10-Q 1 plth_10q.htm FORM 10-Q plth_10q.htm

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

________________________________

 

FORM 10-Q

________________________________

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

 

For the quarterly period ended September 30, 2022

 

 

 

OR

 

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from ________ to ________

 

Commission File Number: 000-566374

 ________________________________

 

 PLANET 13 HOLDINGS INC. 

(Exact name of Registrant as Specified in its Charter) 

 

British Columbia

 

83-2787199

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

 

 

 

2548 West Desert Inn Road, Suite 100 

Las Vegas, Nevada 89109 

 

89109

(Address of principal executive offices)

 

(Zip Code)

 

Registrant’s telephone number, including area code: (702) 815-1313 

 

Securities registered pursuant to Section 12(b) of the Act: None

 

Securities registered pursuant to Section 12(g) of the Act: Common Shares

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒     No ☐

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒     No ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

Accelerated filer

Non-accelerated Filer

Smaller reporting company

Emerging growth company

 

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes      No ☒

 

As of November 10, 2022, there were 220,227,361 Common Shares outstanding.

 

 

 

 

Planet 13 Holdings Inc.

Quarterly Report on Form 10-Q

For Quarterly Period Ended September 30, 2022

 

Table of Contents

 

 

 

 

Page

 

PART I

FINANCIAL INFORMATION

 

 

 

Item 1.

Financial Statements.

 

5

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations.

 

26

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk.

 

35

 

Item 4.

Controls and Procedures.

 

35

 

 

 

 

 

 

PART II

OTHER INFORMATION

 

 

 

Item 1.

Legal Proceedings.

 

36

 

Item 1A.

Risk Factors.

 

36

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds.

 

36

 

Item 3.

Defaults Upon Senior Securities.

 

36

 

Item 4.

Mine Safety Disclosures.

 

36

 

Item 5.

Other Information.

 

36

 

Item 6.

Exhibits.

 

37

 

SIGNATURES

 

38

 

 

 
2

 

  

USE OF NAMES AND CURRENCY

 

In this Quarterly Report on Form 10-Q, unless the context otherwise requires, the terms “we,” “us,” “our,” “Company,” or “Planet 13” refer to Planet 13 Holdings Inc. together with its wholly-owned subsidiaries.

 

Unless otherwise indicated, all references to “$,” “US$” or “USD” in this Quarterly Report on Form 10-Q refer to United States dollars, and all references to “C$” or “CAD” refer to Canadian dollars.

 

IMPLICATIONS OF BEING AN EMERGING GROWTH COMPANY

 

As a company with less than $1.07 billion in revenue during our most recently completed fiscal year, we qualify as an “emerging growth company” as defined in Section 2(a) of the Securities Act of 1933, as amended, which we refer to as the “Securities Act,” as modified by the Jumpstart Our Business Startups Act of 2012, or the “JOBS Act.” As an emerging growth company, we may take advantage of specified reduced disclosure and other exemptions from requirements that are otherwise applicable to public companies that are not emerging growth companies. These provisions include:

 

 

·

Reduced disclosure about our executive compensation arrangements;

 

 

 

 

·

Exemptions from non-binding shareholder advisory votes on executive compensation or golden parachute; and

 

 

 

 

·

Exemption from auditor attestation requirement in the assessment of our internal control over financial reporting.

 

We may take advantage of these exemptions for up to five years or such earlier time that we are no longer an emerging growth company. We would cease to be an emerging growth company if we had more than $1.07 billion in annual revenues as of the end of a fiscal year, if we are deemed to be a large accelerated filer under the rules of the Securities and Exchange Commission the (“SEC”) or if we issued more than $1.0 billion of non-convertible debt over a three-year period.

 

In addition, the JOBS Act provides that an emerging growth company can take advantage of an extended transition period for complying with new or revised accounting standards. This provision allows an emerging growth company to delay the adoption of some accounting standards until those standards would otherwise apply to private companies. We have elected to use this extended transition period for complying with new or revised accounting standards that have different effective dates for public and private companies until the earlier of the date we (i) are no longer an emerging growth company or (ii) affirmatively and irrevocably opt out of the extended transition period provided in the JOBS Act.

 

 
3

Table of Contents

 

DISCLOSURES REGARDING FORWARD-LOOKING STATEMENTS

 

This Quarterly Report on Form 10-Q includes “forward-looking information” and “forward-looking statements” within the meaning of applicable Canadian securities laws and United States securities laws. All information, other than statements of historical facts, included in this Quarterly Report on Form 10-Q that addresses activities, events or developments that we expect or anticipate will or may occur in the future is forward-looking information. Forward-looking information is often identified by the words “may,” “would,” “could,” “should,” “will,” “intend,” “plan,” “anticipate,” “believe,” “estimate,” “expect” or similar expressions and may include, among others, information regarding: the anticipated benefits of the March 2, 2022 acquisition of Next Green Wave Holdings Inc. (“NGW”), including the corporate, operational and financial benefits, our strategic plans and expansion and expectations regarding the growth of the California cannabis market; statements relating to the business and future activities of, and developments related to, us after the date of this Quarterly Report on Form 10-Q, including such things as future business strategy, competitive strengths, goals, expansion and growth of our business, operations and plans, new revenue streams, the completion by us of contemplated acquisitions of additional real estate, cultivation and licensing assets, the roll out of new dispensaries, the application for additional licenses and the grant of licenses or renewals of existing licenses that have been applied for, the expansion of existing cultivation and production facilities, the completion of cultivation and production facilities that are under construction, the construction of additional cultivation and production facilities, the expansion into additional U.S. markets, any potential future legalization of adult-use and/or medical cannabis under U.S. federal law; expectations of market size and growth in the United States and the states in which we operate or contemplate future operations; expectations for other economic, business, regulatory and/or competitive factors related to us or the cannabis industry generally; and other events or conditions that may occur in the future.

 

Readers are cautioned that forward-looking information and statements are not based on historical facts but instead are based on reasonable assumptions and estimates of our management at the time they were provided or made and involve known and unknown risks, uncertainties and other factors which may cause our actual results, performance or achievements, as applicable, to be materially different from any future results, performance or achievements expressed or implied by such forward-looking information and statements. Such factors include, among others our actual financial position and results of operations differing from management’s expectations; our business model; a lack of business diversification; increasing competition in the industry; public opinion and perception of the cannabis industry; expected significant costs and obligations; current reliance on limited jurisdictions; development of our business; access to capital; risks relating to the management of growth; risks inherent in an agricultural business; risks relating to energy costs; risks related to research and market development; risks related to breaches of security at our facilities; reliance on suppliers; risks relating to the concentrated voting control of the Company; risks related to our being a holding company; risks related to service providers withdrawing or suspending services under threat of prosecution; risks related to proprietary intellectual property and potential infringement by third parties; risks of litigation relating to intellectual property; negative clinical trial results; insurance related risks; risk of litigation generally; risks associated with cannabis products manufactured for human consumption, including potential product recalls; risks relating to being unable to attract and retain key personnel; risks relating to obtaining and retaining relevant licenses; risks relating to integration of acquired businesses; risks related to quantifying our target market; risks related to industry growth and consolidation; fraudulent activity by employees, contractors and consultants; cyber-security risks; conflicts of interest; risks related to reputational damage in certain circumstances; leased premises risks; risks related to the COVID-19 pandemic; U.S. regulatory landscape and enforcement related to cannabis, including political risks; heightened scrutiny by Canadian regulatory authorities; risks related to capital raising due to heightened regulatory scrutiny; risks related to tax liabilities; risks related to U.S. state and local law regulations; risks related to access to banks and credit card payment processors; risks related to potential violation of laws by banks and other financial institutions; ability and constraints on marketing products; risks related to lack of U.S. federal trademark and patent protection; risks related to the enforceability of contracts; the limited market for our securities; difficulty for U.S. holders of Common Shares to resell over the Canadian Securities Exchange ; price volatility of Common Shares; uncertainty regarding legal and regulatory status and changes; risks related to legislation and cannabis regulation in the states in which we operate or contemplate future operations; future sales by shareholders; no guarantee regarding use of available funds; currency fluctuations; risks related to entry into the U.S; and other factors beyond our control, as more particularly described under the heading “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2021.

