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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
________________________________
FORM 10-Q
________________________________
(Mark One)
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the quarterly period ended June 30, 2022
or
[ ] 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 000-56468
JUSHI HOLDINGS INC.
(Exact name of registrant as specified in its charter)
________________________________________________________________________________________________
| | | | | | | | | | | | | | |
British Columbia | | | | 98-1547061 |
(State or other jurisdiction of incorporation or organization) | | | | (IRS Employer Identification No.) |
| | | | |
301 Yamato Road, Suite 3250 Boca Raton, FL (Address of principal executive offices) | | (561) 617-9100 Registrant’s telephone number, including area code | | 33431 (Zip Code) |
| | | | |
| | (Former name, former address and former fiscal year, if changed since last report.) | | |
Securities registered pursuant to Section 12(b) of the Act: | | | | |
Title of each class | | Trading Symbol(s) | | Name of each exchange on which registered |
N/A | | N/A | | N/A |
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 (§232.405 of this chapter) 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, 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 September 21, 2022, the registrant had 195,769,605 subordinate voting shares, no par value per share, no multiple voting shares, no par value per share, no super voting shares, no par value per share, and no preferred shares, no par value per share, outstanding.
JUSHI HOLDINGS INC.
Table of Contents
For the quarterly period ended June 30, 2022
PART I - FINANCIAL INFORMATION
1Item 1. Financial Statements
JUSHI HOLDINGS INC.
INTERIM CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands of U.S. dollars, except share amounts)
| | | | | | | | | | | | | |
| June 30, 2022 (unaudited) | | December 31, 2021 | | |
ASSETS | | | | | |
CURRENT ASSETS: | | | | | |
Cash and cash equivalents | $ | 43,186 | | | $ | 94,962 | | | |
Accounts receivable, net | 2,806 | | | 3,200 | | | |
| | | | | |
Inventories, net | 44,742 | | | 43,319 | | | |
Prepaid expenses and other current assets | 6,538 | | | 12,875 | | | |
Total current assets | $ | 97,272 | | | $ | 154,356 | | | |
NON-CURRENT ASSETS: | | | | | |
Property, plant and equipment, net | $ | 174,592 | | | $ | 137,280 | | | |
Right-of use assets - finance leases | 109,492 | | | 94,008 | | | |
Other intangible assets, net | 206,742 | | | 182,466 | | | |
Goodwill | 88,654 | | | 52,920 | | | |
Other non-current assets | 30,481 | | | 27,586 | | | |
Non-current restricted cash | 625 | | | 525 | | | |
Total non-current assets | $ | 610,586 | | | $ | 494,785 | | | |
Total assets | $ | 707,858 | | | $ | 649,141 | | | |
| | | | | |
LIABILITIES AND EQUITY | | | | | |
CURRENT LIABILITIES: | | | | | |
Accounts payable | $ | 14,053 | | | $ | 10,539 | | | |
Accrued expenses and other current liabilities | 49,174 | | | 47,972 | | | |
Income tax liabilities - current | 9,910 | | | 6,614 | | | |
Debt, net - current portion (including related party principal amounts of $3,476 as of June 30, 2022 and $0 as of December 31, 2021) | 70,322 | | | 6,181 | | | |
Finance lease obligations - current | 13,117 | | | 12,620 | | | |
Total current liabilities | $ | 156,576 | | | $ | 83,926 | | | |
NON-CURRENT LIABILITIES: | | | | | |
Non-current debt, net (including related party principal amounts of $0 as of June 30, 2022 and $4,578 as of December 31, 2021) | $ | 115,675 | | | $ | 122,971 | | | |
Finance lease obligations - non-current | 93,045 | | | 88,297 | | | |
Operating lease liabilities - non-current | 16,941 | | | 15,163 | | | |
Derivative liabilities | 26,289 | | | 92,435 | | | |
Income tax liabilities - non-current | 68,193 | | | 57,143 | | | |
Contingent consideration liabilities - non-current | 7,043 | | | 8,223 | | | |
Total non-current liabilities | $ | 327,186 | | | $ | 384,232 | | | |
Total liabilities | $ | 483,762 | | | $ | 468,158 | | | |
COMMITMENTS AND CONTINGENCIES (Note 20) | | | | | |
EQUITY: | | | | | |
Common stock, no par value; authorized shares - unlimited; issued and outstanding shares - 194,653,132 and 182,707,359 Subordinate Voting Shares as of June 30, 2022 and December 31, 2021, respectively | $ | — | | | $ | — | | | |
Paid-in capital | 475,592 | | | 424,788 | | | |
Accumulated deficit | (250,109) | | | (242,418) | | | |
Total Jushi shareholders' equity | $ | 225,483 | | | $ | 182,370 | | | |
Non-controlling interests | (1,387) | | | (1,387) | | | |
Total equity | $ | 224,096 | | | $ | 180,983 | | | |
Total liabilities and equity | $ | 707,858 | | | $ | 649,141 | | | |
The accompanying notes are an integral part of these unaudited interim condensed consolidated financial statements.
JUSHI HOLDINGS INC.
UNAUDITED INTERIM CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
(in thousands of U.S. dollars, except share and per share amounts)
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2022 | | 2021 | | 2022 | | 2021 |
REVENUE, NET | $ | 72,757 | | | $ | 47,744 | | | $ | 134,645 | | | $ | 89,419 | |
COST OF GOODS SOLD | (46,089) | | | (26,126) | | | (88,865) | | | (49,060) | |
GROSS PROFIT | $ | 26,668 | | | $ | 21,618 | | | $ | 45,780 | | | $ | 40,359 | |
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OPERATING EXPENSES | $ | 38,745 | | | $ | 26,357 | | | $ | 76,458 | | | $ | 48,268 | |
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LOSS FROM OPERATIONS | $ | (12,077) | | | $ | (4,739) | | | $ | (30,678) | | | $ | (7,909) | |
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OTHER INCOME (EXPENSE): | | | | | | | |
Interest expense, net | $ | (10,947) | | | $ | (6,868) | | | $ | (21,063) | | | $ | (13,703) | |
Fair value gains on derivatives | 42,572 | | | 21,098 | | | 56,881 | | | 11,741 | |
Other, net | 228 | | | (487) | | | (70) | | | (3,864) | |
Total other income (expense), net | $ | 31,853 | | | $ | 13,743 | | | $ | 35,748 | | | $ | (5,826) | |
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INCOME (LOSS) BEFORE PROVISION FOR INCOME TAXES | $ | 19,776 | | | $ | 9,004 | | | $ | 5,070 | | | $ | (13,735) | |
Provision for income taxes | (7,710) | | | (6,368) | | | (12,761) | | | (14,679) | |
NET INCOME (LOSS) AND COMPREHENSIVE INCOME (LOSS) | $ | 12,066 | | | $ | 2,636 | | | $ | (7,691) | | | $ | (28,414) | |
Net loss attributable to non-controlling interests | — | | | (190) | | | — | | | (365) | |
NET INCOME (LOSS) AND COMPREHENSIVE INCOME (LOSS) ATTRIBUTABLE TO JUSHI SHAREHOLDERS | $ | 12,066 | | | $ | 2,826 | | | $ | (7,691) | | | $ | (28,049) | |
EARNINGS (LOSS) PER SHARE ATTRIBUTABLE TO JUSHI SHAREHOLDERS - BASIC | $ | 0.06 | | | $ | 0.02 | | | $ | (0.04) | | | $ | (0.17) | |
Weighted average shares outstanding - basic | 190,870,572 | | | 163,512,333 | | | 187,147,856 | | | 160,426,413 | |
EARNINGS (LOSS) PER SHARE ATTRIBUTABLE TO JUSHI SHAREHOLDERS - DILUTED | $ | (0.15) | | | $ | (0.09) | | | $ | (0.31) | | | $ | (0.20) | |
Weighted average shares outstanding - diluted | 205,697,153 | | | 196,541,225 | | | 208,038,283 | | | 194,097,783 | |
The accompanying notes are an integral part of these unaudited interim condensed consolidated financial statements.
JUSHI HOLDINGS INC.
UNAUDITED INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(in thousands of U.S. dollars, except share amounts)
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| Number of Shares | | | | | | | | | | | | | Paid-In Capital | | Accumulated Deficit | | Total Jushi Shareholders' Equity | | Non-Controlling Interests | | Total Equity |
| Super Voting Shares | | Multiple Voting Shares | | Subordinate Voting Shares | | | | | | | | | | | | | | | | |
Balances - January 1, 2022 | — | | | — | | | 182,707,359 | | | | | | | | | | | | | | $ | 424,788 | | | $ | (242,418) | | | $ | 182,370 | | | $ | (1,387) | | | $ | 180,983 | |
Private placement offerings | — | | | — | | | 3,717,392 | | | | | | | | | | | | | | 13,680 | | | — | | | 13,680 | | | — | | | 13,680 | |
Shares issued for Apothecarium acquisition | — | | | — | | | 527,704 | | | | | | | | | | | | | | 1,594 | | | — | | | 1,594 | | | — | | | 1,594 | |
Shares issued for restricted stock grants | — | | | — | | | 5,952 | | | | | | | | | | | | | | — | | | — | | | — | | | — | | | — | |
Shares issued upon exercise of warrants | — | | | — | | | 2,676,303 | | | | | | | | | | | | | | 9,693 | | | — | | | 9,693 | | | — | | | 9,693 | |
Shares issued upon exercise of stock options | — | | | — | | | 93,915 | | | | | | | | | | | | | | — | | | — | | | — | | | — | | | — | |
Share-based compensation | — | | | — | | | — | | | | | | | | | | | | | | 6,964 | | | — | | | 6,964 | | | — | | | 6,964 | |
Net loss | — | | | — | | | — | | | | | | | | | | | | | | — | | | (19,757) | | | (19,757) | | | — | | | (19,757) | |
Balances - March 31, 2022 | — | | | — | | | 189,728,625 | | | | | | | | | | | | | | $ | 456,719 | | | $ | (262,175) | | | $ | 194,544 | | | $ | (1,387) | | | $ | 193,157 | |
