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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

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

For the quarterly period ended September 30, 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: 000-56422

TILT Holdings Inc.

(Exact name of registrant as specified in its charter)

British Columbia

    

83-2097293

(State or other jurisdiction of incorporation or organization)

(I.R.S. employer identification no.)

2801 E. Camelback Road #180

Phoenix, Arizona

85016

(Address of principal executive offices)

(Zip code)

(623) 887-4990

(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  

As of October 31, 2022, there were 331,954,896 common shares, without par value, of TILT Holdings Inc. outstanding, excluding limited partnership units of Jimmy Jang, L.P. exchangeable for 43,821,379 common shares.

Table of Contents

TILT HOLDINGS INC.

INDEX

PART I — FINANCIAL INFORMATION

5

Item 1. Financial Statements (Unaudited)

5

Condensed Consolidated Balance Sheets as of September 30, 2022 (Unaudited) and December 31, 2021

5

Condensed Consolidated Statements of Operations and Comprehensive Loss for the three and nine months ended September 30, 2022 and 2021 (Unaudited)

6

Condensed Consolidated Statements of Stockholders’ Equity for the three and nine months ended September 30, 2022 and 2021 (Unaudited)

7

Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2022 and 2021 (Unaudited)

8

Notes to the Condensed Consolidated Financial Statements (Unaudited)

9

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

29

Item 3. Quantitative and Qualitative Disclosures About Market Risk

43

Item 4. Controls and Procedures

43

PART II — OTHER INFORMATION

44

Item 1. Legal Proceedings

44

Item 1A. Risk Factors

45

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

46

Item 3. Defaults Upon Senior Securities

46

Item 4. Mine Safety Disclosures

46

Item 5. Other Information

46

Item 6. Exhibits

47

Signatures

48

2

Table of Contents

USE OF NAMES AND CURRENCY

In this Quarterly Report on Form 10-Q, unless the context otherwise requires, the terms “we,” “us,” “our,” “Company,” or “TILT” refer to TILT Holdings Inc. together with its wholly-owned subsidiaries.

 

Unless otherwise indicated, all references to “$,” “US$” or “USD$” in this Quarterly Report on Form 10-Q refer to United States dollars, and all references to “C$” or “CAD$” refer to Canadian dollars.

DISCLOSURES REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q includes “forward-looking information” and “forward-looking statements” within the meaning of applicable Canadian and United States (“U.S.”) securities laws (collectively, “forward-looking statements”). Such statements include, but are not limited to, statements with respect to expectations, projections, or other characterizations of future events or circumstances, and our objectives, goals, strategies, beliefs, intentions, plans, estimates, projections and outlook, including statements relating to our plans and objectives, or estimates or predictions of actions of customers, suppliers, competitors or regulatory authorities. These statements are subject to certain risks, assumptions and uncertainties that could cause actual results to differ materially from those included in the forward-looking statements. The words “believe”, “plan”, “intend”, “estimate”, “expect”, “likely”, “potential”, “proposed,” “scheduled,” “forecast” or “anticipate”, and similar expressions, as well as future or conditional verbs such as “will”, “should”, “would,” “may”, “might” and “could” identify forward-looking statements.

Management of the Company has based the forward-looking statements on its current views with respect to future events and financial performance and has made assumptions and applied certain factors regarding, among other things: future product pricing; costs of inputs; the Company’s ability to successfully market its products to its anticipated clients; the Company’s reliance on its key personnel; certain regulatory requirements; the application of federal and state environmental laws; the impact of increasing competition; the ability to obtain additional financing on favorable terms; the receipt of applicable regulatory approvals; and the regulatory environments in which the Company operates. Although the Company believes that the expectations reflected in such forward-looking statements are reasonable, it can give no assurance that such expectations will prove to have been correct. The Company’s forward-looking statements are expressly qualified in their entirety by this cautionary statement. The purpose of forward-looking statements is to provide the reader with a description of management’s expectations, and such forward-looking statements may not be appropriate for any other purpose.

By its nature, forward-looking information is subject to risks and uncertainties, and there are a variety of risk factors, many of which are beyond the control of the Company, and that may cause actual outcomes to differ materially from those discussed in the forward-looking statements. Such factors include, among others, the status of cannabis as a controlled substance under the U.S. Federal Controlled Substances Act (“CSA”); risks related to the enforcement activities by the U.S. Department of Justice (“DOJ”); reputational risk to third parties; risks associated with banking, financial transactions and anti-money laundering laws and regulations; risks related to federal and state forfeiture laws; the risk of heightened security by regulatory authorities; risks related to the potential negative impact of regulatory scrutiny on raising capital; risks related to regulatory or political change; risks due to industry immaturity or limited comparable, competitive or established industry best practices; risks related to the uncertainty surrounding existing protection from U.S. federal prosecution relating to cannabis laws; risks related to uncertainty with respect to geo-political disruptions; risks related to regulatory changes in relation to vaporization devices and subsequent impacts to interstate commerce, registrations and revenue reporting requirements, and potential excise tax applicability; risks relating to tax status; risks associated with the Company’s business model; risks related to the Company’s dependency on suppliers and skilled labor; risks related to the reliance on third party suppliers; risks related to adverse economic conditions, labor shortages, supply chain disruptions, inflationary pressures and increasing interest rates; the uncertainty of the impact of the coronavirus (“COVID-19”) pandemic on the Company and on the operations of the Company; risks that the Company’s actual financial position and results of operations may differ materially from the expectations of the Company’s management; risks related to the costs and obligations relating to the Company’s investment in infrastructure, growth, regulatory compliance and operations; risks related to the Company’s dependency on regulatory approvals and licenses to conduct its business; risks related to the potential for changes in laws, regulations and guidelines which could adversely affect the

3

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Company’s future business; risks related to a failure on the part of the Company to comply with applicable regulations; risks related to the legal, regulatory and scientific status of cannabis; risks related to the Company’s ability to find suitable candidates and capital necessary to complete strategic alliances or partnerships; risks related to the Company’s ability to successfully identify and execute future acquisitions or dispositions; risks related to the Company’s ability to develop its products; risks related to the Company’s ability to achieve successful cultivation; risks related to the Company’s ability to turn a profit or generate immediate revenues; risks related to limitations on the permissible ownership of licenses; risks related to constraints on marketing the Company’s products under varying state laws; risks related to the potential results of future clinical research; risks related to the Company’s ability to effectively manage its growth and operations; risks related to the regulation of medical cannabis by the U.S. Food and Drug Administration (“FDA”); risks related to the differing local rules and regulations and the impact this may have on the Company’s ability to expand into new markets; risks related to the protection and enforcement of intellectual property rights and allegations that the Company is in violation of intellectual property rights of third parties; risks relating to access to banking; risks relating to disclosure of personal information to government or regulatory entities; risks related to potential requirement to disclose personal identifying information to government or regulatory entities; risk that the Company may be forced to litigate or defend its intellectual property rights, or to defend against claims by third parties against the Company relating to intellectual property rights; risks relating to fraudulent activity by employees, contractors and consultants, risks regarding the enforceability of contracts; risk of litigation generally; risks relating to increasing competition in the industry; risks relating to the Company’s ability to secure adequate or reliable sources of funding; risks relating to product recalls; risks relating to reliance on technology systems that may be subject to cyber-attacks or security breaches; risks that the Company’s officers and directors may be engaged in a range of business activities resulting in conflicts of interest; risks relating to the Company’s inability to successfully implement adequate internal controls over financial reporting; risks relating to restrictions on entry to the U.S. for the Company’s Canadian individuals; risks relating to consumer perception; risks relating to the potential that bond requirements and insurance premiums may be economically prohibitive; risks relating to global economic and political instability and conflicts, such as the conflict between Russia and Ukraine; the risk that the Company’s web presence’s visibility is not limited by geography; risks relating to volatility in the market price of the Company’s securities; risks related to price volatility of publicly traded securities; risks related to the Company’s securities being currently quoted on the OTCQX; and other factors beyond our control, as more particularly described under the heading “Risk Factors” in this Quarterly Report on Form 10-Q and Amendment No. 2 to the registration statement on Form 10 filed by the Company with the U.S. Securities and Exchange Commission (the “SEC”) on June 29, 2022 (the “Form 10”) and on the System for Electronic Document Analysis and Retrieval (“SEDAR”) at www.sedar.com.

