UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
 
FORM 8-K/A
(Amendment No. 1)
 
CURRENT REPORT
Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
 
Date of Report (Date of earliest event reported): October 20, 2021
 
AFC GAMMA, INC.
(Exact Name of Registrant as Specified in Its Charter)
Maryland
001-39995
85-1807125
(State or Other Jurisdiction
of Incorporation)
(Commission
File Number)
(IRS Employer
Identification No.)

525 Okeechobee Blvd., Suite 1770
West Palm Beach, FL, 33401
(Address of principal executive offices, including zip code)
 
561-510-2390
(Registrant’s telephone number, including area code)
 
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instructions A.2. below):

Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Securities registered pursuant to Section 12(b) of the Act:
Title of each class
 
Trading
Symbol(s)
 
Name of each exchange on which registered
Common Stock, $0.01 par value per share
 
AFCG
 
The Nasdaq Stock Market LLC

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
 
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.



Introductory Note
 
On October 26, 2021, AFC Gamma, Inc. (the “Company”) filed a Current Report on Form 8-K (the “Original Report”) to report the closing of the Company’s increased loan commitment to Verano Holdings Corp. and certain of its subsidiaries and affiliates and related matters under Items 2.01 and 9.01 of Form 8-K.
 
This Current Report on Form 8-K/A (this “Amendment”) is being filed as an amendment to the Original Report. This Amendment is being filed to provide the historical financial information of Verano Holdings Corp., as required by Item 9.01 of Form 8-K that were not available for inclusion with the Original Report. Except as set forth herein, this Amendment does not amend, modify or update the disclosure contained in the Original Report.

Item 9.01
Financial Statements and Exhibits.

(a)  Financial statements of businesses or funds acquired.

The audited consolidated financial statements of Verano Holdings Corp. as of and for the year ended December 31, 2020, are filed as Exhibit 99.1 to this Amendment and are incorporated herein by reference. The unaudited consolidated financial statements of Verano Holdings Corp. as of and for the nine months ended September 30, 2021, are filed as Exhibit 99.2 to this Amendment and are incorporated herein by reference.

(b)  Pro forma financial information.

The financial statements filed pursuant to paragraph (a) to this Item 9.01 are not, and will not, be consolidated into the Company’s consolidated financial statements; therefore, no such disclosure of pro forma financial information is applicable.

(d) Exhibits

Exhibit No.
 
Description
   
 
Audited consolidated financial statements of Verano Holdings Corp. as of and for the years ended December 31, 2020 and 2019
 
Interim unaudited consolidated financial statements of Verano Holdings Corp. as of and for the nine months ended September 30, 2021
104
 
Cover Page Interactive Data File (embedded withing the Inline XBRL document)


SIGNATURES
 
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
 
Date: November 22, 2021
AFC GAMMA, INC.
   
 
By:
/s/ Brett Kaufman
   
Brett Kaufman
   
Chief Financial Officer




Exhibit-99.1

 
Page(s)
INDPENDENT AUDITOR’S REPORT
1 - 2
   
CONSOLIDATED FINANCIAL STATEMENTS:
 
   
Consolidated Statements of Financial Position
 3
 

Consolidated Statements of Operations
 4
 

Consolidated Statements of Changes in Members’ Equity
 5
 

Consolidated Statements of Cash Flows
 6 - 7
   
Notes to the Consolidated Financial Statements
8- 47


Independent Auditor’s Report
 
To the Members of Verano Holdings, LLC and Subsidiaries

Chicago, Illinois
 
Opinion
 
We have audited the consolidated financial statements of Verano Holdings, LLC and Subsidiaries (the “Company”), which comprise the consolidated statements of financial position as of December 31, 2020 and 2019, and the consolidated statements of operations, changes in members’ equity and cash flows for the years then ended, and notes to the consolidated financial statements, including a summary of significant accounting policies.
 
In our opinion, the accompanying consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Company as at December 31, 2020 and 2019, and its consolidated financial performance and its consolidated cash flows for the years then ended in accordance with International Financial Reporting Standards (“IFRS”).
 
Basis for Opinion
 
We conducted our audits in accordance with Canadian generally accepted auditing standards. Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Consolidated Financial Statements section of our report. We are independent of the Company in accordance with the ethical requirements that are relevant to our audits of the consolidated financial statements in Canada, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
 
Responsibilities of Management and Those Charged with Governance for the Consolidated Financial Statements
 
Management is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with IFRS, and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.
 
In preparing the consolidated financial statements, management is responsible for assessing the Company’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Company or to cease operations, or has no realistic alternative but to do so.
Those charged with governance are responsible for overseeing the Company’s financial reporting process. Other Information
 
Management is responsible for the other information. The other information comprises the Management’s Discussion and Analysis.
 
Our opinion on the consolidated financial statements does not cover the other information and we do not express any form of assurance conclusion thereon.
 
In connection with our audit of the consolidated financial statements, our responsibility is to read the other information identified above and, in doing so, consider whether the other information is materially inconsistent with the consolidated financial statements or our knowledge obtained in the audit, or otherwise appears to be materially misstated.
 
Macias Gini & O’Connell LLP
155 North Wacker Drive, Suite 4350
Chicago, IL 60606

www.mgocpa.com

-1-

If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard.
 
Auditor’s Responsibilities for the Audit of the Consolidated Financial Statements
 
Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with Canadian generally accepted auditing standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated financial statements.
 
As part of an audit in accordance with Canadian generally accepted auditing standards, we exercise professional judgment and maintain professional skepticism throughout the audits. We also:
 
Identify and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.
Obtain an understanding of internal control relevant to the audits in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control.
Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management.
Conclude on the appropriateness of management's use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the entity’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor's report to the related disclosures in the consolidated financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor's report. However, future events or conditions may cause the Company to cease to continue as a going concern.
Evaluate the overall presentation, structure and content of the consolidated financial statements, including the disclosures, and whether the consolidated financial statements represent the underlying transactions and events in a manner that achieves fair presentation.
Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Company to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and performance of the audits. We remain solely responsible for our audit opinion.
 
We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audits and significant audit findings, including any significant deficiencies in internal control that we identify during our audits.
 
We also provide those charged with governance with a statement that have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonable be thought to bear on our independence, and where applicable, related safeguards.
 
The engagement partner on this audit resulting in this independent auditor’s report is Cesar Reynoso.
 
 
Chicago, Illinois
April 6, 2021
 
-2-

VERANO HOLDINGS, LLC AND SUBSIDIARIES
Consolidated Statements of Financial Position
As of December 31, 2020 and 2019



 
Financial
Footnote
   
December 31,
2020
   
December 31,
2019
 
ASSETS
Current Assets:
                 
Cash
       
$
16,402,148
   
$
6,417,703
 
Accounts Receivable, Net
   
2 (f)

   
7,269,837
     
5,055,564
 
Notes Receivable
   
7
     
3,010,523
     
5,000,000
 
Interest Receivable
           
934,500
     
-
 
Due from Related Parties
   
17
     
108,254
     
253,580
 
Inventories
   
5
     
59,290,065
     
14,073,364
 
Biological Assets
   
6
     
109,376,567
     
16,613,392
 
Prepaid Expenses and Other Current Assets
           
6,169,400
     
2,692,536
 
Distributions Receivable
           
-
     
83,295
 
Total Current Assets
         
$
202,561,294
   
$
50,189,434
 
Property, Plant and Equipment, Net
   
8
     
143,137,585
     
94,379,744
 
Right Of Use Assets, Net
   
2(m), 16(a)

   
11,337,343
     
9,864,915
 
Intangible Assets
   
10
     
73,897,467
     
19,880,449
 
Goodwill
   
10
     
16,028,903
     
5,064,248
 
Investment in Associates
   
2(h)

   
11,547,004
     
10,927,934
 
Deposits and Other Assets
           
797,321
     
3,807,972
 
TOTAL ASSETS
         
$
459,306,917
   
$
194,114,696
 
LIABILITIES AND MEMBERS' EQUITY
                       
LIABILITIES
                       
Current Liabilities:
                       
Accounts Payable
         
$
18,292,696
   
$
18,544,003
 
Accrued Liabilities
           
13,835,980
     
3,111,567
 
Income Tax Payable
   
14
     
46,872,445
     
11,206,250
 
Current Portion of Lease Liabilities
   
2(m), 16(a)

   
1,910,645
     
1,653,757
 
Current Portion of Notes Payable
   
11
     
7,814,261
     
8,153,234
 
Derivative Liability
   
12
     
-
     
6,778,510
 
License Payable
   
9(b)

   
49,950
     
60,185
 
Acquisition Price Payable
   
9(a)

   
33,290,400
     
6,750,000
 
Due to Related Parties
   
17
     
44,664
     
82,718
 
Total Current Liabilities
           
122,111,041
     
56,340,224
 
Long-Term Liabilities:
                       
Deferred Revenue
           
2,035,405
     
-
 
Notes Payable, Net of Current Portion
   
11
     
32,479,649
     
6,213,433
 
Lease Liabilities, Net of Current Portion
   
2(m), 16(a)

   
10,864,742
     
9,602,436
 
Deferred Income Taxes
   
14
     
49,084,004
     
5,114,977
 
Total Long-Term Liabilities
           
94,463,800
     
20,930,846
 
TOTAL LIABILITIES
         
$
216,574,841
   
$
77,271,070
 
MEMBERS' EQUITY
           
242,387,456
     
111,752,803
 
NON-CONTROLLING INTEREST
           
344,620
     
5,090,823
 
TOTAL LIABILITIES AND MEMBERS'
                       
EQUITY
         
$
459,306,917
   
$
194,114,696
 

See accompanying notes to consolidated financial statements.

-3-

VERANO HOLDINGS, LLC AND SUBSIDIARIES
Consolidated Statements of Operations
For the Years Ended December 31, 2020 and 2019



 
Financial
Footnote
   
2020
   
2019
 
Revenues, net of discounts
       
$
228,530,083
   
$
65,968,292
 
Cost of Goods Sold
         
94,386,849
     
38,469,325
 
Gross Profit before Biological Asset Adjustment
         
134,143,234
     
27,498,967
 
Realized fair value amounts included in inventory sold
   
6
     
(132,553,802
)
   
(29,975,944
)
Unrealized fair value gain on growth of biological assets
   
6
     
254,154,780
     
44,539,847
 
Gross Profit
           
255,744,212
     
42,062,870
 
Expenses:
                       
General and Administrative
           
26,742,144
     
28,106,966
 
Sales and Marketing
           
918,203
     
926,258
 
Salaries and Benefits
           
16,227,897
     
6,231,096
 
Depreciation and Amortization
           
1,973,723
     
2,546,239
 
Total Expenses
           
45,861,967
     
37,810,559
 
(Loss) Income from Investments in Associates
           
2,691,597
     
(456,053
)
Income From Operations
           
212,573,842
     
3,796,258
 
Other Income (Expense):
                       
Loss on Disposal of Property, Plant and Equipment
           
-
     
(1,546,540
)
Loss on Deconsolidation
   
4
     
(189,324
)
   
(3,086,878
)
Gain on Previously Held Equity Interest
   
9
     
458,039
     
-
 
Gain on Derivative Liability
   
12
     
6,778,510
     
-
 
Change in Fair Market Value of Derivative
   
12
     
-
     
(562,319
)
Amortization of Debt Issuance Costs for Warrant
   
11
     
(4,572,423
)
   
(656,177
)
Amortization of Convertible Debt Discount
   
12
     
(5,525,503
)
   
(690,688
)
Interest Expense, Net
           
(5,349,644
)
   
(338,992
)
Other Income (Expense)
           
(701,496
)
   
94,100
 
Total Other Expense
           
(9,101,841
)
   
(6,787,494
)
Net Income Before Provision for Income Taxes and Non-Controlling Interest
           
203,472,001
     
(2,991,236
)
Provision for Income Taxes
   
14
     
(76,831,828
)
   
(15,203,221
)
Net Income (Loss) Before Non-Controlling Interest
           
126,640,173
     
(18,194,457
)
Net Income (Loss) From Discontinued Operations, Net of Tax
           
(1,966,751
)
   
-
 
Net Income (Loss)
           
124,673,422
     
(18,194,457
)
Net Income Attributable To Non-Controlling Interest
           
566,459
     
239,563
 
Net (Loss) Income Attributable to Verano Holdings, LLC and Subsidiaries
         
$
124,106,963
   
$
(18,434,020
)

See accompanying notes to consolidated financial statements.
 
-4-

VERANO HOLDINGS, LLC AND SUBSIDIARIES
Consolidated Statements of Changes in Members’ Equity
For the Years Ended December 31, 2020 and 2019

 
   
Members'
Equity
   
Non-
Controlling
Interest
   
Total
 
Balance, December 31, 2018
 
$
123,382,962
   
$
2,800,826
   
$
126,183,788
 
Net income (loss)
   
(18,434,020
)
   
239,563
     
(18,194,457
)
Adoption of IFRS 16
   
(392,253
)
   
(23,610
)
   
(415,863
)
Contributions from members
   
5,905,586
     
71,278
     
5,976,864
 
Issuance of warrants note
   
7,234,933
     
-
     
7,234,933
 
Non-controlling interest from acquisition
   
-
     
2,700,000
     
2,700,000
 
Transfer from non-controlling interest to controlling
   
688,062
     
(688,062
)
   
-
 
Distributions to members
   
(6,632,467
)
   
(9,172
)
   
(6,641,639
)
Balance at December 31, 2019
 
$
111,752,803
   
$
5,090,823
   
$
116,843,626
 
Balance, December 31, 2019
   
111,752,803
     
5,090,823
     
116,843,626
 
Net income
   
124,106,963
     
566,459
     
124,673,422
 
Transfer from non-controlling interest to controlling interest
   
(3,949,783
)
   
(2,950,217
)
   
(6,900,000
)
Deconsolidation of subsidiary
   
-
     
79,055
     
79,055
 
Derecognition of NCI related to discontinued operations
   
-
     
(2,441,500
)
   
(2,441,500
)
Conversion of warrants
   
10,523,187
     
-
     
10,523,187
 
Distributions to members
   
(45,714
)
   
-
     
(45,714
)
Balance at December 31, 2020
 
$
242,387,456
   
$
344,620
   
$
242,732,076
 

See accompanying notes to consolidated financial statements
 
-5-

VERANO HOLDINGS, LLC AND SUBSIDIARIES
Consolidated Statements of Cash Flows
For the Years Ended December 31, 2020 and 2019



 
YearEnded
December31,
2020
   
2019
 
CASH FLOW FROM OPERATING ACTIVITIES
           
Net income (loss)
 
$
124,673,422
   
$
(18,194,457
)
Adjustments to reconcile net income to net cash provided by operating activities:
               
Depreciation and amortization
   
10,626,626
     
6,061,641
 
Non-cash interest expense
   
1,895,220
     
728,503
 
Non-cash interest income
   
(934,500
)
   
-
 
Accretion of debt discount
   
-
     
690,688
 
Loss on disposal of property, plant and equipment
   
-
     
1,546,540
 
Gain on previously held equity interest
   
(458,039
)
   
-
 
Bad debt expense
   
300,000
     
331,384
 
Amortization of loan issuance costs (warrants)
   
4,572,423
     
656,177
 
Amortization of debt issuance costs
   
234,598
     
123,333
 
Amortization of convertible debt discount
   
5,525,503
     
-
 
Gain on derivative liability
   
(6,778,510
)
   
-
 
Change in fair market value of derivative
   
-
     
562,319
 
Loss on deconsolidation of subsidiary
   
159,223
     
2,275,015
 
Net loss on discontinued operations
   
2,202,003
     
-
 
(Income) loss from underlying investees
   
(2,607,736
)
   
456,053
 
Derecognition of deferred rent
   
-
     
104,590
 
Write-off of note receivable
   
300,000
     
-
 
Changes in operating assets and liabilities:
               
Accounts receivable
   
(2,512,217
)
   
(2,621,915
)
Inventories
   
(44,566,400
)
   
(8,342,554
)
Biological assets
   
(92,763,175
)
   
(5,938,364
)
Prepaid expenses and other current assets
   
(3,126,499
)
   
(1,657,046
)
Deposits and other assets
   
2,963,963
     
(1,795,042
)
Accounts payable and accrued liabilities
   
12,782,065
     
5,483,853
 
Income tax payable
   
35,666,195
     
10,420,323
 
Due to related parties
   
(833,054
)
   
(1,206,965
)
Members' distribution payable
   
(271,376
)
   
-
 
Deferred taxes
   
28,264,117
     
4,547,421
 
Deferred revenue
   
2,035,405
     
-
 
NET CASH PROVIDED BY (USED IN)
               
OPERATING ACTIVITIES
   
77,349,257
     
(5,768,503
)
CASH FLOW FROM INVESTING ACTIVITIES
               
Acquisition of noncontrolling membership interest
   
-
     
(3,500,000
)
Purchases of property, plant and equipment
   
(60,383,894
)
   
(59,040,660
)
Advances to (repayments from) related parties
   
145,326
     
-
 
Due to related parties, net
   
-
     
693,804
 
Purchases of licenses
   
(7,010,235
)
   
(7,236,523
)
Acquisition of business, net of cash acquired
   
(24,890,358
)
   
61,003
 
Cash paid in deconsolidation of subsidiary
   
-
     
(59,257
)
Sale (purchase) of interest in investment in associate
   
-
     
(9,912,500
)
Dividend received from investments in associates
   
1,866,705
     
571,257
 
Issuance of note receivable
   
(185,523
)
   
(5,000,000
)
Proceeds from note receivable
   
1,875,000
     
-
 
NET CASH USED IN INVESTING ACTIVITIES
   
(88,582,979
)
   
(83,422,875
)

See accompanying notes to consolidated financial statements.

-6-

VERANO HOLDINGS, LLC AND SUBSIDIARIES
Consolidated Statements of Cash Flows
For the Years Ended December 31, 2020 and 2019


   
Year Ended
December 31,
 
   
2020
   
2019
 
CASH FLOW FROM FINANCING ACTIVITIES
           
Contributions from members
    -      
5,976,864
 
Distributions to members
   
(45,714
)
   
(6,102,491
)
Proceeds from exercise of warrants
   
2,190,577
     
2,173,000
 
Proceeds from issuance of notes payable
   
33,943,129
     
21,612,500
 
Principal repayments of notes payable
   
(9,754,117
)
   
(4,353,385
)
Debt issuance costs paid
   
(1,068,481
)
   
(200,000
)
Payment of lease liabilities
   
(2,502,772
)
   
(1,584,699
)
Payment of acquisition price payable
   
(1,544,455
)
    -  
Proceeds from sale of property, plant and equipment
    -      
5,000,000
 
                 
NET CASH PROVIDED BY FINANCING ACTIVITIES
   
21,218,167
     
22,521,789
 
                 
NET INCREASE (DECREASE) IN CASH
   
9,984,445
     
(66,669,589
)
                 
CASH, BEGINNING OF PERIOD
   
6,417,703
     
73,087,292
 
                 
CASH, END OF PERIOD
 
$
16,402,148
   
$
6,417,703
 
                 
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
               
Interest paid (received)
 
$
1,760,932
   
$
(217,823
)
                 
OTHER NON-CASH INVESTING AND FINANCING ACTIVITIES
               
                 
Net liability upon adoption of IFRS 16, Leases
 
$
-
   
$
(415,963
)
                 
Accrued Capital Expenditures
 
$
1,859,799
   
$
6,632,892
 
                 
Issuance of note receivable related to sale of property, plant and equipment
 
$
-
   
$
5,000,000
 
Distributions receivable from investment in associates
 
$
-
   
$
83,295
 
                 
Issuance of warrants
 
$
-
   
$
7,234,933
 
Cash paid in business combination:
               
Tangible and intangible assets acquired, net of cash $ 51,836,018
         
$
4,393,600
 
Liabilities assumed
   
(17,077,392
)
   
(1,054,603
)
Acquisition price payable
   
(18,227,011
)
   
(1,000,000
)
Issuance of note payable
   
(350,000
)
   
-
 
Goodwill
   
13,952,516
     
-
 
Non-controlling interest from acquisitions
   
-
     
(2,400,000
)
Previously held equity interest
   
(580,000
)
    -  
Cash paid (received) in business combination $ 29,554,131
         
$
(61,003
)

See accompanying notes to consolidated financial statements.

-7-

VERANO HOLDINGS, LLC AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the Years Ended December 31, 2020 and 2019


1.     NATURE OF OPERATIONS
 
References herein to “the Company,” or “Verano,” are intended to mean Verano Holdings, LLC and its Subsidiaries, affiliates, licensees, and managed entities (collectively, the "Company").
 
Verano is a vertically integrated cannabis operator that focuses on limited-licensed markets in the United States. As a vertically integrated provider, the Company owns, operates, manages, consults, and/or has licensing or other commercial agreements with cultivation, processing, and retail licensees across ten state markets (Illinois, Maryland, Oklahoma, Nevada, Ohio, Michigan, Massachusetts, Arkansas, New Jersey, and Pennsylvania) and Puerto Rico.
 
In addition to the states listed above, the Company also conducts pre-licensing activities in several other markets. In these markets, the Company has either applied for licenses, or plans on applying for licenses, but does not currently own any cultivation, production, or retail licenses.
 
Each Member’s liability is limited pursuant to the relevant jurisdiction’s Limited Liability Company Act.
 
The Company’s corporate headquarters is located at 415 North Dearborn St., 4th Floor, Chicago, Illinois 60654.
 
2.     SIGNIFICANT ACCOUNTING POLICIES
 
 
(a)
Basis of Preparation
 
The consolidated financial statements of the Company have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”) and Interpretations of the IFRS Interpretations Committee (“IFRIC”) in effect for all periods presented.
 
These consolidated financial statements have been prepared in accordance with IFRS with the going concern assumption, which assumes that the Company will continue in operation for the foreseeable future and, accordingly, will be able to realize its assets and discharge its liabilities in the normal course of operations. The Company’s ability to realize its assets and discharge its liabilities is dependent upon the Company obtaining the necessary financing and ultimately upon its ability to achieve profitable operations. Management estimates that the Company will be able to meet its obligations and to sustain operations for at least the next twelve months. Failure to arrange adequate financing on acceptable terms and/or achieve profitability may have an adverse effect on the financial position, results of operations, cash flows and prospects of the Company. These consolidated financial statements do not include any adjustments to assets or liabilities that would be necessary should the Company be unable to continue as a going concern.
 
These consolidated financial statements were approved and authorized for issue by the Board of Directors of the Company on April 5, 2021.
 
 
(b)
Basis of Measurement
 
These consolidated financial statements have been prepared on the going concern basis, under the historical cost convention except for certain financial instruments and biological assets that are measured at fair value as detailed in the Company’s accounting policies.
 
 
(c)
Functional and Presentation Currency
 
The Company and its affiliates’ functional currency, as determined by management, is the United States (“U.S.”) dollar. These consolidated financial statements are presented in U.S. dollars.
 
-8-

VERANO HOLDINGS, LLC AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the Years Ended December 31, 2020 and 2019

 
2.     SIGNIFICANT ACCOUNTING POLICIES (Continued)
 
 
(d)
Basis of Consolidation
 
The consolidated financial statements include the accounts of Verano Holdings, LLC and its wholly-owned or majority owned subsidiaries, as well as any entities meeting the common control or common management criteria described below. Non-controlling interests are included as a component of members’ equity. Control exists when the Company has the power, directly and indirectly, to govern the financial and operating policies of an entity and be exposed to the variable returns from its activities. Common management exists when entities operate under the terms of management service agreements whose terms meet the criteria for control established in IFRS 10 – Consolidated Financial Statements.
 