Shares issued for NuLeaf acquisition | — | | | — | | | 4,662,384 | | | | | | | | | | | | | | 13,573 | | | — | | | 13,573 | | | — | | | 13,573 | |
Shares issued for service received | — | | | — | | | 101,082 | | | | | | | | | | | | | | 294 | | | — | | | 294 | | | — | | | 294 | |
Shares issued upon exercise of warrants | — | | | — | | | 167,560 | | | | | | | | | | | | | | 322 | | | — | | | 322 | | | — | | | 322 | |
Shares issued upon exercise of stock options | — | | | — | | | 1,294 | | | | | | | | | | | | | | — | | | — | | | — | | | — | | | — | |
Shares canceled upon forfeiture of non-vested restricted stock | — | | | — | | | (7,813) | | | | | | | | | | | | | | — | | | — | | | — | | | — | | | — | |
Share-based compensation | — | | | — | | | — | | | | | | | | | | | | | | 4,684 | | | — | | | 4,684 | | | — | | | 4,684 | |
Net income | — | | | — | | | — | | | | | | | | | | | | | | — | | | 12,066 | | | 12,066 | | | — | | | 12,066 | |
Balances - June 30, 2022 | — | | | — | | | 194,653,132 | | | | | | | | | | | | | | $ | 475,592 | | | $ | (250,109) | | | $ | 225,483 | | | $ | (1,387) | | | $ | 224,096 | |
The accompanying notes are an integral part of these unaudited interim condensed consolidated financial statements.
JUSHI HOLDINGS INC.
UNAUDITED INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(in thousands of U.S. dollars, except share amounts)
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| Number of Shares | | | | | | | | | | | | | Paid-In Capital | | Accumulated Deficit | | Total Jushi Shareholders' Equity | | Non-Controlling Interests | | Total Equity |
| Super Voting Shares | | Multiple Voting Shares | | Subordinate Voting Shares | | | | | | | | | | | | | | | | |
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Balances - January 1, 2021 | 149,000 | | | 4,000,000 | | | 132,396,064 | | | | | | | | | | | | | | $ | 262,145 | | | $ | (262,669) | | | $ | (524) | | | $ | 2,947 | | | $ | 2,423 | |
Public offerings | — | | | — | | | 13,685,000 | | | | | | | | | | | | | | 85,660 | | | — | | | 85,660 | | | — | | | 85,660 | |
Purchase of non-controlling interests | — | | | — | | | 500,000 | | | | | | | | | | | | | | 1,562 | | | — | | | 1,562 | | | (1,562) | | | — | |
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Shares issued for Grover Beach acquisition | — | | | — | | | 49,348 | | | | | | | | | | | | | | 368 | | | — | | | 368 | | | — | | | 368 | |
Shares issued upon exercise of warrants | — | | | — | | | 3,898,180 | | | | | | | | | | | | | | 13,135 | | | — | | | 13,135 | | | — | | | 13,135 | |
Shares issued upon exercise of stock options | — | | | — | | | 15,000 | | | | | | | | | | | | | | 30 | | | — | | | 30 | | | — | | | 30 | |
Share-based compensation | — | | | — | | | — | | | | | | | | | | | | | | 4,013 | | | — | | | 4,013 | | | — | | | 4,013 | |
Net loss | — | | | — | | | — | | | | | | | | | | | | | | — | | | (30,876) | | | (30,876) | | | (175) | | | (31,051) | |
Balances - March 31, 2021 | 149,000 | | | 4,000,000 | | | 150,543,592 | | | | | | | | | | | | | | $ | 366,913 | | | $ | (293,545) | | | $ | 73,368 | | | $ | 1,210 | | | $ | 74,578 | |
Shares issued for restricted stock grants | — | | | — | | | 34,815 | | | | | | | | | | | | | | — | | | — | | | — | | | — | | | — | |
Shares issued upon exercise of warrants | — | | | — | | | 1,476,869 | | | | | | | | | | | | | | 3,144 | | | — | | | 3,144 | | | — | | | 3,144 | |
Shares issued upon exercise of stock options | — | | | — | | | 14,173 | | | | | | | | | | | | | | 20 | | | — | | | 20 | | | — | | | 20 | |
Share-based compensation | — | | | — | | | — | | | | | | | | | | | | | | 2,733 | | | — | | | 2,733 | | | — | | | 2,733 | |
Net income (loss) | — | | | — | | | — | | | | | | | | | | | | | | — | | | 2,826 | | | 2,826 | | | (190) | | | 2,636 | |
Balances - June 30, 2021 | 149,000 | | | 4,000,000 | | | 152,069,449 | | | | | | | | | | | | | | $ | 372,810 | | | $ | (290,719) | | | $ | 82,091 | | | $ | 1,020 | | | $ | 83,111 | |
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The accompanying notes are an integral part of these unaudited interim condensed consolidated financial statements.
