|9 Months Ended|
Sep. 30, 2018
|Subsequent Events [Abstract]|
NOTE 14 – SUBSEQUENT EVENTS
In October and November 2018, the Company purchased an additional $23.25 million of GC Debentures, at which time the Company entered into a Subscription Agreement for Convertible Debentures (the “SA”) with GenCanna governing the aggregate GC Debentures purchased of $30 million. The SA maintains the provisions of the $6.75M of GC Debentures previously purchased as of September 30, 2018 and disclosed in Note 4. Additionally, among other provisions, the Company shall have the right to appoint one director to GenCanna’s board, and shall fund a $10 million employee bonus pool should GenCanna meet certain 2019 operating targets.
Pursuant to a Security and Pledge Agreement executed with GenCanna in November 2018, the Company was granted a senior security interest on certain assets of GenCanna equal in value to 100% or more of the principal and accrued interest on the GC Debentures until such time the GC Debentures are paid down, redeemed or converted. Additionally, the Company was granted certain other rights, pursuant to a Rights Agreement, including rights of inspection, financial information, and participation in future security offerings of GenCanna.
Conversion of the Company’s entire $30 million investment shall equate to at least a 33.3% ownership interest in GenCanna on a fully diluted basis.
In October and November 2018, pursuant to the terms of a Securities Purchase Agreement (the “SPA”), the Company sold an aggregate of $10,000,000 convertible debentures bearing interest at the rate of 6% per annum that mature three years from issuance, with a 1% issue discount, resulting in net proceeds to the Company of $9,900,000 (the “$10M Debentures”).
The holder of the $10M Debentures (the “Holder”) shall have the right at any time to convert all or a portion of the $10M Debenture, along with accrued and unpaid interest, into the Company’s common stock at conversion prices equal to 80% of a calculated average, as determined in the $10M Debentures, of the daily volume-weighted price during the ten consecutive trading days preceding the date of conversion. Notwithstanding this conversion right, the Holder shall limit conversions in any given month to certain agreed-upon values based on the conversion price, and the Holder shall also be limited from beneficially owning more than 4.99% of the Company’s outstanding common stock (potentially further limiting the Holder’s conversion right).
The Company shall have the right to redeem all or a portion of the $10M Debentures, along with accrued and unpaid interest, at a 10% premium, provided however that the Company first provide advance written notice to the Holder of its intention to make a redemption, with the Holder allowed to affect one or more conversions of the $10M Debentures during such notice period.
Upon a change in control transaction, as defined in the $10M Debentures, the Holder may require the Company to redeem all or a portion of the $10M Debentures at a price equal to 110% of the principal amount of the $10M Debentures plus all accrued and unpaid interest thereon. So long as the $10M Debentures are outstanding, in the event the Company enters into a Variable Rate Transaction (“VRT”), as defined in the SPA, the Holder may cause the Company to revise the terms of the $10M Debentures to match the terms of the convertible security of such VRT. As part of issuance of the $10M Debenture, the Company issued three-year warrants to the Holder to purchase 324,675 shares of common stock at exercise prices of $3.50 and $5.50 per share (the “Warrants”).
Pursuant to the terms of a Registration Rights Agreement with the Holder, entered into concurrently with the SPA and the $10M Debentures, the Company agreed to provide the Holder with customary registration rights with respect to any potential shares issued pursuant to the terms of the SPA, the $10M Debentures, and the Warrants.
In October 2018, the Company entered into a purchase agreement to acquire 100% of the ownership interests of KPG of Anna LLC and KPG of Harrisburg LLC, the Company’s two cannabis-licensed clients that operate medical marijuana dispensaries in the state of Illinois (both entities collectively, the “KPGs”), from the current ownership group of the KPGs (the “Sellers”). As part of this transaction, the Company will also acquire the Sellers’ ownership interests of Mari Holdings IL LLC, the Company’s subsidiary which owns the real estate in which the KPGs’ dispensaries are located (“Mari-IL”). The purchase price of 1,000,000 shares of the Company’s common stock shall be issued to the Sellers upon the closing of the transaction, which is dependent upon, among other closing conditions, the approval by the Illinois Department of Financial and Professional Regulation. After the transaction is effectuated, the KPGs and Mari-IL will be wholly-owned subsidiaries of the Company.
In October 2018, the Company’s cannabis-licensed client in Massachusetts, ARL Healthcare Inc. (“ARL”), filed a plan of entity conversion with the state to convert from a non-profit entity to a for-profit corporation. ARL holds three cannabis licenses from the state of Massachusetts for the cultivation, production and dispensing of cannabis. Upon approval of the conversion plan by the state, the Company shall be the sole shareholder of ARL, and shall elect its current COO to serve as ARL’s sole board member.
As of September 30, 2018, the Company had not yet received the legislative approval that is required for all ownership changes of cannabis licensees, and therefore the operations of the KPGs and ARL were not consolidated in the Company’s financial statements as of such date. The Company anticipates that approval for these transactions will be obtained, and those deals consummated, prior to the end of the current fiscal year, or in early 2019. When that occurs, the Company will consolidate the acquired entities in accordance with GAAP.
In October 2018, the Company acquired BSC Group LLC, a multidisciplinary advisory firm that provides operational, marketing, and licensing management services to companies within the cannabis industry.
In October 2018, the Company (i) sold 4,999,242 shares of common stock at prices of $2.20 and $3.00 per share, resulting in total proceeds of $14,925,000, and (ii) issued three-year warrants to purchase 1,201,163 shares of common stock at exercise prices ranging from $3.50 to $5.50 per share.
In October 2018, warrants to purchase 222,775 shares of common stock were exercised at exercise prices ranging from $0.40 to $1.75 per share, and options to purchase 60,000 shares of common stock were exercised at an exercise price of $0.45 per share in a cashless transaction.
The entire disclosure for significant events or transactions that occurred after the balance sheet date through the date the financial statements were issued or the date the financial statements were available to be issued. Examples include: the sale of a capital stock issue, purchase of a business, settlement of litigation, catastrophic loss, significant foreign exchange rate changes, loans to insiders or affiliates, and transactions not in the ordinary course of business.
Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef