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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-K

 

(Mark One)

 

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

 

For the fiscal year ended December 31, 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

Incorporation or Organization)

 

(I.R.S. Employer

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:

 

Title of Each Class   Trading Symbol(s)   Name Of Each Exchange On Which Registered
None   Not Applicable   Not Applicable

 

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

Common Stock, $.001 par value

(Title of Class)

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No

 

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes ☐ No

 

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 has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting fi rm that prepared or issued its audit report.

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act.): Yes ☐ No

 

The aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the closing price as of June 30, 2021 of $0.94 per share, the last business day of the registrant’s most recently completed second fiscal quarter, was approximately $218.2 million.

 

At March 16, 2022, the issuer had outstanding 335,183,206 shares of Common Stock, par value $.001 per share.

 

 

 

 

 

 

TABLE OF CONTENTS

 

    Page
Part I   2
Item 1 Business 2
Item 1A Risk Factors 7
Item 1B Unresolved Staff Comments 13
Item 2 Properties 13
Item 3 Legal Proceedings 14
Item 4 Mine Safety Disclosures 15
Part II   16
Item 5 Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 16
Item 6 Selected Financial Data 17
Item 7 Management’s Discussion and Analysis of Financial Condition and Results of Operations 17
Item 7A Quantitative and Qualitative Disclosures About Market Risk 24
Item 8 Financial Statements 25
Item 9 Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 62
Item 9A Controls and Procedures 62
Item 9B Other Information 62
Part III   63
Item 10 Directors, Executive Officers and Corporate Governance 63
Item 11 Executive Compensation 67
Item 12 Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters 69
Item 13 Certain Relationships and Related Transactions, and Director Independence 70
Item 14 Principal Accountant Fees and Services 71
Part IV   72
Item 15 Exhibits and Financial Statement Schedules 72
Item 16 Form 10-K Summary 74

 

CAUTIONARY STATEMENT REGARDING FORWARD LOOKING INFORMATION

 

This report includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These statements involve risks and uncertainties, and our actual results could differ significantly from those discussed herein. These include statements about our expectations, beliefs, intentions or strategies for the future, which the Company indicates by words or phrases such as “anticipate,” “expect,” “estimate,” “could,” “should,” “would,” “project,” “predict,” “intend,” “plan,” “will,” “believe,” and similar language, including those set forth in the discussion under “Description of Business,” “Risk Factors” and “Management’s Discussion and Analysis or Plan of Operation” as well as those discussed elsewhere in this Form 10-K. The Company bases its forward-looking statements on information currently available to it, and the Company believes that the assumption and expectations reflected in such forward-looking statements are reasonable, and it assumes no obligation to update them. Statements contained in this Form 10-K that are not historical facts are forward-looking statements that are subject to the “safe harbor” created by the Private Securities Litigation Reform Act of 1995.

 

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PART I

 

ITEM 1. BUSINESS.

 

Overview

 

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 ongoing regulatory, accounting, real estate, human resources, and administrative services.

 

Over the last few years, 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 businesses and manage the continuing growth of their operations.

 

To date, the acquisition and consolidation of the Company’s client businesses in Massachusetts and Illinois have been completed. The acquisition of a client business in Maryland has been contracted, and the Company is awaiting approval by the Maryland Cannabis Control Commission, which is pending. Upon approval, this entity will be consolidated. The acquisitions of the remaining businesses located in Nevada and Delaware are at various stages of completion and subject to each state’s laws governing the ownership transfer of cannabis licenses and other closing conditions. Delaware will require a modification of current cannabis ownership laws to permit for-profit ownership, which is expected to occur when the state legalizes recreational adult-use cannabis. Until the law changes and the acquisition is approved, the Company continues to generate revenue from rental income, management fees, and licensing royalties.

 

The transition to a fully integrated muti-state cannabis operator (“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) optimize the Company’s brand portfolio and licensing revenue by expanding into additional states with legal cannabis programs.

 

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 quality 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 product recipes.

 

The Company markets its high-quality cannabis flowers and concentrates under the award-winning1 Nature’s Heritage brand; cannabis-infused chewable tables and powder drink mixes under the brand names Kalm Fusion and K Fusion; all natural fruit chews under the award-winning1 Betty’s Eddies brand; and brownies, cookies, and other social sweets under the Bubby’s Baked brand. The Company’s cannabis-infused brands have been top-selling products in Maryland and Massachusetts.2 The Company intends to introduce additional product lines under these brands in the foreseeable future.

 

The Company also has strategic alliances with prominent brands. The Company has partnered with renowned ice cream maker Emack & Bolio’s® to create a line-up of cannabis-infused vegan and dairy ice cream. Additionally, the Company has secured distribution rights for 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’s operations have improved significantly over the past year as reflected in the following financial highlights:

 

  Revenues increased 139% to approximately $121.5 million in 2021 from $50.9 million in 2020;
  Adjusted EBITDA3 increased 144% to approximately $43.1 million in 2021 compared to $17.7 million in 2020;
  Total assets increased to approximately $123.2 million in 2021 from $76.4 million in 2020; and
  Cash and cash equivalents increased to approximately $29.7 million in 2021 from $3.0 million in 2020.

 

 

1 Awards won by the Company’s Betty’s Eddies brand include LeafLink 2021 Best Selling Medical Product, Reddit Sparkie 2021 Best Edible, Respect My Region 2021 Hottest Edible, LeafLink 2020 Industry Innovator, and Explore Maryland Cannabis 2020 Edible of the Year. Awards won by the Company’s Nature’s Heritage brand include the Cultivators Cup 2021 Silver Medal and the High Times Cannabis Cup 2021 Bronze Medal.

 

2 Source: LeafLink Insights 2020.

 

3 Adjusted EBITDA is a non-GAAP financial measurement that is defined in Item 7. Management’s Discussion And Analysis Of Financial Condition And Results Of Operations.

 

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The Company’s strengths can be summarized as follows:

 

Professional Management

 

The Company’s management is one of the most experienced and long-tenured in the cannabis industry. It has had considerable success creating and growing business in the industry by successfully applying for cannabis licenses on behalf of its clients, overseeing the development of such clients’ cannabis operations and security plans, sourcing real estate for cannabis facilities in receptive municipalities, raising capital to purchase and develop facilities, and adhering operations to regulations established by individual state governments, including all environmental and social governance requirements. The knowledge and experience of the Company’s management provides a solid platform for the Company’s direct ownership through consolidation of the organic businesses it developed and for expansion to other opportunities in other cannabis-legal states.

 

Development of State-of-the-Art Cannabis Facilities and Operations

 

The Company has developed state-of-the-art cannabis cultivation, production, and dispensary facilities in multiple states utilizing the Company’s proprietary practices and implementing industry best practices. Its facilities are examples of operational excellence under the Company’s proven management policies and processes.

 

Cannabis Brand Creation

 

The Company has developed unique brands of precision-dosed cannabis-infused products which are currently licensed and distributed in cannabis-legal states. The Company intends to continue expanding both its brand portfolio and the licensing of its branded products into additional cannabis-legal states and overseas.

 

Technological and Scientific Innovation

 

The Company is diligent in identifying and reviewing the latest sciences and processes applicable to the cultivation, distillation, production, packaging, securing, and distribution of cannabis and cannabis-infused products. The Company has obtained the highest quality cannabis strains and genetics. It is at the leading edge of patient education and physician outreach for cannabis, and it seeks strategic relationships with companies that are at the forefront of extraction and distillation.

 

Education and Knowledge Sharing

 

The rapid growth of the legal cannabis market presents a global paradigm shift and challenges to medical professionals and consumers who seek scientific knowledge and research regarding the medical benefits of cannabis. The Company provides educational research and studies on its brands and products to its growing community of healthcare professionals and consumers. As cannabis becomes more mainstream, medical providers will need to be educated on how to prescribe or make recommendations to their patients, and consumers will need to learn how to gain the most benefit from certain strains, genetics, or formulations.

 

As part of its education initiative, the Company intends to assemble a Scientific Advisory Board (the “SAB”) that will include knowledgeable medical practitioners and researchers focused on the scientific application of cannabis for health and wellness. The SAB’s goals will include the development of strategies to address the most widespread and debilitating medical and dietary conditions through the utilization of cannabis- and hemp-based therapies.

 

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Consolidation Plan

 

The Company’s Consolidation Plan consists of the strategic decision to acquire and consolidate client cannabis businesses it developed, and in some instances managed and advised, in Massachusetts, Illinois, Maryland, Nevada, and Delaware. When completed, the businesses that are acquired and consolidated will be reported in the Company’s financial statements. The following is a summary of the Company’s progress towards its Consolidation Plan.

 

Massachusetts

 

In December 2018, the Massachusetts Cannabis Control Commission (the “MCCC”) approved the conversion of ARL Healthcare Inc. (“ARL”), the Company’s cannabis-licensed client, from a non-profit entity to a for-profit corporation and the transfer of ownership to the Company. ARL holds cannabis licenses for cultivation, production and dispensing.

 

The Company operates (i) a 10,000 square foot dispensary, developed within its 22,700 square foot property in Middleboro that received approval from the MCCC to commence operations in December 2019, and (ii) a 70,000 square foot cultivation and production facility, developed within its 138,000 square foot property in New Bedford that received approval from the MCCC to commence operations in January 2020. The Company intends to expand the cultivation and production facility throughout the balance of the property in 2023.

 

The Company entered into an agreement to acquire a second dispensary in Beverly in early 2022, and expects to complete the buildout and commence operations, subject to approval by the MCCC, by the summer of 2022.

 

Illinois

 

In October 2019, the Illinois Department of Financial & Professional Regulation approved the Company’s acquisition of KPG of Anna LLC and KPG of Harrisburg LLC, the Company’s two cannabis-licensed clients that operate Company-built and -owned medical cannabis dispensaries in the state of Illinois (both entities collectively, the “KPGs”). As part of this transaction, the Company also acquired the selling parties’ interests in Mari Holdings IL LLC (“Mari-IL”), the Company’s subsidiary which owns the real estate in which the KPGs’ dispensaries are located.

 

Effective October 1, 2019, 100% of the operations of these entities have been consolidated into the Company’s financial statements. Additionally, on January 1, 2020, the state of Illinois legalized recreational adult-use cannabis, allowing the Company to operate both medical and recreational adult-use programs in the Anna and Harrisburg dispensaries. A third recreational dispensary was opened in this state in Mt. Vernon in September 2020, and a fourth recreational dispensary was opened in Metropolis in May 2021.

 

Maryland

 

In 2016, the Company and the members of Kind Therapeutics USA Inc., the Company’s client in Maryland that holds licenses for the cultivation, production, and dispensing of medical cannabis (“Kind”), agreed to a partnership/joint venture whereby Kind would be owned 70% by the Company and 30% by the members of Kind, subject to approval by the Maryland Medical Cannabis Commission (“MMCC”). In reliance thereon, the Company purchased, designed, and developed a 180,000 square foot cultivation and production facility in Hagerstown, MD for occupancy and use by Kind, which became operational in late 2017, and the Company further agreed to manage and finance all aspects of Kind’s cannabis business, as Kind had no background or experience in the industry.

 

In 2018, prior to finalizing the documents confirming the partnership/joint venture, the Company and the members of Kind negotiated and entered into a memorandum of understanding (“MOU”) for the Company to acquire 100% of the membership interests of Kind. Also at that time, the parties entered into a management services agreement for the Company to provide Kind with comprehensive management services in connection with the business and operations of Kind, and a 20-year lease agreement for Kind’s utilization of the Company’s Hagerstown facility. Additionally, in 2019, the Company purchased a 9,000 square foot building in Anne Arundel County which is to be developed into a dispensary to be leased to Kind.

 

In 2019, the members of Kind sought to renegotiate the terms of the MOU and subsequently sought to renege on both the original partnership/joint venture and the MOU. The Company engaged with the members of Kind in good faith in an attempt to reach updated terms acceptable to both parties, however the members of Kind failed to reciprocate in good faith, resulting in an impasse. Incrementally, both parties through counsel further sought to resolve the impasse, however such initiative resulted in both parties commencing legal proceedings.

 

In December 2021, the Company entered into a membership interest purchase agreement with the members of Kind to acquire 100% of the equity ownership of Kind in exchange for $13,500,000 payable in cash (subject to adjustment) and $6,500,000 payable by the issuance of four-year 6.0% promissory notes to the members of Kind. The notes shall be secured by a first priority lien on the Company’s property in Hagerstown, MD. Upon execution of the membership interest purchase agreement, the Company deposited, in escrow, the sum of $5,000,000 as a contract down-payment.

 

Simultaneously, the Company entered into a membership interest purchase agreement with one of the members of Kind to acquire such member’s entire equity ownership interest in (i) Mari Holdings MD LLC (“Mari-MD”), the Company’s majority owned subsidiary that owns production and retail cannabis facilities in Hagerstown, MD and Annapolis, MD, and (ii) Mia Development LLC (“Mia”), the Company’s majority owned subsidiary that owns production and retail cannabis facilities in Wilmington, DE. The purchase price for the interests in Mari-MD and Mia is $2,000,000 in the aggregate, payable in cash. Giving effect to the purchase of these interests, the Company will own approximately 99.7% and 94.3%, respectively, of Mari-MD and Mia.

 

The closings under the foregoing agreements are subject to the fulfilment of closing conditions including, but not limited to, approval by the MMCC, which is pending. There is no assurance that the approval of the MMCC will be obtained or that the further closing conditions will be met. Simultaneous with the closing of the transactions contemplated by the foregoing agreements, the aforementioned litigation between the parties will be dismissed. For further information, see Part I, Item 3. Legal Proceedings in this report.

 

Nevada

 

In 2019, the Company entered into a purchase agreement to acquire 100% of the ownership interests of The Harvest Foundation LLC (“Harvest”), its cannabis-licensed client. Harvest holds both medical and adult-use cannabis cultivation licenses, and operates in a 10,000 square foot cannabis cultivation facility developed with the Company. Upon the approval of the transaction by the state authority, and the fulfillment of other closing conditions, the ownership of Harvest will be transferred to the Company, and the operations of Harvest will begin to be consolidated into the Company’s financial statements. There is no assurance that the closing conditions to the Company’s acquisition of Harvest, including approval by the state authority, will be achieved or that the acquisition will be consummated

 

Delaware

 

Delaware’s current cannabis program is for medical use only, and requires license holders to be not-for-profit entities. The Company provides comprehensive management and real estate services to First State Compassion Center (“FSCC”), its cannabis-licensed client in this state. The Company’s validated cannabis experience was instrumental in FSCC being granted Delaware’s first ever seed-to-sale medical cannabis license, and two of the four statewide licenses.

 

FSCC leases the Company-developed 47,000 square foot seed-to-sale facility in Wilmington and the Company’s 4,000 square foot leased retail location in Lewes which the Company developed into a cannabis dispensary. In 2019, the Company signed a lease with an option to purchase a 100,000 square foot building in Milford, which it is currently developing into a second cultivation and production facility for FSCC.

 

The Delaware medical program has grown to over 10,000 licensed medical patients. FSCC, under the Company’s management, is currently operating two of the six cannabis licenses in the state. The additional cultivation and production facility in Milford will bring a much-needed supply of product to a state where demand continues to outpace supply.

 

The state is expected to allow “for-profit” ownership of cannabis licenses when the state legalizes recreational adult-use cannabis, at which time the Company will seek to acquire FSCC and obtain ownership of the licenses and operations, subject to state approval.

 

Rhode Island

 

Rhode Island currently has a medical cannabis program where license holders must be not-for-profit entities. Previous discussions held by the Company to potentially acquire a licensed cannabis asset are currently suspended.

 

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Corporate History

 

The Company was incorporated in the state of Delaware in January 2011 as a wholly-owned subsidiary of Worlds Inc. under the name Worlds Online Inc., which was later spun-off to its stockholders. At its inception, Worlds Online Inc. operated online virtual environments. In 2014, the Company transitioned its operational focus to the emerging cannabis industry and led the effort to win the cannabis license in Delaware on behalf of its client. To date, the Company has won a total of 17 cannabis licenses on behalf of itself and its cannabis clients.

 

The following is a summary of the Company’s history over the past three calendar years:

 

In June 2019, the Company acquired a 70% ownership interest of MediTaurus LLC, a company established by Jokubas Ziburkas PhD, a neuroscientist and leading authority on hemp-based CBD and the endocannabinoid system. MediTaurus operates in the United States and Europe and has developed proprietary CBD formulations sold under its Florance™ brand. In September 2021, the Company acquired the remaining 30% ownership interest of MediTaurus.

 

In October 2019, the Company closed on the purchase of a 9,000 square foot building in Annapolis, MD which it is developing into a medical cannabis dispensary that the Company expects to be completed by June 2022.

 

In October 2019, the Illinois Department of Financial and Professional Regulation approved the Company’s acquisition of the KPGs and Mari-IL, and as of such date, the KPGs and Mari-IL became wholly-owned subsidiaries of the Company.

 

In January 2020, the Illinois legalized adult-use cannabis, which was added to the Company’s two existing cannabis licenses, thereby increasing the Company’s operations in Illinois to service both medical and recreational cannabis consumers.

 

In February 2020, the Company purchased a 4,800 square foot stand-alone retail building in Mt Vernon, IL which it developed into a state-approved adult-use cannabis dispensary that opened in September 2020.

 

In July 2020, the Company refinanced a mortgage secured by its properties in Massachusetts generating proceeds of $13.0 million that were used to pay down the initial mortgage and short-term promissory notes.

 

In February 2021, the Company entered into a five-year lease agreement for a 12,000 square foot premises located in Wilmington, DE which the Company developed into a cannabis production facility with offices, and subleases to its cannabis-licensed client in this state.

 

In March 2021, the Company entered into a securities purchase agreement with Hadron Healthcare Master Fund with respect to a financing facility of up to $46.0 million in exchange for newly-designated Series C convertible preferred stock of the Company and warrants to purchase the Company’s common stock. The initial proceeds of $23.0 million from the facility were used to pay down debt, and is being used to upgrade certain of the Company’s owned and managed facilities. A portion of the balance of the facility is available to fund the Kind acquisition, provided such acquisition is consummated, including obtaining the necessary regulatory approvals, no later than the end of 2022.

 

In May 2021, the Company opened its fourth adult-use dispensary in Illinois in the city of Metropolis. The Company had been renting this 14,000 square foot premises since January 2021, which it developed into a state-approved cannabis dispensary in early 2021. In July 2021 the Company purchased the premises.

 

In August 2021, the Company entered into a manufacturing and royalty agreement with renown ice cream brand Emack & Bolio’s® whereby the companies will collaborate to create a line-up of cannabis-infused vegan and dairy ice cream containing the Company’s full spectrum of natural cannabinoids and terpenes. This new category of cannabis products is expected to debut in Massachusetts during 2022, followed by launches in other cannabis-legal markets.

 

In November 2021, in order to quality for applying to a cannabis dispensary license lottery in Ohio, the Company entered into short-term lease agreements for six retail properties in this state, each property between 4,000 and 6,000 square feet and with a lease term of eleven months. Should the Company be awarded one or more cannabis licenses, it can extend the term of one or more of the lease agreements to ten years (with options to further extend), and develop the premises of such extended leases into cannabis dispensaries. In early 2022, the Company was notified that it was awarded a license, and is awaiting the final verification process to be completed by the state.

 

In November 2021, the Company entered into an asset purchase agreement to acquire the cannabis license, property lease, and other assets and rights of, and to assume the liabilities and operating obligations associated with a cannabis dispensary that is currently operating in Beverly, MA. The purchase is contingent upon the approval of the Massachusetts Cannabis Control Commission, which is expected by the summer of 2022. Concurrent with the execution of this agreement, the parties entered into a consulting agreement pursuant to which the Company shall provide certain oversight services related to the development, staffing, and operation of the business in exchange for a monthly fee.

 

In December 2021, the Company entered into a membership interest purchase agreement to acquire 100% of the equity ownership of Kind, the Company’s cannabis-licensed client that holds licenses for the cultivation, production and dispensing of medical cannabis in Maryland. The Company is currently waiting for approval of this acquisition from the MMCC, which is pending. Upon approval, the acquisition of Kind will be consummated, Kind’s financial results will begin to be consolidated into the Company’s financial statements, and the pending litigation between the parties will be dismissed.

 

Simultaneous with the Kind membership interest purchase agreement, the Company entered into an agreement to acquire a former owner of Kind’s equity ownership interests in (i) Mari Holdings MD LLC (“Mari-MD”), the Company’s majority owned subsidiary that owns production and retail cannabis facilities in Hagerstown, MD and Annapolis, MD, and (ii) Mia Development LLC (“Mia”), the Company’s majority owned subsidiary that owns production and retail cannabis facilities in Wilmington, DE. The acquisition of these interests will be consummated simultaneous with the closing of the Kind acquisition. Giving effect to the purchase of these interests, the Company will own approximately 99.7% and 94.3%, respectively, of Mari-MD and Mia.

 

Recent Developments

 

In January 2022, the Company entered into a stock purchase agreement to acquire 100% of the ownership interests of Green Growth Group Inc., an entity that has been awarded a craft grow cannabis license issued by the Illinois Department of Agriculture (“IDA”) for cultivation, production, and transporting of cannabis and cannabis-infused products in Illinois. The purchase price of $3,400,000 shall be comprised of $1,900,000 in cash and shares of the Company’s common stock valued at $1,500,000. The acquisition is conditioned upon the approval by the IDA, among other closing conditions, which is expected to occur by July 2022.

 

Also in January 2022, the Company entered into an agreement to purchase a 30-acre parcel of land located in Mt. Vernon, IL containing a 33,000 square foot manufacturing facility and a 13,000 square foot storage warehouse, in exchange for $1,495,000 in cash. Upon execution of the agreement, the Company provided a deposit of $100,000 to the seller. The transaction is expected to close in the second quarter of 2022, after the Company has performed a complete inspection and feasibility review. If such review determines that the premises will not satisfy the Company’s requirements, the Company shall have the right to terminate the agreement with no other obligation other than the loss of the deposit.

 

In February 2022, the Company was notified that it was awarded a cannabis dispensary license from the state of Ohio, and is awaiting the final verification process to be completed by the state.

 

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Competition

 

The Company’s goal is to become a fully integrated MSO of seed-to-sale cannabis operations. The Company is different than some of the other MSOs in that it has organically developed its client businesses from the bottom up, built its own brands and branded products, and has retained its core management team from inception. Other MSOs have raised significantly more capital, including on the Canadian Securities Exchange, and acquired assets in more states than the Company has to date.

 

Additionally, while the Company has a comprehensive suite of products and services for the cannabis industry, it faces competition from companies of varying sizes and geographic reach, who produce and sell similar products. Some of these companies provide a subset of the Company’s product and service offerings, while others are able to provide an equivalent level of the products and services offered by the Company. The Company, using its best practices and operational expertise, is able to produce cannabis products at one of the lowest cost structures in the industry which enables the Company to remain competitive in its markets. That said, the Company’s sales could be reduced significantly if its competitors develop and market products that are more effective, more convenient, or are less expensive than its products.

 

Going forward, as cannabis products become more mainstream and have greater acceptance, it is likely that larger and more established companies, with greater available resources including name recognition and national distribution networks, will enter the field. However, the Company believes that there are many barriers to entry and that to duplicate its licenses, know how, and facilities would take years at a great expense. At the same time, the Company believes the emerging cannabis industry is growing at such a pace that there are more opportunities available than current cannabis businesses can support. The Company is upgrading its marketing efforts to expand branding and distribution, as well as database marketing, home delivery, and business tactics developed by more conventional industries that will be important to the cannabis industry as it becomes more mainstream.

 

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Intellectual Property

 

The Company owns registered trademarks for Betty’s Eddies, Kalm Fusion, and Nature’s Heritage, and has filed to register the Bubby’s Baked and Vibations trademarks.

 

The Company’s proprietary processing, and manufacturing techniques and technologies, while not patented, are kept strictly confidential. The Company enters into and enforces confidentiality agreements with key employees and consultants to protect its IP and general know-how.

 

Employees

 

As of December 31, 2021, the Company had a total of 326 employees, of which 260 were full-time.

 

Website Access to Company Reports

 

The Company’s annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and all amendments to those reports are available free of charge on the Company’s website at www.marimedinc.com as soon as reasonably practicable after such material is electronically filed with, or furnished to, the Securities and Exchange Commission.

 

In addition, copies of the Company’s annual report will be made available, free of charge, on written request.

 

ITEM 1A. RISK FACTORS

 

The Company’s business is subject to numerous risks, including but not limited to those set forth below. The Company’s operations and performance could also be subject to risks that do not exist as of the date of this report but emerge thereafter as well as risks that the Company does not currently deem material.

 

Risks Related to the Company’s Operations

 

The Company’s business, operations, financial condition, and liquidity have been and may continue to be affected by the outbreak of COVID-19.

 

In March 2020, the World Health Organization declared the outbreak of COVID-19 a global pandemic. The spread of COVID-19 in the United States and the measures to contain it—including business shutdowns, indoor capacity restrictions, social distancing, and diminished travel—have negatively impacted the economy and created significant volatility and disruption in financial markets. Business shutdowns in certain states in response to stay-at-home orders and related measures had temporarily eliminated access to the Company’s dispensaries by certain customers, principally non-medical use customers, impacting sales during this restricted period. Further, the volatility in the financial markets and investor uncertainty has delayed the implementation of the Company’s Consolidation Plan. As a result, the Company’s business, operations, financial condition, and liquidity have been and may continue to be impacted. Further, the disruption to the global economy and to the Company’s business, along with the decline in its stock price, may also negatively impact the future carrying values of certain assets, including inventories, accounts receivables, intangibles, and goodwill.

 

Cannabis remains illegal under federal law.

 

Cannabis remains illegal under federal law. It is a Schedule I controlled substance. Even in those jurisdictions in which the use of medical cannabis has been legalized at the state level, its prescription is a violation of federal law. The United States Supreme Court has ruled that it is the federal government that has the right to regulate and criminalize cannabis, even for medical purposes. Therefore, federal law criminalizing the use of cannabis trumps state laws that legalize its use for even medicinal purposes. At present the states are standing tall against the federal government, maintaining existing laws and passing new ones in this area. States continue to exert this freedom, with more states considering legalization. However, the Company continually faces election cycles, and a new administration or the United States Congress could introduce a less favorable policy. A change in the federal attitude towards enforcement could cripple the industry. There is currently broad support for changes in the federal law for improved banking, investing, and the potential legalization of cannabis. However, there is no certainty what will get changed or when. The medical and recreational cannabis industries are the Company’s primary markets, and if these industries were to be unable to operate, the Company would lose its potential clients and licenses, which would have a significantly negative impact on the Company’s business, operations, and financial condition.

 

Future growth is dependent on additional states legalizing cannabis.

 

Continued development of the cannabis market is dependent upon continued legislative authorization of cannabis at the state level for medical and adult recreational use. Any number of factors could slow or halt the progress. Further, progress, while encouraging, is not assured and the process normally encounters set-backs before achieving success. While there may be ample public support for legislative proposal, key support must be created in the legislative committee, or a bill may never advance to a vote. Numerous factors impact the legislative process. Any one of these factors could slow or halt the progress and adoption of cannabis for medical and/or recreational purposes, which would limit the market for the Company’s products and negatively impact its ability to grow into other states.

 

The Company’s consolidation plan and growth strategy is subject to regulatory hurdles. 

 

The Company’s strategy to expand its footprint into additional legal cannabis states through new applications and acquisitions of existing cannabis businesses is subject, in each respective jurisdiction, to the approval of a new license application or license transfer application. Such approvals are subject to numerous delays and uncertainties based upon administrative and legislative changes in what are typically, in light of the recent cannabis legalization status in most jurisdictions, new and untested rules and regulations. There is little interpretative guidance on how states will apply their respective licensing regulations and limited control over when an application will be acted upon. As a result, there is no assurance that the Company’s expansion plan will not be frustrated by regulatory delays, and no assurance that any license application or transfer application will be approved.

 

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It will be difficult to evaluate the Company based on its past performance because it is transitioning its business into that of an owner of cannabis licenses and operator of cannabis operations.

 

The Company has been actively engaged in the cannabis industry as an MSO for a relatively short period of time and, accordingly, has only limited financial results on which it can be evaluated. In addition, the components of the Company’s revenue and costs are changing as it continues to move away from a fee-based-only business to a multi-state seed-to-sale operation. The Company is subject to, and must be successful in addressing, the risks typically encountered by companies operating in the rapidly evolving cannabis marketplace, including those risks relating to:

 

  the failure to develop brand name recognition and reputation;
     
  the failure to achieve market acceptance of the Company’s services;
     
  a slowdown in general consumer acceptance of legalized cannabis; and
     
  an inability to grow and adapt the Company’s business to evolving consumer demand.

 

The medical cannabis industry faces strong opposition from traditional medicines.

 

It is believed by many that existing, entrenched, well-funded, businesses may have a strong economic opposition to the medical cannabis industry as currently formed. For example, the Company believes that the pharmaceutical industry does not want to cede control of any compound that could become a strong selling drug. Specifically, medical cannabis will likely adversely impact the existing market for Marinol, the current “cannabis pill” sold by mainstream pharmaceutical companies. Further, the medical cannabis industry could face a material threat from the pharmaceutical industry should cannabis displace other drugs or simply encroach upon the pharmaceutical industry’s market share for compounds such as cannabis and its component parts. The pharmaceutical industry is well funded with a strong and experienced lobby that eclipses the funding of the medical cannabis movement. Any inroads the pharmaceutical industry makes in halting or rolling back the medical cannabis movement could have a detrimental impact on the market for the Company’s products and thus on its business, operations and financial condition.

 

The Company’s clients may have difficulty accessing the service of banks, which may make it difficult for such clients to purchase the Company’s products and services.

 

As discussed above, the use of cannabis is illegal under federal law. Therefore, there are banks that will not accept for deposit funds from sale of cannabis and may choose not to do business with the Company’s clients. While there is pending legislation in the United States Senate that will allow banks to transact business with state-authorized medical cannabis businesses, there can be no assurance his legislation will be successful, that banks will decide to do business with medical cannabis retailers, or that in the absence of legislation state and federal banking regulators will not create issues on banks handling funds generated from an activity that is illegal under federal law. Notwithstanding, the Company has been able to secure state-chartered banks that are in compliance with federal law and provide certain banking services to companies in the cannabis industry. The inability of potential clients in the Company’s target market to open accounts and otherwise use the service of banks may make it difficult for them to purchase the Company’s products and services.

 

The Company may not be able to economically comply with any new government regulation that may be adopted with respect to the cannabis industry.

 

New legislation or regulation, or the application of existing laws and regulations to the medical and consumer cannabis industries could add additional costs and risks to doing business. the Company is subject to regulations applicable to businesses generally and laws or regulations directly applicable to communications over the Internet and access to e-commerce. Although there are currently few laws and regulations regulating the cannabis products, it is reasonable to assume that as cannabis use becomes more mainstream that the FDA and or other federal, state and local governmental agencies will impose regulations covering the cultivation, purity, privacy, quality control, security and many other aspects of the industry, all of which will likely raise the cost of compliance thereby reducing profits or even making it more difficult to continue operations, either of which scenarios, if they occur, could have a negative impact on the Company’s business and operations.

 

The Company’s relatively small size and limited resources may restrict its ability to manage any growth it may experience.

 

Growth of the Company’s business may place a significant strain on its management systems and resources and may require the Company to implement new operating and financial systems, procedures and controls. the Company’s failure to manage its growth and expansion could adversely affect its business, results of operations and financial condition. Failure to implement new systems effectively or within a reasonable period of time could adversely affect the Company’s business, results of operations and financial condition. The Company is constantly looking to add additional qualified talent to the management team to support its growth, but there is no assurance it will be successful in identifying and/or hiring such people.

 

The market may not readily accept the Company’s products.

 

Demand and market acceptance for the Company’s licensed branded new cannabis-infused products are subject to a high level of uncertainty. The successful introduction of any new product requires a focused, efficient strategy to create awareness of and desire for the products. For example, in order to achieve market acceptance for the Company’s cannabis products it will need to gain market and patient acceptance. Despite management’s efforts to gather data before introducing new products as a means to minimize the risk of product non-acceptance, no assurance can be given that the Company’s efforts will be successful.

 

The Company’s marketing strategy may be unsuccessful and is subject to change as a result of a number of factors, including changes in market conditions (including the emergence of new market segments which in the Company’s judgment can be readily exploited through the use of its technology), the nature of possible license and distribution arrangements and strategic alliances which may become available to us in the future and general economic, regulatory and competitive factors. There can be no assurance that the Company’s strategy will result in successful product commercialization or that its efforts will result in initial or continued market acceptance for its proposed products.

 

(8)

 

 

If the Company is unable to protect its intellectual property rights, competitors may be able to use the Company’s technology or trademarks, which could weaken its competitive position.

 

The Company relies on a combination of copyright, trademark, and trade secret laws and restrictions on disclosure to protect its intellectual property rights. The Company enters into confidentiality or license agreements with its employees, consultants and customers, and controls access to and distribution of its products, and other proprietary information. Despite the Company’s efforts to protect its proprietary rights, unauthorized parties may attempt to copy or otherwise obtain and use its products.

 

If the Company loses its key employees or fails to hire and retain other talented employees when necessary, its operations could be harmed.

 

The success of the Company’s business is currently dependent, in large part, on the personal efforts of Messrs. Robert Fireman, Jon R. Levine, and Timothy Shaw, the Company’s chief executive officer, chief financial officer, and chief operating officer, respectively. The loss of their services could have a material adverse effect on the Company’s business. The success of the Company’s business is currently dependent, in large part, upon its ability to hire and retain additional qualified management, marketing, technical, financial, and other personnel if and when its growth so requires. Competition for qualified personnel is intense and the Company may not be able to hire or retain such additional qualified personnel. Any inability to attract and retain qualified management and other personnel would have a material adverse effect on the Company’s ability to grow its business and operations.

 

The Company faces competition from entities with greater resources.

 

There is potential that the Company will face intense competition from other companies, some of which can be expected to have longer operating histories and more financial resources and experience than the Company. Increased competition by larger and better-financed competitors could materially and adversely affect the business, financial condition, results of operations or prospects of the Company.

 

Because of the early stage of the industry in which the Company operates, the Company expects to face additional competition from new entrants. To become and remain competitive, the Company will require research and development, marketing, sales and support. The Company may not have sufficient resources to maintain research and development, marketing, sales and support efforts on a competitive basis which could materially and adversely affect the business, financial condition, results of operations or prospects of the Company.

 

The introduction of a recreational model for cannabis production and distribution may impact the medical cannabis market. The impact of this potential development may be negative for the Company, and could result in increased levels of competition in its existing medical market and/or the entry of new competitors in the overall cannabis market in which the Company operates.

 

A change in federal laws regarding the classification of cannabis as a controlled substance, interstate cannabis commerce, banking for entities in the cannabis industry, or other related regulations may have a significant impact on the Company’s business.

 

Results of clinical research, if unfavorable, could have a negative impact on the industries in which the Company operates and consequently on its business model.

