|3 Months Ended|
Mar. 31, 2020
|Debt Disclosure [Abstract]|
NOTE 9 – DEBT
At March 31, 2020 and December 31, 2019, mortgage balances, including accrued but unpaid interest, were comprised of the following:
In November 2017, the Company entered into a 10-year mortgage agreement with Bank of New England for the purchase of a 138,000 square foot industrial property in New Bedford, Massachusetts, within which the Company has built a 70,000 square foot cannabis cultivation and processing facility. This mortgage was personally guaranteed by the Company’s CEO and CFO. From the mortgage date through May 2019, the Company was required to make monthly payments of interest-only at a rate equal to the prime rate plus 2%, with a floor of 6.25% per annum. From May 2019 to May 2024, the Company is required to make principal and interest payments at a rate equal to the prime rate on May 2, 2019 plus 2%, with a floor of 6.25% per annum. Principal and interest payments shall continue from May 2024 through the end of the lease at a rate equal to the prime rate on May 2, 2024 plus 2%, with a floor of 6.25% per annum. The outstanding principal balance on this mortgage approximated $4,797,000 and $4,825,000 and on March 31, 2020 and December 31, 2019, respectively, of which approximately $96,000 and $94,000, respectively, was current.
The Company maintains another mortgage with Bank of New England, also personally guaranteed by the Company’s CEO and CFO, for the 2016 purchase of a 45,070 square foot building in Wilmington, Delaware which was developed into a cannabis seed-to-sale facility and is currently leased to the Company’s cannabis-licensed client in that state. The mortgage matures in 2031 with monthly principal and interest payments at a rate of 5.25% per annum through September 2021, and thereafter the rate adjusting every five years to the then prime rate plus 1.5% with a floor of 5.25% per annum. At March 31, 2020 and December 31, 2019, the outstanding principal balance on this mortgage was approximately $1,656,000 and $1,682,000, respectively, of which approximately $107,000 and $105,000, respectively, was current.
In May 2016, the Company entered into a mortgage agreement with DuQuoin State Bank (“DSB”) for the purchase of two properties which the Company developed into two 3,400 square foot free-standing retail dispensaries in Illinois. On May 5th of each year, this mortgage is due to be repaid unless it is renewed for another year at a rate determined at the discretion of DSB’s executive committee. The mortgage was renewed in May 2020 at a rate of 6.75% per annum. At March 31, 2020 and December 31, 2019, the outstanding principal balance on this mortgage was approximately $823,000 and $829,000, respectively, of which approximately $25,000 and $24,000, respectively, was current.
In February 2020, the Company entered into a mortgage agreement with South Porte Bank for the purchase and development of a property in Mt. Vernon, IL. The principal amount of the mortgage is equal to the aggregate amounts advanced to the Company up to a maximum of $907,200. Interest shall accrue at the rate of 5.5% per annum and the mortgage matures in August 2020. Upon execution, the Company was advanced $235,900. No additional advances have been made to date. The interest accrued from inception through the end of the quarter of was paid by the Company in March 2020.
In February 2020, pursuant to an exchange agreement as further described in Note 12 – Stockholders’ Equity, the Company issued two promissory notes in the aggregate principal amount of approximately $4.4 million, bearing interest at 16.5% per annum and maturing in August 2021, with a right to extend the maturity date through February 2022 upon payment of an extension fee (the “$4.4M Notes”). As of March 31, 2020, no payments were made on the $4.4M Notes and accrued interest approximated $67,000.
In June 2019, the Company and MariMed Hemp, its wholly-owned subsidiary, issued a secured promissory note in the principal amount of $10.0 million to an unaffiliated party (the “$10M Note”). The proceeds from the $10M Note were used to finance a portion of the purchases of hemp seed inventory which was sold to GenCanna (the “Seed Transactions”) as further discussed in Note 17 – Related Party Transactions. The $10M Note provided for the repayment of principal plus a payment of $1.5 million (the “$1.5M Payment”) on the maturity date of January 31, 2020. Such payment was charged to interest expense over the life of the $10M Note.
As part of the $10M Note transaction, the Company issued three-year warrants to purchase 375,000 shares of common stock at an exercise price of $4.50 per share to the holder of the $10M Note. The fair value of these warrants on the issuance date of approximately $601,000 was recorded as a discount to the $10M Note. Approximately $523,000 of the warrant discount was amortized to interest expense in 2019, with the remainder in January 2020. Accordingly, the carrying value of the $10M Note approximated $9.9 million at December 31, 2019.
In February 2020, the Company entered into an amendment agreement with the holder of the $10M Note, whereby the Company and MariMed Hemp issued an amended and restated promissory note in the principal amount of $11,500,000 (the “$11.5M Note”), comprised of the $10.0 million principal and the $1.5M Payment (which the Company had accrued) of the $10M Note. The $11.5M Note matures in June 2020 and bears interest at a rate of 15% per annum, requiring monthly interest payments and minimum amortization payments of $3,000,000 in the aggregate due on or before April 30, 2020, of which the Company paid $2,300,000 in February 2020 and $700,000 in April 2020. Accordingly, the outstanding principal on $11.5M Note was $9.2 million at March 31, 2020, with approximately $119,000 of accrued interest.
The $11.5M Note is secured by a first priority security interest in the assets of certain of the Company’s subsidiaries and brands, and a pledge of the Company’s ownership interest in certain of its subsidiaries. The $11.5M Note imposes certain covenants on the borrowers, all of which were complied with as of March 31, 2020.
In April 2019, MariMed Hemp issued a secured promissory note in the principal amount of $1,000,000 to an unaffiliated party. The proceeds of the note were used to finance a portion of the Seed Transactions as further discussed in Note 17 – Related Party Transactions. The note is secured by the collateral assignment of certain receivables from GenCanna and certain obligations of GenCanna to MariMed Hemp. The principal balance plus a payment of $180,000, initially due in December 2019, was extended to March 2020 in accordance with the terms of the note, requiring an additional payment of $30,000 (the “$30,000 Fee”). Prior to the extended due date, the parties agreed that the note would continue on a month-to-month basis bearing interest at a rate of 15% per annum. At March 31, 2020, the outstanding balance consisted of the $1,000,000 principal amount plus approximately $274,000 of accrued interest which included the $30,000 Fee.
In March 2019, the Company raised $6.0 million through the issuance of a secured promissory note to an unaffiliated party bearing interest at a rate of 13% per annum and a service fee of $900,000 (the “$6M Note”). The proceeds of the note were used to finance a portion of the Seed Transactions as further discussed in Note 17 – Related Party Transactions. The $6M Note is secured by the collateral assignment of certain receivables from and obligations of GenCanna to MariMed Hemp. The $6M Note’s initial maturity date of December 31, 2019 was extended to April 30, 2020 in accordance with its terms, with the Company paying an extension fee in December 2019 of $300,000 which was charged to interest expense. In April 2020, the maturity date of this note was extended to September 2020 and the note was modified to include unpaid accrued interest of $845,000 through the modification date, a new note was issued evidencing the aforementioned service fee of $900,000, and adjustments were made to the security on these notes as further discussed in Note 19 – Subsequent Events. At March 31, 2020 and December 31, 2019, accrued interest payable on the $6M Note approximated $853,000 and $635,000, respectively.
In September 2018, the Company raised $3.0 million from the issuance of a secured promissory note to the same unaffiliated holder of the $6M Note, bearing interest at a rate of 10% per annum (the “$3M Note”). The maturity date of the $3M Note, initially in March 2020, was extended for an additional six months in accordance with its terms, with the interest rate increasing to 12% per annum during the extension period. The Company may elect to prepay the $3M Note in whole or part without premium or penalty provided the noteholder is given proper notice and the Company is not in default of the note agreement. The $3M Note is secured by the Company’s property in Maryland. In April 2020, the maturity date of this note was extended to December 2020 as discussed in Note 19 – Subsequent Events.
As part of $3M Note transaction, the Company issued three-year warrants to the lender’s designees to purchase 750,000 shares of the Company’s common stock at an exercise price of $1.80 per share. The Company recorded a discount on the $3M Note of approximately $1,511,000 from the allocation of note proceeds to the warrants based on the fair value of such warrants on the issuance date. Approximately $882,000 of the warrant discount was amortized to interest expense during 2018, and the remaining $629,000 was amortized during 2019. Interest accrued on the $3M Note was paid monthly, and accordingly the carrying value of the $3M Note was $3.0 million on March 31, 2020 and December 31, 2019.
In addition to the above transactions, the Company raised $100,000 and $2,760,000 in the three month ended March 31, 2020 and December 31, 2019, respectively, from the issuance of promissory notes to individuals and accredited investors bearing interest at rates of 10% to 18% per annum, and maturing in 2020 and 2021. Of these promissory note issuances, $100,000 was repaid in February, and $2,760,000 remained outstanding at March 31, 2020 with related accrued interest of approximately $119,000.
During the quarter ended March 31, 2020 , the Company repaid $100,000 of promissory notes. No repayments of promissory notes occurred in 2019.
During the quarter ended December 31, 2019, the Company issued 2,435,116 shares of its common stock to retire promissory notes (principal and accrued interest) of approximately $1,047,000. No such retirements occurred during the quarters ended March 31, 2020 and 2019.
As of March 31, 2020, the aggregate scheduled maturities of the Company’s total debt outstanding, inclusive of the promissory notes and mortgages described within this Note 9 – Debt, and the convertible debentures described in the following Note 10 – Debentures Payable, were:
The entire disclosure for information about short-term and long-term debt arrangements, which includes amounts of borrowings under each line of credit, note payable, commercial paper issue, bonds indenture, debenture issue, own-share lending arrangements and any other contractual agreement to repay funds, and about the underlying arrangements, rationale for a classification as long-term, including repayment terms, interest rates, collateral provided, restrictions on use of assets and activities, whether or not in compliance with debt covenants, and other matters important to users of the financial statements, such as the effects of refinancing and noncompliance with debt covenants.
Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef