UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
For the quarterly period ended
OR
Commission file number
(Exact name of registrant as specified in its charter)
(State or other jurisdiction of incorporation or organization) |
(I.R.S. employer identification no.) |
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(Address of principal executive offices) |
(zip code) |
Registrant’s telephone number, including area code - (
Securities registered pursuant to Section 12(g) of the Act:
(Title of each Class)
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☒ No ☐
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒
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 day.
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, a 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.
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Accelerated filer |
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Non-accelerated filer |
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Smaller reporting company |
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Emerging growth company |
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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 Act). Yes
As of August 1, 2023, there were
GREEN THUMB INDUSTRIES INC.
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED June 30, 2023
TABLE OF CONTENTS
FINANCIAL INFORMATION |
Page |
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Part I |
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Unaudited Interim Condensed Consolidated Balance Sheets as of June 30, 2023 and December 31, 2022 |
4 |
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Unaudited Interim Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2023 and 2022 |
5 |
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Unaudited Interim Condensed Consolidated Statements of Changes in Shareholders’ Equity for the three and six months ended June 30, 2023 and 2022 |
6 |
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Unaudited Interim Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2023 and 2022 |
8 |
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Notes to Unaudited Interim Condensed Consolidated Financial Statements |
10 |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
28 |
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Quantitative and Qualitative Disclosure About Market Risk |
36 |
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Controls and Procedures |
36 |
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Part II |
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OTHER INFORMATION |
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Legal Proceedings |
37 |
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Risk Factors |
37 |
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Sale of Unregistered Securities |
37 |
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Defaults Upon Senior Securities |
37 |
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Mine Safety Disclosure |
37 |
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Other Information |
37 |
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Exhibits |
38 |
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39 |
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Use of Names
In this Quarterly Report on Form 10-Q, unless the context otherwise requires, the terms “we,” “us,” “our,” “Company,” “Corporation” or “Green Thumb” refer to Green Thumb Industries Inc. together with its wholly-owned subsidiaries.
Currency
Unless otherwise indicated, all references to “$” or “US$” in this document refer to United States dollars, and all references to “C$” refer to Canadian dollars.
Disclosure Regarding Forward-Looking Statements
This Quarterly Report on Form 10-Q contains statements that we believe are, or may be considered to be, “forward-looking statements.” All statements other than statements of historical fact included in this document regarding the prospects of our industry or our prospects, plans, financial position or business strategy may constitute forward-looking statements. In addition, forward-looking statements generally can be identified by the use of forward-looking words such as “may,” “will,” “expect,” “intend,” “estimate,” “foresee,” “project,” “anticipate,” “believe,” “plan,” “forecast,” “continue” or “could” or the negative of these terms or variations of them or similar terms or expressions of similar meaning. Furthermore, forward-looking statements may be included in various filings that we make with the Securities and Exchange Commission (the “SEC”), and in press releases or oral statements made by or with the approval of one of our authorized executive officers. Although we believe that the expectations reflected in these forward-looking statements are reasonable, we cannot assure you that these expectations will prove to be correct. These forward-looking statements are subject to certain known and unknown risks and uncertainties, as well as assumptions that could cause actual results to differ materially from those reflected in these forward-looking statements. These known and unknown risks include, without limitation: cannabis remains illegal under U.S. federal law, and enforcement of cannabis laws could change; the Company may be subject to action by the U.S. federal government; state regulation of cannabis is uncertain; the Company may be subject to heightened scrutiny by Canadian regulatory authorities; the Company may face limitations on ownership of cannabis licenses; the Company may become subject to U.S. Food and Drug Administration or the U.S. Bureau of Alcohol, Tobacco Firearms and Explosives regulation; cannabis businesses are subject to applicable anti-money laundering laws and regulations and have restricted access to banking and other financial services; the Company may face difficulties acquiring additional financing; the Company faces intense competition; the Company faces competition from unregulated products; the Company is dependent upon the popularity and consumer acceptance of its brand portfolio; the Company lacks access to U.S. bankruptcy protections; the Company operates in a highly regulated sector and may not always succeed in complying fully with applicable regulatory requirements in all jurisdictions where the Company carries on business; the Company may face difficulties in enforcing its contracts; the Company has limited trademark protection; cannabis businesses are subject to unfavorable tax treatment; cannabis businesses may be subject to civil asset forfeiture; the Company is subject to proceeds of crime statutes; the Company faces exposure to fraudulent or illegal activity; the Company’s use of joint ventures may expose it to risks associated with jointly owned investments; the Company faces risks due to industry immaturity or limited comparable, competitive or established industry best practices; the Company faces risks related to its products; the Company’s business is subject to the risks inherent in agricultural operations; the Company relies on third party software providers for numerous capabilities that it depends upon to operate, and a disruption of one or more systems could adversely affect the business; the Company faces risks related to its information technology systems and potential cyber-attacks and security breaches; the Company faces an inherent risk of product liability or similar claims; the Company’s products may be subject to product recalls; the Company may face unfavorable publicity or consumer perception; the Company’s voting control is concentrated; the Company’s capital structure and voting control may cause unpredictability; and issuances of substantial amounts of Super Voting Shares, Multiple Voting Shares or Subordinate Voting Shares may result in dilution. Further information on these and other potential factors that could affect the Company’s business and financial condition and the results of operations are included in the “Risk Factors” section of the Company’s Annual Report on Form 10-K for the year ended December 31, 2022, and elsewhere in the Company’s filings with the SEC, which are available on the SEC’s website or at https://investors.gtigrows.com. Readers are cautioned not to place undue reliance on any forward-looking statements contained in this document, which reflect management’s opinions only as of the date hereof. Except as required by law, we undertake no obligation to revise or publicly release the results of any revision to any forward-looking statements. You are advised, however, to consult any additional disclosures we make in our reports to the SEC. All subsequent written and oral forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by the cautionary statements contained in this document.
3
Green Thumb Industries Inc.
Unaudited Interim Condensed Consolidated Balance Sheets
As of June 30, 2023 and December 31, 2022
(Amounts Expressed in United States Dollars)
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June 30, |
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December 31, |
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2023 |
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2022 |
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(Audited) |
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(in thousands) |
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ASSETS |
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Current Assets: |
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Cash and Cash Equivalents |
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$ |
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$ |
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Accounts Receivable, Net |
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Income Tax Receivable |
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Inventories |
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Prepaid Expenses |
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Other Current Assets |
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Total Current Assets |
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Property and Equipment, Net |
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Right of Use Assets, Net |
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Investments |
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Investments in Associates |
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Intangible Assets, Net |
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Goodwill |
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Deposits and Other Assets |
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TOTAL ASSETS |
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$ |
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$ |
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LIABILITIES AND SHAREHOLDERS' EQUITY |
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LIABILITIES |
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Current Liabilities: |
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Accounts Payable |
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$ |
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$ |
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Accrued Liabilities |
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Compensation Payable |
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Current Portion of Notes Payable |
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Current Portion of Lease Liabilities |
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Contingent Consideration Payable |
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Income Tax Payable |
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Total Current Liabilities |
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Long-Term Liabilities: |
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Lease Liabilities, Net of Current Portion |
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Notes Payable, Net of Current Portion and Debt Discount |
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Contingent Consideration Payable |
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Warrant Liability |
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Deferred Income Taxes |
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TOTAL LIABILITIES |
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SHAREHOLDERS' EQUITY |
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Subordinate Voting Shares (Shares Authorized, Issued and Outstanding at June 30, 2023: |
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Multiple Voting Shares (Shares Authorized, Issued and Outstanding at June 30, 2023: |
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Super Voting Shares (Shares Authorized, Issued and Outstanding at June 30, 2023: |
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Share Capital |
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Contributed Surplus |
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Deferred Share Issuances |
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Accumulated Deficit |
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( |
) |
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( |
) |
Equity of Green Thumb Industries Inc. |
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Noncontrolling interests |
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TOTAL SHAREHOLDERS' EQUITY |
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TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY |
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$ |
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$ |
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The accompanying notes are an integral part of these unaudited interim condensed consolidated financial statements
4
Green Thumb Industries Inc.
Unaudited Interim Condensed Consolidated Statements of Operations
Three and Six Months Ended June 30, 2023 and 2022
(Amounts Expressed in United States Dollars, Except Share Amounts)
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Three Months Ended June 30, |
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Six Months Ended June 30, |
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2023 |
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2022 |
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2023 |
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2022 |
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(in thousands) |
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(in thousands) |
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Revenues, Net of Discounts |
$ |
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$ |
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$ |
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$ |
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Cost of Goods Sold, Net |
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( |
) |
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( |
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( |
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( |
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Gross Profit |
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Expenses: |
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Selling, General, and Administrative |
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Total Expenses |
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Income From Operations |
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Other Income (Expense): |
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Other Income (Expense), Net |
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( |
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Interest Income, Net |
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Interest Expense, Net |
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( |
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( |
) |
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( |
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( |
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Total Other Income (Expense) |
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( |
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( |
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Income Before Provision for Income Taxes And Non-Controlling Interest |
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Provision For Income Taxes |
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Net Income Before Non-Controlling Interest |
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Net Income Attributable to Non-Controlling Interest |
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Net Income Attributable To Green Thumb Industries Inc. |
$ |
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$ |
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$ |
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$ |
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Net Income Per Share - Basic |
$ |
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$ |
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$ |
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$ |
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Net Income Per Share - Diluted |
$ |
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$ |
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$ |
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$ |
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Weighted Average Number of Shares Outstanding - Basic |
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Weighted average Number of Shares Outstanding - Diluted |
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The accompanying notes are an integral part of these unaudited interim condensed consolidated financial statements
5
Unaudited Interim Condensed Consolidated Statements of Changes in Shareholders’ Equity
Three and Six Months Ended June 30, 2023 and 2022
(Amounts Expressed in United States Dollars)
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Share |
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Contributed |
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Deferred Share |
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Accumulated |
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Non-Controlling |
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Total |
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(in thousands) |
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Balance, April 1, 2022 |
$ |
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$ |
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$ |
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$ |
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( |
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$ |
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$ |
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Exercise of options and RSUs |
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( |
) |
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— |
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— |
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— |
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Stock-based compensation |
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— |
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— |
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— |
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— |
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Shares issued for settlement of business obligation |
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— |
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— |
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— |
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Distributions to third party and limited liability |
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— |
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— |
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— |
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— |
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( |
) |
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( |
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Net income |
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— |
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— |
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— |
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Balance, June 30, 2022 |
$ |
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$ |
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$ |
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$ |
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( |
) |
$ |
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$ |
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Balance, January 1, 2022 |
$ |
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$ |
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$ |
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$ |
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( |
) |
$ |
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( |
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$ |
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Noncontrolling interests adjustment for change in ownership |
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( |
) |
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— |
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— |
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— |
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Issuance of shares under business combinations and investments |
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— |
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— |
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— |
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— |
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Shares issued as contingent consideration |
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— |
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— |
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— |
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— |
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Exercise of options and RSUs |
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( |
) |
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— |
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— |
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— |
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Stock-based compensation |
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— |
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— |
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— |
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— |
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Shares issued for settlement of business obligation |
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— |
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— |
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— |
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Distributions to limited liability company unit holders |
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— |
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— |
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— |
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— |
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( |
) |
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( |
) |
Net income |
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— |
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— |
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— |
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Balance, June 30, 2022 |
$ |
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$ |
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|
$ |
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$ |
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( |
) |
$ |
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$ |
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|||||
The accompanying notes are an integral part of these unaudited interim condensed consolidated financial statements
6
Green Thumb Industries Inc.