JUSHI HOLDINGS INC.
UNAUDITED INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands of U.S. dollars)
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| Six Months Ended June 30, | |
| 2022 | | 2021 | |
CASH FLOWS FROM OPERATING ACTIVITIES: | | | | |
Net loss | $ | (7,691) | | | $ | (28,414) | | |
Adjustments to reconcile net loss to net cash used in operating activities: | | | | |
Depreciation and amortization, including amounts in cost of goods sold | 7,603 | | | 3,057 | | |
Share-based compensation | 11,648 | | | 6,747 | | |
Fair value changes in derivatives | (56,881) | | | (11,741) | | |
Non-cash interest expense, including amortization of deferred financing costs | 10,402 | | | 7,672 | | |
Deferred income taxes | (2,133) | | | (652) | | |
Loss on debt modification/extinguishment/redemption | — | | | 3,815 | | |
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Gain on investments and financial assets | — | | | (1,191) | | |
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Other non-cash items, net | (60) | | | (929) | | |
Changes in operating assets and liabilities, net of acquisitions: | | | | |
Accounts receivable | 442 | | | (119) | | |
Prepaid expenses and other current assets | (491) | | | (1,264) | | |
Inventory | 7,533 | | | (9,029) | | |
Accounts payable, accrued expenses and other current liabilities | 3,593 | | | 18,664 | | |
Other assets | 324 | | | 247 | | |
Net cash flows used in operating activities | $ | (25,711) | | | $ | (13,137) | | |
CASH FLOWS FROM INVESTING ACTIVITIES: | | | | |
Payments for acquisitions, net of cash acquired | $ | (20,824) | | | $ | (5,160) | | |
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Payments for property, plant and equipment | (40,917) | | | (41,483) | | |
Proceeds from investments and financial asset | — | | | 3,252 | | |
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Net cash flows used in investing activities | $ | (61,741) | | | $ | (43,391) | | |
CASH FLOWS FROM FINANCING ACTIVITIES: | | | | |
Issuance of shares for cash, net | $ | 13,680 | | | $ | 85,660 | | |
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Proceeds from exercise of warrants and options | 751 | | | 12,981 | | |
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Proceeds from acquisition facility, net of financing costs of $793 | 24,207 | | | — | | |
Redemptions of senior notes (including related party redemptions of $8 and $3,072 for six months ended June 30, 2022 and 2021, respectively) | (258) | | | (8,134) | | |
Payments on promissory notes | — | | | (1,500) | | |
(Payments) receipts on finance leases, net of tenant allowance of $10,065 and $4,738 for the six months ended June 30, 2022 and 2021, respectively | (6,555) | | | 364 | | |
Proceeds from other debt | 4,353 | | | 2,313 | | |
Repayments of other debt | (164) | | | — | | |
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Net cash flows provided by financing activities | $ | 36,014 | | | $ | 91,684 | | |
Effect of currency translation on cash and cash equivalents | (238) | | | (132) | | |
NET CHANGE IN CASH AND CASH EQUIVALENTS AND RESTRICTED CASH | $ | (51,676) | | | $ | 35,024 | | |
CASH AND CASH EQUIVALENTS AND RESTRICTED CASH, BEGINNING OF PERIOD | 95,487 | | | 85,857 | | |
CASH AND CASH EQUIVALENTS AND RESTRICTED CASH, END OF PERIOD | $ | 43,811 | | | $ | 120,881 | | |
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JUSHI HOLDINGS INC.
UNAUDITED INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands of U.S. dollars)
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| Six Months Ended June 30, | |
| 2022 | | 2021 | |
SUPPLEMENTAL CASH FLOW INFORMATION: | | | | |
Cash paid for interest (excluding capitalized interest) | $ | 10,699 | | | $ | 6,215 | | |
Cash paid for income taxes | $ | 8,542 | | | $ | 5,699 | | |
NON-CASH INVESTING AND FINANCING ACTIVITIES: | | | | |
Capital expenditures | $ | 7,453 | | | $ | 2,846 | | |
Right of use assets from finance lease liabilities (excluding from acquisitions), net of tenant allowance receivable of $0 and $8,007 for the six months ended June 30, 2022 and 2021, respectively (2021, as restated, see Note 2) | $ | 4,701 | | | $ | 42,697 | | |
Fair value of note obligations from acquisitions and acquisitions of non-controlling interests | $ | 19,782 | | | $ | 2,429 | | |
Fair value of shares issued for acquisitions and acquisitions of non-controlling interests | $ | 15,167 | | | $ | 368 | | |
Debt and equity issued for services received | $ | 634 | | | $ | — | | |
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The accompanying notes are an integral part of these unaudited interim condensed consolidated financial statements.
