This management's discussion and analysis ("MD&A") of the financial condition
and results of operations of Planet 13 is for the three and nine months ended
September 30, 2022. It is supplemental to, and should be read in conjunction
with, our unaudited condensed interim consolidated financial statements and the
accompanying notes presented herein. Our financial statements are prepared in
accordance with accounting principles generally accepted in the United States of
America ("GAAP"). Financial information presented in this MD&A is presented in
United States dollars ("$", "USD" or "US$"), unless otherwise indicated.
This MD&A contains certain "forward-looking statements" and certain
"forward-looking information" as defined under applicable United States
securities laws. Please refer to the discussion of forward-looking statements
and information set out under the heading "Disclosure Regarding Forward-Looking
Statements," identified in this Quarterly Report on Form 10-Q. As a result of
many factors, our actual results may differ materially from those anticipated in
these forward-looking statements and information.
Overview of the Company
We are a multi-state cannabis operator with licenses to operate in Nevada,
California, and Florida, and a conditional dispensing license in Illinois. We
are headquartered in Las Vegas, Nevada, at our superstore dispensary located
adjacent to the Las Vegas Strip. A detailed description of our corporate history
and our business can be found in our Annual Report on Form 10-K for the year
ended December 31, 2021.
As of September 30, 2022, we employed approximately 600 people and remain
focused on providing our customers with the best products, best services, and an
experiential shopping experience at our superstore-themed dispensaries, while
expanding our products and sales through neighborhood stores. Each of our state
operations is held in state-focused subsidiaries: (a) Newtonian Principles, Inc.
for California licensed cannabis dispensing and distribution activities, (b)
Next Green Wave, LLC for California licensed cannabis cultivation and production
activities, (c) MM Development Company, Inc. for all licensed Nevada cannabis
cultivation, production, distribution, and dispensing, (d) Planet 13 Florida,
Inc. ("Planet 13 Florida") which holds our Florida Medical Marijuana Treatment
Center ("MMTC") license, and (e) a 49% minority interest in Planet 13 Illinois,
LLC ("Planet 13 Illinois") which, as of July 22, 2022, holds a conditional
Illinois social-equity justice impaired dispensing license. We have focused on
our large-store dispensing stores as superstores which offer an experiential
approach to our customers, including drones, robotics, 3-D mapping projection,
cannabis-culture inspired social-media backdrops for customer interaction,
customer facing production, one-on-one sales staffing and customer education,
and other interactive marketing elements to differentiate from more traditional
dispensing locations, which we refer to herein as "neighborhood stores". Each of
our cannabis facilities is state-licensed as an adult-use cannabis facility, a
medical cannabis facility, or a dual-use facility allowing for both adult-use
and medical cannabis licensed activity, as designated below in the
state-by-state breakdown.
Nevada
As of September 30, 2022, we held the following licensed operations in Nevada:
(a) one dual-licensed dispensary superstore adjacent to the Las Vegas Strip with
24,000 square feet of licensed dispensary (the "Planet 13 Las Vegas
Superstore"), (b) one adult-use "neighborhood store" at 2,300 square feet of
licensed dispensary (the "Medizin dispensary"), (c) three dual-licensed
production facilities, one of which is co-located and customer-facing at the
superstore in Las Vegas with 18,500 square feet of licensed production, (d)
three dual-licensed cultivation facilities, one with approximately 16,100 square
foot indoor cultivation facility under perpetual harvest cycle, a second with
45,000 square feet co-located with our production license at that facility, and
a small-indoor rural site in Beatty, Nevada that is expandable up to 2,300,000
square feet of greenhouse located on 80-acres owned by us, also co-located with
our production license at that facility, and (e) one cannabis distribution
license.
At the Planet 13 Las Vegas Superstore, we also offer ancillary services to our
customers, including a restaurant with a liquor license, a retail store, and our
online cannabidiol ("CBD") store which also sells products in our facility.
California
As of September 30, 2022, we held the following licensed operations in
California: (a) an adult-use dispensary superstore co-located with a
distribution license at our 33,000 square foot facility in Santa Ana which we
built and opened on July 1, 2021 (the "Planet 13 OC Superstore"), (b) following
the closing of our Plan of Arrangement with Next Green Wave Holdings Inc.