Unaudited Interim Condensed Consolidated Statements of Changes in Shareholders’ Equity
Three and Six Months Ended June 30, 2023 and 2022
(Amounts Expressed in United States Dollars)
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Share |
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Contributed |
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Deferred Share |
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Accumulated |
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Non-Controlling |
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Total |
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(in thousands) |
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Balance, April 1, 2023 |
$ |
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$ |
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$ |
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$ |
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( |
) |
$ |
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$ |
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|||||
Issuance of deferred shares |
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— |
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( |
) |
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— |
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— |
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— |
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Distribution of Contingent Consideration |
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— |
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— |
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— |
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— |
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Indemnification of deferred shares associated with post |
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— |
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( |
) |
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— |
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— |
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( |
) |
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Exercise of options and RSUs |
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( |
) |
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— |
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— |
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— |
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Stock-based compensation |
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— |
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— |
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— |
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— |
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Distributions to limited liability company unit holders |
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— |
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— |
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— |
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— |
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( |
) |
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( |
) |
Net income |
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— |
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— |
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— |
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|||
Balance, June 30, 2023 |
$ |
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$ |
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|
$ |
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|
$ |
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( |
) |
$ |
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$ |
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|||||
Balance, January 1, 2023 |
$ |
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|
$ |
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$ |
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$ |
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( |
) |
$ |
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$ |
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|||||
Issuance of deferred shares |
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— |
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( |
) |
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— |
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— |
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— |
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Distribution of contingent consideration |
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— |
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— |
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— |
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— |
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Indemnification of deferred shares associated with post acquisition costs |
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— |
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( |
) |
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— |
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— |
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( |
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Exercise of options and RSUs |
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( |
) |
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— |
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— |
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— |
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Stock-based compensation |
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— |
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|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
||
Distributions to limited liability company unit holders |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
Net income |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|||
Balance, June 30, 2023 |
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
( |
) |
$ |
|
|
$ |
|
|
|||||
The accompanying notes are an integral part of these unaudited interim condensed consolidated financial statements
7
Green Thumb Industries Inc.
Unaudited Interim Condensed Consolidated Statements of Cash Flows
Six Months Ended June 30, 2023 and 2022
(Amounts Expressed in United States Dollars)
|
|
Six Months Ended June 30, |
|
|||||
|
|
2023 |
|
|
2022 |
|
||
|
|
(in thousands) |
|
|||||
CASH FLOW FROM OPERATING ACTIVITIES |
|
|
|
|
|
|
||
Net income attributable to Green Thumb Industries Inc. |
|
$ |
|
|
$ |
|
||
Net income attributable to non-controlling interest |
|
|
|
|
|
|
||
Adjustments to reconcile net income to net cash provided by operating activities: |
|
|
|
|
|
|
||
Depreciation and amortization |
|
|
|
|
|
|
||
Amortization of operating lease assets |
|
|
|
|
|
|
||
Loss on disposal of property and equipment |
|
|
|
|
|
|
||
Impairment of long-lived property and equipment |
|
|
|
|
|
|
||
Loss on equity method investments |
|
|
|
|
|
|
||
Gain from lease modification |
|
|
|
|
|
( |
) |
|
Stock-based compensation |
|
|
|
|
|
|
||
Decrease in fair value of investments |
|
|
|
|
|
|
||
Increase (decrease) in fair value of contingent consideration |
|
|
|
|
|
( |
) |
|
Decrease in fair value of warrants |
|
|
( |
) |
|
|
( |
) |
Shares issued for settlement of business obligation |
|
|
|
|
|
|
||
Gain on indemnification of deferred shares associated with post acquisition costs |
|
|
( |
) |
|
|
|
|
Amortization of debt discount |
|
|
|
|
|
|
||
Changes in operating assets and liabilities: |
|
|
|
|
|
|
||
Accounts receivable, net |
|
|
( |
) |
|
|
( |
) |
Inventories, net |
|
|
( |
) |
|
|
( |
) |
Prepaid expenses and other current assets |
|
|
( |
) |
|
|
( |
) |
Deposits and other assets |
|
|
|
|
|
( |
) |
|
Accounts payable |
|
|
|
|
|
|
||
Accrued liabilities |
|
|
|
|
|
( |
) |
|
Operating lease liabilities |
|
|
( |
) |
|
|
( |
) |
Income tax receivable and payable, net |
|
|
|
|
|
|
||
NET CASH PROVIDED BY OPERATING ACTIVITIES |
|
|
|
|
|
|
||
CASH FLOW FROM INVESTING ACTIVITIES |
|
|
|
|
|
|
||
Purchases of property and equipment |
|
|
( |
) |
|
|
( |
) |
Proceeds from disposal of property and equipment |
|
|
|
|
|
|
||
Investments in securities and associates |
|
|
( |
) |
|
|
( |
) |
Proceeds from equity investments and notes receivable |
|
|
|
|
|
|
||
Settlement of acquisition consideration payable |
|
|
|
|
|
( |
) |
|
Purchase of businesses, net of cash acquired |
|
|
|
|
|
( |
) |
|
NET CASH USED IN INVESTING ACTIVITIES |
|
|
( |
) |
|
|
( |
) |
CASH FLOW FROM FINANCING ACTIVITIES |
|
|
|
|
|
|
||
Distributions to limited liability company unit holders |
|
|
( |
) |
|
|
( |
) |
Contributions from unconsolidated subsidiaries |
|
|
|
|
|
|
||
Proceeds from exercise of options and RSUs |
|
|
|
|
|
|
||
Proceeds from issuance of notes payable |
|
|
|
|
|
|
||
Principal repayment of notes payable |
|
|
( |
) |
|
|
( |
) |
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES |
|
|
|
|
|
( |
) |
|
CASH AND CASH EQUIVALENTS: |
|
|
|
|
|
|
||
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS |
|
|
( |
) |
|
|
( |
) |
CASH AND CASH EQUIVALENTS BEGINNING OF PERIOD |
|
|
|
|
|
|
||
CASH AND CASH EQUIVALENTS END OF PERIOD |
|
$ |
|
|
$ |
|
||
The accompanying notes are an integral part of these unaudited interim condensed consolidated financial statements
8
Green Thumb Industries Inc.
Unaudited Interim Condensed Consolidated Statements of Cash Flows
Six Months Ended June 30, 2023 and 2022
(Amounts Expressed in United States Dollars)
|
|
Six Months Ended June 30, |
|
|||||
|
|
2023 |
|
|
2022 |
|
||
|
|
(in thousands) |
|
|||||
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION |
|
|
|
|
|
|
||
Interest paid |
|
$ |
|
|
$ |
|
||
NONCASH INVESTING AND FINANCING ACTIVITIES |
|
|
|
|
|
|
||
Accrued capital expenditures |
|
$ |
|
|
$ |
( |
) |
|
Noncash increase in right of use asset |
|
$ |
( |
) |
|
$ |
( |
) |
Noncash increase in lease liability |
|
$ |
|
|
$ |
|
||
Shares issued for purchase of noncontrolling interest |
|
$ |
|
|
$ |
|
||
Issuance of shares associated with contingent consideration |
|
$ |
|
|
$ |
|
||
Deferred share distributions |
|
$ |
( |
) |
|
$ |
|
|
Issuance of shares under business combinations |
|
$ |
|
|
$ |
|
||
Acquisitions |
|
|
|
|
|
|
||
Inventories |
|
$ |
|
|
$ |
|
||
Accounts receivable |
|
|
|
|
|
( |
) |
|
Prepaid expenses |
|
|
|
|
|
|
||
Property and equipment |
|
|
|
|
|
|
||
Right of use assets |
|
|
|
|
|
|
||
Identifiable Intangible assets |
|
|
|
|
|
|
||
Goodwill |
|
|
|
|
|
|
||
Deposits and other assets |
|
|
|
|
|
|
||
Liabilities assumed |
|
|
|
|
|
( |
) |
|
Lease liabilities |
|
|
— |
|
|
|
( |
) |
Noncontrolling interests |
|
|
|
|
|
|
||
Equity interests issued |
|
|
— |
|
|
|
( |
) |
Fair value of previously held equity interest |
|
|
|
|
|
( |
) |
|
Deferred cash |
|
|
|
|
|
( |
) |
|
Settlement of noncontrolling interests |
|
|
|
|
|
( |
) |
|
|
|
$ |
— |
|
|
$ |
|
|
ADDITIONAL SUPPLEMENTAL INFORMATION |
|
|
|
|
|
|
||
Decrease in fair value of investments |
|
$ |
|
|
$ |
|
||
Increase in fair value of equity method investments |
|
|
|
|
|
( |
) |
|
TOTAL DECREASE IN FAIR VALUE OF INVESTMENTS |
|
$ |
|
|
$ |
|
||
The accompanying notes are an integral part of these unaudited interim condensed consolidated financial statements
9
Green Thumb Industries Inc.
Notes to Unaudited Interim Condensed Consolidated Financial Statements
(Amounts Expressed in United States Dollars, Except Where Stated Otherwise)
1. Overview and Basis of Presentation
(a) Description of Business
Green Thumb Industries Inc. (“Green Thumb,” the “Company,” “we” or “us”), a national cannabis consumer packaged goods company and retailer, promotes well-being through the power of cannabis while being committed to community and sustainable, profitable growth. Green Thumb owns, manufactures, and distributes a portfolio of cannabis consumer packaged goods brands including &Shine, Beboe, Dogwalkers, Doctor Solomon’s, Good Green, incredibles, and RYTHM, to third-party retail stores across the United States as well as to Green Thumb owned retail cannabis stores. The Company also owns and operates retail cannabis stores that include a rapidly growing national chain named RISE, which sell our products and third-party products. As of June 30, 2023, Green Thumb has revenue in fifteen markets (California, Colorado, Connecticut, Florida, Illinois, Maryland, Massachusetts, Minnesota, Nevada, New Jersey, New York, Ohio, Pennsylvania, Rhode Island and Virginia), employs approximately 4,300 people and serves millions of patients and customers annually.
