What changed in this filing

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Item 1. Financial Statements

2021-05-13 compared with 2020-11-12 · 659 added, 1510 removed, 145 unchanged (94% of the section changed)

FINANCIAL STATEMENTS

GROWGENERATION

CORPORATION AND SUBSIDIARIES

BALANCE SHEETS

September 30,

GROWGENERATION CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands)

Current assets:

Accounts receivable (net of allowance for credit losses of $364,262 and $291,372, respectively)

Cash and cash equivalents

Accounts receivable, net

Notes receivable, current

Inventory, net

Prepaid expenses and other current assets

Income taxes receivable

Prepaids and other current assets

Total current assets

1 unchanged sentence

Operating leases right-of-use assets, net

Deferred income taxes

Notes receivables, net of current portion

Intangible assets, net

$ 139,702,033

LIABILITIES & STOCKHOLDERS’

1 unchanged sentence

Accounts payable

Other accrued liabilities

Accrued liabilities

Payroll and payroll tax liabilities

2 unchanged sentences

Income taxes payable

Current maturities of operating leases liability

Current maturities of long-term debt

Current maturities of lease liability

Current portion of long-term debt

Total current liabilities

Operating leases liability, net of current maturities

Long-term debt, net of current maturities

Deferred tax liability

Operating lease liability, net of current maturities

Long-term debt, net of current portion

Total liabilities

Commitments and contingencies

Stockholders’

Common stock;

$.001 par value;

100,000,000 shares authorized;

48,412,292 and 36,876,305 shares issued and outstanding, respectively

Additional paid-in capital

Accumulated deficit

Retained earnings (deficit)

Total stockholders’

TOTAL LIABILITIES AND STOCKHOLDERS’

$ 139,702,033

Notes to the Unaudited Consolidated Financial Statements.

GROWGENERATION

CORPORATION AND SUBSIDIARIES

STATEMENT OF OPERATIONS

Three Months Ended

September 30,

Nine Months Ended

September 30,

$ 131,440,820

The accompanying notes are an integral part of

these Condensed Consolidated Financial Statements.

GROWGENERATION CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share amounts)

For the Three Months Ended

Cost of sales

1 unchanged sentence

Store operations

General and administrative

Share based compensation

Selling, general, and administrative

Depreciation and amortization

Salaries and related expenses

Total operating expenses

Income from operations

Net income (loss) from operations

Other income (expense):

Interest expense

Miscellaneous (expense) income

Interest income

Other income (expense)

Total non-operating income (expense), net

Net income before taxes

Interest expense

Total non-operating (expense) income, net

Net income (loss) before taxes

Provision for income taxes

Net income per shares, basic

Net income per shares, diluted

Net income (loss)

Net income per share, basic

Net income per share, diluted

Weighted average shares outstanding, basic

Weighted average shares outstanding, diluted

Notes to the Unaudited Consolidated Financial Statements.

GROWGENERATION

CORPORATION AND SUBSIDIARIES

STATEMENTS OF STOCKHOLDERS’

MONTHS AND NINE MONTHS ENDED SEPTEMBER 30, 2020

The accompanying notes are an integral part of

these Condensed Consolidated Financial Statements.

GROWGENERATION CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’

THREE MONTHS ENDED MARCH 31, 2021 AND 2020

(in thousands)

Accumulated Retained

Stockholders’

Balances, December 31, 2020

$ (6,887,188 )

Common stock issued upon warrant exercise

Common stock issued upon cashless warrant exercise

Common stock issued upon exercise of options

Common stock issued upon cashless exercise of options

Common stock issued in connection with business combinations

Common stock issued for assets

Common stock issued for services

Common stock issued for share based compensation

Common stock redeemed in litigation settlement

Common stock redemption

Share based compensation

Balances, March 31, 2021

$ (8,980,706 )

Common stock issued upon warrant exercise

Common stock issued upon cashless exercise of warrants

Common stock issued upon cashless exercise of options

Common stock issued in connection with business combinations

Common stock issued for assets

Common stock issued for accrued compensation

Common stock issued for share-based compensation

Share-based compensation

Balances, June 30, 2020

$ (6,406,763 )

Sale of common stock, net of offering costs

Common stock issued upon warrant exercise

Common stock issued upon cashless exercise of warrants

Common stock issued upon cashless exercise of options

Common stock issued for share-based compensation

Share-based compensation

Balances, September 30, 2020

$ 115,285,993

$ (3,069,430 )

$ 112,264,975

Notes to the Unaudited Consolidated Financial Statements.

GROWGENERATION

CORPORATION AND SUBSIDIARIES

STATEMENTS OF STOCKHOLDERS’

MONTHS AND NINE MONTHS ENDED SEPTEMBER 30, 2019

Stockholders’

Balances, December 31, 2019

$ (8,765,992 )

Common stock issued upon warrant exercise

Common stock issued upon cashless exercise of options

Common stock issued in connection with business combinations

Common stock issued for prepaid services

Common stock issued for accrued share-based compensation

Share based compensation

Balances, March 31, 2019

$ (8,536,571 )

Sales of common stock, net of fees

Common stock issued upon warrant exercise

Common stock issued upon cashless warrant exercise

Common stock issued upon cashless exercise of options

Common stock issued in connection with business combinations

Common stock issued for convertible debt

Common stock issued for assets

Common stock issued for services

Common stock issued for share based compensation

Share based compensation

Balances, June 30, 2019

$ (7,474,571 )

Common stock issued for convertible debt and cashless warrant exercise

Common stock issued upon warrant exercise

Common stock issued upon cashless exercise of options

Common stock issued in connection with business combinations

Common stock issued for accrued share-based compensation

Share based compensation

Balances, September 30, 2019

$ (6,424,872 )

Notes to the Unaudited Consolidated Financial Statements.

G ROWGENERATION

CORPORATION AND SUBSIDIARIES

STATEMENT OF CASH FLOWS

For the Nine Months Ended

September 30,

Balances, March 31, 2020

The accompanying notes are an integral part of

these Condensed Consolidated Financial Statements.

G ROWGENERATION CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

(in thousands)

For the Three Months Ended March 31,

Cash flows from operating activities:

Net income (loss)

Adjustments to reconcile net loss to net cash used in operating activities:

Depreciation and amortization

Amortization of debt discount

Stock-based compensation expense

Gain on asset disposition

Bad debt expense, net of recoveries

Deferred taxes

Changes in operating assets and liabilities:

(Increase) decrease in:

Accounts receivable

(13,421,096 )

Accounts and notes receivable

Prepaid expenses and other assets

6 unchanged sentences

Sales tax payable

Net cash provided by (used in) operating activities

Net cash provided by operating activities

Cash flows from investing activities:

Assets acquired in business combinations

Purchase of marketable securities

Purchase of furniture and equipment

1 unchanged sentence

Net cash used in investing activities

(10,178,025 )

Cash flows from financing activities:

Principal payments on long term debt

Common stock redeemed

Proceeds from the sale of common stock and exercise of warrants, net of expenses

Net cash provided by (used in) financing activities

Net increase in cash

Net decrease in cash

Cash at the beginning of period

Cash at the end of period

Supplemental disclosures of non-cash financing activities:

Supplemental disclosures of non-cash activities:

Cash paid for interest

Common stock issued for accrued payroll

Common stock issued for prepaid services

Common stock issued for business combination

Assets acquired by issuance of common stock

Debt converted to equity

Right to use assets acquired under new operating leases

Notes to the Unaudited Consolidated Financial Statements.

GrowGeneration

Corporation and Subsidiaries

to the Unaudited Consolidated Financial Statements

OF OPERATIONS

GrowGeneration is the largest

chain of hydroponic garden centers in North America and is a leading marketer and distributor of nutrients, growing media, advanced

indoor and greenhouse lighting, ventilation systems and accessories for hydroponic gardening.

Currently, the Company owns and operates

a chain of thirty one (31) retail hydroponic/gardening stores, with six (6) in the state of California, six (6) in the state of

Michigan, five (5) located in the state of Colorado, four (4) in the State of Oklahoma, three (3) in Maine, two (2) in the state

of Nevada, one (1) in the state of Washington, one (1) in the state of Oregon, one (1) in the state of Rhode Island, one (1) in

the state of Florida, one (1) distribution center in the state of California and an online e-commerce store, GrowGeneration.com.

Our plan is to continue to acquire, open and operate hydroponic/gardening stores and related businesses throughout the United States and

Company engages in its business through its wholly-owned subsidiaries, GrowGeneration Pueblo Corp, GrowGeneration California Corp,

GrowGeneration Nevada Corp, GrowGeneration Washington Corp, GrowGeneration Rhode Island Corp, GrowGeneration Oklahoma Corp, GrowGeneration

Canada, GrowGeneration HG Corp, GrowGeneration Hemp Corp, GGen Distribution Corp, GrowGeneration Michigan Corp, GrowGeneration

New England Corp, GrowGeneration Florida Corp and GrowGeneration Management Corp.

OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

of Consolidation

accompanying unaudited condensed consolidated interim financial statements include our accounts and those of our wholly-owned

subsidiaries, and reflect all adjustments which are necessary for a fair statement of the financial position, results of operations,

and cash flows for the periods presented in accordance with accounting principles generally accepted in the United States of America

GAAP”).

Such unaudited condensed consolidated interim financial statements have been prepared in accordance

with the instructions to Form 10-Q pursuant to the rules and regulations of the U.S.

Securities and Exchange Commission.

All significant

intercompany balances and transactions are eliminated in consolidation.

Certain information and footnote disclosures normally

included in financial statements prepared in accordance with U.S.

GAAP have been condensed or omitted pursuant to such rules and

The year-end condensed balance sheet data was derived from audited financial statements but does not include all

disclosures required by U.S.

unaudited condensed consolidated interim financial statements should be read in conjunction with our Annual Report on Form 10-K

for the year ended December 31, 2019 (“Annual Report”) filed on March 27, 2020, and have been prepared on a consistent

basis with the accounting policies described in Note 1 of the Notes to the Audited Consolidated Financial Statements included

in our Annual Report.

Our accounting policies did not change during the nine months ended September 30, 2020.

uses estimates and assumptions in preparing these financial statements in accordance with U.S.

These estimates and assumptions

affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the

financial statements, and the reported revenues and expenses during the reporting period.

Actual results could vary from the estimates

that were used.

Additionally,

the full impact of COVID-19 is unknown and cannot be reasonably estimated.

However, we have made appropriate accounting estimates

based on the facts and circumstances available as of the reporting date.

To the extent there are differences between these estimates

and actual results, our consolidated financial statements may be materially affected.

GrowGeneration

Corporation and Subsidiaries

to the Unaudited Consolidated Financial Statements

OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued

we continue to monitor the COVID-19 situation, the Company is considered an “essential”

supplier to the agricultural

industry, suppling the nutrients and nourishment required to feed their plants.

The Company has been opened during this difficult

We have plans and procedures in place to ensure our customers and employees stay safe during this time of uncertainty.

a result of COVID-19 we reduced some hours of operations at the store level and some stores were closed on the weekends, primarily

in the later part of the first quarter of 2020.

There have been some minor delays in vendor shipments as their warehouses and

supply chain were affected by staffing shortages.

The Company successfully implemented a will call and curb side pick-up process

that is working well.

Other than what has been disclosed above, we have not experienced adverse effects from COVID-19.

We account for leases in accordance

with the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 842, Leases.

We assess whether an arrangement is a lease at inception.

Leases with an initial term of 12 months or less are not recorded on

the balance sheet.

We have elected the practical expedient to not separate lease and non-lease components for all assets.

lease assets and operating lease liabilities are calculated based on the present value of the future minimum lease payments over

the lease term at the lease start date.

As most of our leases do not provide an implicit rate, we use our incremental borrowing

rate based on the information available at the lease start date in determining the present value of future payments.

The operating

lease asset is increased by any lease payments made at or before the lease start date and reduced by lease incentives and initial

direct costs incurred.

The lease term includes options to renew or terminate the lease when it is reasonably certain that we will

exercise that option.

The exercise of lease renewal options is at our sole discretion.

The depreciable life of lease assets and

leasehold improvements are limited by the lease term.

Lease expense for operating leases is recognized on a straight-line basis

over the lease term.

The Company accounts for income

taxes in accordance with FASB ASC 740, Income Taxes, which requires the recognition of deferred tax assets and liabilities for

future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities

and their respective tax bases and tax credit carry forwards.

Deferred tax assets and liabilities are measured using enacted tax

rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled.

The effect on deferred tax assets and liabilities of a change in tax rates is recognized in operations in the period that includes

the enactment date.

In 2019 and as of September 30, 2020, a valuation allowance was provided for the amount of deferred tax assets

that would otherwise be recorded for income tax benefits primarily relating to operating loss carryforwards as realization could

not be determined to be more likely than not.

Company adopted the provisions of FASB ASC 740-10-25, which prescribes a recognition threshold and measurement attribute for the

recognition and measurement of tax positions taken or expected to be taken in income tax returns.

FASB ASC 740-10-25 also provides

guidance on recognition of income tax assets and liabilities, classification of current and deferred income tax assets and liabilities,

and accounting for interest and penalties associated with tax positions.

The Company’s tax returns are subject to tax examinations

federal and state authorities until their respective statute of limitation.

Currently, the 2019, 2018 and 2017 tax years

are open and subject to examination by taxing authorities.

However, the Company is not currently under audit nor has the Company

been contacted by any of the taxing authorities.

The Company does not have any accrual for uncertain tax positions as of September

GrowGeneration

Corporation and Subsidiaries

to the Unaudited Consolidated Financial Statements

OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued

The Company recognizes revenue,

net of estimated returns and sales tax, at the time the customer takes possession of merchandise or receives services at which

point, the performance obligation is satisfied.

Sales and other taxes collected concurrent with revenue producing activities are

excluded from revenue.

In the normal course of business, the Company does not accept product returns unless the item is defective

as manufactured.

The Company monitors provisions for estimated returns.

Payment for goods and services sold by the Company is typically

due upon satisfaction of the performance obligations.

Under certain circumstances, the Company does provide goods and services

to customers on a credit basis (see Accounts Receivable below).

The Company accounts for shipping and handling activities

as a fulfillment costs rather than as a separate performance obligation.

When the Company receives payment from customers before

the customer has taken possession of the merchandise or the service has been performed, the amount received is recorded as customer

deposit in the accompanying Consolidated Balance Sheets until the sale or service is complete.

Accounts Receivable and Concentration

of Credit Risk

receivable are stated at the amount the Company expects to collect from balances outstanding at period-end, based on the Company’s

assessment of the credit history with customers having outstanding balances and current relationships with them.

A reserve for

uncollectable receivables is established when collection of amounts due is deemed improbable.

Indicators of improbable collection

include client bankruptcy, client litigation, client cash flow difficulties or ongoing service or billing disputes.

generally extended on a short-term basis thus receivables do not bear interest.

At September 30, 2020 and December 31, 2019, the

Company established an allowance for doubtful accounts of $364,262 and $291,372, respectively.

We are exposed to credit risk

in the normal course of business, primarily related to accounts receivable.

We are affected by general economic conditions in the

United States.

To limit credit risk, management periodically reviews and evaluates the financial condition of its customers and

maintains an allowance for doubtful accounts.

As of September 30, 2020, and December 31, 2019, we do not believe that we have significant

consists primarily of gardening supplies and materials and is recorded at the lower of cost (first-in, first-out method) or net

realizable value.

The Company periodically reviews the value of items in inventory and provides write-downs or write-offs of inventory

based on its assessment of market conditions.

Write-downs and write-offs are charged to cost of goods sold.

and Equipment

and equipment are carried at cost.

Leasehold Improvements are amortized using the straight-line method over the original term

of the lease or the useful life of the improvement, whichever is shorter.

Renewals and betterment that materially extend the life

of the asset are capitalized.

Expenditures for maintenance and repairs are charged against operations.

Depreciation of property

and equipment is provided on the straight-line method for financial reporting purposes at rates based on the following estimated

useful lives:

Estimated Lives

Furniture and fixtures

Computers and equipment

Leasehold improvements

10 years not to

exceed lease term

GrowGeneration

Corporation and Subsidiaries

to the Unaudited Consolidated Financial Statements

OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued

represents the excess of purchase price over the fair value of net assets.

Goodwill is not amortized but is reviewed for potential

impairment on an annual basis, or if events or circumstances indicate a potential impairment, at the reporting unit level.

Company’s review for impairment includes an assessment of qualitative factors to determine whether it is more likely than

not that the fair value of a reporting unit is less than its carrying value, including goodwill.

If it is determined that it is

more likely than not that the fair value of a reporting unit is less than its carrying value, including goodwill, the first step

of the two-step quantitative goodwill impairment test is performed, which compares the fair value of the reporting unit with its

carrying amounts, including goodwill.

If the fair value of the reporting unit exceeds its carrying amount, goodwill of the reporting

unit is considered not impaired.

However, if the carrying amount of the reporting unit exceeds its fair value, additional procedures

must be performed.

That additional procedure compares the implied fair value of the reporting unit’s goodwill with the carrying

amount of that goodwill.

An impairment loss is recorded to the extent that the carrying amount of goodwill exceeds its implied

Based Compensation

Company records stock-based compensation in accordance with FASB ASC Topic 718, Compensation-Stock Compensation (“ASC

The Company estimates the fair value of stock options using the Black-Scholes option pricing model.

value of stock options granted is recognized as an expense over the requisite service period.

Stock-based compensation expense

for all share-based payment awards are recognized using the straight-line single-option method.

Black-Scholes option pricing model requires subjective assumptions, including future stock price volatility and expected time

to exercise, which greatly affect the calculated values.

The expected term of options granted is derived from historical data

on employee exercises and post-vesting employment termination behavior.

The risk-free rate selected to value any particular grant

is based on the U.S.

Treasury rate that corresponds to the expected life of the grant effective as of the date of the grant.

expected volatility is based on the historical volatility of the Company’s stock price.

These factors could change in the

future, affecting the determination of stock-based compensation expense in future periods.

RECENT ACCOUNTING PRONOUNCEMENTS

Accounting Pronouncements

an emerging growth company, the Company is permitted to delay the adoption of new or revised accounting standards until such time

as those standards apply to private companies.

The Company has chosen to take advantage of the extended transition period for

complying with new or revised accounting standards.

GrowGeneration

Corporation and Subsidiaries

to the Unaudited Consolidated Financial Statements

ACCOUNTING PRONOUNCEMENTS, continued

Adopted Accounting Pronouncements

the first quarter of 2019, the Company adopted the FASB ASU 2016-02, Leases (ASC 842), which introduces the balance

sheet recognition of lease assets and lease liabilities by lessees for those leases classified as operating leases under previous

The Company has adopted the new lease standard using the new transition option issued under the amendments in ASU 2018-11,

Leases , which allowed the Company to continue to apply the legacy guidance in ASC 840, Leases , in the comparative

periods presented in the year of adoption.

The Company elected the package of practical expedients permitted under the transition

guidance within the new standard, which among other things, allowed the Company to carry forward the historical lease classification.

The Company made an accounting policy election to keep leases with an initial term of 12 months or less off the balance sheet.

The Company will recognize those lease payments on a straight-line basis over the lease term.

The impact of the adoption was an

increase to the Company’s operating lease assets and liabilities on January 1, 2019 of $3.2 million.

January 1, 2019, the Company also adopted ASU 2018-07, “Improvements to Nonemployee Share-Based Payment Accounting.”

ASU 2018-07 more closely aligns the accounting for employee and nonemployee share-based payments.

The amendment is effective

commencing in 2019 with early adoption permitted.

The adoption of this new guidance did not have a material impact on our Financial

August 2018, the SEC adopted amendments to certain disclosure requirements in Securities Act Release No.

33-10532, Disclosure

Update and Simplification.

These amendments eliminate, modify, or integrate into other SEC requirements certain disclosure rules.

Among the amendments is the requirement to present an analysis of changes in stockholders’

equity in the interim financial

statements included in Quarterly Reports on Form 10-Q.

The analysis, which can be presented as a footnote or separate statement,

is required for the current and comparative quarter and year-to-date interim periods.

The amendments are effective for all filings

made on or after November 5, 2018.

The Company adopted these amendments in its Quarterly Report on Form 10-Q for the quarter ended

The accompanying notes are an integral part of

these Condensed Consolidated Financial Statements.

GrowGeneration Corporation and Subsidiaries

Notes To Unaudited Condensed Consolidated Financial

March 31, 2021

August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820):

Disclosure Framework - Changes to the Disclosure

Requirements for Fair Value Measurement .

The new guidance modifies the disclosure requirements on fair value measurements

in Topic 820.

The amendments in ASU 2018-13 are effective for all entities for fiscal years, and interim periods within those

fiscal years, beginning after December 15, 2019.

The adoption of this new guidance, effective January 1, 2020, did not have a

material impact on our Financial Statements.

Issued Accounting Pronouncements –

GrowGeneration Corp (the “Company”)

was incorporated on March 6, 2014 in Colorado under the name of Easylife Corp and changed its name to GrowGeneration Corp.

its principal office in Denver, Colorado.

GrowGeneration is the largest chain of hydroponic garden centers in

North America and is a leading marketer and distributor of nutrients, growing media, advanced indoor and greenhouse lighting, ventilation

systems and accessories for hydroponic gardening.

Currently, the Company owns and operates a chain of fifty-three (53) retail hydroponic/gardening

stores across 12 states, an online e-commerce platform, and proprietary businesses that market grow solutions through our platforms and

other wholesale customers.

The Company’s plan is to continue to acquire, open and operate hydroponic/gardening stores and related

businesses throughout the United States and Canada.

Basis of Presentation

The accompanying interim unaudited

Condensed Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United

States of America (“U.S.

GAAP”) and the rules and regulations of the Securities and Exchange Commission (“SEC”).

Accordingly, they do not include all of the information and notes required by U.S.

GAAP for complete financial statements.

the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have

been included.

These statements should be read in conjunction with our Annual Report on Form 10-K for the fiscal year ended December 31,

The results of operations for our interim periods are not necessarily indicative of results for the full fiscal year.

All amounts included in the accompanying

footnotes to the consolidated financial statements, except per share data, is in thousands (000).

New Accounting Policies Adopted

During the Quarter Ended March 31, 2021

The Company classifies its

commercial paper and debt securities as marketable securities.

Marketable securities with available fair market values are stated at

fair market values.

Unrealized gains and unrealized losses on these marketable securities are reported, net of applicable income

taxes, in other comprehensive income.

Realized gains or losses on sale of marketable securities are computed using primarily the

moving average cost and reported in net income.

For the three months ended March 31, 2021, there were no significant gains or losses

Risk and Uncertainties

The COVID-19 pandemic has created significant public health concerns

as well as economic disruption, uncertainty, and volatility which may negatively affect our business operations.

As a result, if the pandemic

persists or worsens, our accounting estimates and assumptions could be impacted in subsequent interim reports and upon final determination

at year-end, and it is reasonably possible such changes could be significant (although the potential effects cannot be estimated at this

The Company has experienced very minimal business interruption as a result of the COVID-19 pandemic.

We have been deemed an “essential”

business by state and local authorities in the areas in which we operate and as such have not been subject to business closures.

pandemic to date has resulted in only temporary supply chain delays of our inventory.

As events surrounding the COVID 19 pandemic can

change rapidly we cannot predict how it may disrupt our operations or the full extent of the disruption.

GrowGeneration Corporation and Subsidiaries

Notes To Unaudited Condensed Consolidated Financial

March 31, 2021

Value Measures

Fair Value Measurements

Fair value is defined as the exchange

price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market

for the asset or liability in an orderly transaction between market participants on the measurement date.

Valuation techniques used to

measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs.

Financial assets and liabilities

carried at fair value are to be classified and disclosed in one of the following three levels of the fair value hierarchy, of which the

first two are considered observable and the last is considered unobservable:

● Level 1—Quoted

prices in active markets for identical assets or liabilities.

● Level 2—Observable

inputs (other than Level 1 quoted prices), such as quoted prices in active markets for similar assets or liabilities, quoted prices

in markets that are not active for identical or similar assets or liabilities, or other inputs that are observable or can be corroborated

by observable market data.

● Level 3—Unobservable

inputs that are supported by little or no market activity and that are significant to determining the fair value of the assets or liabilities,

including pricing models, discounted cash flow methodologies and similar techniques.

the extent that the valuation is based on models or inputs that are less observable or unobservable in the market, the determination of

fair value requires more judgment.

Accordingly, the degree of judgment exercised by the Company in determining fair value is greatest

for instruments categorized in Level 3.

A financial instrument’s level within the fair value hierarchy is based on the lowest

level of any input that is significant to the fair value measurement.

The carrying amounts of cash and cash

equivalents, accounts receivable, available for sales securities, accounts payable and all other current liabilities approximate fair

values due to their short-term nature.

The fair value of notes receivable approximates the outstanding balance and are reviewed for impairment

at least annually.

The fair value of impaired notes receivable is determined based on estimated future payments discounted back to present

value using the notes effective interest rate.

Cash equivalents

Marketable securities

Notes receivable

Notes receivable impaired

Accounts receivable

GrowGeneration Corporation and Subsidiaries

Notes To Unaudited Condensed Consolidated Financial

March 31, 2021

ACCOUNTING PRONOUNCEMENTS

New Accounting Pronouncements

From time to time, the Financial Accounting

Standards Board (“FASB”) or other standard setting bodies issue new accounting pronouncements.

Updates to the FASB Accounting

Standards Codification are communicated through issuance of an Accounting Standards Update (“ASU”).

We have implemented all

new accounting pronouncements that are in effect and that may impact our financial statements.

We have evaluated recently issued accounting

pronouncements and determined that there is no material impact on our financial position or results of operations.

As an emerging growth company, the

Company is permitted to delay the adoption of new or revised accounting standards until such time as those standards apply to private

The Company has chosen to take advantage of the extended transition period for complying with new or revised accounting standards.

Refer to Note 3 to the Consolidated

Financial Statements reported in Form 10-K for the year ended December 31, 2020 for recently issued accounting pronouncements that are

pending adoption.

June 2016, the FASB issued ASU No.

2016-13, “Financial Instruments —

Credit Losses (Topic 326),”

impairment model for most financial instruments by requiring companies to recognize an allowance for expected losses, rather than

incurred losses as required currently by the other-than-temporary impairment model.

The ASU will apply to most financial assets

measured at amortized cost and certain other instruments, including trade and other receivables, loans, available-for-sale and

held-to-maturity debt securities, net investments in leases, and off-balance-sheet credit exposures.

In November 2019, the FASB

issued ASU No.

2019-10, changing effective dates for the new standards to give implementation relief to certain types of entities.

The Company is required to adopt the new standards no later than January 1, 2023 according to ASU 2019-10, with early adoption

We are currently evaluating the impact of adopting this new accounting guidance on our condensed consolidated financial

GrowGeneration

Corporation and Subsidiaries

to the Unaudited Consolidated Financial Statements

ACCOUNTING PRONOUNCEMENTS , continued

January 2017, the FASB issued ASU 2017-04, Intangibles - Goodwill and Other (Topic 350):

Simplifying the Test for Goodwill Impairment.

The guidance in ASU 2017-04 eliminates the requirement to determine the fair value of individual assets and liabilities of a reporting

unit to measure goodwill impairment.

Under the amendments in the new ASU, goodwill impairment testing will be performed by comparing

the fair value of the reporting unit with its carrying amount and recognizing an impairment charge for the amount by which the

carrying amount exceeds the reporting unit’s fair value.

ASU 2017-04 is effective for annual and interim goodwill impairment

tests in fiscal years beginning after December 15, 2022 and should be applied on a prospective basis.

The Company is currently

evaluating the impact of adopting this guidance on the Company’s consolidated financial statements.

In December 2019, the FASB issued

ASU 2019-02, Simplifying the Accounting for Income Taxes, to simplify the accounting for income taxes by removing certain exceptions

to the general principles and also simplification of areas such as franchise taxes, step-up in tax basis goodwill, separate entity

financial statements and interim recognition of enactment of tax laws or rate changes.

The standard will be effective for annual

reporting periods beginning after December 15, 2020, including interim reporting periods within those periods.

We are currently

evaluating the impact of adopting this new accounting guidance on our condensed consolidated financial statements.

In August 2020, the FASB issued

ASU 2020-06, Debt with Conversion and Other Options:

Accounting for Convertible Instruments and Contracts in an Entity’s

Own Equity, which simplifies the accounting for certain instruments with characteristics of liabilities and equity, including convertible

instruments and contracts on an entity’s own equity.

ASU 2020-06 removes from U.S.

GAAP the separation models for (1) convertible

debt with a cash conversion feature and (2) convertible instruments with a beneficial conversion feature.

ASU 2020-06 requires

entities to provide expanded disclosures about “the terms and features of convertible instruments,”

how the instruments

have been reported in the entity’s financial statements, and “information about events, conditions, and circumstances

that can affect how to assess the amount or timing of an entity’s future cash flows related to those instruments.”

ASU 2020-06 is effective for

public business entities that are not smaller reporting companies for fiscal years beginning after December 15, 2021 and interim

periods within those fiscal years.

For all other entities, ASU 2020-06 is effective for fiscal years beginning after December 15,

2023 and interim periods within those fiscal years.

We are currently evaluating the impact of adopting this new accounting guidance

on our condensed consolidated financial statements.

Disaggregation

following table disaggregates revenue by source:

September 30,

Sales at company owned stores

E-commerce sales

Total Revenues

September 30,

Recently Adopted Accounting Pronouncements

In August 2018, the FASB issued ASU

2018-13, Fair Value Measurement (Topic 820):

Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement .

The new guidance modifies the disclosure requirements on fair value measurements in Topic 820.

The amendments in ASU 2018-13 are effective

for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019.

The adoption of this

new guidance, effective January 1, 2020, did not have a material impact on our Financial Statements.

In December 2019, the FASB issued ASU

2019-12, Simplifying the Accounting for Income Taxes, to simplify the accounting for income taxes by removing certain exceptions to the

general principles and also simplification of areas such as franchise taxes, step-up in tax basis goodwill, separate entity financial

statements and interim recognition of enactment of tax laws or rate changes.

The standard was effective for annual reporting periods beginning

after December 15, 2020, including interim reporting periods within those periods.

There was no material impact on our consolidated financial

statements and related disclosures as a result of adopting this standard.

