Exhibit 99.1

Ayr Wellness Inc.

UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2022 AND 2021

(EXPRESSED IN UNITED STATES DOLLARS)

Ayr Wellness Inc. 

UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 

JUNE 30, 2022 AND 2021

Unaudited Interim Condensed Consolidated Financial Statements (“Interim Financial Statements”)

Ayr Wellness Inc. 

Unaudited Interim Condensed Consolidated Balance Sheets 

(Expressed in United States Dollars, in thousands, except share amounts)

The accompanying notes are an integral part of these unaudited interim condensed consolidated financial statements.

Ayr Wellness Inc. 

Unaudited Interim Condensed Consolidated Statements of Operations 

(Expressed in United States Dollars, in thousands, except per share amounts)

The accompanying notes are an integral part of these unaudited interim condensed consolidated financial statements.

Ayr Wellness Inc. 

Unaudited Interim Condensed Consolidated Statements of Shareholders’ Equity 

(Expressed in United States Dollars, in thousands)

 

	Multiple Voting Shares			Subordinate, Restricted, and Limited Voting Shares			Exchangeable Shares			Additional paid- in capital			Treasury stock						Accumulated other comprehensive income			Accumulated Deficit			Noncontrolling interest			Total
	#			#			#			$			#			$			$			$			$			$
Balance, March 31, 2022		3,696			57,737			7,697			1,312,749			(645	)		(8,987	)		3,266			(272,779	)		10,403			1,044,652
Stock-based compensation		-			3			-			9,727			-			-			-			-			-			9,727
Tax withholding on stock-based compensation awards		-			(2	)		-			(105	)		-			-			-			-			-			(105	)
Share issuance - business combination		-			-			354			1,870			-			-			-			-			-			1,870
Conversion of Exchangeable Shares		-			909			(909	)		-			-			-			-			-			-			-
Net loss		-			-			-			-			-			-			-			(38,357	)		(1,892	)		(40,249	)
Balance, June 30, 2022		3,696			58,647			7,142			1,324,241			(645	)		(8,987	)		3,266			(311,136	)		8,511			1,015,895
Balance, December 31, 2021		3,696			56,337			7,368			1,289,827			(568	)		(7,828	)		3,266			(265,202	)		-			1,020,063
Stock-based compensation		-			547			-			19,381			-			-			-			-			-			19,381
Tax withholding on stock-based compensation awards		-			(253	)		-			(3,996	)		-			-			-			-			-			(3,996	)
Share issuance - related party - consulting services		-			50			-			707			-			-			-			-			-			707
Share issuance - business combinations		-			-			683			6,352			-			-			-			-			-			6,352
Share issuance - earn-out consideration		-			1,029			-			11,748			-			-			-			-			-			11,748
Conversion of Exchangeable Shares		-			909			(909	)		-			-			-			-			-			-			-
Consolidation of variable interest entity		-			-			-			-			-			-			-			-			12,019			12,019
Exercise of options, net of options sold to cover income taxes		-			33			-			300			-			-			-			-			-			300
Repurchase of Equity Shares		-			(5	)		-			(78	)		(77	)		(1,159	)		-			-			-			(1,237	)
Net loss		-			-			-			-			-			-			-			(45,934	)		(3,508	)		(49,442	)
Balance, June 30, 2022		3,696			58,647			7,142			1,324,241			(645	)		(8,987	)		3,266			(311,136	)		8,511			1,015,895

The accompanying notes are an integral part of these unaudited interim condensed consolidated financial statements.

Ayr Wellness Inc. 

Unaudited Interim Condensed Consolidated Statements of Shareholders’ Equity 

(Expressed in United States Dollars, in thousands)

	Multiple Voting Shares			Subordinate, Restricted, and Limited Voting Shares			Exchangeable Shares			Additional paid- in capital			Treasury stock						Accumulated other comprehensive income			Accumulated Deficit			Noncontrolling interest			Total
	#			#			#			$			#			$			$			$			$			$
Balance, March 31, 2021		3,696			47,461			6,348			1,188,505			(64	)		(557	)		3,266			(264,871	)		-			926,343
Stock-based compensation		-			1,906			-			7,152			-			-			-			-			-			7,152
Tax withholding on stock-based compensation awards		-			(987	)		-			(28,421	)		-			-			-			-			-			(28,421	)
Exercise of rights		-			42			-			-			-			-			-			-			-			-
Exercise of warrants		-			114			-			1,054			-			-			-			-			-			1,054
Conversion of Exchangeable Shares		-			334			(335	)		-			-			-			-			-			-			-
Share issuance - business combinations and asset acquisitions		-			76			-			2,290			-			-			-			-			-			2,290
Replacement options issued - business combination		-			-			-			4,453			-			-			-			-			-			4,453
Exercise of options		-			17			-			86			-			-			-			-			-			86
Conversion of convertible debt		-			147			-			4,987			-			-			-			-			-			4,987
Net loss		-			-			-			-			-			-			-			(20,738	)		-			(20,738	)
Balance, June 30, 2021		3,696			49,110			6,013			1,180,106			(64	)		(557	)		3,266			(285,609	)		-			897,206
Balance, December 31, 2020		3,696			28,874			2,128			530,808			(64	)		(557	)		3,266			(248,249	)		-			285,268
Stock-based compensation		-			1,906			-			15,376			-			-			-			-			-			15,376
Tax withholding on stock-based compensation awards		-			(987	)		-			(28,421	)		-			-			-			-			-			(28,421	)
Exercise of rights		-			135			-			-			-			-			-			-			-			-
Exercise of warrants		-			901			-			5,346			-			-			-			-			-			5,346
Conversion of Exchangeable Shares		-			685			(685	)		-			-			-			-			-			-			-
Share issuance - business combinations and asset acquisitions		-			12,747			4,570			526,976			-			-			-			-			-			526,976
Replacement options issued - business combination		-			-			-			4,453			-			-			-			-			-			4,453
Exercise of options		-			17			-			86			-			-			-			-			-			86
Equity offering		-			4,600			-			118,052			-			-			-			-			-			118,052
Conversion of convertible debt		-			232			-			7,430			-			-			-			-			-			7,430
Net loss		-			-			-			-			-			-			-			(37,360	)		-			(37,360	)
Balance, June 30, 2021		3,696			49,110			6,013			1,180,106			(64	)		(557	)		3,266			(285,609	)		-			897,206

The accompanying notes are an integral part of these unaudited interim condensed consolidated financial statements.

Ayr Wellness Inc. 

Unaudited Interim Condensed Consolidated Statements of Cash Flows 

(Expressed in United States Dollars, in thousands)

The accompanying notes are an integral part of these unaudited interim condensed consolidated financial statements.

Ayr Wellness Inc.

Notes to the Unaudited Interim Condensed Consolidated Financial Statements

(Expressed in United States Dollars)

1. NATURE OF OPERATIONS

Ayr Wellness Inc. (“Ayr” or the “Company”) is a vertically integrated cannabis multi-state operator in the United States of America (“U.S.”), with cannabis operations in Massachusetts, Nevada, Pennsylvania, Florida, Arizona, New Jersey, Ohio, and Illinois as of June 30, 2022. Through its operating companies, Ayr is a leading cultivator, manufacturer, and retailer of cannabis products and branded cannabis packaged goods. The Company prepares its segment reporting on the same basis that its chief operating decision maker manages the business and makes operating decisions. The Company has one operating segment, cannabis sales. The Company’s segment analysis is analyzed regularly and will be re-evaluated when circumstances change.

The Company is a reporting issuer in the United States and Canada. The Company’s subordinate voting shares, restricted voting shares, and limited voting shares (“Equity Shares”) are trading on the Canadian Stock Exchange (the “CSE”), under the symbol “AYR.A”. The Company’s Equity Shares are also trading on the Over-the-Counter Market (“OTC”) in the United States under the symbol “AYRWF”. The Company’s warrants (“Warrants”) and rights (“Rights”) were trading on the CSE under the symbols “AYR.WT” and “AYR.RT”; however, they stopped trading on September 30, 2021 and May 24, 2021, respectively. Ayr’s headquarter office is 2601 South Bayshore Drive, Suite 900, Miami, FL 33133.

2. BASIS OF PRESENTATION

These interim financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and in accordance with the rules and regulations of Canadian securities regulators and the United States Securities Exchange Commission (“SEC”). Accordingly, these interim statements are condensed and do not include all disclosures required for annual financial statements.

The financial data presented herein should be read in conjunction with the audited consolidated financial statements and accompanying notes for the year ended December 31, 2021, included in the Company’s Annual Report on the Form 40-F filed with the SEC on March 30, 2022. The accompanying condensed consolidated balance sheet as of December 31, 2021 has been derived from those consolidated statements. In the opinion of management, the financial data presented includes all adjustments, consisting primarily of normal recurring adjustments, necessary to present fairly the financial position, results of operations and cash flows for the periods presented. Certain previously reported amounts have been reclassified between line items to conform to the current period presentation, however, there was no impact on previously reported net loss. These unaudited interim financial statements include estimates and assumptions of management that affect the amounts reported. Actual results could differ from these estimates. The results of operations of unaudited interim periods are not necessarily indicative of the results to be expected for the entire year, or any other period.

