Our Management’s Discussion and Analysis should be read in conjunction with our
unaudited condensed consolidated financial statements and related notes thereto
included elsewhere in this quarterly report.
Forward-Looking Statements
This Quarterly Report contains forward-looking statements and information
relating to us that are based on the beliefs of our management as well as
assumptions made by, and information currently available to, our management.
When used in this report, the words “believe,” “anticipate,” “expect,” “will,”
“estimate,” “intend”, “plan” and similar expressions, as they relate to us or
our management, are intended to identify forward-looking statements. Although we
believe that the plans, objectives, expectations and prospects reflected in or
suggested by our forward-looking statements are reasonable, those statements
involve risks, uncertainties and other factors that may cause our actual
results, performance or achievements to be materially different from any future
results, performance or achievements expressed or implied by these
forward-looking statements, and we can give no assurance that our plans,
objectives, expectations and prospects will be achieved. Important factors that
might cause our actual results to differ materially from the results
contemplated by the forward-looking statements are contained in the “Risk
Factors” section of and elsewhere in our Annual Report on Form 10-K for the
fiscal year ended
and include, among others, the following: marijuana is illegal under federal
law, the marijuana industry is subject to strong competition, our business is
dependent on laws pertaining to the marijuana industry, the marijuana industry
is subject to government regulation, our business model depends on the
availability of private funding, we will be subject to general real estate
risks, if debt payments to note holder are not made we could lose our investment
in our real estate properties, terms and deployment of capital. The terms “
Holdings, Inc.
to
with its subsidiaries on a consolidated basis.
Company Overview
providing cultivation management, asset and infrastructure development –
currently concentrated in the
grow its business and provide a 360-degree spectrum of infrastructure,
including, cannabis cultivation, production of cannabis related products,
management services, dispensaries and consulting services. The Company intends
to grow its business through joint ventures with existing companies possessing
complementary subject matter expertise, acquisition of existing companies and
through the development of new opportunities. The Company intends to “prove the
concept” profitably in the rapidly expanding
anticipated success as a template for replicating the concept in other
developing states through a combination of strategic partnerships, acquisitions
and opening new operations.
Current Initiatives include:
? a three-acre, hybrid, outdoor, marijuana-cultivation facility (the
"Cultivation Facility") located in the Amargosa Valley of Nevada . The Company
had the contractual right to manage and cultivate marijuana on this property
until 2026, for which it would have received sixty percent (60%) of the net
revenues realized from its management of this facility and twenty-five percent
(25%) of the net revenues from equipment rental. The licensed facility is
owned by Acres Cultivation, LLC , a wholly owned subsidiary of Curaleaf
Holdings, Inc. On January 21, 2021 , the Company received a Notice of
Termination, effective immediately, from Acres Cultivation, LLC . During the
year ended December 31, 2021 , the Company relocated all of its equipment
utilized on the Acres lease to its 260 Acres adjacent to the Acres lease. The
Company will not generate any further revenue under the Acres relationship.
? 260 acres of farmland for the purpose of cultivating additional marijuana (the
"260 Acres") purchased in January of 2019. The Company intends to utilize the
state-of-the-art Cravo® cultivation system for growing an additional five
acres of marijuana on this property. The Cravo® system will allow multiple
harvests per year and should result in higher annual yields per acre. The land
has more than 180-acre feet of permitted water rights, which will provide more
than sufficient water to markedly increase the Company's marijuana cultivation
capabilities. This facility, upon receipt of its business license in Nye
County and its final inspection by the Cannabis Compliance Board ("CCB"), is
expected to become operational in the summer of 2022. During the year ended
December 31, 2021 , the Company elected to relocate all of its equipment
utilized on the Acres lease to its 260 Acres adjacent to the Acres lease. The
Company will utilize the 260 Acres for its own harvest along with additional
harvests under any Cultivation and Sales Agreements.
? Cultivation and Sales Agreements entered into for multiple grows on the
Company's 260 Acres located in the Amargosa Valley of Nevada . During the years
ended December 31, 2021 and 2020, the Company entered into separate
Cultivation and Sales Agreements, whereby the Company shall retain certain
independent growers to provide oversight and management of the Company's
cultivation and sale of products at its 260 Acres. The independent growers
shall pay to the Company a royalty of net sales revenue with a minimum royalty
after two years. As of the date of this filing, the Company is waiting on its
business license in Nye County and its final inspection by the Cannabis
Compliance Board before it can commence its operations under the Agreement.
18
? a nearby commercial trailer and RV park (THC Park - Tiny Home Community ) was
purchased in April of 2019 to supply necessary housing for the Company's farm
employees. After the Company's 2018 harvest, it came to realize that it would
need to find a more efficient method of housing and to bring its cultivation
team to its facilities. The Company purchased the 50-acre plus THC Park for
$600,000 in cash and $50,000 of the Company's restricted common stock. At
present, the Company's construction and completion of this community is
approximately seventy-five present complete. The impact of COVID-19 in
obtaining inspections and permitting significantly delayed the completion of
this community. The Company has elected to cease any renovations or additions
at its Tiny Home Community until it plants its first grow on the 260 Acres and
can better evaluate the need for additional housing.
? an agreement to acquire a cultivation license and production license, both
currently located in Nye County Nevada . On February 5, 2021 , the Company (the
"Purchaser") executed a Membership Interest Purchase Agreement ("MIPA3") with
MJ Distributing, Inc. (the "Seller") to acquire all of the outstanding
membership interests of MJ Distributing C202, LLC and MJ Distributing P133,
LLC , each the holder of a State of Nevada provisional medical and recreational
cultivation license and a provisional medical and recreational production
license. In consideration of the sale, transfer, assignment and delivery of
the Membership Interests to Purchaser, and the covenants made by Seller under
the MIPA3, Purchaser agreed to pay a combination of cash, promissory notes,
and stock in the amount of One-Million-Two-Hundred-Fifty Thousand Dollars
($1,250,000.00 ) in cash and/or promissory notes and 200,000 shares of the
Company's restricted common stock, all of which constitutes the consideration
agreed to herein for (the "Purchase Price"), payable as follows: (i) a
non-refundable down payment in the amount of $300,000 was made on January 15,
2021 , (ii) the second payment in the amount of $200,000 was made on February
5, 2021 , (iii) a deposit in the amount of $310,000 was paid on February 22,
2021 ($210,000 was a pre-payment against future compensation due under the
MIPA3), (iv) $200,000 was deposited on June 24, 2021 , (v) $200,000 shall be
deposited on or before June 12, 2021 , and (vi) $250,000 shall be deposited
within five (5) business days after the Nevada Cannabis Compliance Board
("CCB") provides notice on its agenda that the Licenses are set for hearing to
approve the transfer of ownership from the Seller to the Purchaser. On April
12, 2022 , the CCB issued an Adult-Use Production License to MJ Distributing
P133, LLC and an Adult-Use Cultivation License to MJ Distributing C202, LLC .
The Company is currently awaiting its business license to be issued by Nye
County, Nevada .
