RELATED PARTY TRANSACTIONS
|12 Months Ended|
Dec. 31, 2020
|Related Party Transactions [Abstract]|
|RELATED PARTY TRANSACTIONS||
NOTE 20 – RELATED PARTY TRANSACTIONS
Concurrent with the conversion of the subordinated secured convertible debentures of GenCanna disclosed in Note 4 – Investments, the Company’s CEO was appointed to GenCanna’s board of directors.
In 2019, the Company, through its MariMed Hemp subsidiary, entered into several hemp seed sale transactions with GenCanna whereby the Company acquired $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 included in Notes Payable on the balance sheet and previously discussed in Note 11 – Debt.
By the end of 2019, GenCanna had not paid the amount it owed the Company for its seed purchases and in February 2020, as previously discussed in Note 4 – Investments, under pressure from certain of its creditors, the GenCanna Debtors agreed to convert a previously-filed involuntary bankruptcy proceeding into a voluntary Chapter 11 proceeding, and filed voluntary petitions under Chapter 11 in the Bankruptcy Court.
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 proceedings, the Company fully reserved the receivable balance of approximately $29.0 million and wrote off the entire unearned revenue balance of approximately $4.2 million. Please refer to Note 21 – Commitments and Contingencies for additional discussion of GenCanna’s bankruptcy proceedings.
In 2019, the Company granted 191,000, of which approximately $189,000 was amortized in 2019 and the remainder in 2020. options were granted to related parties during 2020. to purchase shares of common stock to each of the Company’s three independent board members at an exercise price of $ . The aggregate fair value of these options approximated $
In 2020, options to purchase an aggregate of shares of common stock were exercised by the Company’s CEO, CFO, and an independent board member at exercise prices of $ and $ per share. In 2019, options to purchase an aggregate of shares of common stock were exercised by the Company’s CEO and an independent board member at exercise prices of $ and $ per share. The independent board member’s options were exercised on a cashless basis with the exercise prices paid via the surrender of shares of common stock. At December 31, 2019, the shares of common stock associated with the exercise by the Company’s CEO were not issued and included in Common Stock Subscribed But Not Issued on the balance sheet.
In 2019, options to purchase shares of common stock were forfeited by board members. options were forfeited by related parties in 2020.
The Company’s current corporate offices are leased from a company owned by the CFO under a 10-year lease that commenced August 2018 and contains a five-year extension option. In 2020 and 2019, expenses incurred under this lease approximated $156,000 in both years.
In 2020 and 2019, the Company procured nutrients, lab equipment, cultivation supplies, a vehicle, small tools, and furniture from an entity owned by the Company’s COO and President. The aggregate purchases in 2020 and 2019 approximated $2.5 million and $3.2 million, respectively.
In 2020 and 2019, the Company paid royalties on the revenue generated from its Betty’s Eddies® product line to an entity owned by the Company’s COO and President. The aggregate royalties owed in 2020 and 2019 approximated $615,000 and $600,000, respectively.
In 2020, the Company purchased fixed assets and consulting services of approximately $938,000 in the aggregate from two entities owned by two of the Company’s general managers. The Company did not make any purchases from these two entities in 2019.
In 2020 and 2019, the Company paid management fees to an entity owned by the Company’s CEO and CFO. The aggregate paid in 2020 and 2019 approximated $41,000 and $145,000, respectively.
In 2020 and 2019, one of the Company’s majority owned subsidiaries paid distributions to the Company’s CEO and CFO, who own minority equity interests in such subsidiary. The aggregate distributed in 2020 and 2019 approximated $30,000 and $52,000, respectively.
The balance of Due To Related Parties at December 31, 2020 and 2019 of approximately $1.2 million and $1.5 million, respectively, were comprised of amounts owed of approximately (i) $460,000 and $420,000, respectively, to the Company’s CEO and CFO, (ii) $653,000 and $990,000, respectively, to companies owned by these officers, and (iii) $45,000 in both periods to a stockholder of the Company. Such amounts owed are not subject to repayment schedules.
The Company’s mortgages with Bank of New England and a portion of the Third Party Notes, as discussed in Note 11 – Debt, are personally guaranteed by the Company’s CEO and CFO.
The entire disclosure for related party transactions. Examples of related party transactions include transactions between (a) a parent company and its subsidiary; (b) subsidiaries of a common parent; (c) and entity and its principal owners; and (d) affiliates.
Reference 1: http://www.xbrl.org/2003/role/disclosureRef