What changed in this filing

/stocks — the workspaceLOADING

Item 9A. Controls and Procedures

2023-03-23 compared with 2022-03-28 · 937 added, 820 removed, 929 unchanged (65% of the section changed)

1 unchanged sentence

Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports under the Securities Exchange Act of 1934, as amended (the “ Exchange Act ”), is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to management, including our co-CEOs and Chief Financial Officer (CFO), as appropriate, to allow timely decisions regarding required disclosure.

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports under the Securities Exchange Act of 1934, as amended (the “

Exchange Act ”), is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to management, including our co-CEOs and Chief Financial Officer (CFO), as appropriate, to allow timely decisions regarding required disclosure.

In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, as ours are designed to do, and management necessarily was required to apply its judgment in evaluating the risk related to controls and procedures.

1 unchanged sentence

Based on that evaluation, our management concluded that our disclosure controls and procedures were effective at a reasonable assurance level as of December 31, 2022.

Management’s Report on Internal Control Over Financial Reporting

This Annual Report on Form 10-K does not include a report of management’s assessment regarding internal control over financial reporting or an attestation report of our independent registered public accounting firm due to a transition period established by rules of the SEC for newly public companies.

In addition, as an emerging growth company, as defined under the terms of the JOBS Act of 2012, our independent registered accounting firm is not required to issue a report on the internal control over financial reporting.

Management ’

s Report on Internal Control Over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act).

Our internal control over financial reporting is a process designed under the supervision of our co-CEOs and CFO to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external reporting purposes in accordance with U.S.

Our internal control over financial reporting includes policies and procedures that pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets;

provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with U.S.

GAAP, and that receipts and expenditures are being made only in accordance with authorizations of our management and directors;

and provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on our financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.

In addition, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions or that the degree of compliance with the policies or procedures may deteriorate.

Management conducted an assessment of the effectiveness of our internal control over financial reporting as of December 31, 2022, based on the framework established in Internal Control –

Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013.

Based on the assessment, management has determined that our internal control over financial reporting as of December 31, 2022, was effective.

In accordance with guidance issued by the SEC, companies are permitted to exclude acquisitions from their final assessment of internal control over financial reporting for the first fiscal year in which the acquisition occurred.

Our management, with the participation of our co-CEOs and CFO, has limited the evaluation of our internal controls over financial reporting to exclude controls, policies and procedures and internal controls over financial reporting of the operations of Next Green Wave Holdings Inc.

which we acquired on March 2, 2022.

The operations of Next Green Wave Holdings Inc.

represent approximately 9.4% of our total assets and 8.7% of our gross revenues for the year ended December 31, 2022.

Independent Registered Accounting Firm's 

Report on Internal Control Over Financial Reporting

As an emerging growth company, as defined under the terms of the JOBS Act of 2012, our independent registered accounting firm is not required to issue a report on the internal control over financial reporting.

Changes in Internal Control Over Financial Reporting

There was no change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) identified in connection with the evaluation of our internal control performed during the last fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Other Information.

2 unchanged sentences

Directors, Executive Officers and Corporate Governance.

The articles of the Company (the “ Articles ”) provide that the number of directors should not be fewer than three directors.

The articles of the Company (the “

Articles ”) provide that the number of directors should not be fewer than three directors.

Each director shall hold office until the close of our next annual general meeting, or until his or her successor is duly elected or appointed, unless his or her office is earlier vacated.

6 unchanged sentences

Michael Harman

Adrienne O’Neal

Chief Financial Officer

12 unchanged sentences

Groesbeck served as Co-President of MMDC, a subsidiary of the Company, from 2014 to June 2018.

Groesbeck also serves as General Counsel and Advisor to C&S Waste Solutions, a provider of comprehensive solid waste and recycling services, since 2013.

He has practiced law for over 25 years and has also served as the mayor of the City of Henderson, Nevada from 1993 to 1997.

Groesbeck served as General Counsel to Republic Services, a provider of comprehensive solid waste and recycling services, for its Nevada operations and was their western regional counsel from 1993 to 2001, and provided outside legal consulting to Republic Services from 2001 to 2008.

He also served as General Counsel to C&S Waste Solutions, a privately operated Nevada and California waste disposal company, from 2010 through 2015, and provided outside legal consulting to C&S Waste Solutions from 2008 through 2010, and 2015 through May 2018. He has practiced law for over 25 years and has also served as the mayor of the City of Henderson, Nevada from 1993 to 1997.

Groesbeck earned his B.S.

3 unchanged sentences

We believe that Mr.

Groesbeck’s experience as a long-time entrepreneur, starting and/or assisting in the creation of a number of businesses, qualifies him to serve on the Board.

Larry Scheffler has served as Co-CEO and a director of the Company since June 2018.

1 unchanged sentence

Scheffler served as Co-President of MMDC, a subsidiary of the Company, from 2014 to June 2018.

He is also the Chairman and Founder of Las Vegas Color Graphics, Inc., a privately owned commercial printing company, where he has served since 1978.

Scheffler has also served as a councilman for the city of Henderson, Nevada from 1990 to 1995.

He was also the Chairman and Founder of Las Vegas Color Graphics, Inc., a privately owned commercial printing company, where he served from 1978 through 2022.

Scheffler also served as a councilman for the city of Henderson, Nevada from 1990 to 1995.

Scheffler has also served as a commissioner on six major commissions in Southern Nevada government and has an extensive background in real estate.

1 unchanged sentence

We believe that Mr.

Scheffler’s broad management experience and past success with guiding the growth of the Company qualifies him to serve on the Board.

Michael Harman, CPA , has been a director of the Company since June 2018.

5 unchanged sentences

Harman is qualified to serve on the Board due to his extensive accounting experience and his familiarity in working with management of a variety of companies in his role as a CPA.

Adrienne O’Neal has been a director of the Company since June 2019.

Adrienne O ’

Neal has been a director of the Company since June 2019.

She has been the owner of Las Vegas Counselor LLC since 2004, where she provides marriage and family therapy services, and she is also the co-owner of Red Rock Counseling, a private practice agency which includes licensed therapists and training for pre-licensed graduate students since December 2018.

Prior to 2004, Ms.

O’Neal was an Account Manager at R&R Partners, an advertising, marketing, public relations, and public affairs firm, for 13 years between 1984 to 2004.

From June 2017 to February 2021, Ms.

O’Neal was appointed by former State of Nevada Governor Brian Sandoval and served on the Nevada State Board of Marriage & Family Therapy and Clinical Professional Counselors.

O’Neal has also served as a part-time instructor at the University of Nevada, Las Vegas School of Medicine’s Marriage and Family Therapy Graduate Program, where she has served since January 2017.

O’Neal has passed the Series 7 exam, which measures the degree to which a candidate possesses the knowledge needed to perform the critical functions of a general securities representative, including sales of corporate securities, municipal securities, investment company securities, variable annuities, direct participation programs, options and government securities, administered by the Financial Industry Regulatory Authority.

O’Neal was appointed by former State of Nevada Governor Brian Sandoval and served on the Nevada State Board of Marriage & Family Therapy and Clinical Professional Counselors.

O’Neal has also served as a part-time instructor at the University of Nevada, Las Vegas School of Medicine’s Marriage and Family Therapy Graduate Program, where she has served since January 2017.

She holds a B.S.

in Marketing and a M.S.

in Marriage and Family Therapy degree from the University of Nevada.

in Marketing and an M.S.

in Marriage and Family Therapy from the University of Nevada, Las Vegas.

We believe that Ms.

O’Neal’s expertise in securities matters and her background in a variety of types of business qualifies her to serve on the Board.

Dennis Logan has served as Chief Financial Officer of the Company since June 2018.

3 unchanged sentences

Previously, Mr.

Logan was the Chief Financial Officer, Director and Corporate Secretary of Almonty Industries Inc., a publicly traded tungsten mining and processing company (TSX-V:

Logan was the Chief Financial Officer, Director and Corporate Secretary of Almonty Industries Inc., a tungsten mining and processing company (TSX-V:

AII), from September 2011 until March 2017.

11 unchanged sentences

Prior to joining the Company, Mr.

Koehler successfully represented his Fortune 500 company clients and other clients before federal, state, and local regulators, and served as Nevada counsel for the Company’s reverse take- over transaction.

Chris Wren has been the Vice President Operations of the Company since March 2014 and is responsible for the oversight of all production and cultivation operations.

He possesses more than 16 years of cannabis industry cultivation and extraction experience.

Wren also managed the construction of the Company’s dispensary, the Clark County cultivation facility and the Beatty complex, as well as design and implementation of the Company processes at those facilities.

Wren is an internationally recognized cannabis horticulturist and has won several awards for his cultivation efforts, including first place in the 2015 International Cannagraphic Growers Cup.

William Vargas has been the Vice President Finance of the Company since June 2018.

He currently serves as Chief Financial Officer and Senior Vice President of Las Vegas Color Graphics, Inc., a privately owned commercial printing company, since July 2000.

Previously, Mr.

Vargas served as Vice President Finance, Chief Financial Officer and Corporate Secretary of LEC Technologies, Inc., a publicly-traded computer leasing company, from 1995 to 2000.

Vargas served as Chief Financial Officer and Senior Vice President of Las Vegas Color Graphics, Inc., a privately owned commercial printing company, from July 2000 to May 2022, and Vice President Finance, Chief Financial Officer and Corporate Secretary of LEC Technologies, Inc., a publicly-traded computer leasing company, from 1995 to 2000.

Vargas started his career in finance and accounting as audit manager with Arthur Andersen & Co.

David Farris has been Vice President Sales & Marketing of the Company since December 2019.

Prior to that, he was the Company’s Director of Sales and Marketing from June 2018 through December 2019, MMDC’s Director of Sales and Marketing from October 2017 through June 2018, MMDC’s General Manager from June 2017 through October 2017, and MMDC’s Marketing and Sales Coordinator from January 2016 through June 2017.

Farris has established branding and advertising initiatives in the cannabis marketplace focused on creating an unparalleled experience and patient education.

2 unchanged sentences

Farris holds a B.S.

in Business Administration - Marketing from University of Nevada.

Michael Jennings has served as President of East Coast Operations of the Company since March 2022, where he is primarily focused on the immediate utilization and growth initiatives of the Company’s MMTC license in Florida.

in Business Administration - Marketing from University of Nevada, Las Vegas.

Since 2021, Mr.

Farris is the stepson of Mr.

Groesbeck, Co-CEO and Co-Chairman.

Prior to that, Mr.

1 unchanged sentence

From August 2016 through August 2019, Mr.

Jennings managed the predecessor entities for NGW’s cultivation and processing operations and prepared that company to go public as its founder, including raising capital, branding, design and development, and overseeing operations.

Jennings oversaw retail and branding of several dispensaries and large cultivation projects in California during the California Compassionate Use Act era arising in 1996 and continuing through a more robust statutory and regulatory framework available under the California Medicinal and Adult Use Cannabis Regulation and Safety Act starting in January 2018.

Todd Hybels has served as Vice President of Midwestern Operations of the Company since March 2022.

2 unchanged sentences

Hybels was the Director of Development and Construction at NGW from October 2019 to January 2021 and a construction consultant to NGW from March 2019 to October 2019.

Hybels’ insight and initiative were integral in scaling NGW operations to a fully operational premium cultivation facility.

Hybels’

insight and initiative were integral in scaling NGW operations to a fully operational premium cultivation facility.

Prior to his time at NGW, Mr.

4 unchanged sentences

A brief description of each committee is set out below.

See also “

Director Independence .”

Audit Committee

The audit committee of the Board (the “ Audit Committee ”) assists the Board in fulfilling its responsibilities for oversight of financial, audit and accounting matters.

The Board has adopted a written charter for the Audit Committee, which sets out the Audit Committee’s responsibilities.

The audit committee of the Board (the “

Audit Committee ”) assists the Board in fulfilling its responsibilities for oversight of financial, audit and accounting matters.

The Board has adopted a written charter for the Audit Committee, which sets out the Audit Committee’s responsibilities.

The Audit Committee reviews the financial reports and other financial information provided by us to regulatory authorities and our shareholders, as well as reviews our system of internal controls regarding finance and accounting, including auditing, accounting and financial reporting processes.

The current members of the Audit Committee include the following directors:

Michael Harman (Chair), Adrienne O’Neal and Larry Scheffler.

Harman is an audit committee financial expert within the meaning of Item 407(d) of Regulation S-K under the Securities Act.

Michael Harman (Chair), Adrienne O’Neal and Larry Scheffler.

Harman is an audit committee financial expert within the meaning of Item 407(d) of Regulation S-K under the Securities Act.

Compensation Committee

The compensation committee of the Board (the “ Compensation Committee ”) assists the Board in fulfilling its responsibilities for compensation philosophy and guidelines.

The compensation committee of the Board (the “

Compensation Committee ”) assists the Board in fulfilling its responsibilities for compensation philosophy and guidelines.

The Compensation Committee also has responsibility for fixing compensation levels for our executive officers.

2 unchanged sentences

The current members of the Compensation Committee include the following directors:

Michael Harman and Adrienne O’Neal (Chair).

Corporate Governance and Nominating Committee

The corporate governance and nominating committee (the “ CG&N Committee ”) assists us in fulfilling our corporate governance responsibilities under applicable law and is responsible for reviewing and assessing the effectiveness of the Board, evaluating the Board and its directors and making policy recommendations aimed at enhancing Board effectiveness.

The corporate governance and nominating committee (the “

CG&N Committee ”) assists us in fulfilling our corporate governance responsibilities under applicable law and is responsible for reviewing and assessing the effectiveness of the Board, evaluating the Board and its directors and making policy recommendations aimed at enhancing Board effectiveness.

In addition to assisting us with the recruitment and education of new and current directors, the CG&N Committee reports to the Board to assist us in identifying and recommending individuals qualified to become members of the Board and evaluating the Board and its directors.

The current members of the CG&N Committee include the following directors:

Michael Harman and Adrienne O’Neal (Chair).

Executive Compensation.

4 unchanged sentences

The Compensation Committee, on behalf of the Board, establishes policies with respect to the compensation of our Co-CEOs, CFO and other senior executive officers.

The Compensation Committee assists the Board in discharging the Board’s oversight responsibilities relating to the attraction, compensation, evaluation and retention of key senior management employees, and in particular the Co-CEOs, with the skills and expertise needed to enable us to achieve our goals and strategies at fair and competitive compensation and appropriate performance incentives.

The Compensation Committee is responsible to review and approve corporate goals and objectives relevant to the Co-CEOs and other senior executive officers’ compensation, evaluate the performance of the Co-CEOs and each senior executive officer’s performance in light of those goals and objectives, and recommend to the Board for approval the compensation level each senior executive officer based on this evaluation.

The Compensation Committee is responsible to review and approve corporate goals and objectives relevant to the Co-CEOs and other senior executive officers’

compensation, evaluate the performance of the Co-CEOs and each senior executive officer’s performance in light of those goals and objectives, and recommend to the Board for approval the compensation level each senior executive officer based on this evaluation.

The Compensation Committee is also responsible for the review of our compensation systems in order to ensure the fairness and appropriateness of the compensation of senior executive officers that may participate, including incentive compensation plans and equity-based plans.

Named Executive Officers

For the purpose of this Annual Report on Form 10-K, a named executive officer (“ NEO ”) of the Company means each of the following individuals:

each Co-CEO of the Company;

the two most highly compensated executive officers other than the Co-CEOs who were serving as executive officers at the end of the last completed fiscal year; and

For the purpose of this Annual Report on Form 10-K, a named executive officer (“

NEO ”) of the Company means each of the following individuals:

each Co-CEO of the Company;

the two most highly compensated executive officers other than the Co-CEOs who were serving as executive officers at the end of the last completed fiscal year; and

up to two additional individuals for whom disclosure would have been provided under the above but for the fact that the individual was not serving as an executive officer at the end of the last completed fiscal year.

9 unchanged sentences

The basic components of the executive compensation program are:

Base salary is the fixed portion of each executive officer’s total compensation.

Base Salary. 

Base salary is the fixed portion of each executive officer’s total compensation.

It is designed to provide income certainty and retain executives.

In determining the base level of compensation for the executive officers, weight is placed on the following objective factors:

the particular responsibilities related to the position; salaries or fees paid by companies of similar size in the industry; level of experience and expertise; and subjective factors such as leadership, commitment and attitude.

the particular responsibilities related to the position;

salaries or fees paid by companies of similar size in the industry;

level of experience and expertise;

and subjective factors such as leadership, commitment and attitude.

Short-Term Incentive Compensation .

3 unchanged sentences

Stock Options .

Stock options are a form of long-term equity incentive compensation granted from time to time to align executives’ interests with those of the Company and its shareholders and reward executives for their contribution to the creation of shareholder value.

Stock options are a form of long-term equity incentive compensation granted from time to time to align executives’

interests with those of the Company and its shareholders and reward executives for their contribution to the creation of shareholder value.

Participants benefit only if the market value of our Common Shares at the time of the stock option exercise is greater than the exercise price of the stock options at the time of grant.

4 unchanged sentences

Restricted Share Units .

Restricted Share Units are a form of long-term equity incentive compensation granted from time to time to align executives’ interests with those of the Company and its shareholders and to attract and retain executives.

Restricted Share Units are a form of long-term equity incentive compensation granted from time to time to align executives’

interests with those of the Company and its shareholders and to attract and retain executives.

Restricted Share Units are notional shares that have the same value as Common Shares and earn dividend equivalents as additional units, at the same rate as dividends paid on Common Shares.

6 unchanged sentences

Summary Compensation Table

The following table is a summary of annual compensation paid, or recognized as an expense in accordance with Accounting Standards Codification (“ ASC ”) Topic 718 (Compensation - Stock Compensation), to the NEOs for our two most recently completed fiscal years, December 31, 2021 and December 31, 2020.

All amounts are expressed in US Dollars:

The following table is a summary of annual compensation paid, or recognized as an expense in accordance with Accounting Standards Codification (“

ASC ”) Topic 718 (Compensation - Stock Compensation), to the NEOs for our two most recently completed fiscal years, December 31, 2022, and December 31, 2021.

All amounts are expressed in US Dollars: 

Non-equity incentive plan compensation

Non-qualified deferred compensation earnings

All other compensation

Name and Principal Position

incentive plan

Non-qualified

Larry Scheffler

4 unchanged sentences

Vice President, Operations

The amounts reported in the Stock Awards column reflects the aggregate grant date fair value computed in accordance with ASC Topic 718 (Compensation - Stock Compensation).

The amounts reported in the Stock Awards column reflect the aggregate grant date fair value computed in accordance with ASC Topic 718 (Compensation - Stock Compensation).

These amounts reflect our calculation of the value of these awards at the grant date and do not necessarily correspond to the actual value that may ultimately be realized by the named executive officer.

Assumptions used in the calculation of these amounts are included in Note 12 to our audited consolidated financial statements for the fiscal year ended December 31, 2022.

The values provided in this column are calculated based on the closing price of our Common Shares on the CSE on the date of grant.

For 2020, a share price of CAD$8.12 converted to USD using the exchange rate provided by the Bank of Canada on the grant date of USD$1.00 =CAD$1.2519.

The values provided in this column are calculated based on the closing price of our Common Shares on the CSE on the date of grant. 

The values provided for Mr.

Logan in this column are converted to US Dollars using the average exchange rate for the year indicated as provided by the Bank of Canada.

For 2020 USD$1.00=CAD$1.3415 and for 2021 USD$1.00=CAD$1.2535.

Reflects actual base salary earnings for 2021 due to payroll timing.

For 2021 USD$1.00=CAD$1.2535 and for 2022 USD$1.00=CAD$1.3013.

Reflects actual base salary earnings for 2021 due to payroll timing.

The amounts listed for 2022 non-equity incentive compensation plan are amounts accrued for 2022.

The amounts consist of car allowance ($23,296 for 2021 and $16,985 for 2020) and health benefits ($5,866 for 2021 and $0 for 2020).

Non-equity incentive plan compensation is weighted 80% for each Co-CEO and 60% for other executive officers and 20% for each Co-CEO and 40% for other executive officers, for 

corporate objectives and key metrics applicable to the executive, respectively, and is reviewed and approved by the Compensation Committee before payment.

The amounts consist of car allowance ($29,608 for 2022 and $23,296 for 2021) and health benefits ($27,792 for 2022 and $5,866 for 2021).

The amounts consist of car allowance ($29,608 for 2022 and $15,704 for 2021) and health benefits ($39,816 for 2022 and $21,994 for 2021).

The amounts consist of car allowance ($13,800 for 2022 and $14,880 for 2021) and health benefits ($7,057 for 2022 and $7,616 for 2021).

The amounts consist of car allowance ($15,170 for each of 2022 and 2021) and health benefits ($43,236 for 2022 and $21,994 for 2021).

Narrative Discussion

For a summary of the significant terms of each NEO’s employment agreement or arrangement, please see below under the heading “ Employment Agreements and Termination and Change of Control Benefits ”.

For a summary of the significant terms of each NEO’s employment agreement or arrangement, please see below under the heading “

Employment Agreements and Termination and Change of Control Benefits ”.