? indoor cultivation facility build-out in the City of Las Vegas (the "Indoor
Facility"). Through its former subsidiary, Red Earth, LLC ("Red Earth"), the
Company held a Medical Marijuana Establishment Registration Certificate,
Application No. C012. In August of 2019, the Company entered into a Membership
Interest Purchase Agreement (the "Agreement") with Element NV, LLC
("Element"), to sell a 49% interest in the license. Under the terms of the
Agreement, Element was required to invest more than $3,500,000 into this
Indoor Facility. Element paid the monthly rent on the facility from December
2019 through March 2020 but failed to make any additional payments. On June
11, 2020 , the Company entered into the First Amendment ("First Amendment") to
the Agreement. Under the terms of the First Amendment, the Closing Purchase
Price was adjusted to $441,000 , and Element was required to make a capital
contribution (the "Initial Contribution Payment") to the Target Company in the
amount of $120,000 and was required to make an additional cash contribution
(the Final Contribution Payment") in the amount of $240,000 . The Company
terminated its discussions with Element regarding its past due payments. On or
about May 7, 2021 , Red Earth, received an inquiry from the State of Nevada
Cannabis Compliance Board ("CCB") regarding the transfer of ownership of the
Subsidiary from its previous owners to the Company. The CCB has determined
that the transfer was not formally approved, thus a Category II violation. On
July 27, 2021 , Red Earth entered into a Stipulation and Order for Settlement
of Disciplinary Action (the "Stipulation Order") with the CCB. Under the terms
of the Stipulation Order, Red Earth agreed to present to the CCB, by not later
than August 31, 2021 , a plan pursuant to which the ownership of Red Earth
would be returned to the original owners. The Parties to the Stipulation Order
resolved the matter without the necessity of taking formal action. Red Earth
agreed to pay a civil penalty of $10,000 , which was paid on July 29, 2021 . On
August 26, 2021 , the Company and the Company's Chief Cultivation Officer and
previous owner of Red Earth, Paris Balaouras , entered into a Termination
Agreement. Under the terms of the Termination Agreement, the Purchase
Agreement (the "Purchase Agreement"), dated December 15, 2017 , entered into
between the Company and Red Earth was terminated as of the date of the
Termination Agreement resulting in the return of ownership of Red Earth to Mr.
Balaouras. Neither party shall have any further obligation to one another
pursuant to the terms of the Purchase Agreement.
Cultivation and Sales Agreements
MKC Development Group, LLC Agreement
On
into a Cultivation and Sales Agreement (the “Agreement”) with
Group, LLC
the Company to provide oversight and management of MJNE’s cultivation and sale
of products at
the Effective Date, continue for a period of ten (10) years and automatically
renew for a period of five (5) years.
As deposits, security and royalty, the Company shall pay to MJNE:
(i) a$600,000 non-refundable deposit upon execution of the Agreement; (ii) a security deposit of$10,000 to be applied against the last month's obligations and a$10,000 payment to be applied against the first month's rent; (iii)$10,000 on the first of each month for security and compliance; (iv) a royalty of 10% of gross revenue less applicable taxes (hereinafter "Net Sales Revenue") on all sales of product by the Company; and (v) the Company shall, after the first two (2) years from execution of the Agreement, be responsible to pay to MJNE a minimum royalty of$83,000.00 per month.
As compensation, MJNE shall pay to the Company:
(i) 90% of Net Sales Revenue to the Company as the Management Fee.
The transaction closed on
Company has made all required payments to MJNE. The parties are awaiting the
issuance of a business license from
It is anticipated that the license will be approved and issued during the third
quarter of 2022.
Natural Green, LLC Agreement
On
into a Cultivation and Sales Agreement (the “Agreement”) with
(the “Company”). Under the terms of the Agreement, MJNE shall retain the Company
to provide oversight and management of MJNE’s cultivation and sale of products
at
Effective Date, continue for a period of ten (10) years and automatically renew
for a period of five (5) years. The Company shall be responsible for compliance,
standard of care, packaging, insurance, labor matters, policies and procedures,
testing, record keeping, security and marketing.
19
As deposits, security and royalty, the Company shall pay to MJNE:
(i) a$500,000 Product Royalty deposit to be applied to the first Product Royalty or Product Royalties; (ii) a deposit of$20,000 to be applied against the first and last month's Security and Compliance fee; (iii)$10,000 on the first of each month for Security and Compliance; (iv) a royalty of 10% of gross revenue less applicable taxes (hereinafter "Net Sales Revenue") on all sales of product by the Company; and (v) the Company shall, after the first two (2) years from execution of the Agreement, be responsible to pay to MJNE a minimum royalty of$50,000.00 per month.
As compensation, MJNE shall pay to the Company:
(i) 90% of Net Sales Revenue to the Company as the Management Fee.
On
Agreement whereby MJNE waived the Company’s requirement to obtain liability
insurance and required the Company to pay MJNE
costs. The transaction closed on
the Company has made all required payments to MJNE. The parties are awaiting the
issuance of a business license from
It is anticipated that the license will be approved and issued during the third
quarter of 2022.
Green Grow Investments Agreement
On
Cultivation and Sales Agreement (the “Agreement”) with
Corporation
the Company to provide oversight and management of MJNE’s cultivation and sale
of products at
the Effective Date, continue for a period of ten (10) years and automatically
renew for a period of five (5) years. The Company shall be responsible for
compliance, standard of care, packaging, insurance, labor matters, policies and
procedures, testing, record keeping, security and marketing.
As deposits, security and royalty, the Company shall pay to MJNE:
(i) a$600,000 Product Royalty of which$50,000 is due upon signing,$150,000 upon MJNE obtaining the licenses fromMJ Distributing, Inc. and affiliates and$200,000 for each of the first and second years' harvests; (ii) a deposit of$20,000 to be applied against the first and last month's Security and Compliance fee; (iii)$10,000 on the first of each month for Security and Compliance; (iv) a royalty of 10% of gross revenue less applicable taxes (hereinafter "Net Sales Revenue") on all sales of product by the Company; and (v) the Company shall, after the first two (2) years from execution of the Agreement, be responsible to pay to MJNE a minimum royalty of$50,000.00 per month.
As compensation, MJNE shall pay to the Company:
(i) a Management Fee that is based upon the net sales price (after taxes) and
further subject to all contractual expenses.
As of the date of this filing, the Company has made all required payments to
MJNE. The parties are awaiting the issuance of a business license from
County
be approved and issued during the third quarter of 2022.
RK Grow, LLC Agreement
On
a Cultivation and Sales Agreement (the “Agreement”) with
“Company”). Under the terms of the Agreement, MJNE shall retain the Company to
provide oversight and management of MJNE’s cultivation and sale of products at
Date, continue for a period of fifteen (15) years and automatically renew for
one fifteen (15) year period. The Company shall be responsible for compliance,
standard of care, packaging, insurance, labor matters, policies and procedures,
testing, record keeping, security and marketing. The Agreement is for a
designated 40 acres for cultivation.
As deposits, security and royalty, the Company shall pay to MJNE:
(i) a Product Royalty Deposit of$3,000,000.00 to be applied to the first Product Royalty or Product Royalties; (ii) a deposit of$20,000 to be applied against the first and last month's Security and Compliance fee; (iii)$10,000 on the first of each month for Security and Compliance; (iv) a royalty of 10% of gross revenue less applicable taxes (hereinafter "Net Sales Revenue") on all sales of product by the Company; (v) Minimum Monthly Product Royalty: Minimum Monthly Product Royalty (MMPR) shall be calculated on a per annum basis. Therefore, Company will have satisfied all MMPR obligations for the year upon remitting$1,080,000.00 to MJNE; and (vi) MJNE agrees to provide access to water for the Designated Acreage without charge to the Company. However, Company will be responsible for any construction required to have the water actually delivered to its Designated Acreage from the source.
As compensation, MJNE shall pay to the Company:
(i) a Management Fee that is based upon the net sales price (after taxes) and
further subject to all contractual expenses.
As of the date of this filing, the Company has made all required payments to
MJNE. The parties are awaiting the issuance of a business license from
County
be approved and issued during the third quarter of 2022.
