UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(Mark One)
☒
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2023
OR
☐
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number: 000-56248
TRULIEVE CANNABIS CORP.
(Exact Name of Registrant as Specified in its Charter)
British Columbia
84-2231905
(State or other jurisdiction of
incorporation or organization)
(I.R.S. EmployerIdentification No.)
6749 Ben Bostic Road
Quincy, FL
32351
(Address of principal executive offices)
(Zip Code)
Registrant’s telephone number, including area code: (850) 298-8866
Securities registered pursuant to Section 12(b) of the Act: None
Title of each class
Trading
Symbol(s)
Name of each exchange on which registered
N/A
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
Accelerated filer
Non-accelerated filer
Smaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
As of August 3, 2023, the registrant had 159,761,126 Subordinate Voting Shares and 26,226,386 Multiple Voting Shares (on an as converted basis) outstanding.
Table of Contents
Page
PART I.
FINANCIAL INFORMATION
Item 1.
Financial Statements (Unaudited)
1
Condensed Consolidated Balance Sheets as of June 30, 2023 and December 31, 2022
Condensed Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2023 and 2022
2
Condensed Consolidated Statements of Changes in Shareholders’ Equity for the Three and Six Months Ended June 30, 2023 and 2022
3
Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2023 and 2022
4
Notes to Condensed Consolidated Financial Statements
6
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
26
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
36
Item 4.
Controls and Procedures
37
PART II.
OTHER INFORMATION
Legal Proceedings
40
Item 1A.
Risk Factors
Unregistered Sales of Equity Securities and Use of Proceeds
41
Defaults Upon Senior Securities
Item 5.
Other Information
Item 6.
Exhibits
42
Signatures
43
i
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of safe harbor provisions of the Private Securities Litigation Reform Act of 1995. In some cases, you can identify these statements by forward-looking words such as “may”, “will”, “would”, “could”, “should”, “believes”, “estimates”, “projects”, “potential”, “expects”, “plans”, “intends”, “anticipates”, “targeted”, “continues”, “forecasts”, “designed”, “goal”, or the negative of those words or other similar or comparable words. Any statements contained in this Quarterly Report on Form 10-Q that are not statements of historical facts may be deemed to be forward-looking statements. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our business, financial condition, results of operations and future growth prospects. The forward-looking statements contained herein are based on certain key expectations and assumptions, including, but not limited to, with respect to expectations and assumptions concerning receipt and/or maintenance of required licenses and third party consents and the success of our operations, are based on estimates prepared by us using data from publicly available governmental sources, as well as from market research and industry analysis, and on assumptions based on data and knowledge of this industry that we believe to be reasonable. These forward-looking statements are not guarantees of future performance or development and involve known and unknown risks, uncertainties and other factors that are in some cases beyond our control. As a result, any or all of our forward-looking statements in this Quarterly Report on Form 10-Q may turn out to be inaccurate. Factors that may cause actual results to differ materially from current expectations include, among other things, those listed under “Risk Factors” and discussed elsewhere in this Quarterly Report on Form 10-Q and in “Part I, Item 1A – Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2022 and in “Part II, Item 1A – Risk Factors” in our Quarterly Report on Form 10-Q for the quarter ended March 31, 2023. These forward-looking statements speak only as of the date of this Quarterly Report on Form 10-Q. Except as required by law, we assume no obligation to update or revise these forward-looking statements for any reason, even if new information becomes available in the future. You should, however, review the factors and risks we describe in the reports we will file from time to time with the SEC after the date of this Quarterly Report on Form 10-Q.
ii
PART I—FINANCIAL INFORMATION
Item 1. Financial Statements.
Condensed Consolidated Balance Sheets (Unaudited)
(in thousands, except per share data)
June 30, 2023
December 31, 2022
ASSETS
(Audited)
Current Assets:
Cash and cash equivalents
$
152,369
207,185
Restricted cash
7,575
6,607
Accounts receivable, net
7,013
6,507
Inventories, net
252,785
276,505
Prepaid expenses and other current assets
42,867
62,278
Notes receivable - current portion
754
728
Assets associated with discontinued operations
11,474
33,701
Total current assets
474,837
593,511
Property and equipment, net
708,655
743,260
Right of use assets - operating, net
98,654
99,610
Right of use assets - finance, net
62,876
70,495
Intangible assets, net
951,460
984,797
Goodwill
483,905
791,495
Notes receivable, net
11,855
11,992
Other assets
14,427
12,768
Long-term assets associated with discontinued operations
2,013
92,445
TOTAL ASSETS
2,808,682
3,400,373
LIABILITIES
Current Liabilities:
Accounts payable and accrued liabilities
75,457
82,090
Income tax payable
—
49,790
Deferred revenue
5,784
9,393
Notes payable - current portion
9,076
12,453
Private placement notes - current portion, net
125,861
Operating lease liabilities - current portion
9,668
10,344
Finance lease liabilities - current portion
7,595
8,271
Construction finance liabilities - current portion
1,324
1,189
Contingencies
2,411
34,666
Liabilities associated with discontinued operations
3,411
2,274
Total current liabilities
240,587
210,470
Long-term liabilities:
Notes payable, net
92,958
94,247
Private placement notes, net
418,605
541,664
Warrant liabilities
252
Operating lease liabilities
100,731
100,531
Finance lease liabilities
64,616
69,948
Construction finance liabilities
136,939
137,144
Deferred tax liabilities
211,901
224,696
Other long-term liabilities
37,424
26,027
Long-term liabilities associated with discontinued operations
42,908
67,690
TOTAL LIABILITIES
1,346,669
1,472,669
Commitments and contingencies (see Note 20)
SHAREHOLDERS' EQUITY
Common stock, no par value; unlimited shares authorized. 185,987,512 issued and outstanding as of June 30, 2023 and December 31, 2022, respectively.
Additional paid-in-capital
2,047,879
2,045,003
Accumulated deficit
(581,816
)
(113,843
Non-controlling interest
(4,050
(3,456
TOTAL SHAREHOLDERS' EQUITY
1,462,013
1,927,704
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY
The accompanying notes are an integral part of these condensed consolidated financial statements.
Condensed Consolidated Statements of Operations (Unaudited)
Three Months Ended
Six Months Ended
June 30, 2022
Revenue, net
281,795
313,839
567,009
624,400
Cost of goods sold
140,188
130,466
275,240
261,172
Gross profit
141,607
183,373
291,769
363,228
Expenses:
Sales and marketing
61,075
73,902
121,808
145,352
General and administrative
34,902
33,575
74,212
66,989
Depreciation and amortization
26,052
29,367
55,666
57,151
Impairments and disposals of long-lived assets, net
3,310
5,055
6,689
21,516
Impairment of goodwill
307,590
Total expenses
432,929
141,899
565,965
291,008
(Loss) income from operations
(291,322
41,474
(274,196
72,220
Other (expense) income:
Interest expense
(18,931
(18,144
(40,091
(34,497
Change in fair value of derivative liabilities - warrants
1,442
2,262
Other income, net
1,976
1,683
6,893
2,568
Total other expense, net
(16,955
(15,019
(32,946
(29,667
(Loss) income before provision for income taxes
(308,277
26,455
(307,142
42,553
Provision for income taxes
34,027
45,242
69,484
88,384
Net loss from continuing operations
(342,304
(18,787
(376,626
(45,831
Net loss from discontinued operations, net of tax (provision) benefit of $(946), $473, $(439), and $1,299, respectively
(64,568
(5,234
(95,877
(10,672
Net loss
(406,872
(24,021
(472,503
(56,503
Less: Net loss attributable to non-controlling interest from continuing operations
(2,353
(1,530
(3,337
(2,037
Less: Net loss attributable to non-controlling interest from discontinued operations
(670
(1,193
Net loss attributable to common shareholders
(403,849
(22,491
(467,973
(54,466
Net loss per share - Continuing operations:
Basic and diluted
(1.80
(0.09
(1.98
(0.23
Net loss per share - Discontinued operations:
(0.34
(0.03
(0.50
(0.06
Weighted average number of common shares used in computing net loss per share:
189,054,359
187,174,176
188,976,834
187,124,886
Condensed Consolidated Statements of Changes in Shareholders’ Equity (Unaudited)
Multiple Voting Shares
Subordinate Voting Shares
Total Common Shares
Additional Paid-in-Capital
Accumulated (Deficit) Earnings
Non-Controlling Interest
Total
Balance, January 1, 2022 (audited)
51,916,999
128,587,173
180,504,172
2,008,100
137,721
1,552
2,147,373
Share-based compensation
4,564
Exercise of stock options
45,775
108
Shares issued for cash - warrant exercise
1,648
22
Shares issued under share compensation plans
16,257
Tax withholding related to net share settlements of equity awards
(10,005
(230
Conversion of Multiple Voting to Subordinate Voting Shares
(2,699,100
2,699,100
Shares issued for PurePenn, Pioneer, and Solevo earnouts
3,626,295
Distribution
(50
Divestment of variable interest entity
(111
(31,975
(507
(32,482
Balance, March 31, 2022
49,217,899
134,966,243
184,184,142
2,012,564
105,746
884
2,119,194
5,703
Exercise of Stock options
2,997
1,426,614
19,216
Subordinate Voting Shares issued under share compensation plans
24,444
(13,091,800
13,091,800
Balance, June 30, 2022
36,126,099
149,512,098
185,638,197
2,037,483
83,255
(646
2,120,092
Accumulated Deficit
Balance, January 1, 2023 (audited)
26,226,386
159,761,126
185,987,512
2,401
Value of shares earned for purchase of variable interest entity
1,643
(64,124
(1,507
(65,631
Balance, March 31, 2023
2,049,047
(177,967
(5,013
1,866,067
475
Termination of purchase of variable interest entity
(1,643
Deconsolidation and divestment of variable interest entities
3,986
(3,023
Balance, June 30, 2023
Condensed Consolidated Statements of Cash Flows (Unaudited)
(in thousands)
Six Months EndedJune 30, 2023
Six Months EndedJune 30, 2022
Cash flow from operating activities
Adjustments to reconcile net loss to net cash used in operating activities:
56,610
60,194
Depreciation included in cost of goods sold
30,945
24,501
Non-cash interest expense, net
2,794
2,353
Impairment and disposal of long-lived assets, net
Amortization of operating lease right of use assets
5,260
5,742
Accretion of construction finance liabilities
792
595
2,876
10,267
(252
(2,262
Non-cash change in contingencies
(7,188
10,384
Allowance for credit losses
350
1,088
Deferred income tax expense
(12,236
(13,669
Loss from disposal of discontinued operations
69,275
Changes in operating assets and liabilities:
Inventories
40,333
(55,736
Accounts receivable
(664
(4,090
4,957
2,362
1,704
(4,422
(4,338
(2,930
(49,728
(3,674
Other current liabilities
(8,066
(1,331
(4,876
(4,543
(3,782
(797
10,396
671
Net cash used in operating activities
(23,062
(10,284
Cash flow from investing activities
Purchases of property and equipment
(24,720
(92,865
Purchases of property and equipment related to construction finance liabilities
(13,247
Capitalized interest
(795
(2,676
Acquisitions and divestments, net of cash
977
(26,177
Purchases of internal use software
(4,383
(4,887
Cash paid for license
(3,971
Proceeds from sale of long-lived assets
3,785
100
Proceeds from sale of held for sale assets
3,431
2,173
Proceeds received from notes receivable
358
1,187
Net cash used in investing activities
(25,318
(136,392
Cash flow from financing activities
Proceeds from debt financings, net of discounts
76,715
Proceeds from construction finance liabilities
7,047
Proceeds from equity exercises
19,346
Payments on notes payable
(4,828
(2,486
Payments on private placement notes
(1,874
Payments on finance lease obligations
(3,895
(3,205
Payments on construction finance liabilities
(562
(636
Payments for debt issuance costs
(189
Payments for taxes related to net share settlement of equity awards
Distributions
Net cash (used in) provided by financing activities
(9,335
94,438
Net decrease in cash and cash equivalents
(57,715
(52,238
Cash, cash equivalents, and restricted cash, beginning of period
213,792
229,644
Cash and cash equivalents of discontinued operations, beginning of period
5,702
4,015
Less: cash and cash equivalents of discontinued operations, end of period
(1,835
(14,881
Cash, cash equivalents, and restricted cash, end of period
159,944
166,540
Condensed Consolidated Statements of Cash Flows (Unaudited) (Continued)
Supplemental disclosure of cash flow information
Cash paid during the period for
Interest
41,121
35,281
Income taxes, net of refunds
121,009
104,261
Other noncash investing and financing activities
ASC 842 lease additions - operating and finance leases
10,410
30,383
Purchases of property and equipment in accounts payable and accrued liabilities
2,682
10,084
Noncash partial extinguishment of construction finance liability
18,486
*The condensed consolidated statements of cash flows include continuing operations and discontinued operations for the six months ended June 30, 2023 and 2022.
Beginning of period:
(1)
226,631
(3)
3,013
Cash, cash equivalents and restricted cash
End of period:
(2)
(4)
(1) Excludes $5.7 million attributable to discontinued operations.
(2) Excludes $1.8 million attributable to discontinued operations.
(3) Excludes $4.0 million attributable to discontinued operations.
(4) Excludes $14.9 million attributable to discontinued operations.
5
NOTE 1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements of Trulieve Cannabis Corp., ("Trulieve" and, together with its subsidiaries and variable interest entities, the "Company," "our," or "us") has been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and, therefore, do not include all financial information and footnotes required by GAAP for complete financial statements. In management's opinion, the condensed consolidated financial statements include all adjustments of a normal recurring nature necessary to fairly present the Company's financial position as of June 30, 2023, and the results of its operations and cash flows for the periods ended June 30, 2023 and 2022. The results of the Company's operations for the six months ended June 30, 2023 are not necessarily indicative of the results to be expected for the full 2023 fiscal year.
The accompanying unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements for Trulieve Cannabis Corp. and the notes thereto, included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022, filed with the Securities and Exchange Commission ("SEC") on March 8, 2023 (the "2022 Form 10-K").
Discontinued Operations
During the three months ended June 30, 2023, the Company determined to exit our operations in Massachusetts which represented a strategic shift in the business. The related assets and liabilities associated with the Company's discontinued operations are classified as discontinued operations on the condensed consolidated balance sheets and the results of our discontinued operations have been presented as discontinued operations within the condensed consolidated statements of operations for all periods presented. Unless specifically noted otherwise, footnote disclosures reflect the results of continuing operations only. The results of discontinued operations are presented in Note 16. Discontinued Operations.
Reclassifications
Certain reclassifications have been made to the condensed consolidated financial statements of prior periods and of the accompanying notes to conform to the current period presentation.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Company’s significant accounting policies are more fully described in Note 3. Summary of Significant Accounting Policies in the consolidated financial statements included in the Annual Report on Form 10-K for the fiscal year ended December 31, 2022. There have been no material changes to the Company’s significant accounting policies.
Prepaid and other current assets
During the three months ended June 30, 2023, escrow of $22.5 million was released related to the settlement of previous litigation which was previously recorded to prepaid and other current assets, of which $17.0 million was paid in cash and $5.5 million was relieved.
Fair Value of Financial Instruments
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 –
Observable inputs based on unadjusted quoted prices in active markets for identical assets or liabilities;
Level 2 –
Inputs other than quoted prices in active markets, which are observable for the asset or liability, either directly or indirectly; and
Level 3 –
Unobservable inputs for which there is little or no market data requiring the Company to develop its own assumptions.
The fair values of financial instruments by class are as follows as of June 30, 2023 and December 31, 2022:
Level 1
Level 2
Level 3
Financial Assets:
Money market funds (1)
95,545
340
Financial Liabilities:
Interest rate swap (2)
1,544
2,536
Warrant liabilities (3)
There have been no transfers between hierarchy levels during the periods ending June 30, 2023 or December 31, 2022.
Deferred Revenue
During the three months ended March 31, 2023, the Company terminated the loyalty program associated with dispensaries acquired with the acquisition of Harvest Health & Recreation, Inc. ("Harvest") in October 2021. As a result of the termination of the loyalty program at certain dispensaries, the Company recorded a reduction in the accrual of $4.7 million in revenue, net of discounts in the condensed consolidated statements of operations. As of June 30, 2023 and December 31, 2022, the loyalty liability totaled $5.1 million and $8.9 million, respectively, and is included in deferred revenue on the condensed consolidated balance sheets. Included within deferred revenue as of June 30, 2023 and December 31, 2022 are customer credit balances of $0.7 million and $0.5 million, respectively.
Impairment of Long-Lived Assets
The Company reviews long-lived assets, including property and equipment, definite life intangible assets, and right-of-use assets for impairment whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable.
During the three months ended March 31, 2023, the Company determined that certain long-lived assets, including intangible assets, in Massachusetts were impaired due to the competitive environment in the Massachusetts cannabis industry. The Company utilized a cost approach for its impairment testing of property and equipment resulting in an impairment of $30.3 million, of which $27.6 million relates to discontinued operations and recorded to net loss from discontinued operations, net of tax benefit, and $2.7 million relates to continuing operations recorded in impairment and disposal of long-lived assets, net in the condensed consolidated statements of operations, respectively.
During the three months ended June 30, 2023, the Company did not identify any events or changes in circumstances providing indication of impairment, other than the Company discontinuing its operations in Massachusetts in the normal course of business.
Impairment of Goodwill
The Company operates as one operating segment and reporting unit and therefore, evaluates goodwill for impairment as one singular reporting unit annually during the fourth quarter or more often when an event occurs, or circumstances indicate the carrying value may not be recoverable.
7
The determination of the fair value of the reporting unit requires us to make significant estimates and assumptions. Due to the inherent uncertainty involved in making these estimates, actual future results could differ. Changes in assumptions regarding future results or other underlying assumptions could have a significant impact on the fair value of the reporting unit.
The discounted cash flow model, or the income approach, reflects our estimates of future cash flows and other factors including estimates of future operating performance, including future revenue, long-term growth rates, gross margins, capital expenditures, discount rates and the probability of achieving the estimated cash flows, among others.
In addition to the income approach, the Company also employs the market approach in its goodwill impairment testing. Under the market approach, the Company estimates the fair value based upon multiples of comparable public companies. Significant estimates in the market approach include identifying similar companies with comparable business factors such as size, growth, profitability, risk and return on investment, as well as assessing comparable market multiples in estimating the fair value of the reporting unit.
During the three months ending March 31, 2023, the Company continued to experience a decline in its stock price resulting in the total market value of its common stock outstanding ("market capitalization") being less than the carrying value of the reporting unit. Management believes this decline in market value is due to a variety of factors, as further described below. In light of the circumstances and indicators of potential impairment described above, management performed an interim quantitative goodwill impairment test as of March 31, 2023. Management first considered whether any impairment was present for the Company’s long-lived assets, concluding that no such impairments were present after conducting an undiscounted cash flow recoverability test, except for in the Massachusetts market as detailed above. In comparing the estimated fair value of the reporting unit to its carrying value, the Company utilized a weighted average valuation using the discounted cash flow model and the market approach. The results of the Company’s interim test for impairment as of March 31, 2023 concluded that the estimated fair value of the reporting unit exceeded the carrying value, resulting in no impairment.
During the three months ended June 30, 2023, the Company continued to experience a declined stock price resulting in the market capitalization being less than the carrying value of the reporting unit. The Company updated the March 31, 2023 valuation, as of June 30, 2023, with no impairment identified finding all inputs, including but not limited to future operating performance, gross margins, probability of achieving cash flows, and multiples of comparable public companies, either maintained consistency or trended positively for the three months ended June 30, 2023. Furthermore, the Company performed a sensitivity test on the income approach updating for the exit of the Massachusetts operations identifying the Massachusetts exit accretive to earnings as the Massachusetts assets were underperforming. However, the Company concluded the sustained stock price decline as a triggering event to perform an interim quantitative goodwill impairment test, as of June 30, 2023, specific to the stock price decline and resulting market capitalization of the Company. As the sole risk to the value of goodwill is the stock price, the Company concluded it most appropriate to transition to a market approach. The results of the Company’s interim test for impairment as of June 30, 2023, utilizing a market approach, indicated that the reporting unit's fair value fell below the carrying value. Based on the results of the goodwill impairment procedures, the Company recorded a $307.6 million goodwill impairment for the single reporting unit during the three months ended June 30, 2023.
The Company finds the June 30, 2023 goodwill impairment is a result of the cannabis equity market including the reduced number of custodians to service cannabis equity holdings, negative investor sentiment due to lack of progress on federal reform, and more challenging macroeconomic conditions driving lower cannabis stock prices as of June 30, 2023. The Company finds this is not a negative indicator of historic or current operating results and not a negative indicator of future performance as the Company has taken steps to shed underperforming assets while focusing on cash conservation which is reflective in the results of operations as of June 30, 2023. Additionally, the resulting non-cash charge has no impact on the Company’s compliance with debt covenants, its cash flows, or available liquidity.
NOTE 3. ACCOUNTS RECEIVABLE
Accounts receivable consisted of the following as of June 30, 2023 and December 31, 2022:
Trade receivables
9,846
8,482
Less: allowance for credit losses
(2,833
(1,975
8
NOTE 4. NOTES RECEIVABLE
Notes receivable consisted of the following as of June 30, 2023 and December 31, 2022:
June 30,2023
December 31,2022
Stated Interest Rate
Maturity Date
Promissory note acquired in October 2021 (1)
7,847
8,205
7.50
%
11/9/2025
Promissory note dated November 15, 2021 (2)
4,830
4,602
9.75
11/14/2024
Notes receivable
12,677
12,807
Less: discount on notes receivable
(68
(87
Total notes receivable, net of discount
12,609
12,720
Less: current portion of notes receivable
(754
(728
During the three and six months ended June 30, 2023, the Company recorded interest income related to notes receivable of $0.3 million and $0.6 million, respectively. During the three and six months ended June 30, 2022, the Company recorded interest income of $0.3 million and $0.7 million, respectively. Interest income is recorded in other income in the condensed consolidated statements of operations.
Stated maturities of the notes receivable are as follows as of June 30, 2023:
Year
Expected principal payments
Six months ending December 31, 2023
370
2024
5,614
2025
6,693
2026
2027
Thereafter
NOTE 5. INVENTORIES
Inventories are stated at the lower of cost or market. Costs associated with abnormal production volume are expensed as incurred. Inventories are comprised of the following as of June 30, 2023 and December 31, 2022:
Raw material
Cannabis plants
17,064
21,523
Packaging and supplies
42,051
49,650
Total raw material
59,115
71,173
Work in process
134,167
158,448
Finished goods-unmedicated
5,915
7,323
Finished goods-medicated
53,588
39,561
Total inventories, net
9
NOTE 6. PROPERTY AND EQUIPMENT
As of June 30, 2023 and December 31, 2022, property and equipment consisted of the following:
Land
34,485
38,485
Buildings and improvements
514,711
497,493
Furniture and equipment
288,831
277,164
Vehicles
838
839
838,865
813,981
Less: accumulated depreciation
(163,269
(125,866
Total property and equipment
675,596
688,115
Construction in progress
33,059
55,145
Total property and equipment, net
The Company incurred the following expense related to property and equipment during the three and six months ended June 30, 2023:
Three Months Ended June 30,
Six Months Ended June 30,
Statement of Operations
2023
2022
$(214)
$(1,160)
$(795)
$(2,640)
Depreciation expense
Cost of goods sold and Depreciation and amortization
19,334
18,587
38,331
32,685
$19,120
$17,427
$37,536
$30,045
Loss on impairment
$—
$2,712
$330
Loss on disposal
3,927
5,076
3,667
8,067
$3,927
$5,076
$6,379
$8,397
NOTE 7. INTANGIBLE ASSETS
The Company's definite-lived intangible assets consisted of the following as of June 30, 2023 and December 31, 2022:
Gross Carrying Amount
Accumulated Amortization
Net Book Value
Licenses
1,046,544
124,186
922,358
1,044,161
89,367
954,794
Trademarks
27,430
15,122
12,308
12,530
14,900
Internal use software
20,911
5,112
15,799
16,528
3,065
13,463
Tradenames
4,861
4,049
812
4,862
3,506
1,356
Customer relationships
3,535
3,352
183
3,536
3,252
284
1,103,281
151,821
1,096,517
111,720
Amortization expense was $20.2 million, $40.1 million, $20.5 million, and $41.1 million for the three and six months ended June 30, 2023 and 2022, respectively.
