Notes
to Condensed Consolidated Financial Statements
(Unaudited)
NOTE
1 – ORGANIZATION AND DESCRIPTION OF BUSINESS
MariMed
Inc. (the “Company”), a Delaware corporation, is a multifaceted company in the emerging legal cannabis and
hemp industries. During 2018, the Company made a strategic decision to transition from a professional management and advisory
company that provides cannabis licensing, operational consulting and real estate services, to a direct owner of cannabis licenses
and operator of seed-to-sale operations.
The
Company develops and manages state-of-the-art, regulatory-compliant facilities for the cultivation, production, and dispensing
of legal cannabis and cannabis-infused products. The Company also provides professional consultative services in all aspects
of cannabis licensing procurement.
To
date, the Company has secured, on behalf of its clients, 11 cannabis licenses across five states—two in Delaware, two in
Illinois, one in Nevada, three in Maryland and three in Massachusetts. The Company’s seed-to-sale cannabis facilities, currently
in excess of 300,000 square feet, are leased to its clients in each of these states.
Along with operational oversight of its facilities, the Company provides its clients with legal, accounting, human resources,
business development, and other corporate and administrative services.
Additionally
,
the Company licenses its own brands of precision-dosed, cannabis-infused products to treat specific medical conditions or to achieve
a certain effect. These products are licensed under the brand names Kalm Fusion™, Nature’s Heritage™,
and Betty’s Eddies™. The Company also has exclusive sublicensing rights in certain states to distribute Lucid Mood™
vaporizer pens, Vitiprints™ printable dissolvable discs, DabTabs™ vaporization tablets infused with cannabis concentrates,
and the clinically tested medicinal cannabis strains developed in Israel by Tikun Olam™.
The
Company’s stock is quoted on the OTCQB market under the ticker symbol MRMD.
The
Company was originally incorporated in January 2011 under the name Worlds Online Inc., using the ticker symbol WORX. In early
2017, the Company name and ticker were changed to its current name and ticker. Since inception, the Company had operated an online
portal that offers multi-user virtual environments to users. This segment of the business has had insignificant operations since
early 2014.
The
Company has entered into several transactions to develop its business and carry out its aforementioned strategic transition decision
which are summarized below and disclosed in further detail in
Note 3
–
Acquisitions
and in
Note
4
–
Investments
.
In
May 2014, the Company, through its subsidiary MariMed Advisors Inc., acquired Sigal Consulting LLC, a company operating in the
medical cannabis industry. This transaction was accounted for as a purchase acquisition where the Company was both the
legal and accounting acquirer.
In
October 2017, the Company acquired the intellectual property, formulations, recipes, proprietary equipment, knowhow, and other
certain assets of Betty’s Eddies™, a brand of cannabis-infused fruit chews
In
April 2018, the Company acquired iRollie LLC, a manufacturer of branded cannabis products and accessories for consumers,
and custom product and packaging for companies in the cannabis industry.
In
July 2018, the Company contracted to acquire AgriMed Industries of PA LLC (“AgriMed”), an entity that
holds a license for the cultivation of cannabis into medical marijuana products in the state of Pennsylvania. In February
2019, the Company filed a complaint against AgriMed for specific performance. The parties are currently in
discussions to resolve this matter.
In
August 2018, the Company exchanged cash and stock to acquire a 23% ownership interest in an entity that has developed a customer
relationship management and marketing platform, branded under the name Sprout, which is specifically designed for companies in
the cannabis industry. Also during this period, the Company obtained the exclusive worldwide license of the Vitiprints patented
technology for printable dissolvable cannabis-infused discs.
In
October 2018, the Company entered into a purchase agreement to acquire its two cannabis-licensed clients, KPG of Anna LLC and
KPG of Harrisburg LLC, currently operating medical marijuana dispensaries in the state of Illinois. The Company has
not yet received legislative approval – required for all ownership changes of cannabis licensees – and therefore
these entities were not consolidated in the Company’s financial statements as of March 31, 2019. The Company anticipates
approval will be obtained, and the transaction consummated, in 2019
In
October 2018, the Company’s cannabis-licensed client with cultivation and dispensary operations in Massachusetts, ARL Healthcare
Inc. (“ARL”), filed a plan of entity conversion with the state to convert from a non-profit entity to a for-profit
corporation, with the Company as the sole shareholder of the for-profit corporation. On November 30, 2018, the conversion plan
was approved by the secretary of state, and effective December 1, 2018, ARL was consolidated into the Company as a wholly-owned
subsidiary.
In
November 2018, the Company issued a letter of intent to acquire The Harvest Foundation LLC, its cannabis-licensed client with
cultivation operations in the state of Nevada. The acquisition is conditioned upon legislative approval of the transaction which
is expected to occur in May 2019.
In
December 2018, the Company entered into a memorandum of understanding to merge with Kind Therapeutics USA LLC, its cannabis-licensed
client in the state of Maryland. The parties expect the merger agreement to be finalized, and the transaction approved by the
state legislature in 2019.
In
January 2019, the Company entered into an agreement with Maryland Health & Wellness Center Inc. (“MHWC”),
an entity that has been pre-approved for a cannabis dispensing license, to provide MHWC with a construction loan in connection
with the buildout of MHWC’s proposed dispensary location. Upon the two-year anniversary of final state approval
of MHWC’s dispensing license, the Company shall have the right, subject to state approval, to convert the promissory
note underlying the construction loan into a 20% ownership interest of MWHC. The Company also
entered into a consulting services agreement to provide MHWC with advisory and oversight services over a three-year
period relating to the development, administration, operation, and management of MHWC’s proposed dispensary in Maryland.
In
January 2019, the Company converted a note receivable from Chooze Corp., an entity that develops CBD- and THC-infused
products without debilitating side effects, into a 2.7% ownership interest in the entity.
In
January 2019, the Company established MariMed Hemp Inc., a wholly-owned subsidiary to develop, market, and distribute hemp-based
CBD brands and products, and to provide hemp producers with bulk quantities of hemp genetics and biomass.
In
February 2019, the Company converted its $30 million purchase of subordinated secured convertible debentures of GenCanna Global,
Inc., a producer and distributor of agricultural hemp, cannabidiol (“CBD”) formulations, hemp genetics, and hemp products
into a 33.5% ownership interest.
In
February 2019, the Company contracted to purchase a 70% interest in Meditaurus LLC, a company established by Dr. Jokubas Ziburkas
who holds a PhD in neuroscience and is a leading authority on hemp-based CBD and the endocannabinoid system. Meditaurus currently
operates in the United States and Europe and has developed proprietary CBD formulations sold under its
Florance
brand.
NOTE
2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis
of Presentation
The
accompanying financial statements have been prepared in conformity with accounting principles generally accepted in the United
States of America (“GAAP”).
In
accordance with GAAP, these interim statements do not contain all of the disclosures normally required in annual statements. In
addition, the results of operations of interim periods are not necessarily indicative of the results of operations to be expected
for the full year. Accordingly, these interim financial statements should be read in conjunction with the Company’s audited
annual financial statements and accompanying notes for the year ended December 31, 2018.
Certain
reclassifications have been made to prior periods’ data to conform to the current period presentation. These reclassifications
had no effect on reported income (losses) or cash flows.
Principles
of Consolidation
The
accompanying condensed consolidated financial statements include the accounts of MariMed Inc. and the following majority-owned
subsidiaries:
Subsidiary:
|
|
Percentage
Owned
|
|
MariMed
Advisors Inc.
|
|
|
100.0
|
%
|
Mia
Development LLC
|
|
|
89.5
|
%
|
Mari
Holdings IL LLC
|
|
|
60.0
|
%
|
Mari
Holdings MD LLC
|
|
|
97.4
|
%
|
Mari
Holdings NV LLC
|
|
|
100.0
|
%
|
Hartwell
Realty Holdings LLC
|
|
|
100.0
|
%
|
iRollie
LLC
|
|
|
100.0
|
%
|
ARL
Healthcare Inc.
|
|
|
100.0
|
%
|
MariMed
Hemp Inc.
|
|
|
100.0
|
%
|
Intercompany
accounts and transactions have been eliminated.
Use
of Estimates
The
preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect
the reported amounts within the financial statements and disclosures thereof. Actual results could differ from these estimates
or assumptions.
Cash
Equivalents
The
Company considers all highly liquid investments with a maturity date of three months or less to be cash equivalents. The fair
values of these investments approximate their carrying values.
The
Company’s cash and cash equivalents are maintained with recognized financial institutions located in the United States.
In the normal course of business, the Company may carry balances with certain financial institutions that exceed federally insured
limits. The Company has not experienced losses on balances in excess of such limits and management believes the Company is not
exposed to significant risks in that regard.
Accounts
Receivable
Accounts
receivable consist of trade receivables and are carried at their estimated collectible amounts.
The
Company provides credit to its clients in the form of payment terms. The Company limits its credit risk by performing credit evaluations
of its clients and maintaining a reserve, if deemed necessary, for potential credit losses. Such evaluations include the review
of a client’s outstanding balances with consideration towards such client’s historical collection experience, as well
as prevailing economic and market conditions and other factors. Based on such evaluations, the Company recorded a reserve of $150,000
at March 31, 2019 and December 31, 2018.
Inventory
Inventory
is carried at the lower of cost or net realizable value, with the cost being determined on a first-in, first-out (FIFO) basis.
The Company periodically reviews physical inventory and will record a reserve for excess and/or obsolete inventory if necessary.
