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.
Over
the last few years, the Company made the strategic
decision to transition from a consulting business to a direct owner and operator of cannabis licenses in high-growth states. Core to
this transition is the acquisition and consolidation of the Company’s clients (the “Consolidation Plan”). Among several
benefits, the Consolidation Plan would 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 funding their operations, and to providing operational and corporate guidance. Accordingly,
the Company believes it is well suited to own these businesses and manage the continuing growth of their operations.
To date, the acquisition and consolidation of the
Company’s client businesses in Massachusetts and Illinois have been completed. The acquisition of a client business in Maryland
has been contracted, and the Company is awaiting approval by the Maryland Cannabis Control Commission, which is pending. Upon
approval, this entity will be consolidated. The acquisitions of the remaining businesses located in Nevada and Delaware are
at various stages of completion and subject to each state’s laws governing the ownership transfer of cannabis licenses and other
closing conditions. Delaware will require a modification of current cannabis ownership laws to permit for-profit ownership,
which is expected to occur when the state legalizes recreational adult-use cannabis. Until the law changes and the acquisition
is approved, the Company continues to generate revenue from rental income, management fees, and licensing royalties.
The transition to a fully integrated muti-state cannabis
operator (“MSO”) is part of a strategic growth plan (the “Strategic Growth Plan”) the Company is implementing
to drive its revenues and profitability. The Strategic Growth Plan has four components: (i) complete the Consolidation Plan, (ii) increase
revenues in existing states, by spending capital to increase the Company’s cultivation and production capacity, and develop additional
assets within those states, (iii) expand the Company’s footprint in additional legal cannabis states through new applications and
acquisitions of existing cannabis businesses, and (iv) optimize the Company’s brand portfolio and licensing revenue by expanding
into additional states with legal cannabis programs.
The Company has 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 quality 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 product recipes.
The Company markets its high-quality cannabis
flowers and concentrates under the award-winning 1 Nature’s Heritage brand; cannabis-infused chewable tables and
powder drink mixes under the brand names Kalm Fusion and K Fusion; all natural fruit chews under the award-winning 1 Betty’s
Eddies brand; and brownies, cookies, and other social sweets under the Bubby’s Baked brand. The Company’s cannabis-infused
brands have been top-selling products in Maryland and Massachusetts. 2 The Company intends to introduce additional product lines under these brands in the foreseeable future.
The Company also has strategic alliances with
prominent brands. The Company has partnered with renowned ice cream maker Emack & Bolio’s® to create a line-up of
cannabis-infused vegan and dairy ice cream. Additionally, the Company has secured distribution rights for 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’s operations have improved significantly over the past year as reflected in the following financial highlights:
●
Revenues
increased 139% to approximately $121.5 million in 2021 from $50.9 million in 2020;
●
Adjusted
EBITDA 3 increased 144% to approximately $43.1 million in 2021 compared to $17.7 million in 2020;
●
Total
assets increased to approximately $123.2 million in 2021 from $76.4 million in 2020; and
●
Cash
and cash equivalents increased to approximately $29.7 million in 2021 from $3.0 million in 2020.
1 Awards
won by the Company’s Betty’s Eddies brand include LeafLink 2021 Best Selling Medical Product, Reddit Sparkie 2021 Best
Edible, Respect My Region 2021 Hottest Edible, LeafLink 2020 Industry Innovator, and Explore Maryland Cannabis 2020 Edible
of the Year. Awards won by the Company’s Nature’s Heritage brand include the Cultivators Cup 2021 Silver Medal and the
High Times Cannabis Cup 2021 Bronze Medal.
2
Source: LeafLink Insights 2020.
3
Adjusted 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 intends to assemble a Scientific Advisory Board (the “SAB”) that will
include knowledgeable medical practitioners 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.
( 3 )
Consolidation
Plan
The Company’s Consolidation Plan
consists of the strategic decision to acquire and consolidate client cannabis businesses it developed, and in some instances managed
and advised, in Massachusetts, Illinois, Maryland, Nevada, and Delaware. When completed, the businesses that are acquired and
consolidated will be reported in the Company’s financial statements. 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 operates (i) a 10,000 square foot dispensary, developed within its 22,700 square foot property in Middleboro that
received approval from the MCCC to commence operations in December 2019, and (ii) a 70,000 square foot cultivation and production
facility, developed within its 138,000 square foot property in New Bedford that received approval from the MCCC to commence operations
in January 2020. The Company intends to expand the cultivation and production facility throughout the balance of the property in 2023.
The Company entered
into an agreement to acquire a second dispensary in Beverly in early 2022, and expects to complete the buildout and commence operations,
subject to approval by the MCCC, by the summer of 2022.
Illinois
In October 2019, the Illinois Department of Financial
& Professional Regulation 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 cannabis 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. A third recreational dispensary was opened in this state in Mt. Vernon in September
2020, and a fourth recreational dispensary was opened in Metropolis in May 2021.
Maryland
In 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.
In 2018, 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. Also at that time, the parties entered
into a management services agreement for the Company to provide Kind with comprehensive management services in connection with
the business and operations of Kind, and a 20-year lease agreement for Kind’s utilization of the Company’s
Hagerstown facility. Additionally, in 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 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.
In
December 2021, the Company entered into a membership interest purchase agreement with the members of Kind to acquire 100% of the equity
ownership of Kind in exchange for $13,500,000 payable in cash (subject to adjustment) and $6,500,000 payable by the issuance of four-year
6.0% promissory notes to the members of Kind. The notes shall be secured by a first priority lien on the Company’s property in
Hagerstown, MD. Upon execution of the membership interest purchase agreement, the Company deposited, in escrow, the sum of $5,000,000
as a contract down-payment.
Simultaneously,
the Company entered into a membership interest purchase agreement with one of the members of Kind to acquire such member’s
entire equity ownership interest in (i) Mari Holdings MD LLC (“Mari-MD”), the Company’s majority owned subsidiary
that owns production and retail cannabis facilities in Hagerstown, MD and Annapolis, MD, and (ii) Mia Development LLC
(“Mia”), the Company’s majority owned subsidiary that owns production and retail cannabis facilities in
Wilmington, DE. The purchase price for the interests in Mari-MD and Mia is $2,000,000 in the aggregate, payable in cash. Giving
effect to the purchase of these interests, the Company will own approximately 99.7% and 94.3%, respectively, of Mari-MD and
Mia.
The
closings under the foregoing agreements are subject to the fulfilment of closing conditions including, but not limited to, approval by
the MMCC, which is pending. There is no assurance that the approval of the MMCC will be obtained or that the further closing conditions will be met. Simultaneous
with the closing of the transactions contemplated by the foregoing agreements, the aforementioned litigation between the parties will
be dismissed. For further information, see Part I, Item 3. Legal Proceedings in this report.
Nevada
In
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. Harvest holds both medical and adult-use cannabis cultivation licenses, and
operates in a 10,000 square foot cannabis cultivation facility developed with the Company. Upon the approval of the transaction by
the state authority, and the fulfillment of other closing conditions, the ownership of Harvest will be transferred to the Company,
and the operations of Harvest will begin to be consolidated into the Company’s financial statements. There
is no assurance that the closing conditions to the Company’s acquisition of
Harvest, including approval by the state authority, will be achieved or that the acquisition will be
consummated
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 six 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 when the state legalizes recreational adult-use
cannabis, 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. Previous discussions held by
the Company to potentially acquire a licensed cannabis asset are currently suspended.
( 4 )
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
June 2019, the Company acquired a 70% ownership interest 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 September 2021, the Company acquired the remaining 30% ownership
interest of MediTaurus.
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
cannabis dispensary that the Company expects to be completed by June 2022.
I n
October 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 a
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 developed into a cannabis production facility with offices, and subleases to its cannabis-licensed client in
this state.
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 is being
used to upgrade certain of the Company’s owned and managed facilities. A portion of the balance of the facility is available
to fund the Kind acquisition, provided such acquisition is consummated, including obtaining the necessary regulatory approvals, no later
than the end of 2022.
In May 2021, the Company opened its fourth adult-use
dispensary in Illinois in the city of Metropolis. The Company had been renting this 14,000 square foot premises since January 2021, which
it developed into a state-approved cannabis dispensary in early 2021. In July 2021 the Company purchased the premises.
