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, 2021

☐ 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 0-54433

MARIMED INC.

(Exact Name of Registrant as Specified in Its Charter)

Delaware		27-4672745
(State or Other Jurisdiction of		(I.R.S. Employer
Incorporation or Organization)		Identification No.)

10 Oceana Way

Norwood, MA 02062

(Address of Principal Executive Offices)

617-795-5140

(Registrant’s Telephone Number, Including Area Code)

Securities registered pursuant to Section 12(b) of the Act: None.

Title of each class		Ticker symbol(s)		Name of each exchange on which registered
Not Applicable.		Not Applicable.		Not Applicable.

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 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 Exchange Act). Yes ☐ No ☒

As of August 16, 2021, 329,143,662 shares of the registrant’s common stock were outstanding.

MariMed Inc.

Table of Contents

		Page
	PART I – FINANCIAL INFORMATION

Item 1.	Financial Statements

	Condensed Consolidated Balance Sheets as of June 30, 2021 (Unaudited) and December 31, 2020	3

	Condensed Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2021 and 2020 (Unaudited)	4

	Condensed Consolidated Statements of Stockholders’ Equity for the Six Months Ended June 30, 2021 and 2020 (Unaudited)	5

	Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2021 and 2020 (Unaudited)	6

	Notes to Condensed Consolidated Financial Statements (Unaudited)	7

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	36

Item 3.	Quantitative and Qualitative Disclosure About Market Risk	43

Item 4.	Controls and Procedures	43

	PART II – OTHER INFORMATION

Item 1.	Legal Proceedings	44

Item 1A.	Risk Factors	44

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	44

Item 3.	Defaults Upon Senior Securities	44

Item 4.	Mine Safety Disclosures	44

Item 5.	Other Information	44

Item 6.	Exhibits	45

Signatures		48

MariMed Inc.

Condensed Consolidated Balance Sheets

	2021			2020
	June 30,			December 31,
	2021			2020
	(Unaudited)
Assets
Current assets:
Cash and cash equivalents	$	17,356,525		$	2,999,053
Accounts receivable, net		8,085,867			6,675,512
Deferred rents receivable		1,815,330			1,940,181
Notes receivable, current portion		377,127			658,122
Inventory		9,228,098			6,830,571
Investments		941,910			1,357,193
Other current assets		1,955,445			582,589
Total current assets		39,760,302			21,043,221

Property and equipment, net		52,666,031			45,636,529
Intangibles, net		2,521,094			2,228,560
Investments		1,165,788			1,165,788
Notes receivable, less current portion		1,194,448			965,008
Right-of-use assets under operating leases		5,406,601			5,247,152
Right-of-use assets under finance leases		62,078			78,420
Other assets		97,950			80,493
Total assets	$	102,874,292		$	76,445,171

Liabilities, mezzanine equity, and stockholders’ equity
Current liabilities:
Accounts payable	$	6,693,390		$	5,044,918
Accrued expenses		8,145,061			3,621,269
Sales and excise taxes payable		1,535,226			1,053,693
Debentures payable		-			1,032,448
Notes payable, current portion		9,523			8,859,175
Mortgages payable, current portion		1,350,548			1,387,014
Operating lease liabilities, current portion		1,118,121			1,008,227
Finance lease liabilities, current portion		33,453			38,412
Due to related parties		-			1,157,815
Other current liabilities		-			23,640
Total current liabilities		18,885,322			23,226,611

Notes payable, less current portion		2,015,001			10,682,234
Mortgages payable, less current portion		14,484,255			14,744,136
Operating lease liabilities, less current portion		4,862,628			4,822,064
Finance lease liabilities, less current portion		33,098			44,490
Other liabilities		100,200			100,200
Total liabilities		40,380,504			53,619,735

Mezzanine equity:
Series B convertible preferred stock, $0.001 par value; 4,908,333 shares authorized, issued and outstanding at June 30, 2021 and December 31, 2020		14,725,000			14,725,000
Series C convertible preferred stock, $0.001 par value; 6,216,216 and zero shares authorized, issued and outstanding at June 30, 2021 and December 31, 2020, respectively		23,000,000			-
Total mezzanine equity		37,725,000			14,725,000

Stockholders’ equity:
Undesignated preferred stock, $0.001 par value; 38,875,451 and 45,091,667 shares authorized at June 30, 2021 and December 31, 2020, respectively; zero shares issued and outstanding at June 30, 2021 and December 31, 2020		-			-
Common stock, $0.001 par value; 500,000,000 shares authorized at June 30, 2021 and December 31, 2020; 326,838,535 and 314,418,812 shares issued and outstanding at June 30, 2021 and December 31, 2020, respectively		326,839			314,419
Common stock subscribed but not issued; zero and 11,413 shares at June 30, 2021 and December 31, 2020, respectively		-			5,365
Additional paid-in capital		117,919,783			112,974,329
Accumulated deficit		(92,903,783	)		(104,616,538	)
Noncontrolling interests		(574,051	)		(577,139	)
Total stockholders’ equity		24,768,788			8,100,436
Total liabilities, mezzanine equity, and stockholders’ equity	$	102,874,292		$	76,445,171

See accompanying notes to condensed consolidated financial statements.

MariMed Inc.

Condensed Consolidated Statements of Operations

(Unaudited)

	2021			2020			2021			2020
	Three Months Ended June 30,						Six Months Ended June 30,
	2021			2020			2021			2020

Revenues	$	32,569,656		$	9,610,306		$	57,212,220		$	17,076,325

Cost of revenues		13,163,306			3,452,169			24,619,952			6,050,086

Gross profit		19,406,350			6,158,137			32,592,268			11,026,239

Operating expenses:
Personnel		2,058,254			1,207,141			3,785,395			2,720,524
Marketing and promotion		270,330			65,618			494,699			178,002
General and administrative		4,282,004			2,336,102			7,452,728			4,584,037
Bad debts		793,871			450,000			1,819,286			450,000
Total operating expenses		7,404,459			4,058,861			13,552,108			7,932,563

Operating income		12,001,891			2,099,276			19,040,160			3,093,676

Non-operating income (expenses):
Interest expense		(264,596	)		(2,969,191	)		(1,776,618	)		(5,660,336	)
Interest income		35,768			40,863			69,795			86,894
Loss on obligations settled with equity		(1,260	)		(44,678	)		(2,546	)		(44,678	)
Loss on equity investments		-			(32,958	)		-			(32,958	)
Change in fair value of investments		(370,119	)		(234,544	)		(415,284	)		(921,546	)
Total non-operating income (expenses), net		(600,207	)		(3,240,508	)		(2,124,653	)		(6,572,624	)

Income (loss) before income taxes		11,401,684			(1,141,232	)		16,915,507			(3,478,948	)
Provision for income taxes		3,813,108			-			5,016,905			-
Net income (loss)	$	7,588,576		$	(1,141,232	)	$	11,898,602		$	(3,478,948	)

Net income (loss) attributable to noncontrolling interests	$	95,724		$	72,805		$	185,847		$	156,533
Net income (loss) attributable to MariMed Inc.	$	7,492,852		$	(1,214,037	)	$	11,712,755		$	(3,635,481	)

Net income (loss) per share
Basic	$	0.02		$	(0.00	)	$	0.04		$	(0.02	)
Diluted	$	0.02		$	(0.00	)	$	0.03		$	(0.02	)

Weighted average common shares outstanding
Basic		324,266,644			247,990,403			321,740,575			240,664,873
Diluted		370,256,963			247,990,403			365,323,638			240,664,873

See accompanying notes to condensed consolidated financial statements.

MariMed Inc.

Condensed Consolidated Statements of Stockholders’ Equity

(Unaudited)

	Shares			Par Value			Shares			Amount			Capital			Deficit			Interests			(Deficit)
	Common Stock						Common Stock Subscribed But Not Issued						Additional Paid-In			Accumulated			Non- Controlling			Total Stockholders’ Equity
	Shares			Par Value			Shares			Amount			Capital			Deficit			Interests			(Deficit)
Balances at December 31, 2019		228,408,024		$	228,408			3,236,857		$	1,168,074		$	112,245,730		$	(106,760,527	)	$	(553,465	)		6,328,220
Balance		228,408,024		$	228,408			3,236,857		$	1,168,074		$	112,245,730		$	(106,760,527	)	$	(553,465	)		6,328,220
Issuance of subscribed shares		3,236,857			3,237			(3,236,857	)		(1,168,074	)		1,164,837			-			-			-
Stock grants		30,307			30			34,171			5,365			5,335			-			-			10,730
Amortization of option grants		-			-			-			-			556,379			-			-			556,379
Issuance of warrants attached to debt		-			-			-			-			65,931			-			-			65,931
Discount on debentures payable		-			-			-			-			28,021			-			-			28,021
Beneficial conversion feature on debentures payable		-			-			-			-			379,183			-			-			379,183
Conversion of debentures payable		35,886,796			35,887			-			-			4,981,208			-			-			5,017,095
Conversion of common stock to preferred stock		(4,908,333	)		(4,908	)		-			-			(14,720,092	)		-			-			(14,725,000	)
Conversion of promissory note		2,525,596			2,525			-			-			457,525			-			-			460,050
Extinguishment of promissory note		1,900,000			1,900			-			-			350,100			-			-			352,000
Common stock issued to settle obligations		4,400,000			4,400			-			-			739,200			-			-			743,600
Distributions		-			-			-			-			-			-			(166,952	)		(166,952	)
Exercise of options
Exercise of options, share
Exercise of warrants
Exercise of warrants, shares
Issuance of stand-alone warrants
Issuance of warrants with stock
Equity issuance costs
Net income (loss)		-			-			-			-			-			(3,635,481	)		156,533			(3,478,948	)
Balances at June 30, 2020		271,479,247		$	271,479			34,171		$	5,365		$	106,253,357		$	(110,396,008	)	$	(563,884	)	$	(4,429,691	)
Balance		271,479,247		$	271,479			34,171		$	5,365		$	106,253,357		$	(110,396,008	)	$	(563,884	)	$	(4,429,691	)

	Common Stock				Common Stock Subscribed But Not Issued						Additional Paid-In			Accumulated			Non- Controlling			Total Stockholders’
	Shares		Par Value		Shares			Amount			Capital			Deficit			Interests			Equity
Balances at December 31, 2020		314,418,812	$	314,419		11,413		$	5,365		$	112,974,329		$	(104,616,538	)	$	(577,139	)		8,100,436
Balance		314,418,812		314,419		11,413			5,365		$	112,974,329		$	(104,616,538	)	$	(577,139	)		8,100,436
Issuance of subscribed shares		11,413		11		(11,413	)		(5,365	)		5,354			-			-			-
Stock grants		6,877		7		-			-			5,358			-			-			5,365
Exercise of options		82,885		83		-			-			8,917			-			-			9,000
Exercise of warrants		698,812		699		-			-			60,098			-			-			60,797
Amortization of option grants		-		-		-			-			884,075			-			-			884,075
Issuance of stand-alone warrants		-		-		-			-			55,786			-			-			55,786
Issuance of warrants with stock		-		-		-			-			654,681			-			-			654,681
Conversion of debentures payable		4,610,645		4,611		-			-			1,351,841			-			-			1,356,452
Conversion of promissory notes		6,937,400		6,937		-			-			2,252,854			-			-			2,259,791
Common stock issued to settle obligations		71,691		72		-			-			53,473			-			-			53,545
Equity issuance costs		-		-		-			-			(386,983	)		-			-			(386,983	)
Distributions		-		-		-			-			-			-			(182,759	)		(182,759	)
Net income		-		-		-			-			-			11,712,755			185,847			11,898,602
Balances at June 30, 2021		326,838,535	$	326,839		-		$	-		$	117,919,783		$	(92,903,783	)	$	(574,051	)	$	24,768,788
Balance		326,838,535	$	326,839		-		$	-		$	117,919,783		$	(92,903,783		$	(574,051		$	24,768,788