Readers are cautioned that the foregoing list is not exhaustive of all factors and assumptions which may have been used. Although we have attempted to identify important factors that could cause actual results to differ materially, there may be other factors that cause results not to be as anticipated, estimated or intended. There can be no assurance that such forward-looking information and statements will prove to be accurate as actual results and future events could differ materially from those anticipated in such information and statements. Accordingly, readers should not place undue reliance on forward-looking information and statements. The forward-looking information and statements contained herein are presented for the purposes of assisting readers in understanding our expected financial and operating performance and our plans and objectives and may not be appropriate for other purposes.

The forward-looking information and statements contained in this Quarterly Report on Form 10-Q represent our views and expectations as of the date of this Quarterly Report on Form 10-Q. We anticipate that subsequent events and developments may cause our views to change. However, while we may elect to update such forward-looking information and statements at a future time, we have no current intention of doing so except to the extent required by applicable law.

4

Table of Contents

PART I — FINANCIAL INFORMATION

Item 1. Financial Statements

TILT HOLDINGS INC.

Condensed Consolidated Balance Sheets

(Amounts Expressed in Thousands of United States Dollars, Except for Share Amounts)

    

September 30, 2022

    

December 31, 2021

(unaudited)

(audited)

ASSETS

Current assets

Cash and cash equivalents

$

6,584

$

4,221

Restricted cash

9,989

2,731

Trade receivables and others

23,940

32,393

Inventories

49,245

55,583

Loans receivable, current portion

888

2,453

Prepaid expenses and other current assets

2,022

2,732

Assets held for sale

325

500

Total current assets

92,993

100,613

Non-current assets

Property, plant and equipment, net

69,943

62,360

Right-of-use assets – finance, net

4,607

5,379

Right-of-use assets – operating, net

772

5,038

Investments

6,405

6,698

Intangible assets, net

117,742

128,770

Loans receivable

3,243

1,672

Deferred tax asset

3,365

Goodwill

63,877

70,545

Other assets

1,435

273

TOTAL ASSETS

$

364,382

$

381,348

LIABILITIES AND SHAREHOLDERS’ EQUITY

Current liabilities

Accounts payable and accrued liabilities

$

48,442

$

49,482

Warrant liability

34

2,394

Income taxes payable

621

Deferred revenue

4,228

5,177

Finance lease liability, current portion

1,045

955

Operating lease liability, current portion

133

731

Massachusetts lease liability, current portion

4,568

Notes payable, current portion, net of discount

70,597

40,758

Total current liabilities

129,668

99,497

Non-current liabilities

Finance lease liability

4,525

5,319

Operating lease liability

735

4,927

Notes payable, net of discount

350

45,855

Massachusetts lease liability

35,281

Deferred tax liability

85

TOTAL LIABILITIES

170,559

155,683

Shareholders’ equity

Common shares, without par value, unlimited shares authorized, 375,776,275 and 374,082,759 issued and outstanding as of September 30, 2022 and December 31, 2021, respectively

857,413

854,952

Additional paid-in capital

224,921

224,835

Warrants

952

952

Accumulated other comprehensive income

989

999

Accumulated deficit

(890,619)

(856,248)

Non-controlling interest

167

175

TOTAL SHAREHOLDERS’ EQUITY

193,823

225,665

TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY

$

364,382

$

381,348

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

5

Table of Contents

TILT HOLDINGS INC.