As of the date of this report, no reserve was deemed necessary.
Investments
The
Company classifies its investments as available-for-sale-investments. Investments are comprised of equity holding of private companies.
These investments are recorded at fair value on the Company’s consolidated balance sheet, with changes to fair value,
if any, included in comprehensive income. Investments are evaluated for other-than-temporary impairment and are written down if
such impairments are deemed to have occurred.
Revenue
Recognition
On
January 1, 2018, the Company adopted the Financial Accounting Standards Board’s Accounting Standards Codification (“ASC”)
606,
Revenue from Contract with Customers,
as amended by subsequently issued Accounting Standards Updates. This revenue
standard requires an entity to recognize revenue to depict the transfer of goods or services to customers in an amount that reflects
the consideration that it expects to be entitled to in exchange for those goods or services. The recognition of revenue is determined
by performing the following consecutive steps:
|
●
|
Identify
the contract(s) with a customer;
|
|
●
|
Identify
the performance obligations in the contract(s);
|
|
●
|
Determine
the transaction price;
|
|
●
|
Allocate
the transaction price to the performance obligations in the contract(s); and
|
|
●
|
Recognize
revenue as the performance obligation is satisfied.
|
Additionally,
when another party is involved in providing goods or services to the Company’s clients, a determination is made as to who—the
Company or the other party—is acting in the capacity as the principal in the sale transaction, and who is merely the agent
arranging for goods or services to be provided by the other party.
The
Company is typically considered the principal if it controls the specified good or service before such good or service is transferred
to its client. The Company may also be deemed to be the principal even if it engages another party (an agent) to satisfy some
of the performance obligations on its behalf, provided the Company (i) takes on certain responsibilities, obligations and risks,
(ii) possesses certain abilities and discretion, or (iii) other relevant indicators of the sale. If deemed an agent, the Company
would not recognize revenue for the performance obligations it does not satisfy.
The
adoption of this standard did not have a significant impact on the Company’s consolidated operating results, and accordingly
no restatement has been made to prior period reported amounts.
The
Company’s main sources of revenue are comprised of the following:
|
●
|
Real
Estate – the Company generates rental income and additional rental fees from leasing its regulatory-compliant legal
cannabis facilities to its clients, which are cannabis-licensed operating companies. Rental income is generally a fixed amount
per month that escalates over the respective lease terms, while additional rental fees are based on a percentage of tenant
revenues that exceed a specified amount.
|
|
|
|
|
●
|
Management
– the Company receives fees for providing its clients with corporate services and operational oversight of their cannabis
cultivation, production, and dispensary operations. These fees are based on a percentage of such clients’ revenue, and
are recognized after services have been performed.
|
|
|
|
|
●
|
Supply
Procurement – the Company maintains volume discounts with top national vendors of cultivation and production resources,
supplies, and equipment, which the Company acquires and resells to its clients or third parties within the cannabis industry.
The Company recognizes this revenue after the acceptance of goods by the purchaser.
|
|
|
|
|
●
|
Licensing
– the Company’s derives revenue from the sale of precision-dosed, cannabis-infused products, such as Kalm Fusion™
and Betty’s Eddies™, to legal dispensaries throughout the United States. The recognition of this revenue occurs
when the products are delivered.
|
|
|
|
|
●
|
Consulting
– the Company assists third-parties parties in securing cannabis licenses, and provides advisory services in the areas
of facility design and development, and cultivation and dispensing best practices. The revenues associated with these services
are recognized as the services are performed.
|
|
|
|
|
●
|
Product
Sales – the Company is currently working towards generating revenues from
direct sales of cannabis, hemp, and products derived from these plants. Such revenues
are anticipated to come from (i) MariMed Hemp’s development of a hemp-derived CBD
product line and wholesale hemp distribution business, and (ii) the dispensary and wholesale
operations of ARL in Massachusetts and of the Company’s planned cannabis-licensee
acquisitions in Pennsylvania, Illinois, Maryland, and Nevada. This revenue will be recognized
at retail points-of-sale or when products are delivered.
|
Research
and Development Costs
Research
and development costs are charged to operations as incurred.
Property
and Equipment
Property
and equipment are stated at cost less accumulated depreciation, with depreciation recognized on a straight-line basis over the
shorter of the estimated useful life of the asset or the lease term, if applicable. When assets are retired or disposed, the cost
and accumulated depreciation are removed from the accounts, and any resulting gains or losses are included in income. Repairs
and maintenance are charged to expense in the period incurred.
The
estimated useful lives of property and equipment are generally as follows: buildings and building improvements, seven to thirty-nine
years; tenant improvements, the remaining duration of the related lease; furniture and fixtures, seven years; machinery and equipment,
five to ten years. Land is not depreciated.
The
Company’s property and equipment are individually reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. An impairment exists when the carrying amount of an asset exceeds
the aggregate projected future cash flows over the anticipated holding period on an undiscounted basis. An impairment loss is
measured based on the excess of the asset’s carrying amount over its estimated fair value.
Impairment
analyses are based on management’s current plans, intended holding periods and available market information at the time
the analyses are prepared. If these criteria change, the Company’s evaluation of impairment losses may be different and
could have a material impact to the consolidated financial statements.
For
the three months ended March 31, 2019 and 2018, based on its impairment analyses, the Company did not have any impairment losses.
Leases
The
consolidated financial statements reflect the Company’s adoption of ASC 842,
Leases
, as amended by subsequent accounting
standards updates, utilizing the modified retrospective transition approach which calls for applying the new standard to all of
the Company’s leases effective January 1, 2019, which is the effective date of adoption.
ASC
842 is intended to improve financial reporting of leasing transactions. The most prominent change from previous accounting guidance
is the requirement to recognize right-of-use assets and lease liabilities for the rights and obligations created by operating
leases in which the Company is the lessee that extend more than twelve months on the balance sheet. The Company elected the package
of practical expedients permitted under ASC 842. Accordingly, the Company accounted for its existing operating leases that commenced
before the effective date as operating leases under the new guidance without reassessing (i) whether the contracts contain a lease,
(ii) the classification of the leases (iii) the accounting for indirect costs as defined in ASC 842.
The
Company determines if an arrangement is a lease at inception. Right-of-use assets represent the Company’s right to use an
underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising
from the lease. Non-lease components within lease agreements are accounted for separately. Right-of-use assets and obligations
are recognized at the commencement date based on the present value of lease payments over the lease term, utilizing the Company’s
incremental borrowing rate. The Company’s lease terms may include options to extend or terminate the lease when it is reasonably
certain that the Company will exercise that option. Lease expense for lease payments is recognized on a straight-line basis over
the lease term.
Impairment
of Long-Lived Assets
The
Company evaluates the recoverability of its fixed assets and other assets in accordance with ASC 360-10-15,
Impairment or Disposal
of Long-Lived Assets
. Impairment of long-lived assets is recognized when the net book value of such assets exceeds their expected
cash flows, in which case the assets are written down to fair value, which is determined based on discounted future cash flows
or appraised values.
Fair
Value of Financial Instruments
The
Company follows the provisions of ASC 820,
Fair Value Measurement
, to measure the fair value of its financial instruments,
and ASC 825,
Financial Instruments,
for disclosures on the fair value of its financial instruments. To increase consistency
and comparability in fair value measurements and related disclosures, ASC 820 establishes a fair value hierarchy which prioritizes
the inputs to valuation techniques used to measure fair value into three broad levels. The fair value hierarchy gives the highest
priority to quoted prices (unadjusted) in active markets for identical assets or liabilities and the lowest priority to unobservable
inputs. The three levels of fair value hierarchy defined by ASC 820 are:
Level
1
|
Quoted
market prices available in active markets for identical assets or liabilities as of the reporting date.
|
|
|
Level
2
|
Pricing
inputs other than quoted prices in active markets included in Level 1, which are either directly or indirectly observable
as of the reporting date.
|
|
|
Level
3
|
Pricing
inputs that are generally observable inputs and not corroborated by market data.
|
The
carrying amounts of the Company’s financial assets and liabilities, such as cash and accounts payable approximate their
fair values due to the short maturity of these instruments.
The
fair value of option and warrant issuances are determined the Black-Scholes pricing model and employing several inputs such as
the expected life of instrument, the exercise price, the expected risk-free interest rate, the expected dividend yield, the value
of the Company’s common stock on issuance date, and the expected volatility of such common stock. No options or warrants
were issued during the three months ended March 31, 2019. The following table summarizes the range of inputs used by the Company
during the same period in 2018:
Life of instrument
|
|
|
3.0
to
5.0 years
|
|
Volatility
factors
|
|
|
1.152
to
2.086
|
|
Risk-free
interest rates
|
|
|
1.92%
to 2.25%
|
|
Dividend
yield
|
|
|
0%
|
|
The
expected life of an instrument is calculated using the simplified method pursuant to Staff Accounting Bulletin Topic 14,
Share-Based
Payment
, which allows for using the mid-point between the vesting date and expiration date. The volatility factors are based
on the historical two-year movement of the Company’s common stock prior to an instrument’s issuance date. The risk-free
interest rate is based on U.S. Treasury rates with maturity periods similar to the expected instruments life on the issuance date.
The
Company amortizes the fair value of option and warrant issuances on a straight-line basis over the requisite service period of
each instrument.
Extinguishment
of Liabilities
The
Company accounts for extinguishment of liabilities in accordance with ASC 405-20,
Extinguishments of Liabilities.
When
the conditions for extinguishment are met, the liabilities are written down to zero and a gain or loss is recognized.
Stock-Based
Compensation
The
Company accounts for stock-based compensation using the fair value method as set forth in ASC 718,
Compensation—Stock
Compensation,
which requires a public entity to measure the cost of employee services received in exchange for an equity award
based on the fair value of the award on the grant date, with limited exceptions. Such value will be incurred as compensation expense
over the period an employee is required to provide service in exchange for the award, usually the vesting period. No compensation
cost is recognized for equity awards for which employees do not render the requisite service.
Income
Taxes
The
Company accounts for income taxes in accordance with ASC 740,
Income Taxes
. Deferred income tax assets and liabilities
are determined based upon differences between the financial reporting and tax basis of assets and liabilities, and are measured
using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. Deferred tax assets
are reduced by a valuation allowance to the extent management concludes it is more likely than not that the assets will not be
realized. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the consolidated statements
of operations in the period that includes the enactment date.
ASC
740 prescribes a comprehensive model for how companies should recognize, measure, present, and disclose in their financial statements
uncertain tax positions taken or expected to be taken on a tax return. The Company did not take any uncertain tax positions and
had no adjustments to unrecognized income tax liabilities or benefits for the three months ended March 31, 2019 and 2018.
Related
Party Transactions
The
Company follows ASC 850,
Related Party Disclosures
, for the identification of related parties and disclosure of related
party transactions.
In
accordance with ASC 850, the Company’s financial statements include disclosures of material related party transactions,
other than compensation arrangements, expense allowances, and other similar items in the ordinary course of business, as well
as transactions that are eliminated in the preparation of financial statements.
Comprehensive
Income
The
Company reports comprehensive income and its components following guidance set forth by ASC 220,
Comprehensive Income
,
which establishes standards for the reporting and display of comprehensive income and its components in the consolidated financial
statements. There were no items of comprehensive income applicable to the Company during the period covered in the financial statements.
Earnings
Per Share
Earnings
per common share is computed pursuant to ASC 260,
Earnings Per Share
. Basic earnings per share is computed by dividing
net income by the weighted average number of shares of common stock outstanding during the period. Diluted net income per share
is computed by dividing net income by the sum of the weighted average number of shares of common stock outstanding plus the weighted
average number of potentially dilutive securities during the period.
As
of March 31, 2019 and 2018, there were 18,429,211 and 10,005,697, respectively, of potentially dilutive securities in the form
of options and warrants. Also as of such dates, there were $350,000 and $550,000, respectively, of convertible promissory notes,
and $8 million and zero, respectively, of convertible debentures payable, that were potentially dilutive, whose conversion into
common stock is based on a discount to the market value of common stock on or about the future conversion date. For the three
months ended March 31, 2019, all potentially dilutive securities had an anti-dilutive effect on earnings per share, and in accordance
with ASC 260, were excluded from the diluted net income per share calculation, resulting in identical calculations of basic and
fully diluted net income per share. These securities may dilute earnings per share in the future.
Commitments
and Contingencies
The
Company follows ASC 450,
Contingencies
, which requires the Company to assess the likelihood that a loss will be incurred
from the occurrence or non-occurrence of one or more future events. Such assessment inherently involves an exercise of judgment.
In assessing possible loss contingencies from legal proceedings or unasserted claims, the Company evaluates the perceived merits
of such proceedings or claims, and of the relief sought or expected to be sought.
If
the assessment of a contingency indicates that it is probable that a material loss will be incurred and the amount of the liability
can be estimated, then the estimated liability would be accrued in the Company’s financial statements. If the assessment
indicates that a potentially material loss contingency is not probable but is reasonably possible, or is probable but cannot be
estimated, then the nature of the contingent liability, and an estimate of the range of possible losses, if determinable and material,
would be disclosed. Loss contingencies considered remote are generally not disclosed unless they involve guarantees, in which
case the guarantees would be disclosed.
While
not assured, management does not believe, based upon information available at this time, that a loss contingency will have material
adverse effect on the Company’s financial position, results of operations or cash flows.
Beneficial
Conversion Features on Convertible Debt
Convertible
instruments that are not bifurcated as a derivative pursuant to ASC 815,
Derivatives and Hedging
, and not accounted for
as a separate equity component under the cash conversion guidance are evaluated to determine whether their conversion prices create
an embedded beneficial conversion feature at inception, or may become beneficial in the future due to potential adjustments.
A
beneficial conversion feature is a nondetachable conversion feature that is “in-the-money” at the commitment date.
The in-the-money portion, also known as the intrinsic value of the option, is recorded in equity, with an offsetting discount
to the carrying amount of convertible debt to which it is attached. The discount is amortized to interest expense over the life
of the debt with adjustments to amortization upon full or partial conversions of the debt.
Risk
and Uncertainties
The
Company is subject to risks common to companies operating within the legal and medical marijuana industries, including, but not
limited to, federal laws, government regulations and jurisdictional laws.
Noncontrolling
Interests
Noncontrolling
interests represent third-party minority ownership of the Company’s consolidated subsidiaries. Net income attributable to
noncontrolling interests is shown in the consolidated statements of operations; and the value of net assets owned by noncontrolling
interests are presented as a component of equity within the balance sheets.
Off
Balance Sheet Arrangements
The
Company does not have any off-balance sheet arrangements.
Recent
Accounting Pronouncements
In
November 2016, the FASB issued ASU No. 2016-18,
Statement of Cash Flows (Topic 230): Restricted Cash
, which enhances and
clarifies the guidance on the classification and presentation of restricted cash in the statement of cash flows. This ASU was
adopted effective January 1, 2019 with no impact to the Company’s financial statements and related disclosures.
In
June 2018, the FASB issued ASU 2018-07,
Compensation - Stock Compensation (Topic 718): Improvement to Nonemployee Share-Based
Payment Accounting,
which is part of the FASB’s simplification initiative to maintain or improve the usefulness of the
information provided to the users of financial statements while reducing cost and complexity in financial reporting. This update,
which provides consistency in the accounting for share-based payments to nonemployees with that of employees, was adopted
effective January 1, 2019 with no material impact to the Company’s financial statements and related disclosures.
In
January 2017, the FASB issued ASU 2017-04,
Intangibles - Goodwill and Other (Topic 350)
which simplifies goodwill impairment
testing by requiring that such periodic testing be performed by comparing the fair value of a reporting unit with its carrying
amount and recognizing an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair
value. The Company is currently evaluating the impact of this ASU on its consolidated financial statements and related disclosures,
which is effective for fiscal years, including interim periods, beginning after December 15, 2019.
In
addition to the above, the Company has reviewed all other recently issued, but not yet effective, accounting pronouncements, and
does not believe the future adoption of any such pronouncements will have a material impact on its financial condition or the
results of its operations.
NOTE
3 – ACQUISITIONS
Sigal
Consulting LLC
In
May 2014, the Company, through its subsidiary MariMed Advisors Inc., acquired Sigal Consulting LLC from its ownership group which
included the current CEO and CFO of the Company (the “Sigal Ownership Group”). The purchase price received by the
Sigal Ownership Group was comprised of (i) 31,954,236 shares of common stock valued at approximately $5,913.000, representing
50% of the Company’s outstanding shares on the closing date, (ii) options to purchase three million shares of the Company’s
common stock, exercisable over five years with exercise prices ranging from $0.15 to $0.35, and valued at approximately $570,000,
and (iii) a 49% ownership interest in MariMed Advisors Inc. The excess of purchase price over the book value of the acquired entity
was recorded as goodwill, which was subsequently impaired in full and written down to zero.
In
June 2017, the remaining 49% interest of MariMed Advisors Inc. was merged into the Company in exchange for an aggregate 75 million
shares of common stock to the Sigal Ownership Group.
Betty’s
Eddies™
In
October 2017, the Company acquired the intellectual property, formulations, recipes, proprietary equipment, know-how, and other
certain assets of the Betty’s Eddies™ brand of cannabis-infused fruit chews, from Icky Enterprises LLC, a company
partially owned by an officer of the company (“Icky”). The purchase price was $140,000 plus 1,000,000 shares of the
Company’s common stock valued at $370,000 based on the price of the common stock on the date of the agreement. These shares
of common stock were issued in June 2018.
The
acquisition was accounted for in accordance with ASC 10,
Business Combinations
. The following table summarizes the allocation
of the purchase price to the fair value of the assets acquired on the acquisition date:
Inventory
|
|
$
|
46,544
|
|
Machinery
and equipment
|
|
|
130,255
|
|
Goodwill
|
|
|
333,201
|
|
Total
fair value of consideration
|
|
$
|
510,000
|
|
The
goodwill balance of approximately $333,000 was written down in 2018.
As
part of the agreement between the parties, Icky shall receive royalties based on a percentage of the Company’s sales of
the Betty’s Eddies™ product line, commencing at 25% and decreasing to 2.5% as certain sales thresholds are met. For
the three months ended March 31, 2019 and 2018, such royalties approximated $20,000 and $5,000, respectively.
iRollie
LLC
Effective
April 2018, the Company entered into a purchase agreement whereby 264,317 shares of the Company’s common stock were exchanged
for 100% of the ownership interests of iRollie LLC, a manufacturer of branded cannabis products and accessories for consumers,
and custom product and packaging for companies in the cannabis industry. The Company acquired, among other assets, iRollie’s
entire product line, service offerings, clients, and intellectual property, and hired its two co-founders.
The
acquisition was accounted for in accordance with ASC 10. The shares of Company common stock valued at $280,176 were issued to
iRollie’s former owners in December 2018, at which time the Company adjusted the total goodwill generated on the transaction.
The following table summarizes the allocation of the purchase price to the fair value of the assets acquired:
Cash
and cash equivalents
|
|
$
|
13,494
|
|
Goodwill
|
|
|
266,682
|
|
Total
fair value of consideration
|
|
$
|
280,176
|
|
Prior
to the acquisition, iRollie had not been generating positive cash flow as a stand-alone entity, and in conformity with relevant
accounting guidance, the goodwill was written down.
ARL
Healthcare Inc.
In
October 2018, the Company’s cannabis-licensed client in Massachusetts, ARL Healthcare Inc. (“ARL”), filed a
plan of entity conversion with the state to convert from a non-profit entity to a for-profit corporation, with the Company as
the sole shareholder of the for-profit corporation. ARL holds three cannabis licenses from the state of Massachusetts for the
cultivation, production and dispensing of cannabis.
On
November 30, 2018, the conversion plan was approved by the secretary of state, and effective December 1, 2018, ARL was consolidated
into the Company as a wholly-owned subsidiary. Additionally, the Company’s chief operating officer was appointed as ARL’s
sole board member.
The
acquisition was accounted for in accordance with ASC 10,
Business Combinations
. The following table summarizes the allocation
of the purchase price to the fair value of the assets acquired and liabilities assumed on the acquisition date:
Equipment
|
|
$
|
21,000
|
|
Cannabis
licenses
|
|
|
185,000
|
|
Accounts
payable
|
|
|
(120,689
|
)
|
Due
to related parties
|
|
|
(92,765
|
)
|
Total
identifiable net assets
|
|
|
(7,454
|
)
|
Goodwill
|
|
|
731,902
|
|
Total
fair value of consideration
|
|
$
|
724,448
|
|
The
total consideration paid by the Company was equal to the forgiveness of amounts owed to the Company by ARL. Accordingly,
the transaction gave rise to goodwill of approximately $732,000, which the Company wrote down. The cannabis licenses acquired
comprised the balance of
Intangibles
within the asset section of the Company’s balance sheet at December 31, 2018.
This intangible asset is being amortized over its estimated useful life, and at March 31, 2019, the carrying value less amortization
was approximately $123,000.
AgriMed
Industries of PA LLC
In
July 2018, the Company entered into a purchase agreement to acquire 100% of the ownership interests of AgriMed Industries of PA
LLC (“AgriMed”), an entity that holds a license from the state of Pennsylvania for the cultivation of cannabis.
AgriMed presently develops cannabis products that are wholesaled to medical marijuana dispensaries within the state. The purchase
price is comprised of $8,000,000, a portion of which may be in the form of the Company’s common stock at the seller’s
option, and the assumption of certain liabilities of AgriMed not to exceed $700,000. In February 2019, the Company filed a complaint
against AgriMed for specific performance of their obligations under the purchase agreement. The parties are currently working
towards a resolution of this matter.
KPG
of Anna LLC and KPG of Harrisburg LLC
In
October 2018, the Company entered into a purchase agreement to acquire 100% of the ownership interests of KPG of Anna LLC and
KPG of Harrisburg LLC, the Company’s two cannabis-licensed clients that operate medical marijuana dispensaries in the state
of Illinois (both entities collectively, the “KPGs”), from the current ownership group of the KPGs (the “Sellers”).
As part of this transaction, the Company will also acquire the Sellers’ ownership interests of Mari Holdings IL LLC, the
Company’s subsidiary which owns the real estate in which the KPGs’ dispensaries are located (“Mari-IL”).
The
purchase price of 1,000,000 shares of the Company’s common stock shall be issued to the Sellers upon the closing of the
transaction, which is dependent upon, among other closing conditions, the approval by the Illinois Department of Financial and
Professional Regulation. Such approval is expected to be received by mid-2019. After the transaction is effectuated, the KPGs
and Mari-IL will be wholly-owned subsidiaries of the Company.
As
of March 31, 2019, the Company had not yet received the legislative approval – required for all ownership changes of cannabis
licensees – and therefore the operations of the KPGs were not consolidated in the Company’s financial statements as
of such date. The Company anticipates approval will be obtained, and the transaction consummated, in 2019. When that occurs, the
Company expects to consolidate the acquired entities in accordance with ASC 10.
The
Harvest Foundation LLC
In
November 2018, the Company issued a letter of intent to acquire 100% of the ownership interests of The Harvest Foundation LLC,
the Company’s cannabis-licensed client in the state of Nevada. The parties are in the process of negotiating a definitive
agreement governing the acquisition following the satisfactory completion of due diligence. The acquisition is conditioned upon
the appropriate legislative approval of the transaction, which is expected to occur in May 2019. Accordingly, the operations of
The Harvest Foundation LLC have not been consolidated for the three months ended March 31, 2019.
Kind
Therapeutics LLC
In
December 2018, the Company entered into a memorandum of understanding to merge with its cannabis-licensed client in Maryland,
Kind Therapeutics LLC. A merger agreement is currently being drafted for this transaction, which is intended to qualify as a tax-deferred
reorganization under the Internal Revenue Code. The parties expect the merger agreement to be finalized, and the transaction approved
by the state legislature in 2019.
Meditaurus
LLC
In
February 2019, the Company entered into a binding letter of intent to acquire a 70% interest in Meditaurus LLC, a company established
by Dr. Jokubas Ziburkas, a PhD in neuroscience who is a leading authority on CBD and its interactions with the brain and endocannabinoid
system. Meditaurus currently operates in the United States and Europe and has developed proprietary CBD formulations sold under
its
Florance
brand.
The
purchase price of $2.8 million is comprised of cash up to $720,000 and the remainder in the Company’s common stock. The
Company shall receive a license to distribute Meditaurus products in exchange for a license fee to be finalized prior to the closing
of the transaction. In addition, the Company shall hire Dr. Ziburkas and other members of the Meditaurus executive team. The transaction
is conditioned upon the successful due diligence by the parties as well as ownership and regulatory approvals, as required. The
Company anticipates definitive agreements to be executed and the deal closed within 120 days.
NOTE
4 – INVESTMENTS
At
March 31, 2019 and December 31, 2018, the Company’s investments were comprised of the following:
|
|
March
31,
2019
|
|
|
December 31,
2018
|
|
GenCanna
Global Inc.
|
|
$
|
32,234,402
|
|
|
$
|
-
|
|
CVP
Worldwide LLC
|
|
|
1,125,482
|
|
|
|
1,172,163
|
|
Iconic
Ventures Inc.
|
|
|
500,000
|
|
|
|
500,000
|
|
Chooze
Corp.
|
|
|
257,687
|
|
|
|
-
|
|
Total
investments
|
|
$
|
34,117,571
|
|
|
$
|
1,672,163
|
|
GenCanna
Global Inc.
During
2018, in a series of transactions, the Company purchased $30 million of subordinated secured convertible debentures (the “GC
Debentures”) of GenCanna Global, Inc., a producer and distributor of agricultural hemp, CBD formulations, hemp genetics,
and hemp products (“GenCanna”). In February 2019, the Company converted the GC Debentures, plus unpaid accrued interest
of approximately $229,000 through the conversion date, into common stock of GenCanna equal to a 33.5% ownership interest on a
fully diluted basis.
The
investment has been accounted under the equity method. Accordingly, the Company recorded equity in earnings of approximately $2,005,000
based its percentage equity of GenCanna’s net income from the date of conversion through March 31, 2019. Such amount increased
the carrying value of the investment to approximately $32,234,000 at March 31, 2019.
CVP
Worldwide LLC
In
August
2018, the Company invested $300,000, of a total contracted
cash investment of $500,000, and issued 378,259 shares of common stock, valued at approximately $915,000, in exchange for 23%
ownership in CVP Worldwide LLC (“CVP”). CVP has developed a customer relationship management and marketing platform,
branded under the name Sprout, which is specifically designed for companies in the cannabis industry.
The
Company shall assist in the ongoing development and design of Sprout, and in marketing Sprout to companies within the cannabis
industry. The Company shall earn a percentage share of Sprout’s revenues generated from sales (i) to the Company’s
clients, and (ii) by the Company to third parties. As of December 31, 2018, no revenue share was earned by the Company.
The
investment has been accounted under the equity method. In 2018, the Company recorded a charge to net income of
approximately $43,000 based on its equity in CVP’s net loss during the period of the Company’s ownership. Such amount
reduced the carrying value of the investment to approximately $1,172,000 at December 31, 2018. For the three months ended March
31, 2019, the Company recorded a charge of approximately $48,000 representing the Company’s equity in CVP’s net loss
during this period, further reducing the carrying value of the investment to approximately $1,125,000 at March 31, 2019.
Iconic
Ventures Inc.
In
December 2018, the Company purchased 2,500,000 shares of common stock of Iconic Ventures Inc. (“Iconic”) for an aggregate
price of $500,000. Iconic, a private company, has developed DabTabs™, a unique solution for cannabinoid vaporization via
a convenient portable tablet that provides precisely measured dosing and acts as a storage system for full spectrum extracts,
concentrates and distillates.
The
Company’s investment equates to an ownership percentage in Iconic of 8.75%. The Company was not given a board seat
and does not have ability to exert operational or financial control over the entity. In accordance with ASC 321,
Investments
– Equity Securities
, the Company elected the measurement alternative to value this equity investment without a readily
determinable fair value. Under this alternative measurement election, the investment is recorded at its cost minus impairment,
if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment
in Iconic. Following the Company’s purchase, there has been no impairment to this investment, nor any observable price changes
to investments in Iconic. Accordingly, this investment was carried at $500,000 at March 31, 2019 and December 31,
2018.
The
Company will continue to apply the alternative measurement guidance until this investment does not qualify to be so measured.
The Company may subsequently elect to measure this investment at fair value, and if so, shall measure all identical or similar
investments in Iconic at fair value. Any subsequent changes in fair value shall be recognized in net income.
Chooze
Corp.
In
January 2019, the entire principal and accrued interest balance of a note receivable from Chooze Corp. of approximately $258,000
was converted into a 2.7% ownership interest in Chooze. In accordance with ASC 321, the Company elected the measurement alternative
to value this equity investment without a readily determinable fair value. Following the Company’s purchase, there has been
no impairment to this investment, nor any observable price changes to investments in the entity. Accordingly, this investment
was carried at approximately $258,000 at March 31, 2019.
Vitiprints
In
August 2018, the Company entered into a licensing agreement for the exclusive worldwide license to use, develop, sublicense, promote,
sell or otherwise commercialize in any way a patented technology to produce and distribute cannabis products with exceedingly
precise dosing at increased production economies (“the Vitiprints License”). The licensing agreement has an initial
term of five years, with an option to renew the agreement for successive five-year periods, provided that notice of renewal is
delivered prior to the expiration of the initial term or a renewal term.
Pursuant to the agreement, the Company made a non-refundable payment of $250,000 which was charged to
Cost
of Revenues
in August 2018. In addition, the Company shall pay a royalty to Vitiprints equal to 10% of net revenue, as defined,
received by the Company from commercialization of the Vitiprints License, with a minimum royalty payment of $250,000 due on the
date of the first commercial sale of a licensed product. In order to maintain the exclusivity of the license, the Company shall
make minimum royalty payments of (i) $500,000 for the year following the first sale date, as defined, (ii) $750,000 for the following
year, and (iii) $1,000,000 for all remaining years during the initial or renewal terms.
NOTE
5 – DEFERRED RENTS RECEIVABLE
The
Company is the lessor under six operating leases which contain rent holidays, escalating rents over time, 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 to any finance leases.
The
Company recognizes fixed rental receipts from such lease agreements on a straight-line basis over the expected lease term. Differences
between amounts received and amounts recognized are recorded under
Deferred Rents Receivable
on the balance sheet. Contingent
rentals are recognized only after tenants’ revenues are finalized and if such revenues exceed certain minimum levels.
The
Company leases the following owned properties:
|
●
|
Delaware
– a 45,000 square foot facility purchased in September 2016 and built into a cannabis cultivation, processing, and dispensary
facility which is leased to a cannabis-licensed client occupying 100% of the space under a 20-year triple net lease expiring
in 2035.
|
|
|
|
|
●
|
Illinois
– two 3,400 square foot free-standing retail dispensaries in the cities of Anna and Harrisburg and leased to two licensed
cannabis dispensary clients each under a 20-year lease expiring in 2036.
|
|
|
|
|
●
|
Maryland
– a 180,000 square foot former manufacturing facility purchased January 2017 and rehabilitated by the Company into a
cultivation and processing facility which is leased to a licensed cannabis client under a 20-year triple net lease that started
in January 2018.
|
|
|
|
|
●
|
Massachusetts
– a 138,000 square foot industrial property of which approximately half of the available square footage is leased to
a non-cannabis manufacturing company under a five-year lease.
|
The
Company subleases the following property:
|
●
|
Delaware
– 4,000 square feet of retail space in a multi-use building space which the Company developed into a cannabis dispensary
which is subleased to its cannabis-licensed client under a under a five-year triple net lease with a five-year option to extend.
|
As
of March 31, 2019 and December 31, 2018, cumulative fixed rental receipts under such leases approximated $6.4 million
and $5.4 million, respectively, compared to revenue recognized on a straight-line basis of approximately $8.5 million
and $7.5 million. Accordingly, the deferred rents receivable balances at March 31, 2019 and December 31, 2018 approximated
$2.1 million and at the end of both periods.
Future
minimum rental receipts for non-cancelable leases and subleases as of March 31, 2019 were:
2019
|
|
$
|
3,101,253
|
|
2020
|
|
|
4,222,040
|
|
2021
|
|
|
4,368,640
|
|
2022
|
|
|
4,293,999
|
|
2023
|
|
|
3,997,651
|
|
Thereafter
|
|
|
48,942,935
|
|
Total
|
|
$
|
68,926,518
|
|
NOTE
6 – DUE FROM THIRD PARTIES
At
March 31, 2019 and December 31, 2018, the following amounts were advanced by the Company to its cannabis-licensed
clients primarily for working capital purposes:
|
|
March
31,
2019
|
|
|
December
31, 2018
|
|
Kind
Therapeutics USA Inc. (Maryland licensee)
|
|
$
|
1,437,902
|
|
|
$
|
2,679,496
|
|
KPG
of Anna LLC (Illinois licensee)
|
|
|
67,163
|
|
|
|
482,700
|
|
KPG
of Harrisburg LLC (Illinois licensee)
|
|
|
57,032
|
|
|
|
449,385
|
|
Harvest
Foundation LLC (Nevada licensee)
|
|
|
734,066
|
|
|
|
248,796
|
|
Total
due from third parties
|
|
$
|
2,296,163
|
|
|
$
|
3,860,377
|
|
When
a client is able to organically fund its ongoing operations, such client will issue a promissory note to the Company for the cumulative
advances made up to that point, which will then be paid down monthly over a period of time. The Company has successfully
employed this strategy in the past, and accordingly, in January 2019, KPG of Anna LLC and KPG of Harrisburg LLC issued promissory
notes to the Company as described in
Note 7
–
Notes Receivable
.
NOTE
7 – NOTES RECEIVABLE
At
March 31, 2019 and December 31, 2018, notes receivable were comprised of the following:
|
|
March
31,
2019
|
|
|
December
31,
2018
|
|
First
State Compassion Center
|
|
$
|
566,452
|
|
|
$
|
578,723
|
|
Healer
LLC
|
|
|
512,103
|
|
|
|
307,429
|
|
KPG
of Anna LLC
|
|
|
449,134
|
|
|
|
-
|
|
KPG
of Harrisburg LLC
|
|
|
398,803
|
|
|
|
-
|
|
Chooze
Corp.
|
|
|
-
|
|
|
|
257,687
|
|
Total
notes receivable
|
|
|
2,236,592
|
|
|
|
1,143,839
|
|
Notes
receivable, c
urrent portion
|
|
|
64,392
|
|
|
|
51,462
|
|
Notes
receivable, less current portion
|
|
$
|
2,172,200
|
|
|
$
|
1,092,377
|
|
The
Company loaned approximately $700,000 to First State Compassion Center, its Delaware cannabis-licensee client, during the period
of October 2015 to April 2016. In May 2016, this client issued a 10-year promissory note, as amended, to the Company bearing interest
at a compounded rate of 12.5% per annum. The monthly payments of approximately $10,100 will continue through April 2026, at which
time the note will be fully paid down. At March 31, 2019 and December 31, 2018, the current portion of this note was
approximately $53,000 and $51,000, respectively, and included in
Note Receivable, Current Portion
on the balance sheets.
During
the period August to October 2018, the Company loaned $300,000 to Healer LLC, an entity that provides cannabis
education, dosage programs, and products developed by Dr. Dustin Sulak, an integrative medicine physician and nationally renowned
cannabis practitioner. In January and February 2019, the company loaned Healer an additional $200,000. The loans bear interest
at 6% per annum, with principal and interest payable on the maturity date which is three years from issuance.
In
January 2019, KPG of Anna LLC and KPG of Harrisburg LLC each issued a promissory note to the Company in the amount of approximately
$451,000 and $405,000, respectively, representing the advances made by the Company to these entities through December 31, 2018.
The notes bear interest at 12% per annum, with monthly principal and interest payments due through December 2038. At March 31,
2019, the current portion of these notes approximated $11,000 in the aggregate.
During
the period May to October 2018, the Company loaned $250,000 to Chooze Corp. bearing interest at 8% per annum and maturing in 2021.
In January 2019, the entire principal and accrued interest balance of approximately $258,000 was converted into a 2.7% ownership
interest in Chooze.
NOTE
8 – SEED INVENTORY
During
the three months ended March 31, 2019, MariMed Hemp Inc. (“Mari-Hemp”), the Company’s wholly-owned subsidiary
operating in the emerging global hemp market, purchased $3.25 million of hemp seeds meeting the U.S. government’s definition
of federally legal industrial hemp, which was descheduled as a controlled substance and classified as an agricultural commodity
upon the signing of the 2018 Farm Bill. Mari-Hemp intends to use the seeds to conduct a wholesale hemp distribution business and
to develop a hemp-derived CBD product line.
NOTE
9 – DEBENTURES RECEIVABLE
As
detailed in
Note 4
–
Investments
, the Company converted the GC Debentures into a 33.5% ownership interest
in GenCanna in February 2019. Prior to conversion, the GC Debentures bore interest at a compounded rate of 9% per annum and had
an original maturity of three years from issuance. For the year ended December 31, 2018, the Company earned and received interest
income of approximately $502,000 on the GC Debentures.
Among
other provisions of the subscription agreement governing the GC Debentures, the Company agreed to fund a $10 million employee
bonus pool should GenCanna meet certain 2019 operating targets, and the Company’s CEO was appointed as a director to GenCanna’s
board. Additionally, pursuant to a rights agreement, the Company was granted certain rights including the rights of inspection,
financial information, and participation in future security offerings of GenCanna.
NOTE
10 – PROPERTY AND EQUIPMENT
At
March 31, 2019 and December 31, 2018, property and equipment consisted of the following:
|
|
March
31,
2019
|
|
|
December
31,
2018
|
|
Land
|
|
$
|
3,392,710
|
|
|
$
|
3,392,710
|
|
Buildings
and building improvements
|
|
|
13,651,246
|
|
|
|
13,566,144
|
|
Tenant
improvements
|
|
|
5,392,287
|
|
|
|
5,348,882
|
|
Furniture
and fixtures
|
|
|
143,237
|
|
|
|
114,160
|
|
Machinery
and equipment
|
|
|
1,872,681
|
|
|
|
1,632,351
|
|
Construction
in progress
|
|
|
13,345,944
|
|
|
|
12,205,447
|
|
|
|
|
37,798,105
|
|
|
|
36,259,694
|
|
Less:
accumulated depreciation
|
|
|
(2,375,970
|
)
|
|
|
(2,159,830
|
)
|
Property
and equipment, net
|
|
$
|
35,422,135
|
|
|
$
|
34,099,864
|
|
During
the three months ended March 31, 2019 and 2018, additions to property and equipment were approximately $1.5
million and $1.3 million, respectively.
The
2018 additions were primarily comprised of (i) the buildout of properties in Hagerstown, MD, New Bedford, MA,
and Middleborough, MA, and (ii) improvements to the Lewes, DE facility. The 2019 additions consisted
primarily of the continued buildout of properties in Hagerstown, MD, New Bedford, MA, and Middleborough, MA.
The
December 31,
2018 construction in progress balance of approximately
$12.2 million was primarily comprised of (i) New Bedford, MA building, improvements and machinery of approximately $9.8 million
and (ii) Middleborough, MA building, improvements and fixtures of approximately 2.4 million. The additions to construction in
progress during the three months ended March 31, 2019 of approximately $1.1 million consisted of continuing buildout and machinery
for the New Bedford, MA and Middleborough, MA properties.
Depreciation
expense for the three months ended March 31, 2019 and 2018 was approximately $218,000 and $81,000,
respectively.
NOTE
11 – DEBT
Mortgages
In
November 2017, the Company entered into a 10-year mortgage agreement with Bank of New England for the purchase of a 138,000 square
foot industrial property in New Bedford, Massachusetts, within which the Company has built a 70,000 square foot cannabis cultivation
and processing facility that is leased to ARL. From the start of the mortgage through May 2019, the Company is required to make
monthly payments of interest-only at a rate equal to the monthly prime rate plus 2%, with a floor of 6.25%. From May 2019 to May
2024, the Company shall make principal and interest payments at a rate equal to the prime rate on May 2, 2019 plus 2%, with a
floor of 6.25%. Principal and interest payments shall continue from May 2024 through the end of the lease at a rate equal to the
prime rate on May 2, 2024 plus 2%, with a floor of 6.25%. The principal balance on this mortgage was $4,895,000 on both March
31, 2019 and December 31, 2018, of which approximately $91,000 and $63,000, respectively, was current.
The
Company maintains another mortgage with Bank of New England for the 2016 purchase of a 45,070 square foot building in Wilmington,
Delaware which was developed into a cannabis seed-to-sale facility and is currently leased to the Company’s cannabis-licensed
client in the state. The mortgage matures in 2031 with monthly principal and interest payments at a rate of 5.25% through September
2021, and thereafter the rate adjusting every five years to the then prime rate plus 1.5% with a floor of 5.25%. At March 31,
2019 and December 31, 2018, the principal balance on this mortgage was approximately $1,767,000 and $1,792,000,
respectively, of which approximately $103,000 and $102,000, respectively, was current.
In
2016, the Company entered into a mortgage agreement with DuQuoin State Bank (“DSB”) for the purchase of two properties
that it developed into two 3,400 square foot free-standing retail dispensaries that are currently leased to the KPGs. On May 5
th
of each year, this mortgage is due to be repaid unless it is renewed for another year at a rate determined at the discretion
of DSB’s executive committee. The Company has been notified by DSB that the mortgage will be renewed in May 2019.
At March 31, 2019 and December 31, 2018, the principal balance on this mortgage was approximately $845,000 and $850,000,
respectively, of which approximately $23,000 was current at the end of both periods.
Promissory
Notes
In
March 2019, the Company raised $6 million from the issuance of a secured promissory note maturing in December 2019 and
bearing interest at the rate of 13% per annum, with interest payable monthly. The Company may elect to prepay the note in
whole or part without penalty upon three business days’ notice and with payment of all interest through the maturity
date. The Company may extend the maturity date by up to three months upon thirty days’ notice prior to the maturity
date with an extension fee payment to the note holder of $300,000. At March 31, 2019, the carrying value of this note was $6
million.
In
September 2018, the Company raised $3 million from the issuance of a secured promissory note bearing interest at the rate
of 10% per annum, with interest payable monthly. The note is due and payable in September 2019, however the Company may elect
to prepay the note in whole or part at any time after December 17, 2018 without premium or penalty. The Company issued three-year
warrants, which were attached to this promissory note, to the lender’s designees to purchase 750,000 shares of the Company’s
common stock at an exercise price of $1.80 per share. The Company recorded a discount on the note of approximately $1,511,000
from the allocation of note proceeds to the warrants based on the fair value of such warrants on the issuance date. Approximately
$882,000 of the warrant discount was amortized to interest expense during 2018, and the remaining $629,000 was amortized during
the three months ended March 31, 2019. The carrying value of this note was $3 million at March 31, 2019 and approximately
$2.37 million, net of remaining warrant discount of $629,000, at December 31, 2018.
During
2018, holders of previously issued promissory notes with principal balances of $1,075,000 converted such promissory notes into
1,568,375 shares of common stock at conversion prices ranging from $0.65 to $0.90 per share. The conversions resulted in the recording
of non-cash losses of approximately $829,000 in the aggregate, based on the market value of the common stock on the conversion
dates. No such conversions occurred during the three months ended March 31, 2019
During
2018, the Company issued 2,596,313 shares of common stock and subscriptions on 79,136 shares of common stock to retire promissory
notes with principal balances of $7,495,000 and approximately $95,000 of accrued interest. The Company recorded non-cash losses
of approximately $2.5 million based on the fair value of the common stock on the retirement dates. No such retirements were
made during the three months ended March 31, 2019.
During
2018 the Company repaid $700,000 of promissory notes. No repayments of debt occurred during the three months ended March
31, 2019.
The
aggregate scheduled maturities of the Company’s total debt outstanding, inclusive of the promissory notes and mortgages
described within this
Note 11
–
Debt
, and the convertible debentures described in the following
Note
12
–
Debentures Payable
, as of March 31, 2019 were:
2019
|
|
$
|
11,643,995
|
|
2020
|
|
|
8,570,954
|
|
2021
|
|
|
5,235,827
|
|
2022
|
|
|
251,543
|
|
2023
|
|
|
268,338
|
|
Thereafter
|
|
|
5,544,225
|
|
Total
|
|
|
31,514,882
|
|
Less
discounts
|
|
|
(9,833,000
|
)
|
|
|
$
|
21,681,882
|
|
NOTE
12 – DEBENTURES PAYABLE
In
October and November 2018, pursuant to a securities purchase agreement (the “SPA”), the Company sold an aggregate
of $10,000,000 of convertible debentures bearing interest at the rate of 6% per annum that mature two years from
issuance, with a 1% issue discount, resulting in net proceeds to the Company of $9,900,000 (the “$10M Debentures”).
The
holder of the $10M Debentures (the “Holder”) has the right at any time to convert all or a portion of the $10M Debenture,
along with accrued and unpaid interest, into the Company’s common stock at conversion prices equal to 80% of a calculated
average, as determined in the $10M Debentures, of the daily volume-weighted price during the ten consecutive trading days preceding
the date of conversion. Notwithstanding this conversion right, the Holder shall limit conversions in any given month to certain
agreed-upon values based on the conversion price, and the Holder shall also be limited from beneficially owning more than 4.99%
of the Company’s outstanding common stock (potentially further limiting the Holder’s conversion right).
The
Company shall have the right to redeem all or a portion of the $10M Debentures, along with accrued and unpaid interest, at a 10%
premium, provided however that the Company first provide advance written notice to the Holder of its intention to make a redemption,
with the Holder allowed to affect one or more conversions of the $10M Debentures during such notice period.
Upon
a change in control transaction, as defined in the $10M Debentures, the Holder may require the Company to redeem all or a portion
of the $10M Debentures at a price equal to 110% of the principal amount of the $10M Debentures plus all accrued and unpaid interest
thereon. So long as the $10M Debentures are outstanding, in the event the Company enters into a Variable Rate Transaction (“VRT”),
as defined in the SPA, the Holder may cause the Company to revise the terms of the $10M Debentures to match the terms of the convertible
security of such VRT. As part of issuance of the $10M Debenture, the Company issued three-year warrants to the Holder to purchase
324,675 shares of common stock at exercise prices of $3.50 and $5.50 per share (the “Warrants”).
Pursuant
to the terms of a registration rights agreement with the Holder, entered into concurrently with the SPA and the $10M Debentures,
the Company agreed to provide the Holder with customary registration rights with respect to any potential shares issued pursuant
to the terms of the SPA, the $10M Debentures, and the Warrants.
Subsequent
to the consummation of the SPA and related agreements, the Company and the Holder executed an addendum to the SPA whereby the
Holder agreed to that it would not undertake a conversion of all or a portion of the $10M Debentures that would require the Company
to issue more shares than the amount of available authorized shares at the time of conversion, which amount of authorized shares
shall not be less than the current authorized number of 500 million shares of common stock. Such addendum eliminated the requirement
to bifurcate and account for the conversion feature of the $10M Debentures as a derivative.
Based
on the conversion prices of the $10M Debentures in relation to the market value of the Company’s common stock, the $10M
Debentures provided the Holder with a beneficial conversion feature, as the embedded conversion option was in-the-money on the
commitment date. The intrinsic value of the beneficial conversion feature of approximately $5.6 million was recorded as a discount
to the carrying amount of the $10M Debentures, with an offset to additional paid-in-capital.
In
addition to the discount related to the beneficial conversion feature, an additional discount of approximately $1.057 million
was recorded based on the allocation of proceeds to the fair value of the Warrants attached to the debt.
In
November and December 2018, the Holder converted $1,400,000 of principal and approximately $36,000 of accrued interest into 524,360
shares of common stock at conversion prices of $2.23 and $3.04 per share. In January 2019, the Holder converted $600,000 of
principal and approximately $97,000 of accrued interest into 233,194 shares of common stock at conversion prices ranging from
$2.90 and $3.06 per share
During
the three months ended March 31, 2019, amortization of the beneficial conversion feature, after adjustment
for the conversions, approximated $757,000; amortization of the Warrants discount approximated $131,000; and the
amortization of original issue discount approximated $12,000. This amortization was charged to interest expense. Additionally,
accrued interest expense on the notes for such period approximated $123,000 of which approximately $88,000 was paid
prior to the end of the period.
At
March 31, 2019, the outstanding principal balance on the $10M Debentures was $8 million. Also on such date, the unamortized balances
of the beneficial conversion feature, Warrants discount, and original issue discount were approximately $3,290,000, $836,000,
and $79,000, respectively. Accordingly, at December 31, 2018, the carrying value of the $10M Debentures was approximately $3,795,000.
At
December 31, 2018, the outstanding principal balance on the $10M Debentures was $8.6 million. Also on such date, the unamortized
balances of the beneficial conversion feature, Warrants discount, and original issue discount were approximately $4.1 million,
$966,000, and $91,000, respectively, and accrued and unpaid interest was approximately $62,000. Accordingly, at December
31, 2018, the carrying value of the $10M Debentures was approximately $3.6 million.
NOTE
13 – EQUITY
Preferred
Stock
In
January 2018, all 500,000 shares of subscribed Series A convertible preferred stock were converted into 970,988 shares of common
stock at a conversion price of $0.55 per share. The Company recorded a non-cash loss on conversion of approximately $34,000 based
on the market value of the common stock on the conversion date.
The
Series A convertible preferred stock accrues an annual dividend of 6% until conversion. The preferred stock is convertible, along
with any accrued dividends, into common stock at a twenty-five percent discount to the selling price of the common stock in a
qualified offering, as defined in the subscription agreement. In addition, the Company has the ability to force the conversion
of preferred stock at such time the Company has a market capitalization in excess of $50 million for ten consecutive trading days.
In such event, the conversion price shall be a 25% discount to the average closing price of the Company’s common stock over
the ten trading days prior to the Company’s notice of its intent to convert.
Common
Stock
During
the three months ended March 31, 2019, the Company sold 799,995 shares of common stock at a price of $3.25
per share, resulting in total proceeds of $2.6 million. During the same period in 2017, the Company sold 1,200,000
shares of common stock, at a price of $0.50 per share, resulting in total proceeds of $600,000.
During
the three months ended March 31, 2019, the Company issued 97,136 common shares associated with previously issued
subscriptions on common stock with a value of approximately $169,000. No such issuances occurred during the same period in
2018.
During
the three months ended March 31,
2018, the Company issued
295,000 shares, in exchange for services rendered by third-parties or to otherwise settle outstanding obligations. Based
on the market value of the common stock on the dates of issuance, the Company recorded non-cash losses on these settlements of
approximately $204,000. No such issuances were made in 2019.
As
previously disclosed in
Note 12
–
Debentures Payable
, in January 2019, the Holder of the $10M
Debentures converted $600,000 of principal and approximately $97,000 of accrued interest into 233,194 shares
of common stock.
As
further disclosed in
Note 14 –
Stock Options
, during the three months ended March 31,
2019 and 2018, 260,015 and 300,000 shares of common stock, respectively, were issued in connection with
the exercise of stock options.
As
further disclosed in
Note 15 –
Warrants
, during the three months ended March 31, 2019 and 2018,
warrants to purchase 22,000 and 89,614 shares of common stock were exercised.
Common
Stock Subscribed But Not Issued
At
December 31, 2018, there were outstanding subscriptions on 79,136 shares of common stock related to the settlement of a previously
issued promissory note with a principal balance of $50,000 and accrued interest of $1,454. These subscriptions had a value of
approximately $95,000 based on the market value of the common stock on the settlement date. Also outstanding on such date were
subscriptions on 18,000 shares of common stock, equivalent to an aggregate amount of approximately $74,000, for
the payment of rent for the months of September 2018 through January 2019 for a leased property in Massachusetts. The shares of
common stock associated with all outstanding subscriptions at December 31, 2018 were issued in March 2019.
During
the three months ended March 31, 2018, the Company issued subscriptions on 1,319,432 shares of common stock, at prices of $0.65
and $0.95 per share, resulting in total proceeds of $875,000. No subscriptions on common stock were issued during the same period
in 2019.
In
February 2018, two promissory notes totaling $975,000 were converted into subscriptions on 1,346,153 shares of common stock. Based
on the market value of the common stock on the conversion dates, the Company recorded a non-cash loss on these conversions of
approximately $652,000. No such conversions occurred in 2019.
During
the three months ended March 31, 2018, the Company issued subscriptions on 738,462 shares of common stock to settle an outstanding
obligation. The Company recorded a non-cash loss of approximately $459,000 based on the market value of the common stock on the
settlement date. No such settlements were made in 2018.
NOTE
14 – STOCK OPTIONS
During
the three months ended March 31, 2018, the Company granted options to purchase 1.45 million shares of common stock to the Company’s
board members at exercise prices ranging from $0.14 to $0.77, vesting over a six-month period, and expiring between December 2020
and December 2022. The fair value of these options on grant date of approximately $458,000 was amortized over the vesting periods,
with approximately $366,000 incurred during the three months ended March 31, 2018. No stock options were granted in 2019.
During
the three months ended March 31, 2019 and 31, options to purchase 400,000 and 300,000 shares of common stock,
respectively, were exercised at exercise prices ranging from $0.08 to $0.77 per share in 2019, and $0.13 per
share in 2018. Of the options exercised in 2019, 350,000 were cashless exercises, with the exercise
price paid via the surrender of 139,985 shares of common stock.
During
the three months ended March 31, 2018, options to purchase 300,000 were forfeited. There were no forfeitures in 2019
Stock
options outstanding and exercisable as of March 31, 2019 were:
Exercise
Price
|
|
|
Shares
Under Option
|
|
|
Remaining
|
|
per
Share
|
|
|
Outstanding
|
|
|
Exercisable
|
|
|
Life
in Years
|
|
$
|
0.080
|
|
|
|
100,000
|
|
|
|
100,000
|
|
|
|
0.7
2
|
|
$
|
0.130
|
|
|
|
200,000
|
|
|
|
200,000
|
|
|
|
1.25
|
|
$
|
0.140
|
|
|
|
100,000
|
|
|
|
10
0,000
|
|
|
|
1.7
5
|
|
$
|
0.140
|
|
|
|
550,000
|
|
|
|
550,000
|
|
|
|
1.76
|
|
$
|
0.150
|
|
|
|
1,000,000
|
|
|
|
1,000,000
|
|
|
|
0.50
|
|
$
|
0.250
|
|
|
|
1,000,000
|
|
|
|
1,000,000
|
|
|
|
0.50
|
|
$
|
0.330
|
|
|
|
50,000
|
|
|
|
50
,000
|
|
|
|
1.9
4
|
|
$
|
0.350
|
|
|
|
1,000,000
|
|
|
|
1,000,000
|
|
|
|
0.50
|
|
$
|
0.450
|
|
|
|
19
0,000
|
|
|
|
190,000
|
|
|
|
2.5
1
|
|
$
|
0.550
|
|
|
|
100,000
|
|
|
|
100,000
|
|
|
|
1.50
|
|
$
|
0.550
|
|
|
|
20,000
|
|
|
|
20,000
|
|
|
|
1.77
|
|
$
|
0.630
|
|
|
|
300,000
|
|
|
|
300,000
|
|
|
|
2.76
|
|
$
|
0.770
|
|
|
|
2
00,000
|
|
|
|
200,000
|
|
|
|
3.76
|
|
$
|
0.900
|
|
|
|
050,000
|
|
|
|
50,000
|
|
|
|
4.12
|
|
$
|
0.950
|
|
|
|
50,000
|
|
|
|
10,000
|
|
|
|
3.76
|
|
$
|
2.320
|
|
|
|
300,000
|
|
|
|
60,000
|
|
|
|
4.45
|
|
$
|
2.450
|
|
|
|
2,000,000
|
|
|
|
2,000,000
|
|
|
|
3.73
|
|
$
|
2.500
|
|
|
|
100,000
|
|
|
|
25,000
|
|
|
|
4.41
|
|
$
|
2.650
|
|
|
|
200,000
|
|
|
|
50,000
|
|
|
|
4.49
|
|
$
|
2.850
|
|
|
|
75,000
|
|
|
|
-
|
|
|
|
3.70
|
|
$
|
2.850
|
|
|
|
100,000
|
|
|
|
-
|
|
|
|
4.70
|
|
$
|
3.000
|
|
|
|
25,000
|
|
|
|
-
|
|
|
|
4.72
|
|
$
|
3.725
|
|
|
|
200,000
|
|
|
|
-
|
|
|
|
4.70
|
|
|
|
|
|
|
7,910
0,000
|
|
|
|
7,005
,000
|
|
|
|
|
|
NOTE
15 – WARRANTS
During
the three months ended March 31, 2018, the Company issued five-year warrants to purchase 200,000 shares of
common stock at an exercise price of $1.15 per share. The entire fair value of these warrants on the issuance
date of approximately $206,000 was amortized during the period. No warrants were issued during the three months
ended March 31, 2019.
During
the three months ended March 31, 2019 and 2018, warrants to purchase 22,000 and 89,614 shares of common stock,
respectively, were exercised at exercise prices ranging from $0.50 to $0.90 per share in 2019 and $0.20 to
$0.40 per share in 2018.
At
March 31, 2019 and 2018, warrants to purchase 10,584,211 and 4,355,697 shares of common stock, respectively,
were outstanding at exercise prices ranging from $0.12 to $5.50 per share in 2019 and $0.10 to $1.15
per share in 2018.
NOTE
16 – REVENUES
For
the three months ended March 31, 2019 and 2018, the Company’s revenues were comprised of the following major
categories:
|
|
Three
months ended March 31,
|
|
|
|
|
2019
|
|
|
|
2018
|
|
Real
estate
|
|
$
|
1,666,563
|
|
|
$
|
1,023,220
|
|
Management
|
|
|
425,648
|
|
|
|
352,742
|
|
Supply
procurement
|
|
|
1,146,033
|
|
|
|
626,924
|
|
Licensing
|
|
|
258,553
|
|
|
|
80,064
|
|
Other
|
|
|
19,018
|
|
|
|
-
|
|
Total
revenues
|
|
$
|
3,515,815
|
|
|
$
|
2,082,950
|
|
Revenue
from two clients represented 82% and 78% of total revenues for three months ended March 31, 2019 and 2018,
respectively.
NOTE
17 – RELATED PARTY TRANSACTIONS
As
disclosed in
Note 3
–
Acquisitions
, the current CEO and CFO of the Company were part of the ownership group
from whom Sigal Consulting LLC was acquired in May 2014. The 49% ownership in the Company’s subsidiary, MariMed Advisors
Inc., which this ownership group acquired as part of the purchase price, was acquired by the Company from this ownership group
in June 2017 in exchange for 75 million shares of the Company’s common stock.
In
October 2017, the Company acquired certain assets of the Betty’s Eddies™ brand of cannabis-infused products, as disclosed
in
Note 3
–
Acquisitions
, from a company that is minority-owned by the Company’s chief operating officer.
In
January 2018, the Company granted options to purchase 1.45 million shares of common stock to the Company’s board members
at exercise prices ranging from $0.14 to $0.77 and expiring between December 2020 and December 2022. The fair value of these options
on grant date of approximately $458,000 was amortized over the six-month vesting period.
The
Company’s current corporate offices are leased from a company owned by a related party under a 10-year lease that commenced
August 2018 and contains a five-year extension option. Previous to this lease, the Company’s former corporate offices were
also leased from a company owned by a related party. For the three months ended March 31, 2019 and 2018,
expenses incurred under these leases approximated $34,000 and $6,000, respectively.
The
outstanding
Due To Related Parties
balances at March 31, 2019 and December 31, 2018 of approximately $220,000
and $276,000, respectively, were comprised of amounts owed of approximately (i) $81,000 in both periods to the Company’s
CEO and CFO, (ii) $79,000 and $135,000, respectively, to two companies partially owned by these officers, and (iii) $60,000,
in both periods to two shareholders of the Company. Such amounts owed are not subject to repayment schedules and are expected
to be repaid during 2019.
The
outstanding
Due From Related Parties
balance at March 31, 2019 and December 31, 2018 of approximately $120,000
and $121,000 was comprised of an advance of to a company partially owned by the Company’s CEO and CFO. This amount
is expected to be repaid in 2019.
NOTE
18 –
COMMITMENTS AND CONTINGENCIES
Lease
Commitments
The
Company is the lessee under five operating leases and one finance lease. These leases contain rent holidays and customary escalations
of lease payments for the type of facilities being leased. The Company recognizes rent expense on a straight-line basis over the
expected lease term, including cancelable option periods which the Company fully expects to exercise. Certain leases require the
payment of property taxes, insurance and/or maintenance costs in addition to the rent payments.
The
details of the Company’s operating lease agreements are as follows:
|
●
|
Delaware
– 4,000 square feet of retail space in a multi-use building under a five-year lease that commenced in October 2016 and
contains a five-year option to extend the term. The Company developed the space into a cannabis dispensary which is subleased
to its cannabis-licensed client.
|
|
|
|
|
●
|
Delaware
– a 100,000 square foot warehouse leased in March 2019 that the Company intends to construct into
a cultivation and processing facility to be subleased to the same Delaware client. The lease term is 10 years, with an option
to extend the term for three additional five-year periods.
|
|
|
|
|
●
|
Nevada
– 10,000 square feet of an industrial building that the Company has built-out into a cannabis cultivation facility
and plans to rent to its cannabis-licensed client under a sub-lease which will be coterminous with
this lease expiring in 2024.
|
|
|
|
|
●
|
Massachusetts
– 10,000 square feet of office space which the Company utilizes as its corporate offices under a 10-year lease with
a related party expiring in 2028 which contain a 5-year extension option.
|
|
|
|
|
●
|
Maryland
– a 2,700 square foot 2-unit apartment under a lease that expires in July 2020 with an option to renew for a two-year
term.
|
The
Company leases machinery under a finance lease that expires in February 2022 with such term being a major part of the economic
useful life of the machinery.
The
components of lease expense for the three months ended March 31, 2019 were as follows:
Operating
lease cost
|
|
$
|
93,015
|
|
Finance
lease cost:
|
|
|
|
|
Amortization
of right-of-use assets
|
|
$
|
2,053
|
|
Interest
on lease liabilities
|
|
|
420
|
|
Total
finance lease cost
|
|
$
|
2,473
|
|
The
weighted average remaining lease term for operating leases is 9.9 years, and for the finance lease is 3.3 years. The weighted
average discount rate used to determine the right-of-use assets and lease liabilities was 7.5% for all leases.
Future
minimum lease payments as of March 31, 2019 under all non-cancelable operating leases having an initial or remaining term
of more than one year were:
|
|
Operating
Leases
|
|
|
Finance
Lease
|
|
2019
|
|
$
|
320,069
|
|
|
$
|
9,496
|
|
2020
|
|
|
917,444
|
|
|
|
12,661
|
|
2021
|
|
|
1,008,227
|
|
|
|
12,661
|
|
2022
|
|
|
949,935
|
|
|
|
1,371
|
|
2023
|
|
|
910,166
|
|
|
|
-
|
|
Thereafter
|
|
|
5,139,851
|
|
|
|
-
|
|
Total
lease payments
|
|
|
9,245,292
|
|
|
$
|
36,189
|
|
Less:
imputed interest
|
|
|
(2,963,703
|
)
|
|
|
(3,708
|
)
|
|
|
$
|
6,281,589
|
|
|
$
|
32,481
|
|
Terminated
Employment Agreement
An
employment agreement with the former CEO of the Company that provided this individual with salary, car allowances, stock options,
life insurance, and other employee benefits, was terminated in 2017.
The
Company maintained an accrual of approximately $1,043,000 at March 31, 2019 and December 31, 2018 for any amounts that
may be owed under this agreement, although the Company contends that such agreement is not valid.
NOTE
19 – SUBSEQUENT EVENTS
Debentures
Payable Conversion
In
April 2019, the Holder of the $10M Debentures converted $500,000 of principal and approximately $70,000 of accrued interest into
211,015 shares of common stock at conversion prices of $2.67 and $2.74 per share.
Debt
Issuance
In
May 2019, the Company sold an additional $5,000,000 of convertible debentures bearing interest at the rate of 6% per annum that
mature two years from issuance, with a 1% issue discount, resulting in net proceeds to the Company of $4,950,000 (the “$5M
Debentures”).
The
$5M Debentures were sold to the Holder of the $10M Debentures. The terms of the $5M Debentures are consistent with the terms of
the $10M Debentures as described in
Note 12 – Debentures Payable
, with small variations, most notably a cap on the
conversion price. The Company also issued three-year warrants to the Holder to purchase 400,000 shares of common stock at an exercise
price of $4.00 per share.
Seed
Inventory Purchases
In
April 2019, Mari-Hemp purchased an additional $3.5 million of industrial hemp seeds for wholesale hemp distribution and hemp-derived
CBD product development.