Filed Pursuant to Rule 424(b)(3)
Registration No. 333-266287
PROSPECTUS SUPPLEMENT NO. 4
(to Prospectus dated August 12, 2022)
Jushi Holdings Inc.
This prospectus supplement is being filed to update, amend and supplement the information contained in the prospectus dated August 12, 2022 (as supplemented or amended from time to time, the “Prospectus”), which forms a part of our Registration Statement on Form S-1 (Registration No. 333-266287). This prospectus supplement is being filed to update and supplement the information included in the Prospectus with the information contained in our Quarterly Report on Form 10-Q, filed with the Securities and Exchange Commission (the “SEC”) on November 21, 2022 (the “Form 10-Q”). Accordingly, we have attached the Form 10-Q to this prospectus supplement.
This prospectus supplement updates and supplements the information in the Prospectus and is not complete without, and may not be delivered or utilized except in combination with, the Prospectus, including any amendments or supplements thereto. This prospectus supplement should be read in conjunction with the Prospectus and if there is any inconsistency between the information in the Prospectus and this prospectus supplement, you should rely on the information in this prospectus supplement.
Our Subordinate Voting Shares are listed on the Canadian Securities Exchange (the “CSE”) under the symbol “JUSH” and quoted on the OTCQX Best Market under the symbol “JUSHF.” The last reported sale price of our Subordinate Voting Shares on the CSE on November 18, 2022 was C$2.45 per share and on the OTCQX Best Market on November 18, 2022 was $1.87 per share.
Investing in our securities involves risks. See the section entitled “Risk Factors” beginning on page 9 of the Prospectus.
Neither the SEC nor any state securities commission has approved or disapproved of the securities to be issued or sold under the Prospectus or determined if the Prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
The date of this prospectus supplement is November 21, 2022
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 September 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 November 17, 2022, the registrant had 195,776,372 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 September 30, 2022
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This document may contain “forward-looking statements” and “forward‐looking information” within the meaning of applicable securities laws, including Canadian securities legislation and United States (“U.S.”) securities legislation (collectively, “forward-looking information”) which are based upon the Company’s current internal expectations, estimates, projections, assumptions and beliefs. All information, other than statements of historical facts, included in this document that address activities, events or developments that Jushi expect or anticipate will or may occur in the future constitutes forward‐looking information. Forward‐looking information is often identified by the words, “may”, “would”, “could”, “should”, “will”, “intend”, “plan”, “anticipate”, “believe”, “estimate”, “expect” or similar expressions and includes, among others, information regarding: future business strategy, competitive strengths, goals, expansion and growth of Jushi’s business, operations and plans, including new revenue streams, the completion of contemplated acquisitions by Jushi of additional assets, the integration and benefits of recently acquired businesses or assets, roll out of new operations, the implementation by Jushi of certain product lines, implementation of certain research and development, the application for additional licenses and the grant of licenses that will be or have been applied for, the expansion or construction of certain facilities, the expansion into additional U.S. and international markets, any potential future legalization of adult use and/or medical marijuana under U.S. federal law; expectations of market size and growth in the U.S. and the states in which Jushi operates; expectations for other economic, business, regulatory and/or competitive factors related to Jushi or the cannabis industry generally; and other events or conditions that may occur in the future.
Readers are cautioned that forward‐looking information and statements are not based on historical facts but instead are based on reasonable assumptions and estimates of management of Jushi at the time they were provided or made and involve known and unknown risks, uncertainties and other factors that may cause the actual results, level of activity, performance or achievements of Jushi, as applicable, to be materially different from any future results, performance or achievements expressed or implied by such forward‐looking information and statements. Such factors include, among others: risks relating to the ability to complete the pipeline transactions; risks relating to U.S. regulatory landscape and enforcement related to cannabis, including political risks; risks relating to anti‐money laundering laws and regulation; other governmental and environmental regulation; public opinion and perception of the cannabis industry; risks related to the economy generally; risks relating to pandemics and forces of nature including but not limited to the 2019 novel coronavirus (“COVID-19”); risks related to contracts with third party service providers; risks related to the enforceability of contracts; the limited operating history of Jushi; Jushi’s history of operating losses and negative operating cash flows; reliance on the expertise and judgment of senior management of Jushi; risks inherent in an agricultural business; risks related to co‐investment with parties with different interests to Jushi; risks related to proprietary intellectual property and potential infringement by third parties; the concentrated Founder voting control of the Jushi and the unpredictability caused by the anticipated capital structure; risks relating to the Company’s recent debt financing and other financing activities including leverage and issuing additional securities; risks relating to the management of growth; costs associated with Jushi being a publicly-traded company; the Company being a U.S. filer in addition to a Canadian filer; increasing competition in the industry; risks associated to cannabis products manufactured for human consumption including potential product recalls; reliance on key inputs, suppliers and skilled labor; reliance on manufacturers and contractors; risks of supply shortages or supply chain disruptions; cybersecurity risks; ability and constraints on marketing products; fraudulent activity by employees, contractors and consultants; tax and insurance related risks; risk of litigation; conflicts of interest; risks relating to certain remedies being limited and the difficulty of enforcement of judgments and effect service outside of Canada; risks related to executed or future acquisitions or dispositions, including potential future impairment of goodwill or intangibles acquired; sales by existing shareholders; the limited market for securities of the Company; risks related to the continued performance of existing operations in Pennsylvania, Illinois, Nevada, Virginia, California, Ohio and Massachusetts; risks related to the anticipated openings of additional dispensaries; the risks relating to the expansion and optimization of the grower-processor in Pennsylvania, the vertically integrated facilities in Virginia and Massachusetts and the facility in Nevada; the risks related to the opening of a new facilities, including but not limited to in Ohio and Illinois, which are subject to licensing approval; as well as limited research and data relating to cannabis; and risks related to the Company’s critical accounting policies and estimates.
Although Jushi has attempted to identify important factors that could cause actual results to differ materially, there may be other factors that cause results not to be as anticipated, estimated or intended. There can be no assurance that such forward‐looking information and statements will prove to be accurate as actual results and future events could differ materially from those anticipated in such information and statements. Accordingly, readers should not place undue reliance on forward‐looking information and statements. Forward‐looking information and statements are provided and made as of the date of this Quarterly Report on Form 10-Q and Jushi does not undertake any obligation to revise or update any forward‐looking information or statements other than as required by applicable law.