Condensed Consolidated Statements of Operations and Comprehensive Loss (Unaudited)

(Amounts Expressed in Thousands of United States Dollars, Except Share and Per Share Amounts)

Three Months Ended

Nine Months Ended

September 30, 

    

September 30, 

    

September 30, 

    

September 30, 

2022

2021

2022

2021

Revenues, net

$

40,487

$

53,362

$

129,894

$

148,648

Cost of goods sold

(30,950)

(40,780)

(100,059)

(109,632)

Gross profit

9,537

12,582

29,835

39,016

Operating expenses:

Wages and benefits

4,881

5,169

16,384

13,801

General and administrative

4,643

5,113

15,007

14,003

Sales and marketing

808

321

1,801

702

Share-based compensation

533

849

2,545

2,406

Depreciation and amortization

4,594

4,429

13,712

13,261

Impairment loss and loss on disposal of assets

175

194

7,541

194

Total operating expenses

15,634

16,075

56,990

44,367

Operating loss

(6,097)

(3,493)

(27,155)

(5,351)

Other (expense) income:

Interest income

94

168

587

Other income

2

2

9

70

Change in fair value of warrant liability

610

5,204

2,360

(2,782)

Gain (loss) on sale of assets

(1)

127

68

Unrealized loss on investment

(198)

(71)

(292)

(829)

Loan receivable losses

(133)

(1,154)

Loss on termination of lease

(333)

Interest expense

(4,150)

(2,849)

(10,727)

(7,624)

Foreign exchange gain (loss)

12

(23)

Total other (expense) income

(3,776)

2,425

(9,636)

(10,866)

Loss from operations before income tax and non-controlling interest

(9,873)

(1,068)

(36,791)

(16,217)

Income taxes

Income tax benefit (expense)

(5,818)

2,094

2,412

1,220

Net (loss) income before non-controlling interest

(15,691)

1,026

(34,379)

(14,997)

Less: Net loss attributable to non-controlling interest

8

Net (loss) income attributable to TILT Holdings Inc.

$

(15,691)

$

1,026

$

(34,371)

$

(14,997)

Other comprehensive (loss) income

Net (loss) income

$

(15,691)

$

1,026

$

(34,379)

$

(14,997)

Foreign currency translation differences

(8)

(4)

(10)

(13)

Comprehensive (loss) income before non-controlling interest

(15,699)

1,022

(34,389)

(15,010)

Less: Net loss attributable to non-controlling interest

8

Comprehensive (loss) income attributable to TILT Holdings Inc.

$

(15,699)

$

1,022

$

(34,381)

$

(15,010)

Weighted average number of shares outstanding:

Basic

375,776,275

371,055,001

375,311,644

368,402,073

Diluted

N/A

409,696,936

N/A

N/A

Net (loss) income per common share attributable to TILT Holdings Inc.

Basic

$

(0.04)

$

0.00

$

(0.09)

$

(0.04)

Diluted

$

N/A

$

0.00

$

N/A

$

N/A

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

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Table of Contents

TILT HOLDINGS INC.

Condensed Consolidated Statements of Changes in Shareholders’ Equity (Unaudited)

(Amounts Expressed in Thousands of United States Dollars, Except Share Amounts)

Accumulated Other

Shareholders'

Common Shares

Additional

Comprehensive

Accumulated

Non-Controlling

Equity

Shares

Amount

Paid in Capital

Warrants

Income (Loss)

Deficit

Interest

Total

Balance - January 1, 2022

    

374,082,759

    

$

854,952

    

$

224,835

    

$

952

    

$

999

    

$

(856,248)

    

$

175

    

$

225,665

Share-based compensation

81

81

Issuance and vesting of restricted share units

1,220,468

888

888

Shares reserved for contingent consideration

257

257

Comprehensive income (loss) for the period

1

(11,629)

(5)

(11,633)

Balance - March 31, 2022

375,303,227

$

856,097

$

224,916

$

952

$

1,000

$

(867,877)

$

170

$

215,258

Share-based compensation

18

18

Issuance and vesting of restricted share units

473,048

508

508

Shares reserved for contingent consideration

261

261

Comprehensive loss for the period

(3)

(7,051)

(3)

(7,057)

Balance - June 30, 2022

375,776,275

$

856,866

$

224,934

$

952

$

997

$

(874,928)

$

167

$

208,988

Share-based compensation

(13)

(13)

Issuance and vesting of restricted share units

430

430

Shares reserved for contingent consideration

117

117

Comprehensive loss for the period

(8)

(15,691)

(15,699)

Balance - September 30, 2022

375,776,275

$

857,413

$

224,921

$

952

$

989

$

(890,619)

$

167

$

193,823

Accumulated Other

Shareholders’

Common Shares

Additional

Comprehensive

Accumulated

Non-Controlling

Equity

    

Shares

    

Amount

    

Paid in Capital

    

Warrants

    

Income (Loss)

    

Deficit

    

Interest

    

Total

Balance - January 1, 2021

367,182,673

$

851,851

$

223,499

$

6,757

$

1,014

$

(818,436)

$

$

264,685

Share-based compensation

625

625

Warrants exercised

567,000

149

149

Warrants reclassified to liability

(5,805)

(2,686)

(8,491)

Issuance and vesting of restricted share units

825,000

257

257

Comprehensive loss for the period

(2)

(17,057)

(17,059)

Balance - March 31, 2021

368,574,673

$

852,257

$

224,124

$

952

$

1,012

$

(838,179)

$

$

240,166

Share-based compensation

Warrants exercised

Warrants reclassified to liability

Issuance and vesting of restricted share units

Comprehensive income (loss) for the period

(7)

1,034

1,027

Balance - June 30, 2021

368,574,673

$

852,257

$

224,124

$

952

$

1,005

$

(837,145)

$

$

241,193

Options exercised

221,400

13

13

Share-based compensation

519

519

Warrants exercised

90,000

24

96

120

Issuance and vesting of restricted share units

2,674,104

898

898

Shares reserved for contingent consideration

108

108

Formation of SFNY:

Shares issued from formation of SFNY

749,376

351

351

Non-controlling interest

175

175

Comprehensive loss for the period

(4)

1,026

1,022

Balance - September 30, 2021

372,309,553

$

853,651

$

224,739

$

952

$

1,001

$

(836,119)

$

175

$

244,399

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

7

Table of Contents

TILT HOLDINGS INC.

Condensed Consolidated Statements of Cash Flows (Unaudited)

(Amounts Expressed in Thousands of United States Dollars)

Nine Months Ended

    

September 30, 2022

    

September 30, 2021

Cash flows from operating activities:

Net loss

$

(34,379)

$

(14,997)

Adjustments to reconcile net loss to net cash used in operating activities:

Unrealized loss on investments

292

829

Loss on termination of lease

333

Disposal expense and other

10

(28)

Depreciation and amortization

17,826

16,522

Amortization of operating lease right of use assets

531

942

Change in allowance for doubtful accounts

(213)

(236)

Non-cash interest income

(45)

(789)

Deferred tax

(3,450)

(1,133)

Share-based compensation

2,545

2,406

Accretion of debt discount

2,210

2,449

Change in fair value of financial instruments

(2,360)

2,782

Loan receivable losses

1,154

Impairment loss and loss on disposal of assets

7,541

194

Non-cash interest expense

3,430

2,280

Net change in working capital items:

Trade receivables and others, net

8,666

(5,124)

Inventories

6,350

(20,377)

Prepaid expenses and other current assets

(452)

603

Accounts payable and accrued liabilities

(1,036)

12,618

Income tax payable

621

(803)

Deferred revenue

(949)

(2,405)

Net cash provided by (used in) operating activities

8,292

(3,934)

Cash flows from investing activities:

Purchases of property, plant, and equipment

(14,856)

(2,351)

Proceeds from sale of property, plant and equipment

9

1,259

Repayment of loan receivable, net of advances

(1,115)

2,633

Cash paid for acquisitions

(400)

Net cash (used in) provided by investing activities

(15,962)

1,141

Cash flows from financing activities:

Payments on lease liability

(1,595)

(2,208)

Repayments on notes payable

(120,575)

(17,321)

Debt issuance costs

(418)

Proceeds from notes payable and Massachusetts lease liability

139,467

21,850

Proceeds from options and warrants exercised

186

Net cash provided by financing activities

17,297