What changed in this filing

/stocks — the workspaceLOADING

Item 8. Financial Statements and Supplementary Data

2022-03-25 compared with 2021-04-01 · 436 added, 347 removed, 781 unchanged (50% of the section changed)

4 unchanged sentences

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of General Cannabis Corp.

(the “Company”) as of December 31, 2020 and 2019, the related consolidated statements of operations, changes in stockholders’ equity and cash flows for each of the two years in the period ended December 31, 2020, and the related notes (collectively referred to as the “financial statements”).

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2020, in conformity with accounting principles generally accepted in the United States of America.

We have audited, before the effects of the adjustments to retrospectively apply the change in accounting described in Note 3 – Discontinued Operations, the accompanying consolidated balance sheet of General Cannabis Corp.

(the “Company”) as of December 31, 2020, the related consolidated statements of operations, changes in stockholders’ equity and cash flows for the year ended December 31, 2020, and the related notes (collectively referred to as the “financial statements”).

In our opinion, the 2020 financial statements, before the effects of the adjustments to retrospectively apply the change in accounting described in Note 3 – Discontinued Operations, present fairly, in all material respects, the financial position of the Company as of December 31, 2020, and the results of its operations and its cash flows for the year ended December 31, 2020, in conformity with accounting principles generally accepted in the United States of America.

We were not engaged to audit, review, or apply any procedures to the adjustments to retrospectively apply the change in accounting described in Note 3 – Discontinued Operations and accordingly, we do not express an opinion or any other form of assurance about whether such adjustments are appropriate and have been properly applied.

Those adjustments were audited by Haynie & Company.

The 2020 financial statements before the effects of the adjustments discussed in Note 3 are not presented herein.

Basis for Opinion

3 unchanged sentences

federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.

We conducted our audit in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.

The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.

As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting.

As part of our audit we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting.

Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.

Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that our audits provide a reasonable basis for our opinion.

Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that our audit provides a reasonable basis for our opinion.

Critical Audit Matters

6 unchanged sentences

Since the Company’s lease does not provide an implicit rate, management utilized a third-party valuation specialist to assist in estimating the incremental borrowing rates used in its present value calculation, which required subjectivity.

incremental borrowing rate is the rate of interest that a lessee would have to pay to borrow on a collateralized basis over a similar term an amount equal to the lease payments in a similar economic environment.

The incremental borrowing rate is the rate of interest that a lessee would have to pay to borrow on a collateralized basis over a similar term an amount equal to the lease payments in a similar economic environment.

The Company’s current operating lease had a lease commencement date in May 2020, and a lease modification in December 2020.

27 unchanged sentences

/s/ Marcum llp

We have served as the Company’s auditor since 2019.

We served as the Company’s auditor from 2019 to 2021.

April 1, 2021

(PCAOB ID 688 )

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of General Cannabis Corp.

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheet of General Cannabis Corp.

(the Company) as of December 31, 2021, and the related consolidated statements of operations, stockholders’ equity, and cash flows for year ended December 31, 2021, and the related notes (collectively referred to as the financial statements).

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2021, and the results of its operations and its cash flows for the period ended December 31, 2021, in conformity with accounting principles generally accepted in the United States of America.

As part of our audit of the financial statements for the ended December 31, 2021, we have also audited the retrospective adjustments to the financial statements of the Company for the presentation of discontinued operations as of December 31, 2020.

In our opinion, the retrospective adjustments have been fairly applied to present discontinued operations.

As described in Note 3, the sale of the Company’s Operations segment closed on August 2, 2021.

As a result, the business revenues and expenses were classified as discontinued operations and the related assets and liabilities were classified as available for sale in the financial statements as of December 31, 2020, which are shown comparatively.

Except for the effects of the retrospective presentation for discontinued operations, we were not engaged to audit, review, or apply any procedures to the financial position of the Company as of December 31, 2020, and the results of its operations and its cash flows for the year then ended, other than stated above and, accordingly, we do not express an opinion or any other form of assurance about whether such financial position have been fairly stated as of December 31, 2020.

Those balances were audited by Marcum LLP.

Substantial Doubt about the Company’s Ability to Continue as a Going Concern

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern.

As discussed in Note 1 to the financial statements, the Company has suffered recurring losses from operations and has negative working capital that raise substantial doubt about its ability to continue as a going concern.

Management's plans in regard to these matters are also described in Note 1.

The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Basis for Opinion

These financial statements are the responsibility of the Company’s management.

Our responsibility is to express an opinion on the Company’s financial statements based on our audits.

We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S.

federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.

The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.

As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting.

Accordingly, we express no such opinion.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.

Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that:

(1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Business Combination – Refer to Note 2 to the financial statements

As discussed in Note 2 to the financial statements, on September 2, 2021, the Company acquired TREES Englewood and on December 30, 2021, the Company acquired Trees Portland, LLC and Trees Waterfront, LLC in a business combination.

Management of the Company allocated the purchase price to cash, fixed assets, inventory, licenses, trade names, and goodwill.

The accounting for the purchase price allocation is complex due to the significant estimation uncertainty in determining the fair values of identified intangibles and the Company’s third-party valuation is yet to be completed.

We considered the purchase price allocation as a significant audit matter because of the significant estimates and assumptions made by management to estimate fair value of trade names and allocation to goodwill.

These estimates include impact of forecasted growth and the consideration of comparable transactions in their industry.

This required a high degree of auditor judgment and an increased extent of effort, including the need to involve the expertise of our in-house valuation professionals.

Addressing the matter involved obtaining the purchase agreements and interpreting the terms are in agreement with the estimate assumptions used by the Company.

We obtained the Company’s purchase price allocation and tested the inputs used in their calculation.

In evaluating the Company’s assumptions, we compared them to other similar transactions in their industry.

Finally, we used professionals inside our firm with specialized skills and knowledge to assess the Company’s methodology.

Goodwill — Refer to Note 9 to the consolidated financial statements

As discussed in Note 9 to the financial statements, the Company has recognized goodwill of $8,799,657 as of December 31, 2021, after recognizing impairment expense of $2,484,200 during the year then ended.

The Company evaluates its goodwill at least annually or more frequently when events or changes in circumstances indicate the carrying value may not be recoverable.

The Company performed a goodwill analysis by calculating the fair value by operating segment, using primarily an income approach, and comparing it to the carrying amount of its goodwill.

The income approach employed a discounted cash flow using a forecast developed by management.

This valuation method requires management to make significant estimates and assumptions related to projected cash flows.

We identified goodwill as a critical audit matter because of the significant estimates and assumptions made by management to estimate fair value, including the impact of forecasted growth, and the difference between the fair values and the carrying values as of December 31, 2021.

This required a high degree of auditor judgment and an increased extent of effort, including the need to involve our fair value specialist, when performing audit procedures to evaluate the reasonableness of management’s estimates and assumptions related to certain assumptions within the projected cash flows.

Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the financial statements.

These procedures included, among others, gaining an understanding of management's process for developing the fair value estimate.

We also evaluated the expertise, qualifications, and independence of management’s specialist engaged to complete the evaluation.

We used professionals inside our firm with specialized skills and knowledge to assess the Company’s methodology and assumptions used such as discount rate used.

In evaluating the Company’s assumptions, we compared them to historical results.

/s/ Haynie & Company

We have served as the Company’s auditor since 2021.

Salt Lake City, Utah

March 25, 2022

(PCAOB ID 457 )

GENERAL CANNABIS CORP

2 unchanged sentences

Cash and cash equivalents

Accounts receivable, net of allowance of $ 27,000 and $ 111,000 as of December 31, 2020 and 2019, respectively

Current portion of notes receivable, net of allowance of $ 125,000 and $ 0 as of December 31, 2020 and 2019, respectively

Accounts receivable, net of allowance of $ 61,000 and $ 9,000 , respectively

Current portion of notes receivable, net of allowance of $ 43,108 and $ 125,000 , respectively

Inventories, net

Prepaid expenses and other current assets

Assets of discontinued operations

Assets of discontinued operations - current portion

Total current assets

Note receivable, net

Right-of-use operating lease asset

7 unchanged sentences

Interest payable

Customer deposits

Operating lease liability, current

Accrued stock payable

Current portion of notes payable (net of discount)

Related party note payable (net of discount)

Warrant derivative liability

Notes payable - current

Liabilities of discontinued operations

1 unchanged sentence

Operating lease liability, non-current

Long-term notes payable

Notes payable - long term (net of discount)

Related party long-term notes payable (net of discount)

1 unchanged sentence

Commitments and contingencies (Note 9)

Stockholders’ equity (deficit)

Stockholders’ equity

Preferred stock, no par value;

5,000,000 shares authorized;

no shares issued and outstanding as of December 31, 2020 and 2019

1,180 and nil issued and outstanding , respectively

Common stock, $ 0.001 par value;

200,000,000 and 100,000,000 shares authorized;

60,813,673 shares and 39,497,480 shares issued and outstanding on December 31, 2020 and 2019, respectively

200,000,000 shares authorized;

89,551,993 shares and 60,813,673 shares issued and outstanding , respectively

Additional paid-in capital

2 unchanged sentences

( 74,951,436 )

Total stockholders’ equity (deficit)

( 5,764,212 )

Total liabilities & stockholders’ equity (deficit)

Total stockholders’ equity

Total liabilities and stockholders’ equity

The accompanying notes are an integral part of these consolidated financial statements.

1 unchanged sentence

CONSOLIDATED STATEMENTS OF OPERATIONS

Year ended December 31,

Cultivation sales

Product sales

Total revenue

2 unchanged sentences

Selling, general and administrative

Stock-based compensation expense

Stock-based compensation

Professional fees

8 unchanged sentences

Loss on extinguishment of debt

Loss on impairment of assets

(Gain) loss on derivative liability

Other income, net

Total other expenses, net

Other expense (income), net

Total other expenses (income), net

Net loss from continuing operations before income taxes

1 unchanged sentence

( 7,427,685 )

Loss from discontinued operations

( 1,675,539 )

Loss from operations before income taxes

Provision for income taxes

Loss from continuing operations

( 8,427,151 )

( 7,427,685 )

Provision for income taxes

Loss from discontinued operations, net of tax

( 8,869,379 )

1 unchanged sentence

Deemed dividend

( 2,341,000 )

Net loss attributable to common stockholders

36 unchanged sentences

Purchase of property and equipment

Lending on notes receivable

Lending on note receivable

Proceeds on notes receivable

Acquisition of TREES Englewood, net of cash acquired

( 1,122,015 )

Acquisition of TREES Portland, net of cash acquired

Acquisition of TREES Waterfront, net of cash acquired

Net proceeds from sale of Next Big Crop

Proceeds from sale of building

Net cash provided by (used in) investing activities

Proceeds from sale of investment

Net cash (used in) provided by investing activities

Cash flows from financing activities

Proceeds from sale of common stock and warrants

Proceeds from the sale of common stock and warrants - accrued stock payable

Proceeds from the exercise of warrants

Proceeds from exercise of stock options

Proceeds from preferred stock offering

Proceeds from notes payable

1 unchanged sentence

( 2,106,000 )

( 5,898,000 )

Net cash provided by (used in) financing activities

( 1,649,875 )

Net increase (decrease) in cash and cash equivalents

( 7,732,175 )

Net cash provided by financing activities

Net increase in cash and cash equivalents

Cash and cash equivalents, beginning of period

3 unchanged sentences

Non-cash investing & financing activities

Deemed dividend from warrant repricing

Operating lease right-of-use asset/Operating lease liability

12 % Warrants recorded as a debt discount and loss on extinguishment of debt

SBI Warrants recorded as a debt discount and loss on extinguishment of debt

10 % Warrants recorded as a debt discount and additional paid-in capital

15 % Warrants recorded as a loss on extinguishment of debt and additional paid-in capital

Beneficial conversion feature

Cashless warrant and option exercises

Issuance of common stock to a consultant

Deemed dividend from warrant repricing

15 % Warrants recorded as a debt discount and additional paid-in capital

15 % Warrants recorded as a loss on extinguishment of debt and additional paid-in capital

10 % Warrants recorded as a loss on extinguishment of debt and additional paid-in capital

Modification of warrants associated with debt

Debt converted to equity

Beneficial conversion feature

Cashless warrant and option exercises

Issuance of common stock to an employee

4 unchanged sentences

FOR THE YEARS ENDED DECEMBER 31, 2021 AND 2020

Preferred Stock

January 1, 2020

( 67,271,744 )

Sale of common stock, net of issuance costs

Warrants issued with the 12 % Notes

Warrants issued with the 15 % Notes

Warrants issued with the SBI Note

Common stock issued for property and equipment

Common stock issued upon exercise of stock options

Stock options granted to employees and consultants

( 5,764,212 )

( 15,483,797 )

December 31, 2019

( 67,271,744 )

( 5,764,212 )

Sale of common stock, net of issuance costs

13 unchanged sentences

( 74,951,436 )

Common stock issued to consultants

Common stock issued upon exercise of stock options

Common stock issued for acquisition of TREES Englewood

Common stock issued for acquisition of TREES Portland

Warrants issued with 10 % Notes

Beneficial conversion feature

Cashless exercise of warrants

Stock-based compensation

Preferred shares issued

Warrants issued with preferred stock

Modification of Warrants

Modification of Options

( 8,869,379 )

December 31, 2021

( 83,820,815 )

The accompanying notes are an integral part of these consolidated financial statements.

4 unchanged sentences

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.

As of December 31, 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 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.

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.

We currently trade on the OTCQB® Market under the trading symbol CANN.

As of December 31, 2021, our operations are segregated into the following segments:

Retail (“Retail Segment”)

Through our acquisition of TREES Englewood in September 2021 and our acquisition of TREES Portland and TREES Waterfront in December 2021, we operate a retail dispensary store in Englewood, Colorado and two retail stores in Portland, Oregon.

Cultivation (“Cultivation Segment”)

Through our acquisition of SevenFive Farm LLC ("SevenFive Farm") in May 2020, we operate a licensed 17,000 square foot 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 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.

Through our acquisition of SevenFive Farm in May 2020, we operate a licensed 17,000 square foot light deprivation greenhouse cultivation facility.

During 2021 and 2020, 31 % and 28 %, respectively, of SevenFive Farm’s revenue was from two customers.

Discontinued Operations - Operations Consulting and Products (“Operations Segment”)

Through Next Big Crop (“NBC”), we delivered comprehensive consulting services to the cannabis industry that included obtaining licenses, compliance, cultivation, retail operations, logistical support, facility design and construction, and expansion of existing operations.

NBC oversaw our wholesale equipment and supply business, operating under the name “GC Supply,” which provided turnkey sourcing and stocking services to cultivation, retail, and infused products manufacturing facilities.

Our products included building materials, equipment, consumables, and compliance packaging.

NBC also provided operational support for our internal cultivation.

On July 16, 2021, we entered into an Asset Purchase Agreement with an individual to sell substantially all the assets of NBC for a total of $ 150,000 and 10 % of profits generated by the buyer in the states of Michigan, Mississippi, and Massachusetts for a period of twelve months from the closing.

On August 2, 2021, the sale of NBC was completed.

Basis of Presentation

The accompanying consolidated financial statements include the results of GCC and its eight wholly-owned subsidiary companies:

The accompanying consolidated financial statements include the results of GCC and its nine wholly-owned subsidiary companies:

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

1 unchanged sentence

(d) GC-NY Health, LLC, a New York limited liability company formed in 2019;

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

(f) SevenFive Farm LLC, a Colorado limited liability company formed in 2020;

(g) SevenFive Farm Cultivation LLC, a Colorado limited liability company formed in 2020;

(h) GC Corp., a Colorado corporation, originally formed in 2013 under the name ACS Corp.

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

(e) SevenFive Farm LLC, a Colorado limited liability company formed in 2020;

(f) SevenFive Farm Cultivation LLC, a Colorado limited liability company formed in 2020;

(g) Trees Colorado LLC, a Colorado limited liability company formed in 2021;

(h) Trees Oregon LLC, a Colorado limited liability company formed in 2021;

(i) GC Corp., a Colorado corporation, originally formed in 2013 under the name ACS Corp.

In 2015, the name was changed to GC Corp.

1 unchanged sentence

The preparation of our consolidated financial statements requires us 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.

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

Furthermore, when testing assets for impairment in future periods, if management uses different assumptions or if different conditions occur, impairment charges may result.

Going Concern

The 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 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.

The Company incurred net losses of $ 8.9 million and $ 7.7 million in the years ended December 31, 2021 and 2020, respectively, and had an accumulated deficit of $ 83.8 million as of December 31, 2021.

3 unchanged sentences

The Company expects its operating losses and negative operating cash flows to continue into the foreseeable future as it continues to execute its acquisition and growth strategy.

The Company believes that its cash, cash equivalents, and short-term and long-term investments as of December 31, 2020 will be sufficient to fund its operating expenses and capital expenditure requirements for at least twelve months from the date of filing this Annual Report on Form 10-K due to the receipt of an additional $ 1.7 million of cash in February 2021 from the issuance of a convertible note offering (See Note 21 for further information).

The Company will need additional funding to support its planned investing activities.

The Company believes that its cash and cash equivalents as of December 31, 2021 will be sufficient to fund its operating expenses and capital expenditure requirements for at least twelve months from the date of filing this Annual Report on Form 10-K due to the receipt of an additional $ 2.3 million of cash in April 2021 from the issuance of a convertible note offering, the receipt of an additional $ 1.2 million of cash in September 2021 from the issuance of preferred stock and the acquisition of three dispensaries (See Note 2 for further information).

The Company may need additional funding to support its planned investing activities.

If the Company is unable to obtain additional funding, it would be forced to delay, reduce, or eliminate some or all of its acquisition efforts, which could adversely affect its business prospects.

5 unchanged sentences

Cash and cash equivalents include cash on hand, deposits with banks, and investments that are highly liquid and have maturities of three months or less at the date of purchase.

As of December 31, 2020, and 2019 there are $ 5,551 and $ 102,604 of cash and cash equivalents included in asset of discontinued operations on the balance sheet.

As of December 31, 2021 and 2020 there are nil and $ 5,551 of cash and cash equivalents included in assets of discontinued operations on the balance sheet.

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.

17 unchanged sentences

Right-of-use Asset / Lease Liability

We adopted Financial Accounting Standards Board (“FASB”) Accounting Standards Update (“ASU”) 2016-02 Leases (Topic 842) on January 1, 2019, which requires all assets and liabilities arising from leases to be recognized in our consolidated balance sheets.

Right of use (“ROU”) assets represent our right to use an underlying asset in which we obtain substantially all of the economic benefits and the right to direct the use of the asset during the lease term.

Right of use (“ROU”) assets represent our right to use an underlying asset in which we obtain substantially all the economic benefits and the right to direct the use of the asset during the lease term.

Lease liabilities represent our obligation to make lease payments arising from the lease.

22 unchanged sentences

350, Intangibles-Goodwill and Other (“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.

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

We test goodwill and long-lived intangible assets annually in December, unless an event occurs that would cause us to believe the value is impaired at an interim date.

The price of flower has substantially decreased over the year ending December 31, 2021, as a result we tested for impairment of the Cultivation Segment’s goodwill on December 31, 2021.

We recognized a full impairment of goodwill in the amount of $ 2,484,200 .

No impairment was recognized as of December 31, 2020.

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.

As a result of the full impairment of goodwill above, we tested for impairment on intangibles with finite useful lives under our Cultivation Segment.

We recognized an impairment of $ 526,220 on December 31, 2021.

No impairment was recognized as of December 31, 2020.

Impairment of Long-lived Assets

7 unchanged sentences

Debt with warrants – When we issue debt with warrants, we treat the warrants as a debt discount, record as a contra-liability against the debt, and amortize the balance over the life of the underlying debt as amortization of debt discount expense in the consolidated statements of operations.

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

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.

2 unchanged sentences

For warrants with complex terms, we use the binomial lattice model to estimate their fair value.

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.

Modification and Extinguishment 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.

3 unchanged sentences

If the conversion feature is not treated as a derivative, we assess whether it is a beneficial conversion feature (“BCF”).

A BCF exists if the effective conversion price of the

convertible debt instrument is less than the stock price on the commitment date.

A BCF exists if the effective conversion price of the convertible debt instrument is less than the stock price on the commitment date.

This typically occurs when the effective conversion price is less than the fair value of the stock on the date the instrument was issued.

32 unchanged sentences

Revenue Recognition

We have three main revenue streams:

We have two main revenue streams:

(i) product sales;

(ii) licensing and consulting services;

and (iii) cultivation sales.

and (ii) cultivation sales.

Product sales are recorded at the time that control of the product is transferred to customers.

1 unchanged sentence

Based on the assessment of control indicators, sales are generally recognized when products are delivered to customers.

Revenue from licensing and consulting services is recognized when our obligations to our client are fulfilled which is determined when performance obligations in the contract are achieved.

Revenue from cultivation sales is recognized when the products are delivered to the customer.

3 unchanged sentences

Identification of the contract, or contracts, with a customer

A contract with a customer exists when (i) we enter into an enforceable contract with a customer that defines each party’s rights regarding the goods or services to be transferred and identifies the payment terms related to these goods or services, (ii) the contract has commercial substance and, (iii) we determine that collection of substantially all consideration for goods or services that are transferred is probable based on the customer’s intent and ability to pay the promised consideration.

services, (ii) the contract has commercial substance, and (iii) we determine that collection of substantially all consideration for goods or services that are transferred is probable based on the customer’s intent and ability to pay the promised consideration.

We apply judgment in determining the customer’s ability and intention to pay, which is based on a variety of factors including the customer’s historical payment experience or, in the case of a new customer, published credit or financial information pertaining to the customer.

27 unchanged sentences

We have discretion in establishing the price our customer pays for the specified goods or services.

Contract Liabilities

Contract liabilities consist of customer advance payments and billings in excess of revenue recognized.

We may receive payments from our customers in advance of completing our performance obligations.

We record contract liabilities equal

to the amount of payments received in excess of revenue recognized, including payments that are refundable if the customer cancels the contract according to the contract terms.

Contract liabilities have been historically recorded as current liabilities on our consolidated financial statements when the time to fulfill the performance obligations under terms of our contracts is less than one year.

We have no Long-term contract liabilities which would represent the amount of payments received in excess of revenue earned, including those that are refundable, when the time to fulfill the performance obligation is greater than one year.

Stock-based Payments

17 unchanged sentences

Our reporting segments consist of:

a) Operations Consulting and Products;

b) Cultivation;

and c) Investments.

and b) Cultivation.

Our Chief Executive Officer has been identified as the chief decision maker.

1 unchanged sentence

Recently Issued Accounting Standards

FASB ASU 2018-013 – “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.

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):

3 unchanged sentences

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.

INVESTMENTS AND ACQUISITIONS

SevenFive Farm

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 13, 2020, we received approval of the transaction and transfer of the Dalton Adventures, LLC license from the Colorado Marijuana Enforcement Division.

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 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.

The closing price of General Cannabis Corp’s common stock on May 13, 2020, the date of license transfer, was $ 0.38 per share, as such, fair value of consideration is $ 3,808,951 .

The closing price of our common stock on May 13, 2020, the date of license transfer, was $ 0.38 per share, as such, fair value of consideration is $ 3,808,951 .

The purchase agreement had a provision whereby the Seller may require us to repurchase in cash 25 % of the shares issued to the owner of Dalton Adventures, LLC 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.

2 unchanged sentences

Therefore, no stock put liability is recorded as of December 31, 2020 and the liability was reversed into equity.

We have not completed the allocation of the purchase price.

As of December 31, 2020, the 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.

We completed the allocation of the purchase price in the first quarter of 2021.

The purchase price allocation is as follows:

4 unchanged sentences

( 8,332,387 )

( 17,204,805 )

Net loss per common share:

Weighted average number of basic and diluted common shares outstanding

The unaudited proforma 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, 2020, or to project potential operating results as of any future date or for any future periods.

On September 2, 2021, we completed the acquisition of substantially all of the assets of TREES Englewood, representing a portion of the overall Trees transaction (“Trees Transaction”) previously disclosed pursuant to that certain First Amended and Restated Agreement and Plan of Reorganization and Liquidation dated May 28, 2021 by and among the Company, seller and certain other sellers party thereto, that consists of the assets relating to the Trees dispensary located in Englewood, Colorado (“Englewood Closing”).

We paid $ 1,155,256 in cash in connection with the Englewood Closing and stock consideration of 22,380,310 shares of our Common Stock.

The closing price of our common stock on September 2, 2021, the date of license transfer, was $ 0.47 per share, as such, fair value of consideration is $ 10,518,746 .

Further, cash equal to $ 1,732,884 will be paid to the seller in equal monthly installments over a period of 24 months from the Englewood Closing.

The table below reflects the Company’s estimates of the acquisition date fair values of the assets acquired:

The accompanying consolidated financial statements include the results of TREES Englewood from the date of acquisition for financial reporting purposes, September 2, 2021.

The pro forma effects of the acquisition on the results of operations as if the transaction had been completed on January 1, 2020, are as follows:

Total revenues

Net income (loss) attributable to common stockholders

( 8,110,671 )

( 7,218,878 )

Net income (loss) per common share

Weighted average number of basic and diluted common shares outstanding

The unaudited proforma results of operations are presented for information purposes only.

On December 30, 2021, we completed the acquisition of substantially all the assets of Trees Portland, LLC and Trees Waterfront, LLC, representing a portion of the overall Trees Transaction, that consists of the assets relating to certain Trees dispensaries located in Portland, Oregon ("Oregon Closing”).

We paid cash in the amount of $ 331,581 in connection with the Oregon Closing and stock consideration of 6,423,575 shares of our Common Stock.

The closing price of our common stock on December 30, 2021, the date of license transfer, was $ 0.23 per share, as such, fair value of consideration is $ 1,477,422 .

Further, cash equal to $ 497,371 will be paid to the sellers in equal monthly installments over a period of 24 months from the Oregon Closing.

The table below reflects the Company’s estimates of the acquisition date fair values of the assets acquired:

The accompanying consolidated financial statements include the results of Trees Oregon from the date of acquisition for financial reporting purposes, December 30, 2021.

The pro forma effects of the acquisition on the results of operations as if the transaction had been completed on January 1, 2020, are as follows:

Total revenues

Net income (loss) attributable to common stockholders

( 8,664,841 )

( 8,666,967 )

Net income (loss) per common share

Weighted average number of basic and diluted common shares outstanding

The unaudited proforma results of operations are presented for information purposes only.

We have not completed the allocation of the purchase price for the Trees acquisition.

As of December 31, 2021, the 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 dates.

DISCONTINUED OPERATIONS

On July 16, 2021, we entered into an Asset Purchase Agreement with an individual to sell substantially all the assets of our Operations Segment for a total of $ 150,000 and 10 % of profits generated by the buyer in the states of Michigan, Mississippi, and Massachusetts for a period of twelve months from the closing.

On August 2, 2021, the sale of the Operations Segment was completed.

Pursuant to amendment, the buyer paid the additional $ 75,000 in March 2022, and the 10 % profit share described above was eliminated.

Assets and liabilities of discontinued operations for the Operations Segment included the following:

Accounts receivable, net

Prepaid expenses and other current assets

Current assets discontinued operations

Property and equipment, net

Noncurrent assets discontinued operations

Accounts payable and accrued expenses

Customer deposits

Current liabilities discontinued operations

A breakdown of the discontinued operations for the Operations Segment is presented as follows:

Product revenues

Service revenues

Total revenues

Cost of sales

Selling, general and administrative

Professional fees

Depreciation and amortization

Total costs and expenses

Loss from discontinued operations

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 Operations Segment for the years ended December 31, 2021 and 2020.

Accounts receivables

Prepaid expenses and other current assets

Depreciation and amortization

Capital expenditures

Accounts payable and accrued expenses

Customer deposits

Security Segment

5 unchanged sentences

Cash and cash equivalents

Accounts receivable, net

Prepaid expenses and other current assets

Current assets discontinued operations

Property and equipment, net

Noncurrent assets discontinued operations

Accounts payable and accrued expenses

Customer deposits

Current liabilities discontinued operations

A breakdown of the discontinued operations for the Security Segment is presented as follows:

Year ended December 31,

Service revenues

Total revenues

Cost of sales

Selling, general and administrative

Professional fees

Depreciation and amortization

Total costs and expenses

Operating loss

Interest expense, net

Net loss from discontinued operations

Loss from discontinued operations

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 years ended December 31, 2021 and 2020.

Year ended December 31,

Prepaids and other

Accounts receivables

Prepaid expenses and other current assets

Depreciation and amortization

Capital expenditures

Accounts payable and accrued expenses

6 unchanged sentences

Assets and liabilities of discontinued operations for the Consumer Goods Segment included the following:

Cash and cash equivalents

Accounts receivable, net

Prepaid expenses and other current assets

Current assets discontinued operations

Right to use asset

Noncurrent assets discontinued operations

Accounts payable and accrued expenses

Operating lease liability - current portion

Current liabilities discontinued operations

A breakdown of the discontinued operations for the Consumer Goods Segment is presented as follows:

Year ended December 31,

Product revenues

Total revenues

Cost of sales

Selling, general and administrative

Professional fees

Depreciation and amortization

Impairment of assets

Total costs and expenses

Operating loss

( 1,206,358 )

Net loss from discontinued operations

( 1,206,358 )

Loss from discontinued operations

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 2021 and 2020.

Year ended December 31,

Prepaids and other

Depreciation and amortization

Capital expenditures

Accounts receivables

Prepaid expenses and other current assets

Accounts payable and accrued expenses

Customer deposits

Loss on disposal of segment

ACCOUNTS RECEIVABLE AND CUSTOMER DEPOSITS

ACCOUNTS RECEIVABLE

Our accounts receivable consisted of the following:

2 unchanged sentences

We record bad debt expense when we conclude the credit risk of a customer indicates the amount due under the contract is not collectible.

We recorded bad debt expense of $ 140,465 , of which $ 15,465 was related to accounts receivable and the remaining amount is in relation to our notes receivable, and $ 103,182 respectively, during the years ended December 31, 2020 and 2019.

Our customer deposit liability had the following activity:

Balance as of December 31, 2018

Additional deposits received

Deposits recognized as revenue

( 1,997,724 )

Balance as of December 31, 2019

Additional deposits received

Deposits recognized as revenue

( 4,206,433 )

Refunds to customers

Balance as of December 31, 2020

We recorded bad debt expense of $ 53,386 , of which $ 43,000 was related to accounts receivable and the remaining recovery amount is in relation to our notes receivable, and $ 136,000 , of which $ 9,000 was related to accounts receivable, respectively, during the years ended December 31, 2021 and 2020.

NOTES RECEIVABLE

5 unchanged sentences

Long-term portion

In March 2019, we agreed to loan an aggregate of up to $ 375,000 to Consolidated C.R., LLC (“CCR”) pursuant to the terms of a convertible promissory note (“CCR Note”), bearing interest at 12 % per annum, collateralized by substantially all of the assets of CCR and subject to a maturity date of September 2020.

On August 2, 2021, as part of the closing of the sale of NBC, we agreed to a note receivable of $ 75,000 due August 2, 2022.

There is no interest associated with this receivable per the agreement.

This note receivable was collected in full as of the issuance of these financial statements.

In March 2019, we agreed to loan an aggregate of up to $ 375,000 to Consolidated C.R., LLC (“CCR”) pursuant to the terms of a convertible promissory note (“CCR Note”), bearing interest at 12 % per annum, collateralized by substantially all the assets of CCR and subject to a maturity date of September 2020.

As of May 30, 2019, we had loaned the entire available amount of $ 375,000 to CCR pursuant to the CCR Note.

CCR is a vertically integrated medical cannabis company located in San Juan, Puerto Rico.

As of December 31, 2020, the outstanding amount of the loan was $ 375,000 .

The CCR Note included a loan origination fee of $ 15,000 , which is being recognized as interest income over the term of the agreement and has been fully amortized as of December 31, 2020.

As of December 31, 2020, this loan is in default.

Subsequent to year-end, we received a payment of $ 200,000 applied to interest and principal.

A notice of default was sent to the borrower in April 2020, which increased the interest rate to 18 % per annum.

The CCR Note included a loan origination fee of $ 15,000 , which was being recognized as interest income over the term of the agreement and has been fully amortized.

This loan went into default in April 2020, which increased the interest rate to 18 % per annum.

As of December 31, 2021 we received the majority of the payment of the outstanding principal and interest of the note receivable.

On January 3, 2019, the Company authorized an unsecured loan of $ 100,000 to Beacher Brewing, LLC (“BB”) pursuant to the terms of a promissory note (“BB Note”), bearing interest at 11 % per annum and a maturity date of January 3, 2020.

1 unchanged sentence

On December 13, 2019, the Company agreed to extend the maturity date to January 3, 2021.

As of December 31, 2020, this loan is in default due to unpaid interest.

A notice of default was sent to the borrower in November 2020.

We are currently in negotiations with BB for repayment of the note.

On December 13, 2018, we loaned $ 50,000 to BRB Realty, LLC (“BRB”) pursuant to the terms of a promissory note (“BRB Note”), bearing interest at 13 % per annum and a maturity date of June 12, 2019.

On January 19, 2019, the BRB Note was amended with an additional loan amount of $ 250,000 bearing an interest rate of 13 % and a new maturity date of July 15, 2019.

On July 15, 2019, BRB Realty extended the maturity date, in accordance with the terms of the BRB Note, an additional six months with an increased interest rate to 15 %.

Interest is due at the beginning of each month.

In December 2019, we agreed to forgive $ 30,000 of the note receivable in exchange for early payment.

The note was paid off on December 3, 2019 and the $ 30,000 was recorded as bad debt expense and is included in sales, general and administrative on the consolidated statement of operations.

The BRB Note included a loan origination fee of $ 5,000 , which is being recognized as interest income over the term of the agreement.

During 2021 we negotiated a payment amount of $ 60,000 and wrote off the remaining balance to allowance for doubtful accounts.

Payment was considered to be in full as of December 31, 2021.

INVENTORIES, NET

3 unchanged sentences

Inventory reserves

Total inventories

Inventories, net

PREPAIDS AND OTHER CURRENT ASSETS

1 unchanged sentence

Prepaid insurance

Prepaid product for resale

Contract asset

PROPERTY AND EQUIPMENT, NET

6 unchanged sentences

Intangible assets

Intangible assets consisted of the following:

Intangible assets as of December 31 consist of:

Estimated amortization expense for the next five years is as follows:

1 unchanged sentence

Amortization expense was $ 308,342 and $ 65,625 for the years ended December 31, 2021 and 2020, respectively.

In connection with our acquisition of SevenFive Farm in May 2020, we recorded goodwill of $ 2,484,200 that is included in our Cultivation Reporting Unit.

We have no t recognized any impairment as of December 31, 2020.

The following represents a summary of changes in the carry amount of goodwill for the years ended December 31, 2021 and 2020:

Balance as of December 31, 2019

Goodwill acquired

Balance as of December 31, 2020

Goodwill acquired

( 2,484,200 )

Balance as of December 31, 2021

On May 13, 2020, we entered into a commercial real estate lease with a related party (see Note 19) 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.

5 unchanged sentences

We determined the present value of the future lease payments using a discount rate of 20 % over a 15-year term, our incremental borrowing rate based on outstanding debt, resulting in a right-of-use asset and lease liability of $ 1,877,423 which are being applied ratably over the term of the lease.

As of December 31, 2021 and 2020, the balance of the right-of-use asset and lease liability was $ 1,796,983 and $ 1,873,607 , respectively.

On September 2, 2021, we entered into a commercial real estate lease with a related party (see Note 19) for retail space in Englewood, CO, with an initial term of five years and, at our option, two additional terms of three years each.

Rent is $ 10,000 per month with 3 % annual escalations during the initial term and 4 % annual escalations during the option term.

We also pay our portion of real estate taxes.

We determined the present value of the future lease payments using a discount rate of 20 % over a 11-year term, resulting in a right-of-use asset and lease liability of $ 602,140 which are being applied ratably over the term of the lease.

As of December 31, 2021, the balance of the right-of-use asset and lease liability was $ 584,258 and $ 591,741 , respectively.

We did not have any leases with terms greater than twelve months as of December 31, 2019.

Through the acquisition of TREES Englewood, we entered into a commercial real estate lease for office space in Denver, CO.

This office space is our new principal business office.

The lease has 15 months remaining.

Rent is $ 7,150 per month with a 3 % escalation beginning in November 2021.

We also pay our portion of real estate taxes.

We determined the present value of the future lease payments using a discount rate of 20 % over a 15-month term, resulting in a right-of-use asset and lease liability of $ 98,211 which are being applied ratably over the term of the lease.

As of December 31, 2021, the balance of the right-of-use asset and lease liability was $ 73,138 and $ 73,451 , respectively.

Through the acquisition of TREES Portland, we entered into a commercial real estate lease in Portland, OR.

The lease has 5.5 years remaining.

Rent is $ 5,124 per month with a 5 % annual escalation beginning in May 2022.

The rent includes payment of property taxes.

We determined the present value of the future lease payments using a discount of 20 % over a 5.5 -year term, resulting in a right-of-use asset and lease liability of $ 229,501 .

As of December 31, 2021, the balance of the right-of-use asset and lease liability was $ 229,501 .

Through the acquisition of TREES Waterfront, we entered into a commercial real estate lease in Portland, OR.

The lease has an initial term of 5 years and, at our option an additional term of 5 years .

Rent is $ 6,683 per month with a 3 % annual escalation.

The rent includes payment of property taxes.

We determined the present value of the future lease payments using a discount rate of 20 % over a 10-year term, resulting in a right-of-use asset and lease liability of $ 381,272 .

As of December 31, 2021, the balance of the right-of-use asset and l ease liability was $ 381,271 .

Future remaining minimum lease payments were as follows:

3 unchanged sentences

Operating lease liability

Rent expense was approximately $ 614,953 and $ 380,607 for the years ended December 31, 2021 and 2020, respectively.

ACCOUNTS PAYABLE AND ACCRUED EXPENSES

12 unchanged sentences

Balance as of December 31, 2020

TREES Waterfront acquisition stock accrual

Balance as of December 31, 2021

On February 18, 2020 we granted a consultant 100,000 fully vested shares for consulting services.

1 unchanged sentence

As of December 31, 2021, 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.

We sold 5,485,814 shares of common stock during the second quarter 2020.

As of December 31, 2020, all of the stock was issued.

See Note 17 for further details of the stock transaction.

In December 2020, several warrant holders exercised their 2020 A warrants through cashless exercises, and we issued 282,213 shares of common stock.

1 unchanged sentence

See Note 13 for further details of the cashless exercises.

As of December 31, 2019, employee stock awards made up the full balance of accrued stock payable.

In December 2021, we completed the acquisition of TREES Waterfront.

As part of the transaction, we granted 1,669,537 shares of our common stock.

As of December 31, 2021 this stock had not been issued.

The stock was subsequently issued on January 6, 2022.

NOTES PAYABLE

2 unchanged sentences

2019 15% Notes

Related party note payable

Trees Acquisition Notes

Unamortized debt discount

( 1,911,447 )

Current portion

4 unchanged sentences

Year ending December 31,

In September 2021, with the completion of the Englewood acquisition, we are to pay the Seller cash equal to $ 1,732,884 in equal monthly installments over a period of 24 months .

The monthly payments began on October 15, 2021, and the payment is equal to $ 72,204 per month.

There is no interest associated with this note.

In December 2021, with the completion of the TREES Portland and TREES Waterfront acquisitions, we are to pay the Seller cash equal to $ 497,371 in equal monthly installments over a period of 24 months .

The payments began on February 15, 2022, and the payment is equal to $ 20,724 per month.

In December 2020, we entered into a Securities Purchase Agreement (the “Securities Purchase Agreement’) with certain accredited investors (the “ 10 % Investors”), pursuant to which we issued and sold senior convertible promissory notes (the “ 10 % Notes”) with an aggregate principal amount of $ 2,940,000 in exchange for payment to us by certain 10 % Investors of an aggregate amount of $ 1,940,000 in cash, as well as cancellation of outstanding indebtedness of the 15 % Notes (defined below) in the aggregate amount of $ 1,000,000 .

2 unchanged sentences

The 10 % Notes will bear interest at an annual rate of 10 % and will mature on December 23, 2023.

The 10 % Investors have the option at any time to convert up to 50 % of the outstanding unpaid principal and accrued interest

of the Notes into 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.

The 10 % Investors have the option at any time to convert up to 50 % of the outstanding unpaid principal and accrued interest of the Notes into 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.

The 10 % Warrants are exercisable at an exercise price of $ 0.56 per 10 % Warrant.

11 unchanged sentences

Expected volatility

In July 2019, we completed a $ 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 8, 2021, we entered into a Securities Purchase Agreement with an accredited 10 % Investor, pursuant to which we issued and sold 10 % Notes with an aggregate principal amount of $ 1,660,000 to such 10 % Investor.

The 10 % Notes are part of an over-allotment option exercised by us in connection with the convertible note offering consummated on December 23, 2020, as discussed above.

In connection with the issuance of the 10 % Notes, the holder received warrants to purchase shares of our common stock equal to 20 % coverage of the aggregate principal amount at $ 0.56 per share.

In the aggregate, this equals 592,858 shares of our common stock with a par value $ 0.001 per share.

The 10 % Notes bear interest at an annual rate of 10 % and will mature on February 8, 2024.

The 10 % Investor has the option to convert up to 50 % of the outstanding unpaid principal and accrued interest of the 10 % Notes into 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.

The 10 % Warrants are exercisable at an exercise price of $ 0.56 per warrant.

The relative fair value of the new funding on the 10 % Warrants was recorded as a debt discount and additional paid-in capital of $ 429,300 .

We determined that this 10 % Note had a beneficial conversion feature and is calculated at its intrinsic value (that is, the difference between the effective conversion price of $ 0.66 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 $ 0.90 , 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.

For the years ended December 31, 2021 and 2020, amortization of debt discount expense was $ 252,118 and nil , respectively.

The 10 % Notes are treated as conventional debt.

For purposes of determining the debt discount, the underlying assumptions used in the binomial lattice model to determine the fair value of the 10 % Warrants as of February 8, 2021, were:

Current stock price

Exercise price

Risk-free interest rate

Expected dividend yield

Expected term (in years)

Expected volatility

On April 20, 2021, we entered into a Securities Purchase Agreement with accredited 10 % Investors, pursuant to which we issued and sold 10 % Notes with an aggregate principal amount of $ 2,300,000 to such 10 % Investors.

The 10 % Notes are part of an over-allotment approved by the existing noteholders in connection with the original convertible note offering of $ 4,600,000 consummated on December 23, 2020 and February 8, 2021.

In connection with the issuance of the 10 % Notes, each holder received warrants to purchase shares of our common stock equal to 20 % coverage of the aggregate principal amount at $ 0.56 per share, except that the warrants coverage to one Investor acting as lead investor in the raise received approximately 35.5 % of the aggregate principal amount invested.

The 10 % Notes bear interest at an annual rate of 10 % and will mature on April 20, 2024.

The 10 % Investors have the option to convert up to 50 % of the outstanding unpaid principal and accrued interest of the 10 % Notes into 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.

The 10 % Warrants are exercisable at an exercise price of $ 0.56 per warrant.

The relative fair value of the new funding on the 10 % Warrants was recorded as a debt discount and additional paid-in capital of $ 810,000 .

We determined that these 10 % Notes had a beneficial conversion feature and is calculated at its intrinsic value (that is, the difference between the effective 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 $ 0.83 , 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 $ 692,500 as additional paid in capital and a debt discount and included in our consolidated statement of operations.

For the years ended December 31, 2021 and 2020, amortization of debt discount expense was $ 350,471 and nil , respectively.

The 10 % Notes are treated as conventional debt.

For purposes of determining the debt discount, the underlying assumptions used in the binomial lattice model to determine the fair value of the 10 % Warrants as of April 20, 2021, were:

Current stock price

Exercise price

Risk-free interest rate

Expected dividend yield

Expected term (in years)

Expected volatility

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 Market Price;

provided that the conversion price shall in no event be less than $ 0.45 per share.

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 Market 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.

16 unchanged sentences

Accordingly, as of March 31, 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.

In December 2020, the warrant holders exercised 1,131,000 of the 2020 A Warrants into 282,813 shares of our common stock through cashless exercise.

We recorded $ 3,653 to additional paid in capital and $ 33,961 to accrued stock, as 259,415 shares need to be issued as of December 31, 2020.

As of December 31, 2021, the warrant holders exercised 1,131,000 of the 2020 A warrants into 282,813 shares of our common stock through cashless exercise.

We recorded $ 3,653 to additional paid in capital and $ 33,961 to accrued stock, as 259,415 shares needed to be issued as of December 31, 2020.

All shares were issued as of December 31, 2021.

We received $ 300,000 of cash in December 2019 and an additional $ 525,000 of cash January 2020 through March 2020 for issuing the 15 % Notes.

1 unchanged sentence

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 year ended December 31, 2020 and 2019, amortization of debt discount expense was $ 279,676 and $ 2,883 , respectively, from the 15 % Notes.

For the year ended December 31, 2021 and 2020, amortization of debt discount expense was nil and $ 279,676 , respectively, from the 15 % Notes.

The 15 % Notes are otherwise treated as conventional debt.

7 unchanged sentences

Expected volatility

On September 17, 2021, we entered into warrant amendments with certain ‘A’ and ‘B’ warrant holders from the 15 % Notes.

Pursuant to the warrant amendment the expiration date was extended until December 31, 2024 and the exercise price thereof was increased to $ 1.00 per warrant share.

Warrant amendments were entered into with warrant holders representing an aggregate of 400,000 A warrants and 1,211,000 B warrants.

We recognized an additional expense of $ 233,374 in loss on extinguishment of debt as a result of the modification.

Loan on Building

4 unchanged sentences

In September 2019, we completed a 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”).

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.

We issued an aggregate of $ 1,506,000 under the 2019 12 % Notes and warrants to purchase an aggregate of 1,506,000 shares of common stock.

We received $ 400,000 in cash and $ 1,106,000 from modifying the outstanding principal under the 8.5 % Notes;

see 8.5 % Notes below.

The change in terms of the 8.5 % Notes is treated as a debt extinguishment and the fair value of the warrants of $ 298,500 is included in our consolidated statement of operations and as additional paid-in capital.

We received $ 400,000 in cash and $ 1,106,000 from modifying the outstanding principal under previous notes.

The relative fair value of the 2019 12 % Warrants was recorded as a debt discount and additional paid-in capital of $ 93,500 .

For the years ended December 31, 2020 and 2019, amortization of debt discount includes $ 12,635 and $ 23,432 .

For the years ended December 31, 2021 and 2020, amortization of debt discount includes nil and $ 12,635 .

The 2019 12 % Notes are otherwise treated as conventional debt.

8 unchanged sentences

Expected volatility

In April 2018, we completed a $ 7,500,000 private placement pursuant to a promissory note (“ 8.5 % Notes”) and warrant purchase agreement (the “ 8.5 % Agreement”) with certain accredited investors, bearing interest at 8.5 %, with principal due May 1, 2019, and interest payable quarterly.

During the second quarter this note was extended to be due June 1, 2019.

On June 6, 2019, we made payments of approximately $ 5.7 million, leaving approximately $ 1.1 million outstanding.

In the event of default, the interest rate increases to 18 %.

The 8.5 % Notes are collateralized by a security interest in substantially all of our assets.

We may prepay the 8.5 % Notes at any time, but in any event must pay at least one year of interest.

In September 2019, we modified the debt agreement into the 2019 12 % Notes.

The debt modification was treated as an extinguishment of debt.

Subject to the terms and conditions of the 8.5 % Agreement, each investor was granted fully-vested warrants equal to their note principal times 80 %, or six million warrants, with an exercise price of $ 2.35 per share and a life of two years (the “ 8.5 % Warrants”).

Should we issue any equity-based instruments at a price lower than the exercise price(s) of the 8.5 % Warrants, other than under our Incentive Plan (as defined below), the exercise price(s) of the 8.5 % Warrants will be adjusted to the lower price.

If the shares underlying the 8.5 % Warrants were not registered for resale on a registration statement within six months, we would have issued an additional warrant to each purchaser at the same exercise price for one-half of the shares covered by the initial 8.5 % Warrants.

A registration statement related to the 8.5 % Warrants was declared effective on June 5, 2018.

We may call the 8.5 % Warrants at $ 0.01 per share if our stock trades above $ 8.00 per share for 15 consecutive days.

The 8.5 % Warrants may be exercised at the option of the holder by paying cash or by applying the amount due under the 8.5 % Notes as consideration.

We received $ 7,500,000 of cash for issuing the 8.5 % Notes.

The relative fair value of the 8.5 % Warrants was recorded as a debt discount and additional paid-in capital of $ 5,366,000 .

For the years ended December 31, 2020 and 2019, amortization of debt discount expense was $ 0 and $ 1,575,094 , respectively, from the 8.5 % Notes.

The 8.5 % Notes are otherwise treated as conventional debt.

For purposes of determining the debt discount, the underlying assumptions used in the binomial lattice model to determine the fair value of the 8.5 % Warrants as of April 2018, were:

Current stock price

Exercise price

Risk-free interest rate

Expected dividend yield

Expected term (in years)

Expected volatility

Number of iterations

WARRANT DERIVATIVE LIABILITY

4 unchanged sentences

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.

As a result of such subsequent issuances of securities by the Company through 2020, at a price lower than the original exercise price, the exercise price of the 2019 Warrants had 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 as of December 31, 2020.

In February 2020, one of the warrant holders exercised 200,000 warrants.

2 unchanged sentences

We booked an adjustment to the derivative liability of $ 3,241,188 as a result.

During the year ended December 31, 2020 and 2019, we recognized a $ 735,796 gain on the fair value of derivative liability and a $ 2,204,172 loss on the fair value of derivative liability, respectively, in the consolidated statements of operations.

During the first quarter of 2021 the warrant holders exercised 1,323,000 warrants into 747,208 shares of our common stock through cashless exercise.

We booked an adjustment to the derivative liability of $ 1,523,117 as a result.

During the year ended December 31, 2021 and 2020, we recognized a $ 990,066 loss on the fair value of derivative liability and a $ 735,796 gain on the fair value of derivative liability, respectively, in the consolidated statements of operations.

As of December 31, 2021, there were 322,807 of the 2019 Warrants outstanding.

7 unchanged sentences

Beginning balance

Recognition of warrant derivative liability on May 31, 2019

Warrant exercise

( 1,523,117 )

( 3,323,429 )

Change in fair value of warrants derivative liability

1 unchanged sentence

COMMITMENTS AND CONTINGENCIES

In July 2021, the Company was served with a Complaint in the District Court, County of Denver, Colorado, by plaintiff 2353 SB, LLC (“Plaintiff”).

Plaintiff and the Company entered into a lease for the premises at 2353 South Broadway, Denver, CO with a term of three (3) years to commence on November 1, 2020.

Monthly lease payments were to be $ 12,866.66 .

In 2020, the Company made initial payments (first month’s rent and security deposit) of $ 39,633.32 ;

but subsequently did not take possession of the premises and has made no further payments in respect thereof, as a direct result of the COVID-19 pandemic.

The lease contains a ‘force majeure’ clause which includes a provision that neither party is liable for failure to perform its obligations under the lease which have become practicably impossible because of circumstances beyond the reasonable control of the applicable party, including ‘pandemics or outbreak of communicable disease.’

The Company has taken the position that its failure to take possession and make any further payments under the lease is directly related to the COVID-19 pandemic.

The Company intends to vigorously defend this action and believes that the above-referenced force majeure clause presents a complete defense to Plaintiff’s claims.

Both parties have filed motions for summary judgment, and the parties are currently awaiting the decision of the court in respect thereof.

In June 2020, Michael Feinsod resigned as our Executive Chairman, claiming that his resignation was for "Good Reason"

13 unchanged sentences

A valuation allowance has been established as realization of such deferred tax assets has not met the more likely-than-not threshold requirement.

The increase in the valuation allowance in 2020 represents the increase in deferred tax assets that the Company has determined is not more likely than not of being recovered.

The Company has determined it is not more likely than not that its deferred tax assets will be recovered.

If the Company’s judgment changes and it is determined that the Company will be able to realize these deferred tax assets, the tax benefits relating to any reversal of the valuation allowance on deferred tax assets will be accounted for as a reduction to income tax expense.

As of December 31, 2021 and 2020, the Company had federal and state net operating loss carryforwards of approximately $ 36 million and $ 41 million, respectively.

Of the current net operating loss carryforwards, $ 14 million expire starting in 2033 through 2037 and $ 20 million do not expire.

Of the current net operating loss carryforwards, $ 27 million expire starting in 2033 through 2037 and $ 7 million will expire starting in 2041, and $ 43 million do not expire.

The Company is currently evaluating whether there have been one or more ownership changes pursuant to IRC Sections 382 and 383.

1 unchanged sentence

federal and state net operating loss carryforwards may be limited and/or otherwise expire unused.

The Company believes that any limitation as a result of IRC Section 382 and 383 would be immaterial to the financial statements due to the full valuation allowance on its deferred tax assets.

The components of net deferred tax assets are as follows:

12 unchanged sentences

State income tax benefit, net of Federal benefit

280E Disallowance

Equity-based instruments

3 unchanged sentences

STOCKHOLDERS’ EQUITY

2021 Preferred stock offering

On September 10, 2021, we entered into a Securities Purchase Agreement (the “Securities Purchase Agreement”) with various accredited investors (the “2021 Investors), pursuant to which we issued and sold Units consisting of Series A Convertible Preferred Stock (“Series A Preferred”) and warrants (the “Preferred Warrants”) to purchase shares of our common stock with a par value of $ 0.001 per share.

The total number of Units sold was 1,180 .

Each Unit consists of one share of Series A Preferred and 354,000 Preferred Warrants.

The purchase price of each Unit was $ 1,000 , for an aggregate amount sold of $ 1,180,000 .

Each share of Series A Preferred is convertible into 1,000 shares of common stock upon the consummation of a capital raise of not less than $ 5,000,000 .

The Certificate of Designation of the Series A Preferred Stock (“Certificate of Designation”) was filed with the Secretary of the State of Colorado on September 14, 2021.

The Certificate of Designations established the new preferred series entitled “Series A Convertible Preferred Stock” with no par value per share, and sets forth the rights, restrictions, preferences, and privileges of the Series A Preferred, summarized as follows:

● Authorized Number of Shares – 5,000

● Voting Rights – None

● Dividends – 6 % per annum, ‘paid in kind’ in shares of Series A Preferred

● Conversion – Each share of Series A Preferred is mandatorily convertible into 1,000 shares of common stock upon a minimum capital raise of $ 5,000,000 ;

sale, merger, or business combination of the Company;

or the Company listing on an exchange

● Redemption – No rights of redemption by 2021 Investors, nor mandatory redemption

The Preferred Warrants have a five-year term and an exercise price per Preferred Warrant share of $ 1.05 .

The warrants contain an anti-dilution provision pursuant to which upon we do a future capital raise at less than $ 1.00 per shares, each Preferred Investor will be granted additional Preferred Warrants on a ‘full-ratchet’ basis.

The proceeds received in the sale of the Series A Preferred totaled $ 1,180,000 , for the issuance of 1,180 Series A Preferred, plus 354,000 warrants.

The warrants were valued using a Black Scholes model, at $ 117,131 and per the relative fair value allocation, $ 1,073,446 was allocated to the Series A proceeds

2020 Capital Raise

10 unchanged sentences

As of October 4, 2020, $ 600,000 of the $ 2,331,000 outstanding notes have extended the maturity date.

If, at the end of the negotiation period per the contract, 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.

If, at the end of the negotiation period per the contract, all 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.

5 unchanged sentences

The warrants were recorded as a deemed dividend in the amount of $ 732,494 .

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 on a quarterly basis and is recorded as a gain/loss on warrant derivative liability on the consolidated statement of operations.

As of December 31, 2020, there were 1,645,807 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 14.

Stock-based compensation

9 unchanged sentences

As of the date of this filing a Registration Statement on Form S-8 has not been filed.

As of December 31, 2020, there have been no awards granted in the plan.

On October 29, 2014, the Board authorized the adoption of and, on June 26, 2015, our stockholders ratified, our 2014 Equity Incentive Plan for the issuance of 10 million shares of our common stock and, in April 2018, stockholders

approved an increase of 5 million shares of common stock that may be granted (the “Incentive Plan”).

As of December 31, 2021, there was 9,100,000 shares available to issue under the 2020 Plan.

On October 29, 2014, the Board authorized the adoption of and, on June 26, 2015, our stockholders ratified our 2014 Equity Incentive Plan for the issuance of 10 million shares of our common stock and, in April 2018, stockholders approved an increase of 5 million shares of common stock that may be granted (the “Incentive Plan”).

The Incentive Plan provides for the issuance of up to 15 million shares of our common stock and is designed to provide an additional incentive to executives, employees, directors, and key consultants, aligning our long-term interests with participants.

10 unchanged sentences

Dividend yield

On September 3, 2021 we modified two employees stock options in conjunction with revised employment agreements.

As a result of the modification, we recognized $ 21,525 in compensation expense for the year ended December 31, 2021.

During the year ended December 31, 2021 we granted options to purchase 1,158,000 common shares to employees and directors.

The options expire five years from the date of grant and vest over a period of one year .

Fair value of the awards at the date of grants totaled $ 628,496 .

The following summarizes Employee Awards activity:

7 unchanged sentences

Exercisable as of December 31, 2021

As of December 31, 2020, there was approximately $ 21,417 of total unrecognized compensation expense related to unvested Employee Awards, which is expected to be recognized over a weighted-average period of fifteen months .

As of December 31, 2021, there was approximately $ 132,816 of total unrecognized compensation expense related to unvested Employee Awards, which is expected to be recognized over a weighted-average period of two months .

Consulting Services

3 unchanged sentences

We use historical data to estimate the expected price volatility.

The risk-free interest rate is based on the United States Treasury yield curve in effect at the time of

valuation for the estimated life of the option.

The risk-free interest rate is based on the United States Treasury yield curve in effect at the time of valuation for the estimated life of the option.

The following summarizes the Black-Scholes assumptions to value the Consulting Awards granted:

12 unchanged sentences

Outstanding and exercisable as of December 31, 2021

During 2020 we granted 10,000 options to a consultant with a fair value of $ 2,390 .

Feinsod Employment Agreement

5 unchanged sentences

The options were valued using the Monte Carlo method.

For the year ended December 31, 2020 and 2019, we recognized approximately $ 57,342 and $ 116,000 , respectively, of stock-based compensation expense related to these options.

For the year ended December 31, 2021 and 2020, we recognized approximately nil and $ 57,342 , respectively, of stock-based compensation expense related to these options.

These options were forfeited in July 2020, with Mr.

Feinsod’s resignation.

The underlying assumptions used in the Monte Carlo simulations to determine the fair value of options were:

August 6, 2020

Current stock price

Exercise price

Risk-free interest rate

Expected term (in years)

Expected volatility

Warrants with Debt

4 unchanged sentences

Outstanding as of December 31, 2019

( 1,131,000 )

( 7,064,214 )

Outstanding as of December 31, 2020

( 1,204,000 )

Outstanding and exercisable as of December 31, 2021

On May 31, 2019, we issued the 2019 Units at $ 1.00 , which triggered the “down round” feature specified in the 8.5 % Warrants.

We calculated the difference between the 8.5 % Warrants’ fair value on the date the down round feature was triggered using the original exercise price and the new exercise price.

On October 18, 2019, November 1, 2019 and again on December 11, 2019, we issued additional warrants at $ 1.00 , $ 0.68 and $ 0.45 , respectively.

These triggered the “down round” feature on both the 8.5 % warrants and the 2019 Warrants.

In May 2020, we issued common stock at a price $ 0.3983 .

These triggered the “downround” feature on the 2019 Units and the 15 % Notes.

The 8.5 % Warrants had expired at the time of issuance, so did not effect these warrants.

The difference in fair value of the effect of the down round feature for the 8.5 % Warrants and the 15 % Warrants is reflected in our consolidated financial statements as a deemed dividend and as a reduction to income available to common stockholders in the basic earnings per share calculation.

The difference in fair value of the effect of the down round feature for the 15 % Warrants is reflected in our consolidated financial statements as a deemed dividend and as a reduction to income available to common stockholders in the basic earnings per share calculation.

The difference in the fair value of the effect of the down round feature for the 2019 Warrants are reflected in the gain/loss on derivative instrument in our consolidated statement of operations.

The underlying assumptions used in the binomial lattice model to determine the fair value of the 8.5 % Warrants were:

Current stock price

Exercise price

Risk-free interest rate

Expected dividend yield

Expected term (in years)

Expected volatility

Current stock price

Exercise price

Risk-free interest rate

Expected dividend yield

Expected term (in years)

Expected volatility

Current stock price

Exercise price

Risk-free interest rate

Expected dividend yield

Expected term (in years)

Expected volatility

The underlying assumptions used in the binomial lattice model to determine the fair value of the 15 % Warrants were:

Current stock price

Exercise price

Risk-free interest rate

Expected dividend yield

Expected term (in years)

Expected volatility

Current stock price

Exercise price

Risk-free interest rate

Expected dividend yield

Expected term (in years)

Expected volatility

Current stock price

Exercise price

Risk-free interest rate

Expected dividend yield

Expected term (in years)

Expected volatility

NET LOSS PER SHARE

7 unchanged sentences

Convertible notes

Preferred stock

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.

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 aiding with the sourcing and evaluation of merger and acquisition deals, strategic capital and strategic partnerships or joint ventures.

Hershey is paid an initial monthly rate of $ 8,333 for the services, subject to certain adjustments.

We paid $ 58,333 during the year ended December 31, 2020.

We paid $ 99.996 and $ 58,333 during the years ended December 31, 2021 and 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.

3 unchanged sentences

The owner of Dalton Adventures, LLC is a principal shareholder and board member of the Company.

We incurred approximately $ 286,000 of rent expense for the year ended 2020.

On December 23, 2020, all five board members of the Company purchased senior convertible promissory notes from the Company for an aggregate amount of $ 340,000 .

We incurred approximately $ 458,000 and $ 286,000 of rent expense for the years ended December 31, 2021 and 2020, respectively.

We currently have a lease agreement with Bellewood Holdings, LLC in which we rent retail space for the TREES Englewood retail store in Englewood, Colorado, for $ 10,000 per month.

The owner of Bellewood Holdings, LLC is a principal shareholder and board member of the Company.

We incurred approximately $ 47,482 of rent expense for the year ended December 31, 2021.

On December 23, 2020, four of our current board members purchased senior convertible promissory notes from the Company for an aggregate amount of $ 320,000 .

A board member who resigned in May 2021 purchased $ 30,000 of the senior convertible promissory notes from the Company.

These notes are included in the 10 % Notes discussed in Note 13.

Accrued interest earned and owed to the board members was $ 33,435 as of December 31, 2021.

We had 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 13.

We have paid approximately $ 15,000 in interest for the year ended December 31, 2020.

This note was paid in full in February 2021.

SEGMENT INFORMATION

12 unchanged sentences

( 9,060,664 )

Segment operating (loss) income

Segment operating income

( 3,551,103 )

( 3,147,937 )

Corporate expenses

( 5,279,214 )

Net loss from continuing operations

Net loss from continuing operations before income taxes

( 8,427,151 )

5 unchanged sentences

( 7,903,679 )

Net loss from continuing operations

Net loss from continuing operations before income taxes

( 7,427,685 )

Discontinued operations

Total assets - segments

2 unchanged sentences

SUBSEQUENT EVENTS

On February 8, 2021, the Company, entered into a Securities Purchase Agreement (the “Securities Purchase Agreement”) with an accredited investor, pursuant to which the Company issued and sold convertible notes with an aggregate principal amount of $ 1,660,000 to such investor.

The notes are part of an over-allotment option exercised by the Company in connection with the convertible note offering consummated on December 23, 2020 and reported on a Current Report on Form 8-K filed on December 30, 2020.

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

In the aggregate, this equals 592,858 shares of the Company’s common stock with a par value $ 0.001 per share.

The notes will bear interest at an annual rate of 10 % and will mature on February 8, 2024.

The investor has the option to convert up to 50 % of the outstanding unpaid principal and accrued interest of the notes into 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.

The warrants are exercisable at an exercise price of $ 0.56 per warrant, subject to adjustment as provided in the warrants, at any time prior to the earlier of the maturity date and an acquisition (as defined in the warrants).

On January 5, 2022, the Company completed the acquisition of substantially all the assets of Trees MLK Inc.

(“MLK”), representing the remaining Oregon dispensary in connection with the overall Trees transaction (“MLK Closing”).

The cash paid by the Company in connection with the MLK Closing consisted of $ 256,582 and stock consideration of 4,970,654 shares of the Company’s Common Stock.

Further, cash equal to $ 384,873 will be paid to Sellers in equal monthly installments over a period of 24 months from the MLK Closing.

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

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 8. Financial Statements and Supplementary Data