UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
| | QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the Quarterly Period Ended
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:
| BLUM HOLDINGS, INC. | ||
| (Exact Name of Registrant as Specified in its Charter) |
| | | |
| (State or Other Jurisdiction of Incorporation or Organization) | (I.R.S. Employer Identification No.) |
| | | |
| (Address of Principal Executive Offices) | (Zip Code) |
(
(Registrant’s Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Act:
None
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.
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 such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.:
| Large accelerated filer | ☐ | Accelerated filer | ☐ |
| ☒ | 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
As of November 7, 2024, there were
INDEX TO FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED September 30, 2024
| PART I – FINANCIAL INFORMATION |
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| Page |
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| Consolidated Balance Sheets as of September 30, 2024 (Unaudited) and December 31, 2023 |
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| Management's Discussion and Analysis of Financial Condition and Results of Operations |
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| PART II – OTHER INFORMATION |
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Cautionary Note Concerning Forward-Looking Statements
In addition to historical information, this Quarterly Report on Form 10-Q may contain “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), which provides a “safe harbor” for forward-looking statements made by us. All statements, other than statements of historical facts, including statements concerning our plans, objectives, goals, beliefs, business strategies, future events, business conditions, results of operations, financial position, business outlook, business trends, and other information, may be forward-looking statements. Words such as “might,” “will,” “may,” “should,” “estimates,” “expects,” “continues,” “contemplates,” “anticipates,” “projects,” “plans,” “potential,” “predicts,” “intends,” “believes,” “forecasts,” “future,” and variations of such words or similar expressions are intended to identify forward-looking statements. The forward-looking statements are not historical facts, and are based upon our current expectations, beliefs, estimates and projections, and various assumptions, many of which, by their nature, are inherently uncertain and beyond our control. Our expectations, beliefs, estimates, and projections are expressed in good faith and we believe there is a reasonable basis for them. However, there can be no assurance that management’s expectations, beliefs, estimates, and projections will occur or can be achieved and actual results may vary materially from what is expressed in or indicated by the forward-looking statements.
There are a number of risks, uncertainties, and other important factors, many of which are beyond our control, that could cause actual results to differ materially from the forward-looking statements contained in this Quarterly Report on Form 10-Q. Such risks, uncertainties, and other important factors that could cause actual results to differ include, among others, the risk, uncertainties and factors set forth under “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2023 and in other filings we make from time to time with the U.S. Securities and Exchange Commission (“SEC”).
We caution you that the risks, uncertainties, and other factors set forth in our periodic filings with the SEC may not contain all of the risks, uncertainties, and other factors that are important to you. In addition, we cannot assure you that we will realize the results, benefits, or developments that we expect or anticipate or, even if substantially realized, that they will result in the consequences or affect us or our business in the way expected. There can be no assurance that: (i) we have correctly measured or identified all of the factors affecting our business or the extent of these factors' likely impact, (ii) the available information with respect to these factors on which such analysis is based is complete or accurate, (iii) such analysis is correct, or (iv) our strategy, which is based in part on this analysis, will be successful. All forward-looking statements in this report apply only as of the date of the report or as of the date they were made and, except as required by applicable law, we undertake no obligation to publicly update any forward-looking statement, whether as a result of new information, future developments, or otherwise.
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(in thousands, except for shares and per share data)
| September 30, | December 31, | |||||||
| 2024 | 2023 | |||||||
| (Unaudited) | ||||||||
| ASSETS | ||||||||
| Current Assets: | ||||||||
| Cash and Cash Equivalents | $ | $ | ||||||
| Accounts Receivable, Net of Allowances of $ at both September 30, 2024 and December 31, 2023 | ||||||||
| Inventory | ||||||||
| Prepaid Expenses & Other Current Assets | ||||||||
| Notes Receivable | ||||||||
| Assets Related to Discontinued Operations | ||||||||
| Total Current Assets | ||||||||
| Property, Equipment and Leasehold Improvements, Net | ||||||||
| Right-of-Use Assets - Operating Leases | ||||||||
| Intangible Assets, Net | ||||||||
| Goodwill | ||||||||
| Other Assets | ||||||||
| Investments | ||||||||
| Long-Term Assets Related to Discontinued Operations | ||||||||
| TOTAL ASSETS | $ | $ | ||||||
| LIABILITIES, MEZZANINE EQUITY AND STOCKHOLDERS’ DEFICIT | ||||||||
| LIABILITIES: | ||||||||
| Current Liabilities: | ||||||||
| Accounts Payable & Accrued Liabilities | $ | $ | ||||||
| Current Portion of Notes Payable | ||||||||
| Income Taxes Payable | ||||||||
| Liabilities Related to Discontinued Operations | ||||||||
| Total Current Liabilities | ||||||||
| Notes Payable, Net of Discounts | ||||||||
| Deferred Tax Liabilities | ||||||||
| Operating Lease Liabilities | ||||||||
| Derivative Liability | ||||||||
| Long-Term Liabilities Related to Discontinued Operations | ||||||||
| TOTAL LIABILITIES | ||||||||
| COMMITMENTS AND CONTINGENCIES (Note 21) | ||||||||
| MEZZANINE EQUITY | ||||||||
| STOCKHOLDERS’ DEFICIT: | ||||||||
| Preferred Stock, Convertible Series V, par value $: shares authorized; shares outstanding as of September 30, 2024 and December 31, 2023 | ||||||||
| Common Stock, par value $: shares authorized as of September 30, 2024 and December 31, 2023; and shares outstanding as of September 30, 2024 and December 31, 2023, respectively | ||||||||
| Additional Paid-In Capital | ||||||||
| Accumulated Deficit | ( | ) | ( | ) | ||||
| Total Equity Attributable to Stockholders of Blum Holdings, Inc. | ( | ) | ( | ) | ||||
| Non-Controlling Interest | ( | ) | ||||||
| TOTAL MEZZANINE EQUITY AND STOCKHOLDERS’ DEFICIT | ( | ) | ( | ) | ||||
| TOTAL LIABILITIES, MEZZANINE EQUITY AND STOCKHOLDERS’ DEFICIT | $ | $ | ||||||
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(in thousands, except for shares and per share data)
| Three Months Ended |
Nine Months Ended |
|||||||||||||||
| September 30, |
September 30, |
|||||||||||||||
| 2024 |
2023 |
2024 |
2023 |
|||||||||||||
| Revenue |
$ | $ | $ | $ | ||||||||||||
| Cost of Goods Sold |
||||||||||||||||
| Gross Profit |
||||||||||||||||
| Operating Expenses: |
||||||||||||||||
| Selling, General & Administrative |
||||||||||||||||
| Impairment Expense |
||||||||||||||||
| Loss on Disposal of Assets |
||||||||||||||||
| Total Operating Expenses |
||||||||||||||||
| Loss from Operations |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||
| Other Income (Expense): |
||||||||||||||||
| Interest Expense, Net |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||
| Gain on Extinguishment of Debt |
||||||||||||||||
| Change in Fair Value of Derivative Liability |
( |
) | ( |
) | ||||||||||||
| Income (Provision) from Employer Retention Credit |
( |
) | ||||||||||||||
| Realized Loss on Investments |
( |
) | ||||||||||||||
| Unrealized Gain on Long-Term Investments |
||||||||||||||||
| Other Income |
||||||||||||||||
| Total Other Income (Expense) |
( |
) | ||||||||||||||
| Income (Loss) from Continuing Operations Before Provision for Income Taxes |
( |
) | ( |
) | ( |
) | ||||||||||
| Provision for Income Tax Expense for Continuing Operations |
( |
) | ( |
) | ||||||||||||
| Net Income (Loss) from Continuing Operations |
( |
) | ( |
) | ( |
) | ||||||||||
| Income (Loss) from Discontinued Operations Before Provision for Income Taxes |
( |
) | ||||||||||||||
| Provision for Income Tax for Discontinued Operations |
( |
) | ( |
) | ||||||||||||
| Net Income (Loss) from Discontinued Operations, Net of Taxes |
( |
) | ||||||||||||||
| NET INCOME (LOSS) |
$ | ( |
) | $ | ( |
) | $ | $ | ( |
) | ||||||
| Less: Net Loss from Continuing Operations Attributable to Non-Controlling Interest |
( |
) | ( |
) | ||||||||||||
| NET INCOME (LOSS) ATTRIBUTABLE TO BLUM HOLDINGS, INC. |
$ | ( |
) | $ | ( |
) | $ | $ | ( |
) | ||||||
| Net Loss from Continuing Operations per Common Share - Basic |
$ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
) | ||||
| Net Loss from Continuing Operations per Common Share - Diluted |
$ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
) | ||||
| Weighted-Average Shares Outstanding - Basic |
||||||||||||||||
| Weighted-Average Shares Outstanding - Diluted |
||||||||||||||||
| Mezzanine |
Convertible Series V |
Treasury |
Additional |
Non- |
||||||||||||||||||||||||||||||||||||
| Equity |
Preferred Stock |
Common Stock |
Stock |
Paid-In |
Accumulated |
Controlling |
||||||||||||||||||||||||||||||||||
| Amount |
Shares |
Amount |
Shares |
Amount |
Amount |
Capital |
Deficit |
Interest |
Total |
|||||||||||||||||||||||||||||||
| BALANCE AT JUNE 30, 2024 |
$ | $ | $ | $ | $ | $ | ( |
) | $ | ( |
) | $ | ( |
) | ||||||||||||||||||||||||||
| Net Loss |
— | — | ( |
) | ( |
) | ( |
) | ||||||||||||||||||||||||||||||||
| Acquisition of Coastal Pines Group |
( |
) | ( |
) | ||||||||||||||||||||||||||||||||||||
| Accretion of Mezzanine Equity |
— | — | ( |
) | ||||||||||||||||||||||||||||||||||||
| Stock Option Expense |
— | — | ||||||||||||||||||||||||||||||||||||||
| BALANCE AT SEPTEMBER 30, 2024 |
$ | $ | $ | $ | $ | $ | ( |
) | $ | ( |
) | $ | ( |
) | ||||||||||||||||||||||||||
| Convertible Series V |
Treasury |
Additional |
Non- |
|||||||||||||||||||||||||||||||||
| Preferred Stock |
Common Stock |
Stock |
Paid-in |
Accumulated |
Controlling |
|||||||||||||||||||||||||||||||
| Shares |
Amount |
Shares |
Amount |
Amount |
Capital |
Deficit |
Interest |
Total |
||||||||||||||||||||||||||||
| BALANCE AT JUNE 30, 2023 |
$ | $ | $ | $ | $ | ( |
) | $ | $ | ( |
) | |||||||||||||||||||||||||
| Net Loss |
— | — | ( |
) | ( |
) | ||||||||||||||||||||||||||||||
| Stock Option Expense |
— | — | ||||||||||||||||||||||||||||||||||
| Cashless Exercise of Warrants |
||||||||||||||||||||||||||||||||||||
| BALANCE AT SEPTEMBER 30, 2023 |
$ | $ | $ | $ | $ | ( |
) | $ | $ | ( |
) | |||||||||||||||||||||||||
BLUM HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT (UNAUDITED)
FOR THE NINE MONTHS ENDED September 30, 2024 and 2023
(in thousands, except for shares)
| Mezzanine |
Convertible Series V |
Treasury |
Additional |
Non- |
||||||||||||||||||||||||||||||||||||
| Equity |
Preferred Stock |
Common Stock |
Stock |
Paid-In |
Accumulated |
Controlling |
||||||||||||||||||||||||||||||||||
| Amount |
Shares |
Amount |
Shares |
Amount |
Amount |
Capital |
Deficit |
Interest |
Total |
|||||||||||||||||||||||||||||||
| BALANCE AT DECEMBER 31, 2023 |
$ | $ | $ | $ | $ | $ | ( |
) | $ | $ | ( |
) | ||||||||||||||||||||||||||||
| Net Income (Loss) |
— | — | ( |
) | ||||||||||||||||||||||||||||||||||||
| Cancellation of Shares |
( |
) | ( |
) | ||||||||||||||||||||||||||||||||||||
| Acquisition of Coastal Pines Group |
( |
) | ||||||||||||||||||||||||||||||||||||||
| Accretion of Mezzanine Equity |
— | — | ( |
) | ||||||||||||||||||||||||||||||||||||
| Stock Option Expense |
— | — | ||||||||||||||||||||||||||||||||||||||
| BALANCE AT SEPTEMBER 30, 2024 |
$ | $ | $ | $ | $ | $ | ( |
) | $ | ( |
) | $ | ( |
) | ||||||||||||||||||||||||||
| Convertible Series V |
Treasury |
Additional |
Non- |
|||||||||||||||||||||||||||||||||
| Preferred Stock |
Common Stock |
Stock |
Paid-In |
Accumulated |
Controlling |
|||||||||||||||||||||||||||||||
| Shares |
Amount |
Shares |
Amount |
Amount |
Capital |
Deficit |
Interest |
Total |
||||||||||||||||||||||||||||
| BALANCE AT DECEMBER 31, 2022 |
$ | $ | $ | ( |
) | $ | $ | ( |
) | $ | $ | ( |
) | |||||||||||||||||||||||
| Net Loss |
— | — | ( |
) | ( |
) | ||||||||||||||||||||||||||||||
| Stock Compensation - Services Expense |
||||||||||||||||||||||||||||||||||||
| Stock Issued for Cash |
||||||||||||||||||||||||||||||||||||
| Cashless Exercise of Warrants |
||||||||||||||||||||||||||||||||||||
| Forfeiture of Common Stock |
— | — | ( |
) | ||||||||||||||||||||||||||||||||
| Stock Option Expense |
— | — | ||||||||||||||||||||||||||||||||||
| Forfeiture and Cancellation of Treasury Stock |
( |
) | ( |
) | ||||||||||||||||||||||||||||||||
| BALANCE AT SEPTEMBER 30, 2023 |
$ | $ | $ | $ | $ | ( |
) | $ | $ | ( |
) | |||||||||||||||||||||||||
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(in thousands)
| Nine Months Ended |
||||||||
| September 30, |
||||||||
| 2024 |
2023 |
|||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: |
||||||||
| Net Income (Loss) |
$ | $ | ( |
) | ||||
| Less: Net Income from Discontinued Operations |
||||||||
| Net Income (Loss) from Continuing Operations |
( |
) | ||||||
| Adjustments to Reconcile Net Income (Loss) to Net Cash Used in Operating Activities: |
||||||||
| Deferred Income Tax Benefit |
( |
) | ||||||
| Bad Debt Expense |
( |
) | ||||||
| Loss on Sale of Investments |
||||||||
| Gain on Extinguishment of Debt |
( |
) | ( |
) | ||||
| Change in Fair Value of Derivative Liability |
||||||||
| Non-Cash Interest (Income) Expense, Net |
( |
) | ||||||
| Loss on Disposal of Assets |
||||||||
| Depreciation and Amortization |
||||||||
| Amortization of Operating Lease Right-of-Use Asset |
||||||||
| Stock-Based Compensation |
||||||||
| Unrealized Gain on Investments |
( |
) | ( |
) | ||||
| Impairment Loss |
||||||||
| Change in Operating Assets and Liabilities: |
||||||||
| Accounts Receivable |
( |
) | ||||||
| Inventory |
( |
) | ||||||
| Prepaid Expenses & Other Current Assets |
||||||||
| Other Assets |
( |
) | ||||||
| Accounts Payable & Accrued Liabilities |
||||||||
| Operating Lease Liabilities |
( |
) | ( |
) | ||||
| Net Cash Used in Operating Activities - Continuing Operations |
( |
) | ( |
) | ||||
| Net Cash Provided by Operating Activities - Discontinued Operations |
||||||||
| NET CASH USED IN OPERATING ACTIVITIES |
( |
) | ( |
) | ||||
| CASH FLOWS FROM INVESTING ACTIVITIES: |
||||||||
| Purchase of Property and Equipment |
( |
) | ( |
) | ||||
| Proceeds from Notes Receivable |
||||||||
| Cash from Acquisitions |
||||||||
| Proceeds from Sale of Investments |
||||||||
| Net Cash Provided by Investing Activities - Continuing Operations |
||||||||
| Net Cash Used in Investing Activities - Discontinued Operations |
( |
) | ( |
) | ||||
| NET CASH PROVIDED BY INVESTING ACTIVITIES |
||||||||
| CASH FLOWS FROM FINANCING ACTIVITIES: |
||||||||
| Payments of Debt Principal |
( |
) | ( |
) | ||||
| Proceeds from Issuance of Preferred Stock |
||||||||
| Net Cash (Used in) Provided by Financing Activities - Continuing Operations |
( |
) | ||||||
| Net Cash Used in Financing Activities - Discontinued Operations |
||||||||
| NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES |
( |
) | ||||||
| NET CHANGE IN CASH |
||||||||
| Cash at Beginning of Period |
||||||||
| CASH AT END OF PERIOD |
$ | $ | ||||||
| SUPPLEMENTAL DISCLOSURE FOR OPERATING ACTIVITIES: |
||||||||
| Cash Paid for Interest |
$ | $ | ||||||
| SUPPLEMENTAL DISCLOSURE FOR NON-CASH INVESTING AND FINANCING ACTIVITIES: |
||||||||
| Accretion of Mezzanine Equity |
$ | $ | ||||||
| Accrued Interest Converted into Principal |
$ | $ | ||||||
| Conversion of Accounts Payable to Note Payable |
$ | $ | ||||||
| Non-Cash Consideration for Acquisition of Coastal Pines Group, Including Liabilities Assumed |
$ | $ | ||||||
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 1 – DESCRIPTION OF BUSINESS
Blum Holdings, Inc. (“Blüm” or the “Company”) is a cannabis company with retail and distribution operations throughout California, with an emphasis on providing the highest quality of medical and adult use cannabis products. The Company is home to Korova, a brand of high potency products across multiple product categories, currently available in California. The Company formerly operated Blüm Santa Ana, a premier cannabis dispensary in Orange County, California, which was sold in June 2024. The Company currently owns dispensaries in California which operate as Blüm in Oakland and Blüm in San Leandro. In May 2024, the Company began operating the retail store, Cookies Sacramento, and providing consulting services for two additional dispensaries located in Northern California.
Blum Holdings, Inc. is a holding company with the following subsidiaries:
| • | Unrivaled Brands, Inc., a Nevada corporation (“Unrivaled”) |
| • | Black Oak Gallery, a California corporation (“Black Oak” or “Blüm Oakland”) |
| • | Blüm San Leandro, a California corporation (“Blüm San Leandro”) |
| • | 2705 PFC, LLC, a Nevada limited liability company |
| • | 3242 Enterprises, Inc., a California corporation (“The Spot”) |
| • | 3242 Holdings, LLC, a Nevada limited liability company |
| • | Halladay Holding, LLC, a California limited liability company (“Halladay”) |
| • | People’s Costa Mesa, LLC, a California limited liability company |
| • | Blum Management Holdings, Inc., a Delaware corporation |
| • | Safe Accessible Solutions, Inc., a California corporation (“Cookies Sacramento”) |
| • | Coastal Pine Holdings, Inc., a Wyoming corporation |
References in this document to the “Company”, “Blüm”, “we”, “us”, or “our” are intended to mean Blum Holdings, Inc., individually, or as the context requires, collectively with its subsidiaries on a consolidated basis.
Corporate Reorganization
On January 12, 2024, Unrivaled Brands, Inc. (“Unrivaled”) completed a corporate reorganization (the “Reorganization”) pursuant to which Blum Holdings, Inc. became the ultimate parent of Unrivaled. As part of the Reorganization, Unrivaled entered into an Agreement and Plan of Merger, dated October 9, 2023 (the “Reorganization Agreement”), with Blüm and Blum Merger Sub, Inc., a Nevada corporation and a wholly-owned subsidiary of Blüm (“Merger Sub”), in which, among other things and subject to its terms and conditions, as described below, that Merger Sub merged with and into Unrivaled, with the separate existence of Merger Sub ceasing and with Unrivaled surviving as a direct, wholly-owned subsidiary of Blüm. After the Reorganization, the Company continues to engage in the business conducted by it prior to the Reorganization and the directors and executive officers of Unrivaled continued to serve in the same capacities for Blüm.
The Reorganization Agreement provides that at the effective time of the Reorganization, on January 12, 2024, all of the issued and outstanding shares of Unrivaled’s common stock, par value $
Additionally, effective January 12, 2024, (i) each outstanding option to purchase shares of Unrivaled's common stock (a “Company Option”) was converted automatically into a stock option to purchase an identical number of shares of Blüm common stock, (ii) each outstanding warrant to purchase shares of Unrivaled's common stock (a “Company Warrant”) was converted automatically into a warrant to purchase an identical number of shares of Blüm common stock, and (iii) each outstanding promissory note convertible into shares of Unrivaled's common stock (a “Company Note”) was automatically converted into a promissory note convertible into an identical number of shares of Blüm common stock, in each case, on the same terms and conditions as applied to the Company Option, Company Warrant and Company Note, respectively, immediately prior to the effective date and as set forth in the documentation relating to such Company Option, Company Warrant and Company Note.
Effective January 12, 2024, Unrivaled Brands, Inc. completed a reverse stock split of its common stock at a ratio of 1-for-
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) and with the instructions to U.S. Securities and Exchange Commission (“SEC”) Form 10-Q and Article 10 of Regulation S-X of the Securities Act of 1933 and reflect the accounts and operations of the Company and those of its subsidiaries in which the Company has a controlling financial interest in accordance with the provisions of Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 810, “Consolidation”.
All intercompany transactions and balances have been eliminated in consolidation. In the opinion of management, all adjustments (consisting only of normal recurring adjustments) considered necessary for a fair presentation of the consolidated financial position of the Company as of September 30, 2024 and December 31, 2023, and the consolidated results of operations and cash flows for the periods ended September 30, 2024 and 2023 have been included. These interim unaudited consolidated financial statements do not include all disclosures required by GAAP for complete financial statements and, therefore, should be read in conjunction with the more detailed audited consolidated financial statements for the year ended December 31, 2023. The results of operations for the interim periods are not necessarily indicative of the results of operations to be expected for the full year.
Going Concern
While pre-tax net income from continuing operations was $
The Company will be required to raise additional funds through public or private financing, additional collaborative relationships or other arrangements until it is able to raise revenues to a point of positive cash flow. The Company is evaluating various options to further reduce its cash requirements to operate at a reduced rate, as well as options to raise additional funds, including obtaining loans and selling common stock. There is no guarantee that it will be able to generate enough revenue or raise capital to support its operations, or if it is able to raise capital, that it will be available to the Company on acceptable terms, on an acceptable schedule, or at all.
The issuance of additional securities may result in a significant dilution in the equity interests of the Company's current stockholders. Obtaining loans, assuming these loans would be available, will increase the Company's liabilities and future cash commitments. There is no assurance that the Company will be able to obtain further funds required for its continued operations or that additional financing will be available for use when needed or, if available, that it can be obtained on commercially reasonable terms. If the Company is not able to obtain the additional financing on a timely basis, it will not be able to meet its other obligations as they become due and the Company will be forced to scale down or perhaps even cease its operations.
The risks and uncertainties surrounding the Company's ability to continue to raise capital and its limited capital resources raise substantial doubt as to the Company's ability to continue as a going concern for twelve months from the issuance of these financial statements.
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. In an effort to achieve liquidity that would be sufficient to meet all of its commitments, the Company has undertaken a number of actions, including minimizing capital expenditures and reducing recurring expenses. However, management believes that even after taking these actions, the Company will not have sufficient liquidity to satisfy all of its future financial obligations. The risks and uncertainties surrounding the ability to raise capital, the limited capital resources, and the weak industry conditions impacting the Company’s business raise substantial doubt as to its ability to continue as a going concern.
Reclassifications
Certain prior period amounts have been reclassified to conform to the current period presentation. Accrued state income tax previously included in accounts payable and accrued liabilities has been reclassified to income taxes payable on the consolidated balance sheets. In addition, state income tax expense previously recorded as a component of selling, general and administrative expenses has been reclassified to the provision for income tax. These reclassifications did not affect total assets, total liabilities, stockholders' deficit or net loss.
Under ASC Subtopic 205-20, “Presentation of Financial Statements - Discontinued Operations” (“ASC Subtopic 205-20”), a component of an entity that is classified as discontinued operations is presented separately from continuing operations in the consolidated statements of operations and the consolidated statements of cash flows for all periods presented. All assets and liabilities related to such discontinued operations are presented separately in the consolidated balance sheets for all periods presented. Accordingly, the presentation of prior period balances may not agree to prior issued financial statements.
Significant Accounting Policies
The significant accounting policies and critical estimates applied by the Company in these interim unaudited consolidated financial statements are the same as those applied in the Company’s audited consolidated financial statements and accompanying notes included in the Company’s 2023 Form 10-K, unless otherwise disclosed in these accompanying notes to the unaudited consolidated financial statements for the interim period ended September 30, 2024.
Consolidation of Variable Interest Entities
In accordance with the provisions of ASC 810, “Consolidation,” the Company consolidates any variable interest entity (“VIE”) of which it is the primary beneficiary. The typical condition for a controlling financial interest ownership is holding a majority of the voting interests of an entity; however, a controlling financial interest may also exist in entities, such as VIEs, through arrangements that do not involve controlling voting interests. ASC 810 requires a variable interest holder to consolidate a VIE if that party has the power to direct the activities of the VIE that most significantly impact the VIE’s economic performance and the obligation to absorb losses of the VIE that could potentially be significant to the VIE or the right to receive benefits from the VIE that could potentially be significant to the VIE. The Company does not consolidate a VIE in which it has a majority ownership interest when it is not considered the primary beneficiary. The Company evaluates its relationships with all the VIEs on an ongoing basis to reassess if it continues to be the primary beneficiary.
Non-Controlling Interest
Non-controlling interest (“NCI”) represents the net assets of entities that the Company does not directly own but has a controlling financial interest. NCI is shown as a component of stockholders’ deficit on the consolidated balance sheets and the share of income (loss) attributable to non-controlling interest is shown as a component of income (loss) in the consolidated statements of operations.
Business Combinations
The Company accounts for its business acquisitions in accordance with ASC 805-10, “Business Combinations.” The Company allocates the total cost of the acquisition to the underlying net assets based on their respective estimated fair values. As part of this allocation process, the Company identifies and attributes values and estimated lives to the intangible assets acquired. These determinations involve significant estimates and assumptions regarding multiple, highly subjective variables, including those with respect to future cash flows, discount rates, asset lives, and the use of different valuation models, and therefore require considerable judgment. The Company’s estimates and assumptions are based, in part, on the availability of listed market prices or other transparent market data. These determinations affect the amount of amortization expense recognized in future periods. The Company bases its fair value estimates on assumptions it believes to be reasonable but are inherently uncertain.
Convertible Instruments
The Company accounts for convertible instruments in accordance ASC Topic 470, “Accounting for Convertible Securities with Beneficial Conversion Features”, as those professional standards pertain to “Certain Convertible Instruments”. Accordingly, the Company records convertible debt instruments in their entirety as a liability at fair value upon issuance. Subsequent to initial recognition, the convertible debt is measured at amortized cost, with any issuance costs amortized over the life of the instrument. Interest expense is recognized using the effective interest method, and any changes in fair value are not recognized in earnings unless the instruments are settled or converted.
Derivative Liabilities
The Company evaluates all of its agreements to determine if such instruments have derivatives or contain features that qualify as embedded derivatives. For derivative financial instruments that are accounted for as liabilities, the derivative instrument is initially recorded at its fair value and is then re-valued at each reporting date, with changes in the fair value reported in the Consolidated Statements of Operations. In calculating the fair value of derivative liabilities, the Company uses a valuation model when Level 1 inputs are not available to estimate fair value at each reporting date. Derivative instrument liabilities are classified in the consolidated balance sheets as current or non-current based on whether or not net cash settlement of the derivative instrument could be required within twelve months of the reporting date. Critical estimates and assumptions used in the model are discussed in “Note 13 – Derivative Liabilities”.
Use of Estimates
The preparation of financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the dates of the financial statements and the reported amounts of total net revenue and expenses in the reporting periods. The Company regularly evaluates estimates and assumptions related to revenue recognition, inventory valuation, stock-based compensation expense, goodwill and purchased intangible asset valuations, derivative liabilities, deferred income tax asset valuation allowances, uncertain tax positions, tax contingencies, litigation and other loss contingencies.
These estimates and assumptions are based on current facts, historical experience and various other factors that the Company believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the recording of revenue, costs and expenses that are not readily apparent from other sources. The actual results the Company experiences may differ materially and adversely from these estimates. To the extent there are material differences between the estimates and actual results, the Company’s future results of operations will be affected.
I
ncome (Loss) Per Common Share
In accordance with the provisions of ASC 260, “Earnings Per Share”, net income (loss) per share is computed by dividing net income or loss by the weighted-average shares of common stock outstanding during the period. During a loss period, the effect of the potential exercise of stock options, warrants, convertible preferred stock, and convertible debt are not considered in the diluted loss per share calculation since the effect would be anti-dilutive. If the Company is in a net income position, diluted earnings per share includes stock options, warrants, convertible preferred stock, and convertible debt that are determined to be dilutive using the treasury stock method for all equity instruments issuable in equity units and the “if converted” method for the Company’s convertible debt. Refer to “Note 16 – Earnings Per Share”.
Dilutive securities that are not included in the calculation of diluted net loss per share because their effect is anti-dilutive are as follows (in common equivalent shares):
| Nine Months Ended | ||||||||
| September 30, | ||||||||
| 2024 | 2023 | |||||||
| Common Stock Warrants | ||||||||
| Common Stock Options | ||||||||
| Convertible Debt | ||||||||
| Series V Preferred Stock | ||||||||
Recently Adopted Accounting Standards
In June 2022, the FASB issued ASU 2022-03, “Fair Value Measurements—Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions (Topic 820)”. ASU 2022-03 clarifies that a contractual restriction on the sale of an equity security is not considered part of the unit of account of the equity security and, therefore, is not considered in measuring fair value. It also clarifies that an entity cannot, as a separate unit of account, recognize and measure a contractual sale restriction. For public business entities, the ASU is effective for fiscal years beginning after December 15, 2023, and interim periods within those fiscal years. The adoption of the standard on January 1, 2024 did not have a material impact on the Company’s consolidated financial statements.
Recently Issued Accounting Standards
In October 2023, the FASB issued ASU 2023-06, "Disclosure Improvements," which incorporates certain existing or incremental disclosures and presentation requirements of SEC Regulations S-X and S-K into the FASB Accounting Standards Codification (the “Codification”). ASU 2023-06 is effective for the Company as of the effective date to remove the existing disclosure requirement from Regulations S-X and S-K. Early adoption is not permitted. The Company is currently evaluating the effect of adopting this ASU.
In November 2023, the FASB issued ASU 2023-07, "Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures," which requires that a public entity provide all annual disclosures about a reportable segment’s profit or loss and assets currently required by Topic 280 in interim periods, including those that have a single reportable segment. It also requires all public entities, including those with a single reportable segment, to disclose significant segment expenses and other segment items for each reportable segment. In addition, the ASU requires entities to disclose information about the chief operating decision maker ("CODM") and an explanation of how the CODM uses the reported measures. For public business entities, the ASU is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. Early adoption is permitted. The Company is currently evaluating the effect of adopting this ASU.
In December 2023, the FASB issued ASU 2023-09, "Income Taxes (Topic 740): Improvements to Income Tax Disclosures," which requires public business entities to disclose additional information in specified categories with respect to the reconciliation of the effective tax rate to the statutory rate (the rate reconciliation) for federal, state, and foreign income taxes. It also requires greater detail about individual reconciling items in the rate reconciliation to the extent the impact of those items exceeds a specified threshold. In addition, the ASU requires information pertaining to taxes paid (net of refunds received) to be disaggregated for federal, state, and foreign taxes and further disaggregated for specific jurisdictions to the extent the related amounts exceed a quantitative threshold. For public business entities, the ASU is effective for fiscal years beginning after December 15, 2024. The Company is currently evaluating the effect of adopting this ASU.
NOTE 3 – CONCENTRATIONS OF BUSINESS AND CREDIT RISK
The Company maintains cash balances in several financial institutions that are insured by either the Federal Deposit Insurance Corporation or the National Credit Union Association up to certain federal limitations. At times, the Company’s cash balance exceeds these federal limitations. The Company has not historically experienced any material loss from carrying cash on hand. The amount in excess of insured limitations was as of September 30, 2024 and December 31, 2023, respectively.
The Company provides credit in the normal course of business to customers located throughout the U.S. The Company performs ongoing credit evaluations of its customers and maintains allowances for credit losses based on factors surrounding the credit risk of specific customers, historical trends, and other information. There were
The Company sources cannabis products for retail from various vendors. However, as a result of regulations in the State of California, the Company’s California retail operations must use vendors licensed by the State. As a result, the Company is dependent upon the licensed vendors in California to supply products. If the Company is unable to enter into relationships with sufficient members of properly licensed vendors, the Company’s sales may be impacted. During the three and nine months ended September 30, 2024 and 2023, the Company did have any concentration of vendors for inventory purchases. However, this may change depending on the number of vendors who receive appropriate licenses to operate in the State of California.
NOTE 4 – INVENTORY
Raw materials consist of materials and packaging for manufacturing of products owned by the Company. Finished goods consists of cannabis products sold in retail and distribution. Inventory consisted of the following:
| (in thousands) | ||||||||
| September 30, | December 31, | |||||||
| 2024 | 2023 | |||||||
| Raw Materials | $ | $ | ||||||
| Finished Goods | ||||||||
| Total Inventory | $ | $ | ||||||
NOTE 5 – INVESTMENTS
Mystic Holdings
In September 2023, the Company entered into a settlement agreement to resolve the outstanding litigation with Mystic Holdings, Inc. (“Mystic”) which confirmed the Company's ownership of
The following tables present the Company’s financial instruments that are measured and recorded at fair value on the Company’s consolidated balance sheets on a recurring basis:
| (in thousands) | ||||||||||||||||
| September 30, 2024 | ||||||||||||||||
| Amount | Level 1 | Level 2 | Level 3 | |||||||||||||
| Investment in Mystic Holdings, Inc. | $ | $ | $ | $ | ||||||||||||
| Total | $ | $ | $ | $ | ||||||||||||
| (in thousands) | ||||||||||||||||
| December 31, 2023 | ||||||||||||||||
| Amount | Level 1 | Level 2 | Level 3 | |||||||||||||
| Investment in Mystic Holdings, Inc. | $ | $ | $ | $ | ||||||||||||
| Investment in IVXX Gardens I, Inc. | ||||||||||||||||
| Total | $ | $ | $ | $ | ||||||||||||
NOTE 6 – PROPERTY, EQUIPMENT AND LEASEHOLD IMPROVEMENTS
Property, equipment, and leasehold improvements consisted of the following:
| (in thousands) | ||||||||
| September 30, | December 31, | |||||||
| 2024 | 2023 | |||||||
| Land and Building | $ | $ | ||||||
| Furniture and Equipment | ||||||||
| Computer Hardware | ||||||||
| Leasehold Improvements | ||||||||
| Vehicles | ||||||||
| Construction in Progress | ||||||||
| Subtotal | ||||||||
| Less Accumulated Depreciation | ( | ) | ( | ) | ||||
| Property, Equipment and Leasehold Improvements, Net | $ | $ | ||||||
Depreciation expense related to continuing operations was $
During the second fiscal quarter of 2024, management noted indicators of impairment of its property, equipment and leasehold improvements. Specifically, changes in circumstances resulted in changes to expected future cash flows from land and buildings. The Company used a quoted market price to determine fair value, resulting in an impairment loss of $
All property, equipment and leasehold improvements related to discontinued operations are separately presented from the consolidated balance sheets as of September 30, 2024 and December 31, 2023. Refer to "Note 18 – Discontinued Operations".
NOTE 7 – INTANGIBLE ASSETS
Intangible assets consisted of the following:
| (in thousands) | ||||||||||||||||||||||||||||
| September 30, 2024 | December 31, 2023 | |||||||||||||||||||||||||||
| Estimated Useful Life in Years | Gross Carrying Amount | Accumulated Amortization | Net Carrying Value | Gross Carrying Amount | Accumulated Amortization | Net Carrying Value | ||||||||||||||||||||||
| Amortizing Intangible Assets: | ||||||||||||||||||||||||||||
| Operating Licenses | $ | $ | ( | ) | $ | $ | $ | ( | ) | $ | ||||||||||||||||||
| Total Amortizing Intangible Assets | ( | ) | ( | ) | ||||||||||||||||||||||||
| Non-Amortizing Intangible Assets: | ||||||||||||||||||||||||||||
| Trade Name | Indefinite | — | — | |||||||||||||||||||||||||
| Total Non-Amortizing Intangible Assets | — | — | ||||||||||||||||||||||||||
| Total Intangible Assets, Net | $ | $ | ( | ) | $ | $ | $ | ( | ) | $ | ||||||||||||||||||
Amortization expense related to continuing operations was $
NOTE 8 – GOODWILL
As of September 30, 2024, changes in the carrying amount of goodwill during the period presented were as follows:
| (in thousands) | ||||
| Balance as of December 31, 2023 | $ | |||
| Acquisition of Coastal Pines Group | ||||
| Balance as of September 30, 2024 | $ | |||
Goodwill is assigned to the reporting unit, which is the operating segment level or one level below the operating segment. The Company conducts its annual goodwill impairment assessment on November 1, and between annual tests if the Company becomes aware of an event or a change in circumstances that would indicate the carrying value may be impaired. For the purpose of the goodwill impairment assessment, the Company has the option to perform a qualitative assessment (commonly referred to as “step zero”) to determine whether further quantitative analysis for impairment of goodwill or indefinite-lived intangible assets is necessary (“step one”). The balance of goodwill at September 30, 2024 and December 31, 2023 was $
Refer to "Note 9 – Business Combinations" for goodwill acquired during the nine months ended September 30, 2024.
NOTE 9 – BUSINESS COMBINATIONS
Safe Accessible Solutions, Inc.
On May 1, 2024, the Company executed an amended and restated binding letter of intent (the “Amended LOI”) with Safe Accessible Solutions, Inc. ("SAS") wherein the Company, a newly formed wholly-owned subsidiary of the Company (“Blum Acquisition”), and the stockholders of SAS shall enter into a Stock Sale and Purchase Agreement in which Blum Acquisition will acquire