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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
________________________________
FORM 10-Q
________________________________
(Mark One)
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the quarterly period ended September 30, 2023
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 7, 2023, the registrant had 196,631,598 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, 2023
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q (this “report”) 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 report that address activities, events or developments that Jushi expects or anticipates 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 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 reduction in the number of our employees, 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 is not based on historical facts but instead is based on reasonable assumptions and estimates of the management of Jushi at the time they were provided or made and such information involves known and unknown risks, uncertainties, including our ability to continue as a going concern, 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. Such factors include, among others: 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 related to inflation, the rising cost of capital, and stock market instability; risks relating to pandemics and forces of nature; 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; risks relating to the Company’s recent debt financing and other financing activities including increased leverage and issuing additional equity securities; risks relating to the management of growth; costs associated with Jushi being a publicly-traded company and a U.S. and Canadian filer; increasing competition in the industry; risks associated with 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; 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 enforcing judgments and effecting service outside of Canada; risks related to completed, pending or future acquisitions or dispositions, including potential future impairment of goodwill or intangibles acquired and/or post-closing disputes; sales of a significant amount of shares by existing shareholders; the limited market for securities of the Company; risks related to the continued performance of existing operations in California, Illinois, Massachusetts, Nevada, Ohio, Pennsylvania, and Virginia; risks related to the anticipated openings of additional dispensaries or relocation of existing dispensaries; 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; risks related to opening new facilities, which is subject to licensing approval; limited research and data relating to cannabis; risks related to challenges from governmental authorities of positions the Company has taken with respect to tax credits; and risks related to the Company’s critical accounting policies and estimates. Refer to Part I - Item 1A. Risk Factors in Jushi’s Annual Report on Form 10-K filed with the U.S. Securities and Exchange Commission on April 18, 2023 for more information.
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 will prove to be accurate as actual results and future events could differ materially from those anticipated in such information. Accordingly, readers should not place undue reliance on the forward‐looking information contained in this report or other forward-looking statements made by Jushi. Forward‐looking information is 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.
Unless the context requires otherwise, references in this report to “Jushi,” “Company,” “we,” “us” and “our” refer to Jushi Holdings Inc. and our subsidiaries.
PART I - FINANCIAL INFORMATION
1Item 1. Financial Statements
JUSHI HOLDINGS INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands of U.S. dollars, except share amounts)
| | | | | | | | | | | | | |
| September 30, 2023 (unaudited) | | December 31, 2022 | | |
ASSETS | | | | | |
CURRENT ASSETS: | | | | | |
Cash and cash equivalents | $ | 25,011 | | | $ | 26,196 | | | |
Restricted cash - current | 3,308 | | | — | | | |
Accounts receivable, net | 6,063 | | | 4,809 | | | |
Inventory, net | 37,699 | | | 35,089 | | | |
Prepaid expenses and other current assets | 16,178 | | | 3,957 | | | |
Total current assets | 88,259 | | | 70,051 | | | |
NON-CURRENT ASSETS: | | | | | |
Property, plant and equipment, net | 163,681 | | | 177,755 | | | |
Right-of-use assets - finance leases | 64,492 | | | 114,021 | | | |
Other intangible assets, net | 97,621 | | | 100,082 | | | |
Goodwill | 38,239 | | | 38,239 | | | |
Other assets | 34,231 | | | 28,243 | | | |
Restricted cash - non-current | 2,150 | | | 950 | | | |
Total non-current assets | 400,414 | | | 459,290 | | | |
Total assets | $ | 488,673 | | | $ | 529,341 | | | |
| | | | | |
LIABILITIES AND EQUITY | | | | | |
CURRENT LIABILITIES: | | | | | |
Accounts payable | $ | 20,359 | | | $ | 21,313 | | | |
Accrued expenses and other current liabilities | 47,407 | | | 46,329 | | | |
Income tax payable | 4,134 | | | 19,921 | | | |
Debt, net - current portion (including related party principal amounts of $3,162 and $3,189 as of September 30, 2023 and December 31, 2022, respectively) | 35,620 | | | 8,704 | | | |
Finance lease obligations - current | 8,740 | | | 11,361 | | | |
Total current liabilities | 116,260 | | | 107,628 | | | |
NON-CURRENT LIABILITIES: | | | | | |
Debt, net - non-current (including related party principal amounts of $18,283 and $17,491 as of September 30, 2023 and December 31, 2022, respectively) | 176,471 | | | 180,558 | | | |
Finance lease obligations - non-current | 52,899 | | | 102,375 | | | |
Derivative liabilities | 10,567 | | | 14,134 | | | |
Unrecognized tax benefits | 98,948 | | | 57,200 | | | |
Other liabilities - non-current | 25,696 | | | 21,555 | | | |
Total non-current liabilities | 364,581 | | | 375,822 | | | |
Total liabilities | 480,841 | | | 483,450 | | | |
COMMITMENTS AND CONTINGENCIES (Note 18) | | | | | |
EQUITY: | | | | | |
Common stock, no par value: authorized shares - unlimited; issued and outstanding shares - 196,631,598 and 196,686,372 Subordinate Voting Shares as of September 30, 2023 and December 31, 2022, respectively. | — | | | — | | | |
Paid-in capital | 501,059 | | | 492,020 | | | |
Accumulated deficit | (491,840) | | | (444,742) | | | |
Total Jushi shareholders' equity | 9,219 | | | 47,278 | | | |
Non-controlling interests | (1,387) | | | (1,387) | | | |
Total equity | 7,832 | | | 45,891 | | | |
Total liabilities and equity | $ | 488,673 | | | $ | 529,341 | | | |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
JUSHI HOLDINGS INC.
