Our Management's Discussion and Analysis should be read in conjunction with our unaudited condensed consolidated financial statements and related notes thereto included elsewhere in this quarterly report.
Forward-Looking Statements
This Quarterly Report contains forward-looking statements and information
relating to us that are based on the beliefs of our management as well as
assumptions made by, and information currently available to, our management.
When used in this report, the words "believe," "anticipate," "expect," "will,"
"estimate," "intend", "plan" and similar expressions, as they relate to us or
our management, are intended to identify forward-looking statements. Although we
believe that the plans, objectives, expectations and prospects reflected in or
suggested by our forward-looking statements are reasonable, those statements
involve risks, uncertainties and other factors that may cause our actual
results, performance or achievements to be materially different from any future
results, performance or achievements expressed or implied by these
forward-looking statements, and we can give no assurance that our plans,
objectives, expectations and prospects will be achieved. Important factors that
might cause our actual results to differ materially from the results
contemplated by the forward-looking statements are contained in the "Risk
Factors" section of and elsewhere in our Annual Report on Form 10-K for the
fiscal year ended
Company Overview
Current Initiatives include:
? 260 acres of farmland for the purpose of cultivating additional marijuana (the "260 Acres") purchased in January of 2019. The Company intends to utilize the state-of-the-art Cravo® cultivation system for growing an additional five acres of marijuana on this property. The Cravo® system will allow multiple harvests per year and should result in higher annual yields per acre. The land has more than 180-acre feet of permitted water rights, which will provide more than sufficient water to markedly increase the Company's marijuana cultivation capabilities. This facility, upon receipt of its business license inNye County and its final inspection by the Cannabis Compliance Board ("CCB"), is expected to become operational in the summer of 2022. During the year endedDecember 31, 2021 , the Company elected to relocate all of its equipment utilized on the Acres lease to its 260 Acres adjacent to the Acres lease. The Company will utilize the 260 Acres for its own harvest along with additional harvests under any Cultivation and Sales Agreements ? Cultivation and Sales Agreements entered into for multiple grows on the Company's 260-acre farm located in theAmargosa Valley ofNevada . During the 4th quarter of 2021 and 1st quarter of 2021, the Company entered into separate Cultivation and Sales Agreements, whereby the Company shall retain certain independent growers to provide oversight and management of the Company's cultivation and sale of products at its 260-acre farm. The independent growers shall pay to the Company a royalty of net sales revenue with a minimum royalty after two years. As of the date of this filing, the Company is waiting on its business license inNye County and its final inspection by the Cannabis Compliance Board before it can commence its operations under the Agreement. 22 ? a nearby commercial trailer and RV park (THC Park -Tiny Home Community ) was purchased in April of 2019 to supply necessary housing for the Company's farm employees. After the Company's 2018 harvest, it came to realize that it would need to find a more efficient method of housing and to bring its cultivation team to its facilities. The Company purchased the 50-acre plusTHC Park for$600,000 in cash and$50,000 of the Company's restricted common stock. At present, the Company's construction and completion of this community is approximately seventy-five present complete. The impact of COVID-19 in obtaining inspections and permitting significantly delayed the completion of this community. The Company has elected to cease any renovations or additions at itsTiny Home Community until it plants its first grow on the 260 Acres and can better evaluate the need for additional housing. ? an agreement to acquire a cultivation license and production license, both currently located inNye County Nevada . OnFebruary 5, 2021 , the Company (the "Purchaser") executed a Membership Interest Purchase Agreement ("MIPA3") withMJ Distributing, Inc. (the "Seller") to acquire all of the outstanding membership interests ofMJ Distributing C202, LLC andMJ Distributing P133, LLC , each the holder of aState of Nevada provisional medical and recreational cultivation license and a provisional medical and recreational production license. In consideration of the sale, transfer, assignment and delivery of the Membership Interests to Purchaser, and the covenants made by Seller under the MIPA3, Purchaser agreed to pay a combination of cash, promissory notes, and stock in the amount of One-Million-Two-Hundred-Fifty Thousand Dollars ($1,250,000.00 ) in cash and/or promissory notes and 200,000 shares of the Company's restricted common stock, all of which constitutes the consideration agreed to herein for (the "Purchase Price"), payable as follows: (i) a non-refundable down payment in the amount of$300,000 was made onJanuary 15, 2021 , (ii) the second payment in the amount of$200,000 was made onFebruary 5, 2021 , (iii) a deposit in the amount of$310,000 was paid onFebruary 22, 2021 ($210,000 was a pre-payment against future compensation due under the MIPA3), (iv)$200,000 was deposited onJune 24, 2021 , (v)$200,000 shall be deposited on or beforeJune 12, 2021 , and (vi)$250,000 shall be deposited within five (5) business days after the Nevada Cannabis Compliance Board ("CCB") provides notice on its agenda that the Licenses are set for hearing to approve the transfer of ownership from the Seller to the Purchaser. OnApril 12, 2022 , the CCB issued an Adult-Use Production License toMJ Distributing P133, LLC and an Adult-Use Cultivation License toMJ Distributing C202, LLC . The Company is currently awaiting its business license to be issued byNye County, Nevada .
