Green Thumb Industries Inc. - Quarter Report: 2020 June (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 June 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 412 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)

 

 

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

 

Title of each class		Trading Symbol		Name of exchange on which registered

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 August 11, 2020, there were 160,218,568 shares of the registrant’s Subordinate Voting Shares, 12,218,400 shares of the registrant’s Multiple Voting Shares (on an as converted basis) and 37,933,600 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 JUNE 30, 2020

TABLE OF CONTENTS

 

FINANCIAL INFORMATION				Page
Part I
ITEM 1:		Unaudited Interim Condensed Consolidated Balance Sheets as of June 30,2020 and December 31, 2019			4
		Unaudited Interim Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2020 and 2019			5
		Unaudited Interim Condensed Consolidated Statements of Shareholders’ Equity for the six months ended June 30, 2020 and 2019			6
		Unaudited Interim Condensed Consolidated Statements of Cash Flows for the six months ended June 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			30
ITEM 3:		Quantitative and Qualitative Disclosure About Market Risk			40
ITEM 4:		Controls and Procedures			41
Part II
OTHER INFORMATION
ITEM 1:		Legal Proceedings			42
ITEM 1a:		Risk Factors			42
ITEM 4:		Mine Safety Disclosure			42
ITEM 6:		Exhibits			43
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”), 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 June 30, 2020 and December 31, 2019

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

 

 

		June 30, 2020				December 31, 2019
						(Audited)
ASSETS
Current Assets:
Cash and Cash Equivalents		$	82,942,672			$	46,667,334
Accounts Receivable			9,746,890				7,530,253
Inventories			53,984,696				46,034,481
Prepaid Expenses			4,280,885				6,780,657
Other Current Assets			1,691,437				2,049,886
Total Current Assets			152,646,580				109,062,611
Property and Equipment, Net			166,967,394				155,596,675
Right of Use Assets, Net			101,612,443				63,647,812
Investments			14,051,786				14,068,821
Investment in Associate			10,900,000				10,350,000
Notes Receivable			—				815,937
Intangible Assets, Net			419,186,807				435,246,898
Goodwill			373,081,716				375,084,991
Deposits and Other Assets			2,274,403				3,662,879
TOTAL ASSETS		$	1,240,721,129			$	1,167,536,624
LIABILITIES AND SHAREHOLDERS’ EQUITY
LIABILITIES
Current Liabilities:
Accounts Payable		$	11,920,686			$	8,745,821
Accrued Liabilities			44,447,365				37,184,406
Current Portion of Notes Payable			266,825				206,675
Current Portion of Lease Liabilities			3,988,489				3,833,268
Liability for Acquisition of Noncontrolling Interest			11,200,000				5,500,000
Contingent Consideration Payable			27,542,989				50,391,181
Income Tax Payable			34,078,640				5,505,904
Total Current Liabilities			133,444,994				111,367,255
Long-Term Liabilities:
Lease Liabilities, Net of Current Portion			103,427,201				61,115,737
Notes Payable, Net of Current Portion and Debt Discount			94,938,332				91,140,194
Contingent Consideration Payable			8,985,735				8,545,558
Warrant Liability			15,331,887				15,879,843
Deferred Income Taxes			33,194,661				36,279,361
TOTAL LIABILITIES			389,322,810				324,327,948
COMMITMENTS AND CONTINGENCIES
SHARE HOLDERS’ EQUITY
Subordinate Voting Shares (Shares Authorized, Issued and Outstanding at June 30, 2020: Unlimited, 158,517,401 and 158,517,401, respectively, at December 31, 2019: Unlimited, 128,999,964 and 128,999,964, respectively)			—				—
Multiple Voting Shares (Shares Authorized, Issued and Outstanding at June 30, 2020: Unlimited, 126,712 and 126,712, respectively, at December 31, 2019: Unlimited, 373,350 and 373,350, respectively)			—				—
Super Voting Shares (Shares Authorized, Issued and Outstanding at June 30, 2020: Unlimited, 388,336 and 388,336, respectively, at December 31, 2019: Unlimited, 402,289 and 402,289, respectively)			—				—
Share Capital			1,004,812,062				980,638,701
Contributed Surplus			6,545,712				3,960,854
Deferred Share Issuances			15,280,000				16,587,798
Accumulated Deficit			(177,607,359	)			(160,491,590	)
Equity of Green Thumb Industries Inc.			849,030,415				840,695,763
Noncontrolling interests			2,367,904				2,512,913
TOTAL SHAREHOLDERS’ EQUITY			851,398,319				843,208,676
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY		$	1,240,721,129			$	1,167,536,624

 

 

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

 

- 4 -

Green Thumb Industries Inc.

Unaudited Interim Condensed Consolidated Statements of Operations

Three and Six Months Ended June 30, 2020 and 2019

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

 

 

		Three Months Ended June 30,								Six Months Ended June 30,
		2020				2019				2020				2019
Revenues, net of discounts		$	119,639,924			$	44,726,777			$	222,242,526			$	72,639,940
Cost of Goods Sold, net			(55,946,010	)			(23,223,025	)			(105,561,198	)			(38,346,967	)
Gross Profit			63,693,914				21,503,752				116,681,328				34,292,973
Expenses:
Selling, General, and Administrative			49,643,211				30,830,482				95,077,968				57,249,363
Total Expenses			49,643,211				30,830,482				95,077,968				57,249,363
Income (Loss) From Operations			14,050,703				(9,326,730	)			21,603,360				(22,956,390	)
Other Income (Expense):
Other Income, net			(5,717,427	)			(6,640,546	)			1,068,683				(1,383,893	)
Interest Income, net			16,410				535,894				104,525				892,724
Interest Expense, net			(4,734,908	)			(5,398,054	)			(9,776,350	)			(5,849,932	)
Total Other Income (Expense)			(10,435,925	)			(11,502,706	)			(8,603,142	)			(6,341,101	)
Income (Loss) Before Provision for Income Taxes And Non-Controlling Interest			3,614,778				(20,829,436	)			13,000,218				(29,297,491	)
Provision For Income Taxes			15,378,715				(154,333	)			28,527,715				1,081,667
Net Loss Before Non-Controlling Interest			(11,763,937	)			(20,675,103	)			(15,527,497	)			(30,379,158	)
Net Income Attributable to Non-Controlling Interest			1,145,568				216,946				1,588,272				75,947
Net Loss Attributable to Green Thumb Industries Inc.		$	(12,909,505	)		$	(20,892,049	)		$	(17,115,769	)		$	(30,455,105	)
Net Loss per share—basic and diluted		$	(0.06	)		$	(0.11	)		$	(0.08	)		$	(0.17	)
Weighted average number of shares outstanding—basic and diluted			209,902,732				182,261,947				209,185,544				174,758,602

 

 

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

Six Months Ended June 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, 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			495,483,427				—				(23,813,481	)			—				—				—				471,669,946
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			—				—				9,759,988				—				—				—				9,759,988
Distributions to limited liability company unit holders			—				—				—				—				—				(5,616,061	)			(5,616,061	)
Net (loss) income			—				—				—				—				(30,455,105	)			75,947				(30,379,158	)
Balance, June 30, 2019		$	950,736,500			$	—			$	(4,997,380	)		$	16,587,798			$	(131,830,288	)		$	(392,655	)		$	830,103,975
Balance, January 1, 2020		$	980,638,701			$	—			$	3,960,854			$	16,587,798			$	(160,491,590	)		$	2,512,913			$	843,208,676
Noncontrolling interests adjustment for change in ownership			—				—				(5,700,000	)			—				—				—				(5,700,000	)
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	)
Distribution of contingent consideration			20,194,899				—				—				—				—				—				20,194,899
Distribution of deferred shares			1,307,798				—				—				(1,307,798	)			—				—				—
Issueance of warrants			—				—				181,272				—				—				—				181,272
Exercise of options			146,104				—				61,568				—				—				—				207,672
Stock based compensation			—				—				10,773,884				—				—				—				10,773,884
Distributions to third party and limited liability company unit holders			—				—				(53,377	)			—				—				(1,783,281	)			(1,836,658	)
Net (loss) income			—				—				—				—				(17,115,769	)			1,588,272				(15,527,497	)
Balance, June 30, 2020		$	1,004,812,062			$	—			$	6,545,712			$	15,280,000			$	(177,607,359	)		$	2,367,904			$	851,398,319

 

 

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 Cash Flows

Six Months Ended June 30, 2020 and 2019

(Amounts Expressed in United States Dollars)

 

 

		Six Months Ended June 30,
		2020				2019
CASH FLOW FROM OPERATING ACTIVITIES
Net loss attributable to Green Thumb Industries Inc.		$	(17,115,769	)		$	(30,455,105	)
Net income attributable to non-controlling interest			1,588,272				75,947
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Depreciation and amortization			26,945,085				9,615,078
Amortization of operating lease assets			12,430,640				2,267,327
Loss on disposal of property and equipment			4,155				—
(Gain) loss from investment in associate			(550,000	)			56,423
Bad debt expense			318,896				—
Deferred income taxes			(593,000	)			(4,131,000	)
Stock based compensation			10,773,886				9,759,988
Decrease (increase) in fair value of investments			17,035				(310,674	)
Changes in value of liabilities related to put option and purchase of noncontrolling interests			—				(389,569	)
Interest on contingent consideration payable and acquisition liabilities			769,217				2,175,957
Increase in fair value of contingent consideration			17,565				—
Decrease in fair value of warrant liability			(1,120,343	)			—
Decrease in fair value of note receivable			815,937				1,996,185
Amortization of debt discount			2,959,016				1,189,346
Changes in operating assets and liabilities:
Accounts receivable			(2,535,533	)			(542,879	)
Inventories			(7,950,215	)			(3,139,733	)
Prepaid expenses and other current assets			2,858,221				(770,793	)
Deposits and other assets			977,444				752,414
Accounts payable			3,174,865				14,205,312
Accrued liabilities			5,820,802				(4,270,799	)
Operating lease liabilities			(7,928,586	)			(1,885,327	)
Income tax payable			28,572,736				(1,072,286	)
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES			60,250,326				(4,874,188	)
CASH FLOW FROM INVESTING ACTIVITIES
Purchases of property and equipment			(34,033,957	)			(36,839,428	)
Proceeds from disposal of assets			11,799,025				—
Repayment of debenture investments			—				3,000,000
Purchase of businesses, net of cash acquired			—				(66,258,102	)
NET CASH USED IN INVESTING ACTIVITIES			(22,234,932	)			(100,097,530	)
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			(1,836,658	)			(5,616,061	)
Proceeds from exercise of options			207,672				—
Proceeds from issuance of notes payable			—				117,435,724
Principal repayment of notes payable			(161,070	)			(18,724,591	)
NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES			(1,740,056	)			94,745,072
CASH, CASH EQUIVALENTS AND RESTRICTED CASH:
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS			36,275,338				(10,226,646	)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD			46,667,334				145,986,072
CASH AND CASH EQUIVALENTS, END OF PERIOD		$	82,942,672			$	135,759,426

 

 

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

Six Months Ended June 30, 2020 and 2019

(Amounts Expressed in United States Dollars)

 

 

		Six Months Ended June 30,
		2020				2019
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Interest paid		$	6,048,116			$	1,955,015
NONCASH INVESTING AND FINANCING ACTIVITIES
Accrued capital expenditures		$	(3,564,688	)		$	3,100,000
Noncash increase in right of use asset		$	(37,863,550	)		$	(22,233,609	)
Noncash increase in lease liability		$	37,863,550			$	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			$	11,334,657
Mortgage associated with Illinois dispensary		$	1,814,000			$	—
Liability for purchase of noncontrolling interest		$	5,700,000			$	—
Liability associated with acquisition agreement		$	2,000,000			$	—
Issuance of shares under acquisition agreement		$	20,194,899			$	—
Deferred share issuances to prior owners of noncontrolling interest		$	(1,707,941	)		$	16,587,798
Issuance of shares under business combinations		$	—			$	471,409,462
Acquisitions
Inventory		$	—			$	12,705,211
Accounts receivable			—				2,117,412
Property and equipment			80,615				14,938,008
Right of use assets			—				2,717,014
Identifiable intangible assets			(145,000	)			271,625,592
Goodwill			(2,003,275	)			355,192,079
Deposits and other assets			603,988				2,582,251
Liabilities assumed			(1,302,604	)			(9,739,467	)
Lease liabilities			—				(2,717,014	)
Contingent liabilities			—				(51,079,705	)
Deferred share issuances			—				(16,587,798	)
Equity interests issued			503,389				(471,409,462	)
Conversion of note receivable previously issued			—				(14,132,800	)
Acquisition liability			(228,813	)			(2,106,908	)
Deferred income taxes			2,491,700				(27,846,311	)
		$	—			$	66,258,102
RECONCILIATION OF CASH, AND CASH EQUIVALENTS AND RESTRICTED CASH
Cash and cash equivalents		$	78,537,236			$	135,759,426
Restricted cash			4,405,436				—
TOTAL CASH, AND CASH EQUIVALENTS AND RESTRICTED CASH		$	82,942,672			$	135,759,426

 

 

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 called Rise^™ and a Las Vegas, Nevada area chain of retail cannabis stores called Essence. As of June 30, 2020, Green Thumb has operating 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 412, 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 six months ended June 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) Loss per Share

Basic loss per share is calculated using the treasury stock method, by dividing the net 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 loss per share calculations. Diluted loss per share is calculated 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 June 30, 2020, the Company had 5,857,045 options outstanding, 906,173 restricted stock units and 2,526,735 warrants outstanding. At June 30, 2019, the Company had 4,179,927 options outstanding, 1,711,101 restricted stock units outstanding and 2,041,735 warrants outstanding.

In order to determine diluted loss per share, it is assumed that any proceeds from the exercise of dilutive stock options would be used to repurchase common shares at the average market price during the period. The diluted loss per share calculation excludes any potential conversion of stock options and convertible debt that would decrease loss per share. No potentially dilutive common share equivalents were included in the computation of diluted loss per share for the three and six months ended June 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 an 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.

 

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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)

 

(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 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 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 Board 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.

(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 asset 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 six 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 continued designation as “essential” in states where we do business that currently or in the future impose restrictions on business operations. The estimates and assumptions used in the unaudited interim condensed consolidated financial statements, which 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, for the three and six months ended June 30, 2020 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.

 

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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)

 

2. INVENTORIES

 

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

 

		June 30,				December 31,
		2020				2019
Raw Material		$	2,888,356			$	6,375,032
Packaging and Miscellaneous			5,654,661				4,887,970
Work in Process			24,036,171				20,162,723
Finished Goods			22,762,425				16,640,629
Reserve for Obsolete Inventory			(1,356,917	)			(2,031,873	)
Total Inventories		$	53,984,696			$	46,034,481

3. PROPERTY AND EQUIPMENT

 

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

 

		Land				Buildings and Improvements				Equipment, Computers and Furniture				Leasehold Improvements				Capitalized Interest				Assets Under Construction				Total
Cost
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			182,219				20,033,308				2,923,306				8,579,566				263,437				625,299				32,607,135
Disposals			(979,930	)			(4,508,578	)			—				—				—				(6,934,600	)			(12,423,108	)
As at June 30, 2020		$	2,474,728			$	48,902,201			$	38,433,177			$	77,261,063			$	2,763,437			$	15,062,815			$	184,897,421
Accumulated Depreciation
As at January 1, 2020		$	—			$	2,236,254			$	3,882,178			$	2,998,287			$	—			$	—			$	9,116,719
As at June 30, 2020		$	—			$	2,859,973			$	6,870,663			$	8,090,163			$	109,228			$	—			$	17,930,027
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 June 30, 2020		$	2,474,728			$	46,042,229			$	31,562,514			$	69,170,899			$	2,654,209			$	15,062,815			$	166,967,394

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

 

		Land				Buildings and Improvements				Equipment, Computers and Furniture				Leasehold Improvements				Capitalized Interest				Assets Under Construction				Total
Cost
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 six months ended June 30, 2020 totaled $5,402,980 and $9,189,985, respectively of which $2,582,435 and $5,260,162, respectively, is included in cost of goods sold. Depreciation expense for the three and six months ended June 30, 2019 totaled $1,567,268 and $2,618,594, respectively of which $1,159,993 and $1,809,090, respectively, is included in cost of goods sold.

 

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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 (Continued)

 

 

On January 31, 2020, the Company closed on 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 on 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, $4,508,578 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.

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 June 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 June 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			12,005,936				3,603,759				1,882,238				263,167				17,755,100
As at June 30, 2020		$	30,483,436			$	7,725,559			$	5,814,654			$	737,836			$	44,761,485
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 June 30, 2020		$	306,325,777			$	91,570,040			$	19,443,346			$	1,847,644			$	419,186,807

 

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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)

 

4. INTANGIBLE ASSETS AND GOODWILL (Continued)

 

 

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 six months ended June 30, 2020 of $8,836,933 and $17,755,100, respectively, and for the three and six months ended June 30, 2019 of $4,747,944, and $6,996,484, 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 Retail segment intangible assets as a result 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. Beginning July 1, 2020, the Company expects to shorten the useful life of certain tradenames associated with its acquisition of the Essence retail brand from 15 years to 7 years. The change in useful life will be made as a prospective adjustment and result in an increase in amortization expense by $2,482,289 for the remainder of 2020, $4,964,578 annually for years 2021 through 2024, and a net reduction in amortization expense by $22,340,601 thereafter.

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

 

Year Ending December 31,		Estimated Amortization				Increase (Decrease) from Change in Useful Life				Estimated Amortization (Adjusted)
Remainder of 2020		$	16,648,055			$	2,482,289			$	19,130,344
2021			33,230,554				4,964,578				38,195,132
2022			32,799,813				4,964,578				37,764,391
2023			32,716,998				4,964,578				37,681,576
2024			32,135,665				4,964,578				37,100,243
Thereafter			271,655,722				(22,340,601	)			249,315,121
		$	419,186,807			$	—			$	419,186,807

 

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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)

 

4. INTANGIBLE ASSETS AND GOODWILL (Continued)

 

 

Goodwill

At June 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 June 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

As of June 30, 2020, the Company recorded measurement period adjustments resulting in a net decrease in goodwill of $2,003,275 associated 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. In regard to 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.

5. LEASES

 

(a) Operating Leases Under Accounting Standards Update No. 2016-02

In February 2016, the FASB issued Accounting Standards Update No. 2016-02 “Leases (Topic 842)” (“ASU 2016-02”), which requires lessees to put most leases on the balance sheet but recognize expense on the income statement in a manner similar to current accounting. On January 1, 2019, the Company adopted the standard and all related amendments, using the optional transition method (modified retrospective approach) applied to leases at the adoption date. Under the modified retrospective approach, comparative periods have not been restated and continue to be reported under the accounting standards in effect for those periods. Additionally, an adjustment was recorded to accumulated deficit to account for the initial adoption of the standard.

For additional information regarding the adoption of Account Standards Updated No. 2016-02, “Leases (Topic 842)” see Note 9 – Leases in the 2019 Form 10-K.

Other information related to operating leases as of and for the three and six months ending June 30, 2020 were as follows:

 

		As of June 30, 2020
Weighted average remaining lease term			10.91
Weighted average discount rate			13.1	%

 

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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)

 

5. LEASES (Continued)

 

 

Maturities of lease liabilities for operating leases as of June 30, 2020 were as follows:

 

		Maturities of Lease Liability
Year Ending December 31,		Third Party				Related Party				Total
Remainder of 2020		$	9,508,748			$	644,060			$	10,152,808
2021			22,589,952				1,307,183				23,897,135
2022			22,569,154				1,337,130				23,906,284
2023			22,349,279				1,367,771				23,717,050
2024			21,503,153				1,255,713				22,758,866
2025 and Thereafter			180,958,478				10,345,330				191,303,808
Total Lease Payments			279,478,764				16,257,187				295,735,951
Less: Interest			(180,229,514	)			(8,090,747	)			(188,320,261	)
Present Value of Lease Liability		$	99,249,250			$	8,166,440			$	107,415,690

For the three and six months ended June 30, 2020 the Company recorded operating lease expense of $8,173,122 and $12,430,637, respectively. For the three and six months ended June 30, 2019, the Company recorded operating lease expenses of $1,357,957 and $2,263,013, respectively.

(b) Related Party Operating Leases

The Company entered into related party transactions with respect to its leasing arrangements for facilities in Florida, Illinois, Maryland, Massachusetts and Nevada.

Wendy Berger, a director of the Company, is a principal of WBS Equities, LLC, which is the Manager of Mosaic Real Estate, LLC, which owns the facilities leased by the Company. Additionally, Mosaic Real Estate, LLC is owned in part by Ms. Berger (through the Wendy Berger 1998 Revocable Trust), Benjamin Kovler, the Chief Executive Officer and a director of the Company (through KP Capital, LLC), and Anthony Georgiadis, the Chief Financial Officer and a director of the Company (through Three One Four Holdings, LLC). The terms of these leases range from 7 years to 15 years. For the three and six months ended June 30, 2020, the Company recorded lease expense of $360,467 and $773,267, respectively, associated with these leasing arrangements. For the three and six month ended June 30, 2019, the Company recorded operating lease expenses of $308,108 and $467,990, respectively, associated with these leasing arrangements.

On June 5, 2020, a wholly owned subsidiary of the Company purchased the building and building improvements of the Company’s dispensary located in Joliet, Illinois for $1,814,000 from Mosaic Real Estate Joliet, LLC. The transaction resulted in the termination of the Illinois related party leasing arrangement. For additional information see Note 6 – Notes Payable.

In connection with the Company’s acquisition of Integral Associates, LLC, the Company, through a subsidiary, leases property from Durango Teco Partners, LLC, which commenced on June 27, 2020 for an Essence retail store in Nevada. Durango Teco Partners, LLC is owned in part by Armenco Capital LLC, which is in turn owned in part by Alejandro Yemenidjian, a former owner of Integral Associates, LLC and a current director of the Company. The lease has a ten year term. For the three and six months ended June 30, 2020, the Company recorded lease expense of $19,444 each, associated with this lease.

 

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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)

 

5. LEASES (Continued)

 

 

(c) Sales Lease Back Transactions

On January 31, 2020, the Company closed on a sale and lease back transaction to sell its Toledo, Ohio processing facility to IIP. Under a long-term agreement, the Company has leased back the facility and continues to operate and manage it. The purchase price for the property was $2,900,000, excluding transaction costs. The Company is making certain improvements to the property that will significantly enhance production capacity, for which IIP has agreed to provide reimbursement of up to $4,300,000. Assuming full reimbursement for such improvements, IIP’s total investment in the property will be $7,200,000. The lease has a term of 15 years and was recorded as an operating lease and resulted in a right of use asset and lease liability of $3,583,263 and was recorded net of the improvements allowance of $4,300,000.

On March 6, 2020, the Company closed on a sale and lease back transaction to sell its Oglesby, Illinois cultivation and processing facility to IIP. Under a long-term agreement, the Company has leased back the facility and continues to operate and manage it. The purchase price for the property was $9,000,000, excluding transaction costs. The Company is making certain improvements to the property that will significantly enhance production capacity, for which IIP has agreed to provide reimbursement of up to $41,000,000. Assuming full reimbursement for such improvements, IIP’s total investment in the property will be $50,000,000. The lease has a term of 16 years and was recorded as an operating lease and resulted in a right of use asset and related lease liability of $26,828,221 and was recorded net of the improvements allowance of $41,000,000.

6. NOTES PAYABLE

 

At June 30, 2020 and December 31, 2019, notes payable consisted of the following:

 

		June 30,				December 31,
		2020				2019
In connection with an acquisition completed in 2017, the Company is required to make quarterly charitable contributions of $50,000 through October 2024. The net present value of these required payments has been recorded as a liability with an interest rate of 2.17%.		$	809,887			$	970,957
Private placement debt dated May 22, 2019, in the original amount of $105,466,429 with an interest rate of 12.00%, matures on May 22, 2023. The debt was issued at a discount, the carrying value of which is $12,703,887 as of June 30, 2020.			92,762,542				90,375,912
Rise Joliet mortgage dated June 5, 2020, in the original amount of $1,814,000 with an interest rate of 5.00%, matures on June 5, 2035. The debt was issued at a discount, the carrying value of which is $181,272 as of June 30, 2020.			1,632,728				—
Total notes payable			95,205,157				91,346,869
Less: current portion of notes payable			(266,825	)			(206,675	)
Notes payable, net of current portion		$	94,938,332			$	91,140,194

 

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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)

 

6. NOTES PAYABLE (Continued)

 

 

(a) Extension of Private Placement Financing

On May 21, 2020, the Company exercised its option to extend the maturity date of its senior secured notes (the “Notes”) pursuant to the Note Purchase Agreement, dated May 22, 2019, as amended (the “Note Purchase Agreement”) for an additional year. Following this exercise, which was in the Company’s sole discretion under the Note Purchase Agreement, the new maturity date for the Notes is May 22, 2023.

(b) Mortgage on Joliet, Illinois Dispensary

On June 5, 2020, the Company closed on a secured promissory note (the “Mortgage”) of $1,814,000. The Mortgage bears interest of 5% per annum and matures on June 5, 2035. The Mortgage provided by the lender was used to purchase the building and building improvements of one of the Company’s dispensaries located in Joliet, Illinois that the Company previously leased from Mosaic Real Estate Joliet, LLC, a related party. As part of the transaction, the Company issued 35,000 warrants valued at $181,272 using a Black Scholes Option Pricing model which was recorded as a discount on the Mortgage.

(c) Related Parties

The private placement debt is held by related parties as well as unrelated third-party lenders at a percentage of approximately 1% and 99%, respectively. The related parties consist of Benjamin Kovler, the Chief Executive Officer and a director of the Corporation (through KP Capital, LLC); Andrew Grossman, the Executive Vice President of Capital Markets (through AG Funding Group, LLC); and Anthony Georgiadis, the Chief Financial Officer and a director of the Corporation (through Three One Four Holdings, LLC and ABG, LLC).

7. WARRANTS

 

As part of the Company’s private placement financing and Mortgage on the Joliet, Illinois dispensary, the Company issued warrants to related parties, as well as un-related third parties, which allow the holders to purchase Subordinate Voting Shares at an exercise price determined at the time of issuance.

The following table summarizes the number warrants issued as of June 30, 2020 and December 31, 2019:

 

		Number of Shares								Weighted Average Exercise Price (C$)				Weighted Average Contractual Life				Number of Shares				Weighted Average Exercise Price (USD)				Weighted Average Contractual Life
		Liability Classified																Equity Classified
Balance as at December 31, 2019			2,406,811			C$					18.59				4.86				—			$	—				—
Additional Modification Warrants			84,924								14.03				5.00				—				—				—
Dispensary Mortgage Warrants			—								—				—				35,000				9.10				5.00
Balance as at June 30, 2020			2,491,735			C$					18.44				4.87				35,000			$	9.10				5.00

 

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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)

 

7. WARRANTS (Continued)

 

 

(a) Additional Modification Warrants

As part of the November 9, 2019 modification of the Notes, the Company agreed to issue 84,924 additional warrants by May 22, 2020 to participating lenders in the event the Company decided to raise additional capital or to the original lenders involved in the May 22, 2019 private placement financing in the event the Company did not. On May 21, 2020, the Company issued the warrants to the original lenders involved in the private placement financing which allows the holder to purchase 84,924 Subordinate Voting Shares. The warrants are denominated in CAD. Upon issuance, the Company recorded an additional amount to debt discount with a corresponding amount to the warrant liability of $572,387, which was measured at fair value.

(b) Dispensary Mortgage Warrants

On June 5, 2020, as part of the $1,814,000 promissory note, the Company issued warrants that allows the promissory noteholder to purchase 35,000 Subordinate Voting Shares. These warrants are denominated in USD, which is the Company’s functional currency. As such, upon issuance, the Company recorded an additional amount to debt discount with a corresponding amount to contributed surplus of $181,272 which was measured at fair value using a Black Scholes Options Pricing model. The Company did not incur any other material fees related to the promissory note.

The following table summarizes the fair value of the liability classified warrants at June 30, 2020 and December 31, 2019:

 

Warrant Liability		Strike Price				Warrants Issued				June 30, 2020				December 31, 2019
Bridge Financing Warrants		C$	22.90				218,964			$	866,000			$	1,385,400
Private Placement Financing Warrants		C$	19.39				1,822,771				11,148,000				12,189,169
Modification Warrants		C$	12.04				365,076				2,745,500				2,305,274
Additional Modification Warrants		C$	14.03				84,924				572,387				—
Totals							2,491,735			$	15,331,887			$	15,879,843

During the three and six months ended June 30, 2020, the Company recorded a loss of $6,262,500 and a gain of $1,120,343, respectively, on the change in the fair value of the warrant liability within other income (expense) on the unaudited interim condensed consolidated statements of operations.

The following table summarizes the significant assumptions used in determining the fair value of the warrant liability as of each reporting date. See Note 13 - Fair Value Measurements for additional details:

 

Significant Assumptions		June 30, 2020				December 31, 2019
Volatility			94.73% - 111.66%				117.43% - 123.64%
Remaining Term			2.28 - 4.36 years				2.78 - 4.86 years
Risk Free Rate			0.28% - 0.36%				1.68% - 1.69%

The following table summarizes the fair value of the equity classified warrants at June 30, 2020 and December 31, 2019:

 

Warrants Included in Contributed Surplus		Strike Price				Warrants Issued				June 30, 2020				December 31, 2019
Dispensary Mortgage Warrants		$	9.10				35,000			$	181,272			$	—

 

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