Green Thumb Industries Inc. - Quarter Report: 2020 September (Form 10-Q)

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

 

FORM 10-Q

 

 

 

☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2020

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 000-56132

 

 

GREEN THUMB INDUSTRIES INC.

(Exact name of registrant as specified in its charter)

 

 

 

British Columbia		98-1437430
(State or other jurisdiction of incorporation or organization)		(I.R.S. employer identification no.)
325 West Huron Street, Suite 700 Chicago, Illinois		60654
( Address of principal executive offices)		(zip code)

(312) 471-6720

(Registrant’s telephone number, including area code)

 

 

Securities registered pursuant to Section 12(g) of the Act:

Subordinate Voting Shares

Multiple Voting Shares

Super Voting Shares

(Title of each Class)

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. Yes  ☒    No  ☐

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). Yes  ☒    No  ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a 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		☐		Accelerated filer		☐
Non-accelerated filer		☒		Smaller reporting company		☐
				Emerging growth company		☒

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 Act).  Yes  ☐    No  ☒

As of November 5, 2020, there were 175,040,286 shares of the registrant’s Subordinate Voting Shares, 6,779,300 shares of the registrant’s Multiple Voting Shares (on an as converted basis) and 31,203,100 shares of the registrant’s Super Voting Shares (on an as converted basis).

 

 

 

GREEN THUMB INDUSTRIES INC.

QUARTERLY REPORT ON FORM 10-Q

FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2020

TABLE OF CONTENTS

 

FINANCIAL INFORMATION				Page
		Part I
ITEM 1:		Unaudited Interim Condensed Consolidated Balance Sheets as of September 30, 2020 and December 31, 2019			4
		Unaudited Interim Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2020 and 2019			5
		Unaudited Interim Condensed Consolidated Statements of Shareholders’ Equity for the nine months ended September 30, 2020 and 2019			6
		Unaudited Interim Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2020 and 2019			7
		Notes to Unaudited Interim Condensed Consolidated Financial Statements			9
ITEM 2:		Management’s Discussion and Analysis of Financial Condition and Results of Operations
ITEM 3:		Quantitative and Qualitative Disclosure About Market Risk
ITEM 4:		Controls and Procedures
		Part II
OTHER INFORMATION
ITEM 1:		Legal Proceedings			44
ITEM 1a:		Risk Factors			44
ITEM 4:		Mine Safety Disclosure			45
ITEM 6:		Exhibits			45
Signatures

Use of Names

In this Interim Report on Form 10-Q, unless the context otherwise requires, the terms “we,” “us,” “our,” “Company,” “Corporation” or “Green Thumb” refer to Green Thumb Industries Inc. together with its wholly-owned subsidiaries.

Currency

Unless otherwise indicated, all references to “$” or “US$” in this document refer to United States dollars, and all references to “C$” refer to Canadian dollars.

Disclosure Regarding Forward-Looking Statements

This Quarterly Report on Form 10-Q contains statements that we believe are, or may be considered to be, “forward-looking statements.” All statements other than statements of historical fact included in this document regarding the prospects of our industry or our prospects, plans, financial position or business strategy may constitute forward-looking statements. In addition, forward-looking statements generally can be identified by the use of forward-looking words such as “may,” “will,” “expect,” “intend,” “estimate,” “foresee,” “project,” “anticipate,” “believe,” “plan,” “forecast,” “continue” or “could” or the negative of these terms or variations of them or similar terms. Furthermore, forward-looking statements may be included in various filings that we make with the Securities and Exchange Commission (the “SEC”), and in press releases or oral statements made by or with the approval of one of our authorized executive officers. Although we believe that the expectations reflected in these forward-looking statements are reasonable, we cannot assure you that these expectations will prove to be correct. These forward-looking statements are subject to certain known and unknown risks and uncertainties, as well as assumptions that could cause actual results to differ materially from those reflected in these forward-looking statements. These known and unknown risks include, without limitation: marijuana remains illegal under federal law, and enforcement of cannabis laws could change; the Company may face limitations on ownership of cannabis licenses; the Company may become subject to regulation by the U.S. Food and Drug Administration or the U.S. Bureau of Alcohol, Tobacco and Firearms; the Company may face difficulties obtaining additional financing; the Company operates in a highly regulated sector and may not always succeed in complying fully with applicable regulatory requirements in all jurisdictions where we carry on business; the Company is subject to general economic risks; the Company may be negatively impacted by challenging global economic conditions; the Company is subject to risks arising from epidemic diseases, such as the recent outbreak of the COVID-19 illness; the Company may face difficulties in enforcing its contracts; the Company is subject to taxation in Canada and the United States; cannabis businesses are subject to unfavorable tax treatment; cannabis businesses may be subject to civil asset forfeiture; the Company is subject to proceeds of crime statutes; the Company faces security risks; our use of joint ventures may expose us to risks associated with jointly owned investments; competition for the acquisition and leasing of properties suitable for the cultivation, production and sale of medical and adult use cannabis may impede our ability to make acquisitions or increase the cost of these acquisitions, which could adversely affect our operating results and financial condition; the Company faces risks related to its products; the Company is dependent on the popularity of consumer acceptance of the Company’s brand portfolio; the Company faces risks related to its insurance coverage and uninsurable risks; the Company is dependent on key inputs, suppliers and skilled labor; the Company must attract and maintain key personnel or our business will fail; the Company’s business is subject to the risks inherent in agricultural operations; the Company’s sales are difficult to forecast; the Company’s products may be subject to product recalls; the Company may face unfavorable publicity or consumer perception; the Company faces intense competition; the Company’s voting control is concentrated; the Company’s capital structure and voting control may cause unpredictability; and additional issuances of Super Voting Shares, Multiple Voting Shares or Subordinate Voting Shares may result in dilution. Further information on these and other potential factors that could affect the Company’s business and financial condition and the results of operations are included in the “Risk Factors” section of the Company’s Annual Report on Form 10-K for the year ended December 31, 2019, and elsewhere in the Company’s filings with the SEC, which are available on the SEC’s website or at https://investors.gtigrows.com. Readers are cautioned not to place undue reliance on any forward-looking statements contained in this document, which reflect management’s opinions only as of the date hereof. Except as required by law, we undertake no obligation to revise or publicly release the results of any revision to any forward-looking statements. You are advised, however, to consult any additional disclosures we make in our reports to the SEC. All subsequent written and oral forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by the cautionary statements contained in this document.

 

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Green Thumb Industries Inc.
Unaudited Interim Condensed Consolidated Balance Sheets
As of September 30, 2020 and December 31, 2019
(Amounts Expressed in United States Dollars, Except for Share Amounts)
		September 30, 2020				December 31, 2019
						(Audited)
ASSETS
Current Assets:
Cash and Cash Equivalents		$	78,091,073			$	46,667,334
Accounts Receivable			13,121,285				7,530,253
Inventories			55,164,258				46,034,481
Prepaid Expenses			6,990,373				6,780,657
Other Current Assets			5,692,248				2,049,886
Total Current Assets			159,059,237				109,062,611
Property and Equipment, Net			177,725,092				155,596,675
Right of Use Assets, Net			99,447,497				63,647,812
Investments			22,210,999				14,068,821
Investment in Associate			11,750,000				10,350,000
Notes Receivable			—				815,937
Intangible Assets, Net			409,655,517				435,246,898
Goodwill			373,081,716				375,084,991
Deposits and Other Assets			1,684,389				3,662,879
TOTAL ASSETS		$	1,254,614,447			$	1,167,536,624
LIABILITIES AND SHAREHOLDERS’ EQUITY
LIABILITIES
Current Liabilities:
Accounts Payable		$	10,988,374			$	8,745,821
Accrued Liabilities			46,311,550				37,184,406
Current Portion of Notes Payable			301,027				206,675
Current Portion of Lease Liabilities			4,654,032				3,833,268
Liability for Acquisition of Noncontrolling Interest			—				5,500,000
Contingent Consideration Payable			27,100,000				50,391,181
Income Tax Payable			16,543,826				5,505,904
Total Current Liabilities			105,898,809				111,367,255
Long-Term Liabilities:
Lease Liabilities, Net of Current Portion			102,408,462				61,115,737
Notes Payable, Net of Current Portion and Debt Discount			96,758,233				91,140,194
Contingent Consideration Payable			9,215,360				8,545,558
Warrant Liability			18,513,000				15,879,843
Deferred Income Taxes			41,744,283				36,279,361
TOTAL LIABILITIES			374,538,147				324,327,948
COMMITMENTS AND CONTINGENCIES SHARE HOLDERS’ EQUITY
Subordinate Voting Shares (Shares Authorized, Issued and Outstanding at September 30, 2020: Unlimited, 162,999,921 and 162,999,921, respectively, at December 31, 2019: Unlimited, 128,999,964 and 128,999,964, respectively)			—				—
Multiple Voting Shares (Shares Authorized, Issued and Outstanding at September 30, 2020: Unlimited, 120,910 and 120,910, respectively, at December 31, 2019: Unlimited, 373,350 and 373,350, respectively)			—				—
Super Voting Shares (Shares Authorized, Issued and Outstanding at September 30, 2020: Unlimited, 379,336 and 379,336, respectively, at December 31, 2019: Unlimited, 402,289 and 402,289, respectively)			—				—
Share Capital			1,041,770,917				980,638,701
Contributed Surplus			1,656,498				3,960,854
Deferred Share Issuances			1,835,331				16,587,798
Accumulated Deficit			(167,963,430	)			(160,491,590	)
Equity of Green Thumb Industries Inc.			877,299,316				840,695,763
Noncontrolling interests			2,776,984				2,512,913
TOTAL SHAREHOLDERS’ EQUITY			880,076,300				843,208,676
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY		$	1,254,614,447			$	1,167,536,624
The accompanying notes are an integral part of these unaudited interim condensed consolidated financial statements.

 

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Green Thumb Industries Inc.

Unaudited Interim Condensed Consolidated Statements of Operations

Three and Nine Months Ended September 30, 2020 and 2019

(Amounts Expressed in United States Dollars, Except Share Amounts)

 

 

 

		Three Months Ended September 30,								Nine Months Ended September 30,
		2020				2019				2020				2019
Revenues, net of discounts		$	157,103,841			$	67,990,907			$	379,346,367			$	140,630,847
Cost of Goods Sold, net			(70,146,676	)			(35,849,783	)			(175,707,874	)			(74,196,750	)
Gross Profit			86,957,165				32,141,124				203,638,493				66,434,097
Expenses:
Selling, General, and Administrative			49,745,979				30,764,406				144,823,947				88,013,769
Total Expenses			49,745,979				30,764,406				144,823,947				88,013,769
Income (Loss) From Operations			37,211,186				1,376,718				58,814,546				(21,579,672	)
Other Income (Expense):
Other Income (Expense), net			6,432,883				(6,585,540	)			7,501,566				(7,969,433	)
Interest Income, net			5,397				407,509				109,922				1,300,233
Interest Expense, net			(4,460,125	)			(5,912,290	)			(14,236,475	)			(11,762,222	)
Total Other Income (Expense)			1,978,155				(12,090,321	)			(6,624,987	)			(18,431,422	)
Income (Loss) Before Provision for Income Taxes And Non-Controlling Interest			39,189,341				(10,713,603	)			52,189,559				(40,011,094	)
Provision For Income Taxes			28,436,332				3,624,333				56,964,047				4,706,000
Net Income (Loss) Before Non-Controlling Interest			10,753,009				(14,337,936	)			(4,774,488	)			(44,717,094	)
Net Income Attributable to Non-Controlling Interest			1,109,080				252,857				2,697,352				328,804
Net Income (Loss) Attributable To Green Thumb Industries Inc.		$	9,643,929			$	(14,590,793	)		$	(7,471,840	)		$	(45,045,898	)
Net Income (Loss) per share - basic		$	0.04			$	(0.07	)		$	(0.04	)		$	(0.24	)
Net Income (Loss) per share - diluted		$	0.04			$	(0.07	)		$	(0.04	)		$	(0.24	)
Weighted average number of shares outstanding - basic			211,990,405				204,709,085				210,127,323				184,851,805
Weighted average number of shares - outstandingdiluted			214,212,292				204,709,085				210,127,323				184,851,805

 

 

The accompanying notes are an integral part of these unaudited interim condensed consolidated financial statements.

 

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Green Thumb Industries Inc.

Unaudited Interim Condensed Consolidated Statements of Changes in Shareholders’ Equity

Nine Months Ended September 30, 2020 and 2019

(Amounts Expressed in United States Dollars)

 

 

 

		Share Capital				Shares to Be Issued				Contributed Surplus				Deferred Share Issuance				Accumulated Earnings (Deficit)				Non-Controlling Interest				Total
Balance, July 1, 2019		$	950,736,500			$	—			$	(4,997,380	)		$	16,587,798			$	(131,830,288	)		$	(392,655	)		$	830,103,975
Issuance of shares under business combinations and investments			14,085,238				—				88				—				—				—				14,085,326
Stock based compensation			—				—				3,564,095				—				—				—				3,564,095
Shares withheld in lieu of cash			—				—				(125,060	)			—				—				—				(125,060	)
Distributions to limited liability company unit holders			—				—				—				—				—				(1,900,000	)			(1,900,000	)
Net (loss) income			—				—				—				—				(14,590,793	)			252,857				(14,337,936	)
Balance, September 30, 2019		$	964,821,738			$	—			$	(1,558,257	)		$	16,587,798			$	(146,421,081	)		$	(2,039,798	)		$	831,390,400
Balance, January 1, 2019		$	397,590,465			$	27,773,234			$	14,202,659			$	—			$	(100,876,937	)		$	3,497,459			$	342,186,880
Adoption of ASC 842, Leases			—				—				—				—				(498,246	)			—				(498,246	)
Noncontrolling interests adjustment for change in ownership			27,773,234				(27,773,234	)			4,200,382				—				—				—				4,200,382
Contributions from limited liability company unit holders			—				—				—				—				—				1,650,000				1,650,000
Issuance of shares under business combinations and investments			509,568,665				—				(23,813,393	)			—				—				—				485,755,272
Reciprocal derivative instrument			—				—				(4,526,401	)			—				—				—				(4,526,401	)
Issuance of shares for redemption of noncontrolling interests			29,889,374				—				(4,820,527	)			—				—				—				25,068,847
Deferred share issuances			—				—				—				16,587,798				—				—				16,587,798
Stock based compensation			—				—				13,324,083				—				—				—				13,324,083
Shares withheld in lieu of cash			—				—				(125,060	)			—				—				—				(125,060	)
Distributions to limited liability company unit holders			—				—				—				—				—				(7,516,061	)			(7,516,061	)
Net (loss) income			—				—				—				—				(45,045,898	)			328,804				(44,717,094	)
Balance, September 30, 2019		$	964,821,738			$	—			$	(1,558,257	)		$	16,587,798			$	(146,421,081	)		$	(2,039,798	)		$	831,390,400
Balance, July 1, 2020		$	1,004,812,062			$	—			$	6,545,712			$	15,280,000			$	(177,607,359	)		$	2,367,904			$	851,398,319
Noncontrolling interests adjustment for change in ownership			—				—				5,700,000				—				—				—				5,700,000
Issuance of shares for redemption of noncontrolling interests			20,078,940				—				(14,728,940	)			—				—				—				5,350,000
Distribution of contingent consideration			2,690,914				—				—				—				—				—				2,690,914
Distribution of deferred shares			13,444,669				—				—				(13,444,669	)			—				—				—
Exercise of options and warrants			744,332				—				(295,908	)			—				—				—				448,424
Stock based compensation			—				—				4,435,634				—				—				—				4,435,634
Distributions to third party and limited liability company unit holders			—				—				—				—				—				(700,000	)			(700,000	)
Net income			—				—				—				—				9,643,929				1,109,080				10,753,009
Balance, September 30, 2020		$	1,041,770,917			$	—			$	1,656,498			$	1,835,331			$	(167,963,430	)		$	2,776,984			$	880,076,300
Balance, January 1, 2020		$	980,638,701			$	—			$	3,960,854			$	16,587,798			$	(160,491,590	)		$	2,512,913			$	843,208,676
Contributions from limited liability company unit holders			—				—				—				—				—				50,000				50,000
Issuance of shares under business combinations and investments			2,524,560				—				(2,678,489	)			—				—				—				(153,929	)
Issuance of shares for redemption of noncontrolling interests			20,078,940				—				(14,728,940	)			—				—				—				5,350,000
Distribution of contingent consideration			22,885,813				—				—				—				—				—				22,885,813
Distribution of deferred shares			14,752,467				—				—				(14,752,467	)			—				—				—
Issueance of warrants			—				—				181,272				—				—				—				181,272
Exercise of options and warrants			890,436				—				(234,340	)			—				—				—				656,096
Stock based compensation			—				—				15,209,518				—				—				—				15,209,518
Distributions to third party and limited liability company unit holders			—				—				(53,377	)			—				—				(2,483,281	)			(2,536,658	)
Net (loss) income			—				—				—				—				(7,471,840	)			2,697,352				(4,774,488	)
Balance, September 30, 2020		$	1,041,770,917			$	—			$	1,656,498			$	1,835,331			$	(167,963,430	)		$	2,776,984			$	880,076,300

 

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Green Thumb Industries Inc.

