Jushi Holdings Inc. Annual report pursuant to Section 13 and 15(d)

Annual report pursuant to Section 13 and 15(d)

DERIVATIVE LIABILITIES

DERIVATIVE LIABILITIES

12 Months Ended

Dec. 31, 2023

Derivative Instruments and Hedging Activities Disclosure [Abstract]


13. DERIVATIVE LIABILITIES

The continuities of the Company’s derivative liabilities are as follows:


	Total Derivative Liabilities (1)
Balance as of January 1, 2022	$	92,435
Derivative Warrants issued (2)	23,205
Fair value changes	(91,887)
Derivative Warrants exercised and settled (3)	(9,619)
Balance as of December 31, 2022	14,134
Fair value changes	(9,589)
Reclassification to equity	(2,050)
Down-round changes	143
Balance as of December 31, 2023	$	2,638

(1)Refer to Note 14 - Equity for the change in number of warrants outstanding.

(2)Includes fair value of 17,512,280 derivative warrants issued in connection with the Second Lien Notes issuance in December 2022, and 2,000,000 derivative warrants issued relating to the second amendment of the Acquisition Facility in December 2022.

(3)Includes mandatory prepayment option on the Senior Notes of $218, which was settled in December 2022 with the Company’s redemption of the Senior Notes.

The Company’s derivative liabilities are primarily comprised of derivative warrants (“Derivative Warrants”). These are warrants to purchase SVS of the Company which were issued in connection with the Company’s Second Lien Notes and its 10% senior secured notes (the “Senior Notes”). As discussed in Note 10 - Debt, in June 2023, the Company amended the warrant agreements, previously issued with the Second Lien Notes, to decrease the warrants 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 provision on some of the outstanding warrants previously issued with the Senior Notes (the “Senior Notes Warrants”). As part of the amendment the Company changed the warrants exercise price of $1.25 per warrant to $1.00 per warrant for 5,890,922 Senior Notes Warrants. With the change in exercise price the Company recorded an incremental change of $143 in the fair value of such Senior Notes Warrants after repricing as an increase to derivative liabilities with a corresponding offset to Other income (expense) (refer to Note 10 - Debt for additional information). The Derivative Warrants may be net share settled. As of December 31, 2023, there were 37,862,922 Derivative Warrants outstanding, which consisted of (i) 29,972,000 warrants with exercise price of $1.25 per warrants and expiration date in December 2024, (ii) 5,890,922 warrants with exercise price of $1.00 per warrant and expiration date in December 2024, and (iii) 2,000,000 warrants with

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 (loss) income. 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 December 31, 2023 and December 31, 2022.

The assumptions used in the fair value calculations as of the balance sheet dates presented include the following:


	As of December 31,
	2023	2022
Stock price per share	$0.46	$0.76
Risk-free annual interest rate	4.01% - 4.79%	3.99% - 4.11%
Exercise price	$1.00 - $2.086	$1.25 - $2.086
Weighted average volatility	101%	79%
Remaining life	1.00 - 2.90 years	1.98 - 3.96 years
Forfeiture rate	0%	0%
Expected annual dividend yield	0%	0%

Volatility was estimated by using a weighting of the Company’s historical volatility. 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 December 31, 2023							As of December 31, 2022
	Input			Effect of 10% Increase		Effect of 10% Decrease		Input			Effect of 10% Increase		Effect of 10% Decrease
Stock price per share	$	0.46		$	637	$	(574)	$	0.76		$	2,529	$	(2,396)
Volatility	101		%	$	680	$	(643)	79		%	$	2,070	$	(2,121)