Lowell Farms announced that on January 12, 2024, Cypress Holding Company, a wholly-owned subsidiary of the Company, surrendered possession of approximately 10 acres of real property at 139 Zabala Road, Salinas, California, leased by Cypress under a Lease Agreement dated April 1, 2017, with Tinhouse, dba Tinhouse Partners as a landlord. Prior to vacating the premises on January 12, 2024, the Company had operated a cultivation facility, which includes four greenhouses totaling approximately 255,000 square feet, on the Zabala Road Property.

As previously announced, in January 2023, the Company’s Board of Directors formed a strategic alternatives special committee of independent directors to explore, review, and evaluate strategic and financial alternatives. As part of these efforts, the Company entered into negotiations with the landlord to restructure the terms of the Zabala Road Lease, which provided for an expiry date of December 31, 2027, subject to five 5-year extension options exercisable by Cypress.

In September 2023, the Company and the Landlord reached a settlement amending the terms of the Zabala Road Lease and reaching an agreement on all rent-related issues. The landlord terminated the Zabala Road Lease via a letter dated October 6, 2023, which was served by its counsel on the Company on October 10, 2023. In October 2023, the Company filed a lawsuit for breach of contract and specific performance against the landlord to enforce the settlement terms. The landlord filed counterclaims and an unlawful detainer action against the Company, claiming damages of more than $36 million, which the Landlord claims are based on an analysis of accelerated rent due through the end of the term of the Zabala Road Lease, along with attorney’s fees, improvements, and other undefined costs.

The Company intends to defend itself against the claims made by the landlord. However, no assurance can be provided as to whether or not the Company will prevail, and it may be required to pay significant monetary damages.

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