Organization and Description of Business
|12 Months Ended|
Dec. 31, 2019
|Accounting Policies [Abstract]|
|Organization and Description of Business||
NOTE 1 – ORGANIZATION AND DESCRIPTION OF BUSINESS
MariMed Inc. (the “Company”) is a leader in the emerging cannabis industry. The Company is an expert in the development, operation, management and optimization of facilities for the cultivation, production and dispensing of medicinal and recreational cannabis and cannabis-infused products. To date, the Company has developed in excess of 300,000 square feet of state-of-the-art, regulatory-compliant facilities in five states – Delaware, Illinois, Maryland, Massachusetts, and Nevada.
At the outset of the Company’s entrance into the cannabis industry, the Company provided advisory services and assistance to its clients in the procurement of state-issued cannabis licenses, leased its aforementioned cannabis facilities to these newly-licensed clients, and provided industry-leading expertise and oversight in all aspects of their cannabis operations, as well as ongoing regulatory, accounting, human resources, and administrative services. During this time, the Company successfully secured, on behalf of its clients, 13 cannabis licenses across six states – two in Delaware, three in Illinois, one in Nevada, one in Rhode Island, three in Maryland, and three in Massachusetts.
Since entering the cannabis industry, the Company has demonstrated an excellent track record developing and operating licensed cannabis facilities, implementing its proprietary operating procedures, and industry best practices. In 2018, the Company commenced a strategic plan to transition from an advisory firm that provides cannabis licensing, operational consulting and real estate services, to a direct owner of cannabis licenses and operator of seed-to-sale operations, dedicated to the improvement of health and wellness through the use of cannabinoids and cannabis products.
The Company’s strategic plan consists of the acquisition of its cannabis-licensed clients who currently lease the Company’s facilities, and the consolidation of these entities under the MariMed banner. 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 providing operational and corporate guidance. Accordingly, the Company believes it is well suited to own these facilities and manage the continuing growth of their operations.
A goal in completing this transition is to present a simpler, more transparent financial picture to the investor community. Once the consolidation is complete, the Company’s financial statements will provide a clearer representation of the revenues, earnings, and other financial metrics that the Company is generating, rather than a fee-for-service revenue model that reports only consulting and management fees, and does not reflect the full breadth of the Company’s overall business.
To date, acquisitions of the licensed businesses in Massachusetts and Illinois have been state-approved and completed, with the remaining entities located in Maryland, Nevada, and Rhode Island at various stages of completion and state approvals as further discussed below. When implemented, all of the Company’s cannabis-licensed clients will be fully consolidated into the Company, establishing it as a fully integrated seed-to-sale multistate operator of licensed cannabis businesses.
Each of the remaining potential acquisitions is subject to the respective state’s approval under its laws governing the ownership and transfer of cannabis licenses. The completion of the entire plan requires a modification of current cannabis license ownership laws in in Delaware and Rhode Island, and therefore there is no assurance that the Company will be successful in fully implementing its plan. However, the Company continues to develop additional revenue and business in the states in which it operates and plans to leverage its success in these markets to expand into other states where cannabis is and becomes legal.
The Company has also created its own brands of precision-dosed, cannabis-infused products designed to treat specific health conditions, alleviate medical symptoms, or achieve a certain effect. These products are developed by the Company in cooperation with state-licensed facilities and operators who meet the Company’s strict standards, including all natural—not artificial or synthetic—ingredients. The Company licenses its product formulations only to knowledgeable manufacturing professionals who agree to adhere to the Company’s precise scientific formulations using its trademarked product recipes.
The Company’s branded products are licensed under brand names including Kalm Fusion™, Nature’s Heritage™, and Betty’s Eddies™, and are distributed in the form of dissolvable strips, tablets, powders, microwaveable popcorn, fruit chews, and with more varieties in development. The Company also has exclusive sublicensing rights in certain states to distribute 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™. The Company intends to continue licensing and distributing its brands as well as other top brands in the Company’s current markets and in partnerships in other states markets across the country where product sale is legal.
In anticipation of the growing demand for hemp-derived cannabidiol (“CBD”), in 2018, the Company invested $30.0 million in GenCanna Global Inc. (“GenCanna”), a Kentucky-based cultivator, producer, and distributor of hemp and GMP-quality CBD oils and isolates. Concurrent with this investment, the Company acquired MediTaurus LLC (“MediTaurus”), a company operating in the United States and Europe that has developed proprietary CBD formulations under its Florance™ brand.
The transactions with GenCanna and MediTaurus, along with the Company’s cannabis platform and product experience, enabled the Company to expand into the emerging global CBD market just as the U.S Farm Bill was adopted in late 2018 which descheduled industrial hemp and hemp-derived CBD as controlled substances and classified them as agricultural commodities. This new law enabled a new emerging industry of CBD oils, isolates, and infused products within the United States. In early 2019, the Company established a wholly owned subsidiary, MariMed Hemp Inc. (“MariMed Hemp”) to market and distribute hemp-derived CBD products across several vertical markets.
The Company’s stock is quoted on the OTCQX market under the ticker symbol MRMD.
The Company was incorporated in Delaware in January 2011 under the name Worlds Online Inc. Initially, the Company developed and managed online virtual worlds. By early 2014, this line of business effectively ceased operating and the Company pivoted into the legal cannabis industry.
Significant Transactions in the Current Period
During 2019, the Company, through its MariMed Hemp subsidiary, 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 which it 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 was not contingent upon the success of such harvest or its yield. To partially fund the seed purchases, the Company raised $17.0 million in debt financings which is reflected in Notes Payable on the balance sheet and further discussed in Note 11 – Debt.
By the end of 2019, GenCanna had not paid the amount it owed the Company for its seed purchases due to several challenges it faced late in the year, including a fire at its main processing and lab facility, the domestic decline of CBD selling prices, and the contraction of the cannabis capital markets. In February 2020, GenCanna filed for voluntary reorganization under Chapter 11 with the U.S. Bankruptcy Court in the Eastern District of Kentucky. The filing is intended to permit GenCanna to operate its business while working through a reorganization plan that could include refinancing of its existing indebtedness, or an alternative restructuring transaction such as a sale.
As required by the relevant accounting guidance, the Company initially recorded the $33.2 million due from GenCanna as a related party receivable, with approximately $29.0 million recognized as related party revenue, and approximately $4.2 million classified as unearned revenue (such amount representing the Company’s 33.5% ownership portion of the profit on these transactions, which was to have been recognized as revenue upon payment by GenCanna). As a result of GenCanna’s Chapter 11 filing, the Company wrote off the receivable balance of approximately $29.0 million and the entire unearned revenue balance of approximately $4.2 million. Additionally, the Company recorded a charge to net income of approximately $30.2 million, which reduced to zero the carrying value of the Company’s investment in GenCanna.
In addition to the foregoing adjustments, the Company recorded bad debt reserves in 2019 against the receivable and working capital balances due from (i) Kind of approximately $11.2 million in the aggregate, in light of the ongoing litigation between the Company and Kind, and (ii) Harvest of approximately $2.2 million in the aggregate, due to the anticipated effect on Harvest’s operations from a weakened local economy due to the coronavirus pandemic. These charges are further described in Note 6 – Due From Third Parties and Note 17 – Bad Debts.
The Company expects the coronavirus pandemic to likewise have a negative impact on the operations of certain entities in which the Company has invested and to whom the Company has extended loans. For that reason, the Company also wrote off (i) three notes receivable balances of approximately $1.6 million in the aggregate, (ii) goodwill of approximately 2.7 million associated with the Company’s acquisition of MediTaurus, and (iii) the carrying value of a $500,000 investment. These items are further described in Note 3 – Acquisitions, Note 4 – Investments, and Note 7 – Notes Receivable.
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