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Table of Contents

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, 2023

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, 2023, there were 337,724,959 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, 2023 (Unaudited) and December 31, 2022

5

Condensed Consolidated Statements of Operations and Comprehensive Loss for the three and nine months ended September 30, 2023 and 2022 (Unaudited)

6

Condensed Consolidated Statements of Stockholders’ Equity for the three and nine months ended September 30, 2023 and 2022 (Unaudited)

7

Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2023 and 2022 (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

37

Item 3. Quantitative and Qualitative Disclosures About Market Risk

48

Item 4. Controls and Procedures

48

PART II — OTHER INFORMATION

50

Item 1. Legal Proceedings

50

Item 1A. Risk Factors

50

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

54

Item 3. Defaults Upon Senior Securities

54

Item 4. Mine Safety Disclosures

54

Item 5. Other Information

54

Item 6. Exhibits

55

Signatures

56

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; risks related to the enforcement activities by the U.S. Department of Justice; risks related to the Company’s ability to continue as a going concern; 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 scrutiny 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 transition of the Company’s leadership; risks related to the Company’s dependency on skilled labor, equipment, parts, components and key inputs; 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

3

Table of Contents

licenses to conduct its business; risks related to the potential for changes in laws, regulations and guidelines which could adversely affect the 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 indebtedness and the Company’s ability to extend, refinance or repay such indebtedness; 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 adverse environmental conditions, accidents and labor disputes; 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; 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 related to data privacy laws, rules and regulations; 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 that the Company’s officers, directors and other parties may exert significant influence on the Company; 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 dilution of the Company’s securities; risks related to the Company’s securities being currently quoted on the OTCQB; and other factors beyond our control, as more particularly described under the heading “Risk Factors” in this Quarterly Report on Form 10-Q for the quarter ended September 30, 2023, the Quarterly Report on Form 10-Q for the quarter ended June 30, 2023, the Quarterly Report on Form 10-Q for the quarter ended March 31, 2023, and the Form 10-K for the fiscal year ended December 31, 2022 filed by the Company with the U.S. Securities and Exchange Commission (the “SEC”) on March 16, 2023 (the “Form 10-K”) and on the System for Electronic Document Analysis and Retrieval Plus (“SEDAR+”) at www.sedarplus.ca.

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.

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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, 2023

    

December 31, 2022

(unaudited)

(audited)

ASSETS

Current assets

Cash and cash equivalents

$

1,486

$

2,202

Restricted cash

1,297

1,298

Trade receivables, net

20,976

26,698

Inventories

38,435

52,909

Loans receivable, current portion

516

Prepaid expenses and other current assets

2,663

1,979

Assets held for sale

325

Total current assets

64,857

85,927

Non-current assets

Property, plant and equipment, net

52,675

67,937

Right-of-use assets – finance, net

2,437

4,351

Right-of-use assets – operating, net

12,406

740

Investments

1

6,402

Intangible assets, net

92,219

102,714

Loans receivable, net of current portion

1,355

3,703

Deferred tax asset

2,574

Goodwill

20,751

20,751

Other assets

1,954

1,453

TOTAL ASSETS

$

251,229

$

293,978

LIABILITIES AND SHAREHOLDERS’ EQUITY

Current liabilities

Accounts payable and accrued liabilities

$

48,984

$

58,170

Income taxes payable

1,414

979

Deferred revenue

4,040

5,760

Finance lease liability, current portion

1,169

1,075

Operating lease liability, current portion

79

135

Notes payable, current portion

19,197

59,378

Total current liabilities

74,883

125,497

Non-current liabilities

Finance lease liability, net of current portion

3,355

4,245

Operating lease liability, net of current portion

12,757

701

Notes payable, net of discount, net of current portion

34,287

350

Massachusetts lease liability

40,577

40,022

Deferred tax liability

1,373

Other liabilities

1,233

273

TOTAL LIABILITIES

167,092

172,461

Shareholders’ equity

Common shares, without par value, unlimited shares authorized, 381,463,838 and 377,515,391 issued and outstanding as of September 30, 2023 and December 31, 2022, respectively

856,208

858,143

Additional paid-in capital

225,254

225,127

Warrants

5,835

796

Accumulated other comprehensive income

976

988

Accumulated deficit

(1,004,136)

(963,703)

TOTAL SHAREHOLDERS’ EQUITY

84,137

121,351

Non-controlling interest

166

TOTAL EQUITY

84,137

121,517

TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY

$

251,229

$

293,978

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

5

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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 September 30, 

Nine Months Ended September 30, 

2023

2022

2023

2022

Revenues, net

$

44,555

$

40,487

$

128,418

$

129,894

Cost of goods sold

(36,595)

(30,950)

(107,622)

(100,059)

Gross profit

7,960

9,537

20,796

29,835

Operating expenses:

Wages and benefits

4,707

4,881

16,362

16,384

General and administrative

3,721

4,643

13,870

15,007

Sales and marketing

175

808

869

1,801

Share-based compensation expense (benefit)

190

533

(1,875)

2,545

Depreciation and amortization

3,891

4,594

12,732

13,712

Impairment loss and loss on disposal of assets

175

5,135

7,541

Total operating expenses

12,684

15,634

47,093

56,990

Operating loss

(4,724)

(6,097)

(26,297)

(27,155)

Other income (expense):

