MEDICINE MAN TECHNOLOGIES, INC. The following discussion should be read in conjunction with our unaudited consolidated financial statements and notes thereto included herein and with our audited consolidated financial statements included in our Annual Report on Form 10-K for the year endedDecember 31, 2020 , as filed with theSEC . In addition to our historical unaudited condensed consolidated financial information, the following discussion contains forward-looking statements that reflect our plans, estimates, and beliefs. Our actual results could differ materially from those discussed in the forward-looking statements. Factors that could cause or contribute to these differences include those discussed below and elsewhere in this Quarterly Report on Form 10-Q/A, particularly in Part II, Item 1A, "Risk Factors." See also, "NOTE ABOUT FORWARD-LOOKING INFORMATION." Overview of the Company
Established in 2014 and headquartered in
Results of Operations - Consolidated
The following table sets forth the Company's selected consolidated financial results for the periods, and as of the dates, indicated. The (i) consolidated statements of operations for the quarterly and year-to-date periods endedMarch 31, 2022 andMarch 31, 2021 and (ii) consolidated balance sheet as ofMarch 31, 2022 andMarch 31, 2021 have been derived from and should be read in conjunction with the consolidated financial statements and accompanying notes presented
in
this report.
The Company's consolidated financial statements have been prepared in accordance
with GAAP and on a going-concern basis that contemplates continuity of
operations and realization of assets and liquidation of liabilities in ordinary
course of business.
For the Periods Ended March 31, 2022 vs 2021
2022 2021 $ %Total revenue$ 31,777,554 $ 19,340,115 $ 12,437,439 64% Total cost of goods and services 20,840,051 12,087,111
(8,752,940 ) -72%
Gross profit 10,937,503 7,253,004 3,684,499 51%
Total operating expenses 15,728,043 8,737,910 (6,973,589 ) -80%Income (loss) from operations (4,790,540 ) (1,484,906 ) (3,289,090 ) 222% Total other income (expense) (20,728,268 ) (1,707,987 ) (19,020,281 ) 1114% Provision for income taxes (benefit) 1,259,894 456,614 (803,280 ) -176% Net income (loss)$ (26,778,702 ) $ (3,649,507 ) $ (23,112,651 ) 633% Earnings (loss) per share attributable to common shareholders - basic $ (0.77 )$ (0.09 ) $ (0.68 ) 794% Earnings (loss) per share attributable to common shareholders - diluted $ (0.77 )$ (0.09 ) $ (0.68 ) 794% Weighted average number of shares outstanding - basic 46,841,971 42,616,309 Weighted average number of shares outstanding - diluted 46,841,971 42,616,309 March 31, 2022 December 31, 2021 Total Assets$ 318,006,636 $ 285,030,792 Long-Term Liabilities 131,946,159 151,461,127 31 Revenue segments
The Company has consolidated financial statements across its operating businesses with operating segments of retail, wholesale and other.
Quarter EndedMarch 31, 2022 Compared to the Quarter EndedMarch 31, 2021 Revenue Revenues for the quarter endedMarch 31, 2022 , totaled$31,777,554 including (i) retail sales of$26,525,716 (ii) wholesale sales of$5,207,388 and (iii) other operating revenues of$44,450 , compared to revenues of$11,816,200 including (i) retail sales of$11,816,200 , (ii) wholesale of$7,446,265 , and (iii) other operating revenues of$77,650 during the quarter endedMarch 31, 2021 representing an increase of$12,437,439 or 64%. This increase was due to increased sale of our products as well as growth through acquisition. In 2022, we acquired thirteen new retail dispensaries. The decrease in wholesale and other operating revenue in 2022 was largely due to wholesale distillate pricing pressure and over-supply in the state ofColorado . Cost of Goods and Services Cost of goods and services for the quarter endedMarch 31, 2022 , totaled$20,840,051 compared to cost of services of$12,087,111 during the quarter endedMarch 31, 2021 , representing an increase of$8,752,940 or 72%. This increase was due to increased sales of our products as well as growth through acquisition. The cost of goods and services increased at a slightly higher rate than revenue due to purchase accounting on retail acquisitions requiring revaluation of inventory to retail value, therefore reducing margins which were made in the first quarter. Operating Expenses Operating expenses for the quarter endedMarch 31, 2022 , totaled$15,728,043 , compared to operating expenses of$8,737,910 during the quarter endedMarch 31, 2021 , representing an increase of$6,990,133 or 80%. This increase was due to increased selling, general and administrative expenses, professional service fees, salaries, benefits and related employment costs related to growth from acquisitions and non-cash stock-based compensation. Other Income (Expense), Net Other expense, net for the quarter endedMarch 31, 2022 , totaled$20,728,268 , compared to$1,707,987 during the quarter endedMarch 31, 2021 , representing an increase of$19,020,281 or 1,114%. The increase in other expense, net was due to increase in interest payments due to various indebtedness and by the loss on derivative liability related to the Investor Notes. Net Income (Loss)
As a result of the factors discussed above, we generated net loss for the
quarter ended
Revenue of Operation by Segment
For the Periods Ended March 31, 2022 vs 2021
2022 2021 $ %
Retail $ 26,525,716 $ 11,816,200 $ 14,709,516 124%
Wholesale 5,207,388 7,446,265 (2,238,877 ) -30%
Other 44,450 77,650 (33,200 ) -43%
Total revenue $ 31,777,554 $ 19,340,115 $ 12,437,439 64%
32
Drivers of Results of Operations
Revenue The Company derives its revenue from three revenue streams: Retail which sells finished goods sourced internally and externally to the end consumer in retail stores; Wholesale which is the cultivation of flower and biomass sold internally and externally and the manufacturing of biomass into distillate for integration into externally developed products, such as edibles and internally developed products such as vapes and cartridges under the Purplebee's brand; Other which includes other income and expenses, such as, licensing and consulting services, facility design services, facility management services, the Company's Three A Light™ publication, and corporate operations. Gross Profit Gross profit is revenue less cost of goods sold. Cost of goods sold includes costs directly attributable to product sales and includes amounts paid for finished goods such as flower, edibles, and concentrates, as well as manufacturing and cultivation labor, packaging, supplies and overhead such as rent, utilities and other related costs. Cannabis costs are affected by market supply. Gross margin measures our gross profit as a percentage of revenue.
Total Operating Expenses Total operating expenses other than the costs of goods sold consists of selling costs to support customer relations, marketing and branding activities. It also includes an investment in the corporate infrastructure required to support
the Company's ongoing business.
Liquidity and Capital Resources
As ofMarch 31, 2022 andDecember 31, 2021 , the Company had total current liabilities of$70,277,925 and$45,263,179 , respectively. The increase in current liabilities is driven by the derivative liability associated with the Investor Notes as well as from general growth of the Company. As ofMarch 31, 2022 andDecember 31, 2021 , the Company had cash and cash equivalents of$47,688,094 and$106,400,216 , respectively to meet its current obligations. The Company had working capital of$1,103,293 as ofMarch 31, 2022 , a decrease of$77,545,783 as compared toDecember 31, 2021 . The reduction in working capital is primarily driven by an increase in derivative liability from the Investor Notes issued onDecember 7, 2021 . The Company is an early-stage growth company, generating cash from revenues and capital raise. Cash is being reserved primarily for capital expenditures, facility improvements and strategic investment opportunities. The Company anticipates overall revenue to increase in 2022 due to acquisitions and adult-use becoming legalized inNew Mexico onApril 1, 2022 . It is possible the Company will seek additional external financing to meet capital needs. The Company relies on internal capital that is generated through revenue and any other internal sources of liquidity. The Company utilizes various forms of external financing, including loan arrangements, capital raises, and cash from the Investor Notes. The Company maintains the unused portion of the funds received from the Investor Notes for future acquisitions and execution of growth strategies. 33 Due to our participation in the cannabis industry and the regulatory framework governing cannabis inthe United States , our debt and loan arrangements are sometimes subject to higher interest rates than are market for other industries, which has an unfavorable impact on our liquidity and capital resources. Cash Flows
Cashed used in Operating, Investing and Financing Activities
Net cash provided by (used in) operating, investing and financing activities for
the quarters ended
For the Periods Ended March 31,
2022 2021
Net cash provided by (used in) Operating Activities
$ 1,698,519 Net cash provided by (used in) Investing Activities (92,924,719 ) (65,600,473 ) Net cash provided by used in Financing Activities 28,381,522
85,631,039
The Company's cash provided by operating activities is driven by increase in
sales from acquisitions. Our use of cash from investing activities is driven by
acquisition of businesses and property, plant and equipment for existing
entities. Our cash provided by financing activities is mainly from proceeds from
our credit facility, the Investor Notes and the issuance of shares of Preferred
Stock.
CONTRACTUAL CASH OBLIGATIONS AND OTHER COMMITMENTS AND CONTINGENCIES
The following table quantifies the Company's future contractual obligation as ofMarch 31, 2022 : Total 2022 2023 2024 2025 2026 Thereafter Notes Payable (a)$ 155,453,333 $ -$ 2,250,000
75,878,422 16,833,160 16,559,990 16,504,822 15,542,869 10,437,581 -
Right of Use Assets 24,706,524 3,325,483 3,843,353
3,949,553 3,989,432 2,971,217 6,627,486
Total $ 256,038,279 $ 20,158,643 $ 22,653,343 $ 23,454,375 $ 60,184,060 $ 122,960,372 $ 6,627,486 (a) - This amount excludes
The Company anticipates using funds from operating activities and, if needed, we may seek out additional external financing to support contractual cash obligations.
Off-Balance Sheet Arrangements
As ofMarch 31, 2022 andMarch 31, 2021 , we were not party to any off-balance sheet arrangement that had or was reasonably likely to have a material current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, cash requirements or capital resources. 34
Critical Accounting Estimates and Recent Accounting Pronouncements
The discussion and analysis of our financial condition and results of operations are based upon our financial statements, which have been prepared in accordance with GAAP. The preparation of these financial statements requires us to make estimates and judgments that affect the amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, we evaluate our estimates based on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. The Company believes that of its significant accounting policies (see Note 2 to Financial Statements), the ones that may involve a higher degree of uncertainty, judgment and complexity are revenue recognition, stock based compensation, derivative instruments, income taxes, goodwill and commitments and contingencies are the most important to the portrayal of our financial condition and results of operations and that require management's most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effects of matters that are inherently uncertain.
Revenue Recognition and Related Allowances
Our revenue recognition policy is significant because the amount and timing of revenue is a key component of our results of operations. Certain criteria are required to be met in order to recognize revenue. If these criteria are not met, then the associated revenue is deferred until is the criteria are met. A contract liability is recorded when consideration is received in advance of the delivery of goods or services. We identify revenue contracts upon acceptance from the customer when such contract represents a single performance obligation to sell our products.
We have three main revenue streams: (i) retail sales, (ii) wholesale sales, and (iii) other revenues from revenues from consulting, licensing, and other miscellaneous sources.
The Company's retail and wholesale sales are recorded at the time that control of the products is transferred to customers. In evaluating the timing of the transfer of control of products to customers, we consider several indicators, including significant risks and rewards of products, our right to payment, and the legal title of the products. Based on the assessment of control indicators, our sales are generally recognized when products are delivered to customers. The Company's other revenue, typically from licensing and consulting services, is recognized when our obligations to our client are fulfilled which is determined when milestones in the contract are achieved. The Company's revenue from seminar fees is related to one-day seminars and is recognized as earned upon the completion of the seminar. We also recognize expense reimbursement from clients as revenue for expenses incurred during certain jobs. Stock Based Compensation
We account for share-based payments pursuant to Accounting Standards Codification ("ASC") Topic 718, Stock Compensation and, accordingly, we record compensation expense for share-based awards based upon an assessment of the grant date fair value for stock and restricted stock awards using the Black-Scholes option pricing model.
Our stock compensation expense for stock options is recognized over the vesting period of the award or expensed immediately under ASC 718 when stock or options are awarded for previous or current service without further recourse. Income Taxes
ASC 740, Income Taxes requires the use of the asset and liability method of accounting for income taxes. Under the asset and liability method of ASC 740, the Company's deferred tax assets and liabilities are recognized for the future tax consequences attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Our deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. 35
Goodwill represents the future economic benefit arising from other assets acquired that could not be individually identified and separately recognized. The goodwill arising from our acquisitions is attributable to the value of the potential expanded market opportunity with new customers. Intangible assets have either an identifiable or indefinite useful life. Intangible assets with identifiable useful lives are amortized on a straight-line basis over their economic or legal life, whichever is shorter. We amortizable intangible assets consist of licensing agreements, product licenses and registrations, and intellectual property or trade secrets. Their estimated useful lives range
from 3 to 15 years.Goodwill and indefinite-lived assets are not amortized but are subject to annual impairment testing unless circumstances dictate more frequent assessments. We perform an annual impairment assessment for goodwill during the fourth quarter of each year and more frequently whenever events or changes in circumstances indicate that the fair value of the asset may be less than the carrying amount.Goodwill impairment testing is a two-step process performed at the reporting unit level. Step one compares the fair value of the reporting unit to its carrying amount. The fair value of the reporting unit is determined by considering both the income approach and market approaches. The fair values calculated under the income approach and market approaches are weighted based on circumstances surrounding the reporting unit. Under the income approach, we determine fair value based on estimated future cash flows of the reporting unit, which are discounted to the present value using discount factors that consider the timing and risk of cash flows. For the discount rate, we rely on the capital asset pricing model approach, which includes an assessment of the risk-free interest rate, the rate of return from publicly traded stocks, our risk relative to the overall market, our size and industry and other risks specific to us. Other significant assumptions used in the income approach include the terminal value, growth rates, future capital expenditures and changes in future working capital requirements. The market approaches use key multiples from guideline businesses that are comparable and are traded on a public market. If the fair value of the reporting unit is greater than its carrying amount, there is no impairment. If the reporting unit's carrying amount exceeds its fair value, then the second step must be completed to measure the amount of impairment, if any. Step two calculates the implied fair value of goodwill by deducting the fair value of all tangible and intangible net assets of the reporting unit from the fair value of the reporting unit as calculated in step one. In this step, the fair value of the reporting unit is allocated to all of the reporting unit's assets and liabilities in a hypothetical purchase price allocation as if the reporting unit had been acquired on that date. If the carrying amount of goodwill exceeds the implied fair value of goodwill, an impairment loss is recognized in an amount equal to the excess. Determining the fair value of a reporting unit is judgmental in nature and requires the use of significant estimates and assumptions, including revenue growth rates, strategic plans, and future market conditions, among others. There can be no assurance that our estimates and assumptions made for purposes of the goodwill impairment testing will prove to be accurate predictions of the future. Changes in assumptions and estimates could cause us to perform an impairment test prior to scheduled annual impairment tests.
We performed our annual fair value assessment on our subsidiaries with material
goodwill and intangible asset amounts on their respective balance sheets at
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