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)
| | | | | | | | | | | | | |
| September 30, 2022 (unaudited) | | December 31, 2021 | | |
ASSETS | | | | | |
CURRENT ASSETS: | | | | | |
Cash and cash equivalents | $ | 31,063 | | | $ | 94,962 | | | |
Accounts receivable, net | 3,375 | | | 3,200 | | | |
Inventories, net | 42,075 | | | 43,319 | | | |
Prepaid expenses and other current assets | 4,355 | | | 12,875 | | | |
Total current assets | $ | 80,868 | | | $ | 154,356 | | | |
NON-CURRENT ASSETS: | | | | | |
Property, plant and equipment, net | $ | 181,134 | | | $ | 137,280 | | | |
Right-of use assets - finance leases | 114,528 | | | 94,008 | | | |
Other intangible assets, net | 178,223 | | | 192,466 | | | |
Goodwill | 81,562 | | | 45,828 | | | |
Other non-current assets | 28,146 | | | 27,586 | | | |
Non-current restricted cash | 950 | | | 525 | | | |
Total non-current assets | $ | 584,543 | | | $ | 497,693 | | | |
Total assets | $ | 665,411 | | | $ | 652,049 | | | |
| | | | | |
LIABILITIES AND EQUITY | | | | | |
CURRENT LIABILITIES: | | | | | |
Accounts payable | $ | 18,062 | | | $ | 10,539 | | | |
Accrued expenses and other current liabilities | 44,102 | | | 47,972 | | | |
Income tax payable | 15,808 | | | 6,614 | | | |
Debt, net - current portion (including related party principal amounts of $3,476 as of September 30, 2022 and $3,384 as of December 31, 2021) | 137,967 | | | 6,181 | | | |
Finance lease obligations - current | 12,735 | | | 12,620 | | | |
Total current liabilities | $ | 228,674 | | | $ | 83,926 | | | |
NON-CURRENT LIABILITIES: | | | | | |
Non-current debt, net (including related party principal amounts of $0 as of September 30, 2022 and $1,194 as of December 31, 2021) | $ | 61,932 | | | $ | 122,971 | | | |
Finance lease obligations - non-current | 98,089 | | | 88,297 | | | |
Operating lease liabilities - non-current | 15,637 | | | 15,163 | | | |
Derivative liabilities | 19,801 | | | 92,435 | | | |
Income tax liabilities - non-current | 62,402 | | | 60,051 | | | |
Contingent consideration liabilities - non-current | 1,418 | | | 8,223 | | | |
Total non-current liabilities | $ | 259,279 | | | $ | 387,140 | | | |
Total liabilities | $ | 487,953 | | | $ | 471,066 | | | |
COMMITMENTS AND CONTINGENCIES (Note 21) | | | | | |
EQUITY: | | | | | |
Common stock, no par value; authorized shares - unlimited; issued and outstanding shares - 195,769,605 and 182,707,359 Subordinate Voting Shares as of September 30, 2022 and December 31, 2021, respectively | $ | — | | | $ | — | | | |
Paid-in capital | 483,650 | | | 424,788 | | | |
Accumulated deficit | (304,805) | | | (242,418) | | | |
Total Jushi shareholders' equity | $ | 178,845 | | | $ | 182,370 | | | |
Non-controlling interests | (1,387) | | | (1,387) | | | |
Total equity | $ | 177,458 | | | $ | 180,983 | | | |
Total liabilities and equity | $ | 665,411 | | | $ | 652,049 | | | |
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 September 30, | | Nine Months Ended September 30, |
| 2022 | | 2021 | | 2022 | | 2021 |
REVENUE, NET | $ | 72,817 | | | $ | 53,981 | | | $ | 207,462 | | | $ | 143,400 | |
COST OF GOODS SOLD | (45,075) | | | (30,657) | | | (133,940) | | | (79,717) | |
GROSS PROFIT | $ | 27,742 | | | $ | 23,324 | | | $ | 73,522 | | | $ | 63,683 | |
| | | | | | | |
OPERATING EXPENSES | | | | | | | |
Selling, general and administrative | $ | 40,590 | | | $ | 25,147 | | | $ | 117,048 | | | $ | 73,415 | |
Indefinite-lived asset impairment | 37,600 | | | — | | | 37,600 | | | — | |
Total operating expenses | $ | 78,190 | | | $ | 25,147 | | | $ | 154,648 | | | $ | 73,415 | |
| | | | | | | |
LOSS FROM OPERATIONS | $ | (50,448) | | | $ | (1,823) | | | $ | (81,126) | | | $ | (9,732) | |
| | | | | | | |
OTHER (EXPENSE) INCOME: | | | | | | | |
Interest expense, net | $ | (13,111) | | | $ | (7,442) | | | $ | (34,174) | | | $ | (21,145) | |
Fair value gains on derivatives | 6,352 | | | 55,059 | | | 63,233 | | | 66,800 | |
Other, net | (291) | | | 221 | | | (361) | | | (3,643) | |
Total other (expense) income, net | $ | (7,050) | | | $ | 47,838 | | | $ | 28,698 | | | $ | 42,012 | |
| | | | | | | |
(LOSS) INCOME BEFORE INCOME TAX | $ | (57,498) | | | $ | 46,015 | | | $ | (52,428) | | | $ | 32,280 | |
Income tax benefit (expense) | 2,802 | | | (6,333) | | | (9,959) | | | (21,012) | |
NET (LOSS) INCOME AND COMPREHENSIVE (LOSS) INCOME | $ | (54,696) | | | $ | 39,682 | | | $ | (62,387) | | | $ | 11,268 | |
Less: net loss attributable to non-controlling interests | — | | | (62) | | | — | | | (427) | |
NET (LOSS) INCOME AND COMPREHENSIVE (LOSS) INCOME ATTRIBUTABLE TO JUSHI SHAREHOLDERS | $ | (54,696) | | | $ | 39,744 | | | $ | (62,387) | | | $ | 11,695 | |
(LOSS) EARNINGS PER SHARE ATTRIBUTABLE TO JUSHI SHAREHOLDERS - BASIC | $ | (0.28) | | | $ | 0.23 | | | $ | (0.33) | | | $ | 0.07 | |
Weighted average shares outstanding - basic | 192,880,468 | | | 168,801,193 | | | 189,119,282 | | | 163,345,527 | |
(LOSS) EARNINGS PER SHARE ATTRIBUTABLE TO JUSHI SHAREHOLDERS - DILUTED | $ | (0.30) | | | $ | (0.08) | | | $ | (0.61) | | | $ | (0.28) | |
Weighted average shares outstanding - diluted | 203,169,931 | | | 199,281,152 | | | 205,695,590 | | | 195,942,078 | |
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)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 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 | |
Shares issued for settlement of NuLeaf contingent consideration | — | | | — | | | 888,880 | | | 1,529 | | | — | | | 1,529 | | | — | | | 1,529 | |
Shares issued for service received | — | | | — | | | 13,334 | | | 23 | | | — | | | 23 | | | — | | | 23 | |
Shares issued for restricted stock grants | — | | | — | | | 81,000 | | | — | | | — | | | — | | | — | | | — | |
Shares issued upon exercise of warrants | — | | | — | | | 332,738 | | | 564 | | | — | | | 564 | | | — | | | 564 | |
Shares issued upon exercise of stock options | — | | | — | | | 20,000 | | | 26 | | | — | | | 26 | | | — | | | 26 | |
Shares canceled upon forfeiture of non-vested restricted stock | — | | | — | | | (219,479) | | | — | | | — | | | — | | | — | | | — | |
Collection of note receivable from employee shareholder | — | | | — | | | — | | | 450 | | | — | | | 450 | | | — | | | 450 | |
Share-based compensation | — | | | — | | | — | | | 5,466 | | | — | | | 5,466 | | | — | | | 5,466 | |
Net loss | — | | | — | | | — | | | — | | | (54,696) | | | (54,696) | | | — | | | $ | (54,696) | |
Balances - September 30, 2022 | — | | | — | | | 195,769,605 | | | $ | 483,650 | | | $ | (304,805) | | | $ | 178,845 | | | $ | (1,387) | | | $ | 177,458 | |
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)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | |
| 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) | | | — | |
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 | |
Conversion of Super Voting Shares and Multiple Voting Shares | (149,000) | | | (4,000,000) | | | 18,900,000 | | | — | | | — | | | — | | | — | | | — | |
Acquisition of Nature’s Remedy | — | | | — | | | 8,700,000 | | | 35,670 | | | — | | | 35,670 | | | — | | | 35,670 | |
Shares issued upon exercise of warrants | — | | | — | | | 2,437,974 | | | 5,189 | | | — | | | 5,189 | | | — | | | 5,189 | |
Shares issued upon exercise of stock options | — | | | — | | | 96,851 | | | 62 | | | — | | | 62 | | | — | | | 62 | |
Share-based compensation | — | | | — | | | — | | | 2,234 | | | — | | | 2,234 | | | | | 2,234 | |
Net income (loss) | — | | | — | | | — | | | — | | | 39,744 | | | 39,744 | | | (62) | | | 39,682 | |
Balances - September 30, 2021 | — | | | — | | | 182,204,274 | | | $ | 415,965 | | | $ | (250,975) | | | $ | 164,990 | | | $ | 958 | | | $ | 165,948 | |
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)
| | | | | | | | | | | | |
| Nine Months Ended September 30, | |
| 2022 | | 2021 | |
CASH FLOWS FROM OPERATING ACTIVITIES: | | | | |
Net (loss) income | $ | (62,387) | | | $ | 11,268 | | |
Adjustments to reconcile net loss to net cash used in operating activities: | | | | |
Depreciation and amortization, including amounts in cost of goods sold | 15,663 | | | 5,285 | | |
Share-based compensation | 17,114 | | | 8,981 | | |
Fair value changes in derivatives | (63,233) | | | (66,800) | | |
Non-cash interest expense, including amortization of deferred financing costs | 15,599 | | | 11,593 | | |
Deferred income taxes | (13,155) | | | (6,571) | | |
Loss on debt modification/extinguishment/redemption | — | | | 3,815 | | |
Indefinite-lived asset impairment | 37,600 | | | — | | |
Other non-cash items, net | 1,890 | | | (1,535) | | |
Changes in operating assets and liabilities, net of acquisitions: | | | | |
Accounts receivable | (69) | | | (812) | | |
Inventory | 8,843 | | | (16,202) | | |
Prepaid expenses and other current assets | 1,657 | | | (435) | | |
Other assets | 966 | | | 601 | | |
Accounts payable, accrued expenses and other current liabilities | 13,313 | | | 27,032 | | |
Net cash flows used in operating activities | $ | (26,199) | | | $ | (23,780) | | |
CASH FLOWS FROM INVESTING ACTIVITIES: | | | | |
Payments for acquisitions, net of cash acquired | $ | (20,892) | | | $ | (47,308) | | |
Payments for settlement of contingent consideration liability | (3,000) | | | — | | |
Payments for property, plant and equipment | (49,230) | | | (55,285) | | |
Proceeds from investments and financial asset | — | | | 3,252 | | |
Net cash flows used in investing activities | $ | (73,122) | | | $ | (99,341) | | |
CASH FLOWS FROM FINANCING ACTIVITIES: | | | | |
Proceeds from issuance of shares, net | $ | 13,680 | | | $ | 85,660 | | |
| | | | |
Proceeds from exercise of warrants and options | 1,248 | | | 16,438 | | |
| | | | |
Collection of note receivable from employee shareholder | 450 | | | — | | |
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 nine months ended September 30, 2022 and 2021, respectively) | (258) | | | (8,134) | | |
Payments of acquisition promissory notes | — | | | (1,689) | | |
(Payments of) proceeds from finance leases, net of tenant allowance of $10,065 and $15,146 for the nine months ended September 30, 2022 and 2021, respectively | (7,948) | | | (3,343) | | |
Proceeds from other debt | 5,233 | | | 3,160 | | |
Repayments of other debt | (532) | | | (298) | | |
| | | | |
| | | | |
Net cash flows provided by financing activities | $ | 36,080 | | | $ | 91,794 | | |
Effect of currency translation on cash and cash equivalents | (233) | | | 42 | | |
NET CHANGE IN CASH AND CASH EQUIVALENTS AND RESTRICTED CASH | $ | (63,474) | | | $ | (31,285) | | |
CASH AND CASH EQUIVALENTS AND RESTRICTED CASH, BEGINNING OF PERIOD | 95,487 | | | 85,857 | | |
CASH AND CASH EQUIVALENTS AND RESTRICTED CASH, END OF PERIOD | $ | 32,013 | | | $ | 54,572 | | |
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| | | | |
JUSHI HOLDINGS INC.
UNAUDITED INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands of U.S. dollars)
| | | | | | | | | | | | |
| Nine Months Ended September 30, | |
| 2022 | | 2021 | |
SUPPLEMENTAL CASH FLOW INFORMATION: | | | | |
Cash paid for interest (excluding capitalized interest) | $ | 19,793 | | | $ | 10,445 | | |
Cash paid for income taxes | $ | 11,205 | | | $ | 6,082 | | |
NON-CASH INVESTING AND FINANCING ACTIVITIES: | | | | |
Capital expenditures | $ | 11,173 | | | $ | 4,640 | | |
Right of use assets from finance lease liabilities (excluding from acquisitions), net of tenant allowance receivable of $0 and $6,701 for the nine months ended September 30, 2022 and 2021, respectively | $ | 2,960 | | | $ | 46,142 | | |
Debt and equity issued for services received | $ | 702 | | | $ | — | | |
The accompanying notes are an integral part of these unaudited interim condensed consolidated financial statements.
| | | | | |
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 September 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 United States 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 on August 8, 2022, was declared effective by the SEC on August 12, 2022 (the “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 United States (“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 are included in the Company’s S-1, and was also filed on the System for Electronic Document Analysis and Retrieval (“SEDAR”) on November 21, 2022. Consolidated balance sheet information as of December 31, 2021 presented herein is 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.
As reflected in these unaudited interim condensed consolidated financial statements, the Company has incurred losses from operations for the nine months ended September 30, 2022, and has an accumulated deficit of $304,805 as of September 30, 2022. As discussed in Note 10 - Debt, the Company’s 10% senior notes (the “Senior Notes”), which as of September 30, 2022 had an aggregate principal amount outstanding of $74,935, mature on January 15, 2023, and the Acquisition Facility, which as of September 30, 2022 had an outstanding balance of $65,000 (refer to Note 10 - Debt), required the Company to maintain certain covenants which the Company may not have been in compliance with if the
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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) | |
Swiss courts accepted Jushi Europe’s petition for bankruptcy (refer to Note 16 - Non-Controlling Interests). Prior to the amendment with the lender of the Acquisition Facility, the Company was also projected to violate 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. The Company is at risk of not meeting its forecasted earnings and as a result may not be in compliance with certain financial covenants under the Acquisition Facility, as amended, during the look-forward period. As a result, the Company has classified the outstanding balance of $65,000 under the Acquisition Facility as of September 30, 2022 as a current liability. 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 (refer to Note 23 - Subsequent Events for updates on the refinancing); (ii) renegotiating the financial covenants contained in the Acquisition Facility, including the removal of the Total Leverage Ratio requirement; (iii) deferral of certain expenditures, including capital projects, and reallocation of funds for debt repayment, if the need arises; and (iv) obtaining alternative sources of financing, including debt financing through secured borrowings and equity financing 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
In November 2022, the Company identified an error in the appraised value of the business licenses acquired in connection with the acquisition of Nature’s Remedy in September 2021, which was used in the purchase price allocation (Refer to Note 7 - Acquisitions for additional information). The appraised value of the business licenses was determined with the assistance of a third-party valuation firm, which used an incorrect input in the valuation model. The impact of the error was a $10,000 understatement of indefinite-lived intangible assets - license, a $7,092 overstatement of goodwill, and a $2,908 understatement of income tax liabilities – non-current on the Company’s audited consolidated financial statements as of and for the year ended December 31, 2021, unaudited interim condensed consolidated financial statements as of and for the three months ended March 31, 2022, and unaudited interim condensed consolidated financial statements as of and for the three and six months ended June 30, 2022.
The Company revised its condensed consolidated balance sheet as of December 31, 2021, March 31, 2022 and June 30, 2022 as summarized in the table below:
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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) | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2021 | | March 31, 2022 (unaudited) | | June 30, 2022 (unaudited) |
| As Previously Reported | | As Revised | | As Previously Reported | | As Revised | | As Previously Reported | | As Revised |
Other intangible assets, net | $ | 182,466 | | | $ | 192,466 | | | $ | 189,931 | | | $ | 199,931 | | | $ | 206,742 | | | $ | 216,742 | |
Goodwill | $ | 52,920 | | | $ | 45,828 | | | $ | 61,392 | | | $ | 54,300 | | | $ | 88,654 | | | $ | 81,562 | |
Total non-current assets | $ | 494,785 | | | $ | 497,693 | | | $ | 534,011 | | | $ | 536,919 | | | $ | 610,586 | | | $ | 613,494 | |
Total assets | $ | 649,141 | | | $ | 652,049 | | | $ | 656,644 | | | $ | 659,552 | | | $ | 707,858 | | | $ | 710,766 | |
Income tax liabilities - non-current | $ | 57,143 | | | $ | 60,051 | | | $ | 58,372 | | | $ | 61,280 | | | $ | 68,193 | | | $ | 71,101 | |
Total non-current liabilities | $ | 384,232 | | | $ | 387,140 | | | $ | 315,148 | | | $ | 318,056 | | | $ | 327,186 | | | $ | 330,094 | |
Total liabilities | $ | 468,158 | | | $ | 471,066 | | | $ | 463,487 | | | $ | 466,395 | | | $ | 483,762 | | | $ | 486,670 | |
Total liabilities and equity | $ | 649,141 | | | $ | 652,049 | | | $ | 656,644 | | | $ | 659,552 | | | $ | 707,858 | | | $ | 710,766 | |
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, and was also filed on SEDAR. There have been no material changes to the Company’s significant accounting policies.
COVID-19
During the three and nine months ended September 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
Adoption of New Accounting Standards
In January 2017, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2017-04, Intangibles—Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment (ASU 2017-04). The FASB issued guidance eliminates the performance of Step 2 from the goodwill impairment test. In performing its annual or interim impairment testing, an entity will instead compare the fair value of the reporting unit with its carrying amount and recognize any impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value. Additionally, an entity should consider income tax effects from any tax-deductible goodwill on the carrying amount of the reporting unit when measuring the goodwill impairment loss. The amendments in this ASU are effective for the Company for fiscal years beginning after December 15, 2022 with early adoption permitted, as amended by ASU 2019-10, Financial Instruments—Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842) and ASU 2021-03, Intangibles—Goodwill and Other (Topic 350).
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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) | |
The Company early adopted ASU 2017-04 in 2022. See Note 8 - Goodwill and Other Intangible Assets for additional information.
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.
Accounting Standards Issued But Not Yet Adopted
In June 2020, the FASB issued 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 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.
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.
