” on the accompanying unaudited Condensed Consolidated Statements of Operations.

Additionally, during the nine months ended September 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%, which is reflected in the total balance outstanding in the table above. Following the opening of the borrower’s retail dispensary, which had not occurred as of September 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 nine months ended September 30, 2023 or 2022, other than as described above.

Additionally, a total of $4,059 is outstanding at September 30, 2023 related to a promissory note issued to the owner of a property that the Company is leasing, of which $168 and $3,891 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.

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)	September 30, 2023		December 31, 2022
Leasehold improvements	$	180,062	$	174,099
Furniture, fixtures, and equipment	69,691		63,974
Buildings	63,186		71,951
Construction in progress	22,410		9,633
Land	5,242		6,505
Property and equipment, gross	340,591		326,162
Less: accumulated depreciation	70,943		46,302
Property and equipment, net	$	269,648	$	279,860

Total depreciation expense was $8,531 and $6,405 during the three months ended September 30, 2023 and 2022, respectively, and $24,958 and $18,079 during the nine months ended September 30, 2023 and 2022, respectively. Total depreciation expense capitalized to inventory was $6,227 and $4,657 during the three months ended September 30, 2023 and 2022, respectively, and $18,628 and $13,629 during the nine months ended September 30, 2023 and 2022, respectively. At September 30, 2023 and December 31, 2022, $5,163 and $6,548, respectively, of depreciation expense remained capitalized as part of inventory.

The table above includes equipment with a gross value of $2,321 and $1,086 as of September 30, 2023 and December 31, 2022, respectively, and accumulated amortization of $409 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 nine months ended September 30, 2023, the Company 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. Additionally, during the three and nine months ended September 30, 2023, the Company wrote-off $1,259 of certain construction in progress projects, which is included within “General and administrative expenses” on the unaudited Condensed Consolidated Statements of Operations and within “Other” on the unaudited Condensed Consolidated Statements of Cash Flows.

Ascend Wellness Holdings, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

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

8. VARIABLE INTEREST ENTITIES

A VIE is a legal entity that does not have sufficient equity at risk to finance its activities without additional subordinated financial support or is structured that such equity investors lack the ability to make significant decisions relating to the entity’s operations through voting rights or do not substantively participate in the gains or losses of the entity. The primary beneficiary has both the power to direct the activities of the VIE that most significantly impact the entity’s economic performance and the obligation to absorb losses or the right to receive benefits from the VIE that could potentially be significant to the VIE.

We assess all variable interests in the entity and use our judgment when determining if we are the primary beneficiary. Other qualitative factors that are considered include decision-making responsibilities, the VIE capital structure, risk and rewards sharing, contractual agreements with the VIE, voting rights, and level of involvement of other parties. We assess the primary beneficiary determination for a VIE on an ongoing basis if there are any changes in the facts and circumstances related to a VIE.

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

The following tables present the summarized financial information about the Company’s consolidated VIEs which are included in the unaudited Condensed Consolidated Balance Sheets as of September 30, 2023 and December 31, 2022 and in the unaudited Condensed Consolidated Statements of Operations for the three and nine months ended September 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)	September 30, 2023		December 31, 2022
Current assets	$	30	$	—
Other noncurrent assets	42,124		24,675
Current liabilities	18,247		1,675
Noncurrent liabilities	9,516		—

Deficit	(2,457)		(588)


	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
(in thousands)	Ohio Patient Access		Ascend Illinois(1)		Ohio Patient Access		Ascend Illinois(1)
Revenue, net	$	—	$	68,346	$	—	$	197,152


Net (loss) income	(672)		8,834		(1,869)		22,034

(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.

Ascend Wellness Holdings, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

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

9. INTANGIBLE ASSETS AND GOODWILL


(in thousands)	September 30, 2023		December 31, 2022
Intangible Assets
Licenses and permits	$	251,097	$	226,919
In-place leases	19,963		19,963
Trade names	380		380
	271,440		247,262
Accumulated amortization:
Licenses and permits	(29,090)		(13,035)
In-place leases	(14,402)		(12,754)
Trade names	(380)		(380)
	(43,872)		(26,169)

Total intangible assets, net	$	227,568	$	221,093

Amortization expense related to intangible assets was $5,876 and $1,931 during the three months ended September 30, 2023 and 2022, respectively, and $17,703 and $5,832 during the nine months ended September 30, 2023 and 2022, respectively. Total amortization expense capitalized to inventory was $685 and $407 during the three months ended September 30, 2023 and 2022, respectively, and $2,106 and $1,221 during the nine months ended September 30, 2023 and 2022, respectively. At September 30, 2023 and December 31, 2022, $955 and $1,101, respectively, of amortization expense remained capitalized as part of inventory.

No impairment indicators were noted during the nine months ended September 30, 2023 or 2022 and, as such, we did not record any impairment charges during either period.

Goodwill


(in thousands)
Balance, December 31, 2022	$	44,370
Acquisitions(1)	2,921

Balance, September 30, 2023	$	47,291

(1)Refer to Note 4, “Acquisitions,” for additional information.

Ascend Wellness Holdings, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

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

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)	Classification	September 30, 2023		December 31, 2022
Lease assets
Operating leases	Operating lease right-of-use assets	$	132,387	$	108,810
Finance leases	Property and equipment, net	1,912		997
Total lease assets		$	134,299	$	109,807

Lease liabilities
Current liabilities
Operating leases	Operating lease liabilities, current	$	3,476	$	2,633
Finance leases	Current portion of debt, net	479		207
Noncurrent liabilities
Operating leases	Operating lease liabilities, noncurrent	262,988		229,816
Finance leases	Long-term debt, net	1,326		695
Total lease liabilities		$	268,269	$	233,351

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 September 30,				Nine Months Ended September 30,
(in thousands)	2023		2022		2023		2022
Operating lease costs
Capitalized to inventory	$	9,262	$	7,649	$	25,960	$	21,485
General and administrative expenses	651		686		1,914		1,945
Total operating lease costs	$	9,913	$	8,335	$	27,874	$	23,430

Finance lease costs
Amortization of leased assets(1)	$	138	$	26	$	320	$	26
Interest on lease liabilities	68		13		138		13
Total finance lease costs	$	206	$	39	$	458	$	39

(1)Included as a component of depreciation expense within “General and administrative expenses” on the accompanying unaudited Condensed Consolidated Statements of Operations.

At September 30, 2023 and December 31, 2022, $5,964 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 September 30,				Nine Months Ended September 30,
(in thousands)	2023		2022		2023		2022


Total short-term and variable lease costs	$	1,176	$	1,404	$	3,353	$	3,873

Sublease income generated during the three and nine months ended September 30, 2023 and 2022 was immaterial.

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


	Nine Months Ended September 30,
(in thousands)	2023		2022
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows from operating leases	$	27,581	$	22,987
Operating cash flows from finance leases	138		13
Financing cash flows from finance leases	256		23
ROU assets obtained in exchange for new lease obligations
Operating leases	$	34,583	$	35,774
Finance leases	1,159		883

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:


	September 30, 2023		December 31, 2022
Weighted-average remaining term (years)
Operating leases	14.5		15.1
Finance leases	3.3		3.7
Weighted-average discount rate
Operating leases	15.1	%	14.8	%
Finance leases	13.7	%	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 September 30, 2023 are as follows:


(in thousands)	Operating Lease Liabilities		Finance Lease Liabilities
Remainder of 2023	$	9,791	$	173
2024	40,461		693
2025	41,649		693
2026	42,444		572
2027	43,581		103
Thereafter	521,976		—
Total lease payments	699,902		2,234
Less: imputed interest	433,438		429
Present value of lease liabilities	$	266,464	$	1,805

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 nine months ended September 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 $549 during the nine months ended September 30, 2023, which is included in “General and administrative expenses” on the unaudited Condensed Consolidated Statement of Operations.

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 2023		2024		2025		2026		2027		Thereafter		Total
Cash payments due under financing liabilities	$	587	$	2,416	$	2,525	$	2,599	$	2,676	$	9,477	$	20,280

11. DEBT


(in thousands)	September 30, 2023		December 31, 2022
2021 Credit Facility(1)	$	275,000	$	275,000
Sellers’ Notes(2)	18,258		27,606
Finance liabilities(3)	18,100		18,100
Financing Agreement(4)	1,668		19,364
Finance leases(5)	1,805		902
Total debt	$	314,831	$	340,972

Current portion of debt	5,433		11,347
Less: unamortized deferred financing costs	—		18
Current portion of debt, net	$	5,433	$	11,329

Long-term debt	309,398		329,625
Less: unamortized deferred financing costs	7,409		10,328
Long-term debt, net	$	301,989	$	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

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 September 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 nine months ended September 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 September 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 $9,372 and $8,366, respectively, related to the OPA Sellers’ Note included in “Long-term debt, net” at September 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 September 30, 2023 and December 31, 2022, $786 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. 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 nine months ended September 30, 2023. The Company received $20,830 of the ERTC Claim during the nine months ended September 30, 2023, which was remitted to the lender per the terms of the Financing Agreement. A total of $1,964 of the ERTC Claim remains outstanding as of September 30, 2023, which receivable is included in “Other current assets” on the unaudited Condensed Consolidated Balance Sheet, and the balance outstanding under the Financing Agreement is included in “Current portion of debt, net” at September 30, 2023 and “Long-term debt, net” at December 31, 2022.

(5)Liabilities related to finance leases. See Note 10, “Leases,” for additional information.

Ascend Wellness Holdings, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

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

Debt Maturities

During the nine months ended September 30, 2023, we repaid $8,000 of sellers’ notes related to one previous acquisition and $2,358 of sellers’ notes related to the former owners of a previous non-controlling interest.

At September 30, 2023, the following cash payments are required under our debt arrangements:


(in thousands)	Remainder of 2023		2024		2025		Total
Sellers’ notes(1)	$	786	$	8,100	$	11,000	$	19,886
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 nine months ended September 30, 2023 and 2022 consisted of the following:


	Three Months Ended September 30,				Nine Months Ended September 30,
(in thousands)	2023		2022		2023		2022
Cash interest	$	6,515	$	6,847	$	19,479	$	17,677
Accretion	1,802		1,053		7,082		2,288
Interest on financing liabilities(1)	578		521		1,720		1,553
Interest on finance leases	68		13		138		13
Loss on extinguishment of debt	—		—		—		2,180
Total	$	8,963	$	8,434	$	28,419	$	23,711

(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.

Ascend Wellness Holdings, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

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

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.

The following table summarizes the total shares of Class A common stock and Class B common stock outstanding as of September 30, 2023 and December 31, 2022:


(in thousands)	September 30, 2023	December 31, 2022
Shares of Class A common stock	205,870	187,999
Shares of Class B common stock	65	65
Total	205,935	188,064

Warrants

The following table summarizes the warrants activity during the nine months ended September 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	(1,110)	4.00
Outstanding, September 30, 2023(2)	4,630	$	3.34	2.5	$	—

(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 September 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 87.5% and risk-free rates ranging from 0.18% to 4.20%. No warrants were exercised during the nine months ended September 30, 2023.

Ascend Wellness Holdings, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

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

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 granted under the plan as of September 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 nine months ended September 30, 2023:


(in thousands)			Restricted Common Shares



Unvested, December 31, 2022			617

Vested			(617)

Unvested, September 30, 2023			—

There is no remaining unrecognized compensation cost associated with these awards as of September 30, 2023.

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 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” and together with the 2021 Plan, the “Amended 2021 Plan”) to increase the maximum number of shares of Class A common stock available for issuance under the Amended 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 Amended 2021 Plan. On May 5, 2023, the stockholders of the Company voted to approve the Amendment. As of September 30, 2023, there were 3,108 shares of Class A common stock available for grant for future equity-based compensation awards under the Amended 2021 Plan. Activity related to awards issued under the Amended 2021 Plan is further described below. As of September 30, 2023, no SAR Awards and no RSAs had been granted under the Amended 2021 Plan.

