See accompanying notes to the unaudited condensed consolidated financial
statements.
Notes
to Condensed Consolidated Financial Statements
(unaudited)
(1)
BASIS OF PRESENTATION
Business
MariMed
Inc. (“MariMed” or the “Company”) is a multi-state operator in the United States cannabis industry. MariMed develops,
operates, manages, and optimizes over 300,000 square feet of state-of-the-art, regulatory-compliant facilities for the cultivation, production
and dispensing of medicinal and recreational cannabis. MariMed also licenses its proprietary brands of cannabis and hemp-infused products,
along with other top brands, in domestic markets and overseas.
Basis
of Presentation
In
the opinion of management, the accompanying unaudited condensed consolidated financial statements include all adjustments, consisting
only of normal recurring items, necessary for their fair presentation in accordance with accounting principles generally accepted in
the United States of America (“GAAP”).
On
April 27, 2022 (the “Kind Acquisition Date”), the Company acquired Kind Therapeutics USA (“Kind”). The financial
results of Kind are included in the Company’s condensed consolidated financial statements for the period subsequent to the Kind
Acquisition Date.
Interim results are not necessarily indicative of
results for the full fiscal year or any future interim period. The information included in this Quarterly Report on Form 10-Q should be
read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2021 (the “Annual Report”),
which was filed with the U.S. Securities and Exchange Commission (“SEC”) on March 16, 2022.
Certain
reclassifications, not affecting previously reported net income or cash flows, have been made to the previously issued financial statements
to conform to the current period presentation.
Significant
Accounting Policies
The
Company’s significant accounting policies are disclosed in Note 2 to the Consolidated Financial Statements included in the Annual
Report. There were no material changes to the significant accounting policies during the three- or six-month periods ended June 30, 2022.
Principles
of Consolidation
The
accompanying condensed consolidated financial statements include the accounts of MariMed and its wholly- and majority-owned subsidiaries.
Intercompany transactions and balances have been eliminated in consolidation.
Noncontrolling
interests represent third-party minority ownership interests in the Company’s majority-owned consolidated subsidiaries. Net income
attributable to noncontrolling interests is reported in the condensed consolidated statements of operations, and the value of minority-owned
interests are presented as a component of equity within the condensed consolidated balance sheets.
Use
of Estimates and Judgments
The
preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the
reporting amounts of revenue and expenses during the reporting periods. Significant estimates and judgments relied upon in preparing
these condensed consolidated financial statements include accounting for business combinations, inventory valuations, assumptions used
to determine the fair value of stock-based compensation, and intangible asset and goodwill. Actual results could differ from those estimates.
Cash
and Cash Equivalents
The
Company considers all highly liquid investments with a maturity date of three months or less to be cash equivalents. The fair values
of these investments approximate their carrying values.
At
June 30, 2022 and December 31, 2021, the Company had cash of $0.1 million and $5.1 million held in escrow, respectively. The amount recorded at December
31, 2021 included a $5.0 million escrow deposit in connection with the acquisition of Kind.
Fair
Value of Financial Instruments
The
carrying amounts of the Company’s financial instruments approximate their fair values and include cash equivalents, accounts receivable,
deferred rents receivable, notes receivable, mortgages and notes payable, and accounts payable.
Fair
value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants.
As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in
pricing an asset or a liability. The three-tier fair value hierarchy is based on the level of independent, objective evidence surrounding
the inputs used to measure fair value. A financial instrument’s categorization within the fair value hierarchy is based upon the
lowest level of input that is significant to the fair value measurement. The fair value hierarchy is as follows:
Level
1. Level 1 applies to assets or liabilities for which there are quoted prices in active markets for identical assets or liabilities.
Level
2. Level 2 applies to assets or liabilities for which there are inputs that are directly or indirectly observable in the marketplace,
such as quoted prices for similar assets or liabilities in active markets or quoted prices for identical assets or liabilities in markets
with insufficient volume or infrequent transactions (less active markets).
Level
3. Level 3 applies to assets or liabilities for which there are unobservable inputs to the valuation methodology that
are significant to the measurement of the fair value of the assets or liabilities.
Recent
Accounting Pronouncements
The
Company has reviewed all recently issued, but not yet effective, Accounting Standards Updates (“ASUs”) and does not believe
that the future adoption of any such ASUs will have a material impact on its financial condition or results of operations.
(2)
ACQUISITIONS
Kind
In
December 2021, the Company entered into a membership interest purchase agreement with the members of Kind, the Company’s client
in Maryland that holds licenses for the cultivation, production, and dispensing of medical cannabis, to acquire 100% of the equity ownership
of Kind in exchange for $13.5 million payable in cash (subject to certain adjustments) and $6.5 million payable 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 (collectively,
the “Kind Consideration”). Upon execution of the membership interest purchase agreement, the Company deposited $5.0 million
into escrow as a contract down payment.
In
April 2022, the Maryland Medical Cannabis Commission approved the Company’s acquisition of Kind, and the acquisition was completed
on the Kind Acquisition Date (the “Kind Acquisition”). Following the Kind Acquisition, the Maryland litigation between the
Company and the members of Kind was dismissed (see Note 18).
The
Company believes that the Kind Acquisition allows it to expand its operations into the Maryland cannabis industry and marketplace.
The
Kind Acquisition has been accounted for as a business combination and the financial results of Kind have been included in the Company’s
condensed consolidated financial statement for the period subsequent to the Kind Acquisition Date. The Company’s financial results
for the three and six months ended June 30, 2022 include $1.7 million of revenue and a net loss of $0.3 million attributable to Kind.
A
summary of the preliminary allocation of Kind Consideration to the acquired assets, identifiable intangible assets and certain assumed
liabilities is as follows (in thousands):
SCHEDULE
OF ACQUIRED ASSETS IDENTIFIABLE INTANGIBLE ASSETS AND CERTAIN ASSUMED LIABILITIES
Fair value of consideration
transferred: | |
| | |
Cash
consideration: | |
| | |
Cash
paid at closing | |
$ | 10,128 | |
Release
of escrow | |
| 2,444 | |
Severance
paid from escrow | |
| 556 | |
Less
cash acquired | |
| (2,310 | ) |
Net
cash consideration | |
| 10,818 | |
Note
payable | |
| 5,634 | |
Write-off
accounts receivable | |
| 658 | |
Write-off
of deferred accounts receivable | |
| 842 | |
Total
fair value of consideration transferred | |
$ | 17,952 | |
Fair
value of assets acquired and (liabilities assumed): | |
| | |
Current
assets, net of cash acquired | |
$ | 5,047 | |
Property
and equipment | |
| 622 | |
Intangible
assets: | |
| | |
Tradename
and trademarks | |
| 2,041 | |
Licenses
and customer base | |
| 4,700 | |
Non-compete
agreements | |
| 42 | |
Goodwill | |
| 6,011 | |
Current
liabilities | |
| (511 | ) |
Total
fair value of assets acquired and (liabilities assumed) | |
$ | 17,952 | |
The
valuation of the acquired intangible assets is inherently subjective and relies on significant unobservable inputs. The Company used
an income approach to value the acquired tradename/trademarks, licenses/customer base, and non-compete intangible assets. The valuation
for each of these intangible assets was based on estimated projections of expected cash flows to be generated by the assets discounted
to the present value at discount rates commensurate with perceived risk. The valuation assumptions take into consideration the Company’s
estimates of new markets, products and customers and its outcome through key assumptions driving asset values, including sales growth,
royalty rates and other related costs.
The Company is amortizing the identifiable intangible assets arising from the Kind Acquisition
in relation to the expected cash flows from the individual intangible assets over their respective useful lives, which have a weighted
average life of 5.77 years (see Note 9). Goodwill results from assets that are not separately identifiable as part of the transaction
and is not deductible for tax purposes.
Concurrent
with entering into the Kind membership purchase agreement, the Company entered into a membership interest purchase agreement with one
of the members of Kind to acquire such member’s entire equity ownership interest in (i) Mari Holdings MD LLC (“Mari-MD”),
the Company’s majority-owned subsidiary that owns production and retail cannabis facilities in Hagerstown, MD and Annapolis, MD,
and (ii) Mia Development LLC (“Mia”), the Company’s majority-owned subsidiary that owns production and retail cannabis
facilities in Wilmington, DE. Upon the dismissal in June 2022 of the derivative claims in the DiPietro lawsuit (see Note 18), the Company
paid the aggregate purchase consideration of $2.0 million, and the transaction was completed, increasing the Company’s ownership
of Mari-MD and Mia to 99.7% and 94.3%, respectively.
Green
Growth Group Inc.
In
January 2022, the Company entered into a stock purchase agreement to acquire 100%
of the equity ownership of Green Growth Group Inc. (“Green Growth”), an entity that holds a craft cultivation and
production cannabis license issued by the Illinois Department of Agriculture, in exchange for $1.9
million in cash and shares of the Company’s common stock valued at $1.5
million. Concurrently, the Company made a good faith deposit of $100,000.
In
April 2022, the Illinois Department of Agriculture approved the Company’s acquisition of Green Growth, and the purchase
transaction (the “Green Growth Acquisition”) was completed on May 5, 2022 (the “Green Growth Acquisition
Date”). The Company paid the remaining $1.8
million in cash and issued 2,343,750
shares of common stock to the sellers on the Green Growth Acquisition Date. With this license, the Company can cultivate up to 14,000 square feet of cannabis flowers and produce cannabis concentrates.
The Company believes that the acquisition of this cannabis license will allow it to be vertically integrated in Illinois by growing cannabis
and producing cannabis products that can be distributed and sold at the Company-owned Thrive dispensaries and sold into the
robust wholesale cannabis marketplace.
The
Company has allocated the purchase price to its licenses/customer base intangible asset on a preliminary basis. The Company recorded
approximately $57,000
of amortization expense in the three months ended June 30, 2022 for the intangible
asset acquired based on an estimated ten-year life for such
assets.
Meditaurus
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 100,000 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 stock and cash
aggregating $2.8 million.
The
carrying value of the noncontrolling interest of approximately $975,000 was eliminated on the date such interest was acquired, and as there was no change in control of Meditaurus from this transaction, the resulting gain on bargain purchase was recognized
in Additional paid-in capital in the condensed consolidated balance sheet. As part of this transaction, the initial purchase agreement
was amended, eliminating all future license fees and payments to the prior owners of Meditaurus.
Pending
Transactions
Beverly
Asset Purchase
In
November 2021, the Company entered into an asset purchase agreement to acquire the cannabis license, property lease, and other assets
and rights of, and to assume the liabilities and operating obligations associated with, a cannabis dispensary that is currently operating
in Beverly, MA. The purchase price is comprised of 2,000,000 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 prior to the end of 2022.
Concurrent with the execution of this agreement, the parties entered into a consulting agreement under which the Company provides
certain oversight services related to the development, staffing, and operation of the business in exchange for a monthly fee.
The
Harvest Foundation LLC
In
2019, the Company entered into a purchase agreement to acquire 100% of the ownership interests of The Harvest Foundation LLC (“Harvest”),
the holder of a cannabis cultivation license in the state of Nevada. The acquisition is conditioned upon state regulatory approval of
the transaction and other closing conditions. The regulatory approval process for license transfers in Nevada has experienced significant
delays as a result of multiple factors including the impact of Covid. Additionally, the progress of this acquisition has been delayed
as a result of actions taken by the Nevada Cannabis Control Board (“CCB”) relating to regulatory operating violations by
Harvest and its current ownership. Harvest is in process of negotiating a settlement with the CCB to resolve these violations which will
allow it to proceed with the sale. The Company is monitoring the status of Harvest matters which may require adjustments to the purchase
agreement.
The
purchase agreement provides for a purchase price comprised of the issuance of (i) 1,000,000 shares of the Company’s common stock
in the aggregate to the two owners of Harvest, which were issued as a good faith deposit upon execution of the purchase agreement, (ii)
$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 regulatory
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 regulatory approval of the transaction. The issued shares
were recorded at par value. Such shares are restricted and are to be returned to the Company in the event the transaction does not close.
Upon
approval of the transfer, and the fulfillment of other closing conditions, if achieved, the ownership of Harvest will be transferred
to the Company, and the operations of Harvest will begin to be consolidated into the Company’s financial statements. There
is no assurance that the closing conditions to the Company’s acquisition of Harvest, including regulatory approval, will be achieved
or that the acquisition will be consummated.
(3)
EARNINGS PER SHARE
Basic
earnings per share is computed by dividing net income by the weighted average number of shares outstanding during the period. Diluted
net earnings per share is determined by using the weighted average number of common and dilutive common equivalent shares outstanding
during the period, unless the effect is antidilutive.
The
calculations of shares used to compute net earnings per share were as follows (in thousands):
SCHEDULE
OF EARNINGS PER SHARE
| |
2022 | | |
2021 | | |
2022 | | |
2021 | |
| |
Three
months ended | | |
Six
months ended | |
| |
June
30, | | |
June
30, | | |
June
30, | | |
June
30, | |
| |
2022 | | |
2021 | | |
2022 | | |
2021 | |
| |
| | |
| | |
| | |
| |
Weighted
average shares outstanding - basic | |
| 337,497 | | |
| 324,267 | | |
| 336,137 | | |
| 321,741 | |
Potential
dilutive common shares | |
| 42,129 | | |
| 45,990 | | |
| 43,088 | | |
| 43,583 | |
Weighted
average shares outstanding - diluted | |
| 379,626 | | |
| 370,257 | | |
| 379,225 | | |
| 365,324 | |
(4)
DEFERRED RENTS RECEIVABLE
The
Company is the lessor under operating leases which contain escalating rents over time, rent holidays, options to renew, requirements
to pay property taxes, insurance and/or maintenance costs, and contingent rental payments based on a percentage of monthly tenant revenues.
The Company is not the lessor under any finance leases.
The
Company recognizes fixed rental receipts from such lease agreements on a straight-line basis over the expected lease term. Differences
between amounts received and amounts recognized are recorded in Deferred rents receivable in the condensed consolidated balance sheets.
Contingent rentals are recognized only after tenants’ revenues are finalized and if such revenues exceed certain minimum levels.
