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YOU are a financial analyst. You are reading a report of a company.
The report is about the company's financial status.
effectively mitigate the increases to our costs. If we are unable to take actions to effectively mitigate the effect of the increased inflation and changes to economic conditions, our business, financial condition and results of operations could be negatively impacted.
Additionally, the U.S. has imposed and may impose additional quotas, duties, tariffs, retaliatory or trade protection measures or other restrictions or regulations and may adversely adjust prevailing quota, duty or tariff levels, which can affect both the materials that we use to package our products and the sale of finished products. For example, the tariffs imposed by the U.S. on materials from China are impacting materials that we import for use in packaging in the U.S. Measures to reduce the impact of tariff increases or trade restrictions, including geographical diversification of our sources of supply, adjustments in packaging design and fabrication or increased prices, could increase our costs, delay our time to market and/or decrease sales. Other governmental action related to tariffs or international trade agreements has the potential to adversely impact demand for our products and our costs, customers, suppliers and global economic conditions and cause higher volatility in financial markets. While we actively review existing and proposed measures to seek to assess the impact of them on our business, changes in tariff rates, import duties and other new or augmented trade restrictions could
cik:1756390
ticker:AAWH
name:Ascend Wellness Holdings, Inc.
exchange:OTC
filing_type:10-K
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YOU are a financial analyst. You are reading a report of a company.
The report is about the company's financial status.
, adjustments in packaging design and fabrication or increased prices, could increase our costs, delay our time to market and/or decrease sales. Other governmental action related to tariffs or international trade agreements has the potential to adversely impact demand for our products and our costs, customers, suppliers and global economic conditions and cause higher volatility in financial markets. While we actively review existing and proposed measures to seek to assess the impact of them on our business, changes in tariff rates, import duties and other new or augmented trade restrictions could have a number of negative impacts on our business, including higher consumer prices and reduced demand for our products and higher input costs.
We are subject to risks arising from epidemic diseases, such as the outbreak of the COVID-19 illness.
On March 11, 2020, the World Health Organization declared the outbreak of COVID-19 a global pandemic. A public health epidemic, including COVID-19, or the fear of a potential pandemic, poses the risk that we or our employees, contractors, suppliers, and other partners may be prevented from conducting business activities for an indefinite period of time, including due to shutdowns or other preventative measures taken to limit the potential impact from a public health epidemic that may be requested or mandated by governmental authorities.
Our priorities during the COVID-19 pandemic
cik:1756390
ticker:AAWH
name:Ascend Wellness Holdings, Inc.
exchange:OTC
filing_type:10-K
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YOU are a financial analyst. You are reading a report of a company.
The report is about the company's financial status.
World Health Organization declared the outbreak of COVID-19 a global pandemic. A public health epidemic, including COVID-19, or the fear of a potential pandemic, poses the risk that we or our employees, contractors, suppliers, and other partners may be prevented from conducting business activities for an indefinite period of time, including due to shutdowns or other preventative measures taken to limit the potential impact from a public health epidemic that may be requested or mandated by governmental authorities.
Our priorities during the COVID-19 pandemic have been protecting the health and safety of our employees and our customers, following the recommended actions of government and health authorities. In the future, the pandemic may cause reduced demand for our products and services if, for example, the pandemic results in a recessionary economic environment.
Furthermore, as a result of the COVID-19 pandemic, we have adopted remote and hybrid work arrangements for many of our employees. It is possible that widespread remote work arrangements may have a negative impact on our operations; the execution of our business plans; our ability to recruit, train, manage, and retain employees; the productivity and availability of key personnel and other employees necessary to conduct our business; and on third-party service providers who perform critical services for us, or otherwise cause operational
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failures.
cik:1756390
ticker:AAWH
name:Ascend Wellness Holdings, Inc.
exchange:OTC
filing_type:10-K
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YOU are a financial analyst. You are reading a report of a company.
The report is about the company's financial status.
as a result of the COVID-19 pandemic, we have adopted remote and hybrid work arrangements for many of our employees. It is possible that widespread remote work arrangements may have a negative impact on our operations; the execution of our business plans; our ability to recruit, train, manage, and retain employees; the productivity and availability of key personnel and other employees necessary to conduct our business; and on third-party service providers who perform critical services for us, or otherwise cause operational
79
failures. If a natural disaster, power outage, connectivity issue, or other event occurred that impacted our employees’ ability to work remotely, it may be difficult or, in certain cases, impossible, for us to continue our business for a substantial period of time. The increase in remote working may also result in increased consumer privacy, data security, and fraud risks.
The continued spread of COVID-19 (or any other actual or potential pandemic) and the measures taken by the governments of countries affected could disrupt the supply chain and the manufacture or shipment or sale of our products and adversely impact our business, financial condition or results of operations. It could also affect the health and availability of our workforce at our facilities, as well as those of our suppliers. The COVID-19 outbreak and mitigation measures may
cik:1756390
ticker:AAWH
name:Ascend Wellness Holdings, Inc.
exchange:OTC
filing_type:10-K
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YOU are a financial analyst. You are reading a report of a company.
The report is about the company's financial status.
also result in increased consumer privacy, data security, and fraud risks.
The continued spread of COVID-19 (or any other actual or potential pandemic) and the measures taken by the governments of countries affected could disrupt the supply chain and the manufacture or shipment or sale of our products and adversely impact our business, financial condition or results of operations. It could also affect the health and availability of our workforce at our facilities, as well as those of our suppliers. The COVID-19 outbreak and mitigation measures may also have an adverse impact on global economic conditions which could have an adverse effect on our business and financial condition. The extent to which the COVID-19 outbreak impacts our results will depend on future developments that are highly uncertain and cannot be predicted, including new information that may emerge concerning the severity of the virus and the actions to contain its impact. Because cannabis remains federally illegal, it is possible that we would not be eligible to participate in any government relief programs (such as federal loans or access to capital) resulting from COVID-19 or any other actual or potential pandemic.
While the U.S. and other jurisdictions have relaxed restrictions implemented in response to the COVID- 19 pandemic, the potential for new and more-transmissible variants means that the situation remains dynamic and subject to rapid and possibly
cik:1756390
ticker:AAWH
name:Ascend Wellness Holdings, Inc.
exchange:OTC
filing_type:10-K
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YOU are a financial analyst. You are reading a report of a company.
The report is about the company's financial status.
severity of the virus and the actions to contain its impact. Because cannabis remains federally illegal, it is possible that we would not be eligible to participate in any government relief programs (such as federal loans or access to capital) resulting from COVID-19 or any other actual or potential pandemic.
While the U.S. and other jurisdictions have relaxed restrictions implemented in response to the COVID- 19 pandemic, the potential for new and more-transmissible variants means that the situation remains dynamic and subject to rapid and possibly material changes.
Our business may be affected by political and economic instability.
We may be affected by political or economic instability, including political or economic instability resulting from the recent invasion of Ukraine by Russia. The risks include, but are not limited to, terrorism, military repression, extreme fluctuations in currency exchange rates, high rates of inflation and other negative impacts on the global economy, capital markets or other geopolitical conditions. Changes in medical and agricultural development or investment policies or shifts in political viewpoints of certain countries may adversely affect our business. Operations may be affected in varying degrees by government regulations with respect to restrictions on production, distribution, price controls, export controls, income taxes, expropriation of property, maintenance of assets, environmental legislation, land use, land claims of local people, and water
cik:1756390
ticker:AAWH
name:Ascend Wellness Holdings, Inc.
exchange:OTC
filing_type:10-K
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YOU are a financial analyst. You are reading a report of a company.
The report is about the company's financial status.
in currency exchange rates, high rates of inflation and other negative impacts on the global economy, capital markets or other geopolitical conditions. Changes in medical and agricultural development or investment policies or shifts in political viewpoints of certain countries may adversely affect our business. Operations may be affected in varying degrees by government regulations with respect to restrictions on production, distribution, price controls, export controls, income taxes, expropriation of property, maintenance of assets, environmental legislation, land use, land claims of local people, and water use. The effect of these factors cannot be accurately predicted.
Our internal controls over financial reporting may not be effective and our independent registered public accounting firm may not be able to certify as to their effectiveness, which could have a significant and adverse effect on our business and reputation.
As a public company, we are required to evaluate our internal controls over financial reporting. Furthermore, at such time as we cease to be an “emerging growth company,” as more fully described in these Risk Factors, we shall also be required to comply with the auditor attestation requirements of Section 404. In addition, if we fail to achieve and maintain the adequacy of our internal controls, as such standards are modified, supplemented or amended from time to time, we may not be able to ensure that we
cik:1756390
ticker:AAWH
name:Ascend Wellness Holdings, Inc.
exchange:OTC
filing_type:10-K
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YOU are a financial analyst. You are reading a report of a company.
The report is about the company's financial status.
public company, we are required to evaluate our internal controls over financial reporting. Furthermore, at such time as we cease to be an “emerging growth company,” as more fully described in these Risk Factors, we shall also be required to comply with the auditor attestation requirements of Section 404. In addition, if we fail to achieve and maintain the adequacy of our internal controls, as such standards are modified, supplemented or amended from time to time, we may not be able to ensure that we can conclude on an ongoing basis that we have effective internal controls over financial reporting in accordance with Section 404. We cannot be certain as to the timing of completion of our evaluation, testing and any remediation actions or the impact of the same on our operations. If we are not able to implement the requirements of Section 404 in a timely manner or with adequate compliance, our independent registered public accounting firm may issue an adverse opinion due to ineffective internal controls over financial reporting and we may be subject to sanctions or investigation by regulatory authorities, such as the SEC. As a result, there could be a negative reaction in the financial markets due to a loss of confidence in the reliability of our financial statements. In addition, we may be required to incur costs in improving our internal control system and
cik:1756390
ticker:AAWH
name:Ascend Wellness Holdings, Inc.
exchange:OTC
filing_type:10-K
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YOU are a financial analyst. You are reading a report of a company.
The report is about the company's financial status.
able to implement the requirements of Section 404 in a timely manner or with adequate compliance, our independent registered public accounting firm may issue an adverse opinion due to ineffective internal controls over financial reporting and we may be subject to sanctions or investigation by regulatory authorities, such as the SEC. As a result, there could be a negative reaction in the financial markets due to a loss of confidence in the reliability of our financial statements. In addition, we may be required to incur costs in improving our internal control system and the hiring of additional personnel. Any such action could negatively affect our results of operations and cash flows.
ITEM 1B. UNRESOLVED STAFF COMMENTS
Not applicable.
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ITEM 2. PROPERTIES
We lease office space in New York, NY that houses our corporate headquarters.
As of December 31, 2022, we lease cultivation and manufacturing facilities in Barry, IL, Athol, MA, Lansing, MI, and Franklin, NJ consisting of a total of approximately 560,000 square feet and own the manufacturing facilities in Monroe, OH and Smithfield, PA. We lease approximately 128,000 square feet for our dispensary operations and own the 15,000 square foot building that houses our Boston, MA dispensary.
Our cultivation
cik:1756390
ticker:AAWH
name:Ascend Wellness Holdings, Inc.
exchange:OTC
filing_type:10-K
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YOU are a financial analyst. You are reading a report of a company.
The report is about the company's financial status.
our corporate headquarters.
As of December 31, 2022, we lease cultivation and manufacturing facilities in Barry, IL, Athol, MA, Lansing, MI, and Franklin, NJ consisting of a total of approximately 560,000 square feet and own the manufacturing facilities in Monroe, OH and Smithfield, PA. We lease approximately 128,000 square feet for our dispensary operations and own the 15,000 square foot building that houses our Boston, MA dispensary.
Our cultivation leases generally have a term of eighteen to twenty years. Most leases for our cultivation and manufacturing operations provide for a base rent, typically with three percent annual escalators and generally require us to pay insurance, utilities, real estate taxes and repair and maintenance expenses.
Our retail leases generally have a term of ten years with two five-year renewal options. Most leases for our retail stores provide for a base rent, typically with 2-3 percent annual escalations and generally require us to pay insurance, utilities, real estate taxes, and repair and maintenance expenses.
The average size of our stores is approximately 5,000 square feet. The following table summarizes our principal physical properties by state and their designation by use or planned use, as of December 31, 2022:
State
cik:1756390
ticker:AAWH
name:Ascend Wellness Holdings, Inc.
exchange:OTC
filing_type:10-K
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YOU are a financial analyst. You are reading a report of a company.
The report is about the company's financial status.
a term of ten years with two five-year renewal options. Most leases for our retail stores provide for a base rent, typically with 2-3 percent annual escalations and generally require us to pay insurance, utilities, real estate taxes, and repair and maintenance expenses.
The average size of our stores is approximately 5,000 square feet. The following table summarizes our principal physical properties by state and their designation by use or planned use, as of December 31, 2022:
State
Cultivation/Processing
Retail(1)
Ancillary
Illinois
10
Massachusetts
New Jersey
Michigan
Ohio
Pennsylvania
Total
31
(1)
Includes three locations in Ohio and two locations in Illinois that the Company expects to acquire through definitive agreements that were signed in August 2022.
ITEM 3. LEGAL PROCEEDINGS
For a description of our material pending legal proceedings, please see Note
15
, “Commitments and Contingencies,” of the Notes to Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K, which is incorporated herein by reference.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
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PART II
ITEM
cik:1756390
ticker:AAWH
name:Ascend Wellness Holdings, Inc.
exchange:OTC
filing_type:10-K
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YOU are a financial analyst. You are reading a report of a company.
The report is about the company's financial status.
agreements that were signed in August 2022.