Unaudited Interim Condensed Consolidated Statements of Cash Flows

Nine Months Ended September 30, 2020 and 2019

(Amounts Expressed in United States Dollars)

 

 

 

		Nine Months Ended September 30,
		2020				2019
CASH FLOW FROM OPERATING ACTIVITIES
Net loss attributable to Green Thumb Industries Inc.		$	(7,471,840	)		$	(45,045,898	)
Net income attributable to non-controlling interest			2,697,352				328,804
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Depreciation and amortization			38,479,960				17,528,891
Amortization of operating lease assets			18,987,980				4,229,889
Loss on disposal of property and equipment			29,858				—
(Gain) loss from investment in associate			—				56,423
Bad debt expense			315,798				—
Deferred income taxes			4,377,000				(5,712,000	)
Stock based compensation			15,209,520				13,324,083
Decrease (increase) in fair value of investments			(9,542,178	)			886,002
Changes in value of liabilities related to put option and purchase of noncontrolling interests			—				(823,550	)
Interest on contingent consideration payable and acquisition liabilities			998,842				3,258,804
Decrease in fair value of contingent consideration			(425,424	)			—
Increase in fair value of warrant liability			2,060,771				—
Decrease in fair value of note receivable			815,937				7,424,727
Amortization of debt discount			4,048,531				2,100,738
Changes in operating assets and liabilities:
Accounts receivable			(5,616,054	)			1,165,271
Inventories			(9,129,777	)			(9,478,848	)
Prepaid expenses and other current assets			(4,142,854	)			(3,237,772	)
Deposits and other assets			1,567,458				1,045,821
Accounts payable			2,242,553				1,707,947
Accrued liabilities			13,609,399				14,451,557
Operating lease liabilities			(12,674,176	)			(4,184,228	)
Income tax payable			14,617,544				260,535
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES			71,056,200				(712,804	)
CASH FLOW FROM INVESTING ACTIVITIES
Purchases of property and equipment			(49,221,442	)			(66,875,245	)
Proceeds from disposal of assets			11,799,025				—
Repayment of debenture investments			—				3,000,000
Purchase of businesses, net of cash acquired			—				(108,067,892	)
NET CASH USED IN INVESTING ACTIVITIES			(37,422,417	)			(171,943,137	)
CASH FLOW FROM FINANCING ACTIVITIES
Contributions from limited liability company unit holders			50,000				1,650,000
Distributions to third parties and limited liability company unit holders			(2,536,658	)			(7,516,061	)
Proceeds from exercise of options and warrants			656,096				—
Proceeds from issuance of notes payable			—				117,435,724
Payment for purchase of noncontrolling interest			(150,000	)			—
Principal repayment of notes payable			(229,482	)			(18,778,140	)
NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES			(2,210,044	)			92,791,523
CASH, CASH EQUIVALENTS AND RESTRICED CASH:
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS			31,423,739				(79,864,418	)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD			46,667,334				145,986,072
CASH AND CASH EQUIVALENTS, END OF PERIOD		$	78,091,073			$	66,121,654

 

 

The accompanying notes are an integral part of these interim condensed consolidated financial statements.

 

 

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Green Thumb Industries Inc.

Unaudited Interim Condensed Consolidated Statements of Cash Flows

Nine Months Ended September 30, 2020 and 2019

(Amounts Expressed in United States Dollars)

 

 

 

 

		Nine Months Ended September 30,
		2020				2019
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Interest paid		$	9,418,727			$	5,964,621
NONCASH INVESTING AND FINANCING ACTIVITIES
Accrued capital expenditures		$	(6,798,187	)		$	4,232,914
Noncash increase in right of use asset		$	(36,854,352	)		$	(22,233,609	)
Noncash increase in lease liability		$	36,854,352			$	22,731,855
Net liability upon adoption of ASC 842, Leases		$	—			$	(498,246	)
Exercise of put option		$	—			$	4,200,382
Warrants attributable to debt issuance		$	753,658			$	—
Mortgages associated with dispensaries		$	2,647,000			$	—
Liability for purchase of noncontrolling interest		$	(5,350,000	)		$	—
Liability associated with acquisition agreement		$	2,000,000			$	—
Issuance of shares under acquisition agreement		$	22,485,670			$	(485,476,925	)
Deferred share issuances		$	(14,752,467	)		$	16,587,798
Acquisitions
Inventory		$	—			$	13,602,245
Accounts receivable			—				2,117,412
Property and equipment			80,615				17,341,103
Right of use assets			—				4,154,672
Identifiable intangible assets			(145,000	)			305,625,592
Goodwill			(2,003,275	)			393,278,807
Deposits and other assets			603,988				1,694,533
Liabilities assumed			(1,302,604	)			(9,489,616	)
Lease liabilities			—				(4,154,672	)
Contingent liabilities			—				(52,864,000	)
Equity interests issued			503,389				(485,476,925	)
Deferred share issuances			—				(16,587,798	)
Conversion of note receivable previously issued			—				(27,025,800	)
Acquisition liability			(228,813	)			(1,630,893	)
Deferred income taxes			2,491,700				(32,448,100	)
		$	—			$	—
RECONCILIATION OF CASH, AND CASH EQUIVALENTS AND RESTRICTED CASH
Cash and cash equivalents		$	75,116,621			$	66,121,654
Restricted cash			2,974,452				—
TOTAL CASH, AND CASH EQUIVALENTS AND RESTRICED CASH		$	78,091,073			$	66,121,654

 

 

The accompanying notes are an integral part of these interim condensed consolidated financial statements.

