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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, 2022
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.)
   
420 Lexington Avenue, Suite 414
New York, NY
 
10170
(Address of principal executive offices)
 
(Zip Code)
(646)
518-9411
(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 12, 2022 was
 171,718,192.
 
 
 

Table of Contents
Table of Contents
 
 
  
 
  
Page

No.
 
PART I. FINANCIAL INFORMATION
  
Item 1.
  
  
 
1
 
  
  
 
1
 
  
  
 
2
 
  
  
 
3
 
  
  
 
4
 
  
  
 
5
 
Item 2.
  
  
 
31
 
Item 3.
  
  
 
41
 
Item 4.
  
  
 
41
 
PART II. OTHER INFORMATION
  
Item 1.
  
  
 
42
 
Item 1A.
  
  
 
44
 
Item 2.
  
  
 
44
 
Item 3.
  
  
 
44
 
Item 4.
  
  
 
44
 
Item 5.
  
  
 
44
 
Item 6.
  
  
 
44
 
  
  
 
45
 
 

Table of Contents
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS AND INDUSTRY DATA
This Quarterly Report on Form
10-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.

Table of Contents
ITEM 1.
FINANCIAL STATEMENTS
iANTHUS CAPITAL HOLDINGS, INC.
UNAUDITED INTERIM CONDENSED CONSOLIDATED BALANCE SHEET
(In thousands of U.S. dollars or shares)
 
 
  
March 31,
 
 
December 31,
 
 
  
2022
 
 
2021
 
 
  
 
 
 
(Revised)
 
Assets
  
 
Cash
   $ 14,078     $ 13,244  
Restricted cash
     2,641       3,334  
Accounts receivable, net of allowance for doubtful accounts of $15 (December 31, 2021—$27)
     3,687       3,595  
Prepaid expenses
     5,060       3,178  
Inventories, net
     31,950       28,692  
Other current assets
     1,462       1,603  
    
 
 
   
 
 
 
Current Assets
  
 
58,878
 
 
 
53,646
 
Investments
     536       568  
Property, plant and equipment, net
     109,716       112,634  
Right-of-use
assets
     32,529       30,429  
Other long-term assets
     3,897       8,650  
Intangible assets, net
     154,139       139,062  
    
 
 
   
 
 
 
Total Assets
  
$
359,695
 
 
$
344,989
 
    
 
 
   
 
 
 
Liabilities and Shareholder’s Deficit
                
Accounts payable
   $ 17,296     $ 13,636  
Accrued and other current liabilities
     110,817       98,933  
Current portion of long-term debt, net of issuance costs
     178,562       165,381  
Derivative liabilities
     4       16  
Current portion of lease liabilities
     7,895       7,342  
    
 
 
   
 
 
 
Current Liabilities
  
 
314,574
 
 
 
285,308
 
Long-term debt, net of issuance costs
     16,336       27,999  
Deferred income tax
     31,597       27,507  
Long-term portion of lease liabilities
     29,465       27,814  
    
 
 
   
 
 
 
Total Liabilities
  
 
391,972
 
 
 
368,628
 
    
 
 
   
 
 
 
Commitments and Contingencies
                
Shareholders’ Deficit
                
Common shares—no par value. Authorized—
unlimited
number. 171,718—issued and outstanding (December 31, 2021—171,718—issued and outstanding)
     —         —    
Shares to be issued
     1,531       1,531  
Additional
paid-in
capital
     777,926       776,462  
Accumulated deficit
     (811,734 )     (801,632
    
 
 
   
 
 
 
Total Shareholders’ Deficit
  
$
(32,277
)  
$
(23,639
)
    
 
 
   
 
 
 
Total Liabilities and Shareholders’ Deficit
  
$
359,695
 
 
$
344,989
 
    
 
 
   
 
 
 
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)
 
 
  
For the Three Months Ended March 31,
 
 
  
2022
 
 
2021
 
Revenues, net of discounts
  
$
42,790
 
 
$
51,805
 
Costs and expenses applicable to revenues
  
 
(20,298
)  
 
(22,084
    
 
 
   
 
 
 
Gross profit
  
 
22,492
 
 
 
29,721
 
    
 
 
   
 
 
 
Operating expenses
                
Selling, general and administrative expenses
     23,406       24,228  
Depreciation and amortization
     8,406       6,832  
Write-downs, recoveries and other charges, net
     57       259  
    
 
 
   
 
 
 
Total operating expenses
     31,869       31,319  
    
 
 
   
 
 
 
Loss from operations
  
 
(9,377
)  
 
(1,598
Interest income
     60       124  
Other income
     11,266       274  
Interest expense
     (5,894     (5,678
Accretion expense
     (766     (4,852
Provision for debt obligation fee
     (414     (414
Losses from change in fair value of financial instruments
     (102     (17
    
 
 
   
 
 
 
Loss before income taxes
  
 
(5,227
)  
 
(12,161
Income tax expense
     4,875       7,291  
    
 
 
   
 
 
 
Net loss
  
$
(10,102
)  
$
(19,452
    
 
 
   
 
 
 
Net loss per share—basic and diluted
  
$
(0.06
)  
$
(0.11
Weighted average number of common shares outstanding—basic and diluted
  
 
171,718
 
 
 
171,718
 
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) EQUITY
(In thousands of U.S. dollars or shares)
 
 
  
Three Months Ended March 31, 2022
 
 
  
Number of Common
Shares (‘000)
 
  
Shares to
be Issued
 
  
Additional Paid-

in-Capital
 
  
Accumulated
Deficit
 
 
Total Shareholders’
Deficit
 
Balance – January 1, 2022 – (Revised)

  
 
171,718
 
  
$
1,531
 
  
$
776,462
 
  
$
(801,632
)  
$
(23,639
)
Share-based compensation
     —          —          1,464        —         1,464  
Net loss
     —          —          —          (10,102 )     (10,102 )
    
 
 
    
 
 
    
 
 
    
 
 
   
 
 
 
Balance – March 31, 2022
  
 
171,718
 
  
$
1,531
 
  
$
777,926
 
  
$
(811,734
)  
$
(32,277
)
    
 
 
    
 
 
    
 
 
    
 
 
   
 
 
 

    
Three Months Ended March 31, 2021
 
    
Number of Common
Shares (‘000)
    
Shares to
be Issued
    
Additional Paid-

in-Capital
    
Accumulated
Deficit
   
Total Shareholders’
Equity
 
Balance – January 1, 2021 – (Revised)

  
 
171,718
 
  
$
1,531
 
  
$
769,940
 
  
$
(724,142
 
$
47,329
 
Share-based compensation
     —          —          1,634        —         1,634  
Net loss
     —          —          —          (19,452     (19,452
    
 
 
    
 
 
    
 
 
    
 
 
   
 
 
 
Balance – March 31, 2021
  
 
171,718
 
  
$
1,531
 
  
$
771,574
 
  
$
(743,594
 
$
29,511
 
    
 
 
    
 
 
    
 
 
    
 
 
   
 
 
 
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,
 
 
  
2022
 
 
2021
 
CASH FLOW FROM OPERATING ACTIVITIES
  
 
Net loss
   $ (10,102   $ (19,452
Adjustments to reconcile net loss to cash provided by operations:
                
Interest income
     (60     (124
Interest expense
     5,894       5,678  
Accretion expense
     766       4,852  
Debt obligation fees
     414       414  
Depreciation and amortization
     9,029       7,374  
Write-downs, recoveries and other charges, net
     57       259  
Share-based compensation
     1,464       1,634  
Losses from change in fair value of financial instruments
     102       17  
Gain from nonmonetary consideration from
acquisition (Refer to Note 4)

 
 
(10,460

)
 
 

 
Deferred income taxes
     —         8  
Change in operating assets and liabilities (
Refer to Note 13)
     4,647       4,792  
    
 
 
   
 
 
 
NET CASH FLOW PROVIDED BY OPERATING ACTIVITIES
  
$
1,751
 
 
$
5,452
 
    
 
 
   
 
 
 
CASH FLOW FROM INVESTING ACTIVITIES
                
Purchase of property, plant and equipment
     (1,573     (4,752
Acquisition of other intangible assets
     (61     —    
Proceeds from sale of property, plant and equipment
     127       —    
Issuance of related party promissory note
     (92     (375
Purchase of subsidiaries, net of cash acquired
     4       —    
    
 
 
   
 
 
 
NET CASH USED IN INVESTING ACTIVITIES
  
$
(1,595
 
$
(5,127
    
 
 
   
 
 
 
CASH FLOW FROM FINANCING ACTIVITIES
                
Proceeds from issuance of debt
     —         11,000  
Debt issuance costs
     —         (694
Repayment of debt
     (15     (14
NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES
  
$
(15
 
$
10,292
 
    
 
 
   
 
 
 
CASH AND RESTRICTED CASH:
                
NET INCREASE IN CASH AND RESTRICTED CASH DURING THE YEAR
     141       10,617  
    
 
 
   
 
 
 
CASH AND RESTRICTED CASH, BEGINNING OF YEAR (
Refer to Note 13
)
     16,578       11,510  
    
 
 
   
 
 
 
CASH AND RESTRICTED CASH, END OF YEAR (
Refer to Note 13
)
  
$
16,719
 
 
$
22,127
 

 
 
 
 
 
 
 
 