Termination of Acres Cultivation, LLC Agreement
On
“Notice”), effective immediately, from
following three (3) agreements (collectively, herein the “Cooperation
Agreement”):
(i) The Cultivation and Sales Agreement entered into by and between MJNE and
Acres, dated as of January 1, 2019 (the "Cultivation and Sales Agreement" or
"CSA"), pursuant to Sections 5.3, and 16.20 (cross-default);
(ii) The Consulting Agreement, by and between Acres and MJNE, made as of
January 1, 2019 (the "Consulting Agreement"), pursuant to Sections 10 and
11.10 (cross-default); and
(iii) The Equipment Lease Agreement between Acres and MJNE, dated as of January
1, 2019 (the "Equipment Lease Agreement"), pursuant to Sections 8(ii),
8(iv), and 29 (cross-default).
The Company initiated relocating its equipment to its 260-acre farm at the end
of the first quarter and does not anticipate that it will generate any further
revenue under the Acres relationship.
The Company may also continue to seek to identify potential acquisitions of
revenue producing assets and licenses within legalized cannabis markets that can
maximize shareholder value.
The Company may face substantial competition in the operation of cultivation
facilities in
cultivation licenses, and, therefore, the Company anticipates that it will face
competition from these other companies. The Company’s management team has
experience in successfully developing, implementing, and operating marijuana
cultivation and related businesses in other legal cannabis markets. The Company
believes its experience in outdoor cultivation provides it with a distinct
competitive advantage over its competitors, and it will continue to focus on
this area of its operations. The Company still faces challenges engaging and
retaining senior managers.
The Company presently occupies an office suite located at
corporate office building located at
the sale price of
location for the next 3-6 months until it can identify a new corporate office.
20 COVID-19
The novel coronavirus commonly referred to as “COVID-19” was identified in
Organization
2020
Organization
emergency by former President
international jurisdictions to impose restrictions such as quarantines, business
closures and travel restrictions. While these effects are expected to be
temporary, the duration of the business disruptions internationally and related
financial impact cannot be reasonably estimated at this time. The rapid
development of the COVID-19 pandemic and the measures being taken by governments
and private parties to respond to it are extremely fluid. While the Company has
continuously sought to assess the potential impact of the pandemic on its
financial and operating results, any assessment is subject to extreme
uncertainty as to probability, severity and duration of the pandemic as
reflected by infection rates at local, state, and regional levels. The Company
has attempted to assess the impact of the pandemic by identifying risks in the
following principal areas:
? Mandatory Closures. In response to the pandemic, many states and localities
implemented mandatory closures of, or limitations to, businesses to prevent the
spread of COVID-19; this impacted the Company’s operations. More recently, the
mandatory closures that impacted the Company’s operations were lifted and the
Company resumed full operations, albeit subject to various COVID-19 related
precautions and changes in local infection rates. The Company’s ability to
generate revenue would be materially impacted by any future shut down of its
operations.
? Customer Impact. While the Company has not experienced an overall downturn in
demand for its products in connection with the pandemic, if its customers become
ill with COVID-19, are forced to quarantine, decide to self-quarantine or not to
visit stores where its products may be sold or distribution points to observe
“social distancing”, it may have material negative impact on demand for its
products while the pandemic continues. While the Company has implemented
measures, to reduce infection risk to its customers, regulators may not permit
such measures, or such measures may not prevent a reduction in demand.
? Supply Chain Disruption. The Company relies on third party suppliers for
equipment and services to produce its products and keep its operations going. If
its suppliers are unable to continue operating due to mandatory closures or
other effects of the pandemic, it may negatively impact its own ability to
continue operating. At this time, the Company has not experienced any failure to
secure critical supplies or services. However, disruptions in the Company’s
supply chain may affect its ability to continue certain aspects of the Company’s
operations or may significantly increase the cost of operating its business and
significantly reduce its margins.
? Staffing Disruption. The Company is, for the time being, implementing among
its staff where feasible “social distancing” measures recommended by such bodies
as the
well as state and local governments. The Company has cancelled non-essential
travel by employees, implemented remote meetings where possible, and permitted
all staff
work on-site, measures have been implemented to reduce infection risk, such as
reducing contact with customers, mandating additional cleaning of workspaces and
hand disinfection, providing masks and gloves to certain personnel, and contact
tracing following reports of employee infection. Nevertheless, despite such
measures, the Company may find it difficult to ensure that its operations remain
staffed due to employees falling ill with COVID-19, becoming subject to
quarantine, or deciding not to come to come to work on their own volition to
avoid infection. At certain locations, the Company has experienced increased
absenteeism due to increased COVID-19 infection rates in certain locales. If
such absenteeism increases, the Company may not be able, including through
replacement and temporary staff, to continue to operate at desired levels in
some or all locations.