 

Readers are cautioned that the foregoing list is not exhaustive of all factors and assumptions which may have been used. Although we have attempted to identify important factors that could cause actual results to differ materially, there may be other factors that cause results not to be as anticipated, estimated or intended. There can be no assurance that such forward-looking information and statements will prove to be accurate as actual results and future events could differ materially from those anticipated in such information and statements. Accordingly, readers should not place undue reliance on forward-looking information and statements. The forward-looking information and statements contained herein are presented for the purposes of assisting readers in understanding our expected financial and operating performance and our plans and objectives and may not be appropriate for other purposes.

 

The forward-looking information and statements contained in this Quarterly Report on Form 10-Q represent our views and expectations as of the date of this Quarterly Report on Form 10-Q. We anticipate that subsequent events and developments may cause our views to change. However, while we may elect to update such forward-looking information and statements at a future time, we have no current intention of doing so except to the extent required by applicable law.

 

 
4

Table of Contents

 

PART I—FINANCIAL INFORMATION

 

Item 1. Financial Statements.

 

PLANET 13 HOLDINGS INC.

Interim Condensed Consolidated Balance Sheets

(Unaudited, In United States Dollars)

 

 

 

 September 30,

 

 

December 31,

 

 

 

2022

 

 

2021

 

ASSETS

 

Current Assets:

 

 

 

 

 

 

Cash

 

$50,876,087

 

 

$61,588,843

 

Accounts Receivable

 

 

1,227,275

 

 

 

1,216,128

 

Inventory

 

 

13,471,123

 

 

 

14,225,369

 

Prepaid Expenses and Other Current Assets

 

 

3,056,579

 

 

 

3,977,524

 

 

 

 

 

 

 

 

 

 

Total Current Assets

 

 

68,631,064

 

 

 

81,007,864

 

 

 

 

 

 

 

 

 

 

Property and Equipment

 

 

73,489,138

 

 

 

50,778,277

 

Intangible Assets

 

 

81,738,007

 

 

 

63,398,007

 

Goodwill

 

 

17,583,460

 

 

 

-

 

Right of Use Assets - Operating

 

 

20,743,087

 

 

 

20,399,965

 

Long-term Deposits and Other Assets

 

 

1,019,630

 

 

 

1,061,879

 

Deferred Tax Asset

 

 

206,421

 

 

 

162,804

 

 

 

 

 

 

 

 

 

 

TOTAL ASSETS

 

$263,410,807

 

 

$216,808,796

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

 

LIABILITIES

 

 

 

 

 

 

 

 

Current Liabilities:

 

 

 

 

 

 

 

 

Accounts Payable

 

$3,034,170

 

 

$3,266,783

 

Accrued Expenses

 

 

5,990,412

 

 

 

7,032,620

 

Income Taxes Payable

 

 

147,323

 

 

 

1,126,249

 

Notes Payable - Current Portion

 

 

884,000

 

 

 

884,000

 

Operating Lease Liabilities

 

 

448,232

 

 

 

423,573

 

 

 

 

 

 

 

 

 

 

Total Current Liabilities

 

 

10,504,137

 

 

 

12,733,225

 

 

 

 

 

 

 

 

 

 

Long-Term Liabilities:

 

 

 

 

 

 

 

 

Operating Lease Liabilities

 

 

25,177,758

 

 

 

23,134,012

 

Warranty Liability

 

 

200,482

 

 

 

7,206,049

 

Other Long-term Liabilities

 

 

28,000

 

 

 

28,000

 

 

 

 

 

 

 

 

 

 

Total Liabilities

 

 

35,910,377

 

 

 

43,101,286

 

 

 

 

 

 

 

 

 

 

Shareholders’ Equity

 

 

 

 

 

 

 

 

Common Shares, no par value, unlimited Common Shares authorized, 220,146,277 issued and outstanding

at September 30, 2022 and 198,687,950 at December 31, 2021

 

 

-

 

 

 

-

 

Additional Paid-In Capital

 

 

310,010,745

 

 

 

245,861,704

 

Retained Earnings (Deficit)

 

 

(82,510,315 )

 

 

(72,154,194 )

Total Shareholders’ Equity

 

 

227,500,430

 

 

 

173,707,510

 

 

 

 

 

 

 

 

 

 

TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY

 

$263,410,807

 

 

$216,808,796

 

 

On behalf of the Board:

 

Michael Harman

Adrienne O’Neal

 

/s/ Michael Harman

/s/ Adrienne O’Neal

 

Director

Director

 

 

 
5

Table of Contents

 

PLANET 13 HOLDINGS INC.

Interim Condensed Consolidated Statements of Operations and Comprehensive Loss

(Unaudited, in United States Dollars)

 

 

 

 Three Months Ended

 

 

Nine Months Ended

 

 

 

 September 30,  

 

 

 September 30,

 

 

 

2022

 

 

2021

 

 

 2022

 

 

 2021

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenues, net of discounts

 

$25,623,217

 

 

$32,952,254

 

 

$79,729,842

 

 

$89,612,050

 

Cost of Goods Sold

 

 

(15,064,315 )

 

 

(15,208,926 )

 

 

(42,445,429 )

 

 

(39,827,876 )

Gross Profit

 

 

10,558,902

 

 

 

17,743,328

 

 

 

37,284,413

 

 

 

49,784,174

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

General and Administrative

 

 

11,309,955

 

 

 

19,825,147

 

 

 

36,807,699

 

 

 

44,185,685

 

Sales and Marketing

 

 

938,269

 

 

 

1,959,579

 

 

 

2,428,947

 

 

 

4,162,934

 

Lease Expense

 

 

723,955

 

 

 

673,880

 

 

 

1,984,252

 

 

 

1,934,138

 

Depreciation

 

 

1,978,403

 

 

 

1,376,521

 

 

 

5,982,392

 

 

 

3,325,524

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Expenses

 

 

14,950,582

 

 

 

23,835,127

 

 

 

47,203,290

 

 

 

53,608,281

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loss From Operations

 

 

(4,391,680 )

 

 

(6,091,799 )

 

 

(9,918,877 )

 

 

(3,824,107 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other Income (Expense):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest income (expense), net

 

 

121,285

 

 

 

(6,996 )

 

 

193,896

 

 

 

(23,698 )

Foreign exchange gain (loss)

 

 

(1,834

)

 

 

79,688

 

 

 

(23,000

 

 

1,805,953

 

Transaction costs

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(256,666 )

Change in fair value of warrant liability

 

 

197,721

 

 

 

6,522,787

 

 

 

6,992,955

 

 

 

(2,728,386 )

Other Income, net

 

 

41,487

 

 

 

152,466

 

 

 

270,254

 

 

 

338,890

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Other Income

 

 

358,659

 

 

 

6,747,945

 

 

 

7,434,105

 

 

 

(863,907 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income (Loss) Before Provision for Income Taxes

 

 

(4,033,021 )

 

 

656,146

 

 

 

(2,484,772 )

 

 

(4,688,014 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Provision For Income Taxes

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current Tax Expense

 

 

(2,238,493 )

 

 

(3,601,094 )

 

 

(7,914,966 )

 

 

(10,046,821 )

Deferred Tax Recovery

 

 

15,989

 

 

 

203,273

 

 

 

43,617

 

 

 

414,013

 

 

 

 

(2,222,504 )

 

 

(3,397,821 )

 

 

(7,871,349 )

 

 

(9,632,808 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loss and Comprehensive Loss for the Period

 

$(6,255,525 )

 

$(2,741,675 )

 

$(10,356,121 )

 

$(14,320,822 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loss per Share

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic and diluted loss per share

 

$(0.03 )

 

$(0.01 )

 

$(0.05 )

 

$(0.07 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted Average Number of Common Shares

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic and diluted

 

 

220,146,277

 

 

 

196,292,786

 

 

 

215,321,796

 

 

 

194,576,544

 

 

 
6

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PLANET 13 HOLDINGS INC.