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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) | |
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 the Company’s revenue from external customers, disaggregated by revenue stream:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | 2022 | | 2021 | | 2022 | | 2021 |
Retail cannabis | | $ | 67,038 | | | $ | 50,681 | | | $ | 192,268 | | | $ | 135,155 | |
Wholesale cannabis | | 5,769 | | | 3,185 | | | 15,085 | | | 7,934 | |
Other | | 10 | | | 115 | | | 109 | | | 311 | |
Total revenue, net | | $ | 72,817 | | | $ | 53,981 | | | $ | 207,462 | | | $ | 143,400 | |
The components of inventories, net, are as follows:
| | | | | | | | | | | |
| September 30, 2022 (unaudited) | | December 31, 2021 |
Cannabis plants | $ | 3,240 | | | $ | 6,347 | |
Harvested cannabis and packaging | 11,948 | | | 5,180 | |
Total raw materials | $ | 15,188 | | | $ | 11,527 | |
Work in process | 9,468 | | | 8,756 | |
Finished goods | 17,419 | | | 23,036 | |
Total inventories, net | $ | 42,075 | | | $ | 43,319 | |
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5. PREPAID EXPENSES AND OTHER CURRENT ASSETS |
The components of prepaid expenses and other current assets are as follows:
| | | | | | | | | | | | | |
| September 30, 2022 (unaudited) | | December 31, 2021 | | |
Prepaid expenses and deposits | $ | 3,720 | | | $ | 3,837 | | | |
Landlord receivables for reimbursement of certain expenditures | — | | | 7,357 | | | |
Other current assets | 635 | | | 1,681 | | | |
Total prepaid expenses and other current assets | $ | 4,355 | | | $ | 12,875 | | | |
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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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6. PROPERTY, PLANT AND EQUIPMENT |
The components of property, plant and equipment (PPE) are as follows:
| | | | | | | | | | | | | | | |
| September 30, 2022 (unaudited) | | December 31, 2021 | | |
Buildings and building components | $ | 75,883 | | | $ | 49,697 | | | | | |
Land | 14,167 | | | 12,380 | | | | |
Leasehold improvements | 39,049 | | | 24,042 | | | | | |
Machinery and equipment | 21,492 | | | 12,656 | | | | | |
Computer equipment | 3,025 | | | 2,221 | | | | | |
Furniture and fixtures | 14,965 | | | 8,000 | | | | | |
Construction-in-process | 30,919 | | | 35,625 | | | | | |
Total property, plant and equipment - gross | $ | 199,500 | | | $ | 144,621 | | | | | |
Less: Accumulated depreciation | (18,366) | | | (7,341) | | | | | |
Total property, plant and equipment - net | $ | 181,134 | | | $ | 137,280 | | | | | |
Construction-in-process represents assets under construction for manufacturing and retail build-outs not yet ready for use.
Total depreciation, including depreciation from assets held under finance leases (which are reflected separately in the consolidated balance sheets), was $6,321 and $2,409 for the three months ended September 30, 2022 and 2021, respectively, and $15,025 and $5,313 for the nine months ended September 30, 2022 and 2021, respectively.
Interest expense capitalized to PPE totaled $124 and $222 for the three months ended September 30, 2022 and 2021, respectively, and $2,171 and $461 for the nine months ended September 30, 2022 and 2021, respectively.
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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) | |
2022 Business Combinations
The Company had the following acquisitions during the nine months ended September 30, 2022: (i) Apothecarium; and (ii) NuLeaf (each as defined below). The following table summarizes the preliminary purchase price allocations as of their respective acquisition dates:
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| | | | | | |
| | | | | | |
| | NuLeaf | | Apothecarium | | Total |
Assets Acquired: | | | | | |
| Cash and cash equivalents | $ | 618 | | | $ | 25 | | | $ | 643 | |
| Prepaids and other assets | 273 | | | 32 | | | 305 | |
| Accounts receivable, net | 39 | | | — | | | 39 | |
| | | | | | |
| Inventory | 5,791 | | | 699 | | | 6,490 | |
| Indemnification assets (1) | 4,145 | | | — | | | 4,145 | |
| Property, plant and equipment | 5,513 | | | 498 | | | 6,011 | |
| Right-of-use assets - finance lease | 4,598 | | | 2,553 | | | 7,151 | |
| Right-of-use assets - operating lease | 1,067 | | | — | | | 1,067 | |
| Intangible assets (2) | 17,440 | | | 8,200 | | | 25,640 | |
| Deposits | 110 | | | 301 | | | 411 | |
| Total assets acquired | $ | 39,594 | | | $ | 12,308 | | | $ | 51,902 | |
| | | | | | |
Liabilities Assumed: | | | | | |
| Accounts payable and accrued liabilities | $ | 604 | | | $ | 502 | | | $ | 1,106 | |
| Finance lease obligations | 4,598 | | | 2,544 | | | 7,142 | |
| Operating lease obligations | 1,067 | | | — | | | 1,067 | |
| Deferred tax liabilities | 10,247 | | | 2,601 | | | 12,848 | |
| Total liabilities assumed | $ | 16,516 | | | $ | 5,647 | | | $ | 22,163 | |
| | | | | | |
| Net assets acquired | $ | 23,078 | | | $ | 6,661 | | | $ | 29,739 | |
| | | | | | |
| | | | | | |
| Goodwill (3) | 27,262 | | | 8,472 | | | 35,734 | |
| Total | $ | 50,340 | | | $ | 15,133 | | | $ | 65,473 | |
| | | | | | |
Consideration: | | | | | |
| Consideration paid in cash, as adjusted for working capital adjustments | $ | 14,918 | | | $ | 6,617 | | | $ | 21,535 | |
| Consideration payable in cash (customary hold back liability) | 1,000 | | | — | | | 1,000 | |
| Consideration paid in promissory notes (fair value) (4) | 12,860 | | | 6,922 | | | 19,782 | |
| Consideration paid in shares | 13,573 | | | 1,594 | | | 15,167 | |
| | | | | | |
| | | | | | |
| Contingent consideration | 7,989 | | | — | | | 7,989 | |
| Fair value of consideration | $ | 50,340 | | | $ | 15,133 | | | $ | 65,473 | |
(1)As part of the NuLeaf acquisition agreement, the sellers contractually agreed to indemnify the Company for certain amounts that may become payable, including for taxes that relate to periods prior to the date of acquisition. Accordingly, the Company recorded indemnification assets and corresponding estimated accrued tax liabilities, at fair value, for a total of $4,145 as of the date of the acquisition. Subsequent changes in the amounts recognized for the indemnification assets may occur in relation to the provision for the corresponding tax liabilities, according to changes in the range of outcomes or the assumptions used to develop the estimates of the liabilities at the time of the acquisition
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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) | |
(2)Included licenses acquired of $14,700 and $8,200 for NuLeaf and Apothecarium, respectively, which have indefinite useful lives. The estimated fair values of the licenses were determined using the multi-period excess earnings method under the income approach based on projections extended to 2036.
(3)The goodwill recognized from the acquisitions is attributable to synergies expected from integrating the acquired businesses into the Company’s existing business. The goodwill acquired is not deductible for tax purposes.
(4)Refer to “Acquisition-Related Promissory Notes” in Note 10 - Debt for details on the seller notes.
NuLeaf
In April 2022, the Company closed on the acquisition of 100% of NuLeaf Inc., NuLeaf CLV Inc. and their subsidiaries (collectively, “NuLeaf”). The Company paid upfront consideration comprised of $14,918 in cash, subject to working capital adjustments, 4,662,384 SVS (with an acquisition date fair value of $2.91 per SVS), and an unsecured five-year note with a face value of $15,750. Additionally, cash consideration of $1,000 was subjected to customary holdbacks at closing. The Company was required to pay an additional $10,000 ($3,000 in cash, $3,000 as an addition to the five-year note and the balance in shares) contingent on the opening of a third retail dispensary. In June 2022, the Company opened the third retail dispensary, and in July 2022, the Company paid $3,000 in cash, amended the five-year note for an additional face value of $3,000 (discounted value of $2,657), and issued 888,880 SVS (aggregate value of $1,529) with a to settle the contingent consideration liability.
Apothecarium
In March 2022, the Company closed on the acquisition of 100% of the equity interest of an entity operating an adult-use and medical retail dispensary under the name, “The Apothecarium” in Las Vegas, Nevada (“Apothecarium”), for upfront consideration comprised of $6,617 in cash, net of working capital adjustments, 527,704 SVS (with a grant date fair value of $3.02 each), and an unsecured five-year note with a face value of $9,853. Refer to Note 10 - Debt for details on the seller notes. The Apothecarium acquisition, together with the prior acquisition of Franklin Bioscience NV, LLC, a holder of medical and adult-use cannabis cultivation, processing, and distribution licenses, enabled the Company to become vertically integrated in Nevada, as well as provide significant branding exposure for Jushi’s high-quality product lines.
Preliminary Purchase Price Allocations for 2022 Business Combinations
The consideration has been allocated to the estimated fair values of the assets acquired and liabilities assumed at the dates of the acquisitions and remain preliminary as of September 30, 2022. These estimated fair values involve significant judgement and estimates. The primary area of judgement involves the valuation of the business licenses acquired, which requires management to estimate value based on future cash flows from these assets. The primary areas of the preliminary purchase price allocations that are not yet finalized relate to: licenses acquired, inventories, property, plant and equipment, leases, contingent consideration, promissory notes, deferred tax liabilities, and residual goodwill. The Company expects to continue to obtain information to assist in determining the fair value of the net assets acquired at the acquisition date during the measurement period.
Business Combinations - Acquisition and Deal Costs
For the three and nine months ended September 30, 2022, acquisition and deal costs relating to Apothecarium and NuLeaf totaled $0 and $1,184, respectively, and are included within operating expenses in the consolidated statements of operations and comprehensive income (loss). The remaining acquisition and deal costs included in operating expenses were incurred either for acquisitions not completed or not expected to be completed.
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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) | |
2021 Business Combinations and Asset Acquisitions
The Company had the following acquisitions during the year ended December 31, 2021: (i) Nature’s Remedy; (ii) OSD; (iii) OhiGrow; and (iv) Grover Beach (each as defined below). The following table summarizes the purchase price allocations as of their respective acquisition dates:
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| Business Combinations | | Asset Acquisitions | | |
| Nature’s Remedy | | OSD | | OhiGrow | | Grover Beach | | Total |
Assets Acquired: | | | | | | | | | |
Cash and cash equivalents | $ | 3,195 | | | $ | 259 | | | $ | — | | | $ | — | | | $ | 3,454 | |
Prepaids | 325 | | | 53 | | | — | | | — | | | 378 | |
Accounts receivable, net | 263 | | | — | | | — | | | — | | | 263 | |
Inventory | 15,882 | | | 184 | | | — | | | — | | | 16,066 | |
Indemnification assets (1) | 1,322 | | | 1,411 | | | — | | | — | | | 2,733 | |
Property, plant and equipment | 19,470 | | | — | | | 3,165 | | | 269 | | | 22,904 | |
Right-of-use assets - finance leases | 27,305 | | | — | | | — | | | 2,050 | | | 29,355 | |
Right-of-use assets - operating leases | 1,337 | | | 1,859 | | | — | | | — | | | 3,196 | |
Intangible assets - license (2)(4) | 56,000 | | | 2,160 | | | 1,817 | | | 3,654 | | | 63,631 | |
Intangible assets - tradenames (2) | 4,400 | | | — | | | — | | | — | | | 4,400 | |
Intangible assets - customer database (2) | 2,100 | | | — | | | — | | | — | | | 2,100 | |
Deposits | 20 | | | 6 | | | — | | | 19 | | | 45 | |
Total assets acquired (3)(4) | $ | 131,619 | | | $ | 5,932 | | | $ | 4,982 | | | $ | 5,992 | | | $ | 148,525 | |
| | | | | | | | | |
Liabilities Assumed: | | | | | | | | | |
Accounts payable and accrued liabilities | $ | 7,004 | | | $ | 1,601 | | | $ | — | | | $ | — | | | $ | 8,605 | |
Finance lease obligations | 27,052 | | | — | | | — | | | 2,032 | | | 29,084 | |
Operating lease obligations | 1,267 | | | 1,859 | | | — | | | — | | | 3,126 | |
Deferred tax liabilities (4) | 22,784 | | | 648 | | | — | | | — | | | 23,432 | |
Total liabilities assumed (3)(4) | $ | 58,107 | | | $ | 4,108 | | | $ | — | | | $ | 2,032 | | | $ | 64,247 | |
| | | | | | | | | |
Net assets acquired (3)(4) | $ | 73,512 | | | $ | 1,824 | | | $ | 4,982 | | | $ | 3,960 | | | $ | 84,278 | |
Goodwill (3)(4) | 26,086 | | | 2,432 | | | — | | | — | | | 28,518 | |
Total | $ | 99,598 | | | $ | 4,256 | | | $ | 4,982 | | | $ | 3,960 | | | $ | 112,796 | |
Consideration: | | | | | | | | | |
Consideration paid in cash, as adjusted for working capital adjustments | $ | 40,360 | | | $ | 1,827 | | | $ | 4,949 | | | $ | 3,592 | | | $ | 50,728 | |
Consideration paid in promissory notes (fair value) (3) | 15,345 | | | 2,429 | | | — | | | — | | | 17,774 | |
Consideration paid in shares | 35,670 | | | — | | | — | | | 368 | | | 36,038 | |
Contingent consideration | 8,223 | | | — | | | — | | | — | | | 8,223 | |
Capitalized costs | — | | | — | | | 33 | | | — | | | 33 | |
Fair value of consideration (3) | $ | 99,598 | | | $ | 4,256 | | | $ | 4,982 | | | $ | 3,960 | | | $ | 112,796 | |
(1) As part of the OSD and Nature’s Remedy acquisition agreements, the sellers contractually agreed to indemnify the Company for certain amounts that may become payable, including for taxes that relate to periods prior to the date of acquisition. Accordingly, the Company recorded indemnification assets and corresponding estimated accrued tax liabilities, at fair value, for a total of $2,733 as of the dates of the acquisitions. Additional subsequent changes in the amounts recognized for the indemnification assets may occur in relation to the provision for the corresponding tax liabilities, according to changes in the range of outcomes or the assumptions used to develop the estimates of the liabilities at the time of the acquisition.
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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) | |
(2) The licenses acquired have indefinite useful lives. The customer relationships have a useful life of 15 years and the tradenames have a useful life of 5 years.
(3) These amounts include certain measurement period adjustments made during the fourth quarter of 2021, and the adjustments were as follows: (i) a decrease in total assets acquired of $12,020; (ii) a decrease in total liabilities assumed of $5,248, (iii) a decrease in total net assets acquired of $6,772, (iv) an increase in goodwill of $6,405, and (v) a decrease in fair value of consideration of $367.
(4) The amounts for the Nature’s Remedy and Total columns reflect the revised amounts in connection with the correction of errors disclosed in Correction of Errors in Previously Issued Financial Statements in Note 2 - Basis of Presentation and Summary of Significant Accounting Policies. Specifically, intangible assets - license increased by $10,000, goodwill decreased by $7,092, and deferred tax liabilities increased by $2,908.
2021 Business Combinations
Nature’s Remedy
On September 10, 2021, the Company acquired 100% of the equity of Nature’s Remedy of Massachusetts, Inc. and certain of its affiliates (collectively, “Nature’s Remedy”), for upfront consideration comprised of cash, net of working capital adjustments, 8,700,000 SVS (with a grant date fair value of $4.10 each), an $11,500 unsecured three-year note and a $5,000 unsecured five-year note.
Nature’s Remedy is a vertically integrated single state operator in Massachusetts and currently operates two retail dispensaries, in Millbury, Massachusetts and Tyngsborough, Massachusetts, and a 50,000 sq. ft. cultivation and production facility in Lakeville, Massachusetts. The goodwill is not tax deductible.
The Company also agreed to issue a $5,000 increase to the principal balance of the three-year note and up to an additional $5,000 in Company SVS upon the occurrence or non-occurrence of certain events after the closing date. The payment of the contingent consideration depends on whether or not a competitor opens a competing dispensary within a certain radius of the Company’s dispensary in the Town of Tyngsborough, Massachusetts during the first 12 months following the acquisition (The “First Milestone Period”) or during the 18 months following the end of the First Milestone Period. As of the date of acquisition, the Company recognized a contingent consideration liability of $8,223, a Level 3 measurement amount, which was based on the weighted-average probability of the potential outcomes. The estimated range of such additional consideration is between $0 and $10,800 (which also includes the interest on the additional principal for the three-year note). Contingent consideration is measured at its acquisition-date fair value and included as part of the consideration transferred for the business combination. Contingent consideration that is classified as a liability is remeasured at subsequent reporting dates with the corresponding gain or loss being recognized in Other, net in the consolidated statements of operations and comprehensive income (loss).
In September 2022, the First Milestone Period was achieved, and therefore the three-year note was amended for an additional face value of $5,000 (discounted value of $4,708) to partially settle the contingent consideration liability. As of September 30, 2022, the remaining contingent consideration liability of $4,671 relates to the 18 months following the end of the First Milestone Period. The Company utilized the cash flows associated with the weighted-average probability of the potential outcomes to determine the potential cash outflows that are short-term vs. long-term. As a result, as of September 30, 2022, the Company classified $3,253 as a short-term contingent consideration liability and $1,418 as a long-term contingent consideration liability.
OSD
On April 30, 2021, the Company acquired 100% of the equity of Organic Solutions of the Desert, LLC (“OSD”), an operating dispensary located in Palm Springs, California, for consideration comprised of cash, as adjusted for working capital adjustments, and $3,100 principal amount of promissory notes. Refer to “Promissory Notes Payable” in Note 10 - Debt for details on the seller notes. The goodwill is not tax deductible.
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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) | |
2021 Asset Acquisitions
The Company determined that the OhiGrow and Grover Beach (each as defined below) acquisitions described below did not qualify as business combinations because, for OhiGrow, the assets acquired did not constitute a business, and for Grover Beach, under the concentration test, substantially all of the fair value of the acquisition is concentrated in a single identifiable asset – the license.
OhiGrow
In July 2021, the Company acquired OhiGrow, LLC, a licensed cultivator in Ohio, and Ohio Green Grow LLC (collectively, “OhiGrow”), inclusive of an approximately 10,000 sq. ft. facility and 1.35 acres of land for $4,949 in cash.
Grover Beach
On March 4, 2021, the Company closed on the acquisition of approximately 78% of the equity of a retail license holder located in Grover Beach, California (“Grover Beach”) for $3,592 in cash, as adjusted for working capital adjustments, and 49,348 SVS at a fair value of $7.46 per share, with the rights to acquire the remaining equity for one dollar in the future. On September 9, 2022, the Company exercised its rights to acquire the remaining 22%.
Business Combinations Acquisition Results and Unaudited Supplemental Pro Forma Financial Information
The following table summarizes consolidated pro forma revenue and consolidated pro forma net income (loss) as if the business combinations had occurred at the beginning of the year prior to their actual acquisition for the periods presented:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2022 | | 2021 | | 2022 | | 2021 |
Revenue | $ | 72,817 | | | $ | 73,595 | | | $ | 217,126 | | | $ | 207,538 | |
Net income (loss) | $ | (53,982) | | | $ | 41,085 | | | $ | (57,386) | | | $ | 7,973 | |
These unaudited pro forma financial results do not purport to be indicative of the actual results that would have been achieved by the combined companies for the years indicated, or of the results that may be achieved by the combined companies in the future. These amounts have been calculated using actual results and adding pre-acquisition results, after adjusting for: acquisition costs, additional depreciation and amortization from acquired property, plant and equipment and intangible assets, as well as adjustments for incremental interest expense relating to consideration paid, and changes to conform to the Company’s accounting policies.
The results of the 2022 and 2021 acquisitions are included in the Company’s results since their respective acquisition dates. For the three and nine months ended September 30, 2022, in the aggregate, the 2022 acquisitions contributed revenues of $9,478 and $19,042, respectively, and net loss of $1,018 and $1,829, respectively, to the Company’s consolidated results. For the three and nine months ended September 30, 2021, in the aggregate, the 2021 acquisitions contributed revenues of $3,127 and $3,619, respectively, and net loss of $400 and $459, respectively, to the Company’s consolidated results.
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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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8. GOODWILL AND OTHER INTANGIBLE ASSETS |
| | | | | | | | | | | |
Carrying amount as of | Goodwill | | Other intangible assets |
Cost | | | |
Balance at December 31, 2021 (1) | $ | 45,828 | | | $ | 197,502 | |
Additions from acquisitions | 35,734 | | | 25,640 | |
Impairment | — | | | (37,600) | |
Balance at September 30, 2022 | $ | 81,562 | | | $ | 185,542 | |
| | | |
Accumulated amortization | | | |
January 1, 2022 | $ | — | | | $ | (5,036) | |
Amortization | — | | | (2,283) | |
Balance at September 30, 2022 | $ | — | | | $ | (7,319) | |
| | | |
Net book value | | | |
Balance at December 31, 2021 (1) | $ | 45,828 | | | $ | 192,466 | |
Balance at September 30, 2022 | $ | 81,562 | | | $ | 178,223 | |
(1)For additional information, see Correction of Errors in Previously Issued Financial Statements in Note 2 - Basis of Presentation and Summary of Significant Accounting Policies.
Indefinite-lived asset impairment
In September 2022, the Company determined that the lower than expected operating results of its Massachusetts operations primarily driven by significant price compression in the state was an indicator of impairment. The Company utilized a combination of the income approach (discounted cash flow method) and market approach (a combination of the guideline transactions method and guideline company method) for its impairment test, and as a result, recorded a business licenses impairment charge of $37,600 and determined goodwill was not impaired. The key inputs and assumptions used in the fair valuation of Massachusetts include: (i) a five-year cash flow forecast, which is based on the Company’s actual operating results and its forecast; (ii) a perpetual growth rate of 3%; and (iii) an estimated weighted average cost of capital of 19.5% in relation to goodwill, and an estimated discount rate of 20.5% in relation to business licenses.
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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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9. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES |
The components of accrued expenses and other current liabilities are as follows:
| | | | | | | | | | | | | |
| September 30, 2022 (unaudited) | | December 31, 2021 | | |
Accrued capital expenditures | $ | 13,381 | | | $ | 17,599 | | | |
Goods received not invoiced | 6,887 | | | 8,007 | | | |
Accrued employee related expenses and liabilities | 6,728 | | | 6,062 | | | |
Accrued professional and management fees | 1,034 | | | 5,139 | | | |
Accrued sales and excise taxes | 1,562 | | | 2,535 | | | |
Accrued interest | 2,363 | | | 1,181 | | | |
Deferred revenue (loyalty program) | 1,873 | | | 1,427 | | | |
Operating lease obligations - current portion | 2,661 | | | 2,745 | | | |
Contingent consideration liabilities - current portion(1) | 3,253 | | | — | | | |
Other accrued expenses and current liabilities | 4,360 | | | 3,277 | | | |
Total | $ | 44,102 | | | $ | 47,972 | | | |
(1)Refer to Note 7 - Acquisitions.
The components of the Company’s debt are as follows:
| | | | | | | | | | | | | | | | | |
| Effective Interest Rate | Maturity Date | September 30, 2022 | | December 31, 2021 |
Principal amounts: | | | | | |
Senior Notes | 38% | January 2023 | $ | 74,935 | | | $ | 75,193 | |
Acquisition Facility | 14% | October 2026 | 65,000 | | | 40,000 | |
Acquisition-related promissory notes payable | 8% - 23% | November 2022 - April 2027 | 59,628 | | | 25,767 | |
Other debt (1) | 7% - 12% | March 2022 - July 2050 | 16,639 | | | 11,728 | |
Total debt - principal amounts | | | $ | 216,202 | | | $ | 152,688 | |
Less: debt issuance costs and original issue discounts | | | (16,303) | | | (23,536) | |
Total debt - carrying amounts | | | $ | 199,899 | | | $ | 129,152 | |
Debt - current portion | | | $ | 137,967 | | | $ | 6,181 | |
Debt - non-current portion | | | $ | 61,932 | | | $ | 122,971 | |
(1) Includes Jushi Europe debt. Refer to Note 16 - Non-Controlling Interests.
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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) | |
As of September 30, 2022, aggregate future contractual maturities of the Company’s debt are as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| Remainder of the year | 2023 | 2024 | 2025 | 2026 | Thereafter | Total |
Senior Notes | $ | — | | $ | 74,935 | | $ | — | | $ | — | | $ | — | | $ | — | | $ | 74,935 | |
Acquisition Facility | — | | — | | 4,875 | | 6,500 | | 53,625 | | — | | 65,000 | |
Acquisition-related promissory notes payable (1) | 2,411 | | 3,449 | | 22,385 | | 1,970 | | 6,971 | | 22,442 | | 59,628 | |
Other debt | 3,831 | | 588 | | 116 | | 125 | | 132 | | 11,847 | | 16,639 | |
Total | $ | 6,242 | | $ | 78,972 | | $ | 27,376 | | $ | 8,595 | | $ | 60,728 | | $ | 34,289 | | $ | 216,202 | |
(1) The Promissory Note that matures in 2022 is a mandatorily convertible note, and the Company issued 910,000 SVS on November 21, 2022 to settle the outstanding balance.
Interest expense, net is comprised of the following:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2022 | | 2021 | | 2022 | | 2021 |
Interest and accretion - Senior Notes | $ | 6,779 | | | $ | 4,673 | | | $ | 18,015 | | | $ | 14,244 | |
Interest - Finance lease liabilities | 2,754 | | | 2,516 | | | 8,668 | | | 6,203 | |
Interest and accretion - Promissory notes | 1,709 | | | 418 | | | 3,794 | | | 1,033 | |
Interest and accretion - Acquisition Facility | 1,918 | | | — | | | 5,212 | | | — | |
Interest and accretion - Other debt | 266 | | | 117 | | | 885 | | | 370 | |
Capitalized interest | (124) | | | (222) | | | (2,171) | | | (461) | |
Total interest expense | $ | 13,302 | | | $ | 7,502 | | | $ | 34,403 | | | $ | 21,389 | |
Interest income | (191) | | | (60) | | | (229) | | | (244) | |
Total interest expense, net | $ | 13,111 | | | $ | 7,442 | | | $ | 34,174 | | | $ | 21,145 | |
Other Debt
PAMS Sale-leaseback Transactions
During 2021, the Company acquired land and buildings that are adjacent to the Company’s Pennsylvania Medical Solutions, LLC (“PAMS”) cultivation facility in order to expand the facility. In February 2022, the Company then closed on the sale of such land and buildings for $3,265 to the landlord of the Company’s cultivation facility. Also, in February 2022, the Company entered into a sale-leaseback agreement with the landlord. The Company concluded that control, including the significant risks and rewards of ownership, did not transfer to the buyer-lessor at the inception of the sale-leaseback transaction. Accordingly, the transaction did not meet the accounting criteria for a successful sale-leaseback transaction and therefore represents a financing obligation with a lease term ending in April 2048. As a result, the Company recognized a liability of $3,265, which will be amortized as a reduction of rental expense over the term of the failed lease using an incremental borrowing rate of 11.6%.
Dickson Facility
In July 2022, the Company entered into a $2,800 credit facility with a bank to fund the construction of a dispensary in Dickson City, Pennsylvania. As of September 30, 2022, the Company had drawn down $1,050, and during October 2022, the Company drew down the remaining balance of $1,750. This credit facility, which matures on July 18, 2027, bear interest at a variable rate equal to prime rate plus 2%. The interest rate as of September 30, 2022 was 7.5%.
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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) | |
Unsecured Promissory Notes
Apothecarium
In March 2022, in connection with the Apothecarium acquisition, the Company issued to the seller two unsecured promissory notes with a total principal amount of $9,853, with no stated interest and both maturing in March 2027. The promissory notes provide for a principal payment of $3,448 on the 21st month anniversary, followed by 39 equal monthly payments for the remaining balance.
NuLeaf
In April 2022, in connection with the NuLeaf acquisition, the Company issued to the seller unsecured promissory notes with an aggregate total principal amount of $15,750 with a stated interest rate of 8% and maturity date in April 2027. The promissory notes provide for a full principal payment on the maturity date. Additionally, in July 2022, the Company amended the five-year note for an additional principal amount of $3,000 to settle the contingent consideration associated with the acquisition. There were no changes to the interest rate and maturity date of the five-year note at such time.
Nature’s Remedy
In September 2022, the Company amended the three-year note for an additional principal amount of $5,000 in settlement of a contingent consideration liability for the First Milestone Period in connection with the September 2021 acquisition of Nature’s Remedy. Refer to Note 7 - Acquisitions for more information.
Amendments to the Acquisition Facility
In April 2022, the Company entered into an amendment to the Acquisition Facility pursuant to which: (i) the commencement of leverage testing was pushed back by four quarters (now beginning March 31, 2023 as reflected in the table below), (ii) certain leverage ratios were revised; and (iii) the Company may proceed with a reorganization pursuant to a petition for bankruptcy in Switzerland with respect to Jushi Europe without potentially defaulting under the Acquisition Facility. Refer to Note 16 - Non-Controlling Interests for additional information on Jushi Europe.
Total Leverage Ratio, calculated as the ratio of Total Funded Indebtedness to EBITDAR (all such terms are defined in the Acquisition Facility agreement) not to exceed the correlative ratio below:
| | | | | |
Applicable Ratio | Fiscal Quarter Ending |
6.00 to 1.00 | March 31, 2023 |
5.00 to 1.00 | June 30, 2023 |
4.00 to 1.00 | September 30 and December 31, 2023 |
3.50 to 1.00 | March 31, 2024 and all fiscal quarters ending thereafter |
Additionally, in April 2022, the Company drew down $25,000 from the Acquisition Facility to fund the cash portions of the NuLeaf and Apothecarium acquisitions.
As part of the refinancing of the Senior Notes, the Company is currently renegotiating the terms of the financial covenants under the Acquisition Facility, including the removal of the Total Leverage Ratio requirement. The Company expects to complete the renegotiations by the end of 2022.
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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) | |
The Company leases certain business facilities for corporate, retail and cultivation operations from third parties under lease agreements that specify minimum rentals. In addition, the Company leases certain equipment for use in cultivation and extraction activities. The Company determines whether a contract is or contains a lease at the inception of the contract. The expiry dates of the leases, including reasonably certain estimated renewal periods, are between 2023 and 2052. The Company’s lease agreements do not contain any material residual value guarantees or material restrictive covenants.
The following table provides the components of lease cost recognized in the consolidated statements of operations and comprehensive income (loss) for the periods presented.
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2022 | | 2021 | | 2022 | | 2021 |
Operating lease cost | $ | 898 | | | $ | 783 | | | $ | 2,698 | | | $ | 1,739 | |
Finance lease cost: | | | | | | | |
Amortization of lease assets | 1,532 | | | 999 | | | 3,935 | | | 2,075 | |
Interest on lease liabilities | 2,754 | | | 2,516 | | | 8,668 | | | 6,203 | |
Total finance lease cost | $ | 4,286 | | | $ | 3,515 | | | $ | 12,603 | | | $ | 8,278 | |
Variable lease cost | $ | 99 | | | $ | 89 | | | $ | 281 | | | $ | 247 | |
Total lease cost | $ | 5,283 | | | $ | 4,387 | | | $ | 15,582 | | | $ | 10,264 | |
| | | | | | | |
| | | | | | | |
Other information related to operating and finance leases as of the balance sheet dates presented are as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| September 30, 2022 | | December 31, 2021 |
| (unaudited) | |
| Finance Leases | | Operating Leases | | Finance Leases | | Operating Leases |
Weighted average discount rate | 11.23 | % | | 11.70 | % | | 11.75 | % | | 11.50 | % |
Weighted average remaining lease term (in years) | 22.7 | | 14.1 | | 22.6 | | 14.6 |
| | | | | | | |
The maturities of the contractual undiscounted lease liabilities as of September 30, 2022 are as follows:
| | | | | | | | | | | |
| Finance Leases | | Operating Leases |
Remainder of the year | $ | 2,564 | | | $ | 597 | |
2023 | 13,454 | | | 3,194 | |
2024 | 12,037 | | | 2,938 | |
2025 | 12,377 | | | 2,741 | |
2026 | 12,466 | | | 2,517 | |
Thereafter | 289,487 | | | 29,080 | |
| $ | 342,385 | | | $ | 41,067 | |
Interest on lease liabilities | (231,561) | | | (22,769) | |
Total present value of minimum lease payments | $ | 110,824 | | | $ | 18,298 | |
Lease liabilities - current portion | $ | 12,735 | | | $ | 2,661 | |
Lease liabilities - non-current | $ | 98,089 | | | $ | 15,637 | |
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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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12. DERIVATIVE LIABILITIES |
The continuities of the Company’s derivative liabilities are as follows:
| | | | | | | | | | | | |
| | | | | | Total Derivative Liabilities (1)(3) |
Carrying amounts as of January 1, 2022 | | | | | | $ | 92,435 | |
Fair value changes (2) | | | | | | (63,233) | |
Derivative Warrants exercises | | | | | | (9,401) | |
Carrying amounts as of September 30, 2022 | | | | | | $ | 19,801 | |
(1)Refer to Note 13 - Equity for the continuity of the number of these warrants outstanding.
(2)Included in other income (expense), net in the consolidated statements of operations and comprehensive income (loss).
(3)Includes mandatory prepayment option on the Senior Notes, which had a fair value of $218 as of September 30, 2022.
The Company’s derivative liabilities are primarily comprised of derivative warrants. These are warrants to purchase SVS of the Company which were issued in connection with the Senior Notes (the “Derivative Warrants”), and have an expiration date of December 23, 2024 and an exercise price of US$1.25. There were 36,496,355 and 40,124,355 Derivative Warrants outstanding as of September 30, 2022 and December 31, 2021, respectively. The Derivative Warrants may be net share settled.
These warrants are considered derivative financial liabilities measured at fair value with all gains or losses recognized in profit or loss as the settlement amount for the warrants may be adjusted during certain periods for variables that are not inputs to standard pricing models for forward or option equity contracts, i.e., the “fixed for fixed” criteria under ASC 815-40. The estimated fair value of the Derivative Warrants is measured at the end of each reporting period and an adjustment is reflected in fair value changes in derivatives in the consolidated statements of operations and comprehensive income (loss). These are Level 3 recurring fair value measurements. The estimated fair value of the Derivative Warrants was determined using the Black-Scholes model with stock price based on the CSE closing price translated into U.S. dollar as of September 30, 2022, and Monte Carlo simulation model with stock price based on the OTCQX Best Market closing price as of December 31, 2021. The assumptions used in the fair value calculations as of the balance sheet dates presented include the following:
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| September 30, 2022 (unaudited) | | December 31, 2021 |
Stock price | $1.23 | | $3.25 |
Risk-free annual interest rate | 4.23% | | 0.97% |
Range of estimated possible exercise price | $1.25 | | $0.04 - $1.25 |
Volatility | 72% | | 73% |
Remaining life | 2.23 years | | 3 years |
Forfeiture rate | 0% | | 0% |
Expected annual dividend yield | 0% | | 0% |
Volatility was estimated by using a weighting of the Company’s historical volatility and the average historical volatility of comparable companies from a representative peer group of publicly traded cannabis companies. The risk-free interest rate for the expected life of the Derivative Warrants was based on the yield available on government benchmark bonds with an approximate equivalent remaining term. The expected life is based on the contractual term. If any of the assumptions used in the calculation were to increase or decrease, this could result in a material or significant increase or decrease in the estimated fair value of the derivative liability. For example, the following table illustrates an increase or decrease in certain significant assumptions as of the balance sheet dates:
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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) | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| As of September 30, 2022 | | As of December 31, 2021 |
| (unaudited) | |
| Input | | Effect of 10% Increase | | Effect of 10% Decrease | | Input | | Effect of 10% Increase | | Effect of 10% Decrease |
Stock price | $ | 1.23 | | $ | 3,281 | | | $ | (3,144) | | | $ | 3.25 | | $ | 12,781 | | | $ | (10,834) | |
Volatility | 72 | % | | $ | 1,547 | | | $ | (1,591) | | | 73 | % | | $ | 4,473 | | | $ | (3,210) | |
Authorized, Issued and Outstanding
The authorized share capital of the Company consists of an unlimited number of Preferred Shares, SVS, Multiple Voting Shares, and Super Voting Shares. As of September 30, 2022, the Company had 195,769,605 SVS issued and outstanding and no Preferred Shares, Multiple Voting Shares, or Super Voting Shares issued and outstanding. On August 9, 2021, all of the 149,000 previously issued and outstanding Super Voting Shares and all of the 4,000,000 previously outstanding Multiple Voting Shares were converted into SVS in accordance with their terms as described in Jushi Holdings Inc.’s Articles of Incorporation. All previously outstanding warrants to acquire Super Voting Shares and Multiple Voting Shares were also converted into warrants to acquire SVS, without any other amendment to the terms of such warrants.