ITEM 3. LEGAL PROCEEDINGS
For a description of our material pending legal proceedings, please see Note
15
, “Commitments and Contingencies,” of the Notes to Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K, which is incorporated herein by reference.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
81
PART II
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Market Information, Dividends, and Stockholders
Shares of our Class A common stock are listed on the CSE under the ticker symbol “AAWH.U” and are quoted on the OTCQX under the symbol “AAWH.” Ascend Wellness Holdings, Inc. has not declared cash dividends in the past. Ascend Wellness Holdings, Inc. currently intends to reinvest all future earnings to finance the development and growth of the business. As a result, the Company does not intend to pay dividends on its common stock in the foreseeable future. Any future determination to pay distributions will be at the discretion of the Board and will depend on the financial
cik:1756390
ticker:AAWH
name:Ascend Wellness Holdings, Inc.
exchange:OTC
filing_type:10-K
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YOU are a financial analyst. You are reading a report of a company.
The report is about the company's financial status.
the CSE under the ticker symbol “AAWH.U” and are quoted on the OTCQX under the symbol “AAWH.” Ascend Wellness Holdings, Inc. has not declared cash dividends in the past. Ascend Wellness Holdings, Inc. currently intends to reinvest all future earnings to finance the development and growth of the business. As a result, the Company does not intend to pay dividends on its common stock in the foreseeable future. Any future determination to pay distributions will be at the discretion of the Board and will depend on the financial condition, business environment, operating results, capital requirements, any contractual restrictions on the payment of distributions, and any other factors that the Board deems relevant. Ascend Wellness Holdings, Inc. is not bound or limited in any way to pay dividends in the event that the Board determines that a dividend is in the best interest of its shareholders.
As of March 13, 2023, there were 135 registered holders of shares of our Class A common stock. These totals do not include the number of person whose stock is in nominee or “street” name accounts through brokers.
Equity Compensation Plans
For more information on equity compensation plans, see Item 12 of Part III of this Annual Report.
Peer Performance Table
The following graph compares the cumulative total shareholder return on shares of Ascend Wellness Holdings
cik:1756390
ticker:AAWH
name:Ascend Wellness Holdings, Inc.
exchange:OTC
filing_type:10-K
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YOU are a financial analyst. You are reading a report of a company.
The report is about the company's financial status.
the best interest of its shareholders.
As of March 13, 2023, there were 135 registered holders of shares of our Class A common stock. These totals do not include the number of person whose stock is in nominee or “street” name accounts through brokers.
Equity Compensation Plans
For more information on equity compensation plans, see Item 12 of Part III of this Annual Report.
Peer Performance Table
The following graph compares the cumulative total shareholder return on shares of Ascend Wellness Holdings, Inc.’s Class A common stock from May 4, 2021, when Ascend Wellness Holdings, Inc. began trading on the CSE, through December 31, 2022, with the comparative cumulative return of the S&P 500 Index and a selected peer group of companies. The comparison assumes all dividends have been reinvested (if any) and an initial investment of $100 on May 4, 2021. The returns of each company in the peer group have been weighted to reflect their market capitalizations.
Base Period5/4/2021
6/30/2021
9/30/2021
12/31/2021
3/31/2022
6/30/2022
09/
cik:1756390
ticker:AAWH
name:Ascend Wellness Holdings, Inc.
exchange:OTC
filing_type:10-K
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YOU are a financial analyst. You are reading a report of a company.
The report is about the company's financial status.
peer group of companies. The comparison assumes all dividends have been reinvested (if any) and an initial investment of $100 on May 4, 2021. The returns of each company in the peer group have been weighted to reflect their market capitalizations.
Base Period5/4/2021
6/30/2021
9/30/2021
12/31/2021
3/31/2022
6/30/2022
09/30/2022
12/31/2022
Ascend Wellness Holdings, Inc.
100
110
97
68
41
20
19
12
S&P 500 Index
100
103
104
116
110
92
88
95
Peer Group
100
95
75
61
51
26
24
19
82
The Peer Group is comprised of: Ayr Wellness Inc., Columbia Care Inc., Cresco Labs Inc., Curaleaf Holdings, Inc., Green Thumb Industries Inc., Jushi Holdings Inc., TerrAscend Corp., Verano Holdings Corp, and Trulieve Cannabis Corp.
This performance graph and other information furnished under this Item 5 of Part II of this Form 10-K shall not
cik:1756390
ticker:AAWH
name:Ascend Wellness Holdings, Inc.
exchange:OTC
filing_type:10-K
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YOU are a financial analyst. You are reading a report of a company.
The report is about the company's financial status.
Peer Group
100
95
75
61
51
26
24
19
82
The Peer Group is comprised of: Ayr Wellness Inc., Columbia Care Inc., Cresco Labs Inc., Curaleaf Holdings, Inc., Green Thumb Industries Inc., Jushi Holdings Inc., TerrAscend Corp., Verano Holdings Corp, and Trulieve Cannabis Corp.
This performance graph and other information furnished under this Item 5 of Part II of this Form 10-K shall not be deemed to be “soliciting material” or to be “filed” with the SEC or subject to Regulation 14A or 14C, or to the liabilities of Section 18 of the Exchange Act. The comparisons in the performance graph are based on historical data and are not indicative of, or intended to forecast, the possible future performance of our common stock.
Issuer Purchases of Equity Securities
None.
Recent Sales of Unregistered Securities
Except as described below, all unregistered sales of equity securities during the period covered by this Annual Report on Form 10-K were previously disclosed in our current reports on Form 8-K or quarterly reports on Form 10-Q. The following information represents securities sold by the Company which were not registered under the Securities Act.
cik:1756390
ticker:AAWH
name:Ascend Wellness Holdings, Inc.
exchange:OTC
filing_type:10-K
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YOU are a financial analyst. You are reading a report of a company.
The report is about the company's financial status.
and are not indicative of, or intended to forecast, the possible future performance of our common stock.
Issuer Purchases of Equity Securities
None.
Recent Sales of Unregistered Securities
Except as described below, all unregistered sales of equity securities during the period covered by this Annual Report on Form 10-K were previously disclosed in our current reports on Form 8-K or quarterly reports on Form 10-Q. The following information represents securities sold by the Company which were not registered under the Securities Act. Included are new issues, securities issued upon conversion from other share classes, and securities issued in exchange for property, services, or other securities.
On November 23, 2022, in conjunction with Joshua Gold’s appointment to the board of directors, the Company issued to him a warrant to purchase 188,000 shares of Class A common stock at a strike price of $2.64 per share, which was immediately exercisable and expires 30 months from the date of issuance. The issuance of the warrant was made pursuant to the exemption from registration contained in Section 4(a)(2) of the Securities Act.
ITEM 6. [RESERVED]
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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
cik:1756390
ticker:AAWH
name:Ascend Wellness Holdings, Inc.
exchange:OTC
filing_type:10-K
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YOU are a financial analyst. You are reading a report of a company.
The report is about the company's financial status.
warrant to purchase 188,000 shares of Class A common stock at a strike price of $2.64 per share, which was immediately exercisable and expires 30 months from the date of issuance. The issuance of the warrant was made pursuant to the exemption from registration contained in Section 4(a)(2) of the Securities Act.
ITEM 6. [RESERVED]
83
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
The following Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is intended to assist in the understanding of the results of operations and financial condition of Ascend Wellness Holdings, Inc. and its subsidiaries (collectively referred to as “AWH,” “Ascend,” “we,” “us,” “our,” or the “Company”). This MD&A is provided as a supplement to, and should be read in conjunction with the consolidated financial statements and the accompanying notes thereto, (the “Financial Statements”) appearing elsewhere in this Annual Report on Form 10-K (the “Annual Report” or “Form 10-K”). The Financial Statements were prepared in accordance with accounting principles generally accepted in the United States of America, which we refer to as “
cik:1756390
ticker:AAWH
name:Ascend Wellness Holdings, Inc.
exchange:OTC
filing_type:10-K
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YOU are a financial analyst. You are reading a report of a company.
The report is about the company's financial status.
Ascend,” “we,” “us,” “our,” or the “Company”). This MD&A is provided as a supplement to, and should be read in conjunction with the consolidated financial statements and the accompanying notes thereto, (the “Financial Statements”) appearing elsewhere in this Annual Report on Form 10-K (the “Annual Report” or “Form 10-K”). The Financial Statements were prepared in accordance with accounting principles generally accepted in the United States of America, which we refer to as “GAAP.”
This following MD&A should be read in conjunction with, and is qualified in its entirety by, the Financial Statements. In addition to historical information, this MD&A 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.
Forward-looking statements in this Form 10-K include, but are not limited to, statements with respect to: operating results; profitability; financial condition and resources; anticipated needs for working capital; liquidity; capital resources; capital expenditures; milestones; licensing milestones; information with respect to future growth and growth strategies; anticipated trends in the industry in which
cik:1756390
ticker:AAWH
name:Ascend Wellness Holdings, Inc.
exchange:OTC
filing_type:10-K
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YOU are a financial analyst. You are reading a report of a company.
The report is about the company's financial status.
1995, and forward-looking information, within the meaning of applicable Canadian securities laws, (collectively, “forward-looking statements”), that involve risks and uncertainties.
Forward-looking statements in this Form 10-K include, but are not limited to, statements with respect to: operating results; profitability; financial condition and resources; anticipated needs for working capital; liquidity; capital resources; capital expenditures; milestones; licensing milestones; information with respect to future growth and growth strategies; anticipated trends in the industry in which the Company operates; the Company’s future financing plans; timelines; currency fluctuations; government regulation; inflationary pressure; unanticipated expenses; commercial disputes or claims; limitations on insurance coverage; availability and expectations regarding of cash flow to fund capital requirements; the product offerings of the Company; the competitive conditions of the industry; the competitive and business strategies of the Company; on-going implications of the novel coronavirus (“COVID-19”); statements relating to the business and future activities of, and developments related to, the Company, including such things as future business strategy, competitive strengths, goals, expansion and growth of the Company’s business, operations and plans; and other events or conditions that may occur in the future.
We make forward-looking statements related to future expectations, estimates, and projections that
cik:1756390
ticker:AAWH
name:Ascend Wellness Holdings, Inc.
exchange:OTC
filing_type:10-K
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YOU are a financial analyst. You are reading a report of a company.
The report is about the company's financial status.
the competitive conditions of the industry; the competitive and business strategies of the Company; on-going implications of the novel coronavirus (“COVID-19”); statements relating to the business and future activities of, and developments related to, the Company, including such things as future business strategy, competitive strengths, goals, expansion and growth of the Company’s business, operations and plans; and other events or conditions that may occur in the future.
We make forward-looking statements related to future expectations, estimates, and projections that are uncertain and often contain terminology such as “anticipate,” “believe,” “could,” “estimate,” “expect,” “forecast,” “intend,” “likely,” “may,” “outlook,” “plan,” “predict,” “should,” “target,” or other similar words or phrases, or by the use of words or phrases which state that certain actions, events, or results, may, could, would, or might occur or be achieved. There can be no assurance that such forward-looking statements will prove to be accurate, and actual results and future events could differ materially from those anticipated in such forward-looking statements. These statements are not guarantees of future performance and are subject to known and unknown risks, uncertainties, and assumptions that are difficult to predict. Factors
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ticker:AAWH
name:Ascend Wellness Holdings, Inc.
exchange:OTC
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YOU are a financial analyst. You are reading a report of a company.
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other similar words or phrases, or by the use of words or phrases which state that certain actions, events, or results, may, could, would, or might occur or be achieved. There can be no assurance that such forward-looking statements will prove to be accurate, and actual results and future events could differ materially from those anticipated in such forward-looking statements. These statements are not guarantees of future performance and are subject to known and unknown risks, uncertainties, and assumptions that are difficult to predict. Factors that might cause such differences include, but are not limited to, those discussed in Part 1. of this Form 10-K under Item 1A., “Risk Factors,” which are incorporated herein by reference. Our future results and financial condition may be materially different from those we currently anticipate and historical results may not be indicative of future performance. See “Forward-Looking Statements” for more information. Readers are further cautioned not to place undue reliance on forward-looking information as there can be no assurance that the plans, intentions, or expectations upon which they are placed will occur. Forward-looking information in this MD&A is expressly qualified by this cautionary statement.
Financial information and unit or share figures, except per-unit or per-share amounts, presented in this MD&A are presented in
cik:1756390
ticker:AAWH
name:Ascend Wellness Holdings, Inc.
exchange:OTC
filing_type:10-K
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YOU are a financial analyst. You are reading a report of a company.
The report is about the company's financial status.
currently anticipate and historical results may not be indicative of future performance. See “Forward-Looking Statements” for more information. Readers are further cautioned not to place undue reliance on forward-looking information as there can be no assurance that the plans, intentions, or expectations upon which they are placed will occur. Forward-looking information in this MD&A is expressly qualified by this cautionary statement.
Financial information and unit or share figures, except per-unit or per-share amounts, presented in this MD&A are presented in thousands of United States dollars (“$”), unless otherwise indicated. We round amounts in this MD&A to the thousands and 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.
Ascend Wellness Holdings, Inc.’s shares of Class A common stock are listed on the Canadian Securities Exchange (the “CSE”) under the ticker symbol “AAWH.U” and are quoted on the OTCQX
Best Market (the “OTCQX”) under the symbol “AAWH.” We are an emerging growth company under federal securities laws and as such we
cik:1756390
ticker:AAWH
name:Ascend Wellness Holdings, Inc.
exchange:OTC
filing_type:10-K
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YOU are a financial analyst. You are reading a report of a company.
The report is about the company's financial status.
on reported numbers due to rounding. Unless otherwise indicated, all references to years are to our fiscal year, which ends on December 31.
