UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number:
(Exact Name of Registrant as Specified in its Charter)
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer |
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(Address of principal executive offices) |
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Registrant’s telephone number, including area code: (
Securities registered pursuant to Section 12(b) of the Act: None
Title of each class |
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Name of each exchange on which registered |
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Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer |
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Accelerated filer |
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Smaller reporting company |
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Emerging growth company |
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No
As of August 3, 2022, the registrant had
Trulieve Cannabis Corp.
Table of Contents
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Page |
PART I. |
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Item 1. |
1 |
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Condensed Consolidated Balance Sheets as of June 30, 2022 and December 31, 2021 |
1 |
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2 |
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3 |
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Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2022 and 2021 |
5 |
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7 |
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Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
37 |
Item 3. |
47 |
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Item 4. |
47 |
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PART II. |
OTHER INFORMATION |
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Item 1. |
50 |
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Item 1A. |
50 |
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Item 2. |
51 |
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Item 3. |
51 |
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Item 4. |
51 |
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Item 5. |
51 |
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Item 6. |
52 |
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53 |
i
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains forward-looking statements. In some cases, you can identify these statements by forward-looking words such as “may”, “will”, “would”, “could”, “should”, “believes”, “estimates”, “projects”, “potential”, “expects”, “plans”, “intends”, “anticipates”, “targeted”, “continues”, “forecasts”, “designed”, “goal”, or the negative of those words or other similar or comparable words. Any statements contained in this Quarterly Report on Form 10-Q that are not statements of historical facts may be deemed to be forward-looking statements. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our business, financial condition, results of operations and future growth prospects. The forward-looking statements contained herein are based on certain key expectations and assumptions, including, but not limited to, with respect to expectations and assumptions concerning receipt and/or maintenance of required licenses and third party consents and the success of our operations, are based on estimates prepared by us using data from publicly available governmental sources, as well as from market research and industry analysis, and on assumptions based on data and knowledge of this industry that we believe to be reasonable. These forward-looking statements are not guarantees of future performance or development and involve known and unknown risks, uncertainties and other factors that are in some cases beyond our control. As a result, any or all of our forward-looking statements in this Quarterly Report on Form 10-Q may turn out to be inaccurate. Factors that may cause actual results to differ materially from current expectations include, among other things, those listed under “Risk Factors” and discussed elsewhere in this Quarterly Report on Form 10-Q and in “Part I, Item 1A – Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2021. These forward-looking statements speak only as of the date of this Quarterly Report on Form 10-Q. Except as required by law, we assume no obligation to update or revise these forward-looking statements for any reason, even if new information becomes available in the future. You should, however, review the factors and risks we describe in the reports we will file from time to time with the SEC after the date of this Quarterly Report on Form 10-Q.
ii
PART I—FINANCIAL INFORMATION
Item 1. Financial Statements.
Trulieve Cannabis Corp.
Condensed Consolidated Balance Sheets
(in thousands)
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June 30, 2022 |
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December 31, 2021 |
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(unaudited) |
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(audited) |
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ASSETS |
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Current assets: |
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Cash and cash equivalents |
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$ |
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$ |
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Restricted cash |
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Accounts receivable, net |
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Inventories, net |
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Notes receivable - current portion |
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Prepaid expenses and other current assets |
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Total current assets |
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Property and equipment, net |
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Right of use assets - operating, net |
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Right of use assets - finance, net |
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Intangible assets, net |
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Goodwill |
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Notes receivable, net |
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Other assets |
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TOTAL ASSETS |
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$ |
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$ |
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LIABILITIES |
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Current liabilities: |
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Accounts payable and accrued liabilities |
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Income tax payable |
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Deferred revenue |
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Notes payable - current portion, net |
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Operating lease liabilities - current portion |
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Finance lease liabilities - current portion |
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Construction finance liabilities - current portion |
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Contingencies |
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Total current liabilities |
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Long-term liabilities: |
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Notes payable |
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Private placement notes, net |
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Warrant liabilities |
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Operating lease liabilities |
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Finance lease liabilities |
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Construction finance liabilities |
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Deferred tax liabilities |
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Other long-term liabilities |
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TOTAL LIABILITIES |
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(see Note 21) |
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SHAREHOLDERS' EQUITY |
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Common stock, par value; shares authorized. |
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— |
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— |
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Additional paid-in-capital |
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Accumulated earnings |
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Non-controlling interest |
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( |
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TOTAL SHAREHOLDERS' EQUITY |
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TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY |
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$ |
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$ |
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The accompanying notes are an integral part of these condensed consolidated financial statements.
1
Trulieve Cannabis Corp.
Condensed Consolidated Statements of Operations and Comprehensive (Loss) Income
(in thousands, except per share data)
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Three Months Ended |
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Six Months Ended |
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June 30, 2022 |
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June 30, 2021 |
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June 30, 2022 |
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June 30, 2021 |
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(unaudited) |
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Revenues, net of discounts |
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$ |
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$ |
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$ |
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$ |
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Cost of goods sold |
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Gross profit |
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Expenses: |
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Sales and marketing |
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General and administrative |
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Depreciation and amortization |
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Impairment and disposal of long-lived assets, net |
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— |
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— |
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Total expenses |
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Income from operations |
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Other income (expense): |
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Interest expense, net |
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( |
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( |
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( |
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( |
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Change in fair value of derivative liabilities - warrants |
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— |
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— |
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Loss on disposal of non-operating assets |
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( |
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— |
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( |
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— |
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Other income (expense), net |
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Total other expense |
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( |
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( |
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( |
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( |
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Income before provision for income taxes |
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Provision for income taxes |
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Net (loss) income and comprehensive (loss) income |
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( |
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( |
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Less: Net loss and comprehensive loss attributed to non-controlling interest |
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( |
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— |
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( |
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— |
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Net (loss) income and comprehensive (loss) income attributed to common shareholders |
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$ |
( |
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$ |
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$ |
( |
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$ |
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Net (loss) income per share: |
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Basic |
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$ |
( |
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$ |
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$ |
( |
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$ |
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Diluted |
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$ |
( |
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$ |
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$ |
( |
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$ |
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Weighted average number of common shares used in computing net (loss) income per common share: |
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Basic |
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Diluted |
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The accompanying notes are an integral part of these condensed consolidated financial statements.
2
Trulieve Cannabis Corp.
Condensed Consolidated Statements of Changes in Shareholders’ Equity
(in thousands, except per share data)
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Super Voting Shares |
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Multiple Voting Shares |
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Subordinate Voting Shares |
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Total Common Shares |
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Additional Paid-in-Capital |
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Accumulated Earnings |
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Non-Controlling Interest |
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Total |
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Balance, January 1, 2022 (audited) |
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— |
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$ |
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$ |
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$ |
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$ |
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Share-based compensation |
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— |
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— |
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— |
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— |
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— |
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— |
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Exercise of stock options |
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— |
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— |
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— |
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— |
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Shares issued for cash - warrant exercise |
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— |
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— |
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— |
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— |
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Shares issued under share compensation plans |
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— |
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— |
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— |
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— |
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— |
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— |
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Tax withholding related to net share settlements of equity awards |
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— |
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— |
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( |
) |
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( |
) |
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( |
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— |
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— |
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( |
) |
Conversion of Multiple Voting to Subordinate Voting Shares |
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— |
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( |
) |
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— |
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— |
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— |
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— |
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— |
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Shares issued for PurePenn, Pioneer, and Solevo earnouts |
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— |
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— |
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— |
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— |
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— |
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— |
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Distribution |
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— |
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— |
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— |
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— |
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— |
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— |
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( |
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( |
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Divestment of variable interest entity |
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— |
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— |
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— |
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— |
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— |
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— |
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( |
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( |
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Net loss and comprehensive loss |
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— |
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— |
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— |
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— |
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— |
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( |
) |
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( |
) |
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( |
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Balance, March 31, 2022 (unaudited) |
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— |
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$ |
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$ |
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$ |
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$ |
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Share-based compensation |
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— |
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— |
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— |
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— |
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— |
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— |
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Exercise of Stock options |
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— |
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— |
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— |
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— |
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— |
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— |
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Shares issued for cash - warrant exercise |
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— |
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— |
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— |
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— |
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Subordinate Voting Shares issued under share compensation plans |
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— |
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— |
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— |
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— |
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— |
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— |
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Conversion of Multiple Voting to Subordinate Voting Shares |
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— |
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( |
) |
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— |
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— |
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— |
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— |
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— |
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Net loss and comprehensive loss |
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— |
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— |
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— |
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— |
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— |
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( |
) |
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( |
) |
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( |
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Balance, June 30, 2022 (unaudited) |
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— |
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$ |
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$ |
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$ |
( |
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$ |
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3
Trulieve Cannabis Corp.
Condensed Consolidated Statements of Changes in Shareholders’ Equity (Continued)
(in thousands, except per share data)
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Super Voting Shares |
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Multiple Voting Shares |
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Subordinate Voting Shares |
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Total Common Shares |
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Additional Paid-in-Capital |
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Accumulated Earnings |
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Non-Controlling Interest |
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Total |
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||||||||
Balance, January 1, 2021 (audited) |
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$ |
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$ |
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$ |
— |
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$ |
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Share-based compensation |
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— |
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— |
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— |
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— |
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— |
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— |
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Shares issued for cash - warrant exercise |
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— |
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— |
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— |
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— |
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Conversion of warrants to Subordinate Voting Shares |
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— |
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— |
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— |
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— |
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— |
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— |
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Conversion of Multiple Voting to Subordinate Voting Shares |
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— |
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( |
) |
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— |
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— |
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— |
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— |
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— |
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Conversion of Super Voting to Subordinate Voting Shares |
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( |
) |
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— |
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— |
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— |
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— |
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— |
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— |
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Conversion of Super Voting to Multiple Voting Shares |
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( |
) |
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— |
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— |
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— |
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— |
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— |
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— |
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Net income and comprehensive income |
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— |
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— |
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— |
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— |
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— |
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— |
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Balance, March 31, 2021 (unaudited) |
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— |
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$ |
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$ |
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$ |
— |
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$ |
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Share-based compensation |
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— |
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— |
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— |
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— |
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— |
|
|
|
— |
|
|
|
|
||
Shares issued for cash - warrant exercise |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
||||
Common stock issued upon cashless warrant exercise |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
||
Tax withholding related to net share settlement of equity awards |
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
( |
) |
Issuance of shares in private placement, net of issuance costs |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
||||
Contingent consideration payable in shares |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
( |
) |
Adjustment of fair value of equity consideration for PurePenn, LLC |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
||
Adjustment of fair value of equity consideration for Keystone Relief Centers, LLC |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
||
Shares issued for Mountaineer Holding, LLC acquisition |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
||||
Shares issued for Nature's Remedy of Massachusetts, Inc. acquisition |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
||||
Shares issued for Solevo Wellness West Virginia, LLC acquisition |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
||||
Conversion of Multiple Voting to Subordinate Voting Shares |
|
|
— |
|
|
|
( |
) |
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Net income and comprehensive income |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
||
Balance, June 30, 2021 (unaudited) |
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
$ |
|
|
$ |
|
|
$ |
— |
|
|
$ |
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
4
Trulieve Cannabis Corp.
Condensed Consolidated Statements of Cash Flows
(in thousands)
|
|
Six Months Ended |
|
|
Six Months Ended |
|
||
|
|
(unaudited) |
|
|||||
Cash flow from operating activities |
|
|
|
|
|
|
||
Net (loss) income and comprehensive (loss) income |
|
$ |
( |
) |
|
$ |
|
|
Adjustments to reconcile net (loss) income and comprehensive (loss) income to net cash (used in) provided by operating activities: |
|
|
|
|
|
|
||
Depreciation and amortization |
|
|
|
|
|
|
||
Depreciation included in cost of goods sold |
|
|
|
|
|
|
||
Non-cash interest expense |
|
|
|
|
|
|
||
Non-cash interest income |
|
|
( |
) |
|
|
— |
|
Loss on impairment and disposal of long-lived assets, net |
|
|
|
|
|
— |
|
|
Loss on disposal of non-operating assets |
|
|
|
|
|
— |
|
|
Amortization of operating lease right of use assets |
|
|
|
|
|
|
||
Share-based compensation |
|
|
|
|
|
|
||
Accretion of construction finance liabilities |
|
|
|
|
|
|
||
Change in fair value of derivative liabilities - warrants |
|
|
( |
) |
|
|
— |
|
Non-cash change in contingencies |
|
|
|
|
|
— |
|
|
Allowance for credit losses |
|
|
|
|
|
— |
|
|
Deferred income tax expense |
|
|
( |
) |
|
|
( |
) |
Changes in operating assets and liabilities: |
|
|
|
|
|
|
||
Inventories |
|
|
( |
) |
|
|
( |
) |
Accounts receivable |
|
|
( |
) |
|
|
( |
) |
Prepaid expenses and other current assets |
|
|
|
|
|
( |
) |
|
Other assets |
|
|
( |
) |
|
|
( |
) |
Accounts payable and accrued liabilities |
|
|
( |
) |
|
|
|
|
Income tax payable |
|
|
( |
) |
|
|
( |
) |
Operating lease liabilities |
|
|
( |
) |
|
|
( |
) |
Deferred revenue |
|
|
( |
) |
|
|
( |
) |
Contingencies |
|
|
( |
) |
|
|
— |
|
Other long-term liabilities |
|
|
|
|
|
|
||
Net cash (used in) provided by operating activities |
|
|
( |
) |
|
|
|
|
Cash flow from investing activities |
|
|
|
|
|
|
||
Purchases of property and equipment |
|
|
( |
) |
|
|
( |
) |
Purchases of property and equipment related to construction finance liabilities |
|
|
( |
) |
|
|
( |
) |
Capitalized interest |
|
|
( |
) |
|
|
( |
) |
Acquisitions, net of cash acquired |
|
|
( |
) |
|
|
( |
) |
Purchases of internal use software |
|
|
( |
) |
|
|
( |
) |
Proceeds from sale of property and equipment |
|
|
|
|
|
— |
|
|
Proceeds from sale of variable interest entity |
|
|
|
|
|
— |
|
|
Proceeds from sale of held for sale assets |
|
|
|
|
|
— |
|
|
Proceeds received from notes receivable |
|
|
|
|
|
— |
|
|
Net cash used in investing activities |
|
|
( |
) |
|
|
( |
) |
Cash flow from financing activities |
|
|
|
|
|
|
||
Proceeds from private placement notes, net of discounts |
|
|
|
|
|
— |
|
|
Proceeds from notes payable |
|
|
|
|
|
— |
|
|
Proceeds from construction finance liabilities |
|
|
|
|
|
|
||
Proceeds from warrant exercises |
|
|
|
|
|
|
||
Proceeds from shares issued pursuant to private placement, net of issuance costs |
|
|
— |
|
|
|
|
|
Proceeds from stock option exercises |
|
|
|
|
|
— |
|
|
Payments on notes payable |
|
|
( |
) |
|
|
— |
|
Payments on private placement notes |
|
|
( |
) |
|
|
— |
|
Payments on finance lease obligations |
|
|
( |
) |
|
|
( |
) |
Payments on construction finance liabilities |
|
|
( |
) |
|
|
— |
|
Payments for debt issuance costs |
|
|
( |
) |
|
|
— |
|
Payments on notes payable - related party |
|
|
— |
|
|
|
( |
) |
Payments for taxes related to net share settlement of equity awards |
|
|
( |
) |
|
|
( |
) |
Distributions |
|
|
( |
) |
|
|
— |
|
Net cash provided by financing activities |
|
|
|
|
|
|
||
Net (decrease) increase in cash and cash equivalents |
|
|
( |
) |
|
|
|
|
Cash, cash equivalents, and restricted cash, beginning of period |
|
|
|
|
|
|
||
Cash, cash equivalents, and restricted cash, end of period |
|
$ |
|
|
$ |
|
5
Trulieve Cannabis Corp.
Condensed Consolidated Statements of Cash Flows (Continued)
(in thousands)
|
|
Six Months Ended |
|
|
Six Months Ended |
|
||
|
|
(unaudited) |
|
|||||
Supplemental disclosure of cash flow information |
|
|
|
|
|
|
||
Cash paid during the period for |
|
|
|
|
|
|
||
Interest |
|
$ |
|
|
$ |
|
||
Income taxes, net of refunds |
|
$ |
|
|
$ |
|
||
Other noncash investing and financing activities |
|
|
|
|
|
|
||
ASC 842 lease additions - operating and finance leases |
|
$ |
|
|
$ |
|
||
Purchases of property and equipment in accounts payable and accrued liabilities |
|
$ |
|
|
$ |
|
||
Shares issued for acquisitions |
|
$ |
— |
|
|
$ |
|
|
Adjustment to PurePenn, LLC and Keystone Relief Centers, LLC contingent consideration |
|
$ |
— |
|
|
$ |
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
6
Trulieve Cannabis Corp.
Notes to Condensed Consolidated Financial Statements
NOTE 1. NATURE OF BUSINESS
Trulieve Cannabis Corp. together with its subsidiaries (“Trulieve", the “Company”) was incorporated in British Columbia, Canada. Trulieve is a vertically integrated cannabis company which, as of June 30, 2022, held licenses to operate in Florida, California, Connecticut, Pennsylvania, Massachusetts, West Virginia, Arizona, Colorado, Maryland, Nevada, and Ohio, to cultivate, produce, and sell medicinal-use cannabis products, and with respect to Arizona, California, Colorado, Nevada, and Massachusetts, adult-use cannabis products, and have received notice of intent to award a license in Georgia.
In addition to the States listed above, the Company also conducts activities in other markets. In these markets, the Company has either applied for licenses, plans on applying for licenses, or partners with other entities, but does not currently directly own any cultivation, production, or retail licenses.
In July 2018, Trulieve, Inc. entered into a non-binding letter agreement (“Letter Agreement”) with Schyan Exploration Inc. (“Schyan”) whereby Trulieve, Inc. and Schyan have agreed to merge their respective businesses resulting in a reverse takeover of Schyan by Trulieve, Inc. and change the business of Schyan from a mining issuer to a cannabis issuer (the “Schyan Transaction”). The Schyan Transaction was completed in August 2018 and Schyan changed its name to Trulieve Cannabis Corp.
The Company’s principal address is located in Quincy, Florida. The Company’s registered office is located in British Columbia. The Company's operations are substantially located in Florida and to a lesser extent Arizona and Pennsylvania.
The Company is listed on the Canadian Securities Exchange (the “CSE”) and began trading on September 25, 2018, under the ticker symbol “TRUL” and trades on the OTCQX market under the symbol “TCNNF”.
7
NOTE 2. BASIS OF PRESENTATION
Principles of consolidation
The accompanying condensed consolidated financial statements include the financial position and operations of Trulieve Cannabis Corp. and its subsidiaries. The condensed consolidated financial statements were prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information and include the assets, liabilities, revenues, and expenses of all wholly-owned subsidiaries and variable interest entities ("VIEs") for which the Company has determined that it is the primary beneficiary. Outside shareholders' interests in subsidiaries are shown in the condensed consolidated financial statements as non-controlling interests. Material intercompany balances and transactions are eliminated in consolidation. In management's opinion, the condensed consolidated financial statements include all adjustments of a normal recurring nature necessary to fairly present the Company's financial position as of June 30, 2022, and the results of its operations and cash flows for the periods ended June 30, 2022 and June 30, 2021. The results of the Company's operations for the six months ended June 30, 2022 are not necessarily indicative of the results to be expected for the full 2022 fiscal year.
The financial data presented herein should be read in conjunction with the audited consolidated financial statements and accompanying notes as of and for the year ended December 31, 2021, as reported in the 2021 Annual Report on Form 10-K.
Basis of Measurement
These condensed consolidated financial statements have been prepared on the going concern basis, under the historical cost convention, except for certain financial instruments that are measured at fair value as described herein.
Functional Currency
The functional currency of the Company and its subsidiaries, as determined by management, is the United States (“U.S.”) dollar. These condensed consolidated financial statements are presented in U.S. dollars.
NOTE 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Company’s significant accounting policies are more fully described in Note 3. Summary of Significant Accounting Policies in the consolidated financial statements included in the Annual Report on Form 10-K for the fiscal year ended December 31, 2021, filed with the Securities and Exchange Commission ("SEC") on March 30, 2022 (the "2021 Form 10-K"). There have been no material changes to the Company’s significant accounting policies.
Critical accounting estimates and judgments
The preparation of the condensed consolidated financial statements with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Significant estimates in the condensed consolidated financial statements, include, but are not limited to, accounting for acquisitions and business combinations; initial valuation and subsequent impairment testing of goodwill, other intangible assets, and long-lived assets; leases; fair value of financial instruments, income taxes; inventory; share-based payment arrangements, and commitment and contingencies. Actual results may differ from these estimates. Estimates and underlying assumptions are reviewed on an ongoing basis.
Cash and Cash Equivalents
The Company considers cash deposits and all highly liquid investments with an original maturity of three months or less to be cash equivalents. Cash and cash equivalents include cash deposits in financial institutions plus cash held at retail locations. Cash held in money market investments are carried at market value which approximates fair value and cash held in financial institutions and held at retail locations, have carrying values that approximate fair value.
Restricted Cash
Restricted cash balances are those which meet the definition of cash and cash equivalents but are not available for use by the Company. As of December 31, 2021, restricted cash was $
8
Held for sale
The Company classifies long-lived assets or disposal groups and related liabilities as held-for-sale when management having the appropriate authority, generally the Company's Board of Directors or certain Executive Officers, commits to a plan of sale, the disposal group is ready for immediate sale, an active program to locate a buyer has been initiated and the sale is probable and expected to be completed within one year. Once classified as held-for-sale, disposal groups are valued at the lower of their carrying amount or fair value less estimated selling costs. Depreciation on these properties is discontinued at the time they are classified as held for sale, but operating revenues, operating expenses and interest expense continue to be recognized until the date of disposal.
As of June 30, 2022, the Company had $
During the three months ended June 30, 2022, the Company settled net assets of $
Recently Issued Accounting Pronouncements
Recent accounting pronouncements, other than those below, issued by the Financial Accounting Standards Board ("FASB"), the AICPA ("American Institute of Certified Public Accountants") and the SEC did not or are not believed by management to have a material effect on the Company’s present or future financial statements.
In October 2021, the FASB issued ASU No. 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers (“ASU 2021-08”), which requires an acquirer to recognize and measure contract assets and liabilities acquired in a business combination in accordance with Revenue from Contracts with Customers (“Topic 606”) rather than adjust them to fair value at the acquisition date. The Company elected to early adopt this accounting standard in the fourth quarter of 2021, with retrospective application to business combinations that occurred in . Results of operations for quarterly periods prior to September 30, 2021 remain unchanged as a result of the
NOTE 4. ACQUISITIONS
(a) Greenhouse Wellness WV Dispensaries, LLC
On April 26, 2022, the Company acquired
9
The following table summarizes the allocation of consideration exchanged for the estimated fair value of tangible and identifiable intangible assets acquired and liabilities assumed:
(in thousands) |
|
|
|
|
Consideration: |
|
|
|
|
Cash |
|
$ |
|
|
Fair value of consideration exchanged |
|
$ |
|
|
Recognized amounts of identifiable assets acquired and liabilities assumed: |
|
|
|
|
Right of use asset - operating |
|
$ |
|
|
Intangible asset |
|
|
|
|
Favorable lease interest |
|
|
|
|
Operating lease liabilities |
|
|
( |
) |
Total net assets acquired |
|
$ |
|
The acquired intangible assets includes a dispensary license which is treated as a definite-lived intangible asset amortized over a
(b) CP4 Group, LLC
On February 14, 2022, the Company acquired a cultivation operation from CP4 Group, LLC, in Phoenix, Arizona ("Watkins"). Total consideration was $
The Company reviewed the potential earnouts concluding three are probable and estimable as of June 30, 2022, recording an accrual of $
The Company analyzed the acquisition under ASU 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business, determining Watkins met the definition of a business as Watkins is an existing cultivation facility with inputs, processes, and outputs in place that constitute a business under Topic 805. As a result, the acquisition of Watkins has been accounted for as a business combination. Goodwill represents the premium the Company paid over the fair value of the net tangible assets acquired. The primary reason for the acquisition was to expand the Company's cultivation capacity in Arizona. The goodwill of $
10
The following table summarizes the allocation of consideration exchanged for the estimated fair value of tangible assets acquired and liabilities assumed:
(in thousands) |
|
|
|
|
Consideration |
|
|
|
|
Cash |
|
$ |
|
|
Fair value of consideration exchanged |
|
$ |
|
|
Recognized amounts of identifiable assets acquired and liabilities assumed: |
|
|
|
|
Inventories |
|
$ |
|
|
Property and equipment |
|
|
|
|
Right of use asset - operating |
|
|
|
|
Goodwill |
|
|
|
|
Operating lease liability |
|
|
( |
) |
Total net assets acquired |
|
$ |
|
(c) Purplemed Healing Center
On December 28, 2021, the Company acquired
The Company analyzed the acquisition under ASU 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business, determining Purplemed did not meet the definition of a business as Purplemed did not have inputs, processes, and outputs in place that constituted a business under Topic 805. As a result, the acquisition of Purplemed has been accounted for as an asset acquisition, whereby all of the assets acquired and liabilities assumed are assigned a carrying amount based on relative fair values. The total consideration was $
The net assets were acquired for an aggregate purchase price of $
(in thousands) |
|
|
|
|
Consideration: |
|
|
|
|
Cash |
|
$ |
|
|
Transaction costs |
|
|
|
|
Fair value of consideration exchanged |
|
$ |
|
|
Recognized amounts of identifiable assets acquired and liabilities assumed: |
|
|
|
|
Prepaid expenses and other current assets |
|
$ |
|
|
Right of use asset - operating |
|
|
|
|
Intangible asset |
|
|
|
|
Other current liabilities |
|
|
( |
) |
Deferred revenue |
|
|
( |
) |
Operating lease liability |
|
|
( |
) |
Total net assets acquired |
|
$ |
|
The acquired intangible asset includes a dispensary license which is treated as a definite-lived intangible asset amortized over a
11
(d) Harvest Health & Recreation Inc.
On October 1, 2021, (the “Closing Date”), the Company acquired
Harvest was one of the largest multi-state vertically integrated operators in the cannabis industry in the United States operating from “seed to sale." Harvest operated facilities or provided services to cannabis dispensaries in Arizona, California, Colorado, Florida, Maryland, Nevada, and Pennsylvania, with two provisional licenses in Massachusetts. In addition, Harvest owned CO2 extraction, distillation, purification, and manufacturing technology used to produce a line of cannabis topicals, vapes, and gems featuring cannabinoids.
Total consideration was $
The acquisition was accounted for as a business combination in accordance with Accounting Standards Codification (ASC) 805, Business Combinations. Goodwill represents the premium the Company paid over the fair value of the net tangible and intangible assets acquired. The primary reason for the acquisition was to expand the Company’s retail and cultivation footprint and gain access to new markets. The goodwill of $
12
The following table summarizes the allocation of consideration exchanged for the estimated fair value of tangible and identifiable intangible assets acquired and liabilities assumed:
(in thousands) |
|
|
|
|
Consideration: |
|
|
|
|
Trulieve Subordinated Voting Shares |
|
$ |
|
|
Fair value of other equity instruments |
|
|
|
|
Fair value of warrants classified as liabilities |
|
|
|
|
Fair value of consideration exchanged |
|
$ |
|
|
Recognized amounts of identifiable assets acquired and liabilities assumed: |
|
|
|
|
Cash and cash equivalents |
|
$ |
|
|
Restricted cash |
|
|
|
|
Accounts receivable |
|
|
|
|
Inventories |
|
|
|
|
Prepaid expenses and other current assets |
|
|
|
|
Notes receivable |
|
|
|
|
Property and equipment |
|
|
|
|
Right of use assets - operating |
|
|
|
|
Intangible assets: |
|
|
|
|
Dispensary license |
|
|
|
|
Trademarks |
|
|
|
|
Customer relationships |
|
|
|
|
Other assets |
|
|
|
|
Accounts payable and accrued liabilities |
|
|
( |
) |
Income tax payable |
|
|
( |
) |
Deferred revenue |
|
|
( |
) |
Operating lease liabilities |
|
|
( |
) |
Contingencies |
|
|
( |
) |
Notes payable |
|
|
( |
) |
Construction finance liabilities |
|
|
( |
) |
Other long-term liabilities |
|
|
( |
) |
Deferred tax liabilities |
|
|
( |
) |
|
|
$ |
|
|
Non-controlling interest |
|
$ |
( |
) |
Goodwill |
|
|
|
|
Total net assets acquired |
|
$ |
|
The acquired intangible assets include dispensary licenses which are treated as definite-lived intangible assets amortized over a
On acquisition date there was consideration in the form of
13
was additional consideration in the form of other outstanding equity instruments issued before the acquisition date to non-employees which had a pre-combination fair value of $
As part of the acquisition, Harvest entered into a sale agreement to sell their Florida cannabis license for $
The Company has not yet finalized their accounting for non-controlling interests on the acquired entities but has recorded preliminary entries in this area. Any subsequent adjustments would be expected to impact non-controlling interest and goodwill. This accounting will be finalized during the measurement period.
Supplemental pro forma information (unaudited)
The unaudited pro forma information for the periods set forth below gives effect to the acquisition of Harvest Health & Recreation Inc. and Keystone Shops, as if the acquisitions had occurred on January 1, 2021. This pro forma information is presented for informational purposes only and is not necessarily indicative of the results of operations that would have been achieved had the transactions been consummated as of that time nor does it purport to be indicative of future financial operating results.
Proforma net revenues for the three and six months ending June 30, 2021 are $
Unaudited pro forma net income reflects the elimination of sales between the companies, and adjustments for alignment of significant differences in accounting principles and elections.
(e) Keystone Shops
On July 8, 2021, the Company acquired
14
The following table summarizes the allocation of consideration exchanged for the estimated fair value of tangible and identifiable intangible assets acquired and liabilities assumed:
(in thousands) |
|
|
|
|
Consideration: |
|
|
|
|
Cash |
|
$ |
|
|
Shares issued upon acquisition |
|
|
|
|
Fair value of consideration exchanged |
|
$ |
|
|
Recognized amounts of identifiable assets acquired and liabilities assumed: |
|
|
|
|
Cash |
|
$ |
|
|
Inventories |
|
|
|
|
Prepaid expenses and other current assets |
|
|
|
|
Property and equipment |
|
|
|
|
Right of use asset - finance |
|
|
|
|
Intangible assets |
|
|
|
|
Dispensary license |
|
|
|
|
Tradename |
|
|
|
|
Favorable leasehold interests, net |
|
|
|
|
Goodwill |
|
|
|
|
Other assets |
|
|
|
|
Accounts payable and accrued liabilities |
|
|
( |
) |
Income tax payable |
|
|
( |
) |
Operating lease liabilities |
|
|
( |
) |
Other long-term liabilities |
|
|
( |
) |
Deferred tax liability |
|
|
( |
) |
Total net assets acquired |
|
$ |
|
The acquired intangible assets include a dispensary license which is treated as a definite-lived intangible asset amortized over a
(f) Nature’s Remedy of Massachusetts, Inc.
On June 30, 2021, the Company completed an asset purchase agreement whereby Trulieve acquired a licensed, but not yet operating, adult-use dispensary location from Nature’s Remedy of Massachusetts, Inc. (“Nature’s Remedy”). The Company analyzed the acquisition under ASU 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business, determining Nature’s Remedy did not meet the definition of a business as Nature’s Remedy did not have inputs, processes, and outputs in place that constituted a business under Topic 805. As a result, the acquisition of Nature’s Remedy has been accounted for as an asset acquisition, whereby all of the assets acquired and liabilities assumed are assigned a carrying amount based on relative fair values. Total consideration was $
15
The following table summarizes the allocation of consideration exchanged for the estimated fair value of tangible and identifiable intangible assets acquired and liabilities assumed:
(in thousands) |
|
|
|
|
Consideration: |
|
|
|
|
Cash |
|
$ |
|
|
Shares issued upon acquisition |
|
|
|
|
Transaction costs |
|
|
|
|
Fair value of consideration exchanged |
|
$ |
|
|
Recognized amounts of identifiable assets acquired and liabilities assumed: |
|
|
|
|
Prepaid expenses and other current assets |
|
$ |
|
|
Property and equipment |
|
|
|
|
Right of use asset - finance |
|
|
|
|
Intangible assets |
|
|
|
|
Accounts payable and accrued liabilities |
|
|
( |
) |
Finance lease liability |
|
|
( |
) |
Total net assets acquired |
|
$ |
|
The acquired intangible asset is represented by the adult-use license and is treated as a definite-lived intangible asset amortized over a
(g) Patient Centric of Martha's Vineyard
On July 2, 2021, the Company acquired certain assets of Patient Centric of Martha’s Vineyard (“PCMV”) including the rights to a Provisional Marijuana Retailers License from the Massachusetts Cannabis Control Commission, the right to exercise an option held by PCMV to lease real property in Framingham, Massachusetts for use as a marijuana retailer, and necessary municipal entitlements to operate as a marijuana retailer at the property. Total consideration was
The following table summarizes the allocation of consideration exchanged for the estimated fair value of tangible and identifiable intangible assets acquired and liabilities assumed:
(in thousands) |
|
|
|
|
Consideration: |
|
|
|
|
Shares issued upon acquisition |
|
$ |
|
|
Transaction costs |
|
|
|
|
Fair value of consideration exchanged |
|
$ |
|
|
Recognized amounts of identifiable assets acquired and liabilities assumed: |
|
|
|
|
Right of use asset - finance |
|
$ |
|
|
Intangible asset |
|
|
|
|
Finance lease liabilities |
|
|
( |
) |
Total net assets acquired |
|
$ |
|
16
The acquired intangible asset is represented by the adult-use license and is treated as a definite-lived intangible asset amortized over a
(h) Solevo Wellness West Virginia, LLC
On June 8, 2021, the Company acquired
(i) Mountaineer Holding, LLC
On May 6, 2021, the Company acquired
NOTE 5. ACCOUNTS RECEIVABLE
As of June 30, 2022 and December 31, 2021, Accounts receivable, net consisted of the following:
|
|
June 30, 2022 |
|
|
December 31, 2021 |
|
||
|
|
(in thousands) |
|
|||||
Trade receivables |
|
$ |
|
|
$ |
|
||
Less: allowance for credit losses |
|
|
( |
) |
|
|
( |
) |
Accounts receivable, net |
|
$ |
|
|
$ |
|
17
NOTE 6. NOTES RECEIVABLE
As of June 30, 2022 and December 31, 2021,
|
|
June 30, |
|
|
December 31, |
|
||
|
|
(in thousands) |
|
|||||
Promissory note acquired from Harvest maturing in November 2025. Secured by certain assets. |
|
$ |
|
|
$ |
|
||
Convertible note receivable dated November 2021 maturing in November 2024. |
|
|
|
|
|
|
||
Promissory notes acquired from Harvest maturing in February 2022. Secured by certain assets. |
|
|
— |
|
|
|
|
|
Notes receivable |
|
|
|
|
|
|
||
Less: discount on notes receivable |
|
|
( |
) |
|
|
( |
) |
Total notes receivable, net of discounts |
|
|
|
|
|
|
||
Less: current portion of notes receivable |
|
|
( |
) |
|
|
( |
) |
Notes receivable |
|
$ |
|
|
$ |
|
In October 2021, the Company acquired a note receivable with the Harvest acquisition. The note receivable was originally dated November 2020 maturing in
In October 2021, the Company acquired notes receivable with the Harvest acquisition. The notes receivable was originally dated in February 2021 and matured in
As part of the acquisition of Harvest, the Company acquired $
See Note 4. Acquisitions for further details of the Harvest acquisition.
In November 2021, the Company entered into a convertible note receivable agreement for a principal amount of $
During the three and six months ended June 30, 2022, the Company recorded interest income of $
18
Stated maturities of notes receivable are as follows as of June 30, 2022:
|
|
Expected principal payments |
|
|
|
|
(in thousands) |
|
|
Remaining 2022 |
|
$ |
|
|
2023 |
|
|
|
|
2024 |
|
|
|
|
2025 |
|
|
|
|
2026 |
|
|
— |
|
Thereafter |
|
|
— |
|
Total |
|
|
|
|
Less: discount on notes receivable |
|
|
( |
) |
Total |
|
$ |
|
NOTE 7. INVENTORY
As of June 30, 2022 and December 31, 2021, Inventories, net consisted of the following:
|
|
June 30, 2022 |
|
|
December 31, 2021 |
|
||
|
|
(in thousands) |
|
|||||
Raw material |
|
|
|
|
|
|
||
Cannabis plants |
|
$ |
|
|
$ |
|
||
Packaging and supplies |
|
|
|
|
|
|
||
Total raw material |
|
|
|
|
|
|
||
Work in process |
|
|
|
|
|
|
||
Finished goods-unmedicated |
|
|
|
|
|
|
||
Finished goods-medicated |
|
|
|
|
|
|
||
Total inventories |
|
$ |
|
|
$ |
|
19
NOTE 8. PROPERTY & EQUIPMENT
As of June 30, 2022 and December 31, 2021, Property and equipment, net consisted of the following:
|
|
June 30, 2022 |
|
|
December 31, 2021 |
|
||
|
|
(in thousands) |
|
|||||
Land |
|
$ |
|
|
$ |
|
||
Buildings and improvements |
|
|
|
|
|
|
||
Furniture and equipment |
|
|
|
|
|
|
||
Vehicles |
|
|
|
|
|
|
||
Total |
|
|
|
|
|
|
||
Less: accumulated depreciation |
|
|
( |
) |
|
|
( |
) |
Total property and equipment |
|
|
|
|
|
|
||
Construction in progress |
|
|
|
|
|
|
||
Total property and equipment, net |
|
$ |
|
|
$ |
|
Capitalized interest for the three and six months ended June 30, 2022 totaled $
Depreciation expense for the three and six months ended June 30, 2022 totaled $
During the three and six months ended June 30, 2022, the Company recorded a loss on the disposal of property and equipment of $
NOTE 9. INTANGIBLE ASSETS & GOODWILL
Intangible assets
As of June 30, 2022 and December 31, 2021, Intangible assets, net consisted of the following:
|
|
June 30, 2022 |
|
|
December 31, 2021 |
|
||||||||||||||||||
|
|
Gross Carrying Amount |
|
|
Accumulated Amortization |
|
|
Net Book Value |
|
|
Gross Carrying Amount |
|
|
Accumulated Amortization |
|
|
Net Book Value |
|
||||||
|
|
(in thousands) |
|
|
(in thousands) |
|
||||||||||||||||||
Licenses |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||
Trademarks |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Internal use software |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Tradenames |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Customer relationships |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Total |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
20
Amortization expense for the three and six months ended June 30, 2022 was $
The following table outlines the estimated future annual amortization expense related to intangible assets as of June 30, 2022:
|
|
Estimated |
|
|
|
|
(in thousands) |
|
|
Remaining 2022 |
|
$ |
|
|
2023 |
|
|
|
|
2024 |
|
|
|
|
2025 |
|
|
|
|
2026 |
|
|
|
|
Thereafter |
|
|
|
|
|
|
$ |
|
As of June 30, 2022, the weighted average amortization period remaining for intangible assets was
Goodwill
The changes in the carrying amount of Goodwill arose from the following:
|
|
As of June 30, 2022 |
|
|
|
|
(in thousands) |
|
|
As of December 31, 2021 |
|
$ |
|
|
Acquisition of Watkins |
|
|
|
|
As of June 30, 2022 |
|
$ |
|
21
NOTE 10. NOTES PAYABLE
As of June 30, 2022 and December 31, 2021, Notes payable, net consisted of the following:
|
|
June 30, 2022 |
|
|
December 31, 2021 |
|
||
|
|
(in thousands) |
|
|||||
Promissory notes dated |
|
|
|
|
|
|
||
Promissory note acquired in Harvest acquisition dated |
|
|
|
|
|
|
||
Promissory note dated |
|
|
|
|
|
|
||
Promissory note of consolidated variable-interest entity dated |
|
|
|
|
|
— |
|
|
Promissory note dated |
|
|
|
|
|
|
||
Promissory note acquired in Harvest acquisition dated |
|
|
|
|
|
|
||
Promissory note acquired in Harvest acquisition dated |
|
|
|
|
|
|
||
Promissory note acquired in Harvest acquisition dated |
|
|
|
|
|
|
||
Promissory note acquired in Harvest acquisition dated |
|
|
|
|
|
|
||
Promissory notes of consolidated variable-interest entities acquired in Harvest Acquisition. |
|
|
— |
|
|
|
|
|
Total notes payable |
|
|
|
|
|
|
||
Less: Debt discount |
|
|
( |
) |
|
|
( |
) |
Less: Current portion of notes payable |
|
|
( |
) |
|
|
( |
) |
Notes payable |
|
$ |
|
|
$ |
|
As of June 30, 2022, stated maturities of notes payable are as follows:
|
|
(in thousands) |
|
|
Remaining 2022 |
|
$ |
|
|
2023 |
|
|
|
|
2024 |
|
|
|
|
2025 |
|
|
|
|
2026 |
|
|
|
|
Thereafter |
|
|
|
|
Total |
|
$ |
|
NOTE 11. PRIVATE PLACEMENT NOTES
2024 Notes
In 2019, the Company completed two private placement arrangements (the “June Notes” and the “November Notes”), each comprised of
22
During the three and six months ended June 30, 2022, accretion expense for the June Notes was $
During the three and six months ended June 30, 2022, accretion expense for the November Notes was $
2026 Notes
On January 28, 2022, the Company closed on a second tranche private placement of 8% Senior Secured Notes (the "2026 Notes") for aggregate gross proceeds of $
On October 6, 2021, the Company closed its private placement of 8% Senior Secured Notes (the "2026 Notes") for aggregate gross proceeds of $
Accretion expense on the private placement notes is included as a component of other income (expense), net in the condensed consolidated statements of operations and comprehensive (loss) income as interest expense.
Stated maturities of the principal portion of private placement notes, net outstanding as of June 30, 2022, are as follows:
|
(in thousands) |
|
|
Remaining 2022 |
|
|
|
2023 |
|
|
|
2024 |
|
|
|
2025 |
|
|
|
2026 |
|
|
|
Thereafter |
|
— |
|
Total private placement notes |
|
|
|
Less: Unamortized debt discount & issuance costs |
|
( |
) |
Private placement notes, net |
$ |
|
NOTE 12. LEASES
The Company leases real estate used for dispensaries, production plants, and corporate offices. Lease terms for real estate generally range from to
23
Lease right-of-use assets and liabilities are recognized based on the present value of future minimum lease payments over the lease term at commencement date.
Leases with an initial term of 12 months or less are not recorded on the balance sheet. Lease agreements for some locations provide for rent escalations and renewal options. Certain real estate leases require payment for taxes, insurance and maintenance which are considered non-lease components. The Company accounts for real estate leases and the related fixed non-lease components together as a single component.
The Company recorded a loss on disposal of operating right of use assets of less than $
The following table provides the components of lease cost recognized in the condensed consolidated statements of operations and comprehensive (loss) income:
|
|
|
Three Months Ended |
|
|
For the Six Months Ended June 30, |
|
||||||||||
|
Statement of operations and comprehensive (loss) income location |
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
||||
|
|
|
(in thousands) |
|
|||||||||||||
Operating lease cost |
Cost of goods sold, sales and marketing, general and administrative |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Finance lease cost: |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Amortization of lease assets |
Cost of goods sold, sales and marketing, general and administrative |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Interest on lease liabilities |
Interest expense |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Finance lease cost |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Variable lease cost |
Cost of goods sold, sales and marketing, general and administrative |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Short term lease expense |
Cost of goods sold, sales and marketing, general and administrative |
|
|
|
|
|
— |
|
|
|
|
|
|
— |
|
||
Total lease cost |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
Short term lease expense for the three and six months ended June 30, 2021 was nominal. During the three and six months ended June 30, 2022, the Company earned $
24
Other information related to operating and finance leases is as follows:
|
Three Months Ended June 30, |
|
|
Six Months Ended June 30, |
|
||||||||||
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
||||
|
(in thousands) |
|
|||||||||||||
Cash paid for amounts included in the measurement of lease liabilities: |
|
|
|
|
|
|
|
|
|
|
|
||||
Operating cash flows from operating leases |
|
|
|
|
|
|
|
|
|
|
|
||||
Operating cash flows from finance leases |
|
|
|
|
|
|
|
|
|
|
|
||||
Financing cash flows from finance leases |
|
|
|
|
|
|
|
|
|
|
|
||||
Lease assets obtained in exchange for new lease liabilities: |
|
|
|
|
|
|
|
|
|
|
|
||||
Operating leases |
|
|
|
|
|
|
|
|
|
|
|
||||
Finance leases |
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2022 |
|
|
December 31, 2021 |
|
||
|
(in thousands) |
|
|||||
Weighted average discount rate: |
|
|
|
|
|
||
Operating leases |
|
% |
|
|
% |
||
Finance leases |
|
% |
|
|
% |
||
Weighted average remaining lease term (in years): |
|
|
|
|
|
||
Operating leases |
|
|
|
|
|
||
Finance leases |
|
|
|
|
|
Future minimum lease payments under the Company's non-cancellable leases as of June 30, 2022 are as follows:
|
|
Operating leases |
|
|
Finance leases |
|
||
|
|
(in thousands) |
|
|||||
Remainder of 2022 |
|
$ |
|
|
$ |
|
||
2023 |
|
|
|
|
|
|
||
2024 |
|
|
|
|
|
|
||
2025 |
|
|
|
|
|
|
||
2026 |
|
|
|
|
|
|
||
Thereafter |
|
|
|
|
|
|
||
Total undiscounted lease liabilities |
|
|
|
|
|
|
||
Interest on lease liabilities |
|
|
( |
) |
|
|
( |
) |
Total present value of minimum lease payments |
|
|
|
|
|
|
||
Lease liabilities- current portion |
|
|
( |
) |
|
|
( |
) |
Lease liabilities |
|
$ |
|
|
$ |
|
25
NOTE 13. CONSTRUCTION FINANCE LIABILITIES
Holyoke
In July 2019, the Company sold property it had recently acquired in Massachusetts for $
Included in the agreement, the Company completed the tenant improvements related to the property, for which the landlord has provided a tenant improvement allowance (“TI Allowance”) of $
Ben Bostic
In October 2019, the Company sold property in Florida in exchange for cash of $
The initial term of the agreement is
McKeesport
In October 2019, prior to acquisition by the Company, PurePenn, sold their cannabis cultivation facility in Pennsylvania for $
The initial term of the lease is
Alachua
In October 2021, in connection with the acquisition of Harvest, the Company acquired a transaction in which Harvest sold a licensed cultivation and processing facility and simultaneously with the closing of the sale, agreed to lease the facility back. The transaction was treated as a failed sale-leaseback financing arrangement.
The initial term of the lease is
In the first quarter of 2022, the Company temporarily idled this facility. The Company is evaluating the future use of this facility and remains in compliance with the associated lease obligation.
26
Hancock
In October 2021, in connection with the acquisition of Harvest, the Company acquired a transaction in which Harvest sold a licensed cultivation and processing facility and simultaneously with the closing of the sale, agreed to lease the facility back. The transaction was treated as a failed sale-leaseback financing arrangement.
The initial term of the lease is
Under the failed-sale-leaseback accounting model, the Company is deemed to own this real estate and reflects the properties in the condensed consolidated balance sheets and depreciate them over the assets' remaining useful life.
Future minimum lease payments for the construction finance liabilities as of June 30, 2022, are as follows:
|
|
(in thousands) |
|
|
Remaining 2022 |
|
$ |
|
|
2023 |
|
|
|
|
2024 |
|
|
|
|
2025 |
|
|
|
|
2026 |
|
|
|
|
Thereafter |
|
|
|
|
Total future payments |
|
|
|
|
Less: Interest |
|
|
( |
) |
Total present value of minimum payments |
|
|
|
|
Construction finance liabilities - current portion |
|
|
( |
) |
Construction finance liabilities |
|
$ |
|
NOTE 14. SHARE CAPITAL
The authorized share capital of the Company is comprised of the following:
(i)
Holders of the Subordinate Voting Shares are entitled to notice of and to attend any meeting of the shareholders of the Company, except a meeting of which only holders of another particular class or series of shares of the Company shall have the right to vote.
(ii)
Holders of Multiple Voting shares are entitled to notice of and to attend any meetings of the shareholders of the Company, except a meeting of which only holders of another particular class or series of shares of the Company have the right to vote.
27
passu (on an as-converted basis, assuming conversion of all Multiple Voting Shares into Subordinate Voting Shares at the Conversion Ratio) as to dividends and any declaration or payment of any dividend on the Subordinate Voting Shares.
(iii)
Holders of Super Voting Shares are entitled to notice of and to attend at any meeting of the shareholders of the Company, except a meeting of which only holders of another particular class or series of shares of the Company shall have the right to vote.
Warrants
Liability warrants
|
|
Number |
|
|
Weighted average exercise price |
|
|
Weighted average |
|
|||
Outstanding and exercisable as of December 31, 2021 |
|
|
|
|
$ |
|
|
|
|
|||
Granted |
|
|
— |
|
|
|
— |
|
|
|
— |
|
Exercised |
|
|
— |
|
|
|
— |
|
|
|
— |
|
Outstanding and exercisable as of June 30, 2022 |
|
|
|
|
$ |
|
|
|
|
In October 2021 the Company acquired
The fair value of the Harvest liability warrants is determined using the Black-Scholes options pricing model. The Harvest liability warrants are classified within level two of the fair value hierarchy. There have been
|
June 30, 2022 |
|
December 31, 2021 |
Stock price |
$ |
|
$ |
Exercise price ($CAD) |
$ |
|
$ |
Exchange rate |
$ |
|
$ |
Remaining life |
|
||
Annualized volatility |
|
||
Discount rate |
|
28
Equity warrants
In connection with the Harvest acquisition in October 2021, the Company acquired certain equity classified warrants ("Acquired equity warrants"). The acquired equity warrants range in exercise price from $
As of June 30, 2022 and December 31, 2021 there were
NOTE 15. SHARE-BASED COMPENSATION
Equity Incentive Plans
The Company’s 2021 Omnibus Incentive Plan (the “2021 Plan”) was adopted in June 2021 at the 2021 annual meeting of shareholders. The 2021 Plan reserves
Options
On January 4, 2022 and February 24, 2022, under the 2021 Plan, the Board awarded options to purchase shares to board members, directors, officers, and key employees of the Company. The options granted vest immediately for board members and all other options granted vest over a -to
On October 26, 2021, under the 2021 Plan, the Board awarded options to purchase shares to officers and other select employees of the Company. The options generally vest over a -to
On October 1, 2021, the Company acquired Harvest which included consideration in the form of
On September 29, 2021, under the 2021 Plan, the Board awarded options to purchase shares to officers and other select employees of the Company. The September 29, 2021, options vest over a
On January 4, 2021, under the Prior Plan, the Board awarded options to purchase shares to directors, officers, and key employees of the Company. The January 4, 2021, options generally vest over a -to
In determining the amount of share-based compensation related to options issued during the periods ending June 30, 2022 and 2021, the Company used the Black-Scholes pricing model to establish the fair value of the options granted with the following assumptions:
29
|
For the Six Months Ended June 30, 2022 |
For the Six Months Ended June 30, 2021 |
Fair value at grant date |
$ |
$ |
Stock price at grant date |
$ |
$ |
Exercise price at grant date |
$ |
$ |
Expected life in years |
||
Expected volatility |
||
Expected annual rate of dividends |
||
Risk free annual interest rate |
The expected volatility was estimated by using the historical volatility of the Company. In cases where there is insufficient trading history, the expected volatility is estimated using the historical volatility of other companies that the Company considers comparable that have trading and volatility history prior to the Company becoming public. The expected life in years represents the period of time that options granted are expected to be outstanding and is computed using the simplified method. The risk-free rate was based on the United States bond yield rate at the time of grant of the award. Expected annual rate of dividends is based on the fact that the Company has never paid cash dividends and does not expect to pay any cash dividends in the foreseeable future.
For the three months ended June 30, 2022 and 2021, the Company recorded share-based compensation for all stock options in the amount of $
For the six months ended June 30, 2022 and 2021, the Company recorded share-based compensation for all stock options in the amount of $
The following is a summary of stock option activity:
|
|
Number of options |
|
|
Weighted average exercise price |
|
|
Weighted average remaining contractual life (Years) |
|
|
Aggregate intrinsic value |
|
||||
Outstanding, January 1, 2022 |
|
|
|
|
$ |
|
|
|
|
|
$ |
— |
|
|||
Granted |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Exercised |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|||
Forfeited |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|||
Outstanding, June 30, 2022 |
|
|
|
|
$ |
|
|
|
|
|
$ |
— |
|
|||
Exercisable, June 30, 2022 |
|
|
|
|
$ |
|
|
|
|
|
$ |
— |
|
30
|
|
Number of options |
|
|
Weighted average exercise price |
|
|
Weighted average remaining contractual life (yrs) |
|
|
Aggregate intrinsic value |
|
||||
Outstanding, January 1, 2021 |
|
|
|
|
$ |
|
|
|
|
|
$ |
|
||||
Granted |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Exercised |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
||
Forfeited |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
||
Outstanding, June 30, 2021 |
|
|
|
|
$ |
|
|
|
|
|
$ |
|
||||
Exercisable, June 30, 2021 |
|
|
|
|
$ |
|
|
|
|
|
$ |
|
As of June 30, 2022, there was approximately $
Restricted Stock Units
Restricted stock units ("RSUs") represent a right to receive a single Subordinate Voting Share that is both non-transferable and forfeitable unless and until certain conditions are satisfied. RSUs vest ratably over a to-
On January 4, February 24, and March 31, 2022, the Board awarded RSUs to board members, directors, officers, and key employees of the Company. The RSUs vest immediately for board members and all other RSUs granted vest over a
On September 15, 2021, the Board awarded RSUs to
On September 29, 2021, under the 2021 Plan, the Board awarded RSUs to officers and other select employees of the Company, which vest over a to
The following is a summary of RSU activity:
|
|
Number of |
|
|
Weighted average |
|
||
Unvested balance as of January 1, 2022 |
|
|
|
|
$ |
|
||
Granted |
|
|
|
|
|
|
||
Vested |
|
|
( |
) |
|
|
|
|
Forfeited |
|
|
( |
) |
|
|
|
|
Unvested balance as of June 30, 2022 |
|
|
|
|
$ |
|
During the three and six months ended June 30, 2022, the Company recorded share-based compensation in the amount of $
As of June 30, 2022, there was approximately $
31
Warrants
During the year ended December 31, 2018, the Company issued
The following table summarizes the activity related to warrants issued and outstanding to certain employees and directors of the Company for the six-month period ending June 30, 2021. There were
|
|
Number of warrants |
|
|
Weighted average exercise price ($CAD) |
|
|
Weighted average remaining contractual life (Years) |
|
|||
Outstanding, December 31, 2020 |
|
|
|
|
|
|
|
|
|
|||
Granted |
|
|
— |
|
|
|
— |
|
|
|
— |
|
Exercised |
|
|
( |
) |
|
|
|
|
|
— |
|
|
Forfeited |
|
|
( |
) |
|
|
— |
|
|
|
— |
|
Outstanding, June 30, 2021 |
|
|
|
|
|
|
|
|
|
NOTE 16. EARNINGS PER SHARE
The following is a reconciliation for the calculation of basic and diluted earnings per share for the three and six months ended June 30, 2022 and 2021:
|
|
For the Three Months Ended June 30, |
|
|
For the Six Months Ended June 30, |
|
||||||||||
|
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
||||
|
|
(in thousands) |
|
|||||||||||||
Net (loss) income |
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
||
Less: Net loss and comprehensive loss attributed to non-controlling interest |
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
|
|
— |
|
Net (loss) income and comprehensive (loss) income attributed to common shareholders |
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
||
Weighted average number of common shares outstanding |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Dilutive effect of securities |
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
||
Diluted weighted average number of common shares outstanding |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Basic (loss) earnings per share |
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
||
Diluted (loss) earnings per share |
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
For the three months ended June 30, 2022, the Company excluded
32
As of June 30, 2022, there are approximately
NOTE 17. INCOME TAXES
The following table summarizes the Company’s income tax expense and effective tax rate for the three and six months ended June 30, 2022 and 2021.
|
|
For the Three Months |
|
|
For the Six Months |
|
||||||||||
|
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
||||
|
|
(in thousands) |
|
|||||||||||||
Income before provision for income taxes |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Provision for income taxes |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Effective tax rate |
|
|
% |
|
|
% |
|
|
% |
|
|
% |
The Company has computed its provision for income taxes based on the actual effective tax rate for the quarter as the Company believes this is the best estimate for the annual estimated effective tax rate.
The Company is subject to income taxes in the United States and Canada. Significant judgment is required in evaluating the Company’s uncertain tax positions and determining the provision for income taxes. The Company’s gross unrecognized tax benefits was approximately $
NOTE 18. Variable Interest Entities
The Company through its acquisition of Harvest and through the acquired Harvest subsidiaries has entered into operating agreements with various entities related to the purchase and operation of cannabis dispensary, cultivation, and production licenses, in several states. The Company determined these entities to be VIEs due to the financial relationship and as the Company is the primary beneficiary as of June 30, 2022, and December 31, 2021. The Company holds varying ownership interests in these entities and in certain cases may not directly hold ownership in the entities but holds a significant interest through an agent. The Company's VIEs are not material to the consolidated financial position or operations as of June 30, 2022, or for the three or six month period ended June 30, 2022, or as of December 31, 2021. The Company did not have any VIEs prior to the acquisition of Harvest in October 2021.
The Company has determined these entities to be VIEs and that it is the primary beneficiary. The Company consolidates these entities due to the other holder’s equity investment being insufficient to finance its activities without additional subordinated financial support and the Company meeting the power and economics criteria. In particular, the Company controls the management decisions and activities most significant to certain VIEs, has provided a significant portion of the subordinated financial support provided to date, and holds membership interests exposing the Company to the risk of reward and/or loss. The Company allocates income and cash flows of the VIEs based on the outstanding ownership percentage in accordance with the underlying operating agreements, as amended. The Company has consolidated all identified VIEs for which the Company is the primary beneficiary in the accompanying condensed consolidated financial statements.
The following table presents the summarized assets and liabilities of the Company’s VIEs in which the Company does not hold a majority interest as of June 30, 2022 and December 31, 2021. The assets and liabilities in the table below include third-party assets
33
and liabilities of the Company's VIEs only and exclude intercompany balances that eliminate in consolidation as included in the condensed consolidated balance sheets.
|
June 30, 2022 |
|
|
December 31, 2021 |
|
||
|
(in thousands) |
|
|||||
Current assets: |
|
|
|
|
|
||
Cash |
$ |
|
|
$ |
|
||
Accounts receivable, net |
|
|
|
|
|
||
Inventories, net |
|
|
|
|
|
||
Prepaids and other current assets |
|
|
|
|
|
||
Total current assets |
|
|
|
|
|
||
Property and equipment, net |
|
|
|
|
|
||
Intangible assets, net |
|
|
|
|
|
||
Other assets |
|
|
|
|
|
||
Total assets |
$ |
|
|
$ |
|
||
Current liabilities: |
|
|
|
|
|
||
Accounts payable and accrued liabilities |
$ |
|
|
$ |
|
||
Notes payable - current portion |
|
— |
|
|
|
|
|
Income tax payable |
|
|
|
|
|
||
Total current liabilities |
|
|
|
|
|
||
Notes payable |
|
|
|
|
|
||
Deferred tax liabilities |
|
|
|
|
|
||
Other long-term liabilities |
|
|
|
|
— |
|
|
Total liabilities |
$ |
|
|
$ |
|
In the first quarter of 2022, the Company divested of its minority ownership interest in one of its VIEs and received cash of $
NOTE 19. RELATED PARTIES
The Company had raised funds by issuing notes to various related parties including directors, officers, and shareholders. The related party notes were paid off in full in November 2021. The balance of related party notes was
J.T. Burnette, the spouse of Kim Rivers, the Chief Executive Officer and Chair of the Board of Directors of the Company, was a minority owner of a company (the “Supplier”) that provides construction and related services to the Company. As of January 1, 2022, the Supplier is no longer a related party of the Company. The Supplier is responsible for the construction of the Company’s cultivation and processing facilities, and provides labor, materials, and equipment on a cost-plus basis. For the six months ended June 30, 2021, property and equipment purchases totaled $
34
The Company leases a cultivation facility and corporate office facility from an entity that is directly or indirectly owned by Kim Rivers, the Company's Chief Executive Officer and Chair of the board of directors, George Hackney, a former member of the Company's board of directors, and Richard May, a member of the Company's board of directors. The Company also leases various properties from companies that are managed by Benjamin Atkins, a former director and shareholder of the Company, and the Supplier. As of January 1, 2022, Benjamin Atkins is no longer a related party of the Company due to the time that has passed since Mr. Atkins held a director position.
As of June 30, 2022, and December 31, 2021, under ASC 842, the Company had the following related party leases in the condensed consolidated balance sheets:
|
|
As of June 30, 2022 |
As of December 31, 2021 |
|
||||||||
|
|
Operating |
|
|
Operating |
|
|
Finance |
|
|||
|
|
(in thousands) |
|
|||||||||
Right-of-use assets, net |
|
$ |
|
|
$ |
|
|
$ |
|
|||
Lease liabilities: |
|
|
|
|
|
|
|
|
|
|||
Lease liabilities - current portion |
|
$ |
|
|
$ |
|
|
$ |
|
|||
Lease liabilities |
|
|
|
|
|
|
|
|
|
|||
Total related parties lease liabilities |
|
$ |
|
|
$ |
|
|
$ |
|
Expenses recognized for related party leases was less than $
NOTE 20. REVENUE DISAGGREGATION
Net revenues are comprised of the following for the three and six month periods ended June 30, 2022 and 2021:
|
For the Three Months Ended June 30, |
|
|
For the Six Months Ended June 30, |
|
||||||||||
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
||||
|
(in thousands) |
|
|||||||||||||
Retail |
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Wholesale, licensing, and other |
|
|
|
|
|
|
|
|
|
|
|
||||
Revenues, net of discounts |
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
NOTE 21. COMMITMENTS AND CONTINGENCIES
Operating Licenses
Although the possession, cultivation, and distribution of cannabis for medical-use and adult-use is permitted in the states in which we operate, cannabis is a Schedule-I controlled substance and its use and possession remains a violation of federal law. Since federal law criminalizing the use of cannabis preempts state laws that legalize its use, strict enforcement of federal law regarding cannabis would likely result in the Company’s inability to proceed with the Company's business plans. In addition, the Company’s assets, including real property, cash and cash equivalents, equipment, and other goods, could be subject to asset forfeiture because cannabis is still federally illegal.
35
Claims and Litigation
From time to time, the Company may be involved in litigation relating to claims arising out of operations in the normal course of business. As of June 30, 2022, there were no pending or threatened lawsuits that could reasonably be expected to have a material effect on the results of the Company’s condensed consolidated statements of operations and comprehensive (loss) income. There are also no proceedings in which any of the Company’s directors, officers, or affiliates is an adverse party or has a material interest adverse to the Company’s interest.
Contingencies
The Company records contingent liabilities with respect to litigation on various claims in which the Company believes a loss may be probable and the loss is estimable. As of June 30, 2022 and December 31, 2021, there was $
Regulatory Compliance
The Company’s compliance with state and other rules and regulations may be reviewed by state and federal agencies. If the Company fails to comply with these regulations, the Company could be subject to loss of licenses, substantial fines or penalties, and other sanctions.
NOTE 22. SUBSEQUENT EVENTS
In July 2022 the Company made the decision to discontinue the Company's wholesale operations within the state of Nevada. The Company is currently evaluating the exit plans for these operations and the related financial impacts. As of June 30, 2022, these operations represented approximately $
36
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
This "Management's Discussion and Analysis of Financial Condition and Results of Operations" of Trulieve Cannabis Corp., together with its subsidiaries ("Trulieve," "the Company," "we," or "our") should be read in conjunction with the accompanying unaudited condensed consolidated financial statements and the related notes included elsewhere within this Quarterly Report on Form 10-Q and "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021 (the "Form 10-K"). There have been no material changes as of June 30, 2022 to the application of our critical accounting policies as described in Item 7 of the Form 10-K.
This discussion contains forward-looking statements and involves numerous risks and uncertainties, including but not limited to those described in the “Risk Factors” section of this Quarterly Report on Form 10-Q and in “Part I, Item 1A. Risk Factors” in our 2021 Form 10-K. Actual results may differ materially from those contained in any forward-looking statements. You should read “Cautionary Note Regarding Forward-Looking Statements” and “Risk Factors” contained herein and in our 2021 Form 10-K. See “Special Note Regarding Forward-Looking Statements and Projections” in “Part II. Other Information” of this report. You should consider our forward-looking statements in light of the risks discussed in “Item 1A. Risk Factors” in “Part II. Other Information” of this report and our unaudited condensed consolidated financial statements, related notes and other financial information appearing elsewhere in this report, the Form 10-K and our other filings with the Securities and Exchange Commission (the “SEC”).
Overview
We are a vertically integrated cannabis company and multi-state operator which currently holds licenses to operate in eleven states and has received notice of intent to award a license in an twelfth state. Headquartered in Quincy, Florida, we are the market leader for quality medical cannabis products and services in Florida and we have market leading retail operations in Arizona and Pennsylvania. By providing innovative, high-quality products across our brand portfolio, we aim to be the brand of choice for medical and adult-use customers in all of the markets that we serve. We operate in highly regulated markets that require expertise in cultivation, manufacturing, retail, and logistics. We have developed proficiencies in each of these functions and are committed to expanding access to high quality cannabis products and delivering exceptional customer experiences.
All states in which we operate have adopted legislation to permit the use of cannabis products for medicinal purposes to treat specific conditions and diseases, which we refer to as medical cannabis. Recreational marijuana, or adult-use cannabis, is legal marijuana sold in licensed dispensaries to adults ages 21 and older. Thus far, of the states in which we operate, only Arizona, California, Colorado, Connecticut, Massachusetts, and Nevada have adopted legislation permitting commercialization of adult-use cannabis products. As previously disclosed, on October 1, 2021, we completed our previously announced acquisition of Harvest Health & Recreation Inc. (“Harvest”) and, as a result of the acquisition, our operations have expanded significantly effective as of such date. As of August 1, 2022, we operated 173 dispensaries, with 118 dispensaries in Florida, 20 affiliated dispensaries in Pennsylvania, 17 dispensaries in Arizona, five dispensaries in California, three dispensaries in Maryland, three dispensaries in Massachusetts, six dispensaries in West Virginia and one dispensary in Connecticut, and we operated cultivation and processing facilities in Arizona, Colorado, Florida, Maryland, Massachusetts, Nevada, Pennsylvania, and West Virginia.
As of June 30, 2022, we employed over 9,000 people, and we are committed to providing patients and adult use consumers, which we refer to herein as “customers,” a consistent and welcoming retail experience across Trulieve branded stores and affiliated retail locations. As of June 30, 2022, the majority of our revenue was generated from the sale of cannabis products in the State of Florida and to a lesser extent Arizona and the Commonwealth of Pennsylvania. To date, our operations in our California, Connecticut, Colorado, Maryland, Massachusetts, Nevada, and West Virginia, have not been material to our business.
Our business and operations center around the Trulieve brand philosophy of “Customers First” which permeates our culture beginning with high- quality and efficient cultivation and manufacturing practices, focus on the consumer experience at Trulieve branded and affiliated retail locations, at our in-house call center and where available at customer residences through a robust home delivery program. Our investments in vertically integrated operations in several of our markets afford us ownership of the entire supply chain which mitigates third-party risks and allows us to completely control product quality and brand experience. We believe that this contributes to high customer retention and brand loyalty. We successfully operate our core business functions of cultivation, production, and distribution at scale, and are skilled at rapidly increasing capacity without any interruption to existing operations.
Trulieve has identified five regional geographic hubs in the U.S. and has established cannabis operations in three of the five hubs: Southeast, Northeast, and Southwest. In each of our three regional hubs we have market leading positions in cornerstone states and additional operations and assets in other state markets. Our hubs are managed by national and regional management teams supported by our corporate headquarters in Florida.
Southeast Hub
37
Our southeast hub operations are anchored by our cornerstone market of Florida. Trulieve was the first licensed operator in the medical market in Florida with initial sales in 2016. Publicly available reports filed with the Florida Office of Medical Marijuana Use show Trulieve has the most dispensing locations and the greatest dispensing volume across product categories out of all licensed medical marijuana businesses in the state as of December 31, 2021 and June 30, 2022. Trulieve cultivates and produces all of its products in-house and distributes those products to customers in Trulieve branded stores (dispensaries) throughout Florida, as well as via home delivery.
As of August 1, 2022, Trulieve operated cultivation and processing facilities across ten sites and 118 retail dispensaries throughout the state. In accordance with Florida law, Trulieve grows all of its cannabis in secure enclosed indoor facilities and greenhouse structures. In furtherance of our customer-first focus, we have developed a suite of Trulieve branded products, including flower, edibles, vaporizer cartridges, concentrates, topicals, capsules, tinctures, dissolvable powders, and nasal sprays. This wide variety of products gives customers the ability to select the product that consistently delivers the desired effect and in their preferred method of delivery.
In Georgia, Trulieve received a Notice of Intent to award a Class 1 Production License from the Georgia Access to Medical Cannabis Commission in July 2021. The Notice of Intent to award is a notice of the Georgia Access to Medical Cannabis Commission’s expected contract award to Trulieve GA pending resolution of a protest process. If the contract is awarded, Trulieve GA will hold one of two Class 1 Production Licenses in the state and will be permitted to cultivate cannabis for the manufacture of low tetrahydrocannabinol, or THC oil.
Northeast Hub
Our northeast hub operations are anchored by our cornerstone market of Pennsylvania.
We conduct cultivation, processing, and retail operations through direct and indirect subsidiaries with permits for retail operations and grower/processor operations in Pennsylvania. These subsidiaries operate cultivation and processing facilities in McKeesport, Reading, and Carmichael, Pennsylvania to support our affiliated network of retail dispensaries and wholesale distribution network across the state.
We operate three medical dispensaries in Maryland and conduct wholesale sales supported by cultivation and processing in Hancock, Maryland. As of August 1, 2022, we operate three retail dispensaries in Massachusetts, serving medical and adult use customers in Northampton and adult use customers in Worcester and Framingham. Our retail operations are supported by cultivation and manufacturing operations in Holyoke. We commenced wholesale sales in September 2021. Trulieve was the first to offer sales of clones supporting home grow for residents in the Massachusetts market in August 2021.
We operate a medical cannabis dispensary located in Bristol, Connecticut. Under Connecticut’s adult-use cannabis legislation, which was enacted July 1, 2021, Trulieve can seek regulatory approval to expand sales at this dispensary to include adult use sales.
We operate six dispensaries in West Virginia, supported by cultivation and processing operations in Huntington, West Virginia. As of August 1, 2022, Trulieve has been awarded and has acquired permits to operate up to a total of ten dispensaries in West Virginia.
Southwest Hub
Our southwest hub operations are anchored by our cornerstone market of Arizona. In Arizona, Trulieve holds a market-leading retail position with 17 dispensaries and six cultivation and/or processing sites as of August 1, 2022, offering medical and adult use customers a wide range of branded and third-party products, including brand partner products. We also serve medical and adult use customers in California. Trulieve conducts wholesale operations in Arizona, Colorado, and Nevada, serving the medical and adult use markets in each state.
Recent Developments
On July 7, 2022, the Company filed a shelf registration statement on Form S-3 (the Registration Statement) with the United States Securities and Exchange Commission to register a base shelf prospectus and to register for resale select subordinate voting shares of the Company. The filing was deemed effective July 8, 2022.
Critical Accounting Estimates and Judgements
The preparation of the condensed consolidated financial statements with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Significant estimates in our
38
condensed consolidated financial statements, include, but are not limited to, accounting for acquisitions and business combinations; initial valuation and subsequent impairment testing of goodwill, other intangible assets and long-lived assets; leases; fair value of financial instruments, income taxes; inventory; share-based payment arrangements, and commitment and contingencies. Actual results may differ from these estimates. Estimates and underlying assumptions are reviewed on an ongoing basis.
Components of Results of Operations
Revenue
We derive our revenue from cannabis products which we manufacture, sell, and distribute to our customers by home delivery and in our dispensaries, as well as sales of cannabis products to wholesale customers in select markets.
Gross Profit
Gross profit includes the costs directly attributable to product sales and includes amounts paid to produce finished goods, such as flower, and concentrates, as well as packaging and other supplies, fees for services and processing, allocated overhead which includes allocations of rent, administrative salaries, utilities, and related costs. Cannabis costs are affected by various state regulations that limit the sourcing and procurement of cannabis product, which may create fluctuations in margins over comparative periods as the regulatory environment changes.
Sales and Marketing
Sales and marketing expenses consist primarily of personnel costs related to the dispensaries as well as marketing programs for our products. As we continue to expand and open additional dispensaries, we expect our sales and marketing expenses to continue to increase.
General and Administrative
General and administrative expenses represent costs incurred at our corporate offices, primarily related to personnel costs, including salaries, share-based compensation, incentive compensation, benefits, and other professional service costs, including legal and accounting. We expect to continue to invest considerably in this area to support our expansion plans and to support the increasing complexity of the cannabis business. Furthermore, we expect to continue to incur acquisition, transaction, and integration costs related to our expansion plans, and we anticipate a significant increase in accounting, and legal and professional fees associated with becoming compliant with the Sarbanes-Oxley Act and other public company corporate expenses.
Depreciation and Amortization
Depreciation expense is calculated on a straight-line basis using the estimated useful life of each asset. Estimated useful life is determined by asset class and is reviewed on an annual basis and revised if necessary. Amortization expense is recognized using the straight-line method over the estimated useful life of the intangible assets. Useful lives for intangible assets are determined by type of asset with the initial determination of useful life derived at the time the asset is placed in service. On an annual basis, the useful lives of each intangible class of assets are evaluated for appropriateness and adjusted if appropriate.
Other Income (Expense), Net
Other income (expense), net consist primarily of interest expense, interest income, loss on disposal of non-operational assets, and the revaluation of derivative liabilities.
Provision for Income Taxes
Provision for income taxes is calculated using the asset and liability method. Deferred income tax assets and liabilities are determined based on enacted tax rates and laws for the years in which the differences are expected to reverse. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized.
As we operate in the cannabis industry, we are subject to the limits of IRC Section 280E under which we are only allowed to deduct expenses directly related to the cost of products and the cost of producing products.
39
Results of Operations
Revenue
|
|
Three Months Ended |
|
|
|
|
Six Months Ended |
|
|
|
||||||||||
|
|
June 30, |
|
|
Change |
|
June 30, |
|
|
Change |
||||||||||
|
|
2022 |
|
|
2021 |
|
|
% |
|
2022 |
|
|
2021 |
|
|
% |
||||
|
|
(in thousands) |
|
|
|
|
(in thousands) |
|
|
|
||||||||||
Revenues, net of discounts |
|
$ |
320,283 |
|
|
$ |
215,122 |
|
|
49% |
|
$ |
638,631 |
|
|
$ |
408,945 |
|
|
56% |
Revenue for the three months ended June 30, 2022 increased by 49% or $105.2 million as compared to the three months ended June 30, 2021. Revenue for the six months ended June 30, 2022 increased by 56% or $229.7 million as compared to the six months ended June 30, 2021. The increase in revenue is the result of an increase in organic growth in retail sales due to an increase in products available for purchase and overall patient count, increased retail locations, as well as expansion of the wholesale business. During the period the Company made acquisitions such as Harvest and Keystone Shops, expanded business into new states such as Massachusetts and West Virginia, and opened additional dispensaries in existing markets such as Florida, all of which contributed to the increase in revenue.
Cost of Goods Sold
|
|
Three Months Ended |
|
|
|
|
Six Months Ended |
|
|
|
||||||||||
|
|
June 30, |
|
|
Change |
|
June 30, |
|
|
Change |
||||||||||
|
|
2022 |
|
|
2021 |
|
|
% |
|
2022 |
|
|
2021 |
|
|
% |
||||
|
|
(in thousands) |
|
|
|
|
(in thousands) |
|
|
|
||||||||||
Cost of goods sold |
|
$ |
138,129 |
|
|
$ |
70,639 |
|
|
96% |
|
$ |
278,327 |
|
|
$ |
129,198 |
|
|
115% |
% of total revenues |
|
|
43 |
% |
|
|
33 |
% |
|
|
|
|
44 |
% |
|
|
32 |
% |
|
|
Cost of goods sold for the three months ended June 30, 2022 increased by 96% or $67.5 million as compared to the three months ended June 30, 2021. Cost of goods sold for the six months ended June 30, 2022 increased by 115% or $149.1 million as compared to the six months ended June 30, 2021. Cost of goods sold increased due to expansion of the business and increased revenue. Cost of goods sold as a percentage of revenue increased in the three and six months ended June 30, 2022 as compared to the three and six months ended June 30, 2021. This increase was primarily due to increased depreciation related to capital expenditures to support business growth, new production facilities in existing markets where economies of scale are anticipated in the future, and expansion into new markets which are not fully vertical, resulting in the sale of third-party products, and therefore yield lower margin than our vertical markets.
Gross Profit
|
|
Three Months Ended |
|
|
|
|
Six Months Ended |
|
|
|
||||||||||
|
|
June 30, |
|
|
Change |
|
June 30, |
|
|
Change |
||||||||||
|
|
2022 |
|
|
2021 |
|
|
% |
|
2022 |
|
|
2021 |
|
|
% |
||||
|
|
(in thousands) |
|
|
|
|
(in thousands) |
|
|
|
||||||||||
Gross profit |
|
$ |
182,154 |
|
|
$ |
144,483 |
|
|
26% |
|
$ |
360,304 |
|
|
$ |
279,747 |
|
|
29% |
% of total revenues |
|
|
57 |
% |
|
|
67 |
% |
|
|
|
|
56 |
% |
|
|
68 |
% |
|
|
Gross profit for the three months ended June 30, 2022 increased by 26% or $37.7 million as compared to the three months ended June 30, 2021. Gross profit for the six months ended June 30, 2022 increased by 29% or $80.6 million as compared to the six months ended June 30, 2021. Gross profit as a percentage of revenue decreased due to increased wholesale business, which is generally lower margin than retail sales, increased depreciation related to capital expenditures to support business growth, new production facilities in where economies of scale are anticipated in the future, and expansion into new markets which are not fully vertical, resulting in the sale of third-party products, and therefore yield lower margin than our vertical markets.
40
Sales and Marketing Expense
|
|
Three Months Ended |
|
|
|
|
Six Months Ended |
|
|
|
||||||||||
|
|
June 30, |
|
|
Change |
|
June 30, |
|
|
Change |
||||||||||
|
|
2022 |
|
|
2021 |
|
|
% |
|
2022 |
|
|
2021 |
|
|
% |
||||
|
|
(in thousands) |
|
|
|
|
(in thousands) |
|
|
|
||||||||||
Sales and marketing expense |
|
$ |
75,286 |
|
|
$ |
46,576 |
|
|
62% |
|
$ |
148,148 |
|
|
$ |
91,135 |
|
|
63% |
% of total revenues |
|
|
24 |
% |
|
|
22 |
% |
|
|
|
|
23 |
% |
|
|
22 |
% |
|
|
Sales and marketing expense for the three months ended June 30, 2022 increased by 62% or $28.7 million as compared to the three months ended June 30, 2021. Sales and marketing expense for the six months ended June 30, 2022 increased by 63% or $57.0 million as compared to the six months ended June 30, 2021. The increase in sales and marketing expense is the result of a higher headcount for the year, as we continue to add additional dispensaries in efforts to maintain and further drive higher growth in sales and market share as well as expanding into new markets. This increased headcount resulted in higher personnel costs, which is the primary driver for the increase year over year. Another factor in the increase in sales in marketing expenses is $5.2 million and $7.3 million related to the accrual of earn-outs related to the Watkins acquisition for the three and six months ended June 30, 2022, respectively.
General and Administrative Expense
|
|
Three Months Ended |
|
|
|
|
Six Months Ended |
|
|
|
||||||||||
|
|
June 30, |
|
|
Change |
|
June 30, |
|
|
Change |
||||||||||
|
|
2022 |
|
|
2021 |
|
|
% |
|
2022 |
|
|
2021 |
|
|
% |
||||
|
|
(in thousands) |
|
|
|
|
(in thousands) |
|
|
|
||||||||||
General and administrative expense |
|
$ |
33,653 |
|
|
$ |
14,942 |
|
|
125% |
|
$ |
67,199 |
|
|
$ |
27,650 |
|
|
143% |
% of total revenues |
|
|
11 |
% |
|
|
7 |
% |
|
|
|
|
11 |
% |
|
|
7 |
% |
|
|
General and administrative expense for the three months ended June 30, 2022 increased by 125% or $18.7 million as compared to the three months ended June 30, 2021. General and administrative expenses for the six months ended June 30, 2022 increased by 143% or $39.5 million as compared to the six months ended June 30, 2021. The increase in general and administrative expense is the result of entering new markets, ramping our infrastructure to support growth initiatives, continued acquisitions resulting in additional transaction and integration costs and increased go-forward compliance costs.
Depreciation and Amortization Expense
|
|
Three Months Ended |
|
|
|
|
Six Months Ended |
|
|
|
||||||||||
|
|
June 30, |
|
|
Change |
|
June 30, |
|
|
Change |
||||||||||
|
|
2022 |
|
|
2021 |
|
|
% |
|
2022 |
|
|
2021 |
|
|
% |
||||
|
|
(in thousands) |
|
|
|
|
(in thousands) |
|
|
|
||||||||||
Depreciation and amortization expense |
|
$ |
30,889 |
|
|
$ |
6,667 |
|
|
363% |
|
$ |
60,194 |
|
|
$ |
12,101 |
|
|
397% |
% of total revenues |
|
|
10 |
% |
|
|
3 |
% |
|
|
|
|
9 |
% |
|
|
3 |
% |
|
|
Depreciation and amortization expense for the three months ended June 30, 2022 increased by 363% or $24.2 million as compared to the three months ended June 30, 2021. Depreciation and amortization expense for the six months ended June 30, 2022 increased by 397% or $48.1 million as compared to the six months ended June 30, 2021. The overall increase in depreciation and amortization expense was due to investment in infrastructure that resulted in a higher number of capitalized assets from the additional dispensaries and cultivation facilities. Furthermore, amortization expense increased due to acquired facilities and intangibles.
41
Impairment and Disposal of Long-lived Assets, Net
|
|
Three Months Ended |
|
|
|
|
Six Months Ended |
|
|
|
||||||||||
|
|
June 30, |
|
|
Change |
|
June 30, |
|
|
Change |
||||||||||
|
|
2022 |
|
|
2021 |
|
|
% |
|
2022 |
|
|
2021 |
|
|
% |
||||
|
|
(in thousands) |
|
|
|
|
(in thousands) |
|
|
|
||||||||||
Impairment and disposal of long-lived assets, net |
|
$ |
4,336 |
|
|
$ |
— |
|
|
N/A |
|
$ |
18,116 |
|
|
$ |
— |
|
|
N/A |
% of total revenues |
|
|
1 |
% |
|
|
— |
|
|
|
|
|
3 |
% |
|
|
— |
|
|
|
Impairment and disposal of long-lived assets, net for the three months ended June 30, 2022 increased by $4.3 million as compared to zero for the three months ended June 30, 2021. Impairment and disposal of long-lived assets, net for the six months ended June 30, 2022 increased by $18.1 million as compared to zero for the six months ended June 30, 2021. The increase in the current periods is primarily due to exited facilities and the repositioning of assets, primarily in our southeast hub.
Total Other Expense, Net
|
|
Three Months Ended |
|
|
|
|
Six Months Ended |
|
|
|
||||||||||
|
|
June 30, |
|
|
Change |
|
June 30, |
|
|
Change |
||||||||||
|
|
2022 |
|
|
2021 |
|
|
% |
|
2022 |
|
|
2021 |
|
|
% |
||||
|
|
(in thousands) |
|
|
|
|
(in thousands) |
|
|
|
||||||||||
Total other expense, net |
|
$ |
17,242 |
|
|
$ |
6,316 |
|
|
173% |
|
$ |
36,065 |
|
|
$ |
14,253 |
|
|
153% |
% of total revenues |
|
|
5 |
% |
|
|
3 |
% |
|
|
|
|
6 |
% |
|
|
3 |
% |
|
|
Total other expense, net for the three months ended June 30, 2022 increased by 173% or $10.9 million as compared to the three months ended June 30, 2021. Total other expense, net for the six months ended June 30, 2022 increased by 153% or $21.8 million as compared to the six months ended June 30, 2021. The overall increase is primarily the result of an increase in interest expense related to additional finance leases and private placement notes to support business growth and loss on disposal of non-operational assets.
Provision for Income Taxes
|
|
Three Months Ended |
|
|
|
|
Six Months Ended |
|
|
|
||||||||||
|
|
June 30, |
|
|
Change |
|
June 30, |
|
|
Change |
||||||||||
|
|
2022 |
|
|
2021 |
|
|
% |
|
2022 |
|
|
2021 |
|
|
% |
||||
|
|
(in thousands) |
|
|
|
|
(in thousands) |
|
|
|
||||||||||
Provision for income taxes |
|
$ |
44,769 |
|
|
$ |
29,102 |
|
|
54% |
|
$ |
87,085 |
|
|
$ |
63,650 |
|
|
37% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense for the three months ended June 30, 2022, increased by 54% or $15.7 million as compared to the three months ended June 30, 2021. Income tax expense for the six months ended June 30, 2022, increased by 37% or $23.4 million as compared to the six months ended June 30, 2021. Under IRC Section 280E, cannabis companies are only allowed to deduct expenses that are directly related to production of the products. The Company's quarterly tax provision is subject to change resulting from several factors, including regulations and administrative practices, principles, and interpretations related to tax. The increase in income tax expense is primarily due to the increase in gross profit as a result of increased revenue.
42
Net Income
|
|
Three Months Ended |
|
|
|
|
Six Months Ended |
|
|
|
||||||||||
|
|
2022 |
|
|
2021 |
|
|
Change |
|
2022 |
|
|
2021 |
|
|
Change |
||||
|
|
(in thousands) |
|
|
|
|
(in thousands) |
|
|
|
||||||||||
Net (loss) income and comprehensive (loss) income |
|
$ |
(24,021 |
) |
|
$ |
40,880 |
|
|
-159% |
|
$ |
(56,503 |
) |
|
$ |
70,958 |
|
|
-180% |
Net loss for the three months ended June 30, 2022 was $24.0 million a decrease of $64.9 million, from net income of $40.9 million for the three months ended June 30, 2021. Net loss for the six months ended June 30, 2021 was $56.5 million, a decrease of $127.5 million. from net income of $71.0 million for the six months ended June 30, 2021. The decrease was driven primarily by lower gross margin, increased sales and marketing and general and administrative costs related to the expanded organization, losses on disposal of long-lived assets, increased other expense, and increased tax expense.
Liquidity and Capital Resources
Sources of Liquidity
Since our inception, we have funded our operations and capital spending through cash flows from product sales, loans from affiliates and entities controlled by our affiliates, third-party debt, and proceeds from the sale of our capital stock. We are generating cash from sales and are deploying our capital reserves to acquire and develop assets capable of producing additional revenues and earnings over both the immediate and long term to support our business growth and expansion. Our current principal sources of liquidity are our cash and cash equivalents provided by our operations and debt and equity offerings. Cash and cash equivalents consist primarily of cash on deposit with banks and money market funds. Cash and cash equivalents were $181.4 million as of June 30, 2022.
We believe our existing cash balances will be sufficient to meet our anticipated cash requirements from the report issuance date through at least the next twelve months.
Our primary uses of cash are for working capital requirements, capital expenditures and debt service payments. Additionally, from time to time, we may use capital for acquisitions and other investing and financing activities. Working capital is used principally for our personnel as well as costs related to the growth, manufacture, and production of our products. Our capital expenditures consist primarily of additional facilities and dispensaries, improvements in existing facilities and product development.
To the extent additional funds are necessary to meet our long-term liquidity needs as we continue to execute our business strategy, we anticipate that they will be obtained through incurrence of additional indebtedness, additional equity financings or a combination of these potential sources of funds. There can be no assurance that we will be able to obtain additional funds on terms acceptable to us, on a timely basis, or at all. The failure to obtain sufficient funds on acceptable terms when needed could have a material adverse effect on the results of operations and financial condition.
Cash Flows
The table below highlights our cash flows for the periods indicated.
43
|
|
Six Months Ended June 30, |
|
|||||
|
|
2022 |
|
|
2021 |
|
||
|
|
(in thousands) |
|
|||||
Net cash (used in) provided by operating activities |
|
$ |
(10,284 |
) |
|
$ |
49,194 |
|
Net cash used in investing activities |
|
|
(136,392 |
) |
|
|
(136,688 |
) |
Net cash provided by financing activities |
|
|
94,438 |
|
|
|
230,019 |
|
Net (decrease) increase in cash and cash equivalents |
|
|
(52,238 |
) |
|
|
142,525 |
|
Cash, cash equivalents, and restricted cash, beginning of period |
|
|
233,659 |
|
|
|
146,713 |
|
Cash, cash equivalents, and restricted cash, end of period |
|
$ |
181,421 |
|
|
$ |
289,238 |
|
Cash Flow from Operating Activities
Net cash used in operating activities was $10.3 million for the six months ended June 30, 2022, a decrease of $59.5 million as compared to $49.2 million net cash provided by operating activities during the six months ended June 30, 2021. This is primarily due to the current net loss versus the prior year net income, increases in net working capital requirements, mainly inventory, and income tax payments made in the second quarter of 2022.
Cash Flow from Investing Activities
Net cash used in investing activities was $136.4 million for the six months ended June 30, 2022, a decrease of $0.3 million, compared to the $136.7 million net cash used in investing activities for the six months ended June 30, 2021. The primary use of cash in both periods was the purchase of property and equipment and internal use software, with the current period having more significant acquisitions offset by proceeds from the sale of held for sale assets, proceeds from the sale of a VIE, and proceeds from payments made on notes receivable.
Cash Flow from Financing Activities
Net cash provided by financing activities was $94.4 million for the six months ended June 30, 2022, a decrease of $135.6 million, compared to the $230.0 million net cash provided by financing activities for the six months ended June 30, 2021. The decrease was primarily due to proceeds from shares issued pursuant to private placement in 2021 with the decrease partially offset by the net proceeds from private placement notes which closed in the first quarter of 2022.
Funding Sources
Private Placement Note Liabilities - “June Warrants” and “November Warrants”
On June 18, 2019, we completed an offering using our Canadian prospectus of 70,000 units (the “June Units”), comprised of an aggregate principal amount of US$70.0 million of 9.75% senior secured notes maturing in 2024 (the “June Notes”) and an aggregate amount of 1,470,000 subordinate voting share warrants (each individual warrant being a “June Warrant”) at a price of US$980 per June Unit for gross proceeds of US$68.6 million. Each June Unit was comprised of one June Note issued in denominations of $1,000 and 21 June Warrants.
On November 7, 2019, we completed an offering using our Canadian prospectus of 60,000 units (the “November Units”), comprised of an aggregate principal amount of US$60.0 million of 9.75% senior secured notes maturing in 2024 (the “November Notes”) and an aggregate amount of 1,560,000 subordinate voting share warrants (each individual warrant being a “November Warrant”) at a price of US$980 per November Unit for gross proceeds of US$61.1 million. Each November Unit was comprised of one November Note issued in denominations of $1,000 and 26 November Warrants.
Private Placement Note Liabilities - Secured Promissory Notes
On October 6, 2021, the Company closed on a private placement of 8% Senior Secured Notes (the “Notes") for aggregate gross proceeds of $350.0 million and net proceeds of $342.6 million. The Notes were issued at 100% face value, bear an interest rate of
44
8% per annum payable semi-annually in equal installments until the maturity date, unless earlier redeemed or repurchased. The Notes mature on October 6, 2026 and may be redeemed in whole or in part, at any time from time to time, on or after October 6, 2023 at the applicable redemption price set forth in the trust indenture dated as of June 18, 2019 (the “Base Indenture”), as supplemented by a supplemental trust indenture dated as of October 6, 2021 (the “Supplemental Indenture” and, the Base Indenture as supplemented by the Supplemental Indenture, the “Indenture”), by and between the Company and Odyssey Trust Company, as trustee. The Company used a portion of the net proceeds to redeem certain outstanding indebtedness of Harvest and intends to use the remaining net proceeds for capital expenditures and other general corporate purposes. The Indenture governing the Notes contains covenants that, among other things, limit the ability of the Company and its restricted subsidiaries to, among other things, declare or pay dividends or make certain other payments; purchase, redeem or otherwise acquire or retire for value any equity interests or otherwise make any restricted payments; conduct certain asset sales or consolidate, merge or transfer all or substantially all of the assets of the Company and its subsidiaries on a consolidated basis; make certain restricted investments, incur certain indebtedness or grant certain liens, or enter into certain affiliate transactions. These covenants are subject to a number of other limitations and exceptions as set forth in the Indenture.
On January 28, 2022, the Company closed on a second tranche private placement of 8% Senior Secured Notes for aggregate gross proceeds of $76.9 million and net proceeds of $75.6 million. The Notes bear an interest rate of 8% per annum payable semi-annually in equal installments until the maturity date, unless earlier redeemed or repurchased. The Notes will mature on October 6, 2026, and may be redeemed in whole or in part, at the Company's option, at any time, on or after October 6, 2023, at the application redemption price set forth in the Indenture.
Balance Sheet Exposure
As of June 30, 2022, the entirety of our condensed consolidated balance sheet is exposed to U.S. cannabis-related activities. We believe our operations are in material compliance with all applicable state and local laws, regulations, and licensing requirements in the states in which we operate. However, cannabis remains illegal under U.S. federal law. Substantially all our revenue is derived from U.S. cannabis operations. For information about risks related to U.S. cannabis operations, please refer to the “Risk Factors” section of this Quarterly Report on Form 10-Q and "Part I, Item 1A - Risk Factors" in our 2021 Form 10-K.
Contractual Obligations
As of June 30, 2022, we had the following contractual obligations to make future payments, representing contracts and other commitments that are known and committed:
|
|
<1 Year |
|
|
1 to 3 Years |
|
|
3 to 5 Years |
|
|
>5 Years |
|
|
Total |
|
|||||
|
|
(in thousands) |
|
|||||||||||||||||
Accounts payable and accrued liabilities |
|
$ |
83,858 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
83,858 |
|
Notes payable |
|
|
9,533 |
|
|
|
2,338 |
|
|
|
11 |
|
|
|
1,080 |
|
|
|
12,962 |
|
Private placement notes |
|
|
— |
|
|
|
130,000 |
|
|
|
425,000 |
|
|
|
— |
|
|
|
555,000 |
|
Operating lease liabilities |
|
|
23,212 |
|
|
|
45,225 |
|
|
|
43,629 |
|
|
|
109,539 |
|
|
|
221,605 |
|
Finance lease liabilities |
|
|
14,827 |
|
|
|
31,869 |
|
|
|
25,708 |
|
|
|
49,855 |
|
|
|
122,259 |
|
Construction finance liabilities |
|
|
23,255 |
|
|
|
47,534 |
|
|
|
49,182 |
|
|
|
415,606 |
|
|
|
535,577 |
|
Total |
|
$ |
154,685 |
|
|
$ |
256,966 |
|
|
$ |
543,530 |
|
|
$ |
576,080 |
|
|
$ |
1,531,261 |
|
Off-Balance Sheet Arrangements
As of the date of this filing, we do not have any off-balance-sheet arrangements that have, or are reasonably likely to have, a current or future effect on the results of operations or financial condition of, including, and without limitation, such considerations as liquidity and capital resources.
Management's Use of Non-GAAP Measures
Our management uses financial measures that are not in accordance with generally accepted accounting principles in the U.S., or GAAP, in addition to financial measures in accordance with GAAP to evaluate our operating results. These non-GAAP financial
45
measures should be considered supplemental to, and not a substitute for, our reported financial results prepared in accordance with GAAP. Adjusted EBITDA is a financial measure that is not defined under GAAP. Our management uses this non-GAAP financial measure and believes it enhances an investor’s understanding of our financial and operating performance from period to period because it excludes certain material non-cash items and certain other adjustments management believes are not reflective of our ongoing operations and performance. Adjusted EBITDA excludes from net income as reported interest, provision for income taxes, and depreciation and amortization to arrive at EBITDA. This is then adjusted for items that do not represent the operations of the core business such as inventory step-up for fair value adjustments in purchase accounting, integration and transition costs, acquisition and transaction costs, other non-recurring costs, expenses related to the COVID-19 pandemic, impairments and disposals of long-lived assets, the results of entities consolidated as variable interest entities ("VIEs") but not legally controlled and operated by the Company, and other income and expense items. Integration and transition costs include those costs related to integration of acquired entities and to transition major systems or processes. Acquisition and transaction costs relate to specific transactions such as acquisitions whether contemplated or completed and regulatory filings and costs related to equity and debt issuances. Other non-recurring costs includes miscellaneous items which are not expected to reoccur frequently such as inventory adjustments related to specific issues and unusual litigation. Adjusted EBITDA for the period ended June 30, 2021, has been adjusted to reflect this current definition. Additionally, certain reclassifications have been made to Adjusted EBITDA for prior periods to conform to the current period presentation.
Trulieve reports Adjusted EBITDA to help investors assess the operating performance of the Company’s business. The financial measures noted above are metrics that have been adjusted from the GAAP net income measure in an effort to provide readers with a normalized metric in making comparisons more meaningful across the cannabis industry, as well as to remove non-recurring, irregular and one-time items that may otherwise distort the GAAP net income measure.
As noted above, our Adjusted EBITDA is not prepared in accordance with GAAP, and should not be considered in isolation of, or as an alternative to, measures prepared in accordance with GAAP. There are a number of limitations related to the use of Adjusted EBITDA rather than net income, which is the most directly comparable financial measure calculated and presented in accordance with GAAP. Because of these limitations, we consider, and you should consider, Adjusted EBITDA together with other operating and financial performance measures presented in accordance with GAAP. A reconciliation of Adjusted EBITDA from net income, the most directly comparable financial measure calculated in accordance with GAAP, has been included herein immediately following our discussion of “Adjusted EBITDA”.
Adjusted EBITDA
|
|
Three Months Ended |
|
|
|
|
Six Months Ended |
|
|
|
||||||||||
|
|
2022 |
|
|
2021 |
|
|
Change |
|
2022 |
|
|
2021 |
|
|
Change |
||||
|
|
(in thousands) |
|
|
|
|
(in thousands) |
|
|
|
||||||||||
Adjusted EBITDA |
|
$ |
110,978 |
|
|
$ |
94,872 |
|
|
17% |
|
$ |
216,522 |
|
|
$ |
185,668 |
|
|
17% |
Adjusted EBITDA for the three months ended June 30, 2022 increased by 17% or $16.1 million as compared to the three months ended June 30, 2021. Adjusted EBITDA for the six months ended June 30, 2022 increased by 17% or $30.9 million as compared to the six months ended June 30, 2021. The following table presents a reconciliation of GAAP net income to non-GAAP Adjusted EBITDA, for each of the periods presented:
46
|
|
Three Months Ended June 30, |
|
|
Six Months Ended June 30, |
|
||||||||||
|
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
||||
|
|
(in thousands) |
|
|
(in thousands) |
|
||||||||||
Net (loss) income and comprehensive (loss) income attributable to common shareholders |
|
$ |
(22,491 |
) |
|
$ |
40,880 |
|
|
$ |
(54,466 |
) |
|
$ |
70,958 |
|
Add impact of: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Interest expense |
|
|
19,678 |
|
|
|
6,649 |
|
|
|
37,555 |
|
|
|
14,548 |
|
Provision for income taxes |
|
|
44,769 |
|
|
|
29,102 |
|
|
|
87,085 |
|
|
|
63,650 |
|
Depreciation and amortization |
|
|
30,889 |
|
|
|
6,667 |
|
|
|
60,194 |
|
|
|
12,101 |
|
Depreciation included in cost of goods sold |
|
|
13,809 |
|
|
|
5,020 |
|
|
|
24,501 |
|
|
|
8,687 |
|
EBITDA |
|
|
86,654 |
|
|
|
88,318 |
|
|
|
154,869 |
|
|
|
169,944 |
|
Inventory step up, fair value |
|
|
648 |
|
|
|
— |
|
|
|
1,033 |
|
|
|
2,528 |
|
Integration and transition costs |
|
|
5,129 |
|
|
|
1,497 |
|
|
|
10,403 |
|
|
|
1,887 |
|
Acquisition and transaction costs |
|
|
6,969 |
|
|
|
1,569 |
|
|
|
10,266 |
|
|
|
3,221 |
|
Share-based compensation |
|
|
5,703 |
|
|
|
744 |
|
|
|
10,267 |
|
|
|
1,485 |
|
Other non-recurring costs |
|
|
4,899 |
|
|
|
1,387 |
|
|
|
13,528 |
|
|
|
1,387 |
|
COVID related expenses |
|
|
165 |
|
|
|
1,690 |
|
|
|
596 |
|
|
|
5,511 |
|
Impairment and disposal of long-lived assets, net |
|
|
4,336 |
|
|
|
— |
|
|
|
18,116 |
|
|
|
— |
|
Loss on disposal of non-operating assets |
|
|
719 |
|
|
|
— |
|
|
|
3,400 |
|
|
|
— |
|
Results of entities not legally controlled |
|
|
(1,089 |
) |
|
|
— |
|
|
|
(1,066 |
) |
|
|
— |
|
Other income (expense), net |
|
|
(1,713 |
) |
|
|
(333 |
) |
|
|
(2,628 |
) |
|
|
(295 |
) |
Change in fair value of derivative liabilities - warrants |
|
|
(1,442 |
) |
|
|
— |
|
|
|
(2,262 |
) |
|
|
— |
|
Total adjustments |
|
|
24,324 |
|
|
|
6,554 |
|
|
|
61,653 |
|
|
|
15,724 |
|
Adjusted EBITDA |
|
$ |
110,978 |
|
|
$ |
94,872 |
|
|
$ |
216,522 |
|
|
$ |
185,668 |
|
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
There have been no material changes to our market risk disclosures as set forth in Part II Item 7A of our Annual Report on Form 10-K for the year ended December 31, 2021.
Item 4. Controls and Procedures.
Material Weakness in Internal Control Over Financial Reporting
Evaluation of Internal Controls Over Financial Reporting
We maintain disclosure controls and procedures designed to provide reasonable assurance that information required to be disclosed in reports filed under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), is recorded, processed, summarized and reported within the specified time periods and accumulated and communicated to our management, including our principal executive officer and principal accounting officer, as appropriate to allow timely decisions regarding disclosure. In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, as ours are designed to do, and management necessarily was required to apply its judgment in evaluating the risk related to controls and procedures.
47
A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis.
Management of the Company, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the design and operation of its disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of June 30, 2022. Our Chief Executive Officer and Chief Financial Officer have concluded that, due to the material weaknesses identified in the prior year which are currently in the process of being remediated, as of June 30, 2022, we did not maintain effective disclosure controls and procedures because of the material weaknesses in internal control as described in Item 9A. Controls and Procedures in the 2021 Annual Report on Form 10-K, filed with the SEC on March 30, 2022.
Notwithstanding the material weaknesses described in the 2021 Annual Report on Form 10-K, we have concluded that the condensed consolidated financial statements included in this Quarterly Report on Form 10-Q fairly present, in all material respects, our financial position, results of operations and cash flows for the periods presented in conformity with U.S. GAAP.
Management’s Remediation Measures
Management is committed to maintaining a strong internal control environment. In response to the identified material weaknesses in the overall control environment, management, with the oversight of the Audit Committee of the Board of Directors, has taken actions toward the remediation of the respective material weakness in internal control over financial reporting as outlined below.
While significant progress has been made to enhance our internal control over financial reporting, we are still in the process of building and enhancing our processes, procedures, and controls. Additional time is required to complete the remediation of the material weaknesses and the assessment to ensure the sustainability of these remediation actions. We believe the above actions as well as those being implemented currently, when complete, will be effective in the remediation of the material weaknesses described above.
Changes in Internal Controls Over Financial Reporting
Other than the remediation measures discussed above, there have been no changes in internal controls over financial reporting during the six months ended June 30, 2022, that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting. Management believes these actions will help remediate internal control deficiencies related to the Company’s financial reporting (as defined in Rule 13a-15(f) and 15d-15(f) under the Exchange Act).
PART II - OTHER INFORMATION
Cautionary Note Regarding Forward-Looking Statements
This Quarterly Report on Form 10-Q contains forward-looking statements. In some cases, you can identify these statements by forward-looking words such as “may”, “will”, “would”, “could”, “should”, “believes”, “estimates”, “projects”, “potential”, “expects”, “plans”, “intends”, “anticipates”, “targeted”, “continues”, “forecasts”, “designed”, “goal”, or the negative of those words or other similar or comparable words. Any statements contained in this Quarterly Report on Form 10-Q that are not statements of historical facts may be deemed to be forward-looking statements. We have based these forward-looking statements largely on our
48
current expectations and projections about future events and financial trends that we believe may affect our business, financial condition, results of operations and future growth prospects. The forward-looking statements contained herein are based on certain key expectations and assumptions, including, but not limited to, with respect to expectations and assumptions concerning receipt and/or maintenance of required licenses and third party consents and the success of our operations, are based on estimates prepared by us using data from publicly available governmental sources, as well as from market research and industry analysis, and on assumptions based on data and knowledge of this industry that we believe to be reasonable. These forward-looking statements are not guarantees of future performance or development and involve known and unknown risks, uncertainties and other factors that are in some cases beyond our control. As a result, any or all of our forward-looking statements in this Quarterly Report on Form 10-Q may turn out to be inaccurate. Factors that may cause actual results to differ materially from current expectations include, among other things, those listed under “Risk Factors” and discussed elsewhere in this Quarterly Report on Form 10-Q and in “Part I, Item 1A – Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2021. These forward-looking statements speak only as of the date of this Quarterly Report on Form 10-Q. Except as required by law, we assume no obligation to update or revise these forward-looking statements for any reason, even if new information becomes available in the future. You should, however, review the factors and risks we describe in the reports we will file from time to time with the SEC after the date of this Quarterly Report on Form 10-Q. These factors and risks include, among other things, the following:
Risks Related to Our Business and Industry
49
Risks Related to Owning Subordinate Voting Shares
Risks Related to Being a Public Company
Item 1. Legal Proceedings.
There are no actual or to our knowledge contemplated legal proceedings material to us or to which any of our or any of our subsidiaries’ property is the subject matter.
Item 1A. Risk Factors.
Investing in our Subordinate Voting Shares involves a high degree of risk. Our Annual Report on Form 10-K for the year ended December 31, 2021 filed with the SEC on March 30, 2022 includes a detailed discussion of our risk factors under the heading “Part I, Item 1A—Risk Factors.” You should consider carefully the risk factors discussed in our Annual Report on Form 10-K for the year ended December 31, 2021 and all other information contained in or incorporated by reference in this Quarterly Report on Form 10-Q before making an investment decision. If any of the risks discussed in the Annual Report on Form 10-K for the year ended December 31, 2021 actually occur, they may materially harm our business, financial condition, operating results, cash flows or
50
growth prospects. As a result, the market price of our Subordinate Voting Shares could decline, and you could lose all or part of your investment. Additional risks and uncertainties that are not yet identified or that we think are immaterial may also materially harm our business, financial condition, operating results, cash flows or growth prospects and could result in a complete loss of your investment. Other than the following, there have been no material changes from such risk factors during the period ended June 30, 2022.
Recent macroeconomic trends, including inflation, a recession, or slowed economic growth, may adversely affect our business, financial condition and results of operations.
During the six months ended June 30, 2022, inflation in the United States has accelerated and is currently expected to continue at an elevated level for the near-term. Rising inflation could have an adverse impact on expenses, as these costs could increase at a higher rate than revenues. Our costs are subject to fluctuations, particularly due to changes in the prices of raw product and packaging materials and the costs of labor, transportation and energy. Inflation pressures could also result in increases in these input costs. Therefore, our business results depend, in part, on our continued ability to manage these fluctuations through pricing actions, cost saving projects and sourcing decisions, while maintaining and improving margins and market share. Failure to manage these fluctuations could adversely impact our results of operations or cash flows. In addition, unfavorable macroeconomic conditions, such as a recession or continued slowed economic growth, could negatively affect consumer demand for cannabis products, which consequently, may negatively affect the results of operations. Under difficult economic conditions, consumers may seek to reduce discretionary spending by forgoing purchases of cannabis products, negatively impacting our net sales and margins. Softer consumer demand for cannabis products could reduce our profitability and could negatively affect our overall financial performance.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
None.
Item 3. Defaults Upon Senior Securities.
Not applicable.
Item 4. Mine Safety Disclosures.
Not applicable.
Item 5. Other Information.
None.
51
Item 6. Exhibits.
Exhibit Number |
|
Description |
|
|
|
4.1 |
|
|
4.2 |
|
|
4.3 |
|
|
31.1 * |
|
|
31.2 * |
|
|
32.1 * |
|
|
|
|
|
101.INS |
|
Inline XBRL Instance Document |
101.SCH |
|
Inline XBRL Taxonomy Extension Schema Document |
101.CAL |
|
Inline XBRL Taxonomy Extension Calculation Linkbase Document |
101.DEF |
|
Inline XBRL Taxonomy Extension Definition Linkbase Document |
101.LAB |
|
Inline XBRL Taxonomy Extension Label Linkbase Document |
101.PRE |
|
Inline XBRL Taxonomy Extension Presentation Linkbase Document |
104 |
|
Cover Page Interactive Data File (embedded within the Inline XBRL document) |
* Filed herewith.
52
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
|
TRULIEVE CANNABIS CORP. |
|
|
|
|
|
Date: August 10, 2022 |
|
By: |
/s/ Kim Rivers |
|
|
|
Kim Rivers |
|
|
|
Chief Executive Officer |
|
|
|
(Principal Executive Officer) |
|
|
|
|
Date: August 10, 2022 |
|
By: |
/s/ Alex D’Amico |
|
|
|
Alex D’Amico |
|
|
|
Chief Financial Officer |
|
|
|
(Principal Financial Officer) |
|
|
|
|
Date: August 10, 2022 |
|
By: |
/s/ Rebecca Young |
|
|
|
Rebecca Young Chief Accounting Officer |
|
|
|
(Principal Accounting Officer) |
|
|
|
|
|
|
|
|
|
|
|
|
53