Item 1. Business
ITEM
1. BUSINESS.
Overview
MariMed
Inc. (the “Company”) is a multi-state operator in the United States cannabis industry. The Company develops,
operates, manages, and optimizes over 300,000 square feet of state-of-the-art, regulatory-compliant facilities for the cultivation,
production and dispensing of medicinal and recreational cannabis. The Company also licenses its proprietary brands of cannabis
and hemp-infused products, along with other top brands, in several domestic markets and overseas.
Upon its entry into the cannabis industry
in 2014, the Company was an advisory firm that procured state-issued cannabis licenses on behalf of its clients, developed
cannabis facilities which it leased to these newly-licensed companies, and provided industry-leading expertise and
oversight in all aspects of their cannabis operations. The Company also provided its clients with ongoing regulatory, accounting,
real estate, human resources, and administrative services.
In 2018, the Company made the strategic decision
to transition from a consulting business to a direct owner of cannabis licenses and operator of seed-to-sale operations (hereinafter
referred to as the “Consolidation Plan”). The Consolidation Plan calls for the acquisition of its cannabis-licensed
clients located in Delaware, Illinois, Maryland, Massachusetts, and Nevada. In addition, the Consolidation Plan includes
the potential acquisition of a Rhode Island asset. All of these acquisitions are subject to state approval, and once consolidated,
the entities will operate under the MariMed banner. The Consolidation Plan is discussed in further detail in the section below
entitled Consolidation Plan .
To date, acquisitions of the licensed businesses
in Massachusetts and Illinois have been completed and establish the Company as a fully integrated seed-to-sale multi-state operator,
The acquisitions of the remaining entities located in Maryland, Nevada, and Delaware are at various stages of completion and subject
to each state’s laws governing the ownership transfer of cannabis licenses, which in the case of Delaware requires a modification
of current cannabis ownership laws to permit for-profit ownership. Meanwhile, the Company continues to expand these businesses
and maximize the Company’s revenue from rental income, management fees, and licensing royalties.
A
goal in completing this transition from a consulting business to a direct owner of cannabis licenses and operator of seed-to-sale
operations is to present a simpler, more transparent financial picture of the full breadth of the Company’s efforts, with
a clearer representation of the revenues, earnings, and other financial metrics the Company has generated for its clients. The
Company has played a key role in the successes of these entities, from the securing of their cannabis licenses, to the development
of facilities that are models of excellence, to providing operational and corporate guidance. Accordingly, the Company believes
it is well suited to own these facilities and manage the continuing growth of their operations.
The
Company has also created its own brands of cannabis flower, concentrates, and precision-dosed products utilizing proprietary strains
and formulations. These products are developed by the Company in cooperation with state-licensed operators who meet the Company’s
strict standards, including all natural—not artificial or synthetic—ingredients. The Company licenses its brands
and product formulations only to certified manufacturing professionals who follow state cannabis laws and adhere to the Company’s
precise scientific formulations and trademarked product recipes.
The Company’s proprietary cannabis
genetics produce flowers and concentrates under the brand name Nature’s Heritage™, and cannabis-infused products under
the brand names Kalm Fusion®, in the form of chewable tablets and drink powder mixes, and the award-winning 1 Betty’s
Eddies® brand of all natural fruit chews. Both cannabis-infused brands are top selling products in Maryland and Massachusetts 2
and the Company intends to introduce additional products under these brands in 2021. The Company’s brand of hemp-infused
cannabidiol (“CBD”) products, Florance™, is distributed in the US and abroad.
The Company also has exclusive sublicensing
rights in certain states to distribute the Binske® line of cannabis products crafted from premium artisan ingredients, the
Healer™ line of medical full-spectrum cannabis tinctures, and the clinically tested medicinal cannabis strains developed
in Israel by global medical cannabis research pioneer Tikun Olam™. The Company intends to continue licensing and distributing
its brands as well as other top brands in the Company’s current markets and in additional regulated markets worldwide.
In
March 2020, the World Health Organization declared the outbreak of COVID-19 a global pandemic. The spread of the virus in the
United States and the measures implemented to contain it—including business shutdowns, indoor capacity restrictions, social
distancing, and diminished travel—have negatively impacted the economy and have created significant volatility and disruption
in financial markets. Consequently, the Company’s implementation of its aforementioned Consolidation Plan has been
delayed. Additionally, while the cannabis industry has been deemed an essential business, and is not expected to suffer severe
declines in revenue, the Company’s business, operations, financial condition, and liquidity have been impacted, as further
discussed in this report.
Despite
the pandemic, the Company’s operations have improved significantly over the past year as reflected in the following financial
highlights:
●
Total
revenues increased 11.6% to approximately $50.9 million
in 2020 from $45.6 million in 2019
●
Core
cannabis 3 revenues increased 207.1% to approximately $50.9 million in 2020 from $16.6 million in 2019
●
Operating
income increased to approximately $14.5 million in 2020 compared to an operating loss of $41.5 million in 2019
●
Income
before income taxes increased to approximately $4.5 million
in 2020 compared to a loss before income taxes of $81.8 million in 2019
●
EBITDA 4
increased to approximately $16.3 million in
2020 compared to an EBITDA loss of $68.4 million in 2019
●
Total
assets increased to approximately $76.4 million in 2020 from $61.6 million in 2019
●
Cash
and cash equivalents increased to approximately $3.0 million in 2020 from $739,000 in 2019
Over
the course of the Company’s history in the emerging cannabis industry, it has developed an excellent reputation for
strong management, with clients that have thrived in their respective markets. The Company’s goal is to continue this success
as it transitions from a manager and advisor to an owner and operator of cannabis businesses.
1 Awards won by the Company’s
Betty’s Eddies® brand include LeafLink 2020 Industry Innovator, Explore Maryland Cannabis 2020 Edible of the Year, and
LeafLink 2019 Best Selling Medical Product.
2 Source: LeafLink Insights
2020.
3
Core cannabis operations exclude the one-time hemp seed sales transactions in 2019
between the Company and a related party (the “Seed Transactions”) as discussed
in the Results of Operations section within Item 7. Management’s Discussion
And Analysis Of Financial Condition And Results Of Operations, and in the footnotes
accompanying the Company’s audited financial statements at December 31, 2020.
4
EBITDA is a non-GAAP financial measurement that is defined in Item 7. Management’s Discussion And Analysis Of Financial
Condition And Results Of Operations.
( 2 )
The Company’s strengths can
be summarized as follows:
Professional
Management
The Company’s management is one of the
most experienced and long-tenured in the cannabis industry. It has had considerable success creating and growing business
in the industry by successfully applying for cannabis licenses on behalf of its clients, overseeing the development of such
clients’ cannabis operations and security plans; sourcing real estate for cannabis facilities in receptive municipalities;
raising capital to purchase and develop facilities; and adhering operations to regulations established by individual state
governments, including all environmental and social governance requirements. The knowledge and experience of the Company’s
management provides a solid platform for the Company’s direct ownership through consolidation of the organic businesses
it developed and for expansion to other opportunities in other cannabis-legal states.
Development
of State-of-the-Art Cannabis Facilities and Operations
The
Company has developed state-of-the-art cannabis cultivation, production, and dispensary facilities in multiple states utilizing
the Company’s proprietary practices and implementing industry best practices. Its facilities are examples of operational
excellence under the Company’s proven management policies and processes.
Cannabis
Brand Creation
The
Company has developed unique brands of precision-dosed cannabis-infused products which are currently licensed and distributed
in cannabis-legal states. The Company intends to continue expanding both its brand portfolio and the licensing of its branded
products into additional cannabis-legal states and overseas.
Technological
and Scientific Innovation
The
Company is diligent in identifying and reviewing the latest sciences and processes applicable to the cultivation, distillation,
production, packaging, securing, and distribution of cannabis and cannabis-infused products. The Company has obtained the highest
quality cannabis strains and genetics. It is at the leading edge of patient education and physician outreach for cannabis, and
it seeks strategic relationships with companies that are at the forefront of extraction and distillation.
Education
and Knowledge Sharing
The
rapid growth of the legal cannabis market presents a global paradigm shift and challenges to medical professionals and consumers
who seek scientific knowledge and research regarding the medical benefits of cannabis. The Company provides educational research
and studies on its brands and products to its growing community of healthcare professionals and consumers. As cannabis becomes
more mainstream, medical providers will need to be educated on how to prescribe or make recommendations to their patients, and
consumers will need to learn how to gain the most benefit from certain strains, genetics, or formulations.
As
part of its education initiative, the Company is assembling a Scientific Advisory Board (the “SAB”) that includes
some of the most knowledgeable scientists and researchers focused on the scientific application of cannabis for health and wellness.
The SAB’s goals will include the development of strategies to address the most widespread and debilitating medical and dietary
conditions through the utilization of cannabis- and hemp-based therapies.
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Consolidation Plan
As mentioned above, the Company’s
Consolidation Plan consists of the strategic decision made in 2018 to transition from a management and advisory firm in the
cannabis space, to a direct owner of cannabis licenses and seed-to-sale operations in Massachusetts, Illinois, Maryland, Nevada,
Delaware and Rhode Island. The following is a summary of the Company’s progress towards its Consolidation Plan.
Massachusetts
In
December 2018, the Massachusetts Cannabis Control Commission (the “MCCC”) approved the conversion of ARL Healthcare
Inc. (“ARL”), the Company’s cannabis-licensed client, from a non-profit entity to a for-profit corporation and
the transfer of ownership to the Company. ARL holds cannabis licenses for cultivation, production and dispensing.
The
Company’s 10,000 square foot dispensary, developed within its 22,700 square foot property in Middleboro, received
approval from the MCCC to commence operations in December 2019. The Company’s 70,000 square foot cultivation and
production facility, developed within its 138,000 square foot property in New Bedford, received approval from the MCCC to
commence operations in January 2020, with its first harvest completed in the first quarter of 2020. The cultivation and
production facility is now operating at full capacity as product demand remains very strong. The Company entered into an
agreement to acquire a second dispensary in Beverly in early 2021, and expects to complete the buildout and commence
operations, subject to approval by the MCCC, in late 2021.
Illinois
In
October 2019, the Illinois Department of Financial & Professional Regulation (the “IDFPR”) approved the Company’s
acquisition of KPG of Anna LLC and KPG of Harrisburg LLC, the Company’s two cannabis-licensed clients that operate Company-built
and -owned medical marijuana dispensaries in the state of Illinois (both entities collectively, the “KPGs”). As part
of this transaction, the Company also acquired the selling parties’ interests in Mari Holdings IL LLC (“Mari-IL”),
the Company’s subsidiary which owns the real estate in which the KPGs’ dispensaries are located.
Effective October 1, 2019, 100% of the operations
of these entities have been consolidated into the Company’s financial statements. Additionally, on January 1, 2020, the
state of Illinois legalized recreational adult-use cannabis, allowing the Company to operate both medical and recreational
adult-use programs in the Anna and Harrisburg dispensaries. In September 2020, a third recreational dispensary was opened
in Mt. Vernon, and a fourth recreational dispensary is under development in Metropolis, which the Company is in the
process of purchasing from the current landlord, and is expected to open in mid-2021, subject to final approval by
the IDFPR.
Maryland
In the fall of 2016, the Company and
the members of Kind Therapeutics USA Inc., the Company’s client in Maryland that holds licenses for the cultivation,
production, and dispensing of medical cannabis (“Kind”), agreed to a partnership/joint venture whereby Kind would be owned 70% by the
Company and 30% by the members of Kind, subject to approval by the Maryland Medical Cannabis Commission (“MMCC”).
In reliance thereon, the Company purchased, designed, and developed a 180,000 square foot cultivation and production facility
in Hagerstown, MD for occupancy and use by Kind, which became operational in late 2017, and the Company further agreed to
manage and finance all aspects of Kind’s cannabis business, as Kind had no background or experience in the
industry.
Prior to finalizing the documents
confirming the partnership/joint venture, the Company and the members of Kind negotiated and entered into a memorandum of
understanding (“MOU”) for the Company to acquire 100% of the membership interests of Kind in December 2018. Also
at that time, MariMed Advisors Inc, the Company’s wholly owned subsidiary, and Kind entered into a management services
agreement to provide Kind with comprehensive management services in connection with the business and operations of Kind (the
“MSA”), and Mari Holdings MD LLC, the Company’s majority-owned subsidiary, entered into a 20-year lease
with Kind for Kind’s utilization of the Hagerstown facility (the “Lease”). Additionally, in October 2019,
the Company purchased a 9,000 square foot building in Anne Arundel County which is to be developed into a dispensary to be
leased to Kind.
In 2019, the members of Kind sought to
renegotiate the terms of the MOU and has subsequently sought to renege on both the original partnership/joint venture and the
MOU. The Company engaged with the members of Kind in good faith in an attempt to reach updated terms acceptable to both
parties, however the members of Kind failed to reciprocate in good faith, resulting in an impasse. Incrementally, both
parties through counsel further sought to resolve the impasse, however such initiative resulted in both parties commencing
legal proceedings. As a result, the consummation of this acquisition has been delayed and may not ultimately be completed.
For further information, see Part I, Item 3. Legal Proceedings in this report.
Nevada
In
August 2019, the Company entered into a purchase agreement to acquire 100% of the ownership interests of The Harvest Foundation
LLC (“Harvest”), its cannabis-licensed client. Documentation requesting approval of the transaction has been submitted
to the state cannabis commission, which is pending. Harvest holds both medical and recreational adult-use cannabis cultivation
licenses, and operates in approximately 10,000 square feet of an industrial building that the Company leases and has built out
into a cannabis cultivation facility.
Delaware
Delaware’s current cannabis program
is for medical use only, and requires license holders to be not-for-profit entities. The Company provides comprehensive management
and real estate services to First State Compassion Center (“FSCC”), its cannabis-licensed client in this state.
The Company’s validated cannabis experience was instrumental in FSCC being granted Delaware’s first ever seed-to-sale
medical cannabis license, and two of the four statewide licenses.
FSCC leases the Company-developed 47,000
square foot seed-to-sale facility in Wilmington and the Company’s 4,000 square foot leased retail location
in Lewes which the Company developed into a cannabis dispensary. In 2019, the Company signed a lease with an option to
purchase a 100,000 square foot building in Milford, which it is currently developing into a second cultivation and production
facility for FSCC.
The Delaware medical program has grown
to over 10,000 licensed medical patients. FSCC, under the Company’s management, is currently operating two of the four cannabis
licenses in the state. The additional cultivation and production facility in Milford will bring a much needed supply of product
to a state where demand continues to outpace supply.
The state is expected to allow “for-profit”
ownership of cannabis licenses in the near future, at which time the Company will seek to acquire FSCC and obtain ownership of
the licenses and operations, subject to state approval.
Rhode Island
Rhode Island currently has a medical cannabis
program where license holders must be not-for-profit entities. The Company is in discussions to potentially
acquire a licensed cannabis asset in this state.
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Corporate
History
The
Company was incorporated in the state of Delaware in January 2011 as a wholly-owned subsidiary of Worlds Inc. under the name Worlds Online Inc., which was later spun-off to its stockholders. At its inception, Worlds Online Inc. operated
online virtual environments. In 2014, the Company transitioned
its operational focus to the emerging cannabis industry and led the effort to win the cannabis license in Delaware on
behalf of its client. To date, the Company has won a total of 17 cannabis licenses on behalf of itself and its cannabis
clients.
The following is a summary of the Company’s
history over the past three calendar years:
In
2017, Robert Fireman was named as the Company’s CEO and President, and Jon R. Levine as the CFO, Treasurer, and Secretary.
The Company changed its name to MariMed Inc. and its ticker symbol to MRMD, which is quoted on the OTCQX exchange. Also in 2017,
the Company acquired the intellectual property, formulations, recipes, know-how, and certain other assets of the Betty’s
Eddies® brand of cannabis-infused fruit chews.
In
October 2018, the Company entered into a purchase agreement to acquire KPG of Anna LLC and KPG of Harrisburg LLC, the Company’s
two cannabis-licensed clients that operate medical marijuana dispensaries in the state of Illinois (both entities collectively,
the “KPGs”), and the KPGs’ owners’ interests in Mari Holdings IL LLC, the Company’s subsidiary that
owns the real estate where the KPGs’ two dispensaries are located. On October 1, 2019, the Illinois Department of Financial
and Professional Regulation approved the Company’s acquisition of the KPGs and Mari-IL, and the acquisition transaction
was consummated.
In
October 2018, the Company’s cannabis-licensed client in Massachusetts, ARL Healthcare Inc. (“ARL”), filed a
plan of entity conversion with the state to convert from a non-profit entity to a for-profit corporation, with the Company as
the sole shareholder of the for-profit corporation. At the time, ARL held three cannabis licenses from the state of Massachusetts
for the cultivation, production and dispensing of cannabis. In November 2018, the Company received written confirmation of state
approval of the conversion plan, resulting in ARL becoming a wholly-owned subsidiary of the Company.
In
November 2018, the Company issued a letter of intent to acquire The Harvest Foundation LLC, the Company’s client awarded
a cannabis license for cultivation in the state of Nevada. In August 2019, the parties entered into a purchase agreement governing
the transaction. The acquisition is conditional upon state approval of the transaction. At this time, the state has paused the
processing of cannabis license transfers, without indicating when it will resume. Upon the resumption of these activities and
the ensuing approval by the state, the Company expects to consummate this transaction whereby the operations of Harvest will be
consolidated into the Company’s financial statements.
In November 2018, the Company finalized
the purchase of an aggregate of $30.0 million of subordinated secured convertible debentures of GenCanna Global Inc., a Kentucky-based
cultivator, producer, and distributor of hemp and CBD (“GenCanna”). In February 2019, the Company converted the debentures
plus accrued interest through the conversion date into a 33.5% equity interest of GenCanna on a fully diluted basis. This investment
was written off in December 2019 as further discussed in the footnotes to the audited financial statements.
In December 2018, the Company and Kind entered into the aforementioned MSA and Lease.
In the fall of 2016, the Company and the members of Kind agreed to a partnership/joint venture whereby Kind would be owned 70%
by the Company and 30% by the members of Kind. In December 2018, prior to finalizing documents confirming the partnership/joint
venture, the Company and the members of Kind negotiated and executed the aforementioned MOU for the Company to acquire 100%
of the membership interests of Kind, subject to approval by the MMCC. As discussed in Part I, Item 3. Legal Proceedings in this report, the Company is currently in litigation
with Kind.
( 5 )
In
May 2019, the Company issued 500,000 shares of its common stock in exchange for an 8.95% interest in Terrace Inc. (“Terrace”),
a Canadian entity that develops and acquires international cannabis assets. In November 2019, the common stock of Terrace commenced
public trading on the Toronto Stock Venture Exchange. In December 2020, Terrace was acquired by Flowr Corp., a Toronto-headquartered
cannabis company with operations in Canada, Europe, and Australia, and the Company’s investment was converted into publicly
traded shares of Flowr Corp. (TSX.V: FLWR; OTC: FLWPF).
In
June 2019, the Company executed a purchase agreement to acquire a majority of MediTaurus LLC, a company established by Jokubas
Ziburkas PhD, a neuroscientist and leading authority on hemp-based CBD and the endocannabinoid system. MediTaurus operates in
the United States and Europe and has developed proprietary CBD formulations sold under its Florance™ brand.
In
July 2019, the Company entered into a licensing agreement for the exclusive manufacturing and distribution in seven states of
the Binske® portfolio of products, a brand known for utilizing best-in-class proprietary strains and craft ingredients in
its edibles, concentrates, vaporizers, and topicals.
In
October 2019, the Company closed on the purchase of a 9,000 square foot building in Annapolis, MD which it is developing into
a medical marijuana dispensary.
On
October 1, 2019, the Illinois Department of Financial and Professional Regulation approved the Company’s acquisition of
the KPGs and Mari-IL, and as of such date, the KPGs and Mari-IL became wholly-owned subsidiaries of the Company.
In
January 2020, the Illinois legalized adult-use cannabis, which was added to the Company’s two existing cannabis licenses,
thereby increasing the Company’s operations in Illinois to service both medical and recreational cannabis consumers.
In
February 2020, the Company purchased a 4,800 square foot stand-alone retail building in Mt Vernon, IL which it developed into
state-approved adult-use cannabis dispensary that opened in September 2020.
In
July 2020, the Company refinanced a mortgage secured by its properties in Massachusetts generating proceeds of $13.0 million that
were used to pay down the initial mortgage and short term promissory notes.
In
February 2021, the Company entered into a five-year lease agreement for a 12,000 square foot premises located in Wilmington, DE
which the Company intends to develop into a cannabis production facility with offices, and sublease to its cannabis-licensed client
in this state.
Recent
Developments
In
March 2021, the Company entered into a securities purchase agreement with Hadron Healthcare Master Fund with respect to
a financing facility of up to $46.0 million in exchange for newly-designated Series C convertible preferred stock of the Company
and warrants to purchase the Company’s common stock. The initial proceeds of $23.0 million from the facility
were used to pay down debt, and will be used to upgrade certain of the Company’s owned and managed facilities.
The balance of the facility will fund the completion of the Company’s Consolidation Plan.
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Competition
The
Company’s goal is to become a fully integrated multistate operator (“MSO”) of seed-to-sale cannabis operations.
The Company is different than some of the other MSOs in that it has incubated its client businesses from the bottom up,
built its own brands and branded products, and has retained its core management team from inception. Other MSOs have raised
significantly more capital, including on the Canadian Securities Exchange, and acquired assets in more states than the Company
has to date.
Additionally,
while Company has a comprehensive suite of products and services for the cannabis industry, it faces competition from companies
of varying sizes and geographic reach, who produce and sell similar products. Some of these companies provide a subset of the
Company’s product and service offerings, while others are able to provide an equivalent level of the products and services
offered by the Company. The Company, using its best practices and operational expertise, is able to produce cannabis products
at one of the lowest costs in the industry which enables the Company to remain competitive in its markets. That said, the Company’s
sales could be reduced significantly if its competitors develop and market products that are more effective, more convenient,
or are less expensive than its products.
Going
forward, as cannabis products become more mainstream and have greater acceptance, it is likely that larger and more established
companies, with greater available resources including name recognition and national distribution networks, will enter the field.
However, the Company believes that there are many barriers to entry and that to duplicate its licenses, know how, and facilities
would take years at a great expense. At the same time, the Company believes the emerging cannabis industry is growing at such
a pace that there are more opportunities available than current cannabis businesses can support. The Company is developing
marketing and software systems to expand branding and distribution, as well as database marketing, home delivery, and business
tactics developed by more conventional industries that will be important to the cannabis industry as it becomes more mainstream.
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Intellectual
Property
The
Company’s Kalm Fusion® and Betty’s Eddies® branded product lines are trademarked. The company has filed for
trademark protection for its Nature’s Heritage™ and Kiss my RSO™ product lines.
The
Company’s proprietary processing, and manufacturing techniques and technologies, while not patented, are kept strictly confidential.
The Company enters into and enforces confidentiality agreements with key employees and consultants to protect its IP and general
know-how.
Employees
As
of December 31, 2020, the Company had a total of 233 employees, of which 181 were full-time. In addition, the Company utilized
a variety of supporting consultants and oversaw many employees of its cannabis-licensee clients to implement its policies and
procedures.
Website
Access to Company Reports
The
Company’s annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and all amendments to
those reports are available free of charge on the Company’s website at www.marimedinc.com as soon as reasonably practicable
after such material is electronically filed with, or furnished to, the Securities and Exchange Commission.
In
addition, copies of the Company’s annual report will be made available, free of charge, on written request.