UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period ended June 30, 2021March 31, 2022
☐ 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 0-54433
MARIMED INC.
(Exact Name of Registrant as Specified in Its Charter)
| Delaware | 27-4672745 | |
| (State or Other Jurisdiction of | (I.R.S. Employer | |
| Incorporation or Organization) | Identification No.) |
10 Oceana Way
Norwood, MA 02062
(Address of Principal Executive Offices)
617-795-5140
(Registrant’s Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Act: None.
| Title of each class | Ticker symbol(s) | Name of each exchange on which registered | ||
| Not Applicable. | Not Applicable. | Not Applicable. |
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. 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 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, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large Accelerated filer ☐ | 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 16, 2021,May 10, 2022, 335,793,167 shares of the registrant’s common stock were outstanding.
MariMed Inc.
Table of Contents
| 2 |
MariMed Inc.
Condensed Consolidated Balance Sheets
(in thousands, except share and par value amounts)
| 2021 | 2020 | |||||||
| June 30, | December 31, | |||||||
| 2021 | 2020 | |||||||
| (Unaudited) | ||||||||
| Assets | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | 17,356,525 | $ | 2,999,053 | ||||
| Accounts receivable, net | 8,085,867 | 6,675,512 | ||||||
| Deferred rents receivable | 1,815,330 | 1,940,181 | ||||||
| Notes receivable, current portion | 377,127 | 658,122 | ||||||
| Inventory | 9,228,098 | 6,830,571 | ||||||
| Investments | 941,910 | 1,357,193 | ||||||
| Other current assets | 1,955,445 | 582,589 | ||||||
| Total current assets | 39,760,302 | 21,043,221 | ||||||
| Property and equipment, net | 52,666,031 | 45,636,529 | ||||||
| Intangibles, net | 2,521,094 | 2,228,560 | ||||||
| Investments | 1,165,788 | 1,165,788 | ||||||
| Notes receivable, less current portion | 1,194,448 | 965,008 | ||||||
| Right-of-use assets under operating leases | 5,406,601 | 5,247,152 | ||||||
| Right-of-use assets under finance leases | 62,078 | 78,420 | ||||||
| Other assets | 97,950 | 80,493 | ||||||
| Total assets | $ | 102,874,292 | $ | 76,445,171 | ||||
| Liabilities, mezzanine equity, and stockholders’ equity | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ | 6,693,390 | $ | 5,044,918 | ||||
| Accrued expenses | 8,145,061 | 3,621,269 | ||||||
| Sales and excise taxes payable | 1,535,226 | 1,053,693 | ||||||
| Debentures payable | - | 1,032,448 | ||||||
| Notes payable, current portion | 9,523 | 8,859,175 | ||||||
| Mortgages payable, current portion | 1,350,548 | 1,387,014 | ||||||
| Operating lease liabilities, current portion | 1,118,121 | 1,008,227 | ||||||
| Finance lease liabilities, current portion | 33,453 | 38,412 | ||||||
| Due to related parties | - | 1,157,815 | ||||||
| Other current liabilities | - | 23,640 | ||||||
| Total current liabilities | 18,885,322 | 23,226,611 | ||||||
| Notes payable, less current portion | 2,015,001 | 10,682,234 | ||||||
| Mortgages payable, less current portion | 14,484,255 | 14,744,136 | ||||||
| Operating lease liabilities, less current portion | 4,862,628 | 4,822,064 | ||||||
| Finance lease liabilities, less current portion | 33,098 | 44,490 | ||||||
| Other liabilities | 100,200 | 100,200 | ||||||
| Total liabilities | 40,380,504 | 53,619,735 | ||||||
| Mezzanine equity: | ||||||||
| Series B convertible preferred stock, par value; shares authorized, issued and outstanding at June 30, 2021 and December 31, 2020 | 14,725,000 | 14,725,000 | ||||||
| Series C convertible preferred stock, par value; and shares authorized, issued and outstanding at June 30, 2021 and December 31, 2020, respectively | 23,000,000 | - | ||||||
| Total mezzanine equity | 37,725,000 | 14,725,000 | ||||||
| Stockholders’ equity: | ||||||||
| Undesignated preferred stock, par value; and shares authorized at June 30, 2021 and December 31, 2020, respectively; shares issued and outstanding at June 30, 2021 and December 31, 2020 | - | - | ||||||
| Common stock, par value; shares authorized at June 30, 2021 and December 31, 2020; and shares issued and outstanding at June 30, 2021 and December 31, 2020, respectively | 326,839 | 314,419 | ||||||
| Common stock subscribed but not issued; and shares at June 30, 2021 and December 31, 2020, respectively | - | 5,365 | ||||||
| Additional paid-in capital | 117,919,783 | 112,974,329 | ||||||
| Accumulated deficit | (92,903,783 | ) | (104,616,538 | ) | ||||
| Noncontrolling interests | (574,051 | ) | (577,139 | ) | ||||
| Total stockholders’ equity | 24,768,788 | 8,100,436 | ||||||
| Total liabilities, mezzanine equity, and stockholders’ equity | $ | 102,874,292 | $ | 76,445,171 | ||||
| March 31, | December 31, | |||||||
| 2022 | 2021 | |||||||
| (unaudited) | ||||||||
| Assets | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | 33,467 | $ | 29,683 | ||||
| Accounts receivable, net | 3,462 | 1,666 | ||||||
| Deferred rents receivable | 1,586 | 1,678 | ||||||
| Notes receivable, current portion | 129 | 127 | ||||||
| Inventory | 12,238 | 9,768 | ||||||
| Investments | 1,253 | 251 | ||||||
| Other current assets | 2,179 | 1,440 | ||||||
| Total current assets | 54,314 | 44,613 | ||||||
| Property and equipment, net | 65,482 | 62,150 | ||||||
| Intangibles, net | 2,395 | 2,230 | ||||||
| Investments | 100 | - | ||||||
| Notes receivable, less current portion | 9,104 | 8,987 | ||||||
| Right-of-use assets under operating leases | 4,913 | 5,081 | ||||||
| Right-of-use assets under finance leases | 576 | 46 | ||||||
| Other assets | 98 | 98 | ||||||
| Total assets | $ | 136,982 | $ | 123,205 | ||||
| Liabilities, mezzanine equity, and stockholders’ equity | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ | 8,311 | $ | 5,099 | ||||
| Accrued expenses | 1,728 | 1,349 | ||||||
| Income taxes payable | 20,059 | 16,467 | ||||||
| Sales and excise taxes payable | 1,355 | 1,798 | ||||||
| Notes payable, current portion | 10 | 10 | ||||||
| Mortgages payable, current portion | 1,416 | 1,400 | ||||||
| Operating lease liabilities, current portion | 1,128 | 1,071 | ||||||
| Finance lease liabilities, current portion | 178 | 27 | ||||||
| Other current liabilities | - | 2 | ||||||
| Total current liabilities | 34,185 | 27,223 | ||||||
| Notes payable, less current portion | 46 | 448 | ||||||
| Mortgages payable, less current portion | 16,624 | 16,814 | ||||||
| Operating lease liabilities, less current portion | 4,343 | 4,574 | ||||||
| Finance lease liabilities, less current portion | 372 | 22 | ||||||
| Other liabilities | 100 | 100 | ||||||
| Total liabilities | 55,670 | 49,181 | ||||||
| Mezzanine equity: | ||||||||
| Series B convertible preferred stock, $ par value; shares authorized, issued and outstanding at March 31, 2022 and December 31, 2021 | 14,725 | 14,725 | ||||||
| Series C convertible preferred stock, $par value; shares authorized at March 31, 2022 and December 31, 2021; shares issued and outstanding at March 31, 2022 and December 31, 2021 | 23,000 | 23,000 | ||||||
| Total mezzanine equity | 37,725 | 37,725 | ||||||
| Stockholders’ equity: | ||||||||
| Undesignated preferred stock, $ par value; shares authorized at March 31, 2022 and December 31, 2021; shares issued and outstanding at March 31, 2022 and December 31, 2021 | - | - | ||||||
| Common stock, $ par value; shares authorized at March 31, 2022 and December 31, 2021; and shares issued and outstanding at March 31, 2022 and December 31, 2021, respectively | 336 | 334 | ||||||
| Common stock subscribed but not issued; and shares at March 31, 2022 and December 31, 2021, respectively | 2 | - | ||||||
| Additional paid-in capital | 138,064 | 134,920 | ||||||
| Accumulated deficit | (93,204 | ) | (97,392 | ) | ||||
| Noncontrolling interests | (1,611 | ) | (1,563 | ) | ||||
| Total stockholders’ equity | 43,587 | 36,299 | ||||||
| Total liabilities, mezzanine equity, and stockholders’ equity | $ | 136,982 | $ | 123,205 | ||||
See accompanying notes to condensed consolidated financial statements.
| 3 |
MariMed Inc.
Condensed Consolidated Statements of Operations
(Unaudited)(in thousands, except share and per share amounts; unaudited)
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| Revenues | $ | 32,569,656 | $ | 9,610,306 | $ | 57,212,220 | $ | 17,076,325 | ||||||||
| Cost of revenues | 13,163,306 | 3,452,169 | 24,619,952 | 6,050,086 | ||||||||||||
| Gross profit | 19,406,350 | 6,158,137 | 32,592,268 | 11,026,239 | ||||||||||||
| Operating expenses: | ||||||||||||||||
| Personnel | 2,058,254 | 1,207,141 | 3,785,395 | 2,720,524 | ||||||||||||
| Marketing and promotion | 270,330 | 65,618 | 494,699 | 178,002 | ||||||||||||
| General and administrative | 4,282,004 | 2,336,102 | 7,452,728 | 4,584,037 | ||||||||||||
| Bad debts | 793,871 | 450,000 | 1,819,286 | 450,000 | ||||||||||||
| Total operating expenses | 7,404,459 | 4,058,861 | 13,552,108 | 7,932,563 | ||||||||||||
| Operating income | 12,001,891 | 2,099,276 | 19,040,160 | 3,093,676 | ||||||||||||
| Non-operating income (expenses): | ||||||||||||||||
| Interest expense | (264,596 | ) | (2,969,191 | ) | (1,776,618 | ) | (5,660,336 | ) | ||||||||
| Interest income | 35,768 | 40,863 | 69,795 | 86,894 | ||||||||||||
| Loss on obligations settled with equity | (1,260 | ) | (44,678 | ) | (2,546 | ) | (44,678 | ) | ||||||||
| Loss on equity investments | - | (32,958 | ) | - | (32,958 | ) | ||||||||||
| Change in fair value of investments | (370,119 | ) | (234,544 | ) | (415,284 | ) | (921,546 | ) | ||||||||
| Total non-operating income (expenses), net | (600,207 | ) | (3,240,508 | ) | (2,124,653 | ) | (6,572,624 | ) | ||||||||
| Income (loss) before income taxes | 11,401,684 | (1,141,232 | ) | 16,915,507 | (3,478,948 | ) | ||||||||||
| Provision for income taxes | 3,813,108 | - | 5,016,905 | - | ||||||||||||
| Net income (loss) | $ | 7,588,576 | $ | (1,141,232 | ) | $ | 11,898,602 | $ | (3,478,948 | ) | ||||||
| Net income (loss) attributable to noncontrolling interests | $ | 95,724 | $ | 72,805 | $ | 185,847 | $ | 156,533 | ||||||||
| Net income (loss) attributable to MariMed Inc. | $ | 7,492,852 | $ | (1,214,037 | ) | $ | 11,712,755 | $ | (3,635,481 | ) | ||||||
| Net income (loss) per share | ||||||||||||||||
| Basic | $ | 0.02 | $ | (0.00 | ) | $ | 0.04 | $ | (0.02 | ) | ||||||
| Diluted | $ | 0.02 | $ | (0.00 | ) | $ | 0.03 | $ | (0.02 | ) | ||||||
| Weighted average common shares outstanding | ||||||||||||||||
| Basic | 324,266,644 | 247,990,403 | 321,740,575 | 240,664,873 | ||||||||||||
| Diluted | 370,256,963 | 247,990,403 | 365,323,638 | 240,664,873 | ||||||||||||
| 2022 | 2021 | |||||||
| Three Months Ended March 31, | ||||||||
| 2022 | 2021 | |||||||
| Revenues | $ | 31,282 | $ | 24,643 | ||||
| Cost of revenues | 14,306 | 11,457 | ||||||
| Gross profit | 16,976 | 13,186 | ||||||
| Operating expenses: | ||||||||
| Personnel | 3,042 | 1,727 | ||||||
| Marketing and promotion | 643 | 225 | ||||||
| General and administrative | 6,228 | 3,171 | ||||||
| Bad debts | 14 | 1,025 | ||||||
| Total operating expenses | 9,927 | 6,148 | ||||||
| Operating income | 7,049 | 7,038 | ||||||
| Non-operating income (expenses): | ||||||||
| Interest expense | (313 | ) | (1,512 | ) | ||||
| Interest income | 163 | 34 | ||||||
| Loss on obligations settled with equity | - | (1 | ) | |||||
| Gain (loss) on change in fair value of investment | 48 | (45 | ) | |||||
| Other investment income | 954 | - | ||||||
| Total non-operating income (expenses), net | 852 | (1,524 | ) | |||||
| Income before income taxes | 7,901 | 5,514 | ||||||
| Provision for income taxes | 3,660 | 1,204 | ||||||
| Net income | $ | 4,241 | $ | 4,310 | ||||
| Net income attributable to noncontrolling interests | $ | 53 | $ | 90 | ||||
| Net income attributable to MariMed Inc. | $ | 4,188 | $ | 4,220 | ||||
| Net income per share | ||||||||
| Basic | $ | 0.01 | $ | 0.01 | ||||
| Diluted | $ | 0.01 | $ | 0.01 | ||||
| Weighted average common shares outstanding | ||||||||
| Basic | 334,762,825 | 305,212,269 | ||||||
| Diluted | 378,890,365 | 340,825,940 | ||||||
See accompanying notes to condensed consolidated financial statements.
| 4 |
MariMed Inc.
Condensed Consolidated Statements of Stockholders’ Equity
(Unaudited)(in thousands, except share amounts; unaudited)
| Shares | Par Value | Shares | Amount | Capital | Deficit | Interests | (Deficit) | |||||||||||||||||||||||||
| Common Stock | Common Stock Subscribed But Not Issued | Additional Paid-In | Accumulated | Non- Controlling | Total Stockholders’ Equity | |||||||||||||||||||||||||||
| Shares | Par Value | Shares | Amount | Capital | Deficit | Interests | (Deficit) | |||||||||||||||||||||||||
| Balances at December 31, 2019 | 228,408,024 | $ | 228,408 | 3,236,857 | $ | 1,168,074 | $ | 112,245,730 | $ | (106,760,527 | ) | $ | (553,465 | ) | 6,328,220 | |||||||||||||||||
| Balance | 228,408,024 | $ | 228,408 | 3,236,857 | $ | 1,168,074 | $ | 112,245,730 | $ | (106,760,527 | ) | $ | (553,465 | ) | 6,328,220 | |||||||||||||||||
| Issuance of subscribed shares | 3,236,857 | 3,237 | (3,236,857 | ) | (1,168,074 | ) | 1,164,837 | - | - | - | ||||||||||||||||||||||
| Stock grants | 30,307 | 30 | 34,171 | 5,365 | 5,335 | - | - | 10,730 | ||||||||||||||||||||||||
| Amortization of option grants | - | - | - | - | 556,379 | - | - | 556,379 | ||||||||||||||||||||||||
| Issuance of warrants attached to debt | - | - | - | - | 65,931 | - | - | 65,931 | ||||||||||||||||||||||||
| Discount on debentures payable | - | - | - | - | 28,021 | - | - | 28,021 | ||||||||||||||||||||||||
| Beneficial conversion feature on debentures payable | - | - | - | - | 379,183 | - | - | 379,183 | ||||||||||||||||||||||||
| Conversion of debentures payable | 35,886,796 | 35,887 | - | - | 4,981,208 | - | - | 5,017,095 | ||||||||||||||||||||||||
| Conversion of common stock to preferred stock | (4,908,333 | ) | (4,908 | ) | - | - | (14,720,092 | ) | - | - | (14,725,000 | ) | ||||||||||||||||||||
| Conversion of promissory note | 2,525,596 | 2,525 | - | - | 457,525 | - | - | 460,050 | ||||||||||||||||||||||||
| Extinguishment of promissory note | 1,900,000 | 1,900 | - | - | 350,100 | - | - | 352,000 | ||||||||||||||||||||||||
| Common stock issued to settle obligations | 4,400,000 | 4,400 | - | - | 739,200 | - | - | 743,600 | ||||||||||||||||||||||||
| Distributions | - | - | - | - | - | - | (166,952 | ) | (166,952 | ) | ||||||||||||||||||||||
| Exercise of options | ||||||||||||||||||||||||||||||||
| Exercise of options, share | ||||||||||||||||||||||||||||||||
| Exercise of warrants | ||||||||||||||||||||||||||||||||
| Exercise of warrants, shares | ||||||||||||||||||||||||||||||||
| Issuance of stand-alone warrants | ||||||||||||||||||||||||||||||||
| Issuance of warrants with stock | ||||||||||||||||||||||||||||||||
| Equity issuance costs | ||||||||||||||||||||||||||||||||
| Net income (loss) | - | - | - | - | - | (3,635,481 | ) | 156,533 | (3,478,948 | ) | ||||||||||||||||||||||
| Balances at June 30, 2020 | 271,479,247 | $ | 271,479 | 34,171 | $ | 5,365 | $ | 106,253,357 | $ | (110,396,008 | ) | $ | (563,884 | ) | $ | (4,429,691 | ) | |||||||||||||||
| Balance | 271,479,247 | $ | 271,479 | 34,171 | $ | 5,365 | $ | 106,253,357 | $ | (110,396,008 | ) | $ | (563,884 | ) | $ | (4,429,691 | ) | |||||||||||||||
| Shares | Par Value | Shares | Amount | Capital | Deficit | Interests | Equity | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Common Stock | Common Stock Subscribed But Not Issued | Additional Paid-In | Accumulated | Non- Controlling | Total Stockholders’ | Common Stock | Common Stock Subscribed But Not Issued | Additional Paid-In | Accumulated | Non-Controlling | Total Stockholders’ | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Shares | Par Value | Shares | Amount | Capital | Deficit | Interests | Equity | Shares | Par Value | Shares | Amount | Capital | Deficit | Interests | Equity | |||||||||||||||||||||||||||||||||||||||||||||||||
| Balances at December 31, 2020 | 314,418,812 | $ | 314,419 | 11,413 | $ | 5,365 | $ | 112,974,329 | $ | (104,616,538 | ) | $ | (577,139 | ) | 8,100,436 | 314,418,812 | $ | 314 | 11,413 | $ | 5 | $ | 112,974 | $ | (104,615 | ) | $ | (577 | ) | 8,101 | ||||||||||||||||||||||||||||||||||
| Balance | 314,418,812 | 314,419 | 11,413 | 5,365 | $ | 112,974,329 | $ | (104,616,538 | ) | $ | (577,139 | ) | 8,100,436 | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Issuance of subscribed shares | 11,413 | 11 | (11,413 | ) | (5,365 | ) | 5,354 | - | - | - | 11,413 | - | (11,413 | ) | (5 | ) | 5 | - | - | - | ||||||||||||||||||||||||||||||||||||||||||||
| Stock grants | 6,877 | 7 | - | - | 5,358 | - | - | 5,365 | - | - | 6,877 | 5 | - | - | - | 5 | ||||||||||||||||||||||||||||||||||||||||||||||||
| Exercise of options | 82,885 | 83 | - | - | 8,917 | - | - | 9,000 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Exercise of warrants | 698,812 | 699 | - | - | 60,098 | - | - | 60,797 | 50,000 | - | - | - | 8 | - | - | 8 | ||||||||||||||||||||||||||||||||||||||||||||||||
| Amortization of option grants | - | - | - | - | 884,075 | - | - | 884,075 | - | - | - | - | 295 | - | - | 295 | ||||||||||||||||||||||||||||||||||||||||||||||||
| Issuance of stand-alone warrants | - | - | - | - | 55,786 | - | - | 55,786 | - | - | - | - | 56 | - | - | 56 | ||||||||||||||||||||||||||||||||||||||||||||||||
| Issuance of warrants with stock | - | - | - | - | 654,681 | - | - | 654,681 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Conversion of debentures payable | 4,610,645 | 4,611 | - | - | 1,351,841 | - | - | 1,356,452 | 4,610,645 | 5 | - | - | 1,351 | - | - | 1,356 | ||||||||||||||||||||||||||||||||||||||||||||||||
| Conversion of promissory notes | 6,937,400 | 6,937 | - | - | 2,252,854 | - | - | 2,259,791 | 3,365,972 | 3 | - | - | 1,007 | - | - | 1,010 | ||||||||||||||||||||||||||||||||||||||||||||||||
| Common stock issued to settle obligations | 71,691 | 72 | - | - | 53,473 | - | - | 53,545 | 42,857 | - | - | - | 31 | - | - | 31 | ||||||||||||||||||||||||||||||||||||||||||||||||
| Equity issuance costs | - | - | - | - | (386,983 | ) | - | - | (386,983 | ) | - | - | - | - | (387 | ) | - | - | (387 | ) | ||||||||||||||||||||||||||||||||||||||||||||
| Distributions | - | - | - | - | - | - | (182,759 | ) | (182,759 | ) | - | - | - | - | - | - | (83 | ) | (83 | ) | ||||||||||||||||||||||||||||||||||||||||||||
| Net income | - | - | - | - | - | 11,712,755 | 185,847 | 11,898,602 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balances at June 30, 2021 | 326,838,535 | $ | 326,839 | - | $ | - | $ | 117,919,783 | $ | (92,903,783 | ) | $ | (574,051 | ) | $ | 24,768,788 | ||||||||||||||||||||||||||||||||||||||||||||||||
| Balance | $ | 326,839 | - | $ | - | $ | 117,919,783 | $ | (92,903,783 | $ | (574,051 | $ | 24,768,788 | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Net income (loss) | - | - | - | - | - | 4,220 | 90 | 4,310 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balances at March 31, 2021 | 322,499,699 | $ | 322 | 6,877 | $ | 5 | $ | 115,340 | $ | (100,395 | ) | $ | (570 | ) | $ | 14,702 | ||||||||||||||||||||||||||||||||||||||||||||||||
| Common Stock | Common Stock Subscribed But Not Issued | Additional Paid-In | Accumulated | Non- Controlling | Total Stockholders’ | |||||||||||||||||||||||||||
| Shares | Par Value | Shares | Amount | Capital | Deficit | Interests | Equity | |||||||||||||||||||||||||
| Balances at December 31, 2021 | 334,030,348 | $ | 334 | - | $ | - | $ | 134,920 | $ | (97,392 | ) | $ | (1,563 | ) | $ | 36,299 | ||||||||||||||||
| Stock grants | - | - | 2,717 | 2 | - | - | - | 2 | ||||||||||||||||||||||||
| Exercise of options | 10,000 | - | - | - | 3 | - | - | 3 | ||||||||||||||||||||||||
| Amortization of option grants | - | - | - | - | 2,469 | - | - | 2,469 | ||||||||||||||||||||||||
| Conversion of promissory notes | 1,142,858 | 1 | - | - | 399 | - | - | 400 | ||||||||||||||||||||||||
| Fees paid with stock | 375,000 | 1 | - | - | 273 | - | - | 274 | ||||||||||||||||||||||||
| Distributions | - | - | - | - | - | - | (101 | ) | (101 | ) | ||||||||||||||||||||||
| Net income | - | - | - | - | - | 4,188 | 53 | 4,241 | ||||||||||||||||||||||||
| Balances at March 31, 2022 | 335,558,206 | 336 | 2,717 | 2 | 138,064 | (93,204 | ) | (1,611 | ) | 43,587 | ||||||||||||||||||||||
The above statements do not show columns for undesignated preferred stockthe shares and par value of Undesignated
Preferred Stock as the balances were zero and there was no activity in the reported periods.
See accompanying notes to condensed consolidated financial statements.
| 5 |
MariMed Inc.
Condensed Consolidated Statements of Cash Flows
(Unaudited)(in thousands; unaudited)
| 2021 | 2020 | 2022 | 2021 | |||||||||||||
| Six Months Ended June 30, | Three Months Ended March 31, | |||||||||||||||
| 2021 | 2020 | 2022 | 2021 | |||||||||||||
| Cash flows from operating activities: | ||||||||||||||||
| Net income (loss) attributable to MariMed Inc. | $ | 11,712,755 | $ | (3,635,481 | ) | |||||||||||
| Net income (loss) attributable to noncontrolling interests | 185,847 | 156,533 | ||||||||||||||
| Adjustments to reconcile net income (loss) to net cash provided by operating activities: | ||||||||||||||||
| Net income attributable to MariMed Inc. | $ | 4,188 | $ | 4,220 | ||||||||||||
| Net income attributable to noncontrolling interests | 53 | 90 | ||||||||||||||
| Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||||||||||
| Depreciation | 962,571 | 907,285 | 702 | 462 | ||||||||||||
| Amortization of intangibles | 346,036 | 166,908 | 140 | 177 | ||||||||||||
| Amortization of stock grants | 5,365 | 10,730 | 2 | 5 | ||||||||||||
| Amortization of option grants | 884,075 | 556,379 | 2,469 | 295 | ||||||||||||
| Amortization of stand-alone warrant issuances | 55,786 | - | - | 56 | ||||||||||||
| Amortization of warrants attached to debt | 539,272 | 498,694 | - | 539 | ||||||||||||
| Amortization of warrants issued with stock | 654,681 | - | ||||||||||||||
| Amortization of beneficial conversion feature | 176,522 | 2,170,401 | - | 177 | ||||||||||||
| Amortization of original issue discount | 51,753 | 241,613 | - | 52 | ||||||||||||
| Bad debt expense | 1,819,286 | 450,000 | 14 | 1,025 | ||||||||||||
| Fees paid with stock | 274 | - | ||||||||||||||
| Loss on obligations settled with equity | 2,546 | 44,678 | - | 1 | ||||||||||||
| Equity in earnings of investments | - | 32,958 | ||||||||||||||
| Change in fair value of investments | 415,284 | 921,546 | ||||||||||||||
| Gain (loss) on change in fair value of investment | (48 | ) | 45 | |||||||||||||
| Other investment income | (954 | ) | - | |||||||||||||
| Changes in operating assets and liabilities: | ||||||||||||||||
| Accounts receivable, net | (3,229,641 | ) | (1,654,366 | ) | (1,810 | ) | (1,691 | ) | ||||||||
| Deferred rents receivable | 124,851 | (193,464 | ) | 92 | 64 | |||||||||||
| Inventory | (2,397,527 | ) | (2,686,534 | ) | (2,470 | ) | (624 | ) | ||||||||
| Other current assets | (1,372,856 | ) | (215,413 | ) | (739 | ) | (434 | ) | ||||||||
| Other assets | (17,458 | ) | (10,000 | ) | - | (17 | ) | |||||||||
| Accounts payable | 1,699,471 | 566,749 | 3,212 | 1,035 | ||||||||||||
| Accrued expenses | 4,522,782 | 1,363,094 | 217 | (129 | ) | |||||||||||
| Income taxes payable | 3,592 | 1,204 | ||||||||||||||
| Sales and excise taxes payable | 481,533 | 396,236 | (443 | ) | 233 | |||||||||||
| Operating lease payments, net | (8,991 | ) | 51,043 | (6 | ) | (4 | ) | |||||||||
| Finance lease interest payments | 1,504 | 4,033 | 7 | 2 | ||||||||||||
| Other current liabilities | (23,640 | ) | 396,236 | (2 | ) | (24 | ) | |||||||||
| Net cash provided by operating activities | 17,591,807 | 539,858 | 8,490 | 6,759 | ||||||||||||
| Cash flows from investing activities: | ||||||||||||||||
| Purchase of property and equipment | (7,975,731 | ) | (2,720,655 | ) | (4,015 | ) | (2,308 | ) | ||||||||
| Purchase of cannabis licenses | (638,570 | ) | (255,000 | ) | (305 | ) | (638 | ) | ||||||||
| Investment in Green Growth Group, Inc. | (100 | ) | - | |||||||||||||
| Interest on notes receivable | 118,811 | 406,670 | 43 | 69 | ||||||||||||
| Net cash used in investing activities | (8,495,490 | ) | (2,568,985 | ) | (4,377 | ) | (2,877 | ) | ||||||||
| Cash flows from financing activities: | ||||||||||||||||
| Proceeds from issuance of preferred stock | 23,000,000 | - | - | 23,000 | ||||||||||||
| Equity issuance costs | (386,983 | ) | - | - | (387 | ) | ||||||||||
| Proceeds from issuance of promissory notes | 35,096 | 5,249,763 | ||||||||||||||
| Repayments of promissory notes | (15,801,979 | ) | (3,100,000 | ) | (2 | ) | (15,801 | ) | ||||||||
| Proceeds from issuance of debentures | - | 935,000 | ||||||||||||||
| Proceeds from mortgages | - | 907,200 | ||||||||||||||
| Payments on mortgages | (296,347 | ) | (112,352 | ) | (174 | ) | (1,157 | ) | ||||||||
| Proceeds from exercise of options | 9,000 | - | 3 | - | ||||||||||||
| Proceeds from exercise of warrants | 60,797 | - | - | 8 | ||||||||||||
| Due to related parties | (1,157,815 | ) | (63,404 | ) | - | (132 | ) | |||||||||
| Finance lease principal payments | (17,855 | ) | (19,206 | ) | (55 | ) | (10 | ) | ||||||||
| Distributions | (182,759 | ) | (166,952 | ) | (101 | ) | (83 | ) | ||||||||
| Net cash provided by financing activities | 5,261,155 | 3,630,049 | ||||||||||||||
| Net cash (used in) provided by financing activities | (329 | ) | 5,438 | |||||||||||||
| Net change to cash and cash equivalents | 14,357,472 | 1,600,922 | 3,784 | 9,320 | ||||||||||||
| Cash and cash equivalents at beginning of period | 2,999,053 | 738,688 | 29,683 | 2,999 | ||||||||||||
| Cash and cash equivalents at end of period | $ | 17,356,525 | $ | 2,339,610 | $ | 33,467 | $ | 12,319 | ||||||||
| Supplemental disclosure of cash flow information: | ||||||||||||||||
| Cash paid for interest | $ | 1,405,489 | $ | 703,571 | $ | 302 | $ | 1,092 | ||||||||
| Cash paid for income taxes | $ | 419,003 | $ | 13,000 | $ | 68 | $ | 14 | ||||||||
| Non-cash activities: | ||||||||||||||||
| Finance lease right-of-use assets and liabilities | $ | 514 | $ | - | ||||||||||||
| Conversion of promissory notes | $ | 2,259,791 | $ | 460,050 | $ | 400 | $ | 1,010 | ||||||||
| Conversions of debentures payable | $ | 1,356,452 | $ | 5,017,095 | $ | - | $ | 1,356 | ||||||||
| Operating lease right-of-use assets and liabilities | $ | 466,105 | $ | - | $ | - | $ | 466 | ||||||||
| Common stock issued to settle obligations | $ | 51,000 | $ | 698,922 | $ | - | $ | 30 | ||||||||
| Issuance of common stock associated with subscriptions | $ | 5,365 | $ | 1,168,074 | $ | - | $ | 5 | ||||||||
| Cashless exercise of warrants | $ | 180 | $ | - | ||||||||||||
| Cashless exercise of stock options | $ | 53 | $ | - | ||||||||||||
| Exchange of common stock to preferred stock | $ | - | $ | 14,725,000 | ||||||||||||
| Conversion of accrued interest to promissory notes | $ | - | $ | 3,908,654 | ||||||||||||
| Beneficial conversion feature on debentures payable | $ | - | $ | 379,183 | ||||||||||||
| Extinguishment of promissory note | $ | - | $ | 352,000 | ||||||||||||
| Discount on promissory notes | $ | - | $ | 65,931 | ||||||||||||
| Discount on debentures payable | $ | - | $ | 28,021 | ||||||||||||
See accompanying notes to condensed consolidated financial statements.
| 6 |
MariMed Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
NOTE 1 – ORGANIZATION AND DESCRIPTION OF BUSINESS
MariMed Inc. (the “Company”) is a multi-state operator in the United States cannabis industry. The Company develops, operates, manages, and optimizes over 300,000 square feet of state-of-the-art, regulatory-compliant facilities for the cultivation, production and dispensing of medicinal and recreational cannabis. The Company also licenses its proprietary brands of cannabis and hemp-infused products, along with other top brands, in several domestic markets and overseas.
Upon its entry into the cannabis industry in 2014, the Company was an advisory firm that procured state-issued cannabis licenses on behalf of its clients, developed cannabis facilities which it leased to these newly-licensed companies, and provided industry-leading expertise and oversight in all aspects of their cannabis operations. The Company also provided its clients with as ongoing regulatory, accounting, real estate, human resources, and administrative services.
Thereafter,Over the last few years, the Company made the strategic decision to transition from a consulting business to a direct owner and operator of cannabis licenses in high-growth states. Core to this transition is the acquisition and consolidation of the Company’s clients (the “Consolidation Plan”). Among several benefits, the Consolidation Plan would present a simpler, more transparent financial picture of the full breadth of the Company’s efforts, with a clearer representation of the revenues, earnings, and other financial metrics the Company has generated for its clients. The Company has played a key role in the successes of these entities, from the securing of their cannabis licenses, to the development of facilities that are models of excellence, to funding their operations, and to providing operational and corporate guidance. Accordingly, the Company believes it is well suited to own these facilitiesbusinesses and manage the continuing growth of their operations.
To date, acquisitionsthe Company’s acquisition and consolidation of its clientcannabis-licensed clients’ retail businesses in Illinois and retail and wholesale businesses in Massachusetts and Illinois have been completedcompleted. In April 2022, the acquisition of its client’s wholesale business in Maryland, and establish the Company as a fully integrated seed-to-sale multi-state operator (“MSO”).third-party wholesale business in Illinois were consummated. The acquisitions of the remaining entities locatedclients’ retail and wholesale businesses in Maryland, Nevada and Delaware are at various stages of completion and subject to each state’s laws governing the ownership transfer of cannabis licenses which in the case ofand other closing conditions. Delaware requireswill require a modification of current cannabis ownership laws to permit for-profit ownership. Meanwhile,ownership, which is expected to occur when the state legalizes recreational adult-use cannabis. Until the law changes and the acquisition is approved, the Company continues to expand these businesses and maximize the Company’sgenerate revenue from rental income, management fees, and licensing royalties.
In addition to the aforementioned acquisitions of its cannabis-licensed clients, in February 2022, the Company was notified that it was awarded a cannabis dispensary license from the state of Ohio, for which it had previously applied. The Company is awaiting the final verification process to be completed by the state before commencing cannabis operations in this state.
The Company’s transition to becoming a fully integrated MSOmuti-state cannabis operator (“MSO”) is part of a strategic growth plan (the “Strategic Growth Plan”) the Companyit is implementing to drive its revenues and profitability. The Strategic Growth Plan has four components: (i) complete the Consolidation Plan, (ii) increase revenues in existing states, by spending capital to increase the Company’s cultivation and production capacity, and develop additional assets within those states, (iii) expand the Company’s footprint in additional legal cannabis states through new applications and acquisitions of existing cannabis businesses;businesses, and (iv) expandoptimize the Company’s brand portfolio and licensing revenue by continuing to build its portfolio of leading brands and license its brands in otherexpanding into additional states with legal states.cannabis programs.
As to its products, theThe Company has created its own brands of cannabis flower, concentrates, and precision-dosed products utilizing proprietary strains and formulations. These products are developed by the Company in cooperation with state-licensed operators who meet the Company’s strict quality standards, including all natural—not artificial or synthetic—ingredients. The Company licenses its brands and product formulations only to certified manufacturing professionals who follow state cannabis laws and adhere to the Company’s precise scientific formulations and trademarked product recipes.
The Company’s proprietaryCompany markets its high-quality cannabis genetics produce flowers and concentrates under the brand nameaward-winning1 Nature’s Heritage™, and cannabis-infused productsHeritage brand; chewable tablets under the brand names Kalm Fusion®, in the form of chewable tabletsFusion and drink powder mixes, andK Fusion; all natural fruit chews under the award-winning1 Betty’s Eddies® brand of all natural fruit chews. Both cannabis-infusedEddies brand; brownies, cookies, and other social sweets under the Bubby’s Baked brand; and powder drink mixes under the Vibations: High + Energy brand. The Company’s brands are top sellinghave been top-selling products in Maryland and MassachusettsMassachusetts.2 and theThe Company intends to introduce additional productsproduct lines under these brands in 2021.the foreseeable future.
The Company also has exclusive sublicensingstrategic alliances with prominent brands. The Company has partnered with renowned ice cream maker Emack & Bolio’s® to create a line-up of cannabis-infused vegan and dairy ice cream. Additionally, the Company has secured distribution rights in certain states to distributefor the Binske® line of cannabis products crafted from premium artisan ingredients, the Healer™Healer line of medical full-spectrum cannabis tinctures, and the clinically testedclinically-tested medicinal cannabis strains developed in Israel by global medical cannabis research pioneer Tikun Olam™. The Company intends to continue licensing and distributing its brands as well as other top brands in the Company’s current markets.
The Company’s stock is quoted on the OTCQX market under the ticker symbol MRMD.Olam.
The Company was incorporated in Delaware in January 2011 under the name Worlds Online Inc. Initially,The Company’s stock is quoted on the OTCQX market under the ticker symbol MRMD. In April 2022, the Company developed and managed online virtual worlds. By early 2014, this lineapplied to list its shares of business effectively ceased operating, andcommon stock on the Company pivoted into the legal cannabis industry.Canadian Securities Exchange, which application is currently pending.
1 Awards won by the Company’s Betty’s Eddies®Eddies brand include LeafLink 2021 Best Selling Medical Product, Reddit Sparkie 2021 Best Edible, Respect My Region 2021 Hottest Edible, LeafLink 2020 Industry Innovator, and Explore Maryland Cannabis 2020 Edible of the Year,Year. Awards won by the Company’s Nature’s Heritage brand include the Cultivators Cup 2021 Silver Medal and LeafLink 2019 Best Selling Medical Product.the High Times Cannabis Cup 2021 Bronze Medal.
2 Source: LeafLink Insights 2020.
| 7 |
NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”).
In accordance with GAAP, interim financial statements are not required to contain all of the disclosures normally required in annual financial statements. In addition, the results of operations of interim periods may not necessarily be indicative of the results of operations to be expected for the full year. Accordingly, these interim financial statements should be read in conjunction with the Company’s most recent audited annual financial statements and accompanying notes for the year ended December 31, 2020.2021.
Certain reclassifications may have been made to prior periods’ datapresentation to conform to the current period presentation. These reclassifications had no effect on previously reported income (losses) or cash flows.
Principles of Consolidation
The accompanying condensed consolidated financial statements include the accounts of MariMed Inc. and the following majority-owned subsidiaries at June 30, 2021:
March 31, 2022:
SCHEDULE OF MAJORITY OWNED SUBSIDIARIES
| Subsidiary: | Percentage Owned | ||||||
| MariMed Advisors Inc. | Owned | ||||||
| Mia Development LLC | |||||||
| Mari Holdings IL LLC | 100.0% | ||||||
| Mari Holdings MD LLC | |||||||
| Mari Holdings | 100.0% | ||||||
| Mari Holdings NV LLC | 100.0% | ||||||
| Mari Holdings Metropolis LLC | 70.0% | ||||||
| Mari Holdings Mt. Vernon LLC | 100.0% | ||||||
| Mari Mfg LLC | 100.0% | ||||||
| Hartwell Realty Holdings LLC | 100.0% | ||||||
| iRollie LLC | 100.0% | ||||||
| ARL Healthcare Inc. | 100.0% | ||||||
| KPG of Anna LLC | 100.0% | ||||||
| KPG of Harrisburg LLC | 100.0% | ||||||
| MariMed | 100.0% | ||||||
| MariMed Hemp Inc. | |||||||
| Meditaurus LLC | 100.0% | ||||||
Intercompany accounts and transactions have been eliminated.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts within the financial statements and disclosures thereof. Actual results could differ from these estimates or assumptions.
Cash Equivalents
The Company considers all highly liquid investments with a maturity date of three months or less to be cash equivalents. The fair values of these investments approximate their carrying values.
At both March 31, 2022 and December 31, 2021, cash of approximately $5,101,000 was held in escrow, primarily comprised of a $5,000,000 escrow deposit in connection with the acquisition of Kind Therapeutics USA LLC as further discussed in Note 3 – Acquisitions.
The Company’s cash and cash equivalents are maintained with recognized financial institutions located in the United States. In the normal course of business, the Company may carry balances with certain financial institutions that exceed federally insured limits. The Company has not experienced losses on balances in excess of such limits and management believes the Company is not exposed to significant risks in that regard.
Accounts Receivable
Accounts receivable consist of trade receivables and are carried at their estimated collectible amounts.
The Company provides credit to its clients in the form of payment terms. The Company limits its credit risk by performing credit evaluations of its clients and maintaining a reserve, if deemed necessary, for potential credit losses. Such evaluations include the review of a client’s outstanding balances with consideration towards such client’s historical collection experience, as well as prevailing economic and market conditions and other factors. Based on such evaluations, the Company maintained a reserve of approximately $$41.4million and $40.0 million at June 30, 2021both March 31, 2022 and December 31, 2020, respectively. Please2021. For further discussion on receivable reserves, please refer to Note 1718 – Bad Debts for further discussion on receivable reserves.and the Bankruptcy Claim section of Note 20 – Commitments and Contingencies.
| 8 |
Inventory
Inventory is carried at the lower of cost or net realizable value, with the cost being determined on a first-in, first-out (FIFO) basis. The Company allocates a certain percentage of overhead cost to its manufactured inventory; such allocation is based on square footage and other industry-standard criteria. The Company reviews physical inventory for obsolescence and/or excess and will record a write-downreserve if necessary. As of the date of this report, no reserve was deemed necessary.
Investments
Investments are comprised of equity holdings in public and private companies. These investments are recorded at fair value on the Company’s consolidated balance sheet, with changes to fair value included in income. Investments are evaluated for permanent impairment and are written down if such impairments are deemed to have occurred.
Revenue Recognition
The Company recognizes revenue in accordance with the Financial Accounting Standards Board’s Accounting Standards Codification (“ASC”) 606, Revenue from Contract with Customers, as amended by subsequently issued Accounting Standards Updates. This revenue standard requires an entity to recognize revenue to depict the transfer of goods or services to customers in an amount that reflects the consideration that it expects to be entitled to in exchange for those goods or services. The recognition of revenue is determined by performing the following consecutive steps:
| ● | Identify the contract(s) with a customer; | |
| ● | Identify the performance obligations in the contract(s); | |
| ● | Determine the transaction price; | |
| ● | Allocate the transaction price to the performance obligations in the contract(s); and | |
| ● | Recognize revenue as the performance obligation is satisfied. |
Additionally, when another party is involved in providing goods or services to the Company’s clients, a determination is made as to who—the Company or the other party—is acting in the capacity as the principal in the sale transaction, and who is merely the agent arranging for goods or services to be provided by the other party.
The Company is typically considered the principal if it controls the specified good or service before such good or service is transferred to its client. The Company may also be deemed to be the principal even if it engages another party (an agent) to satisfy some of the performance obligations on its behalf, provided the Company (i) takes on certain responsibilities, obligations, and risks, (ii) possesses certain abilities and discretion, or (iii) other relevant indicators of the sale. If deemed an agent, the Company would not recognize revenue for the performance obligations it does not satisfy.
The Company’s main sources of revenue are comprised of the following:
| ● | Product Sales – direct sales of cannabis and cannabis-infused products primarily by the Company’s retail dispensaries and wholesale operations in Massachusetts and | |
| ● | Real Estate – rental income and additional rental fees generated from leasing of the Company’s state-of-the-art, regulatory-compliant cannabis facilities to its cannabis-licensed clients. Rental income is generally a fixed amount per month that escalates over the respective lease terms, while additional rental fees are based on a percentage of tenant revenues that exceed specified amounts. | |
| ● | Management – fees for providing the Company’s cannabis clients with comprehensive oversight of their cannabis cultivation, production, and dispensary operations. These fees are based on a percentage of such clients’ revenue and are recognized after services have been performed. | |
| ● | Supply Procurement – | |
| ● | Licensing – |
| 9 |
Research and Development Costs
Research and development costs are charged to operations as incurred.
Property and Equipment
Property and equipment are stated at cost less accumulated depreciation, with depreciation recognized on a straight-line basis over the shorter of the estimated useful life of the asset or the lease term, if applicable. When assets are retired or disposed, the cost and accumulated depreciation are removed from the accounts, and any resulting gains or losses are included in income. Repairs and maintenance are charged to expense in the period incurred.
The estimated useful lives of property and equipment are generally as follows: buildings and building improvements, forty years;years; tenant improvements, the remaining duration of the related lease; furniture and fixtures, sevento tenyears; and machinery and equipment, ten years.years. Land is not depreciated.
The Company’s property and equipment are individually reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable from the undiscounted future cash flows of such asset over the anticipated holding period. An impairment loss is measured by the excess of the asset’s carrying amount over its estimated fair value.
Impairment analyses are based on management’s current plans, asset holding periods, and currently available market information. If these criteria change, the Company’s evaluation of impairment losses may be different and could have a material impact to the consolidated financial statements.
For In the sixthree months ended June 30,March 31, 2022 and 2021, and 2020, based on the results of management’s impairment analyses, there were no 0impairment losses.
Leases
The consolidated financial statements reflect the Company’s adoption of ASC 842, Leases, as amended by subsequent accounting standards updates, utilizing the modified retrospective transition approach.
updates. Under ASC 842, is intendedarrangements that are determined to improve financial reportingbe leases with a term greater than one year are accounted for by the recognition of leasing transactions. The most prominent change from previous accounting guidance is the requirement to recognize right-of-use assets, and lease liabilities on the consolidated balance sheet representing the rights and obligations created by operating leases that extend more than twelve months in which the Company is the lessee. The Company elected the package of practical expedients permitted under ASC 842. Accordingly, the Company accounted for its existing operating leases that commenced before the effective date as operating leases under the new guidance without reassessing (i) whether the contracts contain a lease, (ii) the classification of the leases (iii) the accounting for indirect costs as defined in ASC 842.
The Company determines if an arrangement is a lease at inception. Right-of-use assets represent the Company’s right to use an underlying asset for the lease term, and lease liabilities, that represent the Company’s obligation to make lease payments arising from the lease. Non-lease components within lease agreements are accounted for separately.
Right-of-use assets and obligations are recognized at the commencement date based on the present value of lease payments over the lease term, utilizing the Company’s incremental borrowing rate. The Company’s lease terms may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option. Lease expense for lease payments is recognized on a straight-line basis over the lease term.
Impairment of Long-Lived Assets
The Company evaluates the recoverability of its fixed assets and other assets in accordance with ASC 360-10-15, Impairment or Disposal of Long-Lived Assets. Impairment of long-lived assets is recognized when the net book value of such assets exceeds their expected cash flows, in which case the assets are written down to fair value, which is determined based on discounted future cash flows or appraised values.
