NOTES RECEIVABLE |
9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Sep. 30, 2023 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Receivables [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| NOTES RECEIVABLE | NOTES RECEIVABLE Notes receivable, including accrued interest, at September 30, 2023 and December 31, 2022 consisted of the following (in thousands):
First State Compassion Center
Omnibus Agreement
On July 1, 2023 (the "Omnibus Agreement Date"), the Company entered into an Omnibus Agreement with First State Compassion Center ("FSCC"), the Company's cannabis-licensed client in Delaware: (a) consolidating all amounts owed by FSCC to the Company and its affiliated entities as described below, aggregating $11.0 million (the "Omnibus"); (b) providing for the automatic conversion of all amounts owed by FSCC to the Company, upon the approval of adult cannabis use in Delaware into 100% ownership of FSCC's licenses and business; and (c) extending to FSCC, in the Company's sole discretion, up to an additional $2.0 million of working capital loans. The Omnibus has a term of five years, with an automatic five-year extension if adult cannabis use is not approved in Delaware by the maturity date, bears interest, compounded semiannually and payable annually, at the appropriate rate of interest in effect under Sections 1274(d), 482 and 7872 of the Internal Revenue Code of 1986, as amended, as calculated under Rev. Ruling 86-17, 1986-1 C.B. 377, for the period for which the amount of interest is being determined. The state of Delaware recently approved the adult use of cannabis, with the implementation period expected to extend through approximately November 2024. The Company recorded the Omnibus as a component of Other assets in the condensed consolidated balance sheet at September 30, 2023.
Notes Receivable From FSCC Prior to the Omnibus Agreement Date
The notes receivable from FSCC described below in the aggregate were converted into the Omnibus on the Omnibus Agreement Date:
•FSCC issued a 10-year promissory note to the Company in May 2016 for $0.7 million, which bore interest at a rate of 12.5% per annum and matured in April 2026, as amended (the “FSCC Initial Note”). The monthly payments on the FSCC Initial Note were approximately $10,000. At June 30, 2023 and December 31, 2022, the current portions of the FSCC Initial Note were approximately $90,000 and $85,000, respectively, and were included in Notes receivable, current portion, in the condensed consolidated balance sheets.
•In December 2021, the Company converted financed trade accounts receivable balances from FSCC aggregating $7.8 million into notes receivable, which was net of the $1.3 million debt issuance discount recorded in connection with the conversion, whereby FSCC issued promissory notes aggregating $7.8 million to the Company (the “FSCC Secondary Notes”). The FSCC Secondary Notes bore interest at a rate of 6.0% per annum and matured in December 2025. FSCC was required to make periodic payments of principal and interest throughout the term of the FSCC Secondary Notes. At December 31, 2022, the FSCC Secondary Notes balance included approximately $49,000 of unpaid accrued interest. The balance at June 30, 2023 did not include accrued interest, as the Company granted FSCC an interest holiday for the six months then ended. The increase in the FSCC Secondary Notes in the six months ended June 30, 2023 was attributable to the accretion of the original debt discount, which increased the value of such notes. At each of June 30, 2023 and December 31, 2022, the current portions of the FSCC Secondary Notes aggregated $2.5 million.
•In December 2022, the Company converted amounts due from FSCC aggregating $750,000 into a note receivable, whereby FSCC issued a promissory note to the Company for $750,000 (the "FSCC New Note"). The FSCC New
Note bore interest at a rate of 6.0% per annum and matured in December 2026. FSCC was required to make quarterly interest payments, with the full amount of principal due on December 31, 2026; however, the Company had granted FSCC an interest holiday for the six months ended June 30, 2023. At each of June 30, 2023 and December 31, 2022, the entire balance of the FSCC New Note was long-term.
•In the second quarter of 2023, the Company converted $879,000 due from FSCC into a note receivable (the "FSCC Second New Note").
Healer LLC
In March 2021, the Company was issued a promissory note in the principal amount of approximately $0.9 million from Healer LLC, an entity that provides cannabis education, dosage programs, and products developed by Dr. Dustin Sulak (“Healer”). The principal balance of the note represents previous loans extended to Healer by the Company of $0.8 million, plus accrued interest through the revised promissory note issuance date of approximately $94,000 (the “Revised Healer Note”). The Revised Healer Note bears interest at a rate of 6.0% per annum and requires quarterly payments of interest through the April 2026 maturity date.
The Company has the right to offset any licensing fees payable by the Company to Healer in the event Healer fails to make any payment when due. In March 2021, the Company offset approximately $28,000 of licensing fees payable to Healer against the principal balance of the Revised Healer Note, reducing the principal amount to approximately $866,000. Of the outstanding Revised Healer Note balance at each of September 30, 2023 and December 31, 2022, approximately $52,000 was current.
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