You should read the following discussion and analysis of our financial condition
and plan of operations together with our accompanying consolidated financial
statements and the related notes appearing elsewhere in this Annual Report on
Form 10-K. In addition to historical information, this discussion and analysis
contains forward-looking statements that involve risks, uncertainties and
assumptions. Our actual results may differ materially from those discussed
below. Factors that could cause or contribute to such differences include, but
are not limited to, those identified below, and those discussed in the section
titled "Risk Factors" included elsewhere in this Annual Report on Form 10-K. All
amounts in this report are in U.S. dollars, unless otherwise noted.
Overview
We are a vertically-integrated, multi-state owner and operator of licensed
cannabis cultivation, processing and dispensary facilities, and a developer,
producer and distributor of innovative branded cannabis and CBD products in the
United States. Although we are committed to creating a national retail brand and
portfolio of branded cannabis and CBD products recognized in the United States,
cannabis currently remains illegal under U.S. federal law.
Through our subsidiaries, we currently own and/or operate 35 dispensaries and 11
cultivation and/or processing facilities in nine U.S. states. Pursuant to our
existing licenses, interests and contractual arrangements, and subject to
regulatory approval, we have the capacity to own and/or operate up to an
additional 15 dispensary licenses and/or dispensary facilities in six states,
plus an uncapped number of dispensary licenses in Florida, and up to 21 total
cultivation, manufacturing and/or processing facilities, and we have the right
to manufacture and distribute cannabis products in nine U.S. states, all subject
to the necessary regulatory approvals.
Our multi-state operations encompass the full spectrum of medical and adult-use
cannabis and CBD enterprises, including cultivation, processing, product
development, wholesale-distribution and retail. Cannabis products offered by us
include flower and trim, products containing cannabis flower and trim (such as
packaged flower and pre-rolls), cannabis infused products (such as topical
creams and edibles) and products containing cannabis extracts (such as vape
cartridges, concentrates, live resins, wax products, oils and tinctures). Our
CBD products include topical creams, tinctures and sprays and products designed
for beauty and skincare (such as lotions, creams, haircare products, lip balms
and bath bombs). Under U.S. federal law, cannabis is classified as a Schedule I
controlled substance under the U.S. Controlled Substances Act. A Schedule I
controlled substance is defined as a substance that has no currently accepted
medical use in the United States, a lack of safety use under medical supervision
and a high potential for abuse. Other than Epidiolex (cannabidiol), a
cannabis-derived product, and three synthetic cannabis-related drug products
(Marinol (dronabinol), Syndros (dronabinol) and Cesamet (nabilone), to our
knowledge, the U.S. Food and Drug Administration has not approved a marketing
application for cannabis for the treatment of any disease or condition and has
not approved any cannabis, cannabis-derived or CBD products.
Financial Restructuring
The significant disruption of global financial markets, and specifically, the
decline in the overall public equity cannabis markets due to the COVID-19
pandemic negatively impacted our ability to secure additional capital, which
caused liquidity constraints. In early 2020, due to the liquidity constraints,
we attempted to negotiate temporary relief of our interest obligations with the
Secured Lenders. However, we were unable to reach an agreement and did not make
interest payments when due and payable to the Secured Lenders or payments that
were due to the Unsecured Lenders. As a result, we defaulted on our obligations
pursuant to the Secured Notes and Unsecured Debentures.
On June 22, 2020, we received a notice demanding repayment under the Amended and
Restated Debenture Purchase Agreement dated October 19, 2019 of the entire
principal amount of the Secured Notes, together with interest, fees, costs and
other charges that have accrued or may accrue from the Collateral Agent holding
security for the benefit of the Secured Notes. The Collateral Agent concurrently
provided us with the Notice of Intention to Enforce Security under section 244
of the Bankruptcy and Insolvency Act (Canada).
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On July 10, 2020, we entered into the Restructuring Support Agreement with the
Secured Lenders and the Consenting Unsecured Lenders to effectuate the
Recapitalization Transaction, which we closed on the Closing Date. Closing of
the Recapitalization Transaction through the Plan of Arrangement was subject to
certain conditions, including obtaining the Requisite Approvals. All Requite
Approvals required to close the Recapitalization Transaction were satisfied,
conditioned, or waived by us, the Secured Lenders and the Consenting Unsecured
Lenders, and on Closing Date, we closed the Recapitalization Transaction
pursuant to the Plan of Arrangement under the Business Corporations Act (British
Columbia) approved by the Supreme Court of British Columbia. Pursuant to the
terms of the Restructuring Support Agreement, the Collateral Agent, the Secured
Lenders and the Consenting Unsecured Lenders agreed to forbear from further
exercising any rights or remedies in connection with any events of Default. As
of the Closing Date, the Collateral Agent, Secured Lenders and Consenting
Unsecured Lenders irrevocably waived all Defaults. In addition, in August 2021
Gotham Green Partners, LLC and the Collateral Agent filed a Notice of
Application with the Ontario Superior Court of Justice, which sought, among
other things, a declaration that the outside date for closing the
Recapitalization Transaction be extended, which extension was granted by such
court and we subsequently appealed. Following the closing of the
Recapitalization Transaction, we discontinued the appeal with prejudice.
In connection with the closing of the Recapitalization Transaction, we issued an
aggregate of 6,072,579,705 common shares to the Secured Lenders and the
Unsecured Lenders. Specifically, we issued the Secured Lender Shares, or 48.625%
of our outstanding common shares, to the Secured Lenders and the Unsecured
Lender Shares, or 48.625% of our outstanding common shares, to the Unsecured
Lenders. As of the Closing Date, we had 6,244,297,897 common shares issued and
outstanding. As of the Closing Date, the holders of our common shares
collectively held 171,718,192 common shares, or 2.75% of our outstanding common
shares.
As of the Closing Date, the outstanding principal amount of the Secured Notes
(including the Interim Financing secured notes in the aggregate principal amount
of approximately $14.7 million originally due on July 13, 2025) together with
interest accrued and fees thereon were forgiven in part and exchanged for
(A) the Secured Lender Shares, (B) the June Secured Debentures in the aggregate
principal amount of $99.7 million and (C) the June Unsecured Debentures in the
aggregate principal amount of $5.0 million. In addition, as of the Closing Date,
the outstanding principal amount of the Unsecured Debentures together with
interest accrued and fees thereon were forgiven in part and exchanged for
(A) the Unsecured Lender Shares and (B) the June Unsecured Debentures in the
aggregate principal amount of $15.0 million. Furthermore, all existing options
and warrants to purchase our common shares, including certain debenture warrants
and exchange warrants previously issued to the Secured Lenders, the warrants
previously issued in connection with the Unsecured Debentures and all other
Affected Equity (as defined in the Plan of Arrangement), were cancelled and
extinguished for no consideration.
Secured Debenture Purchase Agreement
In connection with the closing of the Recapitalization Transaction, we entered
into the Secured DPA, dated as of June 24, 2022, with ICM, the other Credit
Parties (as defined in the Secured DPA), the Collateral Agent, and the New
Secured Lenders pursuant to which ICM issued the New Secured Lenders the June
Secured Debentures in the aggregate principal amount of $99.7 million pursuant
to the Plan of Arrangement.
The June Secured Debentures accrue interest at a rate of 8.0% per annum
(increasing to 11.0% upon the occurrence of an Event of Default (as defined in
the Secured DPA)), are due on June 24, 2027, and may be prepaid on a pro rata
basis from and after the third anniversary of the Closing Date upon prior
written notice to the New Secured Lenders without premium or penalty. Upon
receipt of a Change of Control Notice (as defined in the Secured DPA), each New
Secured Lender may provide notice to ICM to either (i) purchase the June Secured
Debenture at a the Offer Price or (ii) if the Change of Control Transaction (as
defined in Secured DPA) results in a new issuer, or if the New Secured Lender
desires that the June Secured Debenture remain unpaid and continue in effect
after the closing of the Change of Control Transaction, convert or exchange the
June Secured Debenture into a replacement debenture of the new issuer or ICM, as
applicable, in the aggregate principal amount of the Offer Price on
substantially equivalent terms to those terms contained in the June Secured
Debenture. Notwithstanding the foregoing, if 90.0% or more of the principal
amount of all June Secured Debentures outstanding have been tendered for
redemption on the date of the Change of Control Notice, ICM may, at its sole
discretion, redeem all of the outstanding June Secured Debentures at the Offer
Price. As security for the Obligations (as defined in the Secured DPA), ICM and
the Company granted to the Collateral Agent, for the benefit of the New Secured
Lenders, a security interest over all of their present and after acquired
personal property.
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Pursuant to the Secured DPA, so long as Gotham Green Partners, LLC or any of its
Affiliates (as defined in the Secured DPA) hold at least 50.0% of the
outstanding principal amount of June Secured Debentures, the Collateral Agent
will have the right to appoint two non-voting observers to our Board of
Directors, each of which shall receive up to a maximum amount of $25,000 in any
12-month period for reasonable out-of-pocket expenses. In addition, pursuant to
the Secured DPA, the New Secured Lenders purchased the Additional Secured
Debentures.
Unsecured Debenture Purchase Agreement
In connection with the closing of the Recapitalization Transaction, we, as
guarantor of the Guaranteed Obligations (as defined in the Unsecured DPA (as
defined herein)), entered into the Unsecured DPA dated as of June 24, 2022 with
ICM, the Secured Lenders and the Consenting Unsecured Lenders pursuant to which
ICM issued the June Unsecured Debentures in the aggregate principal amount of
$20.0 million pursuant to the Plan of Arrangement, including $5.0 million to the
Secured Lenders and $15.0 million to the Unsecured Lenders.
The June Unsecured Debentures accrue interest at a rate of 8.0% per annum
(increasing to 11.0% upon the occurrence of an Event of Default (as defined in
the Unsecured DPA)), are due on June 24, 2027, and may be prepaid on a pro rata
basis from and after the third anniversary of the Closing Date upon prior
written notice to the Unsecured Lender without premium or penalty. Upon receipt
of a Change of Control Notice (as defined in the Unsecured DPA), each Unsecured
Lender may provide notice to ICM to either (i) purchase the June Unsecured
Debenture at the Unsecured Offer Price or (ii) if the Change of Control
Transaction (as defined in Unsecured DPA) results in a new issuer, or if the
Unsecured Lender desires that the June Unsecured Debenture remain unpaid and
continue in effect after the closing of the Change of Control Transaction,
convert or exchange the June Unsecured Debenture into a replacement debenture of
the new issuer or ICM, as applicable, in the aggregate principal amount of the
Unsecured Offer Price on substantially equivalent terms to those terms contained
in the June Unsecured Debenture. Notwithstanding the foregoing, if 90.0% or more
of the principal amount of all June Unsecured Debentures outstanding have been
tendered for redemption on the date of the Change of Control Notice, ICM may, at
its sole discretion, redeem all of the outstanding June Unsecured Debentures at
the Unsecured Offer Price. Pursuant to the Unsecured DPA, the Obligations (as
defined in the Unsecured DPA) are subordinated in right of payment to the Senior
Indebtedness (as defined in the Unsecured DPA).
Pursuant to the Recapitalization Transaction, the Secured Lenders, the Unsecured
Lenders and the existing holders of our common shares at the closing of the
Recapitalization Transaction (the "Existing Shareholders") were allocated and
issued the June Secured Debentures, the June Unsecured Debentures and percentage
of our pro forma common shares, as presented in the following table:
June Pro Forma
June Secured Interim Unsecured Common
(in '000s of U.S. dollars) Debentures1 Financing2 Debentures3 Equity4
Secured Lenders $ 85,000 $ 14,737 $ 5,000 48.625 %
Unsecured Lenders - - 15,000 48.625 %
Existing Shareholders - - - 2.75 %
Total $ 85,000 $ 14,737 $ 20,000 100 %
(1) The Secured Notes and Interim Financing were extinguished as of the Closing
Date and, in exchange, ICM issued the June Secured Debentures in the
aggregate principal amount of $99,7 million, the Secured Lender Shares and
the June Unsecured Debentures in the aggregate principal amount of $5
million. See "Overview - Financial Restructuring - Secured Debenture Purchase
Agreement".
(2) Certain of the Secured Lenders provided the Interim Financing to ICM pursuant
to the Restructuring Support Agreement.
(3) The Unsecured Debentures were extinguished as of the Closing Date, and in
exchange, ICM issued the June Unsecured Debentures in the aggregate principal
amount of $15 million and the Unsecured Lender Shares. The June Unsecured
Debentures are subordinate to the June Secured Debentures, but are senior to
our common shares. See "Overview - Financial Restructuring - Unsecured
Debenture Agreement.
(4) On December 31, 2021, our Board of Directors approved the terms of a LTIP
recommended by our compensation committee and, pursuant to which, on July 26,
2022 we issued to certain of our employees (including executive officers) an
aggregate of 320,165,409 RSUs, under our Omnibus Incentive Plan in order to
attract and retain such employees. RSUs represent a right to receive a single
common share that is both non-transferable and forfeitable until certain
conditions are satisfied. The allocation of RSUs was contingent upon the
closing of the Recapitalization Transaction and was subject to approval of
the Canadian Securities Exchange and the Board. All of our existing warrants
and options were cancelled, and our common shares may be consolidated
pursuant to a consolidation ratio which has yet to be determined.
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Registration Rights Agreement
In connection with the consummation of the Recapitalization Transaction, we
entered into the RRA, dated June 24, 2022, with ICM and the Holders pursuant to
which we shall, upon receipt of a Shelf Request from the Substantial Holders,
prepare and file (i) with the applicable Canadian Securities Regulators (as
defined in the RRA), a Shelf Prospectus (as defined in the RRA) to facilitate a
secondary offering of all of the Registrable Securities or (ii) with the SEC, a
S-3 Registration Statement covering the resale of all Registrable Securities. In
addition, pursuant to the RRA and subject to certain exceptions, the Substantial
Holders may submit a Demand Registration Request that we file a Prospectus (as
defined in the RRA) (other than a Shelf Prospectus) or a Registration Statement
to facilitate a Distribution (as defined in the RRA) in Canada or the United
States of all or any portion of the Registrable Securities (the "Demand
Registration") held by the Holders requesting the Demand Registration. Moreover,
pursuant to the RRA and subject to certain exceptions, if, at any time, we
propose to make a Distribution for our own account, we shall notify the Holders
of such Piggyback Registration and shall use reasonable commercial efforts to
include in the Piggyback Registration such Registrable Securities requested by
the Holders be included in such Piggyback Registration.
Investor Rights Agreement
Furthermore, in connection with the closing of the Recapitalization Transaction,
we entered into the IRA, dated June 24, 2022, with ICM and the Investors.
Pursuant to the IRA, among other things, the Investors are entitled to designate
nominees for election or appointment to our Board as follows:
• the First Investor shall be entitled to designate director nominees as
follows:
i. For so long as the First Investor's Debt Exchange Common Share
Percentage (as defined in the IRA) is at least 30.0%, the First
Investor shall be entitled to designate up to three individuals as
director nominees;
ii. For so long as the First Investor's Debt Exchange Common Share
Percentage is less than 30.0% but is at least 15.0%, the First
Investor shall be entitled to designate up to two individuals as
director nominees; and
iii. For so long as the First Investor's Debt Exchange Common Share
Percentage is less than 15.0% but is at least 5.0%, the First
Investor shall be entitled to designate up to one individual as a
director nominee.
The initial nominees of the First Investor were Scott Cohen, Michelle
Mathews-Spradlin and Kenneth Gilbert.
• the Second Investor shall be entitled to designate up to one individual
as a director nominee for so long as such Investor's Debt Exchange Common
Share Percentage is at least 5.0%.
• the Third Investor shall be entitled to designate up to one individual as
a director nominee for so long as such Investor's Debt Exchange Common
Share Percentage is at least 5.0%.
• the Fourth Investor shall be entitled to designate up to one individual
as a director nominee for so long as such Investor's Debt Exchange Common
Share Percentage is at least 5.0%.
The Second Investor, Third Investor and Fourth Investor initially nominated
Alexander Shoghi, Zachary Arrick and Marco D'Attanasio, respectively, as members
of the Board. Mr. D'Attanasio resigned from the Board effective as of
September 15, 2022 and Mr. Arrick resigned from the Board effective as of
February 21, 2023. Pursuant to the IRA, both the Third Investor and Fourth
Investor are entitled to appoint directors to fill the vacancies created by the
resignations of Mr. D'Attanasio and Mr. Arrick. As of the date hereof, such
vacancies have not been filled.
Acquisitions
GreenMart of Maryland, LLC, Rosebud Organics, Inc. and Budding Rose, Inc.
In January 2018, we, through our wholly-owned subsidiary, CGX, entered into
separate option agreements, as amended, with (i) the Budding Rose Sellers,
(ii) the Rosebud Sellers, (iii) the GMMD Seller, who is also our former officer
and director and the sole member of GMMD, and (iv) the LMS Seller and LMS,
pursuant to which, CGX was granted and exercised its options to acquire 100%
ownership of Budding Rose, Rosebud, GMMD and LMS on September 16, 2021, April 1,
2021, November 5, 2021, and November 22, 2021, respectively, all subject to
regulatory approval by the MMCC. On July 28, 2022, the MMCC approved CGX's
request to acquire 100% ownership of Budding Rose, Rosebud and GMMD. On
August 9, 2022, CGX closed on its acquisition of GMMD, and on August 18, 2022,
CGX closed on its acquisitions of Rosebud and Budding Rose.
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On May 23, 2022, we, through CGX, filed a demand for arbitration with the
American Arbitration Association against LMS and the LMS Seller for various
breaches under the LMS Option Agreements. The closing of our acquisition of LMS
is subject to the resolution of this pending legal matter. See "Item 3. Legal
Proceedings - Claim by Maryland License Holder" for additional information.
MPX New Jersey LLC
On February 1, 2022, we, through our wholly-owned subsidiary INJ, acquired 100%
ownership of MPX NJ, which holds a medical cannabis license. On October 24,
2019, INJ and MPX NJ entered into a loan agreement pursuant to which on
October 16, 2019, MPX NJ issued to INJ the INJ Note. On February 3, 2021, INJ
sent a notice of conversion to MPX NJ, notifying MPX NJ of INJ's election to
convert the entire principal amount outstanding of such note, plus all accrued
and unpaid interest thereon, into such number of Class A units of MPX NJ
representing 99% of the equity interest in MPX NJ. The conversion of INJ's debt
to equity is subject to approval by the CRC. On October 24, 2019, INJ, MPX NJ
and the then-equityholders of MPX NJ entered into an option agreement, pursuant
to which INJ was granted the option to acquire the remaining 1% of MPX NJ for
nominal consideration, subject to approval of the CRC, which option INJ
exercised on February 25, 2021. On January 7, 2022, the CRC approved the
conversion of INJ's debt into a 99% equity interest in MPX NJ and INJ's
acquisition of the remaining 1% of MPX NJ. As a result of the acquisition of MPX
NJ, we expanded our cannabis operations to New Jersey and are permitted to
operate one medical manufacturing facility, including cultivation and processing
capabilities and up to three medical dispensaries in New Jersey, subject to
regulatory approval. On November 9, 2022, we submitted our application to expand
MPX NJ's current medical operations to include adult-use operations. Our
application remains pending before the CRC.
Recent Developments
Issuance of common shares
On January 5, 2023, we issued 7,852,803 common shares for vested RSUs. We
withheld 7,776,088 common shares to satisfy our employees' tax obligations of
$0.2 million.