Non-controlling interest ("NCI") represents the portion of equity ownership in subsidiaries not attributable to the Company’s members. NCI is initially measured as the proportionate share of its interest in the acquiree's identifiable net assets as at the date of acquisition and subsequently adjusted for the proportionate share of net earnings and other comprehensive income (loss) attributable to the NCI, as well as any dividends or distributions paid to the NCI. Non-controlling interests in the results and equity of subsidiaries are shown separately in the consolidated statements of financial position, consolidated statements of changes in member’s equity and consolidated statements of operations, respectively. Changes in the parent company’s ownership interest that do not result in a change of control are accounted for as equity transactions. When investors in certain subsidiaries of the Company contribute their interests to Verano Holdings, LLC (parent), their associated non-controlling interest portion is transferred to members’ equity.
 
When the Company loses control over a subsidiary, it derecognizes the assets and liabilities of the subsidiary, and any related non-controlling interests and other components of equity. Any resulting gain or loss is recognized in profit or loss. Any interest retained in the former subsidiary is measured at fair value when control is lost.
 
All significant intercompany balances and transactions were eliminated in consolidation.
 
Verano Holdings, LLC’s has wholly owned subsidiaries and entities over which the Company has control, that are included in these consolidated financial statements for the year ended December 31, 2020. The ownership percentages/amounts set forth in the table below may not necessarily match state regulatory records as the below assumes for purposes of presentation the approval of certain pending, planned, or anticipated state regulatory transfers. The Company will update its regulatory filings in those states where it is permitted to do so as soon as practical and will continue to operate the entities below, where and as applicable, in accord with current practice and in compliance with applicable laws and regulations.
 
Subsidiaries
Entity Name
Jurisdiction
Purpose
Percentage
Interest
11210 North 30th Street, LLC
Florida
Real Estate holding company
100%
16 Magothy Road Beach, LLC
Maryland
Real Estate holding company
100%
4444 W. Craig Road, LLC
Nevada
Real Estate holding company
100%
Agronomy Innovations LLC
Arizona
Management company
100%
Albion MM, LLC
Illinois
Real Estate holding company
100%
Ataraxia, LLC
Illinois
Cultivation
100%
Branchburg Rte. 22, LLC
New Jersey
Real Estate holding company
100%
Cave Creek RE, LLC
Arizona
Real Estate holding company
100%
CGV Group, LLC
Delaware
New York joint venture
51%
DGV Group, LLC
Delaware
California joint venture
62.50%
Eastern and Pebble, LLC
Florida
Real Estate holding company
100%
Fort Consulting, LLC
Arizona
Cultivation/Dispensary
100%

-9-

VERANO HOLDINGS, LLC AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the Years Ended December 31, 2020 and 2019

 
Entity Name
Jurisdiction
Purpose
Percentage
Interest
Four Daughters Compassionate Care, Inc.
Massachusetts
Cultivation/Dispensary
100%
ILDISP, LLC1
Illinois
Holding company
50%
ILMM Logistics, LLC
Illinois
Logistics company
100%
MA MM Logistics, LLC
Illinois
Logistics company
100%
Magpie Management, LLC[2]
Oklahoma
Holding company
75%
MD MM Logistics, LLC
Maryland
Logistics company
100%
NH Medicinal Dispensaries, LLC (dba The Clinic Effingham)1
Illinois
Dispensary
100%
NJ MM Logistics, LLC
New Jersey
Logistics company
100%
NNTS Holdings, LLC
Delaware
Holding company
100%
OH MM Logistics, LLC
Ohio
Logistics company
100%
Ohio Natural Treatment Solutions, LLC
Delaware
Management company
100%
Prospect Heights RE, LLC
Illinois
Real Estate holding company
100%
RedMed Holdings, LLC
Delaware
Holding company
100%
Saint Chicago Holdings, LLC
Delaware
Holding company
100%
Verano Arizona Holdings, LLC
Delaware
Holding company
100%
Verano Arizona II, LLC
Delaware
Management company
100%
Verano Arizona, LLC
Delaware
Management company
100%
Verano CGV Holdings, LLC
Delaware
Holding company
50%
Verano El Dorado, LLC
Arkansas
Real Estate holding company
100%
Verano Four Daughters Holdings, LLC
Delaware
Holding company
100%
Verano GVB Mergersub, LLC
Delaware
Acquisition subsidiary
100%
Verano Holdings, LLC
Delaware
Holding company
100%
Verano IP, LLC
Delaware
Intellectual property
100%
Verano Michigan, LLC
Delaware
Management company
100%
Verano NSE Holdings, LLC
Delaware
Holding company
100%
Verano Oklahoma, LLC
Delaware
Holding company
100%
Verano Technologies, LLC
Delaware
Holding company
100%
Verano THC Holdings, LLC
Delaware
Holding company
100%
Verano TV Mergersub, LLC
Delaware
Acquisition subsidiary
100%
Verano WV, LLC
West Virginia
Dispensary
100%
VHGCA Holdings, LLC
Delaware
Holding company
100%
VHGRX Holdings, LLC
Delaware
Holding company
100%
VZL Staffing Services, LLC
Illinois
Staffing company
100%
Zen Leaf Retail, LLC
Maryland
Holding company
100%
Zen Leaf Technologies, LLC
Delaware
Management company
100%



1
ILDISP, LLC and NH Medicinal Dispensaries, LLC: Company affiliate Ataraxia has a 50% membership interest share of ILDISP, which owns 100% interest in NH Medicinal Dispensaries. As such, affiliate Ataraxia owns a 50% interest in NH Medicinal Dispensaries. NH Medicinal Dispensaries holds two licenses which are associated with two dispensaries: The Clinic Effingham and Zen Leaf Charleston. Due to the nature of the extent of control the Ataraxia exercises over each dispensary, the Company recognizes The Clinic Effingham as an equity-method investment and fully consolidates Zen Leaf Charleston.
 
-10-

VERANO HOLDINGS, LLC AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the Years Ended December 31, 2020 and 2019


Operating Companies
Entity Name
Jurisdiction of Organization
Purpose
Percentage
Interest
2900 Lone Mountain, LLC
Nevada
Real Estate holding company
100%
AGG Wellness, LLC dba Herban Legends of Towson
Maryland
Dispensary
100%
Buchanan Development, LLC
Michigan
Dispensary
100%
Canna Cuzzos, LLC
Maryland
Dispensary
40%
Chicago Natural Treatment Solutions, LLC
Delaware
Holding company
100%
ChiVegs Real Estate, LLC
Nevada
Real Estate holding company
100%
Elevele LLC
Illinois
Dispensary
100%
FGM Processing, LLC
Maryland
Processor
100%
Freestate Wellness, LLC
Maryland
Cultivation/Dispensary
100%
GLD Holdings, LLC
Delaware
Holding company
100%
Green RX, LLC (dba Have a Heart Cincy)
Ohio
Dispensary
100%
Healthway Services of Illinois, LLC
Illinois
Holding company
100%
Healthway Services of West Illinois, LLC
Illinois
Dispensary
100%
Local Dispensaries, LLC
Pennsylvania
Dispensary
100%
Lone Mountain Partners, LLC
Nevada
Cultivation
100%
Maryland Natural Treatment Solutions, LLC
Maryland
Dispensary
100%
MDCult, LLC
Maryland
Holding company
99.99%
Mikran, LLC
Maryland
Dispensary
100%
MME Aurora Retail, LLC
Illinois
Dispensary
100%
MME Evanston Retail, LLC
Illinois
Dispensary
100%
MME IL Holdings, LLC
Illinois
Holding company
100%
Mother Grows Best, LLC
Ohio
Cultivation
100%
Mother Know's Best, LLC
Ohio
Dispensary
100%
Natural Treatment Solutions, LLC
Nevada
Holding company
100%
NatureX, LLC dba Zen Leaf Las Vegas
Nevada
Dispensary
100%
Nevada Natural Treatment Solutions, LLC
Nevada
Holding company
100%
Noah’s Ark, LLC
Arkansas
Dispensary
100%
Ohio Grown Therapies, LLC
Ohio
Dispensary
100%
Redfish Holdings, Inc.
Maryland
Holding company
100%
RedMed, LLC
Delaware
Holding company
100%
Saint Chicago, LLC
Illinois
Holding company
100%
The M Group, LLC
Maryland
Holding company
100%
Union Group of Illinois, LLC
Illinois
Dispensary
100%
United Development of Illinois, LLC
Illinois
Real Estate holding company
100%
V Waldorf, LLC
Maryland
Holding company
100%
Verano Evanston, LLC
Illinois
Holding company
100%
Verano Highland Park, LLC
Illinois
Holding company
100%
Verano Illinois, LLC
Illinois
Holding company
100%

-11-

VERANO HOLDINGS, LLC AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the Years Ended December 31, 2020 and 2019


Entity Name
Jurisdiction of Organization
Purpose
Percentage
Interest
Verano MI2, LLC
Michigan
Holding company
100%
Verano MO Holdings, LLC
Delaware
Holding company
100%
Verano MO, LLC
Missouri
Holding company
100%
Verano NJ Holdings, LLC
Delaware
Holding company
100%
Verano NJ LLC
New Jersey
Cultivation/Dispensary
100%
VHGG Holdings, LLC
Delaware
Holding company
100%
VHMD Processor, LLC
Delaware
Processor
100%
VMO Processing, LLC
Missouri
Processor
100%
VMO Retail, LLC
Missouri
Dispensary
100%
VZL Staffing, LLC
Maryland
Staffing company
100%
West Capital, LLC
Illinois
Real Estate holding company
100%

 
(e)
Cash
 
Cash includes cash deposits in financial institutions and cash held at retail, and cultivation locations.
 
 
(f)
Accounts Receivable and Expected Credit Loss
 
Accounts receivable are recorded at the invoiced amount and do not bear interest. Expected credit loss reflects the Company’s estimate of amounts in its existing accounts receivable that may not be collected due to customer claims or customer inability or unwillingness to pay. Collectability of trade receivables is reviewed on an ongoing basis. The expected credit loss is determined based on a combination of factors, including the Company’s risk assessment regarding the credit worthiness of its customers, historical collection experience and length of time the receivables are past due. Account balances are charged off against the allowance when the Company believes it is probable the receivable will not be recovered. As of December 31, 2020, the allowance for doubtful accounts was $300,000. There was no allowance for doubtful accounts as of December 31, 2019.
 
 
(g)
Inventories
 
Inventories of purchased finished goods and packing materials are initially valued at cost and subsequently at the lower of cost and net realizable value. Inventories of harvested cannabis are transferred from biological assets at their fair value less costs to sell and complete at harvest which becomes the deemed cost. Any subsequent post-harvest costs are capitalized to inventory to the extent that the cost is less than net realizable value. Net realizable value is determined as the estimated selling price in the ordinary course of business less the estimated costs of completion and the estimated costs necessary to make the sale. Cost is determined using the weighted average cost basis. Products for resale and supplies and consumables are valued at lower of cost and net realizable value. The Company reviews inventory for obsolete, redundant, and slow-moving goods and any such inventories are written down to net realizable value. As of December 31, 2020 and December 31, 2019, there were no reserves for obsolete inventories.
 
 
(h)
Investments in Associates
 
The Company accounts for investments under International Accounting Standards (“IAS”) 28 – Investments in Associates and Joint Ventures. Investments are first evaluated if there is control and should be combined or consolidated. If it is determined that the Company does not have control in an investment but has significant influence, the investment is deemed an investment in an associate. Significant influence is defined as the power to participate in the financial and operating policy decisions of the investee but without control or joint control over those policies. Investments in associates are accounted for using the equity method of accounting. Interests in associates accounted for using the equity method are initially recognized at cost.

-12-

VERANO HOLDINGS, LLC AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the Years Ended December 31, 2020 and 2019


2.     SIGNIFICANT ACCOUNTING POLICIES (Continued)
 
 
(h)
Investments in Associates(Continued)
 
Subsequent to initial recognition, the carrying value of the Company’s investment in an associate is adjusted for the Company’s share of comprehensive income (loss) and distributions of the investee. The carrying value of associates is assessed for impairment at each Statement of Financial Position date. Investments that are neither controlled, or the Company does not have significant influence, are recognized at fair value at each reporting period with changes in fair value recognized through profit and loss. As of December 31, 2020 and December 31, 2019, the Company did not recognize any impairments in investments at fair value or investments in associates.
 
 
(i)
Biological Assets
 
The Company measures biological assets consisting of medical and adult-use cannabis plants at fair value less costs to sell and complete up to the point of harvest, which becomes the basis for the cost of internally produced harvested cannabis and finished goods inventories after harvest. These costs are then recorded with cost of goods sold in the consolidated statements of operations in the period when the related product is sold. Unrealized gains or losses arising from changes in fair value less cost to sell during the period are included in the results of operations.
 
Production costs related to biological assets are expensed. They include the direct cost of seeds and growing materials as well as other indirect costs such as utilities and supplies used in the growing process. Indirect labor for individuals involved in the growing and quality control process is also included, as well as depreciation on production equipment and overhead costs such as rent to the extent it is associated with the growing space. Unrealized fair value gains/losses on growth of biological assets are recorded in a separate line on the face of the consolidated statements of operations.
 
The Company capitalizes costs incurred after harvest to bring the products to their present location and condition in accordance with IAS 2, Inventories. The cost of inventories includes the fair value less cost to sell of the cannabis at harvest and costs incurred after harvest (such as quality assurance costs, fulfillment costs and packaging costs) to bring the products to their present location and condition.
 
 
(j)
Property and Equipment
 
Property and equipment are stated at cost, net of accumulated depreciation and impairment losses, if any. Expenditures that materially increase the life of the assets are capitalized. Ordinary repairs and maintenance are expensed as incurred. Depreciation is calculated on a straight-line basis over the estimated useful life of the asset using the following terms and methods:

Land
Not Depreciated
Buildings and Improvements
39 Years
Furniture and Fixtures
5 – 7 Years
Computer Equipment and Software
5 Years
Store Equipment and Tools
5 – 7 Years
Leasehold Improvements
Remaining Life of Lease
Manufacturing Equipment
5 – 7 Years
Vehicles
5 Years
Assets Under Construction
Not Depreciated
 
-13-

VERANO HOLDINGS, LLC AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the Years Ended December 31, 2020 and 2019


2.     SIGNIFICANT ACCOUNTING POLICIES (Continued)
 
 
(j)
Property and Equipment (Continued)
 
The assets’ residual values, useful lives and methods of depreciation are reviewed at each financial year-end and adjusted prospectively if appropriate. An item of equipment is derecognized upon disposal or when no future economic benefits are expected from its use. Any gain or loss arising on derecognition of the asset (calculated as the difference between the net disposal proceeds and the carrying value of the asset) is included in the Consolidated Statements of Operations in the year the asset is derecognized.
 
Repairs and maintenance that do not improve efficiency or extend economic life are charged to expense as incurred.
 
 
(k)
Intangible Assets
 
Intangible assets are recorded at cost, less impairment losses, if any. Intangible assets acquired in a business combination are measured at fair value at the acquisition date. Certain intangible assets, including cannabis licenses, have indefinite useful lives and are not subject to amortization. Such assets are tested annually for impairment, or more frequently, if events or changes in circumstances indicate that they might be impaired. The Company does not have finite lived intangible assets. The Company did not record any impairment losses for the years ended December 31, 2020 and 2019.
 
 
(l)
Goodwill
 
Goodwill represents the excess of the purchase price paid for the acquisition of an entity over the fair value of the net tangible and intangible assets acquired. Goodwill is allocated to the cash generating unit (“CGU”) or CGUs which are expected to benefit from the synergies of the combination.
 
Goodwill that has an indefinite useful life is not subject to amortization and is tested annually for impairment, or more frequently if events or changes in circumstances indicate that they might be impaired. Other assets are tested for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable.
 
Impairment is determined for goodwill by assessing if the carrying value of a CGU, including the allocated goodwill, exceeds its recoverable amount determined as the greater of the estimated fair value less costs to sell or the value in use. Impairment losses recognized in respect of a CGU are first allocated to the carrying value of goodwill and any excess is allocated to the carrying amount of assets in the CGU.
 
Any goodwill impairment loss is recognized in operations in the period in which the impairment is identified. Impairment losses on goodwill are not subsequently reversed. The Company did not record any impairment losses for the years ended December 31, 2020 and 2019.
 
 
(m)
Leased Assets
 
Effective January 1, 2019, the Company adopted IFRS 16 Leases, using the modified retrospective approach, as permitted under the specific transitional provisions in the standard. Upon adopting, the Company recognized lease liabilities and Right of Use assets in relation to leases which had previously been classified as ‘operating leases’ under the principles of IAS 17 Leases. These liabilities were measured at the present value of the remaining lease payments, discounted using the lessee’s incremental borrowing rate as of January 1, 2019. The weighted-average incremental borrowing rate for lease liabilities initially recognized as of January 1, 2019 was 8%. The Company did not have any leases which had been previously classified as 'finance leases' under the principles of IAS 17 at the time of adoption.
 
-14-

VERANO HOLDINGS, LLC AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the Years Ended December 31, 2020 and 2019

 
2.   SIGNIFICANT ACCOUNTING POLICIES (Continued)


 
(m)
Leased Assets (Continued)
 
In the initial application of IFRS 16, the Company applied the following practical expedients permitted by the standard:
 

Use of a single discount rate to a portfolio of leases with reasonably similar characteristics,

Reliance on previous assessments of whether leases are onerous immediately before the date of initial application,

Application of the short-term leases exemption to leases with a remaining lease term of less than twelve months as at the date of initial application, and

Exclusion of initial direct costs from the measurement of the right-of-use asset at the date of initial application.

Election to separate lease and non-lease components, and account for each lease component separately from the associated non-lease components.
 
Based on the foregoing, the impact of the change in accounting policy on January 1, 2019 is summarized below:


Right-of-use assets of $2,947,101 were recognized,

Lease liabilities of $3,362,964 were recognized,

The net impact on retained earnings was a decrease of $415,863.
 
Policy applicable upon adoption of IFRS 16
 
At inception of a contract, the Company assesses whether a contract is, or contains, a lease. A contract is or contains a lease if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. To assess whether a contract conveys the right to control the use of an identified asset, the Company assess whether:
 

The contract involves the use of an identified asset.

The Company has the right to obtain substantially all the economic benefits from use of the asset throughout the period of use; and

The Company has the right to direct the use of the asset.
 
At inception or on reassessment of a contract that contains a lease component, the Company allocates the consideration in the contract to each lease component on the basis of their relative stand-alone prices.
 
The Company recognizes a right-of-use asset and a lease liability at the lease commencement date. The right-of-use asset is initially measured at cost, which comprises the initial amount of the lease liability adjusted for any lease payments made at or before the commencement date, plus any initial direct costs incurred and an estimate of costs to dismantle and remove the underlying asset or to restore the underlying asset or the site on which it is located, less any lease incentives received.
 
The right-of-use asset is subsequently depreciated using the straight-line method from the commencement date to the earlier of the end of the useful life of the right-of-use asset or the end of the lease term. The
 
estimated useful lives of the right-of-use assets are determined on the same basis as those of property and equipment. In addition, the right-of-use asset is periodically reduced by impairment losses, if any, and adjusted for certain remeasurements of the lease liability.
 
-15-

VERANO HOLDINGS, LLC AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the Years Ended December 31, 2020 and 2019

 
2.   SIGNIFICANT ACCOUNTING POLICIES (Continued)


 
(m)
Leased Assets (Continued)
 
Interest on the lease liability is accreted using the effective intertest method. It is remeasured when there is a change in future lease payments arising from a change in an index or rate, if there is a change in the Company’s estimate of the amount expected to be payable under a residual value guarantee, or if the Company changes its assessment of whether it will exercise a purchase, extension, or termination option.
 
When the lease liability is remeasured in this way, a corresponding adjustment is made to the carrying amount of the right-of-use asset, or is recorded in profit or loss if the carrying amount of the right-of-use asset has been reduced to zero.
 
The Company has elected not to recognize right-of-use assets and lease liabilities for short-term leases of machinery that have a lease term of twelve months or less and leases of low-value assets. The Company recognizes the lease payments associated with the leases as an expense on a straight-line basis over the lease term.
 
 
(n)
Income Taxes
 
Income tax expense consisting of current and deferred tax expense is recognized in the Condensed Interim Consolidated Statements of Operations based on the expected tax payable on the taxable income for the year, using tax rates enacted or substantively enacted at year-end.
 
Deferred tax assets and liabilities and the related deferred income tax expense or recovery, if any, are recognized for deferred tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using the enacted or substantively enacted tax rates expected to apply when the asset is realized, or the liability settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that substantive enactment occurs.
 
The Company is subject to U.S. Internal Revenue Code Section 280E. The section disallows deductions and credits attributable to a trade or business of trafficking in controlled substances. Under U.S. law marijuana is a Schedule I controlled substance. The Company has taken the position that any costs included in the cost of goods sold should not be treated as amounts subject to the Section 280E expense disallowance.
 
 
(o)
Revenue Recognition
 
Revenue is recognized by the Company in accordance with IFRS 15, Revenue from Contracts with Customers. Through application of the standard, the Company recognizes revenue to depict the transfer of promised goods or services to the customer in an amount that reflects the consideration to which the Company expects to be entitled in exchange for those goods or services.
 
In order to recognize revenue under IFRS 15, the Company applies the following five (5) steps:
 

Identify a customer along with a corresponding contract;

Identify the performance obligation(s) in the contract to transfer goods or provide distinct services to a customer;

Determine the transaction price the Company expects to be entitled to in exchange for transferring promised goods or services to a customer;

Allocate the transaction price to the performance obligation(s) in the contract;

Recognize revenue when or as the Company satisfies the performance obligation(s).
 
-16-

VERANO HOLDINGS, LLC AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the Years Ended December 31, 2020 and 2019

 
2.   SIGNIFICANT ACCOUNTING POLICIES (Continued)


 
(o)
Revenue Recognition (Continued)
 
Under IFRS 15, revenues from the sale of cannabis are generally recognized at a point in time when control over the goods have been transferred to the customer. Payment is typically due upon transferring the goods to the customer or within a specified time period permitted under the Company’s credit policy.
 
Revenue is recognized upon the satisfaction of the performance obligation. The Company satisfies its performance obligation and transfers control upon delivery and acceptance by the customer. Revenue is presented net of discounts and sales tax and other related taxes.
 
The Company has customer loyalty programs in which retail customers accumulate points for each dollar of spending. These points are recorded as a contract liability until customers redeem their points for discounts on cannabis and vape products as part of an in-store sales transaction. In addition, the Company records a performance obligation as a reduction of revenue based on the estimated redemption probability of point obligation incurred, which is calculated based on a standalone selling price.
 
 
(p)
Financial Instruments
 
Financial Assets
 
Recognition and Initial Measurement
 
The Company recognizes financial assets when it becomes party to the contractual provisions of the instrument. Financial assets are measured initially at their fair value plus, in the case of financial assets not subsequently measured at fair value through profit or loss, transaction costs that are directly attributable to their acquisition. Transaction costs attributable to the acquisition of financial assets subsequently measured at fair value through profit or loss are expensed in profit or loss when incurred.
 
Classification and Subsequent Measurement
 
On initial recognition, financial assets are classified as subsequently measured at amortized cost, fair value through other comprehensive income (“FVOCI”) or fair value through profit or loss (“FVTPL”). The Company determines the classification of its financial assets, together with any embedded derivatives, based on the business model for managing the financial assets and their contractual cash flow characteristics.
 
Financial assets are classified as follows:
 

Amortized cost - Assets that are held for collection of contractual cash flows where those cash flows are solely payments of principal and interest are measured at amortized cost. Interest revenue is calculated using the effective interest method and gains or losses arising from impairment, foreign exchange and derecognition are recognized in profit or loss. Financial assets measured at amortized cost are comprised of trade receivables.
 

Fair value through other comprehensive income - Assets that are held for collection of contractual cash flows and for selling the financial assets, and for which the contractual cash flows are solely payments of principal and interest, are measured at fair value through other comprehensive income. Interest income calculated using the effective interest method and gains or losses arising from impairment and foreign exchange are recognized in profit or loss. All other changes in the carrying amount of the financial assets are recognized in other comprehensive income. Upon derecognition, the cumulative gain or loss previously recognized in other comprehensive income is reclassified to profit or loss. The Company does not hold any financial assets measured at fair value through other comprehensive income.
 
-17-

VERANO HOLDINGS, LLC AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the Years Ended December 31, 2020 and 2019

 
2.   SIGNIFICANT ACCOUNTING POLICIES (Continued)


 
(p)
Financial Instruments (Continued)
 

Mandatorily at fair value through profit or loss - Assets that do not meet the criteria to be measured at amortized cost, or fair value through other comprehensive income, are measured at fair value through profit or loss. All interest income and changes in the financial assets’ carrying amount are recognized in profit or loss. Financial assets mandatorily measured at fair value through profit or loss are comprised of cash and cash equivalents.
 

Designated at fair value through profit or loss – On initial recognition, the Company may irrevocably designate a financial asset to be measured at fair value through profit or loss in order to eliminate or significantly reduce an accounting mismatch that would otherwise arise from measuring assets or liabilities, or recognizing the gains and losses on them, on different bases. All interest income and changes in the financial assets’ carrying amount are recognized in profit or loss. The Company does not hold any financial assets designated to be measured at fair value through profit or loss.
 
The Company measures all equity investments at fair value. Changes in fair value are recorded in profit or loss.
 
Business model assessment
 
The Company assesses the objective of its business model for holding a financial asset at a level of aggregation which best reflects the way the business is managed and information is provided to management. Information considered in this assessment includes stated policies and objectives.
 
Contractual cash flow assessment
 
The cash flows of financial assets are assessed as to whether they are solely payments of principal and interest on the basis of their contractual terms. For this purpose, ‘principal’ is defined as the fair value of the financial asset on initial recognition. ‘Interest’ is defined as consideration for the time value of money, the credit risk associated with the principal amount outstanding, and other basic lending risks and costs. In performing this assessment, the Company considers factors that would alter the timing and amount of cash flows such as prepayment and extension features, terms that might limit the Company’s claim to cash flows, and any features that modify consideration for the time value of money.
 
Impairment
 
The Company recognizes a loss allowance for the expected credit losses associated with its financial assets, other than financial assets measured at fair value through profit or loss. Expected credit losses are measured to reflect a probability-weighted amount, the time value of money, and reasonable and supportable information regarding past events, current conditions, and forecasts of future economic conditions.
 
The Company applies the simplified approach for trade receivables. Using the simplified approach, the Company records a loss allowance equal to the expected credit losses resulting from all possible default events over the assets’ contractual lifetime.
 
For financial assets measured at amortized cost, loss allowances for expected credit losses are presented in the consolidated statement of financial position as a deduction from the gross carrying amount of the financial asset.
 
Financial assets are written off when the Company has no reasonable expectations of recovering all or any portion thereof.
 
-18-

VERANO HOLDINGS, LLC AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the Years Ended December 31, 2020 and 2019

 
2.   SIGNIFICANT ACCOUNTING POLICIES (Continued)

 
 
(p)
Financial Instruments (Continued)
 
Derecognition of Financial Assets
 
The Company derecognizes a financial asset when its contractual rights to the cash flows from the financial asset expire.
 
Financial Liabilities
 
Recognition and Initial Measurement
 
The Company recognizes a financial liability when it becomes party to the contractual provisions of the instrument. At initial recognition, the Company measures financial liabilities at their fair value plus transaction costs that are directly attributable to their issuance, with the exception of financial liabilities subsequently measured at fair value through profit or loss for which transaction costs are immediately recorded in profit or loss.
 
Where an instrument contains both a liability and equity component, these components are recognized separately based on the substance of the instrument, with the liability component measured initially at fair value and the equity component assigned the residual amount.
 
Classification and subsequent measurement
 
Subsequent to initial recognition, all financial liabilities are measured at amortized cost using the effective interest rate method. Interest, gains and losses relating to a financial liability are recognized in profit or loss.
 
Derecognition of financial liabilities
 
The Company derecognizes a financial liability only when its contractual obligations are discharged, cancelled, or expire.
 
 
()
Provisions and Contingent Liabilities
 
Provisions, where applicable, are recognized in liabilities when the Company has a present legal or constructive obligation as a result of past events, it is more likely than not that an outflow of resources will be required to settle the obligation, and the amount can be reliably estimated. Provisions are measured at management’s best estimate of the expenditure required to settle the obligation at the end of the reporting. period and are discounted to present value where the effect is material. The Company performs evaluations to identify onerous contracts and, where applicable, records provisions for such contracts.
 
 
(a)
Business Combinations
 
Business combinations are accounted for using the acquisition method. The consideration transferred in a business combination is measured at fair value at the date of acquisition. Acquisition related transaction costs are expensed as incurred. Identifiable assets and liabilities, including intangible assets, of acquired businesses are recorded at their fair value at the date of acquisition. When the Company acquires control of a business, any previously held equity interest is also remeasured to fair value. The excess of the purchase consideration and any previously held equity interest over the fair value of identifiable net assets acquired is goodwill. If the fair value of identifiable net assets acquired exceeds the purchase consideration and any previously held equity interest, the difference is recognized in the consolidated statements of operations immediately as a bargain purchase gain
 
-19-

VERANO HOLDINGS, LLC AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the Years Ended December 31, 2020 and 2019

 
2.   SIGNIFICANT ACCOUNTING POLICIES (Continued)

 
 
(r)
Business Combinations (Continued)
 
Contingent consideration is measured at its acquisition-date fair value and included as part of the consideration transferred in a business combination. Contingent consideration that is classified as equity is not remeasured at subsequent reporting dates and its subsequent settlement is accounted for within equity. Contingent consideration that is classified as an asset or a liability is remeasured at subsequent reporting dates in accordance with IFRS 9, or IAS 37 Provisions, Contingent Liabilities and Contingent Assets, as appropriate, with the corresponding gain or loss being recognized in profit or loss.
 
 
(s)
Derivative Liabilities
 
The Company uses the fair-value method of accounting for derivative liabilities and such liabilities are re-measured at each reporting date with changes in fair value recorded in the period incurred. The fair value is estimated using a Monte Carlo simulation model. Critical estimates and assumptions used in the model are discussed in Note 12.
 
 
(t)
Segment Reporting
 
An operating segment is a component of the Company for which discrete financial information is available and whose operating results are regularly reviewed by the entity's chief operating decision maker to make decisions about resources to be allocated to the segment and assess its performance, and that engages in business activities from which it may earn revenue and incur expenses. The Company only has one operating segment for the cultivation, manufacturing, and distribution, and sale of cannabis.
 
All revenues were generated in the United States of America for the years ended December 31, 2020 and 2019.
 
 
(u)
Significant Accounting Judgments, Estimates, and Assumptions
 
The preparation of the Company’s consolidated financial statements requires management to make judgments, estimates and assumptions that affect the application of policies and reported amounts of assets and liabilities, and revenue and expenses. Actual results may differ from these estimates. The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimate is revised if the revision affects only that period or in the period of the revision and future periods if the review affects both current and future periods.
 
Significant judgments, estimates, and assumptions that have the most significant effect on the amounts recognized in the consolidated financial statements are described below.
 
 
(i)
Estimated Useful Lives and Depreciation of Property and Equipment
 
Depreciation of property and equipment is dependent upon estimates of useful lives which are determined through the exercise of judgment. The assessment of any impairment of these assets is dependent upon estimates of recoverable amounts that take into account factors such as economic and market conditions and the useful lives of assets.
 

(ii)
Biological Assets
 
Management is required to make estimates in calculating the fair value of biological assets and harvested cannabis inventory. These estimates include a number of assumptions, such as estimating the stages of growth of the cannabis, harvested costs, sales price and expected yields.
 
-20-

VERANO HOLDINGS, LLC AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the Years Ended December 31, 2020 and 2019

 
2.   SIGNIFICANT ACCOUNTING POLICIES (Continued)


 
(u)
Significant Accounting Judgments, Estimates, and Assumptions (Continued)
 
 
( )
Inventories
 
The net realizable value of inventories represents the estimated selling price for inventories in the ordinary course of business, less all estimated costs of completion and costs necessary to make the sale. The determination of net realizable value requires significant judgment, including consideration of factors such as shrinkage, the aging of and future demand for inventory, expected future selling price the Company expects to realize by selling the inventory, and the contractual arrangements with customers. Reserves for excess and obsolete inventory are based upon quantities on hand, projected volumes from demand forecasts and net realizable value. The estimates are judgmental in nature and are made at a point in time, using available information, expected business plans, and expected market conditions. As a result, the actual amount received on sale could differ from the estimated value of inventory. Periodic reviews are performed on the inventory balance. The impact of changes in inventory reserves is reflected in cost of goods sold.
 
 
(i)
Discount Rate for Leases
 
IFRS 16 – Leases requires lessees to discount lease payments using the rate implicit in the lease if that rate is readily available. If that rate cannot be readily determined, the Company generally uses the incremental borrowing rate when initially recording leases. Generally, the Company uses its incremental borrowing rate as the discount rate.
 
 
(ii)
Business Combinations
 
In a business combination, all identifiable assets, liabilities and contingent liabilities acquired are recorded at their fair values. One of the most significant estimates relates to the determination of the fair value of these assets and liabilities. Contingent consideration is measured at its acquisition-date fair value and included as part of the consideration transferred in a business combination. Contingent consideration that is classified as equity is not remeasured at subsequent reporting dates and its subsequent settlement is accounted for within equity. Contingent consideration that is classified as an asset or a liability is remeasured at subsequent reporting dates in accordance with IAS 39 Financial Instruments: Recognition and Measurement, or IAS 37 Provisions, Contingent Liabilities and Contingent Assets, as appropriate, with the corresponding gain or loss being recognized in profit or loss. For any intangible asset identified, depending on the type of intangible asset and the complexity of determining its fair value, an independent valuation expert or management may develop the fair value, using appropriate valuation techniques, which are generally based on a forecast of the total expected future net cash flows. The evaluations are linked closely to the assumptions made by management regarding the future performance of the assets concerned and any changes in the discount rate applied.
 
Certain fair values may be estimated at the acquisition date pending confirmation or completion of the valuation process. Where provisional values are used in accounting for a business combination, they may be adjusted retrospectively in subsequent periods. However, the measurement period will last for one year from the acquisition date.
 
-21-

VERANO HOLDINGS, LLC AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the Years Ended December 31, 2020 and 2019

 
2.   SIGNIFICANT ACCOUNTING POLICIES (Continued)


 
(u)
Significant Accounting Judgments, Estimates, and Assumptions (Continued)
 
 
( )
Intangible Asset and Goodwill Impairment
 
Indefinite-lived intangible assets and goodwill are tested for impairment annually and whenever events or changes in circumstances indicate that the carrying amount of such assets has been impaired. In order to determine if the value of goodwill has been impaired, the cash-generating unit to which goodwill has been allocated must be valued using present value techniques. When applying this valuation technique, the Company relies on a number of factors, including historical results, business plans, forecasts and market data. Changes in the conditions for these judgments and estimates can significantly affect the assessed value of goodwill.
 