Interim Condensed Consolidated Statements of Changes in Shareholders’ Equity

(Unaudited, in United States Dollars, except Share Amounts)

 

 

 

Number of

 

 

 

 

 

 

 

 

 

 

 

 

Common

Shares

 

 

Class A Restricted Shares

 

 

Warrants

 

 

Additional

Paid-in

Capital

 

 

Accumulated Deficit

 

 

Total Shareholders’ Equity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, January 1, 2021

 

 

126,573,250

 

 

 

55,232,940

 

 

 

150,963

 

 

$159,399,056

 

 

$(52,693,242 )

 

$106,705,814

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shares Issued on Conversion of Class A Restricted Shares

 

 

55,232,940

 

 

 

(55,232,940 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shares Issued on Settlement of RSUs

 

 

915,803

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Share Based Compensation - RSUs

 

 

-

 

 

 

-

 

 

 

-

 

 

 

12,208,463

 

 

 

-

 

 

 

12,208,463

 

Shares Issued on Exercise of Broker Warrants

 

 

446,801

 

 

 

-

 

 

 

(446,801 )

 

 

2,163,065

 

 

 

-

 

 

 

2,163,065

 

Shares Issued on Exercise of Other Warrants

 

 

3,312,139

 

 

 

-

 

 

 

-

 

 

 

20,868,784

 

 

 

-

 

 

 

20,868,784

 

Shares Issued on Exercise of Options

 

 

121,336

 

 

 

-

 

 

 

-

 

 

 

86,216

 

 

 

-

 

 

 

86,216

 

Share Based Compensation - Options

 

 

-

 

 

 

-

 

 

 

-

 

 

 

3,104

 

 

 

-

 

 

 

3,104

 

Shares Issued on Bought Deal Financings, net

 

 

9,861,250

 

 

 

-

 

 

 

591,676

 

 

 

47,729,735

 

 

 

-

 

 

 

47,729,735

 

Loss for the Period

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(14,320,822 )

 

 

(14,320,822 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, September 30, 2021

 

 

196,463,519

 

 

 

-

 

 

 

295,838

 

 

$242,458,423

 

 

$(67,014,064 )

 

$175,444,359

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, January 1, 2022

 

 

198,687,950

 

 

 

-

 

 

 

295,838

 

 

 

245,861,704

 

 

 

(72,154,194 )

 

 

173,707,510

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Share Based Compensation - RSUs

 

 

-

 

 

 

-

 

 

 

-

 

 

 

6,154,338

 

 

 

-

 

 

 

6,154,338

 

Shares Issued on Acquisition

 

 

21,361,002

 

 

 

-

 

 

 

-

 

 

 

56,656,905

 

 

 

-

 

 

 

56,656,905

 

Replacement Options issued on Acquisition

 

 

-

 

 

 

-

 

 

 

-

 

 

 

1,239,818

 

 

 

-

 

 

 

1,239,818

 

Shares Issued on Exercise of Options

 

 

97,325

 

 

 

 -

 

 

 

 -

 

 

 

97,980

 

 

 

-

 

 

 

97,980

 

Loss for the Period

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(10,356,121 )

 

 

(10,356,121 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, September 30, 2022

 

 

220,146,277

 

 

 

-

 

 

 

295,838

 

 

$310,010,745

 

 

$(82,510,315 )

 

$227,500,430

 

 

 
7

Table of Contents

 

PLANET 13 HOLDINGS INC.

Interim Condensed Consolidated Statements of Cash Flows

(Unaudited, In U.S. Dollars)

 

 

 

Nine Months Ended

 

 

 

September 30,

2022

 

 

September 30,

2021

 

CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES

 

 

 

 

 

 

Net loss

 

$(10,356,121 )

 

$(14,320,822 )

Adjustments for items not involving cash:

 

 

 

 

 

 

 

 

Shared based compensation expense

 

 

6,154,338

 

 

 

12,211,567

 

Non-cash lease expense

 

 

3,364,265

 

 

 

3,332,858

 

Depreciation

 

 

8,156,634

 

 

 

4,725,546

 

Amortization of lease incentive

 

 

(238,469 )

 

 

-

 

Change in fair value of warrant liability

 

 

(6,992,955 )

 

 

2,728,386

 

Loss on translation of warrant liability

 

 

(12,612 )

 

 

48,924

 

Loss on disposal of fixed assets

 

 

4,048

 

 

 

-

 

Transaction costs

 

 

-

 

 

 

256,666

 

Deferred tax liability

 

 

-

 

 

 

(414,013 )

Proceeds from lease incentive

 

 

1,100,000

 

 

 

-

 

Unrealized gain (loss) on foreign currency exchange

 

 

-

 

 

 

(35,558 )

 

 

 

1,179,127

 

 

 

8,533,554

 

 

 

 

 

 

 

 

 

 

Net Changes in Non-cash Working Capital Items

 

 

3,800,775

 

 

 

(6,290,402 )

Repayment of lease liabilities

 

 

(2,645,471 )

 

 

(2,469,078 )

Total Operating

 

 

2,334,432

 

 

 

(225,926 )

 

 

 

 

 

 

 

 

 

FINANCING ACTIVITIES

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Proceeds from private placements

 

 

-

 

 

 

53,852,980

 

Proceeds from exercise of warrants and options

 

 

97,980

 

 

 

14,162,689

 

Financing issuance expenses

 

 

-

 

 

 

(3,494,930 )

Total Financing

 

 

97,980

 

 

 

64,520,739

 

 

 

 

 

 

 

 

 

 

INVESTING ACTIVITIES

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Purchase of property, plant and equipment

 

 

(14,642,193 )

 

 

(14,560,627 )

Purchase of licenses

 

 

-

 

 

 

(258,060 )

Proceeds on disposal of property & equipment

 

 

 -

 

 

 

194,214

 

Cash acquired through NGW acquisition

 

 

1,493,922

 

 

 

-

 

Total Investing

 

 

(13,148,271 )

 

 

(14,624,473)

 

 

 

 

 

 

 

 

 

Effect of foreign exchange on cash

 

 

3,103

 

 

 

23,118

 

 

 

 

 

 

 

 

 

 

NET CHANGE IN CASH DURING THE PERIOD

 

 

(10,712,756 )

 

 

49,693,458

 

 

 

 

 

 

 

 

 

 

CASH

 

 

 

 

 

 

 

 

Beginning of Period

 

 

61,588,843

 

 

 

79,000,850

 

 

 

 

 

 

 

 

 

 

End of Period

 

$50,876,087

 

 

$128,694,308

 

 

 
8

Table of Contents

  

PLANET 13 HOLDINGS INC.

Notes to the Interim Condensed Consolidated Financial Statements

(Unaudited, in United States Dollars, except share amounts)

 

1. Nature of Operations

 

Planet 13 Holdings Inc. (“Planet 13” or the “Company”) was incorporated under the Canada Business Corporations Act on April 26, 2002 and continued under the British Columbia Business Corporations Act on September 24, 2019.

 

The Company is a vertically integrated cultivator and provider of cannabis and cannabis-infused products that is licensed under the laws of the States of Nevada, California, and Florida, and is a licensed retailer for cannabis and cannabis infused products in Illinois. The Company is licensed in these jurisdictions as follows: six Nevada cultivation licenses (three medical and three adult-use), six Nevada production licenses (three medical and three adult-use), three Nevada dispensary licenses (one medical and two adult-use), one Nevada distribution license, one California adult-use dispensary license, one California distribution license, one Florida Medical Marijuana Treatment Center license (unlimited medical dispensary, cultivation, and processing facilities), and one Illinois conditional adult-use dispensary license. On March 2, 2022, by way of acquisition and in addition to the licenses listed above, the Company added three California cultivation licenses (one medical and two adult-use), one California cultivation nursery license, one California distribution license, one California license for adult-use manufacture, and one pending California license for adult-use cultivation processing. On July 12, 2022, the California Department of Cannabis Control approved the Company’s cultivation processing license.

 

Planet 13 is a public company which is listed on the Canadian Securities Exchange (“CSE”) under the symbol PLTH and on the OTCQX exchange under the symbol “PLNHF”.

 

The Company’s registered office is located at 595 Howe Street, 10th Floor, Vancouver, BC V6C 2T5 and the head office address is 2548 W. Desert Inn Road, Las Vegas, NV 89109.

 

While cannabis and CBD-infused products are legal under the laws of several U.S. states (with varying restrictions applicable), the United States Federal Controlled Substances Act classifies all “marijuana” as a Schedule I drug, whether for medical or recreational use. Under U.S. federal law, a Schedule I drug or substance has a high potential for abuse, no accepted medical use in the United States, and a lack of safety for use under medical supervision.

 

The federal government currently is prohibited from prosecuting businesses that operate in compliance with applicable state and local medical cannabis laws and regulations; however, this does not protect adult use cannabis. In addition, if the federal government changes this position, it would be financially detrimental to the Company.

 

2. Basis of Presentation

 

These unaudited interim condensed consolidated financial statements reflect the accounts of the Company and have been prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”) and pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”) for all periods presented. Certain information and footnote disclosures normally included in the audited annual consolidated financial statements prepared in accordance with GAAP have been omitted or condensed. The information included in these unaudited interim condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements for the year ended December 31, 2021. These unaudited interim condensed consolidated financial statements reflect all adjustments (consisting of normal recurring adjustments), which, in the opinion of management, are necessary for the fair presentation of the results for the interim periods presented. Interim results are not necessarily indicative of results for a full year.

 

These unaudited interim condensed consolidated financial statements have been prepared on a going concern basis, which assumes that the Company will continue in operation for the foreseeable future and, accordingly, will be able to realize its assets and discharge its liabilities in the normal course of operations as they come due.

 

Failure to arrange adequate financing on acceptable terms and/or achieve profitability may have an adverse effect on the financial position, results of operations, cash flows and prospects of the Company. These unaudited interim condensed consolidated financial statements do not give effect to adjustments to assets or liabilities that would be necessary should the Company be unable to continue as a going concern. Such adjustments could be material. These unaudited interim condensed consolidated financial statements are presented in U.S. dollars, which is also the Company’s and its subsidiaries’ functional currency.

 

These consolidated financial statements were authorized for issuance by the Board of Directors of the Company on November 10, 2022. 

 

 
9

Table of Contents

 

PLANET 13 HOLDINGS INC.

Notes to the Interim Condensed Consolidated Financial Statements

(Unaudited, in United States Dollars, except share amounts)

 

i)

Basis of consolidation

 

The accompanying consolidated financial statements include the accounts of the Company and all subsidiaries. Subsidiaries are entities in which the Company has a controlling voting interest or is the primary beneficiary of a variable interest entity. Subsidiaries are fully consolidated from the date control is transferred to the Company and are deconsolidated from the date control ceases. All intercompany accounts and transactions have been eliminated upon consolidation. The consolidated financial statements include all the assets, liabilities, revenues, expenses and cash flows of the Company and its subsidiaries after eliminating intercompany balances and transactions.

 

These consolidated financial statements include the accounts of the Company and the following entities which are subsidiaries of the Company:

 

Subsidiaries as at

September 30, 2022

 

Jurisdiction of Incorporation

 

Ownership Interest 2022

 

 

Ownership Interest 2021

 

 

Nature of Business

 

 

 

 

 

 

 

 

 

 

 

 

 

MM Development Company, Inc. (“MMDC”)

 

Nevada, USA

 

 

100

%

 

 

100

%

 

NV license holding company; vertically integrated cannabis operations

 

BLC Management Company LLC

 

Nevada, USA

 

 

100

%

 

 

100

%

 

Holding company

 

LBC CBD LLC (“LBC”)

 

Nevada, USA

 

 

100

%

 

 

100

%

 

CBD retail sales and marketing

 

Newtonian Principles Inc.

 

California, USA

 

 

100

%

 

 

100

%

 

CA license holding company; cannabis retail sales

 

Crossgate Capital U.S. Holdings Corp.

 

Nevada, USA

 

 

100

%

 

 

0

%

 

Holding company

 

Next Green Wave, LLC

 

California, USA

 

 

100

%

 

 

0

%

 

CA license holding company; cannabis cultivation and processing

 

Planet 13 Illinois, LLC

 

Illinois, USA

 

 

49

%

 

 

49

%

 

IL license holding company

 

BLC NV Food, LLC

 

Nevada, USA

 

 

100

%

 

 

100

%

 

Holding company

 

By The Slice, LLC

 

Nevada, USA

 

 

100

%

 

 

100

%

 

Food retailing

 

Planet 13 Chicago, LLC

 

Illinois, USA

 

 

100

%

 

 

100

%

 

Holding company

 

Planet 13 Florida, Inc.

 

Florida, USA

 

 

100

%

 

 

100

%

 

FL license holding company

 

Club One Three, LLC

 

Nevada, USA

 

 

100

%

 

 

N/A

 

 

Inactive

 

 

ii)

Functional currency

 

The Company’s functional currency is the Unites States dollar (“USD”), and management has chosen to present these unaudited interim condensed consolidated financial statements in USD. The functional currency of the Company’s subsidiaries is USD. All amounts are presented in USD values unless otherwise stated.

 

Canadian currency transactions are translated into USD at exchange rates in effect on the date of the transaction. Monetary assets and liabilities denominated in Canadian dollars (“CAD”) are translated to USD at the foreign exchange rate applicable at the end of each reporting period.

 

Realized and unrealized foreign exchange gains and losses are recognized in the unaudited interim condensed consolidated statements of operations and comprehensive loss. Non-monetary assets and liabilities that are measured in terms of historical cost in CAD are translated using the exchange rate at the date of the transaction.

 

 
10

Table of Contents

 

PLANET 13 HOLDINGS INC.

Notes to the Interim Condensed Consolidated Financial Statements

(Unaudited, in United States Dollars, except share amounts)

 

iii)

Emerging growth company

 

The Company is an “Emerging Growth Company”, as defined in Section 2(a) of the Securities Act of 1933, as amended (the “Securities Act”), as modified by the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”), and it has taken advantage of certain exemptions that are not applicable to other public companies that are not emerging growth companies including, but not limited to, not being required to comply with the independent registered public accounting firm attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in its periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved.

 

Further, Section 102(b)(1) of the JOBS Act exempts emerging growth companies from being required to comply with new or revised financial accounting standards until private companies (that is, those that have not has a Securities Act registration statement declared effective or do not have a class of securities registered under the Exchange Act) are required to comply with the new or revised financial reporting standards. The JOBS Act provides that a company can elect to opt out of the extended transition period and comply with the requirements that apply to non-emerging growth companies but any such election to opt out is irrevocable. The Company has elected not to opt out of such extended transition period which means that when a standard is issued or revised and it has different application dates for public and private companies, the Company, as an emerging growth company, can adopt the new or revised standard at the time private companies adopt the new or revised standard.

 

iv)

Business Combinations and Goodwill

 

The Company accounts for business combinations using the acquisition method in accordance with ASC 805, Business Combinations, which requires recognition of assets acquired and liabilities assumed, including contingent assets and liabilities, at their respective fair values on the date of acquisition. Any excess of the purchase consideration over the net fair value of tangible and identified intangible assets acquired less liabilities assumed is recorded as goodwill. The costs of business acquisitions, including fees for accounting, legal, professional consulting and valuation specialists, are expensed as incurred within general and administrative expenses. Purchase price allocations may be preliminary and, during the measurement period not to exceed one year from the date of acquisition, changes in assumptions and estimates that result in adjustments to the fair value of assets acquired and liabilities assumed are recorded in the period the adjustments are determined.

 

The estimated fair value of acquired assets and assumed liabilities are determined primarily using a discounted cash flow approach, with estimated cash flows discounted at a rate that the Company believes a market participant would determine to be commensurate with the inherent risks associated with the asset and related estimated cash flow streams.

 

3. Inventory

 

Finished goods inventory consists of dried cannabis, concentrates, edibles, and other products that are complete and available for sale (both internally generated inventory and third-party products purchased in the wholesale market). Work in process inventory consists of cannabis after harvest, in the processing stage. Packaging and miscellaneous consist of consumables for use in the transformation of biological assets and other inventory used in production of finished goods. The Company’s inventory is comprised of:

 

 

 

September 30,

 

 

December 31,

 

 

 

2022

 

 

2021

 

 

 

 

 

 

 

 

Raw materials

 

$4,526,255

 

 

$3,093,646

 

Packaging and miscellaneous

 

 

1,686,670

 

 

 

1,825,514

 

Work in progress

 

 

2,139,114

 

 

 

2,883,955

 

Finished goods

 

 

5,119,084

 

 

 

6,422,254

 

 

 

$13,471,123

 

 

$14,225,369

 

 

Cost of Inventory is recognized as an expense when sold and included in the cost of goods sold. During the three and nine months ended September 30, 2022, the Company recognized $15,064,315 and $42,445,429 (2021 - $15,208,926 and $39,827,876) of inventory expensed to cost of goods sold.

 

 
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Table of Contents

   

PLANET 13 HOLDINGS INC.

Notes to the Interim Condensed Consolidated Financial Statements

(Unaudited, in United States Dollars, except share amounts)

  

4. Prepaid Expenses and Other Current Assets

 

 

 

September 30,

 

 

December 31,

 

 

 

2022

 

 

2021

 

 

 

 

 

 

 

 

Security deposits

 

$781,143

 

 

$2,287,596

 

Advertising and Marketing

 

 

-

 

 

 

306,415

 

Prepaid rent

 

 

234,944

 

 

 

218,599

 

Insurance

 

 

556,290

 

 

 

804,608

 

License fees

 

 

823,858

 

 

 

36,008

 

Miscellaneous

 

 

660,344

 

 

 

324,298

 

 

 

$3,056,579

 

 

$3,977,524

 

 

5. Property and Equipment

 

 

 

Land and

 

 

 

 

 

 

 

 

Leasehold

 

 

Construction

 

 

 

 

 

 

Improvements

 

 

Buildings

 

 

Equipment

 

 

Improvements

 

 

in Progress

 

 

Total

 

Gross carrying amount

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

At December 31, 2021

 

$630,299

 

 

$1,707,894

 

 

$11,105,241

 

 

$54,718,371

 

 

$127,680

 

 

$68,289,485

 

Additions

 

 

5,808,295

 

 

 

12,552,755

 

 

 

1,471,663

 

 

 

1,798,279

 

 

 

9,240,551

 

 

 

30,871,543

 

Transfers

 

 

-

 

 

 

-

 

 

 

-

 

 

6,114,711

 

 

 

(6,114,711 )

 

 

-

Disposals

 

 

 -

 

 

 

 -

 

 

 

 (8,786

 

 

 -

 

 

 

-

 

 

 

 (8,786

)

At September 30, 2022

 

$6,438,594

 

 

$14,260,649

 

 

$12,568,118

 

 

$62,631,361

 

 

$3,253,520

 

 

$99,152,242

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Depreciation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

At December 31, 2021

 

$179,297

 

 

$246,447

 

 

$3,801,166

 

 

$13,284,298

 

 

$-

 

 

$17,511,208

 

Additions

 

 

39,169

 

 

 

215,084

 

 

 

1,884,871

 

 

 

6,017,510

 

 

 

-

 

 

 

8,156,634

 

Transfers

 

 

-

 

 

 

-

 

 

 

-

 

 

-

 

 

 

-

 

 

 

-

Disposals

 

 

 -

 

 

 

 -

 

 

 

 (4,738

 

 

 -

 

 

 

 -

 

 

 

 (4,738

)

At September 30, 2022

 

$218,466

 

 

$461,531

 

 

$5,681,299

 

 

$19,301,808

 

 

$-

 

 

$25,663,104

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Carrying amount

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

At December 31, 2021

 

$451,002

 

 

$1,461,447

 

 

$7,304,075

 

 

$41,434,073

 

 

$127,680

 

 

$50,778,277

 

At September 30, 2022

 

$6,220,128

 

 

$13,799,118

 

 

$6,886,819

 

 

$43,329,553

 

 

$3,253,520

 

 

$73,489,138

 

 

As at September 30, 2022, costs related to construction of facilities were capitalized as construction in progress and not depreciated. Once construction is completed, the construction in progress balance is moved to the appropriate fixed asset account and depreciation commences. The contractual construction commitment as of September 30, 2022 was $1,509,641 (December 31, 2021 - $nil).

 

 
12

Table of Contents

  

PLANET 13 HOLDINGS INC.

Notes to the Interim Condensed Consolidated Financial Statements

(Unaudited, in United States Dollars, except share amounts)

 

For the nine months ended September 30, 2022, depreciation expense was $8,156,634 (2021 - $4,725,546) of which $2,174,242 (2021 - $1,400,022) was included in cost of goods sold.

 

During the nine months ended September 30, 2022, the Company transferred $6,114,711 in gross asset value construction in progress to leasehold improvements.

 

6. Intangible Assets

 

 

 

Retail Dispensary Santa Ana

 

 

Retail Dispensary Clark County

 

 

Cultivation and Production Clark County

 

 

Master License Florida

 

 

Cultivation Coalinga, California

 

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Carrying amount

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, December 31, 2021

 

$6,151,343

 

 

$690,000

 

 

$709,798

 

 

$55,846,866

 

 

$-

 

 

$63,398,007

 

Additions – NGW

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

18,340,000

 

 

 

18,340,000

 

Balance, September 30, 2022

 

$6,151,343

 

 

$690,000

 

 

$709,798

 

 

$55,846,866

 

 

$18,340,000

 

 

$81,738,007

 

 

On March 2, 2022, the Company closed on its acquisition of Next Green Wave Holdings, Inc. (“NGW”) resulting in the Company acquiring a California cultivation and distribution license held by NGW in Coalinga, California. The acquisition was accounted for as a stock purchase acquisition as NGW was deemed to be a business under ASC 805 Business Combinations (Note 20). The value assigned to identifiable intangible assets was $18,340,000.

 

7. Leases

 

The Company’s lease agreements are for cultivation, manufacturing, retail office premises and for vehicles. The property lease terms range between 7 years and 21 years depending on the facility and are subject to an average of 2 renewal periods of equal length as the original lease. Leases for vehicles are typically between 4 years and 6 years with no renewal terms. Certain leases include escalation clauses or payment of executory costs such as property taxes, utilities, or insurance and maintenance. Rent expense for leases with escalation clauses is accounted for on a straight-line basis over the lease term. The Company’s lease agreements do not contain any material residual value guarantees or material restrictive covenants.

 

The following table provides the components of lease costs recognized in the unaudited interim condensed consolidated statement of operations and comprehensive loss for three- and nine-month periods ended September 30, 2022 and 2021:

 

 

 

Three Months Ended

September 30,

 

 

Nine Months Ended

September 30,

 

 

 

2022

 

 

2021

 

 

2022

 

 

2021

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating lease costs

 

$1,183,959

 

 

$1,131,328

 

 

$3,364,265

 

 

$3,306,488

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Finance lease costs:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Amortization of lease assets

 

 

-

 

 

 

13,086

 

 

 

-

 

 

 

38,173

 

Interest on lease liabilities

 

 

-

 

 

 

608

 

 

 

-

 

 

 

3,295

 

Finance lease costs

 

 

-

 

 

 

13,694

 

 

 

-

 

 

 

41,468

 

Short term lease expense

 

 

3,473

 

 

 

4,289

 

 

 

5,057

 

 

 

12,866

 

Total lease costs

 

$1,187,432

 

 

$1,149,311

 

 

$3,369,322

 

 

$3,360,822

 

 

 
13

Table of Contents

 

PLANET 13 HOLDINGS INC.

Notes to the Interim Condensed Consolidated Financial Statements

(Unaudited, in United States Dollars, except share amounts)

 

Other information related to operating and finance leases as of and for the nine months ended September 30, 2022 and 2021 are as follows:

 

 

 

September 30, 2022

 

 

September 30, 2021

 

 

 

Finance

 

 

Operating

 

 

Finance

 

 

Operating

 

 

 

Lease

 

 

Lease

 

 

Lease

 

 

Lease

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average discount rate

 

 

-

 

 

15.00%

 

 

15.00%

 

 

15.00%

Weighted average remaining lease term

 

 

-

 

 

 

11.12

 

 

 

0.14

 

 

 

16.21

 

 

The maturity of the contractual undiscounted lease liabilities as of September 30, 2022 and December 31, 2021 are:

 

 

 

September 30, 2022

 

 

December 31, 2021

 

 

 

Finance

 

 

Operating

 

 

Finance

 

 

Operating

 

 

 

Lease

 

 

Lease

 

 

Lease

 

 

Lease

 

 

 

 

 

 

 

 

 

 

 

 

 

 

One year

 

$-

 

 

$3,871,019

 

 

$-

 

 

$3,595,030

 

Two years

 

 

-

 

 

 

4,082,366

 

 

 

-

 

 

 

3,729,936

 

Three years

 

 

-

 

 

 

4,199,585

 

 

 

-

 

 

 

3,870,217

 

Four years

 

 

-

 

 

 

4,199,263

 

 

 

-

 

 

 

3,956,923

 

Five years

 

 

-

 

 

 

4,242,544

 

 

 

-

 

 

 

3,880,082

 

Thereafter

 

 

-

 

 

 

58,109,534

 

 

 

-

 

 

 

54,138,155

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total undiscounted lease liabilities

 

 

-

 

 

 

78,704,311

 

 

 

-

 

 

 

73,170,343

 

Interest on lease liabilities

 

 

-

 

 

 

(53,078,321 )

 

 

-

 

 

 

(49,612,758 )

Total present value of minimum lease payments

 

 

-

 

 

 

25,625,990

 

 

 

 

 

 

 

23,557,585

 

Lease liability - current portion

 

 

-

 

 

 

(448,232 )

 

 

-

 

 

 

(423,573 )

Lease liability

 

$-

 

 

$25,177,758

 

 

$-

 

 

$23,134,012

 

 

Principally all leases relate to real estate. Additional information on the right-of-use assets is as follows:

 

 

 

September 30, 2022

 

 

December 31, 2021

 

 

 

Finance

 

 

Operating

 

 

Finance

 

 

Operating

 

 

 

Lease

 

 

Lease

 

 

Lease

 

 

Lease

 

Gross carrying amount

 

 

 

 

 

 

 

 

 

 

 

 

Balance, beginning of period

 

$133,561

 

 

$22,830,123

 

 

$133,561

 

 

$21,962,564

 

Lease additions and modifications

 

 

-

 

 

 

2,326,202

 

 

 

-

 

 

 

867,559

 

Lease incentives

 

 

-

 

 

 

(861,531 )

 

 

-

 

 

 

-

 

Disposals

 

 

(96,601 )

 

 

(406,351 )

 

 

-

 

 

 

-

 

Balance, end of period

 

$36,960

 

 

$23,888,443

 

 

$133,561

 

 

$22,830,123

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Depreciation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, beginning of period

 

$133,561

 

 

$2,430,158

 

 

$88,889

 

 

$1,464,669

 

Additions

 

 

-

 

 

 

772,021

 

 

 

44,672

 

 

 

965,489

 

Disposals

 

 

(96,601 )

 

 

(56,823 )

 

 

-

 

 

 

-

 

Balance, end of period

 

$36,960

 

 

$3,145,356

 

 

$133,561

 

 

$2,430,158

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Carrying amount, beginning of period

 

$-

 

 

$20,399,965

 

 

$44,672

 

 

$20,497,895

 

Carrying amount, end of period

 

$-

 

 

$20,743,087

 

 

$-

 

 

$20,399,965

 

 

 
14

Table of Contents

 

PLANET 13 HOLDINGS INC.

Notes to the Interim Condensed Consolidated Financial Statements

(Unaudited, in United States Dollars, except share amounts)

 

For the three and nine months ended September 30, 2022, the Company incurred $1,183,959 and $3,364,265 of operating lease costs, respectively (2021 - $1,131,328 and $3,306,488), of which $460,004 and $1,380,013, respectively (2021 - $457,448 and $1,372,350) was capitalized to inventory or included in cost of goods sold.

 

8. Notes Payable

 

 

 

September 30,

 

 

December 31,

 

 

 

2022

 

 

2021

 

 

 

 

 

 

 

 

Promissory note dated November 4, 2015, with semi-annual interest at 5.0%, secured by deed of trust, due December 1, 2019

 

 

884,000

 

 

 

884,000

 

 

 

 

 

 

 

 

 

 

 

 

$884,000

 

 

$884,000

 

Less current portion

 

 

(884,000 )

 

 

(884,000 )

 

 

$

-

 

 

$

- 

 

Started maturities of debt obligations are as follow:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Next 12 months Promissory Note

 

$ 

 884,000

 

 

$884,000

 

 

9. Share Capital

 

The Company is authorized to issue an unlimited number of common shares and an unlimited number of Class A shares.

 

 

 

 

Number of Common Shares

 

 

 

 

September 30,

 

 

December 31,

 

 

 

 

 

2022

 

 

2021

 

Common Shares

 

 

 

 

 

 

 

 

Balance at January 1

 

 

 

 

198,687,950

 

 

 

126,573,250

 

Shares issued on settlement of RSU’s

 

i.

 

 

-

 

 

 

3,126,534

 

Shares issued on exercise of options

 

ii.

 

 

97,325

 

 

 

121,336

 

Shares issued on exercise of warrants

 

iii.

 

 

-

 

 

 

3,772,640

 

Shares issued on financing - February 2021

 

iv.

 

 

-

 

 

 

9,861,250

 

Shares issued on conversion of Class A shares

 

v.

 

 

-

 

 

 

55,232,940

 

Shares issued on acquisition (Note 20)

 

 vi.

 

 

21,361,002

 

 

 

-

 

 

 

 

 

 

 

 

 

 

 

 

Total common shares outstanding

 

 

 

 

220,146,277

 

 

 

198,687,950

 

 

 
15

Table of Contents

 

PLANET 13 HOLDINGS INC.

Notes to the Interim Condensed Consolidated Financial Statements

(Unaudited, in United States Dollars, except share amounts)

 

i. Shares issued for Restricted Share Units

 

During the nine months ended September 30, 2022, no Restricted Share Units (“RSUs”) were awarded, vested or settled and 18,000 RSUs were cancelled. 

 

During the year ended December 31, 2021, the Company issued 3,126,534 common shares on the settlement of RSUs that had vested during the period. The Company did not receive any cash proceeds on the settlement.

 

ii. Shares issued for Stock Options

 

During the nine months ended September 30, 2022, 1,106,925 replacement options were issued to holders of NGW options in connection with the Company’s acquisition of NGW. The Company issued 97,325 common shares on the exercise of options that had a strike price of CAD$1.31 resulting in cash proceeds of $97,980 (CAD$127,496). Other than the replacement options, no options were awarded, and 386,250 options expired.

 

During the year ended December 31, 2021, the Company issued 121,336 common shares on the exercise of options that had a strike price in the range of CAD$0.75 to CAD$1.55 per common share resulting in cash proceeds of $86,216 (CAD$108,987).

 

iii. Shares issued on the exercise of Warrants

 

During the nine months ended September 30, 2022, no warrants were issued or exercised, and 728,347 warrants expired.

 

During the year ended December 31, 2021, the Company issued 3,772,640 common shares to warrant holders who exercised 3,772,640 warrants resulting in cash proceeds of $14,093,793 (CAD$17,848,084).

 

iv. Shares issued on Financing – February 2021

 

During the year ended December 31, 2021, the Company completed a bought deal financing on February 2, 2021 for aggregate gross proceeds of $53,852,980 (CAD$69,028,750) at a price of CAD$7.00 per unit. The Company issued 9,861,250 units of the Company. Each unit was comprised of one common share in the capital of the Company and one-half of one Common Share purchase warrant. Each whole warrant entitles the holder to acquire one common share at an exercise price of CAD$9.00 per common share for a period of 24 months.

 

The Company also issued 591,676 broker warrants that entitle the holder to purchase one common share for a period of 24 months from the closing of the offering at a price of CAD$7.00 per common share. The broker warrants were measured based on the fair market value of the warrants using a Black Scholes valuation model.

 

The Company incurred $3,494,930 in cash share issuance costs and $1,296,170 in broker warrant costs. The warrants are initially measured at fair value (Note 10) with residual proceeds being allocated to the common shares. Issuance costs have been allocated in the same proportion, with costs allocated to the warrant liability being expensed as incurred. The net proceeds were allocated as follows:

 

 

 

Gross Proceeds

 

 

Issuance Costs

 

 

 

 

 

 

 

 

February 2, 2021, Financing

 

 

 

 

 

 

Common shares (APIC)

 

$50,967,999

 

 

$(4,534,434 )

Warrant liability (Note 10)

 

 

2,884,981

 

 

 

(256,666 )

Total

 

$53,852,980

 

 

$(4,791,100 )

 

viii. Shares issued on Acquisition

 

On March 2, 2022, the Company completed a business combination acquisition of NGW.

 

The Company acquired all of the NGW Shares for a total consideration of 21,361,002 common shares of the Company and NGW then amalgamated with Planet 13 (Note 20).

 

 
16

Table of Contents

 

PLANET 13 HOLDINGS INC.

Notes to the Interim Condensed Consolidated Financial Statements

(Unaudited, in United States Dollars, except share amounts)

 

10. Warrants

 

The following table summarizes the fair value of the warrant liability at September 30, 2022 and December 31, 2021.

