SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period ended September 30, 2023
o 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
(Exact Name of Registrant as Specified in Its Charter)
|(State or Other Jurisdiction of |
Incorporation or Organization)
|(I.R.S. Employer |
10 Oceana Way
Norwood, MA 02062
(Address of Principal Executive Offices)
(Registrant’s Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Act: None.
|Title of each class||Ticker symbol(s)||Name of each exchange on which registered|
|Not Applicable||Not Applicable||Not Applicable|
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o
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 x No o
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 o
Non-accelerated filer o
|Smaller reporting company||x|
|Emerging growth company||x|
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. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x
As of November 6, 2023, 376,121,958 shares of the registrant’s common stock were outstanding.
Table of Contents
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains certain forward-looking statements and information relating to MariMed Inc. that is based on the beliefs of MariMed Inc.’s management, as well as assumptions made by and information currently available to the Company. In some cases, you can identify these statements by forward-looking words such as “anticipates,” “believes,” “could,” “should,” “estimates,” “expects,” “intends,” “may,” “plans,” “predicts,” “projects,” “will,” or other similar or comparable words. Any statements contained in this Quarterly Report on Form 10-Q that are not statements of historical facts may be deemed to be forward-looking statements. Such statements reflect the current views of the Company with respect to future events, including consummation of pending transactions, launch of new products, expanded distribution of existing products, obtainment of new licenses, estimates and projections of revenue, EBITDA and Adjusted EBITDA and other information about the Company's business, business prospects and strategic growth plan, which are based on certain assumptions of its management, including those described in this Quarterly Report on Form 10-Q. These statements are not a guarantee of future performance and involve risk and uncertainties that are difficult to predict, including, among other factors, changes in demand for the Company’s services and products, changes in the law and its enforcement, timing and outcome of regulatory processes and changes in the economic environment.
Additional important factors that could cause actual results to differ materially from those in these forward-looking statements are also discussed in Part I, Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in this Quarterly Report on Form 10-Q and Part I, Item 1A, “Risk Factors” of the Company’s Annual Report on Form 10-K for the year ended December 31, 2022. Any forward-looking statement made by the Company in this Quarterly Report on Form 10-Q speaks only as of the date on which this Quarterly Report on Form 10-Q was first filed. The Company undertakes no obligation to publicly update any forward-looking statement, whether as a result of new information, future developments or otherwise.
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets
(in thousands, except share and per share amounts)
|Cash and cash equivalents||$||13,259 ||$||9,737 |
Accounts receivable, net of allowances of $564 and $4,603 at September 30, 2023 and December 31, 2022, respectively
|6,352 ||4,157 |
|Inventory||24,206 ||19,477 |
|Deferred rents receivable||649 ||704 |
|Notes receivable, current portion||52 ||2,637 |
|Investments, current portion||161 ||123 |
|Due from related parties||87 ||29 |
|Other current assets||6,026 ||7,282 |
|Total current assets||50,792 ||44,146 |
|Property and equipment, net||85,195 ||71,641 |
|Intangible assets, net||17,856 ||14,201 |
|Goodwill||11,993 ||8,079 |
|Notes receivable, net of current portion||814 ||7,467 |
|Investments, net of current portion||164 ||— |
|Operating lease right-of-use assets||9,679 ||4,931 |
|Finance lease right-of-use assets||2,717 ||713 |
|Other assets||11,607 ||1,024 |
|Total assets||$||190,817 ||$||152,202 |
|Liabilities, mezzanine equity and stockholders’ equity|
|Term loan||$||3,600 ||$||— |
|Mortgages and notes payable, current portion||1,009 ||3,774 |
|Accounts payable||8,494 ||6,626 |
|Accrued expenses and other||5,347 ||3,091 |
|Income taxes payable||14,014 ||11,489 |
|Operating lease liabilities, current portion||1,865 ||1,273 |
|Finance lease liabilities, current portion||963 ||237 |
|Total current liabilities||35,292 ||26,490 |
|Term loan, net of current portion||18,895 ||— |
|Mortgages and notes payable, net of current portion||27,444 ||25,943 |
|Operating lease liabilities, net of current portion||8,449 ||4,173 |
Condensed Consolidated Balance Sheets (continued)
(in thousands, except share and per share amounts)
|Finance lease liabilities, net of current portion||1,775 ||461 |
|Other liabilities||100 ||100 |
|Total liabilities||91,955 ||57,167 |
|Commitments and contingencies|
Series B convertible preferred stock, $0.001 par value; 4,908,333 shares authorized, issued and outstanding at September 30, 2023 and December 31, 2022
|14,725 ||14,725 |
Series C convertible preferred stock $0.001 par value; 12,432,432 shares authorized; 1,155,274 and 6,216,216 shares issued and outstanding at September 30, 2023 and December 31, 2022, respectively
|4,275 ||23,000 |
|Total mezzanine equity||19,000 ||37,725 |
Undesignated preferred stock, $0.001 par value; 32,659,235 shares authorized; zero shares issued and outstanding at September 30, 2023 and December 31, 2022
|— ||— |
Common stock, $0.001 par value; 700,000,000 shares authorized; 375,871,958 and 341,474,728 shares issued and outstanding at September 30, 2023 and December 31, 2022, respectively
|376 ||341 |
|Common stock subscribed but not issued||— ||39 |
|Additional paid-in capital||170,922 ||142,365 |
|Total stockholders’ equity||79,862 ||57,310 |
|Total liabilities, mezzanine equity and stockholders’ equity||$||190,817 ||$||152,202 |
See accompanying notes to the unaudited condensed consolidated financial statements.
