1. Nature of Operations

TILT Holdings Inc. (“TILT” or the “Company”) is a business solutions provider to the global cannabis industry offering a diverse range of value-added products and services to industry participants. Through a portfolio of companies providing technology, hardware, cultivation and production, TILT services brands and cannabis retailers in regulated markets across 39 states in the United States (“U.S.”), as well as Canada, Israel, Mexico, South America, and the European Union. The Company’s head office is in Phoenix, Arizona and its registered office is located at 745 Thurlow Street, #2400 Vancouver, BC V6C 0C5 Canada.

The following are the Company’s significant consolidated entities and the ownership interest in each that are included in these consolidated financial statements for the years ended December 31, 2022 and 2021:

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Liquidity

The Company has experienced operating losses since its inception and expects to continue to incur losses in the development of its business. The Company incurred a comprehensive loss of $107,466 during the year ended December 31, 2022 and had an accumulated deficit of $963,703 as of December 31, 2022. As of December 31, 2022, the Company had negative working capital of $44,311 (compared to positive working capital of $1,116 as of December 31, 2021). As of December 31, 2022, the Company had notes payable maturing in the next 12 months, including the November 1, 2019 junior secured promissory notes (the “Junior Notes”) described in Note 12 – Notes Payable. The negative working capital was primarily due to the maturities of the Junior Notes which, as of December 31, 2022 were payable on April 1, 2023, and the Revolving Facility (as defined in Note 12 – Notes Payable) which, as of December 31, 2022, was payable on July 21, 2023. In order to achieve an improved capital structure, management completed a refinancing of the Junior Notes on February 15, 2023 and extended the maturity date and increased the line of credit under the Revolving Facility on March 13, 2023. See Note 21 – Subsequent Events for further details.

On April 19, 2022, the Company entered into a definitive purchase and sale agreement (the “Purchase and Sale Agreement”) between its subsidiary, White Haven RE, LLC, and an affiliate of Innovative Industrial Properties, Inc. (“IIP”) contemplating the sale and leaseback of the Company’s cultivation and production facility in White Haven, Pennsylvania (the “Pennsylvania Transaction”) in exchange for $15,000 cash. On February 15, 2023, the Company completed the Pennsylvania Transaction and used part of the proceeds to repay the remaining $2,100 due on its 2019 Senior Notes (as defined in Note 12 – Notes Payable). See Note 21 – Subsequent Events for further details.

The Company’s liquidity will depend on its ability to generate positive cash flow, and minimize the anticipated net loss during the 12 months from the date of this filing, all of which are uncertain and outside the control of the Company.

The Company’s operating plans for the next 12 months include (i) revenue growth from the sale of existing products and the introduction of new products across all operating segments; (ii) reducing production and operational costs as a result of improved efficiencies in cannabis operations; (iii) reducing supply chain costs; (iv) increasing cash inflows from the September 2022 activation of a medical dispensary license; (v) increasing cash inflows from selling and leasing back certain facilities (see Note 21 – Subsequent Events for the completion of the Pennsylvania Transaction in February 2023);

(vi) obtaining other financings as necessary; and (vii) refinancing of debt obligations and extension of maturities with banking partners and note holders (see Note 21 – Subsequent Events for the description of the 2023 Notes and the amendment to the Revolving Facility). The Company believes it has adequate resources to fund its operations during the next 12 months from the date of filing of this Annual Report on Form 10-K.

COVID-19 Pandemic and Global Conflicts

In March 2020, the World Health Organization categorized coronavirus disease 2019 (“COVID-19”) as a global pandemic. The Company continues to implement and evaluate actions to strengthen its financial position and support the continuity of its business and operations.

The impact of the COVID-19 pandemic and geopolitical conflicts, including the recent war in Ukraine, have created much uncertainty in the global marketplace. There are many uncertainties regarding these events, and the Company is closely monitoring the ongoing impact on all aspects of its business, including how it will impact its services, customers, employees, vendors, and business partners now and in the future. While the COVID-19 pandemic and recent geopolitical conflicts did not materially adversely affect the Company’s financial results and business operations in the year ended December 31, 2022, the Company is unable to predict the impact that these events will have on its future financial position and operating results due to numerous uncertainties.