Blüm Holdings Inc. Quarterly report pursuant to Section 13 or 15(d)

Quarterly report pursuant to Section 13 or 15(d)

DISCONTINUED OPERATIONS

DISCONTINUED OPERATIONS

9 Months Ended

Sep. 30, 2022

Discontinued Operations and Disposal Groups [Abstract]

ASSETS HELD FOR SALE

Assets held for sale consist of those classified as discontinued operations and those that do not meet the criteria for discontinued operations under ASC 205. See “Note 16 – Discontinued Operations" for further information. Subsidiaries classified as held for sale that do not qualify as discontinued operations as of September 30, 2022 consist of the following:


	(in thousands)
	September 30, 2022
Cash	$	3
Accounts Receivable, Net	6

Prepaid Expenses and Other Assets	14
Current Assets Held for Sale	23

Property, Equipment and Leasehold Improvements, Net	975
Other Assets	1,604
Assets Held For Sale	2,579

TOTAL ASSETS OF SUBSIDIARIES CLASSIFIED AS HELD FOR SALE	$	2,602

Accounts Payable and Accrued Expenses	$	1,653
Current Liabilities Held For Sale	1,653

Long-Term Lease Liabilities	1,357
Liabilities Held For Sale	1,357

TOTAL LIABILITIES OF SUBSIDIARIES CLASSIFIED AS HELD FOR SALE	$	3,010

During the fiscal second quarter of 2022, the Company decided to divest two operating dispensaries in the state of California. In June 2022, the Company closed Blüm San Leandro and began actively marketing the retail location for sale, which is expected to close within the next year. The assets are classified as held for sale as of September 30, 2022 but do not meet the criteria for discontinued operation under ASC Subtopic 205-20.

On June 18, 2022, the Company entered into a settlement agreement and transferred 100% of the membership interests in the People's dispensary in Los Angeles, CA wherein all operational control and risk of loss was transferred to the original licenseholder and the Company had no further obligations. As consideration received, a promissory note of $1.40 million with the buyer was forgiven. The Company recognized a loss upon sale of assets of $0.38 million for the difference between the aggregate consideration and the book value of the assets as of the disposition date which is recognized in the consolidated statements of operations during the nine months ended September 30, 2022. As of June 18 2022, all assets and liabilities related to the dispensary were deconsolidated from the consolidated balance sheet. All profits or losses subsequent to June 18, 2022 are excluded from the consolidated statements of operations.

During the fiscal third quarter of 2022, the Company terminated its third-party distribution operations in California and is in the process of dissolving the related entities. Accordingly, the Company recognized a loss on disposal of assets of $1.36 million during the three months ended September 30, 2022. The related assets did not meet the held for sale criteria under ASC 360 and are presented as held as used until disposed of other than by sale. All liabilities will continue to remain on the consolidated balance sheets until dissolution of the legal entity. See "Note 20 – Subsequent Events".

During the fiscal third quarter of 2022, the Company terminated its retail and delivery operations at SilverStreak and surrendered the related licenses. As a result, the Company recognized a loss on disposal of assets of $0.33 million during the three months ended September 30, 2022. The related assets did not meet the held for sale criteria under ASC 360 and are presented as held as used until disposed of other than by sale. All liabilities will continue to remain on the consolidated balance sheets until dissolution of the legal entity. See "Note 9 – Goodwill" and "Note 20 – Subsequent Events" for additional information.

DISCONTINUED OPERATIONS

NuLeaf

On November 17, 2021, Medifarm III, LLC (“Medifarm III”), a wholly-owned subsidiary of the Company, entered into a Membership Interest Purchase Agreement (the “NuLeaf Purchase Agreement”) with NuLeaf, Inc., a Nevada corporation (“NuLeaf”). Upon the terms and subject to the satisfaction of the conditions described in the NuLeaf Purchase Agreement, Medifarm III agreed to sell its fifty percent (50%) of the outstanding membership interests of each of NuLeaf Reno Production, LLC (“NuLeaf Reno”) and NuLeaf Sparks Cultivation, LLC (“NuLeaf Sparks”) to NuLeaf, which owned the remaining fifty percent (50%) of the membership interests of NuLeaf Reno and NuLeaf Sparks, for aggregate consideration of $6.50 million in cash. The transaction closed in April 2022 and the Company recognized a gain of $2.05 million for the difference between the aggregate consideration and the book value of the assets as of the disposition date, less direct costs to sell, for the nine months ended September 30, 2022.

Nevada Dispensaries

During fiscal year 2019 and 2020, the Company entered into Asset Purchase Agreements with unrelated third parties to sell substantially all of the assets of the Company related to the Company's dispensaries located at:

•1130 E. Desert Inn Road, Las Vegas, NV 89109;

•1085 S. Virginia St., Suite A, Reno, NV 89502; and

•3650 S. Decatur Blvd., Las Vegas, NV 89103.

The dispensaries are collectively referred to as the "Nevada dispensaries". The transactions for the sale of the Nevada dispensaries closed upon receiving all required government approvals during the fourth quarter ended December 31, 2021.

Real Estate

On December 7, 2021, 620 Dyer LLC, a wholly-owned subsidiary of the Company, entered into a Standard Offer, Agreement and Escrow Instructions for Purchase of Real Estate with FRO III/SMA Acquisitions, LLC to sell the real property located at 620 East Dyer Road, Santa Ana, CA (the “Dyer Property”) for $13.40 million in cash. On February 10, 2022, the Company announced the closing of the sale of the Dyer Property, resulting in the Company retiring $9.00 million of outstanding debt on the Dyer Property as disclosed in "Note 12 – Notes Payable". The Company is continuing to evaluate its options with respect to the license originally connected to the Dyer Property, including consideration of the retail density in the area. If the city of Santa Ana grants approval to relocate licenses elsewhere in the city, the Company may consider using the dispensary license to open a dispensary in an underserved part of Santa Ana.

During fiscal year 2020, the Company classified real property in Las Vegas, NV and Santa Ana, CA as available-for-sale as it met the criteria of ASC 360-10-45-0. In August 2021, the Company sold the properties.

OneQor

During fiscal year 2020, management suspended the operations of OneQor due to (i) a lack of proper growth in customer acquisition and revenue for this CBD operation during the COVID-19 pandemic and (ii) the overall financial health of the Company as a result of COVID-19 and social unrest. The Company plans to focus its attention and resources on growing its THC business.

Edible Garden

On March 30, 2020, the Company entered into and closed an Asset Purchase Agreement with Edible Garden AG Inc. ("Edible Garden AG") pursuant to which the Company sold substantially all of the assets of Edible Garden Corp. As part of the consideration received, the Company entered into two option agreements to purchase up to a 20% interest in Edible Garden AG. During the year ended December 31, 2021, the Company exercised both options and acquired 5,000,000 common shares of Edible Garden AG for a nominal fee. See “Note 6 – Investments” for further information.

The completed sales of our NuLeaf operations and Nevada dispensaries, completed sales of real estate assets, and assets divested during the periods presented represent a strategic shift that will have a major effect on the Company’s operations and financial results. As a result, management determined the results of these components qualified for discontinued operations presentation in accordance with ASC 205, “Reporting Discontinued Operations and Disclosure of Disposals of Components of an Entity". Operating results for the discontinued operations were comprised of the following:


	(in thousands, except for per share data)
	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
Total Revenues	$	—	$	3,383	$	2,605	$	9,829
Cost of Goods Sold	—		1,422		520		6,013
Gross Profit	—		1,961		2,085		3,816

Selling, General and Administrative Expenses	—		1,721		1,862		4,756

Gain on Sale of Assets	—		(6,589)		(3,729)		(6,583)
Income from Operations	—		6,829		3,952		5,643

Interest Expense	—		(268)		—		(745)
Other Income	72		—		99		—

Income from Discontinued Operations	$	72	$	6,561	$	4,051	$	4,898

Income from Discontinued Operations per Common Share Attributable to Unrivaled Brands, Inc. Common Stockholders - Basic And Diluted	$	—	$	0.01	$	0.01	$	0.02

The carrying amounts of the major classes of assets and liabilities for the discontinued operations are as follows:


	(in thousands)
	December 31, 2021
Cash	$	1,544
Accounts Receivable, Net	1,553
Inventory	1,359
Prepaid Expenses and Other Assets	39
Property, Equipment and Leasehold Improvements, Net	17,661


Other Assets	323
Assets of Discontinued Operations	$	22,479

Accounts Payable and Accrued Expenses	$	1,170
Income Tax Payable	917
Long-Term Lease Liabilities	184
Liabilities of Discontinued Operations	$	2,271