Condensed Consolidated Statements of Operations
(in thousands, except per share amounts)
|Three months ended ||Nine months ended|
|September 30,||September 30,|
|Revenue||$||38,800 ||$||33,912 ||$||109,699 ||$||98,180 |
|Cost of revenue||21,962 ||17,748 ||61,097 ||50,035 |
|Gross profit||16,838 ||16,164 ||48,602 ||48,145 |
|Personnel||5,916 ||3,746 ||16,191 ||10,170 |
|Marketing and promotion||1,585 ||1,402 ||4,397 ||2,854 |
|General and administrative||6,135 ||5,097 ||15,520 ||16,890 |
|Acquisition-related and other||32 ||143 ||647 ||897 |
|Bad debt||(122)||40 ||(127)||54 |
|Total operating expenses||13,546 ||10,428 ||36,628 ||30,865 |
|Income from operations||3,292 ||5,736 ||11,974 ||17,280 |
|Interest and other (expense) income:|
|Interest income||29 ||239 ||243 ||720 |
|Other (expense) income, net||(646)||(251)||(1,556)||24 |
|Total interest and other expense, net||(3,099)||(530)||(8,940)||(527)|
|Income before income taxes||193 ||5,206 ||3,034 ||16,753 |
|Provision for income taxes||4,462 ||2,484 ||8,902 ||7,894 |
|Net (loss) income||(4,269)||2,722 ||(5,868)||8,859 |
|Less: Net (loss) income attributable to noncontrolling interests||(10)||16 ||(6)||142 |
|Net (loss) income attributable to common stockholders||$||(4,259)||$||2,706 ||$||(5,862)||$||8,717 |
|Net (loss) earnings per share attributable to common stockholders:|
|Basic||$||(0.01)||$||0.01 ||$||(0.02)||$||0.03 |
|Diluted||$||(0.01)||$||0.01 ||$||(0.02)||$||0.02 |
|Weighted average common shares outstanding:|
See accompanying notes to the unaudited condensed consolidated financial statements.
Condensed Consolidated Statements of Stockholders’ Equity
(in thousands, except share amounts)
|Nine months ended September 30, 2023|
|Common stock||Common stock|
|Balances at January 1, 2023||341,474,728||$||341 ||70,000||39||$||39 ||$||142,365 ||$||(83,924)||$||(1,511)||$||57,310 |
|Issuance of subscribed shares||70,000||— ||(70,000)||(39)||39 ||— ||— ||— |
|Common stock subscribed but not issued||—||— ||5,025||2 ||— ||— ||— ||— |
|Warrants issued in connection with debt||—||— ||—||— ||5,454 ||— ||— ||5,454 |
|Shares issued as purchase consideration - business acquisition||6,580,390||7 ||—||— ||2,987 ||— ||— ||2,994 |
|Common stock issued under licensing agreement||1,793||— ||—||— ||1 ||— ||— ||1 |
|Distributions to non-controlling interests||—||— ||—||— ||— ||— ||(34)||(34)|
|Stock-based compensation||—||— ||—||— ||206 ||— ||— ||206 |
|Balances at March 31, 2023||348,126,911||348||5,025||2||151,052||(84,569)||(1,564)||65,269 |
|Issuance of subscribed shares||5,025||—||(5,025)||(2)||2||—||—||—|
|Exercise of stock options||157,752||—||—||—||35||—||—||35|
|Release of shares under stock grants||349,999||1||—||—||(1)||—||—||—|
|Conversion of preferred stock to common stock||21,383,040||21||—||—||15,802||—||—||15,823|
|Purchase of minority interests in certain of the Company’s subsidiaries||450,000||1||—||—||4||—||(5)||—|
|Common stock issued to settle obligations||400,000||—||—||—||160||—||—||160|
|Common stock issued under licensing agreement||1,290||—||—||—||—||—||—||—|
|Common stock issued to purchase property and equipment||740,741||1||—||—||299||—||—||300|
|Distributions to non-controlling interests||—||—||—||—||—||—||(47)||(47)|
|Net (loss) income||—||—||—||—||—||(958)||23||(935)|
|Balances at June 30, 2023||371,614,758||372||—||—||167,652||(85,527)||(1,593)||80,904|
|Exercise of stock options||330,000||—||—||—||74||—||—||74|
|Conversion of preferred stock to common stock||3,921,670||4||—||—||2,898||—||—||2,902|
|Common stock issued under licensing agreement||5,530||— ||—||— ||2 ||— ||— ||2 |
|Distributions to non-controlling interests||—||— ||—||— ||— ||— ||(47)||(47)|
|Stock-based compensation||—||— ||—||— ||296 ||— ||— ||296 |
|Net loss||—||— ||—||— ||— ||(4,259)||(10)||(4,269)|
|Balances at September 30, 2023||375,871,958||$||376 ||—||$||— ||$||170,922 ||$||(89,786)||$||(1,650)||$||79,862 |
Condensed Consolidated Statements of Stockholders’ Equity (continued)
(in thousands, except share amounts)
|Nine months ended September 30, 2022|
|Common stock||Common stock|
|Balances at January 1, 2022||334,030,348||$||334 ||—||$||— ||$||134,920 ||$||(97,392)||$||(1,563)||$||36,299 |
|Common stock subscribed but not issued||—||— ||2,717||2 ||— ||— ||— ||2 |
|Exercise of stock options||10,000||— ||—||— ||3 ||— ||— ||3 |
|Conversion of promissory notes to equity||1,142,858||1 ||—||— ||399 ||— ||— ||400 |
|Common stock issued to settle obligations||375,000||1 ||—||— ||273 ||— ||— ||274 |
|Distributions to non-controlling interests||—||— ||—||— ||— ||— ||(101)||(101)|
|Stock-based compensation||—||— ||—||— ||2,469 ||— ||— ||2,469 |
|Net income||—||— ||—||— ||— ||4,188 ||53 ||4,241 |
|Balances at March 31, 2022||335,558,206 ||336 ||2,717 ||2 ||138,064 ||(93,204)||(1,611)||43,587 |
|Issuance of subscribed shares||2,717||— ||(2,717)||(2)||2 ||— ||— ||— |
|Cashless exercise of stock options||200,000||— ||—||— ||— ||— ||— ||— |
|Cashless exercise of warrants||234,961||— ||—||— ||— ||— ||— ||— |
