Organization and Description of Business
|9 Months Ended|
Sep. 30, 2019
|Accounting Policies [Abstract]|
|Organization and Description of Business||
NOTE 1 – ORGANIZATION AND DESCRIPTION OF BUSINESS
MariMed Inc. (the “Company”), a Delaware corporation, is a multi-state organization in the emerging legal cannabis and hemp industries. During 2018, the Company made a strategic decision to transition from a management and advisory firm that provides cannabis licensing, operational consulting and real estate services, to a direct owner of cannabis licenses and seed-to-sale operations, dedicated to improving health and wellness through the use of cannabinoids and cannabis products.
Further, with the enactment of the 2018 U.S. Farm Bill and in recognition of the growing demand for hemp-derived cannabidiol (“CBD”), the Company made a strategic investment during 2018 in Kentucky-based GenCanna Global Inc., an international cultivator, producer, and distributor of hemp and GMP-quality CBD oils and isolates (“GenCanna”).
To date, the Company’s cannabis business has secured, on behalf of itself and its clients, 12 cannabis licenses across six states—two in Delaware, two in Illinois, one in Nevada, one in Rhode Island, three in Maryland and three in Massachusetts. The Company has developed in excess of 300,000 square feet of state-of-the-art, regulatory-compliant facilities for the cultivation, production, and dispensing of legal cannabis and cannabis-infused products, located in all of the aforementioned states, except Rhode Island. Along with operational oversight of these facilities, the Company provides its clients with license procurement, business development, human resources, accounting, and other corporate and administrative services.
The Company’s strategic plan is primarily comprised of acquiring its cannabis-licensed clients who currently lease the Company’s facilities, and ultimately consolidating these entities under the MariMed banner. To date, the Company has completed the acquisition of its clients in Massachusetts and Illinois, with the remaining clients under contract or in various stages of negotiation, as discussed below. Each acquisition is subject to the respective state’s approval under its laws governing the ownership and transfer of cannabis licenses. Accordingly, there is no assurance that the Company will be successful in fully implementing its plan.
Additionally, the Company licenses its own brands of precision-dosed, cannabis- and hemp-infused products to treat specific medical conditions or to achieve a certain effect. These products are licensed under the brand names Kalm Fusion™, Nature’s Heritage™, Betty’s Eddies™, and Florance™. The Company also has exclusive sublicensing rights in certain states to distribute Lucid Mood™ vaporizer pens, DabTabs™ vaporization tablets infused with cannabis concentrates, the Binske® line of cannabis products made from premium artisan ingredients, and the clinically tested medicinal cannabis strains developed in Israel by Tikun Olam™.
Leveraging its cannabis platform and product experience, as well as its strategic relationship with GenCanna, the Company has recently developed and is marketing a portfolio of hemp-based CBD brands to multiple retailers and direct to consumers both domestically and internationally.
The Company’s stock is quoted on the OTCQX market under the ticker symbol MRMD.
The Company was incorporated in January 2011 under the name Worlds Online Inc. Initially, the Company developed and managed online virtual worlds. By early 2014, this line of business effectively ceased operating and the Company pivoted into the legal cannabis industry.
Recent Transaction Summary
The following is a chronological summary of the major transactions undertaken by the Company over the past two years to achieve its strategic plan to transition into a multistate cannabis licensee and seed-to-sale cannabis operator. These transactions are disclosed in further detail in Note 3 – Acquisitions, Note 4 – Investments, Note 8 – Notes Receivable, and Note 11 – Debt.
April 2018 – The Company acquired iRollie LLC, a manufacturer of branded cannabis products and accessories for consumers, and custom product and packaging for companies in the cannabis industry.
August 2018 – The Company exchanged cash and stock to acquire a 23% ownership interest in an entity that developed Sprout, a customer relationship management and marketing platform for companies in the cannabis industry.
August to October 2018 – The Company loaned $300,000 to Healer LLC, an entity that provides cannabis education, dosage programs, and products developed by Dr. Dustin Sulak, an integrative medicine physician and nationally renowned cannabis practitioner. In 2019, the Company loaned Healer an additional $500,000.
October 2018 – The Company entered into a purchase agreement to acquire its two cannabis-licensed clients, KPG of Anna LLC and KPG of Harrisburg LLC, currently operating medical marijuana dispensaries in the state of Illinois. In October 2019, the Company received legislative approval for the transaction. Accordingly, the transaction was consummated and these entities became wholly-owned subsidiaries which will be consolidated into the Company’s financial statements starting in the fourth quarter of 2019.
October 2018 – The Company’s cannabis-licensed client with cultivation and dispensary operations 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. 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.
November 2018 – The Company issued a letter of intent to acquire The Harvest Foundation LLC, its cannabis-licensed client with cultivation operations in the state of Nevada. The parties entered into a purchase agreement governing the transaction in August 2019. The Company has not yet received state approval for the acquisition and therefore this acquisition is still pending. The Company anticipates approval will be obtained, and the transaction completed, by the end of this year.
December 2018 – The Company entered into a memorandum of understanding (“MOU”) to acquire Kind Therapeutics USA Inc. (“Kind”), its client in the state of Maryland that holds licenses for the cultivation, production, and dispensing of medical cannabis. The MOU provides for a total purchase price of $6.3 million in cash, 2,500,000 shares of the Company’s common stock, and other consideration. The acquisition is subject to the approval by the Maryland Medical Cannabis Commission, which approval was not expected prior to October 2020. Recently, the sellers of Kind have attempted to renegotiate the terms of the MOU. Even though the MOU contains all the definitive material terms with respect to the acquisition transaction and confirms certain management and lease agreements, the selling parties now allege that the MOU is not an enforceable agreement. The Company engaged with the sellers in good faith in an attempt to reach updated terms acceptable to both parties, however the sellers 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. For further information, see Part II, Item 1. Legal Proceedings in this report.
January 2019 – The Company entered into an agreement with Maryland Health & Wellness Center Inc. (“MHWC”), an entity that has been pre-approved for a cannabis dispensing license, to provide MHWC with a $300,000 construction loan in connection with the buildout of MHWC’s proposed dispensary. Upon the two-year anniversary of final state approval of MHWC’s dispensing license, the Company shall have the right, subject to state approval, to convert the promissory note underlying the construction loan into a 20% ownership interest of MHWC.
January 2019 – The Company converted a $250,000 note receivable from Chooze Corp., an entity that develops environmentally conscious CBD- and THC-infused products, into a 2.7% ownership interest in the entity.
January 2019 – The Company established MariMed Hemp Inc., a wholly-owned subsidiary, to develop, market, and distribute hemp-based CBD brands and products, and to provide hemp producers with bulk quantities of hemp genetics and biomass (“MariMed Hemp”). During the quarter ended September 30, 2019, MariMed Hemp launched Hemp Engine™, a store-within-a-store turnkey distribution platform of CBD-based products for retailers.
February 2019 – The Company converted its $30 million investment in subordinated secured convertible debentures of GenCanna into a 33.5% ownership interest in GenCanna.
May 2019 – The Company loaned an aggregate of $750,000 to Atalo Holdings Inc. (“Atalo”), an agriculture and biotechnology firm specializing in research, development, and production of industrial hemp and hemp-based CBD products. In July 2019, the Company extended an additional loan of $230,000 to Atalo.
May 2019 – The Company issued 500,000 shares of its common stock in exchange for an 8.95% interest in Terrace Inc., a Canadian entity that develops and acquires international cannabis assets.
June 2019 – the Company entered into a purchase agreement to acquire 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.
July 2019 – The Company entered into a licensing agreement for the exclusive manufacturing and distribution in seven eastern states of the Binske® portfolio of products, a brand known for utilizing best-in-class proprietary strains and craft ingredients in its edibles, concentrates, vaporizers, and topicals.
August 2019 – The Company loaned $250,000 to High Fidelity Inc., a company that owns and operates two seed-to sale medical marijuana facilities in the state of Vermont, and produces its own line of CBD products.
October 2019 – The Company closed on the purchase of a 9,000 square foot building in Annapolis, MD which it intends to develop into a medical marijuana dispensary to be leased to Kind.
Significant Transactions in the Current Period
During the nine months ended September 30, 2019, the Company entered into several hemp seed sale transactions with GenCanna whereby the Company acquired large quantities of top-grade feminized hemp seeds with proven genetics at volume discounts that it sold to GenCanna at market rates. The seeds met the U.S. government’s definition of federally legal industrial hemp, which was descheduled as a controlled substance and classified as an agricultural commodity upon the signing of the 2018 U.S. Farm Bill.
The Company purchased $20.75 million of hemp seed inventory during the nine months ended September 30, 2019, which the Company sold and delivered to GenCanna for $33.2 million. The Company provided GenCanna with extended payment terms through December 2019, to coincide with the completion of the seeds’ harvest, although the payment by GenCanna is not contingent upon the success of such harvest or its yield.
As required by the relevant accounting guidance, the Company has classified the $33.2 million due from GenCanna as a receivable from a related party, with approximately $29.0 million recognized as revenue from a related party for the nine months ended September 30, 2019, and approximately $4.2 million recorded under Unearned Revenue From Related Party on the balance sheet. Upon payment of the receivable balance by GenCanna, the amount in Unearned Revenue From Related Party will be recognized as revenue. This deferral of revenue represents the Company’s 33.5% ownership portion of the profit on these transactions.
To partially fund the seed purchases, the Company borrowed $17.0 million, which is reflected in Notes Payable on the balance sheet as of September 30, 2019 and further discussed in Note 11 – Debt.
The Company continues to explore opportunities to continue such seed sale transactions in the future, however there is no assurance that such transactions will materialize.
The entire disclosure for the general note to the financial statements for the reporting entity which may include, descriptions of the basis of presentation, business description, significant accounting policies, consolidations, reclassifications, new pronouncements not yet adopted and changes in accounting principles.
Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef