What changed in this filing

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Item 7. Management’s Discussion and Analysis

2022-03-25 compared with 2021-04-01 · 62 added, 56 removed, 144 unchanged (45% of the section changed)

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GAAP) requires us to make estimates and assumptions that affect the reported amounts in our consolidated financial statements and the accompanying notes, including various claims and contingencies related to lawsuits, taxes, environmental and other matters arising during the normal course of business.

We apply our best judgment, our knowledge of existing facts and circumstances and actions that we may undertake in the future in determining the estimates that affect our consolidated financial statements.

We apply our best judgment, our knowledge of existing facts, circumstances, and actions that we may undertake in the future in determining the estimates that affect our consolidated financial statements.

We evaluate our estimates on an ongoing basis using our historical experience, as well as other factors we believe appropriate under the circumstances, such as current economic conditions, and adjust or revise our estimates as circumstances change.

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Our MD&A contains forward-looking statements that discuss, among other things, future expectations and projections regarding future developments, operations, and financial condition.

All forward-looking statements are based on management’s existing beliefs about present and future events outside of management’s control and on assumptions that may prove to be

All forward-looking statements are based on management’s existing beliefs about present and future events outside of management’s control and on assumptions that may prove to be incorrect.

If any underlying assumptions prove incorrect, our actual results may vary materially from those anticipated, estimated, projected, or intended.

We undertake no obligation to publicly update or revise any forward-looking statements to reflect actual results, changes in expectations or events or circumstances after the date of this Report is filed.

We undertake no obligation to publicly update or revise any forward-looking statements to reflect actual results, changes in expectations, events or circumstances after the date of this Report is filed.

General Cannabis Corp and its subsidiaries are referred to collectively as “GCC” “the Company,” “we, “us” or “our” in the following discussion and analysis.

Going Concern

The consolidated financial statements included elsewhere in this Form 10-K, 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 the foreseeable future.

Our cash of $2,054,050 as of December 31, 2021 is not sufficient to absorb our operating losses and retire our debt of $8,913,644 and other obligations as they come due.

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 to that effect.

Accordingly, there is substantial doubt about our ability to continue as a going concern.

The accompanying consolidated financial statements do not include any adjustments that might be necessary if we are unable to continue as a going concern.

Results of Operations

The following tables set forth, for the periods indicated, statements of operations data.

The following tables set forth, for the periods indicated, are statements of operations data.

The tables and the discussion below should be read in conjunction with the accompanying consolidated financial statements and the notes thereto appearing in Item 8 in this Report.

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Other expense

Net loss from continuing operations

Net loss from continuing operations before income taxes

Loss from discontinued operations

Loss from operations before income taxes

The following discussion of our results of operations relates to our continuing operations.

See Note 3 to the consolidated financial statements for information concerning discontinued operations.

Our acquisition of SevenFive Farm in May 2020 added approximately $2.3 million in revenues for the year ended December 31, 2020.

Our Operations Segment increased revenues by $1.6 million to $5.2 million for the year ended December 31, 2020, from $3.6 million for the year ended December 31, 2019, primarily driven by an increase in product sales.

The addition of our Retail segment and a full year of our Cultivation segment contributed to the significant increase in revenues for the year ended December 31, 2021.

See Segment discussions below for further details.

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Year ended December 31,

Cost of revenues

Cost of sales

Selling, general and administrative

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Depreciation and amortization

The increase in cost of revenues is primarily driven by our acquisition of SevenFive Farm in May 2020 and an increase of cost of sales in our Operations Segment directly correlated to the increase in product sales in the year ended December 31, 2020.

Cost of sales increased year over year due to the addition of our Retail Segment and a full year of expenses in relation to our Cultivation Segment.

See Segment discussions below for further details.

Selling, general and administrative expense decreased by $0.1 million to $2.8 million for the year ended December 31, 2021 from $2.9 million for the year ended December 31, 2020, primarily due to management’s emphasis on cost controls and decreases in salary expense due to the discontinuation of certain business operations.

decreased marketing costs;

and decreased travel expenses due to COVID-19 pandemic.

Stock-based compensation included the following:

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Consulting awards

Employee awards are issued under our 2014 Equity Incentive Plan, which was approved by shareholders on June 26, 2015, and expense varies primarily due to the number of stock options granted and the share price on the date of grant.

The decrease in expense for the year ended December 31, 2020 is due to the restructuring of the Company in the first quarter of 2020 and the reduction in workforce.

We decreased our employee count by over 50% resulting in a sharp decrease in employee award expense.

Employee awards are issued under our 2020 Omnibus Incentive Plan, which was approved by shareholders on November 23, 2020 and our 2014 Equity Incentive Plan, which was approved by shareholders on June 26, 2015.