The
Company leases the following owned properties:
|
● |
Delaware
– a 45,000 square foot cannabis cultivation, processing, and dispensary facility which is leased to its cannabis-licensed client
under a triple net lease that expires in 2035. |
|
|
|
|
● |
Maryland
– a 180,000 square foot cultivation and processing facility that expires in 2037. This facility had been leased to Kind prior
to the Kind Acquisition Date. |
|
|
|
|
● |
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 expires in October 2022. |
The
Company subleases the following properties:
|
● |
Delaware
– a 4,000 square foot cannabis dispensary which is subleased to its cannabis-licensed client under a sublease expiring in April
2027. |
|
|
|
|
● |
Delaware
– a 100,000 square foot warehouse, of which the Company developed 60,000 square feet into a cultivation facility that is subleased
to its cannabis-licensed client. The sublease expires in March 2030, with an option to extend the term for three additional five-year
periods. The Company intends to develop the remaining space into a processing facility. |
|
|
|
|
● |
Delaware
– a 12,000 square foot cannabis production facility with offices which is subleased to its cannabis-licensed client. The sublease
expires in January 2026 and contains an option to negotiate an extension at the end of the lease term. |
The
Company received rental payments aggregating $0.8 million and $2.0 million in the three and six months ended June 30, 2022, respectively,
and $1.2 million and $2.4 million in the three and six months ended June 30, 2021, respectively. Revenue from these rental receipts was
recognized on a straight-line basis and aggregated $0.8 million and $1.9 million in the three and six months ended June 30, 2022, respectively,
and $1.1 million and $2.3 million in the six months ended June 30, 2021, respectively.
Future
minimum rental receipts for non-cancellable leases and subleases as of June 30, 2022 were as follows (in thousands):
SCHEDULE OF FUTURE MINIMUM RENTAL RECEIPTS FOR NON-CANCELABLE LEASES AND SUBLEASES
Year
ending December 31, | |
| |
Remainder
of 2022 | |
$ | 1,085 | |
2023 | |
| 1,911 | |
2024 | |
| 1,925 | |
2025 | |
| 1,946 | |
2026 | |
| 1,868 | |
Thereafter | |
| 11,366 | |
Total | |
$ | 20,101 | |
(5)
NOTES RECEIVABLE
Notes
receivable, including accrued interest, at June 30, 2022 and December 31, 2021 consisted of the following (in thousands):
SCHEDULE
OF NOTES RECEIVABLES
| |
June
30, 2022 | | |
December
31, 2021 | |
First
State Compassion Center (initial note) | |
$ | 367 | | |
$ | 403 | |
First
State Compassion Center (secondary note) | |
| 8,002 | | |
| 7,845 | |
Healer
LLC | |
| 879 | | |
| 866 | |
Total
notes receivable | |
| 9,248 | | |
| 9,114 | |
Notes
receivable, current portion | |
| 132 | | |
| 127 | |
Notes
receivable, less current portion | |
$ | 9,116 | | |
$ | 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 for $0.7 million, bearing interest at a rate of 12.5% per annum and maturing in April 2026, as amended
(the “FSCC Initial Note”). The monthly payments on the FSCC Initial Note approximate $10,000. At June 30, 2022 and December
31, 2021, the current portions of the FSCC Initial Note were approximately $80,000 and $75,000, respectively, and were included in Notes
receivable, current, in the condensed consolidated balance sheets.
In
December 2021, the Company converted financed trade accounts receivable balances from FSCC aggregating $7.8 million into notes receivable,
whereby FSCC issued promissory notes aggregating $7.8 million to the Company (the “FSCC Secondary Notes”). The FSCC Secondary
Notes bear interest of 6.0% per annum and mature in December 2025. FSCC is required to make periodic payments of principal and interest
throughout the term of the FSCC Secondary Notes. At June 30, 2022, the FSCC Secondary Notes balance included approximately $54,000 of
unpaid accrued interest.
Healer
LLC
In
March 2021, the Company was issued a promissory note in the principal amount of approximately $0.9 million from Healer LLC, an entity
that provides cannabis education, dosage programs, and products developed by Dr. Dustin Sulak (“Healer”). The principal balance
of the note represents previous loans extended to Healer by the Company of $0.8 million, plus accrued interest through the revised promissory
note issuance date of approximately $94,000 (the “Revised Healer Note”). The Revised Healer Note bears interest at a rate
of 6.0% per annum and requires quarterly payments of interest through the April 2026 maturity date.
The Company has the right to offset any licensing fees payable by the Company to Healer in the event Healer fails to make any payment
when due. In March 2021, the Company offset approximately $28,000 of licensing fees payable to Healer against the principal balance of
the Revised Healer Note, reducing the principal amount to approximately $866,000. Of the outstanding Revised Healer Note balance at both
June 30, 2022 and December 31, 2021, approximately $52,000 was current.
High
Fidelity
In
August 2021, a $250,000 loan to High Fidelity Inc., an entity with cannabis operations in the state of Vermont, which bore interest at
a rate of 10.0% per annum, was repaid in full.
(6)
INVENTORY
Inventory
at June 30, 2022 and December 31, 2021 consisted of the following (in thousands):
SCHEDULE OF INVENTORY
| |
June
30, 2022 | | |
December
31, 2021 | |
Plants | |
$ | 1,430 | | |
$ | 1,015 | |
Ingredients
and other raw materials | |
| 498 | | |
| 262 | |
Work-in-process | |
| 8,262 | | |
| 4,661 | |
Finished
goods | |
| 5,699 | | |
| 3,830 | |
Total
inventory | |
$ | 15,889 | | |
$ | 9,768 | |
(7)
INVESTMENTS
The
Company’s investments at June 30, 2022 and December 31, 2021 were comprised of the following (in thousands):
SCHEDULE OF INVESTMENTS
| |
June
30, 2022 | | |
December
31, 2021 | |
Investments
– current: | |
| | | |
| | |
Flowr
Corp. (formerly Terrace Inc.) | |
$ | 124 | | |
$ | 251 | |
WM
Technology Inc. | |
| 401 | | |
| - | |
Total
current investments | |
$ | 525 | | |
$ | 251 | |
The
Company did not have any noncurrent investments at June 30, 2022 or December 31, 2021.
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% (“Terrace”),
was acquired by Flowr Corp. (TSX.V: FLWR; OTC: FLWPF), a Toronto-headquartered cannabis company with operations in Canada, Europe, and
Australia (“Flowr”). In accordance with the purchase agreement for this transaction, each shareholder of Terrace received
0.4973 shares in Flowr for each Terrace share held (the “Flowr Investment”).
The
Flowr Investment is recorded at fair value, with changes in fair value recorded as a component of Other (expense) income, net, in
the condensed consolidated statements of operations. The Company recorded losses of $0.2
million and $0.1
million in the three and six months ended June 30, 2022, respectively, and a loss of $0.4
million in both of the three- and six-month periods ended June 30, 2021. These amounts represent the changes in the fair value of
the Flowr Investment in the respective periods.
MembersRSVP
LLC
In
January 2021, the Company and MembersRSVP LLC, an entity that develops cannabis-specific software (“MRSVP”) in which the
Company owned a 23.0% membership interest, entered into an agreement under which the Company returned membership interests comprising
11.0% ownership in MRSVP in exchange for a release of the Company from any further obligation to make any incremental investments or
payments to MRSVP, and certain other non-monetary consideration.
In
addition to the reduction of the Company’s ownership interest to 12.0%,
the Company relinquished its right to appoint a member to the board of MRSVP. As a result, the Company no longer had the ability to
exercise significant influence over MRSVP, and accordingly, as of January 1, 2021, the Company discontinued accounting for this
investment under the equity method.
In
September 2021, MRSVP sold substantially all of its assets pursuant to an asset purchase agreement. In connection with this transaction,
the Company received cash proceeds of $1.5 million, which represented the Company’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 zero and resulted
in a gain of $0.3 million, which gain was reported as a component of Other (expense) income, net.
