Nature of Operations
|9 Months Ended|
Sep. 30, 2022
|Nature of Operations|
|Nature of Operations||
1.Nature of Operations
TILT Holdings Inc. (“TILT” or the “Company”) is a business solutions provider to the global cannabis industry offering a diverse range of value-added products and services to industry participants. Through a portfolio of companies providing technology, hardware, cultivation and production, TILT services brands and cannabis retailers in regulated markets across 37 states in the United States (“U.S.”), as well as Canada, Israel, Mexico, South America, and the European Union.
TILT was incorporated under the laws of Nevada pursuant to NRS Chapter 78 on June 22, 2018. The Company was continued under the Business Corporations Act (British Columbia) pursuant to a Certificate of Continuance dated November 14, 2018. The Company is a reporting issuer in Canada in the Provinces of British Columbia, Alberta, and Ontario and its common shares (the “Common Shares”) are listed for trading on the NEO Exchange under the symbol “TILT.” In addition, the Common Shares are quoted on the OTCQX in the U.S. under the symbol “TLLTF.” The Company’s head office is in Phoenix, Arizona and its registered office is located at 745 Thurlow Street, #2400 Vancouver, BC V6C 0C5 Canada.
The Company has experienced operating losses since its inception and expects to continue to incur losses in the development of its business. The Company incurred a comprehensive loss of $34,381 during the nine months ended September 30, 2022 and has an accumulated deficit of $890,619 as of September 30, 2022. As of September 30, 2022, the Company had negative working capital of $36,675 (compared to positive working capital of $1,116 as of December 31, 2021). The negative working capital is related to the Company’s senior secured promissory notes issued on November 1, 2019 (the “2019 Senior Notes”) and junior notes becoming due within the next 12 months.
On May 16, 2022, through its subsidiary Commonwealth Alternative Care, Inc. (“CAC”), the Company completed the previously announced acquisition of a facility in Taunton, Massachusetts (the “Taunton Facility”). Concurrent with the acquisition, CAC closed on the sale of the Taunton Facility (the “Massachusetts Sale” and, with the purchase of the Taunton Facility, the “Taunton Facility Transactions”) to Innovative Industrial Properties, Inc. (“IIP”). See Note 12 — Massachusetts Lease Liability for further details.
During the three months ended September 30, 2022, the Company used a portion of the net proceeds from the Taunton Facility Transactions to pay $18,269 towards the principal balance of the 2019 Senior Notes. The Company made a further payment of $7,975 towards the 2019 Senior Notes subsequent to the end of the reporting period. See Note 20 — Subsequent Events for further details.
On April 19, 2022, the Company entered into a definitive purchase and sale agreement between its subsidiary, White Haven RE, LLC, and an affiliate of IIP (the “Purchase and Sale Agreement”), contemplating a sale and leaseback of the Company’s cultivation and production facility in White Haven, Pennsylvania (the “Pennsylvania Transaction”) in exchange for $15,000 cash. On September 30, 2022, the Company and IIP entered into a third amendment (the “Third Amendment”) to the Purchase and Sale Agreement extending the investigational period under the Purchase and Sale Agreement to a date on or before November 1, 2022 and allowing for closing of the Pennsylvania Transaction to occur simultaneously with the expiration of the investigational period. See Note 20 — Subsequent Events for details regarding other significant events related to the Pennsylvania Transaction.
The Company expects that the proceeds from the Taunton Facility Transactions and pending Pennsylvania Transaction will be sufficient to address a portion of its debt maturities occurring in December 2022 and pay all obligations on maturities occurring in April 2023 and remains in discussions with debt holders to finalize the future debt structure of the Company in order to achieve an improved capital structure with extended maturities. The Company’s liquidity will depend, in large part, on its success with these discussions and/or its ability to raise additional capital to address its remaining debt maturities, generate positive cash flow, and minimize the anticipated net loss during the 12 months from the date of this filing, all of which are uncertain and outside the control of the Company.
Based on the Company’s operating plans for the next 12 months which include (i) revenue growth from the sale of existing products and the introduction of new products across all operating segments, (ii) reducing production costs as a result of maturing efficiencies in cannabis operations, (iii) reducing supply chain costs, (iv) increasing cash inflows from the 2022 activation of a medical dispensary license, (v) increasing cash inflows from the monetization of certain assets, (vi) obtaining other financings as necessary and (vii) refinancing of debt obligations and extension of maturities with banking partners and note holders, the Company believes that it has adequate resources to fund the operations during the next 12 months from the date of filing of this Quarterly Report on Form 10-Q.
COVID-19 Pandemic and Global Conflicts
In March 2020, the World Health Organization categorized coronavirus disease 2019 (“COVID-19”) as a global pandemic. The Company continues to implement and evaluate actions to strengthen its financial position and support the continuity of its business and operations.
The impact of the COVID-19 pandemic and geopolitical conflicts, including the recent war in Ukraine, have created much uncertainty in the global marketplace. There are many uncertainties regarding these events, and the Company is closely monitoring the ongoing impact on all aspects of its business, including how it will impact its services, customers, employees, vendors, and business partners now and in the future. While the COVID-19 pandemic and recent geopolitical conflicts did not materially adversely affect the Company’s financial results and business operations in the nine months ended September 30, 2022, the Company is unable to predict the impact that these events will have on its future financial position and operating results due to numerous uncertainties.
The entire disclosure for the nature of an entity's business, major products or services, principal markets including location, and the relative importance of its operations in each business and the basis for the determination, including but not limited to, assets, revenues, or earnings. For an entity that has not commenced principal operations, disclosures about the risks and uncertainties related to the activities in which the entity is currently engaged and an understanding of what those activities are being directed toward.
Reference 1: http://www.xbrl.org/2003/role/disclosureRef