TREES Corp (Colorado) 10-Q

ITEM 1. FINANCIAL STATEMENTS GENERAL CANNABIS CORP CONDENSED CONSOLIDATED BALANCE SHEETS ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ September 30, 2020 ​ ​ ​ ​ (Unaudited) ​ December 31, 2019 ASSETS ​ ​ Current assets ​ ​ Cash and cash equivalents ​ $ 734,305 ​ $ 122,390 Accounts receivable, net of allowance of $ 137,000 and $ 111,000 as of September 30, 2020 and December 31, 2019, respectively ​ 300,200 ​ 85,204 Current portion of notes receivable, net of allowance of $ 125,000 and $ 0 as of September 30, 2020 and December 31, 2019, respectively ​ 350,000 ​ 375,000 Inventories, net ​ ​ 285,405 ​ ​ — Prepaid expenses and other current assets ​ 590,320 ​ 546,970 Assets of discontinued operations ​ 84,455 ​ 422,671 Total current assets ​ 2,344,685 ​ 1,552,235 ​ ​ ​ ​ ​ ​ ​ Note receivable, net ​ — ​ 93,333 Right-of-use operating lease asset ​ ​ 2,678,151 ​ ​ — Property and equipment, net ​ 372,376 ​ 1,507,327 Investment ​ 250,000 ​ 250,000 Intangible assets, net ​ ​ 20,875 ​ ​ — Goodwill ​ ​ 2,561,744 ​ ​ — Assets of discontinued operations ​ — ​ 99,109 Total assets ​ $ 8,227,831 ​ $ 3,502,004 ​ ​ ​ ​ ​ ​ ​ LIABILITIES AND STOCKHOLDERS’ DEFICIT ​ ​ ​ ​ ​ ​ ​ ​ ​ Current liabilities ​ ​ Accounts payable and accrued expenses ​ $ 1,340,885 ​ $ 1,221,194 Interest payable ​ 89,355 ​ 93,375 Income tax payable ​ ​ 108,731 ​ ​ — Customer deposits ​ 302,941 ​ 562,803 Operating lease liability, current ​ ​ 364,050 ​ ​ — Accrued stock payable ​ 60,900 ​ 80,657 Current portion of notes payable (net of discount) ​ 1,638,527 ​ 2,269,977 Related party note payable (net of discount) ​ — ​ 60,374 Warrant derivative liability ​ 1,269,472 ​ 4,620,594 Stock put liability ​ ​ 958,114 ​ ​ — Liabilities of discontinued operations ​ ​ 87,627 ​ ​ 357,242 Total current liabilities ​ 6,220,602 ​ 9,266,216 ​ ​ ​ ​ ​ ​ ​ Operating lease liability, non-current ​ ​ 2,330,084 ​ ​ — Long-term notes payable ​ ​ 500,000 ​ ​ — Related party long-term note payable ​ ​ 100,000 ​ ​ — Total liabilities ​ ​ 9,150,686 ​ ​ 9,266,216 Commitments and contingencies (Note 10) ​ ​ — ​ ​ — ​ ​ ​ ​ ​ ​ ​ Stockholders’ deficit ​ ​ Preferred stock, no par value; 5,000,000 shares authorized; no shares issued and outstanding at September 30, 2020 and 2019 ​ ​ — ​ ​ — Common Stock, $ 0.001 par value; 100,000,000 shares authorized; 58,720,574 shares and 39,497,480 shares issued and outstanding on September 30, 2020 and December 31, 2019, respectively ​ ​ 58,721 ​ ​ 39,498 Additional paid-in capital ​ 70,819,714 ​ 61,468,034 Accumulated deficit ​ ( 71,801,290 ) ​ ( 67,271,744 ) Total stockholders’ deficit ​ ( 922,855 ) ​ ( 5,764,212 ) Total liabilities and stockholders’ deficit ​ $ 8,227,831 ​ $ 3,502,004 ​ See Notes to condensed consolidated financial statements. ​ 3 Table of Contents GENERAL CANNABIS CORP CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three months ended ​ Nine months ended ​ ​ ​ September 30, ​ September 30, ​ ​ 2020 2019 2020 2019 ​ REVENUES ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Service ​ $ 132,873 ​ $ 614,041 ​ $ 495,623 ​ $ 1,228,344 ​ Cultivation sales ​ ​ 798,352 ​ ​ — ​ ​ 1,307,527 ​ ​ — ​ Product sales ​ ​ 632,623 ​ ​ 220,293 ​ ​ 3,099,113 ​ ​ 1,178,733 ​ Interest ​ ​ 21,716 ​ ​ 28,597 ​ ​ 83,814 ​ ​ 71,193 ​ Total revenues ​ ​ 1,585,564 ​ ​ 862,931 ​ ​ 4,986,077 ​ ​ 2,478,270 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ COSTS AND EXPENSES ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Cost of sales ​ ​ 989,916 ​ ​ 452,220 ​ ​ 3,725,600 ​ ​ 1,669,314 ​ Selling, general and administrative ​ ​ 956,576 ​ ​ 1,181,270 ​ ​ 3,123,196 ​ ​ 3,240,742 ​ Stock-based compensation expense ​ ​ 420,990 ​ ​ 768,079 ​ ​ 1,427,931 ​ ​ 3,013,042 ​ Professional fees ​ ​ 672,987 ​ ​ 282,688 ​ ​ 1,784,684 ​ ​ 1,254,183 ​ Depreciation and amortization ​ ​ 50,910 ​ ​ 31,837 ​ ​ 107,780 ​ ​ 80,380 ​ Total costs and expenses ​ ​ 3,091,379 ​ ​ 2,716,094 ​ ​ 10,169,191 ​ ​ 9,257,661 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ OPERATING LOSS ​ ​ ( 1,505,815 ) ​ ​ ( 1,853,163 ) ​ ​ ( 5,183,114 ) ​ ​ ( 6,779,391 ) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ OTHER EXPENSE/(INCOME) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Amortization of debt discount and equity issuance costs ​ ​ 61,002 ​ ​ 83,094 ​ ​ 199,839 ​ ​ 1,976,869 ​ Interest expense ​ ​ 84,716 ​ ​ 75,996 ​ ​ 359,436 ​ ​ 274,083 ​ Debt extinguishment ​ ​ — ​ ​ 298,500 ​ ​ 1,186,336 ​ ​ 298,500 ​ Gain on derivative liability ​ ​ ( 1,076,264 ) ​ ​ ( 420,840 ) ​ ​ ( 2,447,343 ) ​ ​ ( 822,702 ) ​ Gain on sale of building ​ ​ — ​ ​ — ​ ​ ( 139,187 ) ​ ​ — ​ Total other (income) expense, net ​ ​ ( 930,546 ) ​ ​ 36,750 ​ ​ ( 840,919 ) ​ ​ 1,726,750 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ NET LOSS FROM CONTINUING OPERATIONS ​ $ ( 575,269 ) ​ $ ( 1,889,913 ) ​ $ ( 4,342,195 ) ​ $ ( 8,506,141 ) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Gain/(loss) from discontinued operations ​ ​ 69,005 ​ ​ ( 364,409 ) ​ ​ ( 78,620 ) ​ ​ ( 1,156,678 ) ​ LOSS BEFORE INCOME TAXES ​ $ ( 506,264 ) ​ $ ( 2,254,322 ) ​ $ ( 4,420,815 ) ​ $ ( 9,662,819 ) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Provision for income taxes ​ ​ 68,196 ​ ​ — ​ ​ 108,731 ​ ​ — ​ NET LOSS ​ $ ( 574,460 ) ​ $ ( 2,254,322 ) ​ $ ( 4,529,546 ) ​ $ ( 9,662,819 ) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Deemed dividend ​ ​ — ​ ​ — ​ ​ ( 98,000 ) ​ ​ ( 1,192,000 ) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ NET LOSS ATTRIBUTABLE TO COMMON STOCKHOLDERS ​ $ ( 574,460 ) ​ $ ( 2,254,322 ) ​ $ ( 4,627,546 ) ​ $ ( 10,854,819 ) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ PER SHARE DATA — Basic and diluted ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Net loss from continuing operations per share ​ $ ( 0.01 ) ​ $ ( 0.05 ) ​ $ ( 0.09 ) ​ $ ( 0.22 ) ​ Net loss from discontinued operations per share ​ $ 0.00 ​ $ ( 0.01 ) ​ $ ( 0.00 ) ​ $ ( 0.03 ) ​ Net loss attributable to common stockholders per share ​ $ ( 0.01 ) ​ $ ( 0.06 ) ​ $ ( 0.10 ) ​ $ ( 0.28 ) ​ Weighted average number of common shares outstanding ​ ​ 58,097,819 ​ ​ 39,402,594 ​ ​ 47,951,618 ​ ​ 38,106,781 ​ ​ See Notes to condensed consolidated financial statements. ​ 4 Table of Contents GENERAL CANNABIS CORP CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Nine months ended ​ ​ ​ September 30, ​ ​ 2020 ​ 2019 ​ OPERATING ACTIVITIES ​ ​ ​ Net loss ​ $ ( 4,529,546 ) ​ $ ( 9,662,819 ) ​ Adjustments to reconcile net loss to net cash used in operating activities: ​ ​ ​ Amortization of debt discount and equity issuance costs ​ 199,839 ​ 1,976,869 ​ Depreciation and amortization ​ 109,954 ​ 146,819 ​ Amortization of loan origination fees ​ ( 6,667 ) ​ ( 10,820 ) ​ Noncash lease expense ​ ​ 150,984 ​ ​ — ​ Bad debt expense ​ ​ 128,491 ​ ​ 116,761 ​ Gain on warrant derivative liability ​ ​ ( 2,447,343 ) ​ ​ ( 822,702 ) ​ Loss on extinguishment of debt ​ ​ 1,186,336 ​ ​ 298,500 ​ Gain on sale of building ​ ​ ( 139,187 ) ​ ​ — ​ Loss on disposal of assets ​ 8,593 ​ — ​ Stock-based compensation ​ 1,427,931 ​ 3,013,042 ​ Changes in operating assets and liabilities: ​ ​ ​ ​ ​ Accounts receivable ​ ( 28,941 ) ​ ( 74,650 ) ​ Prepaid expenses and other assets ​ ( 11,176 ) ​ ( 242,571 ) ​ Inventory ​ ( 100,144 ) ​ ( 18,005 ) ​ Income taxes ​ ​ 108,731 ​ ​ — ​ Operating lease liabilities ​ ​ ( 135,001 ) ​ ​ — ​ Accounts payable and other current liabilities ​ ( 307,226 ) ​ 750,264 ​ Net cash used in operating activities: ​ ( 4,384,372 ) ​ ( 4,529,312 ) ​ ​ ​ ​ ​ ​ ​ ​ ​ INVESTING ACTIVITIES ​ ​ ​ Purchase of property and equipment ​ ( 156,344 ) ​ ( 296,091 ) ​ Proceeds on sale of building ​ ​ 1,421,134 ​ ​ — ​ Lending on notes receivable ​ ​ — ​ ​ ( 705,000 ) ​ Net cash provided by (used in) investing activities ​ 1,264,790 ​ ( 1,001,091 ) ​ ​ ​ ​ ​ ​ ​ ​ ​ FINANCING ACTIVITIES ​ ​ ​ Proceeds from sale of common stock and warrants ​ 3,000,000 ​ 2,604,355 ​ Proceeds from the exercise of warrants ​ ​ 90,000 ​ ​ — ​ Proceeds from exercise of stock options ​ — ​ 188,770 ​ Proceeds from notes payable ​ 