|Release of shares under stock grants||354,221||— ||—||— ||— ||— ||— ||— |
|Shares as purchase consideration - business combination||2,343,750||3 ||—||— ||1,497 ||— ||— ||1,500 |
|Purchase of minority interests in certain of the Company's subsidiaries||—||— ||—||— ||(2,165)||— ||165 ||(2,000)|
|Distributions to non-controlling interests||—||— ||—||— ||— ||— ||(83)||(83)|
|Stock-based compensation||—||— ||—||— ||2,553 ||— ||— ||2,553 |
|Net income||—||— ||—||— ||— ||1,823 ||73 ||1,896 |
|Balances at June 30, 2022||338,693,855||339 ||—||— ||139,951 ||(91,381)||(1,456)||47,453 |
|Common stock subscribed but not issued||—||— ||74,581||41 ||— ||— ||— ||41 |
|Exercise of stock options||45,000||— ||—||— ||7 ||— ||— ||7 |
|Common stock issued to settle obligations||531,532||— ||—||— ||363 ||— ||— ||363 |
|Distributions to non-controlling interests||—||— ||—||— ||— ||— ||(40)||(40)|
|Stock-based compensation||—||— ||—||— ||1,331 ||— ||— ||1,331 |
|Net income||—||— ||—||— ||— ||2,706 ||16 ||2,722 |
|Balances at September 30, 2022||339,270,387||$||339 ||74,581||$||41 ||$||141,652 ||$||(88,675)||$||(1,480)||$||51,877 |
See accompanying notes to the unaudited condensed consolidated financial statements.
Condensed Consolidated Statements of Cash Flows
|Nine months ended|
|Cash flows from operating activities:|
|Net (loss) income attributable to common stockholders||$||(5,862)||$||8,717 |
|Net (loss) income attributable to noncontrolling interests||(6)||142 |
|Adjustments to reconcile net (loss) income to cash provided by operating activities:|
|Depreciation and amortization of property and equipment||3,838 ||2,469 |
|Amortization of intangible assets||2,181 ||854 |
|Stock-based compensation||801 ||6,396 |
|Amortization of original debt issuance discount||206 ||— |
|Amortization of debt discount||1,840 ||— |
|Payment-in-kind interest||301 ||— |
|Present value adjustment of notes payable||719 ||— |
|Bad debt (income) expense||(127)||54 |
|Obligations settled with common stock||463 ||637 |
|Write-off of disposed assets||906 ||— |
|Gain on finance lease adjustment||(31)||— |
|(Gain) loss on changes in fair value of investments||(16)||930 |
|Write-down of prepaid purchase consideration||200 ||— |
|Other investment income||— ||(954)|
|Changes in operating assets and liabilities:|
|Accounts receivable, net||(2,065)||(4,856)|
|Deferred rents receivable||55 ||111 |
|Other current assets||2,040 ||(1,973)|
|Accounts payable||1,868 ||2,372 |
|Accrued expenses and other||(132)||(193)|
|Income taxes payable||2,525 ||(4,804)|
|Net cash provided by operating activities||4,676 ||5,574 |
|Cash flows from investing activities:|
|Purchases of property and equipment||(14,749)||(9,985)|
|Business acquisitions, net of cash acquired||(2,987)||(12,746)|
|Advances toward future business acquisitions||(250)||(800)|
|Purchases of investments||(187)||— |
|Purchases of cannabis licenses||(626)||(330)|
Condensed Consolidated Statements of Cash Flows (continued)
|Nine months ended|
|Issuance of notes receivable||(879)||— |
|Proceeds from notes receivable||99 ||130 |
|Due from related party||(58)||— |
|Net cash used in investing activities||(19,637)||(23,731)|
|Cash flows from financing activities:|
|Proceeds from term loan||29,100 ||— |
|Payment of third-party debt issuance costs in connection with term loan||(1,798)||— |
|Principal payments of term loan||(1,500)||— |
|Principal payments of mortgages and promissory notes||(519)||(1,033)|
|Repayment and retirement of mortgage||(778)||— |
|Repayment and retirement of promissory notes||(5,503)||— |
|Proceeds from mortgages||— ||3,000 |
|Proceeds from exercise of stock options||109 ||10 |
|Principal payments of finance leases||(500)||(166)|
|Redemption of minority interests||— ||(2,000)|
|Net cash provided by (used in) financing activities||18,483 ||(413)|
|Net increase (decrease) in cash and cash equivalents||3,522 ||(18,570)|
|Cash and equivalents, beginning of year||9,737 ||29,683 |
|Cash and cash equivalents, end of period||$||13,259 ||$||11,113 |
|Supplemental disclosure of cash flow information:|
|Cash paid for interest||$||4,766 ||$||1,120 |
|Cash paid for income taxes||$||6,904 ||$||12,582 |
|Common stock issued as purchase consideration||$||2,994 ||$||1,500 |
|Common stock issued to purchase minority interests in certain of the Company's subsidiaries||$||5 ||$||— |
|Conversion of promissory notes to equity||$||— ||$||400 |
|Present value of promissory note issued as purchase consideration||$||4,569 ||$||— |
|Warrants to purchase common stock issued with debt||$||5,454 ||$||— |
|Liability recorded for building improvements||$||1,997 ||$||— |
|Notes payable issued to purchase motor vehicles||$||158 ||$||— |
|Entry into new operating leases||$||5,366 ||$||378 |
|Entry into new finance leases||$||2,309 ||$||781 |
|Issuance of common stock associated with subscriptions||$||41 ||$||— |
|Conversion of preferred stock to common stock||$||18,725 ||$||— |
See accompanying notes to the unaudited condensed consolidated financial statements.