 

Research in Canada, the United States and internationally regarding the medical benefits, viability, safety, efficacy, dosing and social acceptance of cannabis or isolated cannabinoids (such as CBD and THC) remains in early stages. There have been relatively few clinical trials on the benefits of cannabis or isolated cannabinoids (such as CBD and THC). Although the Company believes that the articles, reports and studies support its beliefs regarding the medical benefits, viability, safety, efficacy, dosing and social acceptance of cannabis, future research and clinical trials may prove such statements to be incorrect, or could raise concerns regarding, and perceptions relating to, cannabis. Future research studies and clinical trials may reach negative conclusions regarding the medical benefits, viability, safety, efficacy, dosing, social acceptance or other facts and perceptions related to cannabis, which could have a material adverse effect on the demand for the Company’s products with the potential to lead to a material adverse effect on the Company’s business, financial condition, results of operations or prospects.

 

The Company faces the prospect of claims of product liability if anyone is harmed by its products.

 

The Company’s products will be produced for sale directly to end consumers, and therefore there is an inherent risk of exposure to product liability claims, regulatory action and litigation if the products are alleged to have caused loss or injury. In addition, the production and sale of the Company’s products involves the risk of injury to end users due to tampering by unauthorized third parties or product contamination. Previously unknown adverse reactions resulting from human or animal consumption of the Company’s products alone or in combination with other medications or substances could occur. The Company may be subject to various product liability claims, including, among others, that its products caused injury or illness, include inadequate instructions for use or include inadequate warnings concerning possible side effects or interactions with other substances. While the Company has product liability insurance coverage in place and works with third party providers to ensure they do as well, a product liability claim or regulatory action against the Company could exceed the Company’s insurance coverage, and could adversely affect the Company’s reputation and have a material adverse effect on its business and operational results.

 

The Company is subject to compliance with environmental regulations which can be onerous and costly.

 

The Company’s operations are subject to environmental regulation in the various jurisdictions in which it operates. These regulations mandate, among other things, the maintenance of air and water quality standards and land reclamation. They also set forth limitations on the generation, transportation, storage and disposal of solid and hazardous waste. Environmental legislation is evolving in a manner which will require stricter standards and enforcement, increased fines and penalties for non-compliance, more stringent environmental assessments of proposed projects and a heightened degree of responsibility for companies and their officers, directors and employees. There is no assurance that future changes in environmental regulation, if any, will not adversely affect the Company’s operations.

 

Government environmental approvals and permits are currently, and may in the future, be required in connection with the Company’s operations. To the extent such approvals are required and not obtained, the Company may be curtailed or prohibited from implementing its proposed business activities or from proceeding with the development of its operations as currently proposed.

 

Failure to comply with applicable environmental laws, regulations and permitting requirements may result in enforcement actions thereunder, including orders issued by regulatory or judicial authorities causing operations to cease or be curtailed, and may include corrective measures requiring capital expenditures, installation of additional equipment, or remedial actions. The Company may be required to compensate those suffering loss or damage due to its operations and may have civil or criminal fines or penalties imposed for violations of applicable laws or regulations which could have a material adverse effect on its business and operational results.

 

(9)

 

 

The Company is subject to potential risks related to, and arising from, acquiring companies.

 

The Company is in the process of acquiring several companies and intends to acquire other companies in the future. There are risks inherent in any such acquisition. Specifically, there could be unknown or undisclosed risks or liabilities of such companies for which the Company is not sufficiently indemnified. Any such unknown or undisclosed risks or liabilities could materially and adversely affect the Company’s financial performance and results of operations. The Company could encounter additional transaction and integration related costs or other factors such as the failure to realize all of the benefits from such acquisitions. All of these factors could cause dilution to the Company’s earnings per share or decrease or delay the anticipated accretive effect of the acquisition and cause a decrease in the market price of the Company’s securities. The Company may not be able to successfully integrate and combine the operations, personnel and technology infrastructure of any such acquired company with its existing operations. If integration is not managed successfully by the Company’s management, the Company may experience interruptions in its business activities, deterioration in its employee and customer relationships, increased costs of integration and harm to its reputation, all of which could have a material adverse effect on the Company’s business, financial condition and results of operations. The Company may experience difficulties in combining corporate cultures, maintaining employee morale and retaining key employees. The integration of any such acquired companies may also impose substantial demands on the Company’s management. There is no assurance that these acquisitions will be successfully integrated in a timely or cost-efficient manner, or at all.

 

In the event the Company is sued for any reason, it would face potential cost and interference with its business operations.

 

The Company is, and may from time to time become, party to litigation in the ordinary course of business which could adversely affect its business. Should any litigation in which the Company is, or becomes, involved be determined against the Company, such a decision could adversely affect the Company’s ability to continue operating. Even if the Company is involved in litigation and wins, litigation can redirect significant Company resources. Litigation may also create a negative perception of the Company’s brand.

 

(10)

 

 

Risks Related to the Company’s Common Stock

 

Possible issuances of the Company’s capital stock would cause dilution to its existing shareholders.

 

The Company currently has approximately 335.2 million shares of common stock outstanding and it is authorized to issue up to 700 million shares. Therefore, the Company will be able to issue a substantial number of additional shares without obtaining shareholder approval. In the event the Company elects to issue additional shares of common stock in connection with any financing, acquisition or otherwise, current shareholders could find their holdings substantially diluted, which means they will own a smaller percentage of the Company. In addition, the Company currently has outstanding approximately 4.9 million shares of Series B preferred stock (which convert on a one-for-one basis into shares of common stock) and approximately 6.2 million shares of Series C preferred stock (which convert on a five-for-one basis into shares of common stock). The Company’s board of directors is authorized to issue up to a total of 50 million shares of preferred stock (including the previously issued shares) with terms it designates without any further shareholder approval.

 

The exercise or conversion of outstanding warrants and options into common stock will dilute the percentage ownership of the Company’s other shareholders. The sale of such common stock or other common stock in the open market could adversely affect the market price of the Company’s common stock.

 

As of December 31, 2021, there were potentially dilutive securities convertible into shares of common stock comprised of stock options, convertible into 39,821,671 shares, warrants, convertible into 26,351,571 shares, Series B preferred stock, convertible into 4,908,333 shares, Series C preferred stock, convertible into 31,081,080, and promissory notes, convertible into 1,142,857 shares. More convertible securities will likely be granted in the future to the Company’s officers, directors, employees or consultants and as part of future financings. The exercise of outstanding stock options and warrants and conversion of notes and debentures will dilute the percentage ownership of the Company’s other shareholders. Sales, or the expectation of sales, of a substantial number of shares of the Company’s common stock in the private or public markets could adversely affect the prevailing market price of the Company’s common stock.

 

Potential Volatility of Common Share Price

 

The market price of the Company’s common stock could be subject to significant fluctuations. Some of the factors that may cause the market price of the common stock to fluctuate include:

 

  (a) the public’s reaction to the Company’s press releases, announcements and filings with regulatory authorities and those of its competitors;
     
  (b) fluctuations in broader stock market prices and volumes;
     
  (c) changes in market valuations of similar companies;
     
  (d) investor perception of the Company, its prospects or the industry in general;
     
  (e) additions or departures of key personnel;
     
  (f) commencement of or involvement in litigation;
     
  (g) changes in the regulatory landscape applicable to the Company, the dietary supplement and/or the cannabis and hemp industries;
     
  (h) media reports, publications or public statements relating to, or public perceptions of, the regulatory landscape applicable to the Company, the cannabis or the hemp industry, whether correct or not;
     
  (i) announcements by the Company or its competitors of strategic alliances, significant contracts, new technologies, acquisitions, commercial relationships, joint ventures or capital commitments;
     
  (j) variations in the Company’s quarterly results of operations or cash flows or those of other comparable companies;
     
  (k) revenues and operating results failing to meet the expectations of securities analysts or investors in a particular period;

 

(11)

 

 

  (l) changes in the Company’s pricing policies or the pricing policies of its competitors;
     
  (m) future issuances and sales of the Company’s common stock;
     
  (n) sales of the Company’s common stock by insiders of the Company;
     
  (o) third party disclosure of significant short positions;
     
  (p) demand for and trading volume of the Company’s common stock;
     
  (q) changes in securities analysts’ recommendations and their estimates of the Company’s financial performance;
     
  (r) short-term fluctuation in stock price caused by changes in general conditions in the domestic and worldwide economies or financial markets; and
     
  (s) the other risk factors described in this section or other sections of this 10-K.

 

The realization of any of these risks and other factors beyond the Company’s control could cause the market price of the common stock to decline significantly.

 

In addition, broad market and industry factors may harm the market price of the Company’s common stock. Hence, the price of the common stock could fluctuate based upon factors that have little or nothing to do with the Company, and these fluctuations could materially reduce the price of the common stock regardless of the Company’s operating performance. In the past, following a significant decline in the market price of a company’s securities, there have been instances of securities class action litigation having been instituted against that company. If the Company were involved in any similar litigation, it could incur substantial costs, Management’s attention and resources could be diverted and it could harm the Company’s business, operating results and financial condition.

 

In the event the Company requires additional financing and access to capital, covenants and restrictions in existing agreements may limit the Company’s options.

 

Certain of the Company’s existing financing agreements contain covenants that restrict its ability to incur additional debt, pay dividends or redeem shares of its stock. If the Company seeks to raise additional capital or financing, there can be no assurance that such capital or additional financing will be available on terms that comply with existing covenants and are satisfactory to the Company.

 

The Company has no plans to pay dividends on its common stock.

 

The Company does not expect to declare or pay dividends on the common stock in the foreseeable future. In addition, the payment of cash dividends is limited by the terms of the Company’s financing agreements.

 

(12)

 

 

ITEM 1B. UNRESOLVED STAFF COMMENTS.

 

None.

 

ITEM 2. PROPERTIES.

 

The Company currently owns and leases the following properties throughout the United States.

 

Wilmington, Delaware

 

The Company owns a 45,070 square foot facility on 2.25 acres within a fenced-in business park which it purchased in September 2016 and developed into a cannabis cultivation, processing, and dispensary facility. The property is secured under a mortgage with the Bank of New England that matures in 2031. The facility is leased to the Company’s Delaware cannabis-licensed client under a 20-year lease expiring in 2035.

 

Lewes, Delaware

 

The Company leases 4,000 square feet of retail space in a multi-use building. This lease commenced in October 2016 and in 2021 the term was extended through April 2027. The Company built out the space into a cannabis dispensary which is subleased under a coterminous sublease to its Delaware cannabis-licensed client.

 

Milford, Delaware

 

The Company leases a 100,000 square foot warehouse which it developed into a 60,000 square foot cultivation facility, with plans to develop the remaining square footage into a processing facility. The lease term expires in March 2030, with an option to extend the term for three additional five-year periods. Construction of the processing facility was completed in February 2022. The entire premises is subleased under a coterminous sublease to the Company’s Delaware cannabis-licensed client.

 

Anna, Illinois

 

The Company owns and operates a 3,400 square foot free-standing cannabis dispensary that is secured under a mortgage with DuQuoin State Bank maturing in 2020, provided it is not annually renewed by the bank, which the bank has done every year of this mortgage (the “DSQ Mortgage”).

 

Harrisburg, Illinois

 

The Company owns and operates a 3,400 free-standing cannabis dispensary, also secured under the DSQ Mortgage.

 

Mt. Vernon, Illinois

 

The Company owns and operates a 4,800 square foot free-standing cannabis dispensary that is secured under a mortgage with South Porte Bank that matures in June 2022.

 

Metropolis, Illinois

 

In late 2020, the Company entered into a lease agreement for a 14,000 square foot free-standing retail building. The Company developed the premises into a state-approved adult-use cannabis dispensary in early 2021, and selling operations commenced in May 2021. The premises were purchased by the Company in July 2021, secured under a second mortgage with DuQuoin State Bank that matures in July 2041.

 

Hagerstown, Maryland

 

The Company owns a 180,000 square foot manufacturing facility that it developed into cannabis cultivation and production facility. The property secures a $3 million promissory note which was paid down in March 2021. This facility is leased to the company’s cannabis licensed client under a 20-year triple net lease expiring in 2038.

 

Annapolis, Maryland

 

The Company owns a free-standing 9,000 square foot industrial building which it is developing into a medical cannabis dispensary that is expected to open in 2022.

 

Clark County, Nevada

 

The Company leases approximately 10,000 square feet of an industrial building that was built into a cannabis cultivation facility. This facility is subleased to the Company’s licensed cannabis client under a sub-lease which is coterminous with the Company’s lease for 10 years expiring in 2024.

 

New Bedford, Massachusetts

 

The Company owns 138,000 square foot industrial property located on 21.95 acres within the New Bedford Industrial Park. The property secures a mortgage with the Bank of New England that matures in 2027. The Company developed approximately half of the property into a cannabis cultivation and processing facility in which it conducts wholesale operations. The remaining portion of the property is leased to a non-cannabis manufacturing company who will be vacating the premises in 2022. Thereafter, the Company intends to expand its cannabis wholesale operations throughout the entire property.

 

Middleborough, Massachusetts

 

The Company owns and operates a 22,700 square foot retail and warehouse building located in a high-traffic area of this municipality. 10,000 square feet of the building has been developed into a retail dispensary, with the remaining square footage used as a warehouse.

 

Norwood Massachusetts

 

The Company’s corporate offices are located in Norwood, Massachusetts. This 10,000 square foot space is under a 10-year lease with a related party that expires in 2028 and includes a 5-year extension option.

 

(13)

 

 

ITEM 3. LEGAL PROCEEDINGS.

 

Terminated Employment Agreement

 

In July 2019, Thomas Kidrin, the former chief executive officer and a former director of the Company, filed a complaint in the Massachusetts Superior Court which alleged the Company failed to pay all wages owed to him and breached his employment agreement, and requested multiple damages, attorney fees, costs, and interest. The Company moved to dismiss certain counts of the complaint and asserted counterclaims against Mr. Kidrin which alleged breach of contract, breach of fiduciary duty, money had and received, and unjust enrichment.

 

While the Company’s motion to dismiss was pending, the parties entered into a settlement agreement and general release in August 2021 whereby, among other conditions, (i) Mr. Kidrin’s complaint was dismissed with prejudice, (ii) the Company issued to Mr. Kidrin five-year warrants to purchase up to 1,000,000 shares of the Company’s common stock at an exercise price of $0.50 per share, (iii) the Company irrevocably transferred intangible assets relating to the online virtual worlds business the Company had conducted in early 2014, prior to its pivot into the legal cannabis industry (such assets had zero carrying value on the Company’s balance sheet), and (iv) each party released and discharged the other from all claims, losses, and liabilities.

 

Maryland Litigation

 

As previously discussed in Part I, Item 1. Business in this report, in 2019, the members of Kind had sought to renege on the parties’ original agreement to a partnership/joint venture made in 2016 and subsequent MOU. The Company engaged with the members of Kind in good faith in an attempt to reach updated terms acceptable to both parties; however, the members of Kind failed to reciprocate in good faith, resulting in an impasse. Incrementally, both parties through counsel further sought to resolve the impasse; however, such initiative resulted in both parties commencing legal proceedings.

 

In November 2019, Kind commenced an action by filing a complaint against the Company in the Circuit Court for Washington County, MD captioned Kind Therapeutics USA, Inc. vs. MariMed, Inc., et al. (Case No. C-21-CV-19-000670) (the “Complaint”). The Complaint, as amended, alleges breach of contract, breach of fiduciary duty, unjust enrichment, intentional misrepresentation, rescission, civil conspiracy, and seeking an accounting and declaratory judgment and damages in excess of $75,000 (the Court has subsequently dismissed Kind’s claims for declaratory judgment on the lease, rescission of the lease, and civil conspiracy). On November 15, 2019, the Company filed counterclaims against Kind and a third-party complaint against the members of Kind (Jennifer DiPietro, Susan Zimmerman, and Sophia Leonard-Burns) and William Tham (the “Counterclaims”). The Counterclaims, as amended, allege breach of contract with respect to each of the partnership/joint venture agreement, the MOU, the MSA, the Lease, and the Licensing and Manufacturing Agreement (“LMA”), unjust enrichment, promissory estoppel/detrimental reliance, fraud in the inducement, breach of fiduciary duty, and seeks reformation of the MSA, a declaratory judgment regarding enforceability of the partnership/joint venture arrangement and/or the MOU, specific performance of the parties’ various contracts, and the establishment of a constructive trust for the Company’s benefit. The Counterclaims also seek damages.

 

At the time the Complaint and Counterclaims were filed, both parties, the Company (including its subsidiaries Mari Holdings MD LLC and MariMed Advisors Inc.) and Kind, brought motions for a temporary restraining order and a preliminary injunction. By Opinion and Order entered on November 21, 2019, the Court denied both parties motions for a temporary restraining order. In its opinion, the Court specifically noted that, contrary to Kind’s allegations, the MSA and the Lease “appear to be independent, valid and enforceable contracts.”

 

A hearing on the parties’ cross-motions for preliminary injunction was held in September 2020 and November 2020. Also in November 2020, the Court granted the Company’s motion for summary judgment as to the Lease, determining that the Lease is valid and enforceable. Based on this ruling, the Company is seeking judgment at trial in the amount of approximately $5.4 million for past due rent and expenses owed by Kind under the Lease.

 

In December 2020, the Court entered a Preliminary Injunction Order, accompanied by a Memorandum Opinion, denying Kind’s motion for a preliminary injunction (which Kind had withdrawn at the conclusion of the hearing) and granting the Company’s request for preliminary injunction. The Court determined that the Company is likely to succeed with respect to the validity and enforceability of the MSA and the LMA, that the Company would suffer substantial and irreparable harm without the preliminary injunction, and that the balance of convenience and public interest both warranted the issuance of a preliminary injunction in the Company’s favor. The Court ordered, inter alia, that the MSA and LMA are in effect pending judgment after trial on the merits, and that Kind and its members, and their attorneys, agents, employees, and representatives, are prohibited from (a) interfering with the Company’s duties and responsibilities under the MSA and (b) withdrawing funds, making any distribution, paying any loans, returning any capital, or making any payment towards a debt from any Kind bank or other financial account(s) without written consent of the Company or Order of the Court, thereby preserving the Company’s control of Kind’s operations and finances at least through the jury trial currently scheduled to begin on March 28, 2022. Further, the Court ordered Kind to pay management and licensing fees to the Company beginning January 1, 2021. Kind has noted an appeal of the Order to the Maryland Court of Special Appeals, which the Court denied in December 2021, leaving the preliminary injunction order in effect.

 

In addition to the favorable rulings on the Lease, MSA, and LMA, the Company believes that its claims for declaratory relief, specific performance, and/or breach of contract with respect to the partnership/joint venture agreement claims are meritorious. Further, the Company believes that Kind’s claims against the Company are without merit. On March 18, 2021, the Court issued an opinion and order on Kind’s motion for summary judgment finding that the MOU was not enforceable by the Company against Kind as a final binding agreement. The Company is evaluating an appeal of this ruling which under Maryland rules can only be pursued upon final judgment.

 

In March 2021, the Kind parties filed motions to modify the preliminary injunction order or, alternatively, for direction from the Court based on Kind’s claim to have terminated the MSA. In September 2021, the court denied the motion to modify the preliminary injunction and granted, in part, the motion for direction, but only with respect to Kind’s request to pay litigation costs. The preliminary injunction remains in full effect, and the Company filed a petition for civil contempt against the Kind parties for interfering with the Company’s management of Kind. The contempt petition remains pending.

 

On December 31, 2021, the parties to the foregoing Maryland litigation entered into a global Confidential Settlement and Release Agreement, along with the parties to the DiPietro lawsuit (described below). Also on such date, as previously discussed in Part I, Item 1. Business in this report, the Company entered into (i) a membership interest purchase agreement with the members of Kind to acquire 100% of the equity ownership of Kind, and (ii) a membership interest purchase agreement with one of the members of Kind to acquire such member’s entire equity ownership interest Mari-MD and Mia.

 

On January 4, 2022, the Maryland court entered an order staying the litigation and rescheduling the jury trial to October 24, 2022, to November 4, 2022, in the event the transactions contemplated by the Confidential Settlement and Release Agreement are not consummated. Otherwise, simultaneous with the closing of the transactions contemplated by the Confidential Settlement and Release Agreement, the foregoing Maryland litigation will be dismissed with prejudice, along with the DiPietro lawsuit.

 

In the event the transactions contemplated by the Confidential Settlement and Release Agreement are not consummated, the Company intends to aggressively prosecute and defend the action.

 

DiPietro Lawsuit

 

In August 2020, Jennifer DiPietro, directly and derivatively on behalf of Mari-MD and Mia, commenced a suit against the Company’s CEO, CFO, and wholly-owned subsidiary MariMed Advisors Inc. (“MMA”), in Suffolk Superior Court, Massachusetts.

 

(14)

 

 

In this action, DiPietro, a party to prior ongoing litigation in Maryland involving the Company and Kind as discussed above, brings claims for breach of fiduciary duty, breach of contract, fraud in the inducement, aiding and abetting the alleged breach of fiduciary duty, and also seeks access to books and records and an accounting related to her investments in Mari-MD and Mia. DiPietro seeks unspecified money damages and rescission of her interest in Mari-MD, but not of her investment in Mia, which has provided substantial returns to her as a member.

 

The Company has answered the complaint and MMA filed counterclaims against DiPietro on its own behalf and derivatively on behalf of Mari-MD for breach of her fiduciary duties to each of those entities, and for tortious interference with Mari-MD’s lease and MMA’s management services agreement with Kind.

 

On December 31, 2021, the parties to the foregoing Massachusetts litigation entered into a global Confidential Settlement and Release Agreement, along with the parties to the Maryland lawsuit described above. Because the Massachusetts litigation involves derivative claims, the Massachusetts Superior Court must approve the parties’ proposed dismissal of those claims. The parties to the Massachusetts litigation have filed a joint motion seeking to dismiss the derivative claims. Simultaneous with the closing of the transactions contemplated by the Confidential Settlement and Release Agreement, all direct claims in the foregoing Massachusetts litigation will be dismissed with prejudice, along with the Maryland lawsuit.

 

In the event the transactions contemplated by the Confidential Settlement and Release Agreement are not consummated, the Company believes that the allegations of the complaint in the foregoing Massachusetts litigation are without merit and intends to defend the case vigorously. The Company’s counterclaim seeks monetary damages from DiPietro, including the Company’s legal fees in the Maryland lawsuit.

 

Bankruptcy Claim

 

During 2019, the Company’s MMH subsidiary sold and delivered hemp seed inventory to GenCanna Global Inc., a Kentucky-based cultivator, producer, and distributor of hemp (“GenCanna”). At the time of sale, the Company owned a 33.5% ownership interest in GenCanna. The Company recorded a related party receivable of approximately $29.0 million from the sale, which was fully reserved on December 31, 2019.

 

In February 2020, GenCanna USA, GenCanna’s wholly-owned operating subsidiary, under pressure from certain of its creditors including MGG Investment Group LP, GenCanna’s senior lender (“MGG”), agreed to convert a previously-filed involuntary bankruptcy proceeding with the U.S. Bankruptcy Court in the Eastern District of Kentucky (the “Bankruptcy Court”) into a voluntary Chapter 11 proceeding. In addition, GenCanna and GenCanna USA’s subsidiary, Hemp Kentucky LLC (collectively with GenCanna and GenCanna USA, the “GenCanna Debtors”), filed voluntary petitions under Chapter 11 in the Bankruptcy Court.

 

In May 2020, after an abbreviated solicitation/bid/sale process, the Bankruptcy Court, over numerous objections by creditors and shareholders of the GenCanna Debtors which included the Company, entered an order authorizing the sale of all or substantially all of the assets of the GenCanna Debtors to MGG. After the consummation of the sale of all or substantially all of their assets and business, the GenCanna Debtors n/k/a OGGUSA, Inc. and OGG, Inc. (the “OGGUSA Debtors”) filed their liquidating plan of reorganization (the “Liquidating Plan”) to collect various prepetition payments and commercial claims against third parties, liquidate the remaining assets of the ODDUSA Debtors, and make payments to creditors. The Company and the unsecured creditors committee filed objections to such Liquidating Plan, including opposition to the release of litigation against the OGGUSA Debtors’ senior lender, MGG, for lender liability, equitable subordination, and return of preference. As a part of such plan confirmation process, the OGGUSA Debtors filed various objections to proofs of claims filed by various creditors, including the proof of claim in the amount of approximately $33.6 million filed by the Company. Through intense and lengthy negotiations with the OGGUSA Debtors and the unsecured creditors committee regarding the objections to the Liquidating Plan, the Company reached an agreement with the OGGUSA Debtors to withdraw the objections to the Company’s claim and to have it approved by the Bankruptcy Court as a general unsecured claim in the amount of $31.0 million.

 

Since the approval of the Liquidating Plan, the OGGUSA Debtors have been in the process of liquidating the remaining assets, negotiating and prosecuting objections to other creditors’ claims, and pursuing the collection of accounts receivable and Chapter 5 bankruptcy avoidance claims.

 

In January 2022, the Company, at the request of the Liquidating Plan administrator for the OGGUSA Debtors, executed a written release of claims, if any, of the Company against Huron Consulting Group (“Huron”), a financial consulting and management company retained by the senior lender of the OGGUSA Debtors to perform loan management services for the lender and OGGUSA Debtors prior to and during their Chapter 11 bankruptcy cases. Such release was executed in connection with a comprehensive settlement agreement between the OGGUSA Debtors and Huron. In consideration for the Company’s execution of the release, Huron paid an additional $40,000 to the bankruptcy estates of the OGGUSA Debtors to be included in the funds to be distributed to creditors, including the Company.

 

As of the date of this filing, there is still insufficient information as to what portion, if any, of the Company’s allowed claim will be paid upon the completion of the liquidation of the remaining assets of the OGGUSA Debtors.

 

ITEM 4. MINE SAFETY DISCLOSURES

 

Not Applicable.

 

(15)

 

 

PART II

 

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.

 

The Company’s common stock currently trades on the OTCQX market under the MRMD ticker symbol. Any over-the-counter market quotations reflect inter-dealer prices, without retail mark-up, mark-down or commission and may not necessarily represent actual transactions.

 

Stockholders

 

As of March 16, 2022, the Company had 729 stockholders of record and 335,183,206 outstanding shares of common stock.

 

Dividends

 

The Company has never declared or paid a dividend on its common stock, and it does not anticipate paying cash or other dividends in the foreseeable future.

 

Recent Sales of Unregistered Securities

 

In November 2021, the Company issued 202,204 shares of common stock associated with previously issued subscriptions on common stock with a value of approximately $189,000.

 

During the period October 2021 to January 2022, the holder of Company-issued promissory notes converted $875,000 of principal into 2,500,001 shares of common stock at a conversion price of $0.35 per share.

 

During the period October 2021 to January 2022, options to purchase 55,000 shares of common stock were exercised by current and former employees at exercise prices of $0.14 and $0.30 per share. Additionally, in December 2021, the Company’s CEO and CFO each exercised options on a cashless basis to purchase common stock at an exercise price of $0.63 per share, each receiving 26,744 net shares of common stock.

  

In December 2021, the Company granted 2,293 shares of common stock to an employee in exchange for services rendered during the fourth quarter of 2021 at a value of approximately $2,000.

 

In December 2021, the Company issued 825,000 shares of common stock in exchange for consulting services.

 

During the period October 2021 to December 2021, the Company granted five-year options to employees to purchase up to 2,972,500 shares of common stock at exercise prices ranging from $0.69 to $0.88 per share. Additionally, in October 2021, the Company granted five-year options to its CEO, CFO, and COO to purchase up to 11,250,000 shares of common stock in the aggregate at an exercise price of $0.90 per share.

 

The issuance of the shares of common stock described above were deemed to be exempt from registration under the Securities Act in reliance upon Sections 4(a)(2) and/or 4(a)(5) of the Securities Act. A legend restricting the sale, transfer, or other disposition of these securities other than in compliance with the Securities Act was placed on the securities issued in the foregoing transactions.

 

(16)

 

 

Company Equity Compensation Plans

 

The following table sets forth information as of December 31, 2021 with respect to compensation plans (including individual compensation arrangements) under which equity securities of the Company are authorized for issuance.

 

Plan Category  Number of
securities to be
issued upon
exercise of
outstanding
options, warrants
and rights
   Weighted-average
exercise price of
outstanding
options, warrants
and rights
   Number of
securities
remaining available
for future
issuance under equity compensation plans
 
Equity compensation plans approved by stockholders (1)   39,821,671   $0.91    28,618,664 
Equity compensation plans not approved by stockholders   -   $-    - 
Total   39,821,671         28,618,664 

 

(1) Consist of options exercisable for (i) 39,821,671 shares granted under the Incentive Plan (hereinafter defined) of which 3,456,250 shares continue to be subject to the terms of the Company’s 2018 Stock Award and Incentive Plan.

 

The Company’s Amended and Restated 2018 Stock Award and Incentive Plan (the “Incentive Plan”) provides incentives for the achievement of important performance objectives and promotes the long-term success of the Company. In September 2019, the Company’s stockholders approved the Incentive Plan. In September 2021, the stockholders approved an amendment to the Incentive Plan increasing the aggregate number shares reserved for issuance from 40,000,000 to 70,000,000.

 

The Incentive Plan is an omnibus plan, authorizing a variety of equity award types as well as cash and long-term incentive awards. Each award under the Incentive Plan is subject to the Company’s claw back policy in effect at the time of grant of the award. Shares actually delivered in connection with an award will be counted against the aggregate number of reserved shares. Shares will remain available for new awards if an award under the Incentive Plan expires, is forfeited, canceled, or otherwise terminated without delivery of shares or is settled in cash.

 

The board of directors may amend, suspend, discontinue, or terminate the Incentive Plan or the authority to grant awards thereunder without stockholder approval, except as required by law or regulation or under rules of the stock exchange, if any, on which the Company’s stock may then be listed. Unless earlier terminated, grants under the Incentive Plan will terminate ten years after stockholder approval of the Incentive Plan, and the Incentive Plan will terminate when no shares remain available, and the Company has no further obligation with respect to any outstanding award.

 

ITEM 6. SELECTED FINANCIAL DATA

 

The Company is a “smaller reporting company” as defined by Regulations S-K and as such, is not required to provide the information contained in this item pursuant to Regulation S-K.

 

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

 

Forward Looking Statements

 

When used in this form 10-K and in future filings by the Company with the Commission, words or phrases such as “anticipate,” “believe,” “could,” “would,” “should,” “estimate,” “expect,” “intend,” “may,” “plan,” “predict,” “project,” “will” or similar expressions are intended to identify “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Readers are cautioned not to place undue reliance on any such forward looking statements, each of which speak only as of the date made. Such statements are subject to certain risks and uncertainties that could cause actual results to differ materially from historical earnings and those presently anticipated or projected. The Company has no obligation to publicly release the result of any revisions which may be made to any forward-looking statements to reflect anticipated or unanticipated events or circumstances occurring after the date of such statements.

 

These forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause actual results to be materially different. These factors include, but are not limited to, changes that may occur to general economic and business conditions; changes in current pricing levels that the Company can charge for its services and products or which it pays to its suppliers and business partners; changes in political, social and economic conditions in the jurisdictions in which the Company operates; changes to regulations that pertain to its operations; changes in technology that render the Company’s technology relatively inferior, obsolete or more expensive compared to others; changes in the business prospects of the Company’s business partners and customers; increased competition, including from the Company’s business partners; and enforcement of federal cannabis related laws.

 

The following discussion should be read in conjunction with the financial statements and related notes which are included in this report under Item 8.

 

The Company does not undertake to update its forward-looking statements or risk factors to reflect future events or circumstances.

 

(17)

 

 

Overview

 

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 ongoing regulatory, accounting, real estate, human resources, and administrative services.

 

Over the last few years, 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 businesses and manage the continuing growth of their operations.

 

To date, the acquisition and consolidation of the Company’s client businesses in Massachusetts and Illinois have been completed. The acquisition of a client business in Maryland has been contracted, and the Company is awaiting approval by the Maryland Cannabis Control Commission, which is pending. Upon approval, this entity will be consolidated. The acquisitions of the remaining businesses located in Nevada and Delaware are at various stages of completion and subject to each state’s laws governing the ownership transfer of cannabis licenses and other closing conditions. Delaware will require a modification of current cannabis ownership laws to permit for-profit ownership, which is expected to occur when the state legalizes recreational adult-use cannabis. Until the law changes and the acquisition is approved, the Company continues to generate revenue from rental income, management fees, and licensing royalties.

 

The transition to a fully integrated muti-state cannabis operator (“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) optimize the Company’s brand portfolio and licensing revenue by expanding into additional states with legal cannabis programs.

 

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 quality 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 product recipes.

 

The Company markets its high-quality cannabis flowers and concentrates under the award-winning1 Nature’s Heritage brand; cannabis-infused chewable tables and powder drink mixes under the brand names Kalm Fusion and K Fusion; all natural fruit chews under the award-winning1 Betty’s Eddies brand; and brownies, cookies, and other social sweets under the Bubby’s Baked brand. The Company’s cannabis-infused brands have been top-selling products in Maryland and Massachusetts.2 The Company intends to introduce additional product lines under these brands in the foreseeable future.

 

The Company also has strategic alliances with prominent brands. The Company has partnered with renowned ice cream maker Emack & Bolio’s® to create a line-up of cannabis-infused vegan and dairy ice cream. Additionally, the Company has secured distribution rights for 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.

 

 

1 Awards won by the Company’s Betty’s Eddies brand include LeafLink 2021 Best Selling Medical Product, Reddit Sparkie 2021 Best Edible, Respect My Region 2021 Hottest Edible, LeafLink 2020 Industry Innovator, and Explore Maryland Cannabis 2020 Edible of the Year. Awards won by the Company’s Nature’s Heritage brand include the Cultivators Cup 2021 Silver Medal and the High Times Cannabis Cup 2021 Bronze Medal.

 

2 Source: LeafLink Insights 2020.

 

(18)

 

 

Revenues

 

The Company’s revenues are primarily comprised of the following categories:

 

  Product Sales – direct sales of cannabis and cannabis-infused products by the Company’s dispensary and wholesale operations in Massachusetts and Illinois, and sales of hemp and hemp-infused products. Future product sales are expected to include 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).
     
  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.
     
  Management – fees for providing the Company’s cannabis clients with comprehensive oversight of their cannabis cultivation, production, and dispensary operations. Along with this oversight, the Company provides human resources, regulatory, marketing, and other corporate services.
     
  Supply Procurement – resale of cultivation and production resources, supplies, and equipment, acquired by the Company from top national vendors at volume discounted prices, to its clients and third-parties within the cannabis industry.
     
  Licensing – revenue from the sale of precision-dosed, cannabis-infused products—such as Betty’s Eddies, Kalm Fusion, and Nature’s Heritage—to regulated dispensaries throughout the United States and Puerto Rico.

 

Expenses

 

The Company classifies its expenses into three general categories:

 

  Cost of Revenues – the direct costs associated with the generation of the Company’s revenues.
     
  Operating Expenses – comprised of the sub-categories of personnel, marketing and promotion, general and administrative, and bad debts.
     