 

 

 

September 30,

 

 

December 31,

 

 

 

2022

 

 

2021

 

 

 

 

 

 

 

 

Opening balance

 

$7,206,049

 

 

$13,204,211

 

Additions

 

 

-

 

 

 

2,884,981

 

Exercises

 

 

-

 

 

 

(8,976,258 )

Foreign exchange

 

 

(12,612 )

 

 

100,635

 

Change in fair value

 

 

(6,992,955 )

 

 

(7,520 )

Closing balance

 

$200,482

 

 

$7,206,049

 

 

The warrant liability is adjusted to fair value on the date the warrants are exercised and at the end of each reporting period. The amount that is reclassified to equity on the date of exercise is the fair value at that date.

 

The following table summarizes the number of warrants outstanding at September 30, 2022 and December 31, 2021.

 

 

 

September 30,

2022

 

 

Weighted Average Exercise Price - CAD

 

 

December 31, 2021

 

 

Weighted Average Exercise Price - CAD

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance - beginning of period

 

 

8,861,951

 

 

$7.46

 

 

 

7,158,337

 

 

$4.98

 

Issued

 

 

-

 

 

$-

 

 

 

5,522,301

 

 

$8.79

 

Exercised

 

 

-

 

 

$-

 

 

 

(3,772,640 )

 

$4.73

 

Expired

 

 

(728,347 )

 

$3.97

 

 

 

(46,047 )

 

$3.75

 

Balance - end of period

 

 

8,133,604

 

 

$7.77

 

 

 

8,861,951

 

 

$7.46

 

 

No warrants were exercised during the nine months ended September 30, 2022. The Company received cash proceeds of $14,093,793 (CAD$17,848,084) from the exercise of warrants during the year ended December 31, 2021.

 

Fair values

 

The Company complies with ASC 820, Fair Value Measurement, for its financial assets and liabilities that are re-measured and reported at fair value at each reporting period, and non-financial assets and liabilities that are re-measured and reported at fair value at least annually. Financial instruments recorded at fair value in the consolidated balance sheet are classified using a fair value hierarchy that reflects the observability of significant inputs used in making the measurements. In general, fair values determined by Level 1 inputs utilize quoted prices (unadjusted) in active markets for identical assets or liabilities. Fair values determined by Level 2 inputs utilize data points that are observable such as quoted prices, interest rates and yield curves. Fair values determined by Level 3 inputs are unobservable data points for the asset or liability, and include situations where there is little, if any, market activity for the asset or liability. The fair value hierarchy requires the use of observable market inputs whenever such inputs exist. A financial instrument is classified to the lowest level of the hierarchy for which a significant input has been considered in measuring fair value.

 

 
17

Table of Contents

 

PLANET 13 HOLDINGS INC.

Notes to the Interim Condensed Consolidated Financial Statements

(Unaudited, in United States Dollars, except share amounts)

 

The following tables present information about the Company’s assets and liabilities that are measured at fair value on a recurring basis as of September 30, 2022, and December 31, 2021:

 

 

 

 Quoted prices in active markets for identical asset

(Level 1)

 

 

 Total

 

September 30, 2022

 

 

 

 

 

 

Warrant liability

 

$(200,482 )

 

$(200,482 )

 

 

 

 

 

 

 

 

 

December 31, 2021

 

 

 

 

 

 

 

 

Warrant liability

 

 

(7,206,049 )

 

 

(7,206,049 )

 

11. Share Based Compensation

 

(a) Stock Options

 

The Company has established an incentive stock option plan (the “Plan”) for employees, management, directors, and consultants of the Company, as designated and administered by a committee of the Company’s Board of Directors. Under the Plan, the Company may grant options for up to 10% of the issued and outstanding common shares of the Company. The maximum term of an option is five years and the related vesting period runs from immediate to the life of the grant.

 

During the three and nine months ended September 30, 2022 and the year ended December 31, 2021

 

No incentive stock options were granted during the three and nine months ended September 30, 2022 or the year ended December 31, 2021. During the nine months ended September 30, 2022, the Company issued 1,106,925 options in exchange for all NGW options outstanding (Note 20), 97,325 options were exercised, and 386,250 options were forfeited or expired.

 

The following table summarizes information about stock options outstanding at September 30, 2022:

 

Expiry Date

 

Exercise price CAD$

 

 

September 30,

2022 Outstanding

 

 

September 30, 2022 Exercisable

 

 

December 31,

2021 Outstanding

 

 

December 31, 2021 Exercisable

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

July 4, 2022

 

$2.65

 

 

 

-

 

 

 

-

 

 

 

100,000

 

 

 

100,000

 

June 11, 2023

 

$0.80

 

 

 

61,668

 

 

 

61,668

 

 

 

61,668

 

 

 

61,668

 

June 30, 2024

 

$2.60

 

 

 

7,500

 

 

 

7,500

 

 

 

7,500

 

 

 

7,500

 

November 21, 2024

 

$1.31

 

 

 

185,203

 

 

 

185,203

 

 

 

-

 

 

 

-

 

February 27, 2025

 

$1.31

 

 

 

51,525

 

 

 

51,525

 

 

 

-

 

 

 

-

 

July 6, 2025

 

$

 1.31

 

 

 

 97,325

 

 

 

 97,325

 

 

 

 -

 

 

 

 -

 

December 15, 2025

 

$3.06

 

 

 

269,075

 

 

 

269,075

 

 

 

-

 

 

 

-

 

September 30, 2026

 

$4.37

 

 

 

120,222

 

 

 

120,222

 

 

 

-

 

 

 

-

 

 

 

 

 

 

 

 

792,518

 

 

 

792,518

 

 

 

169,168

 

 

 

169,168

 

 

 
18

Table of Contents

 

PLANET 13 HOLDINGS INC.

Notes to the Interim Condensed Consolidated Financial Statements

(Unaudited, in United States Dollars, except share amounts)

 

The following table reflects the continuity of stock options for the period presented:

 

 

 

September 30,

2022

 

 

Weighted Average Exercise Price - CAD

 

 

December 31,

2021

 

 

Weighted Average Exercise Price - CAD

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance - beginning of period

 

 

169,168

 

 

$2.01

 

 

 

293,838

 

 

$1.52

 

Issued

 

 

1,106,925

 

 

 

2.58

 

 

 

-

 

 

 

-

 

Exercised

 

 

(97,325 )

 

 

1.31

 

 

 

(121,336 )

 

 

0.91

 

Expired

 

 

(386,250 )

 

 

3.11

 

 

 

(3,334 )

 

 

0.80

 

Balance - end of period

 

 

792,518

 

 

$2.36

 

 

 

169,168

 

 

$2.01

 

 

Share based compensation expense attributable to employee options was $nil and $3,104 for the nine months ended September 30, 2022, and 2021, respectively.

 

The total intrinsic value of options exercised, outstanding and exercisable as of September 30, 2022, was $58,363, $87,141 and $87,141, respectively.

 

The total intrinsic value of stock options exercised, outstanding and exercisable as of December 31, 2021, was $274,611, $238,010 and $238,010, respectively.

 

(b) Restricted Share Units

 

The Company has established a Restricted Share Unit incentive plan (the “RSU Plan”) for employees, management, directors, and consultants of the Company, as designated and administered by a committee of the Company’s Board of Directors. Under the RSU Plan, the Company may grant RSUs and/or options for up to 10% of the issued and outstanding common shares of the Company.

 

The following table summarizes the RSUs that are outstanding as at September 30, 2022 and December 31, 2021:

 

 

 

September 30,

2022

 

 

December 31,

2021

 

 

 

 

 

 

 

 

Balance - beginning of period

 

 

2,591,929

 

 

 

1,764,250

 

Issued

 

 

-

 

 

 

4,086,178

 

Exercised

 

 

-

 

 

 

(3,126,534 )

Expired

 

 

 -

 

 

 

 (131,965

)

Cancelled

 

 

(18,000 )

 

 

-

 

Balance - end of period

 

 

2,573,929

 

 

 

2,591,929

 

 

The Company recognized $6,154,338 in share-based compensation expense attributable to the RSU vesting schedule for the nine months ended September 30, 2022 ($12,208,463 for the nine months ended September 30, 2021).

 

During the nine months ended September 30, 2022

 

No RSUs were granted, exercised or vested.