Notes to Condensed Consolidated Financial Statements
(1) BASIS OF PRESENTATION
MariMed Inc. (“MariMed” or the “Company”) is a multi-state operator in the United States cannabis industry. MariMed develops, operates, manages and optimizes state-of-the-art, regulatory-compliant facilities for the cultivation, production, and dispensing of medical and adult use cannabis. MariMed also licenses its proprietary brands of cannabis, along with other top brands, in domestic markets.
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 March 9, 2023 (the "Ermont Acquisition Date"), the Company acquired the operating assets of Ermont, Inc. ("Ermont"), a medical-licensed vertical cannabis operator located in Quincy, Massachusetts (the "Ermont Acquisition"). The financial results of Ermont are included in the Company's condensed consolidated financial statements since the Ermont Acquisition Date.
On April 27, 2022 (the “Kind Acquisition Date”), the Company acquired Kind Therapeutics USA (“Kind”), the Company's former client in Maryland that holds licenses for the cultivation, production and dispensing of medical cannabis (the "Kind Acquisition"). The financial results of Kind are included in the Company’s condensed consolidated financial statements for the periods subsequent to the Kind Acquisition Date.
The Company completed two acquisitions during the year ended December 31, 2022 that it recorded as asset purchases. On May 5, 2022 (the "Green Growth Acquisition Date"), the Company completed the acquisition of 100% of the equity of Green Growth Group Inc. ("Green Growth"), an entity that holds a craft cultivation and production cannabis license in Illinois (the "Green Growth Acquisition"). On December 30, 2022 (the "Greenhouse Naturals Acquisition Date"), the Company completed an asset purchase under which it acquired a cannabis license and assumed a property lease for a dispensary in Beverly, Massachusetts that had never been operational.
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, 2022 (the “Annual Report”), which was filed with the U.S. Securities and Exchange Commission (“SEC”) on March 3, 2023.
Significant Accounting Policies
The Company’s significant accounting policies are disclosed in Note 2 to the Consolidated Financial Statements in the Annual Report. There were no material changes to the Company's significant accounting policies during the nine-month period ended September 30, 2023.
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 is 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 and asset purchases, inventory valuations, assumptions used to determine the fair value of stock-based compensation, and intangible assets 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 September 30, 2023 and December 31, 2022, the Company had $0.2 million and $0.1 million, respectively, of cash held in escrow.
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, term loans, 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) BUSINESS COMBINATIONS AND ASSET PURCHASES
On February 21, 2023, the Company announced its intention to acquire the operating assets of Ermont, a medical licensed vertical cannabis operator, located in Quincy, Massachusetts, subject to approval by the Massachusetts Cannabis Control Commission (the "CCC"). In March 2023, the CCC approved the Company's acquisition of Ermont, and the Ermont Acquisition was completed on March 9, 2023. The Ermont Acquisition provided the Company with its third dispensary in
Massachusetts, substantially completing its build-out to the maximum allowable by state regulations.
As consideration for the Ermont Acquisition, which totaled $13.0 million, the Company paid $3.0 million of cash, issued 6,580,390 shares of the Company's common stock, and issued a $7.0 million promissory note (the "Ermont Note" and collectively, the "Ermont Consideration"). The Ermont Note has a six-year term and bears interest at 6.0% per annum, with payments of interest-only for two years and thereafter, quarterly payments of principal and interest in arrears. The outstanding balance on the Ermont Note is due and payable in full if and when the Company raises $75.0 million of equity capital.
The Company rebranded the dispensary as Panacea Wellness Dispensary and commenced medical sales immediately after the Ermont Acquisition Date. The Ermont Acquisition also includes a Host Community Agreement with the city of Quincy to conduct adult-use cannabis sales. The Company expects to commence adult-use sales upon approval by the CCC. The Company also plans to expand the existing medical dispensary to accommodate expected increased traffic associated with adult-use sales and to repurpose Ermont's existing cultivation facility for its pheno-hunting activities. The Company has moved its pheno-hunting out of the New Bedford facility to use the freed space to cultivate its Nature's Heritage flower.
The Company's condensed consolidated statement of operations for the three months ended September 30, 2023 includes $1.2 million of revenue and $0.7 million of net loss attributable to Ermont. The Company's condensed consolidated statement of operations for the nine months ended September 30, 2023 includes $2.6 million of revenue and $1.9 million of net loss attributable to Ermont for the period since the Ermont Acquisition Date.
The Ermont Acquisition has been accounted for as a business combination. The Company did not assume any of Ermont's liabilities. A summary of the preliminary allocation of the Ermont Consideration to the acquired and identifiable intangible assets is as follows (in thousands):
|Fair value of consideration transferred:|
| Cash paid||$||3,000 |
| Less cash acquired||(13)|
| Net cash consideration||2,987 |
| Common stock||2,994 |
| Promissory note||4,569 |
| Total fair value of consideration||$||10,550 |
|Fair value of assets acquired and (liabilities assumed):|
|Property and equipment||$||800 |
|Tradename and trademarks||1,063 |
|Customer base||4,642 |
|Fair value of net assets acquired||$||10,550 |
The Company is amortizing the identifiable intangible assets arising from the Ermont 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 10.71 years (see Note 9). Goodwill results from assets not separately identifiable as part of the transaction, and is not deductible for tax purposes.
In December 2021, the Company entered into a membership interest purchase agreement with the members of Kind 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, Maryland (collectively, the “Kind Consideration”). Kind was the Company's client in Maryland that held licenses for the cultivation, production and
dispensing of medical cannabis. Upon execution of the membership interest purchase agreement, the Company deposited $5.0 million into escrow as a contract down payment.
In April 2022, the Maryland Medical Cannabis Commission approved the Company’s acquisition of Kind, and the Kind Acquisition was completed on April 27, 2022. Following the Kind Acquisition, litigation between the Company and the members of Kind was dismissed (see Note 18).
The Kind Acquisition has been accounted for as a business combination. A summary of the final allocation of the Kind Consideration to the acquired assets, identifiable intangible assets and certain assumed liabilities is as follows (in thousands):
|Fair value of consideration transferred:|
|Cash paid at closing||$||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 |
|Tradename and trademarks||2,041 |
|Licenses and customer base||4,700 |
|Non-compete agreements||42 |
|Fair value of net assets acquired||$||17,952 |
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 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, Maryland and Annapolis, Maryland, and (ii) Mia Development LLC (“Mia”), the Company’s majority-owned subsidiary that owns production and retail cannabis facilities in Wilmington, Delaware. Upon the dismissal in September 2022 of the derivative claims in the DiPietro lawsuit (see Note 18), the Company paid the aggregate purchase consideration of $2.0 million, and the transaction was completed, increasing the Company’s then-current ownership of Mari-MD and Mia to 99.7% and 94.3%, respectively.
The following unaudited pro forma information presents the condensed combined results of MariMed and Kind for the year ended December 31, 2022 as if the Kind Acquisition had been completed on January 1, 2021, with adjustments to give effect to pro forma events that are directly attributable to the Kind Acquisition. These pro forma adjustments include the reversal of MariMed revenue and related cost of sales derived from Kind prior to the Kind Acquisition Date, amortization expense for the acquired intangible assets, depreciation expense for property and equipment acquired by MariMed as part of the Kind Acquisition, and interest expense related to the Kind Notes. Pro forma adjustments also include the elimination of acquisition-related and other expenses directly attributable to the Kind Acquisition incurred during the year ended December 31, 2022.
The unaudited pro forma results do not reflect any operating efficiencies or potential cost savings that may result from the consolidation of the operations of MariMed and Kind. Accordingly, these unaudited pro forma results are presented for illustrative purposes and are not intended to represent or be indicative of the actual results of operations of the combined companies that would have been achieved had the Kind Acquisition occurred on January 1, 2022, nor are they intended to represent or be indicative of future results of operations. The pro forma financial results for the year ended December 31, 2022, giving effect to the Kind Acquisition as if it had occurred on January 1, 2021 are as follows (unaudited, in thousands):
|Net income||$||15,823 |
Valuation of Acquired Intangible Assets
The valuation of acquired intangible assets is inherently subjective and relies on significant unobservable inputs. The Company uses an income approach to value 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.
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 cash of $1.9 million and shares of the Company’s common stock valued at $1.5 million. Concurrently, the Company made a good faith deposit of $0.1 million.
In April 2022, the Illinois Department of Agriculture approved the Company’s acquisition of Green Growth, and the Green Growth Acquisition was completed on May 5, 2022. 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 canopy to grow cannabis flower and produce cannabis concentrates. The Company has allocated the purchase price to its licenses/customer base intangible asset, with an estimated useful life of ten years.
In November 2021, the Company entered into an asset purchase agreement with Greenhouse Naturals LLC (the "Greenhouse Naturals Sellers") to acquire the cannabis license and assume the property lease associated with a cannabis dispensary in Beverly, MA.
The Greenhouse Naturals Acquisition was completed on December 30, 2022, on which date the Company paid $0.1 million of cash and issued 2,000,000 shares of the Company's common stock, with a fair value of $0.7 million, to the Greenhouse Naturals Sellers. The Company issued a note to the Greenhouse Naturals Sellers for the remaining $5.0 million of the cash purchase price payable post-closing on a monthly basis as a percentage of the dispensary's monthly gross sales (the "Greenhouse Naturals Note"). The Company has recorded the Greenhouse Naturals Note at its present value of $4.3 million. The difference between the face value of the Greenhouse Naturals Note and the net present value recorded will be amortized to interest expense over the term of such note. The final inspection by the Commonwealth of Massachusetts was completed in April 2023, and the Company opened the dispensary on April 25, 2023. The Company has allocated the purchase price to a licenses/customer base intangible asset, with an estimated useful life of 10 years.
Allgreens Dispensary, LLC ("Allgreens")
In August 2022, the Company entered into an agreement to purchase 100% of the membership interests in Allgreens Dispensary, LLC (the "Allgreens Agreement"), a conditional adult-use cannabis dispensary license in Illinois for $2.25 million of cash. Completion of the acquisition is dependent upon certain conditions, including resolution of any remaining legal challenges affecting nearly 200 social equity dispensary licenses, and regulatory approval of the acquisition. If the closing conditions are met and the acquisition is completed, the Company will have five adult-use dispensaries operating in Illinois. While the Company believes this may still occur in 2023, it is quite possible that the closing date may not occur until 2024. For the interim period until the acquisition is completed, the Company has entered into a management agreement with Allgreens, with the management fees calculated as a percentage of Allgreens' revenue. In connection with this agreement, the Company recorded expenses related to Allgreens aggregating $0.1 million for both the three and nine months ended September 30, 2023 as a component of Investments, net of current portion (see Note 7).
Pursuant to the Allgreens Agreement, as of September 30, 2023 the Company had made payments aggregating $0.5 million to the Allgreens members, with additional cash payments aggregating $1.75 million to be made as specific milestones are reached. Additionally, the Company made a cash payment of $875,000 to the Allgreens members in October 2023. The Company will issue promissory notes for the final payment of $1.0 million, which will be issued at closing (the "Allgreens Notes"). The Allgreens Notes will mature one year from the date the dispensary is permitted to commence operations.
Robust Missouri Process and Manufacturing, LLC ("Robust")
In September 2022, the Company entered into an agreement to acquire 100% of the membership interests in Robust Missouri Processing and Manufacturing 1, LLC (the "Robust Agreement"), a Missouri wholesale and cultivator, for $0.7 million of cash. Completion of the acquisition is dependent upon obtaining all requisite approvals from the Missouri Department of Health and Senior Services. While the Company believes this may still occur in 2023, it is quite possible that the closing date may not occur until 2024. Pursuant to the Robust Agreement, the Company has made an initial advance payment of $350,000 to the Robust members, with an additional payment of $350,000 to be made at closing.
(3) EARNINGS (LOSS) PER SHARE
Basic earnings (loss) per share is computed by dividing net income (loss) by the weighted average number of shares outstanding during the period. For periods in which the Company reports net income, diluted net income 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 number of shares used to compute earnings (loss) per share were as follows (in thousands):
|Three months ended||Nine months ended|
|Weighted average shares outstanding - basic||373,081 ||339,025 ||359,156 ||337,111 |
|Potential dilutive common shares||— ||42,046 ||— ||42,757 |
|Weighted average shares outstanding - diluted||373,081 ||381,071 ||359,156 ||379,868 |
(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 is the lessor of 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 was 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 (the "Tenant") under a lease that expired in February 2023. The Tenant currently continues to occupy this space on a month-to-month basis.
The Company is the sublessor of 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 $0.5 million and $0.4 million in the three months ended September 30, 2023 and 2022, respectively, and $1.3 million and $2.4 million in the nine months ended September 30, 2023 and 2022, respectively. Revenue from these payments was recognized on a straight-line basis and aggregated $0.4 million in each of the three months ended September 30, 2023 and 2022, respectively, and $1.2 million and $2.3 million in the nine months ended September 30, 2023 and 2022, respectively.
Future minimum rental receipts for non-cancellable leases and subleases as of September 30, 2023 were as follows (in thousands):
|Year ending December 31,|
|Remainder of 2023||$||300 |
(5) NOTES RECEIVABLE
Notes receivable, including accrued interest, at September 30, 2023 and December 31, 2022 consisted of the following (in thousands):
|First State Compassion Center (FSCC Initial Note)||$||— ||$||328 |
|First State Compassion Center (FSCC Secondary Notes)||— ||8,160 |
|First State Compassion Center (FSCC New Note)||— ||750 |
|Healer LLC (Revised Healer Note)||866 ||866 |
|Total notes receivable||866 ||10,104 |
|Less: Notes receivable, current portion||(52)||(2,637)|
|Notes receivable, less current portion||$||814 ||$||7,467 |
First State Compassion Center
On July 1, 2023 (the "Omnibus Agreement Date"), the Company entered into an Omnibus Agreement with First State Compassion Center ("FSCC"), the Company's cannabis-licensed client in Delaware: (a) consolidating all amounts owed by FSCC to the Company and its affiliated entities as described below, aggregating $11.0 million (the "Omnibus"); (b) providing for the automatic conversion of all amounts owed by FSCC to the Company, upon the approval of adult cannabis use in Delaware into 100% ownership of FSCC's licenses and business; and (c) extending to FSCC, in the Company's sole discretion, up to an additional $2.0 million of working capital loans. The Omnibus has a term of five years, with an automatic five-year extension if adult cannabis use is not approved in Delaware by the maturity date, bears interest, compounded semiannually and payable annually, at the appropriate rate of interest in effect under Sections 1274(d), 482 and 7872 of the Internal Revenue Code of 1986, as amended, as calculated under Rev. Ruling 86-17, 1986-1 C.B. 377, for the period for which the amount of interest is being determined. The state of Delaware recently approved the adult use of cannabis, with the implementation period expected to extend through approximately November 2024. The Company recorded the Omnibus as a component of Other assets in the condensed consolidated balance sheet at September 30, 2023.
Notes Receivable From FSCC Prior to the Omnibus Agreement Date
The notes receivable from FSCC described below in the aggregate were converted into the Omnibus on the Omnibus Agreement Date:
•FSCC issued a 10-year promissory note to the Company in May 2016 for $0.7 million, which bore interest at a rate of 12.5% per annum and matured in April 2026, as amended (the “FSCC Initial Note”). The monthly payments on the FSCC Initial Note were approximately $10,000. At June 30, 2023 and December 31, 2022, the current portions of the FSCC Initial Note were approximately $90,000 and $85,000, respectively, and were included in Notes receivable, current portion, 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, which was net of the $1.3 million debt issuance discount recorded in connection with the conversion, whereby FSCC issued promissory notes aggregating $7.8 million to the Company (the “FSCC Secondary Notes”). The FSCC Secondary Notes bore interest at a rate of 6.0% per annum and matured in December 2025. FSCC was required to make periodic payments of principal and interest throughout the term of the FSCC Secondary Notes. At December 31, 2022, the FSCC Secondary Notes balance included approximately $49,000 of unpaid accrued interest. The balance at June 30, 2023 did not include accrued interest, as the Company granted FSCC an interest holiday for the six months then ended. The increase in the FSCC Secondary Notes in the six months ended June 30, 2023 was attributable to the accretion of the original debt discount, which increased the value of such notes. At each of June 30, 2023 and December 31, 2022, the current portions of the FSCC Secondary Notes aggregated $2.5 million.
•In December 2022, the Company converted amounts due from FSCC aggregating $750,000 into a note receivable, whereby FSCC issued a promissory note to the Company for $750,000 (the "FSCC New Note"). The FSCC New
Note bore interest at a rate of 6.0% per annum and matured in December 2026. FSCC was required to make quarterly interest payments, with the full amount of principal due on December 31, 2026; however, the Company had granted FSCC an interest holiday for the six months ended June 30, 2023. At each of June 30, 2023 and December 31, 2022, the entire balance of the FSCC New Note was long-term.
•In the second quarter of 2023, the Company converted $879,000 due from FSCC into a note receivable (the "FSCC Second New Note").
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 each of September 30, 2023 and December 31, 2022, approximately $52,000 was current.
Inventory at September 30, 2023 and December 31, 2022 consisted of the following (in thousands):
|Plants||$||3,427 ||$||2,653 |
|Ingredients and other raw materials||4,302 ||3,255 |
|Work-in-process||9,159 ||7,635 |
|Finished goods||7,318 ||5,934 |
|$||24,206 ||$||19,477 |
The Company’s investments at September 30, 2023 and December 31, 2022 were comprised of the following (in thousands):
|Investment – current:|
|WM Technology Inc.||$||161 ||$||123 |
|Investments - non-current:|
| Artis LLC (d/b/a Little Dog)||$||67 ||$||— |
| Investment in Allgreens||97 ||— |
| Total investments - non-current||$||164 ||$||— |
The Company did not have any long-term investments at December 31, 2022.
In connection with the pending acquisition of Allgreens and the management agreement the Company entered into with Allgreens for the interim period prior to the completion of the acquisition (see Note 2), the Company recorded expenses related to Allgreens aggregating $0.1 million for both the three and nine months ended September 30, 2023 as a component of Investments, net of current portion.
Artis LLC (d/b/a Little Dog)
In April, 2023, the Company purchased a 49% interest in Artis LLC, d/b/a Little Dog ("Little Dog"), a cannabis delivery service (the "Little Dog Investment") for $98,000 of cash. The Company recognizes changes in the fair value of the Little Dog Investment based on its proportional share of Little Dog's net income (loss). During the three and nine months ended September 30, 2023, the Company recognized losses in the Little Dog Investment of approximately $22,000 and $31,000, respectively, which are included as components of Other (expense) income, net, in the condensed consolidated statements of operations for the respective periods.
WM Technology Inc.
In February 2022, the Company received 121,968 shares of common stock of WM Technology Inc. (Nasdaq: MAPS) (the "WMT Shares"), a technology and software infrastructure provider to the cannabis industry, which represented the Company’s pro rata share of additional consideration pursuant to a 2021 asset purchase agreement between the Company and Members RSVP LLC. The Company recognized gains of approximately $59,000 and $38,000 in the three and nine months ended September 30, 2023, respectively, reflecting the changes in the fair value of the WMT Shares for the respective periods. The Company recognized losses of $0.2 million and $0.8 million in the three and nine months ended September 30, 2022, respectively, representing the changes in the fair value of the WMT Shares for such periods. Both the losses arising from the changes in the fair value of the WMT Shares and the gain arising from the receipt in February 2022 of the WMT Shares are reported as Other (expense) income, net, in the condensed consolidated statements of operations for the respective periods.
In December 2021, the Company received shares of Flowr Corp. common stock (the "Flowr Stock") arising from the sale of its ownership interest in Terrace Inc., which was sold to Flowr Corp. (TSX.V: FLWR; OTC: FLWPF). The Flowr Stock was 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 $0.1 million and $0.2 million in the three and nine months ended September 30, 2022, respectively, representing the changes in the fair value of the Flowr Stock in the respective periods. In the fourth quarter of 2022, the Company wrote off the remaining fair value of the Flowr Stock as a result of Flowr Corp.'s bankruptcy filing and delisting from the exchange on which its stock was traded.
(8) PROPERTY AND EQUIPMENT, NET
The Company’s property and equipment, net, at September 30, 2023 and December 31, 2022 was comprised of the following (in thousands):
|Land||$||6,446 ||$||4,450 |
|Buildings and building improvements||44,202 ||43,542 |
|Tenant improvements||19,600 ||17,016 |
|Furniture and fixtures||2,079 ||2,009 |
|Machinery and equipment||13,993 ||10,087 |
|Construction in progress||12,321 ||4,761 |
|98,641 ||81,865 |
|Less: accumulated depreciation||(13,446)||(10,224)|
|Property and equipment, net||$||85,195 ||$||71,641 |
The Company recorded depreciation expense related to property and equipment of $1.6 million and $0.9 million in the three months ended September 30, 2023 and 2022, respectively, and $3.8 million and $2.5 million in the nine months ended September 30, 2023 and 2022, respectively.
In the first quarter of 2023, the Company disposed of equipment it had previously purchased in connection with its planned acquisition of The Harvest Foundation LLC ("Harvest") in Nevada as a result of the Company's withdrawal from the agreement to purchase Harvest. The Company recorded a loss on the disposal of assets aggregating $0.9 million, which is included as a component of Other (expense) income, net, in the condensed consolidated statement of operations for the nine months ended September 30, 2023.