Outstanding Equity Awards at Fiscal Year-End Table

2 unchanged sentences

Option Awards

Number of securities underlying unexercised options (#)

Number of securities underlying unexercised option (#)

Equity incentive plan awards:

Number of securities underlying unexercised unearned

Option exercise price

Option expiration

Number of shares or units of stock that have not vested

Market value of shares of units of stock that have not

Equity incentive plan awards:

Number of unearned shares, units or other rights that have not vested (#)

Equity incentive plan awards:

Market or payout value of unearned shares, units or other rights that have not vested ($)

unexercisable

1 unchanged sentence

Larry Scheffler

For each named executive officer 50% of the listed incentive awards will vest on December 1, 2022, and 50% will vest on December 1, 2023.

Based on the closing share price of the Common Shares as traded on the CSE on December 31, 2021 of CAD$3.74 at an exchange rate of USD$1.00=CAD$1.2678.

For each named executive officer 100% of the listed incentive awards will vest on December 1, 2023.

Based on the closing share price of the Common Shares as traded on the CSE on December 31, 2022 of CAD$0.83 at an exchange rate of USD$1.00=CAD$1.3544.

Employment Agreements and Termination and Change of Control Benefits

4 unchanged sentences

Scheffler, which for the fiscal year ended December 31, 2022, was USD$500,000 (subject to any further increases as may be approved by the Compensation Committee).

Scheffler is also entitled to receive other benefits and perquisites, including participation in our benefit plans, an annual bonus, performance bonuses and participation in our stock option plan, approved by the Board on May 22, 2018 (the “ Stock Option Plan ”) and other equity plans in effect from time to time.

Scheffler’s employment is terminated by us with “cause” or by Mr.

Scheffler without “good reason” (as such terms are defined in the agreement), we will pay Mr.

Stock Option Plan ”) and other equity plans in effect from time to time.

Scheffler’s employment is terminated by us with “cause”

Scheffler without “good reason”

(as such terms are defined in the agreement), we will pay Mr.

Scheffler any accrued but unpaid base salary, accrued but unused vacation and any earned but unpaid annual bonus with respect to any completed calendar year immediately preceding the date of termination, except in the event Mr.

Scheffler’s employment is terminated by us for cause in which case any such accrued but unpaid annual bonus shall be forfeited.

Scheffler’s employment is terminated by us without cause or by Mr.

Scheffler’s employment is terminated by us for cause in which case any such accrued but unpaid annual bonus shall be forfeited.

Scheffler’s employment is terminated by us without cause or by Mr.

Scheffler for good reason, including upon the change of control of the Company, we will, for the duration of the remaining term of the agreement, continue to pay Mr.

4 unchanged sentences

The non-solicitation and non-competition covenants apply during the term of employment and for 12 months following resignation or the termination of Mr.

Scheffler’s employment.

In March 2021, we entered into an amendment to the employment agreement with Mr.

5 unchanged sentences

Groesbeck is also entitled to receive other benefits and perquisites, including participation in our benefit plans, an annual bonus, performance bonuses and participation in the Stock Option Plan and other equity plans in effect from time to time.

Groesbeck’s employment is terminated by us with “cause” or by Mr.

Groesbeck without “good reason” (as such terms are defined in the agreement), we will pay Mr.

Groesbeck’s employment is terminated by us with “cause”

Groesbeck without “good reason”

(as such terms are defined in the agreement), we will pay Mr.

Groesbeck any accrued but unpaid base salary, accrued but unused vacation and any earned but unpaid annual bonus with respect to any completed calendar year immediately preceding the date of termination, except in the event Mr.

Groesbeck’s employment is terminated by us for cause in which case any such accrued but unpaid annual bonus shall be forfeited.

Groesbeck’s employment is terminated by us without cause or by Mr.

Groesbeck’s employment is terminated by us for cause in which case any such accrued but unpaid annual bonus shall be forfeited.

Groesbeck’s employment is terminated by us without cause or by Mr.

Groesbeck for good reason, including upon the change of control of the Company, we will, for the duration of the remaining term of the agreement, continue to pay Mr.

4 unchanged sentences

The non-solicitation and non-competition covenants apply during the term of employment and for 12 months following resignation or the termination of Mr.

Groesbeck’s employment.

In March 2021, we entered into an amendment to the employment agreement with Mr.

4 unchanged sentences

Logan is also entitled to receive other benefits and perquisites, including participation in our benefit plans, an annual bonus, performance bonuses and participation in the Stock Option Plan and other equity plans in effect from time to time.

Logan’s employment is terminated by us with “cause” or by Mr.

Logan without “good reason” (as such terms are defined in the agreement), we will pay Mr.

Logan’s employment is terminated by us with “cause”

Logan without “good reason”

(as such terms are defined in the agreement), we will pay Mr.

Logan any accrued but unpaid base salary, accrued but unused vacation and any earned but unpaid annual bonus with respect to any completed calendar year immediately preceding the date of termination, except in the event Mr.

Logan’s employment is terminated by us for cause in which case any such accrued but unpaid annual bonus shall be forfeited.

Logan’s employment is terminated by us without cause or by Mr.

Logan’s employment is terminated by us for cause in which case any such accrued but unpaid annual bonus shall be forfeited.

Logan’s employment is terminated by us without cause or by Mr.

Logan for good reason, including upon the change of control of the Company, we will, for a period of 18 months from the date of termination, continue to pay Mr.

4 unchanged sentences

The non-solicitation and non-competition covenants apply during the term of employment and for 12 months following resignation or the termination of Mr.

Logan’s employment.

In June 2018, we entered into an employment agreement with Chris Wren, our Vice President, Operations, for an initial term of five years.

2 unchanged sentences

Wren is also entitled to receive other benefits and perquisites, including participation in our benefit plans, an annual bonus, performance bonuses and participation in the Stock Option Plan and other equity plans in effect from time to time.

Wren’s employment is terminated by us with “cause” or by Mr.

Wren without “good reason” (as such terms are defined in the agreement), we will pay Mr.

Wren’s employment is terminated by us with “cause”

Wren without “good reason”

(as such terms are defined in the agreement), we will pay Mr.

Wren any accrued but unpaid base salary, accrued but unused vacation and any earned but unpaid annual bonus with respect to any completed calendar year immediately preceding the date of termination, except in the event Mr.

Wren’s employment is terminated by us for cause in which case any such accrued but unpaid annual bonus shall be forfeited.

Wren’s employment is terminated by us without cause or by Mr.

Wren’s employment is terminated by us for cause in which case any such accrued but unpaid annual bonus shall be forfeited.

Wren’s employment is terminated by us without cause or by Mr.

Wren for good reason, including upon the change of control of the Company, we will, for the duration of the remaining term of the agreement, continue to pay Mr.

4 unchanged sentences

The non-solicitation and non-competition covenants apply during the term of employment and for 12 months following resignation or the termination of Mr.

Wren’s employment.

In March 2021, we entered into an amendment to the employment agreement with Mr.

4 unchanged sentences

Other than as set out in the table below and prior to January 1, 2021, no non-employee director has received compensation pursuant to:

any standard arrangement for the compensation of directors for their services in their capacity as directors, including any additional amounts payable for committee participation or special assignments;

any other arrangement, in addition to, or in lieu of, any standard arrangement, for the compensation of directors in their capacity as directors; or

any other arrangement, in addition to, or in lieu of, any standard arrangement, for the compensation of directors in their capacity as directors; or

any arrangement for the compensation of directors for services as consultants or experts.

1 unchanged sentence

All amounts are expressed in US Dollars:

Fees e arned or paid in

Fees earned or paid in

Option awards

Non-equity incentive plan compensation

Non qualified deferred compensation

Non qualified deferred compensation earnings

All other compensation

Michael Harman

Adrienne O’Neal

The values provided in this column are calculated based on the closing price of our Common Shares on the CSE on the date of grant converted to US Dollars using the exchange rate provided by the Bank of Canada on the grant date.

As of December 31, 2021 (a) Mr.

Harman had an aggregate of 226,602 Common Shares and 138,989 RSUs outstanding, and (b) Ms.

O’Neal had an aggregate of 137,216 Common Shares and 138,989 RSUs outstanding.

Adrienne O’Neal

Compensation Committee Interlocks and Insider Participation

During 2021, our Compensation Committee members were Adrienne O’Neal (Chair) and Michael Harman, neither of whom currently is, or formerly was, an officer or employee of the Company.

During 2022, our Compensation Committee members were Adrienne O’Neal (Chair) and Michael Harman, neither of whom currently is, or formerly was, an officer or employee of the Company.

None of our executive officers served as a member of the Board or Compensation Committee of any other company that had one or more executive officers serving as a member of our board of directors or Compensation Committee.

2 unchanged sentences

Beneficial ownership is determined according to the rules of the SEC.

Generally, a person has beneficial ownership of a security if the person possesses sole or shared voting or investment power of that security, including any securities that a person has the right to acquire beneficial ownership within 60 days.

Except as indicated, all shares of our securities will be owned directly, and the person or entity listed as the beneficial owner has sole voting and investment power.

Generally, a person has beneficial ownership of a security if the person possesses sole or shared voting or dispositive power of that security, including any securities that a person has the right to acquire beneficial ownership within 60 days.

Except as indicated, all shares of our securities will be owned directly, and the person or entity listed as the beneficial owner has sole voting and dispositive power.

The percentage ownership in the below table is based on 221,533,438 Common Shares outstanding as of March 23, 2023.

On May 7, 2021, all of the outstanding Restricted Voting Shares were converted to Common Shares.

As a result, there are no Restricted Voting Shares outstanding and we have only one class of outstanding shares, the Common Shares.

To our knowledge, except as noted below, no person or entity is the beneficial owner of more than 5% of the Common Shares.

1 unchanged sentence

Common Shares

Right to Acquire

Percent of Total

Name of Beneficial Owner

Number Beneficially

Percent of Total Common Shares

Beneficially Owned

Within 60 Days(5)

Common Shares

Larry Scheffler

39,470,205 (1)

Robert Groesbeck

38,818,935 (2)

4,256,926 (4)

Michael Harman

Adrienne O’Neal

All directors and executive officers as a group (11 persons)

* Less than one percent

_____________

Beneficial ownership includes 562,500 Common Shares owned by the Scheffler Family Limited Partnership (the “ Partnership ”) and 5,000,000 Common Shares owned by Thirteen, LLC (“ Thirteen ”) and 33,016,470 Common Shares owned by Scheffler RX LLC.

The Partnership, Scheffler RX LLC and Thirteen are entities owned and controlled by Mr.

Scheffler has the sole voting power over 39,470,205 Common Shares, shared voting power over no Common Shares, sole dispositive power over 39,470,205 Common Shares and shared dispositive power over no Common Shares.

Beneficial ownership includes 30,413,176 Common Shares owned by RAG Holdings LLC (“ RAG ”) and 7,603,294 Common Shares owned by PRMN Investments, LLC (“ PRMN ”).

RAG and PRMN are entities owned and controlled by Mr.

Groesbeck has the sole voting power over 38,818,935 Common Shares, shared voting power over no Common Shares, sole dispositive power over 38,818,935 Common Shares and shared dispositive power over no Common Shares.

Beneficial ownership includes 56,887 Common Shares owned securities through his registered retirement savings plan.

Based on Schedule 13G/A filed with the SEC by Mr.

Scheffler on February 14, 2023, Mr.

Scheffler's beneficial ownership includes 562,500 Common Shares owned by the Scheffler Family Limited Partnership (the “

Partnership ”) and 5,000,000 Common Shares owned by Thirteen, LLC (“

Thirteen ”) and 33,016,470 Common Shares owned by Scheffler RX LLC.

Subject to the clarification in Footnote 5 to this table below, Mr.

Scheffler has the sole voting power over 1,172,490 Common Shares, shared voting power over 38,578,970 Common Shares, sole dispositive power over 1,172,490 Common Shares and shared dispositive power over 38,578,970 Common Shares.

Based on Schedule 13G filed with the SEC by Mr.

Groesbeck on February 15, 2023, Mr.

Groesbeck's beneficial ownership includes 30,413,176 Common Shares owned by RAG Holdings LLC (“

RAG ”) and 7,603,294 Common Shares owned by PRMN Investments, LLC (“

PRMN ”).

Subject to the clarification in Footnote 5 to this table below, Mr.

Groesbeck has the sole voting power over 1,083,720 Common Shares, shared voting power over 38,016,470 Common Shares, sole dispositive power over 1,083,720 Common Shares and shared dispositive power over 38,016,470 Common Shares.

Beneficial ownership includes 56,887 Common Shares owned through his registered retirement savings plan.

Subject to the clarification in Footnote 5 to this table below, Mr.

Logan has the sole voting power over 287,874 Common Shares, shared voting power over no Common Shares, sole dispositive power over 287,874 Common Shares and shared dispositive power over no Common Shares.

Beneficial ownership includes 4,037,000 Common Shares owned by 4 Degrees Higher LLC (“ 4 Degrees ”).

Beneficial ownership includes 4,037,000 Common Shares owned by 4 Degrees Higher LLC (“

4 Degrees ”).

4 Degrees is an entity owned and controlled by Mr.

Wren has the sole voting power over 4,256,926 Common Shares, shared voting power over no Common Shares, sole dispositive power over 4,256,926 Common Shares and shared dispositive power over no Common Shares.

Subject to the clarification in Footnote 5 to this table below, Mr.

Wren has the sole voting power over 362,745 Common Shares, shared voting power over 4,037,000 Common Shares, sole dispositive power over 362,745 Common Shares and shared dispositive power over 4,037,000 Common Shares.

The number of shares beneficially owned includes these amounts of unissued shares relating to RSU awards that vested on December 1, 2022.

Equity Compensation Plans

The shareholders and the Board approved the Stock Option Plan on May 22, 2018, and approved the Amended and Restated Share Unit Plan (“ Unit Plan ” and together with the Stock Option Plan, collectively the “ Compensation Plans ”) on May 22, 2018, as amended on July 11, 2018.

The shareholders and the Board approved the Stock Option Plan on May 22, 2018, and approved the Amended and Restated Share Unit Plan (“

Unit Plan ”

and together with the Stock Option Plan, collectively the “

Compensation Plans ”) on May 22, 2018, as amended on July 11, 2018.

The granting of awards under the Compensation Plans is intended to promote the interests of the Company and its shareholders by aiding us in attracting and retaining persons capable of assuring our future success, to offer such persons incentives to put forth maximum efforts for the success of our business and to compensate such persons through various stock based arrangements and provide them with opportunities for stock ownership in the Company, thereby aligning the interests of such persons with our shareholders.

1 unchanged sentence

As of December 31, 2022:

(i) options to purchase an aggregate of 169,168 Common Shares were outstanding, representing approximately 0.085% of the issued and outstanding Common Shares on such date; (ii) Restricted Share Units to acquire an aggregate of 2,591,936 Common Shares were outstanding, representing approximately 1.39% of the issued and outstanding Common Shares on such date, for a total of 2,761,100 Common Shares issuable pursuant to outstanding awards.

(i) options to purchase an aggregate of 792,518 Common Shares were outstanding, representing approximately 0.36% of the issued and outstanding Common Shares on such date;

(ii) Restricted Share Units to acquire an aggregate of 2,464,928 Common Shares were outstanding, representing approximately 1.12% of the issued and outstanding Common Shares on such date, for a total of 3,257,446 Common Shares issuable pursuant to outstanding awards.

As a result, Stock Options/ Restricted Share Units under our equity compensation plans to purchase/receive a total of 18,894,398 Common Shares, representing approximately 8.57% of the total issued and outstanding Common Shares, were available for grant as of December 31, 2022.

The following table provides information regarding compensation plans , previously approved by shareholders , under which securities of the Company are authorized for issuance in effect as of December 31, 2021:

available for

2 unchanged sentences

average exercise

plans (excluding

Plan Category

5 unchanged sentences

The following is a description of each transaction since January 1, 2021, and each currently proposed transaction in which:

we have been or are to be a participant;

the amounts involved exceeded or will exceed the lesser of $120,000 or 1% of the average of the Company’s total assets at year end for the last two completed fiscal years; and

we have been or are to be a participant;

the amounts involved exceeded or will exceed the lesser of $120,000 or 1% of the average of the Company’s total assets at year end for the last two completed fiscal years; and

any of our directors, executive officers or holders of more than 5% of our capital stock, or an affiliate or immediate family member of the foregoing persons, had or will have a direct or indirect material interest.

Other than as described below, there have not been, nor are there any currently proposed, transactions or series of similar transactions to which we have been or will be a party other than compensation arrangements, which are described where required under the section entitled “Executive Compensation” and “Director Compensation Table.”

and “Director Compensation Table.”

Office Space Sublease and Storage Space

We sub-let approximately 2,000 square feet of office space and purchase certain printed marketing collateral and stationery items from a company owned by Larry Scheffler, one of our Co-CEOs.

Amounts paid by us for rent for the years ended December 31, 2021 and December 31, 2020 equaled $16,027, and $24,040, respectively.

Amounts paid by us for printed marketing collateral and stationery items for the years ended December 31, 2021 and December 31, 2020 equaled $450,692, and $170,009, respectively.

As at December 31, 2021, there was $ 133,560 included in accounts payable that was owed to this related party.

From November 2020 to April 2021, we leased a 25,000 square foot cultivation facility from an entity owned by both our Co-CEOs.

Rents paid by us for this facility for the years ended December 31, 2021 and December 31, 2020 equaled $301,894 and $339,688, respectively.

On April 30, 2021, our Co-CEOs sold this building to an arm’s length third party who assumed the lease.

A company owned by Mr.

Scheffler, one of our Co-CEOs, leases storage space from us.

Amounts paid to us for the storage space were $171,895 and $62,720 for the years ended December 31, 2021 and December 31, 2020, respectively.

The Company is the sub-lessee of approximately 2,000 square feet of office space and purchases certain printed marketing collateral and stationery items from a company that was owned by one of the Company’s Co-CEOs, Larry Scheffler, until March 15, 2022.

Amounts paid for rent for each of the years ended December 31, 2022 and 2021 to the related party was $6,010 and $16,027, respectively.

Amounts paid for printed marketing collateral and stationery items to the related party were $183,914 and $450,692 for the years ended December 31, 2022 and 2021, respectively.

The Company previously leased a cultivation facility from an entity owned by the Company’s Co-CEOs. 

Rent paid for this facility for the years ended December 31, 2022 and 2021 was $nil and $301,894, respectively. 

On April 30, 2021, the Company’s Co-CEOs sold this building to an arm’s length third party who assumed the lease.

A company that was owned by one of the Company’s Co-CEOs, Larry Scheffler, until March 15, 2022 pays the Company for storage space. 

Amounts paid to the Company for storage space were $5,968 and $171,895 for the years ended December 31, 2022 and 2021, respectively, and is recorded in Other Income.

As of December 31, 2022 and 2021, respectively, no amounts were due to or from related persons.

WCDN Acquisition

1 unchanged sentence

In accordance with the terms of the WCDN Asset Acquisition Agreement and approvals by our independent directors, WCDN assigned the Initial West Bell Lease to MMDC on November 25, 2020, and MMDC subsequently entered into an amending agreement with RX Land on November 27, 2020, to amend certain terms of such lease agreement including increasing the lease payments, extending the duration of the lease and, if desired, allowing for second floor installation by MMDC without a corresponding lease rate increase due to an increase in facility size.

In April 2021, RX Land was sold to an arm’s length third party.

Related Person Transaction Policy

1 unchanged sentence

The policy provides that any request for us to enter into a transaction with an executive officer, director, nominee for election as a director, beneficial owner of more than 5% of our common stock or with any of their immediate family members or affiliates in which the amount involved exceeds $120,000 will be presented to our Audit Committee for review, consideration and approval, subject to exceptions for certain transaction for which there is standing pre-approval as described in the policy, including for employment of executive officers and director compensation.

In approving or rejecting any such proposal, our Audit Committee shall take into account, among other factors it deems appropriate, (i) whether the transaction was undertaken in our ordinary course of business, (ii) whether the transaction was initiated by us, a subsidiary of us, or the related person, (iii) whether the transaction is proposed to be, or was, entered into on terms no less favorable to us than terms that could have been reached with an unrelated third party, (iv) the purpose of, and the potential benefits to us of, the transaction, (v) the approximate dollar value of the amount involved in the transaction, particularly as it relates to the related person, (vi) the related person’s interest in the transaction and (vii) any other information regarding the transaction or the related person that would be material to investors in light of the circumstances of the particular transaction.

Robert Groesbeck and Larry Scheffler, the co-CEOs, co-Chairmen and each a director of the Company, are promoters of the Company.

As of March 25, 2022:

Groesbeck owns, or controls or directs, directly or indirectly, a total of 38,818,935 Common Shares, and 562,511 RSUs, representing in the aggregate 16.92% of the equity of the Company on a fully diluted basis; and (ii) Mr.

Scheffler owns, or controls or directs, directly or indirectly, a total of 39,470,205 Common Shares and 562,511 RSUs, representing in the aggregate 17.20% of the equity of the Company on a fully diluted basis.