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”, or “iAnthus”), 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, and developer, producer and distributor of innovative branded cannabis and cannabidiol (“CBD”) products 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. Additionally, the Company distributes CBD products online and to retail locations across the United States.
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, 2021, included in the Company’s Annual Report on the Form
10-K
filed with the SEC on March 18, 2022. 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 condensed consolidated financial statements. Actual results could differ from these estimates.
The results of operations for the three months ended March 31, 2022 are not necessarily indicative of the results to be expected for the entire year ending December 31, 2022, or any other period.
Except as otherwise stated, these unaudited interim condensed consolidated financial statements are presented in U.S. dollars.
(c)
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 in the foreseeable future. For the three months ended March 31, 2022, the Company reported a net loss of $10.1 million, operating cash inflows of $1.8 million and an accumulated deficit of $811.7 million as of March 31, 2022. These material circumstances cast substantial doubt on the Company’s ability to continue as a going concern for a period at least 12 months from the date of this report and ultimately on the appropriateness of the use of the accounting principles applicable to a going concern.
During the three months ended March 31, 2022, due to liquidity constraints, the Company did not make interest payments due to the lenders (the “Secured Lenders”) of the Company’s
13%
senior secured convertible debentures (the “Secured Notes”) and the lenders (the “Unsecured Lenders” and together with the Secured Lenders, the “Lenders”) of the Company’s 8% convertible unsecured debentures (the “Unsecured Debentures”). The Company is currently in default with respect to certain of its long-term debt, which, as of March 31, 2022,
consists of 
$97.5 million and $60.0 million of principal amount and $34.8 million and $10.8 million in accrued interest with respect to the Secured Notes and Unsecured Debentures, respectively. In addition, as a result of the default, the Company has accrued additional fees and interest of $15.8 million in excess of the aforementioned amounts. Refer to Note 5 and Note 14 for further discussion.
 
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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 a result of the March 31, 2020 default, the Board of Directors of the Company (the “Board” or the “Board of Directors”) formed a special committee comprised of the Company’s then five independent,
non-management
directors of the Company (the “Special Committee”) to, among other matters, explore and consider strategic alternatives available to the Company in light of the prospective liquidity requirements of the Company, the condition of the capital markets affecting companies in the cannabis industry, and the rapid change in the state of the economy and capital markets generally caused by the novel coronavirus known as
COVID-19
(“COVID-19”),
including, but not limited to:
 
 
 
renegotiation of existing financing arrangements and other material contracts, including any amendments, waivers, extensions or similar agreements with the Lenders and/or stakeholders of the Company and/or its subsidiaries that the Special Committee determines are in the best interest of the Company and/or its subsidiaries;
 
 
 
managing available sources of capital, including equity investments or debt financing or refinancing and the terms thereof;
 
 
 
implementing the operational and financial restructuring of the Company and its subsidiaries and their respective businesses, assets and licensure and other rights; and
 
 
 
implementing other potential strategic transactions.
The Special Committee engaged Canaccord Genuity Corp. as its financial advisor to assist the Special Committee in analyzing various strategic alternatives to address its capital structure and liquidity challenges.
On June 22, 2020, the Company received notice from Gotham Green Admin 1, LLC (the “Collateral Agent”), as collateral agent holding security for the benefit of the Secured Lenders, with a demand for repayment (the “Demand Letter”) under the Amended and Restated Secured Debenture Purchase Agreement dated October 10, 2019 (the “Secured Notes Purchase Agreement”) of the entire principal amount of the Secured Notes, together with interest, fees, costs and other allowable charges that had accrued or might accrue in accordance with the Secured Notes Purchase Agreement and the other Transaction Agreements (as defined in the Secured Notes Purchase Agreement). The Collateral Agent also concurrently provided the Company with a Notice of Intention to Enforce Security (the “BIA Notice”) under section 244 of the Bankruptcy and Insolvency Act (Canada) (the “BIA”).
On July 10, 2020, the Company and certain of its subsidiaries entered into a restructuring support agreement (as amended, the “Restructuring Support Agreement”) with the Secured Lenders and certain of the Unsecured Lenders (the “Consenting Unsecured Lenders”) to affect a proposed recapitalization transaction (the “Recapitalization Transaction”). Under the Restructuring Support Agreement, certain of the Secured Lenders agreed to provide interim financing in the amount of $14.7 million (the “Tranche Four Secured Notes”). Refer Note 14 for further details regarding the proposed transaction.
Subject to compliance with the Restructuring Support Agreement, the Secured Lenders and the Consenting Unsecured Lenders will forbear from further exercising any rights or remedies in connection with any events of default of the Company occurring under their respective agreements and will stop any current or pending enforcement actions with respect to the same, including as set forth in the Demand Letter.
Pursuant to the terms of the Restructuring Support Agreement, the Recapitalization Transaction would be implemented pursuant to arrangement proceedings (“Arrangement Proceedings”) commenced under the British Columbia Business Corporations Act, or, only if necessary, the Companies’ Creditors Arrangement Act (Canada) (“CCAA”). Completion of the Recapitalization Transaction through the Arrangement Proceedings is subject to, among other things, requisite stakeholder approval of the plan of arrangement (the “Plan of Arrangement”).
 
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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)
 
On September 14, 2020, the Company held meetings at which the stakeholders approved the Plan of Arrangement. Following the stakeholder vote, on September 25, 2020, the Company attended a court hearing before the Supreme Court of British Columbia (the “Court”) to receive approval of the Plan of Arrangement. On October 5, 2020, the Company received final approval from the Court for the Plan of Arrangement. On November 5, 2020, the Company received a notice of appeal with respect to the final approval for the Plan of Arrangement by the Court, and on January 29, 2021, the appeal was dismissed by the British Columbia Court of Appeal. Because the Company received the necessary approvals of the Plan of Arrangement from the Court, Secured Lenders, Unsecured Lenders and the holders of the Company’s common shares, options and warrants, the Recapitalization Transaction will be implemented through the British Columbia Business Corporations Act and not the CCAA.
The Company may be required to obtain other necessary approvals with respect to the Plan of Arrangement, including approvals by state-level regulators and the Canadian Securities Exchange (collectively, the “Requisite Approvals”). Specifically, certain of the transactions contemplated by the Recapitalization Transaction have triggered the requirement for an approval by state-level regulators in certain U.S. states with jurisdiction over the licensed cannabis operations of entities owned, in whole or in part, or controlled, directly or indirectly, by the Company in such states. On February 23, 2021, the Nevada Cannabis Compliance Board approved the proposed change of ownership and control of the Company’s wholly-owned subsidiary, GreenMart of Nevada NLV, LLC (“GMNV”), contemplated by the Recapitalization Transaction. On June 17, 2021, the Massachusetts Cannabis Control Commission (the “CCC”) approved the proposed change of ownership and control of the current licenses held by the Company’s wholly-owned subsidiaries, Mayflower Medicinals, Inc. (“Mayflower”) and Cannatech Medicinals, Inc. (“Cannatech”), contemplated by the Recapitalization Transaction (the “June 17 Approval”). On June 15, 2021, the Company and the Lenders agreed to amend the date by which the Recapitalization Transaction pursuant to the Plan of Arrangement is required to be implemented by from June 30, 2021 to August 31, 2021 (the “Outside Date”).
On August 12, 2021, Mayflower’s pending application for a Marijuana Establishment retail license for its Allston, Massachusetts retail location (the “Allston Retail License”) was approved by the CCC at its August 2021 public meeting. As a result of such August 12, 2021 approval, Mayflower was required to submit a new change of ownership and control application to the CCC in connection with the Recapitalization Transaction with respect to the Allston Retail License (the “New COC Application”). The New COC Application was submitted by Mayflower on November 10, 2021 and is currently pending before the CCC. The New COC Application must be approved by the CCC before the June 17 Approval can be effectuated.
On August 20, 2021, Gotham Green Partners, LLC and Gotham Green Admin 1, LLC (the “Applicants”) filed a Notice of Application (the “Application”) with the Ontario Superior Court of Justice Commercial List (“OSCJ”), which sought, among other things, a declaration that the Outside Date be extended to the date on which any regulatory approval or consent condition to implementation of the Plan of Arrangement is satisfied or waived. On August 24, 2021, the Company and Applicants appeared for a case conference before the OSCJ at which the OSCJ issued an endorsement (the “Stay Order”) that required the parties to the Restructuring Support Agreement to maintain the status quo until the hearing on September 23, 2021. Specifically, the Stay Order provided that the parties shall remain bound by the Restructuring Support Agreement and not take any steps to advance or impede the regulatory approval process for the closing of the Recapitalization Transaction or otherwise have any communication with the applicable state-level regulators concerning the Recapitalization Transaction or the other counterparties to the Restructuring Support Agreement. On September 23, 2021, the parties appeared before the OSCJ for a hearing on the Application. Following this hearing, the OSCJ issued an endorsement that extended the Stay Order from September 23, 2021 until 48 hours after the release of the OSCJ’s decision on the merits of the Application. On October 12, 2021, the OSCJ issued its decision granting the Applicant’s relief sought in the Application (the “Decision”). Specifically, the OSCJ granted the declaration sought by the Applicants and ordered that the Outside Date be extended to the date on which any regulatory approval or consent condition to implementation of the Plan of Arrangement is satisfied or waived. On November 10, 2021, the Company filed a Notice of Appeal with the Ontario Court of Appeal and a hearing on the appeal is scheduled for June 9, 2022.
On August 20, 2021, the Vermont Department of Public Safety (the “DPS”) confirmed that the DPS does not require prior approval of the Recapitalization Transaction, except for background checks of the prospective new directors and Interim Chief Executive Officer of the Company to be appointed upon the closing of the Recapitalization Transaction, which background checks have been completed.
On October 29, 2021, the Florida Department of Health, Office of Medical Marijuana Use (the “OMMU”) approved the proposed change of ownership and control of the Company’s wholly-owned subsidiary, McCrory’s Sunny Hill Nursery, LLC (“McCrory’s”) contemplated by the Recapitalization Transaction (the “Variance Request”). On November 19, 2021, a petition (as amended, the “Petition”) was filed by certain petitioners (the “Petitioners”) 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. As a result of the Petition, the OMMU informed the Company that the OMMU’s prior approval of the Variance Request is not an enforceable agency order until such time that there is a final resolution of the Petition and a final agency order is issued by the OMMU. On May 4, 2022, the OMMU issued a final agency order, accepting the recommendation of the ALJ and dismissing the Petition.
 
