What changed in this filing

/stocks — the workspaceLOADING

Item 1. Business

2023-03-30 compared with 2022-03-29 · 311 added, 642 removed, 15 unchanged (98% of the section changed)

(together with its wholly owned subsidiaries, collectively “urban-gro”, “we”, “us” or “the

Company”) was originally formed on March 20, 2014, as a Colorado limited liability company.

In March 2017, we converted to a Colorado

corporation and exchanged shares of our common stock for every member interest issued and outstanding on the date of conversion.

29, 2020, we reincorporated as a Delaware corporation.

On December 31, 2020, we effected a 1-for-6 reverse stock split with respect

to our common stock.

All information in this Report gives effect to this reverse stock split, including restating prior period reported

On February 12, 2021, we completed an uplisting to the Nasdaq stock exchange under the ticker symbol UGRO.

is a leading architectural design, engineering and cultivation design services company focused on the sustainable commercial

indoor horticulture market.

We design and engineer indoor controlled environment agriculture (“CEA”) facilities, then

integrate complex environmental equipment systems into those facilities, and provide ongoing maintenance, training, and support

CEA is a market segment that is defined by type of facility, and has no correlation to the industry, or more specifically

the crop being grown in the facility.

The CEA segment is represented by any horticultural facility that is fully self-contained, and

has a fully-controlled environment.

There are three facility types that meet these qualifications:

Facilities - new building;

or the retrofit of an existing building;

Farms – a building with a smaller footprint that is built up vertically and we view this category as including modular container

– traditional and made out of a variety of translucent materials as to provide natural sunlight for the crop being grown.

historically we have been focused on designing, engineering, and integrating equipment into indoor CEA facilities,

of which some are ultimately used for the cultivation of plant-based medicines, we have expanded our reach within CEA across both

facility type and crop type.

The term “plant-based medicines” includes (i) a wide array of herbal supplements including but

not limited to curcumin, saffron extract and ginger, (ii) cannabidiol (“CBD”) based therapeutics, (iii) cannabis based therapeutics

and (iv) a host of medicines derived from plants such as caffeine, menthol, foxglove and others.

We have also focused and expanded

into the vertical farming CEA sub-segment, which is ultimately and predominantly used for the cultivation of a variety of crops including,

but not limited to, leafy greens, herbs, cucumbers, peppers, and strawberries.

our work, we create high-performance indoor cultivation facilities for our clients to grow specialty crops, including leafy greens,

vegetables, herbs, and cannabis.

Our purpose-built, value-add approach to design, engineering, procurement, and equipment integration

provides a single point of accountability across all aspects of indoor growing operations.

We also help our clients achieve operational

efficiency and economic advantages through a full spectrum of professional services and programs focused on facility optimization and

environmental health which establish facilities that allow clients to manage, operate and perform at the highest level throughout their

entire cultivation lifecycle once they are up and running.

commencing business in March 2014, we have introduced new equipment solutions, products and services to the CEA market, expanded our

ongoing operations across North America, added CEA-focused design and engineering to our services portfolio, diversified into

food-focused CEA, and have entered into several engagements in Europe, where we have opened urban-gro European Holdings

BV based in the Netherlands to help shepherd those engagements.

majority of our clients are commercial CEA cultivators.

We believe one of the key points of our differentiation that clients value is

the depth of experience of our employees and our Company.

We currently employ 97 individuals.

Approximately two-thirds of our

employees are considered experts in their areas of focus, and our team includes Designers (Architects, Interior Designers, Cultivation

Space Planners), Engineers (Mechanical, Electrical, Plumbing, Controls, and Agricultural), Professional Engineers, and individuals

with Masters Degrees in Plant Science, Horticulture, and Business Administration.

As a company, we have worked on nearly 500 indoor

CEA facilities, and believe that the experience of our team and Company provides clients with the confidence that will proactively

keep them from making common costly mistakes during the build out process that impact operational stages.

Our expertise translates

into clients saving time, money, and resources through expertise that they can leverage without having to add headcount to their own

We provide this experience in addition to offering a platform of the highest quality equipment systems that can be integrated

holistically into our clients’ facilities.

Services and Integrated Equipment Solutions

aim to work with our clients from inception of their project in a way that provides value throughout the life of their facility.

We are a trusted partner and advisor to our clients and offer a complete set of design, engineering and managed services complemented

by a vetted suite of select cultivation equipment systems.

Outlined below is an example of a complete project that demonstrate how we provide value to our clients.

indoor commercial cultivation solution offers an integrated suite of services and equipment systems that generally fall within the following

and Engineering Services

Engineering and Design Services – A comprehensive triad of services including:

Pre-Construction

Space Programming (“CSP”)

Architectural

Full-Facility

Mechanical, Electrical, and Plumbing (“MEP”)

Integrated Cultivation Design (“ICD”)

ongoing service offering including:

and Equipment Commissioning Services

Gro-Care Crop and Asset Protection Services including

Training Services, Equipment Maintenance Services, Crop Protection Program, and an Interactive Online Portal Hub for Gro-Care

Equipment Solutions:

Source, and Integration of Complex Environmental Equipment Systems

Reselling (“VAR”) of Cultivation Equipment Systems

Vendor Relationships with Premier Manufacturers

and Engineering Services

a leader in indoor CEA facilities, we provide our clients with service offerings that include architectural, interior, and engineering

design as well as the operational stages of the facility.

Our in-house architectural design, engineering and cultivation

design services offering includes Pre-Construction, CSP, Architectural Design, Interior Design, MEP, and ICD.

urban-gro, Inc.

(together with its wholly owned subsidiaries, collectively "urban-gro," "we," "us," or "the Company") was originally formed on March 20, 2014, as a Colorado limited liability company.

In March 2017, we converted to a Colorado corporation and exchanged shares of our common stock for every member interest issued and outstanding on the date of conversion.

On October 29, 2020, we reincorporated as a Delaware corporation.

On December 31, 2020, we effected a 1-for-6 reverse stock split with respect to our common stock.

All information in this Report gives effect to this reverse stock split, including restating prior period reported amounts.

On February 12, 2021, we completed an uplisting to the Nasdaq Stock Market under the ticker symbol UGRO.

urban-gro is an integrated professional services and construction design-build firm.

Our business focuses primarily on providing fee-based knowledge-based services as well as the value-added reselling of equipment.

We derive income from our ability to generate revenue from our clients through the billing of our employees’ time spent on client projects.

We offer value-added architectural, engineering, systems procurement and integration, and construction design-build solutions to customers operating in the controlled environment agriculture ("CEA") and industrial and other commercial ("Commercial") sectors.

Our evolution, both organically and through the acquisition of engineering, architecture, and construction management firms has enabled us to successfully diversify into the commercial sectors of the clients we serve, as well as the capabilities we offer, which we believe has helped insulate our business from any one sector.

Even with this successful diversification, our main focus and value-add has always been and remains in providing solutions to our CEA clients, where we have experience and expertise in designing, engineering, building, and integrating complex environmental equipment systems into indoor CEA cultivation and retail facilities, and then providing ongoing maintenance, training, and support services to those same facilities.

We aim to work with our clients from inception of their project in a way that provides value throughout the life of their facility.

Clients, regardless of sector they are in, engage us to deliver their vision because of our experience and expertise, and because our integrated, design-build solutions offer a value-add approach to design, engineering, procurement, construction-management, construction, and equipment integration, providing a single point of accountability across all aspects of a project.

For our CEA clients in particular, we create high-performance indoor cultivation facilities to grow specialty crops, including cannabis as well as produce such as leafy greens, vegetables, herbs and berries.

We also provide design-build solutions for our CEA clients' retail facilities.

We help our clients achieve operational efficiency and economic advantages through a full spectrum of professional services and programs focused on facility optimization and environmental health which establish facilities that allow clients to manage, operate and perform at the highest level throughout their entire cultivation lifecycle once they are up and running.

For these CEA clients, our team provides services to meet the most stringent regulatory environments, whether they are energy efficiency goals, Good Agricultural and Collection Practices (GACP), or Good Manufacturing Practice ("GMP") and/or European Medicine Agency EU GMP ("EU/GMP") certification.

While we have successfully diversified our target markets across several commercial sectors, the majority of our clients are commercial CEA cultivators.

We believe a key differentiation point that clients value is the depth of our employees’ and Company’s experience.

As of December 31, 2022, we employed 152 full time employees, approximately two-thirds of which are considered experts in their areas of focus.

Our team includes Designers (Architects, Interior Designers, Cultivation Space Planners), Engineers (Mechanical, Electrical, Plumbing, Controls, and Fire Protection), Construction Managers (Project Managers and Supervisors), and horticulturists.

As a company, we have worked on over 1000 CEA projects, and believe that the experience of our team and Company provides clients with the confidence that will proactively keep them from making common costly mistakes during the design and build process that would impact operational stages.

Our expertise translates into clients saving time, money, and resources through expertise that they can leverage without having to add headcount to their own operations.

We provide this experience in addition to offering a platform of the highest quality equipment systems that can be integrated holistically into our clients’ facilities.

Our Solutions

Since commencing business in March 2014, we have expanded our ongoing operations across North America and Europe while diversifying our services offerings organically and through acquisitions into full design-build solutions by adding design, engineering, construction, and construction-management services, introducing new equipment solutions, products and services, and successfully diversifying into several additional commercial sectors beyond cannabis-focused CEA, including produce-focused CEA;

or vertical farming, healthcare, industrial, commercial packaged goods ("CPG"), and retail.

We are a trusted partner and adviser to our clients and provide value to our clients regardless of the sector in which they sit or solution for which they are utilizing us.

As is detailed in the Project Delivery Comparison chart below, in the CEA sector, the advantages of the urban-gro design-build model vs the traditional owner-contracted model are clear.

There is a single responsible party for our clients' needs from conception through operational start.

This results in greater efficiencies throughout the design-build process and a faster speed to launch.

Additionally, our experience and expertise within our sectors help to prevent costly mistakes for our clients.

Outlined below is an example of a complete end-to-end design-build project that demonstrates how we provide value to our clients over time.

Our design-build solution, when focused on indoor CEA, offers an integrated suite of in-house services and equipment systems that generally fall within the following categories:

• Service Solutions:

• Architectural Design, Engineering, and Construction Services – A comprehensive collection of services including:

Pre-Construction Services

include providing a forecast summary of what it will take to get a high-performance facility built, giving initial indication and

detailed analysis of budget, timeline/schedule, and potential large decision impacts including value analysis and engineering options.

The integration of Pre-Construction Services can expedite project delivery.

CSP is an early-stage

engagement with stakeholders that provides an optimized basis of design including the interaction of people, plants, and processes.

The output of CSP provides an optimized analysis of spatial needs based on stipulated criteria and can accelerate construction and

regulatory approval paths, save stakeholders money and time, and enable a process-driven decision-making approach.

Architectural Design is

the implementation of a defined process from development of vision to built environment.

Architecture includes the integration and

coordination of all project required disciplines such as civil, landscape, structural, mechanical and electrical engineering, plumbing,

security, interior design, and other specialty disciplines.

Our services are built around an integrated design process focused on

the collaborative development of client-driven solutions.

Specific to the CEA industry, our team’s understanding of the

relationship between people, plants, and process helps clients maximize profits and efficiencies while minimizing capital

investments, and operational and maintenance costs.

Cultivation Space Programming ("CSP")

Architectural Design and Interior Design

Integrated Cultivation Design ("ICD")

Owner's Representative Services / Construction Management ("CM")

General Contracting ("GC")

• Additional Service Offerings including:

Facility and Equipment Commissioning Services

gro-care ® Crop and Asset Protection Services including Training Services, Equipment Maintenance Services, Asset Protection Program, and an Interactive Online Operating Support System ("OSS") for gro-care ® and client document delivery and project management

Property Condition Assessment ("PCA")

• Integrated Equipment Systems Solutions:

• Design, Source, and Integration of Complex Environmental Equipment Systems including Heating, Ventilation, and Air Conditioning ("HVAC") solutions, Environmental Controls, Fertigation, and Irrigation Distribution

• Value-Added Reselling ("VAR") of Cultivation Equipment Systems

• Strategic Vendor Relationships with Premier Manufacturers

Service Solutions

Architectural Design, Engineering, and Construction Services

We generate revenue by providing our clients with design-build service offerings that include architectural, interior, and engineering design, construction and construction management, as well as services for the operational stages of the facility.

Our in-house architectural, interior design, engineering, construction and cultivation design services integrate design with pre-construction services and thereby reduce project schedule and capital investments.

Pre-Construction Services include providing a forecast summary of what it will take to get a high-performance facility built, giving initial indication and detailed analysis of budget, timeline/schedule, and potential large decision impacts including value analysis and value engineering options.

The integration of Pre-Construction Services can expedite project completion, lower initial project costs, and help reduce costly change orders.

CSP is an early-stage engagement with stakeholders that provides an optimized basis of design including the interaction of people, plants, and processes.

The output of CSP provides an optimized analysis of spatial needs based on stipulated criteria and can accelerate construction and regulatory approval paths, save stakeholders money and time, and enable a process-driven decision-making approach.

Architectural Design is the implementation of a defined process from development of vision to built environment.

Architecture includes the integration and coordination of all project required disciplines such as civil, landscape, structural, mechanical, plumbing and electrical engineering, fire protection, security, interior design, and other specialty disciplines.

Our services are built around an integrated design process focused on the collaborative development of client-driven solutions.

Specific to the CEA industry, our team’s understanding of the relationship between people, plants, and process helps clients maximize profits and efficiencies while minimizing capital investments, and operational and maintenance costs.

Interior Design involves branding and development of the interior aesthetic vision.

Our collaborative

and integrated approach from our award-winning team begins with inspiration boards focused on understanding the client’s aesthetic

Interior design is holistic and thereby includes all aspects of the building interiors from full branding to the selection

and design of all finishes and interior systems.

Common discussions beyond aesthetics include the cost, durability, and maintainability

of systems presented.

MEP engineering design focuses on the entire building, not just the cultivation

space, which in turn eliminates the “gap” between cultivation systems and the building systems.

We provide engineered construction

contract documents for mechanical, heating, ventilation, and air conditioning (“HVAC”), plumbing and electrical systems required

for the building permits necessary to obtain a Certificate of Occupancy.

Our team evaluates client capabilities, needs, desires, and budget

in development of recommended systems through a client-focused collaborative process culminating in the delivery of high-performance and

low-maintenance systems.

ICD creates cultivation space-focused design layouts that integrate climate

control, fertigation, benching, air flow, and lighting.

Our ICD team’s deep understanding of cultivation systems provides the foundation

for ensuring optimal space utilization as they utilize an integrated and collaborative design process focused on understanding, vetting,

and implementing the client’s vision.

Products utilized in the ICD’s basis-of-design ensures the integration of high-quality

systems and product performance.

These detailed ICD plans are taken through the Construction Document stage and are leveraged by our clients

to efficiently solicit contractor bids.

Service Offerings

is a highly differentiated service offering that provides a combination

of facility commissioning and a crop and asset protection program through training, equipment maintenance, on-demand support,

crop protection standard operating procedures (SOP)s, and a client-specific Operating Support System (OSS) that acts as an online hub for clients’ ongoing

Combined, this solution focuses on the troubleshooting, tuning, and support of a myriad of cultivation systems and equipment

while further providing guidance for client interactions with tradespeople working on HVAC, electrical, and plumbing in the facility

on an ongoing basis.

of the current service options available to clients are isolated to vendors providing post-sale service for a single piece of equipment.

Our service provides a cultivation-level view of the complex system made up by each piece of equipment, allowing for rapid

installation, continuous process improvement, and greater revenue recognition for our clients

Facility and Equipment

Commissioning Services .

Today’s cultivation systems are custom designed and extremely complex.

Our team of project managers

and engineers supports the installation process by coordinating with a client’s engineers and stakeholders to avoid project bottlenecks

while supporting construction trades.

Our commissioning team ensures that the equipment is installed according to the design and operates

per the defined manufacturer specifications.

Training Services .

Complex cultivation

systems encompass a multitude of variables and environment readings such as temperature, relative humidity, vapor pressure differential

(VPD), electrical conductivity (EC), pH, network status, light status, photosynthetically active radiation, sunrise/sunset modules, CO 2 ,

HVAC status, fan status, vents (including windward and leeward), shades, network status and flow rates.

In CEA there is a scarcity

of skilled labor which impedes our clients’ ability to drive operating proficiency across their teams.

Our engineering team uses

a series of tools and processes to ensure clients are proactive in preventing equipment downtime, can operate all equipment and processes

fluently, and have expert support in resolving potential issues.

These services range from equipment standard operating procedure (“SOP”)

libraries to staff training sessions.

With a unique knowledgebase acquired from both our commissioning and training for a wide breadth

of cultivation equipment, we provide our clients’ teams with the skills to minimize equipment downtime and optimize processes in

their facilities.

gro-care Maintenance Services .

Complex cultivation systems require specific and ongoing maintenance.

Our team enables clients to perform this maintenance appropriately

or even can perform the maintenance for them so that assets operate at their highest efficiency and any issues are encountered early.

gro-care Support Services

When problems arise in a facility, our team is on-call to provide analysis, support, and even in-person visits to help make sure

the issue is addressed prior to impacting any facility operations.

Overview and Pricing .

We estimate that, on average and depending on the crop, CEA facilities can lose up to $10,000 per 1,000 square

feet of canopy per day when offline – our gro-care Crop and Asset Protection services are centered around proactively minimizing

this potential loss for a fraction of the cost.

Our clients are best described as automation- and margin-focused and have an understanding

of the importance of preventing downtime in their facilities.

Equipment Solutions

our engineers play an integral part in the design of most of the complex equipment systems that are then integrated into a CEA facility,

we also provide consultative reselling of more common solutions that we integrate into the overall design.

CEA, the environmental goal is to maintain a stable and consistent VPD according to the client’s priorities through environmental

control of relative humidity and temperature during all stages of growth.

There are four main variables in CEA that affect plant growth

(and can impact VPD):

Our collaborative and integrated approach from our award-winning team begins with inspiration boards focused on understanding the client’s aesthetic desires.

Interior design is holistic and thereby includes all aspects of the building interiors from full branding to the selection and design of all finishes and interior systems.

Common discussions beyond aesthetics include the cost, durability, and maintainability of systems presented.

Mechanical, Electrical, and Plumbing ("MEP") engineering design focuses on the entire building, not just the cultivation space, which in turn eliminates the "gap" between cultivation systems and the building systems.

We provide engineered construction contract documents for mechanical, HVAC, plumbing and electrical systems required for the building permits necessary to obtain a Certificate of Occupancy.

Our team evaluates client capabilities, needs, desires, and budget in development of recommended systems through a client-focused collaborative process culminating in the delivery of high-performance and low-maintenance systems.

ICD creates cultivation space-focused design layouts that integrate climate control, fertigation, benching, air flow, and lighting.

Our ICD team’s deep understanding of cultivation systems provides the foundation for ensuring optimal space utilization as they utilize an integrated and collaborative design process focused on understanding, vetting, and implementing the client’s vision.

Products utilized in the ICD’s basis-of-design ensures the integration of high-quality systems and product performance.

These detailed ICD plans are taken through the construction document stage and are leveraged by our clients to efficiently solicit contractor bids.

Construction and Construction Management provides all the additional necessary parts to deliver our clients' projects, from the initial estimate and bid process, to subcontractor selection, and management of all construction details.

Our skilled project managers, specialized within our clients' sectors, maintain knowledgeable open lines of communication with both clients, onsite superintendents, and internal and external construction partners to manage expectations, costs and schedules.

Our Additional Service Offerings

Our Facility and Equipment Commissioning Services provide a cultivation-level view of the complex system made up by each piece of equipment and ensures systems are running properly.

Many of the current service options available to CEA cultivation clients are isolated to vendors providing post-sale service for a single piece of equipment.

Our team confirms contractors and specialty trades are installing systems to the design intent allowing for rapid installation, continuous process improvement, and increased revenue for our clients.

gro-care ® is a highly differentiated service offering that provides a combination of CEA cultivation facility commissioning and an asset protection program through training, equipment maintenance, on-demand support, standard operating procedures ("SOP"), and a client-specific OSS that acts as an online hub for clients’ ongoing services.

Combined, this solution focuses on the troubleshooting, tuning, and support of a myriad of cultivation systems and equipment while further providing guidance for client interactions with tradespeople working on HVAC, electrical, and plumbing in the facility on an ongoing basis.

Our PCA offering provides value to all clients regardless of sector, but also adds unique value for our clients in the CEA sector.

PCA includes researching historical records of the building as related to code issues, field documentation of existing conditions, a report of findings with materials systems categorized by condition, and a capital expenditure report for correction of any deficiencies.

For our clients in the CEA sector, our PCA offering provides analysis of components specifically within CEA facilities, both with an eye towards critical cultivation and manufacturing systems as well as helping clients understand a facility's ability to meet any state regulations that may have evolved such as adherence to standards such as Current Good Manufacturing Practices ("cGMP"), EU-GMP, and/or World Health Organization guidelines on GACP.

PCA provides necessary data for clients to understand options for optimizing operational performance, understanding deficiencies, and property preparing for necessary capital expenditures.

Integrated Equipment Solutions

While our engineers play an integral part in the design of most of the complex equipment systems that are then integrated into a CEA facility, we also provide consultative reselling of more common solutions that we integrate into the overall design.

For CEA, the environmental goal is to maintain a stable and consistent vapor pressure deficit ("VPD") according to the client’s priorities through environmental control of relative humidity and temperature during all stages of growth.

There are four main variables in CEA that affect plant growth (and can impact VPD):

(i) water and nutrients;

1 unchanged sentence

and (iv) lighting.

Source, and Integration of Complex Environmental Equipment Systems

Environment Systems for CEA include the integration of environmental controls, fertigation and irrigation distribution, a complete line

of water treatment and wastewater reclamation systems, and purpose-built HVAC equipment systems.

most significant variable of interest in a CEA facility is the control of the environment, which is accomplished through the integration

of both environmental controls and the purpose-built HVAC system.

Without proper design, the environmental control system is the most

influential variable in terms of temperature and relative humidity control within an indoor agriculture space.

With properly designed

equipment, the environmental controls variable is less volatile, enabling efficient growing conditions.

Purpose-built

HVAC equipment systems will provide a more stable environment, maximize plant health and yields, minimize crop loss, minimize utility

costs, save on capital equipment, and maximize sustainability.

Additionally, private studies of a partner comparing purpose-built HVAC

environmental controls equipment to standard commercial HVAC and dehumidification, found increased crop yields with purpose-built equipment,

which can include chilled water and DX systems.

of Cultivation Equipment Systems

act as an experienced VAR to our clients when selling vetted best-in-class commercial horticulture lighting solutions, rolling and automated

container benching systems, specialty fans, and microbial mitigation and odor reduction systems.

The acquired knowledge of how each of

these systems work in combination with and in tangent to the overall ecosystem is a significant benefit that our engineers and product

experts offer to our clients.

Not only are many competing products reviewed in each category with the intention of vetting the best solution,

we continually search out and review competing technologies to ensure that only the best-in-class equipment systems are integrated into

our projects.

As such, we believe it will be imperative to maintain and to continue to develop close relationships with both existing

and new leading technology and manufacturing providers.

we typically do not sell any cultivation equipment systems individually as a one-time sale.

The majority of equipment sales are sold

as part of a larger all-encompassing project solution that spans over a 12 to 18 month period and includes engineering design and the

sale of both custom complex and more standard equipment systems.

Vendor Relationships with Premier Manufacturers

work closely with leading technology and manufacturing providers to deliver an integrated solution designed to achieve the stated objectives

of our clients.

While we previously manufactured certain lighting products, we discontinued all manufacturing in 2019, although we continued

to sell existing inventory through 2020.

Today we are equipment agnostic – meaning we do not have any allegiance to any manufacturer

– we offer the solution that will best fit the design and budget constraints of our clients and are happy to design, engineer,

and integrate in whatever equipment fits the needs of our clients.

and Gross Profit Margins by Category .

Service Revenues for engineering design services contracts can be hundreds of thousands of

dollars, depending on the spectrum of services desired by the client and the size of the facility.

Product Revenues for customized equipment

systems can be millions of dollars, depending on the size of the cultivation facilities, the complexity and types of systems purchased

by the client, and the number of systems purchased by the client.

Sales of consumable products are typically of a recurring nature each

month to a client and can be in the tens of thousands of dollars.

gross profit margins for each of the Company’s revenue categories are as follows:

Architectural

and Engineering design services –

thirty to sixty percent;

gro-care Crop and Asset Protection services –

forty to sixty percent;

equipment systems - mid-teens to mid-thirty percent;

products revenues - high-teens to high-twenty percent.

profit margins on engineering design services and customized equipment systems are highly dependent on the complexity and size of the

primarily market and sell our products and services to CEA operators and facilitators in the United States and Canada.

Our historical

client base has been comprised of indoor commercial cultivators seeking to grow high-quality cannabis crops.

Since launching the engineering

and design division in 2018, we have designed and assisted in the build-out of 500+ projects for some of the largest independent

and multi-state operators in both the United States and Canada.

Although the cannabis market has been our historical target market and

an unknown but substantial portion of all of our revenues to date have been generated from clients in the cannabis industry, we have

been diversifying our client base by expanding our reach within food-focused vertical farming indoor CEA and maintaining non-CEA

business lines from our architectural and engineering teams.

The term “plant-based medicines” includes (i) a wide array

of herbal supplements including but not limited to curcumin, saffron extract and ginger, (ii) CBD based therapeutics, (iii) cannabis-based

therapeutics and (iv) a host of medicines derived from plans such as caffeine, menthol, foxglove and others.

We are focusing on expanding

to the vertical farming CEA sub-segment, which is ultimately and predominantly used for the cultivation of a variety of crops including,

but not limited to, leafy greens, herbs, cucumbers, peppers, and strawberries, as well as continue our expansion into Europe to meet

the demand for our solutions within the indoor CEA market.

The complex equipment systems that we design and procure for our clients play an important role in helping control and maintain the cultivation facility's environment for plants.

Design, Source, and Integration of Complex Environmental Equipment Systems

Complex Environment Systems for CEA include environmental controls, fertigation and irrigation distribution, a complete line of water treatment and wastewater reclamation systems, and HVAC equipment systems.

As related to systems and equipment, the most significant and influential variable within a CEA facility is the ability to control and maintain the cultivation environment.

This is accomplished through the integration of mechanical systems (HVAC), lighting, air movement systems, irrigation systems, and environmental controls.

Maintaining a consistent desired temperature and humidity level within the cultivation spaces ensures less stress on plants.

urban-gro designs these systems to fit within our clients' budgets and provides our clients' facilities a more stable environment to maximize plant health and yields, minimize crop loss, minimize utility costs, save on capital equipment, and maximize sustainability.

Value-Added Reselling of Cultivation Equipment Systems

We act as an experienced vendor providing VAR to our clients when selling vetted best-in-class commercial horticulture lighting solutions, rolling and automated container benching systems, specialty fans, fertigation/irrigation systems, environmental control systems, and microbial mitigation and odor reduction systems.

The acquired knowledge of how each of these systems work in combination with and in tangent to the overall ecosystem is a significant benefit that our engineers and product experts offer to our clients.

Not only are many competing products reviewed in each category with the intention of vetting the best solution, but we also continually search out and review competing technologies to ensure that only the best-in-class equipment systems are integrated into our projects.

As such, we believe it will be imperative to maintain and to continue to develop close relationships with both existing and new leading technology and manufacturing providers.

Today, we typically do not sell any cultivation equipment systems individually as a one-time sale.

The majority of equipment sales are sold as part of a larger all-encompassing project solution that spans over a 12 to 24 month period and includes design, engineering, and the sale of both custom complex and more standard equipment systems.

Strategic Vendor Relationships with Premier Manufacturers

We work closely with leading technology and manufacturing providers to deliver an integrated solution designed to achieve the stated objectives of our clients.

We pride ourselves as being equipment agnostic – meaning we do not have allegiances to any single manufacturer – we offer the solution that will best meet the design and budget constraints of our clients and design, engineer, and integrate whatever equipment fits the client's needs.

Revenues and Gross Profit Margins

As our business has evolved and diversified into design-build offerings, our margin profiles have changed.

Professional service revenues for engineering design services contracts can be hundreds of thousands of dollars, depending on the spectrum of services desired by the client and the size of the facility.

Construction design-build contracts can run in the tens of millions of dollars depending on the overall size of the facility.

Equipment revenues for customized equipment systems can be millions of dollars, depending on the size of the cultivation facilities, the complexity and types of systems purchased by the client, and the number of systems purchased by the client.

Sales of other products are typically of a recurring nature each month to a client and can be in the tens of thousands of dollars.

Targeted gross profit margins for each of the Company’s revenue categories are as follows:

• Professional services - greater than forty percent;

• Construction design-build services - greater than six percent;

• Customized equipment systems - greater than ten percent;

• Other products revenues - greater than fifteen percent.

Gross profit margins are highly dependent on the complexity and size of the project.

We primarily market and sell our solutions to clients in the CEA and Commercial sectors.

In the CEA sector, our clients include operators and facilitators in both the cannabis and produce markets in the United States, Canada, and Europe.

In the Commercial sector, we work with leading food and beverage consumer packaged goods companies in the United States, and clients in healthcare, higher education, and hospitality.

Environment, Social, and Governance

We are continuously striving to develop, maintain, and build upon our environmental, social, and governance ("ESG") practices and credentials.

We greatly value ESG considerations as they enable us to better identify material risks and growth potential, leading to better-informed decisions and business outcomes with the goal of maximizing value creation for our shareholders.

To this end, the urban-gro Board of Directors ("Board") recently established an ESG committee as part of our Board.

In addition, we have engaged with the services of an independent consulting solution to help educate us and guide us as we develop our ESG roadmap and work towards establishing our priorities in this space.

While we engage in those activities, we continue to support ESG in the following ways:

• Environment:

Social, and Governance

We are continuously striving to develop, maintain,

and build upon our environmental, social, and governance (“ESG”) practices.

As a leader in the CEA space, urban-gro has a continuing commitment to Environmental Sustainability in order to help form a better,

healthier world for future generations.

Utilizing the expertise of our employees, we create less waste, water consumption, and carbon

emissions for over 500 facilities worldwide and counting.

We believe we present a strong opportunity for the growing market of investors

looking for profitable growth companies dedicated to providing a more sustainable world for generations to come.

As technological

advancement continues, we plan to work with our partners to create even more earth-friendly cultivation sites in our hopes of carbon

our leadership position in the market as an opportunity to promote our corporate values of inclusion, innovation, and connection.

Internally, we hire and promote underrepresented communities in STEM (science, technology, education, mathematics).

Our project design

and engineering teams reflect our commitment as demonstrated by leadership positions held by women across our project design, project

management, and client engagement departments.

CEA is an industry that is rapidly advancing, testing, and adopting new technologies.

Our corporate development team works closely

with our project design and engineering teams to vet new products and ensure they align with our corporate responsibility needs.

Through our outreach efforts across the world, we represent a company committed to the development and nurturing of

a deeper understanding across all disciplines of CEA, food production, and being on the leading edge of emerging industry-related

Through our Client Appreciation Events at major tradeshows

across North America, we raise awareness and funds for local charities.

These events serve as opportunities for non-profits to bolster

career opportunities, economic development, veteran health and housing, and other causes.

have been a long-time supporter of HeroGrown, an organization that provides Veterans, First Responders, and their families with free

access to benefit-rich CBD.

Through “Operation CBD Drop,” HeroGrown provides an alternative to those struggling with

addiction to deadly drugs prescribed for service-related injuries and psychological disorders.

We have been a supporter of Teens for Food Justice which

is catalyzing a youth-led movement to end food insecurity in one generation through high-capacity, school-based hydroponic farming.

We have even helped build out and commission their first in-classroom vertical farm in the Denver area located near our headquarters and have committed our team’s time to mentoring students and helping further TFFJ’s

As a professional services design-build firm, and a leader in the CEA space, urban-gro has a continuing commitment to Environmental Sustainability in order to help form a better, healthier world for our and future generations.

In general, we are aligned with industry best practices around CEA, which include a focus on water conservation and reuse, reducing the carbon footprint of the production and distribution process, and increasing the efficiency of harvests.

Utilizing the expertise of our employees, we have assisted in the creation of over 500 CEA facilities worldwide and counting with Leadership in Energy and Environmental Design ("LEED") certified and/or GMP facilities in a variety of commercial sectors focused on reducing waste, water consumption, and carbon consumption.

We believe we present a strong opportunity for investors looking for companies focused on providing a more sustainable world for generations to come.

As technological advancement continues, we plan to work with our partners to create even more earth-friendly cultivation sites within the CEA sector and projects within other sectors.

We are actively exploring opportunities to lower energy use for our customers including but not limited to:

active energy management, efficiency measures in HVAC, and innovations in lighting.

We strive to hire and promote from underrepresented communities in order to become a diverse organization which we believe will bring strength and value to our organization and our shareholders.

In addition, we currently are members of and work with the following organizations:

We have been a supporter of Teens for Food Justice ("TFFJ") which is catalyzing a youth-led movement to end food insecurity in one generation through high-capacity, school-based hydroponic farming.

We have helped build out and commission their first in-classroom vertical farm in the Denver area located near our headquarters and have committed our team’s time to mentoring students and helping further TFFJ’s goals in addition to working with them on future vertical farms.

◦ Associations and Organizations:

We are currently members of good standing in several industry organizations and trade groups such as the New England Healthcare Engineer Society ("NEHES"), the Georgia City-County Management Association ("GCMA"), The Georgia Chapter of APPA ("GAPPA"), American Hort, Association for Vertical Farming, the American Society of Heating, Refrigerating, and Air-Conditioning Engineers ("ASHRAE"), the National Cannabis Industry Association ("NCIA") and the National Cannabis Roundtable ("NCR").

Those last two groups, as a part of their work and being born out of the cannabis industry, are dedicated to sensible regulation, criminal justice reform, social equity and community reinvestment.

• Governance:

We have three main approaches we utilize to guide us for a successful governance

program to ensure that our stakeholders’ best interests are acted upon:

We have several approaches we utilize to guide us for a successful governance program to ensure that our stakeholders’ best interests are acted upon:

◦ Board Composition:

have a strong and diverse board made up of leaders from a variety of fields that help guide our overall efforts.

National Cannabis Roundtable:

We sit on the board of the National Cannabis Roundtable, an organization dedicated to sensible regulation, criminal justice reform,

social equity and community reinvestment.

Audit Committee.

Our Audit Committee is focused on internal controls and multi-discipline oversight enabled by its

charter and structure.

employees and the application of their acquired knowledge is our most valuable asset as an organization.

Our growth strategy involves

leveraging this considerable strength as a basis for growth across three pillars of focus and exploration.

These three pillars allow

us to continue to provide value to our current and future clients:

our Service Capabilities

of Geographical Reach

within the Commercial Horticulture Segment

Diversifying our Service Capabilities

intend to be the global leading provider for purpose-built turnkey indoor CEA facilities.

To that end, we will seek to diversify our

service capabilities to enable that offering of providing value to clients through acting as a single point of responsibility in our

turnkey approach.

While we will continue to expand our services organically, we began this journey through the acquisition of Impact

Engineering, Inc in 2019, the acquisition of 2WR+ Partners in 2021, and will continue to look for inorganic opportunities that

propel us forward towards our vision.

Examples of these opportunities include services that we do not currently have in-house that

provide meaningful value to clients and also represent meaningful revenue gaps for us – amongst these are services like

construction management, additional design-build engineering disciplines, and further niche-specific indoor CEA operational support.

We believe that acting as a single point of responsibility as a provider for turnkey solutions, especially one with the depth and

breadth of experience within indoor CEA facilities, we can get our clients to market more quickly and more efficiently than

We have always aimed to provide the

highest level of service and expertise to our clients from initial cultivation ideation to helping prior to go-live to proactively

solve for issues that may arise once operations begin and continue at their facilities.

We will continue to provide these elite

service levels as we expand our service capabilities.

In addition, where this diversification of service capabilities adds existing clients from non-CEA industry sectors,

we will look to continue to compete and expand in those sectors, including medical, K12, industrial, commercial, hospitality, and CPG,

while remaining focused on being the leader for indoor CEA.

We have a strong and diverse Board made up of leaders from a variety of fields that help guide our overall efforts.

We publish our Board Diversity Matrix on our website at ir.urban-gro.com as well as within our proxy materials each year.

◦ Board Committees:

We currently utilize four Board committees:

• The Audit Committee which is focused on internal controls, risk management, and multi-discipline oversight enabled by its charter and structure;

▪ The Compensation Committee which is focused on compensation principles, policies, and practices for all employees;

▪ The Nominating and Corporate Governance Committee which oversees the Company's corporate governance practices and procedures;

▪ The Environmental, Social, and Governance Committee, recently created, which is overseeing the Company's approach to ESG practices and procedures.

◦ Guiding Policies:

In addition to the above committee charters, we have a Code of Business Ethics and Conduct as well as a Whistleblower Policy which can be found on our website.

◦ Cybersecurity:

We utilize external consultants to help inform cybersecurity best practices, employ cybersecurity software that is preventative and detective for our infrastructure, and require and provide consistent ongoing training for all employees.

Growth Strategy

Our employees and the application of their acquired knowledge are our most valuable assets as an organization.

Our growth strategy involves leveraging this considerable strength as a basis for growth across three pillars of focus and exploration.

These three pillars allow us to continue to provide value to our current and future clients:

Leverage our Sector Diversification and In-House Capability Offerings

Focus on Design-Build Solution

Expansion of Geographical Reach

we will continue to establish our end-to-end solution as the industry standard for CEA indoor cultivation, we intend to continue to focus

on integrating our expertise and service offerings with the best available technologies to allow our clients to achieve operational superiority

and profitability.

While we believe that the U.S.

market will experience continued strength, and this will represent significant growth

opportunities for us, we also intend to continue our expansion and reach within Europe.

Expansion - Historically, our business has found success with clients in the United States and Canada.

While North America currently

presents the dominant opportunity for indoor new build and retrofit CEA facilities, the European CEA market, especially in the vertical

farming sub-segment, is rapidly expanding.

entered the European market in early 2020, through key partners who have brought us into opportunities as a value-added component to

their own sales cycle.

We have demonstrated the transferability of our expertise to the EU and have closed several deals to provide value-added

solution services to European clients in several countries, including Switzerland, Northern Macedonia, Greece, Spain, England, and

the Netherlands.

Based on our due diligence, we believe that the most common facilities in demand in this market will mirror that

of our niche – indoor, CEA, GMP-certified operations.

We will look to capitalize on our current approach and expand our reach into

Europe with our services and products through a staged and cost-efficient approach by first entering the market through our strong partnerships

and leveraging our existing U.S.-based engineering expertise and overhead.

to Market Expansion - Due to the rapid development of the European market and the lack of established companies experienced in the

design, construction, and operations of indoor cultivation facilities, we will make a strategic and staged entry into the European market

to ensure a sustainable use of resources and capital.

The market entry will be designed around a three-phased approach:

One – Focus on establishing a client base and pipeline surrounding early license applicants and current license holders by

providing facility and systems design for indoor projects with a focus on CSP.

Two – Building on established vendor relationships, integrate purpose-built custom environmental equipment systems from U.S.

manufacturers into our European offering.

Three – Incorporate the development of the initial two phases combined with partnerships, joint ventures, expansion of service

capabilities, and domestic manufacturing of equipment to provide a turn-key project solution offering in Europe.

believe this three-phased approach, paired with the evolution of partnerships and domestic equipment manufacturing, will establish us

as an experienced leader and solution provider in the design, engineering, and turn-key systems for the European indoor CEA market.

Expansion within the Commercial Horticulture Segment

our in-house engineering capabilities and synergies, we confidently believe that we can efficiently expand our diversification to include

working on projects in the CEA indoor vertical farming market segment in both the North American and European markets.

CEA Vertical Farming Segment - CEA vertical farm facilities for cultivation are typically indoor warehouse farms and plant factories

that are in purpose-built or retrofitted facilities.

to Bank of America Thematic Research, the global vertical farming market is estimated to reach $17 billion by 2025,

with a compounded annual growth rate of 27.7% from 2020 to 2025.

The market for non-container facilities—on which

we already focus and have had success—is forecasted to grow even faster.

This rate of growth forecast is buttressed by the fact

that more and more food will be needed closer to where population resides, and CEA eliminates many of the risks of traditional agriculture,

minimizing risk and allowing localities to be closer and control their food supply more readily.

Entry - Our end-to-end approach, solutions, and expertise are applicable for and valuable to clients creating high performance indoor

vertical farms to cultivate high value crops such as leafy greens, micro-greens, herbs, peppers, or even floriculture.

And our experience

and expertise is highly transferable – while our experts’ backgrounds are predominantly built on a commercial horticulture

foundation, our architects’ and engineers’ design expertise in indoor CEA also seamlessly flows through to indoor vertical

farming facilities.

The acquired expertise our team has in over 500 indoor CEA projects with the highest valued crop in the world allows

us to understand how to successfully design high performance CEA facilities.

approach to entering this market has followed what we have done as we entered Europe – we continue to reinforce our core

strengths as we expand into new markets through our partnerships.

The first phase of entering this CEA market is through our leading

design and engineering teams.

Our teams have helped in the initial phases of Cultivation Space Planning (CSP) for indoor CEA vertical

farm producers as well as helped existing producers identify and solve issues in their current facilities.

As we find success here,

we will look to continue to partner to accelerate our reach and begin to supply much of the equipment needed to build out a facility,

and finally, after identifying and solving for any potential gaps, we will look to offer turn-key, end-to-end design, engineer, and build

services for indoor CEA facilities.

Strategy - While entering any new market can be challenging, we believe that our existing brand combined with the strength of our

partnerships and expertise will allow us to capture a meaningful amount of this market through targeting the most sophisticated, well-funded

producers who are in need of a partner that has a demonstrated history of success growing crops in this way.

speed up our expansion plan, and with the intention of forming strategic relationships to assist in lead generation, we plan to place

investments in or acquire horticulture-related positive cash flow entities at discounted prices based upon the synergistic upside available

for both organizations.

we feel that our complex end-to-end solution places us as a leader in the CEA segment, we do face competition from companies that offer

some, but not all, portions of an all-encompassing facility package.

Further, these companies often outsource to third parties for the

integration and sale of equipment systems and products, particularly within the cannabis industry.

We also compete with other smaller

and mid-sized companies that focus primarily on either engineering design services or product sales.

Within the services space, there

are several product or services specific competitors that offer similar services, such as architectural design services, MEP services

or basic fertigation design.

Currently, we view our competition to be focused on equipment sales that are predominantly commodity “off-the-shelf”

items like lighting and other cultivation staple products, both pre- and post-startup.

This competition comes from traditional wholesale

horticulture dealers, online retailers, and some manufacturers who sell direct.

manufacturers and European systems integrators may increasingly seek to offer comprehensive product and service solutions to compete

with our integrated solution, but they are primarily focused on the greenhouse industry, and not on indoor CEA facilities.

European systems

integrators in particular are experienced and have a strong operating history in traditional horticulture and provide specialized, intensive,

and large-scale solutions that revolve around greenhouse projects.

Instead of competing with these integrators, we find ourselves working

with them and combining synergies to work on projects together.

although we frequently partner with direct manufacturers to deliver our customized solution, these manufacturers may seek to engage with

clients directly to deliver their products.

In addition, we sometimes compete with electrical contractors with respect to specific components

of facility engineering and design.

the cannabis market continues to mature and develop and legalization becomes more prevalent, we expect to see more competition from cannabis-focused

agricultural product and service providers.

Going forward, while we will continue to serve cannabis CEA producers, we will extend

our focus to non-cannabis crops.

These companies may have longer operating histories, greater name recognition, larger client

bases and significantly greater financial, technical, sales and marketing resources.

These competitors may adopt more aggressive pricing

policies and make more attractive offers to existing and potential clients, employees, strategic partners, distribution channels and

Increased competition is likely to result in price reductions, reduced gross margins and a potential loss of market share.

we do not generate any revenue from the direct sale of cannabis products, we have historically, and may continue to, offer our solutions

to indoor cultivators that are engaged in various aspects of the cannabis industry.

Marijuana is a Schedule I controlled substance and

is illegal under federal law.

Even in those states in which the use of marijuana has been legalized, its use remains a violation of federal

Schedule I controlled substance is defined as a substance that has no currently accepted medical use in the United States, a lack of

safety for use under medical supervision and a high potential for abuse.

The Department of Justice defines Schedule I controlled substances

as “the most dangerous drugs of all the drug schedules with potentially severe psychological or physical dependence.” If

the federal government decides to enforce the Controlled Substances Act with respect to marijuana, persons that are charged with distributing,

possessing with intent to distribute, or growing marijuana could be subject to fines and terms of imprisonment, the maximum being life

imprisonment and a $50 million fine.

Any such change in the federal government’s enforcement of current federal laws could cause

significant financial damage to us.

While we do not intend to harvest, distribute or sell cannabis, we may be irreparably harmed by a

change in enforcement by the federal or state governments.

the Obama administration took the position that it was not an efficient use of resources to direct federal law enforcement agencies to

prosecute those lawfully abiding by state-designated laws allowing the use and distribution of medical marijuana.

The Trump administration

revised this policy but made no major changes in enforcement.

Specifically, Attorney General Sessions vacated the Cole Memorandum in

favor of deferral of any enforcement of federal regulation to the individual states’ Department of Justice or U.S.

certain other protections remain in place via budgetary element embedment (the Rohrabacher-Farr amendment, now referred to as the Rohrabacher-Blumenauer

Amendment), which limits funding of any enforcement of anti-cannabis legislation.

The Department of Justice has stated that it will continue

to enforce the Controlled Substances Act with respect to marijuana to prevent:

distribution of marijuana to minors;

enterprises, gangs and cartels receiving revenue from the sale of marijuana;

diversion of marijuana from states where it is legal under state law to other states;

state-authorized

marijuana activity from being used as a cover or pretext for the trafficking of other illegal drugs or other illegal activity;

and the use of firearms in the cultivation and distribution of marijuana;

while impaired and the exacerbation of other adverse public health consequences associated with marijuana use;

growing of marijuana on public lands;

possession or use on federal property.

the use of marijuana is illegal under federal law, most federally chartered banks will not accept deposit funds from businesses involved

with marijuana.

Consequently, businesses involved in the marijuana industry generally bank with state-chartered banks and credit unions

to provide banking to the industry.

cultivation and distribution of marijuana for medical use is permitted in many states, provided compliance with applicable state and

local laws, rules, and regulations, marijuana is illegal under federal law.

Strict enforcement of federal law regarding marijuana would

likely result in a material adverse effects on our business and revenues.

Though the cultivation and distribution of marijuana remains

illegal under federal law, H.R.

83, enacted by Congress on December 16, 2014, provides that none of the funds made available to the DOJ

pursuant to the 2015 Consolidated and Further Continuing Appropriations Act may be used to prevent states from implementing their own

laws that authorize the use, distribution, possession, or cultivation of medical marijuana.

While this appropriations measure continued

from 2016 through 2020, and remains in effect, continued re-authorization cannot be guaranteed.

If this appropriations rider is no longer

in effect, the risk of federal enforcement and override of state marijuana laws would increase.

However, state laws do not supersede

the prohibitions set forth in the federal drug laws.

order to participate in either the medical or adult use sides of the marijuana industry, all businesses and employees must obtain licenses

from the state and, for businesses, local jurisdictions.

In addition, all owners and employees must obtain an occupational license to

be permitted to own or work in a facility.

All applicants for licenses undergo a background investigation, including a criminal record

check for all owners and employees.

and regulations affecting the medical marijuana industry are constantly changing, which could detrimentally affect our proposed operations.

Local, state and federal medical marijuana laws and regulations are broad in scope and subject to evolving interpretations, which could

require us to incur substantial costs associated with compliance or alter our business plan.

In addition, violations of these laws, or

allegations of such violations, could disrupt our business and result in a material adverse effect on our operations.

It is also possible

that regulations may be enacted in the future that will be directly applicable to our business.

We cannot predict the nature of any future

laws, regulations, interpretations or applications, nor can we determine what effect additional governmental regulations or administrative

policies and procedures, when and if promulgated, could have on our business.

of the Cannabis Act

October 17, 2018, the Cannabis Act came into force as law with the effect of legalizing adult recreational use of cannabis across Canada.

The Cannabis Act replaced the Access to Cannabis for Medicinal Purposes Regulations (“ACMPR”) and the Industrial Hemp Regulations,

both of which came into force under the Controlled Drugs and Substances Act (Canada) (the “CDSA”), which previously permitted

access to cannabis for medical purposes for only those Canadians who had been authorized to use cannabis by their health care practitioner.

The ACMPR replaced the Marihuana for Medical Purposes Regulations (Canada) (the “MMPR”), which was implemented in June 2013.

The MMPR replaced the Marihuana Medical Access Regulations (Canada) (the “MMAR”) which was implemented in 2001.

and MMAR were initial steps in the Government of Canada’s legislative path towards the eventual legalization and regulating recreational

and medical cannabis.

Cannabis Act permits the recreational adult use of cannabis and regulates the production, distribution and sale of cannabis and related

oil extracts in Canada, for both recreational and medical purposes.

Under the Cannabis Act, Canadians who are authorized by their health

care practitioner to use medical cannabis have the option of purchasing cannabis from one of the producers licensed by Health Canada

and are also able to register with Health Canada to produce a limited amount of cannabis for their own medical purposes or to designate

an individual who is registered with Health Canada to produce cannabis on their behalf for personal medical purposes.

to the Cannabis Act, subject to provincial regulations, individuals over the age of 18 are able to purchase fresh cannabis, dried cannabis,

cannabis oil, and cannabis plants or seeds and are able to legally possess up to 30 grams of dried cannabis, or the equivalent amount

in fresh cannabis or cannabis oil.

Leverage our Sector Diversification and In-House Capability Offerings

Our vision is to be the global leading provider for purpose-built turnkey indoor CEA facilities.

To that end, we have and continue to seek to diversify our service capabilities to provide value to our clients through acting as a single point of responsibility in our turnkey design-build, approach.

While we will continue to expand our services organically, we began this journey through the acquisition of engineering, architecture, and construction management firms over the last 18-month period.

This in-house service capability diversification also brought with it a diversified client base that included clients from sectors outside of CEA.

We expect to continue to compete successfully in all of these sectors as we believe it helps us attract the best talent, weather the downturns of any one sector, and continue to find growth and future returns for our shareholders.

We believe that acting as a single point of responsibility as a provider of turnkey design-build solutions, especially one with the depth and breadth of experience within all sectors that we've served, we can get our clients to market more quickly and more efficiently than others.

We intend to continue to leverage all our service capabilities within our design-build delivery model, across sectors, to grow the services and value we are providing to our clients.

As an example, some clients may currently only be engaged with us for architectural design - we plan to leverage our in-house model and take advantage of every opportunity to cross sell our other services such as engineering;

or construction management or general contracting, to provide further value to our clients and grow our revenues and margin dollars.

Focus on Design-Build Solution

As written previously, through both organic and inorganic means, we have diversified our in-house service capabilities so that we are able to provide full turnkey design-build solutions to our clients.

These design-build projects allow us to engage with a client at the conception of a project and act as a single point of responsibility to provide value throughout and beyond the project lifecycle.

These design-build projects are also much larger from a revenue and project complexity perspective - instead of working on 100s of projects, our goal will be to grow through working on a smaller number of projects of a much larger size, allowing us to capture greater revenue and more margin dollars and overall, provide greater value to our clients.

We expect these larger projects will also provide us with the foresight to more accurately forecast our future quarterly business performance.

Expansion of Geographical Reach

While continuing to focus on building out our solution set and expanding our client base in all sectors, and more specifically establishing our end-to-end solution as the industry standard for CEA indoor cultivation in the U.S.

market, we also plan to continue to expand our reach within Europe.

After completing approximately 18 months of due diligence in the European market, in Q3 of 2022, we hired a Netherlands-based Managing Director, with experience and expertise in horticulture and pre-harvest and post-harvest equipment automation, to lead our Europe, Middle East, and Africa ("EMEA") market expansion.

After opening an office in Dordrecht, Netherlands shortly thereafter, we began to build our European team, including investing in hiring in-market as well as relocating a previously U.S.

based Company Vice President with vast experience in CEA cultivation design to the region.

We are focused on securing and providing value to clients in the CEA sector, and continue to develop and iterate on our marketing and outreach plans, including taking part in trade shows, speaking engagements, and business development travel to areas in Europe with existing clients as well as other developing markets.

We have thus far signed several engagements with CEA clients in multiple countries and look to continue our growth through this geographic expansion.

Our Competition

We believe that our experience and expertise combined with our complex end-to-end design-build solutions places us as a growing leader in the indoor-CEA sector.

Within that CEA sector, we do face competition from companies that offer some, but not all, portions of an all-encompassing design-build facility solution.

We compete for projects with other smaller and mid-sized companies that focus solely on architectural and interior design, engineering, construction, or product sales.

For services, we see these competitors as offering similar specific area solutions, though not integrated nor as in depth on fertigation design.

For product sales, we currently view our competition to be focused on predominantly commodity "off-the-shelf" items like lighting and other cultivation staple products, both pre-startup and post-startup.

This competition comes from traditional wholesale horticulture dealers, online retailers, and some manufacturers who sell direct.

Greenhouse manufacturers and European systems integrators may increasingly seek to offer comprehensive product and service solutions to compete with our integrated solution, but they are primarily focused on the greenhouse industry, and not on indoor-CEA facilities.

European systems integrators in particular are experienced and have a strong operating history in traditional horticulture and provide specialized, intensive, and large-scale solutions that revolve around greenhouse projects.

Instead of competing with these integrators, we find ourselves working with them and combining synergies to work on projects together.

For our clients from non-CEA sectors such as Industrial, Food and Beverage CPG, Healthcare, Education, and Civic, we believe we face more competition from those who offer some, but not all, portions of a design-build facility solution but also those who employ the design-build methodology.

We believe we compete successfully here because while the overall design-build projects come at higher revenues and margin dollars, the projects from non-CEA on which we typically engage are of a size that we believe is smaller than our design-build competitors are set up to take on.

In addition, the majority of our non-CEA client base is developed from long-term relationships that provide our Company with a strategic advantage.

As it relates to our business conducted in the legalized cannabis-focused CEA segment, the regulations for each region are detailed as follows.

While we do not generate any revenue from the direct sale of cannabis products, we have historically, and may continue to, offer our solutions to indoor cultivators that are engaged in various aspects of the cannabis industry.

Tetrahydrocannabinol ("THC"), one of the main active chemicals in cannabis, is a Schedule I controlled substance and is illegal under federal law.

Even in those states in which the use of cannabis has been legalized, its use remains a violation of federal laws.

A Schedule I controlled substance is defined as a substance that has no currently accepted medical use in the United States, a lack of safety for use under medical supervision and a high potential for abuse.

The Department of Justice defines Schedule I controlled substances as "the most dangerous drugs of all the drug schedules with potentially severe psychological or physical dependence." If the federal government decides to enforce the Controlled Substances Act with respect to cannabis, persons that are charged with distributing, possessing with intent to distribute, or growing cannabis could be subject to fines and terms of imprisonment, the maximum being life imprisonment and a $50 million fine.

Any such change in the federal government’s enforcement of current federal laws could cause significant financial damage to us.

While we do not intend to harvest, distribute or sell cannabis, we may be irreparably harmed by a change in enforcement by the federal or state governments.

Since the use of THC is illegal under federal law, most federally chartered banks will not accept deposit funds from businesses involved with cannabis.

Consequently, businesses involved in the cannabis industry generally bank with state-chartered banks and credit unions who provide banking to the industry.

Although cultivation and distribution of cannabis for medical use is permitted in many states, subject to compliance with applicable state and local laws, rules, and regulations, THC is illegal under federal law.

Strict enforcement of federal law regarding cannabis could result in material adverse effects on our business and revenues.

Though the cultivation and distribution of cannabis containing THC remains illegal under federal law, H.R.

83, enacted by Congress on December 16, 2014, provides that none of the funds made available to the DOJ pursuant to the 2015 Consolidated and Further Continuing Appropriations Act may be used to prevent states from implementing their own laws that authorize the use, distribution, possession, or cultivation of medical cannabis.

While this appropriations measure has remained in effect from 2016 through 2022, continued re-authorization cannot be guaranteed.

If this appropriations rider is no longer in effect, the risk of federal enforcement and override of state cannabis laws would increase.

However, state laws do not supersede the prohibitions set forth in the federal drug laws.

In order to participate in either the medical or adult use sides of the cannabis industry, all businesses must obtain licenses from the state and local jurisdictions.

In addition, in most jurisdictions, all owners and employees must obtain an occupational license to be permitted to own or work in a facility.

Applicants for licenses undergo a background investigation, including a criminal record check for all owners and employees.

Laws and regulations affecting the medical cannabis industry are constantly changing, which could detrimentally affect our existing and proposed operations.

Local, state and federal medical cannabis laws and regulations are broad in scope and subject to evolving interpretations, which could require us to incur substantial costs associated with compliance or alter our business plan.

In addition, violations of these laws, or allegations of such violations, could disrupt our business and result in a material adverse effect on our operations.

Regulations may be enacted in the future that may be directly applicable to our business.

We cannot predict the nature of any future laws, regulations, interpretations or applications, nor can we determine what effect additional governmental regulations or administrative policies and procedures, when and if promulgated, could have on our business.

Canadian Regulations

Summary of the Cannabis Act

In 2001, Canada began the legislative path towards the eventual legalization and regulation of recreational and medical cannabis.

The laws in Canada have been revised since then and in 2018, the Cannabis Act came into effect and legalized adult recreational use of cannabis across Canada.

The Cannabis Act regulates the production, distribution and sale of cannabis and related oil extracts in Canada for both recreational and medical purposes.

Under the Cannabis Act, Canadians who are authorized by their health care practitioner to use medical cannabis have the option of purchasing cannabis from one of the producers licensed by Health Canada and are also able to register with Health Canada to produce a limited amount of cannabis for their own medical purposes or to designate a registered individual to produce cannabis on their behalf for such purposes.

Pursuant to the Cannabis Act, subject to provincial regulations, individuals over the age of 18 are able to purchase fresh cannabis, dried cannabis, cannabis oil, and cannabis plants or seeds and are able to legally possess up to 30 grams of dried cannabis, or the equivalent amount in fresh cannabis or cannabis oil.

The Cannabis Act also permits households to grow a maximum of four cannabis plants.

This limit applies

regardless of the number of adults that reside in the household.

In addition, the Cannabis Act provides provincial and municipal governments

the authority to prescribe regulations regarding retail and distribution, as well as the ability to alter some of the existing baseline

requirements of the Cannabis Act, such as increasing the minimum age for purchase and consumption.

and territorial governments in Canada have made varying announcements on the proposed regulatory regimes for the distribution and sale

of cannabis for adult-use purposes.

For example, Québec, New Brunswick, Nova Scotia, Prince Edward Island, Yukon and the Northwest

Territories have chosen the government-regulated model for distribution, whereas Saskatchewan and Newfoundland & Labrador have opted

for a private sector approach.

Alberta, Ontario, Manitoba, Nunavut and British Columbia have announced plans to pursue a hybrid approach

of public and private sale and distribution.

connection with the new framework for regulating cannabis in Canada, the federal government has introduced new penalties under the Criminal

Code (Canada), including penalties for the illegal sale of cannabis, possession of cannabis over the prescribed limit, production of

cannabis beyond personal cultivation limits, taking cannabis across the Canadian border, giving or selling cannabis to a youth and involving

a youth to commit a cannabis-related offence.

July 11, 2018, the Canadian federal government published regulations in the Canada Gazette to support the Cannabis Act, including the

Cannabis Regulations, the new Industrial Hemp Regulations, along with proposed amendments to the Narcotic Control Regulations and certain

regulations under the Food and Drugs Act (Canada).

The Industrial Hemp Regulations and the Cannabis Regulations, among other things,

outline the rules for the legal cultivation, processing, research, analytical testing, distribution, sale, importation and exportation

of cannabis and hemp in Canada, including the various classes of licenses that can be granted, and set standards for cannabis and hemp

The Industrial Hemp Regulations and the Cannabis Regulations include strict specifications for the plain packaging and labelling

and analytical testing of all cannabis products as well as stringent physical and personnel security requirements for all federally licensed

production sites.

The Industrial Hemp Regulations and the Cannabis Regulations also maintain a distinct system for access to cannabis.

With the Cannabis Act now in force, cannabis has ceased to be regulated under the CDSA and is instead regulated under the Cannabis Act,

and both the ACMPR and the Industrial Hemp Regulations have been repealed effective October 17, 2018.

June 7, 2018, Bill-C45 passed the third reading in the Senate with a number of amendments to the language of the Cannabis Act.

More specifically,

the Senate proposed:

a committee of the Senate and a committee of the House of Commons to undertake a comprehensive review of the administration and operation

of the Cannabis Act;

provinces and territories to facilitate the development of workplace impairment policies;

provinces to place restrictions on the ability of individuals to engage in home cultivation;

law enforcement be provided with the appropriate tools and resources to address concerns about continued illicit production, diversion,

and sale of cannabis to youth, including preventing the sharing of marihuana among young adults by rendering it a ticketable offense;

the prices set for cannabis products and the applicable taxes reflect the dual objective of minimizing the health dangers of cannabis

consumption and undercutting the illicit market of cannabis;

health warnings for cannabis products, including warnings about the danger of smoking cannabis, the danger of exposure to second-hand

cannabis smoke, and the risks of combining cannabis and tobacco;

procedures for THC content be standardized to ensure accurate measurement to better protect consumer health and safety;

forthcoming regulations for edible products and other forms of cannabis ensure that product packaging is child-resistant and does

not appeal to young people, and that the type of available products should be strictly limited;

and ongoing funding for sustained, evidence-based cannabis education and prevention programs to provide Canadians, especially young

Canadians, with knowledge about the health risks of cannabis use, including on-going research initiatives on the impact of cannabis

use on the developing brain;

and that the federal government commit to on-going educational initiatives to ensure youth are informed

on the effects of cannabis use;

prohibit licensees under the Cannabis Act to distribute branded merchandise, such as t-shirts and baseball caps and imposing a moratorium

on loosening the regulations on the branding, marketing, and promotion of cannabis for 10 years;

set aggressive targets, comparable to the successful Federal Tobacco Control Strategy, to reduce the number of youth and adult cannabis

ensure that the Cannabis Tracking System be operational upon the coming-into-force of the Cannabis Act.

Clearances - The Cannabis Regulations require that certain people associated with cannabis licensees, including individuals occupying

a “key position” directors, officers, large stockholders and individuals identified by the Minister of Health, must hold

a valid security clearance issued by the Minister of Health.

Officers and directors of a parent corporation must be security cleared.

the Cannabis Regulations, the Minister of Health may refuse to grant security clearances to individuals with associations to organized

crime or with past convictions for, or an association with, drug trafficking, corruption or violent offences.

Individuals who have histories

of nonviolent, lower-risk criminal activity (for example, simple possession of cannabis, or small-scale cultivation of cannabis plants)

are not precluded from participating in the legal cannabis industry, and the grant of security clearance to such individuals is at the

discretion of the Minister of Health and such applications will be reviewed on a case-by-case basis.

Tracking System - Under the Cannabis Act, the Minister of Health is authorized to establish and maintain a national cannabis tracking

The Cannabis Regulations set out a national cannabis tracking system to track cannabis throughout the supply chain to help prevent

diversion of cannabis into, and out of, the illicit market.

The Cannabis Regulations also provides the Minister of Health with the authority

to make a ministerial order that would require certain persons named in such order to report specific information about their authorized

activities with cannabis, in the form and manner specified by the Minister of Health.

Products - The Cannabis Regulations set out the requirements for the sale of cannabis products at the retail level permit the sale

of dried cannabis, cannabis oil, fresh cannabis, cannabis plants, and cannabis seeds, including in such forms as “pre-rolled”

and in capsules.

The THC content and serving size of cannabis products is limited by the Cannabis Regulations.

The sale of edibles containing

cannabis and cannabis concentrates was not initially permitted, however the federal government anticipates that such products will be

legalized within one year following the coming into force of the Cannabis Act.

success of our business depends, in part, on our ability to maintain and protect our proprietary technologies, information, processes

and know-how.

In addition, the Cannabis Act provides provincial and municipal governments the authority to prescribe regulations regarding retail and distribution, as well as the ability to alter some of the existing baseline requirements of the Cannabis Act, such as increasing the minimum age for purchase and consumption.

Provincial and territorial governments in Canada have made varying announcements on the proposed regulatory regimes for the distribution and sale of cannabis for adult-use purposes.

For example, Québec, New Brunswick, Nova Scotia, Prince Edward Island, Yukon and the Northwest Territories have chosen the government-regulated model for distribution, whereas Saskatchewan and Newfoundland and Labrador have opted for a private sector approach.

Alberta, Ontario, Manitoba, Nunavut and British Columbia, have announced plans to pursue a hybrid approach of public and private sale and distribution.

In connection with this framework for regulating cannabis in Canada, the federal government introduced new penalties under its criminal code, including penalties for the illegal sale of cannabis, possession of cannabis over the prescribed limit, and production of cannabis beyond personal cultivation limits.

In 2018, the Canadian federal government published new regulations and amended existing regulations to support the Cannabis Act.

These regulations outline the rules for the legal cultivation, processing, research, analytical testing, distribution, sale, importation and exportation of cannabis and hemp in Canada, including the various classes of licenses that can be granted, and set standards for cannabis and hemp products.

They also include stringent security requirements for all federally licensed production sites.

The regulations maintain a distinct system for access to cannabis.

Intellectual Property

The success of our business depends, in part, on our ability to maintain and protect our proprietary technologies, information, processes and know-how.

We rely primarily on patent, trademark, copyright and trade secret laws in the U.S.

and similar laws in other countries,

confidentiality agreements and procedures and other contractual arrangements to protect our technology and confidential information.

Our patents are limited to certain sensors that we obtain from third party manufacturers that do not contribute materially to our sales

or profitability.

Our trademarks are solely for branding purposes, although we no longer sell any goods or services under the Soleil

As of the date of this prospectus, the following summarizes the status of our registrations, pending applications, issued U.S.

patents and one published U.S.

patent application:

have received the following trademark registrations:

UK00917391781

UK00917391806

have applied for and are awaiting receipt of the following trademark registrations:

Examination Completed.

Union (Madrid)

Examination Completed.

GIVES YOUR CROP A VOICE

GIVES YOUR PLANTS A VOICE

Number and Issue Date

bus architecture for modular sensor systems

sensor architecture for soil and water analysis at various depths from the surface

rely on trade secret protection and confidentiality agreements to safeguard our interests with respect to proprietary know-how that is

not patentable and processes for which patents are difficult to enforce.

We believe that many elements of our design and engineering

processes involve proprietary know-how, technology or data that are not covered by patents or patent applications, including technical

processes, test equipment designs, algorithms and procedures.

policy is for our employees to enter into confidentiality and proprietary information agreements with us to address intellectual property

protection issues and require our employees to assign to us all of the inventions, designs and technologies they develop during the course

of employment with us.

However, we might not have entered into such agreements with all applicable personnel, and such agreements might

not be self-executing.

and similar laws in other countries, confidentiality agreements and procedures and other contractual arrangements to protect our technology and confidential information.

Our patents are limited to certain sensors that we obtain from third party manufacturers that do not contribute materially to our sales or profitability.

Our trademarks are solely for branding purposes, although we no longer sell any goods or services under the Soleil brand.

As of the date of this Report, the following summarizes the status of our registrations, pending applications, and issued U.S.

We have received the following trademark registrations:

Trademark Jurisdiction Registration Number Registration Date Status

URBAN-GRO United States 4618322 October 07, 2014 Registered

URBAN-GRO United Kingdom 3266415 January 19, 2018 Registered

URBAN-GRO European Union 017391806 October 31, 2018 Registered

URBAN-GRO WIPO 1548013 July 08, 2020 Registered

URBAN-GRO United Kingdom UK0081548013 July 08, 2020 Registered

URBAN-GRO Canada (Madrid) A0098111 July 08, 2020 Registered

URBAN-GRO European Union (Madrid) A0098111 July 08, 2020 Registered

URBAN-GRO United States 97213742 February 7, 2023 Registered

SOLEIL United States 5209707 May 23, 2017 Registered

SOLEIL United Kingdom 3266410 March 09, 2018 Registered

SOLEIL Canada 1083969 October 07, 2020 Registered

SOLEIL European Union 017391781 September 11, 2018 Registered

SOLEIL United Kingdom UK00917391781 September 08, 2018 Registered

OPTI-DURA United States 5770091 June 04, 2019 Registered

OPTI-DURA Canada TMA1070145 January 20, 2020 Registered

GRO-CARE European Union 1560748 August 24, 2020 Registered

GRO-CARE European Union 017391806 October 29, 2019 Registered

GRO-CARE United Kingdom UK00917391806 October 29, 2018 Registered

GRO-CARE Canada (Madrid) A0099548 August 24, 2020 Registered

GRO-CARE WIPO A0099548 August 24, 2020 Registered

We have applied for and are awaiting receipt of the following trademark registrations:

Trademark Jurisdiction Application Number Filing Date Status

URBAN-GRO Canada 1930075 November 13, 2018 Pending

URBAN-GRO United States 88898690 May 03, 2020 Pending

URBAN-GRO United States 97213778 January 11, 2022 Pending

GRO-CARE United States 88898692 May 03, 2020 Pending

Title Jurisdiction Application Number Filing Date Patent Number and Issue Date Status

Sensor bus architecture for modular sensor systems United States 15/626,085 June 17, 2017 10,499,123

(December 3, 2019) Issued

Expire in 2037

Modular sensor architecture for soil and water analysis at various depths from the surface United States 15/626,079 June 17, 2017 10,405,069

(September 3, 2019) Issued

Expire in 2037

Modular sensor architecture for soil and water analysis at various depths from the surface United States 16/519,800 July 23, 2019 10,955,402

(March 23, 2021) Issued

Expire in 2037

We rely on trade secret protection and confidentiality agreements to safeguard our interests with respect to proprietary know-how that is not patentable and processes for which patents are difficult to enforce.

We believe that many elements of our design and engineering processes involve proprietary know-how, technology or data that are not covered by patents or patent applications, including technical processes, test equipment designs, algorithms and procedures.

Our policy is for our employees to enter into confidentiality and proprietary information agreements with us to address intellectual property protection issues and require our employees to assign to us all of the inventions, designs and technologies they develop during the course of employment with us.

However, we might not have entered into such agreements with all applicable personnel, and such agreements might not be self-executing.

Moreover, such individuals could breach the terms of such agreements.

attempt to protect our intellectual property via the deployment of non-disclosure agreements with both prospective clients and business

partners as well as licensees.

There are no assurances that these non-disclosure agreements will prevent a third party from infringing

upon our rights.

Backlog Discussion

Our backlog as of December 31, 2021 was approximately

$30 million, compared to an approximate value of $14.6 million on December 31, 2020.

The current backlog consists of $25 million of equipment

purchases and $5 million of services to be performed.

For urban-gro, backlog is defined as signed contracts for which deposits have been

Historically, the majority of our backlog has been retired and converted into revenue within two quarters.

We attempt to protect our intellectual property via the deployment of non-disclosure agreements with both prospective clients and business partners as well as licensees;

however, these non-disclosure agreements may not prevent a third party from infringing upon our rights.

Human Capital

As of December 31, 2022, we employed 152 employees, all of which were full-time employees.

This is an increase of 66 employees (77%) from December 31, 2021.

Our employees are critical to our continued success.

With approximately two-thirds of our employees considered experts, we view our employees and the depth and breadth of their experience

and expertise as our competitive advantage.

As such, we strive to provide an environment where urban-gro employees can have a fulfilling

and productive career.

We offer industry-leading employee benefits and programs to ensure the diverse needs of our employees and their

families are met, including access to fantastic healthcare choices, continued growth opportunities for career development, and resources

such as 401K plans and counseling to support their financial wellbeing.

internet address is www.urban-gro.com and our investor relations website is located at ir.urban-gro.com .

Our Annual Reports

on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to those reports can be found on our investor

relations website, free of charge, as soon as reasonably practical after we electronically file such material with, or furnish it to,

With approximately two-thirds of our employees considered experts, we view our employees and the depth and breadth of their experience and expertise as our competitive advantage.

As such, we strive to provide an environment where urban-gro employees can have a fulfilling and productive career.

We offer industry-leading employee benefits and programs to ensure the diverse needs of our employees and their families are met, including access to healthcare choices, continued growth opportunities for career development, and resources such as 401(k) plans and counseling to support their financial well-being.

The table below summarizes the change in full-time employee headcount that has occurred by quarter for the years ended December 31, 2022 and 2021:

Quarter Third

Quarter Second

Quarter First

Quarter Fourth

Quarter Third

Quarter Second

Quarter First

Beginning of period headcount

115 121 98 86 77 51 46 40

Net change in headcount 13 (6) 3 12 9 6 5 6

2WR acquisition 0 0 0 0 0 20 0 0

Emerald acquisition 0 0 20 0 0 0 0 0

DVO acquisition 24 0 0 0 0 0 0 0

Ending of period headcount 152 115 121 98 86 77 51 46

Available Information

Our internet address is www.urban-gro.com and our investor relations internet address is ir.urban-gro.com.

Our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to those reports can be found on our investor relations website, free of charge, as soon as reasonably practical after we electronically file such material with, or furnish it to, the SEC.

Information contained on our website is not incorporated by reference into this Form 10-K.

The SEC maintains a public website,

www.sec.gov, which includes information about and the filings of issuers that file electronically with the SEC.

The SEC maintains a public website, www.sec.gov, which contains reports, proxy and information statements, and other information regarding issuers that that file electronically with the SEC.

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 1. Business