Jushi Holdings Inc. Quarterly report pursuant to Section 13 or 15(d)

Quarterly report pursuant to Section 13 or 15(d)

BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

6 Months Ended

Jun. 30, 2022

BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES


2. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation and Consolidation

The accompanying unaudited interim condensed consolidated financial statements present the consolidated financial position and operations of Jushi Holdings Inc. and its subsidiaries and entities over which the Company has control, in accordance with generally accepted accounting principles in the U.S. (“GAAP”) for interim financial information and in accordance with the rules and regulations of the SEC. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and footnotes. Actual results could differ materially from those estimates.

In the opinion of management, the unaudited interim condensed consolidated financial statements include all adjustments, of a normal recurring nature, that are necessary to present fairly the financial position, results of operations and cash flows of the Company for the periods, and at the dates, presented. The results for interim periods are not necessarily indicative of results that may be expected for any other interim period or for the full year.

These unaudited interim condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto for the year ended December 31, 2021, which is included in the Company’s S-1. Consolidated balance sheet information as of December 31, 2021 presented herein are derived from the Company’s audited consolidated financial statements for the year ended December 31, 2021.

These unaudited interim condensed consolidated financial statements have been prepared assuming the Company will continue as a going concern. GAAP requires an entity to look forward 12 months from the date the financial statements are issued, (the “look-forward” period) when assessing whether the going concern assumption can be used. The going concern assumption contemplates the realization of assets and satisfaction of liabilities in the normal course of business. However, substantial doubt about the Company’s ability to continue as a going concern exists.

As reflected in these unaudited interim condensed consolidated financial statements, the Company has incurred losses from operations for the six months ended June 30, 2022, and has an accumulated deficit of $250,109 as of June 30, 2022. As discussed in Note 9 - Debt, the Company’s 10% senior notes (the “Senior Notes”), which as of June 30, 2022 had an aggregate principal amount outstanding of $74,935, mature on January 15, 2023, and the Acquisition Facility, which as of June 30, 2022 had an outstanding balance of $65,000 (refer to Note 9 - Debt), required the Company to maintain certain covenants which the Company may not have been in compliance with if the court accepted Jushi Europe’s petition for bankruptcy. Prior to the amendment with the lender of the Acquisition Facility, the Company was also projected to violate

certain financial covenants. In April 2022, the Company entered into an amendment with the lender of the Acquisition Facility, which included a waiver related to Jushi Europe’s bankruptcy and a change to the terms of the Total Leverage Ratio, as defined in the Acquisition Facility agreement, and deferred the commencement date of leverage testing under the Acquisition Facility to the quarter ending March 31, 2023. Additionally, the overall slowdown in the cannabis industry during 2022 has resulted in lower forecasted earnings for the Company during the look-forward period. The look-forward period also contemplates favorable regulatory changes in certain states in which the Company operates. If the Company’s operating results during the look-forward period is not in line with forecasted earnings, the Company may be at risk of not meeting its financial covenants under the Acquisition Facility, as amended. These conditions raise substantial doubt regarding the Company’s ability to continue as a going concern during the look-forward period.

The Company is pursuing strategies to obtain the required additional funding primarily to fund the Senior Notes and future operations. These strategies may include, but are not limited to: (i) ongoing efforts with various lenders to refinance the Senior Notes, including the renegotiation of the financial covenants under the Acquisition Facility, as amended; (ii) deferral of certain expenditures, including capital projects, and reallocate funds for debt repayment, if the need arose; (iii) alternative sources of debt and equity financing, including secured borrowings and through a base shelf prospectus, which allows the Company to offer up to C$500,000 in securities in Canada through the end of 2023. However, there can be no assurance that the Company will be able to refinance the Senior Notes, renegotiate the financial covenants under the Acquisition Facility, as amended, generate positive results from operations, or obtain additional liquidity when needed or under acceptable terms, if at all.

Correction of Errors in Previously Issued Financial Statements

Restatement

Subsequent to the filing of the Company’s unaudited interim condensed consolidated financial statements for the three and six months ended June 30, 2022, which were not previously reviewed by the Company’s auditors, with the applicable Canadian securities regulatory authorities on August 29, 2022 in accordance with applicable Canadian securities laws and may be accessed at www.sedar.com, the Company identified that there was a data input error in the amount of right of use assets from finance lease liabilities (excluding from acquisitions) disclosed in non-cash investing and financing activities of the statements of cash flows. The Company corrected the error as follows:


	Six months ended June 30, 2021
	As Previously Reported		As Restated
NON-CASH INVESTING AND FINANCING ACTIVITIES:
Right of use assets from finance lease liabilities (excluding from acquisitions), net of tenant allowance receivable	$	2,050	$	42,697

Revisions

The Company revised the unaudited interim condensed consolidated statement of cash flows for the six months ended June 30, 2022 as follows:


	Six months ended June 30, 2022
	As Previously Reported		As Revised
CASH FLOWS FROM OPERATING ACTIVITIES:
Changes in operating assets and liabilities, net of acquisitions:
Accounts payable, accrued expenses and other current liabilities	$	1,566	$	3,593
Net cash flows used in operating activities	$	(27,738)	$	(25,711)
CASH FLOWS FROM FINANCING ACTIVITIES:
(Payments) receipts on finance leases, net of tenant allowance	$	(4,528)	$	(6,555)
Net cash flows provided by financing activities	$	38,041	$	36,014

For the unaudited interim condensed consolidated statement of cash flows for the six months ended June 30, 2022, the Company removed the information regarding assets acquired and liabilities assumed in acquisitions within the non-cash investing and financing activities since such information were inconsistent and redundant to the information already disclosed in Note 7 - Acquisitions.

The Company revised the unaudited interim condensed consolidated financial statements for the impact of an understatement of cost of goods sold of $1,144 ($801 post-tax) during the three and six months ended June 30, 2021 as follows:


A. Unaudited Interim Condensed Consolidated Statements of Operations and Comprehensive Income (Loss)
	Three Months Ended June 30, 2021				Six Months Ended June 30, 2021
	As Previously Reported		As Revised		As Previously Reported		As Revised
COST OF GOODS SOLD	$	(24,982)	$	(26,126)	$	(47,916)	$	(49,060)
GROSS PROFIT	$	22,762	$	21,618	$	41,503	$	40,359
LOSS FROM OPERATIONS	$	(3,595)	$	(4,739)	$	(6,765)	$	(7,909)
INCOME (LOSS) BEFORE PROVISION FOR INCOME TAXES	$	10,148	$	9,004	$	(12,591)	$	(13,735)
Provision for income taxes	$	(6,711)	$	(6,368)	$	(15,022)	$	(14,679)
NET INCOME (LOSS) AND COMPREHENSIVE INCOME (LOSS)	$	3,437	$	2,636	$	(27,613)	$	(28,414)
NET INCOME (LOSS) AND COMPREHENSIVE INCOME (LOSS) ATTRIBUTABLE TO JUSHI SHAREHOLDERS	$	3,627	$	2,826	$	(27,248)	$	(28,049)
EARNINGS (LOSS) PER SHARE ATTRIBUTABLE TO JUSHI SHAREHOLDERS - DILUTED	no change		no change		$	(0.19)	$	(0.20)


B. Unaudited Interim Condensed Consolidated Statements of Changes in Equity
	Accumulated Deficit				Total Jushi Shareholders' Equity				Total Equity
	As Previously Reported		As Revised		As Previously Reported		As Revised		As Previously Reported		As Revised
Net income (loss) for the three months ended June 30, 2021	$	3,627	$	2,826	$	3,627	$	2,826	$	3,437	$	2,636
Balances - June 30, 2021	$	(289,918)	$	(290,719)	$	82,892	$	82,091	$	83,911	$	83,111


C. Unaudited Interim Condensed Consolidated Statement of Cash Flows
	Six months ended June 30, 2021
	As Previously Reported		As Revised
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$	(27,613)	$	(28,414)
Changes in operating assets and liabilities, net of acquisitions:
Inventory	$	(10,173)	$	(9,029)
Accounts payable, accrued expenses and other current liabilities	$	19,007	$	18,664


D. Note 7 - Business Combinations Acquisition Results and Unaudited Supplemental Pro Forma Financial Information
	Three Months Ended June 30, 2021				Six Months Ended June 30, 2021
	As Previously Reported		As Revised		As Previously Reported		As Revised
Net income (loss)	$	661	$	(140)	$	(32,311)	$	(33,112)


E. Note 14 - Income Taxes
	Three Months Ended June 30, 2021						Six Months Ended June 30, 2021
	As Previously Reported			As Revised			As Previously Reported			As Revised
Income (Loss) Before Income Taxes	$	10,148		$	9,004		$	(12,591)		$	(13,735)
Income Tax Expense	$	(6,711)		$	(6,368)		$	(15,022)		$	(14,679)
Effective Tax Rate	66		%	71		%	(119)		%	(107)		%


F. Note 16 - Earning (Loss) Per Share
	Three Months Ended June 30, 2021				Six Months Ended June 30, 2021
	As Previously Reported		As Revised		As Previously Reported		As Revised
Numerator:
Net income (loss) and comprehensive income (loss) attributable to Jushi shareholders	$	3,627	$	2,826	$	(27,248)	$	(28,049)
Less undistributed net income (loss) for participating securities	$	(135)	$	(105)	$	274	$	282
Net income(loss) and comprehensive income (loss) - basic	$	3,492	$	2,721	$	(26,974)	$	(27,767)
Add-back undistributed net income (loss) for participating securities	$	135	$	105	$	(274)	$	(282)
Less undistributed net income (loss) for participating securities	$	(113)	$	(88)	$	933	$	961
Net loss and comprehensive loss attributable to Jushi shareholders - diluted	$	(17,547)	$	(18,324)	$	(37,419)	$	(38,192)
Net income (loss) per common share attributable to Jushi:
Diluted	no change		no change		$	(0.19)	$	(0.20)

The Company revised the unaudited interim condensed consolidated statement of cash flows for the six months ended June 30, 2021 for the amount of capital expenditures disclosed in non-cash investing and financing activities of the statements of cash flows as follows:


	Six months ended June 30, 2021
	As Previously Reported		As Revised
NON-CASH INVESTING AND FINANCING ACTIVITIES:
Capital expenditures	$	2,057	$	2,846

Reclassifications

Within the supplemental non-cash investing and financing activities section of the statements of cash flows, the Company reclassified $4,701 from capital expenditures to right of use assets from finance lease liabilities (excluding from acquisitions) for the six months ended June 30, 2022. This reclassification did not have an effect on total assets, total liabilities, equity, net income (loss), net income (loss) per share or cash flows for the periods presented.

Summary of Significant Accounting Policies

The Company’s significant accounting policies are described in Note 2 in the audited consolidated financial statements and notes thereto for the year ended December 31, 2021, which is included in the Company’s S-1. There have been no material changes to the Company’s significant accounting policies

Segment

The Company operates a vertically integrated cannabis business in one reportable segment for the cultivation,

manufacturing, distribution and sale of cannabis in the U.S. All revenues for the three and six months ended June 30, 2022 and 2021 were generated within the U.S., and substantially all long-lived assets are located within the U.S.

COVID-19

During the three and six months ended June 30, 2022, the Company’s financial condition and results of operations were not materially impacted by COVID-19. The extent to which the COVID-19 pandemic impacts the Company’s future results will depend on future developments, which are highly uncertain and cannot be predicted with certainty, including possible future outbreaks of new strains of the virus and governmental and consumer responses to such future developments.

Emerging Growth Company

As an emerging growth company (“EGC”), the Jumpstart Our Business Startups Act (“JOBS Act”) allows the Company to delay adoption of new or revised accounting pronouncements applicable to public companies until such pronouncements are applicable to private companies. The Company has elected to use this extended transition period under the JOBS Act until such time the Company is no longer considered to be an EGC. The adoption dates discussed below reflect this election.

Recent Accounting Pronouncements

In June 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2020-06 Debt-Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging-Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity, which simplifies accounting for convertible instruments by removing major separation models required under current GAAP. This ASU also removes certain settlement conditions that are required for equity contracts to qualify for the derivative scope exception and simplifies the diluted earnings per share calculation in certain areas. The amendments in this ASU are effective for annual and interim periods beginning after December 15, 2023, although early adoption is permitted. The Company is in the process of evaluating the impact of this new guidance on its consolidated financial statements.

In May 2021, the FASB issued ASU 2021-04, Earnings Per Share (Topic 260), Debt—Modifications and Extinguishments (Subtopic 470-50), Compensation—Stock Compensation (Topic 718), and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options. The FASB issued guidance to clarify and reduce diversity in an issuer’s accounting for modifications or exchanges of freestanding equity-classified written call options (for example, warrants) that remain equity classified after modification or exchange. The amendments in this ASU are effective for annual and interim periods beginning after December 15, 2021. The adoption of the standard did not have a material impact on the Company’s consolidated financial statements.

In October 2021, the FASB issued ASU 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers. The FASB issued guidance requires that an entity (acquirer) recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with Topic 606. At the acquisition date, an acquirer should account for the related revenue contracts in accordance with Topic 606 as if it had originated the contracts. To achieve this, an acquirer may assess how the acquiree applied Topic 606 to determine what to record for the acquired revenue contracts. Generally, this should result in an acquirer recognizing and measuring the acquired contract assets and contract liabilities consistent with how they were recognized and measured in the acquiree’s financial statements (if the acquiree prepared financial statements in accordance with generally accepted accounting principles). The amendments in this ASU are effective for annual and interim periods beginning after December 15, 2023, although early adoption is permitted. The Company is in the process of evaluating the impact of this new guidance on its consolidated financial statements.

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.