☑
|
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF
1934
|
|
|
|
For the Quarterly Period ended March 31, 2021
|
☐
|
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF
1934
|
|
|
|
For the transition period from _______________ to
______________
|
British
Columbia, Canada
|
N/A
|
(State or Other
Jurisdiction of Incorporation or Organization)
|
(I.R.S. Employer
Identification No.)
|
19
Quail Run Circle – Suite B, Salinas,
California.
|
93907
|
(Address of
Principal Executive Offices)
|
(Zip
Code)
|
Title
of each class registered
|
Trading
Symbol(s)
|
Name of
each exchange on which registered
|
NONE
|
NONE
|
NONE
|
Large
accelerated filer ☐
|
Accelerated
filer ☐
|
Non-accelerated filer
☐
|
Smaller
reporting company ☑
|
|
Emerging growth company ☑
|
Item
1.
|
Financial
Statements (unaudited)
|
3
|
|
Condensed
Consolidated Balance Sheets as of March 31, 2021 and December 31,
2020
|
3
|
|
Condensed
Consolidated Statements of Income (Loss) for the Three Months Ended
March 31, 2021 and 2020
|
4
|
|
Condensed
Consolidated Statements of Stockholders’ Equity (Deficit) for
the Three Months Ended March 31, 2021 and 2020
|
5
|
|
Condensed
Consolidated Statements of Cash Flows for the Three Months Ended
March 31, 2021 and 2020
|
6
|
|
Notes
to Condensed Consolidated Financial Statements
|
7
|
Item
2.
|
Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
|
22
|
Item
3.
|
Quantitative
and Qualitative Disclosures about Market Risk
|
32
|
Item
4.
|
Controls
and Procedures
|
32
|
|
|
|
|
PART II—OTHER INFORMATION
|
|
|
|
|
Item
1.
|
Legal
Proceedings
|
33
|
Item
1A.
|
Risk
Factors
|
33
|
Item
2.
|
Unregistered
Sales of Equity Securities and Use of Proceeds
|
33
|
Item
6.
|
Exhibits
|
33
|
|
Exhibit
Index
|
33
|
|
Signatures
|
34
|
|
March
31,
|
December
31,
|
|
2021
|
2020
|
ASSETS
|
|
|
Current
assets:
|
|
|
Cash and cash
equivalents
|
$13,572
|
$25,751
|
Accounts Receivable
- net of allowance for doubtful accounts of $1,819 and $1,389 at
March 31, 2021 and December 31, 2020, respectively
|
7,118
|
4,529
|
Inventory
|
13,888
|
9,933
|
Prepaid expenses
and other current assets
|
2,533
|
6,391
|
Total
current assets
|
37,111
|
46,604
|
Property and
equipment, net
|
49,456
|
49,243
|
Goodwill
|
357
|
357
|
Other intangibles,
net
|
36,937
|
736
|
Other
assets
|
591
|
476
|
|
|
|
Total
assets
|
$124,452
|
$97,416
|
|
|
|
LIABILITIES
AND STOCKHOLDERS’ EQUITY
|
|
|
Current
liabilities:
|
|
|
Accounts
payable
|
$3,352
|
$2,137
|
Accrued payroll and
benefits
|
900
|
1,212
|
Notes payable,
current portion
|
381
|
1,213
|
Lease obligation,
current portion
|
2,915
|
2,301
|
Other current
liabilities
|
7,199
|
8,860
|
Total
current liabilities
|
14,747
|
15,723
|
Notes
payable
|
285
|
303
|
Lease
obligation
|
35,888
|
36,533
|
Convertible
debentures
|
13,629
|
13,701
|
Total
liabilities
|
64,549
|
66,260
|
COMMITMENTS
AND CONTINGENCIES
|
|
|
STOCKHOLDERS'
EQUITY
|
|
|
Share
capital
|
161,006
|
125,540
|
Accumulated
deficit
|
(101,103)
|
(94,384)
|
Total
stockholders' equity
|
59,903
|
31,156
|
|
|
|
Total
liabilities and stockholders' equity
|
$124,452
|
$97,416
|
Periods
Ended March 31,
|
Three
Months
|
|
|
2021
|
2020
|
Net
revenue
|
$11,026
|
$9,442
|
Cost of goods
sold
|
12,503
|
11,171
|
Gross
loss
|
(1,477)
|
(1,729)
|
|
|
|
Operating
expenses
|
|
|
General and
administrative
|
2,460
|
3,791
|
Sales and
marketing
|
1,441
|
1,226
|
Depreciation and
amortization
|
324
|
363
|
Total operating
expenses
|
4,225
|
5,380
|
|
|
|
Loss from
operations
|
(5,702)
|
(7,109)
|
|
|
|
Other
income/(expense)
|
|
|
Other
income/(expense)
|
(229)
|
25
|
Unrealized gain on
change in fair value of investment
|
106
|
85
|
Interest
expense
|
(831)
|
(850)
|
Total other
income/(expense)
|
(954)
|
(740)
|
|
|
|
Loss before
provision for income taxes
|
(6,656)
|
(7,849)
|
Provision for
income taxes
|
63
|
25
|
Net
loss
|
$(6,719)
|
$(7,874)
|
|
|
|
Net
loss per share - basic and diluted
|
$(0.13)
|
$(0.24)
|
|
|
|
Weighted average
shares outstanding - basic and diluted
|
53,592
|
32,988
|
|
|
|
|
Subordinate
|
Super
|
|
|
|
|
Voting
Shares
|
Voting
Shares
|
Share
Capital
|
Accumulated
Deficit
|
Stockholders’
Equity
|
Balance—December
31, 2020
|
57,617
|
203
|
$125,540
|
$(94,384)
|
$31,156
|
Net
loss
|
-
|
-
|
-
|
(6,719)
|
(6,719)
|
Shares issued in
connection with conversion of convertible debentures
|
1,390
|
-
|
277
|
-
|
277
|
|
|
|
|
|
|
Issuance of shares
associated with acquisitions
|
22,644
|
-
|
34,237
|
-
|
34,237
|
Exercise of
warrants
|
1,324
|
-
|
665
|
-
|
665
|
Share-based
compensation expense
|
246
|
-
|
287
|
-
|
287
|
Balance—March
31, 2021
|
83,221
|
203
|
$161,006
|
$(101,103)
|
$59,903
|
|
Subordinate
|
Super
|
|
|
|
|
Voting
Shares
|
Voting
Shares
|
Share
Capital
|
Accumulated
Deficit
|
Stockholders’
Equity
|
Balance—December
31, 2019
|
32,844
|
203
|
$96,160
|
$(72,474)
|
$23,686
|
|
|
|
|
|
|
Net
loss
|
-
|
-
|
-
|
(7,874)
|
(7,874)
|
Share-based
compensation expense
|
144
|
-
|
1,612
|
-
|
1,612
|
Balance—March
31, 2020
|
32,988
|
203
|
$97,772
|
$(80,348)
|
$17,424
|
|
Three Months Ended
March 31,
|
|
2021
|
2020
|
|
CASH
FLOW FROM OPERATING ACTIVITIES
|
|
|
Net
loss
|
$(6,719)
|
$(7,874)
|
Adjustments to reconcile net loss to net cash used in operating
activities:
|
|
|
Depreciation and
amortization
|
908
|
963
|
Amortization of
debt issuance costs
|
204
|
-
|
Share-based
compensation expense
|
287
|
1,612
|
Provision for
doubtful accounts
|
222
|
177
|
Termination
of branding rights agreement
|
152
|
-
|
Unrealized gain on
change in fair value of investments
|
(106)
|
(85)
|
Changes in
operating assets and liabilities:
|
|
|
Accounts
receivable
|
(2,471)
|
929
|
Inventory
|
(653)
|
1,400
|
Prepaid expenses
and other current assets
|
1,058
|
(485)
|
Other
assets
|
(9)
|
-
|
Accounts payable
and accrued expenses
|
(2,146)
|
(3,484)
|
Other current and
long-term liabilities
|
-
|
4,496
|
Net
cash used in operating activities
|
(9,271)
|
(2,351)
|
CASH
FLOW FROM INVESTING ACTIVITIES
|
|
|
Proceeds from asset
sales
|
1,980
|
-
|
Purchases of
property and equipment
|
(373)
|
(1,227)
|
Acquisition of
business assets, net
|
(4,569)
|
-
|
Investment in
corporate interests
|
-
|
(57)
|
Net
cash used in investing activities
|
(2,962)
|
(1,284)
|
CASH
FLOW FROM FINANCING ACTIVITIES
|
|
|
Principal payments
on lease obligations
|
(580)
|
(501)
|
Payments on notes
payable
|
(31)
|
(8)
|
Proceeds from lease
financing
|
-
|
120
|
Proceeds from notes
payable
|
-
|
3,800
|
Proceeds from
exercise of warrants and options
|
665
|
-
|
Payment of debt
issuance costs
|
-
|
(532)
|
Net
cash provided by financing activities
|
54
|
2,879
|
|
|
|
Change in cash and
cash equivalents
|
(12,179)
|
(756)
|
Cash and cash
equivalents—beginning of year
|
25,751
|
1,344
|
Cash,
and cash equivalents—end of period
|
$13,572
|
$587
|
|
|
|
SUPPLEMENTAL
DISCLOSURE OF CASH FLOW INFORMATION
|
|
|
Cash paid during
the period for interest
|
$846
|
$675
|
Cash paid during
the period for income taxes
|
$91
|
$-
|
|
|
|
OTHER
NONCASH INVESTING AND FINANCING ACTIVITIES
|
|
|
Property and
equipment acquired via capital lease
|
$-
|
$110
|
Issuance of
subordinate voting shares in exchange for net assets
acquired
|
$34,237
|
$-
|
Liabilities assumed
and receivable forgiveness in exchange for net assets
acquired
|
$2,910
|
$-
|
Debt and associated
accrued interest converted to subordinate voting
shares
|
$665
|
$-
|
|
(1)
|
(2)
|
(3)
|
|
(in
thousands)
|
Kaizen
Inc.
|
The
Humble Flower
Co.