 
(i)
Consolidation
 
Judgment is applied in assessing whether the Company exercises control and has significant influence over entities in which the Company directly or indirectly owns an interest. The Company has control when it has the power over the subsidiary, has exposure or rights to variable returns, and has the ability to use its power to affect the returns. Significant influence is defined as the power to participate in the financial and operating decisions of the subsidiaries. Where the Company is determined to have control, these entities are consolidated. Additionally, judgment is applied in determining the effective date on which control was obtained.
 
 
(ii)
Warrant Issuance Modification
 
The modification of warrant agreements presented as equity classified are first analyzed to ensure that such modifications do not change the classification of the instrument. If equity presentation remains proper, an adjustment to equity is recorded. If equity presentation is not preserved, the modification is evaluated under IFRS 2 Share-based Payments.
 
 
(iii)
Expected Credit Loss
 
Management determines the expected credit loss by evaluating individual receivable balances and considering accounts and other receivable financial condition and current economic conditions. Accounts receivable and financial assets recorded in other receivables are written off when deemed uncollectible. Recoveries of accounts receivable previously written off are recorded as income when received. All receivables are expected to be collected within one year of the condensed interim consolidated statement of financial position date.
 
 
(iii)
Fair Value of Financial Instruments
 
The individual fair values attributed to the different components of a financing transaction, derivative financial instruments, are determined using valuation techniques. The Company uses judgment to select the methods used to make certain assumptions and in performing the fair value calculations in order to determine (a) the values attributed to each component of a transaction at the time of their issuance; (b) the fair value measurements for certain instruments that require subsequent measurement at fair value on a recurring basis; and (c) for disclosing the fair value of financial instruments subsequently carried at amortized cost. These valuation estimates could be significantly different because of the use of judgment and the inherent uncertainty in estimating the fair value of these instruments that are not quoted in an active market.

-22-

VERANO HOLDINGS, LLC AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the Years Ended December 31, 2020 and 2019

 
2.   SIGNIFICANT ACCOUNTING POLICIES (Continued)


 
(u)
Significant Accounting Judgments, Estimates, and Assumptions (Continued)
 
 
( )
Income Tax
 
Provisions for taxes are made using the best estimate of the amount expected to be paid based on a qualitative assessment of all relevant factors. The Company reviews the adequacy of these provisions at the end of the reporting period. However, it is possible that at some future date an additional liability could result from audits by taxing authorities. Where the final outcome of these tax related matters is different from the amounts that were initially recorded, such differences will affect the tax provisions in the period in which such determination is made.
 
 
(i)
Determination of Cash-Generating Units
 
The Company’s assets are aggregated into cash-generating units (“CGU’s”). CGU’s are based on an assessment of the unit’s ability to generate independent cash inflows. The determination of these CGU’s was based on management’s judgment regarding several factors such as shared infrastructure, geographical proximity, and exposure to market risk and materiality.
 
 
(iv)
Property, Plant and Equipment Impairment
 
The Company evaluates the carrying value of long-lived assets at the end of each reporting period whenever there is any indication that a long-lived asset is impaired. Such indicators include evidence of physical damage, indicators that the economic performance of the asset is worse than expected, or that the decline in asset value is more than the passage of time or normal use, or significant changes occur with an adverse effect on the Company’s business. If any such indication exists, the Company estimates the recoverable amount of the asset. An asset is impaired when its carrying amount exceeds its recoverable amount. The Company measures impairment based on the amount by which the carrying value exceeds the estimated fair value of the long-lived asset. The fair value is determined primarily by using the projected future cash flows discounted at a rate commensurate with the risk involved as well as market valuations. Losses on long-lived assets to be disposed of are determined in a similar manner, except that the fair values are reduced for an estimate of the cost to dispose or abandon.
 
 
(v)
Derivative Liabilities
 
In calculating the fair value of its derivative liabilities, the Company uses the Monte Carlo simulation model, for Level 3 recurring fair value measurements to estimate fair value at each reporting date. The key assumptions used in the models are similar and include the expected future volatility in the price of the Company’s shares, the fair market value of the price of the Company’s shares and the expected life of the underling instrument.
 
 
(xii)
COVID-19 Estimation Uncertainty
 
The novel coronavirus commonly referred to as “COVID-19” was identified in December 2019 in Wuhan, China. On January 30, 2020, the World Health Organization declared the outbreak a global health emergency, and on March 11, 2020, the spread of COVID-19 was declared a pandemic by the World Health Organization. On March 13, 2020, the spread of COVID-19 was declared a national emergency by President Donald Trump. The outbreak has spread throughout Europe, the Middle East and North America, causing companies and various 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 and related financial impact cannot reasonably be estimated at this time. In addition, it is possible that estimates in the Company’s financial statements will change in the near term as a result of COVID-19 and the effect of any such changes could be material, which could result in, among other things, impairment of long-lived assets including intangibles and goodwill. For the time being and until economies stabilize, the Company has shifted its strategic approach and the manner in which it operates its business to continue providing high-quality products to its patients and customers, and ensure that its workplace and stores have appropriate measures put in place to limit social interactions and enforce social distancing measures.
 
-23-

VERANO HOLDINGS, LLC AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the Years Ended December 31, 2020 and 2019

 
2.   SIGNIFICANT ACCOUNTING POLICIES (Continued)


 
(xii)
COVID-19 Estimation Uncertainty (Continued)
 
The Company has put forth initiatives to allow the Company to continue offering high-quality products in a safe environment, with additional measures put in place to allow its customers to access its products while limiting social interactions, and enforcing social distancing measures throughout its retail stores. These initiatives have allowed the Company to operate mostly uninterrupted and to implement its business continuity plan. Some of the measures include: (i) increasing curbside pick-up and/or drive-thru options at all of its retail locations, where regulations permit such services; (ii) expanding home delivery services to customers, where regulations permit such services; and (iii) updating its safety and sanitation protocols in-store and in all facilities.
 
The Company is closely monitoring the evolution of COVID-19. As of the date hereof, the Company’s operations have not been significantly impacted as the cannabis industry has been deemed an essential service in many states since March 2020. Going forward, the extent of the impact of COVID-19 on the Company’s operational and financial performance will depend on various developments, including the duration and magnitude of the outbreak, and the impact on customers, employees and vendors, all of which are uncertain and cannot be predicted.
 
 
(v)
Adoption of New and Revised Standards and Interpretations
 
The following IFRS standards have been recently issued by the IASB. The Company has assessed or is assessing the impact of these new standards on future consolidated financial statements. Pronouncements that are not applicable or where it has been determined do not have a significant impact to the Company have been excluded herein.
 

(i)
IAS 1 – Presentation of Financial Statements (“IAS 1”) and IAS 8 – Accounting Policies, Changes in Accounting Estimates and Errors (“IAS 8”)
 
IAS 1 and IAS 8 were amended in October 2018 to refine the definition of materiality and clarify its characteristics. The revised definition focuses on the idea that information is material if omitting, misstating or obscuring it could reasonably be expected to influence decisions that the primary users of general-purpose financial statements make on the basis of those financial statements. The amendments were effective for annual reporting periods beginning on or after January 1, 2020. The Company early adopted IAS 1 and IAS 8 prior to January 1, 2020. The adoption of IAS 1 and IAS 8 did not have a material impact on the consolidated financial statements.
 

(ii)
Amendment to IFRS 3: Definition of a Business
 
In October 2018, the IASB issued “Definition of a Business (Amendments to IFRS 3)” (the “IFRS 3 Amendment”). The IFRS 3 Amendment clarifies the definition of a business, with the objective of assisting entities to determine whether a transaction should be accounted for as a business combination or as an asset acquisition. The IFRS 3 Amendment provides an assessment framework to determine when a series of integrated activities is not a business. The IFRS 3 Amendment is effective for business combinations occurring on or after the beginning of the first annual reporting period beginning on or after January 1, 2020. The Company early adopted IFRS 3 as of January 1, 2019. The adoption did not have a material impact on the consolidated financial statements.

-24-

VERANO HOLDINGS, LLC AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the Years Ended December 31, 2020 and 2019

 
2.   SIGNIFICANT ACCOUNTING POLICIES (Continued)


 
(v)
Adoption of New and Revised Standards and Interpretations (Continued)
 
The following is a brief summary of the new standards issued but not yet effective:
 
 
(iii)
Amendments to IAS 1: Classification of Liabilities as Current or Non-Current
 
In January 2020, the IASB issued Classification of Liabilities as Current or Non-current (“Amendments to IAS 1”). The Amendments to IAS 1 aim to promote consistency in applying the requirements by helping companies determine whether, in the statement of financial position, debt and other liabilities with an uncertain settlement date should be classified as current (due or potentially due to be settled within one year) or non-current. The Amendments to IAS 1 include clarifying the classification requirements for debt a company might settle by converting it into equity. The Amendments to IAS 1 are effective for annual reporting periods beginning on or after January 1, 2022, with earlier application permitted.
 
 
(iv)
Amendments to IAS 37: Onerous Contracts – Cost of Fulfilling a Contract
 
In May 2020, the IASB issued Onerous Contracts – Cost of Fulfilling a Contract (“Amendments to IAS 37”) amending the standard regarding costs a company should include as the cost of fulfilling a contract when assessing whether a contract is onerous. The amendment is effective for annual reporting periods beginning on or after January 1, 2022.
 
 
(w)
Discontinued Operations
 
The Company followed IFRS 5 Non-current Assets Held for Sale and Discontinued Operations to report for assets held for sale and discontinued operations.
 
3.   DISCONTINUED OPERATIONS

During the third quarter of 2020, the Company closed it’s Oklahoma operations, which were comprised of three dispensaries and a processing facility. This discontinuance represents a strategic geographical shift in business operations. The acquisition of Oklahoma was in 2019 (Note 9).
 
Discontinued operations are presented separate from continuing operations in the consolidated statement of operations and the consolidated statement of cash flows and represented a loss of $2,145,631. There were no proceeds received in connection with the discontinuation of the Oklahoma operation.

-25-

VERANO HOLDINGS, LLC AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the Years Ended December 31, 2020 and 2019


3.     DISCONTINUED OPERATIONS (Continued)

 
The following table represents the financial results associated with discontinued operation as reflected in the Company’s condensed consolidated statements of operations:
 
   
2020
   
2019
 
             
Revenues, net of discounts
 
$
1,861,758
   
$
2,022,721
 
Cost of goods sold
   
(1,367,699
)
   
(1,292,501
)
                 
Gross profit
   
494,059
     
730,220
 
                 
Expenses
               
General and administrative
   
1,054,339
     
1,058,679
 
Sales and marketing
   
57,043
     
119,578
 
Depreciation and amortization
   
98,195
     
104,630
 
                 
Total expenses
   
1,209,577
     
1,282,887
 
                 
Operating loss before taxes and non-controlling interest
   
(715,518
)
   
(552,667
)
                 
Income taxes
   
-
     
-
 
                 
Loss from continuing operations before non-controlling
interest
   
(715,518
)
   
(552,667
)
Lees amount attributable to non-controlling interest
   
536,639
     
414,500
 
Net loss from discontinued operations, net of tax
   
(1,966,751
)
   
-
 
                 
Net loss attributed to Verano Holdings, LLC and
               
Subsidiaries
 
$
(2,145,631
)
 
$
(138,167
)
 
4.     DECONSOLIDATION


In July 2020, the Company entered into an agreement to unwind its interest in Zen Leaf Retail PR, Inc. Accordingly, the Company does not exercise any control over this entity. As a result, the assets and liabilities of both entities have been derecognized from the consolidated statements of financial position, with a loss of $189,324 being recognized in the consolidated statements of operations.
 