Ascend Wellness Holdings, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

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

Stock Options

The following table summarizes stock option activity during the nine months ended September 30, 2023:


	Options Outstanding
(in thousands, except per share amounts)	Number of Options	Weighted-Average Exercise Price		Weighted-Average Remaining Contractual Life (years)	Aggregate Intrinsic Value(1)
Outstanding, December 31, 2022	2,042	$	3.29	4.4	$	—
Granted	3,195	$	0.85

Forfeited	(331)	$	2.08
Expired	(13)	$	4.10
Outstanding, September 30, 2023	4,893	$	1.80	4.2	$	272
Exercisable at September 30, 2023	707	$	2.87	3.3	$	—

(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 nine months ended September 30, 2023. Total unrecognized stock-based compensation expense related to unvested options was $2,974 as of September 30, 2023, which is expected to be recognized over a weighted-average remaining period of 2.9 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 nine months ended September 30, 2023 was calculated on the date of grant using the following weighted-average assumptions:


	Nine Months Ended September 30, 2023
Risk-free interest rate	3.8	%
Expected term (years)	3.75
Dividend yield	0	%
Expected volatility	70.0	%

Using the Black-Scholes option pricing model, the weighted-average fair value of stock options granted during the nine months ended September 30, 2023 was $0.44 per share.

Restricted Stock Units

The following table summarizes the RSU activity during the nine months ended September 30, 2023:


	Number of Shares (in thousands)	Weighted-Average Grant Date Fair Value per Share



Unvested, December 31, 2022	6,462	$	7.62
Granted	10,783	0.91
Vested(1)	(3,172)	6.63
Forfeited	(756)	3.67
Unvested, September 30, 2023	13,317	$	2.65

(1)Includes 962 vested shares that were withheld to cover tax obligations and were subsequently cancelled.

As of September 30, 2023, total unrecognized compensation cost related to the RSUs was $27,072, which is expected to be recognized over a weighted-average remaining period of 2.0 years.

Ascend Wellness Holdings, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

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

Performance Based Awards

In August 2023, the Company’s board of directors approved the grant of 4,000 RSUs outside of the Company’s Amended 2021 Plan (the “August 2023 Grant”). The August 2023 Grant was issued pursuant to an employment agreement and vests upon the later of the second anniversary of employment and the achievement of certain stock price targets, as set forth in the table below:


Tranche	Company Stock Price Target (per share)(1)	Number of Eligible RSUs (in thousands)
1	$2.00	1,000
2	$3.00	1,000
3	$4.00	1,000
4	$5.00	1,000

(1)The market price of the Company’s Class A common stock must exceed the target price per share for 30 days during a 60 day period.

In addition to the time-based vesting condition and market conditions, which must both be met and were not achieved as of September 30, 2023, continued service to the Company is required as of the date the conditions are satisfied. The grant date fair value of the August 2023 Grant was calculated using a Monte Carlo simulation, which inputs included a volatility rate of 107.7%, a risk-free rate of 4.0%, a market price of $0.65 per share on the grant date, and an expected term of 9 years. The total fair value of the August 2023 Grant was $2,177 and will be recognized as compensation expense over the requisite service period, which, for this award, is the longer of the explicit, implicit, and derived service period, and will be recognized regardless of whether the market conditions are satisfied, provided that the requisite service period has been completed. As of September 30, 2023, the total unrecognized compensation expense related to the August 2023 Grant was $2,124, which is expected to be recognized over a weighted-average period of 2.6 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 September 30,				Nine Months Ended September 30,
(in thousands)	2023		2022		2023		2022
RSUs	$	4,656	$	5,829	$	13,133	$	17,081
Stock Options	308		175		728		349
Restricted Common Shares	—		28		115		232
Total equity-based compensation expense	$	4,964	$	6,032