NOTE 1 – ORGANIZATION AND DESCRIPTION OF BUSINESS

MariMed Inc. (the “Company”), a Delaware corporation, is a multi-state organization in the emerging legal cannabis and hemp industries. During 2018, the Company made a strategic decision to transition from a management and 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. Further, in recognition of the growing demand for hemp-derived cannabidiol (“CBD”), the Company made a strategic investment in GenCanna Global Inc., one of the largest industrial hemp growers in the United States.

To date, the Company’s cannabis business has secured, on behalf of itself and its clients, 12 cannabis licenses across six states—two in Delaware, two in Illinois, one in Nevada, one in Rhode Island, three in Maryland and three in Massachusetts. The Company has developed in excess of 300,000 square feet of state-of-the-art, regulatory-compliant facilities for the cultivation, production, and dispensing of legal cannabis and cannabis-infused products, located in all of the aforementioned states, except Rhode Island. Along with operational oversight of these facilities, the Company provides its clients with license procurement, business development, human resources, accounting, and other corporate and administrative services.

The Company’s plan is to seek to acquire the ownership of all of its cannabis clients who currently lease the majority of the Company’s facilities, and ultimately consolidate these entities under the MariMed banner. The Company has started the consolidation process which is at various stages of completion. For example, in Massachusetts, the Company successfully converted its cannabis-licensed client from a non-profit entity to a for-profit corporation with the Company as the sole shareholder, as described in further detail below. In every state, the Company’s acquisition efforts will be subject to that particular state’s laws governing cannabis license ownership, and accordingly, there is no assurance that the Company will be successful in fully implementing its plan.

Additionally, the Company licenses its own brands of precision-dosed, cannabis- and hemp-infused products to treat specific medical conditions or to achieve a certain effect. These products are licensed under the brand names Kalm Fusion™, Nature’s Heritage™, Betty’s Eddies™, and Florance™. The Company also has exclusive sublicensing rights in certain states to distribute Lucid Mood™ vaporizer pens, 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’s stock is quoted on the OTCQB market under the ticker symbol MRMD.

The Company was incorporated 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.

Summary Transaction Timeline

The following is a chronological summary of the major transactions undertaken by the Company.

These transactions are disclosed in further detail in Note 3 – Acquisitions, in Note 4 – Investments, and Note 8 – Notes Receivable.

May 2014 – The Company, through its subsidiary MariMed Advisors Inc., acquired Sigal Consulting LLC, a company operating in the medical cannabis industry. This transaction was accounted for as a purchase acquisition where the Company was both the legal and accounting acquirer.

October 2017 – The Company acquired the intellectual property, formulations, recipes, proprietary equipment, knowhow, and other certain assets of Betty’s Eddies™, a brand of cannabis-infused fruit chews.

April 2018 – The Company acquired iRollie LLC, a manufacturer of branded cannabis products and accessories for consumers, and custom product and packaging for companies in the cannabis industry.

August 2018 – The Company exchanged cash and stock to acquire a 23% ownership interest in an entity that developed Sprout, a customer relationship management and marketing platform for companies in the cannabis industry.

August to October 2018 – The Company loaned $300,000 to Healer LLC, an entity that provides cannabis education, dosage programs, and products developed by Dr. Dustin Sulak, an integrative medicine physician and nationally renowned cannabis practitioner. In 2019, the Company loaned Healer an additional $500,000.

October 2018 – The Company entered into a purchase agreement to acquire its two cannabis-licensed clients, KPG of Anna LLC and KPG of Harrisburg LLC, currently operating medical marijuana dispensaries in the state of Illinois. The Company has not yet received legislative approval – required for all ownership changes of cannabis licensees – and therefore these entities were not consolidated into the Company’s financial statements as of June 30, 2019. The Company anticipates approval will be obtained, and the transaction consummated, by the end of 2019.

October 2018 – The Company’s cannabis-licensed client with cultivation and dispensary operations in Massachusetts, ARL Healthcare Inc. (“ARL”), filed a plan of entity conversion with the state to convert from a non-profit entity to a for-profit corporation, with the Company as the sole shareholder of the for-profit corporation. On November 30, 2018, the conversion plan was approved by the Massachusetts Secretary of State, and effective December 1, 2018, ARL was consolidated into the Company as a wholly-owned subsidiary.

November 2018 – The Company issued a letter of intent to acquire The Harvest Foundation LLC, its cannabis-licensed client with cultivation operations in the state of Nevada. The parties entered into a purchase agreement governing the transaction in August 2019. The Company has not yet received state approval for the acquisition, and therefore this entity was not consolidated into the Company’s financial statements as of June 30, 2019. The Company anticipates approval will be obtained, and the transaction consummated, by the end of 2019.

December 2018 – The Company entered into a memorandum of understanding to acquire Kind Therapeutics USA LLC, its cannabis-licensed client in the state of Maryland. The parties expect the merger agreement to be finalized, and the transaction approved by the state in the early part of 2020.

January 2019 – The Company entered into an agreement with Maryland Health & Wellness Center Inc. (“MHWC”), an entity that has been pre-approved for a cannabis dispensing license, to provide MHWC with a construction loan in connection with the buildout of MHWC’s proposed dispensary. Upon the two-year anniversary of final state approval of MHWC’s dispensing license, the Company shall have the right, subject to state approval, to convert the promissory note underlying the construction loan into a 20% ownership interest of MHWC.

January 2019 – The Company converted a note receivable from Chooze Corp., an entity that develops environmentally conscious CBD- and THC-infused products, into a 2.7% ownership interest in the entity.

January 2019 – The Company established MariMed Hemp Inc., a wholly-owned subsidiary to develop, market, and distribute hemp-based CBD brands and products, and to provide hemp producers with bulk quantities of hemp genetics and biomass (“MariMed Hemp”).

February 2019 – The Company converted its $30 million purchase of subordinated secured convertible debentures of GenCanna Global Inc., a producer and distributor of industrial hemp, CBD formulations, hemp genetics, and hemp products (“GenCanna”), into a 33.5% ownership interest in GenCanna.

May 2019 – The Company extended loans totaling $750,000 to Atalo Holdings Inc., an agriculture and biotechnology firm specializing in research, development, and production of industrial hemp and hemp-based CBD products.

May 2019 – The Company issued 500,000 shares of its common stock to purchase an 8.95% interest in Terrace Inc., a Canadian entity that develops and acquires international cannabis assets.

June 2019 – the Company entered into a purchase agreement to acquire MediTaurus LLC, a company established by Dr. Jokubas Ziburkas, a PhD in neuroscience and a leading authority on hemp-based CBD and the endocannabinoid system. Meditaurus operates in the United States and Europe and has developed proprietary CBD formulations sold under its Florance™ brand.

July 2019 – The Company entered into a licensing agreement for the exclusive manufacturing and distribution in seven eastern 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.

Significant Transactions in the Current Period

During the quarter ended June 30, 2019, the Company 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 Farm Bill.

The Company purchased approximately $3.3 million of hemp seed inventory in the quarter ended March 31, 2019, and an additional $16.7 million in the quarter ended June 30, 2019, which the Company sold and delivered to GenCanna for approximately $25.2 million. The seeds are to be harvested in the fall of 2019, and accordingly the Company provided GenCanna with extended payment terms, with full payments to be made by December 2019 after the crop is harvested. The payments by GenCanna are not contingent upon the harvest.

As required by the relevant accounting guidance, the Company has classified the $25.2 million due from GenCanna as a receivable from a related party, with $22,0 million recognized as revenue from a related party for the six months ended June 30, 2019, and $3.2 million recorded under Unearned Revenue From Related Party on the balance sheet. When GenCanna makes its payments to the Company in December 2019, the amount in Unearned Revenue From Related Party will be recognized as revenue. This deferral of revenue represents the Company’s ownership portion of the profit on these transactions of 33.5% (the percentage of GenCanna that the Company currently owns).

To fund the seed purchases, the Company borrowed $17.0M, which is included in Notes Payable on the balance sheet as of June 30, 2019 and further discussed in Note 11 – Debt.

Towards the end of the second quarter of 2019, and in early third quarter of 2019, the Company purchased approximately $5.0 million of additional hemp seed inventory which it sold and delivered to GenCanna for approximately $8 million in the third quarter of 2019. The Company continues to explore opportunities to continue such seed sale transactions in the future.