 

- 8 -

Green Thumb Industries Inc.

Notes to Unaudited Interim Condensed Consolidated Financial Statements

(Amounts Expressed in United States Dollars, Except Where Stated Otherwise)

 

1.	Overview and Basis of Presentation

 

 

(a)

Description of Business

Green Thumb Industries Inc. (“Green Thumb” or the “Company”) is promoting well-being through the power of cannabis through branded consumer packaged goods and people-first retail experiences, while being committed to community and sustainable profitable growth. Green Thumb owns, manufactures, and distributes a portfolio of cannabis consumer packaged goods brands including Beboe, Dogwalkers, Dr. Solomon’s, incredibles, Rythm and The Feel Collection, primarily to third-party retail stores across the United States as well as to Green Thumb owned retail stores. The Company also owns and operates retail cannabis stores that include a rapidly growing national chain of retail cannabis stores named Rise™ and a Las Vegas, Nevada area chain of retail cannabis stores named Essence. As of September 30, 2020, Green Thumb has revenue in twelve markets (California, Colorado, Connecticut, Florida, Illinois, Maryland, Massachusetts, Nevada, New Jersey, New York, Ohio, and Pennsylvania).

On June 12, 2018, the Company completed a reverse takeover transaction (“RTO”) as further described in Note 3 of Green Thumb’s Annual Report on Form 10-K for the year ended December 31, 2019 filed with the SEC on April 15, 2020 (“2019 Form 10-K”). Following the RTO, the Company was listed on the Canadian Securities Exchange (the “CSE”) under ticker symbol “GTII” and on the OTCQX, part of the OTC Markets Group, under the ticker “GTBIF”.

The Company’s registered office is located at 885 West Georgia Street, Suite 2200, Vancouver, British Columbia, V6C 3E8, Canada. The Company’s U.S. headquarters are at 325 W. Huron St., Suite 700, Chicago, IL 60654.

 

(b)

Basis of Presentation

The accompanying unaudited interim condensed consolidated financial statements include the accounts of Green Thumb Industries Inc. and have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial information and in accordance with the rules and regulations of the SEC. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements and, accordingly, certain information, footnotes and disclosures normally included in the annual financial statements, prepared in accordance with GAAP, have been condensed or omitted in accordance with SEC rules and regulations. The financial data presented herein should be read in conjunction with the audited consolidated and combined financial statements and accompanying notes included in the 2019 Form 10-K. In the opinion of management, the financial data presented includes all adjustments necessary to present fairly the financial position, results of operations and cash flows for the interim periods presented. Results of interim periods should not be considered indicative of the results for the full year. These unaudited interim condensed consolidated financial statements include estimates and assumptions of management that affect the amounts reported in the unaudited condensed consolidated financial statements. Actual results could differ from these estimates.

Certain previously reported amounts have been reclassified between line items to conform to the current presentation. The reclassifications did not affect the Company’s previously reported consolidated balance sheets, consolidated statements of operations, statements of cash flows or statements of changes in shareholders’ equity.

The results of operations for the three and nine months ended September 30, 2020 are not necessarily indicative of the results to be expected for the entire year ending December 31, 2020.

 

(c)

Significant Accounting Policies

There have been no changes to the Company’s significant accounting policies as described in Note 2 of the Company’s 2019 Form 10-K.

 

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Green Thumb Industries Inc.

Notes to Unaudited Interim Condensed Consolidated Financial Statements

(Amounts Expressed in United States Dollars, Except Where Stated Otherwise)

 

1.	Overview and Basis of Presentation (Continued)

 

 

(d)

Earnings (Loss) per Share

Basic earnings (loss) per share is calculated by dividing the net income (loss) attributable to shareholders by the weighted average number of common shares (Subordinate Voting Shares, Multiple Voting Shares on an as converted basis, and Super Voting Shares on an as converted basis) outstanding during each of the periods presented. Contingently issuable shares (including shares held in escrow) are not considered outstanding common shares and consequently are not included in the basic earnings (loss) per share calculations. Diluted earnings (loss) per share is calculated using the treasury stock method by adjusting the weighted average number of common shares outstanding to assume conversion of all dilutive potential common shares. The Company has three categories of potentially dilutive common share equivalents: restricted stock units, stock options and warrants. At September 30, 2020, the Company had 5,782,599 options, 688,507 restricted stock units and 2,520,794 warrants outstanding. At September 30, 2019, the Company had 6,031,833 options, 1,479,038 restricted stock units and 2,041,735 warrants outstanding.

In order to determine diluted earnings (loss) per share, it is assumed that any proceeds from the exercise of dilutive unvested restricted stock units, stock options, and warrants would be used to repurchase common shares at the average market price during the period. Under the treasury stock method, the diluted loss per share calculation excludes any potential exercise of restricted stock units, stock options or warrants that would decrease loss per share. For the three months ended September 30, 2020, the computation of diluted loss per share included 1,928,946 options, 151,458 restricted stock units and 141,482 warrants. No potentially dilutive common share equivalents were included in the computation of diluted loss per share for the three months ended September 30, 2019 and nine months ended September 30, 2020 and 2019 because their impact was anti-dilutive.

 

(e)

Recently Adopted Accounting Standards

 

(i)

In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-13, Financial Instruments - Credit Losses (Topic 326) Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”), which replaces the incurred loss model with a current expected credit loss (“CECL”) model and requires consideration of a broader range of reasonable and supportable information to explain credit loss estimates. This standard applies to financial assets, measured at amortized cost, including loans, held-to-maturity debt securities, net investments in leases and trade accounts receivable. The guidance must be adopted using a modified retrospective transition method through a cumulative-effect adjustment to retained earnings in the period of adoption. The Company adopted the new standard in the first quarter of 2020. The adoption of the standard did not have a material impact on the Company’s unaudited interim condensed consolidated financial statements.