10
During the three and six months ended June 30, 2023, the Company recorded a gain on sale of intangible assets of $3.0 million, which is recorded to impairment and disposal of long-lived assets, net within the condensed consolidated statements of operations.
The following table outlines the estimated future amortization expense related to intangible assets as of June 30, 2023:
EstimatedAmortization
Six Months Ending December 31, 2023
40,592
79,744
76,677
74,105
71,604
608,738
As of June 30, 2023, the weighted average amortization period remaining for intangible assets was 12.9 years.
NOTE 8. HELD FOR SALE
As of June 30, 2023, the Company had $17.2 million in assets held for sale, which are recorded in prepaids and other current assets on the condensed consolidated balance sheets, and primarily consist of property and equipment. As of December 31, 2022, the Company had $14.5 million in assets held for sale which primarily consisted of property and equipment.
Held for sale assets as of December 31, 2022
14,521
Assets moved to held for sale
10,411
Non-cash settlement
(2,481
Impairments
(1,994
Assets sold
(3,268
Held for sale assets as of June 30, 2023
17,189
Held for sale liabilities as of December 31, 2022
Liabilities moved to held for sale
(1,997
Liabilities settled associated with held for sale assets
1,997
Held for sale liabilities as of June 30, 2023
During the three and six months ended June 30, 2023, the Company recorded a loss on the impairment and disposal of held for sale assets of $1.8 million and $2.6 million, respectively, and less than $.1 million and $2.6 million during the three and six months ended
11
June 30, 2022, respectively, which is recorded to impairment and disposal of long-lived assets, net within the condensed consolidated statements of operations.
NOTE 9. NOTES PAYABLE
As of June 30, 2023 and December 31, 2022, notes payable consisted of the following:
Effective Interest Rate
Net Book Value of Collateral
Promissory notes dated December 21, 2022 (1)
70,839
71,500
7.53%
7.86%
1/1/2028
156,667
Promissory note dated December 22, 2022 (2)
18,687
18,900
7.30%
7.38%
12/22/2032
9,375
Promissory notes dated October 1, 2021 (3)
5,856
6,095
8.14%
8.29%
10/1/2027
11,555
Promissory note dated December 22, 2022
5,500
10.00%
12/22/2023
(5)
Promissory notes acquired in October 2021
1,778
5,338
(6)
Promissory note of consolidated variable-interest entity dated February 1, 2022
1,045
1,200
8.00%
12/31/2025
Total notes payable
103,705
108,533
Less: debt discount
(1,671
(1,833
Less: current portion of notes payable
(9,076
(12,453
Notes payable, net (7)
12
During the three and six months ended June 30, 2023, the Company incurred interest expense related to these notes payable of $2.1 million and $4.2 million, respectively, and during the three and six months ended June 30, 2022, the Company incurred interest expense of $0.2 million and $0.3 million, respectively, which is included within interest expense in the condensed consolidated statements of operations. This includes accretion expense of $0.1 million and $0.2 million, respectively, for the three and six months ended June 30, 2023 and $0.1 million and $0.1 million, respectively, for the three and six months ended June 30, 2022.
The Company's notes payable described above are subordinated to the private placement notes. See Note 10. Private Placement Notes for further details.
As of June 30, 2023, stated maturities of notes payable are as follows:
Six months ended December 31, 2023
7,788
3,232
3,888
3,044
69,352
16,401
NOTE 10. PRIVATE PLACEMENT NOTES
June and November Notes
In 2019, the Company completed two private placement arrangements (the “June Notes” and the “November Notes”), each comprised of 5-year senior secured promissory notes with a face value of $70.0 million and $60.0 million, respectively. The purchasers of the June Notes received warrants to purchase 1,470,000 Subordinate Voting Shares at a price of $13.47 ("June Warrants") and the purchasers of the November Notes received warrants to purchase 1,560,000 Subordinate Voting Shares at a price of $980 per Unit, with each unit consisting of one Note issued in Denominations of $1,000 and 26 warrants ("November Warrants"), which can be exercised for approximately three years after closing (collectively the "Public Warrants"). The remaining outstanding Public Warrants expired in June 2022.
2026 Notes
On October 6, 2021, the Company closed its private placement of 8% Senior Secured Notes (the "2026 Notes - Tranche One") for aggregate gross proceeds of $350.0 million and net proceeds of $342.6 million. The Company used a portion of the net proceeds to repay certain outstanding acquired indebtedness and used the remaining net proceeds for capital expenditures and other general corporate purposes. On January 28, 2022, the Company closed on a second tranche private placement of 8% Senior Secured Notes (the "2026 Notes - Tranche Two") for aggregate gross proceeds of $76.9 million and net proceeds of $75.6 million. The Company used the net proceeds for capital expenditures and other general corporate purposes. The notes may be redeemed in whole or in part, at the Company's option, at any time, on or after October 6, 2023, at the applicable redemption price. These notes are collectively referred to as the "2026 Notes".
13
As of June 30, 2023 and December 31, 2022, private placement notes payable consisted of the following:
2026 Notes - Tranche One
350,000
8.52%
10/6/2026
2026 Notes - Tranche Two
75,000
8.43%
June Notes
70,000
9.75%
13.32%
6/11/2024
November Notes
60,000
13.43%
Total private placement notes
555,000
Less: Unamortized debt discount and issuance costs
(10,534
(13,336
Less: current portion of private placement notes, net
(125,861
The private placement notes contain customary restrictive covenants pertaining to our management and operations, including, among other things, limitations on the amount of debt that may be incurred and the ability to pledge assets, as well as financial covenant requirements, that the Company comply with certain indebtedness to consolidated EBITDA (as defined) requirements and a fixed charge ratio coverage, measured from time to time when certain conditions are met.
During the three and six months ended June 30, 2023, the Company incurred interest expense related to private placement notes of $13.0 million and $25.9 million, respectively, and during the three and six months ended June 30, 2022, the Company incurred interest expense of $13.5 million and $25.8 million, respectively, which is included within interest expense in the condensed consolidated statements of operations related to the private placement notes. This includes accretion expense on the private placement notes of $1.4 million and $2.8 million, respectively, for the three and six months ended June 30, 2023 and $1.3 million and $2.5 million, respectively, for the three and six months ended June 30, 2022.
Stated maturities of the principal portion of private placement notes outstanding as of June 30, 2023, are as follows:
130,000
425,000
NOTE 11. LEASES
The Company leases real estate used for dispensaries, cultivation and production facilities, and corporate offices. Lease terms for real estate generally range from five to ten years. Most leases include options to renew for varying terms at the Company’s sole discretion. Other leased assets include passenger vehicles, trucks, and equipment. Lease terms for these assets generally range from three to five years. Lease right-of-use assets and liabilities are recognized based on the present value of future minimum lease payments over the lease term at commencement date.
Leases with an initial term of 12 months or less are not recorded on the balance sheet. Lease agreements for some locations provide for rent escalations and renewal options. Certain real estate leases require payment for taxes, insurance and maintenance which are considered non-lease components. The Company accounts for real estate leases and the related fixed non-lease components together as a single component.
The Company recorded a loss on disposal of right of use assets of less than $0.1 million and $10.5 million for the three and six months ended June 30, 2022, which is the result of repositioning of assets in the southeast, which is recorded to impairment and disposal of long-lived assets, net within the condensed consolidated statements of operations.
14
The following table provides the components of lease cost recognized within the condensed consolidated statements of operations for the three and six months ended June 30, 2023 and 2022:
Three Months EndedJune 30,
Operating lease cost
Cost of goods sold, sales and marketing, general and administrative
5,289
5,515
10,200
10,979
Finance lease cost:
Amortization of lease assets
2,578
2,581
5,353
4,986
Interest on lease liabilities
1,613
1,568
3,221
3,056
Finance lease cost
4,191
4,149
8,574
8,042
Variable lease cost
2,450
1,878
4,716
3,792
Short term lease expense
166
156
369
255
Total lease cost
12,096
11,698
23,859
23,068
Other information related to operating and finance leases is as follows:
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases
5,005
5,271
10,067
10,166
Operating cash flows from finance leases
1,612
1,559
3,267
3,047
Financing cash flows from finance leases
1,748
1,721
3,671
3,075
ASC 842 lease additions and modifications:
Operating leases
6,406
2,404
11,008
11,970
Finance leases
173
12,112
116
18,413
Weighted average discount rate:
10.00
9.29
9.00
8.66
Weighted average remaining lease term (in years):
9.1
8.3
7.7
7.8
15
Future minimum lease payments under the Company's non-cancellable leases as of June 30, 2023 are as follows:
Operating Leases
Finance Leases
9,719
6,831
20,420
13,680
20,359
13,470
19,708
12,605
19,103
11,703
75,826
43,358
Total undiscounted lease liabilities
165,135
101,647
Less: Interest
(54,736
(29,436
Total present value of minimum lease payments
110,399
72,211
Lease liabilities- current portion
(9,668
(7,595
Lease liabilities
Lease Guarantees
In accordance with ASC 460, Guarantees, the Company has determined that it meets the guarantor requirements under certain contractual agreements.
During the three months ending June 30, 2023, the Company determined it was no longer the primary beneficiary of one its variable interest entities. The Company guarantees two cannabis dispensary leases of the variable interest entity. Under both leases, nonperformance by the tenant results in the Company becoming obligated to fulfill the lease conditions. The leases have a term of approximately 8 and 9 years as of June 30, 2023, with the resulting maximum exposure estimated to be $5.8 million which includes $2.5 million and $3.3 million of undiscounted future minimum lease payments plus potential additional payments to satisfy maintenance, taxes, and insurance requirements under the remaining terms the Company is guarantor, respectively.
NOTE 12. CONSTRUCTION FINANCE LIABILITIES
When the Company enters into sale-leaseback transactions, it assesses whether a contract exists and whether there is a performance obligation to transfer control of the asset when determining whether the transfer of an asset shall be accounted for as a sale of the asset. If control is not transferred, based on the nature of the transaction, and therefore does not meet the requirements for a sale under the failed-sale-leaseback accounting model, the Company is deemed to own this real estate and reflects these properties on its consolidated balance sheets in property and equipment, net and depreciates them over the assets' useful lives. The liabilities associated with these leases are recorded to construction finance liabilities - current portion and construction finance liabilities on the condensed consolidated balance sheets. During the three and six months ended June 30, 2023, the Company recorded interest expense of $4.1 million and $8.2 million, respectively, and during the three and six months ended June 30, 2022, the Company recorded interest expense of $3.9 million and $7.7 million, respectively, related to construction finance liabilities, which is included in interest expense within the condensed consolidated statements of operations.
Ben Bostic
In October 2019, the Company sold property in Florida in exchange for cash of $17.0 million. Concurrent with the closing of the purchase, the buyer entered into a lease agreement with the Company, for continued operation as a licensed medical cannabis cultivation facility. Control was never transferred to the buyer-lessor because the transaction was determined to be a finance lease and did not meet the requirements of a sale. The transaction was treated as a failed sale-leaseback financing arrangement. As of June 30, 2023, and December 31, 2022, the total construction finance liability associated with this transaction is $17.8 million and $17.7 million, respectively.