As
an ongoing member of MRSVP, the Company was entitled to its pro rata share of any additional consideration received by MRSVP pursuant
to the asset purchase agreement, which could include securities or other forms of non-cash or in-kind consideration and holdback amounts,
if and when received and distributed by MRSVP. In February 2022, the Company received 121,968 shares of common stock of WM Technology
Inc. (Nasdaq: MAPS), a technology and software infrastructure provider to the cannabis industry, which represented the Company’s
pro rata share of the additional consideration received by MRSVP pursuant to the asset purchase agreement. The Company recognized a loss
of $0.6 million in both of the three- and six-month periods ended June 30, 2022, which are included as components of Other (expense)
income, net, in the condensed consolidated statements of operations for those periods. This amount represents the change in the fair value of the MAPS shares in the respective periods.
(8)
PROPERTY AND EQUIPMENT, NET
The
Company’s property and equipment, net, at June 30, 2022 and December 31, 2021 was comprised of the following (in thousands):
SCHEDULE OF PROPERTY AND EQUIPMENT
| |
June
30, 2022 | | |
December
31, 2021 | |
Land | |
$ | 4,450 | | |
$ | 4,450 | |
Buildings
and building improvements | |
| 38,672 | | |
| 35,231 | |
Tenant
improvements | |
| 16,990 | | |
| 9,745 | |
Furniture
and fixtures | |
| 1,973 | | |
| 1,888 | |
Machinery
and equipment | |
| 9,466 | | |
| 7,221 | |
Construction
in progress | |
| 5,897 | | |
| 10,569 | |
Property
and equipment, gross | |
| 77,448 | | |
| 69,104 | |
Less:
accumulated depreciation | |
| (8,316 | ) | |
| (6,954 | ) |
Property
and equipment, net | |
$ | 69,132 | | |
$ | 62,150 | |
The
amounts reported as construction in progress primarily relate to the development of facilities in Annapolis, MD, Beverly, MA and Milford,
DE.
(9)
INTANGIBLE ASSETS AND GOODWILL
The
Company’s acquired intangible assets at June 30, 2022 consisted of the following (in thousands):
SCHEDULE
OF ACQUIRED INTANGIBLE ASSETS
| |
Weighted | | |
| | |
| | |
| |
| |
average | | |
| | |
| | |
Net | |
| |
amortization | | |
| | |
Accumulated | | |
carrying | |
| |
period
(years) | | |
Cost | | |
amortization | | |
value | |
| |
| | |
| | |
| | |
| |
Tradename
and trademarks | |
| 3.00 | | |
$ | 2,041 | | |
$ | 113 | | |
$ | 1,928 | |
Licenses
and customer base | |
| 8.26 | | |
| 8,100 | | |
| 169 | | |
| 7,931 | |
Non-compete
agreements | |
| 2.00 | | |
| 42 | | |
| 3 | | |
| 39 | |
| |
| 7.18 | | |
$ | 10,183 | | |
$ | 285 | | |
$ | 9,898 | |
Estimated
future amortization expense for the Company’s intangible assets at June 30, 2022 was as follows:
SCHEDULE
OF ESTIMATED
FUTURE AMORTIZATION EXPENSE OF INTANGIBLE ASSETS
Year
ending December 31, | |
| | |
Remainder
of 2022 | |
$ | 856 | |
2023 | |
| 1,712 | |
2024 | |
| 1,699 | |
2025 | |
| 1,239 | |
2026 | |
| 1,011 | |
Thereafter | |
| 3,381 | |
Total | |
$ | 9,898 | |
The
changes in the carrying value of the Company’s goodwill in the three months ended June 30, 2022 and 2021 were as follows (in thousands):
SCHEDULE
OF GOODWILL
| |
2022 | | |
2021 | |
Balance
at January 1, | |
$ | 2,068 | | |
$ | 2,068 | |
Kind
Acquisition | |
| 6,011 | | |
| - | |
Balance
at June 30, | |
$ | 8,079 | | |
$ | 2,068 | |
(10)
MORTGAGES AND NOTES PAYABLE
The
Company’s mortgages and notes payable are reported in the aggregate on the condensed consolidated balance sheets under the captions
Mortgages and notes payable, current, and Mortgages and notes payable, net of current.
Mortgages
The
Company’s mortgage balances, including accrued interest, at June 30, 2022 and December 31, 2021 were comprised of the following
(in thousands):
SCHEDULE OF MORTGAGES
| |
June
30, 2022 | | |
December
31, 2021 | |
Bank
of New England – New Bedford, MA and Middleboro, MA properties | |
$ | 12,319 | | |
$ | 12,499 | |
Bank
of New England – Wilmington, DE property | |
| 1,404 | | |
| 1,463 | |
DuQuoin
State Bank – Anna, IL and Harrisburg, IL properties | |
| 767 | | |
| 778 | |
DuQuoin
State Bank – Metropolis, IL property | |
| 2,574 | | |
| 2,658 | |
South
Porte Bank – Mt. Vernon, IL property | |
| 814 | | |
| 816 | |
Total
mortgages payable | |
| 17,878 | | |
| 18,214 | |
Less:
Mortgages payable, current | |
| (1,417 | ) | |
| (1,400 | ) |
Mortgages
payable, less current portion | |
$ | 16,461 | | |
$ | 16,814 | |
The
Company maintains an amended and restated mortgage agreement with the Bank of New England with an interest rate of 6.5% per annum which
matures in August 2025 (the “Amended BNE Mortgage”). The Amended BNE Mortgage is secured by the Company’s properties
in New Bedford, MA and Middleboro, MA. Proceeds from the Amended BNE Mortgage were used to pay down a previous mortgage of $4.8 million
with the Bank of New England on the New Bedford property, and $7.2 million of outstanding promissory notes as discussed below. The current
portions of the outstanding principal balance under the Amended BNE Mortgage at June 30, 2022 and December 31, 2021 were approximately
$370,000 and $358,000, respectively.
The
Company maintains a second mortgage with Bank of New England that is secured by the Company’s property in Wilmington, DE (the “BNE
Delaware Mortgage”). The mortgage matures in 2031, with monthly principal and interest payments. The interest rate is 5.25% per
annum, with the rate adjusting every five years to the then-prime rate plus 1.5%, with a floor of 5.25% per annum. The next interest
rate adjustment will occur in September 2026. The current portions of the outstanding principal balance under the BNE Delaware Mortgage
at June 30, 2022 and December 31, 2021 were approximately $123,000 and $120,000, respectively.
The
Company maintains a mortgage with DuQuoin State Bank (“DSB”) in connection with its purchase of properties in Anna, IL and
Harrisburg, IL (the “DuQuoin Mortgage”). On May 5 of each year, the DuQuoin Mortgage becomes due unless it is renewed for
another year at a rate determined by DSB’s executive committee. The DuQuoin Mortgage was renewed in May 2021 at a rate of 6.75%
per annum. The current portions of the outstanding principal balance under the DuQuoin Mortgage at June 30, 2022 and December 31, 2021
were approximately $32,000 and $33,000, respectively.
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 750,000 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 balance of $1.6 million. In connection with this purchase, the Company entered into a second
mortgage agreement with DSB for $2.7 million that matures in July 2041 and which initially bears interest at a rate of 6.25% per annum
(the “DuQuoin Metropolis Mortgage”). The interest rate on the DuQuoin Metropolis Mortgage 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 holds the related mortgage
obligation, reducing the Company’s ownership interest in Metro to 70.0%. The current portions of the outstanding balance of the
DuQuoin Metropolis Mortgage at June 30, 2022 and December 31, 2021 were approximately $78,000 and $73,000, respectively.
In
February 2020, the Company entered into a mortgage agreement with South Porte Bank for the purchase and development of a property in
Mt. Vernon, IL, (the “South Porte Bank Mortgage”). Beginning in August 2021, pursuant to the amendment of the South Porte
Bank Mortgage, the monthly payments of principal and interest aggregated approximately $6,000, with such payment amounts effective through
June 2023, at which time all remaining principal, interest and fees are due.
Promissory
Notes
Promissory
Note Retirements
In
March 2021, utilizing a portion of the proceeds from the Hadron Transaction (defined below; see Note 12), the Company retired
$15.2 million of principal and interest on promissory notes issued in previous fiscal years to accredited individual and institutional
investors. Concurrently, the remaining debt discount of approximately $450,000 on one of the retired promissory
notes (such discount having arisen from the issuance of warrants attached to such promissory note) was fully amortized.
Promissory
Note Conversions
During
the three months ended March 31, 2021, the holder of a note issued by the Company in June 2020, with an outstanding balance of $4.2
million, converted $1.0
million of principal and approximately $10,000
of accrued interest into 3,365,972
shares of the Company’s common stock. The
Company issued the holder an amended and restated promissory note simultaneous with the conversion transaction representing the $3.2
million remaining balance due.
During
2021, in a series of transactions, the noteholder converted $2.8 million of principal into 8,033,296 shares of the Company’s common
stock. At December 31, 2021, the outstanding balance on the amended and restated promissory note was $400,000.
During
the three months ended March 31, 2022, the noteholder converted the remaining principal balance of $400,000 into 1,142,858 shares of
the Company’s common stock and the note was retired. The Company did not record any gains or losses arising from these conversions.
Promissory
Notes Issued as Purchase Consideration – Kind Acquisition
In
connection with the Kind Acquisition (see Note 2), the Company issued four-year promissory notes aggregating $6.5 million at the rate
of 6.0% per annum to the members of Kind (the “Kind Notes”). The Company paid $0.3 million of principal during the period since
the Kind Acquisition Date. At June 30, 2022, the current portions of the Kind Notes aggregated $1.5 million.
Promissory
Notes Issued to Purchase Commercial Vehicles
In
August 2020, the Company entered into a note agreement with First Citizens’ Federal Credit Union for the purchase of a commercial
vehicle (the “First Citizens’ Note”). The First Citizens’ Note bears interest at the rate of 5.74% per annum
and matures in July 2026. The current portions of the outstanding balance under the First Citizens’ Note at both June 30, 2022
and December 31, 2021 was approximately $5,000.
In
June 2021, the Company entered into a note agreement with Ally Financial for the purchase of a second commercial vehicle (the “Ally
Financial Note”). The Ally Financial note bears interest at the rate of 10.0% per annum and matures in May 2027. The current portions
of the outstanding balance under the Ally Financial Note at both June 30, 2022 and December 31, 2021 were approximately $5,000.
Promissory
Note Issued by MariMed Hemp Inc.
In
September 2020, the Company paid $0.5 million of principal on a $1.0 million promissory note issued in 2019 by MariMed Hemp Inc., one
of the Company’s wholly-owned subsidiaries. In March 2021, utilizing a portion of the proceeds from the Hadron Transaction, the
Company made an interest payment of $0.2 million and paid the remaining principal of $0.5 million.
At
each of June 30, 2022 and December 31, 2021, the Company was carrying an accrued interest balance of approximately $125,000,
representing interest
due on this note.
Future
Payments
The
future principal amounts due under the Company outstanding mortgages and notes payable at June 30, 2022 are as follows (in thousands):
SCHEDULE OF MATURITIES OF OUTSTANDING DEBT
Year
ending December 31, | |
| | |
Remainder
of 2022 | |
$ | 1,042 | |
2023 | |
| 2,999 | |
2024 | |
| 2,323 | |
2025 | |
| 2,471 | |
2026 | |
| 1,183 | |
Thereafter | |
| 14,025 | |
Total | |
| 24,043 | |
Less:
discount | |
| (680 | ) |
Total
debt gross | |
$ | 23,363 | |
(11)
DEBENTURES PAYABLE
In
a series of transactions from October 2018 through February 2020, the Company sold an aggregate of $21.0
million of convertible debentures (the “$21M Debentures”) to an unaffiliated institutional investor pursuant to an
amended securities purchase agreement.
As
of March 31, 2021, the holder of the $21M Debentures had converted the entire $21.0 million of principal and related accrued interest
into the Company’s common stock in a series of conversions, at conversion prices equal to 80.0% of a calculated average of the
daily volume-weighted price preceding the date of conversion. Of these conversions, $1.3 million of principal and approximately $56,000
of accrued interest were converted into 4,610,645 shares of common stock at a conversion price of $0.29 per 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 (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 $21M Debentures. All conversions were effected within the terms of the debenture
agreements, and accordingly, the Company did not record any gains or losses in connection with these conversions.
(12)
MEZZANINE EQUITY
Series
B Convertible Preferred Stock
In
2020, the Company entered into an exchange agreement with two unaffiliated institutional shareholders (the “Exchange
Agreement”) whereby the Company (i) issued $4.4
million of promissory notes to the two institutional shareholders (such notes were retired in March 2021 as part of the promissory
note retirements described above (see Note 11), and (ii) exchanged 4,908,333
shares of the Company’s common stock previously acquired by the two institutional shareholders for an equal number of shares
of newly designated Series B convertible preferred stock (the “Series B Stock”).
In
connection with the Exchange Agreement, the Company filed (i) a certificate of designation with respect to the rights and preferences
of the Series B Stock, and (ii) a certificate of elimination to return all shares of the Series A convertible preferred stock, of which
no shares were issued or outstanding at the time of filing, to the status of authorized and unissued shares of undesignated preferred
stock.
The
holders of Series B Stock (the “Series B Holders”) are entitled to cast the number of votes equal to the number of shares
of common stock into which the shares of Series B Stock are convertible, together with the holders of common stock as a single class,
on most matters. However, the affirmative vote or consent of the Series B Holders voting separately as a class is required for certain
acts taken by the Company, including the amendment or repeal of certain charter provisions, liquidation or winding up of the Company,
creation of stock senior to the Series B Stock, and/or other acts defined in the certificate of designation.
The
Series B Stock shall, with respect to dividend rights and rights on liquidation, winding up and dissolution, rank senior to the Company’s
common stock. The Company shall not declare, pay, or set aside any dividends on shares of any other class or series of capital stock
of the Company unless the Series B Holders then outstanding shall first receive, or simultaneously receive, a dividend on each outstanding
share of Series B Stock in an amount calculated pursuant to the certificate of designation.
In
the event of any voluntary or involuntary liquidation, dissolution or winding up of the Company, the holder of Series B Stock shall
be entitled to be paid out of the assets of the Company available for distribution to its stockholders before any payment shall be
made to the holders of common stock by reason of their ownership thereof, an amount per share of Series B Stock equal to $3.00,
plus any dividends declared but unpaid thereon, with any remaining assets distributed pro-rata among the holders of the shares of
Series B Stock and common stock, based on the number of shares held by each such holder, treating for this purpose all such
securities as if they had been converted to common stock.
At
any time on or prior to the six-year anniversary of the issuance date of the Series B Stock, (i) the Series B Holders have the option
to convert their shares of Series B Stock into common stock at a conversion price of $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 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 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.
On
the day following the six-year anniversary of the issuance of the Series B convertible preferred stock, all outstanding shares of Series
B Stock shall automatically convert into common stock as follows:
| ● | 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 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 sixty-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 Stock into common stock at a conversion price per share
equal to the quotient of $3.00 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
Stock into common stock at a conversion price per share equal to the sixty-day VWAP and pay
cash to the Series B Holders equal to the difference between $3.00 per share and the sixty-day
VWAP. |
The
Company shall at all times when the Series B Stock is outstanding, reserve and keep available out of its authorized but unissued capital
stock, for the purpose of effecting the conversion of the Series B Stock, such number of its duly authorized shares of common stock as
shall from time to time be sufficient to effect the conversion of all outstanding Series B Stock.
Series
C Convertible Preferred Stock
In
March 2021, the Company entered into a securities purchase agreement with Hadron Healthcare Master Fund (“Hadron”) with
respect to a financing facility of up to $46.0
million (the “Hadron Facility”) in exchange for newly-designated Series C convertible preferred stock of the Company
(the “Series C Stock”) and warrants to purchase the Company’s common stock (the “Hadron
Transaction”).
At
the closing of the Hadron Transaction in March 2021, Hadron purchased $23.0
million of Units at a price of $3.70
per Unit. Each Unit is comprised of one share of Series C Stock and a four-year
warrant to purchase two and one-half shares of common stock. The Company issued to Hadron 6,216,216
shares of Series C Stock and warrants to purchase up to an aggregate of 15,540,540
shares of its common stock. Each share of Series C 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 are subject to early termination if certain milestones are achieved and the market value of the
Company’s common stock reaches certain predetermined levels. The fair value of the warrants on the issuance date was $9.5
million, which amount was recorded in Additional paid-in capital. The Company incurred costs of $0.4
million related to the issuance of these securities, which was recorded as a reduction to Additional paid-in capital in March
2021.
In
connection with the closing of the Hadron Transaction, the Company filed a certificate of designation with respect to the rights and
preferences of the Series C Stock. Such stock is zero coupon, non-voting, and has a liquidation preference equal to its original issuance price
plus declared but unpaid dividends. Holders of Series C Stock are entitled to receive dividends on an as-converted basis.
Of
the $23.0
million of proceeds received by the Company in March 2021, $7.3
million was used to fund construction and upgrades of certain of the Company’s owned and managed facilities, and $15.7
million was used to pay down debt and related interest (see Note 10).
No
further funding has occurred under the Hadron Facility and, on August 4, 2022, the Company and Hadron entered into a Second Amendment
to the Purchase Agreement pursuant to which, inter alia, (a) Hadron’s obligation to provide any further funding to the Company
and the Company’s obligation to issue any further securities to Hadron was terminated, (b) Hadron’s right to appointment
a designee to the Company’s board of directors was eliminated, and (c) certain covenants restricting the Company’s incurrence
of new indebtedness were eliminated.
(13)
STOCKHOLDERS’ EQUITY AND STOCK-BASED COMPENSATION
Common
Stock
During
2021 and 2022, the Company issued an aggregate of 12,542,126 shares of common stock in a series of conversions of a promissory note in
the original principal amount of $8.8 million, of which 1,142,858 shares were issued in the first quarter of 2022, resulting in the promissory
note being fully paid and retired (see Note 11).
During
the three months ended June 30, 2022, the Company issued 2,717 shares of restricted common stock associated with previously issued subscriptions
for common stock with a grant date fair value of approximately $2,000.
In
May 2022, the Company issued 350,000 shares of restricted common stock with a grant date fair value of approximately $217,000 in connection
with the appointment of the Company’s new Chief Financial Officer.
In
March 2022, the Company issued 375,000 shares of restricted common stock with a grant date fair value of approximately $274,000 in exchange
for consulting services.
Amended
and Restated 2018 Stock Award and Incentive Plan
The
Company’s Amended and Restated 2018 Stock Award and Incentive Plan (the “2018 Plan”) provides for the award of options
to purchase the Company’s common stock (“stock options”), stock appreciation rights (“SARs”), restricted
stock, deferred stock, dividend equivalents, performance shares or other stock-based performance awards and other stock- or cash-based
awards. Awards can be granted under the 2018 Plan to the Company’s employees, officers and non-employee directors, as well as consultants
and advisors of the Company and its subsidiaries.
Warrants
At
June 30, 2022, warrants to purchase up to 24,676,571 shares of common stock were outstanding, with a weighted average exercise price
of $0.89.
In
April 2022, 750,000 warrants were exercised in a cashless transaction, under which the Company withheld 515,039 shares underlying such
warrants and issued 234,961 shares of common stock.
Stock
Options
In
June 2022, 312,248 stock options were exercised in a cashless transaction, under which the Company withheld 112,248 shares underlying
such stock options and issued 200,000 shares of common stock.
At
June 30, 2022, options to purchase up to 39,899,423 shares of common stock were outstanding, with a weighted average exercise price of
$0.91 and a weighted average remaining life of approximately four years.
The
grant date fair values of options to purchase common stock granted in the three and six months ended June 30, 2022 were estimated using
the Black-Scholes valuation model with the following assumptions:
SCHEDULE
OF STOCK OPTIONS ESTIMATED USING THE BLACK-SCHOLES VALUATION MODEL WITH ASSUMPTIONS
| |
Three
months | | |
Six
months | |
| |
ended | | |
ended | |
| |
June
30, | | |
June
30, | |
| |
2022 | | |
2022 | |
Estimated
life (in years) | |
| 5.0 | | |
| 5.0 | |
Volatility | |
| 98.4 | % | |
| 98.4 | % |
Risk-free
interest rates | |
| 3.0 | % | |
| 3.0 | % |
Dividend
yield | |
| - | | |
| - | |
Stock-Based
Compensation
The
Company recorded stock-based compensation of $2.6 million and $5.0 million in the three and six months ended June 30, 2022, respectively,
and $1.2 million and $1.6 million in the three and six months ended June 30, 2021, respectively.
(14)
REVENUE
The
Company’s main sources of revenue are comprised of the following:
| ● | Product
sales (retail and wholesale) – direct sales of cannabis and cannabis-infused products
primarily by the Company’s retail dispensaries and wholesale operations in Massachusetts,
Illinois and, as of the Kind Acquisition Date, Maryland. This revenue is recognized when
products are delivered or at retail points-of-sale. |
| ● | Real
estate rentals – rental income and additional rental fees generated from leasing of
the Company’s state-of-the-art, regulatory compliant cannabis facilities to its cannabis-licensed
clients. Rental income is generally a fixed amount per month that escalates over the respective
lease terms, while additional rental fees are based on a percentage of tenant revenues that
exceed specified amounts. |
| ● | Management
fees – fees for providing the Company’s cannabis clients with comprehensive oversight
of their cannabis cultivation, production and dispensary operations. These fees are based
on a percentage of such clients’ revenue and are recognized after services have been
performed. |
| ● | Supply
procurement – resale of cultivation and production resources, supplies and equipment,
acquired by the Company from top national vendors at discounted prices, to its clients and
third parties within the cannabis industry. The Company recognizes this revenue after the
delivery and acceptance of goods by the purchaser. |
| ● | Licensing
fees – revenue from the sale of the Company’s branded products, including Betty’s
Eddies and Kalm Fusion, and from the sublicensing or contracted brands, including Healer
and Tikum Olam, to regulated dispensaries throughout the United States and Puerto Rico. This
revenue is recognized when the products are delivered. |
The
Financial Accounting Standards Board Accounting Standards Codification 606, Revenue from Contract with Customers, as amended by
subsequently issued Accounting Standards Updates, requires an entity to recognize revenue to depict the transfer of goods or services
to customers in an amount that reflects the consideration that it expects to be entitled to in exchange for those goods or services.
The recognition of revenue is determined by performing the following consecutive steps:
| ● | Identify
the contract(s) with a customer; |
| ● | Identify
the performance obligations in the contract(s); |
| ● | Determine
the transaction price; |
| ● | Allocate
the transaction price to the performance obligations in the contract(s); and |
| ● | Recognize
revenue as the performance obligation is satisfied. |
Additionally,
when another party is involved in providing goods or services to the Company’s clients, a determination is made as to who—the
Company or the other party—is acting in the capacity as the principal in the sale transaction, and who is the agent arranging for
goods or services to be provided by the other party.
The
Company is typically considered the principal if it controls the specified good or service before such good or service is transferred
to its client. The Company may also be deemed to be the principal even if it engages another party (an agent) to satisfy some of the
performance obligations on its behalf, provided the Company (i) takes on certain responsibilities, obligations, and risks, (ii) possesses
certain abilities and discretion, or (iii) other relevant indicators of the sale. If deemed an agent, the Company would not recognize
revenue for the performance obligations it does not satisfy.
Revenue
for the three and six months ended June 30, 2022 and 2021 was comprised of the following (in thousands):
SCHEDULE OF REVENUES COMPRISED OF MAJOR CATEGORIES
| |
2022 | | |
2021 | | |
2022 | | |
2021 | |
| |
Three
months ended | | |
Six
months ended | |
| |
June
30, | | |
June
30, | | |
June
30, | | |
June
30, | |
| |
2022 | | |
2021 | | |
2022 | | |
2021 | |
| |
| | |
| | |
| | |
| |
Product revenue: | |
| | |
| | |
| | |
| |
Product
sales - retail | |
$ | 23,087 | | |
$ | 20,552 | | |
$ | 44,528 | | |
$ | 35,776 | |
Product
sales - wholesale | |
| 7,958 | | |
| 8,178 | | |
| 14,020 | | |
| 13,903 | |
Total
product sales | |
| 31,045 | | |
| 28,730 | | |
| 58,548 | | |
| 49,679 | |
Other revenue: | |
| | | |
| | | |
| | | |
| | |
Real
estate rentals | |
| 846 | | |
| 1,862 | | |
| 2,433 | | |
| 3,671 | |
Supply
procurement | |
| 820 | | |
| 398 | | |
| 2,010 | | |
| 918 | |
Management
fees | |
| 81 | | |
| 981 | | |
| 834 | | |
| 1,877 | |
Licensing
fees | |
| 194 | | |
| 598 | | |
| 443 | | |
| 1,067 | |
Total
other revenue | |
| 1,941 | | |
| 3,839 | | |
| 5,720 | | |
| 7,533 | |
Total
revenue | |
$ | 32,986 | | |
$ | 32,569 | | |
$ | 64,268 | | |
$ | 57,212 | |
(15)
MAJOR CUSTOMERS
The
Company did not have any customers that contributed 10% or more of total revenue in any of the three- and six-month periods ended June
30, 2022 and 2021.
At
June 30, 2022, one customer accounted for 10% or more of the Company’s accounts receivable balance, representing approximately
26% of the total accounts receivable in the aggregate. At December 31, 2021, one customer accounted for 10% or more of the Company’s
accounts receivable balance, representing approximately 28% of total accounts receivable in the aggregate. The Company performs ongoing
credit evaluations of its customers and generally does not require collateral on accounts receivable. The Company maintains an allowance
for doubtful accounts and historical losses have been within management’s expectations.
(16)
LEASES
Arrangements
that are determined to be leases with a term greater than one year are accounted for by the recognition of right-of-use assets that represent
the Company’s right to use an underlying asset for the lease term, and lease liabilities, that represent the Company’s obligation
to make lease payments arising from the lease. Non-lease components within lease agreements are accounted for separately.
Right-of-use
assets and obligations are recognized at the commencement date based on the present value of lease payments over the lease term, utilizing
the Company’s incremental borrowing rate. The Company’s lease terms may include options to extend or terminate the lease
when it is reasonably certain that the Company will exercise that option. Lease expense for lease payments is recognized on a straight-line
basis over the lease term.
The
Company is the lessee under six operating leases and four finance leases. These leases contain rent holidays and customary escalations
of lease payments for the type of facilities being leased. The Company recognizes rent expense on a straight-line basis over the expected
lease term, including cancelable option periods which the Company fully expects to exercise. Certain leases require the payment of property
taxes, insurance and/or maintenance costs in addition to the rent payments.
The
Company leases the following facilities under operating leases:
| ● | Delaware
– 4,000 square feet of retail space in a multi-use building under a five-year lease
that expires in April 2027 that the Company has developed into a cannabis dispensary which
is subleased to its cannabis-licensed client. |
| ● | Delaware
– a 100,000 square foot warehouse, of which the Company developed 60,000 square feet
into a cultivation facility that is being subleased to its cannabis-licensed client. The
lease expires in March 2030, with an option to extend the term for three additional years. |
| ● | Delaware
– a 12,000 square foot premises which the Company developed into a cannabis production
facility with offices, and which it subleases to its cannabis-licensed client. The lease
expires in January 2026 and contains an option to negotiate an extension at the end of the
lease. |
| ● | Nevada
– 10,000 square feet of an industrial building that the Company has built out into
a cannabis cultivation facility which it plans to rent to its cannabis-licensed client under
a sublease which will be coterminous with this lease expiring in 2024. |
| ● | Massachusetts
– 10,000 square feet of office space which the Company utilizes as its corporate offices
under a lease with a related party expiring in 2028 with an option to extend the term for
an additional five-year period. |
| ● | Maryland
– a 2,700 square foot two-unit apartment under a lease that expires in July 2023. |
The
Company leases machinery and office equipment under finance leases that expire from February 2024 through February 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 and six months ended June 30, 2022 and 2021 were as follows (in thousands):
SCHEDULE OF COMPONENTS OF LEASE EXPENSE
| |
| | | |
| | | |
| | | |
| | |
| |
Three
months ended | | |
Six
months ended | |
| |
June
30, | | |
June
30, | | |
June
30, | | |
June
30, | |
| |
2022 | | |
2021 | | |
2022 | | |
2021 | |
| |
| | |
| | |
| | |
| |
Operating
lease expense | |
$ | 298 | | |
$ | 277 | | |
$ | 575 | | |
$ | 544 | |
| |
| | | |
| | | |
| | | |
| | |
Finance
lease expenses: | |
| | | |
| | | |
| | | |
| | |
Amortization
of right of use assets | |
$ | 40 | | |
$ | 8 | | |
$ | 59 | | |
$ | 16 | |
Interest
on lease liabilities | |
| 10 | | |
| 1 | | |
| 17 | | |
| 3 | |
Total
finance lease expense | |
$ | 50 | | |
$ | 9 | | |
$ | 76 | | |
$ | 19 | |
At
June 30, 2022, the weighted average remaining lease terms for operating leases and finance leases were 6.9 years and 3.5 years, respectively.
The weighted average discount rate used to determine the right-of-use assets and lease liabilities was between 7.5% and 12.0% for all
leases.
Future
minimum lease payments as of June 30, 2022 under all non-cancelable leases having an initial or remaining term of more than one year
were (in thousands):
SCHEDULE OF FUTURE MINIMUM LEASE PAYMENTS UNDER ALL NON CANCELABLE OPERATING LEASES
| |
| | | |
| | |
| |
Operating | | |
Finance | |
| |
leases | | |
leases | |
| |
| | |
| |
Remainder
of 2022 | |
$ | 571 | | |
$ | 90 | |
2023 | |
| 1,264 | | |
| 176 | |
2024 | |
| 1,199 | | |
| 153 | |
2025 | |
| 1,179 | | |
| 150 | |
2026 | |
| 1,129 | | |
| 22 | |
Thereafter | |
| 3,214 | | |
| - | |
Total
lease payments | |
| 8,556 | | |
| 591 | |
Less:
imputed interest | |
| (2,935 | ) | |
| (73 | ) |
| |
$ | 5,621 | | |
$ | 518 | |
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 amount 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 June 30, 2022, the lease terms of the Ohio Leases were all less than
one year, and accordingly the Company has not recorded a right-of-use asset and corresponding lease liability on its balance sheet. In
April 2022, the Company extended the term of one of the Ohio Leases, and the remaining five Ohio Leases were terminated.
(17)
RELATED PARTY TRANSACTIONS
The
Company’s corporate offices are leased from an entity in which the Company’s former Chief Financial Officer, now the
Company’s Chief Administrative Officer (“CAO”) has an investment interest. This lease expires in October 2028 and
contains a five-year extension option. Expenses incurred under this lease were approximately $39,000
for both of the three-month periods ended June 30, 2022 and 2021, and approximately $78,000
for both of the six-month periods ended June 30, 2022 and 2021.
The
Company procures nutrients, lab equipment, cultivation supplies, furniture, and tools from an entity owned by the family of the Company’s
Chief Operating Officer (“COO”). Purchases from this entity totaled $1.4 million and $2.3 million in the three and six months
ended June 30, 2022, respectively, and $1.2 million and $2.0 million in the three and six months ended June 30, 2021, respectively.
The
Company pays royalties on the revenue generated from its Betty’s Eddies product line to an entity owned by the Company’s
COO and its Senior Vice President of Sales (“SVP Sales”) under a royalty agreement. This agreement was amended effective
January 1, 2021 whereby, among other modifications, the
royalty percentage changed from 2.5% on all sales of Betty’s 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. The aggregate royalties due to
this entity were approximately $53,000
and $109,000
for the three and six months ended June 30, 2022, respectively, and approximately $79,000
and $162,000
for the three and six months ended June 30, 2021, respectively.
During
the three and six months ended June 30, 2022, one of the Company’s majority-owned subsidiaries paid aggregate distributions of
$12,600 and $23,100, respectively, to the Company’s Chief Executive Officer (“CEO”) and its CAO, who own minority
equity interests in such subsidiary. During the three and six months ended June 30, 2021, this majority-owned subsidiary paid aggregate
distributions of approximately $12,000 and $21,000 to the Company’s CEO and CAO, respectively.
During
the three and six months ended June 30, 2022, one of the Company’s majority-owned subsidiaries paid distributions of $8,000 and
$11,000, respectively, to a current employee who owns a minority equity interest in such subsidiary.
During
the three and six months ended June 30, 2022, the Company purchased fixed assets and consulting services aggregating $267,000 and $659,000,
respectively, from two entities owned by two of the Company’s general managers. During the three and six months ended June 30,
2021, the Company purchased fixed assets and consulting services from these entities aggregating approximately $308,000 and $573,000,
respectively.
During
the three and six months ended June 30, 2022, the Company purchased fixed assets of $278,000
and $360,000, respectively,
from an entity owned by an employee. During the three and six months ended June 30, 2021, the Company purchased fix assets of
approximately $156,000
and $466,000,
respectively, from this employee.
The
Company’s mortgages with Bank of New England, DuQuoin State Bank, and South Porte Bank are personally guaranteed by the Company’s
CEO and the Company’s CAO.
(18)
COMMITMENTS AND CONTINGENCIES
Maryland
Litigation
Following
the consummation of the Kind Acquisition, in April 2022, the Maryland litigation between the Company and the members of Kind was dismissed
in its entirety with prejudice, and the parties have released one another of any and all claims between them.
DiPietro
Lawsuit
In
December 2021, the parties to this action entered into a global confidential settlement and release agreement, along with the parties
to the aforementioned Maryland litigation. At the same date, the Company’s wholly-owned subsidiary MariMed Advisors Inc. (“MMA”)
and Jennifer DiPietro (“Ms. DiPietro”), one of the former members of Kind, entered into membership interest purchase agreement
pursuant to which the Company would purchase Ms. DiPietro’s interests in Mia and Mari-MD. Upon the court’s approval of the
parties’ joint motion for approval, on June 8, 2022, the purchase of Ms. DiPietro’s interests was consummated. The parties
released all direct and derivative claims against one another, and a stipulation dismissing all claims and counterclaims with prejudice
was filed with the court.
Bankruptcy
Claim
During
2019, the Company’s MMH subsidiary sold and delivered hemp seed inventory to GenCanna Global Inc., a Kentucky-based cultivator,
producer, and distributor of hemp (“GenCanna”). At the time of sale, the Company owned a 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 $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.
On
April 20, 2022, the Plan Administrator for the OGGUSA Debtors filed an adversary proceeding against the Company seeking to recover approximately
$200,000 in certain alleged preferential transfers made to MariMed Hemp, Inc. prior to the filing of the Chapter 11 bankruptcy. After
investigating the nature of these claims, the Company and its counsel do not believe that such claims have any factual or legal merit
and intend to vigorously defend such preference action. In addition, by reason of the nature of the claims, the Company believes that
it has certain counterclaims and possible third-party claims against the OGGUSA Debtors in relation to the facts asserted in the preference
action. The Company and its counsel are continuing to have discussions with the Plan Administrator in an attempt to resolve this action
without further litigation or expense. It is not known at this time whether such matter can be resolved or if the Company will be required
to proceed with its defense and counterclaims.
As
of the date of this filing, there is still insufficient information as to what portion, if any, of the Company’s allowed claim
will be paid upon the completion of the liquidation of the remaining assets of the OGGUSA Debtors.
(19)
SUBSEQUENT EVENTS
The
Company’s common stock commenced trading on the Canadian Securities Exchange on July 12, 2022 under
the ticker symbol MRMD.
In
July 2022, Mari Holdings Mt Vernon LLC, a wholly owned subsidiary of the Company, entered into a $3 million loan agreement and mortgage
with Du Quoin State Bank secured by property owned in Mt. Vernon, Illinois which the Company is developing into a grow and production
facility. The loan has a 20-year term and initially bears interest at the rate of 7.75%, subject to upward adjustment on each annual
anniversary date to the Wall Street Journal U.S. Prime Rate (with an interest rate floor of 7.75%). The proceeds of this loan will be
utilized for the build-out of the property and other working capital needs.