Ayr Wellness Inc.

Notes to the Unaudited Interim Condensed Consolidated Financial Statements

(Expressed in United States Dollars)

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

3.1 Basis of consolidation

The interim financial statements for the three and six months ended June 30, 2022 and 2021 include the accounts of the Company, its wholly-owned subsidiaries, and entities over which the Company has a controlling interest. Entities over which the Company has control are presented on a consolidated basis from the date control commences until the date control ceases. Equity investments where the Company does not exert a controlling interest are not consolidated. All intercompany balances and transactions involving controlled entities are eliminated on consolidation.

3.2 Variable Interest Entities (“VIE”)

Under certain provisions of Accounting Standards Codification (“ASC”) Topic 810 – Consolidations (“ASC 810”), the Company determines whether we are the primary beneficiary of a VIE. We assess whether we have the power to direct matters that most significantly impact the activities of the VIE and the obligation to absorb losses or the right to receive the benefits from the VIE that could potentially be significant to the VIE.

A VIE is a legal entity that does not have sufficient equity at risk to finance its activities without additional subordinated financial support or is structured that such equity investors lack the ability to make significant decisions relating to the entity’s operations through voting rights or do not substantively participate in the gains or losses of the entity. The primary beneficiary has both the power to direct the activities of the VIE that most significantly impact the entity’s economic performance and the obligation to absorb losses or the right to receive benefits from the VIE that could potentially be significant to the VIE. We assess all variable interests in the entity and use our judgment when determining if we are the primary beneficiary. Other qualitative factors that are considered include decision-making responsibilities, the VIE capital structure, risk and rewards sharing, contractual agreements with the VIE, voting rights, and level of involvement of other parties. We assess the primary beneficiary determination for a VIE on an ongoing basis if there are any changes in the facts and circumstances related to a VIE. See Note 5.

Where we determine we are the primary beneficiary of a VIE, we consolidate the accounts of that VIE, under the guidance of ASC 805, Business Combinations, ("ASC 805"). The equity owned by other shareholders of the VIE is shown as noncontrolling interests in the accompanying Unaudited Interim Condensed Consolidated Financial Statements.

Ayr Wellness Inc.

Notes to the Unaudited Interim Condensed Consolidated Financial Statements

(Expressed in United States Dollars)

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

3.3 Earnings per share

The basic loss per share is computed by dividing the net loss by the weighted average number of shares outstanding, including Equity Shares, multiple voting shares of the Company (“Multiple Voting Shares”), and Exchangeable Shares, during the period. The diluted loss per share reflects the potential dilution of shares by adjusting the weighted average number of shares outstanding to assume conversion of potentially dilutive shares, such as Warrants, Restricted Stock Units (“RSUs”), and Vested Options. The treasury stock method is used for the assumed proceeds upon the exercise of the Exchangeable Shares, Warrants, and Vested Options that are used to purchase Equity Shares at the average market price during the period. If the Company incurs a net loss during a reporting period, the calculation of fully diluted loss per share will not include potentially dilutive equity instruments such as Warrants, RSUs, and Vested Options, because their effect would be anti-dilutive, therefore, basic loss per share and diluted loss per share will be the same. For the three and six months ended June 30, 2022, the potentially dilutive earnings per share included nil and 0.4 million warrants (2021: 6.3 million and 6.5 million) and 3.6 million and 3.2 million RSUs (2021: 1.6 million and 1.4 million), totaling 3.6 million and 3.6 million shares (2021: 7.9 million and 7.9 million) of potentially dilutive securities.

3.4 Significant accounting judgments and estimates

Significant estimates made by management include, but are not limited to: economic lives of leased assets; allowances for potential uncollectability of accounts receivable; provisions for inventory obsolescence; impairment assessment of goodwill and long-lived assets; depreciable lives of property, plant and equipment; useful lives of intangible assets; accruals for contingencies, including tax contingencies; valuation allowances for deferred income tax assets; estimates of fair value of identifiable assets and liabilities acquired in business combinations, including contingent consideration obligations; estimates of fair value of derivative instruments; and estimates of the fair value of stock-based payment awards.

The global pandemic outbreak of the novel strain of coronavirus (“COVID-19”) has resulted in governments worldwide enacting emergency measures to combat the spread of the virus. These measures, which include the implementation of travel bans, store closures, self-imposed quarantine periods and social distancing, may cause material disruption to businesses globally resulting in an economic slowdown. COVID-19, as well as the increase in inflation and gas prices, has cast uncertainty on the assumptions used by management in making its judgments and estimates. Management has not observed any indicators of impairment to assets or a significant change in the fair value of assets due to COVID-19. The Company implemented new safety procedures in accordance with the guidance from the U.S. Centers for Disease Control and Prevention at all locations to better protect the health and safety of both employees and customers. The Company is re-assessing its response to and any potential impact of the COVID-19 pandemic on an ongoing basis.

Ayr Wellness Inc.

Notes to the Unaudited Interim Condensed Consolidated Financial Statements

(Expressed in United States Dollars)

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

3.5 Change in accounting standards

The Company is treated as an “emerging growth company” per the definition under the Jumpstart Our Business Startups Act (the “JOBS Act”). Under the JOBS Act, emerging growth companies may delay adopting new or revised accounting standards until the standards apply to private companies.

Recently Issued Accounting Standards

In June 2016, the FASB issued ASU 2016-13 Topic 326 Financial Instruments - Credit Losses: Measurement of Credit Losses on Financial Instruments, which was subsequently revised by ASU 2018-19, ASU 2019-04, ASU 2019-05, ASU 2019-11, ASU 2020-02 and ASU 2020-03 (“ASU 2016-13”), which introduces a new model for assessing impairment on most financial assets. Entities will be required to use a forward-looking expected loss model, which will replace the current incurred loss model, which will result in earlier recognition of allowance for losses. ASU 2016-13 is effective for the Company’s fiscal year beginning after December 15, 2022, and interim periods therein. The adoption of ASU 2016-13, is not expected to have a material impact on the Company's interim financial statements.

In December 2019, the FASB issued ASU 2019-12 Topic 740 – Simplifying the Accounting for Income Taxes (“ASU 2019-12”), which eliminates certain exceptions related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences. It also clarifies and simplifies other aspects of the accounting for income taxes. ASU 2019-12 is effective for the Company’s fiscal year beginning after December 15, 2021, and interim periods therein. The adoption of ASU 2019-12, on January 1, 2022, did not have a material impact on the Company's interim financial statements.

In January 2020, the FASB issued ASU 2020-01 Topic 321 – Investments - Equity Securities, Topic 323 – Investments – Equity Method and Joint Ventures, and Topic 815 – Derivatives and Hedging (collectively “ASU 2020-01”), which is intended to clarify the interaction of the accounting for equity securities under Topic 321 and investments accounted for under the equity method of accounting in Topic 323 and the accounting for certain forward contracts and purchased options accounted for under Topic 815. ASU 2020-01 is effective for the Company’s fiscal year beginning after December 15, 2021, and interim periods therein. The adoption of ASU 2020-01, on January 1, 2022, did not have a material impact on the Company's interim financial statements.

In August 2020, the FASB issued ASU No. 2020-06 Subtopic 470-20 – Debt—Debt with Conversion and Other Options and Subtopic 815-40 – Derivatives and Hedging—Contracts in Entity’s Own Equity: Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity (“ASU 2020-06”), to improve financial reporting associated with accounting for convertible instruments and contracts in an entity’s own equity. ASU 2020-06 is effective for the Company’s fiscal year beginning after December 15, 2023, including interim periods therein. The early adoption of ASU 2020-06, on January 1, 2022, did not have a material impact on the Company's interim financial statements.

Ayr Wellness Inc.

Notes to the Unaudited Interim Condensed Consolidated Financial Statements

(Expressed in United States Dollars)

4. BUSINESS COMBINATIONS AND ASSET ACQUISITIONS

Transactions accounted for as business combinations have been accounted for in accordance with ASC 805, with the results included in the Company’s results from operations from the date of acquisition. The fair value considerations have been allocated to the assets acquired and liabilities assumed based on their estimated fair values at the date of acquisition.

Each of the acquisitions are subject to specific terms relating to the satisfaction of the purchase price by the Company and its wholly-owned subsidiaries, and incorporates payments in cash, shares, and debt as well as certain contingent considerations. The shares issued as consideration are either Equity Shares or non-voting exchangeable shares of the Company’s subsidiaries (“Exchangeable Shares”) that are exchangeable on a one-for-one basis into an equal number of Equity Shares of the Company. The Company treats the Exchangeable Shares as options with a value equal to a share of Equity Shares, which represents the holder’s claim on the equity of the Company. The Company has presented these Exchangeable Shares as a part of shareholders’ equity within these interim condensed financial statements due to the fact that (i) they are economically equivalent to the Company’s publicly traded Equity Shares and (ii) the holders of the Exchangeable Shares are subject to restrictions on transfer under United States securities laws but may dispose of the Exchangeable Shares through the CSE by exchanging them for Equity Shares of the Company. 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 loss per share.

The goodwill recognized on acquisitions is attributable mainly to the expected future growth potential and expanded customer base arising as a result of the completion of the respective acquisition. Goodwill has been allocated to the reporting units corresponding to the states of the acquired businesses. None of the goodwill is expected to be deductible for income tax purposes. For further analysis on goodwill relating to business combinations, see Note 8.

Ayr Wellness Inc.

Notes to the Unaudited Interim Condensed Consolidated Financial Statements

(Expressed in United States Dollars)

4. BUSINESS COMBINATIONS AND ASSET ACQUISITIONS (Continued)

2022 Second Quarter Acquisition

Business combinations

On May 25, 2022, the Company completed its acquisition of Herbal Remedies Dispensaries, LLC (“Herbal Remedies”) through a membership interest purchase agreement.

Final valuations of the assets acquired and liabilities assumed are not yet complete due to the inherent complexity associated with valuations and the short period of time between the acquisition date and the period end. Therefore, the purchase price allocation is preliminary and subject to adjustment on completion of the valuation process and analysis of resulting tax effects. Further changes may still be required as management works to finalize the valuation of assets acquired and liabilities assumed. Differences between these provisional estimates and the final acquisition accounting may occur and these differences could have a material impact.

The preliminary fair value of identifiable assets acquired and liabilities assumed as of the acquisition date are as follows:

Ayr Wellness Inc.

Notes to the Unaudited Interim Condensed Consolidated Financial Statements

(Expressed in United States Dollars)

4. BUSINESS COMBINATIONS AND ASSET ACQUISITIONS (Continued)

Herbal Remedies Business Combination

Herbal Remedies is an operator of two licensed retail dispensaries in Quincy, Illinois. This acquisition will expand our operational footprint with the addition of Illinois.

Purchase consideration was comprised of the following:

Pursuant to the terms of the Definitive Agreement (“Herbal Remedies Agreement”), Ayr satisfied the purchase price of $19.1 million for Herbal Remedies through the following:

Ayr Wellness Inc.

Notes to the Unaudited Interim Condensed Consolidated Financial Statements

(Expressed in United States Dollars)

2022 First Quarter Acquisition

Business combinations

On February 15, 2022, the Company completed its acquisition of Cultivauna, LLC (“Cultivauna”) through a membership interest purchase agreement. Cultivauna has a production license in the state of Massachusetts and sells cannabis infused branded seltzers and water-soluble tinctures.

Final valuations of the assets acquired and liabilities assumed are not yet complete due to the inherent complexity associated with valuations and the short period of time between the acquisition date and the period end. Therefore, the purchase price allocation is preliminary and subject to adjustment on completion of the valuation process and analysis of resulting tax effects. Further changes may still be required as management works to finalize the valuation of assets acquired and liabilities assumed. Differences between these provisional estimates and the final acquisition accounting may occur and these differences could have a material impact.

The preliminary fair value of identifiable assets acquired and liabilities assumed as of the acquisition date are as follows:

Ayr Wellness Inc.

Notes to the Unaudited Interim Condensed Consolidated Financial Statements

(Expressed in United States Dollars)

Cultivauna Business Combination

Cultivauna is the owner of Levia branded cannabis infused seltzers and water-soluble tinctures.

Purchase consideration was comprised of the following:

Pursuant to the terms of the Definitive Agreement (“Cultivauna Agreement”), Ayr satisfied the purchase price of $21.6 million for Cultivauna through the following:

Ayr Wellness Inc.

Notes to the Unaudited Interim Condensed Consolidated Financial Statements

(Expressed in United States Dollars)

Supplemental Pro-Forma Information

The consolidated unaudited pro-forma revenue and net income (loss) before taxes attributable to Liberty Health Sciences (“Liberty”) and Blue Camo, LLC (“Oasis”), two entities acquired during the first quarter of 2021, for the three and six months ended June 30, 2021, were $nil and $nil, respectively, and $18.2 million and ($2.6) million, respectively. The financial information related to Herbal Remedies was not material to the interim financial statements. The other supplemental pro-forma information required by ASC 805-10-50-2h for the periods ended June 30, 2022 and 2021 is not practicable.

As of June 30, 2022, the Company has the ability to direct the activities of two entities, Tahoe Hydroponics Company, LLC (“Tahoe Hydro”) and NV Green, Inc., (“NV Green”), collectively (“TH/NVG”), through a management services and equity purchase agreement, consummated in February 2022, thereby classifying the entities as VIEs, until certain conditions are met, at which time the Company will evaluate business combination accounting.

The following tables present the summarized financial information about the Company’s consolidated VIEs that is included in the Interim Balance Sheet as of June 30, 2022 and in the Interim Statements of Operations for the three and six months ended June 30, 2022.

The assets of TH/NVG can only be used to settle its liabilities and there are no TH/NVG liabilities for which creditors or beneficial interest holders have recourse to the general credit of the Company.

Ayr Wellness Inc.

Notes to the Unaudited Interim Condensed Consolidated Financial Statements

(Expressed in United States Dollars)

The Company’s inventories include the following:

The amount of inventory included in cost of goods sold during the three and six months ended June 30, 2022 and 2021, was $57.3 million and $112.4 million, and $38.6 million and $63.9 million, respectively. The Company reviews inventory on hand for estimated obsolescence or unmarketable items, as compared to future demand requirements and the shelf life of the various products. Based on the review, the Company records inventory write-downs, when necessary, when costs exceed expected net realizable value.

For the three and six months ended June 30, 2022 and 2021, $3.2 million and $5.7 million, and $26.6 million and $32.4 million, respectively, of expenses relating to the incremental costs to acquire cannabis inventory in a business combination is recognized in cost of sales on the Interim Statements of Operations. This relates to the one-time adjustment of cannabis inventory from the acquiree historical cost to fair value as part of the purchase price allocation.

As of June 30, 2022 and December 31, 2021, property, plant, and equipment, net consisted of the following:

Depreciation expense for the three and six months ended June 30, 2022, totaled $3.5 million and $6.4 million, respectively, of which $2.6 million and $4.7 million, respectively, is included in cost of goods sold. Depreciation expense for the three and six months ended June 30, 2021, totaled $1.4 million and $2.7 million, respectively, of which $969 thousand and $2 million, respectively, is included in cost of goods sold.

Ayr Wellness Inc.

Notes to the Unaudited Interim Condensed Consolidated Financial Statements

(Expressed in United States Dollars)

Goodwill

The Company evaluates goodwill for impairment annually or more frequently when an event occurs, or circumstances change that indicate that the carrying value may not be recoverable. An impaired asset is written down to its estimated fair value based on the most recent information available.

ASC 350 Intangibles-Goodwill and Other-Testing Goodwill for Impairment, provides entities an option to perform a qualitative assessment to determine whether a further quantitative analysis of goodwill is required. In performing the qualitative assessment for the Company’s goodwill impairment test, the Company is required to make assumptions and utilized judgements when evaluating triggering events. If impairment indicators are present after performing the qualitative assessment, the Company would perform a quantitative impairment analysis to estimate the fair value of goodwill.

During the six months ended June 30, 2022, the Company performed the qualitative impairment test. As a result of the analysis, no further quantitative impairment test was deemed necessary at this time. There were no impairments of goodwill or intangible assets for the six months ended June 30, 2022.

As of June 30, 2022, and December 31, 2021, the Company’s goodwill is as follows:

Intangible Assets

Amortization expense is recorded within cost of goods sold and operating expenses. The amount in cost of goods sold for the three and six months ended June 30, 2022 and 2021, was $9.8 million and $2.4 million, and $4.9 million and $0.8 million, respectively.

The following table represents the net book value of intangible assets:

Ayr Wellness Inc.

Notes to the Unaudited Interim Condensed Consolidated Financial Statements

(Expressed in United States Dollars)

The anticipated amortization expense over the next five years and beyond is as follows:

Information related to operating and finance leases is as follows:

The maturity of the contractual undiscounted lease liabilities as of June 30, 2022, are as follows:

Lease expense during the three and six months ended June 30, 2022 and 2021, are as follows:

Ayr Wellness Inc.

Notes to the Unaudited Interim Condensed Consolidated Financial Statements

(Expressed in United States Dollars)

In June 2022, the Company completed a sale and lease back transaction to sell two cultivation and processing facilities for a purchase price of $28.1 million, excluding transaction costs. The Company will lease back the facilities and continue to operate and manage them under a long-term agreement. As a result of the sale, the Company divested of $22.2 million of buildings and improvements, and $3.7 million of land. The Company recognized a gain on sale related to the transaction of $2.2 million which was recorded within gain on sale of assets on the Interim Statement of Operations. The lease was recorded as an operating lease and resulted in a lease liability of $25.3 million and an ROU asset of $25.3 million, which was recorded net of a $0.8 million work allowance.

During the six months ended June 30, 2022, the Company closed on a real estate financing transaction resulting in $27.6 million of cash proceeds for the sale and simultaneous leaseback of a cultivation facility. The transaction includes a construction financing allowance of up to $14.2 million, which will increase the base rent at the time the construction financing is drawn down. Control was never transferred to the buyer-lessor because the transaction did not qualify for sale-leaseback treatment. Therefore, the Company is deemed to own this real estate and will continue to depreciate the assets and reflect the properties on the Company’s Interim Balance Sheet. The Company recorded a financing obligation for the consideration received from the buyer-lessor, and future cash lease payments will be allocated between interest expense and reduction to the financing obligation, as applicable. As the transactions did not qualify for sale-leaseback treatment, under ASC 842, Leases, no gain or loss was recognized.

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 interim financial statements, related party transactions and balances are as follows:

Mercer Park, L.P., a company owned by an executive of Ayr, entered into a management agreement with the Company dated May 24, 2019. The management fee is paid monthly and varies based on actual costs incurred by the related entity when providing the Company administrative support, management services, office space, and utilities. In addition, the management fees pay other corporate or centralized expenses based on actual cost, including but not limited to legal and professional fees, software, and insurance. The agreement is a month-to-month arrangement.

As of June 30, 2022, and December 31, 2021, $731 thousand and $935 thousand was included in prepaid expenses, a majority of which is for a letter of credit for an operating lease. Lease fees included in the operating lease during the three and six months ended June 30, 2022, were $215 thousand (2021: $116 thousand) and $430 thousand (2021: $231 thousand). During the three and six months ended June 30, 2022, included in general and administrative expenses were management fees of $3 thousand (2021: $2,636 thousand) and $3 thousand (2021: $4,423 thousand).

During the three and six months ended June 30, 2022, the Company incurred fees from a company partially owned by a board member of Ayr. The total incurred fees were $14 thousand and $27 thousand (2021: $26 thousand and $51 thousand) of office expenses, $65 thousand and $239 thousand (2021: $225 thousand and $386 thousand) of development fees, $234 thousand and $461 thousand (2021: $225 thousand and $375 thousand) of rental fees, and $44 thousand and $92 thousand (2021: $63 thousand $129 thousand) of interest expense. Additionally, the board member was issued 50,000 equity shares, valued at $707 thousand on the grant date, related to a consulting agreement with the Company for services rendered for the period ended June 30, 2022.

Ayr Wellness Inc.

Notes to the Unaudited Interim Condensed Consolidated Financial Statements

(Expressed in United States Dollars)

Refer to the below debts payable and senior secured notes and share capital notes for additional information regarding the debts payable to related parties and non-cash stock-based compensation plan, respectively, for the three and six months ended June 30, 2022 and 2021.

Senior Secured Notes

On November 12, 2021, the Company completed a private placement offering of approximately $133 million aggregate principal amount of secured promissory notes at a premium price of $1,070 per $1,000, resulting in approximately $147 million of proceeds due December 2024. The notes are considered additional notes under the indenture governing the Company’s existing notes which were entered into on December 10, 2020 (“December 2020 Notes”). The resulting yield-to-maturity is 9.8%.

Debt Payable

Ayr Wellness Inc.

Notes to the Unaudited Interim Condensed Consolidated Financial Statements

(Expressed in United States Dollars)

Debt Payable (continued)

The details of debts payable were as follows:

The following table presents the future debt obligations as of June 30, 2022:

As part of the business combinations and asset acquisitions, the Company issued and assumed notes with related and non-related parties. The related party notes are considered part of the purchase price to the former shareholders of the acquired businesses. As a result of the combinations and acquisitions, several of these individual shareholders are now considered related parties of the Company across various roles including directors, officers, and shareholders.

On March 28, 2022, the Company amended a non-related party note of $2.5 million that was assumed during the acquisition of Washoe Wellness, LLC (“Washoe”), which was acquired during May 2019. The loan was amended to extend the maturity date an additional year, while the payment terms and interest rate remained the same. Under ASC 470, this was considered to be a debt modification. As of June 30, 2022, the Company paid the note in full.

On March 17, 2022, the Company entered into a loan agreement with a community bank for total proceeds of $26.2 million, net of financing costs of $0.3 million, with a 4.625% annual interest rate. The loan is secured with a first mortgage lien on certain real property in Massachusetts and matures five years from the date of the agreement, with an option to extend for an additional five years.

On March 1, 2022, pursuant to the PA Natural Medicine, LLC (“PA Natural”) Agreement, the Company issued non-related party promissory notes in the amount of $14.9 million. The notes are secured by all the assets and a pledge of the Company’s membership interests in PA Natural. The notes mature three years from the date of the agreement with an 8.0% annual interest rate.

Ayr Wellness Inc. 

Notes to the Unaudited Interim Condensed Consolidated Financial Statements 

(Expressed in United States Dollars)

Debt Payable (continued)

On May 16, 2022, the Company entered into a loan agreement with a community bank for total proceeds of $25.8 million, with an annual interest rate of Prime Rate plus 1.5%, floating, with a 5.0% floor (currently 6.25% as of June 30, 2022). The loan is secured with a first mortgage lien on certain real property and matures two years from the date of the agreement. The loan is subject to certain financial and other covenants, that we are in compliance with as of June 30, 2022.

Interest expense associated with related party debt payable for the three and six months ended June 30, 2022 and 2021, was $377 thousand and $769 thousand, $450 thousand, and $912 thousand, respectively.

The following activity occurred during the six months ended June 30, 2022:

Warrants

The average remaining life of Warrants is 1.9 years with an aggregate intrinsic value of $nil. The number of Warrants outstanding as of June 30, 2022, and December 31, 2021, is:

Ayr Wellness Inc. 

Notes to the Unaudited Interim Condensed Consolidated Financial Statements 

(Expressed in United States Dollars)

Purchase Consideration and Contingent Consideration

The earn-out provision related to the acquisition of Sira Naturals, Inc. (“Sira”) is measured at fair value by taking a probability-weighted average of possible outcomes, as estimated by management, and discounting the payment to a present value. As of June 30, 2022 and December 31, 2021, the fair value was $25.4 million and $25.3 million, respectively.

The earn-out provisions related to the acquisitions of Oasis, GSD NJ, LLC (“GSD”), PA Natural, and Cultivauna are measured at fair value based on unobservable inputs and is considered a Level 3 measurement. The provision uses a Monte-Carlo simulation to estimate the fair value through the end of the earn-out period based on the Company’s share price at the acquisition date and other inputs based on other observable market data.

As of June 30, 2022, the fair value of Oasis, GSD, PA Natural, and Cultivauna earn-out provisions were $nil, $90.4 million, $nil, and $5.6 million, respectively. As of December 31, 2021, the fair value of Oasis, GSD, and PA Natural earn-out provisions were $28.7 million, $91.7 million, and $39.9 million, respectively.

During the period ended June 30, 2022, the Company paid and settled its earn-out provision related to the PA Natural acquisition. Ayr paid $10.0 million of cash, issued $14.9 million of promissory notes, and issued $11.7 million of Equity Shares, and recognized a gain during the period of $3.2 million on the change in fair value of the contingent consideration obligation.

During the period ended June 30, 2022, the Company acquired Herbal Remedies and recorded a fair value adjustment on the purchase consideration settlement of $1.8 million related to the issuance of a promissory note.

The fair value adjustment relating to derivative liabilities has been reflected in the Interim Statements of Operations under “Fair value gain (loss) on financial liabilities” as detailed below:

The Company has adopted an Equity Incentive Plan (“the Plan”), as amended on May 2, 2021, which allows the Company to compensate qualifying plan participants through stock-based arrangements and provide them with opportunities for stock ownership in the Company, thereby aligning the interests of such persons with the Company’s shareholders. Under the Plan, the Company may grant stock options, RSUs, performance compensation awards, and unrestricted stock bonuses or purchases.

In addition, CSAC Acquisition Inc. established a Restricted Stock Plan (the “AcquisitionCo Plan”) to facilitate the granting of restricted Exchangeable Shares. Any shares issued under the AcquisitionCo Plan will reduce the number of Equity Shares that may be awarded under the Equity Incentive Plan on a one-for-one basis.