NOTES PAYABLE AND CONVERTIBLE NOTES

12 Months Ended

Dec. 31, 2023

Debt Disclosure [Abstract]

NOTES PAYABLE AND CONVERTIBLE NOTES

NOTES PAYABLE AND CONVERTIBLE NOTES

The Company’s notes payable and convertible notes are as follows:

Terms	December 31, 2023		December 31, 2022
Secured promissory notes dated May 10, 2019, as subsequently amended, with a related party which mature on May 1, 2026 and bear interest at a rate of 16.5% through May 1, 2024 and 12% per annum thereafter	$	47,491	$	49,807
Promissory note dated October 13, 2023 under the senior secured credit facility which matured on December 1, 2023 and bears interest at a rate of 15.5% per annum. The Company is currently in negotiations to amend the terms of the agreement.	3,410		—
Convertible promissory note dated October 6, 2021, which matures on October 6, 2024 and bears interest at a rate of 10% per annum	15,818		14,843
Unsecured convertible promissory note at $0.50 per share due December 18, 2024 at 12% per annum with monthly cash payments of $50,000 beginning January 15, 2024 through maturity (1)	2,051		3,554
Promissory note issued for the acquisition of NECC due January 7, 2023 at 10% per annum (2)(5)	—		519
Promissory note issued for the acquisition of Island due October 25, 2026 at 6% per annum (5)	11,030		10,431
Secured promissory note due January 1, 2024 at 1.5% monthly interest through November 30, 2022 and 2% monthly interest through maturity (3)	2,734		3,230
Unsecured promissory note due November 30, 2024, monthly interest payments at 12% per annum through September 2023 and 11% per annum through November 2024 (4)	1,630		1,730
Various	9		51
Total Notes Payable and Convertible Notes	$	84,173	$	84,165

(1) In November 2022, the unsecured convertible note was amended to extend the maturity date to May 18, 2023. The Company concluded the extension resulted in a debt modification under ASC 470. On October 2, 2023, the Company amended the unsecured convertible promissory note with Healthy Pharms Inc. wherein the interest rate was amended to 12.0% per annum and the maturity date was extended to December 18, 2024. Beginning January 15, 2024, the Company shall make monthly cash payments of $50,000 through the maturity date. The amendment was deemed to be a substantial modification under ASC Subtopic 470-50 and a loss on extinguishment of $0.4 million was recorded in the consolidated statement of operations for the year ended December 31, 2023. In November 2023, the Company issued 10,359,372 Class A Subordinate Voting Shares to the note holder to settle $1,992,187 of the promissory note.

(2) On July 28, 2022, the parties amended the promissory note to provide for payment of half the principal on the initial maturity date, and the remaining principal and all accrued interest on November 15, 2022. Interest will continue at annual rate of 10%. On November 25, 2022, the note was further amended to extend the maturity date for one fourth of the principal and accrued and unpaid interest to January 7, 2023.

(3) On August 30, 2022, the Company entered into a Promissory Note Purchase Agreement with HI 4Front, LCC and Navy Capital Green Fund, LP. Under the agreement, the Company sold promissory notes totaling $3.0 million with a six-month maturity bearing 1.5% monthly interest for three months and 2% monthly interest for three months. The notes were unsecured, but would become secured if not repaid within three months. On October 10, 2023, the Company amended the promissory note wherein the maturity date was extended to January 1, 2024. As consideration for the amendment, the Company paid an extension fee of C$65,000 in the form of 1,283,425 share purchase warrants, wherein each warrant is exercisable into one (1) Subordinate Voting Share at an exercise price of US$0.20 and expire on October 17, 2027. The amendment was not deemed to be a substantial modification under ASC Subtopic 470-50. As a result of the modification, the Company recorded an additional debt discount of $0.2 million for the issuance of the warrants.

(4) On September 16, 2022, the unsecured promissory note was modified to be due and payable in full on September 30, 2023. Interest will continue at an annual rate of 12% with payment of interest due monthly. On September 28, 2023, the Company entered into an amendment of this promissory note to reduce the interest rate to 11% and extend the maturity date to November 30, 2024. The amendment was classified as a troubled debt restructuring pursuant to ASC 470-60, "Troubled Debt Restructurings by Debtors".

(5) Refer to Note 7 for further information on the acquisition related promissory notes.

LI Lending LLC

On May 10, 2019, the Company entered into a loan agreement with LI Lending LLC, a related party, for $50.0 million, of which $45.0 million was drawn as of December 31, 2023 in two amounts: (i) $35.0 million bearing interest at a rate of 10.25% and (ii) $10.0 million bearing interest at a rate of 12.25%. The loan matures on May 10, 2024 upon which the Company shall pay an exit fee of 20% of the remaining principal balance.

In April 2020, the loan was amended to release certain assets previously held as collateral and to make principal prepayments totaling $2.0 million applied to the initial $35.0 million amount, decreasing the principal balance to $33.0 million. In December 2020, the loan was amended to increase the interest rate by 2.5% of which payments of the incremental interest were paid-in-kind until January 1, 2022. The Company was still required to make interest-only payments monthly of 10.25% on the initial $33.0 million and 12.25% on the final $10.0 million of the loan until January 1, 2022, when monthly interest payments rates were increased to 12.75% for the initial $33.0 million and 14.75% for the final $10.0 million for the remaining term.

In July 2023, the Company entered into the First Amendment to the loan agreement with LI Lending LLC to extend the maturity date of the related party loan to May 1, 2026, to reduce the interest rate to 12.0% per annum beginning May 1, 2024, and to expand the amount of third-party financings allowed under the loan agreement.

In addition, the exit fee of $9.0 million was removed and deferred interest in the amount of $9.2 million shall be added to the principal of the promissory note on May 1, 2024, for a total payable at maturity of $51.7 million. As compensation for the amendment, the Company shall pay an extension fee of $0.5 million payable in cash on May 1, 2024. In addition, the Company issued warrants to purchase a variable number of subordinate voting shares on August 10, 2023 wherein each warrant shall be exercisable into one (1) Subordinate Voting Share at an exercise price of $0.17 through May 1, 2026. See Note 10 for further information regarding the fair value of the warrants. The amendment to the related party loan was not deemed to be a substantial modification under ASC Subtopic 470-50. As a result of the modification, the Company recorded an additional debt discount of $4.7 million related to the extension fee and the fair value of the warrants.

For the years ended December 31, 2023 and 2022, the Company recognized accrued interest expense of $7.8 million and $7.0 million, respectively, on the related party loan and made $6.4 million and $5.5 million, respectively, in payments of principal and interest to the related party. See Note 19 for further discussion of this related party transaction.

October 2021 Convertible Note

On October 6, 2021, the Company entered into a convertible promissory note for $15.0 million that is exercisable into Class A Subordinate Voting Shares for $1.03 per share at any time at the option of the holder. The notes bear interest at 6% per annum and mature on October 6, 2024 upon which any remaining balance is payable in cash. All accrued and unpaid interest is payable in cash on an annual basis beginning on October 6, 2022.

On October 6, 2023, the Company amended the October 2021 Convertible Note wherein payment of interest shall be deferred and become due and payable upon the earlier of the maturity date, a change of control, or event of default under the existing agreement terms. In addition, the outstanding balance, including any deferred interest payments, shall accrue interest at a rate of 10.0% per annum through maturity. The conversion price was amended to $0.23 per share. The amendment of the October 2021 Convertible Note was deemed to be a substantial modification under ASC Subtopic 470-50 and a gain on extinguishment of $0.4 million was recorded in the consolidated statement of operations for the year ended December 31, 2023.

As of December 31, 2023, payments of principal and interest totaling $1.1 million have been made for this loan. As of December 31, 2023 and 2022, the unamortized discount balance related to the October 2021 Convertible Note was $0.5 million and $0.4 million, respectively, with a remaining amortization period of 0.8 years and 1.75 years, respectively. For the years ended December 31, 2023 and 2022, the Company recognized interest expense of $1.1 million and $1.1 million, respectively, and accretion of debt discount of $0.3 million and $0.2 million, respectively, related to the October 2021 Convertible Note.

Senior Secured Credit Facility

On October 13, 2023, the Company entered into a senior secured credit facility agreement for an aggregate principal up to $10.0 million in which a term loan in the amount of $3.4 million was drawn on the closing date and a second tranche of $4.0 million is available to be drawn through July 13, 2024. The term loans accrue interest paid monthly in arrears at a rate equal to the greater of (a) the sum of the prime rate and 7.0% and (b) 15.5% per annum. The term loans mature on December 1, 2023 and include extension terms under certain circumstances no further than September 30, 2026. For each term loan, the Company shall pay an origination fee equal to 7.0% of the principal amount of the term loan upon issuance. In addition, the Company shall pay a commitment fee on the undrawn second tranche which shall accrue at a rate per annum of 2.0% through the earlier of July 13, 2024 and the date on which the maximum facility amount is drawn. The Company may prepay the term loans, in whole or in part, at any time subject to the prepayment fee based on the date of the prepayment. Further, the Company shall pay an exit fee of $1.4 million upon the earlier of the maturity date or the date on which the obligations are paid in full. The term loans shall be secured by senior liens on all assets of the Company and borrowing subsidiaries.

The agreement contains financial covenants that (a) require the Company to have minimum liquidity of at least $3.0 million beginning December 31, 2023, (b) have a fixed charge coverage ratio of no less than 1.10 to 1.00 beginning June 30, 2024 and (c) have a consolidated leverage ratio of no more than 3.00 to 1.00 beginning June 30, 2024. The Loan Agreement contains additional covenants that, among other things, limit the ability of the Company and its subsidiaries to incur certain additional debt and liens, pay certain dividends or make other restricted payments, make certain investments, make certain dispositions and enter into certain transactions with affiliates.

In connection with the senior secured credit facility, the Company entered into a restricted stock unit (“RSU”) agreement (the “RSU Agreement”) dated November 13, 2023 wherein the Company issued 15,900,000 RSUs to the lender. Each RSU represents an unsecured promise to issue one Class A Subordinate Voting Share upon the earliest of certain distribution events at a price of CAD$0.31. Refer to Note 10 for information on additional RSUs to be issued which are classified as a derivative liability.

Future minimum payments on the notes payable and convertible debt are as follows:

Year Ending December 31,
2024	$	25,630
2025	—
2026	—
2027	58,543
2028	—
Thereafter	—
Total minimum payments	84,173
Less current portion	(25,630)
Long-term portion	$	58,543

Construction Finance Liability

On January 28, 2022, the Company acquired property at 29 Everett Street LLC in conjunction with the NECC Merger (see Note 7 for further details on the transaction). Concurrently, effective January 28, 2022, the Company sold a portion of the property it had acquired in the acquisition for $16.0 million. In connection with the sale of the property at Everett LLC, the Company agreed to lease the location back for cultivation, effective on January 28, 2022 with available repurchase options. This transaction did not meet the requirements of a sale leaseback transaction and as such was accounted for as a failed sale leaseback. On January 28, 2022, the Company recorded a construction finance liability for the proceeds received from the sale to recognize a liability resulting from the failed sale-leaseback transaction.

The initial term of the agreement is 20 years, with two options to extend the term for five years each. The initial monthly rent payment is equal to $0.1 million for the first year of the agreement, with 3% annual increases over the life of the agreement. As of December 31, 2023, the total finance liability associated with this transaction is $16.0 million. The total interest expense incurred during the year ended December 31, 2023 was nil.