The Company’s registered office is located at 250 Howe Street, 20th Floor, Vancouver, British Columbia, V6C 3R8. The Company’s U.S. headquarters are at 325 W. Huron St., Suite 700, Chicago, IL 60654.
(b)
The accompanying unaudited interim condensed consolidated financial statements include the accounts of Green Thumb and have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial information and in accordance with the rules and regulations of the U.S. Securities & Exchange Commission (“SEC”). Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements and, accordingly, certain information, footnotes and disclosures normally included in the annual financial statements, prepared in accordance with GAAP have been condensed or omitted in accordance with SEC rules and regulations. The financial data presented herein should be read in conjunction with the audited consolidated financial statements and accompanying notes included in the Company's Annual Report on Form 10-K for the year ended December 31, 2022, (the "2022 Form 10-K”). In the opinion of management, the financial data presented includes all adjustments necessary to present fairly the financial position, results of operations and cash flows for the interim periods presented. Certain previously reported amounts have been reclassified between line items to conform to the current period presentation. Results of interim periods should not be considered indicative of the results for the full year. These unaudited interim condensed consolidated financial statements include estimates and assumptions of management that affect the amounts reported in the unaudited condensed consolidated financial statements. Actual results could differ from these estimates.
(c)
There have been no changes to the Company’s significant accounting policies as described in Note 2 to the Company's Consolidated Financial Statements included in the 2022 Form 10-K.
(d)
Basic earnings per share is calculated using the treasury stock method, by dividing the net earnings attributable to shareholders by the weighted average number of common shares outstanding during each of the periods presented. Contingently issuable shares (including shares held in escrow) are not considered outstanding common shares and consequently are not included in the earnings per share calculation. Diluted earnings per share is calculated using the treasury stock method by adjusting the weighted average number of common shares outstanding to assume conversion of all dilutive potential common shares. The Company has three categories of potentially dilutive common share equivalents: restricted stock units, stock options and warrants. As of June 30, 2023, the Company had
10
Green Thumb Industries Inc.
Notes to Unaudited Interim Condensed Consolidated Financial Statements
(Amounts Expressed in United States Dollars, Except Where Stated Otherwise)
1. Overview and Basis of Presentation (Continued)
(d) Earnings per Share (Continued)
In order to determine diluted earnings per share, it is assumed that any proceeds from the vesting of dilutive unvested restricted stock units, or exercise of unvested stock options and warrants would be used to repurchase common shares at the average market price during the period. Under the treasury stock method, the diluted earnings per share calculation excludes any potential conversion of stock options and convertible debt that would increase earnings per share or decrease loss per share. For the
(e) Recently Issued Accounting Standards
The Company reviews recently issued accounting standards on a quarterly basis and has determined there are no standards yet to be adopted which are relevant to the business for disclosure.
11
Green Thumb Industries Inc.
Notes to Unaudited Interim Condensed Consolidated Financial Statements
(Amounts Expressed in United States Dollars, Except Where Stated Otherwise)
2. INVENTORIES
The Company’s inventories include the following at June 30, 2023 and December 31, 2022:
|
|
June 30, 2023 |
|
December 31, 2022 |
|
|
(in thousands) |
||
Raw Material |
$ |
$ |
||
Packaging and Miscellaneous |
|
|
||
Work in Process |
|
|
||
Finished Goods |
|
|
||
Reserve for Obsolete Inventory |
|
( |
|
( |
Total Inventories, Net |
$ |
$ |
||
3. PROPERTY AND EQUIPMENT
At June 30, 2023 and December 31, 2022, property and equipment consisted of the following:
|
|
June 30, 2023 |
|
December 31, 2022 |
|
|
(in thousands) |
||
Buildings and Improvements |
$ |
$ |
||
Equipment, Computers and Furniture |
|
|
||
Leasehold Improvements |
|
|
||
Land Improvements |
|
|
||
Capitalized Interest |
|
|
||
Total Property and Equipment |
|
|
||
Less: Accumulated Depreciation |
|
( |
|
( |
Property and Equipment, net |
|
|
||
Land |
|
|
||
Assets Under Construction |
|
|
||
Property and Equipment, net |
$ |
$ |
||
Assets under construction represent construction in progress related to both cultivation and dispensary facilities not yet completed or otherwise not ready for use.
Depreciation expense for the three and six months ended June 30, 2023 totaled $
12
Green Thumb Industries Inc.
Notes to Unaudited Interim Condensed Consolidated Financial Statements
(Amounts Expressed in United States Dollars, Except Where Stated Otherwise)
4
(a) Intangible Assets
Intangible assets are recorded at cost less accumulated amortization and impairment losses, if any. Intangible assets acquired in a business combination are measured at fair value at the acquisition date. Amortization of definite life intangibles is provided on a straight-line basis over their estimated useful lives. The estimated useful lives, residual values, and amortization methods are reviewed at each year end, and any changes in estimates are accounted for prospectively.
At June 30, 2023 and December 31, 2022, intangible assets consisted of the following:
|
|
June 30, 2023 |
|
December 31, 2022 |
||||||||
|
|
Gross Carrying Amount |
|
Accumulated Amortization |
|
Net Book Value |
|
Gross Carrying Amount |
|
Accumulated Amortization |
|
Net Book Value |
|
|
(in thousands) |
|
(in thousands) |
||||||||
Licenses and Permits |
$ |
$ |
$ |
$ |
$ |
$ |
||||||
Trademarks |
|
|
|
|
|
|
||||||
Customer Relationships |
|
|
|
|
|
|
||||||
Non-Competition Agreements |
|
|
|
|
|
|
||||||
Total Intangible Assets |
$ |
$ |
$ |
$ |
$ |
$ |
||||||
The Company recorded amortization expense for the three and six months ended June 30, 2023 of $
The following table outlines the estimated annual amortization expense related to intangible assets as of June 30, 2023:
|
|
Estimated |
Year Ending December 31, |
|
(in thousands) |
Remainder of 2023 |
$ |
|
2024 |
|
|
2025 |
|
|
2026 |
|
|
2027 |
|
|
2028 and Thereafter |
|
|
|
$ |
As of June 30, 2023, the weighted average amortization period remaining for intangible assets was
(b) Goodwill
At June 30, 2023 and December 31, 2022 the balances of goodwill, by segment, consisted of the following:
|
|
Retail |
|
Consumer Packaged Goods |
|
Total |
|
|
(in thousands) |
||||
As of December 31, 2022 |
$ |
$ |
$ |
|||
As of June 30, 2023 |
$ |
$ |
$ |
|||
13
Green Thumb Industries Inc.
Notes to Unaudited Interim Condensed Consolidated Financial Statements
(Amounts Expressed in United States Dollars, Except Where Stated Otherwise)
5. INVESTMENTS
As of June 30, 2023 and December 31, 2022, the Company held various equity interests in cannabis related companies as well as investments in note receivable instruments that had a combined fair value of $
The following table summarizes the changes in the Company’s investments during the six months ended June 30, 2023 and year ending December 31, 2022:
|
|
June 30, 2023 |
|
December 31, 2022 |
|
(in thousands) |
|||
Beginning |
$ |
$ |
||
Additions |
|
|
||
Disposals |
|
( |
|
( |
Fair value adjustment |
|
( |
|
( |
Transfers and other |
|
( |
|
|
Ending |
$ |
$ |
||
During the three and six months ended June 30, 2023, the Company recorded fair value losses, net of interest income of $
(a) Equity Investments
As of June 30, 2023 and December 31, 2022, the Company held equity investments in publicly traded entities which have readily determinable fair values, which are classified as Level 1 investments, of $
As of June 30, 2023 and December 31, 2022, the Company held equity investments in privately held entities that did not have readily determinable fair values, which are classified as Level 3 investments, of $
See Note 13 - Fair Value Measurements for additional details.
14
Green Thumb Industries Inc.
Notes to Unaudited Interim Condensed Consolidated Financial Statements
(Amounts Expressed in United States Dollars, Except Where Stated Otherwise)
5. INVESTMENTS (Continued)
(a) Equity Investments (Continued)
Unrealized gains and (losses) recognized on equity investments held during the three and six months ended June 30, 2023 were $(
(b) Note Receivable Instruments
The Company has made multiple investments in various note receivable instruments, including note receivable instruments with conversion features.
The Company held note receivable instruments, which were classified as a Level 1 investment as they represent public debt of a publicly traded entity, and had a fair value of $
As of June 30, 2023 and December 31, 2022, the Company held note receivable instruments which were classified as Level 3 investments as they represent loans provided to privately held entities that do not have readily determinable fair values. The note receivable instruments had a combined fair value of $
See Note 13 - Fair Value Measurements for additional details.
15
Green Thumb Industries Inc.
Notes to Unaudited Interim Condensed Consolidated Financial Statements
(Amounts Expressed in United States Dollars, Except Where Stated Otherwise)
6. LEASES
(a) Operating Leases
The Company has operating leases for its retail stores and processing and cultivation facilities located throughout the U.S., as well as corporate office space located in Illinois. Operating lease right-of-use assets and operating lease liabilities are recognized based on the present value of future minimum lease payments over the lease term at commencement date.
All real estate leases are recorded on the balance sheet. Equipment and other non-real estate leases with an initial term of twelve months or less are not recorded on the balance sheet. Lease agreements for some locations provide for rent escalations and renewal options. Certain real estate leases require payment for fixed and variable non-lease components, such as taxes, insurance and maintenance. The Company accounts for each real estate lease and the related non-lease components together as a single component.
The Company determines if an arrangement is a lease at inception. The Company must consider whether the contract conveys the right to control the use of an identified asset. Certain arrangements require significant judgment to determine if an asset is specified in the contract and if the Company directs how and for what purpose the asset is used during the term of the contract. For the three and six months ended June 30, 2023, the Company recorded operating lease expense of $
Other information related to operating leases as of June 30, 2023 and December 31, 2022 were as follows:
|
|
June 30, 2023 |
|
December 31, 2022 |
Weighted average remaining lease term (years) |
|
|
||
Weighted average discount rate |
|
|
Maturities of lease liabilities for operating leases as of June 30, 2023 were as follows:
|
|
Maturities of Lease Liability |
||||
Year Ending December 31, |
|
Third Party |
|
Related Party |
|
Total |
|
|
(in thousands) |
||||
Remainder of 2023 |
$ |
$ |
$ |
|||
2024 |
|
|
|
|||
2025 |
|
|
|
|||
2026 |
|
|
|
|||
2027 |
|
|
|
|||
2028 and Thereafter |
|
|
|
|||
Total Lease Payments |
|
|
|
|||
Less: Interest |
|
( |
|
( |
|
( |
Present Value of Lease Liability |
$ |
$ |
$ |
|||
(b) Related Party Operating Leases
The Company has leasing arrangements that are related party transactions including for certain facilities in Maryland, Massachusetts and Nevada. Wendy Berger, a director of the Company, is a principal of WBS Equities, LLC, which is the Manager of Mosaic Real Estate, LLC, and owns the facilities leased by the Company. Additionally, Mosaic Real Estate, LLC is indirectly owned in part by Ms. Berger (through the Wendy Berger 1998 Revocable Trust), Benjamin Kovler, the Chairman and Chief Executive Officer of the Company (through KP Capital, LLC), and Anthony Georgiadis, the President and a director of the Company (through Three One Four Holdings, LLC). The terms of these leases range from
16
Green Thumb Industries Inc.
Notes to Unaudited Interim Condensed Consolidated Financial Statements
(Amounts Expressed in United States Dollars, Except Where Stated Otherwise)
7
At June 30, 2023 and December 31, 2022, notes payable consisted of the following:
|
|
June 30, 2023 |
|
December 31, 2022 |
|
|
(in thousands) |
||
Charitable Contributions1 |
$ |
$ |
||
Private placement debt dated April 30, 20212 |
|
|
||
Mortgage notes3 |
|
|
||
Total notes payable |
|
|
||
Less: current portion of notes payable |
|
( |
|
( |
Notes payable, net of current portion |
$ |
$ |
||
1 In connection with acquisitions completed in 2017 and 2019, the Company is required to make quarterly charitable contributions of $
3 Mortgage notes with an initial value of $
(b) Related Parties
A portion of the April 30, 2021 Notes are held by related parties as well as unrelated third-party lenders at a percentage of approximately
17
Green Thumb Industries Inc.
Notes to Unaudited Interim Condensed Consolidated Financial Statements
(Amounts Expressed in United States Dollars, Except Where Stated Otherwise)
8. WARRANTS
As part of the financing of the April 30, 2021 Notes, as well as other financing arrangements, the Company issued warrants to related parties, as well as unrelated third parties, which allow the holders to purchase Subordinate Voting Shares at an exercise price determined at the time of issuance.
The following table summarizes the number of warrants outstanding as of June 30, 2023 and December 31, 2022:
|
Liability Classified |
|
Equity Classified |
|
||||||||||||||||
|
Number of Shares |
|
|
Weighted Average Exercise Price (C$) |
|
Weighted Average Remaining Contractual Life |
|
Number of Shares |
|
|
Weighted Average Exercise Price (USD) |
|
Weighted Average |
|
||||||
Balance as of December 31, 2022 |
|
|
C$ |
|
|
|
|
|
|
$ |
|
|
|
|
||||||
Balance as of June 30, 2023 |
|
|
C$ |
|
|
|
|
|
|
$ |
|
|
|
|
||||||
(a) Liability Classified Warrants Outstanding
The following table summarizes the fair value of the liability classified warrants at June 30, 2023 and December 31, 2022:
|
|
|
|
|
Fair Value |
|
|||||||||
Warrant Liability |
Strike Price |
|
Warrants Outstanding |
|
June 30, 2023 |
|
December 31, 2022 |
|
|
Change |
|
||||
|
|
|
|
|
(in thousands) |
|
|||||||||
Private Placement Financing Warrants Issued May 2019 |
C$ |
|
|
|
$ |
|
$ |
|
|
$ |
( |
) |
|||
Modification Warrants Issued November 2019 |
C$ |
|
|
|
|
|
|
|
|
|
( |
) |
|||
Additional Modification Warrants Issued May 2020 |
C$ |
|
|
|
|
|
|
|
|
|
( |
) |
|||
Totals |
|
|
|
|
$ |
|
$ |
|
|
$ |
( |
) |
|||
During the three and six months ended June 30, 2023 and 2022, the Company recorded gains of $
The following table summarizes the significant assumptions used in determining the fair value of the warrant liability as of each reporting date (see Note 13 - Fair Value Measurements for additional details):
|
June 30, |
|
December 31, |
Significant Assumptions |
2023 |
|
2022 |
Volatility |
|
||
Remaining Term |
|
||
Risk Free Rate |
|
18
Green Thumb Industries Inc.
Notes to Unaudited Interim Condensed Consolidated Financial Statements
(Amounts Expressed in United States Dollars, Except Where Stated Otherwise)
8. WARRANTS (Continued)
(b) Equity Classified Warrants Outstanding
The Company's equity classified warrants were recorded at fair value at each respective date of issuance. Equity classified warrants are not remeasured at fair value on a recurring basis and are carried at their issuance date fair value. The following table summarizes the carrying amounts of the Company's equity classified warrants at
|
|
|
|
|
|
Issuance Date Fair Value |
|
||||||
|
|
|
|
Warrants |
|
June 30, |
|
December 31, |
|
||||
Warrants Included in Contributed Surplus |
Strike Price |
|
|
Outstanding |
|
2023 |
|
2022 |
|
||||
|
|
|
|
|
|
(in thousands) |
|
||||||
Mortgage Warrants Issued June 2020 |
$ |
|
|
|
|
$ |
|
$ |
|
||||
Private Placement Refinance Warrants Issued April 2021 |
$ |
|
|
|
|
|
|
|
|
||||
Private Placement Refinance Warrants Issued October 2021 |
$ |
|
|
|
|
|
|
|
|
||||
Totals |
|
|
|
|
|
$ |
|
$ |
|
||||
The equity warrants were valued as of the date of issuance using a Black Scholes Option Pricing model. The following table summarizes the significant assumptions used in determining the fair value of the warrants as of each respective issuance date:
Significant Assumptions |
Private Placement Refinancing Warrants |
|
Private Placement Refinancing Warrants |
Dispensary Mortgage Warrants |
Date of Issuance |
|
|||
Volatility |
|
|||
Estimated Term |
|
|||
Risk Free Rate |
|
19
Green Thumb Industries Inc.
Notes to Unaudited Interim Condensed Consolidated Financial Statements
(Amounts Expressed in United States Dollars, Except Where Stated Otherwise)
9. SHARE CAPITAL
Common shares, which include the Company’s Subordinate Voting Shares, Multiple Voting Shares and Super Voting Shares, are classified as equity. Incremental costs directly attributable to the issuance of common shares are recognized as a deduction from equity. The proceeds from the exercise of stock options or warrants together with amounts previously recorded in reserves over the applicable vesting periods are recorded as share capital. Income tax relating to transaction costs of an equity transaction is accounted for in accordance with Accounting Standards Codification (“ASC”) 740, Income Taxes.
(a) Authorized
The Company has the following classes of share capital, with each class having no par value:
(i) Subordinate Voting Shares
The holders of the Subordinate Voting Shares are entitled to receive dividends which may be declared from time to time and are entitled to one vote per share at meetings of the Company’s shareholders. All Subordinate Voting Shares are ranked equally with regard to the Company’s residual assets. The Company is authorized to issue an unlimited number of
(ii) Multiple Voting Shares
Each Multiple Voting Share is entitled to
(iii) Super Voting Shares
Each Super Voting Share is entitled to
(b) Issued and Outstanding
A reconciliation of the beginning and ending amounts of the issued and outstanding shares by class is as follows:
|
|
Issued and Outstanding |
||||
|
|
Subordinate |
|
Multiple |
|
Super |
As at January 1, 2023 |
|
|
|
|||
Distribution of contingent consideration |
|
|
— |
|
— |
|
Distribution of deferred shares |
|
|
— |
|
— |
|
Issuance of shares upon exercise of options |
|
|
— |
|
— |
|
Issuances of shares upon vesting of RSUs |
|
|
— |
|
— |
|
As at June 30, 2023 |
|
|
|
|||
20
Green Thumb Industries Inc.
Notes to Unaudited Interim Condensed Consolidated Financial Statements
(Amounts Expressed in United States Dollars, Except Where Stated Otherwise)
9. SHARE CAPITAL (Continued)
(b) Issued and Outstanding (Continued)
(i) Distribution of Deferred Shares
As part of the consideration exchanged for certain acquisitions completed throughout 2021, the Company deferred the distribution of Subordinate Voting Shares to secure the Company's indemnification rights associated with post-acquisition costs.
Related Acquisition |
As at December 31, 2022 |
Distributed Shares |
Cancelled Shares |
As at June 30, 2023 |
Liberty Compassion, Inc. |
( |
— |
— |
|
Dharma Pharmaceuticals, LLC |
( |
— |
— |
|
Mobley Pain Management and Wellness Center, LLC and Canwell Processing, LLC |
( |
( |
||
GreenStar Herbals, Inc. |
( |
— |
— |
|
Maryland Health and Wellness Center, Inc. |
( |
— |
— |
|
LeafLine Industries, LLC |
— |
— |
||
Total |
( |
( |
As of June 30, 2023 and December 31, 2022, the Company held deferred shares in the amount of $
(ii) Distribution of Contingent Consideration
Dharma Pharmaceuticals, LLC
In connection with the Company's 2021 acquisition of Dharma Pharmaceuticals, LLC (“Dharma”), the purchase agreement included contingent consideration of up to $
21
Green Thumb Industries Inc.
Notes to Unaudited Interim Condensed Consolidated Financial Statements
(Amounts Expressed in United States Dollars, Except Where Stated Otherwise)
9. SHARE CAPITAL (Continued)
(c) Stock-Based Compensation
The Company operates equity settled stock-based remuneration plans for its eligible directors, officers, employees and consultants. All goods and services received in exchange for the grant of any stock-based payments are measured at their fair value unless the fair value cannot be estimated reliably. If the Company cannot estimate reliably the fair value of the goods and services received, the Company measures their value indirectly by reference to the fair value of the equity instruments granted. For transactions with employees and others providing similar services, the Company measures the fair value of the services by reference to the fair value of the equity instruments granted. Equity settled stock-based payments under stock-based payment plans are ultimately recognized as an expense in profit or loss with a corresponding credit to equity.
In June 2018, the Company established the Green Thumb Industries Inc. 2018 Stock and Incentive Plan, which was amended by Amendment No. 1 and Amendment No. 2 thereto (as amended, the “Plan”). The maximum number of Restricted Stock Units (“RSUs”) and options issued under the Plan shall not exceed
The Company recognizes compensation expense for RSUs and options on a straight-line basis over the requisite service period of the award. Non-market vesting conditions are included in the assumptions about the number of options that are expected to become exercisable. Estimates are subsequently revised if there is any indication that the number of share options expected to vest differs from the previous estimate. Any cumulative adjustment prior to vesting is recognized in the current period with no adjustment to prior periods for expense previously recognized.
Option and RSU awards generally vest over three years, and options typically have a life of five to ten years. Option grants are determined by the Compensation Committee of the Company’s Board of Directors with the option price set at no less than 100% of the fair market value of a share on the date of grant.
Stock option activity is summarized as follows:
|
Number of Shares |
Weighted Average Exercise Price |
Weighted Average Remaining Contractual Life |
|
|
|
|
Balance as of December 31, 2022 |
$ |
||
Granted |
|||
Exercised |
( |
|
|
Forfeited |
( |
|
|
Balance as of June 30, 2023 |
$ |
||
Vested |
$ |
|
|
Exercisable of June 30, 2023 |
$ |
The Company used the Black-Scholes option pricing model to estimate the fair value of the options granted during the six months ended June 30, 2023 and the year ended December 31, 2022, using the following ranges of assumptions:
|
June 30, |
December 31, |
|
2023 |
2022 |
Risk-free interest rate |
||
Expected dividend yield |
||
Expected volatility |
||
Expected option life |
As permitted under ASC 718, the Company has made an accounting policy choice to account for forfeitures when they occur.
22
Green Thumb Industries Inc.
Notes to Unaudited Interim Condensed Consolidated Financial Statements
(Amounts Expressed in United States Dollars, Except Where Stated Otherwise)
9. SHARE CAPITAL (Continued)
(c) Stock-Based Compensation (Continued)
The following table summarizes the number of unvested RSU awards as of June 30, 2023 and December 31, 2022 and the changes during the six months ended June 30, 2023:
|
|
Number of Shares |
|
Weighted Average Grant Date Fair Value |
Unvested Shares at December 31, 2022 |
|
$ |
||
Granted |
|
|
||
Forfeited |
|
( |
|
|
Vested |
|
( |
|
|
Unvested Shares at June 30, 2023 |
|
$ |
The stock-based compensation expense for the three and six months ended June 30, 2023 and 2022 was as follows:
|
|
Three Months Ended June 30, |
|
Six Months Ended June 30, |
||||
|
|
2023 |
|
2022 |
|
2023 |
|
2022 |
|
|
(in thousands) |
|
(in thousands) |
||||
Stock options expense |
$ |
$ |
$ |
$ |
||||
Restricted Stock Units |
|
|
|
|
||||
Total Stock Based Compensation Expense |
$ |
$ |
$ |
$ |
||||
As of June 30, 2023, $
23
Green Thumb Industries Inc.
Notes to Unaudited Interim Condensed Consolidated Financial Statements
(Amounts Expressed in United States Dollars, Except Where Stated Otherwise)
10. INCOME TAX EXPENSE
The following table summarizes the Company’s income tax expense and effective tax rates for the three and six months ended June 30, 2023 and 2022:
|
|
Three Months Ended June 30, |
|
Six Months Ended June 30, |
||||
|
|
2023 |
|
2022 |
|
2023 |
|
2022 |
Income before Income Taxes |
$ |
$ |
$ |
$ |
||||
Income Tax Expense |
|
|
|
|
||||
Effective Tax Rate |
|
|
|
|
||||
The effective tax rates for the three and six months ended June 30, 2023 and 2022 were based on the Company’s forecasted annualized effective tax rates and were adjusted for discrete items that occurred within the periods presented.
Due to its cannabis operations, the Company is subject to the limitations of the U.S. Internal Revenue Code of 1986, as amended (“IRC”) Section 280E under which the Company is only allowed to deduct expenses directly related to sales of product. This results in permanent differences between ordinary and necessary business expenses deemed non-allowable under IRC Section 280E. Therefore, the effective tax rate can be highly variable and may not necessarily correlate with pre-tax income and provides for effective tax rates that are well in excess of statutory tax rates.
Taxes paid during the six months ended June 30, 2023 and 2022 were $
24
Green Thumb Industries Inc.
Notes to Unaudited Interim Condensed Consolidated Financial Statements
(Amounts Expressed in United States Dollars, Except Where Stated Otherwise)
11. OTHER INCOME (EXPENSE)
For the three and six months ended June 30, 2023 and 2022 other income (expense) was comprised of the following:
|
|
Three Months Ended June 30, |
|
|
Six Months Ended June 30, |
||||
|
|
2023 |
|
2022 |
|
|
2023 |
|
2022 |
|
|
(in thousands) |
|
|
(in thousands) |
||||
Fair value adjustments on equity investments |
$ |
( |
$ |
( |
|
$ |
( |
$ |
( |
Fair value adjustments on equity method investments |
|
|
|
|
|
||||
Fair value adjustments on warrants issued |
|
|
|
|
|
||||
Earnings (loss) from equity method investments |
|
( |
|
( |
|
|
( |
|
( |
Other |
|
|
|
|
|
||||
Total Other Income (Expense) |
$ |
( |
$ |
|
$ |
$ |
|||
12. COMMITMENTS AND CONTINGENCIES
The Company is subject to lawsuits, investigations and other claims related to employment, commercial and other matters that arise out of operations in the normal course of business. Periodically, the Company reviews the status of each significant matter and assesses the potential financial exposure. If the potential loss from any claim or legal proceeding is considered probable, and the amount can be reliably estimated, such amount is recognized in other liabilities.
Contingent liabilities are measured at management’s best estimate of the expenditure required to settle the obligation at the end of the reporting period and are discounted to present value where the effect is material. The Company performs evaluations to identify contingent liabilities for contracts. Contingent consideration is measured upon acquisition and is estimated using probability weighting of potential payouts. Subsequent changes in the estimated contingent consideration from the final purchase price allocation are recognized in the Company’s unaudited interim condensed consolidated statements of operations.
(a) 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, sanctions, restrictions on its operations, or losses of permits that could result in the Company ceasing operations in that specific state or local jurisdiction. The Company may be subject to regulatory fines, penalties, or restrictions in the future as cannabis and other regulations continue to evolve and are subject to differing interpretations.
(b) 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. As of June 30, 2023, the following matter remains pending:
Cresco Labs New York, LLC and Cresco Labs LLC (“Plaintiffs”) filed an amended complaint against one of the Company’s subsidiaries, Fiorello Pharmaceuticals, Inc. (“Defendant”) on November 20, 2018, in the Supreme Court of the State of New York, alleging Defendant breached the parties’ Equity Purchase Agreement Letter of Intent (“LOI”) relating to the acquisition of Defendant by Plaintiffs. In December 2022, the trial court granted Plaintiffs' motion for summary judgment on their claim that Defendant breached the LOI. However, Defendant successfully appealed the trial court's decision, and in June 2023, the New York Appellate Court vacated the trial court’s decision on liability, and completely and unanimously reversed the trial court on the issue of damages, making clear that Plaintiffs, if Defendant is found liable, are limited to out-of-pocket damages. Plaintiffs have since sought the Appellate Division’s permission for further review from the New York Court of Appeals. As of June 30, 2023 and December 31, 2022, a $
At June 30, 2023, there were
(c) Construction Commitments
As of June 30, 2023, the Company held approximately $
25
Green Thumb Industries Inc.
Notes to Unaudited Interim Condensed Consolidated Financial Statements
(Amounts Expressed in United States Dollars, Except Where Stated Otherwise)
13. FAIR VALUE MEASUREMENTS
The Company applies fair value accounting for all financial assets and liabilities that are recognized or disclosed at fair value in the financial statements on a recurring basis. Fair value is defined as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities that are required to be recorded at fair value, the Company considers all related factors of the asset by market participants in which the Company would transact and the market-based risk measurements or assumptions that market participants would use in pricing the asset or liability, such as inherent risk, transfer restrictions, and credit risk.
The Company applies the following fair value hierarchy, which prioritizes the inputs used to measure fair value into three levels, and bases the categorization within the hierarchy upon the lowest level of input that is available and significant to the fair value measurement:
Level 1 – Unadjusted quoted prices in active markets for identical assets or liabilities;
Level 2 – Inputs other than quoted prices that are observable for the asset or liability, either directly or indirectly; and
Level 3 – Inputs for the asset or liability that are not based on observable market data.
(a) Financial Instruments
The Company’s financial instruments consist of cash and cash equivalents, accounts receivable, investments, accounts payable and accrued liabilities, notes payable, warrant liability, and contingent consideration payable.
It was not practicable to estimate the fair value of the Company's long-term notes payable, which consist of charitable contributions, private placement debt and mortgage notes, since there were no quoted prices or active trading markets. The carrying amount of notes payable at June 30, 2023 and December 31, 2022 was $
Financial instruments recorded at fair value are classified using a fair value hierarchy that reflects the significance of the inputs to fair value measurements.
|
|
As of June 30, 2023 |
||||||
|
(in thousands) |
|||||||
|
|
Level 1 |
|
Level 2 |
|
Level 3 |
|
Total |
Cash and Cash Equivalents |
$ |
$ |
$ |
$ |
||||
Investments |
|
|
|
|
||||
Contingent Consideration Payable |
|
|
|
( |
|
( |
||
Warrant Liability |
|
|
|
( |
|
( |
||
|
$ |
$ |
$ |
$ |
||||
|
|
As of December 31, 2022 |
||||||
|
(in thousands) |
|||||||
|
|
Level 1 |
|
Level 2 |
|
Level 3 |
|
Total |
Cash and Cash Equivalents |
$ |
$ |
$ |
$ |
||||
Investments |
|
|
|
|
||||
Contingent Consideration Payable |
|
|
|
( |
|
( |
||
Warrant Liability |
|
|
|
( |
|
( |
||
|
$ |
$ |
$ |
$ |
||||
26
Green Thumb Industries Inc.
Notes to Unaudited Interim Condensed Consolidated Financial Statements
(Amounts Expressed in United States Dollars, Except Where Stated Otherwise)
14. SEGMENT REPORTING
The Company operates in two segments: the cultivation, production and sale of cannabis products to retail stores (“Consumer Packaged Goods”) and retailing of cannabis to patients and consumers (“Retail”). The Company does not allocate operating expenses to these business units, nor does it allocate specific assets. Additionally, the Chief Operating Decision Maker does not review total assets or net income (loss) by segments; therefore, such information is not presented below.
The below table presents revenues by type for the three and six months ended June 30, 2023 and 2022:
|
|
Three Months Ended June 30, |
|
Six Months Ended June 30, |
||||
|
|
2023 |
|
2022 |
|
2023 |
|
2022 |
|
|
(in thousands) |
|
(in thousands) |
||||
Revenues, Net of Discounts |
|
|
|
|
|
|
|
|
Retail |
$ |
$ |
$ |
$ |
||||
Consumer Packaged Goods |
|
|
|
|
||||
Intersegment Eliminations |
|
( |
|
( |
|
( |
|
( |
Total Revenues, Net of Discounts |
$ |
$ |
$ |
$ |
||||
Depreciation and Amortization |
|
|
|
|
|
|
|
|
Retail |
$ |
$ |
$ |
$ |
||||
Consumer Packaged Goods |
|
|
|
|
||||
Intersegment Eliminations |
|
|
|
|
||||
Total Depreciation and Amortization |
$ |
$ |
$ |
$ |
||||
Income Taxes |
|
|
|
|
|
|
|
|
Retail |
$ |
$ |
$ |
$ |
||||
Consumer Packaged Goods |
|
|
|
|
||||
Intersegment Eliminations |
|
|
|
|
||||
Total Income Taxes |
$ |
$ |
$ |
$ |
||||
Goodwill assigned to the Consumer Packaged Goods segment as of June 30, 2023 and December 31, 2022 was $
Goodwill assigned to the Retail segment as of June 30, 2023 and December 31, 2022 was $
The Company’s assets are aggregated into two reportable segments (Retail and Consumer Packaged Goods). For the purposes of testing goodwill, Green Thumb has identified two reporting units which align with our reportable segments (Retail and Consumer Packaged Goods). All revenues are derived from customers domiciled in the United States and all assets are located in the United States.
27
ITEM 2. MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION
This management discussion and analysis (“MD&A”) of the financial condition and results of operations of Green Thumb Industries Inc. (the “Company” or “Green Thumb”) is for the three and six months ended June 30, 2023 and 2022. It is supplemental to, and should be read in conjunction with, the Company’s unaudited interim condensed consolidated financial statements as of June 30, 2023 and the consolidated financial statements 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 filed with the U.S. Securities and Exchange Commission on March 1, 2023 (the “2022 Form 10-K”) and the accompanying notes for each respective period. The Company’s financial statements are prepared in accordance with accounting principles generally accepted in the United States (“GAAP”). Financial information presented in this MD&A is presented in United States dollars (“$” or “US$”), unless otherwise indicated.
This MD&A contains certain “forward-looking statements” and certain “forward-looking information” as defined under applicable United States securities laws. Please refer to the discussion of forward-looking statements and information set out under the heading “Disclosure Regarding Forward-Looking Statements,” identified in the ‘‘Risks and Uncertainties’’ section of this MD&A and in Part II, Item 1A, “Risk Factors of the 2022 Form 10-K.” As a result of many factors, the Company’s actual results may differ materially from those anticipated in these forward-looking statements and information.
OVERVIEW OF THE COMPANY
Established in 2014 and headquartered in Chicago, Illinois, Green Thumb promotes well-being through the power of cannabis through branded consumer packaged goods and people-first retail experiences, while giving back to the communities in which it serves. As of June 30, 2023, Green Thumb has operations in fifteen U.S. markets, employs approximately 4,300 people and serves millions of patients and customers annually.
Green Thumb’s core business is manufacturing, distributing and marketing a portfolio of owned cannabis consumer packaged goods brands (which we refer to as our Consumer Packaged Goods business), including &Shine, Beboe, Dogwalkers, Doctor Solomon’s, Good Green, incredibles and RYTHM. The Company distributes and markets these products primarily to third-party licensed retail cannabis stores across the United States as well as to Green Thumb-owned retail stores (which we refer to as our Retail business).
The Company’s Consumer Packaged Goods portfolio is primarily generated from plant material that Green Thumb grows and processes itself, which we use to produce our consumer packaged goods in eighteen manufacturing facilities. This portfolio consists of stock keeping units across a range of cannabis product categories, including flower, pre-rolls, concentrates, vape, capsules, tinctures, edibles, topicals and other cannabis-related products (none of which product categories are individually material to the Company). These Consumer Packaged Goods products are sold in retail stores throughout the U.S. including at Green Thumb’s own RISE and other stores.
Green Thumb owns and operates a national cannabis retail chain called RISE that provides relationship-centric retail experiences aimed to deliver a superior level of customer service through high-engagement consumer interaction, a consultative, transparent and education-forward selling approach and a consistently available assortment of cannabis products. In addition, Green Thumb owns stores under other names, primarily where naming is subject to licensing or similar restrictions or in certain instances where we co-own the store. The income from Green Thumb’s retail stores is primarily derived from the sale of cannabis-related products, which includes the sale of Green Thumb produced products as well as those produced by third parties, with an immaterial (under 10%) portion of this income resulting from the sale of other merchandise (such as t-shirts and accessories for cannabis use). The RISE stores currently are located in fourteen of the states in which we operate. As of June 30, 2023, the Company had 83 open and operating retail stores. The Company’s new store opening plans will remain fluid depending on market conditions, obtaining local licensing, construction and other permissions and subject to the Company’s capital allocation plans.
28
Results of Operations – Consolidated
The following table sets forth the Company’s selected consolidated financial results for the periods, and as of the dates, indicated. The (i) unaudited interim condensed consolidated statements of operations for the three and six months ended June 30, 2023 and 2022 and (ii) unaudited interim condensed consolidated balance sheet as of June 30, 2023 and December 31, 2022 have been derived from, and should be read in conjunction with, the unaudited interim condensed consolidated financial statements and accompanying notes presented in Item 1 of this quarterly report on Form 10-Q.
The Company’s unaudited interim condensed consolidated financial statements have been prepared in accordance with GAAP and on a going-concern basis that contemplates continuity of operations and realization of assets and liquidation of liabilities in the ordinary course of business.
|
|
Three Months Ended June 30, |
|
|
Six Months Ended June 30, |
|
|
QTD Change |
|
YTD Change |
||||||
|
|
2023 |
|
2022 |
|
|
2023 |
|
2022 |
|
|
$ |
% |
|
$ |
% |
|
|
(in thousands, except share and per share amounts) |
|
|
Increase (Decrease) |
|||||||||||
Revenues, Net of Discounts |
$ |
252,388 |
$ |
254,311 |
|
$ |
500,924 |
$ |
496,911 |
|
$ |
(1,923) |
(1)% |
$ |
4,013 |
1% |
Cost of Goods Sold, Net |
|
(127,108) |
|
(128,513) |
|
|
(250,923) |
|
(248,173) |
|
|
(1,405) |
(1)% |
|
2,750 |
1% |
Gross Profit |
|
125,280 |
|
125,798 |
|
|
250,001 |
|
248,738 |
|
|
(518) |
(0)% |
|
1,263 |
1% |
Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, General, and Administrative |
|
84,217 |
|
63,535 |
|
|
164,736 |
|
131,923 |
|
|
20,682 |
33% |
|
32,813 |
25% |
Total Expenses |
|
84,217 |
|
63,535 |
|
|
164,736 |
|
131,923 |
|
|
20,682 |
33% |
|
32,813 |
25% |
Income From Operations |
|
41,063 |
|
62,263 |
|
|
85,265 |
|
116,815 |
|
|
(21,200) |
(34)% |
|
(31,550) |
(27)% |
Total Other Income (Expense) |
|
(1,608) |
|
808 |
|
|
(2,769) |
|
7,073 |
|
|
(2,416) |
(299)% |
|
(9,842) |
(139)% |
Income Before Provision for Income Taxes And Non-Controlling Interest |
|
39,455 |
|
63,071 |
|
|
82,496 |
|
123,888 |
|
|
(23,616) |
(37)% |
|
(41,392) |
(33)% |
Provision for Income Taxes |
|
25,765 |
|
38,340 |
|
|
59,401 |
|
69,471 |
|
|
(12,575) |
(33)% |
|
(10,070) |
(14)% |
Net Income Before Non-Controlling Interest |
|
13,690 |
|
24,731 |
|
|
23,095 |
|
54,417 |
|
|
(11,041) |
(45)% |
|
(31,322) |
(58)% |
Net Income Attributable to Non-Controlling Interest |
|
290 |
|
294 |
|
|
556 |
|
1,041 |
|
|
(4) |
(1)% |
|
(485) |
(47)% |
Net Income Attributable To Green Thumb Industries Inc. |
$ |
13,400 |
$ |
24,437 |
|
$ |
22,539 |
$ |
53,376 |
|
$ |
(11,037) |
(45)% |
$ |
(30,837) |
(58)% |
Net Income Per Share - Basic |
$ |
0.05 |
$ |
0.11 |
|
$ |
0.09 |
$ |
0.23 |
|
$ |
(0.06) |
(55)% |
$ |
(0.14) |
(61)% |
Net Income Per Share - Diluted |
$ |
0.05 |
$ |
0.10 |
|
$ |
0.09 |
$ |
0.22 |
|
$ |
(0.05) |
(50)% |
$ |
(0.13) |
(59)% |
Weighted Average Number of Shares Outstanding – Basic |
|
238,000,135 |
|
236,783,625 |
|
|
237,700,856 |
|
236,313,896 |
|
|
|
|
|
|
|
Weighted Average Number of Shares Outstanding – Diluted |
|
238,423,288 |
|
237,762,903 |
|
|
239,455,964 |
|
237,869,300 |
|
|
|
|
|
|
|
|
|
June 30, 2023 |
|
December 31, 2022 |
|
|
(in thousands) |
||
Total Assets |
$ |
2,512,834 |
$ |
2,433,528 |
Long-Term Liabilities |
$ |
631,757 |
$ |
621,525 |
Three Months Ended June 30, 2023 Compared to the Three Months Ended June 30, 2022
Revenues, net of Discounts
Revenue for the three months ended June 30, 2023 was $252,388 thousand, a decrease of 1% from $254,311 thousand for the three months ended June 30, 2022. The Company increased the number of total units sold, but due to price compression, total revenue declined. This decrease was partially offset by continued growth in existing markets such as New Jersey, Virginia, and Connecticut, as well as revenue generated from new retail stores opened in the current period.
The Company generated revenue from 83 retail stores during the quarter, compared to 77 in the same quarter of the prior year. During the three months ended June 30, 2023, the Company opened two retail stores in Pennsylvania, two retail stores in Virginia, one retail store in Minnesota, and one retail store in Nevada.
Cost of Goods Sold, net
Cost of goods sold are derived from retail purchases made by the Company from its third-party licensed producers operating within our state markets and costs related to the internal cultivation and production of cannabis. Cost of goods sold for the three months ended June 30, 2023 was $127,108 thousand, a decrease of 1% from $128,513 thousand for the three months ended June 30, 2022, driven by the decrease in revenue as described above.
29
Gross Profit
Gross profit for the three months ended June 30, 2023 was $125,280 thousand, representing a gross margin on the sale of branded cannabis flower and processed and packaged products including concentrates, edibles, topicals and other cannabis products, of 50%. This is compared to gross profit for the three months ended June 30, 2022 of $125,798 thousand, or a 49% gross margin. The increase in gross margin (percent) was primarily driven by increased sales of Company branded products which have higher margins. The decrease in gross profit (dollars) was directly attributable to the revenue decrease as described above.
Total Expenses
Total expenses for the three months ended June 30, 2023 were $84,217 thousand, or 33% of revenues, net of discounts, resulting in an increase of $20,682 thousand over the same period in the prior year. Total expenses for the three months ended June 30, 2022 were $63,535 thousand or 25% of revenues, net of discounts. Total expenses were lower in the three months ended June 30, 2022 primarily due to favorable fair value adjustments associated with the Company's contingent consideration arrangements.
Total Other Income (Expense)
Total other income (expense) for three months ended June 30, 2023 was $(1,608) thousand, a decrease of $2,416 thousand, due to favorable fair value adjustments to the Company's warrant liability, partially offset by unfavorable fair value adjustments associated with the Company's equity investments, both recorded during the three months ended June 30, 2022.
Income (Loss) Before Provision for Income Taxes and Non-Controlling Interest
Income before provision for income taxes and non-controlling interest for the three months ended June 30, 2023 was $39,455 thousand, a decrease of $23,616 thousand compared to the three months ended June 30, 2022.
As presented under the heading “Non-GAAP Measures” below, after adjusting for non-cash equity incentive compensation of $7,381 thousand and $6,833 thousand in the three months ended June 30, 2023 and 2022, respectively, and other nonoperating (income) expenses, of $3,138 thousand and $(14,557) thousand in the three months ended June 30, 2023 and 2022, respectively, adjusted earnings before interest, depreciation, and amortization (“EBITDA”) was $75,816 thousand and $78,737 thousand, respectively.
Provision for Income Taxes
Income tax expense is recognized based on the expected tax payable on the taxable income for the year, using tax rates enacted or substantively enacted at year-end. For the three months ended June 30, 2023, federal and state income tax expense totaled $25,765 thousand compared to expense of $38,340 thousand for the three months ended June 30, 2022.
30
Six Months Ended June 30, 2023 Compared to the Six Months Ended June 30, 2022
Revenues, net of Discounts
Revenue for the six months ended June 30, 2023 was $500,924 thousand, an increase of 1% from $496,911 for the six months ended June 30, 2022. The increase in revenue was largely due to legalization of adult-use sales in New Jersey, which began on April 21, 2022, continued growth in existing markets such as Connecticut and Virginia, as well as revenue generated from new retail stores opened in the current period, partially offset by price compression.
The Company generated revenue from 83 retail stores during the period compared to 77 in the same period of the prior year. During the six months ended June 30, 2023, the Company opened two retail stores in Pennsylvania, two retail stores in Virginia, one retail store in Minnesota, and one retail store in Nevada.
Cost of Goods Sold, net
Cost of goods sold are derived from retail purchases made by the Company from its third-party licensed producers operating within our state markets and costs related to the internal cultivation and production of cannabis. Cost of goods sold for the six months ended June 30, 2023 was $250,923 thousand, an increase of 1% from $248,173 thousand for the six months ended June 30, 2022, driven by increased revenue as described above.
Gross Profit
Gross profit for the six months ended June 30, 2023 was $250,001 thousand, representing a gross margin on the sale of branded cannabis flower and processed and packaged products including concentrates, edibles, topicals and other cannabis products, of 50%. This is compared to gross profit for the six months ended June 30, 2022 of $248,738 thousand or a 50% gross margin. The increase in gross profit (dollars) was directly attributable to the revenue increase as described above.
Total Expenses
Total expenses for the six months ended June 30, 2023 were $164,736 thousand or 33% of revenues, net of discounts, resulting in an increase of $32,813 thousand over the same period in the prior year. Total expenses for the six months ended June 30, 2022 were $131,923 thousand or 27% of revenues, net of discounts. Total expenses were lower in the first six months of 2022 primarily due to favorable fair value adjustments associated with the Company's contingent consideration arrangements, which were recorded during the six months ended June 30, 2022.
Total Other Income (Expense)
Total other income (expense) for six months ended June 30, 2023 was $(2,769) thousand a decrease of $9,842 thousand, due to favorable adjustments to the Company's warrant liability, partially offset by unfavorable fair value adjustments associated with the Company's equity investments, both recorded during the six months ended June 30, 2022.
Income (Loss) Before Provision for Income Taxes and Non-Controlling Interest
Net operating income before provision for income taxes and non-controlling interest for six months ended June 30, 2023 was $82,496 thousand, a decrease of $41,392 thousand compared to the six months ended June 30, 2022.
As presented under the heading “Non-GAAP Measures” below, after adjusting for non-cash equity incentive compensation of $13,620 thousand and $11,484 thousand, and other nonoperating (income) expenses, of $5,430 thousand and $(29,711) thousand in the six months ended June 30, 2023 and 2022, respectively, Adjusted EBITDA was $152,050 thousand and $145,776 thousand, respectively.
31
Provision for Income Taxes
Income tax expense is recognized based on the expected tax payable on the taxable income for the year, using tax rates enacted or substantively enacted at year-end. For the six months ended June 30, 2023, federal and state income tax expense totaled $59,401 thousand compared to expense of $69,471 thousand for the six months ended June 30, 2022.
Results of Operations by Segment
The following table summarizes revenues net of sales discounts by segment for the three and six months ended June 30, 2023 and 2022:
|
|
Three Months Ended June 30, |
|
2023 vs. 2022 |
|||
|
|
2023 |
|
2022 |
|
$ |
% |
|
|
(in thousands) |
|
Increase (Decrease) |
|||
Retail |
$ |
188,044 |
$ |
192,734 |
$ |
(4,690) |
(2)% |
Consumer Packaged Goods |
|
136,054 |
|
120,604 |
|
15,450 |
13% |
Intersegment Eliminations |
|
(71,710) |
|
(59,027) |
|
(12,683) |
(21)% |
Total Revenues, Net of Discounts |
$ |
252,388 |
$ |
254,311 |
$ |
(1,923) |
(1)% |
|
|
Six Months Ended June 30, |
|
2023 vs. 2022 |
|||
|
|
2023 |
|
2022 |
|
$ |
% |
|
|
(in thousands) |
|
Increase (Decrease) |
|||
Retail |
$ |
376,922 |
$ |
365,320 |
$ |
11,602 |
3% |
Consumer Packaged Goods |
|
261,671 |
|
241,016 |
|
20,655 |
9% |
Intersegment Eliminations |
|
(137,669) |
|
(109,425) |
|
(28,244) |
-26% |
Total Revenues, Net of Discounts |
$ |
500,924 |
$ |
496,911 |
$ |
4,013 |
1% |
Three Months Ended June 30, 2023 Compared with the Three Months Ended June 30, 2022
Revenues, net of discounts, for the Retail segment were $188,044 thousand, a decrease of $4,690 thousand or 2%, compared to the three months ended June 30, 2022. The Company increased the total number of units sold, but due to price compression, total revenue declined. This decrease was partially offset by continued growth in existing markets such as New Jersey, Virginia, and Connecticut, as well as revenue generated from new retail stores opened in the current period.
Revenues, net of discounts, for the Consumer Packaged Goods Segment were $136,054 thousand, an increase of $15,450 thousand or 13%, compared to the three months ended June 30, 2022. The key driver for the increase in Consumer Packaged Goods revenues was increased production capacity within existing markets.
Intersegment eliminations associated with the Consumer Packaged Goods Segment were $71,710 thousand, an increase of $12,683 thousand or 21% compared to the three months ended June 30, 2022. The increase in intersegment eliminations was driven by increased intercompany sales to Company-owned retail stores. Consumer Packaged Goods revenues, net of intersegment eliminations, made up 25% of total revenues during the three months ended June 30, 2023 as compared to 24% during the three months ended June 30, 2022.
Due to the vertically integrated nature of the business, the Company reviews its revenue at the Retail and Consumer Packaged Goods level while reviewing its operating results on a consolidated basis.
32
Six Months Ended June 30, 2023 Compared with the Six Months Ended June 30, 2022
Revenues, net of discounts for the Retail segment were $376,922, an increase of $11,602 or 3%, compared to the six months ended June 30, 2022. The increase in Retail revenues, net of discounts, was primarily driven by legalization of adult-use sales in New Jersey, which began on April 21, 2022, continued growth in existing markets such as Connecticut and Virginia, as well as revenue generated from new retail stores opened in the current period, partially offset by price compression.
Revenues, net of discounts, for the Consumer Packaged Goods Segment were $261,671 thousand, an increase of $20,655 thousand or 9%, compared to the six months ended June 30, 2022. The key driver for the increase in Consumer Packaged Goods revenues was increased production capacity within existing markets.
Intersegment eliminations associated with the Consumer Packaged Goods Segment were $137,669 thousand, an increase of $28,244 thousand or 26% compared to the six months ended June 30, 2022. The increase in intersegment eliminations was driven by increased intercompany sales to Company-owned retail stores primarily in Illinois, Pennsylvania, and New Jersey as well as to newly acquired retail stores as discussed above. Consumer Packaged Goods revenues, net of intersegment eliminations, made up 25% of total revenues during the six months ended June 30, 2023 as compared to 26% during the six months ended June 30, 2022.
Due to the vertically integrated nature of the business, the Company reviews its revenue at the Retail and Consumer Packaged Goods level while reviewing its operating results on a consolidated basis.
Drivers of Results of Operations
Revenue
The Company derives its revenue from two revenue streams: a Consumer Packaged Goods business in which it manufactures, sells and distributes its portfolio of Consumer Packaged Goods brands including Beboe, Dogwalkers, Dr. Solomon’s, Good Green, incredibles, and RYTHM, primarily to third-party customers; and a Retail business in which it sells finished goods sourced primarily from third-party cannabis manufacturers in addition to the Company’s own Consumer Packaged Goods products direct to the end consumer in its retail stores, as well as direct-to-consumer delivery where applicable by state law.
For the three and six months ended June 30, 2023, revenue was contributed from Consumer Packaged Goods and Retail sales across California, Colorado, Connecticut, Florida, Illinois, Maryland, Massachusetts, Minnesota, Nevada, New Jersey, New York, Ohio, Pennsylvania, Rhode Island and Virginia.
Gross Profit
Gross profit is revenue less cost of goods sold. Cost of goods sold includes the costs directly attributable to product sales and includes amounts paid for finished goods, such as flower, edibles, and concentrates, as well as packaging and other supplies, fees for services and processing, and allocated overhead which includes allocations of rent, utilities and related costs. Cannabis costs are affected by various state regulations that limit the sourcing and procurement of cannabis product, which may create fluctuations in gross profit over comparative periods as the regulatory environment changes. Gross margin measures our gross profit as a percentage of revenue.
During the six months ended June 30, 2023, the Company continued to be focused on creating sustainable, profitable growth of the Company’s business within its current markets while considering strategic acquisition and partnership opportunities.
Total Expenses
Total expenses other than the cost of goods sold consist of selling costs to support customer relationships and marketing and branding activities. It also includes a significant investment in the corporate infrastructure required to support the Company’s ongoing business.
Retail selling costs generally correlate to revenue. As new stores begin operations, these stores generally experience higher selling costs as a percentage of revenue compared to more established stores, which experience a more constant rate of selling costs. As a percentage of sales, the Company expects selling costs to remain constant in the more established stores and increase in the newer stores as business continues to grow.
General and administrative expenses also include costs incurred at the Company’s corporate offices, primarily related to back office personnel costs, including salaries, incentive compensation, benefits, stock-based compensation and other professional service
33
costs, and fair value adjustments on the Company's contingent consideration arrangements. The Company expects to continue to invest considerably in this area to support the business by attracting and retaining top-tier talent. Furthermore, the Company anticipates an increase in stock-based compensation expenses related to recruiting and hiring talent, along with legal and professional fees associated with being a publicly traded company in Canada and registered with the U.S. Securities and Exchange Commission.
Provision for Income Taxes
The Company is subject to income taxes in the jurisdictions in which it operates and, consequently, income tax expense is a function of the allocation of taxable income by jurisdiction and the various activities that impact the timing of taxable events. As the Company operates in the federally illegal cannabis industry, it is subject to the limitations of the IRC Section 280E, under which taxpayers are only allowed to deduct expenses directly related to sales of product. This results in permanent differences between ordinary and necessary business expenses deemed non-allowable under IRC Section 280E and a higher effective tax rate than most industries. Therefore, the effective tax rate can be highly variable and may not necessarily correlate to pre-tax income or loss.
Non-GAAP Measures
EBITDA, and Adjusted EBITDA are non-GAAP measures and do not have standardized definitions under GAAP. The following information provides reconciliations of the supplemental non-GAAP financial measures, presented herein to the most directly comparable financial measures calculated and presented in accordance with GAAP. The Company has provided the non-GAAP financial measures, which are not calculated or presented in accordance with GAAP, as supplemental information and in addition to the financial measures that are calculated and presented in accordance with GAAP. These supplemental non-GAAP financial measures are presented because management has evaluated the financial results both including and excluding the adjusted items and believe that the supplemental non-GAAP financial measures presented provide additional perspective and insights when analyzing the core operating performance of the business. These supplemental non-GAAP financial measures should not be considered superior to, as a substitute for or as an alternative to, and should be considered in conjunction with, the GAAP financial measures presented.
|
|
Three Months Ended June 30, |
|
|
Six Months Ended June 30, |
||||
|
|
2023 |
|
2022 |
|
|
2023 |
|
2022 |
|
|
(in thousands) |
|
|
(in thousands) |
||||
Net Income Before Non-Controlling Interest |
$ |
13,690 |
$ |
24,731 |
|
$ |
23,095 |
$ |
54,417 |
Interest Income, net |
|
(1,531) |
|
(624) |
|
|
(3,262) |
|
(1,524) |
Interest Expense, net |
|
2,869 |
|
5,399 |
|
|
6,685 |
|
11,469 |
Provision For Income Taxes |
|
25,765 |
|
38,340 |
|
|
59,401 |
|
69,471 |
Total Other (Income) Expense |
|
270 |
|
(5,583) |
|
|
(654) |
|
(17,018) |
Depreciation and amortization |
|
24,234 |
|
24,198 |
|
|
47,735 |
|
47,188 |
Earnings before interest, taxes, depreciation and |
$ |
65,297 |
$ |
86,461 |
|
$ |
133,000 |
$ |
164,003 |
Stock-based compensation, non-cash |
|
7,381 |
|
6,833 |
|
|
13,620 |
|
11,484 |
Acquisition, transaction and other non-operating (income) costs |
|
3,138 |
|
(14,557) |
|
|
5,430 |
|
(29,711) |
Adjusted EBITDA (non-GAAP measure) |
$ |
75,816 |
$ |
78,737 |
|
$ |
152,050 |
$ |
145,776 |
34
Liquidity, Financing Activities During the Period, and Capital Resources
As of June 30, 2023, and December 31, 2022 the Company had total current liabilities of $175,261 thousand and $146,571 thousand, respectively, and cash and cash equivalents of $149,026 thousand and $177,682 thousand, respectively, to meet its current obligations. The Company had working capital of $165,993 thousand as of June 30, 2023, a decrease of $38,787 thousand as compared to December 31, 2022. This decrease in working capital was primarily driven by purchases of property, plant, and equipment, as well as tax payments made in the current period.
The Company is an early-stage growth company, generating cash from revenues, deploying its capital reserves to acquire and develop assets capable of producing additional revenues and earnings over both the immediate and long term. Capital reserves are primarily being utilized for capital expenditures, facility improvements, strategic investment opportunities, product development and marketing, as well as customer, supplier, and investor and industry relations.
The Company takes a cautious approach in allocating its capital to maximize its returns while ensuring appropriate liquidity. Given the current uncertainty of the future economic environment, the Company has taken additional measures in monitoring and deploying its capital to minimize the negative impact on its current operations and expansion plans.
Cash Flows
Cash Used in Operating Activities, Investing and Financing Activities
Net cash provided by (used in) operating, investing and financing activities for the six months ended June 30, 2023 and 2022, were as follows:
|
|
Six Months Ended June 30, |
||
|
|
2023 |
|
2022 |
|
|
(in thousands) |
||
Net Cash Provided by Operating Activities |
$ |
93,028 |
$ |
39,914 |
Net Cash Used in Investing Activities |
$ |
(131,542) |
$ |
(114,296) |
Net Cash Provided by (Used in) Financing Activities |
$ |
9,858 |
$ |
(10,761) |
Off-Balance Sheet Arrangements
As of June 30, 2023, the Company does not have any off-balance-sheet arrangements that have, or are reasonably likely to have, a current or future effect on the results of operations or financial condition of the Company, including, and without limitation, such considerations as liquidity and capital resources.
Changes in or Adoption of Accounting Practices
Refer to the discussion of recently adopted/issued accounting pronouncements under Part I, Item 1, Notes to Unaudited Interim Condensed Consolidated Financial Statements, Note 1—Overview and Basis of Presentation.
Critical Accounting Policies and Significant Judgments and Estimates
There were no material changes to our critical accounting policies and estimates from the information provided in “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” included in our 2022 Form 10-K.
35
ITEM 3. QUANTITAVE 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 2022 Form 10-K.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
The Company's management carried out an evaluation under the supervision and with the participation of the Company's Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures, as such term is defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended (the Exchange Act). Based upon that evaluation, management concluded that our disclosure controls and procedures were effective as of June 30, 2023.
Changes in Internal Control Over Financial Reporting
There have been no changes in the Company's internal control over financial reporting during the second quarter of 2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Inherent Limitations on Control Systems
Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, will be or have been detected. These inherent limitations include the realities that judgments in decision making can be faulty, and that breakdowns can occur because of simple errors or mistakes. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate.
36
PART II — OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is a party to a variety of legal proceedings that arise out of operations in the normal course of business. While the results of these legal proceedings cannot be predicted with certainty, the Company believes that the final outcome of these proceedings will not have a material adverse effect, individually or in the aggregate, on our results of operations or financial condition.
ITEM 1A. RISK FACTORS
For a discussion of our potential risks and uncertainties, see the information under the heading "Risk Factors" in our 2022 Form 10-K.
ITEM 2. UNREGISTERED SALE OF EQUITY SECURITIES
Recent Sales of Unregistered Securities
Subordinate Voting Shares
Between April 1, 2023 and June 30, 2023, the Company issued a total of 64,270 deferred shares associated with the Company's previous acquisitions of various privately held Companies.
On June 1, 2023, the Company issued 822,447 Subordinate Voting Shares as contingent consideration associated with the Company's July 2021 acquisition of Dharma Pharmaceuticals, LLC.
Multiple Voting Shares
None.
Super Voting Shares
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURE
Not Applicable.
ITEM 5. OTHER INFORMATION
None.
37
ITEM 6. EXHIBITS
The following exhibits are filed with this report:
31.1 |
|
|
|
31.2 |
|
|
|
32.1 |
|
|
|
32.2 |
|
|
|
101.INS |
Inline XBRL Instance Document |
|
|
101.SCH |
Inline XBRL Taxonomy Extension Schema Document |
|
|
101.CAL |
Inline XBRL Taxonomy Extension Calculation Linkbase Document |
|
|
101.DEF |
Inline XBRL Taxonomy Extension Definition Linkbase Document |
|
|
101.LAB |
Inline XBRL Taxonomy Extension Label Linkbase Document |
|
|
101.PRE |
Inline XBRL Taxonomy Extension Presentation Linkbase Document |
|
|
104 |
Cover Page Interactive Data File (embedded with Inline XBRL File) |
38
SIGNATURES
Pursuant to requirements of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
GREEN THUMB INDUSTRIES INC. |
|
/s/Benjamin Kovler
|
By: Benjamin Kovler |
Title: Chief Executive Officer |
Date: August 9, 2023
|
GREEN THUMB INDUSTRIES INC. |
|
/s/Mathew Faulkner
|
By: Mathew Faulkner |
Title: Chief Financial Officer |
Date: August 9, 2023
39