UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM
(Mark One)
| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended | |
OR | |
| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from ________ to ________
Commission File Number:
PLANET 13 HOLDINGS INC. | ||
(Exact name of Registrant as Specified in its Charter) |
| | |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |
| | |
(Address of principal executive offices) | (Zip Code) |
Registrant’s telephone number, including area code: (
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer | ☐ | Accelerated filer | ☐ |
| ☒ | Smaller reporting company | |
Emerging growth company | |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
As of November 8, 2023, there were
Quarterly Report on Form 10-Q
For Quarterly Period Ended September 30, 2023
Table of Contents
Page |
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Management’s Discussion and Analysis of Financial Condition and Results of Operations. |
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Unregistered Sales of Equity Securities and Use of Proceeds. |
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USE OF NAMES AND CURRENCY
In this Quarterly Report on Form 10-Q, unless the context otherwise requires, the terms “we,” “us,” “our,” “Company,” or “Planet 13” refer to Planet 13 Holdings Inc. together with its wholly-owned subsidiaries.
Unless otherwise indicated, all references to “$,” “US$” or “USD” in this Quarterly Report on Form 10-Q refer to United States dollars, and all references to “C$,” "CAD$," or “CAD” refer to Canadian dollars.
IMPLICATIONS OF BEING AN EMERGING GROWTH COMPANY
As a company with less than $1.235 billion in revenue during our most recently completed fiscal year, we qualify as an “emerging growth company” as defined in Section 2(a) of the Securities Act of 1933, as amended, which we refer to as the “Securities Act,” as modified by the Jumpstart Our Business Startups Act of 2012, or the “JOBS Act.” As an emerging growth company, we may take advantage of specified reduced disclosure and other exemptions from requirements that are otherwise applicable to public companies that are not emerging growth companies. These provisions include:
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Reduced disclosure about our executive compensation arrangements; |
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Exemptions from non-binding shareholder advisory votes on executive compensation or golden parachute; and |
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Exemption from auditor attestation requirement in the assessment of our internal control over financial reporting. |
We will remain an emerging growth company until the earliest of (i) the last day of the year in which we have total annual gross revenue of $1.235 billion or more; (ii) the last day of the year following the fifth anniversary of the first sale of the common equity securities pursuant to an effective registration under the Securities Act; (iii) the date on which we have issued more than $1.0 billion in nonconvertible debt during the previous three years; or (iv) the date on which we are deemed to be a large accelerated filer under the rules of the Securities and Exchange Commission.
In addition, the JOBS Act provides that an emerging growth company can take advantage of an extended transition period for complying with new or revised accounting standards. This provision allows an emerging growth company to delay the adoption of some accounting standards until those standards would otherwise apply to private companies. We have elected to use this extended transition period for complying with new or revised accounting standards that have different effective dates for public and private companies until the earlier of the date we (i) are no longer an emerging growth company or (ii) affirmatively and irrevocably opt out of the extended transition period provided in the JOBS Act.
DISCLOSURES REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q includes “forward-looking information” and “forward-looking statements” within the meaning of applicable Canadian securities laws and United States securities laws. All information, other than statements of historical facts, included in this Quarterly Report on Form 10-Q that addresses activities, events or developments that we expect or anticipate will or may occur in the future is forward-looking information. Forward-looking information is often identified by the words “may,” “would,” “could,” “should,” “will,” “intend,” “plan,” “anticipate,” “believe,” “estimate,” “expect” or similar expressions and includes, among others, information regarding: our strategic plans and expansion and expectations regarding the growth of the California cannabis market; statements relating to the business and future activities of, and developments related to, us after the date of this Quarterly Report on Form 10-Q, including such things as future business strategy, competitive strengths, goals, expansion and growth of our business, operations and plans, new revenue streams, the completion by us of contemplated acquisitions of additional real estate, cultivation and licensing assets, the roll out of new dispensaries, the application for additional licenses and the grant of licenses or renewals of existing licenses that have been applied for, the expansion of existing cultivation and production facilities, the completion of cultivation and production facilities that are under construction, the construction of additional cultivation and production facilities, the expansion into additional U.S. markets, any potential future legalization of adult-use and/or medical cannabis under U.S. federal law; expectations of market size and growth in the United States and the states in which we operate or contemplate future operations; expectations for other economic, business, regulatory and/or competitive factors related to us or the cannabis industry generally; and other events or conditions that may occur in the future.
Readers are cautioned that forward-looking information and statements are not based on historical facts but instead are based on reasonable assumptions and estimates of our management at the time they were provided or made and involve known and unknown risks, uncertainties and other factors which may cause our actual results, performance or achievements, as applicable, to be materially different from any future results, performance or achievements expressed or implied by such forward-looking information and statements. Such factors include, among others, our actual financial position and results of operations differing from management’s expectations; our business model; a lack of business diversification; increasing competition in the industry; public opinion and perception of the cannabis industry; expected significant costs and obligations; current reliance on limited jurisdictions; development of our business; access to capital; risks relating to the management of growth; risks inherent in an agricultural business; risks relating to energy costs; risks related to research and market development; risks related to breaches of security at our facilities; reliance on suppliers; risks relating to the concentrated voting control of the Company; risks related to our being a holding company; risks related to service providers withdrawing or suspending services under threat of prosecution; risks related to proprietary intellectual property and potential infringement by third parties; risks of litigation relating to intellectual property; negative clinical trial results; insurance related risks; risk of litigation generally; risks associated with cannabis products manufactured for human consumption, including potential product recalls; risks relating to being unable to attract and retain key personnel; risks relating to obtaining and retaining relevant licenses; risks relating to integration of acquired businesses; risks related to quantifying our target market; risks related to industry growth and consolidation; fraudulent activity by employees, contractors and consultants; cyber-security risks; conflicts of interest; risks related to reputational damage in certain circumstances; leased premises risks; U.S. regulatory landscape and enforcement related to cannabis, including political risks; heightened scrutiny by Canadian regulatory authorities; risks related to capital raising due to heightened regulatory scrutiny; risks related to tax liabilities; risks related to U.S. state and local law and regulations; risks related to access to banks and credit card payment processors; risks related to potential violation of laws by banks and other financial institutions; ability and constraints on marketing products; risks related to lack of U.S. federal trademark and patent protection; risks related to the enforceability of contracts; the limited market for our securities; difficulty for U.S. holders of our common stock to resell over the Canadian Securities Exchange; price volatility of our common stock; uncertainty regarding legal and regulatory status and changes; risks related to legislation and cannabis regulation in the states in which we operate or contemplate future operations; future sales by shareholders; no guarantee regarding use of available funds; currency fluctuations; risks related to entry into the U.S; and other factors beyond our control, as more particularly described under the heading “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2022 and subsequent reports.
Readers are cautioned that the foregoing list is not exhaustive of all factors and assumptions which may have been used. Although we have attempted to identify important factors that could cause actual results to differ materially, there may be other factors that cause results not to be as anticipated, estimated or intended. There can be no assurance that such forward-looking information and statements will prove to be accurate as actual results and future events could differ materially from those anticipated in such information and statements. Accordingly, readers should not place undue reliance on forward-looking information and statements. The forward-looking information and statements contained herein are presented for the purposes of assisting readers in understanding our expected financial and operating performance and our plans and objectives and may not be appropriate for other purposes.
The forward-looking information and statements contained in this Quarterly Report on Form 10-Q represent our views and expectations as of the date of this Quarterly Report on Form 10-Q. We anticipate that subsequent events and developments may cause our views to change. However, while we may elect to update such forward-looking information and statements at a future time, we have no current intention of doing so except to the extent required by applicable law.
PLANET 13 HOLDINGS INC. Interim Condensed Consolidated Balance Sheets (Unaudited, In United States Dollars) |
September 30, | December 31, | |||||||
2023 | 2022 | |||||||
ASSETS | ||||||||
Current Assets: | ||||||||
Cash | $ | $ | ||||||
Accounts Receivable | ||||||||
Inventory | ||||||||
Prepaid Expenses and Other Current Assets | ||||||||
Total Current Assets | ||||||||
Property and Equipment | ||||||||
Intangible Assets | ||||||||
Right of Use Assets - Operating | ||||||||
Long-term Deposits and Other Assets | ||||||||
Deferred Tax Asset | ||||||||
TOTAL ASSETS | $ | $ | ||||||
LIABILITIES AND SHAREHOLDERS' EQUITY | ||||||||
LIABILITIES | ||||||||
Current: | ||||||||
Accounts Payable | $ | $ | ||||||
Accrued Expenses | ||||||||
Income Taxes Payable | ||||||||
Notes Payable - Current Portion | ||||||||
Operating Lease Liabilities | ||||||||
Total Current Liabilities | ||||||||
Long-Term Liabilities: | ||||||||
Operating Lease Liabilities | ||||||||
Warranty Liability | ||||||||
Other Long-term Liabilities | ||||||||
Deferred Tax Liability | ||||||||
Total Liabilities | ||||||||
Commitments and Contingencies (refer to Note 16) | ||||||||
SHAREHOLDERS' EQUITY | ||||||||
Common Stock, par value, shares authorized, issued and outstanding at September 30, 2023 and at December 31, 2022 | ||||||||
Preferred Stock, par value, shares authorized, issued and outstanding at September 30, 2023 and 0 at December 31, 2022 | ||||||||
Additional Paid-In Capital | ||||||||
Deficit | ( | ) | ( | ) | ||||
Total Shareholders' Equity | ||||||||
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY | $ | $ | ||||||
The accompanying notes are an integral part of these unaudited condensed consolidated interim financial statements. |
PLANET 13 HOLDINGS INC. Interim Condensed Consolidated Statements of Operations and Comprehensive Loss (Unaudited, in United States Dollars) |
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | September 30, | September 30, | |||||||||||||
2023 | 2022 | 2023 | 2022 | |||||||||||||
Revenues, net of discounts | $ | $ | $ | $ | ||||||||||||
Cost of Goods Sold | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
Gross Profit | ||||||||||||||||
Expenses: | ||||||||||||||||
General and Administrative | ||||||||||||||||
Sales and Marketing | ||||||||||||||||
Lease Expense | ||||||||||||||||
Impairment Loss | ||||||||||||||||
Depreciation | ||||||||||||||||
Total Expenses | ||||||||||||||||
Loss From Operations | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
Other Income (Expense): | ||||||||||||||||
Interest income, net | ||||||||||||||||
Foreign exchange gain (loss) | ( | ) | ( | ) | ||||||||||||
Change in fair value of warrant liability | ||||||||||||||||
Other Income, net | ||||||||||||||||
Total Other Income | ||||||||||||||||
Loss Before Provision for Income Taxes | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
Provision For Income Taxes | ||||||||||||||||
Current Tax Expense | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
Deferred Tax Recovery | ||||||||||||||||
( | ) | ( | ) | ( | ) | ( | ) | |||||||||
Net Loss and Comprehensive Loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
Loss per Share | ||||||||||||||||
Basic and diluted loss per share | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
Weighted Average Number of Shares of Common Stock | ||||||||||||||||
Basic and diluted | ||||||||||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated interim financial statements. |
PLANET 13 HOLDINGS INC. Interim Condensed Consolidated Statements of Changes in Shareholders’ Equity (Unaudited, in United States Dollars, except Share Amounts) |
Number of |
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Shares of Common Stock |
Shares of Preferred Stock |
Warrants |
Additional Paid-in Capital |
Accumulated Deficit |
Total Shareholders' Equity |
|||||||||||||||||||
Balance, January 1, 2022 |
$ | $ | ( |
) | $ | |||||||||||||||||||
Share based Compensation - RSUs |
- | - | - | |||||||||||||||||||||
Shares Issued on Acquisition |
||||||||||||||||||||||||
Replacement Options Issued on Acquisition |
- | - | - | |||||||||||||||||||||
Shares Issued on Exercise of Options |
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Net Loss for the Period |
- | - | - | ( |
) | ( |
) | |||||||||||||||||
Balance, September 30, 2022 |
$ | $ | ( |
) | $ | |||||||||||||||||||
Balance, January 1, 2023 |
$ | $ | ( |
) | $ | |||||||||||||||||||
Expirations |
( |
) | - | - | - | |||||||||||||||||||
Share based Compensation - RSUs |
- | - | - | |||||||||||||||||||||
Share based Compensation - RSUs - Taxes Paid in Lieu of Share Issuance |
- | - | - | ( |
) | ( |
) | |||||||||||||||||
Shares Issued on Settlement of RSUs |
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Shares Issued on Exercise of Purchase Option |
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Net Loss for the Period |
- | - | - | ( |
) | ( |
) | |||||||||||||||||
Balance, September 30, 2023 |
$ | $ | ( |
) | $ | |||||||||||||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated interim financial statements. |
PLANET 13 HOLDINGS INC. Interim Condensed Consolidated Statements of Cash Flows (Unaudited, In United States Dollars) |
Nine Months Ended | ||||||||
September 30, | September 30, | |||||||
2023 | 2022 | |||||||
CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES | ||||||||
Net loss | $ | ( | ) | $ | ( | ) | ||
Adjustments for items not involving cash: | ||||||||
Shared based compensation expense | ||||||||
Non-cash lease expense | ||||||||
Depreciation | ||||||||
Change in fair value of warrant liability | ( | ) | ( | ) | ||||
Loss on translation of warrant liability | ( | ) | ||||||
Loss on disposal of fixed assets | ||||||||
Deferred tax recovery | ( | ) | ||||||
Impairment of intangible assets | ||||||||
Proceeds from lease incentive | ||||||||
Lease incentive amortization | ( | ) | ( | ) | ||||
( | ) | |||||||
Net Changes in Non-cash Working Capital Items | ( | ) | ||||||
Repayment of lease liabilities | ( | ) | ( | ) | ||||
Total Operating | ( | ) | ||||||
FINANCING ACTIVITIES | ||||||||
RSU withholding taxes paid in lieu of share issuance | ( | ) | ||||||
Proceeds from exercise of warrants and options | ||||||||
Total Financing | ( | ) | ||||||
INVESTING ACTIVITIES | ||||||||
Purchase of property, plant and equipment | ( | ) | ( | ) | ||||
Proceeds from sales of fixed assets | ||||||||
Purchase of 51% interest in Planet 13 Illinois | ( | ) | ||||||
Net cash acquired through NGW acquisition | ||||||||
Total Investing | ( | ) | ( | ) | ||||
Effect of foreign exchange on cash | ||||||||
NET CHANGE IN CASH DURING THE PERIOD | ( | ) | ( | ) | ||||
CASH | ||||||||
Beginning of Period | ||||||||
End of Period | $ | $ | ||||||
Supplemental cash flow information (Note 14) | ||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated interim financial statements. |
PLANET 13 HOLDINGS INC. Notes to the Interim Condensed Consolidated Financial Statements (Unaudited, in United States Dollars, except share amounts) |
1. Nature of Operations |
Planet 13 Holdings Inc. (“Planet 13” or the “Company”) was originally incorporated under the Canada Business Corporations Act on April 26, 2002 and continued under the British Columbia Business Corporations Act on September 24, 2019.
On September 15, 2023 (the “Effective Date”), Planet 13 Holdings Inc., a British Columbia corporation (“Planet 13 BC”) filed articles of domestication and articles of incorporation with the Secretary of State of the State of Nevada and changed its jurisdiction from the Province of British Columbia, Canada, to the State of Nevada (the “Domestication”), pursuant to a court-approved plan of arrangement (“Plan of Arrangement”).
On the Effective Date, pursuant to the Plan of Arrangement and by operation of law, all the rights, privileges and powers of Planet 13 BC, all property owned by Planet 13 BC, all debt due to Planet 13 BC, and all other causes of action belonging to Planet 13 BC immediately prior to the Effective Date remain vested in, or attached to, the Company following the Effective Date.
On the Effective Date, each holder of issued and outstanding common share of Planet 13 BC (the “Common Shares”) was deemed to receive one share of common stock of the Company (“Common Stock”), without any action required on the part of the holder thereof. Additionally, each holder of outstanding options to purchase Common Shares was deemed to receive options to purchase an equal number of shares of Common Stock at the same exercise price per share and otherwise the same terms under the Planet 13 Holdings Inc. 2018 Stock Option Plan, and each holder of restricted share units was deemed to receive restricted share units for an equal number of shares of the Common Stock and otherwise with the same terms and conditions under the Planet 13 Holdings Inc. 2018 Share Unit Plan.
Unless the context otherwise requires or otherwise expressly states, all references in this Quarterly Report on Form 10-Q to Common Shares or common shares refer to the Company’s capital stock prior to the Domestication and all references to shares of Common Stock or common stock refer to the Company’s capital stock after the Domestication.
The Company, through its subsidiaries, 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, Florida, and Illinois. We are licensed in these jurisdictions as follows:
Nevada cultivation licenses ( medical and adult-use), Nevada production licenses ( medical and adult-use), Nevada dispensary licenses ( medical and adult-use), Nevada distribution license, California adult-use dispensary license, California distribution licenses, California adult-use cultivation license, California adult-use manufacturer license, Florida Medical Marijuana Treatment Center license (unlimited medical dispensaries, cultivation and processing) and Illinois conditional adult-use dispensary license.
Planet 13 is a public company with common stock listed on the Canadian Securities Exchange (“CSE”) under the symbol PLTH and quoted on the OTCQX exchange under the symbol “PLNH”. Prior to the Domestication, the Company’s Common Shares were quoted on the OTCQX under the symbol “PLNHF”.
The Company’s registered office and 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.
PLANET 13 HOLDINGS INC. Notes to the Interim Condensed Consolidated Financial Statements (Unaudited, in United States Dollars, except share amounts) |
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2. Basis of Presentation |
These unaudited condensed consolidated interim 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 regulations of the U.S. Securities and Exchange Commission (“SEC”) for all periods presented. Certain information and footnote disclosures normally included in the audited annual consolidated financial statements prepared in accordance with GAAP have been omitted or condensed. The information included in these unaudited interim condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and accompanying notes as of and for the year ended December 31, 2022 included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022. These unaudited interim condensed consolidated financial statements reflect all adjustments (consisting of normal recurring adjustments), which, in the opinion of management, are necessary for the fair presentation of the results for the interim periods presented. Interim results are not necessarily indicative of results for a full year.
These unaudited interim condensed 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.
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 unaudited interim condensed 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 unaudited condensed consolidated interim financial statements were authorized for issuance by the Board of Directors of the Company on November 8, 2023.
i) | Basis of consolidation |
These accompanying unaudited condensed consolidated interim 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 unaudited condensed consolidated interim 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 unaudited condensed consolidated interim financial statements include the accounts of the Company and the following entities which are subsidiaries of the Company:
PLANET 13 HOLDINGS INC. Notes to the Interim Condensed Consolidated Financial Statements (Unaudited, in United States Dollars, except share amounts) |
Subsidiaries as at September 30, 2023 | Jurisdiction of Incorporation | Ownership Interest 2023 | Ownership Interest 2022 | Nature of Business | ||||
MM Development Company, Inc. ("MMDC") | Nevada, USA | | | Nevada license holding company; vertically integrated cannabis operations | ||||
BLC Management Company LLC | Nevada, USA | | | Management/holding company | ||||
LBC CBD LLC ("LBC") | Nevada, USA | | | CBD retail sales and marketing | ||||
Newtonian Principles Inc. | California, USA | | | California license holding company; cannabis retail sales | ||||
Crossgate Capital U.S. Holdings Corp. | Nevada, USA | | | Holding company | ||||
Next Green Wave, LLC | California, USA | | | California license holding company; cannabis cultivation and processing | ||||
Planet 13 Illinois, LLC | Illinois, USA | | | Illinois license holding company | ||||
BLC NV Food, LLC | Nevada, USA | | | Holding company for By The Slice LLC | ||||
By The Slice, LLC | Nevada, USA | | | Subsidiary of BLC NV Food, LLC; restaurant and retail operations | ||||
Planet 13 Chicago, LLC | Illinois, USA | | | Holding company | ||||
Planet 13 Florida, Inc. | Florida, USA | | | Florida license holding company | ||||
Club One Three, LLC | Nevada, USA | Inactive |
ii) | Functional currency |
These unaudited condensed consolidated interim 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 financial currencies of the Company’s entities at the exchange rates in effect on the date of the transactions. Monetary assets and liabilities denominated in foreign currencies are measured to functional currency at the foreign exchange rate applicable at the statement of balance sheets date. Non-monetary items are carried at historical rates. Non-monetary items carried at face 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 or loss.
iii) | Emerging growth company |
The Company is an “Emerging Growth Company”, as defined in Section 2(a) of the Securities Act, as modified by 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.
PLANET 13 HOLDINGS INC. Notes to the Interim Condensed Consolidated Financial Statements (Unaudited, in United States Dollars, except share amounts) |
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3. 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 the production of finished goods, non-cannabis merchandise and food and beverage items. The Company’s inventory is comprised of:
September 30, |
December 31, |
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2023 |
2022 |
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Raw materials |
$ | $ | ||||||
Packaging and miscellaneous |
||||||||
Work in progress |
||||||||
Finished goods |
||||||||
$ | $ |
Cost of Inventory is recognized as an expense when sold and included in the cost of goods sold. During the three and nine months ended September 30, 2023, the Company recognized $
4. Prepaid Expenses and Other Current Assets |
September 30, | December 31, | |||||||
2023 | 2022 | |||||||
Security deposits | $ | $ | ||||||
Prepaid rent | ||||||||
Insurance | ||||||||
License fees | ||||||||
Miscellaneous | ||||||||
$ | $ |
|
PLANET 13 HOLDINGS INC. Notes to the Interim Condensed Consolidated Financial Statements (Unaudited, in United States Dollars, except share amounts) |
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5. Property and Equipment |
Land and | Leasehold | Construction | ||||||||||||||||||||||
Improvements | Buildings | Equipment | Improvements | in Progress | Total | |||||||||||||||||||
Gross carrying amount | ||||||||||||||||||||||||
At December 31, 2022 | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
Additions | ||||||||||||||||||||||||
Disposals | ( | ) | ( | ) | ||||||||||||||||||||
At September 30, 2023 | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
Depreciation | ||||||||||||||||||||||||
At December 31, 2022 | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
Additions | ||||||||||||||||||||||||
Disposals | ( | ) | ( | ) | ||||||||||||||||||||
At September 30, 2023 | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
Carrying amount | ||||||||||||||||||||||||
At December 31, 2022 | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
At September 30, 2023 | $ | $ | $ | $ | $ | $ |
As at September 30, 2023, costs related to the construction of facilities were capitalized as construction in progress and not depreciated. Once construction is completed, the construction in progress balance is moved to the appropriate fixed asset account and depreciation commences. The contractual construction commitment as of September 30, 2023 was $
For the nine months ended September 30, 2023, depreciation expense was $
During the nine months ended September 30, 2023,
PLANET 13 HOLDINGS INC. Notes to the Interim Condensed Consolidated Financial Statements (Unaudited, in United States Dollars, except share amounts) |
|
6. Intangible Assets |
Retail Dispensary Santa Ana | Retail Dispensary Clark County | Cultivation and Production Clark County | Master License Florida | Cultivation Coalinga CA | Retail Dispensary Waukegan IL | Other | Total | |||||||||||||||||||||||||
Gross carrying amount | ||||||||||||||||||||||||||||||||
Balance, December 31, 2022 | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
Additions | ||||||||||||||||||||||||||||||||
Balance at September 30, 2023 | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
Amortization | ||||||||||||||||||||||||||||||||
Balance, December 31, 2022 | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
Additions | ||||||||||||||||||||||||||||||||
Impairment Loss | ||||||||||||||||||||||||||||||||
Balance at September 30, 2023 | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
Carrying amount | ||||||||||||||||||||||||||||||||
Balance at December 31, 2022 | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
Balance at September 30, 2023 | $ | $ | $ | $ | $ | $ | $ | $ |
NGW Acquisition
On March 2, 2022, the Company acquired
NGW was incorporated in 2011 and was formed for the purpose of cultivating and selling cannabis products in the state of California, where it owns and operates a cultivation and manufacturing facility. The Company executed the NGW transaction in order to introduce certain of its brands to the California market; complement its dispensary operations in Santa Ana, California; and expand its California revenue base.
The aggregate purchase price for the NGW transaction was $
The following table summarizes the allocation of consideration exchanged to the estimated fair value of tangible and intangible assets acquired:
PLANET 13 HOLDINGS INC. Notes to the Interim Condensed Consolidated Financial Statements (Unaudited, in United States Dollars, except share amounts) |
Consideration paid: | ||||
Cash | $ | |||
Issuance of Common Shares | ||||
Issuance of replacement options | ||||
$ | ||||
Fair value of net assets acquired: | ||||
Cash | $ | |||
Inventory | ||||
Accounts Receivable | ||||
Property, plant and equipment | ||||
Intangible assets | ||||
Goodwill | ||||
Accounts Payable and Accrued Liabilities | ( | ) | ||
Income taxes payable | ( | ) | ||
Deferred tax liability | ( | ) | ||
$ |
The purchase price allocations for the NGW transaction reflect various fair value estimates and analyses relating to the determination of fair value of certain tangible and intangible assets acquired and residual goodwill. The Company determined the estimated fair value of the acquired working capital, and identifiable intangible assets and goodwill after review and consideration of relevant information including discounted cash flow analyses, market data and management’s estimates, prepared by an independent valuation firm. The estimated fair value of acquired working capital was determined to approximate carrying value.
The goodwill arising from the NGW transaction consists of expected synergies from combining operations of the Company and NGW, and intangible assets not qualifying for separate recognition such as formulations, proprietary technologies and acquired know-how. None of the goodwill is deductible for tax purposes.
NGW’s state cannabis licenses and brands represented identifiable intangible assets acquired in the amounts of $
In connection with the NGW transaction, the Company expensed $
The following table reflects the revenue, gross profit and comprehensive loss that would have been reported if the acquisition had occurred at the beginning of the period indicated:
Three Months Ended September 30, 2022 | Nine Months Ended September 30, 2022 | |||||||||||||||||||||||
As Reported | NGW | Pro Forma | As Reported | NGW | Pro Forma | |||||||||||||||||||
Revenue, net of discounts | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
Gross Profit | ( | ) | ||||||||||||||||||||||
Comprehensive loss for the period | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) |
PLANET 13 HOLDINGS INC. Notes to the Interim Condensed Consolidated Financial Statements (Unaudited, in United States Dollars, except share amounts) |
The carrying value of goodwill in each reporting unit is indicative of the expected growth and development of the business. In the fourth quarter of fiscal 2022, the Company identified qualitative indicators of impairment as a result of a downturn in the wholesale pricing of cannabis. The reduction in the price of wholesale cannabis resulted in a downward adjustment of the future financial forecasts for the Company’s NGW business, which indicated that impairment of the goodwill asset was a more-likely-than-not outcome. A qualitative step zero impairment test was performed on the NGW business which indicated a potential impairment. The Company conducted a quantitative impairment analysis of its NGW reporting unit using the income approach as at December 31, 2022.
The recoverable amount of the reporting unit to which goodwill is allocated and the asset group to which indefinite life intangibles are allocated were determined based on fair value using Level 3 inputs in a discounted cash flow analysis. Management tested the NGW asset group for the definite lived assets impairment. The result was impairment for the definite lived assets of the NGW asset group. Where applicable, the Company uses its market capitalization and comparative market multiples to corroborate discounted cash flow results. The significant assumptions applied in the determination of the recoverable amount are described below:
● | Cash flows: Estimated cash flows were projected based on actual operating results from internal sources as well as industry and market trends. Estimated cash flows are primarily driven by sales volumes, selling prices and operating costs. The forecasts are extended to a total of six years (and a terminal year thereafter); | |
● | Terminal value growth rate: The terminal growth rate was based on historical and projected consumer price inflation, historical and projected economic indicators and projected industry growth; | |
● | Post-tax discount rate: The post-tax discount rate is reflective of the reporting unit’s Weighted Average Cost of Capital (“WACC”). The WACC was estimated based on the risk-free rate, equity risk premium, beta adjustment to the equity risk premium based on a direct comparison approach, an unsystematic risk premium, and after-tax cost of debt based on corporate bond yields; and | |
● | Tax rate: The tax rates used in determining the future cash flows were those substantively enacted at the respective valuation date. |
The following table outlines the key assumptions used in calculating the recoverable amount for each CGU and operating segment tested for impairment as at December 31, 2022:
Goodwill impairment testing | ||||
Significant estimates used by management | NGW | |||
Years of cash flows before terminal value | ||||
Discount rate | % | |||
Terminal value multiple / rate |
|
Based on the results of the goodwill impairment test, the carrying value of the NGW reporting unit exceeded the fair value and the Company recognized a pre-tax impairment loss of $
Acquisition of 51% Interest in Planet 13 Illinois
On February 7, 2023, the Company purchased the remaining
PLANET 13 HOLDINGS INC. Notes to the Interim Condensed Consolidated Financial Statements (Unaudited, in United States Dollars, except share amounts) |
Florida License Impairment
Effective September 15, 2023, the Company completed the Domestication. In connection therewith, the Company engaged an independent valuation firm to provide a valuation report for each of its subsidiary entities. The results of the valuation process indicated that the value of the Company’s Florida subsidiary was less than the carrying amount of such subsidiary. Consequently, the Company recorded an impairment charge of $
7. Leases |
The Company’s lease agreements are for cultivation, manufacturing, retail office premises and for vehicles. The property lease terms range between
The following table provides the components of lease costs recognized in the unaudited interim condensed consolidated statement of operations and comprehensive loss for the three- and nine-month periods ended September 30, 2023 and 2022:
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | September 30, | September 30, | |||||||||||||
2023 | 2022 | 2023 | 2022 | |||||||||||||
Operating lease costs | $ | $ | $ | $ | ||||||||||||
Short term lease expense | ||||||||||||||||
Total lease costs | $ | $ | $ | $ |
Other information related to operating and finance leases as of and for the nine months ended September 30, 2023 and 2022 are as follows:
September 30, 2023 | September 30, 2022 | |||||||||||||||
Finance | Operating | Finance | Operating | |||||||||||||
Lease | Lease | Lease | Lease | |||||||||||||
Weighted average discount rate | % | % | % | % | ||||||||||||
Weighted average remaining lease term | - | 0.14 |
PLANET 13 HOLDINGS INC. Notes to the Interim Condensed Consolidated Financial Statements (Unaudited, in United States Dollars, except share amounts) |
The maturity of the contractual undiscounted lease liabilities as of September 30, 2023 and December 31, 2022 are:
2023 | 2022 | |||||||
Operating | Operating | |||||||
Lease | Lease | |||||||
One year | $ | $ | ||||||
Two years | ||||||||
Three years | ||||||||
Four years | ||||||||
Five years | ||||||||
Thereafter | ||||||||
Total undiscounted lease liabilities | ||||||||
Interest on lease liabilities | ( | ) | ( | ) | ||||
Total present value of minimum lease payments | ||||||||
Lease liability - current portion | ( | ) | ( | ) | ||||
Lease liability | $ | $ |
Principally all leases relate to real estate.