|
The
Hacienda Company,
LLC
|
Total
|
CONSIDERATION
|
|
|
|
|
Contingent
payment
|
$50
|
$44
|
$-
|
$94
|
Cash
|
-
|
-
|
4,019
|
4,019
|
Transaction
costs
|
-
|
-
|
428
|
428
|
Note payable and
other obligations
|
200
|
65
|
2,178
|
2,443
|
Fair value of
subordinate voting shares
|
62
|
55
|
34,358
|
34,475
|
Total
consideration
|
$312
|
$164
|
$40,983
|
$41,459
|
|
|
|
|
|
PURCHASE
PRICE ALLOCATION
|
|
|
|
|
Assets Acquired
|
|
|
|
|
Inventories
|
$-
|
$6
|
$3,302
|
$3,306
|
Accounts receivable
- net
|
-
|
-
|
1,312
|
1,312
|
Other tangible
assets
|
-
|
-
|
739
|
739
|
Intangible assets -
brands and tradenames
|
104
|
80
|
36,362
|
36,546
|
Intangible assets -
technology and know-how
|
208
|
78
|
-
|
286
|
Liabilities assumed
|
|
|
|
|
Payables and other
liabilities
|
-
|
-
|
(730)
|
(730)
|
Total identifiable
net assets
|
312
|
164
|
40,983
|
41,459
|
|
|
|
|
|
Fair
value of net assets acquired
|
$312
|
$164
|
$40,983
|
$41,459
|
|
March
31,
|
December
31,
|
(in
thousands)
|
2021
|
2020
|
Deposits
|
$548
|
$572
|
Insurance
|
574
|
593
|
Supplier
advances
|
476
|
504
|
Nevada
building sale proceeds
|
-
|
2,800
|
Other
|
935
|
1,922
|
Total
Prepaid Expenses and Other Current Assets
|
$2,533
|
$6,391
|
|
March
31,
|
December
31,
|
(in
thousands)
|
2021
|
2020
|
Raw
materials
|
$11,264
|
$7,950
|
Work in
process
|
-
|
-
|
Finished
goods
|
2,624
|
1,983
|
Total
inventory
|
$13,888
|
$9,933
|
|
March
31,
|
December
31,
|
(in
thousands)
|
2021
|
2020
|
Excise and cannabis
tax
|
$4,616
|
$5,780
|
Third party brand
distribution accrual
|
250
|
584
|
Insurance
and professional accrual
|
757
|
746
|
Other
|
1,576
|
1,750
|
Total
Accrued Liabilities
|
$7,199
|
$8,860
|
(in
thousands)
Costs |
Land
and
Buildings
|
Leasehold
Improvements
|
Furniture
and Fixtures |
Equipment
|
Vehicles
|
Construction in
Process
|
Right
of Use Assets
|
Total
|
Balance—December
31, 2020
|
$-
|
$10,799
|
$50
|
$1,276
|
$854
|
$2,528
|
$41,530
|
$57,037
|
Additions
|
-
|
-
|
-
|
280
|
-
|
93
|
-
|
373
|
Business
Acquisitions
|
-
|
-
|
-
|
192
|
-
|
-
|
547
|
739
|
Disposals
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
Balance—March 31, 2021
|
$-
|
$10,799
|
$50
|
$1,748
|
$854
|
$2,621
|
$42,077
|
$58,149
|
|
|
|
|
|
|
|
|
|
Accumulated Depreciation
|
|
|
|
|
|
|
|
|
Balance—December
31, 2020
|
$-
|
$(634)
|
$(47)
|
$(427)
|
$(411)
|
$-
|
$(6,275)
|
$(7,794)
|
Depreciation
|
-
|
(241)
|
(236)
|
(35)
|
(133)
|
-
|
(254)
|
(899)
|
Disposals
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
Balance—March 31, 2021
|
$-
|
$(875)
|
$(283)
|
$(462)
|
$(544)
|
$-
|
$(6,529)
|
$(8,693)
|
|
|
|
|
|
|
|
|
|
Net Book Value -March 31, 2021
|
$-
|
$9,924
|
$(233)
|
$1,286
|
$310
|
$2,621
|
$35,548
|
$49,456
|
|
|
|
|
|
|
|
|
|
Net Book Value -December 31, 2020
|
$-
|
$10,165
|
$3
|
$849
|
$443
|
$2,528
|
$35,255
|
$49,243
|
|
March
31,
|
(in
thousands)
|
2021
|
Costs
|
|
Balance
|
$357
|
Additions
|
-
|
Business
acquisitions
|
-
|
Impairment
|
-
|
Balance
|
$357
|
|
Definite
Life
Intangibles
|
Indefinite Life
Intangibles
|
|
|
(in
thousands)
|
Branding
Rights
|
Technology/
KnowHow
|
Brands
& Tradenames
|
Total
|
Costs
|
|
|
|
|
Balance—December
31, 2020
|
$250
|
$208
|
$408
|
$866
|
Business
acquisition
|
-
|
-
|
36,362
|
36,362
|
Agreement
termination
|
(250)
|
-
|
-
|
(250)
|
Balance—March
31, 2021
|
$-
|
$208
|
$36,770
|
$36,978
|
|
|
|
|
|
Accumulated Amortization
|
|
|
|
|
Balance—December
31, 2020
|
$(93)
|
$(37)
|
$-
|
$(130)
|
Agreement
termination
|
98
|
-
|
-
|
98
|
Amortization
|
(5)
|
(4)
|
-
|
(9)
|
Balance—March
31, 2021
|
$-
|
$(41)
|
$-
|
$(41)
|
|
|
|
|
|
Net Book Value
|
|
|
|
|
March
31, 2021
|
$-
|
$167
|
$36,957
|
$36,937
|
|
|
|
|
|
Net Book Value
|
|
|
|
|
December 31, 2020
|
$157
|
$171
|
$408
|
$736
|
(in
thousands)
|
Subordinate
Voting
Shares
|
Super Voting
Shares
|
Balance—December
31, 2020
|
57,617
|
203
|
Shares issued in
connection with exercise of warrants
|
1,324
|
-
|
Shares issued in
connection with conversion of convertible debentures
|
1,390
|
-
|
Shares issued in
connection with asset acquisition
|
22,644
|
-
|
Issuance of vested
restricted stock units
|
246
|
-
|
Balance—March
31, 2021
|
83,221
|
203
|
(in
thousands)
|
|
Balance—December
31, 2020
|
93,898
|
Warrants issued in
conjunction with broker option exercise(1)
|
163
|
Warrants converted
into subordinate voting shares
|
(1,000)
|
Balance—March
31, 2021
|
93,061
|
|
March
31
|
December
31,
|
(in
thousands)
|
2021
|
2020
|
Current portion of long-term debt
|
|
|
Vehicle loans(1)
|
$183
|
$170
|
Note payable(3)
|
198
|
1,043
|
Total
short-term debt
|
381
|
1,213
|
|
|
|
Long-term debt, net
|
|
|
Vehicle loans(1)
|
189
|
233
|
Note payable(2)
|
56
|
65
|
Note payable(3)
|
40
|
5
|
Convertible debenture(4)
|
13,629
|
13,701
|
Total
long-term debt
|
13,914
|
14,004
|
Total Indebtedness
|
$14,295
|
$15,217
|
|
March
31,
|
(in
thousands)
|
2021
|
2021
|
$335
|
2022
|
196
|
2023
|
15,774
|
2024
|
21
|
2025
|
6
|
2026
and thereafter
|
3
|
Total debt obligations
|
$16,335
|
(in
thousands)
|
|
December
31, 2020
|
$38,834
|
Additions
|
547
|
Lease principal
payments
|
(578)
|
March
31, 2021
|
$38,803
|
|
|
|
|
Lease obligation,
current portion
|
$2,915
|
Lease obligation,
long-term portion
|
$35,888
|
(in
thousands)
|
March 31, 2021
|
Amortization of
leased assets(1)
|
$254
|
Interest on lease
liabilities(2)
|
563
|
Total
|
$817
|
(1)
Included in cost of goods sold and general and administrative in
the consolidated statement of operations.
|
|
||
(2)
Included in interest expense in the consolidated statement of
operations.
|
|
|
|
(in
thousands)
|
March 31, 2021
|
Balance of
2021
|
$1,966
|
2022
-2023
|
5,479
|
2024
-2025
|
3,843
|
2026 - and
beyond
|
27,515
|
Total
|
$38,803
|
Three
Months Ended March 31,
|
|
|
(in
thousands)
|
2021
|
2020
|
Cost of goods
sold
|
$-
|
$-
|
General
and administrative expense
|
287
|
1,612
|
Total
share based compensation
|
$287
|
$1,612
|
|
|
Weighted-Average
|
Weighted-Average
|
Aggregate
|
(in thousands
except per share amounts)
|
Stock
Options
|
Exercise
Price
|
Remaining
Contractual
Life
|
Intrinsic Value
|
Outstanding—December
31, 2020
|
6,260
|
$0.97
|
4.7
|
$3,162
|
|
|
|
|
|
Granted
|
1,630
|
$1.44
|
|
|
Exercised
|
-
|
-
|
|
|
Cancelled
|
(251)
|
$1.76
|
|
|
Outstanding—March
31, 2021
|
7,639
|
$0.95
|
4.7
|
|
|
|
|
|
|
Exercisable—March
31, 2021
|
924
|
$2.01
|
3.3
|
$142
|
|
|
|
|
|
Vested
and expected to vest—March 31, 2021
|
7,639
|
$0.95
|
4.7
|
$4,276
|
|
|
Weighted-Average
|
(in thousands
except per share amounts)
|
RSUs
|
Fair
Value
|
|
|
|
Outstanding—December
31, 2020
|
450
|
$0.33
|
|
|
|
Granted
|
1,295
|
$1.14
|
Vested
|
-
|
-
|
Cancelled
|
(10)
|
-
|
Outstanding—March
31, 2021
|
1,735
|
$0.93
|
Three Months Ended
March 31,
|
2021
|
2020
|
Expected
volatility
|
50%
|
50%
|
Dividend
yield
|
0%
|
0%
|
Risk-free
interest rate
|
0.73%
|
2.2%
|
Expected
term in years
|
4.25
|
10
|
Three
Months Ended March 31,
|
|
|
(in thousands
except per share amounts)
|
2021
|
2020
|
Net
loss
|
$(6,719)
|
$(7,874)
|
|
|
|
Basic
|
|
|
Weighted average
subordinate voting shares(1)
|
53,592
|
32,988
|
Basic
earnings (loss) per share
|
$(0.13)
|
$(0.24)
|
|
|
|
Diluted
|
|
|
Weighted average
subordinate voting shares(1)
|
53,592
|
32,988
|
Effects of Potential Dilutive Shares
|
|
|
Options
|
-
|
-
|
Warrants
|
-
|
-
|
Restricted stock
units
|
-
|
-
|
Diluted weighted
average subordinate voting shares
|
53,592
|
32,988
|
Diluted
earnings (loss) per share
|
$(0.13)
|
$(0.24)
|
Three
Months Ended March 31,
|
|
|
(in
thousands)
|
2021
|
2020
|
Salaries and
benefits
|
$981
|
$996
|
Professional
fees
|
482
|
599
|
Licensing and
supplies
|
75
|
-
|
Share-based
compensation
|
289
|
1,612
|
Administrative
|
633
|
584
|
Total general and administrative expenses
|
$2,460
|
$3,791
|
Periods
Ended March 31,
|
Three
Months
|
|
(in
thousands)
|
2021
|
2020
|
Net income/(loss)
attributable to Lowell Farms, Inc.
|
$(6,719)
|
$(7,874)
|
Interest
expense
|
831
|
850
|
Provision for
income taxes
|
63
|
25
|
Depreciation in
cost of goods sold
|
584
|
514
|
Depreciation and
amortization in operating expenses
|
324
|
363
|
EBITDA
|
(4,917)
|
(6,122)
|
Investment and
currency (gains)/ losses
|
(106)
|
(85)
|
Share-based
compensation
|
289
|
1,612
|
Net effect of cost
of goods on mark-up of acquired finished goods
inventory
|
167
|
-
|
Adjusted
EBITDA(1)
|
$(4,569)
|
$(4,594)
|
Quarter
Ended March 31,
|
|
|
2021 v 2020
|
(in
thousands)
|
2021
|
2020
|
%
Change
|
Owned
|
$9,667
|
$5,207
|
86%
|
Agency
|
1,230
|
2,709
|
-55%
|
Distributed
|
129
|
1,526
|
-91%
|
Net
revenue
|
$11,026
|
$9,442
|
17%
|
●
|
Revenue
increases compared to the same quarter in the prior year were
driven by expanded cultivation capacity, resulting in flower and
pre-roll brand sales increasing approximately 339%, which included
over $900 in acquired Lowell brand sales, and the expansion of
owned brand product offerings resulting in concentrates brand and
edible brand sales increasing 11% and 19%, respectively. Customer
onboarding and targeted marketing initiatives also favorably
impacted owned brand sales.
|
●
|
Revenues
in the quarter ended March 31, 2021 were adversely impacted by a
strategic decision to focus only on agency and distributed brands
that realize a higher per order sales level. As a result, the
number of agency and distributed brands carried by the Company for
the quarter ended March 31, 2021 declined by approximately 81%,
compared to the same quarter in the prior year, and no new agency
or distributed brands were onboarded in the quarter ended March 31,
2021.
|
Quarter
Ended March 31,
|
|
|
(in
thousands)
|
2021
|
2020
|
Net
revenue
|
$11,026
|
$9,442
|
Cost of goods
sold
|
$12,503
|
$11,171
|
Gross profit
(loss)
|
$(1,477)
|
$(1,729)
|
Gross
margin
|
(13.4)%
|
(18.3)%
|
Quarter
Ended March 31,
|
|
|
(in
thousands)
|
2021
|
2020
|
Total operating
expenses
|
$4,225
|
$5,380
|
Quarter
Ended March 31,
|
|
|
(in thousands,
except per share amounts)
|
2021
|
2020
|
Net
loss
|
$(6,719)
|
$(7,874)
|
Net loss per
share:
|
|
|
Basic and
Diluted
|
$(0.13)
|
$(0.24)
|
Shares used in per
share calculation:
|
|
|
Basic and
Diluted
|
53,592
|
32,988
|
Quarter
Ended March 31,
|
|
Change
|
||
(in
thousands)
|
2021
|
2020
|
$
|
%
|
Net cash used in
operating activities
|
$(9,271)
|
$(2,351)
|
$(6,920)
|
(294)%
|
Net cash used in
investing activities
|
(2,962)
|
(1,284)
|
(1,678)
|
(131)%
|
Net cash provided
by financing activities
|
54
|
2,879
|
(2,825)
|
98%
|
Change in cash and
cash equivalents
|
$(12,179)
|
$(756)
|
$(11,424)
|
1,511%
|
|
|
Change
|
||
(in
thousands)
|
March
2021
|
December
2020
|
$
|
%
|
Working
capital(1)
|
$22,364
|
$30,883
|
$(8,515)
|
(28)%
|
Cash
on hand
|
$13,572
|
$25,751
|
$(12,180)
|
(47)%
|
(1) Non-GAAP measure - see Non-GAAP Financial Measures in this
MD&A.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
●
|
Estimated
Useful Lives and Depreciation of Property and Equipment – Depreciation of property
and equipment is dependent upon estimates of useful lives which are
determined through the exercise of judgment. The assessment of any
impairment of these assets is dependent upon estimates of
recoverable amounts that take into account factors such as economic
and market conditions and the useful lives of assets.
|
●
|
Estimated
Useful Lives and Amortization of Intangible Assets – Amortization of intangible
assets is recorded on a straight-line basis over their estimated
useful lives, which do not exceed the contractual period, if
any.
|
●
|
Identifiable assets acquired and liabilities assumed are recognized
at the acquisition date fair values as defined by accounting
standards related to fair value measurements.
|
●
|
Fair
Value of Investments in Private Entities – The Company uses
discounted cash flow model to determine fair value of its
investment in private entities. In estimating fair value,
management is required to make certain assumptions and estimates
such as discount rate, long term growth rate and, estimated free
cash flows.
|
●
|
Share-Based
Compensation –
The Company uses the Black-Scholes option-pricing model to
determine the fair value of stock options and warrants granted. In
estimating fair value, management is required to make certain
assumptions and estimates such as the expected life of units,
volatility of the Company’s future share price, risk free
rates, future dividend yields and estimated forfeitures at the
initial grant date. Changes in assumptions used to estimate fair
value could result in materially different results.
|
●
|
Deferred
Tax Asset and Valuation Allowance – Deferred tax assets,
including those arising from tax loss carry-forwards, requires
management to assess the likelihood that the Company will generate
sufficient taxable earnings in future periods in order to utilize
recognized deferred tax assets. Assumptions about the generation of
future taxable profits depend on management’s estimates of
future cash flows. In addition, future changes in tax laws could
limit the ability of the Company to obtain tax deductions in future
periods. To the extent that future cash flows and taxable income
differ significantly from estimates, the ability of the Company to
realize the net deferred tax assets recorded at the reporting date
could be impacted.
|
●
|
Credit
risk is the risk of a potential loss to the Company if a customer
or third party to a financial instrument fails to meet its
contractual obligations. The maximum credit exposure at March 31,
2021 and December 31, 2020 is the carrying amount of cash and cash
equivalents and accounts receivable. All cash and cash equivalents
are placed with U.S. and Canadian financial
institutions.
|
●
|
The
Company provides credit to its customers in the normal course of
business and has established credit evaluation and monitoring
processes to mitigate credit risk but has limited risk as a
significant portion of its sales are transacted with
cash.
|
●
|
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 ensure that it will have sufficient liquidity to
settle obligations and liabilities when due.
|
|
Maturity: < 1
Year
|
Maturity: > 1
Year
|
|
|
|
(in
thousands)
|
|
|
Accounts payable and Other accrued
liabilities
|
$10,551
|
$-
|
●
|
Strategic
and operational risks arise if the Company fails to carry out
business operations and/or to raise sufficient equity and/or debt
financing. These strategic opportunities or threats arise from a
range of factors that might include changing economic and political
circumstances and regulatory approvals and competitor actions. The
risk is mitigated by consideration of other potential development
opportunities and challenges which management may
undertake.
|
●
|
Interest
rate risk is the risk that the fair value or the future cash flows
of a financial instrument will fluctuate as a result of changes in
market interest rates. The Company’s interest-bearing loans
and borrowings are all at fixed interest rates; therefore, the
Company is not exposed to interest rate risk on these financial
liabilities. The Company considers interest rate risk to be
immaterial.
|
●
|
Price
risk is the risk of variability in fair value due to movements in
equity or market prices. Cannabis is a developing market and
subject to volatile and possibly declining prices year over year as
a result of increased competition. Because adult-use cannabis is a
newly commercialized and regulated industry in the State of
California, historical price data is either not available or not
predictive of future price levels. There may be downward pressure
on the average price for cannabis. There can be no assurance that
price volatility will be favorable or in line with expectations.
Pricing will depend on general factors including, but not limited
to, the number of licenses granted by the local and state
governments, the supply such licensees are able to generate,
activity by unlicensed producers and sellers and consumer demand
for cannabis. An adverse change in cannabis prices, or in
investors’ beliefs about trends in those prices, could have a
material adverse outcome on the Company and its
valuation.
|
●
|
Because
the cannabis industry remains illegal under U.S. federal law, any
property owned by participants in the cannabis industry which are
either used in the course of conducting such business, or are the
proceeds of such business, could be subject to seizure by law
enforcement and subsequent civil asset forfeiture. Even if the
owner of the property were never charged with a crime, the property
in question could still be seized and subject to an administrative
proceeding by which, with minimal due process, it could be subject
to forfeiture.
|
●
|
Notwithstanding
that a majority of states have legalized medical marijuana, there
has been no change in U.S. federal banking laws related to the
deposit and holding of funds derived from activities related to the
marijuana industry. Given that U.S. federal law provides that the
production and possession of cannabis is illegal, there are
arguments that financial institutions cannot accept for deposit
funds from businesses involved with the marijuana industry and
legislative efforts to provide greater certainty to financial
institutions have not been successful. Consequently, businesses
involved in the marijuana industry often have difficulty accessing
the U.S. banking system and traditional financing sources. The
inability to open bank accounts with certain institutions may make
it difficult to operate the business of the Company, its
subsidiaries and investee companies, and leaves their cash holdings
vulnerable.
|
Quarter
Ended March 31,
|
|
|
(in thousands,
except per share amounts)
|
|
|
Consolidated
Operations
|
2021
|
2020
|
Net
revenue
|
$11,026
|
$9,442
|
Gross
loss
|
$(1,477)
|
$(1,729)
|
Operating
loss
|
$(5,702)
|
$(7,109
|
Loss before income
taxes
|
$(6,656
|
$(7,849
|
Net
loss
|
$(6,719)
|
$(7,874
|
Net loss per share
- basic and diluted
|
$(0.13)
|
$(0.24)
|
Weighted average
shares outstanding - basic and diluted
|
$53,592
|
$32,988
|
Consolidated
Financial Position
|
March 31,
2021
|
December 31,
2020
|
Cash
|
$13,572
|
$25,751
|
Current
assets
|
$37,111
|
$46,604
|
Property, plant and
equipment, net
|
$49,456
|
$49,243
|
Total
assets
|
$124,452
|
$97,416
|
Current
liabilities
|
$14,747
|
$15,723
|
Working
capital
|
$22,364
|
$30,883
|
Long-term notes
payable including current portion
|
$666
|
$1,516
|
Capital lease
obligations including current portion
|
$38,803
|
$38,834
|
Total stockholders'
equity
|
$59,903
|
$31,156
|
|
Number of
Shares
|
(in
thousands)
|
(on an as converted
basis)
|
Issued
and Outstanding
|
|
Subordinate voting
shares
|
84,415
|
Super voting
shares
|
203
|
Reserved
for Issuance
|
|
Options
|
7,399
|
Restricted Stock
Units
|
1,735
|
Warrants
|
15,244
|
Convertible
debenture shares
|
77,629
|
Convertible
debenture warrants
|
78,629
|
Exhibit
Number
|
|
Description
|
|
Certification of
Chief Executive Officer filed pursuant to Exchange Act Rules
13a-14(a)and 15d-14(a) of the Securities and Exchange Act of 1934
as adopted pursuant to Section302 of the Sarbanes-Oxley Act of
2002.
|
|
|
|
|
|
Certification of
Chief Financial Officer filed pursuant to Exchange Act Rules
13a-14(a)and 15d-14(a) of the Securities and Exchange Act of 1934
as adopted pursuant to Section302 of the Sarbanes-Oxley Act of
2002.
|
|
|
|
|
|
Certification by
Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as
adoptedpursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
|
|
|
|
|
|
Certification by
Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as
adoptedpursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
|
|
LOWELL FARMS, INC.
|
|
|
|
|
|
|
|
|
|
|
Date: May 17,
2021
|
By:
|
/s/ Mark Ainsworth
|
|
|
|
Mark Ainsworth |
|
|
|
Chief Executive Officer
|
|
|
|
(principal executive officer)
|
|
Date: May 17, 2021
|
By:
|
/s/ Brian Shure
|
|
|
|
Brian Shure |
|
|
|
Executive Vice President, Finance and Chief Financial
Officer
|
|
|
|
(principal financial and accounting officer)
|
|
|
|
|
|
|
|
|
|
Date:
May 17, 2021
|
By:
|
/s/ Mark
Ainsworth
|
|
|
|
Mark Ainsworth |
|
|
|
Chief
Executive Officer
|
|
|
|
|
|
|
|
|
|
Date:
May 17, 2021
|
By:
|
/s/ Brian Shure
|
|
|
|
Brian Shure |
|
|
|
Chief
Financial Officer
|
|
Cover - shares |
3 Months Ended | |
---|---|---|
Mar. 31, 2021 |
May 17, 2021 |
|
Cover [Abstract] | ||
Document Type | 10-Q | |
Amendment Flag | false | |
Document Period End Date | Mar. 31, 2021 | |
Document Fiscal Period Focus | Q1 | |
Document Fiscal Year Focus | 2021 | |
Current Fiscal Year End Date | --12-31 | |
Entity File Number | 000-31311 | |
Entity Registrant Name | Lowell Farms Inc. | |
Entity Central Index Key | 0001838128 | |
Entity Incorporation, State or Country Code | A1 | |
Entity Current Reporting Status | Yes | |
Entity Interactive Data Current | Yes | |
Entity Filer Category | Non-accelerated Filer | |
Entity Small Business | true | |
Entity Emerging Growth Company | true | |
Elected Not To Use the Extended Transition Period | false | |
Entity Shell Company | false | |
Entity Common Stock, Shares Outstanding | 70,612,253 |
CONDENSED CONSOLIDATED BALANCE SHEETS (Parenthetical) - USD ($) $ in Thousands |
Mar. 31, 2021 |
Dec. 31, 2020 |
---|---|---|
Statement of Financial Position [Abstract] | ||
Allowance for doubtful accounts | $ 1,819 | $ 1,389 |
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS) - USD ($) $ in Thousands |
3 Months Ended | |
---|---|---|
Mar. 31, 2021 |
Mar. 31, 2020 |
|
Income Statement [Abstract] | ||
Net revenue | $ 11,026 | $ 9,442 |
Cost of goods sold | 12,503 | 11,171 |
Gross loss | (1,477) | (1,729) |
Operating expenses | ||
General and administrative | 2,460 | 3,791 |
Sales and marketing | 1,441 | 1,226 |
Depreciation and amortization | 324 | 363 |
Total operating expenses | 4,225 | 5,380 |
Loss from operations | (5,702) | (7,109) |
Other income/(expense) | ||
Other income/(expense) | (229) | 25 |
Unrealized gain on change in fair value of investment | 106 | 85 |
Interest expense | (831) | (850) |
Total other income/(expense) | (954) | (740) |
Loss before provision for income taxes | (6,656) | (7,849) |
Provision for income taxes | 63 | 25 |
Net loss | $ (6,719) | $ (7,874) |
Net loss per share - basic and diluted | $ (0.13) | $ (0.24) |
Weighted average shares outstanding - basic and diluted (in thousands) | 53,592 | 32,988 |
1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
3 Months Ended |
---|---|
Mar. 31, 2021 | |
Accounting Policies [Abstract] | |
BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | Basis of Presentation
The interim unaudited condensed consolidated financial statements included herein have been prepared by Lowell Farms Inc. (the “Company” or “Lowell”) pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”), including the instructions to the Quarterly Report on Form 10-Q and Article 10 of Regulation S-X. Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted. The interim unaudited condensed consolidated financial statements reflect, in the opinion of management, all adjustments necessary (consisting only of normal recurring adjustments), to present a fair statement of results for the interim periods presented. The operating results for any interim period are not necessarily indicative of the results that may be expected for other interim periods or the full fiscal year. The accompanying interim unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto in the Company’s Form 10 filed for the year ended December 31, 2020. There have been no material changes to our significant accounting policies as of and for the three months ended March 31, 2021.
The condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries after the elimination of all intercompany balances and transactions.
The condensed consolidated balance sheet at December 31, 2020, has been derived from the audited consolidated financial statements but does not include all disclosures required by accounting principles generally accepted in the United States of America.
Use of Estimates
The preparation of financial statements in conformity with generally accepted accounting principles in the United States (“U.S. GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Significant estimates in these financial statements include; allowance for doubtful accounts and credit losses, carrying value of inventory, revenue recognition, accounting for stock-based compensation expense, and income taxes. Actual results could differ from those estimates.
The global COVID-19 pandemic has impacted the operations and purchasing decisions of companies worldwide. It also has created and may continue to create significant uncertainty in the global economy. The Company has undertaken measures to protect its employees, partners, customers, and vendors. In addition, the Company’s personnel are subject to various travel restrictions, which limit the ability of the Company to provide services to customers and affiliates. This impacts the Company's normal operations. To date, the Company has been able to provide uninterrupted access to its products and services, including certain employees that are working remotely, and its pre-existing infrastructure that supports secure access to the Company’s internal systems. If, however, the COVID-19 pandemic has a substantial impact on the productivity of the Company’s employees or its partners’ or customers’ decision to use the Company’s products and services, the results of the Company’s operations and overall financial performance may be adversely impacted. The duration and extent of the impact from the COVID-19 pandemic depends on future developments that cannot be accurately predicted at this time. As of the date of issuance of the financial statements, the Company is not aware of any specific event or circumstance that would require updates to the Company’s estimates and judgments or revisions to the carrying value of its assets or liabilities. These estimates may change, as new events occur and additional information is obtained, and are recognized in the condensed cconsolidated financial statements as soon as they become known. Actual results could differ from those estimates and any such differences may be material to the financial statements.
Recently Adopted Accounting Standards
In May 2020, the SEC adopted the final rule under SEC release No. 33-10786, Amendments to Financial Disclosures about Acquired and Disposed Businesses, amending Rule 1-02(w)(2) which includes amendments to certain of its rules and forms related to the disclosure of financial information regarding acquired or disposed businesses. Among other changes, the amendments impact SEC rules relating to (1) the definition of “significant” subsidiaries, (2) requirements to provide financial statements for “significant” acquisitions, and (3) revisions to the formulation and usage of pro forma financial information. The final rule became effective on January 1, 2021; however, voluntary early adoption was permitted. The Company early adopted the provisions of the final rule in 2020. The guidance did not have a material impact on the Company’s condensed consolidated financial statements and disclosures.
In February 2016, FASB issued ASU 2016-02, Leases (Topic 842). ASU 2016-02 requires that a lessee recognize the assets and liabilities that arise from operating leases. A lessee should recognize in the statement of financial position a liability to make lease payments (the lease liability) and a right-of-use (ROU) asset representing its right to use the underlying asset for the lease term. For leases with a term of 12 months or less, a lessee is permitted to make an accounting policy election by class of underlying asset not to recognize lease assets and lease liabilities. In transition, lessees and lessors are required to recognize and measure leases at the beginning of the earliest period presented using a modified retrospective approach. In July 2018, the FASB issued ASU 2018-10, Codification Improvements to Topic 842, Leases and ASU 2018-11, Leases Topic 842 Target improvements, which provides an additional (and optional) transition method whereby the new lease standard is applied at the adoption date and recognized as an adjustment to retained earnings. In March 2019, the FASB issued ASU 2019-01, Leases (Topic 842) Codification Improvements, which further clarifies the determination of fair value of the underlying asset by lessors that are not manufacturers or dealers and modifies transition disclosure requirements for changes in accounting principles and other technical updates. The Company adopted the standard effective January 1, 2019 using the modified retrospective adoption method which allowed it to initially apply the new standard at the adoption date and recognize a cumulative-effect adjustment to the opening balance of accumulated deficit. In connection with the adoption of the new lease pronouncement, the Company recorded a charge to accumulated deficit of $847. Refer to the Summary of Effects of Lease Accounting Standard Update Adopted in First Quarter of 2019 in the audited consolidated financial statements and notes thereto in the Company’s Form 10 filed for the year ended December 31, 2020.
In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments” and subsequent amendments to the initial guidance: ASU 2018-19 “Codification Improvements to Topic 326, Financial Instruments-Credit Losses”, ASU 2019-04 “Codification Improvements to Topic 326, Financial Instruments-Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments”, ASU 2019-05 “Financial Instruments-Credit Losses”, ASU 2019-11 “Codification Improvements to Topic 326, Financial Instruments - Credit Losses” (collectively, Topic 326),ASU 2020-02 Financial Instruments—Credit Losses (Topic 326) and Leases (Topic 842) and ASU 2020-03 Codification Improvements to Financial Instruments. Topic 326 requires measurement and recognition of expected credit losses for financial assets held. This guidance is effective for the year ended December 31, 2020. The Company believes that the most notable impact of this ASU will relate to its processes around the assessment of the adequacy of its allowance for doubtful accounts on trade accounts receivable and the recognition of credit losses. We continue to monitor the economic impact of the COVID-19 pandemic, however based on current market conditions, the adoption of the ASU did not have a material impact on the condensed consolidated financial statements.
In November 2018, the FASB issued ASU 2018-18, Collaborative Arrangements (Topic 808), Clarifying the Interaction between Topic 808 and Topic 606. This guidance amended Topic 808 and Topic 606 to clarify that transactions in a collaborative arrangement should be accounted for under Topic 606 when the counterparty is a customer for a distinct good or service (i.e., unit of account). The amendments preclude an entity from presenting consideration from a transaction in a collaborative arrangement as revenue from contracts with customers if the counterparty is not a customer for that transaction. This guidance is effective for the year ended December 31, 2020. The adoption of this guidance did not have a material impact on our condensed consolidated financial statements.
In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. This guidance removes certain exceptions to the general principles in Topic 740 and enhances and simplifies various aspects of the income tax accounting guidance, including requirements such as tax basis step-up in goodwill obtained in a transaction that is not a business combination, ownership changes in investments, and interim-period accounting for enacted changes in tax law. This standard is effective for fiscal years and interim periods within those fiscal years beginning after December 15, 2020. This guidance was effective for the Company in our fiscal year and interim periods beginning on January 1, 2021 and did not have a material impact on our condensed consolidated financial statements.
In January 2020, the FASB issued ASU 2020-01 Investments-Equity Securities (Topic 321), Investments-Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815) - Clarifying the Interactions between Topic 321, Topic 323, and Topic 815. This guidance addresses accounting for the transition into and out of the equity method and provides clarification of the interaction of rules for equity securities, the equity method of accounting, and forward contracts and purchase options on certain types of securities. This standard is effective for fiscal years and interim periods within those fiscal years beginning after December 15, 2020. We are currently evaluating the impact of ASU 2020-01 on our Consolidated Financial Statements, which was effective for the Company in our fiscal year and interim periods beginning on January 1, 2021 and did not have a material impact on our condensed consolidated financial statements.
Accounting standards not yet adopted
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). This update amends the guidance on convertible instruments and the derivatives scope exception for contracts in an entity's own equity and improves and amends the related EPS guidance for both Subtopics. This standard is effective for fiscal years and interim periods within those fiscal years beginning after December 15, 2021, which means it will be effective for our fiscal year beginning January 1, 2022. Early adoption is permitted. We are currently evaluating the impact of ASU 2020-06 on our condensed consolidated financial statements.
No other recently issued accounting pronouncements had or are expected to have a material impact on our condensed consolidated financial statements.
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2. ACQUISITIONS |
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ACQUISITIONS | Completed Acquisitions
The Company completed the following asset acquisitions, and allocated the purchase price as follows:
The Kaizen Inc. and The Humble Flower Co. acquisitions qualified as a business combination under ASC 805. The Hacienda Company, LLC acquisition qualified ad an asset acquisition under ASU 2017.01. Consideration has been allocated to the assets acquired and liabilities assumed based on their estimated fair values at the date of acquisition. No goodwill was recognized. The results of these acquisitions results are included in the Company’s net earnings from the date of acquisition.
The fair value of the assets acquired and the liabilities assumed for Kaizen Inc. and The Humble Flower Company were finalized in the quarter ended June 30, 2020.
The Company also incurred $47 in transactional costs related to the above acquisitions which were recorded in general and administrative expenses in the Consolidated Statements of Operations.
On May 1, 2019, the Company acquired all of the assets, global rights and business interests of Kaizen Inc. for a purchase price of $556 that will be paid as and if financial performance targets are met during the period beginning on May 1, 2019 and ending on April 30, 2023. Kaizen is a premium brand offering a full spectrum of cannabis concentrates. Effective July 15, 2020 the asset purchase agreement was modified, eliminating payments associated with meeting financial performance targets in exchange for the issuance of 225 thousand options to purchase Subordinate Voting Shares and a note payable of $200, with payments over two years. Had the modifications been reflected as of the date of acquisition, net assets would have decreased $223 at December 31, 2019 and net loss in 2019 would have been reduced by $21.
On April 18, 2019, the Company acquired all of the assets, global rights and business interests associated with the brand Humble Flower Co. for a purchase price of $472 that will be paid as and if financial performance targets are met during the period beginning on April 19, 2019 and ending on April 18, 2023. The acquisition marks the Company’s expansion into cannabis-infused topical creams, balms, and oils. Effective June 1, 2020 the asset purchase agreement was modified, eliminating payments associated with meeting financial performance targets in exchange for the issuance of 225 thousand options to purchase Subordinate Voting Shares and a note payable of $65, with payments commencing on January 1, 2021 for 24 months. Had the modifications been reflected as of the date of acquisition, net assets would have decreased $308 at December 31, 2019 and net loss in 2019 would have been reduced by $34.
On February 25, 2021, the Company acquired substantially all of the assets of the Lowell Herb Co. and Lowell Smokes trademark brands, product portfolio, and production assets from The Hacienda Company, LLC for a purchase price of $40,983. Lowell Herb Co. is a leading California cannabis brand that manufactures and distributes distinctive and highly regarded premium packaged flower, pre-roll, concentrates, and vape products. The acquisition consideration was comprised of $4.1 million in cash and the issuance of 22,643,678 subordinate voting shares. In connection with this acquisition, the Company completed a change in its corporate name to Lowell Farms Inc. effective March 1, 2021.
Terminated Acquisition
On May 14, 2019, the Company entered into a definitive agreement to acquire the assets of W The Brand (“W Vapes”), a manufacturer and distributor in Nevada and Oregon of cannabis concentrates, cartridges and disposable pens, in a cash and stock transaction. Under the terms of the agreement, the purchase consideration to W Vapes shareholders consisted of $10 million in cash and $10 million in Subordinate Voting Shares (based on a deemed value of CDN$15.65 per share). In November 2019, the definitive agreement was amended whereby the Company advanced $2 million in non-recourse funds to the seller in exchange for release of $10 million of cash held in escrow related to the acquisition and in December 2019, the Company purchased the Las Vegas, Nevada facility for $4.1 million.
On July 17, 2020, the Company announced the termination of the definitive agreement with W Vapes and is no longer obligated to acquire the assets of W Vapes. The termination of the agreement coincided with an asset acquisition announcement between W Vapes and Planet 13 Holdings Inc. (“Planet 13”). Additionally, the Company sold the Las Vegas facility to certain affiliates of Planet 13 for a cash payment of approximately $500, and an additional cash payment of approximately $2.8 million upon regulatory approval of the W Vapes and Planet 13 transaction which was received in January 2021, and in the third quarter the Company finalized a note payable of $843 to the owners of W Vapes, payable coinciding with the receipt of the $2.8 million payment from the facility sale, which was paid in January 2021. As a result, the Company reflected a $4.4 million loss in loss on termination of investments, net on its consolidated statement of operations for the year ended December 31, 2020.
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3. PREPAID EXPENSES AND OTHER CURRENT ASSETS |
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PREPAID EXPENSES AND OTHER CURRENT ASSETS | Prepaid expenses and other current assets were comprised of the following items:
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4. INVENTORY |
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INVENTORY | Inventory was comprised of the following items:
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5. OTHER CURRENT LIABILITIES |
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OTHER CURRENT LIABILITIES | Other current liabilities were comprised of the following items:
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6. PROPERTY AND EQUIPMENT |
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PROPERTY AND EQUIPMENT | A reconciliation of the beginning and ending balances of property and equipment and accumulated depreciation during the quarter ended March 31, 2021 is as follows:
Construction in progress represent assets under construction related to cultivation, manufacturing, and distribution facilities not yet completed or otherwise not placed in service.
Depreciation expense of $899 and $943 were recorded for the quarters ended March 31, 2021 and 2020, respectively, of which $584 and $514 respectively, were included in cost of goods sold.
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7. GOODWILL AND INTANGIBLE ASSETS |
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GOODWILL AND INTANGIBLE ASSETS | Goodwill
A reconciliation of the beginning and ending balances of goodwill during the quarter ended March 31, 2021 is as follows:
The Company evaluates goodwill for impairment annually during the fiscal third quarter and when an event occurs, or circumstances change such that it is reasonably possible that impairment may exist. The Company accounts for goodwill and evaluates its goodwill balances and tests them for impairment in accordance with related accounting standards. The Company performed its annual impairment assessment in its third quarter of fiscal 2020, and its analysis indicated that the Company had no impairment of goodwill.
Other Intangible Assets
A reconciliation of the beginning and ending balances of intangible assets and accumulated amortization during the quarter ended March 31, 2021 is as follows:
Intangible assets with finite lives are amortized over their estimated useful lives. Amortization periods of assets with finite lives are based on management's estimates at the date of acquisition. The Company recorded amortization expense of $9, and $20 for the quarters ended March 31, 2021, and 2020, respectively.
The Company estimates that amortization expense for our existing other intangible assets will be approximately $40 annually for each of the next five fiscal years. Actual amortization expense to be reported in future periods could differ from these estimates as a result of new intangible asset acquisitions, changes in useful lives or other relevant factors or changes.
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8. SHAREHOLDERS' EQUITY |
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SHAREHOLDERS' EQUITY | Shares Outstanding
The table below details the change in Company shares outstanding by class during the quarter ended March 31, 2021:
Warrants
A reconciliation of the beginning and ending balance of warrants outstanding is as follows:
_____________ (1) Excluding 390 warrants issuable should underwriter options be exercised. |
9. DEBT |
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DEBT | Debt at March 31, 2021 and December 31, 2020, was comprised of the following:
_____________ (1) Primarily fixed term loans on transportation vehicles. Weighted average interest rate at March 31, 2021 was 8.8%. (2) Note payable in connection with Acme acquisition to be paid as and if financial performance targets are met over the earnout period. (3) Note payable in connection with Humble Flower and Kaizen acquisitions and termination of the W Vapes acquisition. Weighted average interest rate at March 31, 2021 was 4%. (4) Net of deferred financing costs of $2,096.
Stated maturities of debt obligations are as follows as of March 31, 2021:
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10. LEASES |
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LEASES | The Company adopted ASU 2016-02 (Topic 842) effective January 1, 2019 using the modified retrospective adoption method which allowed it to initially apply the new standard at the adoption date and recognize a cumulative-effect adjustment to the opening balance of accumulated deficit. In connection with the adoption of the new lease pronouncement, the Company recorded a charge to accumulated deficit of $847.
A reconciliation of lease obligations for the quarter ended March 31, 2021, is as follows:
All extension options that are reasonably certain to be exercised have been included in the measurement of lease obligations. The Company reassesses the likelihood of extension option exercise if there is a significant event or change in circumstances within its control.
The components of lease expense for the quarter ended March 31, 2021, are as follows:
The key assumptions used in accounting for leases as of March 31, 2021 were a weighted average remaining lease term of 18.1 years and a weighted average discount rate of 6.0%.
The future lease payments with initial remaining terms in excess of one year as of March 31, 2021 were as follows:
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11. SHARE-BASED COMPENSATION |
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Share-based Payment Arrangement [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
SHARE-BASED COMPENSATION | During 2019 the Company’s Board of Directors adopted the 2019 Stock and Incentive Plan (the “Plan”), which was amended in April 2020. The Plan permits the issuance of stock options, stock appreciation rights, stock awards, share units, performance shares, performance units and other stock-based awards, and, as of March 31, 2021, 13.2 million shares have been authorized to be issued under the Plan and 4.12 million are available for future grant. The Plan provides for the grant of options as either non-statutory stock options or incentive stock options and restricted stock units to employees, officers, directors, and consultants of the Company to attract and retain persons of ability to perform services for the Company and to reward such individuals who contribute to the achievement by the Company of its economic objectives. The awards granted generally vest in 25% increments over a four-year period and option awards expire 6 years from grant date.
The Plan is administered by the Board or a committee appointed by the Board, which determines the persons to whom the awards will be granted, the type of awards to be granted, the number of awards to be granted, and the specific terms of each grant, including the vesting thereof, subject to the provisions of the Plan.
During the quarter ended March 31, 2021, the Company granted shares to certain employees as compensation for services. These shares were accounted for in accordance with ASC 718 – Compensation – Stock Compensation. The Company amortizes awards over the service period and until awards are fully vested.
For the quarters ended March 31, 2021, and March 31, 2020, share-based compensation expense recorded to the Company’ s consolidated statements of operations were:
The following table summarizes the status of stock option grants and unvested awards as at and for the quarter ended March 31, 2021:
The weighted-average fair value of options granted during the quarter ended March 31, 2021, estimated as of the grant date, was $0.58. As of March 31, 2021, there was $2,044 of total unrecognized compensation cost related to nonvested options, which is expected to be recognized over a remaining weighted-average vesting period of 4.7 years.
The following table summarizes the status of restricted stock unit grants and unvested awards as at and for the quarter ended March 31, 2021:
As of March 31, 2021, there was $644 of total unrecognized compensation cost related to nonvested restricted stock units, which is expected to be recognized over a remaining weighted-average vesting period of 16 months.
The fair value of the restricted stock units and stock options granted was determined using the Black-Scholes option-pricing model with the following weighted average assumptions at the time of grant.
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12. INCOME TAXES |
3 Months Ended |
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Mar. 31, 2021 | |
Income Tax Disclosure [Abstract] | |
INCOME TAXES | Coronavirus Aid, Relief and Economic Security Act
On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act the “CARES Act” was enacted and signed into law in response to the market volatility and instability resulting from the COVID-19 pandemic. It includes a significant number of tax provisions and lifts certain deduction limitations originally imposed by the Tax Cuts and Jobs Act of 2017 the “2017 Act”. The changes are mainly related to: (1) the business interest expense disallowance rules for 2019 and 2020; (2) net operating loss rules; (3) charitable contribution limitations; (4) employee retention credit; and (5) the realization of corporate alternative minimum tax credits.
The Company continues to assess the impact and future implications of these provisions; however, it does not anticipate any amounts that could give rise to a material impact to the overall consolidated financial statements.
The provision for income tax expense for the three months ended March 31, 2021, was $63, representing a effective tax rate of 0.95%, compared to an income tax expense of $25 for the three months ended March 31, 2020, representing an effective tax rate of 0.32%.
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13. EARNINGS/(LOSS) PER SHARE |
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EARNINGS/(LOSS) PER SHARE | Net earnings/(loss) per share represents the net earnings/loss attributable to shareholders divided by the weighted average number of shares outstanding during the period on an as converted basis.
_____________ (1) On an as converted basis.
As the Company is in a loss position for the quarters ended March 31, 2021 and 2020, the inclusion of options, warrants, convertible debentures and restricted stock units in the calculation of diluted earnings per share would be anti-dilutive, and accordingly, were excluded from the diluted loss per share calculation.
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14. FAIR VALUE MEASUREMENTS |
3 Months Ended |
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Mar. 31, 2021 | |
Fair Value Disclosures [Abstract] | |
FAIR VALUE MEASUREMENTS | Accounting standards define fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value hierarchy prioritizes the inputs to valuation techniques used to measure fair value. An asset’s or liability’s level is based on the lowest level of input that is significant to the fair value measurement. Assets and liabilities carried at fair value are valued and disclosed in one of the following three levels of the valuation hierarchy:
Level 1: Quoted market prices in active markets for identical assets or liabilities.
Level 2: Observable market-based inputs or unobservable inputs that are corroborated by market data.
Level 3: Unobservable inputs reflecting the reporting entity’s own assumptions.
At March 31, 2021 and 2020, the carrying value of cash and cash equivalents, accounts receivable, prepaid expense and other current assets, accounts payable and other current liabilities approximate fair value due to the short-term nature of such instruments.
The carrying value of the Company's debt approximates fair value based on current market rates (Level 2).
Nonrecurring fair value measurements
The Company uses fair value measures when determining assets and liabilities acquired in an acquisition as described above in the Notes To Condensed Consolidated Financial Statements, which are considered a Level 3 measurement.
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15. COMMITMENTS AND CONTINGENCIES |
3 Months Ended |
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Mar. 31, 2021 | |
Commitments and Contingencies Disclosure [Abstract] | |
COMMITMENTS AND CONTINGENCIES | Commitments
In January 2021, the Company signed a letter of intent to expand its cultivation footprint. The agreement contemplates a land-lease from a developer that has prepared the property for cannabis cultivation. Lowell would be responsible for constructions costs of greenhouses using cash raised in the equity offering in December 2020 and cash generated from operations. The transaction is subject to final site due-diligence and negotiation of construction contracts. In the event the transaction contemplated in the letter of intent is pursued, the Company anticipates the site will be ready for operation in the second half of 2022.
Contingencies
The Company’s operations are subject to a variety of local and state regulation. Failure to comply with one or more of those regulations could result in fines, restrictions on its operations, or losses of permits that could result in the Company ceasing operations. While management of the Company believes that the Company is in compliance with applicable local and state regulation as of March 31, 2021, cannabis regulations continue to evolve and are subject to differing interpretations. As a result, the Company may be subject to regulatory fines, penalties or restrictions in the future. In 2020, the Company entered into a payment plan offered by California regulatory authorities to pay certain excise and cultivation taxes over a 12 month period. If such taxes are not paid in accordance to the agreed payment plan the Company could be subject to certain late payment penalties.
Litigation and Claims
From time to time, the Company may be involved in litigation relating to claims arising out of operations in the normal course of business. As of March 31, 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 are an adverse party or have a material interest adverse to the Company’s interest.
Insurance Claims
In September 2020 the Company experienced a small fire at its manufacturing facility which resulted in suspending certain operations until the facility was repaired. As a result, the company filed a business interruption claim which resulted in a payment of $1.4 million from the insurance carrier in March 2021. The proceeds from the claim were reflected in other income on the consolidated statement of operations for the year ended December 31, 2020.
In August 2020 the Company experienced adverse air quality conditions that resulted in the Company closing the air vents in its greenhouse facilities at a time when extreme temperatures existed. As a result, plant health suffered due to the situation. The Company has filed a business interruption claim which is presently being reviewed by the insurance carrier. There is no certainty on the results of the carrier review of the claim, and as a result, the Company has not recorded an estimate of claim proceeds as of March 31, 2021. The Company anticipates the claims process will be completed in the quarter ended June 30, 2021.
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16. GENERAL AND ADMINISTRATIVE EXPENSES |
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GENERAL AND ADMINISTRATIVE EXPENSES | For the quarters ended March 31, 2021 and 2020, general and administrative expenses were comprised of:
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17. RELATED-PARTY TRANSACTIONS |
3 Months Ended |
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Mar. 31, 2021 | |
Related Party Transactions [Abstract] | |
RELATED-PARTY TRANSACTIONS | Transactions with related parties are entered into in the normal course of business and are measured at the amount established and agreed to by the parties.
Lowell received certain administrative, operational and consulting services through a Management Services Agreement with Edibles Management, LLC (“EM”). EM is a limited liability company owned by the co-founders of Lowell and was formed to provide Lowell with certain administrative functions comprising: cultivation, distribution, and production operations support; general administration; corporate development; human resources; finance and accounting; marketing; sales; legal and compliance. The agreement provided for the dollar-for-dollar reimbursement of expenses incurred by EM in performance of its services. Amounts paid to EM for the quarter ended March 31, 2020 was $ 2,840. The Management Services Agreement with EM was terminated as of December 31, 2020.
In April 2015, Lowell entered into a services agreement with Olympic Management Group (“OMG”), for advisory and technology support services, including the access and use of software licensed to OMG to perform certain data processing and enterprise resource planning (ERP) operational services. OMG is owned by one of the Company’s co-founders. The agreement provides for the dollar-for-dollar reimbursement of expenses incurred by OMG in performance of its services. Amounts paid to OMG for the quarters ended March 31, 2021 and 2020 were $nil and $11, respectively.
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18. SEGMENT INFORMATION |
3 Months Ended |
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Mar. 31, 2021 | |
Segment Reporting [Abstract] | |
SEGMENT INFORMATION | The Company's operations are comprised of a single reporting operating segment engaged in the production and sale of cannabis products in the United States. As the operations comprise a single reporting segment, amounts disclosed in the financial statements also represent a single reporting segment.
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19. SUBSEQUENT EVENTS |
3 Months Ended |
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Mar. 31, 2021 | |
Subsequent Events [Abstract] | |
SUBSEQUENT EVENTS | The Company has evaluated subsequent events through May 17, 2021, the date the financial statements were available to be issued.
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1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies) |
3 Months Ended |
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Mar. 31, 2021 | |
Accounting Policies [Abstract] | |
Basis of Presentation | The interim unaudited condensed consolidated financial statements included herein have been prepared by Lowell Farms Inc. (the “Company” or “Lowell”) pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”), including the instructions to the Quarterly Report on Form 10-Q and Article 10 of Regulation S-X. Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted. The interim unaudited condensed consolidated financial statements reflect, in the opinion of management, all adjustments necessary (consisting only of normal recurring adjustments), to present a fair statement of results for the interim periods presented. The operating results for any interim period are not necessarily indicative of the results that may be expected for other interim periods or the full fiscal year. The accompanying interim unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto in the Company’s Form 10 filed for the year ended December 31, 2020. There have been no material changes to our significant accounting policies as of and for the three months ended March 31, 2021.
The condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries after the elimination of all intercompany balances and transactions.
The condensed consolidated balance sheet at December 31, 2020, has been derived from the audited consolidated financial statements but does not include all disclosures required by accounting principles generally accepted in the United States of America.
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Use of Estimates | The preparation of financial statements in conformity with generally accepted accounting principles in the United States (“U.S. GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Significant estimates in these financial statements include; allowance for doubtful accounts and credit losses, carrying value of inventory, revenue recognition, accounting for stock-based compensation expense, and income taxes. Actual results could differ from those estimates.
The global COVID-19 pandemic has impacted the operations and purchasing decisions of companies worldwide. It also has created and may continue to create significant uncertainty in the global economy. The Company has undertaken measures to protect its employees, partners, customers, and vendors. In addition, the Company’s personnel are subject to various travel restrictions, which limit the ability of the Company to provide services to customers and affiliates. This impacts the Company's normal operations. To date, the Company has been able to provide uninterrupted access to its products and services, including certain employees that are working remotely, and its pre-existing infrastructure that supports secure access to the Company’s internal systems. If, however, the COVID-19 pandemic has a substantial impact on the productivity of the Company’s employees or its partners’ or customers’ decision to use the Company’s products and services, the results of the Company’s operations and overall financial performance may be adversely impacted. The duration and extent of the impact from the COVID-19 pandemic depends on future developments that cannot be accurately predicted at this time. As of the date of issuance of the financial statements, the Company is not aware of any specific event or circumstance that would require updates to the Company’s estimates and judgments or revisions to the carrying value of its assets or liabilities. These estimates may change, as new events occur and additional information is obtained, and are recognized in the condensed cconsolidated financial statements as soon as they become known. Actual results could differ from those estimates and any such differences may be material to the financial statements.
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Recent Accounting Standards | Recently Adopted Accounting Standards
In May 2020, the SEC adopted the final rule under SEC release No. 33-10786, Amendments to Financial Disclosures about Acquired and Disposed Businesses, amending Rule 1-02(w)(2) which includes amendments to certain of its rules and forms related to the disclosure of financial information regarding acquired or disposed businesses. Among other changes, the amendments impact SEC rules relating to (1) the definition of “significant” subsidiaries, (2) requirements to provide financial statements for “significant” acquisitions, and (3) revisions to the formulation and usage of pro forma financial information. The final rule became effective on January 1, 2021; however, voluntary early adoption was permitted. The Company early adopted the provisions of the final rule in 2020. The guidance did not have a material impact on the Company’s condensed consolidated financial statements and disclosures.
In February 2016, FASB issued ASU 2016-02, Leases (Topic 842). ASU 2016-02 requires that a lessee recognize the assets and liabilities that arise from operating leases. A lessee should recognize in the statement of financial position a liability to make lease payments (the lease liability) and a right-of-use (ROU) asset representing its right to use the underlying asset for the lease term. For leases with a term of 12 months or less, a lessee is permitted to make an accounting policy election by class of underlying asset not to recognize lease assets and lease liabilities. In transition, lessees and lessors are required to recognize and measure leases at the beginning of the earliest period presented using a modified retrospective approach. In July 2018, the FASB issued ASU 2018-10, Codification Improvements to Topic 842, Leases and ASU 2018-11, Leases Topic 842 Target improvements, which provides an additional (and optional) transition method whereby the new lease standard is applied at the adoption date and recognized as an adjustment to retained earnings. In March 2019, the FASB issued ASU 2019-01, Leases (Topic 842) Codification Improvements, which further clarifies the determination of fair value of the underlying asset by lessors that are not manufacturers or dealers and modifies transition disclosure requirements for changes in accounting principles and other technical updates. The Company adopted the standard effective January 1, 2019 using the modified retrospective adoption method which allowed it to initially apply the new standard at the adoption date and recognize a cumulative-effect adjustment to the opening balance of accumulated deficit. In connection with the adoption of the new lease pronouncement, the Company recorded a charge to accumulated deficit of $847. Refer to the Summary of Effects of Lease Accounting Standard Update Adopted in First Quarter of 2019 in the audited consolidated financial statements and notes thereto in the Company’s Form 10 filed for the year ended December 31, 2020.
In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments” and subsequent amendments to the initial guidance: ASU 2018-19 “Codification Improvements to Topic 326, Financial Instruments-Credit Losses”, ASU 2019-04 “Codification Improvements to Topic 326, Financial Instruments-Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments”, ASU 2019-05 “Financial Instruments-Credit Losses”, ASU 2019-11 “Codification Improvements to Topic 326, Financial Instruments - Credit Losses” (collectively, Topic 326),ASU 2020-02 Financial Instruments—Credit Losses (Topic 326) and Leases (Topic 842) and ASU 2020-03 Codification Improvements to Financial Instruments. Topic 326 requires measurement and recognition of expected credit losses for financial assets held. This guidance is effective for the year ended December 31, 2020. The Company believes that the most notable impact of this ASU will relate to its processes around the assessment of the adequacy of its allowance for doubtful accounts on trade accounts receivable and the recognition of credit losses. We continue to monitor the economic impact of the COVID-19 pandemic, however based on current market conditions, the adoption of the ASU did not have a material impact on the condensed consolidated financial statements.
In November 2018, the FASB issued ASU 2018-18, Collaborative Arrangements (Topic 808), Clarifying the Interaction between Topic 808 and Topic 606. This guidance amended Topic 808 and Topic 606 to clarify that transactions in a collaborative arrangement should be accounted for under Topic 606 when the counterparty is a customer for a distinct good or service (i.e., unit of account). The amendments preclude an entity from presenting consideration from a transaction in a collaborative arrangement as revenue from contracts with customers if the counterparty is not a customer for that transaction. This guidance is effective for the year ended December 31, 2020. The adoption of this guidance did not have a material impact on our condensed consolidated financial statements.
In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. This guidance removes certain exceptions to the general principles in Topic 740 and enhances and simplifies various aspects of the income tax accounting guidance, including requirements such as tax basis step-up in goodwill obtained in a transaction that is not a business combination, ownership changes in investments, and interim-period accounting for enacted changes in tax law. This standard is effective for fiscal years and interim periods within those fiscal years beginning after December 15, 2020. This guidance was effective for the Company in our fiscal year and interim periods beginning on January 1, 2021 and did not have a material impact on our condensed consolidated financial statements.
In January 2020, the FASB issued ASU 2020-01 Investments-Equity Securities (Topic 321), Investments-Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815) - Clarifying the Interactions between Topic 321, Topic 323, and Topic 815. This guidance addresses accounting for the transition into and out of the equity method and provides clarification of the interaction of rules for equity securities, the equity method of accounting, and forward contracts and purchase options on certain types of securities. This standard is effective for fiscal years and interim periods within those fiscal years beginning after December 15, 2020. We are currently evaluating the impact of ASU 2020-01 on our Consolidated Financial Statements, which was effective for the Company in our fiscal year and interim periods beginning on January 1, 2021 and did not have a material impact on our condensed consolidated financial statements.
Accounting standards not yet adopted
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). This update amends the guidance on convertible instruments and the derivatives scope exception for contracts in an entity's own equity and improves and amends the related EPS guidance for both Subtopics. This standard is effective for fiscal years and interim periods within those fiscal years beginning after December 15, 2021, which means it will be effective for our fiscal year beginning January 1, 2022. Early adoption is permitted. We are currently evaluating the impact of ASU 2020-06 on our condensed consolidated financial statements.
No other recently issued accounting pronouncements had or are expected to have a material impact on our condensed consolidated financial statements.
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2. ACQUISITIONS (Tables) |
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---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Mar. 31, 2021 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Business Combinations [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Acquisitions |
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3. PREPAID EXPENSES AND OTHER CURRENT ASSETS (Tables) |
3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Mar. 31, 2021 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Prepaid Expense and Other Assets, Current [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Prepaid expenses and other current assets |
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4. INVENTORY (Tables) |
3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Mar. 31, 2021 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Inventory Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Inventory |
|
5. OTHER CURRENT LIABILITIES (Tables) |
3 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Mar. 31, 2021 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Other Liabilities, Current [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Other current liabilities |
|
6. PROPERTY AND EQUIPMENT (Tables) |
3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Mar. 31, 2021 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Property, Plant and Equipment [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Property and equipment |
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7. GOODWILL AND INTANGIBLE ASSETS (Tables) |
3 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Mar. 31, 2021 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Goodwill and Intangible Assets Disclosure [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Goodwill |
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Intangible assets |
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8. SHAREHOLDERS' EQUITY (Tables) |
3 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Mar. 31, 2021 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
STOCKHOLDERS' EQUITY | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Shares outstanding |
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Warrant activity |
_____________ (1) Excluding 390 warrants issuable should underwriter options be exercised. |
9. DEBT (Tables) |
3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Mar. 31, 2021 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Debt Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Debt |
_____________ (1) Primarily fixed term loans on transportation vehicles. Weighted average interest rate at March 31, 2021 was 8.8%. (2) Note payable in connection with Acme acquisition to be paid as and if financial performance targets are met over the earnout period. (3) Note payable in connection with Humble Flower and Kaizen acquisitions and termination of the W Vapes acquisition. Weighted average interest rate at March 31, 2021 was 4%. (4) Net of deferred financing costs of $2,096.
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Maturities of debt obligations |
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10. LEASES (Tables) |
3 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Mar. 31, 2021 | ||||||||||||||||||||||||||||||||||||||||||||||
Leases [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||
Lease obligations |
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Lease expense |
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Future lease payments |
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11. SHARE-BASED COMPENSATION (Tables) |
3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Mar. 31, 2021 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Share-based Payment Arrangement [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Share-based compensation expense |
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Stock option activity |
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Restricted stock unit activity |
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Weighted average assumptions |
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13. EARNINGS/(LOSS) PER SHARE (Tables) |
3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Mar. 31, 2021 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Earnings Per Share [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net earnings/(loss) per share |
_____________ (1) On an as converted basis.
|
16. GENERAL AND ADMINISTRATIVE EXPENSES (Tables) |
3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Mar. 31, 2021 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
General and Administrative Expense [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
General and administrative expense |
|
3. PREPAID EXPENSES AND OTHER CURRENT ASSETS (Details) - USD ($) $ in Thousands |
Mar. 31, 2021 |
Dec. 31, 2020 |
---|---|---|
Prepaid Expense and Other Assets, Current [Abstract] | ||
Deposits | $ 548 | $ 572 |
Insurance | 574 | 593 |
Supplier advances | 476 | 504 |
Nevada building sale proceeds | 0 | 2,800 |
Other | 935 | 1,922 |
Total prepaid expenses and other current assets | $ 2,533 | $ 6,391 |
4. INVENTORY (Details) - USD ($) $ in Thousands |
Mar. 31, 2021 |
Dec. 31, 2020 |
---|---|---|
Inventory Disclosure [Abstract] | ||
Raw materials | $ 11,264 | $ 7,950 |
Work in process | 0 | 0 |
Finished goods | 2,624 | 1,983 |
Total inventory | $ 13,888 | $ 9,933 |
5. OTHER CURRENT LIABILITIES (Details) - USD ($) $ in Thousands |
Mar. 31, 2021 |
Dec. 31, 2020 |
---|---|---|
Other Liabilities, Current [Abstract] | ||
Excise and cannabis tax | $ 4,616 | $ 5,780 |
Third party brand distribution accrual | 250 | 584 |
Insurance and professional accrual | 757 | 746 |
Other | 1,576 | 1,750 |
Total accrued liabilities | $ 7,199 | $ 8,860 |
6. PROPERTY AND EQUIPMENT (Details Narrative) - USD ($) $ in Thousands |
3 Months Ended | |
---|---|---|
Mar. 31, 2021 |
Mar. 31, 2020 |
|
Depreciation | $ 899 | $ 943 |
Cost of Goods Sold | ||
Depreciation | $ 584 | $ 514 |
7. GOODWILL AND INTANGIBLE ASSETS (Details) $ in Thousands |
3 Months Ended |
---|---|
Mar. 31, 2021
USD ($)
| |
Goodwill and Intangible Assets Disclosure [Abstract] | |
Goodwill, beginning | $ 357 |
Additions | 0 |
Business acquisitions | 0 |
Impairment | 0 |
Goodwill, ending | $ 357 |
7. GOODWILL AND INTANGIBLE ASSETS (Details Narrative) - USD ($) $ in Thousands |
3 Months Ended | |
---|---|---|
Mar. 31, 2021 |
Mar. 31, 2020 |
|
Goodwill and Intangible Assets Disclosure [Abstract] | ||
Amortization expense | $ 9 | $ 20 |
8. SHAREHOLDERS' EQUITY (Details) - shares |
3 Months Ended | |
---|---|---|
Mar. 31, 2021 |
Mar. 31, 2020 |
|
Subordinate Voting Shares | ||
Beginning balance, shares | 57,617 | 32,844 |
Shares issued in connection with exercise of warrants | 1,324 | |
Shares issued in connection with conversion of convertible debentures | 1,390 | |
Shares issued in connection with asset acquisition | 22,644 | |
Issuance of vested restricted stock units | 246 | 144 |
Ending balance, shares | 83,221 | 32,988 |
Super Voting Shares | ||
Beginning balance, shares | 203 | 203 |
Shares issued in connection with exercise of warrants | ||
Shares issued in connection with conversion of convertible debentures | ||
Shares issued in connection with asset acquisition | ||
Issuance of vested restricted stock units | ||
Ending balance, shares | 203 | 203 |
8. SHAREHOLDERS' EQUITY (Details 1) |
3 Months Ended | |||
---|---|---|---|---|
Mar. 31, 2021
shares
| ||||
STOCKHOLDERS' EQUITY | ||||
Warrants, beginning | 93,898 | |||
Warrants issued in conjunction with broker option exercise | 163 | [1] | ||
Warrants converted into subordinate voting shares | (1,000) | |||
Warrants, ending | 93,061 | |||
|
9. DEBT (Details) - USD ($) $ in Thousands |
Mar. 31, 2021 |
Dec. 31, 2020 |
||||||||
---|---|---|---|---|---|---|---|---|---|---|
Short-term debt | $ 381 | $ 1,213 | ||||||||
Long-term debt | 13,914 | 14,004 | ||||||||
Total indebtness | 14,295 | 15,217 | ||||||||
Vehicle Loans | ||||||||||
Short-term debt | [1] | 183 | 170 | |||||||
Long-term debt | [1] | 189 | 233 | |||||||
Note Payable | ||||||||||
Long-term debt | [2] | 56 | 65 | |||||||
Note Payable | ||||||||||
Short-term debt | [3] | 198 | 1,043 | |||||||
Long-term debt | [3] | 40 | 5 | |||||||
Convertible Debenture | ||||||||||
Long-term debt | [4] | $ 13,629 | $ 13,701 | |||||||
|
9. DEBT (Details 1) - USD ($) $ in Thousands |
Mar. 31, 2021 |
Dec. 31, 2020 |
---|---|---|
Debt Disclosure [Abstract] | ||
2021 | $ 335 | |
2022 | 196 | |
2023 | 15,774 | |
2024 | 21 | |
2025 | 6 | |
2026 and thereafter | 3 | |
Total debt obligations | $ 14,295 | $ 15,217 |
10. LEASES (Details) - USD ($) $ in Thousands |
3 Months Ended | |
---|---|---|
Mar. 31, 2021 |
Dec. 31, 2020 |
|
Leases [Abstract] | ||
Lease liability, beginning | $ 38,834 | |
Additions | 547 | |
Lease principal payments | (578) | |
Lease liability, ending | 38,803 | |
Lease obligation, current portion | 2,915 | $ 2,301 |
Lease obligation, long-term portion | $ 35,888 | $ 36,533 |
10. LEASES (Details 1) $ in Thousands |
3 Months Ended | |||||
---|---|---|---|---|---|---|
Mar. 31, 2021
USD ($)
| ||||||
Leases [Abstract] | ||||||
Amortization of leased assets | $ 254 | [1] | ||||
Interest on lease liabilities | 563 | [2] | ||||
Total | $ 817 | |||||
|
10. LEASES (Details 2) - USD ($) $ in Thousands |
Mar. 31, 2021 |
Dec. 31, 2020 |
---|---|---|
Leases [Abstract] | ||
Balance of 2021 | $ 1,966 | |
2022 - 2023 | 5,479 | |
2024 - 2025 | 3,843 | |
2026 - and beyond | 27,515 | |
Total | $ 38,803 | $ 38,834 |
10. LEASES (Details Narrative) |
Mar. 31, 2021 |
---|---|
Leases [Abstract] | |
Weighted average remaining lease term | 18 years 1 month 6 days |
Weighted average discount rate | 6.00% |
11. SHARE-BASED COMPENSATION (Details) - USD ($) $ in Thousands |
3 Months Ended | |
---|---|---|
Mar. 31, 2021 |
Mar. 31, 2020 |
|
Total share based compensation | $ 287 | $ 1,612 |
Cost of Goods Sold | ||
Total share based compensation | 0 | 0 |
General and Administrative Expense | ||
Total share based compensation | $ 287 | $ 1,612 |
11. SHARE-BASED COMPENSATION (Details 2) |
3 Months Ended |
---|---|
Mar. 31, 2021
$ / shares
shares
| |
Share-based Payment Arrangement [Abstract] | |
RSUs outstanding, beginning | shares | 450 |
RSUs granted | shares | 1,295 |
RSUs vested | shares | 0 |
RSUs cancelled | shares | (10) |
RSUs outstanding, ending | shares | 1,735 |
Weighted-average fair value outstanding, beginning | $ / shares | $ .33 |
Weighted-average fair value granted | $ / shares | 1.14 |
Weighted-average fair value vested | $ / shares | .00 |
Weighted-average fair value cancelled | $ / shares | .00 |
Weighted-average fair value outstanding, ending | $ / shares | $ .93 |
11. SHARE-BASED COMPENSATION (Details 3) |
3 Months Ended | |
---|---|---|
Mar. 31, 2021 |
Mar. 31, 2020 |
|
Share-based Payment Arrangement [Abstract] | ||
Expected volatility | 50.00% | 50.00% |
Dividend yield | 0.00% | 0.00% |
Risk-free interest rate | 0.73% | 2.20% |
Expected term in years | 4 years 3 months | 10 years |
11. SHARE-BASED COMPENSATION (Details Narrative) $ / shares in Units, $ in Thousands |
3 Months Ended |
---|---|
Mar. 31, 2021
USD ($)
$ / shares
| |
Share-based Payment Arrangement [Abstract] | |
Weighted-average exercise price granted | $ / shares | $ .58 |
Unrecognized compensation cost related to nonvested options | $ 2,044 |
Unrecognized compensation cost related to nonvested restricted stock units | $ 644 |
12. INCOME TAXES (Details Narrative) - USD ($) $ in Thousands |
3 Months Ended | |
---|---|---|
Mar. 31, 2021 |
Mar. 31, 2020 |
|
Income Tax Disclosure [Abstract] | ||
Provision for income taxes | $ 63 | $ 25 |
Effective tax rate | 0.95% | 0.32% |
13. EARNINGS/(LOSS) PER SHARE (Details) - USD ($) $ / shares in Units, $ in Thousands |
3 Months Ended | |||
---|---|---|---|---|
Mar. 31, 2021 |
Mar. 31, 2020 |
|||
Earnings Per Share [Abstract] | ||||
Net loss | $ (6,719) | $ (7,874) | ||
Basic | ||||
Weighted average subordinate voting shares - basic | [1] | 53,592 | 32,988 | |
Basic earnings (loss) per share | $ (.13) | $ (.24) | ||
Diluted | ||||
Weighted average subordinate voting shares - diluted | [1] | 53,592 | 32,988 | |
Effects of Potential Dilutive Shares | ||||
Options | 0 | 0 | ||
Warrants | 0 | 0 | ||
Restricted stock units | 0 | 0 | ||
Diluted weighted average subordinate voting shares | 53,592 | 32,988 | ||
Diluted earnings (loss) per share | $ (0.13) | $ (.24) | ||
|
16. GENERAL AND ADMINISTRATIVE EXPENSES (Details) - USD ($) $ in Thousands |
3 Months Ended | |
---|---|---|
Mar. 31, 2021 |
Mar. 31, 2020 |
|
Total general and administrative expenses | $ 2,460 | $ 3,791 |
Salaries and Benefits | ||
Total general and administrative expenses | 981 | 996 |
Professional Fees | ||
Total general and administrative expenses | 482 | 599 |
Licensing and Supplies | ||
Total general and administrative expenses | 75 | 0 |
Share-based Compensation | ||
Total general and administrative expenses | 289 | 1,612 |
Administrative | ||
Total general and administrative expenses | $ 633 | $ 584 |
17. RELATED-PARTY TRANSACTIONS (Details Narrative) - USD ($) $ in Thousands |
3 Months Ended | |
---|---|---|
Mar. 31, 2021 |
Mar. 31, 2020 |
|
EM | ||
Related party transactions | $ 0 | $ 2,840 |
OMG | ||
Related party transactions | $ 0 | $ 11 |
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