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TCNNF Trulieve Cannabis

Filed: 12 Aug 21, 10:48am

 

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, 2021

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. Employer
Identification No.)

 

 

6749 Ben Bostic Road

Quincy, FL

32351

(Address of principal executive offices)

(Zip Code)

 

Registrant’s telephone number, including area code: (850) 480-7955

 

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

 

Securities registered pursuant to Section 12(g) of the Act: Subordinate Voting Shares, no par value

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 6, 2021, the registrant had 71,789,323 Subordinate Voting Shares and 56,461,096 Multiple Voting Shares (on an as converted basis), outstanding.

 

 

 

 


 

Trulieve Cannabis Corp.

Quarterly Report on Form 10-Q

For the Quarterly Period Ended June 30, 2021

 

Table of Contents

 

 

 

Page

PART I.

FINANCIAL INFORMATION

 

Item 1.

Financial Statements (Unaudited)

1

 

Condensed Consolidated Balance Sheets

1

 

Condensed Consolidated Statements of Operations and Comprehensive Income

2

 

Condensed Consolidated Statements of Changes in Shareholders’ Equity

3

 

Condensed Consolidated Statements of Cash Flows

4

 

Notes to Unaudited Condensed Consolidated Financial Statements

5

Item 2.

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

22

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

32

Item 4.

Controls and Procedures

32

 

 

 

PART II.

OTHER INFORMATION

 

Item 1.

Legal Proceedings

33

Item 1A.

Risk Factors

33

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

33

Item 3.

Defaults Upon Senior Securities

34

Item 4.

Mine Safety Disclosures

34

Item 5.

Other Information

34

Item 6.

Exhibits

35

 

Signatures

36

 

 

i


 

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 and in “Part I, Item 1A – Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2020. 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.

Trulieve Cannabis Corp.

Unaudited Interim Condensed Consolidated Balance Sheets

(dollars in thousands)

 

 

 

June 30, 2021

 

 

December 31, 2020

 

ASSETS

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

289,238

 

 

$

146,713

 

Accounts receivable, net

 

 

3,754

 

 

 

308

 

Inventories, net

 

 

112,628

 

 

 

98,312

 

Income tax receivable

 

 

8,157

 

 

 

 

Prepaid expenses and other current assets

 

 

28,313

 

 

 

19,815

 

Total current assets

 

 

442,090

 

 

 

265,148

 

Property and equipment, net

 

 

427,666

 

 

 

314,045

 

Right of use asset - operating, net

 

 

31,254

 

 

 

28,171

 

Right of use asset - finance, net

 

 

41,521

 

 

 

36,904

 

Intangible assets, net

 

 

123,106

 

 

 

93,800

 

Goodwill

 

 

71,123

 

 

 

74,100

 

Other assets

 

 

9,547

 

 

 

3,944

 

TOTAL ASSETS

 

$

1,146,307

 

 

$

816,112

 

LIABILITIES AND SHAREHOLDERS' EQUITY

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable and accrued liabilities

 

$

45,579

 

 

$

41,903

 

Income tax payable

 

 

 

 

 

5,875

 

Deferred revenue

 

 

6,186

 

 

 

7,178

 

Notes payable - current portion

 

 

4,667

 

 

 

2,000

 

Notes payable - related party - current portion

 

 

12,000

 

 

 

12,011

 

Operating lease liability - current portion

 

 

3,583

 

 

 

3,154

 

Finance lease liability - current portion

 

 

4,723

 

 

 

3,877

 

Total current liabilities

 

 

76,738

 

 

 

75,998

 

Long-term liabilities:

 

 

 

 

 

 

 

 

Notes payable

 

 

1,333

 

 

 

4,000

 

Operating lease liability

 

 

29,381

 

 

 

26,450

 

Finance lease liability

 

 

39,694

 

 

 

35,058

 

Private placement notes liability, net

 

 

118,673

 

 

 

117,165

 

Other long-term liabilities

 

 

4,145

 

 

 

3,915

 

Construction finance liability

 

 

90,263

 

 

 

82,047

 

Deferred tax liability

 

 

29,845

 

 

 

23,575

 

TOTAL LIABILITIES

 

 

390,072

 

 

 

368,208

 

 

 

 

 

 

 

 

 

 

Commitments and contingencies (see Note 17)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common stock, no par value; unlimited shares authorized as of June 30, 2021 and

  December 31, 2020, 126,982,700 and 119,573,998 issued and outstanding

  as of June 30, 2021 and December 31, 2020, respectively

 

 

 

 

 

 

Additional paid-in-capital

 

 

522,898

 

 

 

275,644

 

Warrants

 

 

42,689

 

 

 

52,570

 

Accumulated earnings

 

 

190,648

 

 

 

119,690

 

TOTAL SHAREHOLDERS' EQUITY

 

 

756,235

 

 

 

447,904

 

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY

 

$

1,146,307

 

 

$

816,112

 

 

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

 

1


Trulieve Cannabis Corp.

Unaudited Interim Condensed Consolidated Statements of Operations and Comprehensive Income

(dollars in thousands, except per share data)

 

 

 

Three Months Ended

 

 

Six Months Ended

 

 

 

June 30, 2021

 

 

June 30, 2020

 

 

June 30, 2021

 

 

June 30, 2020

 

Revenues, net of discounts

 

$

215,122

 

 

$

120,765

 

 

$

408,945

 

 

$

216,821

 

Cost of goods sold

 

 

70,639

 

 

 

30,233

 

 

 

129,198

 

 

 

52,459

 

Gross profit

 

 

144,483

 

 

 

90,532

 

 

 

279,747

 

 

 

164,362

 

Expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

General and administrative

 

 

14,942

 

 

 

7,936

 

 

 

27,650

 

 

 

14,195

 

Sales and marketing

 

 

46,576

 

 

 

27,009

 

 

 

91,135

 

 

 

49,873

 

Depreciation and amortization

 

 

6,667

 

 

 

3,104

 

 

 

12,101

 

 

 

5,298

 

Total expenses

 

 

68,185

 

 

 

38,049

 

 

 

130,886

 

 

 

69,366

 

Income from operations

 

 

76,298

 

 

 

52,483

 

 

 

148,861

 

 

 

94,996

 

Other income (expense):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense, net

 

 

(6,649

)

 

 

(5,302

)

 

 

(14,548

)

 

 

(11,214

)

Other (expense) income, net

 

 

333

 

 

 

(4,969

)

 

 

295

 

 

 

(71

)

Total other expense

 

 

(6,316

)

 

 

(10,271

)

 

 

(14,253

)

 

 

(11,285

)

Income before provision for income taxes

 

 

69,982

 

 

 

42,212

 

 

 

134,608

 

 

 

83,711

 

Provision for income taxes

 

 

29,102

 

 

 

23,274

 

 

 

63,650

 

 

 

41,168

 

Net income and comprehensive income

 

 

40,880

 

 

 

18,938

 

 

 

70,958

 

 

 

42,543

 

Basic net income per common share

 

$

0.33

 

 

$

0.17

 

 

$

0.59

 

 

$

0.38

 

Diluted net income per common share

 

$

0.31

 

 

$

0.16

 

 

$

0.55

 

 

$

0.37

 

Weighted average number of common shares used in computing net income per common share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

125,631,725

 

 

 

111,573,332

 

 

 

120,351,366

 

 

 

110,959,839

 

Diluted

 

 

133,002,231

 

 

 

115,307,313

 

 

 

127,884,913

 

 

 

114,468,339

 

 

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

 

 

 

2


 

Trulieve Cannabis Corp.

Unaudited Interim Condensed Consolidated Statements of Changes in Shareholders’ Equity

(dollars in thousands, except per share data)

 

 

Super Voting Shares

 

 

Multiple Voting Shares

 

 

Subordinate Voting Shares

 

 

Total Common Shares

 

 

Additional Paid-in-Capital

 

 

Warrants

 

 

Accumulated Earnings

 

 

Total

 

Balance, January 1, 2021

 

 

58,182,500

 

 

 

1,439,037

 

 

 

59,952,461

 

 

 

119,573,998

 

 

$

275,644

 

 

$

52,570

 

 

$

119,690

 

 

$

447,904

 

Share-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

741

 

 

 

 

 

 

 

 

 

741

 

Shares issued for cash - warrant exercise

 

 

 

 

 

 

 

 

469,133

 

 

 

469,133

 

 

 

15,000

 

 

 

(8,139

)

 

 

 

 

 

6,861

 

Conversion of warrants to Subordinate Voting Shares

 

 

 

 

 

 

 

 

133,408

 

 

 

133,408

 

 

 

 

 

 

 

 

 

 

 

 

 

Conversion of Multiple Voting to Subordinate Voting Shares

 

 

 

 

 

(117,668

)

 

 

117,668

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Conversion of Super Voting to Subordinate Voting Shares

 

 

(3,021,100

)

 

 

 

 

 

3,021,100

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Conversion of Super Voting to Multiple Voting Shares

 

 

(55,161,400

)

 

 

55,161,400

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income and comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

30,078

 

 

 

30,078

 

Balance, March 31, 2021

 

 

 

 

 

56,482,769

 

 

 

63,693,770

 

 

 

120,176,539

 

 

$

291,385

 

 

$

44,431

 

 

$

149,768

 

 

$

485,584

 

Share-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

744

 

 

 

 

 

 

 

 

 

744

 

Shares issued for cash - warrant exercise

 

 

 

 

 

 

 

 

100,400

 

 

 

100,400

 

 

 

2,553

 

 

 

(1,742

)

 

 

 

 

 

811

 

Common stock issued upon cashless warrant exercise

 

 

 

 

 

 

 

 

661,614

 

 

 

661,614

 

 

 

 

 

 

 

 

 

 

 

 

 

Tax withholding related to net share settlement of equity awards

 

 

 

 

 

 

 

 

(15,734

)

 

 

(15,734

)

 

 

(595

)

 

 

 

 

 

 

 

 

(595

)

Issuance of shares in offering, net of issuance costs

 

 

 

 

 

 

 

 

5,750,000

 

 

 

5,750,000

 

 

 

217,896

 

 

 

 

 

 

 

 

 

217,896

 

Contingent consideration payable in shares

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(2,800

)

 

 

 

 

 

 

 

 

(2,800

)

Adjustment of fair value of equity consideration for PurePenn, LLC

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2,711

 

 

 

 

 

 

 

 

 

2,711

 

Adjustment of fair value of equity consideration for Keystone Relief Centers, LLC

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,004

 

 

 

 

 

 

 

 

 

1,004

 

Shares issued for Mountaineer Holding, LLC acquisition

 

 

 

 

 

 

 

 

60,342

 

 

 

60,342

 

 

 

3,000

 

 

 

 

 

 

 

 

 

3,000

 

Shares issued for Nature's Remedy of Massachusetts, Inc. acquisition

 

 

 

 

 

 

 

 

237,881

 

 

 

237,881

 

 

 

6,500

 

 

 

 

 

 

 

 

 

6,500

 

Shares issued for Solevo Wellness West Virginia, LLC acquisition

 

 

 

 

 

 

 

 

11,658

 

 

 

11,658

 

 

 

500

 

 

 

 

 

 

 

 

 

500

 

Conversion of Multiple Voting to Subordinate Voting shares

 

 

 

 

 

(21,673

)

 

 

21,673

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income and comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

40,880

 

 

 

40,880

 

Balance, June 30, 2021

 

 

 

 

 

56,461,096

 

 

 

70,521,604

 

 

 

126,982,700

 

 

$

522,898

 

 

$

42,689

 

 

$

190,648

 

 

$

756,235

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Super Voting Shares

 

 

Multiple Voting Shares

 

 

Subordinate Voting Shares

 

 

Total Common Shares

 

 

Additional Paid-in-Capital

 

 

Warrants

 

 

Accumulated Earnings

 

 

Total

 

Balance, January 1, 2020

 

 

67,813,300

 

 

 

6,661,374

 

 

 

35,871,672

 

 

 

110,346,346

 

 

$

76,192

 

 

$

 

 

$

56,691

 

 

$

132,883

 

Share-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,222

 

 

 

 

 

 

 

 

 

1,222

 

Net income and comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

23,605

 

 

 

23,605

 

Balance, March 31, 2020

 

 

67,813,300

 

 

 

6,661,374

 

 

 

35,871,672

 

 

 

110,346,346

 

 

$

77,414

 

 

$

 

 

$

80,296

 

 

$

157,710

 

Share-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

462

 

 

 

 

 

 

 

 

 

462

 

Shares issued for cash - warrant exercise

 

 

 

 

 

 

 

 

2,723,311

 

 

 

2,723,311

 

 

 

11,458

 

 

 

 

 

 

 

 

 

11,458

 

Net income and comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

18,938

 

 

 

18,938

 

Balance, June 30, 2020

 

 

67,813,300

 

 

 

6,661,374

 

 

 

38,594,983

 

 

 

113,069,657

 

 

$

89,334

 

 

$

 

 

$

99,234

 

 

$

188,568

 

 

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

 

 

3


 

Trulieve Cannabis Corp.

Unaudited Interim Condensed Consolidated Statements of Cash Flows

(dollars in thousands)

 

 

 

June 30, 2021

 

 

June 30, 2020

 

Cash flow from operating activities

 

 

 

 

 

 

 

 

Net income and comprehensive income

 

$

70,958

 

 

$

42,543

 

Adjustments to reconcile net income and comprehensive income to net cash provided by operating activities:

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

12,101

 

 

 

5,298

 

Depreciation and amortization included in cost of goods sold

 

 

8,687

 

 

 

4,891

 

Non-cash interest expense

 

 

1,507

 

 

 

1,434

 

Amortization of operating lease right of use assets

 

 

1,910

 

 

 

1,508

 

Share-based compensation

 

 

1,485

 

 

 

1,685

 

Accretion of construction finance liability

 

 

1,068

 

 

 

430

 

Loss on fair value of warrants

 

 

 

 

 

1,021

 

Deferred income tax expense

 

 

(1,986

)

 

 

(915

)

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Inventories

 

 

(14,316

)

 

 

(7,820

)

Accounts receivable

 

 

(3,446

)

 

 

 

Prepaid expenses and other current assets

 

 

(8,896

)

 

 

(4,539

)

Other assets

 

 

(5,603

)

 

 

(2,196

)

Income tax payable / receivable

 

 

(14,032

)

 

 

42,838

 

Accounts payable and accrued liabilities

 

 

2,152

 

 

 

(8,666

)

Operating lease liabilities

 

 

(1,633

)

 

 

(1,233

)

Deferred revenue

 

 

(992

)

 

 

1,392

 

Other long-term liabilities

 

 

230

 

 

 

 

Net cash provided by operating activities

 

 

49,194

 

 

 

77,671

 

Cash flow from investing activities

 

 

 

 

 

 

 

 

Purchases of property and equipment

 

 

(115,302

)

 

 

(27,923

)

Purchases of property and equipment related to construction finance liability

 

 

(7,147

)

 

 

(17,694

)

Cash paid for internal use software

 

 

(1,951

)

 

 

 

Acquisitions, net of cash acquired

 

 

(10,158

)

 

 

 

Capitalized interest

 

 

(2,130

)

 

 

(814

)

Net cash used in investing activities

 

 

(136,688

)

 

 

(46,431

)

Cash flow from financing activities

 

 

 

 

 

 

 

 

Proceeds from share warrant exercise

 

 

7,672

 

 

 

11,458

 

Proceeds from construction finance liability

 

 

7,148

 

 

 

18,600

 

Proceeds from shares issued pursuant to private placement

 

 

217,896

 

 

 

 

Payments on finance lease obligations

 

 

(2,091

)

 

 

(2,056

)

Payments on notes payable - related party

 

 

(11

)

 

 

(742

)

Payments for taxes related to net share settlement of equity awards

 

 

(595

)

 

 

 

Net cash provided by financing activities

 

 

230,019

 

 

 

27,260

 

Net increase in cash and cash equivalents

 

 

142,525

 

 

 

58,500

 

Cash and cash equivalents, beginning of period

 

 

146,713

 

 

 

91,813

 

Cash and cash equivalents, end of period

 

$

289,238

 

 

$

150,313

 

Supplemental disclosure of cash flow information

 

 

 

 

 

 

 

 

Cash paid during the period for

 

 

 

 

 

 

 

 

Interest

 

$

15,047

 

 

$

10,362

 

Income taxes

 

$

79,950

 

 

$

115

 

Other noncash investing and financing activities

 

 

 

 

 

 

 

 

Adjustment to PurePenn, LLC and Keystone Relief Centers, LLC contingent consideration

 

$

2,800

 

 

$

 

ASC 842 lease additions - operating and finance leases

 

$

12,383

 

 

$

13,520

 

Shares issued for acquisitions

 

$

10,000

 

 

$

 

Purchase of property and equipment financed with accounts payable

 

$

13,751

 

 

$

5,919

 

 

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

 

 

 

4


 

 

Trulieve Cannabis Corp.

Notes to Unaudited Interim Condensed Consolidated Financial Statements

NOTE 1.  THE COMPANY

Trulieve Cannabis Corp. (together with its subsidiaries, “Trulieve” or the “Company”) was incorporated in British Columbia, Canada. Trulieve (through its wholly-owned subsidiaries) is a vertically integrated cannabis company which currently holds licenses to operate in six states Florida, Massachusetts, California, Connecticut, Pennsylvania and West Virginia, to cultivate, produce, and sell medicinal-use cannabis products and, with respect to California and Massachusetts, adult-use cannabis products. All revenues are generated in the United States, and all long-lived assets are located in the United States. As of June 30, 2021, substantially all of our revenue was generated from the sale of medical cannabis products in the State of Florida. To date, neither the sale of adult-use cannabis products, nor our operations in Massachusetts, California, Connecticut, Pennsylvania, and West Virginia, have been material to our business.

In July 2018, Trulieve, Inc. entered into a non-binding letter agreement (“Letter Agreement”) with Schyan Exploration Inc. (“Schyan”) whereby Trulieve, Inc. and Schyan have agreed to merge their respective businesses resulting in a reverse takeover of Schyan by Trulieve, Inc. and change the business of Schyan from a mining issuer to a marijuana issuer (the “Transaction”). The Transaction was completed in August 2018 and Schyan changed its name to Trulieve Cannabis Corp.

The Company’s head office is located Tallahassee, Florida. The Company’s registered office is located in British Columbia.

The Company is listed on the Canadian Securities Exchange (the “CSE”) and began trading on September 24, 2018 under the ticker symbol “TRUL”, and trades on the OTCQX market under the symbol “TCNNF”.

NOTE 2.  BASIS OF PRESENTATION

The accompanying unaudited condensed consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”) for interim financial information and the rules and regulations of the Securities and Exchange Commission (the “SEC”).

The accompanying unaudited condensed consolidated financial statements contain all normal and recurring adjustments necessary to state fairly the consolidated financial condition, results of operations, comprehensive income, statement of shareholders’ equity, and cash flows of the Company for the interim periods presented.  Except as otherwise disclosed, all such adjustments consist only of those of a normal recurring nature.  Operating results for the six months ended June 30, 2021 are not necessarily indicative of the results that may be expected for the current year ending December 31, 2021. The financial data presented herein should be read in conjunction with the audited consolidated financial statements and accompanying notes as of and for the years ended December 31, 2020 and 2019 (“2020 audited consolidated financial statements”).

The preparation of these unaudited condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the financial statements, and the reported amounts of revenues and expenses during the reporting periods.  Actual results could differ materially from those estimates.

Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to the rules and regulations of the SEC and the instructions to Form 10-Q.

 

5


 

Reclassifications

Certain prior period amounts have been reclassified to conform to the current period presentation and include:

 

Reclassification of internal use software with a net book value of $3.7 million from “Property and equipment, net” to “Intangible assets, net” in the consolidated balance sheet as of December 31, 2020, due to a change in accounting policy.

 

Reclassification of property and equipment with a net book value of $50.0 million from construction in progress to land, buildings and improvements, and furniture and equipment in Footnote 5, Property and Equipment as of December 31, 2020.

Significant Accounting Policies

The Company’s significant accounting policies are described in Note 2 to the Company’s consolidated financial statements included in the 2020 Form 10-K.  There have been no material changes to the Company’s significant accounting policies, except for the adoption of ASU 2019-12 as explained below.

In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740) – Simplifying the Accounting for Income Taxes, which is intended to simplify various aspects related to accounting for income taxes.  ASU 2019-12 removes certain exceptions to the general principles in Topic 740 and also clarifies and amends existing guidance to improve consistent application.  The Company adopted ASU 2019-12 on January 1, 2021 and the adoption did not have a material impact on the Company’s consolidated financial statements.

COVID-19 Pandemic

The global outbreak of the novel strain of the coronavirus known as COVID-19 has resulted in governments worldwide enacting emergency measures to combat the spread of the virus.

In response to the outbreak, governmental authorities in the United States, Canada and internationally have introduced various recommendations and measures to try to limit the pandemic, including travel restrictions, border closures, non-essential business closures, quarantines, self-isolations, shelters-in-place and social distancing. Management has been closely monitoring the impact of COVID-19, with a focus in the health and safety of the Company’s employees, business continuity and supporting its communities. The Company has enacted various measures to reduce the spread of the virus, including implementing social distancing at its cultivation facilities and dispensaries, enhancing cleaning protocols at such facilities and dispensaries and encouraging employees to adhere to preventative measures recommended by local, state, and federal health officials.  

 

 

6


 

 

NOTE 3.  ACQUISITIONS

(a) Nature’s Remedy of Massachusetts, Inc.

On June 30, 2021, the Company completed an asset purchase agreement whereby Trulieve acquired a licensed, but not yet operating, adult-use dispensary location from Nature’s Remedy of Massachusetts, Inc. (“Nature’s Remedy”). The Company analyzed the acquisition under ASU 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business determining Nature’s Remedy did not meet the definition of a business as Nature’s Remedy did not have inputs, processes, and outputs in place that constituted a business under Topic 805. As a result, the acquisition of Nature’s Remedy has been accounted for as an asset acquisition, whereby all of the assets acquired and liabilities assumed are assigned a carrying amount based on relative fair values. The total consideration was $13.5 million consisting of $7.0 million in cash and $6.5 million or 237,881 in Trulieve shares.  The net assets acquired are as follows:

 

(dollars in thousands)

 

 

 

 

Consideration:

 

 

 

 

Cash

 

$

7,000

 

Shares issued upon issuance

 

 

6,500

 

Transaction costs

 

 

23

 

Fair value of consideration exchanged

 

$

13,523

 

Recognized amounts of identifiable assets

acquired and liabilities assumed:

 

 

 

 

Prepaid expenses and other current assets

 

$

12

 

Property and equipment

 

 

749

 

Right of use asset - finance

 

 

594

 

Intangible assets

 

 

 

 

Dispensary license

 

 

18,757

 

Accounts payable and accrued liabilities

 

 

(335

)

Finance lease liability

 

 

(594

)

Deferred tax liability

 

 

(5,660

)

Total net assets acquired

 

$

13,523

 

The acquired intangible asset is represented by the adult-use license and is treated as a definite-lived intangible asset amortized over a 15-year useful life.

(b)  Solevo Wellness West Virginia, LLC

On June 8, 2021, the Company acquired 100% of the membership interests of Solevo Wellness West Virginia, LLC (“Solevo WV”) which holds three West Virginia dispensary licenses. The Company analyzed the acquisition under ASU 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business determining Solevo WV did not meet the definition of a business as substantially all of the fair value of the gross assets acquired are concentrated in a single identifiable asset. The total consideration was $0.8 million consisting of $0.2 million in cash, $0.5 million or 11,658 in Trulieve shares, $0.1 million in debt forgiveness and less than $0.1 million in transaction costs. The consideration of $0.8 million was allocated to acquired assets of $1.1 million, which are treated as definite-lived intangible assets amortized over a 15-year useful life, offset by a related deferred tax liability of $0.3 million.

(c)  Mountaineer Holding, LLC

On May 6, 2021, the Company acquired 100% of the membership interests of Mountaineer Holding LLC (“Mountaineer”) which holds a cultivation permit and two dispensary permits in West Virginia. Total consideration was $6.0 million consisting of $3.0 million in cash and $3.0 million or 60,342 in Trulieve shares. The Company analyzed the acquisition under ASU 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business determining Mountaineer did not meet the definition of a business as substantially all of the fair value of the gross assets acquired are concentrated in a single identifiable asset. Therefore, the transaction has been accounted for as an asset acquisition. The consideration of $6.0 million has been allocated to the $8.3 million of acquired assets which are treated as definite-lived intangible assets amortized over a 15-year useful life, offset by a related deferred tax liability of $2.3 million.

 

7


 

(d)  PurePenn, LLC and Pioneer Leasing & Consulting, LLC

On November 12, 2020, the Company acquired 100% of the membership interests of both PurePenn, LLC, which holds a permit to cultivate and process medical marijuana in Pennsylvania, and Pioneer Leasing & Consulting, LLC (collectively “PurePenn”). The purpose of this acquisition was to acquire the cultivation and manufacturing facility located in McKeesport, Pennsylvania. Trulieve acquired PurePenn for an upfront payment valued at $48.7 million, comprised of 1,298,964 in Trulieve Subordinate Voting Shares (“Trulieve Shares”) with a fair value of $29.7 million and $19.0 million in cash, plus a potential earn-out payment of up to 2,405,488 Trulieve Shares based on the achievement of certain agreed upon EBITDA milestones. The earn-out period is through the end of 2021.  The acquisition was accounted for as a business combination in accordance with the Accounting Standards Codification (ASC) 805, Business Combinations, and related operating results are included in the accompanying condensed consolidated balance sheets, condensed consolidated statements of operations and comprehensive income, condensed consolidated changes in shareholders’ equity, and condensed consolidated statement of cash flows for periods subsequent to the acquisition date.  As of June 30, 2021, total transaction costs related to the acquisition were approximately $1.8 million. Goodwill arose because the consideration paid for the business acquisition reflected the benefit of expected revenue growth and future market development. These benefits were not recognized separately from goodwill because they do not meet the recognition criteria for identifiable intangible assets. Goodwill is subject to the limits of IRC Section 280E under which the Company is only allowed to deduct expenses directly related to the cost of production, therefore goodwill is not deductible.

The preliminary valuation was based on Management’s estimates and assumptions which are subject to change within the purchase price allocation period (generally one year from the acquisition date).  The primary areas of the purchase price allocation that are not yet finalized relate to the valuation of the tangible and intangible assets acquired and the residual goodwill.  For the three months ended June 30, 2021, we recorded an adjustment to the initial valuation of shares issued upon issuance, which increased the fair value of the consideration exchanged  and the estimated purchase price by $2.7 million and increased goodwill by $2.7 million and we recorded an adjustment to the initial valuation of contingent consideration payable in shares, which reduced contingent consideration payable in shares and the estimated purchase price by $3.0 million and decreased goodwill by $3.0 million.

The following table summarizes the allocation of consideration exchanged for the estimated fair value of tangible and identifiable intangible assets acquired and liabilities assumed:

 

(dollars in thousands)

 

 

 

 

Consideration:

 

 

 

 

Cash

 

$

19,000

 

Shares issued upon issuance

 

 

29,711

 

Contingent consideration payable in shares

 

 

46,951

 

Fair value of consideration exchanged

 

$

95,662

 

Recognized amounts of identifiable assets

   acquired and liabilities assumed:

 

 

 

 

Cash

 

$

563

 

Accounts receivable

 

 

1,300

 

Prepaid expenses and other current assets

 

 

376

 

Inventories

 

 

7,461

 

Property and equipment, net

 

 

26,233

 

Intangible assets, net:

 

 

 

 

Tradename

 

 

580

 

Moxie license

 

 

2,960

 

State license

 

 

45,310

 

Goodwill

 

 

46,973

 

Other assets

 

 

478

 

Accounts payable and accrued liabilities

 

 

(2,189

)

Construction finance liability

 

 

(17,413

)

Deferred tax liability

 

 

(16,970

)

Total net assets acquired

 

$

95,662

 

 

8


 

 

(e)  Keystone Relief Centers, LLC

On November 12, 2020, the Company acquired 100% of the membership interests of Keystone Relief Centers, LLC (referred to herein as “Solevo Wellness”), which holds a permit to operate 3 medical marijuana dispensaries in the Pittsburgh, Pennsylvania area. Trulieve acquired Solevo for an upfront purchase price of $21.0 million, comprised of $10.0 million in cash and 481,097 in Trulieve Shares with a fair value of $11.0 million, plus a potential earn-out payment of up to 721,647 Trulieve Shares based on the achievement of certain agreed upon EBITDA milestones. The earn-out period is through the end of 2021. The acquisition was accounted for as a business combination in accordance with the Accounting Standards Codification (ASC) 805, Business Combinations, and related operating results are included in the accompanying condensed consolidated balance sheets, condensed consolidated statements of operations and comprehensive income, condensed consolidated changes in shareholders’ equity, and condensed consolidated statement of cash flows for periods subsequent to the acquisition date.  As of June 30, 2021, total transaction costs related to the acquisition were approximately $0.9 million. Goodwill arose because the consideration paid for the business acquisition reflected the benefit of expected revenue growth and future market development. These benefits were not recognized separately from goodwill because they do not meet the recognition criteria for identifiable intangible assets. Goodwill is subject to the limits of IRC Section 280E under which the Company is only allowed to deduct expenses directly related to the cost of production, therefore goodwill is not deductible.

During 2021, the purchase price allocations were adjusted, primarily to Net working capital, Goodwill and Intangible assets. For the three months ended March 31, 2021, we recorded an adjustment of $3.8 million to the initial valuation amount of intangible assets for the dispensary license, increasing the dispensary license balance by $3.8 million and decreasing goodwill by $3.8 million. For the three months ended June 30, 2021, we recorded an adjustment to the initial valuation of shares issued upon issuance, which increased the fair value of the consideration exchanged by $1.0 million and increased goodwill by $1.0 million, and we recorded an adjustment to the intial valuation of contingent consideration payable in shares, which increased contingent consideration payable in shares and the estimated purchase price by $0.2 million and increased goodwill by $0.2 million.

The following table summarizes the final allocation of consideration exchanged for the estimated fair value of tangible and identifiable intangible assets acquired and liabilities assumed:

 

(dollars in thousands)

 

 

 

 

Consideration:

 

 

 

 

Cash

 

$

10,000

 

Shares issued upon issuance

 

 

11,004

 

Contingent consideration payable in shares

 

 

15,249

 

Net working capital adjustment

 

 

624

 

Fair value of consideration exchanged

 

$

36,877

 

Recognized amounts of identifiable assets

acquired and liabilities assumed:

 

 

 

 

Cash

 

$

1,229

 

Accounts receivable

 

 

117

 

Prepaid expenses and other current assets

 

 

91

 

Inventories

 

 

2,337

 

Property and equipment, net

 

 

2,245

 

Right of use asset

 

 

2,156

 

Intangible assets, net:

 

 

 

 

Dispensary license

 

 

19,890

 

Tradename

 

 

930

 

Goodwill

 

 

16,835

 

Accounts payable and accrued liabilities

 

 

(790

)

Lease liability

 

 

(2,156

)

Deferred tax liability

 

 

(6,007

)

Total net assets acquired

 

$

36,877

 

 

 

9


 

 

NOTE 4. INVENTORY

The Company’s inventory includes the following at June 30, 2021 and December 31, 2020:

 

 

 

June 30, 2021

 

 

December 31, 2020

 

 

 

(dollars in thousands)

 

Raw material

 

 

 

 

 

 

 

 

Cannabis plants

 

$

17,577

 

 

$

10,661

 

Harvested cannabis and packaging

 

 

17,093

 

 

 

11,233

 

Total raw material

 

 

34,670

 

 

 

21,894

 

Work in process

 

 

56,822

 

 

 

54,780

 

Finished goods-unmedicated

 

 

4,039

 

 

 

3,908

 

Finished goods-medicated

 

 

17,097

 

 

 

17,730

 

Total inventories

 

$

112,628

 

 

$

98,312

 

 

NOTE 5. PROPERTY & EQUIPMENT

At June 30, 2021 and December 31, 2020, Property and Equipment consisted of the following:

 

 

 

June 30, 2021

 

 

December 31, 2020

 

 

 

(dollars in thousands)

 

Land

 

$

5,877

 

 

$

5,878

 

Buildings and improvements

 

 

250,855

 

 

 

156,372

 

Construction in progress

 

 

134,780

 

 

 

129,588

 

Furniture and equipment

 

 

78,578

 

 

 

51,714

 

Vehicles

 

 

351

 

 

 

351

 

Total

 

 

470,441

 

 

 

343,903

 

Less: accumulated depreciation

 

 

(42,775

)

 

 

(29,858

)

Total property and equipment, net

 

$

427,666

 

 

$

314,045

 

 

Capitalized interest for the three and six months ended June 30, 2021 totaled $1.8 million and $2.1 million, respectively.  Capitalized interest for the three and six months ended June 30, 2020 totaled $0.6 million and $0.8 million, respectively.

Depreciation expense for the three and six months ended June 30, 2021 totaled $7.3 million and $12.9 million, respectively.  Depreciation expense for the three and six months ended June 30, 2020 totaled $3.6 million and $6.8 million respectively.

NOTE 6. INTANGIBLE ASSETS & GOODWILL

At June 30, 2021 and December 31, 2020, definite-lived intangible assets consisted of the following:

 

 

 

June 30, 2021

 

(dollars in thousands)

 

Net

amount

 

 

Adjustments to purchase price allocation

 

 

Additions

 

 

Amortization

expense

 

 

Net

amount

 

Licenses

 

$

84,517

 

 

$

3,683

 

 

$

28,195

 

 

$

3,125

 

 

$

113,270

 

Moxie brand

 

 

2,828

 

 

 

 

 

 

 

 

 

494

 

 

 

2,334

 

Tradenames

 

 

2,109

 

 

 

 

 

 

 

 

 

428

 

 

 

1,681

 

Customer relationship

 

 

683

 

 

 

 

 

 

 

 

 

100

 

 

 

583

 

Non-compete

 

 

7

 

 

 

 

 

 

 

 

 

7

 

 

 

 

Internal use software

 

 

3,656

 

 

 

 

 

 

1,952

 

 

 

370

 

 

 

5,238

 

 

 

$

93,800

 

 

$

3,683

 

 

$

30,147

 

 

$

4,524

 

 

$

123,106

 

 

10


 

 

 

 

 

December 31, 2020

 

(dollars in thousands)

 

Net amount

 

 

Acquired license agreements

 

 

Additions

 

 

Amortization expense

 

 

Net amount

 

Licenses

 

$

24,538

 

 

$

887

 

 

$

61,400

 

 

$

2,308

 

 

$

84,517

 

Moxie brand

 

 

 

 

 

 

 

 

2,960

 

 

 

132

 

 

 

2,828

 

Tradenames

 

 

800

 

 

 

 

 

 

1,510

 

 

 

201

 

 

 

2,109

 

Customer relationship

 

 

883

 

 

 

 

 

 

 

 

 

200

 

 

 

683

 

Non-compete

 

 

25

 

 

 

 

 

 

 

 

 

18

 

 

 

7

 

Trademarks

 

 

134

 

 

 

 

 

 

 

 

 

134

 

 

 

 

Internal use software

 

 

3,656

 

 

 

 

 

 

 

 

 

 

 

 

3,656

 

 

 

$

30,036

 

 

$

887

 

 

$

65,870

 

 

$

2,993

 

 

$

93,800

 

 

Amortization expense for the three and six months ended June 30, 2021 was $2.5 million and $4.5 million, respectively.  

The following table outlines the estimated future annual amortization expense related to all intangible assets as of June 30, 2021:

 

 

 

Estimated amortization

 

 

 

(dollars in thousands)

 

Remaining 2021

 

$

5,359

 

2022

 

 

11,134

 

2023

 

 

10,348

 

2024

 

 

9,376

 

2025

 

 

8,923

 

Thereafter

 

 

77,966

 

 

 

$

123,106

 

 

Goodwill arose from the acquisition of PurePenn, LLC, Pioneer Leasing & Consulting and Solevo Wellness, see “Note 3 - Acquisitions”. The Company tested for impairment in the fourth quarter of the year ended December 31, 2020.

At June 30, 2021, Goodwill consisted of the following:

 

(dollars in thousands)

 

 

 

 

At January 1, 2020

 

$

7,316

 

Acquisition of PurePenn, LLC and Pioneer Leasing & Consulting, LLC

 

 

47,311

 

Acquisition of Solevo Wellness

 

 

19,473

 

At December 31, 2020

 

$

74,100

 

Measurement period purchase price allocation adjustments of Solevo Wellness

 

 

(2,639

)

Measurement period purchase price allocation adjustments of PurePenn, LLC and

Pioneer Leasing & Consulting, LLC

 

 

(338

)

At June 30, 2021

 

$

71,123

 

 

 

11


 

 

NOTE 7. NOTES PAYABLE

At June 30, 2021 and December 31, 2020, notes payable consisted of the following:

 

 

 

June 30, 2021

 

 

December 31, 2020

 

 

 

(dollars in thousands)

 

Promissory note dated April 10, 2017, with annual interest at 12%, due between April and July 2022.

 

$

4,000

 

 

$

4,000

 

Promissory note dated December 7, 2017, with annual interest at 12%, secured by certain property located in Miami, FL due December 2021.

 

 

2,000

 

 

 

2,000

 

Total notes payable

 

 

6,000

 

 

 

6,000

 

Less current portion

 

 

(4,667

)

 

 

(2,000

)

Long-term notes payable

 

$

1,333

 

 

$

4,000

 

Stated maturities of notes payable are as follows:

 

As of June 30,

 

(dollars in thousands)

 

2021

 

$

2,000

 

2022

 

 

4,000

 

 

 

$

6,000

 

 

NOTE 8. NOTES PAYABLE RELATED PARTY

At June 30, 2021 and December 31, 2020, notes payable related party consisted of the following:

 

 

 

June 30, 2021

 

 

December 31, 2020

 

 

 

(dollars in thousands)

 

Notes payable due to related parties, with varying interest

   rates between 8% to 12% annual, with varying maturity dates

 

$

12,000

 

 

$

12,011

 

Less current portion

 

 

(12,000

)

 

 

(12,011

)

Non-current portion

 

$

 

 

$

 

 

Stated maturities of notes payable to related parties are as follows:

 

 

 

(dollars in thousands)

 

2022

 

$

12,000

 

 

 

$

12,000

 

 

In March 2021, the 2 unsecured promissory notes (the “Traunch Four Note” and the “Rivers Note”) were amended to extend the maturity one year to May 2022, all other terms remain unchanged.

 

NOTE 9. PRIVATE PLACEMENT 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.  Both notes accrue interest at an annual rate of 9.75%, payable semi-annually, in equal installments, in arrears on June 18 and December 18 of each year. The purchasers of the June Notes received warrants to purchase 1,470,000 Subordinate Voting Shares and the purchasers of the November Notes received warrants to purchase 1,560,000 Subordinate Voting Shares, which can be exercised for three years after closing.

The fair value of the June Notes was determined to be $63.9 million using an interest rate of 13.32% which the Company estimates would have been the coupon rate required to issue the June Notes had the financing not included the June Warrants. The fair value of the June Warrants was determined to be $4.7 million using the Black-Scholes option pricing model and the following assumptions:

 

12


 

Share Price: C$14.48; Exercise Price: C$17.25; Expected Life: 3 years; Annualized Volatility: 49.96%; Dividend yield: 0%; Discount Rate: 1.92%; C$ Exchange Rate: 1.34.

The fair value of the November Notes was determined to be $54.5 million using an interest rate of 13.43% which the Company estimates would have been the coupon rate required to issue the notes had the financing not included the November Warrants. The fair value of the November Warrants was determined to be $4.4 million using the Black-Scholes option pricing model and the following assumptions: Share Price: C$14.29; Exercise Price: C$17.25; Expected Life: 2.6 years; Annualized Volatility: 48.57%; Dividend yield: 0%; Discount Rate: 1.92%; C$ Exchange Rate: 1.32.

For the three and six months ended June 30, 2021 accretion expense was $0.8 million and $1.5 million respectively.  For the three and six months ended June 30, 2020, accretion expense was $0.7 million and $1.4 million, respectively. Accretion expense is included in general and administrative expenses in the condensed consolidated statements of operations and comprehensive income.

Because of the Canadian denominated exercise price, the June and November Warrants did not qualify to be classified within equity and were therefore classified as derivative liabilities at fair value with changes in fair value charged or credited to earnings in the condensed consolidated statements of operations and comprehensive income prior to December 10, 2020.

On December 10, 2020, the Company entered into a Supplemental Warrant Indenture with Odyssey Trust Company pursuant to which it amended the terms of the issued and outstanding subordinate voting share purchase warrants of the Company (the “Public Warrants”) to convert the exercise price of the Public Warrants to $13.47 per share, the U.S. dollar equivalent of the Canadian dollar exercise price of the Public Warrants of C$17.25. The U.S. dollar exercise price was determined using the U.S. dollar exchange rate published by the Bank of Canada as at the close of business on December 9, 2020 of C$1.00 = $0.781. The June Warrants and November Warrants converted to equity as per ASC 815-40, at an expense of $25.5 million and $27.1 million, respectively.

The $130.0 million principal amount of the June and November Notes are due in June 2024.

Scheduled annual maturities of the principal portion of long-term debt outstanding at June 30, 2021 in the successive five-year period and thereafter are summarized below:

 

 

 

Private placement notes

 

 

 

(dollars in thousands)

 

2021

 

$

 

2022

 

 

 

2023

 

 

 

2024

 

 

130,000

 

2025

 

 

 

Thereafter

 

 

 

Total debt

 

 

130,000

 

Less: unamortized debt issuance costs

 

 

(11,327

)

Net debt

 

$

118,673

 

 

 

 

13


 

 

NOTE 10. LEASES

The following table provides the components of lease cost recognized in the condensed consolidated statement of operations and comprehensive income for the three and six months ended June 30, 2021 and 2020:

 

 

 

For the Three Months Ended June 30,

 

 

For the Six Months Ended June 30,

 

Lease Cost

 

2021

 

 

2020

 

 

2021

 

 

2020

 

 

 

(dollars in thousands)

 

Operating lease cost

 

 

1,695

 

 

 

1,548

 

 

 

3,267

 

 

 

2,543

 

Finance lease cost:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Amortization of lease assets

 

 

1,797

 

 

 

1,336

 

 

 

3,367

 

 

 

2,192

 

Interest on lease liabilities

 

 

958

 

 

 

612

 

 

 

1,737

 

 

 

1,019

 

Finance lease cost

 

 

2,755

 

 

 

1,948

 

 

 

5,104

 

 

 

3,211

 

Variable lease cost

 

 

215

 

 

 

189

 

 

 

610

 

 

 

282

 

Total lease cost

 

$

4,665

 

 

$

3,685

 

 

$

8,981

 

 

$

6,036

 

 

Weighted average discount rate and remaining lease term for the six months ended June 30, 2021 are as follows:

 

 

 

Finance

lease

 

 

Operating

lease

 

Weighted average discount rate

 

 

8.36

%

 

 

8.66

%

Weighted average remaining lease term (in years)

 

 

8.03

 

 

 

7.48

 

 

The maturity of the contractual undiscounted lease liabilities as of June 30, 2021 is as follows:

 

 

 

Finance

leases

 

 

Operating

leases

 

 

 

(dollars in thousands)

 

Remainder of 2021

 

$

4,117

 

 

$

3,141

 

2022

 

 

8,086

 

 

 

6,191

 

2023

 

 

7,691

 

 

 

6,005

 

2024

 

 

7,188

 

 

 

5,644

 

2025

 

 

6,821

 

 

 

5,597

 

Thereafter

 

 

28,166

 

 

 

18,577

 

Total undiscounted lease liabilities

 

 

62,069

 

 

 

45,155

 

Interest on lease liabilities

 

 

(17,652

)

 

 

(12,191

)

Total present value of minimum lease payments

 

 

44,417

 

 

 

32,964

 

Lease liability - current portion

 

 

(4,723

)

 

 

(3,583

)

Lease liability

 

$

39,694

 

 

$

29,381

 

 

NOTE 11. CONSTRUCTION FINANCE LIABILITY

In July 2019, the Company sold property it had recently acquired in Massachusetts for $3.5 million, which was the cost to the Company.  In connection with the sale of this location, the Company agreed to lease the location back for cultivation. The landlord has agreed to provide a tenant improvement allowanace (“TI Allowance”) of $40.0 million, which was dispensed in its entirety as of December 31, 2020. The initial term of the agreement is ten years, with 2 options to extend the term for five years each.  The initial payments are equal to 11% of the sum of the purchase price for the property and will increase when a draw is made on the TI Allowance.  In addition, a 3% increase in payments will be applied annually after the first year.  As of June 30, 2021, the total finance liability associated with this transaction is $44.3 million.

 

14


 

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.  The initial term of the agreement is ten years, with 2 options to extend the term for five years each.  The initial annualized payments are equal to 11% of the purchase price for the property.  A 3% increase in payments will be applied annually after the first year.  As of June 30, 2021, the total finance liability associated with this transaction is $17.3 million.

In October 2019, prior to acquisition by the Company, PurePenn, LLC (“PurePenn”) sold their cannabis cultivation facility in Pennsylvania for $5.0 million. Simultaneously with the closing of the sale, PurePenn agreed to lease the cultivation facility back.  The initial term of the lease is fifteen years, with 2 five-year options to renew. The landlord has agreed to provide a TI allowance of $21.0 million as an additional component of base rent. Payments are made based on one twelfth (1/12) of the TI allowance dispersed with 12.75% due for the first $5.0 million and 13.75% thereafter.  On March 8, 2021, the Company entered into an amendment with the landlord to increase the tenant improvement allowance to $36.5 million at a rate of 10.75% on the additional allowance in excess of $21.0 million.  As of June 30, 2021, $23.8 million of the TI allowance has been provided.  As of June 30, 2021, the total finance liability associated with this transaction is $28.7 million.

Under the failed-sales-leaseback accounting model, the Company is deemed under GAAP to own the above mentioned real estate properties as financing arrangements since control was never transferred to the buyer-lessor.  These agreements are presented on our condensed consolidated balance sheet within Property and equipment, net and depreciated over the assets' remaining useful life.

NOTE 12. SHARE CAPITAL

The authorized share capital of the Company is comprised of the following:

(i) Unlimited number of Subordinate Voting Shares

Holders of the Subordinate Voting Shares are entitled to notice of and to attend any meeting of the shareholders of the Company, except a meeting of which only holders of another particular class or series of shares of the Company shall have the right to vote. At each such meeting holders of Subordinate Voting Shares shall be entitled to 1 vote in respect of each Subordinate Voting Share held. Holders of Subordinate Voting Shares are entitled to receive as and when declared by the directors, dividends in cash or property of the Company. No dividend will be declared or paid on the Subordinate Voting Shares unless the Company simultaneously declares or pays, as applicable, equivalent dividends (on an as-converted to Subordinate Voting Share basis) on the Multiple Voting Shares and Super Voting Shares.

As of June 30, 2021, and 2020, there were 70,521,604 and 38,594,983 Subordinate Voting Shares issued and outstanding, respectively.

(ii) Unlimited number of Multiple Voting Shares

Holders of Multiple Voting shares are entitled to notice of and to attend any meetings of the shareholders of the Company, except a meeting of which only holders of another particular class or series of shares of the Company have the right to vote. At each such meeting, holders of Multiple Voting Shares are entitled to 1 vote in respect of each Subordinate Voting Share into which such Multiple Voting Share could ultimately then be converted (initially, 100 votes per Multiple Voting Share). The initial “Conversation Ratio” for Multiple Voting Shares is 100 Subordinate Voting shares for each Multiple Voting Share, subject to adjustment in certain events. Holders of Multiple Voting Shares have the right to receive dividends, out of any cash or other assets legally available therefore, pari passu (on an as converted basis, assuming conversion of all Multiple Voting Shares into Subordinate Voting Shares at the Conversion Ratio) as to dividends and any declaration or payment of any dividend on the Subordinate Voting Shares.

No dividend may be declared or paid on the Multiple Voting Shares unless the Company simultaneously declares or pays, as applicable, equivalent dividends (on an as-converted to Subordinate Voting Share basis) on the Subordinate Voting Shares and Super Voting Shares.

As of June 30, 2021, and 2020, there were 564,611, and 66,614 Multiple Voting Shares issued and outstanding, respectively, which were equal to 56,461,096, and 6,661,374 Subordinate Voting Shares, respectively, if converted.    

 

15


 

(iii) Unlimited number of Super Voting Shares

Holders of Super Voting Shares are entitled to notice of and to attend at any meeting of the shareholders of the Company, except a meeting of which only holders of another particular class or series of shares of the Company shall have the right to vote. At each such meeting, holders of Super Voting Shares are be entitled to 2 votes in respect of each Subordinate Voting Share into which such Super Voting Share could ultimately then be converted (initially, 200 votes per Super Voting Share). Holders of Super Voting Shares have the right to receive dividends, out of any cash or other assets legally available therefore, pari passu (on an as converted to Subordinated Voting Share basis) as to dividends and any declaration or payment of any dividend on the Subordinate Voting Shares. No dividend is to be declared or paid on the Super Voting Shares unless the Company simultaneously declares or pays, as applicable, equivalent dividends (on an as-converted to Subordinate Voting Share basis) on the Subordinate Voting Shares and Multiple Voting Shares. The initial “Conversion Ratio” for the Super Voting Shares is one Multiple Voting Share for each Super Voting Share, subject to adjustment in certain events.

On March 21, 2021, in accordance with the terms of the Company’s Articles, all of the outstanding Super Voting Shares converted automatically, without any action by the holders of such Super Voting Shares, into Multiple Voting Shares and, following that conversion, the Company may not issue additional Super Voting Shares.

As of June 30, 2021, and 2020, there were 0, and 67,813 Super Voting Shares issued or outstanding, respectively, which were equal to 0 and 67,813,300 Super Voting Shares, respectively, if converted.

 

 

NOTE 13. SHARE-BASED COMPENSATION

Options

The Company’s 2021 Omnibus Incentive Plan (the “2021 Plan”) was adopted at the annual meeting of shareholders. The 2021 Plan reserves 4,000,000 Subordinate Voting Shares for issuance thereunder and replaced the Schyan Exploration Inc. Stock Option Plan (the “Prior Plan”). Awards previously granted under the Prior Plan, including equity awards granted in the first quarter of 2021 for performance in 2020, remain subject to the terms of the Prior Plan. NaN further grants of awards shall be made under the Prior Plan. The Prior Plan is administered by the Board of Directors of the Company and the 2021 Plan is administered by the Compensation Committee. NaN awards were granted under the 2021 Plan between the date of its adoption by shareholders on June 10, 2021 and June 30, 2021.

The fair value of stock options granted by the Company during 2021 and 2020, under the Prior Plan, were estimated on the date of the grant using the Black-Scholes option-pricing model with the relevant assumptions outlined in the table below. The expected volatility was estimated by using the historical volatility of other companies that the Company considers comparable that have trading and volatility history prior to the Company becoming public. The expected life in years represents the period of time that options granted are expected to be outstanding. The risk-free rate was based on the United States three-year bond yield rate at the time of grant of the award. Expected annual rate of dividends is based on the fact that the Company has never paid cash dividends and does not expect to pay any cash dividends in the foreseeable future.

On January 3, 2020, under the Prior Plan, the Board awarded options to purchase shares to directors, officers, and key employees of the Company.  In accordance with the Prior Plan’s policy, the vesting period for employees is 15% as of the date of issuance, 25% vest on December 31, 2020, and 60% vest on December 31, 2021.  For founding members of the Board of Directors, the options were fully vested on the date of grant. For non-founding members of the Board of Directors, 50% of the options were vested on December 31, 2020, and 50% will vest on December 31, 2021.

 

For the Six Months Ended June 30, 2021

 

For the Six Months Ended June 30, 2020

 

Fair value at grant date

$11.20

 

$3.11 - $3.26

 

Stock price at grant date

$33.42

 

$11.52 - $12.50

 

Exercise price at grant date

$33.42

 

$11.52 - $12.50

 

Expected life in years

 

3.00

 

1.58 - 2.00

 

Expected volatility

49.88%

 

49.10% - 50.15%

 

Expected annual rate of dividends

0%

 

0%

 

Risk free annual interest rate

0.16%

 

1.40 - 1.58%

 

 

16


 

 

On January 4, 2021, under the Prior Plan, the Board awarded options to purchase shares to directors, officers, and key employees of the Company. In accordance with the Prior Plan’s policy, the vesting period for employees is 15% vest on December 31, 2021, 25% vest on December 31, 2022, and 60% vest on December 31, 2023. For founding and non-founding members of the Board of Directors, 50% of the options vest on December 31, 2021, and 50% will vest on December 31, 2022.

For the six months ended June 30, 2021, the Company recorded share-based compensation for all stock options in the amount of $1.5 million. This is recognized as $0.1 million Cost of goods sold, net, $1.1 million General and administrative and $0.3 million Sales and marketing in the condensed consolidated statements of operations and comprehensive income.

The number and weighted-average exercise prices and remaining contractual life of options at June 30, 2021 were as follows:

 

 

 

Number of options

 

 

Weighted average exercise price

 

 

Weighted average remaining contractual life (yrs)

 

 

Aggregate intrinsic value

 

Outstanding at January 1, 2021

 

 

1,129,774

 

 

 

11.72

 

 

 

4.01

 

 

 

 

Granted

 

 

326,872

 

 

 

33.42

 

 

 

4.52

 

 

 

 

Exercised

 

 

 

 

 

 

 

 

 

 

 

 

Forfeited

 

 

 

 

 

 

 

 

 

 

 

 

Outstanding, June 30, 2021

 

 

1,456,646

 

 

$

16.59

 

 

 

3.80

 

 

$

20.91

 

Exercisable, June 30, 2021

 

 

554,459

 

 

$

11.70

 

 

 

3.59

 

 

$

25.80

 

 

Total unvested options as of June 30, 2021, is 902,187 which are expected to vest over time and have an aggregate unrecognized compensation expense of $3.2 million.  The unrecognized compensation expense will be recognized over a weighted average period of 2.01 years.

 

As noted above, following shareholder approval of the 2021 Plan, 0 further grants of awards shall be made under the Prior Plan.

Warrants

During the year ended December 31, 2018, the Company issued 8,784,872 warrants to certain employees and directors of the Company for past services provided. The warrants had 0 vesting conditions and are exercisable at any time for three years after the issuance, subject to certain lock-up provisions: (i) the warrants may not be exercised for 18 months following the Issue Date; (ii) 50% of the warrants may be exercised between months 19-24 following the Issue Date; and (iii) the remaining 50% of the warrants may be exercised at any time thereafter until expiration. The warrants are exchangeable into Subordinate Voting Shares.  For the six months ended June 30, 2021 and 2020, 0 warrants related to share-based compensation were issued.  As the warrants had no vesting conditions, the entire share-based compensation expense of $15.0 million was recognized when the warrants were issued in 2018.

The following table summarizes the warrants issued and outstanding to certain employees and directors of the Company as of December 31, 2020 and the changes during the six months ended June 30, 2021:

 

 

 

Number of warrants

 

 

Weighted average exercise price ($CAD)

 

 

Weighted average remaining contractual life (yrs)

 

Outstanding as of January 1, 2021

 

 

6,061,561

 

 

 

6.00

 

 

 

0.72

 

Granted

 

 

 

 

 

 

 

 

 

Exercised

 

 

(795,022

)

 

 

6.00

 

 

 

 

Forfeited

 

 

(116,333

)

 

 

 

 

 

 

Outstanding as of June 30, 2021

 

5,150,206

 

 

 

6.00

 

 

 

0.24

 

 

 

 

17


 

 

NOTE 14. EARNINGS PER SHARE

The following is a reconciliation for the calculation of basic and diluted earnings per share for the three and six months ended June 30, 2021 and 2020:

 

 

 

For the Three Months Ended June 30,

 

 

For the Six Months Ended June 30,

 

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

 

 

(dollars in thousands)

 

 

(dollars in thousands)

 

Net income

 

$

40,880

 

 

$

18,938

 

 

$

70,958

 

 

$

42,543

 

Weighted average number of common shares outstanding

 

 

125,631,725

 

 

 

111,573,332

 

 

 

120,351,366

 

 

 

110,959,839

 

Dilutive effect of warrants and options outstanding

 

 

7,370,506

 

 

 

3,733,981

 

 

 

7,533,547

 

 

 

3,508,500

 

Diluted weighted average number of common shares outstanding

 

 

133,002,231

 

 

 

115,307,313

 

 

 

127,884,913

 

 

 

114,468,339

 

Basic earnings per share

 

$

0.33

 

 

$

0.17

 

 

$

0.59

 

 

$

0.38

 

Diluted earnings per share

 

$

0.31

 

 

$

0.16

 

 

$

0.55

 

 

$

0.37

 

 

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, 2021 and 2020

 

 

 

For the Three Months

Ended June 30,

 

 

For the Six Months

Ended June 30,

 

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

 

 

(dollars in thousands)

 

 

(dollars in thousands)

 

Income before provision for income taxes

 

$

69,982

 

 

$

42,212

 

 

$

134,608

 

 

$

83,711

 

Provision for income taxes

 

 

29,102

 

 

 

23,274

 

 

 

63,650

 

 

 

41,168

 

Effective tax rate

 

 

42

%

 

 

55

%

 

 

47

%

 

 

49

%

 

NOTE 16. RELATED PARTIES

The Company had raised funds by issuing notes to various related parties including directors, officers, and shareholders and the balance at June 30, 2021 and December 31, 2020 was $12.0 million and $12.0 million, respectively, as discussed in “Note 8 – Notes Payable Related Party”.

J.T. Burnette, the spouse of Kim Rivers, the Chief Executive Officer and Chair of the board of directors of the Company, is a minority owner of a company (the “Supplier”) that provides construction and related services to the Company. The Supplier is responsible for the construction of the Company’s cultivation and processing facilities, and provides labor, materials and equipment on a cost-plus basis. At June 30, 2021 and 2020, property and equipment purchases totaled $76.4 million, and $35.9 million, respectively. As of June 30, 2021 and December 31, 2020, $13.8 million and $10.4 million of property and equipment purchases was included in accounts payable in the condensed consolidated balance sheets. The use of the Supplier was reviewed and approved by the independent members of the Company’s board of directors, and all invoices of the Supplier are reviewed by the office of the Company’s Chief Legal Officer.

 

18


 

The Company has many leases from various real estate holding companies that are managed by various related parties including Benjamin Atkins, a former director and current shareholder of the Company, and the Supplier. As of June 30, 2021, and December 31, 2020, under ASC 842, the Company had the following in the condensed consolidated balance sheet:

 

 

 

As of June 30, 2021

 

 

As of December 31, 2020

 

 

 

Finance

 

 

Operating

 

 

Finance

 

 

 

 

Operating

 

 

 

(dollars in thousands)

 

 

(dollars in thousands)

 

Right-of-use asset, net

 

$

3,213

 

 

$

10,720

 

 

$

3,425

 

 

 

 

$

12,003

 

Lease liability:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Lease liability - current portion

 

 

301

 

 

 

1,381

 

 

 

281

 

 

 

 

 

1,539

 

Lease liability

 

 

3,344

 

 

 

9,980

 

 

 

3,500

 

 

 

 

 

11,083

 

Total related parties lease liability

 

$

3,645

 

 

$

11,361

 

 

$

3,781

 

 

 

 

$

12,622

 

 

NOTE 17. CONTINGENCIES

(a)Operating Licenses

Although the possession, cultivation and distribution of cannabis for medical use is permitted in Florida, Massachusetts, California, Connecticut, Pennsylvania and West Virginia, cannabis is a Schedule-I controlled substance and its use and possession 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, cash and cash equivalents, equipment and other goods, could be subject to asset forfeiture because cannabis is still federally illegal.

(b)Claims and Litigation

From time to time, the Company may be involved in litigation relating to claims arising out of operations in the normal course of business. Except as disclosed below, at June 30, 2021, 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 and comprehensive income. There are also no proceedings in which any of the Company’s directors, officers or affiliates is an adverse party or has a material interest adverse to the Company’s interest.

On December 30, 2019, a securities class-action complaint, David McNear v. Trulieve Cannabis Corp. et al., Case No. 1:19-cv-07289, was filed against the Company in the United States District Court for the Eastern District of New York.  On February 12, 2020, a second securities class-action complaint, Monica Acerra v. Trulieve Cannabis Corp. et al., Case No. 1:20-cv-00775, which is substantially similar to the complaint filed on December 30, 2019, was filed against the Company in the United States District Court for the Eastern District of New York.  Both complaints name the Company, Kim Rivers, and Mohan Srinivasan as defendants for allegedly making materially false and misleading statements regarding the Company’s previously reported financial statements and public statements about its business, operations, and prospects. The complaint alleges violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and SEC Rule 10b-5 promulgated thereunder. The complaint sought unspecified damages, costs, attorneys’ fees, and equitable relief.  On March 20, 2020, the Court consolidated the two related actions under In re Trulieve Cannabis Corp. Securities Litigation, No. 1:19-cv-07289, and appointed William Kurek, John Colomara, David McNear, and Monica Acerra as Lead Plaintiffs.  After consultation with legal council, the Company believes that the suit is immaterial and that the claims are without merit and intends to vigorously defend against them.

(c)Arrangement Agreement

On May 10, 2021, Trulieve Cannabis Corp. (the “Company”) entered into an arrangement agreement (the “Arrangement Agreement”) with Harvest Health & Recreation Inc. (“Harvest”), pursuant to which, the Company has agreed, subject to the terms and conditions thereof, to acquire all of the issued and outstanding subordinate voting shares of Harvest (“Subordinate Voting Shares”), multiple voting shares of Harvest (“Multiple Voting Shares”) and super voting shares of Harvest (the “Super Voting Shares” and, together with the Subordinate Voting Shares and Multiple Voting Shares, the “Harvest Voting Shares”), pursuant to a plan of arrangement (the “Plan of Arrangement”) under the Business Corporations Act (British Columbia) (the “Arrangement”).

 

19


 

Subject to the terms and conditions set forth in the Arrangement Agreement and Plan of Arrangement, holders of Harvest Voting Shares will receive 0.1170 of a subordinate voting share of the Company (each a “Company Subordinate Voting Share”), subject to adjustment as described as (the “Exchange Ratio”) within the Arrangement Agreement, for each Harvest Voting Share outstanding immediately prior to the effective time of the Arrangement (the “Effective Time”), with the Super Voting Shares and Multiple Voting Shares treated on an as if converted basis to Subordinate Voting Shares pursuant to their respective terms; provided, the Exchange Ratio may potentially be adjusted upon the occurrence of certain permitted Harvest debt refinancing’s. The Arrangement is intended to qualify as a reorganization for U.S. federal income tax purposes.

The Arrangement Agreement includes customary representations, warranties and covenants of Trulieve and Harvest and each party has agreed to customary covenants, including, among others, covenants relating to the conduct of its business during the interim period between execution of the Arrangement Agreement and the Effective Time as defined within the Arrangement Agreement.

The Arrangement Agreement provides for customary non-solicitation covenants, subject to the right of the board of directors of Harvest (the “Board”) to consider and accept a superior proposal (as defined in the Arrangement Agreement), and the right of the Company to match any such proposal within five business days. The Arrangement Agreement also provides for the payment by Harvest to the Company of a $100,000,000 termination fee if the Arrangement Agreement is terminated in certain specified circumstances, including, among other things, in the event that (i) the Board withholds, withdraws, modifies or qualifies any of its recommendations or determinations with respect to the special resolution approving the Arrangement; (ii) the Board, in accordance with certain procedures set forth in the Arrangement Agreement, accepts, recommends, approves or enters into an agreement to implement a superior proposal (as defined in the Arrangement Agreement), or (iii) the Arrangement Agreement is terminated in certain circumstances, including in the event the resolution approving the Arrangement is not approved by Harvest Voting Shareholders, the Arrangement is not consummated on or prior to February 28, 2022 (subject to modification by the parties and extension in certain circumstances), or in the event Harvest willfully failed to fulfill or comply with all covenants contained in the Arrangement Agreement required to be fulfilled or complied with it on or prior to the effective time of the Arrangement, and if (x) prior to the date of termination an acquisition proposal meeting certain requirements has been publicly announced or otherwise communicated to Harvest, and (y) within 12 months of the date of such termination the transaction is completed or Harvest has entered into a definitive agreement with respect to such transaction and such transaction is later consummated or effected (whether or not within such 12 month period). The Arrangement Agreement also provides for the payment by the Company to Harvest of a $100,000,000 termination fee if the Arrangement Agreement is terminated due to the fact that the Arrangement is not consummated on or prior to February 28, 2022 (subject to modification by the parties and extension in certain circumstances) solely due to the failure to obtain certain required regulatory approvals.

In the event the Arrangement has not been completed on or before February 28, 2022, the Company has agreed to lend Harvest $25,000,000. In addition, the Company has agreed to lend Harvest an additional amount of $25,000,000 on each of May 31, 2022, August 31, 2022 and November 30, 2022 if the Arrangement has not been completed by the business day preceding each of those respective dates. Such loans will be subject to acceleration in certain customary or to be negotiated events, which include termination of the Arrangement Agreement in order to enter into an alternative transaction agreement for a superior proposal.

The Transaction will be consummated subject to the deliverables and provisions as further described in the Arrangement Agreement. Refer to the Quarterly Report on Form 10-Q filed on May 13, 2021, for additional details including the Arrangement Agreement within Exhibit 2.1.

 

20


 

NOTE 18.  SUBSEQUENT EVENTS

The Company has evaluated subsequent events through August 12, 2021, which is the date these consolidated financial statements were issued.

On July 2, 2021, the Company acquired certain assets of Patient Centric of Martha’s Vineyard (“PCMV”) including the rights to a Provisional Marijuana Retailers License from the Massachusetts Cannabis Control Commission, the right to exercise an option held by PCMV to lease real property in Framingham, Massachusetts for use as a marijuana retailer, and necessary municipal entitlements to operate as a marijuana retailer at the property. Total consideration was $4.8 million or 258,383 in Trulieve Shares, of which 10,879 are subject to a holdback for six months as security for any indemnity claims by the Company under the asset purchase agreement. The acquisition will be accounted for as an asset acquisition. The initial accounting for the asset acquisition is incomplete at the time of this filing due to the limited amount of time since the acquisition date and the ongoing status of the valuation. We anticipate that we will complete the initial accounting for the asset acquisition during the third quarter of 2021.  

On July 8, 2021, the Company acquired 100% of the membership interests of Anna Holdings, LLC, a company who is the sole equity holder in Chamounix Ventures, LLC which holds a permit to operate dispensaries under Keystone Shops (“Keystone Shops”) with locations in Philadelphia, Devon and King of Prussia, Pennsylvania.  Total consideration was $60.0 million consisting of $20.0 million in cash and $40.0 million or 1,009,336 in Trulieve shares. The deal does not carry a deferred payments or earn-out period and provides for an additional $5.0 million in consideration which is contingent on the enactment, adoption or approval of laws allowing for adult-use cannabis in the state of Pennsylvania. The acquisition will be accounted for as a business combination. The initial accounting for the business combination is incomplete at the time of this filing due to the limited amount of time since the acquisition date and the ongoing status of the valuation. As such, we are unable to disclose certain information with respect to the Keystone Shops acquisition including the preliminary estimated fair value of the assets acquired and liabilities assumed. We anticipate that we will complete the initial accounting for the business combination during the third quarter of 2021.

 

 

21


 

 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion of our financial condition and results of operations should be read together with our consolidated financial statements and the related notes included elsewhere in this Quarterly Report on Form 10-Q and the consolidated financial statements and accompanying notes thereto and Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2020, filed with the Securities and Exchange Commission, or SEC, on March 23, 2021 (the “2020 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 and in “Part I, Item 1A—Risk Factors” in our 2020 Form 10-K. 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 2020 Form 10-K.

Overview

We are a multi-state cannabis operator with licenses to operate in six states. Headquartered in Quincy, Florida, we are the market leader for quality medical cannabis products and services in Florida and aim to be the brand of choice for medical and adult-use customers in all of the markets that we serve. All of the states in which we operate have adopted legislation to permit the use of cannabis products for medicinal purposes to treat specific conditions and diseases, which we refer to as medical cannabis. Recreational marijuana, or adult-use cannabis, is legal marijuana sold in licensed dispensaries to adults ages 21 and older. Thus far, of the states in which we operate, only California, Connecticut and Massachusetts, have adopted legislation permitting commercialization of adult-use cannabis products.

As of June 30, 2021, we employed over 7,200 people, and we are committed to providing patients, which we refer to herein as “patients” or “customers,” a consistent and welcoming retail experience across Trulieve branded stores. We have nine material subsidiaries: Trulieve, Inc., or Trulieve US, Leef Industries, LLC, or Leef Industries, Life Essence, Inc., or Life Essence, Trulieve Holdings, Inc., or Trulieve Holdings, and Trulieve Bristol, Inc. (formerly The Healing Corner, Inc. and referred to herein as “Healing Corner”), PurePenn LLC, Keystone Relief Centers, LLC (which we refer to as “Solevo Wellness”), and Trulieve WV, Inc., or Trulieve WV and Trulieve GA, Inc., or Trulieve GA. Each of Trulieve US, Leef Industries, Life Essence, Trulieve Holdings, Healing Corner, PurePenn LLC, Solevo Wellness and Trulieve WV is wholly owned (directly or indirectly) by Trulieve Cannabis Corp. Trulieve GA, Inc. is 40% owned (indirectly) by Trulieve Cannabis Corp. As of June 30, 2021, substantially all of our revenue was generated from the sale of medical cannabis products in the State of Florida. To date, neither the sale of adult-use cannabis products, nor our operations in Massachusetts, California, Connecticut, Pennsylvania, and West Virginia, have been material to our business.

Florida

Trulieve US is a vertically integrated “seed to sale” cannabis company and is the largest licensed medical marijuana company in the State of Florida. As of June 30, 2021, publicly available reports filed with the Florida Office of Medical Marijuana Use show Trulieve US to have the most dispensing locations and the greatest dispensing volume across product categories out of all licensed medical marijuana businesses in the state. Trulieve US cultivates and produces all of its products in-house and distributes those products to patients in Trulieve branded stores (dispensaries) throughout the State of Florida, as well as directly to patients via home delivery. Our experience in the vertically integrated Florida market has given us the ability to scale and penetrate in all necessary business segments (cultivation, production, sales, and distribution). Trulieve US has the experience necessary to increase market leadership in Florida and employ that expertise effectively in other regulated markets.

As of June 30, 2021, Trulieve US operated approximately 2.2 million square feet of cultivation facilities across six sites. In accordance with Florida law, Trulieve US grows in secure enclosed indoor facilities and greenhouse structures.

Massachusetts

Life Essence operates a co-located medical and adult-use dispensary in Northampton and Medical Marijuana cultivation and product manufacturing facility in Holyoke. Life Essence also has been awarded Final Licenses for Adult-Use cultivation and processing at the same facility in Holyoke, and provisional certificates of registration for medical marijuana dispensaries in Holyoke and Cambridge. Upon entry of its existing plant stock into the state’s seed to sale tracking system and clearance from the Massachusetts Cannabis Control Commission, Life Essence will be able to fully operate under its adult-use cultivation and processing licenses, including in the wholesale market. The completion of these licensing processes will further enable Life Essence to capitalize on its investment in infrastructure and engage in vertically integrated operations in both adult-use and medical markets in Massachusetts.

 

22


 

On July 2, 2021, Life Essence closed a transaction with Patient Centric of Martha’s Vineyard Ltd., or PCMV, in which Life Essence purchased certain assets of PCMV, including the rights to a Provisional Marijuana Retailer License from the Massachusetts Cannabis Control Commission in Framingham, Massachusetts, and necessary municipal entitlements and a leasehold interest to operate as a marijuana retailer at the property. On June 29, 2021, Life Essence closed a transaction with Nature’s Remedy of Massachusetts, Inc., or Nature’s Remedy, and Sammartino Investments, LLC, pursuant to which Life Essence agreed to purchase certain assets of Nature’s Remedy including a Final Marijuana Retailer License from the Cannabis Control Commission, assignment of a long-term lease for real property in Worcester, Massachusetts for use as a marijuana retailer, and necessary municipal entitlements to operate as a marijuana retailer at the property. Following a satisfactory post final license inspection from the Massachusetts Cannabis Control Commission, this marijuana retailer location in Worcester, Massachusetts may commence operations.

California

Leef Industries operates a licensed medical and adult-use cannabis dispensary located in Palm Springs, California. Trulieve believes Leef Industries has demonstrated encouraging growth in the market, offering in-store and online shopping, along with product home delivery. Leef Industries is in the process of Trulieve rebranding and alignment with corporate operational standards, which we believe will increase consumer appeal and operational efficiency. The dispensary helps us stay abreast of trends on the west coast and in a robust and innovative cannabis market distinguished by local competition between diverse and numerous operators.

Connecticut

The Healing Corner is a licensed pharmacist-managed medical cannabis dispensary located in Bristol, Connecticut. Healing Corner was founded in 2014 and provides a range of medical marijuana products produced by high quality licensed suppliers. At the dispensary, a licensed pharmacist and trained staff provide on-site counseling and education to patients. Patients may reserve their medical marijuana order through Healing Corner’s innovative Canna-Fill online system. Under Connecticut’s adult-use cannabis legislation, which was enacted July 1, 2021, Healing Corner will have an opportunity to convert to hybrid adult-use and medical sales.

Pennsylvania

On November 12, 2020, we completed the acquisition of 100% of the membership interests of: (i) PurePenn LLC and Pioneer Leasing & Consulting LLC, which we refer to collectively as PurePenn, and (ii) Keystone Relief Centers, LLC, which does business as and we refer to herein as Solevo Wellness. PurePenn operates cannabis cultivation and manufacturing facilities in the Pittsburgh, Pennsylvania area and currently wholesales to 100% of the operating dispensaries in Pennsylvania. Solevo Wellness operates three medical marijuana dispensaries in the Pittsburgh, Pennsylvania area. On July 8, 2021, we completed the acquisition of 100% of the membership interest of Anna Holdings LLC, which does business as Keystone Shops and operates three dispensaries in the Philadelphia area.

West Virginia

On November 13, 2020, Trulieve WV was awarded a processor permit by the West Virginia Office of Medical Cannabis. On January 29, 2021, Trulieve WV was notified that it has been awarded four dispensary permits by the West Virginia Office of Medical Cannabis. On March 22, 2021, we entered into a membership interest purchase agreement with Mountaineer Holding, LLC (“Mountaineer”). Mountaineer holds a West Virginia cultivation license and two dispensary licenses. The acquisition of Mountaineer was completed on May 5, 2021. On June 8, 2021, we completed the acquisition of Solevo Wellness West Virginia LLC and its three West Virginia dispensary permits. On June 29, 2021, we received approval from the West Virginia Office of Medical Cannabis to begin cultivation operations, making Trulieve the first in the state of West Virginia to begin cultivating medical cannabis. We are actively working to obtain approval for processing and dispensing operations as soon as reasonably practicable, which will vary by location depending on permitting and construction timelines.

Georgia

On July 24, 2021, Trulieve GA received a Notice of Intent to award a Class 1 Production License from the Georgia Access to Medical Cannabis Commission. The Notice of Intent to award is a notice of the Georgia Access to Medical Cannabis Commission’s expected contract award to Trulieve GA pending resolution of a potential protest process. If the contract is awarded, Trulieve GA will hold one of two Class 1 Production Licenses in the state and will be permitted to cultivate cannabis for the manufacture low THC oil.

 

23


 

Recent Developments

Harvest Acquisition

On May 10, 2021, we entered into an Arrangement Agreement with Harvest Health & Recreation Inc., a British Columbia corporation (“Harvest”), pursuant to which we will acquire all of the issued and outstanding equity securities of Harvest. Under the terms of the Arrangement Agreement, shareholders of Harvest will receive 0.1170 of a Subordinate Voting Share of Trulieve for each Harvest subordinate voting share (or equivalent) held (the “Exchange Ratio”), representing total consideration of approximately $2.1 billion based on the closing price of our Subordinate Voting Shares on May 7, 2021. The Exchange Ratio is subject to adjustment in the event that Harvest completes certain interim period refinancing measures, with the potential adjustment in proportion to the incremental costs from such financing relative to the transaction value. The Transaction was unanimously approved by the boards of directors of each of Trulieve and Harvest. Harvest shareholders holding more than 50% of the voting power of the issued and outstanding Harvest Shares have entered into voting support agreements with Trulieve to vote in favor of the transaction.

The Arrangement Agreement provides for certain customary provisions, including covenants in respect of non-solicitation of alternative transactions, a right to match superior proposals, US$100 million reciprocal termination fees under certain circumstances and reciprocal expense reimbursement provisions in certain circumstances. The Transaction is subject to, among other things, the approval of the necessary approvals of the Supreme Court of British Columbia, the approval of two-thirds of the votes cast by Harvest shareholders at its special meeting of shareholders, receipt of the required regulatory approvals and other customary conditions of closing. Approval of our shareholders is not required.

Other Developments

On July 8, 2021, we closed the acquisition of Keystone Shops, which holds a dispensary license and operates dispensaries in Philadelphia, Devon, and King of Prussia, Pennsylvania.  

On July 2 and June 28, 2021, we closed of the acquisition of certain assets of PCMV and Nature’s Remedy, respectively, including the rights to a Provisional Marijuana Retailer License from the Massachusetts Cannabis Control Commission for an adult-use marijuana retailer in Framingham and a Final Marijuana Retailer License from the Cannabis Control Commission for an adult-use marijuana retailer in Worcester, and accompanying leasehold interests, permits and entitlements.

On June 10, 2021, at the annual general meeting of our shareholders, two new directors, Giannella Alvarez and Jane Morreau, were elected to our Board of Directors.  

On June 9, 2021, we announced the closing of the acquisition of Solevo Wellness West Virginia LLC and its three West Virginia dispensary permits, including two permits in Morgantown and one in Parkersburg.

On June 3, 2021, Life Essence opened its first dispensary in the Commonwealth of Massachusetts in the City of Northampton. The dispensary serves both adult-use and medical marijuana patients.

On May 6, 2021, we announced the closing of the acquisition of Mountaineer Holding LLC, including its cultivation permit and two dispensary permits.

On April 12, 2021, we announced the closing of an underwritten, marketed public offering of 5,750,000 Subordinate Voting Shares at a public offering price of C$50.00 per share ($39.63 per share after giving effect to the conversion rate published by Bloomberg at 4:30pm ET on April 7, 2021 to convert Canadian dollars to U.S. dollars). The gross proceeds from the offering, before deducting underwriting discounts and commissions and offering expenses payable by us, were C$287.5 million (or $227.9 million after giving effect to the conversion rate denoted above).

 

24


 

Management’s Use of Non-GAAP Measures

Our management uses financial measures that are not in accordance with generally accepted accounting principles in the United States, or GAAP, in addition to financial measures in accordance with GAAP to evaluate our operating results.  These non-GAAP financial measures 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, share-based compensation, tax, depreciation, acquisition and transaction costs, fair value step-up of inventory from acquisitions, COVID related expenses, non-cash expenses and other income. Trulieve reports adjusted EBITDA to help investors assess the operating performance of the Corporation’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.

Components of Results of Operations

Revenue

We derive our revenue from cannabis products which we manufacture, sell, and distribute to our customers by home delivery and in our dispensaries.

Gross Profit

Gross profit includes the costs directly attributable to product sales and includes amounts paid to produce finished goods, such as flower, and concentrates, as well as packaging and other supplies, fees for services and processing, allocated overhead which includes allocations of rent, administrative salaries, utilities, and related costs. Cannabis costs are affected by various state regulations that limit the sourcing and procurement of cannabis product, which may create fluctuations in margins over comparative periods as the regulatory environment changes.

Sales and Marketing

Sales and marketing expenses consist primarily of personnel costs related to the dispensaries as well as marketing programs for our products.  As we continue to expand and open additional dispensaries, we expect our sales and marketing expenses to continue to increase.

General and Administrative

General and administrative expenses represent costs incurred at our corporate offices, primarily related to personnel costs, including salaries, incentive compensation, benefits, and other professional service costs, including legal and accounting. We expect to continue to invest considerably in this area to support our expansion plans and to support the increasing complexity of the cannabis business. Furthermore, we expect to continue to incur acquisition, transaction, and integration costs related to our expansion plans, and we anticipate a significant increase in compensation expenses related to recruiting and hiring talent, accounting, and legal and professional fees associated with becoming compliant with the Sarbanes-Oxley Act and other public company corporate expenses.

 

25


 

Depreciation and Amortization

Depreciation expense is calculated on a straight-line basis using the estimated useful life of each asset.  Estimated useful life is determined by asset class and is reviewed on an annual basis and revised if necessary.  Amortization expense is recognized using the straight-line method over the estimated useful life of the intangible assets. Useful lives for intangible assets are determined by type of asset with the initial determination of useful life derived during the valuation of the business combination.  On an annual basis, the useful lives of each intangible class of assets are evaluated for appropriateness and adjusted if appropriate.

Other Income (Expense), Net

Interest and other income (expense), net consist primarily of interest income and interest expense and the impact of the revaluation of the debt warrants.

Provision for Income Taxes

Provision for income taxes is calculated using the asset and liability method. Deferred income tax assets and liabilities are determined based on enacted tax rates and laws for the years in which the differences are expected to reverse.   Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized.

As we operate in the cannabis industry, we are subject to the limits of IRC Section 280E under which we are only allowed to deduct expenses directly related to the cost of producing the products or cost of production.

Results of Operations

Revenue

 

 

 

Three Months Ended

 

 

 

 

 

 

Six Months Ended

 

 

 

 

 

 

 

June 30,

 

 

Change

 

 

June 30,

 

 

Change

 

 

 

2021

 

 

2020

 

 

%

 

 

2021

 

 

2020

 

 

%

 

 

 

(dollars in thousands)

 

 

 

 

 

 

(dollars in thousands)

 

 

 

 

 

Revenues, net of discounts

 

$

215,122

 

 

$

120,765

 

 

78%

 

 

$

408,945

 

 

$

216,821

 

 

89%

 

Revenue for the three months ended June 30, 2021 was $215.1 million, an increase of $94.3 million, from $120.8 million for the three months ended June 30, 2020. Revenue for the six months ended June 30, 2021 was $408.9 million, an increase of $192.1 million, from $216.8 million for the six months ended June 30, 2020.  The increase in revenue is the result of an increase in organic growth in retail sales due to an increase in products available for purchase and overall patient count. Between June 30, 2021 and June 30, 2020, we opened or acquired forty dispensaries, which also contributed to the increased retail sales year over year.  

Cost of Goods Sold

 

 

 

Three Months Ended

 

 

 

 

 

 

Six Months Ended

 

 

 

 

 

 

 

June 30,

 

 

Change

 

 

June 30,

 

 

Change

 

 

 

2021

 

 

2020

 

 

%

 

 

2021

 

 

2020

 

 

%

 

 

 

(dollars in thousands)

 

 

 

 

 

 

(dollars in thousands)

 

 

 

 

 

Cost of goods sold

 

$

70,639

 

 

$

30,233

 

 

134%

 

 

$

129,198

 

 

$

52,459

 

 

146%

 

% of total revenues

 

 

33

%

 

 

25

%

 

 

 

 

 

 

32

%

 

 

24

%

 

 

 

 

Cost of goods sold for the three months ended June 30, 2021 was $70.6 million, an increase of $40.4 million, from $30.2 million for the three months ended June 30, 2020. Cost of goods sold for the six months ended June 30, 2021 was $129.2 million, an increase of $76.7 million, from $52.5 million for the six months ended June 30, 2020, due to an increase in retail sales as a result of an increase in dispensaries and patient count. Cost of goods sold as a percentage of revenue increased from 24% for the six months ended June 30, 2020 to 32% for the six months ended June 30, 2021 due to our expansion into new markets, timing of inventory flow-through and product mix.

 

26


 

Gross Profit

 

 

 

Three Months Ended

 

 

 

 

 

 

Six Months Ended

 

 

 

 

 

 

 

June 30,

 

 

Change

 

 

June 30,

 

 

Change

 

 

 

2021

 

 

2020

 

 

%

 

 

2021

 

 

2020

 

 

%

 

 

 

(dollars in thousands)

 

 

 

 

 

 

(dollars in thousands)

 

 

 

 

 

Gross profit

 

$

144,483

 

 

$

90,532

 

 

60%

 

 

$

279,747

 

 

$

164,362

 

 

70%

 

% of total revenues

 

 

67

%

 

 

75

%

 

 

 

 

 

 

68

%

 

 

76

%

 

 

 

 

Gross profit for the three months ended June 30, 2021 was $144.5 million, up 60% from $90.5 million for the three months ended June 30, 2020. Gross profit for the six months ended June 30, 2021 was $279.7 million, up $115.4 million or 70% from $164.4 million for the six months ended June 30, 2020, as a result of an increase in retail sales due to the additional number of dispensaries, products available for sale and patient count.  Gross profit as a percentage of revenue decreased from 76% for the six months ended June 30, 2020 to 68%, for the six months ended June 30, 2021. The decrease is caused by expansion into new markets, timing of inventory flow-through, product mix and macro-economic factors centered around prices and labor.

 

Sales and Marketing Expenses

 

 

 

Three Months Ended

 

 

 

 

 

 

Six Months Ended

 

 

 

 

 

 

 

June 30,

 

 

Change

 

 

June 30,

 

 

Change

 

 

 

2021

 

 

2020

 

 

%

 

 

2021

 

 

2020

 

 

%

 

 

 

(dollars in thousands)

 

 

 

 

 

 

(dollars in thousands)

 

 

 

 

 

Sales and marketing expenses

 

$

46,576

 

 

$

27,009

 

 

72%

 

 

$

91,135

 

 

$

49,873

 

 

83%

 

% of total revenues

 

 

22

%

 

 

22

%

 

 

 

 

 

 

22

%

 

 

23

%

 

 

 

 

 

Sales and marketing expense increased by 72% from $27.0 million for the three months ended June 30, 2020 to $46.6 million for the three months ended June 30, 2021. Sales and marketing expense increased from $49.9 million for the six months ended June 30, 2020, to $91.1 million for the six months ended June 30, 2021, an increase of $41.2 million, or 83%. The increase in sales and marketing expense is the result of a higher head count for the year, as we continue to add additional dispensaries in efforts to maintain and further drive higher growth in sales and market share as well as expanding into new markets.  This increased head count resulted in higher personnel costs, which is the primary driver for the increase year over year.

General and Administrative Expenses

 

 

 

Three Months Ended

 

 

 

 

 

 

Six Months Ended

 

 

 

 

 

 

 

June 30,

 

 

Change

 

 

June 30,

 

 

Change

 

 

 

2021

 

 

2020

 

 

%

 

 

2021

 

 

2020

 

 

%

 

 

 

(dollars in thousands)

 

 

 

 

 

 

(dollars in thousands)

 

 

 

 

 

General and administrative expenses

 

$

14,942

 

 

$

7,936

 

 

88%

 

 

$

27,650

 

 

$

14,195

 

 

95%

 

% of total revenues

 

 

7

%

 

 

7

%

 

 

 

 

 

 

7

%

 

 

7

%

 

 

 

 

 

General and administrative expense for the three months ended June 30, 2021 increased by 88% to $14.9 million from $7.9 million for the three months ended June 30, 2020. General and administrative expense for the six months ended June 30, 2021 increased to $27.7 million from $14.2 million for the six months ended June 30, 2020, an increase of $13.5 million, or 95%. The increase in general and administrative expense is the result of entering new markets, ramping our infrastructure to support growth initiatives, continued acquisitions resulting in additional transaction and integration costs and go-forward compliance.

Depreciation and Amortization Expense

 

 

 

Three Months Ended

 

 

 

 

 

 

Six Months Ended

 

 

 

 

 

 

 

June 30,

 

 

Change

 

 

June 30,

 

 

Change

 

 

 

2021

 

 

2020

 

 

%

 

 

2021

 

 

2020

 

 

%

 

 

 

(dollars in thousands)

 

 

 

 

 

 

(dollars in thousands)

 

 

 

 

 

Depreciation and amortization expenses

 

$

6,667

 

 

$

3,104

 

 

115%

 

 

$

12,101

 

 

$

5,298

 

 

128%

 

% of total revenues

 

 

3

%

 

 

3

%

 

 

 

 

 

 

3

%

 

 

2

%

 

 

 

 

 

Depreciation and amortization expense for the three months ended June 30, 2021 was $6.7 million, up $3.6 million from $3.1 million for the three months ended June 30, 2020. Depreciation and amortization expenses for the six months ended June 30, 2021 was $12.1 million, up $6.8 million, from $5.3 million for the six months ended June 30, 2020. The overall increase in depreciation and amortization

 

27


 

expenses was due to investment in infrastructure that resulted in a higher number of capitalized assets from the additional dispensaries and cultivation facilities.  Furthermore, amortization expense increased due to acquisitions and acquired intangibles.

Total Other Expense, Net

 

 

 

Three Months Ended

 

 

 

 

 

 

Six Months Ended

 

 

 

 

 

 

 

June 30,

 

 

Change

 

 

June 30,

 

 

Change

 

 

 

2021

 

 

2020

 

 

%

 

 

2021

 

 

2020

 

 

%

 

 

 

(dollars in thousands)

 

 

 

 

 

 

(dollars in thousands)

 

 

 

 

 

Total other expense, net

 

$

6,316

 

 

$

10,271

 

 

(39%)

 

 

$

14,253

 

 

$

11,285

 

 

26%

 

% of total revenues

 

 

3

%

 

 

9

%

 

 

 

 

 

 

3

%

 

 

5

%

 

 

 

 

 

Total other income (expense), net for the three months ended June 30, 2021 was expense of $6.3 million, a decrease of $4.0 million from expense of $10.3 million for the three months ended June 30, 2020. Total other expense, net for the six months ended June 30, 2021 was expense of $14.3 million, an increase of $3.0 million from expense of $11.3 million for the six months ended June 30, 2020. The overall increase is the result of an increase in interest expense related to additional finance leases to support business growth, partially offset by $1.0 million revaluation of debt warrants for the six months ended June 30, 2020.

On December 10, 2020, the Company entered into a Supplemental Warrant Indenture with Odyssey Trust Company pursuant to which it amended the terms of the issued and outstanding subordinate voting share purchase warrants of the Company (the “Public Warrants”) to convert the exercise price of the Public Warrants to $13.47 per share, the U.S. dollar equivalent of the Canadian dollar exercise price of the Public Warrants of C$17.25.  As a result of this, the Public Warrants converted to equity in December 2020, eliminating revaluation expense in future periods.

Provision for Income Taxes

 

 

 

Three Months Ended

 

 

 

 

 

 

Six Months Ended

 

 

 

 

 

 

 

June 30,

 

 

Change

 

 

June 30,

 

 

Change

 

 

 

2021

 

 

2020

 

 

%

 

 

2021

 

 

2020

 

 

%

 

 

 

(dollars in thousands)

 

 

 

 

 

 

(dollars in thousands)

 

 

 

 

 

Provision for income taxes

 

$

29,102

 

 

$

23,274

 

 

25%

 

 

$

63,650

 

 

$

41,168

 

 

55%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income tax expense for the three months ended June 30, 2021 increased to $29.1 million from $23.3 million for the three months ended June 30, 2020. Income tax expense for the six months ended June 30, 2021 increased to $63.7 million from $41.2 million for the six months ended June 30, 2020, an increase of $22.5 million, or 55% as a result of a $115.4 million increase in gross profit for the same periods. Under IRC Section 280E, Cannabis Companies are only allowed to deduct expenses that are directly related to production of the products. The increase in income tax expense is due to the increase in gross profit as a result of the increase in retail sales partially offset by an increase in production costs as a percentage of revenue.

 

 

Net Income

 

 

 

Three Months Ended

June 30,

 

 

 

 

 

 

Six Months Ended

June 30,

 

 

 

 

 

 

 

2021

 

 

2020

 

 

Change

 

 

2021

 

 

2020

 

 

Change

 

 

 

(dollars in thousands)

 

 

 

 

 

 

(dollars in thousands)

 

 

 

 

 

Net income and comprehensive income

 

$

40,880

 

 

$

18,938

 

 

116%

 

 

$

70,958

 

 

$

42,543

 

 

67%

 

 

Net income for the three months ended June 30, 2021 was $40.9 million, an increase of $21.9 million, from $18.9 million for the three months ended June 30, 2020. Net income for the six months ended June 30, 2021 was $71.0 million, an increase of $28.4 million or 67%, from $42.5 million for the six months ended June 30, 2020. The increase in net income was driven primarily by the opening of additional dispensaries, an increase in products available for purchase and overall patient count. This net increase to net income was offset by cost of goods sold which was driven by timing of inventory flow-through and product mix.  In addition, increases in sales and marketing and general and administrative expenses such as personnel costs, dispensary expenses, depreciation, interest expense, costs of entering new markets, ramping infrastructure, acquisition and transaction costs, integration costs, and go-forward compliance, all contributed to the offset in net income.  Income taxes also significantly increased period over period due to higher profit.  Lastly, other

 

28


 

expense increased as a result of the revaluation of our debt warrants and an increase in interest expense for the six months ended June 30, 2021. As previously noted, the revaluation is no longer applicable for the six months ended June 30, 2021.

Adjusted EBITDA

 

 

 

Three Months Ended

June 30,

 

 

 

 

 

 

Six Months Ended

June 30,

 

 

 

 

 

 

 

 

2021

 

 

2020

 

 

Change

 

 

2021

 

 

2020

 

 

Change

 

 

 

 

(dollars in thousands)

 

 

 

 

 

 

(dollars in thousands)

 

 

 

 

 

 

Adjusted EBITDA

 

$

94,872

 

 

$

61,394

 

 

55%

 

 

$

185,668

 

 

$

109,944

 

 

69%

 

 

 

Adjusted EBITDA for the three months ended June 30, 2021 was $94.9 million, an increase of $33.5 million from $61.4 million for the three months ended June 30, 2020. Adjusted EBITDA for the six months ended June 30, 2021, was $185.7 million, an increase of $75.8 million or 69%, from $109.9 million for the six months ended June 30, 2020. The following table presents a reconciliation of GAAP net income to non-GAAP Adjusted EBITDA, for each of the periods presented:

 

 

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

 

 

(dollars in thousands)

 

 

(dollars in thousands)

 

Net income and comprehensive income

 

$

40,880

 

 

$

18,938

 

 

$

70,958

 

 

$

42,543

 

Add impact of:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

6,667

 

 

 

3,104

 

 

 

12,101

 

 

 

5,298

 

Depreciation included in cost of goods sold

 

 

5,020

 

 

 

2,386

 

 

 

8,687

 

 

 

4,891

 

Interest expense, net

 

 

6,649

 

 

 

5,302

 

 

 

14,548

 

 

 

11,214

 

Provision for income taxes

 

 

29,102

 

 

 

23,274

 

 

 

63,650

 

 

 

41,168

 

EBITDA

 

 

88,318

 

 

 

53,004

 

 

 

169,944

 

 

 

105,114

 

Share-based compensation

 

 

744

 

 

 

462

 

 

 

1,485

 

 

 

1,685

 

Other expense (income), net

 

 

(333

)

 

 

4,969

 

 

 

(295

)

 

 

71

 

Acquisition and transaction costs

 

 

4,453

 

 

 

 

 

 

6,495

 

 

 

 

Inventory step up, fair value

 

 

 

 

 

 

 

 

2,528

 

 

 

 

COVID related expenses

 

 

1,690

 

 

 

2,959

 

 

 

5,511

 

 

 

3,074

 

Total adjustment

 

 

6,554

 

 

 

8,390

 

 

 

15,724

 

 

 

4,830

 

Adjusted EBITDA

 

$

94,872

 

 

$

61,394

 

 

$

185,668

 

 

$

109,944

 

 

Liquidity and Capital Resources

Sources of Liquidity

Since our inception, we have funded our operations and capital spending through cash flows from product sales, loans from affiliates and entities controlled by our affiliates, third-party debt, and proceeds from the sale of our capital stock. 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 long 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. Cash and cash equivalents were $289.2 million as of June 30, 2021.

We believe our existing cash balances will be sufficient to meet our anticipated cash requirements from the report issuance date through at least the next twelve months.

Our primary uses of cash are for working capital requirements, capital expenditures and debt service payments. Additionally, from time to time, we may use capital for acquisitions and 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, improvements in existing facilities and product development.

 

29


 

To the extent additional funds are necessary to meet our long-term liquidity needs as we continue to execute our business strategy, we anticipate that they will be obtained through incurrence of additional indebtedness, additional equity financings or a combination of these potential sources of funds. There can be no assurance that we will be able to obtain additional funds on terms acceptable to us, on a timely basis, or at all. The failure to obtain sufficient funds on acceptable terms when needed could have a material adverse effect on the results of operations and financial condition.

The following table presents our cash and outstanding debt as of the dates indicated:

 

 

 

Six Months Ended June 30,

 

 

Year Ended

December 31,

 

 

 

2021

 

 

2020

 

 

 

(dollars in thousands)

 

Cash and cash equivalents

 

$

289,238

 

 

$

146,713

 

Outstanding debt:

 

 

 

 

 

 

 

 

Notes payable

 

 

6,000

 

 

 

6,000

 

Notes payable - related party

 

 

12,000

 

 

 

12,011

 

Private placement notes

 

 

130,000

 

 

 

130,000

 

Operating lease liability

 

 

32,964

 

 

 

29,604

 

Finance lease liability

 

 

44,417

 

 

 

38,935

 

Construction finance liability

 

$

90,263

 

 

$

82,047

 

 

Cash Flows

The table below highlights our cash flows for the periods indicated.

 

 

 

Six Months Ended June 30,

 

 

 

2021

 

 

2020

 

 

 

(dollars in thousands)

 

Net cash provided by operating activities

 

$

49,194

 

 

$

77,671

 

Net cash used in investing activities

 

 

(136,688

)

 

 

(46,431

)

Net cash provided by financing activities

 

 

230,019

 

 

 

27,260

 

Net increase in cash and cash equivalents

 

 

142,525

 

 

 

58,500

 

Cash and cash equivalents, beginning of period

 

 

146,713

 

 

 

91,813

 

Cash and cash equivalents, end of period

 

$

289,238

 

 

$

150,313

 

 

Cash Flow from Operating Activities

Net cash provided by operating activities was $49.2 million for the six months ended June 30, 2021, a decrease of $28.5 million, compared to $77.7 million net cash provided by operating activities during the six months ended June 30, 2020. This is primarily due to increases in net working capital requirements, including inventory, as we ramp the business to support our growth.

Cash Flow from Investing Activities

Net cash used in investing activities was $136.7 million for the six months ended June 30, 2021, an increase of $90.3 million, compared to the $46.4 million net cash used in investing activities for the six months ended June 30, 2020.  The increase is due to the increase of property and equipment purchases for the construction of additional dispensaries and continued expansion of our cultivation and processing facilities, as well as acquisitions completed during the period.

Cash Flow from Financing Activities

Net cash provided by financing activities was $230.0 million for the six months ended June 30, 2021, an increase of $202.7 million, compared to the $27.3 million net cash provided by financing activities for the six months ended June 30, 2020.  The increase was primarily due to proceeds from the closing of an underwritten, marketed public offering of 5,750,000 Subordinate Voting Shares

 

30


 

resulting in gross proceeds, before deducting underwriting discounts and commissions and offering expenses payable by us, of $227.9 million (after giving effect to the conversion rate on April 7, 2021).

Funding Sources

Promissory Notes

In 2017, we entered into three unsecured promissory notes with a 12% annual interest rate, which was amended in January 2019 to extend the maturity by three years to 2022.  The balance of these notes is $4.0 million. On December 17, 2017, we entered into a promissory note with a 12% annual interest rate and a balance of $2.0 million, which will mature December 2021.

Related Party Promissory Notes

In February 2019, we entered into a 24-month unsecured loan with an 8% annual interest rate with Benjamin Atkins, a former director and shareholder of Trulieve for $257,337. In March 2018, the Company entered into a 24-month unsecured loan with an 8% annual interest rate with Benjamin Atkins for $158,900. In June 2018, the Company entered into a 24-month unsecured loan with an 8% annual interest rate with Benjamin Atkins for $262,010. In November 2018, the Company entered into two separate 24-month unsecured loans each with an 8% annual interest rate with a former director and shareholder for a total of $474,864.  As of March 31, 2021, all loans with Benjamin Atkins have matured and been paid in full.

In May 2018, the Company entered into two separate unsecured promissory notes (the “Traunch Four Note” and the “Rivers Note”) for a total of $12.0 million. The Traunch Four Note is held by Traunch Four, LLC, an entity whose direct and indirect owners include Kim Rivers, the Chief Executive Officer and Chair of the Board, as well as Thad Beshears, Richard May, who are each directors of Trulieve, George Hackney, a former director of Trulieve, and certain of Richard May’s family members. The Rivers Note is held by Kim Rivers. Each promissory note has a 24-month maturity and 12% annual interest rate. The two unsecured promissory notes were amended in March 2021 to extend the maturity one year to May 2022, all other terms remain unchanged.

Balance Sheet Exposure

At June 30, 2021 and 2020, the entirety of our 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 “Risk Factors” in this prospectus.

Contractual Obligations

At June 30, 2021, 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

 

 

Total

 

 

 

(dollars in thousands)

 

Accounts payable and accrued liabilities

 

$

45,579

 

 

$

 

 

$

 

 

$

 

 

$

45,579

 

Notes payable

 

 

4,667

 

 

 

1,333

 

 

 

 

 

 

 

 

 

6,000

 

Notes payable - related party

 

 

12,000

 

 

 

 

 

 

 

 

 

 

 

 

12,000

 

Private placement notes

 

 

 

 

 

 

 

 

130,000

 

 

 

 

 

 

130,000

 

Operating lease liability

 

 

3,141

 

 

 

12,196

 

 

 

11,241

 

 

 

18,577

 

 

 

45,155

 

Finance lease liability

 

 

4,117

 

 

 

15,777

 

 

 

14,009

 

 

 

28,166

 

 

 

62,069

 

Construction finance liability

 

$

12,217

 

 

$

38,700

 

 

$

27,605

 

 

$

167,980

 

 

$

246,502

 

 

 

31


 

 

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.

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 Annual Report on Form 10-K for the year ended December 31, 2020.

Item 4.  Controls and Procedures

a.  Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures.

Our management, with the participation of the principal executive officer and principal financial officer, has evaluated the effectiveness of the design and operation of our 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 the end of the period covered by this quarterly report. Based on this evaluation, the principal executive officer and principal financial officer concluded that these disclosure controls and procedures are effective and designed to ensure that the information required to be disclosed in our reports filed or submitted under the Exchange Act is recorded, processed, summarized, and reported within the requisite time periods.

b.  Changes in Internal Control Over Financial Reporting

There was no change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) identified in connection with the evaluation of our internal control performed during the last fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

 

32


 

PART II—OTHER INFORMATION

Item 1. Legal Proceedings.

Except as set forth below, 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.

On December 30, 2019, a securities class-action complaint, David McNear v. Trulieve Cannabis Corp. et al., Case No. 1:19-cv-07289, was filed against us in the United States District Court for the Eastern District of New York. On February 12, 2020, a second securities class-action complaint, Monica Acerra v. Trulieve Cannabis Corp. et al., Case No. 1:20-cv-00775, which is substantially similar to the complaint filed on December 30, 2019, was filed against us in the United States District Court for the Eastern District of New York. Both complaints name Trulieve, Kim Rivers, and Mohan Srinivasan as defendants for allegedly making materially false and misleading statements regarding our previously reported financial statements and public statements about our business, operations, and prospects. The complaint alleges violations of Sections 10(b) and 20(a) of the Exchange Act, and Rule 10b-5 promulgated thereunder. The complaints sought unspecified damages, costs, attorneys’ fees, and equitable relief. On March 20, 2020, the Court consolidated the two related actions under In re Trulieve Cannabis Corp. Securities Litigation, No. 1:19-cv-07289, and appointed William Kurek, John Colomara, David McNear, and Monica Acerra as Lead Plaintiffs. The Company believes that the suit is immaterial and that the claims are without merit and intends to vigorously defend against them.

Item 1A. Risk Factors.

There have been no material changes to the risk factors disclosed in the 2020 Form 10-K.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

(a) Keystone Shops Acquisition

On April 2, 2021, we entered into an acquisition agreement pursuant to which we agreed to acquire 100% of the membership interests of Anna Holdings LLC and its wholly owned subsidiary, Chamounix Ventures, LLC, which we refer to collectively as Keystone Shops, in exchange for $20.0 million in cash and 1,009,336 Subordinate Voting Shares. The transaction closed on July 8, 2021. For purposes of our acquisition of Keystone Shops, the agreed upon value of our Subordinate Voting Shares was $39.63 per share. The Subordinate Voting Shares were issued to the equity holder(s) of Keystone Shops.

No underwriters were used in the foregoing transactions. These sales of securities were made in reliance upon the exemption from registration provided by Section 4(a)(2) of the Securities Act or Regulation D promulgated thereunder for transactions by an issuer not involving a public offering.

(b)  Solevo Wellness West Virginia Acquisition

On April 13, 2021, we entered into an acquisition agreement pursuant to which we agreed to acquire 100% of the membership interests of Solevo Wellness West Virginia LLC, in exchange for $150,000 in cash and 11,658 Subordinate Voting Shares. The transaction closed on June 9, 2021. For purposes of our acquisition of Solevo Wellness West Virginia LLC, the agreed upon value of our Subordinate Voting Shares was $42.87 per share. The Subordinate Voting Shares were issued to the equity holder(s) of Solevo Wellness West Virginia LLC.

No underwriters were used in the foregoing transactions. These sales of securities were made in reliance upon the exemption from registration provided by Section 4(a)(2) of the Securities Act or Regulation D promulgated thereunder for transactions by an issuer not involving a public offering.

 

33


 

(c)  Mountaineer Holdings Acquisition

On March 22, 2021, we entered into a membership interest purchase agreement to purchase all of the outstanding membership interests of Mountaineer Holding, LLC, in exchange for $3.0 million in cash and 60,342 Subordinate Voting Shares. The transaction closed on May 6, 2021. For purposes of our acquisition of Mountaineer Holding, LLC, the agreed upon value of our Subordinate Voting Shares was $49.72 per share. The Subordinate Voting Shares were issued to the equity holder(s) of Mountaineer Holding, LLC.

No underwriters were used in the foregoing transactions. These sales of securities were made in reliance upon the exemption from registration provided by Section 4(a)(2) of the Securities Act or Regulation D promulgated thereunder for transactions by an issuer not involving a public offering.

Item 3. Defaults Upon Senior Securities.

Not applicable.

Item 4. Mine Safety Disclosures.

Not applicable.

Item 5. Other Information.

None.

 

34


 

Item 6. Exhibits.

Furnish the exhibits required by Item 601 of Regulation S-K (§ 229.601 of this chapter).

 

Exhibit

Number

 

Description

 

 

 

  2.1

 

Arrangement Agreement, dated May 10, 2021, between Trulieve Cannabis Corp. and Harvest Health & Recreation Inc. (incorporated by reference to Exhibit 2.1 to the Company’s Quarterly Report on Form 10-Q (File No. 000-56248)).

 

 

 

  3.1

 

Articles of Trulieve Cannabis Corp., as amended (incorporated by reference to Exhibit 3.1 to the Company’s Registration Statement on Form S-1 (File No. 333-252052)).

 

 

 

  4.1

 

Trulieve Cannabis Corp. 2021 Omnibus Incentive Plan (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K (File No. 000-56248)).

 

 

 

10.1*

 

Second Amendment to Promissory Note, dated May 3, 2021, by and between George Hackney, Inc. d/b/a Trulieve and Kim Rivers (included herewith).

 

 

 

10.2*

 

Second Amendment to Promissory Note, dated May 3, 2021, by and between George Hackney, Inc. d/b/a Trulieve and Traunch Four, LLC (included herewith).

 

 

 

10.3

 

Form of Voting Support and Lock-Up Agreement (incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q (File No. 000-56248)).

 

 

 

10.4

 

Form of Voting Support Agreement (incorporated by reference to Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q (File No. 000-56248)).

 

 

 

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.

 

35


 

 

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.

 

 

 

TRULIEVE CANNABIS CORP.

 

 

 

 

Date:  August 12, 2021

 

By:

/s/ Kim Rivers

 

 

 

Kim Rivers

 

 

 

Chief Executive Officer

 

 

 

 

Date:  August 12, 2021

 

By:

/s/ Alex D’Amico

 

 

 

Alex D’Amico

 

 

 

Chief Financial Officer

 

 

36