Fair Value of Financial Instruments
The Company follows the provisions of ASC 820, Fair Value Measurement, to measure the fair value of its financial instruments, and ASC 825, Financial Instruments, for disclosures on the fair value of its financial instruments. To increase consistency and comparability in fair value measurements and related disclosures, ASC 820 establishes a fair value hierarchy which prioritizes the inputs to valuation techniques used to measure fair value into three broad levels. The fair value hierarchy gives the highest priority to quoted prices (unadjusted) in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. The three levels of fair value hierarchy defined by ASC 820 are:
| Level 1 | Quoted market prices available in active markets for identical assets or liabilities as of the reporting date. |
| Level 2 | Pricing inputs other than quoted prices in active markets included in Level 1, which are either directly or indirectly observable as of the reporting date. |
| Level 3 | Pricing inputs that are generally observable inputs and not corroborated by market data. |
| 10 |
The carrying amounts of the Company’s financial assets and liabilities, such as cash and accounts payable, approximate their fair values due to the short maturity of these instruments.
The fair value of option and warrant issuances are determined using the Black-Scholes pricing model and employing several inputs such as the expected life of instrument, the exercise price, the expected risk-free interest rate, the expected dividend yield, the value of the Company’s common stock on issuance date, and the expected volatility of such common stock. The following table summarizes the range of inputs used by the Company during the sixthree months ended June 30, 2021March 31, 2022 and 2020:
2021:
SCHEDULE OF ASSUMPTIONS USED
Six Months Ended June 30, | Three Months Ended March 31, | |||||||||||||||
| 2021 | 2020 | 2022 | 2021 | |||||||||||||
| Life of instrument | 3.0 to 5.0 years | 3.0 years | * | to years | ||||||||||||
| Volatility factors | 1.230 to 1.266 | 1.059 to 1.180 | * | to | ||||||||||||
| Risk-free interest rates | 0.36% to 0.90% | 0.33% to 1.33% | * | % to % | ||||||||||||
| Dividend yield | 0% | 0% | * | % | ||||||||||||
| * | No options or warrants were issued by the Company during the three months ended March 31, 2022. |
The expected life of an instrument is calculated using the simplified method pursuant to Staff Accounting Bulletin Topic 14, Share-Based Payment, which allows for using the mid-point between the vesting date and expiration date. The volatility factors are based on the historical two-year movement of the Company’s common stock prior to an instrument’s issuance date. The risk-free interest rate is based on U.S. Treasury rates with maturity periods similar to the expected instruments life on the issuance date.
The Company amortizes the fair value of option and warrant issuances on a straight-line basis over the requisite service period of each instrument.
Extinguishment of Liabilities
The Company accounts for extinguishment of liabilities in accordance with ASC 405-20, Extinguishments of Liabilities. When the conditions for extinguishment are met, the liabilities are written down to zero and a gain or loss is recognized.
The Company accounts for stock-based compensation using the fair value method as set forth in ASC 718, Compensation—Stock Compensation, which requires a public entity to measure the cost of employee services received in exchange for an equity award based on the fair value of the award on the grant date, with limited exceptions. Such value will be incurred as compensation expense over the period an employee is required to provide service in exchange for the award, usually the vesting period. No compensation cost is recognized for equity awards for which employees do not render the requisite service.
| 11 |
Income Taxes
The Company uses the asset and liability method to account for income taxes in accordance with ASC 740, Income Taxes. Under this method, deferred income tax assets and liabilities are recorded for the future tax consequences of differences between the tax basis and financial reporting basis of assets and liabilities, measured using enacted tax rates and laws that will be in effect when the differences are expected to reverse. Deferred tax assets are reduced by a valuation allowance to the extent management concludes it is more likely than not that the assets will not be realized. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the consolidated statements of operations in the period that includes the enactment date.
ASC 740 prescribes a comprehensive model for how companies should recognize, measure, present, and disclose in their financial statements uncertain tax positions taken or expected to be taken on a tax return. The Company did not take any uncertain tax positions and had 0 adjustments to unrecognized income tax liabilities or benefits for the sixthree months ended June 30, 2021March 31, 2022 and 2020.2021.
Certain of the Company’s subsidiaries are subject to the provisions of Section 280E of the Internal Revenue Code, as amended, which prohibits businesses from deducting certain expenses associated with the trafficking of controlled substances within the meaning of Schedule I and II of the Controlled Substances Act. Such non-deductibility of certain ordinary business expenses results in permanent differences and can cause the Company’s effective tax rate to be highly variable and not necessarily correlated with pre-tax income.
Related Party Transactions
The Company follows ASC 850, Related Party Disclosures, for the identification of related parties and disclosure of related party transactions.
In accordance with ASC 850, the Company’s financial statements include disclosures of material related party transactions, other than compensation arrangements, expense allowances, and other similar items in the ordinary course of business, as well as transactions that are eliminated in the preparation of financial statements.
Comprehensive Income
The Company reports comprehensive income and its components following guidance set forth by ASC 220, Comprehensive Income, which establishes standards for the reporting and display of comprehensive income and its components in the consolidated financial statements. There were no items of comprehensive income applicable to the Company during the periodperiods covered in the financial statements.
Earnings per common share is computed pursuant to ASC 260, Earnings Per Share. Basic earnings per share is computed by dividing net income by the weighted average number of shares of common stock outstanding during the period. Diluted net income per share is computed by dividing net income by the sum of the weighted average number of shares of common stock outstanding plus the weighted average number of potentially dilutive securities during the period.
As of June 30,At March 31, 2022 and 2021, and 2020, there were potentially dilutive securities convertible into shares of common stock comprised of (i) stock options – convertible into and shares, respectively, (ii) warrants – convertible into and shares, respectively, (iii) Series B preferred stock – convertible into shares in both periods, (iv) Series C preferred stock – convertible into
For the three and six months ended June 30,March 31, 2022 and 2021, the aforementioned potentially dilutive securities increased the number of weighted average common shares outstanding on a diluted basis by shares and shares, respectively, in accordance with ASC 260, and are includedrespectively. Such share amounts were reflected in the calculation of diluted net income per share for such periods. For the three and six months ended June 30, 2020, the potentially dilutive securities had an anti-dilutive effect on earnings per share, and in accordance with ASC 260, were excluded from the diluted net income per share calculations, resulting in identical basic and fully diluted net income per share for that period.
Commitments and Contingencies
The Company follows ASC 450, Contingencies, which requires the Company to assess the likelihood that a loss will be incurred from the occurrence or non-occurrence of one or more future events. Such assessment inherently involves an exercise of judgment. In assessing possible loss contingencies from legal proceedings or unasserted claims, the Company evaluates the perceived merits of such proceedings or claims, and of the relief sought or expected to be sought.
If the assessment of a contingency indicates that it is probable that a material loss will be incurred and the amount of the liability can be estimated, then the estimated liability would be accrued in the Company’s financial statements. If the assessment indicates that a potentially material loss contingency is not probable but is reasonably possible, or is probable but cannot be estimated, then the nature of the contingent liability, and an estimate of the range of possible losses, if determinable and material, would be disclosed. Loss contingencies considered remote are generally not disclosed unless they involve guarantees, in which case the guarantees would be disclosed.
While not assured, management does not believe, based upon information available at this time, that a loss contingency will have material adverse effect on the Company’s financial position, results of operations or cash flows.
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Beneficial Conversion Features on Convertible Debt
Convertible instruments that are not bifurcated as a derivative pursuant to ASC 815, Derivatives and Hedging, and not accounted for as a separate equity component under the cash conversion guidance are evaluated to determine whether their conversion prices create an embedded beneficial conversion feature at inception, or may become beneficial in the future due to potential adjustments.
A beneficial conversion feature is a nondetachable conversion feature that is “in-the-money” at the commitment date. The in-the-money portion, also known as the intrinsic value, is recorded in equity, with an offsetting discount to the carrying amount of convertible debt to which it is attached. The discount is amortized to interest expense over the life of the debt with adjustments to amortization upon full or partial conversions of the debt.
Risk and Uncertainties
The Company is subject to risks common to companies operating within the legal and medical marijuana industries, including, but not limited to, federal laws, government regulations and jurisdictional laws.
Noncontrolling Interests
Noncontrolling interests represent third-party minority ownership of the Company’s consolidated subsidiaries. Net income attributable to noncontrolling interests is shown in the consolidated statements of operations; and the value of net assets owned by noncontrolling interests are presented as a component of equity within the balance sheets.
Off Balance Sheet Arrangements
The Company does not have any off-balance sheet arrangements.
Recent Accounting Pronouncements
The Company has reviewed all recently issued, but not yet effective, accounting pronouncements, and does not believe the future adoption of any such pronouncements will have a material impact on its financial condition or the results of its operations.
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NOTE 3 – ACQUISITIONS
Kind Therapeutics USA LLC
In December 2021, the Company entered into a membership interest purchase agreement with the members of Kind Therapeutics USA LLC, the Company’s client in Maryland that holds licenses for the cultivation, production, and dispensing of medical cannabis (“Kind”), to acquire 100% of the equity ownership of Kind in exchange for $13.5 millionpayable in cash (subject to adjustment) and $6.5 millionpayable by the issuance of four-year 6.0% promissory notes to the members of Kind, secured by a first priority lien on the Company’s property in Hagerstown, MD. Upon execution of the membership interest purchase agreement, the Company deposited, in escrow, the sum of $5.0 millionas a contract down-payment.
In April 2022, the Maryland Medical Cannabis Commission approved the Company’s acquisition of Kind, and the acquisition was consummated by the parties. Accordingly, Kind will be consolidated into the financial results of the Company commencing on the closing date of the acquisition. Following the closing of the transaction, the Maryland litigation between the Company and the members of Kind was dismissed as further discussed in Note 20 – Commitments and Contingencies.
Simultaneous with the Kind membership purchase agreement, the Company entered into a membership interest purchase agreement with one of the members of Kind to acquire such member’s entire equity ownership interest in (i) Mari Holdings MD LLC (“Mari-MD”), the Company’s majority owned subsidiary that owns production and retail cannabis facilities in Hagerstown, MD and Annapolis, MD, and (ii) Mia Development LLC (“Mia”), the Company’s majority owned subsidiary that owns production and retail cannabis facilities in Wilmington, DE. The purchase price of $2 million in the aggregate is expected to be paid, and the transaction consummated, upon the dismissal of the derivative claims in the DiPietro lawsuit in June 2022, as further discussed in Note 20 – Commitments and Contingencies. After this transaction is consummated, the Company’s ownership of Mari-MD and Mia shall increase to 99.7% and 94.3%, respectively.
The Harvest Foundation LLC
In August 2019, the Company entered into a purchase agreement to acquire 100%100% of the ownership interests of The Harvest Foundation LLC (“Harvest”), the Company’s cannabis-licensed client in the state of Nevada. The acquisition is conditioned upon legislativestate regulatory approval of the transaction. At this time, the state has paused the processing of cannabis license transfers, without indicating when it will resume.transaction and other closing conditions. Upon the resumption of these activitiesapproval, and the ensuing approval byfulfillment of other closing conditions, the state,ownership of Harvest will be transferred to the Company, expects to consummate this transaction wherebyand the operations of Harvest will begin to be consolidated into the Company’s financial statements.There is no assurance that the closing conditions to the Company’s acquisition of Harvest, including regulatory approval, will be achieved or that the acquisition will be consummated.
The purchase price is comprised of the issuance of (i) shares of the Company’s common stock, in the aggregate, to the two owners of Harvest, which as a good faith deposit, were issued upon execution of the purchase agreement, (ii) $1.2 million of the Company’s common stock at closing, based on the closing price of the common stock on the day prior to legislative approval of the transaction, and (iii) warrants to purchase 400,000 shares of the Company’s common stock at an exercise price equal to the closing price of the Company’s common stock on the day prior to legislative approval of the transaction. The issued shares were recorded at par value. Such shares are restricted and will be returned to the Company in the event the transaction does not close by a date certain.close.
Kind Therapeutics USAMeditaurus LLC
In September 2021, the Company acquired the remaining 30.0% ownership interest of Meditaurus LLC, a developer of CBD products sold under the Florance brand name (“Meditaurus”), in exchange for shares of the Company’s common stock, valued at approximately $94,000, and $10,000 in cash. In 2019, the Company had acquired a 70.0% ownership interest in Meditaurus in exchange for $2.8 million of cash and stock.
The carrying value of the noncontrolling interest of approximately $975,000 was eliminated on the date such interest was acquired in September 2021, and since there was no change in control of Meditaurus from this transaction, the resulting gain on bargain purchase was recognized in Additional Paid-In Capital on the balance sheet. As part of this transaction, the initial purchase agreement was amended whereby any and all future license fees and payments to Meditaurus were eliminated.
Beverly Asset Purchase
In November 2021, the Company entered into an asset purchase agreement to acquire the cannabis license, property lease, and other assets and rights of, and to assume the liabilities and operating obligations associated with, a cannabis dispensary that is currently operating in Beverly, MA. The purchase price is comprised of shares of the Company’s common stock and $5.1 million in cash, with the cash amount to be paid on a monthly basis as a percentage of the business’ monthly gross sales.
The purchase is contingent upon the approval of the Massachusetts Cannabis Control Commission, which is expected during the third quarter of 2022. Concurrent with the execution of this agreement, the parties entered into a consulting agreement pursuant whereby the Company shall provide certain oversight services related to the development, staffing, and operation of the business in exchange for a monthly fee.
Green Growth Group Inc.
In the fall of 2016, the members of Kind Therapeutics USA Inc., the Company’s cannabis-licensed client in Maryland that holds licenses for the cultivation, production, and dispensing of medical cannabis (“Kind”), andJanuary 2022, the Company agreed to a partnership/joint venture whereby Kind would be owned 70% by the Company and 30% by the members of Kind, subject to approval by the Maryland Medical Cannabis Commission (“MMCC”). Prior to finalizing the documents confirming the partnership/joint venture, in December 2018, the Company and the members of Kind negotiated and entered into a memorandum of understanding (“MOU”) for the Companystock purchase agreement to acquire 100%100% of the membership interestsequity ownership of Kind. The MOU providesGreen Growth Group Inc., an entity that holds a wholesale cannabis license in the state of Illinois, in exchange for a total purchase price of $$6.31.9 million million in cash and shares of the Company’s common stock and other consideration.valued at $1.5 million. The Company made a good faith deposit of $100,000 on the agreement date, which comprises the balance of non-current Investments on the balance sheet.
In March 2022, the acquisition is subject to approvalwas approved by the MMCC, which will be applied for followingIllinois Department of Agriculture, and in April 2022, the resolution ofparties consummated the litigation with Kind discussed below.
Also in December 2018, (i) MariMed Advisors Inc., the Company’s wholly owned subsidiary, and Kind entered into a management services agreement to provide Kind with comprehensive management services in connection with the business and operations of Kind (“the MSA”), and (ii) Mari Holdings MD LLC, the Company’s majority-owned subsidiary, entered into a 20-year lease with Kind for Kind’s utilization of the Company’s 180,000 square foot cultivation and production facility in Hagerstown, MD (“the Lease”), which the Company purchased, designed, and developed for occupancy and use by Kind commencing in late 2017. Additionally, in October 2019, Mari Holdings MD LLC purchased a 9,000 square foot building in Anne Arundel County, MD, which is currently under constructions, for the development of a dispensary which would be leased to Kind.
In 2019, the members of Kind sought to renegotiate the terms of the MOU and have subsequently sought to renege on both the original partnership/joint venture and the MOU. The Company engaged with Kind in good faith in an attempt to reach updated terms acceptable to both parties, however Kind failed to reciprocate in good faith, resulting in an impasse. Incrementally, both parties through counsel further sought to resolve the impasse, however such initiative resulted in both parties commencing legal proceedings. As a result, the consummation of this acquisition has been delayed and may not ultimately be completed. The litigation is further discussed in Note 19 – Commitments and Contingencies.
MediTaurus LLC
In 2019, the Company acquired a 70% ownership interest in MediTaurus LLC (“MediTaurus”), a company formed by Jokubas Ziburkas PhD, a neuroscientist and leading authority on cannabidiol (“CBD”) and the endocannabinoid system, in exchange for $2.8 million of cash and stock.The Company currently sells CBD products developed by MediTaurus under its Florance™ brand, and expects to acquire the remaining 30% of MediTaurus in 2021.
transaction.
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NOTE 4 –INVESTMENTS
At June 30, 2021March 31, 2022 and December 31, 2020,2021, the Company’s investments were comprised of the following:
following (in thousands):
SCHEDULE OF INVESTMENTS
| June 30, 2021 | December 31, 2020 | March 31, 2022 | December 31, 2021 | |||||||||||||
| Current investments: | ||||||||||||||||
| Flowr Corp. (formerly Terrace Inc.) | $ | 941,910 | $ | 1,357,193 | $ | 299 | $ | 251 | ||||||||
| WM Technology Inc. | 954 | - | ||||||||||||||
| Total current investments | 1,253 | 251 | ||||||||||||||
| Non-current investments: | ||||||||||||||||
| Green Growth Group, Inc. | 100 | - | ||||||||||||||
| MembersRSVP LLC | 1,165,788 | 1,165,788 | - | - | ||||||||||||
| Total investments | $ | 2,107,698 | $ | 2,522,981 | $ | 1,353 | $ | 251 | ||||||||
Flowr Corp. (formerly Terrace Inc.)
In December 2020, Terrace Inc., a Canadian cannabis entity in which the Company had an ownership interest of 8.95%8.95% (“Terrace”), was acquired by Flowr Corp. (TSX.V: FLWR; OTC: FLWPF), a Toronto-headquartered cannabis company with operations in Canada, Europe, and Australia (“Flowr”). Under the terms of the deal, each shareholder of Terrace received of a share in Flowr for each Terrace share held.
This investment is carried at it fair value. DuringThe increase in fair value of approximately $48,000 during the sixthree months ended June 30, 2021March 31, 2022, and 2020, the decrease in fair value of this investment of approximately $$415,00045,000 and $664,000, respectively, wasduring the three months ended March 31, 2021, were reflected in the Gain (Loss) OnChange In Fair Value Of Investments Investmenton the respective statement of operations.
Green Growth Group Inc.
In January 2022, the Company made a good faith deposit of $100,000 in connection with the acquisition of Green Growth Group, Inc. as previously discussed in Note 3 – Acquisitions.
MembersRSVP LLC
In August 2018, the Company invested $300,000 and issued shares of its common stock, valued at approximately $915,000, in exchange for a 23% ownership in MembersRSVP LLC (“MRSVP”), an entity that has developed cannabis-specific customer relationship management software, branded under the name Sprout.
During the six months ended June 30, 2020, the investment was accounted for under the equity method. Based on the Company’s equity in MRSVP’s net loss during such period, the Company recorded a charge of approximately $33,000 which comprised the balance of Loss on Equity Investments on the statement of operations for the six month ended June 30, 2020.
In January 2021, the Company and MRSVPMembersRSVP LLC, an entity that develops cannabis-specific software (“MRSVP”), in which the Company owned a 23.0% membership interest, entered into an agreement whereby the Company assigned and transferredreturned membership interests comprising an 11%11% ownership in MRSVP in exchange for a release from all further obligation by the Company to make future investments, or payments, and certain other non-monetary consideration. Following
In addition to the interest transfer,reduction of the Company’s ownership interest in MRSVP was reduced to 12%12.0 on a fully diluted basis.
As part of the agreement,%, the Company relinquished its right to appoint a member to the board of MRSVP. In light of the Company no longer having the ability to exercise significant influence over MRSVP, the Company discontinued accounting for this investment under the equity method as of January 1, 2021. The Company’s share of MRSVP’s earnings and losses recorded under the equity method prior to January 1, 2020 will remain part of the carrying amount of the investment.
In accordance with ASC 321, Investments – Equity Securities,September 2021, MRSVP sold substantially all of its assets pursuant to an asset purchase agreement. As a result of this agreement, the Company electedreceived cash proceeds of $1,475,000, representing the measurement alternativeCompany’s pro rata share of the cash consideration received by MRSVP at the closing of the transaction. The cash proceeds reduced the Company’s MRSVP investment balance to value this equity investment withoutzero and resulted in a readily determinable fair value. Following the discontinuationgain of equity accounting, there has been no impairment to this investment, nor any observable price changes to investments in the entity.approximately $309,000.
TheAs an ongoing member of MRSVP, the Company will continuewas entitled to applyits pro rata share of any additional consideration received by MRSVP pursuant to the alternative measurement guidance until this investment does not qualifyasset purchase agreement, which may include securities or other forms of non-cash or in-kind consideration and holdback amounts, if and when it is received and distributed by MRSVP. In February 2022, the Company received shares of common stock of WM Technology Inc. (Nasdaq: MAPS), a technology and software infrastructure provider to be so measured.the cannabis industry, representing the Company’s pro rata share of the additional consideration received by MRSVP pursuant to the asset purchase agreement. The Company may subsequently elect to measure this investment at fair value with changesof these shares at March 31, 2022 of approximately $954,000 was reflected in fair value recognized in net income.current Investments on the balance sheet, and the corresponding gain comprised the balance of Other Investment Income on the statement of operations for the three months ended March 31, 2022.
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NOTE 5 – DEFERRED RENTS RECEIVABLE
The Company is the lessor under operating leases which contain rent holidays, escalating rents over time, rent holidays, options to renew, requirements to pay property taxes, insurance and/or maintenance costs, and contingent rental payments based on a percentage of monthly tenant revenues. The Company is not the lessor under any finance leases.
The Company recognizes fixed rental receipts from such lease agreements on a straight-line basis over the expected lease term. Differences between amounts received and amounts recognized are recorded under Deferred Rents Receivable on the balance sheet. Contingent rentals are recognized only after tenants’ revenues are finalized and if such revenues exceed certain minimum levels.
The Company leases the following owned properties:
| ● | Delaware – a 45,000 square foot | |
| ● | Maryland – a 180,000 square foot | |
| ● | Massachusetts – a 138,000 square foot industrial property of which approximately half of the available square footage is leased to a non-cannabis manufacturing company under a lease that |
The Company subleases the following properties:
| ● | Delaware – a 4,000 square | |
| ● | Delaware – a 100,000square foot warehouse, of which the Company | |
| ● | Delaware – a 12,000 square foot |
As of June 30, 2021At March 31, 2022 and December 31, 2020,2021, cumulative fixed rental receipts under such leases approximated $$16.3 19.9million and $$13.9 18.7million, respectively, compared to revenue recognized on a straight-line basis of approximately $$18.121.5 million and $$15.8 20.4million, respectively. Accordingly, the deferred rents receivable balance approximated $1.8 1.6million and $1.7$1.9 million at June 30, 2021March 31, 2022 and December 31, 2020,2021, respectively.
Future minimum rental receipts for non-cancelablenon-cancellable leases and subleases as of June 30, 2021 were:March 31, 2022 were (in thousands):
SCHEDULE OF FUTURE MINIMUM RENTAL RECEIPTS FOR NON-CANCELABLE LEASESNON CANCELABLE LEASE AND SUBLEASESSUBLEASE
| 2021 | ||||||||
| 2021 | $ | 2,411,711 | ||||||
| 2022 | 4,740,130 | $ | 3,620 | |||||
| 2023 | 4,446,410 | 4,563 | ||||||
| 2024 | 4,506,585 | 4,626 | ||||||
| 2025 | 4,574,023 | 4,695 | ||||||
| 2026 | 3,916 | |||||||
| Thereafter | 39,591,553 | 35,830 | ||||||
| Total | $ | 60,270,412 | $ | 57,250 | ||||
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NOTE 6 – NOTES RECEIVABLE
At June 30, 2021March 31, 2022 and December 31, 2020,2021, notes receivable, including accrued interest, consisted of the following:following (in thousands):
SCHEDULE OF NOTES RECEIVABLERECEIVABLES
| June 30, 2021 | December 31, 2020 | March 31, 2022 | December 31, 2021 | |||||||||||||
| First State Compassion Center | $ | 437,014 | $ | 468,985 | ||||||||||||
| First State Compassion Center (initial note) | $ | 385 | $ | 403 | ||||||||||||
| First State Compassion Center (secondary note) | 7,982 | 7,845 | ||||||||||||||
| Healer LLC | 879,642 | 899,226 | 866 | 866 | ||||||||||||
| High Fidelity Inc. | 254,919 | 254,919 | - | - | ||||||||||||
| Total notes receivable | 1,571,575 | 1,623,130 | 9,233 | 9,114 | ||||||||||||
| Notes receivable, current portion | 377,127 | 658,122 | 129 | 127 | ||||||||||||
| Notes receivable, less current portion | $ | 1,194,448 | $ | 965,008 | $ | 9,104 | $ | 8,987 | ||||||||
First State Compassion Center
The Company’s cannabis-licensed client in Delaware, First State Compassion Center (“FSCC”), issued a 10-year promissory note to the Company in May 2016 in the amount of $$700,000 bearing interest at a rate of 12.5% 12.5% per annum, as amended. The monthly payments of approximately $$10,000 will continue through April 2026, at which time the note will be fully paid down.in full. At June 30, 2021March 31, 2022 and December 31, 2020,2021, the current portion of this note approximated $$70,00077,000 and $$66,00075,000, respectively, and was included in Notes Receivable, Current Portion on the respective balance sheets.
In December 2021, financed trade accounts receivable balances from FSCC of approximately $7,845,000 in the aggregate were converted into notes receivable whereby FSCC issued promissory notes to the Company in the aggregate amount of approximately $7.8 million bearing interest at a rate of 6.0% per annum. The promissory notes call for the periodic payment of principal and interest throughout the term of the note which matures in December 2025. At March 31, 2022, the balance of the note included approximately $138,000 of unpaid accrued interest.
Healer LLC
In 2018 and 2019,March 2021, the Company loaned an aggregatewas issued a promissory note in the principal amount of approximately $$800,000894,000 tofrom Healer LLC, an entity that provides cannabis education, dosage programs, and products developed by Dr. Dustin Sulak, an integrative medicine physician and nationally renowned cannabis practitioner (“Healer”). Healer issued promissory notes toThe principal balance of the Company for the aggregate amount loaned that bear interest at 6% per annum, with principal and interest payable on maturity dates three years from the respective loan dates.
In March 2021, the Company was issued a revised promissory note from Healer in the principal amount of approximately $894,000 representing therepresents previous loans extended to Healer by the Company of $800,000 plus accrued interest through the revised promissory note issuance date.date of approximately $94,000. The revised promissory note bears interest at a rate of 6%6.0% per annum and requires quarterly payments of interest from April 2021 through the maturity date in April 2026.
Additionally, the Company has the right to offset any licensing fees owed to Healer by the Company in the event Healer fails to make any timely payment.payment when due. In March 2021, the Company offset approximately $$28,000of licensing fees payable to Healer against the principal balance of the revised promissory note, reducing the principal amount to approximately $$866,000.
At June 30, 2021both March 31, 2022 and December 30, 2020, the total amount of principal and accrued interest due under the aforementioned promissory notes approximated 31, 2021, approximately $$880,00052,000 and $899,000, respectively, of which approximately $52,000 and $337,000, respectively,was current.
High Fidelity
In August 2019,2021, the Company loaned $250,000 was fully repaid on a loan to High Fidelity Inc., an entity that owns and operates two seed-to sale medical marijuana facilitieswith cannabis operations in the state of Vermont and produces its own line of CBD products.Vermont. The loan had a principal balance of $250,000 and bore interest at a rate of 10.0% 10.0% per annum, and was repaid in full in August 2021.
Maryland Health & Wellness Center Inc.
In 2019, the Company provided Maryland Health & Wellness Center Inc. (“MHWC”), an entity that has been pre-approved by the state of Maryland for a cannabis dispensing license, with a $300,000 construction loan bearing interest at a rate of 8% per annum. In June 2020, MHWC repaid the principal and accrued interest thereon, at which time the parties agreed to terminate their business relationship and release each other from all other previously executed agreements.
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NOTE 7 – INVENTORY
At June 30, 2021March 31, 2022 and December 31, 2020,2021, inventory was comprised of the following:following (in thousands):
SCHEDULE OF INVENTORY
| June 30, 2021 | December 31, 2020 | March 31, 2022 | December 31, 2021 | |||||||||||||
| Plants | $ | 3,570,394 | $ | 3,352,425 | $ | 2,413 | $ | 1,015 | ||||||||
| Ingredients and other raw materials | 245,353 | 176,338 | 494 | 262 | ||||||||||||
| Work-in-process | 326,095 | 468,377 | 4,066 | 4,661 | ||||||||||||
| Finished goods | 5,086,256 | 2,833,431 | 5,265 | 3,830 | ||||||||||||
| Total inventory | $ | 9,228,098 | $ | 6,830,571 | $ | 12,238 | $ | 9,768 | ||||||||
NOTE 8 – PROPERTY AND EQUIPMENT
At June 30, 2021March 31, 2022 and December 31, 2020,2021, property and equipment consisted of the following:following (in thousands):
SCHEDULE OF PROPERTY AND EQUIPMENT
| June 30, 2021 | December 31, 2020 | March 31, 2022 | December 31, 2021 | |||||||||||||
| Land | $ | 3,988,810 | $ | 3,988,810 | $ | 4,450 | $ | 4,450 | ||||||||
| Buildings and building improvements | 31,187,512 | 29,309,856 | 37,674 | 35,231 | ||||||||||||
| Tenant improvements | 9,044,543 | 8,844,974 | 16,819 | 9,745 | ||||||||||||
| Furniture and fixtures | 796,742 | 619,880 | 1,909 | 1,888 | ||||||||||||
| Machinery and equipment | 6,058,423 | 4,620,924 | 8,632 | 7,221 | ||||||||||||
| Construction in progress | 7,424,950 | 3,140,807 | 3,635 | 10,569 | ||||||||||||
| 58,500,981 | 50,525,251 | 73,119 | 69,104 | |||||||||||||
| Less: accumulated depreciation | (5,834,949 | ) | (4,888,722 | ) | (7,637 | ) | (6,954 | ) | ||||||||
| Property and equipment, net | $ | 52,666,031 | $ | 45,636,529 | $ | 65,482 | $ | 62,150 | ||||||||
During the sixthree months ended June 30, 2021March 31, 2022 and December 31, 2020,2021, additions to property and equipment approximated $$7,976,000 4,015,000and $$1,876,0003,224,000, respectively.
The 20212022 additions were primarily comprised of (i) the development of facilities in Milford, DEAnnapolis, MD and Metropolis, IL,Beverly, MA, and (ii) purchases of building improvements, machinery, and equipment at the facilities in Middleboro, MAHagerstown, MD and New Bedford, MA. The 20202021 additions consisted primarily of (i) the development of the facilityfacilities in Mt. Vernon, IL,Annapolis, MD and Milford, DE, and (ii) purchases of building improvements, tomachinery, and equipment at the Hagerstown, MD facility and both facilities in Anna, IL and Harrisburg, IL.Massachusetts.
The construction in progress balances of approximately $$7.4 3,635,000million and $$3.1 10,569,000million at June 30, 2021March 31, 2022 and December 31, 2020,2021, respectively, consisted of the commencementdevelopment of construction of propertiesfacilities in Annapolis, MD, Beverly, MA, and Milford, DE and Annapolis, MD.DE.
Depreciation expense for the sixthree months ended June 30,March 31, 2022 and 2021 approximated $702,000and 2020 approximated $$963,000 462,000and $907,000, respectively.
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NOTE 9 – INTANGIBLES
At June 30, 2021March 31, 2022 and December 31, 2020,2021, intangible assets were comprised of (i) the carrying value of cannabis license fees, and (ii) goodwill arising from the Company’s acquisitions.
The Company’s cannabis licenses are issued from the states of Illinois and Massachusetts and require the payment of annual fees. These fees, comprised of a fixed component and a variable component based on the level of operations, are capitalized and amortized over the respective twelve-month periods. At June 30, 2021March 31, 2022 and December 31, 2020,2021, the carrying value of these cannabis licenses approximated $$453,000 327,000and $$161,000162,000, respectively.
The goodwill associated with acquisitions is reviewed on a quarterly basis for impairment. Based on this review and other factors, the goodwill of approximately $$2.12,068,000 million at June 30, 2021March 31, 2022 and December 31, 20202021 was deemed to be unimpaired.
NOTE 10 – DEBTMORTGAGES
Mortgages Payable
At June 30, 2021March 31, 2022 and December 31, 2020,2021, mortgage balances, including accrued interest, were comprised of the following:following (in thousands):
SCHEDULE OF MORTGAGES PAYABLE
| June 30, 2021 | December 31, 2020 | |||||||
| Bank of New England – Massachusetts properties | $ | 12,665,790 | $ | 12,834,090 | ||||
| Bank of New England – Delaware property | 1,519,716 | 1,575,658 | ||||||
| DuQuoin State Bank – Illinois properties | 793,733 | 814,749 | ||||||
| South Porte Bank – Illinois property | 855,564 | 906,653 | ||||||
| Total mortgages payable | 15,834,803 | 16,131,150 | ||||||
| Mortgages payable, current portion | (1,350,548 | ) | (1,387,014 | ) | ||||
| Mortgages payable, less current portion | $ | 14,484,255 | $ | 14,744,136 | ||||
| March 31, 2022 | December 31, 2021 | |||||||
| Bank of New England – New Bedford, MA and Middleboro, MA properties | $ | 12,409 | $ | 12,499 | ||||
| Bank of New England – Wilmington, DE property | 1,434 | 1,463 | ||||||
| DuQuoin State Bank – Anna, IL and Harrisburg, IL properties | 770 | 778 | ||||||
| DuQuoin State Bank – Metropolis, IL property | 2,607 | 2,658 | ||||||
| South Porte Bank – Mt. Vernon, IL property | 820 | 816 | ||||||
| Total mortgages payable | 18,040 | 18,214 | ||||||
| Mortgages payable, current portion | 1,416 | 1,400 | ||||||
| Mortgages payable, less current portion | $ | 16,624 | $ | 16,814 | ||||
In November 2017, theThe Company entered into a 10-year mortgage agreement with Bank of New England in the amount of $4,895,000 (the “Initial Mortgage”) for the purchase of a 138,000 square foot industrial property in New Bedford, Massachusetts, within which the Company has built a 70,000 square foot cannabis cultivation and processing facility. Pursuant to the Initial Mortgage, the Company made monthly payments of (i) interest-only from the mortgage date through May 2019 at a rate equal to the prime rate plus 2%, with a floor of 6.25% per annum, and (ii) principal and interest payments from May 2019 to July 2020 at a rate equal to the prime rate on May 2, 2019 plus 2%, with a floor of 6.25% per annum. In July 2020, at which time the Initial Mortgage had a remaining principal balance of approximately $4.8 million, the parties consummatedmaintains an amended and restated mortgage agreement with the Bank of New England bearing interest at a rate of 6.5% per annum that matures in August 2025. This mortgage is secured by the Company’s properties in New Bedford, MA and Middleboro, in the amount of $13.0 million bearing interest at a rate of 6.5% per annum that matures in August 2025(the “Refinanced Mortgage”).MA. Proceeds from the Refinanced Mortgagethis mortgage were used to pay down a previous mortgage with the Initial MortgageBank of New England of approximately $4.8 million on the New Bedford property, and approximately $$7.2million of promissory notes as further described below.discussed in Note 11 – Promissory Notes. At June 30, 2021March 31, 2022 and December 31, 2020,2021, the outstanding principal balance of the Refinanced Mortgagethis note approximated $$12.7 12,409,000million and $12.8 12,499,000million,, respectively, of which approximately $$346,000 364,000and $$335,000358,000, respectively, was current.
The Company maintains anotherhas a second mortgage with Bank of New England forthat is secured by the 2016 purchase of a 45,070 square foot buildingCompany’s property in Wilmington, Delaware which was developed into a cannabis seed-to-sale facility and is currently leased to the Company’s cannabis-licensed client in that state.DE. The mortgage matures in 2031with monthly principal and interest payments at a rate of 5.25% 5.25% per annum through September 2021, and thereafter the rate adjusting every five years to the then prime rate plus 1.5% 1.5% with a floor of 5.25% 5.25% per annum. At June 30,September 2021, the interest rate remained at 5.25%. At March 31, 2022 and December 31, 2020,2021, the outstanding principal balance on this mortgage approximated $$1.5 1,434,000million and $$1.6 1,463,000million,, respectively, of which approximately $$117,000 122,000and $$114,000120,000, respectively, was current.
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In May 2016, theThe Company entered intomaintains a mortgage agreement with DuQuoin State Bank (“DSB”) for theits purchase of two properties which the Company developed into two 3,400 square foot free-standing retail dispensaries in Illinois.Anna, IL and Harrisburg, IL. On May 5th of each year, this mortgage is due to be repaid unless it is renewed for another year at a rate determined by DSB’s executive committee. The mortgage was renewed in May 2021 at a rate of 6.75% 6.75% per annum. At June 30, 2021March 31, 2022 and December 31, 2020,2021, the outstanding principal balance on this mortgage approximated $$793,000 770,000and $$815,000 778,000respectively, of which approximately $$32,000 34,000and $$31,00033,000, respectively, was current.
In July 2021, the Company purchased the land and building in which it operates its cannabis dispensary in Metropolis, IL. The purchase price consisted of shares of the Company’s common stock, which were valued at $705,000 on the date of the transaction, and payoff of the seller’s remaining mortgage of approximately $1.6 million. In connection with this purchase, the Company entered into a second mortgage agreement with DSB in the amount of $2.7 million that matures in July 2041 and initially bears interest at a rate of 6.25% per annum which is adjusted each year based on a certain interest rate index plus a margin. As part of this transaction, the seller was provided with a 30.0% ownership interest in Mari Holdings Metropolis LLC (“Metro”), the Company’s subsidiary that owns the property and related mortgage obligation, reducing the Company’s ownership interest in Metro to 70.0%. At March 31, 2022 and December 31, 2021, the outstanding principal balance on this mortgage approximated $2,607,000 and $2,658,000, respectively, of which approximately $76,000 and $73,000 was current.
In February 2020, the Company entered into a mortgage agreement with South Porte Bank for the purchase and development of a property in Mt. Vernon, IL. Pursuant to amendments to the amended mortgage agreement, the Company is making interest-onlymortgage shall be repaid in monthly payments at a rateinstallments of principal and interest of approximately $5.5% 6,000per annum, which began in August 2021 and continues through the amendedits maturity date ofin August 31, 2021June 2022, at which time the parties are expected to enter into a one-year renewal agreement.
Promissory Notes Issued Pursuant to an Exchange Agreementall remaining principal, interest and fees shall be due.
In February 2020, pursuant to an exchange agreement as further described inNOTE 11 – PROMISSORY NOTES
Promissory Note 12 – Mezzanine EquityRetirements, the Company issued two promissory notes in the aggregate principal amount of approximately
$4.4 million, bearing interest at
16.5% per annum and maturing in August 2021 (the “$4.4M Notes”), in exchange for a loan in the same amount. At December 31, 2020, the principal and accrued interest balance of the $4.4M Notes approximated $4.6 million. In March 2021, utilizing a portion of the proceeds from the Hadron transaction discussed in Note 1213 – Mezzanine Equity, the $4.4M Notes were fully paid down, along with accrued interest through the repayment date.
Promissory Notes Issued by the Company and its MariMed Hemp Inc. Subsidiary
retired approximately $In June 2019, the Company and MariMed Hemp Inc., its wholly-owned subsidiary (“MMH”), issued a secured promissory note in the principal amount of $10.015.2 million (the “$10M Note”) to an unaffiliated party (the “Noteholder”). The $10M Note provided for the repayment of principal plusand interest on promissory notes issued in previous fiscal years to accredited individual and institutional investors. Additionally, a paymentremaining debt discount of approximately $$1.5450,000 million (the “$1.5M Payment”) on the maturity date of January 31, 2020. Such payment was charged to interest expense over the lifeone of the $10M Note.retired promissory notes (such discount having arisen from the issuance of warrants attached to such promissory note) was fully amortized in this month.
As part of the $10MPromissory Note transaction, the Company issued three-yearConversions warrants to purchase up to 375,000 shares of common stock at an exercise price of $4.50 per share to the Noteholder. The fair value of these warrants on the issuance date of approximately $601,000 was recorded as a discount to the $10M Note. Approximately $523,000 of the warrant discount was amortized to interest expense in 2019, with the remainder in January 2020.
The Company entered intoDuring the three months ended March 31, 2021, the noteholder of an amendment agreement with the Noteholder in February 2020, whereby$8.8 million promissory note issued by the Company and MMH issued an amended and restated promissory note maturing in June 2020 in the principal amount of $11,500,000 (the “$11.5M Note”), comprised of the principal amount of the $10M Note and the $1.5M Payment. The $11.5M Note bore interest at a rate of 15% per annum, requiring periodic interest payments and minimum amortization payments of $3,000,000 in the aggregate, which the Company made in the first half of 2020.
The Company entered into a second amendment agreement with the Noteholder in June 2020 whereby (i) converted approximately $1.0 millionof principal and $352,00010,000 of outstanding principal of the $11.5M Note was convertedaccrued interest into shares of the Company’s common stock (which did not resultstock. After such conversion and cash payments of $4.6 million in a material extinguishment gain or loss as the conversion price approximated the pricesecond half of the Company’s common stock on the agreement date), and (ii) the Company and MMH issued a secondfiscal 2020, this $8.8 million promissory note was amended and restated promissory note in the principal amount of approximately into a new $$8.83.2 million comprised of the outstanding principal and unpaid interest balances of the $11.5M Note, plus an extension fee of approximately $330,000, bearing interest at a rate of 15% per annum and maturing in June 2022(the “$8.8M Note”). In addition, the Company issued three-year warrants to the Noteholder to purchase up to 750,000 shares of common stock at an exercise price of $0.50 per share. The fair value of these warrants on the issuance date of approximately $66,000 was recorded as a discount to the $8.8M Note, and amortized to interest expense over the life of the $8.8M Note.promissory note.
The Company madeDuring 2021, in a required principal payment series of $4,000,000 in July 2020 with a portion of proceeds oftransactions, the Refinanced Mortgage discussed earlier in this footnote, and additional principal payments of $600,000 in the aggregate in calendar 2020. Accordingly, the carrying value of the $8.8M Note was approximately $4.2 million at December 31, 2020.
The Noteholder has the option to convert the $8.8M Note, in whole or in part, into shares of the Company’s common stock at a conversion price of $0.30 per share, subject to certain conversion limitations. This non-detachable conversion feature of the $8.8M Note had no intrinsic value on the agreement date, and therefore no beneficial conversion feature arose. In March 2021, the Noteholdernoteholder converted $1,000,0002.8 million of principal and approximately $10,000 of accrued interest into shares of the Company’s common stock, reducingstock. At December 31, 2021, the carrying value of the $8.8M Note to approximatelyoutstanding balance on this note was $3.2400,000 million..
The Company enteredDuring the three months ended March 31, 2022, the noteholder converted the remaining principal balance of $400,000 into a third amendment agreement with the Noteholder in April 2021 whereby the Company and MMH issued a third amended and restated promissory note in the principal amount of approximately million (the “$3.2M Note”) which bears interest at a rate of 0.12% per annum and matures in April 2023. The Noteholder has the option to convert, subject to certain conversion limitations, all or a portion of the $3.2M Note into shares of the Company’s common stock at a conversion price of $0.35 per share, such conversion price subject to adjustment in the event of certain transactions by the Company. The third amended agreement resulted in a decrease in the fair value of the embedded conversion feature of the $3.2M Note and therefore no accounting was required for such conversion feature.
On or after the one-year anniversary of the $3.2M Note, upon twenty days prior written notice to the Noteholder, the Company can prepay all of the outstanding principal and unpaid interest of the $3.2M Note, along with a prepayment premium equal to 10% of the principal amount being prepaid. The Noteholder shall remain entitled to convert the $3.2M Note during such notice period. On or after the one-year anniversary of the $3.2M Note, the Noteholder has the right to require the redemption in cash of up to $125,000 of principal and unpaid interest thereon per calendar month.
The Noteholder converted, during the second quarter of 2021, $1,250,000 of principal into shares of the Company’s common stock, reducingstock. Upon this conversion, the carrying value of the $3.2M Note to approximately $1.963.3 million at June 30, 2021.note no longer had an outstanding balance and was retired. All of the aforementioned note conversions in 2021 were effected in accordance withwithin the terms of thetheir respective note agreements, and therefore the Company was not required to record a gain or loss on such conversions.
Promissory Note Issued by MMH
In April 2019, MMH issued a secured promissory note in the principal amount of $1,000,000 (the “$1M Note”) to an unaffiliated party. The principal balance plus a payment of $180,000, initially due in December 2019, was extended to March 2020 in accordance with the terms of the $1M Note, requiring an additional payment of $30,000 (the “$30,000 Fee”). Prior to the extended due date, the parties agreed that the $1M Note would continue on a month-to-month basis bearing interest at a rate of 15% per annum. In September 2020, the Company paid down $500,000 of principal on the $1M Note, reducing the carrying value of the $1M Note to $500,000 at December 31, 2020. In March 2021, utilizing a portion of the proceeds from the Hadron transaction discussed in Note 12 – Mezzanine Equity, the remaining principal of $500,000 was paid down.
Promissory Notes Issued for Operating Liquidity
In March 2019, the Company raised $6.0 million through the issuance of a secured promissory note (the “$6M Note”) to an unaffiliated party (the “Holding Party”) bearing interest at a rate of 13% per annum and a service fee of $900,000 (the “Service Fee”). The $6M Note’s initial maturity date of December 31, 2019 was extended to April 2020 in accordance with its terms, with the Company paying a $300,000 extension fee in December 2019 which was charged to interest expense.
The Company and the Holding Party entered into a note extension agreement in April 2020 (the “Initial Extension Agreement”) pursuant to which (i) the $6M Note’s due date was extended to September 2020, and the $6M Note was modified to include unpaid accrued interest of $845,000 through the modification date and interest at a rate of 10% per annum (the “$6.8M Note”), and (iii) a new convertible note in the amount of $900,000 (the “$900k Note”) was issued evidencing the Service Fee, bearing interest at a rate of 12% per annum. The Company satisfied the $900k Note and accrued interest of $20,100 in full as of the June 2020 maturity date by the payment in July 2020 of $460,050 in cash, representing one-half of the principal and accrued interest, and the issuance in June 2020 of shares of the Company’s common stock, in payment of the other half of the principal and accrued interest.
Previous to the $6M Note, the Company raised $3.0 million from the issuance of a secured promissory note to the Holding Party in September 2018, bearing interest at a rate of 10% per annum (the “$3M Note”). The maturity date of the $3M Note, initially in March 2020, was extended for an additional six months in accordance with its terms, with the interest rate increasing to 12% per annum during the extension period. Pursuant to the Initial Extension Agreement, the maturity date of the $3M Note was extended to December 2020.
As part of the $3M Note transaction, the Company issued three-year warrants to the Holding Party’s designees to purchase 750,000 shares of the Company’s common stock at an exercise price of $1.80 per share. The Company recorded a discount on the $3M Note of approximately $1,511,000 from the allocation of note proceeds to the warrants based on the fair value of such warrants on the issuance date. This discount was amortized to interest expense in 2018 and 2019.
The Company and the Holding Party entered into a second note extension agreement in October 2020 (the “Second Extension Agreement”) whereby the Company (i) paid $1 million of principal and all outstanding accrued interest of approximately $333,000 on the $6.8M Note; (ii) issued an amended and restated senior secured promissory note in the principal amount of $5,845,000 (the “$5.8M Note”) to replace the $6.8M Note; and (iii) amended and restated the $3M Note (the “New $3M Note”, and together with the $5.8M Note, the “Amended Notes”). The Amended Notes bear interest at a rate of 12% per annum with maturity dates in September 2022, and can be prepaid in whole or in part at any time.
In consideration of the Second Extension Agreement, the Company (i) issued four-year warrants to the Holding Party’s designees to purchase up to 5,000,000 shares of the Company’s common stock at an exercise price of $0.25 per share; (ii) paid the Holding Party a fee of $100,000; and (iii) extended the security interest in certain Company properties and the pledge of certain equity interests to secure the Amended Notes. The Company recorded a discount on the Amended Notes of approximately $573,000 based on the fair value of such warrants on the issuance date, of which approximately $75,000 was amortized as of the end of 2020, and the remainder to be amortized over the life of the Amended Notes. Accordingly, the carrying value of the Amended Notes approximated $8.3 million at December 31, 2020, of which $1.9 million was current.
The Company made a required principal payment of $400,000 on the $5.8M Note in February 2021. In March 2021, utilizing a portion of the proceeds from the Hadron transaction discussed in Note 12 – Mezzanine Equity, the Amended Notes were fully paid down, along with accrued interest through the repayment date. In addition, the remaining discount of approximately $450,000 on this note was fully amortized on the payment date.
Promissory Notes Issued to Purchase Commercial Vehicles
In August 2020, the Company entered into a note agreement with First Citizens’ Federal Credit Union for the purchase of a commercial vehicle. The note bears interest at a rate of 5.74% 5.74% per annum and matures in July 2026.2026. At June 30, 2021March 31, 2022 and December 31, 2020,2021, the balance of this note approximated $28,00024,000 and $30,00026,000, respectively, of which approximately $5,000 was current in both periods.
In June 2021, the Company entered into a note agreement with Ally Financial for the purchase of a second commercial vehicle. The note bears interest at the rate of 1010.0% per annum and matures in May 2027.2027. At June 30,March 31, 2022 and December 31, 2021, the balance of this note approximated $35,00031,000 and $33,000, of which approximately $5,000 was current.current in both periods.
Other Promissory Note IssuancesIssued by MariMed Hemp Inc.
In addition to the above transactions, at the start ofSeptember 2020, the Company was carrying paid down $$3,190,000500,000 of principal on a $1.0 millionpromissory notesnote issued to accredited investors bearing interest at rates ranging from 6.5% to 18% per annum (the “Existing Notes”). During 2020, the Company (i) raised approximately $2,147,000 from the issuance of new promissory notes to accredited investors bearing interest at 12% and 15% per annum (the “New 2020 Notes”)in 2019 by MariMed Hemp Inc., (ii) repaid $2,100,000 of the Existing Notes, (iii) retired $500,000 of the Existing Notes through the issuance of common stock at a conversion price equal to the market price of the Company’s common stock on the conversion date of per share, and (iv) repaid $700,000 of the New 2020 Notes. Accordingly, the remaining balance on the Existing Notes and New 2020 Notes approximated $2,037,000 in the aggregate at December 31, 2020. This balance along with accrued interest through the repayment date of approximately $200,000 were fully paid down inwholly-owned subsidiary. In March 2021, utilizing a portion of the proceeds from the Hadron transaction discussed in Note 1213 – Mezzanine Equity, the Company paid interest on this note of $200,000 and paid off the remaining principal of $500,000.
At March 31, 2022 and December 31, 2021, the Company was carrying an accrued interest balance of approximately $125,000 to cover interest due on this note.
Debt Maturities
As of June 30, 2021,At March 31, 2022, the aggregate scheduled maturities of the Company’s total debt outstanding were:were (in thousands):
SCHEDULE OF AGGREGATE MATURITIES OF OUTSTANDING DEBT OUTSTANDING
| 2021 | ||||||||
| 2021 | $ | 1,151,743 | ||||||
| 2022 | 521,091 | $ | 1,267 | |||||
| 2023 | 2,516,622 | 635 | ||||||
| 2024 | 588,520 | 673 | ||||||
| 2025 | 629,384 | 720 | ||||||
| 2026 | 764 | |||||||
| Thereafter | 12,504,018 | 14,037 | ||||||
| Total | 17,911,377 | 18,096 | ||||||
| Less discounts | (52,050 | ) | ||||||
| Long-term debt, net | $ | 17,859,327 | ||||||
NOTE 1112 – DEBENTURES PAYABLE
In a series of transactions from the period October 2018 through February 2020, the Company sold an aggregate of $$21.0 million of convertible debentures (the “$21M Debentures”) to an accreditedunaffiliated investor pursuant to an amended securities purchase agreement (the “SPA”). The following table as of June 30, 2021 summarizes the purchase dates and selected terms of each debenture transaction that comprises the $21M Debentures:agreement.
SCHEDULE OF DEBENTURE TRANSACTION
Issue Date | Maturity Date | Initial Principal | Interest Rate | Issue Discount | Warrant Discount | Beneficial Conversion Feature | Converted To Common Stock | |||||||||||||||||||
| 10/17/18 | 10/16/20 | $ | 5,000,000 | 6.0% | 1.0% | $ | 457,966 | $ | 1,554,389 | $ | 5,000,000 | |||||||||||||||
| 11/07/18 | 11/06/20 | 5,000,000 | 6.0% | 1.0% | 599,867 | 4,015,515 | 5,000,000 | |||||||||||||||||||
| 05/08/19 | 05/07/21 | 5,000,000 | 6.0% | 1.0% | 783,701 | 2,537,235 | 5,000,000 | |||||||||||||||||||
| 06/28/19 | 06/27/21 | 2,500,000 | 0.0% | 7.0% | 145,022 | 847,745 | 2,500,000 | |||||||||||||||||||
| 08/20/19 | 08/19/21 | 2,500,000 | 0.0% | 7.0% | 219,333 | 850,489 | 2,500,000 | |||||||||||||||||||
| 02/21/20 | 02/20/21 | 1,000,000 | 6.5% | 6.5% | 28,021 | 379,183 | 1,000,000 | |||||||||||||||||||
As of June 30,March 31, 2021, the holder of the $21M Debentures (the “Holder”) had converted allthe entire $21.0 million of the $21M Debentures, along withprincipal and related accrued interest into the Company’s common stock in a series of conversions, at conversion prices equal to 80% 80.0% of a calculated average as determined in accordance with the terms of the $21M Debentures, of the daily volume-weighted price during the ten consecutive trading days preceding the date of conversion. Specifically, over the life of the $21M Debentures, the Holder converted, in several transactions, an aggregate of $21.0 million of principal and approximately $836,000 of accrued interest into shares of common stock at conversion prices ranging from $0.11 to $3.06 per share. Of these conversions, (i) during 2020, an aggregate of $9.71.3 million of principal and approximately $365,000 of accrued interest was converted into shares of common stock at conversion prices ranging from $0.11 and $0.34 per share, and (ii) during 2021, an aggregate of $1.3million of principal and approximately $56,000of accrued interest waswere converted into shares of common stock at a conversion price of $0.29per share.share during the three months ended March 31, 2021. Additionally, a remaining (i) original issue discount of approximately $52,000
, (ii) debt discount of approximately $39,000
All(such discount having arisen from the issuance of warrants attached to the $21M Debentures), and (iii) beneficial conversion feature of approximately $177,000 (such conversion feature having arisen from an in-the-money embedded conversion option on the commitment date), were fully amortized upon the final conversion of the aforementioned$21M Debentures. All conversions were effected in accordance withwithin the terms of the convertible debenture agreement,agreements, and thereforeaccordingly the Company was not required to record a gain or loss on such conversions. The conversions were limited in any given month to certain agreed-upon amounts based on the conversion price, and the Holder was also limited from beneficially owning more than 4.99% of the Company’s outstanding common stock.
In conjunction with the issuance of the $21M Debentures, the Company issued the Holder three-year warrants to purchase an aggregate of 1,354,675 shares of the Company’s common stock at exercise prices ranging from $0.75 to $5.50 per share, of which warrants to purchase 180,000 shares of common stock at an exercise price of $0.75 were issued in 2020. The fair value of the warrants of approximately $2.2 million was recorded as a discount to the carrying amount of the $21M Debentures and are amortized to interest expense over the respective term of the individual debentures comprising the $21M Debentures.
Based on the conversion prices of the $21M Debentures in relation to the market value of the Company’s common stock, the $21M Debentures provided the Holder with a beneficial conversion feature, as the embedded conversion option was in-the-money on the commitment date. The aggregate intrinsic value of the beneficial conversion feature of approximately $10.2 million was recorded as a discount to the carrying amount of the $21M Debentures, and amortized to interest expense over the respective term of the individual debentures comprising the $21M Debentures.
Pursuant to the terms of a registration rights agreement with the Holder, entered into concurrently with the SPA, the Company agreed to provide the Holder with certain registration rights with respect to shares issued pursuant to the terms of the SPA and the $21M Debentures.
During the year ended December 31, 2020, amortization of the beneficial conversion features, after adjustment for the aforementioned conversions, approximated $3.2 million; amortization of the warrant discounts approximated $805,000; amortization of original issue discounts approximated $321,000; and interest expense approximated $224,000. At December 31, 2020, the aggregate outstanding principal balance of the $21M Debentures was $1.3 million. Also on such date, the unamortized balances of the beneficial conversion features, the warrant discounts, and original issue discounts were approximately $177,000, $39,000, and $52,000, respectively. Accordingly, at December 31, 2020, the carrying value of the $21M Debentures approximated $1,032,000, all of which was current.
During the six months ended June 30, 2021, amortization of the beneficial conversion features, after adjustment for the aforementioned conversions, approximated $177,000; amortization of the warrant discounts approximated $39,000; amortization of original issue discounts approximated $52,000; and interest expense approximated $1,000.
NOTE 1213 – MEZZANINE EQUITY
Series B Convertible Preferred Stock
In February 2020, the Company entered into an exchange agreement with two institutional shareholders (the “TIS Exchange“Exchange Agreement”) whereby the Company (i) issued $ million of promissory notes to the two institutional shareholders (such notes were retired in March 2021 as part of the promissory note retirements discussed in Note 11 – Promissory Notes), and (ii) exchanged shares of the Company’s common stock previously acquired by the two institutional shareholders for an equal number of shares of newly designated Series B convertible preferred stock, and (ii) issued the $4.4M Notes previously discussed in Note 11 – Debt.stock.
In connection with the TIS Exchange Agreement, the Company filed (i) a certificate of designation with respect to the rights and preferences of the Series B convertible preferred stock, and (ii) a certificate of elimination to return all shares of the Series A convertible preferred stock, of which no shares were issued or outstanding at the time of filing, to the status of authorized and unissued shares of undesignated preferred stock.
The holders of Series B convertible preferred stock (the “Series B Holders”) are entitled to cast the number of votes equal to the number of shares of common stock into which the shares of Series B convertible preferred stock are convertible, together with the holders of common stock as a single class, on most matters. However, the affirmative vote or consent of the Series B Holders voting separately as a class is required for certain acts taken by the Company, including the amendment or repeal of certain charter provisions, liquidation or winding up of the Company, creation of stock senior to the Series B convertible preferred stock, and/or other acts defined in the certificate of designation.
| 21 |
The Series B convertible preferred stock shall, with respect to dividend rights and rights on liquidation, winding up and dissolution, rank senior to the Company’s common stock. The Company shall not declare, pay, or set aside any dividends on shares of any other class or series of capital stock of the Company unless the Series B Holders then outstanding shall first receive, or simultaneously receive, a dividend on each outstanding share of Series B convertible preferred stock in an amount calculated pursuant to the certificate of designation.
In the event of any voluntary or involuntary liquidation, dissolution or winding up of the Company, the Series B Holders then outstanding shall be entitled to be paid out of the assets of the Company available for distribution to its stockholders before any payment shall be made to the holders of common stock by reason of their ownership thereof, an amount per share equal to $, plus any dividends declared but unpaid thereon, with any remaining assets distributed pro-rata among the holders of the shares of Series B convertible preferred stock and common stock, based on the number of shares held by each such holder, treating for this purpose all such securities as if they had been converted to common stock.
At any time on or prior to the six-year anniversary of the issuance date of the Series B convertible preferred stock, (i) the Series B Holders have the option to convert their shares of Series B convertible preferred stock into common stock at a conversion price of $$3.00 per share, without the payment of additional consideration, and (ii) the Company has the option to convert all, but not less than all, shares of Series B convertible preferred stock into common stock at a conversion price of $3.00 if the daily volume weighted average price of common stock (the “VWAP”) exceeds $4.00$4.00 per share for at least twenty consecutive trading days prior to the date on which the Company gives notice of such conversion to the Series B Holders.Holders.
On the day following the six-year anniversary of the issuance of the Series B convertible preferred stock, all outstanding shares of Series B convertible preferred stock shall automatically convert into common stock as follows:
| ● | . |
| ● | . |
If the sixty-day VWAP is less than or equal to $0.50 per share, the Company shall have the option to (i) convert all shares of Series B convertible preferred stock into common stock at a conversion price of $1.00 per share, and pay cash to the Series B Holders equal to the difference between the 60-day VWAP and $3.00 per share, or (ii) pay cash to the Series B Holders equal to $3.00 per share.
If the sixty-day VWAP is greater than $0.50 per share, the Company shall have the option to (i) convert all shares of Series B convertible preferred stock into common stock at a conversion price per share equal to the quotient of per share divided by the sixty-day VWAP, or (ii) pay cash to the Series B Holders equal to $3.00 per share, or (iii) convert all shares of Series B convertible preferred stock into common stock at a conversion price per share equal to the sixty-day VWAP per share and pay cash to the Series B Holders at the difference between $3.00 per share and the sixty-day VWAP per share.
The Company shall at all times when the Series B convertible preferred stock is outstanding, reserve and keep available out of its authorized but unissued capital stock, for the purpose of effecting the conversion of the Series B convertible preferred stock, such number of its duly authorized shares of common stock as shall from time to time be sufficient to effect the conversion of all outstanding Series B convertible preferred stock.
Series C Convertible Preferred Stock
In March 2021, the Company entered into a securities purchase agreement with Hadron Healthcare Master Fund (“Hadron”) with respect to a financing facility of up to $ million in exchange for newly-designated Series C convertible preferred stock of the Company and warrants to purchase the Company’s common stock.
At the closing of the transaction in March 2021, Hadron purchased $$23.0 million of Units at a price of $ per Unit. Each Unit is comprised of one share of Series C preferred stock and a four-yearfour-year warrant to purchase two and one-half shares of common stock. Accordingly, the Company issued to Hadron shares of Series C preferred stock and warrants to purchase up to an aggregate of 15,540,540 shares of common stock. Each share of Series C preferred stock is convertible, at Hadron’s option, into five shares of common stock, and each warrant is exercisable at an exercise price of $$1.087 per share. The warrants shall be subject to early termination if certain milestones are attained, and the market value of the Company’s common stock reaches certain predetermined levels. The fair value of the warrants of approximately $$9.5 million on the issuance date was allocated to the proceeds and recorded as additional paid-in capital. The Company incurred costs of approximately $387,000 relative to the issuance of the aforementioned shares to Hadron which was recorded as a reduction to additional paid-in capital in March 2021.
In connection with the closing of the transaction, the Company filed a certificate of designation with respect to the rights and preferences of the Series C convertible preferred stock. Such stock is zero coupon, non-voting. and has a liquidation preference equal to its investment amount plus declared but unpaid dividends. Holders of Series C convertible preferred stock are entitled to receive dividends on an as-converted basis.
Of the $$23.0million of proceeds received by the Company in March 2021, approximately (i) $$7.8 7.3million iswas designated to fund construction and upgrades of certain of the Company’s owned and managed facilities, of which approximately $6.6million was expended during the six months ended June 30,in 2021, and (ii) $$15.2 15.7million was used to pay down debt and obligations, comprised of principal andrelated interest on the $4.4M Notes, the $1M Note, the New $3M Note, the $5.8M Note, the Existing Notes, the New 2020 Notes (all referred to in Note 10 – Debt), and a portion of the Due To Related Parties balanceas discussed in Note 1811 – Related Party TransactionsPromissory Notes.
| 22 |
The balance of the committed facility of up to an additional $23.0 million is intendedwas designated to fund future acquisitions, including the Company’s specific targeted acquisitions provided such acquisitions are contracted in 2021 and consummated, including obtaining the necessary regulatory approvals, no later than the end of 2022. Such funds shall be provided by HadronKind acquisition, on the same aforementioned terms as the initial proceeds.
Provided that as at least 50% Notwithstanding, Hadron did not fund the cash portion of the shares of Series C convertible preferred stock remain outstanding,Kind purchase price, and the holders shall haveCompany is currently in negotiations with Hadron to amend and extend the rightfacility to appoint one observer to the Company’s board and to each of its board committees, and appoint a member to the Company’s board if and when a seat becomes available, at which time the observer roles shall terminate.be utilized for future expansion opportunities. There is no assurance that any extension will be implemented.
The transaction imposes certain covenants on the Company with respect to the incurrence of new indebtedness, the issuance of additional shares of any designation of preferred stock, and the payment of distributions.
NOTE 1314 – STOCKHOLDERS’ EQUITY
Stockholder Resolutions
At the Company’s 2021 annual meeting of stockholders in September 2021 (the “Annual Meeting”), stockholders approved an amendment to the Company’s certificate of incorporation increasing the number of authorized shares of common stock from million .
Also at the Annual Meeting, stockholders approved an amendment to the Company’s Amended and Restated 2018 Stock Award and Incentive Plan (the “Plan”) increasing the aggregate number shares reserved for issuance under the Plan from to .
Undesignated Preferred Stock
In February 2020, the Company filed a certificate of elimination to return all shares of formerly designated Series A convertible preferred stock to the status of authorized and unissued shares of undesignated preferred stock.
Common Stock
In February 2020, pursuant toDuring the TIS Exchange Agreement discussed in Note 12 – Mezzanine Equity, the shares of common stock exchanged for shares of Series B convertible preferred stock were treated as an increase to treasury stock of $ ($ per share), and then immediately cancelled, thereby reducing treasury stock to zero, with corresponding reductions to common stock of approximately $ (the par value of the exchanged common shares) and additional paid-in capital of approximately $.
In the sixthree months ended June 30,March 31, 2022 and 2021, and 2020, the Company granted 6,877 shares of common stock, respectively, to a current employee. The fair valuean employee for services in lieu of the shares of approximately $in 2021 and $ in 2020 was charged to compensation expense. Of the sharessalary. These granted in 2020, shares, with a fair value of approximately $ in 2022 and $ in 2021, were yet to be issued by June 30, 2020,the end of the respective quarter, and were reflected in Common Stock Subscribed But Not Issued on the balance sheet on that date.sheet.
In the six months ended June 30, 2021 and 2020,March 2022, the Company issued and shares of common stock respectively,valued at approximately $274,000 in exchange for consulting services, In February 2021, the Company issued shares of common stock to settle obligations ofa $51,00030,000 and approximately $699,000, respectively.obligation. Based on the price of the Company’s common stock on the settlement dates,date of issuance, the Company incurred a non-cash lossesloss of approximately $2,5001,000 in 2021 and $45,000 in 2020, which werewas reflected under Loss On Obligations Settled with Equity on the statement of operations of each period.operations.
During the sixthree months ended June 30,March 31, 2021, and 2020, the Company issued and shares of common stock respectively, associated with previously issued subscriptions on common stock with a fair value of approximately $5,000and $1,168,000, respectively.
As previously disclosed in Note 10 – Debt,. No such issuances were made during the Company issued (i) an aggregate of 2,260,000 of principal and interest on promissory notes, (ii) shares of common stock in June 2020 to extinguish $352,000 of principal on promissory notes, and (iii) shares common stock in June 2020 upon the conversion of $460,050 of principal and interest on promissory notes.
As previously disclosed in Note 11 – Debentures PayablePromissory Notes, during the holderthree months ended March 31, 2022 and 2021, the Company issued shares common stock upon the conversion of $400,000 of principal in 2022 and shares of common stock upon the $21M Debentures converted (i)conversion of approximately $1.41,010,000 million of principal and interest in 2021 intoon promissory notes.
As previously disclosed in Note 12 – Debentures Payable, during the three months ended March 31, 2021, the Company issued shares of common stock and (ii) approximatelyupon the conversion of $10.11.3 million of principal and approximately $56,000 of accrued interest in 2020 into shares of common stock.the $21M Debentures.
As further disclosed in Note 14 – Options, options to purchase shares of common stock were exercised during the six months ended June 30, 2021. options were exercises during the same period in 2020.
As further disclosed in Note 15 – WarrantsOptions, warrants to purchaseduring the three months ended March 31, 2022, shares of common stock were issued in connection with the exercise of stock options. stock options were exercised during the sixthree months ended June 30,March 31, 2021.
As further disclosed in Note 16 – Warrants, during the three months ended March 31, 2021, warrants to purchase shares of common stock were exercised. warrants were exercisesexercised during the same period in 2020.three months ended March 31, 2022.
Common Stock Issuance Obligations
At June 30, 2020,March 31, 2022 and 2021, the Company was obligated to issue and shares of common stock, valued at approximately $ and $, respectively, in connection with a stock grantgrants to a currentan employee. These share wereThe 2022 obligation was issued in August 2020.May 2022; the 2021 obligations was issued in April 2021. The Company had no such issuance obligation of common stock at June 30, 2021.
During the sixthree months ended June 30,March 31, 2021, the Company granted - and -year options to purchase up to shares of common stock at exercise prices ranging from $to $per share. The fair value of these options of approximately $1,458,000 541,000in the aggregate is being amortized to compensation expense over their respective vesting periods, of which approximately $was amortized during the sixthree months ended June 30,March 31, 2021. Additionally, compensationNo stock options were granted during the three months ended March 31, 2022.
Compensation expense in the first halfquarter of 2022 and 2021 for options issued in previous years,periods, and continuing to be amortized over their respective vesting periods, approximated $ and $., respectively.
During the sixthree months ended June 30, 2020, options to purchase up to common shares were issued to employees at an exercise price of $per share. The fair value of these options of approximately $67,000 in the aggregate is being amortized to compensation expense over their respective vesting periods, of which approximately $was amortized during the six months ended June 30, 2020. Additionally, compensation expense in the first half of 2020 for options issued in previous years, and continuing to be amortized over their respective vesting periods, approximated $.
During the six months ended June 30, 2021,March 31, 2022, options to purchase shares of common stock were exercised at pricesan exercise price of $ and $ per share. Of these exercised options, were exercised on a cashless basis with the exercise prices paid via the surrender of shares of common stock.. No stock options were exercised during the sixthree months ended June 30, 2020.March 31, 2021.
During the sixthree months ended June 30,March 31, 2021, and 2020, options to purchase and shares of common stock respectively, were forfeited orexpired. stock options expired resulting in an aggregate reduction of amortized compensation expense of 0in 2021 and approximately $19,000 in 2020.during the three months ended March 31, 2022.