? Regulatory Backlog. Regulatory authorities, including those that oversee the
cannabis industry on the state level, are heavily occupied with their response
to the pandemic. These regulators as well as other executive and legislative
bodies in the states in which the Company operates may not be able to provide
the level of support and attention to day-to-day regulatory functions as well as
to needed regulatory development and reform that they would otherwise have
provided. Such regulatory backlog may materially hinder the development of the
Company’s business by delaying such activities as product launches, facility
openings and approval of business acquisitions, thus materially impeding
development of its business. The Company is actively addressing the risk to
business continuity represented by each of the above factors through the
implementation of a broad range of measures throughout its structure and is
reassessing its response to the COVID-19 pandemic on an ongoing basis. The above
risks individually or collectively may have a material impact on the Company’s
ability to generate revenue. Implementing measures to remediate the risks
identified above may materially increase the Company’s costs of doing business,
reduce its margins and potentially result in losses. While the Company has not
to date experienced any overall material negative impact on its operations or
financial results related to the impact of the pandemic, so long as the pandemic
and measures taken in response to the pandemic are not abated, substantial risk
of such impact remains, which could negatively impact the Company’s ability to
generate revenue and/or profits, raise capital and complete its development
plans.
• Limited availability of vaccine. On
Drug Administration
Pfizer BioN-Tech COVID-19 vaccine, the first such approval. Additional EUAs were
issued on
27, 2021
affiliate). As of
doses of the various vaccines have been administered in the
the Pfizer and Moderna vaccines require the administration of two doses for full
effectiveness. On
sufficient vaccine supply for all adults by the end of
of the vaccines to individuals, however, is controlled by state and local
governments using various prioritization criteria and states continue to impose
activity limitations and other precautions on businesses during this period
until the vaccine is widely disseminated. In addition, there can be no assurance
of when the Company’s employees in any particular jurisdiction will be able to
access the vaccine. Moreover, there can be no assurance that all employees will
choose to avail themselves of the vaccine or, if so, when they will choose to do
so. The same applies to the Company’s, customers, regulators, and suppliers.
Consequently, the COVID-19 risk factors described above continue to be
applicable.
21 Corporate History
The Company was incorporated on
Inc.
EDGAR Filings Inc.
2005
its name to
Filings LLC
Incorporation and changed its name to
On
real estate business, the Company submitted to its stockholders an offer to
exchange (the “Exchange Offer”) its common stock for shares in
Partners, LLC
effecting the Exchange Offer. On
exchange 1,800,000 shares of its Common Stock in exchange for 1,800,000 shares
of MJRE’s common units, representing membership interests in MJRE. Effective
estate properties and its subsidiaries, through which the Company held ownership
of the real estate properties, to MJRE. MJRE also assumed the senior notes and
any and all obligations associated with the real estate properties and business,
effective
Acquisition of Red Earth
On
membership interests of
Earth”) established in
Common Stock and a promissory note in the amount of
was accounted for as a “Reverse Merger”, whereby Red Earth was considered the
accounting acquirer and became its wholly owned subsidiary. Upon the
consummation of the acquisition, the now former members of Red Earth became the
beneficial owners of approximately 88% of the Company’s Common Stock, obtained
controlling interest of the Company, and retained certain of its key management
positions. In accordance with the accounting treatment for a “reverse merger” or
a “reverse acquisition”, the Company’s historical financial statements prior to
the reverse merger will be replaced with the historical financial statements of
Red Earth prior to the reverse merger in all future filings with the
Earth is the holder of a Nevada Marijuana Establishment Certificate for the
cultivation of marijuana.
On or about
(the “Subsidiary”), received an inquiry from the State of Nevada Cannabis
Compliance Board (“CCB”) regarding the transfer of ownership of the Subsidiary
from its previous owners to the Company. The CCB has determined that the
transfer was not formally approved, thus a Category II violation.
On
Settlement of Disciplinary Action (the “Stipulation Order”) with the CCB. Under
the terms of the Stipulation Order, the Subsidiary has agreed to present to the
CCB, by not later than
of the Subsidiary will be returned to the original owners. The Parties to the
Stipulation Order resolved the matter without the necessity of taking formal
action. The Subsidiary agreed to pay a civil penalty of
on
On
Agreement for Technical Services and Short-Term Funding (the “Agreement”) with
Cultivation Officer,
Company will provide a short-term loan (the “Loan”) to Red Earth for expenses
related to the activation and operation of Red Earth’s cultivation license. The
Loan shall bear interest at 12% per annum and increase to 18% upon default. In
addition, the Company shall provide Red Earth pre-opening technical services at
a cost of
Company under the short-term loan is $XX.
On
previous owner of Red Earth,
Agreement. Under the terms of the Termination Agreement, the Purchase Agreement
(the “Purchase Agreement”), dated
Company and Red Earth was terminated as of the date of the Termination Agreement
resulting in the return of ownership of Red Earth to
party shall have any further obligation to one another pursuant to the terms of
the Purchase Agreement. On
the Termination Agreement from the CCB. Please see Note 14 – Related Party
Transactions for further information.
Our Business
We commenced cultivation activities on our three-acre managed cultivation
facility in August of 2018, harvesting more than 5400 pounds of marijuana
through December of 2018. In the fourth quarter of 2019, we completed our 2019
harvest of approximately 4,800 marijuana plants with expected yield of more than
3,300 pounds of marijuana flower and trim. It is our intention to grow our
business through the acquisition of existing companies and/or through the
development of new opportunities that can provide a 360-degree spectrum of
infrastructure (dispensaries), cultivation and production management, and
consulting services in the regulated cannabis industry.
The Company currently operates through the following entities:
MJ Holdings, Inc. This entity, the Parent, serves as a holding company for all of the operating businesses/assets. Prescott Prescott Management is a wholly owned subsidiary of theManagement, LLC Company that provides day-to-day management and operational oversight to the Company's operating subsidiaries. Icon Management, Icon is a wholly owned subsidiary of the Company that LLC provides Human Resource Management ("HR") services to the Company. Icon is responsible for all payroll activities and administration of employee benefit plans and programs.Farm Road, LLC Farm Road, LLC is a wholly owned subsidiary of the Company that owns 260 acres of farmland inAmargosa, NV . The Company acquired all of the membership interests of Farm Road in January of 2019. Condo Highrise Condo Highrise Management is a wholly owned subsidiary ofManagement, LLC the Company that manages the Company ownedTrailer Park in Amargosa,Nevada .Red Earth Holdings ,Red Earth Holdings, LLC is a wholly owned subsidiary of the LLC Company that will eventually be the holder of the Company's primary cannabis license assets. As of the date of this report,Red Earth Holdings has no operations and holds no assets. 22Red Earth, LLC Red Earth, established in 2016, was a wholly owned subsidiary of the Company fromDecember 15, 2017 untilAugust 30, 2019 prior to the Company selling a forty-nine percent (49%) interest in Red Earth toElement NV, LLC , an unrelated third party (See further description of the transaction hereinabove). Red Earth's assets consist of: (i) a cultivation license to grow marijuana within theCity of Las Vegas in theState of Nevada , and (ii) all of the outstanding membership interests in HDGLV, which holds a triple net leasehold interest in a 17,298 square-foot building inLas Vegas, Nevada , which it expects to operate as an indoor marijuana cultivation facility. InJuly 2018 , the Company completed the first phase of construction on this facility, and it received a City of Las Vegas Business License to