In August 2021, the Company entered into a manufacturing
and royalty agreement with renown ice cream brand Emack & Bolio’s® whereby the companies will collaborate to create a line-up
of cannabis-infused vegan and dairy ice cream containing the Company’s full spectrum of natural cannabinoids and terpenes. This
new category of cannabis products is expected to debut in Massachusetts during 2022, followed by launches in other cannabis-legal markets.
In November 2021, in order to quality for
applying to a cannabis dispensary license lottery in Ohio, the Company entered into short-term lease agreements for six retail
properties in this state, each property between 4,000 and 6,000 square feet and with a lease term of eleven months. Should the
Company be awarded one or more cannabis licenses, it can extend the term of one or more of the lease agreements to ten years (with
options to further extend), and develop the premises of such extended leases into cannabis dispensaries. In early 2022, the Company
was notified that it was awarded a license, and is awaiting the final verification process to be completed by the
state.
In
November 2021, the Company entered into an asset purchase agreement to acquire the cannabis license, property lease, and other assets
and rights of, and to assume the liabilities and operating obligations associated with a cannabis dispensary that is currently operating
in Beverly, MA. The purchase is contingent upon the approval of the Massachusetts Cannabis Control Commission, which is expected by the
summer of 2022. Concurrent with the execution of this agreement, the parties entered into a consulting agreement pursuant to which the
Company shall provide certain oversight services related to the development, staffing, and operation of the business in exchange for
a monthly fee.
In
December 2021, the Company entered into a membership interest purchase agreement to acquire 100% of the equity ownership of Kind, the
Company’s cannabis-licensed client that holds licenses for the cultivation, production and dispensing of medical cannabis in Maryland.
The Company is currently waiting for approval of this acquisition from the MMCC, which is pending. Upon approval, the acquisition of
Kind will be consummated, Kind’s financial results will begin to be consolidated into the Company’s financial statements,
and the pending litigation between the parties will be dismissed.
Simultaneous with the Kind membership
interest purchase agreement, the Company entered into an agreement to acquire a former owner of Kind’s equity ownership
interests in (i) Mari Holdings MD LLC (“Mari-MD”), the Company’s majority owned subsidiary that owns production
and retail cannabis facilities in Hagerstown, MD and Annapolis, MD, and (ii) Mia Development LLC (“Mia”), the
Company’s majority owned subsidiary that owns production and retail cannabis facilities in Wilmington, DE. The acquisition of these interests will be consummated simultaneous with
the closing of the Kind acquisition. Giving effect to
the purchase of these interests, the Company will own approximately 99.7% and 94.3%, respectively, of Mari-MD and Mia.
Recent
Developments
In January 2022, the Company entered into a
stock purchase agreement to acquire 100% of the ownership interests of Green Growth Group Inc., an entity that has been awarded a
craft grow cannabis license issued by the Illinois Department of Agriculture (“IDA”) for cultivation, production, and
transporting of cannabis and cannabis-infused products in Illinois. The purchase price of $3,400,000 shall be comprised of
$1,900,000 in cash and shares of the Company’s common stock valued at $1,500,000. The acquisition is conditioned upon the
approval by the IDA, among other closing conditions, which is expected to occur by July 2022.
Also in January
2022, the Company entered into an agreement to purchase a 30-acre parcel of land located in Mt. Vernon, IL containing a 33,000
square foot manufacturing facility and a 13,000 square foot storage warehouse, in exchange for $1,495,000 in cash. Upon execution of
the agreement, the Company provided a deposit of $100,000 to the seller. The transaction is expected to close in the second quarter
of 2022, after the Company has performed a complete inspection and feasibility review. If such review determines that the premises
will not satisfy the Company’s requirements, the Company shall have the right to terminate the agreement with no other
obligation other than the loss of the deposit.
In
February 2022, the Company was notified that it was awarded a cannabis dispensary license from the state of Ohio, and is awaiting the final verification process to be completed by the state.
( 5 )
Competition
The
Company’s goal is to become a fully integrated MSO of seed-to-sale cannabis operations. The Company is different than some of the
other MSOs in that it has organically developed 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 the 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 cost structures
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 upgrading its marketing efforts 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.
( 6 )
Intellectual
Property
The Company owns registered trademarks for Betty’s
Eddies, Kalm Fusion, and Nature’s Heritage, and has filed to register the Bubby’s Baked and Vibations trademarks.
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, 2021, the Company had a total of 326 employees, of which 260 were full-time.
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.