 

During the nine months ended September 30, 2021

 

On January 4, 2021, the Company issued 852,154 common shares to settle 852,154 RSUs that had vested. The Company did not receive any cash from this issuance.

 

 
19

Table of Contents

 

PLANET 13 HOLDINGS INC.

Notes to the Interim Condensed Consolidated Financial Statements

(Unaudited, in United States Dollars, except share amounts)

 

On April 19, 2021, the Company granted 4,082,474 RSUs to officers, directors, and employees pursuant to the Company’s RSU Plan. The RSUs granted vest in three equal tranches on November 1, 2021, November 1, 2022, and November 1, 2023, unless otherwise varied pursuant to the terms of the plan. 

 

On June 10, 2021, the Company granted 3,704 RSUs to a consultant of the Company. Pursuant to the Company’s RSU Plan. The RSUs vested immediately and were exercised on June 10, 2021. The company issued 3,704 common shares on the exercise and did not receive any cash proceeds from the issuance.

 

12. Loss Per Share

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

September 30,

 

 

September 30,

 

 

 

2022

 

 

2021

 

 

2022

 

 

2021

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loss available to common shareholders

 

$(6,255,525 )

 

$(2,741,675 )

 

$(10,356,121 )

 

$(14,320,822 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average number of shares outstanding, basic and diluted

 

 

220,146,277

 

 

 

196,292,786

 

 

 

215,321,796

 

 

 

194,576,544

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic and diluted loss per share

 

$(0.03 )

 

$(0.01 )

 

$(0.05 )

 

$(0.07 )

 

Approximately 11,500,051 and 13,979,446 of potentially dilutive securities for the three and nine months ended September 30, 2022 and 2021, respectively were excluded in the calculation of diluted EPS as their impact would have been anti-dilutive due to the net losses for such periods.

 

13. General and Administrative

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

September 30,

 

 

September 30,

 

 

 

2022

 

 

2021

 

 

2022

 

 

2021

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Salaries and wages

 

$3,574,835

 

 

$6,134,539

 

 

$11,369,684

 

 

$14,481,158

 

Share based compensation

 

 

2,037,764

 

 

 

6,613,846

 

 

 

6,154,338

 

 

 

12,211,567

 

Executive compensation

 

 

780,169

 

 

 

447,800

 

 

 

2,214,009

 

 

 

1,385,009

 

Licenses and permits

 

 

710,951

 

 

 

969,610

 

 

 

2,168,616

 

 

 

2,258,551

 

Payroll taxes and benefits’

 

 

929,679

 

 

 

931,950

 

 

 

2,990,456

 

 

 

2,380,171

 

Supplies and office expenses

 

 

258,468

 

 

 

621,642

 

 

 

758,924

 

 

 

1,562,832

 

Subcontractors

 

 

399,982

 

 

 

953,356

 

 

 

1,532,880

 

 

 

2,166,299

 

Professional fees (legal, audit and other)

 

 

947,922

 

 

 

938,028

 

 

 

4,458,370

 

 

 

2,842,599

 

Miscellaneous general and administrative expenses

 

 

1,670,185

 

 

 

2,214,376

 

 

 

5,160,422

 

 

 

4,897,499

 

 

 

$11,309,955

 

 

$19,825,147

 

 

$36,807,699

 

 

$44,185,685

 

 

 
20

Table of Contents

 

PLANET 13 HOLDINGS INC.

Notes to the Interim Condensed Consolidated Financial Statements

(Unaudited, in United States Dollars, except share amounts)

 

14. Supplemental Cash Flow Information

 

 

 

September 30,

 

Change in Working Capital

 

2022

 

 

2021

 

 

 

 

 

 

 

 

Accounts Receivable

 

$1,363,675

 

 

 

(394,191 )

Inventory

 

 

3,831,613

 

 

 

(6,303,221 )

Prepaid Expenses and Other Assets

 

 

923,625

 

 

 

(3,620,412 )

Long-term Deposits and Other Assets

 

 

199,109

 

 

 

(12,376 )

Deferred Tax Assets

 

 

(43,617 )

 

 

-

 

Accounts Payable

 

 

(259,295 )

 

 

1,677,256

 

Accrued Expenses

 

 

(1,109,964 )

 

 

3,977,028

 

Income Taxes Payable

 

 

(1,104,371 )

 

 

(1,614,486 )

 

 

$3,800,775

 

 

$(6,290,402 )

 

 

 

 

 

 

 

 

 

Cash Paid

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income Taxes

 

$7,925,000

 

 

$11,631,307

 

Interest

 

$-

 

 

$-

 

 

 

 

 

 

 

 

 

 

Non-cash Financing and Investing Activities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Initial Recognition of ROU Assets and Lease Liabilities

 

$2,326,202

 

 

$867,561

 

Fixed Asset Amounts in Accounts Payable

 

$363,077

 

 

$-

 

Warrant liability reclassified to APIC on settlement

 

$-

 

 

$8,955,993

 

Reclassification of long term lease liabilities to current

 

$24,659

 

 

$-

 

Early Termination of Operating Lease

 

$371,381

 

 

$-

 

 

15. Related Party Transactions and Balances

 

Related party transactions are summarized as follows:

 

a) Building Lease

 

The Company is the sub-lessee of approximately 2,000 square feet of office space and purchases certain printed marketing collateral and stationery items from a company previously owned by one of the Company’s Co-CEOs. Amounts paid for rent for the nine months ended September 30, 2022 and 2021 equaled $6,010 and $16,027, respectively. Amounts paid for printed marketing collateral and stationery items to the same company were $183,914 and $382,264 for the nine months ended September 30, 2022 and 2021, respectively.

 

The Company leased a cultivation facility from an entity owned by the Company’s Co-CEOs. Rent paid for this facility for the nine months ended September 30, 2022 and 2021 equaled $nil and $301,894, respectively. On April 30, 2021, the Company’s Co-CEOs sold this building to an arm’s length third party who assumed the lease.

 

(b) Other

 

A company previously owned by one of the Company’s executives pays the Company for storage space. Amounts paid to the Company for storage space equaled $nil and $122,447 for the nine months ended September 30, 2022 and 2021, respectively, and is recorded in other income.

 

 
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Table of Contents

 

PLANET 13 HOLDINGS INC.

Notes to the Interim Condensed Consolidated Financial Statements

(Unaudited, in United States Dollars, except share amounts)

 

16. Commitments and Contingencies

 

(a) Construction Commitments

 

The Company had $1,509,641 of outstanding construction commitments as of September 30, 2022.

 

(b) Contingencies

 

The Company’s operations are subject to a variety of local and state regulations. Failure to comply with one or more of those regulations could result in fines, restrictions on its operations, or losses of permits that could result in the Company ceasing operations. While management of the Company believes that the Company is in compliance with applicable local and state regulations at September 30, 2022, medical and adult use cannabis regulations continue to evolve and are subject to differing interpretations. As a result, the Company may be subject to regulatory fines, penalties, or restrictions in the future.

 

(c) Claims and Litigation

 

From time to time, the Company may be involved in litigation relating to claims arising out of operations in the normal course of business. At September 30, 2022, and December 31, 2021, there were no pending or threatened lawsuits that could reasonably be expected to have a material effect on the results of the Company’s operations. There are also no proceedings in which any of the Company’s directors, officers or affiliates is an adverse party or has a material interest adverse to the Company’s interest.

 

(d) Operating Licenses

 

Although the possession, cultivation, and distribution of marijuana for medical and adult use is permitted in Nevada and California, marijuana is a Schedule-I controlled substance and its use remains a violation of federal law. Since federal law criminalizing the use of marijuana pre-empts state laws that legalize its use, strict enforcement of federal law regarding marijuana would likely result in the Company’s inability to proceed with our business plans. In addition, the Company’s assets, including real property, cash, equipment, and other goods, could be subject to asset forfeiture because marijuana is still federally illegal.

 

17. Risks

 

Credit risk

 

Credit risk is the risk that a third party might fail to discharge its obligations under the terms of a financial instrument. Credit risk arises from cash with banks and financial institutions. It is management’s opinion that the Company is not exposed to significant credit risk arising from these financial instruments. The Company limits credit risk by entering into business arrangements with high credit-quality counterparties.

 

The Company evaluates the collectability of its accounts receivable and maintains an allowance for credit losses at a