1,500,000 ​ 1,155,000 ​ Payments on notes payable ​ ( 975,000 ) ​ ( 5,743,000 ) ​ Net cash provided by (used in) financing activities ​ 3,615,000 ​ ( 1,794,875 ) ​ ​ ​ ​ ​ ​ ​ ​ ​ NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS ​ 495,418 ​ ( 7,325,278 ) ​ CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD ​ 224,994 ​ 7,957,169 ​ CASH AND CASH EQUIVALENTS, END OF PERIOD ​ $ 720,412 ​ $ 631,891 ​ ​ ​ ​ ​ ​ ​ ​ ​ SUPPLEMENTAL SCHEDULE OF CASH FLOW INFORMATION ​ ​ ​ Cash paid for interest ​ $ 364,440 ​ $ 209,777 ​ ​ ​ ​ ​ ​ ​ ​ ​ NON-CASH INVESTING & FINANCING ACTIVITIES ​ ​ ​ Deemed dividend from 8.5 % Warrants repricing ​ $ 98,000 ​ $ 1,192,000 ​ Operating lease right-of-use asset/Operating lease liability ​ 2,721,069 ​ 154,200 ​ 12 % Warrants recorded as a debt discount and loss on extinguishment of debt ​ — ​ 392,000 ​ 15 % Warrants recorded as a debt discount and additional paid-in capital ​ 167,163 ​ — ​ 15 % Warrants recorded as a loss on extinguishment of debt and additional paid-in capital ​ ​ 668,336 ​ ​ — ​ Debt converted to equity ​ ​ 957,056 ​ ​ — ​ Beneficial conversion feature ​ ​ 233,500 ​ ​ — ​ Cashless exercise ​ ​ 903,779 ​ ​ — ​ Issuance of common stock to an employee ​ ​ 100,000 ​ ​ — ​ Stock issued in connection with SevenFive Farm acquisition ​ ​ 2,861,495 ​ ​ — ​ ​ See Notes to condensed consolidated financial statements. ​ 5 Table of Contents GENERAL CANNABIS CORP CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ (DEFICIT) EQUITY FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2020 AND 2019 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Common Stock ​ Additional ​ Accumulated ​ ​ ​ ​ ​ Shares ​ Amount ​ Paid-in Capital ​ Deficit ​ Total June 30, 2020 51,188,564 $ 51,189 $ 67,406,256 $ ( 71,226,830 ) $ ( 3,769,385 ) Sale of common stock, net of issuance costs ​ 7,532,010 ​ 7,532 ​ 2,992,468 ​ — ​ 3,000,000 Stock option granted to employees and consultants — ​ — ​ 420,990 ​ — ​ 420,990 Net loss — ​ — ​ — ​ ( 574,460 ) ​ ( 574,460 ) September 30, 2020 58,720,574 ​ $ 58,721 ​ $ 70,819,714 ​ $ ( 71,801,290 ) ​ $ ( 922,855 ) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Common Stock ​ Additional ​ Accumulated ​ ​ ​ ​ ​ Shares ​ Amount ​ Paid-in Capital ​ Deficit ​ Total June 30, 2019 ​ 39,302,752 $ 39,303 $ 59,061,513 $ ( 59,196,444 ) $ ( 95,628 ) Warrants issued with the 12 % Notes ​ — ​ — ​ 392,000 ​ — ​ 392,000 Common stock issued upon exercise of stock options ​ 194,728 ​ 195 ​ 131,950 ​ — ​ 132,145 Stock options granted to employees and consultants ​ — ​ — ​ 734,549 ​ — ​ 734,549 Net loss ​ — ​ — ​ — ​ ( 2,254,322 ) ​ ( 2,254,322 ) September 30, 2019 ​ 39,497,480 ​ $ 39,498 ​ $ 60,320,012 ​ $ ( 61,450,766 ) ​ $ ( 1,091,256 ) ​ See Notes to condensed consolidated financial statements. ​ ​ 6 Table of Contents GENERAL CANNABIS CORP CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ (DEFICIT) EQUITY FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2020 AND 2019 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Common Stock ​ Additional ​ Accumulated ​ ​ ​ ​ Shares Amount Paid-in Capital Deficit Total January 1, 2020 ​ 39,497,480 ​ $ 39,498 ​ $ 61,468,034 ​ $ ( 67,271,744 ) ​ $ ( 5,764,212 ) Sale of common stock, net of issuance costs ​ 7,574,745 ​ 7,575 ​ 3,092,425 ​ — ​ 3,100,000 Common stock issued upon conversion of debt ​ 2,215,892 ​ 2,215 ​ 954,841 ​ — ​ 957,056 Common stock issued for acquisition of SevenFive Farm ​ 8,859,117 ​ 8,859 ​ 1,894,522 ​ — ​ 1,903,381 Stock options granted to employees and consultants ​ — ​ ​ — ​ ​ 1,347,688 ​ ​ — ​ ​ 1,347,688 Beneficial conversion feature ​ — ​ ​ — ​ ​ 233,500 ​ ​ — ​ ​ 233,500 Warrants exercised ​ 200,000 ​ ​ 200 ​ ​ 172,041 ​ ​ — ​ ​ 172,241 Warrants issued with the 15 % Notes ​ — ​ ​ — ​ ​ 835,499 ​ ​ — ​ ​ 835,499 Cashless exercise of warrants ​ 373,340 ​ 374 ​ 821,164 ​ — ​ 821,538 Net loss ​ — ​ — ​ — ​ ( 4,529,546 ) ​ ( 4,529,546 ) September 30, 2020 ​ 58,720,574 ​ $ 58,721 ​ $ 70,819,714 ​ $ ( 71,801,290 ) ​ $ ( 922,855 ) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Common Stock ​ Additional ​ Accumulated ​ ​ ​ ​ ​ Shares Amount Paid-in Capital Deficit Total January 1, 2019 ​ 36,222,752 ​ $ 36,223 ​ $ 56,303,061 ​ $ ( 51,787,947 ) ​ $ 4,551,337 Sale of common stock, net of issuance costs ​ 3,000,000 ​ 3,000 ​ 503,615 ​ — ​ 506,615 Warrants issued with the 12 % Notes ​ — ​ ​ — ​ ​ 392,000 ​ ​ — ​ ​ 392,000 Common stock issued for property and equipment ​ 5,000 ​ 5 ​ 7,995 ​ — ​ 8,000 Common stock issued upon exercise of stock options ​ 269,728 ​ 270 ​ 188,500 ​ — ​ 188,770 Stock options granted to employees and consultants ​ — ​ — ​ 2,924,841 ​ — ​ 2,924,841 Net loss ​ — ​ — ​ — ​ ( 9,662,819 ) ​ ( 9,662,819 ) September 30, 2019 ​ 39,497,480 ​ $ 39,498 ​ $ 60,320,012 ​ $ ( 61,450,766 ) ​ $ ( 1,091,256 ) ​ See Notes to condensed consolidated financial statements. ​ 7 Table of Contents GENERAL CANNABIS CORP NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) NOTE 1. NATURE OF OPERATIONS, HISTORY AND PRESENTATION Nature of Operations General Cannabis Corp, a Colorado Corporation (the “Company,” “we,” “us,” “our,” or “GCC”) (formerly, Advanced Cannabis Solutions, Inc.), was incorporated on June 3, 2013, and provides services and products to the regulated cannabis industry. We currently trade on the OTCQB® Venture Market. As of September 30, 2020, our operations are segregated into the following three segments: Operations Consulting and Products (“Operations Segment”) Through Next Big Crop (“NBC”), we deliver comprehensive consulting services to the cannabis industry that include obtaining licenses, compliance, cultivation, retail operations, logistical support, facility design and construction, and expansion of existing operations. During the three and nine months ended September 30, 2020, 60 % and 76 % of NBC’s revenue was with one and four customers, respectively. NBC oversees our wholesale equipment and supply business, operated under the name “GC Supply,” which provides turnkey sourcing and stocking services to cultivation, retail and infused products manufacturing facilities. Our products include building materials, equipment, consumables and compliance packaging. There are generally multiple suppliers for the products we sell; however, there are a limited number of manufacturers of certain high-tech cultivation equipment. NBC also provides operational support for our internal cultivation. Cultivation (“Cultivation Segment”) Through our acquisition of SevenFive Farm ("SevenFive") in May 2020, we operate a licensed light deprivation greenhouse cultivation facility. During the three and nine months ended September 30, 2020, 15 % and 27 % of SevenFive’s revenue was with one and two customers, respectively. Capital Investments (“Investments Segment”) As a publicly traded company, we believe that we have access to capital that may not be available to businesses operating in the cannabis industry. Accordingly, we may provide debt or equity capital through investing in businesses using cash or shares of our common stock. Basis of Presentation The accompanying condensed consolidated financial statements include all accounts of the Company and its wholly-owned subsidiaries. All inter-company accounts and transactions have been eliminated in consolidation. These unaudited condensed consolidated financial statements have been prepared following the requirements of the Securities and Exchange Commission for interim reporting. As permitted under those rules, certain footnotes and other financial information that are normally required by accounting principles generally accepted in the United States of America ("U.S. GAAP") can be condensed or omitted. The condensed consolidated balance sheet for the year ended December 31, 2019 was derived from audited financial statements but does not include all disclosures required by U.S. GAAP. The information included in this quarterly report on Form 10-Q should be read in conjunction with the consolidated financial statements and notes thereto of the Company for the year ended December 31, 2019 which were included in the annual report on Form 10-K/A filed by the Company on July 7, 2020. 8 Table of Contents In the opinion of management, these condensed consolidated financial statements have been prepared on the same basis as the annual consolidated financial statements and notes thereto of the Company and include all adjustments, consisting only of normal recurring adjustments, considered necessary for the fair presentation of the Company's financial position and operating results. The results for the three and nine months ended September 30, 2020 are not necessarily indicative of the operating results for the year ending December 31, 2020, or any other interim or future periods. Since the date of the Annual Report, there have been no material changes to the Company’s significant accounting policies except for inventories and goodwill and long-lived assets as disclosed below. Reclassifications Certain prior year amounts have been reclassified for consistency with the current year presentation. These reclassifications had no effect on the reported results of operations. Use of Estimates The preparation of our condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses. Although these estimates are based on our knowledge of current events and actions we may undertake in the future, actual results may ultimately differ from these estimates and assumptions. Furthermore, when testing assets for impairment in future periods, if management uses different assumptions or if different conditions occur, impairment charges may result. In particular, the COVID-19 pandemic has adversely impacted and is likely to further adversely impact the Company's business and markets. The full extent to which the COVID-19 pandemic will directly or indirectly impact the Company's business, results of operations and financial condition, including revenues, expenses, reserves and allowances, fair value measurements and asset impairment charges, will depend on future developments that are highly uncertain and difficult to predict. These developments include, but are not limited to, the duration and spread of the pandemic, its severity in our markets and elsewhere, governmental actions to contain the spread of the pandemic and respond to the reduction in global economic activity, and how quickly and to what extent normal economic and operating conditions can resume. Going Concern The condensed consolidated financial statements have been prepared on a going concern basis, which assumes we will be able to realize our assets and discharge our liabilities in the normal course of business for at least the twelve months from the date these condensed consolidated financial statements are issued. As of September 30, 2020, our cash balance of approximately $ 0.7 million is not sufficient to absorb our operating losses and repay our notes payable of $ 2.3 million, of which $ 1.7 million is short-term. The warrants associated with this debt, if exercised in cash, would provide sufficient funds to retire the debt; however, there is no guarantee that these warrants will be exercised in cash or at all. Our ability to continue as a going concern is dependent upon our generating profitable operations in the future and / or obtaining the necessary financing to meet our obligations and repay our liabilities arising from normal business operations when they come due. Management believes that (a) we will be successful obtaining additional capital and (b) actions presently being taken to further implement our business plan and generate additional revenues provide opportunity for the Company to continue as a going concern. While we believe in the viability of our strategy to generate additional revenues and our ability to raise additional funds, there can be no assurances that we will be successful in such efforts. Accordingly, there is substantial doubt about our ability to continue as a going concern. The accompanying condensed consolidated financial statements do not include any adjustments that might be necessary if we are unable to continue as a going concern. Summary of Significant Accounting Policies See our Annual Report on Form 10-K for the year ended December 31, 2019, as amended, for discussion of the Company's significant accounting policies. 9 Table of Contents Inventories Inventories consist of raw materials, supplies, growing and harvested plants (work-in-process), and finished goods, and are stated at the lower of cost or net realizable value. All direct and indirect costs of growing plants are accumulated until the time of harvest and allocated to the plants during the growing process. All direct and indirect costs of finished goods are accumulated and allocated to the products between the harvest and completion stages. The Company uses an average costing method to allocate costs. Net realizable value is determined as the estimated selling price in the ordinary course of business less the estimated costs of completion and estimated costs necessary to make the sale. The Company periodically reviews physical inventory for excess, obsolete, and potentially impaired items, noting none for the period ended September 30, 2020. Goodwill and Long-Lived Assets Goodwill represents the excess of purchase price over the fair value of identifiable net assets acquired in a business combination. Goodwill and long-lived intangible assets are tested for impairment at least annually in accordance with the provisions of ASC No. 350, “Intangibles-Goodwill and Other” (“ASC No. 350”). ASC No. 350 requires that goodwill be tested for impairment at the reporting unit level (operating segment or on level below an operating segment) on an annual basis and between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carry value. Application of the goodwill impairment test requires judgement, including the identification of reporting units, assignment of assets and liabilities to reporting units, assignment of goodwill to reporting units, and determination of the fair value of each reporting unit. We test goodwill and long-lived assets annually in April, unless an event occurs that would cause the us to believe the value is impaired at an interim date. Intangible assets with finite useful lives are amortized over their respective estimated useful lives and reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. Recently Issued Accounting Standards FASB ASU 2020-06 – “Debt-Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging-Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity”- In June 2020, the Financial Accounting Standards Board (“FASB”) issued guidance which simplifies accounting for convertible instruments by removing major separation models required under current GAAP. Accounting Standards Updates (“ASU”) also removes certain settlement conditions that are required for equity contracts to qualify for the derivative scope exception and simplifies the diluted earnings per share calculation in certain areas. The amendments in this ASU are effective for annual and interim periods beginning after December 15, 2021, although early adoption is permitted. We are in the process of evaluating the impact of this new guidance on our consolidated financial statements. FASB ASU 2019-12 – “Income Taxes (Topic 740)” – In December 2019, the FASB issued guidance which simplifies certain aspects of accounting for income taxes. The guidance is effective for interim and annual reporting periods beginning after December 15, 2020, and early adoption is permitted. We do not expect adoption of this ASU to have a material effect on our consolidated financial statements. FASB ASU 2018-13 – “Fair Value Measurement (Topic 820)”- In August 2018, the FASB issued new disclosure guidance on fair value measurement. This new guidance modifies the disclosure requirements on fair value measurements, including removal and modifications of various current disclosures as well as some additional disclosure requirements for Level 3 fair value measurements. Some of these disclosure changes must be applied prospectively