|6 Months Ended|
Jun. 30, 2019
|Business Combinations [Abstract]|
NOTE 3 – ACQUISITIONS
Sigal Consulting LLC
In May 2014, the Company, through its subsidiary MariMed Advisors Inc., acquired Sigal Consulting LLC from its ownership group which included the current CEO and CFO of the Company (the “Sigal Ownership Group”). The purchase price received by the Sigal Ownership Group was comprised of (i) 31,954,236 shares of common stock valued at approximately $5,913.000, representing 50% of the Company’s outstanding shares on the closing date, (ii) options to purchase three million shares of the Company’s common stock, expiring in September 2019 with exercise prices ranging from $0.15 to $0.35, and valued at approximately $570,000, and (iii) a 49% ownership interest in MariMed Advisors Inc. The excess of purchase price over the book value of the acquired entity was recorded as goodwill, which was subsequently impaired in full and written down to zero.
In June 2017, the remaining 49% interest of MariMed Advisors Inc. was acquired by the Company in exchange for an aggregate 75 million shares of common stock issued to the Sigal Ownership Group.
In October 2017, the Company acquired the intellectual property, formulations, recipes, proprietary equipment, know-how, and other certain assets of the Betty’s Eddies™ brand of cannabis-infused fruit chews, from Icky Enterprises LLC, a company partially owned by an officer of the company (“Icky”). The purchase price was $140,000 plus 1,000,000 shares of the Company’s common stock valued at $370,000 based on the price of the common stock on the date of the agreement.
The acquisition was accounted for in accordance with ASC 10, Business Combinations. The following table summarizes the allocation of the purchase price to the fair value of the assets acquired on the acquisition date:
The goodwill balance of approximately $333,000 was written off in 2018.
As part of the agreement between the parties, Icky is entitled to receive royalties based on a percentage of the Company’s sales of the Betty’s Eddies™ product line, commencing at 25% and decreasing to 2.5% as certain sales thresholds are met. For the six months ended June 30, 2019 and 2018, such royalties approximated $85,000 and $14,000, respectively.
Effective April 2018, the Company entered into a purchase agreement whereby 264,317 shares of the Company’s common stock were exchanged for 100% of the ownership interests of iRollie LLC, a manufacturer of branded cannabis products and accessories for consumers, and custom product and packaging for companies in the cannabis industry. The Company acquired, among other assets, iRollie’s entire product line, service offerings, client list, and intellectual property, and hired its two co-founders.
The acquisition was accounted for in accordance with ASC 10. The shares of Company common stock, valued at approximately $280,000, were issued to iRollie’s former owners in December 2018, at which time the Company adjusted the total goodwill generated by the transaction. The following table summarizes the allocation of the purchase price to the fair value of the assets acquired:
Prior to the acquisition, iRollie had not been generating positive cash flow as a stand-alone entity, and in conformity with relevant accounting guidance, the goodwill was written off.
ARL Healthcare Inc.
In October 2018, the Company’s cannabis-licensed client in Massachusetts, ARL Healthcare Inc. (“ARL”), filed a plan of entity conversion with the state to convert from a non-profit entity to a for-profit corporation, with the Company as the sole shareholder of the for-profit corporation. ARL holds three cannabis licenses from the state of Massachusetts for the cultivation, production and dispensing of cannabis.
On November 30, 2018, the conversion plan was approved by the Massachusetts Secretary of State, and effective December 1, 2018, ARL was consolidated into the Company as a wholly-owned subsidiary.
The acquisition was accounted for in accordance with ASC 10, Business Combinations. The following table summarizes the allocation of the purchase price to the fair value of the assets acquired and liabilities assumed on the acquisition date:
The total consideration paid by the Company was equal to the forgiveness of amounts owed to the Company by ARL. Accordingly, the transaction gave rise to goodwill of approximately $732,000, which the Company wrote off. The cannabis licenses acquired was included in the balance of Intangibles within the asset section of the Company’s balance sheet at December 31, 2018. This intangible asset is being amortized over its estimated useful life, and at June 30, 2019, the carrying value less amortization was approximately $77,000.
KPG of Anna LLC and KPG of Harrisburg LLC
In October 2018, the Company entered into a purchase agreement to acquire 100% of the ownership interests of KPG of Anna LLC and KPG of Harrisburg LLC, the Company’s two cannabis-licensed clients that operate medical marijuana dispensaries in the state of Illinois (both entities collectively, the “KPGs”), from the current ownership group of the KPGs (the “Sellers”). As part of this transaction, the Company will also acquire the Sellers’ ownership interests of Mari Holdings IL LLC, the Company’s subsidiary which owns the real estate in which the KPGs’ dispensaries are located (“Mari-IL”).
The purchase price of 1,000,000 shares of the Company’s common stock shall be issued to the Sellers upon the closing of the transaction, which is dependent upon, among other closing conditions, the approval by the Illinois Department of Financial and Professional Regulation. Such approval is expected to be received by the end of 2019. After the transaction is effectuated, the KPGs and Mari-IL will be wholly-owned subsidiaries of the Company.