Disaggregation of Revenues

The following table disaggregates revenue

Sales at company owned stores

$ 123,992,048

E-commerce sales

Total Revenues

$ 131,440,820

on the timing of when a customer takes possession of product and when a customer makes payments for such product, the Company

recognizes a customer trade receivable (asset) or a customer deposit (liability).

The difference between the opening and closing

balances of the Company’s customer trade receivables and the customer deposit liability results from timing differences

between the Company’s performance and the customer’s payment.

GrowGeneration

Corporation and Subsidiaries

to the Unaudited Consolidated Financial Statements

RECOGNITION, continued

opening and closing balances of the Company’s customer trade receivables and customer deposit liability are as follows:

GrowGeneration Corporation and Subsidiaries

Notes To Unaudited Condensed Consolidated Financial

March 31, 2021

REVENUE RECOGNITION, continued

The opening and closing balances of

the Company’s customer trade receivables and customer deposit liability are as follows:

Customer Deposit Liability

5 unchanged sentences

Increase (decrease)

AND EQUIPMENT

September 30,

Of the total amount of customer deposit

liability as of January 1, 2021, $5,155, $2,083 was reported as revenue during the three months ended March 31, 2021.

Of the total amount

of customer deposit liability as of January 1, 2020, $2,504, $1,599 was reported as revenue during the three months ended March 31, 2020.

The Company also has customer trade receivables under longer term financing

arrangements at interest rates ranging from 9% to 12% with repayment terms ranging for 12 to 18 months.

Long term trade receivables as

of March 31, 2021 and December 31, 2020 are as follows:

Note receivable

Allowance for losses

Notes receivable, net

The following table summarizes changes

in notes receivable balances that have been deemed impaired.

Note receivable

Allowance for losses

Notes receivable, net

GrowGeneration Corporation and Subsidiaries

Notes To Unaudited Condensed Consolidated Financial

March 31, 2021

Marketable securities have maturities

of less than one year as of March 31, 2021.

There were no significant realized or unrealized gains or losses for the three months ended

March 31, 2021.

The components of investments, available

for sales securities, as of March 31, 2021 were as follows:

Fair Value Level

Adjusted Cost Basis

Unrealized Gain (Loss)

Recorded Basis

Commercial paper

Corporate notes and bonds

Marketable securities

NOTES RECEIVABLE

Notes receivable include customer trade receivables

under long terms financing arrangements and other note receivable not associated with customer transactions.

Trade receivables under longer term financing arrangements

Note receivable, non-customer related

Less, current portion

Notes receivable, noncurrent

PROPERTY AND EQUIPMENT

Leasehold improvements

Furniture, fixtures and equipment

(Accumulated depreciation)

Total property and equipment, gross

Accumulated depreciation and amortization

Property and equipment, net

expense for the three months ended September 30, 2020 and 2019 was $399,482 and $247,715, respectively.

expense for the nine months ended September 30, 2020 and 2019 was $1,104,781 and $538,847, respectively.

AND INTANGIBLE ASSETS

Depreciation expense for the three

months ended March 31, 2021 and 2020 was $659 and $331, respectively.

GrowGeneration Corporation and Subsidiaries

Notes To Unaudited Condensed Consolidated Financial

March 31, 2021

GOODWILL AND INTANGIBLE ASSETS

The changes in goodwill are as follows:

September 30,

March 31, 2021

Balance, beginning of period

1 unchanged sentence

Balance, end of period

GrowGeneration

Corporation and Subsidiaries

to the Unaudited Consolidated Financial Statements

AND INTANGIBLE ASSETS, continued

assets on the Company’s consolidated balance sheets consist of the following:

September 30,

Other intangibles, patents and trademarks

Intangible assets on the Company’s consolidated

balance sheets consist of the following:

March 31, 2021

December 31, 2020

Patents, trademarks

Customer relationships

Capitalized software

expense for the three months ended September 30, 2020 and 2019 was $44,097 and $0, respectively.

expense for the nine months ended September 30, 2020 and 2019 was $165,617 and $0, respectively.

September 30,

Amortization expense for the three months ended March 31, 2021 and

2020 was $1,395 and $28, respectively.

Future amortization expense is as follows:

2021, remainder

GrowGeneration Corporation and Subsidiaries

Notes To Unaudited Condensed Consolidated Financial

March 31, 2021

LONG-TERM DEBT

Long term debt is as follows:

Wells Fargo Equipment Finance, interest at 3.5% per annum, payable in monthly installments of $518.96 beginning April 2016 through March 2021, secured by warehouse equipment with a book value of $25,437

Notes payable issued in connection with seller financing of assets acquired, interest at 1%, payable in 24 installments of $24,996, due February 2020

Notes payable issued in connection with seller financing of assets acquired, interest at 8.125%, payable in 60 installments of $8,440, due August 2023

1 unchanged sentence

Total Long-Term Debt

Interest expense for the three months ended September 30, 2020

and 2019 was $142 and $27,067, respectively.

expense for the nine months ended September 30, 2020 and 2019 was $19,728 and $35,757, respectively.

determine if a contract contains a lease at inception.

Our material operating leases consist of retail and warehouse locations

as well as office space.

Our leases generally have remaining terms of 1-5 years, most of which include options to extend the leases

for additional 3 to 5-year periods.

Generally, the lease term is the minimum of the noncancelable period of the lease or the lease

term inclusive of reasonably certain renewal periods.

GrowGeneration

Corporation and Subsidiaries

to the Unaudited Consolidated Financial Statements

LEASES, continued

lease assets and liabilities are recognized at the lease commencement date.

Operating lease liabilities represent the present

value of lease payments not yet paid.

Operating lease assets represent our right to use an underlying asset and are based upon

the operating lease liabilities adjusted for prepayments or accrued lease payments, initial direct costs, lease incentives, and

impairment of operating lease assets.

To determine the present value of lease payments not yet paid, we estimate incremental secured

borrowing rates corresponding to the maturities of the leases.

Our leases typically contain rent escalations over the lease term.

We recognize expense for these leases on a straight-line basis over the lease term.

have elected the practical expedient to account for lease and non-lease components as a single component for our entire population

disclosures include only those leases with a term greater than one month and 12 months or less, and expense is recognized on a

straight-line basis over the lease term.

Leases with an initial term of 12 months or less, that do not include an option to purchase

the underlying asset that we are reasonably certain to exercise, are not recorded on the balance sheet.

expense is recorded within our consolidated statements of operations based upon the nature of the assets.

Where assets are used

to directly serve our customers, such as facilities dedicated to customer contracts, lease costs are recorded in “store

operating costs.”

Facilities and assets which serve management and support functions are expensed through general and administrative

September 30,

Interest expense for the three months

ended March 31, 2021 and 2020 was $2 and $7, respectively.

We determine if a contract contains

a lease at inception.

Our material operating leases consist of retail and warehouse locations as well as office space.

Our leases generally

have remaining terms of 1-5 years, most of which include options to extend the leases for additional 3 to 5-year periods.

Generally, the

lease term is the minimum of the noncancelable period of the lease or the lease term inclusive of reasonably certain renewal periods.

Right to use assets, operating lease assets

1 unchanged sentence

Non-current lease liability

September 30,

Weighted average remaining lease term

Weighted average discount rate

Three Months Ended

September 30,

Operating lease costs

1 unchanged sentence

Total operating lease costs

GrowGeneration

Corporation and Subsidiaries

to the Unaudited Consolidated Financial Statements

Nine Months Ended

September 30,

Operating lease costs

Short-term lease costs

Total operating lease costs

The following table presents the maturity of the Company’s operating lease liabilities as of September

GrowGeneration Corporation and Subsidiaries

Notes To Unaudited Condensed Consolidated Financial

March 31, 2021

LEASES, continued

The following table presents the maturity of the Company’s operating

lease liabilities as of March 31, 2021:

2021 (remainder of the year)

1 unchanged sentence

Imputed interest

Lease Liability at September 30, 2020

January 12, 2018, the Company completed a private placement of a total of 36 units of the Company’s securities at the price

of $250,000 per unit pursuant to Section 4(a)(2) of the Securities Act of 1933, as amended (the “Securities Act”)

and Rule 506 of Regulation D promulgated under the Securities Act.

Each Unit consisted of (i) a .1% unsecured convertible promissory

note of the principal amount of $250,000, and (ii) a 3-year warrant entitling the holder to purchase 37,500 shares of the Company’s

common stock, par value $.001 per share, at a price of $.01 per share or through cashless exercise.

convertible debt had a maturity date of January 12, 2021 and the principal balance and any accrued interest is convertible by

the holder at any time into common stock of the Company at conversion price of $3.00 a share.

Principal due and interest accrued

on the notes will automatically convert into shares of common stock, at the conversion price, if at any time during the term of

the notes, commencing twelve (12) months from the date of issuance, the common stock trades minimum daily volume of at least 50,000

shares for twenty (20) consecutive days with a volume weighted average price of at least $4.00 per share.

As of August 21, 2019,

all remaining convertible debt and accrued interest had been converted to equity and no convertible debt remains outstanding.

the nine months ended September 30, 2019, 172,500 warrants issued in connection with the convertible debt were exercised, resulting

in the issuance of 172,500 shares of common stock.

the nine months ended September 30, 2020, 37,438 shares were issued upon cashless exercise of convertible debt warrants.

GrowGeneration

Corporation and Subsidiaries

to the Unaudited Consolidated Financial Statements

BASED PAYMENTS AND STOCK OPTIONS

Company accounts for share-based payments through the measurement and recognition of compensation expense for share-based payment

awards made to employees and directors of the Company, including stock options and restricted shares.

the three months ended September 30, 2020 the Company issued 1,000 shares of common stock (stock-based awards) to employees that

vested immediately resulting in compensation expense of approximately $4,490.

During the three months ended September 30, 2019

the Company did not issue any shares of common stock (stock-based awards) to employees that vested immediately.

the nine months ended September 30, 2020 the Company issued 534,333 shares of common stock (stock-based awards) to employees that

vested immediately resulting in compensation expense of approximately $2,200,947.

During the nine months ended September 30, 2019

the Company issued 17,500 shares of common stock (stock-based awards) to employees that vested immediately resulting in compensation

expense of approximately $35,800.

the three months and nine months ended September 30, 2020, the Company recorded $0 and $125,000, respectively, of share-based

compensation to executives that is included in payroll and payroll tax liabilities.

During the three months and nine months ended

September 30, 2019, the Company recorded $217,100 and $716,600, respectively, of share-based compensation to executives that is

included in payroll and payroll tax liabilities.

following table presents share-based payment expense and new shares issued for the three months ended September 30, 2020 and 2019.

Three Months Ended

September 30,

Total non-cash share-based compensation

following table presents share-based payment expense and new shares issued for the nine months ended September 30, 2020 and 2019.

Nine Months Ended

September 30,

Total non-cash share-based compensation

GrowGeneration

Corporation and Subsidiaries

to the Unaudited Consolidated Financial Statements

BASED PAYMENTS AND STOCK OPTIONS, continued

March 6, 2014, the Company’s Board of Directors (the “Board”) approved the 2014 Equity Incentive Plan (“2014

Plan”) pursuant to which the Company may grant incentive, non-statutory options, stock appreciation rights, restricted stock,

restricted stock units, performance shares, performance units and other stock or cash awards to employees, nonemployee members

of our Board, consultants and other independent advisors who provide services to the Company.

The maximum shares of common stock

which may be issued over the term of the 2014 Plan shall not exceed 2,500,000 shares.

Awards under the 2014 Plan are made by the

Board or a committee designated by the Board.

Options under the 2014 Plan are to be issued at the market price of the stock on

the day of the grant except to those issued to holders of 10% or more of the Company’s common stock which is required to

be issued at a price not less than 110% of the fair market value on the day of the grant.

Each option is exercisable at such time

or times, during such period and for such numbers of shares shall be determined by the plan administrator.

No option may be exercisable

for more than ten years (five years in the case of an incentive stock option granted to a 10% stockholder) from the date of grant.

January 7, 2018, the Board adopted the 2018 Equity Compensation Plan (the “2018 Plan”) and on April 20, 2018, the

shareholders approved the 2018 Plan.

On February 7, 2020, the Board approved the amendment and restatement of the 2018 Plan to

increase the number of shares issuable thereunder from 2,500,000 to 5,000,000, which amendment was approved by shareholders on

May 11, 2020.

The 2018 Plan will be administered by the Board.

The Board may grant options to purchase shares of common stock,

stock appreciation rights, restricted stock units, restricted or unrestricted shares of common stock, performance shares, performance

units, other cash-based awards and other stock-based awards.

The Board also has broad authority to determine the terms and conditions

of each option or other kind of equity award, adopt, amend and rescind rules and regulations for the administration of the 2018

Plan and amend or modify outstanding options, grants and awards.

options, stock purchase rights or awards may be made under the 2018 Plan on or after the ten-year anniversary of the adoption

of the 2018 Plan by the Board, but the 2018 Plan will continue thereafter while previously granted options, stock appreciation

rights or awards remain subject to the 2018 Plan.

Options granted under the 2018 Plan may be either “incentive stock options”

that are intended to meet the requirements of Section 422 of the Internal Revenue Code of 1986, as amended (the “Code”)

or “nonstatutory stock options”

that do not meet the requirements of Section 422 of the Code.

The Board will determine

the exercise price of options granted under the 2018 Plan.

The exercise price of stock options may not be less than the fair market

value, on the date of grant, per share of our Common Stock issuable upon exercise of the option (or 110% of fair market value

in the case of incentive options granted to a 10% stockholder).

No option may be exercisable for more than ten years (five years

in the case of an incentive stock option granted to a 10% stockholder) from the date of grant.

Share Based Awards as of September 30, 2020 are summarized below:

Option awards

GrowGeneration

Corporation and Subsidiaries

to the Unaudited Consolidated Financial Statements

BASED PAYMENTS AND STOCK OPTIONS, continued

Awards issued under the 2014

Plan as of September 30, 2020 are summarized below:

Total shares available for issuance pursuant to the 2014 Plan

Options outstanding, September 30, 2020

Total options exercised under 2014 Plan

Total shares issued pursuant to the 2014 Plan

Awards available for issuance under the 2014 Plan, September 30, 2020

issued under the 2018 Plan as of September 30, 2020 are summarized below:

Total shares available for issuance pursuant to the 2018 Plan, after amendment

Options outstanding, September 30, 2020

Total options exercised under 2018 Plan

Total shares issued pursuant to the 2018 Plan

Awards available for issuance under the 2018 Plan, September 30, 2020

The table below summarizes all

option activity under all plans during the nine months ended September 30, 2020:

Lease Liability at March 31, 2021

SHARE BASED PAYMENTS AND STOCK OPTIONS

The Company maintains long-term

incentive plans for employee, non-employee members of our Board of Directors and consultants.

The plans allows us to grant equity-based

compensation awards, including stock options, stock appreciation rights, performance share units, restricted stock units, restricted stock

awards, or a combination of awards (collectively, share-based awards).

The Company accounts for share-based

payments through the measurement and recognition of compensation expense for share-based payment awards made to employees and directors

of the Company, including stock options and restricted shares.

The Company also issues share based payments in the form of common stock

warrants to non-employees.

The following table presents share-based

payment expense for the three months ended March 31, 2021 and 2020.

Restricted stock

Stock options

of March 31, 2021, the Company had approximately $2.6 million of unamortized share-based compensation for option awards and restricted

stock awards, which is expected to be recognized over a weighted average period of approximately 1.75 years.

As of March 31, 2021, the

Company also had approximately $3.6 million of unamortized share-based compensation for common stock warrants issued to consultants, which

is expected to be recognized over a weighted average period of 2.75 years.

Restricted Stock

The Company issues shares of restricted

stock to eligible employees, which are subject to forfeiture until the end of an applicable vesting period.

The awards generally vest

on the second or third anniversary of the date of grant, subject to the employee’s continuing employment as of that date.

GrowGeneration Corporation and Subsidiaries

Notes To Unaudited Condensed Consolidated Financial

March 31, 2021

SHARE BASED PAYMENTS AND STOCK OPTIONS, continued

Restricted stock activity for the

three months ended March 31, 2021 is presented in the following table:

Weighted Average Grant Date Fair Value

Nonvested, December 31, 2020

Nonvested, March 31, 2021

The table below summarizes all option

activity under all plans during the three months ended March 31, 2021:

Outstanding at December 31, 2020

Forfeited or expired

Outstanding at September 30, 2020

Options vested at September 30, 2020

September 30,

Options outstanding pursuant to 2014 Plan

Options outstanding pursuant to 2018 Plan

Options issued outside of 2014 and 2018 Plans

GrowGeneration

Corporation and Subsidiaries

to the Unaudited Consolidated Financial Statements

PURCHASE WARRANTS

A summary of the status of the

Company’s outstanding stock purchase warrants for the nine months ended September 30, 2020 is as follows:

Outstanding at March 31, 2021

Options vested at March 31, 2021

A summary of the status of the Company’s

outstanding stock purchase warrants for the three months ended March 31, 2021 is as follows:

Weighted Average

1 unchanged sentence

Outstanding at December 31, 2020

Outstanding at September 30, 2020

following table sets forth the composition of the weighted average shares (denominator) used in the basic and dilutive earnings

per share computation for the three months and nine months ended September 30, 2020 and 2019.

Outstanding at March 31, 2021

GrowGeneration Corporation and Subsidiaries

Notes To Unaudited Condensed Consolidated Financial

March 31, 2021

The following table sets forth the

composition of the weighted average shares (denominator) used in the basic and dilutive earnings per share computation for the three months

ended March 31, 2021 and 2020.

Three months ended

September 30,

Weighted average shares outstanding, basic

Effect of dilutive outstanding warrants and stock options

Adjusted weighted average shares outstanding, dilutive

Basic income per shares

Dilutive income per share

Nine months ended

September 30,

Net income (loss)

Weighted average shares outstanding, basic

3 unchanged sentences

Dilutive income per share

GrowGeneration

Corporation and Subsidiaries

to the Unaudited Consolidated Financial Statements

acquisition strategy is to acquire well established profitable hydroponic garden centers in markets where the Company does not

have a market presence or in markets where it is increasing its market presence.

The Company accounts for acquisitions in accordance

with ASC 805 “Business Combinations.”

Assets acquired and liabilities assumed are recorded in the accompanying consolidated

balance sheets at their estimated fair values, as of the acquisition date.

For all acquisitions, the preliminary allocation of

the purchase price was based upon a preliminary valuation, and the Company’s estimates and assumptions are subject to change

within the measurement period as valuations are finalized.

The Company has not made any adjustments to the preliminary valuations.

February 26, 2020 we acquired certain assets of Health & Harvest LLC in a transaction valued at approximately $2.85 million.

Our acquisition strategy is to acquire (i) well established profitable

hydroponic garden centers in markets where the Company does not have a market presence or in markets where it is increasing its market

and (ii) proprietary brands and private label brands.

The Company accounts for acquisitions in accordance with ASC 805 “Business

Combinations.”

Assets acquired and liabilities assumed are recorded in the accompanying consolidated balance sheets at their estimated

fair values, as of the acquisition date.

For all acquisitions, the preliminary allocation of the purchase price was based upon a preliminary

valuation, and the Company’s estimates and assumptions are subject to change within the measurement period as valuations are finalized.

The Company has made any adjustments to the preliminary valuations on four of the eight acquisition based on valuation analysis prepared

by independent third-party valuation consultants.

The acquisitions for which an independent third-party valuation analysis has been competed

includes Agron, LLC, Charcoir, Grow Warehouse and San Diego Hydro.

The remaining four valuations, Aquarius, 55 Hydro, Grow Depot Maine

and Indoor Garden, are expected to be completed by June 30, 2021.

Any changes to these estimates may have a material impact on the Company’s

operating results or financial position.

All acquisition costs are expensed as incurred and recorded in general and administrative expenses

in the consolidated statements of operations.

Acquisitions during the three months

ended March 31, 2021.

On January 25, 2021, the Company purchased

the assets of Indoor Garden & Lighting, Inc, a two-store chain of hydroponic and equipment and

indoor gardening supply stores serving the Seattle and Tacoma, Washington area.

The total consideration for the purchase of Garden

& Lighting was approximately $1.7 million, including $1.2 million in cash and common stock valued at approximately $0.5 million.

goodwill of approximately $0.8 million represents the value expected to rise from organic growth and an opportunity to expand into a well-established

market for the Company.

On February 1, 2021, the Company purchased

the assets of J.A.R.B., Inc d/b/a Grow Depot Maine, a two-store chain in Auburn and Augusta,

The total consideration for the purchase of Grow Depot Maine was approximately $2.1 million, including $1.7 million in

cash and common stock valued at approximately $0.4 million.

Acquired goodwill of approximately $1.3 million represents the value expected

to rise from organic growth and an opportunity to expand into a well-established market for the Company.

GrowGeneration Corporation and Subsidiaries

Notes To Unaudited Condensed Consolidated Financial

March 31, 2021

ACQUISITIONS, continued

On February 15, 2021, the Company purchased

the assets of Grow Warehouse LLC, a four-store chain of hydroponic and organic garden stores in

Colorado (3) and Oklahoma (1).

The total consideration for the purchase of Grow Warehouse LLC was approximately $17.8 million,

including $8.1 million in cash and common stock valued at approximately $9.7 million.

Acquired goodwill of approximately $9.6 million

represents the value expected to rise from organic growth and an opportunity to expand into a well-established market for the Company.

On February 22, 2021, the Company purchased

the assets of San Diego Hydroponics & Organics, a four-store chain of hydroponic and organic

garden stores in San Diego, CA.

The total consideration for the purchase of San Diego Hydroponics was approximately $9.3 million,

including $4.8 million in cash and common stock valued at approximately $4.5 million.

Acquired goodwill of approximately $5.6 million

represents the value expected to rise from organic growth and an opportunity to expand into a well-established market for the Company.

On March 12, 2021, the Company purchased

the assets of Charcoir Corporation, who sells an RHP-certified growing medium made from the highest-grade

coconut fiber.

The total consideration for the purchase of Charcoir was approximately $16.4 million, including $9.9 million in

cash and common stock valued at approximately $6.5 million.

Acquired goodwill of approximately $7.1 million represents the value expected

to rise from organic growth and an opportunity to expand into a well-established distribution market for the Company of a proprietary

On March 15, 2021, the Company purchased

the assets of 55 Hydroponics, a hydroponic and organic superstore located in Santa Ana, CA.

The total consideration for the purchase of 55 Hydroponics was approximately $6.5 million, including $5.4 million in cash and common stock

valued at approximately $1.1 million.

Acquired goodwill of approximately $3.8 million represents the value expected to rise from organic

growth and an opportunity to expand into a well-established market for the Company.

On March 15, 2021, the Company purchased

the assets of Aquarius, a hydroponic and organic garden store in Springfield, MA.

consideration for the purchase of Aquarius was approximately $3.6 million, including $2.4 million in cash and common stock valued at approximately

$1.2 million.

Acquired goodwill of approximately $1.6 million represents the value expected to rise from organic growth and an opportunity

to expand into a well-established market for the Company.

Cash consideration was funded from the Company’s existing working

Transaction costs incurred in connection with this acquisition were not significant.

June 16, 2020 we acquired certain assets of H2O Hydroponics, LLC in a transaction valued at approximately $1.99 million.

goodwill of approximately $1.4 million represents the value expected to rise from organic growth and an opportunity to expand

into a well-established market for the Company.

Cash consideration was funded from the Company’s existing working capital.

Transaction costs incurred in connection with this acquisition were not significant.

August 10, 2020 we acquired certain assets of Benzakry Family Corp, d/b/a Emerald City Garden, in a transaction valued at $1 million.

Acquired goodwill of approximately $840,000 represents the value expected to rise from organic growth and an opportunity to expand

into a well-established market for the Company.

Cash consideration was funded from the Company’s existing working capital.

Transaction costs incurred in connection with this acquisition were not significant.

The table below represents the

allocation of the purchase price to the acquired net assets during the nine months ended September 30, 2020.

Prepaids and other current assets

Property and equipment

Operating leases right to use asset

Operating lease liability

table below represents the consideration paid for the net assets acquired in business combinations.

GrowGeneration

Corporation and Subsidiaries

to the Unaudited Consolidated Financial Statements

ACQUISITIONS,

The following table discloses

the date of the acquisitions noted above and the revenue and earnings included in the consolidated statement of operations from

the date of acquisition through September 30, 2020.

following represents the pro forma consolidated income statement as if the acquisitions had been included in the consolidated

results of the Company for the entire period for the three months and nine months ended September 30, 2019.

September 30,

table below represents the allocation of the purchase price to the acquired net assets during the nine months ended September

Reno Hydroponics

On March 19, 2021, the Company purchased

the assets of Agron, LLC, an online seller of growing equipment.

The total consideration for the purchase of Agron was approximately

$11.3 million, including $6 million in cash and common stock valued at approximately $5.3 million.

Acquired goodwill of approximately

$8.3 million represents the value expected to rise from organic growth and an opportunity to expand into a well-established e-commerce

market for the Company targeting the commercial customer.

GrowGeneration Corporation and Subsidiaries

Notes To Unaudited Condensed Consolidated Financial

March 31, 2021

ACQUISITIONS, continued

The table below represents the allocation

of the purchase price to the acquired net assets during the three months ended March 31, 2021.

San Diego Hydro

Grow Warehouse

Grow Depot Maine

Indoor Garden

Prepaids and other current assets

Property and equipment

Operating right to use asset

Furniture and equipment

Operating lease right to use asset

Operating lease liability

The table below represents the

consideration paid for the net assets acquired in business combinations for the nine months ended September 30, 2019.

Reno Hydroponics

GrowGeneration

Corporation and Subsidiaries

to the Unaudited Consolidated Financial Statements

ACQUISITIONS,

The following table discloses

the date of the acquisitions noted above and the revenue and earnings included in the consolidated statement of operations from

the date of acquisition to the period ended September 30, 2019.

The following represents the

proforma consolidated statement of operations as if the acquisitions had been included in the consolidated results of the Company

for the entire period for the three months and nine months ended September 30, 2018.

September 30,

Nine Months Ended

September 30,

Company has evaluated events and transaction occurring subsequent to September 30, 2020 up to the date of this filing of these

consolidated financial statements.

These statements contain all necessary adjustments and disclosures resulting from that evaluation.

October 12, 2020, the Company acquired the assets of Hydroponics Depot, LLC, a single store located in Phoenix Arizona for $987,500

in cash and 31,027 shares of the Company’s common stock valued at $500,000.

October 20, 2020 the Company acquired the assets of Big Green Tomato, a two-store chain

in Battle Creek and Taylor, Michigan for $5,495,000 in cash and 167,116 shares of common stock valued at $2,750,000.

October 29, 2020, the Company signed an asset purchase agreement with The GrowBiz, a five-store chain with four stores in California

and one store in Oregon.

The asset purchase is expected to close by the end of the year.

The total consideration for the purchase

of The GrowBiz is approximately $32 million, $17,000,000 in cash and common stock valued at $15 million.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

following discussion should be read in conjunction with our consolidated financial statements and related notes that appear elsewhere

in this report as well as our Annual Report on Form 10-K for the year ended December 31, 2019 filed with the SEC on March 27,

In connection with, and because we desire to take advantage of, the “safe harbor”

provisions of the Private

Securities Litigation Reform Act of 1995, we caution readers regarding certain forward looking statements in the following discussion

and elsewhere in this report and in any other statement made by, or on our behalf, whether or not in future filings with the SEC.

Forward looking statements are statements not based on historical information and which relate to future operations, strategies,

financial results or other developments.

Forward looking statements, particularly those identified with the words, “anticipates,”

Customer relationships

The table below represents the consideration

paid for the net assets acquired in business combinations.

San Diego Hydro

Grow Warehouse

Indoor Garden

The following table discloses the date

of the acquisitions noted above and the revenue and earnings included in the consolidated income statement from the date of acquisition

to the period ended March 31, 2021.

San Diego Hydro

Grow Warehouse

Grow Depot Maine

Indoor Garden

Acquisition date

GrowGeneration Corporation and Subsidiaries

Notes To Unaudited Condensed Consolidated Financial

March 31, 2021

ACQUISITIONS, continued

The following represents the pro forma

consolidated income statement as if the acquisitions had been included in the consolidated results of the Company for the entire period

for the quarter ended March 31, 2021 and 2020.

March 31, 2021

March 31, 2020

Acquisitions during the three months

ended March 31, 2020.

On February 26, 2020 we acquired certain assets of Health & Harvest

LLC in a transaction valued at approximately $2.85 million.

Acquired goodwill of approximately $1.1 million represented the value expected

to rise from organic growth and an opportunity to expand into a well-established market for the Company.

Cash consideration was funded

from the Company’s existing working capital.

The table below represents the allocation

of the purchase price to the acquired net assets during the three months ended March 31, 2020.

Health & Harvest LLC

Furniture and equipment

Right to use asset

Lease liability

Customer relationships

The table below represents the consideration

paid for the net assets acquired in business combinations.

Health & Harvest LLC

The following table discloses the date

of the acquisitions noted above and the revenue and earnings included in the consolidated income statement from the date of acquisition

to the period ended March 31, 2020.

Health & Harvest LLC

Acquisition date

GrowGeneration Corporation and Subsidiaries

Notes To Unaudited Condensed Consolidated Financial

March 31, 2021

ACQUISITIONS, continued

The following represents the pro forma

consolidated income statement as if the acquisitions had been included in the consolidated results of the Company for the entire period

for the three months ended March 31, 2020 and 2019.

Pro forma consolidated income statement:

March 31, 2020

SUBSEQUENT EVENTS

The Company has evaluated events and

transaction occurring subsequent to March 31, 2021 up to the date of this filing of these consolidated financial statements.

These statements

contain all necessary adjustments and disclosures resulting from that evaluation.

For all acquisitions subsequent to

the end of the quarter, the Company’s initial accounting for the business combination has not been completed because the valuations

have not yet been received from the Company’s independent valuation firm.

On April 19, 2021 the Company purchased

the assets of Grow Depot LLC (“Down River Hydro”), a hydroponic and indoor gardening

supply store in Brownstown, MI.

The total consideration for the purchase of Down River Hydro was approximately $4.4 million, including

approximately $3.2 million in cash and 25,895 shares of common stock valued at approximately $1.2 million.

MANAGEMENT’S DISCUSSION AND ANALYSIS

OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion should be read in conjunction

with our consolidated financial statements and related notes that appear elsewhere in this report as well as our Annual Report on Form

10-K for the year ended December 31, 2020 filed with the SEC on March 29, 2021.

In connection with, and because we desire to take advantage

of, the “safe harbor”

provisions of the Private Securities Litigation Reform Act of 1995, we caution readers regarding certain

forward looking statements in the following discussion and elsewhere in this report and in any other statement made by, or on our behalf,

whether or not in future filings with the SEC.

Forward looking statements are statements not based on historical information and which

relate to future operations, strategies, financial results or other developments.

Forward looking statements, particularly those

identified with the words, “anticipates,”

“believes,”

3 unchanged sentences

“objectives,”

expressions, are necessarily based upon estimates and assumptions that are inherently subject to significant business, economic

and competitive uncertainties and contingencies, many of which are beyond our control and many of which, with respect to future

business decisions, are subject to change.

These uncertainties and contingencies can affect actual results and could cause actual

results to differ materially from those expressed in any forward-looking statements made by, or on our behalf.

We disclaim any

obligation to update forward looking statements, except as required by law.

GrowGeneration is the largest chain of

hydroponic garden centers in North America by revenue and number of stores.

We are the leading marketer and distributor of nutrients,

growing media, advanced indoor and greenhouse lighting, ventilation systems and accessories for hydroponic gardening.

the Company owns and operates a chain of thirty one (31) retail hydroponic/gardening centers, with six (6) in the state of California,

six (6) in the state of Michigan, five (5) located in the state of Colorado, four (4) in the State of Oklahoma, three (3) in Maine,

two (2) in the state of Nevada, one (1) in the state of Washington, one (1) in the state of Oregon, one (1) in the state of Rhode

Island, (1) in the state of Florida, one (1) distribution center in the state of California and an online e-commerce store, GrowGeneration.com.

Our plan is to continue to acquire, open and operate hydroponic/gardening centers and related businesses throughout the United

States and Canada.

garden centers sell thousands of products, including nutrients, growing media, advanced indoor and greenhouse lighting, ventilation

systems, and accessories for hydroponic gardening, as well as other indoor and outdoor growing products, that serve multi-purposes

and are designed and intended for growing a wide range of plants.

Hydroponics is a specialized method of growing plants using

mineral nutrient solutions in a water solvent, as opposed to soil.

This method is typically used inside greenhouses to give growers

the ability to better regulate and control nutrient delivery, light, air, water, humidity, pests, and temperature.

growers benefit from these techniques by producing crops faster and with higher crop yields per acre as compared to traditional

soil-based growers.

Indoor growing techniques and hydroponic products are being utilized in new and emerging industries or segments,

including the growing of cannabis and hemp.

In addition, vertical farms producing organic fruits and vegetables are also beginning

to utilize hydroponics due to a rising shortage of farmland as well as environmental vulnerabilities including drought, other

severe weather conditions and insect pests.

GrowGeneration

serves a new, yet sophisticated community of commercial and urban cultivators growing specialty crops including organics, greens

and plant-based medicines.

Unlike the traditional agricultural industry, these cultivators use innovative indoor and outdoor growing

techniques to produce specialty crops in highly controlled environments.

This enables them to produce crops at higher yields without

having to compromise quality, regardless of the season or weather and drought conditions.

target market segments include the commercial growers in the plant-based medicine market, the home grower and businesses and individuals

who grow organically grown herbs and leafy green vegetables.

The landscape for hydroponic retail stores is very fragmented, with

numerous single stores which we consider very ripe for our roll up strategy.

Further, the products we sell are in demand due to

the ever-increasing legalization of plant-based medicines, primarily cannabis and hemp, and the number of licensed cultivation

facilities in both the US and Canada.

Total sales for the hydroponic equipment industry, projected to surpass $16 billion by 2025.

retail operations are driven by our high-quality products, value-add knowledgeable staff and fast distribution capabilities.

employ horticulturists that we have branded as “Grow Pros”.

Our operations span over 400,000 square feet of retail

and warehouse space.

During COVID-19, we have been deemed an “essential”

supplier to the agricultural industry and,

as such, we remained open and continued our operations.

For the quarter ended September 30, 2020, our revenue was $55 million,

which increased 153% from the same period of the prior year.

For the nine months ended September 30, 2020, our revenues were $131.4

million, which increased 141.8% compared to the same period 2019.

There was a 73% increase in our same store sales comparing the

quarter ended September 30, 2020 to the quarter ended September 30, 2019.

The Company performed well in all markets, most notably

sales in the Oklahoma market up 288%, Michigan market was up 271%, Maine market up 82%, all attributable to gaining more commercial

and walk in business in these growth markets.

Income from store operations was $9.6 million for the third quarter of 2020, compared

to $3.8 million for the third quarter 2019, an increase of 155%.

Net income from store operations was approximately $22.6 million

for the nine months ended September 30, 2020, compared to approximately $8.6 million for the nine months ended September 30, 2019.

EBITDA was $6.6 million for the third quarter of 2020 compared to $2 million the same period of 2019, an increase of 230%.

Company is averaging 12,000 walk-in transaction per week.

operate our business through the following sales channels:

31 retail and commercial hydroponic/gardening centers focused on serving growers and cultivators.

Sales to commercial customers, including expert growers and cultivators, and provide them with advice from sales representatives

with the requisite expertise (whom we brand as “GrowPros”) to serve their specific needs.

Our existing e-commerce operation, growgeneration.com (previously HeavyGarden.com and GrowGen.pro), is currently being developed

and rebranded into an omni-channel sales approach to enable e-commerce at all of our locations, which ws launched in September

Distribution :

Some of our stores function as warehouse, distribution and fulfillment centers for directing products to other store locations

and to the retail, wholesale and mass hydroponic markets.

Strategy - Store Acquisitions and New Store Openings

Our growth strategy is to expand the

number of our retail and commercial operations throughout the United States.

The hydroponic retail landscape is fragmented,

which we believe has allowed us to acquire the “best of breed”

locations in the United States.

In addition, we

have a two-year roadmap to open a number of new locations in markets that we believe are underserved throughout the country.

In addition to the 11 states where we are currently operating, we have identified Ohio, Illinois, Pennsylvania, New York, New

Jersey and Missouri as new markets where we plan to open a new operation.

In the first quarter of 2020, we opened a second

hydroponic/gardening center in Tulsa, Oklahoma, a 40,000 square feet store operation and fulfillment center, and acquired

Health & Harvest located outside of Miami, FL.

On June 16, 2020, we acquired the assets of H2O Hydroponics LLC, a

hydroponic garden center in Lansing, MI.

In connection with this acquisition, we have consolidated and relocated our

current West Lansing location into a newly built 14,000 square foot hydroponic garden center.

On August 10, 2020,

we purchased the assets of Emerald City Garden located in Concord, CA for $1 million, following which acquisition we opened a

new store in the state of California.

On October 12, 2020, the Company purchased the assets of Hydroponics Depot, located in

Phoenix, AZ, which represents the Company’s 11 th state.

On October 20, 2020, we purchased the assets of The

Big Green Tomato, a two-store chain in Michigan.

Company now owns and operates 6 locations in the state of Michigan.

On October 29, 2020, the Company entered into an asset purchase

agreement to buy The GrowBiz, the 3 rd largest chain of Hydroponic garden centers in the US.

The GrowBiz operates five

garden centers, four in CA and one in Oregon.

We have set a target to be at 50 stores and operate in 15 states by the end of 2021.

Sales Division

commercial division is a dedicated sales and support team to sell and service large commercial customers, who are primarily licensed

growers of medicinal and non-medicinal cannabis.

As of the third quarter of 2020, our commercial division services over 1,000

commercial accounts, who collectively contributed $13.2 million in revenue or approximately 24% of our total Q3 2020 revenues.

For the nine-month period ended September 30,2020, the commercial division generated revenues of $32.7 million compared to $10.9

million for the same period in 2019, a 200% increase.

We have identified over 14,000 licensed hemp and cannabis growers in the

United States and believe there is significant room for us to expand our base of commercial customers.

online revenues for the third quarter of 2020 was approximately $2.9 million compared to $1.4 million for the same period in 2019,

an increase of 112%.

For the nine months ended September 30, 2020, our online revenues were approximately $7.4 million compared

to $3.1 million for the same period in 2019, an increase of 140%.

New visitors to our website are over 100,000 per month.

our existing e-commerce operation, HeavyGarden.com and GrowGen.Pro, as growgeneration.com, which will be an omni-channel sales

approach to enable e-commerce at all of our locations, providing our customers convenient ways to shop when and how they feel

We launched this strategy in September 2020.

This omni-channel approach will provide 24/7 availability of products

and allow our customers to “Buy Online and Pick Up In Store is currently being tested in several garden centers.”

Customers will be able to shop online in all product departments and access descriptions, reviews and pictures of our products.

Our customers can order online and they can choose to either have their products delivered directly to their growing facility

(usually within 48 hours) or they can pick up the products at one of our stores (usually within 24 hours).

We believe that this

omni-channel initiative will result in a more seamless, convenient shopping experience for our customers and will drive financial

have built a supply chain that currently spans through 31 locations across 10 states.

We are in the process of building several

operations that will serve as fulfillment service centers, in addition to serving the local retail and commercial customers.

garden/fulfillment centers will ship directly to a farm or home as well as to any commercial hydroponic store (including ours

and others) in the United States.

We have a fleet of trucks that allow us to deliver within the proximity of any of these locations.

and Private Label Strategy

sell a variety of products, including nutrients, growing media, advanced indoor and greenhouse lighting, ventilation systems,

and accessories for hydroponic gardening, as well as other indoor and outdoor growing products.

Our supply chain includes several

thousand stock keeping units (“SKUs”) across 12 product departments.

Many of our products are consumables leading

to repeat orders by our customers.

Consumable products are mainly nutrients and additives that feed the plants on a recurring

Our strategy is to supply products to two groups of customers:

commercial growers and smaller growers that require a local

center to fulfill their daily and weekly growing needs.

are also actively developing a line of private label products that we intend to sell through our garden centers under brands we

own or control.

Our strategy is to deliver high-quality products at a lower cost, and higher margin to us.

To further our private

label strategy, we acquired various trademarks in March 2019 to aid in branding our ‘in house’

products to our customers.

We introduced our first private labeled products under the Sunleaves brand in first quarter of 2020.

Sales of our various private

label products are over $1,000,000.

This initial offering encompassed a broad variety of products ranging from trellis netting

to plastic pots and organic nutrients.

We intend to introduce additional private label products during 2020 and 2021.

that expanding our private label offerings will have a positive impact on our margins and profitability in the near term.

various trademarks, trade names and service marks in our business, including Blueprint

Controllers, Carbide, DuraBreeze, Elemental Solutions, GrowGeneration, GrowXcess, GuardenWare, Harvester’s Edge, HeavyGardens,

Ion, MixSure+, OptiLUME, Power Matrix, Smart Support, Sunleaves, Sunspot, The Fountain for Automation, VitaPlant , and Where

The Pros Go To Grow .

For convenience, we may not include the SM, ®

symbols, but such

omission is not meant to indicate that we would not protect our intellectual property rights to the fullest extent allowed by

Any other trademarks, trade names or service marks referred to in this filing are the property of their respective owners.

As we continue to monitor the COVID-19

situation, we are considered an “essential”

supplier to the agricultural industry, suppling the nutrients and nourishment

required to feed their plants.

The Company has been opened during this difficult time.

We have plans and procedures in place to

ensure our customers and employees stay safe during this time of uncertainty.

As a result of COVID-19 we reduced some hours of

operations at the store level and some stores were closed on the weekends, starting in the later part of the first quarter of 2020.

There have been some minor delays in vendor shipments as their warehouses and supply chain were affected by staffing shortages.

The Company successfully implemented a will call and curb side pick-up process that is working well.

All of us at GrowGeneration

remain committed to the safety and well-being of our customers and employees.

To do our part, GrowGeneration has committed to donate

up to $500,000 of free product to local communities that have been severely affected.

To date, COVID-19 related costs are $158,000

for payroll related and $29,000 for store masks, gloves, cleaning supplies and sneeze guards.

the largest chain of stand-alone hydroponic garden centers by revenue and number of stores in the United States based on management’s

estimates, we believe that we have the following core competitive advantages over our competitors:

offer a one-stop shopping experience to all types of growers by providing “selection, service, and solutions”;

provide end-to-end solutions for our commercial customers from capex built-out to consumables to nourish their plants;

have a knowledge-based sales team, all with horticultural experience;

offer the options to transact online, in store, or buy online and pick up;

consider ourselves to be a leader of the products we offer, from launching new technologies to the development of our private

label products;

have a professional team for mergers and acquisitions to acquire and open new locations and successfully add them to our company

offer a program of issuing credit to licensed commercial customers based on a credit evaluation process.

Company has recently announced its partnership with Whole Cities Foundation.

Founded by Whole Foods Market in 2014, the independent,

nonprofit organization is based in Austin, Texas, and has partnered with more than 190 community organizations in 100 cities across

to build thriving local food systems and improve health.

The first project, with Whole Cities, through its Fresh, Healthy

Food Access Grant program, has been with Newark Science & Sustainability and Greater Newark Conservancy over the past 4 years.

Both organizations had identified hydroponic growing as a goal for their community plans.

Each group will benefit from an

equipment grant.

These first two opportunities are part of a pilot that we expect will yield learnings over the course of the

GrowGeneration will provide equipment and expertise and partner with Whole Cities to evaluate community impact.

we have built a national chain of hydroponic garden centers, it has always been our mission to give back to the local communities.

In our day to day operations, we see the results growing hydroponically.

We could not be prouder to partner with Whole Cities

to donate hydroponic equipment and supplies to their local communities to help them with their gardens and increase the quality

of their food production.

Our staff of over 250 dedicated team members, the majority have tremendous knowledge on how to grow

hydroponically, are energized to lend a hand and their personal time to support Whole Cities.

It is rewarding to watch a community,

come together, parents and children, and produce the largest tomatoes and produce in their community!

We Evaluate Our Operations

earn our sales primarily from the sale of hydroponic garden products, including nutrients, growing media, advanced indoor and

greenhouse lighting, ventilation systems, and accessories for hydroponic gardening, as well as other indoor and outdoor growing

Revenue on product sales is recognized upon delivery or shipment.

Customer deposits and lay away sales are not reported

as revenue until final payment is received and the merchandise has been delivery.

sales depend on the type of products we sell and the mix between consumables and non-consumables.

Due to their nature, purchases

of consumables results in repeat orders as customers seek to replenish their supplies.

In 2020, approximately 60% of our sales

were consumables.

Generally, in markets where legalization of plant-based medicines is recent and licensors are ramping up their

grow operations, there are more purchases of non-consumables for build-outs compared to purchases of consumables.

In more mature

markets, there are generally more purchases of consumables than non-consumables.

Our sales are also impacted by our customer mix

of commercial and non-commercial customers, as larger commercial customers may receive volume discounts.

More than a majority

of our sales is derived from our commercial customers.

calculate gross profit as sales less cost of goods sold.

Cost of goods sold consists of cost of product sold and freight.

profit excludes depreciation and amortization, which is presented separately in our consolidated statements of operations.

overall gross profit margin varies with our product mix, in particular the percentage of sales of consumable products versus non-consumables,

such as in connection with build-outs, during a particular quarter.

In addition, our customer mix impacts gross profit margin

due to larger commercial customers receiving discounts.

expenses are comprised of store operations, primarily payroll, rent and utilities, and corporate overhead.

Corporate overhead

is comprised of share-based compensation, depreciation and amortization, general and administrative costs and corporate salaries

and related expenses.

General and administrative expenses (“G&A”) consist mainly of advertising and promotions,

travel & entertainment, professional fees and insurance.

G&A as a percentage of sales does not increase commensurate with

an increase in sales.

Our largest expenses are payroll and rent and these are largely fixed and not variable.

Our advertising

and marketing expenses are controllable and variable depending on the particular market.

assess the organic growth of our sales on a same-store basis.

We believe that our assessment on a same-store basis represents

an important indicator of comparative financial results and provides relevant information to assess our performance.

New and acquired

stores become eligible for inclusion in the comparable store base if the store has been under our ownership for the entire period

in the same-store base periods for which we are including the store.

For example, our same store sales for the three months and

nine months ended September 30, 2020 and 2019 includes stores that operated for the entire quarter and year to date in both 2020

We do not include any stores that were closed or consolidated during a particular period.

define Adjusted EBITDA as net income (loss) before interest expense, income taxes, depreciation and amortization, further adjusted

for other items such as non-cash equity compensation charges.

See “Use of Non-GAAP Financial Measure”

for more information

and a reconciliation of Adjusted EBITDA to net income (loss), the most directly comparable financial measure calculated and presented

in accordance with GAAP.

OF OPERATIONS

of the three months ended September 30, 2020 and 2019

following table presents certain consolidated statement of operations information and presentation of that data as a dollar and

percentage change from year-to-year.

September 30, 2020

September 30, 2019

of goods sold

operating costs

from store operation

operating expenses

income (expense)

income, before taxes

for income taxes

revenue for the three months ended September 30, 2020 was approximately $55 million, compared to approximately $21.8 million for

the three months ended September 30, 2019 an increase of approximately $33.2 million or 153%.

The increase in revenues in 2020

was primarily due to 1) an increase in same store sales of $14.1 million or 73%, 2) 6 new stores opened or acquired at various

times after September 30, 2019 that had revenues of $15.8 million for the quarter ended September 30, 2020 for which there were

no revenues for the quarter ended September 30, 2019, 3) 1 store acquired in September 2019, that had revenues of $2.9 million

for the quarter ended September 30, 2020, compared to revenues of $646,000 for the quarter ended September 30, 2019 and 4) an

increase in e-commerce revenues of $1.5 million or 112% comparing the quarter ended September 30, 2020 to the quarter ended September

As noted in the chart below, the 20 same stores contributed revenue of $33.4 million for the quarter ended September

30, 2020, compared to revenues of $19.2 million for the quarter ended September 30, 2019, a 73% increase.

Company operated the same 20 stores for the entire three months ended September 30, 2020 and 2019:

five (5) in Colorado, four

(4) in California, two (2) in Michigan, two (2) in Nevada, one (1) in Rhode Island, one (1) in Washington, three (3) in Maine

and one (2) in Oklahoma.

As the chart shows below, these same stores generated approximately $33.4 million in revenues for the

three months ended September 30, 2020, compared to approximately $19.2 million in revenues for the three months ended September

30, 2019, an increase of 73%, primarily due to an increase in the number of commercial customers in those markets.

sales increased in all of the markets as noted below comparing September 30, 2020 to September 30, 2019.

Same Stores All Markets

September 30,

revenue, all markets

Company currently continues to focus on ten (10) markets and e-commerce noted below and the growth opportunities that exist in

We continue to focus on new store acquisitions and openings, proprietary products and the continued development of

our online omni-channel and Amazon revenues.

In October 2020, the Company purchased the assets of Hydroponics Depot, located in

Phoenix, AZ, which represents the Company’s 11 th state.

September 30,

Closed/consolidated

in the Colorado market increased approximately $1.5 million or 36.8% comparing the quarter ended September 30, 2020 to September

The increase in sales in the Colorado market is due to 1) the Company’s continued focus on increasing commercial

sales, and 2) the acquisition of a new store in mid-January 2019.

Revenues in the California market increased

approximately $2.6 million, or 57.7%.

Same store revenues in the California market increased approximately $2.1 million over the

same quarter in 2019 and the Concord, CA acquisition in mid-August 2020 had revenues of approximately $472,000 for the quarter

ended September 30, 2020.

in the Rhode Island market increased approximately $4.8 million or 218.5% primarily from its increased focus on commercial and

multi-state commercial customers.

in the Michigan market increased approximately $6.1 million or 271.7% due to 1) the increase in same store revenues which increased

$1.8 million or 153% primarily due to the increase in commercial accounts, 2) the acquisition of Grand Rapids in September 2019

that contributed $2.9 million in revenue in the quarter ended September 30, 2020 compared to $646,000 for the quarter ended September

30, 2019, 3) the acquisition of the West Lansing store in mid-June 2020 that was consolidated with our existing West Lansing store,

that had revenues of $2.6 million for the quarter ended September 30, 2020 compared to $440,000 for the quarter ended September

in the Nevada market were up 12%.

The Las Vegas, Nevada store has been impacted by COVID-19 and their revenues were flat quarter

to quarter but same store sales revenue in our Reno store were up 25%.

in the Washington market increased 30% comparing the quarter ended September 30, 2020 to the quarter ended September 30, 2019.

in Oregon were approximately $1.9 million and represents a new market from an acquisition in mid-December 2019.

Currently we have 4 stores in the Oklahoma

Revenues in the Oklahoma market increased $9.7 million or 288% comparing the quarter ended September 30, 2020 to the quarter

ended September 30, 2019.

Same stores revenues increased 1.7 million or 51% comparing the quarter ended September 30, 2020 to

the quarter ended September 30, 2019.

The increase in revenues is also related to the addition of two new stores, one in November

2019 and one in March 2020 which contributed revenues of $8 million.

in Maine have increased $2 million or 82% comparing the quarter ended September 30, 2020 to the quarter ended September 30, 2019.

The increase in revenues in primarily due to the increase in commercial customers.

was a new market resulting from an acquisition in February 2020.

Revenues in this market were $2.9 million for the quarter ended

September 30, 2020.

of Goods Sold

of goods sold for the three months ended September 30, 2020 was approximately $40.4 million compared to approximately $15.3 million

for the three months ended September 30, 2019 an increase of approximately $25.2 million or 164%.

The increase in cost of goods

sold was primarily due to the 153% increase in sales comparing the three months ended September 30, 2020 to the three months ended

September 30, 2019.

The increase in cost of goods sold is directly attributable to the increase in the number of stores open during

the quarter ended September 30, 2020 compared to the quarter ended September 30, 2019, and an increase in same store sales as

discussed in more detail above.

profit was approximately $14.6 million for the three months ended September 30, 2020, compared to approximately $6.5 million for

the three months ended September 30, 2019, an increase of approximately $8.1 million or 124%.

The increase in gross profit is

primarily related to the 153% increase in revenues comparing the quarter ended September 30, 2020 to the quarter ended September

Gross profit as a percentage of revenues was 26.5% for the three months ended September 30, 2020, compared to 29.9%

for the three months ended September 30, 2019.

The decrease in the gross profit margin percentage is due to 1) a greater percentage

of our revenues for the quarter ended September 30, 2020 in commercial and e-commerce revenues as a percentage of overall revenues

that have lower margins and 2) in the first quarter of 2019 we acquired a significant amount of inventory from a vendor at a substantial

discount, sales of this product in the third quarter of 2019 accounted for 5% of our overall revenue with higher margins.

and e-commerce accounted for approximately 29.3% of overall sales for the quarter ended September 30, 2020 compared to 27.3% for

the quarter ended September 30, 2019, resulting in a margin reduction of approximately 1.3 basis points .

The Company has

maintained a consistent margin for all of 2020.

expenses are comprised of store operations, primarily payroll, rent and utilities, and corporate overhead.

Operating costs were

approximately $9.5 million for the three months ended September 30, 2020 and approximately $5.4 million for the three months ended

September 30, 2019, an increase of approximately $4.1 million or 76%.

Store operating costs were $5 million for the three months

ended September 30, 2020 compared to $2.7 million for the quarter ended September 30, 2019, an increase of 81%.

The increase in

store operating costs was directly attributable to 1) the 153% increase in revenues, 2) the addition of five (5) new locations

that were added after September 30, 2019, and 3) two (2) locations added at various times in the quarter ended September 30, 2019

that were open for the entire quarter ended September 30, 2020.

The addition of these 7 stores, discussed above, and a new warehouse

facility were the primary reasons for the increase in store operating costs.

Store operating costs as a percentage of sales were

9% for the three months ended September 30, 2020, compared to 12.6% for the three months ended September 30, 2019, a 28% reduction.

Store operating costs were positively impacted by 1) the opening of new and acquired stores throughout 2019 and 2020 which have

lower percentage of operating costs to revenues due to their larger size and higher volume, and 2) a 73% increase in same store

overhead, comprised of general and administrative costs, share based compensation, depreciation and amortization and corporate

salaries, was approximately $4.5 million for the three months ended September 30, 2020, compared to approximately $2.6 million

for the three months ended September 30, 2019.

Corporate overhead was 8.2% of revenue for the three months ended September 30,

2020 and 12.1% for the three months ended September 30, 2019.

The decrease in corporate overhead as a percentage of revenues for

the quarter ended September 30, 2020 compared to the quarter ended September 30, 2019 was primarily due to the leverage we are

achieving through the increase in revenues not only from same store sales but through revenues from acquired and opened stores.

Share based compensation for the three months ended September 30, 2020 was $1 million compared to $553,000 for the three months

ended September 30, 2019.

The increase in the amount of share-based compensation is primarily due to new executive compensation

agreements effective January 1, 2020.

Share based compensation as a % of revenues decreased from 2.5% for the three months ended

September 30, 2019 to 1.9% for the three months ended September 30, 2020.

The increase in salaries expense from approximately

$1 million in the three months ended September 30, 2019 to $2.2 million for the three months ended September 30, 2020 was due

primarily to the increase in corporate staff to support expanding operations, including purchased store integrations, new store

openings, accounting and finance, information systems, purchasing and commercial sales staff.

It should be noted that when we

consummate a new acquisition, purchasing and back office accounting functions are stripped from the new acquisitions and those

functions are absorbed into our existing centralized purchasing and accounting and finance departments, thus delivering cost savings.

Corporate salaries and related payroll costs as a percentage of sales were 4% for the three months ended September 30, 2020 compared

to 4.7% for the three months ended September 30, 2019.

General and administrative expenses comprised mainly of advertising and

promotions, travel & entertainment, professional fees, insurance, and bad debt expense was approximately $858,000 for the

three months ended September 30, 2020 and approximately $804,000 for the three months ended September 30, 2019, with a majority

of the increase related to advertising and promotion, professional and legal fees and insurance.

General and administrative costs

as a percentage of revenue were 1.6% for the three months ended September 30, 2020, and 3.7% for the three months ended September

As noted earlier, corporate overhead, which includes non-cash expenses consisting primarily of depreciation and share

based compensation, was approximately $1.5 million for the three months ended September 30, 2020, compared to approximately $801,000

for the three months ended September 30, 2019.

Net income for the three months ended

September 30, 2020 was approximately $3.3 million, compared to net income of approximately $1 million for the three months

ended September 30, 2019, a positive change of approximately $2.3 million.

The increase in net income for the quarter ended

September 30, 2020 was primarily due to the 153% increase in revenues while store operating costs increased only 81%.

income from store operations which was approximately $9.6 million for the quarter ended September 30, 2020, compared to

approximately $3.8 million for the quarter ended September 30, 2019, an increase of $5.8 million or 155%.

The increase in

income from store operations were offset by increased corporate overhead, which was approximately $4.5 million for the

quarter ended September 30, 2020, compared to approximately $2.6 million for the quarter ended September 30, 2019, an

increase of $1.9 million.

In addition, the Company reported a provision for income taxes of approximately $1.8 million for

which there was no provision in the comparable period last year.

In prior years, the Company was able to offset taxable

income with net operating loss carryforwards.

Those carryforwards were fully utilized this year, as such we commenced

recorded a provision for income taxes.

Of the total corporate overhead of $4.5 million, non-cash share-based compensation and

depreciation was approximately $1.5 million.

Increases in G&A and salaries in the quarter ended September 30, 2020

compared to the quarter ended September 30, 2019 accounted for the remaining increase.

of the nine months ended September 30, 2020 and 2019

following table presents certain consolidated statement of operations information and presentation of that data as a dollar and

percentage change from year-to-year.

September 30,

$ 131,440,820

and similar expressions, are necessarily based upon estimates and assumptions that are inherently subject to

significant business, economic and competitive uncertainties and contingencies, many of which are beyond our control and many of which,

with respect to future business decisions, are subject to change.

These uncertainties and contingencies can affect actual results and

could cause actual results to differ materially from those expressed in any forward-looking statements made by, or on our behalf.

any obligation to update forward looking statements, except as required by law.

GrowGeneration Corp.

(together with all of

its wholly-owned subsidiaries, collectively “GrowGeneration”

or the “Company”) was incorporated in Colorado

in 2014 and is the largest chain of hydroponic garden centers in North America and is a leading marketer and distributor of

nutrients, growing media, advanced indoor and greenhouse lighting, environmental control systems and accessories for hydroponic

GrowGeneration also owns and operates e-commerce platforms, www.growgeneration.com and www.agron.io, Canopy Crop

Management Corp, CharCoir Inc, and several proprietary private-label brands across multiple product categories from LED lighting to

nutrients and additives and environmental control systems for indoor cultivation.

GrowGeneration sell thousands of products, including

nutrients, growing media, advanced indoor and greenhouse lighting, environmental control systems, vertical benching and accessories for

hydroponic gardening, as well as other indoor and outdoor growing products, that are designed and intended for growing a wide range of

In addition, vertical farms producing organic fruits and vegetables also utilize hydroponics due to a rising shortage of farmland

as well as environmental vulnerabilities including drought, other severe weather conditions and insect pests.

Our retail operations are driven by a wide selection

of all hydroponic products, service and solutions driven staff and pick, pack and ship distribution and fulfillment capabilities.

approximately 590 employees, a majority of them we have branded as “Grow Pros.”

Currently, our operations span over 865,000

square feet of retail and warehouse space.

We operate our business through the following

business units:

53 operating hydroponic/gardening centers focused on serving growers and cultivators.

Sales to commercial customers, including large multi-state operators and cultivators.

E-Commerce/Omni-channel :

Our e-commerce operation, includes GrowGeneration.com and Agron.io, a business-to-business (B2B) online portal for commercial growers.

GrowGeneration.com is currently adding “Buy online/Pick up in store”

same day pick up service.

Proprietary Brands and Private Label:

GrowGeneration sells a variety of products, including nutrients, growing media, advanced indoor and greenhouse lighting, ventilation systems, vertical benching, environmental control systems and accessories for hydroponic gardening.

Competitive Advantages

As the largest chain of hydroponic garden centers

by revenue and number of stores in the United States based on management’s estimates, we believe that we have the following core

competitive advantages over our competitors:

We offer a one-stop shopping experience to all types of growers by providing “selection, service, and solutions”;

We provide end-to-end solutions for our commercial customers from capex built-out to consumables to nourish their plants;

We have a knowledge-based sales team, all with horticultural experience;

We offer the options to transact online, in store, or buy online and pick up;

We consider ourselves to be a leader of the products we offer, from launching new technologies to the development of our private label products;

We have a professional team for mergers and acquisitions to acquire and open new locations and successfully add them to our company portfolio;

We offer a program of issuing credit to licensed commercial customers based on a credit evaluation process.

Growth Strategy - Store Acquisitions

and New Store Openings

Core to our growth strategy is to expand the number

of our retail garden centers throughout North America.

The hydroponic retail landscape is fragmented, which allows us to acquire the “best

of breed”

hydroponic operations.

In addition to the 12 states we are currently operating in, we have identified new market opportunities

in states that include Ohio, Illinois, Pennsylvania, New York, New Jersey, Mississippi and Missouri.

In 2020, we opened a second hydroponic/gardening

center in Tulsa, Oklahoma, a 40,000 square feet store operation and fulfillment center, and completed eight (8) acquisitions, adding 14

new locations in 2020.

The Company acquired 14 new locations in the first quarter of 2021, one additional location in April 2020 and has

an active target pipeline of acquisitions which are planned to close in 2021.

R ESULTS OF OPERATIONS

Comparison of the three months ended March

31, 2021 and 2020.

The following table presents certain consolidated

statement of operations information and presentation of that data as a dollar and percentage change from year-to-year.

Cost of goods sold

Store operating costs

Income from store operations

Income from store operation

Corporate operating expenses

3 unchanged sentences

Provision for income taxes

revenue for the nine months ended September 30, 2020 was approximately $131 million, compared to approximately $54 million for

the nine months ended September 30, 2019 an increase approximately $77 million or 142%.

The increase in revenues in 2020 was primarily

due to 1) 5 new stores opened or acquired after September 30, 2019 which had revenues of $27 million for the nine months ended

September 30, 2020 for which there were no revenues for the nine months ended September 30, 2019, 2) 8 stores opened or acquired

in early 2019, that had revenues of $38.7 million for the nine months ended September 30, 2020 compared to revenues of $15.7 million

for the nine months ended September 30, 2019, 3) an acquired store June 2020 that was consolidated with an existing store, that

on a combined basis had revenues of $5.5 million for the nine months ended September 30, 2020 compared to $1.5 million for the

nine months ended September 30, 2019, 4) increase in same store sales of 59% comparing revenues for the nine months ended September

30, 2020 to the nine months ended September 30, 2019 and 5) an increase in e-commerce sales of $4.3 million or 140% comparing

the nine months ended September 30, 2020 to the nine months ended September 30, 2019.

As noted in the chart below, the 13 same

stores contributed revenue of $52.4 million for the nine months ended September 30, 2020 compared to revenues of $33 million for

the nine months ended September 30, 2019, a 59% increase.

Company operated the same 13 stores for the entire nine months ended September 30, 2020 and 2019:

four (4) in Colorado, six (3)

in California, two (2) in Michigan, one (1) in Nevada, one (1) in Rhode Island, one (1) in Washington and one (1) in Oklahoma.

These same stores generated approximately $52.4 million in revenues for the nine months ended September 30, 2020, compared to

approximately $33 million in revenues for the nine months ended September 30, 2019, an increase of 59%, primarily due to an increase

in the number of commercial customers in those markets.

Same store sales increased in all of the markets, except for Washington,

as noted below comparing September 30, 2020 to September 30, 2019.

Same Stores All Markets

September 30,

Company currently continues to focus on ten (10) markets and the new e-commerce site noted below and the growth opportunities

that exist in each market.

We continue to focus on new store acquisitions and openings, proprietary products and the continued

development of our online omni-channel and Amazon revenues.

September 30,

Closed/consolidated

$ 131,440,820

in the Colorado market increased approximately $3 million or 26.8% comparing the nine months ended September 30, 2020 to September

The increase in revenues in the Colorado market is due to 1) the Company’s continued focus on increasing commercial

revenues, and 2) the acquisition of a new store in mid-January 2019.

Same store revenues in Colorado increased approximately $3.7

Net revenue for the three months ended March

31, 2021 was approximately $90 million, compared to $33 million for the three months ended March 31, 2020 an increase of

approximately $57 million or 173%.

This increase included $41.4 million of additional quarterly revenue from 2020 and 2021

acquisitions and $14.5 million of additional revenue from same store sales performance.

Cost of Goods Sold

Cost of goods sold for the three months ended

March 31, 2021 was approximately $64.6 million, compared to approximately $24.0 million for the three months ended March 31, 2020, an increase

of approximately $40.6 million or 169%.

The increase in cost of goods sold was primarily due to the 173% increase in sales comparing the

three months ended March 31, 2021 to the three months ended March 31, 2020.

Gross profit was approximately $25.4 million for

the three months ended March 31, 2021, compared to approximately $8.9 million for the three months ended March 31, 2020, an increase of

approximately $16.4 million or 184%.

The increase in gross profit is primarily related to the 173% increase in revenues comparing the

quarter ended March 31, 2021 to the quarter ended March 31, 2020.

Gross profit as a percentage of revenues was 28.2% for the three months

ended March 31, 2021, compared to 27.1% for the three months ended March 31, 2020.

The increase in the gross profit margin percentage

is primarily due to higher increases in revenues from both private label products and distributed products which were 6.2% of revenues

for the quarter ended March 31, 2021 and less than 1% of revenues for the quarter ended March 31, 2020.

Operating Expenses

Operating expenses are comprised of store operations,

selling, general, and administrative and depreciation and amortization.

Operating costs were approximately $17.6 million for the three

months ended March 31, 2021 and approximately $11.1 million for the three months ended March 31, 2020, an increase of approximately $6.6

million or 60%.

in the California market increased approximately $5 million, or 41%.

Same store revenues in the California market increased approximately

$3 million or 30% over the same nine months in 2019 and the Palm Springs acquisition in mid-February 2019 had revenues of approximately

$3.9 million for 2020 compared to $2.3 million for 2019.

in the Rhode Island market increased approximately $8.3 million or 144% primarily from its increased focus on commercial and multi-state

commercial customers.

in the Michigan market increased approximately $15.6 million or 288% due to 1) an acquisition in September 2019 that contributed

$8.8 million in revenue in the nine months ended September 30, 2020 compared to $646,000 for the nine months ended September 30,

2019, 2) an acquisition in mid-June 2020 that consolidated with an existing store that combined had revenues of $5.5 million for

the nine months ended September 30, 2020 compared to $1.5 million for the nine months ended September 30, 2019, and 3) the increase

in same store revenues which increased $3.4 million or 103% primarily due to the increase in commercial accounts.

in the Nevada market increased $465,000 or 15.6% due to 1) the acquisition of our Reno store in February 2019 which had revenues

of $1.8 million in the nine months ended September 30, 2020 compared to revenues of $1.4 million for the nine months ended September

30, 2019, and 2) a 3% increase in same store revenues in the Las Vegas store.

in the Washington market increased by 8% comparing the nine months ended September 30, 2020 to the nine months ended September

Washington currently is our smallest market.

in Oregon were approximately $5.2 million and represents a new market from an acquisition in mid-December 2019.

we have 4 stores in the Oklahoma market.

Revenues in the Oklahoma market increased $23.2 million or 312% comparing the nine months

ended September 30, 2020 to the nine months ended September 30, 2019.

Same stores revenues increased 20% in Oklahoma City, the

first store opened in October 2018.

Revenue growth in 2020 was greatly enhanced by the addition of two new stores in Oklahoma

that opened in mid-November 2019 and March 2020, that combined had revenues of $15.9 million for the nine months ended September

30, 2020 and no revenues for the nine months ended September 30, 2019.

in Maine have increased $7.1 million or 178% comparing the nine months ended September 30, 2020 to the nine months ended September

The increase was primarily due to a new store opened January 31, 2019 and two new stores acquired in May 2019.

store opened in early 2019 had revenues of $4.1 million in the nine months ended September 30, 2020, compared to $1.1 million

for the nine months ended September 30, 2019.

The two new stores acquired in May 2019, contributed $7.1 million in revenues for

the nine months ended September 30, 2020, compared to $2.9 million for the nine months ended September 30, 2019.

was a new market resulting from an acquisition in February 2020.

Revenues in this market were $5.9 million for the nine months

ended September 30, 2020.

of Goods Sold

of goods sold for the nine months ended September 30, 2020 was approximately $96.3 million compared to approximately $38.3 million

for the nine months ended September 30, 2019 an increase of approximately $58 million or 151%.

The increase in cost of goods sold

was primarily due to the 142% increase in revenues comparing the nine months ended September 30, 2020 to the nine months ended

September 30, 2019.

The increase in cost of goods sold is directly attributable to the increase in the number of stores open during

the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019, as discussed in detail above.

profit was approximately $35.1 million for the nine months ended September 30, 2020, compared to approximately $16 million for

the nine months ended September 30, 2019, an increase of approximately $19.1 million or 119%.

The increase in cost of goods sold

is primarily related to the 141.8% increase in revenues comparing the nine months ended September 30, 2020 to the nine months

ended September 30, 2019.

Gross profit as a percentage of revenues was 26.7% for the nine months ended September 30, 2020, compared

to 29.5% for the nine months ended September 30, 2019.

The decrease in the gross profit margin percentage is due to 1) a greater

percentage of our sale for the nine months ended September 30, 2020 in commercial and e-commerce revenues with lower margins compare

to the nine months ended September 30, 2019 (30.6% vs 25.7%, respectively), and 2) in the first quarter of 2019 we acquired a

significant amount of inventory from a vendor at a substantial discount, sales of this product during the nine months ended 2019

accounted for 4% of our overall revenue and high margins, resulting in an 1.1 basis points increase in margin.

Commercial and

e-commerce accounted for approximately 30.6% of overall revenues for the nine months ended September 30, 2020 compared to 25.7%

for the nine months ended September 30, 2019.

expenses are comprised of store operations, primarily payroll, rent and utilities, and corporate overhead.

Store operating costs

were approximately $12.5 million for the nine months ended September 30, 2020 and approximately $7.4 million for the nine months

ended September 30, 2019, an increase of approximately $5.2 million or 70%.

The increase in store operating costs was directly

attributable to 1) the addition of five (5) new locations that were added after September 30, 2019, and 2) eight (8) locations

added at various times during the nine months ended September 30, 2019 that were open for the entire nine months ended September

The addition of these 13 stores, as discussed above, and the new warehouse facility were the primary reasons for the

increase in store operating costs.

Store operating costs as a percentage of revenues were 9.5% for the nine months ended September

30, 2020, compared to 13.5% for the nine months ended September 30, 2019, a 30% reduction.

Store operating costs were positively

impacted by the opening of new and acquired stores throughout 2019 and acquisitions in 2020 which have lower percentage of operating

costs to revenues due to their larger size and higher volume.

As noted above, same store revenues increased 59% comparing the

nine months ended September 30, 2020 to the nine months ended September 30, 2019, which also contributed significantly to lowering

of the store operating costs as a percentage of revenues.

Corporate overhead, comprised of general

and administrative costs, share based compensation, depreciation and amortization and corporate salaries, was approximately $16.8

million for the nine months ended September 30, 2020, compared to approximately $6 million for the nine months ended September

Corporate overhead was 12.8% of revenue for the nine months ended September 30, 2020 and 11% for the nine months ended

September 30, 2019.

The increase in corporate overhead as a percentage of revenues for the nine months ended September 30, 2020

was primarily due to the increase in non-cash share base compensation from approximately $1.1 million for the nine months ended

September 30, 2019 to approximately $6.3 million for the nine months ended September 30, 2020, an increase of $5.2 million.

increase in non-cash share-based compensation was primarily the result of several new executive employment agreements which became

effective January 1, 2020 which resulted in the vesting of common stock and common stock options at the start of the first quarter,

as well as options issued in 2018 and 2019 for options vesting in 2020.

The shares based awards associated with the new executive

employment agreements resulted in approximately one-third of the award being recognized as an expense in the first three months

of 2020, due to vesting, and the remaining two-thirds on the share-based awards are being recognized over a 24 month period commencing

January 2020 and ending December 2021, based on shared based award vesting in future periods.

The vesting of these shares and options

was significantly higher in the first nine months of 2020 than they will be in the periods subsequent to September 30, 2020.

increase in salaries expense from 2019 to 2020, which increased from $2.5 million for the nine months ended September 30, 2019

to $5.9 million for the nine months ended September 30, 2020 was due primarily to the increase in corporate staff to support expanding

store operations, including purchased store integrations, accounting and finance, information systems, purchasing and commercial

revenues staff.

It should be noted that when we consummate a new acquisition, purchasing and back office accounting functions are

stripped from the new acquisitions and those functions are absorbed into our existing centralized purchasing and accounting and

finance departments, thus delivering cost savings.

Corporate salaries and related payroll costs as a percentage of revenues were

4.5% for the nine months ended September 30, 2020 and the nine months ended September 30, 2019.

General and administrative expenses comprised

mainly of advertising and promotions, travel & entertainment, professional fees and insurance, was approximately $3.2 million

for the nine months ended September 30, 2020 and approximately $1.9 million for the nine months ended September 30, 2019, with

a majority of the increase related to advertising and marketing, insurance, consulting and legal fees.

General and administrative

costs as a percentage of revenue were 2.5% for the nine months ended September 30, 2020, and 3.5% for the nine months ended September

As noted earlier, corporate overhead, which includes non-cash expenses consisting primarily of depreciation and share

based compensation, was approximately $7.6 million for the nine months ended September 30, 2020, compared to approximately $1.6

million for the nine months ended September 30, 2019, an increase of $6 million, primarily due to share-based compensation as previously

Corporate overhead, excluding non-cash share-based compensation and depreciation, was $9.2 million for the nine months

ended September 30, 2020 or 7% of revenues, compared to $4.4 for the nine months ended September 30, 2019, or 8.1% of revenues.

Net income for the nine months ended September

30, 2020 was approximately $3.8 million, compared to net income of approximately $2.3 million for the nine months ended September

30, 2019, a positive change of approximately $1.5 million.

The net income for the nine months ended

September 30, 2020 was primarily due to the 1) a 141.8% increase in revenues, 2) a 161% increase in income from store operations

from $8.6 million for the nine months ended September 30, 2019 to $22.6 million for the nine months ended September 30, 2020, offset

by 3) a $5.2 million increase in share-based compensation from approximately $1.1 million in 2019 to $6.3 million for the nine

months ended September 30, 2020, and 4) income tax expense of $2 million for 2020 compared to $0 for 2019.

In prior years, the

Company was able to offset taxable income with net operating loss carryforwards.

Those carryforwards were fully utilized this year,

as such we commenced recorded a provision for income taxes.

The total of non-cash expense, share-based compensation and depreciation

was $7.6 million for the nine months ended September 30, 2020 compared to $1.6 million for the nine months ended September 30,

Net cash provided by operating

activities for nine months ended September 30, 2020 was approximately $3.7 million compared to net cash used by operating

activities of approximately $(2.3) million for nine months ended September 30, 2019.

Cash used in operating activities is

driven by our net income and adjusted by non-cash items as well as changes in operating assets and liabilities.

adjustments primarily include depreciation, amortization of intangible assets, share based compensation expense and

amortization of debt discount.

