Verano Holdings Corp.
MANAGEMENT’S DEBATE & ANALYSIS
FOR THE THREE & SIX MONTHS ENDED JUNE 30, 2021 & 2020
(Unless otherwise stated, amounts expressed in United States dollars
This management discussion (and analysis) (“MD&A“Verano Holdings Corp.’s financial situation and results of operations.”Verano“Oder, the “Company“() refers to the three and six-month periods ended June 30, 2021 and 2020. This MD&A was dated August 10, 2021. This MD&A is supplement to and should be viewed in conjunction with the Company’s unaudited condensed intermediate consolidated financial reports as of June 30, 2021 and the consolidated financial statement for the year ended December 31, 2021 and accompanying notes for each period. The Company’s financial reports are prepared in accordance the International Financial Reporting Standards.”IFRS“).
This MD&A was prepared using the MD&A disclosure guidelines established under National Instrument 51-102. Continuous Disclosure ObligationsCanadian Securities Administrators. It contains certain “forward- looking statements”Certain “forward-looking information”as per applicable Canadian securities laws. Please refer to the discussion on forward-looking statements and the information set out under this heading “Cautionary Note Regarding Forward-Looking Information.”The Company’s actual results could differ materially from the ones projected in these forward-looking statements or information due to many factors.
This MD&A contains financial information in United States dollars.”$“Or “US$“Unless otherwise noted, All references to “$”Unless otherwise stated, they are converted to United States Dollars
OVERVIEW OF THE COMPANY
The Company is a leading vertically-integratedmulti-state cannabis operator in the United States. The Company is an operator of licensed cannabis cultivation, processing, retail and distribution facilities. Its goal to promote communal wellness by providing responsible access for high-end customers with regulated cannabis products is the Company’s aim. The Company is licensed to operate in 14 U.S. States, with active operations in 11, which includes 76 active dispensaries, eight cultivation licenses and approximately 690,000 square feet across its cultivation facilities and 10 processing/manufacturing licenses with a focus on tightly regulated, limited license markets. The Company will have 82 dispensaries open, 11 cultivation licenses, and 842,000 square footage across its cultivation facilities, pending the closing of acquisitions and construction. The Company produces a suite of premium, artisanal cannabis products sold under its portfolio of consumer brands, including Encore™, Avexia™, MÜV™ and Verano™. The Company designs, builds and operates branded dispensary environments including Zen Leaf™ and MÜV™ that deliver a cannabis shopping experience in both medical and adult-use markets.
All of the Company’s business (and balance sheets and operating statement exposure exposure) is related to U.S. cannabis-related activities.
Through its subsidiaries and affiliates the Company holds, operates and manages licenses/permits in Illinois, Florida and Arizona, New Jersey and Pennsylvania. Each State has its own approach to licensing and vertical integration when it comes to cultivation, manufacturing and distribution of cannabis.
The Company’s strategy to vertically integrate is to consolidate cultivation, manufacturing and distribution of premium brands and products at large scale. Verano’s strategy of cultivation and wholesale of cannabis consumer packaged goods supports the national retail dispensary chain operating under the Zen Leaf™ and MÜV brands, among other brands. This combination ensures shelf space in Company’s retail stores and fosters mutually beneficial relationships through supply agreements with third-party dispensary customers. Verano’s cohesion strategy has been a complementing and accretive.
As a vertically-integrated company with a portfolio of brands and products including a proprietary portfolio of over 1,000 product SKUs, Verano manufactures and sells a comprehensive array of premium cannabis products. Verano’s products are designed and developed to appeal to different consumer segments. They include premium cannabis, concentrates for dabbing, vaporizing, edibles and topicals. Verano’s portfolio of brands is distributed to the vast majority cannabis retail stores in active markets, as it also has its own retail outlets.
Verano has established its presence in a way that allows it to adapt to market and industry changes seamlessly and profitably. Verano believes the following have helped position it for growth.
Drug regulation in the United States is done by the federal government. Controlled Substances Act (21 U.S.C. § 811) (the “CSA“), which places controlled substances, including cannabis, in a schedule. Schedule I drugs include cannabis. A Schedule I drug or substance is a drug that has a high risk of abuse and no medical use in the United States. It also means that the drug or substance is not safe to be used under medical supervision. The United States Food and Drug Administration did not approve cannabis as a safe and efficient drug for any indication.
The United States regulates cannabis largely at the State level. Federal CSA makes cannabis possession illegal and prohibits states from regulating cannabis. While some states allow adult-use and medical cannabis production and distribution by registered or licensed entities, federal law in the United States makes possession, cultivation, cultivation, and transfer of cannabis illegal. All such acts are considered criminal under federal law. The Supremacy clause of the United States Constitution declares that the United States Constitution is supreme and federal laws made pursuant it are supreme. Federal law shall prevail over State law in case of conflict. It is a serious risk that federal laws are not enforced.
Please see “U.S. Cannabis Regulatory Environment” “Risk Factors”For more information on the U.S. cannabis regulatory climate, click here
Verano, which has one of the largest footprints for multi-state,vertically-integrated owners and operators in the U.S., derives its revenues from a balanced contribution of sources through its wholesale cannabis business and national retail dispensaries under brands including Zen Leaf™ and MÜV™. The Company’s primary objective is to support its national retail dispensary chains through its wholesale cannabis consumer packaged good business (cultivation & manufacturing).
Currently the wholesale and retail channels are vertically-integrated across multiple highly-regulated, limited license, and therefore limited legal supply markets in Illinois, Maryland, Florida, Massachusetts, West Virginia, Pennsylvania, Arizona, New Jersey, Nevada and Ohio. Verano also has dispensaries, licenses or interests in many other key markets such as Arkansas, California, Missouri, and California. Verano’s primary market, which can reasonably predict and forecast demand and supply, is the foundation on top of which it has tried to build sustainable, profitable growth.
Verano’s strategy to distribute brands at scale through combination ownership of wholesalers and retailers supports this strategy. Verano can capture large market share, build brand awareness, and win customer loyalty in its operating markets. The Company plans to expand its operations by acquiring licenses in restricted license markets or winning merit-based processes.
Operational Foundation & Current Markets
Verano currently operates wholesale businesses and retail stores in Illinois, Maryland, Massachusetts and Nevada. Verano currently has dispensaries in Arkansas, California, Missouri and other commercial interests in these geographic markets. These markets are subject to State regulations, which vary from one State to the next. They have been modified and updated over time. Additionally, each municipality may determine the requirements for local permits and licenses to operate within its borders. The Company monitors the changes to applicable laws and regulations and expects them to continue to be updated. Future changes in laws and regulations could have an impact on the Company’s operations or business interests.
Illinois currently allows adult- and medical-use cannabis, subject to state regulations.
ThePilot Program for Compassionate Use of Medical Cannabis (the “IL Act“The ) was signed into law on August 13, 2013 and went into effect January 1, 2014. The IL Act allows medical cannabis access for registered patients with over 30 medical conditions, including epilepsy and cancer. post-traumaticstress disorder. About 158,439 patients were registered under the IL Act on July 7, 2021 and are eligible to purchase cannabis and cannabis products at registered dispensaries for medical purposes. The Cannabis Regulation and Tax Act, 410 ILCS 755. et seq. (the “CRTA“The ) was approved by the legislature on or around May 31, 2019, and became effective January 1, 2020. The CRTA allows for the legalization of cannabis cultivation, manufacturing, and sale. adult-usepurposes. Upon approval by regulatory authorities, cultivation centers that have been licensed under the IL Act may be permitted to cultivate or manufacture under the CRTA. adult-usecannabis. Existing medical cannabis dispensaries that are licensed by the CRTA are also allowed to dispense cannabis, provided they have been approved by regulatory authorities. adult-useCannabis to be purchased by purchasers 21 and older at existing retail locations plus one satellite location. The CRTA allows up to 75 new licenses. adult-usedispensing organizations, up 40 craft grower facilities, 40 infuser facilities and an unlimited number transport organizations are all available to qualified social equity participants. Existing cultivation centers cannot own craft grower or other infuser facilities. Entities may not own more that five dispensaries, or more than ten. adult-usedispensaries.
The IL Act and CRTA have three State departments that oversee and implement the IL Act and CRTA. “IDPH“); (ii) the Illinois Department of Agriculture (the “IDOA“); and (iii) the Illinois Department of Financial and Professional Responsibility (the “IDFPR“). The IDPH is responsible for the following IL Act and CRTA mandates. It is the responsibility and obligation of the IDOA, to enforce the IL Act, CRTA, and related regulations relating to the registration, oversight, and supervision of cultivation centers, craft farmers, infusers, transport organizations, and to food handling requirements for cannabis-infused products that are prepared for human consumption. The IDFPR enforces IL Act and CRTA provisions relating to registration and oversight of dispensing agencies. The
IDPH, IDOA or IDFPR may enter into intergovernmental agreements to fulfill the provisions of IL Act and CRTA.
Illinois has issued a limited number of dispensary and producer/grower licenses. There are currently 55 licensed dispensaries, 62 licensed adult dispensaries, and 22 licensed cultivators. On July 15, 2021 the IDOH announced that additional adult-use cannabis licences were being granted in the categories of craft grower and infuser. On July 28, 2021 the IDFPR announced that three lotteries would be held between July 29, 2021 and August 19, 20,21. These lotteries would see the selection of 185 new adult dispensing organizations licenses.
An affiliate of the Company can operate a cultivation facility in the State of Illinois. The cultivation center license allows the licensee to possess, cultivate and deliver cannabis to adult-use dispensing organisations. Affiliates of the company may also own or operate 10 dispensaries in Illinois.
Maryland currently allows medical cannabis use, subject to state regulations.
In May 2013, the Natalie M. LaPrade Maryland Medical Cannabis Commission”MMCC“Maryland created the MMCC. The MMCC functions as an independent commission within the Department of Health and Mental Hygiene. The MMCC was established to investigate medical cannabis. It develops policies, procedures and regulations that will implement programs that make medical cannabis available to qualified patients in a safe, effective, and efficient manner.
The Maryland Medical Marijuana Program (MDMP) was established on December 1, 2017.”MMMP“The MMMP was made operational and sales began. The MMMP was created to allow patients with any condition to have access to medical cannabis. “severe”Chronic pain, nausea, seizures and post-traumatic stress disorder are all examples of medical conditions that have not been effective. All major product types are permitted for sale and consumption, with the exception of edibles. However, edibles have been allowed to be sold and consumed in the interim while final regulations are being approved.
A licensee licensed to operate a Maryland medical cannabis dispensary and a cultivation facility is owned by an affiliate of the Company. The retail dispensary license allows it to purchase medical marijuana from cultivation facilities, cannabis products from product manufacturing plants, and cannabis from other retail shops. It also allows the sale of cannabis to registered patients. The licensee can acquire, possess, cultivate and deliver cannabis to medical cannabis dispensaries and other medical cannabis grower facilities. Verano’s subsidiaries are responsible for managing four dispensaries and one processor licensee in Maryland, via management agreements or other affiliate relationships.
Massachusetts currently allows adult-use and medical cannabis, subject to state regulations.
The Massachusetts Medical Use of Marijuana Program “MA Program“The Act for the Humanitarian Medical Use of Marijuana was passed in 2021. The MA Program allows registered individuals to purchase medical cannabis. It applies to any patient or personal caregiver and Registered Marijuana dispensary (each, an individual). “RMD“), and RMD agent that qualifies and registers under the MA Program. Massachusetts voted in November 2016 to legalize and regulate marijuana for adult recreational use. In 2017, the Cannabis Control Commission (the “MA CCC“) was established. The MA CCC regulates Massachusetts’ recreational and medical marijuana programs.
RMDs are tightly regulated under the MA Program. They are subject to strict security, transportation, inventory, personnel, storage, and transportation regulations. RMDs are “vertically-integrated,”They can grow, process, and dispense their own marijuana. Each RMD must have a retail facility in addition to cultivation and processing operations. However, retail operations can be separated from cultivation and processing operations. RMDs that are able to do all of their retail, processing, cultivation and retail operations in one location are often called a “multifunctional RMD”. “co-located” operation. An RMD could also opt to have a dispensary at one location and grow marijuana in another location.
This is an excerpt from the original content. You can continue reading the original document. Here.
Verano Holdings Corp.This content was published on March 4, 2022The information contained in this document is the sole responsibility of the author. Distributed by PublicUnaltered and unedited, on 04 March 2022 20.25:01 UTC.
Evolution of the Income Statement