GrowGeneration Corp. 10-Q

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our Condensed 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, 2025 filed with the SEC on March 20, 2026. We caution readers that this Quarterly Report of GrowGeneration Corp. on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, which are subject to risks and uncertainties. Forward-looking statements generally can be identified through the use of words such as “guidance,” “outlook,” “projected,” “may,” “likely,” “anticipates,” “believes,” “expects,” “estimates,” “plans,” “intends,” “objectives,” and similar expressions. These statements reflect management’s best judgment based on factors known at the time of such statements. Actual events or results may differ materially from those discussed herein. The forward-looking statements contained in this report have been compiled by our management on the basis of assumptions made by management and considered by management to be reasonable. Our future operating results, however, are impossible to predict and no representation, guaranty, or warranty is to be inferred from those forward-looking statements. The assumptions used for purposes of the forward-looking statements contained in this report represent estimates of future events and are subject to uncertainty as to possible changes in economic, legislative, industry, and other circumstances. As a result, the identification and interpretation of data and other information and their use in developing and selecting assumptions from and among reasonable alternatives require the exercise of judgment. To the extent that the assumed events do not occur, the outcome may vary substantially from anticipated or projected results, and, accordingly, no opinion is expressed on the achievability of those forward-looking statements. No assurance can be given that any of the assumptions relating to the forward-looking statements specified in the following information are accurate, and we assume no obligation to update any such forward-looking statements, except as required by federal securities laws. There may be additional risks, uncertainties, and other factors that we do not currently view as material or that are not necessarily known. Dollars in tabular format are presented in thousands unless otherwise indicated. BUSINESS OVERVIEW AND RECENT DEVELOPMENTS GrowGeneration Corp. (together with all of its direct and indirect wholly owned subsidiaries, collectively "GrowGeneration" or the "Company") was incorporated in Colorado in 2014. Since then, GrowGeneration has grown from a small chain of specialty retail hydroponic and organic garden centers to a multifaceted business with diverse assets. Today, GrowGeneration operates two major lines of business: our Cultivation and Gardening segment, composed of our hydroponic and organic gardening business; and our Storage Solutions segment, composed of our benching, racking, and storage solutions business. GrowGeneration sources certain proprietary branded products and components used in our Cultivation & Gardening segment, including coir substrates, nutrients, irrigation parts, and lighting components, from suppliers located in India, Mexico, China, and other jurisdictions outside the United States. Beginning in the first quarter of 2025, the United States announced changes to U.S. trade policy, including increasing tariffs on imports, in some cases significantly, and potentially negotiating or terminating existing trade agreements. In April 2025, the United States announced changes to its trade policy, including a 10% baseline tariff on imports and additional country-specific tariffs for select trading partners. These new measures, implemented under Executive Order 14257, under presidential authority provided by the International Emergency Economic Powers Act (“IEEPA”) and other statutory authorities, reflected a markedly more dynamic tariff environment. The policies created cost and supply chain impacts for importers and providers of international goods. These actions resulted in cost increases for certain imported products that collectively represent less than 10% of total company cost of goods sold. We partially offset these cost pressures through (i) improved purchasing leverage and volume-based supplier discounts, (ii) targeted price adjustments on affected product categories, and (iii) a continuing shift in sourcing toward lower-tariff regions, including the United States and Southeast Asia. We also expanded domestic manufacturing, assembly and packaging for select proprietary brands to reduce reliance on high-tariff import categories. On February 20, 2026, the U.S. Supreme Court struck down certain tariffs imposed under the IEEPA. Subsequently, the United States Customs and Border Protection agency was ordered to begin accepting refund requests for these IEEPA tariffs. During the three and six months ended June 