Director Independence

Our board of directors is composed of two “independent directors” as defined under the rules of Nasdaq (“ Nasdaq Rules ”).

We use the definition of “independence” of Nasdaq to make this determination.

Nasdaq Rule 5605(a)(2) provides that an “independent director” is a person other than an officer or employee of the Company or any other individual having a relationship which, in the opinion of the Board, would interfere with the exercise of independent judgment in carrying out the responsibilities of a director.

Although the Common Shares are not listed on any U.S.

national securities exchange, we use the definition of "independence" of Nasdaq to make the independence determination of our directors.

Our board of directors is composed of two “independent directors”

as defined under the rules of Nasdaq (“

Nasdaq Rules ”).

Nasdaq Rule 5605(a)(2) provides that an “independent director”

is a person other than an officer or employee of the Company or any other individual having a relationship which, in the opinion of the Board, would interfere with the exercise of independent judgment in carrying out the responsibilities of a director.

Nasdaq Rule 5605(a)(2) provides that a director cannot be considered independent if:

the director is, or at any time during the past three (3) years was, an employee of the company;

the director or a family member of the director accepted any compensation from the company in excess of $120,000 during any period of twelve (12) consecutive months within the three (3) years preceding the independence determination (subject to certain exemptions, including, among other things, compensation for board or board committee service);

the director or a family member of the director is a partner in, controlling shareholder of, or an executive officer of an entity to which the company made, or from which the company received, payments in the current or any of the past three fiscal years that exceed 5% of the recipient’s consolidated gross revenue for that year or $200,000, whichever is greater (subject to certain exemptions);

the director or a family member of the director is employed as an executive officer of an entity where, at any time during the past three (3) years, any of the executive officers of the company served on the compensation committee of such other entity; or

the director or a family member of the director is a current partner of the company’s outside auditor, or at any time during the past three (3) years was a partner or employee of the company’s outside auditor, and who worked on the company’s audit.

Under such definitions, Adrienne O’Neal and Michael Harman are each independent directors.

O’Neal and Mr.

the director is, or at any time during the past three (3) years was, an employee of the company;

Under such definitions, Adrienne O’Neal and Michael Harman are each independent directors.

O’Neal and Mr.

Harman are also considered independent and meet the other requirements under Nasdaq Rule 5605(c)(A)(2)(i),(ii),(iii) and (iv) applicable to audit committee members and under Nasdaq Rule 5605(2)(A) applicable to compensation committee members.

4 unchanged sentences

We have adopted the Code of Business Conduct and Ethics of Planet 13 Holdings Inc.

(the “ Code of Ethics ”) to assist all directors, officers, employees, and where practical key consultants of the Company and its subsidiaries to maintain the highest standards of ethical conduct in business affairs.

(the “

Code of Ethics ”) to assist all directors, officers, employees, and where practical key consultants of the Company and its subsidiaries to maintain the highest standards of ethical conduct in business affairs.

A copy of the Code of Ethics can be found in the investors section of our website at www.planet13holdings.com/investors/ .

We intend to satisfy the disclosure requirements of the SEC regarding amendments to, or waivers from, the Code of Ethics, by posting such information on the same website.

Principal Accounting Fees and Services.

The following table provides information regarding the fees billed to us by Davidson & Company in the fiscal years ended December 31, 2021 and December 31, 2020:

The following table provides information regarding the fees billed to us by Davidson & Company LLP in the fiscal years ended December 31, 2022, and December 31, 2021: 

For the fiscal years ended

1 unchanged sentence

Audit Related Fees (2)

_______________

Audit Fees consist of audit of annual financial statements and review of financial statements.

2 unchanged sentences

Pre-Approval Policies and Procedures

The Audit Committee charter sets out procedures regarding the provision of non-audit services by the Company’s independent chartered professional accountants.

This policy encourages consideration of whether the provision of services other than audit services is compatible with maintaining the auditor’s independence and requires Audit Committee pre-approval of permitted non-audit and non-audit related services.

The Audit Committee charter sets out procedures regarding the provision of non-audit services by the Company’s independent chartered professional accountants.

Exhibits, Financial Statement Schedules.

1 unchanged sentence

EXHIBIT INDEX

Incorporated by Reference

Filed / Furnished Herewith

Acquisition Agreement, dated December 20, 2019, among BLC Management Company, LLC, Planet 13 Holdings Inc., Kyle Desmet, Newtonian Principles, Inc., Warner Management Group, LLC and Sarah Sibia, as amended by Amendment No.

1 to Acquisition Agreement, dated April 16, 2020, and Amendment No.

2 to Acquisition Agreement, dated May 20, 2020 (incorporated by reference to Exhibit 2.1 to the Company’s Form 10 filed with the SEC on December 13, 2021).

2 to Acquisition Agreement, dated May 20, 2020

Asset Purchase Agreement, dated July 17, 2020, among Planet 13 Holdings Inc., MM Development Company, Inc., W the Brand, LLC, West Coast Development Nevada, LLC and R.

Scott Coffman (incorporated by reference to Exhibit 2.2 to the Company’s Form 10 filed with the SEC on December 13, 2021).

Share Exchange Agreement, dated April 26, 2018, among MM Development Company, Inc., Carpincho Capital Corp., PRMN Investments Ltd., Thirteen, LLC and 4 Degrees Higher, LLC (incorporated by reference to Exhibit 2.3 to the Company’s Form 10 filed with the SEC on December 13, 2021).

Scott Coffman

Share Exchange Agreement, dated April 26, 2018, among MM Development Company, Inc., Carpincho Capital Corp., PRMN Investments Ltd., Thirteen, LLC and 4 Degrees Higher, LLC

Master Agreement, dated April 26, 2018, among Carpincho Capital Corp., 10713791 Canada Inc.

and 10653918 Canada Inc.

(incorporated by reference to Exhibit 2.4 to the Company’s Form 10 filed with the SEC on December 13, 2021).

License Purchase Agreement, dated August 31, 2021, among Buyer, Planet 13 Holdings Inc., Seller and Harvest Health & Recreation Inc.

(incorporated by reference to Exhibit 2.5 to the Company’s Form 10 filed with the SEC on December 13, 2021)

Arrangement Agreement, dated December 20, 2021, between Planet 13 Holdings Inc.

and Next Green Wave Holdings Inc.

(incorporated by reference to Exhibit 2.6 to the Company’s Form 10-A filed with the SEC on January 26, 2022).

Certificate of Amalgamation (incorporated by reference to Exhibit 3.1 to the Company’s Form 8-K filed with the SEC on March 8, 2022).

Notice of Articles (incorporated by reference to Exhibit 3.2 to the Company’s Form 8-K filed with the SEC on March 8, 2022).

Exercise Notice, dated February 7, 2023, from Planet 13 Holdings Inc.

to Frank Cowan, IV

Certificate of Amalgamation

Notice of Articles

Articles of Planet 13 Holdings Inc.

(incorporated by reference to Exhibit 3.3 to the Company’s Form 8-K filed with the SEC on March 8, 2022).

Warrant Indenture, dated July 3, 2020, between Planet 13 Holdings Inc.

and Odyssey Trust Company (incorporated by reference to Exhibit 4.1 to the Company’s Form 10 filed with the SEC on December 13, 2021).

and Odyssey Trust Company

Warrant Indenture, dated September 10, 2020, between Planet 13 Holdings Inc.

and Odyssey Trust Company (incorporated by reference to Exhibit 4.2 to the Company’s Form 10 filed with the SEC on December 13, 2021).

and Odyssey Trust Company

Warrant Indenture, dated November 5, 2020, between Planet 13 Holdings Inc.

and Odyssey Trust Company (incorporated by reference to Exhibit 4.3 to the Company’s Form 10 filed with the SEC on December 13, 2021).

and Odyssey Trust Company

Warrant Indenture, dated February 2, 2021, between Planet 13 Holdings Inc.

and Odyssey Trust Company (incorporated by reference to Exhibit 4.4 to the Company’s Form 10 filed with the SEC on December 13, 2021).

and Odyssey Trust Company

Warrant Indenture, dated December 4, 2018, between Planet 13 Holdings Inc.

and Odyssey Trust Company(incorporated by reference to Exhibit 4.5 to the Company’s Form 10 filed with the SEC on December 13, 2021).

Warrant Indenture, dated April 26, 2018, among 10653918 Canada Inc., Odyssey Trust Company and Carpincho Capital Corp (incorporated by reference to Exhibit 4.6 to the Company’s Form 10 filed with the SEC on December 13, 2021).

Description of Securities Registered Pursuant to Section 12 of the Securities Exchange Act of 1934 (filed herewith)

and Odyssey Trust Company

Warrant Indenture, dated April 26, 2018, among 10653918 Canada Inc., Odyssey Trust Company and Carpincho Capital Corp

Description of Securities Registered Pursuant to Section 12 of the Securities Exchange Act of 1934

Industrial Real Estate Lease, dated April 23, 2018, between MM Development Company, Inc.

and Lessor (incorporated by reference to Exhibit 10.1 to the Company’s Form 10 filed with the SEC on December 13, 2021).

Lease Agreement, dated August 30, 2014, between Fargo District Holdings, LLC and MM Development Company, Inc., as amended by Amendment to Lease, dated January 1, 2018, and Second Amendment to Lease Agreement, dated September 14, 2018 (incorporated by reference to Exhibit 10.2 to the Company’s Form 10 filed with the SEC on December 13, 2021).

Lease Agreement, dated July 17, 2020, between RX Land, LLC and MM Development Company, Inc., as amended by Amendment to Lease, dated November 27, 2020 (incorporated by reference to Exhibit 10.3 to the Company’s Form 10 filed with the SEC on December 13, 2021).

Standard Industrial/Commercial Multi-Tenant Lease - Net, dated May 1, 2018, between Lessor and BLC Management Company, LLC, as amended by First Amendment to Standard Industrial/Commercial Multi-Tenant Lease - Net, dated November 8, 2019, and Second Amendment to Standard Industrial/Commercial Multi-Tenant Lease - Net, dated April 17, 2020, and by Third Amendment to Standard Industrial/Commercial Multi-Tenant Lease - Net, dated September 8, 2020 (incorporated by reference to Exhibit 10.4 to the Company’s Form 10 filed with the SEC on December 13, 2021).

Lease Agreement, dated July 17, 2020, between RX Land, LLC and MM Development Company, Inc., as amended by Amendment to Lease, dated November 27, 2020

Agreement Regarding Release of Leasehold Estate, dated August 31, 2020, between LaBarre Chastang, Inc.

and BLC Management Company, LLC (incorporated by reference to Exhibit 10.5 to the Company’s Form 10 filed with the SEC on December 13, 2021).

and BLC Management Company, LLC

Planet 13 Holdings Inc.

2018 Stock Option Plan (incorporated by reference to Exhibit 10.6 to the Company’s Form 10 filed with the SEC on December 13, 2021).

2018 Stock Option Plan

Planet 13 Holdings Inc.

2018 Share Unit Plan, as amended on July 11, 2018 and May 20, 2020 (incorporated by reference to Exhibit 2.1 to the Company’s Form 10 filed with the SEC on December 13, 2021).

Form of Stock Option Award Agreement (incorporated by reference to Exhibit 10.8 to the Company’s Form 10 filed with the SEC on December 13, 2021).

Form of Share Unit Plan Award Agreement (incorporated by reference to Exhibit 10.9 to the Company’s Form 10 filed with the SEC on December 13, 2021).

Employment Agreement, dated June 1, 2018, between Christopher Wren and MM Development Company, Inc., as amended by Amendment to Employment Agreement, dated March 10, 2021(incorporated by reference to Exhibit 10.10 to the Company’s Form 10 filed with the SEC on December 13, 2021).

Employment Agreement, dated June 1, 2018, between Larry Scheffler and MM Development Company, Inc., as amended by Amendment to Employment Agreement, dated March 10, 2021 (incorporated by reference to Exhibit 10.11 to the Company’s Form 10 filed with the SEC on December 13, 2021).

Employment Agreement, dated June 1, 2018, between Robert Groesbeck and MM Development Company, Inc., as amended by Amendment to Employment Agreement, dated March 10, 2021(incorporated by reference to Exhibit 10.12 to the Company’s Form 10 filed with the SEC on December 13, 2021).

2018 Share Unit Plan, as amended on July 11, 2018 and May 20, 2020

Form of Stock Option Award Agreement

Form of Share Unit Plan Award Agreement

Employment Agreement, dated June 1, 2018, between Christopher Wren and MM Development Company, Inc., as amended by Amendment to Employment Agreement, dated March 10, 2021

Employment Agreement, dated June 1, 2018, between Larry Scheffler and MM Development Company, Inc., as amended by Amendment to Employment Agreement, dated March 10, 2021

Employment Agreement, dated June 1, 2018, between Robert Groesbeck and MM Development Company, Inc., as amended by Amendment to Employment Agreement, dated March 10, 2021

Employment Agreement, dated June 1, 2018, between Dennis Logan and Planet 13 Holdings Inc.

(incorporated by reference to Exhibit 2.1 to the Company’s Form 10 filed with the SEC on December 13, 2021).

Option Purchase Agreement, dated August 4, 2022, between Planet 13 Holdings Inc.

and Frank Cowan, IV

List of Subsidiaries of Planet 13 Holdings Inc.

(filed herewith).

Certification of Principal Executive Officer (Robert Groesbeck) Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith).

Certification of Principal Executive Officer (Larry Scheffler) Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith).

Certification of Principal Financial Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith).

Consent of Independent Registered Public Accounting Firm

Certification of Principal Financial Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

Certification of Principal Executive Officers and Principal Financial Officer pursuant to 18 U.S.C.

Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (furnished herewith).

Cover Page Interactive Data File - the cover page XBRL tags are embedded within the inline XBRL documents (filed herewith).

Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

Inline XBRL Instance Document

Inline XBRL Taxonomy Extension Schema

Inline XBRL Taxonomy Extension Calculation Linkbase

Inline XBRL Taxonomy Extension Definition Linkbase

Inline XBRL Taxonomy Extension Label Linkbase

Inline XBRL Taxonomy Extension Presentation Linkbase

Cover Page Interactive Data File - the cover page XBRL tags are embedded within the inline XBRL documents and contained in exhibit 101

Certain information has been excluded from this exhibit because it is both (i) not material and (ii) private or confidential.

2 unchanged sentences

Form 10-K Summary

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized .

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized .

PLANET 13 HOLDINGS INC.

24 unchanged sentences

Michael Harman

/s/ Adrienne O’Neal

March 23, 2023

Adrienne O’Neal

PLANET 13 HOLDINGS INC.

Index to Financial Statements

INDEPENDENT AUDITOR’S REPORT PCAOB # 731

INDEPENDENT AUDITOR ’

S REPORT PCAOB # 731

FINANCIAL STATEMENTS:

1 unchanged sentence

Consolidated Statements of Operations and Comprehensive Loss

Consolidated Statements of Changes in Shareholders’ Equity

Consolidated Statements of Changes in Shareholders’ Equity

Consolidated Statements of Cash Flows

5 unchanged sentences

We have audited the accompanying consolidated balance sheets of Planet 13 Holdings Inc.

(the “Company”) as of December 31, 2021 and 2020, and the related consolidated statements of operations and comprehensive loss, changes in shareholder’ equity, and cash flows for the years ended December 31, 2021, 2020 and 2019, and the related notes (collectively referred to as the “financial statements”).

(the “Company”) as of December 31, 2022 and 2021, and the related consolidated statements of operations and comprehensive loss, changes in shareholder’

equity, and cash flows for the years ended December 31, 2022 and 2021, and the related notes (collectively referred to as the “financial statements”).

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2022 and 2021, and the results of its operations and its cash flows for the years ended December 31, 2022 and 2021, in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

These financial statements are the responsibility of the Company’s management.

Our responsibility is to express an opinion on these financial statements based on our audits.

We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S.

federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

2 unchanged sentences

The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.

As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control over financial reporting.

Accordingly, we express no such opinion.

3 unchanged sentences

We believe that our audits provide a reasonable basis for our opinion.

We have served as the Company’s auditor since 2019.

/s/ DAVIDSON & COMPANY LLP

3 unchanged sentences

PLANET 13 HOLDINGS INC.

Consolidated Balance Sheets

(In United States Dollars)

Consolidated Balance Sheets              

(In United States Dollars)  

Current Assets:

$ 52,356,914  

Accounts Receivable

1,326,795  

13,004,839  

Prepaid Expenses and Other Current Assets

3,810,394  

Total Current Assets

70,498,942  

Property and Equipment

Intangible Assets

71,466,051  

Intangible Assets and Goodwill

69,288,007  

Right of Use Assets - Operating

Right of Use Assets - Finance

21,168,171  

Long-term Deposits and Other Assets

862,545  

Deferred Tax Asset

$ 216,808,796

346,257  

$ 233,629,973  

$ 216,808,796

1 unchanged sentence

Accounts Payable

$ 3,112,820  

Accrued Expenses

8,072,224  

Income Taxes Payable

2,826,501  

Notes Payable - Current Portion

884,000  

Operating Lease Liabilities

Finance Lease Liabilities

479,161  

Total Current Liabilities

15,374,706  

Long-Term Liabilities:

Operating Lease Liabilities

25,833,071  

Warranty Liability

18,127  

Other Long-term Liabilities

28,000  

Deferred Tax Liability

1,487,204  

Total Liabilities

42,741,108  

Shareholders' Equity

Common Shares, no par value, unlimited Common Shares authorized, 220,470,061 issued and outstanding at December 31, 2022 and 198,687,950 at December 31, 2021

Class A Restricted Shares, no par value, unlimited Class A Restricted Shares authorized, 0 issued and outstanding at December 31, 2021 and 55,232,940 at December 31, 2020

Additional Paid-In Capital

Retained Earnings (Deficit)

312,023,359  

( 121,134,494 )  

( 72,154,194 )

Total Shareholder's Equity

Total Shareholders Equity

190,888,865  

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY

$ 216,808,796

$ 233,629,973  

$ 216,808,796

The accompanying notes are an integral part of theses consolidated financial statements

The accompanying notes are an integral part of these consolidated financial statements

PLANET 13 HOLDINGS INC.

2 unchanged sentences

Revenues, net of discounts

$ 119,493,435

Cost of Goods Sold

(53,485,458 )

(35,394,019 )

(27,086,453 )

General and Administrative

1 unchanged sentence

Lease Expense

Impairment loss

Depreciation and Amortization

Total Expenses

Income (Loss) From Operations

Loss From Operations

Other Income (Expense):

Interest expense, net

Interest income (expense), net

Foreign exchange gain (loss)

1 unchanged sentence

Change in fair value of warrant liability

(16,805,941 )

Gain on Sale-Leaseback

Other Income, net

Total Other Expense

(16,488,019 )

Total Other Income

Loss Before Provision for Income Taxes

(17,902,213 )

Provision For Income Taxes

Current Tax Expense

(13,954,784 )

Deferred Tax Recovery

(13,478,558 )

$ (19,460,952 )

$ (25,008,729 )

$ (12,303,343 )

Net Loss and Comprehensive Loss

Loss per Share

2 unchanged sentences

Basic and diluted

The accompanying notes are an integral part of theses consolidated financial statements

The accompanying notes are an integral part of these consolidated financial statements

PLANET 13 HOLDINGS INC.

Consolidated Statements of Changes in Shareholders' Equity

Dollars, except share amounts)

Consolidated Statements of Changes in Shareholders' Equity            

(In United States Dollars, except share amounts)     

Common Shares

2 unchanged sentences

Accumulated Deficit

Shareholders’

Balance, January 1, 2019

$ (15,808,678 )

Impact of Adoption of ASC 842

Shares Issued on Settlement of RSUs

Share based Compensation - RSUs

Shares Issued on Exercise of Broker Warrants

Shares Issued on Exercise of Other Warrants

Shares Issued on Exercise of Options

Share Based Compensation - Options

Net Loss for the Year

(12,303,343 )

Total Shareholders' Equity

Balance, December 31, 2020

$ (27,684,513 )

Balance, January 1, 2020

(27,684,513 )

Shares Issued upon Conversion

Shares Issued for Acquisition

Shares Issued on Settlement of RSUs

5 unchanged sentences

Shares Issued on Bought Deal Financings, net

Shares Issued on Conversion of Class A Shares

Net Loss for the Year

(25,008,729 )

Balance, December 31, 2021

$ 159,399,056

$ (52,693,242 )

$ 106,705,814

Balance, January 1, 2021

(52,693,242 )

Shares Issued on Settlement of RSUs

Share based Compensation - RSUs

Shares Issued on Exercise of Broker Warrants

Shares Issued on Acquisition

Replacement Options Issued on Acquisition

Shares Issued on Exercise of Other Warrants

Shares Issued on Exercise of Options

Share Based Compensation - Options

Shares Issued on Bought Deal Financings, net

Shares Issued on Conversion of Class A Shares

(55,232,940 )

Net Loss for the Year

(19,460,952 )

Balance, December 31, 2022

( 121,134,494

$ (72,154,194 )

$ 173,707,510

The accompanying notes are an integral part of theses consolidated financial statements

The accompanying notes are an integral part of these consolidated financial statements

PLANET 13 HOLDINGS INC.

