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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
For
the Quarterly Period ended
For the transition period from __________________ to __________________
Commission
File number
(Exact Name of Registrant as Specified in Its Charter)
| (State or Other Jurisdiction of | (I.R.S. Employer | |
| Incorporation or Organization) | Identification No.) |
(Address of Principal Executive Offices)
(Registrant’s Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Act: None.
| Title of each class | Ticker symbol(s) | Name of each exchange on which registered | ||
| Not Applicable | Not Applicable | Not Applicable |
Indicate
by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Indicate
by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule
405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large Accelerated filer ☐ | |
| Non-accelerated filer ☐ | Smaller
reporting company |
| Emerging
growth company |
If
an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying
with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐
As of August 5, 2022, shares of the registrant’s common stock were outstanding.
MariMed Inc.
Table of Contents
| 2 |
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains certain forward-looking statements and information relating to MariMed Inc. that is based on the beliefs of MariMed Inc.’s management, as well as assumptions made by and information currently available to the Company. In some cases, you can identify these statements by forward-looking words such as “anticipates,” “believes,” “could,” “should,” “estimates,” “expects,” “intends,” “may,” “plans,” “predicts,” “projects,” “will,” or other similar or comparable words. Any statements contained in this Quarterly Report on Form 10-Q that are not statements of historical facts may be deemed to be forward-looking statements. Such statements reflect the current views of the Company with respect to future events, including consummation of pending transactions, launch of new products, expanded distribution of existing products, obtaining new licenses, estimates and projections of revenue, EBITDA and Adjusted EBITDA and other information about its business, business prospects and strategic growth plan which are based on certain assumptions of its management, including those described in this Quarterly Report on Form 10-Q. These statements are not a guarantee of future performance and involve risk and uncertainties that are difficult to predict, including, among other factors, changes in demand for the Company’s services and products, changes in the law and its enforcement, timing and outcome of regulatory processes and changes in the economic environment.
Additional important factors that could cause actual results to differ materially from those in these forward-looking statements are also discussed in Part I, Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in this Quarterly Report on Form 10-Q and Part I, Item 1A, “Risk Factors” of the Company’s Annual Report on Form 10-K for the year ended December 31, 2021. Any forward-looking statement made by the Company in this Quarterly Report on Form 10-Q speaks only as of the date on which this Quarterly Report on Form 10-Q was first filed. The Company undertakes no obligation to publicly update any forward-looking statement, whether as a result of new information, future developments or otherwise.
| 3 |
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
MariMed Inc.
Condensed Consolidated Balance Sheets
(in thousands, except per share amounts)
(unaudited)
| June 30, | December 31, | |||||||
| 2022 | 2021 | |||||||
| Assets | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | |||||||
| Accounts receivable, net | ||||||||
| Deferred rents receivable | ||||||||
| Notes receivable, current portion | ||||||||
| Inventory | ||||||||
| Investments, current | ||||||||
| Other current assets | ||||||||
| Total current assets | ||||||||
| Property and equipment, net | ||||||||
| Intangible assets, net | ||||||||
| Goodwill | ||||||||
| Notes receivable, net of current | ||||||||
| Operating lease right-of-use assets | ||||||||
| Finance lease right-of-use assets | ||||||||
| Other assets | ||||||||
| Total assets | $ | $ | ||||||
| Liabilities, mezzanine equity and stockholders’ equity | ||||||||
| Current liabilities: | ||||||||
| Mortgages and notes payable, current portion | $ | $ | ||||||
| Accounts payable | ||||||||
| Accrued expenses and other | ||||||||
| Income taxes payable | ||||||||
| Operating lease liabilities, current portion | ||||||||
| Finance lease liabilities, current portion | ||||||||
| Total current liabilities | ||||||||
| Mortgages and notes payable, net of current | ||||||||
| Operating lease liabilities, net of current | ||||||||
| Finance lease liabilities, net of current | ||||||||
| Other liabilities | ||||||||
| Total liabilities | ||||||||
| Commitments and contingencies | ||||||||
| 4 |
MariMed Inc.
Condensed Consolidated Balance Sheets (continued)
(in thousands, except per share amounts)
(unaudited)
| June 30, | December 31, | |||||||
| 2022 | 2021 | |||||||
| Mezzanine equity: | ||||||||
| Series B convertible preferred stock, $ par value; shares authorized, issued and outstanding at June 30, 2022 and December 31, 2021 | ||||||||
| Series C convertible preferred stock $ par value; shares authorized; shares issued and outstanding at June 30, 2022 and December 31, 2021 | ||||||||
| Total mezzanine equity | ||||||||
| Stockholders’ equity | ||||||||
| Undesignated preferred stock, $ par value; shares authorized; shares issued and outstanding at June 30, 2022 and December 31, 2021 | ||||||||
| Common stock, $ par value; shares authorized; and shares issued and outstanding at June 30, 2022 and December 31, 2021, respectively | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Noncontrolling interests | ( | ) | ( | ) | ||||
| Total stockholders’ equity | ||||||||
| Total liabilities, mezzanine equity and stockholders’ equity | $ | $ | ||||||
See accompanying notes to the unaudited condensed consolidated financial statements.
| 5 |
MariMed Inc.
Condensed Consolidated Statements of Operations
(in thousands, except per share amounts)
(unaudited)
| Three months ended | Six months ended | |||||||||||||||
| June 30, | June 30, | June 30, | June 30, | |||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Revenue | $ | $ | $ | $ | ||||||||||||
| Cost of revenue | ||||||||||||||||
| Gross profit | ||||||||||||||||
| Operating expenses: | ||||||||||||||||
| Personnel | ||||||||||||||||
| Marketing and promotion | ||||||||||||||||
| General and administrative | ||||||||||||||||
| Acquisition-related and other | ||||||||||||||||
| Bad debt | ||||||||||||||||
| Total operating expenses | ||||||||||||||||
| Income from operations | ||||||||||||||||
| Interest and other (expense) income: | ||||||||||||||||
| Interest expense | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Interest income | ||||||||||||||||
| Other (expense) income, net | ( | ) | ( | ) | ( | ) | ||||||||||
| Total interest and other (expense) income | ( | ) | ( | ) | ( | ) | ||||||||||
| Income before income taxes | ||||||||||||||||
| Provision for income taxes | ||||||||||||||||
| Net income | ||||||||||||||||
| Net income attributable to noncontrolling interests | ||||||||||||||||
| Net income attributable to common stockholders | $ | $ | $ | $ | ||||||||||||
| Net income per share attributable to common stockholders: | ||||||||||||||||
| Basic | $ | $ | $ | $ | ||||||||||||
| Diluted | $ | $ | $ | $ | ||||||||||||
| Weighted average common shares outstanding: | ||||||||||||||||
| Basic | ||||||||||||||||
| Diluted | ||||||||||||||||
See accompanying notes to the unaudited condensed consolidated financial statements.
| 6 |
MariMed Inc.
Condensed Consolidated Statements of Stockholders’ Equity
(in thousands, except share amounts)
(unaudited)
| Six months ended June 30, 2022 | ||||||||||||||||||||||||||||||||
Common stock subscribed but | Additional | Non- | Total | |||||||||||||||||||||||||||||
| Common stock | not issued |
paid-in | Accumulated | controlling | stockholders’ | |||||||||||||||||||||||||||
| Shares | Par value | Shares | Amount | capital | deficit | interests | equity | |||||||||||||||||||||||||
| Balances at January 1, 2022 | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ||||||||||||||||||||||
| Exercise of stock options | ||||||||||||||||||||||||||||||||
| Cashless exercise of stock options | ||||||||||||||||||||||||||||||||
| Cashless exercise of warrants | ||||||||||||||||||||||||||||||||
| Release of shares under stock grants | ||||||||||||||||||||||||||||||||
| Shares issued as purchase consideration - business acquisition | ||||||||||||||||||||||||||||||||
| Purchase of minority interests in certain of the Company’s subsidiaries | ( | ) | ( | ) | ||||||||||||||||||||||||||||
| Stock issued as payment of fees | ||||||||||||||||||||||||||||||||
| Conversion of promissory notes to stock | ||||||||||||||||||||||||||||||||
| Distributions to non-controlling interests | ( | ) | ( | ) | ||||||||||||||||||||||||||||
| Stock-based compensation | ||||||||||||||||||||||||||||||||
| Net income | ||||||||||||||||||||||||||||||||
| Balances at June 30, 2022 | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ||||||||||||||||||||||
| Six months ended June 30, 2021 | ||||||||||||||||||||||||||||||||
Common stock subscribed but | Additional | Non- | Total | |||||||||||||||||||||||||||||
| Common stock | not issued |
paid-in | Accumulated | controlling | stockholders’ | |||||||||||||||||||||||||||
| Shares | Par value | Shares | Amount | capital | deficit | interests | equity | |||||||||||||||||||||||||
| Balances at January 1, 2021 | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ||||||||||||||||||||||
| Issuance of subscribed shares | ( | ) | ( | ) | ||||||||||||||||||||||||||||
| Exercise of stock options | ||||||||||||||||||||||||||||||||
| Exercise of warrants | ||||||||||||||||||||||||||||||||
| Release of shares under stock grants | ||||||||||||||||||||||||||||||||
| Conversion of debentures payable to equity | ||||||||||||||||||||||||||||||||
| Conversion of promissory notes to equity | ||||||||||||||||||||||||||||||||
| Stock issued to settle obligations | ||||||||||||||||||||||||||||||||
| Equity issuance costs | ( | ) | ( | ) | ||||||||||||||||||||||||||||
| Distributions to non-controlling interests | ( | ) | ( | ) | ||||||||||||||||||||||||||||
| Stock-based compensation | ||||||||||||||||||||||||||||||||
| Net income | ||||||||||||||||||||||||||||||||
| Balances at June 30, 2021 | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ||||||||||||||||||||||
See accompanying notes to the unaudited condensed consolidated financial statements.
| 7 |
MariMed Inc.
Condensed Consolidated Statements of Cash Flows
(in thousands)
(unaudited)
| Six months ended June 30, | ||||||||
| 2022 | 2021 | |||||||
| Cash flows from operating activities: | ||||||||
| Net income attributable to common stockholders | $ | $ | ||||||
| Net income attributable to noncontrolling interests | ||||||||
| Adjustments to reconcile net income to cash provided by operating activities: | ||||||||
| Depreciation and amortization of property and equipment | ||||||||
| Amortization of intangible assets | ||||||||
| Stock-based compensation | ||||||||
| Amortization of warrants attached to debt | ||||||||
| Amortization of beneficial conversion feature | ||||||||
| Amortization of original issue discount | ||||||||
| Bad debt expense | ||||||||
| Fees paid with stock | ||||||||
| Loss on obligations settled with equity | ||||||||
| (Gain) loss on changes in fair value of investments | ||||||||
| Other investment income | ( | ) | ||||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable, net | ( | ) | ( | ) | ||||
| Deferred rents receivable | ||||||||
| Inventory | ( | ) | ( | ) | ||||
| Other current assets | ( | ) | ( | ) | ||||
| Other assets | ( | ) | ( | ) | ||||
| Accounts payable | ||||||||
| Accrued expenses and other | ||||||||
| Income taxes payable | ( | ) | ||||||
| Net cash provided by operating activities | ||||||||
| Cash flows from investing activities: | ||||||||
| Purchases of property and equipment | ( | ) | ( | ) | ||||
| Business acquisitions, net of cash acquired | ( | ) | ||||||
| Purchases of cannabis licenses | ( | ) | ( | ) | ||||
| Proceeds from notes receivable | ||||||||
| Interest on notes receivable | ||||||||
| Net cash used in investing activities | ( | ) | ( | ) | ||||
| 8 |
MariMed Inc.
Condensed Consolidated Statements of Cash Flows (continued)
(in thousands)
(unaudited)
| Six months ended June 30, | ||||||||
| 2022 | 2021 | |||||||
| Cash flows from financing activities: | ||||||||
| Proceeds from issuance of preferred stock | ||||||||
| Equity issuance costs | ( | ) | ||||||
| Proceeds from issuance of promissory notes | ||||||||
| Principal payments of mortgages and promissory notes | ( | ) | ( | ) | ||||
| Proceeds from exercise of stock options | ||||||||
| Proceeds from exercise of warrants | ||||||||
| Repayment of loans from related parties | ( | ) | ||||||
| Principal payments of finance leases | ( | ) | ( | ) | ||||
| Redemption of minority interests | ( | ) | ||||||
| Distributions | ( | ) | ( | ) | ||||
| Net cash (used in) provided by financing activities | ( | ) | ||||||
| Net (decrease) increase in cash and cash equivalents | ( | ) | ||||||
| Cash and equivalents, beginning of year | ||||||||
| Cash and cash equivalents, end of period | $ | $ | ||||||
| Supplemental disclosure of cash flow information: | ||||||||
| Cash paid for interest | $ | $ | ||||||
| Cash paid for income taxes | $ | $ | ||||||
| Non-cash activities: | ||||||||
| Stock issued as purchase consideration | $ | $ | ||||||
| Conversion of promissory notes | $ | $ | ||||||
| Conversions of debentures payable | $ | $ | ||||||
| Operating lease right-of-use assets and liabilities | $ | $ | ||||||
| Finance lease right-of-use assets and liabilities | $ | $ | ||||||
| Common stock issued to settle obligations | $ | $ | ||||||
| Issuance of common stock associated with subscriptions | $ | $ | ||||||
| Cashless exercise of warrants | $ | $ | ||||||
| Cashless exercise of stock options | $ | $ | ||||||
See accompanying notes to the unaudited condensed consolidated financial statements.
| 9 |
MariMed Inc.
Notes to Condensed Consolidated Financial Statements
(unaudited)
(1) BASIS OF PRESENTATION
Business
MariMed
Inc. (“MariMed” or the “Company”) is a multi-state operator in the United States cannabis industry. MariMed develops,
operates, manages, and optimizes over
Basis of Presentation
In the opinion of management, the accompanying unaudited condensed consolidated financial statements include all adjustments, consisting only of normal recurring items, necessary for their fair presentation in accordance with accounting principles generally accepted in the United States of America (“GAAP”).
On April 27, 2022 (the “Kind Acquisition Date”), the Company acquired Kind Therapeutics USA (“Kind”). The financial results of Kind are included in the Company’s condensed consolidated financial statements for the period subsequent to the Kind Acquisition Date.
Interim results are not necessarily indicative of results for the full fiscal year or any future interim period. The information included in this Quarterly Report on Form 10-Q should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2021 (the “Annual Report”), which was filed with the U.S. Securities and Exchange Commission (“SEC”) on March 16, 2022.
Certain reclassifications, not affecting previously reported net income or cash flows, have been made to the previously issued financial statements to conform to the current period presentation.
Significant Accounting Policies
The Company’s significant accounting policies are disclosed in Note 2 to the Consolidated Financial Statements included in the Annual Report. There were no material changes to the significant accounting policies during the three- or six-month periods ended June 30, 2022.
Principles of Consolidation
The accompanying condensed consolidated financial statements include the accounts of MariMed and its wholly- and majority-owned subsidiaries. Intercompany transactions and balances have been eliminated in consolidation.
Noncontrolling interests represent third-party minority ownership interests in the Company’s majority-owned consolidated subsidiaries. Net income attributable to noncontrolling interests is reported in the condensed consolidated statements of operations, and the value of minority-owned interests are presented as a component of equity within the condensed consolidated balance sheets.
Use of Estimates and Judgments
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reporting amounts of revenue and expenses during the reporting periods. Significant estimates and judgments relied upon in preparing these condensed consolidated financial statements include accounting for business combinations, inventory valuations, assumptions used to determine the fair value of stock-based compensation, and intangible asset and goodwill. Actual results could differ from those estimates.
| 10 |
Cash and Cash Equivalents
The Company considers all highly liquid investments with a maturity date of three months or less to be cash equivalents. The fair values of these investments approximate their carrying values.
At
June 30, 2022 and December 31, 2021, the Company had cash of $
Fair Value of Financial Instruments
The carrying amounts of the Company’s financial instruments approximate their fair values and include cash equivalents, accounts receivable, deferred rents receivable, notes receivable, mortgages and notes payable, and accounts payable.
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or a liability. The three-tier fair value hierarchy is based on the level of independent, objective evidence surrounding the inputs used to measure fair value. A financial instrument’s categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. The fair value hierarchy is as follows:
Level 1. Level 1 applies to assets or liabilities for which there are quoted prices in active markets for identical assets or liabilities.
Level 2. Level 2 applies to assets or liabilities for which there are inputs that are directly or indirectly observable in the marketplace, such as quoted prices for similar assets or liabilities in active markets or quoted prices for identical assets or liabilities in markets with insufficient volume or infrequent transactions (less active markets).
Level 3. Level 3 applies to assets or liabilities for which there are unobservable inputs to the valuation methodology that are significant to the measurement of the fair value of the assets or liabilities.
Recent Accounting Pronouncements
The Company has reviewed all recently issued, but not yet effective, Accounting Standards Updates (“ASUs”) and does not believe that the future adoption of any such ASUs will have a material impact on its financial condition or results of operations.
(2) ACQUISITIONS
Kind
In
December 2021, the Company entered into a membership interest purchase agreement with the members of Kind, the Company’s client
in Maryland that holds licenses for the cultivation, production, and dispensing of medical cannabis, to acquire
In April 2022, the Maryland Medical Cannabis Commission approved the Company’s acquisition of Kind, and the acquisition was completed on the Kind Acquisition Date (the “Kind Acquisition”). Following the Kind Acquisition, the Maryland litigation between the Company and the members of Kind was dismissed (see Note 18).
The Company believes that the Kind Acquisition allows it to expand its operations into the Maryland cannabis industry and marketplace.
The
Kind Acquisition has been accounted for as a business combination and the financial results of Kind have been included in the Company’s
condensed consolidated financial statement for the period subsequent to the Kind Acquisition Date. The Company’s financial results
for the three and six months ended June 30, 2022 include $
| 11 |
A summary of the preliminary allocation of Kind Consideration to the acquired assets, identifiable intangible assets and certain assumed liabilities is as follows (in thousands):
| Fair value of consideration transferred: | ||||
| Cash consideration: | ||||
| Cash paid at closing | $ | |||
| Release of escrow | ||||
| Severance paid from escrow | ||||
| Less cash acquired | ( | ) | ||
| Net cash consideration | ||||
| Note payable | ||||
| Write-off accounts receivable | ||||
| Write-off of deferred accounts receivable | ||||
| Total fair value of consideration transferred | $ |
| Fair value of assets acquired and (liabilities assumed): | ||||
| Current assets, net of cash acquired | $ | |||
| Property and equipment | ||||
| Intangible assets: | ||||
| Tradename and trademarks | ||||
| Licenses and customer base | ||||
| Non-compete agreements | ||||
| Goodwill | ||||
| Current liabilities | ( | ) | ||
| Total fair value of assets acquired and (liabilities assumed) | $ |
The valuation of the acquired intangible assets is inherently subjective and relies on significant unobservable inputs. The Company used an income approach to value the acquired tradename/trademarks, licenses/customer base, and non-compete intangible assets. The valuation for each of these intangible assets was based on estimated projections of expected cash flows to be generated by the assets discounted to the present value at discount rates commensurate with perceived risk. The valuation assumptions take into consideration the Company’s estimates of new markets, products and customers and its outcome through key assumptions driving asset values, including sales growth, royalty rates and other related costs.
The Company is amortizing the identifiable intangible assets arising from the Kind Acquisition
in relation to the expected cash flows from the individual intangible assets over their respective useful lives, which have a weighted
average life of
Concurrent
with entering into the Kind membership purchase agreement, the Company entered into a membership interest purchase agreement with one
of the members of Kind to acquire such member’s entire equity ownership interest in (i) Mari Holdings MD LLC (“Mari-MD”),
the Company’s majority-owned subsidiary that owns production and retail cannabis facilities in Hagerstown, MD and Annapolis, MD,
and (ii) Mia Development LLC (“Mia”), the Company’s majority-owned subsidiary that owns production and retail cannabis
facilities in Wilmington, DE. Upon the dismissal in June 2022 of the derivative claims in the DiPietro lawsuit (see Note 18), the Company
paid the aggregate purchase consideration of $
| 12 |
Green Growth Group Inc.
In
January 2022, the Company entered into a stock purchase agreement to acquire
In
April 2022, the Illinois Department of Agriculture approved the Company’s acquisition of Green Growth, and the purchase
transaction (the “Green Growth Acquisition”) was completed on May 5, 2022 (the “Green Growth Acquisition
Date”). The Company paid the remaining $
The
Company has allocated the purchase price to its licenses/customer base intangible asset on a preliminary basis. The Company recorded
approximately $
Meditaurus LLC
In
September 2021, the Company acquired the remaining
The
carrying value of the noncontrolling interest of approximately $
Pending Transactions
Beverly Asset Purchase
In
November 2021, the Company entered into an asset purchase agreement to acquire the cannabis license, property lease, and other assets
and rights of, and to assume the liabilities and operating obligations associated with, a cannabis dispensary that is currently operating
in Beverly, MA. The purchase price is comprised of shares of the Company’s common stock and $
The purchase is contingent upon the approval of the Massachusetts Cannabis Control Commission, which is expected prior to the end of 2022. Concurrent with the execution of this agreement, the parties entered into a consulting agreement under which the Company provides certain oversight services related to the development, staffing, and operation of the business in exchange for a monthly fee.
The Harvest Foundation LLC
In
2019, the Company entered into a purchase agreement to acquire
The
purchase agreement provides for a purchase price comprised of the issuance of (i) shares of the Company’s common stock
in the aggregate to the two owners of Harvest, which were issued as a good faith deposit upon execution of the purchase agreement, (ii)
$
| 13 |
Upon approval of the transfer, and the fulfillment of other closing conditions, if achieved, the ownership of Harvest will be transferred to the Company, and the operations of Harvest will begin to be consolidated into the Company’s financial statements. There is no assurance that the closing conditions to the Company’s acquisition of Harvest, including regulatory approval, will be achieved or that the acquisition will be consummated.
Basic earnings per share is computed by dividing net income by the weighted average number of shares outstanding during the period. Diluted net earnings per share is determined by using the weighted average number of common and dilutive common equivalent shares outstanding during the period, unless the effect is antidilutive.
| Three months ended | Six months ended | |||||||||||||||
| June 30, | June 30, | June 30, | June 30, | |||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Weighted average shares outstanding - basic | ||||||||||||||||
| Potential dilutive common shares | ||||||||||||||||
| Weighted average shares outstanding - diluted | ||||||||||||||||
(4) DEFERRED RENTS RECEIVABLE
The Company is the lessor under operating leases which contain escalating rents over time, rent holidays, options to renew, requirements to pay property taxes, insurance and/or maintenance costs, and contingent rental payments based on a percentage of monthly tenant revenues. The Company is not the lessor under any finance leases.
The Company recognizes fixed rental receipts from such lease agreements on a straight-line basis over the expected lease term. Differences between amounts received and amounts recognized are recorded in Deferred rents receivable in the condensed consolidated balance sheets. Contingent rentals are recognized only after tenants’ revenues are finalized and if such revenues exceed certain minimum levels.
The Company leases the following owned properties:
| ● | Delaware
– a | |
| ● | Maryland
– a | |
| ● | Massachusetts
– a |
The Company subleases the following properties:
| ● | Delaware
– a | |
| ● | Delaware
– a | |
| ● | Delaware
– a |
| 14 |
The
Company received rental payments aggregating $
Future minimum rental receipts for non-cancellable leases and subleases as of June 30, 2022 were as follows (in thousands):
| Year ending December 31, | ||||
| Remainder of 2022 | $ | |||
| 2023 | ||||
| 2024 | ||||
| 2025 | ||||
| 2026 | ||||
| Thereafter | ||||
| $ | ||||
(5) NOTES RECEIVABLE
Notes receivable, including accrued interest, at June 30, 2022 and December 31, 2021 consisted of the following (in thousands):
| June
30, 2022 | December
31, 2021 | |||||||
| First State Compassion Center (initial note) | $ | $ | ||||||
| First State Compassion Center (secondary note) | ||||||||
| Healer LLC | ||||||||
| Total notes receivable | ||||||||
| Notes receivable, current portion | ||||||||
| Notes receivable, less current portion | $ | $ | ||||||
First State Compassion Center
The
Company’s cannabis-licensed client in Delaware, First State Compassion Center (“FSCC”), issued a
In
December 2021, the Company converted financed trade accounts receivable balances from FSCC aggregating $
| 15 |
Healer LLC
In
March 2021, the Company was issued a promissory note in the principal amount of approximately $
The Company has the right to offset any licensing fees payable by the Company to Healer in the event Healer fails to make any payment
when due. In March 2021, the Company offset approximately $
High Fidelity
In
August 2021, a $
(6) INVENTORY
Inventory at June 30, 2022 and December 31, 2021 consisted of the following (in thousands):
| June
30, 2022 | December
31, 2021 | |||||||
| Plants | $ | $ | ||||||
| Ingredients and other raw materials | ||||||||
| Work-in-process | ||||||||
| Finished goods | ||||||||
| $ | $ | |||||||
(7) INVESTMENTS
The Company’s investments at June 30, 2022 and December 31, 2021 were comprised of the following (in thousands):
| June
30, 2022 | December
31, 2021 | |||||||
| Investments – current: | ||||||||
| Flowr Corp. (formerly Terrace Inc.) | $ | $ | ||||||
| WM Technology Inc. | ||||||||
| $ | $ | |||||||
The
Company did
Flowr Corp. (formerly Terrace Inc.)
In
December 2020, Terrace Inc., a Canadian cannabis entity in which the Company had an ownership interest of
The
Flowr Investment is recorded at fair value, with changes in fair value recorded as a component of Other (expense) income, net, in
the condensed consolidated statements of operations. The Company recorded losses of $
| 16 |
MembersRSVP LLC
In
January 2021, the Company and MembersRSVP LLC, an entity that develops cannabis-specific software (“MRSVP”) in which the
Company owned a
In
addition to the reduction of the Company’s ownership interest to
In
September 2021, MRSVP sold substantially all of its assets pursuant to an asset purchase agreement. In connection with this transaction,
the Company received cash proceeds of $
As
an ongoing member of MRSVP, the Company was entitled to its pro rata share of any additional consideration received by MRSVP pursuant
to the asset purchase agreement, which could include securities or other forms of non-cash or in-kind consideration and holdback amounts,
if and when received and distributed by MRSVP. In February 2022, the Company received shares of common stock of WM Technology
Inc. (Nasdaq: MAPS), a technology and software infrastructure provider to the cannabis industry, which represented the Company’s
pro rata share of the additional consideration received by MRSVP pursuant to the asset purchase agreement. The Company recognized a loss
of $
(8) PROPERTY AND EQUIPMENT, NET
The Company’s property and equipment, net, at June 30, 2022 and December 31, 2021 was comprised of the following (in thousands):
| June
30, 2022 | December
31, 2021 | |||||||
| Land | $ | $ | ||||||
| Buildings and building improvements | ||||||||
| Tenant improvements | ||||||||
| Furniture and fixtures | ||||||||
| Machinery and equipment | ||||||||
| Construction in progress | ||||||||
| Less: accumulated depreciation | ( | ) | ( | ) | ||||
| Property and equipment, net | $ | $ | ||||||
The amounts reported as construction in progress primarily relate to the development of facilities in Annapolis, MD, Beverly, MA and Milford, DE.
| 17 |
(9) INTANGIBLE ASSETS AND GOODWILL
The Company’s acquired intangible assets at June 30, 2022 consisted of the following (in thousands):
| Weighted | ||||||||||||||||
| average | Net | |||||||||||||||
| amortization | Accumulated | carrying | ||||||||||||||
| period (years) | Cost | amortization | value | |||||||||||||
| Tradename and trademarks | $ | $ | $ | |||||||||||||
| Licenses and customer base | ||||||||||||||||
| Non-compete agreements | ||||||||||||||||
| $ | $ | $ | ||||||||||||||
Estimated future amortization expense for the Company’s intangible assets at June 30, 2022 was as follows:
| Year ending December 31, | ||||
| Remainder of 2022 | $ | |||
| 2023 | ||||
| 2024 | ||||
| 2025 | ||||
| 2026 | ||||
| Thereafter | ||||
| Total | $ |
The changes in the carrying value of the Company’s goodwill in the three months ended June 30, 2022 and 2021 were as follows (in thousands):
| 2022 | 2021 | |||||||
| Balance at January 1, | $ | $ | ||||||
| Kind Acquisition | ||||||||
| Balance at June 30, | $ | $ | ||||||
(10) MORTGAGES AND NOTES PAYABLE
The Company’s mortgages and notes payable are reported in the aggregate on the condensed consolidated balance sheets under the captions Mortgages and notes payable, current, and Mortgages and notes payable, net of current.
Mortgages
The Company’s mortgage balances, including accrued interest, at June 30, 2022 and December 31, 2021 were comprised of the following (in thousands):
| June
30, 2022 | December
31, 2021 | |||||||
| Bank of New England – New Bedford, MA and Middleboro, MA properties | $ | $ | ||||||
| Bank of New England – Wilmington, DE property | ||||||||
| DuQuoin State Bank – Anna, IL and Harrisburg, IL properties | ||||||||
| DuQuoin State Bank – Metropolis, IL property | ||||||||
| South Porte Bank – Mt. Vernon, IL property | ||||||||
| Total mortgages payable | ||||||||
| Less: Mortgages payable, current | ( | ) | ( | ) | ||||
| Mortgages payable, less current portion | $ | $ | ||||||
| 18 |
The
Company maintains an amended and restated mortgage agreement with the Bank of New England with an interest rate of
The
Company maintains a second mortgage with Bank of New England that is secured by the Company’s property in Wilmington, DE (the “BNE
Delaware Mortgage”).
The
Company maintains a mortgage with DuQuoin State Bank (“DSB”) in connection with its purchase of properties in Anna, IL and
Harrisburg, IL (the “DuQuoin Mortgage”). On May 5 of each year, the DuQuoin Mortgage becomes due unless it is renewed for
another year at a rate determined by DSB’s executive committee. The DuQuoin Mortgage was renewed in May 2021 at a rate of
In
July 2021, the Company purchased the land and building in which it operates its cannabis dispensary in Metropolis, IL. The purchase price
consisted of shares of the Company’s common stock, which were valued at $
In
February 2020, the Company entered into a mortgage agreement with South Porte Bank for the purchase and development of a property in
Mt. Vernon, IL, (the “South Porte Bank Mortgage”). Beginning in August 2021, pursuant to the amendment of the South Porte
Bank Mortgage, the monthly payments of principal and interest aggregated approximately $
Promissory Notes
Promissory Note Retirements
In
March 2021, utilizing a portion of the proceeds from the Hadron Transaction (defined below; see Note 12), the Company retired
$
Promissory Note Conversions
During
the three months ended March 31, 2021, the holder of a note issued by the Company in June 2020, with an outstanding balance of $
| 19 |
During
2021, in a series of transactions, the noteholder converted $
During
the three months ended March 31, 2022, the noteholder converted the remaining principal balance of $
Promissory Notes Issued as Purchase Consideration – Kind Acquisition
In
connection with the Kind Acquisition (see Note 2), the Company issued four-year promissory notes aggregating $
Promissory Notes Issued to Purchase Commercial Vehicles
In
August 2020, the Company entered into a note agreement with First Citizens’ Federal Credit Union for the purchase of a commercial
vehicle (the “First Citizens’ Note”). The First Citizens’ Note bears interest at the rate of
In
June 2021, the Company entered into a note agreement with Ally Financial for the purchase of a second commercial vehicle (the “Ally
Financial Note”). The Ally Financial note bears interest at the rate of
Promissory Note Issued by MariMed Hemp Inc.
In
September 2020, the Company paid $
At
each of June 30, 2022 and December 31, 2021, the Company was carrying an accrued interest balance of approximately $
Future Payments
The future principal amounts due under the Company outstanding mortgages and notes payable at June 30, 2022 are as follows (in thousands):
| Year ending December 31, | ||||
| Remainder of 2022 | $ | |||
| 2023 | ||||
| 2024 | ||||
| 2025 | ||||
| 2026 | ||||
| Thereafter | ||||
| Less: discount | ( | ) | ||
| $ |
| 20 |
(11) DEBENTURES PAYABLE
In
a series of transactions from October 2018 through February 2020, the Company sold an aggregate of $
As
of March 31, 2021, the holder of the $21M Debentures had converted the entire $
(12) MEZZANINE EQUITY
Series B Convertible Preferred Stock
In 2020, the Company entered into an exchange agreement with two unaffiliated institutional shareholders (the “Exchange Agreement”) whereby the Company (i) issued $ million of promissory notes to the two institutional shareholders (such notes were retired in March 2021 as part of the promissory note retirements described above (see Note 11), and (ii) exchanged shares of the Company’s common stock previously acquired by the two institutional shareholders for an equal number of shares of newly designated Series B convertible preferred stock (the “Series B Stock”).
In connection with the Exchange Agreement, the Company filed (i) a certificate of designation with respect to the rights and preferences of the Series B Stock, and (ii) a certificate of elimination to return all shares of the Series A convertible preferred stock, of which no shares were issued or outstanding at the time of filing, to the status of authorized and unissued shares of undesignated preferred stock.
The holders of Series B Stock (the “Series B Holders”) are entitled to cast the number of votes equal to the number of shares of common stock into which the shares of Series B Stock are convertible, together with the holders of common stock as a single class, on most matters. However, the affirmative vote or consent of the Series B Holders voting separately as a class is required for certain acts taken by the Company, including the amendment or repeal of certain charter provisions, liquidation or winding up of the Company, creation of stock senior to the Series B Stock, and/or other acts defined in the certificate of designation.
The Series B Stock shall, with respect to dividend rights and rights on liquidation, winding up and dissolution, rank senior to the Company’s common stock. The Company shall not declare, pay, or set aside any dividends on shares of any other class or series of capital stock of the Company unless the Series B Holders then outstanding shall first receive, or simultaneously receive, a dividend on each outstanding share of Series B Stock in an amount calculated pursuant to the certificate of designation.
In the event of any voluntary or involuntary liquidation, dissolution or winding up of the Company, the holder of Series B Stock shall be entitled to be paid out of the assets of the Company available for distribution to its stockholders before any payment shall be made to the holders of common stock by reason of their ownership thereof, an amount per share of Series B Stock equal to $, plus any dividends declared but unpaid thereon, with any remaining assets distributed pro-rata among the holders of the shares of Series B Stock and common stock, based on the number of shares held by each such holder, treating for this purpose all such securities as if they had been converted to common stock.
At
any time on or prior to the six-year anniversary of the issuance date of the Series B Stock, (i) the Series B Holders have the option
to convert their shares of Series B Stock into common stock at a conversion price of $
| 21 |
On the day following the six-year anniversary of the issuance of the Series B convertible preferred stock, all outstanding shares of Series B Stock shall automatically convert into common stock as follows:
| ● |
| ● |
The Company shall at all times when the Series B Stock is outstanding, reserve and keep available out of its authorized but unissued capital stock, for the purpose of effecting the conversion of the Series B Stock, such number of its duly authorized shares of common stock as shall from time to time be sufficient to effect the conversion of all outstanding Series B Stock.
Series C Convertible Preferred Stock
In March 2021, the Company entered into a securities purchase agreement with Hadron Healthcare Master Fund (“Hadron”) with respect to a financing facility of up to $ million (the “Hadron Facility”) in exchange for newly-designated Series C convertible preferred stock of the Company (the “Series C Stock”) and warrants to purchase the Company’s common stock (the “Hadron Transaction”).
At
the closing of the Hadron Transaction in March 2021, Hadron purchased $
In connection with the closing of the Hadron Transaction, the Company filed a certificate of designation with respect to the rights and preferences of the Series C Stock. Such stock is zero coupon, non-voting, and has a liquidation preference equal to its original issuance price plus declared but unpaid dividends. Holders of Series C Stock are entitled to receive dividends on an as-converted basis.
Of
the $
No further funding has occurred under the Hadron Facility and, on August 4, 2022, the Company and Hadron entered into a Second Amendment to the Purchase Agreement pursuant to which, inter alia, (a) Hadron’s obligation to provide any further funding to the Company and the Company’s obligation to issue any further securities to Hadron was terminated, (b) Hadron’s right to appointment a designee to the Company’s board of directors was eliminated, and (c) certain covenants restricting the Company’s incurrence of new indebtedness were eliminated.
| 22 |
(13) STOCKHOLDERS’ EQUITY AND STOCK-BASED COMPENSATION
Common Stock
During
2021 and 2022, the Company issued an aggregate of shares of common stock in a series of conversions of a promissory note in
the original principal amount of $
During
the three months ended June 30, 2022, the Company issued shares of restricted common stock associated with previously issued subscriptions
for common stock with a grant date fair value of approximately $
In
May 2022, the Company issued shares of restricted common stock with a grant date fair value of approximately $
In
March 2022, the Company issued shares of restricted common stock with a grant date fair value of approximately $
Amended and Restated 2018 Stock Award and Incentive Plan
The Company’s Amended and Restated 2018 Stock Award and Incentive Plan (the “2018 Plan”) provides for the award of options to purchase the Company’s common stock (“stock options”), stock appreciation rights (“SARs”), restricted stock, deferred stock, dividend equivalents, performance shares or other stock-based performance awards and other stock- or cash-based awards. Awards can be granted under the 2018 Plan to the Company’s employees, officers and non-employee directors, as well as consultants and advisors of the Company and its subsidiaries.
Warrants
At
June 30, 2022, warrants to purchase up to
In
April 2022,
Stock Options
In June 2022, stock options were exercised in a cashless transaction, under which the Company withheld shares underlying such stock options and issued shares of common stock.
At
June 30, 2022, options to purchase up to shares of common stock were outstanding, with a weighted average exercise price of
$
| Three months | Six months | |||||||
| ended | ended | |||||||
| June 30, | June 30, | |||||||
| 2022 | 2022 | |||||||
| Estimated life (in years) | ||||||||
| Volatility | % | % | ||||||
| Risk-free interest rates | % | % | ||||||
| Dividend yield | ||||||||
| 23 |
Stock-Based Compensation
The Company recorded stock-based compensation of $ million and $ million in the three and six months ended June 30, 2022, respectively, and $ million and $ million in the three and six months ended June 30, 2021, respectively.
(14) REVENUE
The Company’s main sources of revenue are comprised of the following:
| ● | Product sales (retail and wholesale) – direct sales of cannabis and cannabis-infused products primarily by the Company’s retail dispensaries and wholesale operations in Massachusetts, Illinois and, as of the Kind Acquisition Date, Maryland. This revenue is recognized when products are delivered or at retail points-of-sale. |
| ● | Real estate rentals – rental income and additional rental fees generated from leasing of the Company’s state-of-the-art, regulatory compliant cannabis facilities to its cannabis-licensed clients. Rental income is generally a fixed amount per month that escalates over the respective lease terms, while additional rental fees are based on a percentage of tenant revenues that exceed specified amounts. |
| ● | Management fees – fees for providing the Company’s cannabis clients with comprehensive oversight of their cannabis cultivation, production and dispensary operations. These fees are based on a percentage of such clients’ revenue and are recognized after services have been performed. |
| ● | Supply procurement – resale of cultivation and production resources, supplies and equipment, acquired by the Company from top national vendors at discounted prices, to its clients and third parties within the cannabis industry. The Company recognizes this revenue after the delivery and acceptance of goods by the purchaser. |
| ● | Licensing fees – revenue from the sale of the Company’s branded products, including Betty’s Eddies and Kalm Fusion, and from the sublicensing or contracted brands, including Healer and Tikum Olam, to regulated dispensaries throughout the United States and Puerto Rico. This revenue is recognized when the products are delivered. |
The Financial Accounting Standards Board Accounting Standards Codification 606, Revenue from Contract with Customers, as amended by subsequently issued Accounting Standards Updates, requires an entity to recognize revenue to depict the transfer of goods or services to customers in an amount that reflects the consideration that it expects to be entitled to in exchange for those goods or services. The recognition of revenue is determined by performing the following consecutive steps:
| ● | Identify the contract(s) with a customer; | |
| ● | Identify the performance obligations in the contract(s); | |
| ● | Determine the transaction price; | |
| ● | Allocate the transaction price to the performance obligations in the contract(s); and | |
| ● | Recognize revenue as the performance obligation is satisfied. |
Additionally, when another party is involved in providing goods or services to the Company’s clients, a determination is made as to who—the Company or the other party—is acting in the capacity as the principal in the sale transaction, and who is the agent arranging for goods or services to be provided by the other party.
The Company is typically considered the principal if it controls the specified good or service before such good or service is transferred to its client. The Company may also be deemed to be the principal even if it engages another party (an agent) to satisfy some of the performance obligations on its behalf, provided the Company (i) takes on certain responsibilities, obligations, and risks, (ii) possesses certain abilities and discretion, or (iii) other relevant indicators of the sale. If deemed an agent, the Company would not recognize revenue for the performance obligations it does not satisfy.
| 24 |
Revenue for the three and six months ended June 30, 2022 and 2021 was comprised of the following (in thousands):
| Three months ended | Six months ended | |||||||||||||||
| June 30, | June 30, | June 30, | June 30, | |||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Product revenue: | ||||||||||||||||
| Product sales - retail | $ | $ | $ | $ | ||||||||||||
| Product sales - wholesale | ||||||||||||||||
| Total product sales | ||||||||||||||||
| Other revenue: | ||||||||||||||||
| Real estate rentals | ||||||||||||||||
| Supply procurement | ||||||||||||||||
| Management fees | ||||||||||||||||
| Licensing fees | ||||||||||||||||
| Total other revenue | ||||||||||||||||
| Total revenue | $ | $ | $ | $ | ||||||||||||
(15) MAJOR CUSTOMERS
The
Company did not have any customers that contributed
At
June 30, 2022, one customer accounted for
(16) LEASES
Arrangements that are determined to be leases with a term greater than one year are accounted for by the recognition of right-of-use assets that represent the Company’s right to use an underlying asset for the lease term, and lease liabilities, that represent the Company’s obligation to make lease payments arising from the lease. Non-lease components within lease agreements are accounted for separately.
Right-of-use assets and obligations are recognized at the commencement date based on the present value of lease payments over the lease term, utilizing the Company’s incremental borrowing rate. The Company’s lease terms may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option. Lease expense for lease payments is recognized on a straight-line basis over the lease term.
The Company is the lessee under six operating leases and four finance leases. These leases contain rent holidays and customary escalations of lease payments for the type of facilities being leased. The Company recognizes rent expense on a straight-line basis over the expected lease term, including cancelable option periods which the Company fully expects to exercise. Certain leases require the payment of property taxes, insurance and/or maintenance costs in addition to the rent payments.
The Company leases the following facilities under operating leases:
| ● | Delaware
– |
| ● | Delaware
– a |
| 25 |
| ● | Delaware
– a |
| ● | Nevada
– |
| ● | Massachusetts
– |
| ● | Maryland
– a |
The
Company leases machinery and office equipment under finance leases that
The components of lease expense for the three and six months ended June 30, 2022 and 2021 were as follows (in thousands):
| Three months ended | Six months ended | |||||||||||||||
| June 30, | June 30, | June 30, | June 30, | |||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Operating lease expense | $ | $ | $ | $ | ||||||||||||
| Finance lease expenses: | ||||||||||||||||
| Amortization of right of use assets | $ | $ | $ | $ | ||||||||||||
| Interest on lease liabilities | ||||||||||||||||
| Total finance lease expense | $ | $ | $ | $ | ||||||||||||
At
June 30, 2022, the weighted average remaining lease terms for operating leases and finance leases were
Future minimum lease payments as of June 30, 2022 under all non-cancelable leases having an initial or remaining term of more than one year were (in thousands):
| Operating | Finance | |||||||
| leases | leases | |||||||
| Remainder of 2022 | $ | $ | ||||||
| 2023 | ||||||||
| 2024 | ||||||||
| 2025 | ||||||||
| 2026 | ||||||||
| Thereafter | ||||||||
| Total lease payments | ||||||||
| Less: imputed interest | ( | ) | ( | ) | ||||
| $ | $ | |||||||
| 26 |
In February 2022, the Company was notified that it was awarded a cannabis dispensary license from the state of Ohio. The Company is awaiting the final verification process to be completed by the state. As of June 30, 2022, the lease terms of the Ohio Leases were all less than one year, and accordingly the Company has not recorded a right-of-use asset and corresponding lease liability on its balance sheet. In April 2022, the Company extended the term of one of the Ohio Leases, and the remaining five Ohio Leases were terminated.
(17) RELATED PARTY TRANSACTIONS
The
Company’s corporate offices are leased from an entity in which the Company’s former Chief Financial Officer, now the
Company’s Chief Administrative Officer (“CAO”) has an investment interest. This lease expires in October 2028 and
contains a five-year extension option. Expenses incurred under this lease were approximately $
The
Company procures nutrients, lab equipment, cultivation supplies, furniture, and tools from an entity owned by the family of the Company’s
Chief Operating Officer (“COO”). Purchases from this entity totaled $
The
Company pays royalties on the revenue generated from its Betty’s Eddies product line to an entity owned by the Company’s
COO and its Senior Vice President of Sales (“SVP Sales”) under a royalty agreement. This agreement was amended effective
January 1, 2021 whereby, among other modifications,
During
the three and six months ended June 30, 2022, one of the Company’s majority-owned subsidiaries paid aggregate distributions of
$
During
the three and six months ended June 30, 2022, one of the Company’s majority-owned subsidiaries paid distributions of $
During
the three and six months ended June 30, 2022, the Company purchased fixed assets and consulting services aggregating $
During
the three and six months ended June 30, 2022, the Company purchased fixed assets of $
The Company’s mortgages with Bank of New England, DuQuoin State Bank, and South Porte Bank are personally guaranteed by the Company’s CEO and the Company’s CAO.
| 27 |
(18) COMMITMENTS AND CONTINGENCIES
Maryland Litigation
Following the consummation of the Kind Acquisition, in April 2022, the Maryland litigation between the Company and the members of Kind was dismissed in its entirety with prejudice, and the parties have released one another of any and all claims between them.
DiPietro Lawsuit
In December 2021, the parties to this action entered into a global confidential settlement and release agreement, along with the parties to the aforementioned Maryland litigation. At the same date, the Company’s wholly-owned subsidiary MariMed Advisors Inc. (“MMA”) and Jennifer DiPietro (“Ms. DiPietro”), one of the former members of Kind, entered into membership interest purchase agreement pursuant to which the Company would purchase Ms. DiPietro’s interests in Mia and Mari-MD. Upon the court’s approval of the parties’ joint motion for approval, on June 8, 2022, the purchase of Ms. DiPietro’s interests was consummated. The parties released all direct and derivative claims against one another, and a stipulation dismissing all claims and counterclaims with prejudice was filed with the court.
Bankruptcy Claim
During
2019, the Company’s MMH subsidiary sold and delivered hemp seed inventory to GenCanna Global Inc., a Kentucky-based cultivator,
producer, and distributor of hemp (“GenCanna”). At the time of sale, the Company owned a
In February 2020, GenCanna USA, GenCanna’s wholly-owned operating subsidiary, under pressure from certain of its creditors including MGG Investment Group LP, GenCanna’s senior lender (“MGG”), agreed to convert a previously-filed involuntary bankruptcy proceeding with the U.S. Bankruptcy Court in the Eastern District of Kentucky (the “Bankruptcy Court”) into a voluntary Chapter 11 proceeding. In addition, GenCanna and GenCanna USA’s subsidiary, Hemp Kentucky LLC (collectively with GenCanna and GenCanna USA, the “GenCanna Debtors”), filed voluntary petitions under Chapter 11 in the Bankruptcy Court.
In
May 2020, after an abbreviated solicitation/bid/sale process, the Bankruptcy Court, over numerous objections by creditors and shareholders
of the GenCanna Debtors which included the Company, entered an order authorizing the sale of all or substantially all of the assets of
the GenCanna Debtors to MGG. After the consummation of the sale of all or substantially all of their assets and business, the GenCanna
Debtors n/k/a OGGUSA, Inc. and OGG, Inc. (the “OGGUSA Debtors”) filed their liquidating plan of reorganization (the “Liquidating
Plan”) to collect various prepetition payments and commercial claims against third parties, liquidate the remaining assets of the
ODDUSA Debtors, and make payments to creditors. The Company and the unsecured creditors committee filed objections to such Liquidating
Plan, including opposition to the release of litigation against the OGGUSA Debtors’ senior lender, MGG, for lender liability, equitable
subordination, and return of preference. As a part of such plan confirmation process, the OGGUSA Debtors filed various objections to
proofs of claims filed by various creditors, including the proof of claim in the amount of $
Since the approval of the Liquidating Plan, the OGGUSA Debtors have been in the process of liquidating the remaining assets, negotiating and prosecuting objections to other creditors’ claims, and pursuing the collection of accounts receivable and Chapter 5 bankruptcy avoidance claims.
In
January 2022, the Company, at the request of the Liquidating Plan administrator for the OGGUSA Debtors, executed a written release of
claims, if any, of the Company against Huron Consulting Group (“Huron”), a financial consulting and management company retained
by the senior lender of the OGGUSA Debtors to perform loan management services for the lender and OGGUSA Debtors prior to and during
their Chapter 11 bankruptcy cases. Such release was executed in connection with a comprehensive settlement agreement between the OGGUSA
Debtors and Huron. In consideration for the Company’s execution of the release, Huron paid an additional $
| 28 |
On
April 20, 2022, the Plan Administrator for the OGGUSA Debtors filed an adversary proceeding against the Company seeking to recover approximately
$
As of the date of this filing, there is still insufficient information as to what portion, if any, of the Company’s allowed claim will be paid upon the completion of the liquidation of the remaining assets of the OGGUSA Debtors.
(19) SUBSEQUENT EVENTS
The Company’s common stock commenced trading on the Canadian Securities Exchange on July 12, 2022 under the ticker symbol MRMD.
