UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM
(Mark One)
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
OR
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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:
(Exact Name of Registrant as Specified in its Charter)
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(State or other jurisdiction of incorporation or organization) |
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(I.R.S. Employer Identification No.) |
(Address of principal executive offices, including zip code)
Registrant’s telephone number, including area code: (
Securities registered pursuant to Section 12(b) of the Act:
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Title of each class |
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Trading Symbol(s) |
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Name of each exchange on which registered |
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None |
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Securities registered pursuant to Section 12(g) of the Act:
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Title of each class |
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Trading Symbol(s) |
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Name of each exchange on which registered |
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OTCQX CSE |
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.
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).
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.
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Large, accelerated filer |
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Accelerated filer |
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Smaller reporting company |
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Emerging growth company |
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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
As of August 13, 2021, the registrant had
4FRONT VENTURES CORP.
FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2021
TABLE OF CONTENTS
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Page |
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PART I. |
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Item 1. |
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1 |
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Condensed Consolidated Interim Statements of Operations and Comprehensive Loss (unaudited) |
2 |
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Condensed Consolidated Interim Statements of Changes in Shareholders’ Equity (unaudited) |
3 |
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Condensed Consolidated Interim Statements of Cash Flows (unaudited) |
4 |
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Notes to Consolidated Interim Financial Statements (unaudited) |
5 |
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Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
22 |
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Item 3. |
30 |
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Item 4. |
30 |
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PART II. |
32 |
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Item 1. |
32 |
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Item 1A. |
33 |
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Item 2. |
33 |
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Item 3. |
33 |
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Item 4. |
33 |
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Item 5. |
33 |
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Item 6. |
34 |
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35 |
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PART I—FINANCIAL INFORMATION
Item 1. Financial Statements.
4FRONT VENTURES CORP.
Condensed Consolidated Interim Balance Sheets (unaudited)
As of June 30, 2021 and December 31, 2020
Amounts expressed in thousands of U.S. dollars except for share and per share data
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June 30, 2021 |
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December 31, 2020 |
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ASSETS |
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Current assets: |
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Cash |
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$ |
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$ |
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Accounts receivable |
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Other receivables |
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Current portion of lease receivables |
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Inventory |
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Current portion of notes receivable |
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Prepaid expenses |
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Total current assets |
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Property and equipment, net |
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Notes receivable and accrued interest |
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— |
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Lease receivables |
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Intangible assets, net |
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Goodwill |
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Right-of-use assets |
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Deposits |
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TOTAL ASSETS |
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$ |
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$ |
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LIABILITIES AND SHAREHOLDERS' EQUITY |
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LIABILITIES |
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Current liabilities: |
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Accounts payable |
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$ |
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$ |
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Accrued expenses and other current liabilities |
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Taxes payable |
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Derivative liability |
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Current portion of convertible notes |
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Current portion of lease liability |
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Current portion of contingent consideration payable |
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Current portion of notes payable and accrued interest |
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Total current liabilities |
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Convertible notes |
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— |
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Notes payable and accrued interest from related party |
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Long term notes payable |
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Long term accounts payable |
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Contingent consideration payable |
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— |
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Deferred tax liability |
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Lease liability |
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TOTAL LIABILITIES |
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SHAREHOLDERS' EQUITY |
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Equity attributable to 4Front Ventures Corp. |
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Additional paid-in capital |
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Deficit |
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( |
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( |
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Total 4Front Ventures Corp. shareholders' equity |
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Non-controlling interest |
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TOTAL SHAREHOLDERS' EQUITY |
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TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY |
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$ |
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$ |
The accompanying notes are an integral part of these condensed consolidated interim financial statements.
1
4FRONT VENTURES CORP.
Condensed Consolidated Interim Statements of Operations and Comprehensive Loss (unaudited)
For the Three and Six Months Ended June 30, 2021 and 2020
Amounts expressed in thousands of United States dollars except share and per share data
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Three Months Ended June 30, |
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Six Months Ended June 30, |
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2021 |
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2020 |
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2021 |
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2020 |
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REVENUE |
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Revenue from sale of goods |
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$ |
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$ |
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$ |
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$ |
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Real estate income |
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Total revenues |
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Cost of goods sold |
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( |
) |
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( |
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( |
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( |
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Gross profit |
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OPERATING EXPENSES |
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Selling and marketing expenses |
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General and administrative expenses |
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Equity based compensation |
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Depreciation and amortization |
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Total operating expenses |
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Income (loss) from operations |
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( |
) |
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( |
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Other income (expense) |
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Interest income |
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Interest expense |
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( |
) |
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( |
) |
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( |
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( |
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Amortization of loan discount upon conversion of debt to equity |
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— |
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— |
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( |
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— |
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Change in fair value of derivative liability |
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( |
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— |
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( |
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— |
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Other income |
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— |
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— |
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Loss on lease termination |
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( |
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— |
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( |
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— |
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Total other income (expense) |
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( |
) |
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( |
) |
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( |
) |
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( |
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Net loss before income taxes |
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( |
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( |
) |
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( |
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( |
) |
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Income tax expense |
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( |
) |
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( |
) |
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( |
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( |
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Net loss from continuing operations, net of taxes |
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( |
) |
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( |
) |
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( |
) |
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( |
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Net income from discontinued operations, net of taxes |
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— |
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— |
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Net loss |
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( |
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( |
) |
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( |
) |
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( |
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Net (income) loss attributable to non-controlling interest |
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( |
) |
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( |
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Net loss attributable to shareholders |
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$ |
( |
) |
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$ |
( |
) |
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$ |
( |
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$ |
( |
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Basic and diluted loss per share |
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$ |
( |
) |
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$ |
( |
) |
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$ |
( |
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$ |
( |
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Weighted average number of shares outstanding, basic and diluted |
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The accompanying notes are an integral part of these condensed consolidated interim financial statements.
2
4FRONT VENTURES CORP.
Condensed Consolidated Interim Statements of Changes in Shareholders’ Equity (unaudited)
For the Six Months Ended June 30, 2021 and 2020
Amounts expressed in thousands of United States dollars except share and per share data
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Share Capital |
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Additional Paid-In |
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Total 4Front Ventures Corp. Shareholders’ |
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Non- Controlling |
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Total |
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Shares |
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Amount |
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Capital |
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Deficit |
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Equity |
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Interest |
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Equity |
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Balance, December 31, 2019 |
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$ |
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$ |
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$ |
( |
) |
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$ |
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$ |
( |
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$ |
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Conversion option and warrants with notes transferred to equity |
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— |
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— |
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— |
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— |
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Shares issued for Pure Ratios earnout |
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— |
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— |
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— |
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Share-based compensation |
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— |
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— |
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— |
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— |
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Exchange of stock for convertible swap notes |
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( |
) |
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( |
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— |
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— |
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( |
) |
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— |
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( |
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Conversion of notes to equity |
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— |
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— |
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— |
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— |
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Net loss |
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— |
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— |
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— |
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( |
) |
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( |
) |
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( |
) |
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( |
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Balance, June 30, 2020 |
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$ |
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$ |
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$ |
( |
) |
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$ |
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$ |
( |
) |
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$ |
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Share Capital |
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Additional Paid-In |
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Total 4Front Ventures Corp. Shareholders’ |
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Non- Controlling |
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Total |
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Shares |
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Amount |
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Capital |
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Deficit |
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Equity |
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Interest |
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Equity |
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Balance, December 31, 2020 |
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$ |
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$ |
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$ |
( |
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$ |
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$ |
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$ |
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Shares issued for Pure Ratios earnout |
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— |
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— |
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— |
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Shares issued for Om of Medicine earnout |
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— |
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— |
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— |
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Share-based compensation |
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— |
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— |
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— |
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— |
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Conversion of notes to equity |
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— |
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— |
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— |
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Shares issued with exercise of stock options |
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— |
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— |
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— |
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Shares issued with exercise of warrants |
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— |
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— |
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— |
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Return of treasury shares |
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( |
) |
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— |
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— |
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— |
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— |
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— |
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— |
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Net loss |
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— |
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— |
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— |
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( |
) |
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( |
) |
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( |
) |
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Balance, June 30, 2021 |
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$ |
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$ |
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$ |
( |
) |
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$ |
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$ |
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$ |
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The accompanying notes are an integral part of these condensed consolidated interim financial statements.
3
4FRONT VENTURES CORP.
Condensed Consolidated Interim Statements of Cash Flows (unaudited)
For the Six Months Ended June 30, 2021 and 2020
Amounts expressed in thousands of United States dollars except share and per share data
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Six Months Ended June 30, |
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2021 |
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2020 |
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CASH FLOWS FROM OPERATING ACTIVITIES |
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Net Loss |
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$ |
( |
) |
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$ |
( |
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Adjustments to reconcile net loss to net cash used by operating activities |
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Depreciation and amortization |
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Equity based compensation |
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Change in fair value of derivative liability |
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— |
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Accretion of lease liability |
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( |
) |
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Amortization of right-of-use assets |
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Accretion of lease receivable |
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( |
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Accretion of convertible debenture and interest |
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( |
) |
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Write-off of fixed asset from terminated lease |
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— |
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Write-off of deposit |
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— |
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— |
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Accretion of contingent consideration |
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Gain on restructuring note payable |
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— |
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( |
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Amortization of loan discount upon conversion of debt to equity |
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— |
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Deferred taxes |
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— |
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Accrued interest on notes payable |
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Changes in operating assets and liabilities |
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( |
) |
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( |
) |
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NET CASH PROVIDED BY (USED IN) CONTINUED OPERATING ACTIVITIES |
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( |
) |
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Net cash provided by discontinued operation activities |
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— |
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NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES |
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CASH FLOWS FROM INVESTING ACTIVITIES |
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Notes receivable repayments |
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Sale of dispensary and interests in cannabis licenses |
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— |
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Long term deposits |
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— |
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Purchases of property and equipment |
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( |
) |
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( |
) |
|
NET CASH PROVIDED BY (USED IN) CONTINUED INVESTING ACTIVITIES |
|
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( |
) |
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( |
) |
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Net cash used in discontinued investing activities |
|
|
— |
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( |
) |
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NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES |
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( |
) |
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( |
) |
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CASH FLOWS FROM FINANCING ACTIVITIES |
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|
|
Payment of contingent consideration |
|
|
( |
) |
|
|
( |
) |
|
Issuance of convertible notes |
|
|
— |
|
|
|
|
|
|
Proceeds from the exercise of warrants |
|
|
|
|
|
|
— |
|
|
Proceeds from the exercise of stock options |
|
|
|
|
|
|
— |
|
|
Repayment of convertible debt |
|
|
— |
|
|
|
( |
) |
|
Repayment of notes payable |
|
|
( |
) |
|
|
( |
) |
|
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES |
|
|
( |
) |
|
|
|
|
|
NET INCREASE (DECREASE) IN CASH |
|
|
( |
) |
|
|
|
|
|
CASH INCLUDED IN ASSETS HELD FOR SALE |
|
|
— |
|
|
|
( |
) |
|
CASH, BEGINNING OF PERIOD |
|
|
|
|
|
|
|
|
|
CASH, END OF PERIOD |
|
$ |
|
|
|
$ |
|
|
The accompanying notes are an integral part of these condensed consolidated interim financial statements.
4
4FRONT VENTURES CORP.
Notes to Consolidated Interim Financial Statements
For the Six Months Ended June 30, 2021 and 2020 (unaudited)
Amounts expressed in thousands of United States dollars unless otherwise stated
|
1. |
NATURE OF OPERATIONS |
4Front Ventures Corp. (“4Front” or the “Company”) exists pursuant to the provisions of the Business Corporations Act (British Columbia). On July 31, 2019, 4Front Holdings LLC (“Holdings”) completed a Reverse Takeover Transaction (“RTO”) with Cannex Capital Holdings, Inc. (“Cannex”) whereby Holdings acquired Cannex, for accounting purposes, and the shareholders of Holdings became the controlling shareholders of the Company. The subordinate voting shares of the Company are listed on the Canadian Securities Exchange (“CSE”) under the ticker “FFNT” and are quoted on the OTC (OTCQX: FFNTF).
The Company has
The Company’s CBD Wellness segment is focused upon its ownership and operation of its wholly-owned subsidiary, Pure Ratios Holdings, Inc. (“Pure Ratios”), a CBD-focused wellness company in California, that sells non-THC products throughout the United States.
Management is currently continuing to evaluate the impact of the COVID-19 pandemic on the industry and has concluded that while it is reasonably possible that the virus could have a negative effect on the Company’s financial position and results of its operations the specific impact is not readily determinable as of the date of these consolidated financial statements. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. See “Recent Developments – COVID-19”.
The corporate office address of the Company is 5060 North 40th Street, Suite 120, Phoenix, Arizona, and the registered office is 550 Burrard Street, Suite 2900, Vancouver, British Columbia. Our telephone number is (602) 633-3067 and our website is accessible at https://4frontventures.com.
|
2. |
BASIS OF PRESENTATION |
The accompanying unaudited condensed consolidated interim financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) applicable to interim financial information and with the rules and regulations of the United States Securities and Exchange Commission. Accordingly, certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed, or omitted, pursuant to such rules and regulations.
In the opinion of management, the unaudited interim financial statements include all adjustments necessary for the fair presentation of the results of the interim periods presented. All adjustments are of a normal recurring nature, except as otherwise noted below. These financial statements should be read in conjunction with the Company’s audited financial statements and notes thereto for the year ended December 31, 2020, included in the Company’s Annual Report on Form 10-K, filed April 7, 2021, with the U.S. Securities and Exchange Commission and on the System for Electronic Document Analysis and Retrieval in Canada (or SEDAR). The results of operations for the interim periods are not necessarily indicative of the results of operations for any other interim period or for a full fiscal year.
There have been no changes to the Company’s significant accounting policies as described in Note 2 of the Company’s 2020 Form 10-K.
Principles of consolidation
The accompanying condensed consolidated interim financial statements include the accounts of the Company and all entities in which the Company either has a controlling voting interest or is the primary beneficiary of a variable interest entity. All intercompany accounts and transactions have been eliminated on consolidation.
The financial statements of the subsidiaries are prepared for the same reporting period as the parent company, using consistent accounting policies.
5
4FRONT VENTURES CORP.
Notes to Consolidated Interim Financial Statements
For the Six Months Ended June 30, 2021 and 2020 (unaudited)
Amounts expressed in thousands of United States dollars unless otherwise stated
|
3. |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
|
(a) |
Critical accounting estimates and judgements |
Our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with U.S. GAAP. The preparation of the Company’s condensed consolidated interim financial statements requires management to make judgments, estimates and assumptions that affect the application of policies and reported amounts of assets and liabilities, and revenue and expenses. Actual results may differ from these estimates. The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimate is revised if the revision affects only that period or in the period of the revision and future periods if the revision affects both current and future periods. The significant judgements made by management in applying the Company’s accounting policies and the key sources of estimation uncertainty were the same as those described in the latest annual consolidated financial statements.
We cannot predict what future laws and regulations might be passed that could have a material effect on our results of operations. We assess the impact of significant changes in laws and regulations on a regular basis and update the assumptions and estimates used to prepare our financial statements when we deem it necessary.
|
(b) |
Recent Accounting Pronouncements |
Recently Adopted
|
|
(i) |
Effective |
Accounting Pronouncements Not Yet Adopted
|
|
(i) |
In August 2020, the FASB issued ASU 2020-06, Debt - Debt with Conversion and Other Options (Subtopic 470- 20) and Derivatives and Hedging - Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity (“ASU 2020-06”), which simplifies the accounting for certain financial instruments with characteristics of liabilities and equity. This ASU (1) simplifies the accounting for convertible debt instruments and convertible preferred stock by removing the existing guidance in ASC 470-20, Debt: Debt with Conversion and Other Options, that requires entities to account for beneficial conversion features and cash conversion features in equity, separately from the host convertible debt or preferred stock; (2) revises the scope exception from derivative accounting in ASC 815-40 for freestanding financial instruments and embedded features that are both indexed to the issuer’s own stock and classified in stockholders’ equity, by removing certain criteria required for equity classification; and (3) revises the guidance in ASC 260, Earnings Per Share, to require entities to calculate diluted earnings per share (EPS) for convertible instruments by using the if-converted method. In addition, entities must presume share settlement for purposes of calculating diluted EPS when an instrument may be settled in cash or shares. |
For SEC filers, excluding smaller reporting companies, ASU 2020-06 is effective for fiscal years beginning after December 15, 2021 including interim periods within those fiscal years. Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020. For all other entities, ASU 2020-06 is effective for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years. Entities should adopt the guidance as of the beginning of the fiscal year of adoption and cannot adopt the guidance in an interim reporting period. The Company is currently evaluating the impact that ASU 2020-06 may have on its consolidated financial statements and related disclosures.
Management does not believe that any other recently issued, but not yet effective, accounting standard if currently adopted would have a material effect on the accompanying consolidated financial statements.
6
4FRONT VENTURES CORP.
Notes to Consolidated Interim Financial Statements
For the Six Months Ended June 30, 2021 and 2020 (unaudited)
Amounts expressed in thousands of United States dollars unless otherwise stated
|
4. |
INVENTORY |
Inventory consists of the following items:
|
|
|
June 30, 2021 |
|
|
December 31, 2020 |
|
||
|
Raw materials – unharvested cannabis |
|
$ |
|
|
|
$ |
|
|
|
Work in process – flower and extract |
|
|
|
|
|
|
|
|
|
Finished goods – cultivation supplies |
|
|
|
|
|
|
|
|
|
Finished goods – packaged products |
|
|
|
|
|
|
|
|
|
Total inventory |
|
$ |
|
|
|
$ |
|
|
|
5. |
INTANGIBLE ASSETS AND GOODWILL |
(a)Intangible Assets
Intangible assets are recorded at cost less accumulated amortization and impairment losses. Intangible assets acquired in a business combination are measured at fair value at the acquisition date. Amortization of definite life intangibles is recognized on a straight-line basis over their estimated useful lives. The estimated useful lives, residual values, and amortization methods are reviewed at each year end, and any changes in estimates are accounted for prospectively.
|
|
|
Licenses |
|
|
Customer Relationships |
|
|
Non- Competition Agreements |
|
|
Trademarks |
|
|
Know- How |
|
|
Total |
|
||||||
|
Balance, December 31, 2019 |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Amortization expense |
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
Impairment |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
|
Balance, December 31, 2020 |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
— |
|
|
$ |
|
|
|
$ |
|
|
|
Amortization expense |
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
|
Balance, June 30, 2021 |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
— |
|
|
$ |
|
|
|
$ |
|
|
(b)Goodwill
A summary of goodwill is as follows:
|
Balance, December 31, 2019 |
|
$ |
|
|
|
Disposal of PHX/Greens Goddess (Note 19) |
|
|
( |
) |
|
Tax adjustment to Goodwill from Cannex acquisition |
|
|
|
|
|
Impairment |
|
|
( |
) |
|
Balance, December 31, 2020 |
|
$ |
|
|
|
Balance, June 30, 2021 |
|
$ |
|
|
(c)Impairment of Intangible Assets and Goodwill
On an annual basis, the Company assesses the Company’s reporting unit’s (“RUs”) for indicators of impairment or when facts or circumstances suggest that it is more likely than not that the carrying amount may exceed fair value. For the purpose of impairment testing, goodwill is allocated to the Company’s RUs to which it relates.
Goodwill was not tested for impairment during the six months ended June 30, 2021.
7
4FRONT VENTURES CORP.
Notes to Consolidated Interim Financial Statements
For the Six Months Ended June 30, 2021 and 2020 (unaudited)
Amounts expressed in thousands of United States dollars unless otherwise stated
Year Ended December 31, 2020
Management identified negative trigger events regarding its online CBD business. Management has concluded that the overall financial performance of Pure Ratio continued to be worse than expectations, including revenue growth, EBITDA/cash flows, and future growth projections. The Pure Ratio’s business operates at a breakeven (i.e., zero) profit level and is not expected to improve in the near term. As such, management had determined that the Goodwill and remaining intangible assets associated with the Pure Ratio’s RU are impaired. As such, the remaining goodwill of $
|
6. |
LEASES |
All real estate leases are recorded on the balance sheet. Equipment and other non-real estate leases with an initial term of twelve months or less are not recorded on the balance sheet. Balances related to operating leases are included in Right of Use (“ROU”) assets and noncurrent lease liabilities on the consolidated balance sheet. Lease agreements for some locations provide for rent escalations and renewal options. Many leases include one or more options to renew the lease at the end of the initial term. The Company considered renewals in its ROU assets and operating lease liabilities. Certain real estate leases require payment for taxes, insurance and maintenance which are considered non-lease components. The Company accounts for real estate leases and the related fixed non-lease components together as a single component.
The Company determines if an arrangement is a lease at inception. The Company must consider whether the contract conveys the right to control the use of an identified asset. Certain arrangements require significant judgment to determine if an asset is specified in the contract and if the Company directs how and for what purpose the asset is used during the term of the contract.
Operating lease expense for the three and six months ended June 30, 2021 and 2020 is $
(a)The Company as a Lessee
The following table summarizes the Company’s operating leases:
|
|
Classification - Consolidated Interim Balance Sheets |
|
June 30, 2021 |
|
|
December 31, 2020 |
|
||
|
Assets |
|
|
|
|
|
|
|
|
|
|
Operating lease assets |
Operating lease assets |
|
$ |
|
|
|
$ |
|
|
|
Liabilities |
|
|
|
|
|
|
|
|
|
|
Current |
|
|
|
|
|
|
|
|
|
|
Operating |
Current portion of operating lease liabilities |
|
|
|
|
|
|
|
|
|
Non Current |
|
|
|
|
|
|
|
|
|
|
Operating |
Operating lease liabilities |
|
|
|
|
|
|
|
|
|
Total lease liabilities |
|
|
$ |
|
|
|
$ |
|
|
Maturities of lease liabilities for third-party operating leases as of June 30, 2021 were as follows:
|
|
|
Third-Party Maturities of Lease Liability |
|
|
|
2021 |
|
$ |
|
|
|
2022 |
|
|
|
|
|
2023 |
|
|
|
|
|
2024 |
|
|
|
|
|
2025 |
|
|
|
|
|
Thereafter |
|
|
|
|
|
Total minimum lease payments |
|
$ |
|
|
8
4FRONT VENTURES CORP.
Notes to Consolidated Interim Financial Statements
For the Six Months Ended June 30, 2021 and 2020 (unaudited)
Amounts expressed in thousands of United States dollars unless otherwise stated
The Company has right-of-use assets and lease liabilities for leased real estate for dispensaries, cultivation facilities and office space. The incremental borrowing rate for the Company on January 1, 2020 through June 30, 2021 was between
(b)The Company as a Lessor:
The Company leases a building in Elma, Washington that is subleased by the Company to a third party. This sublease is classified as a finance lease with a lease receivable balance of $
The Company owned buildings in Olympia, Washington that were leased to a third party. This lease was classified as a finance lease. On December 17, 2020, the Company sold the Olympia building and other assets as part of a sale and leaseback transaction and this lease was cancelled. The Company applied ASC 842 to a new sublease to the same third party and classified the new sublease as an operating lease. The lease receivable was sold to the purchaser of the assets as part of the sale and leaseback transaction. This lease generated $
The following table summarizes changes in the Company’s lease receivables:
|
|
|
June 30, 2021 |
|
|
December 31, 2020 |
|
||
|
Balance, beginning of the year |
|
$ |
|
|
|
$ |
|
|
|
Acquisitions |
|
|
— |
|
|
|
— |
|
|
Sale of assets in sale leaseback |
|
|
— |
|
|
|
( |
) |
|
Interest |
|
|
|
|
|
|
|
|
|
Lease payments received |
|
|
( |
) |
|
|
( |
) |
|
Balance, end of the period |
|
$ |
|
|
|
$ |
|
|
|
Less current portion |
|
|
( |
) |
|
|
( |
) |
|
Long term lease receivables |
|
$ |
|
|
|
$ |
|
|
Future minimum lease payments receivable (principal and interest) on the leases is as follows:
|
|
|
As of June 30, 2021 |
|
|
|
2021 |
|
$ |
|
|
|
2022 |
|
|
|
|
|
2023 |
|
|
|
|
|
2024 |
|
|
— |
|
|
2025 |
|
|
— |
|
|
Thereafter |
|
|
— |
|
|
Total minimum lease payments |
|
$ |
|
|
|
Effect of discounting |
|
|
( |
) |
|
Present value of minimum lease payments |
|
|
|
|
|
Present value of residual of leased property |
|
|
|
|
|
Total lease receivable |
|
$ |
|
|
|
Current portion lease receivable |
|
|
( |
) |
|
Long term lease receivable |
|
$ |
|
|
9
4FRONT VENTURES CORP.
Notes to Consolidated Interim Financial Statements
For the Six Months Ended June 30, 2021 and 2020 (unaudited)
Amounts expressed in thousands of United States dollars unless otherwise stated
|
7. |
NOTES PAYABLE AND CONVERTIBLE NOTES |
The Company’s notes payable and convertible notes are as follows:
|
|
|
Gotham Green Partners, LLC |
|
|
LI Lending, LLC |
|
|
May 2020 Convertible Notes |
|
|
May 2020 Convertible Notes (Swap) |
|
|
Other Loans |
|
|
Total |
|
||||||
|
Balance, December 31, 2019 |
|
$ |
|
|
|
$ |
|
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
|
|
$ |
|
|
|
Loans advanced, net |
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
Equity exchanged |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
Equity component |
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
|
Accretion income |
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
Loan payments |
|
|
( |
) |
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
|
Gain on extinguishment of debt |
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
Converted to equity |
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
|
Accrued interest |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2020 |
|
$ |
— |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Loans advanced, net |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
Equity component |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Loan payments |
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
|
Converted to equity |
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
|
Accrued interest |
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
Balance, June 30, 2021 |
|
$ |
— |
|
|
$ |
|
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
|
|
$ |
|
|
|
|
|
Gotham Green Partners, LLC |
|
|
LI Lending, LLC |
|
|
May 2020 Convertible Notes |
|
|
May 2020 Convertible Notes (Swap) |
|
|
Other Loans |
|
|
Total |
|
||||||
|
Balance, December 31, 2020 |
|
$ |
— |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Less current portion |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
|
Long term portion |
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, June 30, 2021 |
|
$ |
— |
|
|
$ |
|
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
|
|
$ |
|
|
|
Less current portion |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
|
Long term portion |
|
$ |
— |
|
|
$ |
|
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
|
|
$ |
|
|
Convertible Notes
On
As part of issuing the convertible notes, the investors were given the right to exchange stock in the Company into separate convertible notes (swap notes) (“May 2020 Convertible Notes (Swap)”). In total
10
4FRONT VENTURES CORP.
Notes to Consolidated Interim Financial Statements
For the Six Months Ended June 30, 2021 and 2020 (unaudited)
Amounts expressed in thousands of United States dollars unless otherwise stated
conversion at any time that the Company’s stock price remains above $
Gotham Green Partners LLC
Through the RTO, the Company assumed senior secured convertible notes issued to Gotham Green Partners LLC (“GGP”). The convertible loan has a fair value on acquisition of $
On January 29, 2020, the Company issued convertible secured promissory notes for a total of $
LI Lending LLC
On May 10, 2019, the Company entered into a loan agreement with LI Lending LLC, a related party, for $
In April 2020, the loan was amended. In exchange for consent to allow the sale of the Pennsylvania and Maryland assets and the release of related collateral, the Company agreed to make prepayments of principal to LI Lending in the amount of $
In December 2020, the loan was amended to allow for the release of collateral for the sale lease back transactions described in Note 6 above, which were entered into with Innovative Industrial Properties, Inc. (“IIPR”). The amendment increased both interest rates by
The loan matures on
11
4FRONT VENTURES CORP.
Notes to Consolidated Interim Financial Statements
For the Six Months Ended June 30, 2021 and 2020 (unaudited)
Amounts expressed in thousands of United States dollars unless otherwise stated
Other
Outstanding as of June 30, 2021 were other payables totaling $
|
Subsidiary |
|
Terms |
|
June 30, 2021 |
|
|
December 31, 2020 |
|
||
|
Healthy Pharms Inc. |
|
Unsecured convertible note at $ |
|
$ |
|
|
|
$ |
|
|
|
Healthy Pharms Inc. |
|
Unsecured promissory note, due |
|
|
|
|
|
|
|
|
|
Om of Medicine, LLC |
|
Membership interest purchase agreement contingent payment due |
|
|
|
|
|
|
— |
|
|
Arkansas Entities |
|
Unsecured promissory note, monthly interest payments at |
|
|
|
|
|
|
|
|
|
Equipment Loans |
|
Secured by equipment, monthly payments beginning in |
|
|
|
|
|
|
|
|
|
Other |
|
|
|
|
|
|
|
|
|
|
|
Total Notes Payable and Convertible Notes |
$ |
|
|
|
$ |
|
|
|||
Future minimum payments on the notes payable and convertible debt are as follows:
|
|
|
|
|
June 30, 2021 |
|
|
|
2021 |
|
|
$ |
|
|
|
|
|
2022 |
|
|
|
|
|
|
|
2023 |
|
|
|
— |
|
|
|
2024 |
|
|
|
|
|
|
|
2025 |
|
|
|
— |
|
|
Thereafter |
|
|
|
— |
|
|
|
Total minimum payments |
|
|
|
|
|
|
|
Effect of discounting |
|
|
|
( |
) |
|
|
Present value of minimum payments |
|
|
|
|
|
|
|
Current portion |
|
|
|
( |
) |
|
|
Long-term portion |
|
|
$ |
|
|
|
|
8. |
SHARE CAPITAL AND EQUITY |
The Company has authorized an unlimited number of Class A Subordinate Voting Shares (“SVS”), and Class C Multiple Voting Shares (“MVS”), all with no par value. All share classes are included within share capital in the consolidated statements of shareholder’s equity on an as converted basis. Each share class is entitled to notice of and to attend at any meeting of the shareholders, except a meeting of which only holders of another particular class of shares will have the right to vote. All share classes are entitled to receive dividends as, and when declared by the Company, on an as-converted basis, and no dividends will be declared by the Company on any individual class unless the Company simultaneously declares or pays dividends on all share classes. No subdivision or consolidation of any share class shall be made without simultaneously subdividing or consolidating all share classes in the same manner.
Class A Subordinate Voting Shares
Holders of Class A Subordinate Voting Shares are entitled to
12
4FRONT VENTURES CORP.
Notes to Consolidated Interim Financial Statements
For the Six Months Ended June 30, 2021 and 2020 (unaudited)
Amounts expressed in thousands of United States dollars unless otherwise stated
Class C Multiple Voting Shares
Holders of Class C Multiple Voting Shares are entitled to
|
Series |
|
Shares outstanding as of June 30, 2021 |
|
|
As converted to SVS Shares |
|
||
|
Class A – Subordinate Voting Shares |
|
|
|
|
|
|
|
|
|
Class C – Multiple Voting Shares |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
On November 23, 2020, the Company closed a bought deal prospectus offering of
Because of the Canadian dollar denominated exercise price, these warrants do not qualify to be classified within equity and are therefore classified as derivative liabilities at fair value through profit or loss “FVTPL”. On November 23, 2020, the warrants were valued using the Black Scholes option pricing model at $
On June 30, 2021, the warrants were revalued using the Black Scholes option pricing model, using the following assumptions: Share Price: C$
|
9. |
WARRANTS |
As of June 30, 2021, there were share purchase warrants outstanding to purchase up to
|
Series |
|
Number of warrants |
|
|
Weighted average exercise price |
|
||
|
Balance, December 31, 2020 |
|
|
|
|
|
$ |
|
|
|
Issued |
|
|
— |
|
|
|
— |
|
|
Exercised |
|
|
( |
) |
|
|
|
|
|
Balance, June 30, 2021 |
|
|
|
|
|
$ |
|
|
13
4FRONT VENTURES CORP.
Notes to Consolidated Interim Financial Statements
For the Six Months Ended June 30, 2021 and 2020 (unaudited)
Amounts expressed in thousands of United States dollars unless otherwise stated
As of June 30, 2021, the Company has the following warrants outstanding and exercisable.
|
Warrants Outstanding |
|
|
Exercise Price |
|
|
Expiry Date |
||
|
|
|
|
|
$ |
|
|
|
|
|
|
|
|
|
$ |
|
|
|
|
|
|
|
|
|
$ |
|
|
|
|
|
|
|
|
|
$ |
C |
|
|
|
|
|
|
|
|
$ |
C |
|
|
|
|
|
|
|
|
$ |
|
|
|
|
|
|
|
|
|
$ |
|
|
|
|
|
|
|
|
|
$ |
C |
|
|
|
|
|
|
|
|
$ |
C |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10. |
SHARE-BASED COMPENSATION |
The Company grants stock options under the Company’s Amended and Restated Stock Option Plan. Under the terms of the plan, the maximum number of stock options which may be granted are a total of
As of June 30, 2021, the Company had the following options outstanding and exercisable on an as-converted basis:
|
Grant Date |
|
Strike Price in C$ |
|
|
Options Outstanding |
|
|
Exercisable Options |
|
|
Life Remaining (years) |
|
||||
|
July 31, 2019 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
July 31, 2019 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
July 31, 2019 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
July 31, 2019 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
July 31, 2019 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
August 22, 2019 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
August 22, 2019 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
November 1, 2019 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
February 3, 2020 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 8, 2020 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
July 31, 2020 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 15, 2020 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
October 2, 2020 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
November 24, 2020 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 2, 2020 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 21, 2020 |
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
March 18, 2021 |
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
April 2, 2021 |
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
April 21, 2021 |
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
June 23, 2021 |
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
June 28, 2021 |
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock option activity is summarized as follows:
14
4FRONT VENTURES CORP.
Notes to Consolidated Interim Financial Statements
For the Six Months Ended June 30, 2021 and 2020 (unaudited)
Amounts expressed in thousands of United States dollars unless otherwise stated
|
|
|
Number of |
|
|
Weighted Average |
|
|
Weighted Average |
|
|||
|
|
|
Options |
|
|
Price CAD$ |
|
|
Years |
|
|||
|
Balance December 31, 2019 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted |
|
|
|
|
|
|
|
|
|
|
— |
|
|
Exercised |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Forfeited |
|
|
( |
) |
|
|
|
|
|
|
— |
|
|
Balance December 31, 2020 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted |
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercised |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
Balance June 30, 2021 |
|
|
|
|
|
|
|
|
|
|
|
|
The Company recognized share-based compensation expense of $
In determining the amount of equity-based compensation during the period, the Company used the Black-Scholes option pricing model to establish fair value of options granted during the period with the following key assumption:
|
|
|
|
|
|
|
Risk-Free Interest Rate |
|
0.87% to 0.92% |
|
|
|
Expected Life of Options (years) |
|
|
|
|
|
Expected Annualized Volatility |
|
86.2% to 93.53% |
|
|
|
Expected Dividend Yield |
|
|
|
|
|
11. |
RELATED PARTIES |
Related party transactions
An officer and director of the Company, and a director of the Company serve as principals of LI Lending LLC, which extended the Company a real estate improvement/development loan of $
An officer of the Company holds an interest in an online marketing company serving the online CBD market which provides online marketing services for Pure Ratios. Pure Ratios paid $
During 2020, the Company considered 7Point Holdings LLC (“7 Point”) a related party due to a common executive. However, as a result of his departure, 7Point was no longer considered a related party as of December 31, 2020.
7Point and the Company are parties to a commercial sublease expiring
|
12. |
CONTINGENCIES |
|
(a) |
Cannabis Industry |
Cannabis is still considered a Schedule 1 substance under the Controlled Substance Act. As such, there is an inherent risk related to the federal government’s position on cannabis; additionally, the risk exists, due to the Company’s business in cannabis, that third party service providers could suspend or withdraw services and as well as the risk that regulatory bodies could impose certain restrictions on the issuer’s ability to operate in the U.S.; however, the Company has deemed it not reasonable to estimate a potential liability related to the possible enforcement of laws against the medical cannabis industry.
15
4FRONT VENTURES CORP.
Notes to Consolidated Interim Financial Statements
For the Six Months Ended June 30, 2021 and 2020 (unaudited)
Amounts expressed in thousands of United States dollars unless otherwise stated
|
(b) |
Contingent consideration payable |
As part of the acquisition of Om of Medicine, LLC the Company is subject to contingent consideration payable to the original sellers.
|
|
|
Om of Medicine |
|
|
|
Balance, December 31, 2020 |
|
$ |
|
|
|
Additions |
|
|
— |
|
|
Accretion |
|
|
|
|
|
Payments |
|
|
( |
) |
|
Notes issued |
|
|
( |
) |
|
Shares issued |
|
|
( |
) |
|
Balance, June 30, 2021 |
|
$ |
|
|
The contingent consideration payable is measured at fair value based on unobservable inputs and is considered a Level 3 financial instrument. The determination of the fair value of these liabilities is primarily driven by the Company’s expectations of the respective subsidiaries achieving certain milestones. The expected milestones were assigned probabilities and the expected related cash flows were discounted to derive the fair value of the contingent consideration.
|
OM of Medicine: The contingent consideration payable is determined as the amount in excess of gross sales of $ |
|
(c) |
Legal Matters |
From time to time, the Company may be involved in certain disputes arising in the ordinary course of business. Such disputes, taken in the aggregate, are not expected to have a material adverse effect on the Company. Except as disclosed under the heading “Legal Proceedings” below as of June 30, 2021, there were
|
13. |
FINANCIAL INSTRUMENTS AND FINANCIAL RISK MANAGEMENT |
The Company’s financial instruments consist of cash, accounts receivable, other receivables, notes receivable, accounts payable and accrued expenses, contingent consideration payable, notes payable, and derivative liabilities. The carrying values of these financial instruments approximate their fair values as of June 30, 2021 and December 31, 2020.
Financial instruments recorded at fair value are classified using a fair value hierarchy that reflects the significance of the inputs to fair value measurements. The three levels of hierarchy are:
|
|
Level 1 |
quoted prices (unadjusted) in active markets for identical assets or liabilities. |
|
|
Level 2 |
inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly (i.e., as prices) or indirectly (i.e., derived from prices); and |
|
|
Level 3 |
inputs for the asset or liability that are not based on observable market data (unobservable inputs). |
The fair value of the Company’s cash, accounts receivable, other receivables, accounts payable and accrued expenses approximate the carrying value due to their short-term nature. The Company’s notes receivable, convertible notes payable, and notes payable approximate fair value due to the instruments bearing market rate of interest.
There were
16
4FRONT VENTURES CORP.
Notes to Consolidated Interim Financial Statements
For the Six Months Ended June 30, 2021 and 2020 (unaudited)
Amounts expressed in thousands of United States dollars unless otherwise stated
|
(a) |
Financial Risk Management |
The Company is exposed in varying degrees to a variety of financial instruments related risks. The Board mitigates these risks by assessing, monitoring, and approving the Company’s risk management processes.
|
(b) |
Credit Risk |
Credit risk is the risk of loss associated with counterparty’s inability to fulfill its payment obligations. The Company’s credit risk is primarily attributable to cash, lease receivables, other receivables, and notes receivable. The Company’s maximum credit risk exposure is equivalent to the carrying value of these instruments.
The risk exposure is limited to the carrying amounts at the statement of financial position date. The risk to cash deposits is mitigated by holding these instruments with regulated financial institutions. Lease receivables, notes receivables and other receivables credit risk arises from the possibility that principal and interest due may become uncollectible. The Company mitigates this risk by managing and monitoring the underlying business relationships.
The Company maintains cash with federally insured financial institutions. As of June 30, 2021 and December 31, 2020, the Company exceeded federally insured limits by approximately $
As of June 30, 2021, the maximum credit exposure related to the carrying amounts of accounts receivable, notes receivable and lease receivables was $
|
(c) |
Liquidity Risk |
Liquidity risk is the risk that the Company will not be able to meet its financial obligations associated with financial liabilities. The Company manages liquidity risk through the management of its capital structure. The Company’s approach to managing liquidity is to raise sufficient capital to settle obligations and liabilities when due.
|
(d) |
Interest Rate Risk |
Interest rate risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in market interest rates. The Company’s secured convertible notes with GGP (Note 7) had variable interest rates and were paid in full in December 2020.
|
(e) |
Foreign Exchange Risk |
The Company is exposed to exchange rate fluctuations between United States and Canadian dollars. The Company’s share price is denominated in Canadian dollars. If the Canadian dollar declines against the United States dollar, the United States dollar amounts available to fund the Company through the exercise of stock options or warrants will be less. The Company also has bank accounts with balances in Canadian dollars. The value of these bank balances if converted to U.S. dollars will fluctuate. While the Company maintains a head office in Canada where it incurs expenses primarily denominated in Canadian dollars, such expenses are a small portion of overall expenses incurred by the Company. The Company does not have a practice of trading derivatives and does not engage in “natural hedging” for funds held in Canada.
|
(f) |
Other Price Risk |
Price risk is the risk of variability in fair value due to movements in equity or market prices. The Company is subject to risk of prices to its products due to competitive or regulatory pressures.
17
4FRONT VENTURES CORP.
Notes to Consolidated Interim Financial Statements
For the Six Months Ended June 30, 2021 and 2020 (unaudited)
Amounts expressed in thousands of United States dollars unless otherwise stated
|
14. |
SEGMENT INFORMATION |
Operating segments are components of the Company that combine similar business activities, with activities grouped to facilitate the evaluation of business units and allocation of resources by the Company’s board and management. As of June 30, 2021, the Company had
|
|
• |
THC Cannabis – Production and cultivation of THC cannabis, manufacturing, and distribution of cannabis products to own dispensaries and third-party retail customers, ancillary services supporting wholesale operations, and retail sales direct to end consumers |
|
|
• |
CBD Wellness – Pure Ratios which encompasses the production and sale of CBD products to third-party customers |
All revenues are derived from customers domiciled in the United States and all assets are located in the United States.
|
|
|
June 30, 2021 |
|
|
June 30, 2020 |
|
||
|
Net Revenues |
|
|
|
|
|
|
|
|
|
THC Cannabis |
|
$ |
|
|
|
$ |
|
|
|
CBD Wellness |
|
|
|
|
|
|
|
|
|
Corporate |
|
|
— |
|
|
|
— |
|
|
Total Net Revenues |
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and Amortization |
|
|
|
|
|
|
|
|
|
THC Cannabis |
|
$ |
|
|
|
$ |
|
|
|
CBD Wellness |
|
|
|
|
|
|
|
|
|
Corporate |
|
|
|
|
|
|
— |
|
|
Total Depreciation and Amortization |
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2021 |
|
|
December 31, 2020 |
|
||
|
Assets |
|
|
|
|
|
|
|
|
|
THC Cannabis |
|
$ |
|
|
|
$ |
|
|
|
CBD Wellness |
|
|
|
|
|
|
|
|
|
Corporate |
|
|
|
|
|
|
|
|
|
Total Assets |
|
$ |
|
|
|
$ |
|
|
Goodwill assigned to the THC Cannabis segment as of June 30, 2021 and December 31, 2020 was $
Goodwill and Intangible Assets assigned to the CBD Wellness segment as of June 30, 2021 and December 31, 2020 were $nil.
18
4FRONT VENTURES CORP.
Notes to Consolidated Interim Financial Statements
For the Six Months Ended June 30, 2021 and 2020 (unaudited)
Amounts expressed in thousands of United States dollars unless otherwise stated
15. SUPPLEMENTARY CASH FLOW INFORMATION
Changes in non-cash working capital for six months ended June 30:
|
Changes in operating assets and liabilities |
|
2021 |
|
|
2020 |
|
||
|
Accounts receivable |
|
$ |
( |
) |
|
$ |
|
|
|
Deposits |
|
|
( |
) |
|
|
— |
|
|
Inventory |
|
|
( |
) |
|
|
( |
) |
|
Prepaid expenses |
|
|
|
|
|
|
|
|
|
Accounts payable and other liabilities |
|
|
|
|
|
|
( |
) |
|
Taxes payable |
|
|
|
|
|
|
|
|
|
|
|
$ |
( |
) |
|
$ |
( |
) |
|
|
• |
Cash paid for interest in for six months ended June 30, 2021 and 2020 was $ |
|
|
• |
Cash paid for income taxes for the six months ended June 30, 2021 and 2020 was $ |
|
16. |
INCOME TAXES |
The following table summarizes the Company’s income tax expense and effective tax rates for the six months ended June 30, 2021 and 2020:
|
|
|
Six Months Ended June 30, |
|
|||||
|
|
|
2021 |
|
|
2020 |
|
||
|
Net loss before income taxes |
|
$ |
( |
) |
|
$ |
( |
) |
|
Income tax expense |
|
$ |
( |
) |
|
$ |
( |
) |
|
Effective tax rate |
|
|
( |
)% |
|
|
( |
)% |
The Company has computed its provision for income taxes under the discrete method which treats the year-to-date period as if it were the annual period and determines the income tax expense or benefit on that basis. The discrete method is applied when application of the estimated annual effective tax rate is impractical because it is not possible to reliably estimate the annual effective tax rate. The Company believes the use of this discrete method is more appropriate than the annual effective tax rate method due to the early growth stage of the business. At this time, there is a high degree of uncertainty in estimating the Company’s annual pre-tax income and significant non-deductible expenses so the Company cannot reliably estimate the annual effective tax rate.
Internal Revenue Code (“IRC”) Section 280E denies, at the U.S. federal level, deductions, and credits attributable to a trade or business trafficking in controlled substances. Because the Company is subject to IRC Section 280E, the Company has computed its U.S. tax based on gross receipts less cost of goods sold. The tax provisions for the six months ended June 30, 2021 and 2020, have been prepared based on the assumption that cost of goods sold is a valid expense for income tax purposes.
The effective tax rate for the six months ended June 30, 2021 varies widely from the six months ended June 30, 2020, primarily due to the increase in non-deductible expenses as a proportion of total expenses in the current year. The Company incurs expenses that are not deductible due to IRC Section 280E limitations which results in significant income tax expense.
The federal statute of limitation remains open for the
|
17. |
DISPOSALS AND DISCONTINUED OPERATIONS |
On January 21, 2020, the Company sold
19
4FRONT VENTURES CORP.
Notes to Consolidated Interim Financial Statements
For the Six Months Ended June 30, 2021 and 2020 (unaudited)
Amounts expressed in thousands of United States dollars unless otherwise stated
On March 20, 2020, the Company completed the divestiture of PHX Interactive LLC and Greens Goddess Inc. through a sale to a third party for $
Between April 1, 2020 and September 30, 2020, the Company completed the sale of dispensaries in Pennsylvania, Maryland, and Arkansas, and of management companies that control
The entities that were sold during the six months ended June 30, 2021 and 2020 were part of the THC Cannabis segment (Note 14).
|
|
|
Three Months Ended June 30, |
|
|
Six Months Ended June 30, |
|
||||||||||
|
|
|
2021 |
|
|
2020 |
|
|
2021 |
|
|
2020 |
|
||||
|
REVENUE |
|
$ |
— |
|
|
$ |
|
|
|
$ |
— |
|
|
$ |
|
|
|
Cost of goods sold |
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
|
Gross profit |
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
OPERATING EXPENSES |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling and marketing expenses |
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
Depreciation and amortization |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
Gain on sale of subidiary |
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
|
Total operating (income) expenses |
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
|
Income from operations |
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
Interest expense |
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
|
Net income before income taxes |
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
Income tax expense |
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
|
Net income after income tax expense |
|
$ |
— |
|
|
$ |
|
|
|
$ |
— |
|
|
$ |
|
|
Cash flows generated by the discontinued operations are reported as a single line item in each section of the condensed consolidated interim statements of cash flows and are summarized as follows:
|
|
|
Six Months Ended June 30, |
|
|||||
|
|
|
2021 |
|
|
2020 |
|
||
|
Net cash used in operating activities |
|
$ |
— |
|
|
$ |
|
|
|
Net cash used in investing activities |
|
|
— |
|
|
|
( |
) |
|
Net cash provided by financing activities |
|
|
— |
|
|
|
— |
|
|
Cash flows from discontinued operations |
|
$ |
— |
|
|
$ |
|
|
20
4FRONT VENTURES CORP.
Notes to Consolidated Interim Financial Statements
For the Six Months Ended June 30, 2021 and 2020 (unaudited)
Amounts expressed in thousands of United States dollars unless otherwise stated
|
18. |
SUBSEQUENT EVENTS |
(a) Illinois Development Project
The Company announced on August 5, 2021 the first closing of a multiphase expansion project to build an up to
(b) Approval for Adult-Use Cannabis Sales
On July 15, 2021, the Company received final approval from the Massachusetts Cannabis Control Commission to open the Company’s third adult-use retail dispensary in Massachusetts. Located at 1024 Commonwealth Avenue, Boston, MA, the dispensary will hold its grand opening on August 21, 2021.
21
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements generally relate to future events or our future financial or operating performance and may include statements concerning, among other things, our business strategy (including anticipated trends and developments in, and management plans for, our business and the markets in which we operate), financial results, the impact of COVID-19 on our business, operations, and the markets and communities in which we, our clients, and partners operate, results of operations, revenues, operating expenses, and capital expenditures, sales and marketing initiatives and competition. In some cases, you can identify forward-looking statements because they contain words such as “may,” “might,” “will,” “should,” “expects,” “plans,” “anticipates,” “could,” “intends,” “target,” “projects,” “contemplates,” “believes,” “estimates,” “predicts,” “suggests,” “potential” or “continue” or the negative of these words or other similar terms or expressions that concern our expectations, strategy, plans or intentions. These statements are not guarantees of future performance; they reflect our current views with respect to future events and are based on assumptions and are subject to known and unknown risks, uncertainties and other factors that may cause our actual results, performance, or achievements to be materially different from expectations or results projected or implied by forward-looking statements.
We discuss many of these risks in other filings we make from time to time with the Securities and Exchange Commission (the “SEC”). Also, these forward-looking statements represent our estimates and assumptions only as of the date of this Quarterly Report on Form 10-Q, which are inherently subject to change and involve risks and uncertainties. Unless required by federal securities laws, we assume no obligation to update any of these forward-looking statements, or to update the reasons actual results could differ materially from those anticipated, to reflect circumstances or events that occur after the statements are made. Given these uncertainties, investors should not place undue reliance on these forward-looking statements.
Investors should read this Quarterly Report on Form 10-Q and the documents that we reference in this report and have filed with the SEC and on SEDAR, including our Annual Report on Form 10-K, filed with the SEC on April 7, 2021, with the understanding that our actual future results may be materially different from what we expect. We qualify all of our forward-looking statements by these cautionary statements for the three and six months ended June 30, 2021 and 2020.
Unless the context otherwise indicates, when used in this Quarterly Report on Form 10-Q, “4Front,” “the Company,” “we,” “us” and “our” refer to 4Front Ventures Corp., a British Columbia corporation, and its wholly owned subsidiaries on a consolidated basis.
Overview
The Company exists pursuant to the provisions of the Business Corporations Act (British Columbia). The Company’s SVS are listed on the Canadian Securities Exchange (“CSE”) under the ticker “FFNT” and are quoted on the OTC (OTCQX: FFNTF).
The Company has two primary operating segments: THC Cannabis and CBD Wellness. With regard to its THC Cannabis segment, as of June 30, 2021, the Company operated five dispensaries in Massachusetts, Illinois, and Michigan, primarily under the “MISSION” brand name. Also, as of June 30, 2021, the Company operated two production facilities in Massachusetts and one in Illinois. The Company produces the majority of products that are sold at its Massachusetts and Illinois dispensaries. Also, as part of its THC Cannabis segment, the Company sells equipment, supplies and intellectual property to cannabis producers in the state of Washington.
The Company’s CBD Wellness segment is focused upon its ownership and operation of its wholly owned subsidiary, Pure Ratios Holdings, Inc. (“Pure Ratios”), a CBD-focused wellness company in California, that sells non-THC products throughout the United States.
While marijuana is legal under the laws of several U.S. states (with varying restrictions), the United States Federal Controlled Substances Act classifies all “marijuana” as a Schedule I drug, whether for medical or recreational use. Under U.S. federal law, a Schedule I drug or substance has a high potential for abuse, no accepted medical use in the United States, and a lack of safety data for the use of the drug under medical supervision. In late January 2021, Senate Majority Leader Chuck Schumer said lawmakers are in the process of merging various cannabis bills, including his own legalization legislation. He is working to enact reform in this Congressional session. This would include the Marijuana Freedom and Opportunity Act, that would federally de-schedule cannabis, reinvest tax revenue into communities most affected by the drug war, and fund efforts to expunge prior cannabis records. It is likely that the Marijuana Opportunity, Reinvestment, and Expungement (MORE) Act would be incorporated. Other federal legislation under review for possible submission includes the Secure and Fair Enforcement Act (the “SAFE Banking Act”), a bill that would allow cannabis companies to access the federally insured banking system and capital markets without the risk of federal enforcement action, and the Strengthening the Tenth Amendment Through Entrusting States Act (the STATES Act), a bill that seeks protections for businesses and individuals in states that have legalized and comply with state laws.
22
The Company’s Interim Financial Statements are prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”), and the financial information contained herein, are reported in thousands (000’s) of United States dollars (“$”) unless otherwise specified. Canadian dollar amounts are denoted by “C$”.
Recent Developments
Final Close on Illinois Cultivation and Production Facility Project
The Company announced on August 5, 2021 the first closing of a multiphase expansion project to build an up to 558,000 sq. ft. cultivation and production facility (the “Facility”) in the Village of Matteson, Illinois, located outside of Chicago. The Company plans to use the Facility to produce the Company's more than 20 in-house brands and 200 products, which will be offered to Illinois customers at an accessible price point at its Mission Dispensaries and partner dispensaries across Illinois.
Massachusetts Brookline Mission Dispensary Grand Opening
On July 15, 2021, the Company received final approval from the Massachusetts Cannabis Control Commission to open the Company’s third adult-use retail dispensary in Massachusetts. Located at 1024 Commonwealth Avenue, Boston, MA, the dispensary will hold its grand opening on August 21, 2021.
COVID-19
In March 2020, the United States and much of the world began to experience a rapid increase in the number of COVID-19 cases. The emergence of COVID-19, an extremely infectious airborne respiratory virus, caused a significant response on the part of many governments to contain it. The most relevant containment measure for the Company’s business is the implementation of “essential” type business designations and implementation of social distancing protocols. Thus far, the Company’s dispensaries and operations have been allowed to continue operating. Social distancing protocols have been implemented at the Company’s dispensaries which meet or exceed those required by the local jurisdiction. Through the date of this Quarterly Report on Form 10-Q, sales continue to meet or exceed comparable periods prior to March 2020, however there is no guarantee that the Company’s dispensaries/operations will not see future negative effects from COVID-19.
The situation related to the pandemic and recovery from the pandemic continues to be complex and rapidly evolving. Certain vaccines have been authorized by major regulatory bodies to help fight the infection of COVID-19, and certain other vaccines are in the last stages of development to provide such treatment. While it is anticipated in the ensuing months that authorized vaccines will become more widely available to the public, vaccine availability remains limited in certain regions and the timeline to sufficiently mitigate the effects of the pandemic through vaccines or other measures remains uncertain. If COVID-19 persists or worsens before vaccines or other treatments are made widely available, there may be further external developments, such as restrictions imposed by government authorities, that are beyond our control and may impact our operating plans. Parts of our business have experienced and may continue to experience, operational disruption and customer demand impacts. Furthermore, the impact of the Delta variant cannot be predicted at this time, and could depend on numerous factors, including vaccination rates among the population, the effectiveness of COVID-19 vaccines against the Delta variant and the response by governmental bodies and regulators. As such, we are unable to reasonably estimate the duration of the pandemic or fully ascertain its long-term impact to our business.
Commerce Facility
The Company is building a cannabis manufacturing facility in Commerce, California, and expects to begin operating the facility in the third quarter of 2021. Manufactured products will be sold to licensed dispensaries in California.
Director and Officer Personnel Changes
On May 24, 2021, Joshua Rosen provided notice of his resignation as a member of the board of directors of the Company, and the board of directors accepted Mr. Rosen’s resignation effective as of the same date. Mr. Rosen’s resignation was not in connection with any known disagreement with the Company on any matter relating to the Company’s operations, policies, or practices. In connection with his resignation, the Compensation Committee of the Board agreed to extend the expiry date of Mr. Rosen’s outstanding options to purchase (i) 4,095 SVS until September 16, 2024, at an exercise price of $8.00 per share, (ii) 25,000 SVS until August 22, 2024 at an exercise price of $80.00 per share, and (iii) 2,000,000 SVS until December 2, 2025 at an exercise price of $1.11 per share.
Mr. Rosen served as the chairman of the Board. In order to fill the vacancy as board chairman created by Mr. Rosen’s resignation, also on May 24, 2021, the Board appointed current board member Kathi Lentzsch as chairperson of the Board.
23
Effective July 1, 2021, the Company terminated its month-to-month independent contractor arrangement with Peter Rennard in his position as Interim Chief Financial Officer of the Company. Mr. Rennard’s termination was not in connection with any known disagreement with the Company on any matter relating to the Company’s operations, policies or practices, including accounting principles and practices.
Effective July 15, 2021, the Company’s board of directors appointed Andrew Thut as the Company’s Interim Chief Financial Officer while the Company continues its search for a permanent Chief Financial Officer. Mr. Thut joined the Company in October 2014 as its Chief Investment Officer and will continue to serve as Chief Investment Officer during his tenure as Interim Chief Financial Officer of the Company.
RESULTS OF OPERATIONS
|
|
|
For the Three Months Ended June 30, |
|
|
For the Six Months Ended June 30, |
|
||||||||||
|
|
|
2021 |
|
|
2020 |
|
|
2021 |
|
|
2020 |
|
||||
|
Total revenues |
|
$ |
27,121 |
|
|
$ |
12,701 |
|
|
$ |
50,091 |
|
|
$ |
25,353 |
|
|
Cost of goods sold |
|
|
(10,816 |
) |
|
|
(8,046 |
) |
|
|
(19,941 |
) |
|
|
(12,695 |
) |
|
Gross profit |
|
|
16,305 |
|
|
|
4,655 |
|
|
|
30,150 |
|
|
|
12,658 |
|
|
Total expenses |
|
|
(22,523 |
) |
|
|
(15,144 |
) |
|
|
(47,452 |
) |
|
|
(31,801 |
) |
|
Net loss from continuing operations |
|
|
(6,218 |
) |
|
|
(10,489 |
) |
|
|
(17,302 |
) |
|
|
(19,143 |
) |
|
Net income from discontinued operations |
|
|
— |
|
|
|
9,840 |
|
|
|
— |
|
|
|
10,712 |
|
|
Net loss |
|
|
(6,218 |
) |
|
|
(649 |
) |
|
$ |
(17,302 |
) |
|
$ |
(8,431 |
) |
|
Net income attributable to non-controlling interest |
|
|
5 |
|
|
|
(38 |
) |
|
|
10 |
|
|
|
(26 |
) |
|
Net loss attributable to shareholders |
|
|
(6,223 |
) |
|
|
(611 |
) |
|
$ |
(17,312 |
) |
|
$ |
(8,405 |
) |
|
|
|
June 30, 2021 |
|
|
December 31, 2020 |
|
||
|
Total assets |
|
$ |
208,764 |
|
|
$ |
204,756 |
|
|
Total liabilities |
|
|
155,196 |
|
|
|
162,553 |
|
|
Total equity |
|
|
53,568 |
|
|
|
42,203 |
|
Components of Revenue
Revenue
As of June 30, 2021, 4Front owns or manages operations in California, Illinois, Massachusetts, Michigan, and Washington. Since commencing operations 4Front has generated revenue in each state. Adult use sales began in August 2020 in Georgetown, MA, and in September 2020 in Worcester, MA. The Company opened its Calumet City, IL dispensary in December 2020. The additional adult use sales and the new dispensary have driven sales higher in 2021. The Company has utilized cultivation and production techniques developed by Cannex for its Washington state customers to increase the yields and quality of products produced in Illinois and Massachusetts. The ability to supply the Company’s adult use dispensaries will ensure that the Company can meet increasing demand. As production increases, the Company will begin to sell excess production in the wholesale market. The company also sells equipment and supplies to third party cannabis operators and sells non-THC wellness products through its Pure Ratios subsidiary.
Revenue from Sale of Goods
Revenue from sale of goods includes the sale of cannabis products through the Company’s dispensaries. These products are either manufactured by the Company or are purchased from other licensed cannabis companies. Also included are equipment and supply sales and non-THC wellness product sales.
Real Estate Income
Real estate income from leasing cannabis production facilities to third party cannabis operators in the state of Washington.
Gross Profit
Gross profit is revenue less cost of goods sold. Cost of goods sold includes the costs to purchase products from third parties and includes finished goods such as flower, edibles, and concentrates. Cost of goods sold also includes costs to internally manufacture products such
24
as packaging and other supplies, and allocated overhead which includes rent, salaries, utilities, and related costs. Cannabis costs are affected by various state regulations that limit the sourcing and procurement of cannabis products, which may create fluctuations in gross profit over comparative periods as the regulatory environment changes.
Total Operating Expenses
Total operating expenses include selling and marketing expenses, general and administrative expenses, depreciation and amortization, and equity-based compensation.
Selling and marketing expenses generally correlate to revenue. These expenses include labor costs and other selling costs to support the Company’s retail locations. The Company expects selling costs as a percentage of revenue to decrease over time as volumes increase at the Massachusetts and Illinois dispensaries due to adult use sales and as the Company begins to sell cannabis to the wholesale market.
General and administrative expenses include costs incurred at the corporate offices, primarily related to personnel costs, benefits, and other professional service costs. These costs are anticipated to be stable.
Provision for Income Taxes
Although the Company is a Canadian corporation, we are classified as a U.S. domestic corporation for U.S. federal income tax purposes under section 7874(b) of the U.S. Internal Revenue Code of 1986, as amended (the “U.S. Tax Code”) and will be subject to U.S. federal income tax on our worldwide income. However, for Canadian tax purposes, regardless of any application of section 7874 of the U.S. Tax Code, we are treated as a Canadian resident corporation. As a result, we are subject to taxation in both Canada and the United States, which could have a material adverse effect on our financial condition and results of operations.
We are subject to income taxes in the jurisdictions in which we operate, and, consequently, income tax expense is a function of the allocation of taxable income by jurisdiction and the various activities that impact the timing of taxable events. Section 280E of the U.S. Tax Code prohibits businesses from deducting certain expenses associated with trafficking-controlled substances (within the meaning of Schedule I and II of the CSA). The Internal Revenue Service of the United States (“IRS”) has invoked section 280E of the U.S. Tax Code in tax audits against various cannabis businesses in the United States that are permitted under applicable state laws. Although the IRS issued a clarification allowing the deduction of certain expenses, the scope of such items is interpreted very narrowly, and the bulk of operating costs and general administrative costs are not permissible deductions. As a result, we will have an effective tax rate in the U.S. significantly higher than the rate typically applicable to U.S. corporations. While there are currently several pending cases before various U.S. administrative and federal courts challenging these restrictions, there can be no assurance that these courts will issue an interpretation of Section 280E of the U.S. Tax Code favorable to cannabis businesses.
Three-Months Ended June 30, 2021
Revenue from sale of goods
Revenue for the three months ended June 30, 2021 from the Company’s retail and wholesale sales are $24,452, which is an increase of $14,485 or 145% compared to $9,967 for the three months ended June 30, 2020. This increase is primarily due to sales from the Calumet City dispensary that opened in December 2020, and increased sales in the two Massachusetts dispensaries.
Revenue from the sale of equipment and supplies to third party cannabis operators was $1,346 for the three months ended June 30, 2021 as compared to $1,212 for the three months ended June 2020. This $134 or 11% increase is due to normal fluctuation in revenue between quarters and future revenue is expected to remain at 2021 levels.
Revenue from the CBD Wellness segment is $724 for the three months ended June 30, 2021 as compared to $1,669 for the three months ended June 30, 2020. The revenue decrease of $945 is largely attributable to changes in marketing strategy prioritizing profitable growth with a focus on achieving positive cash flow.
25
Real Estate Income
Real estate income for the three months ended June 30, 2021 is $2,669 which is relatively flat from $2,734 for the three months ended June 30, 2020.
Cost of Goods Sold
Cost of goods sold (“COGS”) for the three months ended June 30, 2021 is $10,816, an increase of $2,770 or 34%, from $8,046 for the same period ended June 30, 2020. The difference in percentage increases is attributable to the margin benefits of increased sales on internally produced products.
Gross Profit
Gross profit margin for the three months ended June 30, 2021 is 67% compared to 19% for the same period ended 2020. The $11,650 increase in gross profit is due to lower COGS from internally produced products.
Total Operating Expenses
Total operating expense for the three months ended June 30, 2021 is $15,637, an increase of $5,053 from $10,584 for the period ended 2020. This increase is primarily due to $2.5 million in higher sales & marketing expenses due to the new Calumet City dispensary and increasing adult use sales, $2.3 million in higher equity based compensation, and $0.9 million in lease payments in Washington following the sales leaseback transaction in late 2020.
Total Other Income (Expense)
Net other expense for the three months ended June 30, 2021 increased $1,348 to $3,535 from $2,187 in the same period ended 2020. The overall net increase in other expense is due to a $2.5 million settlement of a business dispute in 2020 that was offset by lower interest expense after debt was repaid with proceeds from sales leasebacks.
Net Income (Loss) Before Income Taxes
Net loss before taxes and non-controlling interest for the three months ended June 30, 2021 is $2,867, which is a $5,249 decrease compared to the $8,116 net loss before income taxes for the three months ended June 30, 2020. The improvement in operating income is due to greater dispensary sales and improved margins.
Six-Months Ended June 30, 2021
Revenue from sale of goods
Revenue for the six months ended June 30, 2021 from the Company’s retail and wholesale sales increased $24,810 or 126% to $44,532 compared to $19,722 for the three months ended June 30, 2020. This increase is primarily due to sales from the Calumet City dispensary that opened in December 2020 and higher sales across our other dispensaries with Michigan and Massachusetts dispensaries benefitting from a full six months of adult use sales in 2021.
Revenue from the sale of equipment and supplies to third party cannabis operators was $2,368 for the six months ended June 30, 2021 as compared to $1,764 for the six months ended June 2020. This $604 or 34% increase is due to normal fluctuation in revenue between periods and future revenue is expected to remain at 2021 levels.
Revenue from the CBD Wellness segment is $1,547 for the six months ended June 30, 2021 as compared to $3,459 for the similar period ended 2020. This revenue decrease of $1,912 or 55% from the six months ended June 30, 2020 is largely attributable to changes in marketing strategy prioritizing profitable growth with a focus on achieving positive cash flow.
26
Real Estate Income
Real estate income for the six months ended June 30, 2021 is $5,559, which is relatively flat from $5,631 recognized during the similar period ended June 30, 2020.
Cost of Goods Sold
COGS for the six months ended June 30, 2021 is $19,941, an increase of $7,249 or 57%, from $12,695 for the period ended June 30, 2020. The favorable percentage increase as compared to 126% in revenue growth was due to the margin benefits from increased sales of internally produced products.
Gross Profit
Gross profit margin for the six months ended June 30, 2021 is 55% compared to 36% for the period ended 2020. The $17,492 increase in gross profit is due to lower COGS from internally developed products.
Total Operating Expenses
Total operating expense for the six months ended June 30, 2021 is $29,129, an increase of $4,481 from $24,648 for the period ended 2020. This increase is primarily due to the $3.1 million increase in equity based compensation.
Total Other Income (Expense)
Net other expense for the six months ended June 30, 2021 increased $8,089 to $12,319 from $4,230 in the similar period ended 2020. The overall net increase in other expense for the period ended 2021 is due to $2.9 million from the amortization of loan discount upon conversion of debt to equity, $2.8 million for change in fair value of derivative liability, and $2.5 million from the settlement of a business dispute in 2020.
Net Income (Loss) Before Income Taxes
Net loss before taxes and non-controlling interest for the six months ended June 30, 2021 is $11,298 compared to $16,220 for the similar period ended 2020, an improvement of $4,922. The $13 million improvement in operating income is due to higher dispensary sales and stronger gross profit margins, which is offset by non-cash expenses of $2.9 million from the amortization of loan discount upon conversion of debt to equity, and $2.8 million for change in fair value of derivative liability.
Non-GAAP Financial and Performance Measures
In addition to providing financial measurements based on GAAP, the Company provides additional financial metrics that are not prepared in accordance with GAAP. Management uses non-GAAP financial measures, in addition to GAAP financial measures, to understand and compare operating results across accounting periods, for financial and operational decision making, for planning and forecasting purposes and to evaluate the Company’s financial performance. The Company utilizes the non-GAAP financial measurement of Adjusted EBITDA, which management believes reflects the Company’s ongoing business in a manner that allows for meaningful comparisons and analysis of trends in the business, as it facilitates comparing financial results across accounting periods. Management also believes that this non-GAAP financial measure enables investors to evaluate the Company’s operating results and future prospects in the same manner as management. This non-GAAP financial measure may also exclude expenses and gains that may be unusual in nature, infrequent or not reflective of the Company’s ongoing operating results. As there are no standardized methods of calculating these non-GAAP measures, the Company’s methods may differ from those used by others, and accordingly, the use of this measurement may not be directly comparable to similarly titled measures used by others. Accordingly, non-GAAP measures are intended to provide additional information and should not be considered in isolation or as a substitute for measures of performance prepared in accordance with GAAP.
Adjusted EBITDA
Adjusted EBITDA is defined by the Company as earnings before interest, taxes, depreciation and amortization, share-based compensation expense and one-time charges related to acquisition and business combination related costs. 4Front considers these
27
measures to be an important indicator of the financial strength and performance of its business. The following table reconciles Pro Forma Adjusted EBITDA to its closest GAAP measure.
|
|
|
Six Months Ended June 30, |
|
|||||
|
|
|
2021 |
|
|
2020 |
|
||
|
Net Loss from Continuing Operations (GAAP) |
|
$ |
(17,302 |
) |
|
$ |
(19,143 |
) |
|
Interest income |
|
|
(11 |
) |
|
|
(64 |
) |
|
Interest expense |
|
|
5,362 |
|
|
|
7,013 |
|
|
Amortization of loan discount upon conversion of debt to equity |
|
|
2,915 |
|
|
|
— |
|
|
Income tax expense |
|
|
6,004 |
|
|
|
2,923 |
|
|
Depreciation and amortization |
|
|
2,166 |
|
|
|
4,296 |
|
|
Accretion |
|
|
— |
|
|
|
(311 |
) |
|
Equity based compensation |
|
|
5,375 |
|
|
|
2,275 |
|
|
Change in value of derivative liability and other fair value adjustments |
|
|
2,843 |
|
|
|
(2,456 |
) |
|
Non-cash lease expense |
|
|
1,765 |
|
|
|
425 |
|
|
Loss on lease termination |
|
|
1,210 |
|
|
|
— |
|
|
Acquisition, transaction, and other one-time costs |
|
|
3,054 |
|
|
|
1,624 |
|
|
Adjusted EBITDA (Non-GAAP) |
|
$ |
13,381 |
|
|
$ |
(3,418 |
) |
Liquidity and Capital Resources
As of June 30, 2021 and December 31, 2020, the Company had total current liabilities of $45,923 and $37,784, respectively and current assets of $41,663 and $44,736, respectively to meet its current obligations. As of June 30, 2021, the Company’s working capital is ($4,260), a $11,212 decrease as compared to December 31, 2020, driven primarily by construction costs to complete the Commerce facility.
Specific factors affecting the Company’s liquidity are:
|
|
• |
A loan due to LI Lending, LLC (see Transactions with Related Parties, below) with a balance of $46,843 at June 30, 2021 is due in May 2024. |
The Company is generating cash from retail sales and the opening of the Commerce facility is expected to generate additional cash to meet the needs of the Company. The Company may raise capital through equity offerings or the issuance of convertible debt to meet future capital requirements.
Cash Flows
Cash Flow from Operating Activities
Net cash provided in continued operating activities is $4,267 for the six months ended June 30, 2021, an increase of $5,156 as compared to the six months ended June 30, 2020. The increase is due to higher sales at the Company’s dispensaries and corporate cost reductions initiated in the second quarter 2020 as the Company substantially completed construction of its 170,000 square foot manufacturing facility in Commerce, CA.
Cash Flow from Investing Activities
Net cash used in continued investing activities is $10,736 for the six months ended June 30, 2021, an increase of $7,840 as compared to the six months ended June 30, 2020. The increase is primarily due to $5,595 of additional purchases of property and equipment during the six months ended June 30, 2021 and because 2020 included proceeds of $2,745 from long term deposits.
Cash Flow from Financing Activities
Net cash used by financing activities is $900 for the six months ended June 30, 2021, a decrease of $2,482 as compared to the six months ended June 30, 2020. The decrease is because in 2020 the Company was provided $8,597 in proceeds from a convertible debt issuance. This was partially offset by $2,978 in proceeds from the exercise of warrants and stock options in 2021. In 2020 there was also an additional $3,591 in repayments of convertible debt and notes payable.
Off-Balance Sheet Arrangements
28
We do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity or capital expenditures or capital resources that is material to an investor in our securities.
Critical Accounting Policies
We review new accounting standards as issued. Although some of these accounting standards issued or effective after the end of our previous fiscal year may be applicable to the Company, we have not identified any standards that we believe merit further discussion. We do not expect the adoption of any recently issued accounting pronouncements to have a significant impact on our financial position, results of operations, or cash flows.
29
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
As a “smaller reporting company” as defined by Item 10 of Regulation S-K, the Company is not required to provide information required by this Item.
Item 4. Controls and Procedures.
Evaluation of Disclosure Control and Procedures
As required by Rule 13a-15 under the Exchange Act, our management has carried out an evaluation, with the participation and under the supervision of our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of June 30, 2021. Disclosure controls and procedures refer to controls and other procedures designed to ensure that information required to be disclosed in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating our disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management is required to apply its judgment in evaluating and implementing possible controls and procedures.
Material Weaknesses
A material weakness is a deficiency, or a combination of deficiencies, within the meaning of Public Company Accounting Oversight Board (“PCAOB”) Auditing Standard AS 2201, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the Company's annual or interim financial statements will not be prevented or detected on a timely basis.
Material Weaknesses in Internal Control
The Company did not fully design and implement effective control activities based on the criteria established in the COSO framework. The Company has identified deficiencies that constitute a material weakness, either individually or in the aggregate. This material weakness is attributable to the following factors:
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We did not have sufficient accounting staff resources to timely perform closing and audit related procedures. |
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We did not have effective controls over the review procedures for balance sheet account reconciliations and manual journal entries. |
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We did not have documented evidence of review procedures and did not have sufficient segregation of duties within our accounting function. |
Due to the existence of the above material weakness, management, including the CEO and CFO, has concluded that our internal control over financial reporting was not effective as of December 31, 2020. This material weakness creates a reasonable possibility that a material misstatement to the consolidated financial statements will not be prevented or detected on a timely basis.
Management conducted its evaluation of disclosure controls and procedures under the supervision of our Chief Executive Officer and Chief Financial Officer. Based upon, and as of the date of this evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures were not effective as of June 30, 2021 due to the material weaknesses listed above under “Material Weakness in Internal Control”.
We plan to take steps to remediate these material weaknesses as soon as practicable by implementing a plan to improve our internal control over financial reporting including, but not limited to:
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The Company will assess sufficient resources, both in accounting staff and related technology, needed to timely perform closing and audit related procedures and align identified resources. |
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The Company will assess controls needed to effectively review procedures for balance sheet account reconciliations and manual journal entries and implement identified controls. |
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The Company will assess review procedures to have sufficient segregation of duties within our accounting function, then standardize and document such procedures for evidence of review. |
30
Changes in Internal Control over Financial Reporting
Except for the matters described above, there have been no changes in the Company’s internal control over financial reporting during the last quarterly period covered by this report that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
Inherent Limitations on Effectiveness of Controls
Management recognizes that a control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud or error, if any, have been detected. These inherent limitations include the realities that judgments in decision making can be faulty, and that breakdowns can occur because of a simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, controls may become inadequate because of changes in conditions, or the degree of compliance with policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.
31
PART II—OTHER INFORMATION
Item 1. Legal Proceedings.
On December 4, 2019, counsel for Limevee, LLC sent a letter to our wholly owned subsidiary Pure Ratios Holdings, Inc. (successor of International Bioceutical Company) regarding allegations of breach of contract involving a Consulting Services Agreement between Limevee and International Bioceutical Company. Limevee, LLC alleges that $79,000 plus additional damages are owed, which would be determined following an accounting of sales in November and December 2019. Limevee, LLC's counsel sent an additional letter on February 18, 2020. As of August 16, 2021, no lawsuit has been filed.
On March 2, 2021, the Company received correspondence from Brothers for Life LLC asserting that the Company was obligated to make a $200,000 payment pursuant to a June 18, 2019 Fee Agreement (the "Fee Agreement") entered into between Brothers for Life LLC and Cannex Capital Holdings Inc. (which was the entity acquired by the Company in its Reverse Takeover Transaction, consummated July 31, 2019). As the Company believes that Brothers for Life LLC’s claim has no merit, and that no payment is due under the Fee Agreement, the Company has declined to make the $200,000 payment to Brothers for Life LLC, and instead intends to pursue its rights under the Fee Agreement vigorously.
The Company’s operating tenant in Tumwater, Washington, NWCS, received administrative violation notices in which the Washington State Liquor and Cannabis Board (“WSLCB”) charged that it had violated certain regulations. On February 10, 2020, NWCS received a settlement proposal from the WSLCB. the terms of the proposed settlement required NWCS to pay a $100,000 fine and required the current sole member of NWCS to dispose of his interest in NWCS to an arms-length party who would operate the business under the same license. In effect there would need to be a change of ownership of the corporation’s current tenant. The settlement was never approved and the parties are scheduled to have the matter heard before an administrative law judge on June 6, 2022. In the event the WSLCB is successful in the case, the current producer and processor licenses of the Company’s tenant will be cancelled and the Company will have to find a new license holder (tenant) to operate in the facility under a similar lease, management and IP structure. While there is no certainty that the corporation will be able to replace NWCS as a tenant, there is an expectation that it will be able to do so with limited disruption to revenue derived from the turn-key facility.
On August 5, 2019, Richard Hernandez and Commerce Citizens Against Marijuana Corruption (the “Complainants”) filed a complaint (Superior Court of California Case No. 19ST-CV-27029) and writ of mandamus against the City of Commerce, California and certain of its officials alleging procedural errors committed by the City in relation to certain development agreements granted to 22 cannabis operators allowing such operators to operate various cannabis businesses in the City of Commerce. Cannex Holdings (California), Inc., a wholly owned subsidiary of the Company, is one such operator that was named as a Real Party in Interest in the case. and as such, has engaged counsel to defend its interests relating to the claims brought against the City of Commerce, California. On April 15, 2021, the court in the matter ruled on a demurrer where certain of the Complainants’ claims were dismissed. Additionally, a writ of mandamus hearing (subject to an application for continuance being sought on August 17, 2021) is scheduled for September 30, 2021. If the Complainants’ remaining claims are upheld (including through appeals), the City of Commerce may be required to reissue the "ordinances", "Development Agreements" or other applicable license rights to the current license holders. While the City of Commerce has stated in no uncertain terms that it would act immediately to ensure/restore fully licensed status of any of the affected operators, there can be no assurances that such relicensing will be successful or if successful will not result in a significant disruption of operations for the operators.
On July 19, 2019, Superior Gardens LLC (d/b/a Northwest Cannabis Solutions) (“NWCS”), which among other things, is an operating tenant that leases a facility from the Company in Tumwater, Washington, received administrative violation notices in which the Washington State Liquor and Cannabis Board (“WSLCB”) charged that NWCS had violated certain regulations. The sole owner of NWCS was a related party of Cannex. However, upon the Company’s acquisition of Cannex on July 31, 2019, management determined the sole owner no longer had significant influence in the Company thus removing consideration of NWCS as a related party.
On February 10, 2020, NWCS received a settlement proposal from the WSLCB. the terms of the proposed settlement required NWCS to pay a $100,000 fine and required the current sole member of NWCS to dispose of his interest in NWCS to an arms-length party who would operate the business under the same license. In effect there would need to be a change of ownership of the corporation’s current tenant. The settlement was never approved and the parties are scheduled to have the matter heard before an administrative law judge on June 6, 2022. In the event the WSLCB is successful in the case, the current producer and processor licenses of NWCS will be cancelled and the Company will have to find a new license holder (tenant) to operate in the facility under a similar lease, management and IP structure. While there is no certainty that the Company will be able to replace NWCS as a tenant, there is an expectation that it will be able to do so with limited disruption to revenue derived from the turn-key facility.
Apart from the foregoing and ongoing legal proceedings, from time to time, we may be subject to various other legal proceedings and claims that are routine and incidental to our business. Although some of the legal proceedings set forth herein may result in adverse
32
decisions or settlements, Management believes that the final disposition of such matters will not have a material adverse effect on our business, financial position, results of operations or cash flows.
Item 1A. Risk Factors.
As a “smaller reporting company” as defined by Item 10 of Regulation S-K, we are not required to provide information required by this Item.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
The Company did not issue any shares of its unregistered securities during the three months ended June 30, 2021.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Mine Safety Disclosures.
Not applicable.
Item 5. Other Information.
There is no other information required to be disclosed under this item which was not previously disclosed.
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Item 6. Exhibits.
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Incorporated by Reference |
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Exhibit Number |
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Exhibit Description |
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Filed Herewith |
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31.1 |
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x |
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31.2 |
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x |
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32.1 |
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101.INS |
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Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because XBRL tags are embedded within the Inline XBRL document |
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101.SCH |
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Inline XBRL Taxonomy Extension Schema Document |
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101.CAL |
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Inline XBRL Taxonomy Extension Calculation Linkbase Document |
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101.DEF |
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Inline XBRL Taxonomy Extension Definition Linkbase Document |
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101.LAB |
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Inline XBRL Taxonomy Extension Label Linkbase Document |
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101.PRE |
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Inline XBRL Taxonomy Extension Presentation Linkbase Document |
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104 |
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Cover Page Interactive Data File (embedded within the Inline XBRL document) |
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* |
Document has been furnished, is not deemed filed and is not to be incorporated by reference into any of the Company’s filings under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, irrespective of any general incorporation language contained in any such filing. |
34
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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4Front Ventures Corp. |
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Date: August 16, 2021 |
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By: |
/s/ Leo Gontmakher |
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Leo Gontmakher |
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Chief Executive Officer and Director (Principal Executive Officer) |
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Date: August 16, 2021 |
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By: |
/s/ Andrew Thut |
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Andrew Thut |
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Chief Investment Officer and Interim Chief Financial Officer |
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(Principal Financial Officer) |
35
Exhibit 31.1
Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
I, Leonid Gontmakher, certify that:
1.I have reviewed this Quarterly Report on Form 10-Q of 4Front Ventures Corp.;
2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
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designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
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designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
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evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
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disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
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all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
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any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
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Date:August 16, 2021 |
/s/ Leonid Gontmakher |
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Leonid Gontmakher, Chief Executive Officer (principal executive officer) |
Certification of Interim Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
I, Andrew Thut, certify that:
1.I have reviewed this Quarterly Report on Form 10-Q of 4Front Ventures Corp.;
2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
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designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
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designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
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evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
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disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
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all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
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any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
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Date:August 16, 2021 |
/s/ Andrew Thut |
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Andrew Thut, Chief Investment Officer, and Interim Chief Financial Officer (principal financial and accounting officer) |
Certifications of Chief Executive Officer and Interim Chief Financial Officer pursuant to
18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, Leonid Gontmakher, Chief Executive Officer (principal executive officer) of 4Front Ventures Corp. (the “Company”), and Peter Rennard, Interim Chief Financial Officer (principal financial and accounting officer) of the Company, each hereby certifies that, to the best of his knowledge:
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The Company’s Quarterly Report on Form 10-Q for three months ended June 30, 2021, to which this certification is attached as Exhibit 32.1 (the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
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2) |
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
Date: August 16, 2021
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/s/ Leonid Gontmakher |
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Leonid Gontmakher Chief Executive Officer (principal executive officer) |
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/s/ Andrew Thut |
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Andrew Thut Chief Investment Officer and Interim Chief Financial Officer (principal financial and accounting officer) |
The foregoing certifications are being furnished pursuant to 18 U.S.C. Section 1350. They are not being filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and are not to be incorporated by reference into any filing of the Company, regardless of any general incorporation language in such filing.
Condensed Consolidated Interim Statements of Operations and Comprehensive Loss (unaudited) - USD ($) $ in Thousands |
3 Months Ended | 6 Months Ended | ||
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Jun. 30, 2021 |
Jun. 30, 2020 |
Jun. 30, 2021 |
Jun. 30, 2020 |
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| REVENUE | ||||
| Revenue from sale of goods | $ 24,452 | $ 9,967 | $ 44,532 | $ 19,722 |
| Real estate income | 2,669 | 2,734 | 5,559 | 5,631 |
| Total revenues | 27,121 | 12,701 | 50,091 | 25,353 |
| Cost of goods sold | (10,816) | (8,046) | (19,941) | (12,695) |
| Gross profit | 16,305 | 4,655 | 30,150 | 12,658 |
| OPERATING EXPENSES | ||||
| Selling and marketing expenses | 6,714 | 5,488 | 11,871 | 12,304 |
| General and administrative expenses | 5,083 | 3,073 | 10,248 | 8,181 |
| Equity based compensation | 2,979 | 1,048 | 5,375 | 2,275 |
| Depreciation and amortization | 861 | 975 | 1,635 | 1,888 |
| Total operating expenses | 15,637 | 10,584 | 29,129 | 24,648 |
| Income (loss) from operations | 668 | (5,929) | 1,021 | (11,990) |
| Other income (expense) | ||||
| Interest income | 8 | 8 | 11 | 64 |
| Interest expense | (2,901) | (4,877) | (5,362) | (7,013) |
| Amortization of loan discount upon conversion of debt to equity | (2,915) | |||
| Change in fair value of derivative liability | (311) | (2,843) | ||
| Other income | 2,682 | 2,719 | ||
| Loss on lease termination | (331) | (1,210) | ||
| Total other income (expense) | (3,535) | (2,187) | (12,319) | (4,230) |
| Net loss before income taxes | (2,867) | (8,116) | (11,298) | (16,220) |
| Income tax expense | (3,351) | (2,373) | (6,004) | (2,923) |
| Net loss from continuing operations, net of taxes | (6,218) | (10,489) | (17,302) | (19,143) |
| Net income from discontinued operations, net of taxes | 9,840 | 10,712 | ||
| Net loss | (6,218) | (649) | (17,302) | (8,431) |
| Net (income) loss attributable to non-controlling interest | 5 | (38) | 10 | (26) |
| Net loss attributable to shareholders | $ (6,223) | $ (611) | $ (17,312) | $ (8,405) |
| Basic and diluted loss per share | $ (0.01) | $ 0.00 | $ (0.03) | $ (0.02) |
| Weighted average number of shares outstanding, basic and diluted | 587,218,794 | 506,379,437 | 573,108,183 | 518,950,529 |
Condensed Consolidated Interim Statements of Changes in Shareholders' Equity (unaudited) - USD ($) $ in Thousands |
Total |
Pure Ratios |
Om of Medicine |
Share Capital |
Share Capital
Pure Ratios
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Share Capital
Om of Medicine
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Additional Paid-In Capital |
Deficit |
Total 4Front Ventures Corp. Shareholders' Equity |
Total 4Front Ventures Corp. Shareholders' Equity
Pure Ratios
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Total 4Front Ventures Corp. Shareholders' Equity
Om of Medicine
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Non-Controlling Interest |
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| Beginning Balance at Dec. 31, 2019 | $ 74,760 | $ 252,656 | $ 25,618 | $ (203,497) | $ 74,777 | $ (17) | ||||||
| Beginning Balance, Shares at Dec. 31, 2019 | 531,522,819 | |||||||||||
| Conversion option and warrants with notes transferred to equity | 411 | 411 | 411 | |||||||||
| Shares issued for earnout | $ 94 | $ 94 | $ 94 | |||||||||
| Shares issued for earnout, shares | 223,145 | |||||||||||
| Share-based compensation | 2,275 | 2,275 | 2,275 | |||||||||
| Conversion of notes to equity | 2,889 | 2,889 | 2,889 | |||||||||
| Exchange of stock for convertible swap notes | (13,661) | $ (13,661) | (13,661) | |||||||||
| Exchange of stock for convertible swap notes, shares | (29,448,468) | |||||||||||
| Net loss | (8,431) | (8,405) | (8,405) | (26) | ||||||||
| Ending Balance at Jun. 30, 2020 | 58,337 | $ 239,089 | 31,193 | (211,902) | 58,380 | (43) | ||||||
| Ending Balance, Shares at Jun. 30, 2020 | 502,297,496 | |||||||||||
| Beginning Balance at Dec. 31, 2020 | 42,203 | $ 250,583 | 42,116 | (250,548) | 42,151 | 52 | ||||||
| Beginning Balance, Shares at Dec. 31, 2020 | 538,851,252 | |||||||||||
| Shares issued for earnout | $ 161 | $ 722 | $ 161 | $ 722 | $ 161 | $ 722 | ||||||
| Shares issued for earnout, shares | 473,491 | 535,018 | ||||||||||
| Share-based compensation | 5,375 | 5,375 | 5,375 | |||||||||
| Conversion of notes to equity | 17,719 | $ 17,719 | 17,719 | |||||||||
| Conversion of notes to equity, shares | 49,042,797 | |||||||||||
| Shares issued with exercise of stock options | $ 1,314 | $ 1,314 | 1,314 | |||||||||
| Shares issued with exercise of stock options, shares | 2,011,056 | 2,011,056 | ||||||||||
| Shares issued with exercise of warrants | $ 3,376 | $ 3,376 | 3,376 | |||||||||
| Shares issued with exercise of warrants, shares | 2,993,227 | |||||||||||
| Return of treasury shares | (8,320) | |||||||||||
| Net loss | (17,302) | (17,312) | (17,312) | 10 | ||||||||
| Ending Balance at Jun. 30, 2021 | $ 53,568 | $ 273,875 | $ 47,491 | $ (267,860) | $ 53,506 | $ 62 | ||||||
| Ending Balance, Shares at Jun. 30, 2021 | 593,898,521 | 593,898,521 |
Nature of Operations |
6 Months Ended | ||
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Jun. 30, 2021 | |||
| Organization Consolidation And Presentation Of Financial Statements [Abstract] | |||
| Nature of Operations |
4Front Ventures Corp. (“4Front” or the “Company”) exists pursuant to the provisions of the Business Corporations Act (British Columbia). On July 31, 2019, 4Front Holdings LLC (“Holdings”) completed a Reverse Takeover Transaction (“RTO”) with Cannex Capital Holdings, Inc. (“Cannex”) whereby Holdings acquired Cannex, for accounting purposes, and the shareholders of Holdings became the controlling shareholders of the Company. The subordinate voting shares of the Company are listed on the Canadian Securities Exchange (“CSE”) under the ticker “FFNT” and are quoted on the OTC (OTCQX: FFNTF). The Company has two primary operating segments: THC Cannabis and CBD Wellness. With regard to its THC Cannabis segment, as of June 30, 2021, the Company operates five dispensaries in Massachusetts, Illinois, and Michigan, primarily under the “MISSION” brand name. As of June 30, 2021, the Company operates two production facilities in Massachusetts and Illinois and produces the majority of products that are sold at its own Massachusetts and Illinois dispensaries. Also, as part of its THC Cannabis segment, the Company sells equipment, supplies and intellectual property to cannabis producers in the state of Washington. The Company’s CBD Wellness segment is focused upon its ownership and operation of its wholly-owned subsidiary, Pure Ratios Holdings, Inc. (“Pure Ratios”), a CBD-focused wellness company in California, that sells non-THC products throughout the United States.
Management is currently continuing to evaluate the impact of the COVID-19 pandemic on the industry and has concluded that while it is reasonably possible that the virus could have a negative effect on the Company’s financial position and results of its operations the specific impact is not readily determinable as of the date of these consolidated financial statements. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. See “Recent Developments – COVID-19”. The corporate office address of the Company is 5060 North 40th Street, Suite 120, Phoenix, Arizona, and the registered office is 550 Burrard Street, Suite 2900, Vancouver, British Columbia. Our telephone number is (602) 633-3067 and our website is accessible at https://4frontventures.com. |
Basis of Presentation |
6 Months Ended | ||
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Jun. 30, 2021 | |||
| Organization Consolidation And Presentation Of Financial Statements [Abstract] | |||
| Basis of Presentation |
The accompanying unaudited condensed consolidated interim financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) applicable to interim financial information and with the rules and regulations of the United States Securities and Exchange Commission. Accordingly, certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed, or omitted, pursuant to such rules and regulations.
In the opinion of management, the unaudited interim financial statements include all adjustments necessary for the fair presentation of the results of the interim periods presented. All adjustments are of a normal recurring nature, except as otherwise noted below. These financial statements should be read in conjunction with the Company’s audited financial statements and notes thereto for the year ended December 31, 2020, included in the Company’s Annual Report on Form 10-K, filed April 7, 2021, with the U.S. Securities and Exchange Commission and on the System for Electronic Document Analysis and Retrieval in Canada (or SEDAR). The results of operations for the interim periods are not necessarily indicative of the results of operations for any other interim period or for a full fiscal year.
There have been no changes to the Company’s significant accounting policies as described in Note 2 of the Company’s 2020 Form 10-K. Principles of consolidation
The accompanying condensed consolidated interim financial statements include the accounts of the Company and all entities in which the Company either has a controlling voting interest or is the primary beneficiary of a variable interest entity. All intercompany accounts and transactions have been eliminated on consolidation.
The financial statements of the subsidiaries are prepared for the same reporting period as the parent company, using consistent accounting policies. |
Summary of Significant Accounting Policies |
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Jun. 30, 2021 | |||||||||||||
| Accounting Policies [Abstract] | |||||||||||||
| Summary of Significant Accounting Policies |
Our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with U.S. GAAP. The preparation of the Company’s condensed consolidated interim financial statements requires management to make judgments, estimates and assumptions that affect the application of policies and reported amounts of assets and liabilities, and revenue and expenses. Actual results may differ from these estimates. The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimate is revised if the revision affects only that period or in the period of the revision and future periods if the revision affects both current and future periods. The significant judgements made by management in applying the Company’s accounting policies and the key sources of estimation uncertainty were the same as those described in the latest annual consolidated financial statements.
We cannot predict what future laws and regulations might be passed that could have a material effect on our results of operations. We assess the impact of significant changes in laws and regulations on a regular basis and update the assumptions and estimates used to prepare our financial statements when we deem it necessary.
Recently Adopted
Accounting Pronouncements Not Yet Adopted
For SEC filers, excluding smaller reporting companies, ASU 2020-06 is effective for fiscal years beginning after December 15, 2021 including interim periods within those fiscal years. Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020. For all other entities, ASU 2020-06 is effective for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years. Entities should adopt the guidance as of the beginning of the fiscal year of adoption and cannot adopt the guidance in an interim reporting period. The Company is currently evaluating the impact that ASU 2020-06 may have on its consolidated financial statements and related disclosures.
Management does not believe that any other recently issued, but not yet effective, accounting standard if currently adopted would have a material effect on the accompanying consolidated financial statements. |
Inventory |
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Jun. 30, 2021 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Inventory Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Inventory |
Inventory consists of the following items:
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Intangible Assets and Goodwill |
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| Goodwill And Intangible Assets Disclosure [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Intangible Assets and Goodwill |
(a)Intangible Assets Intangible assets are recorded at cost less accumulated amortization and impairment losses. Intangible assets acquired in a business combination are measured at fair value at the acquisition date. Amortization of definite life intangibles is recognized on a straight-line basis over their estimated useful lives. The estimated useful lives, residual values, and amortization methods are reviewed at each year end, and any changes in estimates are accounted for prospectively.
(b)Goodwill A summary of goodwill is as follows:
(c)Impairment of Intangible Assets and Goodwill On an annual basis, the Company assesses the Company’s reporting unit’s (“RUs”) for indicators of impairment or when facts or circumstances suggest that it is more likely than not that the carrying amount may exceed fair value. For the purpose of impairment testing, goodwill is allocated to the Company’s RUs to which it relates. Goodwill was not tested for impairment during the six months ended June 30, 2021.
Year Ended December 31, 2020
Management identified negative trigger events regarding its online CBD business. Management has concluded that the overall financial performance of Pure Ratio continued to be worse than expectations, including revenue growth, EBITDA/cash flows, and future growth projections. The Pure Ratio’s business operates at a breakeven (i.e., zero) profit level and is not expected to improve in the near term. As such, management had determined that the Goodwill and remaining intangible assets associated with the Pure Ratio’s RU are impaired. As such, the remaining goodwill of $13,400 and $3,348 in trademarks were written off as of December 31, 2020. |
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Leases |
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| Leases [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Leases |
All real estate leases are recorded on the balance sheet. Equipment and other non-real estate leases with an initial term of twelve months or less are not recorded on the balance sheet. Balances related to operating leases are included in Right of Use (“ROU”) assets and noncurrent lease liabilities on the consolidated balance sheet. Lease agreements for some locations provide for rent escalations and renewal options. Many leases include one or more options to renew the lease at the end of the initial term. The Company considered renewals in its ROU assets and operating lease liabilities. Certain real estate leases require payment for taxes, insurance and maintenance which are considered non-lease components. The Company accounts for real estate leases and the related fixed non-lease components together as a single component. The Company determines if an arrangement is a lease at inception. The Company must consider whether the contract conveys the right to control the use of an identified asset. Certain arrangements require significant judgment to determine if an asset is specified in the contract and if the Company directs how and for what purpose the asset is used during the term of the contract.
Operating lease expense for the three and six months ended June 30, 2021 and 2020 is $2,400 and $821 respectively and for the six months ended is June 30, 2021 and 2020 is $4,868 and $2,375 respectively.
(a)The Company as a Lessee The following table summarizes the Company’s operating leases:
Maturities of lease liabilities for third-party operating leases as of June 30, 2021 were as follows:
The Company has right-of-use assets and lease liabilities for leased real estate for dispensaries, cultivation facilities and office space. The incremental borrowing rate for the Company on January 1, 2020 through June 30, 2021 was between 10.25% and 17%. (b)The Company as a Lessor: The Company leases a building in Elma, Washington that is subleased by the Company to a third party. This sublease is classified as a finance lease with a lease receivable balance of $10,696 as of June 30, 2021. This lease generated $1,361 of the $5,559 in real estate income for the six months ending June 30, 2021. The Company owned buildings in Olympia, Washington that were leased to a third party. This lease was classified as a finance lease. On December 17, 2020, the Company sold the Olympia building and other assets as part of a sale and leaseback transaction and this lease was cancelled. The Company applied ASC 842 to a new sublease to the same third party and classified the new sublease as an operating lease. The lease receivable was sold to the purchaser of the assets as part of the sale and leaseback transaction. This lease generated $4,198 of the $5,559 in real estate income for the six months ending June 2021. The following table summarizes changes in the Company’s lease receivables:
Future minimum lease payments receivable (principal and interest) on the leases is as follows:
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Notes Payable and Convertible Notes |
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| Debt Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Notes Payable and Convertible Notes |
The Company’s notes payable and convertible notes are as follows:
Convertible Notes On May 14, 2020, the Company issued $5,827 in convertible notes to existing investors in the Company (“May 2020 Convertible Notes”). The notes pay interest of 5% per annum and have a maturity date of Feb 28, 2022. The notes can be converted into Class A Subordinate Voting Shares of the Company for $0.25 per share at any time at the option of the holder. The Company can require mandatory conversion at any time that the Company’s stock price remains above $0.50 for 45 consecutive days. During the first quarter 2021, the Company exercised the mandatory conversion feature and converted the May 2020 Convertible Note balance to subordinate voting shares. As part of issuing the convertible notes, the investors were given the right to exchange stock in the Company into separate convertible notes (swap notes) (“May 2020 Convertible Notes (Swap)”). In total 29,448,468 shares with a value of $13,661 were exchanged for $13,661 in convertible notes. These notes were effective May 28, 2020, have a maturity date of May 28, 2025, and can be converted into Class A Subordinate Voting Shares of the Company for $0.46 per share at any time at the option of the holder. The notes pay no interest if the Company’s annual revenue is greater than $15,000, and 3% annually otherwise. The Company can require mandatory conversion at any time that the Company’s stock price remains above $0.92 for 45 consecutive days. During April 2021, the Company exercised the mandatory conversion feature and converted the May 2020 Convertible Note (Swap) balance to subordinate voting shares. Gotham Green Partners LLC Through the RTO, the Company assumed senior secured convertible notes issued to Gotham Green Partners LLC (“GGP”). The convertible loan has a fair value on acquisition of $39,881 which was determined as the present value of the loan and the fair value of the conversion feature. The fair value of the conversion feature was determined to be $4,874 based on the acquisition date intrinsic value of the option. Upon acquisition, the Company reclassified the fair value of the conversion feature to equity. The Company used an independent valuation company to value the notes using a 10.25% discount rate, which management determined was the rate for similar notes with no conversion feature or warrants. The notes were repaid in full in December 2020. On January 29, 2020, the Company issued convertible secured promissory notes for a total of $3,000 to entities associated with GGP. These notes were due on July 29, 2020 and accrued interest at 15% per annum with no payments due until the maturity date. The notes were convertible at the option of the holder into the Company’s stock for the equivalent of $0.64675 per share. The notes were issued with detachable stock warrants that gave the holders of the notes the option to purchase 2,230,080 shares of the Company’s stock for $0.672625 per share. The notes were repaid in full in May 2020. LI Lending LLC On May 10, 2019, the Company entered into a loan agreement with LI Lending LLC, a related party, for $50,000. LI Lending LLC is related because an officer of the Company serves as a principal of LI Lending LLC. As of June 30, 2021, the Company had drawn $45,000 on the loan in two amounts, an initial $35,000 and a final $10,000, both bearing a 10.25% interest rate, with initial transaction costs of $806. In April 2020, the loan was amended. In exchange for consent to allow the sale of the Pennsylvania and Maryland assets and the release of related collateral, the Company agreed to make prepayments of principal to LI Lending in the amount of $250 per month for an period beginning on May 1, 2020. The $2,000 prepayment was applied to the initial $35,000 principal amount decreasing the balance to $33,000. Additionally, the Company agreed to pay an increased interest rate of 12.25% on the final $10,000 of the loan until such time as this amount has been paid down with the remaining $33,000 amount continuing to be subject to the original 10.25% interest rate. In December 2020, the loan was amended to allow for the release of collateral for the sale lease back transactions described in Note 6 above, which were entered into with Innovative Industrial Properties, Inc. (“IIPR”). The amendment increased both interest rates by 2.5% on the loan amounts but allowed the payments resulting from the incremental interest to be deferred until January 1, 2022. The Company elected to defer payment, and the additional 2.5% interest is accrued each month and added to the balance of the loan. The Company is still required to make interest-only payments monthly of 10.25% on the initial $33,000 and 12.25% on the final $10,000 of the loan until January 1, 2022 when the interest rates of 12.75% for the initial $33,000 and 14.75% for the final $10,000 will take effect for the remaining term. The loan matures on May 10, 2024. An exit fee of 20% of the principal balance will be due as principal is repaid. Monthly interest-only payments are required, and the Company has paid all interest due as of June 30, 2021. Other Outstanding as of June 30, 2021 were other payables totaling $8,358 which include notes issued as part of the acquisition of Healthy Pharms Inc. and Arkansas entities as follows:
Future minimum payments on the notes payable and convertible debt are as follows:
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Share Capital and Equity |
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| Stockholders Equity Note [Abstract] | |||||||||||||||||||||||||||||||||||||||
| Share Capital and Equity |
The Company has authorized an unlimited number of Class A Subordinate Voting Shares (“SVS”), and Class C Multiple Voting Shares (“MVS”), all with no par value. All share classes are included within share capital in the consolidated statements of shareholder’s equity on an as converted basis. Each share class is entitled to notice of and to attend at any meeting of the shareholders, except a meeting of which only holders of another particular class of shares will have the right to vote. All share classes are entitled to receive dividends as, and when declared by the Company, on an as-converted basis, and no dividends will be declared by the Company on any individual class unless the Company simultaneously declares or pays dividends on all share classes. No subdivision or consolidation of any share class shall be made without simultaneously subdividing or consolidating all share classes in the same manner.
Class A Subordinate Voting Shares Holders of Class A Subordinate Voting Shares are entitled to one vote in respect of each SVS. Class C Multiple Voting Shares Holders of Class C Multiple Voting Shares are entitled to 800 votes in respect of each MVS. MVS will not be convertible into SVS until prior to the later of the date (i) the aggregate number of SVS and MVS held by the Initial Holders (being the MVS holders on their initial issuance) on are reduced to a number which is less than 50% of the aggregate number of SVS and MVS held by the Initial Holders on the date of completion of the RTO with Cannex, and (ii) 3 years following the date of the Business Combination with Cannex.
On November 23, 2020, the Company closed a bought deal prospectus offering of 24,644,500 Units at a price of C$ 0.70 per Unit. Each Unit is comprised of one SVS of the Company and of a SVS purchase warrant. Each whole warrant entitles the holder to purchase one SVS for a period of two years from the date of issuance at an exercise price of C$ 0.90 per subordinate voting share. Net proceeds from this transaction were $11,557 net of share issuance costs of $690.
Because of the Canadian dollar denominated exercise price, these warrants do not qualify to be classified within equity and are therefore classified as derivative liabilities at fair value through profit or loss “FVTPL”. On November 23, 2020, the warrants were valued using the Black Scholes option pricing model at $4,229 using the following assumptions: Share Price: C$0.94; Exercise Price: C$0.90; Expected Life: 2 years; Annualized Volatility: 87.73%; Dividend yield: 0%; Discount Rate: 0.16%; C$ Exchange Rate: 1.31.
On June 30, 2021, the warrants were revalued using the Black Scholes option pricing model, using the following assumptions: Share Price: C$1.56; Expected Life: 1.40 years, Annualized Volatility: 86.20%; Dividend yield: 0%; Discount Rate: 0.07%; C$ Exchange Rate: 1.24. The increase in the value of the derivative liability is reflected in the statement of comprehensive loss as a $2,843 loss on the change in fair value of the derivative liability for the six months ended June 30, 2021. |
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Warrants |
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| Warrants And Rights Note Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Warrants |
As of June 30, 2021, there were share purchase warrants outstanding to purchase up to 39,779,765 SVS:
As of June 30, 2021, the Company has the following warrants outstanding and exercisable.
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Share-Based Compensation |
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| Disclosure Of Compensation Related Costs Sharebased Payments [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Share-Based Compensation |
The Company grants stock options under the Company’s Amended and Restated Stock Option Plan. Under the terms of the plan, the maximum number of stock options which may be granted are a total of ten percent of the number of shares outstanding assuming conversion of all shares to SVS. The exercise price for stock options issued under the plan will be set by the compensation committee of the board of directors but will not be less than 100% of the fair market value of the Company’s shares on the grant date. Stock options have a maximum term of 5 years from the date of grant. Stock options vest at the discretion of the Board. As of June 30, 2021, the Company had the following options outstanding and exercisable on an as-converted basis:
Stock option activity is summarized as follows:
The Company recognized share-based compensation expense of $2,979 and $684 during the second quarters of 2021 and 2020 and $5,375 and $2,276 during the respective year-to-date periods.
In determining the amount of equity-based compensation during the period, the Company used the Black-Scholes option pricing model to establish fair value of options granted during the period with the following key assumption:
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Related Parties |
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Jun. 30, 2021 | |||
| Related Party Transactions [Abstract] | |||
| Related Parties |
Related party transactions An officer and director of the Company, and a director of the Company serve as principals of LI Lending LLC, which extended the Company a real estate improvement/development loan of $50,000 of which $46,843 was outstanding as of June 30, 2021. An officer of the Company holds an interest in an online marketing company serving the online CBD market which provides online marketing services for Pure Ratios. Pure Ratios paid $313 (2020 – $2,334) for the six months ended June 30, 2021 to this vendor for management fees, pass through marketing costs and customer service. During 2020, the Company considered 7Point Holdings LLC (“7 Point”) a related party due to a common executive. However, as a result of his departure, 7Point was no longer considered a related party as of December 31, 2020. 7Point and the Company are parties to a commercial sublease expiring May 31, 2023 with one renewal option. The Company recognized as interest revenue for the three and six months ended 2021 and 2020 $725 (2020 – $751) and $1,459 (2020 – $1,507), respectively, on the lease receivable for this lease. |
Contingencies |
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Jun. 30, 2021 | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Commitments And Contingencies Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Contingencies |
Cannabis is still considered a Schedule 1 substance under the Controlled Substance Act. As such, there is an inherent risk related to the federal government’s position on cannabis; additionally, the risk exists, due to the Company’s business in cannabis, that third party service providers could suspend or withdraw services and as well as the risk that regulatory bodies could impose certain restrictions on the issuer’s ability to operate in the U.S.; however, the Company has deemed it not reasonable to estimate a potential liability related to the possible enforcement of laws against the medical cannabis industry.
As part of the acquisition of Om of Medicine, LLC the Company is subject to contingent consideration payable to the original sellers. The fair value of the contingent consideration, which is based on specific revenue levels achieved over a two year period, is as follows:
The contingent consideration payable is measured at fair value based on unobservable inputs and is considered a Level 3 financial instrument. The determination of the fair value of these liabilities is primarily driven by the Company’s expectations of the respective subsidiaries achieving certain milestones. The expected milestones were assigned probabilities and the expected related cash flows were discounted to derive the fair value of the contingent consideration.
From time to time, the Company may be involved in certain disputes arising in the ordinary course of business. Such disputes, taken in the aggregate, are not expected to have a material adverse effect on the Company. Except as disclosed under the heading “Legal Proceedings” below as of June 30, 2021, there were no pending or threatened lawsuits that could reasonably be expected to have a material effect on the results of the Company’s operations. There are also no proceedings in which any of the Company’s directors, officers, or affiliates is an adverse party or has a material interest adverse to the Company’s interest. |
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Financial Instruments and Financial Risk Management |
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| Investments All Other Investments [Abstract] | ||||||||||||||||||||||||
| Financial Instruments and Financial Risk Management |
The Company’s financial instruments consist of cash, accounts receivable, other receivables, notes receivable, accounts payable and accrued expenses, contingent consideration payable, notes payable, and derivative liabilities. The carrying values of these financial instruments approximate their fair values as of June 30, 2021 and December 31, 2020. Financial instruments recorded at fair value are classified using a fair value hierarchy that reflects the significance of the inputs to fair value measurements. The three levels of hierarchy are:
The fair value of the Company’s cash, accounts receivable, other receivables, accounts payable and accrued expenses approximate the carrying value due to their short-term nature. The Company’s notes receivable, convertible notes payable, and notes payable approximate fair value due to the instruments bearing market rate of interest. There were no transfers between fair value levels during the six months ended June 30, 2021 and the year ending December 31, 2020.
The Company is exposed in varying degrees to a variety of financial instruments related risks. The Board mitigates these risks by assessing, monitoring, and approving the Company’s risk management processes.
Credit risk is the risk of loss associated with counterparty’s inability to fulfill its payment obligations. The Company’s credit risk is primarily attributable to cash, lease receivables, other receivables, and notes receivable. The Company’s maximum credit risk exposure is equivalent to the carrying value of these instruments. The risk exposure is limited to the carrying amounts at the statement of financial position date. The risk to cash deposits is mitigated by holding these instruments with regulated financial institutions. Lease receivables, notes receivables and other receivables credit risk arises from the possibility that principal and interest due may become uncollectible. The Company mitigates this risk by managing and monitoring the underlying business relationships. The Company maintains cash with federally insured financial institutions. As of June 30, 2021 and December 31, 2020, the Company exceeded federally insured limits by approximately $5,000 and $5,000 respectively. The Company has historically not experienced any losses in such accounts. As of June 30, 2021, the Company held approximately $1,121 in Canadian bank accounts that are denominated in C$. As of June 30, 2021, the maximum credit exposure related to the carrying amounts of accounts receivable, notes receivable and lease receivables was $12,431.
Liquidity risk is the risk that the Company will not be able to meet its financial obligations associated with financial liabilities. The Company manages liquidity risk through the management of its capital structure. The Company’s approach to managing liquidity is to raise sufficient capital to settle obligations and liabilities when due.
Interest rate risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in market interest rates. The Company’s secured convertible notes with GGP (Note 7) had variable interest rates and were paid in full in December 2020.
The Company is exposed to exchange rate fluctuations between United States and Canadian dollars. The Company’s share price is denominated in Canadian dollars. If the Canadian dollar declines against the United States dollar, the United States dollar amounts available to fund the Company through the exercise of stock options or warrants will be less. The Company also has bank accounts with balances in Canadian dollars. The value of these bank balances if converted to U.S. dollars will fluctuate. While the Company maintains a head office in Canada where it incurs expenses primarily denominated in Canadian dollars, such expenses are a small portion of overall expenses incurred by the Company. The Company does not have a practice of trading derivatives and does not engage in “natural hedging” for funds held in Canada.
Price risk is the risk of variability in fair value due to movements in equity or market prices. The Company is subject to risk of prices to its products due to competitive or regulatory pressures. |
Segment Information |
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| Segment Reporting [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Segment Information |
Operating segments are components of the Company that combine similar business activities, with activities grouped to facilitate the evaluation of business units and allocation of resources by the Company’s board and management. As of June 30, 2021, the Company had two reportable segments:
All revenues are derived from customers domiciled in the United States and all assets are located in the United States.
Goodwill assigned to the THC Cannabis segment as of June 30, 2021 and December 31, 2020 was $23,155. Intangible assets, net assigned to the THC Cannabis segment as of June 30, 2021 and December 31, 2020 was $27,524 and $28,790, respectively.
Goodwill and Intangible Assets assigned to the CBD Wellness segment as of June 30, 2021 and December 31, 2020 were $nil.
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Supplementary Cash Flow Information |
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| Supplemental Cash Flow Information [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Supplementary Cash Flow Information |
15. SUPPLEMENTARY CASH FLOW INFORMATION Changes in non-cash working capital for six months ended June 30:
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Income Taxes |
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Jun. 30, 2021 | ||||||||||||||||||||||||||||||||||||||||||||||||
| Income Tax Disclosure [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||
| Income Taxes |
The following table summarizes the Company’s income tax expense and effective tax rates for the six months ended June 30, 2021 and 2020:
The Company has computed its provision for income taxes under the discrete method which treats the year-to-date period as if it were the annual period and determines the income tax expense or benefit on that basis. The discrete method is applied when application of the estimated annual effective tax rate is impractical because it is not possible to reliably estimate the annual effective tax rate. The Company believes the use of this discrete method is more appropriate than the annual effective tax rate method due to the early growth stage of the business. At this time, there is a high degree of uncertainty in estimating the Company’s annual pre-tax income and significant non-deductible expenses so the Company cannot reliably estimate the annual effective tax rate.
Internal Revenue Code (“IRC”) Section 280E denies, at the U.S. federal level, deductions, and credits attributable to a trade or business trafficking in controlled substances. Because the Company is subject to IRC Section 280E, the Company has computed its U.S. tax based on gross receipts less cost of goods sold. The tax provisions for the six months ended June 30, 2021 and 2020, have been prepared based on the assumption that cost of goods sold is a valid expense for income tax purposes.
The effective tax rate for the six months ended June 30, 2021 varies widely from the six months ended June 30, 2020, primarily due to the increase in non-deductible expenses as a proportion of total expenses in the current year. The Company incurs expenses that are not deductible due to IRC Section 280E limitations which results in significant income tax expense.
The federal statute of limitation remains open for the 2017 tax year to the present. The state income tax returns generally remain open for the 2016 tax year through the present. Net operating losses arising prior to these years are also open to examination if and when utilized.
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Disposals and Discontinued Operations |
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| Discontinued Operations And Disposal Groups [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Disposals and Discontinued Operations |
On January 21, 2020, the Company sold two management companies that controlled two Arkansas cannabis licenses to a third party for $2,000. A gain of $2,000 is included in net income from discontinued operations in the Consolidated Statements of Operations and Comprehensive Loss. The entities sold had no operation through the sale date. On March 20, 2020, the Company completed the divestiture of PHX Interactive LLC and Greens Goddess Inc. through a sale to a third party for $6,000 in cash. The Company paid a $348 fee to a lender in exchange for allowing the Company to sell the dispensary. This fee is recorded as a disposal cost and is netted with gains as part of net income from discontinued operations in the Consolidated Statements of Operations and Comprehensive Loss. Revenue and expenses, gains or losses relating to the discontinuation of these operations have been eliminated from the profit or loss from the Company’s continuing operations and are shown as part net income from discontinued operations in the condensed consolidated interim statements of operations and comprehensive loss. Between April 1, 2020 and September 30, 2020, the Company completed the sale of dispensaries in Pennsylvania, Maryland, and Arkansas, and of management companies that control three additional dispensaries in Maryland. Revenue and expenses from these operations have been eliminated from the loss from the Company’s continuing operations for the three months ended March 31, 2020 and are shown as part of net income from discontinued operations in the condensed consolidated interim statements of operations and comprehensive loss. The entities that were sold during the six months ended June 30, 2021 and 2020 were part of the THC Cannabis segment (Note 14). Below is a summary of the net income or loss from discontinued operations that is shown as a single line item for the three and six months ended June 30, 2021 and 2020:
Cash flows generated by the discontinued operations are reported as a single line item in each section of the condensed consolidated interim statements of cash flows and are summarized as follows:
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Subsequent Events |
6 Months Ended | ||
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Jun. 30, 2021 | |||
| Subsequent Events [Abstract] | |||
| Subsequent Events |
(a) Illinois Development Project The Company announced on August 5, 2021 the first closing of a multiphase expansion project to build an up to 558,000 sq. ft. cultivation and production facility (the “Facility”) in the Village of Matteson, Illinois, located outside of Chicago. The Company plans to use the Facility to produce the Company's more than 20 in-house brands and 200 products, which will be offered to Illinois customers at an accessible price point at its Mission Dispensaries and partner dispensaries across Illinois. (b) Approval for Adult-Use Cannabis Sales On July 15, 2021, the Company received final approval from the Massachusetts Cannabis Control Commission to open the Company’s third adult-use retail dispensary in Massachusetts. Located at 1024 Commonwealth Avenue, Boston, MA, the dispensary will hold its grand opening on August 21, 2021. |
Summary of Significant Accounting Policies (Policies) |
6 Months Ended | ||||||||
|---|---|---|---|---|---|---|---|---|---|
Jun. 30, 2021 | |||||||||
| Accounting Policies [Abstract] | |||||||||
| Principles of consolidation |
Principles of consolidation
The accompanying condensed consolidated interim financial statements include the accounts of the Company and all entities in which the Company either has a controlling voting interest or is the primary beneficiary of a variable interest entity. All intercompany accounts and transactions have been eliminated on consolidation.
The financial statements of the subsidiaries are prepared for the same reporting period as the parent company, using consistent accounting policies. |
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| Critical accounting estimates and judgements |
Our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with U.S. GAAP. The preparation of the Company’s condensed consolidated interim financial statements requires management to make judgments, estimates and assumptions that affect the application of policies and reported amounts of assets and liabilities, and revenue and expenses. Actual results may differ from these estimates. The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimate is revised if the revision affects only that period or in the period of the revision and future periods if the revision affects both current and future periods. The significant judgements made by management in applying the Company’s accounting policies and the key sources of estimation uncertainty were the same as those described in the latest annual consolidated financial statements.
We cannot predict what future laws and regulations might be passed that could have a material effect on our results of operations. We assess the impact of significant changes in laws and regulations on a regular basis and update the assumptions and estimates used to prepare our financial statements when we deem it necessary. |
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| Recent Accounting Pronouncements |
Recently Adopted
Accounting Pronouncements Not Yet Adopted
For SEC filers, excluding smaller reporting companies, ASU 2020-06 is effective for fiscal years beginning after December 15, 2021 including interim periods within those fiscal years. Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020. For all other entities, ASU 2020-06 is effective for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years. Entities should adopt the guidance as of the beginning of the fiscal year of adoption and cannot adopt the guidance in an interim reporting period. The Company is currently evaluating the impact that ASU 2020-06 may have on its consolidated financial statements and related disclosures.
Management does not believe that any other recently issued, but not yet effective, accounting standard if currently adopted would have a material effect on the accompanying consolidated financial statements. |
Inventory (Tables) |
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jun. 30, 2021 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Inventory Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Summary of Inventory |
Inventory consists of the following items:
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Intangible Assets and Goodwill (Tables) |
6 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jun. 30, 2021 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Goodwill And Intangible Assets Disclosure [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Summary of Intangible Assets |
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| Summary of Goodwill |
A summary of goodwill is as follows:
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Leases (Tables) |
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jun. 30, 2021 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Leases [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Summary of Company's Operating Leases |
The following table summarizes the Company’s operating leases:
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| Summary of Maturities Lease Liabilities For Third-Party Operating Leases |
Maturities of lease liabilities for third-party operating leases as of June 30, 2021 were as follows:
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| Summary of Changes in Lease Receivables |
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| Summary of Future Minimum Lease Payments (Principal and Interest) on Leases (Lessor) |
Future minimum lease payments receivable (principal and interest) on the leases is as follows:
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Notes Payable and Convertible Notes (Tables) |
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jun. 30, 2021 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Debt Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Summary of Notes Payable and Convertible Notes |
The Company’s notes payable and convertible notes are as follows:
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| Summary of Convertible Debt |
Outstanding as of June 30, 2021 were other payables totaling $8,358 which include notes issued as part of the acquisition of Healthy Pharms Inc. and Arkansas entities as follows:
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| Summary of Future Minimum Payments of Notes and Convertible Notes |
Future minimum payments on the notes payable and convertible debt are as follows:
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Share Capital and Equity (Tables) |
6 Months Ended | ||||||||||||||||||||||||||||||||||||
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Jun. 30, 2021 | |||||||||||||||||||||||||||||||||||||
| Stockholders Equity Note [Abstract] | |||||||||||||||||||||||||||||||||||||
| Summary of Share Capital and Equity |
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Warrants (Tables) |
6 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jun. 30, 2021 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Warrants And Rights Note Disclosure [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Summary of Warrants Outstanding to Purchase Shares |
As of June 30, 2021, there were share purchase warrants outstanding to purchase up to 39,779,765 SVS:
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| Summary of Warrants Outstanding And Exercisable |
As of June 30, 2021, the Company has the following warrants outstanding and exercisable.
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Share-Based Compensation (Tables) |
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Jun. 30, 2021 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Summary of Options Outstanding and Exercisable on an As-Converted Basis |
As of June 30, 2021, the Company had the following options outstanding and exercisable on an as-converted basis:
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| Summary of Stock Option Activity |
Stock option activity is summarized as follows:
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| Equity Based Compensation Options | 4Front Holdings LLC | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Summary of Stock Options Values using Black-Scholes Model with Key Assumptions |
In determining the amount of equity-based compensation during the period, the Company used the Black-Scholes option pricing model to establish fair value of options granted during the period with the following key assumption:
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Contingencies (Tables) |
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||
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Jun. 30, 2021 | |||||||||||||||||||||||||||||||||||||||||
| Commitments And Contingencies Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||
| Schedule of Fair Value of Contingent Consideration | The fair value of the contingent consideration, which is based on specific revenue levels achieved over a two year period, is as follows:
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Segment Information (Tables) |
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jun. 30, 2021 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Segment Reporting [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Summary of Revenue By Type |
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Supplementary Cash Flow Information (Tables) |
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Jun. 30, 2021 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Supplemental Cash Flow Information [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Summary of Changes in Non-Cash Working Capital |
Changes in non-cash working capital for six months ended June 30:
|
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Income Taxes (Tables) |
6 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Jun. 30, 2021 | ||||||||||||||||||||||||||||||||||||||||||||||
| Income Tax Disclosure [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||
| Summary of Income Tax Expense and Effective Tax Rates |
The following table summarizes the Company’s income tax expense and effective tax rates for the six months ended June 30, 2021 and 2020:
|
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Disposals and Discontinued Operations (Tables) |
6 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Jun. 30, 2021 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Discontinued Operations And Disposal Groups [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Summary of Net Income or Loss from Discontinued Operations | Below is a summary of the net income or loss from discontinued operations that is shown as a single line item for the three and six months ended June 30, 2021 and 2020:
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Summary of Cash Flows Generated by Discontinued Operations |
Cash flows generated by the discontinued operations are reported as a single line item in each section of the condensed consolidated interim statements of cash flows and are summarized as follows:
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Nature of Operations - Additional Information (Details) |
6 Months Ended |
|---|---|
|
Jun. 30, 2021
Segment
Dispensary
Facility
| |
| Nature Of Operations [Line Items] | |
| Number of operating segments | Segment | 2 |
| Number of dispensaries | Dispensary | 5 |
| Massachusetts | |
| Nature Of Operations [Line Items] | |
| Number of production facilities | 2 |
| Illinois | |
| Nature Of Operations [Line Items] | |
| Number of production facilities | 2 |
Summary of Significant Accounting Policies - Additional Information (Details) - Accounting Standards Update No. 2019-12 |
Jun. 30, 2021 |
|---|---|
| Summary Of Significant Accounting Policies [Line Items] | |
| Change In Accounting Principle Accounting Standards Update Adopted | true |
| Change in Accounting Principle, Accounting Standards Update, Adoption Date | Jan. 01, 2021 |
| Change in Accounting Principle, Accounting Standards Update, Immaterial Effect | true |
Inventory - Summary of Inventories (Details) - USD ($) $ in Thousands |
Jun. 30, 2021 |
Dec. 31, 2020 |
|---|---|---|
| Inventory [Line Items] | ||
| Total inventory | $ 22,600 | $ 18,037 |
| Unharvested Cannabis | ||
| Inventory [Line Items] | ||
| Raw materials | 7,010 | 4,907 |
| Flower and Extract | ||
| Inventory [Line Items] | ||
| Work in process | 9,656 | 9,454 |
| Cultivation Supplies | ||
| Inventory [Line Items] | ||
| Finished goods | 117 | 886 |
| Packaged Products | ||
| Inventory [Line Items] | ||
| Finished goods | $ 5,817 | $ 2,790 |
Intangible Assets and Goodwill - Summary of Intangible Assets (Details) - USD ($) $ in Thousands |
6 Months Ended | 12 Months Ended |
|---|---|---|
Jun. 30, 2021 |
Dec. 31, 2020 |
|
| Finite Lived Intangible Assets [Line Items] | ||
| Balance | $ 28,790 | $ 35,147 |
| Amortization expense | (1,266) | (3,009) |
| Impairment | (3,348) | |
| Balance | 27,524 | 28,790 |
| Licenses | ||
| Finite Lived Intangible Assets [Line Items] | ||
| Balance | 20,146 | 20,146 |
| Balance | 20,146 | 20,146 |
| Customer Relationships | ||
| Finite Lived Intangible Assets [Line Items] | ||
| Balance | 1,668 | 2,247 |
| Amortization expense | (290) | (579) |
| Balance | 1,378 | 1,668 |
| Non-competition Agreement | ||
| Finite Lived Intangible Assets [Line Items] | ||
| Balance | 43 | 137 |
| Amortization expense | (25) | (94) |
| Balance | 18 | 43 |
| Trademarks | ||
| Finite Lived Intangible Assets [Line Items] | ||
| Balance | 3,725 | |
| Amortization expense | (377) | |
| Impairment | (3,348) | |
| Know-how (trade secrets) | ||
| Finite Lived Intangible Assets [Line Items] | ||
| Balance | 6,933 | 8,892 |
| Amortization expense | (951) | (1,959) |
| Balance | $ 5,982 | $ 6,933 |
Intangible Assets and Goodwill - Summary of Goodwill (Details) $ in Thousands |
12 Months Ended |
|---|---|
|
Dec. 31, 2020
USD ($)
| |
| Goodwill [Line Items] | |
| Balance | $ 40,283 |
| Impairment | (13,400) |
| Balance | 23,155 |
| PHX/Greens Goddess Acquisition | |
| Goodwill [Line Items] | |
| Disposal | (5,134) |
| Cannex Capital Holdings Inc | |
| Goodwill [Line Items] | |
| Tax adjustment to goodwill from acquisition | $ 1,406 |
Intangible Assets and Goodwill - Additional Information (Details) $ in Thousands |
12 Months Ended |
|---|---|
|
Dec. 31, 2020
USD ($)
| |
| Disclosure Of Intangible Assets And Goodwill [Line Items] | |
| Goodwill impairment | $ 13,400 |
| Intangible assets impairment written off | 3,348 |
| Trademarks | |
| Disclosure Of Intangible Assets And Goodwill [Line Items] | |
| Intangible assets impairment written off | 3,348 |
| Pure Ratios RU | |
| Disclosure Of Intangible Assets And Goodwill [Line Items] | |
| Goodwill impairment | 13,400 |
| Pure Ratios RU | Trademarks | |
| Disclosure Of Intangible Assets And Goodwill [Line Items] | |
| Intangible assets impairment written off | $ 3,348 |
Leases - Additional Information (Details) - USD ($) $ in Thousands |
3 Months Ended | 6 Months Ended | 12 Months Ended | 18 Months Ended | |||
|---|---|---|---|---|---|---|---|
Jun. 30, 2021 |
Jun. 30, 2020 |
Jun. 30, 2021 |
Jun. 30, 2020 |
Dec. 31, 2020 |
Jun. 30, 2021 |
Dec. 31, 2019 |
|
| Leases [Line Items] | |||||||
| Lessor, operating lease options to renew | true | ||||||
| Operating lease expense | $ 2,400 | $ 821 | $ 4,868 | $ 2,375 | |||
| Lease receivable | 10,696 | 10,696 | $ 11,045 | $ 10,696 | $ 33,500 | ||
| Lease interest in real estate income | 1,361 | $ 11,019 | |||||
| Real estate income | $ 2,669 | $ 2,734 | 5,559 | $ 5,631 | |||
| Lease generated in real estate income | $ 4,198 | ||||||
| Minimum | |||||||
| Leases [Line Items] | |||||||
| Lessee incremental borrowing rate percentage | 10.25% | ||||||
| Maximum | |||||||
| Leases [Line Items] | |||||||
| Lessee incremental borrowing rate percentage | 17.00% | ||||||
Leases - Summary of Company's Operating Leases (Details) - USD ($) $ in Thousands |
Jun. 30, 2021 |
Dec. 31, 2020 |
|---|---|---|
| Assets | ||
| Operating lease assets | $ 60,701 | $ 62,466 |
| Liabilities | ||
| Current portion of operating lease liabilities | 1,127 | 1,909 |
| Noncurrent portion of operating lease liabilities | 51,849 | 51,545 |
| Total lease liabilities | $ 52,976 | $ 53,454 |
Leases - Summary of Maturities Lease Liabilities For Third-Party Operating Leases (Details) $ in Thousands |
Jun. 30, 2021
USD ($)
|
|---|---|
| Leases [Abstract] | |
| 2021 | $ 4,384 |
| 2022 | 8,982 |
| 2023 | 9,183 |
| 2024 | 9,390 |
| 2025 | 9,551 |
| Thereafter | 127,913 |
| Total minimum lease payments | $ 169,403 |
Leases - Summary of Changes in Lease Receivables (Details) - USD ($) $ in Thousands |
6 Months Ended | 12 Months Ended |
|---|---|---|
Jun. 30, 2021 |
Dec. 31, 2020 |
|
| Leases [Abstract] | ||
| Balance, beginning of the year | $ 11,045 | $ 33,500 |
| Sale of assets in sale leaseback | (22,508) | |
| Interest | 1,361 | 11,019 |
| Lease payments received | (1,710) | (10,966) |
| Balance, end of the period | 10,696 | 11,045 |
| Less current portion | (3,540) | (3,450) |
| Long term lease receivables | $ 7,156 | $ 7,595 |
Leases - Summary of Future Minimum Lease Payments (Principal and Interest) on Leases (Lessor) (Details) - USD ($) $ in Thousands |
Jun. 30, 2021 |
Dec. 31, 2020 |
Dec. 31, 2019 |
|---|---|---|---|
| Leases [Abstract] | |||
| 2021 | $ 1,740 | ||
| 2022 | 3,630 | ||
| 2023 | 1,575 | ||
| Total minimum lease payments | 6,945 | ||
| Effect of discounting | (1,384) | ||
| Present value of minimum lease payments | 5,561 | ||
| Present value of residual of leased property | 5,135 | ||
| Total lease receivable | 10,696 | $ 11,045 | $ 33,500 |
| Current portion lease receivable | (3,540) | (3,450) | |
| Long term lease receivable | $ 7,156 | $ 7,595 |
Notes Payable and Convertible Notes - Summary of Classification of Notes Payable and Convertible Notes (Details) - USD ($) $ in Thousands |
Jun. 30, 2021 |
Dec. 31, 2020 |
Dec. 31, 2019 |
|---|---|---|---|
| Debt Instrument [Line Items] | |||
| Long-term debt | $ 55,201 | $ 67,015 | $ 87,989 |
| Less current portion | (6,539) | (5,024) | |
| Long term portion | 48,662 | 61,991 | |
| Gotham Green Partners LLC | |||
| Debt Instrument [Line Items] | |||
| Long-term debt | 35,607 | ||
| LI Lending, LLC | |||
| Debt Instrument [Line Items] | |||
| Long-term debt | 46,843 | 45,362 | 44,289 |
| Long term portion | 46,843 | 45,362 | |
| May 2020 Convertible Notes | |||
| Debt Instrument [Line Items] | |||
| Long-term debt | 2,855 | ||
| Long term portion | 2,855 | ||
| May 2020 Convertible Notes (Swap) | |||
| Debt Instrument [Line Items] | |||
| Long-term debt | 11,867 | ||
| Long term portion | 11,867 | ||
| Other Loans | |||
| Debt Instrument [Line Items] | |||
| Long-term debt | 8,358 | 6,931 | $ 8,093 |
| Less current portion | (6,539) | (5,024) | |
| Long term portion | $ 1,819 | $ 1,907 |
Notes Payable and Convertible Notes - Summary of Future Minimum Payments of Notes and Convertible Notes (Details) - USD ($) $ in Thousands |
Jun. 30, 2021 |
Dec. 31, 2020 |
Dec. 31, 2019 |
|---|---|---|---|
| Debt Disclosure [Abstract] | |||
| 2021 | $ 5,498 | ||
| 2022 | 1,730 | ||
| 2024 | 53,180 | ||
| Total minimum payments | 60,408 | ||
| Effect of discounting | (5,207) | ||
| Long-term debt | 55,201 | $ 67,015 | $ 87,989 |
| Less current portion | (6,539) | (5,024) | |
| Long term portion | $ 48,662 | $ 61,991 |
Share Capital and Equity - Summary of Share Capital and Equity (Details) |
Jun. 30, 2021
shares
|
|---|---|
| Class Of Stock [Line Items] | |
| Number of shares outstanding | 593,898,521 |
| Class A Shares | |
| Class Of Stock [Line Items] | |
| Number of shares outstanding | 592,622,313 |
| Class C Shares | |
| Class Of Stock [Line Items] | |
| Number of shares outstanding | 1,276,208 |
| Class A Subordinate Voting Shares | |
| Class Of Stock [Line Items] | |
| Number of shares outstanding | 592,622,313 |
| Class C Multiple Voting Shares | |
| Class Of Stock [Line Items] | |
| Number of shares outstanding | 1,276,208 |
Warrants - Additional Information (Details) - shares |
Jun. 30, 2021 |
Dec. 31, 2020 |
|---|---|---|
| Warrants And Rights Note Disclosure [Abstract] | ||
| Share purchase warrants outstanding | 39,779,765 | 42,772,992 |
Warrants - Summary of Warrants Outstanding to Purchase Shares (Details) |
6 Months Ended |
|---|---|
|
Jun. 30, 2021
$ / shares
shares
| |
| Warrants And Rights Note Disclosure [Abstract] | |
| Number of warrants, Beginning balance | shares | 42,772,992 |
| Number of warrants, Exercised | shares | (2,993,227) |
| Number of warrants, Ending balance | shares | 39,779,765 |
| Weighted average exercise price, Beginning balance | $ / shares | $ 0.90 |
| Weighted average exercise price, Exercised | $ / shares | 0.68 |
| Weighted average exercise price, Ending balance | $ / shares | $ 0.92 |
Share-Based Compensation - Additional Information (Details) - Equity Incentive Plan - USD ($) $ in Thousands |
3 Months Ended | 6 Months Ended | ||
|---|---|---|---|---|
Jun. 30, 2021 |
Jun. 30, 2020 |
Jun. 30, 2021 |
Jun. 30, 2020 |
|
| Share Based Compensation Arrangement By Share Based Payment Award [Line Items] | ||||
| Recognized share-based compensation expense | $ 2,979 | $ 684 | $ 5,375 | $ 2,276 |
| Class A Stock Options | ||||
| Share Based Compensation Arrangement By Share Based Payment Award [Line Items] | ||||
| Maximum number of stock options available for grant, percentage of number of outstanding shares | 10.00% | |||
| Minimum exercise price of stock options issued, percentage of fair market value of shares on grant date | 100.00% | |||
| Maximum term of stock options granted | 5 years | |||
Share-Based Compensation - Summary of Stock Option Activity (Details) - $ / shares |
6 Months Ended | 12 Months Ended | |
|---|---|---|---|
Jun. 30, 2021 |
Dec. 31, 2020 |
Dec. 31, 2019 |
|
| Disclosure Of Compensation Related Costs Sharebased Payments [Abstract] | |||
| Number of Options, Beginning Balance | 50,427,065 | 40,028,465 | |
| Number of Options, Granted | 7,875,000 | 19,190,960 | |
| Number of Options, Exercised | (2,011,056) | ||
| Number of Options, Forfeited | (8,792,360) | ||
| Number of Options, Ending Balance | 56,291,009 | 50,427,065 | 40,028,465 |
| Weighted Average Price, Beginning Balance | $ 0.84 | $ 0.86 | |
| Weighted Average Price, Granted | 1.63 | 0.90 | |
| Weighted Average Price, Exercised | 0.93 | ||
| Weighted Average Price, Forfeited | 1.04 | ||
| Weighted Average Price, Ending Balance | $ 0.94 | $ 0.84 | $ 0.86 |
| Weighted Average Years | 3 years 5 months 26 days | 3 years 8 months 19 days | 4 years 1 month 13 days |
| Weighted Average Years,Granted | 4 years 11 months 19 days | ||
| Weighted Average Years,Exercised | 4 years 11 months 19 days | ||
Share-Based Compensation - Summary of Stock Options Values using Black-Scholes Model with Key Assumptions (Details) - Equity Based Compensation Options - 4Front Holdings LLC |
6 Months Ended |
|---|---|
Jun. 30, 2021 | |
| Share Based Compensation Arrangement By Share Based Payment Award [Line Items] | |
| Risk-Free Interest Rate, minimum | 0.87% |
| Risk-Free Interest Rate, maximum | 0.92% |
| Expected Life of Options (years) | 5 years |
| Expected Annualized Volatility, minimum | 86.20% |
| Expected Annualized Volatility, maximum | 93.53% |
| Expected Dividend Yield |
Related Parties - Additional Information (Details) - USD ($) $ in Thousands |
3 Months Ended | 6 Months Ended | |||
|---|---|---|---|---|---|
Jun. 30, 2021 |
Jun. 30, 2020 |
Jun. 30, 2021 |
Jun. 30, 2020 |
May 10, 2019 |
|
| Pure Ratios | Online CBD Market | |||||
| Related Party Transaction [Line Items] | |||||
| Revenue from services to related party | $ 313 | $ 2,334 | |||
| 7Point Holdings LLC | |||||
| Related Party Transaction [Line Items] | |||||
| Commercial sublease expiration date | May 31, 2023 | ||||
| Commercial sublease, renewal option description | one five-year renewal option | ||||
| Commercial sublease, renewal term | 5 years | ||||
| Interest revenue on lease receivable | $ 725 | $ 751 | $ 1,459 | $ 1,507 | |
| LI Lending, LLC | |||||
| Related Party Transaction [Line Items] | |||||
| Outstanding amount under credit facility | $ 46,843 | $ 46,843 | $ 50,000 | ||
Contingencies - Summary of Fair Value of Contingent Consideration (Details) - Om of Medicine $ in Thousands |
6 Months Ended |
|---|---|
|
Jun. 30, 2021
USD ($)
| |
| Loss Contingencies [Line Items] | |
| Balance, December 31, 2020 | $ 5,496 |
| Accretion | 228 |
| Payments | (1,201) |
| Notes issued | (485) |
| Shares issued | (722) |
| Balance, June 30, 2021 | $ 3,316 |
Contingencies - Additional Information (Details) $ in Thousands |
3 Months Ended | 6 Months Ended | 12 Months Ended | ||
|---|---|---|---|---|---|
|
Jun. 30, 2021
USD ($)
Claim
|
Jun. 30, 2020
USD ($)
|
Jun. 30, 2021
USD ($)
Claim
|
Jun. 30, 2020
USD ($)
|
Dec. 31, 2020
USD ($)
|
|
| Loss Contingencies [Line Items] | |||||
| Revenues | $ 27,121 | $ 12,701 | $ 50,091 | $ 25,353 | |
| Number of pending lawsuits | Claim | 0 | 0 | |||
| Om of Medicine | Revenue Milestone One | Minimum | |||||
| Loss Contingencies [Line Items] | |||||
| Revenues | $ 3,400 | ||||
| Om of Medicine | Revenue Milestone One | Maximum | |||||
| Loss Contingencies [Line Items] | |||||
| Business combination contingent consideration payable | $ 6,000 | $ 6,000 | |||
Financial Instruments and Financial Risk Management - Additional information (Details) - USD ($) |
6 Months Ended | 12 Months Ended |
|---|---|---|
Jun. 30, 2021 |
Dec. 31, 2020 |
|
| Investments All Other Investments [Abstract] | ||
| Fair value, assets, level 1 to level 2 transfers, amount | $ 0 | $ 0 |
| Fair value, assets, level 2 to level 1 transfers, amount | 0 | 0 |
| Fair value, liabilities, level 1 to level 2 transfers, amount | 0 | 0 |
| Fair value, liabilities, level 2 to level 1 transfers, amount | 0 | 0 |
| Fair value, equity, level 1 to level 2 transfers, amount | 0 | 0 |
| Fair value, equity, level to level 1 transfers, amount | 0 | 0 |
| Fair value, transfers into (out of) level 3 | 0 | 0 |
| Federally insured limits exceeded amount | 5,000,000 | $ 5,000,000 |
| Cash held with bank accounts | 1,121,000 | |
| Maximum credit exposure | $ 12,431,000 |
Segment Information - Additional Information (Details) $ in Thousands |
6 Months Ended | ||
|---|---|---|---|
|
Jun. 30, 2021
USD ($)
Segment
|
Dec. 31, 2020
USD ($)
|
Dec. 31, 2019
USD ($)
|
|
| Segment Information [Line Items] | |||
| Number of reportable segments | Segment | 2 | ||
| Goodwill | $ 23,155 | $ 23,155 | $ 40,283 |
| Intangible assets, net | 27,524 | 28,790 | |
| THC Cannabis | |||
| Segment Information [Line Items] | |||
| Goodwill | 23,155 | 23,155 | |
| Intangible assets, net | 27,524 | 28,790 | |
| CBD Wellness | |||
| Segment Information [Line Items] | |||
| Goodwill | 0 | 0 | |
| Intangible assets, net | $ 0 | $ 0 |
Segment Information - Summary of Revenues By Type (Details) - USD ($) $ in Thousands |
3 Months Ended | 6 Months Ended | |||
|---|---|---|---|---|---|
Jun. 30, 2021 |
Jun. 30, 2020 |
Jun. 30, 2021 |
Jun. 30, 2020 |
Dec. 31, 2020 |
|
| Segment Reporting Information [Line Items] | |||||
| Total Net Revenues | $ 27,121 | $ 12,701 | $ 50,091 | $ 25,353 | |
| Total Depreciation and Amortization | 861 | $ 975 | 1,635 | 1,888 | |
| Total Assets | 208,764 | 208,764 | $ 204,756 | ||
| THC Cannabis | |||||
| Segment Reporting Information [Line Items] | |||||
| Total Net Revenues | 48,544 | 21,894 | |||
| Total Depreciation and Amortization | 1,589 | 1,847 | |||
| Total Assets | 201,091 | 201,091 | 186,899 | ||
| CBD Wellness | |||||
| Segment Reporting Information [Line Items] | |||||
| Total Net Revenues | 1,547 | 3,459 | |||
| Total Depreciation and Amortization | 16 | $ 41 | |||
| Total Assets | 1,815 | 1,815 | 2,198 | ||
| Corporate | |||||
| Segment Reporting Information [Line Items] | |||||
| Total Depreciation and Amortization | 30 | ||||
| Total Assets | $ 5,858 | $ 5,858 | $ 15,659 | ||
Supplementary Cash Flow Information - Summary of Changes in Non-Cash Working Capital (Details) - USD ($) $ in Thousands |
6 Months Ended | |
|---|---|---|
Jun. 30, 2021 |
Jun. 30, 2020 |
|
| Changes in operating assets and liabilities | ||
| Accounts receivable | $ (815) | $ 33 |
| Deposits | (70) | |
| Inventory | (4,563) | (2,616) |
| Prepaid expenses | 50 | 360 |
| Accounts payable and other liabilities | 65 | (2,501) |
| Taxes payable | 5,163 | 2,636 |
| Changes in operating assets and liabilities | $ (170) | $ (2,088) |
Supplementary Cash Flow Information - Additional Information (Details) - USD ($) |
6 Months Ended | |
|---|---|---|
Jun. 30, 2021 |
Jun. 30, 2020 |
|
| Supplemental Cash Flow Information [Abstract] | ||
| Cash paid for interest | $ 1,662,000 | $ 3,765,000 |
| Cash paid for income taxes | $ 224,000 | $ 0 |
Income Taxes - Summary of Income Tax Expense and Effective Tax Rates (Details) - USD ($) $ in Thousands |
6 Months Ended | |
|---|---|---|
Jun. 30, 2021 |
Jun. 30, 2020 |
|
| Income Tax Disclosure [Abstract] | ||
| Net loss before income taxes | $ (11,298) | $ (5,096) |
| Income tax expense | $ (6,004) | $ (3,335) |
| Effective tax rate | (53.14%) | (65.44%) |
Income Taxes - Additional Information (Details) |
6 Months Ended |
|---|---|
Jun. 30, 2021 | |
| Federal Statute of Limitation | |
| Income Taxes [Line Items] | |
| Open tax year | 2017 |
| State Income Tax Returns | |
| Income Taxes [Line Items] | |
| Open tax year | 2016 |
Disposals and Discontinued Operations - Additional Information (Details) $ in Thousands |
Sep. 30, 2020
Dispensary
|
Mar. 20, 2020
USD ($)
|
Jan. 29, 2020
USD ($)
Company
|
|---|---|---|---|
| Two Management Companies | |||
| Income Statement Balance Sheet And Additional Disclosures By Disposal Groups Including Discontinued Operations [Line Items] | |||
| Number of management companies sold | Company | 2 | ||
| Consideration | $ 2,000 | ||
| Net income from discontinued operations | $ 2,000 | ||
| PHX Interactive LLC and Control of Greens Goddess Inc. | |||
| Income Statement Balance Sheet And Additional Disclosures By Disposal Groups Including Discontinued Operations [Line Items] | |||
| Consideration | $ 6,000 | ||
| Fee paid to lender | $ 348 | ||
| Maryland Management Companies | |||
| Income Statement Balance Sheet And Additional Disclosures By Disposal Groups Including Discontinued Operations [Line Items] | |||
| Number of additional dispensaries | Dispensary | 3 |
Disposals and Discontinued Operations - Summary of Net Income or Loss from Discontinued Operations (Details) - USD ($) $ in Thousands |
3 Months Ended | 6 Months Ended |
|---|---|---|
Jun. 30, 2020 |
Jun. 30, 2020 |
|
| Discontinued Operations And Disposal Groups [Abstract] | ||
| REVENUE | $ 4,423 | $ 9,421 |
| Cost of goods sold | (2,791) | (6,107) |
| Gross profit | 1,632 | 3,314 |
| OPERATING EXPENSES | ||
| Selling and marketing expenses | 1,270 | 3,007 |
| Depreciation and amortization | 353 | |
| Gain on sale of subidiary | (9,559) | (11,211) |
| Total operating (income) expenses | (8,289) | (7,851) |
| Income from operations | 9,921 | 11,165 |
| Interest expense | (42) | (41) |
| Net income before income taxes | 9,879 | 11,124 |
| Income tax expense | (39) | (412) |
| Net income after income tax expense | $ 9,840 | $ 10,712 |
Disposals and Discontinued Operations - Summary of Cash Flows Generated by Discontinued Operations (Details) $ in Thousands |
6 Months Ended |
|---|---|
|
Jun. 30, 2020
USD ($)
| |
| Discontinued Operations And Disposal Groups [Abstract] | |
| Net cash provided by discontinued operation activities | $ 7,107 |
| Net cash used in discontinued investing activities | (59) |
| Cash flows from discontinued operations | $ 7,048 |
Subsequent Events - Additional Information (Details) - Subsequent Event |
Aug. 05, 2021
ft²
Brand
Product
|
|---|---|
| Subsequent Event [Line Items] | |
| Number of in-house brands to be produced in facility | Brand | 20 |
| Number of products to be produced in facility | Product | 200 |
| Maximum | |
| Subsequent Event [Line Items] | |
| Area of land used to build cultivation and production facility | ft² | 558,000 |
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