MARIMED INC. 10-K

Item 1. Business Company Overview We are a multi-state cannabis operator in the United States, headquartered in Norwood, Massachusetts, dedicated to improving lives every day through our high-quality products, our actions, and our values. We develop, own, and manage seed to sale state-licensed, state-of-the-art, regulatory-compliant facilities for the cultivation, production, and dispensing of medicinal and adult-use cannabis. We have created and continue to develop our own brands of premium cannabis flower, concentrates, edibles, and other precision-dosed products utilizing our proprietary strains and formulations. We also license our proprietary brands, along with other top cannabis products, in domestic markets. Our common stock trades on both the OTCQX and the Canadian Securities Exchange under the ticker symbol MRMD. Company History In 2014, we entered the cannabis industry as an advisory and real estate management firm that procured state-issued cannabis licenses on behalf of our clients, developed cannabis facilities that we leased to these newly licensed companies, and provided industry-leading expertise and oversight in all aspects of their cannabis operations. In 2018, we made the strategic decision to transition from an advisory business to a direct owner and operator of cannabis licenses in high-growth states. Key to this transition was the acquisition and consolidation of our clients for whom we had played a key role in their success, including securing their cannabis licenses, developing facilities that are models of excellence, funding their operations, and providing operational and corporate guidance. We have successfully acquired and integrated certain client businesses in several states and believe that our prior experience in managing these businesses has provided us with the skills and expertise required to manage the continuing growth of these operations. Throughout our history, we have created our own brands of craft-quality cannabis flower, concentrates, edibles, and other precision-dosed products, which have been award winners and top sellers in multiple states. Applying proprietary cultivation and processing procedures and following the strictest quality standards, our portfolio of brands was developed to fill gaps in the marketplace and meet specific effects desired by today’s cannabis consumer. We invest in ongoing research and development and intend to continue to introduce new and innovative products in the future. Today, we operate state-of-the-art, regulatory compliant cannabis cultivation and processing facilities that grow and manufacture our proprietary, high quality, branded cannabis consumer products. We distribute our products via the wholesale market to hundreds of dispensaries operated by other cannabis license holders. We also operate our own dispensaries, which are recognized for their excellent customer service and product selection. Revenue is generated at these dispensaries through the sales of our own products and those marketed by other cannabis license holders. We utilize dedicated sales teams to sell our products to wholesale buyers representing the dispensaries operated by other cannabis license holders. Customers at our own dispensaries purchase cannabis for, among other reasons, the relief of pain and stress, to promote better sleep, and to address other health and wellness needs. We deploy a variety of marketing strategies to drive the sales of our products, including customer loyalty programs, digital advertising, in-store displays and public relations. We generate additional revenue from licensing, management fees, and real estate income. This revenue accounted for approximately 3% and 6% of our total revenue in the years ended December 31, 2023 and 2022, respectively. This revenue has declined in recent years as we have acquired and consolidated the client businesses that had previously paid us licensing, management, and facility rental fees. Our Strategic Growth Plan We continue to focus on executing our strategic growth plan, with priority on activities that include the following: • completing the acquisition and consolidation of the client cannabis businesses the Company developed, managed, and advised prior to becoming a seed to sale multi-state operator. There is one remaining client business that MariMed continues to manage and intends to acquire, Delaware operator First State Compassion Center 2 Table of Contents ("FSCC"). Delaware's current cannabis regulations prevent such an acquisition. • increasing revenue organically in states where we currently do business by developing additional assets and increasing our product distribution within those states; • expanding our footprint into high-growth legal cannabis states through new license applications and/or acquisitions of existing cannabis businesses; and • increasing product brand revenue by introducing new, innovative products that consumers want, expanding our award-winning brands to include new effects or to fill additional need-state opportunities, and by identifying qualified licensing partners that will expand our distribution into new markets. In November 2023 we announced the closing of a $58.7 million secured credit facility with a United States chartered bank at a lower rate relative to both our previous outstanding debt with Chicago Atlantic Admin, LLC (“Chicago Atlantic”) and recent transactions announced by other cannabis companies. This debt refinancing enabled us to pay off our term loan with Chicago Atlantic, pay off the mortgage on our New Bedford and Middleborough, Massachusetts facilities with Bank of New England, and reduce the principal outstanding on the note we issued to the sellers in connection with our acquisition of the operating assets of Ermont, Inc. Our new credit facility has allowed us to unencumber our operating assets in Illinois, Ohio, and Delaware, as well as our branded products, providing additional levers for future loans at attractive rates if we choose to increase our borrowings. Additionally, the credit facility bolsters our ability to continue to execute our strategic plan, particularly as it relates to growing the Company through mergers and acquisitions. Our Competitive Strengths We believe that our strengths in the following areas provide us with certain competitive advantages and the tools necessary to successfully implement our strategic plans: Experienced Management Our management is one of the most experienced and longest tenured in the cannabis industry. Several of our executive team members, including our President and Chief Executive Officer, our Chief Operating Officer, and our Chief Revenue Officer, have each worked in the industry for a decade or more. Our leadership team has achieved considerable success creating and growing businesses in the industry by successfully applying for cannabis licenses, overseeing the development of cannabis operations and facilities, raising capital to purchase and develop facilities, and conducting operations in adherence with regulations established by individual state governments, including all environmental and social governance requirements. The strength of our executive team is further enhanced by other members who have significant senior management experience and expertise working in the beer and alcohol, retail, consumer products, and marketing industries. Craft Cannabis at Scale We own an expansive library of world-class genetics and utilize a hands-on “craft cultivation” approach, blended with the latest technologies, to grow high-quality cannabis flower and create premium infused cannabis products. Every one of our plants is individually cared for by our trained staff and grown in dedicated rooms featuring customized HVAC, lighting, and nutrients that are designed for growing particular flower strains consistently. At a time when price compression in many cannabis markets has become a challenge for licensed operators, our proprietary approach to cultivation, curing, and processing has enabled us to continue to sell our products at higher price points than most wholesale competitors. Exceptional Retail Customer Service We believe today’s cannabis consumer seeks a shopping experience that is comfortable, educational, and easy. Our dispensaries are models of excellence in this regard. We carefully curate a menu of the highest quality brands and products, and merchandise them in beautifully designed, upscale environments. We invest in budtender and retail personnel training, as well as product programming displayed on in-store monitors to help deliver exceptional customer service throughout the shopping experience. In Massachusetts and Delaware, we complement our in-store operations with a home delivery option. We intend to do the same in other markets once permitted by state regulations. 3 Table of Contents Technological and Scientific Innovation We are diligent in identifying and reviewing the latest science and processes applicable to the cultivation, distillation, production, packaging, securing, and distribution of cannabis and cannabis-infused products. We have obtained the highest quality cannabis strains and genetics to use in both our existing products and our new product development. We utilize proven consumer products goods (“CPG”) research and development methodologies and proprietary processing techniques to create innovative products that fill gaps in the marketplace and ensure consistency from market to market. Portfolio of Proprietary, Premium Brands We have developed unique premium brands of precision-dosed cannabis-infused products, which are currently distributed in cannabis-legal states. Our products are available in the most popular consumption formats, including whole flower, pre-rolled flower, vape cartridges, concentrates, and edibles. We intend to continue expanding our brand portfolio to meet the effects that today’s cannabis consumers seek. Our portfolio includes several award-winning brands that are among the top sellers in markets where they are available. They include: • Nature’s Heritage™ , a premium brand of cannabis flower and concentrates; • Betty’s Eddies™ , cannabis-, supplement-, and nutrient-infused fruit chews that deliver better sleep, pain relief, stress relief, and more. The Betty’s Eddies line also includes a limited collection of cannabis infused ice creams created in partnership with ice cream brand Emack & Bolio’s®; • Bubby’s Baked™ , soft and chewy baked goods and a hot chocolate mix; • Vibations™ , a cannabis-infused hydrating drink mix for discrete, on-the-go consumption; • Kalm Fusion™ and K Fusion™ , chewable cannabis-infused mint tablets; and • InHouse™ , a value-priced brand of flower, vapes, and edibles. Current and Pending Operations During the past several years, we have invested in our own operating facilities, applied for and secured new licenses, and acquired new assets to strengthen and expand our brand portfolio and our retail and wholesale networks. We currently hold a total of 23 cannabis licenses in six states. We believe our investment and expansion initiatives will enable us to capture additional market share and provide us with a stronger presence in the states where we conduct business. We believe that operating as a fully vertical, seed to sale cannabis company provides us the greatest opportunity to maximize revenue and profits in each state where we operate. To date, we are fully vertical through businesses we either own or manage in Illinois, Maryland, Massachusetts, and Delaware. Our current and pending operations are as follows: Massachusetts Massachusetts operates both adult-use and medical cannabis programs. According to the Massachusetts Cannabis Control Commission (the "CCC"), the state’s cannabis market was expected to total nearly $1.8 billion in sales in 2023, a number that is expected to increase to $2.6 billion by 2025 (source: MJ Biz Factbook). We operate three Panacea Wellness- branded dispensaries in the Boston area: • a dispensary in Middleborough that is licensed for both medical and adult-use cannabis sales ; • an adult-use dispensary in Beverly that opened in 2023; and • a medical dispensary in Quincy, for which we have applied to also conduct adult-use cannabis sales. 4 Table of Contents The Quincy dispensary was the result of the March 2023 acquisition of the operating assets of vertical cannabis operator Ermont, Inc. ("Ermont"). The acquisition and subsequent re-branding of the dispensary substantially completed our expansion to the maximum allowable by state regulations. Our three retail stores are easily accessible to all cannabis consumers in eastern Massachusetts. We increased access further by introducing home delivery as the result of our April 2023 investment in Artis LLC (d/b/a Little Dog Delivery). We also operate a 70,000 square foot cultivation and production facility in New Bedford, as well as an approximately 6,700 square foot grow facility in Quincy. We intend to expand the facility in New Bedford to increase our production capacity to meet the high demand for our products. Our Nature’s Heritage flower and concentrates brand, for example, is among the top selling brands in the state, and we regularly sell out of our available inventory. Illinois Illinois operates both adult-use and medical cannabis programs. According to the Illinois Department of Financial and Professional Regulation, the state reported $1.9 billion in total legal cannabis sales in 2023. With a population of nearly 13 million, Illinois is one of the largest, fastest-growing cannabis markets in the United States. We operate five Thrive -branded dispensaries in the state, including an adult-use dispensary in Metropolis, near the Kentucky border, an adult-use dispensary in Casey, near the Indiana border, and an adult-use dispensary in Mt. Vernon. We also operate dispensaries in Anna and Harrisburg that each serve both medical and adult-use customers. These five locations provide easy access for most residents in southern Illinois and surrounding states, including Missouri, Kentucky, Indiana and Tennessee. In December 2023, we completed construction of and received regulatory approval to commence operations of our processing facility in Mt. Vernon. We expect to receive final approval for cultivation in the Mt. Vernon facility in mid-2024, at which time our Illinois operations will be fully vertical. The facility is housed in a building that we acquired following the 2022 acquisition of a craft cultivation wholesale license. We began selling certain of our award-winning branded edibles products and InHouse vape products in our own dispensaries and in certain other dispensaries in the state during the final weeks of 2023. We expect to significantly increase distribution of our core products throughout the state in 2024, including our Nature’s Heritage flower and concentrates brand. Maryland Maryland’s successful medical cannabis program expanded to include adult-use sales on July 1, 2023. According to the Maryland Cannabis Administration, the state reported $787 million in medical and adult-use cannabis sales in 2023, positioning it among the top legal cannabis markets in the United States. Following our acquisition of our client, Kind Therapeutics USA Inc. (“Kind”) in April 2022, we became fully vertical in Maryland. We operate a 180,000-square foot cultivation and processing facility in Hagerstown which produces and distributes all of our premium branded cannabis flower, concentrates, vapes, and edibles. In 2023 we began an expansion of the facility to increase our cultivation capacity by nearly 17,000 square feet to meet the increased demand for all of our products. We also operate a Thrive -branded medical and adult-use dispensary in Annapolis, which commenced operations in October 2022. Delaware Delaware’s medical cannabis program has approximately 17,000 registered patients, according to the Delaware Department of Health and Social Services 2023 annual report. It became the 22 nd state to legalize recreational cannabis in 2023 and adult-use sales are expected to commence in late 2024. We provide comprehensive management and real estate services to First State Compassion Center (“FSCC”), our longstanding client in Delaware. We were instrumental in helping FSCC obtain Delaware’s first-ever seed to sale medical cannabis license in 2014. Today, FSCC operates under two of only eleven cannabis licenses in the state. 5 Table of Contents We developed and currently lease to FSCC a number of facilities in the state, including: • a cultivation facility, production kitchen, and dispensary in Wilmington; • a cultivation facility in Milford; and • a dispensary in Lewes. FSCC licenses and distributes a selection of our top selling edibles brands in the state. Missouri Missouri operates a successful medical cannabis program, which expanded to include adult-use sales in February 2023 following a November 2022 ballot referendum. According to the Missouri Department of Health and Senior Services, $1.3 billion worth of legal cannabis was sold in Missouri in 2023. As the result of a management contract that we announced in September 2022, we expect to distribute our award-winning portfolio of cannabis-infused edibles in Missouri beginning in 2024. We plan to produce our branded products at a recently constructed production kitchen that we will own and operate. We have entered into an agreement to obtain all requisite approvals from the State of Missouri, which we expect to occur in 2024. Ohio Ohio operates a successful medical cannabis program. In November 2023, Ohio citizens approved a measure to legalize adult-use cannabis sales, which are anticipated to begin in 2024. BDSA, a leading provider of market intelligence for the cannabis industry, estimates that total cannabis sales in Ohio will reach $802 million in 2025. We expect that our Thrive -branded medical cannabis dispensary in Tiffin, which we opened in 2023, will achieve expanded sales from the new adult-use program. Recent Developments We have had several recent developments since December 31, 2023 that we believe are critical to the implementation of our strategic growth plan: • On February 26, 2024, we received our Certificate of Occupancy from the Illinois Cannabis Control Commission to commence operations in our permanent brick-and-mortar facility for our Casey, Illinois adult-use dispensary. We anticipate transition from our temporary facility at the same location and commencing operations in the new facility during the first quarter of 2024. • On February 1, 2024, we entered into an agreement to acquire the medical cannabis retail license and certain assets of Our Community Wellness & Compassionate Care Center, Inc. ("Medleaf") in Prince George's County, Maryland in exchange for $5.25 million, adjusted for certain items. The purchase consideration is comprised of $2.0 million of cash in the aggregate, a $2.0 million note to be issued to the sellers of Medleaf (the "Medleaf Sellers") at the time of closing, and shares of our common stock with a fair value of $1.25 million based on a formulaic calculation, to be issued at the time of closing. As of the date of this report, we have made advance payments to the Medleaf Sellers totaling $0.5 million. Completion of the acquisition is dependent upon certain conditions, including regulatory approval of the acquisition. We expect this acquisition to be completed in 2024; however, there is no assurance that the required regulatory approvals will be obtained. Competition In the markets where we currently operate, we compete against other fully vertical multi-state operators (“MSOs”). We believe that our experience in building our business organically from the ground up is a key factor that differentiates us from the majority of other MSOs. We successfully developed and managed our clients' businesses, which we subsequently acquired and consolidated, created our own brands and branded products, and have retained our core management team since inception. While other MSOs have raised significantly more capital, they have generally acquired licensed businesses from sellers with whom they had no prior direct operating relationship. We believe our approach is 6 Table of Contents significantly more cost-efficient, carries less risks, and results in a more seamless integration of processes, personnel, operating philosophies, and culture. In addition to MSOs, we face competition from companies of varying sizes and geographic reach. Some, called Single State Operators, are fully vertical in just one state, others focus solely on producing and selling similar products and others solely operate dispensaries and sell the goods of other businesses. Some of our competitors that create and sell their own products have offerings that are on par with those we offer. We believe that by utilizing our own best practices and operational expertise, we are able to produce premium cannabis products at one of the lowest cost structures in the industry, which enables us to remain competitive in our markets. However, our sales could decline significantly if our competitors develop and market products that are more effective, more convenient, or less expensive than our products. As cannabis products become more mainstream and gain 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 market. However, we believe that there are many barriers to entry, and to duplicate our licenses, knowledge, and facilities would be costly and time-consuming. We have upgraded our marketing efforts to expand branding and distribution, as well as implemented home delivery, where permissible, and other business strategies developed by more conventional industries. As a result, we have successfully increased both the number of retail transactions and the average amount of sales underlying those transactions. We have also developed a loyal customer base at our retail locations and improved product visibility and sales of our proprietary portfolio of cannabis products. Intellectual Property We own registered trademarks for Betty’s Eddies and Nature’s Heritage and are pursuing registration of the Bubby’s Baked, InHouse, K Fusion, Kalm Fusion, and Vibations trademarks with the United States Patent and Trademark Office. Our proprietary processing and manufacturing techniques and technologies, while not patented, are kept strictly confidential. We enter into and enforce confidentiality agreements with key employees and consultants to protect our intellectual property, trade secrets, and general know-how. Our Employees At December 31, 2023, we had a total of 721 employees, of which 643 were full-time, plus an additional 99 employees, primarily full-time, who are employed by our managed cannabis-licensed client. Website Access to Company Reports Our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Definitive Proxy Statements, 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 SEC, or as filed with the Canadian securities regulatory authorities on the SEDAR website. In addition, copies of our annual report will be made available, free of charge, on written request.