("NGW") on March 2, 2022, as more fully discussed in Acquisitions below, one
dual-use and two adult-use cultivation licenses along with a nursery license and
distribution license at our 35,000 square foot cultivation facility, and one
Type P production license at a 4,000 square foot facility. As of May 5, 2022, we
received notification that our application to enhance the Type P production
license to Type 6 non-volatile extraction license had been approved by the
California Department of Cannabis Control ("DCC"), to produce our existing
product lines, including gummies, concentrates, chocolates, and beverages and
distribute them for wholesale sales in California. Further, on July 12, 2022,
the DCC granted to NGW a cultivation processing license to trim, cure, dry,
grade, package, and label the cannabis grown at NGW facilities.
26
Table of Contents
FloridaAs of September 30, 2022, we are continuing capital outlays to utilize our
Florida MMTC license issued by the Florida Department of Health that was
acquired by our wholly owned subsidiary, Planet 13 Florida Inc., on October 1,
2021 for $55 million in cash. Licensed MMTCs are vertically integrated and the
only businesses in Florida authorized to dispense medical marijuana cannabis to
qualified patients and caregivers. MMTCs are authorized to cultivate, process,
transport and dispense medical marijuana. As of September 30, 2022 there were 22
companies with MMTC licenses in Florida, many of which are not yet operational.
License holders are not subject to restrictions on the number of dispensaries
that may be opened or on the number or size of cultivation and processing
facilities they may operate.
On July 1, 2022, we, through our subsidiary Planet 13 Florida, Inc., closed on a
$3,300,000 USD purchase of a 23-acre parcel of real property, inclusive of a
10,500 square foot building, near Ocala, Florida. The property was previously
leased by Planet 13 Florida, Inc., and has received Florida OMMU approvals for
cultivation, processing, and dispensing activities.
As part of our Florida expansion, as of the date of this report, we have entered
into three leases for dispensing locations in Florida, which remain subject to
completion of tenant improvements and regulatory inspection prior to sales to
customers.
Illinois
On August 5, 2021, Planet 13 Illinois, in which entity we hold a minority
interest, won a Conditional Adult Use Dispensing Organization License in the
Chicago-Naperville-Elgin region from the Illinois Department of Financial and
Professional Regulation. The conditional license was issued to Planet 13
Illinois on July 22, 2022. We own 49% of Planet 13 Illinois and 51% is owned by
Frank Cowan.
On August 5, 2022, we entered into an option purchase agreement that gives the
us the option to purchase 51% of Planet 13 Illinois that it does not already own
from Frank Cowan for $866,250 in cash and 1,063,377 common shares of the
Company. The option is exercisable at our discretion for a period of two years.
On October 14, 2022, the Company, through its wholly owned subsidiary Planet 13
Chicago, LLC, entered into a $2,500,000 real property purchase agreement for a
proposed dispensing location in Waukegan, Illinois, for an approximately 8,000
square foot building on 1.9 acres, previously occupied by a financial
institution tenant. The Company's obligation to close on the transaction is
conditioned upon obtaining local jurisdiction zoning and land-use approvals,
completion of customary due diligence, and that the current non-occupying tenant
terminate their lease at the property. On November 1, 2022, the Company provided
notice of this site selection to the Illinois cannabis regulator.
COVID-19 Pandemic Update for Third Quarter 2022
Starting on February 10, 2022, COVID-19 protocols in Nevada no longer include
mask mandates in Clark and Nye County, where we have operations, for all
individuals within public indoor settings.
On March 1, 2022, the State of California changed mask requirements arising
under the general industry safety order by Cal/OSHA, with a strong
recommendation that masks were required statewide for unvaccinated individuals
in indoor public settings and workplaces, as opposed to the previous requirement
for mask use by unvaccinated individuals.
These policies have continued through the date of this report.
We caution that current global uncertainty with respect to the spread of
COVID-19 or its variants and its effect on the broader global economy may have a
significant negative effect on us. As reflected in this MD&A, the COVID-19
pandemic has had a negative effect on our business. While the continued impact
of COVID-19 on us remains unknown, continued spread of COVID-19 or its variants
may have a material adverse effect on global economic activity and can, and in
some cases, has resulted in volatility and disruption to global supply chains,
operations, mobility of people and the financial markets, which could and may
continue to affect interest rates, credit ratings, credit risk, inflation,
business, financial conditions, results of operations and other factors relevant
to us. Long-term economic impacts relating to COVID-19 and state and national
fiscal policy related to combatting the economic impacts of COVID-19 may have a
long-term detrimental impact on customer spending, costs of customer
acquisition, and may be a driver for rapid inflation which could negatively
affect our customers' discretionary spending capability or increase our
materials and labor costs in future periods.