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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)
 
On April 1, 2022, the Maryland Medical Cannabis Commission (the “MMCC”) approved the proposed change of ownership and control of the Company’s wholly-owned subsidiary, S8 Management, LLC (“S8”), contemplated by the Recapitalization Transaction. S8 currently controls
4 licensed entities in Maryland through management services agreements.
State-level regulatory approvals remain outstanding in Massachusetts, New Jersey, and New York. On January 7, 2022, the New Jersey Cannabis Regulatory Commission (“CRC”) approved the Company’s acquisition
 of 100% of the equity interest in New Jersey license holder MPX New Jersey, LLC (“MPX NJ”). On February 1, 2022, the Company closed on its acquisition of MPX NJ, which resulted in a requirement for prior regulatory approval for the change of beneficial ownership of MPX NJ that would result from the Recapitalization Transaction to be required as a condition to closing under the Restructuring Support Agreement.
The Company believes that the financing transactions received to date should provide the necessary funding for the Company to continue as a going concern. However, there can be no assurance that capital, when needed, will be available on terms acceptable to the Company, or at all. As such, these material circumstances cast substantial doubt on the Company’s ability to continue as a going concern for a period 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.
(d)
Basis of Consolidation
The unaudited interim condensed consolidated financial statements include the accounts of the Company together with its consolidated subsidiaries, except for subsidiaries which the Company has identified as variable interest entities where the Company is not the primary beneficiary.
(e)
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 judgements 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 and notes 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.
(f)
Change in Estimates
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. The effect of this change was an increase in costs and expenses applicable to revenues of approximately $2.9 million in the first quarter of 2021.
 
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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) Coronavirus Pandemic
In March 2020, the World Health Organization declared the global emergence of the
COVID-19
pandemic. The Company continues to monitor guidance and orders issued by federal, state, and local authorities with respect to
COVID-19.
As a result, the Company may take actions that alter its business operations as may be required by such guidance and orders or take other steps that the Company determines are in the best interest of its employees, customers, partners, suppliers, shareholders, and stakeholders.
Any such alterations or modifications could cause substantial interruption to the Company’s business and could have a material adverse effect on the Company’s business, operating results, financial condition, and the trading price of the Company’s common shares, and could include temporary closures of one or more of the Company’s facilities; temporary or long-term labor shortages; temporary or long-term adverse impacts on the Company’s supply chain and distribution channels; and the potential of increased network vulnerability and risk of data loss resulting from increased use of remote access and removal of data from the Company’s facilities. In addition,
COVID-19
could negatively impact capital expenditures and overall economic activity in the impacted regions or depending on the severity, globally, which could impact the demand for the Company’s products and services.
It is unknown whether and how the Company may be impacted if the
COVID-19
pandemic continues to persist for an extended period of time or it there are increases in its breadth or in its severity, including as a result of the waiver of regulatory requirements or the implementation of emergency regulations to which the Company is subject. The
COVID-19
pandemic poses a risk that the Company or its employees, contractors, suppliers, and other partners may be prevented from conducting business activities for an indefinite period.
Although, the Company has been deemed essential and/or has been permitted to continue operating its facilities in the states in which it cultivates, processes, manufactures, and sells cannabis during the pendency of the
COVID-19
pandemic, subject to the implementation of certain restrictions on
adult-use
cannabis sales in both Massachusetts and Nevada, which have since been lifted, there is no assurance that the Company’s operations will continue to be deemed essential and/or will continue to be permitted to operate. The Company may incur expenses or delays relating to such events outside of its control, which could have a material adverse impact on its business, operating results, financial condition and the trading price of the common shares of the Company.
(h) Reclassification
Certain prior year amounts have been reclassified to conform with the current year’s presentation. These reclassifications adjustment had no effect on the Company’s previously reported unaudited interim condensed consolidated statement of operations.
The following table summarizes the effects of reclassification adjustment on the line items within the Company’s unaudited interim condensed consolidated statements of operations:
             
Prior Year’s Line item
  
Reclassified Amount
    
Current Year’s Line item
Depreciation and amortization
   $ 542      Selling, general and administrative expenses
Depreciation and amortization
     (542    Depreciation and amortization
(i) Revision of Prior Period Financial Statements
During the three months ended March 31, 2022, the Company determined that it had not appropriately recorded cost of inventory as of December 31, 2021. This resulted in an overstatement of the inventory balance, accrued and other current liabilities, income tax expense and accumulated deficit as of December 31, 2021, and an understatement of costs and expenses applicable to revenues for the year ended December 31, 2021.
Based on an analysis of Accounting Standards Codification (“ASC”) 250 – “Accounting Changes and Error Corrections” (“ASC 250”), Staff Accounting Bulletin 99 – “Materiality” (“SAB 99”) and Staff Accounting Bulletin 108 – “Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements” (“SAB 108”), the Company determined that these errors were immaterial to the previously issued financial statements, and as such no restatement was necessary. Correcting prior period financial statements for immaterial errors would not require previously filed reports to be amended.
 
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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 effect of the adjustments on the line items within the Company’s consolidated balance sheet as of December 31, 2021 is as follows:
 
 
  
December 31, 2021
 
 
  
As
previously
reported
 
  
Adjustment
 
  
As adjusted
 
Inventories
  
$
30,447
 
  
$
(1,755
  
$
28,692
 
Current assets
  
 
55,401
 
  
 
(1,755
  
 
53,646
 
Total assets
  
 
346,744
 
  
 
(1,755
  
 
344,989
 
Accrued and other current liabilities
  
 
99,446
 
  
 
(513
  
 
98,933
 
Current liabilities
  
 
285,821
 
  
 
(513
  
 
285,308
 
Total liabilities
  
 
369,141
 
  
 
(513
  
 
368,628
 
Accumulated deficit
  
 
(800,390
  
 
(1,242
  
 
(801,632
Total shareholders’ deficit
  
 
(22,397
  
 
(1,242
  
 
(23,639
Total liabilities and shareholders’ deficit
  
 
346,744
 
  
 
(1,755
  
 
344,989
 
The effect of the adjustments on the line items within the Company’s consolidated statement of operations as of December 31, 2021 is as follows:
 
 
  
Year Ended December 31, 2021
 
 
  
As
previously
reported
 
  
Adjustment
 
  
As adjusted
 
Costs and expenses applicable to revenues
  
$
(91,735
  
$
(1,755
  
$
(93,490
Gross profit
  
 
111,283
 
  
 
(1,755
  
 
109,528
 
Loss from operations
  
 
(22,025
  
 
(1,755
  
 
(23,780
Loss from operations before income tax
  
 
(53,999
  
 
(1,755
  
 
(55,754
Income tax expense
  
 
22,249
 
  
 
(513
  
 
21,736
 
Net loss
  
 
(76,248
  
 
(1,242
  
 
(77,490
Earnings per share
  
 
(0.44
  
 
(0.01
  
 
(0.45
The effect of the adjustments on the line items within the Company’s interim condensed consolidated statements of changes in shareholders’ deficit for the three months ended March 31, 2022 is as follows:
 
 
  
March 31, 2022
 
 
  
As
previously
reported
 
  
Adjustment
 
  
As adjusted
 
Accumulated deficit – Balance January 1, 2022
  
$
(800,390
  
$
(1,242
  
$
(801,632
Total Shareholders’ deficit – Balance January 1, 2022
  
 
(22,397
  
 
(1,242
  
 
(23,639
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 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 1 year to 15 years.
 
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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)
 
Maturities of lease liabilities for operating leases as of March 31, 2022, were as follows:
         
    
Operating
Leases
 
2023
   $ 7,895  
2024
     7,892  
2025
     8,065  
2026
     8,161  
2027
     7,835  
Thereafter
     58,473  
    
 
 
 
Total lease payments
   $ 98,321  
Less: interest expense
     (60,961
    
 
 
 
Present value of lease liabilities
   $ 37,360  
Weighted-average remaining lease term (years)
     11.4  
Weighted-average discount rate
     20
    
 
 
 
For the three months ended March 31, 2022, the Company recorded operating lease expenses of $2.2 million (March 31, 2021—$2.4 million), which are included in 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 balance sheets. For the three months ended March 31, 2022, the Company recorded sublease income of $0.2 million (March 31, 2021—$Nil), which is included in other income on the unaudited interim condensed consolidated statements of operations.
Supplemental balance sheet information related to leases are as follows:
 
Balance Sheet Information
  
Classification
  
March 31,
2022
    
December 31,
2021
 
Right-of-use
assets
  
Operating leases
   $ 32,529      $ 30,429  
         
 
 
    
 
 
 
Lease Liabilities
                      
Current portion of lease liabilities
  
Operating leases
   $ 7,895      $ 7,342  
Long-term lease liabilities
  
Operating leases
     29,465        27,814  
         
 
 
    
 
 
 
Total
       
$
37,360
 
  
$
35,156
 
         
 
 
    
 
 
 
Note 3—Inventories
Inventories
are
 comprised of the following items:
 
 
  
March 31,
2022
 
  
December 31,
2021
 
 
  
 
 
  
(Revised)
 
Supplies
   $ 6,744      $ 6,188  
Raw materials
     8,059        5,641  
Work in process
     8,444        9,464  
Finished goods
     8,703        7,399  
    
 
 
    
 
 
 
Total
  
$
31,950
 
  
$
28,692
 
    
 
 
    
 
 
 
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, 2022, the Company recorded $0.3 million (March 31, 2021 – $0.2 million), related to spoiled inventory in costs and expenses applicable to revenues 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)

Note 4 – Acquisitions
Acquisition of MPX New Jersey LLC
On February 1, 2022, the Company’s wholly-owned subsidiary, iAnthus New Jersey, LLC (“INJ”), closed on its acquisition of MPX NJ, a New Jersey-based entity with a New Jersey medical cannabis permit.
The acquisition consisted of INJ exercising its right to convert the principal balance of the loan and accrued interest owed pursuant to its loan agreement
 
of $4.6 million into a 99% equity interest in MPX NJ. In addition, pursuant to an option agreement
,
INJ exercised its option to acquire the remaining 1% of MPX NJ for nominal consideration. The transaction with MPX NJ is a related party transaction due to the fact that Elizabeth Stavola, a former officer and director of iAnthus, is a former officer, director and majority owner of MPX NJ. The Company acquired MPX NJ to use its
permit
to
build-out
cultivation, production and retail operations within the state of New Jersey. The Company expects this acquisition to help establish a larger national footprint within the United States.
This transaction was treated as an asset acquisition under U.S. GAAP as substantially all of the fair value of the gross assets acquired were deemed to be associated with the acquired cultivation, production and retail licenses recognized as intangible assets in the table below.
The following table summarizes the allocation of the purchase price to the fair values assigned to the assets acquired and liabilities assumed:
 
Consideration
        
Cash
   $ 1  
Settlement of
pre-existing
relationships
     19,193  
    
 
 
 
Fair value of consideration
  
$
19,194
 
    
 
 
 
Assets acquired and liabilities assumed
        
Cash
   $ 5  
Fixed assets
     100  
Other
non-current
assets
     15  
Intangible assets
     19,100  
Accounts payable
     (15
Accrued and other current liabilities
     (11
    
 
 
 
Net assets acquired
  
$
19,194
 
    
 
 
 
The Company has determined that this acquisition is an asset acquisition under
ASC
805 Business Combinations whereby the total consideration is allocated to the acquired net tangible and intangible assets based on their estimated fair values as of the closing date. The Company determined the fair value of the net identifiable assets received from the asset acquisition was a more reliable measurement of the assets exchanged as part of this asset acquisition. The Company concluded that the consideration included a nonmonetary component of $14.5 million as noncash consideration exchanged for the net identifiable assets received from MPX NJ. The related tax impact of $4.1 million was netted against this gain. As a result, the Company recorded a $10.5 million gain within other income on the unaudited interim condensed consolidated statement of operations for the three months ended March 31, 2022.
Operating results have been included in these unaudited interim condensed consolidated financial statements from the date of the acquisition. Supplemental pro forma financial information has not been presented as the impact was not material to the Company’s unaudited interim condensed consolidated financial statements. The Company recorded acquisition costs of $0.2 million and $Nil within selling, general and administrative expenses on the unaudited interim condensed consolidated statement of operations for the three months ended March 31, 2022 and 2021, respectively.
 
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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 5—Long-Term Debt
 
    
Secured Notes
(1)
    
May 2019
Debentures
    
March 2019
Debentures
    
Other
   
Total
 
As of January 1, 2022
  
$
134,902
 
  
$
 24,033
 
  
$
 33,138
 
  
$
1,307
 
 
$
193,380
 
    
 
 
    
 
 
    
 
 
    
 
 
   
 
 
 
Fair value of financial liabilities issued
     767        —          —                   767  
Accretion of balance
     193        200        373                 766  
Repayment
     —          —          —          (15     (15
    
 
 
    
 
 
    
 
 
    
 
 
   
 
 
 
As of March 31, 2022
  
$
 135,862
 
  
$
24,233
 
  
$
33,511
 
  
$
 1,292
 
 
$
 194,898
 
    
 
 
    
 
 
    
 
 
    
 
 
   
 
 
 
 
(1)
This amount includes the Company’s obligation to pay an exit fee of $10.0 million that accrues interest at a rate of 13% per annum (the “Exit Fee”) under the Secured Notes.
As of March 31, 2022, the total and unamortized discount costs were $30.3 million and $2.7 million, respectively (December 31, 2021—$30.3 million and $3.2 million, respectively). As of March 31, 2022, the total and unamortized debt issuance costs were $7.7 million and $2.2 million, respectively (December 31, 2021—$7.7 million and $2.5 million, respectively).
As of March 31, 2022, the total interest accrued on both current and long-term debt was $51.1 million (December 31, 2021—$45.6 million).
(a)
Secured Notes
Tranche One
On May 14, 2018, the Company issued $40.0 million secured notes (the “Tranche One Secured Notes”) with a maturity date of May 14, 2021. The principal amount of such notes will remain outstanding until the closing of the Recapitalization Transaction. Interest on the Tranche One Secured Notes will continue to accrue at the default rate of 16.0% per annum until such time. Due to the conversion price of $3.08 being less than the Company’s closing stock price on the date of issuance, this gave rise to a beneficial conversion feature valued at $7.9 million. The Company recognized this beneficial conversion feature as a debt discount and additional paid in capital on the closing date. The discount to the Tranche One Secured Notes
was
 being amortized to accretion expense until maturity or its earlier repayment or conversion. For the three months ended March 31, 2022, the amount of amortization recorded in accretion expense was $Nil (March 31, 2021—$0.7 million) on the unaudited interim condensed consolidated statement of operations. The terms also contain a financial covenant requiring the Company’s asset value to be 1.75 times the total net debt at each quarter end and requires that the Company maintain a minimum cash balance of $1.0 million while the Tranche One Secured Notes remain outstanding (the “market value test”).
For the three months ended March 31, 2022, interest expense and accretion expense of $1.7 million and $Nil, respectively, (March 31, 2021—$1.7 million and $2.3 million, respectively), were recorded on the unaudited interim condensed consolidated statements of operations.
As of March 31, 2020, the Company was not in compliance with the market value test and the Company did not make interest payments, therefore in breach of a financial covenant for the Tranche One Secured Notes, Tranche Two Secured Notes (as defined herein), and Tranche Three Secured Notes (as defined herein). Furthermore, the Company was in default on its Secured Notes as of March 31, 2020, and as a result, an event of default occurred on April 4, 2020. This default was triggered on the Company’s long-term debt, which as of March 31, 2022, consisted of $97.5 million and $60.0 million of principal amount and $34.8 million and $10.8 million in accrued interest on the Secured Notes and the Unsecured Debentures, respectively. As a result of the default, the Company is classifying the Tranche One Secured Notes, Tranche Two Secured Notes, and Tranche Three Secured Notes as current liabilities on the unaudited interim condensed consolidated balance sheets. As of March 31, 2022, the Company is still in default on the Tranche One Secured Notes, Tranche Two Secured Notes, and Tranche Three Secured Notes. Further details on the default are disclosed in Note 14.
 
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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)
 
For the three months ended March 31, 2022, interest expense of $0.4 million (March 31, 2021 – $0.4 million), was recorded in relation to the Exit Fee on the unaudited interim condensed consolidated statements of operations. As of March 31, 2022, the Company accrued $15.8 million (March 31, 2021—$14.2 million) related to the Exit Fee, comprised of an aggregate principal amount of $10.3 million and $5.5 million in accrued interest (March 31, 2021 – an aggregate principal amount of $10.3 million and $3.9 million in accrued interest). Furthermore, as a result of this default, the Company is classifying the Exit Fee as a current liability on the unaudited interim condensed consolidated balance sheets as of March 31, 2022.
Tranche Two
On September 30, 2019, the Company issued an additional $20.0 million of secured notes (the “Tranche Two Secured Notes”). The Tranche Two Secured Notes accrue interest at 13.0% per annum and had an original maturity date of May 14, 2021. The principal amount of such notes will remain outstanding until the closing of the Recapitalization Transaction. Interest on the Tranche Two Secured Notes will continue to accrue at the default rate of 16.0% per annum until such time.
For the three months ended March 31, 2022, interest expense and accretion expense of $0.8 million and $Nil, respectively, (March 31, 2021—$0.8 million and $0.5 million, respectively), were recorded on the unaudited interim condensed consolidated statements of operations.
All terms, restrictions and financial covenants applicable to the Tranche One Secured Notes are also applicable to Tranche Two Secured Notes.
Tranche Three
On December 20, 2019, the Company issued an additional $36.2 million of secured notes (the “Tranche Three Secured Notes”). The Tranche Three Secured Notes accrue interest at 13.0% per annum and had an original maturity date of May 14, 2021. The principal amount of such notes will remain outstanding until the closing of the Recapitalization Transaction. Interest on the Tranche Three Secured Notes will continue to accrue at default rate of 16.0% per annum until such time.
For the three months ended March 31, 2022, interest expense and accretion expense of $1.4 million and $Nil, respectively, (March 31, 2021—$1.4 million and $1.1 million, respectively), were recorded on the unaudited interim condensed consolidated statements of operations.
All terms, restrictions and financial covenants applicable to the Tranche One Secured Notes and Tranche Two Secured Notes are also applicable to Tranche Three Secured Notes.
Tranche Four
On July 13, 2020, as part of the Recapitalization Transaction, the Company issued an additional $14.7 million as the Tranche Four Secured Notes. The Tranche Four Secured Notes accrue interest at 8.0% per annum and mature on July 13, 2025.
For the three months ended March 31, 2022, interest expense and accretion expense of $0.3 million and $0.1 million, respectively, (March 31, 2021—$0.3 million and $0.1 million, respectively), were recorded on the unaudited interim condensed consolidated statements of operations.
All terms, restrictions, and financial covenants applicable to the Tranche One Secured Notes, Tranche Two Secured Notes, and Tranche Three Secured Notes discussed above, are also applicable to the Tranche Four Secured Notes. The Company remains in default with respect to the Tranche One Secured Notes, Tranche Two Secured Notes and Tranche Three Secured Notes, due to failure to remit applicable interest payments between March 2020 and March 2022. Therefore, all amounts owing on the Tranche One Secured Notes, Tranche Two Secured Notes and Tranche Three Secured Notes are classified as current liabilities on the unaudited interim condensed consolidated balance sheets. As interest on the Tranche Four Secured notes is paid in kind by adding the accrued amount to the principal amount, the Company is currently in compliance with the Tranche Four Secured Notes as of March 31, 2022. Therefore, the Tranche Four Secured Notes are classified as long-term liabilities on the unaudited interim condensed consolidated balance sheets.
 