The above statements do not show columns for undesignated preferred stock

as the balances were zero and there was no activity in the reported periods.

See accompanying notes to condensed consolidated financial statements.

MariMed Inc.

Condensed Consolidated Statements of Cash Flows

(Unaudited)

	2021			2020
	Six Months Ended June 30,
	2021			2020
Cash flows from operating activities:
Net income (loss) attributable to MariMed Inc.	$	11,712,755		$	(3,635,481	)
Net income (loss) attributable to noncontrolling interests		185,847			156,533
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation		962,571			907,285
Amortization of intangibles		346,036			166,908
Amortization of stock grants		5,365			10,730
Amortization of option grants		884,075			556,379
Amortization of stand-alone warrant issuances		55,786			-
Amortization of warrants attached to debt		539,272			498,694
Amortization of warrants issued with stock		654,681			-
Amortization of beneficial conversion feature		176,522			2,170,401
Amortization of original issue discount		51,753			241,613
Bad debt expense		1,819,286			450,000
Loss on obligations settled with equity		2,546			44,678
Equity in earnings of investments		-			32,958
Change in fair value of investments		415,284			921,546
Changes in operating assets and liabilities:
Accounts receivable, net		(3,229,641	)		(1,654,366	)
Deferred rents receivable		124,851			(193,464	)
Inventory		(2,397,527	)		(2,686,534	)
Other current assets		(1,372,856	)		(215,413	)
Other assets		(17,458	)		(10,000	)
Accounts payable		1,699,471			566,749
Accrued expenses		4,522,782			1,363,094
Sales and excise taxes payable		481,533			396,236
Operating lease payments, net		(8,991	)		51,043
Finance lease interest payments		1,504			4,033
Other current liabilities		(23,640	)		396,236
Net cash provided by operating activities		17,591,807			539,858

Cash flows from investing activities:
Purchase of property and equipment		(7,975,731	)		(2,720,655	)
Purchase of cannabis licenses		(638,570	)		(255,000	)
Interest on notes receivable		118,811			406,670
Net cash used in investing activities		(8,495,490	)		(2,568,985	)

Cash flows from financing activities:
Proceeds from issuance of preferred stock		23,000,000			-
Equity issuance costs		(386,983	)		-
Proceeds from issuance of promissory notes		35,096			5,249,763
Repayments of promissory notes		(15,801,979	)		(3,100,000	)
Proceeds from issuance of debentures		-			935,000
Proceeds from mortgages		-			907,200
Payments on mortgages		(296,347	)		(112,352	)
Proceeds from exercise of options		9,000			-
Proceeds from exercise of warrants		60,797			-
Due to related parties		(1,157,815	)		(63,404	)
Finance lease principal payments		(17,855	)		(19,206	)
Distributions		(182,759	)		(166,952	)
Net cash provided by financing activities		5,261,155			3,630,049

Net change to cash and cash equivalents		14,357,472			1,600,922
Cash and cash equivalents at beginning of period		2,999,053			738,688
Cash and cash equivalents at end of period	$	17,356,525		$	2,339,610

Supplemental disclosure of cash flow information:
Cash paid for interest	$	1,405,489		$	703,571
Cash paid for income taxes	$	419,003		$	13,000

Non-cash activities:
Conversion of promissory notes	$	2,259,791		$	460,050
Conversions of debentures payable	$	1,356,452		$	5,017,095
Operating lease right-of-use assets and liabilities	$	466,105		$	-
Common stock issued to settle obligations	$	51,000		$	698,922
Issuance of common stock associated with subscriptions	$	5,365		$	1,168,074
Cashless exercise of warrants	$	180		$	-
Cashless exercise of stock options	$	53		$	-
Exchange of common stock to preferred stock	$	-		$	14,725,000
Conversion of accrued interest to promissory notes	$	-		$	3,908,654
Beneficial conversion feature on debentures payable	$	-		$	379,183
Extinguishment of promissory note	$	-		$	352,000
Discount on promissory notes	$	-		$	65,931
Discount on debentures payable	$	-		$	28,021

See accompanying notes to condensed consolidated financial statements.

MariMed Inc.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

NOTE 1 – ORGANIZATION AND DESCRIPTION OF BUSINESS

MariMed Inc. (the “Company”) is a multi-state operator in the United States cannabis industry. The Company develops, operates, manages, and optimizes over 300,000 square feet of state-of-the-art, regulatory-compliant facilities for the cultivation, production and dispensing of medicinal and recreational cannabis. The Company also licenses its proprietary brands of cannabis and hemp-infused products, along with other top brands, in several domestic markets and overseas.

Upon its entry into the cannabis industry in 2014, the Company was an advisory firm that procured state-issued cannabis licenses on behalf of its clients, developed cannabis facilities which it leased to these newly-licensed companies, and provided industry-leading expertise and oversight in all aspects of their cannabis operations. The Company also provided its clients with as ongoing regulatory, accounting, real estate, human resources, and administrative services.

Thereafter, the Company made the strategic decision to transition from a consulting business to a direct owner and operator of cannabis licenses in high-growth states. Core to this transition is the acquisition and consolidation of the Company’s clients (the “Consolidation Plan”). Among several benefits, the Consolidation Plan would present a simpler, more transparent financial picture of the full breadth of the Company’s efforts, with a clearer representation of the revenues, earnings, and other financial metrics the Company has generated for its clients. The Company has played a key role in the successes of these entities, from the securing of their cannabis licenses, to the development of facilities that are models of excellence, to funding their operations, and to providing operational and corporate guidance. Accordingly, the Company believes it is well suited to own these facilities and manage the continuing growth of their operations.

To date, acquisitions of its client businesses in Massachusetts and Illinois have been completed and establish the Company as a fully integrated seed-to-sale multi-state operator (“MSO”). The acquisitions of the remaining entities located in Maryland, Nevada, and Delaware are at various stages of completion and subject to each state’s laws governing the ownership transfer of cannabis licenses, which in the case of Delaware requires a modification of current cannabis ownership laws to permit for-profit ownership. Meanwhile, the Company continues to expand these businesses and maximize the Company’s revenue from rental income, management fees, and licensing royalties.

The transition to becoming a fully integrated MSO is part of a strategic growth plan (the “Strategic Growth Plan”) the Company is implementing to drive its revenues and profitability. The Strategic Growth Plan has four components: (i) complete the Consolidation Plan, (ii) increase revenues in existing states, by spending capital to increase the Company’s cultivation and production capacity, and develop additional assets within those states, (iii) expand the Company’s footprint in additional legal cannabis states through new applications and acquisitions of existing cannabis businesses; and (iv) expand the Company’s brand portfolio and licensing revenue, by continuing to build its portfolio of leading brands and license its brands in other legal states.

As to its products, the Company has created its own brands of cannabis flower, concentrates, and precision-dosed products utilizing proprietary strains and formulations. These products are developed by the Company in cooperation with state-licensed operators who meet the Company’s strict standards, including all natural—not artificial or synthetic—ingredients. The Company licenses its brands and product formulations only to certified manufacturing professionals who follow state cannabis laws and adhere to the Company’s precise scientific formulations and trademarked product recipes.

The Company’s proprietary cannabis genetics produce flowers and concentrates under the brand name Nature’s Heritage™, and cannabis-infused products under the brand names Kalm Fusion®, in the form of chewable tablets and drink powder mixes, and the award-winning¹Betty’s Eddies® brand of all natural fruit chews. Both cannabis-infused brands are top selling products in Maryland and Massachusetts²and the Company intends to introduce additional products under these brands in 2021.

The Company also has exclusive sublicensing rights in certain states to distribute the Binske® line of cannabis products crafted from premium artisan ingredients, the Healer™ line of medical full-spectrum cannabis tinctures, and the clinically tested medicinal cannabis strains developed in Israel by global medical cannabis research pioneer Tikun Olam™. The Company intends to continue licensing and distributing its brands as well as other top brands in the Company’s current markets.

The Company’s stock is quoted on the OTCQX market under the ticker symbol MRMD.

The Company was incorporated in Delaware in January 2011 under the name Worlds Online Inc. Initially, the Company developed and managed online virtual worlds. By early 2014, this line of business effectively ceased operating, and the Company pivoted into the legal cannabis industry.

¹Awards won by the Company’s Betty’s Eddies® brand include LeafLink 2020 Industry Innovator, Explore Maryland Cannabis 2020 Edible of the Year, and LeafLink 2019 Best Selling Medical Product.

²Source: LeafLink Insights 2020.

NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The accompanying financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”).

In accordance with GAAP, interim financial statements are not required to contain all of the disclosures normally required in annual financial statements. In addition, the results of operations of interim periods may not necessarily be indicative of the results of operations to be expected for the full year. Accordingly, these interim financial statements should be read in conjunction with the Company’s most recent audited annual financial statements and accompanying notes for the year ended December 31, 2020.

Certain reclassifications have been made to prior periods’ data to conform to the current period presentation. These reclassifications had no effect on reported income (losses) or cash flows.

Principles of Consolidation

The accompanying condensed consolidated financial statements include the accounts of MariMed Inc. and the following majority-owned subsidiaries at June 30, 2021:

SCHEDULE OF MAJORITY OWNED SUBSIDIARIES

Subsidiary:	Percentage Owned
MariMed Advisors Inc.		100.0%
Mia Development LLC		89.5%
Mari Holdings IL LLC		100.0%
Mari Holdings MD LLC		97.4%
Mari Holdings NV LLC		100.0%
Mari Holdings Metropolis LLC		100.0%
Mari Holdings Mt. Vernon LLC		100.0%
Hartwell Realty Holdings LLC		100.0%
iRollie LLC		100.0%
ARL Healthcare Inc.		100.0%
KPG of Anna LLC		100.0%
KPG of Harrisburg LLC		100.0%
MariMed Hemp Inc.		100.0%
MediTaurus LLC		70.0%

Intercompany accounts and transactions have been eliminated.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts within the financial statements and disclosures thereof. Actual results could differ from these estimates or assumptions.

Cash Equivalents

The Company considers all highly liquid investments with a maturity date of three months or less to be cash equivalents. The fair values of these investments approximate their carrying values.

The Company’s cash and cash equivalents are maintained with recognized financial institutions located in the United States. In the normal course of business, the Company may carry balances with certain financial institutions that exceed federally insured limits. The Company has not experienced losses on balances in excess of such limits and management believes the Company is not exposed to significant risks in that regard.

Accounts Receivable

Accounts receivable consist of trade receivables and are carried at their estimated collectible amounts.

The Company provides credit to its clients in the form of payment terms. The Company limits its credit risk by performing credit evaluations of its clients and maintaining a reserve, if deemed necessary, for potential credit losses. Such evaluations include the review of a client’s outstanding balances with consideration towards such client’s historical collection experience, as well as prevailing economic and market conditions and other factors. Based on such evaluations, the Company maintained a reserve of approximately $41.4 million and $40.0 million at June 30, 2021 and December 31, 2020, respectively. Please refer to Note 17 – Bad Debts for further discussion on receivable reserves.

