UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(Mark One)
☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended June 30, 20222023
OR
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number: 000-56248
TRULIEVE CANNABIS CORP.
(Exact Name of Registrant as Specified in its Charter)
British Columbia | 84-2231905 |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer |
6749 Ben Bostic Road Quincy, FL | 32351 |
(Address of principal executive offices) | (Zip Code) |
Registrant’s telephone number, including area code: (850) 480-7955298-8866
Securities registered pursuant to Section 12(b) of the Act: None
Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
N/A | N/A | N/A |
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. Yes ☒ No ☐
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 (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, 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 |
| 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 ☐ No ☒
As of August 3, 2022,2023, the registrant had 149,829,674159,761,126 Subordinate Voting Shares and 36,050,25426,226,386 Multiple Voting Shares (on an as converted basis) outstanding.
Trulieve Cannabis Corp.TRULIEVE CANNABIS CORP.
Table of Contents
Page | ||
PART I. | ||
Item 1. | 1 | |
Condensed Consolidated Balance Sheets as of June 30, | 1 | |
2 | ||
3 | ||
| ||
| ||
Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations |
|
Item 3. |
| |
Item 4. |
| |
PART II. | OTHER INFORMATION | |
Item 1. |
| |
Item 1A. |
| |
Item 2. |
| |
Item 3. |
| |
Item 4. |
| |
Item 5. |
| |
Item 6. |
| |
|
i
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains forward-looking statements.statements within the meaning of safe harbor provisions of the Private Securities Litigation Reform Act of 1995. In some cases, you can identify these statements by forward-looking words such as “may”, “will”, “would”, “could”, “should”, “believes”, “estimates”, “projects”, “potential”, “expects”, “plans”, “intends”, “anticipates”, “targeted”, “continues”, “forecasts”, “designed”, “goal”, or the negative of those words 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. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our business, financial condition, results of operations and future growth prospects. The forward-looking statements contained herein are based on certain key expectations and assumptions, including, but not limited to, with respect to expectations and assumptions concerning receipt and/or maintenance of required licenses and third party consents and the success of our operations, are based on estimates prepared by us using data from publicly available governmental sources, as well as from market research and industry analysis, and on assumptions based on data and knowledge of this industry that we believe to be reasonable. These forward-looking statements are not guarantees of future performance or development and involve known and unknown risks, uncertainties and other factors that are in some cases beyond our control. As a result, any or all of our forward-looking statements in this Quarterly Report on Form 10-Q may turn out to be inaccurate. Factors that may cause actual results to differ materially from current expectations include, among other things, those listed under “Risk Factors” and discussed elsewhere in this Quarterly Report on Form 10-Q and in “Part I, Item 1A – Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2021.2022 and in “Part II, Item 1A – Risk Factors” in our Quarterly Report on Form 10-Q for the quarter ended March 31, 2023. These forward-looking statements speak only as of the date of this Quarterly Report on Form 10-Q. Except as required by law, we assume no obligation to update or revise these forward-looking statements for any reason, even if new information becomes available in the future. You should, however, review the factors and risks we describe in the reports we will file from time to time with the SEC after the date of this Quarterly Report on Form 10-Q.
ii
PART I—FINANCIAL INFORMATION
Item 1. Financial Statements.
Trulieve Cannabis Corp.TRULIEVE CANNABIS CORP.
Condensed Consolidated Balance Sheets (Unaudited)
(in thousands)thousands, except per share data)
|
| June 30, 2022 |
|
| December 31, 2021 |
| |||||||||
|
| (unaudited) |
|
| (audited) |
| June 30, 2023 |
|
| December 31, 2022 |
| ||||
ASSETS |
|
|
|
|
|
|
|
|
| (Audited) |
| ||||
Current assets: |
|
|
|
|
|
| |||||||||
Current Assets: |
|
|
|
|
| ||||||||||
Cash and cash equivalents |
| $ | 181,421 |
|
| $ | 230,646 |
| $ | 152,369 |
|
| $ | 207,185 |
|
Restricted cash |
|
| 0 |
|
|
| 3,013 |
|
| 7,575 |
|
|
| 6,607 |
|
Accounts receivable, net |
|
| 11,856 |
|
|
| 8,854 |
|
| 7,013 |
|
|
| 6,507 |
|
Inventories, net |
|
| 270,206 |
|
|
| 212,188 |
|
| 252,785 |
|
|
| 276,505 |
|
Prepaid expenses and other current assets |
| 42,867 |
|
|
| 62,278 |
| ||||||||
Notes receivable - current portion |
|
| 644 |
|
|
| 1,530 |
|
| 754 |
|
|
| 728 |
|
Prepaid expenses and other current assets |
|
| 65,877 |
|
|
| 68,189 |
| |||||||
Assets associated with discontinued operations |
| 11,474 |
|
|
| 33,701 |
| ||||||||
Total current assets |
|
| 530,004 |
|
|
| 524,420 |
|
| 474,837 |
|
|
| 593,511 |
|
Property and equipment, net |
|
| 829,547 |
|
|
| 779,916 |
|
| 708,655 |
|
|
| 743,260 |
|
Right of use assets - operating, net |
|
| 121,705 |
|
|
| 125,973 |
|
| 98,654 |
|
|
| 99,610 |
|
Right of use assets - finance, net |
|
| 79,459 |
|
|
| 66,764 |
|
| 62,876 |
|
|
| 70,495 |
|
Intangible assets, net |
|
| 1,079,283 |
|
|
| 1,117,982 |
|
| 951,460 |
|
|
| 984,797 |
|
Goodwill |
|
| 789,900 |
|
|
| 765,358 |
|
| 483,905 |
|
|
| 791,495 |
|
Notes receivable, net |
|
| 12,123 |
|
|
| 12,147 |
|
| 11,855 |
|
|
| 11,992 |
|
Other assets |
|
| 22,245 |
|
|
| 18,312 |
|
| 14,427 |
|
|
| 12,768 |
|
Long-term assets associated with discontinued operations |
| 2,013 |
|
|
| 92,445 |
| ||||||||
TOTAL ASSETS |
| $ | 3,464,266 |
|
| $ | 3,410,872 |
| $ | 2,808,682 |
|
| $ | 3,400,373 |
|
LIABILITIES |
|
|
|
|
|
|
|
|
|
|
| ||||
Current liabilities: |
|
|
|
|
|
| |||||||||
Current Liabilities: |
|
|
|
|
| ||||||||||
Accounts payable and accrued liabilities |
|
| 83,858 |
|
|
| 94,073 |
| $ | 75,457 |
|
| $ | 82,090 |
|
Income tax payable |
|
| 23,888 |
|
|
| 27,610 |
|
| — |
|
|
| 49,790 |
|
Deferred revenue |
|
| 6,371 |
|
|
| 7,168 |
|
| 5,784 |
|
|
| 9,393 |
|
Notes payable - current portion, net |
|
| 9,502 |
|
|
| 10,052 |
| |||||||
Notes payable - current portion |
| 9,076 |
|
|
| 12,453 |
| ||||||||
Private placement notes - current portion, net |
| 125,861 |
|
|
| — |
| ||||||||
Operating lease liabilities - current portion |
|
| 10,899 |
|
|
| 9,840 |
|
| 9,668 |
|
|
| 10,344 |
|
Finance lease liabilities - current portion |
|
| 7,697 |
|
|
| 6,185 |
|
| 7,595 |
|
|
| 8,271 |
|
Construction finance liabilities - current portion |
|
| 1,087 |
|
|
| 991 |
|
| 1,324 |
|
|
| 1,189 |
|
Contingencies |
|
| 22,070 |
|
|
| 13,017 |
|
| 2,411 |
|
|
| 34,666 |
|
Liabilities associated with discontinued operations |
| 3,411 |
|
|
| 2,274 |
| ||||||||
Total current liabilities |
|
| 165,372 |
|
|
| 168,936 |
| $ | 240,587 |
|
| $ | 210,470 |
|
Long-term liabilities: |
|
|
|
|
|
|
|
|
|
|
| ||||
Notes payable |
|
| 3,435 |
|
|
| 6,456 |
| |||||||
Notes payable, net |
| 92,958 |
|
|
| 94,247 |
| ||||||||
Private placement notes, net |
|
| 538,977 |
|
|
| 462,929 |
|
| 418,605 |
|
|
| 541,664 |
|
Warrant liabilities |
|
| 633 |
|
|
| 2,895 |
|
| — |
|
|
| 252 |
|
Operating lease liabilities |
|
| 128,385 |
|
|
| 122,130 |
|
| 100,731 |
|
|
| 100,531 |
|
Finance lease liabilities |
|
| 78,459 |
|
|
| 65,244 |
|
| 64,616 |
|
|
| 69,948 |
|
Construction finance liabilities |
|
| 182,113 |
|
|
| 175,198 |
|
| 136,939 |
|
|
| 137,144 |
|
Deferred tax liabilities |
|
| 237,641 |
|
|
| 251,311 |
|
| 211,901 |
|
|
| 224,696 |
|
Other long-term liabilities |
|
| 9,159 |
|
|
| 8,400 |
|
| 37,424 |
|
|
| 26,027 |
|
Long-term liabilities associated with discontinued operations |
| 42,908 |
|
|
| 67,690 |
| ||||||||
TOTAL LIABILITIES |
|
| 1,344,174 |
|
|
| 1,263,499 |
| $ | 1,346,669 |
|
| $ | 1,472,669 |
|
Commitments and contingencies (see Note 21) |
|
|
|
|
|
| |||||||||
Commitments and contingencies (see Note 20) |
|
|
|
|
| ||||||||||
SHAREHOLDERS' EQUITY |
|
|
|
|
|
|
|
|
|
|
| ||||
Common stock, no par value; unlimited shares authorized. 185,638,197 issued and outstanding as of June 30, 2022 and 180,504,172 issued and outstanding as of December 31, 2021. |
|
| — |
|
|
| — |
| |||||||
Common stock, no par value; unlimited shares authorized. 185,987,512 issued and outstanding as of June 30, 2023 and December 31, 2022, respectively. | $ | — |
|
| $ | — |
| ||||||||
Additional paid-in-capital |
|
| 2,037,483 |
|
|
| 2,008,100 |
|
| 2,047,879 |
|
|
| 2,045,003 |
|
Accumulated earnings |
|
| 83,255 |
|
|
| 137,721 |
| |||||||
Accumulated deficit |
| (581,816 | ) |
|
| (113,843 | ) | ||||||||
Non-controlling interest |
|
| (646 | ) |
|
| 1,552 |
|
| (4,050 | ) |
|
| (3,456 | ) |
TOTAL SHAREHOLDERS' EQUITY |
|
| 2,120,092 |
|
|
| 2,147,373 |
|
| 1,462,013 |
|
|
| 1,927,704 |
|
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY |
| $ | 3,464,266 |
|
| $ | 3,410,872 |
| $ | 2,808,682 |
|
| $ | 3,400,373 |
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
1
Trulieve Cannabis Corp.TRULIEVE CANNABIS CORP.
Condensed Consolidated Statements of Operations and Comprehensive (Loss) Income(Unaudited)
(in thousands, except per share data)
|
| Three Months Ended |
|
| Six Months Ended |
| ||||||||||
|
| June 30, 2022 |
|
| June 30, 2021 |
|
| June 30, 2022 |
|
| June 30, 2021 |
| ||||
|
| (unaudited) |
| |||||||||||||
Revenues, net of discounts |
| $ | 320,283 |
|
| $ | 215,122 |
|
| $ | 638,631 |
|
| $ | 408,945 |
|
Cost of goods sold |
|
| 138,129 |
|
|
| 70,639 |
|
|
| 278,327 |
|
|
| 129,198 |
|
Gross profit |
|
| 182,154 |
|
|
| 144,483 |
|
|
| 360,304 |
|
|
| 279,747 |
|
Expenses: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Sales and marketing |
|
| 75,286 |
|
|
| 46,576 |
|
|
| 148,148 |
|
|
| 91,135 |
|
General and administrative |
|
| 33,653 |
|
|
| 14,942 |
|
|
| 67,199 |
|
|
| 27,650 |
|
Depreciation and amortization |
|
| 30,889 |
|
|
| 6,667 |
|
|
| 60,194 |
|
|
| 12,101 |
|
Impairment and disposal of long-lived assets, net |
|
| 4,336 |
|
|
| — |
|
|
| 18,116 |
|
|
| — |
|
Total expenses |
|
| 144,164 |
|
|
| 68,185 |
|
|
| 293,657 |
|
|
| 130,886 |
|
Income from operations |
|
| 37,990 |
|
|
| 76,298 |
|
|
| 66,647 |
|
|
| 148,861 |
|
Other income (expense): |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Interest expense, net |
|
| (19,678 | ) |
|
| (6,649 | ) |
|
| (37,555 | ) |
|
| (14,548 | ) |
Change in fair value of derivative liabilities - warrants |
|
| 1,442 |
|
|
| — |
|
|
| 2,262 |
|
|
| — |
|
Loss on disposal of non-operating assets |
|
| (719 | ) |
|
| — |
|
|
| (3,400 | ) |
|
| — |
|
Other income (expense), net |
|
| 1,713 |
|
|
| 333 |
|
|
| 2,628 |
|
|
| 295 |
|
Total other expense |
|
| (17,242 | ) |
|
| (6,316 | ) |
|
| (36,065 | ) |
|
| (14,253 | ) |
Income before provision for income taxes |
|
| 20,748 |
|
|
| 69,982 |
|
|
| 30,582 |
|
|
| 134,608 |
|
Provision for income taxes |
|
| 44,769 |
|
|
| 29,102 |
|
|
| 87,085 |
|
|
| 63,650 |
|
Net (loss) income and comprehensive (loss) income |
|
| (24,021 | ) |
|
| 40,880 |
|
|
| (56,503 | ) |
|
| 70,958 |
|
Less: Net loss and comprehensive loss attributed to non-controlling interest |
|
| (1,530 | ) |
|
| — |
|
|
| (2,037 | ) |
|
| — |
|
Net (loss) income and comprehensive (loss) income attributed to common shareholders |
| $ | (22,491 | ) |
| $ | 40,880 |
|
| $ | (54,466 | ) |
| $ | 70,958 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Net (loss) income per share: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Basic |
| $ | (0.12 | ) |
| $ | 0.33 |
|
| $ | (0.29 | ) |
| $ | 0.59 |
|
Diluted |
| $ | (0.12 | ) |
| $ | 0.31 |
|
| $ | (0.29 | ) |
| $ | 0.55 |
|
Weighted average number of common shares used in computing net (loss) income per common share: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Basic |
|
| 187,174,176 |
|
|
| 125,631,725 |
|
|
| 187,124,886 |
|
|
| 120,351,366 |
|
Diluted |
|
| 187,174,176 |
|
|
| 133,002,231 |
|
|
| 187,124,886 |
|
|
| 127,884,913 |
|
| Three Months Ended |
| Six Months Ended |
| ||||||||
| June 30, 2023 |
| June 30, 2022 |
| June 30, 2023 |
| June 30, 2022 |
| ||||
Revenue, net | $ | 281,795 |
| $ | 313,839 |
| $ | 567,009 |
|
| 624,400 |
|
Cost of goods sold |
| 140,188 |
|
| 130,466 |
|
| 275,240 |
|
| 261,172 |
|
Gross profit |
| 141,607 |
|
| 183,373 |
|
| 291,769 |
|
| 363,228 |
|
Expenses: |
|
|
|
|
|
|
|
| ||||
Sales and marketing |
| 61,075 |
|
| 73,902 |
|
| 121,808 |
|
| 145,352 |
|
General and administrative |
| 34,902 |
|
| 33,575 |
|
| 74,212 |
|
| 66,989 |
|
Depreciation and amortization |
| 26,052 |
|
| 29,367 |
|
| 55,666 |
|
| 57,151 |
|
Impairments and disposals of long-lived assets, net |
| 3,310 |
|
| 5,055 |
|
| 6,689 |
|
| 21,516 |
|
Impairment of goodwill |
| 307,590 |
|
| — |
|
| 307,590 |
|
| — |
|
Total expenses |
| 432,929 |
|
| 141,899 |
|
| 565,965 |
|
| 291,008 |
|
(Loss) income from operations |
| (291,322 | ) |
| 41,474 |
|
| (274,196 | ) |
| 72,220 |
|
Other (expense) income: |
|
|
|
|
|
|
|
| ||||
Interest expense |
| (18,931 | ) |
| (18,144 | ) |
| (40,091 | ) |
| (34,497 | ) |
Change in fair value of derivative liabilities - warrants |
| — |
|
| 1,442 |
|
| 252 |
|
| 2,262 |
|
Other income, net |
| 1,976 |
|
| 1,683 |
|
| 6,893 |
|
| 2,568 |
|
Total other expense, net |
| (16,955 | ) |
| (15,019 | ) |
| (32,946 | ) |
| (29,667 | ) |
(Loss) income before provision for income taxes |
| (308,277 | ) |
| 26,455 |
|
| (307,142 | ) |
| 42,553 |
|
Provision for income taxes |
| 34,027 |
|
| 45,242 |
|
| 69,484 |
|
| 88,384 |
|
Net loss from continuing operations |
| (342,304 | ) |
| (18,787 | ) |
| (376,626 | ) |
| (45,831 | ) |
Net loss from discontinued operations, net of tax (provision) benefit of $(946), $473, $(439), and $1,299, respectively |
| (64,568 | ) |
| (5,234 | ) |
| (95,877 | ) |
| (10,672 | ) |
Net loss |
| (406,872 | ) |
| (24,021 | ) |
| (472,503 | ) |
| (56,503 | ) |
Less: Net loss attributable to non-controlling interest from continuing operations |
| (2,353 | ) |
| (1,530 | ) |
| (3,337 | ) |
| (2,037 | ) |
Less: Net loss attributable to non-controlling interest from discontinued operations |
| (670 | ) |
| — |
|
| (1,193 | ) |
| — |
|
Net loss attributable to common shareholders | $ | (403,849 | ) | $ | (22,491 | ) | $ | (467,973 | ) | $ | (54,466 | ) |
|
|
|
|
|
|
|
|
| ||||
Net loss per share - Continuing operations: |
|
|
|
|
|
|
|
| ||||
Basic and diluted | $ | (1.80 | ) | $ | (0.09 | ) | $ | (1.98 | ) | $ | (0.23 | ) |
Net loss per share - Discontinued operations: |
|
|
|
|
|
|
|
| ||||
Basic and diluted | $ | (0.34 | ) | $ | (0.03 | ) | $ | (0.50 | ) | $ | (0.06 | ) |
Weighted average number of common shares used in computing net loss per share: |
|
|
|
|
|
|
|
| ||||
Basic and diluted |
| 189,054,359 |
|
| 187,174,176 |
|
| 188,976,834 |
|
| 187,124,886 |
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
2
Trulieve Cannabis Corp.TRULIEVE CANNABIS CORP.
Condensed Consolidated Statements of Changes in Shareholders’ Equity (Unaudited)
(in thousands, except per share data)
|
| Super Voting Shares |
|
| Multiple Voting Shares |
|
| Subordinate Voting Shares |
|
| Total Common Shares |
|
| Additional Paid-in-Capital |
|
| Accumulated Earnings |
|
| Non-Controlling Interest |
|
| Total |
| Multiple Voting Shares |
| Subordinate Voting Shares |
| Total Common Shares |
| Additional Paid-in-Capital |
| Accumulated (Deficit) Earnings |
| Non-Controlling Interest |
| Total |
| |||||||||||||||
Balance, January 1, 2022 (audited) |
|
| — |
|
|
| 51,916,999 |
|
|
| 128,587,173 |
|
|
| 180,504,172 |
|
| $ | 2,008,100 |
|
| $ | 137,721 |
|
| $ | 1,552 |
|
| $ | 2,147,373 |
|
| 51,916,999 |
| 128,587,173 |
| 180,504,172 |
| $ | 2,008,100 |
| $ | 137,721 |
| $ | 1,552 |
| $ | 2,147,373 |
| ||
Share-based compensation |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 4,564 |
|
|
| — |
|
|
| — |
|
|
| 4,564 |
|
| — |
| — |
| — |
| 4,564 |
| — |
| — |
| 4,564 |
| ||||||
Exercise of stock options |
|
| — |
|
|
| — |
|
|
| 45,775 |
|
|
| 45,775 |
|
|
| 108 |
|
|
| — |
|
|
| — |
|
|
| 108 |
|
| — |
| 45,775 |
| 45,775 |
| 108 |
| — |
| — |
| 108 |
| ||||||
Shares issued for cash - warrant exercise |
|
| — |
|
|
| — |
|
|
| 1,648 |
|
|
| 1,648 |
|
|
| 22 |
|
|
| — |
|
|
| — |
|
|
| 22 |
|
| — |
| 1,648 |
| 1,648 |
| 22 |
| — |
| — |
| 22 |
| ||||||
Shares issued under share compensation plans |
|
| — |
|
|
| — |
|
|
| 16,257 |
|
|
| 16,257 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
| — |
| 16,257 |
| 16,257 |
| — |
| — |
| — |
| — |
| ||||||
Tax withholding related to net share settlements of equity awards |
|
| — |
|
|
| — |
|
|
| (10,005 | ) |
|
| (10,005 | ) |
|
| (230 | ) |
|
| — |
|
|
| — |
|
|
| (230 | ) |
| — |
| (10,005 | ) |
| (10,005 | ) |
| (230 | ) |
| — |
| — |
| (230 | ) | |||
Conversion of Multiple Voting to Subordinate Voting Shares |
|
| — |
|
|
| (2,699,100 | ) |
|
| 2,699,100 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
| (2,699,100 | ) |
| 2,699,100 |
| — |
| — |
| — |
| — |
| — |
| |||||
Shares issued for PurePenn, Pioneer, and Solevo earnouts |
|
| — |
|
|
| — |
|
|
| 3,626,295 |
|
|
| 3,626,295 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
| — |
| 3,626,295 |
| 3,626,295 |
| — |
| — |
| — |
| — |
| ||||||
Distribution |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (50 | ) |
|
| (50 | ) |
| — |
| — |
| — |
| — |
| — |
| (50 | ) |
| (50 | ) | |||||
Divestment of variable interest entity |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (111 | ) |
|
| (111 | ) |
| — |
| — |
| — |
| — |
| — |
| (111 | ) |
| (111 | ) | |||||
Net loss and comprehensive loss |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (31,975 | ) |
|
| (507 | ) |
|
| (32,482 | ) | |||||||||||||||||||||
Balance, March 31, 2022 (unaudited) |
|
| — |
|
|
| 49,217,899 |
|
|
| 134,966,243 |
|
|
| 184,184,142 |
|
| $ | 2,012,564 |
|
| $ | 105,746 |
|
| $ | 884 |
|
| $ | 2,119,194 |
| |||||||||||||||||||||
Net loss |
| — |
| — |
| — |
| — |
| (31,975 | ) |
| (507 | ) |
| (32,482 | ) | ||||||||||||||||||||||||||||||||||||
Balance, March 31, 2022 |
| 49,217,899 |
| 134,966,243 |
| 184,184,142 |
| $ | 2,012,564 |
| $ | 105,746 |
| $ | 884 |
| $ | 2,119,194 |
| ||||||||||||||||||||||||||||||||||
Share-based compensation |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 5,703 |
|
|
| — |
|
|
| — |
|
|
| 5,703 |
|
| — |
| — |
| — |
| 5,703 |
| — |
| — |
| 5,703 |
| ||||||
Exercise of Stock options |
|
| — |
|
|
| — |
|
|
| 2,997 |
|
|
| 2,997 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
| — |
| 2,997 |
| 2,997 |
| — |
| — |
| — |
| — |
| ||||||
Shares issued for cash - warrant exercise |
|
| — |
|
|
| — |
|
|
| 1,426,614 |
|
|
| 1,426,614 |
|
|
| 19,216 |
|
|
| — |
|
|
| — |
|
|
| 19,216 |
|
| — |
| 1,426,614 |
| 1,426,614 |
| 19,216 |
| — |
| — |
| 19,216 |
| ||||||
Subordinate Voting Shares issued under share compensation plans |
|
| — |
|
|
| — |
|
|
| 24,444 |
|
|
| 24,444 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
| — |
| 24,444 |
| 24,444 |
| — |
| — |
| — |
| — |
| ||||||
Conversion of Multiple Voting to Subordinate Voting Shares |
|
| — |
|
|
| (13,091,800 | ) |
|
| 13,091,800 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
| (13,091,800 | ) |
| 13,091,800 |
| — |
| — |
| — |
| — |
| — |
| |||||
Net loss and comprehensive loss |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (22,491 | ) |
|
| (1,530 | ) |
|
| (24,021 | ) | |||||||||||||||||||||
Balance, June 30, 2022 (unaudited) |
|
| — |
|
|
| 36,126,099 |
|
|
| 149,512,098 |
|
|
| 185,638,197 |
|
| $ | 2,037,483 |
|
| $ | 83,255 |
|
| $ | (646 | ) |
| $ | 2,120,092 |
| |||||||||||||||||||||
Net loss |
| — |
| — |
| — |
| — |
| (22,491 | ) |
| (1,530 | ) |
| (24,021 | ) | ||||||||||||||||||||||||||||||||||||
Balance, June 30, 2022 |
| 36,126,099 |
| 149,512,098 |
| 185,638,197 |
| $ | 2,037,483 |
| $ | 83,255 |
| $ | (646 | ) | $ | 2,120,092 |
|
3
Trulieve Cannabis Corp.
Condensed Consolidated Statements of Changes in Shareholders’ Equity (Continued)
| Multiple Voting Shares |
| Subordinate Voting Shares |
| Total Common Shares |
| Additional Paid-in-Capital |
| Accumulated Deficit |
| Non-Controlling Interest |
| Total |
| |||||||
Balance, January 1, 2023 (audited) |
| 26,226,386 |
|
| 159,761,126 |
|
| 185,987,512 |
| $ | 2,045,003 |
| $ | (113,843 | ) | $ | (3,456 | ) | $ | 1,927,704 |
|
Share-based compensation |
| — |
|
| — |
|
| — |
|
| 2,401 |
|
| — |
|
| — |
|
| 2,401 |
|
Distribution |
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| (50 | ) |
| (50 | ) |
Value of shares earned for purchase of variable interest entity |
| — |
|
| — |
|
| — |
|
| 1,643 |
|
| — |
|
| — |
|
| 1,643 |
|
Net loss |
| — |
|
| — |
|
| — |
|
| — |
|
| (64,124 | ) |
| (1,507 | ) |
| (65,631 | ) |
Balance, March 31, 2023 |
| 26,226,386 |
|
| 159,761,126 |
|
| 185,987,512 |
| $ | 2,049,047 |
| $ | (177,967 | ) | $ | (5,013 | ) | $ | 1,866,067 |
|
Share-based compensation |
| — |
|
| — |
|
| — |
|
| 475 |
|
| — |
|
| — |
|
| 475 |
|
Termination of purchase of variable interest entity |
| — |
|
| — |
|
| — |
|
| (1,643 | ) |
| — |
|
| — |
|
| (1,643 | ) |
Deconsolidation and divestment of variable interest entities |
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 3,986 |
|
| 3,986 |
|
Net loss |
| — |
|
| — |
|
| — |
|
| — |
|
| (403,849 | ) |
| (3,023 | ) |
| (406,872 | ) |
Balance, June 30, 2023 |
| 26,226,386 |
|
| 159,761,126 |
|
| 185,987,512 |
| $ | 2,047,879 |
| $ | (581,816 | ) | $ | (4,050 | ) | $ | 1,462,013 |
|
(in thousands, except per share data)
|
| Super Voting Shares |
|
| Multiple Voting Shares |
|
| Subordinate Voting Shares |
|
| Total Common Shares |
|
| Additional Paid-in-Capital |
|
| Accumulated Earnings |
|
| Non-Controlling Interest |
|
| Total |
| ||||||||
Balance, January 1, 2021 (audited) |
|
| 58,182,500 |
|
|
| 1,439,037 |
|
|
| 59,952,461 |
|
|
| 119,573,998 |
|
| $ | 328,214 |
|
| $ | 119,690 |
|
| $ | — |
|
| $ | 447,904 |
|
Share-based compensation |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 741 |
|
|
| — |
|
|
| — |
|
|
| 741 |
|
Shares issued for cash - warrant exercise |
|
| — |
|
|
| — |
|
|
| 469,133 |
|
|
| 469,133 |
|
|
| 6,861 |
|
|
| — |
|
|
| — |
|
|
| 6,861 |
|
Conversion of warrants to Subordinate Voting Shares |
|
| — |
|
|
| — |
|
|
| 133,408 |
|
|
| 133,408 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Conversion of Multiple Voting to Subordinate Voting Shares |
|
| — |
|
|
| (117,668 | ) |
|
| 117,668 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Conversion of Super Voting to Subordinate Voting Shares |
|
| (3,021,100 | ) |
|
| — |
|
|
| 3,021,100 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Conversion of Super Voting to Multiple Voting Shares |
|
| (55,161,400 | ) |
|
| 55,161,400 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Net income and comprehensive income |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 30,078 |
|
|
| — |
|
|
| 30,078 |
|
Balance, March 31, 2021 (unaudited) |
|
| — |
|
|
| 56,482,769 |
|
|
| 63,693,770 |
|
|
| 120,176,539 |
|
| $ | 335,816 |
|
| $ | 149,768 |
|
| $ | — |
|
| $ | 485,584 |
|
Share-based compensation |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 744 |
|
|
| — |
|
|
| — |
|
|
| 744 |
|
Shares issued for cash - warrant exercise |
|
| — |
|
|
| — |
|
|
| 100,400 |
|
|
| 100,400 |
|
|
| 811 |
|
|
| — |
|
|
| — |
|
|
| 811 |
|
Common stock issued upon cashless warrant exercise |
|
| — |
|
|
| — |
|
|
| 661,614 |
|
|
| 661,614 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Tax withholding related to net share settlement of equity awards |
|
| — |
|
|
| — |
|
|
| (15,734 | ) |
|
| (15,734 | ) |
|
| (595 | ) |
|
| — |
|
|
| — |
|
|
| (595 | ) |
Issuance of shares in private placement, net of issuance costs |
|
| — |
|
|
| — |
|
|
| 5,750,000 |
|
|
| 5,750,000 |
|
|
| 217,896 |
|
|
| — |
|
|
| — |
|
|
| 217,896 |
|
Contingent consideration payable in shares |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (2,800 | ) |
|
| — |
|
|
| — |
|
|
| (2,800 | ) |
Adjustment of fair value of equity consideration for PurePenn, LLC |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 2,711 |
|
|
| — |
|
|
| — |
|
|
| 2,711 |
|
Adjustment of fair value of equity consideration for Keystone Relief Centers, LLC |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1,004 |
|
|
| — |
|
|
| — |
|
|
| 1,004 |
|
Shares issued for Mountaineer Holding, LLC acquisition |
|
| — |
|
|
| — |
|
|
| 60,342 |
|
|
| 60,342 |
|
|
| 3,000 |
|
|
| — |
|
|
| — |
|
|
| 3,000 |
|
Shares issued for Nature's Remedy of Massachusetts, Inc. acquisition |
|
| — |
|
|
| — |
|
|
| 237,881 |
|
|
| 237,881 |
|
|
| 6,500 |
|
|
| — |
|
|
| — |
|
|
| 6,500 |
|
Shares issued for Solevo Wellness West Virginia, LLC acquisition |
|
| — |
|
|
| — |
|
|
| 11,658 |
|
|
| 11,658 |
|
|
| 500 |
|
|
| — |
|
|
| — |
|
|
| 500 |
|
Conversion of Multiple Voting to Subordinate Voting Shares |
|
| — |
|
|
| (21,673 | ) |
|
| 21,673 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Net income and comprehensive income |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 40,880 |
|
|
| — |
|
|
| 40,880 |
|
Balance, June 30, 2021 (unaudited) |
|
| — |
|
|
| 56,461,096 |
|
|
| 70,521,604 |
|
|
| 126,982,700 |
|
| $ | 565,587 |
|
| $ | 190,648 |
|
| $ | — |
|
| $ | 756,235 |
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
43
Trulieve Cannabis Corp.
Condensed Consolidated Statements of Cash Flows
(in thousands)
|
| Six Months Ended |
|
| Six Months Ended |
| ||
|
| (unaudited) |
| |||||
Cash flow from operating activities |
|
|
|
|
|
| ||
Net (loss) income and comprehensive (loss) income |
| $ | (56,503 | ) |
| $ | 70,958 |
|
Adjustments to reconcile net (loss) income and comprehensive (loss) income to net cash (used in) provided by operating activities: |
|
|
|
|
|
| ||
Depreciation and amortization |
|
| 60,194 |
|
|
| 12,101 |
|
Depreciation included in cost of goods sold |
|
| 24,501 |
|
|
| 8,687 |
|
Non-cash interest expense |
|
| 2,629 |
|
|
| 1,507 |
|
Non-cash interest income |
|
| (276 | ) |
|
| — |
|
Loss on impairment and disposal of long-lived assets, net |
|
| 18,116 |
|
|
| — |
|
Loss on disposal of non-operating assets |
|
| 3,400 |
|
|
| — |
|
Amortization of operating lease right of use assets |
|
| 5,742 |
|
|
| 1,910 |
|
Share-based compensation |
|
| 10,267 |
|
|
| 1,485 |
|
Accretion of construction finance liabilities |
|
| 595 |
|
|
| 1,068 |
|
Change in fair value of derivative liabilities - warrants |
|
| (2,262 | ) |
|
| — |
|
Non-cash change in contingencies |
|
| 10,384 |
|
|
| — |
|
Allowance for credit losses |
|
| 1,088 |
|
|
| — |
|
Deferred income tax expense |
|
| (13,669 | ) |
|
| (1,986 | ) |
Changes in operating assets and liabilities: |
|
|
|
|
|
| ||
Inventories |
|
| (55,736 | ) |
|
| (14,316 | ) |
Accounts receivable |
|
| (4,090 | ) |
|
| (3,446 | ) |
Prepaid expenses and other current assets |
|
| 2,362 |
|
|
| (8,896 | ) |
Other assets |
|
| (4,422 | ) |
|
| (5,603 | ) |
Accounts payable and accrued liabilities |
|
| (2,930 | ) |
|
| 2,152 |
|
Income tax payable |
|
| (3,674 | ) |
|
| (14,032 | ) |
Operating lease liabilities |
|
| (4,543 | ) |
|
| (1,633 | ) |
Deferred revenue |
|
| (797 | ) |
|
| (992 | ) |
Contingencies |
|
| (1,331 | ) |
|
| — |
|
Other long-term liabilities |
|
| 671 |
|
|
| 230 |
|
Net cash (used in) provided by operating activities |
|
| (10,284 | ) |
|
| 49,194 |
|
Cash flow from investing activities |
|
|
|
|
|
| ||
Purchases of property and equipment |
|
| (92,865 | ) |
|
| (115,302 | ) |
Purchases of property and equipment related to construction finance liabilities |
|
| (13,247 | ) |
|
| (7,147 | ) |
Capitalized interest |
|
| (2,676 | ) |
|
| (2,130 | ) |
Acquisitions, net of cash acquired |
|
| (27,781 | ) |
|
| (10,158 | ) |
Purchases of internal use software |
|
| (4,887 | ) |
|
| (1,951 | ) |
Proceeds from sale of property and equipment |
|
| 100 |
|
|
| — |
|
Proceeds from sale of variable interest entity |
|
| 1,604 |
|
|
| — |
|
Proceeds from sale of held for sale assets |
|
| 2,173 |
|
|
| — |
|
Proceeds received from notes receivable |
|
| 1,187 |
|
|
| — |
|
Net cash used in investing activities |
|
| (136,392 | ) |
|
| (136,688 | ) |
Cash flow from financing activities |
|
|
|
|
|
| ||
Proceeds from private placement notes, net of discounts |
|
| 75,635 |
|
|
| — |
|
Proceeds from notes payable |
|
| 1,080 |
|
|
| — |
|
Proceeds from construction finance liabilities |
|
| 7,047 |
|
|
| 7,148 |
|
Proceeds from warrant exercises |
|
| 19,238 |
|
|
| 7,672 |
|
Proceeds from shares issued pursuant to private placement, net of issuance costs |
|
| — |
|
|
| 217,896 |
|
Proceeds from stock option exercises |
|
| 108 |
|
|
| — |
|
Payments on notes payable |
|
| (2,486 | ) |
|
| — |
|
Payments on private placement notes |
|
| (1,874 | ) |
|
| — |
|
Payments on finance lease obligations |
|
| (3,205 | ) |
|
| (2,091 | ) |
Payments on construction finance liabilities |
|
| (636 | ) |
|
| — |
|
Payments for debt issuance costs |
|
| (189 | ) |
|
| — |
|
Payments on notes payable - related party |
|
| — |
|
|
| (11 | ) |
Payments for taxes related to net share settlement of equity awards |
|
| (230 | ) |
|
| (595 | ) |
Distributions |
|
| (50 | ) |
|
| — |
|
Net cash provided by financing activities |
|
| 94,438 |
|
|
| 230,019 |
|
Net (decrease) increase in cash and cash equivalents |
|
| (52,238 | ) |
|
| 142,525 |
|
Cash, cash equivalents, and restricted cash, beginning of period |
|
| 233,659 |
|
|
| 146,713 |
|
Cash, cash equivalents, and restricted cash, end of period |
| $ | 181,421 |
|
| $ | 289,238 |
|
5
Trulieve Cannabis Corp.TRULIEVE CANNABIS CORP.
Condensed Consolidated Statements of Cash Flows (Unaudited)
(in thousands)
| Six Months Ended |
|
| Six Months Ended |
| ||
Cash flow from operating activities |
|
|
|
|
| ||
Net loss | $ | (472,503 | ) |
| $ | (56,503 | ) |
Adjustments to reconcile net loss to net cash used in operating activities: |
|
|
|
|
| ||
Depreciation and amortization |
| 56,610 |
|
|
| 60,194 |
|
Depreciation included in cost of goods sold |
| 30,945 |
|
|
| 24,501 |
|
Non-cash interest expense, net |
| 2,794 |
|
|
| 2,353 |
|
Impairment and disposal of long-lived assets, net |
| 6,689 |
|
|
| 21,516 |
|
Impairment of goodwill |
| 307,590 |
|
|
| — |
|
Amortization of operating lease right of use assets |
| 5,260 |
|
|
| 5,742 |
|
Accretion of construction finance liabilities |
| 792 |
|
|
| 595 |
|
Share-based compensation |
| 2,876 |
|
|
| 10,267 |
|
Change in fair value of derivative liabilities - warrants |
| (252 | ) |
|
| (2,262 | ) |
Non-cash change in contingencies |
| (7,188 | ) |
|
| 10,384 |
|
Allowance for credit losses |
| 350 |
|
|
| 1,088 |
|
Deferred income tax expense |
| (12,236 | ) |
|
| (13,669 | ) |
Loss from disposal of discontinued operations |
| 69,275 |
|
|
| — |
|
Changes in operating assets and liabilities: |
|
|
|
|
| ||
Inventories |
| 40,333 |
|
|
| (55,736 | ) |
Accounts receivable |
| (664 | ) |
|
| (4,090 | ) |
Prepaid expenses and other current assets |
| 4,957 |
|
|
| 2,362 |
|
Other assets |
| 1,704 |
|
|
| (4,422 | ) |
Accounts payable and accrued liabilities |
| (4,338 | ) |
|
| (2,930 | ) |
Income tax payable |
| (49,728 | ) |
|
| (3,674 | ) |
Other current liabilities |
| (8,066 | ) |
|
| (1,331 | ) |
Operating lease liabilities |
| (4,876 | ) |
|
| (4,543 | ) |
Deferred revenue |
| (3,782 | ) |
|
| (797 | ) |
Other long-term liabilities |
| 10,396 |
|
|
| 671 |
|
Net cash used in operating activities |
| (23,062 | ) |
|
| (10,284 | ) |
Cash flow from investing activities |
|
|
|
|
| ||
Purchases of property and equipment |
| (24,720 | ) |
|
| (92,865 | ) |
Purchases of property and equipment related to construction finance liabilities |
| — |
|
|
| (13,247 | ) |
Capitalized interest |
| (795 | ) |
|
| (2,676 | ) |
Acquisitions and divestments, net of cash |
| 977 |
|
|
| (26,177 | ) |
Purchases of internal use software |
| (4,383 | ) |
|
| (4,887 | ) |
Cash paid for license |
| (3,971 | ) |
|
| — |
|
Proceeds from sale of long-lived assets |
| 3,785 |
|
|
| 100 |
|
Proceeds from sale of held for sale assets |
| 3,431 |
|
|
| 2,173 |
|
Proceeds received from notes receivable |
| 358 |
|
|
| 1,187 |
|
Net cash used in investing activities |
| (25,318 | ) |
|
| (136,392 | ) |
Cash flow from financing activities |
|
|
|
|
| ||
Proceeds from debt financings, net of discounts |
| — |
|
|
| 76,715 |
|
Proceeds from construction finance liabilities |
| — |
|
|
| 7,047 |
|
Proceeds from equity exercises |
| — |
|
|
| 19,346 |
|
Payments on notes payable |
| (4,828 | ) |
|
| (2,486 | ) |
Payments on private placement notes |
| — |
|
|
| (1,874 | ) |
Payments on finance lease obligations |
| (3,895 | ) |
|
| (3,205 | ) |
Payments on construction finance liabilities |
| (562 | ) |
|
| (636 | ) |
Payments for debt issuance costs |
| — |
|
|
| (189 | ) |
Payments for taxes related to net share settlement of equity awards |
| — |
|
|
| (230 | ) |
Distributions |
| (50 | ) |
|
| (50 | ) |
Net cash (used in) provided by financing activities |
| (9,335 | ) |
|
| 94,438 |
|
Net decrease in cash and cash equivalents |
| (57,715 | ) |
|
| (52,238 | ) |
Cash, cash equivalents, and restricted cash, beginning of period |
| 213,792 |
|
|
| 229,644 |
|
Cash and cash equivalents of discontinued operations, beginning of period |
| 5,702 |
|
|
| 4,015 |
|
Less: cash and cash equivalents of discontinued operations, end of period |
| (1,835 | ) |
|
| (14,881 | ) |
Cash, cash equivalents, and restricted cash, end of period | $ | 159,944 |
|
| $ | 166,540 |
|
4
TRULIEVE CANNABIS CORP.
Condensed Consolidated Statements of Cash Flows (Unaudited) (Continued)
(in thousands)
|
| Six Months Ended |
|
| Six Months Ended |
| |||||||||
|
| (unaudited) |
| Six Months Ended |
|
| Six Months Ended |
| |||||||
Supplemental disclosure of cash flow information |
|
|
|
|
|
|
|
|
|
| |||||
Cash paid during the period for |
|
|
|
|
|
|
|
|
|
| |||||
Interest |
| $ | 35,281 |
|
| $ | 15,047 |
| $ | 41,121 |
|
| $ | 35,281 |
|
Income taxes, net of refunds |
| $ | 104,261 |
|
| $ | 79,950 |
| $ | 121,009 |
|
| $ | 104,261 |
|
Other noncash investing and financing activities |
|
|
|
|
|
|
|
|
| ||||||
ASC 842 lease additions - operating and finance leases |
| $ | 30,383 |
|
| $ | 29,291 |
| $ | 10,410 |
|
| $ | 30,383 |
|
Purchases of property and equipment in accounts payable and accrued liabilities |
| $ | 10,084 |
|
| $ | 13,751 |
| $ | 2,682 |
|
| $ | 10,084 |
|
Shares issued for acquisitions |
| $ | — |
|
| $ | 10,000 |
| |||||||
Adjustment to PurePenn, LLC and Keystone Relief Centers, LLC contingent consideration |
| $ | — |
|
| $ | 2,800 |
| |||||||
Noncash partial extinguishment of construction finance liability | $ | 18,486 |
|
| $ | — |
|
*The condensed consolidated statements of cash flows include continuing operations and discontinued operations for the six months ended June 30, 2023 and 2022.
| Six Months Ended |
|
| Six Months Ended |
|
| ||
Beginning of period: |
|
|
|
|
|
| ||
Cash and cash equivalents | $ | 207,185 |
| (1) | $ | 226,631 |
| (3) |
Restricted cash |
| 6,607 |
|
|
| 3,013 |
|
|
Cash, cash equivalents and restricted cash | $ | 213,792 |
|
| $ | 229,644 |
|
|
|
|
|
|
|
|
| ||
End of period: |
|
|
|
|
|
| ||
Cash and cash equivalents | $ | 152,369 |
| (2) | $ | 166,540 |
| (4) |
Restricted cash |
| 7,575 |
|
|
| — |
|
|
Cash, cash equivalents and restricted cash | $ | 159,944 |
|
| $ | 166,540 |
|
|
(1) Excludes $5.7 million attributable to discontinued operations.
(2) Excludes $1.8 million attributable to discontinued operations.
(3) Excludes $4.0 million attributable to discontinued operations.
(4) Excludes $14.9 million attributable to discontinued operations.
The accompanying notes are an integral part of these condensed consolidated financial statements.
6
Trulieve Cannabis Corp.
Notes to Condensed Consolidated Financial Statements
NOTE 1. NATURE OF BUSINESS
Trulieve Cannabis Corp. together with its subsidiaries (“Trulieve", the “Company”) was incorporated in British Columbia, Canada. Trulieve is a vertically integrated cannabis company which, as of June 30, 2022, held licenses to operate in Florida, California, Connecticut, Pennsylvania, Massachusetts, West Virginia, Arizona, Colorado, Maryland, Nevada, and Ohio, to cultivate, produce, and sell medicinal-use cannabis products, and with respect to Arizona, California, Colorado, Nevada, and Massachusetts, adult-use cannabis products, and have received notice of intent to award a license in Georgia.
In addition to the States listed above, the Company also conducts activities in other markets. In these markets, the Company has either applied for licenses, plans on applying for licenses, or partners with other entities, but does not currently directly own any cultivation, production, or retail licenses.
In July 2018, Trulieve, Inc. entered into a non-binding letter agreement (“Letter Agreement”) with Schyan Exploration Inc. (“Schyan”) whereby Trulieve, Inc. and Schyan have agreed to merge their respective businesses resulting in a reverse takeover of Schyan by Trulieve, Inc. and change the business of Schyan from a mining issuer to a cannabis issuer (the “Schyan Transaction”). The Schyan Transaction was completed in August 2018 and Schyan changed its name to Trulieve Cannabis Corp.
The Company’s principal address is located in Quincy, Florida. The Company’s registered office is located in British Columbia. The Company's operations are substantially located in Florida and to a lesser extent Arizona and Pennsylvania.
The Company is listed on the Canadian Securities Exchange (the “CSE”) and began trading on September 25, 2018, under the ticker symbol “TRUL” and trades on the OTCQX market under the symbol “TCNNF”.
75
NOTE 2.1. BASIS OF PRESENTATION
Principles of consolidation
The accompanying unaudited condensed consolidated financial statements include the financial position and operations of Trulieve Cannabis Corp., ("Trulieve" and, together with its subsidiaries. The condensed consolidated financial statements weresubsidiaries and variable interest entities, the "Company," "our," or "us") has been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information and, therefore, do not include the assets, liabilities, revenues,all financial information and expenses of all wholly-owned subsidiaries and variable interest entities ("VIEs")footnotes required by GAAP for which the Company has determined that it is the primary beneficiary. Outside shareholders' interests in subsidiaries are shown in the condensed consolidatedcomplete financial statements as non-controlling interests. Material intercompany balances and transactions are eliminated in consolidation.statements. In management's opinion, the condensed consolidated financial statements include all adjustments of a normal recurring nature necessary to fairly present the Company's financial position as of June 30, 2022,2023, and the results of its operations and cash flows for the periods ended June 30, 20222023 and June 30, 2021.2022. The results of the Company's operations for the six months ended June 30, 20222023 are not necessarily indicative of the results to be expected for the full 20222023 fiscal year.
The accompanying unaudited condensed consolidated financial data presented hereinstatements should be read in conjunction with the audited consolidated financial statements for Trulieve Cannabis Corp. and accompanyingthe notes as of andthereto, included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021, as reported2022, filed with the Securities and Exchange Commission ("SEC") on March 8, 2023 (the "2022 Form 10-K").
Discontinued Operations
During the three months ended June 30, 2023, the Company determined to exit our operations in Massachusetts which represented a strategic shift in the 2021 Annual Reportbusiness. The related assets and liabilities associated with the Company's discontinued operations are classified as discontinued operations on Form 10-K.the condensed consolidated balance sheets and the results of our discontinued operations have been presented as discontinued operations within the condensed consolidated statements of operations for all periods presented. Unless specifically noted otherwise, footnote disclosures reflect the results of continuing operations only. The results of discontinued operations are presented in Note 16. Discontinued Operations.
Basis of MeasurementReclassifications
TheseCertain reclassifications have been made to the condensed consolidated financial statements have been prepared on the going concern basis, under the historical cost convention, except for certain financial instruments that are measured at fair value as described herein.
Functional Currency
The functional currencyof prior periods and of the Company and its subsidiaries, as determined by management, isaccompanying notes to conform to the United States (“U.S.”) dollar. These condensed consolidated financial statements are presented in U.S. dollars.current period presentation.
NOTE 3.2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Company’s significant accounting policies are more fully described in Note 3. Summary of Significant Accounting Policies in the consolidated financial statements included in the Annual Report on Form 10-K for the fiscal year ended December 31, 2021, filed with the Securities and Exchange Commission ("SEC") on March 30, 2022 (the "2021 Form 10-K").2022. There have been no material changes to the Company’s significant accounting policies.
Critical accounting estimates and judgments
The preparation of the condensed consolidated financial statements with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Significant estimates in the condensed consolidated financial statements, include, but are not limited to, accounting for acquisitions and business combinations; initial valuation and subsequent impairment testing of goodwill, other intangible assets, and long-lived assets; leases; fair value of financial instruments, income taxes; inventory; share-based payment arrangements, and commitment and contingencies. Actual results may differ from these estimates. Estimates and underlying assumptions are reviewed on an ongoing basis.
Cash and Cash Equivalents
The Company considers cash deposits and all highly liquid investments with an original maturity of three months or less to be cash equivalents. Cash and cash equivalents include cash deposits in financial institutions plus cash held at retail locations. Cash held in money market investments are carried at market value which approximates fair value and cash held in financial institutions and held at retail locations, have carrying values that approximate fair value.
Restricted Cash
Restricted cash balances are those which meet the definition of cash and cash equivalents but are not available for use by the Company. As of December 31, 2021, restricted cash was $3.0 million, which represented cash consideration set aside in relation to amounts held for a pending legal dispute. The restriction on this cash was released in January 2022 as the litigation was settled in December 2021. There was 0 restricted cash as of June 30, 2022.
8
Held for sale
The Company classifies long-lived assets or disposal groups and related liabilities as held-for-sale when management having the appropriate authority, generally the Company's Board of Directors or certain Executive Officers, commits to a plan of sale, the disposal group is ready for immediate sale, an active program to locate a buyer has been initiated and the sale is probable and expected to be completed within one year. Once classified as held-for-sale, disposal groups are valued at the lower of their carrying amount or fair value less estimated selling costs. Depreciation on these properties is discontinued at the time they are classified as held for sale, but operating revenues, operating expenses and interest expense continue to be recognized until the date of disposal.
As of June 30, 2022, the Company had $9.7 million in net assets held for sale which is recorded in prepaidsPrepaid and other current assets in the condensed consolidated balance sheets, and primarily consists of property and equipment, and leases and related liabilities. As of December 31, 2021, the Company had $8.7 million in net assets held for sale which is recorded in prepaid expenses and other current assets in the consolidated balance sheets, and primarily consisted of property and equipment, leases and related liabilities, and a note payable.
During the three months ended June 30, 2022,2023, escrow of $22.5 million was released related to the Company settled netsettlement of previous litigation which was previously recorded to prepaid and other current assets, of which $2.017.0 million for a loss on sale of less thanwas paid in cash and $0.15.5 million recorded in loss on disposalwas relieved.
Fair Value of non-operatingFinancial Instruments
The Company applies the following fair value hierarchy, which prioritizes the inputs used to measure fair value into three levels, and bases the categorization within the hierarchy upon the lowest level of input that is available and significant to the fair value measurement:
Level 1 – | Observable inputs based on unadjusted quoted prices in active markets for identical assets or liabilities; |
Level 2 – | Inputs other than quoted prices in active markets, which are observable for the asset or liability, either directly or indirectly; and |
Level 3 – | Unobservable inputs for which there is little or no market data requiring the Company to develop its own assumptions. |
6
The fair values of financial instruments by class are as follows as of June 30, 2023 and December 31, 2022:
| June 30, 2023 |
| December 31, 2022 |
| ||||||||||||||||||||
| Level 1 |
| Level 2 |
| Level 3 |
| Total |
| Level 1 |
| Level 2 |
| Level 3 |
| Total |
| ||||||||
| (in thousands) |
| ||||||||||||||||||||||
Financial Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Money market funds (1) | $ | 95,545 |
| $ | — |
| $ | — |
| $ | 95,545 |
| $ | 340 |
| $ | — |
| $ | — |
| $ | 340 |
|
Financial Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Interest rate swap (2) | $ | — |
| $ | 1,544 |
| $ | — |
| $ | 1,544 |
| $ | — |
| $ | 2,536 |
| $ | — |
| $ | 2,536 |
|
Warrant liabilities (3) | $ | — |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
| $ | 252 |
| $ | — |
| $ | 252 |
|
There have been no transfers between hierarchy levels during the periods ending June 30, 2023 or December 31, 2022.
Recently Issued Accounting Pronouncements
Recent accounting pronouncements, other than those below, issued by the Financial Accounting Standards Board ("FASB"), the AICPA ("American Institute of Certified Public Accountants") and the SEC did not or are not believed by management to have a material effect on the Company’s present or future financial statements.
In October 2021, the FASB issued ASU No. 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers (“ASU 2021-08”), which requires an acquirer to recognize and measure contract assets and liabilities acquired in a business combination in accordance with Revenue from Contracts with Customers (“Topic 606”) rather than adjust them to fair value at the acquisition date. The Company elected to early adopt this accounting standard in the fourth quarter of 2021, with retrospective application to business combinations that occurred in fiscal year 2021. Results of operations for quarterly periods prior to September 30, 2021 remain unchanged as a result of the adoption of ASU No. 2021-08. The acquisitions of Harvest Health and Recreation Inc. and Purplemed Healing Center were accounted for in accordance with ASU 2021-08, as will all future acquisitions. Refer to Note 4. Acquisitions for further information. The adoption of this standard did not have a material impact on the consolidated financial statements.
NOTE 4. ACQUISITIONS
(a) Greenhouse Wellness WV Dispensaries, LLC
On April 26, 2022, the Company acquired 100% of the membership interests of Greenhouse Wellness WV Dispensaries, LLC (“Greenhouse WV”) the holder of a West Virginia dispensary permit and a lease for a not yet operating dispensary location. The Company analyzed the acquisition under ASU 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business, determining Greenhouse WV did not meet the definition of a business as Greenhouse WV did not have inputs, processes, and outputs in place that constituted a business under Topic 805. As a result, the transaction has been accounted for as an asset acquisition whereby all of the assets acquired and liabilities assumed are assigned a carrying amount based on relative fair values. Total consideration was $0.3 million consisting of cash.
9
The following table summarizes the allocation of consideration exchanged for the estimated fair value of tangible and identifiable intangible assets acquired and liabilities assumed:
(in thousands) |
|
|
| |
Consideration: |
|
|
| |
Cash |
| $ | 281 |
|
Fair value of consideration exchanged |
| $ | 281 |
|
Recognized amounts of identifiable assets acquired and liabilities assumed: |
|
|
| |
Right of use asset - operating |
| $ | 170 |
|
Intangible asset |
|
| 270 |
|
Favorable lease interest |
|
| 11 |
|
Operating lease liabilities |
|
| (170 | ) |
Total net assets acquired |
| $ | 281 |
|
The acquired intangible assets includes a dispensary license which is treated as a definite-lived intangible asset amortized over a 15-year useful life and a favorable lease interest which was fully amortized in the period of acquisition due to useful life and materiality considerations.
(b) CP4 Group, LLC
On February 14, 2022, the Company acquired a cultivation operation from CP4 Group, LLC, in Phoenix, Arizona ("Watkins"). Total consideration was $27.5 million paid in cash. An additional $22.5 million was paid into escrow for four potential earnouts. The earnouts are based on the completion of certain milestones and contingent on the continued employment of the key employee shareholders ("Key Employees") of Watkins. As the earnouts are contingent on the continued employment of the Key Employees, the $22.5 million is compensation for post-combination services. The Company will accrue the compensation cost for each earnout as it becomes probable and estimable and over the most probable period of continued employment required for the specific earnouts.
The Company reviewed the potential earnouts concluding three are probable and estimable as of June 30, 2022, recording an accrual of $7.3 million in contingencies in the condensed consolidated balance sheets. DuringIn November 2022 the Company entered into an interest rate swap contract ("VNB Swap") for the purpose of hedging the variability of interest expense and interest payments on the Company's long-term variable debt. The VNB Swap is carried at fair value which is based on a valuation model that utilizes interest rate yield curves and credit spreads observable in active markets as the significant inputs to the model. The Company considers credit risk associated with its own standing as well as the credit standing of any counterparties involved in the valuation of its financial instruments.
Deferred Revenue5.2
million of expense related to potential earnouts. During the sixthree months ended June 30, 2022, the Company expensed $7.3 million related to potential earnouts. This is recorded in sales and marketing expenses in the condensed consolidated statements of operations and comprehensive (loss) income. NaN liability was recorded for the fourth earnout as it was concluded to be reasonably possible but not probable as of June 30, 2022. The earnouts are evaluated on a quarterly basis. The Company incurred $0.2 million of transaction costs related to the acquisition of Watkins. These costs were expensed as incurred and included in general and administrative expenses in the condensed consolidated statements of operations and comprehensive (loss) income for the quarter ended March 31, 2022. NaN additional transaction costs were incurred during the quarter ended June 30, 2022.
The Company analyzed the acquisition under ASU 2017-01, Business Combinations(Topic 805): Clarifying the Definition of a Business, determining Watkins met the definition of a business as Watkins is an existing cultivation facility with inputs, processes, and outputs in place that constitute a business under Topic 805. As a result, the acquisition of Watkins has been accounted for as a business combination. Goodwill represents the premium2023, the Company paid overterminated the fair value of the net tangible assets acquired. The primary reason for the acquisition was to expand the Company's cultivation capacity in Arizona. The goodwill of $24.5 million arising from the acquisition primarily consists of the economies of scale expected from a vertical cannabis market in Arizona.
10
The following table summarizes the allocation of consideration exchanged for the estimated fair value of tangible assetsloyalty program associated with dispensaries acquired and liabilities assumed:
(in thousands) |
|
|
| |
Consideration |
|
|
| |
Cash |
| $ | 27,500 |
|
Fair value of consideration exchanged |
| $ | 27,500 |
|
Recognized amounts of identifiable assets acquired and liabilities assumed: |
|
|
| |
Inventories |
| $ | 2,266 |
|
Property and equipment |
|
| 692 |
|
Right of use asset - operating |
|
| 4,737 |
|
Goodwill |
|
| 24,542 |
|
Operating lease liability |
|
| (4,737 | ) |
Total net assets acquired |
| $ | 27,500 |
|
(c) Purplemed Healing Center
On December 28, 2021, the Company acquired 100% of certain assets of Purplemed Healing Center ("Purplemed") including the Medical Marijuana Dispensary License issued by the Arizona Department of Health Services ("ADHS") and the Marijuana Establishment License issued by the ADHS which collectively serve as the Purplemed license providing the ability to operate a marijuana retail sales dispensary as well as the assumption of the associated lease. The Company also acquired the right to operate an additional offsite cultivation business under the Arizona Adult Use Marijuana Act, and the option to purchase full ownership and management of Greenmed, Inc., the Greenmed license, and the Greenmed dispensary. As part of the transaction, the Company assumed the Purplemed loyalty program.
The Company analyzed the acquisition under ASU 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business, determining Purplemed did not meet the definition of a business as Purplemed did not have inputs, processes, and outputs in place that constituted a business under Topic 805. As a result, the acquisition of Purplemed has been accounted for as an asset acquisition, whereby all of the assets acquired and liabilities assumed are assigned a carrying amount based on relative fair values. The total consideration was $15.0 million consisting of cash. The acquisition provided for indemnity for pre-closing liabilities. Accordingly, the Company recognized an indemnification asset of $0.5 million offset by associated liabilities based on the information that was available at the date of the acquisition, which is included in the net assets acquired.
The net assets were acquired for an aggregate purchase price of $15.0 million.
(in thousands) |
|
|
| |
Consideration: |
|
|
| |
Cash |
| $ | 15,000 |
|
Transaction costs |
|
| 12 |
|
Fair value of consideration exchanged |
| $ | 15,012 |
|
Recognized amounts of identifiable assets acquired and liabilities assumed: |
|
|
| |
Prepaid expenses and other current assets |
| $ | 531 |
|
Right of use asset - operating |
|
| 271 |
|
Intangible asset |
|
| 15,076 |
|
Other current liabilities |
|
| (531 | ) |
Deferred revenue |
|
| (109 | ) |
Operating lease liability |
|
| (226 | ) |
Total net assets acquired |
| $ | 15,012 |
|
The acquired intangible asset includes a dispensary license which is treated as a definite-lived intangible asset amortized over a 15-year useful life.
11
(d) Harvest Health & Recreation Inc.
On October 1, 2021, (the “Closing Date”), the Company acquired 100% of the common shares of Harvest Health & Recreation, Inc. (“Harvest”) and its portion of VIEs in exchange for Subordinate Voting Shares of the Company (the “Harvest Transaction”).
Harvest was one of the largest multi-state vertically integrated operators in the cannabis industry in the United States operating from “seed to sale." Harvest operated facilities or provided services to cannabis dispensaries in Arizona, California, Colorado, Florida, Maryland, Nevada, and Pennsylvania, with two provisional licenses in Massachusetts. In addition, Harvest owned CO2 extraction, distillation, purification, and manufacturing technology used to produce a line of cannabis topicals, vapes, and gems featuring cannabinoids.
Total consideration was $1.4 billion consisting of Trulieve Subordinate Voting Shares (“Trulieve Shares”) with a fair value of $1.37 billion, stock options, equity classified warrants, restricted stock units and other outstanding equity instruments with a fair value of $18.4 million, and warrant liabilities convertible into equity with a fair value of $3.1 million at the time of the Harvest Transaction. The Company incurred $13.0 million in transaction costs related to the acquisition of Harvest as of December 31, 2021. NaN additional transaction costs have been incurred.
The acquisition was accounted for as a business combination in accordance with Accounting Standards Codification (ASC) 805, Business Combinations. Goodwill represents the premium the Company paid over the fair value of the net tangible and intangible assets acquired. The primary reason for the acquisition was to expand the Company’s retail and cultivation footprint and gain access to new markets. The goodwill of $662.1 million arising from the acquisition primarily consisted of the synergies and economies of scale expected from combining the operations of Trulieve and Harvest including growing the Company's customer base, acquiring assembled workforces, and expanding its presence in new and existing markets. These benefits were not recognized separately from goodwill because they do not meet the recognition criteria for identifiable intangible assets.
12
The following table summarizes the allocation of consideration exchanged for the estimated fair value of tangible and identifiable intangible assets acquired and liabilities assumed:
(in thousands) |
|
|
| |
Consideration: |
|
|
| |
Trulieve Subordinated Voting Shares |
| $ | 1,369,024 |
|
Fair value of other equity instruments |
|
| 18,394 |
|
Fair value of warrants classified as liabilities |
|
| 3,103 |
|
Fair value of consideration exchanged |
| $ | 1,390,521 |
|
Recognized amounts of identifiable assets acquired and liabilities assumed: |
|
|
| |
Cash and cash equivalents |
| $ | 85,318 |
|
Restricted cash |
|
| 3,072 |
|
Accounts receivable |
|
| 3,645 |
|
Inventories |
|
| 92,537 |
|
Prepaid expenses and other current assets |
|
| 100,129 |
|
Notes receivable |
|
| 9,805 |
|
Property and equipment |
|
| 191,801 |
|
Right of use assets - operating |
|
| 73,476 |
|
Intangible assets: |
|
|
| |
Dispensary license |
|
| 946,000 |
|
Trademarks |
|
| 27,430 |
|
Customer relationships |
|
| 3,500 |
|
Other assets |
|
| 5,289 |
|
Accounts payable and accrued liabilities |
|
| (58,887 | ) |
Income tax payable |
|
| (24,863 | ) |
Deferred revenue |
|
| (4,523 | ) |
Operating lease liabilities |
|
| (76,558 | ) |
Contingencies |
|
| (26,599 | ) |
Notes payable |
|
| (285,238 | ) |
Construction finance liabilities |
|
| (79,683 | ) |
Other long-term liabilities |
|
| (1,085 | ) |
Deferred tax liabilities |
|
| (253,986 | ) |
|
| $ | 730,580 |
|
Non-controlling interest |
| $ | (2,139 | ) |
Goodwill |
|
| 662,080 |
|
Total net assets acquired |
| $ | 1,390,521 |
|
The acquired intangible assets include dispensary licenses which are treated as definite-lived intangible assets amortized over a 15-year useful life, tradenames amortized over a one-to five-year useful life, and customer relationships amortized over a one-year period.
On acquisition date there was consideration in the form of 1,266,641 stock options (as converted) that had been issued before the acquisition date to employees and non-employees of Harvest. The pre-combination fair value of these awards was $6.2 million. There was consideration in the form of 1,011,095 warrants (1,009,416 equity classified Subordinate Voting Share warrants and 1,679 liability classified Multiple Voting Share warrants, as converted) that had been issued before the acquisition date to employees and non-employees of Harvest. The pre-combination fair value of these awards was $7.7 million with $4.6 million representing the equity classified warrants and $3.1 million representing the liability classified warrants. There was consideration in the form of restricted stock units that had been issued before the acquisition date to non-employees of Harvest which vested for services performed pre-combination, representing 18,297 Subordinate Voting Share, with a pre-combination fair value of $0.5 million. There
13
was additional consideration in the form of other outstanding equity instruments issued before the acquisition date to non-employees which had a pre-combination fair value of $7.1 million.
As part of the acquisition, Harvest entered into a sale agreement to sell their Florida cannabis license for $55.0 million where Trulieve was legally prohibited from holding this license and the sale occurred simultaneously with the Harvest Transaction. Therefore, a $55.0 million receivable for the sale proceeds was acquired. The funds were received subsequent to the closing of the Harvest Transaction on October 1, 2021.
The Company has not yet finalized their accounting for non-controlling interests on the acquired entities but has recorded preliminary entries in this area. Any subsequent adjustments would be expected to impact non-controlling interest and goodwill. This accounting will be finalized during the measurement period.
Supplemental pro forma information (unaudited)
The unaudited pro forma information for the periods set forth below gives effect to the acquisition of Harvest Health & Recreation, Inc. and Keystone Shops, as if the acquisitions had occurred on January 1,("Harvest") in October 2021. This pro forma information is presented for informational purposes only and is not necessarily indicativeAs a result of the resultstermination of operations that would have been achieved had the transactions been consummated asloyalty program at certain dispensaries, the Company recorded a reduction in the accrual of that time nor does it purport to be indicative$4.7 million in revenue, net of future financial operating results.
Proforma net revenues fordiscounts in the three and six months endingcondensed consolidated statements of operations. As of June 30, 2021 are2023 and December 31, 2022, the loyalty liability totaled $323.05.1 million and $610.98.9 million, respectively. Proforma net incomerespectively, and comprehensive income attributable to common shareholders foris included in deferred revenue on the three and six months endingcondensed consolidated balance sheets. Included within deferred revenue as of June 30, 20212023 and December 31, 2022 are customer credit balances of $17.80.7 million and $15.30.5 million, respectively.
Unaudited pro forma net income reflects the eliminationImpairment of sales between the companies, and adjustments for alignment of significant differences in accounting principles and elections.Long-Lived Assets
(e) Keystone Shops
The Company reviews long-lived assets, including property and equipment, definite life intangible assets, and right-of-use assets for impairment whenever events or changes in circumstances indicate that the
On July 8, 2021,Company acquired 100% of the membership interests of Anna Holdings, LLC, the sole member of Chamounix Ventures, LLC which holds a permit to operate dispensaries under Keystone Shops (“Keystone Shops”) with locations in Philadelphia, Devon, and King of Prussia, Pennsylvania. Total consideration was $55.6 million consisting of $20.3 million in cash, inclusive of net working capital adjustments, and 1,009,336 in Trulieve Shares with a faircarrying value of $35.4 million. The agreement provides for an additional $5.0 million in consideration which is contingent on the enactment, adoption or approval of laws allowing for adult-use cannabis in Pennsylvania. NaN liability was recorded for this contingent consideration, as it was not estimated to be probable at the time of acquisition nor as of June 30, 2022. The acquisition was accounted for as a business combination in accordance with ASC 805, Business Combinations. Goodwill arose because the consideration paid for the business acquisition reflected the benefit of expected revenue growth and future market development.
14
The following table summarizes the allocation of consideration exchanged for the estimated fair value of tangible and identifiable intangible assets acquired and liabilities assumed:
(in thousands) |
|
|
| |
Consideration: |
|
|
| |
Cash |
| $ | 20,251 |
|
Shares issued upon acquisition |
|
| 35,385 |
|
Fair value of consideration exchanged |
| $ | 55,636 |
|
Recognized amounts of identifiable assets acquired and liabilities assumed: |
|
|
| |
Cash |
| $ | 500 |
|
Inventories |
|
| 1,766 |
|
Prepaid expenses and other current assets |
|
| 240 |
|
Property and equipment |
|
| 1,144 |
|
Right of use asset - finance |
|
| 1,340 |
|
Intangible assets |
|
|
| |
Dispensary license |
|
| 27,000 |
|
Tradename |
|
| 100 |
|
Favorable leasehold interests, net |
|
| 86 |
|
Goodwill |
|
| 39,703 |
|
Other assets |
|
| 40 |
|
Accounts payable and accrued liabilities |
|
| (878 | ) |
Income tax payable |
|
| (2,892 | ) |
Operating lease liabilities |
|
| (1,340 | ) |
Other long-term liabilities |
|
| (2,179 | ) |
Deferred tax liability |
|
| (8,994 | ) |
Total net assets acquired |
| $ | 55,636 |
|
The acquired intangible assets include a dispensary license which is treated as a definite-lived intangible asset amortized over a 15-year useful life, as well as tradename and net favorable leasehold interests which were fully amortized in the period of acquisition due to useful life and materiality considerations.
(f) Nature’s Remedy of Massachusetts, Inc.
On June 30, 2021, the Company completed an asset purchase agreement whereby Trulieve acquired a licensed, butmay not yet operating, adult-use dispensary location from Nature’s Remedy of Massachusetts, Inc. (“Nature’s Remedy”). The Company analyzed the acquisition under ASU 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business, determining Nature’s Remedy did not meet the definition of a business as Nature’s Remedy did not have inputs, processes, and outputs in place that constituted a business under Topic 805. As a result, the acquisition of Nature’s Remedy has been accounted for as an asset acquisition, whereby all of the assets acquired and liabilities assumed are assigned a carrying amount based on relative fair values. Total consideration was $16.2 million consisting of $7.0 million in cash and 237,881 in Trulieve Shares, with a fair value of $9.1 million, and less than $0.1 million in transaction costs.be recoverable.
15
The following table summarizesDuring the allocation of consideration exchanged forthree months ended March 31, 2023, the estimated fair value of tangible and identifiableCompany determined that certain long-lived assets, including intangible assets, acquiredin Massachusetts were impaired due to the competitive environment in the Massachusetts cannabis industry. The Company utilized a cost approach for its impairment testing of property and liabilities assumed:equipment resulting in an impairment of $30.3 million, of which $27.6 million relates to discontinued operations and recorded to net loss from discontinued operations, net of tax benefit, and $2.7 million relates to continuing operations recorded in impairment and disposal of long-lived assets, net in the condensed consolidated statements of operations, respectively.
(in thousands) |
|
|
| |
Consideration: |
|
|
| |
Cash |
| $ | 7,000 |
|
Shares issued upon acquisition |
|
| 9,139 |
|
Transaction costs |
|
| 23 |
|
Fair value of consideration exchanged |
| $ | 16,162 |
|
Recognized amounts of identifiable assets acquired and liabilities assumed: |
|
|
| |
Prepaid expenses and other current assets |
| $ | 12 |
|
Property and equipment |
|
| 1,006 |
|
Right of use asset - finance |
|
| 799 |
|
Intangible assets |
|
| 15,274 |
|
Accounts payable and accrued liabilities |
|
| (335 | ) |
Finance lease liability |
|
| (594 | ) |
Total net assets acquired |
| $ | 16,162 |
|
The acquired intangible asset is represented byDuring the adult-use license and is treated as a definite-lived intangible asset amortized over a 15-year useful life.
(g) Patient Centric of Martha's Vineyard
On July 2, 2021,three months ended June 30, 2023, the Company acquired certain assetsdid not identify any events or changes in circumstances providing indication of Patient Centric of Martha’s Vineyard (“PCMV”) including the rights to a Provisional Marijuana Retailers License from the Massachusetts Cannabis Control Commission, the right to exercise an option held by PCMV to lease real property in Framingham, Massachusetts for use as a marijuana retailer, and necessary municipal entitlements to operate as a marijuana retailer at the property. Total consideration was 258,383 in Trulieve Shares, of which 10,879 are subject to a holdback for six months as security for any indemnity claims byimpairment, other than the Company underdiscontinuing its operations in Massachusetts in the asset purchase agreement. The fair valuenormal course of the equity exchanged was $business.10.0
million. The Company analyzed the acquisition under ASU 2017-01, Business Combinations (Topic 805): Clarifying the DefinitionImpairment of a Business, determining PCMV did not meet the definition of a business as PCMV did not have inputs, processes, and outputs in place that constituted a business under Topic 805. As a result, the acquisition of PCMV has been accounted for as an asset acquisition, whereby all of the assets acquired and liabilities assumed are assigned a carrying amount based on relative fair values.Goodwill
The following table summarizesCompany operates as one operating segment and reporting unit and therefore, evaluates goodwill for impairment as one singular reporting unit annually during the allocation of consideration exchanged forfourth quarter or more often when an event occurs, or circumstances indicate the estimated faircarrying value of tangible and identifiable intangible assets acquired and liabilities assumed:may not be recoverable.
(in thousands) |
|
|
| |
Consideration: |
|
|
| |
Shares issued upon acquisition |
| $ | 10,012 |
|
Transaction costs |
|
| 18 |
|
Fair value of consideration exchanged |
| $ | 10,030 |
|
Recognized amounts of identifiable assets acquired and liabilities assumed: |
|
|
| |
Right of use asset - finance |
| $ | 1,756 |
|
Intangible asset |
|
| 10,594 |
|
Finance lease liabilities |
|
| (2,320 | ) |
Total net assets acquired |
| $ | 10,030 |
|
167
The acquired intangible asset is represented by the adult-use license and is treated as a definite-lived intangible asset amortized over a 15-year useful life.
(h) Solevo Wellness West Virginia, LLC
On June 8, 2021, the Company acquired 100% of the membership interests of Solevo Wellness West Virginia, LLC (“Solevo WV”) which holds three West Virginia dispensary licenses. The Company analyzed the acquisition under ASU 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business, determining Solevo WV did not meet the definition of a business as substantially alldetermination of the fair value of the gross assets acquired are concentratedreporting unit requires us to make significant estimates and assumptions. Due to the inherent uncertainty involved in making these estimates, actual future results could differ. Changes in assumptions regarding future results or other underlying assumptions could have a single identifiable asset. Therefore, the transaction has been accounted for as an asset acquisition. Total consideration was $0.8 million consisting of $0.2 million in cash, 11,658 in Trulieve Shares with a fair value of $0.4 million, $0.1 million in debt forgiveness and less than $0.1 million in transaction costs. The consideration of $0.8 million was allocated to acquired assets of $0.8 million, which are treated as definite-lived intangible assets amortized over a 15-year useful life.
(i) Mountaineer Holding, LLC
On May 6, 2021, the Company acquired 100% of the membership interests of Mountaineer Holding LLC (“Mountaineer”) which holds a cultivation permit and two dispensary permits in West Virginia. The Company analyzed the acquisition under ASU 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business, determining Mountaineer did not meet the definition of a business as substantially all ofsignificant impact on the fair value of the reporting unit.
The discounted cash flow model, or the income approach, reflects our estimates of future cash flows and other factors including estimates of future operating performance, including future revenue, long-term growth rates, gross assets acquired are concentratedmargins, capital expenditures, discount rates and the probability of achieving the estimated cash flows, among others.
In addition to the income approach, the Company also employs the market approach in a single identifiable asset. Therefore,its goodwill impairment testing. Under the transaction has been accounted formarket approach, the Company estimates the fair value based upon multiples of comparable public companies. Significant estimates in the market approach include identifying similar companies with comparable business factors such as an asset acquisition. Total consideration was $5.5 million, consisting of $3.0 millionsize, growth, profitability, risk and return on investment, as well as assessing comparable market multiples in cash and 60,342 in Trulieve Shares with aestimating the fair value of the reporting unit.
During the three months ending March 31, 2023, the Company continued to experience a decline in its stock price resulting in the total market value of its common stock outstanding ("market capitalization") being less than the carrying value of the reporting unit. Management believes this decline in market value is due to a variety of factors, as further described below. In light of the circumstances and indicators of potential impairment described above, management performed an interim quantitative goodwill impairment test as of March 31, 2023. Management first considered whether any impairment was present for the Company’s long-lived assets, concluding that no such impairments were present after conducting an undiscounted cash flow recoverability test, except for in the Massachusetts market as detailed above. In comparing the estimated fair value of the reporting unit to its carrying value, the Company utilized a weighted average valuation using the discounted cash flow model and the market approach. The results of the Company’s interim test for impairment as of March 31, 2023 concluded that the estimated fair value of the reporting unit exceeded the carrying value, resulting in no impairment.
During the three months ended June 30, 2023, the Company continued to experience a declined stock price resulting in the market capitalization being less than the carrying value of the reporting unit. The Company updated the March 31, 2023 valuation, as of June 30, 2023, with no impairment identified finding all inputs, including but not limited to future operating performance, gross margins, probability of achieving cash flows, and multiples of comparable public companies, either maintained consistency or trended positively for the three months ended June 30, 2023. Furthermore, the Company performed a sensitivity test on the income approach updating for the exit of the Massachusetts operations identifying the Massachusetts exit accretive to earnings as the Massachusetts assets were underperforming. However, the Company concluded the sustained stock price decline as a triggering event to perform an interim quantitative goodwill impairment test, as of June 30, 2023, specific to the stock price decline and resulting market capitalization of the Company. As the sole risk to the value of goodwill is the stock price, the Company concluded it most appropriate to transition to a market approach. The results of the Company’s interim test for impairment as of June 30, 2023, utilizing a market approach, indicated that the reporting unit's fair value fell below the carrying value. Based on the results of the goodwill impairment procedures, the Company recorded a $2.5 million. The consideration of $5.5307.6 million goodwill impairment for the single reporting unit during the three months ended June 30, 2023.
The Company finds the June 30, 2023 goodwill impairment is a result of the cannabis equity market including the reduced number of custodians to service cannabis equity holdings, negative investor sentiment due to lack of progress on federal reform, and more challenging macroeconomic conditions driving lower cannabis stock prices as of June 30, 2023. The Company finds this is not a negative indicator of historic or current operating results and not a negative indicator of future performance as the Company has been allocatedtaken steps to shed underperforming assets while focusing on cash conservation which is reflective in the $results of operations as of June 30, 2023. Additionally, the resulting non-cash charge has no impact on the Company’s compliance with debt covenants, its cash flows, or available liquidity.5.5 million of acquired assets which are treated as definite-lived intangible assets and amortized over a 15-year useful life.
NOTE 5.3. ACCOUNTS RECEIVABLE
AsAccounts receivable consisted of the following as of June 30, 20222023 and December 31, 2021, Accounts receivable, net consisted of the following:2022:
|
| June 30, 2022 |
|
| December 31, 2021 |
| June 30, 2023 |
| December 31, 2022 |
| ||||
|
| (in thousands) |
| (in thousands) |
| |||||||||
Trade receivables |
| $ | 13,453 |
|
| $ | 9,363 |
| $ | 9,846 |
| $ | 8,482 |
|
Less: allowance for credit losses |
|
| (1,597 | ) |
|
| (509 | ) |
| (2,833 | ) |
| (1,975 | ) |
Accounts receivable, net |
| $ | 11,856 |
|
| $ | 8,854 |
| $ | 7,013 |
| $ | 6,507 |
|
178
NOTE 6.4. NOTES RECEIVABLE
AsNotes receivable consisted of the following as of June 30, 20222023 and December 31, 2021, 2022:Notes receivable, net consisted of the following:
|
| June 30, |
|
| December 31, |
| ||
|
| (in thousands) |
| |||||
Promissory note acquired from Harvest maturing in November 2025. Secured by certain assets. |
| $ | 8,491 |
|
| $ | 8,827 |
|
Convertible note receivable dated November 2021 maturing in November 2024. |
|
| 4,381 |
|
|
| 4,124 |
|
Promissory notes acquired from Harvest maturing in February 2022. Secured by certain assets. |
|
| — |
|
|
| 850 |
|
Notes receivable |
|
| 12,872 |
|
|
| 13,801 |
|
Less: discount on notes receivable |
|
| (105 | ) |
|
| (124 | ) |
Total notes receivable, net of discounts |
|
| 12,767 |
|
|
| 13,677 |
|
Less: current portion of notes receivable |
|
| (644 | ) |
|
| (1,530 | ) |
Notes receivable |
| $ | 12,123 |
|
| $ | 12,147 |
|
In October 2021, the Company acquired a note receivable with the Harvest acquisition. The note receivable was originally dated November 2020 maturing in
| June 30, |
| December 31, |
| Stated Interest Rate |
| Maturity Date | |||
| (in thousands) |
|
|
|
| |||||
Promissory note acquired in October 2021 (1) | $ | 7,847 |
| $ | 8,205 |
|
| 7.50 | % | 11/9/2025 |
Promissory note dated November 15, 2021 (2) |
| 4,830 |
|
| 4,602 |
|
| 9.75 | % | 11/14/2024 |
Notes receivable |
| 12,677 |
|
| 12,807 |
|
|
|
| |
Less: discount on notes receivable |
| (68 | ) |
| (87 | ) |
|
|
| |
Total notes receivable, net of discount |
| 12,609 |
|
| 12,720 |
|
|
|
| |
Less: current portion of notes receivable |
| (754 | ) |
| (728 | ) |
|
|
| |
Notes receivable, net | $ | 11,855 |
| $ | 11,992 |
|
|
|
|
In October 2021,are due to the Company acquired notes receivable with the Harvest acquisition. The notes receivable was originally dated in February 2021 and matured in monthly.
As part of the acquisition of Harvest,to the Company acquired $9.8 million in notes receivable on October 1, 2021. There were 0 notes receivable outstanding prior to October 1, 2021.
See Note 4. Acquisitions for further details of the Harvest acquisition.
In November 2021, the Company entered into a convertible note receivable agreement for a principal amount of $4.1 million that matures in November 2024. The note accrues interestuntil maturity. Interest is accrued monthly at 9.75%, and accrued interest is added to the principal balance at each quarter end. The note is convertible to equity of the holder at the Company's option at any time prior to maturity. Further, theThe note was issued atwith a nominal discount, resulting in an effective interest rate of 310.77% or.
During the three and six months ended June 30, 2023, the Company recorded interest income related to notes receivable of $0.10.3 million which is accreted to the note receivable balance over the term of the note.and $0.6
million, respectively. During the three and six months ended June 30, 2022, the Company recorded interest income of $0.3 million and $0.7 million, respectively. Interest income is recorded in other income (expense), net in the condensed consolidated statements of operations and comprehensive (loss) income, respectively. The Company had 0 accrued interest receivable as of June 30, 2022, and $0.1 million as of December 31, 2021, included in prepaid expenses and other current assets in the condensed consolidated balance sheets.operations.
18
Stated maturities of the notes receivable are as follows as of June 30, 2022:2023:
Year | Expected principal payments |
| |||||
|
| Expected principal payments |
| (in thousands) |
| ||
|
| (in thousands) |
| ||||
Remaining 2022 |
| $ | 286 |
| |||
2023 |
|
| 728 |
| |||
Six months ending December 31, 2023 | $ | 370 |
| ||||
2024 |
|
| 5,165 |
|
| 5,614 |
|
2025 |
|
| 6,693 |
|
| 6,693 |
|
2026 |
|
| — |
|
| — |
|
2027 |
| — |
| ||||
Thereafter |
|
| — |
|
| — |
|
Total |
|
| 12,872 |
|
| 12,677 |
|
Less: discount on notes receivable |
|
| (105 | ) |
| (68 | ) |
Total |
| $ | 12,767 |
| $ | 12,609 |
|
NOTE 7. INVENTORY5. INVENTORIES
Inventories are stated at the lower of cost or market. Costs associated with abnormal production volume are expensed as incurred. Inventories are comprised of the following as of June 30, 2023 and December 31, 2022:
| June 30, 2023 |
| December 31, 2022 |
| ||
| (in thousands) |
| ||||
Raw material |
|
|
|
| ||
Cannabis plants | $ | 17,064 |
| $ | 21,523 |
|
Packaging and supplies |
| 42,051 |
|
| 49,650 |
|
Total raw material |
| 59,115 |
|
| 71,173 |
|
Work in process |
| 134,167 |
|
| 158,448 |
|
Finished goods-unmedicated |
| 5,915 |
|
| 7,323 |
|
Finished goods-medicated |
| 53,588 |
|
| 39,561 |
|
Total inventories, net | $ | 252,785 |
| $ | 276,505 |
|
9
NOTE 6. PROPERTY AND EQUIPMENT
As of June 30, 20222023 and December 31, 2021, Inventories, net2022, property and equipment consisted of the following:
|
| June 30, 2022 |
|
| December 31, 2021 |
| ||
|
| (in thousands) |
| |||||
Raw material |
|
|
|
|
|
| ||
Cannabis plants |
| $ | 39,082 |
|
| $ | 31,279 |
|
Packaging and supplies |
|
| 44,847 |
|
|
| 40,326 |
|
Total raw material |
|
| 83,929 |
|
|
| 71,605 |
|
Work in process |
|
| 122,675 |
|
|
| 94,249 |
|
Finished goods-unmedicated |
|
| 8,251 |
|
|
| 4,824 |
|
Finished goods-medicated |
|
| 55,351 |
|
|
| 41,510 |
|
Total inventories |
| $ | 270,206 |
|
| $ | 212,188 |
|
| June 30, 2023 |
| December 31, 2022 |
| ||
| (in thousands) |
| ||||
Land | $ | 34,485 |
| $ | 38,485 |
|
Buildings and improvements |
| 514,711 |
|
| 497,493 |
|
Furniture and equipment |
| 288,831 |
|
| 277,164 |
|
Vehicles |
| 838 |
|
| 839 |
|
Total |
| 838,865 |
|
| 813,981 |
|
Less: accumulated depreciation |
| (163,269 | ) |
| (125,866 | ) |
Total property and equipment |
| 675,596 |
|
| 688,115 |
|
Construction in progress |
| 33,059 |
|
| 55,145 |
|
Total property and equipment, net | $ | 708,655 |
| $ | 743,260 |
|
The Company incurred the following expense related to property and equipment during the three and six months ended June 30, 2023:
|
| Three Months Ended June 30, | Six Months Ended June 30, | ||
| Statement of Operations | 2023 | 2022 | 2023 | 2022 |
|
| (in thousands) | |||
Capitalized interest | Interest expense | $(214) | $(1,160) | $(795) | $(2,640) |
Depreciation expense | Cost of goods sold and Depreciation and amortization | 19,334 | 18,587 | 38,331 | 32,685 |
Total |
| $19,120 | $17,427 | $37,536 | $30,045 |
|
| Three Months Ended June 30, | Six Months Ended June 30, | ||
| Statement of Operations | 2023 | 2022 | 2023 | 2022 |
|
| (in thousands) | |||
Loss on impairment | Impairments and disposals of long-lived assets, net | $— | $— | $2,712 | $330 |
Loss on disposal | Impairments and disposals of long-lived assets, net | 3,927 | 5,076 | 3,667 | 8,067 |
Total |
| $3,927 | $5,076 | $6,379 | $8,397 |
19
NOTE 8. PROPERTY & EQUIPMENT7. INTANGIBLE ASSETS
AsThe Company's definite-lived intangible assets consisted of the following as of June 30, 20222023 and December 31, 2021, Property and equipment, net consisted of the following:2022:
|
| June 30, 2022 |
|
| December 31, 2021 |
| ||
|
| (in thousands) |
| |||||
Land |
| $ | 32,149 |
|
| $ | 32,904 |
|
Buildings and improvements |
|
| 561,591 |
|
|
| 435,185 |
|
Furniture and equipment |
|
| 240,867 |
|
|
| 140,281 |
|
Vehicles |
|
| 998 |
|
|
| 959 |
|
Total |
|
| 835,605 |
|
|
| 609,329 |
|
Less: accumulated depreciation |
|
| (96,549 | ) |
|
| (63,611 | ) |
Total property and equipment |
|
| 739,056 |
|
|
| 545,718 |
|
Construction in progress |
|
| 90,491 |
|
|
| 234,198 |
|
Total property and equipment, net |
| $ | 829,547 |
|
| $ | 779,916 |
|
| June 30, 2023 |
|
| December 31, 2022 |
| ||||||||||||||
| Gross Carrying Amount |
| Accumulated Amortization |
| Net Book Value |
|
| Gross Carrying Amount |
| Accumulated Amortization |
| Net Book Value |
| ||||||
| (in thousands) |
|
| (in thousands) |
| ||||||||||||||
Licenses | $ | 1,046,544 |
| $ | 124,186 |
| $ | 922,358 |
|
| $ | 1,044,161 |
| $ | 89,367 |
| $ | 954,794 |
|
Trademarks |
| 27,430 |
|
| 15,122 |
|
| 12,308 |
|
|
| 27,430 |
|
| 12,530 |
|
| 14,900 |
|
Internal use software |
| 20,911 |
|
| 5,112 |
|
| 15,799 |
|
|
| 16,528 |
|
| 3,065 |
|
| 13,463 |
|
Tradenames |
| 4,861 |
|
| 4,049 |
|
| 812 |
|
|
| 4,862 |
|
| 3,506 |
|
| 1,356 |
|
Customer relationships |
| 3,535 |
|
| 3,352 |
|
| 183 |
|
|
| 3,536 |
|
| 3,252 |
|
| 284 |
|
Total | $ | 1,103,281 |
| $ | 151,821 |
| $ | 951,460 |
|
| $ | 1,096,517 |
| $ | 111,720 |
| $ | 984,797 |
|
Capitalized interest
Amortization expense was $20.2 million, $40.1 million, $20.5 million, and $41.1 million for the three and six months ended June 30, 2023 and 2022, totaled $respectively.1.2
million and $
2.710
million, respectively. Capitalized interest for
During the three and six months ended June 30, 2021 totaled2023, the Company recorded a gain on sale of intangible assets of $1.83.0 million, which is recorded to impairment and disposal of long-lived assets, net within the condensed consolidated statements of operations.
The following table outlines the estimated future amortization expense related to intangible assets as of June 30, 2023:
Year | Estimated |
| |
| (in thousands) |
| |
Six Months Ending December 31, 2023 | $ | 40,592 |
|
2024 |
| 79,744 |
|
2025 |
| 76,677 |
|
2026 |
| 74,105 |
|
2027 |
| 71,604 |
|
Thereafter |
| 608,738 |
|
$ | 951,460 |
|
As of June 30, 2023, the weighted average amortization period remaining for intangible assets was 12.9 years.
NOTE 8. HELD FOR SALE
As of June 30, 2023, the Company had $2.117.2 million respectively.in assets held for sale, which are recorded in prepaids and other current assets on the condensed consolidated balance sheets, and primarily consist of property and equipment. As of December 31, 2022, the Company had $14.5 million in assets held for sale which primarily consisted of property and equipment.
| (in thousands) |
| |
Held for sale assets as of December 31, 2022 | $ | 14,521 |
|
Assets moved to held for sale |
| 10,411 |
|
Non-cash settlement |
| (2,481 | ) |
Impairments |
| (1,994 | ) |
Assets sold |
| (3,268 | ) |
Held for sale assets as of June 30, 2023 | $ | 17,189 |
|
|
|
| |
Held for sale liabilities as of December 31, 2022 | $ | — |
|
Liabilities moved to held for sale |
| (1,997 | ) |
Liabilities settled associated with held for sale assets |
| 1,997 |
|
Held for sale liabilities as of June 30, 2023 | $ | — |
|
Depreciation expense forDuring the three and six months ended June 30, 2022 totaled2023, the Company recorded a loss on the impairment and disposal of held for sale assets of $20.11.8 million and $35.62.6 million, respectively. Depreciation expenserespectively, and less than $.1 million and $2.6 million during the three and six months ended
11
June 30, 2022, respectively, which is recorded to impairment and disposal of long-lived assets, net within the condensed consolidated statements of operations.
NOTE 9. NOTES PAYABLE
As of June 30, 2023 and December 31, 2022, notes payable consisted of the following:
| June 30, 2023 |
| December 31, 2022 |
| Stated Interest Rate |
| Effective Interest Rate | Maturity Date | Net Book Value of Collateral |
| |||
| (in thousands) |
|
|
|
|
|
|
| |||||
Promissory notes dated December 21, 2022 (1) | $ | 70,839 |
| $ | 71,500 |
| 7.53% | (4) | 7.86% | 1/1/2028 | $ | 156,667 |
|
Promissory note dated December 22, 2022 (2) |
| 18,687 |
|
| 18,900 |
| 7.30% | (4) | 7.38% | 12/22/2032 | $ | 9,375 |
|
Promissory notes dated October 1, 2021 (3) |
| 5,856 |
|
| 6,095 |
| 8.14% | (4) | 8.29% | 10/1/2027 | $ | 11,555 |
|
Promissory note dated December 22, 2022 |
| 5,500 |
|
| 5,500 |
| 10.00% | (4) | 10.00% | 12/22/2023 | (5) |
| |
Promissory notes acquired in October 2021 |
| 1,778 |
|
| 5,338 |
| (6) | (4) | (6) | (6) | (6) |
| |
Promissory note of consolidated variable-interest entity dated February 1, 2022 |
| 1,045 |
|
| 1,200 |
| 8.00% | (4) | 8.00% | 12/31/2025 |
| — |
|
Total notes payable |
| 103,705 |
|
| 108,533 |
|
|
|
|
|
|
| |
Less: debt discount |
| (1,671 | ) |
| (1,833 | ) |
|
|
|
|
|
| |
Less: current portion of notes payable |
| (9,076 | ) |
| (12,453 | ) |
|
|
|
|
|
| |
Notes payable, net (7) | $ | 92,958 |
| $ | 94,247 |
|
|
|
|
|
|
|
12
During the three and six months ended June 30, 2021 totaled2023, the Company incurred interest expense related to these notes payable of $7.32.1 million and $12.94.2 million, respectively.
Duringrespectively, and during the three and six months ended June 30, 2022, the Company recorded a loss on the disposal of property and equipmentincurred interest expense of $5.10.2 million and $8.1 million and an impairment of 0 and $0.3 million, respectively, which is mainly the result of repositioning of assets in the southeast. This loss and impairment was recorded in impairment and disposal of long-lived assets, netincluded within interest expense in the condensed consolidated statements of operationsoperations. This includes accretion expense of $0.1 million and comprehensive (loss) income. There was $00.2 loss on disposal of property and equipment and 0 impairment on property and equipment during the three months or six months ended June 30, 2021.
NOTE 9. INTANGIBLE ASSETS & GOODWILL
Intangible assets
As of June 30, 2022 and December 31, 2021, Intangible assets, net consisted of the following:
|
| June 30, 2022 |
|
| December 31, 2021 |
| ||||||||||||||||||
|
| Gross Carrying Amount |
|
| Accumulated Amortization |
|
| Net Book Value |
|
| Gross Carrying Amount |
|
| Accumulated Amortization |
|
| Net Book Value |
| ||||||
|
| (in thousands) |
|
| (in thousands) |
| ||||||||||||||||||
Licenses |
| $ | 1,106,928 |
|
| $ | 60,291 |
|
| $ | 1,046,637 |
|
| $ | 1,106,658 |
|
| $ | 25,352 |
|
| $ | 1,081,306 |
|
Trademarks |
|
| 27,430 |
|
|
| 8,426 |
|
|
| 19,004 |
|
|
| 27,430 |
|
|
| 2,809 |
|
|
| 24,621 |
|
Internal use software |
|
| 12,249 |
|
|
| 1,872 |
|
|
| 10,377 |
|
|
| 7,374 |
|
|
| 1,119 |
|
|
| 6,255 |
|
Tradenames |
|
| 4,862 |
|
|
| 2,856 |
|
|
| 2,006 |
|
|
| 4,862 |
|
|
| 2,168 |
|
|
| 2,694 |
|
Customer relationships |
|
| 4,536 |
|
|
| 3,277 |
|
|
| 1,259 |
|
|
| 4,536 |
|
|
| 1,430 |
|
|
| 3,106 |
|
Total |
| $ | 1,156,005 |
|
| $ | 76,722 |
|
| $ | 1,079,283 |
|
| $ | 1,150,860 |
|
| $ | 32,878 |
|
| $ | 1,117,982 |
|
20
Amortization expensemillion, respectively, for the three and six months ended June 30, 2022 was2023 and $21.90.1 million and $43.80.1 million, respectively. Amortization expenserespectively, for the three and six months ended June 30, 2021 was $2.5 million and $4.5 million, respectively.2022.
The following table outlinesCompany's notes payable described above are subordinated to the estimated future annual amortization expense related to intangible assets as of June 30, 2022:private placement notes. See Note 10. Private Placement Notes for further details.
|
| Estimated |
| |
|
| (in thousands) |
| |
Remaining 2022 |
| $ | 43,072 |
|
2023 |
|
| 82,692 |
|
2024 |
|
| 80,983 |
|
2025 |
|
| 78,949 |
|
2026 |
|
| 77,421 |
|
Thereafter |
|
| 716,166 |
|
|
| $ | 1,079,283 |
|
As of June 30, 2022, the weighted average amortization period remaining for intangible assets was 13.88 years.
Goodwill
The changes in the carrying amount of Goodwill arose from the following:
|
| As of June 30, 2022 |
| |
|
| (in thousands) |
| |
As of December 31, 2021 |
| $ | 765,358 |
|
Acquisition of Watkins |
|
| 24,542 |
|
As of June 30, 2022 |
| $ | 789,900 |
|
21
NOTE 10. NOTES PAYABLE
As of June 30, 2022 and December 31, 2021, Notes payable, net consisted of the following:
|
| June 30, 2022 |
|
| December 31, 2021 |
| ||
|
| (in thousands) |
| |||||
Promissory notes dated October 1, 2021, maturing in October 2022. Monthly interest payments due of 4.75%. Secured by mortgaged property with a $6 million book value. |
|
| 6,156 |
|
|
| 6,156 |
|
Promissory note acquired in Harvest acquisition dated February 2020, maturing in February 2023. Monthly interest payments due at 5.5%. |
|
| 2,670 |
|
|
| 4,699 |
|
Promissory note dated July 2018, maturing in July 2023. Monthly interest payments due of 4% per annum. Secured by certain assets. |
|
| 1,092 |
|
|
| 1,113 |
|
Promissory note of consolidated variable-interest entity dated February 2022, maturing February 2029, for up to $1.5 million. Monthly interest payments due of 8%. |
|
| 1,080 |
|
|
| — |
|
Promissory note dated October 2019, maturing in October 2024. Monthly interest payments due of 5.5%. Principal balance due at maturity. |
|
| 778 |
|
|
| 829 |
|
Promissory note acquired in Harvest acquisition dated August 2018, maturing in August 2024. Monthly interest payments due of 2%. Secured by certain assets. |
|
| 858 |
|
|
| 1,022 |
|
Promissory note acquired in Harvest acquisition dated January 2020, maturing in May 2023. Quarterly interest payments due of 2%. |
|
| 250 |
|
|
| 425 |
|
Promissory note acquired in Harvest acquisition dated April 2021, maturing in April 2026. Principal due at maturity. Secured by equipment. |
|
| 53 |
|
|
| 60 |
|
Promissory note acquired in Harvest acquisition dated January 2020, maturing in January 2023. Monthly interest payments due of 2%. |
|
| 25 |
|
|
| 65 |
|
Promissory notes of consolidated variable-interest entities acquired in Harvest Acquisition. Maturing December 2022 and 2029, interest ranging from 5.25% to 8.25%. Secured by real-estate. In the first quarter of 2022 these notes were fully paid. |
|
| — |
|
|
| 2,231 |
|
Total notes payable |
|
| 12,962 |
|
|
| 16,600 |
|
Less: Debt discount |
|
| (25 | ) |
|
| (92 | ) |
Less: Current portion of notes payable |
|
| (9,502 | ) |
|
| (10,052 | ) |
Notes payable |
| $ | 3,435 |
|
| $ | 6,456 |
|
As of June 30, 2022,2023, stated maturities of notes payable are as follows:
|
| (in thousands) |
| (in thousands) |
| ||
Remaining 2022 |
| $ | 6,496 |
| |||
2023 |
|
| 4,711 |
| |||
Six months ended December 31, 2023 | $ | 7,788 |
| ||||
2024 |
|
| 657 |
|
| 3,232 |
|
2025 |
|
| 14 |
|
| 3,888 |
|
2026 |
|
| 4 |
|
| 3,044 |
|
2027 |
| 69,352 |
| ||||
Thereafter |
|
| 1,080 |
|
| 16,401 |
|
Total |
| $ | 12,962 |
| $ | 103,705 |
|
NOTE 11.10. PRIVATE PLACEMENT NOTES
2024June and November Notes
In 2019, the Company completed two private placement arrangements (the “June Notes” and the “November Notes”), each comprised of 5-year senior secured promissory notes with a face value of $70.0 million and $60.0 million, respectively. Both notes accrue interest at an annual rate of 9.75%,payable semi-annually, in equal installments, in arrears, on June 18 and December 18 of
22
each year. The purchasers of the June Notes received warrants to purchase 1,470,000 Subordinate Voting Shares at a price of $13.47 ("June Warrants") and the purchasers of the November Notes received warrants to purchase 1,560,000 Subordinate Voting Shares at a price of $980 per Unit, with each unit consisting of one Note issued in Denominations of $1,000 and 26 warrants ("November Warrants"), which can be exercised for approximately three years after closing.closing (collectively the "Public Warrants"). The unexercised warrantsremaining outstanding Public Warrants expired in June 2022.
2026 Notes
DuringOn October 6, 2021, the three and six months ended June 30, 2022, accretion expenseCompany closed its private placement of 8% Senior Secured Notes (the "2026 Notes - Tranche One") for the June Notes wasaggregate gross proceeds of $0.5350.0 million and net proceeds of $0.9342.6 million, respectively. Duringmillion. The Company used a portion of the threenet proceeds to repay certain outstanding acquired indebtedness and six months ended June 30, 2021, accretion expenseused the remaining net proceeds for the June Notes was $0.4 millioncapital expenditures and $0.8 million, respectively.
During the three and six months ended June 30, 2022, accretion expense for the November Notes was $0.4 million and $0.8 million, respectively. During the three and six months ended June 30, 2021, accretion expense for the November Notes was $0.4 million and $0.7 million, respectively.
2026 Notes
other general corporate purposes. On January 28, 2022, the Company closed on a second tranche private placement of 8%8% Senior Secured Notes (the "2026 Notes"Notes - Tranche Two") for aggregate gross proceeds of $76.9 million and net proceeds of $75.6 million. The 2026 Notes bear interest at a rate of 8% per annum, payable semi-annually in equal installments untilCompany used the maturity date, unless earlier redeemed or repurchased.net proceeds for capital expenditures and other general corporate purposes. The 2026 Notes mature on October 6, 2026, andnotes may be redeemed in whole or in part, at the Company's option, at any time, on or after October 6, 2023, at the applicable redemption price. These notes are collectively referred to as the "2026 Notes".
13
As of June 30, 2023 and December 31, 2022,private placementnotes payable consisted of the following:
| June 30, 2023 |
| December 31, 2022 |
| Stated Interest Rate | Effective Interest Rate | Maturity Date | ||
| (in thousands) |
|
|
|
| ||||
2026 Notes - Tranche One | $ | 350,000 |
| $ | 350,000 |
| 8.00% | 8.52% | 10/6/2026 |
2026 Notes - Tranche Two |
| 75,000 |
|
| 75,000 |
| 8.00% | 8.43% | 10/6/2026 |
June Notes |
| 70,000 |
|
| 70,000 |
| 9.75% | 13.32% | 6/11/2024 |
November Notes |
| 60,000 |
|
| 60,000 |
| 9.75% | 13.43% | 6/11/2024 |
Total private placement notes |
| 555,000 |
|
| 555,000 |
|
|
|
|
Less: Unamortized debt discount and issuance costs |
| (10,534 | ) |
| (13,336 | ) |
|
|
|
Less: current portion of private placement notes, net |
| (125,861 | ) |
| — |
|
|
|
|
Private placement notes, net | $ | 418,605 |
| $ | 541,664 |
|
|
|
|
The private placement notes contain customary restrictive covenants pertaining to our management and operations, including, among other things, limitations on the amount of debt that may be incurred and the ability to pledge assets, as well as financial covenant requirements, that the Company intendscomply with certain indebtedness to use the net proceeds for capital expendituresconsolidated EBITDA (as defined) requirements and other general corporate purposes. a fixed charge ratio coverage, measured from time to time when certain conditions are met.
During the three and six months ended June 30, 2022, accretion2023, the Company incurred interest expense for the 2026 Notes was less thanrelated to private placement notes of $0.113.0 million and $0.125.9 million, respectively. During the three months ended June 30, 2022, the Company repaid $1.9 million in principal on the 2026 Notes.
On October 6, 2021, the Company closed its private placement of 8% Senior Secured Notes (the "2026 Notes") for aggregate gross proceeds of $350.0 millionrespectively, and net proceeds of $342.6 million. The 2026 Notes bear interest at a rate of 8% per annum, payable semi-annually in equal installments until the maturity date, unless earlier redeemed or repurchased. The 2026 Notes mature on October 6, 2026, and may be redeemed in whole or in part, at the Company's option, at any time, on or after October 6, 2023, at the application redemption price set forth in the Indenture. The Company used a portion of the net proceeds to redeem certain outstanding indebtedness of Harvest and intends to use the remaining net proceeds for capital expenditures and other general corporate purposes. Duringduring the three and six months ended June 30, 2022, the Company incurred interest expense of $0.313.5 million and $0.625.8 million, in accretion expense.
Accretion expense on the private placement notesrespectively, which is included as a component of other income (expense), netwithin interest expense in the condensed consolidated statements of operations related to the private placement notes. This includes accretion expense on the private placement notes of $1.4 million and comprehensive (loss) income as interest expense.$2.8 million, respectively, for the three and six months ended June 30, 2023 and $1.3 million and $2.5 million, respectively, for the three and six months ended June 30, 2022.
Stated maturities of the principal portion of private placement notes net outstanding as of June 30, 2022,2023, are as follows:
| (in thousands) |
| ||||
Remaining 2022 |
| 0 |
| |||
2023 |
| 0 |
| |||
Year | (in thousands) |
| ||||
Six months ending December 31, 2023 | $ | — |
| |||
2024 |
| 130,000 |
|
| 130,000 |
|
2025 |
| 0 |
|
| — |
|
2026 |
| 425,000 |
|
| 425,000 |
|
2027 |
| — |
| |||
Thereafter |
| — |
|
| — |
|
Total private placement notes |
| 555,000 |
| $ | 555,000 |
|
Less: Unamortized debt discount & issuance costs |
| (16,023 | ) | |||
Private placement notes, net | $ | 538,977 |
|
NOTE 12.11. LEASES
The Company leases real estate used for dispensaries, cultivation and production plants,facilities, and corporate offices. Lease terms for real estate generally range from five to ten years. Most leases include options to renew for varying terms at the Company’s sole discretion. Other leased assets include passenger vehicles, trucks, and equipment. Lease terms for these assets generally range from three to five years.
23
Lease right-of-use assets and liabilities are recognized based on the present value of future minimum lease payments over the lease term at commencement date.
Leases with an initial term of 12 months or less are not recorded on the balance sheet. Lease agreements for some locations provide for rent escalations and renewal options. Certain real estate leases require payment for taxes, insurance and maintenance which are considered non-lease components. The Company accounts for real estate leases and the related fixed non-lease components together as a single component.
The Company recorded a loss on disposal of operating right of use assets of less than $0.1 million and $10.5 million for the three and six months endingended June 30, 2022, respectively, which is the result of repositioning of assets in the southeast. This loss wassoutheast, which is recorded into impairment and disposal of long-lived assets, net inwithin the condensed consolidated statements of operations and comprehensive (loss) income.operations.
14
The following table provides the components of lease cost recognized inwithin the condensed consolidated statements of operations and comprehensive (loss) income:
|
|
| Three Months Ended |
|
| For the Six Months Ended June 30, |
| ||||||||||
| Statement of operations and comprehensive (loss) income location |
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
| ||||
|
|
| (in thousands) |
| |||||||||||||
Operating lease cost | Cost of goods sold, sales and marketing, general and administrative |
| $ | 6,091 |
|
| $ | 1,695 |
|
| $ | 12,184 |
|
| $ | 3,267 |
|
Finance lease cost: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Amortization of lease assets | Cost of goods sold, sales and marketing, general and administrative |
|
| 2,713 |
|
|
| 1,797 |
|
|
| 5,229 |
|
|
| 3,367 |
|
Interest on lease liabilities | Interest expense |
|
| 1,674 |
|
|
| 958 |
|
|
| 3,253 |
|
|
| 1,737 |
|
Finance lease cost |
|
|
| 4,387 |
|
|
| 2,755 |
|
|
| 8,482 |
|
|
| 5,104 |
|
Variable lease cost | Cost of goods sold, sales and marketing, general and administrative |
|
| 1,897 |
|
|
| 215 |
|
|
| 3,831 |
|
|
| 610 |
|
Short term lease expense | Cost of goods sold, sales and marketing, general and administrative |
|
| 156 |
|
|
| — |
|
|
| 255 |
|
|
| — |
|
Total lease cost |
|
| $ | 12,531 |
|
| $ | 4,665 |
|
| $ | 24,752 |
|
| $ | 8,981 |
|
Short term lease expense for the three and six months ended June 30, 2021 was nominal. During the three2023 and six months ended June 30, 2022, the Company earned $0.1 million and $0.3 million of sublease income, respectively. During the three and six months ended June 30, 2021, the Company earned a nominal amount of sublease income. Sublease income is recorded in other income (expense), net on the consolidated statements of operations and comprehensive (loss) income.2022:
|
| Three Months Ended |
| Six Months Ended June 30, |
| ||||||||
| Statement of Operations | 2023 |
| 2022 |
| 2023 |
| 2022 |
| ||||
|
| (in thousands) |
| ||||||||||
Operating lease cost | Cost of goods sold, sales and marketing, general and administrative | $ | 5,289 |
| $ | 5,515 |
| $ | 10,200 |
| $ | 10,979 |
|
Finance lease cost: |
|
|
|
|
|
|
|
|
| ||||
Amortization of lease assets | Cost of goods sold and Depreciation and amortization |
| 2,578 |
|
| 2,581 |
|
| 5,353 |
|
| 4,986 |
|
Interest on lease liabilities | Interest expense |
| 1,613 |
|
| 1,568 |
|
| 3,221 |
|
| 3,056 |
|
Finance lease cost |
|
| 4,191 |
|
| 4,149 |
|
| 8,574 |
|
| 8,042 |
|
Variable lease cost | Cost of goods sold, sales and marketing, general and administrative |
| 2,450 |
|
| 1,878 |
|
| 4,716 |
|
| 3,792 |
|
Short term lease expense | Cost of goods sold, sales and marketing, general and administrative |
| 166 |
|
| 156 |
|
| 369 |
|
| 255 |
|
Total lease cost |
| $ | 12,096 |
| $ | 11,698 |
| $ | 23,859 |
| $ | 23,068 |
|
24
Other information related to operating and finance leases is as follows:
| Three Months Ended June 30, |
|
| Six Months Ended June 30, |
| Three Months Ended June 30, |
| Six Months Ended June 30, |
| ||||||||||||||||||
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
| 2023 |
| 2022 |
| 2023 |
| 2022 |
| ||||||||
| (in thousands) |
| (in thousands) |
| |||||||||||||||||||||||
Cash paid for amounts included in the measurement of lease liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
Operating cash flows from operating leases |
| 5,706 |
|
|
| 1,532 |
|
|
| 11,093 |
|
|
| 2,956 |
| $ | 5,005 |
| $ | 5,271 |
| $ | 10,067 |
| $ | 10,166 |
|
Operating cash flows from finance leases |
| 1,665 |
|
|
| 916 |
|
|
| 3,244 |
|
|
| 1,718 |
| $ | 1,612 |
| $ | 1,559 |
| $ | 3,267 |
| $ | 3,047 |
|
Financing cash flows from finance leases |
| 1,784 |
|
|
| 1,063 |
|
|
| 3,205 |
|
|
| 2,091 |
| $ | 1,748 |
| $ | 1,721 |
| $ | 3,671 |
| $ | 3,075 |
|
Lease assets obtained in exchange for new lease liabilities: |
|
|
|
|
|
|
|
|
| ||||||||||||||||||
ASC 842 lease additions and modifications: |
|
|
|
|
|
|
|
| |||||||||||||||||||
Operating leases |
| 2,404 |
|
|
| 8,550 |
|
|
| 11,970 |
|
|
| 14,163 |
| $ | 6,406 |
| $ | 2,404 |
| $ | 11,008 |
| $ | 11,970 |
|
Finance leases |
| 12,112 |
|
|
| 10,044 |
|
|
| 18,413 |
|
|
| 15,128 |
| $ | 173 |
| $ | 12,112 |
| $ | 116 |
| $ | 18,413 |
|
| June 30, 2022 |
|
| December 31, 2021 |
| ||||||||
| (in thousands) |
| June 30, 2023 |
| December 31, 2022 |
| |||||||
Weighted average discount rate: |
|
|
|
|
|
|
|
|
| ||||
Operating leases |
| 9.56 | % |
|
| 9.69 | % |
| 10.00 | % |
| 9.29 | % |
Finance leases |
| 8.58 | % |
|
| 8.68 | % |
| 9.00 | % |
| 8.66 | % |
Weighted average remaining lease term (in years): |
|
|
|
|
|
|
|
|
| ||||
Operating leases |
| 9.74 |
|
|
| 10.09 |
|
| 9.1 |
| 8.3 |
| |
Finance leases |
| 8.10 |
|
|
| 8.16 |
|
| 7.7 |
| 7.8 |
|
15
Future minimum lease payments under the Company's non-cancellable leases as of June 30, 20222023 are as follows:
|
| Operating leases |
|
| Finance leases |
| Operating Leases |
| Finance Leases |
| ||||
|
| (in thousands) |
| (in thousands) |
| |||||||||
Remainder of 2022 |
| $ | 11,728 |
|
| $ | 7,420 |
| ||||||
2023 |
|
| 22,854 |
|
|
| 17,996 |
| ||||||
Six months ending December 31, 2023 | $ | 9,719 |
| $ | 6,831 |
| ||||||||
2024 |
|
| 22,578 |
|
|
| 14,289 |
|
| 20,420 |
| 13,680 |
| |
2025 |
|
| 22,358 |
|
|
| 13,757 |
|
| 20,359 |
| 13,470 |
| |
2026 |
|
| 21,822 |
|
|
| 12,813 |
|
| 19,708 |
| 12,605 |
| |
2027 |
| 19,103 |
| 11,703 |
| |||||||||
Thereafter |
|
| 120,265 |
|
|
| 55,984 |
|
| 75,826 |
| 43,358 |
| |
Total undiscounted lease liabilities |
|
| 221,605 |
|
|
| 122,259 |
|
| 165,135 |
| 101,647 |
| |
Interest on lease liabilities |
|
| (82,321 | ) |
|
| (36,103 | ) | ||||||
Less: Interest |
| (54,736 | ) |
| (29,436 | ) | ||||||||
Total present value of minimum lease payments |
|
| 139,284 |
|
|
| 86,156 |
|
| 110,399 |
| 72,211 |
| |
Lease liabilities- current portion |
|
| (10,899 | ) |
|
| (7,697 | ) |
| (9,668 | ) |
| (7,595 | ) |
Lease liabilities |
| $ | 128,385 |
|
| $ | 78,459 |
| $ | 100,731 |
| $ | 64,616 |
|
Lease Guarantees
25In accordance with ASC 460, Guarantees, the Company has determined that it meets the guarantor requirements under certain contractual agreements.
During the three months ending June 30, 2023, the Company determined it was no longer the primary beneficiary of one its variable interest entities. The Company guarantees two cannabis dispensary leases of the variable interest entity. Under both leases, nonperformance by the tenant results in the Company becoming obligated to fulfill the lease conditions. The leases have a term of approximately 8 and 9 years as of June 30, 2023, with the resulting maximum exposure estimated to be $5.8 million which includes $2.5 million and $3.3 million of undiscounted future minimum lease payments plus potential additional payments to satisfy maintenance, taxes, and insurance requirements under the remaining terms the Company is guarantor, respectively.
NOTE 13.12. CONSTRUCTION FINANCE LIABILITIES
Holyoke
In July 2019,When the Company sold propertyenters into sale-leaseback transactions, it had recently acquired in Massachusettsassesses whether a contract exists and whether there is a performance obligation to transfer control of the asset when determining whether the transfer of an asset shall be accounted for $3.5 million, which was the cost to the Company. In connection with theas a sale of this location, the Company agreed to leaseasset. If control is not transferred, based on the location back for cultivation. Thisnature of the transaction, was determined to be a finance lease, and therefore diddoes not meet the definition ofrequirements for a sale because control was never transferred tounder the buyer-lessor. The transaction was treated as a failed sale-leaseback financing arrangement.
Included in the agreement,failed-sale-leaseback accounting model, the Company completedis deemed to own this real estate and reflects these properties on its consolidated balance sheets in property and equipment, net and depreciates them over the tenant improvements relatedassets' useful lives. The liabilities associated with these leases are recorded to construction finance liabilities - current portion and construction finance liabilities on the property, for whichcondensed consolidated balance sheets. During the landlord has provided a tenant improvement allowance (“TI Allowance”)three and six months ended June 30, 2023, the Company recorded interest expense of $40.0 million. As of December 31, 2021, the entire TI Allowance had been provided. The initial term of the agreement is ten years, with 2five-year options to renew. The initial payments are equal to 11% of the sum of the purchase price for the property and increases when a draw is made on the TI Allowance. In addition, a 3% increase in payments will be applied annually after the first year. As of June 30, 2022, and December 31, 2021, the total finance liability associated with this transaction is $44.94.1 million and $44.68.2 million, respectively.respectively, and during the three and six months ended June 30, 2022, the Company recorded interest expense of $3.9 million and $7.7 million, respectively, related to construction finance liabilities, which is included in interest expense within the condensed consolidated statements of operations.
Ben Bostic
In October 2019, the Company sold property in Florida in exchange for cash of $17.0 million. Concurrent with the closing of the purchase, the buyer entered into a lease agreement with the Company, for continued operation as a licensed medical cannabis cultivation facility. Control was never transferred to the buyer-lessor because the transaction was determined to be a finance lease and did not meet the requirements of a sale. The transaction was treated as a failed sale-leaseback financing arrangement.
The initial term of the agreement is ten years, with 2five-year options to renew. The initial annualized payments are equal to 11% of the purchase price for the property. A 3% increase in payments will be applied annually after the first year. As of June 30, 2022,2023, and December 31, 2021,2022, the total construction finance liability associated with this transaction is $17.617.8 million and $17.417.7 million, respectively.
McKeesport
In October 2019, prior to acquisition by the Company PurePenn, sold theiracquired a failed sales-leaseback transaction of a cannabis cultivation facility in Pennsylvania for $5.0 million. Simultaneously with the closing of the sale, PurePenn agreed to lease the cultivation facility back. The transaction was treated as a failed sale-leaseback financing arrangement.
Pennsylvania. The initial term of the lease is 15 years, with 2two five-year options to renew. The landlord has agreed to provide a TI Allowance of $21.0 million as an additional component of base rent. Payments are made based on one twelfth (1/12) of the TI allowance dispersed with 12.75% due for the first $5.0 million, 13.25% for $5.0 million to $15.0 million and 13.50% for $15.0 to $21.0 million. In 2021, the Company entered into an amendment with the landlord to increase the tenant improvement allowance by an additional $15.5 million for a total of $36.5 million at a rate of 10.75% on the additional allowance in excess of $21.0 million. As of June 30, 2022,2023, and December 31, 2021, $36.5 million and $29.5 million of2022, the TI allowance has been provided, respectively. As of June 30, 2022, and December 31, 2021, the total construction finance liability associated with this transaction is $41.542.1 million and $34.641.8 million, respectively.
16
Alachua
In October 2021, in connection with the acquisition of Harvest, the Company acquired a failed sales-leaseback transaction in which Harvest soldof a licensedcannabis cultivation and processing facility in Florida. The lease originated in January 2021 and simultaneously with the closing of the sale, agreed to lease the facility back. The transaction was treated as a failed sale-leaseback financing arrangement.
Thehas an initial term of the lease is 20 years, with 2two five-year options to renew. The landlord has agreed to provideIn the third quarter of 2022, the Company ceased using this facility and as a TI Allowanceresult recorded a loss on disposal of the related property and equipment of $17.942.4 million as an additional component of base rent.million. As of June 30, 2022,2023, and December 31, 2021, $17.9 million and $15.3 million of2022, the TI allowance has been provided, respectively. As of June 30, 2022, and December 31, 2021, the total construction finance liability associated with this transaction is $59.059.2 million and $58.959.2 million, respectively.
In the first quarter of 2022, the Company temporarily idled this facility. The Company is evaluating the future use of this facility and remains in compliance with the associated lease obligation.
26
Hancock
In October 2021, in connection with the acquisition of Harvest, the Company acquired a failed sales-leaseback transaction in which Harvest soldof a licensedcannabis cultivation and processing facility in Maryland. The lease originated in August 2021 and simultaneously with the closing of the sale, agreed to lease the facility back. The transaction was treated as a failed sale-leaseback financing arrangement.
Thehas an initial term of the lease is ten years with 2two options to extend the term, the first providing a ten-year renewal option and the second providing a five-year renewal option. The landlord has agreed to provide a TI Allowancetenant improvement allowance of $12.9 million as an additional component of base rent. As of June 30, 2022,2023, and December 31, 2021,2022, $11.912.3 million and $5.712.3 million of the TItenant improvement allowance has been provided, respectively. As of June 30, 2022,2023, and December 31, 2021,2022, the total construction finance liability associated with this transaction is $20.219.1 million and $20.719.7 million, respectively.
Under the failed-sale-leaseback accounting model, the Company is deemed to own this real estate and reflects the properties in the condensed consolidated balance sheets and depreciate them over the assets' remaining useful life.
Future minimum lease payments for the construction finance liabilities as of June 30, 2022,2023, are as follows:
|
| (in thousands) |
| ||||
Remaining 2022 |
| $ | 11,595 |
| |||
2023 |
|
| 23,406 |
| |||
Year | (in thousands) |
| |||||
Six months ending December 31, 2023 | $ | 8,325 |
| ||||
2024 |
|
| 23,736 |
|
| 17,043 |
|
2025 |
|
| 24,175 |
|
| 17,521 |
|
2026 |
|
| 24,593 |
|
| 18,013 |
|
2027 |
| 18,519 |
| ||||
Thereafter |
|
| 428,072 |
|
| 302,424 |
|
Total future payments |
|
| 535,577 |
|
| 381,845 |
|
Less: Interest |
|
| (352,377 | ) |
| (243,582 | ) |
Total present value of minimum payments |
|
| 183,200 |
|
| 138,263 |
|
Construction finance liabilities - current portion |
|
| (1,087 | ) |
| (1,324 | ) |
Construction finance liabilities |
| $ | 182,113 |
| $ | 136,939 |
|
NOTE 14. SHARE CAPITAL
The authorized share capital of the Company is comprised of the following:
(i) Unlimited number of Subordinate Voting Shares
Holders of the Subordinate Voting Shares are entitled to notice of and to attend any meeting of the shareholders of the Company, except a meeting of which only holders of another particular class or series of shares of the Company shall have the right to vote. At each such meeting holders of Subordinate Voting Shares shall be entitled to 1 vote in respect of each Subordinate Voting Share held. Holders of Subordinate Voting Shares are entitled to receive as and when declared by the directors, dividends in cash or property of the Company. NaN dividend will be declared or paid on the Subordinate Voting Shares unless the Company simultaneously declares or pays, as applicable, equivalent dividends (on an as-converted to Subordinate Voting Share basis) on the Multiple Voting Shares and Super Voting Shares.13. EQUITY
(ii) Unlimited number of Multiple Voting Shares
Holders of Multiple Voting shares are entitled to notice of and to attend any meetings of the shareholders of the Company, except a meeting of which only holders of another particular class or series of shares of the Company have the right to vote. At each such meeting, holders of Multiple Voting Shares are entitled to 1 vote in respect of each Subordinate Voting Share into which such Multiple Voting Share could ultimately then be converted (initially, 100 votes per Multiple Voting Share). The initial “Conversation Ratio” for Multiple Voting Shares is 100 Subordinate Voting Shares for each Multiple Voting Share, subject to adjustment in certain events. Holders of Multiple Voting Shares have the right to receive dividends, out of any cash or other assets legally available, pari
27
passu (on an as-converted basis, assuming conversion of all Multiple Voting Shares into Subordinate Voting Shares at the Conversion Ratio) as to dividends and any declaration or payment of any dividend on the Subordinate Voting Shares.
NaN dividend may be declared or paid on the Multiple Voting Shares unless the Company simultaneously declares or pays, as applicable, equivalent dividends (on an as-converted to Subordinate Voting Share basis) on the Subordinate Voting Shares and Super Voting Shares.
(iii) Unlimited number of Super Voting Shares
Holders of Super Voting Shares are entitled to notice of and to attend at any meeting of the shareholders of the Company, except a meeting of which only holders of another particular class or series of shares of the Company shall have the right to vote. At each such meeting, holders of Super Voting Shares are be entitled to 2 votes in respect of each Subordinate Voting Share into which such Super Voting Share could ultimately then be converted (initially, 200 votes per Super Voting Share). Holders of Super Voting Shares have the right to receive dividends, out of any cash or other assets legally available therefore, pari passu (on an as converted to Subordinated Voting Share basis) as to dividends and any declaration or payment of any dividend on the Subordinate Voting Shares. No dividend is to be declared or paid on the Super Voting Shares unless the Company simultaneously declares or pays, as applicable, equivalent dividends (on an as-converted to Subordinate Voting Share basis) on the Subordinate Voting Shares and Multiple Voting Shares. The initial “Conversion Ratio” for the Super Voting Shares is one Multiple Voting Share for each Super Voting Share, subject to adjustment in certain events.
Warrants
Liability warrantsWarrants
|
| Number |
|
| Weighted average exercise price |
|
| Weighted average |
| |||
Outstanding and exercisable as of December 31, 2021 |
|
| 1,679 |
|
| $ | 1,125 |
|
|
| 1.31 |
|
Granted |
|
| — |
|
|
| — |
|
|
| — |
|
Exercised |
|
| — |
|
|
| — |
|
|
| — |
|
Outstanding and exercisable as of June 30, 2022 |
|
| 1,679 |
|
| $ | 1,125 |
|
|
| 0.81 |
|
In October 2021 the Company acquired 1,679 warrants in connection with the acquisition of Harvest Health and Recreation, Inc. ("Harvest liability warrants"Liability Warrants"). See Note 4. Acquisitions for further details. Each acquired warrant is exercisable into 1one Multiple Voting Share. Changes in fair value are recognized as a component of other (expense) income (expense), net inwithin the condensed consolidated statements of operations and comprehensive (loss) income as change in fair value of derivative liabilities - warrants.
| Number |
| Weighted average exercise price |
| Weighted average |
| |||
Outstanding and exercisable as of January 1, 2023 |
| 1,679 |
| $ | 1,125 |
|
| 0.31 |
|
Granted |
| — |
|
| — |
|
| — |
|
Exercised |
| — |
|
| — |
|
| — |
|
Expired |
| (1,679 | ) |
| 1,125 |
|
| — |
|
Outstanding and exercisable as of June 30, 2023 |
| — |
| $ | — |
|
| — |
|
The fair value of the Harvest liability warrants is determined using the Black-Scholes options pricing model. The Harvest liability warrants are classified within level two of the fair value hierarchy. There have been 0 transfers between hierarchy levels during the three or six months ended June 30, 2022. The following table summarizes the significant assumptions used in determining the fair value of the warrant liability:
| June 30, 2022 |
| December 31, 2021 |
Stock price | $14.80 |
| $32.91 |
Exercise price ($CAD) | $11.25 |
| $11.25 |
Exchange rate | $0.776 |
| $0.789 |
Remaining life | 0.81 |
| 1.31 |
Annualized volatility | 54.96% |
| 49.57% |
Discount rate | 2.80% |
| 0.56% |
2817
Equity warrantsShare Based Compensation
In connection with the Harvest acquisition in October 2021, theOptions
The Company acquired certain equity classified warrants ("Acquired equity warrants"). recorded share-based compensation for stock options as follows:
| Three Months Ended June 30, |
| Six Months Ended June 30, |
| ||||||||
Statement of operations location | 2023 |
| 2022 |
| 2023 |
| 2022 |
| ||||
| (in thousands) |
| ||||||||||
Cost of goods sold | $ | 19 |
| $ | (56 | ) | $ | 35 |
| $ | 70 |
|
General and administrative |
| (275 | ) |
| 2,195 |
|
| 469 |
|
| 3,936 |
|
Sales and marketing |
| 13 |
|
| 439 |
|
| 33 |
|
| 729 |
|
Total share-based compensation expense | $ | (243 | ) | $ | 2,578 |
| $ | 537 |
| $ | 4,735 |
|
The acquired equity warrants range innumber and weighted-average exercise price from $23.76 to $145.24prices and expire at various dates from June 2022 through December 2025 and are exercisable into 1 Subordinate Voting Share. Asremaining contractual life of options as of June 30, 2022 and December 31, 2021, there2023 were 599,605 and 1,009,419 equity warrants outstanding, respectively. Each acquired equity warrant is exercisable into 1 Subordinate Voting Share. During the three months ended June 30, 2022, 409,811 warrants expired with a weighted average exercise price of 145.24.as follows:
| Number of options |
| Weighted average exercise price |
| Weighted average remaining contractual life (Yrs.) |
| Aggregate intrinsic value |
| ||||
Outstanding, January 1, 2023 |
| 3,177,815 |
| $ | 25.96 |
|
| 5.41 |
| $ | — |
|
Granted |
| — |
|
| — |
|
|
|
|
| ||
Exercised |
| — |
|
| — |
|
|
|
|
| ||
Forfeited |
| (334,864 | ) |
| 30.29 |
|
|
|
|
| ||
Outstanding, June 30, 2023 |
| 2,842,951 |
| $ | 25.45 |
|
| 4.66 |
| $ | — |
|
Exercisable, June 30, 2023 |
| 2,222,348 |
| $ | 25.67 |
|
| 3.59 |
| $ | — |
|
As of June 30, 2022 and December 31, 2021 there were 0 and 2,460,367 Public Warrants outstanding, respectively. See Note 11. Private Placement Notes for further details on warrants issued in connection with private placement debt in 2019.
NOTE 15. SHARE-BASED COMPENSATION
Equity Incentive Plans
The Company’s 2021 Omnibus Incentive Plan (the “2021 Plan”) was adopted in June 2021 at the 2021 annual meeting of shareholders. The 2021 Plan reserves 4,000,000 Subordinate Voting Shares for issuance thereunder and replaced the Schyan Exploration Inc. Stock Option Plan (the “Prior Plan”). Awards previously granted under the Prior Plan, including equity awards granted in the first quarter of 2021 for performance in 2020, remain subject to the terms of the Prior Plan. NaN further grants of awards shall be made under the Prior Plan. The Prior Plan is administered by the Board of Directors of the Company and the 2021 Plan is administered by the Compensation Committee of the Board of Directors. The 2021 Plan provides for the grant of Incentive Stock Options, Stock Appreciation Rights, Restricted Stock, Restricted Stock Units, Performance Shares, Performance Share Units, and Other Awards.
Options
On January 4, 2022 and February 24, 2022, under the 2021 Plan, the Board awarded options to purchase shares to board members, directors, officers, and key employees of the Company. The options granted vest immediately for board members and all other options granted vest over a two-to three-year period.
On October 26, 2021, under the 2021 Plan, the Board awarded options to purchase shares to officers and other select employees of the Company. The options generally vest over a two-to three-year period.
On October 1, 2021, the Company acquired Harvest which included consideration in the form of 1,266,641 stock options (as converted) that had been issued before the acquisition date to employees and non-employees of Harvest. The post-combination options vest over a one-to three-year period.
On September 29, 2021, under the 2021 Plan, the Board awarded options to purchase shares to officers and other select employees of the Company. The September 29, 2021, options vest over a three-year period.
On January 4, 2021, under the Prior Plan, the Board awarded options to purchase shares to directors, officers, and key employees of the Company. The January 4, 2021, options generally vest over a two-to three-year period.
In determining the amount of share-based compensation related to options issued during the periods ending June 30, 2022 and 2021, the Company used the Black-Scholes pricing model to establish the fair value of the options granted with the following assumptions:
29
| For the Six Months Ended June 30, 2022 | For the Six Months Ended June 30, 2021 |
Fair value at grant date | $8.39-$11.01 | $11.20 |
Stock price at grant date | $21.48-$25.41 | $33.42 |
Exercise price at grant date | $21.48-$25.41 | $33.42 |
Expected life in years | 3.50 - 4.46 | 3.00 |
Expected volatility | 51.81% - 52.87% | 49.88% |
Expected annual rate of dividends | 0% | 0% |
Risk free annual interest rate | 1.20% - 1.79% | 0.16% |
The expected volatility was estimated by using the historical volatility of the Company. In cases where there is insufficient trading history, the expected volatility is estimated using the historical volatility of other companies that the Company considers comparable that have trading and volatility history prior to the Company becoming public. The expected life in years represents the period of time that options granted are expected to be outstanding and is computed using the simplified method. The risk-free rate was based on the United States bond yield rate at the time of grant of the award. Expected annual rate of dividends is based on the fact that the Company has never paid cash dividends and does not expect to pay any cash dividends in the foreseeable future.
For the three months ended June 30, 2022 and 2021, the Company recorded share-based compensation for all stock options in the amount of $2.6 million and $0.8 million, respectively. This is recognized as a nominal amount of cost of goods sold, $2.2 million and $0.6 million in general and administrative, and $0.4 million and $0.2 million in sales and marketing in the condensed consolidated statements of operations and comprehensive (loss) income, respectively.
For the six months ended June 30, 2022 and 2021, the Company recorded share-based compensation for all stock options in the amount of $4.7 million and $1.5 million, respectively. This is recognized as $0.1 million and $0.1 million of cost of goods sold, $3.9 million and $1.1 million in general and administrative, and $0.7 million and $0.3 million in sales and marketing in the condensed consolidated statements of operations and comprehensive (loss) income, respectively.
The following is a summary of stock option activity:
|
| Number of options |
|
| Weighted average exercise price |
|
| Weighted average remaining contractual life (Years) |
|
| Aggregate intrinsic value |
| ||||
Outstanding, January 1, 2022 |
|
| 2,973,895 |
|
| $ | 27.61 |
|
|
| 6.26 |
|
| $ | — |
|
Granted |
|
| 864,051 |
|
|
| 21.56 |
|
|
|
|
|
|
| ||
Exercised |
|
| (92,811 | ) |
|
| 11.25 |
|
|
|
|
|
|
| ||
Forfeited |
|
| (279,496 | ) |
|
| 35.12 |
|
|
|
|
|
|
| ||
Outstanding, June 30, 2022 |
|
| 3,465,639 |
|
| $ | 25.93 |
|
|
| 6.04 |
|
| $ | — |
|
Exercisable, June 30, 2022 |
|
| 1,769,965 |
|
| $ | 25.39 |
|
|
| 4.59 |
|
| $ | — |
|
30
|
| Number of options |
|
| Weighted average exercise price |
|
| Weighted average remaining contractual life (yrs) |
|
| Aggregate intrinsic value |
| ||||
Outstanding, January 1, 2021 |
|
| 1,129,779 |
|
| $ | 11.72 |
|
|
| 4.01 |
|
| $ | 19.90 |
|
Granted |
|
| 326,867 |
|
|
| 33.42 |
|
|
|
|
|
|
| ||
Exercised |
|
| — |
|
|
| — |
|
|
|
|
|
|
| ||
Forfeited |
|
| — |
|
|
| — |
|
|
|
|
|
|
| ||
Outstanding, June 30, 2021 |
|
| 1,456,646 |
|
| $ | 16.59 |
|
|
| 3.80 |
|
| $ | 20.91 |
|
Exercisable, June 30, 2021 |
|
| 554,459 |
|
| $ | 11.70 |
|
|
| 3.59 |
|
| $ | 25.80 |
|
As of June 30, 2022,2023, there was approximately $9.72.0 million of unrecognized compensation cost related to nonvestedunvested stock option arrangements which is expected to be recognized over a weighted average service period of 0.840.61 years.
Restricted Stock Units
Restricted stock units ("RSUs") represent a right to receive a single Subordinate Voting Share that is both non-transferable and forfeitable unless and until certain conditions are satisfied. RSUs vest ratably over a two-to-three-year period subject to continued employment through each anniversary. The fair value of RSUs is determined on the grant date and is amortized over the vesting period on a straight-line basis.
On January 4, February 24, and March 31, 2022, the Board awarded RSUs to board members, directors, officers, and key employees of the Company. The RSUs vest immediately for board members and all other RSUs granted vest over a two-year period.
On September 15, 2021, the Board awarded RSUs to 2 officers of the Company as replacement awards for cancelled warrants, which vest immediately. The previously held 3,572,514 warrants were cancelled on September 15, 2021 with the new RSUs granted on September 15, 2021 as a replacement of the previously held warrants. The 2 officers were awarded a total premium of $3.1 million, allocated between the 2 officers, to incentivize the cancellation and replacement, which was recorded to general and administrative expenses in the consolidated statements of operations and comprehensive (loss) income.
On September 29, 2021, under the 2021 Plan, the Board awarded RSUs to officers and other select employees of the Company, which vest over a two-to three-year period.
The following is a summary of RSU activity:
|
| Number of |
|
| Weighted average |
| ||
Unvested balance as of January 1, 2022 |
|
| 332,428 |
|
| $ | 26.86 |
|
Granted |
|
| 821,800 |
|
|
| 21.51 |
|
Vested |
|
| (30,549 | ) |
|
| 27.92 |
|
Forfeited |
|
| (87,917 | ) |
|
| 24.54 |
|
Unvested balance as of June 30, 2022 |
|
| 1,035,762 |
|
| $ | 22.94 |
|
Duringactivity for the three and six months ended June 30, 2022, the2023
| Number of |
| Weighted average |
| ||
Unvested balance as of January 1, 2023 |
| 720,707 |
| $ | 22.36 |
|
Granted |
| — |
|
|
| |
Vested |
| — |
|
|
| |
Forfeited |
| (102,064 | ) |
| 23.03 |
|
Unvested balance as of June 30, 2023 |
| 618,643 |
| $ | 22.21 |
|
The Company recorded share-based compensation in the amount of $3.1 million and $5.5 million related tofor RSUs respectively. This is recognized as $0.3 million and $0.5 million of cost of goods sold, $2.6 million and $4.5 million in general and administrative, and $0.3 million and $0.6 million in sales and marketing in the statements of operations and comprehensive (loss) income, respectively. There was 0 share-based compensation expense related to RSUs during the three or six months ended June 30, 2021.follows:
| Three Months Ended June 30, |
| Six Months Ended June 30, |
| ||||||||
Statement of operations location | 2023 |
| 2022 |
| 2023 |
| 2022 |
| ||||
| (in thousands) |
| ||||||||||
Cost of goods sold | $ | 41 |
| $ | 258 |
| $ | 260 |
| $ | 458 |
|
General and administrative |
| 601 |
|
| 2,567 |
|
| 1,920 |
|
| 4,462 |
|
Sales and marketing |
| 76 |
|
| 300 |
|
| 159 |
|
| 612 |
|
Total share-based compensation expense | $ | 718 |
| $ | 3,125 |
| $ | 2,339 |
| $ | 5,532 |
|
As of June 30, 2022,2023, there was approximately $17.74.8 million of total unrecognized compensation cost related to nonvestedunvested restricted stock units, which is expected to be recognized over a weighted-average service period of1.27 0.66years.
3118
Warrants
During the year ended December 31, 2018, the Company issued 8,784,872 warrants to certain employees and directors of the Company for past services provided. The warrants had 0 vesting conditions and are exercisable at any time for three years after the issuance, subject to certain lock-up provisions: (i) the warrants may not be exercised for 18 months following the Issue Date; (ii) 50% of the warrants may be exercised between months 19-24 following the Issue Date; and (iii) the remaining 50% of the warrants may be exercised at any time thereafter until expiration. The warrants are exchangeable into Subordinate Voting Shares.
The following table summarizes the activity related to warrants issued and outstanding to certain employees and directors of the Company for the six-month period ending June 30, 2021. There were 0 outstanding warrants as of June 30, 2022 and December 31, 2021.
|
| Number of warrants |
|
| Weighted average exercise price ($CAD) |
|
| Weighted average remaining contractual life (Years) |
| |||
Outstanding, December 31, 2020 |
|
| 6,061,561 |
|
|
| 6.00 |
|
|
| 0.72 |
|
Granted |
|
| — |
|
|
| — |
|
|
| — |
|
Exercised |
|
| (795,022 | ) |
|
| 6.00 |
|
|
| — |
|
Forfeited |
|
| (116,333 | ) |
|
| — |
|
|
| — |
|
Outstanding, June 30, 2021 |
|
| 5,150,206 |
|
|
| 6.00 |
|
|
| 0.24 |
|
NOTE 16.14. EARNINGS PER SHARE
The following is a reconciliation for the calculation of basic and diluted earnings per share for the three and six months ended June 30, 2022 and 2021:share:
|
| For the Three Months Ended June 30, |
|
| For the Six Months Ended June 30, |
| ||||||||||
|
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
| ||||
|
| (in thousands) |
| |||||||||||||
Net (loss) income |
| $ | (24,021 | ) |
| $ | 40,880 |
|
| $ | (56,503 | ) |
| $ | 70,958 |
|
Less: Net loss and comprehensive loss attributed to non-controlling interest |
|
| (1,530 | ) |
|
| — |
|
|
| (2,037 | ) |
|
| — |
|
Net (loss) income and comprehensive (loss) income attributed to common shareholders |
| $ | (22,491 | ) |
| $ | 40,880 |
|
| $ | (54,466 | ) |
| $ | 70,958 |
|
Weighted average number of common shares outstanding |
|
| 187,174,176 |
|
|
| 125,631,725 |
|
|
| 187,124,886 |
|
|
| 120,351,366 |
|
Dilutive effect of securities |
|
| — |
|
|
| 7,370,506 |
|
|
| — |
|
|
| 7,533,547 |
|
Diluted weighted average number of common shares outstanding |
|
| 187,174,176 |
|
|
| 133,002,231 |
|
|
| 187,124,886 |
|
|
| 127,884,913 |
|
Basic (loss) earnings per share |
| $ | (0.12 | ) |
| $ | 0.33 |
|
| $ | (0.29 | ) |
| $ | 0.59 |
|
Diluted (loss) earnings per share |
| $ | (0.12 | ) |
| $ | 0.31 |
|
| $ | (0.29 | ) |
| $ | 0.55 |
|
| Three Months Ended June 30, |
| Six Months Ended June 30, |
| ||||||||
| 2023 |
| 2022 |
| 2023 |
| 2022 |
| ||||
Numerator | (in thousands, except share and per share amounts) |
| ||||||||||
Continuing operations |
|
|
|
|
|
|
|
| ||||
Net loss from continuing operations | $ | (342,304 | ) | $ | (18,787 | ) | $ | (376,626 | ) | $ | (45,831 | ) |
Less: Net loss attributable to non-controlling interest |
| (2,353 | ) |
| (1,530 | ) |
| (3,337 | ) |
| (2,037 | ) |
Net loss from continuing operations available to common shareholders of Trulieve Cannabis Corp. | $ | (339,951 | ) | $ | (17,257 | ) | $ | (373,289 | ) | $ | (43,794 | ) |
Discontinued operations |
|
|
|
|
|
|
|
| ||||
Net loss from discontinued operations | $ | (64,568 | ) | $ | (5,234 | ) | $ | (95,877 | ) | $ | (10,672 | ) |
Less: Net loss attributable to non-controlling interest |
| (670 | ) |
| — |
|
| (1,193 | ) |
| — |
|
Net loss from discontinued operations excluding non-controlling interest | $ | (63,898 | ) | $ | (5,234 | ) | $ | (94,684 | ) | $ | (10,672 | ) |
Denominator |
|
|
|
|
|
|
|
| ||||
Weighted average number of common shares outstanding - Basic and diluted |
| 189,054,359 |
|
| 187,174,176 |
|
| 188,976,834 |
|
| 187,124,886 |
|
Loss per Share - Continuing operations |
|
|
|
|
|
|
|
| ||||
Basic and diluted loss per share | $ | (1.80 | ) | $ | (0.09 | ) | $ | (1.98 | ) | $ | (0.23 | ) |
Loss per Share - Discontinued operations |
|
|
|
|
|
|
|
| ||||
Basic and diluted loss per share | $ | (0.34 | ) | $ | (0.03 | ) | $ | (0.50 | ) | $ | (0.06 | ) |
For the three months ended June 30, 2022, the CompanyShares which have been excluded 5,268,901 of instruments of potentially dilutive instruments for the dilutive calculationfrom diluted per share amounts because their effect would have been anti-dilutive are as the Company is in a net loss position. For the six months ended June 30, 2022, the Company excluded 6,600,990 of potentially dilutive instruments from the dilutive calculation as the Company is in a net loss position. There were no instruments excluded for the three or six months ended June 30, 2021.follows:
| Three Months Ended June 30, |
| Six Months Ended June 30, |
| ||||||||
| 2023 |
| 2022 |
| 2023 |
| 2022 |
| ||||
Stock options |
| 2,842,951 |
|
| 3,465,639 |
|
| 2,985,093 |
|
| 3,547,090 |
|
Restricted share units |
| 618,643 |
|
| 1,035,762 |
|
| 655,474 |
|
| 1,057,043 |
|
Warrants |
| 9,496 |
|
| 767,500 |
|
| 93,444 |
|
| 2,201,764 |
|
32
As of June 30, 2022,2023, there are approximately 185.6186.0 million issued and outstanding shares which excludes approximately 2.9 million of fully vested RSUs which are not contractually issuable until 2024.
NOTE 17.15. INCOME TAXES
The following table summarizes the Company’s income tax expense and effective tax rate for the three and six months ended June 30, 20222023 and 2021.2022.
|
| For the Three Months |
|
| For the Six Months |
| Three Months Ended June 30, |
| Six Months Ended June 30, |
| ||||||||||||||||||
|
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
| 2023 |
| 2022 |
| 2023 |
| 2022 |
| ||||||||
|
| (in thousands) |
| (in thousands) |
| |||||||||||||||||||||||
Income before provision for income taxes |
| $ | 20,748 |
|
| $ | 69,982 |
|
| $ | 30,582 |
|
| $ | 134,608 |
| ||||||||||||
(Loss) Income before provision for income taxes | $ | (308,277 | ) | $ | 26,455 |
| $ | (307,142 | ) | $ | 42,553 |
| ||||||||||||||||
Provision for income taxes |
|
| 44,769 |
|
|
| 29,102 |
|
|
| 87,085 |
|
|
| 63,650 |
| $ | 34,027 |
| $ | 45,242 |
| $ | 69,484 |
| $ | 88,384 |
|
Effective tax rate |
|
| 216 | % |
|
| 42 | % |
|
| 285 | % |
|
| 47 | % |
| (11 | %) |
| 171 | % |
| (23 | %) |
| 208 | % |
The Company has computed its provision for income taxes based on the actual effective tax rate for the quarter as the Company believes this is the best estimate for the annual estimated effective tax rate.
The Company is subject to income taxes in the United States and Canada. Significant judgment is required in evaluating the Company’s uncertain tax positions and determining the provision for income taxes. The Company’s gross unrecognized tax benefits waswere approximately $44.949.5 million and $41.8 million as of June 30, 20222023 and December 31, 2021,2022, respectively, which is recorded in deferred tax liabilities and other long-term liabilities in the condensed consolidated balance sheets. The increase of $7.7 million in uncertain tax positions is due to a tax position taken relating to our inventory costs for tax purposes in our Florida dispensaries.
19
NOTE 18.16. DISCONTINUED OPERATIONS
During the three months ended June 30, 2023, the Company determined to discontinue its operations in Massachusetts. In July 2022, the Company discontinued its Nevada operations. There are immaterial activities related to Nevada which are expected to continue until the associated lease liabilities are settled.
The assets and liabilities associated with discontinued operations consisted of the following as June 30, 2023 and December 31, 2022:
| June 30, 2023 |
| December 31, 2022 |
| ||
| (in thousands) |
| ||||
Assets associated with discontinued operations |
|
|
|
| ||
Cash | $ | 1,835 |
| $ | 5,702 |
|
Accounts receivable, net |
| 2,744 |
|
| 2,936 |
|
Inventories, net |
| 3,230 |
|
| 21,310 |
|
Income tax receivable |
| 2,718 |
|
| 2,267 |
|
Prepaids expenses and other current assets |
| 947 |
|
| 1,486 |
|
Deferred tax asset |
| — |
|
| 766 |
|
Property and equipment, net |
| — |
|
| 53,687 |
|
Right of use assets - operating, net |
| — |
|
| 1,769 |
|
Right of use assets - finance, net |
| — |
|
| 5,736 |
|
Intangible assets, net |
| — |
|
| 27,849 |
|
Other assets |
| 2,013 |
|
| 2,638 |
|
Total assets associated with discontinued operations | $ | 13,487 |
| $ | 126,146 |
|
Liabilities associated with discontinued operations |
|
|
|
| ||
Accounts payable and accrued liabilities | $ | 1,120 |
| $ | 1,617 |
|
Deferred revenue |
| — |
|
| 109 |
|
Operating lease liabilities - current portion |
| 70 |
|
| 93 |
|
Finance lease liabilities - current portion |
| 427 |
|
| 456 |
|
Construction finance liability - current portion |
| 1,794 |
|
| — |
|
Operating lease liabilities |
| 14,686 |
|
| 16,428 |
|
Finance lease liabilities |
| 2,829 |
|
| 5,890 |
|
Construction finance liability |
| 25,237 |
|
| 45,217 |
|
Other long-term liabilities |
| 156 |
|
| 154 |
|
Total liabilities associated with discontinued operations | $ | 46,319 |
| $ | 69,964 |
|
20
The following table summarizes the Company's income (loss) from discontinued operations for the three and six months ended June 30, 2023 and 2022. The gain and loss resulting from the forgiveness of intercompany payables has been eliminated in consolidation.
| Three Months Ended June 30, |
| Six Months Ended June 30, |
| ||||||||
| 2023 |
| 2022 |
| 2023 |
| 2022 |
| ||||
| (in thousands) |
| ||||||||||
Revenues, net of discounts | $ | 4,472 |
| $ | 6,444 |
| $ | 8,347 |
| $ | 14,231 |
|
Cost of goods sold |
| 22,872 |
|
| 7,663 |
|
| 26,972 |
|
| 17,155 |
|
Gross margin |
| (18,400 | ) |
| (1,219 | ) |
| (18,625 | ) |
| (2,924 | ) |
Expenses: |
|
|
|
|
|
|
|
| ||||
Operating expenses |
| 1,994 |
|
| 2,984 |
|
| 4,382 |
|
| 6,049 |
|
Impairment and disposal of long-lived assets, net |
| 41,639 |
|
| — |
|
| 69,275 |
|
| — |
|
Total Expenses |
| 43,633 |
|
| 2,984 |
|
| 73,657 |
|
| 6,049 |
|
Income (loss) from operations |
| (62,033 | ) |
| (4,203 | ) |
| (92,282 | ) |
| (8,973 | ) |
Other (expense) income: |
|
|
|
|
|
|
|
| ||||
Interest expense |
| (1,589 | ) |
| (1,534 | ) |
| (3,178 | ) |
| (3,058 | ) |
Other income, net |
| — |
|
| 30 |
|
| 22 |
|
| 60 |
|
Total other expense, net |
| (1,589 | ) |
| (1,504 | ) |
| (3,156 | ) |
| (2,998 | ) |
Loss before provision for income taxes |
| (63,622 | ) |
| (5,707 | ) |
| (95,438 | ) |
| (11,971 | ) |
Income tax (provision) benefit |
| (946 | ) |
| 473 |
|
| (439 | ) |
| 1,299 |
|
Net loss from discontinued operations, net of tax (provision) benefit |
| (64,568 | ) |
| (5,234 | ) |
| (95,877 | ) |
| (10,672 | ) |
Less: Net loss attributable to non-controlling interest from discontinued operations |
| (670 | ) |
| — |
|
| (1,193 | ) |
| — |
|
Net loss from discontinued operations excluding non-controlling interest | $ | (63,898 | ) | $ | (5,234 | ) | $ | (94,684 | ) | $ | (10,672 | ) |
The condensed consolidated statements of cash flows include continuing operations and discontinued operations. The following table summarizes the depreciation of long-lived assets, amortization of long-lived assets, and capital expenditures of discontinued operations for the three and six months ended June 30, 2023 and 2022.
| Six Months Ended June 30, |
| ||||
| 2023 |
| 2022 |
| ||
|
|
|
|
| ||
Depreciation | $ | 2,917 |
| $ | 2,875 |
|
Amortization | $ | 535 |
| $ | 2,795 |
|
Purchases of property plant and equipment | $ | 67 |
| $ | 685 |
|
Loss on impairment of long-lived assets | $ | 69,275 |
| $ | — |
|
Other noncash investing and financing activities |
|
|
|
| ||
Noncash partial extinguishment of construction finance liability | $ | 18,486 |
| $ | — |
|
As a result of the Massachusetts exit, the Company performed a lease term reassessment for the Holyoke failed sale-leaseback financing arrangement due to lease renewals previously included in the lease term being excluded as of the Massachusetts exit. The Company concluded the failed sale-leaseback accounting conclusion is maintained. The Company recognized a gain on partial
21
extinguishment of $18.5 million as a result of the lease term reassessment, which partially offset the loss on disposal of the related property and improvements of $45.8 million which is recorded to net loss from discontinued operations, net of tax (provision) benefit.
The lease had a term of ten years and was extended by one year to an eleven year term, expiring in December 2030.
Future minimum lease payments for the construction finance liability as of June 30, 2023, are as follows:
Year | (in thousands) |
| |
Six months ending December 31, 2023 | $ | 2,682 |
|
2024 |
| 5,455 |
|
2025 |
| 5,619 |
|
2026 |
| 5,788 |
|
2027 |
| 5,961 |
|
Thereafter |
| 18,427 |
|
Total future payments |
| 43,932 |
|
Less: Interest |
| (16,901 | ) |
Total present value of minimum payments |
| 27,031 |
|
Construction finance liability - current portion |
| (1,794 | ) |
Construction finance liability | $ | 25,237 |
|
NOTE 17. Variable Interest Entities
The Company through its acquisition of Harvest and through the acquired Harvest subsidiaries has entered into operatingcertain agreements with various entities related to the purchase and operation of cannabis dispensary, cultivation, and production licenses, in several states. The Companystates in which it determined these entities to be VIEs due to the financial relationship and as the Company is the primary beneficiary as of June 30, 2022, and December 31, 2021. The Company holds varying ownership interests in these entities and in certain cases may not directly hold ownership in the entities but holds a significantvariable interest through an agent.entities. The Company's VIEs are not material to the consolidated financial position or operations as of June 30, 2023 and December 31, 2022 or for the three orand six month periodmonths ended June 30, 2022, or as of December 31, 2021. The Company did not have any VIEs prior to the acquisition of Harvest in October 2021.2023 and 2022.
The Company has determined certain of these entities to be VIEs and thatvariable interest entities in which it is the primary beneficiary. The Company holds ownership interests in these entities ranging from 46% to 95% either directly or through a proxy as of June 30, 2023. The Company consolidates these entities due to the other holder’s equity investment being insufficient to finance its activities without additional subordinated financial support and the Company meeting the power and economics criteria. In particular, the Company controls the management decisions and activities most significant to certainthese VIEs, has provided a significant portion of the subordinated financial support provided to date, andand/or holds membership interests exposing the Company to the risk of reward and/or loss. The Company allocates income and cash flows of the VIEs based on the outstanding ownership percentage in accordance with the underlying operating agreements, as amended. The Company has consolidated all identified VIEsvariable interest entities for which the Company is the primary beneficiary in the accompanying condensed consolidated financial statements.
During the three months ended March 31, 2023, the Company paid $0.4 million in cash and $1.7 million in subordinate voting shares earned but not yet issued, based on the completion of certain milestones required as part of the acquisition of one of the Company's consolidated variable interest entities. The Company previously paid $0.8 million in cash for certain milestones. As part of the Company's decision to exit the Massachusetts market during the three months ended June 30, 2023, it ceased its relationship with this variable interest entity. This terminated the payment of the $1.7 million subordinate voting shares earned but not yet issued. Based on the changes in circumstances, the Company reevaluated the variable interest entity, concluding it was no longer the primary beneficiary and as such, deconsolidated the entity during the three months ended June 30, 2023. The Company recorded a loss of $10.0 million related to the termination of the acquisition and deconsolidation of the variable interest entity which is included in the loss from discontinued operations in the condensed consolidated statements of operations for the three and six months ended June 30, 2023.
During the three months ended June 30, 2023, the Company sold and divested of certain variable interest entities. The Company received cash proceeds of $1.8 million related to the sale and recorded a loss on divestment of $0.8 million which is included in impairments and disposals of long-lived assets, net in the condensed consolidated statements of operations.
The Company no longer consolidates these VIEs since it is no longer considered the primary beneficiary.
22
The following table presents the summarized assets and liabilities of the Company’s VIEs in which the Company does not hold a majority interest as of June 30, 20222023 and December 31, 2021.2022. The assets and liabilities in the table below include third-party assets
33
and liabilities of the Company'sour VIEs only and exclude intercompany balances that eliminate in consolidation as included in theon our condensed consolidated balance sheets.
| June 30, 2022 |
|
| December 31, 2021 |
| June 30, 2023 |
| December 31, 2022 |
| ||||
| (in thousands) |
| (in thousands) |
| |||||||||
Current assets: |
|
|
|
|
|
|
|
|
| ||||
Cash | $ | 2,692 |
|
| $ | 1,241 |
| $ | 6,703 |
| $ | 7,349 |
|
Accounts receivable, net |
| 424 |
|
|
| 905 |
|
| 1,208 |
| 597 |
| |
Inventories, net |
| 4,134 |
|
|
| 2,451 |
|
| 8,359 |
| 7,590 |
| |
Prepaids and other current assets |
| 68 |
|
|
| 313 |
|
| 514 |
| 46 |
| |
Total current assets |
| 7,318 |
|
|
| 4,910 |
|
| 16,784 |
| 15,582 |
| |
Property and equipment, net |
| 6,644 |
|
|
| 8,335 |
|
| 27,923 |
| 25,994 |
| |
Right of use asset - operating, net |
| 2,817 |
| — |
| ||||||||
Right of use asset - finance, net |
| 275 |
| 224 |
| ||||||||
Intangible assets, net |
| 16,828 |
|
|
| 17,735 |
|
| 17,830 |
| 17,947 |
| |
Other assets |
| 57 |
|
|
| 544 |
|
| 147 |
| 344 |
| |
Total assets | $ | 30,847 |
|
| $ | 31,524 |
| $ | 65,776 |
| $ | 60,091 |
|
Current liabilities: |
|
|
|
|
|
|
|
|
| ||||
Accounts payable and accrued liabilities | $ | 1,386 |
|
| $ | 828 |
| $ | 2,188 |
| $ | 3,713 |
|
Notes payable - current portion |
| — |
|
|
| 1,170 |
| ||||||
Income tax payable |
| 1,782 |
|
|
| 522 |
|
| 2,538 |
| 1,615 |
| |
Deferred revenue |
| 1 |
| 6 |
| ||||||||
Finance lease liability - current portion |
| 55 |
| 41 |
| ||||||||
Total current liabilities |
| 3,168 |
|
|
| 2,520 |
|
| 4,782 |
| 5,375 |
| |
Notes payable |
| 1,080 |
|
|
| 1,061 |
|
| 1,045 |
| 1,200 |
| |
Operating lease liability |
| 2,892 |
| — |
| ||||||||
Finance lease liability |
| 229 |
| 185 |
| ||||||||
Deferred tax liabilities |
| 4,245 |
|
|
| 4,479 |
|
| 3,663 |
| 4,101 |
| |
Other long-term liabilities |
| 619 |
|
|
| — |
|
| 796 |
| 625 |
| |
Total liabilities | $ | 9,112 |
|
| $ | 8,060 |
| $ | 13,407 |
| $ | 11,486 |
|
In the first quarter of 2022, the Company divested of its minority ownership interest in one of its VIEs and received cash of $1.6 million and recorded an insignificant loss on the divestment which is recorded in loss on disposal of non-operating assets in the condensed consolidated statement of operations and comprehensive (loss) income for the six months ended June 30, 2022. As of June 30, 2022, the Company is no longer the primary beneficiary of this VIE and the VIE is no longer consolidated in the Company's condensed consolidated financial statements.
NOTE 19.18. RELATED PARTIES
The Company had raised funds by issuing notes to various related parties including directors, officers, and shareholders. The related party notes were paid off in full in November 2021. The balance of related party notes was 0 as of December 31, 2021, and June 30, 2022, respectively. The Company incurred interest expense for the three and six months ended June 30, 2021 of $0.4 million and $0.7 million, respectively on the related party notes.
J.T. Burnette, the spouse of Kim Rivers, the Chief Executive Officer and Chair of the Board of Directors of the Company, was a minority owner of a company (the “Supplier”) that provides construction and related services to the Company. As of January 1, 2022, the Supplier is no longer a related party of the Company. The Supplier is responsible for the construction of the Company’s cultivation and processing facilities, and provides labor, materials, and equipment on a cost-plus basis. For the six months ended June 30, 2021, property and equipment purchases totaled $76.4 million. As of December 31, 2021, $11.4 million of related party property and equipment purchases was included in accounts payable in the condensed consolidated balance sheets. The use of the Supplier was reviewed and approved by the independent members of the Company’s board of directors, and all invoices of the Supplier are reviewed by the office of the Company’s Chief Legal Officer.
34
The Company leases a cultivation facility and corporate office facility from an entity that is directly or indirectly owned by Kim Rivers, the Company's Chief Executive Officer and Chair of the board of directors, George Hackney, a former member of the Company's board of directors, and Richard May, a member of the Company's board of directors. The Company also leases various properties from companies that are managed by Benjamin Atkins, a former director and shareholder of the Company, and the Supplier. As of January 1, 2022, Benjamin Atkins is no longer a related party of the Company due to the time that has passed since Mr. Atkins held a director position.
As of June 30, 2022,2023, and December 31, 2021,2022, under ASC 842, the Company had the following related party operating leases inon the condensed consolidated balance sheets:
|
| As of June 30, 2022 | As of December 31, 2021 |
| ||||||||||||||
|
| Operating |
|
| Operating |
|
| Finance |
| As of June 30, 2023 |
| As of December 31, 2022 |
| |||||
|
| (in thousands) |
| (in thousands) |
| |||||||||||||
Right-of-use assets, net |
| $ | 874 |
|
| $ | 2,082 |
|
| $ | 2,009 |
| $ | 755 |
| $ | 820 |
|
Lease liabilities: |
|
|
|
|
|
|
|
|
|
|
| |||||||
Lease liabilities - current portion |
| $ | 106 |
|
| $ | 418 |
|
| $ | 215 |
| $ | 121 |
| $ | 113 |
|
Lease liabilities |
|
| 809 |
|
|
| 1,862 |
|
|
| 2,127 |
|
| 679 |
| 751 |
| |
Total related parties lease liabilities |
| $ | 915 |
|
| $ | 2,280 |
|
| $ | 2,342 |
| $ | 800 |
| $ | 864 |
|
ExpensesLease expense recognized foron related party operating leases was less than $0.1 million and $0.1 million for the three and six months ended June 30, 2022, and2023, respectively. Lease expense was less than $0.1 million and $0.1 million for the three and six months ended June 30, 2021,2022, respectively.
23
NOTE 20.19. REVENUE DISAGGREGATION
Net revenues are comprised of the following for the three and six month periodsmonths ended June 30, 20222023 and 2021:2022:
| For the Three Months Ended June 30, |
|
| For the Six Months Ended June 30, |
| Three Months Ended June 30, |
| Six Months Ended June 30, |
| ||||||||||||||||||
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
| 2023 |
| 2022 |
| 2023 |
| 2022 |
| ||||||||
| (in thousands) |
| (in thousands) |
| |||||||||||||||||||||||
Retail | $ | 298,561 |
|
| $ | 202,585 |
|
| $ | 589,174 |
|
| $ | 383,849 |
| $ | 271,888 |
| $ | 297,603 |
| $ | 546,733 |
| $ | 587,645 |
|
Wholesale, licensing, and other |
| 21,722 |
|
|
| 12,537 |
|
|
| 49,457 |
|
|
| 25,096 |
|
| 9,907 |
| 16,236 |
| 20,276 |
| 36,755 |
| |||
Revenues, net of discounts | $ | 320,283 |
|
| $ | 215,122 |
|
| $ | 638,631 |
|
| $ | 408,945 |
| ||||||||||||
Revenue, net of discounts | $ | 281,795 |
| $ | 313,839 |
| $ | 567,009 |
| $ | 624,400 |
|
NOTE 21.20. COMMITMENTS AND CONTINGENCIES
Operating Licenses
Although the possession, cultivation, and distribution of cannabis for medical-use and adult-use is permitted in the states in which we operate,the Company operates, cannabis is a Schedule-I controlled substance and its use and possession remains a violation of federal law. Since federal law criminalizing the use of cannabis preempts state laws that legalize its use, strict enforcement of federal law regarding cannabis would likely result in the Company’s inability to proceed with the Company'sour business plans. In addition, the Company’s assets, including real property, inventory, cash and cash equivalents, equipment, and other goods, could be subject to asset forfeiture because cannabis is still federally illegal.
35
Claims and Litigation
From time to time,In the ordinary course of business, the Company may be involved ina party to litigation, relating to claims arising out of operations in the normal course of business.investigations, inquiries, employment-related matters, disputes and other potential claims. As of June 30, 2022,2023, there were no pending or threatened lawsuits that could reasonably be expected to have a material effect on the results of the Company’s condensed consolidated statements of operations. The Company does not believe it is probable that the outcome of any existing litigation, investigations, disputes or other potential claims will materially affect the Company or these financial statements in excess of amounts accrued.
In connection with the acquisition of a cultivation operation from CP4 Group, LLC, in Phoenix, Arizona ("Watkins Cultivation Operation" or "Watkins"), in the prior period, the Company received a demand letter on October 12, 2022, related to the four potential earnouts. The earnouts were based on the completion of certain milestones related to construction and operations and comprehensive (loss) income. There are also no proceedingscontingent on the continued employment of key employee shareholders. The Company entered into a settlement agreement in which any of the Company’s directors, officers, or affiliates is an adverse party or has a material interest adverse to the Company’s interest.April 2023 closing this matter.
Contingencies
The Company records contingent liabilities with respect to litigation on various claims in which the Companyit believes a loss may beis probable and the loss is estimable.can be estimated. As of June 30, 20222023 and December 31, 2021, there was2022, $13.11.6 million and $8.831.7 million was included in contingent liabilities inon the condensed consolidated balance sheets related to pending litigation matters, respectively. During the three and six months ended June 30, 2023 the Company settled various claims resulting in a decrease to the accrual. As of June 30, 20222023 and December 31, 2021,2022, $1.60.8 million and $2.33.0 million, respectively, was included in contingent liabilities inon the condensed consolidated balance sheets for estimates related to various sales tax matters, respectively. As of June 30, 2022, the Company recorded $7.3 million in liabilities related to potential earn-outs on the Watkins acquisition, that were determined to be probable and estimable as of June 30, 2022, included in contingent liabilities in the condensed consolidated balance sheets. As of June 30, 2022 and December 31, 2021 there was $0.1 million and $1.9 million, respectively, of other contingencies recorded in contingent liabilities in the condensed consolidated balance sheets.matters.
Regulatory Compliance
The Company’s compliance with state and other rules and regulations may be reviewed by state and federal agencies. If the Company fails to comply with these regulations, the Company could be subject to loss of licenses, substantial fines or penalties, and other sanctions.
24
NOTE 22.21. SUBSEQUENT EVENTS
In July 20222023, the Company madegranted, under the decisionCompany’s 2021 Omnibus Incentive Plan, 1,754,817 stock options and 3,017,294 restricted share units to discontinue the Company's wholesale operations within the state of Nevada.certain employees and directors. The shares vest over varying terms over a three-year period. The Company is currently evaluatinghas not yet completed the exit plansfair value measurement for these operations andawards as of the related financial impacts. Asdate of June 30, 2022, these operations represented approximately $54.6 million of assets and generated revenues of $1.8 million for six months ended June 30, 2022.this filing.
3625
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
This "Management's Discussion and Analysis of Financial Condition and Results of Operations" of Trulieve Cannabis Corp., together with its subsidiaries ("Trulieve," "the Company," "we," or "our") should be read in conjunction with the accompanying unaudited condensed consolidated financial statements and the related notes included elsewhere within this Quarterly Report on Form 10-Q and the Audited Consolidated Financial Statements and the related Notes thereto and "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" contained in our Annual Report on Form 10-K for the fiscal year ended December 31, 20212022 (the "Form"2022 Form 10-K"). There have been no material changes as of June 30, 20222023 to the application of our critical accounting policies as described in Item 7 of the Form 10-K.
This discussion contains forward-looking statements and involves numerous risks and uncertainties, including but not limited to those described in the “Risk Factors” section of this Quarterly Report on Form 10-Q and in “Part I, Item 1A. Risk Factors” in our 20212022 Form 10-K.10-K and in “Part II, Item 1A – Risk Factors” in our Q1 2023 Form 10-Q (the “Q1 Form 10-Q”). Actual results may differ materially from those contained in any forward-looking statements. You should read “Cautionary Note Regarding Forward-Looking Statements” and “Risk Factors” contained herein and in our 20212022 Form 10-K.10-K and Q1 Form 10-Q. See “Special Note Regarding Forward-Looking Statements and Projections” in “Part II. Other Information” of this report. You should consider our forward-looking statements in light of the risks discussed in “Item 1A. Risk Factors” in “Part II. Other Information” of this report and our unaudited condensed consolidated financial statements, related notes and other financial information appearing elsewhere in this report, the Form 10-K and our other filings with the Securities and Exchange Commission (the “SEC”).
Overview
WeTrulieve Cannabis Corp. is a reporting issuer in the United States and Canada. The Company’s Subordinate Voting Shares (as hereinafter defined) are listed for trading on the Canadian Securities Exchange (“CSE”) under the symbol “TRUL” and are also traded in the United States on the OTCQX Best Market (“OTCQX”) under the symbol “TCNNF”.
Trulieve is a vertically integrated cannabis company and multi-state operator which currently holds licenses to operateoperates in eleven states and has received noticea number of intent to award a license in an twelfth state.states. Headquartered in Quincy, Florida, we are the market leader for quality medical cannabis products and services in Florida and we have market leading retail operations in Arizona, Pennsylvania, and Pennsylvania.West Virginia. By providing innovative, high-quality products across our brand portfolio, we aim to be the brand of choice for medical and adult-use customers in all of the markets that we serve. We operate in highly regulated markets that require expertise in cultivation, manufacturing, retail, and logistics. We have developed proficiencies in each of these functions and are committed to expanding access to high quality cannabis products and delivering exceptional customer experiences.
All states in which we operate have adopted legislation to permit the use Trulieve leverages its developed processes cultivate, process, and/or dispense a wide-range of permitted cannabis products across its operating markets with high standards for medicinal purposes to treat specific conditionssafety, effectiveness, quality, and diseases, which we refer to as medical cannabis. Recreational marijuana, or adult-use cannabis, is legal marijuana sold in licensed dispensaries to adults ages 21 and older. Thus far, ofcustomer care at the states in which we operate, only Arizona, California, Colorado, Connecticut, Massachusetts, and Nevada have adopted legislation permitting commercialization of adult-use cannabis products. As previously disclosed, on October 1, 2021, we completed our previously announced acquisition of Harvest Health & Recreation Inc. (“Harvest”) and, as a result of the acquisition, our operations have expanded significantly effective as of such date. As of August 1, 2022, we operated 173 dispensaries, with 118 dispensaries in Florida, 20 affiliated dispensaries in Pennsylvania, 17 dispensaries in Arizona, five dispensaries in California, three dispensaries in Maryland, three dispensaries in Massachusetts, six dispensaries in West Virginia and one dispensary in Connecticut, and we operated cultivation and processing facilities in Arizona, Colorado, Florida, Maryland, Massachusetts, Nevada, Pennsylvania, and West Virginia.forefront.
As of June 30, 2022,2023 we operated the following:
State | Number of Dispensaries |
| Number of Cultivation and Processing Facilities |
| ||
Florida |
| 125 |
|
| 6 |
|
Arizona |
| 21 |
|
| 4 |
|
Pennsylvania |
| 20 |
|
| 3 |
|
West Virginia |
| 10 |
|
| 1 |
|
Maryland |
| 3 |
|
| 1 |
|
Georgia |
| 3 |
|
| 1 |
|
Connecticut |
| 1 |
|
| — |
|
Colorado |
| — |
|
| 1 |
|
Total |
| 183 |
|
| 17 |
|
As of June 30, 2023, we employed over 9,0005,900 people, and we are committed to providing patients and adult use consumers, which we refer to herein as “customers,” a consistent and welcoming retail experience across Trulieve branded stores and affiliated retail locations. As of June 30, 2022, the majority of our revenue was generated from the sale of cannabis products in the State of Florida and to a lesser extent Arizona and the Commonwealth of Pennsylvania. To date, our operations in our California, Connecticut, Colorado, Maryland, Massachusetts, Nevada, and West Virginia, have not been material to our business.
26
Our business and operations center around the Trulieve brand philosophy of “Customers First” which permeates our culture beginning with high- qualityhigh-quality and efficient cultivation and manufacturing practices,practices. We focus on the consumer experience at Trulieve branded and affiliated retail locations, at our in-house call center and where availablein our Florida market at customer residences through a robust home delivery program. Our investments in vertically integrated operations in several of our markets afford us ownership of the entire supply chain, which mitigates third-party risks and allows us to completely control product quality and brand experience. We believe that this contributesis contributive to high customer retention and brand loyalty. We successfully operate our core business functions of cultivation, production, and distribution at scale, and are skilled at rapidly increasing capacity without any interruption to existing operations.
In furtherance of our customer-first focus, we have developed a suite of Trulieve branded products, including flower, edibles, vaporizer cartridges, concentrates, topicals, capsules, tinctures, dissolvable powders, and nasal sprays. This wide variety of products gives customers the ability to select product(s) that consistently deliver the desired effect and in their preferred method of delivery.
Trulieve has identified five regional geographic hubs in the U.S. and has established cannabis operations in three of the five hubs: Southeast, Northeast, and Southwest. In each of our three regional hubs we have market leading positions in cornerstone states and additional operations and assets in other state markets. Our hubs are managed by national and regional management teams supported by our corporate headquarters in Florida.
Southeast Hub
37
Our southeastSoutheast hub operations are anchored by our cornerstone market of Florida. Trulieve was the first licensed operator in the medical market in Florida with initial sales in 2016. Publicly available reports filed with the Florida Office of Medical Marijuana Use show Trulieve has the most dispensing locations and the greatest dispensing volume across product categories out of all licensed medical marijuana businesses in the state as of December 31, 2021 and June 30, 2022. Trulieve cultivates and produces all of its products in-house and distributes those products to customers in Trulieve branded stores (dispensaries) throughout Florida, as well as via home delivery.
As of August 1, 2022, Trulieve operated cultivation and processing facilities across ten sites and 118 retail dispensaries throughout the state. In accordance with Florida law, Trulieve grows all of its cannabis in secure enclosed indoor facilities and greenhouse structures. In furtherance of our customer-first focus, we have developed a suite of Trulieve branded products, including flower, edibles, vaporizer cartridges, concentrates, topicals, capsules, tinctures, dissolvable powders, and nasal sprays. This wide variety of products gives customers the ability to select the product that consistently delivers the desired effect and in their preferred method of delivery.
In Georgia, Trulieve received a Notice of Intent to award a Class 1 Production License from the Georgia Access to Medical Cannabis Commission in July 2021. The Notice of Intent to award is a notice of the Georgia Access to Medical Cannabis Commission’s expected contract award to Trulieve GA pending resolution of a protest process. If the contract is awarded, Trulieve GA will holdholds one of two Class 1 Production Licenses in the state and will beis permitted to cultivate cannabis for the manufacture and sale of low tetrahydrocannabinol, or THC oil. On April 28, 2023, the Company opened the first locations in Georgia, opening a store in Macon and Marietta and opened a third store in Newnan in June 2023.
Northeast Hub
Our northeastSouthwest hub operations are anchored by Arizona, where Trulieve holds a market-leading retail position with twenty one dispensaries, offering medical and adult use customers a wide range of branded and third-party products, including brand partner products, in addition to sales in the wholesale channel.
Our Northeast hub operations are anchored by our cornerstone market of Pennsylvania.
We conduct cultivation, processing, and retail operations through direct and indirect subsidiaries with permits for retail operations and grower/processor operations in Pennsylvania. These subsidiaries operate cultivation
During the three months ended June 30, 2023, the Company approved a plan to exit the Massachusetts market to redirect resources to more attractive and processing facilities in McKeesport, Reading,profitable markets. The exit of Massachusetts represented a strategic shift and Carmichael, Pennsylvania to support our affiliated networkthe operations of retail dispensaries and wholesale distribution network across the state.Massachusetts are reported as discontinued operations as of June 30, 2023.
We operateDuring the three medicalmonths ended June 30, 2023, the Company divested three additional dispensaries in Maryland and conduct wholesale sales supported by cultivation and processing in Hancock, Maryland. As of August 1, 2022, we operate three retail dispensaries in Massachusetts, serving medical and adult use customers in Northampton and adult use customers in Worcester and Framingham. Our retail operations are supported by cultivation and manufacturing operations in Holyoke. We commenced wholesale sales in September 2021. Trulieve was the first to offer sales of clones supporting home grow for residents in the Massachusetts market in August 2021.California.
We operate a medical cannabis dispensary located in Bristol, Connecticut. Under Connecticut’s adult-use cannabis legislation, which was enacted July 1, 2021, Trulieve can seek regulatory approval to expand sales at this dispensary to include adult use sales.
We operate six dispensaries in West Virginia, supported by cultivation and processing operations in Huntington, West Virginia. As of August 1, 2022, Trulieve has been awarded and has acquired permits to operate up to a total of ten dispensaries in West Virginia.
Southwest Hub
Our southwest hub operations are anchored by our cornerstone market of Arizona. In Arizona, Trulieve holds a market-leading retail position with 17 dispensaries and six cultivation and/or processing sites as of August 1, 2022, offering medical and adult use customers a wide range of branded and third-party products, including brand partner products. We also serve medical and adult use customers in California. Trulieve conducts wholesale operations in Arizona, Colorado, and Nevada, serving the medical and adult use markets in each state.
Recent Developments
On June 19, 2023, Alex D'Amico resigned as the Company's Chief Financial Officer effective immediately. The resignation was not as a result of any disagreements regarding any matter relating to the Company’s operations, policies, or practices. During the interim period, the Company has appointed Ryan Blust, the Company’s Vice President, Finance, to serve as its Interim Chief Financial Officer. The Company appointed Tim Mullany as Chief Financial Officer, effective as of July 10, 2023; however, Mr. Mullany resigned as the Company’s Chief Financial Officer for personal reasons effective July 20, 2023 and the Company appointed Ryan Blust as its interim Chief Financial Officer effective July 21, 2023.
On July 7, 2022,In connection with Mr. D’Amico’s resignation, the Company filed a shelf registration statement on Form S-3audit committee of the Company’s board of directors (the Registration Statement)“Audit Committee”), with the United States Securitiesassistance of independent outside legal counsel, investigated circumstances relating to irregularities with Mr. D’Amico’s expense reimbursement submissions and Exchange Commission to registerhis use of a base shelf prospectus and to register for resale select subordinate voting sharescorporate credit card over the tenure of his employment at the Company. The filingAudit Committee and the Company determined that Mr. D’Amico engaged in conduct that was deemed effective July 8, 2022.inconsistent with the Company’s policies and procedures by both submitting expense reimbursements for personal expenses as well as utilizing corporate credit cards for personal expenses. The investigation has concluded, and the Company estimates that the total amount in question is between $350,000 to $400,000. Mr. D’Amico has not reimbursed the Company for such expenses. The Audit Committee and the Company have concluded that the matters that were the subject of the investigation and the amounts involved did not have a material impact on the Company’s previously reported financial statements for any period. The Company is still evaluating its options, particularly with respect to the expenses submitted by Mr. D’Amico, which may include, without limitation, the Company seeking restitution from Mr. D’Amico of the amounts determined to have been improperly reimbursed and making corrective tax reports relating to any such amounts not recovered.
27
Critical Accounting Estimates and JudgementsJudgments
The preparation of the condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Significant estimates in our
38
condensed consolidated financial statements, include, but are not limited to, accounting for acquisitions and business combinations; initial valuation and subsequent impairment testing of goodwill, other intangible assets and long-lived assets; leases; fair value of financial instruments, income taxes; inventory; share-based payment arrangements, and commitment and contingencies. Actual results may differ from these estimates. Estimates and underlying assumptions are reviewed on an ongoing basis.
Components of Results of Operations
RevenueFinancial Review
We derive our revenue from cannabis products which we manufacture, sell, and distribute to our customers by home delivery and in our dispensaries, as well as sales of cannabis products to wholesale customers in select markets.
Gross Profit
Gross profit includes the costs directly attributable to product sales and includes amounts paid to produce finished goods, such as flower, and concentrates, as well as packaging and other supplies, fees for services and processing, allocated overhead which includes allocations of rent, administrative salaries, utilities, and related costs. Cannabis costs are affected by various state regulations that limit the sourcing and procurement of cannabis product, which may create fluctuations in margins over comparative periods as the regulatory environment changes.
Sales and Marketing
Sales and marketing expenses consist primarily of personnel costs related to the dispensaries as well as marketing programs for our products. As we continue to expand and open additional dispensaries, we expect our sales and marketing expenses to continue to increase.
General and Administrative
General and administrative expenses represent costs incurred at our corporate offices, primarily related to personnel costs, including salaries, share-based compensation, incentive compensation, benefits, and other professional service costs, including legal and accounting. We expect to continue to invest considerably in this area to support our expansion plans and to support the increasing complexity of the cannabis business. Furthermore, we expect to continue to incur acquisition, transaction, and integration costs related to our expansion plans, and we anticipate a significant increase in accounting, and legal and professional fees associated with becoming compliant with the Sarbanes-Oxley Act and other public company corporate expenses.
Depreciation and Amortization
Depreciation expense is calculated on a straight-line basis using the estimated useful life of each asset. Estimated useful life is determined by asset class and is reviewed on an annual basis and revised if necessary. Amortization expense is recognized using the straight-line method over the estimated useful life of the intangible assets. Useful lives for intangible assets are determined by type of asset with the initial determination of useful life derived at the time the asset is placed in service. On an annual basis, the useful lives of each intangible class of assets are evaluated for appropriateness and adjusted if appropriate.
Other Income (Expense), Net
Other income (expense), net consist primarily of interest expense, interest income, loss on disposal of non-operational assets, and the revaluation of derivative liabilities.
Provision for Income Taxes
Provision for income taxes is calculated using the asset and liability method. Deferred income tax assets and liabilities are determined based on enacted tax rates and laws for the years in which the differences are expected to reverse. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized.
As we operate in the cannabis industry, we are subject to the limits of IRC Section 280E under which we are only allowed to deduct expenses directly related to the cost of products and the cost of producing products.
39
Results of Continuing Operations
This section of this Form 10-Q generally describes and compares our results of continuing operations for the three and six months ended June 30, 2023 and 2022, except as noted. Refer to Note 16. Discontinued Operations to the condensed consolidated financial statements included in this Quarterly Report on Form 10-Q for additional financial information related to our discontinued operations.
Three Months Ended June 30, 2023 Compared to Three Months Ended June 30, 2022
| Three Months Ended June 30, |
|
|
| |||||||||||
| 2023 |
| 2022 |
|
|
| |||||||||
| (in thousands) |
|
|
| |||||||||||
Statement of operations data: | Amount |
| Percentage of Revenues, Net |
| Amount |
| Percentage of Revenues, Net |
| Amount Change |
| |||||
Revenue, net | $ | 281,795 |
|
| 100.0 | % | $ | 313,839 |
|
| 100.0 | % | $ | (32,044 | ) |
Cost of goods sold |
| 140,188 |
|
| 49.7 | % |
| 130,466 |
|
| 41.6 | % |
| 9,722 |
|
Gross profit |
| 141,607 |
|
| 50.3 | % |
| 183,373 |
|
| 58.4 | % |
| (41,766 | ) |
Expenses: |
|
|
|
|
|
|
|
|
|
| |||||
Sales and marketing |
| 61,075 |
|
| 21.7 | % |
| 73,902 |
|
| 23.5 | % |
| (12,827 | ) |
General and administrative |
| 34,902 |
|
| 12.4 | % |
| 33,575 |
|
| 10.7 | % |
| 1,327 |
|
Depreciation and amortization |
| 26,052 |
|
| 9.2 | % |
| 29,367 |
|
| 9.4 | % |
| (3,315 | ) |
Impairments and disposals of long-lived assets, net |
| 3,310 |
|
| 1.2 | % |
| 5,055 |
|
| 1.6 | % |
| (1,745 | ) |
Impairment of goodwill |
| 307,590 |
|
| 109.2 | % |
| — |
|
| 0.0 | % |
| 307,590 |
|
Total expenses |
| 432,929 |
|
| 153.6 | % |
| 141,899 |
|
| 45.2 | % |
| 291,030 |
|
(Loss) income from operations |
| (291,322 | ) |
| (103.4 | %) |
| 41,474 |
|
| 13.2 | % |
| (332,796 | ) |
Other (expense) income: |
|
|
|
|
|
|
|
|
|
| |||||
Interest expense |
| (18,931 | ) |
| (6.7 | %) |
| (18,144 | ) |
| (5.8 | %) |
| (787 | ) |
Change in fair value of derivative liabilities - warrants |
| — |
|
| 0.0 | % |
| 1,442 |
|
| 0.5 | % |
| (1,442 | ) |
Other income, net |
| 1,976 |
|
| 0.7 | % |
| 1,683 |
|
| 0.5 | % |
| 293 |
|
Total other expense, net |
| (16,955 | ) |
| (6.0 | %) |
| (15,019 | ) |
| (4.8 | %) |
| (1,936 | ) |
(Loss) income before provision for income taxes |
| (308,277 | ) |
| (109.4 | %) |
| 26,455 |
|
| 8.4 | % |
| (334,732 | ) |
Provision for income taxes |
| 34,027 |
|
| 12.1 | % |
| 45,242 |
|
| 14.4 | % |
| (11,215 | ) |
Net loss from continuing operations |
| (342,304 | ) |
| (121.5 | %) |
| (18,787 | ) |
| (6.0 | %) |
| (323,517 | ) |
Net loss from discontinued operations, net of tax (provision) benefit of $(946) and $473, respectively |
| (64,568 | ) |
| (22.9 | %) |
| (5,234 | ) |
| (1.7 | %) |
| (59,334 | ) |
Net loss |
| (406,872 | ) |
| (144.4 | %) |
| (24,021 | ) |
| (7.7 | %) |
| (382,851 | ) |
Less: Net loss attributable to non-controlling interest from continuing operations |
| (2,353 | ) |
| (0.8 | %) |
| (1,530 | ) |
| (0.5 | %) |
| (823 | ) |
Less: Net loss attributable to non-controlling interest from discontinued operations |
| (670 | ) |
| (0.2 | %) |
| — |
|
| 0.0 | % |
| (670 | ) |
Net loss attributable to common shareholders | $ | (403,849 | ) |
| (143.3 | %) | $ | (22,491 | ) |
| (7.2 | %) | $ | (381,358 | ) |
Revenue, Net
|
| Three Months Ended |
|
|
|
| Six Months Ended |
|
|
| ||||||||||
|
| June 30, |
|
| Change |
| June 30, |
|
| Change | ||||||||||
|
| 2022 |
|
| 2021 |
|
| % |
| 2022 |
|
| 2021 |
|
| % | ||||
|
| (in thousands) |
|
|
|
| (in thousands) |
|
|
| ||||||||||
Revenues, net of discounts |
| $ | 320,283 |
|
| $ | 215,122 |
|
| 49% |
| $ | 638,631 |
|
| $ | 408,945 |
|
| 56% |
28
Revenue, net for the three months ended June 30, 2022 increased by 49%2023 was $281.8 million, a decrease of $32.0 million or $105.210% from $313.8 million as compared tofor the three months ended June 30, 2021. Revenue for the six months ended2022. The decrease in revenue is due to a $25.7 million decrease in retail revenues and a $6.3 million decrease in wholesale revenues. The Company experienced increased competition and promotional activity in certain markets. The Company operated 183 dispensaries and 165 dispensaries as of June 30, 2023 and June 30, 2022, increased by 56% or $229.7 million as compared to the six months ended June 30, 2021. The increase in revenue is the result of an increase in organic growth in retail sales due to an increase in products available for purchase and overall patient count, increased retail locations, as well as expansion of the wholesale business. During the period the Company made acquisitions such as Harvest and Keystone Shops, expanded business into new states such as Massachusetts and West Virginia, and opened additional dispensaries in existing markets such as Florida, all of which contributed to the increase in revenue.respectively.
Cost of Goods Sold
|
| Three Months Ended |
|
|
|
| Six Months Ended |
|
|
| ||||||||||
|
| June 30, |
|
| Change |
| June 30, |
|
| Change | ||||||||||
|
| 2022 |
|
| 2021 |
|
| % |
| 2022 |
|
| 2021 |
|
| % | ||||
|
| (in thousands) |
|
|
|
| (in thousands) |
|
|
| ||||||||||
Cost of goods sold |
| $ | 138,129 |
|
| $ | 70,639 |
|
| 96% |
| $ | 278,327 |
|
| $ | 129,198 |
|
| 115% |
% of total revenues |
|
| 43 | % |
|
| 33 | % |
|
|
|
| 44 | % |
|
| 32 | % |
|
|
Cost of goods sold for the three months ended June 30, 2022 increased by 96%2023 was $140.2 million, an increase of $9.7 million or $67.57% from $130.5 million as compared tofor the three months ended June 30, 2021.2022. Cost of goods sold for the six months ended June 30, 2022 increased by 115% or $149.1 million as compared to the six months ended June 30, 2021. Cost of goods sold increased due to expansion of the business and increased revenue. Cost of goods sold as a percentage of revenue, increasednet was 49.7% in the three and six months ended June 30, 2022 ascurrent quarter compared to 41.6% in the three and six months ended June 30, 2021. Thisprior year period. The increase was primarily due to inventory reduction efforts to right-size inventory levels, increased depreciation related to capital expenditures to support business growth, new production facilities in existing markets where economies of scale are anticipated in the future, and expansion into new markets which are not fully vertical, resulting in the sale of third-party products, and therefore yield lower margin than our vertical markets. The Company also incurred additional costs related to excess capacity in certain temporarily idled facilities.
The Company has continued to see increased cost of goods sold in relation to our revenues due to our expansion and streamlining efforts which we expect to derive cost savings and long-term benefits in the future.
Gross Profit
|
| Three Months Ended |
|
|
|
| Six Months Ended |
|
|
| ||||||||||
|
| June 30, |
|
| Change |
| June 30, |
|
| Change | ||||||||||
|
| 2022 |
|
| 2021 |
|
| % |
| 2022 |
|
| 2021 |
|
| % | ||||
|
| (in thousands) |
|
|
|
| (in thousands) |
|
|
| ||||||||||
Gross profit |
| $ | 182,154 |
|
| $ | 144,483 |
|
| 26% |
| $ | 360,304 |
|
| $ | 279,747 |
|
| 29% |
% of total revenues |
|
| 57 | % |
|
| 67 | % |
|
|
|
| 56 | % |
|
| 68 | % |
|
|
Gross profit for the three months ended June 30, 2022 increased by 26%2023 was $141.6 million, a decrease of $41.8 million or $37.723% from $183.4 million as compared tofor the three months ended June 30, 2021. Gross profit for the six months ended June 30, 2022 increased by 29% or $80.6 million as compared to the six months ended June 30, 2021.2022. Gross profit as a percentage of revenue, decreased duenet was 50.3% in the current quarter compared to 58.4% in the prior year period driven by increased wholesale business, which is generally lower margin thanpromotional activity in certain retail sales, increased depreciationmarkets, price compression in certain markets, a product mix shift to value brands, initiatives to reduce inventory levels and costs related to capital expenditures to support business growth, new production facilitiesexcess capacity in where economies of scale are anticipated in the future, and expansion into new markets which are not fully vertical, resulting in the sale of third-party products, and therefore yield lower margin than our vertical markets.certain temporarily idled facilities.
40
Sales and Marketing Expense
|
| Three Months Ended |
|
|
|
| Six Months Ended |
|
|
| ||||||||||
|
| June 30, |
|
| Change |
| June 30, |
|
| Change | ||||||||||
|
| 2022 |
|
| 2021 |
|
| % |
| 2022 |
|
| 2021 |
|
| % | ||||
|
| (in thousands) |
|
|
|
| (in thousands) |
|
|
| ||||||||||
Sales and marketing expense |
| $ | 75,286 |
|
| $ | 46,576 |
|
| 62% |
| $ | 148,148 |
|
| $ | 91,135 |
|
| 63% |
% of total revenues |
|
| 24 | % |
|
| 22 | % |
|
|
|
| 23 | % |
|
| 22 | % |
|
|
Sales and marketing expense for the three months ended June 30, 2022 increased by 62%2023 was $61.1 million, a decrease of $12.8 million or $28.717% from $73.9 million as compared tofor the three months ended June 30, 2021.2022. Sales and marketing expense foras a percentage of revenues, net was 21.7% in the six months ended June 30, 2022 increased by 63% or $57.0 million ascurrent quarter compared to 23.5% in the six months ended June 30, 2021.prior year period. The increasedecrease in expense was largely attributable to lower headcount in the Company’s dispensaries as we refined staffing levels to more closely align with consumer traffic and consumption levels. The decrease in sales and marketing expense is the result of a higher headcount for the year, as we continue to add additional dispensaries in efforts to maintain and further drive higher growth in sales and market share as well as expanding into new markets. This increased headcount resulted in higher personnel costs, which is the primary driver for the increase year over year. Another factor in the increase in sales in marketing expenses is $5.2 million and $7.3 million relatedwas also due to the accrual of earn-outs$5.2 million in the prior year related to the Watkins acquisition for the three and six months ended June 30, 2022, respectively.earnout.
General and Administrative Expense
|
| Three Months Ended |
|
|
|
| Six Months Ended |
|
|
| ||||||||||
|
| June 30, |
|
| Change |
| June 30, |
|
| Change | ||||||||||
|
| 2022 |
|
| 2021 |
|
| % |
| 2022 |
|
| 2021 |
|
| % | ||||
|
| (in thousands) |
|
|
|
| (in thousands) |
|
|
| ||||||||||
General and administrative expense |
| $ | 33,653 |
|
| $ | 14,942 |
|
| 125% |
| $ | 67,199 |
|
| $ | 27,650 |
|
| 143% |
% of total revenues |
|
| 11 | % |
|
| 7 | % |
|
|
|
| 11 | % |
|
| 7 | % |
|
|
General and administrative expense for the three months ended June 30, 2022 increased by 125%2023 was $34.9 million, an increase of $1.3 million or $18.74% from $33.6 million as compared tofor the three months ended June 30, 2021. General and administrative expenses for the six months ended June 30, 2022 increased by 143% or $39.5 million as compared to the six months ended June 30, 2021.2022. The increase in general and administrative expense is the resultprimarily due to a $8.6 million of entering new markets, ramping our infrastructurelegislative campaign contributions to support growth initiatives, continued acquisitions resulting in additionalthe Florida adult-use ballot initiative, offset by lower stock-based compensation expense and transaction and integration costs and increased go-forward compliance costs.as compared to the prior period.
Depreciation and Amortization Expense
|
| Three Months Ended |
|
|
|
| Six Months Ended |
|
|
| ||||||||||
|
| June 30, |
|
| Change |
| June 30, |
|
| Change | ||||||||||
|
| 2022 |
|
| 2021 |
|
| % |
| 2022 |
|
| 2021 |
|
| % | ||||
|
| (in thousands) |
|
|
|
| (in thousands) |
|
|
| ||||||||||
Depreciation and amortization expense |
| $ | 30,889 |
|
| $ | 6,667 |
|
| 363% |
| $ | 60,194 |
|
| $ | 12,101 |
|
| 397% |
% of total revenues |
|
| 10 | % |
|
| 3 | % |
|
|
|
| 9 | % |
|
| 3 | % |
|
|
Depreciation and amortization expense for the three months ended June 30, 2022 increased by 363%2023 was $26.1 million, a decrease of $3.3 million or $24.211% from $29.4 million as compared tofor the three months ended June 30, 2021. Depreciation and amortization expense for the six months ended June 30, 2022 increased by 397% or $48.1 million as compared to the six months ended June 30, 2021.2022. The overall increasedecrease in depreciation and amortization expense was dueattributable to investmentcertain intangible assets becoming fully amortized in infrastructure that resulted in a higher number of capitalized assets from the additional dispensaries and cultivation facilities. Furthermore, amortization expense increased due to acquired facilities and intangibles.prior year.
41
ImpairmentImpairments and DisposalDisposals of Long-lived Assets, Net
|
| Three Months Ended |
|
|
|
| Six Months Ended |
|
|
| ||||||||||
|
| June 30, |
|
| Change |
| June 30, |
|
| Change | ||||||||||
|
| 2022 |
|
| 2021 |
|
| % |
| 2022 |
|
| 2021 |
|
| % | ||||
|
| (in thousands) |
|
|
|
| (in thousands) |
|
|
| ||||||||||
Impairment and disposal of long-lived assets, net |
| $ | 4,336 |
|
| $ | — |
|
| N/A |
| $ | 18,116 |
|
| $ | — |
|
| N/A |
% of total revenues |
|
| 1 | % |
|
| — |
|
|
|
|
| 3 | % |
|
| — |
|
|
|
Impairment and disposal of long-lived assets, net for the three months ended June 30, 2022 increased by $4.32023 was $3.3 million, as compared to zeroa decrease of $1.7 million from $5.1 million for the three months ended June 30, 2021. Impairment and disposal of long-lived assets, net for the six months ended June 30, 2022 increased by $18.1 million as compared to zero for the six months ended June 30, 2021.2022. The increaseexpense in the current periods isquarter was primarily related to asset disposals in our California market and exiting the Watkins Cultivation Operation in the second quarter of 2023. The expense incurred in the prior year was primarily due to exited facilities and the repositioning of assets, primarily in our southeast hub.
29
Impairment of Goodwill
Impairment of goodwill for the three months ended June 30, 2023 was $307.6 million, an increase of $307.6 million from zero for the three months ended June 30, 2022 Based on the results of the Company's goodwill impairment procedures, the Company recorded a $307.6 million goodwill impairment for the single reporting unit during the three months ended June 30, 2023. The Company finds this is not a negative indicator of historic or current operating results and not a negative indicator of future performance as the Company has taken steps to shed underperforming assets while focusing on cash conservation which is reflective in the results of operations as of June 30, 2023. Additionally, the resulting non-cash charge has no impact on the Company’s compliance with debt covenants, its cash flows, or available liquidity.
Total Other Expense, Net
|
| Three Months Ended |
|
|
|
| Six Months Ended |
|
|
| ||||||||||
|
| June 30, |
|
| Change |
| June 30, |
|
| Change | ||||||||||
|
| 2022 |
|
| 2021 |
|
| % |
| 2022 |
|
| 2021 |
|
| % | ||||
|
| (in thousands) |
|
|
|
| (in thousands) |
|
|
| ||||||||||
Total other expense, net |
| $ | 17,242 |
|
| $ | 6,316 |
|
| 173% |
| $ | 36,065 |
|
| $ | 14,253 |
|
| 153% |
% of total revenues |
|
| 5 | % |
|
| 3 | % |
|
|
|
| 6 | % |
|
| 3 | % |
|
|
Total otherOther expense, net for the three months ended June 30, 2022 increased by 173%2023 was $17.0 million, an increase of $1.9 million or $10.913% from $15.0 million as compared to thefor three months ended June 30, 2021. Total other expense, net for the six months ended June 30, 2022 increased by 153% or $21.8 million as compared to the six months ended June 30, 2021.2022. The overall increase is primarily the result of an increasea change in interest expense related to additional finance leases and private placement notes to support business growth and loss on disposalthe valuation of non-operational assets.the warrants in the prior year which expired June 2022.
Provision for Income Taxes
|
| Three Months Ended |
|
|
|
| Six Months Ended |
|
|
| ||||||||||
|
| June 30, |
|
| Change |
| June 30, |
|
| Change | ||||||||||
|
| 2022 |
|
| 2021 |
|
| % |
| 2022 |
|
| 2021 |
|
| % | ||||
|
| (in thousands) |
|
|
|
| (in thousands) |
|
|
| ||||||||||
Provision for income taxes |
| $ | 44,769 |
|
| $ | 29,102 |
|
| 54% |
| $ | 87,085 |
|
| $ | 63,650 |
|
| 37% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expenseThe provision for income taxes for the three months ended June 30, 2022, increased by 54%2023 was $34.0 million, a decrease of $11.2 million or $15.725% from $45.2 million as compared tofor the three months ended June 30, 2021. Income tax expense for2022. For the sixthree months ended June 30, 2022, increased by 37% or $23.4 million as compared2023, the decrease in income tax expense is primarily due to the six months ended June 30, 2021.decrease in gross profit. Under IRC Section 280E, cannabis companies are only allowed to deduct expenses that are directly related to production of the products. The Company's quarterly tax provision is subject to change resulting from several factors, including regulations and administrative practices, principles, and interpretations related to tax.
Net Loss from Continuing Operations
Net loss from continuing operations for the three months ended June 30, 2023 was $342.3 million, an increase of $323.5 million from $18.8 million for the three months ended June 30, 2022. The increase was driven primarily by the goodwill impairment charge of $307.6 million, lower gross margin, and an increase of $8.6 million in legislative campaign contributions to support the Florida adult-use ballot initiative. These impacts were partially offset by lower operating expenses driven by the Company’s continued focus on cost savings initiatives, expenses of $5.2 million incurred in the prior year period related to the accrual of the Watkins earnout and a $11.2 million decrease in tax expense.
Net Loss from Discontinued Operations, Net of Tax Benefit
Net loss from discontinued operations, net of tax benefit for the three months ended June 30, 2023 was $64.6 million, an increase of $59.3 million from $5.2 million for the three months ended June 30, 2022. The increase in net loss is primarily attributable to losses from the exit of the Company’s operations in Massachusetts in the second quarter of 2023, including the disposal of long-lived assets of $31.6 million and a loss on divestment of a variable interest entity of $10.0 million. Discontinued operations also include the results of the Nevada operations that were discontinued in 2022.
30
Six Months Ended June 30, 2023 Compared to Six Months Ended June 30, 2022
| Six Months Ended June 30, | Six Months Ended June 30, |
| ||
| 2023 | 2022 |
| ||
| (in thousands) |
| |||
Statement of operations data: | Amount | Percentage of Revenues, Net | Amount | Percentage of Revenues, Net | Amount Change |
Revenue, net | $567,009 | 100.0% | $624,400 | 100.0% | $(57,391) |
Cost of goods sold | 275,240 | 48.5% | 261,172 | 41.8% | 14,068 |
Gross profit | 291,769 | 51.5% | 363,228 | 58.2% | (71,459) |
Expenses: |
|
|
|
|
|
Sales and marketing | 121,808 | 21.5% | 145,352 | 23.3% | (23,544) |
General and administrative | 74,212 | 13.1% | 66,989 | 10.7% | 7,223 |
Depreciation and amortization | 55,666 | 9.8% | 57,151 | 9.2% | (1,485) |
Impairments and disposals of long-lived assets, net | 6,689 | 1.2% | 21,516 | 3.4% | (14,827) |
Impairment of goodwill | 307,590 | 54.2% | — | 0.0% | 307,590 |
Total expenses | 565,965 | 99.8% | 291,008 | 46.6% | 274,957 |
(Loss) income from operations | (274,196) | (48.4%) | 72,220 | 11.6% | (346,416) |
Other (expense) income: |
|
|
|
|
|
Interest expense | (40,091) | (7.1%) | (34,497) | (5.5%) | (5,594) |
Change in fair value of derivative liabilities - warrants | 252 | 0.0% | 2,262 | 0.4% | (2,010) |
Other income, net | 6,893 | 1.2% | 2,568 | 0.4% | 4,325 |
Total other expense, net | (32,946) | (5.8%) | (29,667) | (4.8%) | (3,279) |
(Loss) income before provision for income taxes | (307,142) | (54.2%) | 42,553 | 6.8% | (349,695) |
Provision for income taxes | 69,484 | 12.3% | 88,384 | 14.2% | (18,900) |
Net loss from continuing operations | (376,626) | (66.4%) | (45,831) | (7.3%) | (330,795) |
Net loss from discontinued operations, net of tax (provision) benefit of $(439) and $1,299, respectively | (95,877) | (16.9%) | (10,672) | (1.7%) | (85,205) |
Net loss | (472,503) | (83.3%) | (56,503) | (9.0%) | (416,000) |
Less: Net loss attributable to non-controlling interest from continuing operations | (3,337) | (0.6%) | (2,037) | (0.3%) | (1,300) |
Less: Net loss attributable to non-controlling interest from discontinued operations | (1,193) | (0.2%) | — | 0.0% | (1,193) |
Net loss attributable to common shareholders | $(467,973) | (82.5%) | $(54,466) | (8.7%) | $(413,507) |
Revenue, Net
Revenue, net for the six months ended June 30, 2023 was $567.0 million, a decrease of $57.4 million or 9% from $624.4 million for the six months ended June 30, 2022. The decrease in revenue is due to a $40.9 million decrease in retail revenues and a $16.5 million decrease in wholesale revenues. The Company experienced increased competition and promotional activity in certain markets. The Company operated 183 dispensaries and 165 dispensaries as of June 30, 2023 and June 30, 2022, respectively.
Cost of Goods Sold
Cost of goods sold for the six months ended June 30, 2023 was $275.2 million, an increase of $14.1 million or 5% from $261.2 million for the six months ended June 30, 2022. Cost of goods as a percentage of revenues, net was 48.5% in the current year period compared to 41.8% in the prior year period. The increase was primarily due to inventory reduction efforts to right-size inventory levels, increased depreciation related to capital expenditures to support business growth, new production facilities in existing markets where economies of scale are anticipated in the future, and expansion into new markets which are not fully vertical, resulting in the sale of third-party products, and therefore yield lower margin than our vertical markets. The Company also incurred additional costs related to excess capacity in certain temporarily idled facilities.
31
Gross Profit
Gross profit for the six months ended June 30, 2023 was $291.8 million, a decrease of $71.5 million or 20% from $363.2 million for the six months ended June 30, 2022. Gross profit as a percentage of revenue, net was 51.5% in the current year period compared to 58.2% in the prior year period driven by increased promotional activity in certain retail markets, price compression in certain markets, a product mix shift to value brands, initiatives to reduce inventory levels and costs related to excess capacity in certain temporarily idled facilities.
Sales and Marketing Expense
Sales and marketing expense for the six months ended June 30, 2023 was 121.8 million, a decrease of 23.5 million or 16% from $145.4 million for the six months ended June 30, 2022. Sales and marketing expense as a percentage of revenues, net was 21.5% in the current year period compared to 23.3% in the prior year period. The decrease in expense was largely attributable to lower headcount in the Company’s dispensaries as we refined staffing levels to more closely align with consumer traffic and consumption levels. The decrease in sales and marketing expenses was also due to the accrual of $7.3 million in the prior year period related to the Watkins earnout.
General and Administrative Expense
General and administrative expense for the six months ended June 30, 2023 was $74.2 million, an increase of $7.2 million or 11% from $67.0 million for the six months ended June 30, 2022. The increase in general and administrative expense is primarily due to a $19.1 million of legislative campaign contributions to support the Florida adult-use ballot initiative during the current year period, partially offset by lower stock-based compensation expense and transaction and integration costs as compared to the prior period.
Depreciation and Amortization Expense
Depreciation and amortization expense for the six months ended June 30, 2023 was $55.7 million, a decrease of $1.5 million or 3% from $57.2 million for the six months ended June 30, 2022.
Impairments and Disposals of Long-lived Assets, Net
Impairment and disposal of long-lived assets, net for the six months ended June 30, 2023 was $6.7 million, a decrease of $14.8 million or 69% from $21.5 million for the six months ended June 30, 2022. The impairment expense incurred in the current year was primarily related to asset disposals in our California market while the prior year was due to exited facilities and the repositioning of assets, mainly in our southeast hub.
Impairment of Goodwill
Impairment of goodwill for the six months ended June 30, 2023 was $307.6 million, an increase of $307.6 million from zero for the six months ended June 30, 2022. Based on the results of the Company's goodwill impairment procedures, the Company recorded a $307.6 million goodwill impairment for the single reporting unit during the three months ended June 30, 2023. The Company finds this is not a negative indicator of historic or current operating results and not a negative indicator of future performance as the Company has taken steps to shed underperforming assets while focusing on cash conservation which is reflective in the results of operations as of June 30, 2023. Additionally, the resulting non-cash charge has no impact on the Company’s compliance with debt covenants, its cash flows, or available liquidity.
Other Expense, Net
Other expense, net for the six months ended June 30, 2023 was $32.9 million, an increase of $3.3 million or 11% from $29.7 million for six months ended June 30, 2022. The increase is primarily the result of additional interest expense related to new financings to support the long-term business growth, partially offset by gains related to non-operating assets, interest income on money market funds, and a change in the valuation of the interest rate swap.
32
Provision for Income Taxes
The provision for income taxes for the six months ended June 30, 2023 was $69.5 million, a decrease of $18.9 million or 21% from $88.4 million for the six months ended June 30, 2022. For the six months ended June 30, 2023, the decrease in income tax expense is primarily due to the increasedecrease in gross profit as a resultprofit. Under IRC Section 280E, cannabis companies are only allowed to deduct expenses that are directly related to production of increased revenue.the products. The Company's quarterly tax provision is subject to change resulting from several factors, including regulations and administrative practices, principles, and interpretations related to tax.
42
Net IncomeLoss from Continuing Operations
|
| Three Months Ended |
|
|
|
| Six Months Ended |
|
|
| ||||||||||
|
| 2022 |
|
| 2021 |
|
| Change |
| 2022 |
|
| 2021 |
|
| Change | ||||
|
| (in thousands) |
|
|
|
| (in thousands) |
|
|
| ||||||||||
Net (loss) income and comprehensive (loss) income |
| $ | (24,021 | ) |
| $ | 40,880 |
|
| -159% |
| $ | (56,503 | ) |
| $ | 70,958 |
|
| -180% |
Net loss for the three months ended June 30, 2022 was $24.0 million a decrease of $64.9 million, from net income of $40.9 million for the three months ended June 30, 2021. Net losscontinuing operations for the six months ended June 30, 20212023 was $56.5$376.6 million, a decreasean increase of $127.5 million.$330.8 million from net income of $71.0$45.8 million for the six months ended June 30, 2021.2022. The decreaseincrease in net loss in the current year period was driven primarily by the goodwill impairment charge of $307.6 million, lower gross margin, increased sales and marketing and general and administrative costsan increase of $19.1 million in legislative campaign contributions to support the Florida adult-use ballot initiative. These impacts were partially offset by lower operating expenses driven by the Company’s continued focus on cost savings initiatives, expenses of $7.3 million incurred in the prior year period related to the expanded organization,accrual of the Watkins earnout and a $18.9 million decrease in tax expense.
Net Loss from Discontinued Operations, Net of Tax Benefit
Net loss from discontinued operations, net of tax benefit for the six months ended June 30, 2023 was $95.9 million, an increase of $85.2 million from $10.7 million for the six months ended June 30, 2022. The increase in the current year is primarily attributable to losses onfrom the exit of the Company’s operations in Massachusetts in the second quarter of 2023 including the disposal of long-lived assets increased other expense,of $59.3 million and increased tax expense.a loss on divestment of a variable interest entity of $10.0 million. Discontinued operations also include the results of the Nevada operations that were discontinued in 2022.
Liquidity and Capital Resources
Sources of Liquidity
Since our inception, we have funded our operations and capital spending through cash flows from product sales, third-party debt, proceeds from the sale of our capital stock and loans from affiliates and entities controlled by our affiliates, third-party debt, and proceeds from the sale of our capital stock. affiliates. We are generating cash from sales and are deploying our capital reserves to acquire and develop assets capable of producing additional revenues and earnings over both the immediate and longnear term to support our business growth and expansion.Our current principal sources of liquidity are our cash and cash equivalents provided by our operations and debt and equity offerings. Cash and cash equivalents consist primarily of cash on deposit with banks and money market funds. Cash and cash equivalents were $181.4 million as of June 30, 2022.
We believe our existing cash balances will be sufficient to meet our anticipated cash requirements from the report issuance date through at least the next twelve months.
Our primary uses of cash are for working capital requirements, capital expenditures, and debt service payments, and income tax payments. Additionally, from time to time, we may use capital for acquisitions and other investing and financing activities. Working capital is used principally for our personnel as well as costs related to the growth, manufacture and production of our products. Our capital expenditures consist primarily of additional facilities and dispensaries, and improvements into existing facilities and product development.facilities. Our debt service payments consist primarily of interest payments. Income tax payments are mainly represented by federal income tax payments due to IRC Section 280E.
To the extent additional funds are necessaryCash and cash equivalents were $152.4 million as of June 30, 2023. We believe our existing cash balances will be sufficient to meet our long-term liquidity needs as we continue to execute our business strategy, we anticipate that theyanticipated cash requirements from the date of this Quarterly Report on Form 10-Q through at least the next 12 months. Any additional future requirements will be obtainedfunded through incurrence of additional indebtedness, additional equity financings or a combination of these potentialthe following sources of funds. There can be no assurance that we will be ablecapital:
33
Cash Flows
The condensed consolidated statements of cash flows include continuing operations and discontinued operations for the six months ended June 30, 2023 and 2022. The table below highlights our cash flows for the periods indicated.
| Six Months Ended June 30, |
| ||||
| 2023 |
| 2022 |
| ||
| (in thousands) |
| ||||
Net cash used in operating activities | $ | (23,062 | ) | $ | (10,284 | ) |
Net cash used in investing activities |
| (25,318 | ) |
| (136,392 | ) |
Net cash (used in) provided by financing activities |
| (9,335 | ) |
| 94,438 |
|
Net decrease in cash and cash equivalents | $ | (57,715 | ) | $ | (52,238 | ) |
43
|
| Six Months Ended June 30, |
| |||||
|
| 2022 |
|
| 2021 |
| ||
|
| (in thousands) |
| |||||
Net cash (used in) provided by operating activities |
| $ | (10,284 | ) |
| $ | 49,194 |
|
Net cash used in investing activities |
|
| (136,392 | ) |
|
| (136,688 | ) |
Net cash provided by financing activities |
|
| 94,438 |
|
|
| 230,019 |
|
Net (decrease) increase in cash and cash equivalents |
|
| (52,238 | ) |
|
| 142,525 |
|
Cash, cash equivalents, and restricted cash, beginning of period |
|
| 233,659 |
|
|
| 146,713 |
|
Cash, cash equivalents, and restricted cash, end of period |
| $ | 181,421 |
|
| $ | 289,238 |
|
Cash Flow from Operating Activities
Net cash used in operating activities was $10.3$23.1 million for the six months ended June 30, 2022, a decrease2023, an increase of $59.5$12.8 million as compared to $49.2$10.3 million net cash provided byused operating activities during the six months ended June 30, 2021.2022. This is primarily due to the current net loss versus the prior year net income, increases in net working capital requirements, mainly inventory, andadditional income tax payments madewhich were deferred from the fourth quarter of 2022, due to Hurricane Ian, and paid in the secondfirst quarter of 2022.2023. This was largely offset by the favorable impact of the Company’s inventory wind-down initiative. Inventory balances decreased in 2023 driven by targeted efforts to reduce specific product categories and lower third-party product offerings.
Cash Flow from Investing Activities
Net cash used in investing activities was $136.4$25.3 million for the six months ended June 30, 2022,2023, a decrease of $0.3$111.1 million, compared to the $136.7$136.4 million net cash used in investing activities for the six months ended June 30, 2021. 2022.
The primary use of cash in both periods was the purchase of property and equipment, and internal use software, with the currentprior period having significantly more significant acquisitions offset by proceeds frompurchases of property and equipment due to the saleCompany's build out of held for sale assets, proceeds fromfacilities and automation primarily at our Florida cultivation sites as well as Pennsylvania and West Virginia. Additionally, the saleprior period included the cash payment of a VIE, and proceeds from payments made on notes receivable.$27.5 million related to the acquisition of the Watkins Cultivation Operation.
Cash Flow from Financing Activities
Net cash provided byused in financing activities was $94.4$9.3 million for the six months ended June 30, 2022,2023, a decrease of $135.6$103.8 million, compared to the $230.0$94.4 million net cash provided by financing activities for the six months ended June 30, 2021.2022. The decrease was primarily due to proceeds from shares issued pursuant to private placementdebt financing activities in 2021 with the decrease partially offset byprior year that did not occur in the netcurrent period. The Company received proceeds of $76.4 million from private placement notes which closed in January 2022 and $19.2 million in proceeds from the first quarterexercise of 2022.warrants during the six months ended June 2022 prior to expiration.