SCHEDULE OF STOCK OPTIONS OUTSTANDING AND EXERCISABLE
| Shares Under Option | ||||||||||||
| Exercise Price per Share | Outstanding | Exercisable | Remaining Life in Years | |||||||||
| $ | 160,000 | 40,000 | 4.03 | |||||||||
| $ | 500,000 | 500,000 | 4.51 | |||||||||
| $ | 200,000 | 200,000 | 4.37 | |||||||||
| $ | 70,000 | 50,000 | 4.40 | |||||||||
| $ | 2,000,000 | 1,062,500 | 4.36 | |||||||||
| $ | 20,000 | 20,000 | 3.92 | |||||||||
| $ | 50,000 | 12,500 | 4.32 | |||||||||
| $ | 800,000 | 400,000 | 4.37 | |||||||||
| $ | 80,000 | 40,000 | 4.40 | |||||||||
| $ | 50,000 | 50,000 | 3.67 | |||||||||
| $ | 524,500 | 262,250 | 3.75 | |||||||||
| $ | 900,000 | 900,000 | 3.49 | |||||||||
| $ | 100,000 | 25,000 | 4.52 | |||||||||
| $ | 800,000 | 100,000 | 4.53 | |||||||||
| $ | 15,000 | 15,000 | 3.44 | |||||||||
| $ | 300,000 | 300,000 | 0.50 | |||||||||
| $ | 590,000 | 338,125 | 4.83 | |||||||||
| $ | 200,000 | 200,000 | 1.50 | |||||||||
| $ | 287,000 | 71,750 | 4.73 | |||||||||
| $ | 600,000 | - | 4.91 | |||||||||
| $ | 90,000 | 25,000 | 4.96 | |||||||||
| $ | 10,000 | - | 4.56 | |||||||||
| $ | 40,000 | 10,000 | 4.56 | |||||||||
| $ | 25,000 | 6,250 | 4.57 | |||||||||
| $ | 50,000 | 50,000 | 1.86 | |||||||||
| $ | 50,000 | 50,000 | 1.31 | |||||||||
| $ | 50,000 | 50,000 | 1.50 | |||||||||
| $ | 100,000 | 25,000 | 4.96 | |||||||||
| $ | 145,000 | - | 4.99 | |||||||||
| $ | 300,000 | 300,000 | 3.24 | |||||||||
| $ | 15,000 | 15,000 | 2.96 | |||||||||
| $ | 125,000 | 125,000 | 3.34 | |||||||||
| $ | 100,000 | 75,000 | 2.08 | |||||||||
| $ | 375,000 | 375,000 | 2.00 | |||||||||
| $ | 100,000 | 100,000 | 2.20 | |||||||||
| $ | 2,000,000 | 2,000,000 | 1.48 | |||||||||
| $ | 100,000 | 100,000 | 2.16 | |||||||||
| $ | 200,000 | 200,000 | 2.24 | |||||||||
| $ | 56,250 | 56,250 | 1.45 | |||||||||
| $ | 100,000 | 100,000 | 2.45 | |||||||||
| $ | 25,000 | 25,000 | 2.46 | |||||||||
| $ | 100,000 | 100,000 | 2.44 | |||||||||
| 12,402,750 | 8,374,625 | |||||||||||
| Exercise Price | Shares Under Option | Remaining Life | ||||||||||||
| per Share | Outstanding | Exercisable | in Years | |||||||||||
| $0.140 | 80,000 | 80,000 | ||||||||||||
| $0.149 | 500,000 | 500,000 | ||||||||||||
| $0.169 | 200,000 | 200,000 | ||||||||||||
| $0.225 | 2,000,000 | 1,625,000 | ||||||||||||
| $0.250 | 50,000 | 50,000 | ||||||||||||
| $0.250 | 20,000 | 20,000 | ||||||||||||
| $0.250 | 50,000 | 25,000 | ||||||||||||
| $0.250 | 800,000 | 800,000 | ||||||||||||
| $0.250 | 80,000 | 80,000 | ||||||||||||
| $0.300 | 388,000 | 388,000 | ||||||||||||
| $0.417 | 900,000 | 900,000 | ||||||||||||
| $0.505 | 100,000 | 100,000 | ||||||||||||
| $0.505 | 800,000 | 400,000 | ||||||||||||
| $0.590 | 15,000 | 15,000 | ||||||||||||
| $0.690 | 15,000 | - | ||||||||||||
| $0.693 | 500,000 | - | ||||||||||||
| $0.700 | 650,000 | 50,000 | ||||||||||||
| $0.740 | 520,000 | 425,625 | ||||||||||||
| $0.755 | 1,050,000 | 550,000 | ||||||||||||
| $0.770 | 200,000 | 200,000 | ||||||||||||
| $0.800 | 25,000 | - | ||||||||||||
| $0.830 | 287,000 | 287,000 | ||||||||||||
| $0.830 | 600,000 | 150,000 | ||||||||||||
| $0.840 | 878,921 | 878,921 | ||||||||||||
| $0.840 | 99,000 | 59,400 | ||||||||||||
| $0.850 | 90,000 | 49,375 | ||||||||||||
| $0.850 | 72,500 | 14,375 | ||||||||||||
| $0.870 | 250,000 | - | ||||||||||||
| $0.880 | 11,550,000 | 5,925,000 | ||||||||||||
| $0.880 | 15,000 | 7,500 | ||||||||||||
| $0.880 | 410,000 | 102,500 | ||||||||||||
| $0.890 | 10,000 | 5,000 | ||||||||||||
| $0.892 | 40,000 | 30,000 | ||||||||||||
| $0.895 | 25,000 | 25,000 | ||||||||||||
| $0.898 | 11,250,000 | 5,625,000 | ||||||||||||
| $0.900 | 50,000 | 50,000 | ||||||||||||
| $0.910 | 50,000 | 50,000 | ||||||||||||
| $0.920 | 300,000 | 37,500 | ||||||||||||
| $0.928 | 500,000 | 200,000 | ||||||||||||
| $0.950 | 50,000 | 50,000 | ||||||||||||
| $0.970 | 100,000 | 100,000 | ||||||||||||
| $0.983 | 145,000 | 61,250 | ||||||||||||
| $0.990 | 500,000 | 125,000 | ||||||||||||
| $0.992 | 300,000 | 300,000 | ||||||||||||
| $1.000 | 15,000 | 15,000 | ||||||||||||
| $1.000 | 125,000 | 125,000 | ||||||||||||
| $1.350 | 100,000 | 100,000 | ||||||||||||
| $1.950 | 375,000 | 375,000 | ||||||||||||
| $2.320 | 100,000 | 100,000 | ||||||||||||
| $2.450 | 2,000,000 | 2,000,000 | ||||||||||||
| $2.500 | 100,000 | 100,000 | ||||||||||||
| $2.650 | 200,000 | 200,000 | ||||||||||||
| $2.850 | 56,250 | 56,250 | ||||||||||||
| $2.850 | 100,000 | 100,000 | ||||||||||||
| $3.000 | 25,000 | 25,000 | ||||||||||||
| $3.725 | 100,000 | 100,000 | ||||||||||||
| 39,811,671 | 23,837,696 | |||||||||||||
NOTE 1516 – WARRANTS
During the sixthree months ended June 30,March 31, 2021, the Company issued four-year warrants to Hadron to purchase up to 15,540,540 shares of common stock at an exercise price of $1.087 per share as part of the Hadron transaction previously discussed in Note 13 – Mezzanine Equity. Of the $23.0 million of proceeds from the Hadron transaction, $9.5 million was allocated to the warrant (such mount representing the fair value of the warrants on the issuance date) and recorded in Additional Paid-In Capital. Also during 2021, the Company issued warrants to purchase up to 1,100,000 2,100,000shares of common stock at exercise prices ofranging from $0.82 0.50and to $0.83per share, expiring three and fourfive yearsfrom issuance. The fair value of these warrants on their issuance dates approximatedof approximately $710,000 1,487,000in the aggregate which was charged to compensation expense. AlsoNo warrants were granted during this period, the Company issued warrants to Hadron to purchase up to 15,540,540 shares of common stock at an exercise price of $1.087 per share, expiring four years from issuance, as part of the Hadron transaction previously discussed in Note 12 – Mezzanine Equity. The fair value of these warrants on the issuance date approximated $9.5 million, and this amount was allocated to the warrant from the $23.0 million proceeds from the Hadron transaction and recorded in additional paid in capital.three months ended March 31, 2022.
During the sixthree months ended June 30, 2020, in conjunction with the $21M Debentures discussed in Note 11 – Debentures Payable, the Company issued three-year warrants to purchase up to 180,000 shares of common stock at an exercise price of $0.75 per share. Also during this period, in conjunction with the $8.8M Note discussed in Note 10 – Debt, the Company issued three-year warrants to purchase up to 750,000 shares of common stock at an exercise price of $0.50 per share The fair value of these warrants on their issuances dates approximated $94,000 in the aggregate, of which approximately $20,000 was amortized to interest expense in the period and the remainder to be amortized over the terms of the respective debt instruments.
During the six months ended June 30,March 31, 2021, warrants to purchase 956,250 50,000shares of common stock were exercised at an exercise prices ranging fromprice of $0.110.15 to $0.55per share. warrants were exercised during the same period in 2020.three months ended March 31, 2022.
During the sixthree months ended June 30,March 31, 2021, warrants to purchase 3,426,500 225,000shares of common stock with exercise prices of $0.90and $2.25 1.15per share were forfeited.expired. warrants were forfeitedexpired during the same period in 2020.three months ended March 31, 2022.
At June 30,March 31, 2022 and 2021, and 2020, warrants to purchase up to 26,351,57129,174,958 and 32,282,70812,710,107 shares of common stock, respectively, were outstanding with exercise prices ranging from $0.250.11 to $5.50per share across both periods.
NOTE 1617 – REVENUES
For the sixthree months ended June 30,March 31, 2022 and 2021, and 2020, the Company’s revenues were comprised of the following major categories:categories (in thousands):
SCHEDULE OF REVENUES COMPRISED OF MAJOR CATEGORIES
Three Months Ended March 31, | ||||||||||||||||
| 2021 | 2020 | 2022 | 2021 | |||||||||||||
| Product sales - retail | $ | 35,776,191 | $ | 9,942,804 | $ | 21,441 | $ | 15,224 | ||||||||
| Product sales - wholesale | 13,902,969 | 1,277,076 | 6,062 | 5,725 | ||||||||||||
| Real estate rentals | 3,670,462 | 3,492,042 | 1,587 | 1,809 | ||||||||||||
| Supply procurement | 1,190 | 520 | ||||||||||||||
| Management fees | 1,877,407 | 748,696 | 753 | 896 | ||||||||||||
| Supply procurement | 918,018 | 818,900 | ||||||||||||||
| Licensing fees | 1,067,173 | 796,847 | 249 | 469 | ||||||||||||
| Total revenues | $ | 57,212,220 | $ | 17,076,325 | $ | 31,282 | $ | 24,643 | ||||||||
For the sixthree months ended June 30,March 31, 2022 and 2021, and 2020, revenues from two clients represented 12% and 3014%, respectively, of total revenues.
NOTE 1718 – BAD DEBTS
The Company maintains two types of reserves to address uncertain collections of amounts due—an allowance against trade accounts receivable (the “AR Allowance”), and a reserve against cash advanced by the Company to its cannabis-licensed clients for working capital purposes (the WC Reserve”).
During the sixthree months ended June 30,March 31, 2022, the Company made no change to the AR Allowance, and increased the WC Reserve by approximately $14,000, to reserve the working capital balance of Harvest. During the three months ended March 31, 2021, the Company increased the AR Allowance by $1,400,000850,000, and the WC Reserve by approximately $419,000175,000. The aggregate of these two amounts of approximately $1,819,000 1,025,000was charged to Bad Debts on the statement of operations duringfor this period. During the six months ended June 30, 2020, the Company increased the AR Allowance by $450,000 with a corresponding charge to Bad Debts.
NOTE 1819 – RELATED PARTY TRANSACTIONS
In April 2020,July 2021, the Company issued granted options to purchase up to shares of common stock to its COO, with an exercise price of $ per share and expiring three years from grant date. The fair value of these options of approximately $6,000 was charged to compensation expense over the annual vesting period. No options were issued to related parties in 2021.
In 2020, options to purchase an aggregate of shares of common stock were exercised byto each of the Company’s CEO, CFO, and anthree independent board membermembers at an exercise pricesprice of $and $per share. No
In December 2021, the CEO and CFO each exercised options were exercisedto purchase shares of common stock on a cashless basis. The exercise price of $per share was paid via the surrender by related parties in 2021.each individual of 73,256 shares of common stock.
The Company’s corporate offices are leased from an entity in which the Company’s CFO has an investment interest. This lease expires in October 2028 and contains a five-year extension option. In each ofDuring the six-month periodsthree months ended June 30,March 31, 2022 and 2021, and 2020, expenses incurred under this lease approximated $78,00039,000. in both periods.
The Company procures nutrients, lab equipment, cultivation supplies, furniture, and tools from an entity owned by the family of the Company’s COO. The aggregate purchases from this entity induring the sixthree months ended June 30,March 31, 2022 and 2021 and 2020 approximated $2,015,000 872,000and $1,141,000825,000, respectively.
The Company pays royalties on the revenue generated from its Betty’s Eddies®Eddies product line to an entity owned by the Company’s COO and its SVP of Sales under a royalty agreement. This agreement was amended effective January 1, 2021 whereby, among other modifications, the royalty percentage changed from 2.5%2.5% on all sales of Betty’s Eddies®Eddies products to (i) 3.0% and 10.0% of wholesale sales of existing products within the product line if sold directly by the Company, or licensed by the Company for sale by third-parties, respectively, and (ii) 0.5% and 1.0% of wholesale sales of future developed products within the product line if sold directly by the Company, or licensed by the Company for sale by third-parties, respectively.respectively. The aggregate royalties due to this entity in the sixthree months ended June 30, 2021March 31, 2022 and 2020 approximated2021approximated $162,000 56,000and $148,00083,000, respectively.
InDuring the sixthree months ended June 30,March 31, 2022 and 2021, and 2020, one of the Company’s majority ownedmajority-owned subsidiaries paid aggregate distributions of approximately $21,00011,000 and $19,0009,000, respectively, to the Company’s CEO and CFO, who own minority equity interests in such subsidiary. During the three months ended March 31, 2022, another of the Company’s majority owned subsidiaries paid distributions of approximately $3,000 to a current employee who owns a minority equity interest in such subsidiary.
InDuring the sixthree months ended June 30,March 31, 2022 and 2021, the Company purchased fixed assets and consulting services of approximately $573,000392,000 and $265,000, respectively, in the aggregate from two entities owned by two of the Company’s general managers.NaNpayments were made to these two entities in the same period in 2020.
InDuring the sixthree months ended June 30,March 31, 2022 and 2021, and 2020, the Company purchased fixed assets of approximately $466,00082,000 and $145,000310,000 from an entity owned by an employee.
The balance of Due To Related Parties at December 31, 2020 of approximately $1.2 million was comprised of amounts owed of approximately (i) $460,000 to the Company’s CEO, (ii) $653,000 to entities owned by the Company’s CEO and CFO, and (iii) $45,000 to a stockholder of the Company. All amounts owed were repaid in March 2021.
The Company’s mortgages with Bank of New England, DuQuoin State Bank, and South Porte Bank are personally guaranteed by the Company’s CEO and CFO.
NOTE 1920 – COMMITMENTS AND CONTINGENCIES
Lease Commitments
The Company is the lessee under six operating leases and four finance leases. These leases contain rent holidays and customary escalations of lease payments for the type of facilities being leased. The Company recognizes rent expense on a straight-line basis over the expected lease term, including cancelable option periods which the Company fully expects to exercise. Certain leases require the payment of property taxes, insurance and/or maintenance costs in addition to the rent payments.
The details of the Company’s operating lease agreements are as follows:
| ● | Delaware – 4,000 square feet of retail space in a multi-use building under a five-year lease that expires in | |
| ● | Delaware – a 100,000square foot warehouse, | |
| ● | Delaware | |
| ● | Nevada – 10,000 square feet of an industrial building that the Company has built-out into a cannabis cultivation facility and plans to rent to its cannabis-licensed client under a | |
| ● | Massachusetts – 10,000 square feet of office space which the Company utilizes as its corporate offices under a | |
| ● | Maryland – a 2,700 square foot |
The Company leases machinery and office equipment under finance leases that expire in February 20222024 through June 2024February 2026 with such terms being a major part of the economic useful life of the leased property.
The components of lease expense for the three months ended June 30, 2021March 31, 2022 were as follows:follows (in thousands):
SCHEDULE OF COMPONENTS OF LEASE EXPENSE
| Operating lease cost | $ | 543,593 | $ | 277 | ||||
| Finance lease cost: | ||||||||
| Amortization of right-of-use assets | $ | 16,342 | $ | 19 | ||||
| Interest on lease liabilities | 2,855 | 7 | ||||||
| Total finance lease cost | $ | 19,197 | $ | 26 |
The weighted average remaining lease term for operating leases is 7.8 7.1years, and for the finance leases is 2.4 3.8years. The weighted average discount rate used to determine the right-of-use assets and lease liabilities wasis between 7.5% to 1212.0% for all leases.
Future minimum lease payments as of June 30, 2021March 31, 2022 under all non-cancelable leases having an initial or remaining term of more than one year were:were (in thousands):
SCHEDULE OF FUTURE MINIMUM LEASE PAYMENTS UNDER ALL NON-CANCELABLENON CANCELABLE OPERATING LEASES
| Operating Leases | Finance Leases | |||||||
| 2021 | $ | 564,469 | $ | 19,206 | ||||
| 2022 | 1,071,079 | 27,123 | ||||||
| 2023 | 1,035,017 | 23,201 | ||||||
| 2024 | 963,589 | 3,229 | ||||||
| 2025 | 936,947 | - | ||||||
| Thereafter | 3,468,041 | - | ||||||
| Total lease payments | 8,039,142 | $ | 72,759 | |||||
| Less: imputed interest | (2,058,393 | ) | (6,208 | ) | ||||
| $ | 5,980,749 | $ | 66,551 | |||||
| Operating Leases | Finance Leases | |||||||
| 2022 | $ | 849 | $ | 135 | ||||
| 2023 | 1,119 | 173 | ||||||
| 2024 | 1,050 | 153 | ||||||
| 2025 | 1,025 | 150 | ||||||
| 2026 | 970 | 21 | ||||||
| Thereafter | 2,611 | - | ||||||
| Total lease payments | 7,624 | $ | 632 | |||||
| Less: imputed interest | (2,153 | ) | (82 | ) | ||||
| $ | 5,471 | $ | 550 | |||||
In November 2021, the Company entered into lease agreements for six retail properties, each with square footage between 4,000 and 6,000 square feet, in the state of Ohio (each an “Ohio Lease” and collectively the “Ohio Leases”). Each Ohio Lease has an initial lease period of eleven months, with a minimum rent of $31.00 per square foot which increases 3.0% annually. In the event the Company is awarded one or more of the six Ohio cannabis licenses for which it had previously applied, the Company can extend the term of one or more of the Ohio Leases to ten years (with two additional five-year options to extend) upon the payment of $50,000 for each extended Ohio Lease, and develop the premises of such extended lease(s) into a cannabis dispensary.
In February 2022, the Company was notified that it was awarded a cannabis dispensary license from the state of Ohio. The Company is awaiting the final verification process to be completed by the state. As of March 31, 2022, the lease terms of the Ohio Leases were all less than one year, and accordingly the Company was not required to record a right-of-use asset and corresponding lease liability on its balance sheet.
In April 2022, the Company extended the term of one of the Ohio Leases, and the remaining five Ohio Leases were terminated.
Terminated Employment Agreement
An employment agreement which commenced in 2012 with Thomas Kidrin, the former CEO of the Company, which provided Mr. Kidrin with salary, car allowances, stock options, life insurance, and other employee benefits, was terminated by the Company in 2017. At June 30, 2021 and December 31, 2020,Since the termination date, the Company had maintained an accrual of approximately $1,043,000 for any amounts that may be owed under this agreement, although the Company contends that such agreement is not valid and no amount is due.agreement.
In July 2019, Mr. Kidrin, also a former director of the Company, filed a complaint in the Massachusetts Superior Court, which allegesalleged the Company failed to pay all wages owed to him and breached the employment agreement, and requestsrequested multiple damages, attorney fees, costs, and interest. The Company has moved to dismiss certain counts of the complaint and has asserted counterclaims against Mr. Kidrin alleging breach of contract, breach of fiduciary duty, money had and received, and unjust enrichment. The Company believes that the allegations in the complaint are without merit and intends to vigorously defend this matter and prosecute its counterclaims.
WhileIn August 2021, the parties entered into a settlement agreement and general release pursuant to which (i) Mr. Kidrin’s complaint was dismissed with prejudice, (ii) the Company issued to Mr. Kidrin five-year warrants to purchase up to 1,000,000 shares of the Company’s motioncommon stock at an exercise price of $0.50 per share, (iii) the Company irrevocably transferred intangible assets relating to dismissthe online virtual worlds business the Company had conducted in early 2014, prior to its pivot into the legal cannabis industry (such assets had zero carrying value on the Company’s balance sheet), and (iv) each party released and discharged the other from all claims, losses, and liabilities.
In August 2021, the fair value of the warrants of approximately $776,000 was pending, the parties reached a settlement in principlecharged to compensation expense, and the court has issued a nisi orderCompany reversed its accrual of dismissal. The parties have not yet competed the settlement agreement. If the parties are for any reason unable to do so, then the Company will continue vigorously to defend this matter and prosecute its counterclaims.approximately $1,043,000
Maryland AcquisitionLitigation
AsFollowing the consummation of the Kind acquisition previously discloseddiscussed in Note 3 – Acquisitions, Kind has sought to renege onin April 2022, the parties’ original agreement to a partnership/joint venture made inMaryland litigation between the fall of 2016Company and subsequent MOU. The Company engaged with the members of Kind was dismissed in good faith in an attempt to reach updated terms acceptable to both parties, however the members of Kind failed to reciprocate in good faith, resulting in an impasse. Incrementally, both parties through counsel further sought to resolve the impasse, however such initiative resulted in both parties commencing legal proceedings.
In November 2019, Kind commenced an action by filing a complaint against the Company in the Circuit Court for Washington County, MD captioned Kind Therapeutics USA, Inc. vs. MariMed, Inc., et al. (Case No. C-21-CV-19-000670) (the “Complaint”). The Complaint, as amended, alleges breach of contract, breach of fiduciary duty, unjust enrichment, intentional misrepresentation, rescission, civil conspiracy, and seeking an accounting and declaratory judgment and damages in excess of $75,000. On November 15, 2019, the Company filed counterclaims against Kind and a third-party complaint against the members of Kind (Jennifer DiPietro, Susan Zimmerman, and Sophia Leonard-Burns) and William Tham (the “Counterclaims”). The Counterclaims, as amended, allege breach of contractits entirety with respect to each of the partnership/joint venture agreement, the MOU, the MSA, the Lease,prejudice, and the Licensingparties have released one another of any and Manufacturing Agreement (“LMA”), unjust enrichment, promissory estoppel/detrimental reliance, fraud in the inducement, breach of fiduciary duty, and seeks reformation of the MSA, a declaratory judgment regarding enforceability of the partnership/joint venture arrangement and/or the MOU, specific performance of the parties’ various contracts, and the establishment of a constructive trust for the Company’s benefit. The Counterclaims also seek damages.
At the time the Complaint and Counterclaims were filed, both parties, MariMed (including MariMed Holdings MD, LLC and MariMed Advisors Inc.) and Kind, brought motions for a temporary restraining order and a preliminary injunction. By Opinion and Order entered on November 21, 2019, the Court denied both parties motions for a temporary restraining order. In its opinion, the Court specifically noted that, contrary to Kind’s allegations, the MSA and the Lease “appear to be independent, valid and enforceable contracts.”
A hearing on the parties’ cross-motions for preliminary injunction was held in September 2020 and November 2020. Also in November 2020, the Court granted the Company’s motion for summary judgment as to the Lease, determining that the Lease is valid and enforceable. Based on this ruling, the Company is seeking judgment at trial in the amount of approximately $5.4 million for past due rent and expenses owed by Kind under the Lease.
In December 2020, the Court entered a Preliminary Injunction Order, accompanied by a Memorandum Opinion, denying Kind’s motion for a preliminary injunction (which Kind had withdrawn at the conclusion of the hearing) and granting the Company’s request for preliminary injunction. The Court determined that the Company is likely to succeed with respect to the validity and enforceability of the MSA and the LMA, that the Company would suffer substantial and irreparable harm without the preliminary injunction, and that the balance of convenience and public interest both warranted the issuance of a preliminary injunction in the Company’s favor. The Court ordered, inter alia, that the MSA and LMA are in effect pending judgment after trial on the merits, and that Kind and its members, and their attorneys, agents, employees, and representatives, are prohibited from (a) interfering with the Company’s duties and responsibilities under the MSA and (b) withdrawing funds, making any distribution, paying any loans, returning any capital, or making any payment towards a debt from any Kind bank or other financial account(s) without written consent of the Company or Order of the Court, thereby preserving the Company’s management of Kind’s operations and finances at least through the jury trial currently scheduled to begin on March 28, 2022. Further, the Court ordered Kind to pay management and licensing fees to the Company beginning January 1, 2021. Kind has noted an appeal of the Order to the Maryland Court of Special Appeals, which is pending; however, the preliminary injunction order remains in effect.
In addition to the favorable rulings on the Lease, MSA, and LMA, the Company believes that itsall claims with respect to the 70%/30% partnership/joint venture agreement are meritorious. Further, the Company believes that Kind’s claims against the Company are without merit. On March 18, 2021, the Court issued an opinion and order on Kind’s motion for summary judgment finding that the MOU was not enforceable by the Company against Kind as a final binding agreement. The Company is evaluating an appeal of this ruling which under Maryland rules can only be pursued upon final judgment.
In March 2021, the Kind parties filed motions to modify the preliminary injunction order or, alternatively, for direction from the Court based on Kind’s claim to have terminated the MSA. The Company has opposed both motions and has filed a petition for civil contempt against the Kind parties for interfering with the Company’s management of Kind. The motions and petition are pending, and the preliminary injunction remains in effect.
The Company intends to aggressively prosecute and defend the action. Trial has been scheduled from March 28, 2022 to April 11, 2022.between them.
DiPietro Lawsuit
In April 2022, the parties agreed to dismiss all direct claims and counterclaims asserted in this litigation, as set forth below. In addition to their direct claims, the parties also asserted derivative claims, which may be dismissed only with the court’s approval. On April 12, 2022, the court approved the form of notice to be delivered to unit holders of Mia Development LLC (“Mia”) and Mari Holdings MD LLC (“Mari-MD”), majority-owned subsidiaries of the Company, and scheduled a hearing to approve dismissal of all derivative claims for June 8, 2022.
In August 2020,this action, Jennifer DiPietro, one of the former members of Kind, directly and derivatively on behalf of Mari Holdings MD LLC (“Mari-MD”)Mari-MD and Mia, Development LLC (“Mia”), commenced a suit in August 2020 against the Company’s CEO, CFO, and wholly-owned subsidiary MariMed Advisors Inc. (“MMA”), in Suffolk Superior Court, Massachusetts.
In this action, DiPietro a party to prior ongoing litigation in Maryland involving the Company and Kind as discussed above, bringsbrought claims for breach of fiduciary duty, breach of contract, fraud in the inducement, aiding and abetting the alleged breach of fiduciary duty, and also seekssought access to books and records and an accounting related to her investments in Mari-MD and Mia. DiPietro seekssought unspecified money damages and rescission of her interest in Mari-MD, but not of her investment in Mia, which hashad provided substantial returns to her as a member.
The Company has answered the complaint and MMA filed counterclaims against DiPietro on its own behalf and derivatively on behalf of Mari-MD for breach of her fiduciary duties to each of those entities, and for tortious interference with Mari-MD’s lease and MMA’s management services agreement with Kind.
The Company believes thatIn December 2021, the allegationsparties entered into a global confidential settlement and release agreement, along with the parties to the aforementioned Maryland litigation. As of the complaint are without meritsame date, MMA and intendsJennifer DiPietro entered into a membership interest purchase agreement pursuant to defendwhich the case vigorously. The Company’s counterclaim seeks monetary damages from DiPietro, includingCompany will purchase DiPietro’s interests in Mia and Mari-MD, as previously discussed in Note 3 – Acquisitions. Upon the Company’s legal fees incourt’s approval on the Kind action.parties’ joint motion for approval on June 8, 2022, the purchase DiPietro’s interests shall be consummated, the parties shall release all direct and derivative claims against one another, and the parties shall file stipulations dismissing all claims and counterclaims with prejudice within three days of that ruling.
| 28 |
Bankruptcy Claim
During 2019, the Company’s MMH subsidiary sold and delivered hemp seed inventory to GenCanna Global Inc., a Kentucky-based cultivator, producer, and distributor of hemp (“GenCanna”). At the time of sale, the Company owned a 33.5% ownership interest in GenCanna. The Company recorded a related party receivable of approximately $29.0 million from the sale, which was fully reserved on December 31, 2019.
In February 2020, GenCanna USA, GenCanna’s wholly-owned operating subsidiary, under pressure from certain of its creditors including MGG Investment Group LP, GenCanna’s senior lender (“MGG”), agreed to convert a previously-filed involuntary bankruptcy proceeding with the U.S. Bankruptcy Court in the Eastern District of Kentucky (the “Bankruptcy Court”) into a voluntary Chapter 11 proceeding. In addition, GenCanna and GenCanna USA’s subsidiary, Hemp Kentucky LLC (collectively with GenCanna and GenCanna USA, the “GenCanna Debtors”), filed voluntary petitions under Chapter 11 in the Bankruptcy Court.
In May 2020, after an abbreviated solicitation/bid/sale process, the Bankruptcy Court, over numerous objections by creditors and shareholders of the GenCanna Debtors which included the Company, entered an order authorizing the sale of all or substantially all of the assets of the GenCanna Debtors to MGG. After the consummation of the sale of all or substantially all of their assets and business, the GenCanna Debtors n/k/a OGGUSA, Inc. and OGG, Inc. (the “OGGUSA Debtors”) filed their liquidating plan of reorganization (the “Liquidating Plan”) to collect various prepetition payments and commercial claims against third parties, liquidate the remaining assets of the ODDUSA Debtors, and make payments to creditors. The Company and the unsecured creditors committee filed objections to such Liquidating Plan, including opposition to the release of litigation against the OGGUSA Debtors’ senior lender, MGG, for lender liability, equitable subordination, and return of preference. As a part of such plan confirmation process, the OGGUSA Debtors filed various objections to proofs of claims filed by various creditors, including the proof of claim in the amount of approximately $33.6 million filed by the Company. Through intense and lengthy negotiations with the OGGUSA Debtors and the unsecured creditors committee regarding the objections to the Liquidating Plan, the Company reached an agreement with the OGGUSA Debtors to withdraw the objections to the Company’s claim and to have it approved by the Bankruptcy Court as a general unsecured claim in the amount of $31.0 million.
Since the approval of the Liquidating Plan, the OGGUSA Debtors have been in the process of liquidating the remaining assets, negotiating and prosecuting objections to other creditors’ claims, and pursuing the collection of accounts receivable and Chapter 5 bankruptcy avoidance claims.
In January 2022, the Company, at the request of the Liquidating Plan administrator for the OGGUSA Debtors, executed a written release of claims, if any, of the Company against Huron Consulting Group (“Huron”), a financial consulting and management company retained by the senior lender of the OGGUSA Debtors to perform loan management services for the lender and OGGUSA Debtors prior to and during their Chapter 11 bankruptcy cases. Such release was executed in connection with a comprehensive settlement agreement between the OGGUSA Debtors and Huron. In consideration for the Company’s execution of the release, Huron paid an additional $40,000 to the bankruptcy estates of the OGGUSA Debtors to be included in the funds to be distributed to creditors, including the Company.
As of the date of this filing, there is still insufficient information as to what portion, if any, of the Company’s allowed claim will be paid upon the completion of the liquidation of the remaining assets of the OGGUSA Debtors.
NOTE 2021 – SUBSEQUENT EVENTS
Metropolis Property PurchaseConsummation of Kind Acquisition and Dismissal of Litigation
In July 2021,April 2022, the Maryland Medical Cannabis Commission approved the Company’s acquisition of Kind as previously discussed in Note 3 – Acquisitions, and the acquisition was consummated by the parties. Accordingly, Kind will be consolidated into the financial results of the Company purchasedcommencing on the land and building in which it operates its cannabis dispensary in Metropolis, IL. The purchase price consisted of shares of the Company’s common stock, which was valued at $705,000 on theclosing date of the transaction, and payoffacquisition. The cash portion of the seller’s remaining mortgagepurchase price, $ million, was funded out of approximately $1.6 million. In connection with this purchase,available working capital. Additionally, following the consummation of the acquisition, the Maryland litigation between the Company entered intoand the former members of Kind was dismissed in its entirety with prejudice, and the parties released one another mortgage agreement with DuQuoin State Bank in the amount of $2.7 million that matures in July 2041any and initially bears interest at a rate of 6.25% per annum, and adjusted each year based on a certain interest rate index plus a margin.
As part of this transaction, the seller was provided with a 30% ownership interest in Mari Holdings Metropolis LLC (“Metro”), the Company’s subsidiary that will own the property and related mortgage obligation, reducing the Company’s ownership interest in Metro to 70%.
all claims between them.
Employment Agreements
Effective July 1, 2021,In April 2022, the Company entered into employment agreementsand DiPietro agreed to dismiss all direct claims and counterclaims asserted in a separate litigation between them, as previously discussed in Note 20 – Commitments and Contingencies. In addition to their direct claims, the parties also asserted derivative claims, which may be dismissed only with its CEO, CFO,the court’s approval. On April 12, 2022, the court approved the form of notice to be delivered to unit holders of Mia and COO, expiringMari-MD, and scheduled a hearing to approve dismissal of all derivative claims for June 8, 2022. After such approval, the Company shall purchase DiPietro’s interests in June 2024, that provide an annual base salary of $350,000, $325,000,Mia and $300,000, respectively,Mari-MD, the parties shall release all direct and derivative claims against one another, and the ability to receive annual bonusesparties shall file stipulations dismissing all claims and counterclaims with prejudice within three days of up to 75% of the executive’s annual base salary for each year during the term, based on reaching certain performance goals established by the Company.
The agreements also provide the CEO, CFO, and COO with a grant of non-qualified stock options to purchase up to (i) , , and shares, respectively, of the Company’s common stock, exercisable at the fair market value of the Company’s common stock on the date of the agreements, which fully vest over and expire in , (ii) , , and shares, respectively, of the Company’s common stock, exercisable at the fair market value of the Company’s common stock on the date that the Company’s stockholders approve an amendment to the Company’s Amended and Restated 2018 Stock Award and Incentive Plan, which fully vest over one year and expire five years from grant date; and (iii) additional grants on each anniversary of the effective date of the agreements in the sole discretion of the Company’s Compensation Committee.
The agreements include covenants not to compete, non-solicitation provisions, and termination obligations, among other terms and conditions.ruling.
Promissory Note ConversionsConsummation of Green Growth Group Acquisition
In August 2021,April 2022, the Noteholderacquisition of Green Growth Group previously discussed in Note 3 – Acquisitions was consummated by the parties.
Lease Agreements
In April 2022, the Company extended the term of one of the $3.2MOhio Leases previously discussed in Note converted approximately $387,000 of principal in20 – Commitments and Contingencies, and the aggregate into shares of the Company’s common stock. Such conversionsremaining five Ohio Leases were effected in accordance with the terms of the note agreement, and therefore the Company was not required to record a gain or loss upon the conversions.terminated.
Equity Transactions
In July 2021, the Company granted (i) optionsApril 2022, warrants to purchase up to an aggregate of shares of the Company’s common stock to the Company’s CEO, CFO, and COO pursuant to the aforementioned employment agreements at an exercise price of $0.88 per share (ii) -year options to purchase up to shares of common stock to each of the Company’s three independent board members at an exercise price of $per share, (ii) five-year options to purchase up to an aggregate of shares of common stock to employees at exercise prices of $and $per share, and (ii) an aggregate of shares of restricted common stock to employees that fully vest in two and three years.
Also during this period, (i) options to purchase shares of common stock were exercised at exercise prices of $ and $per share, (ii) shares of common stock were returned toexercised on a cashless basis. The exercise price of $0.50 per share was paid via the Company from the adjustmentsurrender of a previously converted debenture, (iii) the Company issued shares of common stock, pursuant toresulting in the aforementioned purchaseissuance of property in Metropolis, IL, and (iv) the Company issued shares of common stock for the payment of services to a consultant .stock.
Item 2. Management’s Discussions and Analysis of Financial Condition and Results of Operations
Forward Looking Statements
When used in this form 10-Q and in future filings by the Company with the Commission, the words or phrases such as “anticipate,” “believe,” “could,” “should,” “estimate,” “expect,” “intend,” “may,” “plan,” “predict,” “project,” “will” or similar expressions are intended to identify “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Readers are cautioned not to place undue reliance on any such forward looking statements, each of which speak only as of the date made. Such statements are subject to certain risks and uncertainties that could cause actual results to differ materially from historical earnings and those presently anticipated or projected. The Company has no obligation to publicly release the result of any revisions which may be made to any forward-looking statements to reflect anticipated or unanticipated events or circumstances occurring after the date of such statements.
These forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause actual results to be materially different. These factors include, but are not limited to, changes that may occur to general economic and business conditions; changes in current pricing levels that we can charge for our services or which we pay to our suppliers and business partners; changes in political, social and economic conditions in the jurisdictions in which we operate; changes to laws and regulations that pertain to our products and operations; and increased competition.
The following discussion should be read in conjunction with the unaudited financial statements and related notes which are included under Item 1 of this report.
We do not undertake to update our forward-looking statements or risk factors to reflect future events or circumstances.
Overview
General
MariMed Inc. (the “Company”) is a multi-state operator in the United States cannabis industry. The Company develops, operates, manages, and optimizes over 300,000 square feet of state-of-the-art, regulatory-compliant facilities for the cultivation, production and dispensing of medicinal and recreational cannabis. The Company also licenses its proprietary brands of cannabis and hemp-infused products, along with other top brands, in several domestic markets and overseas.
Upon its entry into the cannabis industry in 2014, the Company was an advisory firm that procured state-issued cannabis licenses on behalf of its clients, developed cannabis facilities which it leased to these newly-licensed companies, and provided industry-leading expertise and oversight in all aspects of their cannabis operations. The Company also provided its clients with as ongoing regulatory, accounting, real estate, human resources, and administrative services.
Thereafter,Over the last few years, the Company made the strategic decision to transition from a consulting business to a direct owner and operator of cannabis licenses in high-growth states. Core to this transition is the acquisition and consolidation of the Company’s clients (the “Consolidation Plan”). Among several benefits, the Consolidation Plan would present a simpler, more transparent financial picture of the full breadth of the Company’s efforts, with a clearer representation of the revenues, earnings, and other financial metrics the Company has generated for its clients. The Company has played a key role in the successes of these entities, from the securing of their cannabis licenses, to the development of facilities that are models of excellence, to funding their operations, and to providing operational and corporate guidance. Accordingly, the Company believes it is well suited to own these facilitiesbusinesses and manage the continuing growth of their operations.
To date, acquisitionsthe Company’s acquisition and consolidation of its clientcannabis-licensed clients’ retail businesses in Illinois and retail and wholesale businesses in Massachusetts and Illinois have been completedcompleted. In April 2022, the acquisition of its client’s wholesale business in Maryland, and establish the Company as a fully integrated seed-to-sale multi-state operator (“MSO”).third-party wholesale business in Illinois were consummated. The acquisitions of the remaining entities locatedclients’ retail and wholesale businesses in Maryland, Nevada and Delaware are at various stages of completion and subject to each state’s laws governing the ownership transfer of cannabis licenses which in the case ofand other closing conditions. Delaware requireswill require a modification of current cannabis ownership laws to permit for-profit ownership. Meanwhile,ownership, which is expected to occur when the state legalizes recreational adult-use cannabis. Until the law changes and the acquisition is approved, the Company continues to expand these businesses and maximize the Company’sgenerate revenue from rental income, management fees, and licensing royalties.
In addition to the aforementioned acquisitions of its cannabis-licensed clients, in February 2022, the Company was notified that it was awarded a cannabis dispensary license from the state of Ohio, for which it had previously applied. The Company is awaiting the final verification process to be completed by the state before commencing cannabis operations in this state.
The Company’s transition to becoming a fully integrated MSOmuti-state cannabis operator (“MSO”) is part of a strategic growth plan (the “Strategic Growth Plan”) the Companyit is implementing to drive its revenues and profitability. The Strategic Growth Plan has four components: (i) complete the Consolidation Plan, (ii) increase revenues in existing states, by spending capital to increase the Company’s cultivation and production capacity, and develop additional assets within those states, (iii) expand the Company’s footprint in additional legal cannabis states through new applications and acquisitions of existing cannabis businesses;businesses, and (iv) expandoptimize the Company’s brand portfolio and licensing revenue by continuing to build its portfolio of leading brands and license its brands in otherexpanding into additional states with legal states.cannabis programs.
As to its products, theThe Company has created its own brands of cannabis flower, concentrates, and precision-dosed products utilizing proprietary strains and formulations. These products are developed by the Company in cooperation with state-licensed operators who meet the Company’s strict quality standards, including all natural—not artificial or synthetic—ingredients. The Company licenses its brands and product formulations only to certified manufacturing professionals who follow state cannabis laws and adhere to the Company’s precise scientific formulations and trademarked product recipes.
The Company’s proprietaryCompany markets its high-quality cannabis genetics produce flowers and concentrates under the brand nameaward-winning1 Nature’s Heritage™, and cannabis-infused productsHeritage brand; chewable tablets under the brand names Kalm Fusion®, in the form of chewable tabletsFusion and drink powder mixes, andK Fusion; all natural fruit chews under the award-winning1 Betty’s Eddies® brand of all natural fruit chews. Both cannabis-infusedEddies brand; brownies, cookies, and other social sweets under the Bubby’s Baked brand; and powder drink mixes under the Vibations: High + Energy brand. The Company’s brands are top sellinghave been top-selling products in Maryland and MassachusettsMassachusetts.2 and theThe Company intends to introduce additional productsproduct lines under these brands in 2021.the foreseeable future.
The Company also has exclusive sublicensingstrategic alliances with prominent brands. The Company has partnered with renowned ice cream maker Emack & Bolio’s® to create a line-up of cannabis-infused vegan and dairy ice cream. Additionally, the Company has secured distribution rights in certain states to distributefor the Binske® line of cannabis products crafted from premium artisan ingredients, the Healer™Healer line of medical full-spectrum cannabis tinctures, and the clinically testedclinically-tested medicinal cannabis strains developed in Israel by global medical cannabis research pioneer Tikun Olam™. The Company intends to continue licensing and distributing its brands as well as other top brands in the Company’s current markets.Olam.
The Company was incorporated in Delaware in January 2011 under the name Worlds Online Inc. The Company’s stock is quoted on the OTCQX market under the ticker symbol MRMD. In April 2022, the Company applied to list its shares of common stock on the Canadian Securities Exchange, which application is currently pending.
1 Awards won by the Company’s Betty’s Eddies®Eddies brand include LeafLink 2021 Best Selling Medical Product, Reddit Sparkie 2021 Best Edible, Respect My Region 2021 Hottest Edible, LeafLink 2020 Industry Innovator, and Explore Maryland Cannabis 2020 Edible of the Year,Year. Awards won by the Company’s Nature’s Heritage brand include the Cultivators Cup 2021 Silver Medal and LeafLink 2019 Best Selling Medical Product.the High Times Cannabis Cup 2021 Bronze Medal.
2 Source: LeafLink Insights 2020.
Revenues
The Company’s revenues are primarily comprised of the following categories:
| ● | Product Sales – direct sales of cannabis and cannabis-infused products primarily by the Company’s retail dispensaries and wholesale operations in Massachusetts and | |
| ● | Real Estate – rental income and additional rental fees generated from leasing of the Company’s state-of-the-art, regulatory-compliant cannabis facilities to its cannabis-licensed clients. | |
| ● | Management – fees for providing the Company’s cannabis clients with comprehensive oversight of their cannabis cultivation, production, and dispensary operations. Along with this oversight, the Company provides human resources, regulatory, marketing, and other corporate services. | |
| ● | Supply Procurement – | |
| ● | Licensing – |
Expenses
The Company classifies its expenses into three general categories:
| ● | Cost of Revenues – the direct costs associated with the generation of the Company’s revenues. | |
| ● | Operating Expenses – comprised of the sub-categories of personnel, marketing and promotion, general and administrative, and bad debts. | |
| ● | Non-operating Income and Expenses – comprised of the sub-categories of interest expense, interest income, |
Liquidity and Capital Resources
The Company produced significantthe following improvements to its liquidity in the reported periods:
| ● | Cash and cash equivalents increased | |
| ● | Working capital increased 16% to | |
| ● | ||
| ● | Net income before income taxes increased 43% to $7.9 million in the three months ended March 31, 2022 from $5.5 million in the same period in 2021. |
The aforementioned improvements to the Company’s liquidity were primarily the result of (i) increases in revenues and profitability generated by the Company’s cannabis operations in the states of Illinois and Massachusetts, acquiredMassachusetts. These operations launched as part of the Company’s aforementioned Consolidation Plan to transition from a consulting business to a direct owner of cannabis licenses and operator of seed-to-sale operations, and (ii) $23.0 million of gross proceeds raised by the Company under a financing facility of up to $46.0 million pursuant to a securities purchase agreement with Hadron Healthcare Master Fund (“Hadron”) in exchange for newly-designated Series C convertible preferred stock and warrants.operations.
Additionally, the section below entitled Non-GAAP Measurement discusses an additional financial measure not defined by GAAP which the Company’s management uses to evaluate liquidity.
Operating Activities
Net cash provided by operating activities in the sixthree months ended June 30, 2021 approximated $17.6March 31, 2022 was $8.5 million, compared to approximately $540,000$6.8 million in the same period in 2020.2021. The year-over-year improvement was primarily attributable to the increase in cannabis-derived profits generated by the acquired operationsCompany’s four active retail dispensaries in Illinois, and its retail and wholesale operations in Massachusetts.
Investing Activities
Net cash used in investing activities in the sixthree months ended June 30, 2021 approximated $8.5March 31, 2022 was $4.4 million, compared to approximately $2.6$2.9 million in the same period in 2020.2021. The increase was dueattributable to development ofan increase in property and equipment expenditures in 2022 for the Company’s facilities in Milford, DEDelaware, Illinois, Maryland, and Metropolis, IL, improvements to facilities in Massachusetts, and amounts paid to renew cannabis licenses.Massachusetts.
Financing Activities
Net cash used in financing activities in the three months ended March 31, 2022 was $329,000, compared with net cash provided by financing activities in the six months ended June 30, 2021 approximated $5.3 million, compared to approximately $3.6of $5.4 million in the same period in 2020.2021. In early 2021, the Company entered into a securities purchase agreement with Hadron Healthcare Master Fund (“Hadron”) whereby Hadron agreed to provide funding of up to $46.0 million to repay debt, to fund expansion plans of existing operations, and to finance planned acquisitions. The increase is primarily duefluctuation in cash from financing activities was attributable to the net proceeds from the aforementioned Hadron transactionreceipt of approximately $22.6$23.0 million under this facility, offset by issuance costs and debt repayments in March 2021. No financing was raised by the paydown of debt and obligations of approximately $17.3 millionCompany in 2021, compared to debt financings of approximately $7.1 million in the same period of 2020, offset by debt paydowns of approximately $3.3 million in the period.2022.
The remaining proceeds from the Hadron transaction will fund construction and upgrades of certain of the Company’s owned and managed facilities. The balance of theHadron’s committed facilityfunding of up to an additional $23.0 million is intendedwas designated to fund future acquisitions, including the Company’s specific targeted acquisitions provided such acquisitions are contractedKind acquisition, on the same aforementioned terms as the initial proceeds. Notwithstanding, Hadron did not fund the cash portion of the Kind purchase price and the Company is currently in 2021negotiations with Hadron to amend and consummated, including obtainingextend the necessary regulatory approvals,facility to be utilized for future expansion opportunities. There is no later than the end of 2022.assurance that any extension will be implemented.