Interest income

94

168

Other income

2

2

102

9

Change in fair value of warrant liability

610

2,360

Gain (loss) on sale of assets and membership interests

483

(1)

8,884

Unrealized loss on investment

(1)

(198)

(6,401)

(292)

Loan receivable losses

(14)

(133)

(5,602)

(1,154)

Loss on foreign currency exchange

(17)

(18)

Interest expense

(6,369)

(4,150)

(15,927)

(10,727)

Total other expense

(5,916)

(3,776)

(18,962)

(9,636)

Loss from operations before income tax and non-controlling interest

(10,640)

(9,873)

(45,259)

(36,791)

Income taxes

Income tax benefit (expense)

1,977

(5,818)

3,393

2,412

Net loss before non-controlling interest

(8,663)

(15,691)

(41,866)

(34,379)

Less: Net income attributable to non-controlling interest

1,433

8

Net loss attributable to TILT Holdings Inc.

$

(8,663)

$

(15,691)

$

(40,433)

$

(34,371)

Other comprehensive loss

Net loss before non-controlling interest

$

(8,663)

$

(15,691)

$

(41,866)

$

(34,379)

Foreign currency translation differences

(7)

(8)

(12)

(10)

Comprehensive loss before non-controlling interest

(8,670)

(15,699)

(41,878)

(34,389)

Less: Net income attributable to non-controlling interest

1,433

8

Comprehensive loss attributable to TILT Holdings Inc.

$

(8,670)

$

(15,699)

$

(40,445)

$

(34,381)

Weighted average number of shares outstanding:

Basic and diluted

379,610,460

375,776,275

378,541,584

375,311,644

Net loss per common share attributable to TILT Holdings Inc.

Basic and diluted

$

(0.02)

$

(0.04)

$

(0.11)

$

(0.09)

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

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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 - December 31, 2022

    

377,515,391

    

$

858,143

    

$

225,127

    

$

796

    

$

988

    

$

(963,703)

    

$

166

    

$

121,517

Share-based compensation

31

31

Warrants expired

67

(67)

Issuance and vesting of restricted share units

370,744

209

209

Shares reserved for contingent consideration

53

53

Warrants issued as part of debt modification

5,106

5,106

Comprehensive (loss) income for the period

(2)

(4,875)

9

(4,868)

Balance - March 31, 2023

377,886,135

$

858,405

$

225,225

$

5,835

$

986

$

(968,578)

$

175

$

122,048

Share-based compensation

3

3

Issuance and vesting (forfeiture) of restricted share units

642,726

(1,074)

(1,074)

Shares reserved for contingent consideration

(1,287)

(1,287)

Comprehensive loss for the period

(3)

(26,895)

(1,442)

(28,340)

Balance - June 30, 2023

378,528,861

$

856,044

$

225,228

$

5,835

$

983

$

(995,473)

$

(1,267)

$

91,350

Share-based compensation

26

26

Issuance and vesting of restricted share units

2,934,977

164

164

CGSF/SFNY Divestiture

1,267

1,267

Comprehensive loss for the period

(7)

(8,663)

(8,670)

Balance - September 30, 2023

381,463,838

$

856,208

$

225,254

$

5,835

$

976

$

(1,004,136)

$

$

84,137

Accumulated Other

Shareholders’

Common Shares

Additional

Comprehensive

Accumulated

Non-Controlling

Equity

    

Shares

    

Amount

    

Paid in Capital

    

Warrants

    

Income (Loss)

    

Deficit

    

Interest

    

Total

Balance - December 31, 2021

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

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

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TILT HOLDINGS INC.

Condensed Consolidated Statements of Cash Flows (Unaudited)

(Amounts Expressed in Thousands of United States Dollars)

Nine Months Ended September 30, 

    

2023

    

2022

Cash flows from operating activities:

Net loss

$

(41,866)

$

(34,379)

Adjustments to reconcile net loss to net cash provided by operating activities:

Unrealized loss on investments

6,401

292

(Gain) loss on sale of assets and other

(8,133)

10

Depreciation and amortization

16,527

17,826

Amortization of operating lease right of use assets

1,887

531

Change in allowance for doubtful accounts

328

(213)

Non-cash interest income

-

(45)

Deferred tax

(3,947)

(3,450)

Share-based compensation expense (benefit)

(1,875)

2,545

Accretion of debt discount

1,466

2,210

Change in fair value of warrant liability

-

(2,360)

Loan receivable losses

5,602

1,154

Impairment loss and loss on disposal of assets

5,135

7,541

Inventory adjustments

5,831

546

Non-cash interest expense

4,255

3,430

Net change in working capital items:

Trade receivables, net

5,394

8,666

Inventories

8,644

5,804

Prepaid expenses and other current assets

(1,185)

(452)

Accounts payable and accrued liabilities

(1,788)

(1,036)

Income tax payable

435

621

Deferred revenue

(1,720)

(949)

Net cash provided by operating activities

1,391

8,292

Cash flows from investing activities:

Purchases of property, plant, and equipment

(351)

(14,856)

Proceeds from sale of property, plant and equipment

15,000

9

Repayment of loan receivable, net of advances

(2,806)

(1,115)

Proceeds from CGSF/SFNY Divestiture

1,400

Net cash provided by (used in) investing activities

13,243

(15,962)

Cash flows from financing activities:

Payments on lease liability