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Table of Contents

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

FORM 10-Q

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2024

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: 000-56228

IANTHUS CAPITAL HOLDINGS, INC.

(Exact Name of Registrant as Specified in its Charter)

British Columbia, Canada

98-1360810

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

214 King Street, Suite 314

Toronto, Ontario M5H 3S6

M5H 3S6

(Address of principal executive offices)

(Zip Code)

(646) 518-9418

(Registrant’s telephone number, including area code)

Not applicable

(Former name, former address and former fiscal year, if changed since last report)

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. Yes No

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 for such shorter period that the registrant was required to submit such files). Yes No

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

Non-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 No

Number of common shares outstanding as of May 1, 2024 was 6,615,326,267.


Table of Contents

 

TABLE OF CONTENTS

 

 

PART I. FINANCIAL INFORMATION

 

 

Item 1.

Financial Statements

4

 

Interim Condensed Consolidated Balance Sheets as of March 31, 2024 (Unaudited) and December 31, 2023 (Audited)

4

 

Unaudited Interim Condensed Consolidated Statements of Operations for the Three Months ended March 31, 2024 and 2023

5

 

Unaudited Interim Condensed Consolidated Statements of Changes in Shareholders’ (Deficit) for the Three Months ended March 31, 2024 and 2023

6

 

Unaudited Interim Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2024 and 2023

7

 

Notes to Unaudited Interim Condensed Consolidated Financial Statements

8

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

32

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

41

 

Item 4.

Controls and Procedures

41

 

PART II. OTHER INFORMATION

42

 

Item 1.

Legal Proceedings

42

 

Item 1A.

Risk Factors

44

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

44

 

Item 3.

Defaults Upon Senior Securities

44

 

Item 4.

Mine Safety Disclosure

44

 

Item 5.

Other Information

44

 

Item 6.

Exhibits

45

 

Signatures

46

2


Table of Contents

 

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS AND INDUSTRY DATA

This Quarterly Report on Form10-Q contains certain 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”). Any statements in this Quarterly Report on Form 10-Q about our expectations, beliefs, plans, objectives, assumptions or future events or performance are not historical facts and are forward-looking statements. These statements are often, but not always, made through the use of words or phrases such as “believe,” “will,” “expect,” “anticipate,” “estimate,” “intend,” “plan” and “would.” For example, statements concerning financial condition, possible or assumed future results of operations, growth opportunities, industry ranking, plans and objectives of management, markets for our common shares and future management and organizational structure are all forward-looking statements. Forward-looking statements are not guarantees of performance. They involve known and unknown risks, uncertainties and assumptions that may cause actual results, levels of activity, performance or achievements to differ materially from any results, levels of activity, performance or achievements expressed or implied by any forward-looking statements.

Any forward-looking statements are qualified in their entirety by reference to the risk factors discussed throughout our most recent Annual Report on Form 10-K and any updates described in our Quarterly Reports on Form 10-Q and Current Reports on Form 8-K as may be amended, supplemented or superseded from time to time by other reports we file with the U.S. Securities and Exchange Commission (the “SEC”). You should read this Quarterly Report on Form 10-Q and the documents that we referenced herein and have filed as exhibits to the reports we file with the SEC, completely and with the understanding that our actual future results may be materially different from what we expect. You should assume that the information appearing in this Quarterly Report on Form 10-Q is accurate as of the date hereof. Because the risk factors in our SEC reports could cause actual results or outcomes to differ materially from those expressed in any forward-looking statements made by us or on our behalf, you should not place undue reliance on any forward-looking statements. Further, any forward-looking statement speaks only as of the date on which it is made, and except as required by law, we undertake no obligation to update any forward-looking statement to reflect events or circumstances after the date on which the statement is made or to reflect the occurrence of unanticipated events. New factors emerge from time to time, and it is not possible for us to predict which factors will arise. In addition, we cannot assess the impact of each factor on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. We qualify all of the information presented in this Quarterly Report on Form 10-Q, and particularly our forward-looking statements, by these cautionary statements.

3


Table of Contents

 

ITEM 1. FINANCIAL STATEMENTS

iANTHUS CAPITAL HOLDINGS, INC.

INTERIM CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands of U.S. dollars or shares)

 

 

 

March 31,

 

December 31,

 

 

2024 (Unaudited)

 

2023 (Audited)

Assets

 

 

 

 

 

 

Cash

 

$

13,620

 

$

13,104

Restricted cash

 

 

108

 

 

71

Accounts receivable, net of allowance for credit losses of $596
   (December 31, 2023 - $
384)

 

 

6,554

 

 

4,609

Prepaid expenses

 

 

2,603

 

 

2,100

Inventories, net

 

 

24,763

 

 

25,382

Other current assets

 

 

1,516

 

 

243

Current Assets

 

 

49,164

 

 

45,509

Investments

 

 

876

 

 

735

Property, plant and equipment, net

 

 

92,219

 

 

94,003

Operating lease right-of-use assets, net

 

 

25,230

 

 

27,377

Other long-term assets

 

 

4,385

 

 

4,411

Intangible assets, net

 

 

101,902

 

 

105,372

Total Assets

 

$

273,776

 

$

277,407

Liabilities and Shareholders' (Deficit)

 

 

 

 

 

 

Accounts payable

 

$

14,446

 

$

14,399

Accrued and other current liabilities

 

 

106,572

 

 

103,261

Current portion of long-term debt, net of issuance costs

 

 

55

 

 

55

Current portion of operating lease liabilities

 

 

7,585

 

 

7,716

Current Liabilities

 

 

128,658

 

 

125,431

Long-term debt, net of issuance costs

 

 

168,358

 

 

165,221

Deferred income tax

 

 

17,914

 

 

20,412

Long-term portion of operating lease liabilities

 

 

27,001

 

 

28,009

Uncertain tax position liabilities

 

 

5,220

 

 

Total Liabilities

 

 

347,151

 

 

339,073

Commitments (Refer to Note 9)

 

 

 

 

 

 

Shareholders' (Deficit)

 

 

 

 

 

 

Common shares - no par value. Authorized - unlimited number. 6,615,002 -
   issued and outstanding (December 31, 2023 -
6,510,527 - issued and outstanding)

 

 

 

 

Additional paid-in capital

 

 

1,268,267

 

 

1,265,978

Accumulated deficit

 

 

(1,341,642)

 

 

(1,327,644)

Total Shareholders' (Deficit)

 

$

(73,375)

 

$

(61,666)

Total Liabilities and Shareholders' (Deficit)

 

$

273,776

 

$

277,407

 

The accompanying notes are an integral part of these unaudited interim condensed consolidated financial statements.

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iANTHUS CAPITAL HOLDINGS, INC.

UNAUDITED INTERIM CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands of U.S. dollars, except per share amounts)

 

 

 

Three Months Ended March 31,

 

 

2024

 

2023

Revenues, net of discounts

 

$

41,564

 

$

36,753

Costs and expenses applicable to revenues (exclusive of depreciation and amortization expense shown separately below)

 

 

(24,363)

 

 

(21,241)

Gross profit

 

 

17,201

 

 

15,512

 

 

 

 

 

 

 

Operating expenses

 

 

 

 

 

 

Selling, general and administrative expenses

 

 

17,518

 

 

17,869

Depreciation and amortization

 

 

5,883

 

 

6,454

Write-downs and other charges, net

 

 

397

 

 

516

Total operating expenses

 

 

23,798

 

 

24,839

 

 

 

 

 

 

 

Loss from operations

 

 

(6,597)

 

 

(9,327)

 

 

 

 

 

 

 

Interest and other income

 

 

652

 

 

565

Interest expense

 

 

(4,152)

 

 

(3,735)

Accretion expense

 

 

(1,072)

 

 

(978)

Loss on debt extinguishment (Refer to Note 4)

 

 

(114)

 

 

(1,288)

Gains/(losses) from changes in fair value of financial instruments

 

 

7

 

 

(33)

Loss before income taxes

 

 

(11,276)

 

 

(14,796)

 

 

 

 

 

 

 

Income tax expense

 

 

2,722

 

 

3,799

Net loss

 

$

(13,998)

 

$

(18,595)

 

 

 

 

 

 

 

Net loss per share - basic and diluted

 

$

(0.00)

 

$

(0.00)

Weighted average number of common shares outstanding - basic and diluted

 

 

6,573,595

 

 

6,419,395

 

The accompanying notes are an integral part of these unaudited interim condensed consolidated financial statements.

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iANTHUS CAPITAL HOLDINGS, INC.

UNAUDITED INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ (DEFICIT)

(In thousands of U.S. dollars or shares)

 

 

 

Three Months Ended March 31, 2024

 

 

Number of
Common Shares ('000)

 

Additional Paid-in-Capital

 

Accumulated Deficit

 

Total Shareholders’ (Deficit)

Balance – January 1, 2024

 

 

6,510,527

 

$

1,265,978

 

$

(1,327,644)

 

$

(61,666)

Share-based compensation

 

 

25,461

 

 

434

 

 

 

 

434

Shares settlement for taxes paid related to restricted stock units

 

 

(2,300)

 

 

(46)

 

 

 

 

(46)

Shares issued for legal settlement - (Refer to Note 10)

 

 

20,000

 

 

320

 

 

 

 

320

Shares issued for 2024 NJ Amendment

 

 

61,314

 

 

1,581

 

 

 

 

1,581

Net loss

 

 

 

 

 

 

(13,998)

 

 

(13,998)

Balance – March 31, 2024

 

 

6,615,002

 

$

1,268,267

 

$

(1,341,642)

 

$

(73,375)

 

 

 

Three Months Ended March 31, 2023

 

 

Number of
Common Shares ('000)

 

Additional Paid-in-Capital

 

Accumulated Deficit

 

Total Shareholders’ Equity (Deficit)

Balance – January 1, 2023

 

 

6,403,289

 

$

1,262,012

 

$

(1,251,023)

 

$

10,989

Share-based compensation

 

 

43,558

 

 

1,489

 

 

 

 

1,489

Share settlement for taxes paid related to restricted stock units

 

 

(7,776)

 

 

(201)

 

 

 

 

(201)

Net loss

 

 

 

 

 

 

(18,595)

 

 

(18,595)

Balance – March 31, 2023

 

 

6,439,071

 

$

1,263,300

 

$

(1,269,618)

 

$

(6,318)

 

The accompanying notes are an integral part of these unaudited interim condensed consolidated financial statements.

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iANTHUS CAPITAL HOLDINGS, INC.

UNAUDITED INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands of U.S. dollars)

 

 

 

Three Months Ended March 31,

 

 

2024

 

2023

CASH FLOW FROM OPERATING ACTIVITIES

 

 

 

 

 

 

Net loss

 

$

(13,998)

 

$

(18,595)

Adjustments to reconcile net loss to net cash provided by (used in) operations:

 

 

 

 

 

 

Interest income

 

 

(1)

 

 

(4)

Interest expense

 

 

4,152

 

 

3,735

Accretion expense

 

 

1,072

 

 

978

Depreciation and amortization

 

 

6,371

 

 

6,991

Write-downs and other charges, net

 

 

397

 

 

516

Inventory reserve

 

 

(24)

 

 

249

Share-based compensation

 

 

434

 

 

1,489

(Gains)/losses from changes in fair value of financial instruments

 

 

(7)

 

 

33

Loss on debt extinguishment (Refer to Note 4)

 

 

114

 

 

1,288

Loss on equity method investments

 

 

62

 

 

Change in operating assets and liabilities (Refer to Note 12)

 

 

2,935

 

 

2,533

NET CASH FLOW PROVIDED BY (USED IN) OPERATING ACTIVITIES

 

$

1,507

 

$

(787)

CASH FLOW FROM INVESTING ACTIVITIES

 

 

 

 

 

Purchase of property, plant and equipment

 

 

(878)

 

 

(1,002)

Acquisition of other intangible assets

 

 

(16)

 

 

(5)

Cash impact of deconsolidation of subsidiaries

 

 

 

 

(30)

NET CASH USED IN INVESTING ACTIVITIES

 

$

(894)

 

$

(1,037)

CASH FLOW FROM FINANCING ACTIVITIES

 

 

 

 

 

 

Repayment of debt

 

 

(14)

 

 

(13)

Taxes paid related to net share settlement of restricted stock units

 

 

(46)

 

 

(201)

NET CASH USED IN FINANCING ACTIVITIES

 

$

(60)

 

$

(214)

CASH AND RESTRICTED CASH

 

 

 

 

 

 

NET INCREASE (DECREASE) IN CASH AND RESTRICTED CASH DURING THE PERIOD

 

 

553

 

 

(2,038)

CASH AND RESTRICTED CASH, BEGINNING OF PERIOD (Refer to Note 12)

 

 

13,175

 

 

14,406

CASH AND RESTRICTED CASH, END OF PERIOD (Refer to Note 12)

 

$

13,728

 

$

12,368

 

The accompanying notes are an integral part of these unaudited interim condensed consolidated financial statements.

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iANTHUS CAPITAL HOLDINGS, INC.

NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Tabular U.S. dollar amounts and shares in thousands, unless otherwise stated)
 

Note 1 – Organization and Description of Business

(a) Description of Business

iAnthus Capital Holdings, Inc. (“ICH”), together with its consolidated subsidiaries (the “Company”) was incorporated under the laws of British Columbia, Canada, on November 15, 2013. The Company is a vertically-integrated multi-state owner and operator of licensed cannabis cultivation, processing and dispensary facilities in the United States. Through the Company’s subsidiaries, licenses, interests and contractual arrangements, the Company has the capacity to operate dispensaries and cultivation/processing facilities, and manufacture and distribute cannabis across the states in which the Company operates in the U.S.

The Company’s registered office is located at 1055 West Georgia Street, Suite 1500, Vancouver, British Columbia, V6E 4N7, Canada. The Company is listed on the Canadian Securities Exchange (the “CSE”) under the ticker symbol “IAN” and on the OTCQB Tier of the OTC Markets Group Inc. under the symbol “ITHUF.”

The Company’s business activities, and the business activities of its subsidiaries, which operate in jurisdictions where the use of marijuana has been legalized under state and local laws, currently are illegal under U.S. federal law. The U.S. Controlled Substances Act classifies marijuana as a Schedule I controlled substance. Any proceeding that may be brought against the Company could have a material adverse effect on the Company’s business plans, financial condition and results of operations.

(b) Basis of Presentation

The accompanying unaudited interim condensed consolidated financial statements (the “financial statements”) have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information and in accordance with the rules and regulations of the Securities and Exchange Commission (“SEC”). Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements and, therefore, certain information, footnotes and disclosures normally included in the annual financial statements, prepared in accordance with U.S. GAAP, have been condensed or omitted in accordance with SEC rules and regulations.

The financial data presented herein should be read in conjunction with the audited consolidated financial statements and accompanying notes for the year ended December 31, 2023, included in the Company’s Annual Report on the Form 10-K filed with the SEC on March 28, 2024. In the opinion of management, the financial data presented includes all adjustments necessary to present fairly the financial position, results of operations and cash flows for the periods presented. These unaudited interim condensed consolidated financial statements include estimates and assumptions of management that affect the amounts reported on the unaudited interim condensed consolidated financial statements. Actual results could differ from these estimates.

The results of operations for the three months ended March 31, 2024 are not necessarily indicative of the results to be expected for the entire year ending December 31, 2024, or any other period.

Except as otherwise stated, these unaudited interim condensed consolidated financial statements are presented in U.S. dollars.

(c) Consummation of Recapitalization Transaction

On June 24, 2022 (the “Closing Date”), the Company completed its previously announced recapitalization transaction (the “Recapitalization Transaction”) pursuant to the terms of the Restructuring Support Agreement (the “Restructuring Support Agreement”) dated July 10, 2020, as amended on June 15, 2021, by and among the Company, all of the holders (the “Secured Lenders”) of the 13.0% senior secured convertible debentures (the “Secured Notes”) issued by iAnthus Capital Management, LLC (“ICM”), a wholly-owned subsidiary of the Company, and a majority of the holders (the “Consenting Unsecured Lenders”) of the Company’s 8.0% unsecured convertible debentures (the “Unsecured Debentures”).

In connection with the closing of the Recapitalization Transaction, the Company issued an aggregate of 6,072,580 common shares to the Secured Lenders and the Unsecured Lenders. Specifically, the Company issued 3,036,290 common shares (the “Secured Lender Shares”), or 48.625% of the outstanding common shares of the Company, to the Secured Lenders and 3,036,290 common shares (the “Unsecured Lender Shares” and together with Secured Lender Shares, the “Shares”), or 48.625% of the outstanding common shares of the Company, to the Unsecured Lenders. As of the Closing Date, there were 6,244,298 common shares of the Company issued and outstanding. As of the Closing Date, the then existing holders of the Company’s common shares collectively held 171,718 common shares, or 2.75% of the outstanding common shares of the Company.

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iANTHUS CAPITAL HOLDINGS, INC.

NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Tabular U.S. dollar amounts and shares in thousands, unless otherwise stated)
 

As of the Closing Date, the outstanding principal amount of the Secured Notes (including the interim financing secured notes in the aggregate principal amount of approximately $14.7 million originally due on July 13, 2025) together with interest accrued and fees thereon were forgiven in part and exchanged for (A) the Secured Lender Shares, (B) the issuance of the 8.0% secured debentures (the "June Secured Debentures") by ICM to the New Secured Lenders (as defined below) in the aggregate principal amount of $99.7 million and (C) the issuance of the 8.0% unsecured debentures (the “June Unsecured Debentures”) by ICM to the Secured Lenders in the aggregate principal amount of $5.0 million. Also, as of the Closing Date, the outstanding principal amount of the Unsecured Debentures together with interest accrued and fees thereon were forgiven in part and exchanged for (A) the Unsecured Lender Shares and (B) the June Unsecured Debentures in the aggregate principal amount of $15.0 million. Furthermore, all existing options and warrants to purchase common shares of the Company, including certain debenture warrants and exchange warrants previously issued to the Secured Lenders, the warrants previously issued in connection with the Unsecured Debentures and all other Affected Equity (as defined in the amended and restated plan of arrangement (the "Plan of Arrangement"), were cancelled and extinguished for no consideration.

(d) Going Concern

These unaudited interim condensed consolidated financial statements have been prepared under the assumption that the Company will be able to continue its operations and will be able to realize its assets and discharge its liabilities in the normal course of business for the foreseeable future. For the three months ended March 31, 2024, the Company reported a net loss of $14.0 million, operating cash inflow of $1.5 million, a working capital deficiency of $79.5 million, and an accumulated deficit of $1,341.6 million as of March 31, 2024.

The Company believes it may continue to generate positive cash flows from operations in the near future, notwithstanding the foregoing, the substantial losses and working capital deficiency cast substantial doubt on the Company’s ability to continue as a going concern for a period of no less than 12 months from the date of this report. These unaudited interim condensed consolidated financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.

(e) Basis of Consolidation

The unaudited interim condensed consolidated financial statements include the accounts of ICH together with its consolidated subsidiaries, except for subsidiaries which ICH has identified as variable interest entities where ICH is not the primary beneficiary.

(f) Use of Estimates

The preparation of the unaudited interim condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and judgments that affect the application of accounting policies and the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of unaudited interim condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Estimates and assumptions are continuously evaluated and are based on management’s experience and other factors, including expectations regarding future events that are believed to be reasonable under the circumstances. Actual results may differ significantly from these estimates.

Significant estimates made by management include, but are not limited to: economic lives of leased assets; inputs used in the valuation of inventory; allowances for potential uncollectability of accounts receivable, provisions for inventory obsolescence; impairment assessment of long-lived assets; depreciable lives of property, plant and equipment; useful lives of intangible assets; accruals for contingencies including tax contingencies; valuation allowances for deferred income tax assets; estimates of fair value of identifiable assets and liabilities acquired in business combinations; estimates of fair value of derivative instruments; and estimates of the fair value of stock-based payment awards.

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iANTHUS CAPITAL HOLDINGS, INC.

NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Tabular U.S. dollar amounts and shares in thousands, unless otherwise stated)
 

(g) Recently Issued FASB Accounting Standard Updates

In November 2023, the FASB issued ASU 2023-07 Segment Reporting (Topic 280). All public entities will be required to report segment information in accordance with the new guidance starting in annual periods beginning after December 15, 2023. The amendments improve reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses. The Company is in the process of determining the effects adoption will have on its condensed consolidated financial statements.

In December 2023, the FASB issued ASU 2023-09 Income Taxes (Topic 740). For public business entities, the amendments are effective for annual periods beginning after December 15, 2024. The amendments address investor requests for more transparency about income tax information through improvements to income tax disclosures primarily related to the rate reconciliation and income taxes paid information. This amendment also looks to improve the effectiveness of income tax disclosures. The Company is in the process of determining the effects adoption will have on its condensed consolidated financial statements.

The Company does not believe any other recently issued, but not yet effective, accounting standards will have a material effect on our condensed consolidated financial statements.

Note 2 – Leases

The Company mainly leases office space and cannabis cultivation, processing and retail dispensary space. Leases with an initial term of less than 12 months are not recorded on the unaudited interim condensed consolidated balance sheets. The Company recognizes operating lease right-of-use assets and operating lease liabilities based on the present value of future minimum lease payments over the lease term at commencement date and lease expense for these leases on a straight-line basis over the lease term. Most leases include one or more options to renew, with renewal terms that can extend the lease term from one to five years or more. The Company has determined that it was reasonably certain that the renewal options on the majority of its cannabis cultivation, processing and retail dispensary space would be exercised based on operating history and knowledge, current understanding of future business needs and the level of investment in leasehold improvements, among other considerations. The incremental borrowing rate used in the calculation of the lease liability is based on the rate available to the parent company. The depreciable life of assets and leasehold improvements are limited by the expected lease term. The Company’s lease agreements do not contain any material residual value guarantees or material restrictive covenants. Certain subsidiaries of the Company rent or sublease certain office space to/from other subsidiaries of the Company. These intercompany subleases are eliminated on consolidation and have lease terms ranging from less than one year to 15 years.

Maturities of lease liabilities for operating leases as of March 31, 2024, were as follows:

 

 

 

 

Operating Leases

2025

 

 

 

$

7,585

2026

 

 

 

 

7,800

2027

 

 

 

 

7,694

2028

 

 

 

 

7,272

2029

 

 

 

 

7,186

Thereafter

 

 

 

 

47,171

Total lease payments

 

 

 

$

84,708

Less: interest expense

 

 

 

 

(50,122)

Present value of lease liabilities

 

 

 

$

34,586

Weighted-average remaining lease term (years)

 

 

 

 

10.7

Weighted-average discount rate

 

 

 

 

19%

 

For the three months ended March 31, 2024, the Company recorded operating lease expenses of $2.2 million (March 31, 2023 – $1.9 million), which are included in costs and expenses applicable to revenues and selling, general and administrative expenses on the unaudited interim condensed consolidated statements of operations.

The Company has entered into multiple sublease agreements pursuant to which it serves as lessor to the sublessees. The gross rental income and underlying lease expense are presented gross on the Company’s unaudited interim condensed consolidated statements of operations. For the three months ended March 31, 2024, the Company recorded sublease income of $0.2 million (March 31, 2023 – $0.2 million), which is included in interest and other income on the unaudited interim condensed consolidated statements of operations.

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iANTHUS CAPITAL HOLDINGS, INC.

NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Tabular U.S. dollar amounts and shares in thousands, unless otherwise stated)
 

Operating cash flows from operating leases for the three months ended March 31, 2024 was $1.9 million (March 31, 2023 - $2.0 million).

Supplemental balance sheet information related to leases are as follows:

 

 

 

 

 

 

 

 

 

Balance Sheet Information

 

Classification

 

March 31, 2024

 

December 31, 2023

Operating lease right-of-use assets, net

 

Operating leases

 

$

25,230

 

$

27,377

Lease liabilities

 

 

 

 

 

 

 

 

Current portion of operating lease liabilities

 

Operating leases

 

$

7,585

 

$

7,716

Long-term portion of operating lease liabilities

 

Operating leases

 

 

27,001

 

 

28,009

Total

 

 

 

$

34,586

 

$

35,725

 

Note 3 - Inventories, net

Inventories are comprised of the following items:

 

 

March 31,

 

December 31,

 

 

2024

 

2023

Supplies

 

$

5,317

 

$

5,331

Raw materials

 

 

7,637

 

 

7,110

Work in process

 

 

5,720

 

 

6,351

Finished goods

 

 

6,089

 

 

6,614

Inventory reserve

 

 

 

 

(24)

Total

 

$

24,763

 

$

25,382

 

Inventories are written down for any obsolescence or when the net realizable value considering future events and conditions is less than the carrying value. For the three months ended March 31, 2024, the Company recorded $Nil (March 31, 2023 – $0.9 million), related to spoiled inventory in costs and expenses applicable to revenues on the unaudited interim condensed consolidated statements of operations.

Note 4 - Long-Term Debt

The following table summarizes long term debt outstanding as of March 31, 2024:

 

 

Secured Notes

 

June Secured Debentures

 

Additional Secured Debentures

 

June Unsecured Debentures

 

Other

 

Total

As of January 1, 2024

 

$

15,565

 

$

101,856

 

$

28,247

 

$

18,856

 

$

752

 

$

165,276

Fair value of financial
   liabilities issued

 

 

14,346

 

 

 

 

 

 

 

 

 

 

14,346

Paid-in-kind interest

 

 

239

 

 

2,279

 

 

571

 

 

457

 

 

 

 

3,546

Accretion of balance

 

 

94

 

 

735

 

 

 

 

243

 

 

 

 

1,072

Debt extinguishment

 

 

(15,813)

 

 

 

 

 

 

 

 

 

 

(15,813)

Repayment

 

 

 

 

 

 

 

 

 

 

(14)

 

 

(14)

As of March 31, 2024

 

$

14,431

 

$

104,870

 

$

28,818

 

$

19,556

 

$

738

 

$

168,413

As of March 31, 2024, the total and unamortized debt discount costs were $21.9 million and $15.0 million, respectively (December 31, 2023— $20.4 million and $14.6 million, respectively).

As of March 31, 2024, the total interest accrued on both current and long-term debt was $0.3 million (December 31, 2023 - $Nil).

iAnthus New Jersey, LLC Senior Secured Bridge Notes

On February 2, 2021, INJ issued an aggregate of $11.0 million of Senior Secured Bridge Notes which initially matured on the earlier of (i) February 2, 2023, (ii) the date on which the Company closes a Qualified Financing (as defined below) and (iii) such earlier

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iANTHUS CAPITAL HOLDINGS, INC.

NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Tabular U.S. dollar amounts and shares in thousands, unless otherwise stated)
 

date that the principal amount may become due and payable pursuant to the terms of such notes. The Senior Secured Bridge Notes initially accrued interest at a rate of 14.0% per annum, decreasing to 8.0% upon the closing of the Recapitalization Transaction (increasing to 25.0% per annum in the event of default). “Qualified Financing” means a transaction or series of related transactions resulting in net proceeds to the ICH of not less than $10 million from the subscription of the ICH's securities, including, but not limited to, a private placement or rights offering.

On February 2, 2023, ICH and INJ entered into an amendment (the “Amendment”) to the Senior Secured Bridge Notes with all of the holders of the Senior Secured Bridge Notes. Pursuant to the Amendment, the maturity date of the Senior Secured Bridge Notes was extended until February 2, 2024, the interest on the principal amount outstanding was increased to a rate of 12.0% per annum, and an amendment fee equal to 10.0% of the principal amount outstanding of the Senior Secured Bridge Notes as of February 2, 2023 or $1.4 million in the aggregate, was added to such notes such that it will become due and payable on the extended maturity date.

