UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period ended September 30, 2020

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from __________________ to __________________

Commission File number 0-54433

MARIMED INC.

(Exact Name of Registrant as Specified in Its Charter)

Delaware		27-4672745
(State or Other Jurisdiction of		(I.R.S. Employer
Incorporation or Organization)		Identification No.)

10 Oceana Way

Norwood, MA 02062

(Address of Principal Executive Offices)

617-795-5140

(Registrant’s Telephone Number, Including Area Code)

Securities registered pursuant to Section 12(b) of the Act: None.

Title of each class		Ticker symbol(s)		Name of each exchange on which registered
Not Applicable.		Not Applicable.		Not Applicable.

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large Accelerated filer ☐	Accelerated filer ☒
Non-accelerated filer ☐	Smaller reporting company ☒
	Emerging growth company ☒

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of November 9, 2020, 300,416,773 shares of the registrant’s common stock were outstanding.

MariMed Inc.

Table of Contents

		Page
	PART I – FINANCIAL INFORMATION

Item 1.	Financial Statements

	Condensed Consolidated Balance Sheets as of September 30, 2020 (Unaudited) and December 31, 2019	3

	Condensed Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2020 and 2019 (Unaudited)	4

	Condensed Consolidated Statements of Stockholders’ Equity for the Nine Months Ended September 30, 2020 and 2019 (Unaudited)	5

	Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2020 and 2019 (Unaudited)	6

	Notes to Condensed Consolidated Financial Statements (Unaudited)	7

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	35

Item 3.	Quantitative and Qualitative Disclosure About Market Risk	44

Item 4.	Controls and Procedures	44

	PART II – OTHER INFORMATION

Item 1.	Legal Proceedings	45

Item 1A.	Risk Factors	45

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	46

Item 3.	Defaults Upon Senior Securities	46

Item 4.	Mine Safety Disclosures	46

Item 5.	Other Information	46

Item 6.	Exhibits	47

Signatures		49

MariMed Inc.

Condensed Consolidated Balance Sheets

	September 30, 2020			December 31, 2019
	(Unaudited)
Assets
Current assets:
Cash and cash equivalents	$	2,261,327		$	738,688
Accounts receivable, net		4,077,902			1,669,139
Deferred rents receivable		1,968,500			1,796,825
Due from third parties, net		9,937			-
Notes receivable, current portion		540,319			311,149
Inventory		6,802,291			1,219,429
Investments		1,002,659			1,449,144
Other current assets		250,045			192,368
Total current assets		16,912,980			7,376,742

Property and equipment, net		45,507,577			42,792,369
Intangibles, net		2,311,181			2,364,042
Investments		1,085,528			1,324,661
Notes receivable, less current portion		1,084,671			1,639,496
Right-of-use assets under operating leases		5,381,761			5,787,423
Right-of-use assets under finance leases		86,591			111,103
Other assets		80,493			175,905
Total assets	$	72,450,782		$	61,571,741

Liabilities, mezzanine equity, and stockholders’ equity
Current liabilities:
Accounts payable	$	6,292,958		$	4,719,069
Accrued expenses		3,111,373			5,395,996
Notes payable, current portion		8,512,590			23,112,742
Mortgages payable, current portion		1,379,541			223,888
Debentures payable, current portion		2,928,047			-
Operating lease liabilities, current portion		1,002,171			917,444
Finance lease liabilities, current portion		38,412			38,412
Due to related parties		1,233,008			1,454,713
Other current liabilities		1,505,008			858,176
Total current liabilities		26,003,108			36,720,440

Notes payable, less current portion		11,653,775			-
Mortgages payable, less current portion		14,864,810			7,112,842
Debentures payable, less current portion		-			5,835,212
Operating lease liabilities, less current portion		4,967,583			5,399,414
Finance lease liabilities, less current portion		52,439			75,413
Other liabilities		100,200			100,200
Total liabilities		57,641,915			55,243,521

Mezzanine equity:
Series B convertible preferred stock, $0.001 par value; 4,908,333 and zero shares authorized, issued and outstanding at September 30, 2020 and December 31, 2019, respectively		14,725,000			-

Stockholders’ equity:
Series A convertible preferred stock, $0.001 par value; zero and 50,000,000 shares authorized at September 30, 2020 and December 31, 2019, respectively; zero shares issued and outstanding at September 30, 2020 and December 31, 2019		-			-
No designation preferred stock, $0.001 par value; 45,091,667 and zero shares authorized at September 30, 2020 and December 31, 2019, respectively; zero shares issued and outstanding at September 30, 2020 and December 31, 2019		-			-
Common stock, $0.001 par value; 500,000,000 shares authorized at September 30, 2020 and December 31, 2019; 289,729,854 and 228,408,024 shares issued and outstanding at September 30, 2020 and December 31, 2019, respectively		289,730			228,408
Common stock subscribed but not issued; 33,319 and 3,236,857 shares at September 30, 2020 and December 31, 2019, respectively		5,365			1,168,074
Additional paid-in capital		109,115,215			112,245,730
Accumulated deficit		(108,737,141	)		(106,760,527	)
Noncontrolling interests		(589,302	)		(553,465	)
Total stockholders’ equity		83,867			6,328,220
Total liabilities, mezzanine equity, and stockholders’ equity	$	72,450,782		$	61,571,741

See accompanying notes to condensed consolidated financial statements.

MariMed Inc.

Condensed Consolidated Statements of Operations

(Unaudited)

	2020			2019			2020			2019
	Three Months Ended September 30,						Nine Months Ended September 30,
	2020			2019			2020			2019

Revenues	$	13,461,504		$	4,209,328		$	30,537,829		$	11,382,942
Revenues from related party		-			7,014,371			-			29,029,249
Total revenues		13,461,504			11,223,699			30,537,829			40,412,191

Cost of revenues		4,781,677			6,523,283			10,831,763			24,523,626

Gross profit		8,679,827			4,700,416			19,706,066			15,888,565

Operating expenses:
Personnel		1,354,644			1,241,535			4,075,168			2,740,039
Marketing and promotion		103,327			91,562			281,329			286,521
General and administrative		2,931,684			2,394,692			7,515,721			6,752,168
Bad debts		892,029			-			1,342,029			-
Total operating expenses		5,281,684			3,727,789			13,214,247			9,778,728

Operating income		3,398,143			972,627			6,491,819			6,109,837

Non-operating income (expenses):
Interest expense		(1,921,312	)		(4,516,576	)		(7,581,648	)		(9,076,583	)
Interest income		34,818			79,016			121,712			425,770
Loss on obligations settled with equity		-			-			(44,678	)		-
Equity in earnings of investments		51,511			(2,933,252	)		18,553			(1,020,310	)
Change in fair value of investments		217,374			-			(704,172	)		-
Other		(84,708	)		-			(84,708	)		2,948,917
Total non-operating income (expenses), net		(1,702,317	)		(7,370,812	)		(8,274,941	)		(6,722,206	)

Income (loss) before income taxes		1,695,826			(6,398,185	)		(1,783,122	)		(612,369	)
Provision for income taxes					901,477			-			1,886,072
Net income (loss)	$	1,695,826		$	(7,299,662	)	$	(1,783,122	)	$	(2,498,441	)

Net income (loss) attributable to noncontrolling interests	$	36,959		$	99,021		$	193,492		$	246,367
Net income (loss) attributable to MariMed Inc.	$	1,658,867		$	(7,398,683	)	$	(1,976,614	)	$	(2,744,808	)

Net income (loss) per share
Basic	$	0.006		$	(0.034	)	$	(0.008	)	$	(0.013	)
Diluted	$	0.005		$	(0.034	)	$	(0.008	)	$	(0.013	)

Weighted average common shares outstanding
Basic		281,535,212			217,417,326			254,387,761			214,274,342
Diluted		346,091,840			217,417,326			254,387,761			214,274,342

See accompanying notes to condensed consolidated financial statements.

MariMed Inc.

Condensed Consolidated Statements of Stockholders’ Equity

(Unaudited)

	Shares		Par Value		Shares			Amount			Capital			Deficit			Interests			Equity
	Common Stock				Common Stock Subscribed But Not Issued						Additional Paid-In			Accumulated			Non-Controlling			Total Stockholders’
	Shares		Par Value		Shares			Amount			Capital			Deficit			Interests			Equity
Balances at December 31, 2018		211,013,043	$	211,013		97,136		$	169,123		$	87,180,165		$	(25,575,808	)	$	(220,032	)	$	61,764,461
Sales of common stock		799,995		800		-			-			2,599,200			-			-			2,600,000
Issuance of subscribed shares		97,136		97		(97,136	)		(169,123	)		169,026			-			-			-
MediTaurus acquisition		-		-		752,260			2,080,000			-			-			1,200,000			3,280,000
Terrace investment		500,000		500		-			-			1,589,500			-			-			1,590,000
Harvest payment		1,000,000		1,000		-			-			(1,000	)		-			-			-
Exercise of options		417,352		417		2,644,456			413,894			11,189			-			-			425,500
Exercise of warrants		686,104		686		-			-			611,756			-			-			612,442
Stock grants		-				-
Stock forfeiture		-				-
Amortization of stock grants		108,820		109		-			-			193,601			-			-			193,710
Amortization of option grants		-		-		-			-			1,219,958			-			-			1,219,958
Issuance of stand-alone warrants
Amortization of stand-alone warrant issuances		-		-		-			-			139,015			-			-			139,015
Issuance of warrants attached to debt
Warrant discount on promissory notes		-		-		-			-			600,621			-			-			600,621
Warrant discount on debentures payable		-		-		-			-			1,148,056			-			-			1,148,056
Discount on debentures payable
Extinguishment of promissory note		-
Common stock issued to settle obligations		-
Beneficial conversion feature on debentures		-		-		-			-			4,235,469			-			-			4,235,469
Conversion of debentures payable		3,591,523		3,592		3,206,816			2,464,438			5,391,253			-			-			7,859,283
Conversion of common stock to preferred stock		-
Conversion of promissory note		-
Distributions		-		-		-			-			-			-			(376,993	)		(376,993	)
Net income (loss)		-		-		-			-			-			(2,744,808	)		246,367			(2,498,441	)
Balances at September 30, 2019		218,213,973	$	218,214		6,603,532		$	4,958,332		$	105,087,809		$	(28,320,616	)	$	849,342		$	82,793,081

	Shares			Par Value			Shares			Amount			Capital			Deficit			Interests			Equity
	Common Stock						Common Stock Subscribed But Not Issued						Additional Paid-In			Accumulated			Non-Controlling			Total Stockholders’
	Shares			Par Value			Shares			Amount			Capital			Deficit			Interests			Equity
Balances at December 31, 2019		228,408,024		$	228,408			3,236,857		$	1,168,074		$	112,245,730		$	(106,760,527	)	$	(553,465	)		6,328,220
Issuance of subscribed shares		3,236,857			3,237			(3,236,857	)		(1,168,074	)		1,164,837			-			-			-
Stock grants		64,478			64			33,319			5,365			10,665			-			-			16,094
Stock forfeiture		(40,000)			(40)			-			-			40			-			-			-
Amortization of option grants		-			-			-			-			707,003			-			-			707,003
Issuance of stand-alone warrants		-			-									2,179			-			-			2,179
Issuance of warrants attached to debt		-			-			-			-			638,927			-			-			638,927
Discount on debentures payable		-			-			-			-			28,021			-			-			28,021
Beneficial conversion feature on debentures payable		-			-			-			-			379,183			-			-			379,183
Conversion of debentures payable		54,143,232			54,144			-			-			7,111,897			-			-			7,166,041
Conversion of common stock to preferred stock		(4,908,333	)		(4,908	)		-			-			(14,720,092	)		-			-			(14,725,000	)
Conversion of promissory note		2,525,596			2,525			-			-			457,525			-			-			460,050
Extinguishment of promissory note		1,900,000			1,900			-			-			350,100			-			-			352,000
Common stock issued to settle obligations		4,400,000			4,400			-			-			739,200			-			-			743,600
Distributions		-			-			-			-			-			-			(229,329	)		(229,329	)
Net income (loss)		-			-			-			-			-			(1,976,614	)		193,492			(1,783,122	)
Balances at September 30, 2020		289,729,854		$	289,730			33,319		$	5,365		$	109,115,215		$	(108,737,141	)	$	(589,302	)	$	$ 83,867	)

The above statements do not show columns for Series A convertible preferred stock and no designation

preferred stock as the balances were zero and there was no activity in the periods presented.

See accompanying notes to condensed consolidated financial statements.

MariMed Inc.

Condensed Consolidated Statements of Cash Flows

(Unaudited)

	2020			2019
	Nine Months Ended September 30,
	2020			2019
Cash flows from operating activities:
Net income (loss) attributable to MariMed Inc.	$	(1,976,614	)	$	(2,744,808	)
Net income (loss) attributable to noncontrolling interests		193,492			246,367
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Depreciation		1,340,649			697,946
Asset write-off		84,708			-
Amortization of intangibles		307,861			154,167
Amortization of stock grants		16,094			193,710
Amortization of option grants		707,003			1,219,958
Amortization of stand-alone warrant issuances		2,179			139,016
Amortization of warrants attached to debt		631,895			1,836,892
Amortization of beneficial conversion feature		2,552,933			4,646,070
Amortization of original issue discount		286,353			107,256
Bad debt expense		1,342,029			-
Loss on obligations settled with equity		44,678			-
Equity in (earnings) losses of investments		(18,553	)		1,020,310
Change in fair value of investments		704,172			-
Changes in operating assets and liabilities:
Accounts receivable, net		(3,750,792	)		(4,788,303	)
Accounts receivable from related party, net					(33,200,000	)
Deferred rents receivable		(171,675	)		53,461
Due from third parties		-			(174,516	)
Inventory		(5,582,862	)		(942,399	)
Other current assets		(57,677	)		7,154
Other assets		95,412			(262,981	)
Accounts payable		2,272,810			(178,223	)
Accrued expenses		1,872,692			3,339,325
Deferred rents payable		-			(105,901	)
Operating lease payments		58,559			424,129
Finance lease interest payments		4,033			(1,824	)
Unearned revenue from related party		-			4,170,750
Other current liabilities		646,832			197,943
Other liabilities		-			(238,000	)
Net cash provided by (used in) operating activities		1,606,211			(24,182,501	)

Cash flows from investing activities:
Purchase of property and equipment		(4,116,053	)		(6,741,632	)
Purchase of cannabis licenses		(255,000	)		(150,000	)
Investment in notes receivable		-			(2,030,000	)
Interest on notes receivable		443,150			175,509
Acquisition		-			(655,804	)
Due from related parties		-			119,781
Net cash used in investing activities		(3,927,903	)		(9,282,146	)

Cash flows from financing activities:
Issuance of common stock		-			2,600,000
Issuance of promissory notes		5,249,763			17,000,000
Repayments of promissory notes		(10,770,011	)		-
Proceeds from issuance of debentures		935,000			9,600,000
Proceeds from mortgages		13,897,282			-
Payments on mortgages		(4,989,661	)		(142,170	)
Exercise of stock options		-			75,500
Exercise of warrants		-			612,442
Due to related parties		(221,705	)		139,402
Finance lease principal payments		(27,008	)		(11,167	)
Distributions		(229,329	)		(376,993	)
Net cash provided by financing activities		3,844,331			29,497,014

Net change to cash and cash equivalents		1,522,639			(3,967,633	)
Cash and cash equivalents at beginning of period		738,688			4,104,315
Cash and cash equivalents at end of period	$	2,261,327		$	136,682

Supplemental disclosure of cash flow information:
Cash paid for interest	$	1,236,464		$	699,582
Cash paid for income taxes	$	488,772		$	88,150

Non-cash activities:
Conversions of debentures payable	$	7,166,041		$	7,859,283
Beneficial conversion feature on debentures payable	$	379,183		$	4,235,469
Discount on debentures payable	$	28,021		$	1,148,056
Issuance of common stock associated with subscriptions	$	1,168,074		$	169,123
Discount on promissory notes	$	638,927		$	600,621
Conversion of promissory notes	$	460,050		$	-
Extinguishment of promissory note	$	352,000		$	-
Common stock issued to settle obligations	$	698,922		$	-
Exchange of common stock to preferred stock	$	14,725,000		$	-
Conversion of accrued interest to promissory note	$	3,908,654		$	-
Conversion of debentures receivable to investment	$	-		$	30,000,000
Operating lease right-of-use assets and liabilities	$	-		$	7,142,150
Finance lease right-of-use assets and liabilities	$	-		$	134,193
Conversion of notes receivable to investment	$	-		$	257,687
Conversion of advances to notes receivable	$	-		$	855,913
MediTaurus acquisition	$	-		$	2,500,000
Terrace investment	$	-		$	1,590,000
Harvest payment	$	-		$	1,000
Exercise of stock options via the reduction of an obligation	$	-		$	350,000
Cashless exercise of stock options	$	-		$	1,762
Reclass of accrued interest from notes payable	$	-		$	127,450
Reclass of accrued interest from debentures payable	$	-		$	62,748

See accompanying notes to condensed consolidated financial statements.

MariMed Inc.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

NOTE 1 – ORGANIZATION AND DESCRIPTION OF BUSINESS

MariMed Inc. (the “Company”) is a multi-state operator in the cannabis industry. The Company develops, operates, manages, and optimizes over 300,000 square feet of state-of-the-art, regulatory-compliant facilities for the cultivation, production and dispensing of medicinal and recreational cannabis. The Company also licenses its proprietary brands of cannabis and hemp-infused products, along with other top brands, in several domestic markets and overseas.

Upon its entry into the cannabis industry, the Company was an advisory firm that procured state-issued cannabis licenses on behalf of its clients, leased its cannabis facilities to these newly-licensed companies, and provided industry-leading expertise and oversight in all aspects of their cannabis operations. The Company also provided its clients with ongoing regulatory, accounting, real estate, human resources, and administrative services.

In 2018, the Company commenced a strategic plan to transition from a consulting business to a direct owner of cannabis licenses and operator of seed-to-sale operations. The Company’s strategic plan consists of the acquisition of its cannabis-licensed clients located in five states—Delaware, Illinois, Maryland, Massachusetts, and Nevada—and the consolidation of these entities under the MariMed banner.

A goal in completing this transition is to present a simpler, more transparent financial picture of the full breadth of the Company’s efforts, with a clearer representation of the revenues, earnings, and other financial metrics the Company has generated for its clients. 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 industry best practices and corporate guidance. Accordingly, the Company believes it is well suited to own these facilities and manage the continuing growth of their operations.

To date, acquisitions of the licensed businesses in Massachusetts and Illinois have been state-approved and completed, and establishes the Company as a fully integrated seed-to-sale multi-state operator. The acquisitions of the remaining entities located in Maryland, Nevada, and Delaware are at various stages of completion and subject to each state’s laws governing the ownership and transfer of cannabis licenses, which in the case of Delaware requires a modification of current cannabis ownership laws to permit for-profit ownership. Meanwhile, the Company continues to develop additional revenue and business in these states and plans to leverage its success to expand into other markets where cannabis is and becomes legal.

The Company has also created its own brands of cannabis flower, concentrates, and precision-dosed products utilizing proprietary strains and formulations. These products are developed by the Company in cooperation with state-licensed operators who meet the Company’s strict standards, including all natural—not artificial or synthetic—ingredients. The Company licenses its product formulations only to certified manufacturing professionals who adhere to the Company’s precise scientific formulations and trademarked product recipes.

The Company’s branded cannabis 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 other varieties in development. The Company also has exclusive sublicensing rights in certain states to distribute the Binske® line of cannabis products crafted from premium artisan ingredients, the Healer™ line of medical full-spectrum tinctures, and the clinically-tested medicinal cannabis strains developed in Israel by global medical cannabis research pioneer Tikun Olam™. The Company’s hemp division distributes hemp-derived CBD products, including its Florance™ brand, in the US and abroad. The Company intends to continue licensing and distributing its brands, as well as other top brands, in the Company’s current markets and in additional legal markets worldwide.

In March 2020, the World Health Organization declared the outbreak of COVID-19 a global pandemic. The spread of the virus in the United States and the measures implemented to contain it—including business shutdowns, indoor capacity restrictions, social distancing, and diminished travel—have negatively impacted the economy and have created significant volatility and disruption in financial markets. Consequently, the Company’s expansion efforts and implementation of its strategic plan have been delayed. Additionally, while the cannabis industry has been deemed an essential business and is not expected to suffer severe declines in revenue, the Company’s business, operations, financial condition, and liquidity have been adversely affected, as further discussed in Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations and the notes to the financial statements included in this report.

Continued disruption to the global economy may materially and adversely affect the future carrying values of certain of the Company’s assets, including inventories, accounts receivables, and intangibles, as well as negatively impact the Company’s ability to raise working capital to support its operations. The full extent to which COVID-19 and the measures to contain it will impact the Company’s business, operations financial condition, and liquidity will depend on the continued severity and duration of the COVID-19 outbreak and other future developments in response to the virus, all of which are highly uncertain at this time. As a result, the Company cannot predict the ultimate impact of COVID-19 on its operational and financial performance.

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.

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The accompanying financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”).

In accordance with GAAP, interim financial statements are not required to contain all of the disclosures normally required in annual financial statements. In addition, the results of operations of interim periods may not necessarily be indicative of the results of operations to be expected for the full year. Accordingly, these interim financial statements should be read in conjunction with the Company’s most recent audited annual financial statements and accompanying notes for the year ended December 31, 2019.

Certain reclassifications have been made to prior periods’ data to conform to the current period presentation. These reclassifications had no effect on reported income (losses) or cash flows.

Going Concern

In connection with the preparation of its financial statements for the nine months ended September 30, 2020, the Company’s management evaluated the Company’s ability to continue as a going concern in accordance with ASU 2014-15, Presentation of Financial Statements–Going Concern (Subtopic 205-40), which requires an assessment of relevant conditions or events, considered in the aggregate, that are known or reasonably knowable by management on the issuance dates of the financial statements which indicate the probable likelihood that the Company will be unable to meet its obligations as they become due within one year after the issuance date of the financial statements.

As part of its evaluation, management assessed known events, trends, commitments, and uncertainties, which at the time included the status of the Company’s consolidation plan, the continuing impact of the COVID-19 pandemic on its operations, developments concerning GenCanna’s bankruptcy proceedings, recent cannabis industry investment activity, price movements of public cannabis stock, actions and/or results of certain bellwether cannabis companies, the level of cannabis investor confidence, and changes to state laws governing recreational (adult-use) and medical cannabis.

Management also reviewed certain key liquidity metrics of the Company, as further described below, as well as other factors in its evaluation, and determined that there currently exists a substantial doubt that the Company will be able to continue as a going concern within one year after the issuance date of these financial statements without additional funding or the continued profitability growth of its cannabis operations in Illinois and Massachusetts.

The Company produced the following improvements to key liquidity metrics during the reported period:

●

During the nine months ended September 30, 2020, the Company’s operating activities provided positive cash flow of approximately $1.6 million, compared to approximately $24.2 million of negative cash flow used by such activities during the same period of 2019, a positive swing of approximately $25.8 million.

●

At September 30, 2020, the Company’s negative working capital was approximately $9.1 million, a continued improvement from approximately $21.5 million at June 30, 2020 and approximately $29.3 million at December 31, 2019.

●

The Company successfully restructured the terms of its short-term promissory notes payable to approximately $8.5 million at September 30, 2020 from approximately $17.2 million at June 30, 2020 and $23.1 million at December 31, 2019.

For further discussion of the Company’s liquidity and capital resources, please refer to Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations of this Form 10-Q for the period ended September 30, 2020.

Principles of Consolidation

The accompanying condensed consolidated financial statements include the accounts of MariMed Inc. and the following majority-owned subsidiaries:

SCHEDULE OF MAJORITY OWNED SUBSIDIARIES

Subsidiary:	Percentage Owned
MariMed Advisors Inc.		100.0%
Mia Development LLC		89.5%
Mari Holdings IL LLC		100.0%
Mari Holdings MD LLC		97.4%
Mari Holdings NV LLC		100.0%
Hartwell Realty Holdings LLC		100.0%
iRollie LLC		100.0%
ARL Healthcare Inc.		100.0%
KPG of Anna LLC		100.0%
KPG of Harrisburg LLC		100.0%
MariMed Hemp Inc.		100.0%
MediTaurus LLC		70.0%

Intercompany accounts and transactions have been eliminated.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts within the financial statements and disclosures thereof. Actual results could differ from these estimates or assumptions.

Cash Equivalents

The Company considers all highly liquid investments with a maturity date of three months or less to be cash equivalents. The fair values of these investments approximate their carrying values.

The Company’s cash and cash equivalents are maintained with recognized financial institutions located in the United States. In the normal course of business, the Company may carry balances with certain financial institutions that exceed federally insured limits. The Company has not experienced losses on balances in excess of such limits and management believes the Company is not exposed to significant risks in that regard.

Accounts Receivable

Accounts receivable consist of trade receivables and are carried at their estimated collectible amounts.

The Company provides credit to its clients in the form of payment terms. The Company limits its credit risk by performing credit evaluations of its clients and maintaining a reserve, if deemed necessary, for potential credit losses. Such evaluations include the review of a client’s outstanding balances with consideration towards such client’s historical collection experience, as well as prevailing economic and market conditions and other factors. Based on such evaluations, the Company maintained an allowance for doubtful accounts of approximately $40.5 million and $39.7 million at September 30, 2020 and December 31, 2019, respectively. Please refer to Note 16 – Bad Debts for further discussion on receivable reserves.

Inventory

Inventory is carried at the lower of cost or net realizable value, with the cost being determined on a first-in, first-out (FIFO) basis. The Company allocates a certain percentage of overhead cost to its manufactured inventory; such allocation is based on square footage and other industry-standard criteria. The Company reviews physical inventory for obsolescence and/or excess and will record a reserve if necessary. As of the date of this report, no reserve was deemed necessary.

Investments

Investments are comprised of equity holding of private companies. These investments are recorded at fair value on the Company’s consolidated balance sheet, with changes to fair value included in income. Investments are evaluated for permanent impairment and are written down if such impairments are deemed to have occurred.

Revenue Recognition

The Company recognizes revenue in accordance with the Financial Accounting Standards Board’s Accounting Standards Codification (“ASC”) 606, Revenue from Contract with Customers, as amended by subsequently issued Accounting Standards Updates. This revenue standard requires an entity to recognize revenue to depict the transfer of goods or services to customers in an amount that reflects the consideration that it expects to be entitled to in exchange for those goods or services. The recognition of revenue is determined by performing the following consecutive steps:

	●	Identify the contract(s) with a customer;

	●	Identify the performance obligations in the contract(s);

	●	Determine the transaction price;

	●	Allocate the transaction price to the performance obligations in the contract(s); and

	●	Recognize revenue as the performance obligation is satisfied.

Additionally, when another party is involved in providing goods or services to the Company’s clients, a determination is made as to who—the Company or the other party—is acting in the capacity as the principal in the sale transaction, and who is merely the agent arranging for goods or services to be provided by the other party.

The Company is typically considered the principal if it controls the specified good or service before such good or service is transferred to its client. The Company may also be deemed to be the principal even if it engages another party (an agent) to satisfy some of the performance obligations on its behalf, provided the Company (i) takes on certain responsibilities, obligations and risks, (ii) possesses certain abilities and discretion, or (iii) other relevant indicators of the sale. If deemed an agent, the Company would not recognize revenue for the performance obligations it does not satisfy.

The Company’s main sources of revenue are comprised of the following:

	●	Product Sales – direct sales of cannabis and cannabis-infused products by the Company’s dispensary and wholesale operations in Massachusetts and Illinois, and direct sales of hemp and hemp-infused products by the Company’s hemp division. In 2019, this division participated in one-time sales of acquired hemp seed inventory, as further explained in Note 17 – Related Party Transactions. Future product sales are expected to include the Company’s planned cannabis-licensee acquisitions in Maryland, Nevada, and Delaware (upon this state’s amendment to permit for-profit ownership of cannabis entities). This revenue is recognized when products are delivered or at retail point-of-sale.

	●	Real Estate – rental income and additional rental fees generated from leasing of the Company’s state-of-the-art, regulatory-compliant cannabis facilities to its cannabis-licensed clients. Rental income is generally a fixed amount per month that escalates over the respective lease term, while additional rental fees are based on a percentage of tenant revenues that exceed specified amounts.

	●	Management – fees for providing the Company’s cannabis clients with comprehensive oversight of their cannabis cultivation, production, and dispensary operations. Along with this oversight, the Company provides human resources, regulatory, marketing, and other corporate services. These fees are based on a percentage of such clients’ revenue, and are recognized after services have been performed.

	●	Supply Procurement – the Company maintains volume discounts with top national vendors of cultivation and production resources, supplies, and equipment, which the Company acquires and resells to its clients or third parties within the cannabis industry. The Company recognizes this revenue after the delivery and acceptance of goods by the purchaser.

	●	Licensing – revenue from the sale of precision-dosed, cannabis-infused products—such as Kalm Fusion™, Nature’s Heritage™, and Betty’s Eddies™—to regulated dispensaries throughout the United States and Puerto Rico. The recognition of this revenue occurs when the products are delivered.

Research and Development Costs

Research and development costs are charged to operations as incurred.

Property and Equipment

Property and equipment are stated at cost less accumulated depreciation, with depreciation recognized on a straight-line basis over the shorter of the estimated useful life of the asset or the lease term, if applicable. When assets are retired or disposed, the cost and accumulated depreciation are removed from the accounts, and any resulting gains or losses are included in income. Repairs and maintenance are charged to expense in the period incurred.

The estimated useful lives of property and equipment are generally as follows: buildings and building improvements, seven to thirty-nine years; tenant improvements, the remaining duration of the related lease; furniture and fixtures, seven years; machinery and equipment, five to ten years. Land is not depreciated.

The Company’s property and equipment are individually reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable from the undiscounted future cash flows of such asset over the anticipated holding period. An impairment loss is measured by the excess of the asset’s carrying amount over its estimated fair value.

Impairment analyses are based on management’s current plans, asset holding periods, and currently available market information. If these criteria change, the Company’s evaluation of impairment losses may be different and could have a material impact to the consolidated financial statements. For the nine months ended September 30, 2020 and 2019, based on the results of management’s analyses, there were no impairment losses.

Leases

The consolidated financial statements reflect the Company’s adoption of ASC 842, Leases, as amended by subsequent accounting standards updates, utilizing the modified retrospective transition approach which calls for applying the new standard to all of the Company’s leases effective January 1, 2019, which is the effective date of adoption.

ASC 842 is intended to improve financial reporting of leasing transactions. The most prominent change from previous accounting guidance is the requirement to recognize right-of-use assets and lease liabilities on the consolidated balance sheet representing the rights and obligations created by operating leases that extend more than twelve months in which the Company is the lessee. The Company elected the package of practical expedients permitted under ASC 842. Accordingly, the Company accounted for its existing operating leases that commenced before the effective date as operating leases under the new guidance without reassessing (i) whether the contracts contain a lease, (ii) the classification of the leases, or (iii) the accounting for indirect costs as defined in ASC 842.

The Company determines if an arrangement is a lease at inception. Right-of-use assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. Non-lease components within lease agreements are accounted for separately. Right-of-use assets and obligations are recognized at the commencement date based on the present value of lease payments over the lease term, utilizing the Company’s incremental borrowing rate. The Company’s lease terms may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option. Lease expense for lease payments is recognized on a straight-line basis over the lease term.

Impairment of Long-Lived Assets

The Company evaluates the recoverability of its fixed assets and other assets in accordance with ASC 360-10-15, Impairment or Disposal of Long-Lived Assets. Impairment of long-lived assets is recognized when the net book value of such assets exceeds their expected cash flows, in which case the assets are written down to fair value, which is determined based on discounted future cash flows or appraised values.

Fair Value of Financial Instruments

The Company follows the provisions of ASC 820, Fair Value Measurement, to measure the fair value of its financial instruments, and ASC 825, Financial Instruments, for disclosures on the fair value of its financial instruments. To increase consistency and comparability in fair value measurements and related disclosures, ASC 820 establishes a fair value hierarchy which prioritizes the inputs to valuation techniques used to measure fair value into three broad levels. The fair value hierarchy gives the highest priority to quoted prices (unadjusted) in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. The three levels of fair value hierarchy defined by ASC 820 are:

Level 1	Quoted market prices available in active markets for identical assets or liabilities as of the reporting date.

Level 2	Pricing inputs other than quoted prices in active markets included in Level 1, which are either directly or indirectly observable as of the reporting date.

Level 3	Pricing inputs that are generally observable inputs and not corroborated by market data.

The carrying amounts of the Company’s financial assets and liabilities, such as cash and accounts payable approximate their fair values due to the short maturity of these instruments.

The fair value of option and warrant issuances are determined using the Black-Scholes pricing model and employing several inputs such as the expected life of instrument, the exercise price, the expected risk-free interest rate, the expected dividend yield, the value of the Company’s common stock on issuance date, and the expected volatility of such common stock. The following table summarizes the range of inputs used by the Company during the nine months ended September 30, 2020 and 2019.

SCHEDULE OF ASSUMPTIONS USED

	Nine Months Ended September 30,
	2020		2019
Life of instrument		2.7 to 4.3 years		2.3 to 3.0 years
Volatility factors		1.059 to 1.180		1.059 to 1.106
Risk-free interest rates		0.26% to 1.30%		1.42% to 2.28%
Dividend yield		0%		0%

The expected life of an instrument is calculated using the simplified method pursuant to Staff Accounting Bulletin Topic 14, Share-Based Payment, which allows for using the mid-point between the vesting date and expiration date. The volatility factors are based on the historical two-year movement of the Company’s common stock prior to an instrument’s issuance date. The risk-free interest rate is based on U.S. Treasury rates with maturity periods similar to the expected instruments life on the issuance date.

The Company amortizes the fair value of option and warrant issuances on a straight-line basis over the requisite service period of each instrument.

Extinguishment of Liabilities

The Company accounts for extinguishment of liabilities in accordance with ASC 405-20, Extinguishments of Liabilities. When the conditions for extinguishment are met, the liabilities are written down to zero and a gain or loss is recognized.

Stock-Based Compensation

The Company accounts for stock-based compensation using the fair value method as set forth in ASC 718, Compensation—Stock Compensation, which requires a public entity to measure the cost of employee services received in exchange for an equity award based on the fair value of the award on the grant date, with limited exceptions. Such value will be incurred as compensation expense over the period an employee is required to provide service in exchange for the award, usually the vesting period. No compensation cost is recognized for equity awards for which employees do not render the requisite service.

Income Taxes

The Company accounts for income taxes in accordance with ASC 740, Income Taxes. Deferred income tax assets and liabilities are determined based upon differences between the financial reporting and tax basis of assets and liabilities, and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. Deferred tax assets are reduced by a valuation allowance to the extent management concludes it is more likely than not that the assets will not be realized. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the consolidated statements of operations in the period that includes the enactment date.

ASC 740 prescribes a comprehensive model for how companies should recognize, measure, present, and disclose in their financial statements uncertain tax positions taken or expected to be taken on a tax return. The Company did not take any uncertain tax positions and had no adjustments to unrecognized income tax liabilities or benefits for the nine months ended September 30, 2020 and 2019.

Related Party Transactions

The Company follows ASC 850, Related Party Disclosures, for the identification of related parties and disclosure of related party transactions.

In accordance with ASC 850, the Company’s financial statements include disclosures of material related party transactions, other than compensation arrangements, expense allowances, and other similar items in the ordinary course of business, as well as transactions that are eliminated in the preparation of financial statements.

Comprehensive Income

The Company reports comprehensive income and its components following guidance set forth by ASC 220, Comprehensive Income, which establishes standards for the reporting and display of comprehensive income and its components in the consolidated financial statements. There were no items of comprehensive income applicable to the Company during the period covered in the financial statements.

Earnings Per Share

Earnings per common share is computed pursuant to ASC 260, Earnings Per Share. Basic earnings per share is computed by dividing net income by the weighted average number of shares of common stock outstanding during the period. Diluted net income per share is computed by dividing net income by the sum of the weighted average number of shares of common stock outstanding plus the weighted average number of potentially dilutive securities during the period.

At September 30, 2020 and 2019, there were 24,860,857 and 16,815,107, respectively, of potentially dilutive securities in the form of outstanding options and warrants. Also as of such dates, there were (i) $4.2 million and $11.1 million, respectively, of outstanding convertible debentures payable, (ii) 4,908,333 and zero shares, respectively, of Series B convertible preferred stock outstanding, and (iii) approximately $5.2 million and $350,000, respectively, of outstanding convertible promissory notes. All of these potentially dilutive securities are convertible into common stock based on either (i) a predetermined price, subject to adjustment, or (ii) the market value of common stock on or about the future conversion date.

For the three months ended September 30, 2020, all such potentially dilutive securities were convertible into approximately 64.6 million net shares of common stock, which were included in the number of weighted average common shares outstanding on a diluted basis, and in the calculation of diluted net income per share for this period as shown in the statement of operations. For the nine months ended September 30, 2020, and for the three and nine months ended Septembers 30, 2019, the potentially dilutive securities had an anti-dilutive effect on earnings per share, and in accordance with ASC 260, were excluded from the diluted net income per share calculations, resulting in identical basic and fully diluted net income per share for these periods.

Commitments and Contingencies

The Company follows ASC 450, Contingencies, which requires the Company to assess the likelihood that a loss will be incurred from the occurrence or non-occurrence of one or more future events. Such assessment inherently involves an exercise of judgment. In assessing possible loss contingencies from legal proceedings or unasserted claims, the Company evaluates the perceived merits of such proceedings or claims, and of the relief sought or expected to be sought.

If the assessment of a contingency indicates that it is probable that a material loss will be incurred and the amount of the liability can be estimated, then the estimated liability would be accrued in the Company’s financial statements. If the assessment indicates that a potentially material loss contingency is not probable but is reasonably possible, or is probable but cannot be estimated, then the nature of the contingent liability, and an estimate of the range of possible losses, if determinable and material, would be disclosed. Loss contingencies considered remote are generally not disclosed unless they involve guarantees, in which case the guarantees would be disclosed.

While not assured, management does not believe, based upon information available at this time, that a loss contingency will have material adverse effect on the Company’s financial position, results of operations or cash flows.

Beneficial Conversion Features on Convertible Debt

Convertible instruments that are not bifurcated as a derivative pursuant to ASC 815, Derivatives and Hedging, and not accounted for as a separate equity component under the cash conversion guidance are evaluated to determine whether their conversion prices create an embedded beneficial conversion feature at inception, or may become beneficial in the future due to potential adjustments.

A beneficial conversion feature is a nondetachable conversion feature that is “in-the-money” at the commitment date. The in-the-money portion, also known as the intrinsic value of the option, is recorded in equity, with an offsetting discount to the carrying amount of convertible debt to which it is attached. The discount is amortized to interest expense over the life of the debt with adjustments to amortization upon full or partial conversions of the debt.

Risk and Uncertainties

The Company is subject to risks common to companies operating within the legal and medical marijuana industries, including, but not limited to, federal laws, government regulations and jurisdictional laws.

Noncontrolling Interests

Noncontrolling interests represent third-party minority ownership of the Company’s consolidated subsidiaries. Net income attributable to noncontrolling interests is shown in the consolidated statements of operations; and the value of net assets owned by noncontrolling interests are presented as a component of equity within the balance sheets.

Off Balance Sheet Arrangements

The Company does not have any off-balance sheet arrangements.

Recent Accounting Pronouncements

The Company has reviewed all recently issued, but not yet effective, accounting pronouncements, and does not believe the future adoption of any such pronouncements will have a material impact on its financial condition or the results of its operations.

NOTE 3 – ACQUISITIONS

KPG of Anna LLC and KPG of Harrisburg LLC

Effective October 1, 2019, the Illinois Department of Financial and Professional Regulation approved the Company’s acquisition of (i)100% of the ownership interests of KPG of Anna LLC and KPG of Harrisburg LLC, the Company’s two cannabis-licensed clients that operate medical marijuana dispensaries in the state of Illinois (both entities collectively, the “KPGs”), and (ii) the 40% ownership interests not already owned by the Company of Mari Holdings IL LLC, the Company’s subsidiary which owns the real estate in which the KPGs’ dispensaries are located (“Mari-IL”). On such date, 1,000,000 shares of the Company’s common stock, representing the entire purchase price, were issued to the sellers of the KPGs and Mari-IL, and these entities became wholly-owned subsidiaries of the Company.

The acquisition was accounted for in accordance with ASC 805. The following table summarizes the allocation of the purchase price to the fair value of the assets acquired and liabilities assumed on the acquisition date:

Cash and cash equivalents	$	443,980
Inventory		113,825
Intangibles		2,067,727
Minority interests		138,356
Accounts payable		(642,033	)
Accrued expenses		(186,005	)
Due to third parties		(1,020,850	)
Total fair value of consideration	$	915,000

Based on an impairment analysis performed shortly before the filing date of this report, the Company determined the intangibles of approximately $2.1 million arising from this transaction were not impaired.

The Harvest Foundation LLC

In August 2019, the Company entered into a purchase agreement to acquire 100% of the ownership interests of The Harvest Foundation LLC (“Harvest”), the Company’s cannabis-licensed client in the state of Nevada. The acquisition is conditioned upon legislative approval of the transaction. At this time, the state has paused the processing of cannabis license transfers, without indicating when it will resume. Upon the resumption of these activities and the ensuing approval by the state, this agreement will be consummated and the operations of Harvest will be consolidated into the Company’s financial statements.

The purchase price is comprised of the issuance of (i) 1,000,000 shares of the Company’s common stock, in the aggregate, to two owners of Harvest, which as a good faith deposit, were issued upon execution of the purchase agreement, (ii) $1.2 million of the Company’s common stock at closing, based on the closing price of the common stock on the day prior to legislative approval of the transaction, and (iii) warrants to purchase 400,000 shares of the Company’s common stock at an exercise price equal to the closing price of the Company’s common stock on the day prior to legislative approval of the transaction. These shares are restricted and will be returned to the Company in the event the transaction does not close by a date certain. As the transaction has not been consummated, the issued shares were recorded at par value.

Kind Therapeutics USA Inc.

In December 2018, the Company entered into a memorandum of understanding (the “MOU”) to acquire Kind Therapeutics USA Inc. (“Kind”), its client in 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 can be applied for starting in March 2021.

Also in December 2018, MariMed Advisors Inc, the Company’s wholly owned subsidiary, and Kind entered into a management agreement pursuant to which the Company provides comprehensive management services in connection with the business and operations of Kind, and Mari Holdings MD LLC, the Company’s majority-owned subsidiary, entered into a 20-year lease with Kind for its utilization of the Company’s 180,000 square foot cultivation and production facility in Hagerstown, MD. Additionally, in October 2019, Mari Holdings MD LLC purchased a 9,000 square foot building in Anne Arundel County, MD for the development of a dispensary which would be leased to Kind.

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 the 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, and both parties commencing legal proceedings which are pending in the Circuit Court for Washington County, Maryland. For further information, see Note 18 – Commitments and Contingencies and Part II, Item 1. Legal Proceedings in this report.

MediTaurus LLC

In May 2019, the Company entered into a purchase agreement to acquire MediTaurus LLC (“MediTaurus”), a company formed and owned by Jokubas Ziburkas PhD, a neuroscientist and leading authority on CBD and its interactions with the brain and endocannabinoid system. MediTaurus currently operates in the United States and Europe and has developed proprietary CBD formulations sold under its Florance™ brand.

Pursuant to the purchase agreement, the Company acquired 70% of MediTaurus on June 1, 2019. The purchase price was $2.8 million, comprised of cash payments totaling $720,000 and 520,000 shares of the Company’s common stock valued at $2,080,000. The parties are currently in negotiations regarding the Company’s acquisition of the remaining 30% of MediTaurus.

The acquisition was acc