What changed in this filing

/stocks — the workspaceLOADING

Item 1. Business

2021-04-01 compared with 2020-05-14 · 86 added, 74 removed, 151 unchanged (51% of the section changed)

Recent Strategic Changes

Business Strategy

The cannabis industry is dynamic and becoming more mature.

As markets like Colorado mature, we believe that an opportunity exists for operationally excellent companies to build scale by acquiring and operating licensed cannabis facilities.

Accordingly, we are focused on delivering on the promise of cannabis, by:

(1) investing for long-term and sustainable value creation, (2) focused execution that allows us to continue to generate cash and meet our financial commitments, (3) using data and analysis to guide decisions, and (4) moving with an urgency that reflects our conviction and confidence in our ability to own the customers loyalty and advocacy.

To that end, during the year ended 2019, we announced the following significant actions in support of our continued growth:

On December 26, 2019, the 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.

As markets like Colorado mature, we believe that an opportunity exists for operationally excellent companies to build scale by acquiring and operating licensed cannabis businesses.

Accordingly, we are focused on:

(1) identifying licensed cannabis assets that we can acquire, (2) focusing on execution, which will allow us to continue to generate cash and meet our financial commitments and, (3) moving with an urgency that reflects our conviction and confidence in our ability to create the customers’ loyalty and advocacy.

To that end, during the years ended 2020 and 2019, we implemented the following significant actions in support of our continued growth:

● On May 4, 2020, we received a Suitability Approval from the Colorado Marijuana Enforcement Division (“MED”), becoming one of the first, and to date, one of the only public companies pre-approved to acquire licensed cannabis facilities.

● 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 (“the MED”).

On May 25, 2020, we finalized the acquisition, pursuant to which we acquired the assets of the Seller that constitute the business of SevenFive Farm, a cultivation facility located in Boulder, Colorado.

The purchase price paid by the Company to the Seller was 8,859,117 shares of common stock.

Barker Dalton, the sole member and owner of Dalton Adventures, LLC, joined our Board of Directors in September 2020.

● On May 29, 2020, we entered into a subscription agreement, as amended with Hershey Strategic Capital, LP and Shore Ventures III, LP (collectively the “Hershey Investor”) with respect to the sale of shares of common stock and warrants to purchase common stock.

During the year ended December 31, 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 with an exercise price of $0.5565 per share.

In accordance with the terms of the subscription agreement, we issued an additional 1,631,000 warrants in December 2020 to purchase common stock with an exercise price of $0.4917 to the Hershey Investor.

As part of these transactions, Adam Hershey joined our Board of Directors in July 2020.

● In September 2020, we added to the strength of our Board of Directors by adding Carl Williams as Chairman and Independent Director, Richard Travia as Independent Director and Barker Dalton as Director.

● On December 23, 2020 and February 8, 2021, the Company entered into a Securities Purchase Agreement with each of certain accredited investors, pursuant to which the Company issued and sold senior convertible promissory notes (the “Notes”) with an aggregate principal amount of $4,600,000 in exchange for payment to the Company by certain investors of an aggregate amount of $3,600,000 in cash, as well as cancellation of outstanding indebtedness in the aggregate amount of $1,000,000 represented by certain of the prior promissory notes issued by the Company in February 2020 to certain other Investors.

In connection with the issuance of the Notes, the holders received warrants to purchase shares of the Company’s common stock equal to 20% coverage of the aggregate principal amount at $0.56 per share.

The Notes bear interest at an annual rate of 10%.

Notes with an aggregate principal amount of $2,940,000 will mature on December 23, 2023 and Notes with an aggregate principal amount of $1,660,000 will mature on February 8, 2024.

The Investors have the option at any time to convert up to 50% of the outstanding unpaid principal and accrued interest of the Notes into the Company’s common stock at a variable price of 80% of the market price but no less than $0.65 per share and no more than $1.00 per share.

● On December 26, 2019, the Board of Directors and management made the strategic decision to investigate a possible buyer for our Security Segment and if no buyer could be found, cease operations of the Security

We transferred all our Colorado security contracts and employees to a company on January 16, 2020.

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.

On December 26, 2019, the board of directors and management made the strategic move to cease operations of Chiefton, our apparel line.

On December 26, 2019, the board of directors committed to a plan to cease operations of STOA Wellness, our retail store.

● On December 26, 2019, the Board of Directors and management made the strategic decision to cease operations of Chiefton, our apparel line.

● On December 26, 2019, the Board of Directors and management committed to a plan to cease operations of STOA Wellness, our retail CBD store.

We transferred all assets of STOA Wellness to an individual on January 10, 2020, in exchange for the release on the outstanding lease.

We determined that the sale and disposal of our security and consumer goods segments represented a strategic shift that will have a major effect on our results of operations and, as a result, we have presented the disposal as held for sale and discontinued operations in our financial statements.

We determined the sale and disposal of our security and consumer goods segments represented a strategic shift that had a significant effect on our results of operations and, as a result, we have presented the disposal as held for sale and discontinued operations in our financial statements.

Unless noted otherwise, discussion in this Annual Report on Form 10-K pertains to our continuing operations.

1 unchanged sentence

General Cannabis Corp, a Colorado corporation, was incorporated on June 3, 2013.

We operate through our ten wholly-owned subsidiaries:

We operate through our eight wholly-owned subsidiaries:

Evans Owner LLC, a Colorado limited liability company formed in 2014;

3 unchanged sentences

(e) Standard Cann, Inc., a Colorado corporation formed in 2019;

(f) Cannassuer, LLC, a Colorado limited liability company formed in 2019;

(g) Cannasseur Dispensary, LLC, a limited liability company formed in 2019;

(h) Cannasseur Cultivation, LLC, a limited liability company formed in 2019;

(i) Cannassuer Extraction, LLC, a limited liability company formed in 2019 (j) SevenFive Farms, LLC, a limited liability company formed in 2020, (k) SevenFive Farms Cultivation, LLC, a limited liability company formed in 2020 and (l) GC Corp., a Colorado corporation, originally formed in 2013 under the name ACS Corp.

(f) SevenFive Farm, LLC, a limited liability company formed in 2020, (g) SevenFive Farm Cultivation, LLC, a limited liability company formed in 2020 and (h) GC Corp., a Colorado corporation, originally formed in 2013 under the name ACS Corp.

In 2015, the name was changed to GC Corp.

Our Products, Services and Customers

Through our reporting segments (Security, Operations, Consumer Goods, and Investments), we provide products, services and capital to the regulated cannabis industry and non-cannabis customers, which include the following:

Through our reporting segments (Operations, Cultivation, and Investments), we provide products, services and capital to the regulated cannabis industry and non-cannabis customers, which include the following:

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 2019 and 2018, 59% and 60% of NBCs revenue was with three customers and one customer, respectively.

During 2020 and 2019, 62% and 59% of NBC’s revenue was from four customers and three 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.

3 unchanged sentences

NBC provides a competitive advantage as we plan to evaluate and operate licensed cultivation facilities.

Cultivation (“Cultivation Segment”)

Through our acquisition of SevenFive Farm ("SevenFive") in May 2020, we operate a licensed light deprivation greenhouse cultivation facility.

During 2020, 28% of SevenFive Farm’s revenue was from two customers.

Capital Investments and Real Estate (“Investments Segment”)

As a publicly traded company, 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 (a) loans or revolving lines of credit, (b) leasing real estate we own, or (c) investing in businesses using cash or shares of our common stock.

Recent Significant Transactions

On April 7, 2020, we entered into an Asset Purchase Agreement with The Organic Seed, LLC, doing business under the name Cannasseur (the Seller), pursuant to which we agreed to acquire the assets of the Seller which includes a recreational retail dispensary, a 12,000 square foot light deprivation greenhouse, and a manufacturing facility based in Pueblo West, Colorado.

The agreement provides the purchase price to acquire Cannasseur is $2,350,000 (the Purchase Price).

The purchase price will be paid by issuing to the Seller shares of our common stock equal to the purchase price divided by the volume weighted average per share price of our shares for 30 consecutive trading days ending on the second trading day prior to the closing (the VWAP);

provided that if the VWAP exceeds $0.55 per share, then the VWAP will equal $0.55 per share for purposes of the foregoing calculation;

and if the VWAP is less than $0.45 per share, then the VWAP will be adjusted to equal $0.45 for the purposes of the foregoing calculation.

The closing is subject to approval of the transaction by the Colorado Marijuana Enforcement Division, as well as other customary closing conditions.

On March 20, 2020 we sold our office building located in Denver, Colorado, to certain individuals for a sale price of $1,499,000 and net proceeds, after repaying the mortgage on the property, was approximately $600,000.

In February and March 2020, we issued and sold unsecured promissory notes (the Unsecured Notes) with an aggregate principal amount of $2,031,000 to certain investors in exchange for $525,000 of new funding and the cancellation of outstanding indebtedness of $1,506,000 represented by prior promissory notes issued by us in September 2019.

The Unsecured Notes have an annual interest rate of 15% and mature on January 31, 2021 and March 1, 2021.

Interest is due on a quarterly basis.

In connection with the issuance of the Unsecured notes, each holder of Unsecured 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.

On January 24, 2020, we entered into an asset purchase agreement with Dalton Adventures, LLC (the Seller), pursuant to which we agreed to acquire the assets of the Seller and which constitutes the business of SevenFive Farm, a cultivation facility in Boulder, Colorado.

The purchase price to be paid for the assets is equal to 1.4 times the Sellers gross revenue for the 12-month period prior to the closing;

provided that the purchase price will not be lower than $3,000,000.

provided that if the VWAP exceeds $0.85 per share, then the VWAP will equal $0.85 per share for purposes of the forgoing calculation.

The Seller may require us to repurchase in cash 25% of the shares issued to the Seller at the closing at a repurchase price equal to the same VWAP used to determine the number of shares issued to the Seller at closing.

The closing is subject to approval of the transaction by the Colorado Marijuana Enforcement Division, which was received on May 13, 2020, as well as other customary closing conditions.

In September 2019, we completed a $1,506,000 private placement with certain accredited investors pursuant to (a) a senior unsecured promissory note, bearing interest at 12% payable quarterly, with principal due October 31, 2020, with an option for us to extend the due date to October 31, 2021 (2019 12% Notes) and (b) warrants with an exercise price of $1.30 per share and a life of 1.1 years;

however, if we prepay at any time the life extends to October 31, 2022 (2019 12% Warrants) (combined the 2019 12% Agreements).

We may prepay the 2019 12% Notes at any time, but in any event must pay at least one year of interest.

As described above, the 2019% Notes were cancelled in connection with the issuance of the 2020 Notes.

In July 2019, we completed a $855,000 private placement pursuant to a promissory note (SBI Note) with a certain accredited investor, bearing interest at 10% with principal due on October 18, 2019.

On November 15, 2019, SBI agreed to an extension of debt to November 29, 2019 with an increase in principal amount of the note from $855,000 to $905,000.

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

On February 18, 2020, we entered into a promissory note exchange agreement (the Exchange Agreement) with the investor pursuant to which the SBI Note was exchanged for a new convertible promissory note (the SBI Convertible Note).

The SBI 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 SBI Convertible Note may be converted at the option of the investor into shares of our common stock at a conversion price equal to 80% of the Market Price (as defined in the SBI Convertible Note);

provided that the conversion price shall in no event be less than $0.45 per share (unless adjusted as provided in the SBI Convertible Note).

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 (together 2019 Units) in a registered direct offering for $1.00 per 2019 Unit (combined the 2019 Capital Raise).

The 2019 Warrants had an exercise price of $1.30 per share, which was subsequently adjusted down to $0.45 per share pursuant to the anti-dilution adjustment provision in the 2019 Warrants, and are exercisable for five years from the date of issuance.

The 2018 warrants expired on April 20, 2020.

We may provide debt or equity capital to cannabis businesses through investing in businesses using cash or shares of our common stock.

Competitive Strengths

1 unchanged sentence

Cultivation Expertise.

NBC has designed and operated over 100 cultivation facilities across the country.

NBC has designed and operated cultivation facilities across the country.

As we execute on our rollup strategy, this expertise enables us to evaluate, acquire and operate these facilities efficiently.

13 unchanged sentences

We work with partners who enhance the breadth of our industry knowledge.

Market Conditions

Our target markets are the locations in the U.S.

and its territories that have legalized cannabis:

District of Columbia

Massachusetts

New Hampshire

Pennsylvania**

West Virginia

Northern Mariana Islands

* When two dates are listed the first date refers to medical legalization.

** Indicates locations in which we provide or have provided services.

Our best opportunities are in locations with large populations or legal recreational cannabis use.

Continued development of the regulated cannabis industry depends on additional legalization, which is significantly influenced by state and local legislation.

Overall, we believe we have a competitive advantage by providing a range of goods and services to the cannabis industry.

1 unchanged sentence

There is no aspect of our business, however, that is protected by patents or copyrights.

As a result, our competitors could duplicate our business model with little effort.

Operations Consulting and Products.

4 unchanged sentences

As the cannabis industry grows, these competitors may develop further expertise and expand their focus on the cannabis industry.

The Colorado cultivation market is highly fragmented.

There are over one million cannabis plants cultivated for cannabis sales each year and a typical 15,000 to 20,000 square foot grow facility contains approximately 5,000 to 7,500 plants.

We believe that there is a significant opportunity to identify and acquire additional cultivation assets, which will ultimately supply our own proprietary brands and retail locations.

Capital Investments and Real Estate.

Many banks and traditional financial institutions refuse to provide financial services to cannabis-related business.

Because cannabis is still illegal at the federal level, many banks and traditional financial institutions refuse to provide financial services to cannabis-related business.

With the growth of the cannabis industry, however, there has been growth in alternative financing and banking resources.

5 unchanged sentences

Department of Justice (the “DOJ”) describes Schedule I controlled substances as “the most dangerous drugs of all the drug schedules with potentially severe psychological or physical dependence.” If the federal government decides to enforce the CSA in Colorado with respect to state-regulated cannabis activities in Colorado and other states, persons that are charged with distributing, possessing with intent to distribute or growing cannabis could be subject to fines and/or terms of imprisonment, the maximum being life imprisonment and a $50 million fine.

In light of the conflict between federal laws and state laws regarding cannabis, the previous administration under President Obama had effectively stated that it was not an efficient use of resources to direct federal law enforcement agencies to prosecute those lawfully abiding by state-designated laws allowing the use and distribution of medical cannabis.

In light of the conflict between federal laws and state laws regarding cannabis, the administration under President Obama had effectively stated that it was not an efficient use of resources to direct federal law enforcement agencies to prosecute those lawfully abiding by state-designated laws allowing the use and distribution of medical cannabis.

For example, the prior DOJ Deputy Attorney General of the Obama administration, James M.

1 unchanged sentence

In addition, the Financial Crimes Enforcement Network (“FinCEN”) provided guidelines (the “FinCEN Guidelines”) on February 14, 2014, regarding how financial institutions can provide services to cannabis-related businesses consistent with their Bank Secrecy Act (“BSA”) obligations (see “-- FinCEN”).

The policies of the Obama administration concerning federal law enforcement regarding cannabis, notwithstanding the rescission of the Cole Memo (see below), were continued during the Trump administration and we expect them to be continued during the Biden administration.

Congress previously enacted an omnibus spending bill that included a provision (the “Rohrabacher-Blumenauer Amendment”) prohibiting the DOJ from using funds to prevent states with medical cannabis laws from implementing such laws.

This provision, however, has only been extended through September 30, 2020, and must be renewed annually by Congress.

This provision is renewed annually by Congress and is current through September 30, 2021.

In August 2016, a Ninth Circuit federal appeals court ruled in United States v.

13 unchanged sentences

We will, consistent with the Attorney General’s latest guidance, continue to take this approach in all of our work with our law enforcement partners throughout Colorado.”

It is unclear at this time whether the Sessions Memo indicates that the Trump administration will strongly enforce the federal laws applicable to cannabis or what types of activities will be targeted for enforcement.

It is unclear at this time whether the Sessions Memo will be rescinded by the Biden administration;

nor is it clear whether the Biden administration will strongly enforce the federal laws applicable to cannabis or what types of activities will be targeted for enforcement.

However, a significant change in the federal government’s enforcement policy with respect to current federal laws applicable to cannabis could cause significant financial damage to us.

We do not currently cultivate, distribute or sell cannabis.

We currently cultivate, distribute and sell cannabis.

We may be irreparably harmed by a change in enforcement policies of the federal government depending on the nature of such change.

1 unchanged sentence

Accordingly, we could be subject to criminal prosecution, which could lead to imprisonment and/or the imposition of penalties, fines, or forfeiture.

Recent 2019 legislative proposals have been introduced:

● Sensible Enforcement of Cannabis Act .

This would protect cannabis businesses and consumers in states where cannabis has been legalized, while continuing the federal cannabis prohibition to remain in place in states where cannabis has not been legalized.

● Marijuana Revenue and Regulation Act .

This would create a nationwide regulatory structure for legalizing cannabis and removing it from the CSA.

● SAFE Banking Act.

This would protect financial institutions that offer services to state-legal cannabis-related businesses.

● Marijuana Opportunity, Reinvestment and Expungement Act (MORE Act) .

This would end the criminalization of cannabis at the federal level by removing it from the list of controlled substances in the CSA, as well as eliminating related criminal penalties.

None of the above proposals have been enacted;

and while the Biden administration appears to have a more friendly position toward legalization of cannabis generally than the Trump administration, it cannot presently be determined what position the current administration will take on either of these proposals.

The Cole Memo

47 unchanged sentences

Where applicable, we apply for state licenses or similar approvals that are necessary to conduct our business in compliance with local laws.

Our subsidiary, GC Corp., has been registered with Colorados Marijuana Enforcement Division (the MED) as an approved vendor since September 8, 2014.

Our subsidiary, GC Corp., has been registered with the MED as an approved vendor since September 8, 2014.

GCS, another subsidiary, has been registered as a MED approved vendor since March 11, 2015.

On May 1, 2020, the MED granted regulatory approval to the Company as a qualified and suitable buyer of licensed cannabis operations in the State.

This authorization, known as a Suitability Approval, establishes the Copany as one of the first public companies authorized to acquire licensed cultivation, manufacturing and retail operations throughout Colorado.

This authorization, known as a Suitability Approval, establishes the Company as one of the first public companies authorized to acquire licensed cultivation, manufacturing and retail operations throughout Colorado.

Local laws at the county and municipal level add an additional layer of complexity to legalized cannabis.

6 unchanged sentences

The zoning of our properties will have a direct impact on our business operations.

Human Capital

We are managed and operated by the Board of Directors and executive officers of General Cannabis Corp.

As of December 31, 2020, we had 43 full-time employees.

Executing our strategic vision requires that we attract and retain the best talent.

The Company must appropriately reward high-performers and offer competitive benefits.

The Company offers comprehensive benefits, including medical, dental and vision insurance for employees, their spouses or domestic partners, and their dependents.

We also provide retirement programs, life insurance, family assistance, short-term disability and paid vacation and sick time.

As a people-first company rooted in values, our purpose of cultivating an inclusive environment means hiring world-class individuals dedicated to fostering a culture that champions diversity, ensures equity, and celebrates inclusion.

We provide opportunities for our employees to drive our strategy by creating programs that raise awareness, allowing courageous conversations and a more inclusive culture.

Corporate Contact Information

9 unchanged sentences

Any materials we file with the SEC, including our annual reports, quarterly reports, current reports, proxy statements, information statements and other information, are also available at the SEC’s Internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC at http://www.sec.gov .

Information about our Executive Officers

Our executive officers, with their ages and the offices held as of March 31, 2021, are as follows:

Chief Executive Officer and Director

Chief Financial Officer

Steve Gutterman was appointed a director and as our Chief Executive Officer on December 13, 2019.

Gutterman is a member of the Corporate Governance and Nominating Committee.

Gutterman has more than two decades of experience leading high growth businesses in highly regulated industries.

Most recently, Mr.

Gutterman served as President of Harvest Health & Recreation, one of the largest cannabis multi-state operators in the US, where he led the company’s public offering and led its global operations.

Prior to that, he served as Chief Executive Officer of market research company Mobile Accord and before that as Executive Vice President and Chief Operating Officer of E*TRADE Bank, a $35 billion federally regulated thrift.

Gutterman holds a JD/MBA from Columbia University and BA Cum Laude in Political Science from Tufts University.

Diane Jones was appointed our Chief Financial Officer and Principal Financial Officer and Principal Accounting Officer on September 13, 2020.

Prior to her appointment, since 2015 Ms.

Jones owned her own consulting firm, where she provided accounting and finance consulting services to numerous public and private companies.

While consulting, Ms.

Jones was responsible for her clients’ accounting and valuation for business mergers, acquisitions and divestitures, Securities and Exchange Commission filings, technical accounting and process improvements.

Jones served as Senior Director of Shared Financial Services of Arrow Electronics, Inc.

from 2010 to 2013 and as Worldwide Controller of Arrow Electronics Computing Solutions, a division of Arrow Electronics, Inc., from 2008 to 2009, where she was responsible for back office accounting operations, acquisition integration, and oversight of accounting functions.

Prior to that, Ms.

Jones served as Assistant Corporate Controller of Ball Corporation, a public packaging company, where she was responsible for SEC filings, Sarbanes-Oxley compliance, management reporting and oversight of all accounting functions.

Jones also has eight years of experience as an auditor with big four audit firms as a senior manager, serving both public and private companies.

She is a licensed certified public accountant in the state of Colorado and holds a BBA degree in marketing from Texas A&M University and an MBA with an emphasis in accounting from the University of Houston.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 1. Business