Consolidated Statements of Cash Flows

(In United States Dollars)

Consolidated Statements of Cash Flows         

(In United States Dollars)  

December 31, 2022

December 31, 2021

CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES

$ (19,460,952 )

$ (25,008,729 )

$ (12,303,343 )

Adjustments for items not involving cash:

1 unchanged sentence

Non-cash lease expense

Loss on disposal of assets

Amortization of intangibles

Change in fair value of warrant liability

1 unchanged sentence

Transaction costs

Deferred tax liability

Deferred tax recovery

Proceeds from lease incentive

Lease incentive amortization

Unrealized (gain) loss on foreign currency exchange

Impairment of goodwill

Impairment of intangible assets

Gain on sale leaseback

Loss on disposal of property and equipment

Net Changes in Non-cash Working Capital Items

8 unchanged sentences

Purchase of property, plant and equipment

(16,061,582 )

Net cash acquired through NGW acquisition

Purchase of licenses

(55,846,866 )

Proceeds from sale/lease back

Purchase of domain name

Total Investing

(16,061,582 )

Effect of foreign exchange on cash

1 unchanged sentence

Beginning of Year

The accompanying notes are an integral part of theses consolidated financial statements

Supplemental cash flow information (Note 16)

The accompanying notes are an integral part of these consolidated financial statements

PLANET 13 HOLDINGS INC.

3 unchanged sentences

Planet 13 Holdings Inc.

(“P13” or the “Company”) was incorporated under the Canada Business Corporations Act on April 26, 2002 and continued under the British Columbia Business Corporations Act on September 24, 2019.

( “P13”

or the “Company”) was incorporated under the Canada Business Corporations Act on April 26, 2002 and continued under the British Columbia Business Corporations Act on September 24, 2019.

The Company is a vertically integrated cultivator and provider of cannabis and cannabis-infused products that is licensed under the laws of the States of Nevada, California, and Florida with a license lottery win-result in Illinois.

2 unchanged sentences

As of March 2, 2022, by way of acquisition and in addition to the licenses listed above, we added three California cultivation licenses ( one medical and two adult-use), one California cultivation nursery license, one California distribution license, one California license for adult-use manufacture, and one pending California license for cultivation packaging.

P13 is a public company which is listed on the Canadian Securities Exchange (“CSE”) under the symbol PLTH and on the OTCQX exchange under the symbol “PLNHF”.

The Company’s registered office is located at 595 Howe Street, 10 th Floor, Vancouver, BC V6C 2T5 and the head office address is 2548 W.

P13 is a public company which is listed on the Canadian Securities Exchange (“CSE”) under the symbol PLTH and on the OTCQX exchange under the symbol “PLNHF”.

The Company’s registered office is located at Bentall 5, 550 Burrard Street, Suite 2501, Vancouver, BC V6C 285, and the head office address is 2548 W.

Desert Inn Road, Las Vegas, NV 89109.

While cannabis and CBD-infused products are legal under the laws of several U.S.

states (with varying restrictions applicable), the United States Federal Controlled Substances Act classifies all “marijuana” as a Schedule I drug, whether for medical or recreational use.

states (with varying restrictions applicable), the United States Federal Controlled Substances Act classifies all “marijuana”

as a Schedule I drug, whether for medical or recreational use.

federal law, a Schedule I drug or substance has a high potential for abuse, no accepted medical use in the United States, and a lack of safety for use under medical supervision.

3 unchanged sentences

Basis of presentation

These consolidated financial statements reflect the accounts of the Company and have been prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”) and pursuant to the rules and regulation of the U.S.

Securities and Exchange Commission (“SEC”) for all periods presented.

These consolidated financial statements have been prepared on a going concern basis, which assumes that the Company will continue in operation for the foreseeable future and, accordingly, will be able to realize its assets and discharge its liabilities in the normal course of operations as they come due, under the historical cost convention except for certain financial instruments that are measured at fair value, as detailed in the Company’s accounting policies.

Securities and Exchange Commission (“SEC”) for all periods presented.

Failure to arrange adequate financing on acceptable terms and/or achieve profitability may have an adverse effect on the financial position, results of operations, cash flows and prospects of the Company.

2 unchanged sentences

These consolidated financial statements are presented in U.S.

dollars, which is also the Company’s and its subsidiaries’ functional currency.

PLANET 13 HOLDINGS INC.

dollars, which is also the Company’s and its subsidiaries’

functional currency.

These consolidated financial statements were authorized for issuance by the Board of Directors of the Company on March 23, 2023.

13 HOLDINGS INC.

Notes to the Consolidated Financial Statements

(in United States Dollars)

These consolidated financial statements were authorized for issuance by the Board of Directors of the Company on March 28, 2022.

i) Basis of consolidation

11 unchanged sentences

MM Development Company, Inc.

100 % Nevada license holding company;

vertically integrated cannabis operations

BLC Management Company LLC

Holding company

100 % Management/holding company

LBC CBD LLC ("LBC")

1 unchanged sentence

Newtonian Principles Inc.

California, USA

100 % California license holding company;

cannabis retail sales

MM Development MI, Inc.

Holding company

MM Development CA, Inc.

Crossgate Capital U.S.

Holdings Corp.

0 % Holding company

Next Green Wave, LLC

California, USA

0 % California license holding company;

cannabis cultivation and processing

Planet 13 Illinois, LLC

Holding company

Illinois, USA

49 % Illinois license holding company

BLC NV Food, LLC

Food retailing

Planet 13 Florida, Inc.

Holding company

100 % Holding company for By The Slice LLC

By The Slice, LLC

Food retailing

100 % Subsidiary of BLC NV Food, LLC;

restaurant and retail operations

Planet 13 Chicago, LLC

Illinois, USA

100 % Holding company

Planet 13 Florida, Inc.

100 % Florida license holding company

Club One Three, LLC

ii) Variable interest entities

A variable interest entity (“VIE”) is an entity that does not have sufficient equity at risk to finance its activities without additional subordinated financial support or is structured such that equity investors lack the ability to control the entity’s activities or do not substantially participate in the gains and losses of the entity.

Upon inception of a contractual agreement, and thereafter, if a reconsideration event occurs, the Company performs an assessment to determine whether the arrangement contains a variable interest in an entity and whether that entity is a VIE.

The primary beneficiary of a VIE is the party that has both the power to direct the activities that most significantly impact the VIE’s economic performance and the obligation to absorb losses or the right to receive benefits from the VIE that could potentially be significant to the VIE.

Where the Company concludes that it is the primary beneficiary of a VIE, the Company consolidates the accounts of that VIE.

PLANET 13 HOLDINGS INC.

Notes to the Consolidated Financial Statements

(in United States Dollars)

iii) Functional currency

These consolidated financial statements are presented in U.S.

dollars (“USD”), which is the Company’s and its subsidiaries functional currency.

Foreign currency transactions are remeasured to the respective functional currencies of the Company’s entities at the exchange rates in effect on the date of the transactions.

Monetary assets and liabilities denominated in foreign currencies are remeasured to functional currency at the foreign exchange rate applicable at the statement of balance sheets date.

Non-monetary items carried at historical cost denominated in foreign currencies are remeasured to the functional currency at the date of the transactions.

dollars (“USD”), which is the Company’s and its subsidiaries functional currency.

13 HOLDINGS INC.

Notes to the Consolidated Financial Statements

(in United States Dollars)

Foreign currency transactions are remeasured to the respective functional currencies of the Company’s entities at the exchange rates in effect on the date of the transactions.

Monetary assets and liabilities denominated in foreign currencies are measured to functional currency at the foreign exchange rate applicable at the statement of balance sheets date.

Non-monetary items are carried at historical rates.

Non-monetary items carried at fair value denominated in foreign currencies are remeasured to the functional currency at the date when the fair value was determined.

Realized and unrealized foreign exchange gains and losses are recognized through profit and loss.

Realized and unrealized foreign exchange gains and losses are recognized through profit or loss.

iv) Emerging growth company

The Company is an “Emerging Growth Company”, as defined in Section 2(a) of the Securities Act of 1933, as amended (the “Securities Act”), as modified by the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”), and it has taken advantage of certain exemptions that are not applicable to other public companies that are not emerging growth companies including, but not limited to, not being required to comply with the independent registered public accounting firm attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in its periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved.

Further, Section 102(b) (1) of the JOBS Act exempts emerging growth companies from being required to comply with new or revised financial accounting standards until private companies (that is, those that have not has a Securities Act registration statement declared effective or do not have a class of securities registered under the Exchange Act) are required to comply with the new or revised financial reporting standards.

The JOBS Act provides that a company can elect to opt out of the extended transition period and comply with the requirements that apply to non-emerging growth companies but any such election to opt out is irrevocable.

The Company is an “Emerging Growth Company”, as defined in Section 2 (a) of the Securities Act of 1933, as amended (the “Securities Act”), as modified by the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”), and it has taken advantage of certain exemptions that are not applicable to other public companies that are not emerging growth companies including, but not limited to, not being required to comply with the independent registered public accounting firm attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in its periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved.

Further, Section 102 (b) ( 1 ) of the JOBS Act exempts emerging growth companies from being required to comply with new or revised financial accounting standards until private companies (that is, those that have not had a Securities Act registration statement declared effective or do not have a class of securities registered under the Exchange Act) are required to comply with the new or revised financial reporting standards. 

The Company has elected not to opt out of such extended transition period which means that when a standard is issued or revised and it has different application dates for public and private companies, the Company, as an emerging growth company, can adopt the new or revised standard at the time private companies adopt the new or revised standard.

10 unchanged sentences

Net realizable value is defined as the estimated selling price in the ordinary course of business, less reasonably predictable costs of completion, disposal and transportation.

At the end of each reporting period, the Company performs an assessment of inventory and records write-downs for excess and obsolete inventories based on the Company’s estimated forecast of product demand, production requirements, market conditions, regulatory environment, and spoilage.

Actual inventory losses may differ from management’s estimates and such differences could be material to the Company’s balance sheets, statements of net loss and comprehensive loss and statements of cash flows.

PLANET 13 HOLDINGS INC.

13 HOLDINGS INC.

Notes to the Consolidated Financial Statements

8 unchanged sentences

Not depreciated

Land improvements

Land improvements (in years)

Building (in years)

Equipment (in years)

Leasehold improvements

2 unchanged sentences

Not depreciated

An assets residual value, useful life and depreciation method are reviewed at each reporting period with the effect of any changes in estimate accounted for on a prospective basis.

Depreciation of property and equipment commences when the asset is available for use.

Construction in progress includes construction progress payments, deposits, engineering costs and other costs directly related to the construction of the facilities.

Expenditures are capitalized during the construction period and construction in progress in transferred to the relevant class of property and equipment when the assets are available for use, at which point in time the depreciation of the asset commences.

1 unchanged sentence

(d) Intangible assets

Intangible assets include licenses acquired as part of business combinations and other business transactions.

When there is no foreseeable limit on the period of time over which an intangible asset is expected to contribute to the cash flows of the Company, an intangible asset is determined to have an indefinite life.

Indefinite life intangible assets are tested for impairment annually, or more frequently when events or circumstances indicate that impairment may have occurred.

As part of the impairment evaluation, the Company may elect to perform an assessment of qualitative factors.

If this qualitative assessment indicates that it is more likely than not that the fair value of the indefinite-lived intangible asset is less than its carrying value, a quantitative impairment test is required to compare the fair value of the asset to its carrying value.

An impairment charge is recorded if the carrying value exceeds the fair value.

The Company elected to perform a qualitative assessment on November 1, 2021 and determined that it was more likely than not the fair value of the intangible assets was greater than the carrying value.

PLANET 13 HOLDINGS INC.

Intangible assets include licenses acquired as part of business combinations, asset acquisitions and other business transactions.

The Company records intangible assets at cost, net of accumulated amortization and accumulated impairment losses, if any.

Intangible assets acquired in a business combination are measured at fair value on the acquisition date.

Indefinite life intangible assets are tested for impairment annually, or more frequently when events or circumstances indicate that impairment may have occurred. 

As part of the impairment evaluation, the Company may elect to perform an assessment of qualitative factors. 

If the carrying value of an individual indefinite-lived intangible asset exceeds its fair value, such individual indefinite-life intangible asset is impaired by the amount of the excess.

The estimated useful life and amortization method are reviewed at the end of each reporting period, with the effect of any changes in estimate being accounted for on a prospective basis.

The Company's intangible assets have an indefinite life.

13 HOLDINGS INC.

Notes to the Consolidated Financial Statements

(in United States Dollars)

Licenses acquired in a business combination are measured at fair value at the acquisition date.

The estimated useful life and amortization method are reviewed at the end of each reporting period, with the effect of any changes in estimate being accounted for on a prospective basis.

(e) Impairment of long-lived assets

The Company reviews long-lived assets, including property and equipment and definite life intangible assets, for impairment whenever events or changes in circumstances indicate that the carrying value of the asset may not be recoverable.

In order to determine if assets have been impaired, assets are grouped and tested at the lowest level for which identifiable independent cash flows are available (“asset group”).

When indicators of potential impairment are present the Company prepares a projected undiscounted cash flow analysis for the respective asset or asset group.

If the sum of the undiscounted cash flows is less than the carrying value of the asset or asset group, an impairment loss is recognized equal to the excess of the carrying value over the fair value, if any.

Fair value can be determined using a market approach, income approach or cost approach.

(e) Goodwill impairment test

In accordance with the accounting standards, an entity has the option first to assess qualitative factors to determine whether events and circumstances indicate that it is more likely than not that goodwill or an indefinite-lived intangible asset is impaired.

If after such assessment an entity concludes that the asset is not impaired, then the entity is not required to take further action.

However, if an entity concludes otherwise, then it is required to determine the fair value of the asset using a quantitative impairment test, and if impaired, the associated assets must be written down to fair value.

The quantitative impairment test for goodwill compares the fair value of a reporting unit with the carrying value of its net assets, including goodwill.

If the fair value of the reporting unit is less than the carrying value of the reporting unit, an impairment charge would be recorded to the Company’s operations, for the amount in which the carrying amount exceeds the reporting unit’s fair value.

The estimate of fair value requires the use of significant unobservable inputs, representative of a Level 3 fair value measurement.

The Company determines fair values for each reporting unit using the income approach, when available and appropriate, the market approach, or a combination of both.

The income approach involves forecasting projected financial information (such as revenue growth rates, profit margins, tax rates, working capital and capital expenditures) and selecting a discount rate that reflects the risk inherent in estimated future cash flows.

Under the market approach, the fair value is based on observed market data.

If multiple valuation methodologies are used, the results are weighted appropriately.

The Company performs an annual assessment of its goodwill as of December 31, or more frequently, to determine if any events or circumstances exist, such as an adverse change in business climate or a decline in overall industry demand, that would indicate that it would more likely than not reduce the fair value of a reporting unit below its carrying amount, including goodwill.

Impairment of long-lived assets

In order to determine if assets have been impaired, assets are grouped and tested at the lowest level for which identifiable independent cash flows are available (“asset group”). 

When indicators of potential impairment are present the Company prepares a projected undiscounted cash flow analysis for the respective asset or asset group. 

Fair value can be determined using a market approach, income approach or cost approach. 

The reversal of impairment losses is prohibited.

(f) Share-based compensation

The Company has an equity incentive plan which includes issuances of stock options and restricted share units (“RSUs”).

From time to time, the Company also enters into share-based compensation agreements with non-employees.

Share-based compensation

The Company has an equity incentive plan which includes issuances of stock options and restricted share units (“RSUs”). 

From time to time, the Company also enters into share-based compensation agreements with non-employees. 

The accounting for these arrangements typically aligns with those of employees.

After adopting ASU 2018-07 which made amendments to ASC Topic 718, Stock Compensation , an acquirer measures share-based compensation to non-employees in exchange for goods and services in the same manner as share-based payments to employees, using a fair-value based approach measured at the grant date.

This guidance is followed if the acquirer considers the assets and goods to be used or consumed in its own operation.

The Company measures and recognizes compensation expense for stock options and RSUs to employees and non-employees on a straight-line basis over the vesting period based on their grant date fair values.

Prior to the adoption of ASU 2018 07 on January 1, 2019, the fair value of stock options to non-employees were re-measured at each reporting date until one of either of the counterparty’s commitment to perform is established or until the performance is complete.

After adopting ASU 2018 - 07 which made amendments to ASC Topic 718, Stock Compensation, an acquirer measures share-based compensation to non-employees in exchange for goods and services in the same manner as share-based payments to employees, using a fair-value based approach measured at the grant date. 

This guidance is followed if the acquirer considers the assets and goods to be used or consumed in its own operation. 

If not, the Company has elected to account for the equity interests issued in accordance with ASC 805, Business Combinations, based on the fair value of the equity interests issued.

The fair value of share-based compensation to non-employees is periodically remeasured until counterparty performance is complete, and any change therein is recognized over the period and in the same manner as if the Company had paid cash instead of paying with or using equity instruments.

The corresponding amount is recorded to the share-based payment reserve for options and to restricted share units for RSUs.

The Company measures equity settled share-based payments based on their fair value at the grant date and recognizes compensation expense on a straight-line basis over the vesting period.

The amount recognized as expense is adjusted to reflect the number of awards for which the related service and non-market performance conditions are expected to be satisfied, such that the amount ultimately recognized is based on the number of awards that ultimately vest.

The fair value of the options granted is measured using the Black Scholes option pricing model, taking into account the terms and conditions upon which the share-based payments were granted.

The fair value of RSUs is determined using the closing price of the Company’s shares on the day of grant.

The number of RSUs expected to vest is reviewed and adjusted at the end of each reporting period such that the amount recognized for services received as consideration for the equity instruments granted shall be based on the number of equity instruments that eventually vest.

Amounts recorded for forfeited or expired RSUs are transferred to deficit in the year of forfeiture or expiry.

PLANET 13 HOLDINGS INC.

The Company estimates the fair value of stock options on the date of grant using the Black-Scholes option pricing model.

Determining the estimated fair value of at the grant date requires judgment in determining the appropriate valuation model and assumptions, including the fair value of shares on the grant date, risk-free rate, volatility rate, annual dividend yield and the expected term.

The volatility rate is based on historical volatilities of public companies operating in a similar industry to the Company, as well as the Company’s historical volatility.

The expected life in years represents the period of time that options granted are expected to be outstanding.

The risk-free rate is based on the Government of Canada Bond yields on the date of the option grant with a remaining term equal to the expected life of the options.

The Company estimates the fair value of RSUs to be the closing market price of the Company’s stock on the grant date.

13 HOLDINGS INC.

Notes to the Consolidated Financial Statements

(in United States Dollars)

(g) Warrant liability

Warrants are accounted for in accordance with the authoritative accounting guidance in ASC Topic 815, Derivatives and Hedging – Contracts in Entity’s Own Equity (“ASC 815”), as either derivative liabilities or as equity instruments depending on the specific terms of the warrant agreements.

Liability-classified instruments are recorded at fair value at each reporting period with any change in fair value recognized as a component of change in fair value of derivative liabilities in the consolidated statements of operations and comprehensive loss.

Transaction costs allocated to warrants that are presented as a liability are expensed immediately within other (expense) income in the consolidated statement of operations and comprehensive loss.

Refer to paragraph (p) below as well as Note 11 for a discussion on the change in the warrant liability value.

(h) Revenue recognition

The Company earns revenue from the sale of cannabis to customers.

For stock options granted, the Company uses the fair value of common stock at the date of grant.

The Company does not estimate forfeiture rates when calculating compensation expense for stock options or RSUs.

The Company records forfeitures as they occur.

Fully vested, non-forfeitable equity instruments issued to parties other than employees are measured on the date they are issued where there is no specific performance required by the grantee to retain those equity instruments.

Share-based compensation transactions with non-employees are measured at the fair value of the consideration received or the fair value of the equity instruments issued, whichever is more reliably measurable.

Where fully vested, non-forfeitable equity instruments are granted to parties other than employees in exchange for notes or financing receivable, the note or receivable is presented in additional paid-in capital on the balance sheets. 

Warrant liability

Warrants are accounted for in accordance with the authoritative accounting guidance in ASC Topic 815, Derivatives and Hedging –

Contracts in Entity ’

s Own Equity (“ASC 815”

), as either derivative liabilities or as equity instruments depending on the specific terms of the warrant agreements. 

Transaction costs allocated to warrants that are presented as a liability are expensed immediately within other income (expense) in the consolidated statement of operations and comprehensive loss. 

Refer to paragraph (n) below as well as Note 11 for a discussion on the change in the warrant liability value.

Revenue recognition

The Company earns revenue primarily from the sale of cannabis to eligible retail customers at the Company-owned dispensaries, in addition to the wholesale of cannabis products to dispensary locations. 

The Company recognizes revenue to depict the transfer of promised goods or services to the customer in an amount that reflects the consideration to which the Company expects to be entitled in exchange for the performance obligations.

5 unchanged sentences

Recognize revenue when/as performance obligation(s) are satisfied

Revenue from the sale of cannabis is recognized at a point in time when control over the goods has transferred to the customer.

This corresponds when the Company satisfies its performance obligation.

Revenue is recorded net of any point-of-sale discounts provided to the customer.

The Company’s revenues are principally derived from arrangements with fixed consideration.

Variable consideration, if any, is not material.

The majority of the Company’s revenue is cash at point of sale.

Payment is due upon transferring the goods or providing the services to the customer or within a specified time period permitted under the Company’s credit policy.

In those cases where the Company provides goods or services on credit, the Company considers whether or not collection is probable in determining whether a contract exists under ASC 606, Revenue from Contracts with Customers .

Costs associated with goods or services is expensed in the year that the performance obligations are satisfied.

Revenue is recognized when control of the promised goods or services, through performance obligations by the Company, is transferred to the customer in an amount that reflects the consideration it expects to be entitled to in exchange for the performance obligations.

More specifically, wholesale revenues are recognized upon delivery and acceptance by wholesale customers.

Retail revenues are recognized at the point of sale.

Discounts are recorded at the time of revenue recognition. 

Returns were not material during the years ended December 31, 2022, and 2021, but are recognized when the customer is refunded.

Revenues are presented net of discounts and returns.

At one of the Company’s entities, sales are made on consignment and revenue is not recognized until title passes upon delivery of the product by that distributor to their dispensary customers.

Revenue on these sales is recognized upon shipment to the customer.

Sales taxes collected from customers are remitted to the appropriate taxing jurisdictions and are excluded from sales revenue as the Company considers itself a pass-through conduit for collecting and remitting sales taxes.

Excise duties that are both imposed on and concurrent with a specific revenue-producing transaction, that are collected by the Company from a customer are included in revenue.

Freight revenues on all product sales, when applicable, are also recognized, on a consistent manner, at a point in time.

The term between invoicing and when payment is due is not significant and the period between when the entity transfers the promised good or service to the customer and when the customer pays for that good or service is one year or less.

13 HOLDINGS INC.

Notes to the Consolidated Financial Statements

(in United States Dollars)

The following table represents the Company’s disaggregated revenue by sales channel:

$ 90,363,557  

$ 114,792,191  

14,210,820  

4,701,244  

$ 104,574,377  

$ 119,493,435  

Loyalty Points Reward Programs

In certain of its markets, the Company offers a loyalty reward program to its dispensary customers that allows its customers to earn discounts on future purchases.

Loyalty points are earned when a qualifying purchase is made.

When a customer attains a certain number of points, the customer can redeem the credits on future in-store purchases.

 Loyalty points are earned when a qualifying purchase is made. 

When a customer attains a certain number of points, the customer can redeem the credits on future in-store purchases. 

Loyalty points do not have an expiration date.

PLANET 13 HOLDINGS INC.

Notes to the Consolidated Financial Statements

(in United States Dollars)

A portion of the revenue generated in a sale is allocated to the loyalty points earned.

The amount allocated to the points earned is deferred until the loyalty points are redeemed.

Deferred Income

Deferred income represents cash payments received in advance of the Company’s transfer of control of products or services to its customers and generally consists of unearned revenue from the Company’s loyalty programs.

The Company’s deferred income balances were $759,060 and $464,000 as of December 31, 2021 and 2020, respectively, and were recorded within accrued expenses in the consolidated balance sheets.

During the years ended December 31, 2021, 2020 and 2019, the Company recognized $1,136,135, $180,056 and $120,722, respectively, of net revenues from amounts recorded as deferred income.

The deferred income balance as of December 31, 2021 is expected to be recognized as revenue within the next twelve to eighteen months.

The Company determined that no provision for returns or refunds was necessary as at December 31, 2021 or 2020.

State taxes remitted to tax authorities are government-imposed excise taxes on cannabis.

Excise taxes are recorded as a reduction of sales in net revenue in the consolidated statements of operations and comprehensive loss and recognized as a current liability within accrued expenses in the consolidated balance sheets, with the liability subsequently reduced when the taxes are remitted to the tax authority.

In addition, amounts disclosed as net revenues are net of state taxes, sales tax, duty tax, allowances and discounts.

The following table represents the Company’s disaggregated revenue by sales channel:

$ 114,792,191

$ 119,493,435

The Company’s deferred income balances were $ 1,047,781  and $ 759,060 as of December 31, 2022 and 2021 , respectively, and were recorded within accrued expenses in the consolidated balance sheets. 

During the years ended December 31, 2022 and 2021 , the Company recognized $ 1,082,994 and $ 1,136,135 , respectively, of net revenues from amounts recorded as deferred income. 

The deferred income balance as of December 31, 2022 is expected to be recognized as revenue within the next twelve months.

The Company determined that no provision for returns or refunds was necessary as at December 31, 2022 or 2021 . 

Cost of Sales

Cost of sales represents costs directly related to manufacturing and distribution of the Company’s products.

Primary costs include raw materials, packaging, direct labor, overhead, shipping and handling, the depreciation of certain property, plant and equipment, and tariffs.

Manufacturing overhead and related expenses include salaries, wages, employee benefits, utilities, maintenance, and property taxes.

Cost of sales also includes inventory valuation adjustments.

The Company recognizes the cost of sales as the associated revenues are recognized.

The Company determines if an arrangement is a lease at inception.

Operating leases are included in operating right-of-use (“ROU”) assets and operating lease liabilities are included in operating lease liability in the consolidated balance sheets.

Finance lease ROU assets are included in finance ROU assets and finance lease liabilities are included in finance lease liability in the consolidated balance sheets.

ROU assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease.

ROU assets are classified as either a finance lease or an operating lease.

Operating leases are included in operating lease right-of-use (“ROU”) assets and right-of-use liabilities (current and non-current) in the balance sheets.

Finance lease ROU assets and ROU liabilities (current and non-current), if any, are included finance lease in the balance sheets.

ROU assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease.

ROU assets are classified as a finance lease or an operating lease.

A finance lease is a lease in which 1 ) ownership of the property transfers to the lessee by the end of the lease term;

3 unchanged sentences

or 5 ) the underlying asset is of such a specialized nature that it is expected to have no alternative use to the lessor at the end of the lease term.

The Company classifies a lease as an operating lease when the lease does not meet any of these criteria.

PLANET 13 HOLDINGS INC.

The Company classifies a lease as an operating lease when it does not meet any one of these criteria.

13 HOLDINGS INC.

Notes to the Consolidated Financial Statements

1 unchanged sentence

ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term.

As most of the Company’s leases do not provide an implicit rate, the incremental borrowing rate is used based on the information available at commencement date in determining the present value of lease payments.

The Company uses the implicit rate when readily determinable.

The ROU assets also include any lease payments made prior to the commencement date and excludes lease incentives.

The ROU assets also include any lease payments made and excludes lease incentives.

The lease terms may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option.

For finance leases, lease expenses are the sum of interest on the lease obligations and amortization of the ROU assets.

ROU assets are amortized based on the lesser of the lease term or the useful life of the leased asset according to the property and equipment accounting policy.

For finance leases, lease expenses are the sum of interest on the lease obligations and amortization of the ROU assets, resulting in a front-loaded expense pattern.

ROU assets are amortized based on the lesser of the lease term and the useful life of the leased asset according to the property and equipment accounting policy.

If ownership of the ROU assets transfers to the Company at the end of the lease term or if the Company is reasonably certain to exercise a purchase option, amortization is calculated using the estimated useful life of the leased asset, according to the property and equipment accounting policy.

For operating leases, the lease expenses are generally recognized on a straight-line basis over the lease term and recorded to general and administrative expenses in the consolidated statements of operations and comprehensive loss.

The Company has elected to apply the practical expedient in ASC 842 Leases , for each class of underlying asset, except real estate leases, to not separate non-lease components from the associated lease components of the lessee’s contract and account for both components as a single lease component.

Additionally, for certain equipment leases, the Company applies a portfolio approach to effectively account for the operating lease ROU assets and liabilities.

For operating leases, the lease expenses are generally recognized on a straight-line basis over the lease term and recorded to lease expenses or, in the case of leases directly related to the cultivation of cannabis, in cost of goods sold in the statements of operations and comprehensive loss.

The Company has elected to apply the practical expedient, for each class of underlying asset, except real estate leases, to not separate non-lease components from the associated lease components of the lessee’s contract and account for both components as a single lease component.

The Company has elected not to recognize ROU assets and lease liabilities for short-term leases that have a lease term of 12 months or less that do not include an option to purchase the underlying asset that the Company is reasonably certain to exercise.

Short-term leases include real estate and vehicles and are not significant in comparison to the Company’s overall lease portfolio.

The Company continues to recognize the lease payments associated with these leases as expenses on a straight-line basis over the lease term.

(j) Income taxes

(l) Income taxes

Income taxes are comprised of current and deferred taxes.

3 unchanged sentences

Management assesses the likelihood that a deferred tax asset will be realized, and a valuation allowance is provided to the extent that it is more likely than not that all or a portion of a deferred tax asset will not be realized.

Current tax is recognized in connection with income for tax purposes, unrecognized tax benefits and the recovery of tax paid in a prior period and measured using the enacted tax rates and laws applicable to the taxation period during which the income for tax purposes arose.

If it is subsequently determined that the Company will be able to realize deferred tax assets in excess of the net recorded amount, then the valuation allowance will be adjusted accordingly in the period in which this determination is made. Current tax is recognized in connection with income for tax purposes, unrecognized tax benefits and the recovery of tax paid in a prior period and measured using the enacted tax rates and laws applicable to the taxation period during which the income for tax purposes arose.

An unrecognized tax benefit may arise in connection with a period that has not yet been reviewed by the relevant tax authority.

A change in the recognition or measurement of an unrecognized tax benefit is reflected in the period during which the change occurs.

PLANET 13 HOLDINGS INC.

Notes to the Consolidated Financial Statements

(in United States Dollars)

The Company recognizes uncertain income tax positions at the largest amount that is more-likely-than- not to be sustained upon examination by the relevant taxing authority.

1 unchanged sentence

Recognition or measurement is reflected in the period in which the likelihood changes.

Interest and penalties in respect of income taxes are not recognized in the consolidated statement of operations as a component of income taxes but as a component of interest expense.

Interest and penalties in respect of income taxes are not recognized in the consolidated statement of operations and comprehensive loss as a component of income taxes but as a component of interest expense.

As the Company operates in the cannabis industry, it is subject to the limits of U.S.

Internal Revenue Code (“IRC”) Section 280E (“Section 280E”) under which the Company is only allowed to deduct expenses directly related to the cost of producing the products or cost of production.

(k) Sales and marketing

Internal Revenue Code (“IRC”) Section 280E (“Section 280E”

) under which the Company is only allowed to deduct expenses directly related to the cost of producing the products or cost of production.

(m) Sales and marketing expenses

The Company expenses sales and marketing costs when incurred.

Sales and marketing expense was $ 3,504,309 for the year ended December 31, 2022 ( 2021 - $ 5,969,792 ).

2019 - $6,539,483).

(l) Fair value

13 HOLDINGS INC.

Notes to the Consolidated Financial Statements

(in United States Dollars)

(n) Fair value measurements

Fair value is 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.

6 unchanged sentences

The classification of an asset or liability in the hierarchy is based upon the lowest level of input that is significant to the measurement of fair value.

The carrying value of the Company’s cash, accounts receivable, deposits, accounts payable, accrued expenses, and notes payable approximate their fair value due to their short-term nature.

Warrant liability is measured based on level 1 inputs (Note 11 ).

The Company's prepaid and other current assets, long lived assets, including property and equipment, and intangible assets are measured at fair value when there is an indicator of impairment and are recorded at fair value only when an impairment charge is recognized.

(m) Cost of sales

Cost of sales represents costs directly related to manufacturing and distribution of the Company’s products.

Primary costs include raw materials, packaging, direct labor, overhead, shipping and handling, the depreciation of certain property, plant and equipment, and tariffs.

Manufacturing overhead and related expenses include salaries, wages, employee benefits, utilities, maintenance, and property taxes.

Cost of sales also includes inventory valuation adjustments.

The Company recognizes the cost of sales as the associated revenues are recognized.

PLANET 13 HOLDINGS INC.

The Company's prepaid and other current assets, long lived assets, including property and equipment, intangible assets and goodwill are measured at fair value when there is an indicator of impairment and are recorded at fair value only when an impairment charge is recognized.

(o) Loss per share

Basic net loss per share is computed by dividing reported net loss by the weighted average number of common shares outstanding for the reported period.

Diluted earnings per share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock of the Company during the reporting period.

Diluted earnings per share is computed by dividing net loss by the sum of the weighted average number of common shares and the number of potentially dilutive common share equivalents outstanding during the period.

Potential dilutive common share equivalents consist of the incremental common shares issuable upon the exercise of vested share options.

When the Company is incurring losses, basic and diluted loss per share are the same since including the exercise of outstanding options and warrants in the diluted loss per share calculation would be antidilutive. 

(p) Operating segments

Operating segments are components of the Company that engage in business activities which generate revenues and incur expenses (including intercompany revenues and expenses related to transactions conducted with other components of the Company).

The operations of an operating segment are distinct, and the operating results are regularly reviewed by the chief operating decision maker (“CODM”) for the purposes of resource allocation decisions and assessing its performance.

The Company's Co-Chief Executive Officers are the Company's CODM.

The Company determined that each of its locations represents an operating segment.

These operating segments have been aggregated into a single reportable segment as the Company operates as a vertically integrated cannabis company with dispensary, cultivation, production and distribution operations in the state of Nevada and dispensary, cultivation and distribution operations in the state of California.

As at December 31, 2022 and 2021 , all the Company’s non-current assets were located in the United States and 100 % of the Company’s revenue was generated in the United States.

13 HOLDINGS INC.

Notes to the Consolidated Financial Statements

(in United States Dollars)

(n) Earnings (loss) per share

Basic earnings per share (“Basic EPS”) is calculated by dividing the net earnings available to common shareholders by the weighted average number of common shares outstanding during the period.

Diluted earnings per share (“Diluted EPS”) is calculated using the treasury method of calculating the weighted average number of common shares outstanding.

The treasury method assumes that outstanding stock options with an average exercise price below the market price of the underlying shares are exercised and the assumed proceeds are used to repurchase common shares of the Company at the average price of the common shares for the period.

(o) Operating segments

The Company operates in a single reportable operating segment as a vertically integrated cannabis company with cultivation, production and distribution operations in the state of Nevada and dispensary operations in both the state of Nevada and the state of California.

As at December 31, 2021 and 2020, all the Company’s non-current assets were located in the United States and 100% of the Company’s revenue was generated in the United States.

(p) Critical accounting estimates and judgements

The preparation of consolidated financial statements in conformity with GAAP requires the Company’s management to make judgements, estimates and assumptions about future events that affect the amounts reported in the consolidated financial statements.

Although these estimates are based on management’s best knowledge of the amount, event or actions, actual results may differ from those estimates.

Estimates and judgements are continuously evaluated and are based on management’s experience and other factors, including expectations of future events that are believed to be reasonable.

Critical accounting estimates and judgements

Although these estimates are based on management’s best knowledge of the amount, event or actions, actual results may differ from those estimates.

Estimates and judgements are continuously evaluated and are based on management’s experience and other factors, including expectations of future events that are believed to be reasonable. 

Revisions to accounting estimates are recognized in the period in which the estimates are revised and in any future periods affected.

Financial statement areas that require significant judgments are as follows:

Estimated useful lives and depreciation of property and equipment, right-of-use assets

Depreciation and amortization of property and equipment, right-of-use assets and intangible assets are dependent upon estimates of useful lives, which are determined through the exercise of judgment.

Impairment of definite long-lived assets is influenced by judgment in defining a an asset group and determining the indicators of impairment, and estimates used to measure impairment losses.

Refer to Notes 6,  

7 and 8 for further information.

The Company applies judgement in determining whether a contract contains a lease and if a lease is classified as an operating lease or a finance lease.

The Company determines the lease term as the non-cancellable term of the lease, which may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option.

The lease term is used in determining classification between operating lease and finance lease, calculating the lease liability and determining the incremental borrowing rate.

The Company has several lease contracts that include extension and termination options.

2 unchanged sentences

After the commencement date of the lease, the Company reassesses the lease term if there is a significant event or change in circumstances that is within its control and affects its ability to exercise or not to exercise the option to renew or to terminate (e.g., construction of significant leasehold improvements or significant customization to the leased asset).

PLANET 13 HOLDINGS INC.

Notes to the Consolidated Financial Statements

(in United States Dollars)

The Company is required to discount lease payments using the rate implicit in the lease if that rate is readily available.

If that rate cannot be readily determined, the lessee is required to use its incremental borrowing rate.

The Company generally uses the incremental borrowing rate when initially recording real estate leases.

Information from the lessor regarding the fair value of underlying assets and initial direct costs incurred by the lessor related to the leased assets is not available.

The Company determines the incremental borrowing rate as the interest rate the Company would pay to borrow over a similar term the funds necessary to obtain an asset of a similar value to the right-of-use asset in a similar economic environment.

Share-based compensation

The Company uses the Black-Scholes valuation model to determine the fair value of options and warrants granted to employees and non-employees under share-based payment arrangements, where appropriate.

In estimating fair value, management is required to make certain assumptions and estimates such as the expected term of the instrument, volatility of the Company’s future share price, risk free rates, future dividend yields and estimated forfeitures at the initial grant date, by reference to the underlying terms of the instrument, and the Company’s experience with similar instruments.

Changes in assumptions used to estimate fair value could result in materially different results.

Refer to Note 12 for further information.

Estimated useful lives and depreciation of property and equipment, right-of-use assets

Depreciation and amortization of property and equipment, right-of-use assets and intangible assets are dependent upon estimates of useful lives, which are determined through the exercise of judgment.

Impairment of definite long-lived assets is influenced by judgment in defining a reporting unit and determining the indicators of impairment, and estimates used to measure impairment losses.

Refer to Notes 6, 7 and 8 for further information.

Impairment of indefinite life intangible assets

Indefinite life intangible assets are tested for impairment annually, or more frequently when events or circumstances indicate that impairment may have occurred.

As part of the impairment evaluation, the Company may elect to perform an assessment of qualitative factors.

If this qualitative assessment indicates that it is more likely than not that the fair value of the indefinite-lived intangible asset or the reporting unit is less than its carrying value, a quantitative impairment test is required to compare the fair value of the asset to its’ carrying value.

An impairment charge is recorded if the carrying value exceeds the fair value.

Definition of a business

Determination of what constitutes a business for purposes of acquisition accounting requires significant judgement. 

ASC 805 notes that if substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or group of similar identifiable assets, the set is not considered a business.

However, the exact quantitative threshold is not explicitly defined.

During the year ended December 31, 2022, the Company completed one acquisition, further described in Note 7.

Asset Impairment

Asset impairment tests require the allocation of assets to asset groups, where appropriate, which requires significant judgment and interpretation with respect to the integration between the assets and shared resources.

Asset impairment tests require the determination of whether there is an indication of impairment.

The assessment of whether an indication of impairment exists is performed at the end of each reporting period and requires the application of judgment, historical experience, and external and internal sources of information.

The Company makes estimates in determining the future cash flows and discount rates in the quantitative impairment test to compare the fair value to the carrying value.

Valuation of inventory

Inventory is comprised of raw materials, work-in-progress and finished goods.

Cannabis and hemp costs include expenditures directly related to the manufacturing process as well as suitable portions of related production overheads, based on normal operating capacity.

At the end of each reporting period, the Company performs an assessment of inventory and record inventory valuation adjustments for excess and obsolete inventories based on the estimated forecast of product demand, production requirements, market conditions, regulatory environment, and spoilage.

A reserve is estimated to ensure the inventory balance at the end of the year reflects the estimates of product the Company expect to sell in the next year.

Changes in the regulatory structure, lack of retail distribution locations or lack of consumer demand could result in future inventory reserves.

PLANET 13 HOLDINGS INC.

13 HOLDINGS INC.

Notes to the Consolidated Financial Statements

(in United States Dollars)

Warrant liability

Warrants are accounted for in accordance with the applicable authoritative accounting guidance in ASC Topic 815, Derivatives and Hedging - Contracts in Entity’s Own Equity (“ASC 815”), as either derivative liabilities or as equity instruments depending on the specific terms of the warrant agreements.

Liability-classified instruments are recorded at fair value at each reporting period with any change in fair value recognized as a component of the change in fair value of derivative liabilities in the consolidated statements of operations and comprehensive loss.

Transaction costs allocated to warrants that are presented as a liability are expensed immediately within other expenses (income) in the consolidated statements of operations and comprehensive loss.

Refer to paragraph (p) below as well as Note 11 for a discussion on the change in the warrant liability value.

Deferred tax assets and uncertain tax positions

4 unchanged sentences

In projecting future taxable income, the Company considers historical results and incorporates assumptions about the amount of future pretax operating income adjusted for items that do not have tax consequences.

The Company’s assumptions regarding future taxable income are consistent with the plans and estimates that are used to manage its underlying businesses.

In evaluating the objective evidence that historical results provide, the Company considers three years of cumulative operating income (loss).

The income tax expense, deferred tax assets and liabilities and liabilities for unrecognized tax benefits reflect the Company’s best assessment of estimated current and future taxes to be paid.

Deferred tax asset valuation allowances and liabilities for unrecognized tax benefits require significant judgment regarding applicable statutes and their related interpretation, the status of various income tax audits and the Company’s particular facts and circumstances.

The income tax expense, deferred tax assets and liabilities and liabilities for unrecognized tax benefits reflect the Company’s best assessment of estimated current and future taxes to be paid.

Although the Company believes that the judgments and estimates discussed herein are reasonable, actual results, including forecasted COVID- 19 business recovery, could differ, and the Company may be exposed to losses or gains that could be material.

To the extent the Company prevails in matters for which a liability has been established or is required to pay amounts in excess of the established liability, the effective income tax rate in a given financial statement period could be materially affected.

(q) Accounting standards issued but not yet effective

Allowance for credit losses

In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (“ASC 326”):

Measurement of Credit Losses on Financial Instruments.

This guidance was subsequently amended by ASU 2018-19, Codification Improvements, ASU 2019-04, Codification Improvements, ASU 2019-05, Targeted Transition Relief, ASU 2019-10, Effective Dates, and ASU 2019-11, Codification Improvements.

These ASUs are referred to collectively as the new guidance on current expected credit loss (“CECL”).

The standard is effective for non-public business entities for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years.

Early adoption is permitted.

The Company is currently evaluating the effect of adopting this ASU.

PLANET 13 HOLDINGS INC.

Key estimates in these consolidated financial statements include:

Share-based compensation

Changes in assumptions used to estimate fair value could result in materially different results.

Refer to Note 12 for further information.

Valuation of inventory

Inventory is comprised of raw materials, work-in-progress and finished goods.

Cannabis and hemp costs include expenditures directly related to the manufacturing process as well as suitable portions of related production overheads, based on normal operating capacity.

At the end of each reporting period, the Company performs an assessment of inventory and records inventory valuation adjustments for excess and obsolete inventories based on the estimated forecast of product demand, production requirements, market conditions, regulatory environment, and spoilage.

A reserve is estimated to ensure the inventory balance at the end of the year reflects the estimates of product the Company expects to sell in the next year.

Changes in the regulatory structure, lack of retail distribution locations or lack of consumer demand could result in future inventory reserves.

Impairment of indefinite life intangible assets and goodwill

The Company makes estimates in determining the future cash flows and discount rates in the quantitative impairment test to compare the fair value to the carrying value.

13 HOLDINGS INC.

Notes to the Consolidated Financial Statements

(in United States Dollars)

In December 2019, the FASB issued ASU 2019-12, Income Taxes (“ASC 740”) - Simplifying the Accounting for Income Taxes (“ASU 2019-12”), which is intended to simplify various aspects related to accounting for income taxes.

ASU 2019-12 removes certain exceptions to the general principles in ASC 740 and also clarifies and amends existing guidance to improve consistent application.

The standard is effective for non-public business entities for annual reporting periods beginning after December 15, 2021 and including interim periods within those fiscal years, which means that it will be effective for the Company in the first quarter of our year beginning January 1, 2022.

Early adoption is permitted.

The Company is currently evaluating the effect of adopting this ASU.

Debt with conversion options and other options

In August 2020, the FASB issued ASU 2020-06, Debt - Debt with Conversion and Other Options (“ASC 470-20”) and Derivatives and Hedging—Contracts in Entity’s Own Equity (“ASC 815-40”):

Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity (“ASU 2020-06”), which is intended to address issues identified as a result of the complexity associated with applying generally accepted accounting principles (GAAP) for certain financial instruments with characteristics of liabilities and equity.

ASU 2020-06 is effective for public smaller reporting companies and non-public entities in fiscal years beginning after December 15, 2023.

The Company is currently evaluating the effect of adopting this ASU.

Freestanding written call options

In May 2021, the FASB issued ASU 2021-04, Earnings Per Share (“ASC 260”), Debt - Modifications and Extinguishments (“ASC 470-50”), Compensation – Stock Compensation (“ASC 718”), and Derivatives and Hedging - Contracts in Entity's Own Equity (“ASC 815-40”), which clarifies existing guidance for freestanding written call options which are equity classified and remain so after they are modified or exchanged in order to reduce diversity in practice.

The standard is effective for all entities in fiscal years beginning after December 15, 2021, including interim periods within those fiscal years.

Early adoption is permitted, including adoption in an interim period.

The Company is currently evaluating the effect of adopting this ASU.

(r) Accounting standards issued but not yet effective

Business Combinations

In October 2021, the FASB issued ASU 2021-08, Accounting for Contract Assets and Contact Liabilities from Contracts with Customers (“ASU 2021-08”) (“ASC 805”).

In October 2021, the FASB issued ASU 2021 - 08, Accounting for Contract Assets and Contact Liabilities from Contracts with Customers (“ASU 2021 - 08”

) (“ASC 805”

ASU 2021 - 08 requires an acquirer in a business combination to recognize and measure contract assets and contract liabilities from acquired contracts using the revenue recognition guidance under ASC 606 in order to align the recognition of a contract liability with the definition of performance obligation.

2 unchanged sentences

The Company is currently evaluating the effect of adopting this ASU.

(s) Sale-leaseback transactions

From time to time, the Company may enter into sale-leaseback transactions to finance certain property acquisitions and capital expenditures, pursuant to which the Company sells the property to a third party and agrees to lease the property back for a certain period of time.

To determine whether the transfer of the property should be accounted for as a sale, the Company evaluates whether it has transferred control to the third party in accordance with the revenue recognition guidance set forth in ASC 606.

If the transfer of the asset is deemed to be a sale at market terms, the Company recognizes the transaction price for the sale based on the cash proceeds received, derecognizes the carrying amount of the underlying asset and recognizes a gain or loss in the consolidated statements of operations and comprehensive loss for any difference between the carrying value of the asset and the transaction price.

The Company then accounts for the leaseback in accordance with its lease accounting policy.

If the transfer of the asset is determined not to be a sale at market terms, the Company accounts for the transaction as a financing arrangement, and accordingly no asset sale is recognized.

The Company retains the historical costs of the property and the related accumulated depreciation on its books and continues to depreciate the property over the lesser of its remaining useful life or its initial lease term.

The asset is presented within property and equipment, net on the consolidated balance sheets.

All proceeds from these transactions are accounted for as finance obligations and presented as non-current obligations on the consolidated balance sheets.

A portion of the lease payments is recognized as a reduction of the financing obligation and a portion is recognized as interest expense based on an imputed interest rate.

Inventory  

Finished goods inventory consists of dried cannabis, concentrates, edibles, and other products that are complete and available for sale (both internally generated inventory and third -party products purchased in the wholesale market).

Work in process inventory consists of cannabis after harvest, in the processing stage.

Packaging and miscellaneous consist of consumables for use in the transformation of biological assets and other inventory used in production of finished goods.

The Company’s inventory is comprised of:

PLANET 13 HOLDINGS INC.

Notes to the Consolidated Financial Statements

(in United States Dollars)

Packaging and miscellaneous consist of consumables for use in the transformation of biological assets and other inventory used in production of finished goods, non-cannabis merchandise and food and beverage items. 

The Company’s inventory is comprised of:

Raw materials

$ 5,209,667  

Packaging and miscellaneous

1,584,659  

Work in progress

1,965,052  

Finished goods

4,245,461  

$ 13,004,839  

Cost of Inventory is recognized as an expense when sold and included in cost of goods sold.

During the year ended December 31, 2021, the Company recognized $53,485,458 (2020 - $35,394,019;

2019 - $27,086,453) of inventory expensed to cost of goods sold.

During the year ended December 31, 2022 , the Company recognized $ 56,599,623 ( 2021 - $ 53,485,458 ) of inventory expensed to cost of goods sold.

13 HOLDINGS INC.

Notes to the Consolidated Financial Statements

(in United States Dollars)

Prepaid expenses and other current assets

Security deposits

$ 1,399,424  

Advertising and Marketing

348,433  

678,402  

776,717  

Miscellaneous

PLANET 13 HOLDINGS INC.

Notes to the Consolidated Financial Statements

(in United States Dollars)

607,418  

$ 3,810,394  

Property and equipment

carrying amount

Gross carrying amount

At December 31, 2020

At December 31, 2021

(15,607,631 )

At December 31, 2022

7 unchanged sentences

At December 31, 2022

At December 31, 2021

For the year ended December 31, 2021 depreciation expense was $7,213,096 (2020 - $5,269,628, 2019 - $2,971,894) of which $1,922,713 (2020 – $1,637,415, 2019 - $730,839) was included in cost of goods sold.

During the year ended December 31, 2021 the Company transferred $13,680,522 (2020 - $1,242,871, 2019 - $5,146,366) and $1,927,109 (2020 - $65,435, 2019 - $950,535) of costs from Construction in Progress to Leasehold Improvements and Equipment, respectively, upon completion of the related projects.

Intangible assets

For the year ended December 31, 2022 depreciation expense was $ 11,258,697 ( 2021 - $ 7,213,096 ) of which $ 3,293,443 ( 2021 –

$ 1,922,713 ) was included in cost of goods sold.

During the year ended December 31, 2022 the Company transferred $ 6,114,711 ( 2021 - $ 13,680,522 ) and $nil ( 2021 - $ 1,927,109 ) of costs from Construction in Progress to Leasehold Improvements and Equipment, respectively, upon completion of the related projects.

13 HOLDINGS INC.

Notes to the Consolidated Financial Statements

(in United States Dollars)

Intangible assets and goodwill

Retail Dispensary Santa Ana

2 unchanged sentences

Master License Florida

Cultivation Coalinga CA Other Intangibles

Cultivation Coalinga CA Goodwill

carrying amount

Balance, December 31, 2020

Balance at December 31, 2021

PLANET 13 HOLDINGS INC.

Impairment loss

Balance at December 31, 2022

At December 31, 2020

Transfers & disposals

At December 31, 2021

At December 31, 2022

Carrying amount

Balance at December 31, 2021

Balance at December 31, 2022

NGW Acquisition

On March 2, 2022, the Company acquired 100 % ownership interest of Next Green Wave Holdings, Inc.

(“NGW”) and accounted for the transaction as a business combination pursuant to ASC 805.

NGW was incorporated in 2011 and was formed for the purpose of cultivating and selling cannabis products in the state of California, where it owns and operates a cultivation and manufacturing facility. 

The Company executed the NGW transaction in order to introduce certain of its brands to the California market;

complement its dispensary operations in Santa Ana, California;

and expand its California revenue base.

The aggregate purchase price for the NGW transaction was $ 57,574,938 and consisted of $ 14,788 in cash consideration, $ 1,239,818 in replacement options and $ 56,320,332 in share consideration.

The share consideration was comprised of 21,361,002 common shares of the Company at a fair value of $C3.34 per common share, which were issued on March 2, 2022.

13 HOLDINGS INC.

Notes to the Consolidated Financial Statements

(in United States Dollars)

Santa Ana acquisition

On May 20, 2020, the Company closed on its acquisition of Newtonian Principles, Inc.

resulting in the Company acquiring a California cannabis sales license held by Newtonian Principles, Inc.

and a 30-year lease for a dispensary in Santa Ana, California.

The acquisition was accounted for as an asset purchase acquisition as Newtonian Principles, Inc.

was deemed to not be a business under ASC 805 Business Combinations.

The facility became operational in July 2021.

The following table summarizes the allocation of consideration exchanged to the estimated fair value of identifiable intangible assets acquired assumed:

The following table summarizes the allocation of consideration exchanged to the estimated fair value of the tangible and intangible assets acquired:

Consideration paid:

Issuance of 3,940,932 Class A Shares (Note 11)

Issuance of 21,361,002 Class A Shares

Issuance of 1,106,925 replacement options

Fair value of net assets acquired:

Right of use asset

Right of use liability

Accounts Receivable

Property, plant and equipment

Intangible assets

Accounts Payable and Accrued Liabilities

Income taxes payable

Deferred tax liability

Intangible asset - License

W Vapes acquisition

On July 17, 2020, the Company entered into an asset purchase agreement with West Coast Developments Nevada, LLC and W The Brand, LLC (together “WCDN”) pursuant to which the Company acquired cannabis inventory, equipment and tenant improvements located in Las Vegas, Nevada.

The acquisition was accounted for as an asset purchase acquisition as WCDN assets acquired was deemed to not be a business.

The following table summarizes the allocation of consideration exchanged to the estimated fair value of tangible and intangible assets acquired:

Consideration paid:

Issuance of 1,374,833 Class A Shares (Note 11)

Fair value of net assets acquired:

Intangible asset - License

The Company acquired two cultivation licenses (one medical and one recreational), two production licenses (one medical and one recreational) and one conditional distribution license.

The transaction was scheduled to close in two parts, the first closing being cash transferred for the equipment and cannabis inventory which occurred on July 17, 2020, and the second closing (the “Second Closing”) being contingent on the approval to transfer the license and receipt of the cultivation and production licenses from the State of Nevada’s Cannabis Control Board (“CCB”).

On August 25, 2020, the CCB conditionally approved the transfer of the cultivation and production licenses to MMDC, and on September 3, 2020 the Company received the cultivation and production licenses pursuant to a letter from the CCB.

PLANET 13 HOLDINGS INC.

The purchase price allocations for the NGW transaction reflect various fair value estimates and analyses relating to the determination of fair value of certain tangible and intangible assets acquired and residual goodwill.

The Company determined the estimated fair value of the acquired working capital, and identifiable intangible assets and goodwill after review and consideration of relevant information including discounted cash flow analyses, market data and management’s estimates, prepared by an independent valuation firm.

The estimated fair value of acquired working capital was determined to approximate carrying value.

The goodwill arising from the NGW transaction consists of expected synergies from combining operations of the Company and NGW, and intangible assets not qualifying for separate recognition such as formulations, proprietary technologies and acquired know-how.

None of the goodwill is deductible for tax purposes.

NGW’s state cannabis licenses and brands represented identifiable intangible assets acquired in the amounts of $ 11,840,000 and $ 1,340,000 , respectively.

The NGW cannabis licenses acquired have an indefinite life and as such will not be subject to amortization while the brands have a definite useful life of three years.

As of December 31, 2022, the Company evaluated whether intangible assets and goodwill showed any indicators of impairment, and it was determined that such indicators existed. 

As a result of the Company’s analysis, it was determined that the brands and licenses were impaired, resulting in the Company recording an impairment charge of $ 6,947,778 .

In connection with the NGW transaction, the Company expensed $ 1,238,379 of acquisition-related costs, which have been included in general and administrative expenses on the Company’s consolidated statement of operations and comprehensive loss for the year ended December 31, 2022.

13 HOLDINGS INC.

Notes to the Consolidated Financial Statements

(in United States Dollars)

On September 11, 2020, the Company mutually agreed with WCDN that the receipt by the Company of a business license issued by unincorporated Clark County which would permit the Company to conduct business in Clark County (the “Clark County Business License”) was a necessary condition precedent to the Second Closing.

As a result, the Second Closing occurred, and the 1,374,833 common shares in the Capital of the Company were released from escrow to WCDN, on November 27, 2020 upon receipt by the Company of the Clark County Business License.

Concurrent with the first closing of the WCDN assets acquired, RX Land, LLC (“RX Land”), an entity owned by the Corporation’s co-CEOs, acquired the WCDN facility for US$3.3 million and entered into a lease agreement with WCDN in respect of such facility (the “Initial West Bell Lease”).

In accordance with the terms of the WCDN asset acquisition and approvals by the independent directors of Planet 13, WCDN assigned the Initial West Bell Lease to MMDC on November 25, 2020, and MMDC subsequently entered into an amending agreement with RX Land on November 27, 2020, to amend certain terms of such lease agreement including increasing the lease payments, extending the duration of the lease and, if desired, allowing for second floor installation by MMDC without a corresponding lease rate increase due to an increase in facility size.

The entering into by MMDC of the assignment agreement and the amending agreement with RX Land constitutes a “related party transaction”.

By way of an October 10, 2020 letter from the CCB, the Company received a distribution license from WCDN.

Medizin license acquisition

On July 31, 2020, the Nevada Tax Commission approved a settlement agreement between the Nevada Tax Commission, the Corporation and other plaintiffs, and intervening defendants (the “Nevada License Settlement”) in connection with a lawsuit filed by the Company and other defendants after the defendants were notified in December 2018 that no licenses had been awarded to any of the defendants as part of a competitive application process that the Company and the other defendants had participated in for Nevada cannabis dispensary licenses in September 2018.

On August 7, 2020, the CCB convened and approved the Nevada License Settlement.

On September 3, 2020, the CCB transferred the Clark County dispensary license to MMDC.

On November 20, 2020, the Corporation opened the Medizin store location, having received CCB final inspection approvals and a Clark County business license.

The Company has capitalized $690,000 in costs incurred to secure the license under the Nevada License Settlement.

Florida License Acquisition

On September 28, 2021, the Florida Department of Health’s Office of Medical Marijuana Use (“OMMU”) approved the Company to acquire a license to operate a Medical Marijuana Treatment Center issued by the Florida Department of Health from a subsidiary of Harvest Health & Recreation Inc.

The acquisition closed with an effective date of October 1, 2021, and the Company released $55,000,000 of restricted cash that was being held in escrow to the seller in exchange for receipt of the Medical Marijuana Treatment Center license.

PLANET 13 HOLDINGS INC.

NGW's post-acquisition revenues, gross profit and net income included in the Company's results for the period since the closing of the transaction were $ 7,557,860 , $ 373,025 and ($ 37,555 ).

The following tables reflects the revenue, gross profit and comprehensive income (loss) that would have been reported if the acquisition had occurred at the beginning of the years indicated:

Year Ended December 31, 2022

Year Ended December 31, 2021

Revenue, net of discounts

Comprehensive income (loss) for the period

The carrying value of goodwill in each reporting unit is indicative of the expected growth and development of the business.

In the fourth quarter of fiscal 2022, the Company identified qualitative indicators of impairment as a result of a downturn in the wholesale pricing of cannabis. 

The reduction in the price of wholesale cannabis resulted in a downward adjustment of the future financial forecasts for the Company’s NGW business, which indicated that impairment of the goodwill asset was a more-likely-than- not outcome.

A qualitative step zero impairment test was performed on the NGW business which indicated a potential impairment.

The Company conducted a quantitative impairment analysis of its NGW reporting unit using the income approach as at December 31, 2022.

The recoverable amount of the reporting unit to which goodwill is allocated and the asset group to which indefinite life intangibles are allocated were determined based on fair value using Level 3 inputs in a discounted cash flow analysis.

Management tested the NGW asset group for the definite lived assets impairment.

The result was impairment for the definite lived assets of the NGW asset group.

Where applicable, the Company uses its market capitalization and comparative market multiples to corroborate discounted cash flow results.

The significant assumptions applied in the determination of the recoverable amount are described below:

Estimated cash flows were projected based on actual operating results from internal sources as well as industry and market trends.

Estimated cash flows are primarily driven by sales volumes, selling prices and operating costs.

The forecasts are extended to a total of six years (and a terminal year thereafter);

Terminal value growth rate:

The terminal growth rate was based on historical and projected consumer price inflation, historical and projected economic indicators and projected industry growth;

Post-tax discount rate:

The post-tax discount rate is reflective of the reporting unit's Weighted Average Cost of Capital ("WACC").

The WACC was estimated based on the risk-free rate, equity risk premium, beta adjustment to the equity risk premium based on a direct comparison approach, an unsystematic risk premium, and after-tax cost of debt based on corporate bond yields;

The tax rates used in determining the future cash flows were those substantively enacted at the respective valuation date.

The following table outlines the key assumptions used in calculating the recoverable amount for each CGU and operating segment tested for impairment as at December 31, 2022:

Goodwill impairment testing

Significant estimates used by management

Years of cash flows before terminal value

Discount rate

Terminal value multiple

Based on the results of the goodwill impairment test, the carrying value of the NGW reporting unit exceeded the fair value and the Company recognized a pre-tax impairment loss of $ 25,802,688 during the year ended December 31, 2022, relating to the NGW reporting unit.

13 HOLDINGS INC.

Notes to the Consolidated Financial Statements

(in United States Dollars)

Florida License Acquisition

The acquisition closed with an effective date of October 1, 2021, and the Company released $ 55,000,000 of restricted cash that was being held in escrow to the seller in exchange for receipt of the Medical Marijuana Treatment Center license.

The Company has capitalized $ 846,866 in costs incurred to secure the license pursuant to the license acquisition.

On January 1, 2019, the Company adopted ASC 842, Leases (“ASC 842”) using the modified retrospective transition method.

Topic 842 requires the recognition of lease assets and liabilities for operating and finance leases.

Beginning on January 1, 2019, the Company’s consolidated financial statements are presented in accordance with the revised policies.

Management elected to utilize the practical expedients permitted under the transition guidance within Topic 842, which allowed the Company to carry forward prior conclusions about lease identification, classification and initial direct costs for leases entered prior to adoption of Topic 842.

Additionally, management elected not to separate lease and non-lease components for all of the Company’s leases.

For leases with a term of 12 months or less, management elected the short-term lease exemption, which allowed the Company to not recognize right-of-use assets (“ROU”) or lease liabilities for qualifying leases existing at transition and new leases the Company may enter into in the future.

The Company’s lease agreements are for cultivation, manufacturing, retail, and office premises and for vehicles.

The property lease terms range between 7 years and 21 years depending on the facility and are subject to an average of 2 renewal periods of equal length as the original lease.

Leases for vehicles are typically between 4 years and 6 years with no renewal terms.

Certain leases include escalation clauses or payment of executory costs such as property taxes, utilities, or insurance and maintenance.

Rent expense for leases with escalation clauses is accounted for on a straight-line basis over the lease term.

The Company’s lease agreements do not contain any material residual value guarantees or material restrictive covenants.

On initial recognition, the Company recorded operating right-of-use assets of $8,708,316, operating lease liabilities of $8,639,028 and finance ROU assets and finance lease liabilities of $133,561.

On initial recognition, operating ROU assets were adjusted for prepaid rent and deferred rent was reversed which resulted in the Company recording $427,508 to opening accumulated deficit.

The Company’s incremental borrowing rate was used in determining the present value of future payments at the commencement date of the lease.

The Company’s lease agreements do not contain any material residual value guarantees or material restrictive covenants.

The following table provides the components of lease cost recognized in the consolidated statement of operations and comprehensive loss for 2022 and 2021 :

Operating lease costs

$ 4,584,550  

Finance lease costs:

3 unchanged sentences

Short term lease expense

12,406  

Total lease costs

$ 4,596,956  

Other information related to operating and finance leases as of and for the year end December 31, 2022 and 2021 are as follows:

PLANET 13 HOLDINGS INC.

Notes to the Consolidated Financial Statements

(in United States Dollars)

December 31, 2022

1 unchanged sentence

Weighted average discount rate

15.00 %  

Weighted average remaining lease term

The maturity of the contractual undiscounted lease liabilities as of December 31, 2021 and 2020 are:

December 31 , 2021

December 31 , 2020

13 HOLDINGS INC.

Notes to the Consolidated Financial Statements

(in United States Dollars)

The maturity of the contractual undiscounted lease liabilities as of December 31, 2022 and 2021 is:

4,052,167  

4,214,502  

4,302,534  

4,303,434  

4,389,610  

4,566,581  

53,708,289  

Total undiscounted lease liabilities

79,537,117  

Interest on lease liabilities

(49,612,758 )

( 53,224,885 )  

( 49,612,758 )

Total present value of minimum lease payments

26,312,232  

Lease liability - current portion

( 479,161 )  

Lease liability

Principally, all leases relate to real estate.

Additional information on the right-of-use assets is as follows:

Gross carrying amount

Balance, December 31, 2019

Lease modifications

Balance, December 31, 2020

Balance, December 31, 2021

Balance, December 31, 2019

Balance, December 31, 2020

Balance, December 31, 2021

Carrying amount December 31, 2019

Carrying amount December 31, 2020

Carrying amount December 31, 2021

For the year ended December 31, 2021 the Company incurred $4,437,816 of operating lease costs (2020 - $3,227,428;

2019 - $2,019,931), of which $1,829,800 (2020 - $1,112,685;

2019 - $106,947) was capitalized to inventory.

PLANET 13 HOLDINGS INC.

$ 25,833,071  

Principally, all leases relate to real estate. 

For the year ended December 31, 2022 the Company incurred $ 4,584,550 of operating lease costs ( 2021 - $ 4,437,816 ), of which $ 1,840,018  ( 2021 - $ 1,829,800 ) was allocated to cost of goods sold.

On December 22, 2022, the Company entered into a sale-leaseback transaction with an unrelated third -party related to certain real property acquired in connection with the NGW acquisition.

The Company received cash proceeds of $ 1,049,633 and recorded a gain on sale-leaseback of $ 509,392 .

The following are the key terms of the related lease agreement:

Initial term:

Renewal options:

3 additional terms of five years each

Monthly payment:

See Note 16 for additional supplemental cash flow information related to leases.

13 HOLDINGS INC.

Notes to the Consolidated Financial Statements

3 unchanged sentences

Promissory note dated November 4, 2015, with semi-annual interest at 5.0 %, secured by deed of trust, due December 1, 2019

884,000  

$ 884,000  

Less current portion

( 884,000 )  

Stated maturities of debt obligations are as follow:

5 unchanged sentences

Balance at January 1

Shares issued on settlement of RSU's

198,687,950  

Shares issued on settlement of RSUs

81,084  

Shares issued on exercise of options

97,325  

Shares issued on exercise of warrants

Shares issued on financing - July 2020

Shares issued on financing - September 2020

Shares issued on financing - November 2020

242,700  

Shares issued on financing - February 2021

Shares issued on conversion of Class A shares (Note 7)

Shares issued on conversion of Class A shares

Shares issued on acquisition (Note 7)

21,361,002  

Total common shares outstanding on December 31

PLANET 13 HOLDINGS INC.

Notes to the Consolidated Financial Statements

(in United States Dollars)

220,470,061  

Shares issued for Restricted Share Units

During the year ended December 31, 2021, the Company issued 3,126,534 common shares on the settlement of Restricted Share Units (“RSUs”) that had vested during the period.

The Company did not receive any cash proceeds on the settlement.

During the year ended December 31, 2020, the Company issued 2,685,344 common shares on the settlement of Restricted Share Units (“RSUs”) that had vested during the period.

During the year ended December 31, 2022 , the Company issued 81,084 common shares on the settlement of RSUs that had vested during the year.

The Company did not receive any cash proceeds on the settlement.

During the year ended December 31, 2019, the Company issued 3,954,518 common shares on the settlement of RSUs that had vested during the year.

During the year ended December 31, 2021 , the Company issued 3,126,534 common shares on the settlement of RSUs that had vested during the year.

The Company did not receive any cash proceeds on the settlement.

Shares issued for Stock Options

During the year ended December 31, 2021, the Company issued 121,336 common shares on the exercise of options that had a strike price in the range of CAD$0.75 to CAD$1.55 per common share resulting in cash proceeds of $86,216 (CAD$108,987).

During the year ended December 31, 2022 , the Company issued 97,325 common shares on the exercise of options that had a strike price of CAD$1.31  per common share resulting in cash proceeds of $ 97,980 ( CAD$127,496 ).

During the year ended December 31, 2021 , the Company issued 121,336 common shares on the exercise of options that had a strike price in the range of CAD$0.75 to CAD$1.55 per common share resulting in cash proceeds of $ 86,216 ( CAD$108,987 ).

During the year ended December 31, 2019, the Company issued 258,994 common shares on the exercise of options with a strike price in the range of CAD$0.75 to CAD$1.55 per common share resulting in cash proceeds of $175,474 (CAD$231,945).

13 HOLDINGS INC.

Notes to the Consolidated Financial Statements

(in United States Dollars)

Shares issued on the exercise of Warrants

1 unchanged sentence

During the year ended December 31, 2021 , the Company issued 3,772,640 common shares to warrant holders who exercised 3,772,640 warrants resulting in cash proceeds of $ 14,093,793 ( CAD$17,848,084 ).

During the year ended December 31, 2019, the Company issued 4,889,647 common shares to warrant holders who exercised 4,889,647 warrants resulting in cash proceeds of $4,854,711 (CAD$6,480,875).

Shares issued on Financing – July 2020

On July 3, 2020, the Company completed a bought deal financing for aggregate gross proceeds of $8,493,808 (CAD$11,521,850) at a price of CAD$2.15 per unit.

The Company issued 5,359,000 units of the Company.

Each unit was comprised of one common share in the capital of the Company and one-half of one common share purchase warrant.

Each whole warrant entitles the holder to acquire one common share at an exercise price of CAD$2.85 per common share for a period of 24 months.

The Company also issued 321,540 broker warrants that entitle the holder to purchase one common share for a period of 24 months from the closing of the offering at a price of CAD$2.15 per common share.

The broker warrants were measured based on the fair value of the warrants using a Black Scholes valuation model.

The Company incurred $825,359 in cash share issuance costs and $222,398 in broker warrant costs.

The warrants are initially measured at fair value (Note 11) with residual proceeds being allocated to the common shares.

Issuance costs have been allocated in the same proportion, with costs allocated to the warrant liability being expensed as incurred.

The net proceeds were allocated as follows

PLANET 13 HOLDINGS INC.

Notes to the Consolidated Financial Statements

(in United States Dollars)

Gross Proceeds

Issuance Costs

July 3, 2020 Financing

Common shares (APIC)

$ (1,001,461 )

Warrant liability (Note 11)

$ (1,047,757 )

Shares issued on Financing – September 2020

On September 10, 2020, the Company completed a bought deal financing for aggregate gross proceeds of $17,489,401 (CAD$23,019,550) at a price of CAD$3.70 per unit.

The Company issued 6,221,500 units of the Company.

Each unit was comprised of one common share in the capital of the Company and one-half of one common share purchase warrant.

Each whole warrant entitles the holder to acquire one common share at an exercise price of CAD$5.00 per common share for a period of 24 months.

The Company also issued 373,290 broker warrants that entitle the holder to purchase one common share for a period of 24 months from the closing of the offering at a price of CAD$3.70 per common share.

The broker warrants were measured based on the fair value of the warrants using a Black Scholes valuation model.

The Company incurred $1,291,216 in cash share issuance costs and $585,816 in broker warrant costs.

The warrants are initially measured at fair value (Note 11) with residual proceeds being allocated to the common shares.

Issuance costs have been allocated in the same proportion, with costs allocated to the warrant liability being expensed as incurred.

The net proceeds were allocated as follows:

Gross Proceeds

Issuance Costs

September 10, 2020 Financing

Common shares (APIC)

$ (1,788,253 )

Warrant liability (Note 11)

$ (1,877,032 )

Shares issued on Financing – November 2020

On November 5, 2020, the Company completed a bought deal financing for aggregate gross proceeds of $22,141,920 (CAD$28,804,625) at a price of CAD$4.30 per unit.

The Company issued 6,698,750 units of the Company.

Each unit was comprised of one common share in the capital of the Company and one-half of one Common Share purchase warrant.

Each whole warrant entitles the holder to acquire one common share at an exercise price of CAD$5.80 per common share for a period of 24 months.

The Company also issued 401,925 broker warrants that entitle the holder to purchase one common share for a period of 24 months from the closing of the offering at a price of CAD$4.30 per common share.

The broker warrants were measured based on the fair market value of the warrants using a Black Scholes valuation model.

PLANET 13 HOLDINGS INC.

Notes to the Consolidated Financial Statements

(in United States Dollars)

The Company incurred $1,544,014 in cash share issuance costs and $730,523 in broker warrant costs.

The warrants are initially measured at fair value (Note 11) with residual proceeds being allocated to the common shares.

Issuance costs have been allocated in the same proportion, with costs allocated to the warrant liability being expensed as incurred.

The net proceeds were allocated as follows:

Gross Proceeds

Issuance Costs

November 5, 2020 Financing

Common shares (APIC)

$ (2,134,362 )

Warrant liability (Note 11)

$ (2,274,537 )

Shares issued on Financing – February 2021

Shares issued on Financing –

February 2021

On February 2, 2021, the Company completed a bought deal financing for aggregate gross proceeds of $ 53,852,980 ( CAD$69,028,750 ) at a price of CAD$7.00 per unit.

12 unchanged sentences

Common shares (APIC)

$ 50,967,999  

$ ( 4,534,434 )

Warrant liability (Note 11)

2,884,981  

$ 53,852,980  

$ ( 4,791,100 )

Shares issued on conversion of Class A Shares

The Class A restricted shares have equal ratable rights as the Company’s common shares to dividends, all of the Company’s assets that are available for distribution upon liquidation, dissolution or winding up of the Company’s affairs, do not have pre-emptive rights, are entitled to receive notice and attend shareholders meetings and to exercise one vote for each Class A share held at all meetings of shareholders of the Company other than with respect to the vote for the election or removal of directors.

Each Class A shareholder is able to convert each outstanding Class A share at the option of the holder thereof into one common share at any time provided that such conversion would not cause the Company to become a US Domestic Issuer.

1 unchanged sentence

Generally, a company will be considered to be a US Domestic Issuer if:

PLANET 13 HOLDINGS INC.

Notes to the Consolidated Financial Statements

(in United States Dollars)

(A) 50% or more of the holders of a company’s common voting shares are U.S.

(A) 50 % or more of the holders of a company’s common voting shares are U.S.

and either (B) (i) the majority of the executive officers or directors of the Issuer are United States citizens or residents;

1 unchanged sentence

or (iii) the business of the company is principally administered in the United States.

During fiscal 2021, the Company failed the foreign private issuer (“FPI”) test and became a US domestic issuer effective January 1, 2022 (Note 21).

On May 6, 2021, the Company issued 55,232,940 common shares on the conversion of 55,232,940 Class A Shares.

As of December 31, 2021, there were no longer any Class A Shares outstanding.

During fiscal 2021, the Company failed the foreign private issuer (“FPI”) test and became a US domestic issuer effective January 1, 2022.

On May 6, 2021, the Company issued 55,232,940 common shares on the conversion of 55,232,940 Class A Shares. 

As of December 31, 2022 , there were no longer any Class A Shares outstanding. 

13 HOLDINGS INC.

Notes to the Consolidated Financial Statements

(in United States Dollars)

Number of Class A Shares

1 unchanged sentence

Balance at January 1

Shares Issued on Acquisition (Note 7)

Conversion of Class A Shares to Common

3 unchanged sentences

Opening balance as at January 1

$ 7,206,049  

$ 13,204,211  

2,884,981  

( 8,976,258 )

Foreign exchange

( 10,117 )  

100,635  

Change in fair value

( 7,177,805 )  

Closing balance as at December 31

The warrant liability is adjusted to fair value on the date the warrants are exercised and at the end of each reporting period.

$ 18,127  

$ 7,206,049  

The warrant liability is adjusted to fair value on the date the warrants are exercised and at the end of each reporting period. 

The amount that is reclassified to equity on the date of exercise is the fair value at that date.

The following table summarizes the number of warrants outstanding at December 31, 2022 and 2021 :

PLANET 13 HOLDINGS INC.

Notes to the Consolidated Financial Statements

(in United States Dollars)

December 31, 2022

2 unchanged sentences

Weighted Average Exercise Price - CAD

December 31, 2019

Weighted Average Exercise Price - CAD

Balance - beginning of year

(17,532,271 )

8,861,951  

$ 7.46  

7,158,337  

$ 4.98  

5,522,301  

$ 8.79  

( 242,700 )  

$ 5.80  

( 3,772,640 )  

$ 4.73  

( 3,412,788 )  

$ 5.41  

( 46,047 )  

$ 3.75  

Balance - end of year

The Company received cash proceeds of $14,093,793 (CAD$17,848,084) from the exercise of warrants (2020 - $32,653,449 (CAD$43,079,021), 2019 - $4,854,711 (CAD$6,480,875)).

5,206,463  

$ 8.88  

8,861,951  

$ 7.46  

The Company complies with ASC 820, Fair Value Measurement, for its financial assets and liabilities that are re-measured and reported at fair value at each reporting period, and non-financial assets and liabilities that are re-measured and reported at fair value at least annually.

Financial instruments recorded at fair value in the consolidated balance sheet are classified using a fair value hierarchy that reflects the observability of significant inputs used in making the measurements.

In general, fair values determined by Level 1 inputs utilize quoted prices (unadjusted) in active markets for identical assets or liabilities.

Fair values determined by Level 2 inputs utilize data points that are observable such as quoted prices, interest rates and yield curves.

Fair values determined by Level 3 inputs are unobservable data points for the asset or liability, and includes situations where there is little, if any, market activity for the asset or liability.

The fair value hierarchy requires the use of observable market inputs whenever such inputs exist.

A financial instrument is classified to the lowest level of the hierarchy for which a significant input has been considered in measuring fair value.

The following tables present information about the Company’s assets and liabilities that are measured at fair value on a recurring basis as of December 31, 2021 and 2020:

13 HOLDINGS INC.

Notes to the Consolidated Financial Statements

(in United States Dollars)

The following tables present information about the Company’s assets and liabilities that are measured at fair value on a recurring basis as of December 31, 2022 and 2021 :

Quoted prices in active markets for identical asset (Level 1)

2 unchanged sentences

Warrant liability

$ (7,206,049 )

$ ( 18,127 )  

December 31, 2021

Warrant liability

(13,204,211 )

$ ( 7,206,049 )  

1 unchanged sentence

(a) Stock options

The Company has established an incentive stock option plan (the “Plan”) for employees, management, directors, and consultants of the Company, as designated and administered by a committee of the Company’s Board of Directors.

Under the Plan, the Company may grant options for up to 10% of the issued and outstanding common shares of the Company.

The maximum term of an option is five years and the related vesting period runs from immediate to the life of the grant.

PLANET 13 HOLDINGS INC.

Notes to the Consolidated Financial Statements

(in United States Dollars)

Under the Plan, the Company may grant options for up to 10 % of the issued and outstanding common shares of the Company. The maximum term of an option is five years and the related vesting period runs from immediate to the life of the grant.

During the years ended December 31, 2022 and 2021

No incentive stock options were granted during the years ended December 31, 2021 and 2020.

During the year ended December 31, 2019

On January 7, 2019, the Company granted 100,000 incentive stock options to employees of the Company.

These options are exercisable at a price of CAD$1.55 per common share for a period of 5 years from the grant date.

On June 30, 2019, the Company granted 22,500 incentive stock options to employees of the Company.

These options are exercisable at a price of CAD$2.60 per common share for a period of 5 years from the grant date.

On July 4, 2019, the Company granted 100,000 incentive stock options to consultants of the Company.

The options are exercisable at a price of CAD$2.65 per common share for a period of 3 years from the grant date.

The following table summarizes information about stock options outstanding at December 31, 2021, 2020 and 2019:

No incentive stock options were granted during the years ended December 31, 2022 and 2021 , and 1,106,925 replacement options were issued in connection with the NGW acquisition (see Note 7 ).

The replacement options were fully vested upon issuance.

The following table summarizes information about stock options outstanding at December 31, 2022 and 2021 : 

Exercise price

June 11, 2021

December 31, 2022

December 31, 2021

November 21, 2024

February 27, 2025

December 15, 2025

September 30, 2026

June 11, 2023

July 31, 2023

January 7, 2024

June 30, 2024

The employee options vest one third on the grant date and one third on the first and second anniversary of the grant date.

The fair value ascribed to the options issued was $nil

$625,947) and is being recognized as non-cash compensation expense over the vesting period of the options.

13 HOLDINGS INC.

Notes to the Consolidated Financial Statements

(in United States Dollars)

The following assumptions were used to arrive at the value ascribed to the options issued using a Black Scholes Option Pricing model:

January 7, 2019

June 30, 2019

Closing share price in CAD the day prior to granting

Risk-free rate

2 unchanged sentences

Option life in years

Volatility was estimated by comparing the volatility of publicly traded companies that operate in the US cannabis market.

The expected life in years represents the period of time that options granted are expected to be outstanding.

The risk-free rate is based on the Government of Canada Bond yields on the date of the option grant with a remaining term equal to the expected life of the options.

PLANET 13 HOLDINGS INC.

Notes to the Consolidated Financial Statements

(in United States Dollars)

Share based compensation expense attributable to employee options was $3,104 for the year ended December 31, 2021, (2020:

December 31, 2021

Weighted Average Exercise Price - CAD

Share based compensation expense attributable to employee options was $nil  for the year ended December 31, 2022 , ( 2021 :

The fair value of the replacement options issued during the year of $ 1,239,818 was recognized as part of the consideration paid related to the business combination of NGW (Note 7 ).

The outstanding options have a weighted average CAD$ exercise price of:

Weighted average remaining life in years of outstanding options:

December 31, 2022

4 unchanged sentences

Balance - end of year

December 31, 2021

The outstanding options have a weighted average CAD$ exercise price of:

Weighted average remaining life in years of outstanding options:

The total intrinsic value of stock options exercised, outstanding and exercisable as of December 31, 2021, was $274,611, $238,010 and $238,010, respectively.

The total intrinsic value of stock options exercised, outstanding and exercisable as of December 31, 2020, was $1,544,421, $1,221,981 and $1,127,964, respectively.

The total intrinsic value of stock options exercised, outstanding and exercisable as of December 31, 2022 , was $nil.

The total intrinsic value of stock options exercised, outstanding and exercisable as of December 31, 2021 , was $ 274,611 , $ 238,010 and $ 238,010 , respectively.

(b) Restricted Share Units

The Company has established a Restricted Share Unit incentive plan (the “RSU Plan”) for employees, management, directors, and consultants of the Company, as designated and administered by a committee of the Company’s Board of Directors.

Under the RSU Plan, the Company may grant RSUs and/or options for up to 10% of the issued and outstanding common shares of the Company.

Under the RSU Plan, the Company may grant RSUs and/or options for up to 10 % of the issued and outstanding common shares of the Company. 

13 HOLDINGS INC.

Notes to the Consolidated Financial Statements

(in United States Dollars)

The following table summarizes the RSUs that are outstanding as at December 31, 2022 and 2021 :

December 31, 2022

December 31, 2021

Balance - beginning of year

1 unchanged sentence

The Company recognized $ 7,459,267 in share-based compensation expense attributable to RSUs vesting during the year ended December 31, 2022 ($ 15,573,539 for the year ended December 31, 2021 ).

$4,564,167 for the year ended December 31, 2019).

During the year ended December 31, 2022

On April 19, 2021, the Company granted 4,082,474 RSUs to officers, directors, and employees pursuant to the Company’s RSU Plan.

The RSUs granted vest in three equal tranches on November 1, 2021, November 1, 2022, and November 1, 2023, unless otherwise varied pursuant to the terms of the plan.

No RSUs were granted during the year ended 

December 31, 2022 .

The Company issued 81,084 common shares on the exercise of 81,084 RSUs during the year ended 

December 31, 2022 .

During the year ended 

December 31, 2022 , 45,917 RSUs were forfeited.

During the year ended December 31, 2021

On April 19, 2021, the Company granted 4,082,474 RSUs to officers, directors, and employees pursuant to the Company’s RSU Plan. 

The RSUs granted vest in three equal tranches on November 1, 2021, November 1, 2022, and November 1, 2023, unless otherwise varied pursuant to the terms of the plan. 

The value ascribed to the RSUs issued was CAD$8.12.

PLANET 13 HOLDINGS INC.

Notes to the Consolidated Financial Statements

(in United States Dollars)

On June 10, 2021, the Company granted 3,704 RSUs to a consultant of the Company pursuant to the Company’s RSU Plan.

The value ascribed to the RSUs issued was CAD$8.51.

The RSUs vested immediately and were exercised on June 10, 2021.

The Company issued 3,126,534 common shares on the exercise of 3,126,534 RSUs during the year ended December 31, 2021 (2,685,344 common shares on the exercise of 2,685,344 RSU’s for the year ended December 31, 2020;

3,954,518 common shares on the exercise of 3,954,518 RSUs for the year ended December 31, 2019).

During the year ended December 31, 2020

On January 1, 2020, the Company issued 50,000 RSUs under the RSU plan.

The value ascribed to the RSUs issued was CAD$2.57 per share, the closing share price of the Company’s common shares on December 31, 2019.

On June 30, 2020, 6,666 RSUs that were previously granted on June 11, 2018 were cancelled as a result of an employee resignation.

On July 3, 2020, the Company issued 50,518 RSUs under the RSU plan.

The value ascribed to the RSUs issued was CAD$2.04 per share, the closing share price of the Company’s common shares on July 3, 2020.

During the year ended December 31, 2019

On June 24, 2019, 82,362 RSUs that were previously granted on June 11, 2018 were cancelled as a result of a Director not standing for re-election.

On June 30, 2019 the Company issued 3,259,624 RSUs under the RSU plan.

The value ascribed to the RSUs issued was CAD$2.60 per share, the closing share price of the Company’s common shares on June 28, 2019.

136,278 of the RSUs vested immediately and the balance of the RSUs vest 1/3 on January 1, 2020, 1/3 on January 1, 2021 and 1/3 on January 1, 2022.

On August 29, 2019, 82,362 RSUs that were previously granted on June 11, 2018 were cancelled and 152,331 RSUs that were previously granted on June 30, 2019 were cancelled as a result of a Director resignation.

The Company issued 3,126,534 common shares on the exercise of 3,126,534 RSUs during the year ended December 31, 2021.

Loss per share

1 unchanged sentence

December 31, 2021

December 31, 2019

Loss available to common shareholders

$ (19,460,953 )

$ (25,008,729 )

$ (12,303,343 )

Weighted average number of shares outstanding, basic

Weighted average number of shares outstanding, basic and diluted

Basic and diluted loss per share

Approximately 11,623,051, 9,216,425, and 20,083,662 of potentially dilutive securities for the years ended December 31, 2021, December 31, 2020 and December 31, 2019 respectively were excluded in the calculation of diluted EPS as their impact would have been anti-dilutive due to net loss in the year.

PLANET 13 HOLDINGS INC.

Approximately 8,463,909 and 11,623,051 of potentially dilutive securities for the years ended December 31, 2022  and 

December 31, 2021 respectively were excluded in the calculation of diluted EPS as their impact would have been anti-dilutive due to net loss in such years.

13 HOLDINGS INC.

Notes to the Consolidated Financial Statements

3 unchanged sentences

December 31, 2021

December 31, 2019

Current tax expense (recovery)

Current period

$ 10,672,538  

Deferred tax expense (recovery)

Origination and reversal of timing differences

( 5,492,926 )  

( 4,376,359 )

Change in unrecognized temporary differences

3,572,749  

$ 8,752,361  

The actual income tax provision differs from the expected amount calculated by applying the statutory income tax rate to the loss before tax.

2 unchanged sentences

December 31, 2021

December 31, 2019

Loss before income tax

$ (5,982,395 )

$ (17,902,213 )

$ ( 40,227,939 )  

$ ( 5,982,394 )

Statutory income tax rate

21.0 %  

Income tax expense at statutory rate

( 8,447,867 )  

( 1,256,303 )

Increase (reduction) in income taxes resulting from:

Change in fair value of warrant liability

( 1,507,339 )  

Other non-taxable amounts

14,542,266  

Change in valuation allowance

Foreign exchange impacts

3,572,749  

Difference in rates

( 362,832 )  

( 1,159,859 )

955,384  

Income tax expense (benefit)

$ 8,752,361  

Section 280E prohibits businesses engaged in the trafficking of Schedule I or Schedule II controlled substances from deducting normal business expenses, such as payroll and rent, from gross income (revenue less cost of goods sold).

Section 280E was originally intended to penalize criminal market operators, but because cannabis remains a Schedule I controlled substance for Federal purposes, the Internal Revenue Service (“IRS”) has subsequently applied Section 280E to state-legal cannabis businesses.

Cannabis businesses operating in states that align their tax codes with the IRC are also unable to deduct normal business expenses from taxable income subject to state taxes.

1 unchanged sentence

As the application and IRS interpretations on Section 280E continue to evolve, the impact of this cannot be reliably estimated.

Any changes to the application of Section 280E may have a material effect on the Company’s consolidated financial statements.

Deferred tax assets and liabilities have been offset where they relate to income taxes levied by the same taxation authority and the Company has the legal right and intent to offset.

Deferred tax assets (liabilities) are attributable to the following:

PLANET 13 HOLDINGS INC.

Any changes to the application of Section 280E may have a material effect on the Company’s consolidated financial statements.

13 HOLDINGS INC.

Notes to the Consolidated Financial Statements

(in United States Dollars)

December 31, 2021

Deferred tax assets and liabilities have been offset where they relate to income taxes levied by the same taxation authority and the Company has the legal right and intent to offset.

Deferred tax assets (liabilities) are attributable to the following:

December 31, 2022

1 unchanged sentence

Loss carryforwards

$ 11,769,754  

Share issue costs

834,063  

Stock compensation

2,203,368  

Exchange rate difference on monetary assets

709,938  

Accrued expenses

343,416  

Property and equipment

( 1,842,051 )  

( 1,578,803 )

( 1,774,379 )  

Deferred tax assets (liabilities)

12,244,109  

Valuation allowance

( 13,385,056 )  

( 9,812,307 )

Net deferred tax liability

As at December 31, 2021, the Company has $19,139,273 (December 31, 2020 - $12,013,192) in Canadian non-capital loss carryforwards that expire between 2035 and 2040.

$ ( 1,140,947 )  

As at December 31, 2022 , the Company has $ 29,518,011 ( December 31, 2021 - $ 19,139,273 ) in Canadian non-capital loss carryforwards that expire between 2037  and 2042.

In addition, as at December 31, 2022 , the Company has U.S.

federal Net Operating Losses of $49,079,058 (December 31, 2020 - $32,877,923).

The U.S federal Net Operating Losses attributable to 2019 will expire in 2039 and the losses attributable to 2020 onward will have an indefinite carry forward.

federal Net Operating Losses of $ 60,454,476 ( December 31, 2021 - $ 49,079,058 ).

The US federal Net Operating Losses attributable to 2020  onward will have an indefinite carry forward.

As at December 31, 2022 , the Company has California State Net Operating Losses of $ 10,626,327 ( December 31, 2021 - $ 6,529,220 ).

The California state Net Operating will expire in 2040.

The California state Net Operating Losses will expire in 2040.

In March 2020, the U.S.

enacted the Coronavirus Aid, Relief, and Economic Security Act (the “Act”).

The Act, among other provisions, reinstates the ability of corporations to carry net operating losses back to the five preceding tax years, has increased the excess interest limitation on modified taxable income from 30 percent to 50 percent.

The Company has made a reasonable estimate of the effects on existing deferred tax balances and has concluded that the Act has not had a significant on the deferred tax balances.

The Company has made a reasonable estimate of the effects on existing deferred tax balances and has concluded that the Act has not had a significant effect on the deferred tax balances.

The Company believes that, pursuant to Section 7874 of the Code, even though it is organized as a Canadian corporation, the Company should be treated as a U.S.

5 unchanged sentences

federal income tax purposes.

However, no tax opinion or ruling from the Internal Revenue Service (“IRS”) concerning the U.S.

federal income tax characterization of the Company has been obtained and none will be requested.

3 unchanged sentences

domestic corporation, then the acquisition, ownership and disposition of common shares, warrants and common shares received on the exercise of warrants may have materially different implications for Non-U.S.

PLANET 13 HOLDINGS INC.

Notes to the Consolidated Financial Statements

(in United States Dollars)

General and administrative

Salaries and wages

$ 15,231,997  

Share based compensation

7,459,267  

Executive compensation

3,008,508  

Licenses and permits

2,900,282  

Payroll taxes and benefits

4,124,049  

Supplies and office expenses

1,480,108  

Subcontractors

2,589,933  

Professional fees (legal, audit and other)

6,524,583  

Miscellaneous general and administrative expenses

PLANET 13 HOLDINGS INC.

6,076,773  

$ 49,395,500  

13 HOLDINGS INC.

Notes to the Consolidated Financial Statements

3 unchanged sentences

HST Receivable

$ ( 79,012 )  

Accounts Receivable

1,342,487  

4,297,897  

( 7,305,529 )

Prepaid Expenses and Other Assets

167,130  

( 1,780,041 )

Long-term Deposits and Other Assets

199,334  

Deferred Tax Assets

( 183,453 )  

Accounts Payable

127,789  

Accrued Expenses

826,664  

Income Taxes Payable

Other Liabilities

1,574,807  

$ 8,273,643  

$ ( 4,589,077 )

$ 3,720,587  

$ 7,925,000  

Non-cash Financing and Investing Activities

Acquisition of Licenses and Intangible Assets in

Exchange for Shares

Initial Recognition of ROU Assets and Lease Liabilities

Shares issued in business combination

$ 56,320,332  

Issuance of NGW replacement options on acquisition

$ 1,239,818  

Lease additions

$ 2,972,252  

Lease terminations

$ 371,381  

Fixed Asset Amounts in Accounts Payable

Additions to Buildings and Structures on ASC 847 Adoption

Additions to Lease Liabilities on ASC 847 Adoption

Reclassification of Prepaid Rent to Lease Liabilities on ASC 842 Adoption

Warrant liability reclassified to APIC on settlement

Reclass of long-term lease to current lease

Reclassification of long term lease liabilities to current

$ 55,588  

Related Party Transactions and Balances

1 unchanged sentence

a) Building Lease

The Company is the sub-lessee of approximately 2,000 square feet of office space and purchases certain printed marketing collateral and stationery items from a company owned by one of the Company’s Co-CEOs.

Amounts paid for rent for each of the years ended December 31, 2021, 2020 and 2019 was $16,027, $24,040 and $24,040, respectively.

Amounts paid for rent for each of the years ended December 31, 2022 and 2021 was $ 6,010 and $ 16,027 , respectively.

Amounts paid for printed marketing collateral and stationery items to the same company were $ 183,914 and $ 450,692 for the years ended December 31, 2022 and 2021 respectively.

PLANET 13 HOLDINGS INC.

The Company leased a cultivation facility from an entity owned by the Company’s co-CEOs. 

Rent paid for this facility for the years ended December 31, 2022 and 2021 was $nil, and $ 301,894 , respectively. 

On April 30, 2021, the Company’s Co-CEOs sold this building to an arm’s length third party who assumed the lease.

13 HOLDINGS INC.

Notes to the Consolidated Financial Statements

(in United States Dollars)

The Company leased a cultivation facility from an entity owned by the Company’s co-CEOs.

Rent paid for this facility for the years ended December 31, 2021, 2020 and 2019 was $301,894, $339,688, and $nil.

On April 30, 2021, the Company’s Co-CEOs sold this building to an arm’s length third party who assumed the lease.

A company owned by one of the Company’s executives pays the Company for storage space.

Amounts paid to the Company for storage space were $171,895, $62,720 and $nil for the years ended December 31, 2021, 2020 and 2019, respectively, and is recorded in Other Income.

A company owned by one of the Company’s executives pays the Company for storage space. 

Amounts paid to the Company for storage space were $ 5,968 and $ 171,895 for the years ended December 31, 2022 and 2021, respectively, and is recorded in Other Income.

For the years ended December 31, 2022 and 2021, no amounts were due to or from related parties.

Commitments and contingencies

1 unchanged sentence

The Company had no outstanding construction commitments as of December 31, 2022 .

(b) Contingencies

(b)    

Contingencies

The Company's operations are subject to a variety of local and state regulation.

2 unchanged sentences

As a result, the Company may be subject to regulatory fines, penalties, or restrictions in the future.

PLANET 13 HOLDINGS INC.

Notes to the Consolidated Financial Statements

(in United States Dollars)

From time to time, the Company may be involved in litigation relating to claims arising out of operations in the normal course of business.

At December 31, 2021, 2020, and 2019, 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 is an adverse party or has a material interest adverse to the Company’s interest.

At December 31, 2022  and 

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 is an adverse party or has a material interest adverse to the Company’s interest.

(d) Operating Licenses

Although the possession, cultivation, and distribution of marijuana for medical and adult use is permitted in Nevada and California, marijuana is a Schedule-I controlled substance and its use remains a violation of federal law.

Since federal law criminalizing the use of marijuana pre-empts state laws that legalize its use, strict enforcement of federal law regarding marijuana would likely result in the Company’s inability to proceed with our business plans.

In addition, the Company’s assets, including real property, cash, equipment, and other goods, could be subject to asset forfeiture because marijuana is still federally illegal.

Although the possession, cultivation, and distribution of marijuana for medical and adult use is permitted in Nevada, California, Florida and Illinois, marijuana is a Schedule-I controlled substance and its use remains a violation of federal law.

In addition, the Company’s assets, including real property, cash, equipment, and other goods, could be subject to asset forfeiture because marijuana is still federally illegal.

Credit risk is the risk that a third party might fail to discharge its obligations under the terms of a financial instrument.

3 unchanged sentences

The Company evaluates the collectability of its accounts receivable and maintains an allowance for credit losses at an amount sufficient to absorb losses inherent in the existing accounts receivable portfolio as of the reporting dates based on the estimate of expected net credit losses.

Interest rate risk

Interest rate risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in market interest rates. 

The Company currently does not carry variable interest-bearing debt. 

It is management’s opinion that the Company is not exposed to significant interest rate risk.

13 HOLDINGS INC.

Notes to the Consolidated Financial Statements

(in United States Dollars)

Price risk is the risk that the trading price of the Company's shares will fluctuate and result in an increase or decrease in the fair value of the warrant liability.

The Company is not exposed to significant price risk.

Liquidity risk

The Company’s approach to managing risk is to ensure that it will have sufficient liquidity to meet liabilities when due. 

As of December 31, 2022, the Company’s financial liabilities consist of accounts payable, accrued liabilities, obligations under operating leases and taxes. 

The Company manages liquidity risk by reviewing its capital requirements on an ongoing basis. 

Historically, the Company’s main source of funding has been the public issuance of common shares. 

The Company’s access to financing is always uncertain. 

There can be no assurance of continued access to significant equity financing.

Concentration risk

The Company operates exclusively in Southern Nevada and Southern California.

The Company operates primarily in Southern Nevada and Southern California.

Should economic conditions deteriorate within that region, its results of operations and financial position would be negatively impacted.

6 unchanged sentences

Even if the owner of the property was 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.

PLANET 13 HOLDINGS INC.

Notes to the Consolidated Financial Statements

(in United States Dollars)

Currency rate risk

As at December 31, 2021, a portion of the Company’s financial assets and liabilities held in Canadian dollars consist of cash and cash equivalents of $165,943 (2020 - $21,771,531;

2019 - $1,093,191).

The Company’s objective in managing its foreign currency risk is to minimize its net exposure to foreign currency cash flows by transacting, to the greatest extent possible, with third parties in the functional currency.

The Company is exposed to currency rate risk in other comprehensive income, relating to foreign subsidiaries which operate in a foreign currency.

As at December 31, 2022 , a portion of the Company’s financial assets and liabilities held in Canadian dollars consist of cash of $ 1,172,859  ( 2021 - $ 165,943 ).

The Company does not currently use foreign exchange contracts to hedge its exposure of its foreign currency cash flows as management has determined that this risk is not significant at this point in time.

In March 2020, the World Health Organization declared coronavirus COVID-19 a global pandemic.

The outbreak of this contagious disease, along with the related adverse public health developments, have negatively affected workforces, economies, and financial markets on a global scale.

The Company incurred lower revenues, and additional expenditures related to COVID-19 during the first half of 2020.

During the first half of 2020 the Company’s operations in Nevada were mandated as an essential service but were restricted to delivery only, with no curb-side pickup or instore sales permitted until such delivery-only order was lifted on May 30, 2020.

The Company’s operating results were not materially impacted during the second half of 2020.

Currently, the Company is closely monitoring the impact of the pandemic on all aspects of its business and it is not possible for the Company to predict the duration or magnitude of the adverse results of the outbreak and its effects on the Company’s business or results of operations.

The Company’s exposure to a 10% change in the foreign exchange conversion rate at December 31, 2022 equals $ 117,286 .

Subsequent events

On March 2, 2022 (the “ Closing Date ”), the Company completed a business combination of Next Green Wave Holdings Inc.(“ NGW ”).

The Company entered into an arrangement agreement (the “ Arrangement Agreement ”) with NGW on December 20, 2021 pursuant to which the Company agreed to acquire (the “ Arrangement ”) all of the issued and outstanding common shares of NGW (the “ NGW Shares ”) pursuant to a plan of arrangement (the “ Plan of Arrangement ”) under the Business Corporations Act (British Columbia).

The Arrangement was approved by the holders of NGW Shares (the “ NGW Shareholders ”) at a special meeting of NGW Shareholders held on February 25, 2022 and approved by the Supreme Court of British Columbia on March 1, 2022.

Pursuant to the Plan of Arrangement, on March 2, 2022, the Company acquired all of the NGW Shares.

for a total consideration of 21,361,002 Planet 13 common shares (the “ Planet 13 Shares ”), and NGW was then amalgamated with the Company.

The NGW Shareholders received 0.1145 of one Planet 13 Share (the “ Exchange Ratio ”) and a nominal cash payment of C$0.0001 for each NGW Share held.

As a result, 21,361,002 Planet 13 Shares and C$18,656 in cash were issued in exchange for the NGW Shares.

In addition, the number of Planet 13 Shares issued to any person pursuant to the Arrangement was rounded down to the nearest whole Planet 13 Share, with a cash consideration paid in lieu of the issuance of such fractional Planet 13 Share of C$3.379 per share, resulting in an aggregate cash-in-lieu consideration of C$78.

Based upon the Exchange Ratio, all NGW options to acquire NGW Shares that were outstanding immediately prior to the Effective Time were also exchanged for Planet 13 options that entitle the holders to receive, upon exercise thereof, Planet 13 Shares.

1,106,925 Planet 13 replacement options were issued in exchange for the NGW options.

The Company has not yet completed its initial accounting of its business combination with NGW due to the limited time from the acquisition date and the date of these financial statements.

The Company is currently determining the fair values of net assets acquired and the preliminary purchase price allocation.

On February 3, 2023, the Company purchased land and a building in Waukegan, IL for $ 2,183,000 for its planned Illinois dispensary.

On February 7, 2023, the Company purchased the remaining 51 % ownership interest in Planet 13 Illinois from a third party for $ 866,250 cash and the issuance of 1,063,377 common shares of the Company pursuant to an option purchase agreement that was entered into between Frank Cowan, and individual, and the Company on August 4, 2022.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 9A. Controls and Procedures