operate a marijuana cultivation facility. OnAugust 26, 2021 , the Company and the Company's Chief Cultivation Officer and previous owner of the Subsidiary,Paris Balaouras , entered into a Termination Agreement. Under the terms of the Termination Agreement, the Purchase Agreement (the "Purchase Agreement"), datedDecember 15, 2017 , entered into between the Company and the Red Earth was terminated as of the date of the Termination Agreement resulting in the return of ownership of Red Earth to Mr. Balaouras. Please see Note 7 - Intangible Assets and Note 14 - Related Party Transactions for further information.HDGLV, LLC HDGLV is a wholly owned subsidiary ofRed Earth, LLC and is the holder of a triple net lease on a commercial building inLas Vegas, Nevada which is being developed to house the Company's indoor grow facility. Alternative Alternative Hospitality is aNevada corporation formed inHospitality, Inc. November of 2018.MJ Holdings owns fifty-one percent (51%) of the company and the remaining forty-nine percent (49%) is owned byTVK, LLC , aFlorida limited liability company. MJ International MJ International is a wholly owned subsidiary of theResearch Company Company that is headquartered inDublin, Ireland . MJ Limited International is the sole shareholder ofMJ Holdings International Single Member S.A. andGioura International Single Member Private Company .
Critical Accounting Policies, Judgments and Estimates
There were no material changes to the Company’s critical accounting policies and
estimates during the interim period ended
Please see our Annual Report on Form 10-K for the year ended
filed on
estimates and their effect, if any, on the Company’s financial results.
23 Results of Operations
Three Months Ended
Revenues
The Company’s revenue was
compared to
revenue for the three months ended
agreement with
For the three months ended
March 31,
2022 2021
Revenues:
Rental income (i) $ 31,841 $ 19,861
Management income (ii) - 202,951
Equipment lease income (ii) - 84,563
Total $ 31,841 $ 307,375
(i) The rental income is from the Company's THC Park .
(ii) In April 2018 , the Company entered into a management agreement with Acres
Cultivation, LLC , a Nevada limited liability company (the "Licensed
Operator") that holds a license for the legal cultivation of marijuana for
sale under the laws of the State of Nevada . In January of 2019, the Company
entered into a revised agreement, which replaced the April 2018 agreement,
with the Licensed Operator in order to be more stringently aligned with
Nevada marijuana laws. The material terms of the agreement remain
unchanged. The Licensed Operator is contractually obligated to pay over to
the Company eighty-five (85%) percent of gross revenues defined as gross
proceeds from sales of marijuana products minus applicable state excise
taxes and local sales tax. The agreement is to remain in force until April
2026 . In April 2019 , the Licensed Operator was acquired by Curaleaf
Holdings, Inc., a publicly traded Canadian cannabis company. On January 21,
2021 , the Company received a Notice of Termination, effective immediately,
from Acres Cultivation, LLC . The Company will not generate any further
revenue under the Acres relationship.
Operating Expenses
Direct costs of revenues were $- and $- for the three months ended
2022
For the three months ended
Direct costs of revenue: March 31,
2022 2021
Management and equipment lease income $ - $ -
Total $ - $ -
The direct costs of revenue of $- for the three months ended
attributable to: labor, compliance, testing and others related expenses – all of
which are directly related to the Consulting and Equipment Lease Agreements with
the Licensed Operator.
General and administrative
For the three months ended
expenses were
31, 2021
attributable to the termination of the management agreement with
Cultivation, LLC
Other Income (Expense)
For the three months ended
resulting in a decrease in other income of
attributable to the Company’s liquidation of its marketable securities held for
sale during the three months ended
of marketable securities in the three months ended
Net Income (Loss)
Net loss attributable to common shareholders was (
months ended
months ended
ended
attributable to the Company’s liquidation of its marketable securities held for
sale during the three months ended
of marketable securities in the three months ended
24
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