In
July 2022, Mari Holdings Mt Vernon LLC, a wholly owned subsidiary of the Company, entered into a $
| 29 |
Item 2. Management’s Discussions and Analysis of Financial Condition and Results of Operations
The following discussion of the financial condition and results of operations of MariMed Inc. should be read in conjunction with the condensed consolidated financial statements and the related notes thereto included elsewhere in this Quarterly Report on Form 10-Q and the audited financial statements and notes thereto and Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K for the year ended December 31, 2021, which was filed with the U.S. Securities and Exchange Commission (“SEC”) on March 16, 2022.
Overview
We are a multi-state operator in the United States cannabis industry. We develop, operate, manage, and optimize over 300,000 square feet of state-of-the-art, regulatory-compliant facilities for the cultivation, production and dispensing of medicinal and recreational cannabis. We also license our proprietary brands of cannabis and hemp-infused products, along with other top brands, in several domestic markets and overseas.
Our common stock commenced trading on the Canadian Securities Exchange effective July 12, 2022, under the ticker symbol MRMD, and continues to trade on the OTCQX under the same symbol.
On April 27, 2022 (the “Kind Acquisition Date”), we acquired Kind Therapeutics USA (“Kind”), our former client in Maryland that holds licenses for the cultivation, production, and dispensing of medical cannabis (the “Kind Acquisition”). The financial results of Kind are included in our condensed consolidated financial statements for the period subsequent to the Kind Acquisition Date.
On May 5, 2022, we completed the acquisition of 100% of the equity ownership of Green Growth Group Inc. (“Green Growth”), an entity that holds a craft cultivation and production cannabis license in the state of Illinois (the “Green Growth Acquisition”).
During the balance of 2022 and into 2023, we are focused on continuing to execute our strategic growth plan, with priority on activities that include the following:
| ● | Continuing to consolidate the cannabis business that we have developed and manage. | |
| ● | Expanding revenue, assets, and our footprint in the states in which we operate: |
| ○ | In Massachusetts, we intend to open two additional dispensaries and significantly expand the capacity and capability of our manufacturing facility. | |
| ○ | In Delaware, we intend to develop an additional 40,000 square feet of cultivation and production capacity at our facility in Milford. | |
| ○ | In Maryland, we intend to expand our manufacturing facility by 40,000 square feet and open a dispensary in Annapolis. | |
| ○ | In Illinois, we recently closed on the acquisition of an Illinois craft cannabis license which will enable us to be vertically integrated and add cultivation, manufacturing, and distribution to our four existing retail cannabis operations in Illinois. Under Illinois cannabis laws, we have the potential to add six additional dispensaries, for a total of ten. |
| ● | Expanding into other legal states through mergers and acquisitions and by filing new applications in states where new licensing opportunities are available. | |
| ● | Increasing revenues by producing and distributing our award-winning brands to qualified strategic partners or by acquiring production and distribution licenses. |
Critical Accounting Policies and Estimates
Management’s discussion and analysis of financial condition and results of operations is based upon our condensed consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”). The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues, and expenses, and related disclosure of contingent assets and liabilities. We base our estimates and judgments on historical experience, knowledge of current conditions and believes of what could occur in the future given available information. If actual results differ significantly from management’s estimates and projections, there could be a material effect on our condensed consolidated financial statements. We consider the following accounting policies to be both those most important to the portrayal of our financial condition and those that require the most subjective judgment: accounts receivable, the valuation of inventory, estimated useful lives and depreciation and amortization of property and equipment and intangible assets, accounting for acquisitions and business combinations, loss contingencies and reserves, stock-based compensation, and accounting for income taxes.
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Accounts Receivable
We provide credit to our clients in the form of payment terms. We limit our credit risk by performing credit evaluations of our clients and maintaining a reserve, as applicable, for potential credit losses. Such evaluations are judgmental in nature and include a review of the client’s outstanding balances with consideration toward such client’s historical collection experience, as well as prevailing economic and market conditions and other factors. Accordingly, the actual amounts collected could differ from expected amounts and require that we record additional reserves.
Inventory
The net realizable value of inventories represents the estimated selling price for inventories in the ordinary course of business, less all estimated costs of completion and costs necessary to make the sale. The determination of net realizable value requires significant judgment, including consideration of factors such as shrinkage, the aging of and future demand for inventory, expected future selling price, what we expect to realize by selling the inventory and the contractual arrangements with customers. Reserves for excess and obsolete inventory are based upon quantities on hand, project volumes from demand forecasts and net realizable value. The estimates are judgmental in nature and are made at a point in time, using available information, expected business plans and expected market conditions. As a result, the actual amount received on sale could differ from the estimated value of inventory. Periodic reviews are performed on the inventory balance. The impact of any changes in inventory reserves is reflected in cost of goods sold.
Estimated Useful Lives and Depreciation and Amortization of Property and Equipment and Intangible Assets
Depreciation and amortization of property and equipment and intangible assets are dependent upon estimates of useful lives, which are determined through the exercise of judgment. The assessment of any impairment of these assets is dependent upon estimates of recoverable amounts that take into account factors such as economic and market conditions and the useful lives of assets.
Acquisitions and Business Combinations
Classification of an acquisition as a business combination or an asset acquisition depends on whether the assets acquired constitute a business, which can be a complex judgment. Whether an acquisition is classified as a business combination or asset acquisition can have a significant impact on how we record the transaction.
We allocate the purchase price of acquired assets and companies to identifiable assets acquired and liabilities assumed at their acquisition date fair values. Goodwill as of the acquisition date is measured as the excess of consideration transferred over the net amount of the acquisition date fair values of the assets acquired and the liabilities assumed and represents the expected future economic benefits from other assets acquired in the acquisition or business combination that are not individually identified and separately recognized. Significant judgments and assumptions are required in determining the fair value of assets acquired and liabilities assumed, particularly acquired intangible assets, which are principally based upon estimates of the future performance and cash flows expected from the acquired asset or business and applied discount rates. While we use our best estimates and assumptions as part of the purchase price allocation process to accurately value assets acquired and liabilities assumed at the acquisition date, our estimates and assumptions are inherently uncertain and subject to refinement. If different assumptions are used, it could materially impact the purchase price allocation and our financial position and results of operations. Any adjustments to assets acquired or liabilities assumed subsequent to the purchase price allocation period are included in operating results in the period in which the adjustments are determined. Intangible assets typically are comprised of trademarks and tradenames, licenses and customer relationships, and non-compete agreements.
Loss Contingencies and Reserves
We are subject to ongoing business risks arising in the ordinary course of business that affect the estimation process of the carrying value of asserts, the recording liabilities, and the possibility of various loss contingencies. An estimated loss contingency is accrued when it is probably that a liability has been incurred or an asset has been impaired and the amount of loss can be reasonably estimated. We regularly evaluate current information available to determine whether such amounts should be adjusted and record changes in estimates in the period they become know. We are subject to various legal claims. We reserve for legal contingencies and legal fees when the amounts are probable and estimable.
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Stock-Based Compensation
Our stock-based compensation cost is measured at the grant date based on the fair value of the award and is recognized over the requisite service period, which is generally the vesting period. We use the Black-Scholes valuation model for estimating the fair value of stock options as of the date of grant. Determining the fair value of stock option awards at the grant date requires judgment regarding certain valuation assumptions, including the volatility of our stock price, expected term of the stock option, risk-free interest rate and expected dividends. Changes in such assumptions and estimates could result in different fair values and could therefore impact our earnings. Such changes, however, would not impact our cash flows.
Income Taxes
We use the asset and liability method to account for income taxes. Under this method, deferred income tax assets and liabilities are recorded for the future tax consequences of differences between the tax basis and financial reporting basis of assets and liabilities, measured using enacted tax rates and laws that will be in effect when the differences are expected to reverse. Deferred tax assets are reduced by a valuation allowance to the extent our management concludes that it is more likely than not that the assets will not be realized. To assess the recoverability of any tax assets recorded on the balance sheet, we consider all available positive and negative evidence, including our past operating results, the existence of cumulative income in the most recent years, changes in the business in which we operate and our forecast of future taxable income. In determining future taxable income, we make assumptions, including the amount of state and federal pre-tax operating income, the reversal of temporary differences and the implementation of feasible and prudent tax strategies. These assumptions require significant judgment about the forecasts of future taxable income and are consistent with the plans and estimates we are using to manage our businesses.
Results of Operations
Three and six months ended June 30, 2022 and 2021
Revenue
Our main sources of revenue are comprised of the following:
| ● | Product sales (retail and wholesale) – direct sales of cannabis and cannabis-infused products primarily by our retail dispensaries and wholesale operations in Massachusetts, Illinois, and, as of the Kind Acquisition Date, Maryland. We recognize this revenue when products are delivered or at retail points-of-sale. |
| ● | Real estate rentals – rental income and additional rental fees generated from leasing of our state-of-the-art, regulatory compliant cannabis facilities to our cannabis-licensed clients. Rental income is generally a fixed amount per month that escalates over the respective lease terms, while additional rental fees are based on a percentage of tenant revenues that exceed specified amounts. |
| ● | Management fees – fees for providing our cannabis clients with comprehensive oversight of their cannabis cultivation, production and dispensary operations. These fees are based on a percentage of such clients’ revenue and are recognized after services have been performed. |
| ● | Supply procurement – resale of cultivation and production resources, supplies and equipment that we have acquired from top national vendors at discounted prices to our clients and third parties within the cannabis industry. We recognize this revenue after the delivery and acceptance of goods by the purchaser. |
| ● | Licensing fees – revenue from the sale of our branded products, including Betty’s Eddies and Kalm Fusion, and from the sublicensing or contracted brands, including Healer and Tikum Olam, to regulated dispensaries throughout the United States and Puerto Rico. We recognize this revenue when the products are delivered. |
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Our revenue for the three and six months ended June 30, 2022 and 2021 was comprised of the following (in thousands):
| Three months ended | Six months ended | |||||||||||||||
| June 30, | June 30, | June 30, | June 30, | |||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Product revenue: | ||||||||||||||||
| Product sales - retail | $ | 23,087 | $ | 20,552 | $ | 44,528 | $ | 35,776 | ||||||||
| Product sales - wholesale | 7,958 | 8,178 | 14,020 | 13,903 | ||||||||||||
| Total product sales | 31,045 | 28,730 | 58,548 | 49,679 | ||||||||||||
| Other revenue: | ||||||||||||||||
| Real estate rentals | 846 | 1,862 | 2,433 | 3,671 | ||||||||||||
| Supply procurement | 820 | 398 | 2,010 | 918 | ||||||||||||
| Management fees | 81 | 981 | 834 | 1,877 | ||||||||||||
| Licensing fees | 194 | 598 | 443 | 1,067 | ||||||||||||
| Total other revenue | 1,941 | 3,839 | 5,720 | 7,533 | ||||||||||||
| Total revenue | $ | 32,986 | $ | 32,569 | $ | 64,268 | $ | 57,212 | ||||||||
Our total revenue increased slightly in the three months ended June 30, 2022 compared to the three months ended June 30, 2021. Our total product revenue increased $2.3 million, primarily attributable to higher retail dispensary cannabis sales in Illinois and the inclusion of Kind’s sales in our results since the Kind Acquisition Date. These increases were partially offset by lower retail and wholesale sales in Massachusetts due to increased competition. The decrease in our other revenue was primarily attributable to rent and management fee reductions in connection with one of our customers and the Kind Acquisition, partially offset by higher supply procurement revenue primarily attributable to revenue generated from our cannabis clients in Delaware and Maryland.