(9) INTANGIBLE ASSETS AND GOODWILL
The Company’s acquired intangible assets at September 30, 2023 and December 31, 2022 consisted of the following (in thousands):
|September 30, 2023||Weighted|
|Tradename and trademarks||7.11||$||3,104 ||$||1,076 ||$||2,028 |
|Licenses and customer base||9.15||18,033 ||2,217 ||15,816 |
|Non-compete agreements||2.00||42 ||30 ||12 |
|8.84||$||21,179 ||$||3,323 ||$||17,856 |
|December 31, 2022||Weighted|
|Tradename and trademarks||3.00||$||2,041 ||$||453 ||$||1,588 |
|Licenses and customer base||8.94||13,260 ||675 ||12,585 |
|Non-compete agreements||2.00||42 ||14 ||28 |
|8.13||$||15,343 ||$||1,142 ||$||14,201 |
Estimated future amortization expense for the Company’s intangible assets at September 30, 2023 was as follows:
|Year ending December 31,|
|Remainder of 2023||$||844 |
The changes in the carrying value of the Company’s goodwill in the nine months ended September 30, 2023 and 2022 were as follows (in thousands):
|Balance at January 1,||$||8,079 ||$||2,068 |
|Ermont Acquisition||3,914 ||— |
|Kind Acquisition||— ||6,011 |
|Balance at September 30,||$||11,993 ||$||8,079 |
(10) TERM LOAN
On January 24, 2023, the Company entered into a Loan and Security Agreement, by and among the Company, subsidiaries of the Company from time-to-time party thereto (collectively with the Company, the “Borrowers”), lenders from time-to-time party thereto (the “Lenders”), and Chicago Atlantic Admin, LLC (“Chicago Atlantic”), as administrative agent for the Lenders (the "Credit Agreement").
Proceeds from the Credit Agreement were designated to complete the build-out of a new cultivation and processing facility in Illinois, complete the build-out of a new processing kitchen in Missouri, expand existing cultivation and processing facilities in Massachusetts and Maryland, fund certain capital expenditures, and repay in full the Kind Notes incurred in connection with the Kind Acquisition, which repayment occurred on January 24, 2023 (see Note 11). The remaining balance, if any, was expected to be used to fund acquisitions.
Principal, Security, Interest and Prepayments
The Credit Agreement provides for $35.0 million in principal borrowings at the Borrowers’ option in the aggregate and further provides the Borrowers with the right, subject to customary conditions, to request an additional incremental term loan in the aggregate principal amount of up to $30.0 million, provided that the Lenders elect to fund such incremental term loan. $30.0 million of loan principal was funded at the initial closing (the "Term Loan"), which amount was reduced by an original issuance discount of $0.9 million (the "Original Issuance Discount"). The Company had the option, during the six-month period following the initial closing, to draw down an additional $5.0 million, which it did not elect to do. The loan requires scheduled amortization payments of 1.0% of the principal amount outstanding under the Credit Agreement per month commencing in May 2023, and the remaining principal balance is due in full on January 24, 2026, subject to extension to January 24, 2028 under certain circumstances.
The Credit Agreement provides the Borrowers with the right, subject to specified limitations, to incur (a) seller provided debt in connection with future acquisitions, (b) additional mortgage financing from third-party lenders secured by real estate currently owned and acquired after the closing date, and (c) additional debt in connection with equipment leasing transactions.
The obligations under the Credit Agreement are secured by substantially all of the assets of the Borrowers, excluding specified parcels of real estate and other customary exclusions.
The Credit Agreement provides for a floating annual interest rate equal to the prime rate then in effect plus 5.75%, which rate may be increased by 3.00% upon an event of default or 7.50% upon a material event of default as provided in the Credit Agreement.
At any time, the Company may voluntarily prepay amounts due under the facility in $5.0 million increments, subject to a three-percent prepayment premium and, during the first 20-months of the term, a “make-whole” payment.
Representations, Warranties, Events of Default and Certain Covenants
The Credit Agreement includes customary representations and warranties and customary events of default, including, without limitation, payment defaults, breaches of representations and warranties, covenant defaults, cross-defaults to material indebtedness, and events of bankruptcy and insolvency.
The Credit Agreement also includes customary negative covenants limiting the Borrowers’ ability to incur additional indebtedness and grant liens that are otherwise not permitted, among others. Additionally, the Credit Agreement requires the Borrowers to meet certain financial tests. At September 30, 2023, the Company was in compliance with the Credit Agreement covenants.
The Credit Agreement provided for 30% warrant coverage against amounts funded under the facility, priced at a 20% premium to the trailing 20-day average price on the closing date of each such funding. At the initial closing, upon funding
of the initial $30.0 million under the facility, the Company issued to the Lenders an aggregate of 19,148,936 warrants to purchase shares of the Company’s common stock at $0.47 per share, exercisable for a five-year period following issuance.
The Company recorded the warrants at present value of $5.5 million as a component of Additional paid-in capital on the condensed consolidated balance sheet as of January 24, 2023, and discounted the Term Loan by $5.5 million (the "Warrant Discount"). The Warrant Discount is being amortized to interest expense over the term of the Credit Agreement.
Prepaid Debt Issuance Costs
The Company incurred $1.8 million of third party costs (i.e., legal fees, referral fees, etc.) in connection with the Term Loan, which have been recorded as a discount to the Term Loan (the "Third-Party Costs Discount"), which is being amortized to interest expense over the term of the Credit Agreement.
The Company recorded $0.7 million and $1.9 million of aggregate interest amortization for the three and nine months ended September 30, 2023, respectively, related to the Original Issuance Discount, Warrant Discount and Third-Party Costs Discount.
At September 30, 2023, the outstanding Term Loan balance reported on the Company's condensed consolidated balance sheet was $22.5 million, with the current portion totaling $3.6 million.
(11) MORTGAGES AND NOTES PAYABLE
The Company’s mortgages and notes payable are reported in the aggregate on the condensed consolidated balance sheets under the captions Mortgages and notes payable, current portion, and Mortgages and notes payable, net of current portion.
The Company’s mortgage balances at September 30, 2023 and December 31, 2022 were comprised of the following (in thousands):
|Bank of New England – New Bedford, MA and Middleboro, MA properties||$||12,248 ||$||12,141 |
|Bank of New England – Wilmington, DE property||1,382 ||1,345 |
|DuQuoin State Bank – Anna, IL and Harrisburg, IL properties||752 |