Jushi Holdings Inc 10-Q for FY2024 Q1
Jushi Holdings Inc. (JUSH)
10-Q
2024-05-09
For: 2024-03-31
View Original
Added on
April 06, 2026
About this 10-Q
Jushi Holdings Inc filed this 10-Q on May 9, 2024, covering the quarter ended March 31, 2024 (FY2024 Q1).
Headline figures
Quarter ended March 31, 2024, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $65.46M
- down 6.3% from $69.87M a year earlier
- Net loss
- $18.36M
- compared with a net loss of $12.44M a year earlier
- Diluted EPS
- -$0.09
- compared with -$0.06 a year earlier
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
________________________________
FORM 10-Q
________________________________
(Mark One)
For the quarterly period ended March 31, 2024
or
For the transition period from to
Commission file Number 000-56468
(Exact name of registrant as specified in its charter)
________________________________________________________________________________________________
| (State or other jurisdiction of incorporation or organization) | (IRS Employer Identification No.) | |||||||||||||
(Address of principal executive offices) | ( (Registrant’s telephone number, including area code) | (Zip Code) | ||||||||||||
Not Applicable (Former name, former address and former fiscal year, if changed since last report.) | ||||||||||||||
| Securities registered pursuant to Section 12(b) of the Act: | ||||||||||||||
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||||||||||||
N/A | N/A | N/A | ||||||||||||
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No □
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). Yes ☒ No □
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☐ Accelerated filer ☒
Non-accelerated filer ☐ Smaller reporting company ☒
Emerging growth company ☒
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. □
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
As of May 3, 2024, the registrant had 196,643,264 subordinate voting shares, no par value per share, no multiple voting shares, no par value per share, no super voting shares, no par value per share, and no preferred shares, no par value per share, outstanding.
JUSHI HOLDINGS INC.
Table of Contents
For the quarterly period ended March 31, 2024
Part I | Page | ||||||||||
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q (this “report”) may contain “forward-looking statements” and “forward‐looking information” within the meaning of applicable securities laws, including Canadian securities legislation and United States (“U.S.”) securities legislation (collectively, “forward-looking information”) which are based upon the Company’s current internal expectations, estimates, projections, assumptions and beliefs. All information, other than statements of historical facts, included in this report that address activities, events or developments that the Company expects or anticipates will or may occur in the future constitutes forward‐looking information. Forward‐looking information is often identified by the words, “may”, “would”, “could”, “should”, “will”, “intend”, “plan”, “anticipate”, “believe”, “estimate”, “expect” or similar expressions and includes, among others, information regarding: future business strategy; competitive strengths, goals, expansion and growth of the Company’s business, operations and plans, including new revenue streams; the integration and benefits of recently acquired businesses or assets; roll out of new operations; the implementation by the Company of certain product lines; the implementation of certain research and development; the application for additional licenses and the grant of licenses that will be or have been applied for; the expansion or construction of certain facilities; the reduction in the number of our employees; the expansion into additional U.S. and international markets; any potential future legalization of adult use and/or medical marijuana under U.S. federal law; expectations of market size and growth in the U.S. and the states in which the Company operates; expectations for other economic, business, regulatory and/or competitive factors related to the Company or the cannabis industry generally; and other events or conditions that may occur in the future.
Readers are cautioned that forward‐looking information is not based on historical facts but instead is based on reasonable assumptions and estimates of the management of the Company at the time they were provided or made and such information involves known and unknown risks, uncertainties, including our ability to continue as a going concern, and other factors that may cause the actual results, level of activity, performance or achievements of the Company, as applicable, to be materially different from any future results, performance or achievements expressed or implied by such forward‐looking information. Such factors include, among others: risks relating to U.S. regulatory landscape and enforcement related to cannabis, including political risks; risks relating to anti‐money laundering laws and regulation; other governmental and environmental regulation; public opinion and perception of the cannabis industry; risks related to the economy generally; risks related to inflation, the rising cost of capital, and stock market instability; risks relating to pandemics and forces of nature; risks related to contracts with third party service providers; risks related to the enforceability of contracts; the limited operating history of the Company; the Company’s history of operating losses and negative operating cash flows; reliance on the expertise and judgment of senior management of the Company; risks inherent in an agricultural business; risks related to co‐investment with parties with different interests to the Company; risks related to proprietary intellectual property and potential infringement by third parties; risks relating to the Company’s current amount of indebtedness; risks relating to the need to raise additional capital either through debt or equity financing; risks relating to the management of growth; costs associated with the Company being a publicly-traded company and a U.S. and Canadian filer; increasing competition in the industry; risks associated with cannabis products manufactured for human consumption including potential product recalls; reliance on key inputs, suppliers and skilled labor; reliance on manufacturers and contractors; risks of supply shortages or supply chain disruptions; cybersecurity risks; constraints on marketing products; fraudulent activity by employees, contractors and consultants; tax and insurance related risks; risk of litigation; conflicts of interest; risks relating to certain remedies being limited and the difficulty of enforcing judgments and effecting service outside of Canada; risks related to completed, pending or future acquisitions or dispositions, including potential future impairment of goodwill or intangibles acquired and/or post-closing disputes; sales of a significant amount of shares by existing shareholders; the limited market for securities of the Company; risks related to the continued performance of existing operations in California, Illinois, Massachusetts, Nevada, Ohio, Pennsylvania, and Virginia; risks related to the anticipated openings of additional dispensaries or relocation of existing dispensaries; risks relating to the expansion and optimization of the cultivation and/or processing facilities in Massachusetts, Nevada, Ohio, Pennsylvania and Virginia; risks related to opening new facilities, which is subject to licensing approval; limited research and data relating to cannabis; risks related to challenges from governmental authorities with respect to the Company’s tax credits; and risks related to the Company’s critical accounting policies and estimates. Refer to Part I - Item 1A. Risk Factors in the Company’s Annual Report on Form 10-K filed with the U.S. Securities and Exchange Commission on April 1, 2024 for more information.
Although the Company has attempted to identify important factors that could cause actual results to differ materially, there may be other factors that cause results not to be as anticipated, estimated or intended. There can be no assurance that such forward‐looking information will prove to be accurate as actual results and future events could differ materially from those anticipated in such information. Accordingly, readers should not place undue reliance on the forward‐looking information contained in this report or other forward-looking statements made by the Company. Forward‐looking information is provided and made as of the date of this Quarterly Report on Form 10-Q and the Company does not undertake any obligation to revise or update any forward‐looking information or statements other than as required by applicable law.
Unless the context requires otherwise, references in this report to “Jushi,” “Company,” “we,” “us” and “our” refer to Jushi Holdings Inc. and our subsidiaries.
PART I - FINANCIAL INFORMATION
1Item 1. Financial Statements
JUSHI HOLDINGS INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands of U.S. dollars, except share amounts)
| March 31, 2024 (unaudited) | December 31, 2023 | ||||||||||||||||
| ASSETS | |||||||||||||||||
| CURRENT ASSETS: | |||||||||||||||||
| Cash and cash equivalents | $ | $ | |||||||||||||||
| Restricted cash - current | |||||||||||||||||
| Accounts receivable, net | |||||||||||||||||
| Inventory, net | |||||||||||||||||
| Prepaid expenses and other current assets | |||||||||||||||||
| Total current assets | |||||||||||||||||
| NON-CURRENT ASSETS: | |||||||||||||||||
| Property, plant and equipment, net | |||||||||||||||||
| Right-of-use assets - finance leases | |||||||||||||||||
| Other intangible assets, net | |||||||||||||||||
| Goodwill | |||||||||||||||||
Other non-current assets | |||||||||||||||||
| Restricted cash - non-current | |||||||||||||||||
| Total non-current assets | |||||||||||||||||
| Total assets | $ | $ | |||||||||||||||
LIABILITIES AND EQUITY (DEFICIT) | |||||||||||||||||
| CURRENT LIABILITIES: | |||||||||||||||||
| Accounts payable | $ | $ | |||||||||||||||
| Accrued expenses and other current liabilities | |||||||||||||||||
| Income tax payable | |||||||||||||||||
Debt, net - current portion (including related party principal amounts of $ | |||||||||||||||||
| Finance lease obligations - current | |||||||||||||||||
Derivative liabilities - current | |||||||||||||||||
| Total current liabilities | |||||||||||||||||
| NON-CURRENT LIABILITIES: | |||||||||||||||||
Debt, net - non-current (including related party principal amounts of $ | |||||||||||||||||
| Finance lease obligations - non-current | |||||||||||||||||
Derivative liabilities - non-current | |||||||||||||||||
Unrecognized tax benefits | |||||||||||||||||
| Other liabilities - non-current | |||||||||||||||||
| Total non-current liabilities | |||||||||||||||||
| Total liabilities | |||||||||||||||||
COMMITMENTS AND CONTINGENCIES (Note 18) | |||||||||||||||||
EQUITY (DEFICIT): | |||||||||||||||||
Common stock, no par value: authorized shares - unlimited; issued and outstanding shares - | |||||||||||||||||
| Paid-in capital | |||||||||||||||||
| Accumulated deficit | ( | ( | |||||||||||||||
Total Jushi shareholders' deficit | ( | ( | |||||||||||||||
| Non-controlling interests | ( | ( | |||||||||||||||
Total deficit | ( | ( | |||||||||||||||
Total liabilities and equity (deficit) | $ | $ | |||||||||||||||
1
JUSHI HOLDINGS INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE INCOME (LOSS)
(In thousands of U.S. dollars, except share and per share amounts)
| Three Months Ended March 31, | |||||||||||
| 2024 | 2023 | ||||||||||
| REVENUE, NET | $ | $ | |||||||||
| COST OF GOODS SOLD | ( | ( | |||||||||
| GROSS PROFIT | |||||||||||
| OPERATING EXPENSES | |||||||||||
| INCOME (LOSS) FROM OPERATIONS | ( | ||||||||||
| OTHER INCOME (EXPENSE): | |||||||||||
| Interest expense, net | ( | ( | |||||||||
Fair value gain (loss) on derivatives | ( | ||||||||||
| Other, net | |||||||||||
Total other income (expense), net | ( | ||||||||||
LOSS BEFORE INCOME TAX | ( | ( | |||||||||
Income tax expense | ( | ( | |||||||||
NET LOSS AND COMPREHENSIVE LOSS | $ | ( | $ | ( | |||||||
LOSS PER SHARE - BASIC | $ | ( | $ | ( | |||||||
| Weighted average shares outstanding - basic | |||||||||||
LOSS PER SHARE - DILUTED | $ | ( | $ | ( | |||||||
| Weighted average shares outstanding - diluted | |||||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
2
JUSHI HOLDINGS INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (DEFICIT)
(In thousands of U.S. dollars, except share amounts)
Three Months Ended March 31, 2024 | |||||||||||||||||||||||||||||||||||
| Paid-In Capital | Accumulated Deficit | Total Jushi Shareholders' Equity (Deficit) | Non-Controlling Interests | Total Equity (Deficit) | |||||||||||||||||||||||||||||||
| Subordinate Voting Shares | |||||||||||||||||||||||||||||||||||
| Balances - January 1, 2024 | $ | $ | ( | $ | ( | $ | ( | $ | ( | ||||||||||||||||||||||||||
Shares issued upon exercise of stock options | — | — | |||||||||||||||||||||||||||||||||
| Share-based compensation (including related parties) | — | — | — | ||||||||||||||||||||||||||||||||
Issuance of warrants | — | — | — | ||||||||||||||||||||||||||||||||
| Net loss | — | — | ( | ( | — | ( | |||||||||||||||||||||||||||||
| Balances - March 31, 2024 | $ | $ | ( | $ | ( | $ | ( | $ | ( | ||||||||||||||||||||||||||
Three Months Ended March 31, 2023 | ||||||||||||||||||||||||||||||||||||||
| Paid-In Capital | Accumulated Deficit | Total Jushi Shareholders' Equity (Deficit) | Non-Controlling Interests | Total Equity (Deficit) | ||||||||||||||||||||||||||||||||||
| Subordinate Voting Shares | ||||||||||||||||||||||||||||||||||||||
| Balances - January 1, 2023 | $ | $ | ( | $ | $ | ( | $ | |||||||||||||||||||||||||||||||
Shares canceled upon forfeiture if restricted stock, net of restricted stock grants | ( | — | — | — | — | — | ||||||||||||||||||||||||||||||||
Share-based compensation (including related parties) | — | — | — | |||||||||||||||||||||||||||||||||||
| Net loss | — | — | ( | ( | — | ( | ||||||||||||||||||||||||||||||||
| Balances - March 31, 2023 | $ | $ | ( | $ | $ | ( | $ | |||||||||||||||||||||||||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
3
JUSHI HOLDINGS INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands of U.S. dollars)
| Three Months Ended March 31, | |||||||||||
| 2024 | 2023 | ||||||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | |||||||||||
| Net loss | $ | ( | $ | ( | |||||||
Adjustments to reconcile net loss to net cash provided by (used in) operating activities: | |||||||||||
Depreciation and amortization, including amounts in cost of goods sold | |||||||||||
| Share-based compensation | |||||||||||
| Fair value changes in derivatives | ( | ||||||||||
Non-cash interest expense, including amortization of deferred financing costs | |||||||||||
| Deferred income taxes and uncertain tax positions | |||||||||||
Gain on debt extinguishment | ( | ||||||||||
| Other non-cash items, net | ( | ( | |||||||||
| Changes in operating assets and liabilities: | |||||||||||
| Accounts receivable | ( | ||||||||||
| Inventory | ( | ( | |||||||||
Prepaid expenses and other current and non-current assets | |||||||||||
| Accounts payable, accrued expenses and other current liabilities | |||||||||||
Net cash flows provided by (used in) operating activities | ( | ||||||||||
| CASH FLOWS FROM INVESTING ACTIVITIES: | |||||||||||
| Payments for property, plant and equipment | ( | ( | |||||||||
Proceeds from sale of property, plant and equipment | |||||||||||
| Net cash flows used in investing activities | ( | ( | |||||||||
| CASH FLOWS FROM FINANCING ACTIVITIES: | |||||||||||
Proceeds from exercise of options | |||||||||||
Payments on promissory notes | ( | ||||||||||
Payments on acquisition related credit facility | ( | ||||||||||
Payments of finance leases | ( | ( | |||||||||
| Proceeds from mortgage loans | |||||||||||
Payments of mortgage loans | ( | ( | |||||||||
Proceeds from other financing activities | |||||||||||
Payments of other financing activities | ( | ( | |||||||||
Net cash flows (used in) provided by financing activities | ( | ||||||||||
| Effect of currency translation on cash and cash equivalents | |||||||||||
| NET CHANGE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH | ( | ( | |||||||||
| CASH, CASH EQUIVALENTS AND RESTRICTED CASH, BEGINNING OF PERIOD | |||||||||||
| CASH, CASH EQUIVALENTS AND RESTRICTED CASH, END OF PERIOD | $ | $ | |||||||||
| SUPPLEMENTAL CASH FLOW INFORMATION: | |||||||||||
| Cash paid for interest (excluding capitalized interest) | $ | $ | |||||||||
Cash (received) paid for income taxes | $ | ( | $ | ||||||||
| NON-CASH INVESTING AND FINANCING ACTIVITIES: | |||||||||||
Capital expenditures | $ | $ | |||||||||
Right-of-use assets from finance lease liabilities | $ | $ | |||||||||
| Issuance of second lien notes for settlement of accrued bonus | $ | — | $ | ||||||||
Issuance of second lien notes for debt exchange | $ | $ | — | ||||||||
Warrants issued for debt exchange | $ | $ | |||||||||
4
JUSHI HOLDINGS INC. Notes to the Unaudited Condensed Consolidated Financial Statements (Amounts Expressed in Thousands of U.S. dollars, Except Share and Per Share Amounts) | | ||||
1. NATURE OF OPERATIONS | ||
Jushi Holdings Inc. (the “Company” or “Jushi”) is incorporated under the British Columbia’s Business Corporations Act. The Company is a vertically integrated, multi-state cannabis operator engaged in retail, distribution, cultivation, and processing in both medical and adult-use markets. As of March 31, 2024, Jushi, through its subsidiaries, owns or manages cannabis operations and/or holds licenses in the adult-use and/or medicinal cannabis marketplace in California, Illinois, Massachusetts, Nevada, Ohio, Pennsylvania and Virginia. The Company’s head office is located at 301 Yamato Road, Suite 3250, Boca Raton, Florida 33431, United States of America, and its registered address is Suite 1700, Park Place, 666 Burrard Street, Vancouver, British Columbia V6C 2X8, Canada.
2. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | ||
Basis of Presentation and Consolidation
The financial statements have been prepared in accordance with generally accepted accounting principles in the United States (“GAAP”) for interim financial information and in accordance with the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”). Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and footnotes. Actual results could differ materially from those estimates.
In the opinion of management, the unaudited consolidated financial statements include all adjustments, of a normal recurring nature, that are necessary to present fairly the financial position, results of operations and cash flows of the Company for the periods, and at the dates, presented. The results for interim periods are not necessarily indicative of results that may be expected for any other interim period or for the full year.
These unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto for the year ended December 31, 2023, which are included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2023, filed with the SEC on April 1, 2024 (the “2023 Form 10-K”), and was also filed on the System for Electronic Document Analysis and Retrieval (“SEDAR”) on April 1, 2024. Consolidated balance sheet information as of December 31, 2023 presented herein is derived from the Company’s audited consolidated financial statements for the year ended December 31, 2023.
Going Concern and Liquidity
As reflected in the 2023 Form 10-K, the Company used net cash of $3,318 for operating activities for the year ended December 31, 2023, and as of that date, the Company’s current liabilities exceeded its current assets by $80,825 . Furthermore, as of March 31, 2024, the Company’s current liabilities exceeded its current assets by $81,294 . Such current liabilities as of March 31, 2024, include aggregate contractual maturities of (i) $57,687 of the Acquisition Facility (as defined below) debt that is to be paid in cash within the next twelve months, absent a refinancing, (ii) $23,747 of debt (including $2,247 of interest and $5,000 of milestone accruals) that are subject to indemnity claims in favor of the Company and not currently expected to be paid in cash within the next twelve months and (iii) $3,225 debt related to Jushi Europe SA (“Jushi Europe”), where the payments are subject to completion of the liquidation of Jushi Europe. Refer to Note 9 - Debt and Note 18 - Commitments and Contingencies for more information. Absent a refinancing of the Acquisition Facility debt, the Company will not meet its obligations within the next year. Management believes that with refinancing of the Acquisition Facility debt, the Company would meet its obligations.
5
JUSHI HOLDINGS INC. Notes to the Unaudited Condensed Consolidated Financial Statements (Amounts Expressed in Thousands of U.S. dollars, Except Share and Per Share Amounts) | | ||||
As concluded in the 2023 Form 10-K, substantial doubt existed about the Company’s ability to continue as a going concern, and, as a result of the above, substantial doubt continues to exist within the next twelve months from the date these financial statements are issued. The Company has a history of refinancing its debt and management intends to refinance the Acquisition Facility debt before the maturity date. The ability to continue as a going concern is dependent upon future financing. There is no assurance that the Company will be successful in this or any of its endeavors and continue as a going concern.
Summary of Significant Accounting Policies
The Company’s significant accounting policies are described in Note 2 in the audited consolidated financial statements and notes thereto for the year ended December 31, 2023, which is included in the 2023 Form 10-K. Except as disclosed below, there have been no material changes to the Company’s significant accounting policies.
Cash, Cash Equivalents and Restricted Cash
The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the consolidated balance sheets that sum to the total of the same such amounts shown in the consolidated statements of cash flows:
| March 31, 2024 (unaudited) | December 31, 2023 | |||||||||||||
Cash and cash equivalents | $ | $ | ||||||||||||
Restricted cash - current (1) | ||||||||||||||
Restricted cash - non-current (1) | ||||||||||||||
| Cash, cash equivalents and restricted cash | $ | $ | ||||||||||||
Recent Accounting Pronouncements
Adoption of New Accounting Standards
In June 2020, the Financial Accounting Standards Board (“FASB”) issued ASU 2020-06 Debt-Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging-Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity, which simplifies accounting for convertible instruments by removing major separation models required under current GAAP. This ASU also removes certain settlement conditions that are required for equity contracts to qualify for the derivative scope exception and simplifies the diluted earnings per share calculation in certain areas. The amendments in this ASU are effective for annual and interim periods beginning after December 15, 2023, although early adoption is permitted. There was no impact to the consolidated financial statements upon adoption.
In October 2021, the FASB issued ASU 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers. The FASB issued guidance requires that an entity (acquirer) recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with Topic 606. At the acquisition date, an acquirer should account for the related revenue contracts in accordance with Topic 606 as
6
JUSHI HOLDINGS INC. Notes to the Unaudited Condensed Consolidated Financial Statements (Amounts Expressed in Thousands of U.S. dollars, Except Share and Per Share Amounts) | | ||||
if it had originated the contracts. To achieve this, an acquirer may assess how the acquiree applied Topic 606 to determine what to record for the acquired revenue contracts. Generally, this should result in an acquirer recognizing and measuring the acquired contract assets and contract liabilities consistent with how they were recognized and measured in the acquiree’s financial statements (if the acquiree prepared financial statements in accordance with generally accepted accounting principles). The amendments in this ASU are effective for annual and interim periods beginning after December 15, 2023, although early adoption is permitted. There was no impact to the consolidated financial statements upon adoption.
In June 2022, the FASB issued ASU 2022-03, Fair Value Measurement (Topic 820): Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions. The FASB issued guidance clarifies that a contractual restriction on the sale of an equity security is not considered part of the unit of account of the equity security and, therefore, is not considered in measuring fair value. The amendments also clarify that an entity cannot, as a separate unit of account, recognize and measure a contractual sale restriction. The amendments in this ASU are effective for annual and interim periods beginning after December 15, 2023, although early adoption is permitted. There was no impact to the consolidated financial statements upon adoption.
In March 2023, the FASB issued ASU 2023-01, Leases (Topic 842): Common Control Arrangements. The FASB issued guidance clarifies the accounting for leasehold improvements associated with common control leases, by requiring that leasehold improvements associated with common control leases be amortized by the lessee over the useful life of the leasehold improvements to the common control group (regardless of the lease term) as long as the lessee controls the use of the underlying asset through a lease. Additionally, leasehold improvements associated with common control leases should be accounted for as a transfer between entities under common control through an adjustment to equity if, and when, the lessee no longer controls the use of the underlying asset. The amendments in this ASU are effective for annual and interim periods beginning after December 15, 2023. There was no impact to the consolidated financial statements upon adoption.
Accounting Standards Issued But Not Yet Adopted
In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, which requires two primary enhancements of 1) disaggregated information on a reporting entity’s effective tax rate reconciliation, and 2) information on incomes taxes paid. For public business entities, the new requirement will be effective for annual periods beginning after December 15, 2024. The guidance will be applied on a prospective basis with the option to apply the standard retrospectively. Early adoption is permitted. The Company is currently evaluating the effect of adopting this ASU.
3. INVENTORY, NET | ||
The components of inventory, net, are as follows:
| March 31, 2024 (unaudited) | December 31, 2023 | ||||||||||
| Cannabis plants | $ | $ | |||||||||
| Harvested cannabis and packaging | |||||||||||
| Total raw materials | |||||||||||
| Work in process | |||||||||||
| Finished goods | |||||||||||
| Total inventory, net | $ | $ | |||||||||
7
JUSHI HOLDINGS INC. Notes to the Unaudited Condensed Consolidated Financial Statements (Amounts Expressed in Thousands of U.S. dollars, Except Share and Per Share Amounts) | | ||||
4. PREPAID EXPENSES AND OTHER CURRENT ASSETS | ||
The components of prepaid expenses and other current assets are as follows:
| March 31, 2024 (unaudited) | December 31, 2023 | ||||||||||||||||
| Employee retention credit receivable | $ | $ | |||||||||||||||
| Prepaid expenses and deposits | |||||||||||||||||
Assets held for sale | |||||||||||||||||
| Other current assets | |||||||||||||||||
| Total prepaid expenses and other current assets | $ | $ | |||||||||||||||
The Coronavirus Aid, Relief, and Economic Security Act, passed in March 2020 and subsequently amended in 2021, allowed eligible employers to take credits on certain amounts of qualified wages if the Company experienced either a full or partial suspension of operations due to COVID related government orders. During the year ended December 31, 2023, the Company, with guidance from a third-party specialist, determined it was entitled to employee retention credit (“ERC”) claims of $10,140 for previous business interruptions related to COVID and filed for such claims with the Internal Revenue Service (“IRS”). The ERC claims, which will be recognized in the statements of operations and comprehensive income (loss) when the Company receives the refunds of such claims from the IRS, were recorded as deferred income in Accrued expenses and other current liabilities, with an offsetting receivable amount in Prepaid expenses and other current assets within the consolidated balance sheets as of March 31, 2024 and December 31, 2023.
As of December 31, 2023, the Company determined that one of its grower processor facilities located in Nevada, with total carrying value of $1,647 , met the criteria to be classified as assets held for sale, and therefore were reclassified from Property, plant and equipment, net to assets held for sale, which is included in Prepaid expenses and other current assets in the consolidated balance sheets. The sale of the grower processor facility is expected to be completed by the end of 2024.
5. PROPERTY, PLANT AND EQUIPMENT | ||
The components of property, plant and equipment (“PPE”) are as follows:
| March 31, 2024 (unaudited) | December 31, 2023 | ||||||||||||||||||||||
| Buildings and building components | $ | $ | |||||||||||||||||||||
| Land | |||||||||||||||||||||||
| Leasehold improvements | |||||||||||||||||||||||
| Machinery and equipment | |||||||||||||||||||||||
| Furniture, fixtures and office equipment (including computer) | |||||||||||||||||||||||
| Construction-in-process | |||||||||||||||||||||||
| Property, plant and equipment, gross | |||||||||||||||||||||||
| Less: Accumulated depreciation | ( | ( | |||||||||||||||||||||
| Property, plant and equipment, net | $ | $ | |||||||||||||||||||||
Construction-in-process represents assets under construction for manufacturing and retail build-outs not yet ready for use.
Depreciation was $4,909 and $4,812 for the three months ended March 31, 2024 and 2023, respectively. Interest expense capitalized to PPE was not material for the three months ended March 31, 2024 and 2023.
As of December 31, 2023, the Company reclassified $1,647
8
JUSHI HOLDINGS INC. Notes to the Unaudited Condensed Consolidated Financial Statements (Amounts Expressed in Thousands of U.S. dollars, Except Share and Per Share Amounts) | | ||||
6. ACQUISITIONS | ||
Nature’s Remedy
In connection with the Company’s acquisition of Nature’s Remedy of Massachusetts, Inc. and certain of its affiliates (collectively, “Nature’s Remedy”), in September 2021 the Company agreed to issue up to an additional $5,000 in Company SVS to Sammartino Investments LLC (“Sammartino”) upon the occurrence or non-occurrence of certain events after the closing date. The payment of the contingent consideration depends on whether or not a competitor (as defined in the definitive acquisition documents) opens a competing dispensary within a certain radius of the Company’s dispensary in Tyngsborough, Massachusetts during the period beginning on the 12 -month anniversary of the closing date and ending on the 30 -month anniversary of the closing date (the “Milestone Period”). On each monthly anniversary of the closing date during the Milestone Period (beginning on the 13 -month anniversary of the closing date), Sammartino shall accrue $278 worth of Company SVS (a “Monthly Milestone Accrual”). On the 18 -month, 24 -month and 30 -month anniversary of the closing date (and provided a competitor has not opened a competing dispensary within a certain radius of the Company’s dispensary in Tyngsborough, Massachusetts), Sammartino is entitled to be issued Company SVS in an amount equal to $1,667 divided by a volume weighted average reference share price.
A competitor has not opened a competing dispensary within the stated radius of the Company’s dispensary in Tyngsborough, Massachusetts. Consequently, beginning in March 2023, the Company began recording a liability for the Monthly Milestone Accrual. As of March 31, 2024, $5,000 of Monthly Milestone Accrual was classified as acquisition-related milestone accrual in other current liabilities. As of December 31, 2023, the aggregate contingent consideration liability was $4,984 , of which $4,167 of Monthly Milestone Accrual was classified as acquisition-related milestone accrual in other current liabilities and the remaining $817 was included as short-term contingent consideration liability.
As discussed in greater detail in Note 18 - Commitments and Contingencies, on February 28, 2023, the Company informed Sammartino that Sammartino had breached several provisions of the Merger and Membership Interest Purchase Agreement between the Company, Sammartino and certain other parties thereto (as amended, the “MIPA”) and pursuant to the terms of the MIPA the Company had elected to offset these damages against (among other things) all present and future Monthly Milestone Accruals (the “Sammartino Matter”).
7. OTHER NON-CURRENT ASSETS | ||
The components of other non-current assets are as follows:
| March 31, 2024 (unaudited) | December 31, 2023 | |||||||||||||
Operating lease assets | $ | $ | ||||||||||||
| Indemnification assets | ||||||||||||||
| Net deferred tax assets | ||||||||||||||
| Deposits and escrows - properties | ||||||||||||||
| Deposits - equipment | ||||||||||||||
Equity investment (1) | ||||||||||||||
| Other | ||||||||||||||
| Total other non-current assets | $ | $ | ||||||||||||
9
JUSHI HOLDINGS INC. Notes to the Unaudited Condensed Consolidated Financial Statements (Amounts Expressed in Thousands of U.S. dollars, Except Share and Per Share Amounts) | | ||||
8. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES | ||
The components of are as follows:
| March 31, 2024 (unaudited) | December 31, 2023 | ||||||||||
Deferred income - ERC (1) | $ | $ | |||||||||
| Goods received not invoiced | |||||||||||
| Accrued employee related expenses and liabilities | |||||||||||
Acquisition-related milestone accrual (2) | |||||||||||
| Operating lease obligations | |||||||||||
| Accrued interest | |||||||||||
| Accrued sales and excise taxes | |||||||||||
| Deferred revenue (loyalty program) | |||||||||||
| Accrued professional and management fees | |||||||||||
| Accrued capital expenditures | |||||||||||
Contingent consideration liabilities (2) | |||||||||||
| Other accrued expenses and current liabilities | |||||||||||
Total accrued expenses and other current liabilities | $ | $ | |||||||||
(1)Refer to Note 4 - Prepaid Expenses and Other Current Assets for more information.
(2)Refer to Note 6 - Acquisitions for more information.
9. DEBT | ||
The components of the Company’s debt are as follows:
| Effective Interest Rate | Maturity Date | March 31, 2024 (unaudited) | December 31, 2023 | ||||||||||||||
| Principal amounts: | |||||||||||||||||
| Second Lien Notes | December 2026 | $ | $ | ||||||||||||||
| Acquisition Facility | December 2024 | ||||||||||||||||
| Acquisition-related promissory notes payable | August 2024 - April 2027 | ||||||||||||||||
| Mortgage loans | January 2027 - April 2028 | ||||||||||||||||
| Total debt subject to scheduled repayments | |||||||||||||||||
Promissory notes payable to Sammartino (1) | September 2024 - September 2026 | ||||||||||||||||
Jushi Europe debt (2) | n/a | March 2022 | |||||||||||||||
| Total debt | |||||||||||||||||
| Less: debt issuance costs and original issue discounts | ( | ( | |||||||||||||||
| Total debt, net | $ | $ | |||||||||||||||
| Debt, net - current portion | $ | $ | |||||||||||||||
| Debt, net - non-current portion | $ | $ | |||||||||||||||
10
JUSHI HOLDINGS INC. Notes to the Unaudited Condensed Consolidated Financial Statements (Amounts Expressed in Thousands of U.S. dollars, Except Share and Per Share Amounts) | | ||||
(1)This amount is related to the promissory notes issued to Sammartino in connection with the acquisition of Nature's Remedy in September 2021. Any repayment of principal and interest are currently on hold until the resolution of the Sammartino Matter. Refer to Note 18 - Commitments and Contingencies for more information.
Second Lien Notes
On January 24, 2024, the Company entered into two Note Exchange Agreements with holders of approximately $9,850 of the Company’s unsecured debt (the “Existing Notes”). Upon closing of the transactions contemplated in the Note Exchange Agreements (the “Debt Exchange”) on February 6, 2024, the holders of the Existing Notes delivered the Existing Notes to the Company for cancellation, and the Company: (1) issued to certain direct and beneficial holders of the Existing Notes an aggregate of $4,750 principal amount of Second Lien Notes; (2) issued to certain direct and beneficial holders of the Existing Notes fully-detached warrants to purchase an aggregate of 1,800,000 of the Company’s SVS, with each warrant having an exercise price of $1.00 per SVS and an expiration of December 7, 2026; and (3) paid to the direct holders of the Existing Notes an aggregate of $2,750 in cash. Refer to Note 12 - Equity for more information.
The Debt Exchange was accounted for as a debt extinguishment, and resulted in the Company recording a non-cash gain on debt extinguishment of $399 , which represents the difference between the reacquisition price of the Existing Notes and the net carrying amount of the Existing Notes prior to redemption. This amount was recorded in other income (expenses), net in the consolidated statements of operation and comprehensive income (loss).
Mortgage Loans
Arlington Mortgage
In December 2021, the Company entered into a $6,900 mortgage loan agreement (the “Arlington Mortgage”), which is principally secured by the Company’s retail property in Arlington, Virginia. The Arlington Mortgage bears a fixed interest rate of 5.875 % per annum, payable monthly, and will mature in January 2027.
Dickson City Mortgage
In July 2022, the Company entered into a $2,800 mortgage loan agreement (the “Dickson City Mortgage”), which is principally secured by the Company’s retail property in Dickson City, Pennsylvania. The Dickson City Mortgage matures in July 2027 and bears interest at a variable rate equal to prime rate plus 2 %. The interest rate as of March 31, 2024 was 10.5 %.
Manassas Mortgage
In April 2023, the Company entered into a $20,000 mortgage loan agreement (the “Manassas Mortgage”), which is principally secured by the Company’s cultivation and manufacturing facility located in Manassas, Virginia. The Manassas Mortgage bears interest of 8.875 % per annum as of March 31, 2024, payable monthly, and will mature in April 2028. The interest rate is variable and determined based on the 30-day average secured overnight financing rate plus 3.55 %, with a floor rate of not less than 8.25 %.
11
JUSHI HOLDINGS INC. Notes to the Unaudited Condensed Consolidated Financial Statements (Amounts Expressed in Thousands of U.S. dollars, Except Share and Per Share Amounts) | | ||||
Financial Covenants
Acquisition Facility
The senior secured credit facility from Roxbury, LP, a portfolio company of SunStream Bancorp Inc., which is a joint venture sponsored by Sundial Growers Inc. (the “Acquisition Facility”), contains certain financial and other covenants with which the Company is required to comply, including covenants related to (i) minimum unrestricted cash and cash equivalents balance and (ii) minimum quarterly revenue. As of March 31, 2024, the Company was in compliance with all financial covenants contained in the Acquisition Facility.
Mortgage loans
The Company’s three mortgage loan agreements contain certain financial and other covenants with which the Company is required to comply. As of March 31, 2024, the Company was in compliance with all financial covenants contained in each of the mortgage loan agreements.
Annual Maturities
As of March 31, 2024, aggregate future scheduled repayments of the Company’s debt are as follows:
| Remainder of the year | 2025 | 2026 | 2027 | 2028 | Total | ||||||||||||||||||
| Second Lien Notes | $ | $ | $ | $ | $ | $ | |||||||||||||||||
| Acquisition Facility | |||||||||||||||||||||||
| Acquisition-related promissory notes payable | |||||||||||||||||||||||
| Mortgage loans | |||||||||||||||||||||||
| Total debt subject to scheduled repayments | $ | $ | $ | $ | $ | $ | |||||||||||||||||
The above table excludes the contractual maturities of the Company’s (i) promissory notes payable to Sammartino and (ii) Jushi Europe debt, as the repayments of these two debts are contingent on the resolution of the Sammartino Matter and completion of the liquidation of Jushi Europe, respectively. Refer to Note 18 - Commitments and Contingencies and Note 17 - Related Party Transactions for more information. Specifically, the contractual maturities of (i) the promissory notes payable to Sammartino are as follows: $16,500 in 2024 and $5,000 in 2026 and (ii) Jushi Europe debt of $3,225 was March 2022.
Interest Expense
Interest expense, net is comprised of the following:
| Three Months Ended March 31, | |||||||||||
| 2024 | 2023 | ||||||||||
| Interest expense | |||||||||||
| Interest and accretion - Second Lien Notes | $ | $ | |||||||||
| Interest and accretion - Finance lease liabilities | |||||||||||
Interest and accretion - Promissory notes | |||||||||||
| Interest and accretion - Acquisition Facility | |||||||||||
| Interest and accretion - Mortgage loans and other financing activities | |||||||||||
| Capitalized interest | ( | ||||||||||
| Total interest expense | |||||||||||
| Interest income | ( | ( | |||||||||
| Total interest expense, net | $ | $ | |||||||||
12
JUSHI HOLDINGS INC. Notes to the Unaudited Condensed Consolidated Financial Statements (Amounts Expressed in Thousands of U.S. dollars, Except Share and Per Share Amounts) | | ||||
10. LEASES | ||
The Company leases certain business facilities for corporate, retail and cultivation operations from third parties under lease agreements that specify minimum rentals. In addition, the Company leases certain equipment for use in cultivation and extraction activities. The Company determines whether a contract is or contains a lease at the inception of the contract. The expiry dates of the leases, including reasonably certain estimated renewal periods, are between 2024 and 2043. The Company reassesses the likelihood of exercising a renewal option period if there is a significant event or change in circumstances within its control. The Company’s lease agreements do not contain any material residual value guarantees or material restrictive covenants.
The following table provides the components of lease cost recognized in the consolidated statements of operations and comprehensive income (loss) for the periods presented.
| Three Months Ended March 31, | |||||||||||
| 2024 | 2023 | ||||||||||
| Finance lease cost: | |||||||||||
| Amortization of lease assets | $ | $ | |||||||||
| Interest on lease liabilities | |||||||||||
| Total finance lease cost | |||||||||||
| Operating lease cost | |||||||||||
| Variable lease cost | |||||||||||
| Total lease cost | $ | $ | |||||||||
Other information related to operating and finance leases as of the balance sheet dates presented are as follows:
| March 31, 2024 | December 31, 2023 | ||||||||||||||||||||||
| (unaudited) | |||||||||||||||||||||||
| Finance Leases | Operating Leases | Finance Leases | Operating Leases | ||||||||||||||||||||
| Weighted average discount rate | % | % | % | % | |||||||||||||||||||
| Weighted average remaining lease term (in years) | |||||||||||||||||||||||
The maturities of the contractual undiscounted lease liabilities as of March 31, 2024 are as follows:
| Finance Leases | Operating Leases | ||||||||||
| Remainder of year | $ | $ | |||||||||
| 2025 | |||||||||||
| 2026 | |||||||||||
| 2027 | |||||||||||
| 2028 | |||||||||||
| Thereafter | |||||||||||
| Total lease payments | |||||||||||
| Less: Imputed interest | ( | ( | |||||||||
| Total present value of minimum lease payments | $ | $ | |||||||||
| Lease liabilities - current portion | $ | $ | |||||||||
| Lease liabilities - non-current | $ | $ | |||||||||
13
JUSHI HOLDINGS INC. Notes to the Unaudited Condensed Consolidated Financial Statements (Amounts Expressed in Thousands of U.S. dollars, Except Share and Per Share Amounts) | | ||||
11. DERIVATIVE LIABILITIES | ||
The following table summarizes the change in the Company’s derivative liabilities for the three months ended March 31, 2024.
Total Derivative Liabilities (1) | ||||||||
| Balance as of January 1, 2024 | $ | |||||||
| Fair value changes | ||||||||
| Balance as of March 31, 2024 | $ | |||||||
(1)Refer to Note 12 - Equity for the change in number of warrants during the three months ended March 31, 2024.
The Company’s derivative liabilities are primarily comprised of derivative warrants (“Derivative Warrants”). These are warrants to purchase SVS of the Company and were previously issued in connection with the Company’s 10 % senior secured notes. The Derivative Warrants may be net share settled. As of March 31, 2024 and December 31, 2023, there were 37,862,922 Derivative Warrants outstanding, which consisted of (i) 29,972,000 warrants with exercise price of $1.25 per warrant and expiration date in December 2024, (ii) 5,890,922 warrants with exercise price of $1.00 per warrant and expiration date of December 2024, and (iii) 2,000,000 warrants with an exercise price of $2.086 per warrant and expiration date in December 2026.
Derivative Warrants are considered derivative financial liabilities measured at fair value with all gains or losses recognized in profit or loss as the settlement amount for the Derivative Warrants may be adjusted during certain periods for variables that are not inputs to standard pricing models for forward or option equity contracts, i.e., the “fixed for fixed” criteria under ASC 815-40. The estimated fair value of the Derivative Warrants is measured at the end of each reporting period and an adjustment is reflected in fair value changes in derivatives in the consolidated statements of operations and comprehensive income (loss). These are Level 3 recurring fair value measurements. The estimated fair value of the Derivative Warrants was determined using the Black-Scholes model with stock price based on the OTCQX closing price of the Derivative Warrants issue date as of March 31, 2024 and December 31, 2023.
The assumptions used in the fair value calculations as of the balance sheet dates presented include the following:
| March 31, 2024 (unaudited) | December 31, 2023 | ||||||||||
| Stock price | $ | $ | |||||||||
| Risk-free annual interest rate | |||||||||||
| Range of estimated possible exercise price | $ | $ | |||||||||
| Weighted average volatility | |||||||||||
| Remaining life | |||||||||||
Forfeiture rate | |||||||||||
| Expected annual dividend yield | |||||||||||
Volatility was estimated by using a weighting of the Company’s historical volatility. The risk-free interest rate for the expected life of the Derivative Warrants was based on the yield available on government benchmark bonds with an approximate equivalent remaining term. The expected life is based on the contractual term. If any of the assumptions used in the calculation were to increase or decrease, this could result in a material or significant increase or decrease in the estimated fair value of the derivative liability. For example, the following table illustrates an increase or decrease in certain significant assumptions as of the balance sheet dates:
14
JUSHI HOLDINGS INC. Notes to the Unaudited Condensed Consolidated Financial Statements (Amounts Expressed in Thousands of U.S. dollars, Except Share and Per Share Amounts) | | ||||
| As of March 31, 2024 | As of December 31, 2023 | ||||||||||||||||||||||||||||||||||
| (unaudited) | |||||||||||||||||||||||||||||||||||
| Input | Effect of 10% Increase | Effect of 10% Decrease | Input | Effect of 10% Increase | Effect of 10% Decrease | ||||||||||||||||||||||||||||||
| Stock price | $ | $ | $ | ( | $ | $ | $ | ( | |||||||||||||||||||||||||||
| Volatility | % | ( | % | ( | |||||||||||||||||||||||||||||||
12. EQUITY | ||
Authorized, Issued and Outstanding
The authorized share capital of the Company consists of an unlimited number of SVS, Multiple Voting Shares, Super Voting Shares, and Preferred Shares. As of March 31, 2024, the Company had 196,634,931 no
Warrants
Each warrant entitles the holder to purchase one SVS. Certain warrants may be net share settled. The following table summarizes the status of warrants and related transactions:
Non-Derivative (Equity) Warrants (1) | Derivative Liabilities Warrants | Total Number of Warrants | Weighted - Average Exercise Price | ||||||||||||||||||||
Balance as of January 1, 2024 | $ | ||||||||||||||||||||||
| Granted | $ | ||||||||||||||||||||||
Balance as of March 31, 2024 | $ | ||||||||||||||||||||||
Exercisable as of March 31, 2024 | $ | ||||||||||||||||||||||
The grant date fair value of the non-derivative warrants issued was determined using the Black-Scholes option-pricing model. The following assumptions were used for the calculation at date of issuance:
| Weighted average stock price | $ | ||||
| Weighted average expected stock price volatility | |||||
| Expected annual dividend yield | |||||
Weighted average expected life of warrants | |||||
| Weighted average risk-free annual interest rate | |||||
| Weighted average grant date fair value | $ | ||||
Share-based Payment Award Plans
Plan summary and description
Under the Company’s 2019 Equity Incentive Plan, as amended, (the “2019 Plan”), non-transferable options to purchase SVS and restricted SVS of the Company may be issued to directors, officers, employees, or consultants of the Company. The 2019 Plan authorizes the issuance of up to 15 % (plus an additional 2 % inducements for hiring employees and senior management) of the number of outstanding shares of common stock (of all classes) of the Company (the “Share Reserve”). Incentive stock options are limited to the Share Reserve, and the maximum number of incentive awards
15
JUSHI HOLDINGS INC. Notes to the Unaudited Condensed Consolidated Financial Statements (Amounts Expressed in Thousands of U.S. dollars, Except Share and Per Share Amounts) | | ||||
available for issuance under the 2019 Plan, including additional awards available for certain new hires, was 4,829,392 as of March 31, 2024.
Stock Options
The stock options issued by the Company are options to purchase SVS of the Company. All stock options issued have been issued to directors and employees under the Company’s 2019 Plan. Such options generally expire ten years from the date of grant and generally vest ratably over three years from the grant date. The options generally may be net share settled. The following table summarizes the status of stock options and related transactions:
| Number of Stock Options | Weighted-Average Per Share Exercise Price | ||||||||||
| Issued and Outstanding as of January 1, 2024 | $ | ||||||||||
| Granted | $ | ||||||||||
Exercised | ( | $ | |||||||||
| Cancelled/forfeited/expired | ( | $ | |||||||||
| Issued and Outstanding as of March 31, 2024 | $ | ||||||||||
| Exercisable as of March 31, 2024 | $ | ||||||||||
The fair value of the stock options granted was determined using the Black-Scholes option-pricing model. The following assumptions were used for the calculation at date of grant:
| Three Months Ended March 31, | |||||||||||
| 2024 | 2023 | ||||||||||
| Weighted average stock price | $ | $ | |||||||||
| Weighted average expected stock price volatility | |||||||||||
| Expected annual dividend yield | |||||||||||
| Weighted average expected life | |||||||||||
| Weighted average risk-free annual interest rate | |||||||||||
| Weighted average grant date fair value | $ | $ | |||||||||
Restricted Stock
The Company grants restricted SVS to independent directors, management, former owners of acquired businesses or assets, and to consultants and other employees. The restricted SVS are included in the issued and outstanding SVS, and the fair value of the restricted stock granted was estimated based on the SVS price at grant date. The following table summarizes the status of restricted stock and related transactions:
| Number of Restricted Subordinate Voting Shares | |||||
| Unvested restricted stock as of January 1, 2024 | |||||
| Unvested restricted stock as of March 31, 2024 | |||||
Generally, restricted stock awards will vest either one-third on each anniversary of service from the vesting start date or will be fully vested on the completion of one year of full service from the vesting start date, depending on the award.
16
JUSHI HOLDINGS INC. Notes to the Unaudited Condensed Consolidated Financial Statements (Amounts Expressed in Thousands of U.S. dollars, Except Share and Per Share Amounts) | | ||||
Share-based Compensation Cost
The components of share-based compensation expense are as follows:
| Three Months Ended March 31, | |||||||||||
| 2024 | 2023 | ||||||||||
| Stock options | $ | $ | |||||||||
| Restricted stock | |||||||||||
| Warrants | |||||||||||
| Total share-based compensation expense | $ | $ | |||||||||
As of March 31, 2024, the Company had $4,311 of unrecognized share-based compensation cost related to unvested stock options, restricted stock and warrants, which is expected to be recognized as share-based compensation cost over a weighted average period of 1.5 years.
13. EARNINGS (LOSS) PER SHARE | ||
The reconciliations of the net loss and the weighted average number of shares used in the computations of basic and diluted loss per share are as follows:
| Three Months Ended March 31, | |||||||||||
| 2024 | 2023 | ||||||||||
| Numerator: | |||||||||||
Net loss and comprehensive loss | $ | ( | $ | ( | |||||||
Net loss and comprehensive loss - diluted | $ | ( | $ | ( | |||||||
| Denominator: | |||||||||||
| Weighted-average shares of common stock - basic | |||||||||||
| Weighted-average shares of common stock - diluted | |||||||||||
Loss per common share: | |||||||||||
| Basic | $ | ( | $ | ( | |||||||
| Diluted | $ | ( | $ | ( | |||||||
The following table summarizes weighted average instruments that may, in the future, have a dilutive effect on earnings (loss) per share, but were excluded from consideration in the computation of diluted net loss per share for the three months ended March 31, 2024 and 2023, because the impact of including them would have been anti-dilutive:
| Three Months Ended March 31, | |||||||||||
| 2024 | 2023 | ||||||||||
| Stock options | |||||||||||
| Warrants (derivative liabilities and equity) | |||||||||||
| Unvested restricted stock awards | |||||||||||
17
JUSHI HOLDINGS INC. Notes to the Unaudited Condensed Consolidated Financial Statements (Amounts Expressed in Thousands of U.S. dollars, Except Share and Per Share Amounts) | | ||||
14. REVENUE | ||
The Company has two revenue streams: (i) retail and (ii) wholesale. The Company’s retail revenues are comprised of cannabis sales from its dispensaries. The Company’s wholesale revenues are comprised of cannabis sales to its wholesale customers for resale through their dispensaries. Any intercompany revenue and costs are eliminated to arrive at consolidated totals.
The following table summarizes the Company’s revenue from external customers, disaggregated by revenue stream:
| Three Months Ended March 31, | |||||||||||
| 2024 | 2023 | ||||||||||
| Retail | $ | $ | |||||||||
| Wholesale | |||||||||||
| Total revenue, net | $ | $ | |||||||||
15. OPERATING EXPENSES | ||
The major components of operating expenses are as follows:
| Three Months Ended March 31, | |||||||||||
| 2024 | 2023 | ||||||||||
| Salaries, wages and employee related expenses | $ | $ | |||||||||
| Depreciation and amortization expense | |||||||||||
| Rent and related expenses | |||||||||||
| Professional fees and legal expenses | |||||||||||
| Share-based compensation expense | |||||||||||
Other expenses (1) | |||||||||||
| Total operating expenses | $ | $ | |||||||||
(1) Other expenses are primarily comprised of marketing and selling expenses, insurance costs, administrative and licensing fees, software and technology costs, travel, entertainment and conferences and other.
16. INCOME TAXES | ||
The following table summarizes the Company’s income tax expense and effective tax rates for the three months ended March 31, 2024 and 2023:
| Three Months Ended March 31, | |||||||||||
| 2024 | 2023 | ||||||||||
Loss before income tax | $ | ( | $ | ( | |||||||
Income tax expense | $ | $ | |||||||||
| Effective income tax rate | % | % | |||||||||
18
JUSHI HOLDINGS INC. Notes to the Unaudited Condensed Consolidated Financial Statements (Amounts Expressed in Thousands of U.S. dollars, Except Share and Per Share Amounts) | | ||||
The Company has computed its provision for income taxes based on the actual effective rate for the three months ended March 31, 2024 and 2023 as the Company believes this is the best estimate for the annual effective tax rate. Therefore, the Company’s effective income tax rates for the three months ended March 31, 2024 and 2023 are not indicative of the effective income tax rate for each respective fiscal year of 2024 and 2023. The Company’s effective income tax rate is significantly higher than the statutory income tax rates due in part to (i) disallowed expenses under U.S. Internal Revenue Code of 1986, as amended (“IRC”), Section 280E, (ii) change in liability for unrecognized tax benefits, (iii) fair value change of derivatives, (iv) interest and penalties accrual for tax liabilities, and (v) state income taxes.
Due to its cannabis operations, the Company is subject to the limitation of IRC Section 280E (“280E”) under which the Company is only allowed to deduct "costs of goods sold". This results in permanent differences between ordinary and necessary business expenses deemed non-allowable under 280E. Therefore, the effective tax rate can be highly variable and may not necessarily correlate with pre-tax income which provides for effective tax rates that are well in excess of statutory tax rates. In connection with the preparation and filing of the fiscal 2022 federal income tax return, the Company changed its previous application of 280E to exclude certain parts of its business. However, since the Company’s new tax position on 280E may be challenged by the IRS, the Company elected to treat the deductibility of these related expenses as an uncertain tax position. As of March 31, 2024 and December 31, 2023, the balances in income tax payable and unrecognized tax benefits on the consolidated balance sheets include the impact of the new tax position on 280E, which decreased current liabilities with a corresponding increase in non-current liabilities. There was no material impact to the consolidated statements of operations and comprehensive income (loss).
The Company’s tax returns for the year 2021 and prior benefited from not applying 280E to certain entities of the consolidated group either due to the entity not yet starting operations or because the entity had a separate trade or business that was not medical or recreational cannabis operations. The Company determined that it is not more likely than not these tax positions would be sustained under examination.
As a result of the above, the Company has a liability for unrecognized tax benefits of $109,204 and $100,343 as of March 31, 2024 and December 31, 2023, respectively, inclusive of interest and penalties. Additionally, there are unrecognized deferred tax benefits of $17,353 and $17,303 as of March 31, 2024 and December 31, 2023, respectively. The Company anticipates that it is reasonably possible that its new tax position on 280E may require changes to the balance of unrecognized tax benefits within the next 12 months. However, an estimate of such changes cannot reasonably be made.
17. RELATED PARTY TRANSACTIONS | ||
The Company had the following related party transactions:
| Three Months Ended March 31, | As of | ||||||||||||||||||||||
| 2024 | 2023 | March 31, 2024 (unaudited) | December 31, 2023 | ||||||||||||||||||||
| Nature of transaction | Related Party Expense | Related Party Payable | |||||||||||||||||||||
| $ | ( | $ | ( | $ | ( | $ | ( | ||||||||||||||||
Other debt (2) | $ | $ | $ | ( | $ | ( | |||||||||||||||||
(1)For the periods ended March 31, 2024 and December 31, 2023, the Second Lien Notes payable and the related interest expense includes amounts related to the Company’s Chief Executive Officer, as well as a significant investor.
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JUSHI HOLDINGS INC. Notes to the Unaudited Condensed Consolidated Financial Statements (Amounts Expressed in Thousands of U.S. dollars, Except Share and Per Share Amounts) | | ||||
18. COMMITMENTS AND CONTINGENCIES | ||
Contingencies
Although the possession, cultivation and distribution of cannabis for medical and recreational use is permitted in certain states, cannabis is classified as a Schedule-I controlled substance under the U.S. Controlled Substances Act and its use remains a violation of federal law. 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 believes that the Company is in material compliance with applicable local and state regulations as of March 31, 2024, marijuana regulations continue to evolve and are subject to differing interpretations. As a result, the Company could be subject to regulatory fines, penalties or restrictions at any time. Since federal law criminalizing the use of cannabis preempts state laws that legalize its use, strict enforcement of federal law regarding cannabis would likely result in the Company’s inability to proceed with the Company’s business plans. In addition, the Company’s assets, including real property, cash and cash equivalents, equipment, inventory and other goods, could be subject to asset forfeiture because cannabis is still federally illegal.
Refer to Note 16 - Income Taxes for certain tax-related contingencies.
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 March 31, 2024, except as set forth below, there were no pending or threatened lawsuits that could reasonably be expected to have a material effect on the Company’s financial results. 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.
MJ Market matter
On March 31, 2023, MJ’s Market, Inc. (“MJ’s”) filed a complaint in federal district court in Massachusetts adverse to Jushi Holdings Inc. and certain of its subsidiaries, including Jushi MA, Inc., Jushi Inc. and Nature’s Remedy of Massachusetts, as well as the former owners and affiliates of Nature’s Remedy of Massachusetts (the “Complaint”). The Complaint centrally claims that the structure of the Nature’s Remedy of Massachusetts transaction providing for increased purchase price consideration if there is no competing dispensary within 2,500 foot radius by certain time periods, and the Company’s filing with the Massachusetts Superior Court an appeal of the Town of Tyngsborough’s decision to approve MJ’s facility in contradiction of its own zoning bylaws are violations of the Sherman Antitrust Act, Massachusetts Antitrust Act, and Massachusetts Consumer Protection Act, as well as interference with contractual relations and abuse of process. MJ is seeking legal and equitable remedies including compensatory and other damages. The Company disputes such allegations, believes it has substantial defenses and is vigorously defending against the Complaint.
Sammartino Matter
On February 28, 2023, the Company informed Sammartino, the former owner of Nature’s Remedy and certain of its affiliates, that Sammartino had breached several provisions of the MIPA and/or fraudulently induced the Company to enter into, and not terminate, the MIPA. As a consequence of these breaches and the fraudulent inducement, the Company informed Sammartino that the Company had incurred significant damages, and pursuant to the terms of the MIPA the Company had elected to offset these damages against certain promissory notes and shares the Company was to pay and issue, respectively, to Sammartino, and that Sammartino would be required to pay the remainder in cash. On March 13, 2023, Sammartino responded to the Company by alleging various procedural deficiencies with the Company’s claim and provided the Company with a notice that the Company was in default of the MIPA for failing to issue certain shares of the Company to Sammartino. On March 21, 2023, Sammartino sent a second notice that the Company was in default of the promissory notes for failing to pay interest pursuant to their specified schedule. On March 23, 2023, the Company sent a
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JUSHI HOLDINGS INC. Notes to the Unaudited Condensed Consolidated Financial Statements (Amounts Expressed in Thousands of U.S. dollars, Except Share and Per Share Amounts) | | ||||
second letter to Sammartino disputing each procedural deficiency claimed by Sammartino and disputing that the Company is in default of the MIPA or the promissory notes and that it properly followed the terms of the various agreements in electing to set off the damages.
Pacific Collective matter
On October 24, 2022, Pacific Collective, LLC (“Pacific Collective”) filed a complaint in state court in California against Jushi subsidiaries TGS CC Ventures, LLC (“TGS”), and Jushi Inc. Pacific Collective alleges that the Jushi subsidiaries breached a commercial property lease and lease guaranty and that Pacific Collective is entitled to recover in excess of $20,000 in damages. TGS believes it lawfully rescinded the lease based on Pacific Collective’s failure to purchase the property that was the subject of the lease and to construct and deliver the building contemplated by the lease and is of the position that no damages are owed to Pacific Collective. The Referee assigned to the matter delivered a Statement of Decision on March 7, 2024 ruling in favor of TGS and Jushi.
Commitments
In addition to the contractual obligations outlined in Note 9 - Debt and Note 10 - Leases, the Company has the following commitments as of March 31, 2024 related to property and construction.
Property and Construction Commitments
In connection with various license applications, the Company may enter into conditional leases or other property commitments which will be executed if the Company is successful in obtaining the applicable license and/or resolving other contingencies related to the license or application.
In addition, the Company expects to incur capital expenditures for leasehold improvements and construction of buildouts of certain locations, including for properties for which the lease is conditional on obtaining the applicable related license or for which other contingencies exist. If the Company were to be unsuccessful in obtaining a particular license or certain other conditions are not met, the previously capitalized improvements and buildouts relating to that license may need to be expensed in future periods in the statements of operations and comprehensive income (loss).
19. FINANCIAL INSTRUMENTS | ||
The following table sets forth the Company’s financial assets and liabilities, subject to fair value measurements on a recurring basis, by level within the fair value hierarchy:
| March 31, 2024 (unaudited) | December 31, 2023 | ||||||||||||||||
Financial assets: (1) | |||||||||||||||||
| Equity investment | $ | $ | |||||||||||||||
| Total financial assets | $ | $ | |||||||||||||||
Financial liabilities: (1) | |||||||||||||||||
Derivative liabilities (2) | $ | $ | |||||||||||||||
Contingent consideration liabilities (3) | |||||||||||||||||
| Total financial liabilities | $ | $ | |||||||||||||||
(1)The Company has no financial assets or liabilities in Level 1 or 2 within the fair value hierarchy as of March 31, 2024 and December 31, 2023, and there were no transfers between hierarchy levels during the three months ended March 31, 2024 or year ended December 31, 2023.
(2)Refer to Note 11 - Derivative Liabilities.
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JUSHI HOLDINGS INC. Notes to the Unaudited Condensed Consolidated Financial Statements (Amounts Expressed in Thousands of U.S. dollars, Except Share and Per Share Amounts) | | ||||
(3)Refer to Note 6 - Acquisitions.
The carrying amounts of certain financial instruments, including cash and cash equivalents, accounts receivable, accounts payable and certain accrued expenses, and certain other assets and liabilities held at amortized cost, approximate their fair values due to the short-term nature of these instruments. The equity investment approximates its fair value at March 31, 2024 and December 31, 2023. The carrying amounts of the promissory notes approximate their fair values as the effective interest rates are consistent with market rates. The carrying amount of the Second Lien Notes approximates their fair values as of March 31, 2024 and December 31, 2023, respectively.
20. SEGMENT INFORMATION | ||
The Company operates a vertically integrated cannabis business in one reportable segment for the cultivation, manufacturing, distribution and sale of cannabis in the U.S. All of the Company’s revenues were generated within the U.S., and substantially all long-lived assets are located within the U.S. The accounting policies for the Company’s reportable segment are the same as those described in the summary of significant accounting policies. The chief operating decision maker is the Chief Executive Officer. The chief operating decision maker assesses performance and decides how to allocate resources based on operating results that are reported on the income statement as consolidated net income/(loss). The measure of segment assets is reported on the balance sheet as total consolidated assets. Refer to Note 15 - Operating Expenses for significant expenses for the reportable segment.
21. SUBSEQUENT EVENTS | ||
In connection with the Manassas Mortgage, the Company satisfied certain criteria required for the release of an aggregate of $3,128 of restricted cash in April 2024. Consequently, on April 22, 2024, the lender released $3,128 of restricted cash to the Company.
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
This Management’s Discussion and Analysis (“MD&A”) covers the consolidated financial statements of Jushi Holdings Inc. and its controlled subsidiaries as of and for the three months ended March 31, 2024 (the “Financial Statements”). Unless the context indicates or requires otherwise, the terms “Jushi”, “the Company”, “we”, “us” and “our” refers to Jushi Holdings Inc. and its controlled entities. This MD&A should be read in conjunction with the unaudited condensed consolidated financial statements and notes thereto for the three months ended March 31, 2024 (the “Quarterly Financial Statements”). The Quarterly Financial Statements have been prepared by management and are in accordance with generally accepted accounting principles in the United States (“GAAP”) and should be read in conjunction with the audited consolidated financial statements and notes thereto for the year ended December 31, 2023, which are included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023, filed with the U.S. Securities and Exchange Commission (“SEC”) on April 1, 2024 (the “2023 Form 10-K”) and was also filed on the System for Electronic Document Analysis and Retrieval (“SEDAR”). All amounts are expressed in U.S. dollars unless otherwise noted.
Company Overview
We are a vertically integrated, multi-state cannabis operator engaged in retail, distribution, cultivation, and processing operations in both medical and adult-use markets. We are focused on building a diverse portfolio of cannabis assets through opportunistic investments and pursuing application opportunities in attractive limited license jurisdictions and capitalizing on such assets through strategic deployment in our day-to-day operations. We have targeted assets in highly populated, limited license medical markets on a trajectory toward adult-use legalization, including Pennsylvania, markets that are in the process of transitioning to adult-use, namely Ohio and Virginia, and limited license, fast-growing, large adult-use markets, such as Illinois, Nevada and Massachusetts, and certain municipalities of California.
Factors Affecting our Performance and Related Trends
Competition and Pricing Pressure
The cannabis industry is subject to significant competition and pricing pressures, which is often market specific and can be caused by an oversupply of cannabis in the market, and may be transitory from period to period. We may experience significant competitive pricing pressures as well as competitive products and service providers in the markets in which we operate. Several significant competitors may offer products and/or services with prices that may match or are lower than ours. We believe that the products and services we offer are generally competitive with those offered by other cannabis companies. It is possible that one or more of our competitors could develop a significant research advantage over us that allows them to provide superior products or pricing, which could put us at a competitive disadvantage. Continued pricing pressure due to competition, increased cannabis supply or shifts in customer preferences could adversely impact our customer base or pricing structure, resulting in a material impact on our results of operations, or asset impairments in future periods.
Recent Developments
(Amounts expressed in thousands of U.S. dollars, except share amounts)
On April 16, 2024, we filed a registration statement on Form S-3 that was declared effective by the SEC on April 30, 2024 (the “S-3”). The S-3 permits us to offer and sell up to an aggregate amount of $250,000 of any combination of subordinate voting shares, preferred shares, warrants, units, and/or rights. We may also offer securities as may be issuable upon conversion, redemption, repurchase, exchange or exercise of any securities registered under the S-3, including any applicable antidilution provisions. In addition, the S-3 registered an aggregate of 44,660,966 subordinate voting shares for resale by James Cacioppo, our CEO.
On April 15, 2024, we announced the appointment of Todd West as the Company’s Chief Operating Officer effective April 12, 2024. Mr. West will oversee the Company’s grower-processor and retail operations as well as security.
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Results of Operations
(Amounts expressed in thousands of U.S. dollars, except share and per share amounts)
| Three Months Ended March 31, | |||||||||||||||||||||||
| 2024 | 2023 | $ Change | % Change | ||||||||||||||||||||
| REVENUE, NET | $ | 65,459 | $ | 69,873 | $ | (4,414) | (6) | % | |||||||||||||||
| COST OF GOODS SOLD | (33,129) | (39,932) | 6,803 | (17) | % | ||||||||||||||||||
| GROSS PROFIT | 32,330 | 29,941 | 2,389 | 8 | % | ||||||||||||||||||
| OPERATING EXPENSES | 28,211 | 32,452 | (4,241) | (13) | % | ||||||||||||||||||
| INCOME (LOSS) FROM OPERATIONS | 4,119 | (2,511) | 6,630 | 264 | % | ||||||||||||||||||
| OTHER INCOME (EXPENSE): | |||||||||||||||||||||||
| Interest expense, net | (9,544) | (8,520) | (1,024) | 12 | % | ||||||||||||||||||
Fair value (loss) gain on derivatives | (5,100) | 8,030 | (13,130) | (164) | % | ||||||||||||||||||
| Other, net | 1,917 | 709 | 1,208 | 170 | % | ||||||||||||||||||
| Total other income (expense), net | (12,727) | 219 | (12,946) | (5911) | % | ||||||||||||||||||
| LOSS BEFORE INCOME TAX | (8,608) | (2,292) | (6,316) | 276 | % | ||||||||||||||||||
Income tax expense | (9,747) | (10,148) | 401 | (4) | % | ||||||||||||||||||
| NET LOSS AND COMPREHENSIVE LOSS | (18,355) | (12,440) | (5,915) | 48 | % | ||||||||||||||||||
LOSS PER SHARE - BASIC | $ | (0.09) | $ | (0.06) | $ | (0.03) | 50 | % | |||||||||||||||
| Weighted average shares outstanding - basic | 195,131,642 | 194,050,835 | 1,080,807 | 1 | % | ||||||||||||||||||
LOSS PER SHARE - DILUTED | $ | (0.09) | $ | (0.06) | $ | (0.03) | 50 | % | |||||||||||||||
| Weighted average shares outstanding - diluted | 195,131,642 | 194,050,835 | 1,080,807 | 1 | % | ||||||||||||||||||
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Three Months Ended March 31, 2024 Compared with the Three Months Ended March 31, 2023
(Amounts expressed in thousands of U.S. dollars, unless otherwise stated)
Revenue, Net
The following table presents revenue by type for the periods indicated:
| Three Months Ended March 31, | |||||||||||||||||||||||
| 2024 | 2023 | $ Change | % Change | ||||||||||||||||||||
| Retail | $ | 57,369 | $ | 62,311 | $ | (4,942) | (8) | % | |||||||||||||||
| Wholesale | 8,090 | 7,562 | 528 | 7 | % | ||||||||||||||||||
| Total revenue, net | $ | 65,459 | $ | 69,873 | $ | (4,414) | (6) | % | |||||||||||||||
Revenue, net, was $65,459 compared to $69,873, a decrease of $4,414 or 6%. Retail revenue decreased $4,942 primarily due to declines in revenue in: (i) Illinois, due to the impact of the state of Missouri moving to recreational use, and (ii) Nevada and Pennsylvania, due to market price compression and increased competition. The decrease was partially offset by increased sales in Virginia due in part to the opening of one new store in August 2023. The Company ended the quarter with thirty-five operating dispensaries in seven states, as compared to thirty-seven in seven states at the end of March 31, 2023.
Wholesale revenue increased $528 primarily due to continued advancements at our cultivation and processing facilities that has enabled us to diversify our product offerings, as well as increasing our competitiveness on quality, cost and distribution.
Gross Profit
Gross profit was $32,330 compared to $29,941, an increase of $2,389 or 8%. Gross profit margin increased to 49% compared to 43%. The improvement in gross profit and gross profit margin was driven by operating efficiencies at our grower processor facilities and cost optimization initiatives, such as changes to our packaging. The benefit of these improvements was partially offset by declines in retail revenue in Illinois and Pennsylvania driven by competition both inside of such states and, with respect to Illinois, in neighboring Missouri.
Operating Expenses
Operating expenses were $28,211 compared to $32,452, a decrease of $4,241 or 13%. The following table presents information of our operating expenses for the periods indicated:
| Three Months Ended March 31, | |||||||||||||||||||||||
| 2024 | 2023 | $ Change | % Change | ||||||||||||||||||||
| Salaries, wages and employee related expenses | $ | 14,147 | $ | 16,804 | $ | (2,657) | (16) | % | |||||||||||||||
| Depreciation and amortization expense | 3,278 | 2,663 | 615 | 23 | % | ||||||||||||||||||
| Rent and related expenses | 2,914 | 2,893 | 21 | 1 | % | ||||||||||||||||||
| Professional fees and legal expenses | 2,575 | 2,325 | 250 | 11 | % | ||||||||||||||||||
| Share-based compensation expense | 1,524 | 2,311 | (787) | (34) | % | ||||||||||||||||||
Other expenses (1) | 3,773 | 5,456 | (1,683) | (31) | % | ||||||||||||||||||
Total operating expenses | $ | 28,211 | $ | 32,452 | $ | (4,241) | (13) | % | |||||||||||||||
(1) Other expenses are primarily comprised of marketing and selling expenses, insurance costs, administrative and application fees, software and technology costs, travel, entertainment and conferences and other.
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Salaries, wages, and employee-related expenses decreased due to the benefits from both the staffing model changes in our retail stores and right-sizing the organization that occurred in 2023. Lower share-based compensation expense reflects lower value of share-based compensation granted.
Other Income (Expense)
Interest Expense, Net
Interest expense, net was $9,544 compared to $8,520, an increase of $1,024, or 12%. The increase in interest expense, net is due to our higher overall debt balance, primarily due to the addition of the Manassas Mortgage in April 2023, the final draw on the Arlington Mortgage in January 2023, as well as the increase in the Second Lien Notes compared to March 31, 2023 due to issuance of Second Lien Notes during 2023 to settle accrued bonus, as well as issuance of Second Lien Notes in the Debt Exchange which occurred in February 2024. Interest related to the Acquisition Facility and promissory notes has declined as we continue to make principal payments.
Fair Value gain (loss) on Derivatives
Fair value loss on derivatives was $5,100, compared to a gain of $8,030. Fair value gain (loss) on derivatives include the fair value changes relating to the derivative warrants. The derivative warrants are required to be remeasured at fair value at each reporting period. The fair value changes in derivatives were primarily attributable to the movement in our stock price during the corresponding period.
Other, Net
Other, net was an income of $1,917, compared to $709, a change of $1,208. The increase in income was due primarily to $575 higher foreign exchange translation adjustment mainly relating to certain Second Lien Notes denominated in Canadian dollars, $399 gain on debt extinguishment and $400 reversal of legal claim accruals no longer required, partially offset by $440 lower indemnification asset relating to acquisitions made in prior years.
Income Tax Expense
Total income tax expense was $9,747 compared to $10,148 in the prior year, a decrease of $401 or 4%. The decrease in income tax expense is primarily due to a reduction in taxable gross profit.
Non-GAAP Measures and Reconciliation
In addition to providing financial measurements based on GAAP, we provide additional financial metrics that are not prepared in accordance with GAAP. We use non-GAAP financial measures, in addition to GAAP financial measures, to understand and compare operating results across accounting periods, for financial and operational decision making, for planning and forecasting purposes and to evaluate our financial performance. These non-GAAP financial measures are EBITDA and Adjusted EBITDA (each as defined below). We believe that these non-GAAP financial measures reflect our ongoing business by excluding the effects of expenses that are not reflective of our operating business performance and allow for meaningful comparisons and analysis of trends in our business. These non-GAAP financial measures also facilitate comparing financial results across accounting periods and to those of peer companies. As there are no standardized methods of calculating these non-GAAP measures, our methods may differ from those used by others, and accordingly, the use of these measures may not be directly comparable to similar measures used by others, thus limiting their usefulness. Accordingly, these non-GAAP measures are intended to provide additional information and should not be considered in isolation or as a substitute for measures of performance prepared in accordance with GAAP.
EBITDA and Adjusted EBITDA
EBITDA and Adjusted EBITDA are financial measures that are not defined under GAAP. We define EBITDA as net income (loss), or “earnings”, before interest, income taxes, depreciation and amortization. We define Adjusted EBITDA as EBITDA before: (i) non-cash share-based compensation expense; (ii) inventory-related adjustments; (iii) fair value
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changes in derivatives; (iv) other (income)/expense items; (v) transaction costs; (vi) asset impairment; (vii) gain/loss on debt extinguishment; and (viii) start-up costs. These financial measures are metrics that have been adjusted from the GAAP net income (loss) measure in an effort to provide readers with a normalized metric in making comparisons more meaningful across the cannabis industry, as well as to remove non-recurring, irregular and one-time items that may otherwise distort the GAAP net income measure. Other companies in our industry may calculate this measure differently, limiting their usefulness as comparative measures.
Reconciliation of EBITDA and Adjusted EBITDA (Non- GAAP Measures)
(Amounts expressed in thousands of U.S. dollars)
Adjusted EBITDA was $13,349 compared to $7,603, an increase of 5,746 or 76%. The increase in EBITDA was primarily due to operating efficiencies at our grower processor facilities, lower payroll cost due to a decrease in the number of employees as a result of right sizing the organization, as well as changes to our staffing model at retail stores.
The table below reconciles net loss to EBITDA and Adjusted EBITDA for the periods indicated.
| Three Months Ended March 31, | |||||||||||
| 2024 | 2023 | ||||||||||
NET LOSS | $ | (18,355) | $ | (12,440) | |||||||
Income tax expense | 9,747 | 10,148 | |||||||||
| Interest expense, net | 9,544 | 8,520 | |||||||||
Depreciation and amortization (1) | 6,836 | 7,335 | |||||||||
| EBITDA (Non-GAAP) | 7,772 | 13,563 | |||||||||
Non-cash share-based compensation | 1,524 | 2,311 | |||||||||
Inventory charge adjustments (2) | — | 251 | |||||||||
| Fair value changes in derivatives | 5,100 | (8,030) | |||||||||
Other (income) expense, net (3) | (648) | (511) | |||||||||
Gain on debt extinguishment | (399) | — | |||||||||
Transaction costs | — | 19 | |||||||||
| Adjusted EBITDA (Non-GAAP) | $ | 13,349 | $ | 7,603 | |||||||
(1) | Includes amounts that are included in cost of goods sold and in operating expenses. | ||||
(2) | Includes: (i) inventory step-up on business combinations; (ii) inventory recall reserves; and (iii) reserves for discontinued products. The inventory step-up on business combinations relates to the fair value write-up on inventory acquired on the business acquisition date and then sold subsequent to the acquisition date. | ||||
(3) | Includes: (i) remeasurement of contingent consideration related to acquisitions; (ii) losses (gains) on legal settlements; and (iii) severance costs. | ||||
Liquidity and Capital Resources
(Amounts expressed in thousands of U.S. dollars, unless otherwise stated)
Sources and Uses of Cash
We had cash, cash equivalents and restricted cash of $30,564 as of March 31, 2024.
The major components of our statements of cash flows for the three months ended March 31, 2024 and 2023, are as follows:
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Three Months Ended March 31, | |||||||||||||||||||||||
| 2024 | 2023 | $ Change | % Change | ||||||||||||||||||||
Net cash flows provided by (used in) operating activities | $ | 6,493 | $ | (3,572) | $ | 10,065 | 282 | % | |||||||||||||||
| Net cash flows used in investing activities | (743) | (4,542) | 3,799 | 84 | % | ||||||||||||||||||
Net cash flows (used in) provided by financing activities | (6,491) | 331 | (6,822) | (2061) | % | ||||||||||||||||||
| Effect of currency translation on cash | — | 61 | (61) | 100 | % | ||||||||||||||||||
| Net change in cash, cash equivalents and restricted cash | $ | (741) | $ | (7,722) | $ | 6,981 | 90 | % | |||||||||||||||
Operating activities. Cash provided by operations was $6,493, as compared to cash used in operations of $3,572. The change to cash provided by operating activities in the current year compared to cash used in operating activities in the prior year was primarily due to income from operations in the current year as compared to an operating loss in the prior year, higher non-cash adjustments, which was partially offset by a decrease in cash provided by operating assets and liabilities in the current year.
Investing activities. Net cash used in investing activities was $743 compared to $4,542. The current year includes $1,077 for the payments of property, plant and equipment for use in our operations partially offset by $334 in proceeds from sale of property, plant and equipment. The prior year includes $4,542 for the payments of property, plant and equipment for use in our operations.
Financing activities. Net cash used in financing activities was $6,491 compared to net cash provided by financing activities of $331. The current year includes (i) $2,750 in payments on promissory notes in the Note Exchange, (ii) $2,438 payments related to the Acquisition Facility debt, (iii) $728 in net finance lease obligation payments, (iv) $586 in payments of other financing activities, and (v) $37 in payments of mortgage-related debt, partially offset by (i) $46 of proceeds from other financing activities and (ii) $2 of proceeds from exercise of options. The prior year includes (i) $1,900 in proceeds from mortgage loans, partially offset by (i) $844 in net finance lease obligation payments, (ii) $668 in payments of other financing activities and (iii) $57 in payments of mortgage-related debt.
Liquidity
As reflected in our 2023 Form 10-K, we used net cash of $3,318 for operating activities for the year ended December 31, 2023, and as of that date, our current liabilities exceeded our current assets by $80,825. Furthermore, as of March 31, 2024, our current liabilities exceeded our current assets by $81,294. Such current liabilities as of March 31, 2024 include aggregate contractual maturities of (i) $57,687 of the Acquisition Facility debt that is to be paid in cash within the next twelve months, absent a refinancing, (ii) $23,747 of debt (including $2,247 of interest and $5,000 of milestone accruals) that are subject to indemnity claims in favor of the Company and not currently expected to be paid in cash within the next twelve months and (iii) $3,225 debt related to Jushi Europe, where the payments are subject to completion of the liquidation of Jushi Europe. Refer to Note 9 - Debt and Note 18 - Commitments and Contingencies of our Quarterly Financial Statements contained in Part I. Item 1 of this report for more information. Absent a refinancing of the Acquisition Facility debt, we will not meet our obligations within the next year. We believe that with a refinancing of the Acquisition Facility debt, we will be able to meet our obligations.
As concluded in the 2023 Form 10-K, substantial doubt existed about our ability to continue as a going concern, and, as a result of the above, substantial doubt continues to exist within the next twelve months from the date these financial statements are issued. We have a history of refinancing our debt and management intends to refinance the Acquisition Facility debt before the maturity date. The ability to continue as a going concern is dependent upon future financing. There is no assurance that we will be successful in this or any of our endeavors and continue as a going concern.
The Quarterly Financial Statements contained herein have been prepared on a going concern basis which assumes we will be able to realize our assets and discharge our liabilities in the normal course of business for the foreseeable future, and do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or amounts and classification of liabilities that may result from the outcome of this uncertainty.
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Off-Balance Sheet Arrangements and Contractual Obligations
As of March 31, 2024, we do not have any off‐balance sheet arrangements. For our contractual obligations, refer to Note 9 - Debt, Note 10 - Leases and Note 18 - Commitments and Contingencies of our Quarterly Financial Statements contained in Part I. Item 1 of this report.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
There have been no material changes to the risks disclosed in Item 7A of our 2023 Form 10-K.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Our management carried out an evaluation under the supervision and with the participation of our 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 such evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, as of March 31, 2024, our disclosure controls and procedures were effective.
Changes in Internal Control over Financial Reporting
There has been no change in our internal control over financial reporting that occurred during the period covered by this Quarterly Report on Form 10-Q that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
29
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
For a description of our legal proceedings, refer to Claims and Litigation in Note 18 - Commitments and Contingencies in the Notes to the Unaudited Condensed Consolidated Financial Statements of this Quarterly Report on Form 10-Q.
Item 1A. Risk Factors
The Company is subject to numerous risks and uncertainties, any of which could have a significant or material adverse effect on our business, financial condition, liquidity or consolidated financial statements. You should carefully consider the risk factors disclosed under the heading “Risk Factors”, which are included in the 2023 Form 10-K, which was also filed on SEDAR. The risks described therein and herein are not the only ones we face. Other than set forth herein, there have been no material changes from the risk factors previously disclosed.
Item 2. Unregistered Sale of Equity Securities and Use of Proceeds
(Amounts expressed in thousands of U.S. dollars, except share and per share amount)
On January 24, 2024, the Company entered into two Note Exchange Agreements with holders of approximately $9,850 of the Company’s unsecured debt (the “Existing Notes”). Upon closing of the transactions contemplated in the Note Exchange Agreements (the “Debt Exchange”) on February 6, 2024, the holders of the Existing Notes delivered the Existing Notes to the Company for cancellation, and the Company: (1) issued to certain direct and beneficial holders of the Existing Notes an aggregate of $4,750 principal amount of Second Lien Notes; (2) issued to certain direct and beneficial holders of the Existing Notes fully-detached warrants to purchase an aggregate of 1,800,000 of the Company’s SVS, with each warrant having an exercise price of $1.00 per SVS and an expiration of December 7, 2026; and (3) paid to the direct holders of the Existing Notes an aggregate of $2,750 in cash. The warrants issued in connection with the Debt Exchange were issued in a private placement in reliance upon an exemption from registration pursuant to Section 4(a)(2) of the Securities Act.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not Applicable.
Item 5. Other Information
Insider trading arrangements
During the three months ended March 31, 2024, none of the Company’s directors or officers (as defined in Rule 16a-1(f) of the Securities Exchange Act of 1934) adopted terminated
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Item 6. Exhibits
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) | ||||
31
Signature
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| JUSHI HOLDINGS INC. | ||||||||
Date: May 9, 2024 | By: | /s/ Michelle Mosier | ||||||
| Michelle Mosier | ||||||||
| Chief Financial Officer and Chief Accounting Officer (principal financial and accounting officer) | ||||||||
32
Exhibit 31.1
Certification of Chief Executive Officer
pursuant to Rule 13a-14(a) or Rule 15d-14(a)
I, James Cacioppo, certify that:
(1) I have reviewed this quarterly report on Form 10-Q of Jushi Holdings Inc.;
(2) Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
(3) Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
(4) The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) [paragraph omitted in accordance with Exchange Act Rule 13a-14(a)];
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
(5) The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: May 9, 2024
| /s/ James Cacioppo | ||||||||
| James Cacioppo | ||||||||
Chief Executive Officer (principal executive officer) | ||||||||
Exhibit 31.2
Certification of Chief Financial Officer
pursuant to Rule 13a-14(a) or Rule 15d- 14(a)
I, Michelle Mosier, certify that:
(1) I have reviewed this quarterly report on Form 10-Q of Jushi Holdings Inc.;
(2) Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
(3) Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
(4) The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) [paragraph omitted in accordance with Exchange Act Rule 13a-14(a)];
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
(5) The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: May 9, 2024
| /s/ Michelle Mosier | ||||||||
| Michelle Mosier | ||||||||
Chief Financial Officer and Chief Accounting Officer (principal financial and accounting officer) | ||||||||
Exhibit 32.1
Certification of Chief Executive Officer
under Section 906 of the Sarbanes-Oxley Act of 2002
(18 U.S.C. § 1350)
In connection with the quarterly report of Jushi Holdings Inc. (the "Company") on Form 10-Q for the quarterly period ended March 31, 2024 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, James Cacioppo, Chief Executive Officer of the Company, certify, to my best knowledge and belief, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m(a) or 78o(d)); and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.
Date: May 9, 2024
| /s/ James Cacioppo | |||||
| James Cacioppo | |||||
Chief Executive Officer (principal executive officer) | |||||
The foregoing certification is being furnished as an exhibit to the Report pursuant to Item 601(b)(32) of Regulation S-K and Section 906 of the Sarbanes-Oxley Act of 2002 and, accordingly, is not being filed with the Securities and Exchange Commission as part of the Report and is not to be incorporated by reference into any filing of the Company under the Securities Act of 1933 or the Securities Exchange Act of 1934 (whether made before or after the date of the Report, irrespective of any general incorporation language contained in such filing).
Exhibit 32.2
Certification of Chief Financial Officer
under Section 906 of the Sarbanes-Oxley Act of 2002
(18 U.S.C. § 1350)
In connection with the quarterly report of Jushi Holdings Inc. (the "Company") on Form 10-Q for the quarterly period ended March 31, 2024 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Michelle Mosier, Chief Financial Officer and Chief Accounting Officer of the Company, certify to my best knowledge and belief, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m(a) or 78o(d)); and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.
Date: May 9, 2024
| /s/ Michelle Mosier | |||||
Michelle Mosier Chief Financial Officer and Chief Accounting Officer (principal financial officer) | |||||
The foregoing certification is being furnished as an exhibit to the Report pursuant to Item 601(b)(32) of Regulation S-K and Section 906 of the Sarbanes-Oxley Act of 2002 and, accordingly, is not being filed with the Securities and Exchange Commission as part of the Report and is not to be incorporated by reference into any filing of the Company under the Securities Act of 1933 or the Securities Exchange Act of 1934 (whether made before or after the date of the Report, irrespective of any general incorporation language contained in such filing).