Ascend Wellness Holdings, Inc.’s shares of Class A common stock are listed on the Canadian Securities Exchange (the “CSE”) under the ticker symbol “AAWH.U” and are quoted on the OTCQX
Best Market (the “OTCQX”) under the symbol “AAWH.” We are an emerging growth company under federal securities laws and as such we are able to elect to follow scaled disclosure requirements for this filing.
84
BUSINESS OVERVIEW
Established in 2018 and headquartered in New York, New York, AWH is a vertically integrated multi-state operator focused on adult-use or near-term adult-use cannabis states in limited license markets. Our core business is the cultivation, manufacturing, and distribution of cannabis consumer packaged goods, which we sell through our company-owned retail stores and to third-party licensed retail cannabis stores. We believe in bettering lives through cannabis. Our mission is to improve the lives of our employees, patients, customers, and the communities we serve through the use of the cannabis plant. We are committed to providing safe, reliable, and high-quality products and providing consumers options and education to ensure they are able
cik:1756390
ticker:AAWH
name:Ascend Wellness Holdings, Inc.
exchange:OTC
filing_type:10-K
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YOU are a financial analyst. You are reading a report of a company.
The report is about the company's financial status.
limited license markets. Our core business is the cultivation, manufacturing, and distribution of cannabis consumer packaged goods, which we sell through our company-owned retail stores and to third-party licensed retail cannabis stores. We believe in bettering lives through cannabis. Our mission is to improve the lives of our employees, patients, customers, and the communities we serve through the use of the cannabis plant. We are committed to providing safe, reliable, and high-quality products and providing consumers options and education to ensure they are able to identify and obtain the products that fit their personal needs.
Ascend Wellness Holdings, Inc. was originally formed on May 15, 2018 as Ascend Group Partners, LLC, and changed its name to “Ascend Wellness Holdings, LLC” on September 10, 2018. On April 22, 2021, Ascend Wellness Holdings, LLC converted into a Delaware corporation and changed its name to “Ascend Wellness Holdings, Inc.” and effected a 2-for-1 reverse stock split (the “Reverse Split”), which is retrospectively presented for all periods in this filing. We refer to this conversion throughout this filing as the “Conversion.” As a result of the Conversion, the members of Ascend Wellness Holdings, LLC became holders of shares of stock of Ascend Wellness
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ticker:AAWH
name:Ascend Wellness Holdings, Inc.
exchange:OTC
filing_type:10-K
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YOU are a financial analyst. You are reading a report of a company.
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April 22, 2021, Ascend Wellness Holdings, LLC converted into a Delaware corporation and changed its name to “Ascend Wellness Holdings, Inc.” and effected a 2-for-1 reverse stock split (the “Reverse Split”), which is retrospectively presented for all periods in this filing. We refer to this conversion throughout this filing as the “Conversion.” As a result of the Conversion, the members of Ascend Wellness Holdings, LLC became holders of shares of stock of Ascend Wellness Holdings, Inc.
In May 2021, the Company completed an Initial Public Offering (“IPO”) of its Class A common stock, in which it issued and sold a total of 11,500 shares of Class A common stock, including the underwriters’ over-allotment option, at a price of $8.00 per share with net proceeds of approximately $86,065, after deducting underwriting discounts and commissions and certain expenses paid by us. In connection with the IPO, the historical common units, Series Seed Preferred Units, Series Seed+ Preferred Units, and Real Estate Preferred Units then-outstanding automatically converted into a total of 113,301 shares of Class A common stock and 65 historical common units were allocated as shares of Class B common stock.
cik:1756390
ticker:AAWH
name:Ascend Wellness Holdings, Inc.
exchange:OTC
filing_type:10-K
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YOU are a financial analyst. You are reading a report of a company.
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ment option, at a price of $8.00 per share with net proceeds of approximately $86,065, after deducting underwriting discounts and commissions and certain expenses paid by us. In connection with the IPO, the historical common units, Series Seed Preferred Units, Series Seed+ Preferred Units, and Real Estate Preferred Units then-outstanding automatically converted into a total of 113,301 shares of Class A common stock and 65 historical common units were allocated as shares of Class B common stock. Additionally, 3,420 shares of Class A common stock were issued for a beneficial conversion feature associated with the conversion of certain historical preferred units and the Company’s convertible notes, plus accrued interest, converted into 37,388 shares of Class A Common Stock. See Note 12, “Stockholders’ Equity,” in the Financial Statements for additional details.
Since our formation, we have expanded our operational footprint, primarily through acquisitions. As of December 31, 2022, we had direct or indirect operations or financial interests in six United States geographic markets: Illinois, Michigan, Ohio, Massachusetts, New Jersey, and Pennsylvania and employed approximately 2,200 people. In January 2023, we signed a definitive agreement that, upon closing, will expand our operations into the
cik:1756390
ticker:AAWH
name:Ascend Wellness Holdings, Inc.
exchange:OTC
filing_type:10-K
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YOU are a financial analyst. You are reading a report of a company.
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, “Stockholders’ Equity,” in the Financial Statements for additional details.
Since our formation, we have expanded our operational footprint, primarily through acquisitions. As of December 31, 2022, we had direct or indirect operations or financial interests in six United States geographic markets: Illinois, Michigan, Ohio, Massachusetts, New Jersey, and Pennsylvania and employed approximately 2,200 people. In January 2023, we signed a definitive agreement that, upon closing, will expand our operations into the state of Maryland and represent our seventh United States geographic market.
We are committed to being vertically integrated in every state we operate in, which entails controlling the entire supply chain from seed to sale. We are currently vertically integrated in six states in which we operate with expansion plans underway to achieve vertical integration in each of our geographic markets. While we have been successful in opening facilities and dispensaries, we expect continued growth to be driven by opening new operational facilities and dispensaries under our current licenses, expansion of our current facilities, and increased consumer demand.
Our consumer products portfolio is generated primarily from plant material that we grow and process ourselves. As of December 31, 2022, we produce our consumer packaged goods in six manufacturing facilities with approximately 245,000 square feet of operational canopy and total
cik:1756390
ticker:AAWH
name:Ascend Wellness Holdings, Inc.
exchange:OTC
filing_type:10-K
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YOU are a financial analyst. You are reading a report of a company.
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vertical integration in each of our geographic markets. While we have been successful in opening facilities and dispensaries, we expect continued growth to be driven by opening new operational facilities and dispensaries under our current licenses, expansion of our current facilities, and increased consumer demand.
Our consumer products portfolio is generated primarily from plant material that we grow and process ourselves. As of December 31, 2022, we produce our consumer packaged goods in six manufacturing facilities with approximately 245,000 square feet of operational canopy and total current capacity of approximately 122,500 pounds annually. As of December 31, 2022, our product portfolio consists of 497 stock keeping units (“SKUs”), across a range of cannabis product categories, including flower, pre-rolls, concentrates, vapes, edibles, and other cannabis-related products. As of December 31, 2022, we had 24 open and operating retail locations and subsequently opened dispensaries in New Bedford, Massachusetts and Grand Rapids, Michigan. We expect to have 39 retail locations by mid-2024, which includes 4 dispensaries in Maryland that we expect to acquire pursuant to a definitive agreement that was signed in January 2023 and is pending regulatory approval. Our new store opening plans are flexible and will ultimately depend on market
cik:1756390
ticker:AAWH
name:Ascend Wellness Holdings, Inc.
exchange:OTC
filing_type:10-K
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YOU are a financial analyst. You are reading a report of a company.
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ibles, and other cannabis-related products. As of December 31, 2022, we had 24 open and operating retail locations and subsequently opened dispensaries in New Bedford, Massachusetts and Grand Rapids, Michigan. We expect to have 39 retail locations by mid-2024, which includes 4 dispensaries in Maryland that we expect to acquire pursuant to a definitive agreement that was signed in January 2023 and is pending regulatory approval. Our new store opening plans are flexible and will ultimately depend on market conditions, local licensing, construction, and other regulatory permissions. All of our expansion plans are subject to capital allocations decisions, the evolving regulatory environment, and the COVID-19 pandemic.
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On November 22, 2022, the Company filed a registration statement on Form S-3 (the “Registration Statement”) containing a base shelf prospectus with the SEC (the “Shelf Prospectus”), which Registration Statement became effective on December 22, 2022. A corresponding base shelf prospectus (the “Canadian Prospectus”) was filed with, and receipted by, the securities regulatory authorities in each of the provinces and territories Canada under the U.S.-Canada multijurisdictional disclosure system (MJDS). The Registration Statement and Canadian Prospectus qualify the distribution
cik:1756390
ticker:AAWH
name:Ascend Wellness Holdings, Inc.
exchange:OTC
filing_type:10-K
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YOU are a financial analyst. You are reading a report of a company.
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-3 (the “Registration Statement”) containing a base shelf prospectus with the SEC (the “Shelf Prospectus”), which Registration Statement became effective on December 22, 2022. A corresponding base shelf prospectus (the “Canadian Prospectus”) was filed with, and receipted by, the securities regulatory authorities in each of the provinces and territories Canada under the U.S.-Canada multijurisdictional disclosure system (MJDS). The Registration Statement and Canadian Prospectus qualify the distribution from treasury of up to an aggregate amount of $100,000 worth of shares of Class A common stock, preferred stock, warrants, debt securities, subscription rights and/or units of the Company (“Securities”) for a period of three years. The terms of any Securities to be offered under the base prospectus will be specified in a prospectus supplement, which will be filed with the applicable U.S. and Canadian securities regulatory authorities in connection with any such offering. To date, no prospectus supplement has been filed. The Shelf Prospectus and the Canadian Prospectus were filed to provide maximum flexibility to pursue strategic initiatives.
Recent Developments
Business Developments
AWH continues to expand and further develop its business and operations. Some of the highlights achieved during the year include:
exp
cik:1756390
ticker:AAWH
name:Ascend Wellness Holdings, Inc.
exchange:OTC
filing_type:10-K
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YOU are a financial analyst. You are reading a report of a company.
The report is about the company's financial status.
offered under the base prospectus will be specified in a prospectus supplement, which will be filed with the applicable U.S. and Canadian securities regulatory authorities in connection with any such offering. To date, no prospectus supplement has been filed. The Shelf Prospectus and the Canadian Prospectus were filed to provide maximum flexibility to pursue strategic initiatives.
Recent Developments
Business Developments
AWH continues to expand and further develop its business and operations. Some of the highlights achieved during the year include:
expanding into our sixth market in the United States by acquiring Story of PA CR, LLC (“Story of PA”) in April 2022, as further described below, and, during the fourth quarter, opening our first two dispensaries that are located in Scranton and Wayne, Pennsylvania, along with building out our cultivation facility which we expect will have its first harvest during the first quarter of 2023;
entering into a definitive agreement with Ohio Patient Access LLC (“OPA”) that provides the option to acquire three medical dispensaries in Ohio, as further described below;
entering into definitive agreements to acquire two additional licenses in Illinois, as further described below;
the commencement of adult-use sales at our Rochelle Park, New Jersey dispensary in April 2022 and at our Montclair
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ticker:AAWH
name:Ascend Wellness Holdings, Inc.
exchange:OTC
filing_type:10-K
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YOU are a financial analyst. You are reading a report of a company.
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along with building out our cultivation facility which we expect will have its first harvest during the first quarter of 2023;
entering into a definitive agreement with Ohio Patient Access LLC (“OPA”) that provides the option to acquire three medical dispensaries in Ohio, as further described below;
entering into definitive agreements to acquire two additional licenses in Illinois, as further described below;
the commencement of adult-use sales at our Rochelle Park, New Jersey dispensary in April 2022 and at our Montclair, New Jersey dispensary in August, along with the commencement of medical sales at our Fort Lee, New Jersey dispensary in August and the subsequent commencement of adult-use sales in November, as well as adding approximately 25,000 square feet of canopy at our New Jersey cultivation facility;
further strengthening our balance sheet with $65,000 of additional senior debt financing under our credit facility, as described in “Liquidity and Capital Resources;”
adding 69,000 square feet of canopy across the network, including phase 2 in Massachusetts, phase 2 in New Jersey, and phase 1 in Pennsylvania, bringing total canopy to approximately 245,000 square feet;
opening our East Lansing, Michigan dispensary in addition to the Fort Lee, New Jersey, Scranton
cik:1756390
ticker:AAWH
name:Ascend Wellness Holdings, Inc.
exchange:OTC
filing_type:10-K
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YOU are a financial analyst. You are reading a report of a company.
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;
further strengthening our balance sheet with $65,000 of additional senior debt financing under our credit facility, as described in “Liquidity and Capital Resources;”
adding 69,000 square feet of canopy across the network, including phase 2 in Massachusetts, phase 2 in New Jersey, and phase 1 in Pennsylvania, bringing total canopy to approximately 245,000 square feet;
opening our East Lansing, Michigan dispensary in addition to the Fort Lee, New Jersey, Scranton, Pennsylvania, and Wayne, Pennsylvania dispensaries, discussed above; and
expanding our partnership portfolio into additional markets, including launching: AiroPro in New Jersey, Lowell in Illinois and Massachusetts, Miss Grass in Massachusetts, Illinois, and New Jersey, and Edie Parker across the portfolio.
Acquisition of Story of PA
On April 19, 2022, we acquired 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
cik:1756390
ticker:AAWH
name:Ascend Wellness Holdings, Inc.
exchange:OTC
filing_type:10-K
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YOU are a financial analyst. You are reading a report of a company.
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portfolio.
Acquisition of Story of PA
On April 19, 2022, we acquired 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, this transaction allows us to open a cultivation and processing facility and up to six medical dispensaries throughout the Commonwealth of Pennsylvania. We will help fund clinical research to benefit the patients of Pennsylvania by contributing $30,000 to Geisinger over the next two years (of which $15,000 was funded in April 2022), and up to an additional $10,000 over the next ten years.
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The transaction was accounted for as an asset acquisition and the total acquisition cost of $137,594 was allocated to the license intangible asset acquired. The total acquisition cost includes the consideration transferred for the equity interests in
cik:1756390
ticker:AAWH
name:Ascend Wellness Holdings, Inc.
exchange:OTC
filing_type:10-K
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YOU are a financial analyst. You are reading a report of a company.
The report is about the company's financial status.
will help fund clinical research to benefit the patients of Pennsylvania by contributing $30,000 to Geisinger over the next two years (of which $15,000 was funded in April 2022), and up to an additional $10,000 over the next ten years.
86
The transaction was accounted for as an asset acquisition and the total acquisition cost of $137,594 was allocated to the license intangible asset acquired. The total acquisition cost includes the consideration transferred for the equity interests in Story of PA, the research funding commitment, other liabilities assumed in the transaction, and certain transaction costs. Additionally, this total includes an acquisition-related deferred tax liability of $37,391 that was recorded during the fourth quarter of 2022. Refer to Note 4, “Acquisitions,” in the Financial Statements for additional information.
Through this transaction, AWH entered its sixth market in the United States. We opened our first dispensary in the state in Scranton in October 2022 and the second dispensary in Wayne in November 2022. We are also continuing the build out of the cultivation facility and are expecting the first harvest will occur during the first quarter of 2023.
Acquisition of Ohio Patient Access
On August 12, 2022,
cik:1756390
ticker:AAWH
name:Ascend Wellness Holdings, Inc.
exchange:OTC
filing_type:10-K
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YOU are a financial analyst. You are reading a report of a company.
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Acquisitions,” in the Financial Statements for additional information.
Through this transaction, AWH entered its sixth market in the United States. We opened our first dispensary in the state in Scranton in October 2022 and the second dispensary in Wayne in November 2022. We are also continuing the build out of the cultivation facility and are expecting the first harvest will occur during the first quarter of 2023.
Acquisition of 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 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. Ascend Wellness Holdings, Inc. 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
cik:1756390
ticker:AAWH
name:Ascend Wellness Holdings, Inc.
exchange:OTC
filing_type:10-K
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YOU are a financial analyst. You are reading a report of a company.
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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. Ascend Wellness Holdings, Inc. 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. 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. Ascend Wellness Holdings, Inc. determined OPA is a variable interest entity (“VIE”) and the Company became the primary beneficiary as of the signing date; therefore, OPA is consolidated as a VIE. Refer to Note 8, “Variable Interest Entities,” in the Financial Statements for additional information regarding the Company’s VIEs.
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
cik:1756390
ticker:AAWH
name:Ascend Wellness Holdings, Inc.
exchange:OTC
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YOU are a financial analyst. You are reading a report of a company.
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determined OPA is a variable interest entity (“VIE”) and the Company became the primary beneficiary as of the signing date; therefore, OPA is consolidated as a VIE. Refer to Note 8, “Variable Interest Entities,” in the Financial Statements for additional information regarding the Company’s VIEs.
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. Refer to Note 4, “Acquisitions,” in the Financial Statements for additional information.
The total estimated fair value of the transaction consideration was determined to be $24,132 and consisted of the fair value of the cash consideration of $19,290 plus the 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 was recorded net of a discount of $3,010 based on the estimated payment date utilizing the Company’s incremental borrowing rate. This discounted payment is included within “Long-term debt, net” on the Consolid
cik:1756390
ticker:AAWH
name:Ascend Wellness Holdings, Inc.
exchange:OTC
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YOU are a financial analyst. You are reading a report of a company.
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of the fair value of the cash consideration of $19,290 plus the 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 was recorded net of a discount of $3,010 based on the estimated payment date utilizing the Company’s incremental borrowing rate. This discounted payment is included within “Long-term debt, net” on the Consolidated Balance Sheet in the Financial Statements at December 31, 2022; refer to Note 11, “Debt,” in the Financial Statements for additional information. The contingent consideration is included within “Other non-current liabilities” on the Consolidated Balance Sheet in the Financial Statements at December 31, 2022.
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. Direct transaction expenses of $224 are included in “General and administrative expenses” on the Consolidated Statements of Operations in the Financial Statements for the year ended December 31, 2022. Refer to Note 4, “Acquisitions,” in the Financial Statements for additional information related to
cik:1756390
ticker:AAWH
name:Ascend Wellness Holdings, Inc.
exchange:OTC
filing_type:10-K
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YOU are a financial analyst. You are reading a report of a company.
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at December 31, 2022.
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. Direct transaction expenses of $224 are included in “General and administrative expenses” on the Consolidated Statements of Operations in the Financial Statements for the year ended December 31, 2022. Refer to Note 4, “Acquisitions,” in the Financial Statements for additional information related to this transaction.
Through this transaction, the Company will expand its footprint in Ohio to five dispensaries. The three additional dispensaries are expected to be built-out over the next year.
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.
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One transaction was entered on August 11, 2022 for total cash consideration of $5,500. Ascend Wellness Holdings, Inc. 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 and
cik:1756390
ticker:AAWH
name:Ascend Wellness Holdings, Inc.
exchange:OTC
filing_type:10-K
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YOU are a financial analyst. You are reading a report of a company.
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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.
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One transaction was entered on August 11, 2022 for total cash consideration of $5,500. Ascend Wellness Holdings, Inc. 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 and is included as a sellers’ note within “Long-term debt, net” on the Consolidated Balance Sheet in the Financial Statements at December 31, 2022; refer to Note 11, “Debt,” in the Financial Statements for additional information. Direct transaction expenses were immaterial.
The second transaction was entered on August 12, 2022 for total cash consideration of $5,600. Ascend Wellness Holdings, Inc. 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 Consolidated Balance Sheet in the Financial Statements at December 31, 2022. Direct transaction expenses were immaterial.
The
cik:1756390
ticker:AAWH
name:Ascend Wellness Holdings, Inc.
exchange:OTC
filing_type:10-K
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YOU are a financial analyst. You are reading a report of a company.
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immaterial.
The second transaction was entered on August 12, 2022 for total cash consideration of $5,600. Ascend Wellness Holdings, Inc. 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 Consolidated Balance Sheet in the Financial Statements at December 31, 2022. Direct transaction expenses were immaterial.
The licenses acquired will be amortized in accordance with the Company’s policy once the related operations commence. Refer to Note 4, “Acquisitions,” in the Financial Statements for additional information on these transactions.
Acquisition of Marichron
Effective October 14, 2022, the Company acquired Marichron Pharma LLC (“Marichron”), a medical cannabis processor in Ohio, for total consideration of $2,600, consisting of cash consideration of $1,750, of which $1,500 was previously funded under a promissory note, settlement of approximately $1,000 due under a working capital loan, less settlement of $150 of other pre-acquisition amounts. Acquisition-related costs incurred during the year ended December 31, 2022 were not material.
cik:1756390
ticker:AAWH
name:Ascend Wellness Holdings, Inc.
exchange:OTC
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YOU are a financial analyst. You are reading a report of a company.
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the Company acquired Marichron Pharma LLC (“Marichron”), a medical cannabis processor in Ohio, for total consideration of $2,600, consisting of cash consideration of $1,750, of which $1,500 was previously funded under a promissory note, settlement of approximately $1,000 due under a working capital loan, less settlement of $150 of other pre-acquisition amounts. Acquisition-related costs incurred during the year ended December 31, 2022 were not material. Refer to Note 4, “Acquisitions,” in the Financial Statements for additional information.
Operational and Regulation Overview
We believe our operations are in material compliance with all applicable state and local laws, regulations, and licensing requirements in the states in which we operate. However, cannabis is illegal under United States federal law. Substantially all of our revenue is derived from United States cannabis operations. For information about risks related to United States cannabis operations, refer to Item 1A., “
Risk Factors
,” of this Form 10-K.
Key Financial Highlights
Revenue increased by $73,545, or 22%, during 2022, as compared to 2021, primarily driven by growth from our existing business, including the commencement of adult-use-sales at our
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ticker:AAWH
name:Ascend Wellness Holdings, Inc.
exchange:OTC
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YOU are a financial analyst. You are reading a report of a company.
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is illegal under United States federal law. Substantially all of our revenue is derived from United States cannabis operations. For information about risks related to United States cannabis operations, refer to Item 1A., “
Risk Factors
,” of this Form 10-K.
Key Financial Highlights
Revenue increased by $73,545, or 22%, during 2022, as compared to 2021, primarily driven by growth from our existing business, including the commencement of adult-use-sales at our three New Jersey dispensaries, as well as new site openings and acquisitions.
Operating loss decreased by $9,678 during 2022, as compared to 2021, primarily driven by lower total operating expenses.
Net decrease in cash and cash equivalents of $81,335 during 2022, primarily driven by net cash used in investing activities, including payments related to acquisitions, and net cash used to support working capital needs and operating activities, partially offset by proceeds received under our credit facility.
88
RESULTS OF OPERATIONS
The Year Ended December 31, 2022 Compared with the Year Ended December 31, 2021
Year Ended December 31,
($ in thousands)
2022
2021
Increase / (Decrease)
Revenue, net
405,
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ticker:AAWH
name:Ascend Wellness Holdings, Inc.
exchange:OTC
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2022, primarily driven by net cash used in investing activities, including payments related to acquisitions, and net cash used to support working capital needs and operating activities, partially offset by proceeds received under our credit facility.
88
RESULTS OF OPERATIONS
The Year Ended December 31, 2022 Compared with the Year Ended December 31, 2021
Year Ended December 31,
($ in thousands)
2022
2021
Increase / (Decrease)
Revenue, net
405,926
332,381
73,545
22%
Cost of goods sold
(271,363)
(196,409)
74,954
38%
Gross profit
134,563
135,972
(1,409)
(1)%
Gross profit %
33.1
40.9
Operating expenses
General and administrative expenses
137,089
116,665
20,424
18%
Settlement expense
5,000
36,511
(31,511)
(86)%
Total operating expenses
142,089
153,176
(11,087)
(7)%
Operating loss
(7,526)
(17,204)
(9,678)
(56)%
Other (expense)
cik:1756390
ticker:AAWH
name:Ascend Wellness Holdings, Inc.
exchange:OTC
filing_type:10-K
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YOU are a financial analyst. You are reading a report of a company.
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profit %
33.1
40.9
Operating expenses
General and administrative expenses
137,089
116,665
20,424
18%
Settlement expense
5,000
36,511
(31,511)
(86)%
Total operating expenses
142,089
153,176
(11,087)
(7)%
Operating loss
(7,526)
(17,204)
(9,678)
(56)%
Other (expense) income
Interest expense
(32,436)
(63,989)
(31,553)
(49)%
Other, net
756
256
500
195%
Total other expense
(31,680)
(63,733)
(32,053)
(50)%
Loss before income taxes
(39,206)
(80,937)
(41,731)
(52)%
Income tax expense
(41,693)
(41,720)
(27)
NM*
Net loss
(80,899)
(122,657)
(41,758)
(34)%
Not meaningful
Revenue
Revenue increased by $73,545, or 22%, during 2022, as compared to 2021. We had
cik:1756390
ticker:AAWH
name:Ascend Wellness Holdings, Inc.
exchange:OTC
filing_type:10-K
|
YOU are a financial analyst. You are reading a report of a company.
The report is about the company's financial status.
50)%
Loss before income taxes
(39,206)
(80,937)
(41,731)
(52)%
Income tax expense
(41,693)
(41,720)
(27)
NM*
Net loss
(80,899)
(122,657)
(41,758)
(34)%
Not meaningful
Revenue
Revenue increased by $73,545, or 22%, during 2022, as compared to 2021. We had 24 open dispensaries as of December 31, 2022, compared to 20 as of December 31, 2021. Revenue from our legacy retail locations increased by $53,164, which includes the benefit of the commencement of adult-use sales at our New Jersey dispensaries that began in 2022, and new dispensaries that opened during late 2021 and during 2022 contributed $8,935 to our revenue growth. Additionally, we recognized incremental revenue from acquisitions of $12,493, which includes a total of $587 from the Ohio cultivation site that we acquired in 2021 and the Ohio processor that we acquired in 2022. The current year also benefited from an increase in wholesale volume sold, particularly in New Jersey and Massachusetts, but was partially
cik:1756390
ticker:AAWH
name:Ascend Wellness Holdings, Inc.
exchange:OTC
filing_type:10-K
|
YOU are a financial analyst. You are reading a report of a company.
The report is about the company's financial status.
that began in 2022, and new dispensaries that opened during late 2021 and during 2022 contributed $8,935 to our revenue growth. Additionally, we recognized incremental revenue from acquisitions of $12,493, which includes a total of $587 from the Ohio cultivation site that we acquired in 2021 and the Ohio processor that we acquired in 2022. The current year also benefited from an increase in wholesale volume sold, particularly in New Jersey and Massachusetts, but was partially offset by pricing pressure across the markets in which we operate, which also led to an increase in intercompany sales, for a decrease of $1,047 in net revenue related to our wholesale operations. As of December 31, 2022, we had 497 SKUs for our cultivation products, compared to 224 SKUs as of December 31, 2021.
Cost of Goods Sold and Gross Profit
Cost of goods sold increased by $74,954, or 38%, during 2022, as compared to 2021. Cost of goods sold represents direct and indirect expenses attributable to the production of wholesale products as well as direct expenses incurred in purchasing products from other wholesalers. The increase in cost of goods sold in 2022 was driven by expansion
cik:1756390
ticker:AAWH
name:Ascend Wellness Holdings, Inc.
exchange:OTC
filing_type:10-K
|
YOU are a financial analyst. You are reading a report of a company.
The report is about the company's financial status.
for our cultivation products, compared to 224 SKUs as of December 31, 2021.
Cost of Goods Sold and Gross Profit
Cost of goods sold increased by $74,954, or 38%, during 2022, as compared to 2021. Cost of goods sold represents direct and indirect expenses attributable to the production of wholesale products as well as direct expenses incurred in purchasing products from other wholesalers. The increase in cost of goods sold in 2022 was driven by expansion of our operations, including $8,025 of incremental cost of goods sold from acquisitions. Gross profit for 2022 was $134,563, representing a gross margin of 33.1%, compared to gross profit of $135,972 and gross margin of 40.9% for 2021. The decrease in gross margin was primarily driven by lower margins at our Illinois cultivation facility as pricing decreased compared to prior year, partially offset by gross profit margin increases in Massachusetts, Michigan, and New Jersey as assets came online. Additionally, we recognized $7,306 of write-downs of certain inventory items within our Michigan business. Margins across our retail stores in Illinois, Massachusetts, and Michigan were down slightly due to pricing pressure in those markets.
89
General and
cik:1756390
ticker:AAWH
name:Ascend Wellness Holdings, Inc.
exchange:OTC
filing_type:10-K
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YOU are a financial analyst. You are reading a report of a company.
The report is about the company's financial status.
9% for 2021. The decrease in gross margin was primarily driven by lower margins at our Illinois cultivation facility as pricing decreased compared to prior year, partially offset by gross profit margin increases in Massachusetts, Michigan, and New Jersey as assets came online. Additionally, we recognized $7,306 of write-downs of certain inventory items within our Michigan business. Margins across our retail stores in Illinois, Massachusetts, and Michigan were down slightly due to pricing pressure in those markets.
89
General and Administrative Expenses
General and administrative expenses increased by $20,424, or 18%, during 2022, as compared to 2021. The increase was primarily related to:
a $5,730 increase in compensation expense resulting from higher headcount of approximately 2,200 as of December 31, 2022 compared to approximately 1,500 as of December 31, 2021 to support our expanded operations;
a $4,059 increase in depreciation and amortization expense due to $2,663 of incremental amortization of licenses and $1,396 of incremental depreciation expense due to a larger average balance of fixed assets in service;
a $1,704 expense related to the write-off of certain previously capitalized costs and an estimated reserve of $3
cik:1756390
ticker:AAWH
name:Ascend Wellness Holdings, Inc.
exchange:OTC
filing_type:10-K
|
YOU are a financial analyst. You are reading a report of a company.
The report is about the company's financial status.
200 as of December 31, 2022 compared to approximately 1,500 as of December 31, 2021 to support our expanded operations;
a $4,059 increase in depreciation and amortization expense due to $2,663 of incremental amortization of licenses and $1,396 of incremental depreciation expense due to a larger average balance of fixed assets in service;
a $1,704 expense related to the write-off of certain previously capitalized costs and an estimated reserve of $3,700 related to certain amounts associated with the New York transaction (refer to “Management’s Discussion and Analysis of Financial Condition and Results of Operations–Legal Matters–MedMen NY Litigation” for additional information);
a $2,981 increase in rent and utilities and related overhead expenses to support the expansion of our operations; and
a $1,053 increase in professional services, driven by higher legal expenses for ongoing litigation matters, partially offset by the absence of a $2,000 termination fee associated with a management services agreement that was incurred in the prior year following our IPO and lower external support expenses.
Settlement Expense
During 2022, we recognized an expense of $5,000 related to the settlement of a stockholder dispute (refer to “
Management’s Discussion
cik:1756390
ticker:AAWH
name:Ascend Wellness Holdings, Inc.
exchange:OTC
filing_type:10-K
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YOU are a financial analyst. You are reading a report of a company.
The report is about the company's financial status.
to support the expansion of our operations; and
a $1,053 increase in professional services, driven by higher legal expenses for ongoing litigation matters, partially offset by the absence of a $2,000 termination fee associated with a management services agreement that was incurred in the prior year following our IPO and lower external support expenses.
Settlement Expense
During 2022, we recognized an expense of $5,000 related to the settlement of a stockholder dispute (refer to “
Management’s Discussion and Analysis of Financial Condition and Results of Operations–Legal Matters–Stockholder Dispute
” for additional information). During 2021, we recognized a settlement expense of $36,511 for a matter related to two property purchase agreements.
Interest Expense
Interest expense decreased by $31,553, or 49%, during 2022, as compared to 2021. The decrease was primarily due to the absence of $30,967 of non-cash interest recognized with our IPO. Additionally, in the prior year we recognized a $6,637 net loss upon extinguishment of previously outstanding debt. The absence of these amounts was partially offset by higher cash interest expense in the current year associated with additional borrowings under our credit facility, as well as a $2,
cik:1756390
ticker:AAWH
name:Ascend Wellness Holdings, Inc.
exchange:OTC
filing_type:10-K
|
YOU are a financial analyst. You are reading a report of a company.
The report is about the company's financial status.
31,553, or 49%, during 2022, as compared to 2021. The decrease was primarily due to the absence of $30,967 of non-cash interest recognized with our IPO. Additionally, in the prior year we recognized a $6,637 net loss upon extinguishment of previously outstanding debt. The absence of these amounts was partially offset by higher cash interest expense in the current year associated with additional borrowings under our credit facility, as well as a $2,180 loss on extinguishment recognized in the current year (refer to “
Liquidity and Capital Resources
” for further information). During 2022, we had a weighted-average outstanding debt balance of $285,802 with a weighted-average interest rate of 9.8%, excluding finance leases, compared to an average debt balance of $218,559 during 2021 with a weighted-average interest rate of 10.6%.
Income Tax Expense
Since the Company operates in the cannabis industry, it is subject to the limitations of Internal Revenue Code (“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
cik:1756390
ticker:AAWH
name:Ascend Wellness Holdings, Inc.
exchange:OTC
filing_type:10-K
|
YOU are a financial analyst. You are reading a report of a company.
The report is about the company's financial status.
%, excluding finance leases, compared to an average debt balance of $218,559 during 2021 with a weighted-average interest rate of 10.6%.
Income Tax Expense
Since the Company operates in the cannabis industry, it is subject to the limitations of Internal Revenue Code (“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.
The statutory federal tax rate was 21% during both periods. Ascend Wellness Holdings, Inc. has operations in six U.S. geographic markets: Illinois, Michigan, Ohio, Massachusetts, New Jersey, and Pennsylvania, which have state tax rates ranging from 6% to 11.5%. Certain states, including Michigan and, effective as of January 1, 2022, Massachusetts, do not align with IRC Section 280E for state tax purposes
cik:1756390
ticker:AAWH
name:Ascend Wellness Holdings, Inc.
exchange:OTC
filing_type:10-K
|
YOU are a financial analyst. You are reading a report of a company.
The report is about the company's financial status.
and may not necessarily correlate with pre-tax income or loss.
The statutory federal tax rate was 21% during both periods. Ascend Wellness Holdings, Inc. has operations in six U.S. geographic markets: Illinois, Michigan, Ohio, Massachusetts, New Jersey, and Pennsylvania, which have state tax rates ranging from 6% to 11.5%. Certain states, including Michigan and, effective as of January 1, 2022, Massachusetts, do not align with IRC Section 280E for state tax purposes and permit the deduction of ordinary and necessary business expenses from gross profit in the calculation of state taxable income.
90
Income tax expense was $41,693, or 31.0% of gross profit, during 2022, as compared to $41,720, or 30.7% of gross profit, during 2021. There have been no material changes to income tax matters in connection with the normal course of operations during 2022. The effective tax rate on gross profit for 2022 was impacted by higher penalties and interest due on federal tax payments in the current year as compared to the prior year, but benefited from higher relative cost of goods sold.
NON-GAAP FINANCIAL MEASURES
We define “Adjusted Gross Profit” as gross
cik:1756390
ticker:AAWH
name:Ascend Wellness Holdings, Inc.
exchange:OTC
filing_type:10-K
|
YOU are a financial analyst. You are reading a report of a company.
The report is about the company's financial status.
30.7% of gross profit, during 2021. There have been no material changes to income tax matters in connection with the normal course of operations during 2022. The effective tax rate on gross profit for 2022 was impacted by higher penalties and interest due on federal tax payments in the current year as compared to the prior year, but benefited from higher relative cost of goods sold.
NON-GAAP FINANCIAL MEASURES
We define “Adjusted Gross Profit” as gross profit excluding non-cash inventory costs which include depreciation and amortization included in cost of goods sold, equity-based compensation included in cost of goods sold, start-up costs included in cost of goods sold, and other non-cash inventory adjustments. We define “Adjusted Gross Margin” as Adjusted Gross Profit as a percentage of net revenue. Our “Adjusted EBITDA” is a non-GAAP measure used by management that is not defined by U.S. GAAP and may not be comparable to similar measures presented by other companies. We define “Adjusted EBITDA Margin” as Adjusted EBITDA as a percentage of net revenue. Management calculates Adjusted EBITDA as the reported net loss, adjusted to exclude: income tax expense; other (income) expense; interest
cik:1756390
ticker:AAWH
name:Ascend Wellness Holdings, Inc.
exchange:OTC
filing_type:10-K
|
YOU are a financial analyst. You are reading a report of a company.
The report is about the company's financial status.
Adjusted Gross Profit as a percentage of net revenue. Our “Adjusted EBITDA” is a non-GAAP measure used by management that is not defined by U.S. GAAP and may not be comparable to similar measures presented by other companies. We define “Adjusted EBITDA Margin” as Adjusted EBITDA as a percentage of net revenue. Management calculates Adjusted EBITDA as the reported net loss, adjusted to exclude: income tax expense; other (income) expense; interest expense; depreciation and amortization; depreciation and amortization included in cost of goods sold; non-cash inventory adjustments; equity-based compensation; equity-based compensation included in cost of goods sold; start-up costs; start-up costs included in cost of goods sold; transaction-related and other non-recurring expenses; litigation settlement; and gain or loss on sale of assets. Accordingly, management believes that Adjusted EBITDA provides meaningful and useful financial information, as this measure demonstrates the operating performance of the business. Non-GAAP financial measures may be considered in addition to the results prepared in accordance with U.S. GAAP, but they should not be considered a substitute for, or superior to, U.S. GAAP results.
The following table presents Adjusted Gross Profit for the year
cik:1756390
ticker:AAWH
name:Ascend Wellness Holdings, Inc.
exchange:OTC
filing_type:10-K
|
YOU are a financial analyst. You are reading a report of a company.
The report is about the company's financial status.
non-recurring expenses; litigation settlement; and gain or loss on sale of assets. Accordingly, management believes that Adjusted EBITDA provides meaningful and useful financial information, as this measure demonstrates the operating performance of the business. Non-GAAP financial measures may be considered in addition to the results prepared in accordance with U.S. GAAP, but they should not be considered a substitute for, or superior to, U.S. GAAP results.
The following table presents Adjusted Gross Profit for the year ended December 31, 2022 and 2021:
Year Ended December 31,
($ in thousands)
2022
2021
Gross Profit
134,563
135,972
Depreciation and amortization included in cost of goods sold
15,360
9,612
Equity-based compensation included in cost of goods sold
11,627
2,929
Start-up costs included in cost of goods sold(1)
13,044
Non-cash inventory adjustments(2)
10,478
4,914
Adjusted Gross Profit
185,072
153,427
Adjusted Gross Margin
45.6
46.2
(1)
Incremental expenses associated with the expansion of activities at our cultivation facilities that are not
cik:1756390
ticker:AAWH
name:Ascend Wellness Holdings, Inc.
exchange:OTC
filing_type:10-K
|
YOU are a financial analyst. You are reading a report of a company.
The report is about the company's financial status.
360
9,612
Equity-based compensation included in cost of goods sold
11,627
2,929
Start-up costs included in cost of goods sold(1)
13,044
Non-cash inventory adjustments(2)
10,478
4,914
Adjusted Gross Profit
185,072
153,427
Adjusted Gross Margin
45.6
46.2
(1)
Incremental expenses associated with the expansion of activities at our cultivation facilities that are not yet operating at scale, including excess overhead expenses resulting from delays in regulatory approvals at certain cultivation facilities.
(2)
Consists of write-offs of expired products and obsolete packaging. Additionally, during 2022, we recognized a loss of $7,306 resulting from net realizable value adjustments related to certain inventory items in Michigan.
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The following table presents Adjusted EBITDA for the year ended December 31, 2022 and 2021:
Year Ended December 31,
($ in thousands)
2022
2021
Net loss
(80,899)
(122,657)
Income tax expense
41,693
41,720
Other income, net
(756)
(256)
Interest expense
32,436
63,989
cik:1756390
ticker:AAWH
name:Ascend Wellness Holdings, Inc.
exchange:OTC
filing_type:10-K
|
YOU are a financial analyst. You are reading a report of a company.
The report is about the company's financial status.
value adjustments related to certain inventory items in Michigan.
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The following table presents Adjusted EBITDA for the year ended December 31, 2022 and 2021:
Year Ended December 31,
($ in thousands)
2022
2021
Net loss
(80,899)
(122,657)
Income tax expense
41,693
41,720
Other income, net
(756)
(256)
Interest expense
32,436
63,989
Depreciation and amortization
29,455
19,648
Non-cash inventory adjustments(1)
10,478
4,914
Equity-based compensation
22,995
18,279
Start-up costs(2)
23,590
5,465
Transaction-related and other non-recurring expenses(3)
8,885
11,209
Loss on sale of assets
345
605
Litigation settlement
5,000
36,511
Adjusted EBITDA
93,222
79,427
Adjusted EBITDA Margin
23.0
23.9
(1)
Consists of write-offs of expired products and obsolete packaging. Additionally, during 2022, we recognized a loss of $7,
cik:1756390
ticker:AAWH
name:Ascend Wellness Holdings, Inc.
exchange:OTC
filing_type:10-K
|
YOU are a financial analyst. You are reading a report of a company.
The report is about the company's financial status.
465
Transaction-related and other non-recurring expenses(3)
8,885
11,209
Loss on sale of assets
345
605
Litigation settlement
5,000
36,511
Adjusted EBITDA
93,222
79,427
Adjusted EBITDA Margin
23.0
23.9
(1)
Consists of write-offs of expired products and obsolete packaging. Additionally, during 2022, we recognized a loss of $7,306 resulting from net realizable value adjustments related to certain inventory items in Michigan.
(2)
One-time costs associated with acquiring real estate, obtaining licenses and permits, and other costs incurred before commencement of operations at certain locations, as well as incremental expenses associated with the expansion of activities at our cultivation facilities that are not yet operating at scale, including excess overhead expenses resulting from delays in regulatory approvals at certain cultivation facilities. The 2022 amount includes a $1,704 expense related to the write-off of certain previously capitalized costs and an estimated reserve of $3,700 related to certain amounts associated with the New York transaction that the Company is actively pursuing collecting. The 2022 amount also includes a $234 fair value adjustment related to the OPA earn-out.
(3)
cik:1756390
ticker:AAWH
name:Ascend Wellness Holdings, Inc.
exchange:OTC
filing_type:10-K
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YOU are a financial analyst. You are reading a report of a company.
The report is about the company's financial status.
at our cultivation facilities that are not yet operating at scale, including excess overhead expenses resulting from delays in regulatory approvals at certain cultivation facilities. The 2022 amount includes a $1,704 expense related to the write-off of certain previously capitalized costs and an estimated reserve of $3,700 related to certain amounts associated with the New York transaction that the Company is actively pursuing collecting. The 2022 amount also includes a $234 fair value adjustment related to the OPA earn-out.
(3)
Legal and professional fees associated with litigation matters, potential acquisitions, and other regulatory matters and other non-recurring expenses. The prior year includes expenses related to the Company’s IPO.
The Year Ended December 31, 2021 Compared with the Year Ended December 31, 2020
For a discussion comparing our operating results for the year ended December 31, 2021 with the year ended December 31, 2020, refer to Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our Form 10-K for the year ended December 31, 2021, filed with each of the U.S. Securities and Exchange Commission and the relevant Canadian securities regulatory authorities on March 11, 2022.
92
LIQUIDITY AND
cik:1756390
ticker:AAWH
name:Ascend Wellness Holdings, Inc.
exchange:OTC
filing_type:10-K
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YOU are a financial analyst. You are reading a report of a company.
The report is about the company's financial status.
0
For a discussion comparing our operating results for the year ended December 31, 2021 with the year ended December 31, 2020, refer to Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our Form 10-K for the year ended December 31, 2021, filed with each of the U.S. Securities and Exchange Commission and the relevant Canadian securities regulatory authorities on March 11, 2022.
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LIQUIDITY AND CAPITAL RESOURCES
We are an emerging growth company and our primary sources of liquidity are operating cash flows, borrowings through the issuance of debt, and funds raised through the issuance of equity securities. We are generating cash from sales and deploying our capital reserves to acquire and develop assets capable of producing additional revenue and earnings over both the immediate and long term. Capital reserves are being utilized for acquisitions in the medical and adult-use cannabis markets, for capital expenditures and improvements in existing facilities, product development and marketing, as well as customer, supplier, and investor and industry relations.
Financing History and Future Capital Requirements
Historically, we have used private financing as a source of liquidity for short-term working capital needs and general corporate purposes. In May 2021, we completed an IPO of
cik:1756390
ticker:AAWH
name:Ascend Wellness Holdings, Inc.
exchange:OTC
filing_type:10-K
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YOU are a financial analyst. You are reading a report of a company.
The report is about the company's financial status.
of producing additional revenue and earnings over both the immediate and long term. Capital reserves are being utilized for acquisitions in the medical and adult-use cannabis markets, for capital expenditures and improvements in existing facilities, product development and marketing, as well as customer, supplier, and investor and industry relations.
Financing History and Future Capital Requirements
Historically, we have used private financing as a source of liquidity for short-term working capital needs and general corporate purposes. In May 2021, we completed an IPO of shares of our Class A common stock through which we raised aggregate net proceeds of approximately $86,065 after deducting underwriting discounts and commissions and certain direct offering expenses paid by us. In August 2021, we entered into a credit facility under which we initially borrowed a $210,000 term loan. During the second quarter of 2022, we borrowed an additional $65,000 of term loans from certain lenders under the expansion feature of the credit facility, as further described below.
Our future ability to fund operations, to make planned capital expenditures, to acquire other entities or investments, to make scheduled debt payments, and to repay or refinance indebtedness depends on our future operating performance, cash flows, and ability to obtain equity or debt financing, which are subject to
cik:1756390
ticker:AAWH
name:Ascend Wellness Holdings, Inc.
exchange:OTC
filing_type:10-K
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YOU are a financial analyst. You are reading a report of a company.
The report is about the company's financial status.
210,000 term loan. During the second quarter of 2022, we borrowed an additional $65,000 of term loans from certain lenders under the expansion feature of the credit facility, as further described below.
Our future ability to fund operations, to make planned capital expenditures, to acquire other entities or investments, to make scheduled debt payments, and to repay or refinance indebtedness depends on our future operating performance, cash flows, and ability to obtain equity or debt financing, which are subject to prevailing economic conditions, as well as financial, business, and other factors, some of which are beyond our control.
As of December 31, 2022 and 2021, the Company had total current liabilities of $110,949 and $117,395, respectively, and total current assets of $198,743 and $258,012, respectively, which includes cash and cash equivalents of $74,146 and $155,481, respectively, to meet its current obligations. As of December 31, 2022, the Company had working capital of $87,794, compared to $140,617 as of December 31, 2021.
Approximately 90% and 97% of the Company’s cash and cash equivalents balance as of December
cik:1756390
ticker:AAWH
name:Ascend Wellness Holdings, Inc.
exchange:OTC
filing_type:10-K
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YOU are a financial analyst. You are reading a report of a company.
The report is about the company's financial status.
and total current assets of $198,743 and $258,012, respectively, which includes cash and cash equivalents of $74,146 and $155,481, respectively, to meet its current obligations. As of December 31, 2022, the Company had working capital of $87,794, compared to $140,617 as of December 31, 2021.
Approximately 90% and 97% of the Company’s cash and cash equivalents balance as of December 31, 2022 and 2021, respectively, is on deposit with banks, credit unions, or other financial institutions. We have not experienced any material impacts related to banking restrictions applicable to cannabis businesses. Our cash and cash equivalents balance is not restricted for use by variable interest entities.
As reflected in the Financial Statements, we had an accumulated deficit as of December 31, 2022 and 2021, as well as a net loss for the year ended December 31, 2022, 2021, and 2020, respectively, and negative cash flows from operating activities during the year ended December 31, 2022, 2021, and 2020, respectively, which are indicators that raise substantial doubt of our ability to continue
cik:1756390
ticker:AAWH
name:Ascend Wellness Holdings, Inc.
exchange:OTC
filing_type:10-K
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YOU are a financial analyst. You are reading a report of a company.
The report is about the company's financial status.
interest entities.
As reflected in the Financial Statements, we had an accumulated deficit as of December 31, 2022 and 2021, as well as a net loss for the year ended December 31, 2022, 2021, and 2020, respectively, and negative cash flows from operating activities during the year ended December 31, 2022, 2021, and 2020, respectively, 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 our 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 we are unable to raise additional capital on favorable terms, if at all, whenever necessary, we may be forced to decelerate or curtail certain of our operations until such time as additional capital becomes available.
Credit Facility
In August 202
cik:1756390
ticker:AAWH
name:Ascend Wellness Holdings, Inc.
exchange:OTC
filing_type:10-K
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YOU are a financial analyst. You are reading a report of a company.
The report is about the company's financial status.
. 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 we are unable to raise additional capital on favorable terms, if at all, whenever necessary, we may be forced to decelerate or curtail certain of our operations until such time as additional capital becomes available.
Credit Facility
In August 2021, we entered into a credit agreement with a group of lenders (the “2021 Credit Agreement”) that provided for an initial term loan of $210,000, which was borrowed in full. The 2021 Credit Agreement provided for an expansion feature that allowed us to request an increase in the term loan outstanding up to $275,000 if the existing lenders (or other lenders) agreed to provide such additional term loans. During the second quarter of 2022, we borrowed an additional $65,000 of incremental term loans through this expansion feature (the “2022 Loans” and, together with the initial term loan, the “2021 Credit Facility”) for total borrowings of $275,000 outstanding as of December 31, 2022. The
cik:1756390
ticker:AAWH
name:Ascend Wellness Holdings, Inc.
exchange:OTC
filing_type:10-K
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YOU are a financial analyst. You are reading a report of a company.
The report is about the company's financial status.
an increase in the term loan outstanding up to $275,000 if the existing lenders (or other lenders) agreed to provide such additional term loans. During the second quarter of 2022, we borrowed an additional $65,000 of incremental term loans through this expansion feature (the “2022 Loans” and, together with the initial term loan, the “2021 Credit Facility”) for total borrowings of $275,000 outstanding as of December 31, 2022. 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
93
quarterly. Proceeds from the initial term loan under the 2021 Credit Facility were used, in part, to prepay certain then-outstanding debt obligations and, together with the 2022 Loans, fund working capital and general corporate matters, including, but not limited to, growth investments, acquisitions, capital expenditures, and other strategic initiatives.
We incurred financing costs of $8,806 related to the initial term loan and additional financing costs of $7,606 related to the 2022 Loans, which includes warrants issued
cik:1756390
ticker:AAWH
name:Ascend Wellness Holdings, Inc.
exchange:OTC
filing_type:10-K
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YOU are a financial analyst. You are reading a report of a company.
The report is about the company's financial status.
the initial term loan under the 2021 Credit Facility were used, in part, to prepay certain then-outstanding debt obligations and, together with the 2022 Loans, fund working capital and general corporate matters, including, but not limited to, growth investments, acquisitions, capital expenditures, and other strategic initiatives.
We incurred financing costs of $8,806 related to the initial term loan 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 (refer to Note 12, “Stockholders’ Equity,” in the Financial Statements for additional information). 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 component of interest expense during the year ended December 31, 2022,
cik:1756390
ticker:AAWH
name:Ascend Wellness Holdings, Inc.
exchange:OTC
filing_type:10-K
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YOU are a financial analyst. You are reading a report of a company.
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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 component of interest expense during the year ended December 31, 2022, 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.
Mandatory prepayments are required following certain events, including the proceeds of indebtedness that is not permitted under the agreement, asset sales, and casualty events, subject to customary reinvestment rights. We 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. We may request an extension of the maturity date for 364 days, which the lenders’ may grant in their discretion.
cik:1756390
ticker:AAWH
name:Ascend Wellness Holdings, Inc.
exchange:OTC
filing_type:10-K
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YOU are a financial analyst. You are reading a report of a company.
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of indebtedness that is not permitted under the agreement, asset sales, and casualty events, subject to customary reinvestment rights. We 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. We may request an extension of the maturity date for 364 days, which the lenders’ may grant in their discretion.
We are required to comply with two financial covenants under the 2021 Credit Agreement. Liquidity (defined as unrestricted cash and cash equivalents pledged under the 2021 Credit Facility plus any future revolving credit availability) may not be below $20,000 as of the last day of any fiscal quarter, and we 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 2.00:1.00 for the period ending December 31, 2021 and increased to not less than 2.50:1.00 for the period ending June 30, 2022 and thereafter. Ascend Wellness Holdings, Inc. has a customary equity
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ticker:AAWH
name:Ascend Wellness Holdings, Inc.
exchange:OTC
filing_type:10-K
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YOU are a financial analyst. You are reading a report of a company.
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day of any fiscal quarter, and we 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 2.00:1.00 for the period ending December 31, 2021 and increased to not less than 2.50:1.00 for the period ending June 30, 2022 and thereafter. Ascend Wellness Holdings, Inc. has a customary equity cure right for each of these financial covenants. Ascend Wellness Holdings, Inc. is in compliance with these covenants as of December 31, 2022. Refer to Note 11, “Debt,” in the Financial Statements for additional information.
Financing Agreement
In December 2022, we received $19,364 pursuant to a financing agreement with a third-party lender (the “Financing Agreement”), which is included in “Long-term debt, net” in the Financial Statements at December 31, 2022. Ascend Wellness Holdings, Inc. assigned to the lender its interests in an employee retention tax credit claim (the “ERTC Claim”) that it submitted in November 2022 for approximately $22,800. If the Company does not receive the ERTC Claim, in whole
cik:1756390
ticker:AAWH
name:Ascend Wellness Holdings, Inc.
exchange:OTC
filing_type:10-K
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YOU are a financial analyst. You are reading a report of a company.
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2022, we received $19,364 pursuant to a financing agreement with a third-party lender (the “Financing Agreement”), which is included in “Long-term debt, net” in the Financial Statements at December 31, 2022. Ascend Wellness Holdings, Inc. assigned to the lender its interests in an employee retention tax credit claim (the “ERTC Claim”) that it submitted in November 2022 for approximately $22,800. 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. Ascend Wellness Holdings, Inc.’s obligations under the Financing Agreement will be satisfied upon receipt of the ERTC Claim or other full repayment. Ascend Wellness Holdings, Inc. determined the ERTC Claim did not meet the criteria to record as a receivable as of December 31, 2022 because of the uncertain nature of the ERTC Claim.
94
Cash Flows
Year Ended December 31,
(in thousands)
2022
2021
2020
Net cash used in operating activities
(38
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ticker:AAWH
name:Ascend Wellness Holdings, Inc.
exchange:OTC
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expense over an expected term. Ascend Wellness Holdings, Inc.’s obligations under the Financing Agreement will be satisfied upon receipt of the ERTC Claim or other full repayment. Ascend Wellness Holdings, Inc. determined the ERTC Claim did not meet the criteria to record as a receivable as of December 31, 2022 because of the uncertain nature of the ERTC Claim.
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Cash Flows
Year Ended December 31,
(in thousands)
2022
2021
2020
Net cash used in operating activities
(38,356)
(41,738)
(6,004)
Net cash used in investing activities
(114,254)
(113,233)
(30,872)
Net cash provided by financing activities
71,275
252,355
82,168
Operating Activities
Net cash used in operating activities decreased by $3,382 during 2022, as compared to 2021, primarily driven by the timing and amount of income tax payments, the timing of payments to suppliers and vendors, and the timing of other working capital payments.
Net cash used in operating activities increased by $35,734 during 2021, as compared to 2020, primarily driven by
increases in net investments in working capital, including inventory as well as the timing of
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ticker:AAWH
name:Ascend Wellness Holdings, Inc.
exchange:OTC
filing_type:10-K
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YOU are a financial analyst. You are reading a report of a company.
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Net cash used in operating activities decreased by $3,382 during 2022, as compared to 2021, primarily driven by the timing and amount of income tax payments, the timing of payments to suppliers and vendors, and the timing of other working capital payments.
Net cash used in operating activities increased by $35,734 during 2021, as compared to 2020, primarily driven by
increases in net investments in working capital, including inventory as well as the timing of accounts payable and accrued liabilities.
Investing Activities
Net cash used in investing activities increased by $1,021 during 2022, as compared to 2021. The increase was primarily due to the purchase of intangible assets, including the first $15,000 payment made under the Story of PA research collaboration agreement, partially offset by proceeds received from the sale of assets and lower cash investments in capital assets.
Net cash used in investing activities increased by $82,361 during 2021, as compared to 2020. The increase was primarily due to an increase in cash investments in capital assets and the absence of proceeds from the sale of assets that occurred in 2020.
Financing Activities
Net cash provided by financing activities decreased by $181,080 during
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ticker:AAWH
name:Ascend Wellness Holdings, Inc.
exchange:OTC
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YOU are a financial analyst. You are reading a report of a company.
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under the Story of PA research collaboration agreement, partially offset by proceeds received from the sale of assets and lower cash investments in capital assets.
Net cash used in investing activities increased by $82,361 during 2021, as compared to 2020. The increase was primarily due to an increase in cash investments in capital assets and the absence of proceeds from the sale of assets that occurred in 2020.
Financing Activities
Net cash provided by financing activities decreased by $181,080 during 2022, as compared to 2021. The decrease was primarily due to lower proceeds from the issuance of debt, net of repayments, in the current year and the absence of net proceeds received from our IPO in the prior year.
Net cash provided by financing activities increased by $170,187 during 2021, as compared to 2020. The increase was primarily due to higher proceeds from the issuance of debt and net proceeds from our IPO, partially offset by the repurchase of warrants in the current year and the absence of proceeds from a financing sale leaseback transaction that occurred in 2020.
Contractual Obligations and Other Commitments and Contingencies
Material contractual obligations arising in the normal course of business primarily consist of long-term fixed rate debt and
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ticker:AAWH
name:Ascend Wellness Holdings, Inc.
exchange:OTC
filing_type:10-K
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YOU are a financial analyst. You are reading a report of a company.
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$170,187 during 2021, as compared to 2020. The increase was primarily due to higher proceeds from the issuance of debt and net proceeds from our IPO, partially offset by the repurchase of warrants in the current year and the absence of proceeds from a financing sale leaseback transaction that occurred in 2020.
Contractual Obligations and Other Commitments and Contingencies
Material contractual obligations arising in the normal course of business primarily consist of long-term fixed rate debt and related interest payments, leases, finance arrangements, and amounts due for acquisitions. We believe that cash flows from operations will be sufficient to satisfy our capital expenditures, debt services, working capital needs, and other contractual obligations for the next twelve months.
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The following table summarizes the Company’s material future contractual obligations as of December 31, 2022:
(in thousands)
Commitments Due by Period
Contractual Obligations
Total
2023
2024 - 2025
2026 - 2027
Thereafter
Term notes(1)
275,000
275,000
Fixed interest related to term notes(2)
69,357
26,125
43,232
Sellers’ notes(3)
30,243
11,143
cik:1756390
ticker:AAWH
name:Ascend Wellness Holdings, Inc.
exchange:OTC
filing_type:10-K
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YOU are a financial analyst. You are reading a report of a company.
The report is about the company's financial status.
’s material future contractual obligations as of December 31, 2022:
(in thousands)
Commitments Due by Period
Contractual Obligations
Total
2023
2024 - 2025
2026 - 2027
Thereafter
Term notes(1)
275,000
275,000
Fixed interest related to term notes(2)
69,357
26,125
43,232
Sellers’ notes(3)
30,243
11,143
19,100
Finance arrangements(4)
22,001
2,308
4,941
5,275
9,477
Operating leases(5)
619,453
33,879
70,645
73,808
441,121
Finance leases(5)
1,140
315
630
195
Other commitments(6)
15,943
15,943
Total
1,033,137
89,713
413,548
79,278
450,598
(1)
Principal payments due under our term notes payable. Refer to Note 11, “Debt,” in the Financial Statements for additional information.
(2)
Represents fixed interest rate payments on borrowings under the 2021 Credit Facility
cik:1756390
ticker:AAWH
name:Ascend Wellness Holdings, Inc.
exchange:OTC
filing_type:10-K
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YOU are a financial analyst. You are reading a report of a company.
The report is about the company's financial status.
leases(5)
1,140
315
630
195
Other commitments(6)
15,943
15,943
Total
1,033,137
89,713
413,548
79,278
450,598
(1)
Principal payments due under our term notes payable. Refer to Note 11, “Debt,” in the Financial Statements for additional information.
(2)
Represents fixed interest rate payments on borrowings under the 2021 Credit Facility based on the principal outstanding at December 31, 2022. Interest payments could fluctuate based on prepayments or additional amounts borrowed.
(3)
Consists of amounts owed for acquisitions or other purchases. Certain cash payments include an interest accretion component, and the timing of certain payments may vary based on regulatory approval. Refer to Note 11, “Debt,” in the Financial Statements for additional information. This amount excludes the potential earn-out payment related to the OPA acquisition that has an estimated fair value of $5,076 at December 31, 2022 and is dependent upon the commencement of adult-use cannabis sales in Ohio. Refer to Note 4, “Acquisitions,” in the Financial Statements for additional information.
(4)
Reflects our contractual
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ticker:AAWH
name:Ascend Wellness Holdings, Inc.
exchange:OTC
filing_type:10-K
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YOU are a financial analyst. You are reading a report of a company.
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of certain payments may vary based on regulatory approval. Refer to Note 11, “Debt,” in the Financial Statements for additional information. This amount excludes the potential earn-out payment related to the OPA acquisition that has an estimated fair value of $5,076 at December 31, 2022 and is dependent upon the commencement of adult-use cannabis sales in Ohio. Refer to Note 4, “Acquisitions,” in the Financial Statements for additional information.
(4)
Reflects our contractual obligations to make future payments under non-cancelable operating leases that did not meet the criteria to qualify for sale-leaseback treatment. Refer to Note 10, “Leases,” in the Financial Statements for additional information.
(5)
Reflects our contractual obligations to make future payments under non-cancelable leases. Refer to Note 10, “Leases,” in the Financial Statements for additional information.
(6)
Related to the Story of PA acquisition. Refer to Note 4, “Acquisitions,” in the Financial Statements for additional information. We expect to fund up to an additional total of $10,000 over the next ten years under the research collaboration agreement. Since the timing of the payments may vary, this amount has been excluded from the table above.
The table above
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ticker:AAWH
name:Ascend Wellness Holdings, Inc.
exchange:OTC
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YOU are a financial analyst. You are reading a report of a company.
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under non-cancelable leases. Refer to Note 10, “Leases,” in the Financial Statements for additional information.
(6)
Related to the Story of PA acquisition. Refer to Note 4, “Acquisitions,” in the Financial Statements for additional information. We expect to fund up to an additional total of $10,000 over the next ten years under the research collaboration agreement. Since the timing of the payments may vary, this amount has been excluded from the table above.
The table above excludes the Financing Arrangement, as the timing of the repayment is uncertain. Additionally, in conjunction with the OCC acquisition (see Note 4, “Acquisitions,” in the Financial Statements) in December 2021, the Company entered into a supply agreement with a producer and supplier of medical marijuana products in Ohio (the “Ohio Supply Agreement”) with an initial expiration date of August 2028. Under the Ohio Supply Agreement, the Company will purchase products from the supplier that results in 7.5% of the Company’s monthly gross sales of all products in our Ohio dispensaries for the first five years, and 5% for the remaining term. Ascend Wellness Holdings, Inc. can establish the selling price of the products and the purchases are made at the lowest then-prevailing wholesale market price of
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ticker:AAWH
name:Ascend Wellness Holdings, Inc.
exchange:OTC
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YOU are a financial analyst. You are reading a report of a company.
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of medical marijuana products in Ohio (the “Ohio Supply Agreement”) with an initial expiration date of August 2028. Under the Ohio Supply Agreement, the Company will purchase products from the supplier that results in 7.5% of the Company’s monthly gross sales of all products in our Ohio dispensaries for the first five years, and 5% for the remaining term. Ascend Wellness Holdings, Inc. can establish the selling price of the products and the purchases are made at the lowest then-prevailing wholesale market price of products sold by the supplier to other dispensaries in Ohio. Such purchases have been excluded from the table above, as purchases are variable based on gross sales of the respective dispensary.
As of the date of this filing, we do not have any off-balance sheet arrangements, as defined by applicable regulations of the United States Securities and Exchange Commission, that have, or are reasonably likely to have, a current or future effect on the results of our operations or financial condition, including, and without limitation, such considerations as liquidity and capital resources.
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Capital Expenditures
We anticipate capital expenditures, net of tenant improvement allowances, of approximately $25,000 during 2023. Changes to this estimate could result from the timing of various project start dates, which are subject to local
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name:Ascend Wellness Holdings, Inc.
exchange:OTC
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by applicable regulations of the United States Securities and Exchange Commission, that have, or are reasonably likely to have, a current or future effect on the results of our operations or financial condition, including, and without limitation, such considerations as liquidity and capital resources.
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Capital Expenditures
We anticipate capital expenditures, net of tenant improvement allowances, of approximately $25,000 during 2023. Changes to this estimate could result from the timing of various project start dates, which are subject to local and regulatory approvals. Spending at our cultivation and processing facilities includes: construction; purchase of capital equipment such as extraction equipment, heating, ventilation, and air conditioning equipment, and other manufacturing equipment; general maintenance; and information technology capital expenditures. Dispensary-related capital expenditures includes construction costs for the initial build-out of each location, general maintenance costs and upgrades to existing locations.
During 2023, we expect to complete the second phase of expansion at our New Jersey cultivation facility, the initial build out of our Pennsylvania cultivation facility, and complete certain expansion projects at our Illinois and Massachusetts cultivation facilities. We also anticipate building out the three dispensaries in Ohio related to the OPA transaction, up to four additional dispensaries in Pennsylvania, and two additional dispensaries in each of Illinois and Michigan. Additionally,
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name:Ascend Wellness Holdings, Inc.
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for the initial build-out of each location, general maintenance costs and upgrades to existing locations.
During 2023, we expect to complete the second phase of expansion at our New Jersey cultivation facility, the initial build out of our Pennsylvania cultivation facility, and complete certain expansion projects at our Illinois and Massachusetts cultivation facilities. We also anticipate building out the three dispensaries in Ohio related to the OPA transaction, up to four additional dispensaries in Pennsylvania, and two additional dispensaries in each of Illinois and Michigan. Additionally, we anticipate certain general maintenance activities across our cultivation facilities and dispensary locations. Management expects to fund capital expenditures by utilizing cash flows from operations and reimbursements under tenant improvement allowances from sale leaseback transactions.
As of December 31, 2022, our construction in progress (“CIP”) balance was $9,633 and relates to capital spending on projects that were not yet complete. This balance includes $4,085 related to the build out of our New Bedford, Massachusetts retail location; $2,542 related to certain projects at our Illinois cultivation facility; $1,363 related to the expansion of our New Jersey cultivation facility; $544 related to the build out of the three dispensaries in Ohio related to the OPA transaction; $444 related to the build out of two
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ticker:AAWH
name:Ascend Wellness Holdings, Inc.
exchange:OTC
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YOU are a financial analyst. You are reading a report of a company.
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IP”) balance was $9,633 and relates to capital spending on projects that were not yet complete. This balance includes $4,085 related to the build out of our New Bedford, Massachusetts retail location; $2,542 related to certain projects at our Illinois cultivation facility; $1,363 related to the expansion of our New Jersey cultivation facility; $544 related to the build out of the three dispensaries in Ohio related to the OPA transaction; $444 related to the build out of two additional Illinois retail locations; and $655 related to other projects at our dispensaries.
Other Matters
Equity Incentive Plan
As of December 31, 2022, a total of 9,994 restricted common shares had been granted under the equity incentive plan approved in 2020 (the “2020 Plan”), of which 617 were unvested as of December 31, 2022. Total unrecognized compensation cost related to the restricted common shares was $67 as of December 31, 2022, which is expected to be recognized over a weighted-average remaining period of 0.4 years.
In July 2021, the Company adopted a new stock incentive plan (the “2021 Plan”), pursuant to which 17,000 shares of
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2020 (the “2020 Plan”), of which 617 were unvested as of December 31, 2022. Total unrecognized compensation cost related to the restricted common shares was $67 as of December 31, 2022, which is expected to be recognized over a weighted-average remaining period of 0.4 years.
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 options, stock appreciation rights, restricted stock awards, restricted stock units (“RSUs”), and other stock-based awards (collectively the “2021 Plan Awards”). As of December 31, 2022, there were 5,859 shares of Class A common stock available for grant for future equity-based compensation awards under the 2021 Plan.
During 2022, the Company granted a total of 5,522 RSUs under the 2021 Plan. As of December 31, 2022
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appreciation rights, restricted stock awards, restricted stock units (“RSUs”), and other stock-based awards (collectively the “2021 Plan Awards”). As of December 31, 2022, there were 5,859 shares of Class A common stock available for grant for future equity-based compensation awards under the 2021 Plan.
During 2022, the Company granted a total of 5,522 RSUs under the 2021 Plan. As of December 31, 2022, a total of 11,952 RSUs have been granted under the 2021 Plan, of which 6,462 are unvested as of December 31, 2022. Total unrecognized compensation cost related to the RSUs was $38,331 as of December 31, 2022, which is expected to be recognized over a weighted-average remaining period of 2.5 years. Additionally, during 2022, the Company granted a total of 2,429 options under the 2021 Plan, of which 2,042 are outstanding as of December 31, 2022 and none of which are exercisable. The outstanding options have a remaining weighted-average contractual life of 4.4 years as of December 31,
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December 31, 2022, which is expected to be recognized over a weighted-average remaining period of 2.5 years. Additionally, during 2022, the Company granted a total of 2,429 options under the 2021 Plan, of which 2,042 are outstanding as of December 31, 2022 and none of which are exercisable. The outstanding options have a remaining weighted-average contractual life of 4.4 years as of December 31, 2022, and total unrecognized stock-based compensation expense related to unvested options was $2,774, which is expected to be recognized over a weighted-average remaining period of 3.3 years.
Total equity-based compensation expense was $18,979, $23,093, and $680 during 2022, 2021, and 2020, respectively. Of the total equity-based compensation expense, $7,611 and $7,743 was capitalized to inventory during 2022 and 2021, respectively. As of December 31, 2022 and 2021, $536 and $4,814, respectively, remains capitalized in inventory. No equity-based compensation expense was capitalized during 2020. During 2022, 202
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, and $680 during 2022, 2021, and 2020, respectively. Of the total equity-based compensation expense, $7,611 and $7,743 was capitalized to inventory during 2022 and 2021, respectively. As of December 31, 2022 and 2021, $536 and $4,814, respectively, remains capitalized in inventory. No equity-based compensation expense was capitalized during 2020. During 2022, 2021, and 2020 we recognized $11,368, $15,350, $680, respectively, within “General and administrative expenses” on the Consolidated
97
Statements of Operations in the Financial Statements and we recognized $11,889, $2,929, and none, respectively, within “Cost of goods sold.” Refer to Note 13, “Equity-Based Compensation Expense,” in the Financial Statements for additional information.
In July 2021, the Company 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. As of December 31, 2022, no shares have been issued under
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YOU are a financial analyst. You are reading a report of a company.
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, and none, respectively, within “Cost of goods sold.” Refer to Note 13, “Equity-Based Compensation Expense,” in the Financial Statements for additional information.
In July 2021, the Company 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. As of December 31, 2022, no shares have been issued under the 2021 ESPP.
Sale Leaseback Transactions
In February 2022, the Company sold and subsequently leased back one of its capital assets in New Jersey for total proceeds of $35,400, excluding transaction costs. The transaction met the criteria for sale leaseback treatment. The lease was recorded as an operating lease and resulted in a lease liability of $33,707 and a right of use (“ROU”) asset of $29,107, which was recorded net of a $4,600 tenant improvement allowance
In June 2022, the Company sold and subsequently leased back two of its capital assets in Pennsylvania for total proceeds of $3,825, excluding transaction costs. Each transaction met the criteria for sale leaseback treatment. The leases were recorded as operating
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YOU are a financial analyst. You are reading a report of a company.
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. The lease was recorded as an operating lease and resulted in a lease liability of $33,707 and a right of use (“ROU”) asset of $29,107, which was recorded net of a $4,600 tenant improvement allowance
In June 2022, the Company sold and subsequently leased back two of its capital assets in Pennsylvania for total proceeds of $3,825, excluding transaction costs. Each transaction met the criteria for sale leaseback treatment. The leases were recorded as operating leases and resulted in a total lease liability and ROU asset of $2,102. Each of the lease agreements provide for a capital expenditure allowance of up to $3,000. The rent payments due under each lease will increase by a percentage of the capital expenditure allowance as funding occurs, and, therefore, each lease will be reassessed and remeasured as a modification upon such funding. During 2022, we received a total of $3,690 under the capital expenditure allowance that was recorded as a tenant improvement allowance and resulted in $1,880 of additional lease liabilities based on the modified lease terms and a net gain of $384 during 2022, which is included in “General and administrative expenses” on the Consolidated Statement of Operations in the Financial Statements
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occurs, and, therefore, each lease will be reassessed and remeasured as a modification upon such funding. During 2022, we received a total of $3,690 under the capital expenditure allowance that was recorded as a tenant improvement allowance and resulted in $1,880 of additional lease liabilities based on the modified lease terms and a net gain of $384 during 2022, which is included in “General and administrative expenses” on the Consolidated Statement of Operations in the Financial Statements.
In October 2022, the Company sold and subsequently leased back certain real estate and related assets of a commercial property located in New Bedford, Massachusetts for a total purchase price of $350, pursuant to a definitive agreement that was entered into during 2021. The transaction did not meet the criteria for sale-leaseback treatment.
Refer to Note 10, “Leases,” in the Financial Statements for additional information regarding the Company’s leases.
Legal Matters
Below is a description of our significant legal matters and the related impact, as applicable, on our financial condition, results of operations, and prospects. Refer to Note 15, “Commitments and Contingencies,” in the Financial Statements for additional information.
TVP Settlement
In December 2020, TVP
cik:1756390
ticker:AAWH
name:Ascend Wellness Holdings, Inc.
exchange:OTC
filing_type:10-K
|
YOU are a financial analyst. You are reading a report of a company.
The report is about the company's financial status.
not meet the criteria for sale-leaseback treatment.
Refer to Note 10, “Leases,” in the Financial Statements for additional information regarding the Company’s leases.
Legal Matters
Below is a description of our significant legal matters and the related impact, as applicable, on our financial condition, results of operations, and prospects. Refer to Note 15, “Commitments and Contingencies,” in the Financial Statements for additional information.
TVP Settlement
In December 2020, TVP, LLC, TVP Grand Rapids, LLC and, TVP Alma, LLC (collectively, the “TVP Parties”) filed a claim alleging breach of contract against FPAW Michigan, LLC (“FPAW”), and AWH related to a purchase agreement that was entered into in September 2019 for the Company’s potential acquisition of certain locations in Michigan. FPAW was a variable interest entity of the Company at that time through FPAW Michigan 2, Inc. and became a subsidiary of the Company in December 2020.
The TVP Parties asked the court to grant specific performance of the contracts between the Company and the TVP Parties, which, if granted, would have resulted in AWH issuing approximately 4,770 common units as originally agreed
cik:1756390
ticker:AAWH
name:Ascend Wellness Holdings, Inc.
exchange:OTC
filing_type:10-K
|
YOU are a financial analyst. You are reading a report of a company.
The report is about the company's financial status.
into in September 2019 for the Company’s potential acquisition of certain locations in Michigan. FPAW was a variable interest entity of the Company at that time through FPAW Michigan 2, Inc. and became a subsidiary of the Company in December 2020.
The TVP Parties asked the court to grant specific performance of the contracts between the Company and the TVP Parties, which, if granted, would have resulted in AWH issuing approximately 4,770 common units as originally agreed in September 2019 and paying approximately $16,500 in cash to the TVP parties in exchange for the entities holding the properties subject to the agreements. AWH and FPAW filed an answer to the complaint on January 28, 2021 and believed there existed valid defenses to the demand for specific performance due to lack of suitability of three of the six properties subject to the original transaction agreements.
On April 14, 2021, FPAW and AWH entered into a settlement agreement with the TVP Parties which provides for, among other items, the dismissal of all claims brought by the TVP Parties against FPAW and AWH
98
upon performance of each parties’ obligations under the Settlement Agreement. Pursuant to the Settlement Agreement, F
cik:1756390
ticker:AAWH
name:Ascend Wellness Holdings, Inc.
exchange:OTC
filing_type:10-K
|
YOU are a financial analyst. You are reading a report of a company.
The report is about the company's financial status.
valid defenses to the demand for specific performance due to lack of suitability of three of the six properties subject to the original transaction agreements.
On April 14, 2021, FPAW and AWH entered into a settlement agreement with the TVP Parties which provides for, among other items, the dismissal of all claims brought by the TVP Parties against FPAW and AWH
98
upon performance of each parties’ obligations under the Settlement Agreement. Pursuant to the Settlement Agreement, FPAW and AWH were required to deliver a cash payment of $9,000 to TVP, LLC on the date of the Settlement Agreement, with an additional cash payment of $5,480 due on or before January 1, 2022 (which was paid in January 2022). In addition, on April 14, 2021, upon the execution of the Settlement Agreement, AWH issued 4,770 common units of AWH with a fair value of $26,041 to an escrow account, to be held in the name of the escrow agent (the “Escrow Units”). The Escrow Units converted into shares of Class A common stock upon the Conversion in the same manner as all other common units of AWH. Also as
cik:1756390
ticker:AAWH
name:Ascend Wellness Holdings, Inc.
exchange:OTC
filing_type:10-K
|
YOU are a financial analyst. You are reading a report of a company.
The report is about the company's financial status.
January 2022). In addition, on April 14, 2021, upon the execution of the Settlement Agreement, AWH issued 4,770 common units of AWH with a fair value of $26,041 to an escrow account, to be held in the name of the escrow agent (the “Escrow Units”). The Escrow Units converted into shares of Class A common stock upon the Conversion in the same manner as all other common units of AWH. Also as part of the Settlement Agreement and in order to avoid further potential litigation, AWH issued 255 common units of AWH with a fair value of $1,390 to a party to one of the September 2019 agreements that was not a party to the litigation matter.
Upon the receipt of the initial cash payment of $9,000 and the issuance of the Escrow Units, the TVP Parties filed a stipulated order dismissing all lawsuits, with prejudice and without costs, against FPAW and AWH. The Escrow Units are issued and outstanding and will remain in the escrow account until such time as the TVP Parties exercise an option to hold the Escrow Units directly (the “Put Option”). Upon their exercise of the Put Option, the Escrow Units
cik:1756390
ticker:AAWH
name:Ascend Wellness Holdings, Inc.
exchange:OTC
filing_type:10-K
|
YOU are a financial analyst. You are reading a report of a company.
The report is about the company's financial status.
the receipt of the initial cash payment of $9,000 and the issuance of the Escrow Units, the TVP Parties filed a stipulated order dismissing all lawsuits, with prejudice and without costs, against FPAW and AWH. The Escrow Units are issued and outstanding and will remain in the escrow account until such time as the TVP Parties exercise an option to hold the Escrow Units directly (the “Put Option”). Upon their exercise of the Put Option, the Escrow Units shall be released to the TVP Parties and the TVP Parties shall transfer to FPAW the equity interests of the entities that hold the three real estate properties in Grand Rapids. The parties intend to work to identify at least two additional sites that will be suitable for future Ascend retail locations, which properties the Company would lease pursuant to market rental terms. The Put Option is required to be exercised by the TVP Parties within three years of the date of the Settlement Agreement. FPAW and AWH are entitled to use the subject properties until such time as the Put Option is exercised. FPAW currently operates dispensaries at two of the properties and expects to open a dispensary at the third property in early 2023.
The settlement charge of $36,511 is reflected
cik:1756390
ticker:AAWH
name:Ascend Wellness Holdings, Inc.
exchange:OTC
filing_type:10-K
|
YOU are a financial analyst. You are reading a report of a company.
The report is about the company's financial status.
retail locations, which properties the Company would lease pursuant to market rental terms. The Put Option is required to be exercised by the TVP Parties within three years of the date of the Settlement Agreement. FPAW and AWH are entitled to use the subject properties until such time as the Put Option is exercised. FPAW currently operates dispensaries at two of the properties and expects to open a dispensary at the third property in early 2023.
The settlement charge of $36,511 is reflected within “Settlement expense” on the Consolidated Statements of Operations in the Financial Statements for the year ended December 31, 2021 and the fair value of the share issuance of $27,431 is reflected within “Equity issued in litigation settlement” on the Consolidated Statement of Changes in Stockholders’ Equity in the Financial Statements. The fair value of the three properties to be acquired per the settlement of $5,400 is recorded within “Other noncurrent assets” in the Financial Statements as of December 31, 2022 and 2021, and will remain until the time such property titles transfer to the Company.
Ascend Wellness Holdings, Inc. reported losses related to its Michigan operations of approximately $18,200, $17,400, and $16,700 during
cik:1756390
ticker:AAWH
name:Ascend Wellness Holdings, Inc.
exchange:OTC
filing_type:10-K
|
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