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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)
 
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 (“Senior Secured Bridge Notes”) which mature 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 date that the principal amount may become due and payable pursuant to the terms of such notes. The Senior Secured Bridge Notes accrue interest at a rate of 14.0% per annum (increasing to 25.0% per annum in the event of default and decreasing to 8.0% per annum upon the completion of the Recapitalization Transaction). “Qualified Financing” means a transaction or series of related transactions resulting in net proceeds to the Company of not less than $10 million from the subscription of the Company’s securities, including, but not limited to, a private placement or rights offering.
The host debt, classified as a liability, was recognized at the fair value of $10.3 million, net of issuance costs of $0.7 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 March 31, 2021) and such amount thereafter becoming part of the principal amount and will accrue interest. Interest paid in kind will be payable on the date that all of the principal amount is due and payable.
For the three months ended March 31, 2022, interest expense and accretion expense of $0.4 million and $0.1 million, respectively, (March 31, 2021—$0.2 million and $0.1 million, respectively), were recorded on the unaudited interim condensed consolidated statements of operations. As of March 31, 2022, the Company held $2.6 million (December 31, 2021—$3.3 million) of restricted cash in escrow from the Senior Secured Bridge Notes. Refer to Note 13 for further discussion.
The Senior Secured Bridge Notes are secured by a security interest in certain assets of INJ. The Company 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 Senior Secured Bridge Notes as of March 31, 2022. The Senior Secured Bridge Notes are classified as current liabilities on the unaudited interim condensed consolidated balance sheets as they are set expire on February 2, 2023.
(b)
March 2019 Debentures
On March 18, 2019, the Company completed a private placement of $35.0 million of unsecured convertible debentures (the “March 2019 Debentures”) and corresponding warrants to purchase 2,177,291 common shares of the Company at an exercise price of $6.43
per share (“March 2019 Equity Warrants”).
 
All of the March 2019 Equity Warrants
 expired on March 15, 2022. The March 2019 Debentures bear interest at a rate of 8.0%, per annum, payable quarterly on the last business day of each fiscal quarter, beginning on March 31, 2019. Interest is paid in cash, shares, or a combination of cash and shares, up to 50%, at the Company’s election. The March 2019 Debentures mature on March 15, 2023.
For the three months ended March 31, 2022, interest expense and accretion expense of $0.7 million and $0.4 million, respectively, (March 31, 2021—$0.7 million and $0.4 million, respectively), were recorded on the unaudited interim condensed consolidated statements of operations.
The terms of the March 2019 Debentures impose certain restrictions on its operating and financing activities, including certain restrictions on the Company’s ability to incur certain additional indebtedness at the subsidiary level. As of March 31, 2022, the Company is still in default on its interest obligations to the holders of the Secured Notes. This default triggered a cross-default on its interest obligations to the holders of the March 2019 Debentures. Further, as a result of this default the Company is classifying the debt as a current liability on the unaudited interim condensed consolidated balance sheets as the Unsecured Debentures are due on demand. The event of default is applicable to all amounts outstanding under the Unsecured Debentures.
 

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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)
 
(c) May 2019 Debentures
On May 2, 2019, the Company completed a private placement of $25.0 million of unsecured convertible debentures (the “May 2019 Debentures”) and corresponding warrants to purchase 1,555,207 common shares of the Company at an exercise price of $6.43
per common share (“May 2019 Equity Warrants”). All of the May 2019 Equity Warrants expired on
March 15, 2022. The May 2019 Debentures bear interest at a rate of 8.0%, per annum, payable quarterly on the last business day of each fiscal quarter, beginning on June 30, 2019. Interest is paid in cash, shares, or a combination of cash and shares, up to 50%, at the Company’s election. The May 2019 Debentures mature on March 15, 2023.
For the three months ended March 31, 2022, interest expense and accretion expense of $0.5 million and $0.2 million, respectively, (March 31, 2021—$0.5 million and $0.2 million, respectively), were recorded on the unaudited interim condensed consolidated statements of operations.
The terms of the May 2019 Debentures impose certain restrictions on its operating and financing activities, including certain restrictions on the Company’s ability to incur certain additional indebtedness at the subsidiary level. As of March 31, 2022 the Company is still in default on its interest obligations to the holders of the Secured Notes. This default triggered a cross-default on its interest obligations to the holders of the May 2019 Debentures. Further, as a result of this default the Company is classifying the debt as a current liability on the unaudited interim condensed consolidated balance sheets as the Unsecured Debentures are due on demand. The event of default is applicable to all amounts outstanding under the Unsecured Debentures.
Note 6—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. There were no common share issuances for the three months ended March 31, 2022 and 2021.
(b) Warrants
The following table summarizes certain information in respect of the Company’s warrants:
 
    
March 31, 2022
 
    
Units
    
Weighted Average Exercise
Price (C$)
 
Warrants outstanding, beginning      22,640      $ 3.56  
Granted                —    
Exercised                —    
Expired      (4,685      7.53  
    
 
 
    
 
 
 
Warrants outstanding, ending   
 
17,955
 
  
$
2.49
 
    
 
 
    
 
 
 
As of March 31, 2022 and December 31, 2021, warrants classified as derivative liabilities on the unaudited interim condensed consolidated balance sheets were revalued with the following inputs:
 
    
March 31, 2022
   
December 31, 2021
 
Risk-free interest rate
     0.9     0.9
Expected dividend yield
     0.0     0.0
Expected volatility
    
124.0 -137.1
   
93.7 -297.1
Expected life
     0.9 years       0.9 years  
 
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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)
 
The Company uses an expected volatility based on its historical trading data.
The revaluation of the warrants classified as derivative liabilities resulted in a fair value of less than $0.1 million for these instruments as of March 31, 2022 (December 31, 2021 – less than $0.1 million). As a result of the revaluation, the Company recognized a gain of less than $0.1 million for the three months ended March 31, 2022 (March 31, 2021 – loss of less than $0.1 million), on the unaudited interim condensed consolidated statements of operations.
Full share equivalent warrants outstanding and exercisable are as follows:
 
    
March 31, 2022
    
December 31, 2021
 
Year of expiration
  
Number
Outstanding
    
Weighted Average
Exercise Price (C$)
    
Number
Outstanding
    
Weighted Average
Exercise Price (C$)
 
2022      16,170        2.26        20,855        3.47  
2023      1,785        4.57        1,785        4.57  
    
 
 
    
 
 
    
 
 
    
 
 
 
Warrants outstanding   
 
17,955
 
  
$
 2.49
 
  
 
22,640
 
  
$
 3.56
 
    
 
 
    
 
 
    
 
 
    
 
 
 
(c) Potentially Dilutive Securities
The following table summarizes potentially dilutive securities, and the resulting common share equivalents outstanding as of March 31, 2022 and December 31, 2021:
 
    
March 31, 2022
    
December 31, 2021
 
Common share options      9,620        10,504  
Warrants      17,955        22,640  
Secured notes      46,458        46,458  
Debentures      10,135        10,135  
MPX dilutive instruments
(1)
     408        408  
    
 
 
    
 
 
 
Total   
 
84,576
 
  
 
90,145
 
    
 
 
    
 
 
 
 
(1)
Prior to the acquisition of MPX Bioceutical Corporation (“MPX”) on February 5, 2019 (the “MPX Acquisition”), MPX had instruments outstanding that were potentially dilutive and as a result of the MPX Acquisition, the Company assumed certain of these instruments.
Total potentially dilutive securities does not include the shares that would potentially be issued upon conversion of the accrued interest on the Company’s long-term debt. As of March 31, 2022, this would amount to 18.4 million common shares (December 31, 2021 – 16.4 million common shares).
(d) Stock Options
The following table summarizes certain information in respect of option activity under the Company’s stock option plan:
 
    
March 31, 2022
    
December 31, 2021
 
    
Units
   
Weighted
Average
Exercise
Price
(C$)
    
Weighted
Average
Contractual
Life
    
Units
   
Weighted
Average
Exercise
Price
(C$)
    
Weighted
Average
Contractual
Life
 
Options outstanding, beginning      10,504     $  4.95        —          11,510     $  4.86        —    
Granted               —          —                             —    
Exercised               —          —                   —          —    
Forfeited/Expired      (884     4.79        —          (1,006     3.96        —    
    
 
 
   
 
 
    
 
 
    
 
 
   
 
 
    
 
 
 
Options outstanding, ending   
 
9,620
 
 
$
4.96
 
  
 
5.97
 
  
 
10,504
 
 
$
4.95
 
  
 
6.24
 
    
 
 
   
 
 
    
 
 
    
 
 
   
 
 
    
 
 
 
 
1
7

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 related share-based compensation expense for the three months ended March 31, 2022 was $1.5 million (March 31, 2021—$1.6 million), and is presented in selling, general and administrative expenses on the unaudited interim condensed consolidated statements of operations.
As of March 31, 2022, the weighted average period over which compensation cost on
non-vested
stock options is expected to be recognized is 0.5 years and the unrecognized expense is
$
0.4 million.
Note 7—Income Taxes
The following table summarizes the Company’s income tax expense and effective tax rates for the three months ended March 31, 2022 and 2021:
 
    
Three Months Ended March 31,
 
    
2022
   
2021
 
Loss before income taxes
   $ (5,227   $ (12,161
Income tax expense
     4,875       7,291  
    
 
 
   
 
 
 
Effective tax rate
     (93.3 )%      (60.0 )% 
    
 
 
   
 
 
 
The effective tax rate may vary significantly from period to period and can be influenced by many factors. These factors include, but are not limited to, changes to the statutory rates in the jurisdictions where the Company has operations and changes in the valuation of deferred tax assets and liabilities. The difference between the effective tax rate and the federal statutory rate of 21% primarily relates to certain
non-deductible
items, state and local income taxes and the valuation allowance for deferred tax assets of
non-cultivator
entities.
The Internal Revenue Service filed a Notice of Federal Tax Lien against GHHIA Management Inc. on February 23, 2022. The lien is for corporate income taxes, penalties and interest owed by the Company for its tax year ended December 31, 2020.
 
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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 8—Segment Information
The below table presents revenues by segment for the three months ended March 31, 2022 and 2021:
Reportable Segments
 
    
Three Months Ended March 31,
 
    
2022
    
2021
 
Revenues
                 
Eastern Region    $ 24,785      $ 33,056  
Western Region      17,716        18,302  
Other
(1)
     289        447  
    
 
 
    
 
 
 
Total
  
$
42,790
 
  
$
51,805
 
    
 
 
    
 
 
 
Gross profit (loss)
                 
Eastern Region    $ 16,068      $ 21,162  
Western Region      6,411        8,580  
Other      13        (21
    
 
 
    
 
 
 
Total
  
$
22,492
 
  
$
29,721
 
    
 
 
    
 
 
 
Depreciation and amortization
                 
Eastern Region    $ 5,259      $ 5,876  
Western Region      3,012        757  
Other      135        199  
    
 
 
    
 
 
 
Total
  
$
8,406
 
  
$
6,832
 
    
 
 
    
 
 
 
Write-downs, (recoveries) and other charges, net
                 
Eastern Region    $ 69      $ 259  
Western Region                    
Other      (12          
    
 
 
    
 
 
 
Total
  
$
57
 
  
$
259
 
    
 
 
    
 
 
 
Net income (loss)
                 
Eastern Region    $ 7,328      $ 2,916  
Western Region      (913      335  
Other      (16,517      (22,703
    
 
 
    
 
 
 
Total
  
$
(10,102
  
$
(19,452
    
 
 
    
 
 
 
Purchase of property, plant and equipment
                 
Eastern Region    $ 1,220      $ 4,745  
Western Region      351        3  
Other      2        4  
    
 
 
    
 
 
 
Total
  
$
1,573
 
  
$
4,752
 
    
 
 
    
 
 
 
Purchase of intangibles
                 
Eastern Region    $ —        $ —    
Western Region      —          —    
Other      61        —    
    
 
 
    
 
 
 
Total
  
$
61
 
  
$
 
    
 
 
    
 
 
 
 
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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)
 
(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.
 
 
  
March 31,
 
  
December 31,
 
 
  
2022
 
  
2021 (Revised)
 
Assets
                 
Eastern Region    $ 240,291      $ 222,350  
Western Region      103,441        106,485  
Other      15,963        16,154  
    
 
 
    
 
 
 
Total
  
$
359,695
 
  
$
344,989
 
    
 
 
    
 
 
 
Major Customers
Major customers are defined as customers that each individually accounted for greater
than 10% of the Company’s annual revenues. For the three months ended March 31, 2022 and 2021, no sales were made to any one customer that represented in excess of 10% of the Company’s total revenues.
Geographic Information
As of March 31, 2022 and 2021, 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 cashflows are affected by economic factors. For the three months ended March 31, 2022 and 2021, the Company disaggregated its revenues as follows:
 
 
  
Three Months Ended March 31,
 
 
  
2022
 
  
2021
 
Revenue
                 
iAnthus branded products    $ 22,158      $ 31,182  
Third party branded products      17,147        15,207  
Wholesale/bulk/other products      3,485        5,416  
    
 
 
    
 
 
 
Total   
$
42,790
 
  
$
51,805
 
    
 
 
    
 
 
 
Note 9—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).
 
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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)
 
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.
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:
 
 
  
March 31, 2022
 
  
December 31, 2021
 
 
  
Level 1
 
  
Level 2
 
  
Level 3
 
  
Total
 
  
Level 1
 
  
Level 2
 
  
Level 3
 
  
Total
 
Financial Assets
                                                                       
Long term investments—other
1
   $  454      $ —        $ —       
$
 454
 
   $  568      $ —        $ —       
$
 568
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
 
Financial Liabilities
                                                                       
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
 
Derivative liabilities    $ —        $ —        $ 4     
$
4
 
   $ —        $ —        $ 16     
$
16
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
 
 
(1)
Long-term investments – other are included in the investments balance on the unaudited interim condensed consolidated balance sheets.
There were no transfers between Level 1, Level 2, and Level 3 within the fair value hierarchy during the three months ended March 31, 2022 and 2021.
The Company’s other investment as of March 31, 2022 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 and inputs available.
All Level 1 investments are comprised of equity investments which are
re-measured
at fair value using quoted market prices.
The following table summarizes the changes in Level 1 financial assets:
 
 
  
Financial Assets
 
Balance as of December 31, 2021
  
$
568
 
Revaluations on Level 1 instruments
     (114
    
 
 
 
Balance as of March 31, 2022
  
$
454
 
    
 
 
 
The derivative liabilities related to the convertible debt instruments and freestanding warrants are recorded at fair value estimated using the Black-Scholes option pricing model and is therefore considered to be a Level 3 measurement.
The following table summarizes the changes in Level 3 financial assets and liabilities:
 
 
  
Derivative Liabilities
 
Balance as of December 31, 2021
  
$
16
 
Revaluations on Level 3 instruments
     (12
    
 
 
 
Balance as of March 31, 2022
  
$
4
 
    
 
 
 
 
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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)
 
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 5) at their carrying value and fair value:
 
 
  
March 31, 2022
 
  
December 31, 2021
 
 
  
Carrying Value
 
  
Fair Value
 
  
Carrying Value
 
  
Fair Value
 
Unsecured Debentures
   $ 57,744      $ 67,566      $ 57,171      $ 64,596  
Secured Notes
     135,862        184,119        134,902        176,487  
Other
     1,292        1,021        1,307        1,021  
    
 
 
    
 
 
    
 
 
    
 
 
 
Total
  
$
194,898
 
  
$
252,706
 
  
$
193,380
 
  
$
242,104
 
    
 
 
    
 
 
    
 
 
    
 
 
 
Note 10 – 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.
The following table summarizes the Company’s contractual obligations and commitments as of March 31, 2022:
 
For the twelve months ended March 31,
  
2023
 
  
2024
 
  
2025
 
  
2026
 
  
2027
 
Operating leases
   $ 7,895      $ 7,892      $ 8,065      $ 8,161      $ 7,835  
Service contracts
     2,705        2                  —          —    
Long-term debt, principal
(1)
     168,205        12,969        68        16,987        81  
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
 
Total
  
$
178,805
 
  
$
20,863
 
  
$
8,133
 
  
$
25,148
 
  
$
7,916
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
 
 
(1)
The payment schedule above shows amounts payable if the conversion options are not exercised by the lender of the Company’s convertible debt instruments.
The Company’s commitments include employees, consultants and advisors, as well as leases and construction contracts for offices, dispensaries and cultivation facilities in the U.S. and Canada. The Company has certain operating leases with renewal options extending the initial lease term for an additional one to 15 years.
Note 11—Contingencies and Guarantees
The Company is involved in lawsuits, claims, and proceedings, including those identified below, which arise in the ordinary course of business. In accordance with the Financial Accounting Standards Board ASC Topic 450 Contingencies, the Company will make a provision for a liability when it is both probable that a loss has been incurred and the amount of the loss can be reasonably estimated. The Company believes it has adequate provisions for any such matters. The Company reviews these provisions in conjunction with any related provisions on assets related to the claims at least quarterly and adjusts these provisions to reflect the impacts of negotiations, settlements, rulings, advice of legal counsel and other pertinent information related to the case. Should developments in any of these matters outlined below cause a change in the Company’s determination as to an unfavorable outcome and result in the need to recognize a material provision, or, should any of these matters result in a final adverse judgment or be settled for significant amounts, they could have a material adverse effect on the Company’s results of operations, cash flows, and financial position in the period or periods in which such a change in determination, settlement or judgment occurs.
 