Inventory

Inventory is carried at the lower of cost or net realizable value, with the cost being determined on a first-in, first-out (FIFO) basis. The Company allocates a certain percentage of overhead cost to its manufactured inventory; such allocation is based on square footage and other industry-standard criteria. The Company reviews physical inventory for obsolescence and/or excess and will record a write-down if necessary.

Investments

Investments are comprised of equity holdings in private companies. These investments are recorded at fair value on the Company’s consolidated balance sheet, with changes to fair value included in income. Investments are evaluated for permanent impairment and are written down if such impairments are deemed to have occurred.

Revenue Recognition

The Company recognizes revenue in accordance with the Financial Accounting Standards Board’s Accounting Standards Codification (“ASC”) 606, Revenue from Contract with Customers, as amended by subsequently issued Accounting Standards Updates. This revenue standard requires an entity to recognize revenue to depict the transfer of goods or services to customers in an amount that reflects the consideration that it expects to be entitled to in exchange for those goods or services. The recognition of revenue is determined by performing the following consecutive steps:

	●	Identify the contract(s) with a customer;
	●	Identify the performance obligations in the contract(s);
	●	Determine the transaction price;
	●	Allocate the transaction price to the performance obligations in the contract(s); and
	●	Recognize revenue as the performance obligation is satisfied.

Additionally, when another party is involved in providing goods or services to the Company’s clients, a determination is made as to who—the Company or the other party—is acting in the capacity as the principal in the sale transaction, and who is merely the agent arranging for goods or services to be provided by the other party.

The Company is typically considered the principal if it controls the specified good or service before such good or service is transferred to its client. The Company may also be deemed to be the principal even if it engages another party (an agent) to satisfy some of the performance obligations on its behalf, provided the Company (i) takes on certain responsibilities, obligations and risks, (ii) possesses certain abilities and discretion, or (iii) other relevant indicators of the sale. If deemed an agent, the Company would not recognize revenue for the performance obligations it does not satisfy.

The Company’s main sources of revenue are comprised of the following:

	●	Product Sales – direct sales of cannabis and cannabis-infused products by the Company’s retail dispensaries and wholesale operations in Massachusetts and Illinois, and sales of hemp and hemp-infused products. An increase in product sales is expected from the Company’s planned cannabis-licensee acquisitions in Maryland, Nevada, and Delaware (upon this state’s amendment to permit for-profit ownership of cannabis entities). This revenue is recognized when products are delivered or at retail points-of-sale.

	●	Real Estate – rental income and additional rental fees generated from leasing of the Company’s state-of-the-art, regulatory-compliant cannabis facilities to its cannabis-licensed clients. Rental income is generally a fixed amount per month that escalates over the respective lease terms, while additional rental fees are based on a percentage of tenant revenues that exceed specified amounts.

	●	Management – fees for providing the Company’s cannabis clients with comprehensive oversight of their cannabis cultivation, production, and dispensary operations. These fees are based on a percentage of such clients’ revenue and are recognized after services have been performed.

	●	Supply Procurement – the Company maintains volume discounts with top national vendors of cultivation and production resources, supplies, and equipment, which the Company acquires and resells to its clients or third parties within the cannabis industry. The Company recognizes this revenue after the delivery and acceptance of goods by the purchaser.

	●	Licensing – royalties from the licensed distribution of the Company’s branded products including Kalm Fusion® and Betty’s Eddies®, and from sublicensing of contracted brands including Healer and Tikun Olam, to regulated dispensaries throughout the United States and Puerto Rico. The recognition of this revenue occurs when the products are delivered.

Research and Development Costs

Research and development costs are charged to operations as incurred.

Property and Equipment

Property and equipment are stated at cost less accumulated depreciation, with depreciation recognized on a straight-line basis over the shorter of the estimated useful life of the asset or the lease term, if applicable. When assets are retired or disposed, the cost and accumulated depreciation are removed from the accounts, and any resulting gains or losses are included in income. Repairs and maintenance are charged to expense in the period incurred.

The estimated useful lives of property and equipment are generally as follows: buildings and building improvements, forty years; tenant improvements, the remaining duration of the related lease; furniture and fixtures, seven to ten years; machinery and equipment, ten years. Land is not depreciated.

The Company’s property and equipment are individually reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable from the undiscounted future cash flows of such asset over the anticipated holding period. An impairment loss is measured by the excess of the asset’s carrying amount over its estimated fair value.

Impairment analyses are based on management’s current plans, asset holding periods, and currently available market information. If these criteria change, the Company’s evaluation of impairment losses may be different and could have a material impact to the consolidated financial statements.

For the six months ended June 30, 2021 and 2020, based on the results of management’s impairment analyses, there were no impairment losses.

Leases

The consolidated financial statements reflect the Company’s adoption of ASC 842, Leases, as amended by subsequent accounting standards updates, utilizing the modified retrospective transition approach.

ASC 842 is intended to improve financial reporting of leasing transactions. The most prominent change from previous accounting guidance is the requirement to recognize right-of-use assets and lease liabilities on the consolidated balance sheet representing the rights and obligations created by operating leases that extend more than twelve months in which the Company is the lessee. The Company elected the package of practical expedients permitted under ASC 842. Accordingly, the Company accounted for its existing operating leases that commenced before the effective date as operating leases under the new guidance without reassessing (i) whether the contracts contain a lease, (ii) the classification of the leases (iii) the accounting for indirect costs as defined in ASC 842.

The Company determines if an arrangement is a lease at inception. Right-of-use assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. Non-lease components within lease agreements are accounted for separately. Right-of-use assets and obligations are recognized at the commencement date based on the present value of lease payments over the lease term, utilizing the Company’s incremental borrowing rate. The Company’s lease terms may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option. Lease expense for lease payments is recognized on a straight-line basis over the lease term.

Impairment of Long-Lived Assets

The Company evaluates the recoverability of its fixed assets and other assets in accordance with ASC 360-10-15, Impairment or Disposal of Long-Lived Assets. Impairment of long-lived assets is recognized when the net book value of such assets exceeds their expected cash flows, in which case the assets are written down to fair value, which is determined based on discounted future cash flows or appraised values.

Fair Value of Financial Instruments

The Company follows the provisions of ASC 820, Fair Value Measurement, to measure the fair value of its financial instruments, and ASC 825, Financial Instruments, for disclosures on the fair value of its financial instruments. To increase consistency and comparability in fair value measurements and related disclosures, ASC 820 establishes a fair value hierarchy which prioritizes the inputs to valuation techniques used to measure fair value into three broad levels. The fair value hierarchy gives the highest priority to quoted prices (unadjusted) in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. The three levels of fair value hierarchy defined by ASC 820 are:

Level 1	Quoted market prices available in active markets for identical assets or liabilities as of the reporting date.

Level 2	Pricing inputs other than quoted prices in active markets included in Level 1, which are either directly or indirectly observable as of the reporting date.

Level 3	Pricing inputs that are generally observable inputs and not corroborated by market data.

The carrying amounts of the Company’s financial assets and liabilities, such as cash and accounts payable, approximate their fair values due to the short maturity of these instruments.

The fair value of option and warrant issuances are determined using the Black-Scholes pricing model and employing several inputs such as the expected life of instrument, the exercise price, the expected risk-free interest rate, the expected dividend yield, the value of the Company’s common stock on issuance date, and the expected volatility of such common stock. The following table summarizes the range of inputs used by the Company during the six months ended June 30, 2021 and 2020:

SCHEDULE OF ASSUMPTIONS USED

	Six Months Ended June 30,
	2021		2020
Life of instrument		3.0 to 5.0 years		3.0 years
Volatility factors		1.230 to 1.266