Non-cash adjustments totaled approximately $7.7 million and approximately $2 million for the

nine months ended September 30, 2020 and 2019, respectively, so non-cash adjustments had a far greater positive impact on net

cash provided by operating activities for the nine months ended September 30, 2020 than the same period in 2019.

provided by operating activities, $3.7 million, for the nine months ended September 30, 2020 compared to the net cash used in

operating activities, $(2.3) million for nine months ended September 30, 2019, a positive difference of $6 million, was

primarily related to 1) the net income of approximately $3.8 million for the nine months ended September 30, 2020, 2) net

increases in inventory and prepaids of approximately $(16.5) million, which had a negative impact, offset by 3) positive

non-cash adjustments of approximately $7.7 million and 4) increases in accounts payable, customer deposits, income taxes and

other current liabilities of approximately $9.6 million.

Net cash used in operating activities for

the nine months ended September 30, 2019 was approximately $(2.3) million.

This amount was primarily related to 1) net income of

approximately $2.3 million, 2) positive non-cash adjustments of approximately $2 million, 3) increase in accounts payable and other

current liabilities of approximately $4.3 million offset by 4) increases of inventory of approximately $7.3 million, accounts receivable

of approximately $1.3 million and prepaids of approximately $2.2 million.

cash used in investing activities was approximately $6.9 million for the nine months ended September 30, 2020 and approximately

$10.2 million for the nine months ended September 30, 2019.

Investing activities in 2020 were primarily attributable to a store

acquisition ($4 million), vehicles and store equipment purchases ($2.1 million) and intangible assets $(.8 million).

activities in for the nine months ended September 30, 2019 were primarily related to store acquisitions approximately $(8.5) million,

the purchase of vehicles and store equipment to support new store operations of approximately $(1.5) million.

Net cash provided

by financing activities for the nine months ended September 30, 2020 was approximately $45.6 and was primarily attributable to

proceeds from the sale of common stock in a public offering, $44.6 million, exercise of warrants of approximately $1.1 million,

offset by debt principal payments of approximately $74,000.

Net cash provided by financing activities for nine months ended September

30, 2019 was $13.8 million and was primarily from proceeds from the sale of common stock and exercise of warrants of $14.1 million,

offset by debt principal payments of approximately $340,000.

of Non-GAAP Financial Information

Company believes that the presentation of results excluding certain items in “Adjusted EBITDA,”

such as non-cash equity

compensation charges, provides meaningful supplemental information to both management and investors, facilitating the evaluation

of performance across reporting periods.

Store operating costs were approximately $8.2 million for the three

months ended March 31, 2021, compared to $3.6 million for the quarter ended March 31, 2020, an increase of $4.6 million or 125%.

in store operating costs was directly attributable to the 173% increase in revenues, the addition of twenty-five (25) locations that were

added after March 31, 2020, and two (2) locations added during the quarter ended March 31, 2020 that were open for the entire quarter

ended March 31, 2021.

Total corporate overhead was approximately $9.5 million for the

three months ended March 31, 2021, compared to $7.4 million for the quarter ended March 31, 2020, an increase of $2.1 million or 28%.

Selling, general, and administrative costs were approximately $7.4 million for the three months ended March 31, 2021, compared to approximately

$7.1 million for the three months ended March 31, 2020.

Salaries expense increased to $4.0 million from $1.8 million primarily due to

an increase in corporate staff and general and administrative expenses increased to $2.1 million from $1.2 million to support expanding

These increases were partially offset by a decrease in share-based compensation to $1.3 million from $4.1 million primarily

due to new executive compensation agreements effective January 1, 2020 that had front loaded vesting provisions for shares and options

that vested January 1, 2020 for which the remaining vesting was over a two-year period.

Net income for the three months ended March 31,

2021 was approximately $6.1 million, compared to a net loss of approximately $2.1 million for the three months ended March 31, 2020, a

positive change of approximately $8.2 million.

Operating Activities

Net cash provided by operating activities for three months ended

March 31, 2021 was approximately $0.7 million compared to $0.8 million for the three months ended March 31, 2020.

Net cash used in investing activities was approximately $82.7

million for the three months ended March 31, 2021 and approximately $2.8 million for the three months ended March 31, 2020.

activities in 2021 were primarily attributable to store acquisition ($39.3 million), purchase of marketable securities ($41.1 million),

vehicles and store equipment purchases ($1.7 million) and intangible asset purchases $(0.6 million).

Investing activities for the three

months ended March 31, 2020 were primarily related to store acquisitions $(1.8) million, the purchase of vehicles and store equipment

to support new store operations of $(0.7) million and intangible assets ($0.4 million).

Net cash used in financing

activities for the three months ended March 31, 2021 was approximately $3.9 million and was primarily attributable to stock redemptions.

Net cash provided by financing activities for three months ended March 31, 2020 was $0.5 million and was primarily from proceeds from

the sale of common stock and exercise of warrants.

Use of Non-GAAP Financial

The Company believes

that the presentation of results excluding certain items in “Adjusted EBITDA,”

such as non-cash equity compensation charges,

provides meaningful supplemental information to both management and investors, facilitating the evaluation of performance across reporting

The Company uses these non-GAAP measures for internal planning and reporting purposes.

These non-GAAP measures are not in accordance with, or an alternative for, generally accepted accounting principles and may be

different from non-GAAP measures used by other companies.

The presentation of this additional information is not meant to be considered

in isolation or as a substitute for net income or net income per share prepared in accordance with generally accepted accounting

forth below is a reconciliation of Adjusted EBITDA to net income (loss):

These non-GAAP measures are not in accordance

with, or an alternative for, generally accepted accounting principles and may be different from non-GAAP measures used by other companies.

The presentation of this additional information is not meant to be considered in isolation or as a substitute for net income or net income

per share prepared in accordance with generally accepted accounting principles.

Set forth below is a reconciliation of Adjusted

EBITDA to net income (loss):

Three Months Ended

September 30,

March 31, 2021

March 31, 2020

Depreciation and Amortization

Share based compensation (option compensation, warrant compensation, stock issued for services)

Amortization of debt discount

Adjusted EBITDA

1 unchanged sentence

Adjusted EBITDA per share, diluted

September 30, 2020

September 30, 2019

and Amortization

based compensation (option compensation, warrant compensation, stock issued for services)

of debt discount

EBITDA per share, basic

EBITDA per share, diluted

AND CAPITAL RESOURCES

of September 30, 2020, we had working capital of approximately $83 million, compared to working capital of approximately $30.6

million as of December 31, 2019, an increase of approximately $52.4 million.

The increase in working capital from December 31,

2019 to September 30, 2020 was due primarily to 1) proceeds from the a public offering of common stock resulting in net proceeds

of $44.6 million, 2) exercise of warrants totaling approximately $1.1 million during the nine months ended September 30, 2020

and 3) the increase in net cash provided by operations.

At September 30, 2020, we had cash and cash equivalents of approximately

$55.3 million.

Currently, we have no demands, commitments or uncertainties that would reduce our current working capital.

core strategy continues to focus on expanding our geographic reach across the United States through organic growth and acquisitions.

Based on our strategy we may need to raise additional capital in the future through equity offerings and/or debt financings.

believe that some of our store acquisitions and new store openings can come from cash flow from operations.

anticipate that we may need additional financing in the future to continue to acquire and open new stores and related businesses.

To date we have financed our operations through the issuance and sale of common stock, convertible notes and warrants.

Public Offering

July 2, 2020 the Company consummated an underwritten public offering of 8,625,000 shares of its common stock (the “Shares”),

which included the exercise in full of the underwriters’

option to purchase an additional

1,125,000 shares of common stock to cover over-allotments.

The Shares were sold at a public offering price of $5.60 per

share, generating gross proceeds of $48.3 million, before deducting the underwriting discounts

and commissions and other offering expenses .

Net proceeds from the sales of common stock, net of all offering costs and

expenses was approximately $44.6 million.

Private Placement

June 26, 2019, the Company completed a private placement of a total of 4,123,257 units of the Company’s securities at the

price of $3.10 per unit pursuant to Section 4(a)(2) of the Securities Act and Rule 506 of Regulation D promulgated under the Securities

Each unit consisted of (i) one share of common stock and (ii) one 3-year warrant, each entitling the holder to purchase one

half share of common stock, at a price of $3.50 per share.

The Company raised a total of $12,782,099 from 19 accredited investors.

Private Placement

January 17, 2018, the Company completed a private placement of a total of 36 units of its securities at the price of $250,000

Each unit consists of (i) a .1% unsecured convertible promissory note of the principal amount of $250,000, and (ii)

a 3-year warrant entitling the holder to purchase 37,500 shares of common stock, at a price of $.01 per share or through cashless

The Company raised gross proceeds of $9,000,000 from 23 accredited investors in the offering.

May 9, 2018, the Company completed a private placement of a total of 33.33 units of its securities at a price of $300,000 per

unit to 3 accredited investors.

Each unit consists of (i) 100,000 share of the Company’s common stock and (ii) 50,000 3-year

warrant to purchase one share of common stock at an exercise price of $.35 per share.

The Company raised an aggregate of $10,000,000

gross proceeds in the offering.

Private Placements

March 10, 2017, the Company completed a private placement of a total of 825,000 units of its securities to 4 accredited investors.

Each unit consists of (i) one share of the Company’s common stock and (ii) one 5-year warrant to purchase one share of common

stock at an exercise price of $2.75 per share.

The Company raised an aggregate of $1,650,000 gross proceeds in the offering.

May 16, 2017, the Company completed a private placement of a total of 1,000,000 units of its securities to 27 accredited investors

through GVC Capital LLC (“GVC Capital”) as its placement agent.

Each unit consists of (i) one share of the Company’s

common stock and (ii) one 5-year warrant to purchase one share of common stock at an exercise price of $2.75 per share.

raised an aggregate of $2,000,000 gross proceeds in the offering.

The Company paid GVC Capital total compensation for its services,

(i) for a price of $100, 5-year warrants to purchase 75,000 shares at $2.00 per share and 5-year warrants to purchase 75,000 shares

at $2.75 per share, (ii) a cash fee of $150,000, (iii) a non-accountable expense allowance of $60,000, and (iv) a warrant exercise

fee equal to 3% of all sums received by the Company from the exercise of 750,000 warrants (not including 250,000 warrants issued

to one investor) when they are exercised.

Accounting Policies, Judgments and Estimates

preparation of these consolidated financial statements in conformity with accounting principles generally accepted in the United

GAAP) requires management to make a number of estimates and assumptions related to the reported amount of assets

and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and

the reported amounts of revenues and expenses during the period.

Significant items subject to such estimates and assumptions include

the carrying amount of intangible assets;

valuation allowances and reserves for receivables, inventory and deferred income taxes;

share-based compensation;

and loss contingencies, including those related to litigation.

Actual results could differ from those

Receivable and Concentration of Credit Risk

receivable are recorded at the invoiced amounts less an allowance for doubtful accounts and do not bear interest.

The allowance

for doubtful accounts is based on our estimate of the amount of probable credit losses in our accounts receivable.

the allowance for doubtful accounts based upon an aging of accounts receivable, historical experience and management judgment.

Accounts receivable balances are reviewed individually for collectability, and balances are charged off against the allowance

when we determine that the potential for recovery is remote.

An allowance for doubtful accounts of approximately $364,262 and

$291,372 has been reserved as of September 30, 2020 and December 31, 2019, respectively.

are exposed to credit risk in the normal course of business, primarily related to accounts receivable.

We are affected by general

economic conditions in the United States.

To limit credit risk, management periodically reviews and evaluates the financial condition

of its customers and maintains an allowance for doubtful accounts.

As of September 30, 2020, and December 31, 2019, we do not

believe that we have significant credit risk.

Value of Financial Instruments

carrying amounts of our financial instruments, including accounts receivable and accounts payable, are carried at cost, which

approximates their fair value due to their short-term maturities.

We believe that the carrying value of notes payable with third

parties, including their current portion, approximate their fair value, as those instruments carry market interest rates based

on our current financial condition and liquidity.

evaluate the carrying value of long-lived assets for impairment on an annual basis or whenever events or changes in circumstances

indicate that the carrying amounts may not be recoverable.

An asset is considered to be impaired when the anticipated undiscounted

future cash flows of an asset group are estimated to be less than its carrying value.

The amount of impairment recognized is the

difference between the carrying value of the asset group and its fair value.

Fair value estimates are based on assumptions concerning

the amount and timing of estimated future cash flows.

No impairment was determined as of September 30, 2020 and December 31, 2019.

on product revenues is recognized upon delivery or shipment.

Customer deposits and lay away revenues are not reported as revenue

until final payment is received and the merchandise has been delivery.

account for stock-based awards at fair value on the date of grant and recognize compensation over the service period that they

are expected to vest.

We estimate the fair value of stock options and stock purchase warrants using the Black-Scholes option pricing

The estimated value of the portion of a stock-based award that is ultimately expected to vest, taking into consideration

estimated forfeitures, is recognized as expense over the requisite service periods.

The estimate of stock awards that will ultimately

vest requires judgment, and to the extent that actual forfeitures differ from estimated forfeitures, such differences are accounted

for as a cumulative adjustment to compensation expenses and recorded in the period that estimates are revised.

SHEET ARRANGEMENTS

do not have any off-balance sheet arrangements (as that term is defined in Item 303 of Regulation S-K) that are reasonably likely

to have a current or future material effect on our financial condition, revenue or expenses, results of operations, liquidity,

capital expenditures or capital resources.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

are a smaller reporting company and are not required to provide the information under this item pursuant to Regulation S-K.

LIQUIDITY AND CAPITAL RESOURCES

As of March 31, 2021, we had working capital of

approximately $194 million, compared to working capital of approximately $223 million as of December 31, 2020, a decrease of approximately

The decrease in working capital from December 31, 2020 to March 31, 2021 was due primarily to eight (8) business acquisition

completed during the quarter ended March 31, 2021 for which the cash consideration was approximately $39.3 million.

At March 31, 2021,

we had cash and cash equivalents of approximately $92 million and available for sale debt securities of $41.1 million.

Currently, we have

no demands, commitments or uncertainties that would reduce our current working capital.

Our core strategy continues to focus on expanding

our geographic reach across the United States through organic growth and acquisitions.

Based on our strategy we may need to raise

additional capital in the future through equity offerings and/or debt financings.

We believe that some of our store acquisitions

and new store openings can come from cash flow from operations.

We anticipate that we

may need additional financing in the future to continue to acquire and open new stores and related businesses.

To date we have financed

our operations through the issuance and sale of common stock, convertible notes and warrants.

Critical Accounting

Policies, Judgements and Estimates

For a summary of the

Company’s significant accounting policies, please refer to Note 2 to our Consolidated Financial Statements filed on our Form 10-K

for the year ended December 31, 2020.

OFF-BALANCE SHEET ARRANGEMENTS

We do not have any off-balance sheet arrangements

(as that term is defined in Item 303 of Regulation S-K) that are reasonably likely to have a current or future material effect on our

financial condition, revenue or expenses, results of operations, liquidity, capital expenditures or capital resources.

QUANTITATIVE AND QUALITATIVE DISCLOSURES

ABOUT MARKET RISK.

We are a smaller reporting company and are not

required to provide the information under this item pursuant to Regulation S-K.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements