MJ HOLDINGS, INC. The following management's discussion and analysis of financial condition and results of operations should be read in conjunction with the Company's audited consolidated financial statements and related notes thereto included elsewhere in this report.
Company Background
The Company was incorporated on
On
Operational highlights:
? 260 acres of farmland for the purpose of cultivating additional marijuana (the
"260 Acres") purchased in January of 2019. The Company intends to utilize the
state-of-the-art Cravo® cultivation system for growing an additional five
acres of marijuana on this property. The Cravo® system will allow multiple
harvests per year and should result in higher annual yields per acre. The land
has more than 180-acre feet of permitted water rights, which will provide more
than sufficient water to markedly increase the Company's marijuana cultivation
capabilities. This facility, upon receipt of its business license in Nye
County and its final inspection by the Cannabis Compliance Board ("CCB"), is
expected to become operational in the summer of 2022. During the year ended
December 31, 2021 , the Company elected to relocate all of its equipment
utilized on the Acres lease to its 260 Acres adjacent to the Acres lease. The
Company will utilize the 260 Acres for its own harvest along with additional
harvests under any Cultivation and Sales Agreements.
? Cultivation and Sales Agreements entered into for multiple grows on the
Company's 260 Acres located in the Amargosa Valley of Nevada . During the year
ended December 31, 2021 , the Company entered into separate Cultivation and
Sales Agreements, whereby the Company shall retain certain independent growers
to provide oversight and management of the Company's cultivation and sale of
products at its 260 Acres. The independent growers shall pay to the Company a
royalty of net sales revenue with a minimum royalty after two years. As of the
date of this filing, the Company is waiting on its business license in Nye
County and its final inspection by the Cannabis Compliance Board before it can
commence its operations under the Agreement.
? a nearby commercial trailer and RV park (THC Park - Tiny Home Community ) was
purchased in April of 2019 to supply necessary housing for the Company's farm
employees. After the Company's 2018 harvest, it came to realize that it would
need to find a more efficient method of housing and to bring its cultivation
team to its facilities. The Company purchased the 50-acre plus THC Park for
$600,000 in cash and $50,000 of the Company's restricted common stock. At
present, the Company's construction and completion of this community is
approximately seventy-five present complete. The impact of COVID-19 in
obtaining inspections and permitting has significantly delayed the completion
of this community. The Company has elected to cease any renovations or
additions at its Tiny Home Community but will continue to rent out those units
that have been leased.
31
? an agreement to acquire a cultivation license and production license, both
currently located in Nye County Nevada . On February 5, 2021 , the Company (the
"Purchaser") executed a Membership Interest Purchase Agreement ("MIPA3") with
MJ Distributing, Inc. (the "Seller") to acquire all of the outstanding
membership interests of MJ Distributing C202, LLC and MJ Distributing P133,
LLC , each the holder of a State of Nevada provisional medical and recreational
cultivation license and a provisional medical and recreational production
license. In consideration of the sale, transfer, assignment and delivery of
the Membership Interests to Purchaser, and the covenants made by Seller under
the MIPA3, Purchaser agreed to pay a combination of cash, promissory notes,
and stock in the amount of One-Million-Two-Hundred-Fifty Thousand Dollars
($1,250,000.00 ) in cash and/or promissory notes and 200,000 shares of the
Company's restricted common stock, all of which constitutes the consideration
agreed to herein for (the "Purchase Price"), payable as follows: (i) a
non-refundable down payment in the amount of $300,000 was made on January 15,
2021 , (ii) the second payment in the amount of $200,000 was made on February
5, 2021 , (iii) a deposit in the amount of $310,000 was paid on February 22,
2021 ($210,000 was a pre-payment against future compensation due under the
MIPA3), (iv) $200,000 was deposited on June 24, 2021 , (v) $200,000 shall be
deposited on or before June 12, 2021 , and (vi) $250,000 shall be deposited
within five (5) business days after the CCB provides notice on its agenda that
the Licenses are set for hearing to approve the transfer of ownership from the
Seller to the Purchaser. On April 12, 2022 , the CCB issued an Adult-Use
Production License to MJ Distributing P133, LLC and an Adult-Use Cultivation
License to MJ Distributing C202, LLC . The Company is currently awaiting the
transfer approval from the CCB.
The Company may also continue to seek to identify potential acquisitions of revenue producing assets and licenses within legalized cannabis markets that can maximize shareholder value.
The Company may face substantial competition in the operation of cultivation
facilities in
32 Acquisition of Red Earth
On
On or about
The consolidated financial statements after completion of the reverse merger
included: the assets, liabilities, and results of operations of the combined
company from and after the closing date of the reverse merger, with only certain
aspects of pre-consummation stockholders' equity remaining in the consolidated
financial statements. In February of 2019, the Company repurchased, from the
Company's largest shareholder, 20,000,000 of the 26,366,484 shares of common
stock that this shareholder originally received in connection with the Reverse
Merger - for a total purchase price of
On
On
On
33
Critical Accounting Policies, Judgments and Estimates
The Company's discussion and analysis of its financial condition and results of
operations is based upon its consolidated financial statements, which have been
prepared in accordance with
An accounting policy is considered to be critical if it requires an accounting estimate to be made based on assumptions about matters that are highly uncertain at the time the estimate is made, and if different estimates that reasonably could have been used, or changes in the accounting estimate that are reasonably likely to occur, could materially impact the consolidated financial statements. The Company believes that the following critical accounting policies reflect the more significant estimates and assumptions used in the preparation of the consolidated financial statements.
Revenue Recognition
On
34 Income Taxes
Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carry forwards. 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. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. A valuation allowance on deferred tax assets is established when management considers it is more likely than not that some portion or all of the deferred tax assets will not be realized.
Tax benefits from an uncertain tax position are only recognized if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position are measured based on the largest benefit that has a greater than fifty percent likelihood of being realized upon ultimate resolution. Interest and penalties related to unrecognized tax benefits are recorded as incurred as a component of income tax expense. The Company has not recognized any tax benefits from uncertain tax positions for any of the reporting periods presented.
Results of Operations for the Years Ended
The Company's historical financial statements prior to the reverse merger were replaced with the historical financial statements of Red Earth, the "accounting acquirer," based on the accounting treatment for reverse merger transactions.
Revenues
Revenues were
For the years ended
December 31,
2022 2021
Revenues:
Rental income (i) $ 112,313 $ 74,003
Management income from acres Cultivation (ii) - 30,989
Equipment lease income (ii) - 12,912
Product sales (iii) - 123,966
Management income from MJH Research, Inc. (iv) 250,000 -
Total $ 362,313 $ 241,870
(i) The rental income is from the Company's THC Park.
(ii) In April 2018 , the Company entered into a management agreement with Acres
Cultivation, LLC , a Nevada limited liability company (the "Licensed
Operator") that holds a license for the legal cultivation of marijuana for
sale under the laws of the State of Nevada . In January of 2019, the
Company entered into a revised agreement, which replaced the April 2018
agreement, with the Licensed Operator in order to be more stringently
aligned with Nevada marijuana laws. The material terms of the agreement
remain unchanged. The Licensed Operator is contractually obligated to pay
over to the Company eighty-five (85%) percent of gross revenues defined as
gross proceeds from sales of marijuana products minus applicable state
excise taxes and local sales tax. The agreement is to remain in force
until April 2026 . In April 2019 , the Licensed Operator was acquired by
Curaleaf Holdings, Inc., a publicly traded Canadian cannabis company. On
January 21, 2021 , the Company received a Notice of Termination, effective
immediately, from Acres Cultivation, LLC . The Company does not anticipate
that it will generate any further revenue under the Acres relationship.
The Company will not generate any further revenue under the Acres
relationship.
(iii) Product sales from Company inventory. As part of the termination of the
Acres Cultivation, LLC Cultivation and Sales Agreement, the Company was
given cannabis available for resale. Sales in 2021 include product sold to
third parties and product given in exchange for rent. During the year
ended December 31, 2022 , the lack of revenue from product sales is largely
attributable to a complaint filed by the Company against one of its
third-party storage facilities. Please see Note 4 - Inventory for further
information.
(iv) On July 11, 2022 , the Company purchased MJH Research, Inc. ("MJH") through
a stock exchange agreement. MJH is a Florida corporation whose operations
center around providing consulting services for growing techniques,
management and cultivation of crops, as well as licensing support,
production and asset and infrastructure development.
Operating Expenses
Direct cost of revenue was
Year ended
December 31,
Direct costs of revenue: 2022 2021
Rental income $ - $ -
Management and lease equipment income - -
Product sales - 341,626
Total $ - $ 341,626 General and administrative, marketing and selling expenses were
Depreciation and amortization were
Professional fees were
Other income (expenses)
Other income (expenses) were (
Net income (loss)
Net income (loss) was (
35
Liquidity and Capital Resources
The following table summarizes the cash flows for the years endedDecember 31, 2022 and 2021: 2022 2021 Cash Flows: Net cash used in operating activities (3,655,467 ) (4,657,679 )
Net cash provided by (used in) investing activities 185,743 10,772,190 Net cash (used in) provided by financing activities 110,861 (1,532,675 )
Net change in cash (3,358,863 ) 4,581,836 Cash at beginning of year 4,699,372 4,699,372 Cash at end of year$ 1,340,509 $ 4,699,372
The Company had cash of
Operating Activities
Net cash used in operating activities for the year ended
Investing Activities
Net cash provided by investing activities during the year ended
Financing Activities
Net cash provided by (used in) provided by financing activities during the year
ended
Off-Balance Sheet Arrangements
The Company does not have any off-balance sheet arrangements.
Seasonality
The Company does not consider its business to be seasonal.
Commitments and Contingencies
The Company is subject to the legal proceedings described in "Item 3. Legal Proceedings" of this report.
36
Inflation and Changing Prices
Neither inflation nor changing prices for the year ended
© Edgar Online, source