On
23
Cultivation and Sales Agreements
MKC Development Group, LLC Agreement
On
As deposits, security and royalty, the Company shall pay to MJNE:
(i) a$600,000 non-refundable deposit upon execution of the Agreement; (ii) a security deposit of$10,000 to be applied against the last month's obligations and a$10,000 payment to be applied against the first month's rent; (iii)$10,000 on the first of each month for security and compliance; (iv) a royalty of 10% of gross revenue less applicable taxes (hereinafter "Net Sales Revenue") on all sales of product by the Company; and (v) the Company shall, after the first two (2) years from execution of the Agreement, be responsible to pay to MJNE a minimum royalty of$83,000.00 per month.
As compensation, MJNE shall pay to the Company:
(i) 90% of Net Sales Revenue on all sales of product by the Company under this Agreement as the Management Fee.
The transaction closed on
Natural Green, LLC Agreement
On
As deposits, security and royalty, the Company shall pay to MJNE:
(i) a$500,000 Product Royalty deposit to be applied to the first Product Royalty or Product Royalties; (ii) a deposit of$20,000 to be applied against the first and last month's Security and Compliance fee; (iii)$10,000 on the first of each month for Security and Compliance; (iv) a royalty of 10% of gross revenue less applicable taxes (hereinafter "Net Sales Revenue") on all sales of product by the Company; and (v) the Company shall, after the first two (2) years from execution of the Agreement, be responsible to pay to MJNE a minimum royalty of$50,000.00 per month.
As compensation, MJNE shall pay to the Company:
(i) 90% of Net Sales Revenue on all sales of product by the Company under this Agreement as the Management Fee.
On
24
Green Grow Investments Agreement
On
As deposits, security and royalty, the Company shall pay to MJNE:
(i) a$600,000 Product Royalty of which$50,000 is due upon signing,$150,000 upon MJNE obtaining the licenses fromMJ Distributing, Inc. and affiliates and$200,000 for each of the first and second years' harvests; (ii) a deposit of$20,000 to be applied against the first and last month's Security and Compliance fee; (iii)$10,000 on the first of each month for Security and Compliance; (iv) a royalty of 10% of gross revenue less applicable taxes (hereinafter "Net Sales Revenue") on all sales of product by the Company; and (v) the Company shall, after the first two (2) years from execution of the Agreement, be responsible to pay to MJNE a minimum royalty of$50,000.00 per month.
As compensation, MJNE shall pay to the Company:
(i) a Management Fee that is based upon the net sales price (after taxes) and further subject to all contractual expenses.
As of the date of this filing, the Company has made all required payments to
MJNE. The Company's business license was approved and issued by
RK Grow, LLC Agreement
On
25
As deposits, security and royalty, the Company shall pay to MJNE:
(i) a Product Royalty Deposit of$3,000,000.00 to be applied to the first Product Royalty or Product Royalties; (ii) a deposit of$20,000 to be applied against the first and last month's Security and Compliance fee; (iii)$10,000 on the first of each month for Security and Compliance; (iv) a royalty of 10% of gross revenue less applicable taxes (hereinafter "Net Sales Revenue") on all sales of product by the Company; (v) Minimum Monthly Product Royalty: Minimum Monthly Product Royalty (MMPR) shall be calculated on a per annum basis. Therefore, Company will have satisfied all MMPR obligations for the year upon remitting$1,080,000.00 to MJNE; and (vi) MJNE agrees to provide access to water for the Designated Acreage without charge to the Company. However, Company will be responsible for any construction required to have the water actually delivered to its Designated Acreage from the source.
As compensation, MJNE shall pay to the Company:
(i) a Management Fee that is based upon the net sales price (after taxes) and further subject to all contractual expenses.
As of the date of this filing, the Company has made all required payments to
MJNE. The Company's business license was approved and issued by
Termination of Acres Cultivation, LLC Agreement
On
(i) The Cultivation and Sales Agreement entered into by and between MJNE and Acres, dated as ofJanuary 1, 2019 (the "Cultivation and Sales Agreement" or "CSA"), pursuant to Sections 5.3, and 16.20 (cross-default); (ii) The Consulting Agreement, by and between Acres and MJNE, made as ofJanuary 1, 2019 (the "Consulting Agreement"), pursuant to Sections 10 and 11.10 (cross-default); and (iii) The Equipment Lease Agreement between Acres and MJNE, dated as ofJanuary 1, 2019 (the "Equipment Lease Agreement"), pursuant to Sections 8(ii), 8(iv), and 29 (cross-default).
The Company initiated relocating its equipment to its 260-acre farm at the end of the first quarter and does not anticipate that it will generate any further revenue under the Acres relationship.
The Company may also continue to seek to identify potential acquisitions of revenue producing assets and licenses within legalized cannabis markets that can maximize shareholder value.
The Company may face substantial competition in the operation of cultivation
facilities in
The Company presently occupies an office suite located at
Consulting Agreements
On
26
Corporate Advisory Agreement (M&A and Funding)
Under the terms of the M&A and Funding Agreement (the "M&A Agreement"),
Corporate History
The Company was incorporated on
On
Acquisition/Disposition of Red Earth
On
On or about
The consolidated financial statements after completion of the reverse merger
included: the assets, liabilities, and results of operations of the combined
company from and after the closing date of the reverse merger, with only certain
aspects of pre-consummation stockholders' equity remaining in the consolidated
financial statements. In February of 2019, the Company repurchased, from the
Company's largest shareholder, 20,000,000 of the 26,366,484 shares of common
stock that this shareholder originally received in connection with the Reverse
Merger - for a total purchase price of
On
On
On
27 Our Business
We commenced cultivation activities on our three-acre managed cultivation facility in August of 2018, harvesting more than 5400 pounds of marijuana through December of 2018. In the fourth quarter of 2019, we completed our 2019 harvest of approximately 4,800 marijuana plants with expected yield of more than 3,300 pounds of marijuana flower and trim. As of the time of this filing, we have completed our 2020 harvest of approximately 7,600 marijuana plants with expected yield of more than 4,700 pounds of marijuana flower and trim. It is our intention to grow our business through the acquisition of existing companies and/or through the development of new opportunities that can provide a 360-degree spectrum of infrastructure (dispensaries), cultivation and production management, and consulting services in the regulated cannabis industry.
The Company currently operates through the following entities:
of the operating businesses/assets. Prescott Prescott Management is a wholly owned subsidiary of the
oversight to the Company's operating subsidiaries.
Icon Management, Icon is a wholly owned subsidiary of the Company that LLC
provides Human Resource Management ("HR") services to the Company. Icon is responsible for all payroll activities and administration of employee benefit plans and programs.
that owns 260 acres of farmland inAmargosa, NV . The Company acquired all of the membership interests of Farm Road in January of 2019.
Condo Highrise Condo Highrise Management is a wholly owned subsidiary of
Amargosa,Nevada . Red EarthRed Earth Holdings, LLC is a wholly owned subsidiary of the
primary cannabis license assets. As of the date of this report,Red Earth Holdings has no operations and holds no assets.
subsidiary of the Company fromDecember 15, 2017 untilAugust 30, 2019 prior to the Company selling a forty-nine percent (49%) interest in Red Earth toElement NV, LLC , an unrelated third party (See further description of the transaction hereinabove). Red Earth's assets consist of: (i) a cultivation license to grow marijuana within the City ofLas Vegas in theState of Nevada , and (ii) all of the outstanding membership interests in HDGLV, which holds a triple net leasehold interest in a 17,298 square-foot building inLas Vegas, Nevada , which it expects to operate as an indoor marijuana cultivation facility. InJuly 2018 , the Company completed the first phase of construction on this facility, and it received a City of Las Vegas Business License to operate a marijuana cultivation facility. OnAugust 26, 2021 , the Company and the Company's Chief Cultivation Officer and previous owner of the Subsidiary,Paris Balaouras , entered into a Termination Agreement. Under the terms of the Termination Agreement, the Purchase Agreement (the "Purchase Agreement"), datedDecember 15, 2017 , entered into between the Company and the Red Earth was terminated as of the date of the Termination Agreement resulting in the return of ownership of Red Earth to Mr. Balaouras. Please see Note 7 - Intangible Assets and Note 14 - Related Party Transactions for further information.HDGLV, LLC HDGLV is a wholly owned subsidiary ofRed Earth, LLC and is the holder of a triple net lease on a commercial building inLas Vegas, Nevada which is being developed to house the Company's indoor grow facility.
Alternative Alternative Hospitality is a
of the company and the remaining forty-nine percent (49%) is owned byTVK, LLC , aFlorida limited liability company. Please see Note 11 - Commitments and Contingencies for further information.
center around providing consulting services for growing techniques, management and cultivation of crops, as well as licensing support, production and asset and infrastructure development.
Critical Accounting Policies, Judgments and Estimates
There were no material changes to the Company's critical accounting policies and
estimates during the interim period ended
Please see our Annual Report on Form 10-K for the year ended
28 Results of Operations
Three Months Ended
Revenues
The Company's revenue was
For the three months endedSeptember 30, 2022 2021 Revenues:
Rental income (i)
- Total$ 712,856 $ 19,580 (i) The rental income is from the Company'sTHC Park . (ii) OnJuly 11, 2022 , the Company purchasedMJH Research, Inc. ("MJH") through a stock exchange agreement. MJH is aFlorida corporation whose operations center around providing consulting services for growing techniques, management and cultivation of crops, as well as licensing support, production and asset and infrastructure development.
Operating Expenses
Direct costs of revenues were $- and $- for the three months ended
For the three months ended Direct costs of revenue:September 30, 2022 2021
Management and equipment lease income $ - $ - Total
$ - $ -
The direct costs of revenue of $- for the three months ended
29 General and administrative
For the three months ended
Other Income/(Expense)
For the three months ended
Net Income (Loss)
Net income (loss) attributable to common shareholders was (
Nine Months Ended
Revenues
The Company's revenue was
For the nine months ended September 30, 2022 2021 Revenues: Rental income (i)$ 111,987 $ 59,749 Management income from MJH Research, Inc. (ii) 661,475 - Management income from Acres Cultivation (iii) - 341,398 Equipment lease income (iii) - 134,814 Total$ 773,462 $ 535,961 (i) The rental income is from the Company'sTHC Park . 30 (ii) OnJuly 11, 2022 , the Company purchasedMJH Research, Inc. ("MJH") through a stock exchange agreement. MJH is aFlorida corporation whose operations center around providing consulting services for growing techniques, management and cultivation of crops, as well as licensing support, production and asset and infrastructure development. (iii) InApril 2018 , the Company entered into a management agreement withAcres Cultivation, LLC , aNevada limited liability company (the "Licensed Operator") that holds a license for the legal cultivation of marijuana for sale under the laws of theState of Nevada . In January of 2019, the Company entered into a revised agreement, which replaced theApril 2018 agreement, with the Licensed Operator in order to be more stringently aligned withNevada marijuana laws. The material terms of the agreement remain unchanged. The Licensed Operator is contractually obligated to pay over to the Company eighty-five (85%) percent of gross revenues defined as gross proceeds from sales of marijuana products minus applicable state excise taxes and local sales tax. The agreement is to remain in force untilApril 2026 . InApril 2019 , the Licensed Operator was acquired by Curaleaf Holdings, Inc., a publicly traded Canadian cannabis company. OnJanuary 21, 2021 , the Company received a Notice of Termination, effective immediately, fromAcres Cultivation, LLC . The Company will not generate any further revenue under the Acres relationship.
Operating Expenses
Direct costs of revenues were $- and
For the nine months ended September 30, Direct costs of revenue: 2022 2021 Management and lease equipment income $ - $ 40,590 Total $ - $ 40,590
The direct costs of revenue of
General and administrative
For the nine months ended
Other Income/(Expense)
For the nine months ended
Net Income (Loss)
Net (loss) income was (
31
© Edgar Online, source