27
Table of Contents
Acquisitions
On March 2, 2022 (the "Closing Date"), we completed our acquisition of NGW. We
entered into an arrangement agreement (the "Arrangement Agreement") with NGW on
December 20, 2021, pursuant to which we agreed to acquire (the "Arrangement")
all of the issued and outstanding common shares of NGW (the "NGW Shares")
pursuant to a plan of arrangement (the "Plan of Arrangement") under the Business
Corporations Act (British Columbia). The Arrangement was approved by the holders
of NGW Shares (the "NGW Shareholders") at a special meeting of NGW Shareholders
held on February 25, 2022, and approved by the Supreme Court of British Columbia
on March 1, 2022.
Pursuant to the Plan of Arrangement, at 12:01 a.m. (Vancouver time) (the
"Effective Time") on the Closing Date, we acquired all of the NGW Shares for a
total consideration of approximately C$71,791,700 (based on the closing price of
our Common Shares (the "Planet 13 Shares") on the Canadian Securities Exchange
on February 28, 2022), and NGW then amalgamated with us. The NGW Shareholders
received 0.1145 of one Planet 13 Share (the "Exchange Ratio") and a nominal cash
payment of C$0.0001 for each NGW Share held immediately prior to the Effective
Time. As a result, 21,361,002 Planet 13 Shares and $14,788 in cash were issued
in exchange for the NGW Shares. In addition, the number of Planet 13 Shares
issued to any person pursuant to the Arrangement was rounded down to the nearest
whole Planet 13 Share, with a cash consideration paid in lieu of the issuance of
such fractional Planet 13 Share of C$3.379 per share.
Based upon the Exchange Ratio, all NGW options to acquire NGW Shares that were
outstanding immediately prior to the Effective Time were also exchanged for our
options that will entitle the holders to receive, upon exercise thereof, Planet
13 Shares. As a result, we issued 1,106,925 options in exchange for the NGW
options.
Results of Operations
Expressed in USD$ Three Months Ended
September 30, September 30, Percentage
2022 2021 Change
Revenue
Net revenue 25,623,217 32,952,254 (22.2 )%
Cost of Goods Sold (15,064,315 ) (15,208,926 ) (1.0 )%
Gross Profit 10,558,902 17,743,328 (40.5 )%
Gross Profit Margin % 41.2 % 53.8 %
Expenses
General and Administrative 11,309,955 19,825,147 (43.0 )%
Sales and Marketing 938,269 1,959,579 (52.1 )%
Lease expense 723,955 673,880 7.4 %
Depreciation and Amortization 1,978,403 1,376,521 43.7 %
Total Expenses 14,950,582 23,835,127 (37.3 )%
Loss From Operations (4,391,680 ) (6,091,799 ) (27.9 )%
Other Income (Expense):
Interest income (expense), net 121,285 (6,996 ) (1,833.6 )%
Foreign exchange gain (loss) (1,834 ) 79,688 114.0 %
Transaction costs - - - %
Change in fair value of warrants 197,721 6,522,787 (99.6 )%
Other income (expense) 41,487 152,466 (72.8 )%
Total Other Income (Expense) 358,659 6,747,945 (94.7 )%
Income (loss) for the period before
tax (4,033,021 ) 656,146 (714.7 )%
Provision for income tax (current
and deferred) 2,222,504 3,397,821 (34.6 )%
Loss for the period (6,255,525 ) (2,741,675 ) 128.2 %
Loss per share for the period
Basic and fully diluted loss per
share $ (0.03 ) $ (0.01 )
Weighted Average Number of Shares
Outstanding
Basic and diluted 220,146,277 196,292,786
28
Table of Contents
Expressed in USD$ Nine Months Ended
September 30, September 30, Percentage
2022 2021 Change
Revenue
Net revenue 79,729,842 89,612,050 (11.0 )%
Cost of Goods Sold (42,445,429 ) (39,827,876 ) 6.6 %
Gross Profit 37,284,413 49,784.174 (25.1 )%
Gross Profit Margin % 46.8 % 55.6 %
Expenses
General and Administrative 36,807,699 44,185,685 (16.7 )%
Sales and Marketing 2,428,947 4,162,934 (41.7 )%
Lease expense 1,984,252 1,934,138 2.6 %
Depreciation and Amortization 5,982,392 3,325,524 79.9 %
Total Expenses 47,203,290 53,608,281 (11.9 )%
Loss From Operations (9,918,877 ) (3,824,107 ) 159.4 %
Other Income (Expense):
Interest income (expense), net 193,896 (23,698 ) (918.2 )%
Foreign exchange gain (loss) (23,000 ) 1,805,953 (91.7 )%
Transaction costs - (256,666 ) n/a
Change in fair value of warrants 6,992,955 (2,728,386 ) (350.0 )%
Other income 270,254 338,890 (20.3 )%
Total Other Income (Expense) 7,434,105 (863,907 ) (960.5 )%
Loss for the period before tax (2,484,772 ) (4,688,014 ) (47.0 )%
Provision for income tax (current
and deferred) 7,871,349 9,632,808 (18.3 )%
Loss for the period (10,356,121 ) (14,320,822 ) (27.7 )%
Loss per share for the period
Basic and fully diluted loss per
share $ (0.05 ) $ (0.07 )
Weighted Average Number of Shares
Outstanding
Basic and diluted 215,321,796 194,576,544
29
Table of Contents
We experienced a 22.2% decrease in net revenue during the three months ended
September 30, 2022, and a 11.0% decrease for the nine months ended September 30,
2022, when compared to the three and nine months ended September 30, 2021. The
decrease is attributable to a reduction in the number of customers at our Planet
13 Las Vegas Superstore location compared to the prior year periods, partially
offset by an increase of revenue from the Planet 13 OC Superstore and the
addition of wholesale revenue from the NGW cultivation operations in California,
and an increase in net wholesale revenue. Overall, net revenue decreased by
($7,329,037) or (22.2%) during the three months ended September 30, 2022,
decreased by ($9,882,208) or (11.0%) during the nine months ended September 30,
2022, when compared to the nine months ended September 30, 2021. The potential
recession and increase in inflation, including the increase in the price of
gasoline and the increase in interest rates, combined to reduce the disposable
income of our customers during the nine months ended September 30, 2022, and
also had an impact on the number of customers and tourists visiting the Planet
13 Las Vegas Superstore and our other retail locations during both the three and
nine months ended September 30, 2022.
Details of net revenue by product category are as follows:
Three Months Ended
September 30, September 30, Percentage
2022 2021 Change
Flower $ 9,203,668 $ 15,797,957 (41.7 )%
Concentrates 7,064,277 8,896,194 (20.6 )%
Edibles 4,140,211 5,197,188 (20.3 )%
Topicals and Other Revenue 1,467,792 1,947,811 (24.6 )%
Wholesale 3,747,269 1,113,104 236.7 %
Net revenue $ 25,623,217 $ 32,952,254 (22.2 )%
Nine Months Ended
September 30, September 30, Percentage
2022 2021 Change
Flower $ 28,036,203 $ 46,400,764 (39.6 )%
Concentrates 22,406,354 22,365,768 0.2 %
Edibles 14,119,412 12,596,942 12.1 %
Topicals and Other Revenue 5,145,228 4,858,491 5.9 %
Wholesale 10,022,645 3,390,085 195.6 %
Net revenue $ 79,729,842 $ 89,612,050 (11.0 )%
Gross profit margin for the three months ended September 30, 2022 was 41.2%
compared to 53.8% for the three months ended September 30, 2021 and was 46.8%
for the nine months ended September 30, 2022 compared to 55.6% for the nine
months ended September 30, 2021. The decrease in gross profit margin for the
three and nine months ended September 30, 2022 was a result of increased sales
incentives during the period coupled with the increase in wholesale revenue,
both from our Nevada wholesale business and from the recently acquired NGW
cultivation assets in California, that has an inherently lower gross margin than
retail sales revenue.
30
Table of Contents
The costs of internal cultivation have continued to trend down as we continue to
improve our yields and cultivation efficiency across all of our cultivation
facilities. In addition, margin enhancement through the creation of internally
generated brands, such as TRENDI, Leaf & Vine, HaHa Gummies, Dreamland
Chocolate, HaHa Beverages and Medizin, continued to have a positive impact on
gross margins during the three and nine months ended September 30, 2022, helping
offset the lower margins received on the sale of wholesale product and sales to
local customers in the State of Nevada. We anticipate that margins will trend
upward as tourist customers return to Las Vegas and the Planet 13 Las Vegas
Superstore in greater numbers and through our ability to produce our
award-winning brands in California and introduce those brands into our Planet 13
OC Superstore along with the recent introduction of NGW premium flower to the
Planet 13 OC Superstore.
Our premium cultivation facilities were operating near capacity during the three
and nine months ended September 30, 2022, and September 30, 2021, respectively.
The amount of cannabis grown during the period increased significantly when
compared to the prior year period due to the addition of the 35,000 square feet
of cultivation capacity that was added as part of the NGW acquisition on March
2, 2022, and the September 26, 2022 initial planting in our substantially
completed 22,000 square foot cultivation facility expansion in Nevada. The
wholesale flower market in California came under pressure due to excess supply
of flower and biomass from the harvest of outdoor crops during the November 2021
to March 2022 period. Wholesale flower prices experienced significant decline
during this period, impacting gross margins and revenue at our NGW cultivation
facility during the period. The supply of wholesale flower in California appears
to be stabilizing and we have seen increases in both demand and the price
received for premium indoor grown flower from late April through the end of
October 2022.
Overall gross margin was $10,558,902 and $17,743,328 for the three months ended
September 30, 2022, and 2021 respectively, a decrease of 40.5%, and was
$37,284,413 and $49,784,174 for the nine months ended September 30, 2022, a
decrease of 25.1%.
General and Administrative ("G&A") expenses (which includes non-cash share-based
compensation expenses,) decreased by 43.0% during the three months ended
September 30, 2022, when compared to the three months ended September 30, 2021.
The decrease in G&A expenses incurred during the three months ended September
30, 2022, was a result of focused cost cutting initiatives undertaken by the
Company and a reduction in share-based compensation expense recorded during the
period, partially offset by the addition of G&A expenses from the recently
acquired NGW cultivation assets in California. G&A costs for the nine months
ended September 30, 2022, decreased by 16.7% or $7,377,986 as a result of
focused cost cutting initiatives undertaken by the Company and a reduction in
share-based compensation expense recorded during the period, partially offset by
the addition of G&A expenses from the recently acquired NGW cultivation assets
in California, a full nine months of operations at our P13 OC Superstore
compared with only three months in the prior year period, as well as increased
expenditures related to corporate initiatives (registration of the class of our
Common Shares through filing a Form 10 registration statement with the SEC and
merger and acquisition related fees incurred on the closing of the NGW
acquisition) that were expensed during the nine months ended September 30, 2022
when compared to the prior year period. Overall, excluding non-cash share-based
compensation expenses, G&A expenses as a percentage of revenue equaled 36.2% for
the three months ended September 30, 2022, compared to 40.1% for the three
months ended September 30, 2021. And was 38.4% and 35.7% for the nine months
ended September 30, 2022, and the nine months ended September 30, 2021. The
increase in G&A as a percentage of revenue for the nine months ended September
30, 2022, was a direct result of the addition of one time legal and other
professional fees associated with the acquisition of NGW and the Company
becoming a US Domestic through the filing of a Form 10 registration statement in
February 2022.
31
Table of Contents
A detailed breakdown of G&A expenses is as follows:
Three Months Ended
September 30, September 30, Percentage
2022 2021 change
Salaries and wages $ 3,574,835 $ 6,134,539 (41.7 )%
Executive compensation 780,169 447,800 74.2 %
Licenses and permits 710,951 969,610 (26.7 )%
Payroll taxes and benefits 929,679 931,950 (0.2 )%
Supplies and office expenses 258,468 621,642 (58.4 )%
Subcontractors 399,982 953,356 (58.0 )%
Professional fees (legal, audit
and other) 947,922 938,028 1.1 %
Miscellaneous general and
administrative expenses 1,670,185 2,214,376 (24.6 )%
Share-based compensation expense 2,037,764 6,613,846 (69.2 )%
$ 11,309,955 $ 19,825,147 (43.0 )%
Nine Months Ended
September 30, September 30, Percentage
2022 2021 change
Salaries and wages $ 11,369,684 $ 14,481,158 (21.5 )%
Executive compensation 2,214,009 1,385,009 59.9 %
Licenses and permits 2,168,616 2,258,551 (4.0 )%
Payroll taxes and benefits 2,990,456 2,380,171 25.6 )%
Supplies and office expenses 758,924 1,562,832 (51.4 )%
Subcontractors 1,532,880 2,166,299 (29.2 )%
Professional fees (legal, audit
and other) 4,458,370 2,842,599 56.8 %
Miscellaneous general and
administrative expenses 5,160,422 4,897,499 5.4 %
Share-based compensation expense 6,154,338 12,211,567 (49.6 )%
$ 36,807,699 $ 44,185,685 (16.7 )%
Non-cash, share based compensation of $2,037,764 was recognized during the three
months ended September 30, 2022, decreasing from $6,613,846 incurred during the
three months ended September 30, 2021. For the nine months ended September 30,
2022, non-cash share-based compensation expense was $6,154,338, a decrease of
49.6% over the $12,211,567 recognized during the nine months ended September 30,
2021. The decrease in both the three- and nine-month periods can be attributable
to the vesting schedule for both Restricted Share Units ("RSUs") and incentive
stock options that were previously granted, particularly the net 3,954,213 RSUs
that were granted on April 18, 2021, that vest 1/3 on December 1, 2021, and 1/3
on the first and second anniversary of the first vesting date. These amounts are
non-cash, and the expense is recognized in accordance with the vesting schedule
of the underlying stock options and RSUs. See Note 12 to our audited
consolidated financial statements filed with our Annual Report on Form 10-K for
the year ended December 31, 2021, for additional details on the assumptions used
to calculate fair value as well as information regarding the vesting of the
various components of the non-cash share-based compensation.
Sales and marketing expenses decreased by 52.1% during the three months ended
September 30, 2022, and by 41.7% for the nine months ended September 30, 2022,
when compared to the three and nine months ended September 30, 2021. The
decrease during both the three- and nine-month periods was a result of us
continuing to refine our marketing efforts to optimize marketing spend on
initiatives that drive increased customer traffic to the Planet 13 Las Vegas
Superstore and the Planet 13 OC Superstore and our Medizin dispensary in Nevada.
Lease expense increased by 7.4% during the three months ended September 30,
2022, when compared to the three months ended September 30, 2021 due to
increases in contracted lease rates on the Company's leased properties during
the period. Lease expense for the nine months ended September 30, 2022,
increased by 2.6% compared to the nine months ended September 30, 2021, due to
a financial incentive from the landlord of the Planet 13 OC Superstore received
during the period which offset increases in contractual lease rates. We are
amortizing the financial incentive benefit received over the remaining life of
the lease.
Depreciation and Amortization increased 43.7% during the three months ended
September 30, 2022, when compared to the prior year period because of the
recording of depreciation on the NGW cultivation facility during the period as
well as depreciation from the Planet 13 OC Superstore location, both of which
were not owned/open during the prior year comparative period. For the nine
months ended September 30, 2022, depreciation and amortization increased 79.9%
when compared to the prior year period because of the recording of depreciation
on the NGW cultivation facility during the period as well as depreciation from
the Planet 13 OC Superstore location.
32
Table of Contents
Interest income was $121,285 earned during the three months ended September 30,
2022, compared to interest expense of $6,996 during the three months ended
September 30, 2021, (interest income of $193,896 for the nine months ended
September 31, 2022, compared to interest expense of $23,698 during the nine
months ended September 30, 2021). The interest expense relates to accrued
interest on our long-term debt that is due and payable on demand offset by
interest income earned on cash deposits. The balance of long-term debt as of
September 30, 2022, was $884,000 compared to $884,000 as of December 31, 2021.
We conduct our operations in both United States dollars and Canadian dollars,
holding financial assets and incurring expenses in both currencies. On December
31, 2021, the value of the USD was USD$1.00=CAD$1.2678 compared to the value of
the USD of USD$1.00=CAD$1.3707 at September 30, 2022 and averaged
USD$1.00=CAD$1.2828 during the nine months ended September 30, 2022, resulting
in our realizing a foreign exchange loss of $1,834 during the three months ended
September 30, 2022 compared to a foreign exchange gain of $79,688 during the
three months ended September 30, 2021. (Foreign exchange loss of $23,000 for the
nine months ended September 30, 2022, compared to a gain of $1,805,953 for the
nine months ended September 30, 2021). It is our policy not to hedge our CAD
exposure.
Warrants are accounted for in accordance with the applicable authoritative
accounting guidance in ASC Topic 815, Derivatives and Hedging - Contracts in
Entity's Own Equity ("ASC 815"), as derivative liabilities based on the specific
terms of the warrant agreements. Liability-classified instruments are recorded
at fair value at each reporting period with any change in fair value recognized
as a component of change in fair value of derivative liabilities in the
consolidated statements of operations and comprehensive loss. Transaction costs
allocated to warrants that are presented as a liability are expensed immediately
within other expenses (income) in the statements of net loss and comprehensive
loss. During the three months ended September 30, 2022, the change in fair value
of the warrants resulted in a gain of $197,721 (gain of $6,992,955 during the
nine months ended September 30, 2022) compared to a gain of $6,522,787 for the
three months ended September 30, 2021 (a loss of ($2,728,386) for the nine
months ended September 30, 2021).
Other income (expense), consisting of Automated Teller Machine ("ATM") fees,
interest and other miscellaneous income/expense was income of $41,487 for the
three months ended September 30, 2022, compared to other income of $152,466 for
the three months ended September 30, 2021. Other income for the nine months
ended September 30, 2022, was $270,254 compared to other income of $338,890 for
the nine months ended September 30, 2021.
Transaction costs related to the issuance of warrants of $0 were incurred during
the three and nine months ended September 30, 2022, compared to transaction
costs of $0 and $256,666 during the three months and nine months ended September
30, 2021, respectfully. The transaction costs represent a portion of the
issuance costs that were allocated to the issuance of warrants as part of the
bought deal equity financing that was completed in February 2021.
The income tax expense for the three months ended September 30, 2022, was
$2,222,504 compared to $3,397,821 for the prior year period. The tax expense
decreased due to the decrease in taxable profitability during the three months
ended September 30, 2022, when compared to the three months ended September 30,
2021. Income tax expense for the nine months ended September 30, 2022, was
$7,871,349 compared to income tax expense of $9,632,808 for the nine months
ended September 30, 2021. The tax expense decreased due to the decrease in
taxable profitability during the nine months ended September 30, 2022, when
compared to the nine months ended September 30, 2021. We are subject to Section
280E of the Internal Revenue Code (the "Code"), which prohibits businesses from
taking deductions or credits in carrying on any trade or business consisting of
trafficking in certain controlled substances that are prohibited by federal law.
We, to the extent of our "trafficking" activities, and/or key contract
counterparties directly engaged in trafficking in cannabis, have incurred
significant tax liabilities from the application of Section 280E. Our income tax
obligations under Section 280E of the Code are typically substantially higher as
compared to companies to which Section 280E does not apply. Section 280E
essentially requires us to pay federal, and as applicable, state income taxes on
gross profit, which presents a significant financial burden that increases our
net loss and may make it more difficult for us to generate net profit and cash
flow from operations in future periods. In addition, to the extent that the
application of Section 280E creates a financial burden on contract
counterparties, such burdens may impact the ability of such counterparties to
make full or timely payment to us, which would also have a material adverse
effect on our business.
33
Table of Contents
The overall net loss for the three months ended September 30, 2022, was
$6,255,525 (($0.03) per share) compared to an overall net loss of $2,741,675
(($0.01) per share) for the three months ended September 30, 2021. The overall
net loss for the nine months ended September 30, 2022, was $10,356,121 (($0.05)
per share) compared to a net loss of $14,320,822 ((0.07) per share) for the nine
months ended September 30, 2021.
Segmented Disclosure
We operate in a single reportable operating segment as a vertically integrated
cannabis company with cultivation, production and distribution operations in
Nevada and cultivation, retail dispensary and distribution operations in
California.
Liquidity and Capital Resources
As of September 30, 2022, our financial instruments consist of cash, deposits,
accounts payable and accrued liabilities, and notes payable. We have no
speculative financial instruments, derivatives, forward contracts, or hedges.
As of September 30, 2022, we had working capital of $58,126,927 compared to
working capital of $68,274,639 as of December 31, 2021. The Company has adequate
liquidity in the form of cash on hand to fund all its planned capital
expenditures and expansion plans as well as to continue to fund its operation
over the next 12 months, including the substantially completed expansion of a
cultivation facility in Clark Country, Nevada the planned build-out of our
operations in Florida, further expansion of operations in Nevada, and the
conditional acquisition and build-out of an Illinois retail location.
The following table relates to the nine months ended September 30, 2022, and
2021:
Nine Months Ended
September 30, September 30,
2022 2021
Cash flows provided by operating activities $ 2,334,432 $ (225,926 )
Cash flows used in investing activities (13,148,271 ) (14,624,473 )
Cash flows provided by financing activities
97,980 64,520,739
Cash Flows from Operating Activities
Net cash provided by operating activities was $2,334,432 for the nine months
ended September 30, 2022, compared to cash used in operating activities of
($225,926) for the nine months ended September 30, 2021. The increase is
primarily due to the receipt of cash proceeds for lease incentives during the
nine months ended September 30, 2022, when compared to the nine months ended
September 30, 2021.
Cash Flows from Investing Activities
Net cash used in investing activities was $13,148,271 for the nine months ended
September 30, 2022, compared to net cash used in investing activities of
$14,624,473 for the nine months ended September 30, 2021. The decrease is due to
lower amounts spent on capital expenditures during the period when compared to
the nine months ended September 30, 2021.
Cash Flows from Financing Activities
Net cash provided by financing activities was $97,980 representing cash proceeds
received on the exercise of stock options during the nine months ended September
30, 2022, compared to net cash provided by financing activities of $64,520,739
for the nine months ended September 30, 2021. The decrease was primarily related
to no warrants being exercised during the period and no equity financings or
private placements being completed during the nine months ended September 30,
2022, as compared to the nine months ended September 30, 2021.
34
Table of Contents
Capital Resources
We have a recent history of operating losses. It may be necessary for us to
arrange for additional financing to meet our on-going growth initiatives.
Management believes it will be able to raise equity capital as required in the
long term, but recognizes the risks attached thereto. There can be no assurance
that it will be able to obtain adequate financing in the future or that the
terms of such financing may be favorable.
Should financing not be available, the Company has adequate liquidity in the
form of cash on hand to fund all of its planned capital expenditures and
expansion plans as well as to continue to fund its operation over the next 12
months, including the planned expansion of a cultivation facility in Clark
County, Nevada, the build-out of our operations in Florida, further expansion of
operations in Nevada, and the conditional acquisition and build-out of an
Illinois retail location.
Capital Management
Our capital consists of shareholders' equity. Our objective when managing
capital is to maintain adequate levels of funding to support the development of
our businesses and maintain the necessary corporate and administrative functions
to facilitate these activities. This is done primarily through equity financing
and incurring debt. Future financings are dependent on market conditions and
there can be no assurance we will be able to raise funds in the future. We
invest all capital that is surplus to our immediate operational needs in
short-term, highly liquid, and high-grade financial instruments. There were no
changes to our approach to capital management during the period. We are not
subject to externally imposed capital requirements.
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements as of September 30, 2022, or as of
December 31, 2021, or as of the date hereof.
Critical Accounting Estimates
The preparation of consolidated financial statements in conformity with GAAP
requires our management to make judgements, estimates and assumptions about
future events that affect the amounts reported in the consolidated financial
statements. Although these estimates are based on management's best knowledge of
the amounts, events or actions, actual results may differ from those estimates.
Estimates and judgements are continuously evaluated and are based on
management's experience and other factors, including expectations of future
events that are believed to be reasonable.
Revisions to accounting estimates are recognized in the period in which the
estimates are revised and in any future periods affected.
There have been no material changes to our critical accounting estimates as set
forth in Part II Item 7A of our Annual Report on Form 10-K for the year ended
December 31, 2021.
© Edgar Online, source Glimpses
PLANET 13 HOLDINGS INC. 