For the three and nine months ended September 30, 2023, the Company incurred $
See Note 14 for additional supplemental cash flow information related to leases.
8. Notes Payable |
September 30, | December 31, | |||||||
2023 | 2022 | |||||||
Promissory note dated November 4, 2015, with semi-annual interest at %, secured by deed of trust, due December 1, 2019 | ||||||||
$ | $ | |||||||
Less current portion | ( | ) | ( | ) | ||||
$ | - | $ | - | |||||
Stated maturities of debt obligations are as follow: | ||||||||
Next 12 months Promissory Note | $ |
PLANET 13 HOLDINGS INC. Notes to the Interim Condensed Consolidated Financial Statements (Unaudited, in United States Dollars, except share amounts) |
|
9. Share Capital |
The Company is authorized to issue
Number of Shares of Common Stock | |||||||||
September 30, | December 31, | ||||||||
2023 | 2022 | ||||||||
Common Stock | |||||||||
Balance at January 1 | |||||||||
Shares issued on settlement of RSUs | i. | ||||||||
Shares issued on exercise of options | ii. | ||||||||
Shares issued on exercise of warrants | iii. | ||||||||
Shares issued on acquisition (Note 6) | iv. | ||||||||
Shares issued on exercise of purchase option (Note 6) | v. | ||||||||
Total shares of common stock outstanding |
i. Shares issued for Restricted Share Units
During the nine months ended September 30, 2023,
During the year ended December 31, 2022, the Company issued
ii. Shares issued for Stock Options
During the nine months ended September 30, 2023,
During the year ended December 31, 2022, the Company issued
iii. Shares issued on the exercise of Warrants
During the nine months ended September 30, 2023,
During the year ended December 31, 2022, the Company issued
PLANET 13 HOLDINGS INC. Notes to the Interim Condensed Consolidated Financial Statements (Unaudited, in United States Dollars, except share amounts) |
|
10. Warrants |
The following table summarizes the fair value of the warrant liability at September 30, 2023 and December 31, 2022.
September 30, | December 31, | |||||||
2023 | 2022 | |||||||
Balance - beginning of period | $ | $ | ||||||
Expirations | ( | ) | ||||||
Foreign exchange | ( | ) | ||||||
Change in fair value | ( | ) | ||||||
Balance - end of period | $ | $ |
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 September 30, 2023 and December 31, 2022.
September 30, 2023 | Weighted Average Exercise Price - CAD | December 31, 2022 | Weighted Average Exercise Price - CAD | |||||||||||||
Balance - beginning of period | $ | $ | ||||||||||||||
Exercised | $ | ( | ) | $ | ||||||||||||
Expired | ( | ) | $ | ( | ) | $ | ||||||||||
Balance - end of period | $ | $ |
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.
The following tables present information about the Company’s assets and liabilities that are measured at fair value on a recurring basis as of September 30, 2023 and December 31, 2022:
Quoted prices in active markets for identical asset (Level 1) | Total | |||||||
September 30, 2023 | ||||||||
Warrant liability | $ | $ | ||||||
December 31, 2022 | ||||||||
Warrant liability | $ | ( | ) | $ | ( | ) |
PLANET 13 HOLDINGS INC. Notes to the Interim Condensed Consolidated Financial Statements (Unaudited, in United States Dollars, except share amounts) |
|
11. Share Based Compensation |
At the 2023 Annual General and Special Meeting, the shareholders of Planet 13 BC voted to approve and adopt the Planet 13 Holdings Inc. 2023 Equity Incentive Plan (the “2023 Equity Plan”), which was contingent upon the completion of the Domestication, and became effective on the Effective Date. As of the Effective Date, the Company may not grant any new awards under the Planet 13 Holdings Inc. 2018 Stock Option Plan and Planet 13 Holdings Inc. 2018 Share Unit Plan (collectively, the “Prior Plans”), and the Prior Plans will continue to govern awards previously granted under them.
A total of
(a) Stock Options
The Company had established the 2018 Stock Option Plan (the “Option 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 Option Plan, the Company could grant options for up to
During the three and nine months ended September 30, 2023 and the year ended December 31, 2022
The following table summarizes information about stock options outstanding at September 30, 2023:
Exercise price | September 30, 2023 | September 30, 2023 | December 31, 2022 | December 31, 2022 | ||||||||||||||||
Expiry Date | CAD$ | Outstanding | Exercisable | Outstanding | Exercisable | |||||||||||||||
November 21, 2024 | $ | |||||||||||||||||||
February 27, 2025 | $ | |||||||||||||||||||
December 15, 2025 | $ | |||||||||||||||||||
September 30, 2026 | $ | |||||||||||||||||||
July 6, 2025 | $ | |||||||||||||||||||
June 11, 2023 | $ | |||||||||||||||||||
June 30, 2024 | $ | |||||||||||||||||||
PLANET 13 HOLDINGS INC. Notes to the Interim Condensed Consolidated Financial Statements (Unaudited, in United States Dollars, except share amounts) |
The following table reflects the continuity of stock options for the period presented:
September 30, 2023 | Weighted Average Exercise Price - CAD | December 31, 2022 | Weighted Average Exercise Price - CAD | |||||||||||||
Balance - beginning of period | $ | $ | ||||||||||||||
Issued | ||||||||||||||||
Exercised | ( | ) | ||||||||||||||
Expired | ( | ) | ( | ) | ||||||||||||
Balance - end of period | $ | $ |
Share based compensation expense attributable to employee options was $
The total intrinsic value of stock options exercised, outstanding and exercisable as of September 30, 2023, was $
The total intrinsic value of stock options exercised, outstanding and exercisable as of December 31, 2022 was $
(b) Restricted Share Units |
The Company had established the 2018 Share Unit 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 could grant RSUs and/or options for up to
The following table summarizes the RSUs that are outstanding as at September 30, 2023 and December 31, 2022:
September 30, | December 31, | |||||||
2023 | 2022 | |||||||
Balance - beginning of period | ||||||||
Exercised | ( | ) | ( | ) | ||||
Surrendered for taxes | ( | ) | ||||||
Forfeited | ( | ) | ( | ) | ||||
Balance - end of period |
The Company recognized $
During the nine months ended September 30, 2023
During the nine months ended September 30, 2022
PLANET 13 HOLDINGS INC. Notes to the Interim Condensed Consolidated Financial Statements (Unaudited, in United States Dollars, except share amounts) |
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12. Loss Per Share |
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | September 30, | September 30, | |||||||||||||
2023 | 2022 | 2023 | 2022 | |||||||||||||
Loss available to common shareholders | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
Weighted average number of shares outstanding, basic and diluted | ||||||||||||||||
Basic and diluted loss per share | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) |
13. General and Administrative |
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | September 30, | September 30, | |||||||||||||
2023 | 2022 | 2023 | 2022 | |||||||||||||
Salaries and wages | $ | $ | $ | $ | ||||||||||||
Share based compensation | ||||||||||||||||
Executive compensation | ||||||||||||||||
Licenses and permits | ||||||||||||||||
Payroll taxes and benefits | ||||||||||||||||
Supplies and office expenses | ||||||||||||||||
Subcontractors | ||||||||||||||||
Professional fees (legal, audit and other) | ||||||||||||||||
Miscellaneous general and administrative expenses | ||||||||||||||||
$ | $ | $ | $ |
PLANET 13 HOLDINGS INC. Notes to the Interim Condensed Consolidated Financial Statements (Unaudited, in United States Dollars, except share amounts) |
|
14. Supplemental Cash Flow Information |
Nine Months Ended | ||||||||
September 30, | September 30, | |||||||
Change in Working Capital |
2023 |
2022 |
||||||
Accounts Receivable |
||||||||
Inventory |
( |
) | ||||||
Prepaid Expenses and Other Assets |
||||||||
Long-term Deposits and Other Assets |
||||||||
Deferred Tax Assets |
( |
) | ( |
) | ||||
Accounts Payable |
( |
) | ( |
) | ||||
Accrued Expenses |
( |
) | ( |
) | ||||
Income Taxes Payable |
( |
) | ||||||
$ | ( |
) | $ | |||||
Cash Paid |
||||||||
Interest Paid On Leases |
$ | $ | ||||||
Income Taxes |
$ | $ | ||||||
Non-cash Financing and Investing Activities |
||||||||
Shares Issued on Exercise of Purchase Option |
$ | $ | ||||||
Initial Recognition of Fair Value of Net Assets Acquired in NGW Acquisition in Exchange for Shares, excluding Cash |
$ | $ | ||||||
Initial Recognition of ROU Assets and Lease Liabilities |
$ | $ | ||||||
Lease additions |
$ | $ | ||||||
Fixed Asset Amounts in Accounts Payable |
$ | $ | ||||||
Reclassification of long term lease liabilities to current |
$ | $ | ||||||
Early Termination of Operating Lease |
$ | $ |
15. Related Party Transactions and Balances |
Related party transactions are summarized as follows:
(a) Building Lease
Prior to March 15, 2022, the Company was the sub-lessee of approximately
(b) Other
A company previously owned by one of the Company’s Co-CEOs until March 15, 2022 paid the Company for storage space. Amounts paid to the Company from the related party for storage space were
For the three-month period ended September 30, 2023, no amounts were due to related parties ( December 31, 2022 - $nil).
PLANET 13 HOLDINGS INC. Notes to the Interim Condensed Consolidated Financial Statements (Unaudited, in United States Dollars, except share amounts) |
|
16. Commitments and Contingencies |
(a) Construction Commitments
The Company had $
(b) Contingencies
The Company’s operations are subject to a variety of local and state regulations. 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 September 30, 2023, 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.
(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 September 30, 2023, and December 31, 2022, there were
(d) Operating Licenses
Although the possession, cultivation, and distribution of marijuana for medical and adult use is permitted in Nevada and California, and for medical use these activities are permitted in Florida, 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.
17. 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.
Interest Rate Risk
Interest rate risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in market interest rates. The Company currently does not carry variable interest-bearing debt. It is management’s opinion that the Company is not exposed to significant interest rate risk.
Price risk
Price risk is the risk that the trading price of the Company’s shares will fluctuate and result in an increase or decrease in the fair value of the warrant liability. The Company is not exposed to significant price risk.
PLANET 13 HOLDINGS INC. Notes to the Interim Condensed Consolidated Financial Statements (Unaudited, in United States Dollars, except share amounts) |
Liquidity risk
The Company’s approach to managing risk is to ensure that it will have sufficient liquidity to meet liabilities when due. As of September 30, 2023, the Company’s financial liabilities consist of accounts payable, accrued liabilities, obligations under operating leases and taxes. The Company manages liquidity risk by reviewing its capital requirements on an ongoing basis. Historically, the Company’s main source of funding has been the public issuance of common equity. The Company’s access to financing is always uncertain. There can be no assurance of continued access to significant equity financing.
Concentration risk
The Company operates exclusively in Southern Nevada and Southern California. 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 cannabis 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 or 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 leave the Company’s 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.
Currency rate risk
As at September 30, 2023, a portion of the Company’s financial assets and liabilities held in Canadian dollars consist of cash of $
The Company’s exposure to a 10% change in the foreign exchange rate at September 30, 2023 equals $
PLANET 13 HOLDINGS INC. Notes to the Interim Condensed Consolidated Financial Statements (Unaudited, in United States Dollars, except share amounts) |
|
18. Disaggregated Revenue |
The following table presents the Company’s disaggregated revenue by sales channel:
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | September 30, | September 30, | |||||||||||||
2023 | 2022 | 2023 | 2022 | |||||||||||||
Retail | $ | $ | $ | $ | ||||||||||||
Wholesale | ||||||||||||||||
Net revenues | $ | $ | $ | $ |
19. Government Assistance Program |
On March 18, 2020, the Families First Coronavirus Act was enacted (“FFCRA”). On March 27, 2020, the Coronavirus Aid, Relief and Economic Security Act (“CARES”) was enacted. Together, these acts created refundable payroll tax credits for paid sick leave, paid family leave and an employee retention credit. The CARES Act was subsequently modified by the Taxpayer Certainty and Disaster Tax Relief Act of 2020, enacted December 27, 2020, which amended and extended the employee retention credit under the CARES Act for the first and second quarters of 2021. The American Rescue Act of 2021 further modified and extended the CARES Act for the third and fourth quarters of 2021. These acts provide for a refundable credit against certain employment taxes, including FICA, Medicare and deposits of employee payroll withholding taxes. Income tax credits are not provided for under these acts. The ERC credit, as modified by the foregoing, increased the available credit from
20. Subsequent Events |
None.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
This management’s discussion and analysis (“MD&A”) of the financial condition and results of operations of Planet 13 is for the three and nine months ended September 30, 2023. It is supplemental to, and should be read in conjunction with, our unaudited condensed interim consolidated financial statements for the three and nine months ended September 30, 2023 and 2022, and the accompanying notes presented herein. Our financial statements are prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). Financial information presented in this MD&A is presented in United States dollars (“$”, “USD” or “US$”), unless otherwise indicated.
In this MD&A, unless the context otherwise requires, the terms “we,” “us,” “our,” “Company,” or “Planet 13” refer to Planet 13 Holdings Inc. together with its wholly-owned subsidiaries.
This MD&A contains certain “forward-looking statements” and certain “forward-looking information” as defined under applicable United States and Canadian securities laws. Please refer to the discussion of forward-looking statements and information set out under the heading “Disclosures Regarding Forward-Looking Statements,” identified in this Quarterly Report on Form 10-Q. As a result of many factors, our actual results may differ materially from those anticipated in these forward-looking statements and information.
Overview of the Company
We are a multi-state cannabis operator with licenses to operate in Nevada, California, and Florida, and a conditional dispensing license in Illinois. We are headquartered in Las Vegas, Nevada, at our superstore dispensary located adjacent to the Las Vegas Strip. A detailed description of our corporate history and our business can be found in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022, as filed with the Securities and Exchange Commission (“SEC”) on March 23, 2023.
As of September 30, 2023, we employed approximately 600 people and remain focused on providing our customers with the best products, best services, and an experiential shopping experience at our superstore-themed dispensaries, while expanding our products and sales through neighborhood stores. Each of our state operations is held in state-focused subsidiaries: (a) Newtonian Principles, Inc. for California licensed cannabis dispensing and distribution activities, (b) Next Green Wave, LLC for California licensed cannabis cultivation, production and distribution activities, (c) MM Development Company, Inc. for all licensed Nevada cannabis cultivation, production, distribution, and dispensing activities, (d) Planet 13 Florida, Inc. (“Planet 13 Florida”) which holds our Florida Medical Marijuana Treatment Center (“MMTC”) license, and (e) Planet 13 Illinois, LLC (“Planet 13 Illinois”) which holds a conditional Illinois social-equity justice impaired dispensing license. We have focused on our large-store dispensing stores as superstores which offer an experiential approach to our customers, including drones, robotics, 3-D mapping projection, cannabis-culture inspired social-media backdrops for customer interaction, customer facing production, one-on-one sales staffing and customer education, and other interactive marketing elements to differentiate from more traditional dispensing locations, which we refer to herein as “neighborhood stores”. Each of our cannabis facilities is state-licensed as an adult-use cannabis facility, a medical cannabis facility, or a dual-use facility allowing for both adult-use and medical cannabis licensed activity, as designated below in the state-by-state breakdown.
Nevada
As of September 30, 2023, we held the following licensed operations in Nevada: (a) one dual-licensed dispensary superstore adjacent to the Las Vegas Strip with 24,000 square feet of licensed dispensary (the “Planet 13 Las Vegas Superstore”), (b) one adult-use “neighborhood store” at 2,300 square feet of licensed dispensary (the “Medizin dispensary”), (c) three dual-licensed production facilities, one of which is co-located and customer-facing at the superstore in Las Vegas with 18,500 square feet of licensed production, (d) three dual-licensed cultivation facilities, one with approximately 16,100 square foot indoor cultivation facility under perpetual harvest cycle, a second with 45,000 square feet co-located with our production license at that facility, and one small indoor rural site in Beatty, Nevada that is expandable up to 2,300,000 square feet of greenhouse located on 80-acres owned by us, also co-located with our production license at that facility, and (e) one cannabis distribution license.
At the Planet 13 Las Vegas Superstore, we also offer ancillary services to our customers, including a restaurant with a liquor license, a retail store, and our online cannabidiol (“CBD”) store which also sells products in our facility.
California
As of September 30, 2023, we held the following licensed operations in California: (a) an adult-use dispensary superstore co-located with a distribution license at our 33,000 square foot facility in Santa Ana which we built and opened on July 1, 2021 (the “Planet 13 OC Superstore”), (b) an adult-use medium indoor cultivation license co-located with a distribution license at our 35,000 square foot facility in Coalinga, and (c) an adult-use manufacturer Type 6 license at a 4,000 square foot facility in Coalinga.
Florida
As of September 30, 2023, we are continuing capital outlays to utilize our Florida MMTC license. Licensed MMTCs are vertically integrated and the only businesses in Florida authorized to dispense medical marijuana cannabis to qualified patients and caregivers. MMTCs are authorized to cultivate, process, transport and dispense medical marijuana. As of September 30, 2023, there were 22 companies with MMTC licenses in Florida, two of which are not yet operational. License holders are not subject to restrictions on the number of dispensaries that may be opened or on the number or size of cultivation and processing facilities they may operate.
On July 1, 2022, we, through our subsidiary Planet 13 Florida, closed on a $3,300,000 purchase of a 23-acre parcel of real property, inclusive of a 10,500 square foot building, near Ocala, Florida. The property was previously leased by Planet 13 Florida, and has received Florida OMMU approvals for cultivation, processing, and dispensing activities.
As part of our Florida expansion, as of the date of this report, we have entered into four leases for dispensing locations in Florida, which remain subject to completion of tenant improvements and regulatory inspection prior to sales to customers.
See Recent Developments for further information related to the Company’s Florida operations and its planned acquisition of VidaCann, LLC.
Illinois
On August 5, 2021, Planet 13 Illinois, in which we then held a minority interest, won a Conditional Adult Use Dispensing Organization License in the Chicago-Naperville-Elgin region from the Illinois Department of Financial and Professional Regulation. The conditional license was issued to Planet 13 Illinois on July 22, 2022. We previously owned 49% of Planet 13 Illinois with 51% owned by Frank Cowan, but on February 7, 2023, we exercised and closed on our option to purchase Mr. Cowan’s 51% interest in Planet 13 Illinois for $866,250 in cash and 1,063,377 in common shares of the Company.
On February 3, 2023, the Company, through its wholly owned subsidiary Planet 13 Chicago, LLC, closed on the purchase of a $2,500,000 real property for a proposed dispensing location in Waukegan, Illinois, for an approximately 8,000 square foot building on 1.9 acres, previously occupied by a financial institution tenant. On November 1, 2022, the Company provided notice of this site selection to the Illinois cannabis regulator. The town of Waukegan is suburb of the greater Chicago area and close to the Illinois-Wisconsin state border. We have commenced construction of the dispensary and anticipate that it will be operational in late 2023.
COVID-19 Pandemic Update for Third Quarter 2023
The long-term economic impact of COVID-19 remains unknown and may result in significant impact or changes to ongoing international or national fiscal or enforcement policies, inflation, supply chains, customer purchasing and shopping habits, and other key metrics, any of which could have a significant or material negative effect on the Company.
Recent Developments
The following are recent developments occurring in the three months ended September 30, 2023, and following that period until the filing date of this Form 10-Q:
VidaCann Membership Interest Purchase Agreement
On August 28, 2023, we entered into a Membership Interest Purchase Agreement (“Purchase Agreement”) with VidaCann, LLC (“VidaCann”), Loop’s Dispensaries, LLC (“Dispensaries”), Ray of Hope 4 Florida, LLC (“Ray of Hope”) and Loops Nursery & Greenhouses, Inc. (“Nursery” and together with Dispensaries and Ray of Hope, the “Sellers”), David Loop (“Loop”) and Mark Ascik (together with Loop, the “Indemnifying Members”) and Loop, solely in his capacity as Seller Representative, pursuant to which, upon the terms and subject to the conditions set forth therein, the Company will acquire from the Sellers all of the membership interests in VidaCann (the “Transaction”).
On September 15, 2023 (the “Effective Date”), Planet 13 Holdings Inc., a British Columbia corporation (“Planet 13 BC”) filed articles of domestication and articles of incorporation with the Secretary of State of the State of Nevada and changed its jurisdiction from the Province of British Columbia, Canada, to the State of Nevada (the “Domestication”), pursuant to a court-approved plan of arrangement (“Plan of Arrangement”).
On the Effective Date, pursuant to the Plan of Arrangement and by operation of law, all the rights, privileges and powers of Planet 13 BC, all property owned by Planet 13 BC, all debt due to Planet 13 BC, and all other causes of action belonging to Planet 13 BC immediately prior to the Effective Date remain vested in, or attached to, the Company following the Effective Date.
On the Effective Date, each holder of issued and outstanding common share of Planet 13 BC (the “Common Shares”) was deemed to receive one share of common stock of the Company (“Common Stock”), without any action required on the part of the holder thereof. Additionally, each holder of outstanding options to purchase Common Shares was deemed to receive options to purchase an equal number of shares of Common Stock at the same exercise price per share and otherwise the same terms under the Planet 13 Holdings Inc. 2018 Stock Option Plan, and each holder of restricted share units was deemed to receive restricted share units for an equal number of shares of the Common Stock and otherwise with the same terms and conditions under the Planet 13 Holdings Inc. 2018 Share Unit Plan.
Acquisitions
On March 2, 2022 (the “Closing Date”), we completed our acquisition of NGW. We entered into an arrangement agreement (the “Arrangement Agreement”) with NGW on December 20, 2021, pursuant to which we 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, at 12:01 a.m. (Vancouver time) (the “Effective Time”) on the Closing Date, we acquired all of the NGW Shares for a total consideration of approximately C$71,791,700 (based on the closing price of our Common Shares (the “Planet 13 Shares”) on the Canadian Securities Exchange on February 28, 2022), and NGW then amalgamated with us. 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 immediately prior to the Effective Time. As a result, 21,361,002 Planet 13 Shares and $14,788 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.
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 our options that will entitle the holders to receive, upon exercise thereof, Planet 13 Shares. As a result, we issued 1,106,925 options in exchange for the NGW options.
On February 7, 2023, the Company purchased the remaining 51% ownership interest in Planet 13 Illinois from a third party pursuant to an option purchase agreement that was entered into between such third party and the Company on August 4, 2022. The aggregate purchase price for the interest was $1,812,656 and consisted of $866,250 in cash consideration $946,406 in share consideration. The share consideration was comprised of 1,063,377 common shares of the Company at a fair value of C$1.18 (USD $0.89) per common share, which were issued on February 7, 2023.
Results of Operations
Three Months Ended |
||||||||||||
September 30, |
September 30, |
Percentage |
||||||||||
Expressed in USD$ |
2023 |
2022 |
Change |
|||||||||
Revenue |
||||||||||||
Net revenue |
24,788,239 | 25,623,217 | (3.3 | )% | ||||||||
Cost of Goods Sold |
(13,715,307 | ) | (15,064,315 | ) | (9.0 | )% | ||||||
Gross Profit |
11,072,932 | 10,558,902 | 4.9 | % | ||||||||
Gross Profit Margin % |
44.7 | % | 41.2 | % | ||||||||
Expenses |
||||||||||||
General and Administrative |
11,340,678 | 11,309,955 | 0.3 | % | ||||||||
Sales and Marketing |
1,348,266 | 938,269 | 43.7 | % | ||||||||
Lease expense |
767,860 | 723,955 | 6.1 | % | ||||||||
Impairment loss |
39,649,448 | — | - | |||||||||
Depreciation and Amortization |
1,965,607 | 1,978,403 | (0.6 | )% | ||||||||
Total Expenses |
55,071,859 | 14,950,582 | 268.4 | % | ||||||||
Income (Loss) From Operations |
(43,998,927 | ) | (4,391,680 | ) | 901.9 | % | ||||||
Other Income (Expense): |
||||||||||||
Interest expense, net |
284,080 | 121,285 | 134.2 | % | ||||||||
Foreign exchange gain (loss) |
203 | (1,834 | ) | (111.1 | )% | |||||||
Change in fair value of warrants |
— | 197,721 | (100.0 | )% | ||||||||
Other income |
98,861 | 41,487 | 138.3 | % | ||||||||
Total Other Income |
383,144 | 358,659 | 6.8 | % | ||||||||
Loss for the period before tax |
(43,615,783 | ) | (4,033,021 | ) | 981.5 | % | ||||||
Provision for income tax (current and deferred) |
2,365,207 | 2,222,504 | 6.4 | % | ||||||||
Loss for the period |
(45,980,990 | ) | (6,255,525 | ) | 635.0 | % | ||||||
Loss per share for the period |
||||||||||||
Basic and fully diluted income (loss) per share |
$ | (0.21 | ) | $ | (0.03 | ) | ||||||
Weighted Average Number of Shares Outstanding |
||||||||||||
Basic and diluted |
222,080,513 | 220,146,277 |
Nine Months Ended |
||||||||||||
September 30, |
September 30, |
Percentage |
||||||||||
Expressed in USD$ |
2023 |
2022 |
Change |
|||||||||
Revenue |
||||||||||||
Net revenue |
75,536,347 | 79,729,842 | (5.3 | )% | ||||||||
Cost of Goods Sold |
(41,698,369 | ) | (42,445,429 | ) | (1.8 | )% | ||||||
Gross Profit |
33,837,978 | 37,284,413 | (9.2 | )% | ||||||||
Gross Profit Margin % |
44.8 | % | 46.8 | % | ||||||||
Expenses |
||||||||||||
General and Administrative |
33,567,055 | 36,807,699 | (8.8 | )% | ||||||||
Sales and Marketing |
4,016,503 | 2,428,947 | 65.4 | % | ||||||||
Lease expense |
2,346,885 | 1,984,252 | 18.3 | % | ||||||||
Impairment loss |
39,649,448 | — | - | |||||||||
Depreciation and Amortization |
6,187,650 | 5,982,392 | 3.4 | % | ||||||||
Total Expenses |
85,767,541 | 47,203,290 | 81.7 | % | ||||||||
Income (Loss) From Operations |
(51,929,563 | ) | (9,918,877 | ) | 423.5 | % | ||||||
Other Income (Expense): |
||||||||||||
Interest expense, net |
875,643 | 193,896 | 351.6 | % | ||||||||
Foreign exchange gain (loss) |
6,318 | (23,000 | ) | (127.5 | )% | |||||||
Change in fair value of warrants |
18,127 | 6,992,955 | (99.7 | )% | ||||||||
Other income |
1,956,064 | 270,254 | 623.8 | % | ||||||||
Total Other Income |
2,856,152 | 7,434,105 | (61.6 | )% | ||||||||
Loss for the period before tax |
(49,073,411 | ) | (2,484,772 | ) | 1875.0 | % | ||||||
Provision for income tax (current and deferred) |
(7,561,151 | ) | (7,871,349 | ) | (3.9 | )% | ||||||
Loss for the period |
(56,634,562 | ) | (10,356,121 | ) | 446.9 | % | ||||||
Loss per share for the period |
||||||||||||
Basic and fully diluted income (loss) per share |
$ | (0.26 | ) | $ | (0.05 | ) | ||||||
Weighted Average Number of Shares Outstanding |
||||||||||||
Basic and diluted |
221,712,138 | 215,321,796 |
We experienced a 3.3% decrease in net revenue during the three months ended September 30, 2023, and a 5.3% decrease for the nine months ended September 30, 2023 when compared to the three and nine months ended September 30, 2022. The decrease is primarily attributable to a reduction in the number of customers at our Planet 13 Las Vegas Superstore location compared to the prior year periods, partially offset by an increase in wholesale revenue from the NGW cultivation operations in California, and an increase in net wholesale revenue in Nevada. Overall, net revenue decreased by $834,978 or 3.3% during the three months ended September 30, 2023, and decreased by $4,193,495 or 5.3% during the nine months ended September 30, 2023 when compared to the three and nine months ended September 30, 2022. We believe that a potential economic downturn and increase in inflation, including the increase in the price of gasoline and the increase in interest rates, combined to reduce the disposable income of our customers during the nine months ended September 30, 2023 and also had an impact on the number of customers and tourists visiting the Planet 13 Las Vegas Superstore and our other retail locations during the nine months ended September 30, 2023 when compared to the prior year period.
Details of net revenue by product category are as follows:
Three Months Ended | ||||||||||||
September 30, |
September 30, |
Percentage |
||||||||||
2023 |
2022 |
Change |
||||||||||
Flower |
$ | 8,067,814 | $ | 9,203,668 | (12.3 | )% | ||||||
Concentrates |
7,097,302 | 7,064,277 | 0.5 | % | ||||||||
Edibles |
3,913,228 | 4,140,211 | (5.5 | )% | ||||||||
Topicals and Other Revenue |
1,345,109 | 1,467,792 | (8.4 | )% | ||||||||
Wholesale |
4,364,786 | 3,747,269 | 16.5 | % | ||||||||
Net revenue |
$ | 24,788,239 | $ | 25,623,217 | (3.3 | )% |
Nine Months Ended |
||||||||||||
September 30, |
September 30, |
Percentage |
||||||||||
2023 |
2022 |
Change |
||||||||||
Flower |
$ | 24,079,127 | $ | 28,036,203 | (14.1 | )% | ||||||
Concentrates |
21,206,920 | 22,406,354 | (5.4 | )% | ||||||||
Edibles |
12,872,103 | 14,119,412 | (8.8 | )% | ||||||||
Topicals and Other Revenue |
3,978,207 | 5,145,228 | (22.7 | )% | ||||||||
Wholesale |
13,399,990 | 10,022,645 | 33.7 | % | ||||||||
Net revenue |
$ | 75,536,347 | $ | 79,729,842 | (5.3 | )% |
Gross profit margin for the three months ended September 30, 2023 was 44.7% compared to 41.2% for the three months ended September 30, 2022 and was 44.8% for the nine months ended September 30, 2023 compared to 46.8% for the nine months ended September 30, 2022. The increase in gross profit margin for the three and nine months ended September 30, 2023 was a result of a decrease in retail sales incentives during the period, from 30.2% of gross revenue for the quarter ended September 30, 2022 to 26.5% of gross revenue for the quarter ended September 30, 2023 partially offset by the increase in wholesale revenue, both from our Nevada and California wholesale operations, that have an inherently lower gross margin than retail sales revenue. The decrease in gross profit margin for the nine months ended September 30, 2023 was due primarily to lower margin wholesale revenue comprising a greater percentage of revenue than during the prior year period (17.7% as compared to 12.6%).
The costs of internal cultivation have continued to trend down as we continue to improve our yields and cultivation efficiency across all of our cultivation facilities. In addition, margin enhancement through the creation of internally generated brands, such as TRENDI, Leaf & Vine, HaHa Gummies, Dreamland Chocolate, HaHa Beverages and Medizin, that were sold in our own stores continued to have a positive impact on gross margins during the three and nine months ended September 30, 2023, helping to partially offset the lower margins received on the sale of wholesale product and sales to local customers in the State of Nevada. We anticipate that margins will trend upward if and when tourist customers return to Las Vegas and the Planet 13 Las Vegas Superstore in greater numbers and through our ability to produce our award-winning brands in California and introduce those brands into our Planet 13 OC Superstore.
Our premium cultivation facilities were operating near capacity during the three and nine months ended September 30, 2023 and September 30, 2022, respectively. The amount of cannabis grown during the period increased when compared to the prior year period due to the full nine months of results from the addition of the 35,000 square feet of cultivation capacity that was added as part of the NGW acquisition on March 2, 2022, and the 22,000 square foot cultivation facility expansion in Nevada that was fully operational during the three and nine months ended September 30, 2023. The wholesale flower market in California continues to stabilize and we have seen increases in both demand and the price received for premium indoor grown flower during the three and nine months ended September 30, 2023.
Overall gross profit was $11,072,933 and $10,558,902 for the three months ended September 30, 2023 and 2022 respectively, an increase of $514,031, or 4.9%, and was $33,837,978 and $37,284,413 for the nine months ended September 30, 2023 and 2022 respectively, a decrease of $3,446,435, or 9.2%. General and Administrative (“G&A”) expenses (which include non-cash share-based compensation expenses) increased by 0.3% during the three months ended September 30, 2023 when compared to the three months ended September 30, 2022. Overall, excluding non-cash share-based compensation expenses, G&A expenses as a percentage of revenue equaled 43.3% for the three months ended September 30, 2023, compared to 36.2% for the three months ended September 30, 2022, and was 41.9% and 38.4% for the nine months ended September 30, 2023 and 2022 respectively.
A detailed breakdown of G&A expenses is as follows:
Three Months Ended |
||||||||||||
September 30, | September 30, | Percentage | ||||||||||
2023 |
2022 |
Change |
||||||||||
Salaries and wages |
$ | 3,873,582 | $ | 3,574,834 | 8.4 | % | ||||||
Share-based compensation expense |
602,977 | 2,037,765 | (70.4 | )% | ||||||||
Executive compensation |
701,329 | 780,169 | (10.1 | )% | ||||||||
Licenses and permits |
594,162 | 710,951 | (16.4 | )% | ||||||||
Payroll taxes and benefits |
826,827 | 929,679 | (11.1 | )% | ||||||||
Supplies and office expenses |
408,404 | 258,468 | 58.0 | % | ||||||||
Subcontractors |
527,039 | 399,982 | 31.8 | % | ||||||||
Professional fees (legal, audit and other) |
2,312,808 | 947,922 | 144.0 | % | ||||||||
Miscellaneous general and administrative expenses |
1,493,550 | 1,670,185 | (10.6 | )% | ||||||||
$ | 11,340,678 | $ | 11,309,955 | 0.3 | % |
Nine Months Ended |
||||||||||||
September 30, |
September 30, |
Percentage |
||||||||||
2023 |
2022 |
Change |
||||||||||
Salaries and wages |
$ | 11,417,701 | $ | 11,369,684 | 0.4 | % | ||||||
Share-based compensation expense |
1,926,595 | 6,154,338 | (68.7 | )% | ||||||||
Executive compensation |
2,168,610 | 2,214,009 | (2.1 | )% | ||||||||
Licenses and permits |
1,845,608 | 2,168,616 | (14.9 | )% | ||||||||
Payroll taxes and benefits |
2,556,998 | 2,990,456 | (14.5 | )% | ||||||||
Supplies and office expenses |
1,074,602 | 758,924 | 41.6 | % | ||||||||
Subcontractors |
1,559,001 | 1,532,880 | 1.7 | % | ||||||||
Professional fees (legal, audit and other) |
6,898,241 | 4,458,370 | 54.7 | % | ||||||||
Miscellaneous general and administrative expenses |
4,119,699 | 5,160,422 | (20.2 | )% | ||||||||
$ | 33,567,055 | $ | 36,807,699 | (8.8 | )% |
Non-cash, share based compensation of $602,977 was recognized during the three months ended September 30, 2023, decreasing from $2,037,765 that was recognized during the three months ended September 30, 2022. For the nine months ended September 30, 2023, non-cash share-based compensation expense was $1,926,595, a decrease of 68.7% from the $6,154,338 recognized during the nine months ended September 30, 2022. The decrease is attributable to the vesting schedule for both Restricted Share Units (“RSUs”) and incentive stock options that were previously granted, particularly the net 3,954,213 RSUs that were granted on April 18, 2021, that vested 1/3 on December 1, 2021 and 1/3 on December 1, 2022, and that will vest 1/3 on December 1, 2023. These amounts are non-cash, and the expense is recognized in accordance with the vesting schedule of the underlying stock options and RSUs. See Note 12 to our audited consolidated financial statements filed with our Annual Report on Form 10-K for the year ended December 31, 2022, for additional details on the assumptions used to calculate fair value as well as information regarding the vesting of the various components of the non-cash share-based compensation.
Sales and marketing expenses increased by 43.7% or $409,997 during the three months ended September 30, 2023, and by 65.4% or $1,587,556 for the nine months ended September 30, 2023 when compared to the three and nine months ended September 30, 2022. The increase was a result of us continuing to refine our marketing efforts to optimize marketing spend on initiatives that drive increased customer traffic to the Planet 13 Las Vegas Superstore, the Planet 13 OC Superstore, and the Medizin dispensary in Nevada.
Lease expense increased by 6.1% during the three months ended September 30, 2023, when compared to the three months ended September 30, 2022 due to increases in number of leases and contracted lease rates for the Company’s leased properties during the period. Lease expense for the nine months ended September 30, 2023 increased by 18.3% compared to the nine months ended September 30, 2022, due to increases in number of leases and contracted lease rates for the Company’s leased properties during the period.
Depreciation and amortization decreased 0.6% during the three months ended September 30, 2023, when compared to the prior year period because of the recording of depreciation on the NGW cultivation facility for a full quarter when compared to the prior year period. For the nine months ended September 30, 2023, depreciation and amortization increased 3.4% when compared to the prior year period because of the recording of depreciation on the NGW cultivation facility for a full nine months when compared to the prior year period.
In connection with the Domestication, the Company engaged a third-party valuation firm to determine the fair value of each of the Company’s separate operating units. The results of the appraisal indicated that an impairment of the Company’s Florida license had occurred. Consequently, the Company recorded an impairment loss of $39,649,448 during the three months ended September 30, 2023. This impairment was non-cash and does not impact the Company's ongoing activities in Florida.
Interest income, net was $284,080 earned during the three months ended September 30, 2023, compared to interest income, net of $121,285 earned during the three months ended September 30, 2022 (interest income of $875,643 for the nine months ended September 30, 2023 compared to interest income of $193,896 during the nine months ended September 30, 2022). Interest income is net of interest expense related to accrued interest on our long-term debt that is due and payable on demand. The balance of long-term debt as of September 30, 2023, was $884,000 compared to $884,000 as of December 31, 2022. Interest is being accrued on this note at a rate of 5% per annum.
We conduct our operations in both United States dollars and Canadian dollars, holding financial assets and incurring expenses in both currencies. On December 31, 2022, the value of the USD was USD$1.00=CAD$1.3544 compared to the value of the USD of USD$1.00=CAD$1.3590 at September 30, 2023 and averaged USD$1.00=CAD$1.3454 during the nine months ended September 30, 2023, resulting in our realizing a foreign exchange gain of 203 during the three months ended September 30, 2023, compared to a foreign exchange loss of $1,834 during the three months ended September 30, 2022 (foreign exchange gain of $6,318 for the nine months ended September 30, 2023, compared to a loss of $23,000 for the nine months ended September 30, 2022). It is our policy not to hedge our CAD exposure.
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 derivative liabilities based 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 expenses (income) in the statements of net loss and comprehensive loss. During the three months ended September 30, 2023, the change in fair value of the warrants resulted in a gain of $0 (gain of $18,127 during the nine months ended September 30, 2023) compared to a gain of $197,721 for the three months ended September 30, 2022 (gain of $6,992,955 for the nine months ended September 30, 2022).
Other income (expense), consisting of Employer Retention Credits, Automated Teller Machine fees, and other miscellaneous income/expense was income of $98,861 for the three months ended September 30, 2023, compared to other income of $41,487 for the three months ended September 30, 2022. Other income for the nine months ended September 30, 2023 was $1,956,064 compared to other income of $270,254 for the nine months ended September 30, 2022.
Income tax expense for the three months ended September 30, 2023, was $2,365,207 compared to $2,222,504 for the prior year period. The tax expense increased due to the increase in taxable profitability during the three months ended September 30, 2023, when compared to the three months ended September 30, 2022. Income tax expense for the nine months ended September 30, 2023, was $7,561,151 compared to $7,871,349 for the nine months ended September 30, 2022. The tax expense decreased due to the decrease in taxable profitability during the nine months ended September 30, 2023, when compared to the nine months ended September 30, 2022. We are subject to Section 280E of the Internal Revenue Code (the “Code”), which prohibits businesses from taking deductions or credits in carrying on any trade or business consisting of trafficking in certain controlled substances that are prohibited by federal law. We, to the extent our “trafficking” activities, and/or key contract counterparties directly engaged in trafficking in cannabis, have incurred significant tax liabilities from the application of Section 280E. Our income tax obligations under Section 280E of the Code are typically substantially higher as compared to companies to which Section 280E does not apply. Section 280E essentially requires us to pay federal, and as applicable, state income taxes on gross profit, which presents a significant financial burden that increases our net loss and may make it more difficult for us to generate net profit and cash flow from operations in future periods. In addition, to the extent that the application of Section 280E creates a financial burden on contract counterparties, such burdens may impact the ability of such counterparties to make full or timely payment to us, which would also have a material adverse effect on our business.
The overall net loss for the three months ended September 30, 2023, was $45,980,990 (($0.21) per share) compared to an overall net loss of $6,255,525 (($0.03) per share) for the three months ended September 30, 2022. The overall net loss for the nine months ended September 30, 2023, was $56,634,562 (($0.26) per share) compared to an overall net loss of $10,356,121 (($0.05) per share) for the nine months ended September 30, 2022.
Segmented Disclosure
The Company determined that each of its locations represents an operating segment. These operating segments have been aggregated into a single reportable segment as the Company operates as a vertically integrated cannabis company with dispensary, cultivation, production and distribution operations in the State of Nevada and dispensary, cultivation and distribution operations in the State of California.
Liquidity and Capital Resources
As of September 30, 2023, our financial instruments consist of cash, deposits, accounts payable and accrued liabilities, and notes payable. We have no speculative financial instruments, derivatives, forward contracts, or hedges.
As of September 30, 2023, we had working capital of $42,719,471 compared to working capital of $55,124,236 as of December 31, 2022. The Company believes that it has adequate liquidity in the form of cash on hand to fund all its planned capital expenditures and expansion plans as well as to continue to fund its operation over the next 12 months, the planned build-out of its operations in Florida, the further expansion of operations in Nevada and California, and the continuing build-out of its Illinois retail location.
The following table relates to the nine months ended September 30, 2023 and 2022:
Nine Months Ended |
||||||||
September 30, | September 30, | |||||||
2023 |
2022 |
|||||||
Cash flows provided by operating activities |
(8,471,168 | ) | 2,334,432 | |||||
Cash flows used in investing activities |
(6,844,554 | ) | (13,148,271 | ) | ||||
Cash flows provided by financing activities |
(267,526 |
) | 97,980 |
Cash Flows from Operating Activities
Net cash used in operating activities was ($8,471,168) for the nine months ended September 30, 2023, compared to cash provided by operating activities of $2,334,432 for the nine months ended September 30, 2022. A significant portion of the increase in cash used in operating activities is directly attributable to professional fees and other consulting services used during the nine months ended September 30, 2023, when compared to the nine months ended September 30, 2022.
Cash Flows from Investing Activities
Net cash used in investing activities was $6,844,554 for the nine months ended September 30, 2023, compared to net cash used in investing activities of $13,148,271 for the nine months ended September 30, 2022. The change in cash used in investing activities for the nine months ended September 30, 2023 decreased by $6,303,717 as a result of fewer development projects that were in process during the 2023 period when compared to the nine months ended September 30, 2022. The Company is in the process of completing the remaining build-out of the Superstore grand hallway and grey shell for the Cannabition museum space and the buildout of its Illinois dispensary, all expected to be substantially complete in the fourth quarter of 2023. During the nine months ended September 30, 2022, the Company was focused on the expansion of its Bell Drive cultivation facility in Nevada and the acquisition of Next Green Wave Inc. in California.
Cash Flows from Financing Activities
Net cash used in financing activities was ($267,526) during the nine months ended September 30, 2023, compared to net cash provided by financing activities of $97,980 for the nine months ended September 30, 2022.
Capital Resources
We have a recent history of operating losses. It may be necessary for us to arrange for additional financing to meet our on-going growth initiatives.
Management believes it will be able to raise equity capital as required in the long term, but recognizes the risks attached thereto. There can be no assurance that it will be able to obtain adequate financing in the future or that the terms of such financing may be favorable.
Should financing not be available, the Company has adequate liquidity in the form of cash on hand to fund all of its planned capital expenditures and expansion plans as well as to continue to fund its operation over the next 12 months, including the planned build-out of its operations in Florida and the continuing build-out of its Illinois retail location.
Capital Management
Our capital consists of shareholders’ equity. Our objective when managing capital is to maintain adequate levels of funding to support the development of our businesses and maintain the necessary corporate and administrative functions to facilitate these activities. This is done primarily through equity financing. Future financings are dependent on market conditions and there can be no assurance we will be able to raise funds in the future. We invest all capital that is surplus to our immediate operational needs in short-term, highly liquid, and high-grade financial instruments. There were no changes to our approach to capital management during the period. We are not subject to externally imposed capital requirements.
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements as of September 30, 2023, or as of December 31, 2022, or as of the date hereof.
Critical Accounting Estimates
The preparation of consolidated financial statements in conformity with GAAP requires our 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 amounts, events 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.
There have been no material changes to our critical accounting estimates as set forth in Part II, Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2022.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
There have been no material changes to our market risk disclosures as set forth in Part II, Item 7A of our Annual Report on Form 10-K for the year ended December 31, 2022.
Item 4. 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-Chief Executive Officers (“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 Quarterly Report on Form 10-Q, as of September 30, 2023, 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 September 30, 2023.
Changes in Internal Control Over Financial Reporting
There was no change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) identified in connection with the evaluation of our internal control performed during the last fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
The Company is subject to ordinary routine legal proceedings incidental to the business, none of which is, or is anticipated to be, material to us or our subsidiaries. The outcome of litigation is inherently uncertain. If one or more legal matters were resolved against the Company in a reporting period for amounts above management's expectations, the Company’s financial condition and operating results for that reporting period could be materially adversely affected.
In addition to the risk factor set forth below and other information set forth in this report, you should carefully consider the risk factors discussed in Part I, “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2022, which could materially affect our business, financial condition, financial results, or future performance. Other than as set forth below, there have been no material changes from the risk factors previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2022.
Implications of being a smaller reporting company
Based on our public float, as of the last business day of our second fiscal quarter, we determined that we requalify as a smaller reporting company for the fiscal year ending December 31, 2023.
Smaller reporting companies are able to provide simplified executive compensation disclosure and have certain other reduced disclosure obligations, including, among other things, being permitted to provide only two years of audited financial statements in our Annual Report on Form 10-K, with correspondingly reduced “Management’s Discussion and Analysis of Financial Condition and Results of Operations”; and not being required to furnish a stock performance graph in our annual report.
We may choose to take advantage of some, but not all, of the available exemptions. We have taken advantage of reduced reporting burdens in our other filings with the Securities and Exchange Commission. We cannot predict whether investors will find our common stock less attractive if we rely on certain or all of these exemptions. If some investors find our common stock less attractive as a result, there may be a less active trading market for our common stock and our stock price may be more volatile.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
The Company made no unregistered sales of securities during the quarter covered by this report that have not previously been disclosed in a Current Report on Form 8-K.
Item 3. Defaults Upon Senior Securities.
Not applicable.
Item 4. Mine Safety Disclosures.
Not applicable.
None.
EXHIBIT INDEX
# Certain schedules and exhibits have been omitted from this filing pursuant to Item 601(a)(5) of Regulation S-K. A copy of any omitted schedule or exhibit will be furnished to the Securities and Exchange Commission upon request.
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
Date: November 8, 2023 |
By: |
/s/ Robert Groesbeck |
|
Robert Groesbeck |
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Co-Chief Executive Officer |
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(Principal Executive Officer) | |||
By: |
/s/ Larry Scheffler |
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Larry Scheffler |
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Co-Chief Executive Officer |
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(Principal Executive Officer) | |||
By: |
/s/ Dennis Logan |
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Dennis Logan |
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Chief Financial Officer |
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(Principal Financial and Accounting Officer) |