while others retrospectively depending on requirement. We adopted ASU 2018-13 as of January 1, 2020. There was no material impact to our consolidated financial statements or disclosures. ​ 10 Table of Contents NOTE 2. BUSINESS ACQUISITION On May 13, 2020, we received approval of the transaction and transfer of the Dalton Adventures, LLC (“Seller”) license from the Colorado Marijuana Enforcement Division. On May 25, 2020, we finalized the acquisition, pursuant to which we had acquired the assets of the Seller that constitute the business of SevenFive Farm, a cultivation facility in Boulder, Colorado, whereby we acquired fixed assets, inventory, a cultivation license and the tradename. The purchase price paid by the Company to the Seller was 8,859,117 shares of common stock. The shares issued have not been registered and are restricted shares under applicable U.S. federal and state securities laws and their resale may be made only pursuant to registration under the Securities Act or an available exemption from registration. Accordingly, a downward adjustment of 15 % is applied to the fair value of consideration due to a lack of marketability. The closing price of General Cannabis’ common stock on May 13, 2020, the date of license transfer, was $ 0.38 per share, as such, fair value of consideration is $ 2,861,495 . Dalton Adventures, LLC may require us to repurchase in cash 25 % of the shares issued to the owner of Dalton Adventures, LLC for a period up to one year or May 25, 2021, at a repurchase price equal to the same volume weighted average price used to determine the number of shares issued to the owner of Dalton Adventures, LLC at closing. In accordance with the agreement, we would be required to repurchase 2,214,779 shares at a price of $ 0.43 per share. The Company has recorded a stock put liability for the possibility of the buyback of these shares in the amount of $ 958,114 . We have not completed the allocation of the purchase price. As of September 30, 2020, the condensed consolidated balance sheet includes a preliminary allocation of fixed assets, inventory, intangible assets and goodwill. Management anticipates completing the purchase price allocation as soon as possible, but no later than one year from the acquisition date. The preliminary purchase price allocation is as follows: ​ ​ ​ ​ ​ Inventories ​ $ 185,261 Fixed assets ​ 89,490 Cultivation license ​ 20,000 Tradename ​ 5,000 Goodwill ​ 2,561,744 ​ ​ $ 2,861,495 ​ The accompanying consolidated financial statements include the results of SevenFive from the date of acquisition for financial reporting purposes, May 13, 2020. The pro forma effects of the acquisition on the results of operations as if the transaction had been completed on January 1, 2019, are as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three months ended Nine months ended ​ ​ September 30, ​ September 30, ​ ​ 2020 ​ 2019 ​ 2020 ​ 2019 Total revenues ​ $ 1,585,564 ​ $ 1,680,887 ​ $ 4,986,077 ​ $ 4,443,902 Net loss attributable to common stockholders ​ $ ( 643,465 ) ​ $ ( 1,616,340 ) ​ $ ( 4,548,926 ) ​ $ ( 10,243,814 ) Net loss per common share: ​ $ ( 0.01 ) ​ $ ( 0.03 ) ​ $ ( 0.09 ) ​ $ ( 0.22 ) Weighted average number of basic and diluted common shares outstanding ​ ​ 58,097,819 ​ ​ 48,261,711 ​ ​ 52,704,502 ​ ​ 46,965,898 ​ The unaudited pro-forma results of operations are presented for information purposes only. The unaudited pro-forma results are not intended to present actual results that would have been attained had the acquisition been completed as of January 1, 2019, or to project potential operating results as of any future date or for any future periods. ​ ​ ​ ​ 11 Table of Contents NOTE 3. DISCONTINUED OPERATIONS Security Segment On December 26, 2019, our board of directors and management made the strategic decision to investigate a possible buyer for the Security Segment and if no buyer could be found, cease operations of the Security Segment. We transferred all our Colorado security contracts and employees to a company on January 16, 2020, in exchange for which we will receive $ 1.00 per man hour worked on existing contracts for a period of one year . On February 6, 2020 we cancelled all our security contracts in California. The assets and liabilities for the Security Segment are presented in the balance sheet as of September 30, 2020 and December 31, 2019 as discontinued operations and the operating results for the three and nine months ended September 30, 2020 and 2019 are presented as gain (loss) from discontinued operations. Assets and liabilities of discontinued operations for the Security Segment included the following: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ September 30, ​ December 31, ​ 2020 2019 Cash and cash equivalents ​ $ 81,015 ​ $ 77,380 Accounts receivable, net ​ 3,440 ​ 280,058 Prepaid expenses and other current assets ​ 651 ​ 17,780 Current assets discontinued operations ​ ​ 85,106 ​ ​ 375,218 ​ ​ ​ ​ ​ ​ ​ Property and equipment, net ​ ​ — ​ ​ 15,584 Noncurrent assets discontinued operations ​ ​ — ​ ​ 15,584 ​ ​ ​ ​ ​ ​ ​ Accounts payable and accrued expenses ​ ​ — ​ ​ 88,309 Customer deposits ​ ​ — ​ ​ 60,940 Current liabilities discontinued operations ​ ​ — ​ ​ 149,249 ​ A summary of the discontinued operations for the Security Segment is presented as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three months ended ​ Nine months ended ​ ​ ​ September 30, ​ September 30, ​ ​ 2020 2019 2020 2019 ​ Service revenues ​ $ — ​ $ 524,525 ​ $ 119,891 ​ $ 1,596,673 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Cost of sales ​ ​ — ​ ​ 427,613 ​ 88,599 ​ 1,257,450 ​ Selling, general and administrative ​ ​ ( 65,053 ) ​ ​ 210,999 ​ 81,054 ​ 607,670 ​ Professional fees ​ ​ — ​ ​ 2,415 ​ — ​ 4,219 ​ Depreciation and amortization ​ ​ — ​ ​ 5,924 ​ ​ 2,174 ​ ​ 49,500 ​ Total (income) expenses ​ ​ ( 65,053 ) ​ ​ 646,951 ​ 171,827 ​ 1,918,839 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ OPERATING INCOME (LOSS) ​ ​ 65,053 ​ ​ ( 122,426 ) ​ ( 51,936 ) ​ ( 322,166 ) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Interest expense, net ​ ​ — ​ ​ 984 ​ 984 ​ 2,438 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ NET INCOME (LOSS) FROM DISCONTINUED OPERATIONS ​ $ 65,053 ​ $ ( 123,410 ) ​ $ ( 52,920 ) ​ $ ( 324,604 ) ​ ​ 12 Table of Contents The cash flows related to discontinued operations have not been segregated and are included in the consolidated statements of cash flows. The following table provides selected information on cash flows related to discontinued operations for the Security Segment for the nine months ended September 30, 2020 and 2019. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Nine months ended ​ ​ ​ September 30, ​ ​ 2020 2019 ​ Receivables ​ $ 276,618 ​ $ 128,867 ​ Prepaids and other ​ ​ 17,780 ​ ​ ( 8,752 ) ​ Depreciation and amortization ​ ​ 2,174 ​ ​ 49,500 ​ Capital expenditures ​ ​ — ​ ​ ( 1,331 ) ​ Accounts payable and accrued expenses ​ ​ ( 88,309 ) ​ ​ ( 51,239 ) ​ Customer deposits ​ ​ ( 60,940 ) ​ ​ ( 17,896 ) ​ Total ​ $ 147,323 ​ $ 99,149 ​ ​ Consumer Goods Segment On December 26, 2019, our board of directors and management made the strategic move to cease operations of Chiefton and committed to a plan to cease operations of STOA Wellness. We transferred all assets of STOA Wellness to an individual on January 10, 2020, in exchange for the release on the outstanding lease of the STOA retail store. The assets and liabilities classified as discontinued operations for the Consumer Goods Segment are presented separately in the balance sheet as of September 30, 2020 and December 31, 2019 and the operating results for the three and nine months ended September 30, 2020 and 2019 are presented as gain (loss) from discontinued operations. Assets and liabilities of discontinued operations for the Consumer Goods Segment included the following: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ September 30, ​ December 31, ​ 2020 2019 Cash and cash equivalents ​ $ — ​ $ 25,223 Accounts receivable, net ​ — ​ 7,836 Prepaid expenses and other current assets ​ — ​ 14,394 Current assets discontinued operations ​ ​ — ​ ​ 47,453 ​ ​ ​ ​ ​ ​ ​ Right of use operating lease asset ​ ​ — ​ ​ 83,525 Noncurrent assets discontinued operations ​ ​ — ​ ​ 83,525 ​ ​ ​ ​ ​ ​ ​ Accounts payable and accrued expenses ​ ​ 88,278 ​ ​ 124,468 Operating lease liability, current ​ ​ — ​ ​ 83,525 Current liabilities discontinued operations ​ ​ 88,278 ​ ​ 207,993 ​ 13 Table of Contents A summary of the discontinued operations for the Consumer Goods Segment is presented as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three months ended ​ Nine months ended ​ ​ ​ September 30, ​ September 30, ​ ​ 2020 2019 2020 2019 ​ Revenues ​ $ — ​ $ 91,308 ​ $ 33 ​ $ 149,975 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Cost of service revenues ​ ​ — ​ ​ 11,046 ​ ​ — ​ ​ 70,785 ​ Cost of goods sold ​ ​ — ​ ​ 66,158 ​ ​ — ​ ​ 125,454 ​ Selling, general and administrative ​ ​ ( 3,952 ) ​ ​ 230,613 ​ ​ 25,733 ​ ​ 669,496 ​ Professional fees ​ ​ — ​ ​ 14,715 ​ ​ — ​ ​ 99,375 ​ Depreciation and amortization ​ ​ — ​ ​ 9,775 ​ ​ — ​ ​ 16,939 ​ Total (income) expenses ​ ​ ( 3,952 ) ​ ​ 332,307 ​ ​ 25,733 ​ ​ 982,049 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ OPERATING INCOME (LOSS) ​ ​ 3,952 ​ ​ ( 240,999 ) ​ ​ ( 25,700 ) ​ ​ ( 832,074 ) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ NET INCOME (LOSS) FROM DISCONTINUED OPERATIONS ​ $ 3,952 ​ $ ( 240,999 ) ​ $ ( 25,700 ) ​ $ ( 832,074 ) ​ ​ ​ The cash flows related to discontinued operations have not been segregated and are included in the consolidated statements of cash flows. The following table provides selected information on cash flows related to discontinued operations for the Consumer Goods Segment for the nine months ended September 30, 2020 and 2019. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Nine months ended ​ ​ September 30, ​ 2020 2019 Receivables ​ $ 7,836 ​ $ 25,301 Prepaids and other ​ ​ 14,394 ​ ​ ( 29,967 ) Inventory ​ ​ — ​ ​ ( 33,005 ) Depreciation and amortization ​ ​ — ​ ​ 16,939 Capital expenditures ​ ​ — ​ ​ ( 114,384 ) Accounts payable and accrued expenses ​ ​ ( 36,190 ) ​ ​ 71,887 Customer deposits ​ ​ — ​ ​ 3,775 Total ​ $ ( 13,960 ) ​ $ ( 59,454 ) ​ ​ ​ ​ NOTE 4. CUSTOMER DEPOSITS Our deferred revenue and customer deposit liability had the following activity: ​ ​ ​ ​ ​ ​ Amount Balance as of December 31, 2019 ​ $ 562,803 Additional deposits received ​ ​ 3,140,017 Less: Deposits recognized as revenue ​ ​ ( 3,253,616 ) Less: Refunds to customers ​ ​ ( 146,263 ) Balance as of September 30, 2020 ​ $ 302,941 ​ ​ 14 Table of Contents NOTE 5. INVENTORIES, NET Our inventories consisted of the following: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ September 30, ​ December 31, ​ 2020 2019 Raw materials ​ $ 10,027 ​ $ — Work-in-progress and finished goods ​ ​ 275,378 ​ ​ — Less: Inventory reserves ​ ​ — ​ ​ — Total Inventories ​ $ 285,405 ​ $ — ​ ​ NOTE 6. LEASES On May 13, 2020, we entered into a commercial real estate lease with a related party (see Note 12) for 17,000 square feet of greenhouse space in Boulder, CO, with an initial term of five years and, at our option, two additional terms of five years each. Rent is $ 30,000 per month with 1.5 % annual escalations, as well as our portion of real estate taxes. We determined the present value of the future lease payments using a discount rate of 12 % over a 15 year term, our incremental borrowing rate based on outstanding debt, resulting in an initial right-of-use asset and lease liability of $ 2,721,069 which are being applied ratably over the term of the lease. As of September 30, 2020, the balance of the right-of-use asset and lease liability was $ 2,678,151 and $ 2,694,134 , respectively. Future remaining minimum lease payments were as follows: ​ ​ ​ ​ ​ Year ending December 31, Amount 2020 (remaining three months) ​ $ 90,000 2021 ​ 365,400 2022 ​ 370,881 2023 ​ 376,444 2024 ​ 382,091 Thereafter ​ 4,319,535 Total ​ 5,904,351 Less: Present value adjustment ​ ( 3,210,217 ) Operating lease liability ​ $ 2,694,134 ​ ​ ​ NOTE 7. ACCRUED STOCK PAYABLE The following tables summarize the changes in accrued common stock payable: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Number of ​ Amount Shares Balance as of December 31, 2019 ​ $ 80,657 ​ ​ 34,469 Employee stock award accrual ​ ​ 19,343 ​ ​ — Consultant stock award ​ ​ 60,900 ​ ​ 100,000 Investor stock award accrual ​ ​ 2,185,000 ​ ​ 5,485,814 Stock issued ​ ​ ( 2,285,000 ) ​ ​ ( 5,520,283 ) Balance as of September 30, 2020 ​ $ 60,900 ​ ​ 100,000 ​ On February 18, 2020 we granted a consultant 100,000 fully vested shares for consulting services. Based on a stock price of $ 0.61 on the date of grant, the consultant will receive $ 60,900 worth of our common stock. As of September 30, 2020, none of the stock had been issued. On May 29, 2020, we entered into a subscription agreement with Hershey Strategic Capital, LP and Shore Ventures III, LP with respect to the sale of shares of common stock. During the second quarter of 2020, 5,485,814 shares of common 15 Table of Contents stock were granted. As of September 30, 2020, all of the stock was issued . See Note 11 for further details of the stock transaction. NOTE 8. NOTES PAYABLE Our notes payable consisted of the following: ​ ​ ​ ​ ​ ​ ​ ​ ​ September 30, December 31, ​ ​ 2020 ​ 2019 2019 12% Notes ​ $ — ​ $ 1,506,000 SBI Note ​ — ​ 750,000 2019 15% Notes ​ ​ 2,231,000 ​ ​ 200,000 Related party note payable ​ ​ 100,000 ​ ​ 100,000 Unamortized debt discount ​ ​ ( 92,473 ) ​ ​ ( 225,649 ) ​ ​ ​ 2,238,527 ​ ​ 2,330,351 Less: Current portion ​ ​ ( 1,638,527 ) ​ ​ ( 2,330,351 ) Long-term portion ​ $ 600,000 ​ $ — ​ SBI Debt In July 2019, we completed an $ 855,000 private placement pursuant to a promissory note (“SBI Note”) with SBI Investments LLC, 2014-1 ("SBI"), bearing interest at 10 % with principal due on October 18, 2019. On October 18, 2019, SBI agreed to an extension of the maturity date of the SBI Note to November 1, 2019. On November 1, 2019, SBI agreed to another extension of the maturity date to November 15, 2019. On November 15, 2019, SBI agreed to another extension of the maturity date to November 29, 2019 with an increase in principal amount of the note from $ 855,000 to $ 905,000 . On November 27, 2019, SBI agreed to an extension of the maturity date to December 13, 2019. On December 13, 2019, SBI agreed to extend the maturity date to December 20, 2019. On December 30, 2019, SBI agreed to extend the maturity date of the note to January 31, 2020, upon the payment of $ 195,911 , of which $ 40,911 was for accrued interest and $ 155,000 towards the outstanding principal of the SBI Note. On February 18, 2020, we entered into a promissory note exchange agreement with SBI pursuant to which the original SBI Note was exchanged for a new convertible promissory note (the “Convertible Note”). The Convertible Note has a principal amount of $ 934,000 , an interest rate of 10 % per annum and a maturity date of February 18, 2021. The Convertible Note may be converted at the option of SBI into shares of common stock at a conversion price equal to 80 % of the Company’s common stock market price (“Conversion Price”); provided that the Conversion Price shall in no event be less than $ 0.45 per share. If at any time, the borrower issues or sells any shares of common stock for a consideration per share less than the Conversion Price in effect on the date of such issuance, the holder shall have the right to utilize the price per share of the dilutive issuance as the Conversion Price for such conversion. On May 29, 2020, we issued shares at $ 0.40 per share, and as such, the Conversion Price was decreased to a floor of $ 0.40 per share. The exchange of the SBI Note for the Convertible Note is treated as a debt extinguishment. The additional $ 184,000 of principal was treated as a debt extinguishment and included in our condensed consolidated statement of operations. We determined that the Convertible Note should be accounted for in accordance with FASB ASC 470-20 which addresses “Accounting for Convertible Securities with Beneficial Conversion Features”. The beneficial conversion feature is calculated at its intrinsic value (that is, the difference between the Conversion Price of $ 0.49 at the date of the note issuance and the fair value of the common stock into which the debt is convertible at the commitment date, per share being $ 0.61 , multiplied by the number of shares into which the debt is convertible). The valuation of the beneficial conversion feature recorded cannot be greater than the face value of the note issued. We recorded $ 233,500 as additional paid in capital and as a debt extinguishment and included in our condensed consolidated statement of operations. As of September 30, 2020, SBI had converted $ 934,000 aggregate principal amount of the Convertible Note and approximately $ 23,000 of accrued interest into 2,215,892 shares of our common stock. 16 Table of Contents 15 % Notes In December 2019, we completed a private placement with certain accredited investors pursuant to an unsecured promissory note (the " 15 % Notes") with an aggregate principal amount of $ 300,000 . In February and March 2020, we completed private placements with certain accredited investors, including holders of $ 1,506,000 aggregate principal amount of our 2019 12 % Notes (as defined below), of 15 % Notes with an aggregate principal amount of $ 2,031,000 in exchange for $ 525,000 of new funding and the cancellation of $ 1,506,000 aggregate principal amount of the 2019 12 % Notes. The 15 % Notes have an annual interest rate of 15 % and mature on January 31, 2021. The 15 % Notes provide that they shall be repaid in full out of the proceeds of any new debt or equity capital raise with net proceeds of more than $ 5,000,000 . In connection with the issuance of the 15 % Notes, each holder of 15 % Notes received three warrants (i.e., a 2020 A Warrant, a 2020 B Warrant and a 2020 C Warrant) to acquire shares of common stock at an exercise price equal to $ 0.45 per share, with the number of shares subject to each warrant equal to one share for each $ 1.00 of principal amount of 15 % Notes issued to the noteholder. The 2020 A Warrants have an expiration date of December 31, 2020, the 2020 B Warrants have an expiration date of December 31, 2021, and the 2020 C Warrants have an expiration date of December 31, 2022 (collectively, the " 15 % Warrants"). By way of example, if an investor was issued a 15 % Note with a principal amount of $ 250,000 , such noteholder would receive a 2020 A Warrant to purchase 250,000 shares of common stock, a 2020 B Warrant to purchase 250,000 shares of common stock and a 2020 C Warrant to purchase 250,000 shares of common stock. Accordingly, as of September 30, 2020, the Company has issued 15 % Warrants to purchase a total of 6,993,000 shares of common stock to the holders of 15 % Notes. The exercise price of these warrants is subject to adjustment as a result of certain future equity issuances of securities by the Company at a price below the then-effective exercise price of the 15 % Warrants. As a result of such subsequent issuances of securities by the Company during the second quarter of 2020, the exercise price of the 15 % Warrants had decreased to $ 0.40 per share, resulting in a $ 98,000 deemed dividend as of September 30, 2020. We received $ 300,000 of cash in December 2019 and an additional $ 525,000 of cash during January 2020 through March 2020 for issuing the 15 % Notes. The relative fair value of the new funding on the 15 % Warrants was recorded as a debt discount and additional paid-in capital of $ 333,056 . The relative fair value of the cancellation of the outstanding indebtedness was recorded as an extinguishment of debt and additional paid-in capital of $ 668,335 . For the three months ended September 30, 2020, amortization of debt discount expense was $ 61,002 , from the 15 % Notes. For the nine months ended September 30, 2020, amortization of debt discount expense was $ 199,839 , from the 15 % notes. The 15 % Notes are otherwise treated as conventional debt. In May 2020, three of the note holders agreed to extend the terms of $ 600,000 of their notes to a new maturity date of January 31, 2022. The extension of the note terms resulted in a debt extinguishment of the remaining note discount in the amount of $ 48,908 . In addition, if the majority of the note holders extend the maturity date to January 31, 2022, then the expiration dates for the note holders warrants will each be extended by one year . If the majority of the note holders do not extend, the expiration date for the warrants for the note holders that did extend will be changed to December 31, 2023. Further, the subscription agreement as amended (“Hershey Subscription Agreement”) between the Company and Hershey Strategic Capital, LP and Shore Ventures III, LP (the “Hershey Investor”) provides that the Company shall, during a negotiation period ending October 4, 2020 (“Negotiation Period”) endeavor to cause the existing holders of such promissory notes to extend the maturity date of such notes to a date that is not earlier than January 31, 2022. If all of the existing notes have not been amended to extend the maturity dates thereof, then, in the absence of a waiver from the Hershey Investor to the contrary, the Company shall issue to the Hershey Investor additional warrants to purchase shares of common stock. As of the filing date of this Quarterly Report on Form 10-Q, the Hershey Investor and the Company are still in negotiations to extend the Negotiation Period and no warrants have been issued. See Note 11, “2020 Capital Raise”. 17 Table of Contents For purposes of determining the debt discount, the underlying assumptions used in the binomial lattice model to determine the fair value of the 15 % Warrants were: ​ ​ ​ ​ ​ Current stock price ​ $ 0.45 - 0.67 Exercise price ​ ​ $ 0.45 Risk-free interest rate ​ ​ 0.68 - 1.62 % Expected dividend yield ​ ​ — Expected term (in years) ​ ​ 0.84 - 3.06 Expected volatility ​ ​ 112 - 119 % ​ ​ NOTE 9. WARRANT DERIVATIVE LIABILITY On May 31, 2019 we received gross proceeds of $ 3 million by issuing three million shares of our common stock and three million warrants (“2019 Warrants”) to purchase shares of our common stock (“2019 Units”) in a registered direct offering for $ 1.00 per 2019 Unit (collectively defined as the “2019 Capital Raise”). The 2019 Warrants, issued with the 2019 Capital Raise, are accounted for as a derivative liability. The 2019 Warrant agreements contain a cash settlement provision whereby the holders could settle the warrants for cash based on the Black-Scholes value, upon certain fundamental transactions, as defined in the 2019 Warrant agreement, that are considered outside of the control of management, such as a change of control. The original exercise price of the 2019 Warrants was $ 1.30 per share. The 2019 Warrants contain certain anti-dilution adjustment provisions with respect to subsequent issuances of securities by the Company at a price below the exercise price of such warrants. As a result of such subsequent issuances of securities by the Company during the fourth quarter 2019, the exercise price of the 2019 Warrants decreased to $ 0.45 per share and the number of shares subject to the 2019 Warrants increased to 8,666,666 shares of common stock as of December 31, 2019. In May 2020, we issued securities at a price lower than the $ 0.45 per share above. As a result, the exercise price of the 2019 Warrants decreased to $ 0.40 per share and the number of shares subject to the 2019 Warrants increased to 9,591,614 shares of common stock. In February 2020, one of the warrant holders exercised 200,000 warrants. We received $ 90,000 in cash for the exercise and booked an adjustment to the derivative liability of $ 82,241 as a result of the transaction. During the second quarter of 2020, one of the warrants holders exercised 2,137,726 warrants into 373,340 shares of our common stock through cashless exercises. We booked an adjustment to the derivative liability of $ 821,538 as a result. During the three and nine months ended September 30, 2020, we recognized a $ 1,076,264 gain and a $ 2,447,343 gain, respectively, in the consolidated statements of operations. During the three and nine months ended September 30, 2019, we recognized a $ 420,840 gain and an $ 822,702 gain, respectively, in the consolidated statements of operations. As of September 30, 2020, there were 7,453,888 of the 2019 Warrants outstanding. 