In February 2019, the Company entered into an agreement to unwind pending interests in United Development of Illinois, LLC and Union Group of Illinois, LLC. Accordingly, the Company does not exercise any control over these entities. As a result, the assets and liabilities of both entities have been derecognized from the consolidated statements of financial position, with a loss of $3,086,878 being recognized in the consolidated statements of operations. This amount included a cash payment of $775,000.
 
-26-

VERANO HOLDINGS, LLC AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the Years Ended December 31, 2020 and 2019


5.     INVENTORIES

 
The Company’s inventories consist of the following:
 
   
December 31,
2020
   
December 31,
2019
 
             
Raw Materials
 
$
-
   
$
566,352
 
Work in Process
   
46,586,170
     
10,373,918
 
Finished Goods
   
12,703,895
     
3,133,094
 
                 
Total Inventories
 
$
59,290,065
   
$
14,073,364
 
 
6.     BIOLOGICAL ASSETS

 
Biological assets consist of cannabis plants. At December 31, 2020 and December 31, 2019, the changes in the carrying value of biological assets are shown below:
 
Harvest in Process
 
December 31,
2020
   
December 31,
2019
 
             
Beginning balance
 
$
16,613,392
   
$
10,675,028
 
Costs incurred prior to harvest to facilitate biological transformation
   
55,535,842
     
25,470,334
 
Unrealized gain on fair value of biological assets
   
254,154,780
     
44,539,847
 
Transferred to inventory upon harvest
   
(216,927,447
)
   
(64,071,817
)
Ending balance
 
$
109,376,567
   
$
16,613,392
 
 
The Company values its biological assets at the end of each reporting period at fair value less costs to sell. This is determined using a valuation model to estimate the expected harvest yield per plant applied to the estimated price per gram less processing and selling costs. This model also considers the progress in the plant life cycle.
 
Management has made the following estimates in this valuation model:
 

The average number of weeks in the growing cycle is nineteen weeks from propagation to harvest;

The average harvest yield of whole flower is 320.26 grams per plant (292 grams – 2019);

The average selling price of whole flower is $6.98 per gram ($6.12 per gram – 2019);

Processing costs include drying and curing, testing and packaging, post-harvest overhead allocation, and oil extraction costs estimated to be $0.57 per gram ($0.70 per gram – 2019); and

Selling costs include shipping, order fulfillment, and labelling, estimated to be $0.12 per gram ($0.12 per gram - 2019).
 
The estimates of growing cycle, harvest yield, and costs per gram are based on the Company's historical results. The estimate of the selling price per gram is based on the Company's historical sales in addition to the Company's expected sales price going forward.
 
-27-

VERANO HOLDINGS, LLC AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the Years Ended December 31, 2020 and 2019

 
6. BIOLOGICAL ASSETS (Continued)

 
Management has quantified the sensitivity of the inputs, and determined the following:
 

Selling price per gram – an increase or decrease in the selling price per gram by 5% would result in an increase or decrease the fair value of biological assets by $6,321,578 ($1,030,145 – 2019).

Harvest yield per plant – an increase or decrease in the harvest yield per plant of 5% would result in an increase or decrease the fair value of biological assets by $5,468,828 ($830,670 – 2019).

Cost of production per gram – an increase or decrease in the cost of production per gram by 5% would result in a decrease or increase the fair value of biological assets by $824,412 ($188,566 – 2019).
 
These inputs are level 3 on the fair value hierarchy, and are subject to volatility and several uncontrollable factors, which could significantly affect the fair value of biological assets in future periods.
 
As of December 31, 2020 and December 31, 2019, the biological assets were on average, 34.1% and 41.3%, respectively, complete and the estimated fair value less costs to sell of dry cannabis was $4.69 and $3.51 per gram, respectively.
 
As of December 31, 2020 and December 31, 2019, it is expected that the Company's biological assets will ultimately yield approximately 43,488 and 7,588 kilograms of cannabis, respectively.
 
7. NOTES RECEIVABLE


The notes receivable consists of two secured promissory notes. The first note is a secured promissory note with SOL Global Investments Corp, a member of the Company (SOL Global Investments Corp holds 3,335,411 Class B Units) for an original amount of $5,000,000. The note was dated March 2019 and originally matured in September 2020. Interest of 10% per annum and principal are due at maturity. The note was amended in March 2020 to reduce the amount due by $300,000 and increase the interest rate to 15.25% in the event the interest was not paid in full on September 1, 2020. In September 2020, the note was amended to include specified payment dates through October 29, 2020 with interest due at 15.25% per annum. As of the December 31, 2020, the Company has received principal payments for $2,175,000 and has a remaining principal outstanding of $2,825,000 plus accrued interest.
 
The second note is a secured promissory note dated August 13, 2020 with an unrelated party for $180,000. The note is due and payable on or before the earlier of February 13, 2021 (which may be extended at the discretion of the lender until August 13, 2021) or such other date the principal amount becomes due and payable by acceleration after an event of default.
 
As of December 31, 2020 and December 31, 2019, accrued interest on the aforementioned notes totaled $940,023 and $376,712, respectively, and is included in interest receivable.
 
-28-

VERANO HOLDINGS, LLC AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the Years Ended December 31, 2020 and 2019

 
8. PROPERTY AND EQUIPMENT


Property and equipment and related accumulated depreciation consists of the following at December 31, 2020 and December 31, 2019:
 
   
December 31,
2020
   
December 31,
2019
 
             
Land
 
$
12,137,559
   
$
6,707,177
 
Buildings and Improvements
   
15,223,120
     
8,727,420
 
Furniture and Fixtures
   
5,258,417
     
3,028,537
 
Computer Equipment and Software
   
3,330,685
     
1,646,157
 
Leasehold Improvements
   
88,329,837
     
56,081,457
 
Tools and Equipment
   
27,237,388
     
14,691,284
 
Vehicles
   
850,080
     
564,578
 
Assets Under Construction
   
8,514,196
     
1,646,157
 
                 
                 
Total Property, Plant and Equipment, Gross
   
160,881,282
     
103,199,320
 
Less: Accumulated Depreciation
   
(17,743,697
)
   
(8,819,576
)
 
               
Property, Plant and Equipment, Net
 
$
143,137,585
   
$
94,379,744
 

Assets under construction represent construction in progress related to facilities not yet completed or otherwise not placed in service.
 
A reconciliation of the beginning and ending balances of property, plant and equipment is as follows:
 
   
Property, Plant
and
Equipment,
Gross
   
Accumulated
Depreciation
   
Property, Plant
and
Equipment,
Net
 
                   
Balance as of January 1, 2019
 
$
44,984,255
   
$
(4,237,355
)
 
$
40,746,900
 
                         
Additions
   
65,673,552
     
-
     
65,673,552
 
Property, plant and equipment from business combination
   
144,698
     
-
     
144,698
 
Disposals
   
(7,603,185
)
   
-
     
(7,603,185
)
Depreciation
   
-
     
(4,582,221
)
   
(4,582,221
)
                         
Balance as of December 31, 2019
 
$
103,199,320
   
$
(8,819,576
)
 
$
94,379,744
 
                         
Additions
   
58,161,038
     
-
     
57,173,786
 
Property, plant and equipment from
business combination
   
1,351,171
     
-
     
1,351,171
 
Disposals
   
(11,246
)
   
-
     
(11,246
)
Discontinued operations and
deconsolidation
   
(1,819,001
)
           
(1,819,001
)
Depreciation
   
-
     
(8,924,121
)
   
(8,924,121
)
                         
Balance as of December 31, 2020
 
$
160,881,282
   
$
(17,743,697
)
 
$
143,137,585
 
 
For the years ended December 31, 2020 and 2019, depreciation expense totaled $8,147,233 and $3,284,380, respectively, was included in costs of goods sold.
 
-29-

VERANO HOLDINGS, LLC AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the Years Ended December 31, 2020 and 2019


9.  ACQUISITIONS

 
 
(a)
Business Combinations
 
In April 2019, the Company entered into a definitive agreement with an unrelated party, AGG Wellness d/b/a Herban Legends of Towson (“Herban”). Herban holds a medical cannabis license in Towson, Maryland. Pursuant to the terms of the transaction, Verano, through wholly-owned subsidiary Zen Leaf Technologies, LLC, also entered into a management and administrative services agreement with Herban in exchange for a placement fee equal to $2,500,000 in cash and $1,800,000 in stock of PubCo of the acquirer of Verano if Verano is sold prior to going public. Cash consideration transferred totaled $3,300,000, which was paid during 2019. At December 31, 2020, the Company owed $630,000, of which $430,000 was paid in January 2021. The final payment of $200,000 will be paid upon final closing. Based on the funding and providing of services, the Company determined that control was transferred at the closing and accounted for the transaction as an asset acquisition with the application of the IFRS 3 Amendment.
 
In April 2019, a Company affiliate entered into a definitive agreement to purchase an unrelated party, Magpie Management, LLC (“Magpie”). Magpie, through various subsidiaries, owns two medical cannabis commercial grower licenses, one medical cannabis commercial processing license, and three medical cannabis commercial dispensary licenses in the State of Oklahoma. The transaction provided for the Company’s affiliate to purchase 25% of the issued and outstanding membership interested of Magpie, as well as other commercial arrangements. Consideration for the transaction totaled $1,000,000, which had not been paid in full as of the date of this report. The Company determined that control was transferred at the closing and accounted for the transaction as a business acquisition in accordance with IFRS 3, Business Combinations.
 
In July 2020, the Company acquired an additional 50% ownership interest in a Las Vegas real estate entity which provided the Company with a controlling interest and was accounted for as a business acquisition in accordance with IFRS, Business Combinations. The purchase price was allocated to the building and land, which totaled $1,160,000. Consideration included cash of $230,000 and a note payable of $350,000 (Note 11). A gain on the previously held equity interest was recognized for $458,039. Acquisition costs, which are expensed as incurred, were not significant and were excluded from the consideration transferred.
 
In July 2020, the Company entered into a membership interest purchase agreement to acquire, upon the satisfaction of certain conditions precedent, 100% of a dispensary located in Illinois. The total purchase price was $20,000,000 plus a $31,151 working capital adjustment. The Company paid $10,000,000 in July 2020 and an additional $8,000,000 was paid in November 2020. The remaining purchase price will be paid pursuant to the membership interest purchase agreement. Verano, through a subsidiary, also entered into a management and administrative services agreement. Based on the funding and providing of services, the Company determined that control was transferred at the closing and accounted for the transaction as a business acquisition in accordance with IFRS 3, Business Combination and consolidated the seller as of July 2020. Acquisition costs, which are expensed as incurred, were not significant and were excluded from the consideration transferred.
 
In December 2020, the Company entered into a membership interest purchase agreement to acquire, upon the satisfaction of certain conditions precedent, 100% of a dispensary located in Illinois. The total undiscounted purchase price was $22,347,011 plus a $315,065 working capital adjustment. The Company paid $5,347,011 in December 2020. The remaining purchase price will be paid pursuant to the membership interest purchase agreement. Verano, through a subsidiary, also entered into a management and administrative services agreement. Based on the funding and providing of services, the Company determined that control was transferred at the closing and accounted for the transaction as a business acquisition in accordance with IFRS 3, Business Combination and consolidated the seller as of December 2020. Acquisition costs, which are expensed as incurred, were not significant and were excluded from the consideration transferred.
 
-30-

VERANO HOLDINGS, LLC AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the Years Ended December 31, 2020 and 2019


9. ACQUISITIONS (Continued)


 
(a)
Business Combinations (Continued)
 
The purchase price allocation for the acquisitions, as set forth in the table below, reflects various fair value estimates and analyses which are subject to change within the measurement period. The primary areas of the purchase price allocation that are subject to change relate to the fair value of certain tangible assets, the value of intangible assets acquired, and residual goodwill. The Company expects to continue to obtain information to assist in determining the fair value of the net assets acquired at the acquisition date during the measurement period.
 
Measurement period adjustments that the Company determined to be material will be applied retrospectively to the period of acquisition in the Company’s consolidated financial statements, and depending on the nature of the adjustments, other periods subsequent to the period of acquisition could be affected. The measurement period ends one year subsequent to the acquisition date.
 
The following table summarizes the provisional accounting estimates of the acquisition that occurred during the year ended December 31, 2020.
 
   
Evanston
   
Elevele
   
Total
 
                   
Cash
 
$
328,722
   
$
1,034,790
   
$
1,363,512
 
Inventories
   
552,633
     
431,040
     
983,673
 
Other current assets
   
3,354
     
366,081
     
369,435
 
Property, plant and equipment
   
1,053,404
     
38,079
     
1,091,483
 
Right of use assets
   
-
     
43,791
     
43,791
 
Accounts payable and accrued
liabilities
   
(940,702
)
   
(1,108,987
)
   
(2,049,689
)
Deferred taxes
   
(5,766,702
)
   
(6,548,193
)
   
(12,314,895
)
Lease liabilities
   
(122,779
)
   
(68,451
)
   
(191,230
)
                         
Total identifiable net assets (liabilities)
   
(4,892,070
)
   
(5,811,850
)
   
(10,703,920
)
Intangible assets
   
24,923,221
     
28,112,566
     
53,035,787
 
                         
Net assets
 
$
20,031,151
   
$
22,300,716
   
$
42,331,867
 
                         
Cash
 
$
18,000,000
   
$
5,347,011
   
$
23,347,011
 
Acquisition price payable
   
2,031,151
     
16,953,705
     
18,984,856
 
                         
Total Consideration
 
$
20,031,151
   
$
22,300,716
   
$
42,331,867
 

In addition to the acquisitions noted above, a Company affiliate entered into a membership purchase agreement with a licensee in Maryland which would allow the Company to process medical marijuana in Maryland. The Company analyzed the transactions and recorded the transaction as a business combination. The total purchase price was $6,900,000 and $1,050,000 was paid in December 2020. The Company recognized a license in the amount of $6,640,312 and tools and equipment in the amount of $259,688, which are included in the intangible assets and property, plant and equipment, respectively, of the consolidated statements of financial position.
 
-31-

VERANO HOLDINGS, LLC AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the Years Ended December 31, 2020 and 2019


9. ACQUISITIONS (Continued)

 
 
(a)
Business Combinations (Continued)
 
The following table summarizes the final accounting estimates of the acquisitions that occurred during the year ended December 31, 2019.
 

 
AGG Wellness
(1)
   
Magpie (2)
   
Total
 

                 
Cash
 
$
-
   
$
61,003
   
$
61,003
 
Inventories
   
300,000
     
237,352
     
537,352
 
Other current assets
   
-
     
34,502
     
34,502
 
Property, plant and equipment
   
-
     
144,698
     
144,698
 
Right of use assets
   
457,046
     
856,910
     
1,313,956
 
Accounts payable and accrued liabilities
   
-
     
(197,693
)
   
(197,693
)
Deferred Taxes
   
(1,293,435
)
   
-
     
(1,293,435
)
Lease liabilities
   
(457,046
)
   
(856,910
)
   
(1,313,956
)
Non-controlling interest
   
(300,000
)
   
(2,400,000
)
   
(2,700,00
)
                         
Total identifiable net assets (liabilities)
   
(1,293,435
)
   
(2,120,138
)
   
(3,413,573
)
Intangible assets
   
5,793,435
     
3,120,138
     
8,913,573
 
                         
Net assets
 
$
4,500,000
   
$
1,000,000
   
$
5,500,00
 
                         
Cash
 
$
3,300,000
   
$
-
   
$
3,300,00
 
Acquisition price payable
   
1,200,000
     
1,000,000
     
2,200,000
 
                         
Total Consideration
 
$
4,500,000
   
$
1,000,000
   
$
5,500,00
 

 
(1)
Acquisition accounted for as an asset acquisition with the application of the IFRS Amendment. During the measurement period a material deferred tax adjustment was identified related to the AGG Wellness acquisition in which a deferred tax liability and additional goodwill of $1,293,435 was recognized. The additional goodwill is reflected as a 2020 addition in the intangible assets and goodwill footnote (Note 10).
 

(2)
Acquisition accounted for as a business combination under IFRS 3.
 
Acquisition costs, which are expensed as incurred, were not significant and were excluded from the consideration transferred. The Magpie (Oklahoma) operation was discontinued during the third quarter of 2020 (Note 3).
 
 
(b)
Licenses
 
During 2020, a Company affiliate entered into consulting, licensing, or other contractual arrangements with licensees in Pennsylvania which would allow the Company to operate medical and/or recreational marijuana dispensaries in Pennsylvania. The Company analyzed the transactions and recorded the transactions as asset acquisitions. The Company capitalized the licenses in the amount of $7,000,000, which are included in the intangible assets on the consolidated statement of financial position. The Company entered into a secured promissory note of $3,163,000 in July and the remaining liability of seller financing was fully repaid ahead of the scheduled pay-off date. The payment was the final financial obligation remaining under the transaction documents.
 
-32-

VERANO HOLDINGS, LLC AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the Years Ended December 31, 2020 and 2019


9.     ACQUISITIONS (Continued)


 
(b)
Licenses (Continued)
 
During 2019, Company affiliates entered into consulting, licensing, or other contractual arrangements with licensees in Ohio and Michigan which would allow the Company to operate medical and/or recreational marijuana dispensaries in Ohio or Michigan. The Company analyzed the transactions and recorded the transactions as asset acquisitions. The Company capitalized the licenses in the amount of $3,996,707, which are included in the intangible assets on the consolidated statements of financial position. The Company had $60,185 payable as of December 31, 2019, which was paid in full in 2020. The Company determined that the acquired licenses have an indefinite life and are not subject to amortization.
 
10.  INTANGIBLE ASSETS AND GOODWILL

 
As of December 31, 2020, intangible assets and goodwill consisted of the following:
 

 
Balance at
January 1,
2020
   
Purchases
   
Additions from
Acquisitions
   
Disposals
   
Balance at
December
31, 2020
 
Indefinite Lives
                             
Licenses
 
$
19,802,449
   
$
7,000,000
   
$
47,017,018
   
$
-
   
$
73,819,467
 
Tradenames
   
78,000
     
-
     
-
     
-
     
78,000
 
Goodwill
   
5,064,248
     
-
     
13,952,516
     
(2,987,861
)
   
16,028,903
 
                                         
Total
 
$
24,944,697
   
$
7,000,000
   
$
60,969,534
   
$
(2,987,861
)
 
$
89,926,370
 

As of December 31, 2019, intangible assets and goodwill consisted of the following:
 
   
Balance at
January 1,
2019
   
Purchases
   
Additions from
Acquisitions
   
Disposals
   
Balance at
December
31, 2019
 
Indefinite Lives
                             
Licenses
 
$
12,575,742
   
$
8,496,707
   
$
-
   
$
(1,270,000
)
 
$
19,802,449
 
Tradenames
   
119,000
     
-
     
-
     
(41,000
)
   
78,000
 
Goodwill
   
1,995,233
     
-
     
3,120,138
     
(51,123
)
   
5,064,248
 
                                         
Total
 
$
14,689,975
   
$
8,496,707
   
$
3,120,138
   
$
(1,362,123
)
 
$
24,944,697
 

-33-

VERANO HOLDINGS, LLC AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the Years Ended December 31, 2020 and 2019


11. NOTES PAYABLE

As of December 31, 2020 and December 31, 2019, notes payable consisted of the following:

   
December 31,
2020
   
December 31,
2019
 
Credit agreement dated July 2, 2020 for an initial commitment of $20,000,000 issued to various investors under Chicago Atlantic GIC Advisers, LLC as administrative agent with an incremental loan not to exceed $10,000,000; interest at 15.25% per annum matures June 2022. The Company was advanced $30,000,000 during the third quarter of 2020. Debt issuance costs were reflected as a reduction of the carrying value of the long-term debt on the Company's consolidated statements of financial position and was amortized to interest expense over the term of the note using the effective interest method. This note is guaranteed by a member. This note has prepayment penalties and mandatory prepayment as described in the note. The note holders have a first right of refusal to refinance the note under substantially similar terms. The note is substantially collateralized by all the assets of the Company and is subject to certain restrictive covenants as defined in the agreement.
 
$
30,000,000
   
$
-
 
                 
Convertible note dated November 25, 2019 for up to $20,000,000 issued to accredited investors; interest at 1.5% per month matures in August 2020 subject to an extension of six months or the completion of a transaction, if earlier. The note was extended for six month and with a maturity in February 2021. The note was repaid in November 2020 when the holder elected to exercise their warrants. Refer to (c) below.
   
-
     
5,100,000
 
                 
Convertible note dated November 25, 2019 for $5,000,000 issued to accredited investors; interest at 1.5% per month matures in August 2020 subject to an extension of six months or the completion of a transaction, if earlier. Principal and interest is due on the maturity date. The note was extended for six month and matures in February 2021. Refer to (d) below.
   
3,709,425
     
5,100,000
 
                 
Secured promissory notes dated February 13, 2019 for $3,412,500 issued to accredited investors; interest at 2.57% compounded annually matures in February 2020. The note was amended in June 2020 and extended for six months to August 2020 and is subject to four extension dates. The interest rate was also amended to bear interest at 6% from February to June 2020, 11% compounded annually until August 2020, 14% compounded annually until the second extension date of February 2021, and 15.5% compounded annually for additional extension dates. Refer to (b) below.
   
3,412,500
     
3,412,500
 
                 
Promissory note secured by deed of trust dated May 15, 2020 for $1,473,922 issued to Eastern and Pebble, LLC; bears interest at 4% per annum and matures on September 15, 2021.
   
856,594
     
-
 
                 
Promissory note dated September 4, 2019 for up to $16,000,000 issued to accredited investors; interest at 5.0% per annum matures in September 2020 or upon the occurrence of a corporate transaction if earlier. Principal and interest is due on the maturity date. The loan was repaid in 2020.
 
   
-
     
8,000,000
 

-34-

VERANO HOLDINGS, LLC AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the Years Ended December 31, 2020 and 2019

 
11. NOTES PAYABLE (Continued)

As of December 31, 2020 and 2019, notes payable consisted of the following (Continued):

Promissory note dated July 31, 2017, in the original amount of $2,900,000 issued to an accredited investor; monthly payment of $19,294 with a balloon payment of $2,493,308 due on August 1, 2027 including interest at 7.00% per annum. Refer to (a) below.
   
2,790,274
     
2,827,924
 
                 
Vehicle loan dated December 11, 2017, in the original amount of $17,709 issued to accredited investors; monthly payment of $548, including interest at 6.94% and matures in December 2020. The loan was repaid in 2020.
   
-
     
6,335
 
                 
Vehicle loan dated August 25, 2017, in the original amount of $18,966 issued to accredited investors; monthly payment of $341, including interest at 2.99% and matures in September 2022. The loan was repaid in 2020.
   
-
     
8,727
 
                 
Vehicle loan dated May 21, 2018, in the original amount of $18,247 issued to accredited investors; monthly payment of $563, including interest at 6.75% and matures in February 2021. The loan was repaid in 2020.
   
-
     
9,107
 
                 
Promissory Note dated July 2, 2020, in the original amount of $350,000 issued to BB Marketing, LLC; matures in June 2021; interest is due at 5% in the event of a default
   
350,000
     
-
 
                 
Less: unamortized debt issuance costs
   
(824,833
)
   
(166,667
)
Less: unamortized debt discount
   
-
     
(5,525,503
)
Less: unamortized debt discount - warrants
   
-
     
(4,405,756
)
 
               
Total Notes Payable