McKeesport
In October 2019, the Company acquired a failed sales-leaseback transaction of a cannabis cultivation facility in Pennsylvania. The initial term of the lease is 15 years, with two five-year options to renew. As of June 30, 2023, and December 31, 2022, the total construction finance liability associated with this transaction is $42.1 million and $41.8 million, respectively.
16
Alachua
In October 2021, the Company acquired a failed sales-leaseback transaction of a cannabis cultivation and processing facility in Florida. The lease originated in January 2021 and has an initial term of 20 years, with two five-year options to renew. In the third quarter of 2022, the Company ceased using this facility and as a result recorded a loss on disposal of the related property and equipment of $42.4 million. As of June 30, 2023, and December 31, 2022, the total construction finance liability associated with this transaction is $59.2 million and $59.2 million, respectively.
Hancock
In October 2021, the Company acquired a failed sales-leaseback transaction of a cannabis cultivation and processing facility in Maryland. The lease originated in August 2021 and has an initial term of ten years with two options to extend the term, the first providing a ten-year renewal option and the second providing a five-year renewal option. The landlord has agreed to provide a tenant improvement allowance of $12.9 million as an additional component of base rent. As of June 30, 2023, and December 31, 2022, $12.3 million and $12.3 million of the tenant improvement allowance has been provided, respectively. As of June 30, 2023, and December 31, 2022, the total construction finance liability associated with this transaction is $19.1 million and $19.7 million, respectively.
Future minimum lease payments for the construction finance liabilities as of June 30, 2023, are as follows:
8,325
17,043
17,521
18,013
18,519
302,424
Total future payments
381,845
(243,582
Total present value of minimum payments
138,263
(1,324
NOTE 13. EQUITY
Warrants
Liability Warrants
In October 2021 the Company acquired 1,679 warrants in connection with the acquisition of Harvest Health and Recreation, Inc. ("Harvest Liability Warrants"). Each acquired warrant is exercisable into one Multiple Voting Share. Changes in fair value are recognized as a component of other (expense) income within the condensed consolidated statements of operations as change in fair value of derivative liabilities - warrants.
Numberofwarrants
Weighted average exercise price($CAD)
Weighted averageremaining contractuallife (Yrs)
Outstanding and exercisable as of January 1, 2023
1,679
1,125
0.31
Granted
Exercised
Expired
(1,679
Outstanding and exercisable as of June 30, 2023
17
Share Based Compensation
Options
The Company recorded share-based compensation for stock options as follows:
Statement of operations location
19
(56
35
70
(275
2,195
469
3,936
439
33
729
Total share-based compensation expense
(243
537
4,735
The number and weighted-average exercise prices and remaining contractual life of options as of June 30, 2023 were as follows:
Number of options
Weighted average exercise price
Weighted average remaining contractual life (Yrs.)
Aggregate intrinsic value
Outstanding, January 1, 2023
3,177,815
25.96
5.41
Forfeited
(334,864
30.29
Outstanding, June 30, 2023
2,842,951
25.45
4.66
Exercisable, June 30, 2023
2,222,348
25.67
3.59
As of June 30, 2023, there was approximately $2.0 million of unrecognized compensation cost related to unvested stock option arrangements which is expected to be recognized over a weighted average service period of 0.61 years.
Restricted Stock Units
The following is a summary of RSU activity for the six months ended June 30, 2023
Number of restricted stock units
Weighted average grant price
Unvested balance as of January 1, 2023
720,707
22.36
Vested
(102,064
23.03
Unvested balance as of June 30, 2023
618,643
22.21
The Company recorded share-based compensation for RSUs as follows:
258
260
458
601
2,567
1,920
4,462
76
300
159
612
718
3,125
2,339
5,532
As of June 30, 2023, there was approximately $4.8 million of total unrecognized compensation cost related to unvested restricted stock units, which is expected to be recognized over a weighted-average service period of 0.66 years.
18
NOTE 14. EARNINGS PER SHARE
The following is a reconciliation for the calculation of basic and diluted earnings per share:
Numerator
(in thousands, except share and per share amounts)
Continuing operations
Less: Net loss attributable to non-controlling interest
Net loss from continuing operations available to common shareholders of Trulieve Cannabis Corp.
(339,951
(17,257
(373,289
(43,794
Discontinued operations
Net loss from discontinued operations
Net loss from discontinued operations excluding non-controlling interest
(63,898
(94,684
Denominator
Weighted average number of common shares outstanding - Basic and diluted
Loss per Share - Continuing operations
Basic and diluted loss per share
Loss per Share - Discontinued operations
Shares which have been excluded from diluted per share amounts because their effect would have been anti-dilutive are as follows:
Stock options
3,465,639
2,985,093
3,547,090
Restricted share units
1,035,762
655,474
1,057,043
9,496
767,500
93,444
2,201,764
As of June 30, 2023, there are approximately 186.0 million issued and outstanding shares which excludes approximately 2.9 million fully vested RSUs which are not contractually issuable until 2024.
NOTE 15. INCOME TAXES
The following table summarizes the Company’s income tax expense and effective tax rate for the three and six months ended June 30, 2023 and 2022.
(Loss) Income before provision for income taxes
Effective tax rate
(11
%)
171
(23
208
The Company has computed its provision for income taxes based on the actual effective tax rate for the quarter as the Company believes this is the best estimate for the annual effective tax rate.
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 $49.5 million and $41.8 million as of June 30, 2023 and December 31, 2022, respectively, which is recorded in deferred tax liabilities and other long-term liabilities in the condensed consolidated balance sheets. The increase of $7.7 million in uncertain tax positions is due to a tax position taken relating to our inventory costs for tax purposes in our Florida dispensaries.
NOTE 16. DISCONTINUED OPERATIONS
During the three months ended June 30, 2023, the Company determined to discontinue its operations in Massachusetts. In July 2022, the Company discontinued its Nevada operations. There are immaterial activities related to Nevada which are expected to continue until the associated lease liabilities are settled.
The assets and liabilities associated with discontinued operations consisted of the following as June 30, 2023 and December 31, 2022:
Cash
1,835
2,744
2,936
3,230
21,310
Income tax receivable
2,718
2,267
Prepaids expenses and other current assets
947
1,486
Deferred tax asset
766
53,687
1,769
5,736
27,849
2,638
Total assets associated with discontinued operations
13,487
126,146
1,120
1,617
109
93
427
456
Construction finance liability - current portion
1,794
14,686
16,428
2,829
5,890
Construction finance liability
25,237
45,217
154
Total liabilities associated with discontinued operations
46,319
69,964
20
The following table summarizes the Company's income (loss) from discontinued operations for the three and six months ended June 30, 2023 and 2022. The gain and loss resulting from the forgiveness of intercompany payables has been eliminated in consolidation.
Revenues, net of discounts
4,472
6,444
8,347
14,231
22,872
7,663
26,972
17,155
Gross margin
(18,400
(1,219
(18,625
(2,924
Operating expenses
1,994
2,984
4,382
6,049
41,639
Total Expenses
43,633
73,657
Income (loss) from operations
(62,033
(4,203
(92,282
(8,973
(1,589
(1,534
(3,178
(3,058
30
60
(1,504
(3,156
(2,998
Loss before provision for income taxes
(63,622
(5,707
(95,438
(11,971
Income tax (provision) benefit
(946
473
(439
1,299
Net loss from discontinued operations, net of tax (provision) benefit
The condensed consolidated statements of cash flows include continuing operations and discontinued operations. The following table summarizes the depreciation of long-lived assets, amortization of long-lived assets, and capital expenditures of discontinued operations for the three and six months ended June 30, 2023 and 2022.
Depreciation
2,917
2,875
Amortization
535
2,795
Purchases of property plant and equipment
67
685
Loss on impairment of long-lived assets
As a result of the Massachusetts exit, the Company performed a lease term reassessment for the Holyoke failed sale-leaseback financing arrangement due to lease renewals previously included in the lease term being excluded as of the Massachusetts exit. The Company concluded the failed sale-leaseback accounting conclusion is maintained. The Company recognized a gain on partial
21
extinguishment of $18.5 million as a result of the lease term reassessment, which partially offset the loss on disposal of the related property and improvements of $45.8 million which is recorded to net loss from discontinued operations, net of tax (provision) benefit.
The lease had a term of ten years and was extended by one year to an eleven year term, expiring in December 2030.
Future minimum lease payments for the construction finance liability as of June 30, 2023, are as follows:
5,455
5,619
5,788
5,961
18,427
43,932
(16,901
27,031
(1,794
NOTE 17. Variable Interest Entities
The Company has entered into certain agreements with various entities related to the purchase and operation of cannabis dispensary, cultivation, and production licenses, in several states in which it determined to be variable interest entities. The Company's VIEs are not material to the consolidated financial position or operations as of June 30, 2023 and December 31, 2022 or for the three and six months ended June 30, 2023 and 2022.
The Company determined certain of these entities to be variable interest entities in which it is the primary beneficiary. The Company holds ownership interests in these entities ranging from 46% to 95% either directly or through a proxy as of June 30, 2023. The Company consolidates these entities due to the other holder’s equity investment being insufficient to finance its activities without additional subordinated financial support and the Company meeting the power and economics criteria. In particular, the Company controls the management decisions and activities most significant to these VIEs, has provided a significant portion of the subordinated financial support to date, and/or holds membership interests exposing the Company to the risk of reward and/or loss. The Company allocates income and cash flows of the VIEs based on the outstanding ownership percentage in accordance with the underlying agreements, as amended. The Company has consolidated all identified variable interest entities for which the Company is the primary beneficiary in the accompanying condensed consolidated financial statements.
During the three months ended March 31, 2023, the Company paid $0.4 million in cash and $1.7 million in subordinate voting shares earned but not yet issued, based on the completion of certain milestones required as part of the acquisition of one of the Company's consolidated variable interest entities. The Company previously paid $0.8 million in cash for certain milestones. As part of the Company's decision to exit the Massachusetts market during the three months ended June 30, 2023, it ceased its relationship with this variable interest entity. This terminated the payment of the $1.7 million subordinate voting shares earned but not yet issued. Based on the changes in circumstances, the Company reevaluated the variable interest entity, concluding it was no longer the primary beneficiary and as such, deconsolidated the entity during the three months ended June 30, 2023. The Company recorded a loss of $10.0 million related to the termination of the acquisition and deconsolidation of the variable interest entity which is included in the loss from discontinued operations in the condensed consolidated statements of operations for the three and six months ended June 30, 2023.
During the three months ended June 30, 2023, the Company sold and divested of certain variable interest entities. The Company received cash proceeds of $1.8 million related to the sale and recorded a loss on divestment of $0.8 million which is included in impairments and disposals of long-lived assets, net in the condensed consolidated statements of operations.
The Company no longer consolidates these VIEs since it is no longer considered the primary beneficiary.
The following table presents the summarized assets and liabilities of the Company’s VIEs in which the Company does not hold a majority interest as of June 30, 2023 and December 31, 2022. The assets and liabilities in the table below include third-party assets and liabilities of our VIEs only and exclude intercompany balances that eliminate in consolidation as included on our condensed consolidated balance sheets.
Current assets:
6,703
7,349
1,208
597
8,359
7,590
Prepaids and other current assets
514
46
16,784
15,582
27,923
25,994
Right of use asset - operating, net
2,817
Right of use asset - finance, net
275
224
17,830
17,947
147
344
Total assets
65,776
60,091
Current liabilities:
2,188
3,713
2,538
1,615
Finance lease liability - current portion
55
4,782
5,375
Notes payable
Operating lease liability
2,892
Finance lease liability
229
185
3,663
4,101
796
625
Total liabilities
13,407
11,486
NOTE 18. RELATED PARTIES
The Company leases a cultivation facility and corporate office facility from an entity that is directly or indirectly owned by Kim Rivers, the Company's Chief Executive Officer and Chair of the board of directors, George Hackney, a former member of the Company's board of directors, and Richard May, a member of the Company's board of directors.