  Non-operating Income and Expenses – comprised of the sub-categories of interest expense, interest income, losses on obligations settled with equity, equity in earnings of investments, changes in the fair value of non-consolidated investments, and other non-recurring gains or losses.

 

(19)

 

 

Liquidity and Capital Resources

 

The Company produced significant improvements to its liquidity in the reported periods:

 

  Cash and cash equivalents increased nearly ten-fold to $29.7 million at December 31, 2021, from $3.0 million at December 31, 2020.
     
  In 2021, the Company’s operating activities provided positive cash flow of $35.9 million, compared to $3.4 million in 2020.
     
  At December 31, 2021, working capital increased to $17.4 million from a working capital deficit of $2.2 million at December 31, 2020, a positive swing of $19.6 million.
     
  The Company generated net income of $7.6 million in 2021, an increase of 214% from net income of $2.4 million in 2020.

 

The aforementioned improvements to the Company’s liquidity were primarily the result of increases in revenues and profitability generated by the Company’s cannabis operations in the states of Illinois and Massachusetts. These operations launched as part of the Company’s aforementioned Consolidation Plan to transition from a consulting business to a direct owner of cannabis licenses and operator of seed-to-sale operations. The liquidity improvements were also attributable to $23.0 million of equity capital raised from Hadron Healthcare Master Fund (“Hadron”), further discussed under the Financing Activities section below.

 

In addition to the above, the Company evaluates liquidity using the financial measurement of Adjusted EBITDA, a commonly used metric to assess liquidity that is not defined by generally accepted accounting principles. The section below entitled Non-GAAP Measurement discusses the components of this measurement in further detail.

 

Operating Activities

 

Net cash provided by operating activities was $35.9 million in 2021, compared to $3.4 million in 2020. The year-over-year improvement was primarily attributable to the increase in cannabis-derived profits in 2021 generated by the Company’s four active dispensaries in Illinois, and its retail and wholesale operations in Massachusetts.

 

Investing Activities

 

Net cash used in investing activities was $16.6 million in 2021, compared to $4.5 million in 2020. The year-over-year increase was attributable to an increase in property and equipment expenditures in 2021 for the Company’s facilities in Delaware, Illinois, Maryland, and Massachusetts, offset by $1.2 million of proceeds from the asset sale of a Company-owned investment.

 

Financing Activities

 

Net cash provided by financing activities was $7.5 million in 2021, compared to $3.3 million in 2020. In March 2021, the Company entered into a securities purchase agreement with Hadron Healthcare Master Fund (“Hadron”) whereby Hadron will provide funding of up to $46.0 million to repay existing non-mortgage debt, to fund expansion plans of existing operations, and to finance planned acquisitions. In March 2021, Hadron funded $23.0 million under this facility. The Company also raised $2.7 million from a new mortgage. These proceeds were offset by the repayment of $17.0 million of debt in 2021.

 

In 2020, the Company raised $21.4 million from debt financings, offset by $17.4 million of promissory note and mortgage repayments during the year.

 

The proceeds from the aforementioned financings were used to execute on the Company’s strategy to become a fully integrated multistate operator of seed-to-sale cannabis operations, to continue the development of its regulated facilities, to pay down its debt, to expand its branded licensing business, and for working capital purposes.

 

(20)

 

 

Results of Operations

 

Year ended December 31, 2021 compared to year ended December 31, 2020

 

Revenues grew to $121.5 million in 2021, an increase of $70.6 million or 139%, compared to $50.9 million in 2020. The year-over-year increase was primarily due to the nearly three-fold expansion of the Company’s cannabis sales to $108.2 million in 2021, compared to $39.4 million in 2020. This growth was primarily attributable to sales increases of (i) $38.3 million generated by the Company’s dispensaries in Illinois, where one new dispensary commenced operations in May 2021, and three ongoing dispensaries experienced an 80% year-over-year increase in customer visits, (ii) $14.0 million generated from the Company’s dispensary in Massachusetts, which experienced a nearly six-fold year-over-year increase in customer visits, and (iii) $15.7 million generated by the Company’s wholesale operations in Massachusetts, which experience a 151% increase in customers in 2021 compared to 2020.

 

The year-over-year increase in revenues was also the result of the continued growth of rental income, management fees, and supply procurement revenue, generated primarily from the Company’s cannabis clients in Delaware and Maryland.

 

Cost of revenues were $55.2 million in 2021 compared to $19.6 million in 2020, an increase of $35.6 million. The year-over-year variance was primarily attributable to the higher level of revenues as these costs are largely variable in nature and fluctuate in-step with revenues. As a percentage of revenues, these costs increased to 45.4% in 2021 from 38.5% in the same period in 2020, primarily due to the change in the relative mix of revenue categories in each period. Specifically, in 2021, (a) 88.2% of revenues were comprised of product sales, which historically have had corresponding costs of revenue of in the range of 45.0% to 50.0%, and (b) 8.6% of revenues were comprised of real estate and management revenue, which have no corresponding cost of revenue. This compares to revenues in 2020 that were comprised of (x) 77.4% of product sales and (y) 16.2% of real estate and management revenues. While the cost rate is higher for product sales, the level of product sales able to be generated by the Company is several multiples higher than the level of real estate and management revenues able to be generated, resulting in significantly higher gross profit dollars to be generated by the Company.

 

Accordingly, gross profit grew to $66.3 million in 2021 from $31.3 million in 2020.

 

Personnel expenses increased to $8.4 million in 2021 from $5.5 million in 2020. The increase was primarily due to the hiring of additional staff to support (i) higher levels of revenue, and (ii) the Company’s expansion into a direct owner and operator of seed-to-sale cannabis businesses, offset by the reversal of an approximate $1.0 million accrual related to the settlement in August 2021 of an employment-related complaint. As a percentage of revenues, personnel expenses decreased to 6.9% in 2021 from to 10.8% in 2020.

 

Marketing and promotion costs increased to $1.6 million in 2021 from $411,000 in 2020. The increase is primarily the result of increased spending on branding and design consulting, customer loyalty programs, social media, and local outdoor advertising. As a percentage of revenues, these costs increased to 1.3% in 2021 from 0.8% in 2020.

 

General and administrative costs increased to $27.6 million in 2021 from approximately $9.9 million in 2020. This change is primarily due to increases of (i) $13.2 million in non-cash equity compensation expense associated with option grants and warrant issuances, (ii) $1.2 million in credit card processing fees from a significant increase in credit card sales at the Company’s cannabis dispensaries, (iii) $1.1 million in facility costs on additional properties in service in 2021, (iv) $965,000 in net professional fees primarily due to the hiring of investment bankers, offset by a reduction in legal costs, and (v) $514,000 in depreciation and amortization expenses from higher levels of property, equipment, and intangibles.

 

Bad debt expense increased to $1.9 million in 2021 from $982,000 in 2020. The change is due to the increase of reserves recorded against aging trade accounts receivable and against the working capital balance of the Company’s client in Nevada. As a percentage of revenues, this expense decreased to 1.5% in 2021 from 1.9% in 2020.

 

As a result of the foregoing, the Company generated operating income of $26.9 million in 2021 compared to $14.5 million in 2020.

 

Net non-operating expenses decreased to $3.0 million in 2021 from $10.0 million in 2020. The change is primarily due to a $7.5 million reduction of interest expense from lower levels of outstanding debt, coupled with a $309,000 gain on a nonconsolidated private company investment, offset by a $757,000 decrease in the fair value of nonconsolidated public company investment.

 

As a result of the foregoing, the Company generated income before income taxes of $23.8 million in 2021 and $4.5 million in 2020. After a tax provision of $16.2 million in 2021 and $2.1 million in 2020, net income was $7.6 million in 2020 and $2.4 million in 2020.

 

(21)

 

 

Non-GAAP Measurement

 

In addition to the financial information reflected in this report, which is prepared in accordance with generally accepted accounting principles in the United States (“GAAP”), the Company is providing a non-GAAP financial measurement of profitability – Adjusted EBITDA – as a supplement to the preceding discussion of the Company’s financial results.

 

Management defines Adjusted EBITDA as net income (loss), determined in accordance with GAAP, excluding the following:

 

  - interest income and interest expense;
  - income taxes;
  - depreciation of fixed assets and amortization of intangibles;
  - non-cash expenses on debt and equity issuances;
  - impairment or write-downs of intangible assets;
  - unrealized gains and losses on investments and currency translations;
  - legal settlements;
  - gains or losses from the extinguishment of debt via the issuance of equity;
  - discontinued operations; and
  - merger- and acquisition-related transaction expenses.

 

Management believes Adjusted EBITDA is a useful measure to assess the performance and liquidity of the Company as it provides meaningful operating results by excluding the effects of expenses that are not reflective of its operating business performance. In addition, the Company’s management uses Adjusted EBITDA to understand and compare operating results across accounting periods, and for financial and operational decision making. The presentation of Adjusted EBITDA is not intended to be considered in isolation or as a substitute for the financial information prepared in accordance with GAAP.

 

Management believes that investors and analysts benefit from considering Adjusted EBITDA in assessing the Company’s financial results and its ongoing business as it allows for meaningful comparisons and analysis of trends in the business. Adjusted EBITDA is used by many investors and analysts themselves, along with other metrics, to compare financial results across accounting periods and to those of peer companies.

 

As there are no standardized methods of calculating non-GAAP measurements, the Company’s calculations may differ from those used by analysts, investors, and other companies, even those within the cannabis industry, and therefore may not be directly comparable to similarly titled measures used by others.

 

Reconciliation of Net Income to Adjusted EBITDA (a Non-GAAP Measurement)

 

The table below reconciles Net Income to Adjusted EBITDA for the years ended December 31, 2021 and 2020:

 

   2021   2020 
   (Unaudited) 
Net income  $7,623,551   $2,429,267 
           
Interest expense, net   2,247,685    9,654,130 
Income taxes   16,192,327    2,067,049 
Depreciation and amortization   2,788,029    2,182,092 
Earnings before interest, taxes, depreciation, and amortization    28,851,592    16,332,538 
           
Amortization of stock grants   235,353    21,459 
Amortization of option grants   12,494,209    969,136 
Amortization of stand-alone warrant issuances   55,786    2,179 
Amortization of warrants issued with stock   654,681    - 
Loss on equity issued to settle obligations   2,546    44,678 
Equity in earnings of investments   -    (98,813)
Asset write-down   -    84,708 
Legal settlement   (266,717)   - 
Change in fair value of investments   1,106,593    349,638 
Adjusted EBITDA  $43,134,043   $17,705,523 

 

(22)

 

 

2022 Plans

 

During 2022, the Company’s focus will be on the following key areas:

 

  1) Subject to the applicable state approvals, continue the execution of its Consolidation Plan.

 

  2) Identify and open two new dispensary locations in Massachusetts that can service both the medical and adult-use marketplaces. Additionally, the Company plans to begin expansion of its New Bedford, MA cultivation and processing facility in the fourth quarter of 2022 and complete the project in 2023.

 

  3) Build and open a cultivation and processing facility in Mt. Vernon, Illinois and begin the production and sale of MariMed’s award-winning branded products in both their retail dispensaries and through wholesale channels.

 

  4) Increase fees paid by its managed services client in Delaware by expanding cultivation and processing facilities.
     
  5) Complete the acquisition in Maryland and proceed with a plan to expand the cultivation and processing facilities as well as adding a dispensary location.
     
  6) Drive licensing fees through the expansion of the Company’s Nature’s Heritage branded flower and popular infused-product brands Betty’s Eddies and Kalm Fusion into the Company’s owned and managed facilities, and with strategic partners into additional markets. Expand the licensed Tropizen® and Binske® brands.
     
  7) Identify acquisition opportunities in other states.

 

No assurances can be given that any of these plans will come to fruition or that if implemented will necessarily yield positive results.

