PLANET 13 HOLDINGS INC. Interim Condensed Consolidated Statements of Cash Flows (Unaudited, In United States Dollars) |
| | Three Months Ended | |
| | March 31, | | | March 31, | |
| | 2023 | | | 2022 | |
CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES | | | | | | | | |
Net loss | | $ | (6,304,242 | ) | | $ | (2,061,071 | ) |
Adjustments for items not involving cash: | | | | | | | | |
Shared based compensation expense | | | 720,991 | | | | 2,055,494 | |
Non-cash lease expense | | | 1,279,369 | | | | 950,585 | |
Depreciation | | | 3,259,999 | | | | 2,642,531 | |
Change in fair value of warrant liability | | | (18,127 | ) | | | (4,264,763 | ) |
Loss on translation of warrant liability | | | - | | | | 104,954 | |
Deferred tax recovery | | | (2,170 | ) | | | - | |
Proceeds from lease incentive | | | - | | | | 1,000,000 | |
Lease incentive amortization | | | (26,115 | ) | | | - | |
Unrealized gain on foreign currency exchange | | | - | | | | (145,267 | ) |
| | | (1,090,295 | ) | | | 282,463 | |
| | | | | | | | |
Net Changes in Non-cash Working Capital Items | | | (3,097,683 | ) | | | 3,563,710 | |
Repayment of lease liabilities | | | (982,255 | ) | | | (885,433 | ) |
Total Operating | | | (5,170,233 | ) | | | 2,960,740 | |
| | | | | | | | |
INVESTING ACTIVITIES | | | | | | | | |
Purchase of property, plant and equipment | | | (3,653,373 | ) | | | (4,026,607 | ) |
Purchase of 51% interest in Planet 13 Illinois | | | (866,250 | ) | | | - | |
Net cash acquired through NGW acquisition | | | - | | | | 1,478,698 | |
Total Investing | | | (4,519,623 | ) | | | (2,547,909 | ) |
| | | | | | | | |
Effect of foreign exchange on cash | | | - | | | | 142,968 | |
| | | | | | | | |
NET CHANGE IN CASH DURING THE PERIOD | | | (9,689,856 | ) | | | 555,799 | |
| | | | | | | | |
CASH | | | | | | | | |
Beginning of Period | | | 52,356,914 | | | | 61,588,843 | |
| | | | | | | | |
End of Period | | $ | 42,667,058 | | | $ | 62,144,642 | |
| | | | | | | | |
Supplemental cash flow information (Note 14) | | | | | | | | |
| | | | | | | | |
The accompanying notes are an integral part of these unaudited condensed consolidated interim financial statements |
PLANET 13 HOLDINGS INC. Notes to the Interim Condensed Consolidated Financial Statements (Unaudited, in United States Dollars, except share amounts) |
Planet 13 Holdings Inc. (“Planet 13” or the “Company”) was incorporated under the Canada Business Corporations Act on April 26, 2002 and continued under the British Columbia Business Corporations Act on September 24, 2019.
The Company is a vertically integrated cultivator and provider of cannabis and cannabis-infused products that is licensed under the laws of the States of Nevada, California, Florida, and Illinois. We are licensed in these jurisdictions as follows: six Nevada cultivation licenses (three medical and three adult-use), six Nevada production licenses (three medical and three adult-use), three Nevada dispensary licenses (one medical and two adult-use), one Nevada distribution license, one California adult-use dispensary license, two California distribution licenses, one California adult-use cultivation license, one California adult-use manufacturer license, one Florida Medical Marijuana Treatment Center license (unlimited medical dispensaries, cultivation and processing) and one Illinois conditional adult-use dispensary license.
Planet 13 is a public company with common shares listed on the Canadian Securities Exchange (“CSE”) under the symbol PLTH and quoted on the OTCQX exchange under the symbol “PLNHF”.
The Company’s registered office is located at Bentall 5, 550 Burrard Street, Suite 2501, Vancouver, BC V6C 285, and the head office address is 2548 W. Desert Inn Road, Las Vegas, NV 89109.
While cannabis and CBD-infused products are legal under the laws of several U.S. states (with varying restrictions applicable), the United States Federal Controlled Substances Act classifies all “marijuana” as a Schedule I drug, whether for medical or recreational use. Under U.S. federal law, a Schedule I drug or substance has a high potential for abuse, no accepted medical use in the United States, and a lack of safety for use under medical supervision.
The federal government currently is prohibited from prosecuting businesses that operate in compliance with applicable state and local medical cannabis laws and regulations; however, this does not protect adult use cannabis. In addition, if the federal government changes this position, it would be financially detrimental to the Company.
These unaudited condensed consolidated interim financial statements reflect the accounts of the Company and have been prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”) and pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”) for all periods presented. Certain information and footnote disclosures normally included in the audited annual consolidated financial statements prepared in accordance with GAAP have been omitted or condensed. The information included in these unaudited interim condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and accompanying notes as of and for the year ended December 31, 2022 included in the Company's Annual Report on Form 10-K for the year ended December 31, 2022. These unaudited interim condensed consolidated financial statements reflect all adjustments (consisting of normal recurring adjustments), which, in the opinion of management, are necessary for the fair presentation of the results for the interim periods presented. Interim results are not necessarily indicative of results for a full year.
These unaudited interim condensed consolidated financial statements have been prepared on a going concern basis, which assumes that the Company will continue in operation for the foreseeable future and, accordingly, will be able to realize its assets and discharge its liabilities in the normal course of operations as they come due.
Failure to arrange adequate financing on acceptable terms and/or achieve profitability may have an adverse effect on the financial position, results of operations, cash flows and prospects of the Company. These unaudited interim condensed consolidated financial statements do not give effect to adjustments to assets or liabilities that would be necessary should the Company be unable to continue as a going concern. Such adjustments could be material. These unaudited interim condensed consolidated financial statements are presented in U.S. dollars, which is also the Company’s and its subsidiaries’ functional currency.
These unaudited condensed consolidated interim financial statements were authorized for issuance by the Board of Directors of the Company on May 15, 2023.
PLANET 13 HOLDINGS INC. Notes to the Interim Condensed Consolidated Financial Statements (Unaudited, in United States Dollars, except share amounts) |
i) | Basis of consolidation |
These accompanying unaudited condensed consolidated interim financial statements include the accounts of the Company and all subsidiaries. Subsidiaries are entities in which the Company has a controlling voting interest or is the primary beneficiary of a variable interest entity. Subsidiaries are fully consolidated from the date control is transferred to the Company and are deconsolidated from the date control ceases. All intercompany accounts and transactions have been eliminated upon consolidation. The unaudited condensed consolidated interim financial statements include all the assets, liabilities, revenues, expenses and cash flows of the Company and its subsidiaries after eliminating intercompany balances and transactions.
These unaudited condensed consolidated interim financial statements include the accounts of the Company and the following entities which are subsidiaries of the Company:
Subsidiaries as at March 31, 2023 | | Jurisdiction of Incorporation | | Ownership Interest 2023 | | Ownership Interest 2022 | | Nature of Business |
| | | | | | | | |
MM Development Company, Inc. ("MMDC") | | Nevada, USA | | 100% | | 100% | | Nevada license holding company; vertically integrated cannabis operations |
BLC Management Company LLC | | Nevada, USA | | 100% | | 100% | | Management/holding company |
LBC CBD LLC ("LBC") | | Nevada, USA | | 100% | | 100% | | CBD retail sales and marketing |
Newtonian Principles Inc. | | California, USA | | 100% | | 100% | | California license holding company; cannabis retail sales |
Crossgate Capital U.S. Holdings Corp. | | Nevada, USA | | 100% | | 100% | | Holding company |
Next Green Wave, LLC | | California, USA | | 100% | | 100% | | California license holding company; cannabis cultivation and processing |
Planet 13 Illinois, LLC | | Illinois, USA | | 100% | | 49% | | Illinois license holding company |
BLC NV Food, LLC | | Nevada, USA | | 100% | | 100% | | Holding company for By The Slice LLC |
By The Slice, LLC | | Nevada, USA | | 100% | | 100% | | Subsidiary of BLC NV Food, LLC; restaurant and retail operations |
Planet 13 Chicago, LLC | | Illinois, USA | | 100% | | 100% | | Holding company |
Planet 13 Florida, Inc. | | Florida, USA | | 100% | | 100% | | Florida license holding company |
Club One Three, LLC | | Nevada, USA | | 100% | | 100% | | Inactive |
These unaudited condensed consolidated interim financial statements are presented in U.S. Dollars (“USD”), which is the Company's and its subsidiaries functional currency.
Foreign currency transactions are remeasured to the respective financial currencies of the Company's entities at the exchange rates in effect on the date of the transactions. Monetary assets and liabilities denominated in foreign currencies are measured to functional currency at the foreign exchange rate applicable at the statement of balance sheets date. Non-monetary items are carried at historical rates. Non-monetary items carried at face value denominated in foreign currencies are remeasured to the functional currency at the date when the fair value was determined. Realized and unrealized foreign exchange gains and losses are recognized through profit or loss.
PLANET 13 HOLDINGS INC. Notes to the Interim Condensed Consolidated Financial Statements (Unaudited, in United States Dollars, except share amounts) |
iii) | Emerging growth company |
The Company is an “Emerging Growth Company”, as defined in Section 2(a) of the Securities Act of 1933, as amended (the “Securities Act”), as modified by the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”), and it has taken advantage of certain exemptions that are not applicable to other public companies that are not emerging growth companies including, but not limited to, not being required to comply with the independent registered public accounting firm attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in its periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved.
Further, Section 102(b)(1) of the JOBS Act exempts emerging growth companies from being required to comply with new or revised financial accounting standards until private companies (that is, those that have not has a Securities Act registration statement declared effective or do not have a class of securities registered under the Exchange Act) are required to comply with the new or revised financial reporting standards. The JOBS Act provides that a company can elect to opt out of the extended transition period and comply with the requirements that apply to non-emerging growth companies but any such election to opt out is irrevocable. The Company has elected not to opt out of such extended transition period which means that when a standard is issued or revised and it has different application dates for public and private companies, the Company, as an emerging growth company, can adopt the new or revised standard at the time private companies adopt the new or revised standard.
Finished goods inventory consists of dried cannabis, concentrates, edibles, and other products that are complete and available for sale (both internally generated inventory and third-party products purchased in the wholesale market). Work in process inventory consists of cannabis after harvest, in the processing stage. Packaging and miscellaneous consist of consumables for use in the transformation of biological assets and other inventory used in the production of finished goods, non-cannabis merchandise and food and beverage items. The Company’s inventory is comprised of:
| | March 31, | | | December 31, | |
| | 2023 | | | 2022 | |
| | | | | | | | |
Raw materials | | $ | 5,408,665 | | | $ | 5,209,667 | |
Packaging and miscellaneous | | | 1,773,052 | | | | 1,584,659 | |
Work in progress | | | 2,196,575 | | | | 1,965,052 | |
Finished goods | | | 4,921,856 | | | | 4,245,461 | |
| | $ | 14,300,148 | | | $ | 13,004,839 | |
Cost of Inventory is recognized as an expense when sold and included in the cost of goods sold. During the three months ended March 31, 2023, the Company recognized $14,032,585 (2022 - $12,793,391) of inventory expensed to cost of goods sold.
4. Prepaid Expenses and Other Current Assets |
| | March 31, | | | December 31, | |
| | 2023 | | | 2022 | |
| | | | | | | | |
Security deposits | | $ | 1,018,356 | | | $ | 1,399,424 | |
Prepaid rent | | | 372,204 | | | | 348,433 | |
Insurance | | | 528,005 | | | | 678,402 | |
License fees | | | 701,522 | | | | 776,717 | |
Miscellaneous | | | 406,151 | | | | 607,418 | |
| | $ | 3,026,238 | | | $ | 3,810,394 | |
PLANET 13 HOLDINGS INC. Notes to the Interim Condensed Consolidated Financial Statements (Unaudited, in United States Dollars, except share amounts) |
5. Property and Equipment |
| | Land and | | | | | | | | | | | Leasehold | | | Construction | | | | | |
| | Improvements | | | Buildings | | | Equipment | | | Improvements | | | in Progress | | | Total | |
Gross carrying amount | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
At December 31, 2022 | | $ | 6,374,511 | | | $ | 13,963,025 | | | $ | 12,799,645 | | | $ | 63,555,792 | | | $ | 3,528,703 | | | $ | 100,221,676 | |
Additions | | | 210,830 | | | | 1,939,170 | | | | 460,094 | | | | 712,992 | | | | 356,512 | | | | 3,679,598 | |
At March 31, 2023 | | $ | 6,585,341 | | | $ | 15,902,195 | | | $ | 13,259,739 | | | $ | 64,268,784 | | | $ | 3,885,215 | | | $ | 103,901,274 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Depreciation | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
At December 31, 2022 | | $ | 231,522 | | | $ | 540,648 | | | $ | 6,333,865 | | | $ | 21,649,590 | | | $ | - | | | $ | 28,755,625 | |
Additions | | | 13,056 | | | | 87,269 | | | | 657,155 | | | | 2,502,519 | | | | - | | | | 3,259,999 | |
At March 31, 2023 | | $ | 244,578 | | | $ | 627,917 | | | $ | 6,991,020 | | | $ | 24,152,109 | | | $ | - | | | $ | 32,015,624 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Carrying amount | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
At December 31, 2022 | | $ | 6,142,989 | | | $ | 13,422,377 | | | $ | 6,465,780 | | | $ | 41,906,202 | | | $ | 3,528,703 | | | $ | 71,466,051 | |
At March 31, 2023 | | $ | 6,340,763 | | | $ | 15,274,278 | | | $ | 6,268,719 | | | $ | 40,116,675 | | | $ | 3,885,215 | | | $ | 71,885,650 | |
As at March 31, 2023, costs related to the construction of facilities were capitalized as construction in progress and not depreciated. Once construction is completed, the construction in progress balance is moved to the appropriate fixed asset account and depreciation commences. The contractual construction commitment as of March 31, 2023 was $4,739,612.
For the three months ended March 31, 2023, depreciation expense was $3,259,999 (2022 - $2,642,531) of which $1,024,535 (2022 - $602,479) was included in cost of goods sold.
During the three months ended March 31, 2023, no amounts were transferred from Construction in Progress to the other fixed accounts.
PLANET 13 HOLDINGS INC. Notes to the Interim Condensed Consolidated Financial Statements (Unaudited, in United States Dollars, except share amounts) |
| | Retail Dispensary Santa Ana | | | Retail Dispensary Clark County | | | Cultivation and Production Clark County | | | Master License Florida | | | Cultivation Coalinga CA | | | Retail Dispensary Waukegan IL | | | Other | | | Total | |
Gross | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
carrying amount | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Balance, December 31, 2022 | | $ | 6,151,343 | | | $ | 690,000 | | | $ | 709,798 | | | $ | 55,846,866 | | | $ | 6,232,222 | | | $ | - | | | $ | 30,000 | | | $ | 69,660,229 | |
Additions | | | - | | | | - | | | | - | | | | - | | | | - | | | | 1,812,656 | | | | - | | | | 1,812,656 | |
Balance at March 31, 2023 | | $ | 6,151,343 | | | $ | 690,000 | | | $ | 709,798 | | | $ | 55,846,866 | | | $ | 6,232,222 | | | $ | 1,812,656 | | | $ | 30,000 | | | $ | 71,472,885 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Amortization | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Balance, December 31, 2022 | | $ | - | | | $ | - | | | $ | - | | | $ | - | | | $ | 372,222 | | | $ | - | | | $ | - | | | $ | 372,222 | |
Additions | | | - | | | | - | | | | - | | | | - | | | | - | | | | | | | | - | | | | - | |
Balance at March 31, 2023 | | $ | - | | | $ | - | | | $ | - | | | $ | - | | | $ | 372,222 | | | $ | - | | | $ | - | | | $ | 372,222 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Carrying amount | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Balance at December 31, 2022 | | $ | 6,151,343 | | | $ | 690,000 | | | $ | 709,798 | | | $ | 55,846,866 | | | $ | 5,860,000 | | | $ | - | | | $ | 30,000 | | | $ | 69,288,007 | |
Balance at March 31, 2023 | | $ | 6,151,343 | | | $ | 690,000 | | | $ | 709,798 | | | $ | 55,846,866 | | | $ | 5,860,000 | | | $ | 1,812,656 | | | $ | 30,000 | | | $ | 71,100,663 | |
NGW Acquisition
On March 2, 2022, the Company acquired 100% ownership interest of Next Green Wave Holdings, Inc. (“NGW”) and accounted for the transaction as a business combination acquisition pursuant to ASC 805.
NGW was incorporated in 2011 and was formed for the purpose of cultivating and selling cannabis products in the state of California, where it owns and operates a cultivation and manufacturing facility. The Company executed the NGW transaction in order to introduce certain of its brands to the California market; complement its dispensary operations in Santa Ana, California; and expand its California revenue base.
The aggregate purchase price for the NGW transaction was $57,574,938 and consisted of $14,788 in cash consideration, $1,239,818 in replacement options and $56,320,332 in share consideration. The share consideration was comprised of 21,361,002 common shares of the Company at a fair value of $C3.34 per common share, which were issued on March 2, 2022.
PLANET 13 HOLDINGS INC. Notes to the Interim Condensed Consolidated Financial Statements (Unaudited, in United States Dollars, except share amounts) |
The following table summarizes the allocation of consideration exchanged to the estimated fair value of tangible and intangible assets acquired:
Consideration paid: | | | | |
| | | | |
Cash | | $ | 14,788 | |
Issuance of 21,361,002 Class A Shares | | | 56,320,332 | |
Issuance of 1,106,925 replacement options | | | 1,239,818 | |
| | $ | 57,574,938 | |
| | | | |
Fair value of net assets acquired: | | | | |
| | | | |
Cash | | $ | 1,493,922 | |
Inventory | | | 3,077,367 | |
Accounts Receivable | | | 1,374,142 | |
Property, plant and equipment | | | 16,229,350 | |
Intangible assets | | | 13,180,000 | |
Goodwill | | | 25,802,688 | |
Accounts Payable and Accrued Liabilities | | | (233,158 | ) |
Income taxes payable | | | (125,445 | ) |
Deferred tax liability | | | (3,223,928 | ) |
| | $ | 57,574,938 | |
The purchase price allocations for the NGW transaction reflect various fair value estimates and analyses relating to the determination of fair value of certain tangible and intangible assets acquired and residual goodwill. The Company determined the estimated fair value of the acquired working capital, and identifiable intangible assets and goodwill after review and consideration of relevant information including discounted cash flow analyses, market data and management’s estimates, prepared by an independent valuation firm. The estimated fair value of acquired working capital was determined to approximate carrying value.
The goodwill arising from the NGW transaction consists of expected synergies from combining operations of the Company and NGW, and intangible assets not qualifying for separate recognition such as formulations, proprietary technologies and acquired know-how. None of the goodwill is deductible for tax purposes.
NGW’s state cannabis licenses and brands represented identifiable intangible assets acquired in the amounts of $11,840,000 and $1,340,000, respectively. The NGW cannabis licenses acquired have an indefinite life and as such will not be subject to amortization while the brands have a definite useful life of three years. As of December 31, 2022, the Company evaluated whether intangible assets and goodwill showed any indicators of impairment, and it was determined that such indicators existed. As a result of the Company’s analysis, it was determined that the brands and licenses were impaired, resulting in the Company recording an impairment charge of $6,947,778.
In connection with the NGW transaction, the Company expensed $1,238,379 of acquisition-related costs, which have been included in general and administrative expenses on the Company’s consolidated statement of operations and comprehensive loss for the period ended March 31, 2022.
The following table reflects the revenue, gross profit and comprehensive loss that would have been reported if the acquisition had occurred at the beginning of the period indicated:
| | Three Months Ended March 31, 2022 | |
| | As Reported | | | NGW | | | Pro Forma | |
| | | | | | | | | | | | |
Revenue, net of discounts | | $ | 25,694,395 | | | $ | 870,651 | | | $ | 26,565,046 | |
Gross Profit | | | 12,901,004 | | | | (131,700 | ) | | | 12,769,304 | |
Comprehensive loss for the period | | | (2,061,071 | ) | | | (868,125 | ) | | | (2,929,196 | ) |
PLANET 13 HOLDINGS INC. Notes to the Interim Condensed Consolidated Financial Statements (Unaudited, in United States Dollars, except share amounts) |
The carrying value of goodwill in each reporting unit is indicative of the expected growth and development of the business. In the fourth quarter of fiscal 2022, the Company identified qualitative indicators of impairment as a result of a downturn in the wholesale pricing of cannabis. The reduction in the price of wholesale cannabis resulted in a downward adjustment of the future financial forecasts for the Company’s NGW business, which indicated that impairment of the goodwill asset was a more-likely-than-not outcome. A qualitative step zero impairment test was performed on the NGW business which indicated a potential impairment. The Company conducted a quantitative impairment analysis of its NGW reporting unit using the income approach as at December 31, 2022.
The recoverable amount of the reporting unit to which goodwill is allocated and the asset group to which indefinite life intangibles are allocated were determined based on fair value using Level 3 inputs in a discounted cash flow analysis. Management tested the NGW asset group for the definite lived assets impairment. The result was impairment for the definite lived assets of the NGW asset group. Where applicable, the Company uses its market capitalization and comparative market multiples to corroborate discounted cash flow results. The significant assumptions applied in the determination of the recoverable amount are described below:
| ● | Cash flows: Estimated cash flows were projected based on actual operating results from internal sources as well as industry and market trends. Estimated cash flows are primarily driven by sales volumes, selling prices and operating costs. The forecasts are extended to a total of six years (and a terminal year thereafter); |
| ● | Terminal value growth rate: The terminal growth rate was based on historical and projected consumer price inflation, historical and projected economic indicators and projected industry growth; |
| ● | Post-tax discount rate: The post-tax discount rate is reflective of the reporting unit's Weighted Average Cost of Capital ("WACC"). The WACC was estimated based on the risk-free rate, equity risk premium, beta adjustment to the equity risk premium based on a direct comparison approach, an unsystematic risk premium, and after-tax cost of debt based on corporate bond yields; and |
| ● | Tax rate: The tax rates used in determining the future cash flows were those substantively enacted at the respective valuation date. |
The following table outlines the key assumptions used in calculating the recoverable amount for each CGU and operating segment tested for impairment as at December 31, 2022:
| | Goodwill impairment testing |
Significant estimates used by management | | NGW |
Years of cash flows before terminal value | | 6 |
Discount rate | | 19.25% |
Terminal value multiple / rate | | 5.8x |
Based on the results of the goodwill impairment test, the carrying value of the NGW reporting unit exceeded the fair value and the Company recognized a pre-tax impairment loss of $25,802,688 during the year ended December 31, 2022, relating to the NGW reporting unit.
Acquisition of 51% Interest in Planet 13 Illinois
On February 7, 2023, the Company purchased the remaining 51% ownership interest in Planet 13 Illinois from a third party pursuant to an option purchase agreement that was entered into between such third party and the Company on August 4, 2022. The aggregate purchase price for the interest was $1,812,656 and consisted of $866,250 in cash consideration $946,406 in share consideration. The share consideration was comprised of 1,063,377 common shares of the Company at a fair value of C$1.18 (USD $0.89) per common share, which were issued on February 7, 2023.
The Company’s lease agreements are for cultivation, manufacturing, retail office premises and for vehicles. The property lease terms range between 7 years and 21 years depending on the facility and are subject to an average of 2 renewal periods of equal length as the original lease. Certain leases include escalation clauses or payment of executory costs such as property taxes, utilities, or insurance and maintenance. Rent expense for leases with escalation clauses is accounted for on a straight-line basis over the lease term. The Company’s lease agreements do not contain any material residual value guarantees or material restrictive covenants.
PLANET 13 HOLDINGS INC. Notes to the Interim Condensed Consolidated Financial Statements (Unaudited, in United States Dollars, except share amounts) |
The following table provides the components of lease costs recognized in the unaudited interim condensed consolidated statement of operations and comprehensive loss for the three-month periods ended March 31, 2023 and 2022:
| | Three Months Ended | |
| | March 31, | | | March 31, | |
| | 2023 | | | 2022 | |
| | | | | | | | |
Operating lease costs | | $ | 1,244,641 | | | $ | 971,243 | |
Short term lease expense | | | 4,596 | | | | 1,467 | |
Total lease costs | | $ | 1,249,237 | | | $ | 972,710 | |
Other information related to operating and finance leases as of and for the three months ended March 31, 2023 and 2022 are as follows:
| | March 31, 2023 | | | March 31, 2022 | |
| | Finance | | | Operating | | | Finance | | | Operating | |
| | Lease | | | Lease | | | Lease | | | Lease | |
| | | | | | | | | | | | | | | | |
Weighted average discount rate | | | 15.00 | % | | | 15.00 | % | | | 15.00 | % | | | 15.00 | % |
Weighted average remaining lease term | | | - | | | | 13.02 | | | | - | | | | 14.43 | |
The maturity of the contractual undiscounted lease liabilities as of March 31, 2023 and December 31, 2022 are:
| | 2023 | | | 2022 | |
| | Operating | | | Operating | |
| | Lease | | | Lease | |
| | | | | | | | |
One year | | $ | 4,229,975 | | | $ | 4,052,167 | |
Two years | | | 4,388,087 | | | | 4,214,502 | |
Three years | | | 4,448,176 | | | | 4,302,534 | |
Four years | | | 4,451,577 | | | | 4,303,434 | |
Five years | | | 4,583,017 | | | | 4,389,610 | |
Thereafter | | | 59,863,525 | | | | 58,274,870 | |
| | | | | | | | |
Total undiscounted lease liabilities | | | 81,964,357 | | | | 79,537,117 | |
Interest on lease liabilities | | | (54,670,254 | ) | | | (53,224,885 | ) |
Total present value of minimum lease payments | | | 27,294,103 | | | | 26,312,232 | |
Lease liability - current portion | | | (511,479 | ) | | | (479,161 | ) |
Lease liability | | $ | 26,782,624 | | | $ | 25,833,071 | |
Principally all leases relate to real estate.
For the three months ended March 31, 2023, the Company incurred $1,244,641 of operating lease costs (2022 - $971,243), of which $460,005 (2022 - $489,996) was allocated to cost of goods sold.
On December 22, 2022, the Company entered into a sale-leaseback transaction with an unrelated third-party related to certain real property acquired in connection with the NGW acquisition. The Company received cash proceeds of $1,049,633 and recorded a gain on sale-leaseback of $509,392. The following are the key terms of the related lease agreement:
| ● | Initial term: 15 years |
| ● | Renewal options: 3 additional terms of five years each |
| ● | Monthly payment: $7,847 |
| ● | Other: Triple net |
See Note 14 for additional supplemental cash flow information related to leases.
PLANET 13 HOLDINGS INC. Notes to the Interim Condensed Consolidated Financial Statements (Unaudited, in United States Dollars, except share amounts) |
| | March 31, | | | December 31, | |
| | 2023 | | | 2022 | |
| | | | | | | | |
Promissory note dated November 4, 2015, with semi-annual interest at 5.0%, secured by deed of trust, due December 1, 2019 | | | 884,000 | | | | 884,000 | |
| | | | | | | | |
| | $ | 884,000 | | | $ | 884,000 | |
Less current portion | | | (884,000 | ) | | | (884,000 | ) |
| | $ | - | | | $ | - | |
| | | | | | | | |
Stated maturities of debt obligations are as follow: | | | | | | | | |
| | | | | | | | |
Next 12 months Promissory Note | | | | | | $ | 884,000 | |
The Company is authorized to issue an unlimited number of common shares and an unlimited number of Class A shares.
| | | Number of Common Shares | |
| | | | | | | | | |
| | | March 31, | | | March 31, | |
| | | 2023 | | | 2022 | |
Common Shares | | | | | | | | | |
Balance at January 1 | | | 220,470,061 | | | | 198,687,950 | |
Shares issued on settlement of RSUs | i. | | | - | | | | 81,084 | |
Shares issued on exercise of options | ii. | | | - | | | | 97,325 | |
Shares issued on exercise of warrants | iii. | | | - | | | | 242,700 | |
Shares issued on acquisition (Note 6) | iv. | | | - | | | | 21,361,002 | |
Shares issued on exercise of purchase option (Note 6) | v. | | | 1,063,377 | | | | - | |
| | | | | | | | | |
Total common shares outstanding | | | 221,533,438 | | | | 220,470,061 | |
i. Shares issued for Restricted Share Units
During the three months ended March 31, 2023, no RSUs were awarded, vested, settled, or cancelled.
During the year ended December 31, 2022, the Company issued 81,084 common shares on the settlement of RSUs that had vested during the period. The Company did not receive any cash proceeds on the settlement.
ii. Shares issued for Stock Options
During the three months ended March 31, 2023, no options were awarded, vested, settled or cancelled.
During the year ended December 31, 2022, the Company issued 97,325 common shares on the exercise of options that had a strike price of CAD$1.31 per common share resulting in cash proceeds of $97,980 (CAD$127,496).
PLANET 13 HOLDINGS INC. Notes to the Interim Condensed Consolidated Financial Statements (Unaudited, in United States Dollars, except share amounts) |
iii. Shares issued on the exercise of Warrants
During the three months ended March 31, 2023, 5,206,463 warrants expired unexercised.
During the year ended December 31, 2022, the Company issued 242,700 common shares to warrant holders who exercised 242,700 warrants resulting in cash proceeds of $1,044,258 (CAD$1,407,660).
The following table summarizes the fair value of the warrant liability at March 31, 2023 and December 31, 2022.
| | March 31, | | | December 31, | |
| | 2023 | | | 2022 | |
| | | | | | | | |
Balance - beginning of period | | $ | 18,127 | | | $ | 7,206,049 | |
Expirations | | | (18,127 | ) | | | - | |
Foreign exchange | | | - | | | | (10,117 | ) |
Change in fair value | | | - | | | | (7,177,805 | ) |
Balance - end of period | | $ | - | | | $ | 18,127 | |
The warrant liability is adjusted to fair value on the date the warrants are exercised and at the end of each reporting period. The amount that is reclassified to equity on the date of exercise is the fair value at that date.
The following table summarizes the number of warrants outstanding at March 31, 2023 and December 31, 2022.
| | March 31, 2023 | | | Weighted Average Exercise Price - CAD | | | December 31, 2022 | | | Weighted Average Exercise Price - CAD | |
| | | | | | | | | | | | | | | | |
Balance - beginning of period | | | 5,206,463 | | | $ | 8.88 | | | | 8,861,951 | | | $ | 7.46 | |
Exercised | | | - | | | $ | - | | | | (242,700 | ) | | $ | 5.80 | |
Expired | | | (5,206,463 | ) | | $ | 8.88 | | | | (3,412,788 | ) | | $ | 5.41 | |
Balance - end of period | | | - | | | $ | - | | | | 5,206,463 | | | $ | 8.88 | |
Fair values
The Company complies with ASC 820, Fair Value Measurement, for its financial assets and liabilities that are re-measured and reported at fair value at each reporting period, and non-financial assets and liabilities that are re-measured and reported at fair value at least annually. Financial instruments recorded at fair value in the consolidated balance sheet are classified using a fair value hierarchy that reflects the observability of significant inputs used in making the measurements.
PLANET 13 HOLDINGS INC. Notes to the Interim Condensed Consolidated Financial Statements (Unaudited, in United States Dollars, except share amounts) |
The following tables present information about the Company’s assets and liabilities that are measured at fair value on a recurring basis as of March 31, 2023 and December 31, 2022:
| | Quoted prices in active markets for identical asset (Level 1) | | | Significant unobservable inputs (Level 3) | | | Total | |
March 31, 2023 | | | | | | | | | | | | |
Warrant liability | | $ | - | | | $ | - | | | $ | - | |
| | | | | | | | | | | | |
December 31, 2022 | | | | | | | | | | | | |
Warrant liability | | $ | (18,127 | ) | | $ | - | | | $ | (18,127 | ) |
11. Share Based Compensation |
(a) Stock Options
The Company has established the 2018 Stock Option Plan (the “Option Plan”) for employees, management, directors, and consultants of the Company, as designated and administered by a committee of the Company’s Board of Directors. Under the Option Plan, the Company may grant options for up to 10% of the issued and outstanding common shares of the Company. The maximum term of an option is five years, and the related vesting period runs from immediate to the life of the grant.
During the three months ended March 31, 2023 and the year ended December 31, 2022
No incentive stock options were granted during the three months ended March 31, 2023 or the year ended December 31, 2022. During the year ended December 31, 2022, the Company issued 1,106,925 options in connection with the NGW transaction (see Note 6). The replacement options were fully vested upon issuance.
The following table summarizes information about stock options outstanding at March 31, 2023:
| | Exercise price | | | March 31, 2023 | | | March 31, 2023 | | | December 31, 2022 | | | December 31, 2022 | |
Expiry Date | | | CAD$ | | | Outstanding | | | Exercisable | | | Outstanding | | | Exercisable | |
| | | | | | | | | | | | | | | | | | | | |
November 21, 2024 | | $ | 1.31 | | | | 185,203 | | | | 185,203 | | | | 185,203 | | | | 185,203 | |
February 27, 2025 | | $ | 1.31 | | | | 51,525 | | | | 51,525 | | | | 51,525 | | | | 51,525 | |
December 15, 2025 | | $ | 3.06 | | | | 269,075 | | | | 269,075 | | | | 269,075 | | | | 269,075 | |
September 30, 2026 | | $ | 4.37 | | | | 120,222 | | | | 120,222 | | | | 120,222 | | | | 120,222 | |
July 6, 2025 | | $ | 1.31 | | | | 97,325 | | | | 97,325 | | | | 97,325 | | | | 97,325 | |
June 11, 2023 | | $ | 0.80 | | | | 61,668 | | | | 61,668 | | | | 61,668 | | | | 61,668 | |
June 30, 2024 | | $ | 2.60 | | | | 7,500 | | | | 7,500 | | | | 7,500 | | | | 7,500 | |
| | | | | | | 792,518 | | | | 792,518 | | | | 792,518 | | | | 792,518 | |
PLANET 13 HOLDINGS INC. Notes to the Interim Condensed Consolidated Financial Statements (Unaudited, in United States Dollars, except share amounts) |
The following table reflects the continuity of stock options for the period presented:
| | March 31, 2023 | | | Weighted Average Exercise Price - CAD | | | December 31, 2022 | | | Weighted Average Exercise Price - CAD | |
| | | | | | | | | | | | | | | | |
Balance - beginning of period | | | 792,518 | | | $ | 2.34 | | | | 169,168 | | | $ | 2.01 | |
Issued | | | - | | | | - | | | | 1,106,925 | | | | 2.58 | |
Exercised | | | - | | | | - | | | | (97,325 | ) | | | 1.31 | |
Expired | | | - | | | | - | | | | (386,250 | ) | | | 3.11 | |
Balance - end of period | | | 792,518 | | | $ | 2.34 | | | | 792,518 | | | $ | 2.34 | |
Share based compensation expense attributable to employee options was $0 for the three months ended March 31, 2023 and 2022, respectively. The fair value of the replacement options issued during the year ended December 31, 2022 of $1,239,818 was recognized as part of the consideration paid related to the business combination of NGW (Note 6).
The total intrinsic value of stock options exercised, outstanding and exercisable as of March 31, 2023, and December 31, 2022 was $0.
(b) Restricted Share Units |
The Company has established the 2018 Share Unit Plan (the “RSU Plan”) for employees, management, directors, and consultants of the Company, as designated and administered by a committee of the Company’s Board of Directors. Under the RSU Plan, the Company may grant RSUs and/or options for up to 10% of the issued and outstanding common shares of the Company.
The following table summarizes the RSUs that are outstanding as at March 31, 2023 and December 31, 2022:
| | March 31, | | | December 31, | |
| | 2023 | | | 2022 | |
| | | | | | | | |
Balance - beginning of period | | | 2,464,928 | | | | 2,591,929 | |
Exercised | | | - | | | | (81,084 | ) |
Forfeited | | | - | | | | (45,917 | ) |
Balance - end of period | | | 2,464,928 | | | | 2,464,928 | |
The Company recognized $720,991 in share-based compensation expense attributable to the RSU vesting schedule for the three months ended March 31, 2023, ($2,055,494 for the three months ended March 31, 2022).
During the three months ended March 31, 2023
No RSUs were granted, exercised or vested.
During the year ended December 31, 2022
No RSUs were granted during the year ended December 31, 2022.
The Company issued 81,084 common shares on the exercise of 81,084 RSUs during the year ended December 31, 2022.
During the year ended December 31, 2022, 45,917 RSUs were forfeited.
PLANET 13 HOLDINGS INC. Notes to the Interim Condensed Consolidated Financial Statements (Unaudited, in United States Dollars, except share amounts) |
| | Three Months Ended | |
| | March 31, | | | March 31, | |
| | 2023 | | | 2022 | |
| | | | | | | | |
Loss available to common shareholders | | $ | (6,304,242 | ) | | $ | (2,061,071 | ) |
| | | | | | | | |
Weighted average number of shares outstanding, basic and diluted | | | 221,084,457 | | | | 205,570,940 | |
| | | | | | | | |
Basic and diluted loss per share | | $ | (0.03 | ) | | $ | (0.01 | ) |
Approximately 3,257,446 and 12,729,973 potentially dilutive securities for the three months ended March 31, 2023 and 2022, respectively, were excluded in the calculation of diluted EPS as their impact would have been anti-dilutive due to the net losses for such periods.
13. General and Administrative |
| | Three Months Ended | |
| | March 31, | | | March 31, | |
| | 2023 | | | 2022 | |
| | | | | | | | |
Salaries and wages | | $ | 3,670,072 | | | $ | 4,784,344 | |
Share based compensation | | | 720,991 | | | | 2,055,494 | |
Executive compensation | | | 731,177 | | | | 673,614 | |
Licenses and permits | | | 641,602 | | | | 843,029 | |
Payroll taxes and benefits | | | 872,173 | | | | 1,170,454 | |
Supplies and office expenses | | | 319,086 | | | | 247,933 | |
Subcontractors | | | 506,787 | | | | 732,984 | |
Professional fees (legal, audit and other) | | | 2,211,799 | | | | 2,339,674 | |
Miscellaneous general and administrative expenses | | | 1,281,320 | | | | 639,164 | |
| | $ | 10,955,007 | | | $ | 13,486,690 | |
PLANET 13 HOLDINGS INC. Notes to the Interim Condensed Consolidated Financial Statements (Unaudited, in United States Dollars, except share amounts) |
14. Supplemental Cash Flow Information |
| | Three Months Ended | |
| | March 31, | | | March 31, | |
Change in Working Capital | | 2023 | | | 2022 | |
| | | | | | | | |
Accounts Receivable | | | 100,354 | | | | 469,564 | |
Inventory | | | (1,295,309 | ) | | | 1,341,349 | |
Prepaid Expenses and Other Assets | | | 784,157 | | | | 242,118 | |
Long-term Deposits and Other Assets | | | - | | | | 12,911 | |
Deferred Tax Assets | | | 70,169 | | | | (11,353 | ) |
Accounts Payable | | | (519,789 | ) | | | 506,527 | |
Accrued Expenses | | | (1,534,764 | ) | | | (1,765,521 | ) |
Income Taxes Payable | | | (702,501 | ) | | | 2,768,115 | |
| | $ | (3,097,683 | ) | | $ | 3,563,710 | |
| | | | | | | | |
Cash Paid | | | | | | | | |
| | | | | | | | |
Interest | | $ | 3,720,587 | | | $ | - | |
Income Taxes | | $ | 2,965,000 | | | $ | - | |
| | | | | | | | |
Non-cash Financing and Investing Activities | | | | | | | | |
| | | | | | | | |
Shares Issued on Exercise of Purchase Option | | $ | 964,406 | | | $ | - | |
Initial Recognition of Fair Value of Net Assets Acquired in NGW Acquisition in Exchange for Shares, excluding Cash | | $ | - | | | $ | 22,109,890 | |
Lease additions | | $ | 954,496 | | | $ | 56,130 | |
Fixed Asset Amounts in Accounts Payable | | $ | 26,225 | | | $ | 39,825 | |
Reclassification of long term lease liabilities to current | | $ | 32,318 | | | $ | 30,570 | |
15. Related Party Transactions and Balances |
Related party transactions are summarized as follows:
(a) Building Lease
Prior to March 15, 2022, the Company was the sub-lessee of approximately 2,000 square feet of office space and purchased certain printed marketing collateral and stationery items from a company owned by one of the Company’s Co-CEOs. This entity was sold to an unrelated third-party on March 15, 2022. Amounts paid for rent for the three months ended March 31, 2023 and 2022 to the related party equaled $nil and $6,010, respectively. Amounts paid for printed marketing collateral and stationery items to the related party were $nil and $183,914 for the three months ended March 31, 2023 and 2022, respectively.
(b) Other
A company previously owned by one of the Company’s Co-CEOs until March 15, 2022 paid the Company for storage space. Amounts paid to the Company from the related party for storage space were $nil and $5,968 for the three months ended March 31, 2023 and 2022, respectively, and is recorded in Other Income for such period.
For the three-month period ended March 31, 2023, no amounts were due to related parties ( December 31, 2022 - $nil).
PLANET 13 HOLDINGS INC. Notes to the Interim Condensed Consolidated Financial Statements (Unaudited, in United States Dollars, except share amounts) |
16. Commitments and Contingencies |
(a) Construction Commitments
The Company had $4,739,612 of outstanding construction commitments as of March 31, 2023.
(b) Contingencies
The Company’s operations are subject to a variety of local and state regulations. Failure to comply with one or more of those regulations could result in fines, restrictions on its operations, or losses of permits that could result in the Company ceasing operations. While management of the Company believes that the Company is in compliance with applicable local and state regulations at March 31, 2023, medical and adult use cannabis regulations continue to evolve and are subject to differing interpretations. As a result, the Company may be subject to regulatory fines, penalties, or restrictions in the future.
(c) Claims and Litigation
From time to time, the Company may be involved in litigation relating to claims arising out of operations in the normal course of business. At March 31, 2023, and December 31, 2022, there were no pending or threatened lawsuits that could reasonably be expected to have a material effect on the results of the Company’s operations. There are also no proceedings in which any of the Company’s directors, officers or affiliates is an adverse party or has a material interest adverse to the Company’s interest.
(d) Operating Licenses
Although the possession, cultivation, and distribution of marijuana for medical and adult use is permitted in Nevada and California, and for medical use these activities are permitted in Florida, marijuana is a Schedule I controlled substance and its use remains a violation of federal law. Since federal law criminalizing the use of marijuana pre-empts state laws that legalize its use, strict enforcement of federal law regarding marijuana would likely result in the Company’s inability to proceed with our business plans. In addition, the Company’s assets, including real property, cash, equipment, and other goods, could be subject to asset forfeiture because marijuana is still federally illegal.
Credit risk
Credit risk is the risk that a third party might fail to discharge its obligations under the terms of a financial instrument. Credit risk arises from cash with banks and financial institutions. It is management’s opinion that the Company is not exposed to significant credit risk arising from these financial instruments. The Company limits credit risk by entering into business arrangements with high credit-quality counterparties.
The Company evaluates the collectability of its accounts receivable and maintains an allowance for credit losses at an amount sufficient to absorb losses inherent in the existing accounts receivable portfolio as of the reporting dates based on the estimate of expected net credit losses.
Interest Rate Risk
Interest rate risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in market interest rates. The Company currently does not carry variable interest-bearing debt. It is management’s opinion that the Company is not exposed to significant interest rate risk.
Price risk
Price risk is the risk that the trading price of the Company's shares will fluctuate and result in an increase or decrease in the fair value of the warrant liability. The Company is not exposed to significant price risk.
PLANET 13 HOLDINGS INC. Notes to the Interim Condensed Consolidated Financial Statements (Unaudited, in United States Dollars, except share amounts) |
Liquidity risk
The Company’s approach to managing risk is to ensure that it will have sufficient liquidity to meet liabilities when due. As of March 31, 2023, the Company’s financial liabilities consist of accounts payable, accrued liabilities, obligations under operating leases and taxes. The Company manages liquidity risk by reviewing its capital requirements on an ongoing basis. Historically, the Company’s main source of funding has been the public issuance of common shares. The Company’s access to financing is always uncertain. There can be no assurance of continued access to significant equity financing.
Concentration risk
The Company operates exclusively in Southern Nevada and Southern California. Should economic conditions deteriorate within that region, its results of operations and financial position would be negatively impacted.
Banking risk
Notwithstanding that a majority of states have legalized medical marijuana, there has been no change in US federal banking laws related to the deposit and holding of funds derived from activities related to the cannabis industry. Given that US federal law provides that the production and possession of cannabis is illegal, there is a strong argument that banks cannot accept or deposit funds from businesses involved with the marijuana industry. Consequently, businesses involved in the marijuana industry often have difficulty accessing the US banking system and traditional financing sources. The inability to open bank accounts with certain institutions may make it difficult to operate the business of the Company and leave the Company’s cash holdings vulnerable.
Asset forfeiture risk
Because the cannabis industry remains illegal under US federal law, any property owned by participants in the cannabis industry which are either used in the course of conducting such business, or are the proceeds of such business, could be subject to seizure by law enforcement and subsequent civil asset forfeiture. Even if the owner of the property was never charged with a crime, the property in question could still be seized and subject to an administrative proceeding by which with minimal due process, it could be subject to forfeiture.
Currency rate risk
As at March 31, 2023, a portion of the Company’s financial assets and liabilities held in Canadian dollars consist of cash of $752,614 ( December 31, 2022 - $1,172,859). The Company’s objective in managing its foreign currency risk is to minimize its net exposure to foreign currency cash flows by transacting, to the greatest extent possible, with third parties in the functional currency. The Company is exposed to currency rate risk in other comprehensive income, relating to foreign subsidiaries which operate in a foreign currency. The Company does not currently use foreign exchange contracts to hedge its exposure of its foreign currency cash flows as management has determined that this risk is not significant at this point in time.
The Company's exposure to a 10% change in the foreign exchange rate at March 31, 2023 equals $117,286.
18. Disaggregated Revenue |
The following table presents the Company’s disaggregated revenue by sales channel:
| | Three Months Ended | |
| | March 31, | | | March 31, | |
| | 2023 | | | 2022 | |
| | | | | | | | |
Retail | | $ | 20,352,966 | | | $ | 23,559,391 | |
Wholesale | | | 4,562,430 | | | | 2,135,004 | |
| | | | | | | | |
Net revenues | | $ | 24,915,396 | | | $ | 25,694,395 | |