As of June 30, 2023, and December 31, 2022, under ASC 842, the Company had the following related party operating leases on the condensed consolidated balance sheets:
As of June 30, 2023
As of December 31, 2022
Right-of-use assets, net
755
820
Lease liabilities:
Lease liabilities - current portion
121
113
679
751
Total related parties lease liabilities
800
864
Lease expense recognized on related party operating leases was less than $0.1 million and $0.1 million for the three and six months ended June 30, 2023, respectively. Lease expense was less than $0.1 million and $0.1 million for the three and six months ended June 30, 2022, respectively.
23
NOTE 19. REVENUE DISAGGREGATION
Net revenues are comprised of the following for the three and six months ended June 30, 2023 and 2022:
Retail
271,888
297,603
546,733
587,645
Wholesale, licensing, and other
9,907
16,236
20,276
36,755
Revenue, net of discounts
NOTE 20. COMMITMENTS AND CONTINGENCIES
Operating Licenses
Although the possession, cultivation, and distribution of cannabis is permitted in the states in which the Company operates, cannabis is a Schedule-I controlled substance and its use remains a violation of federal law. Since federal law criminalizing the use of cannabis preempts state laws that legalize its use, strict enforcement of federal law regarding cannabis would likely result in the Company’s inability to proceed with our business plans. In addition, the Company’s assets, including real property, inventory, cash and cash equivalents, equipment, and other goods, could be subject to asset forfeiture because cannabis is still federally illegal.
Claims and Litigation
In the ordinary course of business, the Company may be a party to litigation, investigations, inquiries, employment-related matters, disputes and other potential claims. As of June 30, 2023, there were no pending or threatened lawsuits that could reasonably be expected to have a material effect on the results of the Company’s condensed consolidated statements of operations. The Company does not believe it is probable that the outcome of any existing litigation, investigations, disputes or other potential claims will materially affect the Company or these financial statements in excess of amounts accrued.
In connection with the acquisition of a cultivation operation from CP4 Group, LLC, in Phoenix, Arizona ("Watkins Cultivation Operation" or "Watkins"), in the prior period, the Company received a demand letter on October 12, 2022, related to the four potential earnouts. The earnouts were based on the completion of certain milestones related to construction and operations and contingent on the continued employment of key employee shareholders. The Company entered into a settlement agreement in April 2023 closing this matter.
The Company records contingent liabilities with respect to litigation on various claims in which it believes a loss is probable and can be estimated. As of June 30, 2023 and December 31, 2022, $1.6 million and $31.7 million was included in contingent liabilities on the condensed consolidated balance sheets related to litigation matters, respectively. During the three and six months ended June 30, 2023 the Company settled various claims resulting in a decrease to the accrual. As of June 30, 2023 and December 31, 2022, $0.8 million and $3.0 million, respectively, was included in contingent liabilities on the condensed consolidated balance sheets for estimates related to various sales tax matters.
Regulatory Compliance
The Company’s compliance with state and other rules and regulations may be reviewed by state and federal agencies. If the Company fails to comply with these regulations, the Company could be subject to loss of licenses, substantial fines or penalties, and other sanctions.
24
NOTE 21. SUBSEQUENT EVENTS
In July 2023, the Company granted, under the Company’s 2021 Omnibus Incentive Plan, 1,754,817 stock options and 3,017,294 restricted share units to certain employees and directors. The shares vest over varying terms over a three-year period. The Company has not yet completed the fair value measurement for these awards as of the date of this filing.
25
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
This "Management's Discussion and Analysis of Financial Condition and Results of Operations" of Trulieve Cannabis Corp., together with its subsidiaries ("Trulieve," "the Company," "we," or "our") should be read in conjunction with the accompanying unaudited condensed consolidated financial statements and the related notes included elsewhere within this Quarterly Report on Form 10-Q and the Audited Consolidated Financial Statements and the related Notes thereto and "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" contained in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022 (the "2022 Form 10-K"). There have been no material changes as of June 30, 2023 to the application of our critical accounting policies as described in Item 7 of the Form 10-K.
This discussion contains forward-looking statements and involves numerous risks and uncertainties, including but not limited to those described in the “Risk Factors” section of this Quarterly Report on Form 10-Q in “Part I, Item 1A. Risk Factors” in our 2022 Form 10-K and in “Part II, Item 1A – Risk Factors” in our Q1 2023 Form 10-Q (the “Q1 Form 10-Q”). Actual results may differ materially from those contained in any forward-looking statements. You should read “Cautionary Note Regarding Forward-Looking Statements” and “Risk Factors” contained herein and in our 2022 Form 10-K and Q1 Form 10-Q. See “Special Note Regarding Forward-Looking Statements and Projections” in “Part II. Other Information” of this report. You should consider our forward-looking statements in light of the risks discussed in “Item 1A. Risk Factors” in “Part II. Other Information” of this report and our unaudited condensed consolidated financial statements, related notes and other financial information appearing elsewhere in this report, the Form 10-K and our other filings with the Securities and Exchange Commission (the “SEC”).
Overview
Trulieve Cannabis Corp. is a reporting issuer in the United States and Canada. The Company’s Subordinate Voting Shares (as hereinafter defined) are listed for trading on the Canadian Securities Exchange (“CSE”) under the symbol “TRUL” and are also traded in the United States on the OTCQX Best Market (“OTCQX”) under the symbol “TCNNF”.
Trulieve is a vertically integrated cannabis company and multi-state operator which currently operates in a number of states. Headquartered in Quincy, Florida, we are the market leader for quality medical cannabis products and services in Florida and we have market leading retail operations in Arizona, Pennsylvania, and West Virginia. By providing innovative, high-quality products across our brand portfolio, we aim to be the brand of choice for medical and adult-use customers in all of the markets that we serve. We operate in highly regulated markets that require expertise in cultivation, manufacturing, retail, and logistics. We have developed proficiencies in each of these functions and are committed to expanding access to high quality cannabis products and delivering exceptional customer experiences. Trulieve leverages its developed processes cultivate, process, and/or dispense a wide-range of permitted cannabis products across its operating markets with high standards for safety, effectiveness, quality, and customer care at the forefront.
As of June 30, 2023 we operated the following:
State
Number of Dispensaries
Number of Cultivation and Processing Facilities
Florida
125
Arizona
Pennsylvania
West Virginia
Maryland
Georgia
Connecticut
Colorado
As of June 30, 2023, we employed over 5,900 people, and we are committed to providing patients and adult use consumers, which we refer to herein as “customers,” a consistent and welcoming retail experience across Trulieve branded stores and affiliated retail locations.
Our business and operations center around the Trulieve brand philosophy of “Customers First” which permeates our culture beginning with high-quality and efficient cultivation and manufacturing practices. We focus on the consumer experience at Trulieve branded and affiliated retail locations, our in-house call center and in our Florida market at customer residences through a robust home delivery program. Our investments in vertically integrated operations in several of our markets afford us ownership of the entire supply chain, which mitigates third-party risks and allows us to completely control product quality and brand experience. We believe that this is contributive to high customer retention and brand loyalty. We successfully operate our core business functions of cultivation, production, and distribution at scale, and are skilled at rapidly increasing capacity without interruption to existing operations.
In furtherance of our customer-first focus, we have developed a suite of Trulieve branded products, including flower, edibles, vaporizer cartridges, concentrates, topicals, capsules, tinctures, dissolvable powders, and nasal sprays. This wide variety of products gives customers the ability to select product(s) that consistently deliver the desired effect and in their preferred method of delivery.
Trulieve has identified five regional geographic hubs in the U.S. and has established cannabis operations in three of the five hubs: Southeast, Northeast, and Southwest. In each of our three regional hubs we have market leading positions in cornerstone states and additional operations and assets in other state markets. Our hubs are managed by national and regional management teams supported by our corporate headquarters in Florida.
Our Southeast hub operations are anchored by our cornerstone market of Florida. Trulieve cultivates and produces all of its products in-house and distributes those products to customers in Trulieve branded stores (dispensaries) throughout Florida, as well as via home delivery. In Georgia, Trulieve GA holds one of two Class 1 Production Licenses in the state and is permitted to cultivate cannabis for the manufacture and sale of low tetrahydrocannabinol, or THC oil. On April 28, 2023, the Company opened the first locations in Georgia, opening a store in Macon and Marietta and opened a third store in Newnan in June 2023.
Our Southwest hub operations are anchored by Arizona, where Trulieve holds a market-leading retail position with twenty one dispensaries, offering medical and adult use customers a wide range of branded and third-party products, including brand partner products, in addition to sales in the wholesale channel.
Our Northeast hub operations are anchored by our cornerstone market of Pennsylvania. We conduct cultivation, processing, and retail operations through direct and indirect subsidiaries with permits for retail operations and grower/processor operations in Pennsylvania.
During the three months ended June 30, 2023, the Company approved a plan to exit the Massachusetts market to redirect resources to more attractive and profitable markets. The exit of Massachusetts represented a strategic shift and the operations of Massachusetts are reported as discontinued operations as of June 30, 2023.
During the three months ended June 30, 2023, the Company divested three additional dispensaries in California.
Recent Developments
On June 19, 2023, Alex D'Amico resigned as the Company's Chief Financial Officer effective immediately. The resignation was not as a result of any disagreements regarding any matter relating to the Company’s operations, policies, or practices. During the interim period, the Company has appointed Ryan Blust, the Company’s Vice President, Finance, to serve as its Interim Chief Financial Officer. The Company appointed Tim Mullany as Chief Financial Officer, effective as of July 10, 2023; however, Mr. Mullany resigned as the Company’s Chief Financial Officer for personal reasons effective July 20, 2023 and the Company appointed Ryan Blust as its interim Chief Financial Officer effective July 21, 2023.
In connection with Mr. D’Amico’s resignation, the audit committee of the Company’s board of directors (the “Audit Committee”), with the assistance of independent outside legal counsel, investigated circumstances relating to irregularities with Mr. D’Amico’s expense reimbursement submissions and his use of a corporate credit card over the tenure of his employment at the Company. The Audit Committee and the Company determined that Mr. D’Amico engaged in conduct that was inconsistent with the Company’s policies and procedures by both submitting expense reimbursements for personal expenses as well as utilizing corporate credit cards for personal expenses. The investigation has concluded, and the Company estimates that the total amount in question is between $350,000 to $400,000. Mr. D’Amico has not reimbursed the Company for such expenses. The Audit Committee and the Company have concluded that the matters that were the subject of the investigation and the amounts involved did not have a material impact on the Company’s previously reported financial statements for any period. The Company is still evaluating its options, particularly with respect to the expenses submitted by Mr. D’Amico, which may include, without limitation, the Company seeking restitution from Mr. D’Amico of the amounts determined to have been improperly reimbursed and making corrective tax reports relating to any such amounts not recovered.
27
Critical Accounting Estimates and Judgments
The preparation of the condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Significant estimates in our condensed consolidated financial statements, include, but are not limited to, accounting for acquisitions and business combinations; initial valuation and subsequent impairment testing of goodwill, other intangible assets and long-lived assets; leases; fair value of financial instruments, income taxes; inventory; share-based payment arrangements, and commitment and contingencies. Actual results may differ from these estimates. Estimates and underlying assumptions are reviewed on an ongoing basis.
Financial Review
Results of Continuing Operations
This section of this Form 10-Q generally describes and compares our results of continuing operations for the three and six months ended June 30, 2023 and 2022, except as noted. Refer to Note 16. Discontinued Operations to the condensed consolidated financial statements included in this Quarterly Report on Form 10-Q for additional financial information related to our discontinued operations.
Three Months Ended June 30, 2023 Compared to Three Months Ended June 30, 2022
Statement of operations data:
Amount
Percentage of Revenues, Net
Amount Change
100.0
(32,044
49.7
41.6
9,722
50.3
58.4
(41,766
21.7
23.5
(12,827
12.4
10.7
1,327
9.2
9.4
(3,315
1.2
1.6
(1,745
109.2
0.0
153.6
45.2
291,030
(103.4
13.2
(332,796
(6.7
(5.8
(787
0.5
(1,442
0.7
293
(6.0
(4.8
(1,936
(109.4
8.4
(334,732
12.1
14.4
(11,215
(121.5
(323,517
Net loss from discontinued operations, net of tax (provision) benefit of $(946) and $473, respectively
(22.9
(1.7
(59,334
(144.4
(7.7
(382,851
(0.8
(0.5
(823
(0.2
(143.3
(7.2
(381,358
Revenue, Net
28
Revenue, net for the three months ended June 30, 2023 was $281.8 million, a decrease of $32.0 million or 10% from $313.8 million for the three months ended June 30, 2022. The decrease in revenue is due to a $25.7 million decrease in retail revenues and a $6.3 million decrease in wholesale revenues. The Company experienced increased competition and promotional activity in certain markets. The Company operated 183 dispensaries and 165 dispensaries as of June 30, 2023 and June 30, 2022, respectively.
Cost of Goods Sold
Cost of goods sold for the three months ended June 30, 2023 was $140.2 million, an increase of $9.7 million or 7% from $130.5 million for the three months ended June 30, 2022. Cost of goods as a percentage of revenue, net was 49.7% in the current quarter compared to 41.6% in the prior year period. The increase was primarily due to inventory reduction efforts to right-size inventory levels, increased depreciation related to capital expenditures to support business growth, new production facilities in existing markets where economies of scale are anticipated in the future, and expansion into new markets which are not fully vertical, resulting in the sale of third-party products, and therefore yield lower margin than our vertical markets. The Company also incurred additional costs related to excess capacity in certain temporarily idled facilities.
The Company has continued to see increased cost of goods sold in relation to our revenues due to our expansion and streamlining efforts which we expect to derive cost savings and long-term benefits in the future.
Gross Profit
Gross profit for the three months ended June 30, 2023 was $141.6 million, a decrease of $41.8 million or 23% from $183.4 million for the three months ended June 30, 2022. Gross profit as a percentage of revenue, net was 50.3% in the current quarter compared to 58.4% in the prior year period driven by increased promotional activity in certain retail markets, price compression in certain markets, a product mix shift to value brands, initiatives to reduce inventory levels and costs related to excess capacity in certain temporarily idled facilities.
Sales and Marketing Expense
Sales and marketing expense for the three months ended June 30, 2023 was $61.1 million, a decrease of $12.8 million or 17% from $73.9 million for the three months ended June 30, 2022. Sales and marketing expense as a percentage of revenues, net was 21.7% in the current quarter compared to 23.5% in the prior year period. The decrease in expense was largely attributable to lower headcount in the Company’s dispensaries as we refined staffing levels to more closely align with consumer traffic and consumption levels. The decrease in sales and marketing expenses was also due to the accrual of $5.2 million in the prior year related to the Watkins earnout.
General and Administrative Expense
General and administrative expense for the three months ended June 30, 2023 was $34.9 million, an increase of $1.3 million or 4% from $33.6 million for the three months ended June 30, 2022. The increase in general and administrative expense is primarily due to a $8.6 million of legislative campaign contributions to support the Florida adult-use ballot initiative, offset by lower stock-based compensation expense and transaction and integration costs as compared to the prior period.
Depreciation and Amortization Expense
Depreciation and amortization expense for the three months ended June 30, 2023 was $26.1 million, a decrease of $3.3 million or 11% from $29.4 million for the three months ended June 30, 2022. The decrease in depreciation and amortization expense was attributable to certain intangible assets becoming fully amortized in the prior year.
Impairments and Disposals of Long-lived Assets, Net
Impairment and disposal of long-lived assets, net for the three months ended June 30, 2023 was $3.3 million, a decrease of $1.7 million from $5.1 million for the three months ended June 30, 2022. The expense in the current quarter was primarily related to asset disposals in our California market and exiting the Watkins Cultivation Operation in the second quarter of 2023. The expense incurred in the prior year was primarily due to exited facilities and the repositioning of assets, primarily in our southeast hub.
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Impairment of goodwill for the three months ended June 30, 2023 was $307.6 million, an increase of $307.6 million from zero for the three months ended June 30, 2022 Based on the results of the Company's goodwill impairment procedures, the Company recorded a $307.6 million goodwill impairment for the single reporting unit during the three months ended June 30, 2023. The Company finds this is not a negative indicator of historic or current operating results and not a negative indicator of future performance as the Company has taken steps to shed underperforming assets while focusing on cash conservation which is reflective in the results of operations as of June 30, 2023. Additionally, the resulting non-cash charge has no impact on the Company’s compliance with debt covenants, its cash flows, or available liquidity.
Other Expense, Net
Other expense, net for the three months ended June 30, 2023 was $17.0 million, an increase of $1.9 million or 13% from $15.0 million for three months ended June 30, 2022. The increase is primarily the result of a change in the valuation of the warrants in the prior year which expired June 2022.
Provision for Income Taxes
The provision for income taxes for the three months ended June 30, 2023 was $34.0 million, a decrease of $11.2 million or 25% from $45.2 million for the three months ended June 30, 2022. For the three months ended June 30, 2023, the decrease in income tax expense is primarily due to the decrease in gross profit. Under IRC Section 280E, cannabis companies are only allowed to deduct expenses that are directly related to production of the products. The Company's quarterly tax provision is subject to change resulting from several factors, including regulations and administrative practices, principles, and interpretations related to tax.
Net Loss from Continuing Operations
Net loss from continuing operations for the three months ended June 30, 2023 was $342.3 million, an increase of $323.5 million from $18.8 million for the three months ended June 30, 2022. The increase was driven primarily by the goodwill impairment charge of $307.6 million, lower gross margin, and an increase of $8.6 million in legislative campaign contributions to support the Florida adult-use ballot initiative. These impacts were partially offset by lower operating expenses driven by the Company’s continued focus on cost savings initiatives, expenses of $5.2 million incurred in the prior year period related to the accrual of the Watkins earnout and a $11.2 million decrease in tax expense.
Net Loss from Discontinued Operations, Net of Tax Benefit
Net loss from discontinued operations, net of tax benefit for the three months ended June 30, 2023 was $64.6 million, an increase of $59.3 million from $5.2 million for the three months ended June 30, 2022. The increase in net loss is primarily attributable to losses from the exit of the Company’s operations in Massachusetts in the second quarter of 2023, including the disposal of long-lived assets of $31.6 million and a loss on divestment of a variable interest entity of $10.0 million. Discontinued operations also include the results of the Nevada operations that were discontinued in 2022.
Six Months Ended June 30, 2023 Compared to Six Months Ended June 30, 2022
$567,009
100.0%
$624,400
$(57,391)
48.5%
41.8%
14,068
51.5%
58.2%
(71,459)
21.5%
23.3%
(23,544)
13.1%
10.7%
7,223
9.8%
9.2%
(1,485)
1.2%
3.4%
(14,827)
54.2%
0.0%
99.8%
46.6%
274,957
(274,196)
(48.4%)
11.6%
(346,416)
(40,091)
(7.1%)
(34,497)
(5.5%)
(5,594)
0.4%
(2,010)
4,325
(32,946)
(5.8%)
(29,667)
(4.8%)
(3,279)
(307,142)
(54.2%)
6.8%
(349,695)
12.3%
14.2%
(18,900)
(376,626)
(66.4%)
(45,831)
(7.3%)
(330,795)
Net loss from discontinued operations, net of tax (provision) benefit of $(439) and $1,299, respectively
(95,877)
(16.9%)
(10,672)
(1.7%)
(85,205)
(472,503)
(83.3%)
(56,503)
(9.0%)
(416,000)
(3,337)
(0.6%)
(2,037)
(0.3%)
(1,300)
(1,193)
(0.2%)
$(467,973)
(82.5%)
$(54,466)
(8.7%)
$(413,507)
Revenue, net for the six months ended June 30, 2023 was $567.0 million, a decrease of $57.4 million or 9% from $624.4 million for the six months ended June 30, 2022. The decrease in revenue is due to a $40.9 million decrease in retail revenues and a $16.5 million decrease in wholesale revenues. The Company experienced increased competition and promotional activity in certain markets. The Company operated 183 dispensaries and 165 dispensaries as of June 30, 2023 and June 30, 2022, respectively.
Cost of goods sold for the six months ended June 30, 2023 was $275.2 million, an increase of $14.1 million or 5% from $261.2 million for the six months ended June 30, 2022. Cost of goods as a percentage of revenues, net was 48.5% in the current year period compared to 41.8% in the prior year period. The increase was primarily due to inventory reduction efforts to right-size inventory levels, increased depreciation related to capital expenditures to support business growth, new production facilities in existing markets where economies of scale are anticipated in the future, and expansion into new markets which are not fully vertical, resulting in the sale of third-party products, and therefore yield lower margin than our vertical markets. The Company also incurred additional costs related to excess capacity in certain temporarily idled facilities.
31
Gross profit for the six months ended June 30, 2023 was $291.8 million, a decrease of $71.5 million or 20% from $363.2 million for the six months ended June 30, 2022. Gross profit as a percentage of revenue, net was 51.5% in the current year period compared to 58.2% in the prior year period driven by increased promotional activity in certain retail markets, price compression in certain markets, a product mix shift to value brands, initiatives to reduce inventory levels and costs related to excess capacity in certain temporarily idled facilities.
Sales and marketing expense for the six months ended June 30, 2023 was 121.8 million, a decrease of 23.5 million or 16% from $145.4 million for the six months ended June 30, 2022. Sales and marketing expense as a percentage of revenues, net was 21.5% in the current year period compared to 23.3% in the prior year period. The decrease in expense was largely attributable to lower headcount in the Company’s dispensaries as we refined staffing levels to more closely align with consumer traffic and consumption levels. The decrease in sales and marketing expenses was also due to the accrual of $7.3 million in the prior year period related to the Watkins earnout.
General and administrative expense for the six months ended June 30, 2023 was $74.2 million, an increase of $7.2 million or 11% from $67.0 million for the six months ended June 30, 2022. The increase in general and administrative expense is primarily due to a $19.1 million of legislative campaign contributions to support the Florida adult-use ballot initiative during the current year period, partially offset by lower stock-based compensation expense and transaction and integration costs as compared to the prior period.
Depreciation and amortization expense for the six months ended June 30, 2023 was $55.7 million, a decrease of $1.5 million or 3% from $57.2 million for the six months ended June 30, 2022.
Impairment and disposal of long-lived assets, net for the six months ended June 30, 2023 was $6.7 million, a decrease of $14.8 million or 69% from $21.5 million for the six months ended June 30, 2022. The impairment expense incurred in the current year was primarily related to asset disposals in our California market while the prior year was due to exited facilities and the repositioning of assets, mainly in our southeast hub.
Impairment of goodwill for the six months ended June 30, 2023 was $307.6 million, an increase of $307.6 million from zero for the six months ended June 30, 2022. Based on the results of the Company's goodwill impairment procedures, the Company recorded a $307.6 million goodwill impairment for the single reporting unit during the three months ended June 30, 2023. The Company finds this is not a negative indicator of historic or current operating results and not a negative indicator of future performance as the Company has taken steps to shed underperforming assets while focusing on cash conservation which is reflective in the results of operations as of June 30, 2023. Additionally, the resulting non-cash charge has no impact on the Company’s compliance with debt covenants, its cash flows, or available liquidity.
Other expense, net for the six months ended June 30, 2023 was $32.9 million, an increase of $3.3 million or 11% from $29.7 million for six months ended June 30, 2022. The increase is primarily the result of additional interest expense related to new financings to support the long-term business growth, partially offset by gains related to non-operating assets, interest income on money market funds, and a change in the valuation of the interest rate swap.
32
The provision for income taxes for the six months ended June 30, 2023 was $69.5 million, a decrease of $18.9 million or 21% from $88.4 million for the six months ended June 30, 2022. For the six months ended June 30, 2023, the decrease in income tax expense is primarily due to the decrease in gross profit. Under IRC Section 280E, cannabis companies are only allowed to deduct expenses that are directly related to production of the products. The Company's quarterly tax provision is subject to change resulting from several factors, including regulations and administrative practices, principles, and interpretations related to tax.
Net loss from continuing operations for the six months ended June 30, 2023 was $376.6 million, an increase of $330.8 million from $45.8 million for the six months ended June 30, 2022. The increase in net loss in the current year period was driven primarily by the goodwill impairment charge of $307.6 million, lower gross margin, and an increase of $19.1 million in legislative campaign contributions to support the Florida adult-use ballot initiative. These impacts were partially offset by lower operating expenses driven by the Company’s continued focus on cost savings initiatives, expenses of $7.3 million incurred in the prior year period related to the accrual of the Watkins earnout and a $18.9 million decrease in tax expense.
Net loss from discontinued operations, net of tax benefit for the six months ended June 30, 2023 was $95.9 million, an increase of $85.2 million from $10.7 million for the six months ended June 30, 2022. The increase in the current year is primarily attributable to losses from the exit of the Company’s operations in Massachusetts in the second quarter of 2023 including the disposal of long-lived assets of $59.3 million and a loss on divestment of a variable interest entity of $10.0 million. Discontinued operations also include the results of the Nevada operations that were discontinued in 2022.
Liquidity and Capital Resources
Sources of Liquidity
Since our inception, we have funded our operations and capital spending through cash flows from product sales, third-party debt, proceeds from the sale of our capital stock and loans from affiliates and entities controlled by our affiliates. We are generating cash from sales and are deploying our capital reserves to acquire and develop assets capable of producing additional revenues and earnings over both the immediate and near term to support our business growth and expansion. Our current principal sources of liquidity are our cash and cash equivalents provided by our operations and debt and equity offerings. Cash and cash equivalents consist primarily of cash on deposit with banks and money market funds.
Our primary uses of cash are for working capital requirements, capital expenditures, debt service payments, and income tax payments. Additionally, from time to time, we may use capital for other investing and financing activities. Working capital is used principally for our personnel as well as costs related to the growth, manufacture and production of our products. Our capital expenditures consist primarily of additional facilities and dispensaries, and improvements to existing facilities. Our debt service payments consist primarily of interest payments. Income tax payments are mainly represented by federal income tax payments due to IRC Section 280E.
Cash and cash equivalents were $152.4 million as of June 30, 2023. We believe our existing cash balances will be sufficient to meet our anticipated cash requirements from the date of this Quarterly Report on Form 10-Q through at least the next 12 months. Any additional future requirements will be funded through the following sources of capital:
Cash Flows
The condensed consolidated statements of cash flows include continuing operations and discontinued operations for the six months ended June 30, 2023 and 2022. The table below highlights our cash flows for the periods indicated.
Cash Flow from Operating Activities
Net cash used in operating activities was $23.1 million for the six months ended June 30, 2023, an increase of $12.8 million as compared to $10.3 million net cash used operating activities during the six months ended June 30, 2022. This is primarily due to additional income tax payments which were deferred from the fourth quarter of 2022, due to Hurricane Ian, and paid in the first quarter of 2023. This was largely offset by the favorable impact of the Company’s inventory wind-down initiative. Inventory balances decreased in 2023 driven by targeted efforts to reduce specific product categories and lower third-party product offerings.
Cash Flow from Investing Activities
Net cash used in investing activities was $25.3 million for the six months ended June 30, 2023, a decrease of $111.1 million, compared to the $136.4 million net cash used in investing activities for the six months ended June 30, 2022.
The primary use of cash in both periods was the purchase of property and equipment, with the prior period having significantly more purchases of property and equipment due to the Company's build out of facilities and automation primarily at our Florida cultivation sites as well as Pennsylvania and West Virginia. Additionally, the prior period included the cash payment of $27.5 million related to the acquisition of the Watkins Cultivation Operation.
Cash Flow from Financing Activities
Net cash used in financing activities was $9.3 million for the six months ended June 30, 2023, a decrease of $103.8 million, compared to the $94.4 million net cash provided by financing activities for the six months ended June 30, 2022. The decrease was primarily due to proceeds from debt financing activities in the prior year that did not occur in the current period. The Company received proceeds of $76.4 million from private placement notes which closed in January 2022 and $19.2 million in proceeds from the exercise of warrants during the six months ended June 2022 prior to expiration.
Balance Sheet Exposure
As of June 30, 2023 and December 31, 2022, 100% of our condensed consolidated balance sheet is exposed to U.S. cannabis-related activities. We believe our operations are in material compliance with all applicable state and local laws, regulations, and licensing requirements in the states in which we operate. However, cannabis remains illegal under U.S. federal law. Substantially all our revenue is derived from U.S. cannabis operations. For information about risks related to U.S. cannabis operations, please refer to the “Risk Factors” section of this Quarterly Report on Form 10-Q, "Part I, Item 1A - Risk Factors" in our 2022 Form 10-K and Part II, Item 1A – Risk Factors in our Q1 Form 10-Q.
34
Contractual Obligations
As of June 30, 2023, we had the following contractual obligations to make future payments, representing contracts and other commitments that are known and committed:
<1 Year
1 to 3 Years
3 to 5 Years
>5 Years
7,337
71,194
16,098
Private placement notes
21,532
43,876
41,767
90,639
197,814
14,299
27,970
24,528
38,932
105,729
22,184
46,286
48,966
308,341
425,777
Lease Settlements
1,003
1,140
846
2,434
5,423
Total (1)
198,094
126,609
612,301
456,444
1,393,448
For additional information on our commitments for financing arrangements, future lease payments, lease guarantees, and other obligations, see Note 9. Notes Payable, Note 10. Private Placement Notes, Note 11. Leases, Note 12. Construction Finance Liabilities, and Note 20. Commitments And Contingencies.
Off-Balance Sheet Arrangements
As of the date of this filing, we do 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, including, and without limitation, such considerations as liquidity and capital resources.
Management's Use of Non-GAAP Measures
Our management uses a financial measure that is not in accordance with generally accepted accounting principles in the U.S., or GAAP, in addition to financial measures in accordance with GAAP to evaluate our operating results. This non-GAAP financial measure should be considered supplemental to, and not a substitute for, our reported financial results prepared in accordance with GAAP. Adjusted EBITDA is a financial measure that is not defined under GAAP. Our management uses this non-GAAP financial measure and believes it enhances an investor’s understanding of our financial and operating performance from period to period because it excludes certain material non-cash items and certain other adjustments management believes are not reflective of our ongoing operations and performance. Adjusted EBITDA excludes from net income as reported interest, provision for income taxes, and depreciation and amortization to arrive at EBITDA. This is then adjusted for items that do not represent the operations of the core business such as integration and transition costs, acquisition and transaction costs, inventory step-up for fair value adjustments in purchase accounting, other non-recurring costs such as contributions to specific initiative campaigns (such as Smart and Safe Florida), expenses related to the COVID-19 pandemic, impairments and disposals of long-lived assets, the results of entities consolidated as variable interest entities ("VIEs") but not legally controlled and operated by the Company, discontinued operations, and other income and expense items. Integration and transition costs include those costs related to integration of acquired entities and to transition major systems or processes. Acquisition and transaction costs relate to specific transactions such as acquisitions whether contemplated or completed and regulatory filings and costs related to equity and debt issuances. Other non-recurring costs includes miscellaneous items which are not expected to reoccur frequently such as inventory adjustments related to specific issues and unusual litigation. Adjusted EBITDA for the three and six months ended June 30, 2022, has been adjusted to reflect this current definition and to conform with the current period presentation.
Trulieve reports Adjusted EBITDA to help investors assess the operating performance of the Company’s business. The financial measures noted above are metrics that have been adjusted from the GAAP net income measure in an effort to provide readers with a normalized metric in making comparisons more meaningful across the cannabis industry, as well as to remove non-recurring, irregular and one-time items that may otherwise distort the GAAP net income measure.
As noted above, our Adjusted EBITDA is not prepared in accordance with GAAP, and should not be considered in isolation of, or as an alternative to, measures prepared in accordance with GAAP. There are a number of limitations related to the use of Adjusted EBITDA rather than net income, which is the most directly comparable financial measure calculated and presented in accordance with GAAP. Because of these limitations, we consider, and you should consider, Adjusted EBITDA together with other operating and financial performance measures presented in accordance with GAAP. A reconciliation of Adjusted EBITDA from net income, the most directly comparable financial measure calculated in accordance with GAAP, has been included herein immediately following our discussion of “Adjusted EBITDA”.
Adjusted EBITDA
Change Increase / (Decrease)
78,695
111,024
(32,329
(29)%
156,768
215,986
(59,218
(27)%
Adjusted EBITDA for the three months ended June 30, 2023 was $78.7 million, a decrease of $32.3 million or 29%, from $111.0 million for the three months ended June 30, 2022. Adjusted EBITDA for the six months ended June 30, 2023 was $156.8 million, a decrease of $59.2 million or 27%, from $216.0 million for the six months ended June 30, 2022. The following table presents a reconciliation of GAAP net income to non-GAAP Adjusted EBITDA, for each of the periods presented:
Add (deduct) impact of:
18,931
18,144
40,091
34,497
15,989
12,576
28,109
21,874
EBITDA
(308,850
82,838
(274,623
147,440
Legislative campaign contributions
8,550
19,062
Integration and transition costs
5,698
5,129
7,635
10,397
Share-based compensation and related premiums
(1,976
(1,683
(6,893
(2,568
63,898
5,234
94,684
10,672
Acquisition and transaction costs
6,969
10,266
Other non-recurring costs
3,499
9,688
Inventory step up, fair value
648
1,048
COVID related expenses
163
588
Results of entities not legally controlled
(1,089
(1,066
Total adjustments
387,545
28,186
431,391
68,546
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
There have been no material changes to our market risk disclosures as set forth in Part II Item 7A of our 2022 Annual Report on Form 10-K for the year ended December 31, 2022.
Item 4. Controls and Procedures.
Material Weakness in Internal Control Over Financial Reporting
We maintain disclosure controls and procedures designed to provide reasonable assurance that information required to be disclosed in reports filed under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), is recorded, processed, summarized and reported within the specified time periods and accumulated and communicated to our management, including our principal executive officer, principal financial officer, and principal accounting officer, as appropriate to allow timely decisions regarding disclosure. In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, as ours are designed to do, and management necessarily was required to apply its judgment in evaluating the risk related to controls and procedures.
A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis.
Management of the Company, under the supervision and with the participation of our Chief Executive Officer and Interim Chief Financial Officer, evaluated the effectiveness of the design and operation of its 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”) as of June 30, 2023. Our Chief Executive Officer and Interim Chief Financial Officer have concluded that, due to the material weaknesses as described in the 2022 Annual Report on Form 10-K, which are currently in the process of being remediated, as of June 30, 2023, we did not maintain effective disclosure controls and procedures because of the material weaknesses in internal control as described in Item 9A. Controls and Procedures in the 2022 Annual Report on Form 10-K, filed with the SEC on March 8, 2023.
Notwithstanding the material weaknesses described in the 2022 Annual Report on Form 10-K, we have concluded that the condensed consolidated financial statements included in this Quarterly Report on Form 10-Q fairly present, in all material respects, our financial position, results of operations and cash flows for the periods presented in conformity with U.S. GAAP.
We consolidated variable interest entities as of June 30, 2023 and December 31, 2022, because we determined we were the primary beneficiary. We have elected to exclude controls at our variable interest entities from the scope of our evaluation of internal control over financial reporting as of June 30, 2023 and December 31, 2022. The financial position of our variable interest entities represented an insignificant amount of our total assets, net revenues, and results of operations for the period ended June 30, 2023 and December 31, 2022, respectively.
Management’s Remediation Measures
We previously identified and disclosed material weaknesses in internal control as described in Item 9A. Controls and Procedures in the 2022 Annual Report on Form 10-K, filed with the SEC on March 8, 2023. The material weaknesses were due to a lack of sufficient controls around information technology, inventory valuation, and variable interest entities. Management is committed to maintaining a strong internal control environment. In response to the identified material weaknesses in the overall control environment, management, with the oversight of the Audit Committee of the Board of Directors, is taking a number of remediation actions including but not limited to the following:
Information technology:
The Company has designed and is in the process of designing and implementing improved or additional controls over access, change management, and IT operations to ensure that access rights are restricted to appropriate individuals, and that data integrity is maintained via effective change management controls over system updates and the transfer of data between systems. The Company additionally is evaluating and enhancing its policies for improved observation and enforcement of certain of its internal policies.
The Company continues to adjust its Enterprise Resource Planning (“ERP”) Systems to work towards improvement and automation of ITGC’s as well as other business process application controls.
The Company is enhancing procedures to validate the information produced by the entity and end user computing to compensate while the ITGC controls are being improved.
Inventory Valuation:
The Company continues to enhance its ERP Systems and has a project plan in place to work towards increasing the level of automation in inventory tracking and analysis and reducing manual processes.
The Company has hired additional qualified personnel to provide additional oversight around the inventory valuation process.
The Company is in the process of implementing more robust management review controls to provide more focus on detailed analyses and enhanced monitoring of our inventory valuation policies and process. The Company continues to review and enhance procedures related to internal controls.
Variable Interest Entities:
The Company has enhanced its procedures around the identification and evaluation, and where applicable, remeasurement, of our variable interest entities and potential variable interest entities.
We have reviewed business processes surrounding non-routine transactions and other complex financial reporting areas to identify enhanced procedures related to internal controls.
Beginning in fiscal year 2022, the Company consolidated the identified variable interest entity that was previously not consolidated. The consolidated financial statements for prior periods were not and will not be modified in future Annual Reports as such errors are immaterial to those periods.
Current status:
While progress has been made to enhance our internal control over financial reporting, we are still in the process of building and enhancing internal processes, procedures, and controls, as well as evaluating and enhancing our related policies. Additional time is required to complete the remediation of the material weaknesses and the assessment to ensure the sustainability of these remediation actions. We believe the above actions as well as those being implemented currently, when complete, will be effective in the remediation of the material weaknesses described above.
Changes in Internal Controls Over Financial Reporting
Other than the remediation measures discussed above, there have been no changes in internal controls over financial reporting during the six months ended June 30, 2023, that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting. Management believes these actions will help remediate internal control deficiencies related to the Company’s financial reporting (as defined in Rule 13a-15(f) and 15d-15(f) under the Exchange Act).
PART II - OTHER INFORMATION
Cautionary Note Regarding Forward-Looking Statements
This Quarterly Report on Form 10-Q contains forward-looking statements. In some cases, you can identify these statements by forward-looking words such as “may”, “will”, “would”, “could”, “should”, “believes”, “estimates”, “projects”, “potential”, “expects”, “plans”, “intends”, “anticipates”, “targeted”, “continues”, “forecasts”, “designed”, “goal”, or the negative of those words or other similar or comparable words. Any statements contained in this Quarterly Report on Form 10-Q that are not statements of historical facts may be deemed to be forward-looking statements. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our business, financial condition, results of operations and future growth prospects. The forward-looking statements contained herein are based on certain key expectations and assumptions, including, but not limited to, with respect to expectations and assumptions concerning receipt and/or maintenance of required licenses and third party consents and the success of our operations, are based on estimates prepared by us using data from publicly available governmental sources, as well as from market research and industry analysis, and on assumptions based on data and knowledge of this industry that we believe to be reasonable. These forward-looking statements are not guarantees of future performance or development and involve known and unknown risks, uncertainties and other factors that are in some cases beyond our control. As a result, any or all of our forward-looking statements in this Quarterly Report on Form 10-Q may turn out to be inaccurate. Factors that may cause actual results to differ materially from current expectations include, among other things, those listed under “Risk Factors” and discussed elsewhere in this Quarterly Report on Form 10-Q in “Part I, Item 1A – Risk Factors” in our 2022 Annual Report and in Part II, “Item 1A—Risk Factors” in the Company’s First Quarter 10-Q. These forward-looking statements speak only as of the date of this Quarterly Report on Form 10-Q. Except as required by law, we assume no obligation to update or revise these forward-looking statements for any reason, even if new information becomes available in the future. You should, however, review the factors and risks we describe in the reports we will file from time to time with the SEC after the date of this Quarterly Report on Form 10-Q. These factors and risks include, among other things, the following:
Risks Related to Our Business and Industry
38
39
Risks Related to Owning Subordinate Voting Shares
Item 1. Legal Proceedings.
There are no actual or to our knowledge contemplated legal proceedings material to us or to which any of our or any of our subsidiaries’ property is the subject matter.
There have been no material penalties or sanctions imposed against the Company by a court or regulatory authority, and the Company has not entered into any material settlement agreements before any court relating to provincial or territorial securities legislation or with any securities regulatory authority, in the three years prior to the date of this filing.
Item 1A. Risk Factors.
Investing in our Subordinate Voting Shares involves a high degree of risk. Our 2022 Form 10-K filed with the SEC on March 8, 2023 and our Q1 Form 10-Q filed with the SEC on May 10, 2023 include detailed discussions of our risk factors under the heading “Part I, Item 1A—Risk Factors" and "Part II, Item 1A—Risk Factors," respectively. You should consider carefully the risk factors discussed in our 2022 Form 10-K or Q1 Form 10-Q and all other information contained in or incorporated by reference in this Quarterly Report on Form 10-Q before making an investment decision. If any of the risks discussed in the 2022 Form 10-K or Q1 Form 10-Q actually occur, they may materially harm our business, financial condition, operating results, cash flows or growth prospects. As a result, the market price of our Subordinate Voting Shares could decline, and you could lose all or part of your investment. Additional risks and uncertainties that are not yet identified or that we think are immaterial may also materially harm our business, financial condition, operating results, cash flows or growth prospects and could result in a complete loss of your investment. Other than the following, there have been no material changes from such risk factors during the period ended June 30, 2023.
The risk of negative effects related to known or potential material weakness in our internal control over financial reporting.
We have identified material weaknesses in our internal control over financial reporting, and our management has concluded that our disclosure controls and procedures are not effective. While we are working to remediate any material weaknesses or significant deficiencies in our internal controls over financial reporting, we cannot assure that additional material weaknesses or significant deficiencies will not occur in the future. For example, the Company identified information leading it to review its internal controls over the observation and enforcement of certain of our internal policies.
Ineffective internal control over financial reporting could result in errors or misstatements in our financial statements, reduce investor confidence, and adversely impact our stock price. As discussed in Part II, Item 9A “Controls and Procedures” in the 2022 Annual Report on Form 10-K, in connection with the audit of our consolidated financial statements as of and for the year ended December 31, 2022, we identified material weaknesses related to information technology general controls, valuation of inventory, and the identification and evaluation of variable interest entities.
We are in the process of remediating the material weaknesses, as such remediation measures are described in Part II, Item 9A “Controls and Procedures” of our 2022 Annual Report on Form 10-K and as discussed in Part I, Item 4 of each of the First Quarter 2023 Quarterly Report on Form 10-Q and this Quarterly Report on Form 10-Q. While progress has been made to enhance our internal control over financial reporting, we are still in the process of building and enhancing our processes, procedures, and controls, as well as evaluating and enhancing our internal policies. Additional time is required to complete the remediation of the material weaknesses
and to ensure the sustainability of these remediation actions. We believe the above actions as well as those being implemented currently, when complete, will be effective in the remediation of the material weaknesses described above. There can be no assurance that the additional processes, procedures, and controls that we have implemented while we work to remediate the material weaknesses or that other material weaknesses will not arise in the future. If the additional processes, procedures, and controls that we have implemented while we work to remediate the material weaknesses are not sufficient, or if we identify additional control deficiencies that individually or together constitute significant deficiencies or material weaknesses, our ability to accurately record, process, and report financial information and consequently, our ability to prepare financial statements within required time periods, could be adversely affected. Failure to properly remediate the material weaknesses or the discovery of additional control deficiencies could result in violations of applicable securities laws, CSE listing requirements, subject us to litigation and investigations, negatively affect investor confidence in our financial statements, and adversely impact our stock price and ability to access capital markets.
We maintain cash deposits in excess of federally insured limits. Adverse developments affecting financial institutions, including bank failures, could adversely affect our liquidity and financial performance.
We maintain domestic cash deposits in Federal Deposit Insurance Corporation (“FDIC”) insured banks that exceed the FDIC insurance limits. Bank failures, events involving limited liquidity, defaults, non-performance, or other adverse developments that affect financial institutions, or concerns or rumors about such events, may lead to liquidity constraints. There can be no assurance that our deposits in excess of the FDIC or other comparable insurance limits will be backstopped by the United States government, or that any bank or financial institution with which we do business will be able to obtain needed liquidity from other banks, government institutions, or by acquisition in the event of a failure or liquidity crisis.
For example, on March 10, 2023, Silicon Valley Bank was closed by the California Department of Financial Protection and Innovation, which appointed the FDIC as receiver. Similarly, on March 12, 2023, Signature Bank and Silvergate Capital Corp. were each swept into receivership. Although we do not have any accounts at or business relationships with these banks, we may be negatively impacted by other disruptions to the United States banking system caused by these or similar developments. The failure of a bank, or other adverse conditions in the financial or credit markets impacting financial institutions at which we maintain balances, could adversely impact our liquidity and financial performance.
In addition, as further described in our Annual Report on Form 10-K for the year ended December 31, 2022, most banks and other financial institutions have not been willing to provide banking services to cannabis-related businesses. As such, the Company may have increased difficulty accessing the services of banks amid the adverse developments affecting the financial services industry, which may make it difficult to operate its business. In such an event, the Company’s operations and financial condition could be adversely impacted.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
None.
Item 3. Defaults Upon Senior Securities.
Not applicable.
Item 4. Mine Safety Disclosures.
Item 5. Other Information.
Item 6. Exhibits.
Exhibit
Number
Description
10.1‡
Amended and Restated Trulieve Cannabis Corp. 2021 Omnibus Incentive Plan (incorporated by reference to
Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on June 20, 2023 (File No.
000-56248)).
10.2*‡
Executive Employment Agreement, dated June 18, 2023, by and between Trulieve Cannabis Corp. and Timothy Mullany.
10.3*‡
Executive Employment Agreement, dated September 29, 2021, by and between Trulieve Cannabis Corp. and
Ryan Blust.
10.4*‡
Form of Restricted Stock Unit Award Agreement for Directors (Immediate or Deferred Settlement)
10.5*‡
Form of Restricted Stock Unit Award Agreement for Executive Officers
10.6*‡
Form of Nonqualified Stock Option Agreement for Directors
10.7*‡
Form of Nonqualified Stock Option Agreement for Executive Officers
31.1 *
Certification of Principal Executive Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2 *
Certification of Principal Financial Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1 *
Certification of Principal Executive Officer and Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INS
Inline XBRL Instance Document
101.SCH
Inline XBRL Taxonomy Extension Schema Document
101.CAL
Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF
Inline XBRL Taxonomy Extension Definition Linkbase Document
101.LAB
Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE
Inline XBRL Taxonomy Extension Presentation Linkbase Document
104
Cover Page Interactive Data File (embedded within the Inline XBRL document)
* Filed herewith.
‡ Management contract or compensatory plan or arrangement.
∔ Certain identified information has been excluded from the exhibit pursuant to Item 601(a)(6) and/or Item 601(b)(10)(iv) of Regulation S-K.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
Date: August 9, 2023
By:
/s/ Kim Rivers
Kim Rivers
Chief Executive Officer
(Principal Executive Officer)
/s/ Ryan Blust
Ryan Blust
Interim Chief Financial Officer
(Principal Financial Officer)
/s/ Joy Malivuk
Joy Malivuk
Chief Accounting Officer
(Principal Accounting Officer)