What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-11-14 compared with 2023-08-14 · 53 added, 49 removed, 119 unchanged (46% of the section changed)

11 unchanged sentences

TREES Corporation is a cannabis retailer and cultivator in the States of Colorado and Oregon.

We presently operate eight (8) cannabis dispensaries as follows:

We presently operate six (6) cannabis dispensaries as follows:

● Englewood, Colorado

Federal Boulevard – Recreational license only

● Two (2) in Denver, Colorado

Federal Boulevard – Recreational license only

● Denver, Colorado

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

7 unchanged sentences

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

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

We also operate two (2) cultivation facilities in Colorado as follows:

● SevenFive Farm – 3705 N.

1 unchanged sentence

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

2 nd Street (formerly Green Tree/Natural Alternatives for Life) – Medical cultivation license only

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 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 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.

During the three months ended September 30, 2023 and 2022, 89% of SevenFive’s revenue was with five customers and 79% was with one customer, respectively.

During the nine months ended September 30, 2023 and 2022, 50% of SevenFive’s revenue was with one customer and 66% was with one customer, respectively.

Two of the customers with sales in the three months ended September 30, 2023 are related party dispensaries and the revenues associated with these customers are eliminated in consolidation.

During the three months ended September 30, 2023, 84% of Green Tree’s revenue was with four customers.

During the nine months ended September 30, 2023, 78% 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 June 30,

Three months ended September 30,

Costs and expenses

3 unchanged sentences

Loss from operations before income taxes

Six months ended June 30,

Nine months ended September 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 June 30, 2023 compared to June 30, 2022, and for the six months ended June 30, 2023 and June 30, 2022, respectively.

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 September 30, 2023 compared to September 30, 2022, and for the nine months ended September 30, 2023 and September 30, 2022, respectively.

Costs and expenses

Three months ended June 30,

Three months ended September 30,

Cost of sales

3 unchanged sentences

Depreciation and amortization

Six months ended June 30,

Nine months ended September 30,

Cost of sales

3 unchanged sentences

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.

Cost of sales increased for three and nine months ended September 30, 2023, as compared to September 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 nine months ended September 30, 2023, as compared to September 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 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.

Professional fees increased for the three and nine months ended September 30, 2023 as compared to September 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 June 30,

Three months ended September 30,

Employee awards

Six months ended June 30,

Nine months ended September 30,

Employee awards

1 unchanged sentence

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

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

Other Expense

Three months ended June 30,

Three months ended September 30,

Amortization of debt discount

Interest expense

Loss on extinguishment of debt

(Gain) loss on derivative liability

Gain on sale of assets

Six months ended June 30,

Loss on transfer of assets

Nine months ended September 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.

Loss on extinguishment of debt

Gain on derivative liability

Gain on sale of assets

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

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

Loss on extinguishment of debt decreased during the three and nine months ended September 30, 2023, as compared to September 30, 2022 due to loss on extinguishment of debt from the rollover of the 10% Notes to 12% Notes being higher than the loss on extinguishment of debt resulting from the transfer of the Station 2 license (see Note 5).

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

Three months ended June 30,

Gain on sale of assets decreased during the nine months ended September 30, 2023, as compared to September 30, 2022 as no assets were sold during the nine months ended September 30, 2023.

Other Income increased during the three months

and nine months ended September 30, 2023, as compared to September 30, 2022 due to the Company applying for employee retention credits through the CARES Act.

Three months ended September 30,

Costs and expenses

Segment operating (loss) income

Six months ended June 30,

Nine months ended September 30,

Costs and expenses

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.

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 nine months ended September 30, 2023, compared to September 30, 2022.

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

Three months ended June 30,

Three months ended September 30,

Costs and expenses

Segment operating loss

Six months ended June 30,

Nine months ended September 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 decrease in revenues for the three months ended September 30, 2023 compared to September 30, 2022, is due to Green Tree revenues being recognized by the original owners as a result of the license transfer in July 2023.

The increase in revenues for the nine months ended September 30, 2023 compared to September 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 nine months ended September 30, 2023 compared to September 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.

4 unchanged sentences

Sources and uses of cash

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

We had cash of $251,691 and $2,583,833 as of September 30, 2023 and December 31, 2022, respectively.

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

Six months ended June 30,

Nine months ended September 30,

Net cash used in operating activities

Net cash used in investing activities

Net cash used in financing activities

Net cash (used in) provided by financing activities

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 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.

Net cash used in investing activities for the nine months ended September 30, 2023 was comparable to the nine months ended September 30, 2022, as a result of the acquisition of Station 2 in 2023 and the acquisition of Trees in 2022.

Net cash used in financing activities for the three and nine months ended September 30, 2023 increased from September 30, 2022 due to an increase in payments on notes payable and finance leases, and no debt raise.

Capital Resources

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

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

Six months ended June 30,

Three months ended September 30,

Nine months ended September 30,

Net loss from continuing operations

2 unchanged sentences

Depreciation and amortization

Amortization of debt discount and equity issuance costs

Amortization of debt discount

Loss on extinguishment of debt

Interest expense

Loss (gain) on sale of assets

Gain on sale of assets

(Gain) loss on derivative liability

1 unchanged sentence

Provision for income taxes

Other expense (income)

Total adjustments

12 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