30, 2026, we received an immaterial amount of refunds of tariffs imposed under IEEPA. Subsequent to June 30, 2026, we received approximately $2.6 million of refunds related to previously submitted claims. Because realization of these refunds remained uncertain as of occurred June 30, 2026, no amounts were recognized in the accompanying Condensed Consolidated Financial Statements. The President has continued to indicate his intent to impose tariffs under other statutory authorities going forward. It is unclear at this time what impact tariffs will have on our future financial results, including whether we will be able to obtain more refunds of amounts previously paid for the IEEPA tariffs or any fluctuations of the level of replacement tariffs imposed or the addition of any new tariffs through other means. We continue to actively monitor these developments and the evolving tariff 20 environment and its potential effects on our cost structure and supply chain. We will continue to explore and adjust our mitigation strategies as circumstances develop. MARKETS AND BUSINESS SEGMENTS We have two operating segments, each its own reportable segment, based on our major lines of business: the Cultivation and Gardening segment and the Storage Solutions segment. We recognize specifically identifiable operating costs such as cost of sales, distribution expenses, and store operations and other operational expenses within each segment. Selling, general, and administrative expenses, such as administrative and management expenses, salaries, and benefits, share-based compensation, director fees, legal expenses, accounting and consulting expenses, and technology costs, are not allocated to specific segments and are reflected in the enterprise results. Cultivation and Gardening Segment We are a leading developer, marketer, retailer, and distributor of products for both indoor and outdoor hydroponic and organic gardening. Our main business strategy within the hydroponic and organic gardening sector has been to consolidate assets within the fragmented hydroponics industry to leverage efficiencies of a centralized organization. We sell a variety of hydroponic and organic gardening related products, including nutrients, additives, growing media, lighting, environmental control systems, and other products for indoor and outdoor cultivation. Our products include proprietary brands such as Charcoir, Drip Hydro, Power Si, Ion lights, The Harvest Company, and more, the development and expansion of which are a key component of our growth strategy. Our target customers include commercial, craft, and home growers in the plant-based medicine market, as well as commercial and home gardeners who grow organic herbs, fruits, and vegetables. Additionally, through our wholesale division, we distribute many of our proprietary products to customers that are wholesalers, resellers, major home improvement mass-market retailers, and retailers in the specialty retail hydroponic and organic gardening industry. We make our products available to growers through a variety of channels, including our hydroponic retail locations, a commercial sales division that provides white glove service to commercial cultivators, a wholesale division that markets to mass-market retailers and independent resellers in both the hydroponic and traditional gardening markets, and an online platform at growgeneration.com, which includes a B2B customer portal for commercial and wholesale customers. Management believes that the Company has the largest chain of specialty retail hydroponic and organic garden centers in the U.S., with 19 retail locations across 9 states as of June 30, 2026. We closed four retail locations during the six months ended June 30, 2026. We continue to evaluate our retail footprint to identify cost redundancies and optimize coverage by leveraging nearby locations and our online sales platforms. Storage Solutions Segment Our Storage Solutions business, branded as "Mobile Media" or "MMI," provides customized storage solutions designed to enhance profitability, productivity, and efficiency for our customers by allowing them to save space and increase storage capacity. We cater to diverse markets with our products and services, including agriculture, retail, warehousing, office and administrative, food service, hospitality, golf and country clubs, and more. Our products include high-density mobile storage systems, static shelving, and other accessories such as desks, lockers, safes, and secured storage, offering a solution for every storage need. MMI also offers a wide variety of services, including site surveys, floor plan designs, capacity analysis, seismic calculations, permitting, and installation, in order to provide a comprehensive, turnkey solution for customers. Based in the Hudson Valley, New York, the MMI team has decades of experience successfully completing projects throughout the U.S., Canada, and Mexico. Our target customers generally include small, mid-size, and large businesses seeking vertical space-saving solutions that are custom tailored to their space and brand in an effort to maximize storage capacity or gain space in their real estate footprint. Many of our customers are involved in the construction and design industries and include retailers, general contractors, and architects involved in new constructions and remodels for retail stores and fulfillment centers. Our customer base also includes the golf industry, specifically country clubs needing to store more club bags and optimize their existing space, as well as controlled environment agriculture ("CEA") operators that cultivate indoors with vertical or rolling benching and racking. 21 Strategic Restructuring Plan In July 2024, we announced a strategic restructuring plan focused on long-term profitability and advancing growth initiatives in key areas of our Cultivation and Gardening segment such as our proprietary brands, commercial sales, and e-commerce business. The restructuring plan primarily included product development costs, digital transformation initiatives, reductions in cost structure by closing and consolidating 12 redundant or underperforming retail locations, workforce reductions, and other operational improvements in inventory management, sales and marketing, and administrative activities. As of March 31, 2025, we had substantially completed our restructuring activities, and we do not expect to incur significant additional restructuring and restructuring-related costs in future periods. Overall, we incurred a total of approximately $3.5 million in restructuring and restructuring-related costs. During the six months ended June 30, 2025, we incurred approximately $1.1 million of restructuring and restructuring related charges as described in Note 15, Restructuring of our Notes to Condensed Consolidated Financial Statements in this report. GROWTH STRATEGIES Our growth strategy is focused on expanding our portfolio and sales of proprietary brands, growing our commercial, wholesale, and e-commerce channels, increasing penetration of our Storage Solutions business across diversified end markets, and pursuing selective, accretive acquisitions that complement our existing businesses. As a result, we have built a business that is driven by a wide selection of products, a strong portfolio of proprietary brands, a solutions-driven staff located in strategic markets around the country, and pick, pack, ship distribution and fulfillment capabilities. Since our founding in 2014, we have built our Cultivation and Gardening business through a combination of organic investment and targeted acquisitions, such as specialty hydroponic and organic gardening center locations, online retailers, proprietary products, and our wholesale distribution business. We continue to evaluate accretive acquisition opportunities involving businesses or proprietary brands that are similar or complementary to those we already operate, such as the acquisition of Hydro Generation Inc. (referred to as "Viagrow") on June 6, 2025, which further diversified our home gardening and hydroponic gardening proprietary brand product offerings as well as expanded our wholesale channel outreach to significant new customers through relationships with major home improvement mass-market retailers and e-commerce platforms. Our main growth strategies for the Storage Solutions segment, which includes our benching, racking, and storage solutions business, MMI, are centered on driving recurring commercial sales opportunities and expanding the types of customers and industries to which we sell our Storage Solutions products, including greater penetration in CEA, industrial, and country club verticals. 22 COMPONENTS OF RESULTS OF OPERATIONS Net Sales We primarily generate net sales from the selling and distribution of proprietary and non-proprietary brand hydroponic and organic gardening products. In addition to our hydroponic and organic gardening product sales, we sell and install commercial fixtures through our benching, racking, and storage solutions business. Net sales reflect the amount of consideration that we expect to receive, which is derived from a list price reduced by variable consideration, including applicable sales discounts and estimated expected sales returns. These sales vary by the type of product: consumables, such as nutrients, additives, growing media, and supplies that are subject to regular replenishment; and durables, such as lighting, environmental control systems, and storage solutions. Generally, in new markets where legalization of plant-based medicines is recent and licensors are starting new grow operations, there is an initial increase of durable product purchases for facility build-outs, which decrease over time as growers establish their operations. Thereafter, we tend to observe cultivators focus their purchasing patterns to consumables as the primary source of product need. In more mature markets, the sales patterns tend to favor higher percentages of consumable purchasing in comparison to emerging markets. Cost of Sales Cost of sales includes cost of goods and shipping costs. Cost of goods consists of cost of merchandise, inbound freight, and other inventory-related costs, such as shrinkage costs and lower of cost or net realizable value adjustments. Occupancy expenses of our retail locations and distribution centers, which consist of payroll, rent, and other lease required costs, including common area maintenance and utilities, are included as a component of operating expenses within Store operations and other operational expenses in the Condensed Consolidated Statements of Operations. Gross Profit We calculate gross profit as net sales less cost of sales. Gross profit excludes depreciation and amortization, which are presented separately as a component of operating expenses in the Condensed Consolidated Statements of Operations. Our gross profit as a percentage of net sales, or gross profit margin, varies with our product mix, in particular the percentage of sales of proprietary brand products compared to non-proprietary brand products and of consumable products compared to durable products. Proprietary products typically have higher gross margins compared to non-proprietary products, and consumable products typically have higher gross margins compared to durable products. Operating Expenses Operating expenses are comprised of the following components: store operations and other operational expenses; selling, general, and administrative; estimated credit losses; depreciation and amortization; and impairment losses when applicable. Store operations and other operational expenses consist primarily of payroll, rent and utilities, and specifically identifiable operating costs related to our retail locations and distribution centers. Selling, general, and administrative expenses consist of corporate salaries, stock-based compensation, advertising and promotions, travel and entertainment, professional fees, insurance, and other corporate administrative costs. Selling, general, and administrative expenses as a percentage of net sales typically do not increase commensurately with an increase in net sales. Our largest expenses are generally related to employee compensation and leases, which are primarily fixed and not variable. Our advertising and marketing expenses are largely controllable and variable depending on the particular market. 23 RESULTS OF OPERATIONS Comparison of the Unaudited Results for the Three Months Ended June 30, 2026 and 2025 The following table presents, for the periods indicated, selected information from our unaudited Condensed Consolidated Statements of Operations, including information presented as a percentage of net sales: Three Months Ended June 30, 2026 2025 Year-to-Year Variance Net sales $ 43,215 100.0 % $ 40,963 100.0 % $ 2,252 5.5 % Cost of sales 30,895 71.5 % 29,369 71.7 % 1,526 5.2 % Gross profit 12,320 28.5 % 11,594 28.3 % 726 6.3 % Operating expenses 14,661 33.9 % 16,868 41.2 % (2,207) (13.1) % Loss from operations (2,341) (5.4) % (5,274) (12.9) % 2,933 55.6 % Other income 347 0.8 % 463 1.1 % (116) (25.1) % Net loss before income taxes (1,994) (4.6) % (4,811) (11.7) % 2,817 58.6 % Benefit for income taxes (19) — % — — % (19) * Net loss $ (2,013) (4.7) % $ (4,811) (11.7) % $ 2,798 58.2 % *Percentage is not meaningful. Net Sales Net sales for the three months ended June 30, 2026 were $43.2 million, an increase of $2.3 million or 5.5% as compared to net sales of $41.0 million for the three months ended June 30, 2025. The increase in net sales was driven in part by our Cultivation and Gardening segment, which had net sales of $34.9 million for the three months ended June 30, 2026 compared to $32.9 million for the three months ended June 30, 2025. This increase in net sales was primarily due to improvements in durable product sales driven by increased demand for capital investments by our customers in the three months ended June 30, 2026. As a result, the ratio of consumables net sales as a percentage of Cultivation and Gardening net sales was 72.0% in the three months ended June 30, 2026, as compared to consumables net sales representing 79.7% of Cultivation and Gardening net sales in the three months ended June 30, 2025. The increase in net sales was partially offset by retail store closures, including four retail locations closed during 2026 and six retail locations closed in 2025 subsequent to June 30, 2025. Proprietary brand sales as a percentage of Cultivation and Gardening net sales for the three months ended June 30, 2026 increased to 39.7% as compared to 32.0% for the three months ended June 30, 2025, largely driven by our continued strategic initiatives to increase sales mix of our expanded portfolio of proprietary brands. Net sales of commercial fixtures within our Storage Solutions segment increased to $8.3 million for the three months ended June 30, 2026 compared to $8.1 million for the three months ended June 30, 2025 as a result of increased demand for capital investments by our customers primarily in the retail industry. Cost of Sales Cost of sales for the three months ended June 30, 2026 was $30.9 million, an increase of $1.5 million or 5.2% compared to $29.4 million for the three months ended June 30, 2025. The increase in cost of sales largely corresponds to the 5.5% increase in net sales, as previously discussed. Gross Profit Gross profit was $12.3 million for the three months ended June 30, 2026 compared to $11.6 million for the three months ended June 30, 2025, an increase of $0.7 million or 6.3%. Gross profit related to the Cultivation and Gardening segment increased $0.8 million, or 10.3%, for the three months ended June 30, 2026 as compared to the three months ended June 30, 2025, primarily as a result of the increased sales volume and mix of proprietary brand products and durable products during the three months ended June 30, 2026. The increase in gross profit was partially offset by our Storage Solutions segment decreased $0.1 million or 3.5% in the three months ended June 30, 2026 compared to the three months ended June 30, 2025. 24 Gross profit margin was 28.5% for the three months ended June 30, 2026, an increase of 20 basis points from a gross profit margin of 28.3% for the three months ended June 30, 2025. The increase in gross profit margin was largely driven by the Cultivation and Gardening segment, which had a gross profit margin of 25.8% for the three months ended June 30, 2026 as compared to 24.8% for the three months ended June 30, 2025. This increase was primarily driven by the increased mix of proprietary brand products, which generally have higher margins than non-proprietary brand products, partially offset by the increased sales mix of durable products, which generally have lower margins than consumable products during the three months ended June 30, 2026. The Storage Solutions gross profit margin decreased to 39.8% in the three months ended June 30, 2026 from 42.3% in the three months ended June 30, 2025, primarily as a result of industry pricing compression and higher cost of services for the Storage Solutions segment. Operating Expenses Operating expenses are comprised of store operations and other operational expenses, selling, general, and administrative, estimated credit losses, depreciation and amortization, and impairment loss. Operating expenses were $14.7 million for the three months ended June 30, 2026 and $16.9 million in the three months ended June 30, 2025, a decrease of $2.2 million or 13.1%. Store operating costs and other operational expenses, which consisted primarily of payroll, rent and utilities, and specifically identifiable operating costs related to our retail locations and distribution centers, were $6.1 million for the three months ended June 30, 2026 compared to $7.9 million for the three months ended June 30, 2025, a decrease of $1.7 million or 21.9%. The decrease in store operating costs was primarily due to the six retail locations closed in 2025 subsequent to June 30, 2025 as well as the closure of four retail locations during 2026. Total corporate overhead, which is comprised of selling, general, and administrative expense, estimated credit losses, and depreciation and amortization expense, was $8.3 million for the three months ended June 30, 2026 compared to $9.0 million for the three months ended June 30, 2025. The decrease was largely driven by reduced depreciation and amortization costs, which decreased $1.2 million or 44.0% for the three months ended June 30, 2026 compared to the three months ended June 30, 2025, primarily as a result of asset retirements in conjunction with the restructuring plan and certain intangible assets reaching the end of their estimated useful lives. This was partially offset by increased selling, general, and administrative costs of $0.3 million, or 5.0%, largely due to increased professional services costs. Impairment loss was $0.2 million in the three months ended June 30, 2026 and was related to a closed, wholly-owned retail location classified as held for sale. Refer to Note 5, Property and Equipment for additional information regarding our impairment loss. Other Income Other income was $0.3 million for the three months ended June 30, 2026 compared to $0.5 million for the three months ended June 30, 2025, a decrease of $0.1 million or 25.1%. The decrease in other income was primarily attributable to decreased investment income on our marketable securities. 25 Comparison of the Unaudited Results for the Six Months Ended June 30, 2026 and 2025 The following table presents, for the periods indicated, selected information from our unaudited Condensed Consolidated Statements of Operations, including information presented as a percentage of net sales: Six Months Ended June 30, 2026 2025 Year-to-Year Variance Net sales $ 81,606 100.0 % $ 76,666 100.0 % $ 4,940 6.4 % Cost of sales 59,546 73.0 % 55,365 72.2 % 4,181 7.6 % Gross profit 22,060 27.0 % 21,301 27.8 % 759 3.6 % Operating expenses 29,666 36.4 % 36,449 47.5 % (6,783) (18.6) % Loss from operations (7,606) (9.3) % (15,148) (19.8) % 7,542 49.8 % Other income 671 0.8 % 960 1.3 % (289) (30.1) % Net loss before income taxes (6,935) (8.5) % (14,188) (18.5) % 7,253 51.1 % Benefit for income taxes — — % — — % — * Net loss $ (6,935) (8.5) % $ (14,188) (18.5) % $ 7,253 51.1 % *Percentage is not meaningful. Net Sales Net sales for the six months ended June 30, 2026 were $81.6 million, an increase of $4.9 million or 6.4% as compared to net sales of $76.7 million for the six months ended June 30, 2025. The increase in net sales was driven in part by our Cultivation and Gardening segment, which had net sales of $66.8 million for the six months ended June 30, 2026 compared to $63.8 million for the six months ended June 30, 2025. This increase in net sales was primarily due to improvements in durable product sales driven by increased demand for capital investments by our customers in the six months ended June 30, 2026. As a result, the ratio of consumables net sales as a percentage of Cultivation and Gardening net sales was 72.0% in the six months ended June 30, 2026, as compared to consumables net sales representing 77.8% of Cultivation and Gardening net sales in the six months ended June 30, 2025. This increase in net sales was partially offset by retail store closures, including four retail locations during six months ended June 30, 2026 and six retail locations closed in 2025 subsequent to June 30, 2025. Proprietary brand sales as a percentage of Cultivation and Gardening net sales for the six months ended June 30, 2026 increased to 38.4% as compared to 32.0% for the six months ended June 30, 2025, largely driven by our continued strategic initiatives to increase sales mix of our expanded portfolio of proprietary brands. Net sales of commercial fixtures within our Storage Solutions segment increased to $14.8 million for the six months ended June 30, 2026 compared to $12.9 million for the six months ended June 30, 2025 as a result of increased demand for capital investments by our customers primarily in the retail industry. Cost of Sales Cost of sales for the six months ended June 30, 2026 was $59.5 million, an increase of $4.2 million or 7.6% compared to $55.4 million for the six months ended June 30, 2025. The increase in cost of sales largely corresponds to the 6.4% increase in net sales, with cost of sales increasing at a higher rate in part due to the increased sales mix of durable products previously discussed. The remaining increase in cost of sales relates to inventory disposal costs incurred in connection with the closure of four retail locations during six months ended June 30, 2026 compared to two retail location closures during the six months ended June 30, 2025. 26 Gross Profit Gross profit was $22.1 million for the six months ended June 30, 2026 compared to $21.3 million for the six months ended June 30, 2025, an increase of $0.8 million or 3.6%. Gross profit related to the Cultivation and Gardening segment increased $0.1 million, or 0.7%, for the six months ended June 30, 2026 as compared to the six months ended June 30, 2025, primarily as a result of the increased sales volume and mix of proprietary brand products and durable products during, which were partially offset by inventory disposal costs and inventory sales discounts incurred in connection with retail location closures during the six months ended June 30, 2026. Gross profit from our Storage Solutions segment increased $0.7 million or 12.4% in the six months ended June 30, 2026 compared to the six months ended June 30, 2025, primarily as a result of increased sales volume. Gross profit margin was 27.0% for the six months ended June 30, 2026, a decrease of 80 basis points from a gross profit margin of 27.8% for the six months ended June 30, 2025. The decrease in gross profit margin was largely driven by the Cultivation and Gardening segment, which had a gross profit margin of 24.2% for the six months ended June 30, 2026 as compared to 25.2% for the six months ended June 30, 2025. This decrease was primarily driven by the increased sales mix of durable products, which generally have lower margins than consumable products, as well as additional cost of sales and inventory sales discounts incurred in the six months ended June 30, 2026. These decreases were partially offset by the increased sales mix of proprietary brand products, which generally have higher margins than non-proprietary brand products. The Storage Solutions gross profit margin decreased to 39.7% in the six months ended June 30, 2026 from 40.6% in the six months ended June 30, 2025, primarily as a result of industry pricing compression for the Storage Solutions segment. Operating Expenses Operating expenses are comprised of store operations and other operational expenses, selling, general, and administrative, estimated credit losses, depreciation and amortization, and impairment loss. Operating expenses were $29.7 million for the six months ended June 30, 2026 and $36.4 million in the six months ended June 30, 2025, a decrease of $6.8 million or 18.6%. Store operating costs and other operational expenses, which consisted primarily of payroll, rent and utilities, and specifically identifiable operating costs related to our retail locations and distribution centers, were $12.5 million for the six months ended June 30, 2026 compared to $16.7 million for the six months ended June 30, 2025, a decrease of $4.1 million or 24.7%. The decrease in store operating costs was primarily due to the six retail locations closed in 2025 subsequent to June 30, 2025 as well as the closure of four retail locations during six months ended June 30, 2026. Total corporate overhead, which is comprised of selling, general, and administrative expense, estimated credit losses, and depreciation and amortization expense, was $16.9 million for the six months ended June 30, 2026 compared to $19.8 million for the six months ended June 30, 2025. The decrease was largely driven by reduced depreciation and amortization costs, which decreased by $3.2 million or 50.3% for the six months ended June 30, 2026 as compared to the six months ended June 30, 2025, primarily as a result of asset retirements in conjunction with the restructuring plan and certain intangible assets reaching the end of their estimated useful lives. This was partially offset by a $0.1 million increase to selling, general, and administrative costs and a $0.1 million increase to estimated credit losses for the six months ended June 30, 2026 as compared to the six months ended June 30, 2025. Impairment loss was $0.2 million in the six months ended June 30, 2026 and was related to a closed, wholly-owned retail location classified as held for sale. Refer to Note 5, Property and Equipment for additional information regarding our impairment loss. Other Income Other income was $0.7 million for the six months ended June 30, 2026 compared to $1.0 million for the six months ended June 30, 2025, a decrease of $0.3 million or 30.1%. The decrease in other income was primarily attributable to decreased investment income on our marketable securities. 27 Use of Non-GAAP Financial Information The following non-GAAP financial measures of EBITDA and Adjusted EBITDA are not in accordance with, or an alternative for, generally accepted accounting principles ("GAAP") and should be considered in addition to, and not as a substitute for, the most directly comparable GAAP financial measures. We believe these non-GAAP financial measures, when used in conjunction with their most directly comparable GAAP financial measures, net income (loss), provide meaningful supplemental information to both management and investors, facilitating the evaluation of performance across reporting periods, identify trends affecting our business, and project future performance. Management uses these non-GAAP financial measures for internal planning and reporting purposes, and we believe that these non-GAAP financial measures may be useful to investors in their assessment of our operating performance, our ability to generate cash, and valuation. In addition, these non-GAAP financial measures address questions routinely received from analysts and investors and, in order to ensure that all investors have access to the same data, we have determined that it is appropriate to make this data available to all investors. These non-GAAP financial measures may be different from non-GAAP financial measures used by other companies. EBITDA and Adjusted EBITDA EBITDA and Adjusted EBITDA are non-GAAP financial measures commonly used in our industry and should not be construed in isolation as substitutions to net income (loss) as indicators of operating performance or as alternatives to cash flow provided by operating activities as a measure of liquidity (each as determined in accordance with GAAP). GrowGeneration defines EBITDA as net income (loss) before interest income, interest expense, income tax expense, depreciation and amortization, and Adjusted EBITDA as further adjusted to exclude certain items such as stock-based compensation, impairment losses, restructuring and corporate rationalization costs, and other non-core or non-recurring expenses and to include income from our marketable securities as these investments are part of our operational business