|9 Months Ended|
Sep. 30, 2020
|Schedule of Investments [Abstract]|
NOTE 4 – INVESTMENTS
At September 30, 2020 and December 31, 2019, the Company’s investments were comprised of the following:
SCHEDULE OF INVESTMENTS
In May 2019, the Company issued 1.59 million on the date of issuance, to purchase an 8.95% interest in Terrace Inc. (“Terrace”), a Canadian entity that develops and acquires international cannabis assets. The Company has no board representation, nor does it have the ability to exert operational or financial control over the entity. shares of its common stock, valued at $
In November 2019, the common stock of Terrace commenced public trading on the Toronto Stock Venture Exchange. In accordance with ASC 321, Investments – Equity Securities, this investment is carried at fair value, with changes to fair value recognized in net income. Prior to Terrace becoming publicly traded, the Company had elected the measurement alternative to value this equity investment without a readily determinable fair value.
At September 30, 2020, the carrying amount of this investment approximated $1,003,000, based on its publicly traded stock price on such date, which required the Company to record a charge to net income of approximately $447,000 for the nine months then ended that is reflected under Change In Fair Value Of Investments on the statement of operations.
In August 2018, the Company invested $300,000, of a total contracted cash investment of $500,000, and issued shares of its common stock, valued at approximately $915,000, in exchange for a 23% ownership in MembersRSVP LLC (“MRSVP”), an entity that has developed a customer relationship management and marketing platform, branded under the name Sprout, that is designed for and licensed to companies in the cannabis industry.
The investment is accounted under the equity method. During the nine months ended September 30, 2020 and 2019, the Company recorded earnings of approximately $19,000 and a charge of approximately $105,000, respectively, based on the Company’s equity in MRSVP’s net income and losses during such periods. Since the inception of the investment, the Company has recorded cumulative equity in net losses of approximately $130,000, reducing the carrying value of the investment to approximately $1,086,000 at September 30, 2020.
In January 2019, the entire principal and accrued interest balance of a note receivable from Chooze Corp. of approximately $258,000 was converted into a 2.7% equity interest in Chooze. In accordance with ASC 321, the Company elected the measurement alternative to value this equity investment without a readily determinable fair value. Accordingly, the investment was carried at its cost until June 2020 when the investment was fully reserved due to the Company’s determination that the investment was impaired. This reserve of approximately $258,000 is reflected under Change In Fair Value Of Investments on the statement of operations.
GenCanna Global Inc.
During 2018, in a series of transactions, the Company purchased $30 million of subordinated secured convertible debentures (the “GC Debentures”) of GenCanna. In February 2019, the Company converted the GC Debentures, plus unpaid accrued interest through the conversion date of approximately $229,000, into common stock of GenCanna equal to a 33.5% ownership interest in GenCanna on a fully diluted basis. Concurrent with the conversion, the Company’s CEO was appointed to GenCanna’s board and the Company was granted certain rights, including the rights of inspection, financial information, and participation in future security offerings of GenCanna. At conversion, the Company commenced accounting for this investment under the equity method.
In late January 2020, an involuntary bankruptcy proceeding under Chapter 11 was filed against GenCanna USA, GenCanna’s wholly-owned operating subsidiary, with the U.S. Bankruptcy Court in the Eastern District of Kentucky (the “Bankruptcy Court”). In the months leading up to the filing, GenCanna had faced several challenges including defaults under its senior credit facility with MGG Investment Group LP (“MGG”), a fire at its main processing and lab facility, the domestic decline of CBD selling prices, and the contraction of the cannabis capital markets. On February 6, 2020, GenCanna USA, under pressure from certain of its creditors and MGG, agreed to convert the involuntary bankruptcy proceeding 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. As a result, the Company recorded a charge to net income of approximately $30.2 million in December 2019, which reduced the carrying value of this investment to zero.
On February 18, 2020, the GenCanna Debtors sought permission from the Bankruptcy Court to sell all or substantially all of their assets. After the entry of various orders to establish the bidding procedures and criteria for such sale, the GenCanna Debtors received only four proposals (including a credit bid from MGG) for the purchase of the GenCanna Debtors’ assets and a single proposal for a plan of reorganization which was submitted by the Company.
On May 19, 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 for its credit bid in the amount of $73.5 million and cash in the amount of $3.5 million.
Based on recent filings with the Bankruptcy Court, the GenCanna Debtors are proposing to file a liquidating plan of reorganization to collect various prepetition payments and commercial claims against third parties, liquidate the remaining assets of the GenCanna Debtors, and make payments to creditors. The Company and the unsecured creditors committee are exploring options, including litigation against MGG for lender liability, equitable subordination, and return of preference. In connection with this liquidation process, the Company has filed its proofs of claim for the $33.2 million of hemp seeds sold to GenCanna, which transaction is further discussed in Note 17 – Related Party Transactions.
Iconic Ventures Inc.
In December 2018, the Company purchased shares of common stock of Iconic Ventures Inc. (“Iconic”), which equated to an ownership interest in Iconic of approximately 10%, for an aggregate cash payment of $. Iconic has developed DabTabs™, a unique solution for cannabinoid vaporization. The Company has no board representation, nor does it have the ability to exert operational or financial control over the entity. In 2019, the Company wrote off the investment after an impairment review that considered the viability of the entity in light of the current economic climate.
In July 2019, the Company entered into a licensing agreement for the exclusive manufacturing and distribution in several eastern U.S. 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. In consideration for the license and other rights, the Company agreed to pay a royalty of 10.0% to 12.5% of gross revenue, as defined, derived from the sale of Binske® products, subject to an annual minimum royalty. No gross revenue was generated as of September 30, 2020.
The entire disclosure for investment holdings. This includes the long positions of investments for the entity. It contains investments in affiliated and unaffiliated issuers. The investments include securities and non securities (i.e. commodities and futures contracts).
Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef