What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-08-14 compared with 2023-05-22 · 70 added, 36 removed, 98 unchanged (52% of the section changed)

16 unchanged sentences

Federal Boulevard – Recreational license only

East Hampden Avenue (formerly Green Man) – Recreational license only

o East Hampden Avenue (formerly Green Man) – Recreational license only

● Longmont, Colorado

3 unchanged sentences

● Three (3) in Oregon

SW Corbett Avenue, Portland, OR – Medical and Recreational licenses

NE 102 nd Avenue, Portland, OR – Medical and Recreational licenses

7050 NE MLK, Portland, OR – Medical and Recreational licenses

We also operate five (5) cultivation facilities in Colorado as follows:

o SW Corbett Avenue, Portland, OR – Medical and Recreational licenses

o NE 102 nd Avenue, Portland, OR – Medical and Recreational licenses

o 7050 NE MLK, Portland, OR – Medical and Recreational licenses

We also operate three (3) cultivation facilities in Colorado as follows:

● SevenFive Farm – 3705 N.

75 th Street, Boulder – Retail cultivation license only

Foothills Highway D-300 (formerly Green Tree/Ancient Alternatives) – Medical and Retail cultivation licenses

Foothills Highway C-100 (formerly Green Tree/Mountainside Industries) – Medical and Retail cultivation licenses

Foothills Highway E-100 (formerly Green Tree/Hillside Enterprises) – Retail cultivation license only

1 unchanged sentence

Our principal business model is to acquire, integrate and optimize cannabis companies in the retail and cultivation segments utilizing the combined experience of entrepreneurs and synergistic operations of our vertically integrated network.

During the three months ended March 31, 2023, 88% of SevenFive’s revenue was with three customers.

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

During the three months ended June 30, 2023, 81% of SevenFive’s revenue was with two customers.

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

During the six months ended June 30, 2023, 77% of SevenFive’s revenue was with two customers.

During the six months ended June 30, 2022, 59% of SevenFive’s revenue was with one customer.

The customers in both 2023 and 2022 are related party dispensaries and the revenues associated with these customers are eliminated in consolidation.

During the three months ended March 31, 2023, 88% of Green Tree’s revenue was with three customers.

During the three months ended June 30, 2023, 90% of Green Tree’s revenue was with four customers.

During the six months ended June 30, 2023, 83% of Green Tree’s revenue was with three customers.

The customers in 2023 are related party dispensaries and the revenues associated with these customers are eliminated in consolidation.

2 unchanged sentences

The tables and the discussion below should be read in conjunction with the accompanying unaudited 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 activity driven by Green Tree and Green Man, which we acquired in Q4 2022, contributed to the increase in revenues for the three months ended March 31, 2023 compared to March 31, 2022.

Six months ended June 30,

Costs and expenses

Three months ended March 31,

Other expense

Net loss from continuing operations before income taxes

Gain (loss) from discontinued operations

Loss from operations before income taxes

The activity driven by Green Tree and Green Man, which we acquired in Q4 2022, contributed to the increase in revenues for the three months ended June 30, 2023 compared to June 30, 2022, and for the six months ended June 30, 2023 and June 30, 2022, respectively.

Costs and expenses

Three months ended June 30,

Cost of sales

3 unchanged sentences

Depreciation and amortization

Cost of sales increased three and months ended March 31, 2023, as compared to March 31, 2022 due to the additional sales driven from Green Tree and Green Man.

Selling, general and administrative expense increased for the three months ended March 31, 2023, as compared to March 31, 2022, due to the increased expenses resulting from the acquisition of three dispensaries in the fourth quarter of 2022 and one additional dispensary in the first quarter of 2023.

Six months ended June 30,

Cost of sales

Selling, general and administrative

Stock-based compensation

Professional fees

Depreciation and amortization

Cost of sales increased three and six months ended June 30, 2023, as compared to June 30, 2022 due to the additional sales driven from the Green Tree and Green Man acquisitions.

Selling, general and administrative expense increased for the three and six months ended June 30, 2023, as compared to June 30, 2022, due to the increased expenses resulting from the acquisition of three dispensaries in the fourth quarter of

2022 and one additional dispensary license in the first quarter of 2023.

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

Professional fees consist primarily of accounting and legal expenses.

Professional fees increased for the three months ended March 31, 2023 as compared to March 31, 2022 due to the acquisition activity in the first quarter of 2023.

Professional fees increased for the three and six months ended June 30, 2023 as compared to June 30, 2022 due to the acquisition activity in the first quarter of 2023, as well as the accrued legal expenses for the settlement reached in the second quarter of 2023.

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, 2023, as compared to 2022, is due to not issuing options in the first quarter of 2023.

The decrease in expense for the three and six months ended June 30, 2023, as compared to 2022, is due to not issuing options in the second quarter of 2023.

Other Expense

Three months ended March 31,

Three months ended June 30,

Amortization of debt discount

1 unchanged sentence

(Gain) loss on derivative liability

Amortization of debt discount decreased during the three months ended March 31, 2023, as compared to March 31, 2022, due to the rollover and repayment of the 10% Notes.

Interest expense increased during the three months ended March 31, 2023, as compared to March 31, 2022, due to the addition of the 12% Notes with an interest rate of 12% in Q3 2022.

Gain on sale of assets

Six months ended June 30,

Amortization of debt discount

Interest expense

Gain (loss) on derivative liability

(Gain) loss on sale of assets

Amortization of debt discount increased during the three months ended June 30, 2023, as compared to June 30, 2022 due to the issuance of 12% Notes related to the asset acquisition that occurred during Q1 2023.

Amortization of debt discount decreased during the six months ended June 30, 2023, as compared to June 30, 2022, due to the rollover and repayment of the 10% Notes.

Interest expense increased during the three and six months ended June 30, 2023, as compared to June 30, 2022, due to the addition of the 12% Notes with an interest rate of 12% in Q3 2022.

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

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 positive cash flows which we anticipate will contribute to our working capital position.

Three months ended March 31,

Segment operating (loss) income

Six months ended June 30,

Costs and expenses

The increase in revenues for the three months ended March 31, 2023 compared to March 31, 2022 is attributed to the revenue driven from the cultivation spaces acquired in Q4 2022.

The steady decline in the wholesale pricing of flower going forward may lead to lower revenue and lower margins in the cultivation segment.

Segment operating income

With the acquisition of Green Tree on December 12, 2022, and the acquisition of Green Man on December 19, 2022, as well as the acquisition of the dispensary license for 468 Federal Street, retail revenue increased for the three and six months ended June 30, 2023, compared to June 30, 2022.

Costs and expenses also increased as a result of the acquisitions.

Three months ended June 30,

Costs and expenses

Segment operating loss

Six months ended June 30,

Costs and expenses

Segment operating loss

The increase in revenues for the three and six months ended June 30, 2023 compared to June 30, 2022 is attributed to the increase in sales made to our dispensaries which are eliminated in consolidation.

The increase in cost and expenses for the three and six months ended June 30, 2023 compared to June 30, 2022 is attributed to the acquisitions of Green Tree and Green Man that occurred during December of 2022, as well as the increase in sales made to our dispensaries.

The costs and expense incurred between our dispensaries and cultivation locations are eliminated in consolidation.

Sources of liquidity

Our sources of liquidity include the cash exercise of common stock options and warrants, debt, and the issuance of common stock or other equity-based instruments.

We anticipate our significant uses of resources will include funding operations and developing infrastructure.

Our sources of liquidity historically have included the cash exercise of common stock options and warrants, debt, and the issuance of common stock or other equity-based instruments.

We anticipate our significant uses of resources will include funding operations.

In September 2022, we received $10,587,250 in cash in a private placement with certain accredited investors pursuant to the 12% Notes to be used for acquisition of dispensaries and operating capital.

Sources and uses of cash

We had cash of $1,460,162 and $2,583,833 as of March 31, 2023 and December 31, 2022, respectively.

We had cash of $643,968 and $2,583,833 as of June 30, 2023 and December 31, 2022, respectively.

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

Three months ended March 31,

Net cash (used in) provided by operating activities

Six months ended June 30,

Net cash used in operating activities

Net cash used in investing activities

1 unchanged sentence

Net cash used in operating activities increased in 2023 due to the increased net loss driven from the expenses described above.

Net cash used in investing activities for the three months ended March 31, 2023 increased from March 31, 2022, as a result of the purchase price of the additional license acquired in February 2023 exceeding the acquisition activity in the three months prior period, as well as a decrease in proceeds from notes receivable.

Net cash used in financing activities for the three months ended March 31, 2023 increased from March 31, 2022 due to an increase in payments on notes payable and finance leases.

Net cash used in investing activities for the six months ended June 30, 2023 increased from June 30, 2022, as a result of the purchase price of the additional license acquired in February 2023 exceeding the acquisition activity in the six month prior period.

Net cash used in financing activities for the three and six months ended June 30, 2023 increased from June 30, 2022 due to an increase in payments on notes payable and finance leases.

Capital Resources

We had no material commitments for capital expenditures as of March 31, 2023.

We had no material commitments for capital expenditures as of June 30, 2023.

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,

Net loss from continuing operations

4 unchanged sentences

Interest expense

Loss (gain) on sale of assets

(Gain) loss on derivative liability

15 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