10-Q: Grown Rogue International Reports Q1 2026 Results

Grown Rogue International Inc. reported a net loss of $2.21 million for Q1 2026, a significant shift from a net income of $742,870 in the prior year, driven by increased operating expenses and unrealized losses on financial instruments.

Summary

• Grown Rogue International Inc. reported a net loss of $2,213,391 for the three months ended March 31, 2026, a substantial change from a net income of $742,870 in the same period of 2025.
• Total revenue increased by 28% to $9,155,658 in Q1 2026, primarily due to growth in New Jersey operations.
• Cost of goods sold increased by 37% to $5,198,024, outpacing revenue growth and impacting gross profit.
• Operating expenses decreased by 5% to $3,857,980, mainly due to lower share-based compensation, but general and administrative expenses increased.
• The company experienced a significant decrease in other income (expense), net, to a net expense of $1,796,175, largely due to unrealized losses on the Vireo Growth warrant asset and increased interest expenses.
• The company is expanding its Illinois operations through an agreement to acquire a 49% interest in Sea Craft, LLC, subject to regulatory approval.
• A 20% non-controlling interest in GRMA was sold for $3,000,000 to fund Illinois operations.

Sentiment

Score: 3

Explanation: StockSavvy.ai views this filing as negative due to the shift from net income to a significant net loss, driven by increased costs and financial instrument volatility, despite revenue growth.

Positives

• Total revenue increased by 28% to $9,155,658 in Q1 2026 compared to Q1 2025.
• New Jersey operations showed strong growth, contributing $3,415,367 to revenue in Q1 2026.
• Oregon and Michigan operations also experienced year-over-year revenue growth.
• Operating expenses decreased by 5% to $3,857,980 due to lower share-based compensation.
• Net cash provided by operating activities was $2,534,524 in Q1 2026, a positive shift from a net cash used of $1,004,580 in Q1 2025.
• Cash and cash equivalents increased by $2,329,413 to $13,701,247 at the end of Q1 2026.

Negatives

• The company reported a net loss of $2,213,391 in Q1 2026, compared to a net income of $742,870 in Q1 2025.
• Cost of goods sold increased by 37% to $5,198,024, growing faster than revenue.
• Gross profit increased by 18% to $3,957,634, but the margin was impacted by higher cost of goods sold.
• General and administrative expenses increased significantly to $3,611,824 from $2,532,254 in the prior year.
• Other income (expense), net, was a significant expense of $1,796,175 in Q1 2026, primarily due to a $2,191,084 unrealized loss on the Vireo Growth warrant asset.
• Interest and accretion expense increased to $549,980 from $258,171 due to a larger credit facility balance.
• The company has an uncertain tax liability of $9,280,905 related to IRC Section 280E.

Risks

• The federal illegality of cannabis remains a significant risk, potentially leading to enforcement actions or asset forfeiture.
• Contracts related to cannabis operations may be unenforceable, and property could be subject to seizure.
• Section 280E of the Internal Revenue Code limits the deductibility of ordinary business expenses, potentially leading to losses even for profitable operations.
• The company's success is dependent on obtaining and maintaining marijuana licenses from state and local authorities.
• The highly regulated nature of the marijuana industry may lead to unexpected compliance costs and delays.
• The company faces significant opposition from well-funded industries, such as the pharmaceutical industry.
• The company operates in a competitive market, which could impact sales and pricing.
• Local laws and ordinances could restrict business activities.
• Difficulty in obtaining and maintaining bank accounts due to federal cannabis laws.
• Bankruptcy law protections may be unavailable to the company.
• Inability to register federal trademarks for cannabis products.
• Rapidly changing laws and enforcement policies in the cannabis industry create uncertainty.
• Difficulty in obtaining insurance at affordable rates due to involvement in the cannabis industry.
• Foreign investors and personnel may face entry bans into the United States.
• Security risks associated with cannabis products and cash handling.
• Uncertainty regarding the company's security measures and potential for theft.
• Potential for product liability claims and regulatory action.
• Restrictions on the transferability of units, limiting liquidity for investors.
• The company has a limited operating history and no stand-alone financial statements.
• The determination of the offering amount was subjective and may not relate to earnings potential or asset value.

Future Outlook

The company believes its current cash on hand, projected cash flows from sales, and anticipated financing activities will be sufficient to meet liquidity and capital resource requirements for the next twelve months. The company is also expanding its operations in Illinois through an acquisition and has sold a non-controlling interest in GRMA to fund these activities.

Management Comments

• The increase in revenue was driven by continued growth at our New Jersey operations, which contributed $3,415,367 to revenue in the current quarter as compared to $1,771,720 in the prior-year quarter, supplemented by year-over-year growth in the Oregon and Michigan operations.
• Cost of revenues grew at a rate faster than the rate of revenue growth (28%), largely due to mix and higher operating lease costs included in cost of sales.
• The decrease in operating expenses was driven principally by lower share-based compensation expense ($154,994 in the current quarter as compared to $1,435,910 in the prior-year quarter, reflecting the timing of restricted share unit vesting) and lower depreciation expense ($91,162 in the current quarter as compared to $104,984 in the prior-year quarter), partially offset by an increase in general and administrative expenses to $3,611,824 in the current quarter as compared to $2,532,254 in the prior-year quarter, reflecting headcount and infrastructure additions in support of growth and expansion activities.
• The current-quarter result (other income/expense) was driven principally by a $2,191,084 unrealized loss on the Vireo Growth warrant asset (compared to a $1,172,492 unrealized loss in the prior-year quarter) reflecting the decline in Vireo Growths share price during the period, partially offset by a $770,714 unrealized gain on the warrant liability that was reclassified from equity on January 1, 2026 in connection with the functional currency change, and a $66,377 unrealized gain on the Western Alliance Bank interest rate swap derivative.
• The effective tax rate continues to be heavily influenced by the Companys uncertain tax positions related to the treatment of certain transactions and deductions under Section 280E of the Internal Revenue Code.

Industry Context

StockSavvy.ai notes that Grown Rogue International's performance reflects the ongoing challenges and opportunities within the highly regulated and evolving cannabis industry. The significant increase in revenue from New Jersey is a positive indicator of market penetration, while the cost pressures and unrealized losses highlight the financial complexities and market volatility inherent in the sector.

Legal Proceedings

• The SEC issued an Order Instituting Proceedings (OIP) on September 22, 2022, alleging violations of the Exchange Act for failing to timely file periodic reports. The company has filed an answer and is seeking a hearing, and is currently compliant with all filings.

Related Party Transactions

• Salaries and consulting fees paid to related parties totaled $358,693 in Q1 2026.
• Lease payments made to the CEO were $51,346 in Q1 2026.
• Fees paid to an entity controlled by the spouse of the majority owner were $557,785 in Q1 2026.
• Share-based compensation expense related to related parties was $90,728 in Q1 2026.
• The company has related party debt balances included in business acquisition consideration payable and long-term debt, totaling $2,453,655 as of March 31, 2026.

Stakeholder Impact

• Shareholders may experience a negative impact due to the net loss and increased operating expenses.
• Investors in the GRMA units sold will receive a preferred return and have the option to convert into subordinate voting shares.
• Creditors may be impacted by the company's financial performance and its ability to service debt, although the company believes it is in compliance with covenants.
• Employees may be affected by the company's financial performance and expansion plans.

Next Steps

• The company expects the acquisition of a 49% interest in Sea Craft, LLC to close in the second quarter of 2026, subject to regulatory approval.
• The company will continue to fund its operations and expansion activities through cash flow and potential financing.

Key Dates

Recommendation

The shift from profitability to a significant net loss, coupled with increasing costs and negative impacts from financial instruments, suggests a deteriorating financial position. While revenue is growing, the cost structure and unrealized losses outweigh this positive, indicating a sell recommendation for seasoned investors.

Keywords

Grown Rogue International, Form 10-Q, Quarterly Report, Cannabis Industry, Oregon, Michigan, New Jersey, Illinois, Financial Results, Revenue Growth, Net Loss, Operating Expenses, Share-based Compensation, Warrant Liability, Derivative Liability, Securities Act, US GAAP, Section 280E, Capital Raise, Membership Interest Purchase Agreement