As of June 30, 2019, the Company had not yet received the state approval for the transaction, and therefore the operations of the KPGs were not consolidated into the Company’s financial statements at such date. The Company anticipates that approval will be obtained, and the transaction consummated, by the end of 2019. When that occurs, the Company will consolidate the acquired entities in accordance with ASC 10.
The Harvest Foundation LLC
In November 2018, the Company issued a letter of intent to acquire 100% of the ownership interests of The Harvest Foundation LLC, the Company’s cannabis-licensed client in the state of Nevada (“Harvest”). In August 2019, the parties entered into a purchase agreement governing the transaction. The acquisition is conditioned upon the appropriate legislative approval of the transaction, which is expected to occur by the end of 2019. Accordingly, the operations of Harvest have not been consolidated for the six months ended June 30, 2019.
The purchase price is comprised of the issuance of (i) 1,000,000 shares of the Company’s common stock, in the aggregate, to two owners of Harvest, as a good faith deposit upon execution of the purchase agreement, (ii) $1.2 million of the Company’s common stock at closing, based on the closing price of the common stock on the day prior to state approval of the transaction, and (iii) warrants to purchase 400,000 shares of the Company’s common stock at an exercise price equal to the closing price of the Company’s common stock on the day prior to state approval of the transaction, In June 2019, the Company issued the aggregate 1,000,000 shares of common stock to the two owners of Harvest as a good faith deposit. These shares are restricted and will be returned to the Company in the event the transaction does not close by a certain date. As the transaction has not been consummated, the issued shares were recorded at par value within the Stockholders’ Equity section of the balance sheet at June 30, 2019.
Kind Therapeutics USA LLC
In December 2018, the Company entered into a memorandum of understanding to merge with its cannabis-licensed client in Maryland, Kind Therapeutics USA LLC. A merger agreement is currently being drafted for this transaction, which is intended to qualify as a tax-deferred reorganization under the Internal Revenue Code. The parties expect the merger agreement to be finalized, and the transaction approved by the state legislature in 2020.
In May 2019, the Company entered into a purchase agreement to acquire Meditaurus LLC, a company established by Dr. Jokubas Ziburkas, a PhD in neuroscience and a leading authority on CBD and its interactions with the brain and endocannabinoid system. Meditaurus currently operates in the United States and Europe and has developed proprietary CBD formulations sold under its Florance™ brand.
Pursuant to the purchase agreement, the Company acquired 70% of MediTaurus on June 1, 2019, and will acquire the remaining 30% of MediTaurus on June 1, 2020. The purchase price for the initial 70% was $2.8 million, comprised of cash payments totaling $720,000 and 752,260 shares of the Company’s common stock valued at $2,080,000. The purchase price of the remaining 30%, payable in cash or stock at the Company’s option, shall be equal to a defined percentage of the Company’s receipts from the licensing of certain MediTaurus technology and products that existing on June 1, 2019 (all such technology and products, the “MT Property”). For a period of ten years following June 1, 2020, certain former members of MediTaurus shall be paid a royalty on the Company’s receipts from the licensing of MT Property, with the royalty percentage commencing at 10% and decreasing to 2% over time.
The acquisition was accounted for in accordance with ASC 10. The following table summarizes the allocation of the purchase price to the fair value of the assets acquired and liabilities assumed on the acquisition date:
The tradename and customer lists acquired were included the balance of Intangibles within the asset section of the Company’s balance sheet at June 30, 2019. A valuation of MediTaurus is currently pending; the useful lives of the intangible assets will be disclosed after the valuation is completed
As part of the transaction, the Company hired Dr. Ziburkas as the Company’s Chief Innovation Officer, as well as other members of the MediTaurus executive team.
AgriMed Industries of PA LLC
In July 2018, the Company entered into a purchase agreement to acquire 100% of the ownership interests of AgriMed Industries of PA LLC (“AgriMed”), an entity that holds a license from the state of Pennsylvania for the cultivation of cannabis. The purchase price was comprised of $8 million, payable in stock and cash, and the assumption of certain liabilities of AgriMed. In February 2019, the Company commenced legal proceedings against AgriMed seeking specific performance of the purchase agreement.
In May 2019, the dispute between the parties was resolved through the cash payment to the Company of $3.1 million and other good and valuable consideration, in exchange for the Company relinquishing its rights under the purchase agreement and releasing its claims against AgriMed. The net amount of approximately $2,949,000, representing the cash payment less legal fees and writeoffs of assets and supplies, was recorded in Other Non-Operating Income in the Company’s consolidated statement of operations for the six months ended June 30, 2019.
The entire disclosure for a business combination (or series of individually immaterial business combinations) completed during the period, including background, timing, and recognized assets and liabilities. The disclosure may include leverage buyout transactions (as applicable).
Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef