Planet 13 Holdings Inc. 10-K

Item 9A. Controls and Procedures. 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. 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. In connection with the preparation of this Form 10-K, as of December 31, 2021, an evaluation was performed under the supervision and with the participation of our management, including the co-CEOs and CFO, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act). Based on that evaluation, our management concluded that our disclosure controls and procedures were effective at a reasonable assurance level as of December 31, 2021. 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. Item 9B. Other Information. None. Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections. Not applicable. 72 Table of Contents PART III Item 10. 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. 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. Our Board currently consists of four directors. The following table sets forth our directors and executive officers and their respective positions: Name Age Position Robert Groesbeck 61 Director, Co-Chairman and Co-CEO Larry Scheffler 71 Director, Co-Chairman and Co-CEO Michael Harman 49 Director Adrienne O’Neal 62 Director Dennis Logan 54 Chief Financial Officer Leighton Koehler 43 General Counsel Chris Wren 39 Vice President Operations William Vargas 62 Vice President Finance David Farris 28 Vice President Sales and Marketing Michael Jennings 47 President of East Coast Operations Todd Hybels 42 Vice President of Midwestern Operations Director and Executive Officer Biographies Robert Groesbeck has served as Co-CEO and a director of the Company since June 2018. Prior to that, Mr. Groesbeck served as Co-President of MMDC, a subsidiary of the Company, from 2014 to June 2018. Mr. 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. Mr. Groesbeck earned his B.S. in Criminal Justice from the University of Nevada, a M.B.A. from National University and a J.D. from Western Michigan University. 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. Prior to that, Mr. 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. Mr. Scheffler has also served as a councilman for the city of Henderson, Nevada from 1990 to 1995. Mr. Scheffler has also served as a commissioner on six major commissions in Southern Nevada government and has an extensive background in real estate. He has founded and is managing director of entities controlling over 1,000 acres in three states that are under some form of development. 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. He is the Managing Partner and senior audit partner with HRP CPAs, a certified public accounting and consulting firm, since July 2016. Prior to that, Mr. Harman was a Partner at LLB CPAs from 1998 to June 2016. He holds FINRA series 27 and 63 licenses, serves as Financial Operations Principal for a Broker Dealer in Las Vegas, is a member of the American Institute of Certified Public Accountants, the Turnaround Management Association and the Nevada Society of Certified Public Accountants and is a CPA licensed in the State of Nevada. We believe that Mr. 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. 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. Ms. 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. Ms. 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. She holds a B.S. in Marketing and a M.S. in Marriage and Family Therapy degree from the University of Nevada. 73 Table of Contents 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. He is currently the part-time Chief Financial Officer of BTU Metals Corp. (TSX-V: BTU), a junior exploration company, since August 2017, and is the part-time Chief Financial Officer or Sterling Metals Corp. (TSX-V: SAG), a mineral exploration company, since September 2017. 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: AII), from September 2011 until March 2017. Mr. Logan was also the Chair of the Audit Committee of Magna Terra Minerals Inc. (TSX-V: MTT), a precious metals focused exploration company, from September 2017 until May 2021. From June 2015 until April 2018, he served as the Chairman of the Audit Committee of Eurocontrol Technics Group Ltd. (TSX-V: EUO), a detection and marking systems developer. Mr. Logan started his career in finance and accounting at Ernst & Young LLP in 1992. Leighton Koehler has been the General Counsel of the Company since June 2018. Mr. Koehler is a licensed attorney and CPA, whose previous experience includes working at Dickinson Wright, a U.S.-Canada law firm, as a transactional and tax attorney from October 2016 to May 2018, regional and local law firms Fabian VanCott and Gerrard Cox Larsen from 2013 through October 2016, the Internal Revenue Service as a senior revenue agent from 2007 to 2013, and at Ernst & Young in both the audit and tax divisions from 2004 to 2007. He holds a B.A. and M.A. in Accounting from Southern Utah University, a J.D. from the Boyd School of Law, and he is a U.S. Army veteran. 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. Mr. 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. Mr. 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. Mr. Vargas started his career in finance and accounting as audit manager with Arthur Andersen & Co. in 1995. 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. Mr. Farris has established branding and advertising initiatives in the cannabis marketplace focused on creating an unparalleled experience and patient education. Mr. Farris oversees a multidisciplinary sales and marketing team responsible for advertising, events, promotions, product packaging, design, and web development/design. In addition to creative efforts, he currently oversees the operations at three dispensaries in Nevada and California, including adult-use and medical sales, and wholesale sales in Nevada. Mr. 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. Prior to that, Mr. Jennings served as the Chief Executive Officer of NGW (which was acquired by the Company on March 2, 2022) from August 2019 to March 2022. 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. Mr. 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. 74 Table of Contents Todd Hybels has served as Vice President of Midwestern Operations of the Company since March 2022. Prior to that, Mr. Hybels was the Chief Operating Officer of NGW (which was acquired by the Company on March 2, 2022) from January 2021 to March 2022. Mr. 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. Mr. Hybels’ insight and initiative were integral in scaling NGW operations to a fully operational premium cultivation facility. Prior to his time at NGW, Mr. Hybels provided executive leadership for multi-million dollar construction projects both domestically and internationally, provided strategic leadership to both for-profit and non-profit organizations, and envisioned and built the thriving teams and effective systems necessary to achieve profitable outcomes in each fast-paced, growth-oriented opportunity. Mr. Hybels has a financial background, with a focus on calculated, high-risk commodities. Board Committees We currently have an audit committee, compensation committee and a corporate governance and nominating committee. 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 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. Mr. 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 also has responsibility for fixing compensation levels for our executive officers. In addition, the Compensation Committee is charged with reviewing our incentive plans and proposing changes thereto, approving any awards of options under our incentive plans and recommending any other employee benefit plans, incentive awards and perquisites with respect to our executive officers. The Compensation Committee is also responsible for reviewing, approving and reporting to the Board annually (or more frequently as required) on our succession plans for our executive officers. 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. 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). 75 Table of Contents Item 11. Executive Compensation. In accordance with reduced disclosure rules applicable to emerging growth companies as set forth in Item 402 of Regulation S-K, this section explains how our compensation program is structured for the Co-CEOs and NEOs, as defined below. Compensation Committee The Board as a whole determines the level of compensation in respect of our senior executives. The Compensation Committee is appointed by and reports to the Board. 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 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 ● 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. For the year ended December 31, 2021, we had four NEOs: Robert Groesbeck, Co-CEO; Larry Scheffler, Co-CEO; Dennis Logan, Chief Financial Officer; and Chris Wren, Vice President, Operations. Elements of Compensation In determining such compensation, the Compensation Committee will consider our performance and relative shareholder return and the compensation of CEOs and other senior executive officers at comparable companies. Additionally, the Compensation Committee may consider input from the Co-CEOs on senior executive compensation, but the Co-CEOs may not provide input with respect to their own compensation. A combination of fixed and variable compensation is used to motivate executives to achieve overall company goals. The basic components of the executive compensation program are: 1. 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. 2. Short-Term Incentive Compensation . The short-term incentive compensation is intended to reward an executive officer for his or her yearly individual contribution and performance of personal objectives in the context of our overall annual performance. The short-term incentive compensation is designed to motivate executives annually to achieve their predetermined objectives. In determining compensation and, in particular, short-term incentive compensation, the Compensation Committee and the Board consider factors over which the executive officer can exercise control, such as their role in identifying and completing acquisitions and integrating such acquisitions into our business, meeting any budget targets established by controlling costs, taking successful advantage of business opportunities and enhancing our competitive and business prospects. 76 Table of Contents 3. 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. 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. In establishing the number of stock options that may be granted, reference is made to the recommendations made by the Compensation Committee as well as, from time to time, the number of similar awards granted to officers and directors of other publicly-traded companies of similar size in the same business as us. The Compensation Committee and the Board also consider previous grants of stock options and the overall number of stock options that are outstanding relative to the number of outstanding securities in determining whether to make any new grants and the size and terms of any such grants. With respect to executive officers, the Compensation Committee and the Board also consider the level of effort, time, responsibility, ability, experience and level of commitment of the executive officer in determining the level of long-term equity incentive awards. With respect to directors, the Compensation Committee and the Board also consider committee assignments and committee chair responsibilities, as well as the overall time requirements of the Board members in determining the level of long-term equity incentive awards. 4. 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 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. No dividend equivalents will vest unless the associated Restricted Share Units also vest. In determining new grants of Restricted Share Units, the Compensation Committee and the Board consider factors similar to those contemplated when making new grants of stock options. It is expected that stock options and Restricted Share Units held by management will be taken into consideration by the Compensation Committee at the time of any subsequent grants under the compensation plan in determining the amount or terms of any such subsequent award grants. The Compensation Committee will further consider the base salary, bonuses and competitive market factors. The size of a grant of an award is anticipated to be proportionate to the deemed ability of the individual to make an impact on our success, as determined by the Board. We do not have a defined benefits plan, defined contribution plan, deferred compensation or pension or retirement plan applicable to our NEOs and no plans are currently in place in respect of change of control or termination. 77 Table of Contents 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: Name and Principal Position Year Salary ($) Bonus ($) Stock awards ($)(1) Option awards ($) Non-equity incentive plan compensation ($) Non-qualified deferred compensation earnings ($) All other compensation ($)(2) Total ($) Larry Scheffler 2021 492,918 (3) - 5,472,785 - 492,000 (4) - 29,162 (5) 6,486,865 Co-Chief Executive Officer 2020 280,062 - -- - 28,800 - 16,985 (5) 333,785 Robert Groesbeck 2021 492,918 (3) - 5,472,785 - 492,000 (4) - 37,698 (6) 6,495,401 Co-Chief Executive Officer 2020 288,000 - -- - 28,800 - 17,106 (6) 333,906 Dennis Logan 2021 300,000 - 2,030,402 - 155,520 (4) - 22,496 (7) 2,508,418 Chief Financial Officer 2020 200,000 - -- - 20,000 - 12,523 (7) 232,523 Chris Wren 2021 409,154 (3) - 3,045,606 - 241,032 (4) - 37,164 (8) 3,732,956 Vice President, Operations 2020 240,000 - -- - 24,000 - 35,492 (8) 299,492 Notes: (1) 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). 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, 2021. 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. (2) 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. (3) Reflects actual base salary earnings for 2021 due to payroll timing. (4) The amounts listed for 2021 non-equity incentive compensation plan are amounts accrued for 2021. (5) 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). (6) The amounts consist of car allowance ($15,704 for 2021 and $1,800 for 2020) and health benefits ($21,994 for 2021 and $15,306 for 2020). (7) The amounts consist of car allowance ($14,880 for 2021 and $5,367 for 2020) and health benefits ($7,616 for 2021 and $7,156 for 2020). (8) The amounts consist of car allowance ($15,170 for each of 2021 and 2020) and health benefits ($21,994 for 2021 and $20,322 for 2020). Narrative Discussion For a summary of the significant terms of each NEO’s employment agreement or arrangement, please see below under the heading “ Employment Agreements and Termination and Change of Control Benefits ”. 78 Table of Contents Outstanding Equity Awards at Fiscal Year-End Table The following table sets forth outstanding equity awards for the NEOs at December 31, 2021. All amounts are expressed in US Dollars: Option Awards Stock Awards Equity Equity incentive plan awards: Number of Equity incentive plan awards: Market or payout incentive plan Number Market unearned shares, value of unearned Number of awards: of shares value of units or shares, securities Number of Number of or units shares of other units or underlying securities securities of stock units of rights other unexercised underlying underlying Option that have stock that have rights that options unexercised unexercise d exercise Option not that have not have not (#) option (#) unearned price expiration vested not vested (#) vested ($) Name exercisable unexercisable options (#) ($) date (#) vested ($) (1) (2) Robert Groesbeck - - - - - - - 562,511 1,659,407 Larry Scheffler - - - - - - - 562,511 1,659,407 Dennis Logan - - - - - - - 208,691 615,638 Chris Wren - - - - - - - 313,037 923,459 Notes: (1) 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. (2) 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. Employment Agreements and Termination and Change of Control Benefits Summary of Employment Agreements Larry Scheffler In June 2018, we entered into an employment agreement with Larry Scheffler, our Co-CEO, for an initial term of five years. The agreement provides for payment of an annual base salary to Mr. Scheffler, which for the fiscal year ended December 31, 2021 was USD$500,000 (subject to any further increases as may be approved by the Compensation Committee). Mr. 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. If Mr. 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. 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. If Mr. 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. Scheffler his base salary and continue to provide him with health care benefits at a substantially similar level to the benefits provided to him while he was employed by us. In addition, Mr. Scheffler shall be paid any earned but unpaid annual bonus with respect to any completed calendar year immediately preceding the date of termination and all outstanding equity incentive awards granted to him would fully vest on the date of such termination of employment. The employment agreement also provides for, among other things, confidentiality, non- solicitation and non-competition covenants in favor of the Company. 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. Scheffler extending the term through December 31, 2025. 79 Table of Contents Robert Groesbeck In June 2018, we entered into an employment agreement with Robert Groesbeck, our Co-CEO, for an initial term of five years. The agreement provides for payment of an annual base salary to Mr. Groesbeck, which for the fiscal year ended December 31, 2021 was USD$500,000 (subject to any further increases as may be approved by the Compensation Committee). Mr. 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. If Mr. 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 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. If Mr. 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. Groesbeck his base salary and continue to provide him with health care benefits at a substantially similar level to the benefits provided to him while he was employed by us. In addition, Mr. Groesbeck shall be paid any earned but unpaid annual bonus with respect to any completed calendar year immediately preceding the date of termination and all outstanding equity incentive awards granted to him would fully vest on the date of such termination of employment. The employment agreement also provides for, among other things, confidentiality, non-solicitation and non-competition covenants in favor of the Company. 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. Groesbeck extending the term through December 31, 2025. Dennis Logan In June 2018, we entered into an employment agreement with Dennis Logan, our Chief Financial Officer, which agreement was amended in January 2019, for an initial term of five years. The amended agreement provides for payment of an annual base salary to Mr. Logan, which for the fiscal year ended December 31, 2021 was USD$300,000 (subject to any further increases as may be approved by the Compensation Committee). Mr. 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. If Mr. 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 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. If Mr. 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. Logan his base salary and continue to provide him with health care benefits at a substantially similar level to the benefits provided to him while he was employed by us. In addition, Mr. Logan shall be paid any earned but unpaid annual bonus with respect to any completed calendar year immediately preceding the date of termination and all outstanding equity incentive awards granted to him would fully vest on the date of such termination of employment. The employment agreement also provides for, among other things, confidentiality, non-solicitation and non-competition covenants in favor of the Company. 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. 80 Table of Contents Chris Wren In June 2018, we entered into an employment agreement with Chris Wren, our Vice President, Operations, for an initial term of five years. The agreement provides for payment of an annual base salary to Mr. Wren, which for the fiscal year ended December 31, 2021 was USD$415,000 (subject to any further increases as may be approved by the Compensation Committee). Mr. 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. If Mr. 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 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. If Mr. 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. Wren his base salary and continue to provide him with health care benefits at a substantially similar level to the benefits provided to him while he was employed by us. In addition, Mr. Wren shall be paid any earned but unpaid annual bonus with respect to any completed calendar year immediately preceding the date of termination and all outstanding equity incentive awards granted to him would fully vest on the date of such termination of employment. The employment agreement also provides for, among other things, confidentiality, non-solicitation and non-competition covenants in favor of the Company. 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. Wren extending the term through December 31, 2025. Director Compensation Table We do not provide separate or additional compensation to directors who are also executives in connection with their services as a director. We adopted a director compensation plan effective January 1, 2021 which provides for the payment of annual base fees to non-employee directors of $100,000 each that is payable quarterly in arears. Other than as set out in the table below and prior to January 1, 2021, no non-employee director has received compensation pursuant to: (a) any standard arrangement for the compensation of directors for their services in their capacity as directors, including any additional amounts payable for committee participation or special assignments; (b) any other arrangement, in addition to, or in lieu of, any standard arrangement, for the compensation of directors in their capacity as directors; or (c) any arrangement for the compensation of directors for services as consultants or experts. The following table sets forth all compensation paid to or earned, or recognized as an expense in accordance ASC Topic 718, by each non-employee director during our fiscal year ended December 31, 2021. All amounts are expressed in US Dollars: Fees e arned or paid in Stock awards Option awards Non-equity incentive plan compensation Non qualified deferred compensation earnings All other compensation Total Name cash($) ($)(1) ($) ($) ($) ($) ($) Michael Harman 100,000 1,352,250 - - - - 1,452,250 Adrienne O’Neal 100,000 1,352,250 - - - - 1,452,250 Notes: (1) 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. 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. 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. 81 Table of Contents Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters. The following table sets forth the beneficial ownership of our voting securities as of March 15, 2022 for (i) each member of the Board, (ii) each named executive officer (as defined herein), (iii) each person known to us to be the beneficial owner of more than 5% of our voting securities and (iv) the members of the Board and our executive officers as a group. 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. The percentage ownership in the below table is based on 220,048,952 Common Shares outstanding as of March 15, 2022. 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. The address for each director and executive officer is c/o Planet 13 Holdings Inc., 2548 West Desert Inn Road, Suite 100, Las Vegas, Nevada 89109. Common Shares Name of Beneficial Owner Number Beneficially Owned Percent of Total Common Shares Larry Scheffler 39,470,205 (1) 17.94 % Robert Groesbeck 38,818,935 (2) 17.64 % Dennis Logan 183,258 (3) * Chris Wren 4,256,926 (4) 1.93 % Michael Harman 226,602 * Adrienne O’Neal 137,216 * All directors and executive officers as a group (11 persons) 86,474,043 39.3 % * Less than one percent. _____________ ( 1) 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. 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. (2) 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. 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. (3) Beneficial ownership includes 56,887 Common Shares owned securities through his registered retirement savings plan. Mr. Logan has the sole voting power over 183,528 Common Shares, shared voting power over no Common Shares, sole dispositive power over 183,528 Common Shares and shared dispositive power over no Common Shares. (4) 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. 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. 82 Table of Contents 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 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. Eligible participants under the Compensation Plans include non-employee directors, officers (including the named executive officers), employees, consultants and advisors of the Company and its subsidiaries. As of December 31, 2021: (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. As a result, Stock Options/ Restricted Share Units under our equity compensation plans to purchase/receive a total of 17,107,695 Common Shares, representing approximately 8.61% of the total issued and outstanding Common Shares, were available for grant as of December 31, 2021. 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: Number of securities remaining available for Number of future issuance securities to be Weighted- under equity issued upon average exercise compensation exercise of price of plans (excluding outstanding outstanding securities options and options and reflected in Plan Category rights (a) rights (b) column (a))(c) Stock Option Plan 169,168 CAD$1.52 17,107,691 Amended and Restated Share Unit Plan 2,591,936 - 17,107,691 Total 2,761,104 - 17,107,691 Item 13. Certain Relationships and Related Transactions, and Director Independence. Transactions with Related Persons The following is a description of each transaction since January 1, 2020 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 ● 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. 83 Table of Contents 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.” 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. WCDN Acquisition Concurrent with the first closing of the WCDN Acquisition previously described herein, RX Land, an entity that was owned by our Co-CEOs, acquired the WCDN Acquisition Facility for US$3.3 million and entered into Initial West Bell Lease. 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 We have adopted a written related person transactions policy that provides that our executive officers, directors, nominees for election as a director, beneficial owners of more than 5% of any class of our voting securities, and any members of the immediate family of the foregoing persons, are not permitted to enter into a material related person transaction with us without the review and approval of our Audit Committee. 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. 84 Table of Contents Promoters 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: (i) Mr. 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. 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); 85 Table of Contents ● 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. Ms. 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. We also meet the director independence requirements for our listing with the OTCQX Best Market, being a minimum of two independent directors and a majority of the audit committee being comprised of independent directors. However, our shares are not currently quoted or listed on any U.S. national exchange or interdealer quotation system that has a requirement that a majority of our Board be independent. Code of Ethics 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. 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. Item 14. 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: For the fiscal years ended December 31, 2021 December 31, 2020 Audit Fees (1) $ 622,104 $ 593,375 Audit Related Fees (2) 21,187 71,760 Tax Fees (3) 10,371 17,338 Total Fees : $ 652,662 $ 687,473 _______________ (1) Audit Fees consist of audit of annual financial statements and review of financial statements. (2) Audit Related Fees consist of the review and consents associated with prospectus offerings. (3) Tax Fees consist of preparation fees associated with preparing Corporate federal income tax returns. 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. 86 Table of Contents PART IV Item 15. Exhibits, Financial Statement Schedules. The financial statements required to be included in this Annual Report on Form 10-K appear immediately following the signature page to this Annual Report on Form 10-K beginning on page F-1. EXHIBIT INDEX Exhibit No. Description 2.1*§ 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). 2.2§ 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). 2.3* 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). 2.4 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). 2.5* 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) 2.6* 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). 3.1 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). 3.2 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). 3.3 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). 4.1 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). 4.2 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). 4.3 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). 4.4 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). 4.5 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). 4.6 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). 4.7 Description of Securities Registered Pursuant to Section 12 of the Securities Exchange Act of 1934 (filed herewith) 10.1* 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). 87 Table of Contents 10.2§ 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). 10.3 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). 10.4* 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). 10.5 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). 10.6+ 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). 10.7+ 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). 10.8+ 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). 10.9+ 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). 10.10+ 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). 10.11+ 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). 10.12+ 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). 10.13+ 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). 21 List of Subsidiaries of Planet 13 Holdings Inc. (filed herewith). 31.1 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). 31.2 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). 31.3 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). 32.1 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). 104 Cover Page Interactive Data File - the cover page XBRL tags are embedded within the inline XBRL documents (filed herewith). ____________ * Certain information has been excluded from this exhibit because it is both (i) not material and (ii) private or confidential. § This filing omits exhibits and/or schedules pursuant to Item 601(a)(5) of Regulation S-K. + Indicates a management contract or compensatory plan, contract or arrangement in which directors or executive officers participate. Item 16. Form 10-K Summary None. 88 Table of Contents SIGNATURES 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. Date: March 28, 2022 By: /s/ Robert Groesbeck Robert Groesbeck Co-Chief Executive Officer By: /s/ Larry Scheffler Larry Scheffler Co-Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this Report has been signed below by the following persons on behalf of the Registrant in the capacities and on the dates indicated. Name Title Date /s/ Robert Groesbeck Co-Chief Executive Officer and Director, March 28, 2022 Robert Groesbeck (Principal Executive Officer) /s/ Larry Scheffler Co-Chief Executive Officer and Director, March 28, 2022 Larry Scheffler (Principal Executive Officer) /s/ Dennis Logan Chief Financial Officer March 28, 2022 Dennis Logan (Principal Financial and Accounting Officer) /s/ Michael Harman Director March 28, 2022 Michael Harman /s/ Adrienne O’Neal Director March 28, 2022 Adrienne O’Neal 89 PLANET 13 HOLDINGS INC. Index to Financial Statements Page(s) INDEPENDENT AUDITOR’S REPORT PCAOB # 731 F-2 FINANCIAL STATEMENTS: Consolidated Balance Sheets F-3 Consolidated Statements of Operations and Comprehensive Loss F-4 Consolidated Statements of Changes in Shareholders’ Equity F-5 Consolidated Statements of Cash Flows F-6 Notes to the Consolidated Financial Statements F-7 F-1 Table of Contents Report of Independent Registered Public Accounting Firm To the Shareholders and Directors of Planet 13 Holdings Inc. Opinion on the Consolidated Financial Statements 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”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2021 and 2020, and the results of its operations and its cash flows for the years ended December 31, 2021, 2020 and 2019, 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. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. 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. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. 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 Vancouver, Canada Chartered Professional Accountants March 28, 2022 F-2 Table of Contents PLANET 13 HOLDINGS INC. Consolidated Balance Sheets (In United States Dollars) December 31, December 31, 2021 2020 ASSETS Current Assets: Cash $ 61,588,843 $ 79,000,850 Accounts Receivable 1,216,128 436,874 Inventory 14,225,369 6,919,840 Prepaid Expenses and Other Current Assets 3,977,524 2,198,005 Total Current Assets 81,007,864 88,555,569 Property and Equipment 50,778,277 32,073,925 Intangible Assets 63,398,007 7,551,141 Right of Use Assets - Operating 20,399,965 20,497,895 Right of Use Assets - Finance - 44,672 Long-term Deposits and Other Assets 1,061,879 1,054,443 Deferred Tax Asset 162,804 - TOTAL ASSETS $ 216,808,796 $ 149,777,645 LIABILITIES AND SHAREHOLDERS' EQUITY LIABILITIES Current: Accounts Payable $ 3,266,783 $ 1,681,027 Accrued Expenses 7,032,620 2,844,714 Income Taxes Payable 1,126,249 1,446,235 Notes Payable - Current Portion 884,000 884,000 Operating Lease Liabilities 423,573 161,021 Finance Lease Liabilities - 46,372 Total Current Liabilities 12,733,225 7,063,369 Long-Term Liabilities: Operating Lease Liabilities 23,134,012 22,365,892 Warranty Liability 7,206,049 13,204,211 Other Long-term Liabilities 28,000 28,000 Deferred Tax Liability - 410,359 Total Liabilities 43,101,286 43,071,831 Shareholders' Equity Common Shares, no par value, unlimited Common Shares authorized, 198,687,950 issued and outstanding at December 31, 2021 and 126,573,250 at December 31, 2020 - - 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– 245,861,704 159,399,056 Retained Earnings (Deficit) (72,154,194 (52,693,242 ) Total Shareholder's Equity 173,707,510 106,705,814 TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 216,808,796 $ 149,777,645 The accompanying notes are an integral part of theses consolidated financial statements F-3 Table of Contents PLANET 13 HOLDINGS INC. Consolidated Statements of Operations and Comprehensive Loss (In United States Dollars, except share amounts) December 31, 2021 2020 2019 Revenues, net of discounts $ 119,493,435 $ 70,491,280 $ 63,595,036 Cost of Goods Sold (53,485,458 ) (35,394,019 ) (27,086,453 ) Gross Profit 66,007,977 35,097,261 36,508,583 Expenses: General and Administrative 59,928,356 27,416,166 25,230,274 Sales and Marketing 5,969,792 3,305,639 6,539,483 Lease Expense 2,608,016 2,114,743 1,912,984 Depreciation and Amortization 5,335,055 3,674,907 2,287,249 Total Expenses 73,841,219 36,511,455 35,969,990 Income (Loss) From Operations (7,833,242 ) (1,414,194 ) 538,593 Other Income (Expense): Interest expense, net (16,984 ) (22,202 ) (27,073 ) Foreign exchange gain (loss) 1,662,679 398,524 (271,240 ) Transaction costs (256,667 ) (275,250 ) - Change in fair value of warrant liability 7,520 (16,805,941 ) (5,541,590 ) Other Income, net 454,300 216,850 350,775 Total Other Expense 1,850,848 (16,488,019 ) (5,489,128 ) Loss Before Provision for Income Taxes (5,982,394 ) (17,902,213 ) (4,950,535 ) Provision For Income Taxes Current Tax Expense (13,954,784 ) (7,239,936 ) (7,352,808 ) Deferred Tax Recovery 476,226 133,420 - (13,478,558 ) (7,106,516 ) (7,352,808 ) Net Loss $ (19,460,952 ) $ (25,008,729 ) $ (12,303,343 ) Loss per Share Basic and diluted loss per share $ (0.10 ) $ (0.16 ) $ (0.09 ) Weighted Average Number of Common Shares Basic and diluted 195,126,972 151,825,439 134,074,476 The accompanying notes are an integral part of theses consolidated financial statements F-4 Table of Contents PLANET 13 HOLDINGS INC. Consolidated Statements of Changes in Shareholders' Equity (In U.S. Dollars, except share amounts) Number of Common Shares Class A Restricted Shares Warrants Additional Paid-in Capital Accumulated Deficit Total Shareholders’ Equity Balance, January 1, 2019 73,324,460 55,232,940 1,195,825 $ 43,471,739 $ (15,808,678 ) $ 27,663,061 Impact of Adoption of ASC 842 - - - - 427,508 427,508 Shares Issued on Settlement of RSUs 3,954,518 - - - - - Share based Compensation - RSUs - - - 4,564,167 - 4,564,167 Shares Issued on Exercise of Broker Warrants 608,110 - (608,110 ) 368,310 - 368,310 Shares Issued on Exercise of Other Warrants 4,281,537 - - 9,909,541 - 9,909,541 Shares Issued on Exercise of Options 258,994 - - 175,474 - 175,474 Share Based Compensation - Options - - - 258,620 - 258,620 Net Loss for the Year - - - - (12,303,343 ) (12,303,343 ) Balance, December 31, 2019 82,427,619 55,232,940 587,715 $ 58,747,851 $ (27,684,513 ) $ 31,063,338 Balance, January 1, 2020 82,427,619 55,232,940 587,715 58,747,851 (27,684,513 ) 31,063,338 Shares Issued upon Conversion 3,940,932 (3,940,932 ) - 4,453,831 - 4,453,831 Shares Issued for Acquisition 1,374,833 3,940,932 - 2,918,277 - 2,918,277 Shares Issued on Settlement of RSUs 2,685,344 - - - - - Share based Compensation - RSUs - - - 2,456,018 - 2,456,018 Shares Issued on Exercise of Broker Warrants 1,533,507 - (1,533,507 ) 3,220,099 - 3,220,099 Shares Issued on Exercise of Other Warrants 15,998,764 - - 45,155,719 - 45,155,719 Shares Issued on Exercise of Options 333,001 - - 217,990 - 217,990 Share Based Compensation - Options - - - 56,550 - 56,550 Shares Issued on Bought Deal Financings, net 18,279,250 - 1,096,755 42,172,721 - 42,172,721 Net Loss for the Year - - - - (25,008,729 ) (25,008,729 ) Balance, December 31, 2020 126,573,250 55,232,940 150,963 $ 159,399,056 $ (52,693,242 ) $ 106,705,814 Balance, January 1, 2021 126,573,250 55,232,940 150,963 159,399,056 (52,693,242 ) 106,705,814 Shares Issued on Settlement of RSUs 3,126,534 - - - - - Share based Compensation - RSUs - - - 15,573,539 - 15,573,539 Shares Issued on Exercise of Broker Warrants 446,801 - (446,801 ) 2,163,065 - 2,163,065 Shares Issued on Exercise of Other Warrants 3,325,839 - - 20,906,989 - 20,906,989 Shares Issued on Exercise of Options 121,336 - - 86,216 - 86,216 Share Based Compensation - Options - - - 3,104 - 3,104 Shares Issued on Bought Deal Financings, net 9,861,250 - 591,676 47,729,735 - 47,729,735 Shares Issued on Conversion of Class A Shares 55,232,940 (55,232,940 ) - - - - Net Loss for the Year - - - - (19,460,952 ) (19,460,952 ) Balance, December 31, 2021 198,687,950 - 295,838 $ 245,861,704 $ (72,154,194 ) $ 173,707,510 The accompanying notes are an integral part of theses consolidated financial statements F-5 Table of Contents PLANET 13 HOLDINGS INC. Consolidated Statements of Cash Flows (In United States Dollars) December 31, 2021 December 31, 2020 December 31, 2019 CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES Net loss $ (19,460,952 ) $ (25,008,729 ) $ (12,303,343 ) Adjustments for items not involving cash: Shared based compensation expense 15,576,643 2,512,568 4,822,787 Non-cash lease expense 4,485,919 3,539,018 2,145,541 Depreciation 7,213,096 5,269,627 2,971,894 Loss on disposal of assets - - 82,882 Change in fair value of warrant liability (7,520 ) 16,805,941 5,541,590 (Gain) loss on translation of warrant liability 100,637 (293,450 ) 468,740 Transaction costs 256,667 275,250 - Deferred tax liability (410,359 ) (133,470 ) - Unrealized (gain) loss on foreign currency exchange (185,916) (542,000 ) 211,097 7,568,215 2,558,225 3,941,188 Net Changes in Non-cash Working Capital Items (4,589,077 ) (3,910,072 ) 2,007,378 Repayment of lease liabilities (3,359,021 ) (2,337,006 ) (1,247,546 ) Total Operating (379,883 ) (3,688,853 ) 4,701,020 FINANCING ACTIVITIES Proceeds from private placements 53,852,980 48,125,129 - Proceeds from exercise of warrants and options 14,180,009 32,871,439 5,030,185 Financing issuance expenses (3,494,930 ) (3,660,589 ) - Total Financing 64,538,059 77,335,979 5,030,185 INVESTING ACTIVITIES Purchase of property, plant and equipment (25,909,880 ) (4,481,058 ) (16,061,582 ) Purchase of licenses (55,846,866 ) (3,550,400 ) - Total Investing (81,756,746 ) (8,031,458 ) (16,061,582 ) Effect of foreign exchange on cash 186,563 570,470 (218,997 ) NET CHANGE IN CASH DURING THE YEAR (17,598,570 ) 66,186,138 (6,549,374 ) CASH Beginning of Year 79,000,850 12,814,712 19,364,086 End of Year $ 61,588,843 $ 79,000,850 $ 12,814,712 The accompanying notes are an integral part of theses consolidated financial statements F-6 Table of Contents PLANET 13 HOLDINGS INC. Notes to the Consolidated Financial Statements (in United States Dollars) 1. NATURE OF OPERATIONS 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. 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. We are licensed in these jurisdictions as follows: six Nevada licenses for cultivation (three medical and three adult-use), six Nevada licenses for production (three medical and three adult-use), three Nevada dispensary licenses (one medical and two adult-use), two Nevada licenses for distribution (one active, one conditional), one adult-use dispensary license in California, one distribution license in California, one Medical Marijuana Treatment Center license in Florida (unlimited medical dispensaries, cultivation and processing) and one lottery win for an adult-use dispensary license in Illinois. 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. 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. Under U.S. 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. The federal government currently is prohibited from prosecuting businesses that operate in compliance with applicable state and local medical cannabis laws and regulations; however, this does not protect adult use cannabis. In addition, if the federal government changes this position, it would be financially detrimental to the Company. 2. 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. 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. These consolidated financial statements do not give effect to adjustments to assets or liabilities that would be necessary should the Company be unable to continue as a going concern. Such adjustments could be material. These consolidated financial statements are presented in U.S. dollars, which is also the Company’s and its subsidiaries’ functional currency. F-7 Table of Contents PLANET 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 The accompanying consolidated financial statements include the accounts of the Company and all subsidiaries. Subsidiaries are entities in which the Company has a controlling voting interest or is the primary beneficiary of a variable interest entity. Subsidiaries are fully consolidated from the date control is transferred to the Company and are deconsolidated from the date control ceases. All intercompany accounts and transactions have been eliminated upon consolidation. The consolidated financial statements include all the assets, liabilities, revenues, expenses and cash flows of the Company and its subsidiaries after eliminating intercompany balances and transactions. These consolidated financial statements include the accounts of the Company and the following entities which are subsidiaries of the Company: Subsidiaries as at December 31, 2021 Jurisdiction of Incorporation Ownership Interest 2021 Ownership Interest 2020 Nature of Business MM Development Company, Inc. ("MMDC") USA 100 % 100 % Vertically integrated cannabis operations BLC Management Company LLC USA 100 % 100 % Holding company LBC CBD LLC ("LBC") USA 100 % 100 % CBD retail sales and marketing Newtonian Principles Inc. USA 100 % 100 % Cannabis retail sales MM Development MI, Inc. USA 100 % 100 % Holding company MM Development CA, Inc. USA 100 % 100 % Holding company Planet 13 Illinois, LLC USA 49 % 49 % Holding company BLC NV Food, LLC USA 100 % 100 % Food retailing Planet 13 Florida, Inc. USA 100 % - Holding company By The Slice, LLC USA 100 % 100 % Food retailing 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. F-8 Table of Contents 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. 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. 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 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. 3. SIGNIFICANT ACCOUNTING POLICIES (a) Cash Cash is comprised of cash deposits in financial institutions plus cash held at its retail locations and other deposits that are readily convertible to cash. (b) Inventory Inventory is comprised of raw materials, finished goods and work-in-progress. Cost includes expenditures directly related to the cultivation and manufacturing process as well as suitable portions or related production overheads, based on normal operating capacity. Cannabis: Inventory cost includes pre-harvest, post-harvest and shipment and fulfillment, as well as related accessories. Pre-harvest costs include labor and direct materials to grow cannabis, which includes water, electricity, nutrients, integrated pest management, growing supplies and allocated overhead. Post-harvest costs include costs associated with drying, trimming, blending, extraction, purification, quality testing and allocated overhead. Shipment and fulfillment costs include the costs of packaging, labeling, courier services and allocated overhead. Inventory is stated at the lower of cost or net realizable value, determined using weighted average cost. 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. F-9 Table of Contents PLANET 13 HOLDINGS INC. Notes to the Consolidated Financial Statements (in United States Dollars) (c) Property and equipment Property and equipment are stated at cost, net of accumulated depreciation and impairment losses, if any. Additions and improvements that materially increase the life of the assets are capitalized while maintenance and repairs are expensed as incurred. Significant expenditures, which extend the useful lives of assets or increase productivity are capitalized. When significant parts of one of our property and equipment have different useful lives, they are accounted for as separate items or components of property and equipment. When assets are retired or disposed of, the cost and accumulated depreciation are removed from the respective accounts and any related gain or loss is recognized in the consolidated statements of operations. Depreciation is calculated on a straight-line basis over the following expected useful lives: Land Not depreciated Land improvements 5 years Building 5 – 40 years Equipment 5 – 7 years Leasehold improvements Shorter of estimated useful life or remaining lease term Construction in progress 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. Property and equipment acquired in a business combination is depreciated over the remaining useful life of the asset. (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. F-10 Table of Contents PLANET 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. 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. 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. 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. F-11 Table of Contents PLANET 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. 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. In order to recognize revenue, the Company applies the following five (5) steps: 1) Identify the contract with the customer 2) Identify the performance obligation(s) 3) Determine the transaction price 4) Allocate the transaction price to the performance obligation(s) 5) 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. 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 do not have an expiration date. F-12 Table of Contents 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: December 31, December 31, December 31, 2021 2020 2019 Retail $ 114,792,191 $ 68,776,221 $ 63,595,036 Wholesale 4,701,244 1,715,059 - Net revenues $ 119,493,435 $ 70,491,280 $ 63,595,036 (i) Leases 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. A finance lease is a lease in which 1) ownership of the property transfers to the lessee by the end of the lease term; 2) the lease grants the lessee an option to purchase the underlying asset that the lessee is reasonably certain to exercise; 3) the lease is for a major part of the remaining economic life of the underlying asset; 4) the present value of the sum of the lease payments and any residual value guaranteed by the lessee that is not already included in the lease payments equals or exceeds substantially all of the fair value; 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. F-13 Table of Contents PLANET 13 HOLDINGS INC. Notes to the Consolidated Financial Statements (in United States Dollars) 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 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. 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. 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 Income taxes are comprised of current and deferred taxes. These taxes are accounted for using the asset and liability method of accounting for income taxes under ASC 740 Income Taxes . Deferred tax is recognized on the difference between the carrying amount of an asset or a liability, as reflected in the consolidated financial statements, and the corresponding tax base used in the computation of income for tax purposes ("temporary difference") and measured using the enacted tax rates and laws as at the balance sheet date that are expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date. 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. 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. F-14 Table of Contents 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. An uncertain income tax position will not be recognized if it has less than a 50% likelihood of being sustained. 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. 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 The Company expenses sales and marketing costs when incurred. Sales and marketing expense was $5,969,792 for the year ended December 31, 2021 (2020 - $3,305,639; 2019 - $6,539,483). (l) Fair value 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. Fair value measurement for invested assets are categorized into levels within a fair value hierarchy based on the nature of the valuation inputs (Levels 1, 2 or 3). The three levels are defined based on the observability of significant inputs to the measurement, as follows: · Level 1: quoted prices (unadjusted) in active markets for identical or liabilities; · Level 2: inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly; and · Level 3: one or more significant inputs used in a valuation technique are unobservable in determining fair values of the asset or liability Determination of fair value and the resulting hierarchy requires the use of observable market data whenever available. 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. F-15 Table of Contents PLANET 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 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 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. Revisions to accounting estimates are recognized in the period in which the estimates are revised and in any future periods affected. Leases 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. The Company applies judgement in evaluating whether it is reasonably certain to exercise the option to renew or terminate the lease. That is, it considers all relevant factors that create an economic incentive for it to exercise either the renewal or termination. 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). F-16 Table of Contents 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. 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. F-17 Table of Contents PLANET 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 The Company recognizes deferred tax assets and liabilities based on the differences between the consolidated financial statement carrying amounts and the respective tax bases of its assets and liabilities. The Company measures deferred tax assets and liabilities using current enacted tax rates expected to apply to taxable income in the years in which the temporary differences are expected to reverse. The Company routinely evaluates the likelihood of realizing the benefit of its deferred tax assets and may record a valuation allowance if, based on all available evidence, it determines that some portion of the tax benefit will not be realized. In evaluating the ability to recover deferred tax assets within the jurisdiction from which they arise, the Company considers all available positive and negative evidence, including scheduled reversals of deferred tax liabilities, projected future taxable income, tax-planning strategies and results of operations. 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. 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. F-18 Table of Contents PLANET 13 HOLDINGS INC. Notes to the Consolidated Financial Statements (in United States Dollars) Income taxes 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. 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”). 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. This approach differences from the current requirement to measure contract assets and contract liabilities acquired in a business combination at fair value. ASU 2021-08 is effective for financial statements of non-public business entities issued for fiscal years beginning after December 15, 2023 and early adoption is permitted. The Company is currently evaluating the effect of adopting this ASU. 4. 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: F-19 Table of Contents PLANET 13 HOLDINGS INC. Notes to the Consolidated Financial Statements (in United States Dollars) December 31, December 31, 2021 2020 Raw materials $ 3,093,646 $ 1,292,310 Packaging and miscellaneous 1,825,514 566,157 Work in progress 2,883,955 1,801,434 Finished goods 6,422,254 3,259,939 $ 14,225,369 $ 6,919,840 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. 5. Prepaid expenses and other current assets December 31, December 31, 2021 2020 Security deposits $ 2,287,596 $ 1,031,255 Advertising and Marketing 306,415 55,126 Prepaid rent 218,599 203,354 Insurance 804,608 550,946 License fees 36,008 34,157 Miscellaneous 324,298 323,167 $ 3,977,524 $ 2,198,005 F-20 Table of Contents PLANET 13 HOLDINGS INC. Notes to the Consolidated Financial Statements (in United States Dollars) 6. Property and equipment Land and Leasehold Construction Total Property and Improvements Buildings Equipment Improvements in Progress Equipment Gross carrying amount At December 31, 2019 $ 625,146 $ 1,698,077 $ 4,075,085 $ 27,094,559 $ 1,778,283 $ 35,271,150 Additions - 9,817 2,096,736 2,110,612 3,174,371 7,391,536 Transfers - - 65,435 1,242,871 (1,308,306 ) - Disposals - - - (277,093 ) (277,093 ) At December 31, 2020 625,146 1,707,894 6,237,256 30,448,042 3,367,255 42,385,593 Additions 5,153 - 3,057,631 10,663,811 12,368,056 26,094,651 Transfers - - 1,927,109 13,680,522 (15,607,631 ) - Disposals - - (116,755 ) (74,004 ) - (190,759 ) At December 31, 2021 $ 630,299 $ 1,707,894 $ 11,105,241 $ 54,718,371 $ 127,680 $ 68,289,485 Depreciation At December 31, 2019 $ 76,737 $ 161,258 $ 1,242,945 $ 3,579,056 $ - $ 5,059,996 Additions 51,194 42,492 1,034,935 4,141,006 - 5,269,627 Transfers & disposals - - (17,955 ) - - (17,955 ) At December 31, 2020 127,931 203,750 2,259,925 7,720,062 - 10,311,668 Additions 51,366 42,697 1,542,438 5,576,595 - 7,213,096 Transfers & disposals - - (1,197 ) (12,359 ) - (13,556 ) At December 31, 2021 $ 179,297 $ 246,447 $ 3,801,166 $ 13,284,298 $ - $ 17,511,208 Carrying amount At December 31, 2019 $ 548,409 $ 1,536,819 $ 2,832,140 $ 23,515,503 $ 1,778,283 $ 30,211,154 At December 31, 2020 $ 497,215 $ 1,504,144 $ 3,977,331 $ 22,727,980 $ 3,367,255 $ 32,073,925 At December 31, 2021 $ 451,002 $ 1,461,447 $ 7,304,075 $ 41,434,073 $ 127,680 $ 50,778,277 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. 7. Intangible assets Retail Dispensary Santa Ana Retail Dispensary Clark County Cultivation and Production Clark County Master License Florida Total Carrying amount Balance, December 31, 2019 $ - $ - $ - $ - $ - Additions 6,151,343 690,000 709,798 - 7,551,141 Balance, December 31, 2020 6,151,343 690,000 709,798 - 7,551,141 Additions - - - 55,846,866 55,846,866 Balance at December 31, 2021 $ 6,151,343 $ 690,000 $ 709,798 $ 55,846,866 $ 63,398,007 F-21 Table of Contents PLANET 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: Consideration paid: Cash $ 1,153,733 Issuance of 3,940,932 Class A Shares (Note 11) 4,453,831 5,607,564 Fair value of net assets acquired: Right of use asset $ 4,395,037 Right of use liability (4,395,037 ) Deferred tax liability (543,779 ) Intangible asset - License 6,151,343 $ 5,607,564 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: Cash $ 1,706,667 Issuance of 1,374,833 Class A Shares (Note 11) 2,918,277 4,624,944 Fair value of net assets acquired: Inventory $ 1,632,872 Fixed assets 2,282,274 Intangible asset - License 709,798 $ 4,624,944 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. F-22 Table of Contents PLANET 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. F-23 Table of Contents PLANET 13 HOLDINGS INC. Notes to the Consolidated Financial Statements (in United States Dollars) The Company has capitalized $846,866 in costs incurred to secure the license pursuant to the license acquisition. 8. Leases 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 following table provides the components of lease cost recognized in the consolidated statement of operations and comprehensive loss for 2021 and 2020: December 31, December 31, 2021 2020 Operating lease costs $ 4,437,816 $ 3,227,428 Finance lease costs: Amortization of lease assets 44,672 46,194 Interest on lease liabilities 3,431 10,774 Finance lease costs 48,103 56,968 Short term lease expense 19,917 17,154 Total lease costs $ 4,505,836 $ 3,301,550 Other information related to operating and finance leases as of and for the year end December 31, 2021 and 2020 are as follows: F-24 Table of Contents PLANET 13 HOLDINGS INC. Notes to the Consolidated Financial Statements (in United States Dollars) December 31 , 2021 December 31 , 2020 Finance Operating Finance Operating Lease Lease Lease Lease Weighted average discount rate 15.00 % 15.00 % 15.00 % 15.00 % Weighted average remaining lease term - 11.87 0.88 12.80 The maturity of the contractual undiscounted lease liabilities as of December 31, 2021 and 2020 are: December 31 , 2021 December 31 , 2020 Finance Operating Finance Operating Lease Lease Lease Lease 2021 $ - $ - $ 49,803 $ 3,180,999 2022 - 3,595,030 - 3,354,437 2023 - 3,729,936 - 3,482,126 2024 - 3,870,217 - 3,614,972 2025 - 3,956,923 - 3,694,021 2026 3,880,082 3,757,894 2027 - 3,903,423 - - Thereafter - 50,234,732 - 54,138,155 Total undiscounted lease liabilities - 73,170,343 49,803 75,222,604 Interest on lease liabilities - (49,612,758 ) (3,431 ) (52,695,691 ) Total present value of minimum lease payments - 23,557,585 46,372 22,526,913 Lease liability - current portion - (423,573 ) (46,372 ) (161,021 ) Lease liability $ - $ 23,134,012 $ - $ 22,365,892 Principally, all leases relate to real estate. Additional information on the right-of-use assets is as follows: Finance Operating Lease Lease Gross carrying amount Balance, December 31, 2019 $ 133,561 $ 10,733,087 Lease modifications - 335,798 Additions - 10,893,679 Balance, December 31, 2020 133,561 21,962,564 Additions - 867,559 Balance, December 31, 2021 $ 133,561 $ 22,830,123 Depreciation Balance, December 31, 2019 $ 42,695 $ 615,550 Additions 46,194 849,119 Balance, December 31, 2020 88,889 1,464,669 Additions 44,672 965,489 Balance, December 31, 2021 $ 133,561 $ 2,430,158 Carrying amount December 31, 2019 $ 90,866 $ 10,117,537 Carrying amount December 31, 2020 $ 44,672 $ 20,497,895 Carrying amount December 31, 2021 $ - $ 20,399,965 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. F-25 Table of Contents PLANET 13 HOLDINGS INC. Notes to the Consolidated Financial Statements (in United States Dollars) 9. Notes payable Non-related parties December 31, December 31, 2021 2020 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 $ 884,000 $ 884,000 Less current portion (884,000 ) (884,000 ) $ - $ - Stated maturities of debt obligations are as follow: Next 12 months Promissory Note $ 884,000 10. Share capital The Company is authorized to issue an unlimited number of common shares and an unlimited number of Class A shares. Number of Common Shares December 31, December 31, December 31, 2021 2020 2019 Common Shares Balance at January 1 126,573,250 82,427,619 73,324,460 Shares issued on settlement of RSU's i. 3,126,534 2,685,344 3,954,518 Shares issued on exercise of options ii. 121,336 333,001 258,994 Shares issued on exercise of warrants iii. 3,772,640 17,532,271 4,889,647 Shares issued on financing - July 2020 iv. - 5,359,000 - Shares issued on financing - September 2020 v. - 6,221,500 - Shares issued on financing - November 2020 vi. - 6,698,750 - Shares issued on financing - February 2021 vii. 9,861,250 - - Shares issued on conversion of Class A shares (Note 7) viii. 55,232,940 3,940,932 - Shares issued on acquisition (Note 7) - 1,374,833 - Total common shares outstanding on December 31 198,687,950 126,573,250 82,427,619 F-26 Table of Contents PLANET 13 HOLDINGS INC. Notes to the Consolidated Financial Statements (in United States Dollars) i. 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. 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. The Company did not receive any cash proceeds on the settlement. ii. 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, 2020, the Company issued 333,001 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 $217,990 (CAD$290,983). 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). iii. Shares issued on the exercise of Warrants 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, 2020, the Company issued 17,532,271 common shares to warrant holders who exercised 17,532,271 warrants resulting in cash proceeds of $32,653,449 (CAD$43,079,021). 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). iv. 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 F-27 Table of Contents 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) $ 8,118,500 $ (1,001,461 ) Warrant liability (Note 11) 375,308 (46,296 ) Total $ 8,493,808 $ (1,047,757 ) v. 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) $ 16,662,200 $ (1,788,253 ) Warrant liability (Note 11) 827,201 (88,779 ) Total $ 17,489,401 $ (1,877,032 ) vi. 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. F-28 Table of Contents 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) $ 20,777,360 $ (2,134,362 ) Warrant liability (Note 11) 1,364,560 (140,175 ) Total $ 22,141,920 $ (2,274,537 ) vii. 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. The Company issued 9,861,250 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$9.00 per common share for a period of 24 months. The Company also issued 591,676 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$7.00 per common share. The broker warrants were measured based on the fair market value of the warrants using a Black Scholes valuation model. The Company incurred $3,494,930 in cash share issuance costs and $1,296,170 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 February 2, 2021 Financing Common shares (APIC) $ 50,967,999 $ (4,534,434 ) Warrant liability (Note 11) 2,884,981 (256,666 ) Total $ 53,852,980 $ (4,791,100 ) viii. 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. The restriction on conversion of Class A shares are designed to prevent the Company from becoming a US Domestic Issuer. Generally, a company will be considered to be a US Domestic Issuer if: F-29 Table of Contents 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. Persons; and either (B) (i) the majority of the executive officers or directors of the Issuer are United States citizens or residents; (ii) the company has 50% or more of its assets located in the United States; 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. Number of Class A Shares December 31, December 31, 2021 2020 Class A Shares Balance at January 1 55,232,940 55,232,940 Shares Issued on Acquisition (Note 7) - 3,940,932 Conversion of Class A Shares to Common (55,232,940 ) (3,940,932 ) Total Class A Shares Outstanding - 55,232,940 11. Warrants The following table summarizes the fair value of the warrant liability at December 31, 2021, 2020 and 2019: 2021 2020 2019 Opening balance as at January 1 $ 13,204,211 $ 9,823,510 $ 9,237,466 Additions 2,884,981 2,567,069 - Exercises (8,976,258 ) (15,698,859 ) (5,424,285 ) Foreign exchange 100,635 (293,450 ) 468,739 Change in fair value (7,520 ) 16,805,941 5,541,590 Closing balance as at December 31 $ 7,206,049 $ 13,204,211 $ 9,823,510 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, 2021, 2020 and 2019: F-30 Table of Contents PLANET 13 HOLDINGS INC. Notes to the Consolidated Financial Statements (in United States Dollars) December 31, 2021 Weighted Average Exercise Price - CAD December 31, 2020 Weighted Average Exercise Price - CAD December 31, 2019 Weighted Average Exercise Price - CAD Balance - beginning of year 7,158,337 $ 4.98 15,061,078 $ 2.20 19,950,725 $ 1.99 Issued 5,522,301 $ 8.79 10,236,380 $ 4.53 - $ - Exercised (3,772,640 ) $ 4.73 (17,532,271 ) $ 2.46 (4,889,647 ) $ 1.33 Expired (46,047 ) $ 3.75 (606,850 ) $ 1.40 - $ - Balance - end of year 8,861,951 $ 7.46 7,158,337 $ 4.98 15,061,078 $ 2.20 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)). Fair values 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: Quoted prices in active markets for identical asset (Level 1) Significant unobservable inputs (Level 3) Total December 31, 2021 Warrant liability $ (7,206,049 ) $ - $ (7,206,049 ) December 31, 2020 Warrant liability (13,204,211 ) - (13,204,211 ) 12. Share based compensation (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. F-31 Table of Contents PLANET 13 HOLDINGS INC. Notes to the Consolidated Financial Statements (in United States Dollars) During the years ended December 31, 2021 and 2020 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$2.65 per common share for a period of 3 years from the grant date. The following table summarizes information about stock options outstanding at December 31, 2021, 2020 and 2019: Expiry Date Exercise price CAD$ December 31, 2021 Outstanding December 31, 2021 Exercisable December 31, 2020 Outstanding December 31, 2020 Exercisable December 31, 2019 Outstanding December 31, 2019 Exercisable June 11, 2021 $ 0.80 - - - - 175,000 175,000 July 4, 2022 $ 2.65 100,000 100,000 100,000 100,000 100,000 50,000 June 11, 2023 $ 0.80 61,668 61,668 158,004 158,004 282,674 139,332 July 31, 2023 $ 0.75 - - 11,667 11,667 20,000 11,667 January 7, 2024 $ 1.55 - - 16,667 - 66,668 33,334 June 30, 2024 $ 2.60 7,500 7,500 7,500 - 22,500 7,500 Total 169,168 169,168 293,838 269,671 666,842 416,833 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 (2020: $nil; 2019: $625,947) and is being recognized as non-cash compensation expense over the vesting period of the options. 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 July 4, 2019 Closing share price in CAD the day prior to granting $ 1.55 $ 2.60 $ 2.65 Risk-free rate 1.87 % 1.40 % 1.62 % Expected dividend yield 0.00 % 0.00 % 0.00 % Expected volatility 110.41 % 98.86 % 98.29 % Option life in years 5.00 5.00 3.00 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. F-32 Table of Contents 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: $56,550; 2019: $258,620). December 31, 2021 Weighted Average Exercise Price - CAD December 31, 2021 Weighted Average Exercise Price - CAD December 31, 2021 Weighted Average Exercise Price - CAD Balance - beginning of year 293,838 $ 1.52 666,842 $ 1.22 790,002 $ 0.80 Issued - - - - 222,500 2.15 Exercised (121,336 ) 0.91 (333,001 ) 0.87 (258,994 ) 0.88 Expired (3,334 ) 0.80 (40,003 ) 1.79 - - Forfeited - - - - (86,666 ) 0.80 Balance - end of year 169,168 $ 2.01 293,838 $ 1.52 666,842 $ 1.22 December 31, 2021 2021 2020 2019 The outstanding options have a weighted average CAD$ exercise price of: $ 2.01 $ 1.52 $ 1.22 Weighted average remaining life in years of outstanding options: 0.94 2.19 2.88 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, 2019, was $326,857, $460,965 and $460,965, 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. The following table summarizes the RSUs that are outstanding as at December 31, 2021, 2020 and 2019: December 31, 2021 December 31, 2020 December 31, 2019 Balance - beginning of year 1,764,250 4,355,742 5,367,691 Issued 4,086,178 100,518 3,259,624 Exercised (3,126,534 ) (2,685,344 ) (3,954,518 ) Expired (131,965 ) (6,666 ) (317,055 ) Balance - end of year 2,591,929 1,764,250 4,355,742 The Company recognized $15,573,539 in share-based compensation expense attributable to RSUs vesting during the year ended December 31, 2021 ($2,456,018 for the year ended December 31, 2020; $4,564,167 for the year ended December 31, 2019). 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. F-33 Table of Contents 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. 13. Loss per share December 31, 2021 December 31, 2020 December 31, 2019 (Loss) available to common shareholders $ (19,460,953 ) $ (25,008,729 ) $ (12,303,343 ) Weighted average number of shares outstanding, basic and diluted 195,126,972 151,825,439 134,074,476 Basic and diluted (loss) per share $ (0.10 ) $ (0.16 ) $ (0.09 ) 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. F-34 Table of Contents PLANET 13 HOLDINGS INC. Notes to the Consolidated Financial Statements (in United States Dollars) 14. Income taxes The components of income tax expense (benefit) of the Company are summarized as follows: December 31, 2021 December 31, 2020 December 31, 2019 Current tax expense (recovery) Current period $ 13,954,784 $ 7,239,936 $ 7,352,808 Deferred tax expense (recovery) Origination and reversal of timing differences (4,376,359 ) (2,478,308 ) (1,139,833 ) Change in unrecognized temporary differences 3,900,133 2,344,888 1,139,833 $ 13,478,558 $ 7,106,516 $ 7,352,808 The actual income tax provision differs from the expected amount calculated by applying the statutory income tax rate to the loss before tax. These differences result from the following: December 31, 2021 December 31, 2020 December 31, 2019 Loss before income tax $ (5,982,395 ) $ (17,902,213 ) $ (4,950,535 ) Statutory income tax rate 21.0 % 21.0 % 21.0 % Income tax expense at statutory rate (1,256,303 ) (3,759,465 ) (1,039,612 ) Increase (reduction) in income taxes resulting from: Change in fair value of warrant liability (1,579 ) 4,453,574 1,468,521 Other non-taxable amounts 12,019,720 6,071,951 6,921,569 Change in valuation allowance 3,900,133 2,344,888 1,083,292 Foreign exchange impacts - (575,595 ) (327,920 ) Difference in rates (1,159,859 ) (1,317,876 ) (753,552 ) Other (23,554 ) (110,961 ) 510 Income tax expense (benefit) $ 13,478,558 $ 7,106,516 $ 7,352,808 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. The non-taxable amounts shown in the effective rate reconciliation above include the impact of applying IRC Section 280E to the Company's businesses that are involved in selling cannabis, along with other typical non-deductible expenses. 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: F-35 Table of Contents PLANET 13 HOLDINGS INC. Notes to the Consolidated Financial Statements (in United States Dollars) December 31, 2021 December 31, 2020 December 31, 2019 Loss carryforwards $ 9,094,791 $ 5,303,168 $ 3,173,256 Share issue costs 1,489,956 1,381,446 795,041 Stock compensation 657,647 - - Exchange rate difference on monetary assets 715,299 563,080 125,520 Accrued expenses 139,999 49,128 - Property and equipment (1,578,803 ) (1,251,229 ) (1,424,886 ) Licenses (543,779 ) (543,779 ) - Deferred tax assets (liabilities) 9,975,111 5,501,814 2,668,931 Valuation allowance (9,812,307 ) (5,912,173 ) (2,668,931 ) Net deferred tax liability $ 162,804 $ (410,359 ) $ - 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. In addition, as at December 31, 2021, 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. As at December 31, 2021, the Company has California State Net Operating Losses of $6,529,220 (December 31, 2020 - $953,517). The California state Net Operating 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 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. domestic corporation for U.S. federal income tax purposes. Because the Company is a taxable corporation in Canada, it is likely to be subject to income taxation in both the United States and Canada on the same income, which in turn, may reduce the amount of income available for distribution to shareholders. The balance of this discussion assumes the Company is a U.S. domestic corporation for U.S. 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. Thus, there can be no assurance that the IRS will not challenge the characterization of the Company as a domestic corporation, or that if challenged, a U.S. court would not agree with the IRS. If the Company is not treated as a U.S. 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. Holders. F-36 Table of Contents PLANET 13 HOLDINGS INC. Notes to the Consolidated Financial Statements (in United States Dollars) 15. General and administrative December 31, 2021 2020 2019 Salaries and wages $ 21,902,505 $ 9,611,047 $ 6,941,111 Share based compensation 15,576,643 2,512,568 4,822,787 Executive compensation 2,039,174 1,204,925 874,598 Licenses and permits 3,217,834 1,957,183 1,704,755 Payroll taxes and benefits 3,953,034 1,971,215 1,531,261 Supplies and office expenses 3,638,097 960,456 1,184,401 Subcontractors 3,500,330 1,569,921 1,272,414 Professional fees (legal, audit and other) 5,015,903 2,944,706 2,723,555 Miscellaneous general and administrative expenses 1,084,836 4,684,145 4,175,392 $ 59,928,356 $ 27,416,166 $ 25,230,274 F-37 Table of Contents PLANET 13 HOLDINGS INC. Notes to the Consolidated Financial Statements (in United States Dollars) 16. Supplemental cash flow information December 31, Change in Working Capital 2021 2020 2019 HST Receivable $ (56,787 ) $ (91,533 ) $ 85,287 Accounts Receivable (722,467 ) - - Inventory (7,305,529 ) (159,401 ) (284,626 ) Prepaid Expenses and Other Assets (1,780,041 ) 1,160,976 (2,357,578 ) Long-term Deposits and Other Assets (7,436 ) (359,842 ) (100,262 ) Deferred Tax Assets (162,804 ) - - Accounts Payable 1,578,349 451,998 (859,267 ) Accrued Expenses 4,187,906 934,668 603,902 Income Taxes Payable (319,986 ) (5,713,518 ) 4,891,922 Other Liabilities - - 28,000 $ (4,589,077 ) $ (3,776,652 ) $ 2,007,378 Cash Paid Income Taxes $ 13,000,000 $ 12,953,454 $ - Non-cash Financing and Investing Activities Acquisition of Licenses and Intangible Assets in Exchange for Shares $ - $ 4,997,610 $ - Initial Recognition of ROU Assets and Lease Liabilities $ 867,559 $ 11,229,477 $ 2,024,771 Fixed Asset Amounts in Accounts Payable $ 363,077 $ 369,066 $ - Additions to Buildings and Structures on ASC 847 Adoption $ - $ - $ 8,789,741 Additions to Lease Liabilities on ASC 847 Adoption $ - $ - $ 8,307,650 Reclassification of Prepaid Rent to Lease Liabilities on ASC 842 Adoption $ - $ - $ 54,584 Warrant liability reclassified to APIC on settlement $ 6,347,946 $ 15,708,309 $ 5,684,960 Reclass of long-term lease to current lease $ 216,180 $ - $ - 17. Related Party Transactions and Balances Related party transactions are summarized as follows: 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 printed marketing collateral and stationery items to the same company were $450,692, $170,009, and $279,457 for the years ended December 31, 2021, 2020 and 2019 respectively. F-38 Table of Contents PLANET 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. (b) Other 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. 18. Commitments and contingencies ( a) Construction Commitments The Company had no outstanding construction commitments as of December 31, 2021. (b) Contingencies The Company's operations are subject to a variety of local and state regulation. Failure to comply with one or more of those regulations could result in fines, restrictions on its operations, or losses of permits that could result in the Company ceasing operations. While management of the Company believes that the Company is in compliance with applicable local and state regulations at December 31, 2021, medical and adult use cannabis regulations continue to evolve and are subject to differing interpretations. As a result, the Company may be subject to regulatory fines, penalties, or restrictions in the future. F-39 Table of Contents PLANET 13 HOLDINGS INC. Notes to the Consolidated Financial Statements (in United States Dollars) (c) Claims and Litigation 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. (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. 19. Risks Credit risk Credit risk is the risk that a third party might fail to discharge its obligations under the terms of a financial instrument. Credit risk arises from cash with banks and financial institutions. It is management's opinion that the Company is not exposed to significant credit risk arising from these financial instruments. The Company limits credit risk by entering into business arrangements with high credit-quality counterparties. 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. Concentration risk The Company operates exclusively in Southern Nevada and Southern California. Should economic conditions deteriorate within that region, its results of operations and financial position would be negatively impacted. Banking Risk Notwithstanding that a majority of states have legalized medical marijuana, there has been no change in US federal banking laws related to the deposit and holding of funds derived from activities related to the marijuana industry. Given that US federal law provides that the production and possession of cannabis is illegal, there is a strong argument that banks cannot accept for deposit funds from businesses involved with the marijuana industry. Consequently, businesses involved in the marijuana industry often have difficulty accessing the US banking system and traditional financing sources. The inability to open bank accounts with certain institutions may make it difficult to operate the business of the Company and leaves their cash holdings vulnerable. Asset Forfeiture Risk Because the cannabis industry remains illegal under US federal law, any property owned by participants in the cannabis industry which are either used in the course of conducting such business, or are the proceeds of such business, could be subject to seizure by law enforcement and subsequent civil asset forfeiture. Even if the owner of the property 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. F-40 Table of Contents 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. 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. 20. COVID-19 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. 21. 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. F-41