On March 3, 2023, we issued 27,929,525 common shares for vested RSUs to Mr.
Kalcevich as per the December Separation Agreement.
Extension of INJ Senior Secured Bridge Notes
On February 2, 2023, we entered into the Amendment to the Senior Secured Bridge
Notes issued by INJ on February 2, 2021 with all of the holders of such notes.
Pursuant to the Amendment, the maturity date of the Senior Secured Bridge Notes
was extended until February 2, 2024, the interest on the principal amount
outstanding was increased to a rate of 12% per annum, and an amendment fee equal
to 10% of the principal amount outstanding of the Senior Secured Bridge Notes as
of February 2, 2023 or $1.4 million in the aggregate, was added to such notes
such that it will become due and payable on the maturity date.
Disposition of Vermont Operations
On February 6, 2023, ICM entered into the MIPA with the VT Buyer for the sale of
all of the issued and outstanding membership interests of GVMS for $0.2 million,
subject to certain adjustments set forth in the MIPA. The closing of the MIPA
remains subject to customary closing conditions, including approval by the CCB.
On February 6, 2023, ICM, GVMS and GRVT entered into the Management Agreement
with the VT Buyer, which went into effect on March 8, 2023. Pursuant to the
Management Agreement, the VT Buyer will manage the operations of GRVT until the
closing of the GVMS Sale. The Management Agreement terminates upon the earlier
of the closing of the GVMA Sale or termination of the MIPA.
Accounting Pronouncements
See Note 3, "New Accounting Standards and Accounting Changes" in the notes to
our consolidated financial statements for the fiscal year ended 2022 included
elsewhere in this Annual Report on Form 10-K for more information regarding the
new accounting standards applicable to us.
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Results of Operations for the Years Ended December 31, 2022 and 2021
Revenues and Gross Profit
Year Ended December 31,
(in '000s of U.S. dollars) 2022 2021 (Revised)
Revenues
Eastern Region $ 96,478 $ 128,979
Western Region 65,644 72,424
Other 1,091 1,615
Total revenues $ 163,213 $ 203,018
Costs and expenses applicable to revenues
(exclusive of depreciation and amortization
expense)
Eastern Region $ (44,370 ) $ (45,870 )
Western Region (43,734 ) (44,548 )
Other (677 ) (3,072 )
Total Costs and expenses applicable to revenues
(exclusive of depreciation and amortization
expense) $ (88,781 ) $ (93,490 )
Gross profit
Eastern Region $ 52,108 $ 83,109
Western Region 21,910 27,876
Other 414 (1,457 )
Total gross profit $ 74,432 $ 109,528The eastern region includes our operations in Florida, Maryland, Massachusetts,
New York, New Jersey and Vermont. The western region includes our operations in
Arizona and Nevada as well as our assets and investments in Colorado.
Eastern region
For the year ended December 31, 2022, our sales revenues in the eastern region
were $96.5 million as compared to $129.0 million for the year ended December 31,
2021, which represents a decrease of 25.2%. The main drivers for the decrease in
revenues are lower retail revenues in Florida and both lower retail and
wholesale revenues in Maryland, Massachusetts and Vermont as a result of
increased competition and price compression in these markets. This was offset by
an increase in retail revenues in New York attributable to the sale of whole
flower which was approved for sale in the state of New York in October 2021,
from retail revenues earned from our new dispensary in New Jersey, which opened
in May 2022, and from wholesale revenues earned from our New Jersey facility.
For the year ended December 31, 2022, gross profit was $52.1 million, or 54.0%
of sales revenues, as compared to a gross profit of $83.1 million, or 64.4% of
sales revenues, for the year ended December 31, 2021. Gross profit decreased due
to lower selling prices in Florida, Maryland and Massachusetts as well as lower
wholesale prices in Maryland and Massachusetts while production costs and sales
discounts continued to increase as a result of nationwide inflation and
increased competition in these markets.
During the year ended December 31, 2022, approximately 41,230 pounds of plant
material was harvested in the eastern region as compared to approximately 44,520
pounds harvested during the year ended December 31, 2021. The decrease in
harvested plant material was due to lower yields in Florida due to poor weather
conditions and in Massachusetts from scaling back production in our Holliston
facility as our Fall River facility ramped up. This was partially offset from an
increase in harvested plant material from our Pleasantville, New Jersey facility
which had its first harvest in June 2022. The Pleasantville, New Jersey facility
harvested approximately 3,990 pounds of plant material during the year ended
December 31, 2022, as compared to Nil during the year ended December 31, 2021.
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Western region
For the year ended December 31, 2022, our sales revenues in the western region
were $65.6 million as compared to $72.4 million for the year ended December 31,
2021, which represents a decrease of 9.4%. The decrease in revenue in the
western region is attributable to lower wholesale revenues in Nevada and a
decrease in retail revenues in Arizona during the year ended December 31, 2022,
as compared to the year ended December 31, 2021.
For the year ended December 31, 2022, gross profit was $21.9 million, or 33.4%
of sales revenues, as compared to a gross profit of $27.9 million, or 38.5% of
sales revenues, for the year ended December 31, 2021. Gross margins decreased
due to higher sales discounts and competitive pricing pressures in Arizona and
from higher cultivation costs incurred in Nevada during the year ended
December 31, 2022, as compared to the year ended December 31, 2021.
During the year ended December 31, 2022, approximately 6,930 pounds of plant
material was harvested in the western region as compared to approximately 7,000
pounds harvested during the year ended December 31, 2021. Cultivation yields in
both Arizona and Nevada remained consistent during the year ended December 31,
2022, as compared to the year ended December 31, 2021.
Other revenues
For the year ended December 31, 2022, other revenues were $1.1 million as
compared to $1.6 million for the year ended December 31, 2021. This decrease is
due to lower online and wholesale sales of CBD products. For the year ended
December 31, 2022, other gross profits were $0.4 million as compared to negative
$1.5 million for the year ended December 31, 2021. This increase in other gross
profits is due to a significant $1.9 million inventory reserve accrued on CBD
inventory during the year-ended December 31, 2021 compared to a $0.2 million
inventory reserve during the year-ended December 31, 2022.
Expenses
Year Ended December 31,
(in '000s of U.S. dollars) 2022 2021 (Revised)
Total operating expenses $ 186,887 $ 133,308
Total other expenses 326,245 31,974
Income tax expense 10,691 21,736
Selling, General and Administrative Expenses Details
Year Ended December 31,
(in '000s of U.S. dollars) 2022 2021 (Revised)
Salaries and employee benefits $ 34,050 $ 37,232
Severance 13,400 -
Share-based compensation 30,431 6,522
Legal and other professional fees 14,334 23,512
Deferred professional fees related to the
Recapitalization Transaction 7,091 -
Facility, insurance and technology costs 15,202 15,895
Marketing expenses 4,798 4,539
Travel and pursuit costs 882 621
Amortization on right-of-use assets 2,295 2,112
Other general corporate expenditures 5,604 6,534
Total $ 128,087 $ 96,967
Total operating expenses
Total operating expenses other than those included in costs and expenses
applicable to revenues consist of: (i) selling, general, and administrative
expenses which are necessary to conduct our ordinary business operations as well
as support marketing, technology, and other growth initiatives such as opening
new dispensaries and building-out our facilities; (ii) depreciation and
amortization charges taken on our fixed and intangible assets; and (iii) any
write-downs or impairment on our assets. We have taken measures to control our
discretionary spending and to employ capital efficiently. However, we expect
total operating expenses to continue to increase as we continue to invest in our
operations and capital projects, attract and retain top talent, and implement
robust technology systems in our corporate, retail and cultivation and
manufacturing facilities.
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For the year ended December 31, 2022, our total operating expenses were $186.9
million as compared to $133.3 million for the year ended December 31, 2021,
which represents an increase of 40.2%.
The increase in total operating expenses resulted from an increase of $31.1
million of our selling, general, and administrative expenses which is
attributable to: $13.4 million in severance expenses, including a $12.0 million
payment to our former Interim Chief Executive Officer; a $23.9 million increase
in share-based compensation from grants of RSUs to employees, directors and
officers, and the concurrent cancellation of existing stock options; and an
increase in deferred professional fees of $7.1 million from the closing of the
Recapitalization Transaction on June 24, 2022. Total selling, general and
administrative expenses were partially offset by a decrease in legal and other
professional fees of $9.2 million and a decrease from salaries and other general
corporate expenditures of $4.1 million during the year ended December 31, 2022
as compared to the year ended December 31, 2021.
The increase in total operating expenses is also attributable to a $23.2 million
increase in impairment loss during the year ended December 31, 2022, as compared
to the year ended December 31, 2021. During the year ended December 31, 2022, we
recorded $29.8 million and $0.7 million in impairment losses with respect to our
Nevada and Vermont operations, respectively. This compares to $7.4 million of
impairment losses during the year ended December 31, 2021 relating to our CBD
business and New Jersey sublease arrangements.
The increase in total operating expenses was offset by one-time recoveries of
$0.8 million from the sale of our Fall River dispensary property and the early
termination of an office lease during the year ended December 31, 2022. There
were immaterial write-downs and recoveries during the year ended December 31,
2021. Depreciation and amortization expenses remained consistent for the years
ended December 31, 2022 and 2021.
During the year ended December 31, 2022, excise taxes were $0.6 million
(December 31, 2021-$1.1 million). Excise taxes are included as part of the
selling, general, and administrative expenses on the consolidated statements of
operations.
Total other income and expenses
Total other income and expenses includes income and expenses that are not
included in the ordinary day-to-day activities of our business. This includes
interest and accretion expenses on our financing arrangements, fair value gains
or losses on our financial instruments, and income earned from arrangements that
are not from our ordinary revenue streams of retail, wholesale, or delivery of
cannabis products.
For the year ended December 31, 2022, our total other expenses were $326.2
million as compared to $32.0 million for the year ended December 31, 2021, which
represents an increase of 920.3%. Total other expenses includes other income of
$13.7 million for the year ended December 31, 2022 and $1.6 million for the year
ended December 31, 2021.
The increase in total other income and expenses is primarily due to a one-time
$316.6 million loss on debt extinguishment related to the closing of the
Recapitalization Transaction. This increase in total other expenses was offset
by a decrease in accretion expense of $5.5 million as our $40.0 million secured
notes, $20.0 million secured notes and $36.2 million secured notes were fully
accreted as of May 2021 resulting in no accretion expense on these instruments
during the year ended December 31, 2022, as compared to five months of accretion
expense for these instruments taken during the year ended December 31, 2021.
This was partially offset by accretion expense on the June Secured Debentures
and June Unsecured Debentures since the closing of the Recapitalization
Transaction on June 24, 2022. The closing of the Recapitalization Transaction
resulted in the extinguishment of a portion of our total debt outstanding and a
reduction in the interest rates on the June Secured Debentures, June Unsecured
Debentures and the Senior Secured Bridge Notes. This resulted in lower interest
expense of $5.0 million during the year ended December 31, 2022, as compared to
the year ended December 31, 2021.
Furthermore, other income increased by $12.1 million during the year ended
December 31, 2022 compared to the year ended December 31, 2021 primarily from a
fair value gain net of tax of $10.4 million from the noncash consideration as
part of the acquisition of MPX NJ and from sublease income earned from our
sublease arrangements.
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Income tax expense
As a result of operating in the federally illegal cannabis industry, we are
subject to the limitations of Internal Revenue Code Section 280E ("Section
280E") under which taxpayers are only allowed to deduct expenses directly
related to sales of product and no other ordinary business expenses. Our
effective tax rate differs from the statutory tax rate and varies from year to
year primarily as a result of numerous permanent differences, the provision for
income taxes at different rates in foreign and domestic jurisdictions, including
changes in enacted statutory tax rate increases or reductions in the year,
changes in our valuation allowance based on our recoverability assessments of
deferred tax assets and favorable or unfavorable resolution of various tax
examinations.
For the year ended December 31, 2022, our income tax expense was $10.7 million
as compared to $21.7 million for the year ended December 31, 2021, which
represents a decrease of 50.8%. The decrease in income tax expense is a result
of our lower taxable income during the year ended December 31, 2021 and from
certain expenses that are disallowed under Section 280E.
Liquidity and Capital Resources
As of December 31, 2022, we held unrestricted cash of $14.3 million (December
31, 2021 - $13.2 million) and had an accumulated deficit of $1,251.0 million
(December 31, 2021-$801.6 million), and a working capital deficit of $41.9
million (December 31, 2021 - $231.7 million). In assessing our liquidity, we
monitor our cash on-hand and our expenditures required to execute our day-to-day
operations and our long-term strategic plans. To date, we have financed our
operations through equity and debt financings and from our cash flows from
operations and we anticipate that we will need to raise additional capital to
fund our operations and capital plans in the future. We expect to finance these
activities through a combination of additional financings and cash flows from
our operations. However, we may be unable to raise additional funds when needed
and on favorable terms, or at all, which may have a negative impact on our
financial condition and could force us to curtail or cease our operations.
Furthermore, our outstanding debt instruments impose certain restrictions on our
operating and financing activities, including certain restrictions on our
ability to incur certain additional indebtedness, grant liens, make certain
dividends and other payment restrictions affecting our subsidiaries, issue
shares or convertible securities and sell certain assets. Even if we believe we
have sufficient funds for our current or future plans, we may seek additional
capital due to favorable market conditions and/or for strategic opportunities
and initiatives.
Going Concern
The accompanying consolidated financial statements have been prepared on a going
concern basis, which assumes that we will continue to operate as a going concern
and which contemplates the realization of assets and the satisfaction of
liabilities and commitments in the normal course of business. Our ability to
continue as a going concern is dependent upon our ability to raise additional
capital, our ability to achieve sustainable revenues and profitable operations,
and our ability to obtain the necessary capital to meet our obligations and
repay our liabilities when they become due.
We believe that the consummation of the Recapitalization Transaction will
provide the necessary funding for us to continue funding our operations in the
future. Further, the consummation of the Recapitalization Transaction resulted
in lower interest rates on the June Secured Debentures, June Unsecured
Debentures and the Senior Secured Bridge Notes, and allows interest to be
paid-in-kind. We believe we will be able to continue to operate under a going
concern for a period of no less than 12 months from the date of the consolidated
financial statements included elsewhere in this Annual Report on our Form 10-K.
The consolidated financial statements included in this Annual Report on Form
10-K do not include any adjustments that might be necessary if we are unable to
continue as a going concern.
While we believe that we have funding necessary for us to continue as a going
concern, we may need to raise additional capital and there can be no assurance
that such capital will be available to us on favorable terms, if at all. As
such, these material circumstances cast substantial doubt on our ability to
continue as a going concern for a period of no less than 12 months from the date
of this report, and our consolidated financial statements do not include any
adjustments that might be necessary if we are unable to continue as a going
concern. We have based this estimate on assumptions that may prove to be wrong,
and we could utilize our available capital resources sooner than we currently
plan due to incorrect assumptions or due to a decision to expand our activities
beyond those currently planned.
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Cash Flow for the Year Ended December 31, 2022 as Compared to the Year Ended
December 31, 2021
Operating Activities
Our net cash flows from operating activities are affected by several factors,
including revenues generated by operations, increases or decreases in our
operating expenses, including expenses related to new capital projects and
development of existing or newly acquired businesses and the level of cash
collections received from our customers.
Net cash used in operating activities during the year ended December 31, 2022
was $19.5 million as compared to net cash provided from operating activities of
$16.1 million for the year ended December 31, 2021. The reduction in our net
cash provided from operating activities was due to our net loss of $449.4
million, partially offset by a one-time non-cash loss on debt extinguishment
from the consummation of the Recapitalization Transaction of $316.6 million,
$30.4 million in share-based compensation as a result of the issuance of RSUs
and concurrent cancellation of all existing stock options, $31.4 million of
depreciation and amortization expense, $30.6 million in impairment loss from our
Nevada and Vermont operations, $18.7 million in interest expense, a $10.5
million gain from nonmonetary consideration from the MPX NJ acquisition, $3.6
million of accretion expense, $7.8 million from changes in our deferred income
taxes, and $16.7 million from changes in operating assets and liabilities items
during the year ended December 31, 2022.
Changes in other operating assets for the year ended December 31, 2022, include
an increase in inventory of $1.1 million due to lower sales during the year
ended December 31, 2022 as compared to the year ended December 31, 2021, and an
increase of $1.3 million related to the recognition of right-of-use assets
during the year ended December 31, 2022.
Changes in other operating liabilities for the year ended December 31, 2022,
include an increase in accrued and other current liabilities of $21.0 million
due to accrued income taxes for the period, interest and recapitalization fees
due upon closing of the Recapitalization Transaction on June 24, 2022, and a
decrease in accounts payable of $3.1 million.
As we continue to expand our operations and as these operations become more
established, we continue to expect cash flow to be provided from operations, and
we intend to place less reliance on financing from other sources to fund our
operations. Although we expect to continue to have positive cash flows from
operations in 2023, no assurance can be given that we will have positive cash
flows in the future.
Investing Activities
Net cash used in investing activities during the year ended December 31, 2022
was $4.7 million as compared to $21.3 million for the year ended December 31,
2021. The decrease in cash used in investing activities was primarily
attributable to lower cultivation and dispensary construction expenditures of
$6.9 million during the year ended December 31, 2022 as compared to $19.4
million during the year ended December 31, 2021. In addition, during the year
ended December 31, 2022, we loaned $0.1 million to MPX NJ as compared to $1.2
million during the year ended December 31, 2021.
Cash inflows from investing activities during the year ended December 31, 2022
included the sale of certain property, plant and equipment of $2.4 million as
compared to $0.3 million for the year ended December 31, 2021.
Financing Activities
Net cash provided by financing activities for the year ended December 31, 2022
was $22.1 million as compared to $10.2 million for the year ended December 31,
2021. During the year ended December 31, 2022, we received proceeds from the
issuance of the Additional Secured Debentures of $24.3 million which was
partially offset by approximately $0.4 million from the repayment of debt.
Further, as part of the RSUs issuances, we paid $1.8 million on our employees'
behalf during the year ended December 31, 2022. This compares to the issuance of
the Senior Secured Bridge Notes in the principal amount of $11.0 million, offset
by related debt issuance costs of $0.7 million and repayment of certain debt of
less than $0.1 million during the year ended December 31, 2021.
Related Party Transactions
As part of the MPX Acquisition on February 5, 2019, we acquired a related party
receivable of $0.7 million due from a company owned by a former director and
officer, Elizabeth Stavola. The related party receivable was converted into a
loan facility of up to $10 million, which accrued interest at the rate of 16%,
compounded annually. Interest was due upon maturity of the loan on December 31,
2021. During the year ended December 31, 2021, we exercised our right to convert
the principal balance of the loan and accrued interest into a 99% equity
interest in MPX NJ and exercised our option to acquire the remaining 1% of MPX
NJ, which was approved by the CRC on January 7, 2022. We recorded acquisition
costs of $0.3 million and $Nil within selling, general and administrative
expenses on the consolidated statements of operations for the year ended
December 31, 2022 and 2021, respectively. As of December 31, 2022, the balance
of such facility was $Nil (December 31, 2021 - $4.6 million), which includes
accrued interest of $Nil (December 31, 2021-$0.9 million). The related party
balances are presented in other long-term assets on the consolidated balance
sheets.
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Upon the closing of the Recapitalization Transaction, certain of our lenders
held greater than 5% of the voting interests in our Company and therefore are
classified as related parties. For further discussion, refer to Note 9 of the
consolidated financial statements included elsewhere in this Annual Report on
Form 10-K.
Effective as of May 6, 2022 (the "Resignation Date"), Randy Maslow, our Interim
Chief Executive Officer and President and a member of the Board of Directors,
resigned from his executive positions, including all positions with our
subsidiaries and its affiliates, and from our Board of Directors and committees.
In connection with the resignation, we executed a separation agreement (the
"Separation Agreement") with Mr. Maslow, pursuant to which Mr. Maslow will
receive certain compensation and benefits valued to substantially equal the
value of entitlements he would have received under Section 4(g) of his
employment agreement. Specifically, Mr. Maslow received total cash compensation
in the amount of approximately $12.2 million (the "Separation Payment"), of
which $5.1 million was paid out on May 6, 2022 (made up, in part of a portion of
severance payment of approximately $4.8 million, and unpaid 2021 bonus of
$300,000). The remainder of the Separation Payment was to be paid out in equal
installments of approximately $0.9 million per month over the next eight months
following the Resignation Date, which became accelerated upon the closing of the
Recapitalization Transaction. The total outstanding balance of the Separation
Payment owed to Mr. Maslow was paid in full as of July 15, 2022. Under the terms
of the Separation Agreement, we will continue to pay the monthly premium for
Mr. Maslow's continued participation in our health and dental insurance benefits
pursuant to COBRA for one year from the Resignation Date. Mr. Maslow's
compensation and benefits under the Separation Agreement also included the
extension of exercise period of options to acquire our common shares, until the
earlier of (i) five years from the Resignation Date; (ii) the original
expiration dates of the applicable option; or (iii) the closing of the
Recapitalization Transaction. In accordance with the terms of the Separation
Agreement, Mr. Maslow's options to acquire our common shares expired as of the
Closing Date of the Recapitalization Transaction. Mr. Maslow served in a
consulting role for a period of six months following the Resignation Date at a
base compensation of $25,000 per month. As of November 6, 2022, the term of
Mr. Maslow's consultancy terminated and we did not elect to extend the period in
accordance with the Separation Agreement. During the year ended December 31,
2022, we paid $0.1 million to Mr. Maslow in relation to consulting services
provided (December 31, 2021-$Nil).
Effective as of November 14, 2022, Julius Kalcevich, our now former Chief
Financial Officer, resigned from his executive positions, including all
positions with our subsidiaries and its affiliates. In connection with the
resignation, on December 7, 2022 (the "Execution Date"), we executed a
separation agreement (the "December Separation Agreement"), pursuant to which,
Mr. Kalcevich will receive certain compensation and benefits valued to
substantially equal the value of entitlements he would have received under
Section 4(g) of his employment agreement. Specifically, Mr. Kalcevich will
receive total cash compensation in the amount of approximately $1.1 million,
which is payable in equal installments of approximately $0.1 million per month
over a period of 10 months following the Execution Date. As of December 31,
2022, the total payments made in relation to the December Separation Agreement
were $0.2 million. Per the December Separation Agreement, Mr. Kalcevich was also
issued a total of 27,929,525 RSUs with a fair value of $1.0 million, which
became fully vested upon issuance. As of the Execution Date, all unvested
outstanding stock options and RSUs previously issued to Mr. Kalcevich were
accelerated and all related unrecognized compensation cost was recognized in our
consolidated statements of operations.
Pursuant to the Secured DPA, we have a related party payable of $6.3 million due
to certain of the New Secured Lenders, including Gotham Green Fund 1, L.P.,
Gotham Green Fund 1 (Q), L.P., Gotham Green Fund II, L.P., Gotham Green Fund II
(Q), L.P., Oasis Investment Master II Fund LTD., Senvest Global (KY), LP Senvest
Master Fund, LP and Hadron Healthcare and Consumer Special Opportunities Master
Fund, for certain out-of-pocket costs, charges, fees, taxes and other expenses
incurred by the New Secured Lenders in connection with the closing of the
Recapitalization Transaction (the "Deferred Professional Fees"). These New
Secured Lenders held greater than 5% of our outstanding common shares upon the
closing of the Recapitalization Transaction and are therefore considered to be
related parties. We had until December 31, 2022 to pay the Deferred Professional
Fees ratably based on the amount of each New Secured Lender's Deferred
Professional Fees. The Deferred Professional Fees shall accrue simple interest
at the rate of 12% from the Closing Date until December 31, 2022. Beginning with
the first business day of the month following December 31, 2022, interest began
accruing on the Deferred Professional Fees at the rate of 20% calculated on a
daily basis and is payable on the first business day of every month until the
Deferred Professional Fees and accrued interest thereon is paid in full. As of
December 31, 2022, the outstanding related party portion of the Deferred
Professional Fees including accrued interest was $6.7 million (December 31, 2021
- $Nil). The related party balance is presented in accrued and other current
liabilities on the consolidated balance sheets.
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Critical Accounting Policies and Accounting Estimates
Critical Accounting Policies
Inventories
Inventory is comprised of supplies, raw materials, finished goods and
work-in-process such as harvested cannabis plants and by-products to be
harvested. Inventory is valued at the lower of cost, determined on a weighted
average cost basis, and net realizable value. The direct and indirect costs of
inventory initially include the costs to cultivate the harvested plants at the
time of harvest. They also include subsequent costs such as materials, labor,
and overhead involved in processing, packaging, labeling, and inspection to turn
raw materials into finished goods. All direct and indirect costs related to
inventory are capitalized as they are incurred and are subsequently recorded
within costs and expenses applicable to revenues in the consolidated statements
of operations at the time of sale.
Leases
We lease some items of property, plant and equipment, office, cultivation,
processing and dispensary space. On the lease commencement date, a lease is
classified as a capital lease or an operating lease based on the classification
criteria of the lease guidance under GAAP. As of January 1, 2019, we adopted
Financial Accounting Standards Board ("FASB") Accounting Standard Codification
("ASC") Topic 842 Leases ("ASC 842") and applied the lease classification
criteria contained therein for any new leases. Upon adoption of ASC 842, we
recorded right-of-use ("ROU") assets for all of our leased assets classified as
operating leases. The ROU assets were computed as the present value of future
minimum lease payments, including additional payments resulting from a change in
an index such as a consumer price index or an interest rate, plus any prepaid
lease payments minus any lease incentives received. A lease liability was also
recorded at the same time. No ROU asset is recorded for leases with a lease
term, including any reasonably assured renewal terms, of 12 months or less.
Share-based Compensation
Share-based awards are measured at the fair value of the stock options at the
grant date and recognized as expense over the requisite service periods in our
consolidated statements of operations. The fair value of options is determined
using the Black-Scholes option pricing model which incorporates all market
vesting conditions. The number of options expected to vest is reviewed and
adjusted at the end of each reporting period such that the amount recognized for
services received as consideration for the share-based awards granted shall be
based on the number of awards that eventually vest. Amounts recorded for
forfeited or expired unexercised options are accounted for in the year of
forfeiture. Upon the exercise of stock options, consideration received on the
exercise of share-based awards is recorded as paid-in-capital.
Share-based compensation expense includes compensation cost for employee and
non-employee share-based payment awards granted and all modified or cancelled
awards. In addition, compensation expense includes the compensation cost, based
on the grant-date fair value calculated under ASC 718-10-55. We recognize
compensation expense for share-based awards on a straight-line basis over the
requisite service period for awards that vest solely based on a service
condition. Compensation expense for equity awards that vest based on both
service and performance conditions are recognized over the requisite service
period of the award using the graded vesting method. Share-based compensation
expense is not adjusted for estimated forfeitures, but instead adjusted upon an
actual forfeiture of a stock option. We utilize the risk-free rate determined by
the market yield on Government of Canada marketable bonds over the contractual
term of the instrument being issued.
Business Combinations
In accordance with the FASB ASC Topic 805 Business Combinations ("ASC 805"), we
allocate the fair value of the purchase consideration to the tangible and
intangible asset purchased and the liabilities assumed on the basis of their
fair values at the date of acquisition. The determination of fair values of
assets acquired and liabilities assumed requires estimates and the use of
valuation techniques when a market value is not readily available. Any excess of
purchase price over the fair value of net tangible and intangible assets
acquired is allocated to goodwill. If we obtain new information about the facts
and circumstances that existed as of the acquisition date during the measurement
period, which may be up to one year from the acquisition date, we may record an
adjustment to the assets acquired and liabilities assumed.
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Classification of an acquisition as a business combination or an asset
acquisition depends on whether the assets acquired constitute a business, which
can be a complex judgment. Whether an acquisition is classified as a business
combination or asset acquisition can have a significant impact on the accounting
considerations on and after acquisition.
Debt Modifications and Extinguishments
In accordance with the FASB ASC Topic 470-50 Debt Modifications and
Extinguishments ("ASC 470-50"), we determine the fair value of any debt modified
or extinguished on the closing date of the modification as well as the fair
value of what was received in exchange of any debt modification or
extinguishment. The determination of these fair values requires estimates and
the use of valuation techniques when a market value is not readily available.
Any difference between the exchange resulting from a debt modification or
extinguishment may result in a gain or loss on debt extinguishment within our
consolidated statements of operations.
Critical Accounting Estimates
The preparation of our consolidated financial statements and related disclosures
in conformity with GAAP and our discussion and analysis of our financial
condition and operating results require our management to make judgments,
assumptions and estimates that affect the amounts reported. Actual results may
differ from these estimates. The estimates and underlying assumptions are
reviewed on an ongoing basis. Revisions to accounting estimates are recognized
in the period in which the estimate is revised if the revision affects only that
period or in the period of the revision and future periods if the revision
affects both current and future periods.
Our significant accounting policies are described in Note 2, "Summary of
Significant Accounting Policies," of the notes to consolidated financial
statements included elsewhere in this Annual Report on Form 10-K describes the
significant accounting policies and methods used in the preparation of our
consolidated financial statements. We believe the following critical accounting
policies govern the more significant judgments, estimates and assumptions that
have the most significant effect on the amounts recognized in the consolidated
financial statements are described below.
Estimated Useful Lives and Depreciation and Amortization of Long-Lived Assets
Depreciation and amortization of long-lived assets are dependent upon estimates
of useful lives, which are determined through the exercise of judgment. The
assessment of any impairment of these assets is dependent upon estimates of
recoverable amounts that consider factors such as economic and market conditions
and the useful lives of assets. The estimated useful life and amortization or
depreciation method are reviewed at the end of each reporting period, with the
effect of any changes in estimate being accounted for on a prospective basis.
Inventories
Inventory is valued at the lower of cost, determined on a weighted average cost
basis, and net realizable value. Net realizable value is determined as the
estimated selling price less a reasonable estimate of the costs of completion,
disposal, and transportation. The determination of net realizable value requires
significant judgment, including consideration of factors such as shrinkage, the
aging of and future demand for inventory, expected future selling price, what we
expect to realize by selling the inventory and the contractual arrangements with
customers. At the end of each reporting period, we perform an assessment of
inventory obsolescence to measure inventory at the lower of cost or net
realizable value. Factors considered in determining obsolescence include, but
are not limited to, slow-moving inventory or products that can no longer be
marketed.
Share-based Compensation
We use the Black-Scholes pricing model to determine the fair value of stock
options granted under share-based payment arrangements. The critical assumptions
and estimates used in determining the fair value of share-based compensation
include: expected life of options, volatility of our future share price, risk
free rate, future dividend yields and estimated forfeitures at the initial grant
date. Changes in assumptions used to estimate fair value could result in
materially different results.
JOBS Act
On April 5, 2012, the JOBS Act was enacted. Section 107 of the JOBS Act provides
that an "emerging growth company" can take advantage of the extended transition
period provided in Section 7(a)(2)(B) of the Securities Act for complying with
new or revised accounting standards. In other words, an "emerging growth
company" can delay the adoption of certain accounting standards until those
standards would otherwise apply to private companies.
We have chosen to take advantage of the extended transition periods available to
emerging growth companies under the JOBS Act for complying with new or revised
accounting standards until those standards would otherwise apply to private
companies provided under the JOBS Act. As a result, our financial statements may
not be comparable to those of companies that comply with public company
effective dates for complying with new or revised accounting standards.
Subject to certain conditions set forth in the JOBS Act, as an "emerging growth
company," we intend to rely on certain of these exemptions, including, without
limitation, (i) providing an auditor's attestation report on our system of
internal controls over financial reporting pursuant to Section 404(b) of the
Sarbanes-Oxley, and (ii) complying with any requirement that may be adopted by
the Public Company Accounting Oversight Board regarding mandatory audit firm
rotation or a supplement to the auditor's report providing additional
information about the audit and the financial statements, known as the auditor
discussion and analysis. We will remain an "emerging growth company" until the
earliest of (i) the last day of the fiscal year in which we have total annual
gross revenues of $1.24 billion or more; (ii) the last day of our fiscal year
following the fifth anniversary of the date of our initial public offering;
(iii) the date on which we have issued more than $1 billion in nonconvertible
debt during the previous three years; or (iv) the date on which we are deemed to
be a large accelerated filer under the rules of the SEC.
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IANTHUS CAPITAL HOLDINGS, INC. 