 

The following transactions occurred in early 2022:

 

In January 2022, the Company entered into a stock purchase agreement to acquire 100% of the ownership interests of Green Growth Group Inc., an entity that has been awarded a craft grow cannabis license issued by the Illinois Department of Agriculture (the “IDA”) for cultivation, production, and transporting of cannabis and cannabis-infused products in Illinois. The purchase price of $3,400,000 shall be comprised of $1,900,000 in cash and shares of the Company’s common stock valued at $1,500,000. The acquisition is conditioned upon the approval by the IDA, among other closing conditions, which is expected to occur by July 2022.

 

Also in January 2022, the Company entered into an agreement to purchase a 30-acre parcel of land located in Mt. Vernon, IL containing a 33,000 square foot manufacturing facility and a 13,000 square foot storage warehouse, in exchange for $1,495,000 in cash. Upon execution of the agreement, the Company provided a deposit of $100,000 to the seller. The transaction is expected to close in the second quarter of 2022, after the Company has performed a complete inspection and feasibility review. If such review determines that the premises will not satisfy the Company’s requirements, the Company shall have the right to terminate the agreement with no other obligation other than the loss of the deposit.

 

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Off-Balance Sheet Arrangements

 

The Company has no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on its financial condition, changes in financial condition, revenues, or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.

 

Inflation

 

In the opinion of management, inflation has not had a material effect on the Company’s financial condition or results of its operations.

 

Seasonality

 

In the opinion of management, the Company’s financial condition and results of its operations are not materially impacted by seasonal sales.

 

Recent Accounting Pronouncements

 

The Company has reviewed all other recently issued, but not yet effective, accounting pronouncements, and does not believe the future adoption of any such pronouncements will have a material impact on its financial condition or the results of its operations.

 

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

The Company is a “smaller reporting company” as defined by Regulation S-K and, as such, is not required to provide the information contained in this item pursuant to Regulation S-K.

 

(24)

 

 

ITEM 8. FINANCIAL STATEMENTS.

 

CONTENTS

 

Report of Independent Registered Public Accounting Firm (PCAOB ID No. 2738) 26
   
Consolidated Balance Sheets 28
   
Consolidated Statements of Operations 29
   
Consolidated Statements of Stockholders’ Equity 30
   
Consolidated Statements of Cash Flows 31
   
Notes To Consolidated Financial Statements 32

 

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

To the Board of Directors and

Stockholders of MariMed Inc.

 

Opinion on the Consolidated Financial Statements

 

We have audited the accompanying consolidated balance sheets of MariMed Inc. (the Company) as of December 31, 2021 and 2020, and the related consolidated statements of operations, stockholders’ equity, and cash flows for each of the years in the two-year period ended December 31, 2021, and the related notes (collectively referred to as the financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2021 and 2020, and the results of its operations and its cash flows for each of the years in the two-year period ended December 31, 2021, in conformity with accounting principles generally accepted in the United States of America.

 

Basis for Opinion

 

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

 

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

 

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

 

Critical Audit Matters

 

The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

 

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Revenue Recognition

 

As discussed in Note 2 to the financial statements, when another party is involved in providing goods or services to the Company’s clients, a determination is made as to who is acting in the capacity as the principal in the sales transaction.

 

Auditing management’s evaluation of agreements with customers involves significant judgment, given the fact that some agreements require management’s evaluation of principal versus agent.

 

To evaluate the appropriateness and accuracy of the assessment by management, we evaluated management’s assessment in relationship to the relevant agreements.   

 

Inventory

 

As discussed in Notes 2 & 7, the Company allocates a certain percentage of overhead cost to its manufactured inventory.

 

Auditing management’s allocation of overhead involves significant judgements and estimates to determine the proper allocation.

 

To evaluate the appropriateness of the allocation of overhead to inventory, we evaluated management’s significant judgments and estimates in what parts of overhead should be included and the allocation of these costs.

 

Mezzanine Equity

 

As discussed in Notes 13, the Company has issued and outstanding Series B Convertible Preferred Shares that contain redemption rights, cumulative fixed rate interest, voting rights and conversion rights.

 

Auditing management’s evaluation of the preferred shares involves significant judgements and estimates in determining the proper classification of the preferred shares that include both debt and equity qualities.

 

To evaluate the appropriateness and accuracy of the classification of the preferred shares, we evaluated management’s assessment of the debt and equity like characteristics.

 

M&K CPAS, PLLC

 

We have served as the Company’s auditor since 2018.

 

Houston, TX

March 16, 2022

 

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MariMed Inc.

Consolidated Balance Sheets

 

           
   December 31, 
   2021   2020 
Assets          
Current assets:          
Cash and cash equivalents  $29,683,014   $2,999,053 
Accounts receivable, net   1,666,248    6,675,512 
Deferred rents receivable   1,677,715    1,940,181 
Note receivable, current portion   126,713    658,122 
Inventory   9,767,856    6,830,571 
Investments   250,600    1,357,193 
Other current assets   1,440,831    582,589 
Total current assets   44,612,977    21,043,221 
           
Property and equipment, net   62,150,146    45,636,529 
Intangibles, net   2,230,303    2,228,560 
Investments   -    1,165,788 
Note receivable, less current portion   8,986,557    965,008 
Right-of-use assets under operating leases   5,081,230    5,247,152 
Right-of-use assets under finance leases   45,737    78,420 
Other assets   97,951    80,493 
Total assets  $123,204,901   $76,445,171 
           
Liabilities, mezzanine equity, and stockholders’ equity          
Current liabilities:          
Accounts payable  $5,098,533   $5,044,918 
Accrued expenses   1,348,673    2,725,544 
Income taxes payable   16,467,264    895,725 
Sales and excise taxes payable   1,797,755    1,053,693 
Debentures payable   -    1,032,448 
Notes payable, current portion   9,891    8,859,175 
Mortgages payable, current portion   1,400,331    1,387,014 
Operating lease liabilities, current portion   1,071,079    1,008,227 
Finance lease liabilities, current portion   27,123    38,412 
Due to related parties   -    1,157,815 
Other current liabilities   1,920    23,640 
Total current liabilities   27,222,569    23,226,611 
           
Notes payable, less current portion   448,341    10,682,234 
Mortgages payable, less current portion   16,813,466    14,744,136 
Operating lease liabilities, less current portion   4,573,857    4,822,064 
Finance lease liabilities, less current portion   22,455    44,490 
Other liabilities   100,200    100,200 
Total liabilities   49,180,888    53,619,735 
           
Mezzanine equity:          
Series B convertible preferred stock, $0.001 par value; 4,908,333 shares authorized, issued and outstanding at December 31, 2021 and 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 December 31, 2021 and 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 December 31, 2021 and 2020, respectively; zero shares issued and outstanding at December 31, 2021 and 2020   -    - 
Common stock, $0.001 par value; 700,000,000 and 500,000,000 shares authorized at December 31, 2021 and 2020, respectively; 334,030,348 and 314,418,812 shares issued and outstanding at December 31, 2021 and 2020, respectively   334,030    314,419 
Common stock subscribed but not issued; zero and 11,413 shares at December 31, 2021 and 2020, respectively   -    5,365 
Additional paid-in capital   134,920,382    112,974,329 
Accumulated deficit   (97,392,017)   (104,616,538)
Noncontrolling interests   (1,563,382)   (577,139)
Total stockholders’ equity   36,299,013    8,100,436 
Total liabilities, mezzanine equity, and stockholders’ equity  $123,204,901   $76,445,171 

 

See accompanying notes to consolidated financial statements.

 

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MariMed Inc.

Consolidated Statements of Operations

 

         
   Year Ended December 31, 
   2021   2020 
         
Revenues  $121,464,158   $50,895,151 
           
Cost of revenues   55,201,078    19,570,257 
           
Gross profit   66,263,080    31,324,894 
           
Operating expenses:          
Personnel   8,351,397    5,501,756 
Marketing and promotion   1,625,111    410,626 
General and administrative   27,560,665    9,899,367 
Bad debts   1,862,417    982,488 
Total operating expenses   39,399,590    16,794,237 
           
Operating income   26,863,490    14,530,657 
           
Non-operating income (expenses):          
Interest expense   (2,355,904)   (9,810,475)
Interest income   108,219    156,345 
Loss on obligations settled with equity   (2,546)   (44,678)
Equity in earnings of investments   -    98,813 
Change in fair value of investments   (1,106,593)   (349,638)
Other   309,212    (84,708)
Total non-operating expenses, net   (3,047,612)   (10,034,341)
           
Income before income taxes   23,815,878    4,496,316 
Provision for income taxes   16,192,327    2,067,049 
Net income  $7,623,551   $2,429,267 
           
Net income attributable to noncontrolling interests  $399,030   $285,278 
Net income attributable to MariMed Inc.  $7,224,521   $2,143,989 
           
Net income per share          
Basic  $0.02   $0.01 
Diluted  $0.02   $0.01 
           
Weighted average common shares outstanding          
Basic   326,466,794    266,980,197 
Diluted   372,396,731    324,160,525 

 

See accompanying notes to consolidated financial statements.

 

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MariMed Inc.

Consolidated Statements of Stockholders’ Equity

 

                                             
   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, 2019   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   97,797    98    11,413    5,365    15,996    -    -    21,459 
Stock forfeitures   (1,297,447)   (1,297)   -    -    1,297    -    -    - 
Exercise of stock options   550,000    550    -    -    75,450    -    -    76,000 
Amortization of option grants   -    -    -    -    969,136    -    -    969,136 
Issuance of stand-alone warrants   -    -    -    -    2,179    -    -    2,179 
Issuance of warrants attached to debt   -    -    -    -    708,043    -    -    708,043 
Discount on debentures payable   -    -    -    -    28,021    -    -    28,021 
Beneficial conversion feature on debentures payable   -    -    -    -    379,183    -    -    379,183 
Conversion of debentures payable   77,766,559    77,766    -    -    9,997,522    -    -    10,075,288 
Conversion of common stock to preferred stock   (4,908,333)   (4,908)   -    -    (14,720,092)   -    -    (14,725,000)
Conversion of promissory notes   2,525,596    2,525    -    -    457,525    -    -    460,050 
Extinguishment of promissory notes   3,639,759    3,640    -    -    910,302    -    -    913,942 
Common stock issued to settle obligations   4,400,000    4,400    -    -    739,200    -    -    743,600 
Distributions   -    -    -    -    -    -    (308,952)   (308,952)
Net income   -    -    -    -    -    2,143,989    285,278    2,429,267 
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 
Issuance of subscribed shares   11,413    11    (11,413)   (5,365)   5,354    -    -    - 
Stock grants   256,591    257    -    -    235,096    -    -    235,353 
Exercise of stock options   277,373    277    -    -    38,323    -    -    38,600 
Exercise of warrants   980,062    980    -    -    91,795    -    -    92,775 
Amortization of option grants   -    -    -    -    12,494,209    -    -    12,494,209 
Issuance of stand-alone warrants   -    -    -    -    832,105    -    -    832,105 
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   11,399,268    11,399    -    -    3,810,046    -    -    3,821,445 
Common stock issued to settle obligations   71,691    72    -    -    53,474    -    -    53,546 
 Purchase of property and equipment with stock   750,000    750    -    -    704,250    -    -    705,000 
Fees paid with stock   1,234,308    1,234    -    -    1,106,459    -    -    1,107,693 
Return of stock   (79,815)   (80)   -    -    (9,857)   -    -    (9,937)
Equity issuance costs   -         -    -    (386,983)   -    -    (386,983)
Acquisition of 30% interest in subsidiary   100,000    100    -    -    965,260    -    (975,360)   (10,000)
Distributions   -    -    -    -    -    -    (409,913)   (409,913)
Net income   -    -    -    -    -    7,224,521    399,030    7,623,551 
Balances at December 31, 2021   334,030,348   $334,030    -   $-   $134,920,382   $(97,392,017)  $(