What changed in this filing

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Item 1. Business

2024-03-28 compared with 2023-03-30 · 100 added, 67 removed, 259 unchanged (39% of the section changed)

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(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 March 10, 2017, we converted to a Colorado corporation and exchanged shares of our common stock for every member's interest issued and outstanding on the date of conversion.

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

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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.

On February 12, 2021, we completed an uplisting to the Nasdaq Capital Market ("Nasdaq") under the ticker symbol "UGRO".

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

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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.

Since January 1, 2023, we have announced the following contracts:

• September 26, 2023 - Awarded contract for more than $11.0 million of design-build services with an existing client in the Hospitality & Recreation sector to be recognized over the next six quarters.

While this contract has been started as of December 31, 2023, the Company now expects that the contract will take two quarters longer than expected to complete, therefore extending into 2025.

• October 2, 2023 - Secured contracts of nearly $8.0 million across four clients in the CEA sector to be recognized over the next four quarters.

While the largest of these contracts, valued at approximately $7 million dollars, did start in the first quarter of 2024, the Company now it will be completed by the first quarter of 2025, one additional quarter more than had been forecast.

The Company expects that the other three contracts will be completed in the previously announced timeframe.

• October 4, 2023 - Signed multiple contracts valued at more than $4.5 million to be recognized over the next two quarters.

The Company expects that these contracts will be completed in the previously announced timeframe.

• November 30, 2023 - Awarded $9.6 million industrial design-build contract with an existing CPG client to be recognized over the next three quarters.

While this contract did not start as anticipated in the fourth quarter of 2023, the value was increased to $11 million dollars with the addition of supplying mechanical equipment systems to the scope, it did kick off in the first quarter of 2024.

The Company now expects that the contract will take one additional quarter over the previously announced timeframe to be completed.

• January 2, 2024 - Secures design-build contract valued at approximately $20.0 million of design-build services with an existing vertically integrated United States based multi-state cannabis cultivation and retail dispensary operator to be recognized over the next six quarters.

This contract was not started as of December 31, 2023, but kicked off in the first quarter of 2024, and the Company still expects that the contract will be completed in the previously announced timeframe.

Our Solutions

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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.

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

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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:

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

◦ Board Composition:

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.

At urban-gro, we recognize the critical role that sustainable and responsible business practices play in shaping a resilient and prosperous future.

In 2023, we partnered with an ESG service provider to proactively embark on our corporate ESG journey.

While we are not formally aligning with a specific framework, we are using the World Economic Forum (WEF)’s Stakeholder Capitalism Metrics as a guide for our reporting.

The WEF has created a framework of ESG metrics and disclosures based on what it refers to as

the four pillars:

Planet, People, Prosperity, and Governance.

Currently in the final stages of development, our inaugural ESG report will be published on our website and will serve as a reflection of our commitment to transparency and the integration of ESG principles into our core business strategies.

urban-gro’s ESG initiative is led by a Board of Directors subcommittee which was formed in recognition of the increasing importance of sustainable and ethical business practices and responsible governance in the modern business landscape.

In partnership with the broader Board of Directors, the ESG committee aims to:

• Strengthen the alignment of our corporate values

• Align stakeholder expectations

• Manage risk

• Ensure compliance

• Support investor relations

• Enhance the brand

• Boost innovation and efficiency

• Boost employee engagement

• Create long-term value

• Adapt to changing markets and trends

To better understand the topics most material to our business and actively engage stakeholders, urban-gro conducted a double materiality assessment to gain ‘inside-out’ and ‘outside-in’ perspectives.

We engaged 29 internal and external stakeholders with a web-based materiality survey to gather quantitative and qualitative insights on impacts, risks, and opportunities.

Analysis of this data identified 14 sustainability areas that present material impacts and opportunities for our organization.

Of those 14, we prioritized the top five to inform our decision-making and reporting goals for the upcoming year.

The top five topics are listed below:

• Data and Cybersecurity

• Business Ethics

• Diversity, Inclusion, and Equal Opportunity

• Energy Management

• Recruitment, Development, and Retention

Focus on environmental material matters, stakeholders emphasized energy and water management alongside clean technology to foster sustainable, efficient, and regulatory compliance in our operational practices.

Climate adaptation and transition risk management were classified as essential in the Materiality Assessment in navigating the shift toward a low-carbon economy.

As a professional services design-build firm focused on Controlled Environment Agriculture (CEA), our approach to sustainable facility design and construction has a direct impact on environmental well-being.

We aim to be a part of the solution to the climate challenge by aligning with CEA industry best practices around water conservation and reuse, reduction of the carbon footprint associated with production and distribution, and increasing the efficiency of harvests.

Our team has worked on over 1,000 CEA projects around the

world and combined with our team’s experience with Leadership in Energy and Environmental Design (LEED) and (EU)GMP facility certification, we are successfully reducing waste, water consumption, and carbon consumption across multiple market sectors.

As technological advancement continues, we intend to work with our partners to incorporate more earth-friendly practices and solutions in CEA and other commercial sectors.

Such concepts include, but are not limited to, active energy management, HVAC efficiency, and innovations in lighting.

By helping to reduce our clients’ footprints, we recognize the importance of measuring and reducing our own carbon footprint as well.

While we have not formally begun measuring and reporting on our greenhouse gas (GHG) emissions due to our small size and the early nature of our operations, as we grow and add resources—or if the results of future stakeholder Materiality Assessments emphasize a growing interest in this metric—we will further investigate regular GHG emissions monitoring and reporting.

Data and cybersecurity topped the social material matters, with the criticality of safeguarding data integrity, privacy, and resilience against cyberattacks essential to maintaining stakeholder trust, regulatory compliance, and business continuity.

We understand the material effects that cybersecurity has on our business operations and have various measures in place to monitor and safeguard our information technology systems.

These tactics include ongoing employee training, maintenance of backup and protective systems, and use of modern endpoint detection and response tools.

We operate in a fully cloud-based environment to enhance scalability, flexibility and resilience against damage, disruption, and unauthorized access.

In 2023, we documented over 100 hours of company-wide training.

Documented policies and requirements cover topics like data security, email, hardware and software compliance, network security, password policy, patch policy, purchasing policy, and technology disposal.

A combination of these and other efforts like third-party supported internal and external pen testing, real-time backups, and full adoption of the NIST Cyber Security Framework 2.0 have resulted in a nearly 25-point advantage in urban-gro’s Microsoft Secure Score relative to other similar-sized businesses.

Promoting diversity and employee well-being is likewise crucial to building trust, fostering innovation and resilience, and driving long-term organizational success.

In the Materiality Assessment, stakeholders noted how promoting diversity in the workforce enhances morale, productivity, and social cohesion within communities.

By fostering an inclusive workplace culture, urban-gro not only meets societal expectations but also contributes to economic equity and social progress.

In the spirit of this commitment, the Company introduced a ‘floating holiday’ in 2024 that allows each employee flexibility and choice when it comes to observing holidays.

The ‘floating holiday’ aims to empower each of our team members to celebrate meaningful moments in a way that aligns with their values and beliefs.

We are also proud supporters of several charities and associations including Teens for Food Justice, an organization that is catalyzing a youth-led movement to end food insecurity through high-capacity, school-based hydroponic farming.

Our company and/or employees are also members of industry associations and trade groups like American Hort, Association for Vertical Farming, the American Society of Heating, Refrigeration, and Air-Conditioning (ASHRAE), the Georgia City-County Management Association (GCCMA), the Georgia Chapter of APPA (GAPPA), the Global Cannabis Network Collective (GCNC), the National Cannabis Industry Association (NCIA), and the National Cannabis Roundtable (NCR).

At urban-gro, we understand that the workplace reflects the world around us, and we want to ensure that everyone feels valued and respected.

From a governance perspective, prioritizing ethics, resilient business models, and effective governance was highlighted by stakeholders in the Materiality Assessment to bring integrity, adaptability, and sustained performance amidst evolving market landscapes.

Stakeholders recognized how adherence to high ethical standards fosters transparency, accountability, and investor confidence.

urban-gro takes a multi-pronged approach to guide a successful governance program and ensure that our stakeholders’ best interests are acted upon.

This starts with our strong and diverse Board of Directors comprised of leaders from a variety of fields and backgrounds.

The Board Diversity matrix is published annually on our website ir.urban-gro.com and within our proxy materials.

Currently, we utilize four Board committees:

• The Audit Committee:

Focuses on internal controls, risk management, and multi-discipline oversight enabled by its charter and structure.

• The Compensation Committee:

Focuses on compensation principles, policies, and practices for all employees.

• The Nominating and Corporate Governance Committee:

Oversees the Company’s corporate governance practices and procedures and recruits, nominates, and makes recommendations to retain Board members.

• The Environmental, Social, Governance Committee:

Oversees the Company’s approach to ESG practices and procedures.

In addition to charters for the committees listed above, we have a Code of Business Ethics and Conduct along with documented policies related to Anti-Corruption/Code of Business Ethics, Whistleblower Policy and Hotline, Enterprise Risk Management, Independent Pay Consultant, and Insider Trading.

By upholding governance excellence, we aim to mitigate risks and contribute to the stability and integrity of our business environment.

Costs and Effects of Compliance with Environmental Laws

Our current business operations are not subject to any material environmental laws, rules or regulations that would have an adverse material effect on our business operations or financial condition or result in a material compliance cost.

Growth Strategy

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• Focus on design-build solution

Expansion of Geographical Reach

• Expand our regional client base

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.

Our vision is to be a 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.

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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

Expand our Regional Client Base

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 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 as the sector comes online slowly.

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

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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.

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.

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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.

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

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URBAN-GRO European Union 017391806 October 31, 2018 Registered

URBAN-GRO Canada

1930075 November 13, 2018 Registered

URBAN-GRO WIPO 1548013 July 08, 2020 Registered

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Trademark Jurisdiction Application Number Filing Date Status

URBAN-GRO Canada 1930075 November 13, 2018 Pending

URBAN-GRO United States 88898690 May 03, 2020 Pending

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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.

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.

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As of December 31, 2023, we employed 130 employees, all of which were full-time employees.

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

This is a decrease of 22 employees (14%) from December 31, 2022.

Our employees are critical to our continued success.

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Net change in headcount (1) (6) (28) 13 13 (6) 3 12

2WR acquisition 0 0 0 0 0 20 0 0

Emerald acquisition 0 0 0 0 0 0 20 0

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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