Expense varies primarily due to the number of stock options granted and the share price on the date of grant.

The decrease in expense for the year ended December 31, 2021 as compared to December 31, 2020 is due to the decrease in the number of options we grant on a quarterly basis and an increase in forfeitures in 2021 due to the departure of our Chief Executive Officer in May 2021, the departure of our Chief Financial Officer in September 2021 and a reduction in workforce in 2020 and 2021.

Consulting awards are granted to third parties in lieu of cash for services provided.

Professional fees consist primarily of accounting and legal expenses and have increased from 2019 due to increased activity related to acquisitions and fund raising activities.

Depreciation and amortization expense increased in 2020 due to the acquisition of SevenFive Farm.

Professional fees consist primarily of accounting and legal expenses and have decreased from 2020 due to the addition of internal counsel.

Depreciation and amortization expense increased in 2021 due to the acquisition of TREES Englewood, TREES Portland and TREES Waterfront.

We also recognized a full year of depreciation and amortization expense in 2021, in relation to our acquisition of SevenFive Farm in May of 2020.

Other Expense

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Loss on extinguishment of debt

(Gain) loss on derivative liability

Gain on sale of building

Loss on impairment of assets

Loss (gain) on derivative liability

Other expense (income), net

Loss on investment

Amortization of debt discount was lower in 2020 compared to 2019, due to the April 2018 debt paid off in the second quarter of 2019.

This was offset slightly by new debt issued in the third and fourth quarters of 2019 and the first quarter of 2020.

Interest expense increased in 2020 due to the new debt entered in the third and fourth quarters of 2019 and the first quarter of 2020.

The increase in the loss on extinguishment of debt in 2020 is primarily due to the conversion and extension of the SBI debt, the exchange of the 12% Notes into the 15% Notes, and the extension of a portion of the 15% Notes.

The (gain)/loss on warrant derivative liability reflects the change in the fair value of the 2019 Warrants.

The gain on the sale of the building is from the sale of our building in March 2020.

Operations Consulting and Products

Year ended December 31,

Costs and expenses

Segment operating (loss) income

The increase in revenues primarily related to an increase in product sales throughout 2020 with COVID-related decreases in services and application fees completed in 2020.

The increase in expenses is directly related to the increase in product sales.

Amortization of debt discount increased during the year ended December 31, 2021 as compared to December 31, 2020 due to the senior convertible promissory notes with warrants (“10% Notes”) issued in December 2020, February 2021 and April 2021.

Interest expense increased during the year ended December 31, 2021 as compared to December 31, 2020 due to the addition of the 10% Notes with an interest rate of 10%.

The loss on warrant derivative liability reflects the change in the fair value of the 2019 Warrants.

The loss on extinguishment of debt for the year ended December 31, 2021 was due to the modification of warrants that occurred on the 15% Warrants during the third quarter.

The loss on extinguishment of debt during 2020 is due to the conversion and extension of the SBI debt, and the exchange of the 12% Notes into the 15% Notes that occurred during the first quarter of 2020.

See Note 13 of the accompanying audited consolidated financial statements for further information.

The loss on impairment of assets is due to a goodwill impairment and intangible impairment adjustment on our Cultivation Segment.

The other expense (income) in 2020 relates to the gain on the sale of the building we recognized as a result of the sale of our corporate office building in March 2020.

Year ended December 31,

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Segment operating income

This is a new segment in 2020, therefore all amounts are an increase from the prior year.

With the addition of the TREES Englewood dispensary on September 2, 2021 and the addition of TREES Portland and TREES Waterfront on December 30, 2021, we have established our retail footprint in the Colorado and Oregon markets and have become a vertically integrated company.

The Retail Segment will provide consistent positive cash flows which will significantly contribute to our working capital position.

Year ended December 31,

Costs and expenses

Segment operating (loss) income

The increase in revenue in 2020 is due to a note that went into default during the second quarter of 2020, triggering a higher interest rate in 2020.

All revenue is interest, and loan origination fees related to these new notes.

The increase in costs and expenses in 2020 is due to an allowance on our notes receivables due to the notes going into default.

In January 2021, we collected all the interest receivable on one of the notes in default.

This increase in revenues for the year ended December 31, 2021 as compared to December 31, 2020, is due to owning SevenFive Farm for a full year.

We also started selling premium cannabis blunts that command a higher price than the traditional wholesale cannabis.

The decrease in gross margin is due to lower yields caused by several environmental factors.

The additional increase in costs and expenses is due to a goodwill impairment and intangible impairment adjustment.

Non-GAAP Financial Measures

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We also believe that excluding the effects of these items provides a more comparable view of the underlying dynamics of our operations.

We believe such information provides additional meaningful methods of evaluating certain aspects of our operating performance from period to period on a basis that may not be otherwise apparent on a GAAP basis.

We believe such information provides additional meaningful methods of evaluating certain aspects of our operating performance from

period to period on a basis that may not be otherwise apparent on a GAAP basis.

This supplemental financial information should be considered in addition to, not in lieu of, our consolidated financial statements.

Year ended December 31,

Net loss attributable to common stockholders

Loss from operations before income taxes

Adjustment for loss from discontinued operations

Loss from continuing operations attributable to common stockholders

Net loss from continuing operations before income taxes

Deemed dividend

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Loss on extinguishment of debt

Loss on impairment of assets

Interest expense

Gain on sale of building

Gain on sale of assets

Loss on investment

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We anticipate our more significant uses of resources will include funding operations, developing infrastructure, and business acquisitions.

In December 2020, we received $1,940,000 in cash in a private placement with certain accredited investors pursuant to which we issued and sold 10% senior convertible promissory notes.

In July 2020, we received $815,000 in cash by issuing 2,046,196 shares of our common stock and 1,534,647 warrants to purchase common stock.

In May and June 2020, we received $2,185,000 in cash by issuing 5,485,814 shares of our common stock and 4,114,360 warrants to purchase common stock.

In May 2020, we received $1,421,934 from the sale of our corporate office building.

During January through March of 2020, we received $525,000 in cash in a private placement with certain accredited investors pursuant to the 15% Notes.

In September 2021, we received $1,180,000 in cash by issuing 1,180 shares of our preferred stock and 354,000 warrants to purchase common stock.

In February and April 2021, we received $3,960,000 in cash in a private placement with certain accredited investors pursuant to which we issued and sold 10% senior convertible promissory notes.

Sources and uses of cash

We had cash of approximately $750,218 and $122,390, respectively, at December 31, 2020 and 2019.

We had cash of approximately $2,054,050 and $750,218, respectively, on December 31, 2021 and 2020.

Our cash flows from operating, investing, and financing activities were as follows:

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Net cash used in operating activities

Net cash provided by (used in) investing activities

Net cash provided by (used in) financing activities

Net cash used in operating activities decreased slightly in 2020 due to an increase in revenue as well as the acquisition of SevenFive Farm which provides positive operating cash flows.

Net cash provided by investing activities for the year ended December 31, 2020 consisted of $1,421,934 from the sale of the office building in Denver, CO and purchase of equipment of $314,771.

Net cash provided by investing activities

Net cash provided by financing activities

Net cash used in operating activities decreased in 2021 due to an increase in revenue as well as the acquisition of three dispensaries which provides positive operating cash flows.

Net cash used by investing activities for the year ended December 31, 2021 consisted of $1,439,027 from the purchase of the three dispensaries and purchase of equipment of $331,834.

This is offset by the sale of our investment for $208,761, the sale of Next Big Crop in the amount of $150,000 and collection of notes receivables in the amount of $591,717.

Net cash provided by financing activities are primarily related to the sale of common stock and warrants and proceeds from notes payable.

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Identifiable intangible assets with finite lives are amortized over their useful lives.

Acquisition-related costs, including advisory, legal, accounting,

valuation and other costs, are expensed in the periods in which the costs are incurred.

Acquisition-related costs, including advisory, legal, accounting, valuation, and other costs, are expensed in the periods in which the costs are incurred.

The results of operations of acquired businesses are included in the consolidated financial statements from the acquisition date.

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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 annually in April, unless an event occurs that would cause the us to believe the value is impaired at an interim date.

We test goodwill annually in

December, unless an event occurs that would cause the us to believe the value is impaired at an interim date.

See Notes 1 and 9 to our consolidated financial statements for a description of our goodwill and intangible asset valuation and impairment policies and associated impacts for the reported periods.

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.

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The offset to the contra-liability is recorded as additional paid in capital in our consolidated balance sheets.

If the debt is retired early, the associated debt discount is then recognized

immediately as amortization of debt discount expense in the consolidated statement of operations.

If the debt is retired early, the associated debt discount is then recognized immediately as amortization of debt discount expense in the consolidated statement of operations.

The debt is treated as conventional debt.

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Modification of Debt - When we change the terms of existing notes payable, we evaluate the amendments under ASC 470-50, Debt Modification and Extinguishment to determine whether the change should be treated as a modification or as a debt extinguishment.

This evaluation includes analyzing whether there are significant and consequential changes to the economic substance of the note.

This evaluation includes analyzing whether there are significant and consequential changes to

the economic substance of the note.

If the change is deemed insignificant then the change is considered a debt modification, whereas if the change is substantial the change is reflected as a debt extinguishment.

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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 7. Management’s Discussion and Analysis