 

(ii)

In January 2017, the FASB issued Accounting Standards Update No. 2017-04 “Intangibles— Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment” (“ASU 2017-04”), which simplifies the accounting for goodwill impairment. ASU 2017-04 requires entities to record an impairment charge based on the excess of a reporting unit’s carrying amount over its fair value (Step 1 under the current impairment test). The standard eliminates Step 2 from the current goodwill impairment test, which included determining the implied fair value of goodwill and comparing it with the carrying amount of that goodwill. ASU 2017-04 must be applied prospectively and is effective in the first quarter of 2020. Early adoption is permitted. The Company adopted the new standard in the first quarter of 2020. The adoption of the standard did not have a material impact on the Company’s unaudited interim condensed consolidated financial statements.

 

- 10 -

Green Thumb Industries Inc.

Notes to Unaudited Interim Condensed Consolidated Financial Statements

(Amounts Expressed in United States Dollars, Except Where Stated Otherwise)

 

1.	Overview and Basis of Presentation (Continued)

 

 

(e)

Recently Adopted Accounting Standards (Continued)

 

(iii)

In August 2018, the FASB issued ASU 2018-13, Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement (Topic 820)(“ASU 2018-13”). ASU 2018-13 adds, modifies, and removes certain fair value measurement disclosure requirements. ASU 2018-13 is effective for annual and interim periods beginning after December 15, 2019. The Company adopted the new standard in the first quarter of 2020. The adoption of the standard did not have a material impact on the Company’s unaudited interim condensed consolidated financial statements.

 

(f)

Recently Issued Accounting Standards

 

(i)

In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740) - Simplifying the Accounting for Income Taxes, which is intended to simplify various aspects related to accounting for income taxes (“ASU 2019-12”). ASU 2019-12 removes certain exceptions to the general principles in Topic 740 and also clarifies and amends existing guidance to improve consistent application. ASU 2019-12 is effective for the Company beginning January 1, 2021. The Company is currently evaluating the effect of adopting this ASU on the Company’s financial statements.

 

(ii)

In January 2020, the FASB issued ASU 2020-01, Investments - Equity Securities (Topic 321), Investments - Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815) (“ASU 2020-01”), which is intended to clarify the interaction of the accounting for equity securities under Topic 321 and investments accounted for under the equity method of accounting in Topic 323 and the accounting for certain forward contracts and purchased options accounted for under Topic 815. ASU 2020-01 is effective for the Company beginning January 1, 2021. The Company is currently evaluating the effect of adopting this ASU on the Company’s financial statements.

 

(iii)

On August 5, 2020, the FASB issued Accounting Standards Update No. 2020-06, Debt - Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity, to improve financial reporting associated with accounting for convertible instruments and contracts in an entity’s own equity. The amendments in this Update are effective for public business entities that meet the definition of a Securities and Exchange Commission (“SEC”) filer, excluding entities eligible to be smaller reporting companies as defined by the SEC, for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. For all other entities, the amendments are effective for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years. Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. The FASB specified that an entity should adopt the guidance as of the beginning of its annual fiscal year. The Company is currently evaluating the effect of adopting this ASU on the Company’s financial statements.

 

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Green Thumb Industries Inc.

Notes to Unaudited Interim Condensed Consolidated Financial Statements

(Amounts Expressed in United States Dollars, Except Where Stated Otherwise)

 

1.	Overview and Basis of Presentation (Continued)

 

 

(g)

Coronavirus Pandemic

In March 2020, the World Health Organization categorized coronavirus disease 2019 (“COVID-19”) as a pandemic. COVID-19 continues to spread throughout the U.S. and other countries across the world, and the duration and severity of its effects are currently unknown. The Company is implementing and evaluating actions to strengthen its financial position and support the continuity of its business and operations.

The Company’s unaudited interim condensed consolidated financial statements presented herein reflect estimates and assumptions made by management that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the unaudited interim condensed consolidated financial statements and reported amounts of revenue and expenses during the periods presented. Such estimates and assumptions affect, among other things, the Company’s goodwill, long-lived assets and intangible assets; operating lease right of use assets and operating lease liabilities; assessment of the annual effective tax rate; valuation of deferred income taxes; the allowance for doubtful accounts; assessment of the Company’s lease and non-lease contract expenses; and measurement of compensation cost for bonus and other compensation plans. While the Company’s revenue, gross profit and operating income were not impacted during the first nine months of 2020, the uncertain nature of the spread of COVID-19 may impact the Company’s business operations for reasons including the potential quarantine of the Company’s employees or those of its supply chain partners, and the Company’s continued designation as an “essential” business in states where the Company does business that currently or in the future impose restrictions on its business operations. The estimates and assumptions used in the unaudited interim condensed consolidated financial statements for the three and nine months ended September 30, 2020 include, but are not limited to certain judgmental reserves requiring management to makes estimates based on current information. The carrying value of the Company’s goodwill and other long-lived assets, may change in future periods as the expected impacts from COVID-19 are revised, resulting in further potential impacts to the Company’s financial statements.

 

2.	INVENTORIES

 

The Company’s inventories include the following at September 30, 2020 and December 31, 2019:

 

		September 30,				December 31,
		2020				2019
Raw Material		$	3,603,977			$	6,375,032
Packaging and Miscellaneous			6,173,017				4,887,970
Work in Process			24,945,006				20,162,723
Finished Goods			22,430,016				16,640,629
Reserve for Obsolete Inventory			(1,987,758	)			(2,031,873	)
Total Inventories		$	55,164,258			$	46,034,481

 

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Green Thumb Industries Inc.

Notes to Unaudited Interim Condensed Consolidated Financial Statements

(Amounts Expressed in United States Dollars, Except Where Stated Otherwise)

 

3.	PROPERTY AND EQUIPMENT

 

At September 30, 2020, property and equipment consisted of the following:

 

Cost		Land				Buildings and Improvements				Equipment, Computers and Furniture				Leasehold Improvements				Capitalized Interest				Assets Under Construction				Total
As at January 1, 2020		$	3,272,439			$	33,377,471			$	35,509,871			$	68,681,497			$	2,500,000			$	21,372,116			$	164,713,394
Additions			586.867				21,128,482				4,794,342				12,413,970				342,966				6,118,878				45,385,505
Disposals			(979,930	)			(4,507,086	)			—				—				—				(6,978,389	)			(12,465,405	)
As at September 30, 2020		$	2,879,376			$	49,998,867			$	40,304,213			$	81,095,467			$	2,842,966			$	20,512,605			$	197,633,494
Accumulated Depreciation
As at January 1, 2020		$	—			$	2,236,254			$	3,882,178			$	2,998,287			$	—			$	—			$	9,116,719
As at September 30, 2020		$	—			$	2,939,951			$	8,375,318			$	8,426,333			$	166,800			$	—			$	19,908,402
Net book value
As at January 1, 2020		$	3,272,439			$	31,141,217			$	31,627,693			$	65,683,210			$	2,500,000			$	21,372,116			$	155,596,675
As at September 30, 2020		$	2,879,376			$	47,058,916			$	31,928,895			$	72,669,134			$	2,676,166			$	20,512,605			$	177,725,092

At December 31, 2019, property and equipment consisted of the following:

 

Cost		Land				Buildings and Improvements				Equipment, Computers and Furniture				Leasehold Improvements				Capitalized Interest				Assets Under Construction				Total
As at January 1, 2019		$	2,243,085			$	20,861,988			$	11,001,498			$	18,435,893			$	—			$	16,664,958			$	69,207,422
Additions			4,393,030				28,217,500				23,109,209				38,002,678				2,500,000				4,678,084				100,900,501
Additions from acquisitions			—				—				4,253,362				12,242,926				—				29,074				16,525,362
Disposals			(3,363,676	)			(15,702,017	)		$	(2,854,198	)			—				—				—				(21,919,891	)
As at December 31, 2019		$	3,272,439			$	33,377,471			$	35,509,871			$	68,681,497			$	2,500,000			$	21,372,116			$	164,713,394
Accumulated Depreciation
As at January 1, 2019		$	—			$	1,351,230			$	1,524,114			$	1,007,998			$	—			$	—			$	3,883,342
As at December 31, 2019		$	—			$	2,236,254			$	3,882,178			$	2,998,287			$	—			$	—			$	9,116,719
Net book value
As at January 1, 2019		$	2,243,085			$	19,510,758			$	9,477,384			$	17,427,895			$	—			$	16,664,958			$	65,324,080
As at December 31, 2019		$	3,272,439			$	31,141,217			$	31,627,693			$	65,683,210			$	2,500,000			$	21,372,116			$	155,596,675

Assets under construction represent construction in progress related to both cultivation and dispensary facilities not yet completed or otherwise not ready for use.

Depreciation expense for the three and nine months ended September 30, 2020 totaled $2,003,585 and $11,193,570, respectively of which $311,315 and $5,571,477, respectively, is included in cost of goods sold. Depreciation expense for the three and nine months ended September 30, 2019 totaled $2,494,601 and $5,113,195, respectively of which $1,732,146 and $3,541,236, respectively, is included in cost of goods sold.

On January 31, 2020, the Company closed a sale and lease back transaction to sell its Toledo, Ohio processing facility to Innovative Industrial Properties (“IIP”). Under the long-term agreement, the Company will lease back the facility and continue to operate and manage it. As a result of the sale, the Company disposed of $205,000 of land and $2,695,000 of construction in progress. There was no gain or loss on the sale.

On March 6, 2020, the Company closed a sale and lease back transaction to sell its Oglesby, Illinois cultivation and processing facility to IIP. Under the long-term agreement, the Company will lease back the facility and continue to operate and manage it. As a result of the sale, the Company disposed of $774,930 of land, $4,507,086 of buildings and improvements and $3,813,636 of construction in progress. The Company recognized a gain on the sale of Oglesby facility of $239,096 which was recorded within other income (expense) on the unaudited interim condensed consolidated statement of operations.

For further information regarding these transactions, see Note 5 - Leases.

 

- 13 -

Green Thumb Industries Inc.

Notes to Unaudited Interim Condensed Consolidated Financial Statements

(Amounts Expressed in United States Dollars, Except Where Stated Otherwise)

 

4.	INTANGIBLE ASSETS AND GOODWILL

 

Intangible assets are recorded at cost less accumulated amortization and impairment losses, if any. Intangible assets acquired in a business combination are measured at fair value at the acquisition date. Amortization of definite life intangibles is provided on a straight-line basis over their estimated useful lives. The estimated useful lives, residual values, and amortization methods are reviewed at each year end, and any changes in estimates are accounted for prospectively.

At September 30, 2020 intangible assets consisted of the following:

 

		Licenses and Permits				Tradenames				Customer Relationships				Non-Competition Agreements				Total
Cost
As at January 1, 2020		$	336,954,213			$	97,455,590			$	25,258,000			$	2,585,480			$	462,253,283
Adjustments to Purchase Price Allocation			(145,000	)			1,840,009				—				—				1,695,009
As at September 30, 2020		$	336,809,213			$	99,295,599			$	25,258,000			$	2,585,480			$	463,948,292
Accumulated Amortization
As at January 1, 2020		$	18,477,500			$	4,121,800			$	3,932,416			$	474,669			$	27,006,385
Amortization			17,701,556				6,412,282				2,777,802				394,750				27,286,390
As at September 30, 2020		$	36,179,056			$	10,534,082			$	6,710,218			$	869,419			$	54,292,775
Net book value
As at January 1, 2020		$	318,476,713			$	93,333,790			$	21,325,584			$	2,110,811			$	435,246,898
As at September 30, 2020		$	300,630,157			$	88,761,517			$	18,547,782			$	1,716,061			$	409,655,517

At December 31, 2019 intangible assets consisted of the following:

 

		Licenses and Permits				Tradenames				Customer Relationships				Non-Competition Agreements				Total
Cost
As at January 1, 2019		$	89,705,213			$	360,000			$	820,000			$	20,480			$	90,905,693
Additions from acquisitions			247,249,000				97,095,590				24,438,000				2,565,000				371,347,590
As at December 31, 2019		$	336,954,213			$	97,455,590			$	25,258,000			$	2,585,480			$	462,253,283
Accumulated Amortization
As at January 1, 2019		$	2,322,715			$	—			$	204,500			$	12,800			$	2,540,015
Amortization			16,154,785				4,121,800				3,727,916				461,869				24,466,370
As at December 31, 2019		$	18,477,500			$	4,121,800			$	3,932,416			$	474,669			$	27,006,385
Net book value
As at January 1, 2019		$	87,382,498			$	360,000			$	615,500			$	7,680			$	88,365,678
As at December 31, 2019		$	318,476,713			$	93,333,790			$	21,325,584			$	2,110,811			$	435,246,898

The Company recorded amortization expense for the three and nine months ended September 30, 2020 of $9,531,290 and $27,286,390, respectively, and for the three and nine months ended September 30, 2019 of $5,419,212, and $12,415,696, respectively. During the second quarter of 2020, the Company recorded a measurement period adjustment in connection with its June 27, 2019 acquisition of MC Brands, LLC of $1,840,009 which increased intangible assets and share capital. The remainder of the adjustments to purchase price allocations relate to the finalization of several 2019 acquisitions.

In addition, the Company reviewed the estimated useful lives of its intangible assets as part of the Company’s plans to rebrand one of its retail stores. Based on that review, the Company determined that certain intangible assets associated with the Company’s retail tradenames have a useful life shorter than initially estimated.

 

- 14 -

Green Thumb Industries Inc.

Notes to Unaudited Interim Condensed Consolidated Financial Statements

(Amounts Expressed in United States Dollars, Except Where Stated Otherwise)

 

4.	INTANGIBLE ASSETS AND GOODWILL (Continued)

 

Beginning July 1, 2020, the Company adjusted the useful life of its retail tradename associated with the acquisition of Essence from 15 years to 7 years. The change in useful life was made as a prospective adjustment and resulted in an increase in amortization expense of $1,266,880 for the remainder of 2020, $5,067,520 annually for years 2021 through 2024, and a net reduction in amortization expense of $21,536,960 thereafter.

The following table outlines the estimated annual amortization expense related to intangible assets as of September 30, 2020 and illustrates the effect of the change in useful life of the Essence tradename discussed above:

 

Year Ending December 31,		Estimated Amortization (Prior to Change in Useful Life)				Increase (Decrease) from Change in Useful Life				Estimated Amortization (After Change in Useful Life)
Remainder of 2020		$	8,426,261			$	1,266,880			$	9,693,141
2021			33,705,044				5,067,520				38,772,564
2022			33,274,305				5,067,520				38,341,825
2023			33,191,489				5,067,520				38,259,009
2024			32,610,156				5,067,520				37,677,676
Thereafter			268,448,262				(21,536,960	)			246,911,302
		$	409,655,517			$	—			$	409,655,517

Goodwill

At September 30, 2020, Goodwill consisted of the following:

 

		Retail				Consumer Packaged Goods				Total
As at January 1, 2020		$	119,873,759			$	255,211,232			$	375,084,991
Adjustments to Purchase Price Allocations			1,191,425				(3,194,700	)			(2,003,275	)
As at September 30, 2020		$	121,065,184			$	252,016,532			$	373,081,716

At December 31, 2019, Goodwill consisted of the following:

 

		Retail				Consumer Packaged Goods				Total
As at January 1, 2019		$	15,286,360			$	23,918,000			$	39,204,360
Acquisition of Advanced Grow Labs, LLC			16,756,250				44,572,349				61,328,599
Acquisition of Integral Associates, LLC			46,655,753				69,323,570				115,979,323
Other Acquisitions			32,936,590				120,963,598				153,900,188
Adjustments to Purchase Price Allocations			8,238,808				(3,566,285	)			4,672,523
As at December 31, 2019		$	119,873,759			$	255,211,232			$	375,084,991

During the nine months ended September 30, 2020, the Company recorded measurement period adjustments resulting in a net decrease in goodwill of $2,003,275 associated with various acquisitions. In regard to the Consumer Packaged Goods segment, the Company recorded measurement period adjustments associated with its acquisition of For Success Holdings Company and Advanced Grow Labs, LLC of $1,687,700 and $1,507,000, respectively, which represented a reduction in the value of goodwill and deferred tax liabilities. Regarding the Retail segment, the Company recorded measurement period adjustments associated with its acquisition of Fiorello Pharmaceuticals, Inc. of $1,000,000 which represented an increase in the value of goodwill and corresponding adjustment to current liabilities. The remainder of the adjustments to the Retail segment represent the finalization of purchase price allocations related to other 2019 acquisitions.

 

- 15 -