Form 6-K - Report of foreign issuer [Rules 13a-16 and 15d-16]

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 6-K

REPORT OF FOREIGN PRIVATE ISSUER PURSUANT TO RULE 13a-16 OR 15d-16

UNDER THE SECURITIES EXCHANGE ACT OF 1934

For the month of August, 2024.

Commission File Number 000-56261

Glass House Brands Inc.

(Translation of registrant’s name into English)

3645 Long Beach Blvd.

Long Beach, California 90807

(Address of principal executive office)

Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F.

Form 20-F ¨ Form 40-F x

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


			Glass House Brands Inc.

Date: August 13, 2024			/s/ Kyle Kazan
			By: Kyle Kazan
			Title: Chief Executive Officer

EXHIBIT INDEX


Exhibit Number						Description

99.1						Unaudited Condensed Interim Consolidated Financial Statements as of June 30 , 2024 and December 31, 2023 and for the Three and Si x Months Ended June 30 , 2024 and 2023

99.2						Management’s Discussion and Analysis of Financial Condition and Unaudited Results of Operations for the Three and Six Months Ended June 30 , 2024 and 2023

99.3						Form 52-109F2 Certification of Interim Filings – CFO

99.4						Form 52-109F2 Certification of Interim Filings – CEO

Exhibit 99.1

GLASS HOUSE BRANDS INC.

UNAUDITED CONDENSED INTERIM

CONSOLIDATED FINANCIAL STATEMENTS

AS OF

JUNE 30, 2024 AND DECEMBER 31, 2023

AND FOR THE THREE AND SIX MONTHS ENDED
JUNE 30, 2024 AND 2023

Notice to Reader

Please be advised that the following changes were made to the Unaudited Condensed Interim Consolidated Financial Statements related to the accounting treatment for the three and six month periods ended June 30, 2023:

•Reclassifications to conform with current year presentation.

•Correction of certain intercompany sales transacted through third-party distributors that were previously presented as third-party sales and not eliminated.

•Correction of distributor fees from consumer packaged goods sales included in cost of goods which should have been a reduction in revenues.

•Corrections of purchase price allocations and impairments.

•Tax adjustments related to the above.

The impact of the restatement on the financial statements relates solely to accounting changes made to previously disclosed transactions. The cumulative impact on the financial statements is further described in Note 3 – Correction of Error in Previously Issued Financial Statements.

August 13, 2024

To the Board of Directors and Shareholders of Glass House Brands Inc.:

The accompanying amended and restated financial statements in this interim report were prepared by management of Glass House Brands Inc. (“Glass House Brands” or the “Company”) and were reviewed and approved by the Board of Directors of Glass House Brands.

Management is responsible for the amended and restated financial statements and believes that they fairly present the Company’s financial condition and results of operation in conformity with accounting standards generally accepted in the United States of America. Management has included in the Company’s amended and restated financial statements amounts based on estimates and judgments that it believes are reasonable, under the circumstances.

These amended and restated financial statements have been reviewed by the Company’s auditor, Macias Gini & O’Connell LLP.

GLASS HOUSE BRANDS INC.

Table of Contents


			Page(s)

Unaudited Condensed Interim Consolidated Balance Sheets			1

Unaudited Condensed Interim Consolidated Statements of Operations			2

Unaudited Condensed Interim Consolidated Statements of Changes in Shareholders’ Equity			3 - 4

Unaudited Condensed Interim Consolidated Statements of Cash Flows			5 - 6

Notes to Unaudited Condensed Interim Consolidated Financial Statements			7 – 34

GLASS HOUSE BRANDS INC.

Condensed Consolidated Balance Sheets

(Amounts Expressed in United States Dollars in Thousands, Except Share Data, Unless Otherwise Stated)


	June 30, 2024		December 31, 2023
ASSETS
Current Assets:
Cash	$	22,879	$	29,524
Restricted Cash	3,000		3,000
Accounts Receivable, Net	7,717		3,979
Prepaid Expenses and Other Current Assets	4,366		3,873
Inventory	14,503		8,840
Total Current Assets	52,465		49,216
Operating Lease Right-of-Use Assets, Net	8,168		8,960
Finance Lease Right-of-Use Assets, Net	2,545		1,900
Long Term Investments	2,251		2,327
Property, Plant and Equipment, Net	215,179		215,686
Intangible Assets, Net	20,868		21,213
Other Assets	4,367		4,473
TOTAL ASSETS	$	305,843	$	303,775
LIABILITIES AND SHAREHOLDERS’ EQUITY
LIABILITIES:
Current Liabilities:
Accounts Payable and Accrued Liabilities	$	33,739	$	26,932
Income Taxes Payable	7,712		7,879
Contingent Shares and Earnout Liabilities	33,132		34,589
Shares Payable	5,825		8,570
Current Portion of Operating Lease Liabilities	1,269		1,452
Current Portion of Finance Lease Liabilities	681		387
Current Portion of Notes Payable	7,552		7,550
Total Current Liabilities	89,910		87,359
Operating Lease Liabilities, Net of Current Portion	7,127		7,704
Finance Lease Liabilities, Net of Current Portion	1,799		1,520
Other Non-Current Liabilities	6,624		5,443
Notes Payable, Net of Current Portion	53,699		56,513
TOTAL LIABILITIES	159,159		158,539
MEZZANINE NON-CONTROLLING INTEREST:
GH Group, Inc. Preferred Series B Shares (no par value, 55,000 shares authorized, 49,969 shares issued and outstanding as of June 30, 2024 and December 31, 2023)	60,881		57,545
GH Group, Inc. Preferred Series C Shares (no par value, 5,000 shares authorized, 5,000 shares issued and outstanding as of June 30, 2024 and December 31, 2023)	5,927		5,608
GH Group, Inc. Preferred Series D Shares (no par value, 15,000 shares authorized, 15,000 shares issued and outstanding as of June 30, 2024 and December 31, 2023)	15,000		15,000
SHAREHOLDERS' EQUITY:
Multiple Voting Shares (no par value, unlimited shares authorized, 4,754,979 shares issued and outstanding as of June 30, 2024 and December 31, 2023)	—		—
Subordinate Voting Shares (no par value, unlimited shares authorized, 66,528,007 and 61,986,686 shares issued and outstanding as of June 30, 2024 and December 31, 2023, respectively)	—		—
Exchangeable Shares (no par value, unlimited shares authorized, 7,842,380 and 8,953,951 shares issued and outstanding as of June 30, 2024 and December 31, 2023, respectively)	—		—
Additional Paid-In Capital	294,325		280,696
Accumulated Deficit	(199,270)		(190,935)
Total Shareholders' Equity Attributable to the Company	95,055		89,761
Non-Controlling Interest	(30,179)		(22,678)
TOTAL SHAREHOLDERS' EQUITY	146,684		145,236
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	305,843	$	303,775

The accompanying notes are an integral part of these Unaudited Condensed Interim Consolidated Financial Statements.

- 1 -

GLASS HOUSE BRANDS INC.

Unaudited Condensed Interim Consolidated Statements of Operations

(Amounts Expressed in United States Dollars in Thousands, Except Share and Per Share Data, Unless Otherwise Stated)


	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2024		2023		2024		2023
			As Restated, Note 3				As Restated, Note 3
Revenues, Net	$	53,938	$	44,665	$	84,038	$	72,220
Cost of Goods Sold (Exclusive of Depreciation and Amortization Shown Separately Below)	25,264		20,293		42,838		35,274
Gross Profit	28,674		24,372		41,200		36,946
Operating Expenses:
General and Administrative	17,366		13,055		30,894		24,441
Sales and Marketing	682		997		1,159		1,649
Professional Fees	1,860		2,200		5,523		3,700
Depreciation and Amortization	3,723		3,570		7,439		7,406
Impairment Expense for Goodwill	—		—		—		14,144
Impairment Expense for Intangible Assets	—		1,328		—		6,854
Total Operating Expenses	23,631		21,150		45,015		58,194
Income (Loss) from Operations	5,043		3,222		(3,815)		(21,248)
Other (Income) Expense:
Interest Expense	2,593		2,547		4,799		4,627
Interest Income	—		—		—		(45)
(Gain) Loss on Equity Method Investments	94		(36)		76		2,228
(Gain) Loss on Change in Fair Value of Derivative Asset	(32)		143		(145)		130
(Gain) Loss on Change in Fair Value of Contingent Liabilities and Shares Payable	(7,910)		19,100		(1,445)		22,510
Other Expense, Net	56		1,127		93		1,370
Total Other (Income) Expense, Net	(5,199)		22,881		3,378		30,820
Income (Loss) From Operations Before Provision for Income Taxes	10,242		(19,659)		(7,193)		(52,068)
Provision for Income Taxes	203		5,293		1,037		7,667
Net Income (Loss)	10,039		(24,952)		(8,230)		(59,735)
Net Income to Non-Controlling Interest	43		100		105		63
Net Income (Loss) Attributable to the Company	$	9,996	$	(25,052)	$	(8,335)	$	(59,798)

Income (Loss) Per Share - Basic	$	0.08	$	(0.39)	$	(0.22)	$	(0.92)
Income (Loss) Per Share - Diluted	$	0.08	$	(0.39)	$	(0.22)	$	(0.92)

Weighted-Average Shares Outstanding - Basic	73,807,711		71,092,510		73,522,518		71,673,212
Weighted-Average Shares Outstanding - Diluted	82,232,068		71,092,510		73,522,518		71,673,212

The accompanying notes are an integral part of these Unaudited Condensed Interim Consolidated Financial Statements.

- 2 -

GLASS HOUSE BRANDS INC.

Unaudited Condensed Interim Consolidated Statements of Changes in Shareholders’ Equity

(Amounts Expressed in United States Dollars in Thousands, Except Share Data, Unless Otherwise Stated)


	Units	Units	Units							$ Amount		$ Amount		$ Amount
	Multiple Voting Shares	Equity Shares	Exchangeable Voting Shares	Additional Paid- In Capital		Accumulated Deficit		TOTAL EQUITY ATTRIBUTABLE TO SHAREHOLDERS		Mezzanine Non- Controlling Equity Preferred Series B		Mezzanine Non- Controlling Equity Preferred Series C		Mezzanine Non- Controlling Equity Preferred Series D		Non- Controlling Interest		TOTAL SHAREHOLDERS' EQUITY
BALANCE AS OF DECEMBER 31, 2023	4,754,979	61,986,686	8,953,951	$	280,696	$	(190,935)	$	89,761	$	57,545	$	5,608	$	15,000	$	(22,678)	$	145,236
Net Income (Loss)	—	—	—	—		(18,331)		(18,331)		—		—		—		62		(18,269)
Share-Based Compensation from Options and Restricted Stock Units	—	—	—	3,272		—		3,272		—		—		—		—		3,272
Shares Issued for Exercise of Warrants	—	27,400	—	—		—		—		—		—		—		—		—
Shares Issued for Conversion of Exchangeable Shares	—	481,689	(481,689)	—		—		—		—		—		—		—		—
Shares Issued for Vesting of Restricted Stock Units	—	195,710	—	—		—		—		—		—		—		—		—
Shares Issued for Exercise of Options	—	65,883	—	149		—		149		—		—		—		—		149
Distributions to Non-Controlling Interest Holders	—	—	—	—		—		—		—		—		—		(47)		(47)
Dividends - Preferred Shareholders	—	—	—	—		—		—		1,627		155		—		(3,720)		(1,938)
BALANCE AS OF MARCH 31, 2024	4,754,979	62,757,368	8,472,262	284,117		(209,266)		74,851		59,172		5,763		15,000		(26,383)		128,403
Net Income	—	—	—	—		9,996		9,996		—		—		—		43		10,039
Share-Based Compensation from Options and Restricted Stock Units	—	—	—	3,621		—		3,621		—		—		—		—		3,621
Shares Issued for Exercise of Warrants	—	27,356	—	100		—		100		—		—		—		—		100
Shares Issued for Conversion of Exchangeable Shares	—	629,882	(629,882)	—		—		—		—		—		—		—		—
Shares Issued for Vesting of Restricted Stock Units	—	1,147,022	—	—		—		—		—		—		—		—		—
Shares Issued for Exercise of Options	—	153,520	—	369		—		369		—		—		—		—		369
Shares Issued for 2023 Bonus	—	286,406	—	2,715		—		2,715		—		—		—		—		2,715
Shares Issued for Vested GH Group Non-Qualified Options	—	1,433,810	—	2,757		—		2,757		—		—		—		—		2,757
Shares Issued for Payment of Interest on Convertible Debentures	—	92,643	—	646		—		646		—		—		—		—		646
Distributions to Non-Controlling Interest Holders	—	—	—	—		—		—		—		—		—		(31)		(31)
Dividends - Preferred Shareholders	—	—	—	—		—		—		1,709		164		—		(3,808)		(1,935)
BALANCE AS OF JUNE 30, 2024	4,754,979	66,528,007	7,842,380	$	294,325	$	(199,270)	$	95,055	$	60,881	$	5,927	$	15,000	$	(30,179)	$	146,684

The accompanying notes are an integral part of these Unaudited Condensed Interim Consolidated Financial Statements.

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GLASS HOUSE BRANDS INC.

Unaudited Condensed Interim Consolidated Statements of Changes in Shareholders’ Equity

(Amounts Expressed in United States Dollars in Thousands, Except Share Data, Unless Otherwise Stated)


	Units	Units	Units							$ Amount		$ Amount		$ Amount
	Multiple Voting Shares	Equity Shares	Exchangeable Voting Shares	Additional Paid- In Capital		Accumulated Deficit		TOTAL EQUITY ATTRIBUTABLE TO SHAREHOLDERS		Mezzanine Non- Controlling Equity Preferred Series B		Mezzanine Non- Controlling Equity Preferred Series C		Mezzanine Non- Controlling Equity Preferred Series D		Non- Controlling Interest		TOTAL SHAREHOLDERS' EQUITY
BALANCE AS OF DECEMBER 31, 2022	4,754,979	55,653,855	12,566,550	$	261,527	$	(92,665)	$	168,862	$	51,774	$	4,760	$	—	$	(4,262)	$	221,134
Net Loss	—	—	—	—		(34,746)		(34,746)		—		—		—		(37)		(34,783)
Share-Based Compensation from Options and Restricted Stock Units	—	—	—	1,631		—		1,631		—		—		—		—		1,631
Issuance of Series C Preferred Shares and Warrants	—	—	—	84		—		84		—		216		—		—		300
Adjustment of Series C Preferred Shares to Redemption Value	—	—	—	—		—		—		—		84		—		(84)		—
Shares Issued for Conversion of Exchangeable Shares	—	1,602,345	(1,602,345)	—		—		—		—		—		—		—		—
Shares Issued for Vesting of Restricted Stock Units	—	155,721	—	—		—		—		—		—		—		—		—
Distributions to Non-Controlling Interest Holders	—	—	—	—		—		—		—		—		—		(46)		(46)
Dividends - Preferred Shareholders	—	—	—	—		—		—		1,340		125		—		(2,832)		(1,367)
BALANCE AS OF MARCH 31, 2023	4,754,979	57,411,921	10,964,205	263,242		(127,411)		135,831		53,114		5,185		—		(7,261)		186,869
Net Income (Loss)	—	—	—	—		(25,052)		(25,052)		—		—		—		100		(24,952)
Share-Based Compensation from Options and Restricted Stock Units	—	—	—	1,532		—		1,532		—		—		—		—		1,532
Shares Issued for Shares Payable - Plus Business Acquisition	—	1,300,006	—	4,446		—		4,446		—		—		—		—		4,446


Issuance for Payment of Interest on Convertible Debentures	—	130,984	—	645		—		645		—		—		—		—		645
Shares Issued for Conversion of Exchangeable Shares	—	1,499,529	(1,499,529)	—		—		—		—		—		—		—		—
Shares Issued for Vesting of Restricted Stock Units	—	222,674	—	—		—		—		—		—		—		—		—
Distributions to Non-Controlling Interest Holders	—	—	—	—		—		—		—		—		—		(45)		(45)
Dividends - Preferred Shareholders	—	—	—	—		—		—		1,405		134		—		(2,915)		(1,376)
BALANCE AS OF JUNE 30, 2023	4,754,979	60,565,114	9,464,676	$	269,865	$	(152,463)	$	117,402	$	54,519	$	5,319	$	—	$	(10,121)	$	167,119

The accompanying notes are an integral part of these Unaudited Condensed Interim Consolidated Financial Statements.

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GLASS HOUSE BRANDS INC.

Unaudited Condensed Interim Consolidated Statements of Cash Flows

(Amounts Expressed in United States Dollars in Thousands Unless Otherwise Stated)


	Six Months Ended
	June 30,
	2024		2023
			As Restated, Note 3
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss	$	(8,230)	$	(59,735)
Adjustments to Reconcile Net Loss to Net Cash Provided by Operating Activities:
Deferred Tax Benefit	—		(279)
Bad Debt Expense, Net of Recoveries	145		935
Interest Capitalized to Notes Receivable	—		(45)
Loss on Disposal of Property and Equipment	—		110
Depreciation and Amortization	7,439		7,406
Loss on Equity Method Investments	76		2,228
Impairment Expense for Goodwill	—		14,144
Impairment Expense for Intangible Assets	—		6,854
Non-Cash Operating Lease Costs	792		578
Accretion of Debt Discount and Loan Origination Fees	966		1,004
(Gain) Loss on Change in Fair Value of Derivative Asset	(145)		130
(Gain) Loss on Change in Fair Value of Contingent Liabilities and Shares Payable	(1,445)		22,510
Share-Based Compensation	6,893		3,163
Changes in Operating Assets and Liabilities:
Accounts Receivable	(3,883)		265
Prepaid Expenses and Other Current Assets	(493)		3,919
Inventory	(5,663)		(4,332)
Other Assets	176		(54)
Accounts Payable and Accrued Liabilities	10,263		6,585
Interest on Finance Leases	(120)		(55)
Income Taxes Payable	(167)		7,186
Operating Lease Liabilities	(760)		(515)
Other Non-Current Liabilities	1,181		721
NET CASH PROVIDED BY OPERATING ACTIVITIES	7,025		12,723
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of Property and Equipment	(6,317)		(1,295)
Proceeds From Payments on Note Receivable	—		63
Issuance of Note Receivable	—		(341)
NET CASH USED IN INVESTING ACTIVITIES	(6,317)		(1,573)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from the Issuance of Notes Payable	—		42
Proceeds from the Issuance of Preferred Shares	—		300
Payments on Finance Lease	(242)		(87)
Payments on Notes Payable	(3,778)		(25)
Cash Received for Exercise of Options and Warrants	618		—
Distributions to Non-Controlling Interest Holders	(78)		(91)
Distributions to Preferred Shareholders	(3,873)		(2,743)
NET CASH USED IN FINANCING ACTIVITIES	(7,353)		(2,604)
NET INCREASE (DECREASE) IN CASH, RESTRICTED CASH AND CASH EQUIVALENTS	(6,645)		8,546
Cash, Restricted Cash and Cash Equivalents, Beginning of Period	32,524		14,144
CASH, RESTRICTED CASH AND CASH EQUIVALENTS, END OF PERIOD	$	25,879	$	22,690

The accompanying notes are an integral part of these Unaudited Condensed Interim Consolidated Financial Statements.

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GLASS HOUSE BRANDS INC.

Unaudited Condensed Interim Consolidated Statements of Cash Flows

(Amounts Expressed in United States Dollars in Thousands Unless Otherwise Stated)


	Six Months Ended
	June 30,
	2024		2023
			As Restated, Note 3
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash Paid for Interest	$	2,978	$	3,166
Cash Paid for Taxes	25		40
Non-Cash Investing and Financing Activities:
Recognition of Right-of-Use Assets for Finance Leases	937		1,745

Shares Issued to Settle Shares Payable - Plus Business Acquisition	—		4,446
Reclassification of Turlock Notes Receivable for Acquired Assets of NHC Turlock	—		1,578
Shares Issued for Payment of Interest on Convertible Debentures	646		645
Shares Issued for 2023 Bonus	2,715		—
Issuance for Shares Reserved from Vested GH Group Non-Qualified Options	2,757		—
Interest Capitalized to Property and Equipment	—		179
Adjustment of Preferred Shares to Redemption Value	—		84

The accompanying notes are an integral part of these Unaudited Condensed Interim Consolidated Financial Statements.

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GLASS HOUSE BRANDS INC.

Notes to Unaudited Condensed Interim Consolidated Financial Statements

(Amounts Expressed in United States Dollars Unless Otherwise Stated)

1. NATURE OF OPERATIONS

Glass House Brands Inc. (the “Company”), formerly known as Mercer Park Brand Acquisition Corp. (“Mercer Park”), was incorporated under the Business Corporations Act (British Columbia) on April 16, 2019. The Company is a vertically integrated cannabis company that operates exclusively in the state of California. The Company, through its subsidiaries cultivates, manufactures, and distributes cannabis bulk flower and trim to wholesalers and consumer packaged goods to third-party retail stores in the state of California. The Company also owns and operates retail cannabis stores in the state of California. The Company’s subordinate voting shares (“Subordinate Voting Shares”), restricted voting shares (“Restricted Voting Shares”) and limited voting shares (“Limited Voting Shares”, and collectively with the Subordinate Voting Shares and the Restricted Voting Shares, the “Equity Shares”), and common share purchase warrants are listed on the NEO Exchange Inc., trading under the symbols “GLAS.A.U” and “GLAS.WT.U,” respectively. The Equity Shares and common share purchase warrants also trade on the OTCQX in the United States under the symbols “GLASF” and “GHBWF,” respectively. The head office and principal address of the Company is 3645 Long Beach Boulevard, Long Beach, California 90807. The Company’s registered office in Canada is 666 Burrard Street, Suite 2500, Vancouver, BC V6C 2X8 Canada.

Liquidity

Historically, the Company’s primary source of liquidity has been its operations, capital contributions made by equity investors and debt issuances. The Company is meeting its current operational obligations as they become due from its current working capital and from operations. However, the Company has sustained losses since inception and may require additional capital in the future. As of and for the six months ended June 30, 2024, the Company had an accumulated deficit of $199.3 million, a net loss attributable to the Company of $8.3 million and net cash provided by operating activities of $7.0 million. The Company estimates that based on current business operations and working capital, it will continue to meet its obligations as they become due in the short term.

The Company is generating cash from revenues and deploying its capital reserves to acquire and develop assets capable of producing additional revenues and earnings over both the immediate and near term. Capital reserves are primarily being utilized for capital expenditures, facility improvements, product development and marketing.

Liquidity risk is the risk that the Company will not be able to meet its financial obligations associated with financial liabilities. The Company manages its liquidity risk through the management of its capital structure. The Company’s approach to managing liquidity is to ensure that it will have sufficient liquidity to settle obligations and liabilities when due. In the event sufficient cash flow is not available from operating activities, the Company may continue to raise equity or debt capital from investors in order to meet liquidity needs. If the Company is not able to secure adequate additional funding, the Company may be forced to make reductions in spending, extend payment terms with suppliers, liquidate assets where possible, or suspend or curtail planned programs. Any of these actions could materially harm the Company’s business, results of operations and future prospects. There can be no assurance that such financing will be available or will be on terms acceptable to the Company.

The significant accounting policies and critical estimates applied by the Company in these Unaudited Condensed Interim Consolidated Financial Statements are the same as those applied in the Company’s audited Consolidated Financial Statements and accompanying notes for the year ended December 31, 2023 and 2022, unless disclosed otherwise below. The Company’s audited Consolidated Financial Statements for the year ended December 31, 2023 and 2022, filed on April 1, 2024, can be found on SEDAR+ at www.sedarplus.ca.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Preparation

The accompanying Unaudited Condensed Interim Consolidated Financial Statements have been prepared on a going concern basis in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and reflect the accounts and operations of the Company and those of the Company’s subsidiaries in which the Company has a controlling financial interest. Investments in entities in which the Company has significant influence, but less than a controlling financial interest, are accounted for using the equity method.

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GLASS HOUSE BRANDS INC.

Notes to Unaudited Condensed Interim Consolidated Financial Statements

(Amounts Expressed in United States Dollars Unless Otherwise Stated)

All intercompany transactions and balances have been eliminated in consolidation. In the opinion of management, all adjustments (consisting only of normal recurring adjustments) considered necessary for a fair presentation of the consolidated financial position of the Company as of June 30, 2024 and December 31, 2023, the consolidated results of operations for the three and six months ended June 30, 2024 and 2023 and cash flows for the six months ended June 30, 2024 and 2023 have been included.

The accompanying Unaudited Condensed Interim Consolidated Financial Statements do not include all of the information required for full annual financial statements. Accordingly, certain information, footnotes and disclosures normally included in the annual financial statements, prepared in accordance with GAAP, have been condensed or omitted. The financial data presented herein should be read in conjunction with the Company’s audited Consolidated Financial Statements for the year ended December 31, 2023, and the related notes thereto, and have been prepared using the same accounting policies described therein.

Basis of Consolidation

These Unaudited Condensed Interim Consolidated Financial Statements as of June 30, 2024 and for the three and six months ended June 30, 2024 and 2023 include the accounts of the Company, its wholly-owned subsidiaries and entities over which the Company has control as defined in Accounting Standards Codification (“ASC”) 810, Consolidation. Subsidiaries over which the Company has control are fully consolidated from the date control commences until the date control ceases. Control exists when the Company has ownership of a majority voting interest, and, therefore, as a general rule ownership by one reporting entity, directly or indirectly, of more than fifty percent of the outstanding voting securities of another entity. In assessing control, potential voting rights that are currently exercisable are considered.

Non-Controlling Interest

Non-controlling interest represents equity interests owned by parties that are not shareholders of the ultimate parent. The share of net assets attributable to non-controlling interests is presented as a component of equity. Their share of net income or loss is recognized directly in equity. Changes in the parent company’s ownership interest that do not result in a loss of control are accounted for as equity transactions.

Segmented Information

The Company currently operates in three reportable segments which are retail, wholesale biomass and cannabis-related consumer packaged goods (“CPG”). All of the Company’s operations are in the United States of America in the State of California. Intercompany sales and transactions are eliminated in consolidation. See Note 20 – Segment Information for further information.

Employee Retention Tax Credits

On March 27, 2020, the U.S. government enacted the Coronavirus Aid Relief and Security Act (“CARES Act”) to provide certain relief as a result of the COVID-19 pandemic. The CARES Act provides tax relief, along with other stimulus measures, including a provision for an Employee Retention Credit (“ERC”). As there is no authoritative guidance under GAAP on accounting for government assistance to for-profit business entities, the Company accounts for the ERC by analogy to International Accounting Standard (“IAS”) 20, Accounting for Government Grants and Disclosure of Government Assistance. Since the filing of the ERCs through June 30, 2024, the Company filed with the Internal Revenue Service credits totaling $11.6 million. The Company will not recognize the amounts claimed until it has been determined that the Company has reasonable assurance that the credits will be realized.

Restricted Cash

Restricted cash balances are those which meet the definition of cash and cash equivalents but are not available for use by the Company. As of June 30, 2024 and December 31, 2023, restricted cash was $3.0 million in each period, which is held in an escrow account and used as an interest reserve for the senior term loan agreement. See Note 13 – Notes Payable and Convertible Debentures for further discussion.

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GLASS HOUSE BRANDS INC.

Notes to Unaudited Condensed Interim Consolidated Financial Statements

(Amounts Expressed in United States Dollars Unless Otherwise Stated)

Loss per Share

The Company calculates basic earnings or loss per share by dividing net earnings or loss by the weighted-average number of the Equity Shares (including the Exchangeable Shares, as defined herein, on an as-exchanged basis) outstanding during the period. Multiple Voting Shares, as defined herein, are excluded from the calculation of earnings or loss per share as they do not participate in earnings or losses. Diluted loss per share is the same as basic loss per share if the issuance of shares on the exercise of convertible debentures, contingent shares, warrants, restricted stock units and share options are anti-dilutive. Diluted earnings per share includes options, warrants, restricted stock units, and contingently issuable shares that are determined to be dilutive using the treasury stock method for all equity instruments issuable in equity units and the “if converted” method for the Company’s convertible debentures. See Note 16 – Income (Loss) Per Share for further information.

Recently Adopted Accounting Pronouncements

ASU 2023-01

In March 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2023-01, Leases (Topic 842): Common Control Arrangements, which requires an entity to determine whether a related party arrangement between entities under common control is a lease. If the arrangement is determined to be a lease, an entity must classify and account for the lease on the same basis as an arrangement with an unrelated party (on the basis of legally enforceable terms and conditions). ASU 2023-01 also requires a lessee in a common-control lease arrangement to amortize leasehold improvements over the improvements’ useful life to the common control group regardless of the lease term if the lessee continues to control the use of the underlying asset through a lease. The Company adopted ASU 2023-01 on January 1, 2024. The adoption of the standard did not have a material impact on the Company’s Unaudited Condensed Interim Consolidated Financial Statements.

Recent Accounting Pronouncements Not Yet Adopted

ASU 2023-09

In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, which requires annual disclosures of specific categories in the rate reconciliation, additional information for reconciling items that meet a quantitative threshold and a disaggregation of income taxes paid, net of refunds. ASU 2023-09 also eliminates certain existing disclosure requirements related to uncertain tax positions and unrecognized deferred tax liabilities. ASU 2023-09 is effective for the Company beginning with the 2025 annual report. Early adoption is permitted. ASU 2023-09 should be applied prospectively. Retrospective adoption is permitted. The Company is currently assessing the impact this standard will have on the Company’s Consolidated Financial Statements.

ASU 2023-07

In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures, which is intended to improve the financial reporting by requiring disclosure of incremental segment information on an annual and interim basis for all public entities. ASU 2023-07 is effective for the Company beginning with the 2024 annual report. Early adoption is permitted. ASU 2023-07 should be applied retrospectively to all periods presented in the financial statements. The Company is currently assessing the impact this standard will have on the Company’s Consolidated Financial Statements.

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GLASS HOUSE BRANDS INC.

Notes to Unaudited Condensed Interim Consolidated Financial Statements

(Amounts Expressed in United States Dollars Unless Otherwise Stated)

3. CORRECTION OF ERROR IN PREVIOUSLY ISSUED FINANCIAL STATEMENTS

Subsequent to the issuance of the Consolidated Financial Statements as of June 30, 2023 and for the three and six months ended June 30, 2023, the Company discovered misclassifications and oversights which impacted the presentation of the financial statements. In particular, the Company identified certain distributor fees from consumer packaged goods sales included in cost of goods sold which should have been direct reductions to revenues, certain intercompany sales transacted through third-party distributors that were presented as third-party sales, correction of purchase price allocations and impairment of goodwill for certain acquisitions recognized in the first quarter of fiscal year 2023 that have been recognized in fiscal year 2022.

The Company has reviewed applicable accounting guidance and deemed these misclassifications and oversights as errors to previously issued financial statements under ASC 250, Accounting Changes and Error Corrections. As a result, adjustments were made to certain financial statement line items of the consolidated balance sheets, consolidated statements of operations and consolidated statements of cash flows as of, and for the three and six months ended June 30, 2023. The Company performed detailed reviews and analyses of all other financial statement line items and accounting policies and noted additional corrections were required.

Adjustments and reclassifications as noted in the following schedules are as follows:

(1) Reclassifications to conform with current year presentation.

(2) Correction of certain intercompany sales transacted through third-party distributors that were previously presented as third-party sales and not eliminated.

(3) Correction of distributor fees from consumer packaged goods sales included in cost of goods which should have been a reduction in revenues.

(4) Corrections of purchase price allocations and impairments.

(5) Tax adjustments related to the above.

- 10 -

GLASS HOUSE BRANDS INC.

Notes to Unaudited Condensed Interim Consolidated Financial Statements

(Amounts Expressed in United States Dollars Unless Otherwise Stated)

The following tables present the summary impacts of the adjustments on the Company’s previously reported Unaudited Condensed Consolidated Balance Sheet as of June 30, 2023 (in thousands, except share data):


	Previously Reported		Reclassifications			Adjustments			As Corrected
ASSETS
Current Assets:
Cash	$	19,690	$	—		$	—		$	19,690
Restricted Cash	3,000		—			—			3,000
Accounts Receivable, Net	3,589		—			—			3,589
Prepaid Expenses and Other Current Assets	4,317		(241)		(1)	(239)		(2)	3,837
Inventory	16,699		(801)		(1)	(366)		(2)	15,532
Total Current Assets	47,295		(1,042)			(605)			45,648
Operating Lease Right-of-Use Assets, Net	10,269		—			—			10,269
Finance Lease Right-of-Use Assets, net	1,943		—			—			1,943
Long Term Investments	2,018		—			—			2,018
Property, Plant and Equipment, Net	211,134		—			—			211,134
Intangible Assets, Net	29,570		—			170		(4)	29,740
Goodwill	17,228		—			6,426		(4)	23,654
Deferred Tax Asset	1,569		—			222		(5)	1,791
Other Assets	3,573		1,042		(1)	—			4,615
TOTAL ASSETS	$	324,599	$	—		$	6,213		$	330,812
LIABILITIES AND SHAREHOLDERS’ EQUITY
LIABILITIES:
Current Liabilities:
Accounts Payable and Accrued Liabilities	$	28,032	$	—		$	—		$	28,032
Income Taxes Payable	14,736		—			51		(5)	14,787
Contingent Shares and Earnout Liabilities	32,714		—			—			32,714
Shares Payable	8,595		—			—			8,595
Current Portion of Operating Lease Liabilities	1,169		—			—			1,169
Current Portion of Finance Lease Liabilities	337		—			—			337
Current Portion of Notes Payable	49		—			—			49
Total Current Liabilities	85,632		—			51			85,683
Operating Lease Liabilities, Net of Current Portion	9,253		—			—			9,253
Finance Lease Liabilities, Net of Current Portion	1,602		—			—			1,602
Other Non-Current Liabilities	5,013		—			(1,490)		(5)	3,523
Notes Payable, Net of Current Portion	63,632		—			—			63,632
TOTAL LIABILITIES	165,132		—			(1,439)			163,693
MEZZANINE NON-CONTROLLING INTEREST:
GH Group, Inc. Preferred Series B Shares (no par value, 55,000 shares authorized, 49,969 shares issued and outstanding as of June 30, 2023 and December 31, 2022)	54,519		—			—			54,519
GH Group, Inc. Preferred Series C Shares (no par value, 5,000 shares authorized, 5,000 and 4,700 shares issued and outstanding as of June 30, 2023 and December 31, 2022, respectively)	5,319		—			—			5,319
SHAREHOLDERS' EQUITY:
Multiple Voting Shares (no par value, unlimited shares authorized, 4,754,979 shares issued and outstanding as of June 30, 2023 and December 31, 2022)	—		—			—			—
Subordinate Voting Shares (no par value, unlimited shares authorized, 60,565,114 and 55,653,855 shares issued and outstanding as of June 30, 2023 and December 31, 2022, respectively)	—		—			—			—
Exchangeable Shares (no par value, unlimited shares authorized, 9,464,676 and 12,566,550 shares issued and outstanding as of June 30, 2023 and December 31, 2022, respectively)	—		—			—			—
Additional Paid-In Capital	269,866		—			—			269,866
Accumulated Deficit	(160,100)		—			7,636			(152,464)
Total Shareholders' Equity Attributable to the Company	109,766		—			7,636			117,402
Non-Controlling Interest	(10,137)		—			16			(10,121)
TOTAL SHAREHOLDERS' EQUITY	159,467		—			7,652			167,119
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	324,599	$	—		$	6,213		$	330,812

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GLASS HOUSE BRANDS INC.

Notes to Unaudited Condensed Interim Consolidated Financial Statements

(Amounts Expressed in United States Dollars Unless Otherwise Stated)

The following tables present the summary impacts of the adjustments on the Company’s previously reported Unaudited Condensed Consolidated Statement of Operations for three months ended June 30, 2023 (in thousands, except share and per share data):


	Previously Reported		Adjustments			As Corrected
Revenues, Net	$	44,665	$	—		$	44,665
Cost of Goods Sold (Exclusive of Depreciation and Amortization Shown Separately Below)	20,293		—			20,293
Gross Profit	24,372		—			24,372
Operating Expenses:
General and Administrative	13,055		—			13,055
Sales and Marketing	997		—			997
Professional Fees	2,200		—			2,200
Depreciation and Amortization	3,570		—			3,570
Impairment Expense for Intangible Assets	1,328		—			1,328
Total Operating Expenses	21,150		—			21,150
Income from Operations	3,222		—			3,222
Other (Income) Expense:
Interest Expense	2,547		—			2,547

Gain on Equity Method Investments	(36)		—			(36)
Loss on Change in Fair Value of Derivative Asset	143		—			143
Loss on Change in Fair Value of Contingent Liabilities and Shares Payable	19,100		—			19,100
Other Expense, Net	1,127		—			1,127
Total Other Expense, Net	22,881		—			22,881
Loss from Operations Before Provision for Income Tax Expense	(19,659)		—			(19,659)
Provision for Income Tax Expense	5,246		47		(5)	5,293
Net Loss	(24,905)		(47)			(24,952)
Net Loss Attributable to Non-Controlling Interest	100		—			100
Net Loss Attributable to the Company	$	(25,005)	$	(47)		$	(25,052)

Loss Per Share - Basic and Diluted	$	(0.39)				$	(0.39)

Weighted-Average Shares Outstanding - Basic and Diluted	71,092,510					71,092,510

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GLASS HOUSE BRANDS INC.

Notes to Unaudited Condensed Interim Consolidated Financial Statements

(Amounts Expressed in United States Dollars Unless Otherwise Stated)

The following tables present the summary impacts of the adjustments on the Company’s previously reported Unaudited Condensed Consolidated Statement of Operations for six months ended June 30, 2023 (in thousands, except share and per share data):


	Previously Reported		Adjustments			As Corrected
Revenues, Net	$	73,687	$	(1,467)	(2)(3)	$	72,220
Cost of Goods Sold (Exclusive of Depreciation and Amortization Shown Separately Below)	37,359		(2,085)		(2)(3)	35,274
Gross Profit	36,328		618			36,946
Operating Expenses:
General and Administrative	24,441		—			24,441
Sales and Marketing	1,649		—			1,649
Professional Fees	3,700		—			3,700
Depreciation and Amortization	7,406		—			7,406
Impairment Expense for Goodwill	17,481		(3,337)		(4)	14,144
Impairment Expense for Intangible Assets	6,854		—			6,854
Total Operating Expenses	61,531		(3,337)			58,194
Loss from Operations	(25,203)		3,955			(21,248)
Other (Income) Expense:
Interest Expense	4,627		—			4,627
Interest Income	(45)		—			(45)
Loss on Equity Method Investments	2,228		—			2,228
Loss on Change in Fair Value of Derivative Asset	130		—			130
Loss on Change in Fair Value of Contingent Liabilities and Shares Payable	22,510		—			22,510
Other Expense, Net	1,370		—			1,370
Total Other Expense, Net	30,820		—			30,820
Loss from Operations Before Provision for Income Tax Expense	(56,023)		3,955			(52,068)
Provision for Income Tax Expense	7,667		—			7,667
Net Loss	(63,690)		3,955			(59,735)
Net Loss Attributable to Non-Controlling Interest	47		16		(2)	63
Net Loss Attributable to the Company	$	(63,737)	$	3,939		$	(59,798)

Loss Per Share - Basic and Diluted	$	(0.97)				$	(0.92)

Weighted-Average Shares Outstanding - Basic and Diluted	71,673,212					71,673,212

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GLASS HOUSE BRANDS INC.

Notes to Unaudited Condensed Interim Consolidated Financial Statements

(Amounts Expressed in United States Dollars Unless Otherwise Stated)

The following tables present the summary impacts of the adjustments on the Company’s previously reported Unaudited Condensed Consolidated Statement of Cash Flows for the six months ended June 30, 2023 (in thousands):


	Previously Reported		Reclassifications			Adjustments			As Corrected
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss	$	(63,690)	$	—		$	3,955		$	(59,735)
Adjustments to Reconcile Net Loss to Net Cash Provided by Operating Activities:
Deferred Tax Benefit	(279)		—			—			(279)
Bad Debt Expense, Net of Recoveries	935		—			—			935
Interest Capitalized to Notes Receivable	(45)		—			—			(45)
Loss on Disposal of Property and Equipment	110		—			—			110
Depreciation and Amortization	7,406		—			—			7,406
Loss on Equity Method Investments	2,228		—			—			2,228
Impairment Expense for Goodwill	17,481		—			(3,337)		(4)	14,144
Impairment Expense for Intangible Assets	6,854		—			—			6,854
Non-Cash Operating Lease Costs	578					—			578
Accretion of Debt Discount and Loan Origination Fees	1,004		—			—			1,004
Loss on Change in Fair Value of Derivative Asset	130		—			—			130
Loss on Change in Fair Value of Contingent Liabilities and Shares Payable	22,510		—			—			22,510
Share-Based Compensation	3,163		—			—			3,163
Changes in Operating Assets and Liabilities:
Accounts Receivable	1,129		—			(864)		(2)	265
Prepaid Expenses and Other Current Assets	4,030		(111)		(1)	—			3,919
Inventory	(4,391)		111		(1)	(52)		(2)	(4,332)
Other Assets	(54)		—			—			(54)
Accounts Payable and Accrued Liabilities	6,232		55		(1)	298		(2)	6,585
Interest on Finance Leases	—		(55)		(1)	—			(55)
Income Taxes Payable	7,186		—			—			7,186
Operating Lease Liabilities	(515)		—			—			(515)
Other Non-Current Liabilities	721		—			—			721
NET CASH PROVIDED BY OPERATING ACTIVITIES	12,723		—			—			12,723
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of Property and Equipment	(1,295)		—			—			(1,295)
Proceeds From Payments on Note Receivable	63		—			—			63
Issuance of Note Receivable	(341)		—			—			(341)
NET CASH USED IN INVESTING ACTIVITIES	(1,573)		—			—			(1,573)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from the Issuance of Notes Payable, Third Parties and Related Parties	42		—			—			42
Proceeds from the Issuance of Preferred Shares	300		—			—			300
Payment on Finance Lease	(87)		—			—			(87)
Payments on Notes Payable, Third Parties and Related Parties	(25)		—			—			(25)
Distributions to Non-Controlling Interest Holders	(91)		—			—			(91)
Distributions to Preferred Shareholders	(2,743)		—			—			(2,743)
NET CASH USED IN FINANCING ACTIVITIES	(2,604)		—			—			(2,604)
NET INCREASE IN CASH, RESTRICTED CASH AND CASH EQUIVALENTS	8,546		—			—			8,546
Cash, Restricted Cash and Cash Equivalents, Beginning of Period	14,144		—			—			14,144
CASH, RESTRICTED CASH AND CASH EQUIVALENTS, END OF PERIOD	$	22,690	$	—		$	—		$	22,690

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GLASS HOUSE BRANDS INC.

Notes to Unaudited Condensed Interim Consolidated Financial Statements

(Amounts Expressed in United States Dollars Unless Otherwise Stated)

4. CONCENTRATIONS OF BUSINESS AND CREDIT RISK

The Company maintains cash balances at its physical locations, which are not currently insured, and with various U.S. banks and credit unions with balances in excess of the Federal Deposit Insurance Corporation and National Credit Union Share Insurance Fund limits, respectively. The failure of a bank or credit union where the Company has significant deposits could result in a loss of a portion of such cash balances in excess of the insured limit, which could materially and adversely affect the Company’s business, financial condition and results of operations. As of June 30, 2024 and December 31, 2023, the Company has not experienced any losses with regards to its cash balances.

The Company provides certain credit terms in the normal course of business to customers located throughout California. The Company performs ongoing credit evaluations of its customers and maintains allowances for doubtful accounts based on factors surrounding the credit risk of specific customers, historical and projected future trends and other information. For the three months ended June 30, 2024 and 2023, there was one customer that comprised 20% of the Company’s revenues and one customer that comprised 20% of the Company’s revenues, respectively. For the six months ended June 30, 2024 and 2023, there was one customer that comprised 18% of the Company’s revenues and one customer that comprised 18% of the Company’s revenues, respectively. As of June 30, 2024 and December 31, 2023, the customer had a balance due to the Company of $2.6 million and $0.7 million, respectively.

5. INVENTORY

Inventory consisted of the following (in thousands):


	June 30, 2024		December 31, 2023
Raw Materials	$	1,196	$	1,192
Work-in-Process	7,810		3,327
Finished Goods	5,497		4,321
Total Inventory	$	14,503	$	8,840

6. INVESTMENTS

The Company has various investments in entities in which it holds a significant but non-controlling interest through voting equity or through representation on the entities’ board of directors or equivalent governing bodies. Accordingly, the Company was deemed to have significant influence resulting in the Company accounting for these investments under the equity method (in thousands):


	5042 Real Estate Investment, LLC		Reeform, LLC		Lompoc TIC, LLC		TOTAL
Balance at December 31, 2023	$	1,971	$	164	$	192	$	2,327
Gain (Loss) on Equity Method Investments	96		(164)		(8)		(76)
Balance at June 30, 2024	$	2,067	$	—	$	184	$	2,251

During the three months ended June 30, 2024 and 2023, the Company recorded a net loss and a net gain, respectively, from equity method investments of $94 thousand and $36 thousand, respectively. During the six months ended June 30, 2024 and 2023, the Company recorded net losses from equity method investments of $76 thousand and $2.2 million, respectively. These investments are recorded at the amount of the Company’s initial investment and adjusted for the Company’s share of the investee’s income or loss and dividends paid.

- 15 -

GLASS HOUSE BRANDS INC.

Notes to Unaudited Condensed Interim Consolidated Financial Statements

(Amounts Expressed in United States Dollars Unless Otherwise Stated)

7. PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment consisted of the following (in thousands):


	June 30, 2024		December 31, 2023
Land	$	70,888	$	70,888
Buildings	153,963		143,207
Furniture and Fixtures	1,055		827
Leasehold Improvements	14,878		14,680
Equipment and Software	10,318		9,498
Construction in Progress	4,456		10,166
Total Property, Plant and Equipment	255,558		249,266
Less Accumulated Depreciation and Amortization	(40,379)		(33,580)
Property, Plant and Equipment, Net	$	215,179	$	215,686

During the three months ended June 30, 2024 and 2023, the Company recorded depreciation expense of $3.6 million and $3.3 million, respectively. During the six months ended June 30, 2024 and 2023, the Company recorded depreciation expense of $7.1 million and $6.7 million, respectively. The amount of amortization recognized for finance leases during the three months ended June 30, 2024 and 2023 was $0.1 million and $0.1 million, respectively. The amount of amortization recognized for finance leases during the six months ended June 30, 2024 and 2023 was $0.3 million and $0.1 million, respectively, see Note 12 – Leases for further information. During the three months ended June 30, 2024 and 2023, the Company capitalized interest to property and equipment of nil and $0.1 million, respectively. During the six months ended June 30, 2024 and 2023, the Company capitalized interest to property and equipment of nil and $0.2 million, respectively.

8.  INTANGIBLE ASSETS

Intangible assets consisted of the following (in thousands):


	June 30, 2024		December 31, 2023
Definite Lived Intangible Assets
Customer Relationships	$	587	$	587
Intellectual Property	4,777		4,777
Total Definite Lived Intangible Assets	5,364		5,364
Less Accumulated Amortization	(2,666)		(2,321)
Definite Lived Intangible Assets, Net	2,698		3,043
Indefinite Lived Intangible Assets
Cannabis Licenses	18,170		18,170
Total Indefinite Lived Intangible Assets	18,170		18,170
Total Intangible Assets, Net	$	20,868	$	21,213

During the three months ended June 30, 2024 and 2023, the Company recorded amortization expense related to intangible assets of $0.1 million and $0.2 million, respectively. During the six months ended June 30, 2024 and 2023, the Company recorded amortization expense related to intangible assets of $0.3 million and $0.7 million, respectively. During the six months ended June 30, 2023, the Company recognized $2.0 million and $3.5 million of other than temporary impairment in customer relationships and intellectual property, respectively, related to the Plus Products Holding Inc. (“Plus”) business acquisition as a result of updated earnings projections for unforeseen changes in market demand in the consumer packaged goods market. During the six months ended June 30, 2023, the Company recognized an other than temporary impairment of $1.3 million on the NHC Turlock, LLC (“NHC Turlock”) cannabis license. There were no impairments recognized during the six months ended June 30, 2024.

- 16 -

GLASS HOUSE BRANDS INC.

Notes to Unaudited Condensed Interim Consolidated Financial Statements

(Amounts Expressed in United States Dollars Unless Otherwise Stated)

The following is the future minimum amortization expense to be recognized as of June 30, 2024 for each of the following years (in thousands):


2024 (Remaining)	$	368
2025	723
2026	603
2027	470
2028	123
Thereafter	411
Total Future Amortization Expense	$	2,698

9. GOODWILL

As of June 30, 2024 and December 31, 2023, goodwill was nil.

Goodwill is assigned to the reporting unit, which is the operating segment level or one level below the operating segment. Goodwill arises when the purchase price for acquired businesses exceeds the fair value of tangible and intangible assets acquired less assumed liabilities. Goodwill is reviewed annually for impairment or more frequently if impairment indicators arise. The goodwill impairment test compares the fair value of a reporting unit with its carrying amount. The amount by which the carrying amount exceeds the reporting unit’s fair value is recognized as a goodwill impairment loss. During the six months ended June 30, 2023, management noted indications of impairment on the goodwill of its CPG reporting unit and recorded an impairment expense of $14.1 million as a result of updated earnings projections for unforeseen changes in market demand in the consumer-packaged goods market.

10. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES

Accounts payable and accrued liabilities consisted of the following (in thousands):


	June 30, 2024		December 31, 2023
Accounts Payable	$	10,620	$	5,540
Accrued Liabilities	14,577		13,123
Accrued Payroll and Related Liabilities	4,687		5,351
Sales Tax and Cannabis Taxes	3,855		2,918
Total Accounts Payable and Accrued Liabilities	$	33,739	$	26,932

The Company offers a customer loyalty rewards program that allows members to earn discounts on future purchases. Unused discounts earned by loyalty rewards program members are included in accrued liabilities and recorded as a sales discount at the time a qualifying purchase is made. The value of points accrued as of June 30, 2024 and December 31, 2023, was approximately $0.5 million and $1.1 million, respectively.

11. CONTINGENT SHARES AND EARNOUT LIABILITIES

Activity related to the contingent shares and earnout liabilities consisted of the following (in thousands):


Balance at December 31, 2023	$	34,589
Change in Fair Value of Contingent Liabilities	6,453
Balance at March 31, 2024	41,042
Change in Fair Value of Contingent Liabilities	(7,910)
Balance at June 30, 2024	$	33,132

- 17 -

GLASS HOUSE BRANDS INC.

Notes to Unaudited Condensed Interim Consolidated Financial Statements

(Amounts Expressed in United States Dollars Unless Otherwise Stated)


Balance at December 31, 2022	$	14,657
Change in Fair Value of Contingent Liabilities	3,402
Balance at March 31, 2023	18,059
Contingent Shares Issued	(4,446)
Change in Fair Value of Contingent Liabilities	19,101
Balance at June 30, 2023	$	32,714

During the three months ended June 30, 2024 and 2023, the Company recorded a gain and a loss, respectively, for the change in fair value of contingent liabilities of $7.9 million and $19.1 million, respectively. During the six months ended June 30, 2024 and 2023, the Company recorded a gain and a loss, respectively, for the change in fair value of contingent liabilities of $1.5 million and $22.5 million, respectively.

During the six months ended June 30, 2023, the Company determined the criteria for the $2.0 million of sponsor earnout liability related to the Mercer Park Transaction was not met at the expiration of the term and recorded the change in fair value of contingent consideration. Accordingly, as of June 30, 2023, the sponsor earnout liability was nil. During the six months ended June 30, 2023, the Company reclassified $4.4 million of contingent shares payable to additional paid-in-capital and issued equity shares to settle a share payable contractual requirement related to the Plus business acquisition.

12. LEASES

The following table present components of lease cost (in thousands):


	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2024		2023		2024		2023
Finance Lease Cost:
Amortization of Finance Lease Right-of-Use Assets	$	140	$	73	$	270	$	88
Interest on Lease Liabilities	62		41		120		55
Operating Lease Cost	640		600		1,278		1,201
Short-Term Lease Costs	258		221		564		475
Total Lease Expenses	$	1,100	$	935	$	2,232	$	1,819

Additional information related to the Company’s leases is as follows (in thousands, except lease term and discount rate):


	Six Months Ended
	June 30,
	2024			2023
Cash Paid for Amounts Included in the Measurement of Lease Liabilities:
Operating Cash Flows from Finance Leases	$	114		$	42
Operating Cash Flows from Operating Leases	$	1,247		$	1,138
Financing Cash Flows from Finance Leases	$	242		$	87

Non-Cash Additions to Right-of-Use Assets and Lease Liabilities:
Recognition of Right-of-Use Assets for Finance Leases	$	937		$	1,745

Weighted-Average Remaining Lease Term (Years) - Finance Leases	3			5
Weighted-Average Remaining Lease Term (Years) - Operating Leases	6			7
Weighted-Average Discount Rate - Finance Leases	11.83		%	11.37		%
Weighted-Average Discount Rate - Operating Leases	11.37		%	11.99		%

- 18 -

GLASS HOUSE BRANDS INC.

Notes to Unaudited Condensed Interim Consolidated Financial Statements

(Amounts Expressed in United States Dollars Unless Otherwise Stated)

Future minimum lease payments under non-cancelable finance and operating leases as of June 30, 2024 for each of the following years were as follows (in thousands):


	Operating Leases				Finance Leases
	Third Parties		Related Parties		Third Parties		Total
2024 (Remaining)	$	704	$	428	$	466	$	1,598
2025	1,399		554		972		2,925
2026	1,373		571		768		2,712
2027	1,127		588		585		2,300
2028	537		606		198		1,341
Thereafter	1,601		2,321		—		3,922
Total Future Minimum Lease Payments	6,741		5,068		2,989		14,798
Less: Imputed Interest	(1,833)		(1,580)		(509)		(3,922)
Present Value of Lease Liability	4,908		3,488		2,480		10,876
Less: Current Portion of Lease Liability	(888)		(381)		(681)		(1,950)
Present Value of Lease Liability, Net of Current Portion	$	4,020	$	3,107	$	1,799	$	8,926

On September 14, 2021, the Company entered into an agreement to lease out a portion of its real property at approximately $500 thousand per month for 36 months. However, lease payments to the Company are abated if certain contingencies were met by the lessee. As of June 30, 2024, such contingencies were expected to be met, and as a result, no rental income was recognized by the Company.

The Company leases certain business facilities from related parties and third parties under non-cancellable operating lease agreements that specify minimum rentals. The operating leases require monthly payments ranging from $800 to $56,000 and expire through November 2032. Certain lease monthly payments may escalate up to 5.0% each year. In such cases, the variability in lease payments is included within the current and noncurrent operating lease liabilities.

13. NOTES PAYABLE AND CONVERTIBLE DEBENTURES

Notes payable consisted of the following (in thousands):


	June 30, 2024		December 31, 2023
Term loan payable maturing in November 30, 2026, bearing interest at 12.00 percent per annum	$	45,625	$	49,375
Convertible Debentures	16,006		16,006
Other	407		435
Total Notes Payable	62,038		65,816
Less: Unamortized Debt Issuance Costs and Loan Origination Fees	(787)		(1,753)
Net Amount	61,251		64,063
Less: Current Portion of Notes Payable	(7,552)		(7,550)
Notes Payable, Net of Current Portion	$	53,699	$	56,513

- 19 -

GLASS HOUSE BRANDS INC.

Notes to Unaudited Condensed Interim Consolidated Financial Statements

(Amounts Expressed in United States Dollars Unless Otherwise Stated)

Senior Secured Credit Agreement

On December 9, 2021 (the “Senior Secure Closing Date”), the Company entered into a senior secured term loan agreement, as amended (the “Credit Agreement”), for total available proceeds of up to $100 million with funds managed by a U.S.-based private credit investment fund and other third-party lenders (together, the “Senior Secured Lender”). Effective December 10, 2021, the Company closed on an initial term loan through the Credit Agreement of $50 million. The principal amount under the Credit Agreement will be paid in monthly installments in an aggregate amount equal to 1.25% per annum of the original principal amount, 24 months following the Senior Secure Closing Date, with a maturity date through November 30, 2026. Interest will be paid, beginning December 31, 2021, in monthly installments equal to the floating base rate plus the applicable term margin, or 5.25%. The interest rate will not be less than 10% per annum or exceed 12% per annum. As of June 30, 2024 and December 31, 2023, the interest rate was 12%.

The Company has optional and mandatory prepayments. Mandatory prepayments include any voluntary and involuntary sale or disposition of assets by the Company or any restricted subsidiaries. The outstanding principal amount of the obligation will be repaid by 100% of cash proceeds received from the sale or disposition of assets with certain exemptions as defined in the Credit Agreement. As of the Senior Secure Closing Date, the Company deposited an interest reserve in the amount of $3 million into an escrow account and included as restricted cash in the Condensed Consolidated Balance Sheets as of June 30, 2024 and December 31, 2023. Additionally, the Company’s real properties held in Glass House Farm LLC, Magu Farm LLC and GH Camarillo LLC were pledged as security.

The Credit Agreement contains a financial covenant which requires the Company to maintain liquidity in excess of $10 million at all times. As of June 30, 2024 and December 31, 2023, the Company was in compliance with such financial covenant. Additionally, there are certain covenants which will require the Company to maintain a specific minimum debt service coverage ratio (“DSCR”) which will be measured quarterly beginning with the quarter ending December 31, 2022.

Amendments to the Senior Secured Credit Agreement

On January 21, 2022, the Company amended and restated the Credit Agreement (the “1st Amendment”) wherein certain events of default were waived.

On May 12, 2022, the Company amended and restated the Credit Agreement (the “2nd Amendment”) wherein certain events of default were waived, and the Company entered into an incremental term loan in the amount of $10 million (the “Incremental Term Loan”), for total available proceeds of $110 million. The Incremental Term Loan bears interest at a rate of 10% per annum and payable in monthly installments. In addition, a 1% fee of the outstanding principal amount of the Incremental Term Loan is payable in monthly installments beginning August 1, 2022, with a maturity date through October 31, 2022. In connection with the Incremental Term Loan, the Company issued 175,000 warrants to the Senior Secured Lender, with an exercise price of $11.50 per share, to acquire each Equity Share until June 26, 2026. The fair value of the warrants were determined using Level 1 inputs as these warrants are openly traded on a stock exchange. During the year ended December 31, 2022, the Company recorded an additional debt discount of $89 thousand related to the change in terms of the Credit Agreement. In addition to receiving the $10 million in Incremental Term Loan, the Company paid $0.6 million in direct loan fees, which are recorded as a debt discount. On August 30, 2022, the Company repaid the $10 million Incremental Term Loan in cash.

In March 2023, the Company entered into an amendment to the Credit Agreement by which the Senior Secured Lender waived and deferred enforcement of certain covenants which require the Company to maintain a specific minimum debt service coverage ratio beginning with the quarter ending on June 30, 2023. As of June 30, 2024, the Company was in compliance with the Credit Agreement covenant. In connection with the amendment to the Credit Agreement, the Company will pay an amount equal to 2% of the aggregate principal amount of the loan outstanding as of August 1, 2023. The Company recognized amendment fees of $1.0 million as other expense and paid such fee on July 27, 2023.

On February 23, 2024, the Company entered into Amendment Number Five to Credit Agreement, Waiver, and Consent with the Senior Secured Lender to among other things approve of the Series C and D Offerings and to amend the Credit Agreement to change the Minimum EBITDA requirement to have an annualized EBITDA of $20.0 million for the fiscal quarter period ending December 31, 2023, a LTM EBITDA of $20.0 million for the fiscal quarter period ending March 31, 2024 and June 30, 2024, and a LTM EBITDA of $22.5 million for each month ending on July 31, 2024 and for each month ending thereafter. As of June 30, 2024, the EBITDA requirement has been met.

- 20 -

GLASS HOUSE BRANDS INC.

Notes to Unaudited Condensed Interim Consolidated Financial Statements

(Amounts Expressed in United States Dollars Unless Otherwise Stated)

Convertible Debentures

On April 28, 2022, the Company completed the Plus Products acquisition in which the purchase price was payable in part through an aggregate of 20,005 unsecured convertible debenture notes which consist of 12,003 debenture notes (the “Series A Notes”) and 8,002 debenture notes (the “Series B Notes”) (collectively, the “Plus Convertible Notes”). The Plus Convertible Notes accrue interest at 8.00% per annum payable in semi-annual arrears until April 15, 2027 (the “Maturity Date”). Interest is payable in cash, by the issuance of the Company’s Equity Shares or a combination of both at the sole discretion of the Company, based on the 10-day VWAP of the Equity Shares ending 5 trading days prior to the interest payment date with a fixed exchange rate of USD $1.00 to CAD $1.27.

The Series A Notes are redeemable, at the sole option of the Company, in full or in part on a pro rata basis, and payable in cash, by the issuance of the Company’s Equity Shares, or a combination of both, at any time through the Maturity Date based on the higher of (i) the 10-day VWAP of the Equity Shares ending 5 trading days prior to the redemption date, or (ii) CAD $4.08.

The Series B Notes are redeemable, at the sole option of the Company, in full or in part on a pro rata basis, and payable in cash, by the issuance of the Company’s Equity Shares, or a combination of both, at any time through the Maturity Date based on the lower of (i) the 10-day VWAP of the Equity Shares ending 5 trading days prior to the redemption date, or (ii) $10.00 per Equity Share. In the event the Company’s Equity Shares achieve a closing price of $10.00 per share over any period greater than or equal to 20 consecutive trading days, each holder of the Series B Notes may elect to convert all or a portion of their holdings into the Company’s Equity Shares based on a conversion price of $10.00 per Equity Share. As of June 30, 2024, the balance of $11.9 million and $4.1 million for the Series A Notes and Series B Notes, respectively remain outstanding.

The conversion features of the Series A Notes and Series B Notes were bifurcated from the related notes and classified as derivatives due to the variability of price in accordance with ASC 815, Derivatives and Hedging. Accordingly, the fair value of the conversion features for the Series A Notes and Series B Notes were measured at fair value using a discounted cash flow model that is based on unobservable inputs. During the three months ended June 30, 2024 and 2023, the Company recorded a change in derivative asset of approximately $(32) thousand and $143 thousand, respectively, as a component of change in fair value of derivatives assets in the Unaudited Condensed Interim Consolidated Statements of Operations. During the six months ended June 30, 2024 and 2023, the Company recorded a change in derivative asset of approximately $(145) thousand and $130 thousand, respectively, as a component of change in fair value of derivatives assets in the Unaudited Condensed Interim Consolidated Statements of Operations.

As of June 30, 2024, the scheduled maturities of notes payable for each of the following years were as follows (in thousands):


	Principal Payments
2024 (Remaining)	$	3,777
2025	7,558
2026	34,436
2027	16,267


Total Future Minimum Principal Payments	$	62,038

14. SHAREHOLDERS’ EQUITY

As of June 30, 2024 and December 31, 2023, the authorized share capital of the Company is comprised of an unlimited number of (i) Subordinate Voting Shares, (ii) Restricted Voting Shares, (iii) Limited Voting Shares, (iv) Multiple Voting Shares and (v) Preferred Shares.

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GLASS HOUSE BRANDS INC.

Notes to Unaudited Condensed Interim Consolidated Financial Statements

(Amounts Expressed in United States Dollars Unless Otherwise Stated)

Multiple Voting Shares

The Company is authorized to issue an unlimited number of Multiple Voting Shares without nominal or par value. Holders of Multiple Voting Shares are entitled to receive notice of any meeting of shareholders of the Company, and to attend, vote and speak at such meetings, except those meetings at which only holders of a specific class of shares are entitled to vote separately as a class under the Business Corporations Act (British Columbia). On all matters upon which holders of Multiple Voting Shares are entitled to vote, each Multiple Voting Share entitles the holder thereof to 50 votes per Multiple Voting Share. Multiple Voting Shares are not entitled to dividends and are not convertible. The Multiple Voting Shares had a three (3)-year sunset period that would have expired on June 29, 2024. At the annual general and special meeting of the shareholders of the Company held on June 23, 2023, shareholders passed a special resolution to amend the Articles to extend the “sunset” date for the Multiple Voting Shares to June 29, 2027, upon which they will be automatically redeemed for $0.001 per Multiple Voting Share.

Equity Shares

The holders of each class of Equity Shares are entitled to receive notice of, to attend (if applicable, virtually) and to vote at all meetings of shareholders of the Company, except that they are not able to vote (but are entitled to receive notice of, to attend and to speak) at those meetings at which the holders of a specific class are entitled to vote separately as a class under the Business Corporations Act (British Columbia) and except that holders of Limited Voting Shares are not entitled to vote for the election of directors of the Company. The Subordinate Voting Shares and Restricted Voting Shares carry one vote per share on all matters. The Limited Voting Shares carry one vote per share on all matters except the election of directors, as the holders of Limited Voting Shares do not have any entitlement to vote in respect of the election for directors of the Company.

In the case of liquidation, dissolution or winding-up of the Company, whether voluntary or involuntary, or in the event of any other distribution of assets of the Company among its shareholders for the purpose of winding up its affairs, the holders of Equity Shares are entitled, subject to the prior rights of the holders of any shares of the Company ranking in priority to the Equity Shares (including any liquidation preference on any issued and outstanding Multiple Voting Shares and/or Preferred Shares), to participate ratably the Company’s remaining property along with all holders of the other classes of Equity Shares (on a per share basis).

Exchangeable Shares of MPB Acquisition Corp.

Exchangeable Shares are part of the authorized share capital of MPB, a wholly-owned subsidiary of the Company, which entitle their holders to rights that are comparable to those rights attached to the Equity Shares. The Exchangeable Shares carry one vote per share, and the aggregate voting power of the Exchangeable Shares must not exceed 49.9% of the total voting power of all classes of shares of MPB. Until a holder exchanges their Exchangeable Shares for Equity Shares, the holder of such Exchangeable Shares will not have the right to vote at meetings of the shareholders of the Company, though they will have the right to vote at meetings of the shareholders of MPB, including with respect to altering the rights of holders of any of the Exchangeable Shares, or if MPB decides to take certain actions without fully protecting the holders of any of the Exchangeable Shares, or as otherwise required by law. The Exchangeable Shares are exchangeable at any time, on a one-for-one basis, for the Equity Shares at the option of the holder.

The Company treats the Exchangeable Shares as options, each with a value equal to an Equity Share, which represents the holder’s claim on the equity of the Company. Pursuant to the terms of the Exchangeable Shares, the Company and MPB are required to maintain the economic equivalency of such Exchangeable Shares with the publicly traded Equity Shares of the Company. This means the Exchangeable Shares are required to share the same economic benefits and retain the same proportionate ownership in the assets of the Company as the holders of the Equity Shares. The Company has presented these Exchangeable Shares as a part of shareholders’ equity within these Consolidated Financial Statements due to (i) the fact that they are economically equivalent to the Equity Shares, and (ii) the holders of the Exchangeable Shares are subject to restrictions on transfer under U.S. securities laws but may dispose of the Exchangeable Shares without such restriction by exchanging them for Equity Shares. Changes in these assumptions would affect the presentation of the Exchangeable Shares from shareholders’ equity to non-controlling interests; however, there would be no impact on earnings per share.

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GLASS HOUSE BRANDS INC.

Notes to Unaudited Condensed Interim Consolidated Financial Statements

(Amounts Expressed in United States Dollars Unless Otherwise Stated)

Preferred Shares of GH Group, Inc.

The authorized total number of preferred shares (the “GH Group Preferred Shares”) of GH Group is 50,000,000 of which 45,000,000 shares are designated as shares of Series A Preferred Shares (“GH Group Series A Preferred”), 55,000 shares are designated as shares of Series B Preferred Shares (“GH Group Series B Preferred”), 5,000 shares of Series C Preferred Shares (“GH Group Series C Preferred”) and 15,000 shares of Series D Preferred Shares (“GH Group Series D Preferred”). Holders of the GH Group Preferred Shares are entitled to receive notice of and attend any meeting of the shareholders of GH Group but are not entitled to vote. The GH Group Preferred Shares do not carry any voting rights and are not convertible. In the event of a liquidation, voluntary or involuntary, dissolution or winding-up of GH Group, the holders of outstanding GH Group Preferred Shares are entitled to be paid out of the assets of GH Group available for distribution to it stockholders, before any payment shall be made to the holders of GH Group common stock, of which holders of GH Group Series B Preferred are to receive payment prior to holders of GH Group Series A Preferred, GH Group Series C Preferred and GH Group Series D Preferred. GH Group has the right to redeem all or a portion of the GH Group Preferred Shares from a holder for an amount equal to the liquidation value and all unpaid accrued and accumulated dividends.

The GH Group Series A Preferred carries a 15% cumulative dividend rate, which increases by 5% in the year following the first anniversary of the date of issuance. The GH Group Series B Preferred and the GH Group Series C Preferred carry a 20% cumulative dividend rate, which increases by 2.5% annually after the second anniversary and until the 54-month anniversary of the initial issuance. The GH Group Series D Preferred carry a 15% cumulative dividend rate, which increases by 5% following the fifth anniversary of the original issuance. Dividends are payable if and when declared by GH Group’s board of directors.

There were nil shares of the GH Group Series A Preferred issued and outstanding as of June 30, 2024 and December 31, 2023; there were 49,969 shares of the GH Group Series B Preferred issued and outstanding as of June 30, 2024 and December 31, 2023; there were 5,000 shares of the GH Group Series C Preferred issued and outstanding as of June 30, 2024 and December 31, 2023; and there were 15,000 shares of the GH Group Series D Preferred issued and outstanding as of June 30, 2024 and December 31, 2023. In accordance with the provisions above, the Company recorded dividends to the holders of the GH Group Preferred Shares in the amount of $3.8 million and $2.9 million for the three months ended June 30, 2024 and 2023, respectively, and $7.5 million and $5.7 million for the six months ended June 30, 2024 and 2023, respectively.

Non-Controlling Interest

The Company recorded income attributable to a non-controlling interest during the three months ended June 30, 2024 and 2023 of $43 thousand and $100 thousand, respectively. The Company recorded income attributable to a non-controlling interest and during the six months ended June 30, 2024 and 2023 of $105 thousand and $63 thousand, respectively. The value of the equity issuances issued to non-controlling interest members were determined using the estimated fair value of the equity of the Company.

Variable Interest Entity

The below table summarizes information for entities the Company has concluded to be variable interest entities (“VIE”) as the Company possesses the power to direct activities through various agreements. Through these agreements, the Company can significantly impact the VIE and thus holds a controlling financial interest. This information represents amounts before intercompany eliminations.

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GLASS HOUSE BRANDS INC.

Notes to Unaudited Condensed Interim Consolidated Financial Statements

(Amounts Expressed in United States Dollars Unless Otherwise Stated)

The aggregate balances of the VIE included in the accompanying Unaudited Condensed Interim Consolidated Balance Sheets and Unaudited Condensed Interim Consolidated Statements of Operations were as follows below as of and for the six months ended June 30, 2024 (in thousands):


	June 30, 2024
Current Assets	$	234
Non-Current Assets	4,257
Total Assets	$	4,491

Current Liabilities	$	5
Non-Current Liabilities	236
Total Liabilities	$	241

Revenues, Net	$	120
Net Income Attributable to Non-Controlling Interest	$	74

15. SHARE-BASED COMPENSATION

The Company has an amended and restated equity incentive plan (the “Incentive Plan”) under which the Company may issue various types of equity instruments or instruments that track to equity, more particularly the Equity Shares, to employees, officers, consultants and non-employee directors. The types of equity instruments issuable under the Incentive Plan encompass, among other things, stock options, unrestricted stock bonus, and restricted stock units (together, the “Awards”). The Awards are expensed and recorded as a component of general and administrative costs. The maximum number of the Awards that may be issued under the Incentive Plan is 10% of the fully-diluted Equity Shares of the Company (inclusive of the Equity Shares issuable in exchange for unrestricted Exchangeable Shares) as calculated using the treasury method. The Incentive Plan is an “evergreen” plan, meaning that if an Award expires, becomes un-exercisable, or is cancelled, forfeited or otherwise terminated without having been exercised or settled in full, as the case may be, the Equity Shares allocable to the unexercised portion of an Award shall again become available for future grant or sale under the Incentive Plan (unless the Incentive Plan has terminated by its terms), and the number of the Awards available for grant will increase as the number of issued and outstanding Equity Shares increases. Granting and vesting of the Awards are determined by and recommended to the Board for approval by the Compensation, Nomination and Corporate Governance Committee of the Board of Directors. The exercise price for options (if applicable) will generally not be less than the fair market value of the Award at the time of grant and will generally expire after 5 years.

Stock Options

A reconciliation of the beginning and ending balance of stock options outstanding is as follows:


	Number of Stock Options	Weighted- Average Exercise Price
Outstanding as of December 31, 2023	1,435,794	$	2.84
Exercised	(236,568)	2.85
Outstanding as of June 30, 2024	1,199,226	2.84

- 24 -

GLASS HOUSE BRANDS INC.

Notes to Unaudited Condensed Interim Consolidated Financial Statements

(Amounts Expressed in United States Dollars Unless Otherwise Stated)

The following table summarizes the stock options that remain outstanding as of June 30, 2024:


Security Issuable	Exercise Price		Expiration Date	Stock Options Outstanding
Equity Shares	$	2.26	October 2024	495,617
Equity Shares	3.08		April 2025	105,906
Equity Shares	3.08		January 2026	522,703
Equity Shares	4.60		October 2026	75,000
				1,199,226

As of June 30, 2024 and December 31, 2023, options vested and exercisable were 1,199,226 and 1,416,870, respectively. During the three months ended June 30, 2024 and 2023, the Company recognized nil and $55 thousand, respectively, in share-based compensation expense related to these stock options and is included as a component of general and administrative expense in the Unaudited Condensed Interim Consolidated Statements of Operations. During the six months ended June 30, 2024 and 2023, the Company recognized $3 thousand and $208 thousand, respectively, in share-based compensation expense related to these stock options and is included as a component of general and administrative expense in the Unaudited Condensed Interim Consolidated Statements of Operations. As of June 30, 2024 options outstanding have a weighted-average remaining contractual life of 0.98 years.

On June 29, 2021, Mercer Park, a special purpose acquisition corporation (or “SPAC”) listed on the Neo Exchange Inc. in Canada, consummated its qualifying transaction (the “Business Combination”) pursuant to the terms of an Agreement and Plan of Merger dated as of April 8, 2021, as amended (the “Business Combination Agreement”), pursuant to which Mercer Park indirectly acquired 100% of the common equity interests of GH Group. The Business Combination was effectuated by a reverse merger of an indirect subsidiary of Mercer Park with GH Group, with GH Group as the surviving entity that became a majority-owned indirect subsidiary of the Company. Immediately prior to the close of the Business Combination, GH Group had outstanding vested and unvested options. Incident to the close, certain options were exercised. Of the remaining options, the vested GH Group non-qualified stock options (“NQSOs”) were paid the net-value of their outstanding options at close by reserving 1.4 million Subordinate Voting Shares which were to be issued on or before June 29, 2024. Prior to the issuance of the shares, the Company recorded $2.8 million in Shares Payable on the Consolidated Balance Sheet. During June 2024, the Company issued 1,433,810 shares reflected in Shares Issued for Vested GH Group Non-Qualified Options on the Condensed Interim Consolidated Statements of Changes in Shareholders’ Equity and reclassified $2.8 million from Shares Payable to Additional Paid-In Capital on the Unaudited Condensed Interim Consolidated Balance Sheet.

Restricted Stock Units

A reconciliation of the beginning and ending balance of restricted stock units outstanding is as follows:


			Number of Restricted Stock Units
Unvested as of December 31, 2023			2,533,575
Granted			2,565,425
Vested			(1,342,732)
Forfeited			(13,333)
Unvested as of June 30, 2024			3,742,935

During the three months ended June 30, 2024 and 2023, the Company recognized $3.6 million and $1.5 million, respectively, in stock-based compensation related to restricted stock units and is included as a component of general and administrative expense in the Unaudited Condensed Interim Consolidated Statements of Operations. During the six months ended June 30, 2024 and 2023, the Company recognized $6.9 million and $3.0 million, respectively, in stock-based compensation related to restricted stock units and is included as a component of general and administrative expense in the Unaudited Condensed Interim Consolidated Statements of Operations. The fair value of the restricted stock units granted during the six months ended June 30, 2024 was determined using the value of the Equity Shares at the date of grant.

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GLASS HOUSE BRANDS INC.

Notes to Unaudited Condensed Interim Consolidated Financial Statements

(Amounts Expressed in United States Dollars Unless Otherwise Stated)

Stock Appreciation Right Units

During the year ended December 31, 2020, GH Group granted 230,752 stock appreciation rights (“SARs units”) to various employees of the Company. The SARs vest 33% one year after the grant date and the remaining 67% vest monthly, after the initial vesting, over two years. Vested and exercised SARs will receive cash in the amount of the SARs exercised multiplied by the excess of the fair market value of an Equity Share as of the exercise date over the stated strike price of the SAR. As the SARs are cash-settled, the Company recognizes the value of the SAR as liabilities which are included in accounts payable and accrued liabilities in the Unaudited Condensed Interim Consolidated Balance Sheets. As of June 30, 2024 and December 31, 2023, the Company recorded a liability of $0.3 million and $0.2 million, respectively.

A reconciliation of the beginning and ending balance of the SARs outstanding is as follows:


			Number of Stock Appreciation Rights Units
Outstanding as of December 31, 2023			135,916
Exercised			(61,948)
Forfeited			(6,762)
Outstanding as of June 30, 2024			67,206

During the three months ended June 30, 2024 and 2023, the Company recognized $51 thousand and $14 thousand, respectively, in expense related to the SARs units. During the six months ended June 30, 2024 and 2023, the Company recognized $396 thousand and $14 thousand, respectively, in expense related to the SARs units.

Warrants

A reconciliation of the beginning and ending balance of warrants outstanding is as follows:


	Number of Warrants	Weighted- Average Exercise Price
Outstanding as of December 31, 2023	47,318,882	$	9.56
Exercised	(142,090)	5.14
Expired	(2,654,445)	10.00
Outstanding as of June 30, 2024	44,522,347	9.54

The following table summarizes the warrants that remain outstanding as of June 30, 2024:


Security Issuable	Exercise Price		Expiration Date	Warrants Outstanding	Warrants Exercisable
Equity Shares	$	11.50	June 2026	30,664,500	30,664,500
Equity Shares	5.00		August 2027	10,877,847	10,877,847
Equity Shares	6.00		August 2028	2,980,000	2,980,000
				44,522,347	44,522,347

As of June 30, 2024, warrants outstanding have a weighted-average remaining contractual life of 2.42 years.

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GLASS HOUSE BRANDS INC.

Notes to Unaudited Condensed Interim Consolidated Financial Statements

(Amounts Expressed in United States Dollars Unless Otherwise Stated)

16. INCOME (LOSS) PER SHARE

The following is a reconciliation for the calculation of basic and diluted income (loss) per share (in thousands, except share and per share data):


	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2024		2023		2024		2023
Net Income (Loss) Attributable to the Company	$	9,996	$	(25,052)	$	(8,335)	$	(59,798)
Less: Dividends and Increase in Redemption Values of GH Group Preferred Shares	(3,808)		(2,915)		(7,528)		(5,831)
Adjusted Net Income (Loss) Attributable to the Company	$	6,188	$	(27,967)	$	(15,863)	$	(65,629)

Weighted-Average Shares Outstanding - Basic	73,807,711		71,092,510		73,522,518		71,673,212
Dilutive Potential Shares Related to Stock Award Plans and Warrants	8,424,357		—		—		—
Weighted-Average Shares Outstanding - Diluted	82,232,068		71,092,510		73,522,518		71,673,212

Income (Loss) Per Share - Basic	$	0.08	$	(0.39)	$	(0.22)	$	(0.92)
Income (Loss) Per Share - Diluted	$	0.08	$	(0.39)	$	(0.22)	$	(0.92)

For the three months ended June 30, 2023 and the six months ended June 30, 2024 and 2023, diluted loss per share was the same as basic loss per share as the potential issuance of shares related to stock-based award plans, warrants and convertible debentures were anti-dilutive.

The following common equivalent shares were excluded from the Income (Loss) Per Share - Diluted calculation because their inclusion would have been anti-dilutive:


	For the Three Month Income (Loss) Per Share		For the Six Month Loss Per Share
	As of June 30,		As of June 30,
	2024	2023	2024	2023
Stock Award Plans	—	3,098,766	4,942,161	3,098,766
Warrants	30,664,500	44,318,882	44,522,347	44,318,882
Convertible Debt	2,247,414	4,363,709	2,247,414	4,363,709
Total	32,911,914	51,781,357	51,711,922	51,781,357

Net income (loss) attributable to the Company, as reported, is adjusted for dividends and various other adjustments as defined in ASC 260, Earnings Per Share. After adjustments as defined in ASC 260, if the Company is in a net loss position, diluted loss per share is the same as basic loss per share when the potential issuance of shares related to convertible debentures, warrants and stock-based compensation grants are antidilutive. After adjustments, as defined in ASC 260, if the Company is in a net income position, diluted earnings per share includes shares related to convertible debentures, warrants, stock-based compensation grants and contingently issuable shares that are determined to be dilutive using the treasury stock method for all equity instruments issuable in equity units and the “if converted” method for the Company’s convertible debt.

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GLASS HOUSE BRANDS INC.

Notes to Unaudited Condensed Interim Consolidated Financial Statements

For the Three Months Ended June 30, 2024 and 2023

(Amounts Expressed in United States Dollars Unless Otherwise Stated)

17. PROVISION FOR INCOME TAXES AND DEFERRED INCOME TAXES

Provision for income taxes consisted of the following (in thousands):


	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2024		2023		2024		2023
Current:
Federal	$	1,290	$	4,238	$	2,095	$	6,047
State	(1,087)		1,410		(1,058)		1,899
Total Current	203		5,648		1,037		7,946

Deferred:
Federal	—		(153)		—		(107)
State	—		(202)		—		(172)
Total Deferred	—		(355)		—		(279)
Total Provision for Income Taxes	$	203	$	5,293	$	1,037	$	7,667

The Company has used a discrete effective tax rate method to calculate taxes for the three and six months ended June 30, 2024 and 2023. The Company determined that since small changes in estimated ordinary income would result in significant changes in the estimated annual effective tax rate, the historical method would not provide a reliable estimate for the fiscal three and six-month periods ended June 30, 2024 and 2023.

As the Company operates in the legalized cannabis industry, it is subject to the limits of IRC Section 280E (“Section 280E”) for U.S. federal income tax purposes under which the Company is only allowed to deduct expenses directly related to the cost of goods sold. This results in permanent differences between ordinary and necessary business expenses deemed nonallowable under Section 280E, whereas the Company deducts all operating expenses on its state tax returns for which there is no comparable provision of Section 280E under the California Revenue and Taxation Code.

The Company has determined that the tax impact of its corporate overhead allocation was less likely than not to be sustained on the merits as required under ASC 740, Income Taxes, due to the evolving interpretations of Section 280E. As a result, the Company included in the balance of total unrecognized tax benefits as of June 30, 2024 and December 31, 2023, potential benefits of $6.6 million and $5.4 million, respectively, that if recognized would impact the effective tax rate on income from operations. Unrecognized tax benefits that reduce a net operating loss, similar to tax loss or tax credit carryforwards, are presented as a reduction to deferred income taxes.

The Company’s evaluation of tax positions was performed for those tax years which remain open for audit. The Company may, from time to time, be assessed interest or penalties by the taxing authorities, although any such assessments historically have been minimal and immaterial to the Company’s financial results. In the event the Company is assessed for interest and/or penalties, such amounts will be classified as income tax expense in the financial statements.

As of June 30, 2024, the Company’s federal tax returns since 2020 and state tax returns since 2019 are still subject to adjustment upon audit. The 2019 federal tax returns of Natural Healing Center LLC (pre-acquisition) are currently under IRS examination. No other tax returns are currently being examined by any taxing authorities. While it is reasonably possible that certain portions of the unrecognized tax benefit may change from a lapse in applicable statute of limitations, it is not possible to reasonably estimate the effect of any amount of such a change to previously recorded uncertain tax positions in the next 12 months.

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GLASS HOUSE BRANDS INC.

Notes to Unaudited Condensed Interim Consolidated Financial Statements

(Amounts Expressed in United States Dollars Unless Otherwise Stated)

18. COMMITMENTS AND CONTINGENCIES

Contingencies

The Company’s operations are subject to a variety of local and state regulations. Failure to comply with one or more of these regulations could result in fines, restrictions on its operations, or revocation, cancellation, non-renewal or other losses of permits, licensed and entitlements that could result in the Company ceasing operations. While management of the Company believes that the Company is in compliance with applicable local and state statues, regulations, and ordinances as of June 30, 2024 and December 31, 2023, cannabis laws and regulations continue to evolve and are subject to differing interpretations. As a result, the Company may be subject to regulatory fines, penalties or restrictions in the future.

Claims and Litigation

From time to time, the Company may be involved in litigation relating to claims arising out of operations in the normal course of business. As of June 30, 2024 and December 31, 2023, there were also no proceedings in which any of the Company’s directors, officers or affiliates were an adverse party to the Company or had a material interest adverse to the Company’s interest.

Element 7 Litigation

On November 4, 2021, GH Group filed a lawsuit in the Superior Court for the County of Los Angeles, Central District (Case No. 21STCV40401) against E7 and its principals and owners Josh Black and Robert “Bobby” DiVito (together, “Element 7”) for a variety of claims, including fraud and breach of contract and demanded performance under the E7 Agreements. Through the process of litigation, on September 19, 2023, Element 7, APB and GH Group entered into a Settlement and General Mutual Release Agreement (the “Element 7 Settlement”), where Element 7 agreed to pay GH Group $2.9 million to settle the Element 7 Proceeding; provided, that if Element 7 pays GH Group $1.9 million by December 15, 2023, then Element 7 shall be entitled to a credit of $1.0 million towards the $2.9 million payment. In addition, Element 7 would retain ownership of its retail licenses.

On March 6, 2024, the Superior Court of Los Angeles entered into a Final Judgment and Order against Element 7 for the amount of $2.9 million in favor of GH Group.

Catalyst Litigation

The Company is the plaintiff in litigation in the Central District Superior Court of the County of Los Angeles against Elliot Lewis (“Lewis”), Damian Martin (“Martin”), South Cord Holdings LLC (“SCH”), and South Cord Management LLC (“SCM”) (collectively, “Catalyst Defendants”) following various public, false, and defamatory statements by Lewis and Martin, co-founders of SCM and SCH, that the Company is the “largest black marketeer” of cannabis in the history of the United States, only 25% of the Company’s cultivated cannabis is sold through legal channels, and therefore 70-80% is sold illegally, and that the Company is engaging in illicit conduct to avoid taxes. During May 2024, Glass House announced it was voluntarily dismissing without prejudice its defamation lawsuit against Catalyst Cannabis Co.

The Company is the defendant in litigation in the Central District Superior Court of the County of Los Angeles filed by 562 Discount Med, Inc. (“Discount Med” doing business as Catalyst Cannabis Co.), an affiliate of SCH and SCM. Discount Med has asserted claims against the Company for violation of California Business & Professions Code Section 17200 et seq., California's Unfair Competition Law. Discount Med similarly alleged, like the Catalyst Defendants, that the Company is the “largest black marketeer” of cannabis in California and has purposefully structured its business to profit from the illicit market. The Company has denied all such allegations and asserted affirmative defenses.

On June 25, 2024, the Superior Court of California (Los Angeles County) dismissed the lawsuit filed by 562 Discount Med Inc. (doing business as Catalyst Cannabis Co.) against Glass House for unfair competition. The Court granted Glass House’s motion for judgment on the pleadings with prejudice. On July 15, 2024, the Court entered a judgment in Glass House’s favor, awarding costs against the plaintiff and concluding the case. On August 7, 2024, 562 Discount Med, Inc. filed a Notice of Appeal of the judgment of dismissal following an order granting a motion for judgment on the pleadings without leave to amend.

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GLASS HOUSE BRANDS INC.

Notes to Unaudited Condensed Interim Consolidated Financial Statements

(Amounts Expressed in United States Dollars Unless Otherwise Stated)

19. RELATED PARTY TRANSACTIONS

Leases

Neo Street Partners LLC, a company partially owned by an executive and board member of the Company, entered into a five-year lease with a subsidiary of the Company. The lease, which commenced in October 2018, provides for an initial annual base rent payment of $213 thousand increasing to $243 thousand for years two to five. The lease was renewed for one year starting in October 2023. Rent expense for the three months ended June 30, 2024 and 2023 was $94 thousand and $61 thousand, respectively. Rent expense for the six months ended June 30, 2024 and 2023 was $187 thousand and $122 thousand, respectively.

3645 Long Beach LLC, a company partially owned by an executive and board member of the Company, entered into a five-year lease with a subsidiary of the Company. The lease, which commenced in December 2019, provides for an initial annual base rent payment of $64 thousand increasing to $69 thousand for year two and increasing five percent per annum thereafter. Rent expense for the three months ended June 30, 2024 and 2023 was $20 thousand and $19 thousand, respectively. Rent expense for the six months ended June 30, 2024 and 2023 was $40 thousand and $38 thousand, respectively.

Isla Vista GHG LLC, a company partially owned by executives and board members of the Company, entered into a ten-year lease with a subsidiary of the Company. The lease, which commences on the first calendar day after the Company publicly announces the opening of the retail location at the leased property (the “Commencement Date”), provides for an initial monthly rent of $5 thousand starting April 19, 2022 until the Commencement Date. Effective on the Commencement Date, the initial annual base rent payment will be $144 thousand and increasing three percent per annum thereafter. Rent expense for the three months ended June 30, 2024 and 2023 was $68 thousand in each period. Rent expense for the six months ended June 30, 2024 and 2023 was $135 thousand in each period.

In August 2022, the Kazan Trust dated December 10, 2004, a trust owned by an executive and board member of the Company, acquired partial ownership of a real estate entity that entered into a ten-year lease with a subsidiary of the Company. The lease, which commenced in July 2022, provides for an initial annual base rent payment of $36 thousand increasing three percent per annum thereafter. Rent expense for the three months ended June 30, 2024 and 2023 was $9 thousand in each period. Rent expense for the six months ended June 30, 2024 and 2023 was $18 thousand in each period.

Consulting Agreement

Beach Front Property Management Inc., a company that is majority-owned by an executive and board member of the Company, entered into a consulting agreement with the Company dated September 28, 2020. The monthly consulting fee is $11 thousand for mergers and acquisitions advisory and assistance and real estate acquisition and financing services. The agreement may be terminated by either party for any/or no reason without penalty upon seven days written notice. Consulting fees for the three months ended June 30, 2024 and 2023 were $35 thousand and $32 thousand, respectively. Consulting fees for the six months ended June 30, 2024 and 2023 were $70 thousand and $65 thousand, respectively.

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GLASS HOUSE BRANDS INC.

Notes to Unaudited Condensed Interim Consolidated Financial Statements

(Amounts Expressed in United States Dollars Unless Otherwise Stated)

20. SEGMENT INFORMATION

Operations by reportable segment for the three months ended June 30, 2024 were as follows (in thousands):


	Three Months Ended June 30, 2024
	Retail		Wholesale Biomass		CPG		Corporate and Other		Total
Revenues, Net	$	10,885	$	39,074	$	3,979	$	—	$	53,938
Cost of Goods Sold	5,723		16,448		3,093		—		25,264
Gross Profit	5,162		22,626		886		—		28,674
Operating Expenses:
General and Administrative	3,386		3,670		573		9,737		17,366
Sales and Marketing	482		49		8		143		682
Professional Fees	—		47		(1)		1,814		1,860
Depreciation and Amortization	378		2,938		190		217		3,723
Income (Loss) from Operations	916		15,922		116		(11,911)		5,043
Other (Income) Expense:
Interest Expense	42		16		6		2,529		2,593

Loss on Equity Method Investments	—		—		—		94		94
Gain on Change in Fair Value of Derivative Asset	—		—		—		(32)		(32)
Gain on Change in Fair Value of Contingent Liabilities and Shares Payable	—		—		—		(7,910)		(7,910)
Other (Income) Expense, Net	43		38		(1)		(24)		56
Total Other (Income) Expense Net	85		54		5		(5,343)		(5,199)
Income (Loss) Before Income Taxes	$	831	$	15,868	$	111	$	(6,568)	$	10,242
Total Assets as of June 30, 2024	$	23,465	$	233,922	$	10,831	$	37,625	$	305,843

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GLASS HOUSE BRANDS INC.

Notes to Unaudited Condensed Interim Consolidated Financial Statements

(Amounts Expressed in United States Dollars Unless Otherwise Stated)

Operations by reportable segment for the three months ended June 30, 2023 were as follows (in thousands):


	Three Months Ended June 30, 2023
	Retail		Wholesale Biomass		CPG		Corporate and Other		Total
Revenues, Net	$	10,073	$	30,638	$	3,954	$	—	$	44,665
Cost of Goods Sold	4,587		11,991		3,715		—		20,293
Gross Profit	5,486		18,647		239		—		24,372
Operating Expenses:
General and Administrative	3,315		2,382		1,279		6,079		13,055
Sales and Marketing	529		291		(19)		196		997
Professional Fees	11		92		43		2,054		2,200
Depreciation and Amortization	355		2,720		174		321		3,570
Impairment Expense for Intangible Assets	—		—		—		1,328		1,328
Income (Loss) from Operations	1,276		13,162		(1,238)		(9,978)		3,222
Other (Income) Expense:
Interest Expense	15		8		3		2,521		2,547

Gain on Equity Method Investments	—		—		—		(36)		(36)
Loss on Change in Fair Value of Derivative Asset	—		—		—		143		143
Loss on Change in Fair Value of  Contingent Liabilities and Shares Payable	—		—		—		19,100		19,100
Other Expense, Net	24		47		59		997		1,127
Total Other Expense Net	39		55		62		22,725		22,881
Income (Loss) Before Income Taxes	$	1,237	$	13,107	$	(1,300)	$	(32,703)	$	(19,659)
Total Assets as of December 31, 2023	$	27,054	$	220,054	$	12,774	$	43,893	$	303,775

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GLASS HOUSE BRANDS INC.

Notes to Unaudited Condensed Interim Consolidated Financial Statements

(Amounts Expressed in United States Dollars Unless Otherwise Stated)

Operations by reportable segment for the six months ended June 30, 2024 were as follows (in thousands):


	Six Months Ended June 30, 2024
	Retail		Wholesale Biomass		CPG		Corporate and Other		Total
Revenues, Net	$	20,806	$	55,000	$	8,232	$	—	$	84,038
Cost of Goods Sold	10,391		26,166		6,281		—		42,838
Gross Profit	10,415		28,834		1,951		—		41,200
Operating Expenses:
General and Administrative	6,780		5,496		764		17,854		30,894
Sales and Marketing	825		53		18		263		1,159
Professional Fees	9		99		33		5,382		5,523
Depreciation and Amortization	753		5,803		380		503		7,439
Income (Loss) from Operations	2,048		17,383		756		(24,002)		(3,815)
Other (Income) Expense:
Interest Expense	83		28		12		4,676		4,799

Loss on Equity Method Investments	—		—		—		76		76
Gain on Change in Fair Value of Derivative Asset	—		—		—		(145)		(145)
Gain on Change in Fair Value of Contingent Liabilities and Shares Payable	—		—		—		(1,445)		(1,445)
Other (Income) Expense, Net	42		49		13		(11)		93
Total Other Expense Net	125		77		25		3,151		3,378
Income (Loss) Before Income Taxes	$	1,923	$	17,306	$	731	$	(27,153)	$	(7,193)

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GLASS HOUSE BRANDS INC.

Notes to Unaudited Condensed Interim Consolidated Financial Statements

(Amounts Expressed in United States Dollars Unless Otherwise Stated)

Operations by reportable segment for the six months ended June 30, 2023 were as follows (in thousands):


	Six Months Ended June 30, 2023
	Retail		Wholesale Biomass		CPG		Corporate and Other		Total
Revenues, Net	$	19,446	$	45,105	$	7,669	$	—	$	72,220
Cost of Goods Sold	8,679		20,293		6,302		—		35,274
Gross Profit	10,767		24,812		1,367		—		36,946
Operating Expenses:
General and Administrative	6,424		4,342		1,562		12,113		24,441
Sales and Marketing	874		318		48		409		1,649
Professional Fees	66		159		106		3,369		3,700
Depreciation and Amortization	587		5,650		351		818		7,406
Impairment Expense for Goodwill	—		—		—		14,144		14,144
Impairment Expense for Intangible Assets	—		—		—		6,854		6,854
Income (Loss) from Operations	2,816		14,343		(700)		(37,707)		(21,248)
Other (Income) Expense:
Interest Expense	15		18		6		4,588		4,627
Interest Income	—		—		—		(45)		(45)
Loss on Equity Method Investments	—		—		—		2,228		2,228
Loss on Change in Fair Value of Derivative Asset	—		—		—		130		130
Loss on Change in Fair Value of Contingent Liabilities and Shares Payable	—		—		—		22,510		22,510
Other Expense, Net	23		216		117		1,014		1,370
Total Other Expense Net	38		234		123		30,425		30,820
Income (Loss) Before Income Taxes	$	2,778	$	14,109	$	(823)	$	(68,132)	$	(52,068)

21. SUBSEQUENT EVENTS

Management has evaluated subsequent events through the date these Unaudited Condensed Interim Consolidated Financial Statements were available to be issued.

- 34 -

Exhibit 99.2

GLASS HOUSE BRANDS INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND UNAUDITED RESULTS OF OPERATIONS

FOR THE THREE AND SIX MONTHS ENDED
JUNE 30, 2024 AND 2023

Introduction

This management’s discussion and analysis of financial condition and results of operations (“MD&A”) is provided as of August 13, 2024 and should be read together with Glass House Brands Inc.’s (together with its wholly-owned subsidiaries, referred to as “Glass House,” the “Company,” “we,” “us” or “our”) Unaudited Condensed Interim Consolidated Financial Statements (the “Financial Statements”) as of June 30, 2024 and December 31, 2023 and for the three and six months ended June 30, 2024 and 2023, and the accompanying notes. The financial results discussed herein have been prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”) and, unless otherwise noted, are expressed in United States dollars. Additional information relating to the Company can be found on SEDAR+ at www.sedarplus.ca.

Overview

Glass House, formerly known as Mercer Park Brand Acquisition Corp. (“Mercer Park”), was incorporated under the Business Corporations Act (British Columbia) on April 16, 2019. We are a vertically integrated cannabis company that operates in the state of California. We, through our subsidiaries, cultivate, manufacture and distribute cannabis bulk flower and trim to wholesalers and cannabis-related consumer packaged goods (“CPG”) to third-party retail stores in the state of California. We also own and operate retail cannabis stores in the state of California. Our subordinate voting shares (“Subordinate Voting Shares”), restricted voting shares (“Restricted Voting Shares”) and limited voting shares (“Limited Voting Shares,” and, collectively with the Subordinate Voting Shares and the Restricted Voting Shares, the “Equity Shares”), and common share purchase warrants are listed on the Cboe Canada exchange, trading under the symbols “GLAS.A.U” and “GLAS.WT.U,” respectively. The Equity Shares and common share purchase warrants also trade on the OTCQX in the United States under the symbols “GLASF” and “GHBWF,” respectively. Our head office and principal address is 3645 Long Beach Boulevard, Long Beach, California 90807. Our registered office in Canada is 666 Burrard Street, Suite 2500, Vancouver, BC V6C 2X8 Canada.

Reclassifications

Certain prior year amounts have been reclassified for consistency with the current year presentation. These reclassifications had no effect on the reported results of operations. Refer to Note 3 – Correction of Error in Previously Issued Financial Statements in the Financial Statements for further disclosure on correction of errors noted subsequent to the issuance of the Unaudited Condensed Interim Consolidated Financial Statements as of June 30, 2023 and for the three and six months ended June 30, 2023.

Major Business Lines and Geographies

We view our financial results under three business lines – the creation of extensible wholesale biomass, CPG and retail. We currently generate all of our revenue in the state of California.

While many cannabis businesses prioritize brand building and customer acquisition before securing a reliable product flow, we believe that in a consumer-focused CPG space, consistent delivery of high-quality product at an attractive price point is a first principle and a prerequisite for any other activity.

Cannabis Cultivation, Production and Sales

We operate multiple greenhouse cultivation facilities located in Carpinteria and Camarillo, California, and our manufacturing production facility is located in Lompoc California. We operate an approximately 5.5 million square foot hi-tech greenhouse facility located in Camarillo, California (“Camarillo Facility”). We completed Phase I of the Camarillo Facility which is licensed and operational. We completed the first harvest in June 2022, four weeks earlier than expected. We commenced construction on the next phase of the Camarillo Facility during 2023. We completed the first harvest from this phase in the first quarter of 2024.

We generate revenue by selling our products in bulk at wholesale and at retail to our own and third-party dispensaries in California, including raw cannabis, cannabis oil and cannabis consumer goods. Our “Farmacy” branded dispensaries are currently located in Santa Barbara, Santa Ana, Berkeley, Isla Vista and Santa Ynez, California. We also operate one dispensary located in Los Angeles, California under the brand “The Pottery.” During the year ended December 31, 2022, we completed the acquisition of Plus Products Holdings Inc., a leading edibles brand in California, as well as the acquisitions of The Pottery and three Natural Healing Center retail dispensaries located in Grover Beach, Morro Bay and Lemoore, California. In April 2023, we completed the acquisition of a Natural Healing Center retail dispensary located in Turlock, California.

- 1 -

Market Update and Objectives

The state of California represents the largest single state-legalized market for cannabis in the U.S., with an adult population of over 31 million. The California market is highly fragmented, with over 4,600 cultivation licenses in operation, over 1,000 distribution licenses, over 1,200 operational dispensaries, greater than 600 brands and a significant illicit market. In addition to this, burdened with high taxes, competition and weakened consumer demand, California operators may find it difficult to operate in this market. While in recent years we have seen wholesale prices decline from years past, we have seen some recent improvement in wholesale prices, and, due to our operations, we believe Glass House is best fit to capitalize on that. With this backdrop, we look to continue to use scale in cultivation and distribution (at wholesale and through our own retail dispensaries and third-party retailers) to achieve economies of scale that will allow us to outperform competitors and build superior brand awareness and loyalty.

On May 21, 2024 the U.S. Department of Justice published its notice of proposed rulemaking announcing its intention to reschedule marijuana from Schedule I of the Controlled Substances Act (“CSA”) to Schedule III, a less-restrictive schedule, of the CSA. The public comment period ended on July 22, 2024, and a final DEA ruling is forthcoming.

Comparison of the Three Months Ended June 30, 2024 and 2023

The following are the results of our operations for the three months ended June 30, 2024 compared to the three months ended June 30, 2023 (in thousands, except share and per share data):


	Three Months Ended
	June 30,
	2024		2023
Revenues, Net	$	53,938	$	44,665
Cost of Goods Sold (Exclusive of Depreciation and Amortization Shown Separately Below)	25,264		20,293
Gross Profit	28,674		24,372
Operating Expenses:
General and Administrative	17,366		13,055
Sales and Marketing	682		997
Professional Fees	1,860		2,200
Depreciation and Amortization	3,723		3,570

Impairment Expense for Intangible Assets	—		1,328
Total Operating Expenses	23,631		21,150
Income from Operations	5,043		3,222
Other (Income) Expense:
Interest Expense	2,593		2,547

(Gain) Loss on Equity Method Investments	94		(36)
(Gain) Loss on Change in Fair Value of Derivative Asset	(32)		143
(Gain) Loss on Change in Fair Value of Contingent Liabilities and Shares Payable	(7,910)		19,100
Other Expense, Net	56		1,127
Total Other (Income) Expense, Net	(5,199)		22,881
Income (Loss) from Operations Before Provision for Income Taxes	10,242		(19,659)
Provision for Income Taxes	203		5,293
Net Income (Loss)	10,039		(24,952)
Net Income Attributable to Non-Controlling Interest	43		100
Net Income (Loss) Attributable to the Company	$	9,996	$	(25,052)

Income (Loss) Per Share - Basic	$	0.08	$	(0.39)
Income (Loss) Per Share - Diluted	$	0.08	$	(0.39)

Weighted-Average Shares Outstanding - Basic	73,807,711		71,092,510
Weighted-Average Shares Outstanding - Diluted	82,232,068		71,092,510

- 2 -

Revenue

Revenue for the three months ended June 30, 2024 was $53.9 million, which represents an increase of $9.2 million, or 21%, from $44.7 million for the three months ended June 30, 2023. Biomass revenue increased by $8.5 million, or 28%, cannabis retail revenue increased by $0.8 million, or 8%, and CPG revenue increased slightly for the three months ended June 30, 2024 as compared to the same period in the prior year. The increase in wholesale biomass revenues was primarily attributable to demand for the increased production resulting from the commencement of cultivation at Greenhouse 5 in late January 2024. As a result, the Camarillo facility reported $39.1 million in wholesale biomass revenue compared to $30.6 million in the same period in the prior year. The increase in retail operations revenues was primarily attributable to increased sales at our NHC Turlock dispensary which opened in May 2023. CPG revenues were relatively consistent with results from the same period in the prior year.

Cost of Goods Sold and Gross Profit

Cost of goods sold for the three months ended June 30, 2024 was $25.3 million, an increase of $5.0 million, or 25%, compared with $20.3 million for the three months ended June 30, 2023. Gross profit for the three months ended June 30, 2024 was $28.7 million, representing a gross margin of 53%, compared to a gross profit of $24.4 million, representing a gross margin of 55% for the three months ended June 30, 2023. The increase in cost of goods sold during the three months ended June 30, 2024 was primarily attributable to our growth in revenue and accompanying increase in production. Gross profit dollars for our wholesale biomass segment increased by $4.0 million primarily due to the increase in revenues. Gross profit percentage for wholesale biomass was unfavorably impacted by ramp up costs for our new harvest during the three months ended June 30, 2024 as compared to the same period in the prior year. Gross profit dollars for our CPG segment increased by $0.7 million primarily due to decreases in product, labor and overhead costs. Gross profit dollars for our retail segment was comparable with the prior year.

Total Operating Expenses

Total operating expenses for the three months ended June 30, 2024 was $23.6 million, an increase of $2.4 million, or 11%, compared to total operating expenses of $21.2 million for the three months ended June 30, 2023. The increase in total operating expenses was attributable to the factors described below.

General and administrative expenses for the three months ended June 30, 2024 and 2023 were $17.4 million and $13.1 million, respectively, an increase of $4.3 million, or 33%. The increase in general and administrative expenses was primarily attributed to an increase of $5.1 million in employee-related costs, which includes stock-based compensation, partially offset by lower bad debt expense of $0.9 million.

Sales and marketing expenses for the three months ended June 30, 2024 and 2023 were $0.7 million and $1.0 million, respectively, a decrease of $0.3 million, or 30%. The decrease was primarily attributable to decreases in advertising and royalty expenses of $0.3 million. Sales and marketing expenses include trade marketing, point of sale marketing for our wholesale CPG business product lines and promotions in various media outlets.

Professional fees for the three months ended June 30, 2024 and 2023 were $1.9 million and $2.2 million, respectively, a decrease of $0.3 million, or 14%. The decrease in professional fees was primarily attributable to decreases in consulting fees as compared to the same period in the prior year.

Depreciation and amortization expenses for the three months ended June 30, 2024 and 2023 were $3.7 million and $3.6 million, respectively, which is largely consistent period over period.

There was no impairment expense for the three months ended June 30, 2024 compared to $1.3 million in the prior year for intangible assets. During the three months ended June 30, 2023, management noted indicators of impairment related to retail intangible assets. As a result of the indicators and an assessment of impairments, we recorded impairment expense for intangible assets of $1.3 million for the three months ended June 30, 2023.

Total Other (Income) Expense

Total other (income) expense changed to income of $5.2 million from an expense of $22.9 million for the three months ended June 30, 2024 as compared to 2023. A gain on the change in fair value of contingent liabilities and shares payable of $7.9 million was recognized during the three months ended June 30, 2024 as compared to a loss of $19.1 million during the three months ended June 30, 2023 resulting in a change of $27.0 million. The remainder of the change was primarily due to a $1.0 million loan amendment fee recognized during the three months ended June 30, 2023.

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Provision for Income Taxes

Provision for income taxes for the three months ended June 30, 2024 and 2023 was $0.2 million as compared to $5.3 million, respectively a favorable change of $5.1 million, or 96%. The favorable change in the provision for income taxes was the result of our change in tax position.

Comparison of the Six Months Ended June 30, 2024 and 2023

The following are the results of our operations for the six months ended June 30, 2024 compared to the six months ended June 30, 2023 (in thousands, except share and per share data):


	Six Months Ended
	June 30,
	2024		2023
Revenues, Net	$	84,038	$	72,220
Cost of Goods Sold (Exclusive of Depreciation and Amortization Shown Separately Below)	42,838		35,274
Gross Profit	41,200		36,946
Operating Expenses:
General and Administrative	30,894		24,441
Sales and Marketing	1,159		1,649
Professional Fees	5,523		3,700
Depreciation and Amortization	7,439		7,406
Impairment Expense for Goodwill	—		14,144
Impairment Expense for Intangible Assets	—		6,854
Total Operating Expenses	45,015		58,194
Loss from Operations	(3,815)		(21,248)
Other (Income) Expense:
Interest Expense	4,799		4,627
Interest Income	—		(45)
Loss on Equity Method Investments	76		2,228
(Gain) Loss on Change in Fair Value of Derivative Asset	(145)		130
(Gain) Loss on Change in Fair Value of Contingent Liabilities and Shares Payable	(1,445)		22,510
Other Expense, Net	93		1,370
Total Other Expense, Net	3,378		30,820
Loss from Operations Before Provision for Income Taxes	(7,193)		(52,068)
Provision for Income Taxes	1,037		7,667
Net Loss	(8,230)		(59,735)
Net Income Attributable to Non-Controlling Interest	105		63
Net Loss Attributable to the Company	$	(8,335)	$	(59,798)

Loss Per Share - Basic	$	(0.22)	$	(0.92)
Loss Per Share - Diluted	$	(0.22)	$	(0.92)

Weighted-Average Shares Outstanding - Basic	73,522,518		71,673,212
Weighted-Average Shares Outstanding - Diluted	73,522,518		71,673,212

- 4 -

Revenue

Revenue for the six months ended June 30, 2024 was $84.0 million, which represents an increase of $11.8 million, or 16%, from $72.2 million for the six months ended June 30, 2023. Biomass revenue increased by $9.9 million, or 22%, cannabis retail revenue increased by $1.4 million, or 7%, and CPG revenue increased by $0.5 million, or 6%, for the six months ended June 30, 2024 as compared to the same period in the prior year. The increase in wholesale biomass revenues during the six months ended June 30, 2024 was primarily attributable to continued demand for the increased production resulting from the commencement of cultivation at Greenhouse 5 in late January 2024. As a result, the Camarillo facility reported $55.0 million in wholesale biomass revenue compared to $45.1 million in the same period in the prior year. The increase in retail operations revenues was primarily attributable to increased sales at our NHC Turlock dispensary which opened in May 2023. CPG revenues were relatively consistent with results from the same period in the prior year.

Cost of Goods Sold and Gross Profit

Cost of goods sold for the six months ended June 30, 2024 was $42.8 million, an increase of $7.5 million, or 21%, compared with $35.3 million for the six months ended June 30, 2023. Gross profit for the six months ended June 30, 2024 was $41.2 million, representing a gross margin of 49%, compared to a gross profit of $36.9 million, representing a gross margin of 51% for the six months ended June 30, 2023. The increase in cost of goods sold during the six months ended June 30, 2024 was primarily attributable to our growth in revenue and accompanying increase in production. Gross profit dollars for our biomass segment increased by $4.0 million primarily due to the increase in revenues. Gross profit percentage for wholesale biomass was unfavorably impacted by ramp up costs for our new harvest during the six months ended June 30, 2024 as compared to the same period in the prior year. Gross profit dollars for our CPG segment increased by $0.6 million primarily due to the increase in revenues. Gross profit dollars for our retail segment was comparable with the prior year.

Total Operating Expenses

Total operating expenses for the six months ended June 30, 2024 was $45.0 million, a decrease of $13.2 million, or 23%, compared to total operating expenses of $58.2 million for the six months ended June 30, 2023. The decrease in total operating expenses was attributable to the factors described below.

General and administrative expenses for the six months ended June 30, 2024 and 2023 were $30.9 million and $24.4 million, respectively, an increase of $6.5 million, or 27%. The increase in general and administrative expenses is primarily attributed to an increase of $7.6 million in employee-related costs, which includes stock-based compensation, partially offset by lower bad debt expense of $0.8 million.

Sales and marketing expenses for the three months ended June 30, 2024 and 2023 were $1.2 million and $1.6 million, respectively, a decrease of $0.4 million, or 25%. The decrease was primarily attributable to decreases in advertising, marketing research and royalty expenses of $0.4 million.

Professional fees for the six months ended June 30, 2024 and 2023 were $5.5 million and $3.7 million, respectively, an increase of $1.8 million, or 49%. The increase in professional fees was primarily attributable to increases in legal and accounting fees as compared to the same period in the prior year.

Depreciation and amortization expenses for the six months ended June 30, 2024 and 2023 were $7.4 million in each period which is consistent period over period.

There was no impairment expense for the six months ended June 30, 2024 compared to $21.0 million in the prior year for goodwill and intangible assets. During the six months ended June 30, 2023, management noted indicators of impairment related to CPG goodwill and intangible assets. As a result of the indicators and an assessment of impairments, we recorded impairment expense for goodwill and intangible assets of $14.1 million and $5.5 million, respectively. Additionally, during the six months ended June 30, 2023, management noted indicators of impairment related to retail intangible assets. As a result of the indicators and an assessment of impairments, we recorded impairment expense for intangible assets of $1.3 million.

- 5 -

Total Other Expense

Total other expense for the six months ended June 30, 2024 and 2023 was $3.4 million and $30.8 million, respectively, a decrease of $27.4 million, or 89%. A gain on the change in fair value of contingent liabilities and shares payable of $1.4 million was recognized during the six months ended June 30, 2024 as compared to a loss of $22.5 million during the six months ended June 30, 2023 resulting in a change of $23.9 million. The remainder of the change was due to a decrease in the loss on equity method investments of $2.2 million during the six months ended June 30, 2024 as compared to the prior year and a $1.0 million loan amendment fee recognized in the prior year.

Provision for Income Taxes

Provision for income taxes for the six months ended June 30, 2024 and 2023 was $1.0 million and $7.7 million, respectively, a favorable change of $6.7 million, or 87%. The favorable change in the provision for income taxes was the result of our change in tax position.

Non-GAAP Financial Measures

In addition to providing financial measurements based on GAAP, we provide additional financial metrics that are not defined under, prepared in accordance with or a standardized financial measure under GAAP. Management uses such non-GAAP financial measures, in addition to GAAP financial measures, to understand and compare operating results across accounting periods, for financial and operational decision-making, for planning and forecasting purposes and to evaluate our financial performance. These non-GAAP financial measures (collectively, the “non-GAAP financial measures”) are:


EBITDA			Net Income (Loss) (GAAP) adjusted for interest and financing costs, income taxes, depreciation, and amortization. This non-GAAP measure represents our current operating profitability and ability to generate cash flow.

Adjusted EBITDA			EBITDA (non-GAAP) adjusted for share-based compensation, stock appreciation rights expense, change in equity method investments, impairment expense for goodwill and intangible assets, change in fair value of derivative instruments, change in fair value of contingent liabilities and shares payable and certain debt-related fees. This non-GAAP measure represents our current operating profitability and ability to generate cash flow excluding non-recurring, irregular or one-time expenditures in order improve comparability.

Management believes that these non-GAAP financial measures assess our ongoing business in a manner that allows for meaningful comparisons and analysis of trends in the business, as they facilitate comparing financial results across accounting periods and to those of peer companies. Management also believes that these non-GAAP financial measures enable investors to evaluate our operating results and future prospects in the same manner as management. These non-GAAP financial measures may also exclude certain material non-cash items, expenses and gains and other adjustments that may be unusual in nature, infrequent or that we believe are not reflective of our ongoing operating results and performance.

As there are no standardized methods of calculating these non-GAAP financial measures, our methods may differ from those used by others, and accordingly, the use of these measures may not be directly comparable to similarly titled measures used by others in the cannabis industry or otherwise. Accordingly, these non-GAAP financial measures are intended to provide additional information and are not intended to represent and should not be considered as alternatives to net income, operating income or any other performance measures derived in accordance with GAAP as measures of operating performance or operating cash flows or as measures of liquidity. Such non-GAAP financial measures should only be considered in conjunction with the GAAP financial measures presented herein and in our Financial Statements.

These supplemental non-GAAP financial measures are presented because management has evaluated the financial results both including and excluding the adjusted items and believe that the supplemental non-GAAP financial measures presented provide additional perspective and insights when analyzing the core operating performance of the business. In addition, we believe investors use both GAAP and non-GAAP measures to assess management’s past and future decisions associated with our priorities and allocation of capital, as well as to analyze how the business operates in, or responds to, swings in economic cycles or to other events that impact the cannabis industry.

- 6 -

These non-GAAP financial measures exclude certain material non-cash items and certain other adjustments we believe are not reflective of our ongoing operations and performance. These non-GAAP financial measures are not intended to represent and should not be considered as alternatives to net income, operating income or any other performance measures derived in accordance with GAAP as measures of operating performance or operating cash flows or as measures of liquidity. These non-GAAP financial measures have important limitations as analytical tools and should not be considered in isolation or as a substitute for any standardized measure under GAAP. For example, certain of these non-GAAP financial measures:

•exclude certain tax payments that may reduce cash available to us;

•do not reflect any cash capital expenditure requirements for the assets being depreciated and amortized that may have to be replaced in the future;

•do not reflect changes in, or cash requirements for, working capital needs; and

•do not reflect the interest expense, or the cash requirements necessary to service interest or principal payments on debt.

Other companies in the cannabis industry may calculate these measures differently than we do, limiting their usefulness as comparative measures.

Adjusted EBITDA for the Three Months Ended June 30, 2024 and 2023 (non-GAAP)

The following table provides a reconciliation of our Net Income (Loss) to Adjusted EBITDA (non-GAAP) for the three months ended June 30, 2024 compared to three months ended June 30, 2023 (in thousands):


	Three Months Ended
	June 30,
	2024		2023
Net Income (Loss) (GAAP)	$	10,039	$	(24,952)
Depreciation and Amortization	3,723		3,570
Interest Expense	2,593		2,547
Provision for Income Taxes	203		5,293
EBITDA (Non-GAAP)	16,558		(13,542)
Adjustments:
Share-Based Compensation	3,621		1,532
Stock Appreciation Rights Expense	51		14
(Gain) Loss on Equity Method Investments	94		(36)

Impairment Expense for Intangible Assets	—		1,328
Change in Fair Value of Derivative Asset	(32)		143
Change in Fair Value of Contingent Liabilities and Shares Payable	(7,910)		19,100
Loan Amendment Fee	—		1,000
Adjusted EBITDA (Non-GAAP)	$	12,382	$	9,539

On a non-GAAP basis, we recorded Adjusted EBITDA (Non-GAAP) of $12.4 million for the three months ended June 30, 2024, compared to an Adjusted EBITDA (Non-GAAP) of $9.5 million for the three months ended June 30, 2023, a favorable variance of $2.9 million, or 31%. We recorded EBITDA (Non-GAAP) of $16.6 million for the three months ended June 30, 2024, compared to negative EBITDA (Non-GAAP) of $13.5 million for the three months ended June 30, 2023, a favorable change of $30.1 million, or 223%. Adjustments to EBITDA reported a decrease of $27.3 million for the three months ended June 30, 2024 compared to the same period in the prior year. The change was primarily driven by a favorable variance in the change in fair value of contingent liabilities and shares payable of $27.0 million, non-recurring impairment expense for intangibles of $1.3 million recognized in the prior year and $1.0 million loan amendment fee recognized in the prior year. This was partially offset by an increase in share-based compensation of $2.1 million as compared to the same period in the prior year.

- 7 -

Adjusted EBITDA for the Six Months Ended June 30, 2024 and 2023 (non-GAAP)

The following table provides a reconciliation of our Net Loss to Adjusted EBITDA (non-GAAP) for the six months ended June 30, 2024 compared to three months ended June 30, 2023 (in thousands):


	Six Months Ended
	June 30,
	2024		2023
Net Loss (GAAP)	$	(8,230)	$	(59,735)
Depreciation and Amortization	7,439		7,406
Interest Expense	4,799		4,627
Provision for Income Taxes	1,037		7,667
EBITDA (Non-GAAP)	5,045		(40,035)
Adjustments:
Share-Based Compensation	6,893		3,163
Stock Appreciation Rights Expense	396		14
Loss on Equity Method Investments	76		2,228
Impairment Expense for Goodwill	—		14,144
Impairment Expense for Intangible Assets	—		6,854
Change in Fair Value of Derivative Asset	(145)		130
Change in Fair Value of Contingent Liabilities and Shares Payable	(1,445)		22,510
Loan Amendment Fee	—		1,000
Adjusted EBITDA (Non-GAAP)	$	10,820	$	10,008

On a non-GAAP basis, we recorded Adjusted EBITDA (Non-GAAP) of $10.8 million for the six months ended June 30, 2024, compared to an Adjusted EBITDA (Non-GAAP) of $10.0 million for the six months ended June 30, 2023, a favorable variance of $0.8 million, or 8%. We recorded EBITDA (Non-GAAP) of $5.0 million for the six months ended June 30, 2024, compared to negative EBITDA (Non-GAAP) of $40.0 million for the six months ended June 30, 2023, a favorable change of $45.0 million, or 113%. Adjustments to EBITDA reported a decrease of $44.3 million for the six months ended June 30, 2024 compared to the same period in the prior year. The change was primarily driven by a favorable variance in the change in fair value of contingent liabilities and shares payable of $24.0 million, non-recurring impairment expense for goodwill and intangibles of $21.0 million recognized in the prior year, a decrease in loss on equity method investments of $2.2 million and a $1.0 million loan amendment fee recognized in the prior year. These were partially offset by an increase in share-based compensation of $3.7 million as compared to the same period in the prior year.

Selected Quarterly Information

A summary of selected information for each of the quarters presented is as follows (in thousands, except per share data):


	Revenues		Net Income (Loss) Before Non-Controlling Interest		Earnings (Loss) Per Share-Basic Attributable to the Company		Earnings (Loss) Per Share-Diluted Attributable to the Company
June 30, 2024	$	53,938	$	10,039	$	0.08	$	0.08
March 31, 2024	30,100		(18,269)		(0.30)		(0.30)
December 31, 2023	40,429		(38,115)		(0.58)		(0.58)
September 30, 2023	48,187		(210)		(0.10)		(0.10)
June 30, 2023	44,665		(24,952)		(0.39)		(0.39)
March 31, 2023	27,555		(34,783)		(0.52)		(0.52)
December 31, 2022	29,936		(13,912)		(0.28)		(0.28)
September 30, 2022	27,281		15,255		0.05		0.04

- 8 -

Revenue for the quarter ended June 30, 2024 was $53.9 million, an increase of $23.8 million, or 79%, as compared to revenue of $30.1 million for the quarter ended March 31, 2024. The increase in revenue was primarily due to increased biomass sales at the Camarillo Facility attributable to increased production which reported $39.1 million and $15.9 million for the quarters ended June 30, 2024 and March 31, 2024, respectively.

Revenue for the quarter ended March 31, 2024 was $30.1 million, a decrease of $10.3 million, or 26%, as compared to revenue of $40.4 million for the quarter ended December 31, 2023. The decrease in revenue was primarily due to decreased biomass sales at the Camarillo Facility due to the seasonality of plant cycle which reported $15.9 million and $26.9 million for the quarters ended March 31, 2024 and December 31, 2023, respectively.

Revenue for the quarter ended December 31, 2023 was $40.4 million, a decrease of $7.8 million, or 16%, as compared to revenue of $48.2 million for the quarter ended September 30, 2023. The decrease in revenue was primarily due to decreased biomass sales at the Camarillo Facility due to the seasonality of plant cycle which reported $26.9 million and $33.9 million for the quarters ended December 31, 2023 and September 30, 2023, respectively.

Revenue for the quarter ended September 30, 2023 was $48.2 million, an increase of $3.5 million, or 8%, as compared to revenue of $44.7 million for the quarter ended June 30, 2023. The increase in revenue was primarily due to higher biomass sales at the Camarillo Facility driven by increased production due to seasonality of plant cycle due the higher biomass sales at the Camarillo Facility of $3.2 million for the quarter ended September 30, 2023 as compared to the prior quarter.

Revenue for the quarter ended June 30, 2023 was $44.7 million, an increase of $17.1 million, or 62%, from $27.6 million for the quarter ended March 31, 2023. The increase in revenue was primarily due to higher biomass sales at the Camarillo Facility driven by increased production due to seasonality of plant cycle, and, to a lesser extent, an increase in average wholesale biomass pricing.

Revenue for the quarter ended March 31, 2023 was $27.6 million, a decrease of $2.4 million, or 8%, from $29.9 million for the quarter ended December 31, 2022. The decrease in revenue was due to the seasonality of plant cycle during the quarter ended March 31, 2023 as compared to the quarter ended December 31, 2022.

Revenue for the quarter ended December 31, 2022 was $29.9 million, an increase of $2.7 million, or 10% from $27.3 million for the quarter ended September 30, 2022. The increase in revenue during the fourth quarter of 2022 is primarily due to the acquisitions of the Natural Healing Center retail dispensaries located in Grover Beach, Lemoore and Morro Bay, California which reported $5.4 million in revenue as compared to nil during the third quarter of 2022.

Net income for the quarter ended June 30, 2024 was $10.0 million, which represents a favorable change of $28.3 million, or 155%, from a net loss of $18.3 million for the quarter ended March 31, 2024. The favorable change was primarily due to an increase of $16.1 million in gross profit and a favorable change of $14.4 million on the change in fair value of contingent liabilities and shares payable.

Net loss for the quarter ended March 31, 2024 was $18.3 million, which represents a favorable change of $19.8 million, or 52%, from a net loss of $38.1 million for the quarter ended December 31, 2023. The favorable change was primarily due to the decline in impairments recognized during the three months ended March 31, 2024, while $31.8 million of impairment was recognized during the three months ended December 31, 2023.

Net loss for the quarter ended December 31, 2023 was $38.1 million, which represents an unfavorable change of $37.9 million, or 18,050%, from a net loss of $0.2 million for the quarter ended September 30, 2023. The unfavorable change was primarily due to increased loss from operations related to intangible impairments coupled with increased total other expense during the quarter ended December 31, 2023 as compared to the third fiscal quarter of 2023.

Net loss for the quarter ended September 30, 2023 was $0.2 million, which represents a favorable change of $24.7 million, or 99%, from a net loss of $25.0 million for the quarter ended June 30, 2023. The favorable change was primarily due to loss on change in fair value of contingent liabilities and shares payable of $19.1 million reported during the quarter ended June 30, 2023 as compared to a gain of $4.0 million for the quarter ended September 30, 2023.

Net loss for the quarter ended June 30, 2023 was $25.0 million, which represents a favorable change of $9.8 million, or 28%, from net loss of $34.8 million for the quarter ended March 31, 2023. The favorable change was primarily due to an increase in gross profit coupled with a decrease in operating expenses for the quarter ended June 30, 2023.

- 9 -

Net loss for the quarter ended March 31, 2023 was $34.8 million, which represents an unfavorable change of $20.9 million, or 150%, from net loss of $13.9 million for the quarter ended December 31, 2022. The unfavorable change was due to impairment expense of $19.8 million recognized related to CPG goodwill and intangible assets during the quarter ended March 31, 2023.

Net loss for the quarter ended December 31, 2022 was $13.9 million, which represents an unfavorable change of $29.2 million, or 191%, from net income of $15.3 million for the quarter ended September 30, 2022. The unfavorable change was due to a gain on change in fair value of contingent liabilities recognized during the quarter ended September 30, 2022 of $31.1 million as compared to a loss on change in fair value of contingent liabilities of $2.1 million during the fourth quarter of 2022.

Liquidity and Capital Resources

Overview

Historically, our primary source of liquidity has been our operations, capital contributions made by equity investors and debt issuances. We are meeting our current operational obligations as they become due from our current working capital and from operations. However, we have sustained losses since inception and may require additional capital in the future. As of and for the six months ended June 30, 2024, we had an accumulated deficit of $199.3 million, a net loss attributable to the Company of $8.3 million and net cash provided by operating activities of $7.0 million. We estimate that based on current business operations and working capital, we will continue to meet our obligations as they become due in the short term. We are generating cash from revenues and deploying our capital reserves to acquire and develop assets capable of producing additional revenues and earnings over both the immediate and near term. Capital reserves are primarily being utilized for capital expenditures, facility improvements, product development and marketing.

Liquidity risk is the risk that we will not be able to meet our financial obligations associated with financial liabilities. We manage liquidity risk through the management of our capital structure. Our approach to managing liquidity is to ensure that we will have sufficient liquidity to settle obligations and liabilities when due. In the event sufficient cash flow is not available from operating activities, we may continue to raise equity or debt capital from investors in order to meet liquidity needs. If we are not able to secure adequate additional funding, we may be forced to make reductions in spending, extend payment terms with suppliers, liquidate assets where possible, or suspend or curtail planned programs. Any of these actions could materially harm our business, results of operations and future prospects. There can be no assurance that such financing will be available or will be on terms acceptable to us.

Private Placement Financing

There were no private placement financings during the six months ended June 30, 2024.

Financial Condition

Cash Flows

The following table summarizes our Consolidated Statements of Cash Flows from the Financial Statements for the six months ended June 30, 2024 and 2023 (in thousands):


	Six Months Ended
	June 30,
	2024		2023
Net Cash Provided by Operating Activities	$	7,025	$	12,723
Net Cash Used in Investing Activities	(6,317)		(1,573)
Net Cash Used in Financing Activities	(7,353)		(2,604)
Net Increase (Decrease) in Cash, Restricted Cash and Cash Equivalents	(6,645)		8,546
Cash, Restricted Cash and Cash Equivalents, Beginning of Period	32,524		14,144
Cash, Restricted Cash and Cash Equivalents, End of Period	$	25,879	$	22,690

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Cash Flow from Operating Activities

Net cash provided by operating activities was $7.0 million for the six months ended June 30, 2024, a decrease of $5.7 million, or 45%, as compared to net cash provided by operating activities of $12.7 million for the six months ended June 30, 2023. We had an unfavorable change in adjustments to reconcile net loss to net cash provided by operating activities of $44.0 million and an unfavorable change in net operating assets and liabilities of $13.2 million for the six months ended June 30, 2024 as compared to the same period in the prior year. These amounts were offset by a decrease in net loss of $51.5 million for the six months ended June 30, 2024 as compared to the same period in the prior year.

Cash Flow from Investing Activities

Net cash used in investing activities was $6.3 million for the six months ended June 30, 2024, an increase of $4.7 million, or 294%, compared to net cash used in investing activities of $1.6 million for the six months ended June 30, 2023. This increase was primarily driven by capital expenditures to open the next phase of the Camarillo property during the six months ended June 30, 2024.

Cash Flow from Financing Activities

Net cash used in financing activities was $7.4 million for the six months ended June 30, 2024, an increase of $4.8 million, or 185%, compared to net cash used in financing activities of $2.6 million for the six months ended June 30, 2023. This increase was primarily driven by the increase in notes payable payments of $3.8 million and an increase in distributions to preferred shareholders of $1.1 million during the period ended June 30, 2024 compared to the same period in the prior year.

As discussed in the Liquidity and Capital Resources section above, our primary source of liquidity has been operations, capital contributions made by equity investors and debt issuances. In the event sufficient cash flow is not available from operating activities, we may continue to raise equity capital from investors in order to meet liquidity needs.

Contractual Obligations

We have contractual obligations to make future payments, including debt agreements and lease agreements from third parties.

The following table summarizes such obligations as of June 30, 2024 (in thousands):


	2024		2025		2026-2027		After 2027		Total
	(remaining)
Notes Payable to Third Parties	$	3,777	$	7,558	$	50,703	$	—	$	62,038
Lease Obligations	1,598		2,925		5,012		5,263		14,798
Total Contractual Obligations	$	5,375	$	10,483	$	55,715	$	5,263	$	76,836

Off-Balance Sheet Arrangements

As of the date of this MD&A, we do not have any off-balance sheet arrangements that have, or are reasonably likely to have, a current or future effect on our results of operations or financial condition of including, without limitation, such considerations as liquidity and capital resources that have not previously been discussed.

Transactions with Related Parties During the Six Months Ended June 30, 2024

Related parties are defined as management and members of the Company and/or members of their immediate family and/or other companies and/or entities in which a board member or senior officer is a principal owner or senior executive. Other than disclosed elsewhere in the financial statements, related party transactions and balances are as follows:

Consulting Agreement

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Leases

Critical Accounting Estimates

Use of Estimates

The preparation of the Financial Statements in accordance with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the dates of the Financial Statements and the reported amounts of total net revenue and expenses during the reporting period. We regularly evaluate significant estimates and assumptions related to the consolidation or non-consolidation of variable interest entities, estimated useful lives, depreciation of property and equipment, amortization of intangible assets, inventory valuation, share-based compensation, business combinations, goodwill impairment, long-lived asset impairment, purchased asset valuations, fair value of financial instruments, compound financial instruments, derivative liabilities, deferred income tax asset valuation allowances, incremental borrowing rates, lease terms applicable to lease contracts and going concern. These estimates and assumptions are based on current facts, historical experience and various other factors that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the recording of revenue, costs and expenses that are not readily apparent from other sources. The actual results we experience may differ materially and adversely from these estimates. To the extent there are material differences between the estimates and actual results, our future results of operations will be affected.

There have been no changes to our critical accounting estimates described in the Management’s Discussion and Analysis of financial condition and results of operations for the year ended December 31, 2023, available on SEDAR+ at www.sedarplus.ca, that have had a material impact on our condensed consolidated interim financial statements and related notes.

Changes in Accounting Policies Including Adoption

See Note 2 – Summary of Significant Accounting Policies to our Unaudited Condensed Interim Consolidated Financial Statements for a summary of recently adopted accounting pronouncements.

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Recently Issued Accounting Pronouncements

See Note 2 – Summary of Significant Accounting Policies to our Unaudited Condensed Interim Consolidated Financial Statements for a summary of recently issued accounting pronouncements.

Other Risks and Uncertainties

Credit Risk

Credit risk is the risk of a potential loss to us if a customer or third party to a financial instrument fails to meet its contractual obligations. The maximum credit exposure as of June 30, 2024 and December 31, 2023 is the carrying values of cash and cash equivalents, accounts receivable and notes receivable. We do not have significant credit risk with respect to our customers. All cash and cash equivalents are placed with major U.S. financial institutions. We provide credit to our customers in the normal course of business and have established credit evaluation and monitoring processes to mitigate credit risk but have limited risk as the majority of our sales are transacted with cash.

Liquidity Risk

Liquidity risk is the risk that we will not be able to meet our financial obligations associated with financial liabilities. We manage liquidity risk through the management of our capital structure. Our approach to managing liquidity risk is to ensure that it will have sufficient liquidity to settle obligations and liabilities when due. As of June 30, 2024 and December 31, 2023, cash generated from ongoing operations was not sufficient to fund operations and growth strategy as discussed above in Liquidity and Capital Resources. We have therefore depended on financing from sale of our equity and from debt financing to fund our operations. Overall, management does not expect the net cash contribution from its operations and investments to be positive in the near term, and we therefore expect to rely on financing from equity or debt.

Interest Rate Risk

Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates. Cash and cash equivalents bear interest at market rates. Our financial liabilities have fixed rates of interest and therefore expose us to a limited interest rate fair value risk.

Price Risk

Price risk is the risk of variability in fair value due to movements in equity or market prices. Our investments are susceptible to price risk arising from uncertainties about their future outlook, future values and the impact of market conditions. The fair value of investments in privately-held entities are based on a market approach, which uses prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities.

Tax Risk

Tax risk is the risk of changes in the tax environment that would have a material adverse effect on our business, results of operations, and financial condition. Currently, state licensed marijuana businesses are assessed a comparatively high effective federal tax rate due to Internal Revenue Code Section 280E, which bars businesses from deducting all expenses except their cost of goods sold when calculating federal tax liability. Any increase in tax levies resulting from additional tax measures may have a further adverse effect on our operations, while any decrease in such tax levies will be beneficial to future operations.

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REGULATORY ENVIRONMENT: ISSUERS WITH CANNABIS-RELATED ASSETS IN THE UNITED STATES

In accordance with Staff Notice 51-352, below is a discussion of the current federal and California regulatory regimes where the Company is currently directly and indirectly involved, through its subsidiaries and investments, in the U.S. regulated cannabis industry.

In accordance with Staff Notice 51-352, the Company evaluates, monitors and reassesses this disclosure, and any related risks, on an ongoing basis and the same will be supplemented, amended and communicated to investors in public filings, including in the event of government policy changes or the introduction of new or amended guidance, laws or regulations regarding the U.S. regulated cannabis industry. Any non-compliance, citations or notices of violation which may have an impact on the Company’s licenses, business activities, or operations will be promptly disclosed by the Company.

The Company derives its revenues from the cannabis industry in California, and the industry is illegal under U.S. federal law.

The Company is involved (through its licensed subsidiaries) in the regulated cannabis industry in the U.S. where state, local and territorial laws permit such activities. Currently, its subsidiaries and managed entities are directly engaged in the cultivation, manufacture, processing, sale and distribution of cannabis and hold licenses in the adult-use and/or medicinal cannabis marketplace in the state of California.

The Company’s Statement of Financial Position and Operating Statement Exposure to U.S. Cannabis Related Activities.

As of the date of this MD&A, the majority of the Company’s business was directly derived from U.S. cannabis-related activities. As such, the Company’s statement of financial position and statement of profits and losses exposure to U.S. cannabis-related activities is 100%.

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U.S. Federal Overview

The Controlled Substances Act

The U.S. federal government regulates drugs through the federal Controlled Substances Act (21 U.S.C. § 811) (the “CSA”), which places controlled substances, including cannabis (referred to under the CSA as marijuana, and defined as all parts of the plant cannabis sativa L. containing more than 0.3% tetrahydrocannabinol (THC))1, in one of five (5) different schedules. Cannabis, except hemp containing less than 0.3% (on a dry weight basis) of the psychoactive ingredient in cannabis, is currently classified as a Schedule I drug. As a Schedule I drug, the federal U.S. Drug Enforcement Agency considers cannabis to have a high potential for abuse, no currently accepted medical use in treatment in the U.S., and a lack of accepted safety for use of the drug under medical supervision2. The classification of cannabis as a Schedule I drug is inconsistent with what the Company believes to be many valuable medical uses for cannabis, as accepted by physicians, researchers, patients, and others. As evidence of this, the U.S. Food and Drug Administration (“FDA”) on June 25, 2018, approved Epidiolex an oral solution with an active ingredient, CBD, that is derived from the cannabis plant for the treatment of seizures associated with two rare and severe forms of epilepsy, Lennox- Gastaut syndrome and Dravet syndrome, in patients two years of age and older. Epidiolex was initially placed on Schedule V, the least restrictive schedule of the CSA. On April 6, 2020, the U.S. Drug Enforcement Administration (“DEA”) removed Epidiolex entirely from the CSA. This is the first FDA-approved drug that contains a purified drug substance derived from the cannabis plant. CBD is a chemical component of cannabis that does not contain the intoxicating properties of tetrahydrocannabinol (“THC”), the primary psychoactive component of cannabis3. The Company believes the CSA categorization of cannabis as a Schedule I drug is not reflective of the medicinal properties of cannabis or the public perception thereof, and numerous studies show cannabis is not able to be abused in the same way as other Schedule I drugs, that it has medicinal properties, and that it can be safely administered4.

The federal position is also not necessarily consistent with democratic approval of cannabis at certain state, local and territorial government levels in the U.S. Unlike in Canada, which has federal legislation uniformly governing the cultivation, distribution, sale and possession of cannabis under the Cannabis Act, S.C. 2018, c. 16, (Canada) and the Cannabis for Medical Purposes Regulations, cannabis is largely regulated at the state and local level in the U.S. Certain state, local and territorial laws regulating cannabis conflict with the CSA, which makes cannabis use and possession federally illegal. Although certain states and territories of the U.S. authorize medical or adult-use cannabis production and distribution by licensed or registered entities, under U.S. federal law, the possession, use, cultivation, and transfer of cannabis and any related drug paraphernalia is illegal, and any such acts are criminal acts. Although the Company’s activities are compliant with applicable state, local and territorial laws, strict compliance with state, local and territorial laws with respect to cannabis may neither absolve the Company of liability under U.S. federal law nor provide a defense to federal criminal charges that may be brought against the Company. The Supremacy Clause of the U.S. Constitution establishes that the U.S. Constitution and federal laws made pursuant to it are paramount and, in case of conflict between federal and state law, federal law shall apply.

Nonetheless, 46 U.S. states, the District of Columbia, and the territories of Puerto Rico, the U.S. Virgin Islands, Guam, and the Northern Mariana Islands have legalized or decriminalized some form of cannabis for medical use, while 24 states and the District of Columbia have legalized the adult-use of cannabis for recreational purposes. As more and more states and territories legalized medical and/or adult-use cannabis, the federal government attempted to provide clarity on the incongruity between federal prohibition under the CSA and these state-legal regulatory frameworks. Notwithstanding the foregoing, cannabis remains illegal under U.S. federal law, with cannabis listed as a Schedule I drug under the CSA.

1 Unless otherwise noted herein, we use cannabis and marijuana interchangeably.

2 21 U.S.C. 812(b)(1).

3 Cannabis containing THC in excess of 0.3% on a dry weight basis is defined federally as marijuana. The federal definition of marijuana is commonly incorporated into state laws and regulations.

4See Lachenmeier, DW & Rehm, J. (2015). Comparative risk assessment of alcohol, tobacco, cannabis and other illicit drugs using the margin of exposure approach. Scientific Reports, 5, 8126. doi: 10.1038/srep08126; see also Thomas, G & Davis, C. (2009). Cannabis, Tobacco and Alcohol Use in Canada: Comparing risks of harm and costs to society. Visions Journal, 5. Retrieved from http://www.heretohelp.bc.ca/sites/default/files/visions_cannabis.pdf; see also Jacobus et al. (2009). White matter integrity in adolescents with histories of marijuana use and binge drinking. Neurotoxicology and Teratology, 31, 349-355. https://doi.org/10.1016/j.ntt.2009.07.006; Could smoking pot cut risk of head, neck cancer? (2009 August 25). Retrieved from https://www.reuters.com/article/us-smoking-pot/could-smoking-pot-cut-risk-of-head-neck-cancer-idUSTRE57O5DC20090825; Watson, SJ, Benson JA Jr. & Joy, JE. (2000). Marijuana and medicine: assessing the science base: a summary of the 1999 Institute of Medicine report. Arch Gen Psychiatry Review, 57, 547-552. Retrieved from https://www.ncbi.nlm.nih.gov/pubmed/10839332; see also Hoaken, Peter N.S. & Stewart, Sherry H. (2003). Drugs of abuse and the elicitation of human aggressive behavior. Addictive Behaviours, 28, 1533-1554. Retrieved from http://www.ukcia.org/research/AgressiveBehavior.pdf; and see also Fals-Steward, W., Golden, J. & Schumacher, JA. (2003). Intimate partner violence and substance use: a longitudinal day-to-day examination. Addictive Behaviors, 28, 1555-1574. Retrieved from https://www.ncbi.nlm.nih.gov/pubmed/14656545.

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Until 2018, the federal government provided guidance to federal law enforcement agencies and banking institutions regarding cannabis through a series of memoranda from the Department of Justice (“DOJ”). The most recent such memorandum was drafted by former Deputy Attorney General James Cole on August 29, 2013 (the “Cole Memorandum”)5. The Cole Memorandum offered guidance to federal enforcement agencies as to how to prioritize civil enforcement, criminal investigations and prosecutions regarding cannabis in all states, and acknowledged that, notwithstanding the designation of cannabis as a Schedule I controlled substance at the federal level, several states have enacted laws authorizing the use of cannabis. The Cole Memorandum also noted that state jurisdictions that have enacted laws legalizing cannabis in some form have also implemented strong and effective regulatory and enforcement systems to control the cultivation, processing, distribution, sale and possession of cannabis. As such, conduct in compliance with those laws and regulations is less likely to be a priority at the federal level. The Cole Memorandum was seen by many state-legal cannabis companies as a safe harbor for their licensed operations that were conducted in full compliance with all applicable state and local regulations. However, on January 4, 2018, former U.S. Attorney General Jeff Sessions rescinded the Cole Memorandum. In the absence of a uniform federal policy, U.S. Attorneys with state-legal cannabis programs within their jurisdictions are responsible for establishing enforcement priorities for their respective offices. For instance, Andrew Lelling, a former U.S. Attorney for the District of Massachusetts, stated that while his office would not immunize any businesses from federal prosecution, he anticipated focusing the office’s cannabis enforcement efforts on: (1) overproduction; (2) targeted sales to minors; and (3) organized crime and interstate transportation of drug proceeds. Other U.S. attorneys provided less assurance, promising to enforce federal law, including the CSA in appropriate circumstances.

Following his election, President Biden appointed Merrick Garland to serve as the U.S. Attorney General. While Attorney General Garland indicated in his confirmation hearing that he felt that enforcement of the federal cannabis prohibition against state-licensed cannabis businesses would not be a priority target of Department of Justice resources, and no formal enforcement policy has been issued to date. There is no guarantee that state, local and territorial laws legalizing and regulating the sale and use of cannabis will not be repealed or overturned, or that local governmental authorities will not limit the applicability of state, local and territorial laws within their respective jurisdictions. Unless and until the U.S. congress (“Congress”) amends the CSA with respect to cannabis (and as to the timing or scope of any such potential amendments there can be no assurance), there is a risk that federal authorities may enforce current U.S. federal law.

As an industry best practice, despite the rescission of the Cole Memorandum, the Company abides by the following standard operating policies and procedures:

1.Ensure that its operations are compliant with all licensing requirements as established by the applicable state, county, municipality, town, township, borough, and other political/administrative divisions;

2.Ensure that its cannabis related activities adhere to the scope of the licensing obtained (for example: in the states where cannabis is permitted only for adult-use, the products are only sold to individuals who meet the requisite age requirements);

3.Implement policies and procedures to ensure that cannabis products are not distributed to minors;

4.Implement policies and procedures to ensure that funds are not distributed to criminal enterprises, gangs or cartels;

5.Implement an inventory tracking system and necessary procedures to ensure that such compliance system is effective in tracking inventory and preventing diversion of cannabis or cannabis products into those states and territories where cannabis is not permitted by state or territorial law, or across any state or territorial lines in general;

6.Ensure that its state-authorized cannabis business activity is not used as a cover or pretense for trafficking of other illegal drugs, is engaged in any other illegal activity or any activities that are contrary to any applicable anti- money laundering statutes; and

7.Ensure that its products comply with applicable regulations and contain necessary disclaimers about the contents of the products to prevent adverse public health consequences from cannabis use and prevent impaired driving.

5See James M. Cole, Memorandum for all United States Attorneys re: Guidance Regarding Marijuana Enforcement (Aug. 29, 2013), available at https://www.justice.gov/iso/opa/resources/3052013829132756857467.pdf.

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In addition, the Company conducts background checks to ensure that the principals and management of its operating subsidiaries are of good character, have not been involved with other illegal drugs, engaged in illegal activity or activities involving violence, or use of firearms in cultivation, manufacturing or distribution of cannabis. The Company will also conduct ongoing reviews of the activities of its cannabis businesses, the premises on which they operate and the policies and procedures that are related to possession of cannabis or cannabis products outside of the licensed premises, including the cases where such possession is permitted by regulation. See “Compliance and Monitoring” section herein for additional details.

One legislative safeguard for the medical cannabis industry remains in place: Congress has passed a so-called “rider” provision in the fiscal years 2015, 2016, 2017, 2018, 2019, 2020, 2021 and 2022 Consolidated Appropriations Acts to prevent the federal government from using congressionally appropriated funds to enforce federal cannabis laws against regulated medical cannabis actors operating in compliance with state and local law. The rider is known as the “Rohrabacher-Farr” Amendment after its original lead sponsors (it is also sometimes referred to as the “Rohrabacher-Blumenauer” or “Joyce- Leahy” Amendment, but it is referred to in this MD&A as the “Rohrabacher-Farr Amendment”). The Rohrabacher-Farr Amendment was included in the Consolidated Appropriations Act, 2023 and signed into law by President Biden on December 29, 2022. The Rohrabacher-Farr Amendment will remain in effect through the fiscal year, which ends September 30, 2024. There is no guarantee that the Rohrabacher-Farr Amendment will be included in the omnibus appropriation package or a continuing budget resolution once the current spending bill expires.

On October 6, 2022, President Biden announced a series of marijuana-related initiatives. Included amongst them was a directive to the Secretary of Health and Human Services and the Attorney General “to initiate the administrative process to review expeditiously how marijuana is scheduled under federal law. Federal law currently classifies marijuana in Schedule I of the CSA, the classification meant for the most dangerous substances.” This administrative review would be conducted by the FDA and the DEA. This review could result in efforts to remove cannabis from Schedule I of the CSA, and such efforts are formally underway as of the date of this MD&A. On August 30, 2023, the Department of Health and Human Services published its recommendation that marijuana should be moved to Schedule III. In April 2024, the DEA presented a proposed change rescheduling cannabis to Schedule III and opened a public comment period. That public comment period ended on July 22, 2024. The vast majority of the thousands of comments received were in favor of rescheduling. In response, two leading congressional Republicans, Rep. Cathy McMorris Rogers, who chairs the House Energy and Commerce Committee, and Rep. Brett Guthrie, who chairs the Subcommittee on Health, wrote a letter to the DOJ and the Department of Health and Human Services questioning the rescheduling process as constituting “unusual circumstances” and suggesting the DEA has doubts about rescheduling. The lawmakers pointed out that the proposed rule itself states that the “DEA has not yet made a determination as to its views of the appropriate schedule for marijuana.” Following the close of public comment, a final rule is expected in the coming months, though the DOJ may wait until after the 2024 election to publish the final rule.

The DEA has the final say in whether to change marijuana’s scheduling and is not bound to abide by the recommendations of the Department of Health and Human Services. Additionally, changing marijuana’s scheduling under the CSA is not equivalent to decriminalizing cannabis use, and would serve to alter, but not eliminate, federal regulation of marijuana. Altering the scheduling would mean the federal government acknowledges some medical uses of marijuana, but would not change its current status as a controlled substance prohibited for most uses under federal law. If the DEA does not act to alter the scheduling of marijuana, Congress could take legislative action to remove marijuana from Schedule I, either choosing to move it to another schedule, create a new schedule or classification for marijuana under the CSA, or remove marijuana as a controlled substance altogether.

On December 2, 2022, President Biden signed into law H.R. 8454, the “Medical Marijuana and Cannabidiol Research Expansion Act,” (the “Research Expansion Act”) which establishes a new registration process for conducting research on marijuana and for manufacturing marijuana products for research purposes and drug development. The Research Expansion Act is the first piece of standalone federal cannabis reform legislation in U.S. history. Among other things, the Research Expansion Act; (i) directs the DEA to register practitioners to conduct cannabis and CBD research and manufacturers to supply cannabis for research purposes; (ii) expressly allows the DEA to register manufacturers and distributors of cannabis or CBD for the purposes of commercial production of a drug approved by the FDA; (iii) requires the DEA to assess whether there is an adequate and uninterrupted supply of cannabis for research purposes; (iii) permits registered entities to manufacture, distribute, dispense, or possess cannabis or CBD for purposes of medical research; (iv) clarifies that physicians do not violate the CSA when they discuss the potential harms and benefits of cannabis and CBD with patients; and (v) directs the DHHS to coordinate with the National Institutes of Health and other agencies to report on the “therapeutic potential” of cannabis for conditions such as epilepsy, and the impact of cannabis on adolescent brain development.

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On September 27, 2023, the Senate Banking Committee passed the Secure and Fair Enforcement Regulation Banking Act (“SAFER Banking Act”) out of committee. The SAFER Banking Act is now pending a vote of the full Senate. While some banks, credit unions and other financial services providers will provide banking services to the regulated cannabis industry, the majority of medicinal or recreational cannabis businesses do not participate in traditional banking systems due to the risks of federal prosecution. The SAFER Banking Act would include safe harbor from certain criminal, civil and administrative penalties which may otherwise result due to the status of marijuana under federal law or on the basis of a banking institution’s provision of financial services to a business that violates federal law. While marijuana would remain federally illegal under the SAFER Banking Act, the law would resolve existing tensions between federal and state law with respect to banking, lending to, and insuring a state or territorial-legal cannabis business. The SAFER Banking Act would create guidelines and restrictions surrounding due diligence of regulated cannabis businesses and ongoing monitoring for specific activities, essentially bringing the regulated cannabis industry in line with other highly regulated industries which are permitted to use traditional banking institutions.

Pending enactment of the SAFER Banking Act, the current FinCEN guidance (FIN-2014-G001, issued February 14, 2014) remains in line with the Cole Memorandum and details due diligence requirements, the requirement to file regular Suspicious Activity Reports for cannabis-related businesses, and compliance with Currency Transaction Reports. Existing guidelines permit banking institutions to service the regulated cannabis industry if they follow strict guidelines and comply with regular mandatory reporting relating to those entities.

Nevertheless, as of the date of this MD&A, cannabis remains a Schedule I controlled substance at the federal level. The U.S. federal government has always reserved the right to enforce federal law regarding the sale and disbursement of medical or adult-use cannabis, even if state law sanctions such sale and disbursement. If the U.S. federal government begins to enforce U.S. federal laws relating to cannabis in states and territories where the sale and use of cannabis is currently legal, or if existing applicable state, local and territorial laws are repealed or curtailed, the Company’s business, results of operations, financial condition and prospects could be materially adversely affected.

There is a growing consensus among cannabis businesses and numerous members of Congress that prosecutorial discretion is not law and temporary legislative riders, such as the Rohrabacher-Farr Amendment, are an inappropriate way to protect regulated medical and recreational cannabis businesses. Numerous bills have been introduced in Congress in recent years to decriminalize aspects of state and territorial-legal cannabis trades. The Company has observed that each year more congressmen and congresswomen sign on and cosponsor cannabis legalization bills. In light of all this, it is anticipated that the federal government will eventually repeal the federal prohibition on cannabis and thereby leave the states and territories to decide for themselves whether to permit regulated cannabis cultivation, production and sale, just as states and territories are free today to decide policies governing the distribution of alcohol or tobacco.

Money Laundering Laws

Under U.S. federal law, it may potentially be a violation of federal money laundering statutes for financial institutions to take any proceeds from the sale of any Schedule I controlled substance. Due to the CSA’s current categorization of marijuana as a Schedule I drug, federal law makes it illegal for financial institutions that depend on the Federal Reserve’s money transfer system to take any proceeds from marijuana sales as deposits. Banks and other financial institutions could be prosecuted and possibly convicted of money laundering for providing services to cannabis businesses under the U.S. Currency and Foreign Transactions Reporting Act of 1970 (the “Bank Secrecy Act”). Therefore, under the Bank Secrecy Act, banks or other financial institutions that provide a cannabis business with a checking account, debit or credit card, small business loan, or any other service could be charged with money laundering or conspiracy.

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While there has been no change in U.S. federal banking laws to accommodate businesses in the large and increasing number of U.S. states and territories that have legalized medical and/or adult-use marijuana, in 2014, the Department of the Treasury Financial Crimes Enforcement Network (“FinCEN”) issued guidance to prosecutors of money laundering and other financial crimes (the “FinCEN Guidance”) and notified banks that it would not seek enforcement of money laundering laws against banks that service marijuana-related businesses operating under state or territorial law, provided that strict due diligence and reporting standards are met. The FinCEN Guidance advised prosecutors not to focus their enforcement efforts on banks and other financial institutions that serve marijuana-related businesses so long as that business is legal in their state or territory and none of the federal enforcement priorities referenced in the Cole Memorandum are being violated (such as keeping marijuana away from children and out of the hands of organized crime). The FinCEN Guidance also clarifies how financial institutions can provide services to marijuana-related businesses consistent with their Bank Secrecy Act obligations, including thorough customer due diligence, but makes it clear that they are doing so at their own risk. The customer due diligence steps include:

1.Verifying with the appropriate state and territorial authorities whether the business is duly licensed and registered;

2.Reviewing the license application (and related documentation) submitted by the business for obtaining a state or territorial license to operate its marijuana-related business;

3.Requesting from state or territorial licensing and enforcement authorities available information about the business and related parties;

4.Developing an understanding of the normal and expected activity for the business, including the types of products to be sold and the type of customers to be served (e.g., medical versus adult-use customers);

5.Ongoing monitoring of publicly available sources for adverse information about the business and related parties;

6.Ongoing monitoring for suspicious activity, including for any of the red flags described in this guidance; and

7.Refreshing information obtained as part of customer due diligence on a periodic basis and commensurate with the risk.

With respect to information regarding state and territorial licensure obtained in connection with such customer due diligence, a financial institution may reasonably rely on the accuracy of information provided by state and territorial licensing authorities, where states and territories make such information available.

Because most banks and other financial institutions are unwilling to provide any banking or financial services to cannabis businesses, these businesses can be forced into becoming “cash-only” businesses. While the FinCEN Guidance decreased some risk for banks and financial institutions considering serving the industry, in practice it has not materially increased banks’ willingness to provide services to regulated cannabis businesses, and most banks continue to decline to operate under the strict requirements provided under the FinCEN Guidance. This is because, as described above, the current law does not provide banks immunity from prosecution, and it also requires banks and other financial institutions to undertake time-consuming and costly due diligence on each regulated cannabis business they accept as a customer.

The few state-chartered banks and/or credit unions that have agreed to work with marijuana-related businesses are limiting those accounts to small percentages of their total deposits to avoid creating a liquidity risk. Since, theoretically, the federal government could change the banking laws as it relates to marijuana-related businesses at any time and without notice, these state- charted banks and credit unions must keep sufficient cash on hand to be able to return the full value of all deposits from marijuana-related businesses in a single day, while also keeping sufficient liquid capital on hand to serve their other customers. Those state-chartered banks and credit unions that do have customers in the cannabis industry charge marijuana-related businesses high fees to pass on the added cost of ensuring compliance with the FinCEN Guidance. Unlike the Cole Memorandum, however, the FinCEN Guidance from 2014 has not been rescinded.

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The former Secretary of the U.S. Department of the Treasury, Steven Mnuchin, publicly stated that he did not have a desire to rescind the FinCEN Guidance.6 The current Secretary of the Treasury, Janet Yellen, has not really articulated an official position of the U.S. Department of the Treasury with regard to the FinCEN Guidance and thus as an industry best practice and consistent with its standard operating procedures, the Company adheres to all customer due diligence steps in the FinCEN Guidance.

In both Canada and the U.S., transactions involving banks and other financial institutions are both difficult and unpredictable under the current legal and regulatory landscape. Legislative changes could help to reduce or eliminate these challenges for companies in the cannabis space and would improve the efficiency of both significant and minor financial transactions.

In the absence of comprehensive reform of U.S. federal cannabis legislation that would decriminalize the cannabis industry, a growing number of members of Congress have expressed support for federal legislation that would eliminate from the scope of federal money laundering statutes the financing activity of businesses operating under state and territorial-sanctioned cannabis programs. On September 26, 2019, the U.S. House of Representatives passed the Secured and Fair Enforcement Banking Act of 2019 (commonly known as the “SAFE Banking Act”), which aims to provide safe harbor guidance to financial institutions that work with U.S. regulated cannabis businesses. The SAFE Banking Act has since been introduced and has passed the U.S. House of Representatives several times, but has not been passed by the U.S. Senate. The SAFE Banking Act has also been proposed as a rider to federal annual budget bills and the National Defense Appropriations Act. However, such attempts have failed, most recently with respect to inclusion in the Consolidated Appropriate Act, signed by President Biden on December 29, 2022. While Congress may consider legislation in the future that may permanently address these issues, there can be no assurance of the content of any proposed legislation or that such legislation is ever passed. The Company’s inability, or limitations on the Company’s ability, to open or maintain bank accounts, obtain other banking services and/or accept credit card and debit card payments may make it difficult for the Company to operate and conduct its business as planned or to operate efficiently.

Federal Taxation of Cannabis Businesses

An additional challenge to cannabis-related businesses is that the provisions of Section 280E of the Internal Revenue Code of 1986, as amended (“Section 280E”) are being applied by the IRS to businesses operating in the medical and adult-use cannabis industry. Section 280E prohibits businesses from deducting certain expenses associated with the trafficking of controlled substances within the meaning of Schedule I and II of the CSA. The IRS has applied Section 280E broadly in tax audits against various cannabis businesses in the U.S. that are permitted under applicable state and territorial laws, seeking substantial sums in tax liabilities, interest and penalties resulting from underpayment of taxes due to the lack of deductibility of otherwise ordinary business expenses, the deduction of which is prohibited by Section 280E. Although the IRS issued a clarification allowing the deduction of certain expenses that can be categorized as cost of goods sold, the scope of such items is interpreted somewhat narrowly and disparately depending upon the type of cannabis vertical (e.g., cultivation, manufacturing and distribution)., and the bulk of operating costs and general administrative costs are not permitted to be deducted. Therefore, businesses in the state and territorial-legal cannabis industry are subject to higher effective tax rates and thus may be less profitable than they would otherwise be. It should be noted that because Section 280E applies only to activities involving controlled substances within the meaning of Schedule I or II of the CSA, the DEA’s proposed re-scheduling of marijuana from Schedule I to Schedule III would allow U.S. regulated cannabis businesses to deduct all of their business expenses on federal tax filings without any prohibitions under Section 280E.

6 Angell, Tom. (2018 February 6). Trump Treasury Secretary Wants Marijuana Money In Banks, available at https://www.forbes.com/sites/tomangell/2018/02/06/trump-treasury-secretary-wants- marijuana-money-in-banks/#2848046a3a53; see also Mnuchin: Treasury is reviewing cannabis policies. (2018 February 7), available at http://www.scotsmanguide.com/News/2018/02/Mnuchin-- Treasury-is-reviewing-cannabis-policies/.

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Reform of Federal Legislation on Industrial Hemp

On December 20, 2018, former President Donald Trump signed the Agriculture Improvement Act of 2018, Pub. L. 115- 334, (popularly known as the “2018 Farm Bill”) into law.7 Under the 2018 Farm Bill, industrial and commercial hemp are no longer to be classified as a Schedule I controlled substance in the U.S. Hemp includes the plant cannabis sativa L and any part of that plant, including seeds, derivatives, extracts, cannabinoids and isomers, which contain no more than 0.3% of delta-9-THC concentration by dry weight. The 2018 Farm Bill allows states to create regulatory programs allowing for the licensed cultivation of hemp and production of hemp-derived products. Hemp and products derived from it, such as CBD, may then be sold into commerce and transported across state lines, provided that the hemp from which any product is derived was cultivated under a license issued by an authorized state program approved by the U.S. Department of Agriculture and otherwise meets the definition of hemp.

Despite the removal of CBD extracted from hemp and other hemp extracts produced under authorized state hemp programs excluded from the CSA, the FDA’s stated position remains that it is a prohibited act under the Federal Food, Drug, and Cosmetic Act to introduce into interstate commerce a food to which CBD, THC or cannabinoids has been added, or to market a product containing these ingredients as a dietary supplement.8 However, on January 26, 2023, the FDA concluded that a new regulatory pathway for CBD is needed that balances individual’s desire for access to CBD products with the regulatory oversight needed to manage risks. The FDA is seeking support from Congress to develop a new regulatory pathway.

On a state level, the November 2020 elections included multiple initiatives on state ballots regarding cannabis, all of which passed. In Arizona and New Jersey, adult-use cannabis ballot initiatives passed. Similarly, adult-use passed in Montana, medical use passed in Mississippi, and both adult-use and medical use passed in South Dakota; the legalization of adult-use in South Dakota was later nullified by state courts for procedural reasons. Barring any further legal challenges, these states are expected to adopt governing rules and regulations to expand their cannabis programs accordingly. In the 2022 election cycle, voters in Arkansas, North Dakota and South Dakota rejected ballot measures aimed at legalizing recreational use of cannabis while in two other states, Maryland and Missouri, voters approved measures legalizing cannabis for adult use.

The results of the 2022 Congressional elections may impact the likelihood of any future legal developments regarding cannabis at the U.S. federal level, including the passage of the CAOA, the SAFE Banking Act and the MORE Act. While President Biden campaigned on a platform that included cannabis decriminalization and, as noted above, has taken steps to review current federal agency policy concerning cannabis, the Republicans, who have tended to be less supportive than Democrats of federal cannabis reforms, gained majority control of the United States House of Representatives, which could impact future prospects for federal cannabis reform legislation.

In May of 2024, the House Agriculture Committee unveiled a draft of the 2024 Farm Bill, which would build upon federal legalization of hemp in several meaningful ways. Importantly, the draft would revise the definition of hemp, creating separate categories for producers who grow the crop for cannabinoid extraction for human and animal consumption and for “industrial hemp” producers who cultivate it for fiber, grain, oil, and seed not intended for consumption. Farmers growing hemp to extract cannabinoids for human or animal consumption would continue to be subject to more intensive inspections and laboratory testing, while industrial hemp producers would see some exemptions.

The results of the 2024 elections may impact the likelihood of any legal developments regarding cannabis at the federal level as well. In early July 2024, President Biden announced he was ending his campaign for re-election. Vice President Kamala Harris, the anticipated replacement nominee on the Democratic ticket, previously introduced legislation to decriminalize marijuana while serving in the United States Senate. Former President Donald Trump has indicated he prefers the issue to be decided at the state and territorial levels. The balance of power in both the United States House of Representatives and the United States Senate may also change as a result of the 2024 elections, which could impact future prospects for federal cannabis reform legislation.

7 H.R.2 - 115th Congress (2017-2018): Agriculture Improvement Act of 2018, Congress.gov (2018), https://www.congress.gov/bill/115th-congress/house-bill/2/text.

8 Notably, to date the FDA’s enforcement activities in respect of the sale of CBD foods and supplements has been largely focused upon those manufacturers and distributors that have made impermissible claims about the efficacy of CBD for treating certain diseases and medical conditions.

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Service Providers

As a result of any adverse change to the approach in enforcement of U.S. federal cannabis laws, adverse regulatory or political change, additional scrutiny by regulatory authorities, adverse change in public perception in respect of the consumption of marijuana or otherwise, third party service providers to the Company could suspend or withdraw their services, which may have a material adverse effect on the Company’s business, revenues, operating results, financial condition, or prospects.

Ability to Access Capital

Given the current U.S. federal laws regarding cannabis, traditional bank financing is typically not available to U.S. cannabis companies. Specifically, the federal illegality of marijuana in the U.S. means that financial transactions involving proceeds generated by cannabis-related conduct can form the basis for prosecution under anti-money laundering statutes, the unlicensed money transmitter statute and the Bank Secrecy Act. As a result, businesses involved in the cannabis industry often have difficulty finding a bank willing to accept their business. Banks who do accept deposits from cannabis-related businesses in the U.S. must do so in compliance with the Cole Memorandum and the FinCEN guidance, both discussed above.

The Company requires equity and/or debt financing to support on-going operations, to undertake capital expenditures and to undertake acquisitions or other business combination transactions. There can be no assurance that additional financing will be available to the Company when needed or on terms which are commercially reasonable or otherwise acceptable. The Company’s inability to raise financing through traditional banking to fund on-going operations, capital expenditures or acquisitions could limit its growth and may have a material adverse effect upon the Company’s business, results of operations, financial condition or prospects.

If additional funds are raised through further issuances of equity or convertible debt securities, existing Company shareholders could suffer significant dilution, and any new equity securities issued could have rights, preferences and privileges superior to existing holders of Equity Shares.

Heightened Scrutiny by Regulatory Authorities

For the reasons set forth above, the Company’s existing operations in the U.S., and any future operations or investments of the Company, may become the subject of heightened scrutiny by regulators, stock exchanges and other authorities in Canada. As a result, the Company may be subject to significant direct and indirect interaction with public officials. There can be no assurance that this heightened scrutiny will not in turn lead to the imposition of certain restrictions on the Company’s ability to operate or invest in any other jurisdictions or have consequences for its stock exchange listing or Canadian reporting obligations, in addition to those described herein.

Changes to government policy or public opinion may also result in a significant influence on the regulation of the cannabis industry in Canada, the U.S., or elsewhere. A negative shift in the public’s perception of medical or adult-use cannabis in Canada, the U.S. or any other applicable jurisdiction could affect future legislation or regulation, or enforcement. Such a shift could cause state jurisdictions to abandon initiatives or proposals to legalize medical or adult-use cannabis, thereby limiting the number of new state or territorial jurisdictions into which the Company could expand. Any inability to fully implement the Company’s business strategy in the state in which the Company currently operates may have a material adverse effect on the Company’s business, financial condition, and results of operations. See the “Risk Factors” section of the Annual Information Form for additional details.

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Further, violations of any federal laws and regulations could result in significant fines, penalties, administrative sanctions, convictions, or settlements arising from civil proceedings conducted by either the U.S. federal government or private citizens, or criminal charges, including, but not limited to, disgorgement of profits, asset forfeiture, and cessation of business activities or divestiture. Any enforcement action against the Company or any of its licensed operating facilities could have a material adverse effect on (1) the Company’s reputation, (2) the Company’s ability to conduct business, (3) the Company’s holdings (directly or indirectly) of medical or adult-use cannabis licenses in the U.S., (4) the listing or quoting of the Company’s securities on various stock exchanges, (5) the Company’s financial position, (6) the Company’s operating results, profitability, or liquidity, or (7) the market price of the Company’s publicly traded shares. In addition, it is difficult for the Company to estimate the time or resources that would be needed for the investigation of any such matters or their final resolution because the time and resources that may be necessary depend on the nature and extent of any information requested by the applicable authorities involved, and such time or resources could be substantial. See the “Risk Factors” section of the Annual Information Form for additional details. The Company’s business activities, and the business activities of its subsidiaries, while believed to be compliant with applicable U.S. state and local laws, currently are illegal under U.S. federal law.

Further to the indication by CDS Clearing and Depository Services Inc. (“CDS”), Canada’s central securities depository, clearing and settling trades in the Canadian equity, fixed income and money markets that it would refuse to settle trades for cannabis issuers that have investments in the U.S., the TMX Group, the owner and operator of CDS, subsequently issued a statement in August 2017 reaffirming that there is no CDS ban on the clearing of securities of issuers with cannabis-related activities in the U.S., despite media reports to the contrary and that the TMX Group was working with regulators to arrive at a solution that will clarify this matter, which would be communicated at a later time.

In February 2018, following discussions with the Canadian Securities Administrators and recognized Canadian securities exchanges, the TMX Group announced the signing of a Memorandum of Understanding (“MOU”) with The Aequitas NEO Exchange Inc., the CSE, the Toronto Stock Exchange, and the TSX Venture Exchange. The MOU outlines the parties’ understanding of Canada’s regulatory framework applicable to the rules, procedures, and regulatory oversight of the exchanges and CDS as it relates to issuers with cannabis-related activities in the U.S. The MOU confirms, with respect to the clearing of listed securities, that CDS relies on the exchanges to review the conduct of listed issuers. As a result, there is currently no CDS ban on the clearing of securities of issuers with cannabis-related activities in the U.S. However, there can be no guarantee that this approach to regulation will continue in the future. If such a ban were to be implemented at a time when the Company’s equity shares are listed on a stock exchange, it would have a material adverse effect on the ability of such holders to make and settle trades. In particular, such equity would become highly illiquid as until an alternative was implemented, investors would have no ability to affect a trade of securities through the facilities of the applicable stock exchange.

Compliance and Monitoring

As of the date of this MD&A, the Company believes that each of its licensed operating entities (a) holds all applicable state and local licenses to cultivate, manufacture, possess, and/or distribute cannabis in California, and (b) is in good standing and in material compliance with California’s cannabis regulatory program. The Company is in material compliance with its obligations under state and local laws related to its cannabis cultivation, processing and dispensary licenses, other than minor violations that would not result in a material fine, suspension, non-renewal or revocation of any relevant license.

The Company uses reasonable commercial efforts to ensure that its business is in material compliance with laws and applicable licensing requirements and engages in the regulatory and legislative process nationally and in the state where we operate through our compliance department, outside government relations consultants, cannabis industry groups and legal counsel.

The compliance department is managed by our General Counsel and Corporate Secretary, Benjamin Vega (the “General Counsel”). The Company’s compliance department is charged with knowing the local regulatory process in the State of California and is responsible for monitoring developments with their state and local agencies and governing bodies. The compliance department regularly reports regulatory developments to the Company’s General Counsel through written and oral communications and is charged with the creation and implementation of plans regarding all regulatory developments. The Company’s General Counsel works with external legal advisors in California to ensure that the Company is in on-going compliance with applicable state and local laws and regulations.

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Although the Company believes that its business activities are materially compliant with applicable state and local laws, strict compliance with state and local laws with respect to cannabis may neither absolve the Company of liability under U.S. federal law nor provide a defense to any federal proceeding which may be brought against the Company. Any such proceedings brought against the Company may result in a material adverse effect on the Company. The Company derives 100% of its revenues from the regulated cannabis industry in California, which industry is currently illegal under U.S. federal law. Even where the Company’s cannabis-related activities are compliant with applicable state and local laws, such activities remain illegal under U.S. federal law. The enforcement of relevant federal laws is a significant risk.

In addition to the above disclosure, please see the “Risk Factors” section of the Annual Information Form for further risk factors associated with the operations of the Company and the Company.

California Legal Framework and How It Affects Our Business

California Licensing Scheme

California’s licensing body for medical and adult-use cannabis is the Department of Cannabis Control (“DCC”). There is no limit to the number licenses California may issue; however, some local jurisdictions have a limit on the number of licenses they will issue. Each license grants one licensed premise and the main classes of licenses are: cultivation, retailer, distributor, manufacturer, microbusiness, event organizer, and testing laboratory. Additionally, a license may not be held by, or issued to, any person holding office in, or employed by, any agency of the State of California or any of its political subdivisions when the duties of such person are associated with enforcement of laws or regulations regarding cannabis or cannabis products. There are no requirements for vertical integration; however, California does define specific cultivation license types by canopy size.

California Medical Patient Requirements

Edibles labeled as “FOR MEDICAL USE ONLY” and only available for sale to a medicinal-use patient, may contain up to 500mg THC per package (adult use limit is 100mg THC/package). Topicals labeled as “FOR MEDICAL USE ONLY” and only available for sale to a medicinal-use patient, may contain up to 2000mg THC per package (adult use limit is 1000mg THC/package).

California Recent and Proposed Legislation

On October 6, 2021, California Governor Gavin Newsom signed Assembly Bill 45 (“AB 45”) into law. AB 45 permits the manufacture and sale of products that contain hemp derived CBD including foods, beverages, dietary supplements, cosmetics, and pet products. Under AB 45, the California Department of Public Health (“CDPH”) will serve as the primary regulator of hemp derived CBD products. The CDPH has three primary requirements to manufacture and sell hemp products in California: (1) possess a license or registration for your specific commodity (such as processed food registration); (2) obtain an Industrial Hemp Enrollment and Oversight (“IHEO”) authorization for each commodity; and (3) comply with CDPH law, such as the Sherman Food, Drug and Cosmetic law and the 2018 Farm Bill. The DCC’s plan to integrate industrial hemp into the cannabis supply chain remains to be released and approved.

For a detailed description of risk factors associated with the Company and its operations, please see the “Risk Factors” section of the Company’s Annual Information Form for the year ended December 31, 2023, available on SEDAR+ at www.sedarplus.ca.

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Shareholders’ Equity

As of June 30, 2024 and December 31, 2023, our authorized share capital is comprised of an unlimited number of (i) Subordinate Voting Shares, (ii) Restricted Voting Shares, (iii) Limited Voting Shares, (iv) Multiple Voting Shares and (v) Preferred Shares.

Multiple Voting Shares

We are authorized to issue an unlimited number of Multiple Voting Shares without nominal or par value. Holders of Multiple Voting Shares are entitled to receive notice of any meeting of shareholders of the Company, and to attend, vote and speak at such meetings, except those meetings at which only holders of a specific class of shares are entitled to vote separately as a class under the Business Corporations Act (British Columbia). On all matters upon which holders of Multiple Voting Shares are entitled to vote, each Multiple Voting Share entitles the holder thereof to 50 votes per Multiple Voting Share. Multiple Voting Shares are not entitled to dividends and are not convertible. The Multiple Voting Shares had a three (3)-year sunset period that would have expired on June 29, 2024. At our annual general and special meeting of shareholders held on June 23, 2023, shareholders passed a special resolution to amend the Articles to extend the “sunset” date for the Multiple Voting Shares to June 29, 2027, upon which they will be automatically redeemed for $0.001 per Multiple Voting Share.

Equity Shares

In the case of liquidation, dissolution or winding-up of the Company, whether voluntary or involuntary, or in the event of any other distribution of our assets among our shareholders for the purpose of winding up our affairs, the holders of Equity Shares are entitled, subject to the prior rights of the holders of any shares of the Company ranking in priority to the Equity Shares (including any liquidation preference on any issued and outstanding Multiple Voting Shares and/or Preferred Shares), to participate ratably the Company’s remaining property along with all holders of the other classes of Equity Shares (on a per share basis).

Exchangeable Shares of MPB Acquisition Corp.

Exchangeable Shares are part of the authorized share capital of MPB Acquisition Corp. (“MPB”), our wholly-owned subsidiary, which entitle their holders to rights that are comparable to those rights attached to the Equity Shares. The Exchangeable Shares carry one vote per share, and the aggregate voting power of the Exchangeable Shares must not exceed 49.9% of the total voting power of all classes of shares of MPB. Until a holder exchanges their Exchangeable Shares for Equity Shares, the holder of such Exchangeable Shares will not have the right to vote at meetings of the shareholders of the Company, though they will have the right to vote at meetings of the shareholders of MPB, including with respect to altering the rights of holders of any of the Exchangeable Shares, or if MPB decides to take certain actions without fully protecting the holders of any of the Exchangeable Shares, or as otherwise required by law. The Exchangeable Shares are exchangeable at any time, on a one-for-one basis, for the Equity Shares at the option of the holder.

We treat the Exchangeable Shares as options, each with a value equal to an Equity Share, which represents the holder’s claim on our equity. Pursuant to the terms of the Exchangeable Shares, we and MPB are required to maintain the economic equivalency of such Exchangeable Shares with our publicly traded Equity Shares. This means the Exchangeable Shares are required to share the same economic benefits and retain the same proportionate ownership in our assets as the holders of the Equity Shares. We have presented these Exchangeable Shares as a part of shareholders’ equity within these Consolidated Financial Statements due to (i) the fact that they are economically equivalent to the Equity Shares, and (ii) the holders of the Exchangeable Shares are subject to restrictions on transfer under U.S. securities laws but may dispose of the Exchangeable Shares without such restriction by exchanging them for Equity Shares. Changes in these assumptions would affect the presentation of the Exchangeable Shares from shareholders’ equity to non-controlling interests; however, there would be no impact on earnings per share.

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Preferred Shares of GH Group, Inc.

Shares Outstanding

As of July 31, 2024, we had 4,754,979 Multiple Voting Shares and 66,539,796 Equity Shares issued and outstanding. There were 7,831,555 Exchangeable Shares issued and outstanding in the capital of MPB Acquisition Corp. In addition, we had an aggregate of 44,522,347 warrants, 1,122,457 stock options and 3,529,433 RSUs outstanding as of July 31, 2024.

The following table summarizes the Equity Shares that were issued and outstanding as of July 31, 2024:


Equity Shares						Issued and Outstanding
Subordinate Voting Shares (SVS)						9,304,392
Restricted Voting Shares (RVS)						4,549,413
Limited Voting Shares (LVS)						52,685,991
						66,539,796

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Cautionary Note Regarding Forward-Looking Information

This MD&A contains certain forward-looking information and forward-looking statements, as defined in applicable securities laws (collectively referred to herein as “forward-looking statements”). These statements relate to future events or our future performance. All statements other than statements of historical fact are forward-looking statements. Often, but not always, forward-looking statements can be identified by the use of words such as “plans,” “expects,” “is expected,” “budget,” “scheduled,” “estimates,” “continues,” “forecasts,” “projects,” “predicts,” “intends,” “anticipates” or “believes,” or variations of, or the negatives of, such words and phrases, or statements that certain actions, events or results “may,” “could,” “would,” “should,” “might” or “will” be taken, occur or be achieved. Forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause actual results to differ materially from those anticipated in such forward-looking statements. Forward looking statements include, but are not limited to: statements concerning the completion of, and matters relating to, the various proposed transactions discussed by us herein and the expected timing related thereto; our expected operations, financial results and condition; general economic trends; expectations of market size and growth in the United States and California, the State we operate in; cannabis cultivation, production and extraction capacity estimates and projections; additional funding requirements; our future objectives and strategies to achieve those objectives; our estimated cash flow and capitalization and adequacy thereof; and other statements with respect to management’s beliefs, plans, estimates and intentions, and similar statements concerning anticipated future events, results, circumstances, performance or expectations that are not historical facts.

Inherent in forward-looking statements are risks, uncertainties, and other factors beyond our ability to predict or control. Factors that could cause such differences include, but are not limited to: cannabis is a controlled substance under applicable legislation; the enforcement of cannabis laws could change; differing regulatory requirements across jurisdictions may hinder economies of scale; legal, regulatory or other political change; the unpredictable nature of the cannabis industry; regulatory scrutiny; the impact of regulatory scrutiny on the ability to raise capital; anti-money laundering laws and regulations; any reclassification of cannabis or changes in the federal legality and regulation of U.S. controlled substances; restrictions on the availability of favorable locations; enforceability of contracts; general regulatory and licensing risks; California regulatory regime and transfer and grant of licenses; limitations on ownership of licenses; regulatory action from the Food and Drug Administration; competition; ability to attract and retain customers; unfavorable publicity or consumer perception; results of future clinical research and/or controversy surrounding vaporizers and vaporizer products; limited market data and difficulty to forecast; constraints on marketing products; execution of our business strategy; reliance on management; ability to establish and maintain effective internal control over financial reporting; competition from synthetic production and technological advances; fraudulent or illegal activity by employees, contractors and consultants; product liability and recalls; risks related to product development and identifying markets for sale; dependence on suppliers, manufacturers, and contractors; reliance on inputs; reliance on equipment and skilled labor; service providers; litigation and any unexpected outcomes thereof; intellectual property risks; information technology systems, cyber-attacks, security, and privacy breaches; bonding and insurance coverage; transportation; energy costs; risks inherent in an agricultural business; management of growth; risks of leverage; future acquisitions or dispositions; difficulty attracting and retaining personnel; and past performance not being indicative of future results.

Readers are cautioned that the factors outlined herein are not an exhaustive list of the factors or assumptions that may affect the forward-looking statements, and that the assumptions underlying such statements may prove to be incorrect. Actual results and developments are likely to differ, and may differ materially, from those expressed or implied by the forward-looking statements contained in this MD&A. Forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance, or achievements to be materially different from any of our future results, performance or achievements expressed or implied by forward-looking statements. All forward-looking statements herein are qualified by this cautionary statement. The forward-looking statements in this MD&A speak only as of the date of this MD&A or as of the date specified in such statement. Accordingly, readers should not place undue reliance on forward-looking statements. We undertake no obligation to update publicly or otherwise revise any forward-looking statements whether because of new information or future events or otherwise, except as may be required by law. If we do update one or more forward-looking statements, no inference should be drawn that it will make additional updates with respect to those or other forward-looking statements, unless required by law.

Disclosure Controls and Internal Control over Financial Reporting

In accordance with National Instrument 52-109 – Certification of Disclosure in Issuers’ Annual and Interim Filings (“NI 52-109”), management is responsible for establishing and maintaining adequate Disclosure Controls and Procedures (“DCP”) and Internal Control Over Financial Reporting (“ICFR”).

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Disclosure Controls and Procedures

In accordance with NI 52-109, management, including our Chief Executive Officer (“CEO”) and our Chief Financial Officer (“CFO”), have evaluated the effectiveness of our DCP. Based on the evaluation of our DCP as of June 30, 2024, our CEO and CFO concluded that, as a result of the material weaknesses in our ICFR described below, our DCP were not effective as of such date.

Internal Control Over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act in relation to criteria described in Internal Control–Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). ICFR is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with applicable U.S. GAAP. Internal control over financial reporting should include those policies and procedures that establish the following:

•maintenance of records in reasonable detail, that accurately and fairly reflect the transactions and dispositions of our assets;

•reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with applicable GAAP;

•receipts and expenditures are only being made in accordance with authorizations of management and our board of directors; and

•reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial instruments.

A material weakness is a deficiency, or combination of control deficiencies, in ICFR, such that there is a reasonable possibility that a material misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis.

Management has concluded that as of June 30, 2024, our DCP were not effective to ensure that information required to be disclosed in reports we file or submit under the Exchange Act or under applicable Canadian securities laws is recorded, processed, summarized and reported within the time periods specified therein, and accumulated and reported to management to allow timely discussions regarding required disclosure. As a result, management noted the following material weaknesses:

As of December 31, 2023 we have material weaknesses in our ICFR relating to use of estimates and assumptions that affect the reported amounts of certain assets and liabilities at the dates of the Financial Statements and the reported amount of total expenses during the reporting period. We did not appropriately review the accounting treatment relating to the accounting for complex financing transactions and for business combinations. We did not appropriately assess our distributor agreements for appropriate accounting treatments. We did not regularly perform an analysis and review of the costs and valuation of our CPG raw materials and CPG and retail finished goods. We did not appropriately account for impairments for our long-lived assets and goodwill resulting in changes in the impairment of goodwill. We did not appropriately identify all acquired intangible assets, resulting in changes to the purchase price allocation. We did not appropriately assess the terms and conditions related to the GH Group Preferred Shares issued during the year, did not properly value the Equity Shares issued in one of the business combinations that closed during the year and did not identify and account for certain deferred Equity Share issuances that are a part of the consideration of the acquisitions that closed during the year. As a result, we corrected the classification and the recorded amounts related to the GH Group Series B Preferred Shares and the treatment and valuation of the acquisition transactions. No other material errors were identified in the Financial Statements as a result of the material weaknesses. These material weaknesses create a reasonable possibility that material misstatements in interim or annual financial statements would not be prevented or detected on a timely basis.

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Remediation of Material Weakness in ICFR

Management, with oversight from the audit committee, will implement remediation measures related to the material weaknesses identified. We will implement a plan which includes providing more comprehensive and timely training to control owners related to non-routine transactions. We will proactively hire additional personnel with requisite skills to review complex non-routine transactions including, but not limited to asset acquisition and credit worthiness of the holders of our financial instruments and accounting for distribution agreements. Additionally, management will incorporate additional and timely reviews of updated costing and valuations of inventory by experienced employees. Management believes these measures, and others that may be implemented, will remediate the material weaknesses in ICFR described above. We will continue to monitor and evaluate the effectiveness of our ICFR over financial reporting on an ongoing basis and are committed to taking further action and implementing additional improvements as necessary and as funds allow.

No assurance can be provided at this time that the actions and remediation efforts will effectively remediate the material weakness described above or prevent the incidence of other material weaknesses in our ICFR in the future. Management, including the CEO and CFO, does not expect that disclosure controls and procedures or ICFR will prevent all errors, even as the remediation measures are implemented and further improved to address the material weakness. A control system is subject to inherent limitations and even those systems determined to be effective can provide only reasonable, but not absolute, assurance that control objectives will be met with respect to financial statement preparation and presentation.

Limitations of Controls and Procedures

Our management, including our CEO and CFO, believes that any DCP or ICFR, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, they cannot provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been prevented or detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by unauthorized override of the control. The design of any control system also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Accordingly, because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

Additional Information

Additional information relating to the Company, including our Annual Information Form for the year ended December 31, 2023, is available on SEDAR+ at www.sedarplus.ca.

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Exhibit 99.3

Form 52-109F2

Certification of Interim Filings Full Certificate

I, Mark Vendetti, Chief Financial Officer of Glass House Brands Inc., certify the following:

1.Review: I have reviewed the interim financial report and interim MD&A (together, the “interim filings”) of Glass House Brands Inc. (the “issuer”) for the interim period ended June 30, 2024.

2. No misrepresentations: Based on my knowledge, having exercised reasonable diligence, the interim filings do not contain any untrue statement of a material fact or omit to state a material fact required to be stated or that is necessary to make a statement not misleading in light of the circumstances under which it was made, with respect to the period covered by the interim filings.

3. Fair presentation: Based on my knowledge, having exercised reasonable diligence, the interim financial report together with the other financial information included in the interim filings fairly present in all material respects the financial condition, financial performance and cash flows of the issuer, as of the date of and for the periods presented in the interim filings.

4. Responsibility: The issuer’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (DC&P) and internal control over financial reporting (ICFR), as those terms are defined in National Instrument 52-109 Certification of Disclosure in Issuers’ Annual and Interim Filings, for the issuer.

5. Design: Subject to the limitations, if any, described in paragraphs 5.2 and 5.3, the issuer’s other certifying officer and I have, as at the end of the period covered by the interim filings

(a) designed DC&P, or caused it to be designed under our supervision, to provide reasonable assurance that

(i) material information relating to the issuer is made known to us by others, particularly during the period in which the interim filings are being prepared; and

(ii) information required to be disclosed by the issuer in its annual filings, interim filings or other reports filed or submitted by it under securities legislation is recorded, processed, summarized and reported within the time periods specified in securities legislation; and

(b) designed ICFR, or caused it to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with the issuer’s GAAP.

5.1 Control framework: The control framework the issuer’s other certifying officer and I used to design the issuer’s ICFR is based on principles set out in the Internal Control – Integrated Framework (COSO Framework) published by The Committee of Sponsoring Organizations of the Treadway Commission (COSO).

5.2 ICFR – material weakness relating to design: The issuer has disclosed in its interim MD&A for each material weakness relating to design existing at the end of the interim period

(a) a description of the material weakness;

(b) the impact of the material weakness on the issuer’s financial reporting and its ICFR; and

5.3 Limitation on scope of design: N/A

6. Reporting changes in ICFR: The issuer has disclosed in its interim MD&A any change in the issuer’s ICFR that occurred during the period beginning on January 1, 2024 and ended on June 30, 2024 that has materially affected, or is reasonably likely to materially affect, the issuer’s ICFR.

Dated August 13, 2024.

(signed) “Mark Vendetti”

Mark Vendetti

Chief Financial Officer

Exhibit 99.4

Form 52-109F2

Certification of Interim Filings Full Certificate

I, Kyle Kazan, Chief Executive Officer of Glass House Brands Inc., certify the following:

1.Review: I have reviewed the interim financial report and interim MD&A (together, the “interim filings”) of Glass House Brands Inc. (the “issuer”) for the interim period ended June 30, 2024.

5. Design: Subject to the limitations, if any, described in paragraphs 5.2 and 5.3, the issuer’s other certifying officer and I have, as at the end of the period covered by the interim filings

(a) designed DC&P, or caused it to be designed under our supervision, to provide reasonable assurance that

(i) material information relating to the issuer is made known to us by others, particularly during the period in which the interim filings are being prepared; and

5.2 ICFR – material weakness relating to design: The issuer has disclosed in its interim MD&A for each material weakness relating to design existing at the end of the interim period

(a) a description of the material weakness;

(b) the impact of the material weakness on the issuer’s financial reporting and its ICFR; and

5.3 Limitation on scope of design: N/A

Dated August 13, 2024.

(signed) “Kyle Kazan”

Kyle Kazan

Chief Executive Officer

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