Private Placements
In January 2022, the Company closed non-brokered private placement offerings for an aggregate 3,717,392 SVS at a price of $3.68 per share to an existing investor group for aggregate gross proceeds to the Company of $13,680.
Restricted Stock and Stock Options
Refer to Note 14 - Share-Based Compensation and Other Benefits for details of restricted stock awards and stock option grants.
Other Equity
Refer to Note 10 - Debt for details of a convertible promissory note classified as equity.
Warrants
Each warrant entitles the holder to purchase one SVS. The following table summarizes all warrants outstanding as of September 30, 2022:
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Expiration Date | | Exercise Price ($) | | Number of Warrants |
2023 | | 1.47 - 1.50 | | 337,500 |
2024 | | 1.25 | | 35,862,922 |
2025 | | 1.25 - 3.00 | | 2,168,508 |
2026 | | 4.18 | | 300,000 |
2027 | | 1.93 | | 300,000 |
2029 | | 0.50 - 2.00 | | 26,367,627 |
Total warrants | | | | 65,336,557 |
As of September 30, 2022, warrants issued and outstanding have a weighted-average remaining contractual life of 4.0 years, and unrecognized share-based compensation expense of $892. Certain warrants may be net share settled.
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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) | |
The following table summarizes the status of warrants and related transactions:
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| Non-Derivative Warrants | | | | | | Derivative Warrants (2) | | Total Number of Warrants | | Weighted - Average Exercise Price |
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Balance as of January 1, 2022 | 29,156,048 | | | | | | 40,124,355 | | 69,280,403 | | $ | 1.19 | |
Granted | 400,000 | | | | | | | — | | | 400,000 | | | $ | 2.20 | |
Exercised (1) | (715,846) | | | | | | | (3,628,000) | | | (4,343,846) | | | $ | 1.26 | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
Balance as of September 30, 2022 | 28,840,202 | | | | | | 36,496,355 | | 65,336,557 | | $ | 1.19 | |
Exercisable as of September 30, 2022 | 26,940,202 | | | | | | 36,496,355 | | 63,436,557 | | $ | 1.15 | |
(1)The weighted average share price as of the dates of exercise was $3.51. The Company issued 3,176,601 SVS and received $1,179 in cash proceeds during the nine months ended September 30, 2022 for warrants exercised.
(2)Derivative warrants which were issued to the Senior Notes holders and which have an exercise price of $1.25. These warrants represent a derivative liability and are therefore not classified as equity in the statement of financial position. Refer to Note 12 - Derivative Liabilities.
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14. SHARE-BASED COMPENSATION AND OTHER BENEFITS |
The components of share-based compensation expense are as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2022 | | 2021 | | 2022 | | 2021 |
Stock options | $ | 4,569 | | | $ | 1,093 | | | $ | 14,369 | | | $ | 2,791 | |
Restricted stock | 347 | | | 1,015 | | | 1,625 | | | 5,258 | |
Warrants | 550 | | | 126 | | | 1,120 | | 932 |
Total share-based compensation expense | $ | 5,466 | | | $ | 2,234 | | | $ | 17,114 | | | $ | 8,981 | |
Equity Incentive Plan
Under the Company’s 2019 Equity Incentive Plan, as amended (the “Plan”), non-transferable options to purchase SVS and restricted SVS of the Company may be issued to directors, officers, employees, or consultants of the Company. The Plan authorizes the issuance of up to 15% (plus an additional 2% inducements for hiring employees and senior management) of the number of outstanding shares of common stock (of all classes) of the Company (the “Share Reserve”). Incentive stock options are limited to the Share Reserve as of June 6, 2019. As of September 30, 2022, the maximum number of incentive awards available for issuance under the Plan, including additional awards available for certain new hires, was 3.8 million.
(a)Stock Options
The stock options issued by the Company are options to purchase SVS of the Company. All stock options issued have been issued to employees of certain subsidiaries of the Company under the Plan. Such options generally expire in ten years from the date of grant and generally vest ratably over three years from the grant date. The options generally may be net share settled.
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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) | |
The following table summarizes the status of stock options and related transactions:
| | | | | | | | | | | | | | |
| Number of Stock Options | | Weighted-Average Per Share Exercise Price | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
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Issued and Outstanding as of January 1, 2022 | 20,429,120 | | | $ | 3.20 | | | | |
Granted (1) | 10,311,000 | | | $ | 2.01 | | | | |
Exercised (2) | (274,998) | | | $ | 1.66 | | | | |
Forfeited/expired/cancelled | (2,037,002) | | | $ | 4.58 | | | | |
Issued and Outstanding as of September 30, 2022 | 28,428,120 | | | $ | 2.68 | | | | |
Exercisable as of September 30, 2022 | 11,863,260 | | | $ | 2.44 | | | | |
(1)The weighted-average per share grant date fair value was $1.44.
(2)The weighted-average share price at the date of exercise was $3.84.
The following table summarizes the issued and outstanding stock options as of September 30, 2022: | | | | | | | | | | | | | | | | | | | | |
Expiration Year | | Stock Options Outstanding | | Exercise Price | | Stock Options Exercisable |
2022 | | 50,000 | | $1.35 - $2.00 | | 50,000 |
2028 | | 685,000 | | $1.00 - $1.35 | | 685,000 |
2029 | | 6,849,668 | | $1.26 - $2.75 | | 6,689,665 |
2030 | | 792,500 | | $0.91 - $3.98 | | 426,660 |
2031 | | 9,809,952 | | $3.70 - $6.53 | | 2,837,941 |
2032 | | 10,241,000 | | | $1.60 - $4.20 | | 1,173,994 | |
| | 28,428,120 | | | | 11,863,260 |
As of September 30, 2022, stock options outstanding have a weighted-average remaining contractual life of 8.61 years, and unrecognized share-based compensation expense of $20,399.
In determining the amount of share-based compensation expense related to stock options issued, the Company used the Black-Scholes option-pricing model to establish the measurement date fair value of stock options granted during the period. The following assumptions were applied at the time of grant:
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| Nine Months Ended September 30, | |
| 2022 | | 2021 | |
| | | | |
Risk-free annual interest rate | 0.45% - 3.24% | | 0.45% - 1.25% | |
Expected annual dividend yield | 0% | | 0% | |
Volatility | 72.3% - 78.5% | | 74.0% - 78.5% | |
Expected life of stock options | 5.0 - 7.5 years | | 5 - 7.48 years | |
Forfeiture rate | 0% | | 0% | |
Volatility was estimated by using a weighting of the Company’s historical volatility and the average historical volatility of comparable companies from a representative peer group of publicly traded cannabis companies. The expected life in years represents the period of time that stock options issued are expected to be outstanding, using the simplified method. The simplified method represents the Company’s best estimate of the expected term of the options, given the Company’s limited history available. The risk-free rate is based on U.S. Treasury bills with a remaining term equal to the expected life of the options. The Company does not anticipate paying dividends in the foreseeable future, and as a result, the expected annual dividend yield is expected to be 0%.
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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) | |
(b)Restricted Stock Grants
The Company grants restricted SVS to independent directors, management, former owners of acquired businesses or assets, and to consultants and other employees. The restricted SVS are included in the issued and outstanding SVS. The following table summarizes the status of restricted stock and related transactions:
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| Number of Restricted Subordinate Voting Shares |
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