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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

 

FORM 10-Q

 

 

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2020

OR

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                  to                 

 

LOGO

Commission file number 000-56132

 

 

GREEN THUMB INDUSTRIES INC.

(Exact name of registrant as specified in its charter)

 

 

 

British Columbia   98-1437430

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. employer

identification no.)

325 West Huron Street, Suite 700
Chicago, Illinois
  60654
( Address of principal executive offices)   (zip code)

(312) 471-6720

(Registrant’s telephone number, including area code)

 

 

Securities registered pursuant to Section 12(g) of the Act:

Subordinate Voting Shares

Multiple Voting Shares

Super Voting Shares

(Title of each Class)

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, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

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 Act).  Yes  ☐    No  ☒

As of November 5, 2020, there were 175,040,286 shares of the registrant’s Subordinate Voting Shares, 6,779,300 shares of the registrant’s Multiple Voting Shares (on an as converted basis) and 31,203,100 shares of the registrant’s Super Voting Shares (on an as converted basis).

 

 

 


GREEN THUMB INDUSTRIES INC.

QUARTERLY REPORT ON FORM 10-Q

FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2020

TABLE OF CONTENTS

 

FINANCIAL INFORMATION    Page  
     Part I       

ITEM 1:

   Unaudited Interim Condensed Consolidated Balance Sheets as of September 30, 2020 and December 31, 2019      4  
   Unaudited Interim Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2020 and 2019      5  
   Unaudited Interim Condensed Consolidated Statements of Shareholders’ Equity for the nine months ended September 30, 2020 and 2019      6  
   Unaudited Interim Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2020 and 2019      7  
   Notes to Unaudited Interim Condensed Consolidated Financial Statements      9  

ITEM 2:

   Management’s Discussion and Analysis of Financial Condition and Results of Operations   

ITEM 3:

   Quantitative and Qualitative Disclosure About Market Risk   

ITEM 4:

   Controls and Procedures   
     Part II       

OTHER INFORMATION

     

ITEM 1:

   Legal Proceedings      44  

ITEM 1a:

   Risk Factors      44  

ITEM 4:

   Mine Safety Disclosure      45  

ITEM 6:

   Exhibits      45  

Signatures

     


Use of Names

In this Interim Report on Form 10-Q, unless the context otherwise requires, the terms “we,” “us,” “our,” “Company,” “Corporation” or “Green Thumb” refer to Green Thumb Industries Inc. together with its wholly-owned subsidiaries.

Currency

Unless otherwise indicated, all references to “$” or “US$” in this document refer to United States dollars, and all references to “C$” refer to Canadian dollars.

Disclosure Regarding Forward-Looking Statements

This Quarterly Report on Form 10-Q contains statements that we believe are, or may be considered to be, “forward-looking statements.” All statements other than statements of historical fact included in this document regarding the prospects of our industry or our prospects, plans, financial position or business strategy may constitute forward-looking statements. In addition, forward-looking statements generally can be identified by the use of forward-looking words such as “may,” “will,” “expect,” “intend,” “estimate,” “foresee,” “project,” “anticipate,” “believe,” “plan,” “forecast,” “continue” or “could” or the negative of these terms or variations of them or similar terms. Furthermore, forward-looking statements may be included in various filings that we make with the Securities and Exchange Commission (the “SEC”), and in press releases or oral statements made by or with the approval of one of our authorized executive officers. Although we believe that the expectations reflected in these forward-looking statements are reasonable, we cannot assure you that these expectations will prove to be correct. These forward-looking statements are subject to certain known and unknown risks and uncertainties, as well as assumptions that could cause actual results to differ materially from those reflected in these forward-looking statements. These known and unknown risks include, without limitation: marijuana remains illegal under federal law, and enforcement of cannabis laws could change; the Company may face limitations on ownership of cannabis licenses; the Company may become subject to regulation by the U.S. Food and Drug Administration or the U.S. Bureau of Alcohol, Tobacco and Firearms; the Company may face difficulties obtaining additional financing; the Company operates in a highly regulated sector and may not always succeed in complying fully with applicable regulatory requirements in all jurisdictions where we carry on business; the Company is subject to general economic risks; the Company may be negatively impacted by challenging global economic conditions; the Company is subject to risks arising from epidemic diseases, such as the recent outbreak of the COVID-19 illness; the Company may face difficulties in enforcing its contracts; the Company is subject to taxation in Canada and the United States; cannabis businesses are subject to unfavorable tax treatment; cannabis businesses may be subject to civil asset forfeiture; the Company is subject to proceeds of crime statutes; the Company faces security risks; our use of joint ventures may expose us to risks associated with jointly owned investments; competition for the acquisition and leasing of properties suitable for the cultivation, production and sale of medical and adult use cannabis may impede our ability to make acquisitions or increase the cost of these acquisitions, which could adversely affect our operating results and financial condition; the Company faces risks related to its products; the Company is dependent on the popularity of consumer acceptance of the Company’s brand portfolio; the Company faces risks related to its insurance coverage and uninsurable risks; the Company is dependent on key inputs, suppliers and skilled labor; the Company must attract and maintain key personnel or our business will fail; the Company’s business is subject to the risks inherent in agricultural operations; the Company’s sales are difficult to forecast; the Company’s products may be subject to product recalls; the Company may face unfavorable publicity or consumer perception; the Company faces intense competition; the Company’s voting control is concentrated; the Company’s capital structure and voting control may cause unpredictability; and additional issuances of Super Voting Shares, Multiple Voting Shares or Subordinate Voting Shares may result in dilution. Further information on these and other potential factors that could affect the Company’s business and financial condition and the results of operations are included in the “Risk Factors” section of the Company’s Annual Report on Form 10-K for the year ended December 31, 2019, and elsewhere in the Company’s filings with the SEC, which are available on the SEC’s website or at https://investors.gtigrows.com. Readers are cautioned not to place undue reliance on any forward-looking statements contained in this document, which reflect management’s opinions only as of the date hereof. Except as required by law, we undertake no obligation to revise or publicly release the results of any revision to any forward-looking statements. You are advised, however, to consult any additional disclosures we make in our reports to the SEC. All subsequent written and oral forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by the cautionary statements contained in this document.

 

- 3 -


Green Thumb Industries Inc.             
Unaudited Interim Condensed Consolidated Balance Sheets             
As of September 30, 2020 and December 31, 2019             
(Amounts Expressed in United States Dollars, Except for Share Amounts)             
                  
     September 30,
2020
    December 31,
2019
 
           (Audited)  

ASSETS

    

Current Assets:

    

Cash and Cash Equivalents

   $ 78,091,073     $ 46,667,334  

Accounts Receivable

     13,121,285       7,530,253  

Inventories

     55,164,258       46,034,481  

Prepaid Expenses

     6,990,373       6,780,657  

Other Current Assets

     5,692,248       2,049,886  
  

 

 

   

 

 

 

Total Current Assets

     159,059,237       109,062,611  

Property and Equipment, Net

     177,725,092       155,596,675  

Right of Use Assets, Net

     99,447,497       63,647,812  

Investments

     22,210,999       14,068,821  

Investment in Associate

     11,750,000       10,350,000  

Notes Receivable

     —         815,937  

Intangible Assets, Net

     409,655,517       435,246,898  

Goodwill

     373,081,716       375,084,991  

Deposits and Other Assets

     1,684,389       3,662,879  
  

 

 

   

 

 

 

TOTAL ASSETS

   $ 1,254,614,447     $ 1,167,536,624  
  

 

 

   

 

 

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

    

LIABILITIES

    

Current Liabilities:

    

Accounts Payable

   $ 10,988,374     $ 8,745,821  

Accrued Liabilities

     46,311,550       37,184,406  

Current Portion of Notes Payable

     301,027       206,675  

Current Portion of Lease Liabilities

     4,654,032       3,833,268  

Liability for Acquisition of Noncontrolling Interest

     —         5,500,000  

Contingent Consideration Payable

     27,100,000       50,391,181  

Income Tax Payable

     16,543,826       5,505,904  
  

 

 

   

 

 

 

Total Current Liabilities

     105,898,809       111,367,255  

Long-Term Liabilities:

    

Lease Liabilities, Net of Current Portion

     102,408,462       61,115,737  

Notes Payable, Net of Current Portion and Debt Discount

     96,758,233       91,140,194  

Contingent Consideration Payable

     9,215,360       8,545,558  

Warrant Liability

     18,513,000       15,879,843  

Deferred Income Taxes

     41,744,283       36,279,361  
  

 

 

   

 

 

 

TOTAL LIABILITIES

     374,538,147       324,327,948  

COMMITMENTS AND CONTINGENCIES SHARE HOLDERS’ EQUITY

    

Subordinate Voting Shares (Shares Authorized, Issued and Outstanding at September 30, 2020: Unlimited, 162,999,921 and 162,999,921, respectively, at December 31, 2019: Unlimited, 128,999,964 and 128,999,964, respectively)

     —         —    

Multiple Voting Shares (Shares Authorized, Issued and Outstanding at September 30, 2020: Unlimited, 120,910 and 120,910, respectively, at December 31, 2019: Unlimited, 373,350 and 373,350, respectively)

     —         —    

Super Voting Shares (Shares Authorized, Issued and Outstanding at September 30, 2020: Unlimited, 379,336 and 379,336, respectively, at December 31, 2019: Unlimited, 402,289 and 402,289, respectively)

     —         —    

Share Capital

     1,041,770,917       980,638,701  

Contributed Surplus

     1,656,498       3,960,854  

Deferred Share Issuances

     1,835,331       16,587,798  

Accumulated Deficit

     (167,963,430     (160,491,590
  

 

 

   

 

 

 

Equity of Green Thumb Industries Inc.

     877,299,316       840,695,763  

Noncontrolling interests

     2,776,984       2,512,913  
  

 

 

   

 

 

 

TOTAL SHAREHOLDERS’ EQUITY

     880,076,300       843,208,676  
  

 

 

   

 

 

 

TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY

   $ 1,254,614,447     $ 1,167,536,624  
  

 

 

   

 

 

 
                  

The accompanying notes are an integral part of these unaudited interim condensed consolidated financial statements.

 

 

- 4 -


Green Thumb Industries Inc.

Unaudited Interim Condensed Consolidated Statements of Operations

Three and Nine Months Ended September 30, 2020 and 2019

(Amounts Expressed in United States Dollars, Except Share Amounts)

 

 

 

     Three Months Ended September 30,     Nine Months Ended September 30,  
     2020     2019     2020     2019  

Revenues, net of discounts

   $ 157,103,841     $ 67,990,907     $ 379,346,367     $ 140,630,847  

Cost of Goods Sold, net

     (70,146,676     (35,849,783     (175,707,874     (74,196,750
  

 

 

   

 

 

   

 

 

   

 

 

 

Gross Profit

     86,957,165       32,141,124       203,638,493       66,434,097  
  

 

 

   

 

 

   

 

 

   

 

 

 

Expenses:

        

Selling, General, and Administrative

     49,745,979       30,764,406       144,823,947       88,013,769  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total Expenses

     49,745,979       30,764,406       144,823,947       88,013,769  
  

 

 

   

 

 

   

 

 

   

 

 

 

Income (Loss) From Operations

     37,211,186       1,376,718       58,814,546       (21,579,672
  

 

 

   

 

 

   

 

 

   

 

 

 

Other Income (Expense):

        

Other Income (Expense), net

     6,432,883       (6,585,540     7,501,566       (7,969,433

Interest Income, net

     5,397       407,509       109,922       1,300,233  

Interest Expense, net

     (4,460,125     (5,912,290     (14,236,475     (11,762,222
  

 

 

   

 

 

   

 

 

   

 

 

 

Total Other Income (Expense)

     1,978,155       (12,090,321     (6,624,987     (18,431,422
  

 

 

   

 

 

   

 

 

   

 

 

 

Income (Loss) Before Provision for Income Taxes And Non-Controlling Interest

     39,189,341       (10,713,603     52,189,559       (40,011,094
  

 

 

   

 

 

   

 

 

   

 

 

 

Provision For Income Taxes

     28,436,332       3,624,333       56,964,047       4,706,000  
  

 

 

   

 

 

   

 

 

   

 

 

 

Net Income (Loss) Before Non-Controlling Interest

     10,753,009       (14,337,936     (4,774,488     (44,717,094

Net Income Attributable to Non-Controlling Interest

     1,109,080       252,857       2,697,352       328,804  
  

 

 

   

 

 

   

 

 

   

 

 

 

Net Income (Loss) Attributable To Green Thumb Industries Inc.

   $ 9,643,929     $ (14,590,793   $ (7,471,840   $ (45,045,898
  

 

 

   

 

 

   

 

 

   

 

 

 

Net Income (Loss) per share - basic

   $ 0.04     $ (0.07   $ (0.04   $ (0.24
  

 

 

   

 

 

   

 

 

   

 

 

 

Net Income (Loss) per share - diluted

   $ 0.04     $ (0.07   $ (0.04   $ (0.24
  

 

 

   

 

 

   

 

 

   

 

 

 

Weighted average number of shares outstanding - basic

     211,990,405       204,709,085       210,127,323       184,851,805  
  

 

 

   

 

 

   

 

 

   

 

 

 

Weighted average number of shares - outstandingdiluted

     214,212,292       204,709,085       210,127,323       184,851,805  
  

 

 

   

 

 

   

 

 

   

 

 

 

 

 

The accompanying notes are an integral part of these unaudited interim condensed consolidated financial statements.

 

- 5 -


Green Thumb Industries Inc.

Unaudited Interim Condensed Consolidated Statements of Changes in Shareholders’ Equity

Nine Months Ended September 30, 2020 and 2019

(Amounts Expressed in United States Dollars)

 

 

 

    Share Capital     Shares to
Be Issued
    Contributed
Surplus
    Deferred Share
Issuance
    Accumulated
Earnings (Deficit)
    Non-Controlling
Interest
    Total  

Balance, July 1, 2019

  $ 950,736,500     $ —       $ (4,997,380   $ 16,587,798     $ (131,830,288   $ (392,655   $ 830,103,975  

Issuance of shares under business combinations and investments

    14,085,238       —         88       —         —         —         14,085,326  

Stock based compensation

    —         —         3,564,095       —         —         —         3,564,095  

Shares withheld in lieu of cash

    —         —         (125,060     —         —         —         (125,060

Distributions to limited liability company unit holders

    —         —         —         —         —         (1,900,000     (1,900,000

Net (loss) income

    —         —         —         —         (14,590,793     252,857       (14,337,936
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance, September 30, 2019

  $ 964,821,738     $ —       $ (1,558,257   $ 16,587,798     $ (146,421,081   $ (2,039,798   $ 831,390,400  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance, January 1, 2019

  $ 397,590,465     $ 27,773,234     $ 14,202,659     $ —       $ (100,876,937   $ 3,497,459     $ 342,186,880  

Adoption of ASC 842, Leases

    —         —         —         —         (498,246     —         (498,246

Noncontrolling interests adjustment for change in ownership

    27,773,234       (27,773,234     4,200,382       —         —         —         4,200,382  

Contributions from limited liability company unit holders

    —         —         —         —         —         1,650,000       1,650,000  

Issuance of shares under business combinations and investments

    509,568,665       —         (23,813,393     —         —         —         485,755,272  

Reciprocal derivative instrument

    —         —         (4,526,401     —         —         —         (4,526,401

Issuance of shares for redemption of noncontrolling interests

    29,889,374       —         (4,820,527     —         —         —         25,068,847  

Deferred share issuances

    —         —         —         16,587,798       —         —         16,587,798  

Stock based compensation

    —         —         13,324,083       —         —         —         13,324,083  

Shares withheld in lieu of cash

    —         —         (125,060     —         —         —         (125,060

Distributions to limited liability company unit holders

    —         —         —         —         —         (7,516,061     (7,516,061

Net (loss) income

    —         —         —         —         (45,045,898     328,804       (44,717,094
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance, September 30, 2019

  $ 964,821,738     $ —       $ (1,558,257   $ 16,587,798     $ (146,421,081   $ (2,039,798   $ 831,390,400  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance, July 1, 2020

  $ 1,004,812,062     $ —       $ 6,545,712     $ 15,280,000     $ (177,607,359   $ 2,367,904     $ 851,398,319  

Noncontrolling interests adjustment for change in ownership

    —         —         5,700,000       —         —         —         5,700,000  

Issuance of shares for redemption of noncontrolling interests

    20,078,940       —         (14,728,940     —         —         —         5,350,000  

Distribution of contingent consideration

    2,690,914       —         —         —         —         —         2,690,914  

Distribution of deferred shares

    13,444,669       —         —         (13,444,669     —         —         —    

Exercise of options and warrants

    744,332       —         (295,908     —         —         —         448,424  

Stock based compensation

    —         —         4,435,634       —         —         —         4,435,634  

Distributions to third party and limited liability company unit holders

    —         —         —         —         —         (700,000     (700,000

Net income

    —         —         —         —         9,643,929       1,109,080       10,753,009  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance, September 30, 2020

  $ 1,041,770,917     $ —       $ 1,656,498     $ 1,835,331     $ (167,963,430   $ 2,776,984     $ 880,076,300  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance, January 1, 2020

  $ 980,638,701     $ —       $ 3,960,854     $ 16,587,798     $ (160,491,590   $ 2,512,913     $ 843,208,676  

Contributions from limited liability company unit holders

    —         —         —         —         —         50,000       50,000  

Issuance of shares under business combinations and investments

    2,524,560       —         (2,678,489     —         —         —         (153,929

Issuance of shares for redemption of noncontrolling interests

    20,078,940       —         (14,728,940     —         —         —         5,350,000  

Distribution of contingent consideration

    22,885,813       —         —         —         —         —         22,885,813  

Distribution of deferred shares

    14,752,467       —         —         (14,752,467     —         —         —    

Issueance of warrants

    —         —         181,272       —         —         —         181,272  

Exercise of options and warrants

    890,436       —         (234,340     —         —         —         656,096  

Stock based compensation

    —         —         15,209,518       —         —         —         15,209,518  

Distributions to third party and limited liability company unit holders

    —         —         (53,377     —         —         (2,483,281     (2,536,658

Net (loss) income

    —         —         —         —         (7,471,840     2,697,352       (4,774,488
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance, September 30, 2020

  $ 1,041,770,917     $ —       $ 1,656,498     $ 1,835,331     $ (167,963,430   $ 2,776,984     $ 880,076,300  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

- 6 -


Green Thumb Industries Inc.

Unaudited Interim Condensed Consolidated Statements of Cash Flows

Nine Months Ended September 30, 2020 and 2019

(Amounts Expressed in United States Dollars)

 

 

 

     Nine Months Ended September 30,  
     2020     2019  

CASH FLOW FROM OPERATING ACTIVITIES

    

Net loss attributable to Green Thumb Industries Inc.

   $ (7,471,840   $ (45,045,898

Net income attributable to non-controlling interest

     2,697,352       328,804  

Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:

    

Depreciation and amortization

     38,479,960       17,528,891  

Amortization of operating lease assets

     18,987,980       4,229,889  

Loss on disposal of property and equipment

     29,858       —    

(Gain) loss from investment in associate

     —         56,423  

Bad debt expense

     315,798       —    

Deferred income taxes

     4,377,000       (5,712,000

Stock based compensation

     15,209,520       13,324,083  

Decrease (increase) in fair value of investments

     (9,542,178     886,002  

Changes in value of liabilities related to put option and purchase of noncontrolling interests

     —         (823,550

Interest on contingent consideration payable and acquisition liabilities

     998,842       3,258,804  

Decrease in fair value of contingent consideration

     (425,424     —    

Increase in fair value of warrant liability

     2,060,771       —    

Decrease in fair value of note receivable

     815,937       7,424,727  

Amortization of debt discount

     4,048,531       2,100,738  

Changes in operating assets and liabilities:

    

Accounts receivable

     (5,616,054     1,165,271  

Inventories

     (9,129,777     (9,478,848

Prepaid expenses and other current assets

     (4,142,854     (3,237,772

Deposits and other assets

     1,567,458       1,045,821  

Accounts payable

     2,242,553       1,707,947  

Accrued liabilities

     13,609,399       14,451,557  

Operating lease liabilities

     (12,674,176     (4,184,228

Income tax payable

     14,617,544       260,535  
  

 

 

   

 

 

 

NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES

     71,056,200       (712,804
  

 

 

   

 

 

 

CASH FLOW FROM INVESTING ACTIVITIES

    

Purchases of property and equipment

     (49,221,442     (66,875,245

Proceeds from disposal of assets

     11,799,025       —    

Repayment of debenture investments

     —         3,000,000  

Purchase of businesses, net of cash acquired

     —         (108,067,892
  

 

 

   

 

 

 

NET CASH USED IN INVESTING ACTIVITIES

     (37,422,417     (171,943,137
  

 

 

   

 

 

 

CASH FLOW FROM FINANCING ACTIVITIES

    

Contributions from limited liability company unit holders

     50,000       1,650,000  

Distributions to third parties and limited liability company unit holders

     (2,536,658     (7,516,061

Proceeds from exercise of options and warrants

     656,096       —    

Proceeds from issuance of notes payable

     —         117,435,724  

Payment for purchase of noncontrolling interest

     (150,000     —    

Principal repayment of notes payable

     (229,482     (18,778,140
  

 

 

   

 

 

 

NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES

     (2,210,044     92,791,523  
  

 

 

   

 

 

 

CASH, CASH EQUIVALENTS AND RESTRICED CASH:

    

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS

     31,423,739       (79,864,418

CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD

     46,667,334       145,986,072  
  

 

 

   

 

 

 

CASH AND CASH EQUIVALENTS, END OF PERIOD

   $ 78,091,073     $ 66,121,654  
  

 

 

   

 

 

 

 

 

The accompanying notes are an integral part of these interim condensed consolidated financial statements.

 

 

- 7 -


Green Thumb Industries Inc.

Unaudited Interim Condensed Consolidated Statements of Cash Flows

Nine Months Ended September 30, 2020 and 2019

(Amounts Expressed in United States Dollars)

 

 

 

 

     Nine Months Ended September 30,  
     2020     2019  

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION

    

Interest paid

   $ 9,418,727     $ 5,964,621  
  

 

 

   

 

 

 

NONCASH INVESTING AND FINANCING ACTIVITIES

    

Accrued capital expenditures

   $ (6,798,187   $ 4,232,914  
  

 

 

   

 

 

 

Noncash increase in right of use asset

   $ (36,854,352   $ (22,233,609
  

 

 

   

 

 

 

Noncash increase in lease liability

   $ 36,854,352     $ 22,731,855  
  

 

 

   

 

 

 

Net liability upon adoption of ASC 842, Leases

   $ —       $ (498,246
  

 

 

   

 

 

 

Exercise of put option

   $ —       $ 4,200,382  
  

 

 

   

 

 

 

Warrants attributable to debt issuance

   $ 753,658     $ —    
  

 

 

   

 

 

 

Mortgages associated with dispensaries

   $ 2,647,000     $ —    
  

 

 

   

 

 

 

Liability for purchase of noncontrolling interest

   $ (5,350,000   $ —    
  

 

 

   

 

 

 

Liability associated with acquisition agreement

   $ 2,000,000     $ —    
  

 

 

   

 

 

 

Issuance of shares under acquisition agreement

   $ 22,485,670     $ (485,476,925
  

 

 

   

 

 

 

Deferred share issuances

   $ (14,752,467   $ 16,587,798  
  

 

 

   

 

 

 

Acquisitions

    

Inventory

   $ —       $ 13,602,245  

Accounts receivable

     —         2,117,412  

Property and equipment

     80,615       17,341,103  

Right of use assets

     —         4,154,672  

Identifiable intangible assets

     (145,000     305,625,592  

Goodwill

     (2,003,275     393,278,807  

Deposits and other assets

     603,988       1,694,533  

Liabilities assumed

     (1,302,604     (9,489,616

Lease liabilities

     —         (4,154,672

Contingent liabilities

     —         (52,864,000

Equity interests issued

     503,389       (485,476,925

Deferred share issuances

     —         (16,587,798

Conversion of note receivable previously issued

     —         (27,025,800

Acquisition liability

     (228,813     (1,630,893

Deferred income taxes

     2,491,700       (32,448,100
  

 

 

   

 

 

 
   $ —       $ —    
  

 

 

   

 

 

 

RECONCILIATION OF CASH, AND CASH EQUIVALENTS AND RESTRICTED CASH

    

Cash and cash equivalents

   $ 75,116,621     $ 66,121,654  

Restricted cash

     2,974,452       —    
  

 

 

   

 

 

 

TOTAL CASH, AND CASH EQUIVALENTS AND RESTRICED CASH

   $ 78,091,073     $ 66,121,654  
  

 

 

   

 

 

 

 

 

The accompanying notes are an integral part of these interim condensed consolidated financial statements.

 

- 8 -


Green Thumb Industries Inc.

Notes to Unaudited Interim Condensed Consolidated Financial Statements

(Amounts Expressed in United States Dollars, Except Where Stated Otherwise)

 

1.

Overview and Basis of Presentation

 

 

  (a)

Description of Business

Green Thumb Industries Inc. (“Green Thumb” or the “Company”) is promoting well-being through the power of cannabis through branded consumer packaged goods and people-first retail experiences, while being committed to community and sustainable profitable growth. Green Thumb owns, manufactures, and distributes a portfolio of cannabis consumer packaged goods brands including Beboe, Dogwalkers, Dr. Solomon’s, incredibles, Rythm and The Feel Collection, primarily to third-party retail stores across the United States as well as to Green Thumb owned retail stores. The Company also owns and operates retail cannabis stores that include a rapidly growing national chain of retail cannabis stores named Rise™ and a Las Vegas, Nevada area chain of retail cannabis stores named Essence. As of September 30, 2020, Green Thumb has revenue in twelve markets (California, Colorado, Connecticut, Florida, Illinois, Maryland, Massachusetts, Nevada, New Jersey, New York, Ohio, and Pennsylvania).

On June 12, 2018, the Company completed a reverse takeover transaction (“RTO”) as further described in Note 3 of Green Thumb’s Annual Report on Form 10-K for the year ended December 31, 2019 filed with the SEC on April 15, 2020 (“2019 Form 10-K”). Following the RTO, the Company was listed on the Canadian Securities Exchange (the “CSE”) under ticker symbol “GTII” and on the OTCQX, part of the OTC Markets Group, under the ticker “GTBIF”.

The Company’s registered office is located at 885 West Georgia Street, Suite 2200, Vancouver, British Columbia, V6C 3E8, Canada. The Company’s U.S. headquarters are at 325 W. Huron St., Suite 700, Chicago, IL 60654.

 

  (b)

Basis of Presentation

The accompanying unaudited interim condensed consolidated financial statements include the accounts of Green Thumb Industries Inc. and have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial information and in accordance with the rules and regulations of the SEC. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements and, accordingly, certain information, footnotes and disclosures normally included in the annual financial statements, prepared in accordance with GAAP, have been condensed or omitted in accordance with SEC rules and regulations. The financial data presented herein should be read in conjunction with the audited consolidated and combined financial statements and accompanying notes included in the 2019 Form 10-K. In the opinion of management, the financial data presented includes all adjustments necessary to present fairly the financial position, results of operations and cash flows for the interim periods presented. Results of interim periods should not be considered indicative of the results for the full year. These unaudited interim condensed consolidated financial statements include estimates and assumptions of management that affect the amounts reported in the unaudited condensed consolidated financial statements. Actual results could differ from these estimates.

Certain previously reported amounts have been reclassified between line items to conform to the current presentation. The reclassifications did not affect the Company’s previously reported consolidated balance sheets, consolidated statements of operations, statements of cash flows or statements of changes in shareholders’ equity.

The results of operations for the three and nine months ended September 30, 2020 are not necessarily indicative of the results to be expected for the entire year ending December 31, 2020.

 

  (c)

Significant Accounting Policies

There have been no changes to the Company’s significant accounting policies as described in Note 2 of the Company’s 2019 Form 10-K.

 

- 9 -


Green Thumb Industries Inc.

Notes to Unaudited Interim Condensed Consolidated Financial Statements

(Amounts Expressed in United States Dollars, Except Where Stated Otherwise)

 

1.

Overview and Basis of Presentation (Continued)

 

 

  (d)

Earnings (Loss) per Share

Basic earnings (loss) per share is calculated by dividing the net income (loss) attributable to shareholders by the weighted average number of common shares (Subordinate Voting Shares, Multiple Voting Shares on an as converted basis, and Super Voting Shares on an as converted basis) outstanding during each of the periods presented. Contingently issuable shares (including shares held in escrow) are not considered outstanding common shares and consequently are not included in the basic earnings (loss) per share calculations. Diluted earnings (loss) per share is calculated using the treasury stock method by adjusting the weighted average number of common shares outstanding to assume conversion of all dilutive potential common shares. The Company has three categories of potentially dilutive common share equivalents: restricted stock units, stock options and warrants. At September 30, 2020, the Company had 5,782,599 options, 688,507 restricted stock units and 2,520,794 warrants outstanding. At September 30, 2019, the Company had 6,031,833 options, 1,479,038 restricted stock units and 2,041,735 warrants outstanding.

In order to determine diluted earnings (loss) per share, it is assumed that any proceeds from the exercise of dilutive unvested restricted stock units, stock options, and warrants would be used to repurchase common shares at the average market price during the period. Under the treasury stock method, the diluted loss per share calculation excludes any potential exercise of restricted stock units, stock options or warrants that would decrease loss per share. For the three months ended September 30, 2020, the computation of diluted loss per share included 1,928,946 options, 151,458 restricted stock units and 141,482 warrants. No potentially dilutive common share equivalents were included in the computation of diluted loss per share for the three months ended September 30, 2019 and nine months ended September 30, 2020 and 2019 because their impact was anti-dilutive.

 

  (e)

Recently Adopted Accounting Standards

 

  (i)

In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-13, Financial Instruments - Credit Losses (Topic 326) Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”), which replaces the incurred loss model with a current expected credit loss (“CECL”) model and requires consideration of a broader range of reasonable and supportable information to explain credit loss estimates. This standard applies to financial assets, measured at amortized cost, including loans, held-to-maturity debt securities, net investments in leases and trade accounts receivable. The guidance must be adopted using a modified retrospective transition method through a cumulative-effect adjustment to retained earnings in the period of adoption. The Company adopted the new standard in the first quarter of 2020. The adoption of the standard did not have a material impact on the Company’s unaudited interim condensed consolidated financial statements.

 

  (ii)

In January 2017, the FASB issued Accounting Standards Update No. 2017-04 “Intangibles— Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment” (“ASU 2017-04”), which simplifies the accounting for goodwill impairment. ASU 2017-04 requires entities to record an impairment charge based on the excess of a reporting unit’s carrying amount over its fair value (Step 1 under the current impairment test). The standard eliminates Step 2 from the current goodwill impairment test, which included determining the implied fair value of goodwill and comparing it with the carrying amount of that goodwill. ASU 2017-04 must be applied prospectively and is effective in the first quarter of 2020. Early adoption is permitted. The Company adopted the new standard in the first quarter of 2020. The adoption of the standard did not have a material impact on the Company’s unaudited interim condensed consolidated financial statements.

 

- 10 -


Green Thumb Industries Inc.

Notes to Unaudited Interim Condensed Consolidated Financial Statements

(Amounts Expressed in United States Dollars, Except Where Stated Otherwise)

 

1.

Overview and Basis of Presentation (Continued)

 

 

  (e)

Recently Adopted Accounting Standards (Continued)

 

  (iii)

In August 2018, the FASB issued ASU 2018-13, Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement (Topic 820)(“ASU 2018-13”). ASU 2018-13 adds, modifies, and removes certain fair value measurement disclosure requirements. ASU 2018-13 is effective for annual and interim periods beginning after December 15, 2019. The Company adopted the new standard in the first quarter of 2020. The adoption of the standard did not have a material impact on the Company’s unaudited interim condensed consolidated financial statements.

 

  (f)

Recently Issued Accounting Standards

 

  (i)

In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740) - Simplifying the Accounting for Income Taxes, which is intended to simplify various aspects related to accounting for income taxes (“ASU 2019-12”). ASU 2019-12 removes certain exceptions to the general principles in Topic 740 and also clarifies and amends existing guidance to improve consistent application. ASU 2019-12 is effective for the Company beginning January 1, 2021. The Company is currently evaluating the effect of adopting this ASU on the Company’s financial statements.

 

  (ii)

In January 2020, the FASB issued ASU 2020-01, Investments - Equity Securities (Topic 321), Investments - Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815) (“ASU 2020-01”), which is intended to clarify the interaction of the accounting for equity securities under Topic 321 and investments accounted for under the equity method of accounting in Topic 323 and the accounting for certain forward contracts and purchased options accounted for under Topic 815. ASU 2020-01 is effective for the Company beginning January 1, 2021. The Company is currently evaluating the effect of adopting this ASU on the Company’s financial statements.

 

  (iii)

On August 5, 2020, the FASB issued Accounting Standards Update No. 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, to improve financial reporting associated with accounting for convertible instruments and contracts in an entity’s own equity. The amendments in this Update are effective for public business entities that meet the definition of a Securities and Exchange Commission (“SEC”) filer, excluding entities eligible to be smaller reporting companies as defined by the SEC, for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. For all other entities, the amendments are effective for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years. Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. The FASB specified that an entity should adopt the guidance as of the beginning of its annual fiscal year. The Company is currently evaluating the effect of adopting this ASU on the Company’s financial statements.

 

- 11 -


Green Thumb Industries Inc.

Notes to Unaudited Interim Condensed Consolidated Financial Statements

(Amounts Expressed in United States Dollars, Except Where Stated Otherwise)

 

1.

Overview and Basis of Presentation (Continued)

 

 

  (g)

Coronavirus Pandemic

In March 2020, the World Health Organization categorized coronavirus disease 2019 (“COVID-19”) as a pandemic. COVID-19 continues to spread throughout the U.S. and other countries across the world, and the duration and severity of its effects are currently unknown. The Company is implementing and evaluating actions to strengthen its financial position and support the continuity of its business and operations.

The Company’s unaudited interim condensed consolidated financial statements presented herein reflect estimates and assumptions made by management that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the unaudited interim condensed consolidated financial statements and reported amounts of revenue and expenses during the periods presented. Such estimates and assumptions affect, among other things, the Company’s goodwill, long-lived assets and intangible assets; operating lease right of use assets and operating lease liabilities; assessment of the annual effective tax rate; valuation of deferred income taxes; the allowance for doubtful accounts; assessment of the Company’s lease and non-lease contract expenses; and measurement of compensation cost for bonus and other compensation plans. While the Company’s revenue, gross profit and operating income were not impacted during the first nine months of 2020, the uncertain nature of the spread of COVID-19 may impact the Company’s business operations for reasons including the potential quarantine of the Company’s employees or those of its supply chain partners, and the Company’s continued designation as an “essential” business in states where the Company does business that currently or in the future impose restrictions on its business operations. The estimates and assumptions used in the unaudited interim condensed consolidated financial statements for the three and nine months ended September 30, 2020 include, but are not limited to certain judgmental reserves requiring management to makes estimates based on current information. The carrying value of the Company’s goodwill and other long-lived assets, may change in future periods as the expected impacts from COVID-19 are revised, resulting in further potential impacts to the Company’s financial statements.

 

2.

INVENTORIES

 

The Company’s inventories include the following at September 30, 2020 and December 31, 2019:

 

     September 30,      December 31,  
     2020      2019  

Raw Material

   $ 3,603,977      $ 6,375,032  

Packaging and Miscellaneous

     6,173,017        4,887,970  

Work in Process

     24,945,006        20,162,723  

Finished Goods

     22,430,016        16,640,629  

Reserve for Obsolete Inventory

     (1,987,758      (2,031,873
  

 

 

    

 

 

 

Total Inventories

   $ 55,164,258      $ 46,034,481  
  

 

 

    

 

 

 

 

- 12 -


Green Thumb Industries Inc.

Notes to Unaudited Interim Condensed Consolidated Financial Statements

(Amounts Expressed in United States Dollars, Except Where Stated Otherwise)

 

3.

PROPERTY AND EQUIPMENT

 

At September 30, 2020, property and equipment consisted of the following:

 

Cost

   Land     Buildings and
Improvements
    Equipment,
Computers

and Furniture
     Leasehold
Improvements
     Capitalized
Interest
     Assets Under
Construction
    Total  

As at January 1, 2020

   $ 3,272,439     $ 33,377,471     $ 35,509,871      $ 68,681,497      $ 2,500,000      $ 21,372,116     $ 164,713,394  

Additions

     586.867       21,128,482       4,794,342        12,413,970        342,966        6,118,878       45,385,505  

Disposals

     (979,930     (4,507,086     —          —          —          (6,978,389     (12,465,405
  

 

 

   

 

 

   

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

As at September 30, 2020

   $ 2,879,376     $ 49,998,867     $ 40,304,213      $ 81,095,467      $ 2,842,966      $ 20,512,605     $ 197,633,494  
  

 

 

   

 

 

   

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Accumulated Depreciation

                 

As at January 1, 2020

   $ —       $ 2,236,254     $ 3,882,178      $ 2,998,287      $ —        $ —       $ 9,116,719  

As at September 30, 2020

   $ —       $ 2,939,951     $ 8,375,318      $ 8,426,333      $ 166,800      $ —       $ 19,908,402  

Net book value

                 

As at January 1, 2020

   $ 3,272,439     $ 31,141,217     $ 31,627,693      $ 65,683,210      $ 2,500,000      $ 21,372,116     $ 155,596,675  

As at September 30, 2020

   $ 2,879,376     $ 47,058,916     $ 31,928,895      $ 72,669,134      $ 2,676,166      $ 20,512,605     $ 177,725,092  

At December 31, 2019, property and equipment consisted of the following:

 

Cost

   Land     Buildings and
Improvements
    Equipment,
Computers

and Furniture
    Leasehold
Improvements
     Capitalized
Interest
     Assets Under
Construction
     Total  

As at January 1, 2019

   $ 2,243,085     $ 20,861,988     $ 11,001,498     $ 18,435,893      $ —        $ 16,664,958      $ 69,207,422  

Additions

     4,393,030       28,217,500       23,109,209       38,002,678        2,500,000        4,678,084        100,900,501  

Additions from acquisitions

     —         —         4,253,362       12,242,926        —          29,074        16,525,362  

Disposals

     (3,363,676     (15,702,017   $ (2,854,198     —          —          —          (21,919,891
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

    

 

 

    

 

 

 

As at December 31, 2019

   $ 3,272,439     $ 33,377,471     $ 35,509,871     $ 68,681,497      $ 2,500,000      $ 21,372,116      $ 164,713,394  
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

    

 

 

    

 

 

 

Accumulated Depreciation

                 

As at January 1, 2019

   $ —       $ 1,351,230     $ 1,524,114     $ 1,007,998      $ —        $ —        $ 3,883,342  

As at December 31, 2019

   $ —       $ 2,236,254     $ 3,882,178     $ 2,998,287      $ —        $ —        $ 9,116,719  

Net book value

                 

As at January 1, 2019

   $ 2,243,085     $ 19,510,758     $ 9,477,384     $ 17,427,895      $ —        $ 16,664,958      $ 65,324,080  

As at December 31, 2019

   $ 3,272,439     $ 31,141,217     $ 31,627,693     $ 65,683,210      $ 2,500,000      $ 21,372,116      $ 155,596,675  

Assets under construction represent construction in progress related to both cultivation and dispensary facilities not yet completed or otherwise not ready for use.

Depreciation expense for the three and nine months ended September 30, 2020 totaled $2,003,585 and $11,193,570, respectively of which $311,315 and $5,571,477, respectively, is included in cost of goods sold. Depreciation expense for the three and nine months ended September 30, 2019 totaled $2,494,601 and $5,113,195, respectively of which $1,732,146 and $3,541,236, respectively, is included in cost of goods sold.

On January 31, 2020, the Company closed a sale and lease back transaction to sell its Toledo, Ohio processing facility to Innovative Industrial Properties (“IIP”). Under the long-term agreement, the Company will lease back the facility and continue to operate and manage it. As a result of the sale, the Company disposed of $205,000 of land and $2,695,000 of construction in progress. There was no gain or loss on the sale.

On March 6, 2020, the Company closed a sale and lease back transaction to sell its Oglesby, Illinois cultivation and processing facility to IIP. Under the long-term agreement, the Company will lease back the facility and continue to operate and manage it. As a result of the sale, the Company disposed of $774,930 of land, $4,507,086 of buildings and improvements and $3,813,636 of construction in progress. The Company recognized a gain on the sale of Oglesby facility of $239,096 which was recorded within other income (expense) on the unaudited interim condensed consolidated statement of operations.

For further information regarding these transactions, see Note 5 - Leases.

 

- 13 -


Green Thumb Industries Inc.

Notes to Unaudited Interim Condensed Consolidated Financial Statements

(Amounts Expressed in United States Dollars, Except Where Stated Otherwise)

 

4.

INTANGIBLE ASSETS AND GOODWILL

 

Intangible assets are recorded at cost less accumulated amortization and impairment losses, if any. Intangible assets acquired in a business combination are measured at fair value at the acquisition date. Amortization of definite life intangibles is provided on a straight-line basis over their estimated useful lives. The estimated useful lives, residual values, and amortization methods are reviewed at each year end, and any changes in estimates are accounted for prospectively.

At September 30, 2020 intangible assets consisted of the following:

 

     Licenses
and Permits
    Tradenames      Customer
Relationships
     Non-Competition
Agreements
     Total  

Cost

             

As at January 1, 2020

   $ 336,954,213     $ 97,455,590      $ 25,258,000      $ 2,585,480      $ 462,253,283  

Adjustments to Purchase Price Allocation

     (145,000     1,840,009        —          —          1,695,009  
  

 

 

   

 

 

    

 

 

    

 

 

    

 

 

 

As at September 30, 2020

   $ 336,809,213     $ 99,295,599      $ 25,258,000      $ 2,585,480      $ 463,948,292  

Accumulated Amortization

             

As at January 1, 2020

   $ 18,477,500     $ 4,121,800      $ 3,932,416      $ 474,669      $ 27,006,385  

Amortization

     17,701,556       6,412,282        2,777,802        394,750        27,286,390  
  

 

 

   

 

 

    

 

 

    

 

 

    

 

 

 

As at September 30, 2020

   $ 36,179,056     $ 10,534,082      $ 6,710,218      $ 869,419      $ 54,292,775  

Net book value

             

As at January 1, 2020

   $ 318,476,713     $ 93,333,790      $ 21,325,584      $ 2,110,811      $ 435,246,898  

As at September 30, 2020

   $ 300,630,157     $ 88,761,517      $ 18,547,782      $ 1,716,061      $ 409,655,517  

At December 31, 2019 intangible assets consisted of the following:

 

     Licenses
and Permits
     Tradenames      Customer
Relationships
     Non-Competition
Agreements
     Total  

Cost

              

As at January 1, 2019

   $ 89,705,213      $ 360,000      $ 820,000      $ 20,480      $ 90,905,693  

Additions from acquisitions

     247,249,000        97,095,590        24,438,000        2,565,000        371,347,590  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

As at December 31, 2019

   $ 336,954,213      $ 97,455,590      $ 25,258,000      $ 2,585,480      $ 462,253,283  

Accumulated Amortization

              

As at January 1, 2019

   $ 2,322,715      $ —        $ 204,500      $ 12,800      $ 2,540,015  

Amortization

     16,154,785        4,121,800        3,727,916        461,869        24,466,370  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

As at December 31, 2019

   $ 18,477,500      $ 4,121,800      $ 3,932,416      $ 474,669      $ 27,006,385  

Net book value

              

As at January 1, 2019

   $ 87,382,498      $ 360,000      $ 615,500      $ 7,680      $ 88,365,678  

As at December 31, 2019

   $ 318,476,713      $ 93,333,790      $ 21,325,584      $ 2,110,811      $ 435,246,898  

The Company recorded amortization expense for the three and nine months ended September 30, 2020 of $9,531,290 and $27,286,390, respectively, and for the three and nine months ended September 30, 2019 of $5,419,212, and $12,415,696, respectively. During the second quarter of 2020, the Company recorded a measurement period adjustment in connection with its June 27, 2019 acquisition of MC Brands, LLC of $1,840,009 which increased intangible assets and share capital. The remainder of the adjustments to purchase price allocations relate to the finalization of several 2019 acquisitions.

In addition, the Company reviewed the estimated useful lives of its intangible assets as part of the Company’s plans to rebrand one of its retail stores. Based on that review, the Company determined that certain intangible assets associated with the Company’s retail tradenames have a useful life shorter than initially estimated.

 

- 14 -


Green Thumb Industries Inc.

Notes to Unaudited Interim Condensed Consolidated Financial Statements

(Amounts Expressed in United States Dollars, Except Where Stated Otherwise)

 

4.

INTANGIBLE ASSETS AND GOODWILL (Continued)

 

Beginning July 1, 2020, the Company adjusted the useful life of its retail tradename associated with the acquisition of Essence from 15 years to 7 years. The change in useful life was made as a prospective adjustment and resulted in an increase in amortization expense of $1,266,880 for the remainder of 2020, $5,067,520 annually for years 2021 through 2024, and a net reduction in amortization expense of $21,536,960 thereafter.

The following table outlines the estimated annual amortization expense related to intangible assets as of September 30, 2020 and illustrates the effect of the change in useful life of the Essence tradename discussed above:

 

Year Ending December 31,

   Estimated
Amortization
(Prior to
Change in
Useful Life)
     Increase
(Decrease)
from Change
in

Useful Life
     Estimated
Amortization

(After Change
in Useful Life)
 

Remainder of 2020

   $ 8,426,261      $ 1,266,880      $ 9,693,141  

2021

     33,705,044        5,067,520        38,772,564  

2022

     33,274,305        5,067,520        38,341,825  

2023

     33,191,489        5,067,520        38,259,009  

2024

     32,610,156        5,067,520        37,677,676  

Thereafter

     268,448,262        (21,536,960      246,911,302  
  

 

 

    

 

 

    

 

 

 
   $ 409,655,517      $ —        $ 409,655,517  
  

 

 

    

 

 

    

 

 

 

Goodwill

At September 30, 2020, Goodwill consisted of the following:

 

     Retail      Consumer
Packaged Goods
     Total  

As at January 1, 2020

   $ 119,873,759      $ 255,211,232      $ 375,084,991  

Adjustments to Purchase Price Allocations

     1,191,425        (3,194,700      (2,003,275 )
  

 

 

    

 

 

    

 

 

 

As at September 30, 2020

   $ 121,065,184      $ 252,016,532      $ 373,081,716  
  

 

 

    

 

 

    

 

 

 

At December 31, 2019, Goodwill consisted of the following:

 

     Retail      Consumer
Packaged Goods
     Total  

As at January 1, 2019

   $ 15,286,360      $ 23,918,000      $ 39,204,360  

Acquisition of Advanced Grow Labs, LLC

     16,756,250        44,572,349        61,328,599  

Acquisition of Integral Associates, LLC

     46,655,753        69,323,570        115,979,323  

Other Acquisitions

     32,936,590        120,963,598        153,900,188  

Adjustments to Purchase Price Allocations

     8,238,808        (3,566,285      4,672,523  
  

 

 

    

 

 

    

 

 

 

As at December 31, 2019

   $ 119,873,759      $ 255,211,232      $ 375,084,991  
  

 

 

    

 

 

    

 

 

 

During the nine months ended September 30, 2020, the Company recorded measurement period adjustments resulting in a net decrease in goodwill of $2,003,275 associated with various acquisitions. In regard to the Consumer Packaged Goods segment, the Company recorded measurement period adjustments associated with its acquisition of For Success Holdings Company and Advanced Grow Labs, LLC of $1,687,700 and $1,507,000, respectively, which represented a reduction in the value of goodwill and deferred tax liabilities. Regarding the Retail segment, the Company recorded measurement period adjustments associated with its acquisition of Fiorello Pharmaceuticals, Inc. of $1,000,000 which represented an increase in the value of goodwill and corresponding adjustment to current liabilities. The remainder of the adjustments to the Retail segment represent the finalization of purchase price allocations related to other 2019 acquisitions.

 

- 15 -


Green Thumb Industries Inc.

Notes to Unaudited Interim Condensed Consolidated Financial Statements

(Amounts Expressed in United States Dollars, Except Where Stated Otherwise)

 

5.

LEASES

 

 

  (a)

Operating Leases Under Accounting Standards Update No. 2016-02

In February 2016, the FASB issued ASU No. 2016-02 - Leases (Topic 842) (“ASU 2016-02”), which requires lessees to put most leases on the balance sheet but recognize expense on the income statement in a manner similar to current accounting. On January 1, 2019, the Company adopted the ASU 2016-02 and all related amendments, using the optional transition method (modified retrospective approach) applied to leases at the adoption date. Under the modified retrospective approach, comparative periods have not been restated and continue to be reported under the accounting standards in effect for those periods. Additionally, an adjustment was recorded to accumulated deficit to account for the initial adoption of the standard.

For additional information regarding the adoption of ASU 2016-02, see Note 9 – Leases in the 2019 Form 10-K.

Other information related to operating leases as of and for the three and nine months ending September 30, 2020 were as follows:

 

     As of
September 30, 2020
 

Weighted average remaining lease term

     10.81  

Weighted average discount rate

     13.2

Maturities of lease liabilities for operating leases as of September 30, 2020 were as follows:

 

     Maturities of Lease Liability  
     Third Party      Related Party      Total  

Remainder of 2020

   $ 4,767,957      $ 322,287      $ 5,090,244  

2021

     22,243,662        1,307,183        23,550,845  

2022

     22,285,836        1,337,130        23,622,966  

2023

     22,092,882        1,367,771        23,460,653  

2024

     21,387,294        1,255,714        22,643,008  

2025 and Thereafter

     183,998,689        10,345,330        194,344,019  
  

 

 

    

 

 

    

 

 

 

Total Lease Payments

     276,776,320        15,935,415        292,711,735  
  

 

 

    

 

 

    

 

 

 

Less: Interest

     (177,811,636      (7,837,605      (185,649,241
  

 

 

    

 

 

    

 

 

 

Present Value of Lease Liability

   $ 98,964,684      $ 8,907,810      $ 107,062,494  
  

 

 

    

 

 

    

 

 

 

For the three and nine months ended September 30, 2020 the Company recorded operating lease expense of $6,590,553 and $19,021,190, respectively. For the three and nine months ended September 30, 2019, the Company recorded operating lease expenses of $1,962,561 and $4,229,889, respectively.

 

  (b)

Related Party Operating Leases

The Company entered into related party transactions with respect to its leasing arrangements for certain facilities in Florida, Illinois, Maryland, Massachusetts and Nevada.

Wendy Berger, a director of the Company, is a principal of WBS Equities, LLC, which is the Manager of Mosaic Real Estate, LLC, and owns certain facilities leased by the Company. Additionally, Mosaic Real Estate, LLC is owned in part by Ms. Berger (through the Wendy Berger 1998 Revocable Trust), Benjamin Kovler, the Chief Executive Officer and a director of the Company (through KP Capital, LLC), and Anthony Georgiadis, the Chief Financial Officer and a director of the Company (through Three One Four Holdings, LLC). The terms of these leases range from 7 years to 15 years. For the three

 

- 16 -


Green Thumb Industries Inc.

Notes to Unaudited Interim Condensed Consolidated Financial Statements

(Amounts Expressed in United States Dollars, Except Where Stated Otherwise)

 

5.

LEASES (Continued)

 

 

  (b)

Related Party Operating Leases (Continued)

and nine months ended September 30, 2020, the Company recorded lease expense of $157,076 and $601,753, respectively, associated with these leasing arrangements. For the three and nine month ended September 30, 2019, the Company recorded operating lease expenses of $148,226 and $339,961, respectively, associated with these leasing arrangements.

On June 5, 2020, a wholly owned subsidiary of the Company purchased the building and building improvements of the Company’s dispensary located in Joliet, Illinois for $1,814,000 from Mosaic Real Estate Joliet, LLC. The transaction resulted in the termination of the Illinois related party leasing arrangement. For additional information see Note 6 – Notes Payable.

In connection with the Company’s acquisition of Integral Associates, LLC, the Company, through a subsidiary, leases property from Durango Teco Partners, LLC, which commenced on June 27, 2020 for an Essence retail store in Nevada. Durango Teco Partners, LLC is owned in part by Armenco Capital LLC, which is in turn owned in part by Alejandro Yemenidjian, a former owner of Integral Associates, LLC and a current director of the Company. The lease has a ten year term. For the three and nine months ended September 30, 2020, the Company recorded lease expense of $58,332 and $77,776, respectively, associated with this lease.

 

  (c)

Sales Lease Back Transactions

On January 31, 2020, the Company closed on a sale and lease back transaction to sell its Toledo, Ohio processing facility to IIP. Under a long-term agreement, the Company has leased back the facility and continues to operate and manage it. The purchase price for the property was $2,900,000, excluding transaction costs. The Company is making certain improvements to the property that will significantly enhance production capacity, for which IIP has agreed to provide reimbursement of up to $4,300,000.

Following the end of the third quarter of 2020, on October 1, 2020, the Company and IIP agreed to amend the lease on the Toledo, Ohio processing facility. Under the amendment, IIP will provide an additional $25,000,000 in funding to be used for the construction of a cannabis cultivation facility at the property, which currently houses a separate cannabis processing facility. Assuming full payment of the additional funding, IIP’s total investment in the property pursuant to the sale and leaseback transaction and related amendment will be $32,200,000. The Company is in process of evaluating the lease amendment and will conclude on the classification, and value of the right of use asset and related lease liability in the following quarter.

On March 6, 2020, the Company closed on a sale and lease back transaction to sell its Oglesby, Illinois cultivation and processing facility to IIP. Under a long-term agreement, the Company has leased back the facility and continues to operate and manage it. The purchase price for the property was $9,000,000, excluding transaction costs. The Company is making certain improvements to the property that will significantly enhance production capacity, for which IIP has agreed to provide reimbursement of up to $41,000,000. Assuming full reimbursement for such improvements, IIP’s total investment in the property will be $50,000,000. The lease has a term of 16 years and was recorded as an operating lease and resulted in a right of use asset and related lease liability of $26,828,221 and was recorded net of the improvements allowance of $41,000,000.

 

- 17 -


Green Thumb Industries Inc.

Notes to Unaudited Interim Condensed Consolidated Financial Statements

(Amounts Expressed in United States Dollars, Except Where Stated Otherwise)

 

6.

NOTES PAYABLE

 

At September 30, 2020 and December 31, 2019, notes payable consisted of the following:

 

     September 30,
2020
    December 31,
2019
 

In connection with an acquisition completed in 2017, the Company is required to make quarterly charitable contributions of $50,000 through October 2024. The net present value of these required payments has been recorded as a liability with an interest rate of 2.17%.

   $ 763,284     $ 970,957  

Private placement debt dated May 22, 2019, in the original amount of $105,466,429 with an interest rate of 12.00%, matures on May 22, 2023. The debt was issued at a discount, the carrying value of which is $11,618,400 as of September 30, 2020

     93,848,029       90,375,912  

Rise Joliet mortgage dated June 5, 2020, in the original amount of $1,814,000 with an interest rate of 5.00%, matures on June 5, 2035. The debt was issued at a discount, the carrying value of which is $177,244 as of September 30, 2020.

     1,616,606       —    

Rise Lakewood mortgage dated August 20, 2020, in the original amount of $833,000 with an interest rate of 7.25%, matures on August 20, 2025.

     831,341       —    
  

 

 

   

 

 

 

Total notes payable

     97,059,260       91,346,869  

Less: current portion of notes payable

     (301,027     (206,675
  

 

 

   

 

 

 

Notes payable, net of current portion

   $ 96,758,233     $ 91,140,194  
  

 

 

   

 

 

 

 

  (a)

Extension of Private Placement Financing

On May 21, 2020, the Company exercised its option to extend the maturity date of its senior secured notes (the “Notes”) pursuant to the Note Purchase Agreement, dated May 22, 2019, as amended (the “Note Purchase Agreement”) for an additional year. Following this exercise, which was in the Company’s sole discretion under the Note Purchase Agreement, the new maturity date for the Notes is May 22, 2023.

 

  (b)

Mortgage on Joliet, Illinois Dispensary

On June 5, 2020, the Company closed on a secured promissory note (the “Mortgage”) of $1,814,000. The Mortgage bears interest of 5% per annum and matures on June 5, 2035. The Mortgage provided by the lender was used to purchase the building and building improvements of one of the Company’s dispensaries located in Joliet, Illinois that the Company previously leased from Mosaic Real Estate Joliet, LLC, a related party. As part of the transaction, the Company issued 35,000 warrants valued at $181,272 using a Black Scholes Option Pricing model which were accounted for as equity and recorded as a discount on the Mortgage.

 

- 18 -


Green Thumb Industries Inc.

Notes to Unaudited Interim Condensed Consolidated Financial Statements

(Amounts Expressed in United States Dollars, Except Where Stated Otherwise)

 

6.

NOTES PAYABLE (Continued)

 

 

  (c)

Mortgage on Lakewood, Ohio Dispensary

On August 20, 2020, the Company closed on a secured promissory note (the “Lakewood Mortgage”) of $833,000. The Lakewood Mortgage bears interest of 7.25% per annum and matures on August 20, 2025. The Lakewood Mortgage provided by the lender was used to purchase the land, building and building improvements of one of the Company’s dispensaries located in Lakewood, Ohio that the company previously leased.

 

  (d)

Related Parties

The private placement debt is held by related parties as well as unrelated third-party lenders at a percentage of approximately 1% and 99%, respectively. The related parties consist of Benjamin Kovler, the Chief Executive Officer and a director of the Company (through KP Capital, LLC); Andrew Grossman, the Executive Vice President of Capital Markets of the Company (through AG Funding Group, LLC); and Anthony Georgiadis, the Chief Financial Officer and a director of the Corporation (through Three One Four Holdings, LLC and ABG, LLC).

 

7.

WARRANTS

 

As part of the Company’s private placement financing and Mortgage on the Joliet, Illinois dispensary, the Company issued warrants to related parties, as well as un-related third parties, which allow the holders to purchase Subordinate Voting Shares at an exercise price determined at the time of issuance.

The following table summarizes the number warrants outstanding as of September 30, 2020 and December 31, 2019:

 

     Number of
Shares
           Weighted
Average
Exercise
Price
(C$)
     Weighted
Average
Contractual
Life
     Number
of
Shares
     Weighted
Average
Exercise
Price
(USD)
     Weighted
Average
Contractual
Life
 
     Liability Classified      Equity Classified  

Balance as at December 31, 2019

     2,406,811     C$          18.59        4.86        -      $ -        -  

Additional Modification Warrants

     84,924          14.03        5.00        -        -        -  

Dispensary Mortgage Warrants

     -          -         -        35,000        9.10        5.00  

Warrants Exercised

     (5,941        12.42        5.00        -        -        -  
  

 

 

      

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Balance as at September 30, 2020

     2,485,794     C$          18.45        4.87        35,000      $ 9.10        5.00  
  

 

 

      

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

  (a)

Additional Modification Warrants

As part of the November 9, 2019 modification of the Notes, the Company agreed to issue 84,924 additional warrants by May 22, 2020 to participating lenders in the event the Company decided to raise additional capital or to the original lenders involved in the May 22, 2019 private placement financing in the event the Company did not. On May 21, 2020, the Company issued the warrants to the original lenders involved in the private placement financing which allows the holder to purchase 84,924 Subordinate Voting Shares. The warrants are denominated in CAD. Upon issuance, the Company recorded an additional amount to debt discount with a corresponding amount to the warrant liability of $572,387, which was measured at fair value using the following assumptions:

 

- 19 -


Green Thumb Industries Inc.

Notes to Unaudited Interim Condensed Consolidated Financial Statements

(Amounts Expressed in United States Dollars, Except Where Stated Otherwise)

 

7.

WARRANTS (Continued)

 

 

  (a)

Additional Modification Warrants (continued)

 

Significant Assumptions

   May 21, 2020
(Date of Issuance)
 

Volatility

     100

Remaining Term

     5 years  

Risk Free Rate

     0.42

 

  (b)

Dispensary Mortgage Warrants

On June 5, 2020, as part of the $1,814,000 promissory note, the Company issued warrants that allow the promissory noteholder to purchase 35,000 Subordinate Voting Shares. These warrants are denominated in USD, which is the Company’s functional currency. As such, upon issuance, the Company recorded an additional amount to debt discount with a corresponding amount to contributed surplus of $181,272 which was measured at fair value using a Black Scholes Options Pricing model. The Company did not incur any other material fees related to the promissory note.

 

  (c)

Liability Classified Warrants Outstanding

The following table summarizes the fair value of the liability classified warrants at September 30, 2020 and December 31, 2019:

 

Warrant Liability

   Strike
Price
     Warrants
Outstanding
     September 30,
2020
     December 31,
2019
 

Bridge Financing Warrants

   C$ 22.90        218,964      $ 1,065,000      $ 1,385,400  

Private Placement Financing Warrants

   C$ 19.39        1,822,771        13,457,000        12,189,169  

Modification Warrants

Additional Modification Warrants

   C$

C$

12.04

14.03

 

 

    

360,256

83,803

 

 

    

3,251,500

739,500

 

 

    

2,305,274

—  

 

 

  

 

 

    

 

 

    

 

 

    

 

 

 

Totals

        2,485,794      $ 18,513,000      $ 15,879,843  
     

 

 

    

 

 

    

 

 

 

During the three and nine months ended September 30, 2020, the Company recorded a loss of $3,181,114 and a loss of $2,060,771, respectively, on the change in the fair value of the warrant liability within other income (expense) on the unaudited interim condensed consolidated statements of operations.

The following table summarizes the significant assumptions used in determining the fair value of the warrant liability as of each reporting date (see Note 13 - Fair Value Measurements for additional details):

 

Significant Assumptions

   September 30, 2020      December 31, 2019  

Volatility

     85.36% - 89.50%        117.43% - 123.64%  

Remaining Term

     2.03 - 4.64 years        2.78 - 4.86 years  

Risk Free Rate

     0.25% - 0.34%        1.68% - 1.69%  

 

- 20 -


Green Thumb Industries Inc.

Notes to Unaudited Interim Condensed Consolidated Financial Statements

(Amounts Expressed in United States Dollars, Except Where Stated Otherwise)

 

7.

WARRANTS (Continued)

 

 

  (e)

Equity Classified Warrants Outstanding

The following table summarizes the fair value of the equity classified warrants at September 30, 2020 and December 31, 2019:

 

Warrants Included in Contributed Surplus

   Strike
Price
     Warrants
Outstanding
     September 30,
2020
     December 31,
2019
 

Dispensary Mortgage Warrants

   $ 9.10        35,000      $ 181,272      $ —    

The following table summarizes the significant assumptions used in determining the fair value of the equity classified warrants as of each reporting date:

 

Significant Assumptions

   September 30,
2020
    December 31,
2019
 

Volatility

     80     —    

Remaining Term

     5 years       —    

Risk Free Rate

     0.37     —    

 

8.

INCOME TAXES

 

The following table summarizes the Company’s income tax expense and effective tax rates for the three and nine months ended September 30, 2020 and September 30, 2019:

 

     Three Months Ended
September 30,
    Nine Months Ended
September 30,
 
     2020     2019     2020     2019  

Income/(Loss) before Income Taxes

   $ 39,189,341     $ (10,713,603   $ 52,189,559       (40,011,094

Income Tax Expense

   $ 28,436,332     $ 3,624,333     $ 56,964,047       4,706,000  

Effective Tax Rate

     72.6     -33.8     109.1     -11.8

Historically, the Company has calculated its provision for income taxes during its interim reporting periods by applying an estimate of the annual effective tax rate for the full year “ordinary” income or loss for the respective reporting period. For the nine months ended September 30, 2020, the Company has computed its provision for income taxes under the discrete method which treats the year-to-date period as if it were the annual period and determines the income tax expense or benefit on that basis. The discrete method is applied when application of the estimated annual effective tax rate is impractical because it is not possible to reliably estimate the annual effective tax rate. We believe that, at this time, the use of this discrete method is more appropriate than the annual effective tax rate method as the estimated annual effective tax rate method is not reliable due to the high degree of uncertainty in estimating annual pre-tax income due to the early growth stage of the business.

Due to its cannabis operations, the Company is subject to the limitations of Internal Revenue Code (“IRC”) Section 280E under which the Company is only allowed to deduct expenses directly related to sales of product. This results in permanent differences between ordinary and necessary business expenses deemed non-allowable under IRC Section 280E.

The effective tax rate for the three and nine months ended September 30, 2020 varies widely from the three and nine months ended September 30, 2019, respectively, primarily due to the Company reporting pre-tax loss in 2019 as opposed to pre-tax income in 2020. The Company incurred a large amount of expenses that were not deductible due to IRC Section 280E limitations which resulted in income tax expense being incurred while there were pre-tax losses for the three and nine months ended September 2019.

 

- 21 -


Green Thumb Industries Inc.

Notes to Unaudited Interim Condensed Consolidated Financial Statements

(Amounts Expressed in United States Dollars, Except Where Stated Otherwise)

 

8.

INCOME TAXES (Continued)

 

The Company is subject to income taxes in the United States and Canada. Significant judgment is required in evaluating the Company’s uncertain tax positions and determining the provision for income taxes. The Company’s gross unrecognized tax benefits were approximately $16,264,727 and $2,113,263 as of September 30, 2020 and December 31, 2019, respectively, recorded within Deferred Income Taxes.

The federal statute of limitation remains open for the 2017 tax year to the present. The state income tax returns generally remain open for the 2016 tax year through the present. Net operating losses arising prior to these years are also open to examination if and when utilized.

Taxes paid during the nine months ended September 30, 2020 and 2019 were $37,820,228 and $10,534,408, respectively.

 

9.

INVESTMENTS

 

The Company holds direct equity investments in cannabis companies, some of which converted from notes which matured August 1, 2020. The following table summarizes the change in the Company’s investments as of September 30, 2020:

 

     Convertible
Notes
Receivable
    Equity      Total  

Balance at January 1, 2020

   $ 7,533,000     $ 6,535,821      $  14,068,821  

Additions

     —         25,000        25,000  

Conversion of notes receivable

     (7,533,000     7,533,000        —    

Fair value adjustment

     —         8,117,178        8,117,178  
  

 

 

   

 

 

    

Balance at September 30, 2020

   $ —       $ 22,210,999      $  22,210,999  
  

 

 

   

 

 

    

 

 

 

As of September 30, 2020, the Company updated its valuation for the notes that converted to equity as well as certain equity investments. The equity investments were valued using a market approach using the following significant assumptions:

 

     September 30, 2020

Discount for lack of control

   13%

Discount for lack of marketability

   10%-30%

The following table summarizes the change in the Company’s investments as of December 31, 2019:

 

     Convertible Notes
Receivable
     Equity      Total  

Balance at January 1, 2019

   $ 30,336,000      $ 10,597,283      $ 40,933,283  

Fair value adjustment

     (1,398,000      (4,061,462      (5,459,462

Applied to consideration in business combination

     (21,405,000      —          (21,405,000
  

 

 

    

 

 

    

 

 

 

Balance at December 31, 2019

   $ 7,533,000      $ 6,535,821      $ 14,068,821  
  

 

 

    

 

 

    

 

 

 

The calculated fair values are recorded as a Level 3 fair value investment as of September 30, 2020 and December 31, 2019. See Note 13 - Fair Value Measurements for additional details. As of December 31, 2019, the convertible notes receivable were valued using the Binomial Lattice Model, which is based on a generalized binomial option pricing formula, using the following assumptions:

 

- 22 -


Green Thumb Industries Inc.

Notes to Unaudited Interim Condensed Consolidated Financial Statements

(Amounts Expressed in United States Dollars, Except Where Stated Otherwise)

 

9.

INVESTMENTS (Continued)

 

 

     December 31, 2019

Risk free rate

   1.58% -2.46%

Equity Volatility

   58% - 106%

Market Yield

   15% - 18%

Probability of Qualified Financing

   0%

Probability of Sale

   30%

Probability of No Event

   70%

 

10.

SHARE CAPITAL

 

Common shares, which include the Company’s Subordinate Voting Shares, Multiple Voting Shares and Super Voting Shares, are classified as equity. Incremental costs directly attributable to the issuance of shares are recognized as a deduction from equity. The proceeds from the exercise of stock options or warrants together with amounts previously recorded in reserves over the vesting periods are recorded as share capital. Income tax relating to transaction costs of an equity transaction is accounted for in accordance with Accounting Standards Codification (ASC) 740, Income Taxes.

 

  (a)

Authorized

The Company has the following classes of share capital, with each class having no par value:

 

  (i)

Subordinate Voting Shares

The holders of the Subordinate Voting Shares are entitled to receive dividends which may be declared from time to time and are entitled to one vote per share at meetings of the Company’s shareholders. All Subordinate Voting Shares are ranked equally with regard to the Company’s residual assets. The Company is authorized to issue an unlimited number of no par value Subordinate Voting Shares. During the nine months ending September 30, 2020, the shareholders of the Company converted 252,440 Multiple Voting Shares into 25,244,000 Subordinate Voting Shares and 22,953 Super Voting Shares into 2,295,300 Subordinate Voting Shares.

 

  (ii)

Multiple Voting Shares

Each Multiple Voting Share is entitled to 100 votes per share at shareholder meetings of the Company and is exchangeable for 100 Subordinate Voting Shares. At September 30, 2020, the Company had 120,910 issued and outstanding Multiple Voting Shares, which convert into 12,091,000 Subordinate Voting Shares. The Company is authorized to issue an unlimited number of Multiple Voting Shares. During the nine months ending September 30, 2020, the shareholders of the Company converted 252,440 Multiple Voting Shares into 25,244,000 Subordinate Voting Shares.

 

  (iii)

Super Voting Shares

Each Super Voting Share is entitled to 1,000 votes per share at shareholder meetings of the Company and is exchangeable for 100 Subordinate Voting Shares or one Multiple Voting Share. At September 30, 2020, the Company had 379,336 issued and outstanding Super Voting Shares which convert into 37,933,600 Subordinate Voting Shares. The Company is authorized to issue an unlimited number of Super Voting Shares. During the nine months ending September 30, 2020, the shareholders of the Company converted 22,953 Super Voting Shares into 2,295,300 Subordinate Voting Shares.

 

- 23 -


Green Thumb Industries Inc.

Notes to Unaudited Interim Condensed Consolidated Financial Statements

(Amounts Expressed in United States Dollars, Except Where Stated Otherwise)

 

10.

SHARE CAPITAL (Continued)

 

 

  (b)

Issued and Outstanding

A reconciliation of the beginning and ending amounts of the issued and outstanding shares by class is as follows:

 

     Issued and Outstanding  
     Subordinate
Voting
Shares
     Multiple
Voting
Shares
    Super
Voting
Shares
 

As at December 31, 2019

     128,999,964        373,350       402,289  

Issuance of shares under business combinations and investments

     238,450        —         —    

Distribution of contingent consideration

     2,713,463        —         —    

Distribution of deferred shares

     1,220,548        —         —    

Issuance of shares for redemption of noncontrolling interests

     1,315,789        —         —    

Issuance of shares upon exercise of options and warrants

     71,384        —         —    

Issuances of shares upon vesting of RSUs

     901,023        —         —    

Exchange of shares

     27,539,300        (252,440     (22,953
  

 

 

    

 

 

   

 

 

 

As at September 30, 2020

     162,999,921        120,910       379,336  
  

 

 

    

 

 

   

 

 

 

 

  1.

Issuance of Shares Under Business Combinations and Investments

MC Brands, LLC

On June 29, 2020, the Company issued 190,000 Subordinate Voting Shares with a value of $1,840,009 in connection with the Company’s June 27, 2019 acquisition of MC Brands, LLC. The shares issued resulted in an increase in share capital and a corresponding increase to intangible assets on the Company’s unaudited interim condensed consolidated balance sheets. 

KW Ventures, LLC

On February 10, 2020, the Company issued 48,450 Subordinate Voting Shares which were issued at a value of $400,413 in connection with its January 1, 2019 acquisition of KW Ventures, LLC. Such shares were held back as part of the transaction and resulted in an increase in share capital and a reduction in accrued liabilities.

GTI New Jersey, LLC

In connection with the Company’s April 23, 2019 acquisition of the non-controlling interest in GTI New Jersey, LLC, the Company agreed to award the previous minority shareholders of the entity up to $3,000,000 in Subordinate Voting Shares. On May 7, 2020, the Company received approval from the New Jersey Department of Health to begin buildout of an additional retail dispensary. As a result, the Company recorded a current obligation and corresponding reduction to contributed surplus of $2,000,000 representing the maximum value of the shares to be issuable to the former minority shareholders of GTI New Jersey, LLC.

 

- 24 -


Green Thumb Industries Inc.

Notes to Unaudited Interim Condensed Consolidated Financial Statements

(Amounts Expressed in United States Dollars, Except Where Stated Otherwise)

 

10.

SHARE CAPITAL (Continued)

 

 

  2.

Distribution of Contingent Consideration

As of September 30, 2020, the Company issued 2,713,463 Subordinate Voting Shares to the previous owners of several entities in connection with acquisitions completed during 2019. Upon issuance, the Company recorded a reduction to contingent consideration payable and an increase in share capital. The following table represents the contingent shares issued as of September 30, 2020 in relation to each acquisition:

 

  Contingent

Shares Issued

 

          September 30, 2020  

Transaction

  

Date of Transaction

   Units      Value  

Advanced Grow Labs, LLC

   February 12, 2019      1,396,533      $ 11,544,855  

For Success Holdings Company

   February 21, 2019      779,690        6,686,432  

Integral Associates, LLC

   June 5, 2019      537,240        4,654,526  
     

 

 

    

 

 

 
        2,713,463      $ 22,885,813  
     

 

 

    

 

 

 

 

  3.

Distribution of Deferred Shares

As a result of several acquisitions that occurred during 2019, the Company held 1,367,643 deferred shares with a value of $16,587,798 as of December 31, 2019. The deferred shares were to be issued upon the passage of twelve to twenty-four months from the close of each transaction as defined within each respective acquisition agreement. On May 15, 2020, Green Thumb issued 101,695 Subordinate Voting Shares with a value of $1,307,798 in connection with the Company’s May 15, 2019 acquisition of Salveo. On August 12, 2020, the Company issued 472,500 Subordinate Voting Shares with a value of $5,380,00 in connection with the Company’s February 12, 2019 acquisition of Advanced Grow Labs, LLC. Additionally, on August 26, 2020, the Company issued 646,353 Subordinate Voting Shares with a value of $8,064,668 in connection with the Company’s February 21, 2019 acquisition of For Success Holdings Company. The three distributions discussed above resulted in a reduction to deferred share issuances and a corresponding increase to share capital on the Company’s unaudited interim condensed consolidated statement of changes in shareholders’ equity.

 

  (c)

Stock-Based Compensation

The Company operates equity settled stock-based remuneration plans for its eligible directors, officers, employees and consultants. All goods and services received in exchange for the grant of any stock-based payments are measured at their fair value unless the fair value cannot be estimated reliably. If the Company cannot estimate reliably the fair value of the goods and services received, the Company measures their value indirectly by reference to the fair value of the equity instruments granted. For transactions with employees and others providing similar services, the Company measures the fair value of the services by reference to the fair value of the equity instruments granted. Equity settled stock-based payments under stock-based payment plans are ultimately recognized as an expense in profit or loss with a corresponding credit to equity.

In June 2018, the Company established the Green Thumb Industries Inc. 2018 Stock and Incentive Plan, which was amended by Amendment No. 1 thereto (as amended, the “Plan”). The maximum number of Restricted Stock Units (“RSUs”) and options issued under the Plan shall not exceed 10% of the issued and outstanding shares on an as-converted basis.

 

- 25 -


Green Thumb Industries Inc.

Notes to Unaudited Interim Condensed Consolidated Financial Statements

(Amounts Expressed in United States Dollars, Except Where Stated Otherwise)

 

10.

SHARE CAPITAL (Continued)

 

 

  (c)

Stock-Based Compensation (Continued)

The Company recognizes compensation expense for RSUs and options on a straight-line basis over the requisite service period of the award. Non-market vesting conditions are included in the assumptions about the number of options that are expected to become exercisable. Estimates are subsequently revised if there is any indication that the number of share options expected to vest differs from the previous estimate. Any cumulative adjustment prior to vesting is recognized in the current period with no adjustment to prior periods for expense previously recognized.

Option and RSU grants generally vest over three years, and options typically have a life of five or ten years. Option grants are determined by the Compensation Committee of the Company’s Board of Directors with the option price set at no less than 100% of the fair market value of a share on the date of grant.

 

  Stock

option activity is summarized as follows:

 

     Number of
Shares
    Weighted Average
Exercise Price
(CAD)
     Weighted Average
Contractual Life
(Years)
     Aggregate
Intrinsic Value
 

Balance as at December 31, 2019

     3,839,017       13.21        5.81      $ 218,234  

Granted

     2,496,511       9.76        5.00     

Exercised

     (65,443     11.02        3.98     

Forfeited

     (487,486     13.82        5.22     

 

  

 

 

   

 

 

    

 

 

    

 

 

 

Balance as at September 30, 2020

     5,782,599       11.69        5.53     

Vested

     1,635,030       13.36        6.65     

Exercisable at September 30, 2020

     1,516,872       13.22        6.73      $ 4,601,129  

The aggregate intrinsic value in the table above represents the total pre-tax intrinsic value (the difference between the Company’s closing stock price on September 30, 2020 and December 31, 2019, respectively, and the exercise price, multiplied by the number of in-the-money options) that would have been received by the option holders had all option holders exercised their in-the-money options on September 30, 2020 and December 31, 2019. This amount will change in future periods based on the fair market value of the Company’s Subordinate Voting Shares and the number of options outstanding.

The Company used the Black-Scholes option pricing model to estimate the fair value of the options granted during the nine months ended September 30, 2020, using the following ranges of assumptions:

 

Risk-free interest rate

     0.36% - 2.33%  

Expected dividend yield

     0%  

Expected volatility

     80% - 100%  

Expected option life

     3 – 10 years  

As the Company became publicly traded in June 2018, sufficient historical trading information was not available to determine an expected volatility rate. The volatility rate was based on comparable companies within the same industry. As permitted under ASC 718, the Company has made an accounting policy choice to account for forfeitures when they occur.

 

- 26 -


Green Thumb Industries Inc.

Notes to Unaudited Interim Condensed Consolidated Financial Statements

(Amounts Expressed in United States Dollars, Except Where Stated Otherwise)

 

10.

SHARE CAPITAL (Continued)

 

 

  (c)

Stock-Based Compensation (Continued)

The following table summarizes the number of non-vested RSU awards as of September 30, 2020 and December 31, 2019 and the changes during the nine months ended September 30, 2020:

 

     Number of Shares      Weighted Average Grant
Date Fair Value (CAD)
 

Nonvested Shares at December 31, 2019

     1,399,762        9.30  

Granted

     254,268        12,65  

Forfeited

     (64,500      15.60  

Vested

     (901,023      14.85  
  

 

 

    

 

 

 

Nonvested Shares at September 30, 2020

     688,507        16.77  

The stock-based compensation expense for the three and nine months ended September 30, 2020 and 2019 was as followed:

 

     For the Three Months Ended      For the Nine Months Ended  
     September 30,      September 30,  
     2020      2019      2020      2019  

Stock options expense

   $ 2,614,273      $ 1,666,465      $ 8,209,557      $ 4,248,461  

RSUs

     1,821,054        1,897,630        6,999,963        9,075,622  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total Stock Based Compensation Expense

   $ 4,435,634      $ 3,564,095      $ 15,209,520      $ 13,324,083  
  

 

 

    

 

 

    

 

 

    

 

 

 

As of September 30, 2020, $25,815,117 of total unrecognized expense related to Stock Based Compensation awards is expected to be recognized over a weighted-average period of 1.93 years.

 

  (d)

Issuance of Shares for Redemption of Noncontrolling Interest

On August 8, 2020, the Company and its joint venture partner in Ohio Investors 2017, LLC reached an agreement allowing Green Thumb to purchase the remaining noncontrolling interest in Ohio Investors 2017, LLC from the partner. As a result, on August 31, 2020, the Company issued 1,315,789 Subordinate Voting Shares with a value of $20,078,940 in consideration for the noncontrolling partner’s interest in Ohio Investors 2017, LLC. Upon the closing of the transaction, the Company recorded a reduction to the current liability established for the purchase of the noncontrolling interest of $11,200,000, an increase in share capital for the fair value of the noncontrolling partners interest of $20,078,940 and a reduction to contributed capital of $8,878,940.

 

11.

OTHER INCOME (EXPENSE)

 

For the three and nine months ended September 30, 2020 and 2019 other income (expense) was comprised of the following:

 

     For the Three Months Ended
September 30,
    For the Nine Months Ended
September 30,
 
     2020     2019     2020     2019  

Fair value adjustments on equity investments

   $ 8,134,213     $ (1,196,676   $ 8,117,178     $ (932,983

Fair value adjustments on variable note receivable

     —         (5,428,542     (815,937     (7,424,727

Fair value adjustments on warrants issued

     (3,181,114     —         (2,060,771     —    

Fair value adjustments on contingent consideration

     442,991       —         425,426       —    

Other

     1,036,793       39,678       1,835,670       388,277  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total Other Income (Expense)

   $ 6,432,883     $ (6,585,540   $ 7,501,566     $ (7,969,433
  

 

 

   

 

 

   

 

 

   

 

 

 

 

- 27 -


Green Thumb Industries Inc.

Notes to Unaudited Interim Condensed Consolidated Financial Statements

(Amounts Expressed in United States Dollars, Except Where Stated Otherwise)

 

12.

COMMITMENTS AND CONTINGENCIES

 

The Company is subject to lawsuits, investigations and other claims related to employment, commercial and other matters that arise out of operations in the normal course of business. Periodically, the Company reviews the status of each significant matter and assesses the potential financial exposure. If the potential loss from any claim or legal proceeding is considered probable, and the amount can be reliably estimated, such amount is recognized in other liabilities.

Contingent liabilities are measured at management’s best estimate of the expenditure required to settle the obligation at the end of the reporting period and are discounted to present value where the effect is material. The Company performs evaluations to identify contingent liabilities for contracts. Contingent consideration is measured upon acquisition and is estimated using probability weighting of potential payouts. Subsequent changes in the estimated contingent consideration from the final purchase price allocation are recognized in the Company’s unaudited interim condensed consolidated statement of operations.

 

  (a)

Contingencies

The Company’s operations are subject to a variety of local and state regulations. Failure to comply with one or more of those regulations could result in fines, sanctions, restrictions on its operations, or losses of permits that could result in the Company ceasing operations in that specific state or local jurisdiction. While management believes that the Company is in compliance with applicable local and state regulations at September 30, 2020 and December 31, 2019, cannabis and other regulations continue to evolve and are subject to differing interpretations. As a result, the Company may be subject to regulatory fines, penalties, or restrictions in the future.

 

  (b)

Claims and Litigation

From time to time, the Company may be involved in litigation relating to claims arising out of operations in the normal course of business. At September 30, 2020 and December 31, 2019, there were no pending or threatened lawsuits that could reasonably be expected to have a material effect on the results of the Company’s consolidated operations. There are also no proceedings in which any of the Company’s directors, officers or affiliates is an adverse party or has a material interest adverse to the Company’s interest.

 

  (c)

Construction Commitments

As of September 30, 2020, the Company held approximately $25,600,000 of open commitments to contractors primarily associated with improvements being made to one of the Company’s cultivation and processing facilities. The Company expects to be reimbursed for approximately $22,500,000 of the open commitment as part of its sale and lease back agreement with IIP.

 

13.

FAIR VALUE MEASUREMENTS

 

The Company applies fair value accounting for all financial assets and liabilities that are recognized or disclosed at fair value in the financial statements on a recurring basis. Fair value is defined as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities that are required to be recorded at fair value, the Company considers all related factors of the asset by market participants in which the Company would transact and the market-based risk measurements or assumptions that market participants would use in pricing the asset or liability, such as inherent risk, transfer restrictions, and credit risk.

 

- 28 -


Green Thumb Industries Inc.

Notes to Unaudited Interim Condensed Consolidated Financial Statements

(Amounts Expressed in United States Dollars, Except Where Stated Otherwise)

 

13.

FAIR VALUE MEASUREMENTS (Continued)

 

The Company applies the following fair value hierarchy, which prioritizes the inputs used to measure fair value into three levels, and bases the categorization within the hierarchy upon the lowest level of input that is available and significant to the fair value measurement:

Level 1 – Unadjusted quoted prices in active markets for identical assets or liabilities;

Level 2 – Inputs other than quoted prices that are observable for the asset or liability, either directly or indirectly; and

Level 3 – Inputs for the asset or liability that are not based on observable market data.

 

  Financial

Instruments

The Company’s financial instruments consist of cash and cash equivalents, accounts receivable, notes receivable, due from related parties, investments, accounts payable and accrued liabilities, notes payable, derivative liability, liability for acquisition of noncontrolling interest and contingent consideration payable.

Financial instruments recorded at fair value are classified using a fair value hierarchy that reflects the significance of the inputs to fair value measurements. The fair values of the Company’s financial instruments associated with each of the three levels of the hierarchy are:

 

     As of September 30, 2020  
     Level 1      Level 2      Level 3     Total  

Cash and Cash Equivalents

   $ 78,091,073      $ —        $ —       $ 78,091,073  

Investments

     675,594        —          21,535,406       22,210,999  

Liability of Redemption of Noncontrolling Interest

     —          —          —         —    

Contingent Consideration Payable

     —          —          (36,315,360     (36,315,360

Warrant Liability

     —          —          (18,513,000     (18,513,000
  

 

 

    

 

 

    

 

 

   

 

 

 
   $ 78,766,667      $ —        $ (33,292,954   $ 45,473,712  
  

 

 

    

 

 

    

 

 

   

 

 

 

 

     As of December 31, 2019  
     Level 1      Level 2      Level 3     Total  

Cash and Cash Equivalents

   $ 46,667,334      $ —        $ —       $ 46,667,334  

Notes Receivable

     —          —          815,937       815,937  

Investments

     —          —          14,068,821       14,068,821  

Liability of Redemption of Noncontrolling Interest

     —          —          (5,500,000     (5,500,000

Contingent Consideration Payable

     —          —          (58,936,739     (58,936,739

Warrant Liability

     —          —          (15,879,843     (15,879,843
  

 

 

    

 

 

    

 

 

   

 

 

 
   $ 46,667,334      $ —        $ (65,431,824   $ (18,764,490
  

 

 

    

 

 

    

 

 

   

 

 

 

As of December 31, 2019, the Company held an equity investment in a privately held entity that was subsequently acquired by a publicly traded entity during the third quarter of 2020. As a result of the acquisition, the Company received shares of the acquiring entity in exchange for the shares in the privately held entity. Further, the transaction resulted in a transfer of the investment from Level 3 to Level 1. As of September 30, 2020, the value of the Level 1 investment was $675,594.

 

- 29 -


Green Thumb Industries Inc.

Notes to Unaudited Interim Condensed Consolidated Financial Statements

(Amounts Expressed in United States Dollars, Except Where Stated Otherwise)

 

14.

VARIABLE INTEREST ENTITIES

 

The following table presents the summarized financial information about the Company’s consolidated variable interest entities (“VIEs”) which are included in the unaudited interim condensed consolidated balance sheets as of September 30, 2020 and December 31, 2019:

 

     September 30, 2020      December 31, 2019  
     Chesapeake
Alternatives, LLC
     Illinois Disp, LLC      Other Non-material
VIEs
     Chesapeake
Alternatives, LLC
     Illinois
Disp, LLC
     Other Non-material
VIEs
 

Current assets

   $ 29,728,652      $ 2,489,118      $ 2,261,685      $ 19,455,533      $ 1,381,716      $ 1,352,935  

Non-current assets

     3,041,401        3,752,645        2,353,991        22,384,663        3,083,659        2,534,297  

Current liabilities

     21,228,691        898,661        1,108,292        14,219,204        149,498        783,682  

Non-current liabilities

     785,724        473,136        802,823        1,169,989        137,736        855,440  

Equity attributable to noncontrolling interests

     298,252        2,309,983        85,561        350,206        2,089,071        (22,488

Equity attributable to Green Thumb Industries Inc.

     10,457,386        2,309,983        2,619,001        6,645,263        2,089,070        2,270,598  

The Following tables presents the summarized financial information about the Company’s VIEs which are included in the unaudited interim condensed consolidated statements of operations for the three and nine months ended September 30, 2020 and 2019:

 

     Three Months Ended  
     September 30, 2020      September 30, 2019  
     Chesapeake
Alternatives, LLC
     Illinois Disp, LLC      Other Non-material
VIEs
     Chesapeake
Alternatives, LLC
    Illinois
Disp, LLC
     Other Non-material
VIEs
 

Revenues

   $ 5,684,349      $ 5,224,583      $ 2,695,781      $ 4,369,436     $ 1,620,065      $ 689,097  

Net income (loss) attributable to noncontrolling interests

     26,134        897,494        185,452        1,807,394       185,930        (1,624,850

Net income (loss) attributable to Green Thumb Industries Inc.

     1,033,650        897,494        294,969        (971,880     185,931        1,059,653  
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

    

 

 

 

Net income (loss)

   $ 1,059,784      $ 1,794,988      $ 480,421      $ 835,514     $ 371,860      $ (565,197
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

    

 

 

 

 

     Nine Months Ended  
     September 30, 2020      September 30, 2019  
     Chesapeake
Alternatives, LLC
     Illinois Disp, LLC      Other Non-material
VIEs
     Chesapeake
Alternatives, LLC
     Illinois Disp, LLC      Other Non-material
VIEs
 

Revenues

   $ 14,792,710      $ 13,170,514      $ 6,778,501      $ 12,458,427      $ 4,174,045      $ 2,373,042  

Net income (loss) attributable to noncontrolling interests

     206,929        2,170,912        319,511        2,244,546        506,972        (2,307,097

Net income (loss) attributable to Green Thumb Industries Inc.

     3,812,121        2,170,913        661,341        —          506,972        —    
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Net income (loss)

   $ 4,019,050      $ 4,341,825      $ 980,852      $ 2,244,546      $ 1,013,943      $ (2,307,097
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

As of September 30, 2020, and December 31, 2019, VIEs included in the Other Non-material VIEs are Bluepoint Wellness of Westport LLC and Meshow, LLC. As of September 30, 2019, VIEs included in the Other Non-material VIEs are Meshow, LLC, KW Ventures Holdings, LLC and Ohio Investors 2017, LLC. All of these entities were determined to be VIEs as the Company possesses the power to direct activities through management services agreements.

 

15.

SEGMENT REPORTING

 

The Company operates in two segments: the cultivation, production and sale of cannabis products to retail stores (“Consumer Packaged Goods”) and retailing of cannabis to patients and consumers (“Retail”). The Company does not allocate operating expenses to these business units, nor does it allocate specific assets. Additionally, the Chief Operating Decision Maker does not review total assets or net income (loss) by segments; therefore, such information is not presented below.

 

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Green Thumb Industries Inc.

Notes to Unaudited Interim Condensed Consolidated Financial Statements

(Amounts Expressed in United States Dollars, Except Where Stated Otherwise)

 

15.

SEGMENT REPORTING (Continued)

 

The below table presents revenues by type for the three and nine months ended September 30, 2020 and 2019:

 

     Three Months Ended
September 30,
    Nine Months Ended
September 30,
 
     2020     2019     2020     2019  

Revenues, Net of Discounts

        

Consumer Packaged Goods

   $ 74,702,069     $ 35,093,858     $ 177,355,614     $ 71,651,968  

Retail

     111,948,115       43,532,286       275,451,137       85,501,646  

Intersegment Eliminations

     (29,546,343     (10,635,237     (73,460,384     (16,522,767
  

 

 

   

 

 

   

 

 

   

 

 

 

Total Revenues, net of discounts

   $ 157,103,841     $ 67,990,907     $ 379,346,367     $ 140,630,847  
  

 

 

   

 

 

   

 

 

   

 

 

 

Depreciation and Amortization

        

Consumer Packaged Goods

   $ 10,029,857     $ 7,226,614     $ 33,089,808     $ 16,100,635  

Retail

     1,505,019       687,199       5,309,152       1,428,256  

Intersegment Eliminations

     —         —         —         —    
  

 

 

   

 

 

   

 

 

   

 

 

 

Total Depreciation and Amortization

   $ 11,534,876     $ 7,913,813     $ 38,479,960     $ 17,528,891  
  

 

 

   

 

 

   

 

 

   

 

 

 

Income Taxes

        

Consumer Packaged Goods

   $ 12,928,449     $ 1,072,333     $ 23,553,449     $ 1,761,333  

Retail

     15,507.883       5,128,000       33,410,598       9,028,000  

Intersegment Eliminations and Corporate

     —         (2,576,000     —         (6,083,333
  

 

 

   

 

 

   

 

 

   

 

 

 

Total Income Taxes

   $ 28,436,332     $ 3,624,333     $ 56,964,047     $ 4,706,000  
  

 

 

   

 

 

   

 

 

   

 

 

 

Goodwill assigned to the Consumer Packaged Goods segment as of September 30, 2020 and December 31, 2019 was $252,016,532 and $255,211,232, respectively. Intangible assets, net assigned to the Consumer Packaged Goods segment as of September 30, 2020 and December 31, 2019 was $215,986,854 and $228,244,254, respectively.

Goodwill assigned to the Retail segment as of September 30, 2020 and December 31, 2019 was $121,065,184 and $119,873,759, respectively. Intangible assets, net assigned to the Retail segment as of September 30, 2020 and December 31, 2019 was $193,668,663 and $207,002,644, respectively.

The Company’s assets are aggregated into two reportable segments (Retail and Consumer Packaged Goods). For the purposes of testing goodwill, Green Thumb has identified 22 reporting units. The Company determined its reporting units by first reviewing the operating segments based on the geographic areas in which Green Thumb conducts business (or each market). The markets were then further divided into reporting units based on the market operations (Retail and Consumer Packaged Goods) which were primarily determined based on the licenses each market holds. All revenues are derived from customers domiciled in the United States and all assets are located in the United States.

 

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ITEM 2. MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION

This management discussion and analysis (“MD&A”) of the financial condition and results of operations of Green Thumb Industries Inc. (the “Company” or “Green Thumb”) is for the three and nine months ended September 30, 2020 and 2019. It is supplemental to, and should be read in conjunction with, the Company’s unaudited interim condensed consolidated financial statements as of September 30, 2020 and the consolidated financial statements for the year ended December 31, 2019 included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019 filed with the U.S. Securities Exchange Commission on April 15, 2019 (the “2019 Form 10-K”) and the accompanying notes for each respective periods. The Company’s financial statements are prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). Financial information presented in this MD&A is presented in United States dollars (“$” or “US$”), unless otherwise indicated.

This MD&A contains certain “forward-looking statements” and certain “forward-looking information” as defined under applicable United States securities laws. Please refer to the discussion of forward-looking statements and information set out under the heading “Cautionary Note Regarding Forward-Looking Information,” identified in the ‘‘Risks and Uncertainties’’ section of this MD&A and in Part II, Item 1A, “Risk Factors.” As a result of many factors, the Company’s actual results may differ materially from those anticipated in these forward-looking statements and information.

COVID-19 Considerations

In March 2020, the World Health Organization categorized coronavirus disease 2019 (“COVID-19”) as a pandemic. COVID-19 continues to spread throughout the U.S. and other countries across the world, and the duration and severity of its effects are currently unknown. The Company continues to implement and evaluate actions to strengthen its financial position and support the continuity of its business and operations in the face of this pandemic and other events.

The Company’s priorities during the COVID-19 pandemic are protecting the health and safety of its employees and its customers, following the recommended actions of government and health authorities. In the future, the pandemic may cause reduced demand for the Company’s products and services if, for example, the pandemic results in a recessionary economic environment or potential new restrictions on business operations or the movement of individuals. However, given the Company’s operations have to date been deemed “essential” services in the states in which it does business, the Company believes that there will continue to be strong demand for Green Thumb products.

Operations of the Company are currently ongoing as the cultivation, processing and sale of cannabis products is currently considered an “essential” business by all states in which the Company operates with respect to all customers. The Company’s ability to continue to operate without any significant negative operational impact from the COVID-19 pandemic will in part depend on the Company’s ability to protect its employees, customers and supply chain and its continued designation as “essential” in states where it does business that currently or in the future impose restrictions on business operations.

The pandemic has not materially impacted the Company’s business operations or liquidity position to date. The Company continues to generate operating cash flows to meet its short-term liquidity needs. In all locations where applicable regulations limiting in-store retail activity have been enacted by governmental authorities, the Company has expanded consumer delivery options and curbside pickup to help further protect the health and safety of Green Thumb employees and customers.

While during the first nine months of 2020 the Company’s revenue, gross profit and operating income were not negatively impacted by COVID-19 and the Company generally maintained the consistency of its operations, the uncertain nature of the spread of COVID-19 may impact its business operations for reasons including the potential quarantine of Green Thumb employees or those of its supply chain partners and our designation as “essential” in states where we do business that currently or in the future impose restrictions on business operations.

 

- 32 -


For additional information on risk factors related to the pandemic or other risks that could impact Green Thumb’s results, please refer to “Risk Factors” in Part II, Item 1A of this Quarterly Report on Form 10-Q.

OVERVIEW OF THE COMPANY

Established in 2014 and headquartered in Chicago, Illinois, Green Thumb is promoting well-being through the power of cannabis, while being committed to community and sustainable profitable growth. As of September 30, 2020, Green Thumb has operations across 12 U.S. markets, employs approximately 2,000 people and serves hundreds of thousands of patients and customers quarterly.

Green Thumb’s core business is manufacturing, distributing and marketing a portfolio of owned cannabis consumer packaged goods brands (which we refer to as our Consumer Packaged Goods business), including Beboe, Dogwalkers, Dr. Solomon’s, incredibles, Rhythm, and The Feel Collection. The Company distributes and markets these products primarily to third-party licensed retail cannabis stores across the United States as well as to Green Thumb-owned retail stores (which we refer to as our Retail business).

The Company’s Consumer Packaged Goods portfolio is primarily generated from plant material that Green Thumb grows and processes itself, which we use to produce our consumer packaged goods in 13 manufacturing facilities. This portfolio consists of stock keeping units (“SKUs”) across a range of cannabis product categories, including flower, pre-rolls, concentrates, vape, capsules, tinctures, edibles, topicals and other cannabis-related products (none of which product categories are individually material to the Company). These Consumer Packaged Goods products are sold in retail locations throughout the 12 U.S. markets Green Thumb operates including Green Thumb’s own Rise and Essence dispensaries.

Green Thumb owns and operates a national cannabis retail chain called Rise, and in the Las Vegas, Nevada area, a chain of stores called Essence, which are relationship-centric retail experiences aimed to deliver a superior level of customer service through high-engagement consumer interaction, a consultative, transparent and education-forward selling approach and a consistently available assortment of cannabis products. In addition, we own stores under other names, primarily where we co-own the stores or naming is subject to licensing or similar restrictions. The income from Green Thumb’s retail stores is primarily from the sale of cannabis-related products, which includes the sale of Green Thumb produced products as well as those produced by third parties, with an immaterial (under 10%) portion of this income resulting from the sale of other merchandise (such as t-shirts and accessories for cannabis use). The Rise stores currently are located in eight of the states in which we operate (including Nevada). The Essence stores were acquired in connection with the 2019 acquisition of Integral Associates and are located in Nevada. The Essence stores differ from the Rise stores mainly in geographic location. As of September 30, 2020, the Company had 48 open and operating retail locations. The Company’s new store opening plans will remain fluid depending on market conditions, obtaining local licensing, construction and other permissions and subject to the Company’s capital allocation plans and the evolving situation with respect to the COVID-19 as described above and under the heading “Liquidity, Financing Activities During the Period, and Capital Resources” below.

Revenue Streams

The Company has consolidated financial statements across its operating businesses with revenue from the manufacture, sale and distribution of branded cannabis products to third-party retail customers as well as the sale of finished products to consumers in its retail stores.

As of September 30, 2020, Green Thumb has revenue in its 12 markets (California, Colorado, Connecticut, Florida, Illinois, Maryland, Massachusetts, Nevada, New Jersey, New York, Ohio and Pennsylvania).

 

- 33 -


Results of Operations – Consolidated

The following table sets forth the Company’s selected consolidated financial data for the periods, and as of the dates, indicated. The (i) consolidated statements of operations for the three and nine months ended September 30, 2020 and 2019 and (ii) consolidated balance sheet data as of September 30, 2020 and December 31, 2019 have been derived from, and should be read in conjunction with the unaudited interim condensed consolidated financial statements and accompanying notes presented in Item 1 of this Report.

The Company’s unaudited interim condensed consolidated financial statements have been prepared in accordance with U.S. GAAP and on a going-concern basis that contemplates continuity of operations and realization of assets and liquidation of liabilities in the ordinary course of business.

 

     As of and for the  
     Three Months Ended
September 30,
    Nine Months Ended
September 30,
 
     2020     2019     2020     2019  

Total Revenues, net of discounts

   $ 157,103,841     $ 67,990,907     $ 379,346,367     $ 140,630,847  

Cost of Goods Sold, net

   $ (70,146,676   $ (35,849,783   $ (175,707,874   $ (74,196,750

Gross Profit

   $ 86,957,165     $ 32,141,124     $ 203,638,493     $ 66,434,097  

Total Expenses

   $ 49,745,979     $ 30,764,406     $ 144,823,947     $ 88,013,769  

Other Income (Expense)

   $ 1,978,155     $ (12,090,321   $ (6,624,987   $ (18,431,422

Net Income (Loss) Attributable to Green Thumb

   $ 9,643,929     $ (14,590,793   $ (7,471,840   $ (45,045,898

 

     As of  
     September 30, 2020      December 31, 2019  

Total Assets

   $ 1,254,614,447      $ 1,167,536,624  

Long-Term Liabilities

   $ 268,639,338      $ 212,960,693  

Three Months Ended September 30, 2020 Compared to the Three Months Ended September 30, 2019

Revenues, net of Discounts

Revenue for the three months ended September 30, 2020 was $157,103,841, up 131% from $67,990,907 for the three months ended September 30, 2019 driven by contributions from both Retail and Consumer Packaged Goods, largely due to growth in Illinois and Pennsylvania. Key performance drivers are: increased store traffic to Green Thumb’s open and operating retail stores, particularly in Illinois and Pennsylvania. The Company generated revenue from 48 Retail locations during the quarter compared to 32 in the same quarter of the prior year. During the three months ended September 30, 2020, the Company did not open any new stores whereas during the same period in 2019, the Company opened 4 stores and acquired 3 stores. Since September 30, 2019, the Company acquired one retail store in Connecticut that contributed to the increase in Retail revenues and opened 15 new Retail locations in Pennsylvania, Florida, Illinois, Ohio, Nevada, Connecticut and New Jersey.

The key driver for the Consumer Packaged Goods revenue increase was the expansion of sales of Green Thumb’s branded product portfolio to third-party retailers through the Company’s existing Consumer Packaged Goods cultivation and processing facilities in Illinois, Pennsylvania, Massachusetts, Nevada and Maryland due to increased scale and efficiency.

Cost of Goods Sold, net

Cost of goods sold are derived from retail purchases made by the Company from its third-party licensed producers operating within our state markets and costs related to the internal cultivation and production of cannabis. Cost of goods sold for the three months ended September 30, 2020 was $70,146,676, up 96% from $35,849,783 for the three months ended September 30, 2019, driven by increased volume in open and operating retail stores; new retail store openings in Illinois and Pennsylvania and expansion of the consumer products sales in Illinois, Pennsylvania, Massachusetts, Nevada and Maryland as described above.

 

- 34 -


Gross Profit

Gross profit for the three months ended September 30, 2020 was $86,957,165, representing a gross margin on the sale of branded cannabis flower and processed and packaged products including concentrates, edibles, topicals and other cannabis products, of 55%. This is compared to gross profit for the three months ended September 30, 2019 of $32,141,124 or a 47% gross margin. The Company’s increase in gross margin percentage was mainly attributed to expanded capacity in the Company’s Consumer Packaged Goods segment. The increase in gross profit (dollars) was directly attributable to the revenue increase as described above.

Total Expenses

Total expenses for the three months ended September 30, 2020 were $49,745,979 or 32% of total revenues, net of discounts, resulting in an increase of $18,981,573. Total expenses for the three months ended September 30, 2019 were $30,764,406 or 45% of total revenues, net of discounts.

The increase in total expenses was attributable to Retail salaries and benefits, depreciation expense and other operational and facility expenses mainly as a result of the Company’s addition of 16 new and acquired retail facilities over the prior year period. In addition, an increase in intangible amortization expense, corporate staff salaries and non-cash equity incentive compensation expense also contributed to the overall increase in total expenses. The reduction in expenses as a percent of revenue was attributable to measures deployed to control variable expenses as well as inherent operating leverage caused by the significant increase in revenue.

Total Other Income (Expense)

Total other income (expense) for three months ended September 30, 2020 was $1,978,155, an increase of $14,068,476, mainly due to favorable fair value adjustments recorded in 2020.

Income (Loss) Before Provision for Income Taxes and Non-Controlling Interest

Net operating income before provision for income taxes and non-controlling interest for three months ended September 30, 2020 was $39,189,341, an increase of $49,902,944 compared to the three months ended September 30, 2019.

As presented under the heading “Non-GAAP Measures” below, after adjusting for non-cash equity incentive compensation of $4,435,634, adjusted operating EBITDA was $53,181,696 and $13,786,391 for the three months ended September 30, 2020 and 2019, respectively.

Provision for Income Taxes

Income tax expense is recognized based on the expected tax payable on the taxable income for the year, using tax rates enacted or substantively enacted at year-end. For the three months ended September 30, 2020, federal and state income tax expense totaled $(28,436,332) compared to expense of $(3,624,333) for the three months ended September 30, 2019.

The effective tax rate for the three months ended September 30, 2020 varies widely from the three months ended September 30, 2019 primarily due to the change from pre-tax loss in 2019 to pre-tax income in 2020. The large amount of nondeductible expenses incurred by the Company being subjected to Internal Revenue Code (“IRC”) Section 280E, was the driver for income tax expense being incurred in a pre-tax loss quarter for 2019.

 

- 35 -


Nine Months Ended September 30, 2020 Compared with Nine Months Ended September 30, 2019

Revenue, net of Discounts

Revenue for the nine months ended September 30, 2020 was $379,346,367 up 170% from $140,630,847 for the nine months ended September 30, 2019 driven by contributions from both Retail and Consumer Packaged Goods, largely due to growth in Illinois and Pennsylvania. Key performance drivers are: increased store traffic to Green Thumb’s open and operating retail stores, particularly in Illinois and Pennsylvania. The Company generated revenue from 48 Retail locations during the quarter compared to 32 in the prior year. During the nine months ended September 30, 2020, the Company opened 9 new stores as compared to 11 new stores opened and 7 stores acquired during the same period in 2019. Since September 30, 2019, the Company acquired one retail store in Connecticut and opened 15 new Retail locations in Pennsylvania, Florida, Illinois, Ohio, Nevada, Connecticut, and New Jersey.

The key drivers for the Consumer Packaged Goods revenue increase was the expansion of Green Thumb’s branded product portfolio to third-party retailers through the Company’s existing Consumer Packaged Goods cultivation and processing facilities in Illinois, Pennsylvania, Nevada, Massachusetts and Connecticut due to increased scale and efficiency.

Cost of Goods Sold, net

Cost of goods sold are derived from cost related to the internal cultivation and production of cannabis and from retail purchases made from other licensed producers operating within our state markets.

Cost of goods sold for the nine months ended September 30, 2020 was $175,707,874, up 137% from $101,511,125 for the nine months ended September 30, 2019, driven by increased volume in open and operating retail stores; new retail store openings in Illinois, Pennsylvania and Nevada; and expansion of the consumer products sales in Illinois, Pennsylvania, Nevada, Massachusetts and Connecticut.

Gross Profit

Gross profit for the nine months ended September 30, 2020 was $203,638,493, representing a gross margin on the sale of finished cannabis consumer packaged goods of 54%. This is compared to gross profit for the nine months ended September 30, 2019 of $66,434,097 or a 47% gross margin. The Company’s increase in gross margin percentage was mainly attributed to an overall increase in Retail sales as a proportion of total sales. In addition, Consumer Packaged Goods also contributed to the increase in gross profit through expanded capacity. The increase in gross profit was directly attributable to the revenue increase as further described above.

Total Expenses

Total expenses for the nine months ended September 30, 2020 were $144,823,947 or 38% of total revenues, net of discounts. Total expenses for the nine months ended September 30, 2019 were $88,013,769 or 63% of Total Revenues, net of discounts.

The increase in total expenses was attributable to retail salaries and benefits, depreciation expense and other operational and facility expenses mainly as a result of the Company’s new and acquired retail facilities. In addition, an increase in intangible amortization expense, back-office personnel costs and non-cash equity incentive compensation expense also contributed to the overall increase in total expenses. The reduction in expenses as a percent of revenue was attributable to measures deployed to control variable expenses as well as inherent operating leverage caused by the significant increase in revenue.

 

- 36 -


Total Other Income (Expense)

Total other expense for the nine months ended September 30, 2020 was ($6,624,987), compared to expense of ($18,431,422), for the nine months ended September 30, 2019, mainly due to favorable fair value adjustments recorded in 2020.

Income (Loss) Before Provision for Income Taxes and Non-Controlling Interest

Net operating income before provision for income taxes and non-controlling interest for the nine months ended September 30, 2020 was $52,189,559 compared to loss of ($40,011,094) for the nine months ended September 30, 2019.

As presented under “Non-GAAP Measures” below, after adjusting for non-cash equity incentive compensation of $15,209,520 as described above, as well as other non-operating items, adjusted operating EBITDA was $114,139,331 and $13,955,329 for the nine months ended September 30, 2020 and 2019, respectively.

Provision for Income Taxes

Income tax expense is recognized based on the expected tax payable on the taxable income for the year, using tax rates enacted at year-end. For the nine months ended September 30, 2020, federal and state income tax expense totaled $56,964,047 compared to $4,706,000 for the nine months ended September 30, 2019.

The net expense of $56,964,047 for the nine months ended September 30, 2020 includes current tax expense of $52,587,047 and deferred tax expense of $4,377,000 in the current period. The deferred tax benefit is mainly driven by changes in the fair value of investments and amortization of intangibles.

Results of Operation by Segment

The following table summarizes revenues net of sales discounts by segment for the three and nine months ended September 30, 2020 and 2019:

 

     Three Months Ended September 30,         
     2020      2019      $ Change      % Change  

Consumer Packaged Goods

   $ 74,702,069      $ 35,093,857      $ 39,608,212        113

Retail

     111,948,115        43,532,288        68,415,827        157

Intersegment Eliminations

     (29,546,343      (10,635,238      (18,911,105      n.m.  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total Revenues, Net of Discounts

   $ 157,103,841      $ 67,990,907        89,112,934        131
  

 

 

    

 

 

    

 

 

    

 

 

 
     Nine Months Ended September 30,         
     2020      2019      $ Change      % Change  

Consumer Packaged Goods

   $ 177,355,614      $ 71,651,968      $ 105,703,646        148

Retail

     275,451,137        85,501,646        189,949,491        222

Intersegment Eliminations

     (73,460,384      (16,522,767      (56,937,617      n.m.  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total Revenues, Net of Discounts

   $ 379,346,367      $ 140,630,847      $ 238,715,520        170
  

 

 

    

 

 

    

 

 

    

 

 

 

n.m.not meaningful

Three Months Ended September 30, 2020 Compared with the Three Months Ended September 30, 2019

Revenues, net of discounts for the Retail segment were $111,948,115, an increase of $68,415,827 or 157%, compared to the three months ended September 30, 2019. The increase in Retail revenues, net of discounts, was primarily driven by legalization of adult-use in Illinois on January 1, 2020 as well as new store openings particularly in Illinois and Pennsylvania.

 

- 37 -


Revenues, net of discounts for the Consumer Packaged Goods Segment were $74,702,069, an increase of $39,608,212 or 113%, compared to the three months ended September 30, 2019. The increase in Consumer Packaged Goods revenues, net of discounts, was primarily driven by the legalization of adult-use of cannabis in Illinois on January 1, 2020, along with increased sales volume in established markets such as Illinois, Pennsylvania, Massachusetts, Nevada and Maryland.

Due to the vertically integrated nature of the business, the Company reviews its revenue at the Retail and Consumer Packaged Goods level while reviewing its operating results on a consolidated basis.

Nine Months Ended September 30, 2020 Compared with the Nine Months Ended September 30, 2019

Revenues, net of discounts for the Retail Segment were $275,451,137, an increase of $189,949,491 or 222%, compared to the nine months ended September 30, 2019. The increase in Retail revenues, net of discounts, was primarily driven by legalization of adult-use in Illinois on January 1, 2020 as well as new store openings particularly in Illinois and Pennsylvania, and the 2020 full period effect of the acquisition of the Essence stores in Nevada in June 2019.

Revenues, net of discounts for the Consumer Packaged Goods Segment were $177,355,614, an increase of $105,703,646 or 148%, compared to the nine months ended September 30, 2019. The increase in Consumer Packaged Goods revenues, net of discounts, was primarily driven by the legalization of adult-use of cannabis in Illinois on January 1, 2020, increased sales volume in established markets such as Pennsylvania, Massachusetts and Maryland and the 2020 full period effect of the acquisition of Desert Grown Farms and Cannabiotix in Nevada in June 2019.

Due to the vertically integrated nature of the business, the Company reviews its revenue at the Retail and Consumer Packaged Goods level while reviewing its operating results on a consolidated basis.

Drivers of Results of Operations

Revenue

The Company derives its revenue from two revenue streams: a Consumer Packaged Goods business in which it manufactures, sells and distributes its portfolio of consumer packaged goods brands including Beboe, Dogwalkers, Dr. Solomon’s, incredibles, Rythm, and The Feel Collection, primarily to third-party retail customers; and a Retail business in which it sells finished goods sourced primarily from third-party cannabis manufacturers in addition to the Company’s own Consumer Packaged Goods products direct to the end consumer in its retail stores, as well as direct-to-consumer delivery where applicable by state law.

For the nine months ended September 30, 2020, revenue was contributed from Consumer Packaged Goods and Retail sales across twelve markets, which consist of California, Colorado, Connecticut, Florida, Illinois, Maryland, Massachusetts, Nevada, New Jersey, New York, Ohio and Pennsylvania.

Gross Profit

Gross profit is revenue less cost of goods sold. Cost of goods sold includes the costs directly attributable to product sales and includes amounts paid for finished goods, such as flower, edibles, and concentrates, as well as packaging and other supplies, fees for services and processing, and allocated overhead which includes allocations of rent, utilities and related costs. Cannabis costs are affected by various state regulations that limit the sourcing and procurement of cannabis product, which may create fluctuations in gross profit over comparative periods as the regulatory environment changes. Gross margin measures our gross profit as a percentage of revenue.

Over the nine months ended September 30, 2020, the Company continued to be focused on executing sustainable, profitable growth of the Company’s business while pursuing expansion. Green Thumb expects to continue its growth strategy for the foreseeable future as the Company expands its Consumer Packaged Goods and Retail footprint within its current markets.

 

- 38 -


Total Expenses

Total expenses other than the cost of goods sold consist of selling costs to support customer relationships and marketing and branding activities. It also includes a significant investment in the corporate infrastructure required to support the Company’s ongoing business.

Retail selling costs generally correlate to revenue.As new locations begin operations, these locations generally experience higher selling costs as a percentage of revenue compared to more established locations, which experience a more constant rate of selling costs.As a percentage of sales, the Company expects selling costs to remain constant in the more established locations and increase in the newer locations as business continues to grow.

General and administrative expenses also include costs incurred at the Company’s corporate offices, primarily related to back office personnel costs, including salaries, incentive compensation, benefits, stock-based compensation and other professional service costs. The Company expects to continue to invest considerably in this area to support aggressive expansion plans and to support the business by attracting and retaining top-tier talent. Furthermore, the Company anticipates an increase in stock compensation expenses related to recruiting and hiring talent, along with legal and professional fees associated with being a publicly traded company in Canada and registered with the U.S. Securities Exchange Commission.

Provision for Income Taxes

The Company is subject to income taxes in the jurisdictions in which it operates and, consequently, income tax expense is a function of the allocation of taxable income by jurisdiction and the various activities that impact the timing of taxable events. As the Company operates in the federally illegal cannabis industry, it is subject to the limitations of IRC Section 280E under which taxpayers are only allowed to deduct expenses directly related to sales of product. This results in permanent differences between ordinary and necessary business expenses deemed non-allowable under IRC Section 280E and a higher effective tax rate than most industries. Therefore, the effective tax rate can be highly variable and may not necessarily correlate to pre-tax income or loss.

Non-GAAP Measures

EBITDA, Adjusted Operating EBITDA, and Adjusted EBITDA are non-GAAP measures and do not have standardized definitions under GAAP. The following information provides reconciliations of the supplemental non-GAAP financial measures, presented herein to the most directly comparable financial measures calculated and presented in accordance with GAAP. The Company has provided the non-GAAP financial measures, which are not calculated or presented in accordance with GAAP, as supplemental information and in addition to the financial measures that are calculated and presented in accordance with GAAP. These supplemental non-GAAP financial measures are presented because management has evaluated the financial results both including and excluding the adjusted items and believe that the supplemental non-GAAP financial measures presented provide additional perspective and insights when analyzing the core operating performance of the business. These supplemental non-GAAP financial measures should not be considered superior to, as a substitute for or as an alternative to, and should be considered in conjunction with, the GAAP financial measures presented.

 

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     Three Months Ended     Nine Months Ended  
     September 30,     September 30,  
     2020     2019     2020     2019  

Net Income (Loss) Before Non-Controlling Interest

   $ 10,753,009     $ (14,337,936   $ (4,774,488   $ (44,717,094

Interest Income

     (5,397     (407,509     (109,922     (1,300,233

Interest Expense

     4,460,125       5,912,290       14,236,475       11,762,222  

Provision For Income Taxes

     28,436,332       3,624,333       56,964,047       4,706,000  

Other (Income) Expense, net

     (6,432,883     6,585,540       (7,501,566     7,969,433  

Depreciation and amortization

     11,534,876       7,685,428       38,479,960       17,198,731  
  

 

 

   

 

 

   

 

 

   

 

 

 

Earnings before interest, taxes, depreciation and amortization (EBITDA) (non-GAAP measure)

   $ 48,746,062     $ 9,062,146     $ 97,294,506     $ (4,380,941
  

 

 

   

 

 

   

 

 

   

 

 

 

Stock-based compensation, non-cash

     4,435,634       3,564,095       15,209,520       13,324,083  

Acquisition, transaction and other non-operating costs

     —         1,160,150       1,635,304       5,012,187  
  

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted Operating EBITDA (non-GAAP measure)

   $ 53,181,696     $ 13,786,391     $ 114,139,331     $ 13,955,329  
  

 

 

   

 

 

   

 

 

   

 

 

 

Liquidity, Financing Activities During the Period, and Capital Resources

As of September 30, 2020, and December 31, 2019 the Company had total current liabilities of $105,898,809 and $111,367,255, respectively, and cash and cash equivalents of $78,091,073 and $46,667,334, respectively to meet its current obligations. The Company had working capital of $53,160,428 as of September 30, 2020, an increase of $55,465,072 as compared to December 31, 2019. This increase in working capital was primarily driven by the $81,302,083 increase in revenue experienced in the third quarter of 2020 over the fourth quarter of 2019. The Company’s quarterly results were driven by organic growth across the Company’s Consumer Packaged Goods and Retail businesses, particularly in Illinois following the commencement of adult use sales on January 1, 2020, and in Pennsylvania, along with the settlement of certain contingent consideration during the quarter.

In the first nine months of 2020, Green Thumb generated revenue from all 12 of its markets: California, Colorado, Connecticut, Florida, Illinois, Maryland, Massachusetts, Nevada, New Jersey, New York, Ohio and Pennsylvania. The Company’s Consumer Packaged Goods revenue grew approximately 33%, net of discounts, during the three months ended September 30, 2020 as compared to the three months ended June 30, 2020. As of September 30, 2020, Green Thumb’s branded products were sold in over 700 retail stores, including the Company’s Rise and Essence retail stores. The Company’s Retail revenue, net of discounts, increased 28% during the three months ended September 30, 2020 as compared to the three months ended June 30, 2020, primarily driven by increased transaction activity across the Company’s 48 retail store footprint.

The Company is an early-stage growth company, which is generating cash from revenues and is deploying its capital reserves to acquire and develop assets capable of producing additional revenues and earnings over both the immediate and near term. Capital reserves are primarily being utilized for capital expenditures, facility improvements, product development and marketing, as well as customer, supplier and investor and industry relations.

While our revenue, gross profit and operating income were not materially impacted by COVID-19 and we maintained the consistency of our operations during the first nine months of 2020, the uncertain nature of the spread of COVID-19 may impact our business operations for reasons including the potential quarantine of our employees or those of our supply chain partners. Our ability to continue to operate without any significant negative operational impact from the COVID-19 pandemic will in part depend on our ability to protect our employees, customers and supply chain and our continued designation as an “essential” business in states where we do business that currently or in the future impose restrictions on business operations. The Company takes a cautious approach in allocating its capital to maximize its returns while ensuring appropriate liquidity. Given the current uncertainty of the future economic environment, the Company has taken additional measures in monitoring and deploying its capital to minimize the negative impact on its current operations and expansion plans.

 

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Cash Flows

Cash Used in Operating Activities

Net cash used in operating activities for the nine months ended September 30, 2020 and 2019, were as follows:

 

     Nine Months Ended September 30,  
     2020      2019  

Net Cash provided by (used in) Operating Activities

   $ 71,056,200      $ (712,804

Cash Flow from Investing Activities

Net cash used in investing activities for the nine months ended September 30, 2020 and 2019, were as follows:

 

     Nine Months Ended September 30,  
     2020     2019  

Net Cash (used in) provided by Investing Activities

   $ (37,422,417   $ (171,943,137

Cash Flow from Financing Activities

Net cash provided by financing activities for the nine months ended September 30, 2020 and 2019, were as follows:

 

     Nine Months Ended September 30,  
     2020     2019  

Net Cash (used in) provided by Financing Activities

   $ (2,210,044   $ 92,791,523  

Contractual Cash Obligations and Other Commitments and Contingencies

The following table quantifies the Company’s future contractual obligations as of September 30, 2020:

 

     Total      2020      2021      2022      2023      2024      Thereafter  

Notes Payable(a)

   $ 105,466,429      $ —        $ —        $ —        $ 105,466,429      $ —        $ —    

Charitable Contributions

     763,284        45,846        185,887        189,953        194,109        147,490        —    

Mortgage Payable(b)

     1,862,857        28,522        117,794        124,662        131,943        139,299        1,320,638  

Interest Due on Notes Payable

     33,460,307        3,155,324        12,655,971        12,655,971        4,933,041        —          —    

Interest Due on Mortgage Payable

     1,022,953        37,565        146,552        139,684        132,403        125,047        441,702  

Operating Leases—Third Party

     276,776,320        4,767,957        22,243,662        22,285,836        22,092,882        21,387,294        183,998,689  

Operating Leases—Related Parties

     15,935,415        322,287        1,307,183        1,337,130        1,367,771        1,255,714        10,345,330  

Contingent Consideration

     36,315,361        27,100,000        9,215,361        —          —          —          —    

Construction Commitments(c)

     25,640,072        25,640,072        —          —          —          —          —    
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total as of September 30, 2020

   $ 497,242,999      $ 61,097,574      $ 45,872,410      $ 36,733,237      $ 134,378,579      $ 23,054,844      $ 196,106,359  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

(a) -

On May 21, 2020, the Company exercised its option to extend the maturity date of its senior secured notes for an additional year. The new maturity date is May 22, 2023. Additionally, this amount excludes $11,618,400 of unamortized debt discount as of September 30, 2020. See Note 6 - Notes Payable to our unaudited interim condensed consolidated financial statements for the period for details.

 

(b) -

The amount excludes $177,244 of unamortized debt discount as of September 30, 2020. See Note 6 - Notes Payable to our unaudited interim condensed consolidated financial statements for the period for details.

 

(c) -

The Company expects to be reimbursed for approximately $22,500,000 of the construction commitment as part of its sale and lease back agreement with IIP. See Note 5 - Leases to our unaudited interim condensed consolidated financial statements for the period for details.

 

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Off-Balance Sheet Arrangements

As of September 30, 2020, the Company does not have any off-balance-sheet arrangements that have, or are reasonably likely to have, a current or future effect on the results of operations or financial condition of the Company, including, and without limitation, such considerations as liquidity and capital resources.

Changes in or Adoption of Accounting Practices

Refer to the discussion of recently adopted/issued accounting pronouncements under Part I, Item 1, Notes to Unaudited Interim Condensed Consolidated Financial Statements, Note 1 - Overview and Basis of Presentation.

Critical Accounting Policies and Significant Judgements and Estimates

There were no material changes to our critical accounting policies and estimates from the information provided in “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” included in our 2019 Form 10-K.

Emerging Growth Company Status

The Company is an “emerging growth company” as defined in the Section 2(a) of the Exchange Act, as modified by the Jumpstart Our Business Start-ups Act of 2012, or the JOBS Act provides that an emerging growth company can take advantage of the extended transition period provided in Section 13(a) of the Exchange Act for complying with new or revised accounting standards applicable to public companies. The Company has elected to take advantage of this extended transition period and as a result of this election, our financial statements may not be comparable to companies that comply with public company effective dates.

ITEM 3. QUANTITAVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

There have been no material changes to our market risk disclosures as set forth in Part II Item 7A of our Annual Report on Form 10-K for the year ended December 31, 2019 except as described below.

COVID-19

The Company is monitoring COVID-19 closely, and although operations have not been materially affected by the COVID-19 outbreak to date, the ultimate severity of the outbreak and its impact on the economic environment is uncertain. Operations of the Company are currently ongoing as the cultivation, processing and sale of cannabis products is currently considered an “essential” business by the States in which we operate with respect to all customers. Our ability to continue to operate without any significant negative operational impact from COVID-19 pandemic will in part depend on our ability to protect our employees, customers and supply chain and continued designation as “essential” in states where we do business that currently or in the future impose restrictions on business operations.

 

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ITEM 4. CONTROLS AND PROCEDURES

 

(a)

Disclosure Controls and Procedures

The Company evaluated the effectiveness of our disclosure controls and procedures as of September 30, 2020. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. The Company recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives. Management, including the Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(b) and Rule 15d-15(e) of the Exchange Act) as of September 30, 2020. As an emerging growth company, Green Thumb is not required to include management’s assessment of Internal Controls over Financial Reporting (“ICFR”) or an attestation report of the Company’s registered public accounting firm in our 2020 Form 10-K. However, management has developed and is in the process of enhancing the Company’s ICFR and its disclosure controls and procedures in preparation for the annual audit of the Company for the 2021 fiscal year. Green Thumb expects to be required to include both management’s assessment of ICFR and the attestation of the Company’s registered public accounting firm regarding the Company’s ICFR in our 2021 annual report on Form 10-K. Management, including the Chief Executive Officer and Chief Financial Officer, have carefully considered the Company’s progress in the development of the disclosure controls and procedures to date and determined that they were reasonably effective at the assurance level as of September 30, 2020.

 

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PART II — OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

The Company is a party to a variety of legal proceedings that arise out of operations in the normal course of business. While the results of these legal proceedings cannot be predicted with certainty, the Company believes that the final outcome of these proceedings will not have a material adverse effect, individually or in the aggregate, on our results of operations or financial condition.

ITEM 1A. RISK FACTORS

There have been no material changes to the risk factors disclosed in the 2019 Form 10-K.

ITEM 2. UNREGISTERED SALE OF EQUITY SECURITIES

Recent Sales of Unregistered Securities

The following information represents securities sold by the Company for the period covered by this Quarterly Report on Form 10-Q which were not registered under the Securities Act. Included are new issues, securities issued in exchange for property, services or other securities, securities issued upon conversion from other share classes and new securities resulting from the modification of outstanding securities. The Company sold all of the securities listed below pursuant to the exemption from registration provided by Section 4(a)(2) of the Securities Act, or Regulation D or Regulation S promulgated thereunder, or, in the case of shares in connection with our 2018 Share and Incentive Plan, in reliance upon Rule 701 promulgated under Section 3(b) of the Securities Act as transactions by an issuer pursuant to benefit plans and contracts related to compensation.

Subordinate Voting Shares

On January 3, 2020, the Company issued 287,478 Subordinate Voting Shares as contingent consideration associated with the Company’s 2019 acquisition of Advanced Grow Labs.

On January 15, 2020, the Company converted 127,730 Multiple Voting Shares into 12,773,000 Subordinate Voting Shares.

On February 11, 2020, the Company converted 2,480 Multiple Voting Shares into 248,000 Subordinate Voting Shares.

On February 12, 2020, the Company issued 48,450 Subordinate Voting Shares as deferred share issuances associated with the Company’s 2019 acquisition of KW Ventures Holdings, LLC minority interest.

On February 26, 2020, the Company issued 779,690 Subordinate Voting Shares as contingent consideration associated with the Company’s 2019 acquisition of For Success Holding Company.

On May 15, 2020, the Company issued 101,695 Subordinate Voting Shares as deferred share issuances associated with the Company’s 2019 acquisition of Salveo (Rise Canton).

On May 18, 2020, the Company issued 1,109,055 Subordinate Voting Shares as contingent consideration associated with the Company’s 2019 acquisition of Advanced Grow Labs, LLC.

 

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On May 20, 2020, the Company issued 17,112 Subordinate Voting Shares associated with the exercise of broker options issued as part of the Company’s June 12, 2018 reverse takeover of Bayswater Uranium Corporation.

On May 25, 2020, the Company issued 268,620 Subordinate Voting Shares as contingent consideration associated with the Company’s 2019 acquisition of Integral Associates, LLC.

On June 29, 2020, the Company issued 190,000 Subordinate Voting Shares as deferred share issuances associated with the Company’s 2019 acquisition of MC Brands, LLC.

On July 10, 2020, the Company issued 268,620 Subordinate Voting Shares as contingent consideration associated with the Company’s 2019 acquisition of Integral Associates, LLC.

On August 12, 2020, the Company issued 472,500 Subordinate Voting Shares as deferred share issuances associated with the Company’s 2019 acquisition of Advanced Grow Labs.

On August 26, 2020, the Company issued 646,353 Subordinate Voting Shares as deferred share issuances associated with the Company’s 2019 acquisition of For Success Holdings Company.

On August 31, 2020, the Company issued 1,315,789 Subordinate Voting Shares in consideration for the noncontrolling partner’s interest in Ohio Investors 2017, LLC

On September 17, 2020, the Company issued 5,941 Subordinate Voting Shares associated with the exercise of warrants issued as part of the purchase of one of its retail dispensaries.

Beginning on January 9, 2020 and continuing through September 15, 2020, the Company converted 275,393 Multiple Voting Shares into 27,539,300 Subordinate Voting Shares.

From January 1, 2020 through February 19, 2020 (the effective date of the filing of our registration statement on Form S-8), the Company issued, in total, 77,500 Subordinate Voting Shares to holders of the Company’s RSU’s issued under our 2018 Stock and Incentive Plan, which vested over the same period.

Multiple Voting Shares

Beginning January 15, 2020 and continuing through July 2, 2020, the Company converted 22,953 Super Voting Shares were converted into 22,953 Multiple Voting Shares.

Beginning on January 9, 2020 and continuing through September 15, 2020, the Company converted 275,393 Multiple Voting Shares into 27,539,300 Subordinate Voting Shares.

ITEM 4. MINE SAFETY DISCLOSURE

Not Applicable.

ITEM 6. EXHIBITS

The following exhibits are filed with this report:

 

31.1    CERTIFICATE OF CHIEF EXECUTIVE OFFICER
31.2    CERTIFICATE OF CHIEF FINANCIAL OFFICER
32.1    CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
32.2    CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

 

- 45 -


101.INS    XBRL Instance Document
101.SCH    XBRL Taxonomy Extension Schema Document
101.CAL    XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF    XBRL Taxonomy Extension Definition Linkbase Document
101.LAB    XBRL Taxonomy Extension Label Linkbase Document
101.PRE    XBRL Taxonomy Extension Presentation Linkbase Document

 

- 46 -


SIGNATURES

Pursuant to requirements of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

GREEN THUMB INDUSTRIES INC.
/s/ Benjamin Kovler

By: Benjamin Kovler

Title: Chief Executive Officer

Date: November 12, 2020

 

GREEN THUMB INDUSTRIES INC.
/s/ Anthony Georgiadis

By: Anthony Georgiadis

Title: Chief Financial Officer

Date: November 12, 2020

 

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