What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-08-12 compared with 2022-05-13 · 56 added, 31 removed, 96 unchanged (48% of the section changed)

8 unchanged sentences

We undertake no obligation to publicly update or revise any forward-looking statements to reflect actual results, changes in expectations or events or circumstances after the date of this Quarterly Report on Form 10-Q.

When this report uses the words “we,” “us,” or “our,” and the “Company,” they refer to General Cannabis Corp (formerly, “Advanced Cannabis Solutions, Inc.”).

When this report uses the words “we,” “us,” or “our,” and the “Company,” they refer to TREES Corporation (formerly, “General Cannabis Corp”).

Our Products, Services, and Customers

1 unchanged sentence

Through our acquisition of TDM, LLC (“TREES Englewood”) in September 2021, our acquisition of Trees Portland, LLC, Trees Waterfront, LLC in December 2021, and our acquisition of Trees MLK, LLC in January 2022, we operate a retail dispensary store in Englewood, Colorado and three retail stores in Portland, Oregon.

The Trees MLK location is currently not in operation.

This location should be operational in the second quarter of 2022.

Cultivation (“Cultivation Segment”)

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

During the three months ended March 31, 2022 and 2021, 45% and 18% of SevenFive’s revenue was with one customer, respectively.

During the three months ended June 30, 2022 and 2021, 78% and 11% of SevenFive’s revenue was with one customer, respectively.

During the six months ended June 30, 2022 and 2021, 59% and 11% was with one customer, respectively.

The customer is a related party dispensary and the revenues associated with this customer is eliminated in consolidation.

Discontinued Operations - Operations Consulting and Products

8 unchanged sentences

The tables and the discussion below should be read in conjunction with the accompanying condensed consolidated financial statements and the notes thereto in this report.

Three months ended March 31,

Three months ended June 30,

Costs and expenses

3 unchanged sentences

Loss from operations before income taxes

The addition of our Retail segment contributed to the significant increase in revenues for the three months ended March 31, 2022.

Six months ended June 30,

Costs and expenses

Other expense

Net loss from continuing operations before income taxes

Loss from discontinued operations

Loss from operations before income taxes

The addition of our Retail segment contributed to the significant increase in revenues for the three and six months ended June 30, 2022.

See Segment discussions below for further details.

Costs and expenses

Three months ended March 31,

Three months ended June 30,

Cost of sales

3 unchanged sentences

Depreciation and amortization

Cost of sales increased year over year due to the addition of the Retail Segment in the third and fourth quarters of 2021.

Six months ended June 30,

Cost of sales

Selling, general and administrative

Stock-based compensation

Professional fees

Depreciation and amortization

Cost of sales increased for the three and six months ended June 30, 2022 due to the addition of the Retail Segment in the third and fourth quarters of 2021.

See Segment discussions below for further details.

Selling, general and administrative expense increased for the three months ended March 31, 2022, as compared to March 31, 2021, due to the acquisition of three dispensaries in the third and fourth quarter of 2021.

Selling, general and administrative expense increased for the three and six months ended June 30, 2022, as compared to June 30, 2021, due to the acquisition of three dispensaries in the third and fourth quarter of 2021 and one additional dispensary in the first quarter of 2022.

This resulted in an increase in employees and an increase in rent expense.

Professional fees consist primarily of accounting and legal expenses and increased slightly for the three months ended March 31, 2022, as compared to the three months ended March 31, 2021, due to the growth of our retail segment.

Professional fees consist primarily of accounting and legal expenses and decreased slightly for the three and six months ended June 30, 2022, as compared to the three and six months ended June 30, 2021, due to a concentrated effort on reduction of expenses.

Stock-based compensation included the following:

Three months ended March 31,

Three months ended June 30,

Employee awards

Six months ended June 30,

Employee awards

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

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

The decrease in expense for the three months ended March 31, 2022, as compared to March 31, 2021, is due to the decrease in the number of options we grant on a quarterly basis and an increase in forfeitures in 2021 due to the departure of our Chief Executive Officer in May 2021, and the departure of our Chief Financial Officer in September 2021.

The increase in expense for the three and six months ended June 30, 2022, as compared to June 30, 2021, is due to the increase in forfeitures in 2021 due to the departure of our Chief Executive Officer in May 2021, and the departure of our Chief Financial Officer in September 2021.

Other Expense

Three months ended March 31,

Three months ended June 30,

Amortization of debt discount

Interest expense

(Gain) loss on derivative liability

Gain on sale of assets

Six months ended June 30,

Amortization of debt discount

Interest expense

Loss (gain) on derivative liability

Other expenses, net

Amortization of debt discount increased during the three months ended March 31, 2022, as compared to March 31, 2021, due to the senior convertible promissory notes with warrants (“10% Notes”) issued in December 2020, February 2021, and April 2021.

Interest expense increased during the three months ended March 31, 2022, as compared to March 31,

2021, due to the addition of the 10% Notes with an interest rate of 10%.

(Gain) loss on sale of assets

Amortization of debt discount increased during the three and six months ended June 30, 2022, as compared to June 30, 2021, due to the senior convertible promissory notes with warrants (“10% Notes”) issued in December 2020, February 2021, and April 2021.

Interest expense increased during the three and six months ended June 30, 2022, as compared to June 30, 2021, due to the addition of the 10% Notes with an interest rate of 10%.

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

Three months ended March 31,

Three months ended June 30,

Costs and expenses

Six months ended June 30,

Costs and expenses

Segment operating income

With the addition of the TREES Englewood dispensary on September 2, 2021, Trees Portland and Trees Waterfront on December 30, 2021, and Trees MLK on January 5, 2022, we have established our retail footprint in the Colorado and Oregon markets and have become a vertically integrated company.

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

Three months ended March 31,

Three months ended June 30,

Costs and expenses

The decrease in revenues for the three months ended March 31, 2022, over prior year is due to the decrease in overall market price of flower.

Six months ended June 30,

Costs and expenses

The decrease in revenues for the three and six months ended June 30, 2022, over prior year is due to the decrease in overall market price of flower.

The decrease in gross margin is due to overall increase in expenses due to inflation.

5 unchanged sentences

In April 2021, we received $2,300,000 in cash in a private placement with certain accredited investors pursuant to the 10% Notes to be used for the acquisition of dispensaries (See Note 7 of the accompanying unaudited condensed consolidated financial statements).

In February 2021, we received $1,660,000 in cash in a private placement with certain accredited investors pursuant to the 10% Notes.

In February 2021, we received $1,660,000 in cash in a private placement with certain accredited investors pursuant to the 10% Notes (See Note 7 of the accompanying unaudited condensed consolidated financial statements).

Sources and uses of cash

We had cash of $1,651,063 and $2,054,050 as of March 31, 2022, and December 31, 2021, respectively.

We had cash of $1,072,896 and $2,054,050 as of June 30, 2022, and December 31, 2021, respectively.

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

Three months ended March 31,

Net cash provided by (used in) operating activities

Net cash used in investing activities

Six months ended June 30,

Net cash used in operating activities

Net cash provided by (used in) investing activities

Net cash provided by (used in) financing activities

Net cash provided by (used in) operating activities decreased in 2022 due to the acquisition of TREES Englewood, Trees Portland and Trees Waterfront which provides positive operating cash flows and adjustments relating to non-cash activities.

Net cash used in investing activities for the three months ended March 31, 2022, increased from March 31, 2021, due to the purchase of, Trees MLK, Inc and the purchase of property and equipment, offset by the receipt of notes receivable.

Net cash provided by (used in) financing activities for the three months ended March 31, 2022, related to the payment on notes payable of $258,057.

Net cash used in operating activities decreased in 2022 due to the acquisition of TREES Englewood, Trees Portland, Trees Waterfront and Trees MLK which provides positive operating cash flows and adjustments relating to non-cash activities.

Net cash provided by (used in) investing activities for the six months ended June 30, 2022, increased from June 30, 2021, due to the purchase of, Trees MLK, Inc and the purchase of property and equipment, offset by the receipt of notes receivable.

Net cash provided by (used in) financing activities for the six months ended June 30, 2022, related to the payment on notes payable of $552,873.

Capital Resources

We had no material commitments for capital expenditures as of March 31, 2022.

We had no material commitments for capital expenditures as of June 30, 2022.

Part of our growth strategy, however, is to acquire operating businesses.

10 unchanged sentences

The following table reconciles Adjusted EBITDA to the most directly comparable GAAP measure, which is net loss.

Three months ended March 31,

Three months ended June 30,

Six months ended June 30,

Loss from operations before income taxes

17 unchanged sentences

The estimates are based on historical experience and assumptions believed to be reasonable under current facts and circumstances.

Actual amounts and results could differ from these estimates made by management.

Actual amounts

and results could differ from these estimates made by management.

Certain accounting policies that require significant management estimates and are deemed critical to our results of operations or financial position are discussed in our Annual Report on Form 10-K for the year ended December 31, 2021, and Note 1 to the Unaudited Condensed Consolidated Financial Statements in this Form 10-Q.

2 unchanged sentences

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-Q

Item 2. Management’s Discussion and Analysis