Goodness Growth Hldgs Inc

being webcast live from the investor relations section of our website. Dial-in and webcast details for the call have also been provided in today's earnings release, which is also available on our website. Before we get started, we'd like to remind everyone that today's conference call may contain forward-looking statements within the meaning of U.S. and Canadian securities laws. These statements are based on management's current expectations and involve risks and uncertainties that could differ materially from actual events and those described in such forward-looking statements. For more information on forward-looking statements, please refer to cautionary note regarding forward-looking statements in today's earnings release. Now I'll hand the call over to Josh.

All right. Thanks, Sam. And thanks, everyone, for joining us this afternoon. Before we get into the details surrounding our fourth quarter results, I want to call out how excited I am about our future, particularly with respect to the momentum I feel among our team. Our industry focuses a lot on assets and politics, and I like to put the lens on talent and energy. We have a lot of work to do, and watching our legacy team embrace and collaborate instantly with new talent, and then to have that new talent articulate how welcoming and committed to improvement and growth they find us is the most rewarding element of this role for me. And you'll hear from our president, Amber, on this call, but I'd like to note my appreciation for how she's attacked her added responsibilities, and she's truly the catalyst for the overall energy. With that important introduction noted, I'd like to begin today's prepared remarks with an overview of key highlights from fiscal year 2023 on slide three of today's presentation, which should be available in the quarterly results and events and presentation sections of our investor relations website. As we've discussed, 2023 was a pivotal and transformational year for Goodness Growth. We entered the year in a significantly compromised financial position caused by Verano's wrongful termination of our merger agreement in October of 2022. Our teams, who at the time had been preparing for the expected integration with a much better capitalized operator, were suddenly faced with an existential threat that put our ability to operate independently longer term at considerable risk. Our board of directors and executive management team knew we had to pivot quickly in order to protect the continuity of our business. And in February of 2023, our year of cream and fire strategy was unveiled internally and soon thereafter disclosed to the investment community in conjunction with our subsequent results conference call. As a reminder, Our strategy name of Cream and Fire refers to the famous phrase, cash rules everything around me, as well as our focus on producing fire cannabis products that delight our customers. As we discussed at the time, it was critical for our organization to embrace a scrappy operator mentality. As we made swift moves to decentralize and infuse our organization with mature market talent, with our primary goals of improving our operations and quality of products, and protecting our cash position with a focus on driving improvements in operating profit as we work toward generating cash flow from operations. We entered into a collaboration agreement with Grown Rogue to accelerate our operational improvement initiatives across our core markets. And as we've discussed over the course of the past several quarters, we've been very pleased with the progress we have made to date to improve harvest yields and product quality across our operating footprint. And tying back to my initial comments about the importance of talent and energy, What's made this collaboration work is the people committed to progress on both teams. Collaborations are hard, and the Grown Rogue team is a key part of the cultural transformation we've made. The formation of our Weed Hustle office in early 2023 was also a catalyst for substantially improving the positioning of our product portfolio and driving value for customers in our key markets. And since then, we've developed much stronger capabilities to move inventory more quickly and convert product into cash flow. The launch of adult use sales in Maryland in the second quarter of the year was a critical development for our business, and the initiatives I just discussed have clearly translated out performance in Maryland's adult use market. This is particularly exciting as we await the launch of adult use sales in Minnesota in early 2025. We also knew we had to simplify the business with strategic asset divestitures, and we have since divested our former operations in New Mexico, and this afternoon announced that we've executed a binding term sheet to divest our New York operations to Ace Ventures. While these decisions were not easy for our team and have somewhat hampered our longer-term growth outlook, they were again mission-critical components in our ability to protect the long-term health of our company in the wake of Rano's wrongful termination of our merger. As disclosed with this afternoon's New York Investiture announcement, we plan to meet our obligation to divest our New York operations in the second quarter of 2024. We've executed a binding term sheet to divest our New York operations. With Ace Ventures, Ace has to meet a few closing conditions and is well positioned to do well in the New York market. This divestiture is later than we anticipated and committed to in our revised credit agreement. We have appreciated our secured lender's patience as we optimize our outcome in New York. This transaction, once closed, will significantly improve the performance of our go-forward operations and profitability. And we're also excited about the potential of our ongoing collaboration with Ace Ventures, which includes a 15% share of net profits, with an advisory agreement. Although we're displeased with how the terminated Bronto merger is forced and erected from New York, we're excited to support ACE, who stands to become the only minority-led RO license holder in the state. The ACE team brings a combination of deep cultivation experience with California OG roots, with a willingness to move to upstate New York, with a local ground game in New York City that I believe should support meaningful shelf space. Quality and price matter in every market, and that includes when competing with the illicit markets. Turning briefly to our litigation with Verano, it is progressing, and we expect to file a motion for summary determination in British Columbia within the next 30 days. The wrongful termination of our merger created exceptionally challenging circumstances for us, which included having little choice but to divest our New York operations, and we are seeking substantial damages for the harm that's caused our business and shareholders. As many of you have heard from me previously, I'm excited to be able to speak more openly about this litigation as an asset, and I'm confident that's coming soon. As a quick related tangent, as I find these topics intellectually interesting as well, we'd be happy to point folks to resources that help frame just how high the threshold is to walk away from definitive merger agreements. Or for a fun industry example, notice what the private player Pharmacan parted with when they mutually agreed to terminate a merger agreement with MedMen in 2019. I recall at the time, I was shocked they didn't simply highlight one of the many issues MedMen was dealing with as a material adverse event. I now understand why. Please turn to slide four of today's presentation, where we illustrate how the qualitative components of our cream and fire strategy outlined on the left side gained traction throughout the year, with some additional specificity on a couple of quarterly key financial metrics dating back to the fourth quarter of 2022. As we've discussed, growing into a better credit by improving our ability to generate cash flow has been the most fundamental focus of our operating strategy this year. And we've been able to demonstrate clear improvements in those areas with our second consecutive quarter of operating profit above $5 million. We've also included comparisons of these metrics for both full year 2023 and 2022 and are pleased with the improving trend in these metrics and our ability to sustain leaner costs. Total revenue excluding discontinued operations increased 34% year over year in the fourth quarter and 30% year over year for the full year. Performance has been driven by the combined benefits of our recent operational improvement initiatives and the launch of adult use sales in Maryland on July 1st. After experiencing meaningful year-over-year growth in Minnesota, catalyzed by the introduction of flour into its medical cannabis program, we are seeing growth in the medical market slow. This is an expected slowdown as the market anticipates the introduction of adult use in 2025. Amber will talk more about this, but our push in 2024 is as much about preparing for 2025 as it is the continued improvement supporting our current operations. Fortunately, these goals largely support each other. As I've mentioned previously, while early numbers in an adult use market can be noisy, we appear to be capturing incremental market share in Maryland, which can be seen in comparing our relative growth both sequentially and year-over-year with the state's published numbers. One quick aside. The two stores that we support as an advisor in Maryland have not performed as well as our own stores. And you'll see that we adjusted our fees to support our partners' business interests. And then to our benefit, we lowered the price of our purchase option as our long-term intention is to support moving these stores to better locations and acquiring them when the regulations allow. Our partner has an initial site identified that we're optimistic about for one of the stores. Finally, before I pass the call to Amber, I'd like to provide some clarifying comments on a couple of aspects of the business that relate to our credit facility and changes to our tax position. As we indicated in this afternoon's earnings release, until our transaction to divest our New York assets close, we're short of both our commitment to divest New York and New York's losses greatly compromise our ability to meet the performance-driven maturity date extensions within our credit agreement. That said, we've had productive conversations with Chicago Atlantic to secure an extension of our credit agreement and we expect to secure this extension during the month of April. It will include the ongoing commitment to divest New York in a timely fashion. Also, like some others in our position, please note that within our 10-K, we have adjusted our tax position to reflect our go-forward expectation to be filing as a normal taxpayer. In our reasonable belief, supported by a third-party legal opinion, Section 288 does not apply to solely intrastate cannabis-related business activities. As a result, we expect to file for tax refunds with the IRS for tax years 2020 through 2022 during the second quarter. As you can see on the face of our ballot sheet for fiscal 2023, we've accounted for an income tax receivable of $12.3 million, as well as an uncertain tax position liability of $22.3 million as a result of this change to our tax position. We believe this is a reasonable, practical approach to take, but there's no guarantee that the IRS will not challenge this position. That concludes my prepared remarks, and I'll now pass the call over to Amber Schimpa for some additional business highlights from the year and a review of our key performance indicators.

Thanks, Josh, and thanks, everyone, for joining us. I'm going to start on slide five of today's presentation, where we provide an update on our core market key performance indicators during the fourth quarter and through the fiscal year 2023. The positive traction we've experienced around our cream and fire focus is due to the efforts of our entire team. And let me say, what a time to lead here at Goodness. I couldn't be more proud of our group's energy and commitment to being better together. We've melded our seasoned, scrappy operators with gritty, mature market talent, which has sparked a drive and passion within our team that grows stronger each day. A huge note of gratitude to our team and recognition for them bringing the fire. We made great progress so far this year to improve the productivity of our facilities as well as the quality of product being produced. which has allowed us to lower prices with higher quality products that our dispensary customers and employees can then share with the customer. As you can see, the trajectory of total flower yields and percentage of A flower over the course of the last year shows considerable improvement. Our goal is to drive more sell-through of higher quality products at better value for customers, and we believe that our results to date on these important operational KPIs serve as strong indicators that we are positioned to have continued success achieving these objectives. On a consolidated basis, same-store sales increased approximately 30% during the fourth quarter. This performance reflects some continued challenges in the New York market, but we are pleased to see continued growth in Maryland and Minnesota of approximately 210% and 5% respectively during the fourth quarter. For the full year, same-store sales increased approximately 28%. We were also pleased to see improvement across all of our core markets and inventory turns after experiencing some variability in these metrics earlier in the year. And the improving trend in this metric demonstrates that we're improving our ability to turn product into cash flow much more quickly. On slides six and seven, we've highlighted some of the drivers of our success in 2023 with recent brand and product launches in the Maryland market. As Josh mentioned, our local team in Maryland has done a great job growing our market share in manufactured products, and we are very excited about the performance of our High AF brand of vapes and high-color gummies in Maryland. We plan to introduce additional product categories under the High AF brand moving forward and plan to introduce both of these brands into the Minnesota adult-use market next year. We've also had great success positioning our product portfolio to value shoppers across our operating footprint, and the launches of our Simple and Small-Ass Bud brands are continuing to perform very well within these corners of the market. Moving on to some state market updates on slide eight. Our home market of Minnesota continues to grow following the commencement of flour and edible sales in 2022, and we are looking forward to the launch of adult use sales in 2025. We anticipate a slower market until adult use launches, and we're taking advantage of this time to invest in enhancing our productivity and preparing our team for 2025. We expect to share some progress updates on these initiatives over the course of the next several quarters. In New York, as we disclosed earlier today, we have executed a binding term sheet that vests our New York operations to ACE Ventures and expect this transaction to close following regulatory approval before June 30th. Given some preliminary regulatory diligence, we believe New York's strong desire to have a minority-led RO can support an efficient timeline. We have entered into a collaboration agreement with ACE for management and compliance in return for a 15% share of net profits in New York moving forward. And we are excited to support ACE's entrance into New York's wholesale market once we receive regulatory approval for the ROND license. In Maryland, we continue to see strong revenue performance of our two green goods dispensaries and our recently executed consulting, licensing, and wholesale agreements with two additional dispensaries helped grow our presence in the wholesale channel. These two additional stores have been rebranded under the Green Goods name, and as Josh mentioned, we have an option to acquire these two stores once regulations allow. Revenue growth in Maryland has continued to outperform the market average over the past two quarters. According to the state's disclosures, total market sales in Maryland were up about 130% year over year in Q4. Our retail revenue was up 210%, and wholesale was up 134%, representing total growth of over 180% year-over-year. For the full year, the market was up about 54%, and we were up just over 100%. Before we conclude today's call, we've provided our customary financial detail slides for both the fourth quarter and full year 2023 for reference throughout the remainder of today's presentation. Slide 9 and 10 provide summaries of our core market revenue performance and key financial metrics from the fourth quarter and full year. And slides 11 through 14 contain summaries of our balance sheet, debt outstanding, share capitalization, and EBITDA reconciliation. For a complete review of state-by-state revenue performance, including non-core markets and discontinued ops, please refer to our Form 10-K, which will be filed with the SEC later today. I'll now hand the call back to Josh for some closing comments.

All right. Thanks, Amber. And thanks to everyone for participating on today's call. In summary, 2023 was a challenging, although successful year for goodness growth. And we're entering 2024 in a much stronger position to drive profitable growth and generate cash flow from operations. With particular excitement with respect to supporting the launch of Minnesota's adult use market in 2025. We've been very excited to see our cream and fire initiatives gain traction throughout the year. There's a strong sense of optimism emerging across our organization, supported by the execution of the ground with our Minnesota and Maryland operations, which points to a bright future for our company. Our litigation with Verano remains an extremely important event and potential asset for us. And as we referenced earlier today, we are seeking considerable damages for the harm caused to our business and our shareholders. And we expect to file a motion for summary determination with the court in British Columbia within the next 30 days. With that, I think we're ready for Q&A.

The floor is now open for your questions. To ask a question at this time, simply press the star followed by the number one on your telephone keypad. We'll now take a moment to compile our roster. Our first question comes from the line of Eric DeLaurier with Craig Hallam. Please go ahead.

Great. Thank you for taking my questions, and congrats on the continued improvement here. Very impressive. My first question, this is perhaps more for Amber. I think you mentioned some of the brands that were performing strongly in Maryland. I was wondering if you could perhaps just repeat that for me. Which of the brands have been performing well for you guys? Perhaps what's some of the biggest improvement year over year with all these quality initiatives that you've undertaken and sort of how to think about which of those will be brought to Minnesota.

Thank you. Sure. Thanks, Eric, for the question. Revisiting the brands that are performing really well for us right now in Maryland, I first mentioned the High AF brand of vapes. This is our vape line of dissy vapes that is very flavor, fruit forward. We saw a gap in the market that had been filled by just a few, and we're really excited to not only invest and lean into a brand and a product quality that we thought could really benefit the Maryland market. We also brought in some mature market talent to help us get the quality of our oil for those vapes at a level that we were really proud of, again, leaning into the fire aspect of our products. Another product that we're really proud of in Maryland is our high-color gummies. And this brand we've had for years now, again, focused on flavorful, fruit, forward, and just performing really well. What we lean into there as well is from a price point, the quality of the product you're getting for the price. We put ourselves up against anyone in the market there. And then the other two brands I mentioned are the Simple brand and the Small Ass Bud brand. Those are flower brands for us that play on the value side, the value customer, still delivering great quality, but just at a really fantastic everyday low price. Those products we will look to bring into Minnesota as the market matures and allows adult use brands, as well as in New York, we do have a few of those brands in play in New York right now.

Okay, great.

Eric, Eric. Can I jump in real quick? Because I wanted to make just a very important clarification in case there's any confusion. The AF stands for amazing flavors. Just wanted to make sure you had that.

That's very helpful. Thanks, Josh. And in terms of the collaboration agreement with ACE, I mean, first of all, you know, very nice to see that binding agreement signed here. Congrats on getting that to this stage, at least. I know there's still the closing, but congrats on that step. In terms of the collaboration agreement going forward, understood it's a 15% net profit share. I mean, should we think of this as some of these brands that you just mentioned as being in the legal market for the foreseeable future? Is this more of bringing some of the learnings that you've experienced over the past year or so with the cream and fire strategy and this um you know more mature market uh expertise is it kind of bringing that and making sure that you know quality stays high during this transition or is it more of like um you know your your brand's going to be in the new york market just a little bit more color on that collaboration agreement would be helpful yeah i think the starting point is is is with our brand simply because they're they're there and when we have them ready to go

But I think that ultimately will really lead more heavily into ACE's camp from a decision-making standpoint than our own. We hope that we can provide that support from that vantage point. But really for us, I think it's a combination of things. One, I think it's ACE recognizing and seeing what we've been able to accomplish in Maryland and in Minnesota. with respect to improvements and knowing that we've just not put the resources ourselves into New York in that capacity. And so turning ourselves on in that capacity to really help drive improvements and operations on the core side of things was definitely part of this. The other side is what ACE really brings to the table in spades is what I think is just a tremendous ground game on the ground in New York City. and then really significant credibility on the cultivation and genetic side. And so I think the ability for them to develop their own, I think they like to refer to it as their own New York-centric brands, is really quite high. And so, you know, from our vantage point, I think being able to support the operations, much like we've been able to do in Minnesota and Maryland, is the starting point, a little bit less brand-centric for us, but supporting their operations and their being, you know, to drive that, as I referred to, kind of a really New York strong presence.

That's very helpful. Two more questions from me. One just kind of just a broad question on Minnesota. I mean, certainly we've seen these dynamics in other states where the medical market, you know, sort of slows down or begins to plateau a bit ahead of the adult use launch. I'm wondering what your assessment is of the sort of, you know, hemp drive market in Minnesota. You know, certainly on things like gummies and beverages, there's a bit more of a competitive dynamic from that area of the industry in Minnesota versus others. So just wondering if you can kind of comment high level on what you're seeing there.

Yeah, I mean, it's going to be somewhat anecdotal, but, you know, with... real anecdotes behind it, but nonetheless anecdotes. I think a couple of things. First, we didn't notice in our overall medical market any real direct impact, kind of a head-on impact of what's become a much stronger hemp-derived THC market in Minnesota. And I think that's because of the following anecdote, which is, I think, much like we've not seen THC beverages generate all that much interest or market share through the regulated dispensary system, that customer is a different customer than what we're seeing in Minnesota as kind of the standard demographic hemp-derived THC buyer that can buy product at a liquor store and or a restaurant and even grocery stores in places in Minnesota. And so that dynamic I find intellectually incredibly fascinating. We'll have more to say on this ourselves over the next quarter or two. as we look to find ways to kind of benefit and collaborate in that marketplace. That said, we don't see it as a significant threat to our medical business today, nor the adult use, the implementation of the adult use program. We actually view it as complementary and Probably the most remarkable thing about it, having now spent a significant amount of time in Minnesota, is just the complete destigmatization to THC that's going on there to a degree that I've not seen in any other state. And that normalization, I think, is actually opening up and expanding the market to a degree that any incremental market share you might see from a little bit less THC consumption through flour, for instance, or through pre-roll that might migrate to beverage, I think it's just being expanded by the addressable market in the state. So, I mean, I think, again, fairly anecdotal at this point, but really, I know we speak from a position of really enjoying watching this market develop and, you know, participating in it through our medical program, obviously, in the state, but excited to enter the adult use side of the equation as we look into 2025.

That's very helpful insight. I appreciate that color. And just last question for me here on Verano, you know, understand this is ongoing lawsuit and you are not at liberty to discuss a whole lot here, but wondering if you can help us kind of understand the steps ahead as you see them. So as I understand it, within the next 30 days, you're expecting to file the lawsuit up in British Columbia. can you just help us kind of sketch out what the path looks like beyond that in terms of steps, if you're able to add any insight in terms of timing, you know, understood that we're dealing with a lot of, I guess, call it lack of visibility, but just anything you have to help us kind of understand the steps or timing or the opportunity would be very helpful. Thank you.

Yes. I'll provide a little bit of color. I mean, there's, There's not a lot of certainty. It tends to get fairly expected, particularly when you start talking about timelines. But I think the piece that probably maps to what we might be used to in the US is motion for summary determination is very similar to motion for summary judgment. And so similar from a timeline standpoint, it depends on the success of that. Obviously, that is the desire to work in a more truncated fashion. And if successful, that would lead to a more truncated outcome. If not successful with summary determination, then you go to full trial. And so still a relatively elongated timeline in that arena. Fortunately for us, we feel really good about our sustainability as an independent operator at this point. And so if it takes longer, it takes longer. we feel really, we feel like things have come together in a good way for us relative to the core merits of the case, et cetera. So excited to be able to talk more about this soon.

That's very helpful. I appreciate you taking my questions and congrats again on the progress. Thanks.

Our next question comes from a line of Pablo Zunich from Zunich and Associates. Please go ahead.

Thank you. Good afternoon, everyone. Look, it's a two-part question. Regarding Minnesota, can you clarify, you know, if you have line of sight on what the program is going to look like? I'm getting conflicting reports, but do we know when reg sales start? Are the incumbents going to be grandfathered right away, or is there going to be a waiting period like in New York? I mean, what color can you share in terms of what the program is going to look like, or it's still really up in the air? And related to that, Can you comment in terms of where you are right now in terms of cultivation compared to what you would need to be assuming the reg starts next year and whether you would be in a position to fund that expansion in cultivation if you require that? Thank you.