Our total revenue increased 12.3% in the six months ended June 30, 2022 compared to the six months ended June 30, 2021. Our total product revenue increased $8.9 million, or 17.9%, primarily attributable to higher retail dispensary cannabis sales in Illinois and the inclusion of Kind’s sales in our results since the Kind Acquisition Date. Similar to our quarter-over-quarter results described above, the decrease in our other revenue was primarily attributable to rent and management fee reductions in connection with one of our customers and the Kind Acquisition, partially offset by higher supply procurement revenue primarily attributable to revenue generated from our cannabis clients in Delaware and Maryland.
Cost of Revenue, Gross Profit and Gross Margin
Our cost of revenue represents the direct costs associated with the generation of our revenue, including licensing, packaging, supply procurement, manufacturing, supplies, depreciation, amortization of acquired intangible assets, and other product-related costs.
Our cost of revenue, gross profit and gross margin for the three and six months ended June 30, 2022 and 2021 were as follows (in thousands, except percentages):
| Increase (decrease) from prior year | ||||||||||||||||
| 2022 | 2021 | $ | % | |||||||||||||
| Three months ended June 30, | ||||||||||||||||
| Cost of revenue | $ | 17,981 | $ | 13,163 | $ | 4,818 | 36.6 | % | ||||||||
| Gross profit | $ | 15,005 | $ | 19,406 | $ | (4,401 | ) | (22.7 | )% | |||||||
| Gross margin | 45.5 | % | 59.6 | % | ||||||||||||
| Six months ended June 30, | ||||||||||||||||
| Cost of revenue | $ | 32,287 | $ | 24,620 | $ | 7,667 | 31.1 | % | ||||||||
| Gross profit | $ | 31,981 | $ | 32,592 | $ | (611 | ) | (1.9 | )% | |||||||
| Gross margin | 49.8 | % | 57.0 | % | ||||||||||||
Our cost of revenue increased in both the three and six months ended June 30, 2022 compared to the three and six months ended June 30, 2021. These higher costs resulted in lower gross margins in both current year periods compared to the same prior year periods. Our higher cost of revenue in the current year periods compared to the same prior year periods was primarily attributable to higher manufacturing, employee-related and supply procurement costs aggregating $4.4 million and $8.9 million, respectively, in the three and six months ended June 30, 2022. These higher costs were primarily attributable to continuing supply chain issues and associated higher shipping costs, coupled with higher employee-related costs principally due to our increased headcount in connection with our recent acquisitions and in-process expansions. These increases in cost and resulting decreases in gross profit resulted in lower gross margins in both current year periods.
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Operating Expenses
Our operating expenses are comprised of personnel, marketing and promotion, general and administrative, acquisition-related and other, and bad debt expenses. Our operating expenses for the three and six months ended June 30, 2022 and 2021 were as follows (in thousands, except percentages):
| Increase (decrease) from prior year | ||||||||||||||||
| 2022 | 2021 | $ | % | |||||||||||||
| Three months ended June 30, | ||||||||||||||||
| Personnel | $ | 3,382 | $ | 2,058 | $ | 1,324 | 64.3 | % | ||||||||
| Marketing and promotion | 809 | 270 | 539 | 199.6 | % | |||||||||||
| General and administrative | 5,565 | 4,282 | 1,283 | 30.0 | % | |||||||||||
| Acquisition-related and other | 754 | - | 754 | 100.0 | % | |||||||||||
| Bad debt | - | 794 | (794 | ) | (100.0 | %) | ||||||||||
| $ | 10,510 | $ | 7,404 | $ | 3,106 | 42.0 | % | |||||||||
| Six months ended June 30, | ||||||||||||||||
| Personnel | $ | 6,424 | $ | 3,785 | $ | 2,639 | 69.7 | % | ||||||||
| Marketing and promotion | 1,452 | 495 | 957 | 193.3 | % | |||||||||||
| General and administrative | 11,793 | 7,453 | 4,340 | 58.2 | % | |||||||||||
| Acquisition-related and other | 754 | - | 754 | 100.0 | % | |||||||||||
| Bad debt | 14 | 1,819 | (1,805 | ) | (99.2 | %) | ||||||||||
| $ | 20,437 | $ | 13,552 | $ | 6,885 | 50.8 | % | |||||||||
The increase in our personnel expenses in both the three and six months ended June 30, 2022 compared to the three and six months ended June 30, 2021 was primarily due to the hiring of additional staff to support higher levels of projected revenue from existing operations as well as from the Kind Acquisition. Personnel costs increased to approximately 10% of revenue in both current year periods, compared to approximately 6% of revenue in the same prior year periods.
The increase in our marketing and promotion expenses in both the three and six months ended June 30, 2022 compared to the three and six months ended June 30, 2021 was primarily attributable to our focused efforts to upgrade our marketing initiatives and personnel in order to expand branding and distribution of our licensed products. Marketing and promotion costs increased to approximately 2% of revenue in both current year periods, compared to less than 1% of revenue in the same prior year periods.
The increase in our general and administrative expenses in the three months ended June 30, 2022 compared to the three months ended June 30, 2021 was primarily attributable to $1.3 million of higher stock-based compensation, $0.3 million of higher depreciation and $0.2 million of higher facility-related expenses. These increases were partially offset by $0.5 million of lower professional fees. The increase in the six months ended June 30, 2022 compared to the six months ended June 30, 2021 was primarily attributable to $3.4 million of higher stock-based compensation, a $0.5 million increase in depreciation expense and an increase of $0.3 million in facility-related expenses. General and administrative expenses increased to 16.9% and 18.3% of revenue in the three and six months ended June 30, 2022, respectively, compared to approximately 13% of revenue in both the three and six months ended June 30, 2021.
Acquisition-related and other expenses include those expenses related to acquisitions and other significant transactions that we would otherwise not have incurred, and include professional and services fees, such as legal, audit, consulting, paying agent and other fees. We recorded $0.8 million of acquisition-related and other expenses in both the three and six months ended June 30, 2022, primarily related to the Kind Acquisition and the recent listing of our common stock on the Canadian Securities Exchange. We did not record any acquisition-related and other expenses in the three and six months ended June 30, 2021.
We did not record bad debt expense in the three months ended June 30, 2022, and such expense was nominal in the six months then ended, compared to $0.8 million and $1.8 million in the three and six months ended June 30, 2021, respectively. These decreases are due to the higher reserve balances that were required in 2021 for aged trade receivable balances.
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Interest and Other (Expense) Income, Net
Interest expense primarily relates to interest on mortgages and notes payable. Interest income primarily relates to interest receivable in connection with our notes receivable. Other (expense) income, net, includes gains (losses) on changes in the fair value of our investments, and other investment-related income (expense).
Our net interest expense decreased in both the three and six months ended June 30, 2022 compared to the same prior year periods, reflecting our lower debt levels in the current year periods. Our net other expense was $0.7 million and $0.4 million in the three months ended June 30, 2022 and 2021, respectively, and was primarily comprised of losses from the changes in the fair value of our investments. The three months ended June 30, 2021 also included a nominal loss on the extinguishment of debt.
We recorded net other income of $0.3 million in the six months ended June 30, 2022 and net other expense of $0.4 million in the six months ended June 30, 2021. The current year amount is comprised of $1.0 million of non-cash income from an investment, partially offset by a $0.7 million loss from the change in fair value of our investments. The prior year amount is comprised of a $0.4 million loss from the change in fair value of our investments and a nominal loss on the extinguishment of debt.
Income Tax Provision
We recorded income tax provisions of $5.4 million and $5.0 million in the six months ended June 30, 2022 and 2021, respectively.
Liquidity and Capital Resources
We had cash and cash equivalents of $7.9 million and $29.7 million at June 30, 2022 and December 31, 2021, respectively. In addition to the discussions below of our cash flows from operating, investing, and financing activities included here, please also see our discussion of non-GAAP Adjusted EBITDA in the section “Non-GAAP Measurement” below, which discusses an additional financial measure not defined by GAAP which our management also uses to measure our liquidity.
Cash Flows from Operating Activities
Our primary sources of cash from operating activities are from sales to customers in our dispensaries and cash collections from our wholesale customers. We expect cash flows from operating activities to be affected by increases and decreases in sales volumes and timing of collections, and by purchases of inventory and shipment of our products. Our primary uses of cash for operating activities are for personnel costs, purchases of packaging and other materials required for the production and sale of our products, and income taxes.
Our operating activities provided $2.0 million and $17.6 million of cash in the six months ended June 30, 2022 and 2021, respectively. The change in cash from operating activities in the current year period compared to the prior year was primarily attributable to $11.9 million of cash utilized to pay income taxes in the current year period, compared to $0.4 million in the same prior year period, coupled with higher costs and operating expenses arising as we continue to increase and expand our sales activities, facilities and footprint both in the states where we currently operate and into other states.
Cash Flows from Investing Activities
Our investing activities used $20.9 million and $8.5 million of cash in the six months ended June 30, 2022 and 2021, respectively. The increase in cash usage in the current year period was primarily attributable to $12.7 million of aggregate cash consideration paid for the Kind Acquisition and Green Growth Acquisition in April 2022 and May 2022, respectively.