strategy and increase the cash available to us. Set forth below is a reconciliation of EBITDA and Adjusted EBITDA to net loss (in thousands): Three Months Ended June 30, Six Months Ended June 30, 2026 2025 2026 2025 Net loss $ (2,013) $ (4,811) $ (6,935) $ (14,188) Provision for income taxes 19 — — — Interest income (347) (463) (671) (960) Depreciation and amortization 1,504 2,687 3,115 6,272 EBITDA $ (837) $ (2,587) $ (4,491) $ (8,876) Share-based compensation 270 315 525 818 Investment income 293 453 593 972 Acquisition transaction costs — 50 — 50 Impairment loss 220 — 220 — Restructuring plan — — — 1,141 Consolidation and other charges (1) 309 467 1,824 563 Adjusted EBITDA $ 255 $ (1,302) $ (1,329) $ (5,332) (1) Consists primarily of expenditures related to legal settlements and contingencies, the activity of store and distribution consolidation, one-time severances outside of the restructuring plan announced July 2024, and other non-core or non-recurring expenses 28 LIQUIDITY AND CAPITAL RESOURCES Overview As of June 30, 2026, we had working capital of $74.0 million compared to working capital of $77.8 million as of December 31, 2025, a decrease of $3.8 million. The decrease in working capital from December 31, 2025 to June 30, 2026 was due primarily to a net decrease in cash, cash equivalents, and marketable securities as a result of net cash used in operating activities. As of June 30, 2026, we had cash, cash equivalents, and marketable securities of $41.0 million. Currently, we are not aware of any extraordinary demands, commitments, or uncertainties that would materially reduce our current working capital. Our material future cash requirements from contractual and other obligations relate primarily to our operating leases. Refer to Note 8, Leases, of the Condensed Consolidated Financial Statements for additional information regarding leases. We may need additional financing through equity offerings and/or debt financings in the future to continue to expand our business consistent with our growth strategies. However, management believes that the Company has sufficient liquidity to fund operations and meet its obligations as they become due for at least the next twelve months from the date of this filing. To date we have primarily financed our operations through the issuance of common stock and warrants as well as cash generated from operations. Cash Flows The following discussion sets forth the major sources and uses of cash for the six months ended June 30, 2026 and 2025. Operating Activities Net cash and cash equivalents used in operating activities for the six months ended June 30, 2026 was $4.1 million compared to $6.8 million for the six months ended June 30, 2025. The decrease in cash used in operating activities was primarily related to changes in our operating assets and liabilities including the timing of cash receipts related to our accounts and notes receivables and customer deposits offset by the difference in sell through of inventory for the six months ended June 30, 2026 as compared to the build-up of inventory in six months ended June 30, 2025. Investing Activities Net cash and cash equivalents used in investing activities for the six months ended June 30, 2026 was $1.8 million compared to net cash provided by investing activities of $2.7 million for the six months ended June 30, 2025. Investing activities for the six months ended June 30, 2026 were primarily attributable to investment of excess cash into marketable securities of $8.9 million and purchases of property and equipment of $0.3 million, offset by maturity of marketable securities of $7.4 million. Investing activities for the six months ended June 30, 2025 were primarily attributable to investment of excess cash into marketable securities of $19.0 million, $1.0 million of cash paid for the Viagrow acquisition and purchases of property and equipment of $0.3 million, offset by maturity of marketable securities of $23.0 million. Financing Activities Net cash and cash equivalents used in financing activities for the six months ended June 30, 2026 was $1.1 million and was primarily attributable to common stock repurchased under our share repurchase program. Net cash and cash equivalents used in financing activities for the six months ended June 30, 2025 was $0.1 million and was attributable to common stock withheld for employee payroll taxes. Critical Accounting Policies, Judgments, and Estimates For a summary of the Company's critical accounting policies, judgments, and estimates, please refer to Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2025. 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. 29 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK For a summary of the Company's quantitative and qualitative disclosures about market risk, please refer to Item 7A of our Annual Report on Form 10-K for the year ended December 31, 2025.