Funding Sources
Private Placement Note Liabilities - “June Warrants” and “November Warrants”
On June 18, 2019, we completed an offering using our Canadian prospectus of 70,000 units (the “June Units”), comprised of an aggregate principal amount of US$70.0 million of 9.75% senior secured notes maturing in 2024 (the “June Notes”) and an aggregate amount of 1,470,000 subordinate voting share warrants (each individual warrant being a “June Warrant”) at a price of US$980 per June Unit for gross proceeds of US$68.6 million. Each June Unit was comprised of one June Note issued in denominations of $1,000 and 21 June Warrants.
On November 7, 2019, we completed an offering using our Canadian prospectus of 60,000 units (the “November Units”), comprised of an aggregate principal amount of US$60.0 million of 9.75% senior secured notes maturing in 2024 (the “November Notes”) and an aggregate amount of 1,560,000 subordinate voting share warrants (each individual warrant being a “November Warrant”) at a price of US$980 per November Unit for gross proceeds of US$61.1 million. Each November Unit was comprised of one November Note issued in denominations of $1,000 and 26 November Warrants.
Private Placement Note Liabilities - Secured Promissory Notes
On October 6, 2021, the Company closed on a private placement of 8% Senior Secured Notes (the “Notes") for aggregate gross proceeds of $350.0 million and net proceeds of $342.6 million. The Notes were issued at 100% face value, bear an interest rate of
44
8% per annum payable semi-annually in equal installments until the maturity date, unless earlier redeemed or repurchased. The Notes mature on October 6, 2026 and may be redeemed in whole or in part, at any time from time to time, on or after October 6, 2023 at the applicable redemption price set forth in the trust indenture dated as of June 18, 2019 (the “Base Indenture”), as supplemented by a supplemental trust indenture dated as of October 6, 2021 (the “Supplemental Indenture” and, the Base Indenture as supplemented by the Supplemental Indenture, the “Indenture”), by and between the Company and Odyssey Trust Company, as trustee. The Company used a portion of the net proceeds to redeem certain outstanding indebtedness of Harvest and intends to use the remaining net proceeds for capital expenditures and other general corporate purposes. The Indenture governing the Notes contains covenants that, among other things, limit the ability of the Company and its restricted subsidiaries to, among other things, declare or pay dividends or make certain other payments; purchase, redeem or otherwise acquire or retire for value any equity interests or otherwise make any restricted payments; conduct certain asset sales or consolidate, merge or transfer all or substantially all of the assets of the Company and its subsidiaries on a consolidated basis; make certain restricted investments, incur certain indebtedness or grant certain liens, or enter into certain affiliate transactions. These covenants are subject to a number of other limitations and exceptions as set forth in the Indenture.
On January 28, 2022, the Company closed on a second tranche private placement of 8% Senior Secured Notes for aggregate gross proceeds of $76.9 million and net proceeds of $75.6 million. The Notes bear an interest rate of 8% per annum payable semi-annually in equal installments until the maturity date, unless earlier redeemed or repurchased. The Notes will mature on October 6, 2026, and may be redeemed in whole or in part, at the Company's option, at any time, on or after October 6, 2023, at the application redemption price set forth in the Indenture.
Balance Sheet Exposure
As of June 30, 2023 and December 31, 2022, the entirety100% of our condensed consolidated balance sheet is exposed to U.S. cannabis-related activities. We believe our operations are in material compliance with all applicable state and local laws, regulations, and licensing requirements in the states in which we operate. However, cannabis remains illegal under U.S. federal law. Substantially all our revenue is derived from U.S. cannabis operations. For information about risks related to U.S. cannabis operations, please refer to the “Risk Factors” section of this Quarterly Report on Form 10-Q, and "Part I, Item 1A - Risk Factors" in our 20212022 Form 10-K.10-K and Part II, Item 1A – Risk Factors in our Q1 Form 10-Q.
34
Contractual Obligations
As of June 30, 2022,2023, we had the following contractual obligations to make future payments, representing contracts and other commitments that are known and committed:
|
| <1 Year |
|
| 1 to 3 Years |
|
| 3 to 5 Years |
|
| >5 Years |
|
| Total |
| <1 Year |
| 1 to 3 Years |
| 3 to 5 Years |
| >5 Years |
| Total |
| ||||||||||
|
| (in thousands) |
| (in thousands) |
| ||||||||||||||||||||||||||||||
Accounts payable and accrued liabilities |
| $ | 83,858 |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | 83,858 |
| |||||||||||||||
Notes payable |
|
| 9,533 |
|
|
| 2,338 |
|
|
| 11 |
|
|
| 1,080 |
|
|
| 12,962 |
| $ | 9,076 |
| $ | 7,337 |
| $ | 71,194 |
| $ | 16,098 |
| $ | 103,705 |
|
Private placement notes |
|
| — |
|
|
| 130,000 |
|
|
| 425,000 |
|
|
| — |
|
|
| 555,000 |
|
| 130,000 |
| — |
| 425,000 |
| — |
| 555,000 |
| ||||
Operating lease liabilities |
|
| 23,212 |
|
|
| 45,225 |
|
|
| 43,629 |
|
|
| 109,539 |
|
|
| 221,605 |
|
| 21,532 |
| 43,876 |
| 41,767 |
| 90,639 |
| 197,814 |
| ||||
Finance lease liabilities |
|
| 14,827 |
|
|
| 31,869 |
|
|
| 25,708 |
|
|
| 49,855 |
|
|
| 122,259 |
|
| 14,299 |
| 27,970 |
| 24,528 |
| 38,932 |
| 105,729 |
| ||||
Construction finance liabilities |
|
| 23,255 |
|
|
| 47,534 |
|
|
| 49,182 |
|
|
| 415,606 |
|
|
| 535,577 |
|
| 22,184 |
| 46,286 |
| 48,966 |
| 308,341 |
| 425,777 |
| ||||
Lease Settlements |
| 1,003 |
| 1,140 |
| 846 |
| 2,434 |
| 5,423 |
| ||||||||||||||||||||||||
Total |
| $ | 154,685 |
|
| $ | 256,966 |
|
| $ | 543,530 |
|
| $ | 576,080 |
|
| $ | 1,531,261 |
| $ | 198,094 |
| $ | 126,609 |
| $ | 612,301 |
| $ | 456,444 |
| $ | 1,393,448 |
|
For additional information on our commitments for financing arrangements, future lease payments, lease guarantees, and other obligations, see Note 9. Notes Payable, Note 10. Private Placement Notes, Note 11. Leases, Note 12. Construction Finance Liabilities, and Note 20. Commitments And Contingencies.
Off-Balance Sheet Arrangements
As of the date of this filing, we do not have any off-balance-sheet arrangements that have, or are reasonably likely to have, a current or future effect on the results of operations or financial condition of, including, and without limitation, such considerations as liquidity and capital resources.
Management's Use of Non-GAAP Measures
Our management uses a financial measuresmeasure that areis not in accordance with generally accepted accounting principles in the U.S., or GAAP, in addition to financial measures in accordance with GAAP to evaluate our operating results. TheseThis non-GAAP financial
45
measures measure should be considered supplemental to, and not a substitute for, our reported financial results prepared in accordance with GAAP. Adjusted EBITDA is a financial measure that is not defined under GAAP. Our management uses this non-GAAP financial measure and believes it enhances an investor’s understanding of our financial and operating performance from period to period because it excludes certain material non-cash items and certain other adjustments management believes are not reflective of our ongoing operations and performance. Adjusted EBITDA excludes from net income as reported interest, provision for income taxes, and depreciation and amortization to arrive at EBITDA. This is then adjusted for items that do not represent the operations of the core business such as integration and transition costs, acquisition and transaction costs, inventory step-up for fair value adjustments in purchase accounting, integration and transition costs, acquisition and transaction costs, other non-recurring costs such as contributions to specific initiative campaigns (such as Smart and Safe Florida), expenses related to the COVID-19 pandemic, impairments and disposals of long-lived assets, the results of entities consolidated as variable interest entities ("VIEs") but not legally controlled and operated by the Company, discontinued operations, and other income and expense items. Integration and transition costs include those costs related to integration of acquired entities and to transition major systems or processes. Acquisition and transaction costs relate to specific transactions such as acquisitions whether contemplated or completed and regulatory filings and costs related to equity and debt issuances. Other non-recurring costs includes miscellaneous items which are not expected to reoccur frequently such as inventory adjustments related to specific issues and unusual litigation. Adjusted EBITDA for the periodthree and six months ended June 30, 2021,2022, has been adjusted to reflect this current definition. Additionally, certain reclassifications have been made to Adjusted EBITDA for prior periodsdefinition and to conform towith the current period presentation.
Trulieve reports Adjusted EBITDA to help investors assess the operating performance of the Company’s business. The financial measures noted above are metrics that have been adjusted from the GAAP net income measure in an effort to provide readers with a normalized metric in making comparisons more meaningful across the cannabis industry, as well as to remove non-recurring, irregular and one-time items that may otherwise distort the GAAP net income measure.
35
As noted above, our Adjusted EBITDA is not prepared in accordance with GAAP, and should not be considered in isolation of, or as an alternative to, measures prepared in accordance with GAAP. There are a number of limitations related to the use of Adjusted EBITDA rather than net income, which is the most directly comparable financial measure calculated and presented in accordance with GAAP. Because of these limitations, we consider, and you should consider, Adjusted EBITDA together with other operating and financial performance measures presented in accordance with GAAP. A reconciliation of Adjusted EBITDA from net income, the most directly comparable financial measure calculated in accordance with GAAP, has been included herein immediately following our discussion of “Adjusted EBITDA”.
Adjusted EBITDA
|
| Three Months Ended |
|
|
|
| Six Months Ended |
|
|
| ||||||||||
|
| 2022 |
|
| 2021 |
|
| Change |
| 2022 |
|
| 2021 |
|
| Change | ||||
|
| (in thousands) |
|
|
|
| (in thousands) |
|
|
| ||||||||||
Adjusted EBITDA |
| $ | 110,978 |
|
| $ | 94,872 |
|
| 17% |
| $ | 216,522 |
|
| $ | 185,668 |
|
| 17% |
| Three Months Ended |
| Change Increase / (Decrease) | Six Months Ended June 30, |
| Change Increase / (Decrease) | ||||||||||||||
| 2023 |
| 2022 |
| $ |
| % | 2023 |
| 2022 |
| $ |
| % | ||||||
| (in thousands) |
|
| (in thousands) |
|
| ||||||||||||||
Adjusted EBITDA | $ | 78,695 |
| $ | 111,024 |
| $ | (32,329 | ) | (29)% | $ | 156,768 |
| $ | 215,986 |
| $ | (59,218 | ) | (27)% |
Adjusted EBITDA for the three months ended June 30, 2022 increased by 17%2023 was $78.7 million, a decrease of $32.3 million or $16.129%, from $111.0 million as compared tofor the three months ended June 30, 2021.2022. Adjusted EBITDA for the six months ended June 30, 2022 increased by 17%2023 was $156.8 million, a decrease of $59.2 million or $30.927%, from $216.0 million as compared tofor the six months ended June 30, 2021.2022. The following table presents a reconciliation of GAAP net income to non-GAAP Adjusted EBITDA, for each of the periods presented:
46
|
| Three Months Ended June 30, |
|
| Six Months Ended June 30, |
| Three Months Ended June 30, |
| Six Months Ended June 30, |
| ||||||||||||||||||
|
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
| 2023 |
| 2022 |
| 2023 |
| 2022 |
| ||||||||
|
| (in thousands) |
|
| (in thousands) |
| (in thousands) |
| ||||||||||||||||||||
Net (loss) income and comprehensive (loss) income attributable to common shareholders |
| $ | (22,491 | ) |
| $ | 40,880 |
|
| $ | (54,466 | ) |
| $ | 70,958 |
| ||||||||||||
Add impact of: |
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Net loss attributable to common shareholders | $ | (403,849 | ) | $ | (22,491 | ) | $ | (467,973 | ) | $ | (54,466 | ) | ||||||||||||||||
Add (deduct) impact of: |
|
|
|
|
|
|
|
| ||||||||||||||||||||
Interest expense |
|
| 19,678 |
|
|
| 6,649 |
|
|
| 37,555 |
|
|
| 14,548 |
|
| 18,931 |
| 18,144 |
| 40,091 |
| 34,497 |
| |||
Provision for income taxes |
|
| 44,769 |
|
|
| 29,102 |
|
|
| 87,085 |
|
|
| 63,650 |
|
| 34,027 |
| 45,242 |
| 69,484 |
| 88,384 |
| |||
Depreciation and amortization |
|
| 30,889 |
|
|
| 6,667 |
|
|
| 60,194 |
|
|
| 12,101 |
|
| 26,052 |
| 29,367 |
| 55,666 |
| 57,151 |
| |||
Depreciation included in cost of goods sold |
|
| 13,809 |
|
|
| 5,020 |
|
|
| 24,501 |
|
|
| 8,687 |
|
| 15,989 |
| 12,576 |
| 28,109 |
| 21,874 |
| |||
EBITDA |
|
| 86,654 |
|
|
| 88,318 |
|
|
| 154,869 |
|
|
| 169,944 |
|
| (308,850 | ) |
| 82,838 |
| (274,623 | ) |
| 147,440 |
| |
Impairment of goodwill |
| 307,590 |
| — |
| 307,590 |
| — |
| |||||||||||||||||||
Impairment and disposal of long-lived assets, net |
| 3,310 |
| 5,055 |
| 6,689 |
| 21,516 |
| |||||||||||||||||||
Legislative campaign contributions |
| 8,550 |
| — |
| 19,062 |
| — |
| |||||||||||||||||||
Integration and transition costs |
| 5,698 |
| 5,129 |
| 7,635 |
| 10,397 |
| |||||||||||||||||||
Share-based compensation and related premiums |
| 475 |
| 5,703 |
| 2,876 |
| 10,267 |
| |||||||||||||||||||
Other income, net |
| (1,976 | ) |
| (1,683 | ) |
| (6,893 | ) |
| (2,568 | ) | ||||||||||||||||
Change in fair value of derivative liabilities - warrants |
| — |
| (1,442 | ) |
| (252 | ) |
| (2,262 | ) | |||||||||||||||||
Discontinued operations |
| 63,898 |
| 5,234 |
| 94,684 |
| 10,672 |
| |||||||||||||||||||
Acquisition and transaction costs |
| — |
| 6,969 |
| — |
| 10,266 |
| |||||||||||||||||||
Other non-recurring costs |
| — |
| 3,499 |
| — |
| 9,688 |
| |||||||||||||||||||
Inventory step up, fair value |
|
| 648 |
|
|
| — |
|
|
| 1,033 |
|
|
| 2,528 |
|
| — |
| 648 |
| — |
| 1,048 |
| |||
Integration and transition costs |
|
| 5,129 |
|
|
| 1,497 |
|
|
| 10,403 |
|
|
| 1,887 |
| ||||||||||||
Acquisition and transaction costs |
|
| 6,969 |
|
|
| 1,569 |
|
|
| 10,266 |
|
|
| 3,221 |
| ||||||||||||
Share-based compensation |
|
| 5,703 |
|
|
| 744 |
|
|
| 10,267 |
|
|
| 1,485 |
| ||||||||||||
Other non-recurring costs |
|
| 4,899 |
|
|
| 1,387 |
|
|
| 13,528 |
|
|
| 1,387 |
| ||||||||||||
COVID related expenses |
|
| 165 |
|
|
| 1,690 |
|
|
| 596 |
|
|
| 5,511 |
|
| — |
| 163 |
| — |
| 588 |
| |||
Impairment and disposal of long-lived assets, net |
|
| 4,336 |
|
|
| — |
|
|
| 18,116 |
|
|
| — |
| ||||||||||||
Loss on disposal of non-operating assets |
|
| 719 |
|
|
| — |
|
|
| 3,400 |
|
|
| — |
| ||||||||||||
Results of entities not legally controlled |
|
| (1,089 | ) |
|
| — |
|
|
| (1,066 | ) |
|
| — |
|
| — |
| (1,089 | ) |
| — |
| (1,066 | ) | ||
Other income (expense), net |
|
| (1,713 | ) |
|
| (333 | ) |
|
| (2,628 | ) |
|
| (295 | ) | ||||||||||||
Change in fair value of derivative liabilities - warrants |
|
| (1,442 | ) |
|
| — |
|
|
| (2,262 | ) |
|
| — |
| ||||||||||||
Total adjustments |
|
| 24,324 |
|
|
| 6,554 |
|
|
| 61,653 |
|
|
| 15,724 |
|
| 387,545 |
| 28,186 |
| 431,391 |
| 68,546 |
| |||
Adjusted EBITDA |
| $ | 110,978 |
|
| $ | 94,872 |
|
| $ | 216,522 |
|
| $ | 185,668 |
| $ | 78,695 |
| $ | 111,024 |
| $ | 156,768 |
| $ | 215,986 |
|
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
There have been no material changes to our market risk disclosures as set forth in Part II Item 7A of our 2022 Annual Report on Form 10-K for the year ended December 31, 2021.2022.
36
Item 4. Controls and Procedures.
Material Weakness in Internal Control Over Financial Reporting
Evaluation of Internal Controls Over Financial Reporting
We maintain disclosure controls and procedures designed to provide reasonable assurance that information required to be disclosed in reports filed under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), is recorded, processed, summarized and reported within the specified time periods and accumulated and communicated to our management, including our principal executive officer, principal financial officer, and principal accounting officer, as appropriate to allow timely decisions regarding disclosure. In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, as ours are designed to do, and management necessarily was required to apply its judgment in evaluating the risk related to controls and procedures.
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A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis.
Management of the Company, under the supervision and with the participation of our Chief Executive Officer and Interim Chief Financial Officer, evaluated the effectiveness of the design and operation of its disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of June 30, 2022.2023. Our Chief Executive Officer and Interim Chief Financial Officer have concluded that, due to the material weaknesses identifiedas described in the prior year2022 Annual Report on Form 10-K, which are currently in the process of being remediated, as of June 30, 2022,2023, we did not maintain effective disclosure controls and procedures because of the material weaknesses in internal control as described in Item 9A. Controls and Procedures in the 20212022 Annual Report on Form 10-K, filed with the SEC on March 30, 2022.8, 2023.
Notwithstanding the material weaknesses described in the 20212022 Annual Report on Form 10-K, we have concluded that the condensed consolidated financial statements included in this Quarterly Report on Form 10-Q fairly present, in all material respects, our financial position, results of operations and cash flows for the periods presented in conformity with U.S. GAAP.
We consolidated variable interest entities as of June 30, 2023 and December 31, 2022, because we determined we were the primary beneficiary. We have elected to exclude controls at our variable interest entities from the scope of our evaluation of internal control over financial reporting as of June 30, 2023 and December 31, 2022. The financial position of our variable interest entities represented an insignificant amount of our total assets, net revenues, and results of operations for the period ended June 30, 2023 and December 31, 2022, respectively.
Management’s Remediation Measures
We previously identified and disclosed material weaknesses in internal control as described in Item 9A. Controls and Procedures in the 2022 Annual Report on Form 10-K, filed with the SEC on March 8, 2023. The material weaknesses were due to a lack of sufficient controls around information technology, inventory valuation, and variable interest entities. Management is committed to maintaining a strong internal control environment. In response to the identified material weaknesses in the overall control environment, management, with the oversight of the Audit Committee of the Board of Directors, has takenis taking a number of remediation actions towardincluding but not limited to the remediation of the respective material weakness in internal control over financial reporting as outlined below.following:
•Information technology:
The Company has designed and is in the process of designing and implementing improved or additional positions including Chief Accounting Officercontrols over access, change management, and IT operations to ensure that access rights are restricted to appropriate individuals, and that data integrity is maintained via effective change management controls over system updates and the transfer of data between systems. The Company additionally is evaluating and enhancing its policies for improved observation and enforcement of certain of its internal policies.
The Company continues to adjust its Enterprise Resource Planning (“CAO”ERP”), Executive Director Systems to work towards improvement and automation of Financial Reporting, Tax Director,ITGC’s as well as other business process application controls.
The Company is enhancing procedures to validate the information produced by the entity and Assistant Corporateend user computing to compensate while the ITGC controls are being improved.
Inventory Valuation:
The Company continues to enhance its ERP Systems and Regional Controllers, among others,has a project plan in place to work towards increasing the level of automation in inventory tracking and analysis and reducing manual processes.
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The Company has hired additional qualified personnel to provide additional oversight around the inventory valuation process.
The Company is in the process of implementing more robust management review controls to provide more focus on detailed analyses and enhanced oversightmonitoring of our inventory valuation policies and technical experience in certain areas importantprocess. The Company continues to financial reporting.
Variable Interest Entities:
The Company has enhanced its procedures around the identification and designing improved processesevaluation, and controls for the consolidated Company.
•
•
Current status:
While significant progress has been made to enhance our internal control over financial reporting, we are still in the process of building and enhancing ourinternal processes, procedures, and controls.controls, as well as evaluating and enhancing our related policies. Additional time is required to complete the remediation of the material weaknesses and the assessment to ensure the sustainability of these remediation actions. We believe the above actions as well as those being implemented currently, when complete, will be effective in the remediation of the material weaknesses described above.
Changes in Internal Controls Over Financial Reporting
Other than the remediation measures discussed above, there have been no changes in internal controls over financial reporting during the six months ended June 30, 2022,2023, that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting. Management believes these actions will help remediate internal control deficiencies related to the Company’s financial reporting (as defined in Rule 13a-15(f) and 15d-15(f) under the Exchange Act).
PART II - OTHER INFORMATION
Cautionary Note Regarding Forward-Looking Statements
This Quarterly Report on Form 10-Q contains forward-looking statements. In some cases, you can identify these statements by forward-looking words such as “may”, “will”, “would”, “could”, “should”, “believes”, “estimates”, “projects”, “potential”, “expects”, “plans”, “intends”, “anticipates”, “targeted”, “continues”, “forecasts”, “designed”, “goal”, or the negative of those words 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. We have based these forward-looking statements largely on our
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current expectations and projections about future events and financial trends that we believe may affect our business, financial condition, results of operations and future growth prospects. The forward-looking statements contained herein are based on certain key expectations and assumptions, including, but not limited to, with respect to expectations and assumptions concerning receipt and/or maintenance of required licenses and third party consents and the success of our operations, are based on estimates prepared by us using data from publicly available governmental sources, as well as from market research and industry analysis, and on assumptions based on data and knowledge of this industry that we believe to be reasonable. These forward-looking statements are not guarantees of future performance or development and involve known and unknown risks, uncertainties and other factors that are in some cases beyond our control. As a result, any or all of our forward-looking statements in this Quarterly Report on Form 10-Q may turn out to be inaccurate. Factors that may cause actual results to differ materially from current expectations include, among other things, those listed under “Risk Factors” and discussed elsewhere in this Quarterly Report on Form 10-Q and in “Part I, Item 1A – Risk Factors” in our 2022 Annual Report on Form 10-K forand in Part II, “Item 1A—Risk Factors” in the year ended December 31, 2021.Company’s First Quarter 10-Q. These forward-looking statements speak only as of the date of this Quarterly Report on Form 10-Q. Except as required by law, we assume no obligation to update or revise these forward-looking statements for any reason, even if new information becomes available in the future. You should, however, review the factors and risks we describe in the reports we will file from time to time with the SEC after the date of this Quarterly Report on Form 10-Q. These factors and risks include, among other things, the following:
Risks Related to Our Business and Industry
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Risks Related to Owning Subordinate Voting Shares
Risks Related to Being a Public Company
Item 1. Legal Proceedings.
There are no actual or to our knowledge contemplated legal proceedings material to us or to which any of our or any of our subsidiaries’ property is the subject matter.
There have been no material penalties or sanctions imposed against the Company by a court or regulatory authority, and the Company has not entered into any material settlement agreements before any court relating to provincial or territorial securities legislation or with any securities regulatory authority, in the three years prior to the date of this filing.
Item 1A. Risk Factors.
Investing in our Subordinate Voting Shares involves a high degree of risk. Our Annual Report on2022 Form 10-K for the year ended December 31, 2021 filed with the SEC on March 30, 2022 includes a8, 2023 and our Q1 Form 10-Q filed with the SEC on May 10, 2023 include detailed discussiondiscussions of our risk factors under the heading “Part I, Item 1A—Risk Factors.”Factors" and "Part II, Item 1A—Risk Factors," respectively. You should consider carefully the risk factors discussed in our Annual Report on2022 Form 10-K for the year ended December 31, 2021or Q1 Form 10-Q and all other information contained in or incorporated by reference in this Quarterly Report on Form 10-Q before making an investment decision. If any of the risks discussed in the Annual Report on2022 Form 10-K for the year ended December 31, 2021or Q1 Form 10-Q actually occur, they may materially harm our business, financial condition, operating results, cash flows or
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growth prospects. As a result, the market price of our Subordinate Voting Shares could decline, and you could lose all or part of your investment. Additional risks and uncertainties that are not yet identified or that we think are immaterial may also materially harm our business, financial condition, operating results, cash flows or growth prospects and could result in a complete loss of your investment. Other than the following, there have been no material changes from such risk factors during the period ended June 30, 2022.2023.
The risk of negative effects related to known or potential material weakness in our internal control over financial reporting.
Recent macroeconomic trends,We have identified material weaknesses in our internal control over financial reporting, and our management has concluded that our disclosure controls and procedures are not effective. While we are working to remediate any material weaknesses or significant deficiencies in our internal controls over financial reporting, we cannot assure that additional material weaknesses or significant deficiencies will not occur in the future. For example, the Company identified information leading it to review its internal controls over the observation and enforcement of certain of our internal policies.
Ineffective internal control over financial reporting could result in errors or misstatements in our financial statements, reduce investor confidence, and adversely impact our stock price. As discussed in Part II, Item 9A “Controls and Procedures” in the 2022 Annual Report on Form 10-K, in connection with the audit of our consolidated financial statements as of and for the year ended December 31, 2022, we identified material weaknesses related to information technology general controls, valuation of inventory, and the identification and evaluation of variable interest entities.
We are in the process of remediating the material weaknesses, as such remediation measures are described in Part II, Item 9A “Controls and Procedures” of our 2022 Annual Report on Form 10-K and as discussed in Part I, Item 4 of each of the First Quarter 2023 Quarterly Report on Form 10-Q and this Quarterly Report on Form 10-Q. While progress has been made to enhance our internal control over financial reporting, we are still in the process of building and enhancing our processes, procedures, and controls, as well as evaluating and enhancing our internal policies. Additional time is required to complete the remediation of the material weaknesses
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and to ensure the sustainability of these remediation actions. We believe the above actions as well as those being implemented currently, when complete, will be effective in the remediation of the material weaknesses described above. There can be no assurance that the additional processes, procedures, and controls that we have implemented while we work to remediate the material weaknesses or that other material weaknesses will not arise in the future. If the additional processes, procedures, and controls that we have implemented while we work to remediate the material weaknesses are not sufficient, or if we identify additional control deficiencies that individually or together constitute significant deficiencies or material weaknesses, our ability to accurately record, process, and report financial information and consequently, our ability to prepare financial statements within required time periods, could be adversely affected. Failure to properly remediate the material weaknesses or the discovery of additional control deficiencies could result in violations of applicable securities laws, CSE listing requirements, subject us to litigation and investigations, negatively affect investor confidence in our financial statements, and adversely impact our stock price and ability to access capital markets.
We maintain cash deposits in excess of federally insured limits. Adverse developments affecting financial institutions, including inflation, a recession, or slowed economic growth, maybank failures, could adversely affect our business,liquidity and financial condition and results of operations.performance.
DuringWe maintain domestic cash deposits in Federal Deposit Insurance Corporation (“FDIC”) insured banks that exceed the six months ended June 30, 2022, inflationFDIC insurance limits. Bank failures, events involving limited liquidity, defaults, non-performance, or other adverse developments that affect financial institutions, or concerns or rumors about such events, may lead to liquidity constraints. There can be no assurance that our deposits in excess of the FDIC or other comparable insurance limits will be backstopped by the United States has accelerated and is currently expectedgovernment, or that any bank or financial institution with which we do business will be able to continue at an elevated level for the near-term. Rising inflation could have an adverse impact on expenses, as these costs could increase at a higher rate than revenues. Our costs are subject to fluctuations, particularly due to changesobtain needed liquidity from other banks, government institutions, or by acquisition in the pricesevent of raw producta failure or liquidity crisis.
For example, on March 10, 2023, Silicon Valley Bank was closed by the California Department of Financial Protection and packaging materialsInnovation, which appointed the FDIC as receiver. Similarly, on March 12, 2023, Signature Bank and Silvergate Capital Corp. were each swept into receivership. Although we do not have any accounts at or business relationships with these banks, we may be negatively impacted by other disruptions to the costsUnited States banking system caused by these or similar developments. The failure of labor, transportation and energy. Inflation pressures could also resulta bank, or other adverse conditions in increases in these input costs. Therefore, our business results depend, in part, on our continued ability to manage these fluctuations through pricing actions, cost saving projects and sourcing decisions, while maintaining and improving margins and market share. Failure to manage these fluctuationsthe financial or credit markets impacting financial institutions at which we maintain balances, could adversely impact our results of operations or cash flows. In addition, unfavorable macroeconomic conditions, such as a recession or continued slowed economic growth, could negatively affect consumer demand for cannabis products, which consequently, may negatively affect the results of operations. Under difficult economic conditions, consumers may seek to reduce discretionary spending by forgoing purchases of cannabis products, negatively impacting our net salesliquidity and margins. Softer consumer demand for cannabis products could reduce our profitability and could negatively affect our overall financial performance.
In addition, as further described in our Annual Report on Form 10-K for the year ended December 31, 2022, most banks and other financial institutions have not been willing to provide banking services to cannabis-related businesses. As such, the Company may have increased difficulty accessing the services of banks amid the adverse developments affecting the financial services industry, which may make it difficult to operate its business. In such an event, the Company’s operations and financial condition could be adversely impacted.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
None.
Item 3. Defaults Upon Senior Securities.
Not applicable.
Item 4. Mine Safety Disclosures.
Not applicable.
Item 5. Other Information.
Not applicable.
None.
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Item 6. Exhibits.
Exhibit Number | Description | |
| ||
| ||
| ||
10.3*‡ | Executive Employment Agreement, dated September 29, 2021, by and between Trulieve Cannabis Corp. and | |
10.4*‡ | ||
10.5*‡ | Form of Restricted Stock Unit Award Agreement for Executive Officers | |
10.6*‡ | ||
10.7*‡ | Form of Nonqualified Stock Option Agreement for Executive Officers | |
31.1 * | ||
31.2 * | ||
32.1 * | ||
101.INS | Inline XBRL Instance Document | |
101.SCH | Inline XBRL Taxonomy Extension Schema Document | |
101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document | |
101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document | |
101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document | |
101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document | |
104 | Cover Page Interactive Data File (embedded within the Inline XBRL document) |
* Filed herewith.
‡ Management contract or compensatory plan or arrangement.
52∔ Certain identified information has been excluded from the exhibit pursuant to Item 601(a)(6) and/or Item 601(b)(10)(iv) of Regulation S-K.
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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.
TRULIEVE CANNABIS CORP. | |||
Date: August | By: | /s/ Kim Rivers | |
Kim Rivers | |||
Chief Executive Officer | |||
(Principal Executive Officer) | |||
Date: August | By: | /s/ | |
| |||
Interim Chief Financial Officer | |||
(Principal Financial Officer) | |||
Date: August | By: | /s/ | |
Chief Accounting Officer | |||
(Principal Accounting Officer) | |||
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