Results of Operations
Three months ended June 30, 2021March 31, 2022 compared to three months ended June 30, 2020March 31, 2021
Revenues grew to $31.3 million in the three months ended June 30, 2021 approximated $32.6first quarter of 2022, an increase of $6.6 million or 27%, compared to approximately $9.6$24.6 million in the same period in 2020, an increase of approximately $23.0 million or 238.9%.2021. The year-over-year increase was primarily dueattributable to the four-fold growth of the Company’s (i) retail dispensary cannabis sales to approximately $28.7 million in the current period, compared to approximately $7.0 million from the same period a year ago. This growth was attributable to sales increases of approximately (i) $7.2 million generated by the Company’s cultivation and production facility in New Bedford, MA; this locationIllinois, where one new dispensary commenced full scale selling operations in the second quarter of 2020May 2021, and saw a year-over-year six-fold increase in wholesale customers, (ii) $7.9 millionsupply procurement revenue generated by the Company’s dispensary in Mt. Vernon, IL and Metropolis, IL, which were not yet operational in the second quarter of 2020, (iii) $2.2 million increase generated by the Company’s dispensaries in Anna, IL and Harrisburg, IL due to 43% and 85% increases, respectively, in recreational customer visits year-over-year, and (iv) $4.4 million generatedprimarily from the Company’s Middleboro, MA dispensary which commenced recreational sales in the third quarter of 2020 and also saw a three-fold increase in medical customers. The year-over-year increase in revenues was also the result of continued improvement across all revenue categories, primarily from increased business with the Company’scannabis clients in Delaware and Maryland.
Cost of revenues were $14.3 million in the three months ended June 30, 2021 approximated $13.2 millionfirst quarter of 2022 compared to approximately $3.5$11.5 million in the same period in 2020,2021, an increase of approximately $9.7 million.$2.8 million or 25%. The year-over-year variance was primarily attributabledue to the higher level of revenues as these costs are largely variable in nature and fluctuate in stepin-step with revenues. As a percentage of revenues, these costs increaseddecreased slightly to 40.4%45.7% in the three months ended June 30, 20212022 from 35.9%46.5% in the same period in 2020, primarily2021 due to the change in the relative mix of revenue categories in each period. Specifically, in the three months ended June 30, 2021, (a) 88.2% of revenues were comprised of product sales, which historically have had corresponding costs of revenue of approximately 45.0% to 50.0%, and (b) 8.7% of revenues were comprised of real estate and management revenue, which have no corresponding cost of revenue. This compares to revenues in the same period in 2020 that were comprised of (x) 72.7% of product sales and (y) 19.1% of real estate and management revenues. While the cost rate is higher for product sales, the level of product sales able to be generated by the Company is several multiples higher than the level of real estate and management revenues able to be generated, resulting in significantly higher gross profit dollars to be generated by the Company.increased operating efficiencies.
As a result of the foregoing, gross profit approximated $19.4 million, or 59.6% of revenues, in the three months ended June 30, 2021, from approximately $6.2 million, or 64.1% of revenues, in the same period in 2020.
Personnel expenses increasedgrew to approximately $2.1$17.0 million in the three months ended June 30, 2021first quarter of 2022 from approximately $1.2$13.2 million in the same period in 2020.2021.
Personnel expenses increased to $3.0 million in the first quarter of 2022 from $1.7 million in the same period in 2021. The increase was primarily due to the hiring of additional staff to support (i) higher levels of projected revenue and (ii)from existing operations as well as from the Company’s expansion into a direct owner and operator of seed-to-sale cannabis businesses.Kind acquisition. As a percentage of revenues, personnel expenses decreasedincreased to 6.3%9.7% in the three months ended June 30, 2021first quarter of 2022 from 12.6%to 7.0% in the same period in 2020.2021.
Marketing and promotion costs increased to approximately $270,000$643,000 in the three months ended June 30, 2021first quarter of 2022 from approximately $66,000$225,000 in the same period in 2020.2021. The increase is primarilyattributable to the result of increased spending onCompany’s focused efforts to upgrade its marketing initiatives and personnel in order to expand branding and design consulting, as well as digital and local outdoor advertising.distribution of its licensed products. As a percentage of revenues, these costs remained steady at 0.8%increased to 2.1% in the three months ended June 30, 2021 compared with 0.7%first quarter of 2022 from 0.9% in the same period in 2020.2021.
General and administrative costs increased to approximately $4.3$6.2 million in the three months ended June 30, 2021first quarter of 2022 from approximately $2.3$3.2 million in the same period in 2020.2021. This change is primarily due to increases of approximately (i) $1.0$2.1 million in non-cash equity compensation expense associated withfrom option grants in fiscal 2021 that continued vest in the first quarter of 2022, and warrant issuances, (ii) $371,000$275,000 in net professional fees primarily due to the hiring of consultants, offset by a reduction in legal costs. The increase is also due to smaller increases in insurance, facility costs, from additional propertiesinsurance, and depreciation that are in service in 2021, (iii) $320,000line with the growth of credit card processing fees duethe Company.
Bad debt expense decreased to a significant increase in credit card sales at the Company’s cannabis dispensaries, and (iv) $182,000 in depreciation and amortization expenses from higher property, equipment, and intangibles. As a percentage of revenues, these costs fell to 13.1%$14,000 in the three months ended June 30, 2021first quarter of 2022 from 24.3%$1,025,000 in the same period in 2020.
Bad debt expense approximated $794,000 in the three months ended June 30, 2021, compared to $450,000 in the same period in 2020. The change is due to the increase of reserves recorded against aginghigher reserve balances required on aged trade accounts receivable. As a percentage of revenues, this expense decreased to 2.4%receivable balances in the three months ended June 30, 2021 from 4.7% in the same period in 2020.2021.
As a result of the foregoing, the Company generated operating income of approximately $12.0$7.0 million in both the three months ended June 30, 2021first quarter of 2022 and the same period in 2021.
Net non-operating income was $852,000 in the first quarter of 2022 compared to approximately $2.1 millionnet non-operating expenses of $1,524,000 in the same period in 2020.
Net non-operating expenses decreased to approximately $600,000 in the three months ended June 30, 2021 from approximately $3.2 million in the same period in 2020.2021. The decreasechange is primarily due to an approximate $2.7 milliona $1,199,000 reduction of interest expense from lower levels of outstanding debt.debt, non-cash income of $954,000 in 2022 from a nonconsolidated investment, and a $93,000 year-over-year increase in the fair value of a second nonconsolidated investment.
As a result of the foregoing, the Company generated income before income taxes of approximately $11.4$7.9 million in the three months ended June 30, 2021,first quarter of 2022, compared to a loss before income taxes of approximately $1.1$5.5 million in the same period in 2020.2021. After a tax provision of approximately $3.8$3.7 million in 2022 and $1.2 million in 2021, net income was $4.2 million in the three months ended June 30, 2021, net income approximated $7.6 million in the current period,first quarter of 2022, compared to a net loss of approximately $1.1$4.3 million in the prior period, a positive swing of approximately $8.7 million.
Six months ended June 30, 2021 compared to six months ended June 30, 2020
Revenues for the six months ended June 30, 2021 approximated $57.2 million compared to approximately $17.1 million for the same period in 2020, an increase of approximately $40.1 million or 235.0%. The year-over-year increase was primarily attributable to the four-fold growth of cannabis sales to approximately $49.7 million in the current period, compared to approximately $11.2 million from the same period a year ago. This growth was attributable to sales increases of approximately (i) $12.7 million generated by the Company’s cultivation and production facility in New Bedford, MA; this location commenced full scale selling operations in the second quarter of 2020 and saw a year-over-year six-fold increase in wholesale customers, (ii) $11.8 million by the Company’s dispensaries in Mt. Vernon, IL and Metropolis, IL which were not yet operational in second quarter of 2020, (iii) $6.2 million generated by the Company’s dispensaries in Anna, IL and Harrisburg, IL due to 49% and 78% increases, respectively, in recreational customer visits year-over-year, and (iv) $7.8 million generated by the Company’s Middleboro, MA dispensary which commenced recreational sales in the third quarter of 2020 and also saw a four-fold increase in medical customers. The year-over-year increase in revenues was also the result of continued improvement across all revenue categories, primarily from increased business with the Company’s clients in Delaware and Maryland.
Cost of revenues approximated $24.6 million for the six months ended June 30, 2021 from approximately $6.1 million for the same period in 2020. The year-over-year variance was primarily attributable to the higher level of revenues as these costs are largely variable in nature and fluctuate in step with revenues. As a percentage of revenues, these costs increased to 43.0% in the three months ended June 30, 2021 from 35.4% in the same period in 2020, primarily due to the change in the relative mix of revenue categories in each period. Specifically, in the six months ended June 30, 2021, (a) 86.8% of revenues were comprised of product sales, which historically have had corresponding costs of revenue of approximately 45.0% to 50.0%, and (b) 9.7% of revenues were comprised of real estate and management revenue, which have no corresponding cost of revenue. This compares to revenues in the same period in 2020 that were comprised of (x) 65.7% of product sales and (y) 24.8% of real estate and management revenues. While the cost rate is higher for product sales, the level of product sales able to be generated by the Company is several multiples higher than the level of real estate and management revenues able to be generated, resulting in significantly higher gross profit dollars to be generated by the Company.
As a result of the foregoing, gross profit approximated $32.6 million, or 57.0% of total revenues, for the six months ended June 30, 2021 from approximately $11.0 million, or 64.6% of total revenues, for the same period a year ago.
Personnel expenses increased to approximately $3.8 million for the six months ended June 30, 2021 from approximately $2.7 million for the same period a year ago. The increase was primarily due to the hiring of additional staff to support (i) higher levels of revenue, and (ii) the Company’s expansion into a direct owner and operator of seed-to-sale cannabis businesses. As a percentage of revenues, personnel expenses decreased to 6.6% in 2021 compared to 15.9% in 2020.
Marketing and promotion costs increased to approximately $495,000 for the six months ended June 30, 2021 from approximately $178,000 for the same period a year ago. The change is primarily the result of increased spending on branding and design consulting, public relations, and digital and local outdoor advertising. As a percentage of revenues, these costs fell slightly to 0.9% in 2021 from 1.0% in 2020.
General and administrative costs increased to approximately $7.5 million for the six months ended June 30, 2021 from approximately $4.6 million for the same period a year ago. This change is primarily due to increases of approximately (i) $1.0 million in non-cash equity compensation expense associated with option grants and warrant issuances, (ii) $613,000 in facility costs on additional properties in service in 2021, (iii) $627,000 of credit card processing fees due to a significant increase in credit card sales at the Company’s cannabis dispensaries, (iv) $234,000 in depreciation and amortization expenses from higher property, equipment, and intangibles, and (v) increased legal costs associated with the Company’s legal proceedings. As a percentage of revenues, general and administrative costs fell to 13.0% in 2021 from 26.8% in 2020, reflecting the more efficient utilization of the Company’s fixed overhead costs.
Bad debt expense increased to approximately $1.8 million in the six months ended June 30, 2021 compared to $450,000 in the same period in 2020. The change is due to the increase of reserves recorded against aging trade accounts receivable. As a percentage of revenues, this expense increased to 3.2% in the six months ended June 30, 2021 from 2.6% in the same period in 2020.
As a result of the foregoing, the Company generated operating income of approximately $19.0 million for the six months ended June 30, 2021, compared to approximately $3.1 million for the same period in 2020.
Net non-operating expenses decreased to approximately $2.1 million for the six months ended June 30, 2021 compared to approximately $6.6 million for the same period in 2020. The year-over-year change is primarily due to an approximate $3.9 million reduction of interest expense from lower levels of outstanding debt, coupled with an approximate $506,000 decrease in the fair value of investments..
As a result of the foregoing, the Company generated income before income taxes of approximately $16.9 million for the six months ended June 30, 2021. For the same period a year ago, the Company incurred a loss before income taxes of approximately $3.5 million. After a tax provision of approximately $5.0 million in 2021, the Company generated net income of approximately $11.9 million for the six months ended June 30, 2021 compared to a net loss of approximately $3.5 million for the same period in 2020, a positive swing of approximately $15.4 million.
Non-GAAP Measurement
In addition to the financial information reflected in this report, which is prepared in accordance with generally accepted accounting principles in the United States (“GAAP”), the Company is providing a non-GAAP financial measurement of profitability – Adjusted EBITDA – as a supplement to the preceding discussion of the Company’s financial results.
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Management defines Adjusted EBITDA as net income, (loss), determined in accordance with GAAP, excluding the following:
| - | interest income and interest expense; | |
| - | income taxes; | |
| - | depreciation of fixed assets and amortization of intangibles; | |
| - | non-cash expenses on debt and equity issuances; | |
| - | impairment or write-downs of intangible assets; | |
| - | unrealized gains and losses on investments and currency translations; | |
| - | legal settlements; | |
| - | gains or losses from the extinguishment of debt via the issuance of equity; | |
| - | discontinued operations; and | |
| - | merger- and acquisition-related transaction expenses. |
Management believes Adjusted EBITDA is a useful measure to assess the performance and liquidity of the Company as it provides meaningful operating results by excluding the effects of expenses that are not reflective of its operating business performance. In addition, the Company’s management uses Adjusted EBITDA to understand and compare operating results across accounting periods, and for financial and operational decision making. The presentation of Adjusted EBITDA is not intended to be considered in isolation or as a substitute for the financial information prepared in accordance with GAAP.
Management believes that investors and analysts benefit from considering Adjusted EBITDA in assessing the Company’s financial results and its ongoing business as it allows for meaningful comparisons and analysis of trends in the business. Adjusted EBITDA is used by many investors and analysts themselves, along with other metrics, to compare financial results across accounting periods and to those of peer companies.
As there are no standardized methods of calculating non-GAAP measurements, the Company’s calculations may differ from those used by analysts, investors, and other companies, even those within the cannabis industry, and therefore may not be directly comparable to similarly titled measures used by others.
Reconciliation of Net Income (Loss) to Adjusted EBITDA (a Non-GAAP Measurement)
The table below reconciles Net Income (Loss) to Adjusted EBITDA for the three and six months ended June 30,March 31, 2022 and 2021 and 2020:(in thousands):
Three Months Ended June 30, | Six Months Ended June 30, | Three Months Ended March 31, | ||||||||||||||||||||||
| 2021 | 2020 | 2021 | 2020 | 2022 | 2021 | |||||||||||||||||||
| (Unaudited) | (unaudited) | |||||||||||||||||||||||
| Net income (loss) | $ | 7,588,576 | $ | (1,141,232 | ) | $ | 11,898,602 | $ | (3,478,948 | ) | ||||||||||||||
| Net income | $ | 4,241 | $ | 4,310 | ||||||||||||||||||||
| Interest expense, net | 288,828 | 2,928,328 | 1,706,823 | 5,573,442 | 150 | 1,478 | ||||||||||||||||||
| Income taxes | 3,813,108 | - | 5,016,905 | - | 3,660 | 1,204 | ||||||||||||||||||
| Depreciation and amortization | 668,882 | 491,189 | 1,308,608 | 1,074,193 | 842 | 639 | ||||||||||||||||||
| EBITDA | 12,299,394 | 2,278,285 | 19,930,938 | 3,168,687 | ||||||||||||||||||||
| Earnings before interest, taxes, depreciation, and amortization | 8,893 | 7,631 | ||||||||||||||||||||||
| Amortization of stock grants | - | 5,365 | 5,365 | 10,730 | 2 | 5 | ||||||||||||||||||
| Amortization of option grants | 589,477 | 239,024 | 884,075 | 556,379 | 2,469 | 295 | ||||||||||||||||||
| Amortization of stand-alone warrant issuances | - | - | 55,786 | - | - | 56 | ||||||||||||||||||
| Amortization of warrants issued with stock | 654,681 | - | 654,681 | - | ||||||||||||||||||||
| Loss on equity issued to settle obligations | 1,260 | 44,678 | 2,545 | 44,678 | - | 1 | ||||||||||||||||||
| Equity in earnings of investments | - | 32,958 | - | 32,958 | ||||||||||||||||||||
| Change in fair value of investments | 370,119 | 234,544 | 415,284 | 921,546 | ||||||||||||||||||||
| Gain (loss) on change in fair value of investment | (48 | ) | 45 | |||||||||||||||||||||
Other investment income | (954 | ) | - | |||||||||||||||||||||
| Adjusted EBITDA | 13,914,931 | 2,834,854 | 21,948,674 | 4,734,978 | $ | 10,362 | $ | 8,033 | ||||||||||||||||
20212022 Plans
For the balance of 2021,2022 and into 2023, the Company’s focus will be on continuing the execution ofto continue to execute its Strategic Growth Plan. The Company’s priority activities will include the following:
| 1) | |||
| 2) | |||
| - | In Massachusetts, the Company intends to open two additional dispensaries and | ||
| - | In Delaware, the Company intends to develop an additional 40,000 square feet of cultivation and production at its facility in Milford. | ||
| - | In Maryland, the Company intends to expand its manufacturing facility by 40,000 square feet and open a dispensary in Annapolis. | ||
| - | In Illinois, the Company intends to go vertical by acquiring one or more craft licenses and to potentially add up to six more dispensaries up to the statutory limit of ten. | ||
| 3) | |||
| 4) | |||
No assurances can be given that any of these plans will come to fruition or that if implemented will necessarily yield positive results.
Subsequent Events
Please refer to Note 2021 – Subsequent Eventsof the Company’s financial statements included in this report for a discussion of material events that occurred after the balance sheet date.
The issuance of the shares of common stock described in Note 2021 – Subsequent Events of the Company’s financial statements were deemed to be exempt from registration under the Securities Act of 1933, as amended (the “Securities Act”), in reliance upon Sections 4(a)(2) and/or 4(a)(5) of the Securities Act. AIn accordance with Rule 144(d)(3)(ii) of the Securities Act, no legend restricting the sale, transfer, or other disposition of these securities other than in compliance with the Securities Actshares was placed on the securities issued in the foregoing transactions.required.
Off-Balance Sheet Arrangements
The Company has no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on its financial condition, changes in financial condition, revenues, or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.
Inflation
In the opinion of management, inflation has not had a material effect on the Company’s financial condition or results of its operations.
Seasonality
In the opinion of management, the Company’s financial condition and results of its operations are not materially impacted by seasonal sales.
Item 3. Quantitative and Qualitative Disclosure About Market Risk
The Company is a “smaller reporting company” as defined by Regulation S-K and, as such, is not required to provide the information contained in this item pursuant to Regulation S-K.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
OurThe Company’s management, with the participation of ourits CEO and CFO, evaluated the effectiveness of ourthe Company’s disclosure controls and procedures (as defined(defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of June 30, 2021March 31, 2022 (the “Evaluation Date”). Based upon that evaluation, the chief executive officerCEO and the chief financial officerCFO concluded that, as of the Evaluation Date, ourthe Company’s disclosure controls and procedures are effective to ensure that information required to be disclosed by usthe Company in the reports that we fileit files or submitsubmits under the Exchange Act (i) are recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and (ii) are accumulated and communicated to ourthe Company’s management, including ourits CEO and CFO, as appropriate to allow timely decisions regarding required disclosure.
Changes in Internal Control Over Financial Reporting
DuringOver the past fiscalseveral years, wethe Company implemented significant measures to remediate the previously disclosedpast instances of ineffectiveness of ourthe Company’s internal control over financial reporting, which included an insufficient degree of segregation of duties amongst our accounting and financial reporting personnel, and the lack of a formalized and complete set of policy and procedure documentation evidencing our system of internal controls over financial reporting. The remediation measures consisted of the engagement of accounting consultants as needed to provide expertise on specific areas of the accounting guidance, the continued hiring of individuals with appropriate experience in internal controls over financial reporting, and the modification of ourto the Company’s accounting processes and enhancement to ourthe Company’s financial controls, includingcontrol. Further, the testingCompany expanded its board of such controls.directors to include a majority of independent disinterested directors; established an audit, compensation, and corporate governance committee of the board of directors; and adopted a formal policy with respect to related party transactions.
Other than as described above, there was no change in ourto the Company’s internal control over financial reporting (as defined in Rules 13a-15(f) or 15d-15(f) under the Exchange Act) identified in connection with the evaluation required by Rules 13a-15(d) or 15d-15(d) that occurred during the three monthsfiscal quarter ended June 30, 2021March 31, 2022 that has materially affected, or is reasonably likely to materially affect, ourthe Company’s internal control over financial reporting.
PART II – OTHER INFORMATION
Item 1. Legal Proceedings.
ThereIn April 2022, the Maryland litigation between the Company and the members of Kind was dismissed in its entirety with prejudice, and the parties released one another of any and all claims between them.
In April 2022, the Company and DiPietro agreed to dismiss all direct claims and counterclaims asserted in a separate litigation between them. In addition to their direct claims, the parties also asserted derivative claims, which may be dismissed only with the court’s approval. On April 12, 2022, the court approved the form of notice to be delivered to unit holders of Mia Development LLC and Mari Holdings MD LLC, majority-owned subsidiaries of the Company, and scheduled a hearing to approve dismissal of all derivative claims for June 8, 2022.
Other than the above, there has been no material change to the status of the Company’s legal proceedings.
Item 1A. Risk Factors
As a smaller reporting company, the Company is not required to provide the information contained in this item pursuant to Regulation S-K. However, information regarding the Company’s risk factors appears in Part I, Item 1A. of its Annual Report on Form 10-K for the year ended December 31, 2020.2021. These risk factors describe some of the assumptions, risks, uncertainties, and other factors that could adversely affect the Company’s business or that could otherwise result in changes that differ materially from management’s expectations. There have been no material changes to the risk factors contained in the Annual Report.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
During the sixthree months ended June 30, 2021,March 31, 2022, the Company issued (i) 4,610,6451,142,858 shares of common stock upon the conversion of debentures,$400,000 of promissory notes, (ii) 6,937,40010,000 shares of common stock uponin connection with the conversionexercise of promissory notes,stock options at an exercise price of $0.30 per share, and (iii) 50,000375,000 shares of common stock upon the exercise of warrants, (iv) 71,691 shares of common stock to satisfy obligations, and (v) 18,290 shares of common stock related to stock grants to an employee. In addition, the Company sold 6,216,216 shares of Series C convertible preferred stock.valued at $274,000 in exchange for consulting services.
The issuance of the shares of common stock described above were deemed to be exempt from registration under the Securities Act in reliance upon Sections 4(a)(2) and/or 4(a)(5) of the Securities Act. A legend restricting the sale, transfer, or other disposition of these securities other than in compliance with the Securities Act was placed on the securities issued in the foregoing transactions.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
None.
Item 6. Exhibits
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| 101.INS XBRL | Instance Document * | |
| 101.SCH XBRL | Taxonomy Extension Schema * | |
| 101.CAL XBRL | Taxonomy Extension Calculation Linkbase * | |
| 101.DEF XBRL | Taxonomy Extension Definition Linkbase * | |
| 101.LAB XBRL | Taxonomy Extension Label Linkbase * | |
| 101.PRE XBRL | Taxonomy Extension Presentation Linkbase * | |
| 104 | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) * |
* Filed herewith.
** Furnished herewith in accordance with Item 601 (32)(ii) of Regulation S-K.
*** This exhibit is a management contract or compensatory plan or arrangement.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereto duly authorized.
Date: August 16, 2021May 10, 2022
| MARIMED INC. | ||
| By: | /s/ Robert Fireman | |
| Robert Fireman | ||
President and Chief Executive Officer (Principal Executive Officer) | ||
| By: | /s/ Jon R. Levine | |
| Jon R. Levine | ||
Chief Financial Officer (Principal Financial Officer) | ||
INDEX TO EXHIBITS
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| 101.INS XBRL | Instance Document * | |
| 101.SCH XBRL | Taxonomy Extension Schema * | |
| 101.CAL XBRL | Taxonomy Extension Calculation Linkbase * | |
| 101.DEF XBRL | Taxonomy Extension Definition Linkbase * | |
| 101.LAB XBRL | Taxonomy Extension Label Linkbase * | |
| 101.PRE XBRL | Taxonomy Extension Presentation Linkbase * | |
| 104 | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) * |
* Filed herewith.
** Furnished herewith in accordance with Item 601 (32)(ii) of Regulation S-K.
*** This exhibit is a management contract or compensatory plan or arrangement.
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