Notes Payable |
12 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Dec. 31, 2020 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Debt Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Notes Payable |
At December 31, 2020 and 2019, notes payable consisted of the following:
On April 12, 2019, the Company completed a private placement financing of $12,500,000 in six-month senior secured promissory notes (the “Bridge Notes”). As part of the transaction, the Company issued 218,964 warrants to the private lenders allowing the holder to purchase Subordinate Voting Shares at an exercise price of C$22.90. The warrants may be exercised anytime during the first 42 months after the closing of the transaction. On the date of issuance, the Company recorded a warrant liability, and debt discount of $2,291,189 which was measured at fair value using a Monte Carlo simulation. See Note 12—Warrants for details. On May 22, 2019, the Company repaid the full principal amount and accrued interest of $12,645,833 for the Bridge Notes. The Company recognized $2,291,189 in interest expense for accretion of the debt discount upon repayment of the April 12, 2019 Bridge Notes.
On May 22, 2019, the Company closed a $105,66,429 senior secured non-brokered private placement financing (the “Private Placement Financing”) through the issuance of three-year senior secured notes pursuant to the Note Purchase Agreement (the “Note Purchase Agreement”). The financing generated funds for general working capital purposes and various growth initiatives and to retire the Company’s existing debt, including the April 12, 2019 Bridge Notes. The notes initially accrued interest at an annual rate of 12.16%, and were subsequently amended on November 9, 2019 to 12.0%, (see additional discussion under the heading “Modification of Private Placement Financing” below). Interest on the note is payable on a quarterly basis with the principal due at the maturity date. The Note Purchase Agreement provided the Company the sole discretion to extend the financing an additional twelve months (see additional discussion under the heading “Extension of Private Placement Financing” below). As part of the transactions, the Company issued 1,822,771 warrants to the private lenders which allow the holder to purchase Subordinate Voting Shares at an exercise price of C$19.39. The warrants may be exercised at any time during the first 60 months after the closing of the transaction. Upon issuance, the Company recorded a warrant liability, and debt discount of $16,202,934 which was measured at fair value using a Monte Carlo simulation. See Note 12—Warrants for details. In addition to the value of warrants, the debt discount included $228,761 of professional fees, and transaction related fees of $430,704 and is being accreted to interest expense over the term of the debt which approximates the effective interest method. As of December 31, 2020, and 2019, the carrying value of the debt discount, net of amortization was $8,604,784 and $12,885,643, respectively. The notes contain certain covenants which require the Company to maintain (on a daily basis) unrestricted cash and cash equivalents in an amount greater than or equal to the amount of interest that is scheduled to become due in the next 365-days and to not permit the ratio of net debt to stockholders’ equity to exceed 0.6 to 1.0 as of the last day of any quarter. In addition, beginning June 30, 2020, an additional covenant became effective which requires the Company to maintain a debt to EBITDA ratio of 4.5 to 1.0 as of the last day of each quarter. As of December 31, 2020 and 2019, the Company was in compliance with all covenants.
On November 9, 2019, the Company amended the May 22, 2019 Private Placement Financing to allow for additional financing through sales lease back arrangements and to clarify certain aspects of the financing agreement with the private lenders. Specifically, the calculation of the effective interest rate on the note was clarified to refer to a 365-day calendar year rather than LIBOR-based 360-day year. The result of this change was a reduction in the effective interest rate by approximately 16 basis points (from 12.16% to 12.0%). The Amendment also reduced the borrowing capacity from $150,000,000 to $130,000,000, which allows the Company to borrow an additional $24,533,571 over a period of 12 months from the closing date of the Note Purchase Agreement. As part of the amendment, the Company issued 365,076 warrants to the private lenders allowing the holder to purchase Subordinate Voting Shares at an exercise price of C$12.04. The warrants may be exercised anytime during the first 60 months following the close of the transaction. The Company evaluated the terms of the November 9, 2019 amendment and concluded that the transaction resulted in a debt modification requiring the Company to recognize the value of the warrants as additional debt discount. Upon issuance, the Company recorded an additional amount to warrant liability, and debt discount of $2,304,874 which was measured at fair value using a Monte Carlo simulation. See Note 12 – Warrants for details. The Company did not incur any other fees related to the amendment. As of December 31, 2020 and 2019, the carrying value of the debt discount, net of amortization was $1,450,591 and $2,204,874, respectively.
On May 21, 2020, the Company exercised its option to extend the maturity date of the Private Placement Financing pursuant to the Note Purchase Agreement, dated May 22, 2019, as amended for an additional year. Following this exercise, which was in the Company’s sole discretion under the Note Purchase Agreement, the new maturity date for the Notes is May 22, 2023. As part of the transaction, the Company issued an additional 84,924 warrants to the private lenders allowing the holder to purchase Subordinate Voting Shares at an exercise price of C$14.03. Upon issuance, the Company recorded a warrant liability, and debt discount of $572,386 which was measured at fair value using a Monte Carlo simulation. See Note 12—Warrants for details. As of December 31, 2020, the carrying value of the debt discount, net of amortization was $455,960.
On June 5, 2020, the Company closed on a secured promissory note (the “Joliet Mortgage”) of $1,814,000. The Joliet Mortgage bears interest of 5% per annum and matures on June 5, 2035. The Joliet Mortgage provided by the lender was used to purchase the building and building improvements of one of the Company’s dispensaries located in Joliet, Illinois that the Company previously leased from Mosaic Real Estate Joliet, LLC, a related party. As part of the transaction, the Company issued 35,000 warrants valued at $181,272 using a Black Scholes Option Pricing model which were accounted for as equity and recorded as a discount on the Mortgage.
On August 20, 2020, the Company closed on a secured promissory note (the “Lakewood Mortgage”) of $833,000. The Lakewood Mortgage bears interest of 7.25% per annum and matures on August 20, 2025. The Lakewood Mortgage provided by the lender was used to purchase the land, building and building improvements of one of the Company’s dispensaries located in Lakewood, Ohio that the Company previously leased.
On December 6, 2020, the Company closed on a secured promissory note (the “Mundelein Mortgage”) of $960,000. The Mundelein Mortgage bears interest of 6.95% per annum and matures on December 6, 2025. The Mundelein Mortgage provided by the lender was used to acquire real estate located in Mundelein, Illinois adjacent to our existing retail dispensary. The Company anticipates using the additional space to expand current operations at the existing Mundelein dispensary.
The private placement debt and related warrant liability are held by related parties of the Company as well as unrelated third parties at a percentage of approximately 1% and 99%. The related parties consist of Benjamin Kovler, the Chief Executive Officer and a director of the Corporation (through KP Capital, LLC); Andrew Grossman, the Executive Vice President of Capital Markets (through AG Funding Group, LLC) and Anthony Georgiadis, the Chief Financial Officer and a director of the Corporation (through Three One Four Holdings, LLC and ABG, LLC) all of whom participated in the private placement financing. |