UNAUDITED 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, |
| 2023 | | 2022 | | 2023 | | 2022 |
REVENUE, NET | $ | 65,377 | | | $ | 72,817 | | | $ | 201,675 | | | $ | 207,462 | |
COST OF GOODS SOLD | (36,863) | | | (45,075) | | | (112,666) | | | (133,940) | |
GROSS PROFIT | 28,514 | | | 27,742 | | | 89,009 | | | 73,522 | |
| | | | | | | |
OPERATING EXPENSES | | | | | | | |
Selling, general and administrative | 25,688 | | | 40,590 | | | 85,294 | | | 117,048 | |
Indefinite-lived asset impairment | — | | | 37,600 | | | — | | | 37,600 | |
Total operating expenses | 25,688 | | | 78,190 | | | 85,294 | | | 154,648 | |
| | | | | | | |
INCOME (LOSS) FROM OPERATIONS | 2,826 | | | (50,448) | | | 3,715 | | | (81,126) | |
| | | | | | | |
OTHER INCOME (EXPENSE): | | | | | | | |
Interest expense, net | (9,345) | | | (13,111) | | | (27,655) | | | (34,174) | |
Fair value (loss) gain on derivatives | (7,460) | | | 6,352 | | | 1,660 | | | 63,233 | |
Other, net | 1,368 | | | (291) | | | 1,887 | | | (361) | |
Total other income (expense), net | (15,437) | | | (7,050) | | | (24,108) | | | 28,698 | |
| | | | | | | |
LOSS BEFORE INCOME TAX | (12,611) | | | (57,498) | | | (20,393) | | | (52,428) | |
Income tax (expense) benefit | (8,011) | | | 2,802 | | | (26,705) | | | (9,959) | |
NET LOSS AND COMPREHENSIVE LOSS | (20,622) | | | (54,696) | | | (47,098) | | | (62,387) | |
Less: net loss attributable to non-controlling interests | — | | | — | | | — | | | — | |
NET LOSS AND COMPREHENSIVE LOSS ATTRIBUTABLE TO JUSHI SHAREHOLDERS | $ | (20,622) | | | $ | (54,696) | | | $ | (47,098) | | | $ | (62,387) | |
| | | | | | | |
LOSS PER SHARE ATTRIBUTABLE TO JUSHI SHAREHOLDERS - BASIC | $ | (0.11) | | | $ | (0.28) | | | $ | (0.24) | | | $ | (0.33) | |
Weighted average shares outstanding - basic | 195,128,096 | | | 192,880,468 | | | 194,649,053 | | | 189,119,282 | |
LOSS PER SHARE ATTRIBUTABLE TO JUSHI SHAREHOLDERS - DILUTED | $ | (0.11) | | | $ | (0.30) | | | $ | (0.24) | | | $ | (0.61) | |
Weighted average shares outstanding - diluted | 195,128,096 | | | 203,169,931 | | | 194,649,053 | | | 205,695,590 | |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
JUSHI HOLDINGS INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(In thousands of U.S. dollars, except share amounts)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Nine Months Ended September 30, 2023 |
| | | Paid-In Capital | | Accumulated Deficit | | Total Jushi Shareholders' Equity | | Non-Controlling Interests | | Total Equity |
| Subordinate Voting Shares | | | | | |
Balances - January 1, 2023 | 196,686,372 | | | $ | 492,020 | | | $ | (444,742) | | | $ | 47,278 | | | $ | (1,387) | | | $ | 45,891 | |
Shares canceled upon forfeiture of restricted stock, net of restricted stock grants | (53,001) | | | — | | | — | | | — | | | — | | | — | |
Share-based compensation (including related parties) | — | | | 2,311 | | | — | | | 2,311 | | | — | | | 2,311 | |
Net loss | — | | | — | | | (12,440) | | | (12,440) | | | — | | | (12,440) | |
Balances - March 31, 2023 | 196,633,371 | | | 494,331 | | | (457,182) | | | 37,149 | | | (1,387) | | | 35,762 | |
Modification and reclassification of warrants | — | | | 3,391 | | — | | 3,391 | | — | | 3,391 |
Share-based compensation (including related parties) | — | | | 2,363 | | | — | | | 2,363 | | | — | | | 2,363 | |
Net loss | — | | | — | | | (14,036) | | | (14,036) | | | — | | | (14,036) | |
Balances - June 30, 2023 | 196,633,371 | | | 500,085 | | | (471,218) | | | 28,867 | | | (1,387) | | | 27,480 | |
Shares canceled upon forfeiture of restricted stock, net of restricted stock grants | (1,773) | | | — | | — | | — | | — | | — |
Share-based compensation (including related parties) | — | | | 1,056 | | | — | | | 1,056 | | | — | | | 1,056 | |
Cashless exercise of options | — | | | (282) | | | — | | | (282) | | | — | | | (282) | |
Issuance of warrants | — | | | 200 | | | — | | | 200 | | | — | | | 200 | |
Net loss | — | | | — | | | (20,622) | | | (20,622) | | | — | | | (20,622) | |
Balances - September 30, 2023 | 196,631,598 | | | $ | 501,059 | | | $ | (491,840) | | | $ | 9,219 | | | $ | (1,387) | | | $ | 7,832 | |
JUSHI HOLDINGS INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(In thousands of U.S. dollars, except share amounts)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Nine Months Ended September 30, 2022 |
| | | Paid-In Capital | | Accumulated Deficit | | Total Jushi Shareholders' Equity | | Non-Controlling Interests | | Total Equity |
| | 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 (including related parties) | | — | | | 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 services 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 (including related parties) | | — | | | 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 (including related parties) | | — | | | 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 condensed consolidated financial statements.
JUSHI HOLDINGS INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands of U.S. dollars)
| | | | | | | | | | | |
| Nine Months Ended September 30, |
| 2023 | | 2022 |
CASH FLOWS FROM OPERATING ACTIVITIES: | | | |
Net loss | $ | (47,098) | | | $ | (62,387) | |
Adjustments to reconcile net loss to net cash used in operating activities: | | | |
Depreciation and amortization | 19,780 | | | 15,663 | |
Share-based compensation | 5,730 | | | 17,114 | |
Fair value changes in derivatives | (1,660) | | | (63,233) | |
Non-cash interest expense, including amortization of debt issuance costs | 4,603 | | | 15,599 | |
Deferred income taxes and uncertain tax positions | 19,831 | | | (13,155) | |
| | | |
Indefinite-lived asset impairment | — | | | 37,600 | |
| | | |
Other non-cash items, net | 2,910 | | | 1,890 | |
Changes in operating assets and liabilities: | | | |
Accounts receivable | (1,511) | | | (69) | |
Inventory | (8,080) | | | 8,843 | |
Prepaid expenses and other current and non-current assets | 564 | | | 2,623 | |
| | | |
Accounts payable, accrued expenses and other current liabilities | (2,896) | | | 13,313 | |
Net cash flows used in operating activities | (7,827) | | | (26,199) | |
CASH FLOWS FROM INVESTING ACTIVITIES: | | | |
Payments for acquisitions, net of cash acquired | — | | | (20,892) | |
Payments for settlement of contingent consideration liability | — | | | (3,000) | |
Payments for property, plant and equipment | (8,385) | | | (49,230) | |
Proceeds from sale of property, plant and equipment | 2,321 | | | — | |
Net cash flows used in investing activities | (6,064) | | | (73,122) | |
CASH FLOWS FROM FINANCING ACTIVITIES: | | | |
Proceeds from issuance of shares, net | — | | | 13,680 | |
Proceeds from exercise of warrants and options | — | | | 1,248 | |
Collection of note receivable from employee shareholder | — | | | 450 | |
Proceeds from acquisition facility | — | | | 25,000 | |
Redemption of senior notes (including related party redemptions of $0 and $8 for the nine months ended September 30, 2023 and 2022, respectively) | — | | | (258) | |
Payments on acquisition related credit facility, net | (2,438) | | | — | |
Payments of finance leases, net of tenant allowance of $0 and $10,065 for the nine months ended September 30, 2023 and 2022, respectively | (2,761) | | | (7,948) | |
Proceeds from mortgage loans | 21,900 | | | — | |
| | | |
Payments of loan financing costs | (250) | | | (793) | |
Repayments of mortgage loans | (160) | | | (189) | |
Proceeds from other financing activities | 3,295 | | | 5,233 | |
Payments of other financing activities | (2,372) | | | (343) | |
Net cash flows provided by financing activities | 17,214 | | | 36,080 | |
Effect of currency translation on cash and cash equivalents | — | | | (233) | |
NET CHANGE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH | 3,323 | | | (63,474) | |
CASH, CASH EQUIVALENTS AND RESTRICTED CASH, BEGINNING OF PERIOD | 27,146 | | | 95,487 | |
CASH, CASH EQUIVALENTS AND RESTRICTED CASH, END OF PERIOD | $ | 30,469 | | | $ | 32,013 | |
| | | |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. |
JUSHI HOLDINGS INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(In thousands of U.S. dollars)
| | | | | | | | | | | |
| Nine Months Ended September 30, |
| 2023 | | 2022 |
SUPPLEMENTAL CASH FLOW INFORMATION: | | | |
Cash paid for interest (excluding capitalized interest) | $ | 22,159 | | | $ | 19,793 | |
Cash paid for income taxes | 3,145 | | | 11,205 | |
NON-CASH INVESTING AND FINANCING ACTIVITIES: | | | |
Capital expenditure and related accruals | 1,920 | | | 11,173 | |
Right-of-use assets obtained in exchange for new finance lease liabilities | 1,001 | | | 2,960 | |
| | | |
Issuance of second lien notes for settlement of accrued bonus | 750 | | | — | |
Fair value of note obligations from acquisitions and acquisitions of non-controlling interests | — | | | 19,782 | |
Fair value of shares issued for acquisitions and acquisitions of non-controlling interests | — | | | 15,167 | |
Debt and shares issued for services received | — | | | 702 | |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
| | | | | |
JUSHI HOLDINGS INC. Notes to the Unaudited Condensed Consolidated Financial Statements (Amounts Expressed in Thousands of U.S. dollars, Except Share and Per Share Amounts) | |
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 in both medical and adult-use markets. As of September 30, 2023, Jushi, through its subsidiaries, owns or manages cannabis operations and/or holds licenses in the adult-use and/or medicinal cannabis marketplace in California, Illinois, Massachusetts, Nevada, Ohio, Pennsylvania and Virginia. The Company’s head office is located at 301 Yamato Road, Suite 3250, Boca Raton, Florida 33431, United States of America, 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”.
| | |
2. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
Basis of Presentation and Consolidation
The financial statements have been prepared 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 U.S. Securities and Exchange Commission (“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 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 condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto for the year ended December 31, 2022, which are included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2022, filed with the SEC on April 18, 2023 (the “2022 Form 10-K”), and was also filed on the System for Electronic Document Analysis and Retrieval (“SEDAR”) on April 18, 2023. Consolidated balance sheet information as of December 31, 2022 presented herein is derived from the Company’s audited consolidated financial statements for the year ended December 31, 2022.
Going Concern and Liquidity
As reflected in the 2022 Form 10-K, the Company incurred a loss from operations of $220,333, including non-cash impairment charges of $159,645, and used net cash of $21,416 for operating activities for the year ended December 31, 2022, and as of that date, the Company’s current liabilities exceeded its current assets by $37,577. Furthermore, the Company used cash of $7,827 for operating activities for the nine months ended September 30, 2023, and as of that date, the Company’s current liabilities exceeded its current assets by $28,001. Such current liabilities as of September 30, 2023 include aggregate contractual maturities of $19,662 of debt that is subject to indemnity claims in favor of the Company and not currently expected to be paid in cash within the next twelve months. Refer to Note 9 - Debt for more information. Since inception, management has focused on building a diverse portfolio of assets in attractive markets to vertically integrate its business. As such, the Company has incurred losses as it expanded its operations. Management has put in place plans to increase the profitability of the business in fiscal year 2023 and beyond. In order to achieve profitable future operations, management has commercialized production from its recently expanded grower-processing facilities in
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JUSHI HOLDINGS INC. Notes to the Unaudited Condensed Consolidated Financial Statements (Amounts Expressed in Thousands of U.S. dollars, Except Share and Per Share Amounts) | |
Pennsylvania and Virginia, as well as implemented a cost-savings and efficiency optimization plan which includes, among other things, reduction in labor and packaging costs as well as operating efficiencies at the Company’s retail and grower-processing facilities.
As concluded in the 2022 Form 10-K, substantial doubt existed about the Company’s ability to continue as a going concern, and, as a result of the above, substantial doubt continues to exist within the next twelve months from the date these financial statements are issued. Management intends to fund the Company’s operations, capital expenditures and debt service with existing cash and cash equivalents on hand, cash generated from operations, including anticipated refunds from the Internal Revenue Service (“IRS”) relating to employee retention credit claims, and, as needed, future financing (equity and/or debt) as well as the potential sales of non-core assets. The ability to continue as a going concern is dependent upon profitable future operations and positive cash flows from operations as well as future financing and/or sales of assets if necessary. There is no assurance that the Company will be successful in this or any of its endeavors or become financially viable and continue as a going concern.
The unaudited consolidated financial statements contained herein have been prepared on a going concern basis which assumes the Company will be able to realize its assets and discharge its liabilities in the normal course of business for the foreseeable future, and do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or amounts and classification of liabilities that may result from the outcome of this uncertainty.
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, 2022, which is included in the 2022 Form 10-K. Except as disclosed below, there have been no material changes to the Company’s significant accounting policies.
Cash, Cash Equivalents and Restricted Cash
The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the consolidated balance sheets that sum to the total of the same such amounts shown in the consolidated statements of cash flows:
| | | | | | | | | | | | | | |
| | September 30, 2023 (unaudited) | | December 31, 2022 |
Cash and cash equivalents | | $ | 25,011 | | | $ | 26,196 | |
Restricted cash - current (1) | | 3,308 | | | — | |
Restricted cash - non-current (1) | | 2,150 | | | 950 | |
Cash, cash equivalents and restricted cash | | $ | 30,469 | | | $ | 27,146 | |
(1)Restricted cash primarily relates to the Manassas Mortgage. Refer to Note 9 - Debt for more information.
Reclassification of Prior Year Presentation
Certain prior year amounts in the consolidated statements of cash flows have been reclassified for consistency with the current year presentation. These reclassifications had no effect on the reported amounts of operating, investing and financing activities.
Recent Accounting Pronouncements
Accounting Standards Issued But Not Yet Adopted
In June 2020, the Financial Accounting Standards Board (“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
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JUSHI HOLDINGS INC. Notes to the Unaudited Condensed Consolidated Financial Statements (Amounts Expressed in Thousands of U.S. dollars, Except Share and Per Share Amounts) | |
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.
In March 2023, the FASB issued ASU 2023-01, Leases (Topic 842): Common Control Arrangements. The FASB issued guidance clarifies the accounting for leasehold improvements associated with common control leases, by requiring that leasehold improvements associated with common control leases be amortized by the lessee over the useful life of the leasehold improvements to the common control group (regardless of the lease term) as long as the lessee controls the use of the underlying asset through a lease. Additionally, leasehold improvements associated with common control leases should be accounted for as a transfer between entities under common control through an adjustment to equity if, and when, the lessee no longer controls the use of the underlying asset. The amendments in this ASU are effective for annual and interim periods beginning after December 15, 2023. The Company is in the process of evaluating the impact of this new guidance on its consolidated financial statements.
The components of inventory, net, are as follows:
| | | | | | | | | | | |
| September 30, 2023 (unaudited) | | December 31, 2022 |
Raw materials | | | |
Cannabis plants | $ | 3,482 | | | $ | 4,347 | |
Harvested cannabis and packaging | 10,573 | | | 9,052 | |
Total raw materials | 14,055 | | | 13,399 | |
Work in process | 7,895 | | | 7,845 | |
Finished goods | 15,749 | | | 13,845 | |
Total inventory, net | $ | 37,699 | | | $ | 35,089 | |
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JUSHI HOLDINGS INC. Notes to the Unaudited Condensed Consolidated Financial Statements (Amounts Expressed in Thousands of U.S. dollars, Except Share and Per Share Amounts) | |
| | |
4. PREPAID EXPENSES AND OTHER CURRENT ASSETS |
The components of prepaid expenses and other current assets are as follows:
| | | | | | | | | | | | | |
| September 30, 2023 (unaudited) | | December 31, 2022 | | |
Employee retention credit receivable | $ | 10,140 | | | $ | — | | | |
Prepaid expenses and deposits | 2,631 | | | 3,409 | | | |
Assets held for sale | 2,496 | | | — | | | |
Other current assets | 911 | | | 548 | | | |
Total prepaid expenses and other current assets | $ | 16,178 | | | $ | 3,957 | | | |
Employee retention credit (“ERC”) receivable: The Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”), passed in March 2020 and subsequently amended in 2021, allowed eligible employers to take credits on certain amounts of qualified wages if the Company experienced either a full or partial suspension of operations due to COVID related government orders. During the nine months ended September 30, 2023, the Company, with guidance from a third-party specialist, determined it was entitled to ERC claims of $10,140 for previous business interruptions related to COVID and filed for such claims with the IRS. The ERC claims, which will be recognized in the statements of operations and comprehensive income (loss) when the Company receives the refunds of such claims from the IRS, were recorded as deferred income in Accrued expenses and other current liabilities, with an offsetting receivable amount in Prepaid expenses and other current assets within the consolidated balance sheet as of September 30, 2023.
As of September 30, 2023, the Company determined that one of its grower processor facilities located in Nevada, and land located in Massachusetts with total carrying value of $2,496, met the criteria to be classified as assets held for sale, and therefore were reclassified from Property, plant and equipment, net to Assets held for sale, which is included in Prepaid expenses and other current assets in the consolidated balance sheet. In October 2023, the Company sold the land in Massachusetts for net proceeds of $1,191. The sale of the grower processor facility is expected to be completed within one year of the balance sheet date.
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5. PROPERTY, PLANT AND EQUIPMENT |
The components of property, plant and equipment (“PPE”) are as follows:
| | | | | | | | | | | | | | | |
| September 30, 2023 (unaudited) | | December 31, 2022 | | |
Buildings and building components | $ | 88,636 | | | $ | 80,697 | | | | | |
Land | 12,956 | | | 14,085 | | | | |
Leasehold improvements | 46,858 | | | 43,472 | | | | | |
Machinery and equipment | 27,844 | | | 27,615 | | | | | |
Furniture, fixtures and office equipment (including computer) | 20,825 | | | 16,126 | | | | | |
Construction-in-process | 1,064 | | | 20,086 | | | | | |
Property, plant and equipment, gross | 198,183 | | | 202,081 | | | | | |
Less: Accumulated depreciation | (34,502) | | | (24,326) | | | | | |
Property, plant and equipment, net | $ | 163,681 | | | $ | 177,755 | | | | | |
Construction-in-process represents assets under construction for manufacturing and retail build-outs not yet ready for use.
Depreciation was $3,815 and $4,790 for the three months ended September 30, 2023 and 2022, respectively, and $13,110 and $11,090 for the nine months ended September 30, 2023 and 2022, respectively. Interest expense capitalized to PPE
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JUSHI HOLDINGS INC. Notes to the Unaudited Condensed Consolidated Financial Statements (Amounts Expressed in Thousands of U.S. dollars, Except Share and Per Share Amounts) | |
totaled $54 and $124 for the three months ended September 30, 2023 and 2022, respectively, and $464 and $2,171 for the nine months ended September 30, 2023 and 2022, respectively.
As of September 30, 2023, the Company reclassified $2,496 from Property, plant and equipment, net to Assets held for sale. Refer to Note 4 - Prepaid Expenses and Other Current Assets for additional information.
Nature’s Remedy
In connection with the Company’s acquisition (the “Merger”) of Nature’s Remedy of Massachusetts, Inc. and certain of its affiliates (collectively, “Nature’s Remedy”), in September 2021 the Company agreed to issue up to an additional $5,000 in Company SVS to Sammartino Investments LLC (“Sammartino”) 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 (as defined in the definitive acquisition documents) opens a competing dispensary within a certain radius of the Company’s dispensary in Tyngsborough, Massachusetts during the period beginning on the 12-month anniversary of the closing date and ending on the 30-month anniversary of the closing date (the “Milestone Period”). On each monthly anniversary of the closing date during the Milestone Period (beginning on the 13-month anniversary of the closing date), Sammartino shall accrue $278 worth of Company SVS (a “Monthly Milestone Accrual”). On the 18-month, 24-month and 30-month anniversary of the closing date (and provided a competitor has not opened a competing dispensary within a certain radius of the Company’s dispensary in Tyngsborough, Massachusetts), Sammartino is entitled to be issued Company SVS in an amount equal to $1,667 divided by a volume weighted average reference share price. As of December 31, 2022, the aggregate contingent consideration liability was $4,793, of which $3,398 was included as a short-term contingent consideration liability and $1,395 was included in long-term contingent consideration liability.
In March 2023, the 18-month anniversary of the closing date occurred without a competitor opening a competing dispensary within a certain radius of the Company’s dispensary in Tyngsborough, Massachusetts. Consequently, at September 30, 2023, $3,333 of Monthly Milestone Accrual was classified as other current liabilities while the remaining liability of $1,617 was included in short-term contingent consideration liability.
As discussed in greater detail in Note 18 - Commitments and Contingencies, on February 28, 2023, the Company informed Sammartino that Sammartino had breached several provisions of the Merger and Membership Interest Purchase Agreement between the Company, Sammartino and certain other parties thereto (as amended, the “MIPA”) and pursuant to the terms of the MIPA the Company had elected to offset these damages against (among other things) all present and future Monthly Milestone Accruals (the “Sammartino Matter”).
Purchase Price Allocations for 2022 Business Combinations
The purchase price accounting in connection with the acquisitions of “The Apothecarium” in Las Vegas, Nevada (“Apothecarium”) and NuLeaf Inc., NuLeaf CLV Inc. and their subsidiaries (collectively, “NuLeaf”) in March 2022 and April 2022, respectively, has been finalized as of March 31, 2023.
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JUSHI HOLDINGS INC. Notes to the Unaudited Condensed Consolidated Financial Statements (Amounts Expressed in Thousands of U.S. dollars, Except Share and Per Share Amounts) | |
| | |
7. OTHER NON-CURRENT ASSETS |
The components of other non-current assets are as follows:
| | | | | | | | | | | | |
| September 30, 2023 (unaudited) | | December 31, 2022 | |
Operating lease assets (1) | $ | 18,725 | | | $ | 16,244 | | |
Indemnification assets | 9,727 | | | 8,198 | | |
Deposits and escrows - properties | 1,694 | | | 1,637 | | |
Equity investment (2) | 977 | | | 977 | | |
Net deferred tax assets | 2,592 | | | — | | |
Deposits - equipment | 452 | | | 484 | | |
Other | 64 | | | 703 | | |
Total other non-current assets | $ | 34,231 | | | $ | 28,243 | | |
(1)During the nine months ended September 30, 2023, the Company performed a reassessment of its real estate leases. Refer to Note 10 - Leases for more information.
(2)The Company owns a 23.08% ownership interest in PV Culver City, LLC (“PVLLC”). The Company does not have significant influence over, and the Company does not have the right to vote or participate in the management of PVLLC and therefore the investment is measured at its fair value. Refer to Note 19 - Financial Instruments for more information relating to the fair value of this equity investment as of September 30, 2023.
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8. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES |
The components of accrued expenses and other current liabilities are as follows:
| | | | | | | | | | | |
| September 30, 2023 (unaudited) | | December 31, 2022 |
Deferred income - ERC (1) | $ | 10,140 | | | $ | — | |
Goods received not invoiced | 5,073 | | | 11,620 | |
Operating lease obligations | 4,916 | | | 2,652 | |
Accrued employee related expenses and liabilities | 5,448 | | | 6,030 | |
Accrued capital expenditures | 1,653 | | | 5,603 | |
Contingent consideration liabilities (2) | 1,617 | | | 3,398 | |
Accrued interest | 3,788 | | | 2,388 | |
Accrued sales and excise taxes | 4,191 | | | 1,931 | |
Deferred revenue (loyalty program) | 1,417 | | | 1,870 | |
Accrued professional and management fees | 1,117 | | | 1,481 | |
Other accrued expenses and current liabilities | 8,047 | | | 9,356 | |
Total | $ | 47,407 | | | $ | 46,329 | |
(1)Refer to Note 4 - Prepaid Expenses and Other Current Assets for more information.
(2)Refer to Note 6 - Acquisitions for more information.
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JUSHI HOLDINGS INC. Notes to the Unaudited Condensed Consolidated Financial Statements (Amounts Expressed in Thousands of U.S. dollars, Except Share and Per Share Amounts) | |
The components of the Company’s debt are as follows:
| | | | | | | | | | | | | | | | | |
| Effective Interest Rate | Maturity Date | September 30, 2023 | | December 31, 2022 |
Principal amounts: | | | | | |
Second Lien Notes | 15% | December 2026 | $ | 73,991 | | | $ | 73,182 | |
Acquisition Facility | 15% | December 2024 | 62,563 | | | 65,000 | |
Acquisition-related promissory notes payable | 8% - 23% | August 2024 - April 2027 | 35,716 | | | 35,716 | |
Mortgage loans | 6% - 9% | January 2027 - April 2028 | 29,505 | | | 7,770 | |
Total debt subject to scheduled repayments | | | 201,775 | | | 181,668 | |
Promissory notes payable to Sammartino (1) | 11% | September 2024 - September 2026 | 21,500 | | | 21,500 | |
Jushi Europe debt (2) | n/a | March 2022 | 3,162 | | | 3,190 | |
Total debt | | | 226,437 | | | 206,358 | |
Less: debt issuance costs and original issue discounts | | | (14,346) | | | (17,096) | |
Total debt, net | | | $ | 212,091 | | | $ | 189,262 | |
Debt, net - current portion | | | $ | 35,620 | | | $ | 8,704 | |
Debt, net - non-current portion | | | $ | 176,471 | | | $ | 180,558 | |
(1)This amount is related to the promissory notes issued to Sammartino in connection with the acquisition of Nature's Remedy in September 2021. Any repayment of principal and interest are currently on hold until the resolution of the Sammartino Matter. Refer to Note 18 - Commitments and Contingencies for more information.
(2)On February 16, 2022, Jushi Europe SA, a company organized under the laws of Switzerland (“Jushi Europe”), filed a notice of over-indebtedness with the Swiss courts. Then, the Swiss courts declared Jushi Europe’s bankruptcy on May 19, 2022. As a result, Jushi Europe updated its corporate name to Jushi Europe SA in liquidation, which is still on-going. This debt balance will be adjusted, including the extinguishment of any outstanding debt, upon the final liquidation of Jushi Europe. Refer to Note 17 - Related Party Transactions for more information.
Second Lien Notes
In March 2023, the Company, one of its wholly subsidiaries (JGMT, LLC) and the Company’s Chief Executive Officer and Chairman of the Board of Directors (“CEO”) entered into an amendment to his existing employment agreement (the “Amendment”) pursuant to which the CEO agreed to receive the $750 annual cash bonus that would otherwise have been paid to him in the following alternative form: (i) a lump sum cash payment in the amount of $250, which was paid on March 15, 2023, (ii) $750 aggregate principal amount of 12% second lien notes (“Second Lien Notes”) due December 7, 2026, which was issued on March 15, 2023, and (iii) fully-detached warrants to purchase up to approximately $375 worth of the Company’s SVS (“Warrants”), which was settled on September 1, 2023 resulting in the issuance of Warrants to purchase 551,471 SVS at an exercise price of $0.68 per share. The fair value of the Warrants that were issued was $200, which was recorded as additional debt discount to the Second Lien Notes, with a corresponding offset to Paid-in capital within equity.
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JUSHI HOLDINGS INC. Notes to the Unaudited Condensed Consolidated Financial Statements (Amounts Expressed in Thousands of U.S. dollars, Except Share and Per Share Amounts) | |
In June 2023, the Company amended its Second Lien Notes to modify the Change of Control provisions and make other changes. The consideration paid by the Company for the amendment was a repricing of the related outstanding warrants to purchase SVS of the Company from an exercise price of $2.086 per warrant to $1.00 per warrant. In addition to the repricing of the warrants, the respective warrant agreements were amended and resulted in a change in accounting classification of the respective warrants from liability to equity. The estimated value of the consideration of $1,341 was determined based on the incremental change in the fair value of the warrants before and after repricing. The consideration was recorded as additional debt discount to the Second Lien Notes with a corresponding offset to Paid-in capital. Refer to Note 11 - Derivative Liabilities for more information.
Mortgage loans
Arlington Mortgage
In December 2021, the Company entered into a $6,900 mortgage loan agreement (the “Arlington Mortgage”), which is principally secured by the Company’s retail property in Arlington, Virginia. The Arlington Mortgage bears a fixed interest rate of 5.875% per annum, payable monthly, and will mature in January 2027. As of December 31, 2022, the Company had drawn down $5,000, and the remaining $1,900 was drawn down in January 2023.
Dickson City Mortgage
In July 2022, the Company entered into a $2,800 mortgage loan agreement (the “Dickson City Mortgage”), which is principally secured by the Company’s retail property in Dickson City, Pennsylvania. The Dickson City Mortgage matures in July 2027 and bears interest at a variable rate equal to prime rate plus 2%. The interest rate as of September 30, 2023 was 10.50%.
Manassas Mortgage
In April 2023, the Company entered into a $20,000 mortgage loan agreement (the “Manassas Mortgage”), which is principally secured by the Company’s cultivation and manufacturing facility located in Manassas, Virginia. The Manassas Mortgage bears interest of 8.875% per annum as of September 30, 2023, payable monthly, and will mature in April 2028. The interest rate is variable and determined based on the 30-day average secured overnight financing rate plus 3.55%, with a floor rate of not less than 8.25%.
Financial covenants
Acquisition Facility
The Senior Secured Credit Facility (the “Acquisition Facility”) contains certain financial and other covenants with which the Company is required to comply. On May 10, 2023, the Company was non-compliant with an affirmative covenant relating to a minimum cash deposit requirement in a specified bank account. The Company received a waiver for this instance on May 11, 2023. As of September 30, 2023, the Company was in compliance with its financial covenants related to (i) minimum unrestricted cash and cash equivalents balance requirement and (ii) minimum quarterly revenue requirement.
Mortgage loans
The Company’s three mortgage loan agreements contain certain financial and other covenants with which the Company is required to comply. As of September 30, 2023, the Company was in compliance with all financial covenants contained in each of the mortgage loan agreements.
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JUSHI HOLDINGS INC. Notes to the Unaudited Condensed Consolidated Financial Statements (Amounts Expressed in Thousands of U.S. dollars, Except Share and Per Share Amounts) | |
Annual Maturities
As of September 30, 2023, aggregate future scheduled repayments of the Company’s debt are as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| Remainder of the year | 2024 | 2025 | 2026 | 2027 | Thereafter | Total |
Second Lien Notes | $ | — | | $ | — | | $ | — | | $ | 73,991 | | $ | — | | $ | — | | $ | 73,991 | |
Acquisition Facility | 2,438 | | 60,125 | | — | | — | | — | | — | | 62,563 | |
Acquisition-related promissory notes payable | 3,448 | | 5,885 | | 1,970 | | 1,971 | | 22,442 | | — | | 35,716 | |
Mortgage loans | 54 | | 485 | | 658 | | 669 | | 9,399 | | 18,240 | | 29,505 | |
Total debt subject to scheduled repayments | $ | 5,940 | | $ | 66,495 | | $ | 2,628 | | $ | 76,631 | | $ | 31,841 | | $ | 18,240 | | $ | 201,775 | |
The above table excludes the contractual maturities of the Company’s (i) promissory notes payable to Sammartino and (ii) Jushi Europe debt, as the repayments of these two debts are contingent on the resolution of the Sammartino Matter and completion of the liquidation of Jushi Europe, respectively. Refer to Note 18 - Commitments and Contingencies and Note 17 - Related Party Transactions for more information. Specifically, the contractual maturities of (i) the promissory notes payable to Sammartino are as follows: $16,500 in 2024 and $5,000 in 2026 and (ii) Jushi Europe debt of $3,162 was March 2022.
Interest Expense
Interest expense, net is comprised of the following:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2023 | | 2022 | | 2023 | | 2022 |
Interest expense | | | | | | | |
Interest and accretion - 10% Senior Notes | $ | — | | | $ | 6,779 | | | $ | — | | | $ | 18,015 | |
Interest and accretion - Second Lien Notes | 2,640 | | | — | | | 7,568 | | | — | |
Interest and accretion - Finance lease liabilities | 2,335 | | | 2,754 | | | 7,282 | | | 8,668 | |
Interest and accretion - Promissory notes | 1,547 | | | 1,709 | | | 4,625 | | | 3,794 | |
Interest and accretion - Acquisition Facility | 2,298 | | | 1,918 | | | 7,265 | | | 5,212 | |
Interest and accretion - Mortgage loans and other financing activities | 612 | | | 266 | | | 1,422 | | | 885 | |
Capitalized interest | (54) | | | (124) | | | (464) | | | (2,171) | |
Total interest expense | 9,378 | | | 13,302 | | | 27,698 | | | 34,403 | |
Interest income | (33) | | | (191) | | | (43) | | | (229) | |
Total interest expense, net | $ | 9,345 | | | $ | 13,111 | | | $ | 27,655 | | | $ | 34,174 | |
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. Due to changing demographics and business environment, the Company performed a reassessment of its previously classified real estate finance leases in June 2023 and certain real estate operating leases in September 2023. These reassessments resulted in the removal of certain option renewal periods contained in the leases as the Company is no longer reasonably certain to exercise these option renewal periods. As a result of the June 2023 reassessment, the classification of some leases were changed from finance to operating, resulting in an aggregate decrease in finance lease obligations and related right-of-use (“ROU”) assets of $45,768 and $42,349, respectively, and an aggregate net increase in
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JUSHI HOLDINGS INC. Notes to the Unaudited Condensed Consolidated Financial Statements (Amounts Expressed in Thousands of U.S. dollars, Except Share and Per Share Amounts) | |
operating lease obligations and related ROU assets of $8,691 and $5,271, respectively. The impact of the September 2023 reassessment was an aggregate net decrease in operating lease obligations and related ROU assets of $6,084 and $6,084, respectively.
In connection with the change from finance to operating lease, the Company’s depreciation and interest expense related to ROU assets will be lower after the change and rent expense will be higher. The expiry dates of the leases, including reasonably certain estimated renewal periods, are between 2024 and 2043. 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, |
| 2023 | | 2022 | | 2023 | | 2022 |
Finance lease cost: | | | | | | | |
Amortization of lease assets | $ | 1,149 | | | $ | 1,532 | | | $ | 4,208 | | | $ | 3,935 | |
Interest on lease liabilities | 2,335 | | | 2,754 | | | 7,282 | | | 8,668 | |
Total finance lease cost | 3,484 | | | 4,286 | | | 11,490 | | | 12,603 | |
Operating lease cost | 1,764 | | | 898 | | | 3,412 | | | 2,698 | |
Variable lease cost | 33 | | | 99 | | | 119 | | | 281 | |
Total lease cost | $ | 5,281 | | | $ | 5,283 | | | $ | 15,021 | | | $ | 15,582 | |
| | | | | | | |
| | | | | | | |
Other information related to operating and finance leases as of the balance sheet dates presented are as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| September 30, 2023 | | December 31, 2022 |
| (unaudited) | |
| Finance Leases | | Operating Leases | | Finance Leases | | Operating Leases |
Weighted average discount rate | 16.07 | % | | 14.84 | % | | 11.23 | % | | 11.51 | % |
Weighted average remaining lease term (in years) | 16.8 | | 8.7 | | 22.7 | | 14.1 |
| | | | | | | |
| | | | | | | |
The maturities of the contractual undiscounted lease liabilities as of September 30, 2023 are as follows:
| | | | | | | | | | | |
| Finance Leases | | Operating Leases |
Remainder of year | $ | 1,903 | | | $ | 1,017 | |
2024 | 10,738 | | | 5,970 | |
2025 | 10,602 | | | 5,848 | |
2026 | 10,494 | | | 5,315 | |
2027 | 10,002 | | | 4,986 | |
Thereafter | 158,136 | | | 23,471 | |
Total lease payments | 201,875 | | | 46,607 | |
Less: Imputed interest | (140,236) | | | (21,703) | |
Total present value of minimum lease payments | $ | 61,639 | | | $ | 24,904 | |
Lease liabilities - current portion | $ | 8,740 | | | $ | 4,916 | |
Lease liabilities - non-current | $ | 52,899 | | | $ | 19,988 | |
| | | | | |
JUSHI HOLDINGS INC. Notes to the Unaudited Condensed Consolidated Financial Statements (Amounts Expressed in Thousands of U.S. dollars, Except Share and Per Share Amounts) | |
| | |
11. DERIVATIVE LIABILITIES |
The following table summarizes the change in the Company’s derivative liabilities for the nine months ended September 30, 2023.
| | | | | | | | |
| | Total Derivative Liabilities (1) |
Balance as of January 1, 2023 | | $ | 14,134 | |
Fair value changes | | (1,660) | |
Reclassification to equity | | (2,050) | |
Down-round changes | | 143 | |
Balance as of September 30, 2023 | | $ | 10,567 | |
(1)Refer to Note 12 - Equity for the change in number of warrants during the nine months ended September 30, 2023.
The Company’s derivative liabilities are primarily comprised of derivative warrants (“Derivative Warrants”). These are warrants to purchase SVS of the Company and were previously issued in connection with the Company’s Second Lien Notes and its 10% senior secured notes (the “Senior Notes”). As discussed in Note 9 - Debt, in June 2023, the Company amended the warrant agreements, previously issued with the Second Lien Notes, to decrease the warrant exercise price of $2.086 per warrant to $1.00 per warrant for 17,512,280 warrants as well as certain other sections of the warrant agreement, which resulted in a change in accounting classification of the respective warrants from liability to equity. As a result of the change in classification of the warrants, the Company recorded a decrease in derivative liability of $2,050, with a corresponding increase in paid-in capital. The aforementioned repricing triggered certain down-round provisions on some of the outstanding warrants previously issued with the Senior Notes. Accordingly, the Company changed the warrant exercise price of $1.25 per warrant to $1.00 per warrant for 5,890,922 warrants and recorded the incremental change of $143 in the fair value of such warrants before and after repricing as additional derivative liabilities with a corresponding offset to Other income (expense) since the Senior Notes were previously extinguished.
The Derivative Warrants may be net share settled. As of September 30, 2023, there were 37,862,922 Derivative Warrants outstanding, which consisted of (i) 29,972,000 warrants with exercise price of $1.25 per warrant and expiration date in December 2024, (ii) 5,890,922 warrants with exercise price of $1.00 per warrant and expiration date of December 2024, and (iii) 2,000,000 warrants with an exercise price of $2.086 per warrant and expiration date in December 2026. As of December 31, 2022, there were 55,375,202 Derivative Warrants outstanding, which consisted of (i) 35,862,922 warrants with exercise price of $1.25 per warrant and expiration date in December 2024, and (ii) 19,512,280 warrants with an exercise price of $2.086 per warrant and expiration date in December 2026.
Derivative 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 Derivative 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 OTCQX closing price of the Derivative Warrants issue date as of September 30, 2023 and December 31, 2022.
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JUSHI HOLDINGS INC. Notes to the Unaudited Condensed Consolidated Financial Statements (Amounts Expressed in Thousands of U.S. dollars, Except Share and Per Share Amounts) | |
The assumptions used in the fair value calculations as of the balance sheet dates presented include the following:
| | | | | | | | | | | |
| September 30, 2023 (unaudited) | | December 31, 2022 |
Stock price | $0.84 | | $0.76 |
Risk-free annual interest rate | 4.78% - 5.36% | | 3.99% - 4.11% |
Range of estimated possible exercise price | $1.00 - $2.086 | | $1.25 - $2.086 |
Weighted average volatility | 98% | | 79% |
Remaining life | 1.23 years - 3.19 years | | 1.98 years - 3.96 years |
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:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| As of September 30, 2023 | | As of December 31, 2022 |
| (unaudited) | |
| Input | | Effect of 10% Increase | | Effect of 10% Decrease | | Input | | Effect of 10% Increase | | Effect of 10% Decrease |
Stock price | $ | 0.84 | | $ | 1,984 | | | $ | (1,873) | | | $ | 0.76 | | $ | 2,529 | | | $ | (2,396) | |
Volatility | 98 | % | | 1,341 | | | (1,371) | | | 79 | % | | 2,070 | | | (2,121) | |
Authorized, Issued and Outstanding
The authorized share capital of the Company consists of an unlimited number of SVS, Multiple Voting Shares, Super Voting Shares, and Preferred Shares. As of September 30, 2023, the Company had 196,631,598 SVS issued and outstanding and no Multiple Voting Shares, Super Voting Shares or Preferred Shares issued and outstanding.
| | | | | |
JUSHI HOLDINGS INC. Notes to the Unaudited Condensed Consolidated Financial Statements (Amounts Expressed in Thousands of U.S. dollars, Except Share and Per Share Amounts) | |
Warrants
Each warrant entitles the holder to purchase one SVS. Certain warrants may be net share settled. The following table summarizes the status of warrants and related transactions:
| | | | | | | | | | | | | | | | | | | | | | | |
| Non-Derivative (Equity) Warrants | | Derivative Liabilities Warrants (1) | | Total Number of Warrants | | Weighted - Average Exercise Price |
Balance as of January 1, 2023 | 30,673,635 | | 55,375,202 | | 86,048,837 | | $ | 1.40 | |
Granted | 851,471 | | | — | | | 851,471 | | | $ | 0.61 | |
| | | | | | | |
Cancelled/forfeited/expired | (337,500) | | | — | | | (337,500) | | | $ | 1.49 | |
Reclassification | 17,512,280 | | | (17,512,280) | | | — | | $ | — | |
Balance as of September 30, 2023 | 48,699,886 | | 37,862,922 | | 86,562,808 | | $ | 1.16 | |
Exercisable as of September 30, 2023 | 46,524,886 | | 37,862,922 | | 84,387,808 | | $ | 1.14 | |
(1)In June 2023, 5,890,000 warrants were repriced from $1.25 to $1.00. Additionally, 17,512,280 warrants were reclassified from derivative liability warrants to non-derivative (equity) warrants and repriced from $2.086 to $1.00. Refer to Note 11 - Derivative Liabilities for additional information.
Share-based payment award plans
Plan summary and description
Under the Company’s 2019 Equity Incentive Plan, as amended, (the “2019 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 2019 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, and the maximum number of incentive awards available for issuance under the 2019 Plan, including additional awards available for certain new hires, was 5,051,423 as of September 30, 2023.
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 directors and employees under the Company’s 2019 Plan. Such options generally expire 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. The following table summarizes the status of stock options and related transactions:
| | | | | | | | | | | |
| Number of Stock Options | | Weighted-Average Per Share Exercise Price |
Issued and Outstanding as of January 1, 2023 | 30,752,259 | | | $ | 2.58 | |
Granted | 4,112,000 | | | $ | 0.51 | |
| | | |
Cancelled/forfeited/expired | (6,490,171) | | | $ | 2.60 | |
Issued and Outstanding as of September 30, 2023 | 28,374,088 | | | $ | 2.27 | |
Exercisable as of September 30, 2023 | 17,364,078 | | | $ | 2.49 | |
| | | | | |
JUSHI HOLDINGS INC. Notes to the Unaudited Condensed Consolidated Financial Statements (Amounts Expressed in Thousands of U.S. dollars, Except Share and Per Share Amounts) | |
The fair value of the stock options granted was determined using the Black-Scholes option-pricing model. The following assumptions were used for the calculation at date of grant:
| | | | | | | | | | | |
| Nine Months Ended September 30, |
| 2023 | | 2022 |
Weighted average stock price | $0.51 | | $2.02 |
Weighted average expected stock price volatility | 76.9% | | 73.1% |
Expected annual dividend yield | 0% | | 0% |
Weighted average expected life | 6.0 years | | 5.8 years |
Weighted average risk-free annual interest rate | 3.6% | | 2.6% |
Weighted average grant date fair value | $0.34 | | $1.45 |
Restricted Stock
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, and the fair value of the restricted stock granted was estimated based on the SVS price at grant date. The following table summarizes the status of restricted stock and related transactions:
| | | | | |
| Number of Restricted Subordinate Voting Shares |
Unvested restricted stock as of January 1, 2023 | 1,156,319 |
| |
Cancelled/forfeited | (54,774) | |
Vested and Released | (1,099,684) | |
Unvested restricted stock as of September 30, 2023 | 1,861 |
Generally, restricted stock awards will vest either one-third on each anniversary of service from the vesting start date or will be fully vested on the completion of one year of full service from the vesting start date, depending on the award.
Share-based compensation cost
The components of share-based compensation expense are as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2023 | | 2022 | | 2023 | | 2022 |
Stock options | $ | 712 | | | $ | 4,569 | | | $ | 4,170 | | | $ | 14,369 | |
Restricted stock | — | | | 347 | | | 293 | | | 1,625 | |
Warrants | 344 | | | 550 | | | 1,267 | | 1,120 |
Total share-based compensation expense | $ | 1,056 | | | $ | 5,466 | | | $ | 5,730 | | | $ | 17,114 | |
As of September 30, 2023, the Company had $6,268 of unrecognized share-based compensation cost related to unvested stock options, restricted stock and warrants, which is expected to be recognized as share-based compensation cost over a weighted average period of 1.9 years.
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JUSHI HOLDINGS INC. Notes to the Unaudited Condensed Consolidated Financial Statements (Amounts Expressed in Thousands of U.S. dollars, Except Share and Per Share Amounts) | |
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13. EARNINGS (LOSS) PER SHARE |
The reconciliations of the net loss and the weighted average number of shares used in the computations of basic and diluted loss per share attributable to Jushi shareholders are as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2023 | | 2022 | | 2023 | | 2022 |
Numerator: | | | | | | | |
Net loss and comprehensive loss attributable to Jushi shareholders | $ | (20,622) | | | $ | (54,696) | | | $ | (47,098) | | | $ | (62,387) | |
Dilutive effect of net income from derivative warrants liability | — | | | (6,396) | | | — | | | (63,277) | |
Less undistributed net income for participating securities | — | | | 455 | | | — | | | 532 | |
Net loss and comprehensive loss attributable to Jushi shareholders - diluted | $ | (20,622) | | | $ | (60,637) | | | $ | (47,098) | | | $ | (125,132) | |
| | | | | | | |
Denominator: | | | | | | | |
Weighted-average shares of common stock - basic | 195,128,096 | | | 192,880,468 | | | 194,649,053 | | | 189,119,282 | |
Dilutive effect of derivative warrants | — | | | 10,289,463 | | | — | | | 16,576,308 | |
Weighted-average shares of common stock - diluted | 195,128,096 | | | 203,169,931 | | | 194,649,053 | | | 205,695,590 | |
| | | | | | | |
Loss per common share attributable to Jushi shareholders: | | | | | | | |
Basic | $ | (0.11) | | | $ | (0.28) | | | $ | (0.24) | | | $ | (0.33) | |
Diluted | $ | (0.11) | | | $ | (0.30) | | | $ | (0.24) | | | $ | (0.61) | |
The following table summarizes weighted average instruments that may, in the future, have a dilutive effect on loss per share, but were excluded from consideration in the computation of diluted net loss per share for the three and nine months ended September 30, 2023 and 2022, because the impact of including them would have been anti-dilutive:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2023 | | 2022 | | 2023 | | 2022 |
Stock options | 29,664,683 | | | 26,072,710 | | | 29,185,375 | | | 22,435,919 | |
Warrants (derivative liabilities and equity) | 86,241,092 | | | 29,405,890 | | | 86,110,330 | | | 29,442,149 | |
Unvested restricted stock awards | 4,177 | | | 1,148,935 | | | 496,567 | | | 1,785,619 | |
Convertible promissory notes | — | | | 910,000 | | | — | | | 910,000 | |
| 115,909,952 | | | 57,537,535 | | | 115,792,272 | | | 54,573,687 | |
| | | | | |
JUSHI HOLDINGS INC. Notes to the Unaudited Condensed Consolidated Financial Statements (Amounts Expressed in Thousands of U.S. dollars, Except Share and Per Share Amounts) | |
The Company has three revenue streams: (i) retail, (ii) wholesale and (iii) other. The Company’s retail revenues are comprised of cannabis sales from its dispensaries. The Company’s wholesale revenues are comprised of cannabis sales to its wholesale customers for resale through their dispensaries. The Company’s other operations primarily include the Company’s hemp/cannabidiol (“CBD”) retail operations which were discontinued in 2022. Any intercompany revenue and costs 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, |
| |