Cash Flows from Financing Activities
Our financing activities used $2.9 million of cash in the six months ended June 30, 2022 and provided $5.3 million of cash in the six months ended June 30, 2021. We paid $2.0 million of cash to redeem the outstanding minority interests in one of our majority-owned subsidiaries in June 2022 and made $0.6 million of aggregate principal payments on our outstanding mortgages and notes payable.
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On August 4, 2022, we entered into a Second Amendment to the Purchase Agreement with Hadron pursuant to which, inter alia, (a) Hadron’s obligation to provide any further funding to the Company and the Company’s obligation to issue any further securities to Hadron was terminated, (b) Hadron’s right to appointment a designee to the Company’s board of directors was eliminated, and (c) certain covenants restricting the Company’s incurrence of new indebtedness were eliminated.
Based on our current expectations, we believe our current cash and future funding opportunities will be sufficient to meet our anticipated cash needs for working capital and capital expenditures for at least the next twelve months. The rate at which we consume cash is dependent on the cash needs of our future operations, including our contractual obligations at June 30, 2022, primarily comprised of our outstanding mortgages and promissory notes, as well as our operating leases. Our mortgage and promissory note obligations totaled approximately $23 million at June 30, 2022, with payments aggregating approximately $1 million in the remainder of 2022, $3 million in 2023, $2 million in 2024, $2 million in 2025, $1 million in 2026 and $14 million thereafter. Our operating lease obligations totaled approximately $9 million at June 30, 2022, with payments aggregating approximately $571,000 in the remainder of 2022, $1 million in each of the years 2023 through 2026, and $3 million thereafter. We anticipate devoting substantial capital resources to continue our efforts to execute our strategic growth plan as described above.
Non-GAAP Measurement
In addition to the financial information reflected in this report, which is prepared in accordance with generally accepted accounting principles in the United States (“GAAP”), we are providing a non-GAAP financial measurement of profitability – Adjusted EBITDA – as a supplement to the preceding discussion of our financial results.
Management defines Adjusted EBITDA as net income, determined in accordance with GAAP, excluding the following:
| ● | interest income and interest expense; | |
| ● | income tax provision; | |
| ● | depreciation and amortization of property and equipment; | |
| ● | amortization of acquired intangible assets; | |
| ● | impairments or write-downs of acquired intangible assets; | |
| ● | stock-based compensation; | |
| ● | acquisition-related and other; | |
| ● | legal settlements; | |
| ● | other income (expense), net; and | |
| ● | discontinued operations. |
Management believes that Adjusted EBITDA is a useful measure to assess our performance and liquidity, as it provides meaningful operating results by excluding the effects of expenses that are not reflective of our operating business performance. In addition, our management uses Adjusted EBITDA to understand and compare operating results across accounting periods, and for financial and operational decision-making. The presentation of Adjusted EBITDA is not intended to be considered in isolation or as a substitute for the financial information prepared in accordance with GAAP.
Management believes that investors and analysts benefit from considering Adjusted EBITDA in assessing our financial results and our ongoing business, as it allows for meaningful comparisons and analysis of trends in the business. Adjusted EBITDA is used by many investors and analysts themselves, along with other metrics, to compare financial results across accounting periods and to those of peer companies.
As there are no standardized methods of calculating non-GAAP measurements, our calculations may differ from those used by analysts, investors, and other companies, even those within the cannabis industry, and therefore may not be directly comparable to similarly titled measures used by others.
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Reconciliation of Net Income to Adjusted EBITDA (a Non-GAAP Measurement)
The table below reconciles Net income to Adjusted EBITDA for the three and six months ended June 30, 2022 and 2021 (in thousands):
| Three months ended | Six months ended | |||||||||||||||
| June 30, | June 30, | June 30, | June 30, | |||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| GAAP net income | $ | 1,896 | $ | 7,589 | $ | 6,137 | $ | 11,899 | ||||||||
| Interest expense, net | 122 | 229 | 272 | 1,707 | ||||||||||||
| Income tax provision | 1,750 | 3,813 | 5,410 | 5,017 | ||||||||||||
| Depreciation and amortization of property and equipment | 850 | 501 | 1,552 | 963 | ||||||||||||
| Amortization of acquired intangible assets | 285 | 169 | 425 | 346 | ||||||||||||
| EBITDA (earnings before interest, taxes, depreciation and amortization) | 4,903 | 12,301 | 13,796 | 19,932 | ||||||||||||
| Stock-based compensation | 2,553 | 1,244 | 5,024 | 1,600 | ||||||||||||
| Acquisition-related and other | 754 | - | 754 | - | ||||||||||||
| Other expense (income), net | 727 | 371 | (275 | ) | 417 | |||||||||||
| Adjusted EBITDA | $ | 8,937 | $ | 13,916 | $ | 19,299 | $ | 21,949 | ||||||||
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenue, expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.
Inflation
In the opinion of management, inflation has not had a material effect on our financial condition or results of operations.
Seasonality
In the opinion of management, our financial condition and results of its operations are not materially impacted by seasonal sales.
Item 3. Quantitative and Qualitative Disclosure About Market Risk
The Company is a “smaller reporting company” as defined by Regulation S-K and, as such, is not required to provide the information contained in this item pursuant to Regulation S-K.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
The Company’s management, with the participation of its Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), evaluated the effectiveness of the Company’s disclosure controls and procedures (defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act of 1934, as amended (the “Exchange Act”)), as of June 30, 2022 (the “Evaluation Date”). Based upon that evaluation, the CEO and CFO concluded that, as of the Evaluation Date, the Company’s disclosure controls and procedures are effective to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act (i) are recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and (ii) are accumulated and communicated to the Company’s management, including its CEO and CFO, as appropriate to allow timely decisions regarding required disclosure.
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Changes in Internal Control Over Financial Reporting
Over the past several years, the Company implemented significant measures to remediate past instances of ineffectiveness of the Company’s internal control over financial reporting, The remediation measures consisted of the hiring of a new CFO, the engagement of accounting consultants as needed to provide expertise on specific areas of the accounting guidance, the hiring of individuals with appropriate experience in internal controls over financial reporting, and the modification to the Company’s accounting processes and enhancement to the Company’s financial control. Further, the Company expanded its board of directors to include a majority of independent disinterested directors; established an audit, compensation, and corporate governance committee of the board of directors; and adopted a formal policy with respect to related party transactions.
Other than as described above, there was no change to the Company’s internal control over financial reporting (as defined in Rules 13a-15(f) or 15d-15(f) under the Exchange Act) identified in connection with the evaluation required by Rules 13a-15(d) or 15d-15(d) that occurred during the fiscal quarter ended June 30, 2022 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.
PART II – OTHER INFORMATION
Item 1. Legal Proceedings
Following the consummation of the Kind Acquisition, in April 2022, the Maryland litigation between the Company and the members of Kind was dismissed with prejudice and the parties exchanged releases of any and all existing claims.
In April 2022, the Company, MMA and Ms. DiPietro agreed to dismiss all direct claims and counterclaims asserted in the Massachusetts litigation between them. In addition to the direct claims, the derivative claims were also dismissed on June 8, 2022 upon court approval.
Other than the above, there has been no material change to the status of the Company’s legal proceedings.
Item 1A. Risk Factors
As a smaller reporting company, the Company is not required to provide the information contained in this item pursuant to Regulation S-K. However, information regarding the Company’s risk factors appears in Part I, Item 1A. of its Annual Report on Form 10-K for the year ended December 31, 2021. These risk factors describe some of the assumptions, risks, uncertainties, and other factors that could adversely affect the Company’s business or that could otherwise result in changes that differ materially from management’s expectations. There have been no material changes to the risk factors contained in the Annual Report.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
During the three months ended June 30, 2022, the Company issued (i) 2,717 shares of common stock associated with previously issued subscriptions on common stock with a fair value of approximately $2,000, and (ii) 234,961 shares of common stock upon the cashless exercise of a warrant exercised for an aggregate of 750,000 shares of common stock.
The issuance of the shares of common stock described above were deemed to be exempt from registration under the Securities Act of 1933, as amended (the “Securities Act”), in reliance upon Sections 4(a)(2) and/or 4(a)(5) of the Securities Act. A legend restricting the sale, transfer, or other disposition of these securities other than in compliance with the Securities Act was placed on the securities issued in the foregoing transactions in accordance with the Securities Act.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not applicable.
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Item 5. Other Information
In July 2022, Mari Holdings Mt Vernon LLC, a wholly owned subsidiary of the Company, entered into a $3.0 million loan agreement and mortgage with Du Quoin State Bank secured by property owned in Mt. Vernon, Illinois, which the Company is developing into grow and production facility. The loan has a 20-year term and initially bears interest at the rate of 7.75%, subject to upward adjustment on each annual anniversary date to the Wall Street Journal U.S. Prime Rate (with an interest rate floor of 7.75%). The proceeds of this loan will be utilized for the build-out of the property and other working capital needs.
On August 4, 2022, the Company and Hadron entered into a Second Amendment to the Purchase Agreement pursuant to which, inter alia, (a) Hadron’s obligation to provide any further funding to the Company and the Company’s obligation to issue any further securities to Hadron was terminated, (b) Hadron’s right to appointment a designee to the Company’s board of directors was eliminated, and (c) certain covenants restricting the Company’s incurrence of new indebtedness were eliminated.
Item 6. Exhibits
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| 101.INS XBRL | Instance Document * | |
| 101.SCH XBRL | Taxonomy Extension Schema * | |
| 101.CAL XBRL | Taxonomy Extension Calculation Linkbase * | |
| 101.DEF XBRL | Taxonomy Extension Definition Linkbase * | |
| 101.LAB XBRL | Taxonomy Extension Label Linkbase * | |
| 101.PRE XBRL | Taxonomy Extension Presentation Linkbase * | |
| 104 | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) * |
* Filed herewith.
** Furnished herewith in accordance with Item 601 (32)(ii) of Regulation S-K.
*** This exhibit is a management contract or compensatory plan or arrangement.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Date: August 9, 2022
| MARIMED INC. | ||
| By: | /s/ Susan M. Villare | |
| Susan M. Villare | ||
Chief Financial Officer (Principal Financial Officer) |
||
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