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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)
 
The Company expenses legal costs relating to its lawsuits, claims and proceedings as incurred. The Company has been named as a defendant in several legal actions and is subject to various risks and contingencies arising in the normal course of business. Based on consultation with counsel, management and legal counsel is of the opinion that the outcome of these uncertainties will not have a material adverse effect on the Company’s financial position.
The events that allegedly gave rise to the following claims occurred prior to the Company’s closing of the MPX Acquisition in February 2019 are as follows:
 
   
There is a claim from a former consultant against the Company, with respect to alleged consulting fees owed by MPX to the consultant, claiming the right to receive approximately $0.5 million and punitive damages. During the year ended December 31, 2021, the former consultant updated the claim to set forth the total damages claimed, which are $5.4 million, and provided supplemental disclosures which specify total damages sought, which are $167.0 million. On December 13, 2021, the Company and former consultant reached a full and final settlement of $1.5 million. As of March 31, 2022, $0.7 million was paid and the remaining balance of $0.8 million is presented as part of the accrued and other current liabilities line on the unaudited interim condensed consolidated balance sheets;
 
   
There is a claim from two former noteholders against the Company and MPX
Bioceutical ULC (“MPX ULC”)
, with respect to alleged payments of $1.3 million made by the noteholders to MPX, claiming the right to receive $115.0 million; and
 
   
There is a claim against the Company, MPX ULC and MPX, with respect to a prior acquisition made by MPX in relation to a subsidiary that was not acquired by the Company as part of the MPX Acquisition, claiming $3.0 million in connection with alleged contractual obligations of MPX.
In addition, the Company is currently reviewing the following matters with legal counsel and has not yet determined the range of potential losses:
In October 2018, Craig Roberts and Beverly Roberts (the “Roberts”) and the Gary W. Roberts Irrevocable Trust Agreement I, Gary W. Roberts Irrevocable Trust Agreement II, and Gary W. Roberts Irrevocable Trust Agreement III (the “Roberts Trust” and together with the Roberts, the “Roberts Plaintiffs”) filed two separate but similar declaratory judgment actions in the Circuit Court of Palm Beach County, Florida against GrowHealthy Holdings, LLC (“GrowHealthy Holdings”) and the Company in connection with the acquisition of substantially all of GrowHealthy Holdings’ assets by the Company in early 2018. The Roberts Plaintiffs’ sought a declaration that iAnthus must deliver certain share certificates to the Roberts without requiring them to deliver a signed Shareholder Representative Agreement to GrowHealthy Holdings, which delivery was a condition precedent to receiving the iAnthus share certificates and required by the acquisition agreements between GrowHealthy Holdings and the Company. In January 2019, the Circuit Court of Palm Beach County denied the Roberts Plaintiffs’ motion for injunctive relief, and the Roberts Plaintiffs signed and delivered the Shareholder Representative Agreement forms to GrowHealthy Holdings while reserving their rights to continue challenging the validity and enforceability of the Shareholder Representative Agreement. The Roberts Plaintiffs thereafter amended their complaints to seek monetary damages in the aggregate amount of $22.0 million plus treble damages. On May 21, 2019, the court issued an interlocutory order directing the Company to deliver the share certificates to the Roberts Plaintiffs, which the Company delivered on June 17, 2019, in accordance with the court’s order. On December 19, 2019, the Company appealed the court’s order directing delivery of the share certificates to the Florida Fourth District Court of Appeal, which appeal was denied per curiam. On October 21, 2019, the Roberts Plaintiffs were granted leave by the Circuit Court of Palm Beach County to amend their complaints in order to add purported claims for civil theft and punitive damages, and on November 22, 2019, the Company moved to dismiss the Roberts Plaintiffs’ amended complaints. On May 1, 2020, the Circuit Court of Palm Beach County heard arguments on the motions to dismiss, and on June 11, 2020, the court issued a written order granting in part and denying in part the Company’s motion to dismiss. Specifically, the order denied the Company’s motion to dismiss for lack of jurisdiction and improper venue; however, the court granted the Company’s motion to dismiss the Roberts Plaintiffs’ claims for specific performance, conversion and civil theft without prejudice. With respect to the claim for conversion and civil theft, the Circuit Court of Palm Beach County provided the Roberts Plaintiffs with leave to amend their respective complaints. On July 10, 2020, the Roberts Plaintiffs filed further amended complaints in each action against the Company including claims for conversion, breach of contract and civil theft including damages in the aggregate amount of $22.0 million plus treble damages, and on August 13, 2020, the Company filed a consolidated motion to dismiss such amended complaints. On October 26, 2020, Circuit Court of Palm Beach County heard argument on the consolidated motion to dismiss, denied the motion and entered an order to that effect on October 28, 2020. Answers on both actions were filed on November 20, 2020 and the parties have commenced discovery. On September 9, 2021, the Roberts Plaintiffs filed a motion to consolidate the two separate actions, which motion was granted on October 14, 2021. On August 6, 2020,
the Roberts filed a lawsuit against Randy Maslow, the Company’s now former Interim Chief Executive Officer, President, and Director
,
in his individual capacity (the “Maslow Complaint”), alleging a single count of purported conversion. The Maslow Complaint was not served on Randy Maslow until November 25, 2021, and the allegations in the Maslow Complaint are substantially similar to those allegations for purported conversion in the complaints filed against the Company. On March 28, 2022, the court consolidated the action filed against Randy Maslow with the Roberts Plaintiffs’ action for discovery and trial purposes. As a result, the court vacated the matter’s current trial date of May 9, 2022. The case has not been reset for trial yet. On April 22, 2022, the parties attended a court required mediation, which was unsuccessful. On May 6, 2022, the Circuit Court of Palm Beach County granted Randy Maslow’s motion to dismiss the Maslow Complaint. The Roberts have 30 days from the date of the court’s order, or until June 6, 2022, to file a second amended complaint.

 
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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)
 
On April 19, 2020, Hi-Med LLC (“Hi-Med”), an equity holder and one of the Lenders holding an Unsecured Debenture of the Company in the principal amount
of $5.0 million, filed a complaint with the United States District Court for the Southern District of New York (the “SDNY”) against the Company and certain of the Company’s current and former directors and officers and other defendants (the
“Hi-Med
Complaint”).
Hi-Med
is seeking damages of an unspecified amount and the full principal amount of the Unsecured Debenture against the Company, for among other things, alleged breaches of provisions of the Unsecured Debentures and the related Debenture Purchase Agreement as well as alleged violations of Federal securities laws, including Sections 10(b),
10b-5
and 20(a) of the Exchange Act and common law fraud relating to alleged false and misleading statements regarding certain proceeds from the issuance of long-term debt that were held in escrow to make interest payments in the event of a default thereof. On July 9, 2020, the court issued an order consolidating the class action matter with the shareholder class action referenced below. On July 23, 2020,
Hi-Med
and the defendants filed a stipulation and proposed scheduling and coordination order to coordinate the pleadings for the consolidated actions. On September 4, 2020,
Hi-Med
filed an amended complaint (the
“Hi-Med
Amended Complaint”). On October 14, 2020, the SDNY issued a stipulation and scheduling and coordination order, which required that the defendants answer, move, or otherwise respond to the
Hi-Med
Amended Complaint no later than November 20, 2020. On November 20, 2020, the Company and certain of its current officers and directors filed a Motion to Dismiss the
Hi-Med
Amended Complaint. On January 8, 2021,
Hi-Med
filed an opposition to the Motion to Dismiss. The Company and certain of its current officers and directors’ reply were filed on February 22, 2021. In a memorandum of opinion dated August 30, 2021, the SDNY granted the Company’s and certain of its officers and directors’ Motion to Dismiss the
Hi-Med
Amended Complaint. The SDNY indicated that
Hi-Med
may move for leave to file a proposed second amended complaint by September 30, 2021. On September 30, 2021,
Hi-Med
filed a motion for leave to amend the
Hi-Med
Amended Complaint. On October 28, 2021, the parties filed a Stipulation and Proposed Scheduling Order Regarding
Hi-Med’s
Motion for Leave to File a Second Amended Complaint (the “Stipulation”). On November 3, 2021, the SDNY
so-ordered
the Stipulation and
Hi-Med’s
Second Amended Complaint was deemed filed as of this date. On December 20, 2021, the Company and its current named officers and directors filed a Motion to Dismiss
Hi-Med’s
Second Amended Complaint.
Hi-Med’s
opposition to the Company’s and its current named officers and directors’ Motion to Dismiss was filed on February 3, 2022. The Company and its current named officers and directors’ reply to
Hi-Med’s
opposition was filed on March 
21
, 2022. The Motion to Dismiss
Hi-Med’s
Second Amended Complaint remains pending before the SDNY. On June 29, 2020,
Hi-Med
filed a claim in the Court, which mirrors the
Hi-Med
Complaint. Refer to Note 5 for further discussion on the Unsecured Debentures.
On April 20, 2020, Donald Finch, a shareholder of the Company, filed a putative class action lawsuit with the SDNY against the Company (the “Class Action Lawsuit”) and is seeking damages for an unspecified amount against the Company, its former Chief Executive Officer, its current Chief Financial Officer and others for alleged false and misleading statements regarding certain proceeds from the issuance of long-term debt, that were held in escrow to make interest payments in the event of default on such long-term debt. On May 5, 2020, Peter Cedeno, another shareholder of the Company, filed a putative class action against the same defendants alleging substantially similar causes of action. On June 16, 2020, four separate motions for consolidation, appointment as lead plaintiff, and approval of lead counsel were filed by Jose Antonio Silva, Robert and Sherri Newblatt, Robert Dankner, and Melvin Fussell. On July 9, 2020, the SDNY issued an order consolidating the Class Action Lawsuit and the
Hi-Med
Complaint referenced above and appointed Jose Antonio Silva as lead plaintiff (“Lead Plaintiff”). On July 23, 2020, the Lead Plaintiff and defendants filed a stipulation and proposed scheduling and coordination order to coordinate the pleadings for the consolidated actions. On September 4, 2020, the Lead Plaintiff filed a consolidated amended class action lawsuit against the Company (the “Amended Complaint”). On November 20, 2020, the Company and its Chief Financial Officer filed a Motion to Dismiss the Amended Complaint. On January 8, 2021, the Lead Plaintiff filed an opposition to the Motion to Dismiss the Amended Complaint. The Company and its Chief Financial Officer’s reply to the opposition was filed on February 22, 2021. In a memorandum of opinion dated August 30, 2021, the SDNY granted the Company’s and its Chief Financial Officer’s Motion to Dismiss the Amended Complaint. The SDNY indicated that the Lead Plaintiff may move for leave to file a proposed second amended complaint by September 30, 2021. On October 1, 2021, the Lead Plaintiff filed a motion for leave to amend the Amended Complaint. The Lead Plaintiff’s Motion for Leave to File a Second Amended Complaint was included as part of the Stipulation identified above. On November 3, 2021, the SDNY
so-ordered
the Stipulation and the Lead Plaintiff’s Second Amended Complaint was deemed filed as of this date. On December 20, 2021, the Company and its Chief Financial Officer filed a Motion to Dismiss the Lead Plaintiff’s Second Amended Complaint. The Lead Plaintiff’s opposition to the Company’s and its Chief Financial Officer’s Motion to Dismiss was filed on February 3, 2022. The Company’s and its Chief Financial Officer’s reply to the Lead Plaintiff’s opposition was filed on March 
21
, 2022. The Motion to Dismiss the Lead Plaintiff’s Second Amended Complaint remains pending before the SDNY.
 
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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)
 
On July 13, 2020, the Company announced the proposed Recapitalization Transaction. On September 14, 2020, at the meetings of Secured Lenders, Unsecured Lenders and the holders of the Company’s common shares, options and warrants (collectively, the “Securityholders”), the Securityholders voted in support of the Recapitalization Transaction. On October 5, 2020, the Company received final approval from the Court for the Plan of Arrangement. Completion of the Recapitalization Transaction is subject to the Company obtaining the Requisite Approvals. As such, no amounts have been accrued with respect to the Recapitalization Transaction. On January 29, 2021, the notice of appeal with respect to the final approval for the Plan of Arrangement received by the Company on November 5, 2020 was dismissed by the British Columbia Court of Appeal. On June 15, 2021, the Company and the Lenders agreed to amend the date by which the Recapitalization Transaction pursuant to the Plan of Arrangement is required to be implemented by from June 30, 2021 to August 31, 2021. On August 20, 2021, the Applicants filed the Application with the OSCJ, which sought, among other things, a declaration that the Outside Date be extended to the date on which any regulatory approval or consent condition to implementation of the Plan of Arrangement is satisfied or waived. On August 24, 2021, the Company and Applicants appeared for a case conference before the OSCJ. At this conference, the OSCJ issued a Stay Order that required the parties to the Restructuring Support Agreement to maintain the status quo until the hearing on September 23, 2021. Specifically, the Stay Order provided that the parties shall remain bound by the Restructuring Support Agreement and not take any steps to advance or impede the regulatory approval process for the closing of the Recapitalization Transaction or otherwise have any communication with the applicable state-level regulators concerning the Recapitalization Transaction or the other counterparties to the Restructuring Support Agreement. On September 23, 2021, the parties appeared before the OSCJ for a hearing on the Application. Following this hearing, the OSCJ issued an endorsement that extended the Stay Order from September 23, 2021 until 48 hours after the release of the OSCJ’s decision on the merits of the Application. On October 12, 2021, the OSCJ issued the Decision. Specifically, the OSCJ granted the declaration sought by the Applicants and ordered that the Outside Date in the Restructuring Support Agreement be extended to the date on which any regulatory approval or consent condition to implementation of the Plan of Arrangement is satisfied or waived. On November 10, 2021, the Company filed a Notice of Appeal with the Ontario Court of Appeal and a hearing on the appeal is currently scheduled for June 9, 2022.
On July 23, 2020, Blue Sky Realty Corporation filed a putative class action against the Company, the Company’s former Chief Executive Officer, and the Company’s Chief Financial Officer in the OSCJ in Toronto. On September 27, 2021, the OSCJ granted leave for the plaintiff to amend its claim (“Amended Claim”). In the Amended Claim, the plaintiff seeks to certify the proposed class action on behalf of two classes. “Class A” consists of all persons, other than any executive level employee of the Company and their immediate families (“Excluded Persons”), who acquired the Company’s common shares in the secondary market on or after April 12, 2019, and who held some or all of those securities until after the close of trading on April 5, 2020. “Class B” consists of all persons, other than Excluded Persons, who acquired the Company’s common shares prior to April 12, 2019, and who held some or all of those securities until after the close of trading on April 5, 2020. Among other things, the plaintiff alleges statutory and common law misrepresentation, and seeks an unspecified amount of damages together with interest and costs. The plaintiff also alleges common law oppression for releasing certain statements allegedly containing misrepresentations inducing Class B members to hold the Company’s securities beyond April 5, 2020. No certification motion has been scheduled. The Amended Claim also changed the named plaintiff from Blue Sky Realty Corporation to Timothy Kwong. The hearing date for the motion for leave to proceed with a secondary market claim under the Securities Act (Ontario) has been vacated.
During the year ended December 31, 2020, the Company filed a statement of claim against Oasis Investments II Master Fund Ltd. (“Oasis”), an Unsecured Lender,
in the OSCJ. On July 15, 2020, in connection with the proposed Recapitalization Transaction, the Company agreed to discontinue with prejudice its litigation claim which it made on February 27, 2020 against Oasis (regardless of whether the Recapitalization Transaction is consummated). In response to the Company’s statement of claim, Oasis filed a statement of defense and counterclaim against the Company on March 13, 2020, alleging that the Company breached certain debt covenants and an order directing the Company to immediately repay Oasis its $25,000,000 investment plus applicable interest, expenses and fees, among other damages. In connection with the Recapitalization Transaction, Oasis has agreed, while the Restructuring Support Agreement is in effect, not to take any steps in connection with its counterclaim against the Company. In addition, the Company and Oasis have agreed that the counterclaim by Oasis against the Company will be dismissed as a condition of closing of the Recapitalization Transaction.
 
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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)
 
On August 19, 2021, Arvin Saloum (“Saloum”), a former consultant of the Company, filed a Demand for Arbitration with the American Arbitration Association against The Healing Center Wellness Center, Inc. (“THCWC”) and iAnthus Arizona, LLC (“iA AZ”),
claiming a breach of a Consulting and Joint Venture Agreement (the “JV Agreement”) for unpaid consulting fees allegedly owed to Saloum under the JV Agreement. Saloum is claiming damages between $1.0 million and $10.0 million. On September 7, 2021, THCWC and iA AZ filed Objections and Answering Statement to Saloum’s Demand for Arbitration. On November 18, 2021, THCWC and iA AZ filed a Complaint for Declaratory Judgment (“Declaratory Judgment Complaint”) with the Arizona Superior Court,
Maricopa County (“Arizona Superior Court”), seeking declarations that: (i) the JV Agreement is void, against public policy and terminable at will; (ii) the JV Agreement is unenforceable and not binding; and (iii) the JV Agreement only applies to sales under the Arizona Medical Marijuana Act. On January 21, 2022, Saloum filed an Answer with Counterclaims in response to the Declaratory Judgment Complaint. The Declaratory Judgment Complaint remains pending before the Arizona Superior Court. The Arbitration Action is stayed, pending resolution of the Declaratory Judgment Complaint.
Note 12—Related Party Transactions
 
    
March 31,
2022
    
December 31,
2021
 
Financial Statement Line Item
                 
Other long-term assets
               4,552  
    
 
 
    
 
 
 
Total
  
$
  
 
  
$
4,552
 
    
 
 
    
 
 
 
As part of the MPX Acquisition, the Company acquired a related party receivable of $0.7 million due from a company owned by a former director and officer of the Company, Elizabeth Stavola. The related party receivable was converted into a loan facility of up to $10.0 million, which accrues interest at the rate of 16.0%, compounded annually. Interest is due upon maturity of the loan on December 31, 2021. During the year ended December 31, 2021, the Company exercised its right to convert the principal balance of the loan and accrued interest into a 99% equity interest in MPX NJ
 
and exercised its option to acquire the remaining 1% of MPX NJ
,
which conversion and option exercise were subject to certain regulatory approvals
. On January 7, 2022, the CRC approved the Company’s acquisition of
100
% of
the equity interests in MPX NJ. The Company recorded acquisition costs of $0.2 million and $Nil within selling, general and administrative expenses on the unaudited interim condensed consolidated statement of operations for the three months ended March 31, 2022 and 2021, respectively. As of March 31, 2022, the balance of such facility was $Nil (December 31, 2021 – $4.6 million), which includes accrued interest of $Nil (December 31, 2021—$0.9 million). The related party balances are presented in other long-term assets on the unaudited interim condensed consolidated balance sheets.
On June 30, 2017, the Company entered into a loan facility with a former director and officer of the Company, Hadley Ford (“Ford”). The total loan facility was up to C$0.5 million (equivalent to $0.4 million) and accrued interest at the rate of 2.5%. Interest was due upon maturity of the loan on June 30, 2021. As part of Ford’s termination agreement, the total loan facility was offset by compensation owed to Ford of $0.5 million during the first quarter of 2021. As of March 31, 2022, the outstanding balance of the facility including accrued interest was $Nil (December 31, 2021 – $Nil).
Note 13 – Unaudited Interim Condensed Consolidated Statements of Cash Flows Supplemental Information
(a) Cash payments made on account of:
 
    
For the Three Months Ended March 31,
 
    
2022
    
2021
 
Income taxes
   $ 98      $ 657  
Interest
     23        24  
 
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6