iAnthus Capital Holdings, Inc. (“iAnthus” or the “Company”) (CSE: IAN) (OTCPK: ITHUF), which owns, operates, and partners with regulated cannabis operations across the United States, today reported its financial results for the first quarter ended March 31, 2022. The Company’s Quarterly Report on Form 10-Q, which includes its unaudited condensed consolidated financial statements for the three months ended March 31, 2022 and the related management’s discussion and analysis of financial condition and results of operations, can be accessed on the Securities and Exchange Commission’s (“SEC’s”) website at www.sec.gov, the Company’s SEDAR profile at www.sedar.com, and on the Company’s website at www.iAnthus.com. As a result of the Company becoming a U.S. reporting company in February 2021, the Company’s financial statements are reported in accordance with U.S. Generally Accepted Accounting Principles (“GAAP”). All currency is expressed in U.S. dollars.
First Quarter 2022 Financial Highlights
- Revenue of $42.8 million, a sequential decrease of 10% from Q4 2021 and a decrease of 17% from the same period in the prior year.
- Gross profit of $22.5 million, relatively flat when compared to Q4 2021 and a decrease of 24% from the same period in the prior year.
- Gross margin of 52.6%, reflecting a sequential increase of 560bps from Q4 2021 and a decrease of 480bps from the same period in the prior year.
- Net loss of $10.1 million, or a loss of $0.06 per share, compared to a loss of $26.9 million or a loss of $0.16 per share in Q4 2021, and compared to a loss of $19.5 million, or a loss of $0.11 per share, in the same period in the prior year.
- Adjusted EBITDA(5) of $3.4 million, a sequential decrease from $8.2 million in Q4 2021 and decrease from $13.0 million from the same period in the prior year. EBITDA and Adjusted EBITDA are non-GAAP measures. Reconciliation tables of EBITDA and Adjusted EBITDA as used in this news release to GAAP are included below.
- Due to liquidity constraints experienced by the Company, the Company did not make applicable interest payments due on its 13% senior secured convertible debentures (“Secured Notes”) and its 8% convertible unsecured debentures (“Unsecured Debentures”) due during 2020. As previously disclosed by the Company, the non-payment of interest in March 2020 triggered an event of default with respect to these components of the Company’s long-term debt, which, as of March 31, 2022, consisted of principal amounts of $97.5 million and $60.0 million, and accrued interest of $34.8 million and $10.8 million, on the Secured Notes and Unsecured Debentures, respectively. In addition, as a result of the default, as of March 31, 2022, the Company has accrued additional fees and interest of $15.8 million (“Exit Fees”) in excess of the aforementioned amounts that are further detailed in the Company’s financial statements.
- As disclosed in the Company’s filings with the applicable Canadian securities regulators and the SEC, the Company entered into a restructuring support agreement dated July 10, 2020, as amended on June 15, 2021 (as amended, the “Restructuring Support Agreement”) with the holders of its Secured Notes (the “Secured Lenders”) and a majority of the holders of its Unsecured Debentures to effectuate a proposed recapitalization transaction (the “Recapitalization Transaction”) to be implemented by way of a court-approved plan of arrangement under the Business Corporations Act (British Columbia). Pursuant to the terms of the Recapitalization Transaction and subject to the closing thereof, the Company is required to issue an aggregate of 6,072,579,699 common shares upon the extinguishment of (i) $22.5 million of Secured Notes (including the Exit Fees) plus interest accrued thereon, (ii) $40.0 million of Unsecured Debentures plus interest accrued thereon, and (iii) interest accrued above the principal amount of $14.7 million of the interim financing provided by the Secured Lenders. The Recapitalization Transaction remains subject to the receipt of all necessary regulatory approvals and approval by the Canadian Securities Exchange. The financial highlights herein do not give effect to the consummation of the Recapitalization Transaction.
| Table 1: Financial Results | ||||||
| in thousands of US$, except share and per share amounts (unaudited) | Q1 2022 | Q4 2021 | Q1 2021 | |||
| Revenue | $ 42,790 | $47,722 | $ 51,805 | |||
| Gross profit | 22,492 | 22,419 | 29,721 | |||
| Gross margin | 52.60% | 47.00% | 57.40% | |||
| Net loss | (10,102) | (26,947) | (19,452) | |||
| Net loss per share | (0.06) | (0.16) | (0.11) |
| Table 2: Reconciliation of Net Income to Adjusted EBITDA | ||||||
| in thousands of US$ | Q1 2022 | Q4 2021 | Q1 2021 | |||
| Net income (loss) | $ (10,102) | $ (26,947) | $ (19,452) | |||
| Depreciation and amortization | 9,029 | 7,774 | 7,374 | |||
| Interest expense, net | 5,834 | 5,953 | 5,554 | |||
| Income tax expense | 4,875 | 2,471 | 7,291 | |||
| EBITDA (Non-GAAP) | $ 9,635 | $ (10,749) | $767 | |||
| Adjustments | ||||||
| Impairment loss | — | 5,544 | — | |||
| Write-downs and other charges (4) | 292 | 1,616 | 259 | |||
| Inventory reserve | (41) | 1,902 | — | |||
| Accretion expense | 766 | 774 | 4,852 | |||
| Share-based compensation | 1,464 | 1,613 | 1,634 | |||
| Non-monetary gain from MPX NJ acquisition | (10,460) | — | — | |||
| Loss/(Gain) from change in fair value of financial instruments | 102 | (275) | 17 | |||
| Debt obligation fees (1) | 414 | 422 | 414 | |||
| Non-recurring charges (2) | 1,243 | 7,347 | 2,133 | |||
| Change in accounting estimate – costs applicable to revenue (3) | — | — | 2,903 | |||
| Total Adjustments | $ (6,220) | $ 18,943 | $ 12,212 | |||
| Adjusted EBITDA (Non-GAAP) | $ 3,416 | $8,194 | $ 12,979 |
| (1) | Reflects accrued interest on the Exit Fees. |
| (2) | Includes one-time, non-recurring costs related to the Company’s Recapitalization Transaction, strategic review process, ongoing legal disputes, and other non-recurring costs associated with having become a U.S. reporting company. |
| (3) | In January 2021, the Company completed an assessment of the yield per gram that is used as an input to value the Company’s inventory. The timing of this review was based on a combination of factors accumulating over time that provided the Company with updated information to make a better estimate on the yield of its products. These factors included enhanced data gathering of crop production and yields into inventory. The assessment resulted in a revision of the Company’s production yield estimates that are used to value ending inventory. This change in accounting estimate was effective on January 1, 2021. |
| (4) | Reflects a $235,000 write-down of CBD inventory, and $57,000 of losses on NJ asset disposals. |
| (5) | See “Non-GAAP Financial Information” below for more information regarding the Company’s use of non-GAAP financial measures. |
Other Updates
Recapitalization Transaction
On April 1, 2022, the Maryland Medical Cannabis Commission (the “MMCC”) approved the proposed change of ownership control of the Company’s wholly-owned subsidiary, S8 Management, LLC (“S8”), contemplated by the Recapitalization Transaction. S8 currently controls four licensed entities in Maryland through management service agreements.
On November 4, 2021, the Company announced that the Florida Department of Health, Office of Medical Marijuana Use (the “OMMU”), by notice dated October 29, 2021, approved the variance request (the “Variance Request”) filed by the Company’s subsidiary, McCrory’s Sunny Hill Nursery, LLC (“McCrory’s”), to approve the proposed change of beneficial ownership of McCrory’s contemplated by the Recapitalization Transaction. Subsequently, on December 9, 2021, iAnthus announced that, on November 19, 2021, Michael Weisser, Benjamin Pollara and Florida for Care, Inc., a not-for-profit corporation representing members including qualified Florida medical marijuana patients, filed a Petition for Formal Administrative Hearing (as amended, the “Petition”) with the OMMU, challenging the OMMU’s approval of the Variance Request and requesting a formal administrative hearing before an administrative law judge (“ALJ”) at the Florida Division of Administrative Hearings. The OMMU informed the Company that, as a result of the filing of the Petition challenging the agency’s decision within the permissible challenge period, the OMMU’s prior approval is not an enforceable final agency order until there is a final resolution of the Petition and a final agency order is rendered. On May 4, 2022, the OMMU issued a final agency order, accepting the recommendation of the ALJ and dismissing the Petition.
The Company continues to seek the remaining state regulatory approvals in Massachusetts, New Jersey, and New York.
Resignation of Randy Maslow and Appointment of Robert Galvin as Interim CEO and Director
On May 4, 2022, the Company announced the resignation of Co-Founder and Interim Chief Executive Officer, Randy Maslow from his executive positions with the Company, including all positions with the Company’s subsidiaries and its affiliates, and from the Company’s Board of Directors (the “Board”) and committees, effective as of May 6, 2022 (the “Resignation Date”). Mr. Maslow will continue to serve the Company in a consulting role for a period of six months following the Resignation Date.1
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| 1 | The Company’s financial statements for the quarter ended March 31, 2022, and associated Management’s Discussion and Analysis of Financial Condition and Results of Operations include additional information on the separation agreement the Company entered into with Mr. Maslow. |
On May 6, 2022, the Company announced the appointment of Robert Galvin as Interim Chief Executive Officer and member of the Board, effective as of May 6, 2022.
Opening of Atlantic City, New Jersey Dispensary
On May 5, 2022, the Company opened its first dispensary in the state of New Jersey. The dispensary, which operates under the MPX NJ brand, is located in Atlantic City, New Jersey.
Non-GAAP Financial Information
This release includes certain non-GAAP financial measures as defined by the SEC. Reconciliations of these non-GAAP financial measures to the most directly comparable financial measures calculated and presented in accordance with GAAP are included in the tables above. This information should be considered as supplemental in nature and not as a substitute for, or superior to, any measure of performance prepared in accordance with GAAP.
In evaluating our business, we consider and use EBITDA as a supplemental measure of operating performance. We define EBITDA as earnings before interest, taxes, depreciation and amortization. We present EBITDA because we believe it is frequently used by securities analysts, investors and other interested parties as a measure of financial performance. We define Adjusted EBITDA as EBITDA before stock-based compensation, accretion expense, write-downs and impairments, gains and losses from changes in fair values of financial instruments, income or losses from equity-accounted investments, changes in accounting policy, non-recurring costs related to the Company’s Recapitalization Transaction, and litigation costs related to ongoing legal proceedings.
The terms EBITDA and Adjusted EBITDA are not defined under GAAP, and are not a measure of operating income, operating performance or liquidity presented in accordance with GAAP. EBITDA and Adjusted EBITDA have limitations as an analytical tool, and when assessing the Company’s operating performance, investors should not consider EBITDA or Adjusted EBITDA in isolation, or as a substitute for net income (loss) or other consolidated income statement data prepared in accordance with GAAP. Among other things, EBITDA and Adjusted EBITDA do not reflect the Company’s actual cash expenditures. Other companies may calculate similar measures differently than us, limiting their usefulness as comparative tools. We compensate for these limitations by relying on GAAP results and using EBITDA and Adjusted EBITDA only as supplemental information.
