MARIMED INC. Forward Looking Statements
When used in this form 10-K and in future filings by the Company with the Commission, words or phrases such as "anticipate," "believe," "could," "would," "should," "estimate," "expect," "intend," "may," "plan," "predict," "project," "will" or similar expressions are intended to identify "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Readers are cautioned not to place undue reliance on any such forward looking statements, each of which speak only as of the date made. Such statements are subject to certain risks and uncertainties that could cause actual results to differ materially from historical earnings and those presently anticipated or projected. The Company has no obligation to publicly release the result of any revisions which may be made to any forward-looking statements to reflect anticipated or unanticipated events or circumstances occurring after the date of such statements.
These forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause actual results to be materially different. These factors include, but are not limited to, changes that may occur to general economic and business conditions; changes in current pricing levels that we can charge for our services and products or which we pay to our suppliers and business partners; changes in political, social and economic conditions in the jurisdictions in which we operate; changes to regulations that pertain to our operations; changes in technology that render our technology relatively inferior, obsolete or more expensive compared to others; changes in the business prospects of our business partners and customers; increased competition, including from our business partners; and enforcement of federal cannabis related laws.
The following discussion should be read in conjunction with the financial statements and related notes which are included in this report under Item 8.
We do not undertake to update our forward-looking statements or risk factors to reflect future events or circumstances.
(18) Overview
Upon its entry into the cannabis industry in 2014, the Company was an advisory firm that procured state-issued cannabis licenses on behalf of its clients, developed cannabis facilities which it leased to these newly-licensed companies, and provided industry-leading expertise and oversight in all aspects of their cannabis operations. The Company also provided its clients with as ongoing regulatory, accounting, real estate, human resources, and administrative services.
In 2018, the Company made the strategic decision to transition from a consulting
business to a direct owner of cannabis licenses and operator of seed-to-sale
operations (hereinafter referred to as the "Consolidation Plan"). The
Consolidation Plan calls for the acquisition of its cannabis-licensed clients
located in
To date, acquisitions of the licensed businesses in
A goal in completing this transition from a consulting business to a direct owner of cannabis licenses and operator of seed-to-sale operations is to present a simpler, more transparent financial picture of the full breadth of the Company's efforts, with a clearer representation of the revenues, earnings, and other financial metrics the Company has generated for its clients. The Company has played a key role in the successes of these entities, from the securing of their cannabis licenses, to the development of facilities that are models of excellence, to providing operational and corporate guidance. Accordingly, the Company believes it is well suited to own these facilities and manage the continuing growth of their operations.
The Company has also created its own brands of cannabis flower, concentrates, and precision-dosed products utilizing proprietary strains and formulations. These products are developed by the Company in cooperation with state-licensed operators who meet the Company's strict standards, including all natural-not artificial or synthetic-ingredients. The Company licenses its brands and product formulations only to certified manufacturing professionals who follow state cannabis laws and adhere to the Company's precise scientific formulations and trademarked product recipes.
The Company's proprietary cannabis genetics produce flowers and concentrates
under the brand name Nature's Heritage™, and cannabis-infused products under the
brand names Kalm Fusion®, in the form of chewable tablets and drink powder
mixes, and the award-winning1 Betty's Eddies® brand of all natural fruit chews.
Both cannabis-infused brands are top selling products in
The Company also has exclusive sublicensing rights in certain states to
distribute the Binske® line of cannabis products crafted from premium artisan
ingredients, the Healer™ line of medical full-spectrum cannabis tinctures, and
the clinically tested medicinal cannabis strains developed in
In
1 Awards won by the Company's Betty's Eddies® brand include LeafLink 2020 Industry Innovator, Explore Maryland Cannabis 2020 Edible of the Year, and LeafLink 2019 Best Selling Medical Product.
2 Source: LeafLink Insights 2020.
(19) Revenues
The Company's revenues are primarily comprised of the following categories:
? Product Sales - direct sales of cannabis and cannabis-infused products by the
Company's dispensary and wholesale operations in Massachusetts and Illinois ,
and sales of hemp and hemp-infused products. Future product sales are expected
to include the Company's planned cannabis-licensee acquisitions in Maryland ,
Nevada , and Delaware (upon this state's amendment to permit for-profit
ownership of cannabis entities).
? Real Estate - rental income and additional rental fees generated from leasing
of the Company's state-of-the-art, regulatory-compliant cannabis facilities to
its cannabis-licensed clients.
? Management - fees for providing the Company's cannabis clients with
comprehensive oversight of their cannabis cultivation, production, and
dispensary operations. Along with this oversight, the Company provides human
resources, regulatory, marketing, and other corporate services.
? Supply Procurement - 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.
? Licensing - revenue from the sale of precision-dosed, cannabis-infused
products-such as Kalm Fusion®, Nature's Heritage™, and Betty's Eddies®-to
regulated dispensaries throughout the United States and Puerto Rico .
Expenses
The Company classifies its expenses into three general categories:
? Cost of Revenues - the direct costs associated with the generation of the
Company's revenues.
? Operating Expenses - comprised of the sub-categories of personnel, marketing
and promotion, general and administrative, bad debts, and goodwill
write-downs.
? Non-operating Income and Expenses - comprised of the sub-categories of
interest expense, interest income, losses on debt settlements, earnings and
losses on equity investments, changes in the fair value of non-consolidated
investments, and other non-recurring gains or losses.
(20)
Liquidity and Capital Resources
The Company produced significant improvements to its liquidity in the reported periods:
? Cash and cash equivalents increased four-fold to approximately$3.0 million atDecember 31, 2020 , from approximately$739,000 atDecember 31, 2019 . ? In 2020, the Company's operating activities provided positive cash flow of approximately$3.4 million , compared to approximately$24.1 million of negative cash flow used by such activities in 2019, a positive swing of approximately$27.5 million . ? The Company successfully restructured the terms of its short term promissory notes payable in 2020, whereby approximately$10.7 million of payments were deferred to 2021 and beyond. These amounts were repaid in full inMarch 2021 using a portion of the proceeds from the Hadron financing transaction referred to below. ? The Company refinanced a mortgage agreement and entered into a new mortgage agreement which generated approximately$13.9 million of proceeds which were used to pay down outstanding short-term debt.
The aforementioned improvements to cash and cash equivalents and operating cash
flow, as well as a year-over-year improvement of working capital of
approximately
To further improve the Company's liquidity, in
Operating Activities
Net cash provided by operating activities in 2020 approximated
Investing Activities
Net cash used in investing activities in 2020 approximated
Financing Activities
Net cash provided by financing activities in 2020 approximated
The proceeds from the aforementioned financings were used to execute on the Company's strategy to become a fully integrated multistate operator of seed-to-sale cannabis operations, to continue the development of its regulated facilities, to pay down its debt, to expand its branded licensing business, and for working capital purposes.
(21) Results of Operations
Year ended
Total revenues in 2020 approximated
Excluding the Seed Transactions, core revenues in 2020 grew to approximately
Cost of revenues in 2020 approximated
As a result of the foregoing, gross profit approximated
Personnel expenses increased to approximately
Marketing and promotion costs increased slightly to approximately
General and administrative costs increased to approximately
Bad debt expense decreased to approximately
In 2019, the Company wrote off approximately
As a result of the foregoing, the Company generated operating income of
approximately
Net non-operating expenses decreased to approximately
As a result of the foregoing, the Company generated income before income taxes
of approximately
(22) Non-GAAP Measurements
In addition to the financial information reflected this report, which is prepared in accordance with GAAP, the Company is providing two additional financial measurements that are not defined by GAAP - EBITDA and EBITDA Excluding GenCanna(defined below). The Company is providing these non-GAAP financial measurements as a supplement to the preceding discussion of the Company's financial results,
The Company's management uses these non-GAAP measurements to understand and compare operating results across accounting periods, for financial and operational decision making, for planning and forecasting purposes, and to evaluate its financial performance and liquidity. The presentation of these non-GAAP measurements is not intended to be considered in isolation or as a substitute for the financial information prepared in accordance with GAAP.
Management believes that investors and analysts benefit from considering these non-GAAP measurements in assessing the Company's financial results and its ongoing business as it allows for meaningful comparisons and analysis of trends in the business. These non-GAAP measurements are used by many investors and analysts themselves, along with other metrics, to compare financial results across accounting periods and to those of peer companies.
Management believes EBITDA is a useful measure to assess the performance and liquidity of the Company as it provides meaningful operating results by excluding the effects of expenses that are not reflective of its operating business performance. Management defines EBITDA as net income (loss) before interest, income taxes, depreciation, and amortization.
Management believes EBITDA Excluding GenCanna is another useful measure to assess the performance of the Company as it provides more meaningful operating results by excluding the effects of the Company's investment in GenCanna, the Seed Transactions, and GenCanna's Chapter 11 filing. Management believes that it is appropriate to exclude these items as they are not indicative of the Company's ongoing operating business performance.
As there are no standardized methods of calculating these non-GAAP measurements, the Company's calculations may differ from those used by others, and accordingly, the use of these measurements may not be directly comparable to similarly titled measures used by others. Accordingly, these non-GAAP measurements are intended to provide additional information and should not be considered in isolation or as a substitute for measures of performance prepared in accordance with GAAP.
Reconciliation of EBITDA and EBITDA Excluding GenCanna (Non- GAAP Measurements) To Net Income (Loss)
The table below reconciles Net Income (Loss) to EBITDA and EBITDA Excluding
GenCanna for year ended
Year Ended December 31,
2020 2019
(Unaudited)
Net income (loss) $ 2,429,267 $ (81,880,925 )
Interest expense, net 9,654,130 12,251,154
Income taxes 2,067,049 67,157
Depreciation and amortization 2,182,092 1,196,606
EBITDA 16,332,538 (68,366,008 )
Exclude effects of GenCanna:
Profit on Seed Transactions - (8,204,248 )
Reserve against GenCanna accounts receivable - 29,029,249
Loss on investment in GenCanna - 30,229,315
EBITDA Excluding GenCanna (Loss) $ 16,332,538 $ (17,311,692 ) The EBITDA Excluding GenCanna for the year ended
(23) 2021 Plans
For 2021, the Company's focus will to be on the following key areas:
1) Subject to the applicable state approvals, continue the execution of its
Consolidation Plan.
2) Identify and open two new dispensary locations in Massachusetts that can
service both the medical and adult-use marketplaces.
3) Open a fourth dispensary location in Illinois , to be located in the city of
Metropolis.
4) Increase sales and profits in Delaware by expanding cultivation and
processing facilities.
5) Complete the acquisition of Maryland and proceed with a plan to expand the
cultivation and processing facilities as well as adding a dispensary
location.
6) Drive licensing fees through the expansion of the Company's Nature's
Heritage™ branded flower and popular infused-product brands Betty's Eddies®
and Kalm Fusion® into the Company's owned and managed facilities, and with
strategic partners into additional markets. Expand the exclusively licensed
Tropizen® and Binske® brands.
7) Identify acquisition opportunities in other states.
No assurances can be given that any of these plans will come to fruition or that if implemented will necessarily yield positive results.
The following transactions occurred in early 2021:
Financing Transaction
In
At the closing of the transaction in
In connection with the closing of the transaction, the Company filed a certificate of designation with respect to the rights and preferences of the Series C convertible preferred stock. Such stock is zero coupon, non-voting. and has a liquidation preference equal to its investment amount plus declared but unpaid dividends. Holders of Series C convertible preferred stock are entitled to receive dividends on an as-converted basis.
Of the
The balance of the committed facility of up to an additional
Provided that as at least 50% of the shares of Series C convertible preferred stock remain outstanding, the holders shall have the right to appoint one observer to the Company's board and to each of its board committees, and appoint a member to the Company's board if and when a seat becomes available, at which time the observer roles shall terminate.
The transaction imposes certain covenants on the Company with respect to the incurrence of new indebtedness, the issuance of additional shares of any designation of preferred stock, and the payment of distributions.
Lease Agreement
In
(24)
Off-Balance Sheet Arrangements
The Company has no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on its financial condition, changes in financial condition, revenues, or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.
Inflation
In the opinion of management, inflation has not had a material effect on the Company's financial condition or results of its operations.
Seasonality
In the opinion of management, the Company's financial condition and results of its operations are not materially impacted by seasonal sales.
(25)
Recent Accounting Pronouncements
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.
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