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JUSHI HOLDINGS INC. Notes to the Unaudited Interim Condensed Consolidated Financial Statements (Amounts Expressed in Thousands of United States Dollars, Unless Otherwise Stated) | |
Jushi Holdings Inc. (the “Company” or “Jushi”) is incorporated under the British Columbia’s Business Corporations Act. The Company is a vertically integrated, multi-state cannabis operator engaged in retail, distribution, cultivation, and processing operations in both medical and adult-use markets. As of June 30, 2022, Jushi, through its subsidiaries, owns or manages cannabis operations and/or holds licenses in the adult-use and/or medicinal cannabis marketplace in Illinois, Pennsylvania, Virginia, Massachusetts, Nevada, California and Ohio. The Company’s head office is located at 301 Yamato Road, Suite 3250, Boca Raton, Florida 33431, U.S.A., and its registered address is Suite 1700, Park Place, 666 Burrard Street, Vancouver, British Columbia V6C 2X8, Canada.
The Company is listed on the Canadian Securities Exchange (“CSE”) and trades its subordinate voting shares (“SVS”) under the ticker symbol “JUSH", and trades on the U.S. Over the Counter Stock Market (“OTCQX”) under the symbol JUSHF. The Company’s Registration Statement on Form S-1, initially filed with the U.S. Securities and Exchange Commission (“SEC”) on July 22, 2022, as amended, was declared effective by the SEC on August 12, 2022 (“S-1”).
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2. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
Basis of Presentation and Consolidation
The accompanying unaudited interim condensed consolidated financial statements present the consolidated financial position and operations of Jushi Holdings Inc. and its subsidiaries and entities over which the Company has control, in accordance with generally accepted accounting principles in the U.S. (“GAAP”) for interim financial information and in accordance with the rules and regulations of the SEC. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and footnotes. Actual results could differ materially from those estimates.
In the opinion of management, the unaudited interim condensed consolidated financial statements include all adjustments, of a normal recurring nature, that are necessary to present fairly the financial position, results of operations and cash flows of the Company for the periods, and at the dates, presented. The results for interim periods are not necessarily indicative of results that may be expected for any other interim period or for the full year.
These unaudited interim condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto for the year ended December 31, 2021, which is included in the Company’s S-1. Consolidated balance sheet information as of December 31, 2021 presented herein are derived from the Company’s audited consolidated financial statements for the year ended December 31, 2021.
These unaudited interim condensed consolidated financial statements have been prepared assuming the Company will continue as a going concern. GAAP requires an entity to look forward 12 months from the date the financial statements are issued, (the “look-forward” period) when assessing whether the going concern assumption can be used. The going concern assumption contemplates the realization of assets and satisfaction of liabilities in the normal course of business. However, substantial doubt about the Company’s ability to continue as a going concern exists.
As reflected in these unaudited interim condensed consolidated financial statements, the Company has incurred losses from operations for the six months ended June 30, 2022, and has an accumulated deficit of $250,109 as of June 30, 2022. As discussed in Note 9 - Debt, the Company’s 10% senior notes (the “Senior Notes”), which as of June 30, 2022 had an aggregate principal amount outstanding of $74,935, mature on January 15, 2023, and the Acquisition Facility, which as of June 30, 2022 had an outstanding balance of $65,000 (refer to Note 9 - Debt), required the Company to maintain certain covenants which the Company may not have been in compliance with if the court accepted Jushi Europe’s petition for bankruptcy. Prior to the amendment with the lender of the Acquisition Facility, the Company was also projected to violate
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JUSHI HOLDINGS INC. Notes to the Unaudited Interim Condensed Consolidated Financial Statements (Amounts Expressed in Thousands of United States Dollars, Unless Otherwise Stated) | |
certain financial covenants. In April 2022, the Company entered into an amendment with the lender of the Acquisition Facility, which included a waiver related to Jushi Europe’s bankruptcy and a change to the terms of the Total Leverage Ratio, as defined in the Acquisition Facility agreement, and deferred the commencement date of leverage testing under the Acquisition Facility to the quarter ending March 31, 2023. Additionally, the overall slowdown in the cannabis industry during 2022 has resulted in lower forecasted earnings for the Company during the look-forward period. The look-forward period also contemplates favorable regulatory changes in certain states in which the Company operates. If the Company’s operating results during the look-forward period is not in line with forecasted earnings, the Company may be at risk of not meeting its financial covenants under the Acquisition Facility, as amended. These conditions raise substantial doubt regarding the Company’s ability to continue as a going concern during the look-forward period.