On February 2, 2024, in order to facilitate the 2024 New Jersey Amendment, the parties agreed to a short-term extension of the maturity date from February 2, 2024 to February 16, 2024. On February 16, 2024, ICH and INJ entered into another amendment (the "2024 NJ Amendment") to the Senior Secured Bridge Notes. Pursuant to the 2024 NJ Amendment, the maturity date of the Senior Secured Bridge Notes was extended from February 16, 2024 to February 16, 2026 and the interest rate of the Senior Secured Bridge Notes remained at 12% per annum, but the interest accruing after February 16, 2024 will be payable in quarterly cash payments (the first interest payment being on May 16, 2024). In addition, the 2024 NJ Amendment provides for an amendment fee equal to 10% of the principal amount of the Senior Secured Bridge Notes as of the date of the 2024 NJ Amendment, or $1.6 million in the aggregate, which is satisfied through the issuance of ICH's common shares at a price per share equal to the volume-weighted average trading price of ICH's common shares on the CSE for the twenty (20) consecutive trading days immediately prior to the date of the 2024 NJ Amendment. Lastly, ICH and INJ agreed to utilize twenty-five percent (25%) of Non-Operational Receipts in excess of $5.0 million to make payments towards the principal amount outstanding under the Senior Secured Bridge Notes, without penalty. For purposes of the 2024 NJ Amendment, "Non-Operational Cash Receipts" means cash ICH received which is not derived from the sale of cannabis products in the ordinary course of business of ICH, whether through retail, wholesale or otherwise.

In accordance with debt extinguishment accounting guidance outlined in ASC 470, the terms of the Senior Secured Bridge Notes were materially modified pursuant to both the Amendment and 2024 NJ Amendment and as such, for the three months ended March 31, 2024 and 2023 the Company recorded a loss on debt extinguishment of $0.1 million and $1.3 million, respectively, on the unaudited interim condensed consolidated statements of operations.

The amended host debt, classified as a liability using the guidance of ASC 470, was recognized at the fair value of $14.3 million.

For the three months ended March 31, 2024, interest expense of $0.5 million (March 31, 2023 - $0.4 million), and accretion expense of $0.1 million (March 31, 2023 - less than $0.1 million), were recorded on the unaudited interim condensed consolidated statements of operations.

The Senior Secured Bridge Notes are secured by a security interest in certain assets of INJ. ICH provided a guarantee in respect of all of the obligations of INJ under the Senior Secured Bridge Notes, and the Company is in compliance with the terms of the Senior Secured Bridge Notes as of March 31, 2024. The Senior Secured Bridge Notes are classified as long-term debt, net of issuance costs on the unaudited interim condensed consolidated balance sheets.

Certain of the Secured Lenders, including Gotham Green Fund II, L.P., Gotham Green Fund II (Q), L.P., Oasis Investments II Master Fund LTD., Senvest Global (KY), LP, Senvest Master Fund, LP and Hadron Healthcare and Consumer Special Opportunities Master Fund, held greater than 5.0% of the outstanding common shares of the Company upon closing of the Recapitalization Transaction. As principal owners of the Company, these lenders are considered to be related parties.

(a) June Secured Debentures

On June 24, 2022 in connection with the closing of the Recapitalization Transaction, the Company entered into the Secured Debenture Purchase Agreement (the "Secured DPA"), between ICM, the other Credit Parties (as defined in the Secured DPA), the Collateral Agent, and the lenders party thereto (the “New Secured Lenders”) pursuant to which ICM issued the June Secured Debentures in the aggregate principal amount of $99.7 million which accrue interest at the rate of 8.0% per annum increasing to 11.0% per annum upon the occurrence of an Event of Default (as defined in the Secured DPA), with a maturity date of June 24, 2027. The June Secured Debentures may be prepaid on a pro rata basis from and after the third anniversary of the Closing Date of the Recapitalization Transaction upon prior written notice to the New Secured Lenders without premium or penalty.

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iANTHUS CAPITAL HOLDINGS, INC.

NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Tabular U.S. dollar amounts and shares in thousands, unless otherwise stated)
 

The host debt, classified as a liability using the guidance of ASC 470, was recognized at the fair value of $84.5 million.

Interest is to be paid in kind by adding the interest accrued on the principal amount on the last day of each fiscal quarter (the first such interest payment date being June 30, 2022) and such amount thereafter becoming part of the principal amount, which will accrue additional interest. Interest paid in kind will be payable on the date when all of the principal amount is due and payable.

For the three months ended March 31, 2024, interest expense of $2.3 million (March 31, 2023 - $2.1 million), and accretion expense of $0.7 million (March 31, 2023 - $0.7 million), were recorded on the unaudited interim condensed consolidated statements of operations.

The terms of the Secured DPA impose certain restrictions on the Company’s operating and financing activities, including certain restrictions on the Company’s ability to: incur certain additional indebtedness; grant liens; make certain dividends and other payment restrictions affecting the Company’s subsidiaries; issue shares or convertible securities; and sell certain assets. The June Secured Debentures are secured by all current and future assets of the Company and ICM. The terms of the Secured DPAs do not have any financial covenants or market value test and ICM is in compliance with the terms of the June Secured Debentures as of March 31, 2024. The June Secured Debentures are classified as long-term debt, net of issuance costs on the unaudited interim condensed consolidated balance sheets.

Certain of the New Secured Lenders that hold the June Secured Debentures, including Gotham Green Fund 1, L.P., Gotham Green Fund 1 (Q), L.P., Gotham Green Fund II, L.P., Gotham Green Fund II (Q), Gotham Green Credit Partners SPV 1, L.P., Gotham Green Partners SPV V, L.P., L.P., and Parallax Master Fund, LP, held greater than 5.0% of the outstanding common shares of the Company upon the closing of the Recapitalization Transaction. As principal owners of the Company, certain of the New Secured Lenders are considered to be related parties.

(b) June Unsecured Debentures

On June 24, 2022 in connection with the closing of the Recapitalization Transaction, the Company entered into the Unsecured Debenture Purchase Agreement (the "Unsecured DPA"), pursuant to which ICM issued June Unsecured Debentures in the aggregate principal amount of $20.0 million which accrue interest at the rate of 8.0% per annum increasing to 11.0% per annum upon the occurrence of an Event of Default (as defined in the Unsecured DPA), with a maturity date of June 24, 2027. The June Unsecured Debentures may be prepaid on a pro rata basis from and after the third anniversary of the Closing Date of the Recapitalization Transaction upon prior written notice to the Unsecured Lender without premium or penalty.

The host debt, classified as a liability using the guidance of ASC 470, was recognized at the fair value of $14.9 million.

Interest is to be paid in kind by adding the interest accrued on the principal amount on the last day of each fiscal quarter (the first such interest payment date being June 30, 2022) and such amount thereafter becoming part of the principal amount, which will accrue additional interest. Interest paid in kind will be payable on the date when all of the principal amount is due and payable.

For the three months ended March 31, 2024, interest expense of $0.5 million (March 31, 2023 - $0.4 million), and accretion expense of $0.2 million (March 31, 2023 - $0.2 million), were recorded on the unaudited interim condensed consolidated statements of operations.

The terms of the Unsecured DPA impose certain restrictions on the Company’s operating and financing activities, including certain restrictions on the Company’s ability to: incur certain additional indebtedness; grant liens; make certain dividends and other payment restrictions affecting the Company’s subsidiaries; issue shares or convertible securities; and sell certain assets. The terms of the Unsecured DPA do not have any financial covenants or market value test, and ICM is in compliance with the terms of the June Unsecured Debentures as of March 31, 2024. The June Unsecured Debentures are classified as long-term debt, net of issuance costs on the unaudited interim condensed consolidated balance sheets.

Certain of the Secured Lenders and Consenting Unsecured Lenders, including Gotham Green Fund 1, L.P., Gotham Green Fund 1 (Q), L.P., Gotham Green Fund II, L.P., Gotham Green Fund II (Q), L.P., Gotham Green Credit Partners SPV 1, L.P., Gotham Green Partners SPV V, L.P., Oasis Investments II Master Fund LTD., Senvest Global (KY), LP, Senvest Master Fund, LP, Parallax Master Fund, L.P. and Hadron Healthcare and Consumer Special Opportunities Master Fund, held greater than 5.0% of the outstanding common shares of the Company upon the closing of the Recapitalization Transaction. As principal owners of the Company, certain of the Consenting Unsecured Lenders are considered to be related parties.

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iANTHUS CAPITAL HOLDINGS, INC.

NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Tabular U.S. dollar amounts and shares in thousands, unless otherwise stated)
 

(c) Additional Secured Debentures

Pursuant to the terms of the Secured DPA, ICM issued an additional $25.0 million of June Secured Debentures (the "Additional Secured Debentures") on June 24, 2022 which accrue interest at the rate of 8.0% per annum increasing to 11.0% per annum upon the occurrence of an Event of Default (as defined in the Secured DPA), with a maturity date of June 24, 2027.

The host debt, classified as a liability using the guidance of ASC 470, was recognized at the fair value of $25.0 million.

Interest is to be paid in kind by adding the interest accrued on the principal amount on the last day of each fiscal quarter (the first such interest payment date being June 30, 2022) and such amount thereafter becoming part of the principal amount, which will accrue additional interest. Interest paid in kind will be payable on the date when all of the principal amount is due and payable.

For the three months ended March 31, 2024, interest expense of $0.6 million (March 31, 2023— $0.5 million), was recorded on the unaudited interim condensed consolidated statements of operations.

The terms of the Secured DPA impose certain restrictions on the Company’s operating and financing activities, including certain restrictions on the Company’s ability to: incur certain additional indebtedness; grant liens; make certain dividends and other payment restrictions affecting the Company’s subsidiaries; issue shares or convertible securities; and sell certain assets. The Additional Secured Debentures are secured by all current and future assets of the Company and ICM. The terms of the Secured DPAs do not have any financial covenants or market value test, and ICM is in compliance with the terms of the Additional Secured Debentures as of March 31, 2024. The Additional Secured Debentures are classified as long-term debt, net of issuance costs on the unaudited interim condensed consolidated balance sheets.

Certain of the New Secured Lenders that hold Additional Secured Debentures, including Gotham Green Fund 1, L.P., Gotham Green Fund 1 (Q), L.P., Gotham Green Fund II, L.P., Gotham Green Fund II (Q), L.P., Oasis Investments II Master Fund LTD., Senvest Global (KY), LP, Senvest Master Fund, LP and Hadron Healthcare and Consumer Special Opportunities Master Fund, held greater than 5.0% of the outstanding common shares of the Company upon the closing of the Recapitalization Transaction. As principal owners of the Company, certain of the New Secured Lenders are considered to be related parties.

Note 5 - Share Capital

(a)
Share Capital

Authorized: Unlimited common shares. The shares have no par value.

The Company’s common shares are voting and dividend-paying. The following is a summary of the common share issuances for the three months ended March 31, 2024:

On January 2, 2024, the Company issued common shares totaling 20,000 for the Hi-Med Settlement Agreement (Refer to Note 10).
On January 5, 2024, the Company issued 23,461 common shares for vested restricted stock units (“RSUs”). The Company withheld 2,300 common shares to satisfy employees’ tax obligations of less than $0.1 million.
On February 2, 2024, the Company issued common shares totaling 2,000 for vested RSUs.
On February 27, 2024, the Company issued 61,314 common shares to the holders of the Senior Secured Bridge Notes to satisfy the amendment fee pertaining to the 2024 NJ Amendment.

The following is a summary of the common share issuances for the three months ended March 31, 2023:

On January 3, 2023, the Company issued common shares totaling 15,628 for vested RSUs, out of which the Company withheld 7,776 shares to satisfy employees’ tax obligations with respect thereto of $0.2 million.
On March 3, 2023, the Company issued common shares totaling 27,930 for vested RSUs.

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iANTHUS CAPITAL HOLDINGS, INC.

NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Tabular U.S. dollar amounts and shares in thousands, unless otherwise stated)
 

(b)
Potentially Dilutive Securities

The following table summarizes potentially dilutive securities, and the resulting common share equivalents outstanding as of March 31, 2024 and December 31, 2023:

 

 

March 31, 2024

 

December 31, 2023

Common share options

 

7,877

 

7,877

Restricted stock units

 

287,646

 

325,643

Total

 

295,523

 

333,520

(c)
Equity Incentive Plans

On December 31, 2021, the Board approved the Company’s Amended and Restated Omnibus Incentive Plan (the “Omnibus Incentive Plan”) dated October 15, 2018, whereas, the Company may award stock options or RSUs (the "Awards") to board members, officers, employees or consultants of the Company. The Omnibus Incentive Plan authorizes the issuance of up to 20% of the number of outstanding shares of common stock of the Company,

Awards generally vest over a three year period and the estimated fair value of the Awards at issuance is recognized as compensation expense over the related vesting period.

Stock Options

The Company's stock options are currently held by two former officers of the Company which have fully vested on July 10, 2023. Share-based compensation expense related to stock options for the three months ended March 31, 2024 was $Nil (March 31, 2023 - less than $0.1 million), and is presented in selling, general and administrative expenses on the unaudited interim condensed consolidated statements of operations.

The following table summarizes certain information in respect of option activity during the period:

.

 

Three Months Ended March 31, 2024

 

 

Year Ended December 31, 2023

 

 

Units

 

 

Weighted Average
Exercise Price

 

Weighted Average Contractual Life

 

 

Units

 

 

Weighted Average
Exercise Price

 

Weighted Average Contractual Life

Options outstanding, beginning

 

7,877

 

$

0.05

 

7.78

 

 

7,877

 

$

0.05

 

7.78

Granted

 

 

 

 

 

 

 

 

 

Cancellations

 

 

 

 

 

 

 

 

 

Forfeitures

 

 

 

 

 

 

 

 

 

Expirations

 

 

 

 

 

 

 

 

 

Options outstanding, ending (1)

 

7,877

 

$

0.05

 

6.78

 

 

7,877

 

$

0.05

 

6.78

 

(1)
As of March 31, 2024, 7,877 of the stock options outstanding were exercisable (December 31, 2023 - 7,877).

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iANTHUS CAPITAL HOLDINGS, INC.

NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Tabular U.S. dollar amounts and shares in thousands, unless otherwise stated)
 

The Company used the Black-Scholes option pricing model to estimate the fair value of the options at the grant date using the following assumptions:

The expected volatility was estimated by using the historical volatility of the Company. The expected life in years represents the period of time that options granted are expected to be outstanding. In accordance with SAB Topic 14, the Company uses the simplified method for estimating the expected term. The Company believes the use of the simplified method is appropriate due to the employee stock options qualifying as “plain-vanilla” options under the criteria established by SAB Topic 14. The risk-free rate was based on the United States bond yield rate at the time of grant of the award. Expected annual rate of dividends is based on the fact that the Company has never paid cash dividends and does not expect to pay any cash dividends in the foreseeable future.

There was no stock option activity for the three months ended March 31, 2024 and the year ended December 31, 2023.

Restricted Stock Units

On December 31, 2021, the Board approved a long-term incentive program, pursuant to which, on July 26, 2022, the Company issued certain employees of the Company and its subsidiaries, RSUs, under the Omnibus Incentive Plan. RSUs represent a right to receive a single common share that is both non-transferable and forfeitable until certain conditions are satisfied.

On December 31, 2021 and June 23, 2022, the Board approved the allocation of 363,921 and 26,881 RSUs, respectively, to Board members, directors, officers, and key employees of the Company. The RSUs granted by the Company vest upon the satisfaction of both a service-based condition of three years and a liquidity condition, the latter of which was not satisfied until the closing of the Recapitalization Transaction. As the liquidity condition was not satisfied until the closing of the Recapitalization Transaction, in prior periods, the Company had not recorded any expense related to the grant of RSUs. Share-based compensation expense in relation to the RSUs is recognized using the graded vesting method, in which compensation costs for each vesting tranche is recognized ratably from the service inception date to the vesting date for that tranche. The fair value of the RSUs is determined using the Company’s closing stock price on the grant date.

Certain RSU recipients were also holders of the Original Awards, which were cancelled upon closing the Recapitalization Transaction. The RSUs granted to these employees have been treated as replacement awards (the “Replacement RSUs”) and are accounted for as a modification to the Original Awards. As the fair value of the Original Awards was $Nil on the modification dates, the incremental compensation cost recognized is equal to the fair value of the Replacement RSUs on the modification date, which shall be recognized over the remaining requisite service period.

On May 17, 2023, the Board awarded 25,977 RSUs to employees and one Board member. Of the RSUs awarded, 5,587 were fully vested on issuance and 20,391 shall vest over a period of one to three years. The fair value of RSUs is determined on the grant date and is amortized over the vesting period on a straight-line basis.

On June 27, 2023, the Board awarded 12,950 RSUs to an employee. The RSUs shall vest over a period of three years. The fair value of RSUs is determined on the grant date and is amortized over the vesting period on a straight-line basis.

On August 31, 2023, the Board awarded 207,194 RSUs to two officers. The RSUs shall vest over a period of three years. The fair value of RSUs is determined on the grant date and is amortized over the vesting period on a straight-line basis.

On October 20, 2023, the Board awarded 15,487 RSUs to Robert Galvin, a former officer of the Company, for compensation owed. The fair value of the RSUs was determined on the grant date and became fully vested as of January 4, 2024 per the October Separation Agreement.

On November 15, 2023, the Board awarded 42,604 RSUs to four Board members, and an officer. The RSUs shall vest over a period of one to three years. The fair value of the RSUs is determined on the grant date and is amortized over the vesting period on a straight-line basis.

There was no RSUs awarded during the three months ended March 31, 2024.

During the three months ended March 31, 2024, the Company recognized $0.4 million of share-based compensation expense associated with the RSUs (March 31, 2023—$1.5 million). Share-based compensation expense is presented in selling, general and administrative expenses on the unaudited interim condensed consolidated statements of operations.

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Table of Contents

iANTHUS CAPITAL HOLDINGS, INC.

NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Tabular U.S. dollar amounts and shares in thousands, unless otherwise stated)
 

As of March 31, 2024, there was approximately $4.2 million of total unrecognized compensation cost related to unvested RSUs which is expected to be recognized over a weighted-average service period of 2.13 years.

The following table summarizes certain information in respect of RSU activity during the period:

 

 

Three Months Ended March 31, 2024

 

Year Ended December 31, 2023

 

 

Units

 

 

Weighted
Average
Grant Price

 

Units

 

 

Weighted
Average
Grant Price

Unvested balance, beginning

 

315,668

 

$

0.02

 

129,671

 

$

0.07

Granted

 

 

 

 

304,212

 

 

0.02

Vested

 

(15,974)

 

 

0.02

 

(108,021)

 

 

0.08

Forfeited

 

(12,536)

 

 

0.02

 

(10,194)

 

 

0.07

Unvested balance, ending

 

287,158

 

$

0.02

 

315,668

 

$

0.02

Note 6 - Income Taxes

The following table summarizes the Company’s income tax expense and effective tax rates for the three months ended March 31, 2024 and 2023:

 

 

 

Three Months Ended March 31,

 

 

 

2024

 

2023

 

Loss before income taxes

 

$

(11,276)

 

$

(14,796)

 

Income tax expense

 

 

2,722

 

 

3,799

 

Effective tax rate

 

 

-24.1%

 

 

-25.7%

 

 

The Company's effective tax rate differs from the federal statutory rate of 21.0% primarily due to certain non-deductible items, state and local income taxes and the valuation allowance for deferred tax assets of both cultivator and non-cultivator entities.

The Company recognizes the effect of income tax positions only when it is more likely than not of being sustainable. The taxes are recorded in accordance with ASC 740-10, Accounting for Uncertainty in Income Taxes. Changes in recognition or measurement are reflected in the period in which the change in judgment occurs. It is reasonable that the existing liabilities for the unrecognized tax benefits may increase or decrease over the next 12 months as a result of assessments, examinations and statute expirations; however, the ultimate timing of the resolution of these items is highly uncertain.

As of March 31, 2024, the Company had recorded total unrecognized tax position liabilities of $5.2 million that, if recognized, would impact the effective tax rate. This amount is classified as a long-term liability on the unaudited interim condensed consolidated balance sheets. The Company had no unrecognized tax benefits for the period ending March 31, 2023. The increase of $5.2 million in uncertain tax positions is primarily due to tax positions based on legal interpretations that challenge the Company's tax liability under IRC Section 280E. The Company records interest and penalties related to unrecognized tax benefits within the provision for income taxes.

The Internal Revenue Service filed Notices of Federal Tax Liens against certain subsidiaries of the Company in the aggregate amount of approximately $17.2 million and $24.4 million for the years ended December 31, 2020 and 2021, respectively. The Company is actively working to resolve these matters with the Internal Revenue Service.

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Table of Contents

iANTHUS CAPITAL HOLDINGS, INC.

NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Tabular U.S. dollar amounts and shares in thousands, unless otherwise stated)
 

Note 7 - Segment Information

The below table presents results by segment for the three months ended March 31, 2024 and 2023:

Reportable Segments

 

 

Three Months Ended March 31,

 

2024

 

2023

Revenues, net of discounts

 

 

 

 

 

Eastern Region

$

30,226

 

$

22,011

Western Region

 

11,338

 

 

14,565

Other(1)

 

 

 

177

Total

$

41,564

 

$

36,753

Gross profit (loss)

 

 

 

 

 

Eastern Region

$

13,356

 

$

10,621

Western Region

 

3,845

 

 

5,172

Other

 

 

 

(281)

Total

$

17,201

 

$

15,512

Depreciation and amortization

 

 

 

 

 

Eastern Region

$

4,007

 

$

4,472

Western Region

 

1,758

 

 

1,853

Other

 

118

 

 

129

Total

$

5,883

 

$

6,454

(Recoveries), write-downs and other charges, net

 

 

 

 

 

Eastern Region

$

16

 

$

(1)

Western Region

 

61

 

 

Other

 

320

 

 

517

Total

$

397

 

$

516

Net loss

 

 

 

 

 

Eastern Region

$

(981)

 

$

(5,914)

Western Region

 

(635)

 

 

(440)

Other

 

(12,382)

 

 

(12,241)

Total

$

(13,998)

 

$

(18,595)

Purchase of property, plant and equipment

 

 

 

 

 

Eastern Region

$

833

 

$

989

Western Region

 

39

 

 

10

Other

 

6

 

 

3

Total

$

878

 

$

1,002

Purchase of other intangible assets

 

 

 

 

 

Other

 

16

 

 

5

Total

$

16

 

$

5

 

(1)
Revenues from segments below the quantitative thresholds are attributable to an operating segment of the Company that includes revenue from the sale of CBD products throughout the United States. This segment has never met any of the quantitative thresholds for determining reportable segments nor does it meet the qualitative criteria for aggregation with the Company’s reportable segments. The Company has deconsolidated results from its Vermont and CBD operations as of March 8, 2023 and May 8, 2023, respectively.

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iANTHUS CAPITAL HOLDINGS, INC.

NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Tabular U.S. dollar amounts and shares in thousands, unless otherwise stated)
 

 

 

As of March 31,

 

As of December 31,

 

 

2024

 

 

2023

Assets

 

 

 

 

 

Eastern Region

$

213,700

 

$

215,743

Western Region

 

47,612

 

 

51,148

Other

 

12,464

 

 

10,516

Total

$

273,776

 

$

277,407

Major Customers

Major customers are defined as customers that each individually accounted for greater than 10.0% of the Company’s annual revenues. For the three months ended March 31, 2024 and 2023, no sales were made to any one customer that represented in excess of 10.0% of the Company’s total revenues.

Geographic Information

As of March 31, 2024 and 2023, substantially all of the Company’s assets were located in the United States and all of the Company’s revenues were earned in the United States.

Disaggregated Revenues

The Company disaggregates revenues into categories that depict how the nature, amount, timing and uncertainty of the revenues and cash flows are affected by economic factors. For the three months ended March 31, 2024 and 2023, the Company disaggregated its revenues as follows:

 

 

Three Months Ended March 31,

 

2024

 

2023

Revenues, net of discounts

 

 

 

 

 

iAnthus branded products

$

21,201

 

$

20,919

Third party branded products

 

15,868

 

 

13,678

Wholesale/bulk/other products

 

4,495

 

 

2,156

Total

$

41,564

 

$

36,753

 

Note 8 — Financial Instruments

Fair values have been determined for measurement and/or disclosure purposes based on the following methods. The Company characterizes inputs used in determining fair value using a hierarchy that prioritizes inputs depending on the degree to which they are observable. The levels of the fair value hierarchy are as follows:

Level 1 – fair value measurements are those derived from quoted prices (unadjusted) in active markets for identical assets or liabilities;
Level 2 – fair value measurements are those derived from inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e., as prices) or indirectly (i.e., derived from prices); and
Level 3 – fair value measurements are those derived from valuation techniques that include inputs for the asset or liability that are not based on observable market data (unobservable inputs).

The carrying values of cash, receivables, payables and accrued liabilities approximate their fair values because of the short-term nature of these financial instruments. Balances due to and due from related parties have no terms and are payable on demand, thus are also considered current and short-term in nature, hence carrying value approximates fair value.

The component of the Company’s long-term debt attributed to the host liability is recorded at amortized cost. Investments in debt instruments that are held to maturity are also recorded at amortized cost.

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iANTHUS CAPITAL HOLDINGS, INC.

NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Tabular U.S. dollar amounts and shares in thousands, unless otherwise stated)
 

The following table summarizes the fair value hierarchy for the Company’s financial assets and financial liabilities that are re-measured at their fair values periodically:

 

 

 

As of March 31, 2024

 

As of December 31, 2023

 

 

Level 1

 

Level 2

 

Level 3

 

Total

 

Level 1

 

Level 2

 

Level 3

 

Total

Financial assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Long term investments - other (1)

 

$

63

 

$

 

$

813

 

$

876

 

$

56

 

$

 

$

679

 

$

735

 

(1)
Long-term investments – other are included in the investments balance on the unaudited interim condensed consolidated balance sheets.

There were no transfers or change in valuation method between Level 1, Level 2, and Level 3 within the fair value hierarchy during the three months ended March 31, 2024 and 2023.

The Company’s investment in 4Front Venture Corp. as of March 31, 2024 and December 31, 2023, is considered to be a Level 1 instrument because it is comprised of shares of a public company, and there is an active market for the shares and observable market data available.

Level 1 investments are comprised of equity investments which are re-measured at fair value using quoted market prices.

Level 3 investment is comprised of an investment in which the Company exercises significant influence and is therefore recorded under the equity method. The investment was initially recognized at cost and the Company recognizes its proportionate share of earnings and losses from the investment each reporting period.

The following table summarizes the changes in Level 1 and Level 3 financial assets:

 

 

Financial Assets

 

 

 

4Front Venture Corp.

 

 

Island Thyme LLC

 

 

 

 

 

 

 

Balance as of December 31, 2023

 

$

56

 

$

679

Additions

 

 

 

 

196

Revaluations

 

 

7

 

 

Loss on equity method investments

 

 

 

 

(62)

Balance as of March 31, 2024

 

$

63

 

$

813

 

The Company’s financial and non-financial assets such as prepayments, other assets including equity accounted investments, property, plant and equipment, and intangibles, are measured at fair value when there is an indicator of impairment and are recorded at fair value only when an impairment charge is recognized.

The following table summarizes the Company’s long-term debt instruments (Note 4) at their carrying value and fair value:

 

 

As of March 31, 2024

 

As of December 31, 2023

 

 

Carrying Value

 

Fair Value

 

Carrying Value

 

Fair Value

June Unsecured Debentures

 

$

19,556

 

$

17,745

 

$

18,856

 

$

17,301

June Secured Debentures

 

 

133,688

 

 

120,325

 

 

130,103

 

 

118,118

Secured Notes

 

 

14,431

 

 

14,646

 

 

15,565

 

 

15,414

Other

 

 

738

 

 

747

 

 

752

 

 

772

Total

 

$

168,413

 

$

153,463

 

$

165,276

 

$

151,605

 

Note 9 – Commitments

In the ordinary course of business, the Company enters into contractual agreements with third parties that include non-cancelable payment obligations, for which it is liable in future periods. These arrangements can include terms binding the Company to minimum payments and/or penalties if it terminates the agreement for any reason other than an event of default as described in the agreement.

20


Table of Contents

iANTHUS CAPITAL HOLDINGS, INC.

NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Tabular U.S. dollar amounts and shares in thousands, unless otherwise stated)
 

The following table summarizes the Company’s contractual obligations and commitments as of March 31, 2024:

 

 

 

2025

 

2026

 

2027

 

2028

 

2029