Yeah, I will provide the color that I can.

I mean, I think the reality in Minnesota is that there are still some things to be determined. We were pleased with the initial rules and our ability to participate in the adult use program when it commences in March of 2025, as it was outlined. There are still a few moving pieces attached to that as we look at the current political season at the Statehouse right now. I'm not going to comment further on that at this juncture, other than just expressing the optimism in our ability to participate and the conversations we continue to have along those lines. So we're comfortable with our ability to participate. The portion of this that speaks directly to our cultivation capacity uh we are evaluating uh paths and obviously we're we're still sitting in a somewhat compromised financial position relative to funding new initiatives uh that said we think should we be able to add capacity uh per the rules in in the state of minnesota uh said capacity would be particularly productive uh it's a market that's likely to be really heavily supply constrained in the early days uh and our view even going into the regulatory sessions has been, and the political side of this has been, this market is one that has room for all participants to do really, really well. The legacy participants, new participants, you heard the previous questions about the hemp-derived THC market, which is a pretty vibrant market in Minnesota. We think there's room for a lot of folks to do really well in the state, given the starting point and where things can go from here. And so, Not going to give you a real specific answer yet. We hope to get dialed in, particularly once this New York transaction closes, on the capital side and how we might be able to access some capital in order to support additional capacity in Minnesota. But as of right now, we have our existing greenhouse operations, and that's the extent of our capacity.

Right. Thank you. And just to follow up on that, So I think you said in the case of New York, it would take as long as nine months. I think you said that. So, I mean, is there a risk of a scenario that we get to December and New York hasn't closed yet? And hence, you know, you're not able to top financing from IIPR or Chicago Atlantic to fund expansion in Minnesota. Is that a risk? Is that a concern? Or am I missing the point there?

No, I think you're spot on. That's been the risk for quite some time. I mean, we're optimistic now that we've got the wheels in motion. And Never guaranteed, but we're optimistic that based upon the visibility that we have into things with ACE that we're on the right path with respect to the New York divestiture. We think because they're a minority-led operation, we think the regulatory clearance there will be fairly smooth, fairly smooth compared to what we experienced with ACE. The prior Verano transaction in New York, it was a longer timeline then, but I think we're at a point now where we can move pretty quickly on the regulatory side of the state. But I have no pushback against how you articulated the risks. The risks remain tied to being able to close New York and having access to additional capital.

Okay, understood. And one last one. So in terms of your Minnesota stores right now, can you give more color in terms of how they are performing? I mean, obviously, you do report sales by state, so we know what's the total sales. We know the number of stores. But just do you have a sense of how they are performing versus your competitor? The competitor doesn't, of course, the green thumb, they don't disclose sales for Minnesota. But just to have a sense of how you're doing in the current market. And I realize that the medical market in Minnesota is quite underdeveloped compared to other medical markets. Thank you.

Yeah, I mean, I think our position has been for some time that, that we have moderately more than, than 50% market share, uh, between the two, two incumbent medical players that are there. Uh, don't think that's changed, uh, on the margin. And so we feel like we, we, we do really, we do well. Uh, but I don't think that's changed meaningfully in one direction or the other. Uh, I think, you know, our, our competitor there, uh, has put in, put resources to work and we have great respect for. So I think, uh, Not much more commentary other than you can see the same store sales numbers. I think the overall performance has been solid. But as we get ready for adult use, we think there's a lot of room for improvement, even within our existing infrastructure, existing capabilities, and we're excited about that. I mean, to go back to the last comment, while I referenced the risks and you referenced the risks attached to not being able to finance incremental growth in Minnesota, we have a pretty successful business and a pretty successful platform even if we don't as it stands today in Minnesota. And so our ability to just drive more productivity, throughput, et cetera, I think can go a long ways.

I'm going to add one more if I may. So, I mean, like you said, right, the hemp-derived market in Minnesota is probably more developed than in most other states, you know, I guess on a per capita basis. So assuming that the rules don't change significantly and we have REC next year, Would it make sense for you to actually sell those type of products in your dispensaries in a reg market? If there's people selling them outside, why would you want to sell them in your own stores? Any thoughts on that?

I mean, thoughts? I mean, simple, simple answers. Yes, agreed. And I think underneath that, though, I'd come back to the comment that I made prior about beverages. I mean, beverages, by and large, have not been real successful from a distribution strategy standpoint through... cannabis dispensaries. And so while we think there are opportunities and particularly some brand amplification opportunities, I'm not convinced that we would be, you know, meaningfully large market share players when it comes to moving hemp-derived THC products through our own dispensaries, for instance. Particularly, I mean, if you spend time in Minnesota, the products are pervasive at this point on the hemp-derived THC side. And so you'd be, but with our eight stores, we'd be eight distribution points out of thousand plus. in that environment. So I don't think they will be meaningful needle movers for us from a retail standpoint in that vein. But it is something that we put time and energy into and think about. And I would be surprised if we don't have them in our stores.

Understood. Thank you very much.

Our next question comes from the line of Ben Cubitt with Samara. Please go ahead.

Oh, yeah. Hi there. A couple questions. One, I wonder if you could explain a bit more clearly about the tax, you have the tax liability and the tax receivable. So just are you able to like handicap, like are you expecting the $12 million of the receivable? And what's the, I guess, what do you think the probability is that you have to pay out this $22 million liability? Like are they equal odds or?

Yeah, I mean, I'm going to hesitate to put odds. We think we've taken a reasonable position from a tax standpoint and let other people handicap the odds themselves. I think had we not seen a refund already get processed with cash returns in our industry, I would have likely hesitated to think that we will actually get a refund. At this juncture, again, based on precedent, it's very possible that we would get a refund. It's nothing that we will count on from a cash flow standpoint. and I'm going to leave it there instead of handicapping.

Sure. Okay. Fair enough. And then what, what, so, I mean, the results are, you know, pretty good. And I can't imagine your creditor could have expected any, any, anything better at this point in the process of the kind of turnaround. What, what, what covenants are you, were you offside on that puts us into like a current liability?

Yeah. So it, it, it's largely, largely or almost entirely, I mean, relates to continuing to have New York on our books. And so we had a fixed charge covenant ratio performance metric for the first quarter that would have allowed us to kick the term of the debt out all the way out to potentially, it's quarter by quarter, but all the way out to potentially early 2026. And with New York on the operating loss side, we were going to have a very hard time meeting that for the first quarter, for instance. The other side of that is per that credit agreement, we were required to have sold New York and we had not yet closed on that transaction. So that puts us out of compliance. And so those are the two places that create that need to address. And as I referenced, very pleased with the collaborative approach of our secured lender. And Chicago Atlantic has been and they have been supportive relative to the performance that we put up. And it's definitely been part of, I'm sure, why they chose to be collaborative. I think we are performing well. And I think they also note that there's continued room for ongoing improvement.

Sure. And so, like, is it likely, are they likely to, like, are they going to have to give something up? Like, are they going to have to ask for, like, I don't know, a bunch of warrants? Are they going to have to pay up to get it extended? Or is it something more like they're obviously a big shareholder and a big creditor, so it'll be relatively seamless? Or are they going to ask for their pound of flesh?

I will only note that they are a secure lender at core.

Yeah, sure, sure, sure. The other, so I also noticed that you called it a binding term sheet with this ACE group. What's between this and, I guess, a definitive agreement? Like how, like are you close to that or like what...

Yeah, there are a couple of moving pieces and kind of closing conditions that go along with this. But really the key components is capital at risk in their vein. So they need to close the capital piece, something that we've got, as I kind of referenced before, never guaranteed, but we're really optimistic that they've got the pieces put together for that part. And so that piece is one. We are still working through the full puts and takes of the corporate guarantee on the innovative industrial property sale respect that we have. So that would be the other dynamic that would tie into an ultimate closing. And then obviously the regulatory piece of this, although you can have definitive docs before and be contingent upon regulatory. And so we are, I would consider it relatively close with the actual form and function of the definitive docs, but we're not over that finish line yet.

I guess that was my next question. So Goodness Growth is having to provide a corporate guarantee to IIPR? They won't just take them on as a new counterparty?

That's what exists today, but upon closing with enough capital and with some certain conditions, that's the piece that there's still a little bit of put and take to.

I understand. Okay, great. Thanks. That's everything.

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