The Company is pursuing strategies to obtain the required additional funding primarily to fund the Senior Notes and future operations. These strategies may include, but are not limited to: (i) ongoing efforts with various lenders to refinance the Senior Notes, including the renegotiation of the financial covenants under the Acquisition Facility, as amended; (ii) deferral of certain expenditures, including capital projects, and reallocate funds for debt repayment, if the need arose; (iii) alternative sources of debt and equity financing, including secured borrowings and through a base shelf prospectus, which allows the Company to offer up to C$500,000 in securities in Canada through the end of 2023. However, there can be no assurance that the Company will be able to refinance the Senior Notes, renegotiate the financial covenants under the Acquisition Facility, as amended, generate positive results from operations, or obtain additional liquidity when needed or under acceptable terms, if at all.
Correction of Errors in Previously Issued Financial Statements
Restatement
Subsequent to the filing of the Company’s unaudited interim condensed consolidated financial statements for the three and six months ended June 30, 2022, which were not previously reviewed by the Company’s auditors, with the applicable Canadian securities regulatory authorities on August 29, 2022 in accordance with applicable Canadian securities laws and may be accessed at www.sedar.com, the Company identified that there was a data input error in the amount of right of use assets from finance lease liabilities (excluding from acquisitions) disclosed in non-cash investing and financing activities of the statements of cash flows. The Company corrected the error as follows:
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| | Six months ended June 30, 2021 |
| | As Previously Reported | | As Restated |
NON-CASH INVESTING AND FINANCING ACTIVITIES: | | | | |
Right of use assets from finance lease liabilities (excluding from acquisitions), net of tenant allowance receivable | | $ | 2,050 | | | $ | 42,697 | |
Revisions
The Company revised the unaudited interim condensed consolidated statement of cash flows for the six months ended June 30, 2022 as follows:
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| | Six months ended June 30, 2022 |
| | As Previously Reported | | As Revised |
CASH FLOWS FROM OPERATING ACTIVITIES: | | | | |
Changes in operating assets and liabilities, net of acquisitions: | | | | |
Accounts payable, accrued expenses and other current liabilities | | $ | 1,566 | | | $ | 3,593 | |
Net cash flows used in operating activities | | $ | (27,738) | | | $ | (25,711) | |
CASH FLOWS FROM FINANCING ACTIVITIES: | | | | |
(Payments) receipts on finance leases, net of tenant allowance | | $ | (4,528) | | | $ | (6,555) | |
Net cash flows provided by financing activities | | $ | 38,041 | | | $ | 36,014 | |
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JUSHI HOLDINGS INC. Notes to the Unaudited Interim Condensed Consolidated Financial Statements (Amounts Expressed in Thousands of United States Dollars, Unless Otherwise Stated) | |
For the unaudited interim condensed consolidated statement of cash flows for the six months ended June 30, 2022, the Company removed the information regarding assets acquired and liabilities assumed in acquisitions within the non-cash investing and financing activities since such information were inconsistent and redundant to the information already disclosed in Note 7 - Acquisitions.
The Company revised the unaudited interim condensed consolidated financial statements for the impact of an understatement of cost of goods sold of $1,144 ($801 post-tax) during the three and six months ended June 30, 2021 as follows:
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A. Unaudited Interim Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) |
| Three Months Ended June 30, 2021 | | Six Months Ended June 30, 2021 |
| As Previously Reported | | As Revised | | As Previously Reported | | As Revised |
COST OF GOODS SOLD | $ | (24,982) | | | $ | (26,126) | | | $ | (47,916) | | | $ | (49,060) | |
GROSS PROFIT | $ | 22,762 | | | $ | 21,618 | | | $ | 41,503 | | | $ | 40,359 | |
LOSS FROM OPERATIONS | $ | (3,595) | | | $ | (4,739) | | | $ | (6,765) | | | $ | (7,909) | |
INCOME (LOSS) BEFORE PROVISION FOR INCOME TAXES | $ | 10,148 | | | $ | 9,004 | | | $ | (12,591) | | | $ | (13,735) | |
Provision for income taxes | $ | (6,711) | | | $ | (6,368) | | | $ | (15,022) | | | $ | (14,679) | |
NET INCOME (LOSS) AND COMPREHENSIVE INCOME (LOSS) | $ | 3,437 | | | $ | 2,636 | | | $ | (27,613) | | | $ | (28,414) | |
NET INCOME (LOSS) AND COMPREHENSIVE INCOME (LOSS) ATTRIBUTABLE TO JUSHI SHAREHOLDERS | $ | 3,627 | | | $ | 2,826 | | | $ | (27,248) | | | $ | (28,049) | |
EARNINGS (LOSS) PER SHARE ATTRIBUTABLE TO JUSHI SHAREHOLDERS - DILUTED | no change | | no change | | $ | (0.19) | | | $ | (0.20) | |
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B. Unaudited Interim Condensed Consolidated Statements of Changes in Equity |
| Accumulated Deficit | | Total Jushi Shareholders' Equity | | Total Equity |
| As Previously Reported | | As Revised | | As Previously Reported | | As Revised | | As Previously Reported | | As Revised |
Net income (loss) for the three months ended June 30, 2021 | $ | 3,627 | | | $ | 2,826 | | | $ | 3,627 | | | $ | 2,826 | | | $ | 3,437 | | | $ | 2,636 | |
Balances - June 30, 2021 | $ | (289,918) | | | $ | (290,719) | | | $ | 82,892 | | | $ | 82,091 | | | $ | 83,911 | | | $ | 83,111 | |
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C. Unaudited Interim Condensed Consolidated Statement of Cash Flows |
| | Six months ended June 30, 2021 |
| | As Previously Reported | | As Revised |
CASH FLOWS FROM OPERATING ACTIVITIES: | | | | |
Net loss | | $ | (27,613) | | | $ | (28,414) | |
Changes in operating assets and liabilities, net of acquisitions: | | | | |
Inventory | | $ | (10,173) | | | $ | (9,029) | |
Accounts payable, accrued expenses and other current liabilities | | $ | 19,007 | | | $ | 18,664 | |
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D. Note 7 - Business Combinations Acquisition Results and Unaudited Supplemental Pro Forma Financial Information |
| Three Months Ended June 30, 2021 | | Six Months Ended June 30, 2021 |
| As Previously Reported | | As Revised | | As Previously Reported | | As Revised |
Net income (loss) | $ | 661 | | | $ | (140) | | | $ | (32,311) | | | $ | (33,112) | |
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JUSHI HOLDINGS INC. Notes to the Unaudited Interim Condensed Consolidated Financial Statements (Amounts Expressed in Thousands of United States Dollars, Unless Otherwise Stated) | |
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E. Note 14 - Income Taxes |
| Three Months Ended June 30, 2021 | | Six Months Ended June 30, 2021 |
| As Previously Reported | | As Revised | | As Previously Reported | | As Revised |
Income (Loss) Before Income Taxes | $ | 10,148 | | | $ | 9,004 | | | $ | (12,591) | | | $ | (13,735) | |
Income Tax Expense | $ | (6,711) | | | $ | (6,368) | | | $ | (15,022) | | | $ | (14,679) | |
Effective Tax Rate | 66 | % | | 71 | % | | (119) | % | | (107) | % |
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F. Note 16 - Earning (Loss) Per Share |
| Three Months Ended June 30, 2021 | | Six Months Ended June 30, 2021 |
| As Previously Reported | | As Revised | | As Previously Reported | | As Revised |
Numerator: | | | | | | | |
Net income (loss) and comprehensive income (loss) attributable to Jushi shareholders | $ | 3,627 | | | $ | 2,826 | | | $ | (27,248) | | | $ | (28,049) | |
Less undistributed net income (loss) for participating securities | $ | (135) | | | $ | (105) | | | $ | 274 | | | $ | 282 | |
Net income(loss) and comprehensive income (loss) - basic | $ | 3,492 | | | $ | 2,721 | | | $ | (26,974) | | | $ | (27,767) | |
Add-back undistributed net income (loss) for participating securities | $ | 135 | | | $ | 105 | | | $ | (274) | | | $ | (282) | |
Less undistributed net income (loss) for participating securities | $ | (113) | | | $ | (88) | | | $ | 933 | | | $ | 961 | |
Net loss and comprehensive loss attributable to Jushi shareholders - diluted | $ | (17,547) | | | $ | (18,324) | | | $ | (37,419) | | | $ | (38,192) | |
Net income (loss) per common share attributable to Jushi: | | | | | | | |
Diluted | no change | | no change | | $ | (0.19) | | | $ | (0.20) | |
The Company revised the unaudited interim condensed consolidated statement of cash flows for the six months ended June 30, 2021 for the amount of capital expenditures disclosed in non-cash investing and financing activities of the statements of cash flows as follows:
| | | | | | | | | | | | | | |
| | Six months ended June 30, 2021 |
| | As Previously Reported | | As Revised |
NON-CASH INVESTING AND FINANCING ACTIVITIES: | | | | |
Capital expenditures | | $ | 2,057 | | | $ | 2,846 | |
Reclassifications
Within the supplemental non-cash investing and financing activities section of the statements of cash flows, the Company reclassified $4,701 from capital expenditures to right of use assets from finance lease liabilities (excluding from acquisitions) for the six months ended June 30, 2022. This reclassification did not have an effect on total assets, total liabilities, equity, net income (loss), net income (loss) per share or cash flows for the periods presented.
Summary of Significant Accounting Policies
The Company’s significant accounting policies are described in Note 2 in the audited consolidated financial statements and notes thereto for the year ended December 31, 2021, which is included in the Company’s S-1. There have been no material changes to the Company’s significant accounting policies
Segment
The Company operates a vertically integrated cannabis business in one reportable segment for the cultivation,
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JUSHI HOLDINGS INC. Notes to the Unaudited Interim Condensed Consolidated Financial Statements (Amounts Expressed in Thousands of United States Dollars, Unless Otherwise Stated) | |
manufacturing, distribution and sale of cannabis in the U.S. All revenues for the three and six months ended June 30, 2022 and 2021 were generated within the U.S., and substantially all long-lived assets are located within the U.S.
COVID-19
During the three and six months ended June 30, 2022, the Company’s financial condition and results of operations were not materially impacted by COVID-19. The extent to which the COVID-19 pandemic impacts the Company’s future results will depend on future developments, which are highly uncertain and cannot be predicted with certainty, including possible future outbreaks of new strains of the virus and governmental and consumer responses to such future developments.
Emerging Growth Company
As an emerging growth company (“EGC”), the Jumpstart Our Business Startups Act (“JOBS Act”) allows the Company to delay adoption of new or revised accounting pronouncements applicable to public companies until such pronouncements are applicable to private companies. The Company has elected to use this extended transition period under the JOBS Act until such time the Company is no longer considered to be an EGC. The adoption dates discussed below reflect this election.
Recent Accounting Pronouncements
In June 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2020-06 Debt-Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging-Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity, which simplifies accounting for convertible instruments by removing major separation models required under current GAAP. This ASU also removes certain settlement conditions that are required for equity contracts to qualify for the derivative scope exception and simplifies the diluted earnings per share calculation in certain areas. The amendments in this ASU are effective for annual and interim periods beginning after December 15, 2023, although early adoption is permitted. The Company is in the process of evaluating the impact of this new guidance on its consolidated financial statements.
In May 2021, the FASB issued ASU 2021-04, Earnings Per Share (Topic 260), Debt—Modifications and Extinguishments (Subtopic 470-50), Compensation—Stock Compensation (Topic 718), and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options. The FASB issued guidance to clarify and reduce diversity in an issuer’s accounting for modifications or exchanges of freestanding equity-classified written call options (for example, warrants) that remain equity classified after modification or exchange. The amendments in this ASU are effective for annual and interim periods beginning after December 15, 2021. The adoption of the standard did not have a material impact on the Company’s consolidated financial statements.
In October 2021, the FASB issued ASU 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers. The FASB issued guidance requires that an entity (acquirer) recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with Topic 606. At the acquisition date, an acquirer should account for the related revenue contracts in accordance with Topic 606 as if it had originated the contracts. To achieve this, an acquirer may assess how the acquiree applied Topic 606 to determine what to record for the acquired revenue contracts. Generally, this should result in an acquirer recognizing and measuring the acquired contract assets and contract liabilities consistent with how they were recognized and measured in the acquiree’s financial statements (if the acquiree prepared financial statements in accordance with generally accepted accounting principles). The amendments in this ASU are effective for annual and interim periods beginning after December 15, 2023, although early adoption is permitted. The Company is in the process of evaluating the impact of this new guidance on its consolidated financial statements.
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JUSHI HOLDINGS INC. Notes to the Unaudited Interim Condensed Consolidated Financial Statements (Amounts Expressed in Thousands of United States Dollars, Unless Otherwise Stated) | |
In June 2022, the FASB issued ASU 2022-03, Fair Value Measurement (Topic 820): Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions. The FASB issued guidance clarifies that a contractual restriction on the sale of an equity security is not considered part of the unit of account of the equity security and, therefore, is not considered in measuring fair value. The amendments also clarify that an entity cannot, as a separate unit of account, recognize and measure a contractual sale restriction. The amendments in this ASU are effective for annual and interim periods beginning after December 15, 2023, although early adoption is permitted. The Company is in the process of evaluating the impact of this new guidance on its consolidated financial statements.
The Company has three revenue streams: (i) cannabis retail (ii) cannabis wholesale; and (iii) other. The Company’s retail revenues are comprised of cannabis operations for medical and adult-use dispensaries. The Company’s wholesale revenues are comprised of cannabis cultivation, processing, production and distribution of cannabis for medical and adult-use. The Company’s other operations primarily include the Company’s hemp/cannabidiol (“CBD”) retail operations. Any intercompany revenue and any costs between entities are eliminated to arrive at consolidated totals.
The following table summarizes revenue disaggregated by revenue stream:
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| Three Months Ended June 30, |
| 2022 | | 2021 |
| Gross Revenue | | Intercompany Revenue | | Revenue, net to External Customers | | Gross Revenue | | Intercompany Revenue | | Revenue, net to External Customers |
Retail cannabis | $ | 67,276 | | | $ | — | | | $ | 67,276 | | | $ | 45,198 | | | $ | — | | | $ | |