18 Table of Contents The following are the key assumptions that were used to determine the fair value of the 2019 Warrants: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ May 31, 2019 September 30, 2020 ​ Number of shares underlying the warrants ​ 3,000,000 ​ 7,453,888 ​ ​ Fair market value of stock ​ $ 0.95 ​ $ 0.27 ​ ​ Exercise price ​ $ 1.30 ​ $ 0.40 ​ ​ Volatility ​ 133 % 108 % ​ Risk-free interest rate ​ 1.93 % 0.28 % ​ Warrant life (years) ​ 5.00 ​ 3.66 ​ ​ ​ The following table sets forth a summary of the changes in the fair value of the warrant derivative liability, our Level 3 financial liabilities that are measured at fair value on a recurring basis: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three months ended September 30, ​ Nine months ended September 30, ​ ​ ​ 2020 2019 2020 2019 ​ Beginning balance ​ $ 2,345,736 ​ $ 2,014,560 ​ $ 4,620,593 ​ $ — ​ ​ Recognition of warrant derivative liability on May 31, 2019 ​ ​ — ​ ​ — ​ ​ — ​ ​ 2,416,422 ​ ​ Warrant exercise ​ ​ — ​ ​ — ​ ​ ( 903,779 ) ​ ​ — ​ ​ Change in fair value of warrants derivative liability ​ ​ ( 1,076,264 ) ​ ​ ( 420,840 ) ​ ​ ( 2,447,342 ) ​ ​ ( 822,702 ) ​ ​ Ending balance ​ $ 1,269,472 ​ $ 1,593,720 ​ $ 1,269,472 ​ $ 1,593,720 ​ ​ ​ ​ NOTE 10. COMMITMENTS AND CONTINGENCIES In June 2020, Michael Feinsod resigned as our Executive Chairman, claiming that his resignation was for "Good Reason" under the terms of his employment agreement. If it is ultimately determined that his resignation was, in fact, for "Good Reason", rather than a voluntary act absent "Good Reason", it could enable certain potential claims for benefits under his employment agreement, including potential claims for severance, for the vesting of his unvested options and/or for the extension of the term within which he can exercise his options in the future. Having reviewed the matter, however, we do not believe that Mr. Feinsod's resignation was for "Good Reason". Accordingly, we believe that Mr. Feinsod's resignation was voluntary, and that any such potential claims, if asserted, would be without foundation. Although the outcome of legal proceedings is subject to uncertainty, the Company will vigorously defend any future claims made by Mr. Feinsod alleging a "Good Reason" resignation. During the nine months ended September 30, 2020, two investors who participated in the private placement of certain Company notes and warrants asked for the return of their outstanding investments of $ 145,000 , citing certain alleged breaches of the non-payment related terms of the investment documents. On October 14, 2020, the Company resolved this with the investors and continues to service the remaining balance on the notes in a timely manner. ​ NOTE 11. STOCKHOLDERS’ EQUITY 2020 Capital Raise On May 29, 2020, we entered into a subscription agreement, as amended with Hershey Strategic Capital, LP and Shore Ventures III, LP with respect to the sale of shares of common stock and warrants to purchase common stock (collectively, the “securities”). The sales of the securities to the Hershey Investor consists of a minimum of $ 2,185,000 of securities and a maximum of $ 3,000,000 of securities, as described further below. The purchase price of the securities at each closing is as follows: (i) the purchase price of each share of common stock is $ 0.3983 per share, and (ii) for each one dollar invested by the Hershey Investor, the Hershey Investor receives a warrant to purchase a number of shares of common stock equal to 75 % of the number of shares of common stock purchased by the Hershey Investor at an exercise price per share equal to $ 0.5565 . The warrants have a term of five years . During the three months ended September 30, 2020, we sold $ 815,000 of the securities to the Hershey Investor, representing 2,046,196 shares of common stock and 19 Table of Contents warrants to purchase 1,534,647 shares of common stock for a purchase price of $ 0.56 per share. During the nine months ended September 30, 2020, we sold $ 3,000,000 of securities to the Hershey Investor, representing 7,532,010 shares of common stock and warrants to purchase 5,649,007 shares of common stock at a purchase price of $ 0.56 per share. The warrants were recorded as equity and equity issuance costs in the amount of $ 2,173,074 . Notwithstanding the foregoing, the Hershey Subscription Agreement provides that the Hershey Investor’s investment shall not exceed 20 % or more of the common stock (or securities convertible into or exercisable for common stock) or the voting power of the Company on a post-transaction basis. The Hershey Subscription Agreement also provides the Hershey Investor with certain participation rights in future financings of the Company until the one-year anniversary of the second closing. The Hershey Subscription Agreement further provides that the Company shall, during a negotiation period ending October 4, 2020, endeavor to cause the existing holders of the promissory notes of the Company having an outstanding balance in the amount of approximately $ 2,331,000 as of June 1, 2020 that are due on or about January 31, 2021, to extend the maturity date of such notes to a date that is not earlier than January 31, 2022. As of September 30, 2020, $ 600,000 of the $ 2,331,000 outstanding notes have extended the maturity date. If, at the end of the Negotiation Period, all of the existing notes have not been amended to extend the maturity dates thereof, then the Company shall issue to the Hershey Investor additional warrants to purchase shares of common stock. Any such additional warrants will be for a number of shares of common stock based on the dollar amount of the outstanding balance of the existing notes that were not extended, with each one dollar of existing notes that were not extended representing one share subject to such additional warrant. The exercise price of any such additional warrants will be equal to 100 % of the 30-day volume weighted average price of the Company’s common stock on the last day of the Negotiation Period, provided that such exercise price shall not be lower than $ 0.45 per share nor higher than $ 0.56 per share. As of September 30, 2020, the Company has not issued warrants under the Hershey Subscription Agreement. As of the filing date of this Quarterly Report on Form 10-Q, Adam Hershey, a director of the Company and the principal of the Hershey Investor, and the Company are still in negotiations to extend the Negotiation Period and no warrants have been issued. 2019 Capital Raise On May 31, 2019 we received gross proceeds of $ 3 million by issuing three million shares of our common stock and three million warrants to purchase shares of our common stock in a registered direct offering for $ 1.00 per 2019 Unit. The 2019 Warrants had an exercise price of $ 1.30 per share at issuance and are exercisable for five years from the date of issuance. The number of shares issuable pursuant to the warrants granted under the 2019 Warrants, as well as the exercise price of those warrants, is subject to adjustment as a result of certain future equity issuances of securities by the Company at a price below the then-effective exercise price of the 2019 Warrants. As a result of such subsequent issuances of securities by the Company during the fourth quarter of 2019, the exercise price of the 2019 Warrants had decreased to $ 0.45 per share and the number of shares subject to the 2019 Warrants had increased to 8,666,666 shares of common stock as of December 31, 2019. In May 2020, we issued securities at a price lower than the $ 0.45 per share above. As a result, the exercise price of the 2019 Warrants decreased to $ 0.40 per share and the number of shares subject to the 2019 Warrants increased to 9,591,614 shares of common stock. This down round adjustment is recorded through the mark to market adjustment made as of September 30, 2020 and is recorded as a gain/loss on warrant derivative liability on the condensed consolidated statement of operations. As of September 30, 2020, there were 7,453,888 of these warrants outstanding. We received cash of $ 2,604,355 , which is net of $ 395,645 of issuance costs. Of the gross proceeds, we recorded $ 2,416,422 as a warrant derivative liability, as discussed in Note 9. Stock-based compensation We use the fair value method to account for stock-based compensation. We recorded $ 420,990 and $ 768,079 in compensation expense for the three months ended September 30, 2020 and 2019, respectively, and $ 1,427,931 and $ 3,013,042 , for the nine months ended September 30, 2020 and 2019, respectively. This includes expense related to options issued in prior years for which the requisite service period for those options includes the current period as well as options issued in the current period. The fair value of these instruments was calculated using the Black-Scholes option pricing method. 20 Table of Contents The following summarizes Employee Awards activity: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Weighted- ​ ​ ​ ​ ​ ​ ​ Weighted- ​ Average ​ ​ ​ ​ ​ ​ ​ Average ​ Remaining ​ ​ ​ ​ ​ Number of ​ Exercise Price ​ Contractual ​ Aggregate ​ Shares per Share Term (in years) Intrinsic Value Outstanding at December 31, 2019 ​ 10,883,780 ​ ​ 1.28 ​ 5.4 ​ $ 61,000 Granted ​ 1,902,020 ​ ​ 0.47 ​ ​ ​ Forfeited or expired ( 3,189,161 ) ​ 1.47 ​ Outstanding at September 30, 2020 9,596,639 ​ 1.06 5.5 ​ $ — ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Exercisable at September 30, 2020 7,427,999 ​ $ 1.25 5.8 ​ $ — ​ As of September 30, 2020, there was approximately $ 115,866 of total unrecognized compensation expense related to unvested employee awards, which is expected to be recognized over a weighted-average period of fifteen months . ​ NOTE 12. RELATED PARTY TRANSACTIONS On June 3, 2020, the Company entered into a consulting agreement with Adam Hershey, a board member and investor, pursuant to which he would act as a strategic consultant for the Company, including providing assistance with the sourcing and evaluation of merger and acquisition deals, strategic capital and strategic partnerships or joint ventures. Mr. Hershey is paid an initial monthly rate of $ 8,333 for the services, subject to certain adjustments. We paid $ 24,999 and $ 33,332 for the three and nine months ended September 30, 2020, respectively. In addition, the Hershey Subscription Agreement between the Company and Hershey Strategic Capital, LP and Shore Ventures III, LP provides that the Company will during a Negotiation Period endeavor to cause the existing holders of the promissory notes of the Company having an outstanding balance in the amount of approximately $ 2,331,000 as of June 1, 2020 that are due on or about January 31, 2021, to extend the maturity date of such notes to a date that is not earlier than January 31, 2022. If, at the end of such Negotiation Period, all of the existing notes have not been amended to extend the maturity dates thereof, then, in the absence of a waiver from the Hershey Investor to the contrary, the Company will issue to the Hershey Investor additional warrants to purchase shares of common stock. See Note 11, “2020 Capital Raise”. We currently have a lease agreement with Dalton Adventures, LLC in which we rent 17,000 square foot of greenhouse space in Boulder, Colorado for $ 33,680 a month, of which $ 30,000 is base rent and $ 3,680 is property taxes. The owner of Dalton Adventures, LLC is a principal shareholder and board member of the Company. We incurred approximately $ 101,000 and $ 182,000 for the three and nine months ended September 30, 2020, respectively. We currently have a note payable to a former board member who resigned in September 2020 in the amount of $ 100,000 . This note is included in the 15 % Notes discussed in Note 8. We have paid approximately $ 4,000 and $ 8,000 in interest for the three and nine months ended September 30, 2020, respectively. ​ NOTE 13. SEGMENT INFORMATION Our operations are organized into three segments: Operations Consulting and Products; Cultivation; and Capital Investments. All revenue originates, and all assets are located in the United States. Segment information is presented in accordance with ASC 280, "Segments Reporting." This standard is based on a management approach that requires segmentation based upon the Company’s internal organization and disclosure of revenue and certain expenses based upon internal accounting methods. The Company’s financial reporting systems present various data for management to run the business, including internal profit and loss statements prepared on a basis not consistent with GAAP. The following information is presented net of discontinued operations. For more information regarding discontinued operations see Note 3. 21 Table of Contents Three months ended September 30 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 2020 Operations Cultivation ​ Investments Total Total revenues ​ $ 765,496 ​ $ 798,352 ​ $ 21,716 ​ $ 1,585,564 Costs and expenses ​ ​ ( 905,469 ) ​ ​ ( 609,381 ) ​ ​ — ​ ​ ( 1,514,850 ) Operating (loss) income ​ $ ( 139,973 ) ​ $ 188,971 ​ $ 21,716 ​ ​ 70,714 Corporate expenses ​ ​ ​ ​ ​ ​ ​ ​ ​ ( 645,983 ) Net loss from continuing operations ​ ​ ​ ​ ​ ​ ​ ​ ​ $ ( 575,269 ) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 2019 Operations Cultivation Investments Total Total revenues ​ $ 834,334 ​ $ — ​ $ 28,597 ​ $ 862,931 Costs and expenses ​ ​ ( 784,844 ) ​ ​ — ​ ​ — ​ ​ ( 784,844 ) Operating income ​ $ 49,490 ​ $ — ​ $ 28,597 ​ ​ 78,087 Corporate expenses ​ ​ ​ ​ ​ ​ ​ ( 1,968,000 ) Net loss from continuing operations ​ ​ ​ ​ ​ ​ ​ ​ ​ $ ( 1,889,913 ) ​ Nine months ended September 30 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 2020 Operations Cultivation Investments Total Total revenues ​ $ 3,594,736 ​ $ 1,307,527 ​ $ 83,814 ​ $ 4,986,077 Costs and expenses ​ ( 3,826,606 ) ​ ( 1,025,507 ) ​ ( 125,000 ) ​ ( 4,977,113 ) Operating (loss) income ​ $ ( 231,870 ) ​ $ 282,020 ​ $ ( 41,186 ) ​ ​ 8,964 Corporate expenses ​ ​ ​ ​ ​ ( 4,351,159 ) Net loss from continuing operations ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ $ ( 4,342,195 ) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 2019 Operations Cultivation Investments Total Total revenues ​ 2,407,077 ​ — ​ 71,193 ​ 2,478,270 Costs and expenses ​ ( 2,321,461 ) ​ — ​ ( 41,723 ) ​ ( 2,363,184 ) Operating income ​ $ 85,616 ​ $ — ​ $ 29,470 ​ ​ 115,086 Corporate expenses ​ ​ ​ ​ ​ ​ ​ ( 8,621,227 ) Net loss from continuing operations ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ $ ( 8,506,141 ) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ September 30, ​ December 31, Total assets 2020 2019 Operations ​ $ 372,123 ​ $ 441,841 Cultivation ​ ​ 3,843,614 ​ ​ — Investments ​ 451,712 ​ 402,988 Corporate ​ 3,475,927 ​ 2,135,395 ​ ​ $ 8,143,376 ​ $ 2,980,224 ​ ​ NOTE 14. SUBSEQUENT EVENTS The Company has not issued warrants to Hershey Strategic Capital, LP and Shore Ventures III, LP under the Hershey Subscription Agreement entered into by the Company and the Hershey Investor on May 29, 2020. As of the filing date of this Quarterly Report on Form 10-Q, Adam Hershey, a director of the Company and the principal of the Hershey Investor, is still in negotiations with the Company to extend the Negotiation Period. Subsequent to September 30, 2020, two of the warrant holders in the 2019 Capital Raise (See Note 9) exercised 3,500,000 warrants into 1,118,355 shares of our common stock through cashless exercises. As of the filing date of this Quarterly Report on Form 10-Q, there are 3,953,888 warrants related to the 2019 Capital Raise outstanding. 22 Table of Contents